Pioneer Notes

A. SALES

Article 1458. By the contract of sale one of the contracting parties obligates himself to transfer the
ownership and to deliver a determinate thing, and the other to pay therefor a price certain in money
or its equivalent.

A contract of sale may be absolute or conditional.

Q. When would the buyer acquire ownership even if the seller has no authority to sell?

(1) The provisions of any factors' act, recording laws, or any other provision of law enabling the
apparent owner of goods to dispose of them as if he were the true owner thereof;

(2) The validity of any contract of sale under statutory power of sale or under the order of a
court of competent jurisdiction;

(3) Purchases made in a merchant's store, or in fairs, or markets, in accordance with the Code of
Commerce and special laws. (n) (Article 1505)

Double Sale

Where one thing is sold to 2 or more persons by the same seller

Check if both sales are valid (eg. If one of the sales are void, then only the other party whose
sale is valid will have the better right.)
If both sales are valid, check the object of the contract. (eg. Immovable objects who was the
buyer who first registered the sale in good faith?) Note that good faith pertains to the
REGISTRATION, not to the purchase.
If there was nobody who registered or if the registration was made in bad faith, see who first
took possession in good faith.

Case: Bautista vs. Sioson

Both alienations, effected successively by Francisco Sioson in favor of Bautista and Cruz, are
recorded in notarial instruments, though they were not entered in the registry of property. To
determine who is the lawful owner of the camarin sold, if the provisions of said article of the
Code are to be observed, we have first to determine the contention in regard to which of the
two purchasers is in possession thereof, and if, on the execution of the contract of lease by the
first purchaser in favor of the vendor himself, the constitutum possessorium agreement is to be
considered to have been stipulated, the conclusion must necessarily be reached as to which of
the two purchasers first took possession of the camarin sold, and also whether the material
possession of the tenant is of a precarious nature, enjoyed in the same and representation of
the owner Bautista.

Article 1462 of the Civil Code reads:

A thing sold shall be considered as delivered, when it is placed in the hands and possession of
the vendee.

When the sale should be made by means of a public instrument, the execution thereof shall be
equivalent to the delivery of the thing which is the object of the contract, if in said instrument
the contrary does not appear or may be clearly inferred.

From the contest of this article it is deduced that the delivery or tradition of the thing sold may
be real or actual, and feigned. The execution of a public instrument constitutes one of the kinds
of symbolic tradition, but, in all the different manners by which the thing sold may be delivered,
it is necessary that the record bear proof and that it may be held that such delivery or tradition
was determined by the will of the parties to deliver and receive, respectively, the thing that is
the subject of the contract.

In the contract of lease (Exhibit D, record, p. 15) the lessor, Rosalio Bautista, states that in his
capacity as owner he leased to the spouses Francisco Sioson and Lorenza de la Cruz, among
other properties, a camarin of strong material with an iron roof, at an annual rent of P100, the
lessees binding themselves to report to the lessor any act of disturbance committed by any
other person, and all defects that might be occasioned to the building. The execution of this
instrument of lease shows that the camarin would be continued to be occupied by its previous
owner and vendor after it had been delivered, symbolically, by means of the instrument
executed for the purpose in favor of the purchaser, in order that he might hold it in the capacity
of lessee, it being supposed, by a legal fiction, that the purchaser entered into possession of the
camarin sold, a form of possession utilized by the purchaser by virtue of the clause known in law
as constitutum possessorium, stipulated between the contracting parties.

So that by the execution of the deed of sale of September 4, 1912, Rosalio Bautista entered into
the material possession under title of owner, of the camarin sold to him by Francisco Sioson,
and, by virtue of another instrument of lease, of the same date, the purchaser and owner of the
camarin conveyed and delivered this building to the lessee in view of said contract. Under these
perfectly legal suppositions it is unquestionable that the purchaser Rosalio Bautista was the first
person who entered into the possession of the camarin as soon as soon as he acquired it by
virtue of said sale.

The material possession which the other defendant, Raymundo de la Cruz, now enjoys, not only
was subsequent by one year and eleven months, but also, on the other hand, is an unlawful
possession which was transmitted to him by Francisco Sioson, who held the camarin
precariously and in the capacity of tenant, and, consequently, without any right whatever to
convey to Raymundo de la Cruz the possession under title of owner referred to in article 1473,
aforementioned of the Civil Code.

This article says: "If the same thing should have been sold to different vendees. . .;" but it must
be understood that said sale was made by its original owner. In the instant case Francisco
Sioson, on affecting the second sale in favor of Raymundo de la Cruz, was in possession of the
 camarin and occupied it, not in the capacity of owner, but in that of lessee or tenant, and
therefore absolutely had no right to dispose of the building in the capacity of owner thereof;
consequently Sioson could not convey to the second purchaser the lawful possession of the
disputed camarin.

Article 1544. If the same thing should have been sold to different vendees, the ownership shall be
transferred to the person who may have first taken possession thereof in good faith, if it should be
movable property.

Should it be immovable property, the ownership shall belong to the person acquiring it who in good
faith first recorded it in the Registry of Property.

Should there be no inscription, the ownership shall pertain to the person who in good faith was first in
the possession; and, in the absence thereof, to the person who presents the oldest title, provided there
is good faith. (1473)

Note: This article does not qualify what kind of possession. Hence, LEGAL possession can be
accepted.

For this Article to apply, if the object of the sale is a parcel of land, the said land must be
registered under the Torrens System. Otherwise, if the land is unregistered or if there are only
tax declarations but no OTC or TCT, Article 1544 will not apply. Use the ordinary rules on
transfer of ownership.

MACEDA Law (Realty Installment Buyer Act)

The object of the contract must be a realty/land/ residential house and lot. (Not all immovable
are covered hereeg. industrial lot)
Sale must be by installment.
If the buyer has already paid for at least 2 years before being in default, he is now entitled to a
cash surrender value even if he no longer pays the remaining balance. Seller will now be entitled
to rescind but this rescission will not take effect until the seller returns the cash surrender value.
Recoverable Cash surrender value:
o 2 years = minimum of 50% of all payments made
o 7 years = 55%
o Every year thereafter = additional 5%
o Not to exceed 90%
o Entitled to grace period only ONCE in every 5-year contract.

RECTO Law

Article 1484. In a contract of sale of personal property the price of which is payable in installments, the
vendor may exercise any of the following remedies:

(1) Exact fulfillment of the obligation, should the vendee fail to pay;
(2) Cancel the sale, should the vendee's failure to pay cover two or more installments;

(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee's
failure to pay cover two or more installments. In this case, he shall have no further action against the
purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be void.
(1454-A-a)

Note: These remedies are alternative.

For the Recto Law to apply, the thing bought must be the exact thing that was mortgaged.
Otherwise, ordinary rules on mortgage will apply.

Redemption (Mode of Extinguishment of Sale)

2 Kinds:

1. Conventional
2. Legal

Conventional Redemption

There must be a sale with a right to repurchase. It must be stipulated that the seller may
repurchase the thing sold. (Pacto de Recto Sale)

Q. What is the period of the right to repurchase?

4 years from the date of contract, if no period is written in the stipulation. However, the period
of this right is up to 10 years only.

Equitable Mortgage

Q. Who has the burden to prove that there is good faith on sale with right to repurchase or that there
is an equitable mortgage?

Ordinarily, it is the seller a retro. But, take note in Article 1602, under certain circumstances, the
law presumes that there is an equitable mortgage.

ARTICLE 1602. The contract shall be presumed to be an equitable mortgage, in any of the following
cases:

(1) When the price of a sale with right to repurchase is unusually inadequate;

(2) When the vendor remains in possession as lessee or otherwise;

(3) When upon or after the expiration of the right to repurchase another instrument extending the
period of redemption or granting a new period is executed;

(4) When the purchaser retains for himself a part of the purchase price;
(5) When the vendor binds himself to pay the taxes on the thing sold;

(6) In any other case where it may be fairly inferred that the real intention of the parties is that the
transaction shall secure the payment of a debt or the performance of any other obligation.

In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or
otherwise shall be considered as interest which shall be subject to the usury laws. (n)

Note: The presumption provided for by the law is rebuttable. Hence, the burden to prove shifts
to the buyer a retro. In case of doubt, it will be treated as an equitable mortgage.

Legal Redemption

The alienation need not be through a sale so long as the alienation will be through an onerous
character.
Dation in Payment (eg. If one co-owner of a piece of land used the said land to pay his creditor)
In this case, the adjoining owners will have the right of redemption if all the requisites are
present.
o (eg.) If there are 5 co-owners, one of them sold his interest, the remaining 4 co-owners
may exercise this right simultaneously at the same time. If they cannot agree on the
portion to be redeemed, after redemption, they will still have the same proportion
before redemption.
So if there are 2 redemptioners (one of them has portion, the other has )
and was redeemed. After redemption, if they cannot agree, the proportion
will be 2/3, 1/3.

Q. In the Deed of Sale, P1M was indicated therein, but in reality, P3M was paid. How much should the
redemptioner pay?

That which is written in the Deed of Sale must be followed because it was clear that the parties
tried to defraud the Government in terms of the tax liability. (Durmal vs. CA)

Q. What are the requisites for adjoining lot owners to have the right of redemption?

Must be a rural land.

Alienation must be onerous.
The land is not more than 1 hectare
The grantee has another rural land
The land sold and the land of the redemptioner must not be separated by brooks, rabines or
rivers

Note: If there are 4 adjacent land owners, only one of them can exercise the right of redemption. It
cannot be exercised simultaneously.
 Period of Redemption

Legal 30 days from the time notice in writing is given to

the redemptioner

Note: In case of verbal notice, the 30-day period

will not start to run.

Statute of Frauds

Article 1403. xxx 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:

(a) An agreement that by its terms is not to be performed within a year from the making thereof;

(b) A special promise to answer for the debt, default, or miscarriage of another;

(c) An agreement made in consideration of marriage, other than a mutual promise to marry;

(d) An agreement for the sale of goods, chattels or things in action, at a price 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;

(e) An agreement for the leasing for a longer period than one year, or for the sale of real property or of
an interest therein;

( f ) A representation as to the credit of a third person.

Note: The sale of an immovable must be in writing. Otherwise, the contract of sale will be
unenforceable.

Case: Paredes vs. Espino

Even if there is no contract in writing (eg. there is no Deed of Sale), a note or memorandum
signed by the party charged would be sufficient compliance to the Statute of Frauds.
 Additional Notes: If what was sold is a movable, take note of the price. If it is at least P500, the
sale must be in writing.

Regardless of movable/immovable, if under the terms of agreement, it is not to be performed

within 1 year, it is unenforceable unless put into writing.

(eg. the thing will be delivered after 18 months and payment will be made upon delivery
this is covered by the Statute of Frauds)

Doctrine of Part Performance

If there is already partial fulfilment of the obligation arising from the contract, it will take the
contract out of the operation of the Statute of Frauds. The contract would then be enforceable, even if
made verbally only. (eg. Partial payment, partial delivery)

B. LEASE

Characteristics of Lease

A lease of a thing is not a purely personal contract. Ordinarily, upon the death of one of the
parties (eg. lessee), the contract is not extinguished. Hence, the heirs of the lessee will have the
right to the possession and use of the thingunless otherwise stipulated by the parties.

Lease of Real Property

If to be leased for more than 1 year, it has to be in writing. Otherwise, the contract is
unenforceable.

Improvements done by the Lessee

If the lessee made some improvements on the property leased and such improvements were
made in good faith, upon the expiration of the period of the lease, the parties have the
following rights depending on the option chosen by the lessor:
o Appropriate the improvement, or
o Remove the improvement
If the lessor will choose to appropriate the improvement, he would have to reimburse the lessee
not on the amount spent to the improvement, but only to the extent of the value of the
improvement at the time of the expiration depending on the nature of the said improvement
(eg. useful, necessary or ornamental)
o If the improvements are useful, the lessee is entitled to of the value of the
improvement at the time of the expiration of the lease.
o If improvement is merely for ornamentation, the lessee is entitled to the entire value of
the improvement at the time of the expiration of the lease.

Q. If the lessor refuses to appropriate and chooses to remove the improvement, can the lessee
remove the said improvement?
 It depends on the nature of the improvement whether it is useful, necessary or ornamental. If
the improvement is useful/necessary, yes, he can remove the improvement even if damage will
be caused to the thing leased as long as no unnecessary damage is caused.

If the improvement is for ornamentation, he cannot remove the improvement if it will cause
damage to the thing leased. (Limited Right of Removal)

Extension of the Lease

It should be agreed upon between the parties.

Option to Buy vs. Right of First Refusal

Option to Buy Right of First Refusal

May be exercised at any time by the buyer The lessee can only exercise this right if the lessor
decides to sell.

Sublease and Assignment of Lease

Article 1649. The lessee cannot assign the lease without the consent of the lessor, unless there is a
stipulation to the contrary. (n)

Article 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. (1550)

Notes: The lessee cannot assign the lease unless with the consent of the lessor. In the
assignment of lease, there is no grant under the law but it may be done if the lessor so allows.
Unlike in sublease, the lessee has the right to sublease because under the law, he has the right
unless prohibited by the lessor.

For example, there is a stipulation prohibiting the assignment but the lessee executed a
sublease, there is no violation of the contract. Rescission will not be a remedy because there
was no breach of contract.

Case: Manlapat vs. Salazar

How would you know that the agreement between the lessee and the lessor is merely a
sublease or an assignment of lease? D the period of the lease, the lessee can transfer his rights
to a 3rd person. When he transfers the right, is this an assignment that needs consent of the
lessor or a sublease that no longer needs consent so long as it is not prohibited in the contract?
 The test is: If there is an absolute transfer of right of the lessee to the 3rd person, the effect
would be that the lessee dissociates from the lease contract and his personality disappears. This
is assignment. But if the lessee, in that agreement with the 3rd person, retains a reversionary
interest in the lease contract no matter how small, it is a sublease.

For example, if the lease would end in June 1 but the agreement with the 3rd person is up to
May 31 only, it is merely a sublease. After the expiration of the lease, there is a remaining 1
day where the lessee will revert back to his position as lessee. Hence, being a sublease, there is
no violation of contract.

Rights and Obligations of a 3rd Person

Q. If the lease property is sold, is the buyer bound to respect the lease contract?

There are only 3 scenarios that the buyer will be bound to the lease and he consequently needs
to respect the lease:

1. If it is so stated in the contract of sale;

2. If the lease contract is registered;
3. If the buyer is aware that there is a lease contract

Q. In a contract for a piece of work (lease of service), the contractor is bound not only to supply labor
but also the materials. The contractor will shoulder the cost of the materials but he failed to pay the
supplier. Can the supplier hold the owner or the developer liable?

Ordinarily, no he cannot hold the owner/developer liable because there is no privity of contract
between them. The contractor is not the agent of the owner/developer. He is even called an
independent contractor.

But under Article 1729, the supplier can have a right of action against the owner/developer
under the principle of unjust enrichment.

Q. A project was completed having P10M contract price. The cost of buying the materials is P3M. The
owner paid P8M out of the P10M so that his debt to the contractor is only the remaining P2M. The
supplier wants the owner to pay P3M instead. Can the owner be compelled to pay P3M?

No, because his remaining debt to the contractor is only P2M. But to the extent of P2M or to the
extent where he would be unjustly enriched, he can still be compelled to pay.

What if when the supplier demanded the payment of P3M, the owner no longer has remaining debt
to the contractor? Can he still be held liable by the supplier to pay?

Yes, under 3 instances:

1. Even before his obligation to the contractor became due, he has already paid. In other
words, the payment was already made even before the obligation became due;
 2. The contractor gratuitously renounced the claim against the owner;
3. No performance bond was executed.

Implied New Lease

Article 1670. 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 been 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 articles 1682 and 1687. The other terms of the original
contract shall be revived. (1566a)

Requisites:

1. The period of the contract had already expired;

2. The lessee continued to be in peaceful possession for at least 15 days;
3. There is no notice of termination coming from either the lessor or lessee.

Note: By law, there happens a renewal of the lease.

Q. Is the whole contract, including all the terms and conditions, renewed?

No, because the original period of the lease will not be renewed. Only those terms and
conditions which are germane to a contract of lease are deemed renewed.

Q. If there is an option to buy, will it be deemed renewed?

No, because it is not considered to be germane to a contract of lease.

C. AGENCY

Form

Article 1869. Agency may be express, or implied from the acts of the principal, from his silence or lack of
action, or his failure to repudiate the agency, knowing that another person is acting on his behalf
without authority.

Agency may be oral, unless the law requires a specific form. (1710a)

Q. If the authorization is not in writing (verbal authorization), does it have an effect on the agency
itself?

Ordinarily, there is none. Unless, it is covered by the 1st paragraph of the Statute of Frauds. For
example, if the agent will perform the task after 2 years, then it has to be in writing. Otherwise, there
will be no problem with the agency.

Q. If the agents authority is not in writing, will this contract entered into by the agent, bind the
principal person by the 3rd person?
 As a rule, yes. But take note of the following provisions:

Article 1874. When a sale of a piece of land or any interest therein is through an agent, the authority of
the latter shall be in writing; otherwise, the sale shall be void. (n)

Article 1878. Special powers of attorney are necessary in the following cases:

(1) To make such payments as are not usually considered as acts of administration;

(2) To effect novations which put an end to obligations already in existence at the time the agency was
constituted;

(3) To compromise, to submit questions to arbitration, to renounce the right to appeal from a judgment,
to waive objections to the venue of an action or to abandon a prescription already acquired;

(4) To waive any obligation gratuitously;

(5) To enter into any contract by which the ownership of an immovable is transmitted or acquired either
gratuitously or for a valuable consideration;

(6) To make gifts, except customary ones for charity or those made to employees in the business
managed by the agent;

(7) To loan or borrow money, unless the latter act be urgent and indispensable for the preservation of
the things which are under administration;

(8) To lease any real property to another person for more than one year;

(9) To bind the principal to render some service without compensation;

(10) To bind the principal in a contract of partnership;

(11) To obligate the principal as a guarantor or surety;

(12) To create or convey real rights over immovable property;

(13) To accept or repudiate an inheritance;

(14) To ratify or recognize obligations contracted before the agency;

(15) Any other act of strict dominion. (n)

Notes: If the agent was authorized to sell a parcel of land, his authority must be in writing.
Otherwise, the sale will be void.

But in Article 1878, for certain contracts or agreements or acts, there must be a SPA.
Authorization must be in writing. Otherwise, these contracts will be unenforceable.

Any other acts of strict dominion requires a SPA. Otherwise, the contract is unenforceable.
Q. Agent incurred debt without SPA. Will this be binding to the principal?

Ordinarily, no, because to borrow money, SPA is needed. Except:

1. If it is urgent;
2. If it is necessary in the preservation of the property of the principal;

Q. If an agent enters into a contract of lease, is a SPA required?

It depends on the object of the contract of lease (movable or immovable). For SPA to be
required, the object must be immovable (eg. land). Second, in the contract of lease, the period must be
more than 1 year. Third, in the contract of lease, the principal must be the lessor.

Q. If the contact of lease entered into by the agent is for 5 years involving a parcel of land in which the
principal is the lessor and the agent has SPA, is it possible that this contract will still be
unenforceable?

Yes, if the lease contract itself is not in writing. Article 1403 (Statute of Frauds) will now apply.

Tip: Every time an agent enters into a contract of lease, think about Article 1878 and Article
1403.

Obligations of the Parties

Q. If the agent did not act in representation of the principal or if the agent acted for himself (eg. Agent
did not disclose his principal), what is the effect?

The principal will not have a cause of action against the 3rd person neither will the 3rd person
have a cause of action against the principal, except if the thing involved in the contract is a property
belonging to the principal. In this case, there will be a cause of action on the part of the 3rd person
because that 3rd person might be defrauded.

Commission Agents

If the commission agent was not able to sell, ordinarily, he will be liable. But under the law on
agency, he has a defense which is he exercised the due diligence required. In other words, the
agent is not the insurer of the success of the business of the principal.
But this defense is not available to a special kind of agent called Guarantee Commission
Agent
o This kind of agent accepted not only an ordinary commission but also a guarantee
commission.
o This guarantee commission agent is not only obliged to sell, but he has also the
obligation to collect the proceeds. Much more he bears the risk of collection. If he
cannot collect to the buyer, he shall be liable to the seller.

Modes of Extinguishment
Article 1919. Agency is extinguished:

(1) By its revocation;

(2) By the withdrawal of the agent;

(3) By the death, civil interdiction, insanity or insolvency of the principal or of the agent;

(4) By the dissolution of the firm or corporation which entrusted or accepted the agency;

(5) By the accomplishment of the object or purpose of the agency;

(6) By the expiration of the period for which the agency was constituted. (1732a)

Notes: Take note of death and revocation.

Q. Principal gave SPA to the agent but before the agent could sell, the principal died. Thereafter, the
heirs of the principal sold the property the 1st buyer but they failed to register the sale. Agent sold
property to another buyer. Who between the buyers is entitled to the land?

Article 1931. Anything done by the agent, without knowledge of the death of the principal or of
any other cause which extinguishes the agency, is valid and shall be fully effective with respect to third
persons who may have contracted with him in good faith. (1738)

If the requirements of Article 1931 are present, (eg. the agent has no knowledge of the death
and the 3rd person must have acted in good faith), it is the 2nd buyer who registered the sale without
knowledge of the prior sale. Under Article 1544, the 2nd buyer has the better right.

Otherwise, it is the 1st buyer.

Revocation

The principal can revoke the authority of the agent at will at anytime.

Q. There is a period indicated as to the authority of the agent (eg. 1 year). The principal revoked the
authority after 3 weeks only. Is the principal liable for breach of contract?

Ordinarily, no, because the relationship involved is fiduciary in character based on trust and
confidence. The moment the principal does not have trust anymore on the agent, he can revoke the
agency at any time. However, the abuse of rights principle must be taken into consideration.

If the revocation was made in good faith, despite the period therein indicated, the principal
incurs no liability. However, take note of Article 1927:

Article 1927. An agency cannot be revoked if a bilateral contract depends upon it, or if it is the means of
fulfilling an obligation already contracted, or if a partner is appointed manager of a partnership in the
contract of partnership and his removal from the management is unjustifiable. (n)
 Under these 3 scenarios, the principal cannot revoke the authority of the agent. If the agency is
coupled with interest, as long as this interest is existing, there can be no valid revocation.

Q. The lawyers client has unpaid professional fee of P1M. Thereafter, he authorized his lawyer to sell
a parcel of land with a promise that if the lawyer would be able to sell the land, the lawyer will have a
commission and the debt of P1M shall be paid out of the proceeds of the sale. The client stipulated a
period within which the lawyer must sell the land. Before the expiration of the period, can the
principal/client revoke the authority of the lawyer at any time?

No, because the agency is one coupled with interest. The agency was constituted as a means of
fulfilling an obligation which has already been contracted. If a bilateral contract depends upon the
agency, it would also make the contract one coupled with interest.

Examples of Agency coupled with interest: Bilateral Contracts

The agent hired a lawyer to accomplish his task and the payment to the lawyer is contingent.
20% of my 40% will be my payment to you. Was the stipulation of the client to the lawyer.
A will not give the loan to B if B will not appoint A as his agent.

D. PARTNERSHIP

Classes of Partners

Q. The supplier of a partnership in the construction of a bridge incurred an unpaid amount. He filed the
case to recover that amount against one of the partners, not against the partnership. The partner, in his
defense, said that it was the partnership who incurred the debt and not him. Hence, the case against
him should be dismissed. Plaintiff/creditor claimed that the bridge was already completed and therefore
the partnership had already been dissolved. Hence, he can no longer sue the partnership. If you were
the judge, would you run the motion of the partner to dismiss the case?

No, the case should not be dismissed. The partnership may even be impleaded as party-
defendant together with the partner. While it is true that it wasnt the partner who incurred the debt, it
is wrong to say that the partnership was already terminated just because the project was completed.
The partnership was merely dissolved and there is a winding-up process or a period during which a suit
to collect debts may prosper. Hence, he can still sue the partnership during the winding-up period.

However, the case may not be dismissed against the partner because his liability is subsidiary. In
case the assets of the partnership are not sufficient to cover the liability, the individual partners can be
held liable up to their personal property if they are general partners.

General Partner Limited Partner

Can be held liable up to their personal properties As a rule, they can only be held liable up to their
for partnership obligations capital contribution. They cannot be held liable up
 to their personal properties even for partnership
obligations.

Exceptions:

If the limited partner actively participates in the

management, he will be treated as if he is a
general partner. Hence, he can be held liable up to
his personal property;

If his surname appears in the firm name;

When this partner is both a general and limited

partner in the same partnership.

Q. If there is failure to comply with the formalities prescribed by law for the creation of a limited
partnership and any of these formalities is missing, what are its effects?

1. The partnership is not void. In fact, among the partners, the limited partnership is valid.
2. Insofar as 3rd persons are concerned (eg. creditors), however, they will all be treated as general
partners as if what was entered into is a general partnership. But since the limited partnership is
valid, the partners has remedy to seek reimbursement from the other partners.

Capitalist/Industrial Partner

A capitalist partner cannot engage in a business which is similar to the kind of business of the
partnership without consent of the other partners.
An industrial partner cannot engage in any business without the consent of the partners.

Managing Partner

Article 1792. If a partner authorized to manage collects a demandable sum which was owed to him in
his own name, from a person who owed the partnership another sum also demandable, the sum thus
collected shall be applied to the two credits in proportion to their amounts, even though he may have
given a receipt for his own credit only; but should he have given it for the account of the partnership
credit, the amount shall be fully applied to the latter.

The provisions of this article are understood to be without prejudice to the right granted to the other
debtor by article 1252, but only if the personal credit of the partner should be more onerous to him.
(1684)

In this scenario, a person is indebted to the partnership and to one of the partners. The payment
made by this debtor to the partner will have to be proportionately applied
o Requisites for proportional application:
 The partner to whom the payment was made is the managing partner;
Both debts must already by due and demandable;
The debts must be of the same kind and nature;
The managing partner must have issued a receipt in his name.

Property Rights of the Partners

Partners interest in the partnership pertains to the share of the partner in the profits and in the
surplus.

Q. How is the sharing in the profits done?

1. By stipulation

2. If there is no stipulation as to the sharing of the profits or the stipulation is void (eg. one of
the partners is excluded in the sharing of profits or pactum leonina), the profits shall be
distributed in proportion to their capital contribution.

However, if there is an industrial partner/s, the law requires that they be paid first a just and
reasonable value of their share.

A partners interest in the partnership can be assigned. A partner may assign his entire interest
even without the knowledge of the other partners. However, an assignee does not become a
partner unless unanimously agreed upon by the partners.

The partnership is not dissolved when there is an assignment. Although the rights of an assignee
only involves the extent of whatever share to the profits which the assigning partner would have
had he not assigned his interest. (eg. if the assigning partner is entitled to P300,000 profits, the
assignee would only be entitled to that P300,000

Obligations of the Partners Among Themselves

Sharing in the losses

Q. How will the individual partners share in the losses in relation to their personal properties?

First, check if there is a stipulation as to losses. If there is, this should be followed even if the
industrial partner has a share in such losses. This stipulation is valid. However, if in the stipulation, one
of the partners is excluded in the share of losses, check who was excluded: capitalist or industrial
partner.

If it is the capitalist partner who was excluded, this is 100% void.

If it is the industrial partner who was excluded, under Article 1816, that stipulation is binding
among the partners but as to 3rd persons, that is a void stipulation. An industrial partner therefore, can
be held liable by partnership creditors but he can seek reimbursement from his partners.
 Second, if there is no stipulation as to losses or the stipulation is void, the sharing of the losses
shall be done in accordance with the sharing of the profits.

Lastly, if there is no stipulation as to losses and profits, the losses shall be distributed in
proportion to their capital contribution. In this scenario, an industrial partner has no share in the losses
because he has no capital contribution.

The liability of the partners as to losses ordinarily is joint unless they bound themselves
solidarily.

E. CREDIT TRANSACTIONS

Loans

2 Kinds:
1. Commodatum
2. Mutuum

Commodatum Mutuum

A thing is loaned with the obligation to return the
very thing.
The object in commodatum is non-fungible. It
cannot be replaced by a thing of the same kind
and quality.
Upon delivery, ownership passes to the borrower
but borrower has the obligation to pay with a thing
of the same kind and quality.
The object in mutuum is fungible.

The law does not require the bailor to be the

owner of the thing.

Rights and Obligations of the Parties: Commodatum

1. Expenses

Q. With regards to the expenses that may be incurred by the borrower in relation to the thing
borrowed, can he seek reimbursement from the bailor?

It depends upon the nature of the expense whether it is in relation to the use and preservation
or if it is merely for ornamentation. If it is merely for ornamentation, he has no right to be reimbursed.
But if the expense is for the use and preservation, you have to make a distinction whether it is for the
ordinary use or for an extraordinary expense. If it is ordinary expense, no reimbursement can be had. If
it is extraordinary, the borrower can seek reimbursement.
 2. Loss of the Thing Due to Fortuitous Events

Q. The thing suffered damage as a result of a fortuitous event and it has to be repaired. It was the
bailee who incurred the expenses of the repair. Is this subject to reimbursement?

Yes. 50% reimbursement if the thing was damaged while being used, although he has to first
notify the bailor of the repair. One the other hand, if the thing was damaged while not being used, there
will be a 100% reimbursement.

Rights and Obligations of the Parties: Mutuum

Interest
o Compensation for the use of the interest must be expressly stipulated in writing.
Otherwise, the creditor is not entitled to the interest.
o For example, the debtor paid interest even if it was not expressly stipulated in writing,
he has the right to seek recovery under the principle of solution indebiti
o However, even if there is no express stipulation in writing, if the debt is already due and
debtor fails to pay, he shall be liable for interest by way of damages because he is
already in delay.

Legal Rate of Interest

Prior years up to June 30, 2013 12%

July 1, 2013 onwards 6%

Note: If there is no stipulation as to the amount of interest, the legal rate will apply.

Guaranty and Suretyship

Guaranty Suretyship

Article 2047. By guaranty a person, called the It is just a kind of guaranty where the guarantor
guarantor, binds himself to the creditor to fulfill bound himself solidarily with the principal debtor.
the obligation of the principal debtor in case the
latter should fail to do so. Said guarantor is now called, surety.

Note: The fact that the surety bound himself

 solidarily with the principal debtor does not make
him a principal co-debtor.

Solidary co-debtor Surety

He is one of the principal debtors. His liability is not direct and principal but merely
accessory (eg. in case of default).

If a solidary co-debtor pays the full amount, he is
not subrogated to the rights of the creditor. His
only right is to seek reimbursement from his co-
debtors as to their respective shares.
If a surety pays the full amount, as a rule, he will
be subrogated in the rights of the creditor.
Exception: This will not happen if the guaranty was
entered into without the knowledge of the
principal debtor. Hence, there will be no
subrogation and the guarantors right will merely
be a third party payor.

Q. Guarantor paid the debt but he was not able to inform the debtor that he has already paid the
obligation because of a fortuitous event. Thereafter, the debtor paid the said obligation. (Creditor was
now paid twice.) To whom can the guarantor recover reimbursement?

Ordinarily, he should seek against the debtor for reimbursement. However, since the debtor
already paid, it should be the creditor to whom he should go for reimbursement.

Q. What if the creditor was insolvent? Can the guarantor now run after the original debtor?

Yes, only if the guaranty is a gratuitous guaranty.

In sum, if these requirements are present:

1. Guarantor failed to notify the debtor because of a fortuitous event
2. Creditor becomes insolvent
3. The guaranty is gratuitous
o Only then can the guarantor seek reimbursement from the principal debtor.

Benefit of Excussion

The guarantor, before he becomes liable, as a rule, should exhaust first all the properties of the
principal debtor.
Exceptions: (No benefit of excussion)
o When the guarantor renounces his right;
 o Debtor is already insolvent;
o When the guarantor bound himself solidarily with the principal debtor (A surety
therefore, has no benefit of excussion.)

Q. How many times may a subguarantor exercise his benefit of excussion?

Twice. He shall first exhaust all the properties of the principal debtor, then exhaust all the
properties of the guarantor before he can be held liable.

Benefit of Division

It is possible that in an obligation, there are 2 or more guarantors.

Q. There is an obligation to pay P100,000 and there are 5 guarantors.) If the principal debtor defaults,
how much can 1 guarantor be held liable?

Ordinarily, P20,000. In other words, the benefit of division is like a joint obligation. Unless, they
bound themselves solidarily, in such case, one of them can be held liable for the entire amount.

Real Guaranties: Pledge/Mortgage

Indivisibility Principle pertains to this rule that until the obligation is extinguished, a
pledge/mortgage will continue to have full force and effect. It is the pledge/mortgage (the
contract itself) that is indivisible and not the obligation or objects involved. Hence, even if the
obligation is divisible, it does not affect the indivisibility of the contract.
Exceptions: (where indivisibility principle will not apply)
o Where it is clear to the agreement that each parcel of land would only secure a specific
amount;

Pledge

A pledge over a carabao would also cover the offspring of that carabao. The pledge would have
the right to possess. This is however, subject to stipulation of the parties to the contrary.

Chattel Mortgage

Just like in pledge, the object of the contract must be personal property.

If what was mortgage is an immovable (eg. building), that mortgage is void.

Q. Can the mortgagor himself oppose the foreclosure on the ground that the mortgage is void?

No, he cannot, under the principle of Estoppel. He will not be allowed to question the validity of
this contract. However, while the mortgagor himself cannot question the validity, as far as 3rd persons
are concerned, this is always void. This will never bind 3rd persons.
Q. The mortgagor is the judgment debtor of a creditor. Can this creditor have the building levied upon
while it is being mortgaged?

Yes, because this mortgage is void as to 3rd persons and this mortgage will never bind 3rd
persons.

Antichresis

The subject matter must be immovable.

The creditor is entitled to the fruits of the property. At the same time, he has the obligation to
apply the fruits to the interest in owing. (eg. He has already paid the interest and there is a
surplus, he is obliged to apply the surplus to the principal.)In a way, by merely applying the
fruits, the obligation can be paid with antichresis.

In the standard arrangement of antichresis, the possession is with the creditor because he is the
one entitled to the fruits. But the creditor may choose to return the possession to the debtor. It
has the effect of exempting the creditor from liability of paying the real property tax.

Pactum Commissorium, Right to Recover Deficiency and Excess

Examples of Pactum Commissorium:

o Upon default of the principal debtor, the thing mortgaged will now belong to the
mortgagee.
o Upon default of the principal debtor, the creditor can appropriate the thing.
This is a void stipulation.

Q. A stipulation says, upon default of the principal debtor, can sell the thing. Does this constitute
Pactum Commissorium?

No, because there is no automatic transfer of ownership.

Rules on Excess and Deficiency: Pledge and Chattel Mortgage

Pledge Chattel Mortgage

When it comes to deficiency, in a contract of When there is deficiency, there is a right to

pledge, there is no right to recover by the
creditor.
But if there is a stipulation in the contract of
pledge giving the pledgee the right to recover the
recover such deficiency.
Exception: There may not be a right to recover
deficiency if this is covered by the Recto Law. If
this is a sale of a personal property on instalment,
deficiency, the creditor still cannot recover. That there is no right to recover.
stipulation is void.

When it comes to excess, in a contract of pledge, If there is an excess, the excess goes to the
the creditor is also the one entitled to said excess. mortgagor.

If there is a stipulation that the excess will belong

to the creditor, it is a valid stipulation.

F. TORTS

A single act can be the basis of the claim from 2 or more sources (delict, quasi-delict, contract,
etc.)
The nature of the liability of the employer will depend on the source of the obligation.
o If the source is contract or quasi-delict, the liability is direct and primary.
o If the source is delict, the liability is subsidiary.

Case: Pantranco

The employer and the employee cannot be held solidarily liable because the liability of one is
merely subsidiary.

Q. What is the effect of pendency of a criminal action?

The pendency of a criminal action does not bar the filing or will not even suspend the
proceeding of a civil action under quasi-delict. The 2 proceedings can proceed independently of each
other because said proceedings are separate and distinct from each other.

Elements of Quasi-Delict: No Pre-existing Contractual Relation

Even if there is pre-existing contractual relation, an action under quasi-delict may prosper
because the very act which breaches the contract may, by itself, be a tortuous act.

Res Ipsa Loquituor

The thing/the transaction speaks for itself.

This is important when it comes to proving that the defendant is negligent.
It is not sufficient for the plaintiff to just invoke the doctrine. He also has to prove the following
in order for the doctrine to apply:
o The instrumentality where the incident happened is under the control of the defendant;
o In the ordinary course of events, the incident would not have happened had the
defendant only exercised the diligence required;
 o There must be no proof adduced by the defendant to show that it was the negligence
of somebody else or the person himself resulting to the injury.

Vicarious Liability

There are 4 persons who are vicariously liable:

1. Parents
2. Owners
3. Employers
4. Administrators/Teachers

Parents

May only be held vicariously liable if their child is a minor at the time of the incident.
Under the Family Code, the mothers liability is no longer subsidiary. It is already direct and
primary.

Owners

Article 2184. In motor vehicle mishaps, the owner is solidarily liable with his driver, if the former, who
was in the vehicle, could have, by the use of the due diligence, prevented the misfortune. It is disputably
presumed that a driver was negligent, if he had been found guilty of reckless driving or violating traffic
regulations at least twice within the next preceding two months.

If the owner was not in the motor vehicle, the provisions of article 2180 are applicable. (n)

The owner of the car can only be held solidarily liable with the driver if the premise is that the
driver was negligent.
However, the owner is not solidarily liable just because he was inside the vehicle at the time of
the incident. Equally important is this requirement that he could have prevented the mishap had
he only exercised the due diligence required but he failed to do so. Only then shall he be
solidarily liable.
If he was not inside the vehicle at the time of the incident, he may still be held liable under
Article 2180.

Article 2180. xxx 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.

Employers

For them to be held vicariously liable, there has to be:

o Proof of an employer-employee relationship;
However, even if there is proof of an employer-employee relationship, the
employer is not automatically liable. The employer may only be held vicariously
 liable if when the incident happened, the employee is acting within his assigned
task.
o It must also be settled that the employee is negligent.
However, even if the employee is negligent, it does not automatically mean that
the employer is liable because the employer may raise the defense that he
exercised due diligence in the selection and supervision of employees.

Teachers

The school can likewise be held vicariously liable under the Family Code and it doesnt matter
what kind of school.
The student must be a minor. If the student is already of age, the school and teachers may no
longer be held liable.
Ordinarily, to be held vicariously liable, the incident happened inside the campus. But even if it
happened outside, if approved by the school and/or the principal, they can be held liable.

Case: PSBA vs. CA

For the school to be held liable, the student who caused the injury or death must be a student of the
school where the incident happened. However, while the school is not liable under quasi-delict, the
school may be held liable under contract. (Breach of Contract)

Defenses

1. Absence of an essential requisite (eg. defendant was not negligent, plaintiffs own negligence
was the direct and proximate cause)
2. Caused by a Fortuitous Event
There must be no concurring negligence on the part of the person invoking the defense.
3. Contributory negligence
This is just a partial defense.
4. Prescription
4 years from the occurrence of the incident.

Doctrine of Last Clear Chance

Both parties were negligent. However, the negligence of one was followed by the negligence of
the other within an appreciable interval of time. The negligence must not be simultaneous
because the other party should have the opportunity to prevent the mishap by just exercising
the diligence required.

Case: Anuran vs. Bunio

 This doctrine can only be applied if the parties suing each other are all negligent. It would be
inequitable for this defendant to exempt himself from liability under the doctrine of last clear
chance against a defendant who was not negligent when he himself is the one negligent.

Double Recovery Rule

Article 2177. 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 twice for the same act or omission of the defendant.(n)

This can be a partial or total defense.

G. DAMAGES

Article 2197. Damages may be:

(1) Actual or compensatory;

(2) Moral;

(3) Nominal;

(4) Temperate or moderate;

(5) Liquidated; or

(6) Exemplary or corrective.

1. Actual and Nominal

They cannot co-exist because the premise of actual damages is that there is pecuniary loss. In
fact, there has to be proof of pecuniary loss. Unlike in nominal, there is no pecuniary loss
needed.

2. Temperate Damages

Ordinarily, it cannot be awarded with actual damages.

Article 2206. The amount of damages for death caused by a crime or quasi-delict shall be at least three
thousand pesos, even though there may have been mitigating circumstances. In addition:

(1) The defendant shall be liable for the loss of the earning capacity of the deceased, and the indemnity
shall be paid to the heirs of the latter; such indemnity shall in every case be assessed and awarded by
the court, unless the deceased on account of permanent physical disability not caused by the defendant,
had no earning capacity at the time of his death;

(2) If the deceased was obliged to give support according to the provisions of article 291, the recipient
who is not an heir called to the decedent's inheritance by the law of testate or intestate succession, may
demand support from the person causing the death, for a period not exceeding five years, the exact
duration to be fixed by the court;

(3) The spouse, legitimate and illegitimate descendants and ascendants of the deceased may demand
moral damages for mental anguish by reason of the death of the deceased.

Note: The liabilities found in this Article are:

Indemnity
Loss of earning capacity
Support
Moral damages
Interest
Exemplary damages

Q. Is the defendant liable for all these liabilities found in Article 2206?

First, check the age of the injured party. Then, how much is the indemnity.

Q. A pregnant bus passenger had a miscarriage as a result of an accident caused by the drivers
negligence. Can she claim indemnity on account of her miscarriage?

No, she cannot. Indemnity presupposes that there has been death. In this case, nobody died.
She can however claim moral damages and exemplary damages.

Computation: Loss of Earning Capacity

Gross income in 1 year necessary expenses to earn this amount x 2/3 of (80 x).

Gross income has to be proven

Necessary expenses need not be proven. If there is no proof, use of gross income
(x) = age at the time of death

Support

Heirs who would not have inherited by legal/intestate succession are entitled to support.

3. Moral Damages

Just because the injured party suffered mental anguish does not necessarily entitle him to moral
damages. The reason why he suffered mental anguish must be because of those enumerated in
Article 2219 and Article 2220

Article 2219. Moral damages may be recovered in the following and analogous cases:

(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;

(10) Acts and actions referred to in articles 21, 26, 27, 28, 29, 30, 32, 34, and 35.

The parents of the female seduced, abducted, raped, or abused, referred to in No. 3 of this article, may
also recover moral damages.

The spouse, descendants, ascendants, and brothers and sisters may bring the action mentioned in No. 9
of this article, in the order named.

Article 2220. Willful injury to property may be a legal ground for awarding moral damages if the court
should find that, under the circumstances, such damages are justly due. The same rule applies to
breaches of contract where the defendant acted fraudulently or in bad faith.

In Malicious Prosecution ordinarily, there is a criminal complaint filed which was found to be
malicious. But the finding that it was malicious must be final and executory.
However, in some cases, even if there is no criminal complaint filed, even a clearly unfounded
civil suit can be a basis of a claim for moral damages. (eg. disbarment suit)