Reviewer in RFB It must be expressly or impliedly set forth and cannot be

presumed. (Martinez v. Martinez, G.R. No. 858)

A. OBLIGATIONS
Mutuality
1. GENERAL PROVISIONS
Neither party may unilaterally evade his obligation in the
a. Definition contract, unless the contract authorizes it or the other party
assents. (PINEDA 385 (2009))
An obligation is a juridical necessity to give, to do or
not to do. (An Act to Ordain and Institute the Civil Code of Principle of Relativity
the Philippines [CIVIL CODE], Republic Act No. 386, art.
1156 (1950)) Contracts take effect only between the parties, their assigns
and heirs, except in case where the rights and obligations
b. Elements of an Obligation arising from the contract are not transmissible by their nature,
or by stipulation or by provision of law. The heir is not liable
Essential Elements an Obligation (Arts. 1156 – 1162) (PAVO) beyond the value of the property he received from the
decedent. If a contract should contain some stipulation in
1. Passive Subject (obligor/debtor) – the person who has the favor of a third person, he may demand its fulfillment
duty of giving, doing or not doing; person bound to the provided he communicated his acceptance to the obligor
fulfillment before its revocation. A mere incidental benefit or interest of a
person is not sufficient. The contracting parties must have
2. Active Subject (obligee/creditor) – the person in whose
clearly and deliberately conferred a favor upon a third person.
favor the obligation is constituted; person entitled to make a
(1257a) (CIVIL CODE, art. 1311)
demand
Consensuality of Contracts
3. Vinculum Juris/ Legal Tie – the efficient cause or the
juridical tie between two subjects by reason of which the Article 1315. Contracts are perfected by mere consent, and
debtor is bound in favor of the creditor to perform the from that moment the parties are bound not only to the
obligation. It can be established by various sources of fulfillment of what has been expressly stipulated but also to all
obligations (law, contract, quasi-contracts, delicts, and quasi- the consequences which, according to their nature, may be in
delicts) and may arise either from bilateral or unilateral acts of keeping with good faith, usage and law. (1258) (CIVIL
persons. CODE, art. 1315)
4. Object/ Subject Matter – the prestation or conduct which QUASI-CONTRACTS (OBLIGATIONS EX QUASI-
has to be observed by the debtor/obligor; to be valid, it must CONTRACTU)
be: (LiPoDeM):
Quasi-contracts are juridical relations resulting from lawful,
a. Licit voluntary and unilateral acts, which has for its purpose, the
b. Real or Possible payment of indemnity to the end that no one shall be unjustly
c. Determinate/ Determinable enriched or benefited at the expense of another. (CIVIL
d. Must be within the commerce of men (i.e. susceptible of CODE, art. 2142)
appropriation and transmissible from one person to another)
(DESIDERIO P. JURADO, COMMENTS AND Distinguished from other Sources (LUV)
JURISPRUDENCE ON OBLIGATIONS AND
CONTRACTS 457 (2010)) 1. The act giving rise to a quasi-contract must be Lawful
distinguishing it from delict;
In certain kinds of obligations, the following may constitute
additional requirements: 2. The act must be Voluntary distinguishing it from a quasi-
delict which is based on fault or negligence; and
5. Form – in formal contracts where form is necessary for
validity, e.g., donation 3. The act must be Unilateral distinguishing it from contract
which is based on agreement. (PINEDA 15 (2009))
6. Delivery or Tradition – real contracts where delivery is
necessary for perfection of the obligation, e.g., deposit, QUASI-DELICTS/TORTS (OBLIGATION EX QUASI-
commodatum, loan (ERNESTO L. PINEDA, OBLIGATIONS DELICTO OR EX QUASI MALEFICIO)
AND CONTRACTS 412 (2009))
It is an act or omission arising from fault or negligence, which
c. Sources of Obligations causes damage to another, there being no pre-existing
contractual relations between the parties. (CIVIL CODE, art.
Obligations arise from: (L-CQAQ) 2176)
1. Law;
2. Contracts; Elements: (ADD)
3. Quasi-contracts;
4. Acts or omissions punished by law; and 1. That there exists a wrongful Act or omission imputable to
5. Quasi-delicts (CIVIL CODE, art. 1157) the defendant by reason of his fault or negligence;

LAW (OBLIGATION EX LEGE) 2. That there exists a Damage or injury, which must be proved
by the person claiming recovery;
The law cannot exist as a source of obligation, unless the acts
to which its principles may be applied exist. 3. That there must be a Direct causal connection or a relation
of cause and effect between the fault or negligence and the
Once the acts or facts exist, the obligations arising therefrom damage or injury; or that the fault or negligence be the cause
by virtue of the express provisions of the law are entirely of the damage or injury. (CIVIL CODE, art. 2176; Taylor v.
independent of the agreement of the parties. (Manila Trading Manila Electric Co., G.R. No. L4977)
& Supply Co. v. Saez, G.R. No. 4386)
Negligence: Failure to observe for the protection of the
interests of another person, that degree of care, precaution and
vigilance, which the circumstances justly demand, whereby FRAUD NEGLIGENCE
such other person suffers injury. (US v. Barias, G.R. No. L- There is deliberate intention There is no deliberate
7567) to cause damage intention to cause damage
Liability cannot be Liability may be mitigated
Test of Negligence: “Would a prudent man, in the position of mitigated (CIVIL CODE, art. 1173)
the person to whom negligence is attributed, foresee harm to Must be clearly proved Presumed from the breach of
the person injured as a reasonable consequence of the course a contractual obligation
about to be pursued?” (Picart v. Smith, G.R. No. L-12219) Waiver for future fraud is Waiver for future negligence
void (CIVIL CODE, art. may be allowed in certain
2. NATURE AND EFFECT
1171) cases
a. Obligation to Give

Duties of a Debtor in an Obligation To Give Kinds of Negligence

1. To give a determinate thing (CIVIL CODE, arts. 1163, 1. Quasi-Delict (Culpa aquiliana/culpa extra
1164 & 1166) contractual) – source of obligation; wrong or negligence
committed independent of contract and without criminal
a. To deliver the thing itself; (CIVIL CODE, art. 1163) intent
b. To preserve or take care of the thing due with the
diligence of a good father of a family (i.e., that standard of 2. Contractual Negligence (Culpa Contractual) – wrong
care which an owner would give to his own property), or negligence in the performance of an obligation or
unless the law requires or the parties agree otherwise; contract
(CIVIL CODE, art. 1163)
3. Criminal Negligence (Culpa Criminal) – wrong or
The law or contractual stipulation may require a different negligence in the commission of a crime (DE LEON 65-66
degree of diligence: greater or extraordinary diligence (2014))
(diligentia exactissima), or less or slight diligence (diligentia
Diligence of a good father of a family – ordinary care or
levissima). (RUBEN F. BALANE, JOTTINGS AND
that diligence which an average or reasonably prudent
JURISPRUDENCE IN CIVIL LAW (OBLIGATIONS AND
person would exercise over his own property (DE LEON 34
CONTRACTS) 63 (2020))
(2014))
c. To deliver fruits, whether civil, industrial, or natural fruits
DEFAULT OR DELAY (MORA)
(obligor is liable for fruits only from the time the obligation
to deliver arises); and General rule: Those obliged to deliver or to do something
d. To deliver accessions and accessories (CIVIL CODE, art. incur in delay from the time the oblige judicially or
1166) Accessions – incorporated or attached to the object to extrajudicially demands from them the fulfillment of their
form part of the principal. Accessories – added for obligation. (CIVIL CODE, art. 1169)
completion, use perfection or embellishment.
Kinds of delay
2. To give a generic thing (CIVIL CODE, arts. 1246 & 1170)
1. Mora solvendi – delay or default committed by obligor
a. To deliver the thing of the quality intended by the parties,
taking into consideration the purpose of the obligation, 2. Mora accipiendi – delay or default committed by oblige
intent of the parties, and other circumstances. (CIVIL
CODE, art. 1246) 3. Compensatio Morae – default of both obligor and obligee
b. To pay damages in case of breach of the obligation. (JURADO 457 (2010))
(CIVIL CODE, art. 1170)
CONTRAVENTION OF THE TENOR OF THE
b. Obligation to Do or not to Do OBLIGATION

Rights of a Creditor in an Obligation To Do or Not To Do This refers to failure to comply with the terms of the
obligation, and will require dolo, culpa or delay as the cause
1. To do (Positive Personal) of the failure to comply, in order to constitute a breach.
(CIVIL CODE, art. 1170; JURADO , 74 (2010))
a. The obligee is entitled to have the thing done in a proper
manner, by himself or by a third person, at the expense of Defense against breach: FORTUITOUS EVENTS
the obligor;
b. To demand what has been poorly done be undone; Requisites of Fortuitous Events (NIIU)
c. To recover damages because of breach of the obligation.
(CIVIL CODE, art. 1167) 1. Event must be Independent of obligor’s will;
2. Event is Unforeseeable or unavoidable
2. Not to do (Negative Personal) 3. Such event renders it Impossible for the debtor to
perform (not only makes it difficult, but impossible)
a. To have the thing undone at the expense of the obligor; 4. No contributory negligence (Lasam v. Smith, G.R. No. L-
and/or 19495)
b. To ask for damages. (CIVIL CODE, art. 1168)
General rule: Loss due to fortuitous events shall extinguish
e. Breaches of Obligations the obligation (CIVIL CODE, art. 1174)
Causes of Breach Exceptions: (SALTD-G)
1. Incidental Fraud (Dolo incidente) 1. If by Law the obligor is liable even for fortuitous event
2. Negligence (Culpa) 2. If by Stipulation the obligor is liable even for fortuitous
3. Default / Delay (Mora) event
4. Contravention of Terms (CIVIL CODE, art. 1170) 3. If the nature of the obligation requires the Assumption of
the risk (CIVIL CODE, art. 1174)
 3. KINDS OF OBLIGATIONS REQUISITES:

a. Pure Obligations a) Condition is suspensive

b) Obligor prevents fulfillment of condition
Definition – It is an unqualified obligation, which is c) Obligor acts voluntarily
demandable immediately. Its performance does NOT
depend upon a future and uncertain event, or past event RESOLUTORY CONDITION
unknown to the parties. (CIVIL CODE, art. 1179)
 Demandable at once
b. Conditional Obligations  Once the condition is established or acknowledged, the
right to demand performance immediately exists and
Definition – The performance in conditional obligations therefore the obligation can be demanded at once.
depends upon a (1) future AND uncertain event, (2) or upon  It is also known as “condition subsequent”
a past event unknown to the parties. (DE LEON 106 (2014))  The happening of the condition has the effect of
extinguishing an obligation. (DE LEON 109 & 111-112
NOTE: For the first kind, Article 1179 uses the phrase (2014))
“future ‘or’ uncertain” -- it must be construed as “and”. (4
TOLENTINO 144 (1991)) NOTE: In case of reciprocal obligations, the obligation of
one is a resolutory condition of the obligation of the other,
Conditional Obligations may be further classified into: the non-fulfillment of which entitles the other party to
resolve or cancel the contract. (DE LEON 53 (2014))
1. Suspensive or resolutory
2. Potestative (based on the will of one of the parties), POTESTATIVE CONDITION
Casual (based upon chance or will of 3rd parties), and
Mixed (combination of will of one of the parties + chance The fulfillment of the condition entirely depends upon the
and/or will of 3rd persons) sole will of a party – may be purely potestative on the part
3. Possible or impossible of the obligee (valid), or the obligor/ debtor (void if
4. Positive or negative suspensive). (PARAS 201 (2016))
5. Divisible or indivisible
6. Conjunctive or alternative Condition coupled with a Term
7. Express or implied
The condition that some event will not happen at a
(JURADO 110 (2010)) determinate time, shall render the obligation effective from
the moment (1) the time indicated has elapsed, or (2) if it
NOTE: All combinations are valid, EXCEPT only those has become evident that the event cannot occur. (CIVIL
conditional obligations which are suspensive and dependent CODE, art. 1185)
solely on the will of the debtor.
c. Obligations with a Period or a Term
SUSPENSIVE CONDITION
Obligations which are demandable on a “day certain”. “Day
 The happening of the condition creates the obligation. certain” refers to either:
 Not demandable at once.
 Gives rise to the existence of an obligation. For example, a) A future AND certain event; or
in a Contract to Sell, the fulfillment of the suspensive b) Payable when able, or when debtor promises to pay when
condition, which is the full payment of the purchase price, “his means permit him to do so” – period is to be fixed by
gives rise to the obligation of the seller to convey the title the court, taking into account intention of the parties
to the prospective buyer. If the condition was not fulfilled, (PINEDA 129 (2009))
it only prevents the obligation of the seller to convey title
to arise. (DE LEON 102 (2014)) d. Alternative or Facultative Obligations
 Also known as “condition precedent”
 Gives birth to obligations Alternative obligations
(DE LEON 106-107 & 111-112 (2014))
Initially, the obligation is indeterminate and becomes
Rule on fruits in suspensive condition: determinate upon making of choice and notification. (DE
LEON 217 (2014))
a) In suspensive conditions, the effect of a conditional
obligation “to give” retroacts to the day of the constitution General Rule: The right to make a choice is with the
of the obligation. debtor/obligor, subject to the rule that he cannot choose the
impossible, unlawful or could not have been the object of
b) Nevertheless, when the obligation imposes reciprocal the obligation. (DE LEON 218 (2014))
prestations, the fruits and interests during the pendency of
the suspensive condition shall be deemed to have been Exception: By contrary stipulation, the right to make a
mutually compensated. choice may be given to the creditor/oblige or to a 3rd
person, subject also to the rule that he CANNOT choose
c) If the obligation is unilateral, the debtor or obligor shall the:
appropriate the fruits and interests received, unless from the
nature and circumstances of the obligation it should be  Impossible
inferred that the intention of the person constituting the  Unlawful
same is different. (CIVIL CODE, art. 1187)  Could not have been the object of the obligation. (DE
LEON 218 (2014))
NOTE: Doctrine of constructive fulfillment – Condition
shall be deemed fulfilled when the obligor voluntarily e. Joint and Solidary Obligations
prevents fulfillment. (CIVIL CODE, art. 1186)
Involves multiple parties (more than one debtor or more than
one creditor or more than 1 debtors and creditors).
The liability or rights of parties may be joint or solidary. It is proportionate share of the debt.
presumed joint. Solidary obligation requires either stipulation 4. A joint debtor cannot be compelled to answer for the acts or
or law to create the solidary liability/right. (CIVIL CODE, art. liability of the other debtors.
1207) 5. Vice of one debtor to creditor has no effect on the others.
6. Insolvency or death of one debtor does NOT affect other
In a joint obligation/credit, just divide the obligation/credit debtors.
into as many numbers of debtors and creditors to get the
sharing, unless sharing was stipulated (sharing is presumed JOINT (INDIVISIBLE) OBLIGATIONS
equal). (CIVIL CODE, art. 1208)
If there are 2 or more debtors, the fulfillment of or compliance
In a joint obligation, each of the joint debtors is only with the obligation requires the concurrence of all the debtors,
responsible for his/her own share and each cannot be made to although each for his own share. (CIVIL CODE, art. 1209)
pay for the share of others, even those who are insolvent or The obligation can be enforced only by proceeding against all
who have died; joint creditors cannot collect the share of the of the debtors.
others. (CIVIL CODE, arts. 1207 & 1209)
If there are 2 or more creditors, the concurrence or collective
In a solidary obligation, the solidary debtors can be made to act of all the creditors, although each for his own share, is also
pay the full amount of the obligation (subject to presentation necessary for the enforcement of the obligation (CIVIL
of available defenses); solidary creditors can collect the full CODE, art. 1209)
amount of the obligation. (CIVIL CODE, art. 1216)
The Court pointed out that there’s a loan partnership, which
Among solidary debtors and creditors, one who pays or means that there should be an inclined sharing of losses.
receives the full amount of the obligation can recover from or However in the JVA, there was an agreement that all cash
deliver the share of others. (CIVIL CODE, art. 1214 &1217) should be paid by X; SC held that you should apply the rules
on partnership rather than the JV contract. (Marsman v.
JOINT (DIVISIBLE) OBLIGATIONS Philippine Geonalytics, G.R. No. 183374)

Joint obligation (Obligacion Mancomunada) – The whole Effect of breach

obligation is to be paid or fulfilled proportionately by different
debtors or demanded proportionately by the different If one of the joint debtors fails to comply with his undertaking,
creditors. the obligation can no longer be fulfilled or performed.
Consequently, it is converted into one of indemnity for
General rule: The presumption is that an obligation is damages. Innocent joint debtor shall not contribute to the
always joint. (CIVIL CODE, art. 1207) indemnity beyond their corresponding share of the obligation.
Exceptions: (FLENT) INDIVISIBILITY SOLIDARITY
Refers to the prestation which Refers to the legal tie and
1. When the obligation Expressly stipulates solidarity; constitutes the object of the consequently to the subjects
2. When the Law requires solidarity; obligation or parties of the obligation
Plurality of subjects is NOT Plurality of subjects is
Examples:
required indispensable
a. If two or more heirs take possession of the estate, they shall
be solidarily liable for the loss or destruction of a thing
devised or bequeathed, even though only one of them should Solidary obligation (Obligacion Solidaria) – must be
have been negligent. (CIVIL CODE, art. 927.) expressed in stipulation or provided by law or by nature of
obligation. Otherwise, it will be considered a joint
b. Even when the agent has exceeded his authority, the obligation/credit. (CIVIL CODE, art. 1207)
principal is solidarily liable with the agent if the former
allowed the latter to act as though he had full powers. (CIVIL Kinds of solidary obligations
CODE, art. 911.)
1. Active Solidarity
c. All partners are solidarily liable with the partnership for any 2. Passive Solidarity
crime or quasi-delict committed by any partner acting in the 3. Mixed Solidarity
ordinary course of business of the partnership or with the 4. Conventional Solidarity
authority of his co- partners. (CIVIL CODE, art.. 1822-1824.) 5. Legal Solidarity (DE LEON 217-219 (2014))

d. If two or more persons have appointed an agent for a 1. Active Solidarity – solidarity on the part of creditor or
common transaction or undertaking, they shall be solidarily obligee
liable to the agent for all the consequences of the agency.
(a) Each creditor represents the other in the act of recovery of
(CIVIL CODE, art. 1915.)
payment. (DE LEON 218 (2014))
3. When the Nature of the obligation requires solidarity; (b) Credit is divided equally between creditors as among
4. When a charge or condition is imposed upon heirs or themselves.
legatees and the Testament expressly makes the charge or (c) Debtor may pay any of the solidary creditors. (CIVIL
condition in solidum (Manresa); and CODE, art. 1214)
5. When a solidary responsibility is imputed by a Final (d) Any creditor can collect full amount of obligation. Unless
judgment upon several defendants. (Gutierrez v. Gutierrez, there is an agreement as to which creditor can collect. Debtor
G.R. No. 34840) must pay to the creditor who first makes a demand. There is a
case of improper payment if the debtor pays to another
Effects of joint liability creditor who did not make a demand; he can be made to pay
again to the creditor who made the demand. (CIVIL CODE,
1. Demand on one produces delay only with respect to the art. 1214)
debt of the debtor against whom a demand is made. (e) After a solidary creditor collects the full amount, all
2. Interruption in payment by one does not benefit or prejudice debtors are released from the obligation. The creditor who
the other. received payment must then deliver the shares of the other
3. Each debtor can be held liable only for the payment of his
solidary creditors (presumed equal unless amount indicated). ii. Payee - creditor or obligee at the time payment is due
(CIVIL CODE, art. 1215; 4 TOLENTINO 228 (1991)) (includes successor in interest of transferee since credit is
generally assignable) (CIVIL CODE, art. 1240)
2. Passive Solidarity – solidarity on the part of debtors or
obligors Divisible obligations

(a) Any debtor can be made to pay the full amount of the An obligation that is capable of partial performance.
obligation with the right to recover from co-debtors. (CIVIL (PINEDA 192-193 (2009))
CODE, art. 1216)
(b) The right to make a choice of who among the debtors the (a) Execution of certain number of days’ work
creditor will proceed against, lies on the creditor. (b) Expressed by metrical units
(c) Nature of obligation – susceptible of partial fulfillment
3. Mixed Solidarity – on the part of the obligors and obligees, (DE LEON 250 (2014))
or the part of the debtors and the creditors (DE LEON 219
(2014)) (c) Indivisible Obligations
4. Conventional Solidarity – agreed upon by the parties (DE
LEON 219 (2014)) One not capable of partial performance.
5. Legal Solidarity – imposed by law (a) To give definite things
(b) Not susceptible of partial performance
Examples: (c) Provided by law
(d) Intention of parties (DE LEON 249, 2014))
(a) Obligations arising from tort
(b) Dation in payment (Dacion en pago) (CIVIL CODE,
a. The responsibility of two or more persons who are liable for art. 1245)
quasi- delict is solidary. (CIVIL CODE, art. 2194)
(b) Obligations arising from quasi-contracts Definition – a mode of extinguishing an obligation whereby
(c) Legal provisions regarding obligation of devisees and the debtor pays a monetary obligation with property. It is a
legatees special form of payment because one element of payment is
(d) Liability of principals, accomplices, and accessories of a missing: Identity. (PARAS 380 (2016))
felony
(e) Bailees in commodatum (DE LEON 219-220 (2014)) Dation in payment extinguishes the obligation to the extent
of the value of the thing delivered, either as agreed upon by
f. Obligations with a Penal Clause the parties or as may be proved, unless the parties by
agreement – express or implied, or by their silence – consider
One to which an accessory undertaking is attached for the the thing as equivalent to the obligation, in which case the
purpose of insuring its performance by virtue of which the obligation is totally extinguished. (Tan Shuy v. Maulawin, ,
obligor is bound to pay a stipulated indemnity or perform a G.R. No. 190375)
stipulated prestation in case of breach. (DE LEON 252 (2014))
The contractual intention determines whether the property
PENAL CLAUSE CONDITION subject of the dation will be considered as the full equivalent
Serves as accessory NOT a separate obligation; of the debt and will therefore serve as full satisfaction for the
obligation part of principal debt. (Luzon Dev Bank v. Enriquez, G.R. No. 168646)
Demandable in default Never demandable until the
condition happens Law on Sales Apply
Obligation exists No obligation until
The law on sales will apply in case of dacion en pago since it
suspensive condition happens
partakes of the nature of sale – with the creditor purchasing
Depends on the non- Principal itself is dependent
the thing or property of the debtor, the payment of which is
performance of the principal on an uncertain event
charged to the debtor’s obligation. It extinguishes the
obligation
obligation to the extent of the value of the thing delivered.
(PINEDA203 (2009))
(Tan Shuy v. Maulawin, , G.R. No. 190375)
4. EXTINGUISHMENT
(c) Cession or Assignment (in favor of creditors) (CIVIL
Principal Modes of Extinguishment (PaL-CoCoCo-No) CODE, art. 1255)

(a) Payment or performance The process by which a debtor transfers ALL his assets which
(b) Loss of the thing due are not subject to execution in favor of creditors, so that the
(c) Condonation or remission of debt latter may sell them and apply the proceeds to his outstanding
(d) Confusionor merger of rights obligations. Except if there is contrary agreement, or as may
(e) Compensation be provided by law, the obligations are extinguished only up
(f) Novation (CIVIL CODE, art. 1231) to the net amount of the proceeds of the sale. (PARAS 417
(2016))
Other modes of extinguishment
DATION IN PAYMENT CESSION IN PAYMENT
(a) Annulment (Art. 1245) (Art. 1255)
(b) Rescission One creditor Plurality of creditors
(c) Fulfillment of resolutory condition NOT necessarily in state of Debtor must be insolvent
(d) Prescription (CIVIL CODE, art. 1231) financial difficulty
Thing delivered is considered Universality of property of
With respect to parties – must be made by proper party to as equivalent of performance debtor is what is ceded
proper party Payment extinguishes Merely releases debtor up to
obligation to the extent of the the net proceeds of things
i. Payor - the one who delivers or performs must be the debtor value of the thing delivered ceded or assigned, unless
or anyone interested in the fulfillment of the obligation. Any as agreed upon there is a contrary intention
other person requires the creditor’s consent (CIVIL CODE, (DE LEON 356-357 (2014))
art. 1236)
(d) Tender of payment and Consignation (CIVIL CODE, favor. To condone is to forgive or to remit a debt. (Bañez v.
art. 1256) Young, L-4635)

Remission – An act of liberality by virtue of which the

obligee, without receiving any price or equivalent, renounces
Tender the enforcement of the obligation, as a result of which it is
extinguished in its entirety or in that part or aspect of the same
The act of offering to the creditor what is due him together to which the remission refers (Manresa). In brief, “it is the
with a demand that the creditor accepts the same. (PARAS gratuitous abandonment by the creditor of his right” (4
419 (2016)) TOLENTINO 353 (1991))
If the creditor refuses w/o just cause to accept payment, he d. Confusion
becomes in mora accipiendi and tender alone will not
extinguish the obligation; consignation is needed. (Co v. PNB, The character of debtor and creditor is merged in same person
G.R. No. L-51767) with respect to same obligation. (JURADO 306 (2010))

Consignation Requisites of Merger of Rights: (COP)

The act of depositing the thing due with the court or judicial 1. It must take place between Principal debtor and principal
authorities whenever the creditor refuses to accept payment, creditor only.
and generally requires prior tender of payment. (RUBEN E. 2. Merger must be Clear and definite.
AGPALO, OBLIGATIONS AND CONTRACTS 185 (2008)) 3. Only One obligation is involved. (PARAS 456 (2016))

Requisites of Valid Consignation (VUPAS) Confusion does not extinguish a joint obligation, except as
regards the share corresponding to the creditor or debtor in
1. Existence of Valid debt; whom the 2 characters concur. (CIVIL CODE, art. 1277)
2. Creditor has Unjustifiably refused to accept payment, i.e.,
previous valid tender; e. Compensation
3. Prior notice of Consignation had been given to the person
interested in performance of obligation (1st notice) (CIVIL A mode of extinguishment up to the concurrent amount of the
CODE, art. 1257) 4. Actual obligation of persons who, in their own right, have become
deposit/consignation with proper judicial Authorities mutual debtors or creditors of one another. (JURADO 309
5. Subsequent notice of Consignation (2nd notice) (2010))
(DE LEON 359-360 (2014))
f. Novation
LOSS OF THE THING DUE
Novation - Extinguishment of obligation by creating/
(a) When the object perishes (physically) substituting a new one in its place
(b) When it goes out of commerce
(c) When it disappears in such a way that: its existence is (a) Changing object or principal conditions
unknown or it cannot be recovered (b) Substituting person of debtor
(CIVIL CODE, art. 1189) (c) Subrogating 3rd person to the rights of the creditor (CIVIL
CODE, art. 1291)
Effect of Loss in Obligation to Deliver a Generic Thing
Requisites of novation: (VICN)
General rule: Loss does NOT extinguish obligation. Genus
numguam perit: “Genus never perishes.” 1. There must be a previous Valid obligation;
2. Intent to extinguish the old and substitute it with
Exceptions: the new obligation, whether expressed, or implied as when the
two obligations are inconsistent and cannot stand together.
i. Loss of entire genus (e.g., when sale of a certain class of 3. Capacity and consent of the parties to the new obligation;
things become illegal) and
ii. Loss of entire group of limited generic obligation (e.g., I 4. Valid New obligation. (Garcia, Jr. v. CA, G.R. No. 80201)
will deliver “one of my cars” and all cars are no lost through
force majeure. (See BALANE 400 (2020) Novation is never presumed, there must be an express
intention to novate. The creditor’s acceptance of another
Effect of Partial Loss check, which replaced an earlier dishonored check, does not
result in novation where there was no express agreement to
1. When loss is significant – may be enough to extinguish establish that the debtor was already discharged from his
obligation liability. (Salazar v. J.Y. Brothers Marketing Corporation,
2. When loss insignificant – NOT enough to extinguish G.R. No. 171998)
obligation (DE LEON 377 (2014))
Kinds of Novation:
IMPOSSIBILITY OF PERFORMANCE
(a) Real / objective – When there is a change in the object,
(a) Physical impossibility – it is not within man’s capability cause/consideration or principal condition. (PINEDA 332
(b) Legal impossibility – when the prestation is prohibited by (2009))
law (c) (b) Personal / subjective - Substituting person of debtor
Moral impossibility – when the service has become so (passive). (PINEDA 332 (2009))
burdensome that it could not have been the intention of the
parties (CIVIL CODE, art. 1267) i. Expromision: initiative is from a 3rd person or new
debtor who agrees to assume the obligation of the old
c. Condonation or Remission of Debt debtor, with the consent of the creditor. The old debtor’s
consent is not required and upon assumption by the new
Condonation – An act of liberality by which the creditor debtor of the debt, the old debtor is released from liability.
renounces the enforcement of the obligation contracted in his Since the old debtor does not consent, his liability cannot be
revived even if the new debtor becomes insolvent or cannot
pay the obligation. It is however important that the creditor The exceptions are real contracts, which are perfected not
and the new debtor agree to release the old debtor, otherwise merely by consent but by the actual or constructive delivery of
the “new” debtor only becomes a co-debtor and no novation the object of the obligation. (CIVIL CODE, art. 1316)
takes place.

ii. Delegacion: initiative of old debtor who “delegates” his

obligation to a new debtor; In this case all the parties must
consent. The old debtor’s liability is generally not revived in
case of the insolvency of the old debtor UNLESS: the new (iii) CONSUMMATION
debtor’s insolvency already existed at the time of the
delegacion AND (1) it was of public knowledge, or (2) the old Period when the parties perform their respective undertaking
debtor knew of the insolvency of the new debtor at the time of under the contract, culminating in the extinguishment thereof
delegacion. (PINEDA 341 (2009)) (HECTOR S. DE LEON & HECTOR M. DE LEON, JR.,
COMMENTS AND CASES ON OBLIGATIONS AND
Parties: CONTRACTS 542 (2014))
(a) Delegante – old debtor
(b) Delegatario – creditor b. Classifications
(c) Delegado – new debtor. (PARAS 508 (2016))
As to perfection or formation
EXPROMISION DELEGACION 1. Consensual – perfected by mere consent of the parties on
Intention: old debtor be released from the obligation the subject matter and cause (CIVIL CODE, art. 1315) (e.g.,
Consent of creditor required on both contract of sale)
Consent of creditor and third Consent of debtor (initiates), 2. Real – perfected by delivery (CIVIL CODE, art. 1316)
person creditor and third person; (e.g., commodatum, pledge, deposit)
need NOT be given 3. Formal/Solemn – require a certain specified form, in
simultaneously addition to consent, subject matter and cause (CIVIL CODE,
Governed by the rules of Same applies in the absence art. 1356) (e.g., donation of real property)
payment by third persons of an agreement
If w/o knowledge of debtor, Subrogation As to cause
beneficial reimbursement, no
subrogation 1. Onerous – The cause is, for each contracting party, the
New debtor's insolvency does Same UNLESS the new prestation or promise of a thing or service by the other (e.g.,
NOT make old debtor liable debtor’s insolvency already contract of sale) (CIVIL CODE, art. 1350)
existed at the time of the 2. Remuneratory– The cause is some past service or benefit
delegacion AND (i) it was of which by itself is a recoverable debt (CIVIL CODE, art. 1350)
public knowledge, or (ii) the
old debtor knew of the a. Note: In a remuneratory donation, the past service or debt
insolvency of the new debtor is not by itself a recoverable debt. (CIVIL CODE, art. 726)
at the time of delegacion.
3. Gratuitous (or contracts of pure beneficence) – founded
on the mere liberality of the benefactor (e.g., pure donation)
(c) Subrogating 3rd person to rights of creditor (active) (CIVIL CODE, art. 1350)

i. Conventional – agreement and consent of all parties; clearly As to importance or dependence of one upon another
established (CIVIL CODE, arts. 1300-1301)
ii. Legal – takes place by operation of law; no need for 1. Principal – when the contract does not depend for its
consent; NOT presumed except as provided for in law: (CIVIL existence and validity upon another contract (e.g., sale, lease)
CODE, arts. 1300 & 1302) 2. Accessory – depends on another contract for its existence
and validity (e.g., mortgage, guaranty)
B. CONTRACTS 3. Preparatory – the contract is entered into as a means
through which future contracts may be made (e.g., agency,
1. GENERAL PROVISIONS partnership) (ERNESTO L. PINEDA, OBLIGATIONS AND
CONTRACTS 36 (2009))
a. Stages of Contracts
As to parties obliged
(i) PREPARATION/NEGOTIATION
1. Unilateral – only one of the parties has an obligation
Period from the time the prospective contracting parties (ERNESTO L. PINEDA, OBLIGATIONS AND
indicate their interest in the contract to the time the contract is CONTRACTS 366 (2009))
perfected. 2. Bilateral – both parties are required to render reciprocal
prestations (CIVIL CODE, art. 1191)
(ii) PERFECTION/BIRTH
As to form
Consensual contracts
1. Common or informal – require no particular form (CIVIL
As a general rule, contracts are perfected by mere consent of CODE, art. 1356)
the parties regarding the subject matter and the cause of the 2. Special or formal – require some particular form (CIVIL
contract. (CIVIL CODE, arts. 1315, 1319) They are obligatory CODE, art. 1356)
in whatever form they may have been entered into, provided
all the essential requisites for their validity are present. (CIVIL As to their purpose
CODE, art. 1356)
1. Transfer of ownership
Real contracts 2. Conveyance of use
3. Rendition of service (4 ARTURO M. TOLENTINO,
COMMENTARIES AND JURISPRUDENCE ON THE
CIVIL CODE OF THE PHILIPPINES 410-411 (1991))
As to their subject matter Acceptance

1. Things Manifestation by the offeree of his assent to the terms of the

2. Services (4 ARTURO M. TOLENTINO, offer; must be absolute (i.e., must not qualify the terms of the
COMMENTARIES AND JURISPRUDENCE ON THE offer) (Oesmer v. Paraiso Development Corporation, G.R. No.
CIVIL CODE OF THE PHILIPPINES 410-411 (1991)) 157493)

As to the risk involved Simulated Contracts

1. Commutative – when the undertaking of one party is (a) Absolute – the parties have no intention to be bound at all
considered the equivalent of that of the other (e.g., sale, lease) (CIVIL CODE, art. 1345); void from beginning (CIVIL
2. Aleatory – when it depends upon an uncertain event or CODE, art. 1346).
contingency both as to benefit or loss (e.g., insurance, sale of (b) Relative – the parties conceal their true agreement (CIVIL
hope) (JURADO 361 (2010)) CODE, art. 1345): the real agreement binds the parties when:

As to the name or designation a. There is no prejudice to 3rd persons; and

b. It is not contrary to law, moral, good customs, public
1. Nominate – those which have a specific name or order or public policy (CIVIL CODE, art. 1346)
designation in law (e.g., lease, sale, agency, etc.)
2. Innominate – those which have no specific designation or b. Subject Matter (SM)
name in law (CIVIL CODE, art. 1307)
Requisites of things as SM (W-PLDT):
a. Do ut des – I give that you may give
b. Do ut facias – I give that you may do 1. Within the commerce of man (CIVIL CODE, art. 1347) –
c. Facio ut des – I do that you may give either existing or in potency
2. Licit or not contrary to law, morals, good customs, public
i. Note: Do ut des is, however, no longer an innominate order or public policy (CIVIL CODE, art. 1347)
contract. It has already been given a name of its own, i.e., 3. Possible, legally or physically (CIVIL CODE, art. 1348).
barter or exchange. (CIVIL CODE, art. 1638) 4. Determinate as to its kind or determinable without need to
enter into a new contract (CIVIL CODE, art. 1349)
d. Facio ut facias – I do that you may do (ERNESTO L. 5. Transmissible (CIVIL CODE, art. 1347)
PINEDA, OBLIGATIONS AND CONTRACTS 380
(2009)) Requisites of services as SM (PWD):

Auto Contracts 1. Within the commerce of man (CIVIL CODE, art. 1347)
2. Possible, physically or legally (CIVIL CODE, art. 1348)
Only one person represents two opposite parties, but in 3. Determinate or capable of being made determinate (CIVIL
different capacities. (ERNESTO L. PINEDA, CODE, arts. 1318[2] & 1349)
OBLIGATIONS AND CONTRACTS 367 (2009))
4. INTERPRETATION OF CONTRACTS
Contracts of Adhesion
If the terms of the agreement are clear and unequivocal, their
One party imposes a ready-made form of contract which the plain and literal meanings should be followed. (CIVIL CODE,
other party may accept or reject but cannot modify; one party art. 1370)
prepares the stipulation in the contract, while the other party
merely affixes his signature or his “adhesion” thereto, giving In the construction or interpretation of an instrument, the
no room for negotiation and depriving the latter of the intention of the parties is primordial and is to be pursued.
opportunity to bargain on equal footing (Polotan, Sr. v. CA, (Valdez v. CA, G.R. No. 140715)
G.R. No. 119379); construed strictly against the one who
drafted the same (Geraldez v. CA, G.R. No. 108253). In order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally
2. ESSENTIAL REQUISITES considered. (CIVIL CODE, art. 1371)

Essential Requisites - The three essential requisites are (1) In case of doubt concerning the surrounding circumstances in
Consent; (2) Subject Matter; and (3) Consideration. the execution of a contract, the least transmission of rights and
interest shall prevail if the contract is gratuitous, and if
a. Consent onerous, the doubt is to be settled in favor of greatest
reciprocity. (CIVIL CODE, art. 1378)
Definition - Meeting of the offer and the acceptance upon the
thing and the cause which are to constitute the contract; The terms of an agreement or writing are presumed to be have
concurrence of a certain offer and an absolute acceptance been used in their primary and general acceptation. However,
(CIVIL CODE, art. 1319) evidence may be admitted to show that they have a local,
technical, or otherwise peculiar signification and were used
Requisites (C3): and understood in that particular instance, in which case, the
agreement or writing must be construed accordingly.
1. Must be manifested by the Concurrence of the offer and (REVISED RULES ON EVIDENCE, rule 130, § 15)
acceptance upon the thing and cause;
2. Parties are legally Capacitated to enter into contracts Only laws existing at the time of the execution of a contract
3. Consent must be intelligent, free, spontaneous, and real are applicable to it and not the later statutes unless the latter
(ERNESTO L. PINEDA, OBLIGATIONS AND are specifically intended to have retroactive effect. (Vive
CONTRACTS 415 (2009)) Eagle Land, Inc. v. CA, G.R. No. 150308)
Offer 5. RESCISSIBLE CONTRACTS
A proposal made by one party to another to enter into a Those which have caused economic damage either to one of
contract; must be certain or definite, complete and intentional. the parties or to a third person and which may be set aside
(CIVIL CODE, art. 1319) even if valid. They may be set aside in whole or in part, to the
extent of the damage caused. (4 ARTURO M. TOLENTINO, 4. Error as to Person – When it is the principal consideration
COMMENTARIES AND JURISPRUDENCE ON THE of the contract
CIVIL CODE OF THE PHILIPPINES 574 (1991)) 5. Error as to legal Effect – When mistake is mutual and
frustrates the real purpose of parties (CIVIL CODE, art. 1334)

Rescissible Contracts under Art. 1381: (ALL-GF)

Violence
1. Entered into by Guardian whenever ward suffers damage by
more than 1/4 of value of object; Serious or irresistible force is employed to wrest consent
2. Agreed upon in representation of Absentees, if absentee (CIVIL CODE, art. 1335)
suffers lesion by more than 1⁄4 of value of property;
3. Contracts where rescission is based on Fraud committed on Intimidation
creditors (accion pauliana);
4. Objects of Litigation; contract entered into by defendant One party is compelled by a reasonable and well-grounded
without knowledge or approval of litigants or judicial fear of an imminent and grave danger upon person and
authority; and property of himself, spouse, ascendants or descendants (moral
coercion) (CIVIL CODE, art. 1335)
Contracts involving things under litigation are rescissible. Art.
1381 (4) requires the concurrence of the following: (1) the Undue Influence
defendant, during the pendency of the case, enters into a
contract which refers to the subject of litigation; and (2) said Person takes improper advantage of his power over will of
contract was entered into without the knowledge and approval another depriving latter of reasonable freedom of choice
of the litigants or of a competent judicial authority. The court (CIVIL CODE, art. 1337)
then has the duty to order the rescission of the contract upon
The doctrine on reluctant consent provides that a contract is
the concurrence of such requisites. (Ada v. Baylon, G.R. No.
still valid even if one of the parties entered it against his
182435)
wishes or even against his better judgment. Contracts are also
6. VOIDABLE CONTRACTS valid even though they are entered into by one of the parties
without hope of advantage or profit. (Martinez v. HSBC, G.R.
Intrinsic defect; valid until annulled; defect is due to vice of No. L-5496)
consent or legal incapacity (ERNESTO L. PINEDA,
OBLIGATIONS AND CONTRACTS 601-602 (2009)) Fraud

Characteristics (ACED) Thru insidious words or machinations of one of the

contracting parties, the other is induced to enter into a contract
1. Effective until set aside without which he will not enter it (dolo causante). (Samson v.
2. May be assailed or attacked only in an Action for that CA, G.R. No. 108245)
purpose
3. Can be Confirmed Kinds of Fraud in the Performance of

NOTE: Confirmation is the proper term for curing the defect Obligations or Contracts
of a voidable contract.
1. Causal Fraud (dolo causante)
4. Can be assailed only by the party whose consent was 2. Incidental Fraud (dolo incidente)
Defective or his heirs or assigns 3. Tolerated Fraud – includes minimizing the defects of the
thing, exaggeration of its good qualities and giving it qualities
What contracts are voidable: it does not have; lawful misrepresentation (CIVIL CODE, art.
1340)
Contracts entered into: (SIM-D3)
7. UNENFORCEABLE CONTRACTS
1. By Minors (CIVIL CODE, art. 1327)
2. By Insane unless he/she acted during a lucid interval They are valid but the execution cannot be compelled unless
(CIVIL CODE, art. 1327 & 1328) ratified; extrinsic defect; produce legal effects only after
3. By Deaf mute who can’t read or write (CIVIL CODE, art. ratified.
1327)
4. By Persons specially Disqualified: civil interdiction (CIVIL Kinds: (URA)
CODE, art. 1329 & 38)
1. Unauthorized or no sufficient authority – Entered into in
5. In state of Drunkenness (CIVIL CODE, art. 1328)
the name of another when: (CIVIL CODE, art. 1404)
6. In state of hypnotic Spell (CIVIL CODE, art. 1328)
a. No authority conferred (CIVIL CODE, art. 1317)
Mistake
b. In excess of authority conferred (ultra vires) (CIVIL
False belief of something which is contrary to the real CODE, art. 1317)
intention of the parties (ERNESTO L. PINEDA,
2. Curable by Ratification – Both parties incapable of giving
OBLIGATIONS AND CONTRACTS 443 (2009))
consent (2 minor or 2 insane persons) (CIVIL CODE, art.
Requisites: (CP-SEN) 1407)

1. Refers to the Subject of the thing which is the object of the 3. Curable by Acknowledgment – Failure to comply with
contract Statute of Frauds. (CIVIL CODE, art. 1405)
2. Refers to the Nature of the contract
Statute of Frauds
3. Refers to the principal Conditions in an agreement
(ERNESTO L. PINEDA, OBLIGATIONS AND
CONTRACTS 443 (2009))
1. Agreement to be performed within a year after making Contract of Sale
contract
2. Special promise to answer for debt, default or miscarriage It is a contract where one of the contracting parties (Seller)
of another obligates himself to transfer the ownership and to deliver a
3. Agreement made in consideration of promise to marry determinate thing, and the other party (Buyer) to pay a price
4. Agreement for sale of goods, chattels or things in action at certain in money or its equivalent. A contract of sale may be
price not less than 500; exception: auction when recorded sale absolute or conditional. (Art. 1458)
in sales book
5. Agreement for lease of property for more than one year and
sale of real property regardless of price
6. Representation as to credit of another (CIVIL CODE, art. 1. ESSENTIAL REQUISITES
1403 (2))
a. Elements of a Contract of Sale: (CSP)
8. VOID OR INEXISTENT CONTRACTS
1. Consent
These contracts have no legal effect (Modina v. CA, G.R. No. 2. Determinate or Determinable Subject Matter
109355) 3. Price certain in money or its equivalent (Coronel v. CA,
G.R. No. 103577, 1996)
Characteristics:
The absence of any essential elements negates the existence of
1. It produces no effect whatsoever either against or in favor a perfected contract of sale. (Dizon v. CA, G.R. 122544, 1999)
of anyone; (Modina v. CA, G.R. No. 109355)
2. There is no action for annulment necessary as such is ipso Characteristics of Contract of Sale: (NOC-PCBR)
jure. A judicial declaration to that effect is merely a
1. Nominate
declaration;
2. Onerous
3. It cannot be confirmed, ratified or cured;
3. Consensual
ILLEGAL CONTRACTS 4. Principal
5. Commutative
Pari Delicto Doctrine 6. Bilateral
7. Reciprocal
General Rule:
FORMALITIES OF CONTRACT
 Both parties are guilty, no action against each other;
(CIVIL CODE, art. 1412) Form not important for validity of sale GR: Contract of
 Those who come in equity must come with clean hands; sale is consensual, i.e., perfected by mere consent as to price
(Department of Public Works and Highways v. Quiwa, and subject matter (or object of the contract). (Art. 1475)
G.R. No. 183444)
 Applies only to illegal contracts and not to inexistent Non-compliance with the formal requirements does not affect
contracts; the validity of sale. (Fule v. CA, G.R. No. L-40502 & L-
 Does not apply when a superior public policy intervenes. 42607, 1976)

The Clean Hands Doctrine states that “a litigant may be When form is important for validity; exception by specific
denied relief by a court of equity on the ground that his provision of law;
conduct has been inequitable, unfair and dishonest, or
1. Donations and wills (Arts. 749, 804);
fraudulent, or deceitful as to the controversy in issue.” Bad
2. Power to sell a piece of land granted to an agent must be in
faith and fraud are allegations of fact that demand clear and
writing– otherwise sale is VOID (Art. 1874);
convincing proof. (Department of Public Works and
3. Sale of large cattle; must also be registered with Municipal
Highways v. Quiwa, G.R. No.183444)
treasurer – otherwise VOID (Art. 1581; Revised
C. NATURAL OBLIGATIONS Administrative Code, Sec. 529);
4. Sale of land by non-Christian if not approved by Governor
Natural obligations, not being based on positive law but on – VOID (Tac-an v. CA, G.R. No. L- 38736, 1984).
equity and natural law, do not grant a right of action to enforce
their performance, but after voluntary fulfillment by the Article 1358, which requires the embodiment of certain
obligor, they authorize the retention of what has been contracts in a public instrument, is only for convenience, and
delivered or rendered by reason thereof. (CIVIL CODE, art. registration of the instrument only adversely affects third
1423) parties. Formal requirements are, therefore, for the benefit of
third parties; and non-compliance therewith does not adversely
Examples of natural obligations enumerated under the affect the validity of the contract and the rights and obligations
Civil Code: of the parties thereunder. (Dalion v. CA, 182 SCRA 872,1990)

i. Performance after the civil obligation has prescribed Statute of Frauds

ii. Reimbursement of a third person for a debt that has
prescribed Note that if particular form is required under the statute of
iii. Restitution by minor after annulment of contract frauds and the same is not followed:
iv. Delivery by minor of money or fungible thing in
 While the sale is valid, it is UNENFORCEABLE even as
fulfillment of obligation
to the parties to the contract of sale.
v. Performance after action to enforce civil obligation has
failed When form (should be in writing and not merely verbal) is
vi. Payment by heir of debt exceeding value of property important for enforceability [Statute of Frauds](Art. 1403 [2])
inherited
vii. Payment of legacy after will has been declared void. 1. A contract not to be performed in 1 year: A sale agreement
(CIVIL CODE, art. 1423-1430) which by its terms is not to be performed within a year from
the making thereof;
C. SALES 2. Php 500 and above: An agreement for the sale of goods,
chattels or things in action, at a price not less than PhP500 SUBJECT MATTER OF SALE
3. Sale of land: A sale of real property or of an interest therein.
b. Requisites of a valid subject matter (Arts. 1459-1465)
FORMATION OF THE CONTRACT
1. Existing and future things
Three Stages in Life of a Contract of Sale 2. Licit
3. Determinate or Determinable
1. Policitacion/Negotiation Stage – offer floated, acceptance
is floated but they do not meet; covers the period when parties If requisite not present, resulting contract is VOID.
indicate their interest but no concurrence of offer and
acceptance. 1. Existing and future things
2. Perfection – the “birth” of the contract,
concurrence of all requisites; meeting of the Existing, having potential of existence, future, or contingent
minds upon the object and price. (Arts. 1347, 1348, 1462)
3. Consummation – the “death” of the contract, parties
perform their respective undertakings (Arts. 1475, 1479, 1493- (a) Existing goods – goods owned or possessed by the seller
1506; Villanueva & Tiansay, Law on Sales, 118-119, 2016) at the time of perfection
(b) Future goods – goods to be manufactured, raise, or
OPTION CONTRACT acquired by the seller after the perfection of the contract
(forward contracts)
A contract granting an exclusive right in one person, for which
he has paid a separate consideration, to buy a certain object Whether the subject matter is of a type and nature that exists
within an agreed period of time. (Art. 1479) (Note: an option or could be made to exist to allow the seller reasonable
can be in an independent/standalone contract or simply certainty of being able to comply with his obligations.
embedded as a provision within a contract that gives the Minimum requirement of potential existence: taking into
option holder the right, but not the obligation, to exercise an consideration the state of science and technology at the time of
option to buy or sell a subject matter.) perfection of the contract.

Elements of Valid Option Contract: EMPTIO REI EMPTIO SPEI

SPERATAE
1. Consent – meeting of the minds “The purchase of what we “Purchase of hope”
2. Subject matter – an option right to an “unaccepted hope”
unilateral offer to buy or sell”, or an “accepted promise to sell, Sale of an expected thing/ Sale of a hope or expectancy
or to buy”: future thing that the thing will come to
existence; sale of the hope
(a) A determinate or determinable object itself
(b) For a price certain (including manner of payment) Sale is subject to a suspensive Sale is effective even if the
condition—that the thing will thing does not come into
3. Prestation – a consideration separate from purchase price exist; if it does not, there is existence, unless it is a vain
for option given, i.e., Option (Villanueva & Tiansay, Law on no contract hope (Art. 1461 Sale of a
Sales, 126, 2016) vain hope or expectancy is
void)
Characteristics of Option Contract: (SPNO-CUUP)
Uncertainty is with regard to Uncertainty is with regard to
1. Not the contract of sale by itself, Separate and distinct the quantity and quality of the the existence of the thing
2. Nominate thing and not the existence of
3. Principal - but can be attached to other principal contracts the thing
4. Onerous Object is a future thing, Object is a present thing
5. Commutative which must be determinate or which is the hope or
6. Unilateral – versus contract of sale which is specific (not generic) expectancy
bilateral E.g. growing crops E.g., lottery ticket
7. Preparatory (Villanueva & Tiansay, Law on Sales, 67-68, 2016)
8. Unaccepted or unexercised contractual offer
2. Licit
Consideration in an option contract may be anything of value,
unlike in sale where it must be price certain in money. (San  Not outside the commerce of man (Art. 1459)
Miguel Philippines v. Huang, G.R. No. 137290, 2000)  If illicit, contract is void
However, when the consideration is not monetary, the  Sale declared illegal by law (i.e., narcotics, wild birds and
consideration must be clearly specified as such in the option mammals, rare wild plants, etc.)
contract or clause. When the written agreement itself does not
Prohibited:
state the consideration for the option contract, the offeree
bears the burden of proving the existence of a separate (a) Narcotics (RA 6425);
consideration for the option. (PNOC v. Keppel Phils. (b) Wild Birds or mammals (R.A. No. 2590); rare wild plants
Holdings, Inc., G.R. No. 202050, 2016) (R.A. No. 3983); poisonous plants or fruits (R.A. No. 1288);
dynamited fish (R.A. 428);
How Exercised: Notice of acceptance should be
(c) Gunpowder and explosives (Act No. 2255); and firearms
communicated to offeror even without actual payment of the
and ammunitions (P.D. No, 9);
option money as long as there is delivery of payment in
(d) Sale of land by non-Christians (Sec. 145, Administrative
consummation stage. (Nietes v. CA, G.R. No. L-32873, 1972)
Code of 1987)
RIGHT OF FIRST REFUSAL (e) Animals with contagious diseases (Art. 1575)
(f) Sale of animals unfit for the use or service for which they
A right of first refusal (“RFR”) covers a situation wherein a were acquired (Art. 1575) (g) Sale of future inheritance and
promise on the part of the owner of a property is made that if other rights that are not transmissible (Art. 1347)
he decides to sell the property in the future, he will first offer
the same to the promisee. 3. Determinate or Determinable
Determinate: always specific consideration (i.e., something that can be quantifiable by pesos
and centavos) as part of its consideration (Test of value
 particularly designated or physically segregated from all consideration). (Republic v. Phil. Resources Dev., G.R. No. L-
others of the same class; (Art. 1460) 10141, 1958)

Determinable: always generic 3. Certain or ascertainable

 Thing is capable of being made determinate (Capacity to Certain: expressed and agreed in terms of specific pesos
Segregate Test) and/or centavos (Art. 1469)
 Without the necessity of a new or further contract
between the parties (No Further Agreement Test). (Art. Ascertainable:
1460)
i. Set by third persons (Art. 1469)
NOTE: Subject matter CANNOT be DETERMINED BY a ii. Set by the courts – only in cases where the third person
3rd PARTY. (Villanueva & Tiansay, Law on Sales, 102, designated to fix the price, fixes the same in bad faith or by
2016) mistake (Art. 1469)
iii. Set by reference to a definite day, particular exchange or
When subject matter is a right: It must be transmissible. market (Art. 1472)
(Art. 1311) iv. Set by reference to another thing certain (Art. 1472)
v. But never by only one party to the contract of sale as it
 Future inheritance cannot be sold (Art. 1347) amounts to a potestative condition (unless the price is accepted
 Service cannot be sold (Art. 1348) by the other party) (Art. 1473)
Quantity of subject matter is not essential for perfection, but NOTE: When the 3rd party is unwilling to set the price, the
quantity is essential if it goes into the determinability of the parties may not ask the court to fix the price because the
subject matter and the price or consideration in the contract; condition imposed on the contract has not happened yet and
Determine the nature and quality of subject matter (National thus, no enforceable contract has arisen. (Art. 1474)
Grains Authority v. IAC, G.R. No. 74470, 1989)
HOW PRICE IS DETERMINED
Generic things may be the object of a sale, but the obligation
to deliver the subject matter can only be complied with when Price is determined by the contracting parties. (Art. 1473)
the subject matter has been made determinate (either by
physical segregation or particular designation) (Yu Tek & Co. INADEQUACY OF PRICE
v. Gonzales, G.R. No. L-9935, 1915)
Effect of Gross Inadequacy of Price
PRICE
General Rule: Mere inadequacy of the price does not affect
The sum stipulated as the equivalent of the thing sold and also the validity of the sale. (Bautista v. CA, G.R. No. 158015,
every incident taken into consideration for the fixing of the 2004)
price, put to the debit of the vendee and agreed to by him.
(Inchausti & Co. v. Cromwell, G.R. No. L-6584, 1991) MANNER OF PAYMENT MUST BE AGREED UPON

NOTE: Sale is valid when consideration is partly in money The manner of payment must be agreed upon. (Marnelego v.
and partly in another thing. (Art. 1468). c. Requisites for a Banco Filipino Savings and Mortgage Bank, G.R. No. 161524,
valid price (ReM-C) 2006)

1. Real It is an essential ingredient before a valid and binding contract

2. In Money or its equivalent of sale can be said to exist, because it is part of the prestation
3. Certain or ascertainable (Francisco v. Desierto, G.R. No. of the contract. (Sps. Navarra v. Planters Development Bank,
154117, 2009) G.R. No. 172674, 2007)

1. Real, not simulated EARNEST v. OPTION MONEY

When at the perfection of the contract of sale, there is every Earnest Money (Art. 1482)
intention on the buyer to pay the price, and every expectation
on the part of the seller to receive such price as the value of  Money given as part of purchase price
the subject matter he obligates himself to deliver. (Test of  Acceptance is the proof that contract of sale exists
intention) (Rongavilla v. CA, G.R No. 83974, 1998)  Nothing in law prevents parties from treating earnest
money differently
Effect Where Price is Simulated
Absent proof of a clear agreement to the contrary, it is
i. The act may be shown to have been in reality a donation, or intended to be forfeited if the sale does not happen without the
some other act or contract. (Art. 1471) seller's fault. The potential buyer bears the burden of proving
ii. If not, and neither party had any intention whatsoever that that the earnest money was intended other than as part of the
the amount will be paid (absolutely simulated): the sale is void purchase price and to be forfeited if the sale does not occur
(Rongavilla v. CA, G.R. No. 83974, 1998) without the fault of the seller. (Racelis v. Spouses Javier, G.R.
iii. If there is a real price but what is stated in the contract is No. 189609, January 29, 2018).
not the one intended to be paid (only relatively simulated or
what is called a “False Price”): the ostensible contract of sale Qualification: if old concept is stipulated – valid
is valid but subject to reformation. (Macapagal v. Remorin,
G.R. No. 158380, 2005)  Presumption of perfection of contract of sale and such
earnest money as part of purchase price is disputable
2. In money or its equivalent
OPTION MONEY EARNEST MONEY
Consideration for a valid contract of sale can be the price and Given as distinct Given as part of the purchase
other valuable consideration; at the very least, a true contract consideration for an option price
of sale must have price, which consist of valuable contract
 Applies to a sale that is not Applies when there is already Network Phils. Inc., G.R. No.
perfected while the option is a sale 160322, 2011)
not exercised
When given, the option When given, buyer is bound Remedy of rescission is
holder is not required to to pay the balance not available because the
exercise the option (either to breach contemplated in
buy or sell). rescission of contracts is
(Oesmer v. Paraiso Development Corporation, G.R. No. the obligor’s failure to
157493, 2007) comply with an obligation
already extant, not a
2. PERFECTION OF SALES failure of a condition to
render binding that
General Rule: A contract of sale is perfected at the moment obligation. A non-existent
there is a meeting of the minds upon the thing which is the obligation cannot be
object of the contract and upon the price; consensual contract subject of rescission.
(Art. 1475) (Diego v. Diego, G.R. No.
179965, 2013)
Exception: When the sale is subject to a suspensive condition. (De Leon, Comments and Cases on Sales and Lease, 21-23,
(People’s Homesite v. CA, G.R. No. L-61623, 1984) 2014)
CONTRACT OF SALE CONTRACT TO SELL B. CAPACITY TO BUY OR SELL
TRANSFER OF TITLE
Title passes to the buyer upon Ownership is reserved in the CAPACITY OF PARTIES
delivery of the thing sold seller and shall not pass to the
(Art. 1477) purchaser until fulfillment of General rule: All persons who are authorized in this Code to
certain conditions, such as obligate themselves may enter into a contract of sale (Art.
full payment of the purchase 1489); as long as these persons are with civil capacity.
price. (Art. 1478)
OWNERSHIP OF THE SELLER When one of the parties is incapable of giving consent, the
The seller has lost and cannot Title remains in the seller if contract of sale is voidable (Art. 1390), subject to annulment
recover ownership of the the buyer does not comply or ratification. (Art. 1393)
thing sold and delivered with the condition precedent,
(Arts. 1477, 1496) until and which payment of the price at 1. ABSOLUTE INCAPACITY
unless the contract of sale the time specified in the
Parties Disqualified to Enter into Sale Contract:
itself is resolved and set contract. (Tuazon v. Garilao,
aside. G.R. No. 143673, 2001) 1. Minors (Art. 1327)
2. Insane and Demented Persons (Art. 1327)
NOTE: It must be stipulated 3. Deaf-Mutes who do not know how to write (Art. 1327)
that ownership in the thing Also includes state of drunkenness and hypnotic spell (Art.
shall not pass to the buyer 1328)
until full payment of the
price. (Art. 1478) GR: Status of Contract: Voidable, BUT it is subject to
PAYMENT OF THE PRICE annulment or ratification.
Non-payment of the price is a Full payment of the price is a
negative resolutory condition. positive suspensive condition, Exception: Where necessaries are sold and delivered to
(Art. 1179) the failure of which is not a minors or other persons without capacity to act, he must still
breach of contract but simply pay a reasonable
an event that prevents the
obligation of the seller to price therefore, thus, the resulting contract is valid
convey title to the buyer.
(Uy& Sons, Inc. v. Valbueco and not voidable. (Art. 1489)
Inc., G.R. No. 179594, 2013)
The non-payment of the 2. RELATIVE INCAPACITY
purchase price renders the
1. Spouses - A spouse may, without the consent of the other
contract to sell without
spouse, enter into sales transactions in the regular pursuit of
force and effect. (Tumibay
their profession, vocation, or trade. (Family Code, Arts. 73,
v. Lopez, G.R. No. 171692,
96, 124)
2013)
REMEDIES General Rule: The husband and the wife cannot sell property
Specific performance or Specific performance cannot to each other. The contract is void. There is no transfer of
rescission under Articles be availed of when the ownership, thus the creditors may go after the property.
1191, 1592, and 1593. contract to sell has been (Modina v. CA, G.R. No. 109355, 1999)
cancelled due to the non-
payment of the purchase Exceptions:
price. The buyer cannot
demand the seller to convey (a) When a separation of property was agreed upon in the
title when such buyer did not marriage settlement (Art. 1490)
pay the price, and the seller (b) When there has been a judicial separation of property
cannot demand the buyer to under Art. 191 (Art. 1490)
pay the price, since failure to
pay resulted in the NOTE: Prohibition likewise applies to common- law spouses
cancellation of the contract to (Matabuena v. Cervantes, G.R. No. L-28771, 1971)
sell. (Pilipino Telephone
Corporation v. Radiomarine New doctrine: A sale made by a husband without the consent
of the wife is merely voidable. It cannot be a void contract
since it is not a matter of "lack of consent," which gives rise to 1. Preserve the subject matter – proper diligence of a good
a "no contract" situation under Article 1318 of the Civil Code. father of a family unless law or parties stipulate another
Neither it is mentioned as a void contract under Article 1409 standard (Art. 1163)
of the Civil Code. Article 173 reveals the legislative intent to 2. Deliver – transfer ownership and deliver object (Art. 1495)
make such contracts as valid until annulled. (Spouses Cueno v. 3. Deliver fruits and accessories existing from the time of
Spouses Bautista, G.R. No. 246445, March 2, 2021) perfection (Arts. 1164, 1166, 1537)
4. Warrant subject matter against eviction and hidden defects
2. Others - Trust Relationships (Arts. 1546-1581)

General Rule: Seller need not be the owner of the subject

matter at the time of perfection: sufficient that he is the owner
Two groups of parties prohibited from acquiring by at the time of delivery. (Art. 1459)
purchase certain properties: (GAAE - PEJJOL) (Art.
1491) Exception: Foreclosure sale (mortgagor must be absolute
owner) (Art. 2085)
1. Guardian/Agent/Executors and Administrators
NOTE: A perfected contract of sale cannot be challenged on
 Direct or indirect the ground of the seller’s non- ownership of the thing sold at
 May be “ratified” since only private wrong is involved, the time of the perfection of the contract. It is at delivery that
i.e., really in the form of entering into a new contract the law requires the seller to have right to transfer ownership
of the thing sold. (Cavite Development Bank v. Sps. Lim,
2. Public Officers and Employees/ Justices G.R. No. 131679, 2000)
and Judges/ Officers of Court/ Lawyers DELIVERY OF SUBJECT MATTER
 Cannot be ratified since public wrong is involved Delivery- “the absolute giving-up of the control and custody
of the property on the part of the vendor, and the assumption
Requisites for the prohibition to apply to attorneys and
of the same by the vendee” (Equatorial Realty Dev. v. Mayfair
their clients’ properties:
Theater, G.R. No. 133879, 2001)
1. Existence of attorney client relationship;
Two Types of Delivery:
2. Property is the subject matter in litigation;
3. While in litigation (from filing of complaint to final 1. Actual - physical delivery
judgment) 2. Constructive
NOTE: Exception to the prohibition against attorneys: a. Execution of Public Instrument (Art. 1498) only
contingent fee arrangement where the amount of legal fees is produces the effect of delivery when:
based on a value of property involved in litigation (rationale:
the transfer or assignment of the property takes effect only i. The thing sold is subject to control of seller at the time of
after the finality of a favorable judgment and is always subject execution of instrument. (Addison v. Felix, G.R. No. L-12342,
to supervision by the court) (Fabillo v. IAC, G.R. No. L- 1918); and
68838, 1991) ii. Such control should remain for a reasonable period after
execution of the Instrument. (Power Commercial and
Legal Status of Contract
Industrial Corp. v. CA, G.R. No. 119745, 1997)
Void (case law) – guardian/executor/public officers/officers of
b. Constitutum Possessorium (Art. 1500) – the seller held
the court. (Rubias v. Batiller, G.R. No. L-35702, 1973)
possession of the subject matter (real property) in the
Unenforceable (civil code) – agent; VALID if with consent concept of owner, and pursuant to the sale, the seller
(Art. 1491) continues to hold physical possession but no longer in the
concept of the owner (owner to lessee)
SPECIAL DISQUALIFICATIONS c. Traditio Brevi Manu – the would-be buyer was already
in the possession (i.e., as lessee) of the subject matter (real
Any others specially disqualified by law (Art. 1491 [6]) property) and pursuant to the sale, he would now hold
possession as owner
NOTE: These contracts are void for public policy. They d. Traditio Longa Manu – delivery by mere consent or
cannot be ratified neither can the right to set up the defense of agreement.
illegality be waived. (Rubias v. Batiller, G.R. No. L-35702,
1973) The essential requisites of a contract under Article 1318 of the
New Civil Code are: (1) consent of the contracting parties; (2)
D. OBLIGATIONS OF VENDOR object certain which is the subject matter of the contract; and
(3) cause of the obligation which is established. Thus,
The vendor (seller) is bound to transfer the ownership of and contracts, other than real contracts are perfected by mere
deliver, as well as warrant the thing which is the object of the consent which is manifested by the meeting of the offer and
sale. (Art. 1495) the acceptance upon the thing and the cause which are to
constitute the contract. Furthermore, under Article 1475 of the
1. OBJECTS THAT THE VENDOR HAS TO Civil Code, from the moment of perfection of the sale, the
DELIVER: (THI-F-A) parties may reciprocally demand performance, even when the
parties have not affixed their signatures to the written form of
1. The thing sold (Art. 1495)
such sale. Consequently, the actual delivery of the subject
2. Fruits, belong to the buyer from the day the contract of sale
matter or payment of the price agreed upon are not necessary
is perfected (Art. 1537)
components to establish the existence of a valid sale; and their
3. Accessions and accessories, in the condition in which they
non-performance do not also invalidate or render "void" a sale
were upon the perfection of the sale (Art. 1537)
that has begun to exist as a valid contract at perfection.
2. OBLIGATIONS OF THE VENDOR (Selerio v. Bancasan, G.R. No. 222442, June 23, 2020)

E. OBLIGATIONS OF VENDEE
There is real or actual delivery of the thing sold when it is buyer that the same is being held by the seller as bailee for the
placed in the control and possession of the vendee. (Art. 1497) buyer then maintain an action for the price, i.e., specific
performance.(Art. 1595)
Obligations of Vendee (Buyer)
(c) When price is Payable on Certain Day and Buyer Fails
1. Pay the price to Pay on the Day Set – the seller can maintain action for the
price, i.e., specific performance (Art. 1595)
Buyer is obligated to pay the price according to the terms
agreed upon regarding time, place and amount (Art. 1582) NOTE: Read Articles 1595-1596 of the Civil Code

i. If payment of interest is stipulated – must pay; if amount of UNPAID SELLER

interest not mentioned – apply legal rate
ii. When buyer defaults – constitutes breach; subject to A seller of the goods is deemed to be an unpaid seller either:
specific performance/rescission and damages; interest to be
paid also from default (a) When the whole of the price has not been paid or tendered;
or
The full payment of the purchase price is the buyer's (b) When the seller received bill of exchange or negotiable
prestation. The non-payment of the purchase price by the instrument as a condition for payment and the condition has
buyer after the seller has delivered the object of the sale to the been broken by reason of the dishonor of instrument, the
buyer constitutes a breach of the buyer's prestation in a insolvency of the buyer, or otherwise. (Art. 1592)
contract of sale. The buyer has contravened the very tenor of
the contract. (Nuñez et al. v. Moises-Palma, G.R. No. 224466, Requisites of Unpaid Seller: (PUG)
March 27, 2019)
1. Physical possession is with seller
2. Accept delivery of thing sold 2. Seller is Unpaid
3. Subject matter – Goods
Where to accept:
Special remedies of unpaid seller: (PSRR)
(a) at time and place stipulated in the contract
(b) if none specified – at the time and place of delivery goods 1. Possessory lien
(Art. 1582) 2. Stoppage in Transitu
3. Special right of Re-sale
There is acceptance when: 4. Special right to Rescind (Art. 1526)

(a) He intimates to seller that he has accepted NOTE: Hierarchical Application – only when unpaid seller
(b) When delivered and buyer does any act inconsistent with has exercised possessory lien or stoppage in transitu can the
ownership of seller seller proceed with his other special rights of resale or to
(c) Retains without intimating to seller that he has rejected rescind. (Villanueva & Tiansay, Law on Sales, 335, 2016)
(Art. 1585)
1. Possessory lien
3. Sale of Goods on installment
Seller is not bound to deliver if buyer has not paid him the
Goods must be delivered in full, except when stipulated (Art. price. (Art. 1524)
1583)
Right to retain cannot be availed when seller does not have
When not examined by buyer – not accepted until examined or custody (Art. 1526)
at least had reasonable time to examine (Art. 1584)
 Exercisable only in following circumstances:(CCI)
Acceptance of goods in general, absent contrary express
stipulation, does not discharge seller from liability in case of (a) Goods sold without stipulation as to Credit
breach of warranties (unless no notice or failure to give it (b) Goods sold on Credit but term of credit has expired
within reasonable time) (Art. 1586) (c) Buyer becomes Insolvent (Art. 1527)

When buyer has a right to refuse goods, no need to return;  When part of goods delivered, may still exercise right on
shall be considered as depositary; unless there is stipulation to goods undelivered
the contrary (Art. 1587)
Instances when possessory lien is lost:
F. BREACH OF CONTRACT
1. Seller delivers goods to carrier for transmission to buyer
1. REMEDIES without reserving ownership in goods or right to possess them
2. Buyer or his agent lawfully obtains possession of goods
a. Remedies of seller in case of movables 3. Waiver (Art. 1529)
4. When he parts with goods (still has stoppage in transitu)
General Remedies:
NOTE: Notice by seller to buyer not essential
1. Specific Performance with damages; OR
2. Rescission with damages 2. Stoppage in transitu

(a) When ownership is transferred to the buyer – the seller  Goods are in transit
may maintain an action against him for the price of the  Remedy is available only when buyer is insolvent (Art.
goods, i.e., specific performance (Art. 1595) 1526)
(b) When there is no transfer of ownership to the buyer
Requisites when goods are in transit (DR)
i. If the goods can be resold for a reasonable price – seller may
resell 1. From the time goods are Delivered to carrier for purpose of
ii. If the goods cannot be resold – the seller can deliver the transmission to buyer
goods and if buyer refuses, then the seller may notify the
2. Goods Rejected by buyer and carrier continues to possess In a contract to sell, the forfeiture of partial payments may
them (Art. 1531) only be valid if there is a stipulation to that effect, subject to
payments of reasonable rents. In a contract to sell, failure to
When goods no longer in transit fully pay the purchase price results in the cancellation of the
contract, and the parties shall stand as if the obligation to sell
(a) Reached point of destination; never existed." (Spouses Godinez v. Spouses Norman, GR No.
(b) Before reaching destination, buyer or his agent obtains 225449, February 26, 2020, citing Olivarez Realty
delivery of the goods; Corporation v. Castillo)
(c) Goods are supposed to have been delivered to buyer but
carrier refused; Remedies available under the Recto Law: In a sale of
(d) Bailee or carrier acknowledges that he is holding the goods personal property, the price of which is payable in
for the buyer or his agent. (Art. 1531) installments, the seller may exercise the following remedies:
(REF)
How is right exercised
1. Exact fulfillment of the obligation, should the buyer fail to
1. Obtain actual possession of goods pay any installment;
2. Give notice of claim to carrier/bailee in possession thereof 2. Rescind the sale, should the buyer’s failure to pay cover
two or more installments;
NOTE: Notice by seller to buyer is not required; notice to 3. Foreclose the chattel mortgage, if one is constituted, should
carrier is what is essential (Art. 1532) the buyer’s failure to pay cover two or more installments (Art.
1484)
3. Special Right to Resell the Goods Can be exercised
under the following instances: NOTE: This also applies to contracts purporting to be leases
of personal property with option to buy, when the lessor has
(a) Goods are perishable;
deprived the lessee of the possession or enjoyment. (Art.
(b) Stipulated the right of resale in case buyer defaults in
1485)
payment;
(c) Buyer in default on payment of price for Sale on installment: Payment by several partial payments
(two or more) in small amount (Levy Hermanos, Inc. v.
unreasonable time. (Art. 1533)
Gervacio, G.R. No. L-46306, 1939)
NOTE: Notice by seller to buyer not essential
Rationale of the law: Buyer is lulled into thinking that he
Why ‘special’? There are things which seller cannot do in could afford because of small amounts per installment and at
ordinary sale: the same time to remedy abuse of commercial houses. (Manila
Trading and Supply Co. v. Reyes, G.R. No. L-43263, 1935)
1. Ownership is with buyer but seller can sell goods
2. Title accorded to buyer is destroyed even without court Nature of remedies: Alternative, not cumulative (Nonato v.
intervention (Villanueva & Tiansay, Law on Sales, 342, 2016) IAC, G.R. No. L-67181, 1985) The fact that the seller did not
foreclose the chattel mortgage constituted on the movable
NOTE: In ordinary sale, need to go to court to destroy purchased on credit, but opted specific performance, with a
transfer of ownership. plea for a writ of replevin, does not amount to a foreclosure of
the chattel mortgage to be covered by Art. 1484. (Tajanglangit
4. Special Right to Rescind v. Southern Motors, G.R. No. L-10789, 1957)

Can be exercised under the following instances: REMEDIES are NOT CUMULATIVE but are
ALTERNATIVE and EXCLUSIVE
1. Expressly stipulated
2. Buyer is in default for unreasonable time (Art. 1534) 1. Specific Performance

NOTE: Notice needed to be given by seller to buyer. General Rule: Once chosen, can no longer rescind nor
foreclose mortgage.
b. Remedies of seller in case of sale of immovables
Exception: After choosing specific performance but the same
General Remedies becomes impossible, rescission may be pursued subsequently.
(Villanueva & Tiansay, Law on Sales, 352-353, 2016
1. Specific Performance with damages; or
2. Rescission with damages 2. Rescission

2. RECTO LAW AND MACEDA LAW When chosen, there is a correlative obligation to restitute.
Stipulations that installments paid are forfeited are valid if not
a. Recto Law: Sale of movables on installment (Arts. 1484- unconscionable.
1486)
Deemed chosen when:
Coverage: Sale on installment (two or more installments
required) and financing transaction (Equitable Savings Bank 1. Notice of rescission is sent;
v. Palces, G.R. No. 214752, 2016) on movable property and 2. Takes possession of subject matter of sale;
contracts of lease of movable property with option to purchase 3. Files action for rescission;
(PCI Leasing and Finance v. Giraffe-X Creative Imaging, 4. Barring effect on recovery of balance. (Villanueva &
G.R. No. 142618, 2007) Tiansay, Law on Sales, 353-356, 2016)
Contract to sell is not covered. (Visayan Sawmill Co. v. CA, 3. Foreclosure
G.R. No. 83851, 1993).
Once there has been foreclosure sale, the seller can no longer
Rule on Forfeiture of Partial Payments in a Contract to claim for remaining balance on the purchase price. (Northern
Sell Motors v. Sapinoso, G.R. No. L-28074, 1970)
GR: When foreclosure is chosen, seller can no longer claim 1. Down payment and
all amounts due from the sale, including damages and 2. Deposit or option money (R.A. 6552, Sec. 3)
attorney’s fees. (Macondray & Co. v. Eustaquio, G.R. No.
43683, 1937) Rights of the Buyer under Maceda Law with less than two (2)
years of installments: (R.A. 6552, Sec. 4)
E: In case of Perverse Buyer-Mortgagor, if mortgagor
refuses to deliver property to effect foreclosure, expenses 1. Still has the right to pay within a grace period of not less
incurred in recovering the property may also be recovered, i.e., than sixty (60) days from the date the installment became due.
attorney’s fees, etc. (Filipinas Investment & Finance Corp. v. 2. If the buyer fails to pay the installment due at the expiration
Ridad, G.R. No. L-27645, 1969) of the grace period, i.e. 60 days, the seller may cancel the
contract after 30 days from receipt by the buyer of the notice
of cancellation or demand for rescission of the contract by a
notarial act
b. Maceda Law (R.A. 6552)
NOTE: Here, the buyer is not entitled to any refund
Rationale of the Law
Other rights granted under the Maceda Law: (R.A. 6552,
Public policy to protect buyers of real estate on installment Sec. 5 & 6)
payments against onerous and oppressive conditions.
1. Sell rights to another;
Covered transactions 2. Assign the same to another person;
3. Reinstate contract by updating during grace period and
Applies to all sale of residential real estate on installments before actual cancellation;
including Contracts to Sell and those financed through 4. Deed of Sale to be done by notarial act;
banking institutions (R.A. 6552, Sec. 3) 5. To pay in advance any installment or the full balance of
price anytime without interest and have such full payment
Excluded: annotated in certificate of title.
1. Industrial real estate Purpose of the law: Protect buyers in installments against
2. Commercial real estate oppressive conditions. Applies to contracts even before the
3. Sale to tenants under agrarian laws (R.A. 6552, Sec. 3) law was enacted. (R.A. 6552, Sec. 2; Siska Dev. Corp. v.
Office of the President, G.R. No. 93176, 1994)
Requisites of Sec. 3 of Maceda Law: (FReT)
NOTE: Stipulations contrary to the provisions of Sections 3,
1. Failure to pay installments was due to reasons, other than
4, 5 and 6 are null and void. (R.A. 6552, Sec. 7) Waiver of the
failure of the developer to develop the subdivision or
required notice is oppressive.
condominium according to the approved plan and to comply
with such within the time limit; 3. OTHER REMEDIES
2. Only covers Residential lots including condominium units,
excluding, sales to tenants; a. Remedies in double sales
3. The buyer has paid at least Two years of installments. (R.A.
6552, Sec. 3) General Rule: FIRST IN TIME, PRIORITY IN RIGHT (Art.
1544)
Rights of the Buyer under Maceda Law with at least two
(2) years of Installment: (R.A. 6552, Sec. 3) When general rule does not apply: when not all requisites
embodied in Art. 1544 concur.
1. To pay, without additional interest, the unpaid installments
due within the total grace period earned by him. Said grace Requisites for Double Sales to Exist (VOCS)
period is fixed at the rate of one-month grace period for every
one year of installments payments made. Thus, here the buyer 1. That two (or more) sales transactions in the issue must
has at least two months grace period for he should have paid at pertain to exactly the same subject matter, and must be valid
least two years of installments to avail of the rights under this sales transactions.
section. 2. That two (or more) buyers at odds over the rightful
ownership of the subject matter must each represent
NOTE: This right can be exercised only once in every five (5) conflicting interests; and
years of the life of the contract and its extensions, if any. 3. That two (or more) buyers at odds over the rightful
ownership of the subject matter must each have bought from
2. To be refunded the cash surrender value of his payments the very same seller. (Spouses German v. Spouses Santuyo,
equal to 50% of his total payments if the contract is cancelled. G.R. No. 210845, January 22, 2020)
But if he has paid five years or more, he is entitled to an
increase of 5% every year and so on but the cash surrender If not all the elements are present for Art. 1544 to apply, the
value shall not exceed 90% of his total payments. principle of prior tempore, potior jure or simply “he who is
(McLaughlin v. CA, G.R. No. L- 57552, 1986) first in time is preferred in right” should apply. Indisputably,
he is a purchaser in good faith because at the time he bought
The actual cancellation of the contract referred to above the real property, there was still no sale to as a second vendee.
shall take place only: (Consolidated Rural Bank v. CA, G.R. No. 132161, 2005)
1. After 30 days from receipt by the buyer of the notarial NOTE: If the two contracts involved are not both contracts of
notice of cancellation or demand for rescission, AND sale, as when one is a contract to sell, and the other one a
2. Upon full payment to the buyer of the cash surrender value contract of sale, Art. 1544 does not apply. This follows the
(R.A. 6552, Sec. 3) principle that in a contract to sell, the seller has no obligation
to deliver title until there is full payment of the purchase price.
NOTE: Buyer may update payment during the 30 day waiting Thus, for as long as the condition of full payment has not been
period which will render the cancellation ineffective. fulfilled, a subsequent sale of the same property will be valid
since the seller still has title to the property. With more reason,
In the computation of the total number of installment
if the seller in a contract to sell has defaulted, the breach in the
payments the following are included:
condition entitles the seller to sell the same property for full themselves. Two or more persons may also form a partnership
consideration. Even if the buyer in the contract to sell for the exercise of a profession (CIVIL CODE, Art. 1767)
annotates his right in the title, the buyer in the contract of sale
is not in bad faith. (Sps. Domingo v. Sps. Manzano, G.R. No. 2. ELEMENTS
201883, 2016)
Note that the Court applied this in this case even if the buyer Elements of a Partnership (ACD)
in the contract to sell was not in default since the seller
accepted payment after due date. Seller however must 1. Meeting of minds (Agreement)
reimburse payments made to the buyer even if he has only 2. To Contribute money, property, or industry to a common
paid less than 2 years of installments because he was not in fund; and
default. Court distinguished this from earlier case of Abarquez 3. Intent to Divide profits (and losses) among the contracting
v. CA even if in that case, one also involved a contract to sell parties (Jarantilla, Jr. v. Jarantilla, G.R. No. 154486)
– because in Abarquez, the seller already delivered to the
Essential Features of Partnership (VaLeCLO)
buyer who accepted and took possession, and even constructed
a house on the land under installment sale. (Sps. Domingo v. 1. There must be a Valid contract.
Sps. Manzano, G.R. No. 201883, 2016) 2. The parties must have Legal capacity to enter into the
contract.
Double Sales Rules according to Art. 1544:
3. There must be a mutual Contribution of money, property or
1. Movable industry to a common fund. (CIVIL CODE, Art. 1767)
4. There must be a Lawful object. (CIVIL CODE, Art. 1770)
First to possess in good faith shall prevail (Art. 1544) 5. The purpose or primary purpose must be to Obtain profits
and divide the same among the parties. (CIVIL CODE, Art.
2. Immovable 1767) Additional Requirement for Juridical

(a) First to register in good faith shall prevail; 3. CHARACTERISTICS

(b) In case no registration is made, then first to possess in
good faith shall prevail; Characteristics of a Partnership
(c) No registration and no possession in good faith, then the
person who presents oldest title in good faith, shall prevail. 1. Essentially contractual in nature (CIVIL CODE, Arts. 1767,
(Art. 1544) 1784)
2. Separate juridical personality (CIVIL CODE, Art. 1768)
NOTE: The FIRST BUYER is always in good faith and will 3. Delectus personae (CIVIL CODE, Arts. 1804, 1813)
always prevail if he registers his sale first. His good faith is 4. Mutual Agency (CIVIL CODE, Art. 1803)
not destroyed by the subsequent knowledge of the second sale. 5. Personal liability of partners for partnership debts (CIVIL
The reason behind this is that at the time of perfection of his CODE, Arts. 1816, 1817)
contract of sale, he was the only buyer. (Carbonell v. CA, G.R.
No. L-29972, 1976) But the knowledge gained by the 2nd 4. RULES TO DETERMINE EXISTENCE
buyer of the first sale defeats his rights even if he is first to
General Rule: Persons who are not partners as between
register, since such knowledge taints his registration with bad
themselves, cannot be partners as to third persons (CIVIL
faith. (Ordua v. Fuentebella, G.R. No. 176841, 2010)
CODE, Art. 1769[1])
Lis pendens – notice that subject matter is in litigation (Sps.
Exception: Partnership by estoppel (CIVIL CODE, Art. 1825)
Lim v. Vera Cruz, G.R. No. 143646, 2001) is a form of
[see Section (6) below]
registration accorded priority right.
Other rules to determine whether a partnership exists
A buyer cannot be considered a transferee in good faith if it
(CIVIL CODE, Art. 1769)
was aware of the title’s notices of lis pendens. (Register of
Deeds of Negros Occidental v. Anglo, Sr., G.R. No. 171804, The following, alone, do not establish a partnership:
2015)
1. Co-ownership or co-possession;
Adverse claim – notice that somebody is claiming better right 2. Sharing of gross returns, whether or not the persons sharing
(Gardner v. CA, G.R. No. L-59952, 1984) is a form of them have a joint or common right or interest in any property
registration accorded priority right. from which the returns are derived;;
3. Receipt by a person of a share of the profits of a business is
Possession – both actual and constructive (Roman Catholic
prima facie evidence that he is a partner in the business, unless
Church v. Pante, G.R. No. 174118, 2012)
such were received in payment as:
Registration – any entry made in the books of the registry,
i. Debt by installments or otherwise;
including both registration in its ordinary and strict sense, and
ii. Wages or rent;
cancellation, annotation, and even marginal notes. It is the
iii. Annuity;
entry made in the registry which records solemnly and
iv. Interest on loan (even if the interest is based on the profits
permanently the right of ownership and other real rights.
of the business);
(Cheng v. Genato, G.R. No. 129760, 1998)
v. Consideration for sale of goodwill of business or other
 Registered under Torrens system – 1544 applies property by installments or otherwise.
 Not registered under the Torrens system – 1544 still
A partnership must have a lawful object or purpose, and must
applies
be established for the common benefit or interest of the
PARTNERSHIP partners. (CIVIL CODE, Art. 1770)

1. DEFINITION Effects of an Unlawful Partnership (i.e., established for an

unlawful object or purpose)
Partnership is a contract whereby two or more persons bind
themselves to contribute money, property, or industry to a 1. Void ab initio such that it never existed in the eyes of the
common fund, with the intention of dividing the profits among law (CIVIL CODE, Art. 1409[1])
2. Profits shall be confiscated in favor of the
government (CIVIL CODE, Art. 1770) ii) Universal Partnership of Profits
3. Instruments or tools and proceeds of the crime shall also be
forfeited in favor of the government (CIVIL CODE, Art. Comprises all that the partners may acquire by their industry
1770; REVISED PENAL CODE, Art. 45) or work during the existence of the partnership (CIVIL
4. The contributions of the partners shall not be confiscated CODE, Art. 1780).
unless they fall under (c) (CIVIL CODE, Arts. 1411 and 1412)
But persons who are prohibited from giving donations or
Judicial decree is not necessary to dissolve an unlawful advantage to each other cannot enter into a universal
partnership. (De Leon, 2019) partnership (CIVIL CODE, Art. 1782).

That there is no legally constituted partnership does not mean  Those made between persons who were guilty of adultery
that there are no contractual or legal relations among the or concubinage at the time of the donation;
parties.  Those made between persons found guilty of the same
criminal offense, in consideration thereof; and
Effect of Partial Illegality  Those made to a public officer or his wife, descendants
and ascendants, by reason of his office. (CIVIL CODE,
Where a part of the business of a partnership is legal and a part Art. 739)
illegal, an account of that which is legal may be had.  Those between spouses, direct or indirect, including those
persons living together as husband and wife without a
Where, without the knowledge or participation of the partners, valid marriage. (FAMILY CODE, Art. 87)
the firm's profits in a lawful business have been increased by
wrongful acts, the innocent partners are not precluded as b. Particular Partnership (CIVIL CODE, Art. 1783)A
against the guilty partners from recovering their share of the particular partnership has for its objects:
profits.
i) Determinate things
Formation of Partnership ii) Their use or fruits
iii) Specific undertaking
a. How Partnership is Formed iv) Exercise of profession or vocation
General Rule: A partnership may be constituted in any form, 2. General v. Limited Partnership
except where immovable property or real rights are
contributed thereto, in which case a public instrument shall be a. General Partnership - Consists of general partners who
necessary.. (CIVIL CODE, Art. 1771) are liable pro rata and subsidiarily and sometimes solidarily
with their separate property for partnership debts
b. Burden of Proof and Presumption
b. Limited Partnership - One formed by two or more persons
The existence of a partnership must be proven, not presumed. having as members one or more general partners and one or
Persons acting as partners are presumed to have entered into a more limited partners, the latter not being personally liable for
contract of partnership. The burden of proof is shifted to the the obligations of the partnership.
party denying its existence.
6. PARTNERSHIP BY ESTOPPEL
An extant partnership is presumed to exist until proven
terminated. Definition of Partnership by estoppel

Use of the term “partner” does not necessarily show existence Either by words or conduct, a person does any of the
of partnership. Non-use of the terms “partnership” or following:
“partners” are not conclusive as to non-existence or
partnership, but entitled to weight. 1. Directly represents himself to anyone as a partner in an
existing partnership or in a non-existing partnership
5. PARTNERSHIP TERM 2. Indirectly represents himself by consenting to
another representing him as a partner in an existing
Partnership at will partnership or in a non-existing partnership
One in which no fixed term is specified and is not formed for a 7. PARTNERSHIP AS DISTINGUISHED FROM
particular undertaking or venture which may be terminated JOINT VENTURE
anytime by mutual agreement.
The observation that a joint venture is for a single transaction
Partnership with a fixed term while a partnership entails a continuing business is not entirely
accurate in Philippine law. A partnership may be universal or
One in which the partners agree to themselves the term of particular and a particular partnership has for its object a
which the partnership is to subsist. specific undertaking (Roque, Jr. v. COMELEC, G.R. No.
188456).
Common Types of Partnership
Generally understood to mean an organization formed for
1. Universal v. Particular Partnership
some temporary purpose, a joint venture is likened to a
a. Universal Partnership particular partnership or one which “has for its object
determinate things, their use or fruits, or a specific
i) Universal Partnership of All Present Property (CIVIL undertaking, or the exercise of a profession or vocation.
CODE, Art. 1779) (Realubit v. Jaso, G.R. No. 178782)
Comprises the following:
Joint Venture
 Property which belonged to each of the partners at the
time of the constitution of the partnership A joint venture is a form of partnership, and thus, to be
 Profits which they may acquire from all property governed by the laws on partnership. (Marsman Drysdale
contributed Land, Inc. v. Philippine Geoanalytics, G.R. No. 183374)
As a rule, corporations are prohibited from entering into out of partnership property shares. (CIVIL CODE, Art. 1826)
partnership agreements; consequently, corporations can enter This means that his liability for obligations arising prior to his
into joint venture agreements with other corporations or admission is only to the extent of his partnership share (i.e., he
partnerships for certain transactions in order to form “pseudo cannot be held personally liable for obligations arising prior to
partnerships.” A joint venture agreement between and among his admission).
corporations may be seen as similar to partnerships since the
elements of partnership are present. (Narra Nickel Mining and Partnership creditors are preferred to those of each of the
Dev’t Corp. v. Redmont Consolidated Mines Corp., G.R. No. partners as regards the partnership property. (CIVIL CODE,
195580) Art. 1827)

8. PROFESSIONAL PARTNERSHIP Upon dissolution of the partnership, the partners shall

contribute the amounts necessary to satisfy the partnership
General professional partnership liabilities. (CIVIL CODE, Art. 1839(4), (7))

A general professional partnership exists when two or more A partner’s personal obligation for partnership liabilities is
persons may also form a partnership for the exercise of a subsidiary in nature - they shall only be liable with their
profession (CIVIL CODE, Art. 1767 [2]). property after all partnership properties have been exhausted.
(Co-Pitco v. Yulo, G.R. No. L-3146)
Other Classifications of Partnership
2. OBLIGATIONS OF PARTNERS AMONG
a. As to Legality of Existence THEMSELVES

1. De jure partnership- one which has complied with all the Obligation to Contribute to the Common Fund
legal requirements for its establishment
1. What May Be Contributed
2. De facto- one which has failed to comply with all the legal
requirements for its establishment Contribution must be in equal shares unless otherwise
stipulated. (CIVIL CODE, Art. 1790)
When there has been duly registered articles of partnership,
and subsequently the original partners accept an industrial a. Money
partner but do not register a new partnership, and thereafter
the industrial partner retires from the business, and the original Failure to contribute promised money makes the promissory-
partners continue under the same set-up as the original partner liable for the amount promised including the interest
partnership, then although the second partnership was due and damages arising from the time he should have
dissolved with the withdrawal of the industrial partner, there complied with his or her undertaking. (CIVIL CODE, Art.
resulted a reversion back into the original partnership under 1786, Par. 1)
the terms of the registered articles of partnership. There is not
constituted a new partnership at will. (Rojas v. Maglana, G.R. b. Property
No. 30616)
May include intangible or incorporeal (e.g., credit). (Lim Tong
b. As to purpose Lim v. Phil. Fishing Gear, G.R. No. 136448)

1. Commercial or trading partnership- one formed for the Liable for fruits from the time property should have been
transaction of business delivered without need of demand; also include obligation to
preserve the promised property with the diligence of a good
2. Professional or non-trading partnership- one formed for father of a family pending delivery. (CIVIL CODE, Art. 1786
the exercise of a profession [1] and [2])

B. OBLIGATIONS OF THE PARTNERS c. Industry

1. RIGHTS AND OBLIGATIONS OF THE An industrial partner is one who contributes his industry,
PARTNERSHIP labor, or services to the partnership. He is considered the
owner of his services, which is contribution to the common
All partners, including industrial ones, shall be liable pro rata fund. (Limuco v. Calina, [C.A.] No. 10099-R)
with all their property and after all the partnership assets have
been exhausted, for the contracts which may be entered into in May concur with any or both of the first two or in the absence
the name and for the account of the partnership, under its of any one or both of them; manual and/or intellectual in
signature and by a person authorized to act for the partnership. consideration of share in the profits; hence, as generally,
However, any partner may enter into a separate obligation to partners are not entitled to charge each other. (Marsh’s
perform a partnership contract. (CIVIL CODE, Art. 1816) Appeal, 69 Pa. St. 30)

NOTE: Except limited liability partners Every partner is bound to work to the extent of his ability for
the benefit of the whole, without regard to the services of his
Any stipulation against personal liability of partners for co-partners, and without comparison of value; for services to
partnership debts is void, except as among them. (CIVIL the firm cannot, from their very nature, be estimated and
CODE, Art. 1817) equalized by compensation of differences. (Beatty v. Wray, 7
Harris 519)
Partners are liable solidarily with the partnership for
everything chargeable to the partnership when caused by the But: A partner who has agreed to render special service to the
wrongful act or omission of any partner acting in the ordinary partnership, for the performance of which he is qualified, and
course of business of the partnership or with authority from which is one of the inducements for the other members to
the other partners and for partner's act or misapplication of enter the partnership, was found liable civilly to account for
properties. (CIVIL CODE, Art. 1824) the value of such service upon a finding that he wrongfully
refused to perform such service.
Unless there is a stipulation to the contrary, a newly admitted
partner into an existing partnership is liable for all the But then again: Specific performance not available due to
obligations of the partnership arising before his admission but constitutional prohibition against involuntary servitude.
A limited partner is not allowed to contribute services, only - when he converts partnership funds for his own use, on the
“cash or other property” (CIVIL CODE, Art. 1845); date he does so.
otherwise, he is considered an “industrial and general partner”
and thus, not exempted from personal liability. In both instances, the partner becomes a partnership debtor
and is liable for interest and damages. (CIVIL CODE, Art.
2. When Immovables or Real Rights Contributed 1788)

If immovables are not contributed, even if the capital is at A partner who promises to contribute to partnership becomes a
least PhP3,000, failure to comply with the requirement of promissory debtor of the partnership, including liability for
appearance in public instrument and SEC Registration will not interests and damages caused for failure to pay, and which
affect the liability of the partnership and the members thereof amounts may be deducted upon dissolution of the partnership
to third persons. (CIVIL CODE, Art. 1772, [2]) from his share in the profits and net assets. (Rojas v. Maglana,
G.R. No. 30616)
When immovable property are contributed, (1) the Articles of
Partnership must appear in a public instrument, and (2) there 4. Obligations with respect to Contribution to Partnership
must be an inventory of the property contributed signed by the Capital
parties and attached to the public instrument.
Partners must contribute equal shares to the capital of the
EFFECT OF ABSENCE OF REQUIREMENTS UNDER partnership unless there is stipulation to contrary. (CIVIL
ARTICLES 1771 AND 1773 CODE, Art. 1790)
Not in Public Instrument, No Inventory Void
In a Public Instrument, No Inventory Void Capitalist partners must contribute additional capital in case of
Not in Public Instrument, With Inventory Void imminent loss to the business of the partnership and there is no
In a Public Instrument, With Inventory Void stipulation otherwise; refusal to do so shall create an
obligation on his part to sell his interest to the other partners.
(CIVIL CODE, Art. 1791)
NOTE: Partnerships void under Art.1773, in relation to Art.
1771, may still be considered either de facto or estoppel a. Requisites:
partnerships vis-à-vis third persons; may even be treated as an
i) There is an imminent loss of the business of the partnership
ordinary contract from which rights and obligations may
ii) The majority of the capitalist partners are of the opinion
validly arise, although not exactly a partnership under the
that an additional contribution to the common fund would save
Civil Code. (Torres v. CA, G.R. No. 134559)
the business
Failure to prepare an inventory of the immovable property iii) The capitalist partner refuses deliberately to contribute (not
contributed, in spite of Art. 1773 declaring the partnership due to financial inability)
void would not render the partnership void when: iv) There is no agreement to the contrary (De Leon, 2019)

- No third party is involved (since Art. 1773 was intended for b. Fiduciary Duty
the protection of 3rd parties);
A partnership is a fiduciary relation—one entered into and to
- Partners have made a claim on the partnership agreement.
be maintained on the basis of trust and confidence. With that,
3. Consequence of Failure to Contribute a partner must observe the utmost good faith, fairness, and
integrity in his dealings with the others:
Each partner has the obligation:
i) He cannot directly or indirectly use partnership assets for his
a. To contribute at the beginning of the partnership or at the own benefit;
stipulated time the money, property or industry which he may ii) He cannot carry on a business of the partnership for his
have promised to contribute. (CIVIL CODE, Art. 1786) private advantage;
b. To answer for eviction in case the partnership is deprived of iii) He cannot, in conducting the business of the partnership,
the determinate property contributed (CIVIL CODE, Art. take any profit clandestinely;
1786) iv) He cannot obtain for himself that which he should have
c. To answer to the partnership for the fruits of the property obtained for the partnership (e.g., business opportunity)
the contribution of which he delayed, from the date they v) He cannot carry on another business in competition with the
should have been contributed up to the time of actual delivery partnership; and
(CIVIL CODE, Art. 1786) vi) He cannot avail himself of knowledge or information,
d. To preserve said property with the diligence of a good which may be properly regarded as the property of the
father of a family pending delivery to partnership (CIVIL partnership.
CODE, Art. 1163)
e. To indemnify partnership for any damage caused to it by the A. Prohibition to Engage in Competitive Business
retention of the same or by the delay in its contribution
1. If an industrial partner engages in any business without
(CIVIL CODE, Arts.1788, 1170)
the consent of the partnership:
In the event that there is a failure to contribute property
i. He can be excluded from the partnership; or
promised:
ii. The capitalist partners can avail of the benefit he obtained
- Partners become ipso jure a debtor of the partnership even in from the business.
the absence of any demand (CIVIL CODE, Art. 1169[1])
NOTE: The capitalist partners have the right to file an action
- Remedy of the other partner is not rescission but specific
for damages against the industrial partner in either case.
performance with damages from defaulting partner (CIVIL
(CIVIL CODE, Art. 1789)
CODE, Art. 1788)
2. If the capitalist partner engages in a business that
The partner shall be liable as a debtor of the partnership in two
competes with the business of the partnership
instances:
i. He may be required to bring to the common fund the profits
- when he fails to contribute money, on the date he undertook
he derived from the competing business; and
to do so;
ii. He shall personally bear the losses. (CIVIL CODE, Art. be liable pro rata with
1808) all their property after
iii. He may be ousted form the partnership, especially if there all the partnership
was a warning. (De Leon, 2019) assets have been
exhausted. (CIVIL
As a rule, an industrial partner may not engage in any business CODE, Art. 1816)
during the existence of the partnership, unless the capitalist
partners expressly permit him to do so (CIVIL CODE, Art.
1789). The reason is that his industry must be given only to NOTE: A stipulation which excludes one or more partners
the partnership. This is true even if the business is not from any share in the profits and losses is void. (CIVIL
competitive. (Albano Civil Law Reviewer, p. 822, 2008 ed.) CODE, Art. 1799)

When a partner engages in a separate business enterprise that 5. Other Rights and Obligations of Partners
is competitive with that of the partnership, the other partner’s
withdrawal becomes thereby justified and for which the latter a. Right to associate another person with him in his share
cannot be held for damages. (Rojas v. Maglana, G.R. No without consent of other partners (sub-partnership) (CIVIL
30616) CODE, Art. 1804)
b. Right to inspect and copy partnership books at any
B. Managing Partner who Collects Debt from Third Party reasonable hour (CIVIL CODE, Art. 1805)
c. Right to a formal account as to partnership affairs (even
Obligation of a managing partner who collects debt from during existence of partnership): (CIVIL CODE, Art. 1809)
person who owed him and the partnership (CIVIL CODE, Art.
1792): i) If he is wrongfully excluded from partnership business or
possession of its property by his copartners
i. Apply sum collected to the two credits (i.e., amount owed to ii) If right exists under the terms of any agreement
the managing partner in his personal capacity and amount iii) As provided by Art. 1807
owed to the partnership) in proportion to their amounts. iv) Whenever other circumstances render it just and
ii. If he received it for the account of partnership, the whole reasonable
sum shall be applied to partnership credit.
d. Duty to render on demand true and full information
Requisites: affecting partnership to any partner or legal representative of
any deceased partner or of any partner under legal disability
1. There exist at least two debts, one where the collecting (CIVIL CODE, Art. 1806)
partner is creditor and the other, where the partnership is the e. Duty to account to the partnership as fiduciary (CIVIL
creditor CODE, Art. 1807)
2. Both debts are demandable
3. The partner who collects is authorized to manage and 6. Responsibility of Partnership to Partners
actually manages the partnership
a. To refund the amounts disbursed by partner in behalf of the
C. Partner who Receives Share of Partnership Credit partnership plus corresponding interest from the time the
expenses are made (loans and advances made by a partner to
Obligation of partner who receives share of partnership credit the partnership aside from capital contribution)
from a debtor who becomes insolvent: b. To answer for obligations partner may have contracted in
good faith in the interest of the partnership business
Bring to the partnership capital what he has received even
c. To answer for risks in consequence of its management
though he may have given receipt for his share only (CIVIL
CODE, Art. 1793) 3. OBLIGATIONS OF PARTNERS TO THIRD
PERSONS
c. Rules for Distribution of Profits and Losses (CIVIL
CODE, Art. 1797) Every partnership shall operate under a firm name. Persons
who include their names in the partnership name even if they
PROFITS LOSSES
are not members shall be liable as a partner. (CIVIL CODE,
With According to According to Art. 1815)
agreement agreement agreement
Without Share of capitalist If sharing of profits is All partners shall be liable for contractual obligations of the
agreement partner is in proportion stipulated - apply to partnership with their property, after all partnership assets
to his capital sharing of losses have been exhausted:
contribution
If no profit sharing 1. Pro rata
Share of industrial stipulated - losses 2. Subsidiary (CIVIL CODE, Art. 1816)
partner – as may be shall be borne
just and equitable according to capital Admission or representation made by any partner concerning
under the contribution partnership affairs within scope of his authority is evidence
circumstances against the partnership. (CIVIL CODE, Art. 1820)
Purely industrial
partner not liable for General rule: Notice to partner of any matter relating to
losses. partnership affairs operate as notice to partnership.
NOTE: This is only
with respect to the Exception: Except in case of fraud.
obligation of the
Cases of Knowledge of a Partner
partners among each
other.  Knowledge of partner acting in the particular matter,
Insofar as third acquired while a partner
parties are concerned,  Knowledge of the partner acting in the particular matter
all partners, including then present to his mind
industrial ones, shall
  Knowledge of any other partner who reasonably could Grounds for dissolution by decree of court (CIVIL CODE,
and should have communicated it to the acting partner Art. 1831):
(CIVIL CODE, Art.1821)
i. Partner declared insane in any judicial proceeding or shown
Partners and the partnership are solidarily liable to third to be of unsound mind
persons for the partner's tort or breach of trust. (CIVIL CODE, ii. Incapacity of partner to perform his part of the partnership
Art. 1824) contract
iii. Partner guilty of conduct prejudicial to business of
Liability of incoming partner is limited to: partnership
iv. Willful or persistent breach of partnership agreement or
1. For partnership obligations arising before his admission - conduct which makes it reasonably impracticable to carry on
his share in the partnership property partnership with him
2. For partnership obligations arising upon his admission - his v. Business can only be carried on at a loss
share in the partnership property and his separate property vi. Other circumstances which render dissolution equitable
(CIVIL CODE, Art. 1826) vii. Upon application by purchaser of partner's interest:
C. DISSOLUTION AND WINDING UP a. After termination of specified term/particular undertaking
Dissolution is the change in the relation of the partners caused b. Anytime if partnership at will when interest was
by any partner ceasing to be associated in the carrying on of assigned/charging order issued
the business; partnership is not terminated but continues until
the winding up of partnership affairs is completed. (CIVIL 2. EFFECTS OF DISSOLUTION
CODE, Art. 1828)
a. Authority of Partner to Bind Partnership
Winding up is the process of settling the business or
partnership affairs after dissolution, which includes the paying General rule: Authority of partners to bind partnership is
of previous obligations, collecting of assets previously terminated. (CIVIL CODE, Art. 1832)
demandable. (Idos v. Court of Appeals, G.R. No. 110782)
Exceptions:
Termination is that point when all partnership affairs are
completely wound up and finally settled. It signifies the end of 1. To wind up partnership affairs
the partnership life. (Idos v. Court of Appeals, G.R. No. 2. Complete transactions not finished (CIVIL CODE, Art.
110782) 1834)

1. CAUSES OF DISSOLUTION (CIVIL CODE, Art. b. Qualifications

1830)
1. With respect to Partners (CIVIL CODE, Art. 1833)
Causes of Dissolution
Authority of partners to bind partnership by new contract is
i. Without violation of the agreement between the partners immediately terminated when dissolution is not due to act,
death, or insolvency (ADI) of a partner.
a. By the termination of the definite term/ particular
undertaking specified in the agreement If due to ADI, partners are liable as if partnership not
b. By the express will of any partner, who must act in good dissolved, when the following concur:
faith, when no definite term or particular undertaking is
specified a. If cause is act of partner, acting partner must have
c. By the express will of all the partners who have not knowledge of such dissolution; and
assigned their interests to be charged for their separate b. If cause is death or insolvency, acting partner must have
debts, either before or after the termination of any specified knowledge/ notice.
term or particular undertaking
d. By the bona fide expulsion of any partner from the 2. With respect to Persons not Partners (CIVIL CODE, Art.
business in accordance with power conferred by the 1834)
agreement
Partner continues to bind partnership even after dissolution in
ii. In contravention of the agreement between the partners, following cases:
where the circumstances do not permit a dissolution under any
a. Transactions in connection to winding up partnership
other provision of Article 1830, by the express will of any
affairs/completing unfinished transactions
partner at any time
b. Transactions which would bind partnership if not dissolved,
iii. By any event which makes it unlawful for business to be
when the other party:
carried on/for the members to carry it on for the partnership
iv. Loss of specific thing promised by partner before its Situation 1
delivery
v. Death of any partner (1) Had extended credit to partnership prior to dissolution; and
vi. Insolvency of a partner/partnership (2) Had no knowledge/notice of dissolution
vii. Civil interdiction of any partner
viii. Decree of court under Art. 1831. Situation 2

If a partnership has no fixed term, then it is a partnership at (1) Did not extend credit to partnership;
will and can be dissolved by the will of any partner. (2) Had known partnership prior to dissolution; and
However, such partner must be in good faith, otherwise, he (3) Had no knowledge/notice of dissolution/fact of dissolution
will be liable for damages. Among partners, mutual agency not advertised in a newspaper of general circulation in the
arises and the doctrine of delectus personae allows them to place where partnership is regularly carried on
have the power, but not necessarily the right, to dissolve the
partnership (Ortega v. Court of Appeals, G.R. 109248). 3. RIGHTS OF PARTNERS UPON DISSOLUTION
General rule: Dissolution does not discharge existing liability participate in the management of the business (CIVIL CODE,
of partner Art. 1848); and (iii) are not personally liable for partnership
obligations beyond their capital contributions
Exceptions: Except by agreement between: d. May ask for the return of their capital contributions under
conditions prescribed by law (CIVIL CODE, Art. 1857)
1. The partner and himself e. Partnership debts are paid out of common fund and the
2. The person/partnership continuing the business individual properties of general partners (CIVIL CODE, Art.
3. Partnership creditors (CIVIL CODE, Art. 1835) 1857)
4. WHEN BUSINESS OF DISSOLVED PARTNERSHIP 2. GENERAL PARTNERS V. LIMITED PARTNERS
IS CONTINUED
GENERAL LIMITED
Effects: Personally liable for Liability extends only to his
1. Creditors of old partnership are also creditors of the new partnership obligations capital contributions (CIVIL
partnership, which continues the business of the old one w/o (CIVIL CODE, Art. 1816) CODE, Art. 1843)
liquidation of the partnership affairs (CIVIL CODE, Art.1840) When manner of No participation in
2. Creditors have an equitable lien on the consideration paid to management not agreed upon, management (CIVIL CODE,
the retiring /deceased partner by the purchaser when all have an equal right in the Art. 1848)
retiring/deceased partner sold his interest w/o final settlement management of the business
with creditors (CIVIL CODE, Art. 1840) (CIVIL CODE, Art. 1803)
The retired or deceased partner or his legal representatives Contribute cash, property or Contribute cash or property
may industry (CIVIL CODE, Art. only, not industry (CIVIL
a. Have the value of his interest ascertained as of the date of 1767)
dissolution Proper party to proceedings Not proper party to
b. May receive as ordinary creditor the value of his share in by/ against partnership proceedings by/ against
the dissolved partnership with interest or profits attributable to (CIVIL CODE, Art. 1866) partnership (CIVIL CODE,
use of his right, at his option (CIVIL CODE, Art. 1841) Art. 1866)
Interest not assignable w/o Interest is freely assignable
5. PERSONS AUTHORIZED TO WIND UP consent of other partners (CIVIL CODE, Art. 1859)
1. Partners designated by the agreement (CIVIL CODE, Art. 1804)
2. In absence of agreement, all partners who have not Name may appear in firm Name must not appear in firm
wrongfully dissolved the partnership name (CIVIL CODE, Art. name (CIVIL CODE, Art.
3. Legal representative of last surviving partner (CIVIL 1815) 1846)
CODE, Art. 1836) Prohibition against engaging No prohibition against
in business (CIVIL CODE, engaging in business
Unless otherwise agreed, the partners who have not Art. 1789, Art. 1808)
wrongfully dissolved the partnership or the legal Retirement, death, Does not have same effect;
representative of the last surviving partner, not insolvent, has insolvency, insanity dissolves rights transferred to legal
the right to wind up the partnership affairs, provided, however, partnership (CIVIL CODE, representative (CIVIL
that any partner, his legal representative or his assignee, upon Art. 1830) CODE, Art. 1861)
cause shown, may obtain winding up by the court (Primelink
Properties and Development Corp. v. Lazatin- Magat, G.R.
No. 167379). 3. REQUIREMENTS FOR FORMATION OF LIMITED
PARTNERSHIP
A partner’s share cannot be returned without first dissolving
and liquidating the business for the partnership’s outside Certificate/Articles of Limited Partnership, which must be
creditors have preference over the enterprise’s assets. The signed and sworn by the parties, must state the following
firm’s property cannot be diminished to their prejudice. matters:
(Magdusa v. Albaran, G.R. No. L-17526) a. Name of partnership plus the word "Limited" (or “Ltd.” –
SEC Memorandum Circular 13-2019)
Due to its separate juridical personality from the individual b. Character of business
partners, it is thus the partnership – having been the recipient c. Location of principal place of business
of the capital contributions – which must refund the equity of d. Name/place of residence of members
retiring partners. Such duty does not pertain to partners who e. Term for partnership is to exist
managed the business. The amount to be refunded consistent f. Amount of cash/value of property contributed by limited
with the partnership being a separate and distinct entity, must partners
necessarily be limited to the firm’s total resources. It can only g. Additional contributions, if any, to be made by limited
pay out what it has for its total assets. But this is subject to the partner
priority enjoyed by outside creditors. After all the (said) h. Time, if agreed upon, to return contribution of limited
creditors have been paid, whatever is left of the partnership partner
assets becomes available for the payment of partners’ shares. i. Sharing of profits/other compensation (CIVIL CODE, Art.
(Villareal v. Ramirez, G.R. No. 144214) 1844)
D. LIMITED PARTNERSHIP 5. RIGHTS OF LIMITED PARTNERS
i. Right to have partnership books kept at principal place of
1. CHARACTERISTICS OF LIMITED PARTNERSHIP business
ii. Right to inspect/copy books at reasonable hour
a. Formed by compliance with statutory requirements (CIVIL
iii. Right to have on demand true and full info of all things
CODE, Art. 1843)
affecting partnership
b. One or more general partners control the business (CIVIL
iv. Right to have formal account of partnership affairs
CODE, Art. 1843)
whenever circumstances render it just and reasonable
c. One or more general partners and one or more limited
v. Right to ask for dissolution and winding up by decree of
partners. (CIVIL CODE, Art. 1843) Limited partners (i)
court
contribute cash or other property, but not services (CIVIL
vi. Right to receive share of profits/other compensation by
CODE, Art. 1845); (ii) share in the profits but do not
way of income
vii. Right to receive return of contributions provided the
partnership assets are in excess of all its liabilities (CIVIL
CODE, Art. 1851)

7. LIABILITIES OF A LIMITED PARTNER

a. To the Partnership
1. For the difference between his contribution as actually
made and that stated in the certificate as having been made,
and
2. For any unpaid contribution which he agreed in the
certificate to make in the future time (CIVIL CODE, Art.
1858)
b. As a Trustee for the Partnership
1. For the specific property stated in
the certificate as contributed by him but which he had not
contributed;
2. For the specific property of the partnership which had been
wrongfully returned to him; and
3. Money or other property wrongfully paid or conveyed to
him on account of his contribution. (CIVIL CODE, Art. 1858)