Bar Q and A #33 – Civil Law Bar Q and A

1.) In 1980, Maureen purchased two lots in a plush subdivision registering Lot 1 in her name and Lot 2 in the name of her brother Walter with the latter’s consent. The idea was to circumvent a subdivision policy against the acquisition of more than one lot by one buyer. Maureen constructed a house on Lot 1 with an extension on Lot 2 to serve as a guest house. In 1987, Walter who had suffered serious business losses demanded that Maureen remove the extension house since the lot on which the extension was built was his property. In 1992, Maureen sued for the reconveyance to her of Lot 2 asserting that a resulting trust was created when she had thelot registered in Walter’s name even if she paid the purchase price. Walter opposed the suit arguing that assuming the existence of a resulting trust the action of Maureen has already prescribed since ten years have already elapsed from the registration of the title in his name. Decide. Discuss fully.

This is a case of an implied resulting trust. If Walter claims to have acquired ownership of the land by prescription or if he anchors his defense on extinctive prescription, the ten year period must be reckoned from 1987 when he demanded that Maureen remove the extension house on Lot No. 2 because such demand amounts to an express repudiation of the trust and it was made known to Maureen. The action for reconveyance filed in 1992 is not yet barred by prescription.

2.) Explain the concept of trust de son tort (Constructive Trust)

A constructive trust is a trust not created by any word or phrase, either expressly or impliedly, evincing a direct intention to create a trust, but is one that arises in order to satisfy the demands of justice. It does not come about by agreement or intention but mainly operation of law and construed as a trust against one who, by fraud, duress or abuse of confidence, obtains or holds the legal right to property which he ought not, in equity and good conscience, to hold. (Heirs of Lorenzo Yap v. Court of Appeals, 371 Phil. 523 [1999])

The following are examples of constructive trust:

1. Article 1456 NCC which provides: “If property is acquired through mistake or fraud, the person obtaining it is, by force of law considered a trustee of an implied trust for the benefit of the person from whom the property comes.”
2. Article 1451 NCC which provides: “When land passes by succession to any person and he causes the legal title to be put in the name of another, a trust is established by implication of law for the benefit of the true-owner.”
3. Article 1454 NCC which provides: “If an absolute conveyance of property is made in order to secure the performance of an obligation of the grantor toward the grantee, a trust by virtue of law is established. If the fulfillment of the obligation is offered by the grantor when it becomes due, he may demand the reconveyance of the property to him.”
4. Article 1455 NCC which provides: “When any trustee, guardian or other person holding a fiduciary relationship uses trust funds for the purchase of property, and causes the conveyance to be made to him or to a third person, a trust is established to whom the findings belong.

3.) With regard to an award of interest in the concept of actual and compensatory damages, please state the guidelines regarding the manner of computing legal interest in the following situations: 1. When the obligation is breached and it consists in the payment of a sum of money like a loan or forbearance of money; 2. When the obligation does not constitute a loan or forbearance of money. Consider the issuance of BSP-MB Circular No. 799, which became effective on July 1, 2013.

When the obligation is breached and it consists in the payment of sum of money like a loan or forbearance of money, in the absence of stipulation, the rate of interest shall be the legal rate of 6% per annum, (Art. 2209, CC) which was increased to 12% per NB Circular 905, series of 1982 to be computed from default. The twelve percent (12%) per annum legal interest shall apply only until June 30, 2013. From July 1, 2013, the new rate of six percent (6%) per annum shall be the prevailing rate of interest when applicable. (Nacar v. Gallery Frames, 703 SCRA 439 [2013], applying BSP-MB Circular No. 799)
The interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per No interest, however, shall be adjudged on unliquidated claims or damages, except when or until the demand can be established with reasonable uncertainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extra- judicially, but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged. (Nacar v. Gallery Frames, 703 SCRA 439 [2013])

4.) A, upon request, loaned his passenger jeepney to B to enable B to bring his sick wife from Paniqui, Tarlac to the Philippine General Hospital in Manila for treatment. On the way back to Paniqui, after leaving his wife at the hospital, people stopped the passenger jeepney. B stopped for them and allowed them to ride on board, accepting payment from them just as in the case of ordinary passenger jeepneys plying their route. As B was crossing Bamban, there was an onrush of lahar from Mt. Pinatubo. The jeep that was loaned to him was wrecked. 1) What do you call the contract that was entered into by A and B with respect to the passenger jeepney that was loaned by A to B to transport the latter’s sick wife to Manila? 2) Is B obliged to pay A for the use of the passenger jeepney? 3) Is B liable to A for the loss of the jeepney?

1) The contract is called “commodatum”. (Art. 1933, Civil Code)

2) No, B is not obliged to pay A for the use of the passenger jeepney because commodatum is essentially gratuitous. (Art. 1933, Civil Code)

3) Yes, because B devoted the thing to a purpose different from that for which it has been loaned. (Art. 1942, par. 2 Civil Code)

5.) Distinguish briefly but clearly between Mutuum and commodatum.

In mutuum, the object borrowed must be a consumable thing the ownership of which is transferred to the borrower who incurs the obligation to return the same consumable to the lender in an equal amount, and of the same kind and quality. In commodatum, the object borrowed is usually a non-consumable thing the ownership of which is not transferred to the borrower who incurs the obligation to return the very thing to the lender.

6.) Before he left for Riyadh to work as a mechanic, Pedro left his Adventure van with Tito, with the understanding that the latter could use it for one year for his personal or family use while Pedro works in Riyadh. He did not tell Tito that the brakes of the van were faulty. Tito had the van tuned up and the brakes repaired. He spent a total amount of P15,000.00. After using the vehicle for two weeks, Tito discovered that it consumed too much fuel. To make up for the expenses, he leased it to Annabelle. Two months later, Pedro returned to the Philippines and asked Tito to return the van. Unfortunately, while being driven by Tito, the van was accidentally damaged by a cargo truck without his fault. a) Who shall bear the P15,000.00 spent for the repair of the van? Explain. b) Who shall bear the costs for the van's fuel, oil and other materials while it was with Tito? Explain. c) Does Pedro have the right to retrieve the van even before the lapse of one year? Explain. d) Who shall bear the expenses for the accidental damage caused by the cargo truck, granting that the truck driver and truck owner are insolvent? Explain.

a) The contract between Pedro and Tito is one of commadatum. Of the P15,000.00 spent, Pedro, the bailor, shall bear the expenses for the repair of the faulty brakes, they being extraordinary expenses incurred due to the non-disclosure by the bailor of the defect or fault; Tito, on the other hand, shall shoulder that part of the P15,000.00 spent for the tune-up, said expense being ordinary for the use and preservation of the van.

b) The costs for the fuel and other materials are considered ordinary expenses, and consequently Tito, the bailee, shall shoulder them. (Art. 1941, CivilCode)

c) No, Pedro cannot demand the return of the van until after the expiration of the one- year period stipulated. However, if in the meantime he should have urgent need of the van, he may demand its return or temporary use.

d) Both Tito and Pedro shall bear equally the costs of the extraordinary expenses, having been incurred on the occasion of actual use of the van by Tito, the bailee, even though he acted without fault.

7.) Distinguish usufruct from commodatum.

Usufruct is a right given to a person (usufructuary) to enjoy the property of another with the obligation of preserving its form and substance. (Art. 562, Civil Code)

On the other hand, commodatum is a contract by which one of the parties (bailor) delivers to another (bailee) something not consumable so that the latter may use it for a certain time and return it.

In usufruct the usufructuary gets the right to the use and to the fruits of the same, while in commodatum, the bailee only acquires the use of the thing loaned but not its fruits.

Usufruct may be constituted on the whole or a part of the fruits of the thing. (Art. 564, Civil Code) It may even be constituted over consumables like money. (Alunan v. Veloso, 52 Phil. 545) On the other hand, in commodatum, consumable goods may be subject thereof only when the purpose of the contract is not the consumption of the object, as when it is merely for exhibition. (Art. 1936, CivilCode)

8.) In the province, a farmer couple borrowed money from the local merchant. To guarantee payment, they left the Torrens Title of their land with the merchant, for him to hold until they pay the loan. Is there a – a) Contract of pledge b) Contract of mortgage c) Contract of antichresis, or d) None of the above? Explain.

None of the above. There is no pledge because only movable property may be pledged. (Art. 2094) If at all, there was a pledge of the paper or document constituting the Torrens Title, as a movable by itself, but not of the land which the title represents. There is no mortgage because no deed or contract was executed in the manner required by law for a mortgage. (Arts. 2085 to 2092; Arts. 2124 to 2131) There is no contract of antichresis because no right to the fruits of the property was given to the creditor. (Art. 2132)

A contract of simple loan was entered into with security arrangement agreed upon by the parties which is not one of those mentioned above.

9.) The parties in a contract of loan of money agreed that the yearly interest rate is 12% and it can be increased if there is a law that would authorize the increase of interest rates. Suppose OB, the lender, would increase by 5% the rate of interest to be paid by TY, the borrower, without a law authorizing such increase, would OB’s action be just and valid? Why? Has TY have a remedy against the imposition of the rate increase? Explain.

OB's action is not just and valid. The debtor cannot be required to pay the increase in interest there being no law authorizing it, as stipulated in the contract of loan. Increasing the rate in the absence of such law violates the principle of mutuality of contracts under Art. 1308.

10.) In order to secure a bank loan, XYZ Corporation surrendered its deposit certificate, with a maturity date of 01 September 1997 to the bank. The corporation defaulted on the due repayment of the loan, prompting the bank to encash the deposit certificate. XYZ Corporation questioned the above action taken by the bank as being a case of pactum commissorium. The bank disagrees. What is your opinion?

There is no pactum commissorium here. Deposits of money in banks and similar institutions are governed by the provisions on simple loans. (Art. 1980) The relationship between the depositor and a bank is one of creditor and debtor. Basically this is a matter of compensation as all the elements of compensation are present in this case. (BPI v. CA, G.R. No. 104612, May 10,1994)