INTRO (CLM1) – MODULE 13: Loan, Pledge & Mortgage 1

bailor is concerned, it is the right to require the return of the same thing or its
MODULE 13
equivalent.
LOAN, PLEDGE and MORTGAGE
 PROBLEM: On 1 October 2018, Dolly told Caloy that she
WEEK 11 – 8 October 2018 wanted to borrow P200,000.00 from him. Caloy agreed, and issued a check
dated 1 October 2018 payable to Dolly. On 3 October 2018, Dolly was able to
LOAN encash the check. The parties agreement was not put down into writing.
QUESTION: Under the facts, when was the parties’ contract of loan perfected?
 A LOAN IS A CONTRACT OF BAILMENT. – Was there really a perfected contract of loan considering that the parties’
contract was merely made verbally?
 Contract of bailment, explained – Etymologically, the word
‘bailment’ is derived from the French term “bailler’, meaning to deliver. Bailment
is defined as the delivery of property by one person to another in trust for a  TWO KINDS OF LOAN. –
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 (a) Commodatum – A contract of loan where the bailor (lender) delivers a
special purpose is accomplished, or kept until the bailor reclaims it. non-consumable thing so that the bailee (borrower) may use it for a certain time
and return it.
The borrower in the contract is referred to as the bailee; and the lender  EXAMPLE: Alvin borrowed Betty’s car which he will use for
is called the bailor. three days while taking a vacation in Baguio. Betty agreed to lend her car to
Alvin for free. Alvin is obliged to return the car to Betty after three days.
 A LOAN IS A REAL CONTRACT. – Commodatum and Mutuum,
which are both contracts of bailment, are real contracts. They are perfected by (b) Mutuum or Simple Loan – A contract of loan where money or any other
the delivery of the object of the contract (Art. 1944). fungible thing is loaned with the obligation of paying the same amount of the
same kind/quality.
 Consensual contract of future loans – Aside from the real
contracts of commodatum and mutuum, there can also be a consensual  EXAMPLE: Bernard borrowed 5 kilos of special Dinorado
contract created by an accepted promise to deliver something by way of rice from Beryl and promised to repay it one week after. After one week,
commodatum or simple loan. Bernard will be obliged to deliver to Beryl 5 kilos of special Dinorado rice also.
Bernard cannot give Beryl five kilos of a different kind of rice other than that
Example: Carina promised to lend P500,000.00 to Darryl. The which he borrowed from her.
promise was accepted by Darryl. This contract (which is consensual) is already
binding upon the parties so that if Carina does not fulfill her promise, Darryl has  ‘Consumable’ and ‘non-consumable’ distinguished –
the right to demand compliance thereof. Note, however, that the real contract of
loan does not yet exist. The real contract of mutuum will be perfected only upon  Consumable – A movable which cannot be used in a manner appropriate to
the delivery of the P500,000.00 by Carina to Darryl. its nature without its being consumed (Art. 418). Example: sugar, cooking oil,
gasoline, fruits, soap.
 Consideration or cause in a bailment of loan – Insofar as the
bailee is concerned, the cause is the acquisition of the thing; insofar as the
INTRO (CLM1) – MODULE 13: Loan, Pledge & Mortgage 2
 Non-consumable – A movable which can be used in a manner appropriate to
its nature without its being consumed (Art. 418). Example: car, bike, book,  Ownership of bailor not required – Since it is not the ownership
house, dress, furniture. of the thing that is transferred to the bailee, the bailor need not be the owner of
the thing loaned (Art. 1938, NCC). A lessee, for instance, may cede to another
 ‘fungible’ and ‘non-fungible’ distinguished – gratuitously the use of the thing leased; so may a usufructuary.
 Fungible – If the intention is to allow a substitution of the thing given.  Object is nonconsumable; personal or real property – The
 Non-fungible – If the intention is to compel a return of the identical thing subject matter of commodatum must ordinarily be nonconsumable things, for if
given. a thing is consumed when it is used, it (the identical thing) cannot be returned to
the lender (Art. 1933, NCC). Exceptionally, however, consumable goods may
NOTE: Whether a thing is consumable or not depends on the nature of the be the subject of commodatum if the purpose of the contract is not the
thing; whether it is fungible or not depends on the intention. Hence, sugar is consumption of the object, as when it is merely for exhibition (Art. 1936, NCC).
consumable and ordinarily fungible, but if the intention is merely to display the For example, a bottle of perfume is loaned to be used as a sample or for
sugar for exhibition, then it is still consumable (nature) but non-fungible advertisement.
(intention).
Not only movable, but also immovable property may be the object
of commodatum (Art. 1937, NCC).
 NATURE OF COMMODATUM. –
 Purely personal – Commodatum is purely personal in character
 Essentially gratuitous – Commodatum is essentially gratuitous
(Art. 1939, NCC). Consequently,
(Art. 1933, NCC). If any compensation is to be paid by the bailee for the use of
the thing, the contract cannot be a commodatum, it may be a lease or hiring of
 The death of either the bailor or the bailee extinguishes the contract.
the thing (Art. 1935, NCC).
 Use is the purpose – The purpose of commodatum must be the  EXAMPLE: Madelina loaned to Conrado her BMW car by
use or temporary possession of the thing. (Art. 1935, NCC). If the bailee is not way of commodatum. If either Madelina or Conrado dies, the contract of
entitled to use the thing, the contract is not a commodatum, but may be a commodatum will be extinguished. Neither the heirs of Madelina or Conrado
deposit. will acquire the rights and/or obligations of the parties under the contract.

 Bailee, as a rule, not entitled to the fruits – On principle, the  The bailee can neither lend nor lease the object of the contract to a third
bailee is entitled only to the use of the thing loaned, and not to its fruits; person. However, the members of the bailee’s household may make use of the
however, a stipulation that he may make use of the fruits of the thing – as thing loaned, unless there is a stipulation to the contrary or unless the nature of
incidental to the use of the thing itself – is valid (Art. 1940, NCC). If the main the thing forbids such use (Art. 1939, NCC).
purpose of the contract is the enjoyment of the fruits, the contract may be one of
usufruct (Art. 562, NCC).  EXAMPLE: Arnold loaned to Marissa a home theatre
component by way of commodatum. Marissa cannot lend or lease the
 Bailor retains ownership of the thing – In commodatum, only the component to her friend Perry. Her two daughters, however, who are living with
natural possession or detention of the thing passes to the bailee; the bailor or her in the house may use the same, unless there is a stipulation prohibiting its
lender, if owner, retains its ownership (Art. 1933, NCC). use by any other person aside from Marissa only. In any event, the said
INTRO (CLM1) – MODULE 13: Loan, Pledge & Mortgage 3
component cannot be used even by Marissa as a chair, because the nature of  EXAMPLE: Demy is indebted to Clark for P500,000.00.
the thing forbids such use. Clark later borrowed Demy’s car, but refused to return it on the ground that
Demy owed him money. In this case, Clark has no right to do this. This is true
even if Demy borrowed the money after Clark had borrowed the car. Clark’s
 OBLIGATIONS OF THE BAILEE. – remedy here is not to retain the car, but to file an action for collection against
Demy to recover his credit. (Reason for the law: Bailment implies a trust that
(A) It is the obligation of the bailee to pay for the ordinary expenses for the use as soon as the time has expired, or the purpose accomplished, the bailed
and preservation of the thing loaned. (Art. 1941, NCC). property must be restored to the bailor.)
 EXAMPLE: Raymond borrowed the Toyota Land Cruiser of
Jiselle for a period of three months while he is vacationing in Manila. Raymond (D.2) The bailee, however, has a right of retention for damages
must pay for the gasoline, motor oil, and expenses of greasing and spraying for caused by defects in the thing loaned about which he has not been warned by
the car’s maintenance while using it. He cannot charge these expenses to the bailor (Arts. 1944 & 1951, NCC).
Jiselle when he returns the car to her at the end of the agreed period.  EXAMPLE: Laura lent Rodney her Fisher & Paykel stove,
(B) The bailee is liable for the loss of the thing, even if due to a fortuitous event the electric connections of which were defective. She forgot to inform Rodney
(Art. 1942, NCC): of the defect, although she was aware of it. When Carissa, the wife of Rodney,
operated the appliance, a fire broke out in their kitchen. Carissa was injured.
(B.1) If he devotes the thing to any purpose different from that for Rodney incurred expenses amounting to P50,000.00 in repairs and treatment.
which it has been loaned; In this case, Rodney can retain the appliance until he is paid by Laura of the
(B.2) If he keeps it longer than the period stipulated or after the expenses. (Reason for the law: When a person lends he ought to confer a
accomplishment of the use for which the commodatum has been constituted; benefit, and not to do a mischief. If he does not reveal the flaws, he is liable for
(B.3) If the value of the thing loaned has been appraised unless his bad faith.)
there is stipulation to the contrary;
(B.4) If he lends or leases the thing to a third person who is not a
member of his household; or (E) When there are two or more bailees to whom a thing is loaned in the same
(B.5) If, being able to save either the thing borrowed or his own contract, they are liable solidarily (Art. 1945, NCC).
thing, he chose to save the latter.  EXAMPLE: Virgie and Vina borrowed the car of Francis for
a period of one year. After one year, the bailees failed to return the car to
(C) The bailee is not answerable for the deterioration of the thing loaned due Francis because Virgie, without the knowledge of Vina, had brought the car out
only to its use and without his fault (Art. 1943, NCC). of the islands in connivance with criminal elements. Under the facts, Francis
can hold Vina liable for the value of the car, plus consequential damages, if the
(D) At the expiration of the period stipulated or after the accomplishment of the car is no longer recovered. This is so because the law makes Vina solidarily
use for which the thing was loaned, it is the imperative duty of the bailee to liable with her co-bailee Virgie in this contract of commodatum.
return the thing to the bailor (Art. 1942 [2], NCC).

(D.1) The bailee cannot retain the thing loaned on the ground that
the bailor owes him something, even though it may be by reason of expenses
(Art. 1944, NCC).
INTRO (CLM1) – MODULE 13: Loan, Pledge & Mortgage 4
 OBLIGATIONS OF THE BAILOR. – “(3) If he unduly refuses him support when the donee is legally
or morally bound to give support to the donor.”
(A) The primary obligation of the bailor is to allow the bailee the use of the thing
loaned for the stipulated period, or until the accomplishment of the purpose
for which the commodatum was constituted. Until then, the bailor cannot (C) While the bailee is responsible for the ordinary expenses, the bailor is liable
demand from the bailee the return of the thing loaned (Art. 1946, NCC). for the extraordinary expenses for the preservation of the thing loaned,
provided (1) he has been notified by the bailee about them, and (2) he has
 Exception – However, if in the meantime he should have urgent authorized them (Art. 1949, NCC). If the bailee incurs expenses other than
need of the thing, he may demand its return or temporary use; and in the latter these, the bailor is not obliged to reimburse them (Art. 1950, NCC).
case the contract of commodatum is suspended while the thing is in the
possession of the bailor. (Reason for the law: The gratuitous use by the  However, if the extraordinary expenses arise on the occasion of
borrower or bailee must always yield to the necessity of the bailor or lender. the actual use of the thing by the bailee, even though he acted without fault,
This follows naturally from the gratuitous nature of a commodatum.) they shall be borne equally by both the bailor and the bailee, unless there is a
stipulation to the contrary. (Art. 1949, NCC).
(B) If neither the duration of the period nor the special purpose to which the  EXAMPLE: Bia borrowed the car of Brent. While Bia was
thing is loaned should be devoted has been agreed upon, or if the use of driving the car, an overspeeding truck who beat the red light sideswiped the car
thing by the bailee is merely tolerated by the bailor, the latter may demand causing great damage to the car. Bia was not at fault because she was driving
the return of the thing at will. In these cases, the contractual relation is carefully. Under the facts, Bia and Brent should share equally in the
called a precarium. (The possession of the borrower in precarium is extraordinary expenses, unless there is a stipulation to the contrary.
precarious – that is, dependent on the lender’s will; hence, the name
precarium.) (Art. 1947, NCC).
 NATURE OF SIMPLE LOAN OR MUTUUM. – As already stated,
 The bailor may likewise demand the immediate return of the mutuum is a contract whereby one person delivers to another money or some
thing if the bailee commits any act of ingratitude under Article 765 of the other fungible thing with the understanding that the latter is bound to pay the
Civil Code. (Art. 1948, NCC). former a thing of the same genus or kind and of the same quantity and quality
(Art. 1953, NCC).
Art. 765 provides:
 When barter/exchange – If the things transferred are non-
“The donation may also be revoked at the instance of the
fungible and the transferee binds himself to give to the transferor things of the
donor, by reason of ingratitude in the following cases:
same kind, quantity, and quality, the contract is that of barter and not mutuum
“(1) If the donee should commit some offense against the (Art. 1954, NCC).
person, the honor or the property of the donor, or of his wife or
 EXAMPLE: Efren borrowed a 3D stand fan from Odesa,
children under his parental authority;
and he became the owner thereof, with the obligation of giving Odesa another
“(2) If the donee imputes to the donor any criminal offense, or 3D stand fan of the same kind and quality. The parties’ contract shall be
any act involving moral turpitude, even though he should prove it, considered a barter, not a commodatum nor a mutuum.
unless the crime or the act has been committed against the donee
himself, his wife or children under his authority;
INTRO (CLM1) – MODULE 13: Loan, Pledge & Mortgage 5
 Borrower acquires ownership of thing – The borrower in mutuum  Payment of interest – Mutuum may be gratuitous or with a
acquires the ownership of the money or other fungible thing loaned (Art. 1953, stipulation to pay interest. With respect to the payment of interest on money
NCC). Therefore, he bears the risk of loss, even though it be due to a fortuitous loaned, the following points must be remembered:
event.
(a) Interest may be paid either as compensation for the use of the money
 Real and unilateral – Being a real contract, the obligation (monetary interest), or as damages (compensatory interest). Article 1956 refers
produced by mutuum arises from the moment of the delivery of the thing loaned. to interest for use of the money.
It is also a unilateral contract because once the lender has delivered the subject
matter of the contract, he is not bound to do anything more; only the borrower is (b) No monetary interest will be due and shall be paid if there is no
obliged to pay back an equal amount of the same kind and quality. agreement for its payment.

 How payment made – (c) Even if the parties agree on the payment of monetary interest on the
loan, if the agreement is not expressly stipulated in writing, the parties’
(a) If the thing loaned is money, payment must be made in the currency agreement as to payment of monetary interest is void and cannot be enforced.
which is legal tender in the Philippines. In case an extraordinary inflation or (Art. 1956, NCC)
deflation of the currency stipulated should supervene, the value of the currency
at the time of the creation of the loan shall be the basis of payment, unless there (d) If the parties made a stipulation in writing as to the payment of interest,
is agreement to the contrary (Arts. 1955 [par. 1], 1249 & 1250, NCC). but the rate of interest was not specified in the written agreement, monetary
interest shall be at the legal rate of 6%. (Art. 2209, NCC).
(b) If the thing loaned is fungible thing other than money, the debtor owes
another thing of the same kind, quantity, and quality, even if it should change in (e) Compensatory interest (or interest as damages) may be imposed if the
value. In case it is impossible to deliver the same kind, its value at the time of borrower incurs in legal delay. This becomes due from the time the lender
the perfection of the loan shall be paid (Art. 1955 [par. 2], NCC). demands either judicially or extrajudicially from the borrower the payment of the
loan (Arts. 1169 [par. 1] & 2209, NCC).
 EXAMPLE: Morgana borrowed from Achilles five sacks of
Sinandomeng rice. At the time the loan was perfected, each sack of (f) If the interest is payable in kind, its value shall be appraised at the
Sinandomeng rice cost P2,000.00. Even if at the time of payment the price per current price of the products or goods at the time and place of payment (Art.
sack had already increased to P2,200.00, five sacks of the same kind and 1958, NCC).
quality of the rice should be paid by Morgana to Achilles. However, if it is
impossible to deliver the same kind, Morgana should pay Achilles on maturity  EXAMPLE: On 1 October 2017, Ernesto borrowed
date of the obligation the amount of P10,000.00 (5 sacks of rice multiplied by P200,000.00 from Karla due for payment on 1 October 2018. The parties
P2,000.00). agreed in writing that Ernesto will deliver to Karla 10 sacks of Sinandomeng rice
NOTE: The value of the thing loaned at the time of perfection (not payment) on maturity date as interest payment on the loan. As of 1 October 2017, the
applies. price per sack of Sinandomeng rice was P2,000.00. As of 1 October 2018,
however, the price per sack had increased to P2,200.00. On maturity date, if
the delivery of the Sinandomeng rice is impossible, Ernesto will be obliged to
deliver to Karla the principal loan in the amount of P200,000.00, plus
P22,000.00 as interest payment on the loan.
INTRO (CLM1) – MODULE 13: Loan, Pledge & Mortgage 6
 The pledgor or mortgagor need not be the debtor or borrower; thus, one who
(g) If the borrower pays interest when there has been no stipulation owns property can pledge or mortgage it to secure another’s debt.
therefor, he may recover it  if it is unduly delivered by mistake, BUT NOT  if NOTE: While it is required that the pledgor or mortgagor be the owner of the
it is voluntarily paid. property pledged or mortgaged, it is not required that the pledgor or mortgagor
be the debtor in the principal contract of loan.
In the first case, the payment is considered as an instance of solutio
indebiti. In the second instance, the payment is considered having been  PACTUM COMMISSORIUM – It is of the essence of the contracts of
voluntarily made by the debtor as fulfilment of a natural obligation (Arts. 1960, pledge and mortgage that when the principal obligation which they secure
2154, & 1423, NCC), in which case recovery can no longer be had. becomes due, the things in which the pledge or mortgage consists may be
alienated for the payment of the creditor’s credit (Art. 2087, NCC). This does
PLEDGE & MORTGAGE not mean, however, that the creditor automatically becomes the owner, if at the
time the debt falls due, the debt is still unpaid. In fact, the law prohibits the
 PROVISIONS COMMON TO PLEDGE AND MORTGAGE. – Article creditor from appropriating the things given by way of pledge or mortgage, or
2085 of the Civil Code states that the following requisites are essential to the disposing of them. Any stipulation authorizing or allowing the creditor to
contracts of pledge and mortgage: automatically appropriate the things object of the pledge or mortgage, or
otherwise dispose of them, shall be null and void, being “pactum
(a) That they be constituted to secure the fulfillment of a principal obligation.
commissorium.” (Art. 2088, NCC).
(b) That the pledgor or mortgagor be the absolute owner of the thing pledged or
mortgaged.  EXAMPLE: Dora borrowed P5 million from Crisanto. To
(c) That the persons constituting the pledge or mortgage have the free disposal
secure the indebtedness, Dora mortgaged in favor of Crisanto her lot in Cavite
of their property, and in the absence thereof, that they be legally authorized worth P8 million. It was expressly stipulated by the parties in their Deed of
for the purpose. Mortgage that upon failure of Dora to pay her obligation, the lot will belong to
NOTE: Third persons who are NOT parties to the principal obligation may Crisanto as full payment of the debt without any further action in court.
secure the latter by pledging or mortgaging their own property. QUESTION: Is this stipulation valid?
ANSWER: The stipulation in the mortgage, that the lot covered thereby shall
 Consideration of pledge or mortgage – Pledges and mortgages become the property of the creditor-mortgagee upon failure to pay the debt
are accessory contracts; hence, their consideration is the same as the within the period agreed upon, constitutes a pactum commissorium and is
consideration of the principal obligation. Corollarily, if the principal contract is therefore null and void.
void, so also is the pledge given as security therefor. NOTE: It is true that a debtor, instead of paying in cash, can just alienate in
favor of his creditor property to satisfy the debt (dation in payment), but it would
 Ownership of the thing pledged or mortgaged – be illegal for the debtor to previously authorize the creditor to appropriate the
property pledged or mortgaged as the latter’s own in payment of the debt.
 The pledgor or the mortgagor must be the owner of the thing pledged or
mortgaged; otherwise, the pledge or mortgage is void.  PROBLEM: Susan pledged her property in favor of Tom to
NOTE: If a forger pledges or mortgages another’s property, the pledge or secure a loan. It was expressly stipulated in the contract of pledge that the
mortgage is VOID, but the principal obligation remains valid and demandable. pledgee could purchase the thing pledged at the current purchase price if the
debt was not paid by Susan on time.
INTRO (CLM1) – MODULE 13: Loan, Pledge & Mortgage 7
QUESTION: Is this a valid stipulation. ANSWER: NO. Under Article 2089, par. 2, since the mortgage is indivisible,
ANSWER: What is prohibited by Article 2088, dealing with pacto comisorio, is Carl can only cancel the mortgage in its entirety if Darlene pays the remaining
the automatic appropriation by the creditor-pledgee of the object of the pledge in balance of her debt in the amount of P1.5 million.
payment of the loan at the expiration of the period agreed upon. The reason for
the prohibition is that the amount of the loan is ordinarily much less than the real EXCEPTION: Where there are several things given in a pledge or mortgage,
value of the things pledged. Where there is express authorization of the and each of them secures only a determinate portion of the credit, the debtor in
pledgee to purchase the things pledged at the current market price, the contract such a case shall be entitled to have the pledge or mortgage partly extinguished
would not come within the prohibition. as he pays the part of the debt for which each thing is especially liable.
 EXAMPLE: Gordon borrowed P2 million from Suzette. The
 INDIVISIBILITY OF A PLEDGE OR MORTGAGE – The pledge as obligation was secured by the pledge of a ring for P350,000.00 of the
well as the mortgage is indivisible, even if the debt should be divided among the indebtedness, and by a mortgage on Gordon’s lot for the balance of
successors-in-interest of the debtor or of the creditor (Art. 2089, NCC). P1,650,000.00.
Therefore, QUESTION: If Gordon pays P350,000.00, can he demand the return of the
ring?
(a) An heir of the debtor who may have paid a part of the debt cannot ANSWER: YES. Since the pledge on the ring specifically guarantees only that
demand that the pledge or mortgage be proportionately extinguished as long as portion of the indebtedness in the amount of P350,000.00, then Gordon’s
the debt has not been paid in full. payment of said amount will partially extinguish the obligation and likewise
 EXAMPLE: Helen owes Henry P10 million, which is extinguish the pledge.
secured by a mortgage on her lot worth P15 million. Before maturity date of the
obligation, Helen died leaving as heirs her two daughters – Honey and Hilary.  NATURE OF PLEDGE. –
Honey paid Henry P5 million of her mother’s obligation.
QUESTION: Can Honey now ask for the proportionate extinguishment of the  Pledge is a real contract. – It is necessary in order to constitute
mortgage? the contract of pledge that the thing pledged be placed in the possession of the
ANSWER: NO. Under Article 2089, par. 2, since the mortgage is indivisible, creditor, or of a third person designated by common agreement (Art. 2093,
Honey can only ask for the extinguishment of the mortgage if the principal debt NCC).
is completely paid. Of course, half of the debt having been paid by Honey, only
the other half remains to be settled. Indeed, a mortgage is indivisible, but the  Subject matter of pledge – Only movables within the commerce
principal obligation may be divisible. of man and susceptible of possession, and incorporeal rights – evidenced by
negotiable instruments, bills of lading, shares of stock, bonds, warehouse
(b) An heir of the creditor who has received his share of the debt cannot receipts and similar documents – may be pledged. (Arts. 2094 & 2095, NCC).
return the pledge or cancel the mortgage to the prejudice of the other heirs who
have not been paid.  Form of pledge – A contract of pledge can be constituted in
 EXAMPLE: Darlene owes Celso P3 million which obligation whatever form, as all other contracts, and will produce its natural and legal
is secured by a mortgage on Darlene’s lot worth P5 million. Before maturity consequences with respect to the contracting parties and to their assigns.
date of the obligation, Celso died leaving his two sons, Carl and Charles, as To be valid and effective against third persons, however, the pledge
heirs. On maturity date, Darlene paid Carl P1.5 million. must appear in a public instrument. Mere delivery of the thing, although valid
QUESTION: Is Carl allowed to partially cancel the mortgage? between the parties, is not sufficient to affect third persons unless it appears in
INTRO (CLM1) – MODULE 13: Loan, Pledge & Mortgage 8
a public document, where the  description of the thing pledged and the  QUESTION 2: Assume that in the auction sale Bait, as the highest bidder, was
date of the pledge is set forth (Art. 2096, NCC). able to buy the ring for P350,000.00. Who will be entitled to the excess of
 EXAMPLE: Raquel owes Irwin P500,000.00. As security, P50,000.00 after Pogi’s credit is completely satisfied from the proceeds of the
she pledged her Rolex watch to Irwin. The watch is delivered to Irwin, but in the sale?
public instrument executed, there is no description of the watch, and the date of ANSWER: Pogi will be entitled to the excess. However, if the parties stipulated
the pledge does not appear. in their contract of pledge that Danda will be entitled to the excess if the object
QUESTION: If Raquel sells the watch to Ronnie, does Ronnie have to respect of the pledge is sold for more than the principal obligation, such stipulation is
the pledge in favor of Irwin? valid and will be enforced by the courts.
ANSWER: NO. Ronnie does not have to respect the pledge since, as to him,
the pledge is not effective and valid for failure to comply with the necessary form  NATURE OF REAL MORTGAGE. –
under Article 2096.
 Form of mortgage. – A real mortgage is a consensual contract;
 Alienation of thing pledged – With the consent of the pledgee, hence, even if orally made, it is binding between the parties to the contract (Art.
the thing pledged may be alienated by the pledgor or owner subject to the 1358[1], NCC). In order to bind third persons, however, it is required that the
pledge. In such case, the ownership of the thing pledged is transferred to the mortgage be executed in a public instrument and recorded in the Registry of
purchaser, but the pledgee continues in possession (Art. 2097, NCC). Property (Art. 2125, NCC). When so recorded, the mortgage becomes a real
right enforceable against the whole world. When the contract appears in a
 Effects of foreclosure of the pledge – The creditor whose credit document that is not recorded, the contract binds only the parties, but not third
has not been satisfied or paid in due time may cause the sale of the thing persons.
pledged in accordance with law. If at the auction the thing pledged is sold, the  ILLUSTRATIVE EXAMPLE: On October 1, 2017, Dakila
principal obligation is extinguished whether or not the proceeds of the sale are borrowed P2M from Cardo due for payment on October 1, 2018. To secure the
equal to the amount of the principal obligation (Art. 2115, NCC). Thus, loan, Dakila mortgaged her parcel of land to Cardo. The agreement of the
(a) If the price of the sale is more than the principal obligation, the debtor parties was verbally made. On maturity date, Dakila failed to pay her obligation
shall not be entitled to the excess, unless it is otherwise agreed. despite repeated demands from Cardo.
(b) If the price of the sale is less than the principal obligation, the creditor QUESTION 1: Is the contract of mortgage between the parties valid? Can
shall not be entitled to recover the deficiency, notwithstanding any stipulation to Cardo foreclose on the mortgage?
the contrary. ANSWER: YES. A contract of mortgage, being a consensual contract, is
 ILLUSTRATIVE EXAMPLE: Danda owes Pogi perfected by mere consent. Therefore, even if the contract of mortgage between
P300,000.00. To secure the obligation, Danda pledged and delivered to Pogi Dakila and Cardo was merely orally made, the same is valid, binding and
her emerald ring worth P400,000.00. Later, Danda defaulted in her obligation, enforceable as between the parties to the contract. Hence, on maturity date,
so Pogi foreclosed the pledge. The ring was then duly auctioned, and sold to since Dakila defaulted in her obligation, Cardo can foreclose on the mortgage,
Bait (who was the highest bidder) for P275,000.00. have the land sold at public auction, and recover his claim from the proceeds of
QUESTION 1: Is Pogi entitled to recover from Danda the P25,000.00 the auction sale.
deficiency?  LET’S ADD FACTS TO OUR EXAMPLE: Assume that on
ANSWER: NO. Pogi cannot recover the deficiency from Danda even if there is August 1, 2018, Dakila sold the land to Eda for P3M.
a stipulation between the parties authorizing Pogi to recover the deficiency.
Such a stipulation is prohibited by law, and is therefore void if so stipulated.
INTRO (CLM1) – MODULE 13: Loan, Pledge & Mortgage 9
QUESTION 2: On October 1, 2018, if Dakila fails to pay her obligation, can of a property mortgaged retains ownership of the property.
Cardo still foreclose on their verbal contract of mortgage considering that Eda is Therefore, any stipulation prohibiting the owner from alienating the mortgaged
now the owner of the mortgaged property? property is void (Art. 2130, NCC). However, if the mortgagor transfers the
ANSWER: We said that the contract of mortgage is valid and enforceable as mortgaged property, the transferee is bound to acknowledge and respect the
between the parties even if orally made, it being a consensual contract. encumbrance on the property because, being a real right, it follows the property
However, in this case, the land was sold to Eda who is a stranger to the contract (Art. 2126, NCC).
of mortgage. We also said that in order for the contract of mortgage between
Dakila and Cardo to bind Eda (a third person), the contract should be executed  Foreclosure of mortgage – Foreclosure is the remedy available
in a public instrument and registered with the Registry of Deeds. Since the to the mortgagee by which he subjects the mortgaged property to the
contract was only verbally made, it cannot bind or take effect as against Eda satisfaction of the obligation. Foreclosure may be effected either by the
who is now the new owner of the property. Eda is a buyer in good faith who exercise of the power of sale inserted in the mortgage contract itself
bought the property without knowledge of the existence of the mortgage which (extrajudicial foreclosure of mortgage), or by bringing an action or suit for
was not made in a public instrument and registered with the Registry of Deeds. foreclosure (judicial foreclosure).
Therefore, if the property is transferred to a buyer in good faith and the
mortgage attached to it is not in a public instrument, it will not bind the new  Proceeds from foreclosure sale – The proceeds from the sale of
owner. Cardo will now be in the same position as a creditor with an unsecured the mortgaged property pursuant to foreclosure proceedings shall be paid to the
credit (a credit with no security or collateral). creditor-mortgagee, and the surplus, if any, shall be turned over to the
mortgagor. If there is any balance of the principal obligation remaining unpaid
 Mortgage is inseparable. – The mortgage lien, once registered, after applying the proceeds of the sale, the debtor-mortgagor is still liable for
follows the property until the mortgaged debt is paid (Art. 2126, NCC). Thus, said balance.
the sale of the mortgaged property to a third person is not a bar to the  ILLUSTRATIVE EXAMPLE: Danda owes Pogi P5 million.
mortgagee’s action for the recovery of his credit and the foreclosure of his To secure the obligation, Danda mortgaged to Pogi her lot worth P6 million.
mortgage, and the purchaser acquires the property subject to the mortgagee’s Later, Danda defaulted in her obligation, so Pogi foreclosed on the mortgage,
rights. and the lot was subsequently sold at public auction to the highest bidder for
 ILLUSTRATIVE EXAMPLE: In the example above, assume P4.5 million. In this case, Pogi can still recover from Danda the P500,000.00
that Eda subsequently sells the property to Tony, and Tony sells the land to deficiency under the obligation.
Wally, who likewise sells the land to Yoda, who is the owner of the land at the On the other hand, if the land is sold at the public auction for P6 million,
time when Cardo forecloses the mortgage on the land. In this case, as long as the P1 million excess, after the creditor-mortgagee Pogi is paid his credit under
the mortgage was registered with the Registry of Deeds, it follows the property this obligation, will be remitted to the debtor-mortgagor Danda.
whoever the owner may be. Hence, Yoda will be bound by the mortgage, and
Cardo will have the right to foreclose on the mortgage even if the land had
already changed hands in the persons of the different buyers.
 Mortgagor’s right to alienate property mortgaged – A mortgagor
INTRO (CLM1) – MODULE 13: Loan, Pledge & Mortgage 10
mere fault or negligence. If the act or omission that caused the damage was
committed unintentionally, it is fault or culpa. Otherwise, it is dolo, an act that
MODULE 15 becomes a crime.
TORTS and DAMAGES  Illustrative example: Letty wore her roller skates and used them along the
WEEK 13, SESSIONS 1 & 2 corridors of the school. She felt out of balance and ran into another student
Rigor, who fell down the stairs and sustained injuries. Here, the liability of
Letty is merely civil, one arising from quasi-delict. She will not be criminally
 QUASI-DELICTS DEFINED. – Whoever by act or omission causes
liable because there was no intent on her part to cause damage.
damage to another, there being fault or negligence, is obliged to pay for the
damage done. Such fault or negligence, if there is no pre-existing contractual
 No pre-existing contractual relations – A quasi-delict is
relation between the parties, is called a quasi-delict and is governed by the
independent of contract because if the said act or omission is in violation of a
provisions of the Civil Code (Art. 2176, NCC).
contract, then the result would be that there is a mere breach of contract.
 Torts – Quasi-delicts are commonly designated as ‘torts’. It is
derived from the French word which also originated from the Latin “torquere”  Indeed, quasi-delict or culpa aquiliana is an independent source of
which means to twist, or “tortus” which means twisted. obligation between two persons not so formerly bound by juridical tie. (BLTB
vs. CA, G.R. Nos. L-33138-39, 27 June 1975.)
 Purpose of the law on quasi-delicts – The law on quasi-
delicts seeks to reduce the risks and burdens of living in a society and to  However, even if there is already a contractual relation, it does not
allocate them among the members of the society. preclude civil liability arising from tort. A person with an existing contractual
relation with another may nonetheless be liable to that person for an obligation
 ELEMENTS OF A QUASI-DELICT. – To be able to recover civil arising from culpa aquiliana if the act of negligence as basis therefor does not
liability or damages arising from quasi-delict, the following requisites must arise because of the contract, but because of some other fact.
concur:
 Illustrative example: Joey promised to deliver to Amie his
(a) There must be an act or omission; horse. Before due date, the horse was run over by a truck because Joey
(b) The act or omission is imputable to fault or negligence; failed to lock the stable the previous night. Here, Joey is negligent in the
performance of his obligation. Joey’s herein act of negligence (his failure to
(c) The act or omission violates a private legal right; observe the diligence of a good father of a family in preserving the thing object
(d) The act or omission causes damage to another; of the contract) constitutes a breach or a violation of his contract with Amie for
the delivery of the horse. Because of his negligence (contractual
(e) There is no pre-existing contractual relation between the
negligence), he will be liable for civil liability arising from breach of his
parties;
contract with Amie, since the parties have a pre-existing contractual relation.
(f) There is a direct relation of cause and effect between the
damage or injury and the fault or negligence.  In this case, let us assume that on the day when Joey was to deliver the
horse to Amie, he went to her house and allowed his 9-year-old son Jojie to
 Quasi delict is a civil wrong – A quasi-delict is a civil wrong, not ride the horse on the way to Amie’s house. Jojie was a mischievous lad. He
a crime, because it is not caused by an intentional or malicious act, but by always managed to get in trouble if left alone even for only 5 minutes. While
INTRO (CLM1) – MODULE 13: Loan, Pledge & Mortgage 11
in the house of Amie, Joey allowed Jojie to play in Amie’s house and in the (b) Rocky drove home despite being intoxicated after having a drinking
backyard near the stables. A few minutes after, Amie’s servant came in spree with some high school friends. Since it was 3:00 o’clock in the morning,
informing Amie that Jojie had shot and killed two of Amie’s pet parrots with a Rocky beat the red light while overspeeding along the corner of Roxas
slingshot. Under the facts, Joey will be considered to have acted negligently Boulevard and Quirino Avenue. At this moment, Rocky crashed into a fuel
in allowing his son to move around freely in the compound of Amie without truck carrying gasoline. The impact caused the truck to swing to the right side
supervision. For the death of the parrots, Amie can hold Joey liable for of the road hitting head-on a hardware. This resulted in a big explosion and a
damages. Note that the negligence here does not arise because of the great blaze, completely burning both the truck and the hardware. The driver of
contract between Joey and Amie. The negligence here arises independent of the truck and a companion were likewise killed in the incident. Here, the
that contract and consists in the failure of Joey to exercise extra precautions to immediate cause of the explosion was the gasoline which was being
prevent his son from causing mischief. Hence, Joey can be held liable for civil transported by the truck. But the proximate cause of the damage was the
negligence (otherwise known as tort, quasi-delict, or culpa aquiliana), which negligence of Rocky in causing the accident because he was driving while
requires that there be no pre-existing contractual relation between the parties. under the influence of liquor. Rocky’s act here (not the act of the truck driver
Joey’s negligence here is the source itself of the civil liability (Art. 1157, No. 5). hitting the hardware) can then be the basis of an action to claim damages or
civil liability arising from tort (quasi-delict or culpa aquiliana).
 Proximate cause – It is that adequate and efficient cause
which in the natural order of events, and under the particular circumstances  Problem: Dinah is a talent of ABC TV Company with whom
surrounding the case, would naturally produce the event. It is the primary she has a 5-year entertainment contract. With 2 years still remaining in the
cause of the injury – an action that produces foreseeable consequences contract, XYZ TV Company, a rival station, induced Dinah to sever her
without intervention from anyone else. contract with ABC TV Company by offering her a more lucrative contract. Due
to Dinah’s pretermination of her contract with ABC TV Company, ABC TV
 Hence, to hold the defendant liable for civil liability arising from tort or Company suffered severe losses in their sales and income. ABC TV
quasi-delict, the plaintiff must prove that the injuries he sustained were the Company then filed an action for damages against XYZ TV Company.
natural and direct consequence (the proximate cause) of the defendant’s act
or omission, without which the injuries would not have occurred. Question: Under the facts, can ABC TV Company hold XYZ TV Company
liable for damages arising from Dinah’s pretermination of her contract with the
 If the court finds that the injury sustained by the plaintiff would not have former considering that XYZ TV Company was never a party to the
happened were it not for the defendant’s act or omission, then the plaintiff is entertainment contract between Dinah and ABC TV Company?
deemed to have established the element of “proximate cause” as an
essential precondition to recovery for damages in an action based on quasi- Answer: YES. A third person who induces a party to violate his contract with
delict or tort. another party shall be liable to the other contracting party although such third
person was not a party to the contract. The basis of the liability of the third
 Illustrative example: person is “unwarranted interference with contractual relations.” In this case,
XYZ TV Company, the inducer, can be held liable for damages by ABC TV
(a) Renante beat the red light resulting in a collision with another car. Company for the commission of a tort or quasi-delict which can arise because
Here Renante’s act of beating the red light was the proximate cause of the of negligence or fault. (Art. 1314, NCC)
collision which primarily resulted in damage to the other car. If Renante had
not beat the red light, the accident would not have happened.  CONCEPT OF NEGLIGENCE –
INTRO (CLM1) – MODULE 13: Loan, Pledge & Mortgage 12
 Negligence defined. – The fault or negligence of the obligor or of a good father of a family, unless the law or the stipulation of the parties
debtor consists in the omission of that diligence which is required by the requires another standard of care (Art. 1173, 2nd par.).
nature of the obligation and corresponds with the circumstances of the person,
of the time and of the place (Art. 1173, NCC).  Test to determine negligence – The test to determine whether
a person is guilty of negligence is this: “Would a prudent man (in his position)
 It is the failure to observe, for the protection or interest of another person, foresee harm to the person injured as a reasonable consequence of the
that degree of care, precaution and vigilance which the circumstances justly course about to be pursued? If so, the law imposes a duty on the actor to
demand, whereby such person suffers injury. refrain from that course, or to take precaution against its mischievous results,
and the failure to do so constitutes negligence. Reasonable foresight of harm
 Based on this definition, the degree of care, precaution and vigilance that is necessary before negligence can be held to exist.”
should be observed depends on the circumstances of persons, place and
time. That which may be considered therefore as sufficient care and  Example: Lucia, while watering her flower pot from her unit located at the
precaution in a set of circumstances, may be insufficient in another set of third floor of a condominium building, accidentally hit the flower pot that was
circumstances that confront the same individual. placed on top of the overlooking ledge of her unit. The large pot fell on the
ground right on top of the Toyota Land Cruiser of her neighbor Leonard.
 Illustrative examples:
Question: ls Lucia liable for the damage considering that the fall was
 Diligence required by the nature of the obligation - Smoking while on
accidental without any intention on her part to cause damage to the vehicle of
duty as a tile-setter in a construction project does not constitute an act of
Leonard?
negligence. However, smoking while carrying materials known to be
inflammable constitutes negligence. Answer: YES. Under the facts, Lucia failed to exercise reasonable foresight in
preventing harm to others by her act of placing her flower pots on top of the
 Diligence that corresponds with the circumstances of the person – A
overlooking ledge outside her unit. She should have reasonably foreseen that
20-year-old and healthy woman hired to baby-sit must not sleep while on duty,
if any of the pots were accidentally hit by movement or by the strong winds,
since the circumstances of her person were considered when she was taken
since her unit was on the third floor, it would inevitably fall to the ground hitting
for the job. Otherwise, she will be found negligent.
people, vehicles, animals, or any other objects passing through. Lucia’s failure
 Diligence that corresponds with the circumstances of the time – Driving to exercise reasonable foresight and prudence to prevent harm or damage to
a car without headlights at night is gross negligence, but it does not by itself another will give rise to civil liability on her part arising from tort (quasi-delict or
constitute negligence when driving during the day. culpa aquiliana). Hence, she is obliged to pay for the damage to Leonard’s
Land Cruiser, plus other consequential damages resulting therefrom.
 Diligence that corresponds with the circumstances of the place –
Driving at 100 kilometers per hour on the superhighway is permissible, but  Necessity of proving negligence – For the plaintiff to be able to
driving at the same rate of speed in Ayala Avenue, Makati is gross recover in an action for damages filed and predicated on negligence, the
recklessness. plaintiff has the burden to prove the fact of negligence. If the facts constituting
negligence on the part of the defendant is not proven by the plaintiff, then the
court cannot award the damages asked by the plaintiff in their complaint which
 Degree of care of diligence that is required – The standard or may be claimed and proven by Leonard.
degree of care or diligence that should be observed is that which is expected
INTRO (CLM1) – MODULE 13: Loan, Pledge & Mortgage 13
NOTE: Unlike in a crime, in a quasi-delict there is no intent to cause the injury L-21749, 29 September 1967
or damage.
FACTS: A barge belonging to the Luzon Stevedoring Company rammed
 Doctrine of “res ipsa loquitur” (literally translated as “the thing or the against one of the wooden supports of the old Nagtahan Bridge (a stationary
transaction speaks for itself”) – In some cases when negligence is hard to object).
prove, the doctrine of res ipsa loquitur may be applied. This means that in ISSUE: What presumption arises?
certain instances, the presence of facts or circumstances surrounding the
injury will give rise to a presumption of negligence on the part of the HELD: There arises the presumption that the barge was negligent (doctrine of
defendant. This presumption is, however, rebuttable. res ipsa loquitur, meaning, the thing speaks for itself.) This is evident because
the bridge (at that time) was an immovable, stationary object, adequately
 Illustrative Cases: provided with openings for the passage of watercraft). The doctrine can
indeed be applied, for in the ordinary course of events, such a ramming would
Bernabe Africa, et al. vs. CALTEX, et al. not occur if proper care is used.
L-12986, 31 March 1966

FACTS: A fire broke out at a Caltex service station. It started while gasoline  Doctrine of “last clear chance” (also known as “doctrine of discovered
was being hosed from a tank trunk into the underground storage, right at the peril”, or “doctrine of supervening negligence”, or “the humanitarian doctrine” –
opening of the receiving tank where the nozzle of the hose had been inserted. Under this doctrine, even if the injured party was originally at fault, if the
The fire destroyed several houses. Caltex and the station manager were person who finally caused the accident had the “last clear opportunity” to avoid
sued. the injury, he who could have prevented the injury is still liable if he did not
take advantage of such opportunity or chance. Hence, a defendant in a
ISSUE: Without proof as to the cause and origin of the fire, would the doctrine complaint for damages may use this doctrine as a defense by showing that the
of res ipsa loquitor apply such that the defendants can be presumed plaintiff had the last clear chance to avoid the accident.
negligent?
 Illustrative Cases:
HELD: YES. Under the principle of res ipsa loquitur, where the thing which
caused the injury complained of is shown to be under the management of Picart vs. Smith
defendant or his servants and the accident is such as in the ordinary course of G.R. No. L-12219, 15 March 1918
things does not happen if those who have its management or control use
proper care, it affords reasonable evidence, in the absence of explanation by FACTS: A person driving an automobile on a bridge saw a man on horseback
defendant, that the accident arose from want of care. In this case, the riding towards him but on the wrong side of the bridge. The driver sounded
gasoline station, with all its appliances, equipment and employees, was under his horn several times, but the horse rider made no move to go to the correct
the control of defendants. A fire occurred therein and spread to and burned side. The driver continued in his original direction until it was too late to avoid
the neighboring houses. The persons who knew or could have known how the a collision.
fire started were defendants and their employees, but they gave no ISSUE: Is the auto driver liable?
explanation at all regarding the fire. It is fair to reasonably infer that the
incident happened because of their want of care. HELD: YES. Although the horse rider was originally at fault, it was the auto
driver who had the last clear chance to avoid the injury by merely swerving,
Republic vs. Luzon Stevedoring Corporation while still some distance away, to the other part of the bridge. “Where both
INTRO (CLM1) – MODULE 13: Loan, Pledge & Mortgage 14
parties are guilty of negligence, but the negligent act of one succeeds that of was wearing black, so it was practically impossible to spot him at a distance
the other by an appreciable interval of time, the one who has the last where Arthur could have ample time to bring his vehicle to a complete stop to
reasonable opportunity to avoid the impending harm and fails to do so, is prevent the accident. In this case, since it was Loki who was negligent, if his
chargeable with the consequences, without reference to the prior negligence heirs file an action to recover damages, they cannot recover anything from the
of the other party.” This is the doctrine known as the “last clear chance.” driver Arthur who accidentally ran over Loki. On the other hand, if Arthur files
(Compare this case with PNR vs. Vizcara) an action for damages against the heirs of Loki, they can be made liable for
the injury caused to Arthur’s family by reason of the accident. Arthur can then
 Measure of liability for damages – legally compel the heirs of Loki to pay him the cost of medical expenses
incurred in the amount of P300,000.00, plus other consequential damages
(A) Effects of plaintiff’s own negligence (Art. 2179, NCC):
suffered by Arthur and his family arising from the incident.
(A.1) If the proximate cause of the injury is the plaintiff’s own negligence.
– If the sole cause of the injury is the plaintiff’s own fault or negligence, the (A.2) If the plaintiff’s negligence was merely contributory to the damage
plaintiff cannot recover damages for his injury. suffered, but the proximate cause was still defendant’s negligence. – If the
proximate cause was still the negligence of the defendant, although
 Example: At around 10:00 in the evening, Arthur was driving negligence can also be imputed to the plaintiff, the damages recoverable by
along Roxas Boulevard within the area of Buendia. His wife and his two the plaintiff will be mitigated because of his contributory negligence.
daughters are in the car with him. The highway is normally free from
pedestrians who are required by local ordinances to cross the boulevard using  Example: One who parks an automobile on the highway
the designated overpass. Suddenly, from out of nowhere, Loki, a man in his without lights at night is not relieved of responsibility when another negligently
mid-30’s, crosses the road. Loki was wearing a black shirt which made him drives into it.
even more invisible to moving vehicles. Before Arthur realizes it, Loki was
already right in front of the car a few feet away, and it became impossible to Phoenix Construction, Inc. vs. IAC
steer clear of Loki after a rapid full step on the brakes. As a result, Loki G.R. No. 65295, 10 March 1987
suffered serious injuries, and later died. On the other hand, you spent
P300,000.00 for medical treatment for yourself and your family for the physical FACTS: At about 1:30 am, LD was on his way home from a cocktails-and-
injuries you all suffered as a result of the impact of your sudden application of dinner meeting with his boss. During the cock-tails, LD had taken a “shot or
the breaks on your vehicle to prevent hitting Loki. two” of liquor. LD was driving his car and had just crossed the intersection,
not far from his home when his headlights suddenly failed. He switched his
Question: Will you be liable for damages to the heirs of Loki? Can you hold
headlights on “bright” and thereupon he saw a Ford dump truck looming some
the heirs of Loki liable for the damages that you and your family suffered as a
2-½ meters away from his car. The dump truck, owned by Phoenix, Inc. was
result of the accident?
parked on the right-hand side of the street (i.e., on the right-hand side of a
Answer: Liability for damages arising from quasi-delict is predicated on the person facing in the same direction toward which LD’S car was proceeding),
negligence of the party sought to be held liable. In this case, Arthur was facing the oncoming traffic. The dump truck was parked askew (not parallel to
observing proper traffic rules and regulations when the accident happened. It the street curb) in such manner as to stick out onto the street, partly blocking
was the pedestrian Loki who failed to observe traffic rules and regulations by the way of oncoming traffic. There were no lights nor any so-called “early
crossing the highway, which act was prohibited by an existing city ordinance warning” reflector devices set anywhere near the dump truck, front or rear. LD
since there was an overpass designated for them. It was nighttime, and Loki tried to avoid a collision by swerving his car to the left but it was too late and
INTRO (CLM1) – MODULE 13: Loan, Pledge & Mortgage 15
his car smashed into the dump truck. LD suffered physical injuries including “intervening cause” was no more than a foreseeable consequence of the risk
some permanent facial scars, a “nervous breakdown” and loss of two gold created by the negligent manner in which the truck driver had parked the
bridge dentures. dump truck. LD’s negligence was not of an independent and overpowering
nature as to cut, as it were, the chain of causation in fact between the
LD sued Phoenix and its driver claiming that the legal and proximate cause of improper parking of the dump truck and the accident, nor to sever the juris
his injuries was the negligent manner in which Phoenix’s driver had parked the vinculum of liability.
dump truck. Phoenix and its driver countered that the proximate cause of
LD’s injuries was his own recklessness in driving fast at the time of the LD’s negligence was “only contributory.” The immediate and proximate
accident, while under the influence of liquor, without his headlights on and cause of the injury remained the truck driver’s “lack of due care.” Hence, LD
without a curfew pass. Phoenix also sought to establish that it had exercised may recover damages though such damages are subject to mitigation by the
due care in the selection and supervision of the driver. The trial court rendered Courts.
judgment in favor of LD. The Court of Appeals affirmed the decision but The truck driver’s proven negligence creates a presumption of negligence on
modified the award of damages. the part of his employer in supervising its employees properly and adequately.
ISSUE: Is Phoenix liable for the damages sustained by LD? (B) Liability of defendant for damages in contracts and quasi-contracts (Art.
2201, NCC):
HELD: YES. The Supreme Court found that LD was negligent the night of the
accident. He was hurrying home that night and driving faster than he should (B.1) If the debtor is in GOOD FAITH (i.e, there is mere carelessness or
have been. Worse, he extinguished his headlights at or near the intersection, lack of foresight), he shall be liable for damages which are  the natural and
as he approached his residence, and thus did not see the dump truck that was probable consequences of the breach of the obligation; and for those which 
parked askew and sticking out onto the road lane. Nevertheless, the Court the parties foresaw and could have reasonably foreseen at the time the
agreed with the trial court and the appellate court that the legal and proximate obligation was constituted.
cause of the accident and of LD’s injuries was the wrongful and negligent
manner in which the truck was parked.  Example: The income which an injured bus passenger could
have earned (had he finished his medical course and passed the
The Court held that there was a reasonable relationship between the dump corresponding board examinations) must be deemed within the category of
truck driver’s negligence on the one hand and the accident and LD’s injuries “natural and probable consequences” which should have been foreseen by the
on the other hand. The collision of LD’s car with the dump truck was a natural parties at the moment said passenger boarded the bus.
and foreseeable consequence of the truck driver’s negligence. The truck
driver’s negligence far from being a “passive and static condition” was an (B.2) If the debtor is in BAD FAITH (i.e., there is deliberate and wanton
indispensable and efficient cause. The collision between the dump truck and wrongdoing), the debtor shall be responsible for all damages which may be
LD’s car would in all probability not have occurred had the dump truck not reasonably attributed to the non-performance of the obligation. In this case, it
been parked askew without any warning lights or reflector devices. The is enough that the damages may be reasonably attributed to the non-
improper parking of the dump truck created an unreasonable risk of injury for performance of the obligation. (Relation of cause and effect is enough.)
anyone driving and for having so created this risk the truck driver must be held Hence, there is no necessity of the damage being a natural or probable
responsible. LD’s negligence, although later in point of time than the truck consequence, and there is no necessity of foreseeing or foreseeability.
driver’s negligence and therefore closer to the accident, was not an efficient
intervening or independent cause. What Phoenix and its driver describe as an  Example: Dino, a passenger of Matulin bus, died after the bus
collided head-on with an SUV. In the police report, it was found that the driver
INTRO (CLM1) – MODULE 13: Loan, Pledge & Mortgage 16
of the bus was overspeeding and racing along EDSA with another bus. The (A) CONTRACTUAL NEGLIGENCE (or CULPA
driver also tested positive for shabu. When the mother of Dino, who was in CONTRACTUAL) – This is the negligence committed in the performance of a
the province, was informed of her only child’s death, she cried for 2 hours, and contract.
experienced severe chest pains. Upon being brought to the hospital, she was
admitted to the ICU. The doctors said that she suffered massive myocardial  The negligence here is merely incidental in the performance of an
infarction secondary to anxiety attack. She died after one week of medical obligation already existing because of a contract between the parties.
intervention in the ICU. Johnny, the father of Dino, is now claiming for
 The defense of a good father of a family in the selection and
indemnity for the hospitalization expenses and burial expenses of his wife.
supervision of employees is not a defense although it may mitigate the
Under the facts, the bus company, whose driver was grossly negligent in
employer’s liability. What is followed here is the “master-servant rule” or
causing the accident, will be liable for the damages sustained by Dino’s family
“respondeat superior” or “command responsibility”.
which can be reasonably attributed to the driver’s gross negligence, although
not necessarily the natural or probable consequence of the negligent act.  Thus, if a passenger of a taxi is injured because of the negligence of
the taxi driver, the negligence committed here is contractual negligence
(C) Liability for moral damages for death caused by a crime or quasi- because of the contractual relation between the passenger and the operator of
delict. – In light of recent decisions of the Supreme Court, if the victim the taxicab company. The passenger may institute a civil case against the
dies because of a crime, quasi-delict (Art. 2206, par. 3, NCC), or operator of the taxicab company for breach of the contract of carriage without
breach of contract by a common carrier (Art. 1764 read together with prejudice to the right of the operator to go after the taxi driver for
Art. 2206, NCC), the defendant shall be liable to the heirs of the victim reimbursement. In this case, the negligence of the taxi driver is the
for indemnity as moral damages in the amount of P75,000.00. negligence of the operator of the taxicab company. The operator of the
taxicab company cannot raise the defense of a good father of a family in the
(D) Compensatory interest in monetary obligations. – If the obligation selection and supervision of his employees to escape liability.
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  Illustrative Example:
contrary, shall be the payment of the interest agreed upon, and in the
absence of stipulation, the legal interest, which is six per cent (6%) per Saludaga vs. FEU
annum. (Art. 2209, NCC) G.R. No. 179337, 30 April 2008

REMEMBER: Monetary interest (by way of compensation for the use of FACTS: S, a student of X University, was shot and wounded by G, a security
money) cannot be demanded unless it was previously stipulated upon in guard of the school, while inside the campus. S sued X University for
writing (Art. 1956). However, compensatory interest (by way of damages on the ground that it breached its obligation under the enrollment
damages or penalty) can be recovered in case of default even if there is contract to provide students with a safe and secure environment and an
no stipulation to that effect. atmosphere conducive to learning. In defense, X University pleaded fortuitous
event on the ground that it could not have reasonably foreseen nor avoided
 KINDS OF ACTIONABLE NEGLIGENCE – Actionable negligence the accident since G was not its employee, and that it complied with its
may either be culpa contractual, culpa aquiliana and culpa criminal. Thus, an obligation to ensure a safe environment for its students by having exercised
action for damages for the negligent act of the defendant may be based on due diligence in selecting the security services of the SA Security Agency.
contract, quasi-delict or delict. The bases of liability are separate and distinct
from each other even if only one act or omission is involved.
INTRO (CLM1) – MODULE 13: Loan, Pledge & Mortgage 17
ISSUE: Is X University liable for damages for breach of contract due to or incapable to pay the civil aspect or liability, the employer is subsidiarily
negligence in providing a safe learning environment? liable (i.e., the employee’s guilt is automatically the employer’s civil guilt if the
driver is insolvent).
HELD: YES. It is settled that in culpa contractual, the mere proof of the
existence of the contract and the failure of its compliance justify, prima facie, a  The passenger of the taxi may bring a court action not only for
corresponding right of relief. The school failed to prove that it undertook steps contractual negligence against the operator of the taxicab company, but also
to ascertain that the security guards assigned to it actually possessed the one for criminal negligence against the taxi driver for physical injuries through
required qualifications. A learning institution should not be allowed to reckless imprudence. In the same way, the pedestrian may bring not only a
completely relinquish security matters in its premises to the security agency it court action for civil negligence against the taxi driver and the operator of the
hired. To do so would result in contracting away its inherent obligation to taxicab company, but also one for criminal negligence against the taxi driver
ensure a safe learning environment for its students. The defense of fortuitous for physical injuries through reckless imprudence
event or force majeure must also fail. An act of God cannot be invoked to
CULPA CULPA
protect a person who has failed to take steps to forestall the possible adverse CULPA CRIMINAL
CONTRACTUAL AQUILLANA
consequences of the loss sustained.
 Negligence is
merely incidental to  Negligence is  Negligence is
(B) CIVIL NEGLIGENCE (or CULPA AQUILIANA, TORT,
the performance of direct, substantive direct, substantive
QUASI-DELICT, or CULPA EXTRA-CONTRACTUAL) – This is the wrong or
an obligation already and independent of and independent of
negligence committed independent of contract and without criminal intent.
existing because of a contract. a contract.
 The “master-servant” rule does not apply, i.e., the negligence of the a contract.
servant is not necessarily the negligence of the master. Hence, the employer
may raise the defense of diligence of a good father of a family in the selection  There is a pre-
and supervision of his employees to escape liability.  There is no pre-  There is no pre-
existing obligation
existing obligation. existing obligation.
(express or implied).
 Thus, if a pedestrian was hit by a taxi and suffered physical injuries
because of the negligence of the taxi driver, the negligence committed here is
 Proof needed in
civil negligence because there is no pre-existing contractual relation between  Proof needed –  Proof needed –
a crime – proof of
the pedestrian and the operator of the taxicab company. The pedestrian may preponderance of preponderance of
guilt beyond
bring an action based on civil negligence against the taxi driver and the evidence. evidence.
reasonable doubt.
operator of the taxicab company. The owner, however, can escape liability if
he can prove due diligence in the selection and supervision of his driver.
(C) CRIMINAL NEGLIGENCE (or CULPA CRIMINAL) – This is
negligence that results in the commission of a crime.

 Defense of a “good father of a family” in the selection and supervision

 Defense of
“good father of a
 Defense of “good family” in the  WHO ARE LIABLE FOR QUASI-DELICT? – As provided by the
father of a family” in selection and law, the obligation created by a tort or quasi-delict is demandable not only for
the selection and supervision of one’s own acts or omissions, but also for those persons for whom one is
 Defense of
supervision of employees cannot responsible. Article 2180 of the Civil Code imposes on some classes of
“good father of a
employees is not a be interposed. If persons vicarious liability for the acts of others, to wit:
family” in the
proper complete the employee is
selection and
defense (though this insolvent or (a) The father, and in case of his death or incapacity, the mother, is
supervision of
may MITIGATE incapable to pay responsible for the damages caused by the minors who live in their company.
employees is a
damages). Here we the civil aspect or
proper and  If a minor child negligently operates the family car, the head of the
follow the rule of liability, the
complete defense family and owner of the car can be sued for damages.
RESPONDEAT employer is
(insofar as
SUPERIOR or subsidiarily liable  NOTE: The mother is liable only if the father is dead or
employers or
COMMAND (i.e., the incapacitated.
guardians are
RESPONSIBILITY employee’s guilt is
concerned).
or the MASTER automatically the (b) The guardians are liable for damages caused by the minors or
AND SERVANT employer’s civil incapacitated persons who are under their authority and live in their company.
RULE. guilt if the
employee is (c) The owners and managers of an establishment or enterprise are
insolvent). likewise responsible for damages caused by their employees in the service of
CULPA CULPA the branches in which the latter are employed or on the occasion of their
CONTRACTUAL CULPA CRIMINAL functions.
AQUILLANA
 As long as it is
(d) Employers shall be liable for the damages caused by their employees
proved that there
and household helpers acting within the scope of their assigned tasks, even
was a contract and  Ordinarily, the
 Accused is though the former are not engaged in any business or industry.
that it was not victim has to prove
carried out, it is presumed innocent
the negligence of (e) The State is responsible in like manner when it acts through a special
presumed that the until the contrary is
the defendant. This agent; but not when the damage has been caused by the official to whom the
debtor is at fault, proved, so
is because his task done properly pertains, in which case what is provided in Article 2176
and it is his duty to prosecution has the
action is based on shall be applicable.
prove that there was burden of proving
alleged negligence
no negligence in the negligence of
on the part of the (f) Teachers or heads of establishment of arts and trades shall be liable
carrying out the the accused.
defendant. for damages caused by their pupils and students or apprentices, so long as
terms of the they remain in their custody.
contract.
INTRO (CLM1) – MODULE 13: Loan, Pledge & Mortgage 19
 The responsibility treated of in this article shall cease when the  Damnum Absque Injuria – This means that “although there
persons herein mentioned prove that they observed all the diligence of a good was physical damage, there was no legal injury.” Hence, if a carefully driven
father of a family to prevent damage. car hurts a pedestrian because lightning temporarily blinded the driver, the
pedestrian cannot recover damages, for legally while he has been DAMAGED,
there was NO INJURY or NO FAULT in view of the fortuitous event.

 Read the following cases in their original text:  CLASSIFICATION OF DAMAGES. – “MENTAL”
 Umali vs. Bacani, G.R. No. L-40570, 30 January 1976, 69 SCRA 263.
(proximate cause vs. contributory negligence) (a) Actual or compensatory – One is entitled to an adequate
 RCPI vs. CA, G.R. No. 79578, 13 March 1991. (award of exemplary compensation only for such pecuniary loss suffered by him as he has duly
damages for gross negligence amounting to wanton misconduct) proven (Art. 2199, NCC).
 St. Francis High School, et al. vs. CA, G.R. No. 82465, 25 February
1991. (Art. 2180, par. 4, in relation to Art. 2176, NCC) (b) Moral – These include physical suffering, mental anguish, fright,
 PNR vs. Vizcara, G.R. No. 190022, 15 February 2012. (doctrine of last serious anxiety, besmirched reputation, wounded feelings, moral shock, social
clear chance) humiliation and similar injury. Though incapable of pecuniary computation,
 People vs. Villarmea, G.R. No. 200029, 13 November 2013. (amount moral damages may be recovered if they are the proximate result of the
of damages for death caused by a crime or quasi-delict under Art. 2206, NCC) defendant’s wrongful act or omission (Art. 2217, NCC).
 Dela Cruz vs. Octaviano, G.R. No. 219649, 26 July 2017.
(establishment of causal link between negligence of the party and succeeding (c) Nominal – These are adjudicated in order that a right of the plaintiff,
injury in proving contributory negligence) which has been violated or invaded by the defendant, may be vindicated or
 Darines vs. Quiñones, G.R. No. 206468, 2 August 2017. (culpa recognized, and not for the purpose of indemnifying the plaintiff for any loss
contractual and culpa acquiliana; rule for recovery of moral and exemplary suffered by him (Art. 2221, NCC).
damages, and attorney’s fees)
(d) Temperate or moderate – These are more than nominal but less than
 CONCEPT OF DAMAGES – Damages means the indemnity which compensatory damages, and may be recovered when the court finds that
a person can recover as compensation for an injury sustained, either in his some pecuniary loss has been suffered but its amount cannot, from the nature
person, property, or rights. Damnum or daño is the detriment, harm or loss to of the case, be proved with certainty (Art. 2224, NCC).
person or property which is occasioned by the fault of another. Damages
should not be confused with injury, although the former term is often used in (e) Liquidated – These are those agreed upon by the parties to a
both senses. Strictly speaking, injury is the harm or loss sustained by a contract, to be paid in case of breach (Art. 2226, NCC).
person; damages is the sum which he can recover as compensation for such
loss or harm. Thus, where one has been unlawfully assaulted by another, the (f) Exemplary or corrective – These are imposed by way of example or
physical harm that he suffers is the injury; the amount of money that he is correction for the public good, in addition to the moral, temperate, liquidated or
entitled to recover to compensate his loss as a result of the injury is the compensatory damages (Art. 2229)
damages.