GUIRITAN NOTES

A COMPILATION OF NOTES IN

PARTNERSHIP, SALES, AGENCY,

CREDIT TRANSACTIONS AND PROPERTY

FELIXBERTO L. GUIRITAN, NPS-VI

CITY PROSECUTOR DEPUTIZED OMBUDSMAN PROSECUTOR

Butuan City

PROPERTY

1. Define property -

ANS: Property may be defined as anything

which is or may be the object of

appropriation.

2. Distinguish between thing and property

ANS: Strictly speaking, the concept of thing

is broader than the concept of property,

because while property refers only to those

objects which are or may be the object of

appropriation, thing refers also to those

which are not or may not be the object of

appropriation. In other words, thing is the

genus, while property is the species.

3. The three kinds of things, depending on

the nature of their ownership:

a. Res nullius – belong to no one and the

reason is that they have not yet been

appropriated

b. Res communes – really owned by

everybody in that their use and enjoyment

are given to all mankind.

c. Res alicujus – are owned privately,

either collectively or individually

4. Classification of property:

a. According to its nature, mobility and

non-mobility –

1. Movable or personal property

2. Immovable or real property

b. According to its ownership –

1. Public dominion

2. Private ownership

c. According its alienability –

1. Within the commerce of man

2. Outside the commerce of man

d. According to its existence –

1. present property

2. future property

e. According to its materiality or

immateriality –

1. Tangible or

2. corporeal (can be seen or touched)

3. Intangible or incorporeal (rights or

credits)

f. According to its dependence or

importance –

1. Principal

2. Accessory

g. According to its capability of

substitution –

1. Fungible (capable of substitution by

other things of the same quantity and

quality)

2. Non-fungible (incapable of such

substitution, hence, the identical thing

must be given or returned)

h. According to its definiteness –

1. Generic

2. Specific

i. According to whether in the custody of

the court of free –

1. In “custodia legis”

2. Free property (not in “custodia legis”)

5. Is the Human Body, whether dead or

alive, a real or personal property-

ANS: Whether dead or alive, it is neither

real or personal property, for it is not even

property at all, in that it generally cannot be

appropriated. It is indeed, a thing or a

being, for it exists; in fact, it is tangible or

corporeal being a thing. While a human

being is alive, he cannot, as such, be the

object of a contract, for he is considered

outside the commerce of man. He may, of

course, offer to another the use of various

parts of the body. He may donate part of

his blood, may even sell part of his hair; but

he cannot sell his body.

6. The different academic classifications of

real properties –

ANS:

1. Immovables by nature, or those which

cannot be moved from place to place, such

as those mentioned in Nos. 1 (with respect

to land and roads) and 8 in Art. 415 of the

NCC.

2. Immovables by incorporation, or those

which are attached to an immovable in

such a manner as to form and integral part

thereof, such as those mentioned in Nos.1

(except lands & roads), 2, 3, and 4 of Art.

415, NCC.

3. Immovables by destination, or those

which are placed in an immovable for the

use, exploitation or perfection of such

immovable, such as those mentioned in

Nos. 4, 5, 6, 7 and 9 of Art. 415, NCC.

4. Immovables by analogy, or those which

are considered immovables by operation of

law, such as those mentioned in No. 10 of

art. 415, NCC.

7. The following are immovable properties

enumerated by law –

ANS:

a. Land, buildings, roads and constructions

of all kinds adhered to the soil;

b. Tress, plants, and growing fruits, while

they are attached to the land or form an

integral part of an immovable;

c. Everything attached to an immovable in a

fixed manner in such a way that it cannot

be separated therefrom without breaking

the material or deterioration of the object;

d. Statues, reliefs, paintings or other objects

for use or ornamentation, placed in

buildings or on lands by the owner of the

immovable in such a manner that it reveals

the intention to attach them permanently to

the tenements;

e. Machinery, receptacles, instruments or

implements intended by the owner of the

tenement for an industry or works which

may be carried on in a building or on a

piece of land, and which tend directly to

meet the needs of the said industry or

works;

f. Animal houses, pigeon houses, beehives,

fishponds or breeding places of similar

nature, in case their owner has placed

them or preserves them with the intention

to have them permanently attached to the

land and forming a permanent part of it; the

animals in these places are included;

g. Fertilizer actually used on a piece of land;

h. Mines, quarries, and slag dumps, while

the matter thereof forms part of the bed,

and waters either running or stagnant;

i. Docks and structures which, though

floating, are intended by their nature and

object to remain at affixed place on the

river, lake or coast;

j. Contracts for public works, and servitudes

and other real rights over immovable

property. (Art. 415NCC)

8. Requisites in order that machinery may

be considered an immovable property –

ANS:

1. The machinery must have been placed

by the owner or an agent of the same.

2. An industry or works must be carried on

in the building or land;

3. The machinery must tend directly to meet

the needs of the industry or works;

4. The machinery must be essential and

principal to the pursuance of the business

of the owner, and not merely incidental.

9. When a Machinery attached to a land or a

tenement considered immovable –

ANS: In par. 5 of Art. 415, NCC.

The exception is when placed on the land

or tenement by a tenant. (Davao Sawmill

vs. Castillo)

The exception to the exception – is when

the tenant had promised to leave the

machinery on the tenement at the end of

lease, or when he acted only as agent of

the owner of the land. (Valdez vs. Central)

10. Is a building an immovable property?

ANS: Yes, it is obvious that in the

enumeration of immovable properties in

Art. 415, NCC, a building is mentioned

independently of the land. By this, there is

no other conclusion that a building is by

itself an immovable property. (Lopez vs.

Oroso, Jr.)

11. May a building be considered a personal

property –

ANS: Yes. If there is a stipulation as when it

is used as security in the payment of an

obligation where a chattel mortgage is

executed over it. It may also be considered

personal if the building is being bought for

purpose of demolishing the same. In this

case, the materials resulting from the

demolition are being bought.

12. Is mortgage on land movable or

immovable property?

ANS: It depends. If the mortgage is

registered in the Registry of Property, it

constitutes a real right over an immovable

within the meaning of No. 10 of Art. 415 of

the NCC, which declares that the contracts

for the public works, servitudes and other

real rights over immovable property are

classified as immovable property. However,

if the mortgage is not registered in the

Registry of Property although valid as

between the contracting parties, it cannot

be classified as immovable property.

13. Is a barong-barong built on the parcel of

land belonging to him be classified as

immovable property –

ANS: No, because the structure must be

more or less permanent in nature in order

that it may be classified as an immovable.

If the same is a mere superimposition on

the land, like the barongbarong, the same

is not an immovable property.

14. Sapphire owns a house and lot. The

house is made of concrete materials.

Sapphire sold it to Emerald for purposes of

demolition. How is the house classified?

ANS: It is movable or personal property. In

one case the Supreme Court ruled that a

building sold to be demolished may be

considered personal property because the

true object of the sale would be the

materials.

15. The following things are deemed to be

personal property –

ANS:

1. Those movables susceptible of the

appropriation which are not included in

Art. 415, NCC.

2. Real property which by any special

provision of law is considered as

personalty;

3. Forces of nature which are brought

under control by science;

4. In general, all things which can be

transferred from place to place without

impairment of the real property to which

they are fixed. (Art 416, NCC)

The following are also considered personal

property:

1. Obligations and actions which have

for their object movables or demandable

sums; and

2. Shares of stocks of agricultural,

commercial and industrial entities,

although they may have real estate. (Art.

417, NCC.)

16. How is movable property classified

according to its nature –

ANS: As to their possibility of being

consumed by their use, movable or

personal property may be either:

1. Consummable or those which cannot be

used in a manner appropriate to their

nature without their being consumed; or

2. Non-consummable or those which can be

used in a manner appropriate to their

nature without their being consumed. (Art.

418, NCC)

As to their possibility of being substituted by others of the same kind and quality, they may be either:

Fungibles, or those which can be

substituted by others of the same kind and

quality; or

Non-fungibles, or those which cannot be

substituted by other of the same kind and

quality.

17. The tests to be applied successively in

order to determine whether an object is

movable or not –

ANS: 1. Whether the object can be transported

from place to place;

2. Whether the change of location can take

place without injury to the immovable to

which it may be attached; and whether it is

not included in the enumeration found in

Art. 415, NCC.

If the answer to all the above question is in the affirmative, then the object is movable.

18. Is a painting which the owner lent to

somebody, who then attached the same on

the wall of his house to beautify it with the

obligation to return it within one week

considered as movable or immovable –

ANS: It is movable due to lack of intent to

attach it permanently.

19. May certain things partake both of the nature

of real and personal property –

ANS: Yes, certain things may partake of the

nature of real and personal property at the

same time. This is expressly recognized in

No. 2 Art. 416 of the NCC, which states

that real property which by any provision of

law is considered as personalty is deemed

to be movable or personal property. Thus,

under the Chattel Mortgage Law (Sec. 7,

Act No. 1508), growing crops may be the

object of a contract of chattel mortgage.

Similarly, growing crops may also be

considered as personalty for the purpose of

a contract of sale.

20. Is a vessel personal or real property –

ANS: It is a personal property. In the first

place, it can be transported from place to

place; in the second place, the change of

location can take place without injury to

immovable to which it may be attached;

and in the third place, it is not included in

the enumeration of immovable in Art. 415

of the NCC. However, because of its

importance in the world of commerce, it

partakes of the nature of immovables when

it comes to requirement of registration.

Thus, if it is mortgaged under the Chattel

Mortgage Law, the mortgage must be

registered not only in the Chattel Mortgage

Register but also in the office of the

Collector of Customs at the port of entry.

21. The following things are property of

public dominion –

ANS:

1. Those intended for public use such as

roads, canals, rivers, torrents, ports and

bridges constructed by the State, banks,

shores, roadsteads and others of similar

character.

Those which belong to the State, without

being for public use, and are intended for

some public service or for the development

of the national wealth.

22. What is meant by “public lands”, “public

domain” and “government lands”, and how

shall we distinguish one from the other –

ANS: Public lands and public domain are

synonymous. They refer only to

government lands which are opened to

private appropriation and settlement by

homestead and other similar acts as

provided by law. On the other hand, public

lands and government lands are not only

public lands, but also other lands already

reserved for or devoted to pubic use or

subject to private right. Therefore, the

government owns lands which are known

as public lands or public domain as well as

lands which are not public lands or public

domain.

23. Lands of the public domain are classified

into –

ANS: 1. Agricultural; 2. Forest or timber; 3.

Mineral lands, and 4. National parks.

24. Patrimonial property of the State or of

provinces, cities and municipalities –

ANS: Those properties of the State which are

not intended for public use, or public

service or for the development of national

wealth, as well as those property of

provinces, cities and municipalities which

are not intended for public use are

patrimonial.

25. What is meant by property of private

ownership –

ANS: Property or private ownership, besides

that patrimonial property of the State,

provinces, cities and municipalities,

consists of all property belonging to private

persons, either individually or collectively.

26. May the Roponggi property in Japan be

sold –

ANS: No, because the said property is a

property of the State intended for public

use or public service.

27. What is the Regalian Doctrine –

ANS: It is a doctrine which reserves to the

State the full ownership of all natural

resources or natural wealth that may be

found in the bounds of the earth.

28. If you are an owner of parcel of land, what

rights do you have on the same –

ANS: You are also the owner of the surface

and everything under it. You can make

constructions, works, plantations and

excavations. But your right is not absolute

because it is subject to certain restrictions

or limitations like servitudes, special laws,

ordinances, requirements of aerial

navigation and the principles of human

relations.

As regards, the mineral found in it, you are

not the owner because ownership of

minerals is reserved in favour of the State

even if the land is a private land. In fact you

have no right to extract the mineral without

the permission of the State.

29. What is a hidden treasure and who owns

the same –

ANS: By hidden treasure is understood, for

legal purpose, any hidden and unknown

deposit of money, jewelry, or other

precious objects, the lawful ownership of

which does not appear.

It belongs to the owner of the land, building

or other property on which it is found.

30. Alberta found a hidden treasure inside the

land of Terence. How will the treasure be

divided if Alberta is a usufructuary of the

land; lessee; farmer; labourer hired to look

for it –

ANS: If Alberta is usufructuary, or lessee or

farmer, she is entitled to ½ of the hidden

treasure because they are considered as

strangers to the land.

If she is the labourer intended or hired to

look for it, she is entitled to her wage or

salary only.

31. Suppose Alberta in the preceding

question has an instrument to look for a

hidden treasure, can she still be

considered a finder by chance –

ANS: Yes, because the word “by chance”

means there should be purpose or intention

to look for it.

The better rule however, is that “by chance”

means “ good luck”, whether there was a

deliberate search or not for the treasure,

but no prior agreement as to how it is to be

divided. One who intentionally looks for it is

embraced if he does not ask for

permission, he is a trespasser.

32. Define ownership –

ANS: It is an independent right of exclusive

enjoyment and control of a thing for the

purpose of deriving therefrom all

advantages required by the reasonable

needs of the owner and the promotion of

the general welfare but subject to the

restrictions imposed by law and the rights

of others.

33. The traditional attributes or elements of ownership or the rights of person over his property are –

ANS: a. The right to enjoy, which includes:

Jus utendi, or the right to use;

Jus fruendi, or the right to enjoy the fruits; and Jus abutendi, or the right to consume the thing by its use.

b. The right to dispose (jus disponendi), or

the right to alienate, encumber, transform, or even to destroy the property.

c. The right to vindicate (jus vindicandi),

or the right of action available to the owner to recover the property against the holder or possessor.

34. The kinds of ownership are – ANS: a. full ownership – this includes all

the rights of the owner b. naked ownership – ownership where

the rights to the use and fruits are denied.

c. sole ownership – where ownership is vested in only one person.

d. co-ownership – where the ownership is vested in two or more owners.

35. Is the right of ownership absolute –

ANS: It is not absolute because it has

limitations which are imposed for the benefit of humanity and based on certain legal maxims: a. the welfare of the people is the

supreme law of the land – “salus populi suprema est lex”;

b. use your property so as not to impair the rights of others – “sic utere tuo ut alienum non laedas”.

36. The limitations upon the right of

ownership – ANS:

1. General limitations imposed by the State for its benefit such as the power of eminent domain, the police power, and the power of taxation;

2. Specific limitations imposed by law, such as legal servitudes;

3. Limitations imposed by the party transmitting the property either by contract or by will;

4. Limitations imposed by the owner himself, such as voluntary servitudes, mortgages, pledges, and lease rights; and

5. Inherent limitations arising from conflict with other rights, such as those caused by contiguity of property.

We might add to the above enumeration the

constitutional prohibition regarding acquisition of private land by aliens and other constitutional limitations.

37. As a consequence of ownership, the rights of a person over his property are –

ANS:

1. To enjoy the property; 2. To dispose of the property; 3. To recover the property from any holder

or possessor; 4. To exclude any person from the

enjoyment and disposal of the property; 5. To enclose or fence his land or

tenement; 6. To just compensation in case of eminent

domain; 7. To construct any works, or make any

plantation or excavation on the surface or subsurface of his land;

8. To the ownership of all or a part of hidden treasures found in his property; and

9. To the ownership of all accessions to his property.

38. Force in defense of property justified if

the following requisites concur – ANS:

1. The force must be employed by the owner or lawful possessor of the property;

2. There must be an actual or threatened physical invasion or

usurpation of the property.

ACCESSION

39. Define accession and is it a mode of acquiring ownership –

ANS: It is the right pertaining to the owner of

a thing over everything which is produced thereby, or which is incorporated or attached thereto, either naturally or artificially. From the very definition itself, it is

clear that it is not a mode of acquiring ownership; it is merely a consequence of the right of ownership. Furthermore, under Art. 712 of the NCC which enumerates the different modes of acquiring ownership or other real rights, accession is not included.

40. The different kinds of accession are – ANS: A.) Accession discreta, or the right

pertaining to the owner of a thing over everything which is produced thereby.

1. Natural fruits, or spontaneous

products of the soil, and the young and other products of animals.

2. Industrial fruits are those produced by lands of any kind through cultivation of labor.

3. Civil fruits are rents of buildings, the price of leases of lands and other property and the amount of perpetual or life annuities or other similar income. (Art. 442, NCC)

B.) Accession continua, or the right

pertaining to the owner of a thing over everything which is incorporated or

attached thereto, either naturally or artificially.

1. With regard to immovable property:

a. Accession industrial, or that which takes place in case of:

(i) Building (ii) Planting, or (iii) Sowing (Arts. 445-455, NCC)

b. Accession natural, which may be in the form of either;

(i) Alluvium, or the accretion which lands adjoining the banks of rivers, lakes, creeks or torrents gradually receive from the effects of the currents of the waters. (Art. 457, NCC)

(ii) Avulsion or the accretion which takes place whenever the current of a river, lake, creek or torrent segregates from one estate on its bank a known portion of land and transfers it to another estate. (Art. 459, NCC)

(iii) Change of river beds, or that which takes place when a river bed is abandoned through the

natural change in the course of the waters. (Art. 461, NCC)

(iv) Formation of islands either on the seas within the jurisdiction of the Philippines, on lakes, and on navigable or floatable rivers or non-navigable and non-floatable rivers. (Art. 465, NCC)

2. With regard to movable property:

a. Adjunction or conjunction, or that which takes place whenever movable things belonging to different owners are united in such a way that they cannot be separated without injury, thereby forming a single object. (Art. 466, NCC)

b. Commixtion or confusion, or that which takes place whenever there is a mixture of things solid or liquid belonging to different owners, the mixture of solids being called commixtion, while that of liquids, confusion. (Art. 472, NCC)

c. Specification or that which takes place whenever a person imparts a new form to materials belonging to another person. (Art. 474, NCC)

41. To whom does the offspring of animals

belong when the male and female belong to different owners – ANS: Applying the principle of “partus

sequitur ventrem”, the offspring belongs to the owner of the female.

41. Is the rule of accession discreta – that to

the owner of the thing belong the natural, industrial and civil fruits – absolute in character –

ANS: No. It is subject to the following

exceptions: 1. the thing is in possession of a

possessor in good faith in which case such possessor is entitled to the fruits.

2. If the thing is subject to a usufruct in which case the usufructuary is entitled to the fruits.

3. If the thing is leased in which case the lessee is entitled to the fruits of the thing, although such lessee must pay the owner rentals which are in the nature of civil fruits.

4. If the thing is in possession of an antichretic creditor in which case such creditor is entitled to the fruits with the obligation of applying them to the interest and principal.

42. The basic principles governing accession

continua are – ANS: 1. That to the owner of a thing belong

the extension or increase of such thing; 2. That this extension of the right of

ownership is realized, as a general rule, under the juridical principle that the accessory follows the principal (Accessio cedit principali);

3 That this incorporation of the accessory with the principal saving the exceptions provided by law is effected only when two things are so united that they cannot be separated without injuring or destroying the juridical nature of one of them; and

4. That, as a general rule, punitive liability attaches to the party who acts in bad faith, but not to the party who acts in good faith.

43. If Alpha builds in good faith a house on the land of Bravo, what are the rights of the parties –

ANS: a. The rights of the owner of the land

are:

1.) He can appropriate the house upon payment of indemnity. The phrase “upon payment of indemnity” means that Alpha has the right to retain the house for as long as Bravo has not yet paid the indemnity; or

2.) He has the right to sell the land to the builder in good faith. He can compel the builder to buy the land, unless the value of the land is considerably more than the value of the building. If so, then the builder must rent or the remedy is a “forced lease’.

b. The right of the builder is to ask for

indemnity if the landowner opts to appropriate the house. The reason for this is that the appropriation without

compensation would amount to solutio indebiti. Anyway, Alpha is in good faith.

44. In the immediately preceding question,

can Bravo file a suit for ejectment and pray for demolition upon knowing that Alpha built her house on his land –

ANS: No. He has yet to make a choice. If he

has not yet done so, he cannot ask for the ejectment of Alpha, but if he opted to sell the land where the value of the same is not considerably more than the value of the house, and the builder does not pay the land then Alpha can be ejected. If she cannot pay, she should not be allowed to continue using the land.

45. If the landowner chooses to appropriate

the building, can the builder ask the owner of the land to sell it instead –

ANS: No, because the option to appropriate

the building or sell the land belongs to the landowner. The only right of the builder in good faith is the right to reimbursement, not to compel the owner of the land to sell. The option is not to buy but to sell. The option is

given to the landowner because his right is older; and because of the principle of accession, he is entitled to the thing attached to his land.

46. What then is the remedy left to the owner

of the land if the builder fails to pay-

ANS: While the NCC is silent on this point, guidance may be derived from the decision of the Supreme Court, thus: (1) In Miranda vs. Fudalan, 97 Phil. 801, the Supreme Court said that the parties may decide to leave the things as they are and assume the relation of lessor and lessee, and should they disagree as to the amount of rental, then they can got to the court to have the amount fixed. (2) Should the parties not agree to assume the relation of the lessor and lessee, another remedy is suggested in the Ignacio vs. Hilario case wherein the Supreme Court ruled that the owner of the land is entitled to have the improvement removed when after having chosen to sell his land, the builder in good faith fails to pay for the same. (3) A further remedy is indicated in Bernardo vs. Bataclan case where the Supreme Court

approved the sale of the land and improvement in a public auction, applying the proceeds thereof first to the payment of the value of the land and the excess, if nay, to be delivered to the owner of the house in payment thereof.

47. May a lessee be a builder in good faith –

ANS: In one case, it was held that lessees are not builders in good faith. They came into the possession of the lot by virtue of a contract of lease executed by petitioner’s mother in their favor. They are then estopped to deny their landlord’s title, or to assert a better title not only in themselves, but also in some third person while they remain in possession of the leased premises and until they surrender possession to the landlord. This estoppel applies even though the lessor had no title at the time. The relation of lessor and lessee was created and may be asserted not only by the original lessor, but also by those who succeed to his title.

Being mere lessees, they knew that their occupation of the premises would continue

only for the life of the lease. Plainly, they cannot be considered as possessors or builders in good faith.

48. What are the rights, if any, of a builder in

bad faith –

ANS: As a rule, he has no right. But he is entitled to reimbursement for necessary expenses for the preservation of the land, not the value of the building (Art. 452, NCC). The reason for this rule is, after all, the owner would have borne the same expenses of preservation of the land.

49. What are the rights of the owner of the

land in case there is a builder in bad faith –

ANS: 1. To appropriate the building without payment of indemnity plus damages. In this case, the builder is like a donor;

2. He can demand the demolition of the house plus damages;

3. He can compel the builder to buy the land even if the value is considerably more than the value of the building plus damages. (Arts. 450 and 451, NCC)

50. What are the rights and obligations of the owner of the land who uses the materials of another –

ANS: a. If the landowner acted in good faith

– 1. He becomes the owner of the

materials but he must pay for their value. The only exception is when they can be removed without destruction to the work made or to the plants. In such case, the owner of the materials can move them.

b. If the landowner is in bad faith –

2. He becomes the owner of the materials but he may pay their value and damages. The only exception is when the owner of the materials decides to remove them whether or not destruction would be caused. In this case, the materials would still belong to the owner of said materials who in addition will still be entitled to damages.

51. What are the rights and obligations of the

owner of the materials –

ANS: a.) If the landowner acted in good faith –

1. The owner of the materials is entitled to reimbursement provided he does not remove them;

2. He is entitled to removal provided no substantial injury is caused;

b.) If the landowner acted in bad faith –

1. The owner of the materials is entitled to absolute right of removal and damages whether or not substantial injury is caused;

2. He is entitled to reimbursement and damages in case he chooses not to remove.

52. If you plant and grow crops on the farm of

your neighbor knowing fully well that the farm is not yours, what are yours rights with reference to the crops, if your neighbor is in good faith –

ANS: There is a distinction: 1) If the crops have been already gathered,

then you have to return the value of the crops or the crops themselves minus the

expenses essential for their production, gathering and preservation;

2) If not yet gathered, that is, the crops are still standing, you completely forfeit them in favor of the owner of the land without any right of indemnity except of course for the necessary expenses, not of the crops but of the land.

53. Define alluvium –

ANS: Alluvium may be defined as the accretion which the lands adjoining the banks of rivers, creeks, torrents or lakes gradually received from the effects of the current of the waters.

54. The rule with regard to alluvium?

ANS: To the owners of the land adjoining the banks of rivers belongs the accretion which they gradually receive from the effects of the current of the waters. (Art 457, NCC)

The owners of the estates adjoining ponds

or lagoons do not acquire the land left dry by the natural decrease of the waters, or

lose that inundated by them in extraordinary floods. (Art 458, NCC)

55. Define avulsion –

ANS: Avulsion may be defined as the accretion which takes place whenever the current of a river, creek, torrent or lake segregates from an estate on its bank a known portion of the land and transfers it to another estate.

The rule with regard to avulsion –

ANS: Whenever the current of a river, creek or torrent segregates from an estate on its bank a known portion of land and transfer it to another estate, the owner of the land to which the segregated portion belonged retains the ownership of it, provided that he removes the same within 2 years.

Trees uprooted and carried away by the

current of the waters belong to the owner of the land upon which they may be cast, if the owners do not claim them within 6 months. If such owners claim them, they shall pay the expenses incurred in

gathering them or putting them in a safe place.

56. Rule on uprooted trees –

Example: Because of the force of the river current, some trees on the estate of A were uprooted and cast on the estate of B, who owns the trees?

ANS: A should still be considered as the

owner of the uprooted trees but if he does not claim them within six months, B will become the owner. If A makes the claim, he will have to shoulder the expenses for gathering or putting them in a safe place.

Failure to make the claim within 6 months will bar any future action to recover the trees.

57. Rule if the trees have been transplanted –

ANS: In the example given above, even if the trees have been transplanted by the owner of the land upon which they have been cast on his own land – ownership still pertains to the person who lost the trees

provided that the claim was made properly. Incidentally, the owner of the land upon which the trees have been cast does not have to wait for six months before he can temporarily set them aside to make proper use of his own land.

58. Effect if claim is made but trees are not

removed –

If say within 4 months a claim is made but no steps are yet taken to recover the trees, may an action still be filed afterwards for recovery of the trees? ANS: It is submitted that the answer is YES,

provided the action is brought within the period set by law for prescription of movable (since uprooted) property. (Art. 1140 – 4 years for ordinary prescription). The six-month period given in Art. 460 should be considered only as condition precedent; in other words, A has to make the claim within 6 months. The recovery (as distinguished from the claim) can be made within the period for prescription. If no claim is made within six months, the ownership changes.

59. Article applies to uprooted trees –

If instead of being uprooted, the trees still remain attached to the land that has been carried away, it is Art. 459 that must govern.

Article 459: “Whenever the current of a river, creek or torrent segregates from an estate on its bank a known portion of the land and transfers it to another estate, the owner of the land to which segregated portion belonged retains the ownership of it provided that he removes the same within two years.”

60. Must owner of land upon which the

uprooted trees have been cast be given compensation?

ANS: It depends. If he has incurred

expenses for preserving them as when he gathered them in a safe place for eventual return or when he transplants them only for preservation purposes, he is doubtless entitled to indemnification. If he has done nothing, he cannot demand indemnification unless he has suffered in any way and the real owner has benefited

in that, for example, they were not carried away by the current. (See Art. 22)

Article 461. River beds which are abandoned

through the natural change in the course of the waters ipso facto belong to the owners whose lands are occupied by the new course in proportion to the area lost. However, the owners of the lands adjoining the old bed shall have the right to acquire the same by paying the value thereof, which value shall not exceed the value of the area occupied by the new bed.

61. Distinguish between alluvium and avulsion.

ANS: The 2 may be distinguished from each other in the following ways:

1. In alluvium, the accretion is gradual,

whereas in avulsion, it is sudden and abrupt;

2. In alluvium, the accretion cannot be identified, whereas in avulsion, it can be identified;

3. In alluvium, there is merely an attachment, whereas in avulsion there is first detachment followed by attachment; and

4. In alluvium, the accretion belongs to the owner of the land to which the attachment is made ipso jure, whereas in avulsion, the ownership is retained by the owner of the land from which it is detached, at least, for a certain period.

62. The rule with regard to changes in the

course of rivers. ANS: River beds which are abandoned

through the natural change in the course of the waters ipso facto belong to the owners whose lands are occupied by the new course in proportion the area lost. However, the owners of the lands adjoining the old bed shall have the right to acquire the same by paying the value thereof, which value shall not exceed the value of the area occupied by the new bed (Art. 461, NCC)

Attention, however, must be called to the

fact that the above provision has already

been superseded by the following provision of the Water Code of the Philippines (P.D. No. 1067).

Article 58. When a river or stream suddenly

changes its course to traverse private lands, the owners of the affected lands may not compel the government to restore the river to its former bed; nor can they restrain the government from taking steps to revert the river or stream to its former course. The owners of the lands thus affected are not entitled to any compensation for any damage sustained thereby. However, the former owners of the new bed shall be the owners of the abandoned bed in proportion to the area lost by each.

“The owners of the affected lands may undertake to return the river or stream to its old bed at their own expense; Provided, that a permit therefore is secured from the Minister of Public Works and works pertaining thereto are commenced within two years from the change in the course of the river or stream.”

Requisites that must be complied with in order that the owner of the land adjoining the bank of a river may become the owner of an accretion on the land. ANS: They are the following:

1. The deposit must be gradual or imperceptible or impervious;

2. It must be cause by the current of a river;

3. The current must be that of a river; 4. The river must continue to exist; and 5. The increase must be comparatively

little. (Art. 457, NCC) NOTE: If the increase is through artificial

means, the law does not apply.

63. Suppose that a river dries up, who is the owner of the old bed?

ANS: The old bed will be considered as

property of public ownership

64. What is accretion?

ANS: Accretion is the process whereby the soil is deposited while alluvium is the soil deposited. Accretion is broader scope that alluvium because strictly speaking, alluvium applies only to the soil deposited on river banks.

65. Reasons why alluvium is granted to the

riparian owner. ANS: a. to compensate him for the loss he

may suffer due to erosion or destructive force of the water and danger from floods;

b. to compensate him because the property is subject to encumbrances and legal easement;

c. the interest of agriculture require that the soil be given to the person who is in the best position to cultivate the same;

d. since, it cannot be said with certainty from where the soil came, it is but just that it be given to him who can best utilize the property.

66. If the riparian owner has a title to the land,

does that cover the alluvial deposit? Why?

ANS: No, because there is specific technical

description of the land. There must first be an independent application for registration of the land.

67. May the alluvial deposits be lost by

prescription in favor of another? Reason.

ANS: Yes, because it is not covered by a Torrens title. It can be lost by prescription after 30 years.

68. Who owns an abandoned river bed? How

about an island formed on a river?

ANS: a. River beds which are abandoned through the natural change in the course of the waters ipso facto belong to the owners whose lands are occupied by the new course in proportion to the area lost. (Art. 461, NCC)

b. If the river on which the land is formed is navigable, the island belongs to the State. (Art. 464, NCC)

If the river is non-navigable, the island belongs to the riparian owner, nearer the island. If the said island is formed exactly at the middle of the river, it shall be divided longitudinally in halves between the two riparian owners. (Art. 465, NCC)

69. What is adjunction and give the kinds of adjunction?

ANS: It is a process by virtue of which two

movables belonging to the different owners are united in such a way that they form a single object.

The kinds of adjunction are: a. engraftment b. attachment c. weaving d. painting e. writing

70. If two movables belonging to different owners are united in such a way that they form a single object, to whom shall the object belong?

ANS: 1. When both owners had acted in good faith: If the two things which are united cannot be separated from each other without injury, the owner of the principal things acquires the accessory, indemnifying the owner of such accessory for its value. (Art. 466, NCC)

If the two things can be separated

without injury, their respective owners may demand their separation. (Art. 469, par.1, NCC)

Nevertheless, in case the thing united

for the use, embellishment or perfection of the other is much more precious that the principal thing, the owner of the former may demand its separation, even though the thing to which is has been incorporated may suffer some injury. (Art. 469, par.2, NCC)

2. When the owner of the accessory had

acted in bad faith: Whenever the owner of the accessory thing had made the incorporation in bad faith, he shall lose the thing incorporated and shall have the obligation to indemnify the owner of

the principal thing for the damages he may have suffered. (Art. 470, NCC).

3. When the owner of the principal had

acted in bad faith: if the one who has acted in bad faith is the owner of the principal thing, the owner of the accessory thing have a right to choose between the former, paying him its value or that the thing belonging to him be separated, even though for this purpose it be necessary to destroy the principal thing; and in both cases, furthermore, there shall be indemnity for damages. (Art. 470, NCC)

4. When both owners had acted in bad

faith: If either one of the owners has made the incorporation with the knowledge and without the objection of the other, their respective rights shall be determined as though both acted in good faith. (Art. 470, NCC)

71. In adjunction or conjunction, what are the

tests to be applied in order to determine the principal?

ANS: In general, there are 4 tests which may be applied. In their order of preference, they are as follows:

1. That to which the other has been

united as an ornament or for its use or perfection;

2. The thing of greater value; 3. If they are of equal value, that of the

greater volume; 4. If not one of these tests can be

applied, then, the question will be resolved by taking into consideration all pertinent provisions applicable as well as their respective merits, utility and volume. (Arts. 467 and 468, NCC.)

In painting and sculpture, writings, printed matter, engraving and lithographs, the board, metal, stone, canvas, paper or parchment shall be deemed the accessory thing. (Art. 468. par.2, NCC)

72. What is mixture and state its kind?

ANS: Mixture is combination or union of materials where the respective identities of the component elements are lost.

The kinds of mixture are: a. Commixion which is a mixture of

solids; b. Confusion which is a mixture of

liquids.

73. State the rules on mixture.

ANS: The rules in mixture may be stated this way:

a. If mixture is caused by one owner in

good faith, or by will of both owners, or by chance, or by common agent, co-ownership results.

b. If mixture is made by one owner in bad faith, then he loses his material in favor of another and he is liable for damages.

74. What is specification?

ANS: Specification is the giving of a new form to another’s material through

application of labor where labor becomes the principal.

75. State the rules in specification.

ANS: The rules in specification can be stated in this manner:

1. If the worker is in good faith: a. he appropriates the new thing but

he must indemnify the owner of the materials. If the material is more precious than the new thing, the owner of the material has the option:

aa. to get the new thing but he has to

pay for the work; or ab. demand indemnity for material 2. If the worker is in bad faith, the owner

of the material has the option: a. to appropriate the work without

paying for the labor; or b. to demand indemnity for the

materials with damages.

The option to appropriate, however, does not apply if the value of the resultant work is more valuable for artistic or scientific reasons.

76. State the distinctions among adjunction, specification and mixture:

ANS: 1. Adjunction involves at least two

things. Mixture involves at least two things. Specification may involve only one thing

but the form is changed. 2. In adjunction and specification,

accessory follows the principal. In mixture, co-ownership results. 3. In adjunction, the things joined retain

their nature. In mixture, the things mixed or

confused, retain or loss their respective nature.

In specification, the new object retains or preserves the nature of the original object.

77. What are the tests in determining which

of two things is the principal and the accessory?

ANS: The tests are: (1) intention; (2) value;

(3) volume and (4) merits. Under the test of intention, the rule is, that to which a thing is attached is the principal; and that to which is attached to the thing is the accessory. Example: A ring and a diamond. Based on the test of intention, the ring is the principal and the diamond is the accessory. In the case of the ring, if the diamond is more valuable, the latter is the principal and the ring is the accessory. Under the test of volume, that which is bigger is the principal; that which is smaller is the accessory. Since the ring is bigger than the diamond, the ring is the principal and the diamond is the accessory. The test of merits is a combination of utility and volume.

QUIETING OF TITLE

78. When may an Action to quiet title prosper?

ANS: When the following requisites are

present: 1. Existence of an instrument or record

or claim or encumbrances or proceeding;

2. The document appears to be valid or effective;

3. But the document is in truth and in fact; invalid, ineffective, voidable or unenforceable; and

4. The document is prejudicial to the title. (Art. 476, NCC)

79. Kinds of Action referred to:

ANS: a. Remedial - action to remove the cloud or to quiet title. (Art. 476, par. 1)

b. Preventive - action to prevent a future cloud or doubt

80. Reasons for allowing the Action:

ANS: a. the prevention of litigation

(eventual litigation); b. the protection of the true title and

possession; c. the promotion of right and justice.

81. Nature of the Action –

The result is not binding upon the whole world, therefore not “in rem”. It is “in rem”. It is really “in personam” because it is enforceable only against the defeated party, or privies and that a suit to quiet title brought against one co-owner, is NOT res judicata with respect to the other co-owners who were not made parties thereto. In fact, an action for conveyance, which is really “in personam”, has, in at least one case, been considered by our Supreme Court, as an action to quiet title. Technically, it is “quasi in rem”, which is an action ”in personam” concerning real property.

82. Are personal (movable) properties referred to in the action to quiet title?

As the law is worded, NO, because the law says “real property or any interest therein”. But by analogy, the same principles should apply to personal property, particularly vessels, which although movable, partake of the nature of real property.

83. Does the Action to Quiet Title Prescribe?

ANS: It depends. a. If the plaintiff is in possession of

the property, the action DOES NOT PRESCRIBE.

Reason: While the owner continues to be liable to an action, proceeding, or suit upon the adverse claim, he has a continuing right to be given aid by the court to ascertain and determine the nature of such claim and its effect on his title, or to assert any superior equity in his favor. He may wait until his possession is disturbed or his title is attacked before taking steps to vindicate his right. Thus, a buyer of land in 1931, who possesses it from that date may still compel the seller’s successors-interest to execute

the proper deed of conveyance in 1954, so that the deed may be registered. b. If the plaintiff is NOT in

possession of the property, the action MAY PRESCRIBE. Moreover, even if the action is brought within the period of limitations, it may be barred by LACHES, where there is no excuse offered for the failure to assert the title sooner. If somebody else has possession, the period of prescription for the recovery of the land is either 10 or 30 years, depending on ordinary or extraordinary prescription. And even if brought within the prescriptive period, the action may no longer prosper if there has been an unreasonable or unjustified delay in filing the suit.

As a general rule, it is settle that an action to quiet title does not prescribe. The plaintiff must either have legal or equitable title to or interest in the real property which is the subject matter of the action. Otherwise, the action will not

prosper. He need not be in possession of said property. (Art. 477, NCC).

84. Non-necessity of Possession –

The plaintiff may be in possession or not in possession. The differences in effect are:

If Plaintiff is in

possession

If Plaintiff Is

Out Possession

a. peri

od does not prescribe

b. only right is to remove or prevent cloud

a. pe

riod prescribes

b. aside from being given the right to remove or prevent cloud, he may also bring the ordinary actions of

ejectment, publiciana or reinvindicatoria within the proper prescriptive periods.

RUINOUS BUILDINGS AND TREES IN DANGER OF FALLING

Article 485. If a building, wall, column, or any other construction is in danger of falling, the owner shall be obliged to demolish it or to execute the necessary work in order to prevent it from falling.

If the proprietor does not comply with this

obligation, the administrative authorities may order the demolition of the structure at the expense of the owner, or take measures to insure public safety.

Rule in Case of Building, etc., In Danger of Falling Example:

On A’s estate is a wall facing the street. The wall is in danger of falling. May the owner be compelled to demolish or repair it? Yes, and if he does not do so, the administrative authorities may either order its demolition at A’s expense or take measures to insure public safety. The Complainant – The complainant who brings the case must either have his property adjacent to the dangerous construction, or must have to pass by necessity in the immediate vicinity. If the construction falls, the owner would be liable for damages, as a general rule. Article 483. Whenever a large tree threatens to

fall in such a way as to cause damage to the land or tenement of another or to travelers over a public or private road, the owner of the tree shall be obliged to fell and remove it; and should he not do so, it shall be done at his expense by order of the administrative authorities.

C0-OWNERSHIP

01. Define Co-ownership?

There is co-ownership whenever the ownership of an undivided thing or right belongs to different persons.

02. What Governs Co-ownership?

a. contracts b. special legal provisions c. provisions of the Title on Co-ownership In default of the 1

st, apply the 2

nd; in the

absence of the 2nd

, apply the 3rd

. (Art. 484, NCC)

03. Sources of Co-ownership (How It Arises)

a. By law b. By contract c. By chance d. By Occupation or occupancy e. By succession or will

04. Characteristics of Co-ownership

1. There must be more than one subject or owner;

2. There is one physical whole divided into ideal shares;

3. Each ideal share is definite in amount, but is not physically segregated from the rest;

4. Regarding the physical whole, each co-owner must respect each other in the common use, enjoyment or preservation of the physical whole;

5. Regarding the ideal share, each co-owner holds almost absolute control over the same;

6. The co-ownership does not have juridical personality

7. A co-owner is in a sense a trustee for other co-owners.

05. Distinctions between co-ownership and

partnership- 1. Co-ownership has no legal personality;

while partnership has a legal or juridical personality;

2. Co-ownership is created by contract or the other things; while a partnership is created by contract only;

3. The purpose of co-ownership is for collective enjoyment; while partnership is for profit;

4. An agreement of a co-ownership exist for 10 years is valid; while in partnership, there is no term limit;

5. There is no mutual representation in co-ownership; while there is mutual representation in partnership;

6. Co-ownership is not dissolved by death or incapacity of a co-owner; while partnership is dissolved by death or incapacity of a partner;

7. A co-owner can dispose of his share without the consent of the others; while in partnership, a partner cannot substitute another in his place without the consent of the others;

8. In co-ownership, profits must depend on proportionate share; while in partnership, profits may be stipulated by the partners.

06. Distinctions between conjugal

partnership and co-ownership-

1. Conjugal partnership arises only because of a marriage contract; while co-ownership arises by an ordinary contract;

2. The parties in a conjugal partnership must be a male and a female; while in co-ownership sex is immaterial;

3. In conjugal partnership, the owners are always two; while in co-ownership, the co-owner may be more than two;

4. In conjugal partnership, the profits are divided equally, unless there is contrary stipulation in the marriage settlement; while in co-ownership, profits are proportional to their respective shares;

5. Death of either party in conjugal partnership dissolves it; while death of one in co-ownership does not dissolve it.

07. Kinds of Co-ownership a. From the viewpoint of subject matter:

1. Co-ownership of an undivided thing 2. Co-ownership of an undivided right

b. From the viewpoint of source

1. Contractual co-ownership (an agreement not to divide for ten years allowed (Art.494, NCC)

2. Non-contractual co-ownership (if the source is not a contract).

c. From the viewpoint of the rights of the co-owners:

1. Tenancy in common (or ownership in common or just co-ownership as contemplated in Art. 484).

2. Joint tenancy (also called joint ownership).

08. Rights of the co-owners-

1. Full ownership of his part and share of fruits or benefits;

2. The right to alienate, assign or mortgage his share;

3. The right to substitute another in his enjoyment, except when personal rights are involved (Art. 493, NCC)

4. The right to exempt himself from necessary expenses or taxes by renouncing part of his interest in the co-ownership (Art. 488, NCC).

09. Actions covered by the term “Ejectment”

which is one of the rights of co-owners are the following --

a. forcible entry; b. unlawful detainer; c. accion publiciana; d. accion reindivicatoria; e. quieting of title; f. replevin.

10. May prescription run against a co-owner? Are there exceptions? ANS: No, as a rule. Prescription does not

run against co-owners and co-heirs as long as the co-ownership is expressly or impliedly recognized.

The exception is repudiation, provided that

the following requisites are present:

1. He must make known to the others that he is repudiating the co-ownership and claiming complete ownership of the entire property.

2. Evidence of repudiation and knowledge of others is clear and convincing.

3. There is open, continuous, peaceful, public and adverse possession for a period to time required under the law.

Note: Mere receiving of rents or profits,

payment of taxes, or construction of a fence or building would not be sufficient proof of exclusive or adverse possession because anyone in the co-ownership may do it. Definite repudiation is necessary.

11. How do you determine the share of the

co-owners to the benefits and charges arising from the co-ownership?

ANS : The share of the co-owners in the

benefits and charges arising from the co-ownership shall be proportional to their respective interests and any stipulation in a contract to the contrary shall be void. Consequently, in order to determine the share of the co-owners in the benefits and charges, we must first determine their respective interests in the co-ownership. Under the law, such interests are presumed equal, unless the contrary is proved. (Art. 485, par.2, NCC)

12. What are the limitations upon the right of

a co-owner to use the thing owned in common?

ANS: The thing should be used only: (1) in

accordance with the purpose for which it is intended; (2) in such a way as not to injure the interest of the co-ownership; (3) in such a way as not to prevent the other co-owners from using it according to their rights. (Art. 486, NCC)

13. Perpendicular Co-ownership- This is not an ordinary case of ownership where all the floors and everything else belong to all co-owners. Here, we have a case of “perpendicular co-ownership” where the different stories belong to different persons. This is still co-ownership for there is some unity in the use or ornamentation of the property, particularly in the main and common walls, roof, stairs, etc. This is uncommon in our country. NOTE: If the various units are in one plane –

as when one storey units all sets on the ground – the co-ownership may be referred to as a “horizontal co-ownership”. A combination of both perpendicular and horizontal co-ownership can result in a situation very similar to a condominium

which may be in the form of a building consisting of several stories, each storey being by itself divided into different units, owned by different persons. Note that each unit cannot be considered owned in common. Under the Condominium Law, a condominium corporation can be formed – to take care of common property, like the common stairs, common halls, etc.

14. In a co-ownership, under what

circumstances may a co-owner not demand partition?

ANS: They are the following: 1.) When there is an agreement, but the

period should not exceed ten years; 2.) When the testator prohibits it, but the

period shall be limited to twenty years; 3.) When it is prohibited by law (As in

conjugal partnership or absolute community property except in case of legal separation);

4.) When partition renders the object unserviceable;

5.) When the legal nature of the property does not allow partition of the object, like a party wall. (Arts. 494 & 495, NCC)

15. How co-ownership is extinguished/terminated? (a) judicial partition

(b) extrajudicial partition (c) when by prescription, one co-owner has

acquired the whole property by adverse possession as against all the others, and repudiating unequivocally the co-ownership of the other

(d) when a stranger acquires by prescription the thing owned in common

(e) merger in one co-owner (f) loss or destruction (g) expropriation (here the indemnity will be

distributed accordingly). 16. May the co-owners of a property agree

that the co-ownership shall be for an indefinite period? Why?

ANS: NO. In one case, the Supreme Court

ruled that the duration of the juridical condition of co-ownership is not limitless. Under Arts. 494 and 1083 of New Civil Code, co-ownership of an estate should not exceed 20 years. Any agreement to keep

the thing or property undivided should be for ten year period only. If the parties stipulate a definite period of indivision which exceeds the maximum allowed by law, said stipulation is void only as to the period beyond such maximum period.

The Civil Code is silent as to the effect of the indivision of property for more than twenty years. The Supreme Court, however, said that it would be contrary to public policy to sanction co-ownership beyond the period set by law. Otherwise, the 20 year limitation would be rendered meaningless.

17. Is an existing mortgage a bar to the partition of a property? Why?

ANS: No, because the latter does not operate to extinguish the mortgage. A mortgage is inseparable from the property. Under Art. 2126 of NCC, a mortgage directly and immediately subjects the property upon which it is imposed, whoever, the possessor may be, to the fulfillment of the obligation for whose security it was constituted. Furthermore,

Art. 494 of the NCC, provides that no co-owner shall be obliged to remain in the co-ownership. Each co-owner may demand at any time the partition of the thing owned in common, insofar as his share is concerned.

18. Will redemption by a co-owner of a co-

owned property, in its entirety, terminate or extinguish co-ownership?

ANS: The fact that a co-owner redeems a

co-owned property in its entirety, shouldering the expenses therefor, does not make said co-owner the owner of it all. The redemption made by him does not put an end to the existing state of co-ownership. The property remains to be in a condition of co-ownership.

The redemption of the property, however, entails a necessary expense. Necessary expenses may be incurred by one co-owner but this is subject to his right to collect reimbursement from the remaining co-owners.

19. Distinguish between the right of a co-

owner to make repairs for the

preservation of the property owned in common, to perform acts of administration, and to perform acts of ownership or alteration.

ANS: 1. With regard to acts of preservation:

Repairs for preservation may be made at the will of one of the co-owners, but he must, if practicable, first notify the owners of the necessity for such repairs. (Art. 489, NCC)

2. With regard to acts of administration: Acts of administration can be performed only with the concurrence of the majority of the co-owners. (Art. 492, NCC)

3. With regard to acts of alteration: Acts of alterations can be performed only with the concurrence of the co-owners. (Art. 491, NCC)

20. What is meant by acts of administration

and acts of alteration? Distinguish one from the other. ANS: Acts of administration are those which

refer to the enjoyment, exploitation and alteration of the thing which do no affect its substance or form, while acts of alteration

are those by virtue of which a co-owner, in opposition to the expressed or tacit agreement of all the co-owners, and in violation of their will, changes the thing from the state in which the others believe it should remain, or withdraws it from the use to which they believe it is intended.

Consequently, acts of administration are

transitory in character, while acts of alteration are more permanent. The former do not affect the substance or form of the thing, while the latter relate to the substance or essence of the thing itself. And in relation to the right of a co-owner, the former require the consent or resolution of the majority of the co-owners, while the latter require the consent of all.

21. Who has the right of administration of

the property owned in common?

ANS: The management of the property owned in common lies, in the first place, in the co-owners themselves. In this, management, the majority of interest control, and their decisions are binding upon the minority. However, the administration may be delegated by the

co-owners to one or more persons, whether co-owners or not. In such case, the powers and duties of such administrators shall be governed by the rules on agency. Should there be no majority, or should the resolution of the majority be seriously prejudicial to those interested in the property owned in common, the court, at the instance of an interested party, may order the appointment of an administrator.

22. Is the lease of the entire community

property an act of administration or an act of ownership or alteration?

ANS: Lease of personal property is a mere

act of administration and therefore, requires the resolution of the majority of the co-owners. However, lease of real property may be an act of administration or an act of alteration depending upon the circumstances of each particular case. Thus: (1) If the lease is recorded in the Registry of Property, whatever may be the duration thereof, it is an act of ownership and therefore, requires the unanimous consent of all the co-owners, since under

the law, a special power of attorney is required. (see Art. 1647, NCC) (2) If the lease is not recorded in the Registry of Property, but the duration thereof is more than one year, it is also an act of ownership and, therefore, requires the unanimous consent of all the co-owners, since, again, under the law, a special power of attorney is required. (see Art. 1878, No. 8, NCC) (3) If the lease however, is not recorded in the Registry of Property and the duration thereof is only one year or less, it is an act of administration and therefore, merely requires the resolution of the majority of the co-owners.

23. a. What is meant by condominium? b. Who has title to the condominium project? ANS: a. According to the Condominium Act (R. A.

No. 4726), a condominium is an interest in real property consisting of a separate interest in a unit in a residential, industrial or commercial building and an undivided interest in common, directly or indirectly, in

the land on which it is located and in other common areas of the building. A condominium may include, in addition, a separate interest in other portions of such real property.

b. We must qualify our answer. When we

speak of the condominium project, we refer to the entire parcel of real property divided or to be divided in condominiums, including all structures thereon. Thus, as far as the unit of the project which is being used by a condominium owner is concerned, such owner has title thereto, but as far as the common areas, including the land are concerned, all of the condominium owners have an undivided interest or title thereto. However, title to such common areas, including the land, may be held by a corporation (hereinafter known as condominium corporation) in which the holder of separate interests shall automatically be members or shareholders, to the exclusion of others, in proportion to the appurtenant interest of their respective units in the common areas.

POSSESSION

Possession defined - it is the holding of a thing or the enjoyment of a right.

It is really a fact since it exists but from the moment it exists, certain consequences follows, thus making possession also a right.

“Right to possession” is a right or incident of ownership while “Right of possession” is an independent right of itself, independent of ownership. Q : What are the degrees of possession? ANS : a. Mere holding or having without any

right whatsoever like the possession itself. b. Possession with juridical title, but not that

of an owner like that of a lessee, pledgee or depositary. This is called juridical possession.

c. Possession with just title, but not from the true owner. This is called real possessory right. Example is when a person in goodfaith buys an automobile from another

who delivers the same to the former and who merely pretended to be the owner.

d. Possession with a title of dominium, that is, with a just title from the owner. This is really ownership or possession that springs from ownership.

Requisites or Elements of possession: 1) There must be a holding or control of a thing or a right. 2) There must be a deliberate intention to possess (animus possidendi) 3) The possession must be by virtue of one’s own right. Classes of possession: 1) In one’s own name or in that of another 2) In the concept of owner or in the concept of holder 3) In good faith or in bad faith Ownership is different from possession.

A person may be declared the owner, but he may not be entitled to possession. The

possession in the concept of holder may in the hands of another, such as a lessee or tenant. Article 524 – Possession may be exercised in

one’s own name or in that of another.” Who is in actual possession of a rented parcel of land?

The lessor, thru the tenant, is in actual possession of the land (in the concept of the owner) that is, if the lessor is not the owner; if he is the owner, he is called the possessor-owner. The tenant, by himself, is in actual possession in the concept of holder. Possession in another’s name -

a. voluntary – as when an agent possesses for the principal by virtue of an agreement.

b. Necessary – as when a mother possesses for a child still in the maternal womb.

c. Unauthorized – no authority given to possess a thing.

Suppose I visit a piece of land once in a while

and I declare for taxation purposes the fact that the land belongs to me, this does not

necessarily mean that I am in possession of the land, for those facts, by themselves, do not show possession. Note however, that the holding of a possessory information is considered evidence of possession. (Bishop of Nueva Segovia vs. Mun. of Bantay, 24 Phils. 347) Specific examples of possession in the concept of holder:

1) that of the tenant 2) that of the usufructuary 3) that of the depositary 4) that of the bailee in commodatum

Article 526. “He is deemed a possessor in good

faith who is not aware that there exists in his title or mode of acquisition any flow which invalidates it.

He is deemed a possessor in bad faith who

possesses in any case contrary to the foregoing. Mistake upon a doubtful or difficult question

of law may be the basis of good faith.”

Q : If a person is aware of the defects of his predecessor’s title, should he be considered in good faith or bad faith?

ANS : Although Manresa says he should be

considered in good faith because after all the law speaks of his title, not that of the predecessor, still the fact remains that he is not allowed to get from a person who is not the owner. Therefore, we should consider him in bad faith unless of course he has valid reasons to believe that his own title is good.

Bad faith is personal. Just because a person

is in bad faith (knows of the defect or flaw of his title) does not necessarily mean that his successors in interest are also in bad faith. As a matter of fact, a child or heir may even be presumed in good faith, notwithstanding the father’s bad faith. Article 527. Good faith is always presumed,

and upon him who alleges bad faith on the part of a possessor rests the burden of proof.

Article 528. Possession acquired in good faith

does not lose this character except in the

case and from the moment facts exist which shows that the possessor is not unaware that he possesses the thing improperly or wrongfully.

Article 529. It is presumed that possession

continues to be enjoyed in the same character in which it was acquired, until the contrary is proved.

Article 530. Only things and rights which are

susceptible of being appropriated may be the object of possession.”

The following cannot be appropriated and hence cannot be possessed:

a) property of public dominion b) res communes c) easements (if discontinuous or non-

apparent) d) things specifically prohibited by law

“Res Nullius” (abandoned or ownerless

property) may be possessed but cannot be acquired because prescription presupposes prior ownership in another. However, said “res nullius” may be acquired by occupation.

ACQUISITION OF POSSESSION How is possession acquired-(Article 531 correlate with Article 555)

a) by material occupation of a thing or the exercise of a right (quasi-possession). This includes constitutom possessorium or traditio brevi manu.

b) by the subjection to our will (this includes tradition longa manu)-by mere agreement; or by the delivery of keys-traditio simbolica)

c) by constructive possession or proper acts and legal formalities

Constitutom possessorium- exists when a

person who possessed property as an owner, now possesses it in some other capacity, as that of a lease or depositary.

Traditio brevi manu- (the opposite of constitutom possessorium) this exists when a person who possessed property not as an owner (like a lessee), now possesses it as an owner.

Essential requirements for possession:

1) the corpus (or the thing physically detained)

2) the animus or intent to possess Acquisition of possession from the viewpoint of who possesses:

1) personal 2) through authorized person (agent or legal

representative) 3) thru unauthorized person (but if only

subsequently ratified) Essential requisites:

1) for personal acquisition a) intent to possess b) capacity to possess c) object must be capable of being

possessed

2) thru an authorized person a) intent to possess for the principal b) authority/capacity to possess for

another

c) principal has intent and capacity to possess

3) thru an unauthorized person (as in

negotiorium gestio) a) intent to posses for another (the

principal) b) capacity of “principal“ to possess c) ratification by “principal”

Article 533. The possession of hereditary property is deemed transmitted to the heir without interruption and from the moment of the death of the decedent, in case the inheritance is accepted. One who validly renounces an inheritance is deemed never to have possessed the same.

Time of acquisition of possession:

a) if the heir accepts-from the moment of death since there is no interruption

b) if the heir refuses (or is incapacitated to inherit)-he is deemed never to have possessed the same

Some effects of acquisition of possession thru succession:

If the father or decedent was in bad faith, it does not necessarily mean that the son was also in bad faith. The son is presumed to be in good faith. However, since the father was in bad faith, the consequences of the good faith of the son should be counted only from the date of the decedent’s death.

A minor may acquire the possession of a fountain pen donated to him, but in case of a court action, his parent or legal representative must intervene. (Article 535)

A minor and other incapacitated persons may acquire property or rights by prescription, either personally or thru their parents, guardians or legal representatives. (Article 1107)

Modes through which possession cannot be acquired:

1) thru force or intimidation 2) thru mere tolerance (permission) 3) thru clandestine, secret possession

The “intruder” does not acquire any right to

possession (no legal possession)

The legal possessor, even if physically ousted, is still the possessor and therefore:

1) still entitled to the benefit of prescription 2) still entitled to the fruits 3) still entitled as possessor for all purposes

favorable to his possession General Rule regarding possession as a Fact: Possession as a fact cannot be recognized at the same time in two different personalities.

Exceptions:

co-possessors since here, there is no conflict of interest, both of them acting as co-owners

possession in different concepts or different degrees, example, both owner and tenant are the possessors as a fact at the same time; the first, in the concept of an owner; the second, in the concept of holder (Article 538)

Rules/Criteria to be used in case of conflict or dispute regarding possession:

1) present possessor shall be preferred 2) if both are present, the longer in

possession 3) if both began to possess at the same

time, the one who presents a title 4) if both present a title, the Court will

determine. In the meantime, the thing shall be judicially deposited.

Preferences of ownership (not possession) in

case of double sale (Article 1544) and in double donation (Article 744):

a) movable property-preference in ownership is given to the person who first possessed it in good faith

b) immovable property-preference in

ownership is given: 1) to the first who registered his right in

good faith in the Registry of Property 2) if there was no registration, to the

person who first possessed in good faith

3) if there was no possession, to the person who presents the oldest title, provided that the title had been acquired in good faith

In case of conflict between a sale and a

mortgage-it is the unrecorded sale that is preferred for the reason that if the original owner had parted with his ownership of the thing sold, he no longer had the ownership and free disposal of that thing so as to be able to mortgage it. (Maria Bautista vda. de Reyes vs. de Leon L-22331, June 6, 1967)

Co-possessors of a parcel of land that is mortgaged must be made parties to foreclosure proceedings, otherwise they cannot be deprived of possession of that portion of land actually possessed by them. (Concha vs. Hen. Divinagracia, L-27042, September 30, 1981) EFFECTS OF POSSESSION Article 539. Every possessor has a right to be

respected in his possession; and should he be disturbed there he shall be protected in or restored to said

possession by the means established by the laws and the Rules of Court.

A possessor deprived of his possession

through forcible entry may within ten days from the filing of the complaint present a motion to secure from the competent court, in the action for forcible entry, a writ of preliminary mandatory injunction to restore him in his possession. The court shall decide the motion within 30 days from the filing thereof.” Article 540. Only the possession acquired and

enjoyed in the concept of owner can serve as title for acquiring dominion.”

The following cannot acquire ownership by

prescription as long as they remain such-mere possessors in the concept of holder: lessees; trustees; antichretic creditors; agents; attorneys regarding their client’s properties; depositaries; co-owners

Although payment of land taxes is not evidence of ownership and although a mere tax declaration or a tax assessment does not by itself give the title, and is of little value in proving one’s ownership, still the payment of the land

tax is one of the most persuasive and positive indicia, which shows the will of a person to possess in concepto de dueno or with claim of ownership. And therefore, prescription may eventually be had, provided that the other requisites are present. Article 541. A possessor in the concept of

owner has in his favor the legal presumption that he possesses with a just title and he cannot be obliged to show or prove it.”

Difference with respect to “just title” in possession and “just title” on prescription:

1) in possession, “just title” here is

presumed, while in prescription, “just title” here must be proved;

2) in possession, “just title” here means “titulo verdadero y valido” (true and valid title sufficient to transfer ownership) while in prescription, “just title” means “titulo colorado” (merely colorable) title although there was a mode of transferring ownership, the grantor was not the owner

The kinds of titles:

1) true and valid title-here there was a mode of transferring ownership and the grantor was the owner

2) colorable title-that title where, although there was a mode of transferring ownership, still something is wrong, because the grantor is not the owner

3) putative title-that title where although a person believes himself to be the owner, he nonetheless is not, because there was no mode of acquiring ownership

Article 542. The possession of real property

presumes that of the movables therein, so long as it is not shown or proved that they should be excluded.

Article 544. A possessor in good faith is

entitled to the fruits received before the possession is legally interrupted.

Natural and industrial fruits are considered

received from the time they are gathered or secured.

Civil fruits are deemed to accrue daily and belong to the ges possessor in good faith in that proportion.” Article 545. If at the time the good faith

ceases. There should be any natural or industrial fruits, the possessor shall have a right to a part of the expenses of cultivation, and to a part of the net harvest, both in proportion to the time of possession.

The charges shall be divided on the same

basis by the two possessors.

The owner of the thing may, should he so desire, give the possessor in good faith the right to finish the cultivation and gathering of the growing fruits, as an indemnity for his part of the expenses of cultivation and the net proceeds; the possessor in good faith who for any reason whatever should refuse to accept this concession, shall lose the right to be indemnified in any other manner.”

Rights of a possessor (in the concept of owner) as to the necessary expenses:

a) if in good faith-entitled to: 1. refund

2. retain the premises till paid

b) if in bad faith-entitled only to a refund (no right of retention as penalty) (Article 546)

Rights of possessor (in the concept of owner) as to the useful expenses:

a) if in good faith-(Article 546) 1. right to reimbursement (of either the

amount spent or increase in value- “plus value”-at owner’s option 2. right of retention till paid 3. right of removal (provided no substantial injury is caused to the principal, reducing its value-unless the owner exercises the option in paragraph 1 of Article 547

b) if in bad faith-the possessor in bad faith is not entitled to

any right regarding the useful expenses

Article 547. If the useful improvements can be removed without damage to the principal thing, the possessor in good faith may remove them, unless the person who recovers the possession exercises the option under paragraph 2 of Article 546.” (which is the option of refunding the amount of the expenses or of paying the increase in value which the thing may have acquired by reason thereof.)

Rights of a possessor (in the concept of

owner) with reference to luxurious or ornamental expenses:

a) if in good faith-

In general, no right of refund or retention but can remove if no substantial injury is caused. However, owner has the option to allow:

1) possessor to remove 2) or retain for himself (the owner) the

ornament by refunding the amount spent (Article 548)

b) if in bad faith-

In general, no right of refund or retention but can remove if no substantial injury is caused. However the owner has the option to allow:

1) possessor to remove 2) or retain for himself (the owner) the

ornament by refunding the value it has at the time the owner enters into possession (Article 549)

Rights of the possessor (in concept of owner) regarding fruits:

a). If in Good Faith :

1) Gathered or severed or harvested fruits are his own

2) Pending or ungathered fruits – pro-rating between possessor and owner of expenses, net harvest and charges (Art. 545)

b). If in Bad Faith:

1) Gathered fruits – must return value of fruits already received as well as value of fruits which the owner or legitimate possessor could have received with due

care or diligence minus necessary expenses for cultivation, gathering and harvesting to prevent the owner from being unjustly enriched.

2) Pending or ungathered fruits – no rights at all, not even to expenses for cultivation because by accession, all should belong to the owner, without indemnity. (Art. 449)

Article 550 – The cost of litigation over the

property shall be borne by every possessor.

Article 551 – Improvements caused by

nature or time shall always inure to the benefit of the person who has succeeded in recovering possession.

Article 552 – A possessor in good faith shall

not be liable for the deterioration or loss of the thing possessed, except in cases in which it is proved that he has acted with fraudulent intent or negligence, after the judicial summons.

A possessor in bad faith shall be liable for deterioration or loss in every case, even if caused by a fortuitous event.

Article 553 – One who recovers possession

shall not be obliged to pay for improvements which have ceased to exist at the time he takes possession of the thing.

Article 554 – A present possessor who

shows his possession at some previous time, is presumed to have held possession at also during the intermediate period, in the absence of proof to the contrary.

Article 555 – A possessor may loss

his possession:

a) By the abandonment of the thing; b) By an assignment made to another

either by onerous or gratuitous title; c) By the destruction or total loss of

the thing, or because it goes out of commerce;

d) By the possession of another, subject to the provisions of Art 537, if the new possession has lasted longer than one year. But the real right of possession is not lost till after the lapse of 10years.

Article 556 – The possession of movables is

not deemed lost so long as they remain under the control of the possessor, even though for the time being he may not know their whereabouts.

Article 557 – The possession of

immovables and of real rights is not deemed lost, or transferred for purposes of prescription to the prejudice of third persons, except in accordance with the provisions of the Mortgage Law and the Land Registration Laws.

Article 559 – The possession of movable

property acquired in good faith is equivalent to a title. Nevertheless, one who has lost any movable or has been unlawfully deprived thereof, may recover it from the person in possession of the same.

If the possessor of a movable lost or of which the owner has been unlawfully deprived, has acquired it in good faith at a public sale, the owner cannot obtain its return without reimbursing the price paid therefor.

Article 560 – Wild animals are

possessed only while they are under one’s control; domesticated or tamed animals are considered domestic or tame, if they retain the habit of returning to the premises of the possessor.

Article 561 – One who recovers,

according to law, possession unjustly lost, shall be deemed for all purposes which may redound to his benefit, to have enjoyed it without interruption.

USUFRUCT

Article 562 – Usufruct gives a right to enjoy the property of another with the obligation pf preserving its form and substance, unless the title constituting it or the law otherwise provides.

Ownership really consist of 3 fundamental rights

1) Jus disponendi (the right to dispose) 2) Jus utendi (right to use) 3) Jus fruendi (right to the fruits)

The combination of the latter two is called “usufruct” (from the term “usufructus”. The remaining right (jus disponendi) is really the essence of what is termed “naked ownership” Rights of action available to usufructuary (the person entitled to the usufruct):

1) Action to protect the usufruct itself 2) Action to protect the exercise of the

usufruct Usufruct distinguished from easements (servitudes):

1) In usufruct, the object may be real or personal property while in easement, only real property;

2) In usufruct, what can be enjoyed are all uses and fruits of the property while easement is limited to a particular use;

3) A usufruct cannot be constituted on an easement, but it may be constituted on the land burdened by an easement while an easement may be constituted in favor of, or burdening, a piece of land held in usufruct;

4) Usually extinguished by death of usufructuary while easement is not extinguished by the death of the owner of the dominant estate.

Similarities between the two:

a) Both are real rights, whether registered or not;

b) Both right may be registered; c) Both may ordinarily be alienated or

transmitted in accordance with the formalities set by law.

Article 563 – Usufruct is constituted by law,

by the will of private persons expressed in acts inter vivos, or in a last

will and testament and by prescription.

A usufruct over real property being a real right, must be duly registered in order to bind innocent third parties.

Classification of usufruct – according to quantity or extent of fruits:

a) As to fruits – total or partial b) As to object – universal or singular or

particular

Classification of usufruct – as to the number of persons enjoying the right:

1) Simple – if only one usufructuary enjoys 2) Multiple – if several usufructuaries enjoy

1) Simultaneous – at the same time 2) Successive – one after the other

Classification of usufruct – as to quality or kind of objects:

i. Usufruct over rights ii. Usufruct over things

1) Normal usufruct – this involves non-consumable things where the form and substance are preserved

2) Abnormal usufruct – usufruct over consumable property like vinegar or money (this is also called quasi-usufruct)

Classification as to terms or conditions: 1) Pure usufruct – no term or condition 2) With a term or period

Ex die – from a certain day In diem – up to a certain day

3) With a condition (conditional)

Rules governing a usufruct: a) First, the agreement of the parties or the

title giving the usufruct b) Second, in case of deficiency, apply the

Civil Code

In case of conflict – between the rights granted as usufructuary by virtue of a will, and codal provisions, the former, unless repugnant to the mandatory provisions of the Civil Code, should prevail.

RIGHTS OF THE USUFRUCTUARY

Article 566 – “The usufructuary shall be entitled to all the natural, industrial and civil fruits of the property in usufruct. With respect to hidden treasures which may be found on the land or tenement in any name, that is, with respect to hidden treasure which may be found on land or tenement, shall be considered a stranger.”

Article 567 – Natural or industrial fruits growing at the time the usufruct begins, belong to the usufructuary. Those growing at the time the usufruct terminates belong to the owner.

This article refers to pending natural or industrial fruits (as there can be no pending civil fruits, for they accrue daily)

Rules as to fruits pending at the beginning of usufruct:

1. Belong to the usufructuary; 2. No necessity of refunding owner for

expenses incurred (for the owner gave the usufruct evidently without any thought to being reimbursed for the pending fruits);

3. But without prejudice to the right of third persons (Thus, if the fruits had been planted by a possessor in good faith, the pending crops expenses and charges shall be pro-rated between said possessor and the usufructuary)

Rules as to fruits pending at the termination of usufruct:

1. Belong to the owner; 2. But the owner must reimburse the

usufructuary for ordinary cultivation expenses and for the seeds and similar expenses, from the proceeds of the fruit;

3. Also, rights of innocent third parties should not be prejudiced.

Article 568 – If the usufructuary has leased

the lands or tenement given in usufruct, and the usufruct should expire before the termination of the lease, he or his heirs

and successors shall receive only the proportionate share of the rent that must be paid by the lessees.

Article 569 – Civil fruits are deemed to accrue

daily and belong to the usufructuary in proportion to the time the usufruct may last.

Article 571 – The usufructuary shall have the

right to enjoy any increase which the thing in usufruct may acquire through accession, the servitudes established in its favor and in general, all the benefit inherent therein.

Article 572 – The usufructuary may personally

enjoy the thing in usufruct, lease it to another, or alienate his right of usufruct, even by a gratuitous title; but all the contracts he may enter into as such usufructuary shall terminate upon the expiration of the usufruct, saving leases of rural lands, which shall be considered as subsisting during the agricultural year.

Article 573 – Whenever the usufruct includes

things which, without being consumed,

gradually deteriorate through wear and tear, the usufructuary shall have the right to make use thereof in accordance with the purpose for which they are intended, and shall not be obliged to return them at the termination of the usufruct except in their condition at that time; but he shall be obliged to indemnify the owner for any deterioration they may have suffered by reason of his fraud or negligence.

Article 574 – Whenever the usufruct includes

things which cannot be used without being consumed, the usufructuary shall have the right to make use of them under the obligation of paying their appraised value at the termination of the usufruct, if they were appraised when delivered. In case they were not appraised, he shall have the right to return the same quantity and quality, or pay their current price at the time the usufruct ceases. (This is a quasi-usufruct)

Article 575 – The usufructuary of fruit-hearing

trees and shrubs may make use of the dead trunks, and even of those cut-off or uprooted by accident, under the

obligation to replace them with new plants.

Article 576 – If in consequence of a calamity or

extraordinary event, the trees or shrubs shall have disappeared in such a considerable number that it would not be possible or it would be too burdensome to replace them, the usufructuary may leave the dead, fallen or uprooted trunks at the disposal of the owner, and demand that the latter remove them and clear the land.

The obligations of a usufructuary in the enjoyment of a special usufruct over a woodland:

1. Must bear in mind that he is not the owner and therefore, in the exercise of the diligence in caring for the property, he must see to it that the woodland is preserved, either by development or by replanting, thus he cannot consume all, otherwise nothing would be left for the owner;

2. In the cutting or felling of trees, he must –

a. Follow the owner’s habit or practices

b. In default thereof, follow the customs of the place

c. If there be no customs, the only time the usufructuary can cut down trees will be for repair or improvement, but here the owner must first be informed.

3. Cannot alienate the trees unless he is

permitted by the owner or unless he needs the money to do some repairs. (Article 577, NCC)

In a usufruct of an action to recover through

the courts, the usufructuary can demand from the owner:

1) The authority to bring the action (usually a

special power of attorney); and 2) Proof needed for a recovery.

The institution of the action may in the usufructary’s name, for being the owner of the usufruct, he is properly deemed a proper party-in-interest. If the purpose is the recovery of the property or right, he is still required to obtain the naked owner’s authority. If the purpose is to object to or prevent disturbance over the property, no special authority from the naked owner is needed. (Article 578, NCC)

Article 580 – The usufructuary may set off the improvements he may have made on the property against any damage to the same.

Article 581 – The owner of the property the usufruct of which is held by another, may alienate it, but he cannot alter its form or substance, or do anything thereon which may be prejudicial to the usufructuary.

A co-owner may give the usufruct of his share to another even without the consent of the others, unless personal considerations are present. The usufructuray in such a case takes the owner’s place as to administration (management) and collection of fruits or interest. (Article 582, NCC)

If there be partition, the usufructuary continues to have the usufruct of the part allotted to the co-owner concerned and if the owners make a partition without the intervention of the usufructuary, this is all right and the partition binds the usufructuary. Necessarily however, the naked owner must also respect the usufruct. (Article 582, NCC).

OBLIGATIONS OF THE USUFRUCTUARY

The usufructuary has obligations before, during and after the usufruct

The usufructuary, before entering upon the enjoyment of the property is obliged:

1) To make an inventory of all the property, which shall contain an appraisal of the movables and a description of the condition of the immovables;

2) To give security binding himself to fulfill the obligations imposed upon him. (Article 583, NCC)

Effects of failure to give security (unless exempted) – (Article 586, NCC)

a) In the rights of the naked owner:

1. He may deliver the property to the usufructuary but even if delivery is made, the naked owner may still later on demand the needed security;

2. Or the naked owner may choose retention of the property as administrator;

3. Or the naked owner may demand receivership or administration of the real property, sale of movable, conversion or

deposit of credit retirements or investments of cash or profits.

b) In the rights of the usufructuary:

1. The usufructuary cannot possess the

property till he gives the security 2. He cannot administer the property,

hence, he cannot execute a lease thereon 3. He cannot collect credits that have

matured, nor invest them unless the Court or the naked owner consents

4. But he can alienate his right to the usufruct since failure to give the security did not extinguish the usufruct.

The “Caucion Juratoria”- is the promise

under oath made by the usufructuary to take care of the property and return the same at the end of the usufruct. It take s the place of the bond and is based on necessity and humanity as when a poor family acquires by inheritance, of a badly needed house.

After the security is given by the usufructuary, he shall have the right to all the proceeds and benefits from the day on which he should have commenced to receive them – (retroactive effect) – (Article 598, NCC)

He (the usufructuary) shall take good care of

the things given in usufruct as a good father of a family. (Article 589, NCC) A usufruct is extinguished: (Article 603, NCC)

a. by the death of the usufructuary, unless a contrary intention appears;

b. by the expiration of the period for which it was constituted or by the fulfillment of any resolutory condition provived in the title creating the usufruct;

c. by the merger of the usufruct and ownership in the same person;

d. by renunciation of the usufruct; e. by the total loss of the thing in usufruct; f. by the termination of the right of the person

constituting the usufruct; g. by prescription

Other causes are:

a. Annulment; b. Rescission; c. mutual withdrawal; d. legal causes ending legal usurfruct

Rights and Obligations at the end of the usufruct: (Article 612, NCC) A. on the part of the usufructuary: 1. must return he property to the naked owner;

2. the right to retain the property till he is reimbursed for the taxes on the capital and indispensble extraordinary repairs or expenses; 3. to remove removable improvements or set them off against Damages he has caused (Article 580, NCC).

B. On the part of the naked owner:

1. must cancel the security or mortgage provided the usufructuary has complied with all his obligations;

2. must in case of rural leases, respect leases made by the usufructuary till the end of the agricultural year;

3. make reimbursements to the usufructuary in proper cases.

EASEMENTS OR SERVITUDES Easement or Servitude – Is an encumbrance imposed upon an immovable for the benefit of a community or one or more persons (personal easements) or for the benefit of another person belonging to a different owner (real or predial easement). Lease distinguished from Easement:

1. Lease is a real right only when it is registered or when the (lease of the real property) exceeds one year; while Easement is always a real right;

2. In Lease, there is rightful and limited use and possession without ownership; while in Easement, there is rightful limited use but without ownership or possession;

3. Lease may involved real or personal property; while easement refer only to immovable.

Dominant Estate – the immovable in favor of which the easement is established and that which is subject thereto is the servient estate. Personal Easement distinguished from Usufruct:

1. A personal easement cannot be alienated while usufruct can be alienated;

2. In personal easement, the use is specifically designated while in usufruct, the use has a broader scope and in general comprehends all the possible uses of the thing.

Characteristics of Easement:

1. It is a real right, therefore an action IN REM is possible against the possessor of the servient estate;

2. Impossible only in another’s property; 3. It is a real right may be alienated

although the naked ownership is maintained; 4. It is a limitation or encumbrance on the

servient estate for another’s benefit; 5. There is inseparability from the estate to

which it belongs;

6. It is indivisible even if the tenement is divided;

7. It is intransmissible unless the tenement affected be also transmitted or alienated;

8. It is perpetual as long as the dominant and/or the servient estate exists unless sooner extinguished by causes enumerated by law.

There is no easement on personal property

only immovables may be burdened with easements. Classification of Easements: A. According to party given the benefit-

1. Real or predial – for the benefit of another immovable belonging to a different owner.

2. Personal – for the benefit of one or more persons or of a community. Example: easement or right of way for the passage of the community.

B. According to the manner that they are exercised:

1. Continuous – their use is incessant without the intervention of any act of man; example – easement of drainage.

2. Discontinuous – they are used at intervals and depend upon the act of man. Example: Easement of a right of way. Easement of Light and View is continuous.

C. According to whether or not their

existence is indicated: 1. Apparent – those made known and

continually kept in enjoyment of the same. Example – Right of way when there is an alley or path.

2. Non-apparent – they show no external indication of their existence. Example: right of way when there is no visible path or alley.

D. According to the purpose of the

easement or the nature of the limitation:

1. Positive Easement – the owner of the servient estate is obliged to:

a.) Allow something to be done on his property; or b.) Do it himself. 2. Negative Easement – the owner of

the servient estate is prohibited to do something which he could lawfully do were it not for the existence of the easement. Example: Easement of light and view when the window or opening is on one’s wall or estate.

E. According to the source or origin: 1. Voluntary 2. Mixed 3. Legal – example: waters: right of way,

party wall How easements are acquired: a.) If continuous or apparent 1. by Title 2. by Prescription (10 years) b.) If discontinuous and apparent (only by Title) c.) If continuous and non-apparent (only by Title)

d.) If discontinuous and non-apparent (only by Title) Q : May the easement of right of way be acquired by prescription? ANS: No, because it is discontinuous or

intermittent. Since the dominant owner cannot be continually crossing the servient estate, but can do so only at intervals, the easement is of a discontinuous nature.

The Rights of the Dominant Estate a. To exercise the easement and all the

necessary rights for its use including accessory easement.

b. To make on the servient estate all works

necessary for the use and preservation of the servitude, but-

1. this must be at his own expense 2. he must notify the servient owner 3. select convenient time and manner 4. he must not alter the easement nor

render it more burdensome

c.) To ask for a mandatory injunction to prevent impairment or obstruction in the exercise of the easement as when the owner of the servient estaste obstructs the right of way by building a wall or fence.

d.) To renounce totally the easement if he

desires exemption from contribution to expenses

Obligation of the Dominant Estate a.) He cannot alter the easement b.) He cannot make it more burdensome

1.) thus, he cannot use the easement except for movable originally contemplated;

2.) In the easement of right of way, he cannot increase c.) If there be several dominant estate, each

must contribute to necessary repairs and expenses in proportion to the benefits received by each estate and not in proportion to the value of each estate.

Rights of the Servient Estate:

a. To retain ownership and possession of the

portion of his land affected by the easement even if indemnity for the right is given unless the contrary has been stipulated;

b. To make use of the easement, unless deprived by stipulation provided that the exercise of the easement is he not adversely affected and provided further that he contributes to the expenses in proportion to benefits received, unless there is a contrary stipulation;

c. To change the location of a very inconvenient substitute is made without injury to the dominant estate;

Obligations of the Servient Estate:

a.) He cannot impair the use of the easement;

b.) He must contribute to the expenses in case he uses the easement, unless there is a contrary stipulation;

c.) In case of impairment, to restore conditions to the status quo at his expense plus damages;

d.) To pay for the expenses incurred for the change of location or form of the easement.

Easements are extinguished: (Article 631) 1.) By merger of the same person of the

ownership of the dominant and servient estates;

2.) By non-use for ten-years, with respect to discontinuous easements, this period shall be computed from the day on which they ceased to be used, with respect to continuous easements from the day on which an act contrary to the same took place;

3.) When either or both of the estates fall into such condition that the easement cannot be used, but it shall revive if the subsequent easement condition of the estates or either of them should again permit its use, unless when the use becomes possible, sufficient time for prescription has elapsed;

4.) By the expiration of the term or fulfillment of the condition, if the easement is temporarily or conditional;

5.) By the renunciation of the owner of the dominant estate;

6.) By the redemption agreed upon the owners of dominant and servient estates.

Legal Easements – they are easements imposed by the law, and which have for their object – either: for public use or in the interest of private persons. How Legal Easements for private interest are governed:

a.) Agreement of interested parties provided not prohibited by law nor prejudicial to third person;

b.) In default of A, general or local laws and ordinances for the general welfare;

c.) In default of B, the Civil Code Causes for extinguishment of the easement of right of way: a.) Opening of a new road; b.) Joining the dominant estate to another For Easement of Right of Way for the passage of livestock is: a.) animal path – 75 meters (width maximum)

b.) animal trail – 37 meters and 50 centimeters c.) cattle – 10 meters

The easement of a party wall is a compulsory kind of co-ownership where the shares of each owner cannot be separated physically.

The existence of an easement of an easement of a party wall is presumed, unless there is title, or exterior sign, or proof of the contrary. (Article 659) Article 668 – The period of prescription for the

acquisition of an easement of light and view shall be counted --

a.) from the time of the opening of the

window, if it is through a party wall b.) from the time of the formal prohibition

upon the proprietor of the adjoining land or tenement, if the window is through a wall on the dominant estate.

When easement of light and view positive and negative:

a.) Positive - if the window is thru a party

wall. Therefore, the period of prescription commences from the time the window is opened;

b.) Negative - If the window is thru one’s own

wall, that is, thru a wall of the dominant estate. Therefore, the time for the period of prescription should begin from the time of notarial prohibition upon the adjoining owner.

Rules with respect to the planting of trees – (Article 679, NCC)

Regarding distances, follow ordinances (if there be any), then customs. If either ordinances, nor customs are present, the following distances must be observed:

a.) Tall trees – two (2) meters from the

boundary line to center of the tree. b.) Small trees or shrubs – 50 centimeters

from boundary line to the center of the tree or shrub

The remedy for violation: demand uprooting of the tree or shrub. Rules regarding intrusions or extensions of branches and roots (Article 680) a.) Branches – the adjacent owner has the

right to demand that they be cut off (insofar as they spread over his property)

b.) Roots – he may cut them off himself (because by accession or incorporation he has acquired ownership over them)

Prescription:

a. of the right to demand the cutting of the branches – this does not prescribe if tolerated by invaded owner; if demand is made, prescription runs from the date of said demand;

b. of the right to cut off the roots – this is

imprescriptible unless a notarial prohibition is made

The owner of the trees even if the branches and roots have invaded the adjacent land can cut down the tree himself, for he owns the tree. Article 681 – Fruits naturally falling upon

adjacent land belong to the owner of said land

Rules as to fruits:

a. If the fruits still hang on to the trees, they are still owned by the tree owner;

b. It is only after they have naturally fallen

(not taken by poles or shaken that they belong to the owner of the invaded land.

Reason for the Rule – It is based not on

accession for they were not grown or produced by the land nor added to it (naturally or artificially) nor on occupation (for they are not res nullius); but to avoid disputes and arguments between the neighbors. The mode of acquisition may be said to be the law.

Q : Who is servient in an easement against nuisance?

ANS. : The proprietor or possessor of the building or piece of land, who commits the nuisance thru noise, offensive odor, etc., is servient. In another sense, the building or the land itself is the servient estate, since the easement is inherent in every building or land.

Who is dominant in an easement against nuisance? The general public, or anybody injured by the nuisance. What are the rights of the dominant estate?

1. if it is a public nuisance, the remedies are: a) a prosecution under the Revised Penal

Code or any local ordinance; or b) a civil action; or c) abatement, without prejudicial

proceedings

2. if the nuisance is a private nuisance, the remedies are:

a) a civil action; or b) abatement, without judicial proceedings

NUISANCE

Nuisance - is an act, omission, establishment,

business, condition of property, or anything else which:

a) injures or endangers the health or safety

of others; or b) annoys or offends the senses; or c) shocks, defies or disregards decency or

morality; or d) obstructs or interferes with the free

passage of any public highway or street, or any body of water; or

e) hinders or impairs the use of property The word “nuisance” is derived from Latin nocumentum or the French nuire

(to harm or hurt or injure). Nuisance as distinguished from negligence and from trespass:

a) from negligence - negligence is penalized because of lack of proper care; but a

nuisance is wrong, not because of the presence or absence of care, but because of the injury caused.

b) from trespass - in trespass, there is entry

into another’s property; this is not necessarily so in nuisance. In trespass, the injury is direct and immediate; in nuisance, it is only consequential.

Classification of nuisances:

a.) old classification - 1) nuisance per se - always a nuisance. Ex: house of prostitution

2) nuisance per accidens - a nuisance only because of the location or other circumstances.

Ex: noisy factory in a residential district

b) new classification - 1) according to relief whether given or not a. actionable b. non-actionable 2) according to manner of relief

a. those abatable by criminal and civil actions b. those abatable only by civil actions c. those abatable judicially d. those abatable extrajudicially 3) according to the Civil Code

a. public - affects a community or neighborhood or any considerable number of persons

b. private - that which is not public

Article 698 - Lapse of time cannot legalize any nuisance, whether public or private.

Article 1143 - The action to abate a public

or private nuisance is not extinguished by prescription.

The above articles 698 and 1143 do not

apply to easements which are extinguished by prescription. The remedies against a public nuisance are:

1) prosecution under the Penal Code or any local ordinance; or

2) a civil action; or 3) abatement without judicial

proceedings Article 701 - If a civil action is brought by

reason of the maintenance of a public nuisance, such action shall be commenced by the city or municipal mayor.

Article 702 - The district health officer shall

determine whether or not abatement, without judicial proceedings, is the best remedy against a public nuisance.

In the City of Manila, it is the City Engineer

who is the official concerned regarding illegal construction. Article 704 - Any private person may abate a

public nuisance which is specially injurious to him by removing, or if necessary, by destroying the thing which constitutes the same, without committing a breach of the peace or doing unnecessary injury. But it is necessary:

a) that demand be first made upon the owner or possessor of the property to abate the nuisance;

b) that such demand has been rejected; c) that the abatement be approved by

the district health officer and executed with the assistance of the local police; and

d) that the value of the destruction does not exceed three thousand pesos.”

Article 707 - A private person or a public official extrajudicially abating a

nuisance shall be liable for damages: a) if he causes unnecessary injury; or b) if an alleged nuisance is later declared

by the courts to be not a real nuisance.”

PARTNERSHIP

Article 1767 - By the contract of partnership, two or more persons bind

themselves to contribute money, property, or industry to a

common fund, with the intention of dividing the profits among

themselves.

Two or more persons may also form a partnership for the

exercise of a profession.” Characteristics of the contract:

a. It is consensual, because it is perfected by mere consent. It is also bilateral or multilateral, because it is entered into between two or more persons; nominate, because it is designated by a specific name; principal, because its existence does not depend on the life of another contract; onerous, because certain contributions have to be made; and preparatory, in the sense that after it has been entered into, other contracts essential in the carrying of its purposes can be entered into;

b. There must be a contribution of money, property or industry to a common fund;

c. The object must be a lawful one; d. There must be an intention of dividing

the profit among the partners since the

firm is for the common benefit or interest of its partners.

e. There must be the “affectio societatis” – the desire to formulate an active union with people among whom there exists mutual confidence and trust (delectus personarum).

f. A new personality – that of the firm – must arise, distinct from the separate personality of each of the members.

Capacity to become partners:

a) In general, a person capacitated to enter into contractual relation may become a partner;

b) A minor cannot become a partner unless his parents or guardian consents. Without such consent, the partnership contract is voidable, unless other partners are in the same situation in which case the contract is unenforceable.

c) A married woman cannot contribute conjugal funds as her contribution to the partnership, unless she is permitted to do so by her husband or unless she is the administrator of the conjugal partnership,

in which latter case, the court must give its consent/authority;

d) A partnership being a juridical person by itself can form another partnership, either with private individuals or with other partnerships, there being no prohibition on the matter;

e) A Corporation cannot become a partner on grounds of public policy; otherwise, people other than its officers may be able to bind it. However, a corporation can enter into a joint venture with another where the nature of that venture is in line with the business authorized in its charter.

Article 1768 -The partnership has a juridical

personality separate and distinct from that of each of the partners, even in case of failure to comply with the requirements of Article 1772, first paragraph.”

Q: Under Article 1772, “every contract of

partnership having a capital of P3,000.00 or more in money or property, shall appear in a public instrument, which must be recorded in the office of the SEC.” Suppose this requirement has not been complied with, is

the partnership still a juridical person, assuming all other requirements are present?

ANS : Yes, in view of the express provision of

Art. 1768. Par. 1 of 1772, is not intended as a prerequisite for its acquisition of juridical personality by the partnership, but merely as a condition for the issuance of license to engage in business or trade.

Consequences of the partnership being a juridical entity:

1) Its juridical personality is separate and distinct from that of each of the partners.

2) The partnership can, in general: a) acquire and possess property of all

kinds; b) incur obligations; c) bring civil or criminal actions; d) can be adjudged insolvent even if the

individual members be each financially solvent.

Unless he is personally sued, a partner has

no right to make a separate appearance in

court, if the partnership being sued is already represented. Article 1769 - In determining whether a partnership exists, these rules

shall apply:

a) Except as provided by Article 1825, persons who are not partners as to each other are not partners as to third persons;

b) Co-ownership or co-possession does not itself establish a partnership, whether such co-owners or co-possessors do or do not share any profits made by the use of the property;

c) The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint common right or interest in any property from which the returns are derived;

d) The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business, but no such inference shall be drawn if such profit were received in payment:

a. as a debt by installments or otherwise;

b. as wage of an employee or rent to a landlord;

c. an an annuity to a widow or representative of a deceased partner;

d. as interest on a loan, though its amount of payment vary with the profits of the business;

e. as the consideration for the sale of a goodwill of a business or other property by installment or otherwise.”

Article 1770 - A partnership must have a lawful

object or purpose, and must be established for the common benefit or interest of the partners. When an unlawful partnership is dissolved by a judicial decree, the profits shall be confiscated in favor of the State, without prejudice to the provisions of the Penal Code governing the confiscation of the instruments and effects of a crime.

If a partnership has several purposes,

one of which is unlawful; the partnership can still validly exists so long as the illegal purpose can be separated from the legal purpose.

Is a judicial decree needed to dissolve an unlawful partnership? ANS: No, for the contract is void from the very

beginning, and therefore, never existed from the viewpoint of the law. However, there would be nothing wrong in having the court dissolve the partnership. This will be good and convenient for everybody; moreover, there maybe a question as to whether or not the partnership is indeed unlawful. This is particularly true when the object was lawful at the beginning but has later on become unlawful.

The consequences of unlawful partnership:

a) If the firm is also guilty of a crime, the Revised Penal Code governs both the criminal liability and the forfeiture of the proceeds of the crime and the instruments or tools with which it was committed. Such proceeds and the instruments or tools shall be confiscated and forfeited in favor of the government, unless they be the property of a third person not liable for the offense, but those articles which are not subject of lawful commerce shall be destroyed. (Art. 45, RPC)

b) The partners forfeit the proceeds or profits, but not their contributions, provided no criminal prosecution has been instituted. If the contributions have already been made, they can be returned; if the contributions have not been made, the partners cannot be made to make the contribution;

c) An unlawful partnership has no legal personality.

Article 1771 - A partnership maybe

constituted in any form, except, where immovable property or real rights are contributed thereto, in which case a public instrument shall be necessary.

For the validity of the contract among the

partners as well as for enforceability, no form is required, as a general rule, regardless of the value of the contributions. Therefore, the contract may even be oral.

Exception: Whenever real properties or real

rights in real properties are contributed – regardless of the value – a public instrument is needed. The contract itself must be in the public instrument;

moreover, there must be an inventory of the immovables.

This inventory must be signed by the parties

and attached to the public instrument. (Art. 1773, NCC)

The inventory is important to show how

much is due from each partner to complete his share in the common fund and how much is due to each of them in the event of liquidation. Without such inventory, the contract is void.

For effectivity of the partnership contract insofar as innocent third persons are concerned, the same must be registered if real properties are involved. Article 1772 - Every contract of partnership

having a capital of 3,000 pesos or more, money or property, shall appear in a public instrument, which must be recorded in the office of the SEC. Failure to comply with the requirements of the preceding paragraph shall not affect the liability of the partnership and the member thereof to third persons.

The purpose of the registration with the office of the SEC is to set a condition for the issuance of licenses to engage in business or trade. Effect of non-registration:

a) Even if not registered, the partnership having a capital of 3,000 or more is still a valid one, and therefore has legal personality. Of course, if real properties had been contributed, regardless of value, a public instrument is needed for the attainment of legal personality.

b) If registration is needed or desired, any of

the partners of a valid partnership can compel the others to execute the needed public instrument and to subsequently cause its registration. This right cannot be availed of if the partnership is void.

Article 1773 – A contract of partnership is void,

whenever immovable property is contributed thereto, if an inventory of said property is not made, signed by the parties, and attached to the public instrument.

A general partnership – is one where all the parties are general partners, that is, they are liable even with respect to their individual properties, after the assets of the partnership have been exhausted.

A limited partnership - is one where at

least one partner is a general partner and the others are limited partners.

A limited partner - is one whose liability is

limited only up to the extent of his contribution. A partnership where all the partners are

“limited partners’ cannot exist as a limited partnership; it will even be refused registration. If at all it continues, it will be a general partnership, and all the partners will be general partners. Persons who together cannot form a

universal partnership:

a) husband and wife - as a rule. (Art. 133) b) those guilty of adultery or concubinage

(Art. 739)

c) those guilty of the same criminal offense, if the partnership was entered into in consideration of the same. (Art. 739)

A particular partnership - has for its object

determinate things, their use or fruits, or specific undertaking, or the exercise of a profession or vocation. (Art. 1783, NCC) Obligations of a partner:

a) to give his contribution; (Art. 1786 & 1788) b) not to convert firm money or property for

his own use; (Art. 1788) c) not to engage in unfair competition with his

own firm: (Art. 1808) d) to account for and hold as trustee,

unauthorized personal profits; (Art.1807)

e) pay for damages caused by his fault; (Art. 1794)

f) duty to credit to the firm, payment made by a debtor who owes him

and the firm; (Art. 1792) g) to share with the other partners the share

of the partnership credit, which he has received from an insolvent

debtor. (Art. 1743)

Rights of a partner:

a) property rights - (Art. 1810) 1. rights in specific partnership property

(SPP) 2. interest in the partnership, that is, share in

the profits and surplus: 3. right to participate in the management

b) right to associate with another person in his share. (Art.1804)

c) right to inspect and copy partnership books. (Art. 1805)

d) right to demand a formal account. (Art. 1809)

e) right to ask for the dissolution of the firm at the proper time.

Generally, a partnership begins, from the moment of the execution of the contract.

Exception: - when there is a contrary stipulation.

Generally, even if contribution have not yet

been made, the firm already exists, for partnership is a consensual contract.

A partnership is unlimited as to its duration in the sense that no time limit is fixed by law. The duration may be agreed upon expressly (as when there is a definite period) or impliedly (as when a particular enterprise is undertaken – it being understood that the firm ends as soon as its purpose has been achieved. Two kinds of a partnership “at will” -

a) 1st kind - when there is no term, express

or implied; b) 2

nd kind - when it is continued by the

habitual managers - although the period has ended, or the purpose has been accomplished.

The essential differences between a partnership and corporation: a) with regard to creation -

A partnership is created by voluntary agreement of the partners WHEREAS a corporation is always created by some express legislative authority, either in the form of a special or of a general law. b) with regards to liability of members- Partners are usually liable to partnership creditors not only to the extent of their capital contribution to the firm but even with their own private property, WHEREAS the stockholders of a corporation, after they have paid for their shares are not subject to any further liability unless otherwise provided by law. c) with regards to effect of transfer of interest - Because of the rule of “delectus personarum”, the third person to whom a partner has transferred his interest in the partnership does not become a partner without the consent of all the other partners, WHEREAS the third person to whom a stockholder has transferred his share becomes automatically a stockholder even without the consent of the other stockholders;

d) with regards to effect of death or bankruptcy of members - The death or bankruptcy of a partner usually covers the dissolution of the firm, WHEREAS the death or bankruptcy of a stockholder does not result in such dissolution; e) with regards to the effect of acts of member - As a general rule, the partners are the agent of the partnership, hence act of partners done or the account of the partnership is binding not only on the partnership but also on the members. ON THE OTHER HAND, whatever acts the stockholders might execute for the account of the corporation, either individually or collectively, are not binding on the corporation. THE DIFFERENT KINDS OF PARTNERS a) As to Liability - 1.) General Partners – those who can be held liable for partner- Ship obligation even to the extent of their private property 2.) Limited Partners – those who cannot be held liable for part-

nership obligations b) As to Contribution - 1.) Capitalist Partners – those who contribute money or property To the common fund 2.) Industrial Partners – those who contribute only their skill or Industry to the common fund c) As to Management - 1.) Managing Partners – those who manage or administer Partnership affairs 2.) Silent Partners – those who have no voice in the manage- ment of partnership affairs d) As to Third Persons - 1.) Ostensible Partners – those publicly known as such 2.) Secret Partners – those whose connection to the partnership is not known. 3.) Partners by Estoppel – those who represent themselves, or consent to another or others

representing them to anyone as

partners either in an existing partnership or the one that is

fictitious or apparent. They are also known as “ de facto”

partners. e) As to Object -- 1.) universal 2.) particular A universal partnership profits comprises all that the partners may acquire by their industry or work during the existence of the partnership. CAN A HUSBAND AND WIFE ENTER INTO A CONTRACT OF PARTNERSHIP? If a partnership is a universal partnership, they cannot enter into such contract,. This is so because person prohibited from making donations to each other are prohibited from entering into universal partnership. However, if the partnership is a particular partnership or a limited partnership, they can.

HOW SHALL THE PROFITS AND LOSSES OF A PARTNERSHIP BE DISTRIBUTED? ANS : We must distinguish whether there

is an agreement or none. 1.) If there is an agreement the profits and

losses shall be distributed in conformity with such agreement . If the agreement is only with respect to the profits the share for the partners in losses shall be in the same proportion as their share in the profits.

2.) If there is no agreement –

a.) Profits -

1. Capitalist Partners – their share shall be in proportion to

what they may have contributed to the common fund

2. Industrial Partner – their share shall be that which is

just and equitable under the circumstances b.) Losses – 1. Capitalist Partners – their share shall be in proportion to

what they may have contributed to the common fund 2. Industrial Partners- they shall not be liable or the losses CAN AN INDUSTRIAL PARTNER ENGAGE IN A BUSINESS OTHER THAN THAT OF THE PARTNERSHIP? An industrial partner cannot engage in business for himself, unless the partnership expressly permits him to do so, and if he should do o, the capitalist partners may either exclude him from the firm or avail themselves of the benefits which he may have obtained in violation of the provision, with right to damages in either case (Art. 1789, NCC) CAN A CAPITALIST PARTNER ENGAGE IN A BUSINESS OTHER THAN THAT OF THE PARTNERSHIP? The capitalist partner cannot engage for their own account in any operation, which is of the kind of business in which the partnership is engaged, unless there is stipulation to the contrary. Any capitalist partner violating this prohibition shall bring to the common fund any

profit accruing to him from his transactions and shall personally bear all the losses.(Art. 1808) WHO SHALL MANAGE THE PARTNERSHIP?

The management of the partnership may be vested by agreement in one, or some, or all o the partners, or even in a third person, either in the articles of partnership or after the partnership had already been constituted, If there is no agreement, it is vested in all the partners (Art. 1803, NCC)

Principle of a “delectus personarum” – refers to the rule which is inherent in every partnership that no one can become a member of the partnership without the consent of all the partners. Consequently, even if a partner will associate another person in his share in the partnership, the associate shall not be admitted into the partnership without the consent of all the partners, even if the partner having an associate should be a manager (Art. 1804, NCC).

If a partner assigns his whole interest in the partnership to a third person, such an assignment does not result in the latter becoming a substitute partner.

May a partner from a sub-partnership with a third person with respect to his interest in the partnership? ANS: Yes, and even without the consent of

the other partners. When may a partner demand for a formal accounting of partnership affairs?

1. If he is wrongfully excluded from the partnership business or possession of its property of its property by his co-partners;

2. If the right exists under the terms of any agreement;

3. If a partner has derived profits from any transaction connected with the formation, conduct or liquidation of the partnership of from any use by him of its property, or;

4. Whenever other circumstances under it just and reasonable.

What are the property rights of a partner? Are these rights assignable? ANS:

1. his rights in specific partnership property 2. his interest in the partnership 3. his right to participate in the management Only the second right is assignable but not the others.

Partner’s Interest – It is his share of the profits and surplus. Effects of a conveyance by a partnership of his whole interest in the partnership –

1. it does not dissolve the partnership; 2. it does not entitle the assignee to

interfere in the management of the business, or to require an accounting of partnership transaction, or to inspect the partnership books; however, in case of fraud in the management of the partnership, he may avail himself of the usual remedies;

3. it entitles the assignee to receive in accordance with his contract the profits to which the assignor would otherwise be entitled; and

4. upon dissolution of the partnership, the assignee is entitled to receive his assignor’s

interest and may then demand for an accounting.

“Charging Order” – upon a partner’s interest

in the partnership refers to the remedy available to a judgment creditor of a debtor partner to charge the interest of the latter in the partnership by means of a court order for the purpose of satisfying the amount of the judgment. This changing order, however, is always subject to the preferred rights of partnership creditors.

Can the partners be held liable for a partnership obligation? If so, what is the nature of their liability?

ANS: Yes, in the case of partnership obligations arising from the contracts, all general partners, including industrial ones, shall be liable pro-rata with all their property and after all the partnership assets have been exhausted: in other words, the liability o the partners is joint an subsidiary. In the case of a partnership obligation arising from a criminal offense, or a quasi-delict, all partners are liable solidarily with the partnership. In the case of a partnership obligation under the Workmen’s Compensation

Act all partners are also liable solidarily with the partnership. (Liwanag Case)

A PARTNER BY ESTOPPEL – refers to a person who represents him-self or consents to another or others representing him to anyone as a partner either in an existing partnership or in one that is fictitious or apparent (Art. 1825, NCC)

The only instance when an existing partnership is bound by the representation made by or in behalf o a partner by estoppel is when all the partners had given their consent to such representation. It will be only then that a partnership obligation shall result. In such a case, any third person who, relying on such representations, gave credit to the partnership, can hold the partnership as well as all the of the partners, including the partner by estoppel, liable in accordance with Art.1805. A good example would be those who, not being members of the partnership, include their names in the firm name.(Art. 1815)

DISSOLUTION – is the change in the relation of the partners caused by any partner ceasing to

be associated in the carrying on of the members’ business.

WINDING UP - refers to the process of liquidating partnership affairs

TERMINATION – refers to that moment when

partnership affairs are wound up CAUSES FOR THE DISSOLUTION OF A PARTNERSHIP – (ART. 1830):

1. Without violation of the agreement between the partners:

a. By the termination of the definite term or particular un- dertaking specified in the agreement;

b. By the express will of any partner, who must act in good faith when no definite term or particular undertaking is specified;

c. By the express will o all the partners who have not assigned their interest or suffered them to be charged for their separate debts

either before or after the termination o any specified term or particular undertaking;

d. By the expulsion of any partner from the business bond file in accordance with such a power conferred by the agreement between the partners;

2. In contravention of the agreement between the partners where the circumstances do not permit a dissolution under any other provision o this article, by the express will of any partner at any time.

3. By any event which makes it unlawful for the business of the partnership to be carries on or for the members to carry it on in partnership

4. When a specific thing which a partner had promised to contribute to the partnership, perishes before the delivery, in any case by the loss of the thing, when the partner who contributed it having reserved the ownership thereof, has only transferred to the partnership the use or enjoyment of the same, but the partnership shall not be dissolved by the loss of the thing when it occurs after the partnership has acquired ownership thereof;

5. By the death of any partner; 6. By the insolvency of any partner or of

the partnership; 7. By the civil interdiction o any partner; 8. By the decree of court.

ON THE APPLICATION OF A PARTNER, THE COURT SHALL DECREE A DISOLUTION WHENEVER:

1.) A partner has been declared insane in any judicial proceedings or is shown to be o unsound mind;

2.) A partner becomes in any other way incapable of the partnership contract;

3.) A partner has been guilty of such conduct as tends to affect prejudicially the carrying on of the business;

4.) A partner willfully or persistently commits breach of the partnership agreement , or otherwise so conduct himself in matters relating to the partnership’s business that I not reasonably practicable to carry on the business in partnership with him;

5.) The business o the partnership can only be carried on at a Loss.

ON THE APPLICATION OF THE PURCHASER OF A PARTNER’S INTEREST:

1.) At the termination of the specific term or particular undertaking;

2.) At any time if the partnership was a

partnership at will when the interest was assigned or when the charging order was issued (Art. 1831)

THE DISSOLUTION OF THE PARTNERSHIP, TERMINATES ALL AUTHORITY O THE MANAGING PARTNER OR OF ANY PARTNER, AS THE CASE MAY BE, TO ACT OR THE PARNERSHIP. THIS RULE IS SUBJECT TO THE FOLLOWINGEXCEPTIONS:

- Acts necessary to wind up partnership affairs;

- Acts necessary to complete transactions begun but not when finished

- Acts or transactions which would bind the partnership I dissolution had not taken place, provided the other party to such transactions:

had extended credit to the partnership prior to dissolution and had no knowledge or notice of such dissolution;

Although he had not so extended credit , had nevertheless known o the partnership prior to dissolution and having no knowledge or notice o dissolution, the act of dissolution had not been advertised in a newspaper o general circulation in the place of which the business was regularly carried on .

WHO HAS THE RIGHT OR DUTY TO WIND UP OR LIQUIDATE PARTNERSHIP AFFAIRS?

1. If the winding up or liquidation of the affairs is judicial, the right or duty to wind up or liquidate partnership affairs devolves upon the partner or legal representative or assignee designated by the court. If it is extrajudicial, the right or duty devolves upon the managing partner. But where there is no managing or even where there is, he dies, then the right or duty evolves upon the partner who have not wrongfully dissolved the partnership or its legal

representative o the last surviving partner, not insolvent. (Art. 1836)

DISTINCTION BETWEEN A GENERAL PARTNERSHIP AND A LIMITED PARTNERSHIP:

1.) As to composition: A general partnership is composed only of general partners, WHEREAS, a limited partnership is composed of at least one general partner and one limited partner

2.) As to constitution: A general partnership as a general rule, maybe constituted in any form whereas a limited partnership must be stated in a certificate of limited partnership, duly signed and sworn by all the partners and recorded in the office o the SEC;

3.) As to firm name: A “GP” must operate under a firm name which may or may not include the name of one or more partners, whereas a “LP” must also operate under a firm name, followed by the word “Limited”;

4.) As to must also operate under a firm name, followed by the word “Limited”;

5.) As to dissolution and winding up: there are also differences, formal and procedural

between the dissolution and winding up of a GP or LP.

DISTINGUISH A GENERAL PARTNER AND LIMITED PARTNER:

1) A general partner can be held personally liable for partnership obligation after all of the assets of the partnership have been exhausted, whereas a limited partner cannot be held liable;

2) A general partner may participate in the management o the partnership, whereas a limited partner does not;

3) A general partner may contribute money, property or industry to a common fund, whereas a limited partner, as such can only contribute money or other property only;

4) The name o a general partner may appear in the firm name, whereas, that of a limited partner does not;

5) There is limitation on the right of a general partner to engage in another business or in the same kind of business as that in which the partnership is engaged, whereas there is no such limitation in the case of a limited partner.

CAN A LIMITED PARTNER BE HELD LIABLE FOR PARTNERSHIP OBLIGATIONS? – ANS : A limited partner as such cannot be

held liable for partnership obligations. However, if his surname appears in the partnership or firm name or if he participates in the management or control of the business, then he is liable as a general partner.

The interest of a limited partner is

assignable.

A SUBSTITUTED LIMITED PARTNER - is a person admitted to all the rights of a limited partner who has died or has assigned his interest in partnership.

An assignee of the interest of a limited partner shall have the right to become a substituted limited partner if all the members consent thereto or if the assignor, being thereunto empowered by the certificate of limited partnership gives the assignee that right. However, he becomes a substituted

limited partner only from the moment that the certificate is appropriately amended.

The substituted limited partner has all the rights and powers, and is subject to all the restrictions and liabilities of his assignor, except those liabilities of which he was ignorant at the time he become a limited partner an which could not be ascertained from the certificate. *WHAT IS THE ORDER OF PAYMENT IN THE WINDING UP OF PARTNERSHIP LIABILITIES:

If it is a general partnership, the order of payment is as follows:

a. those owing to creditors other than partners;

b. those owing to partners other than for capital and profits;

c. this owing to partners in respect of capital

d. those owing to partners in respect of profit(Art.1839)

If the partnership is a limited partnership the order of payment is as follows:

1) those to creditors in the order of

priority as provided by law except those to limited partners on account of their contributions, and to the general partners

2) those limited to partners in respect to their share of the profits and other compensation by way of income on their contribution;

3) those to limited partners in respect to the capital of their contributions;

4) those to general partners other than for capital and profits

5) those to general partners in respect to profits;

6) those to general partners in respect to capital

ART. 1787 – When the capital or part thereof

which a partner is about to contribute consist of goods, their appraisal must be made in the manner prescribed in the contract of partnership, and in the absence of stipulation, it shall be made

by experts chosen by the partners, and according to current prices, the subsequent changes thereof for the account of the partnership.

ART. 1788 – A partner who has undertaken to

contribute a sum of money and fails to do so becomes a debtor for the interest and damages from the time he should have complied with his obligation.

The same rule applies to any amount he may have taken from the partnership coffers, an his liability shall begin from the time he converted the amount to his own use

ART. 1791 – If there is no agreement to the

contrary, in case of imminent loss of the business of the partnership, any partner who refuses to contribute an additional share to the capital, except on industrial partners, to save the venture, shall be obliged to sell his interest to the other partners.

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

ART. 1793 – A partner who has received, in

whole or in part, his share of a partnership credit, when the other partners have not collected theirs, shall be obliged if the debtor should thereafter become insolvent, to bring to the partnership capital what he received even though he may have given receipt or his own share only.

ART. 1794 – Every partner is responsible to the partnership for damages suffered by it through his fault, and he cannot compensate them with the profits and benefits which he may have earned for the partnership by his industry.

However, the courts may equitably lessen his responsibility if through the partner’s extraordinary efforts in other activities of the partnership, unusual profits have been realized.

ART. 1798 – If the partners have agreed to

entrust to a third person the designation of the share of each one in the profits an losses, such designation may impugned only when it is manifestly inequitable. In no case may a partner who has begun to execute the decision of the third person, or who has not impugned the same within a period o three (3) months from the time he had knowledge thereof, complain of such decision.

The designation of losses and profits cannot be entrusted to one of the partners. The general rule is that a stipulation excluding one or more partners from any share in the profits or losses is void. Reason: the partnership is for common benefit. One exception is in the case of the

industrial partner whom the law itself excludes from losses. If the law does this, a stipulation exempting the industrial partner from losses is naturally valid.

ART. 1800 – The partner who has been

appointed manager in the Articles of partnership may execute all

acts of administration despite the opposition of his partners, unless he should act in bad faith; and his power is irrevocable without just or lawful cause. The vote of the partners representing the controlling interest shall be necessary for such revocation of power.

A power granted after the partnership has been constituted maybe revoked at anytime”.

ART.1801 - If two or more partners have been

entrusted with the management of the partnership without specification of their

respective duties, or without a stipulation that one of them shall not act without the consent of all the others, each one may

separately execute all acts of administration, but if any of them should oppose the acts of the others, the decision of the majority shall prevail. In case of a tie, the matter shall be decided by the partners owning the controlling interest

ART. 1802 - In case it should have been

stipulated that none of the managing partners shall act without the consent of the others, the concurrence of all shall be necessary for the validity of the acts, and the absence or disability of any one of them cannot be alleged, unless there is imminent danger or grave or irreparable injury to the partnership”.

ART. 1803 - When the manner of management

has not been agreed upon, the following rules shall be observed;

1) All the partners shall be

considered agents and whatever anyone of them may do alone shall bind the partnership, without prejudice to the provisions of ART. 1801.

2) None of the partners may ,without the consent of the others, make any important alteration in the immovable property of the partnership, even if it may be useful to the partnership.

But if the refusal or consent by the other partners is manifestly prejudicial to the interest of the partnership, the court’s intervention may be sought.

ART.1805 - The partnership books shall be

kept, subject to an agreement between the partners, at the principal place of

business of the partnership and every partner shall at any reasonable hour have access to and may inspect and copy any of them.

ART.1807 - Every partner must account to

the partnership for any benefit, and hold as trustee for it any profit derived by him without the consent of the other partners from any transaction connected with the formation, conduct, or liquidation of the partnership or from any use by him of its property.

ART.1811 - A partner is a co-owner with his

partners of specific partnership property. (SPP)

THE INCIDENCE OF CO-OWNERSHIP ARE THE FOLLOWING:

a) A partner subject to any agreement between the partners, has an equal right with his partners to possess specific partnership property for partnership purposes but he has no right to possess such property for any purposes without the consent of his partners;

b) A partner’s right in specific partnership property is not assignable except in connection with the assignment of rights of all the partners in the same property;

c) A partner’s right in specific partnership property is not subject to attachment or execution, except on a claim against the partnership;

d) A partner’ right in specific partnership property is not subject

to legal support under Article 291

ART. 1826 - A person admitted as a partner into an existing partnership is liable for all the obligations of the partnership arising before his admission as though he had been a partner when such obligation were incurred, except that this

liability shall be satisfied only out of partnership property, unless there is a stipulation to the contrary.

ART. 1827 - The creditors for the partnership

shall be preferred to those of each partner as regards the partnership property. Without prejudice to this right, the private creditors of each Partner may ask the attachment and public sale of the share of the latter in the partnership assets.

ART. 1864 - The certificate hall be cancelled

when the partnership is

dissolved or all limited partners cease to be such.

A certificate shall be amended when:

1. there is a change in the name of the partnership or in the

or character of the contribution of any limited partner;

2. a person is substituted as a limited partner;

3. an additional limited partner is admitted;

4. a person is admitted as a general partner;

5. a general partner retires, dies, becomes insolvent or insane, or is sentenced to civil interdiction and the business is continued under Article 1860;

6. there is change in the character of the business of the partnership;

7. there is a false or erroneous statement in the certificate;

8. a person is substituted as a limited partner;

9. there is a change in the time as stated in the certificate for the dissolution of the partnership of for the return of a contribution;

10. a time is fixed for the dissolution of the partnership or the return of a

contribution, no time having been specified in the certificate, or

11. the members desire to make a change in any other statement in the certificate in order that it shall accurately represent the agreement among them.

Article 1866 – A contribution, unless he is

general partner, is not a proper party to proceeding by or against a partnership, except where the object is to enforce a limited partner’s right against or liability of the partnership.

Article 1846 – The surname of a limited partner

shall not appear in the partnership name unless:

1. it is also the surname of a general partner;

or 2. prior to the time when the limited partner

become such, the business had been carried on under a name in which his surname appeared.

SALE

Contract of Sale – One of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing and the other to pay therefore a price certain in money or its equivalent. ( Art.1458) Essential Requirements:

1) Consent of the parties by virtue of which the vendor obligates himself to transfer the ownership of and to deliver a determinate thing, and the vendee obligates himself to pay therefore a price certain in money or its equivalent;

2) Object certain which is subject matter of the contract;

3) The Cause of the obligation, the cause as far as the vendor is concerned is the acquisition of the price certain in money or its equivalent while the cause as far as the vendee is concerned is the acquisition of the thing which is the object of the contract.

Characteristics:

Consensual, bilateral, and reciprocal; principal; onerous, commutative, and nominate.

Contract of Sale distinguished from Contract to Sell

1. In the first, title passes to the vendee upon delivery of the thing sold, whereas, in the second, by agreement, ownership is reserved in the vendor and is not to pass until full payment of the price;

2. In the first, non-payment is a negative resolutory condition, whereas in the second, full payment is a positive suspensive condition;

3. In the first, the vendor lost and cannot recover ownership until and unless the contract is rescinded. Whereas in the second, title remains in the vendor, and when he seeks to eject vendee because of non compliance of such vendee with the suspensive condition stipulated, he is enforcing the contact and not resolving the same.

Emptio Res Speratae distinguished from Emptio Spei

1. The first refers to a sale of a thing having a potential existence, whereas the second refers to a sale of a mere hope or expectancy.

2. In the first, uncertainty is with regard the quantity and quality but not with regard the existence of the thing, in the second, the uncertainty is with regard with the existence of the thing;

3. In the first, the contract deals with a future thing, in the second, the contract deals with a present thing-the hope or expectancy;

4. In the first, the sale is subject to the condition that the thing should exist, so that if it does not, there is no contract for lack of an essential requisite, in the second, the sale produces effects even though the thing itself does not come to existence, since the subject matter is the hope itself.

Since the contract of sale is consensual, “it is

perfected at the moment when there is a meeting of the minds upon the thing which is the object of the contact and upon the price. However, in case of a sale by auction, it is perfected when the auctioneer announces its perfection by the fall of the hammer or in any other customary manner”.

In a contract of sale, the ownership of the thing

sold shall be transferred to the vendee upon the actual or constructive delivery. The parties however may stipulate that the ownership will not pass to the vendee until the latter shall have fully paid the purchase price.

A promise to buy and sell a determinate thing for a certain price is reciprocally demandable. An accepted unilateral promise to buy or sell a determinate thing for a price certain is binding upon the promissor is the promise is supported by a consideration distinct from the price.

“Earnest money” whenever earnest money is given in a contract of sale, it shall be considered as part of the price and as proof of the perfection of the contract. It then could be simply defined as part of the purchase price advanced by the vendee to the vendor as a token of the perfection of the contract. In a contract of sale of personal property, the price of which is payable in installments, the different remedies in case of breach available to the vendor are:

1. Exact fulfillment of the obligation, should the vendee fail to pay;

2. Cancel the sale, should the vendee’s failure to pay cover two or more installments;

3. Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee’s failure to pay cover two or more installments. The last case, have shall have no further action against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be void.

The foregoing remedies of the unpaid seller are alternative, not cumulative.

When goods are delivered to the buyer “on sale or return” to give buyer an option to return the goods instead of paying the price, the ownership passes to the buyer on delivery, but he may revert the ownership in the seller by returning or tendering the goods within the time fixed in the contract, or if no time has been fixed, within a reasonable time.

When goods are delivered to the buyer “on approval” or “on trial” or “on satisfaction”, or

other similar terms, the ownership passes to the buyer:

1. When he signifies his approval or acceptance to the seller or does any act adopting the transaction;

2. if he does not signify his approval or acceptance to the seller but retains the goods without giving notice of rejection, then if a time has been fixed for the return of the goods, on the expiration of such time, and if no such time has been fixed, on the expiration of a reasonable time. What is a reasonable time is a question of fact. (Art.1502)

What title is acquired by the vendee or buyer if the object which he bought was sold by somebody who is not the ownner thereof and who was not authorized to sell it? ANS: The vendee in such case, acquires no

better title to the object than the vendor had. This rule is subject to the following exceptions:

1. when the true owner is estopped or precluded by his conduct from denying the vendor’s authority to sell;

2. when the sale is made by the registered or apparent owner in accordance with recording or registration laws;

3. where the sale is made pursuant to a statutory power of sale or under the order of a court of a competent authority; and

4. where the purchase is made in a merchant’s store, or in fairs, or in markets in accordance with the Code of Commerce and special laws.

As far as the third exception is concerned, it must be observed that if the object which was sold at the public sale if movable property, the true owner who had lost it or who has been unduly deprived of it can still recover the same from the vendee. However, if the latter had acquired it in good faith, such owner cannot obtain its return without reimbursing the price paid therefore. What are the obligations of the seller and the buyer in contracts of “C.I.F” and “F.O.B” sale.

ANS: In “C.I.F” sales of goods, the buyer pays a fixed price, while the seller pays the insurance freight up to the place of destination. In “F.O.B” sales of goods, the goods are shipped by the seller to a certain point without any expense to the buyer, but after delivery at such point all subsequent expenses incident to the transportation and delivery shall be paid by the buyer. Thus the sale is F.O.B at the place of shipment, the buyer must pay the freight. (Art.1525)

Remedies of the “unpaid seller” (Art.1526)

1. A lien on the goods or right to retain them for the price while he is in possession of them;

2. In case of insolvency of the buyer, a right of stopping the goods in transitu after he has parted with the possession of them;

3. A right of resale; 4. A right to rescind the sale.

The unpaid seller of goods who is in possession of them is entitled to retain possession of them until payment or tender of the price in the following cases:

1. When the goods have been sold without any stipulation as to credit;

2. Where the goods have been sold on credit, but the term of credit has expired;

3. Where the buyer becomes insolvent. The unpaid seller losses his right of lien or retention in the following cases;

1. When he delivers the goods to a carrier or other bailee for the purpose of transmission to the buyer without reserving the ownership in the goods or the right to possession thereof;

2. When the buyer or his agent lawfully obtains possession of the goods;

3. By waiver thereof (Art. 1529)

The right of stoppage in transitu refers to the right of the unpaid seller to resume possession of the goods anytime while they are in transit by virtue of which he will then be entitled to same rights in regard to the goods as he would have had if he had never parted with the possession. This right is available to the unpaid seller when he has already parted with the possession of the goods and the buyer is or becomes insolvent. (Art. 1530)

How Right of Stoppage In Transitu

Exercised – either by obtaining actual possession of the goods or by giving notice of his claim to the carrier or other bailee in whose possession the goods are. Such notice may be given either to the person in actual possession of the goods or to his principal. In the latter cases, the notice, to be effectual, must be given at such time and under circumstances that the principal, by its exercise of reasonable diligence, may present a delivery to the buyer.

When notice is given by the seller to the carrier, or other bailee in possession of the goods, he must redeliver the goods to, or according to the directions of the seller. The expenses of such delivery must be borne by the seller. If, however, a negotiable document of title representing the goods has been issued by the carrier, or other bailee, he shall not be obliged to deliver or justified in delivering the goods to the seller unless such document is first surrendered for cancellation. (Art.1532) Right of Resale available to the unpaid seller :

1. When the goods are perishable in nature; 2. Where the seller has expressly reserved

the right of resale in case the buyer should make default;

3. Where the buyer has been in default in payment of the price for unreasonable time.

It is however, essential before the resale can

be made that the unpaid seller should have a right of lien or should have stopped the goods in transitu.

Effect of the Resale- buyer acquires a good title against the original buyer. The unpaid seller, on the other hand, shall not be liable to the original buyer upon the contract of sale or for any profit made by reason of the resale. HOW IS RESALE EFFECTED? ANS: Maybe made either by public or private

sale. However, the unpaid, who is bound to exercise reasonable care and judgment in making the resale, cannot directly or indirectly buy the goods.

It is not essential to the validity of the resale that notice of an intention to resell the goods

be goods be given by the seller to the original buyer. But where the right to resell is not based on the perishable nature of the goods, or upon express provision of the contract of sale, the giving or failure to give such notice shall be relevant in any issue involving the question whether the buyer had been in default for an unreasonable time before the resale was made ( Art.1533)

Right of rescission available to the unpaid seller, when:

1. Where he expressly reserved the right to do so in case the buyer should make default; and

2. Where the buyer has been in default in the payment of the price for un reasonable time.

It is essential however that before rescission

can be made, the unpaid seller should have a right of lien or should have stopped the goods in transitu.

Effect of Rescission – once the unpaid seller has rescinded the transfer of title and resumed

ownership on the goods, he shall not be thereafter be liable to the buyer upon the contract of sale. As a matter of fact, he may recover from the buyer damages for any loss occasioned by the breach of the contract.

It is not essential that such overt act should be communicated to the buyer.

The unpaid seller’s right of lien or stoppage in transitu is not affected should the buyer sold the goods to another before he exercises the right, unless he assented thereto. WHERE THE SAME THING IS SOLD TO DIFFERENT PURCHASERS, TO WHOM SHALL THE OWNERSHIP BE TRANSFERRED? ANS: As to movables, the ownership shall be

transferred to the person who may have first taken possession thereof in good faith.

As to immovables

a. to the person acquiring it who in good faith first recorded it in the Registry of Property;

b. In default thereof, to the person who in good faith was first in possession;

c. In default thereof, to the person who presents the oldest title, provided there is good faith. ( Art. 1544)

Warranty in case of eviction is an implied

warranty in contracts of sale, by virtue of which, if the vendee is deprived of the whole or part of the thing purchased by a final judgment based on a prior right to the sale or an act imputable to the vendee, such vendor shall answer for the eviction even though nothing has been said in the contract on the subject. (Art.1548) Two kinds of Waiver of Warranty Against Eviction:

1. Consciente waiver – there is merely voluntary renunciation made by the vendee of the right to warranty in case of eviction.

2. Intencionada waiver- there is voluntary renunciation by the vendee of the right to warranty against eviction, with knowledge of the risk of eviction and assuming the consequences thereof. The effect of such renunciation in case of eviction is to relieve the vendor of any liability. ( Art 1554)

IF THERE IS NO AGREEMENT WITH REGARD TO WARRANTY IN CASE OF EVICTION, WHAT IS THE EXTENT OF THE LIABILITY OF THE VENDOR? ANS: The Vendee shall have the right to demand of the vendor:

1. the return of the value of the thing sold had at the time of eviction, be it greater or less than the price of the sale;

2. the income or the fruits; 3. the cost of the suit which caused the

eviction and those of the suit brought against the vendor for the warranty;

4. the expenses of the contract, if the vendee has paid them;

5. the damages and interests, and the ornamental expenses, if the sale was made in bad faith.

Accion Redhibitoria is the action instituted by

the vendee against the vendor to avoid a sale on account of some one of defect in the thing sold which renders it unfit for the use intended of which will diminish its fitness for such use to

such extent, that had the vendee been aware thereof, he would have not acquired it.

Accion Quanti Minoris is an action to procure the return of a part of the purchase price paid by the vendee to the vendor by reason of such defect. Instances when vendee may suspend payment of the price:

1. Should he be disturb in the possession or ownership of the thing sold; or

2. Should he have reasonable grounds to fear such disturbance by a vindicatory action or by a foreclosure of mortgage.

The right, however, does not exist in the following cases: 1. Should there be a stipulation to that

effect, or 2. Should the vendor give security for the

return of the purchase price, or 3. Should the vendor have caused the

disturbance or danger to cease; or

4. Should the disturbance consist only of a mere act of trespass.

A Contract of Sale is extinguished by the same causes in all other obligations, and also by conventional or legal redemption.

Conventional Redemption is that which takes place when the vendor reserves the right to repurchase the thing sold with the obligation to reimburse to the vendee the price of the sale, the expenses of the cntract, other legitimate payments made by reason of the sale, as well as necessary and useful expenses made on the thing sold. WHEN IS CONVENTIONAL REDEMPTION PRESUMED TO BE AN EQUITABLE MORTGAGE? ANS: Under the following circumstances:

1. When the price of the sale with right to repurchase is unusually inadequate;

2. When the vendor remains in possession as a lessee or otherwise;

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

4. When the purchaser retains for himself a part of the purchase price;

5. when the vendor binds himself to pay the taxes on the thing sold;

6. IN any other cases, where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of another obligation;

7. When there is doubt as to whether the contract is a contract of sale with right to repurchase or an equitable mortgage.

WHAT IS THE PERIOD FOR THE REDEMPTION OF PROPERTY SOLD WITH THE RIGHT OF REPURCHASE? ANS : In absence of any express agreement,

that period of redemption shall be four (4) years from the date of the contract. Should there be any agreement, the period cannot extend ten (10) years. However, the vendor

may still exercise the right to repurchase within thirty (30) days from the time final judgment was rendered in a civil action on the basis that the contract was a true sale with right to repurchase.

WHAT ARE THE OBLIGATIONS OF THE VENDOR A RETRO WHEN HE EXERCISES HIS RIGHT OF REPURCHASE? ANS:

1. To return to the vendee the price of the sale;

2. To pay the expenses of the contract and other legitimate payments made by reason of sale; and

3. To pay all necessary and useful expenses made on the thing sold.

Legal Redemption is the right subrogated upon the same terms and conditions stipulated in the contract, in the place of one who acquires a thing by purchase or dation in payment, or by any other transaction whereby ownership is transmitted by onerous title.

INSTANCES OF LEGAL REDEMPTION, RECOGNIZED BY OUR LAW: Under the Civil Code:

1. Redemption by the other co-heirs, or by

any or some of them, should a co-heir sell his hereditary right to a stranger;

2. Redemption by an owner of an adjoining land should the owner of a piece of rural land, the area of which does not exceed one hectare, alienate it to a third person. If two or more adjoining owners desire to exercise the right at the same time, the owner of a smaller area shall be preferred; and should both lands have the same area, the one who first requested the redemption. (Art. 1621)

3. Redemption by an owner of adjoining land should the owner of a piece of urban land, which is so small and so situated that a major portion thereof cannot be used for any practical purpose within a reasonable time and which said owner had bought merely for speculation, resell it to a third person. If the resale has not yet been perfected, an owner of adjoining land shall have the right of

preemption; in other words, his right to buy the property is preferred to that of third persons. If two or more adjoining owners desire to exercise the right of pre-emption or redemption, as the case may be, the owner whose intended use of the land appears best justified shall be preferred. (Art. 1622)

4. Redemption by a debtor should the credit or other incorporeal right in litigation be sold by the creditor to a third person. (Art. 1634)

Under other laws:

1. Redemption by the applicant, his

widow, and legal heirs within five years should a piece of land under a homestead of free patent be alienated to a third person. ( Sec. 119, Com. Act. No. 141)

2. Redemption by a judgment debtor within one year should real property belonging to him be sold on execution. (Revised Rules of Court)

3. Redemption by owner should the property belonging to him be sold for delinquent realty taxes. (Section 736, Rev. Adm. Code)

4. Redemption by mortgagor within one year should his mortgaged property be foreclosed and subsequently sold. (Revised Rules of Court)

Distinction between redemption and pre-emption –

1. In redemption, the sale to a third person has already been perfected, whereas in pre-emption, the sale to a third person has not yet been perfected;

2. The right of redemption has a much broader scope than the right of pre-emption. As a matter of fact, the latter may be exercised only where there is a prospective resale of a small piece of urban land originally bought by the prospective vendor merely for speculation;

3. The right of redemption is directed against the third person who bought the property, whereas the right of pre-emption is directed against the prospective vendor who is about to resell the property;

4. The effect of redemption is to extinguish a contract that has already been perfected or even consummated, whereas the effect of pre-emption is to prevent the birth or perfection of a contract.

THE RIGHT OF PRE-EMPTION OR REDEMPTION REGULATED BY ARTS. 1630 TO 1622 OF THE CIVIL CODE IS TO BE EXERCISED? – ANS: The right must be exercised within thirty

(30) days from the notice in writing by the prospective vendor, or by the vendor as the case may be.

Sale distinguished from dation in payment: –

1. In sale, there is no pre-existing credit. While in dation there’s a pre-existing credit;

2. In the first, gives rise to obligations while in the second, it extinguishes obligations;

3. In the first, the cause or consideration is the price from the viewpoint of the seller or obtaining the object from the viewpoint of the buyer, while in the second, the cause or consideration from the viewpoint of the person offering dation in payment is the extinguishment of his debt and from the viewpoint of the creditor, it is the acquisition of the object offered in lieu of the original credit;

4. In the first, there is greater freedom in the determination of the price, while in the second, there is less freedom.

Sale distinguished from lease –

In a sale, the seller transfers ownership; in a lease, the lessor or landlord transfers merely the temporary possession and use of the property.

Article 1460 – A thing is determinate when it is

particularly or physically segregated from all others of the same class. The requisite that a thing be determined is satisfied if at the time the contract is entered into, the thing is capable of being made determinate without the necessity of a new or further agreement between the parties.

Future goods are those still to be:

1. Manufactured or printed; 2. Raised or future agricultural products; 3. Acquired by seller after the perfection of

the contract;

4. Those whose acquisition depends upon a contingency which may or may not happen.

The sole owner of a thing may sell an

undivided interest therein. (Art. 663) Distinction between a contract of sale and an agency to sell:

a. In sale, the buyer pays the price; the agent delivers the price which in turn he got from this buyer;

b. In sale, the buyer after delivery becomes the owner, the agent who is supposed to sell does not become the owner even if the property has already been delivered to him;

c. In sale, the seller warrants; the agent who sells assumes no personal liability as long as her acts within his authority and in the name of the principal.

In the Quiroga vs Parsons Hardware Co.

(38 Phil. 501), the defendant entered into a contract of sale not an agency to sell. There was the price that was fixed and there was the duty to pay the same regardless of whether or

not the defendant had sold the beds. The word “agent” simply means that the defendant was the only one who could sell the plaintiff’s beds in Visayas”. Rules to determine if the contract is one of sale or a piece of work: –

a. If ordered in the ordinary course of business – sale

b. If manufactures specially and not for the market – piece of work.

If one will construct a house on his own

land and I will get both the land and the house, it would seem that this could be a sale. Rules to determine whether a contract is one of sale or of barter: (Art. 1468)

a. First rule – Intent b. If intent does not clearly appear –

1. If thing is more valuable than money – barter 2. of 50-50 sale 3. If thins is less valuable than money – sale

Under the statute of fraud, the sale of:

1. Real property (regardless of the amount)

2. Personal property – if P500 or more must be in writing to be enforceable.

A seller, in an auction sale, can bid, provided

such a right to bid is reserved; and notice was given that the sale by auction is subject to a right to bid on behalf of the seller.

A seller also may employ others to bid for him, provided he has notified the public that the auction is subject to the right to bid on behalf of the seller. People who bid for the seller, but are not themselves bound, are called “by-bidders” or “puffers”.

The ownership of the thing sold is transferred to the vendee upon actual or constructive delivery thereof” – (Art. 1477)

Ownership is not transferred by perfection but by delivery.

The parties may stipulate that ownership in the thing shall not pass to the purchaser until he has fully paid the price”. (Art. 1478)

Generally, ownership is transferred upon delivery, but even if delivered, the ownership may still be with the seller till full payment of the price is made, if there is a stipulation to this effect. But of course, innocent third parties cannot be prejudiced. This stipulation is usually known as pactum reservati dominii and is common in sales on the installment plan. “Policitacion” – this is a unilateral promise to

buy or sell which is not accepted. This produces no juridical effect and creates no legal bond. This is a mere offer.

Option – it is a contract granting a person the

privilege to buy or not to buy certain object at any time within the agreed period at a fixed price. The contract of option is a separate and distinct contract from the contract. It must have its own cause or consideration.

Who bears the risk of loss? –

a. If the object has been lost before perfection, the seller bears the loss because there was no contract and being the owner, the seller bears the loss;

b. If the object was lost after delivery to the buyer, clearly the buyer bears the loss. “Res perit domino” – the owner bears the loss;

c. If the object is lost after perfection but before delivery, here the buyer bears the loss, as exception to the rule of res perit domino.

(The implication in the case of “Roman vs

Grimalt” is that had the sale been perfected, the buyer would have borne the loss, that is, he would still have had to pay for the object even if no delivery had been made.)

Meaning of “fungibles” – are personal property which may be replaced with equivalent things. Fungibles are almost the same as consumable goods with this difference: that while the distinction between consumables and non-consumables is based on the nature of the thing, the differences between fungibles and non-fungibles is based on the intention. Thus rice is ordinarily consumable, but if I borrowed a

sack of rice for display purposes only, and I promised to return the identical sack of rice, the rice here is non-fungible. If the deed of sale of land is notarized by a

notary public whose authority had expired, the sale would still be valid, since for the validity of its sale, a public instrument is not even essential.

The husband and wife cannot sell property to each other, except:

1. When there is a separation of property agreed upon in the marriage settlements;

2. When there has been a judicial separation of property. (Art. 1490)

Art. 1493 – If at the time the contract of sale is

perfected, the thing which is the object of the contract has been entirely lost, the contract shall be without any effect.

But is the thing is lost in part only, the

vendee may choose between withdrawing from the contract and demanding the remaining part, paying its price in proportion to the total sum agreed upon.

Obligations of the vendor: -

a. To transfer ownership (cannot be waived);

b. To deliver ( cannot be waived); c. To warrant the object sold (this can be

waived) d. To preserve the thing from perfection to

delivery, otherwise, he can be held liable for damages. (Art. 1495)

As a rule, in the absence of agreement,

ownership is not transferred, even if sold, unless there has been delivery.

In general, “delivery of the property to a person who has purchased the property in his own name (although he used the money of another) will give title to said purchaser and not the owner of the money used.” Kinds of delivery or tradition: -

1. Actual or real 2. Legal or constructive

a. Legal Formalities

b. symbolical tradition c. traditio longa manu d. traditio brevi manu e. tradition constitutum possessorium

The instances when seller is still owner despite delivery: -

1. Express stipulation; 2. If under the bill of lading the goods are

deliverable to seller or agent or their order; 3. If the bill of lading, although stating that

the goods are to be delivered to buyer or his agent, is kept by the seller or his agent;

4. When the buyer although the goods are deliverable to order of buyer, and although the bill of lading is given to him, does not honor the bill of exchange sent along with it. But of course, innocent third parties should not be adversely affected.

Rules when the quantity is less than that agreed upon – (Art. 1522)

1. Buyer may reject; 2. Or buyer may accept what have been

delivered, at the contract rate.

Rules when the quantity is more than the agreement: -

a. Buyer may reject all. He must not be burdened with the duty of segregation, if he does not so desire;

b. Buyer may accept the goods agreed upon and reject the rest;

c. If he gets all, he must pay for item at the contract rate.

Rules when quantity is different: -

a. accept the goods which are in accordance with the contract;

b. and reject the rest. When is the vendor not obliged to make delivery after the perfection of the contract of sale? – The vendor is not obliged to make said delivery in the following:

a. If the vendee has not paid him the price; b. If no period for the payment has been

fixed in the contract otherwise, the vendor might play a futile “waiting game”;

c. Even if a period for such payment has been fixed in the contract if the vendee has lost the right to make use of the period and still refuse to pay.

A seller is deemed an “unpaid seller” –

1. If only part of the price has been paid or delivered;

2. Mere delivery of a negotiable instrument does not extinguish the obligation because it may be dishonored.

When are “goods in transit”–

1. From the time when they are delivered to a carrier by land, water, or air, or other bailee for the purpose of transmission to the buyer, until the buyer, or his agent in that behalf, takes delivery of them from such carrier or other bailee;

2. If the goods are rejected by the buyer, and the carrier or other bailee continues in possession of them, even if the seller has refused to receive them back.

When are goods “ no longer in transit” –

If the buyer, or his agent in that behalf, obtains delivery of the goods before their arrival of the appointed destination;

If, after the arrival of the goods at the appointed destination, the carrier or other bailee acknowledges to the buyer or his agent that he holds the goods on his behalf and continues in possession of item as bailee for the buyer or his agent; and it is immaterial that further destination for the goods may have been indicated by the buyer;

If the carrier or other bailee wrongly refuses to deliver the goods to the buyer or his agent in that behalf. (Art. 1531)

The period of limitation (prescriptive period) for

a redhibitory action based on the fraud or defects of animals is forty (40) days from the date of their delivery to the vendee. And six (6) months for breach of warranty against hidden defects; rescission of the contract because of the same; or proportionate reduction in the price because of the same; rescission or proportionate reduction in the price of sales of real estate either by the unit or for a lump sum because of failure to comply with the provisions of the contract.

If an animal should die within three (3) days

after its purchase, the vendor shall be liable if the disease which caused the death existed of the time of the contract. (Art. 1578)

AGENCY

Article 1868 – By the contract of agency, a person binds himself to render some service, or to do something in representation or in behalf of another with the consent or authority of the latter

a. The definition is so broad and therefore defective.

As it is so worded, it would seem that the agent must always expressly represent the principal. This is not necessarily so, for sometimes an agent does not disclose his principal; he may soon act in behalf of himself, but here the principal would still be bound as when the contract involves things belonging to the principal.

b. Its Characterestics:

Agency is a principal, nominate, bilateral, preparatory, cumulative and generally onerous contract;

Generally, it is also a representative relation, not a status since agency is not inherent or permanent;

It is a fiduciary relation since it is based on trust and confidence.

Essential elements of a contract of agency: There is consent, express or implied of the

parties to establish the relationship of agency;

The object is the execution of a juridical act in relation to a third person;

The agent acts as a representative and not for himself; and

The agent acts within the scope of his authority.

1. Distinguish a “contract of agency” from

contract of lease of services”

a. In the first, the principle of representation is applied, whereas in the second, it is not; in other words, in the first, the basis of the contract is representation, whereas in the second, the basis is employment;

b. In the first, the contract may be extinguished at will by the principal, whereas in the second, concurrence of both party is necessary;

c. The agent exercises discretionary powers in order to attain the ends for which he was appointed, whereas the employee exercises ministerial function only;

d. The first is a preparatory contract; whereas the second is a principal contract.

2. Distinguish a “contract of agency” from

contract with an independent contractor”

1. In the first, the principle of representation exists, whereas in the second, such principle is not recognized;

2. An agent is more or less under the control of his principal, whereas, an independent contractor is not under the control of the person with whom he contracts;

3. An agent binds his principal provided that he acts within the scope of his authority, whereas an independent contractor cannot bind the person with whom he contracts, by his acts;

4. If a third person is injured through the fault or negligence of an agent, he can proceed against the principal for damages, but if he is injured through the fault or negligence of an independent contractor, he cannot proceed against the person with whom the latter had contracted damages;

5. The first is a preparatory contract, whereas the second, is a principal contract.

THE DIFFERENT KINDS OF AGENCY 1. As to Constitution:

Express – when it is expressly constituted

Implied – a. from the acts of the principal b. from his silence or inaction c. from his failure to repudiate

the agency, knowing that another is acting in his behalf without authority.

2. As to form –

oral

written

3. As to cause –

onerous – when it is for compensation

gratuitous – when there is no compensation 4. As to extent-

general – when it comprises all of the business of the principal

special –when it comprises one or more specific transactions

5. As to third persons –

agent de jure

agent by estoppel – as when a person, who is not really an agent, represents himself or is represented as such.

There can be a perfected contract of agency even if the acceptance by the agent is merely implied. As far as acceptance by mere silence of inaction is concerned, the following rules shall govern: RULES GOVERNING IMPLIED AGENCY:

Between the persons who are present, the acceptance may be implied if the principal delivers his power of attorney to the agent and the latter receives it without objection; Between the persons who are absent, the acceptance cannot be implied, unless: The principal transmits his power of attorney to the agent, who receives it without objection, or The principal entrusts to him by letter or telegram a power of attorney with respect to the business in which he is habitually engaged as an agent, and he did not reply to the letter or telegram. In a sale of a piece of land, or any interest therein through an agent, the authority of an agent must be in writing, otherwise, the sale shall be void. (Art. 1874) DISTINCTION OF GENERAL AND SPECIAL AGENCY:

GENERAL AGENCY – refers to that type of agency with comprises all of the business of the principal, whereas special agency, refers to that

type of agency which comprises one or more transactions. Whether general or special, the agency may be couched in general terms. In such a case, the agency merely authorizes the agent to perform acts of administration. Consequently, a general agency may or may not be couched in general terms but an agency couched in general agency, if it comprises all of the business of the principal, or a special agency, it is comprises only one or more specific transactions.

Instances where a special power of

attorney is necessary in order to bind the principal (Art. 1878) - to make such payment as are not usually considered as acts of administration; - to effect novation which put an end to

obligations existing at the time of the constitution of the agency; - to compromise, to submit to arbitration, to

renounce right to appeal, - to waive objections to venue, or to abandon a prescription already

acquired; - to waive any obligation gratuitously;

- to enter into any contract by which ownership of an immovable is transmitted or acquired gratuitously or for a valuable consideration;

- to make gifts, except customary ones for charity or those made to employees in the business managed by the agent; - to loan or borrow money, unless the latter’s

act be urgent and indispensable for the preservation of the things under administration;

- to lease any real property to another person for more than one year.

- to bind the principal to render some services without compensation

- to bind the principal in a contract of partnership;

- to obligate the principal as a guarantor or surety;

- to create or convey real rights over immovable property;

- to accept or repudiate an inheritance; - to ratify or recognize obligations contracted

before agency, any other act of dominion.

A special power to sell excludes the power to

mortgage, and a special power to mortgage

does not include the power to sell. Consequently, if an agent, holding a special power to sell, mortgages the property, the contract would be unenforceable (Art. 1879).

If the special power to sell does not specify the manner or terms of payment, the agent may not sell the property on credit.

The most fundamental obligations of an agent: a) to carry out the agency; b) to act within the scope of his authority;

and c) to act on behalf of his principal. Broadly speaking, the words “authority” and

“power” of an agent are interchangeable terms. However “authority” refers to the mandate given to the agent by his principal, whereas “power” refers to the extent of the mandate of the agency. In other words, the first is the cause, whereas the second is the effect.

An agent authorized to sell a given authority cannot bind his principal by selling such commodity, either directly or indirectly, to himself. Consequently, if he sells the commodity to himself, by acting through a sub-

agent, the sale is unenforceable unless the principal ratifies the sale after he has full knowledge of the facts.

If the agent entered into a contract with a third person in his own name or without disclosing his principal, the contract could be binding only as between the two parties, because obviously, the third person did not rely on the credit of the principal when he entered into the contract. However, there are two instances where the principal is bound by the contract:

a) where the contract involves things

belonging to him; and b) where he ratifies the contract or derives

benefit therefrom. SUPPOSE AN AGENT CONTRACTS IN THE NAME OF HIS PRINCIPAL BUT EXCEEDING THE SCOPE OF HIS AUTHORITY, WHAT IS THE STATUS AND EFFECT OF THE CONTRACT? ANS: The answer is a distinction.

Its effect upon the principal: As far as the principal is concerned, the contract is

unenforceable. This is true whether the third person is aware or unaware of the fact that the agent was acting outside the scope of his authority. Consequently, is such third person is prejudiced as a result of the contract, he would not be able to proceed against the principal. There are, however, two (2) instances, where he may hold the principal liable, namely:

a) where such principal has ratified the

contract. In such case, the contract becomes valid and binding; and

b) where such principal had allowed the agent to act as though he had full power. In such a case, the former is solidarily liable with the latter.

Its effect upon the agent: As far as the agent is

concerned, the status of the contract shall depend upon whether the third person was unaware or aware of the fact that such agent was acting beyond the scope of his authority. If the third person was unaware of such fact, the contract is certainly binding as between the two parties, although unenforceable insofar as the principal is concern. If the third person was aware of such fact, the contract is unenforceable, even as between the two parties.

In such a case, the agent cannot be held liable, unless he undertook effort to secure the principal’s ratification. Obviously, the principal cannot be held liable unless he ratifies the contract.

An agent who receives something by virtue of the agency, such as gift or an amount in excess of the purchase price is bound to make an accounting to his principal even if such thing, gift or excess is not owing to the latter because of Art. 1891 which provides that “Every agent is bound to render an account of his transactions and to deliver to the principal whatever he may have received by virtue of the agency, even though it may not be owing to the principal. Any stipulation exempting the agent from the obligation to render an account shall be void”.

An agent may appoint a substitute if the principal has not prohibited him from doing so; but he shall be responsible for the acts of his substitute:

1) when he was no given the power to appoint one;

2) when he was given such power, but without designating the person, and the person

appointed was notoriously incompetent or insolvent.

All acts of the substitute appointed against the prohibition of the principal shall be void.

A commission agent – is one who is engaged in the business of buying and selling for a principal of personal property, which for this purpose has to be placed in his possession and at his disposal.

A broker – is a middleman or intermediary who, in behalf of others, and for a commission, or fee, negotiates contracts or transactions relative to real or personal property in the name of the principal.

Distinction between a broker and a commission agent relative to real or personal property:

1) The job of a commission agent involves a

three-fold relationship, in other words, the agent is related not only to his principal and to the buyer or seller, but also to the property constituting the object of the transaction which should be placed in his possession and at his disposal. The job of a

broker on the other hand, involved only a double relationship, in other words, the broker is a pure intermediary, a pure go-between who does not have either the custody or the possession of the property that he disposes of.

2) A commission agent engages only in the business of buying and selling personal property for his principal; whereas, a broker engages in the business of buying or selling for his client’s personal or real property;

3) A commission agent should have a place of business, whereas, this is not necessary for the broker;

4) The broker is much more independent than the commission agent.

A commission merchant – is a commercial

agent to whom the possession of personalty is entrusted by or for the owner, to be sold, for compensation, in pursuance of the agent’s usual trade or business, with the title to the goods remaining in the principal. He differs from a broker can only buy or sell in the name of his principal.

The ordinary commission given to a commission agent is merely the fee or

compensation for the sale of the goods which are placed in his possession and at his disposal, whereas the guarantee commission (del credere commission) is merely additional compensation for the risks of the collection. Should the commission agent receive on a sale, in addition to the ordinary commission, a guarantee commission: (1) he shall bear the risk of collection, and (2) he shall pay the principal, the proceeds of the sale on the same terms agreed upon with the purchaser.

A contract of agency may be revoked, either express or implied. Implied revocation may be effected:

1) by the act of the principal in appointing another agent for the same business or transactions.

2) by the act of the principal in directly managing the business entrusted to the agent.

3) by the act of the principal in subsequently granting a special power of attorney as regards the business to another agent where he had previously granted a general power of attorney to the agent.

Causes for the extinguishment of a contract of agency. (Art 1919)

(E D W A R D) 1) by the Expiration of the period for which

the agency was constituted 2) by the Death, civil interdiction, insanity or

insolvency of the principal or the agent 3) by the Withdrawal of the agent 4) by the Accomplishment of the object or

purpose of agency 5) by Revocation 6) by the Dissolution of the firm or

corporation which entrusted or accepted the agency

An agency is not revocable at will in the following cases:

1) if a bilateral contract depends upon it; 2) if it is the means of fulfilling an obligation

already contracted; 3) if a partner is appointed manager of the

partnership and his removal from the management is unjustifiable;

4) if it has been constituted in the common interest of the principal and of the agent or with interest of a third person who has accepted the stipulation in his favor.

An agency coupled with an interest refers to

“an agency wherein the agent has acquired some interest of his own in the execution of the authority granted to him, in addition to his mere interest in the contract of employment with the resulting gains”.

DISTINCTIONS Between agency and partnership – an agent

acts not for himself but for his principal; a partner acts for himself, for his firm and for his partners.

Agency from loan – an agent may be given

funds by the principal to advance the latter’s business, while a borrower is given money for purposes of his own, and he must generally return it, whether or not his business is successful.

Agency from lease of property – the agent is

controlled by the principal whereas the lessee is not controlled by the lessor; The agency may involve things other than property whereas a

lease of property involves property only. The agent can bind the principal, while the lessee, as such cannot bind the lessor.

Agency from Trust: 1) an agent usually hold no title at all; while

a trustee may hold legal title to the property; 2) usually, an agent acts in the name of the

principal; while a trustee may act in his own name;

3) usually, agency may be revoked or terminated at any time, while trust is usually ended by the accomplishment of the purposes for which it was formed

4) agency may not be connected at all with the property, while trust involves control over the property;

5) the agent has authority to make contracts which will be binding on his principal; while a trustee does not necessarily or even possess such authority to bind the trustor or the cestui que trust;

6) agency is really a contractual relation, while a trust may be the result of the contract or not; it may be created by law.

“Agency to sell” from sale:

1) in the first, the ownership of the goods is not transferred to the agent while in the second, the ownership is transferred to the buyer after delivery;

2) in the first, the agent delivers the price, while in the second, the buyer pays the price.

“Agency to buy” from sale:

1) in the first, the agent acquires ownership in behalf of the principal, while in the second, the buyer acquires ownership for himself;

2) in the first, the agent must account for all benefits or discounts received from the seller, while in the sale, the buyer who obtains discount does not have to reveal such fact to its own buyer.

3) The agent delivers the price, while the buyer pays the price.

Agency from Guardianship”

1) the agent represents a capacitated person while a guardian represents an incapacitated person;

2) the agent is appointed by the principal and can be removed by the latter, while the guardian is appointed by the court and stands in “loco parentis”;

3) the agent is subject to the direction of the principal while the guardian is not subject to the directions of the ward, but must of course act for the benefit of the latter;

4) the agent can make the principal personally liable, while the guardian has no power to impose personal liability on the ward.

Agency from Judicial administrator:

1) an agent is appointed by the principal, while a judicial administrator is appointed by the court;

2) an agent represents the principal, while a judicial administrator represents not only the court but also the heirs and creditors of the estate;

3) an agent generally does not file a bond, while an administrator files a bond;

4) an agent is controlled by the principal thru their agreement, while an administrator’s acts are subject to specific orders from the court.

“An agency is presumed to be for a

compensation, unless there is proof to the contrary” (Art. 1875)

A special promise to compromise does not authorize submission to arbitration (Art. 1880) Two fundamental principles of agency (Art 1881)

1) the agent must act within the scope of his authority

2) the agent must act in behalf of his principal

Authority distinguished from instructions:

1) the principal affects only third persons, because if the act is done beyond the scope of the agent’s authority, the principal is not bound; while instruction concerns only the principal and the agent;

2) Third persons must therefore verify or investigate the authority, while in instruction, third persons do not have to verify or investigate the instructions.

CREDIT TRANSACTIONS

“Credit” refers to the belief or trust by a person in another’s ability to comply with an obligation; and “credit transaction” refers to

the contracts of agreements based on the said trust or credit. Scope of the Credit Transactions:

a. the principal contracts of loan (both “commodatum” and “mutuum”) and deposit;

b. the accessory contracts of personal guaranty and real guaranty;

c. preference and concurrence of credits. Article 1933 – By the contract of loan, one of

the parties delivers to another, either something not consumable so that the latter may use the same for a certain time and return it, in which case the contract is called a commodatum, or money or other consumable thing upon the condition that the same amount of the same thing and quality shall be paid, in which case the contract is simply called a loan or mutuum.

Commodatum is essentially GRATUITOUS.

Simple loan maybe gratuitous or with a

stipulation to pay interest in commodatum, the bailor retains the ownership of the thing loaned

while in simple loan, ownership passes to the borrower. Distinctions between mutuum and commodatum:

1) In the first, equivalent amount is to be returned (subject matter is fungible); while in the second, the same thing is to be returned (subject matter is non-fungible);

2) Mutuum may be gratuitous or onerous (with interest) while commodatum is gratuitous ( if there is compensation, it ceases to be commodatum);

3) Ownership goes to the borrower or bailee; while in commodatum ownership is retained by the lender or bailor;

4) Refers only to personal property, while in the second, may involve real and personal property;

5) Referred to as loan for consumption, while commodatum referred to as loan for use or temporary possession;

6) Borrower, because of his ownership, bears risks of loss; while lender, because of ownership, bears risks of loss;

7) Can be generally obliged to pay only at the end of period, while object at the end of

period, still in some cases as return can be demanded even before the end of the period.

Consumable and Non-consumable distinguished:

1) Consumable – a movable which cannot be used in a manner appropriate for its nature without its being consumed. i.e. gasoline.

2) Non-consumable – a movable which can be used in a manner appropriate to its nature without its being consumed. i.e. book

Fungible and Non-fungible distinguished:

1) Fungible – if the intention is to allow a substitution of the thing given

2) Non – fungible – if the intention is to compel a return of the identical thing given.

Whether a thing is consumable or not depends

on the nature of the thing; whether it is fungible or not depends on the intention. Hence, sugar is consumable and ordinarily fungible but if the intention is merely to display the sugar for exhibition (ad ostentationem) then it is still

consumable (nature) but non-fungible (intention).

Bailment – it is derived from a French word “ bailler” meaning to deliver. It is defined as the “delivery by one person to another in trust for a specific purpose, with a contract express or implied, that the first shall be faithfully executed and the property returned or duly accounted for when the special purpose is accomplished or kept until the bailor reclaims it” Parties in a bailment:

1) bailor – the giver; and 2) bailee – the recipient of the thing bailed.

Insofar as the borrower is concerned, the

cause of consideration in a contract of bailment of loan is the acquisition of thing; insofar as the lender is concerned, it is the right or require the return of the same thing or its equivalent. Credit defined as applied to “loans” – It is the ability to borrow money or thing by virtue of the confidence or trust reposed by a lender that the borrower will pay what he may

promise. It is derived from a Latin word “credere” meaning “to trust”. Loan distinguished from Rent or Lease:

1) In loan, the lender losses his property for the borrower becomes the owner thereof, while in rent or lease, the owner of the property does not lose his ownership, he merely loses control thereof in a limited way for the duration of the rent or lease;

2) The relationship is one of lender and borrower, while the relationship is one of lessor and lessee.

Loan distinguished from deposit:

1) In loan, the purpose is to grant its use to the borrower, while in deposit, the purpose is safekeeping by depository (who generally cannot use);

2) Generally, the borrower pays only at the end of the period; while in deposit, the returning can be demanded by the depositor at any time;

3) Relationship is that of lender (creditor) and borrower (debtor), while the relationship is that of depositor and depository;

4) There can be compensation of credits, while in deposit, there’s no compensation of things deposited with each other (except by mutual agreement)

Loan distinguished from Sale:

1) Loan is a real contract, while sale is a consensual contract;

2) Generally, unilateral because only borrower has the obligations while sale is bilateral and reciprocal.

COMMODATUM

Commodatum and Loan are real contracts. They are perfected by the delivery of the object loaned. On the other hand, consensual contracts are perfected by mere consent.

Commodatum – is a real, principal, essentially gratuitous and personal contract where one of the parties (called a bailor or lender) delivers to another (called the bailee or borrower) a non-consumable object, so that the

latter may use the same for a certain period and later return it.

The term is derived from the Latin “Commodum” or “commodo” meaning usefulness to a borrower. Features or Characteristics of Commodatum as a Contract:

1) Real (because it is perfected by delivery) 2) Principal (because it can stand alone by

itself) 3) Gratuitous (otherwise, the contract is one

of lease) 4) Personal in Nature (because of trust)

What bailee (borrower) in commodatum acquires: Commodatum gives the right to the use (jus utendi) and not the rights to the fruits (jus fruendi) otherwise the contract maybe one of usurfruct. But of course a stipulation that the bailee may make use of the fruits of the thing loaned is valid. In such a case, however, the right to get the fruits us merely incidental and not the main cause of the contract.

Bailor in commodatum (lender) is called

“comodatario” in Spanish, bailee in commodatum (borrower) is termed “comodante”. Subject matter of Commodatum Usually, only non- consumable goods may be the object of a commodatum for the thing itself should not be consumed and must be returned, but when a jar of vinegar is given merely for exhibition the thing itself is not consumed. It is only used “ad ostentationem”. Note that the vinegar in this case is non-fungible for the same vinegar must be returned. Properties that may be the object of Commodatum:

1. Immovable property 2. Movable property

Example of Commodatum involving Land: A borrowed B’s land so that he can erect thereon a small barong-barong to be used for the time that A works in B’s province. If there is no rental this is a case of commodatum, but if rental is paid, this would be a lease.

Article 1938 – The bailor in commodatum

need not be the owner of the thing leased.

Bailor (lender) need not be the owner. Reason: the contract of commodatum does not transfer ownership. All that is required is that the bailor has the right to use the property which he is lending, and that he be allowed to alienate his right to use. Hence, in lease for example, a lessee may become a sub-lessor, unless he has been expressly prohibited to do so in contract of lease.

Take note of the Mercado vs Aguilar case, wherein Mercado, the occupant of a stall in the Batangas market has allowed Aguilar to occupy the same gratuitously with the promise of Aguilar to return it upon demand. Aguilar claims that Mercado has no right to demand because Mercado, being a mere lessee of the municipality has no right to cede its occupancy in commodatum.

Held: Mercado had the right to give it in commdatum. If a lessee, by a contract of a sub-lease, may transfer to another the enjoyment of the thing leased for a consideration, there is no

reason why he should be unable to cede gratuitously its use. Aguilar should return the stall. Article 1939 – Commodatum is purely personal

in character.

Consequently: 1. The death of either the bailor or bailee

extinguishes the contract; 2. The bailee can neither lend nor lease the

object of the contract to a third person. However, the members of the bailee’s household may make use of the thing loaned, unless there is a stipulation to the contrary or unless the nature of the thing forbids such use.”

Example of the first paragraph:

A loaned to B the former’s car by way of commodatum. If either A or B dies, the contract is extinguished. (Note: If there are two or more borrowers, the death of one does not extinguish the commodatum as to the other, unless there is stipulation to the contrary).

Example of the 2

nd paragraph:

A loaned to B a stereo by way of commodatum. B cannot lend or lease this to a friend. But the children of B, his household may use the same unless there is a stipulation to the contrary. But said stereo cannot be used as a chair, because the nature of the thing forbids such use.

Article 1940 – A stipulation that the bailee may

make use of the fruits of the things loaned is valid”

As a rule, the bailee is not entitled to the fruits,

otherwise the contract may be one of usufruct. It should be noted that the right to use is distinct from the right to enjoy the fruits, since under the law, fruits should as a rule pertain to the owner of the thing producing the fruits. However, to stipulate that the bailee may make use of the fruits would not destroy the essence of a commodatum for liberality is still the actual cause or consideration of the contract. Obligations of the bailee:

a) “The bailee is obliged to pay for the ordinary expenses for the use and preservation of the thing loaned.” (Art. 1941)

Reason: The bailee is supposed to

return the identical thing, so he is obliged to take care of the thing with the diligence of a good father of a family.

b) The bailee is liable for the loss of the

thing, even if it should be through a fortuitous event under the following instances: (Art. 1942)

1. If he devotes the thing to any purpose

different from that for which it has been loaned (amounts to bad faith or abuse of generosity considering that commodatum is gratuitous);

2. If he keeps it longer than the period

stipulated or after the accomplishment of the use for which the commodatum has been constituted (guilty of default or mora);

3. If the thing loaned has been delivered

with appraisal of its value, unless there is a stipulation exempting the bailee from

responsibility in case of a fortuitous event (the giving of the value was made to hold the bailee liable for after all this is not a sale and neither is ownerhip transferred);

4. If he lends or leases the thing to a third

person, who is not a member of his household (amounts to violation of its personal character);

5. If being able to save either the thing

borrowed or his own thing, he chose to save the latter (amounts to an act of ingratitude and to a failure to exercise due diligence).

“The bailee does not answer for the

deterioration of the thing loaned due only to the use thereof and without his fault” (Art. 1943)

“The bailee cannot retain the thing loaned on the ground that the bailor owes him something, even though it maybe by reason of expenses. However, the bailee has a right of retention for damages mentioned in Article 1951”. (Art. 1944)

“When there are two or more bailees to whom the thing is loaned in the same contract, they are liable solidarily”. (Art. 1945) Obligation of the bailor:

a) “The bailor cannot demand the return of the thing loaned till after the expiration of the period stipulated or after the accomplishment of the use for which the commodatum has been constituted. However, if in the meantime, he should have urgent need of the thing, he may demand its return or temporary use.

In case of temporary use by the bailor, the contract of commodatum is suspended while the thing is in the possession of the bailor”. (Art. 1946)

b) The bailor may demand the thing at will, and the contractual relation is called a “precarium”, in the following cases:

1. If either the duration of the contract nor the use to which the thing loaned should be devoted has been stipulated;

2. If the use of the thing is merely tolerated by the owner (Art. 1947)

Precarium – a special form of commodatum wherein the possession of the borrower is precarious, that is, dependent on the lender’s will.

c) “The bailor may demand the immediate

return of the thing, if the bailee commits any act of ingratitude as specified in Art. 765”. (Art. 1948)

The grounds of ingratitude under Art. 765

(which are the same grounds for the revocation of a donation):

a. If the donee should commit offense against the person, the honor or the property of the donor, or his wife, or children under his parental authority;

b. If the donee imputes to the donor any criminal offense or any act involving moral turpitude, even though he should prove it, unless the crime or the act has been committed against the donee himself, his wife, or children under his authority;

c. If he unduly refuses him support when

the donee is legally or morally bound to give support to the donor.

d) The bailor shall refund the extraordinary

expenses during the contract for the preservation of the thing loaned, provided the bailee brings the same to the knowledge of the bailor before incurring them, except when they are so urgent that the reply to the notification cannot be awaited without danger.

If the extraordinary expenses arise on the occasion of the actual use of the thing by the bailee, even though he acted without fault they shall be borne by both the bailor and bailee, unless there is a stipulation to the contrary. (Art. 1949)

e) If for the purpose of making use of the thing, the bailee incurs expenses other than those referred to in Articles 1941 and 1949, he is not entitled to reimbursement. (Art. 1950)

f) “The bailor, who, knowing the flaws of the

thing loaned does not inform the bailee of the same, shall be liable to the latter for the damages which he may suffer by reason thereof.” (Art. 1951)

g) “The bailor cannot exempt himself from

the payment of expenses or damages by abandoning the thing to the bailee.” (Art. 1952)

Reason: The value of the thing loaned/borrowed might be less than the value of the expenses or damages.

Simple Loan or Mutuum: Article 1953 – A person who receives a loan of

money or any other fungible thing acquires thereof, and is bound to pay to

the creditor an equal amount of the same kind an quality.

In “mutuum” the ownership passes to the

borrower, but of course, he must pay later.

Take note of the Grijaldo case (L-20240, Dec. 31, 1965) where Grijaldo who borrowed money from a bank secured by a chattel mortgage in the standing crops on his land, which crops were destroyed by the Japanese during the war, was still obliged to pay, for his obligation was to pay a generic thing – money representing the loan with interest. The chattel mortgage on the crops simply stood as security for the fulfillment of his obligation and therefore, the loss of the crops did not extinguish his obligation to pay, because the account can still be paid from sources other than the mortgaged crops. Article 1954 – A contract whereby one person

transfers the ownership of non-fungible things to another with the obligation on the part of the latter to give things of the same kind, quantity and quality is considered a “barter”. (It is not a commodatum nor a mutuum).

Article 1955 – The obligation of a person who

borrows money shall be governed by the provision of Art. 1249 and 1250.

“If what was loaned is a fungible thing other than money, the debtor owes another thing of the same kind, quantity and quality, even if it should change in value. In case it is impossible to deliver the same kind, its value at the time of the perfection of the loan shall be paid.”

Article 1956 – No interest shall be due unless it

has been expressly stipulated in writing.” (for the use of the money)

Kinds of interest:

Interest may be paid either as compensation for the use of the money (monetary interest) or as damages (compensatory interest). How Interest Arises:

The right to interest arises only by virtue of a contract or by virtue of damages for delay or

failure to pay principal on which interest is demanded. When Interest Earns Interest:

Interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent. (Art. 2212)

Interest by way of damages:

a) Part of the contract said: “The first installment payable in three (3) months shall have no interest.” But the debtor was in default. Should he pay interest for damages? Held: Yes, not interest for compensation but interest for damages.

b) In contracts for the payment of a sum of

money, the measure of damages for delay is limited to the interest provided by law.

c) If the obligation consists in the payment

of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal

interest which is now 12% per annum (not anymore 6% per annum).

Repeal of the Usury Law:

Central Bank Circular No. 905 has repealed the Usury law. Today, there is no more maximum rate of interest. The rate will just depend on the mutual agreement of the parties. Interest can now be charged as the lender and borrower may agree upon. Central Bank Circular No. 416 fixing the rate of interest at 12% per annum deals with: loans, forbearance of any money; goods or credit; and judgments.

In the determination of the interest, if it is payable in kind, its value shall be appraised at the current price of the products or goods at the time and place of payment. (Art. 1958)

The general rule is that accrued interest (interest due and unpaid) will not bear interest, except:

a) If there is agreement to this effect (Art. 1959) or

b) If there is judicial demand (Art. 2212)

Then, such accrued interest will bear interest at the legal rate, unless a different rate is stipulated. (Art. 1959)

If the borrower pays interest when there has been no stipulation therefore, the provisions concerning solutio indebiti or natural obligations, shall be applied as the case may be. (Art. 1960)

If a borrower borrows money and orally agrees to pay legal interest at 10% per annum, there is really no obligation to pay since the interest was not agreed upon in writing. If he nevertheless pays because he considers it his moral obligation to pay said interest, he cannot recover the interest that he has given voluntarily. This will now be a natural obligation.

But if no interest was stipulated and by mistake he pays interest, this will be a question of undue payment or solutio indebiti.

Charging interest in advance is permissible provided said interest does not correspond to interest for more than one year.

IF A DEBTOR HAS PAID USURIOUS INTEREST, HOW MUCH CAN HE GET BACK FROM HIS CREDITOR? ANS: Under Art. 1961, in case of conflict

between the NCC and the Usury Law, the NCC applies, and therefore, the interest in excess of 12% or 14% maybe recovered, with interest. However, in the case of Angel Rose Warehousing vs. Chelda Enterprises, the Supreme Court ruled that the entire interest can be recovered by the debtor for such stipulation is void, (thus, it is as if there is no stipulation as to interest). On the other hand, the principal contract of loan by itself is valid, hence, this maybe recovered by the creditor. In case of demand, and if the debtor is in default, said principal debt earns interest from the date of the demand. The interest is not by way of compensation but by way of damages.

DEPOSIT

A deposit is constituted from the moment a person receives a thing belonging to another, with the obligation of safely keeping it and of

returning the same. If the safekeeping of the thing delivered is not the principal purpose of the contract, there is no deposit but some other contract. (Art. 1962)

A contract of deposit, being a real contract, is perfected by delivery but on agreement to constitute a deposit is merely consensual, and is therefore binding upon mere consent.

The principal purpose of a deposit is the safekeeping of the thing delivered, but this does not mean that the depositary can never use. He can, in two instances:

a) With the express permission of the

depositor; b) When the preservation of the thing

deposited requires its use, it must be used but only for that purpose.

Of course, if safekeeping is not the principal

purpose, there is no deposit but some other contract like one of lease or commodatum. Kinds of deposits

1. Judicial (sequestration) – when an attachment or seizure of property in litigation is ordered.

2. Extra-judicial –

a) voluntary – made by the will of the

depositor b) necessary –

1. made in compliance with a legal obligation; 2. on the occasion of a calamity; 3. made by travelers in hotels or inns; 4. made by travelers with common carrier.

CHARACTERISTICS OF THE CONTRACT OF DEPOSIT:

a) It is a real contract perfected by delivery. Nonetheless, there can be consensual contract to make or constitute a deposit;

b) The principal purpose is the safekeeping of the thing delivered. Thus, if safekeeping is merely secondary, the contract is not a deposit but some other contract like one of lease or commodatum;

c) The depositary cannot use the thing deposited except:

1. With the express permission of the

depositor; or 2. When the preservation of the thing

deposited requires its use, but then it must be used only for that purpose.

d) Only movable things can be the object of

deposit; e) It is a gratuitous contract, except when

there is an agreement to the contrary or unless the depositary is engaged in the business of storing goods;

f) The contract is neither unilateral or bilateral according to whether it is gratuitous or compensated (onerous).

Deposit distinguished from Sale and Barter:

1. In deposit, ownership is not transferred but in S & B, ownership is transferred upon delivery;

2. It’s a real contract, while S & B are consensual (perfected by mere consent);

3. Generally gratuitous, while S & B always onerous.

Deposit distinguished from Commodatum:

1. It may be gratuitous, while the second is essentially and always gratuitous.

2. Principal purpose is safekeeping, while the second, the principal purpose is use.

Deposit distinguished from Agency:

1. In deposit, the purpose is safekeeping, while in agency, the purpose is the representation by the agent of the principal’s affairs;

2. The custody of the things is the principal and essential reason for deposit, while the custody of the things is merely an incidental or accessory obligation of the agent;

3. It’s generally gratuitous, while agency is generally onerous or for a compensation.

A so-called deposit of an advance payment in

the case of a sale is not the deposit contemplated by law. It is advance payment and ownership is transferred to the seller once given.

“An agreement to constitute a deposit is binding, but the deposit itself is not perfected until the delivery of the thing.” (Art. 1963)

“A deposit may be constituted judicially or extra-judicially.” (Art. 1964) Distinctions between extra-judicial deposit and judicial deposit:

a) In EJD, the origin is the will of the parties, while JD, it’s the will of the court;

b) In EJD, the status is that there’s a contract, while in JD, there’s no contract;

c) In EJD, the purpose is the custody and safekeeping of the thing for the benefit of the depositor, while in JD, it is to guarantee the right of the plaintiff in case of a favorable judgment;

d) In EJD, the cause is gratuitous as a rule, while in JD, it’s onerous;

e) In EJD, the subject matter is always a movable property, while in JD, it’s either movable or immovable property, but generally immovable;

f) In EJD, it’s always in behalf of the depositor, while in JD, it’s in behalf of the winner.

Generally, deposit is gratuitous. Exceptions: (Art. 1965)

1. When there is a contrary agreement. 2. When its depositary is engaged in the

business of storing goods. Kinds of Extra-Judicial Deposit (EJD):

a) Voluntary – as when there is mutual consent;

b) Necessary – when there is a deposit because of a calamity (depositum miserable)

Voluntary deposit is that wherein the delivery

of the object is made by the will of the depositor. (Art. 1968)

A deposit may also be made by two or more persons each of whom believes himself entitled to the thing deposited with a third person, who shall deliver it in a proper case to the one to whom it belongs. (Art. 1968)

The depositor need not be the owner – as a matter of fact, the law provides “that the depositary cannot demand that the depositor prove his ownership of the thing deposited.”

After all, a depositor does not transfer ownership over the subject matter. Form of contract of deposit – (Art. 1969)

Oral

Written. In either case, however, there must be a delivery.

Rule when depositor is incapacitated – (Art. 1970)

“If a person having capacity to contract accepts a deposit made by one who is incapacitated, the former shall be the subject to all the obligations of a depositary, and maybe compelled to return the thing by the guardian, or administrator of the person who made the deposit, or by latter himself if he could acquire capacity.” Rule if depository is incapacitated – (Art. 1971)

If the deposit has been made by a capacitated person with another who is not the depositor shall only have an action to recover the thing deposited while it is still in the possession of the depositary, or to compel the latter to pay him the amount by which he may have enriched or benefited himself with the thing or its price. However, if a third person who acquired the thing acted in bad faith, the depositor may bring an action against him for its recovery. The two principal obligations of the depositary:

a.) the safekeeping and

b.) the return of the ring, when required

The duty of safekeeping: a.) If the contract does not state the diligence

which is to be observed in the performance,

that of a good father of a family shall be

required;

b.) The depositary is responsible if the loss

occurs through his fault, but as a rule not if

the loss is through a fortuitous event.

Effect if deposit is gratuitious or onerous –

More care is required if the deposit is for a compensation than if it is gratuitous. But even if gratuitous, care must still be exercised. In case of non-fault on the depository, the depositor-owner bears the loss because of the maxim “res perit domino”. A guardian is not the depositary of the ward’s properties (Phil. Trust Co. Vs. Ballestero, L8261, April, 1956) Article 1973 – Unless there is a stipulation to

the contrary, the depositary cannot deposit the thing with a third person. If deposit with a third person is allowed, the depositary is liable for the loss if he deposited the thing with a person who is manifestly careless on unfit. The depository is responsible for the negligence of his employee”.

REASON : The depositary is as a rule not

allowed to deposit with a third person because a deposit is founded on the fact that the depositor has precisely chosen a particular depository by virtue of the latter’s qualification and because of the trust and confidence reposed on him by the depositor.

Article. 1974. The depositary may change the way of the deposit if under the circumstances he may reasonably presume that the depositor would consent to the change if he knew of the facts of the situation. However, before the depositary may make such change, he shall notify the depositor thereof and wait for his decision, unless delay would cause danger. (n)

The depositary holding certificates, bonds, securities or instruments which earn interest is duty bound to collect not only the interest on intangible properties, when due, but also the capital itself, and to whatever may have been received or collected, to the depositor. Naturally, this would not be the case should there be a contrary agreement (Art.1975, 1st par.)

This above particular provision does not apply to contracts for the rent of safety deposit boxes. (Art. 1975, 2nd par.) The reason for this is that here the renter of the box is supposed to have control over the box and contents thereof, and the real owner of said boxes should therefore not have the duty imposed in the first

par. As A matter of fact, this is really a lease of a thing (the box) and not a contract of deposit.

Article 1976. Unless there is a stipulation to the contrary, the depositary may commingle grain or other articles of the same kind and quality, in which case the various depositors shall own or have a proportionate interest in the mass.

Article. 1977. The depositary cannot make use of the thing deposited without the express permission of the depositor. Otherwise, he shall be liable for damages. However, when the preservation of the thing deposited requires its use, it must be used but only for that purpose.

Article.1978. When the depositary has permission to use the thing deposited, the contract loses the concept of a deposit and becomes a loan or commodatum, except where safekeeping is still the principal purpose of the contract. The permission shall not be presumed, and its existence must be proved.

Palay was deposited so that it would be threshed into rice. Is this a deposit or a hire of services? – Answer: While deposit of palay was converted into a hire of services, yet, after the object of the hiring (conversion into rice) has been fulfilled, the rice continued to be a deposit in the possession of the thresher for them to return to the owner upon demand. (Delgado vs. Bonnevie and Arandex, 23 Phils. 308)

WHEN DEPOSIT IS REALLY A LOAN:

1. Where money, consisting of coins of legal tender, is deposited with a person, and the latter is authorized by the depositor to use and dispose of the same, the agreement thus entered between the depositor and the depository is not a contract of deposit but a loan (Levellena vs. Lion, et.al, (11 Phils 141);

2. Evidence showing that interest has been

offered as compensation for the use of money deposited leads one to the conclusion that the contract, although denominated by the parties as deposit is really one of loan. (CO Agriela vs. Nepomuceno, 55 Phils. 283)

CAN THE RIGHT TO DEMAND THE RETURN OF THE THING DEPOSITED PRESCRIBED?

ANS: Things received on deposit do not prescribed for the depositary cannot claim that ownership of the thing deposited was transferred to him, but simply the custody thereof. The possession of a depositary as such, is not adverse to that of the depositor. Possession in order to ripen into prescription, must among other things be in the concept of an owner, public, peaceful and uninterrupted. Adverse possession, can of course, give rise to prescription.

Art. 1979. The depositary is liable for the loss of the thing through a fortuitous event:

(1) If it is so stipulated; (2) If he uses the thing without the

depositor's permission; (3) If he delays its return; (4) If he allows others to use it, even

though he himself may have been authorized to use the same.

A bank can compensate a debtor’s debt with

a debtor’s deposit because insofar as the

deposit is concerned, the relationship between them is that of a debtor and creditor not depositary and depositor”. (Gullas vs. PNB, 62 Phils. 619)

A depositor is disputably presumed to be the owner of the funds standing in his name in a bank deposit.” (Fultun Iron Works case 55 Phils. 208)

Current and savings deposits are loans to

bank because it can use the same.

A post dated check cannot be regarded as a check. A bank cannot therefore deduct from a client’s checking (current) amount postdated checks which have been issued by the depositor at least not until the date indicated on the check (Ong Sip vs. PBTC, GR. No. 27328)

Because the PNB has a charter of its own, it is not an ordinary corporation, and is not therefore governed by the Corporation Law. Thus, a stockholder cannot inspect its books, otherwise its charter would be violated. Only the Central Bank can inspect” (Gonzales vs. PNB, GR. # 33320, May 30, 1983)

The recovery of time deposits from a distressed bank as well as damages should be in the RTC in an ordinary action, not a petition for mandamus and prohibition. Bank deposits are really loans, and failure to return the same is failure to pay an obligation as a debtor, not a breach of trust for there is no trust, constructive or otherwise. The depositor’s remedy is to file his claim in the liquidation proceeding of the bank.” (Serrano vs. Central Bank, L-30571, Feb. 14, 1980, 96 SCRA 96)

Banks are not required to pay interest on deposit for the period during which they are not allowed to operate by the Central Bank. This is demanded by fairness. However, interest that had accrued prior to the suspension should be paid by the bank for after all, it had made use then of the money deposited. (The Oversees Bank of Manila vs. CA, L-49363, June 11,1981)

Article. 1981. When the thing deposited is delivered closed and sealed, the depositary must return it in the same condition, and he shall be liable for damages should the seal or lock be broken through his fault.

Fault on the part of the depositary is presumed, unless there is proof to the contrary.

As regards the value of the thing deposited, the statement of the depositor shall be accepted, when the forcible opening is imputable to the depositary, should there be no proof to the contrary. However, the courts may pass upon the credibility of the depositor with respect to the value claimed by him.

When the seal or lock is broken, with or without the depositary's fault, he shall keep the secret of the deposit.

Article1982. When it becomes necessary to open a locked box or receptacle, the depositary is presumed authorized to do so, if the key has been delivered to him; or when the instructions of the depositor as regards the deposit cannot be executed without opening the box or receptacle. (n)

Article 1983. The thing deposited shall be returned with all its products, accessories and accessions. Should the deposit consist of money, the provisions relative to agents in article 1896 shall be applied to the depositary.

Article 1896. The agent owes interest on the sums he has applied to his own use from the day on which he did so, and on those which he still owes after the extinguishment of the agency.

Article 1984. The depositary cannot demand that the depositor prove his ownership of the thing deposited. Nevertheless, should he discover that the thing has been stolen and who its true owner is, he must advise the latter of the deposit. If the owner, in spite of such information, does not claim it within the period of one month, the depositary shall be relieved of all responsibility by returning the thing deposited to the depositor. If the depositary has reasonable grounds to believe that the thing has not been lawfully acquired by the depositor, the former may return the same.

Article 1985. When there are two or more depositors, if they are not solidary, and the thing admits of division, each one cannot demand more than his share. When there is solidarity or the thing does not admit of division, the provisions of Articles 1212 and 1214 shall govern.

However, if there is a stipulation that the thing should be returned to one of the depositors, the depositary shall return it only to the person designated.

Article 1986. If the depositor should lose his capacity to contract after having made the deposit, the thing cannot be returned except to the persons who may have the administration of his property and rights.

Article 1987 If at the time the deposit was made a place was designated for the return of the thing, the depositary must take the thing deposited to such place; but the expenses for transportation shall be borne by the depositor.

If no place has been designated for the return, it shall be made where the thing deposited may be, even if it should not be the same place where the deposit was made, provided that there was no malice on the part of the depositary.

Article. 1988. The thing deposited must be returned to the depositor upon demand, even though a specified period or time for such return may have been fixed.

This provision shall not apply when the thing is judicially attached while in the depositary's possession, or should he have been notified of the opposition of a third person to the return or the removal of the thing deposited. In these cases, the depositary must immediately inform the depositor of the attachment or opposition

Article 1989. Unless the deposit is for a valuable consideration, the depositary who may have justifiable reasons for not keeping the thing deposited may, even before the time designated, return it to the depositor; and if the latter should refuse to receive it, the depositary may secure its consignation from the court. (1776a)

Article 1990. If the depositary by force majeure or government order loses the thing and receives money or another thing in its place, he shall deliver the sum or other thing to the depositor.

Article 1991 The depositor's heir who in good faith may have sold the thing which he did not know was deposited, shall only be bound to return the price he may have received or to assign his right of action

against the buyer in case the price has not been paid him.

OBLIGATIONS OF THE DEPOSITOR

Article.1992 If the deposit is gratuitous, the depositor is obliged to reimburse the depositary for the expenses he may have incurred for the preservation of the thing deposited.

Article 1993. The depositor shall reimburse the depositary for any loss arising from the character of the thing deposited, unless at the time of the constitution of the deposit the former was not aware of, or was not expected to know the dangerous character of the thing, or unless he notified the depositary of the same, or the latter was aware of it without advice from the depositor.

Article 1994. The depositary may retain the thing in pledge until the full payment of what may be due him by reason of the deposit. (1780)

Article 1995. A deposit its extinguished:

(1) Upon the loss or destruction of the thing deposited;

(2) In case of a gratuitous deposit, upon the death of either the depositor or the depositary. (n)

The above enumeration is not exclusive – there are other grounds, namely:

1) Expiration of the term

2) Demand at will of the depositor

3) Termination of the purpose of the deposit

4) Fulfilment of the resolutory condition

5) Mutual withdrawal from the contract.

Art.icle 1996. A deposit is necessary:

(1) When it is made in compliance with a legal obligation;

(2) When it takes place on the occasion of any calamity, such as fire, storm, flood, pillage, shipwreck, or other similar events”; otherwise termed as depositor miserables.”

Two other kinds of necessary deposits

a) That made by travellers in hotels or inns;

b) That made with common Example of necessary deposit made in compliance with a legal obligation:

A borrowed 20,000 from B and as a security

thereof, pledged his rolex watch. If B uses the said watch without authority of A, A may ask that the watch be judicially or extra judicially deposited.

Other examples of necessary deposit in compliance with a legal obligation:

1. Cash deposits to be made by certain officers and officials;

2. Deposits to be made by those who desire to use firearms.

Example of necessary deposit under par. 2: In a fire, Felicity saves Ina’s car. Felicity is in possession of the car and she is supposed to be its depositary. A TRAVELLER SPENT A NIGHT IN A HOTEL. A HOTEL SERVANT MALICIOUSLY

DESTROYED THE CELLULAR PHONE OF THE TRAVELLER. IS THE HOTEL-KEEPER LIABLE? ANS: Yes, provided that he had previously

been informed about it and provided further that the traveller followed any precaution that may have been given by the hotel-keeper or his substitutes regarding its care and vigilance of said property.

For purposes of necessary deposits, the

word “guests” and “travellers” are synonymous.

The liability of the hotel or innkeeper commences as soon as there is an evident intention on the part of the travellers to avail himself of the accommodation of the hotel or inn. It does not matter whether compensation has already been paid or not, or whether guest has already partaken of the food and drink or not.

He is liable for the vehicles, animals and articles which have been introduced or placed in the annexes of the hotel. ( Art. 1999)

It shall include the loss of, or injury to the personal property of the guests caused by the servants or employees of the keepers as well as strangers but not that which may proceed from any force majeure. (Art. 2000)

The act of a thief or robber, who has entered the hotel is not deemed force majeure, unless it is done with the use of arms or through an irresistible force. (Art. 2001)

But he (hotel-keeper) is not liable for compensation if the loss is due to the acts of the guest, his family, servants or visitors, or if the loss arises from the character of the things brought into the hotel. (Art. 2002)

IF A WAS A GUEST IN B’S HOTEL. C, A DRUNKARD, ENTERED THE HOTEL AND DESTROYED HIS PERSONAL BELONGINGS DESPITE THE FACT THAT A HAD BEEN GIVEN PROPER NOTICE AND HAD FOLLOWED ALL PRECAUTIONS. IS B LIABLE?

ANS: Yes. This is an act of stranger, not considered a force majeure. The management should have been taken the necessary steps to prevent the occurrence of things like this.

He cannot free himself from responsibility by posting notices to the effect that he is not liable for the articles brought by the guest. Any stipulation to this effect (between him and the guests) shall be void. ( Art. 2003)

He keeper has a right to retain the things brought into the hotel by the guest, as a security for credits on account of lodging, and supplies usually furnished to hotel guests. (Art. 2004) This right of retention is given to compensate the innkeeper for the extra ordinary liabilities imposed upon him by the law. It does not exists when the debtor is not a guest of the hotel.

A sequestration or judicial deposit takes place when an attachment or seizure of property in litigation is ordered.( Art. 2005)

Movables or immovables may be the

subjects of sequestration. The depositary of property or objects

sequestrated cannot be relieved of his responsibility until the controversy which gave rise thereto has come to an end, unless the court so orders. ( Art. 2007)