SALES Agency and Credit Transaction PRTC Format
SALES Agency and Credit Transaction PRTC Format
LECTURE NOTES
the seller purports to sell and the buyer to buy a In the case of a sale by auction:
definite number, weight or measure of the goods a. Where goods are put up for sale by auction in
in the mass, and though the number, weight or lots, each lot is the subject of a separate
measure of the goods in the mass is contract of sale.
undetermined. By such a sale the buyer becomes b. A sale by auction is perfected when the
owner in common of such a share of the mass as auctioneer announces its perfection by the fall
the number, weight or measure bought bears to of the hammer, or in other customary manner.
the number, weight or measure of the mass. If the Until such announcement is made, any bidder
mass contains less than the number, weight or may retract his bid; and the auctioneer may
measure bought, the buyer becomes the owner of withdraw the goods from the sale unless the
the whole mass and the seller is bound to make auction has been announced to be without
good the deficiency from goods of the same kind reserve.
and quality, unless a contrary intent appears. c. A right to bid may be reserved expressly by or
(1464) on behalf of the seller, unless otherwise
3. Cause or Consideration (Price) - price certain in money provided by law or by stipulation.
or its equivalent. d. Where notice has not been given that a sale by
Gross inadequacy of price does not affect a auction is subject to a right to bid on behalf of
contract of sale, except as it may indicate a defect the seller, it shall not be lawful for the seller to
in the consent, or that the parties really intended a bid himself or to employ or induce any person
donation or some other act or contract. (1470) to bid at such sale on his behalf or for the
The fixing of the price can never be left to the auctioneer, to employ or induce any person to
discretion of one of the contracting parties. bid at such sale on behalf of the seller or
However, if the price fixed by one of the parties is knowingly to take any bid from the seller or
accepted by the other, the sale is perfected. any person employed by him. Any sale
(1473) contravening this rule may be treated as
Where the price cannot be determined or in any fraudulent by the buyer. (1476)
other manner, the contract is inefficacious.
However, if the thing or any part thereof has been Kinds of promise (1479)
delivered to and appropriated by the buyer he a. Bilateral promise to buy and sell reciprocally
must pay a reasonable price therefor. What is a accepted.
reasonable price is a question of fact dependent on b. Accepted unilateral promise to buy
the circumstances of each particular case. (1474) c. Accepted unilateral promise to Sell.
If the price is simulated, the sale is void, but the Policitation - Unaccepted unilateral promise or offer
act may be shown to have been in reality a to sell or buy a thing.
donation, or some other act or contract. (1471) Whenever earnest money is given in a contract of
When price certain: sale, it shall be considered as part of the price and
a. Specific amount agreed upon as proof of the perfection of the contract. (1482)
b. No specific amount agreed upon Risk of loss (1480)
1. Certainty with reference to another thing 1. Fungible and non fungible things sold
certain independently and for a single price, or without
2. Determination of price was left to the consideration of their weight, number, or measure.
judgment of third person. a. Lost before perfection Seller (Res perit
o Should such person or persons be domino)
unable or unwilling to fix it, the b. Lost at the time of perfection Seller (Res
contract shall be inefficacious, unless perit domino)
the parties subsequently agree upon c. After perfection but before delivery Buyer
the price. (exception to Res perit domino)
o If the third person or persons acted in d. Af1ter delivery Buyer (Res perit domino)
bad faith or by mistake, the courts 2. Fungible things be sold for a price fixed according
may fix the price. to weight, number, or measure.
o Where such third person or persons General rule: Vendor shall suffer (Exception to the
are prevented from fixing the price or rule that vendee shall suffer the risk of loss after
terms by fault of the seller or the perfection but after delivery)
buyer, the party not in fault may have Exception: When the goods have been weighed,
such remedies against the party in counted, or measured and delivered, unless the
fault as are allowed the seller or the latter has incurred in delay.
buyer, as the case may be. (1469)
3. The price of securities, grain, liquids, and Unless otherwise agreed, the goods remain at the
other things shall also be considered seller's risk until the ownership therein is
certain, when the price fixed is that which transferred to the buyer, but when the ownership
the thing sold would have on a definite therein is transferred to the buyer the goods are
day, or in a particular exchange or market, at the buyer's risk whether actual delivery has been
or when an amount is fixed above or below made or not, except that: (1504)
the price on such day, or in such exchange 1. Where delivery of the goods has been made to the
or market, provided said amount be buyer or to a bailee for the buyer, in pursuance of
certain. (1473) the contract and the ownership in the goods has
If the consideration of the contract consists partly been retained by the seller merely to secure
in money, and partly in another thing. (1468) performance by the buyer of his obligations under
a. Manifest intention of the parties. the contract, the goods are at the buyer's risk from
b. If such intention does not clearly appear, the time of such delivery;
1. Barter if value of the thing > money paid 2. Where actual delivery has been delayed through
2. Sale if value of the thing =< money paid. the fault of either the buyer or seller the goods are
at the risk of the party in fault.
Effects of the contract when the thing sold has been price. Any agreement to the contrary shall be void.
lost (1493) The expenses for the execution and registration of
a. If at the time the contract of sale is perfected, the the sale shall be borne by the vendor, unless there is
thing which is the object of the contract has been a stipulation to the contrary. (1487)
entirely lost, the contract shall be without any The expropriation of property for public use is
effect. governed by special laws. (1488)
b. But if the thing should have been lost in part only,
the vendee may choose between withdrawing from Maceda Law - Realty Installment Buyer Act (R.A.
the contract and demanding the remaining part, 6552)
paying its price in proportion to the total sum Coverage - All transactions or contracts involving the sale
agreed upon. or financing of real estate on installment payments,
c. Where the parties purport a sale of specific goods, including residential condominium apartments but
and the goods without the knowledge of the seller excluding industrial lots, commercial buildings and sales
have perished in part or have wholly or in a to tenants where the buyer has paid at least two years
material part so deteriorated in quality as to be of installments, the buyer is entitled to the following
substantially changed in character, the buyer may rights in case he defaults in the payment of succeeding
at his option treat the sale: (1494) installments: (Sec 3)
1. As avoided; or a. To pay, without additional interest, the unpaid
2. As valid in all of the existing goods or in so installments due within the total grace period earned
much thereof as have not deteriorated, and as by him which is hereby fixed at the rate of one month
binding the buyer to pay the agreed price for grace period for every one year of installment
the goods in which the ownership will pass, if payments made: Provided, That this right shall be
the sale was divisible. exercised by the buyer only once in every five years of
the life of the contract and its extensions, if any.
Sale of good by description b. If the contract is cancelled, the seller shall refund
a. Sample or Description - the contract may be to the buyer the cash surrender value of the
rescinded if the bulk of the goods delivered do not payments on the property equivalent to fifty per
correspond with the description or the sample. cent of the total payments made, and, after five
b. Sample and description - the bulk of goods must years of installments, an additional five per cent
correspond with the sample and the description. every year but not to exceed ninety per cent of
The buyer shall have a reasonable opportunity of the total payments made: Provided, That the actual
comparing the bulk with the description or the sample. cancellation of the contract shall take place after
(n) thirty days from receipt by the buyer of the
notice of cancellation or the demand for
Forms rescission of the contract by a notarial act and
General rule - a contract of sale may be made in upon full payment of the cash surrender value to
writing, or by word of mouth, or partly in writing and the buyer.
partly by word of mouth, or may be inferred from the Down payments, deposits or options on the contract
conduct of the parties. (1483) shall be included in the computation of the total
Exception: number of installment payments made.
a. Contract covered by statute of fraud (1403) In case where less than two years of installments
1. Sale of property not to be performed within a were paid, the seller shall give the buyer a grace
year from the making thereof; period of not less than sixty days from the date the
2. Sale of real property or of an interest therein installment became due.
regardless of the price; If the buyer fails to pay the installments due at the
3. Sale of personal property at a price not less expiration of the grace period, the seller may cancel
than five hundred pesos (P500) the contract after thirty days from receipt by the
b. Contract where form is required for validity buyer of the notice of cancellation or the demand for
1. Sale of a piece of land or any interest therein rescission of the contract by a notarial act. (Sec 4)
is through an agent, the authority of the latter The buyer shall have the right to sell his rights or
shall be in writing. (1874) assign the same to another person or to reinstate the
Recto law contract by updating the account during the grace
a. In a contract of sale of personal property the price period and before actual cancellation of the contract.
of which is payable in installments. The deed of sale or assignment shall be done by
b. Contracts purporting to be leases of personal notarial act. (Sec 5)
property with option to buy, when the lessor has The buyer shall have the right to pay in advance any
deprived the lessee of the possession or enjoyment installment or the full unpaid balance of the purchase
of the thing price any time without interest and to have such full
payment of the purchase price annotated in the
The vendor may exercise any of the following remedies certificate of title covering the property. (Sec 6)
(alternative and not cumulative or successive remedy) Any stipulation in any contract hereafter entered into
1. Exact fulfillment of the obligation, should the shall be null and void. (Sec 7)
vendee fail to pay;
2. Cancel the sale, should the vendee's failure to pay CAPACITY TO BUY OR SELL
cover two or more installments. Stipulation that General rule: All persons who can obligate themselves,
the installments or rents paid shall not be returned may enter into a contract of sale (1489) Where
to the vendee or lessee shall be valid insofar as the necessaries are those sold and delivered to a minor or
same may not be unconscionable under the other person without capacity to act, he must pay a
circumstances. (1486) reasonable price therefor.
3. Foreclose the chattel mortgage on the thing sold, if
one has been constituted, should the vendee's Exception: Sale of property including sales in legal
failure to pay cover two or more installments. In redemption, compromises and renunciations. (1492) by
this case, he shall have no further action against the following:
the purchaser to recover any unpaid balance of the 1. The husband and the wife cannot sell property to each
laws, or any other provision of law enabling the Instances where the unpaid seller may retain the
apparent owner of goods to dispose of them as if goods
he were the true owner thereof; 1. Where the goods have been sold without any
c. The validity of any contract of sale under stipulation as to credit
statutory power of sale or under the order of a 2. Where the goods have been sold on credit, but
court of competent jurisdiction; the term of credit has expired
Art. 559. The possession of movable property 3. Where the buyer becomes insolvent.
acquired in good faith is equivalent to a title. * The seller may exercise his right of lien or retention
Nevertheless, one who has lost any movable or notwithstanding that he is in possession of the goods
has been unlawfully deprived thereof may recover as agent or bailee for the buyer (Art. 1527, CC)
it from the person in possession of the same.
If the possessor of a movable lost or which the Instances where the unpaid seller loses his right
owner has been unlawfully deprived, has acquired to retain the goods
it in good faith at a public sale, the owner cannot 1. When he delivers the goods to a carrier or
obtain its return without reimbursing the price paid other bailee for transmission to the buyer without
therefor. reserving ownership in the goods or the right to
d. Purchases made in a merchant's store, or in possession thereof;
fairs, or markets, in accordance with the Code of 2. When the buyer or his agent lawfully obtains
Commerce and special laws. possessions of the goods; and
e. Where the seller of goods has a voidable title 3. By waiver thereof.
thereto, but his title has not been avoided at the * The unpaid seller of goods, having lien thereon, does
time of the sale, the buyer acquires a good title to not lose his lien by reason only that he has obtained
the goods, provided he buys them in good faith, judgment for the price of the goods (Art. 1529, CC)
for value, and without notice of the seller's defect
of title. (1506) Exercise of the right of stoppage in transitu
f. Where the seller subsequently acquires title 1. Obtaining actual possession; or
2. Giving notice of claim to the carrier or other bailee
Negotiable document of title a document of title in When notice of stoppage in transitu is given by the
which it is stated that the goods referred therein will seller to the carrier, or other bailee in possession
be delivered to the bearer or to the order of any of the goods, he must redeliver the goods to, or
person named in such document. according to the directions of, the seller.
Non-negotiable Document of Title a document of title The expenses of such delivery must be borne by
which does not state that the goods referred to therein the seller.
will be delivered either to bearer or to the order of any If, however, a negotiable document of title
person named therein. representing the goods has been issued by the
carrier or other bailee, he shall not obliged to
Kinds of negotiable documents of title deliver or justified in delivering the goods to the
1. bill of lading seller unless such document is first surrendered for
2. dock warrant; cancellation
3. quedan;
4. warehouse receipts or order; and Effect of sale of goods subject to lien or stoppage
5. any other document used as proof of possession or in transit
as authority to transfer the goods represented by a. Where goods not covered by negotiable document
it. of title The purchaser can acquire only such right
as that buyer then had.
IMPLIED Warranties of the person who negotiates a b. Where goods covered by negotiable document of
document of title by indorsement or delivery title. - No seller's lien or right of stoppage in
1. That the document is genuine; transitu shall defeat the right of any purchaser for
2. That he has legal right to negotiate or transfer it; value in good faith to whom such document has
3. That he has knowledge of no fact which would been negotiated.
impair validity or worth of the document; and
4. That he has a right to transfer the title to the When resale is allowable (1533)
goods and that the goods are merchantable or fit 1. Where the goods are perishable in nature
for particular purpose. (Art. 1516, CC) 2. When the right to resell is expressly reserved in
Unpaid seller: case the buyer should make a default; and
1. When the whole of the price has not been paid or 3. Where the buyer delays in the payment of the
tendered; and price for an unreasonable time.
2. When a bill of exchange or other negotiable Not essential to the validity of resale that notice of
instrument has been received as a conditional an intention to resell the goods be given by the
payment and the condition was broken by reason seller to the original buyer but giving or failure to
of dishonor, insolvency of the buyer or otherwise. give such notice shall be relevant in any issue
(Art. 1525, CC) involving the question whether the buyer had been
in default for an unreasonable time before the
Remedies of the unpaid seller, notwithstanding resale was made.
that the ownership in the goods may have o It is, however, essential before the rescission be
passed to the buyer made that the unpaid seller should have a right of
1. Possessory lien on the goods or right to retain lien or stopped the goods in transitu. (Art. 1533,
them for the price while he is in possession of CC)
them;
2. In case of insolvency of the buyer, right of Effect of resale
stoppage in transitu after he has parted with the a. The seller is not liable for any profit made by such
possession of them; resale, but may recover from the buyer damages
3. Right of resale; and for any loss occasioned by the breach of the
4. Right to rescind sale. contract of sale.
It is not essential to the validity of resale that notice of b. If the deficiency in quality specified in the
an intention to resell the goods be given by the seller contract exceeds 1/10 of the price
to the original buyer. But where the right to resell is agreed upon.
not based on the perishable nature of the goods or c. If the vendee would not have bought
upon an express provision of the contract of sale, the the immovable had he known of its smaller
giving or failure to give such notice shall be relevant in area or inferior quality irrespective of the
any issue involving the question whether the buyer extent of the lack in area or quality.
had been in default for an unreasonable time before 2. Made for a lump sum and not at the rate of a
the resale was made. certain sum for a unit of measure or number
It is not essential to the validity of a resale that notice or When two or more immovables as sold for a
of the time and place of such resale should be given by single price
the seller to the original buyer. There shall be no increase or decrease of the price,
The seller is bound to exercise reasonable care and although there be a greater or less area or number
judgment in making a resale, and may make a resale than that stated in the contract. (Reason: The
either by public or private sale. He cannot, however, parties ascertained its area and quality before the
directly or indirectly buy the goods. (1533) contract was perfected)
3. When area or number stated together with
Instances where the unpaid seller has the right boundaries
of rescission The vendor shall be bound to deliver all that is
1. Where he expressly reserved the right to do so included within said boundaries, even when it
in case the buyer should make default; and exceeds the area or number specified in the
2. Where the buyer has been in default in the contract; and, should he not be able to do so,
payment of the price for unreasonable length a. Reduction in the price, in proportion to what is
of time. lacking in the area or number,
o It is, however, essential before the rescission be b. Contract is rescinded because the vendee does
made that the unpaid seller should have a right of not accede to the failure to deliver what has
lien or stopped the goods in transitu. (Art. 1534, been stipulated. (1542)
CC)
The transfer of title shall not be held to have been Nota bene: The actions for recission or reduction in
rescinded by an unpaid seller until he has manifested price shall prescribe in six months, counted from the
by notice to the buyer or by some other overt act an day of delivery
intention to rescind. It is not necessary that such overt
act should be communicated to the buyer, but the If there is a greater area or number in the immovable
giving or failure to give notice to the buyer of the than that stated in the contract, the vendee may
intention to rescind shall be relevant in any issue accept the area included in the contract and reject the
involving the question whether the buyer had been in rest. If he accepts the whole area, he must pay for the
default for an unreasonable time before the right of same at the contract rate. (1540)
rescission was asserted. Requisites of Double Sales
a. The two (or more) sales transactions must
The vendor is not bound to deliver the thing sold constitute valid sales.
in case the vendee should lose the right to make b. The two (or more) sales transactions must pertain
use of the terms as provided in Article 1198 (Debtor to exactly the same subject matter.
lose every right to make use of the period) (Art. 1536, c. The two (or more) buyers at odds over the rightful
CC) ownership of the subject matter must each
The vendor is bound to deliver the thing sold and its represent conflicting interests.
accessions and accessories in the condition in which d. The two (or more) buyers at odds over the rightful
they were upon the perfection of the contract. (Art. ownership of the subject matter must each have
1537, CC) bought from the very same seller.
All the fruits shall pertain to the vendee from the day
on which the contract was perfected. Rules of preference in case of double sale (1544)
a. No date stipulated for the delivery From the 1. If the same thing should have been sold to
perfection of the contract different vendees, the ownership shall be
b. Date stipulated from the obligation to deliver transferred to the person who may have first taken
arise. possession thereof in good faith, if it should be
The rules in Article 1189 shall be observed in case of movable property.
loss deterioration or improvement of the thing before 2. Should it be immovable property, the ownership
its delivery, the vendor being considered the debtor. shall belong to the person acquiring it who in good
(Art. 1538, CC) faith first recorded it in the Registry of Property.
Sale of real estate 3. Should there be no inscription, the ownership shall
1. With statement of its area at the rate of a pertain to the person who in good faith was first in
certain price for a unit of measure or number the possession; and in the absence thereof, to the
The vendor shall be obliged to deliver to the person who presents the oldest title, provided
vendee, if the latter should demand it, all that may there is good faith. (Art 1544, CC)
have been stated in the contract; but, should this
be not possible, the vendee may choose between. CONDITIONS AND WARRANTIES
(1539) Express warranty any affirmation of fact or any
a. A proportional reduction of the price promise by the seller relating to the thing if the natural
b. Rescission of the contract tendency of such affirmation or promise is to induce
a. If the lack in area is at least 1/10 than the buyer to purchase the same and if the buyer
that stated or stipulated (Applies to area purchased the thing relying thereon.
stated in the contract, not to the true or Implied warranties in a contract of sale
actual are) 1. implied warranty against eviction; and
2. implied warranty against hidden defects.
Warranty in case of eviction an implied warranty in o Contract of sale of a specified article under
contracts of sale, by virtue of which the vendee is its patent or other trade name, there is no
deprived of the whole or part of the thing purchased warranty as to its fitness for any particular
by a final judgment based on the right prior to the sale purpose, unless there is a stipulation to the
or an act imputable to the vendor, such vendor shall contrary. (1563)
answer for the eviction even though nothing has been o An implied warranty or condition as to the
said in the contract on the subject (Art. 1548, CC) quality or fitness for a particular purpose
may be annexed by the usage of trade.
Requisites of warranty against eviction (1564)
1. There is a final judgment; (1557)
2. Purchaser has been deprived in whole or in part of Remedy in case of hidden defects
the thing sold; a. Accion redhibitoria (Withdrawal or rescission) +
3. Deprivation was by virtue of a right prior to the damages
sale effected by the seller; and b. Accion quanti minors o estimatoria (Proportionate
4. Vendor has been previously notified of the reduction in the price) + Damages
complaint for eviction at the instance of the c. Action prescribed after 6 months from the
purchaser. (1558) delivery of the thing sold (1571) The buyer must
sue within 6 months not mere notification to the seller
Waiver by the buyer (Warranty against eviction) of the hidden defect.
1. Waiver consciente
a. Without knowledge of risk of eviction. Loss of the thing with hidden defect
b. To pay the value which the thing sold had at a. Loss due to the hidden fault
the time of the eviction 1. Vendor was aware Return the price + refund the
2. Waiver intencionada expenses of the contract + DAMAGES
a. With knowledge of risk of eviction and 2. Vendor was not aware Return the price +
assumed consequences Interest + reimburse the expense of the contract
b. Vendor not liable b. Loss due to fortuitous event or fault of the vendee
1. Price paid value of the thing at loss; if acted in
The Seller must pay in case of eviction: (VICED) bad faith liable for DAMAGES
1. Value of the thing at the time of eviction
2. Income or fruits, if he has ordered to deliver them Sale of animal
to the winning party a. If two or more animals are sold together, the
3. Costs of the suit which caused evivtion defect in one should not affect the sale of the others
4. Expenses of the contract, if the vendee has paid whether the price was for lumpsum or separate for
them each animal except in case of team, yoke, pair or set
5. Damages and interest (on cost, expense and is bought. (1572)
damages), if seller was in bad faith b. There is no warranty against hidden defects of animals
sold at fairs or at public auctions, or of live stock sold
Sale of immovable with non-apparent burden or as condemned. (1574)
servitude (1560) c. The sale of animals suffering from contagious diseases
1. If the non-apparent burden or servitude is recorded in shall be void. A contract of sale of animals shall also be
the registry of property void if the use or service for which they are acquired
a. The buyer has no remedy except if there is has been stated in the contract, and they are found to
express warranty that the thing is free from all be unfit therefor. (1575)
burden and encumbrances. d. The redhibitory action, based on the faults or
2. If the non-apparent burden or servitude is not defects of animals, must be brought within forty
recorded in the registry of property days from the date of their delivery to the vendee.
a. Rescission of the contract within one year from This action can only be exercised with respect to faults
the execution of the deed and defects which are determined by law or by local
b. Damages - within one year from the execution customs. (1577)
of the deed or one year having elapsed, within e. If the animal should die within three days after its
one year from the date on which he purchase, the vendor shall be liable if the disease
discovered the burden or servitude which cause the death existed at the time of the
contract. (1578)
Warranty against hidden defects or encumbrances f. If the sale be rescinded, the animal shall be returned
1. Implied warranty against hidden fault or defects in the condition in which it was sold and delivered, the
a. If Visible Not liable; If Not visible Liable except vendee being answerable for any injury due to his
if the vendee is an expert who by reason of his negligence, and not arising from the redhibitory fault
trade or profession should have known them. or defect. (1579)
(1561)
b. Vendor is responsible to the vendee for any hidden OBLIGATIONS OF THE VENDEE
faults or defects in the thing sold, even though he Principal obligations of the vendee (1582)
was not aware thereof. (1566) a. Accept delivery
2. Implied warranty or condition b. Pay the price at the time and place stipulated in the
a. Merchantable Quality (Fit for the general purpose) contract, if not stipulated at the time and place of
b. Fitness of the goods - buyer, expressly or by the delivery of the thing sold.
implication, makes known to the seller the
particular purpose for which the goods are No delivery by installment except if there is
acquired, and it appears that the buyer relies on stipulation.
the seller's skill or judgment (whether he be the Generally, the buyer is entitled to examine the
grower or manufacturer or not), there is an implied goods prior to delivery except 1.) when there is
warranty that the goods shall be reasonably fit stipulation; 2.) when the goods are delivered
for such purpose. C.O.D. unless there is an agreement or a usage of
trade permitting such examination.
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When there is acceptance of the goods contract in the place of one who acquires a thing by
a. Express acceptance purchase or dation in payment, or by any other
b. When the buyer does an act which only an owner transaction whereby ownership is transmitted by
can do onerous title (Art. 1619, CC)
c. Failure to return after reasonable lapse of time a. A co-owner of a thing may exercise the right of
The vendee shall owe interest for the period between redemption in case the shares of all the other co-
the delivery of the thing and the payment of the price, owners or of any of them, are sold to a third
in the following three cases: (1589) person. If the price of the alienation is grossly
1. Should it have been so stipulated; excessive, the redemptioner shall pay only a
2. Should the thing sold and delivered produce fruits reasonable one. (1620)
or income; b. Should two or more co-owners desire to exercise
3. Should he be in default, from the time of judicial or the right of redemption, they may only do so in
extrajudicial demand for the payment of the price. proportion to the share they may respectively have
The buyer may suspend the payment of the price in the thing owned in common.
(1590) c. The owners of adjoining lands shall also have the
a. There is a well grounded fear (fundado temor) right of redemption when a piece of rural land, the
b. The fear is because of: area of which does not exceed one hectare, is
1. A vindicatory action or action to recover alienated, unless the grantee does not own any
2. A foreclosure of mortgage rural land. (1621)
Note: This right is not applicable to adjacent lands which
a. The fear must not be the result of any other are separated by brooks, drains, ravines, roads
ground and other apparent servitudes for the benefit of
b. A mere act of trespass is made by one claiming no other estates.
legal right whatsoever. If two or more adjoining owners desire to exercise
the right of redemption at the same time, the
Should the vendor have reasonable grounds to fear the owner of the adjoining land of smaller area shall be
loss of immovable property sold and its price, he may preferred; and should both lands have the same
immediately sue for the rescission of the sale. (1591) area, the one who first requested the redemption.
Art. 1592. In the sale of immovable property, even d. Whenever a piece of urban land which is so small
though it may have been stipulated that upon failure and so situated that a major portion thereof
to pay the price at the time agreed upon the rescission cannot be used for any practical purpose within a
of the contract shall of right take place, the vendee reasonable time, having been bought merely for
may pay, even after the expiration of the period, as speculation, is about to be re-sold, the owner of
long as no demand for rescission of the contract has any adjoining land has a right of pre-emption at a
been made upon him either judicially or by a notarial reasonable price.
act. After the demand, the court may not grant him a If the re-sale has been perfected, the owner of the
new term. (1592) adjoining land shall have a right of redemption,
With respect to movable property, the rescission of the also at a reasonable price.
sale shall of right take place in the interest of the When two or more owners of adjoining lands wish
vendor, if the vendee, upon the expiration of the to exercise the right of pre-emption or
period fixed for the delivery of the thing, should not redemption, the owner whose intended use of the
have appeared to receive it, or, having appeared, he land in question appears best justified shall be
should not have tendered the price at the same time, preferred. (1622)
unless a longer period has been stipulated for its e. The right of legal pre-emption or redemption shall
payment. (1593) not be exercised except within thirty days from the
notice in writing by the prospective vendor, or by
EXTINGUISHMENT OF SALE the vendor, as the case may be. The deed of sale
Conventional redemption that which takes place shall not be recorded in the Registry of Property,
when vendor reserves the right to purchase the thing unless accompanied by an affidavit of the vendor
sold with the obligation to reimburse to the vendee the that he has given written notice thereof to all
price of the sale, expenses of the contract, other possible redemptioners. The right of redemption of
legitimate payments made by reason of the sale, as co-owners excludes that of adjoining owners.
well as necessary and useful expenses on the thing (1623)
sold (Arts. 1601, 1616, CC).
PRE-EMPTION REDEMPTION
Instances where CONVENTIONAL REDEMPTION The sale to a third person The sale to a third person
is PRESUMED to be an EQUITABLE MORTGAGE has not yet been perfected has already been
1. Price of sale is unusually inadequate; perfected
2. Vendor remains in possession as lessee or No rescission because no There can be no
otherwise; sale as yet exists rescission of the sale
3. Another instrument extending period of The action here is directed Action is directed against
redemption or granting a new period is against the prospective the buyer
executed; seller
4. Purchaser retains part of the purchase price;
5. Vendor bound to pay taxes; AGENCY
6. Real intent is to secure the payment of a debt or By the contract of agency a person binds himself to render
performance of other obligation (Art. 1602, CC); some service or to do something in representation or on
and behalf of another, with the consent or authority of the
7. When there is doubt as to whether the contract is latter. (1868)
a contract of sale with right to repurchase or an
equitable mortgage (Art. 1603, CC). Characteristics of a contract of agency
1. Consensual
Legal redemption the right to be subrogated upon 2. Principal
the same terms and conditions stipulated in the
In such case the agent is the one directly bound in may have received by virtue of the agency, even
favor of the person with whom he has contracted, though it may not be owing to the principal. Every
as if the transaction were his own, except when stipulation exempting the agent from the
the contract involves things belonging to the obligation to render an account shall be void.
principal. (1891)
The provisions of this article shall be understood to The agent may appoint a substitute if the principal has
be without prejudice to the actions between the not prohibited him from doing so; but he shall be
principal and agent. (1883) responsible for the acts of the substitute:
1. When he was not given the power to appoint one;
If a person specially informs another or states by 2. When he was given such power, but without
public advertisement that he has given a power of designating the person, and the person appointed
attorney to a third person, the latter thereby becomes was notoriously incompetent or insolvent.
a duly authorized agent, in the former case with All acts of the substitute appointed against the
respect to the person who received the special prohibition of the principal shall be void. (1892)
information, and in the latter case with regard to any The principal may furthermore bring an action against
person. the substitute with respect to the obligations which the
The power shall continue to be in full force until the latter has contracted under the substitution. (1893)
notice is rescinded in the same manner in which it was The responsibility of two or more agents:
given. a. Solidarity has not been expressly stipulated.
(1894) Liability is only joint
OBLIGATIONS OF THE AGENT b. Solidarity has been agreed upon - each of the
The agent is bound by his acceptance to carry out the agents is responsible for the non-fulfillment of
agency, and is liable for the damages which, through agency, and for the fault or negligence of his
his non-performance, the principal may suffer. fellows agents
He must also finish the business already begun on the Exception: When the fellow agents acted
death of the principal, should delay entail any danger. beyond the scope of their authority. (1895)
(1884) The agent owes interest on the sums he has applied to
In case a person declines an agency, he is bound to his own use from the day on which he did so, and on
observe the diligence of a good father of a family in those which he still owes after the extinguishment of
the custody and preservation of the goods forwarded the agency. (1896)
to him by the owner until the latter should appoint an So far as third persons are concerned, an act is
agent or take charge of the goods. (1885) deemed to have been performed within the scope of
Should there be a stipulation that the agent shall the agent's authority, if such act is within the terms of
advance the necessary funds, he shall be bound to do the power of attorney, as written, even if the agent
so except when the principal is insolvent. (1866) has in fact exceeded the limits of his authority
In the execution of the agency: according to an understanding between the principal
a. The agent shall act in accordance with the and the agent. (1900)
instructions of the principal. A third person cannot set up the fact that the agent
1. The agent who acts as such is not personally has exceeded his powers, if the principal has ratified,
liable to the party with whom he contracts, or has signified his willingness to ratify the agent's
unless he expressly binds himself or exceeds acts. (1901)
the limits of his authority without giving such A third person with whom the agent wishes to contract
party sufficient notice of his powers. (1897) on behalf of the principal may require the presentation
2. If the agent contracts in the name of the of the power of attorney, or the instructions as regards
principal, exceeding the scope of his authority, the agency. Private or secret orders and instructions of
and the principal does not ratify the contract, the principal do not prejudice third persons who have
it shall be void if the party with whom the relied upon the power of attorney or instructions
agent contracted is aware of the limits of shown them. (1902)
the powers granted by the principal. In The commission agent
this case, however, the agent is liable if he a. Shall be responsible for the goods received by him
undertook to secure the principal's ratification. in the terms and conditions and as described in the
(1898) consignment, unless upon receiving them he
3. If a duly authorized agent acts in accordance should make a written statement of the damage
with the orders of the principal, the latter and deterioration suffered by the same. (1903)
cannot set up the ignorance of the agent as to b. Shall distinguish them by countermarks, and
circumstances whereof he himself was, or designate the merchandise respectively belonging
ought to have been, aware. (1899) to each principal when he handles goods of the
b. In default of instruction, he shall do all that a good same kind and mark, which belong to different
father of a family would do, as required by the owner. (1904)
nature of the business. (1877) To sell on credit
c. An agent shall not carry out an agency if its a. Without the express or implied consent of the
execution would manifestly result in loss or principal - the principal may demand from him
damage to the principal. (1888) payment in cash, but the commission agent shall
The agent shall be liable for damages if, there being a be entitled to any interest or benefit, which may
conflict between his interests and those of the result from such sale. (1905)
principal, he should prefer his own. (1899) b. With authority of the principal - He shall so inform
If the agent has been empowered: the principal, with a statement of the names of the
a. To borrow money - he may himself be the lender buyers. Should he fail to do so, the sale shall be
at the current rate of interest. deemed to have been made for cash insofar as the
b. Authorized to lend money at interest - he cannot principal is concerned. (1906)
borrow it without the consent of the principal. Should the commission agent receive on a sale, in
(1890) addition to the ordinary commission, another called a
Every agent is bound to render an account of his guarantee commission, he shall bear the risk of
transactions and to deliver to the principal whatever he collection and shall pay the principal the proceeds of
the sale on the same terms agreed upon with the principals have granted a power of attorney for a
purchaser. (1907) common transaction, any one of them may revoke
The commission agent who does not collect the credits the same without the consent of the others.
of his principal at the time when they become due and (1925)
demandable shall be liable for damages, unless he 1. If the agency has been entrusted for the
proves that he exercised due diligence for that purpose of contracting with specified persons,
purpose. (1908) its revocation shall not prejudice the latter if
The agent is responsible not only for fraud, but also for they were not given notice thereof. (1921)
negligence, which shall be judged with more or less 2. An agency cannot be revoked if a bilateral
rigor by the courts, according to whether the agency contract depends upon it, or if it is the means
was or was not for a compensation. (1909) of fulfilling an obligation already contracted, or
if a partner is appointed manager of a
OBLIGATIONS OF THE PRINCIPAL partnership in the contract of partnership and
1. The principal must comply with all the obligations his removal from the management is
which the agent may have contracted within the scope unjustifiable. (1927)
of his authority. (1910) If the agent has exceeded
his power, the principal is not bound except when he Such revocation may be express or implied. (1920)
ratifies it expressly or tacitly. a. Express
2. To be solidarily liable with the agent if the former b. Implied
allowed the latter to act as though he had full powers 1. The appointment of a new agent for the same
even when the agent has exceeded his authority business or transaction revokes the previous
(1911) agency from the day on which notice thereof
3. The principal must advance to the agent, should the was given to the former agent, without
latter so request, the sums necessary for the prejudice to the provisions of the two
execution of the agency. Should the agent have preceding articles. (1923)
advanced them, the principal must reimburse (interest 2. The agency is revoked if the principal directly
on the sums advanced, from the day on which the manages the business entrusted to the agent,
advance was made.) him therefor, even if the business dealing directly with third persons. (1924)
or undertaking was not successful, provided the agent 3. A general power of attorney is revoked by a
is free from all fault. (1912) special one granted to another agent, as
4. The indemnify the agent for all the damages which the regards the special matter involved in the
execution of the agency may have caused the latter, latter. (1926)
without fault or negligence on his part. (1913) 2. Withdrawal of the agent
Exception: a. The agent may withdraw from the agency by
The principal is not liable for the expenses incurred by giving due notice to the principal. If the latter
the agent in the following cases: (1918) should suffer any damage by reason of the
a. If the agent acted in contravention of the withdrawal, the agent must indemnify him
principal's instructions except when the principal therefor, unless the agent should base his
wish to avail himself of the benefits derived from withdrawal upon the impossibility of continuing the
the contract; performance of the agency without grave
b. The expenses were due to the fault of the agent; detriment to himself. (1928)
c. The agent incurred them with knowledge that an b. The agent, even if he should withdraw from the
unfavorable result would ensue and the principal agency for a valid reason, must continue to act
was not aware thereof; until the principal has had reasonable opportunity
d. When it was stipulated that the expenses would be to take the necessary steps to meet the situation.
borne by the agent, or that the latter would be (1929)
allowed only a certain sum. 3. The death, insanity, civil interdiction or
insolvency (DICI) of the principal or of the agent;
The agent may retain in pledge the things which are a. If the agent dies, his heirs must notify the principal
the object of the agency until the principal effects the thereof, and in the meantime adopt such measures
reimbursement and pays the indemnity set forth in the as the circumstances may demand in the interest
two preceding articles. (1914) of the latter. (1932)
If two or more persons have appointed an agent for a b. The agency shall remain in full force and effect
common transaction or undertaking, they shall be even after the death of the principal, if it has been
solidarily liable to the agent for all the consequences of constituted in the common interest of the latter
the agency. (1915) and of the agent, or in the interest of a third
When two persons contract with regard to the same person who has accepted the stipulation in his
thing, one of them with the agent and the other with favor. (1930)
the principal, and the two contracts are incompatible c. Anything done by the agent, without knowledge of
with each other, that of prior date shall be preferred, the death of the principal or of any other cause
without prejudice to the provisions of article 1544 which extinguishes the agency, is valid and shall
(double sale). (1916) be fully effective with respect to third persons who
In the case referred to in the preceding article, if the may have contracted with him in good faith.
agent has acted in good faith, the principal shall be (1931)
liable in damages to the third person whose contract 4. The dissolution of the firm or corporation which
must be rejected. If the agent acted in bad faith, he entrusted or accepted the agency;
alone shall be responsible. (1917) 5. The accomplishment of the object or purpose of the
agency;
MODES OF EXTINGUISHMENT OF AGENCY 6. The expiration of the period for which the agency was
Agency is extinguished by: (1919) constituted. (1732a)
1. Revocation
a. The principal may revoke the agency at will, and CREDIT TRANSACTIONS
compel the agent to return the document Commodatum Mutuum (simple loan)
evidencing the agency (1920) When two or more Not consumable Money or consumable
thing the thing loaned, does not advise the bailee of the
Ownership retained by the Ownership is transferred same, shall be liable to the latter for the damages
lender to the borrower. which he may suffer by reason thereof. (1951)
Essentially gratuitous Gratuitous or onerous When there are two or more bailees to whom a
Borrower must return the Borrower pay only the thing is loaned in the same contract, they are liable
same object same amount of the same solidarily. (1945)
kind and quality
Involve real or personal Only personal property Obligations of the Bailor
property The bailor cannot demand the return of the thing
Bailor may demand the Lender may not demand loaned till after the expiration of the period stipulated,
return of the thing loan in the return before the lapse or after the accomplishment of the use for which the
certain circumstances of the term agreed upon commodatum has been constituted. However, if in the
The loss is suffered by the The borrower suffers the meantime, he should have urgent need of the thing,
bailor loss. he may demand its return or temporary use.
In case of temporary use by the bailor, the contract of
Commodatum - one of the parties delivers to another, commodatum is suspended while the thing is in the
either something not consumable so that the latter may possession of the bailor. (1946)
use the same for a certain time and return it. The bailor may demand the thing at will, and the
a. Essentially gratuitous, if any compensation is to be contractual relation is called a precarium, in the
paid by him who acquires the use, the contract ceases following cases: (1947)
to be a commodatum. (1935) 1. If neither the duration of the contract nor the use
b. Bailor retains the ownership of the thing loaned. to which the thing loaned should be devoted, has
Hence, the bailor in commodatum need not be the been stipulated; or
owner of the thing loaned. (1938) 2. If the use of the thing is merely tolerated by the
c. The bailee in commodatum acquires the used of the owner.
thing loaned but not its fruits. (1935) However, a The bailor may demand the immediate return of the
stipulation that the bailee may make use of the fruits thing if the bailee commits any of the following act of
of the thing loaned is valid. (1940) ingratitude: (1948)
d. Consumable goods may be the subject of 1. If the donee should commit some offense against
commodatum if the purpose of the contract is not the the person, the honor or the property of the donor,
consumption of the object, as when it is merely for or of his wife or children under his parental
exhibition. (1936) authority;
e. Movable or immovable property may be the object of 2. If the donee imputes to the donor any criminal
commodatum. (1937) offense, or any act involving moral turpitude, even
f. Commodatum is purely personal in character. though he should prove it, unless the crime or the
Consequently: act has been committed against the donee himself,
1. The death of either the bailor or the bailee his wife or children under his authority;
extinguishes the contract; 3. If he unduly refuses him support when the donee
2. The bailee can neither lend nor lease the object of is legally or morally bound to give support to the
the contract to a third person. However, the donor.
members of the bailee's household may make use The bailor shall refund the extraordinary expenses
of the thing loaned, unless there is a stipulation to during the contract for the preservation of the thing
the contrary, or unless the nature of the thing loaned, provided the bailee brings the same to the
forbids such use. knowledge of the bailor before incurring them, except
when they are so urgent that the reply to the
Obligations of the Bailee notification cannot be awaited without danger.
The bailee is obliged to pay for the ordinary If the extraordinary expenses arise on the occasion of
expenses for the use and preservation of the the actual use of the thing by the bailee, even though
thing loaned. (1941). However, the bailee does not he acted without fault, they shall be borne equally by
answer for the deterioration of the thing loaned due both the bailor and the bailee, unless there is a
only to the use thereof and without his fault. (1943) stipulation to the contrary. (1949)
The bailee is liable for the loss of the thing, even if it The bailor cannot exempt himself from the payment of
should be through a fortuitous event: (1942) expenses or damages by abandoning the thing to the
1. If he devotes the thing to any purpose different bailee. (1952)
from that for which it has been loaned; (Bad faith)
2. If he keeps it longer than the period stipulated, or Simple loan or mutuum - one of the parties delivers to
after the accomplishment of the use for which the another money or other consumable thing, upon the
commodatum has been constituted; (Delay) condition that the same amount of the same kind and
3. If the thing loaned has been delivered with quality shall be paid. However, A contract whereby one
appraisal of its value, unless there is a stipulation person transfers the ownership of non-fungible things to
exemption the bailee from responsibility in case of another with the obligation on the part of the latter to give
a fortuitous event; (appraisal) things of the same kind, quantity, and quality shall be
4. If he lends or leases the thing to a third person, considered a barter. (1954)
who is not a member of his household; (strictly a. Fixed, savings, and current deposits of money in banks
personal) and similar institutions shall be governed by the
5. If, being able to save either the thing borrowed or provisions concerning simple loan. (1980)
his own thing, he chose to save the latter. b. Gratuitous or with a stipulation to pay interest. (1933)
(ingratitude) c. Ownership passes to the borrower - A person who
The bailee cannot retain the thing loaned on the receives a loan of money or any other fungible thing
ground that the bailor owes him something, even acquires the ownership thereof, and is bound to pay to
though it may be by reason of expenses. (1944) the creditor an equal amount of the same kind and
However, the bailee has a right of retention for quality. (1953).
damages when the bailor who, knowing the flaws of d. 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 latter to pay him the amount by which he may have
value. In case it is impossible to deliver the same kind, enriched or benefited himself with the thing or its
its value at the time of the perfection of the loan shall price. However, if a third person who acquired the
be paid. (1955) thing acted in bad faith, the depositor may bring an
e. No interest shall be due unless it has been expressly action against him for its recovery. (1971)
stipulated in writing. (1956) If the borrower pays
interest when there has been no stipulation therefor, Obligations of the Depositary
solutio indebiti, or natural obligations shall be applied, The depositary is obliged to keep the thing safely and
as the case may be. (1960) to return it, when required, to the depositor, or to his
f. Contracts and stipulations, under any cloak or device heirs and successors, or to the person who may have
whatever, intended to circumvent the laws against been designated in the contract. His responsibility,
usury shall be void. The borrower may recover in with regard to the safekeeping and the loss of the
accordance with the laws on usury. (1957) thing, shall be governed by the provisions of Title I of
g. In the determination of the interest, if it is payable in this Book.
kind, its value shall be appraised at the current price of If the deposit is gratuitous, this fact shall be taken into
the products or goods at the time and place of account in determining the degree of care that the
payment. (1958) depositary must observe. (1972)
h. Interest due and unpaid shall not earn interest. Unless there is a stipulation to the contrary, the
However, the contracting parties may by stipulation depositary cannot deposit the thing with a third
capitalize the interest due and unpaid, which as added person. If deposit with a third person is allowed, the
principal, shall earn new interest. (1959) However, depositary is liable for the loss if he deposited the
Interest due shall earn legal interest from the time it is thing with a person who is manifestly careless or unfit.
judicially demanded, although the obligation may be The depositary is responsible for the negligence of his
silent upon this point (2212) employees. (1973)
i. Usurious contracts shall be governed by the Usury Law The depositary may change the way of the deposit if
and other special laws, so far as they are not under the circumstances he may reasonably
inconsistent with this Code. (1961) presume that the depositor would consent to the
An accepted promise to deliver something by way of change if he knew of the facts of the situation.
commodatum or simple loan is binding upon parties, However, before the depositary may make such
but the commodatum or simple loan itself shall not be change, he shall notify the depositor thereof and
perfected until the delivery of the object of the wait for his decision, unless delay would cause
contract danger. (1974)
The depositary holding certificates, bonds,
DEPOSIT* (Not included in the CPA Board Exam) securities or instruments which earn interest
A deposit is constituted from the moment a person shall be bound to collect the latter when it
receives a thing belonging to another, with the obligation becomes due, and to take such steps as may be
of safely keeping it and of returning the same. If the necessary in order that the securities may preserve
safekeeping of the thing delivered is not the principal their value and the rights corresponding to them
purpose of the contract, there is no deposit but some other according to law.
contract. (1962) The above provision shall not apply to contracts for
An agreement to constitute a deposit is binding, but the rent of safety deposit boxes. (1975)
the deposit itself is not perfected until the delivery of Unless there is a stipulation to the contrary, the
the thing. (1963) depositary may commingle grain or other articles of
A deposit is a gratuitous contract, except when there is the same kind and quality, in which case the various
an agreement to the contrary, or unless the depositary depositors shall own or have a proportionate interest
is engaged in the business of storing goods. (1965) in the mass. (1976)
Only movable things may be the object of a deposit. The depositary cannot make use of the thing deposited
(1966) without the express permission of the depositor.
Kinds of deposit (1759) Otherwise, he shall be liable for damages. However,
1. Judicially when the preservation of the thing deposited requires
2. Extrajudicially. (1967) its use, it must be used but only for that purpose.
a. Voluntary (1977)
b. Necessary. When the depositary has permission to use the thing
deposited, the contract loses the concept of a
VOLUNTARY DEPOSIT deposit and becomes a loan or commodatum,
A contract of deposit may be entered into orally or in except where safekeeping is still the principal
writing. (1969) purpose of the contract. The permission shall not be
A voluntary deposit is that wherein the delivery is presumed, and its existence must be proved. (1978)
made by the will of the depositor. A deposit may also The depositary is liable for the loss of the thing
be made by two or more persons each of whom through a fortuitous event: (1979)
believes himself entitled to the thing deposited with a 1. If it is so stipulated;
third person, who shall deliver it in a proper case to 2. If he uses the thing without the depositor's
the one to whom it belongs. (1968) permission;
If a person having capacity to contract accepts a 3. If he delays its return;
deposit made by one who is incapacitated, the former 4. If he allows others to use it, even though he
shall be subject to all the obligations of a depositary, himself may have been authorized to use the
and may be compelled to return the thing by the same.
guardian, or administrator, of the person who made When the thing deposited is delivered closed and
the deposit, or by the latter himself if he should sealed, the depositary must return it in the same
acquire capacity. (1970) condition, and he shall be liable for damages should
If the deposit has been made by a capacitated person the seal or lock be broken through his fault. Fault on
with another who is not, the depositor shall only have the part of the depositary is presumed, unless
an action to recover the thing deposited while it is still there is proof to the contrary. As regards the value of
in the possession of the depositary, or to compel the the thing deposited, the statement of the
depositor shall be accepted, when the forcible only be bound to return the price he may have
opening is imputable to the depositary, should there received or to assign his right of action against the
be no proof to the contrary. However, the courts may buyer in case the price has not been paid him. (1991)
pass upon the credibility of the depositor with respect
to the value claimed by him. When the seal or lock Obligations of the Depositor
is broken, with or without the depositary's fault, If the deposit is gratuitous, the depositor is obliged to
he shall keep the secret of the deposit. (1981) reimburse the depositary for the expenses he may
When it becomes necessary to open a locked box or have incurred for the preservation of the thing
receptacle, the depositary is presumed authorized to deposited. (1992)
do so, if the key has been delivered to him; or when The depositor shall reimburse the depositary for any
the instructions of the depositor as regards the deposit loss arising from the character of the thing deposited,
cannot be executed without opening the box or Exception:
receptacle. (1982) a. Unless at the time of the constitution of the
The thing deposited shall be returned with all its deposit the former was not aware of,
products, accessories and accessions. Should the b. Was not expected to know the dangerous
deposit consist of money, the provisions relative to character of the thing,
agents in article 1896 shall be applied to the c. He notified the depositary of the same,
depositary. (1983) d. The depositary was aware of it without advice from
The depositary cannot demand that the depositor the depositor.
prove his ownership of the thing deposited. The depositary may retain the thing in pledge until the
Nevertheless, should he discover that the thing has full payment of what may be due him by reason of the
been stolen and who its true owner is, he must deposit. (1994)
advise the latter of the deposit. If the owner, in spite A deposit its extinguished: (1995)
of such information, does not claim it within the (1) Upon the loss or destruction of the thing
period of one month, the depositary shall be relieved deposited;
of all responsibility by returning the thing deposited to (2) In case of a gratuitous deposit, upon the death of
the depositor. If the depositary has reasonable either the depositor or the depositary.
grounds to believe that the thing has not been lawfully
acquired by the depositor, the former may return the NECESSARY DEPOSIT
same. (1983) A deposit is necessary: (1966)
When there are two or more depositors, if they are not (1) When it is made in compliance with a legal
solidary, and the thing admits of division, each one obligation. It shall be governed by the provisions
cannot demand more than his share. When there is of the law establishing it, and in case of its
solidarity or the thing does not admit of division, the deficiency, by the rules on voluntary deposit.
provisions of articles 1212 and 1214 shall govern. (1997)
However, if there is a stipulation that the thing should (2) When it takes place on the occasion of any
be returned to one of the depositors, the depositary calamity, such as fire, storm, flood, pillage,
shall return it only to the person designated. (1985) shipwreck, or other similar events. It shall be
If the depositor should lose his capacity to contract regulated by the provisions concerning voluntary
after having made the deposit, the thing cannot be deposit and by article 2168.
returned except to the persons who may have the Art. 2168. When during a fire, flood, storm, or
administration of his property and rights. (1986) other calamity, property is saved from destruction
If at the time the deposit was made a place was by another person without the knowledge of the
designated for the return of the thing, the owner, the latter is bound to pay the former just
depositary must take the thing deposited to such compensation.
place; but the expenses for transportation shall be
borne by the depositor. If no place has been The deposit of effects made by the travellers in hotels
designated for the return, it shall be made where the or inns shall also be regarded as necessary. The
thing deposited may be, even if it should not be the keepers of hotels or inns shall be responsible for them
same place where the deposit was made, provided that as depositaries, provided that notice was given to
there was no malice on the part of the depositary. them, or to their employees, of the effects brought by
(1987) the guests and that, on the part of the latter, they take
The thing deposited must be returned to the the precautions which said hotel-keepers or their
depositor upon demand, even though a specified substitutes advised relative to the care and vigilance of
period or time for such return may have been their effects. (1998)
fixed. This provision shall not apply when the thing is The hotel-keeper is liable for the vehicles, animals and
judicially attached while in the depositary's possession, articles which have been introduced or placed in the
or should he have been notified of the opposition of a annexes of the hotel. (1999)
third person to the return or the removal of the thing The responsibility referred to in the two preceding
deposited. In these cases, the depositary must articles shall include the loss of, or injury to the
immediately inform the depositor of the attachment or personal property of the guests caused by the servants
opposition. (1988) or employees of the keepers of hotels or inns as well
Unless the deposit is for a valuable consideration, the as strangers; but not that which may proceed from
depositary who may have justifiable reasons for not any force majeure. The fact that travellers are
keeping the thing deposited may, even before the time constrained to rely on the vigilance of the keeper of
designated, return it to the depositor; and if the latter the hotels or inns shall be considered in determining
should refuse to receive it, the depositary may secure the degree of care required of him. (2000)
its consignation from the court. (1989) The act of a thief or robber, who has entered the hotel
If the depositary by force majeure or government is not deemed force majeure, unless it is done with the
order loses the thing and receives money or another use of arms or through an irresistible force. (2001)
thing in its place, he shall deliver the sum or other The hotel-keeper is not liable for compensation if the
thing to the depositor. (1990) loss is due to the acts of the guest, his family, servants
The depositor's heir who in good faith may have sold or visitors, or if the loss arises from the character of
the thing which he did not know was deposited, shall the things brought into the hotel. (2002)
The hotel-keeper cannot free himself from A married woman may guarantee an obligation without
responsibility by posting notices to the effect the husband's consent, but shall not thereby bind the
that he is not liable for the articles brought by conjugal partnership, except in cases provided by law.
the guest. Any stipulation between the hotel-keeper (2049)
and the guest whereby the responsibility of the former Nevertheless, a guaranty may be constituted to
as set forth in articles 1998 to 2001 is suppressed or guarantee the performance of a voidable or an
diminished shall be void. unenforceable contract. It may also guarantee a
The hotel-keeper has a right to retain the things natural obligation. (1824a)
brought into the hotel by the guest, as a security for A guaranty may also be given as security for future
credits on account of lodging, and supplies usually debts, the amount of which is not yet known; there
furnished to hotel guests. (2004) can be no claim against the guarantor until the debt is
liquidated. A conditional obligation may also be
SEQUESTRATION OR JUDICIAL DEPOSIT secured. (2053)
A judicial deposit or sequestration takes place when an A guarantor may bind himself for less, but not for
attachment or seizure of property in litigation is more than the principal debtor, both as regards the
ordered. (2005) amount and the onerous nature of the conditions.
Movable as well as immovable property may be the Should he have bound himself for more, his obligations
object of sequestration. (2006) shall be reduced to the limits of that of the debtor.
The depositary of property or objects sequestrated (2054)
cannot be relieved of his responsibility until the A guaranty is not presumed; it must be express and
controversy which gave rise thereto has come to an cannot extend to more than what is stipulated therein.
end, unless the court so orders. (2007) (2055)
The depositary of property sequestrated is bound to One who is obliged to furnish a guarantor shall present
comply, with respect to the same, with all the a person who possesses integrity, capacity to bind
obligations of a good father of a family. (2008) himself, and sufficient property to answer for the
As to matters not provided for in this Code, judicial obligation which he guarantees. The guarantor shall be
sequestration shall be governed by the Rules of Court. subject to the jurisdiction of the court of the place
(2009) where this obligation is to be complied with. (2056)
If the guarantor should be convicted in first instance of
GUARANTY (Not included in the CPA Board Exam) a crime involving dishonesty or should become
By guaranty a person, called the guarantor, binds insolvent, the creditor may demand another who has
himself to the creditor to fulfill the obligation of the all the qualifications required in the preceding article.
principal debtor in case the latter should fail to do so. The case is excepted where the creditor has required
(2047) If a person binds himself solidarily with the and stipulated that a specified person should be the
principal debtor the contract is called a suretyship. guarantor. (2057)
Classification of guaranty (2051)
1. Guaranty in broad sense Effects of Guaranty Between the Guarantor and the
a. Personal guaranty is the credit (guaranty in Creditor
the strict sense) The guarantor cannot be compelled to pay the creditor
b. Real guarantee is the property unless the latter has exhausted all the property of the
2. As to origin debtor, and has resorted to all the legal remedies
a. Conventional - agreement against the debtor. (2058)
b. Legal - law
c. Judicial required by court When excussion shall not take place: (2059)
3. As to consideration (1) If the guarantor has expressly renounced it;
a. Gratuitous- guarantor does not receive any (2) If he has bound himself solidarily with the debtor;
price or remuneration (3) In case of insolvency of the debtor;
b. Onerous – Guarantor received valuable (4) When he has absconded, or cannot be sued within
consideration the Philippines unless he has left a manager or
4. Person guaranteed representative;
a. Single to guarantee or secure performance of (5) If it may be presumed that an execution on the
the principal obligation. property of the principal debtor would not result in
b. Double or sub guaranty to secure the the satisfaction of the obligation.
fulfillment of a prior guaranty. (6) Failure of the guarantor to set the right of
5. As to scope and extent excussion against the creditor upon the latter's
a. Definite guaranty is limited to the principal demand for payment from him, and point out to
obligation only, or to a specific portion thereof. the creditor available property of the debtor within
b. Indefinite or simple it shall compromise not Philippine territory, sufficient to cover the amount
only the principal obligation, but also all its of the debt. (2060)
accessories, including the judicial costs, (7) If he is a judicial bondsman (2084)
provided with respect to the latter, that the A compromise between the creditor and the principal
guarantor shall only be liable for those costs debtor benefits the guarantor but does not prejudice
incurred after he has been judicially required him. That which is entered into between the guarantor
to pay. (2055) and the creditor benefits but does not prejudice the
Characteristics of guaranty principal debtor. (2063)
a. Accessory - A guaranty cannot exist without a valid The guarantor of a guarantor shall enjoy the benefit of
obligation. (2052) excussion, both with respect to the guarantor and to
b. Subsidiary takes effect only when the principal the principal debtor. (2064)
debtor fails in his obligation Should there be several guarantors of only one
c. Unilateral duty of the guarantor in relation to the debtor and for the same debt, the obligation to
creditor. answer for the same is divided among all. The
creditor cannot claim from the guarantors except
A guaranty is gratuitous, unless there is a stipulation the shares which they are respectively bound to
to the contrary. (2048) pay, unless solidarity has been expressly stipulated.
stating the amount for which the public sale is to be sold only after demand of the amount for which the
held. If at the first auction the thing is not sold, a thing is retained. The public auction shall take place
second one with the same formalities shall be held; within one month after such demand. If, without just
and if at the second auction there is no sale either, grounds, the creditor does not cause the public sale to
the creditor may appropriate the thing pledged. be held within such period, the debtor may require the
In this case he shall be obliged to give an acquittance return of the thing. (2122)
for his entire claim. (2112) Special laws govern the pawnshops and other
At the public auction, the pledgor or owner may establishments, which are engaged in making loans
bid. He shall, moreover, have a better right if he secured by pledges and subsidiarily by the civil code.
should offer the same terms as the highest bidder. (2123)
(2113)
REAL ESTATE MORTGAGE
Foreclosure sale Only the following property may be the object of a
Pledge contract of mortgage: (2124)
a. Excess The debtor is not entitled to excess 1. Immovables;
except if there is stipulation. However, the excess 2. Alienable real rights in accordance with the laws,
must be delivered to the pledgor. imposed upon immovables.
b. Deficiency Creditor is not entitled to deficiency. 3. Movables may be the object of a chattel
Any stipulation is void. mortgage.
It is indispensable, in order that a mortgage may be
Chattel mortgage validly constituted, that the document in which it
a. Excees The mortgagor is entitled to excess appears be recorded in the Registry of Property. If the
b. Deficiency The mortgagee is entitled to instrument is not recorded, the mortgage is
deficiency except in case of foreclosure of chattel nevertheless binding between the parties. (2125)
mortgage on the thing sold on installment when The persons in whose favor the law establishes a
the vendees failed to pay covering two or more mortgage have no other right than to demand the
installment. (Recto law). execution and the recording of the document in which
the mortgage is formalized.
Real Estate Mortgage The mortgage directly and immediately subjects the
a. Excess The mortgagor is entitled to the excess. property upon which it is imposed, whoever the
b. Deficiency The mortgagee is entitled to the possessor may be, to the fulfillment of the obligation
deficiency. for whose security it was constituted. (2126)
The mortgage extends to (2127)
The pledgee may also bid, but his offer shall not be a. Natural accessions,
valid if he is the only bidder. b. Improvements,
All bids at the public auction shall offer to pay the c. Growing fruits,
purchase price at once. If any other bid is accepted, d. The rents or income not yet received when the
the pledgee is deemed to have been received the obligation becomes due,
purchase price, as far as the pledgor or owner is e. To the amount of the indemnity granted or owing
concerned. (2114) to the proprietor from the insurers of the property
The sale of the thing pledged shall extinguish the mortgaged,
principal obligation, whether or not the proceeds of the f. In virtue of expropriation for public use, with the
sale are equal to the amount of the principal declarations, amplifications and limitations
obligation, interest and expenses in a proper case. If established by law, whether the estate remains in
the price of the sale is more than said amount, the possession of the mortgagor, or it passes into
the debtor shall not be entitled to the excess, the hands of a third person.
unless it is otherwise agreed. If the price of the The mortgage credit may be alienated or assigned to a
sale is less, neither shall the creditor be entitled to third person, in whole or in part, with the formalities
recover the deficiency, notwithstanding any stipulation required by law. (2128)
to the contrary. (2115) The creditor may claim from a third person in
After the public auction, the pledgee shall promptly possession of the mortgaged property, the payment of
advise the pledgor or owner of the result thereof. the part of the credit secured by the property which
(2116) said third person possesses, in the terms and with the
Any third person who has any right in or to the thing formalities which the law establishes. (2129)
pledged may satisfy the principal obligation as soon as A stipulation forbidding the owner from
the latter becomes due and demandable. (2117) alienating the immovable mortgaged shall be
If a credit which has been pledged becomes due before void. (2130)
it is redeemed, the pledgee may collect and receive
the amount due. He shall apply the same to the ANTICHRESIS
payment of his claim, and deliver the surplus, should By the contract of antichresis the creditor acquires the
there be any, to the pledgor. (2118) right to receive the fruits of an immovable of his debtor,
If two or more things are pledged, the pledgee may with the obligation to apply them to the payment of the
choose which he will cause to be sold, unless there is a interest, if owing, and thereafter to the principal of his
stipulation to the contrary. He may demand the sale of credit. (2132)
only as many of the things as are necessary for the The actual market value of the fruits at the time of the
payment of the debt. (2119) application thereof to the interest and principal shall be
Pledges created by operation of law, such as those the measure of such application. (2133)
referred to in articles 546, 1731, and 1994, are The amount of the principal and of the interest
governed by the foregoing articles on the possession, shall be specified in writing; otherwise, the
care and sale of the thing as well as on the termination contract of antichresis shall be void. (2134)
of the pledge. However, after payment of the debt and The creditor is obliged to pay the taxes and charges
expenses, the remainder of the price of the sale shall upon the estate unless there is a stipulation to the
be delivered to the obligor. (2121) contrary. (2135)
A thing under a pledge by operation of law may be He is also bound to bear the expenses necessary for its
CHATTEL MORTGAGE
By a chattel mortgage, personal property is recorded
in the Chattel Mortgage Register as a security for the
performance of an obligation. If the movable, instead
of being recorded, is delivered to the creditor or a third
person, the contract is a pledge and not a chattel
mortgage. (2140)
The provisions of this Code on pledge, insofar as they
are not in conflict with the Chattel Mortgage Law shall
be applicable to chattel mortgages. (2141)