Professional Documents
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Civil Law Uribe Notes Civ Rev 2
Civil Law Uribe Notes Civ Rev 2
Page 1 Faye Marie C. Martinez – Chato Cabigas – Jessica A. Lopez – Dian Rosapapan
Ariel Maniacop, Gerard Sayas, Ayce Ann Sadiwa
Distinctions Example 2: If the pre-existing obligation is to
1. Deed of Absolute Sale (DAS) vs. Conditional deliver a specific horse but instead of delivering the
Sale (CS) vs. Contract to Sell (CTS) horse, the debtor told his creditor and the creditor
2. Dation in Payment (DIP) vs. COS accepted, that he will instead deliver his car → it is
3. Contract for a Piece of Work (CPW) vs. COS still DIP but it will not fall on 1245 but on novation
4. Barter vs. COS because there is a change in the object of the
5. Agency to Sell (ATS) vs. COS obligation which would extinguish the obligation.
Deed of Absolute Sale (DAS) vs. Conditional Note: A guide to distinguish one concept from
Sale (CS) vs. Contract to Sell (CTS) another is to know the nature, requisites and
DAS – seller does not reserve his title over the effects.
thing sold and thus, upon delivery of the thing,
ownership passes regardless of whether or not the 1. As to Nature
buyer has paid. DIP – a special form of payment
COS - it is a contract
CS - condition/s are imposed by the seller before
ownership will pass. Normally, the condition is the 2. As to Requisites
full payment of the price. In CS, ownership DIP – with a pre-existing obligation
automatically passes to the buyer from the moment COS – not a requirement
the condition happens. There is no need for
another contract to be entered into. 3. As to Effect
DIP – to extinguish the obligation either wholly or
BE: Receipt was issued by A to B. The receipt’s partially.
tenor “Date of the receipt xxx Received from B COS – obligation will arise instead of being
the sum of P75,000.00 as partial payment for extinguished.
the car xxx the balance to be paid at the end of
the month xxx”. Contract to Sell? Contract for a Piece of Work (CPW) vs. COS
SA: No. It does not pertain to a CTS because in a BE: A team if basketball players went to a store
CTS ownership is reserved by the seller despite to buy shoes and out of the 10 members, 5 of
delivery to the buyer. The buyer does not acquire them were able to choose the shoes. They
ownership. This is an Absolute Sale. agreed to pay the price upon delivery. The
other 4 members were able to choose but the
Q: In a CTS, upon the happening of the shoes were not available at that time but they
condition/s imposed by the seller, would are normally manufactured. The last member
ownership automatically pass to buyer? could not find shoes that could fit his 16 inches
A: No. While a CTS is considered a special kind of feet and therefore he has to order for such kind
conditional sale, it is a peculiar kind of sale of shoes. What transactions were entered into
because despite the happening of the condition by these players?
and actual delivery, the buyer does not SA: 1467 → the first 2 transactions involving a total
automatically acquire ownership. In CTS, if of 9 players would be considered a COS because
condition/s happen, the right of the buyer is to the shoes which they ordered are being
compel the seller to execute a final deed of sale. manufactured or procured in the ordinary course of
So ownership does not automatically pass. business for the general market. However, the last
transaction which will be manufactured only
Dation in Payment (DIP) vs. COS because of the special order of the player and is
DIP (1245) – whereby property is alienated to the not ordinarily manufactured for the general market
creditor. It is provided that the law on sales shall will be considered a CPW which is known as the
govern such transaction. It is specifically provided Massachusetts rule.
that the pre-existing obligation must be in money. If Massachusetts rule – rule in determining whether
not in money and there is DIP, it will not be the contract is a COS or a CPW.
governed by the law on sales but by the law on
novation because practically there is a change in Barter vs. COS
the object of the contract. Q: A obliged himself to deliver a determinate
car with a market value of P250,000.00. B
Example 1: If A owes B P100,000.00 instead of obliged himself to deliver his watch and
paying P100,000, he offers B and B accepts the P150,000.00 in cash. What kind of contract?
car of A as an equivalent performance → this is A: First, you have to consider the intention of the
DIP and will be governed by the law on sales. parties. They may want this transaction to be
considered as a sale or barter and that will prevail.
Page 2 Faye Marie C. Martinez – Chato Cabigas – Jessica A. Lopez – Dian Rosapapan
Ariel Maniacop, Gerard Sayas, Ayce Ann Sadiwa
But if the intention of the parties is not clear from 3. Cause or Consideration – as far as seller is
their agreement then the nature of the contract will concerned, it is the price in money or the
depend on the value of the watch. If the value of equivalent of the payment of the price.
the watch is greater than P150,000 then this is
barter. If the value of the watch is equal or less CONSENT OF THE CONTRACTING PARTIES
than P150,000 then this is sale. The value of the A. No consent of one or both of the parties
car is irrelevant. What is only relevant is the value → the contract is void. Under the law on sales, it is
of the thing (watch) in relation to the cash to be a fictitious contract where the signature of one of
given by one of the parties. the parties was forged. Normally, the seller’s
signature is forged. If the signature of the seller is
Agency to Sell (ATS) vs. COS forged, that would be a fictitious contract. The
BE: A gave B the exclusive right to sell his alleged seller will not have participation in the
maong pants (he has his own brand of maong execution of the contract. But another kind of
pants) in Isabela. It was stipulated in the contract recognized in the Civil Code is a simulated
contract that B has to pay the price of maong contract.
within 30 days from delivery to B. It was
stipulated that B will receive 20% commission Simulated – parties to this contract actually would
(discount) on sale. The maong pants were have participation. They would voluntarily sign in
delivered to B. However, before B could sell the the deed of sale. However, they do not intend to be
goods, the store was burned without fault of bound at all or they may intend to be bound to
anyone. Can B be compelled to pay the price? another contract but they executed a deed of sale.
From the wordings of the problem you may have Thus, the law would ratify these contracts
an idea that this is an agency to sell. If this is an considering there is a simulated sale.
ATS, the fact that the agent has not yet sold the
maong pants when they were burned will not result Kinds of Simulated Contracts
in a liability on his part, there being no negligence 1. Absolutely Simulated – they do not intend to be
on his part because with the delivery of the thing bound at all.
from the principal to the agent, ownership does not Q: Why would they enter into this kind of sale?
pass. Under the principle in the Civil Code – res A: (a) To defraud creditors. The debtor would sell
perit domino – it will be the seller (owner) who will his remaining assets to make it appear that he has
bear the loss. But if this transaction is sale then no more assets which may be reached by his
with the delivery of the maong pants to B, creditors.
ownership passed to B because he did not reserve (b) Applicants for residency abroad would
ownership over the pants despite the fact that the normally be required to present certificate of title
other party has not paid the price. So when the over parcels of land so that the applicant will
pants were burned, it would now be B as the owner appear to have assets. Therefore, hindi mag TNT
who will bear the loss. yung applicant. These applicants would normally
ask his brother or sister or friends na kunwari that
SA: This is exactly the case of Quiroga vs. land would be sold to them. They will have the
Parsons. Article 1466 – in construing a contract property registered in their name. They will present
containing provisions characteristics of both a COS the title to the Embassy. But actually the parties do
and ATS, you have to go into the essential clauses not intend to be bound. Take note that this may be
of the whole instrument. In this problem, one of the a root of a valid title as far as 3rd persons are
clauses “B has to pay the price within 30 days”. concerned. These 3rd persons who relied on the
That would make the contract COS and not ATS transfer certificate of title in the name of the seller
because in 30 days from delivery, whether or not B even if that seller is not the owner because the sale
has already sold those pants to other persons, he is simulated may acquire ownership.
is already obliged to pay a price. That is not an
ATS. Being a COS, therefore, after having been 2. Relatively Simulated – sale where they actually
delivered, ownership passed to the buyer and intended another contract which normally would be
hence under res perit domino rule, the buyer bears a donation.
the loss and therefore he can be compelled to pay Q: Why would they execute a deed of sale
the price. instead of executing a deed of donation?
A: (a) To minimize tax liabilities. Donor’s tax is
Essential Elements of a Contract of Sale higher than capital gains tax or final income tax
1. Consent of the Contracting Parties and documentary stamp tax.
2. Object or Subject Matter – which is a (b) To circumvent the provisions on legitimes
determinate thing or right and collation under succession. This may be
Note: Service cannot be the subject matter of sale.
Page 3 Faye Marie C. Martinez – Chato Cabigas – Jessica A. Lopez – Dian Rosapapan
Ariel Maniacop, Gerard Sayas, Ayce Ann Sadiwa
questioned if you can prove that there was no notarization of the document and he was asked by
consideration. the notary public as to his age and he again
misrepresented, he will be bound to such contract.
B. If consent was given
→ If consent was given, it does not necessarily Atty. Uribe’s Comment: Estoppel is not a good
mean that the COS is valid. The consent may be ground because the minor is not aware.
given by an incapacitated person or one with
capacity to give consent. If given by an Sale of Necessaries
incapacitated person, consider the nature of the In sale of necessaries such as food, clothing and
incapacity. It may be: medicine to a minor, the minor has to pay a
a. Absolute Incapacity – the party cannot reasonable price. This contract is not voidable. The
give consent to any and all contracts. sale of necessaries will bind the minor and he will
b. Relative Incapacity – the party is be compelled to pay not really the contract price
prohibited from entering sometimes with but only to reasonable price.
specific persons and sometimes over
specific things. Relative Incapacity (Articles 1490 and 1491)
1. Sale between spouses – it is void except:
Kind of Capacity a. The spouses executed a marriage
1. Juridical Capacity – it is the fitness to be the settlement and in the marriage settlement
subject of legal relations. If a party to a sale has no they agreed for a complete separation of
juridical capacity, the contract is void. Note that all property regime. Then they can sell to
natural living persons have juridical capacity. Even each other.
if he is a 1 day old baby, he has juridical capacity. b. If no marriage settlement, they may have
The baby can be the subject of donation. Even if obtained judicial declaration of separation
he is conceived, he has provisional personality. of property. After that, they can sell to
each other.
Example: One example of a party to a sale without
juridical capacity would be a corporation not 2. Those mentioned in Article 1491
registered with the SEC. The contract entered by a. A guardian cannot buy the property of the
this corporation is a void contract because one of ward. The guardian is not actually
the parties has no juridical capacity to enter into prohibited from entering into any and all
that contract. contracts. It is just that he cannot be the
buyer of a property of his ward.
2. Capacity to Act – it is the power to do acts with b. An agent cannot buy without the consent
legal effects. If the incapacity only pertains to of the principal a property which he was
capacity to act, the contract would normally be supposed to sell or administer.
voidable. Without capacity to act or there are c. The executors and administrators of the
restrictions with one’s capacity to act such as estate cannot buy a property which is part
minority, insanity, deaf mute and does not know of the estate.
how to write and civil interdiction. d. Public officers, judges, their staff, clerk of
court, stenographers and lawyers are
Note: Under R.A. 6809 (December 1989) there is prohibited from buying those properties
no more creature known as “unemancipated which are the subject of litigation during
minor”. Before 1989, the age of majority was 21. the pendency of the case.
C. If both parties are incapacitated Q: What is the status of the contracts under
→ not only voidable but unenforceable. 1491?
Q: What if one of the parties in a COS is a A: Prof. Tolentino – voidable
minor and the minor actively misrepresented as Justice Vitug & Prof. Baviera – void
to his age? Prof. Pineda & Prof. de Leon – the first 3
A: The SC said that the minor will be bound to such are voidable and the last 3 are void.
contract under the principle of estoppel. Active The better answer is void because these persons
misrepresentation, can be seen from the deed are prohibited from entering into these contracts.
itself. In a deed of sale, normally after the name, Under Article 1409, if the contract is prohibited, it is
the words “of age” were stated. If the minor signed void.
that contract, he will be bound. If no statement in
the deed of sale as to his age, in one case, the fact Discussion of Prof. De Leon’s Answer
he misrepresented to the notary public when he The first 3 are voidable because these contracts
appeared before the notary public for the may be the subject of ratification. If you will read
Page 4 Faye Marie C. Martinez – Chato Cabigas – Jessica A. Lopez – Dian Rosapapan
Ariel Maniacop, Gerard Sayas, Ayce Ann Sadiwa
his discussion, he based his discussion in the case are not appropriated like air is void but if
of Rubias vs. Batiller wherein the guardian bought appropriated it can be the object of a valid sale.
the property of his ward. So the contract is voidable
because if the ward becomes of age, he can enter 2. The thing must be licit – not contrary to law
a COS over the thing to his guardian and that sale Examples: sale of prohibited drugs or shabu is
would be a valid sale. (Pls. read the full text of Prof. void, sale of marijuana is void, sale of wild flowers
De Leon’s comment) or wild animals is void
Atty. Uribe: It is correct that it is a valid sale. But
does that mean that the sale ratified the 1st 3. Must be determinate
contract? I disagree because ratification under the Q: Sale of a car without agreement as to the
Civil Code has the effect of cleansing the contract features for P1M. On the other hand, another
from all its defects from the very beginning as if the transaction would be a sale of Mitsubishi
contract was entered into during the first Lancer, 2007, GSL and color black for P1M. Are
agreement that the agreement was valid from the these 2 transactions, valid sale?
very start. In fact, the SC said in Rubias vs. Both would pertain to generic thing. Under the law,
Batiller “ratification” (quote and quote), because a thing is considered determinate only when it is
the effect of the second contract will not retroact to particularly designated or physically segregated
the first contract. It will only be valid from the time from all others of the same class. Both transactions
the second contract was entered into. After all, pertain to generic so both transactions are void?
there is no ratification in that sense under the Civil A: No. The first transaction is void. The second
Code. Thus, since it does not retroact to the first, transaction is valid because Article 1460 requires
the second contract is void. Otherwise, if voidable that the requirement of the law that a thing should
then it can be ratified. The defect on the first be determinate would be sufficiently complied with
contract would have been cleansed with the if the thing which is the object of the sale is capable
execution of the second contract. of being made determinate without a need of a
new or further agreement.
2. Aliens are prohibited from acquiring by purchase
private lands – Take note “acquiring” which means Example: Sale of 1 gallon Minola pure coconut oil.
buying not selling. They can sell. Though generic, it is valid under Article 1460.
Exceptions / when aliens can buy:
a. Former natural born Filipino citizen. Under RULES AS TO OBJECT OF COS
the Constitution they are allowed to buy Q: A obliged himself to deliver and transfer
small land which they can use for ownership over the palay that will be harvested
residential purpose. from a specific parcel of rice land in May 2008.
b. Another way of acquiring is by succession What if by May 2008, no palay was harvested?
but this is not a sale a. What is the status of the sale?
b. May the seller “A” be held liable for
D. Even if consent was given by one with damages for failure to comply with his
capacity to give consent but if the consent is obligation?
vitiated A:
→ voidable. FIVUM a. Always consider that in a COS there are only
3 requisites. As long as these 3 were complied,
E. If the party gave such consent in the name of there is a valid sale. In fact, by express provision of
another without authority of that person or no law, sale of things having potential existence
authority of law (emptio rei sperati) is valid.
→ unenforceable. Take note may be authorized by b. Not necessarily because there are excuses to
the person or by law. non-performance such as pestilence, typhoon,
Example of authorized by law: notary public has flood and therefore his failure to comply is an
the right to sell in pledge because he has the excuse. But if the reason of the seller is because of
authority to sell under the law. his negligence, he cannot find support under Art.
1174.
OBJECT OR SUBJECT MATTER
The requisites in sale as to thing would almost be Sale of Hope (Emptio Spei)
the same as the requisites of contracts in general. Example: Sale of a lotto ticket
1. The thing must be within the commerce of men Q: Assuming the sale of a lotto ticket happened
Examples: sale of a navigable river is void, sale of the day after it was drawn, what is the status of
a cadaver is void but donation of a cadaver is the sale?
allowed, sale of human organs is void, things which A: It will depend whether the ticket is a winning or
losing ticket. What the law provides is that the sale
Page 5 Faye Marie C. Martinez – Chato Cabigas – Jessica A. Lopez – Dian Rosapapan
Ariel Maniacop, Gerard Sayas, Ayce Ann Sadiwa
of a vain hope is a void sale. If the ticket is a
winning ticket, it is not a vain hope hence, it is a Q: Why or when a right would not be
valid sale. transmissible?
A: If it is intransmissible by nature or by stipulation
Q: Why would a person sell a winning ticket? or by provision of law.
A: He may need the money immediately. Parang
discounted yung ticket. Nanalo ng P1M, ibebenta G.R.: As a rule, rights and obligations arising from
nya ng P990,000 because he needs the money contracts are transmissible.
immediately. Exceptions:
1. Intransmissible by Nature – Examples: right as
Q: Sale of a land to B with a right to repurchase a legitimate child cannot be sold. Any contract
within 1 year which A delivered. On the 3rd where the personal qualifications has been
month, B sold the land to C. However, on the 9th considered .
month, A offered to repurchase the land. 2. Intransmissible because of Stipulation –
(a) What is the status of the sale between A Example: The parties stipulated in a lease contract
and C? that the right to sublease cannot be transferred if it
(b) Who will have a better right over the land? is prohibited by the lessor.
(Sale with a right to repurchase) 3. Intransmissible because of Law – Example: In
partnership, the right in specific partnership
A: (a) Be guided by the fact that a COS is a property without all the partners making the
consensual contract. The mere meeting of the assignment cannot be validly assigned.
minds as to the object and the price, then there is a
valid and perfected sale. Hence, this is a valid sale Q: Sale of a right, also perfected by mere
even if the object of the sale is a sale with a right to consent?
repurchase. Article 1465 provides that things A: Yes. To bind 3rd persons, it must be in a public
subject to a resolutory condition may be the object instrument. Recorded in the Registry of Property.
of a COS.
Atty. Uribe: Mas tamang sabihin – since the CAUSE OR PRICE CERTAIN IN MONEY OR ITS
ownership thereof is subject to a resolutory EQUIVALENT
condition. Hindi naman yung thing is the subject of
resolutory condition, it is the ownership over the Q: A deed of sale was entered into by A and B.
thing. The price agreed upon was 1M yen.
If A exercises the right to repurchase and such (a) May that be a valid sale?
would be a valid exercise of such right then the (b) Can the seller compel the buyer
ownership of B would be extinguished. The to pay in yen?
exercise of the right is considered a resolutory A: (a) Yes, it is valid. Basis is Article 1458
condition as to the ownership of B. The fact that because the only requirement of the law is “in
the object of the sale is subject to a repurchase will money”. Even Japanese yen is in money. The law
not affect the validity of the sale. states that it may not even be in money, it may be
(b) As a rule, it would be A as a seller a retro “equivalent” like promissory notes whether or not
because he has the right to repurchase assuming negotiable or letters of credit.
his repurchase is valid. C may have a better right if (b) If the contract was entered into today,
he can claim that he is an innocent purchaser for yes it is valid because of R.A. 8183 which repealed
value. Example: maybe the right to repurchase was R.A. 529 in 1996. If COS was entered before R.A.
not annotated at the back of the title of the land 8183, the seller cannot compel even though the
and he has no actual knowledge. If that is the contract is valid. The payment has to be made in
case, C may have a better right. Philippine money.
Consider the date of the sale. If parties failed to
SALE OF RIGHT / ASSIGNMENT OF RIGHT stipulate as to which currency, it has to be in
Assignment of right is not necessarily a sale. If Philippine currency.
there is a valuable consideration for the
assignment, it is a sale. If there is no valuable Q: Can there be a valid payment in P10,000 - P1
consideration, it may be a donation or dacion en coins?
pago. A: Yes.
Examples of right: credit, shares of stock Q: Can you compel the seller to accept?
A: No. Under the Philippine law, P1 will have legal
Requisite of a right → the only requirement is that tender power only up to P1,000. He may accept
the right must not be intransmissible but he cannot be compelled.
Page 6 Faye Marie C. Martinez – Chato Cabigas – Jessica A. Lopez – Dian Rosapapan
Ariel Maniacop, Gerard Sayas, Ayce Ann Sadiwa
Q: Sale of a car, the price of the car is P1,
Note: P1, P5, P10 up to P1,000 valid?
less than P1 up to P100 A: Yes, it is valid. It can be a valid sale. Lesion or
gross inadequacy of the price does not as a rule
Price Must be Certain invalidate a contract unless otherwise specified by
Q: Sale of shares of stocks but there was no law.
date as to the value of the share, valid? Exception: when otherwise provided by law.
A: The value of the shares as to what date is Example: Article 1381 – when the guardian sells
material because the value of the shares changes the property of the ward and there is lesion of more
almost everyday depending on the shares. Shares than 25% or more than ¼ of the value of the thing.
of companies who are active in trading would Take note that the buyer must not be the guardian
change every now and then. In fact, even if the otherwise 1491 will apply → void. But if the
date as to the value of the shares has been fixed guardian sold it to another person there being
but the time was not considered, maybe the lesion of more than ¼ like when the value of the
opening or the closing in a particular exchange property is P100,000 was sold for P65,000, the
would affect the validity of the sale. For example, in contract is rescissible.
the opening, the value of the share is P50 but in
the closing it is P39. So again, it has to be certain. Note: Under the law on sales, if there is gross
inadequacy, it may reflect vitiation of consent so
Q: If you will fix the price by considering the the SC would normally enjoin the lower courts to
tuition fee of a student per unit, would that be a be warned of the possibility of fraud in case of
certain price? lesion. Lesion must be proven as a fact. It is not
A: No because different schools would have presumed.
different tuition fees and even in a certain school, If there is gross inadequacy, it maybe because
fees per college are different. actually they intended another contract and that
would make the sale a simulated sale and
Q: Who can fix the price? therefore the sale is void.
A: (1) The best way is for the parties to agree as to Example: The value of the property is P1M but only
the price. (2) They may agree that one of them will P10,000 was written in the contract because they
fix the price. intended it to be a donation → void.
Q: May the sale be perfected if the agreement TIME OF THE PERFECTION OF THE
of the parties was for one of them to fix the CONTRACT
price?
A: Yes, it may be perfected only if the price fixed by Auction Sale
the party who was asked to fix the price was Auction sale is perfected upon the fall of the
accepted by the other party. If not accepted, there hammer or any other customary manner. Thus,
was no meeting of the minds. before the fall of the hammer in an auction sale,
the bidder even if he has already made a bid, he
Note: The perfection will only be considered at the can still withdraw the bid as long as he would do
time of the acceptance of the price fixed by the that before the fall of the hammer. Otherwise, (if
other party not from the time of the first agreement after the fall of the hammer), there is already a
of the parties. perfected sale.
Q: What if a 3rd person was asked to fix the Q: Can the auctioneer withdraw the goods
price – A and B agreed that X will fix the price, before the fall of the hammer?
may the sale be void? A: As a rule, yes because the sale has not been
A: Yes, the sale may be void if the third person perfected at the moment unless the bidding or
does not want to fix the price or unable to fix the auction has been announced to be without reserve.
price. Hence, there was no meeting of the minds.
Note: Before perfection, there is one contract
Q: If the 3rd person fixed the price but it was too which maybe perfected. Before perfection meaning
high or too low or maybe there was fraud in the negotiation stage → this contract is known
committed by the 3rd person or he was in as the option contract.
connivance with one of the parties, may the
sale be void? Option Contract
A: No, because the remedy of the other party is to Sanchez vs. Rigos
go to court for the court to fix the price. Facts: Mrs. Rigos offered to sell her land to
Sanchez for a certain price. Rigos gave Sanchez 2
Page 7 Faye Marie C. Martinez – Chato Cabigas – Jessica A. Lopez – Dian Rosapapan
Ariel Maniacop, Gerard Sayas, Ayce Ann Sadiwa
years within which to decide. (Note: The optionee as partial payment because it is a consideration for
or promisee or offeree is not bound to purchase but the option and therefore not part of the price.
he has the option to buy or purchase). In this case,
Sanchez has the option. Before the lapse of 2 Q: With EM, does it mean that there is already a
years, Sanchez told Rigos that he is buying and perfected COS?
offered the price agreed upon but Rigos refused A: Not necessarily. Under the law, it is only a proof
claiming that she was not bound by the written of the perfection of the sale. In fact, there may not
option agreement because no option money be a perfected sale even if there was EM given,
(consideration) was given by Sanchez. According being merely a part of the purchase price or total
to Rigos, the option contract is void. contract price. The parties may not have actually
agreed as to the total price, therefore, even if they
Held: Since Sanchez accepted the offer and agreed that a certain amount is part of the price,
decided to buy within the period before the offer they have not agreed on the total price or if they
was withdrawn, a perfected COS was created even agreed on the total price, they have not agreed on
without option money. In this case, there was no the object of the sale. So no perfected COS. EM
option contract because it was merely an option goes into only 1 of the essential elements, that is
agreement. Therefore, there was merely an offer not the only element in COS. That is only a proof of
on the part of Rigos and once the offer was the perfection of the contract. Take note, a proof
accepted before it was withdrawn, regardless of does not necessarily establish a fact, it may not be
whether option money was given and in this case sufficient to establish a fact.
no option money was given, a perfected COS was
created. Q: With a perfected COS, does it mean it is
already enforceable?
Note: Iba pag may option money A: Not necessarily. Note that upon perfection, the
Q: 2 years within which to decide – assuming parties may compel the other party to perform their
there was option money, before the offeree respective obligations. But the perfection is subject
could decide to buy, the offeror withdraw on to the formalities prescribed by law for that
the 6th month. contract. Therefore, even under 1475, the
(a) Can the offeree on the 10th month perfection of the contract is subject to the
say “I would like to buy”? provisions of law on the formalities of COS like the
(b) Can the buyer compel the seller to statute of frauds. There may be meeting of the
sell? minds but if it is not in the form prescribed by law, it
A: (a) No. may be unenforceable.
(b) No, an action for specific performance will
not prosper because when he said he will but there G.R.: A COS may be in any form. Article 1483
was not more offer to be considered. Na-withdraw provides that a COS may be in writing, partly in
na eh. writing xxx. This provision is exactly the same as
Article 1356 in contracts which provides that
Q: If the offeree files an action for damages, contracts may be obligatory in whatever form they
may that action prosper there being option may have been entered into provided all the
money given? essential requisites are present. But then again
A: Yes, because with the option money, an option even Article 1356 just like Article 1475 would
contract is perfected, the offeror is bound to give provide for exceptions.
the offeree, 2 years within which to decide and Exceptions: The law may require a particular form
failure to that he is liable not based on perfected for its validity. The Cattle Registration Decree is an
COS but on perfected contract of option. example - where the law itself provides for a
particular form for the validity of the sale. But the
Option Money (OM) vs. Earnest Money (EM) law may require particular form for its enforceability
OM is not part of the price while EM is part of the of the sale and that would be 1403 or the statute of
price and at the same time, it is a proof of the frauds. Concretely, the sale of a parcel of land if
perfection of the contract. not in writing is valid but unenforceable. It is not
void. Note that the price of the land is irrelevant if
Q: Can the parties themselves agree that there immovable.
would be a perfected COS and then the OM
would be treated as part of the price? Example: Before, the sale of a land for P300 is
A: The SC said that this is binding between the valid and enforceable even if not in writing. But
parties. Though it is an OM, it can be considered presently, it has to be in writing to be enforceable.
as part of the price as long as it is stipulated. The price is still irrelevant.
Without stipulation, the OM cannot be considered
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If the object of the sale is movable, you have to execution and registration of the sale and
consider not the value of the thing but the price obligation to pay the capital gains tax
agreed upon. The value may be different from the would be on the seller as a rule.
price. You can sell a thing worth P1,000 for P400 6. Obligation to deliver the fruits which is
but the law provides for the price. If the price is at related to the obligation to deliver the thing
least P500 and the sale is not in writing, it will be
unenforceable. OBLIGATION TO DELIVER THE FRUITS
Q: Sale of a watch P450, not in writing, may it BE: A sold a mango plantation to B but they
be unenforceable? stipulated that delivery will be after the signing
A: It may be unenforceable if by the terms of such of the deed of sale. After the expiration of the 6-
agreement, the obligation therein is not to be month period, B demanded for the delivery. The
performed within 1 year. If they agreed that the vendor was able to deliver 1 month after the
watch will be delivered 2 years after and the date when he was supposed to deliver the
payment will also be made upon delivery, it would mango plantation. During this period, the
be unenforceable. vendor harvested mango fruits and sold them
to X. The vendor was able to deliver only after
Paredes vs. Espino the other fruits were harvested and sold to Y.
Facts: Paredes was a prospective buyer. Espino Can B recover the mango fruits from Y during
owns a land in Palawan. Paredes is from Northern the 6th month period?
Luzon. Their negotiation was thru letters and SA: Determine first whether B is entitled to the
telegrams. Espino sent a letter to Paredes stating fruits because if he is not entitled, then he cannot
that he and his wife agreed to sell the land to recover the fruits. Is he entitled to the fruits after 6-
Paredes, that the deed of sale will be executed month period during the 1-month period prior to
upon the arrival of Paredes in Palawan. When delivery? Yes, in fact, under 1537, the fruits of the
Paredes arrived, Espino said he is no longer thing sold from the time of perfection shall pertain
interested in selling. Paredes filed a case to to the buyer.
compel Espino to sell the land. Espino contended
that the contract is unenforceable because it is not Q: Does it mean that the fruits from the time of
in writing. He contended that under the statute of perfection shall pertain to the buyer?
frauds it is unenforceable. His contention was A: Hindi naman. 1537 should be considered in
sustained by the trial court. relation to 1164. Under 1164, the fruits shall pertain
to the creditor only from the time the obligation to
Held: This contract is no longer covered by the deliver the thing arises. Thus, B is entitled to the
statute of frauds because there was a letter. Article fruits only from the time of the expiration of the 6-
1403 provides that a note or memorandum signed month period. Di ba may agreement sila that the
by the part charged would be sufficient to take that mango plantation will be delivered only after 6
contract out of the operation of the statute of months? Upon the arrival of this period, the
frauds. In this case, the defendant wrote a letter obligation to deliver the thing arose, therefore, B,
with his signature on it. The letter took that contract consistent with 1164 and 1537 will have the right to
out of the operation of the statute of frauds and the fruits.
therefore he may be compelled to execute the final
deed of sale. Q: Can he recover the fruits from X?
A: No. Under 1164, 2nd paragraph, the buyer or the
RIGHTS AND OBLIGATIONS OF THE VENDOR creditor will have no real right over the fruits after
In a deed of sale (DOS), there can be the delivery of the thing.
hundreds of obligations of the vendor but those
obligations would be because of the stipulation. Q: What is the remedy of the buyer?
But there are only few obligations imposed by law. A: The remedy is to go after the seller for selling
The 3 most important: these fruits na hindi naman sya entitled. The buyer
1. To transfer ownership is already entitled although again he will have no
2. To deliver real right over the fruits until the delivery of the
3. To warrant the thing thing to him.
There are other obligations:
4. Obligation to take care of the thing sold OBLIGATION TO TAKE CARE OF THE THING
with the diligence of a good father of a G.R.: The thing sold should be determinate
family prior to delivery. because if generic (1460, 2nd paragraph) then there
5. From the time of the perfection up to the is nothing to be taken cared of. It will become
time of delivery then there would be determinate only upon delivery.
obligation to pay for the expenses for the
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Exceptions: There are sales transactions wherein
the vendor would not have this obligation: Q: May a buyer acquire ownership over the
a. Constructive delivery - brevi manu – thing sold if the seller has no right to sell?
There would be no obligation on the A: The answer by way of exception is yes. But the
part of the seller to take care of the general rule here is under 1505 – the buyer
thing from the time of perfection acquires no better title than what the seller had. If
because at the time of perfection, the the seller is neither the owner nor does he have the
buyer was already in possession of authority to sell, the buyer acquires no better title
the thing. Maybe he borrowed the than what the seller had. If his right is only as a
thing. Example: he borrowed the car lessee that is the most that can be transferred to
and he decided to buy it – the thing the buyer. If he has no title then no title can be
was already in his possession. transferred to the buyer.
b. “Kaliwaan” ang bentahan → upon Exceptions: (When the buyer can acquire a better
perfection may delivery na then there title than what the seller had. Even if the seller
is nothing to be taken cared of. does not have the right to sell, the buyer may
acquire ownership over the thing sold because the
OBLIGATION TO PAY EXPENSES / TAXES law so provides and not because the seller was
These obligations may be the subject of able to transfer ownership to the buyer.)
stipulation. By agreement, it would be the buyer 1. By Estoppel
who will pay xxx Normally, dito hindi natutuloy ang 2. Estoppel by Deed
sale dahil hindi magkasundo kung sino 3. Estoppel by Record
magbabayad ng tax. 4. Sale by an Apparent Owner
5. Negotiable Document of Title
OBLIGATION TO TRANSFER OWNERSHIP 6. Purchases from a Merchant’s Store xxx
BE: May a person sell something which does 1. By Estoppel – by the principle of estoppel, a
not belong to him? Would the sale be valid? person is precluded from denying that another
Would the buyer acquire ownership over the person has authority to sell because of his acts.
thing sold, if seller does not own the thing? Also known as “Estoppel in Pais” which is a kind of
SA: Yes. Ownership over the thing sold is not an equitable estoppel because of the acts /
essential requisite for the sale to be valid. But if the representation of the owner, he may not later on
seller does not own the thing, he may have a deny the authority of the 3rd person.
problem on his obligation to transfer ownership.
The problem would be whether or not the buyer 2. Estoppel by Deed
would acquire ownership over the thing sold if the BE: A and B co-owners of land sold (sale is
person who sold the thing is not the owner. verbal) to X their land. X subsequently sold the
land to Y. Would Y be considered to have
Q: Who can transfer ownership by way of acquired ownership over the land?
sales? SA: Under 1434 which is considered as “Estoppel
A: Only those who have the right to sell. by Deed” (technical estoppel) – when the seller
who was not the ownerat the time of the sale,
Q: Who would have the right to sell and acquires ownership, automatically, ownership
therefore they can transfer ownership by way passes to the buyer by operation of law. However,
of sale? Article 1434 requires delivery to the buyer. And
A: First, is the owner. Even if he is not the owner, under the facts, 1434 would not apply because:
he may have the right to sell because: a) There was no showing there was
(1) He was given the authority by the payment
owner. Example: Agent b) No showing that there was delivery of
(2) He may be the owner but he may the land to X.
have the authority of the law to sell, It cannot be said that by operation of law, Y
known as “Statutory Power to Sell” likewise acquired ownership by way of estoppel by
(Article 1505). Examples: Notary deed.
public in pledge, liquidators, guardians
and receivers. 3. Estoppel by Record
(3) Those who have the authority of the Jurisprudence: Sale by nephew of the owner of
court. Example: Sheriff. Note: it is as the land. Since the nephew could not deliver the
if they have the authority of law land, the buyer sued the nephew for estafa. For the
because not even the judge can accused to be acquitted, he asked his uncle to
validly sell something if it is not testify that he actually had the authority to sell.
consistent with the law. When the uncle testified in court, the nephew is
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acquitted. After acquittal, the buyer demanded from owner but the buyer must be a buyer in good faith.
the uncle the delivery of the land. The uncle The buyers here were in bad faith because before
refused, claiming that “sa totoo land, I did not they bought the land, they went to the house of
authorized my nephew”. Miguel and asked him whether he would allow
Q: Case was filed against the uncle, would that Maximo to sell the entire land. SC said they are in
action prosper? bad faith.
A: SC said yes because he cannot be allowed now
to claim that his nephew was not authorize to sell BE: The owner of a parcel of land covered by
after he testified in court that he gave such an OCT mortgaged the land to a creditor. The
authority. owner delivered the OCT to the creditor. The
This is estoppel by record which is considered a mortgagee forged the signature of the owner in
technical estoppel. a deed of sale. He was able to register the
property in his name. He sold the land to a third
4. Sale by an Apparent Owner person who had no knowledge of the
A. Factor’s Act transaction. Did the mortgagee acquire
B. Recording Laws ownership?
C. Any other provision of law enabling the apparent SA: No. A forged deed is a void instrument and
owner of the goods to dispose of them as if he was cannot convey a valid title to the buyer but under
really the owner. the law the forged deed may actually be the root of
a valid title under the “Mirror Principle” – when the
A. Factor’s Act buyer bought it from the mortgagee in whose name
Factor is an old name for agent. Even if the property was registered and relied on the TCT,
agent has no right to sell, a third person may then if he bought the property in good faith, he will
acquire ownership because he may rely on the be considered the owner under Article 1505 in
power of attorney as written. relation to P.D. 529. He bought the land relying on
Example: Special Power of Attorney (SPA) – agent the TCT and bought the land in good faith then he
was authorized to sell a car. However, in a verbal would have a better right than the real owner.
instruction when the SPA was delivered, the
principal authorized the agent to sell that car to 1 of Q: When a buyer may be considered a buyer in
the members of a certain organization but the good faith?
agent did not sell that car to one of the members of A: By the mere fact that he had no knowledge at
a certain organization. the time of the execution of the deed does not
Q: Would the buyer acquire ownership? necessarily mean that he is in good faith. The law
A: Yes. Article 1900 provides that so far as 3rd further requires that he must have fully paid without
persons are concerned, they only have to rely on knowledge of the defect in the title of the seller. So
the SPA as written, even if agent has no authority if after execution he is in good faith but before
or right to sell. payment he is in bad faith then he is in bad faith.
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ownership even if the seller did not have the right considered a public sale, he can recover as long as
to sell. he is willing to reimburse the buyer of the price
Example: The seller may have acquired title by paid in that sale. Article 559 is applicable because
violence. Binugbog nya yung owner ng goods. the owner was unlawfully deprived.
Pero kung negotiable document of title yan and
properly negotiated, lalo na kung bearer document BE: F lost her diamond ring in a hold-up. Later
of title, then the buyer may acquire ownership even on, this ring was an object of a public sale of
if the seller has no right to sell. one pawnshop. Can F recover the ring from the
buyer in that public sale?
6. Purchases from a Merchant’s Store / Markets SA: Yes, Article 559 provides that even if the buyer
/ Fairs is in good faith so long as the owner is willing to
Sun Brothers vs. Velasco reimburse the buyer of the price paid in that sale.
Facts: Sun Brothers was the owner of a
refrigerator. Sun Brothers was engaged in the Note: Again in 1505, there is no right to recover as
business of selling refrigerator. Sun Brothers sold a long as the buyer bought it in good faith from a
ref to Lopez on installment basis. As stipulated, merchant’s store, there can be no recovery as a
Sun Brothers reserved ownership until full matter of right.
payment. Lopez only paid P300 out of P1,500. The
balance to be paid on installment. Lopez then sold Q: How transfer of ownership is effected?
the ref to Velasco. A: Under the law, as far as things are concerned, it
is effected by delivery:
Q: Would Velasco acquire ownership? (a) Actual
A: No because Article 1505 provides that the buyer (b) Constructive
acquired no better title than what the seller had. There can be no transfer of ownership without
However, Velasco was the owner of a store. On delivery.
the next day, Velasco sold the ref to Ko Kang Chu
who paid in full. When Sun Brothers learned this Q: Is it correct to say that every time there is
transaction, it filed an action to recover the ref from delivery, the buyer acquires ownership upon
Ko Kang Chu. delivery?
A: Not necessarily. This is not an absolute rule.
Q: Can Sun Brothers recover the ref from Ko There are kinds of sale where despite delivery the
Kang Chu by reimbursing the price? buyer does not acquire ownership upon delivery:
A: SC Said no. Article 1505 provides that the (1) Conditional Sale – ownership is reserved by
ownership of the buyer who bought the thing from the seller such that despite delivery,
a merchant’s store and he bought it in good faith is ownership does not pass.
absolute in character. Article 559 does not apply
because Sun Brothers was not unlawfully deprived Q: So when would the buyer acquire
of the ref and the ref was neither lost. 559 will ownership in conditional sale?
apply if the owner was unlawfully deprived A: Not upon delivery but upon the happening of
(Example: the thing was lost or stolen). Under 559 the condition which is normally the full payment
he can recover by reimbursing the buyer who of the price.
bought the thing in good faith. He has to reimburse.
(2) Sun Brothers Case
BE: The painting owned by F was stolen from (3) Sale on Trial / Sale on Satisfaction / Sale on
her and later she noticed the painting in the Approval – upon delivery, even if there is
room of B. When asked how he acquired the actual delivery there is no transfer of
painting, B said he bought it from a gallery ownership at the time of delivery.
auction. Can the owner F recover the painting
from B? Q: When would the buyer acquire ownership?
SA: The first consideration here is the nature of the A: From the moment he signifies his acceptance
gallery auction. Is it a public sale or not? Some or approval of the thing.
suggested answers of the UP Law Center would
claim that a gallery auction is not a public sale. Q: What if he did not signify his acceptance
Atty. Uribe: I can agree that some gallery auctions or approval? May he be considered to have
are private – “by invitation”. Thus, in that auction I accepted and therefore ownership may be
would definitely agree, hindi yan public sale. considered to have passed to him?
If it is not a public sale then the owner who was A: Yes. 2 Scenarios:
unlawfully deprived can recover that property even (a) There may be a period agreed upon by the
without reimbursement. If the auction sale is parties within which the buyer would have to
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decide. Even if he failed to signify his Facts: This pertains to a sale of American
acceptance by the mere lapse of the period, Jurisprudence to Atty. Tabora. It was a sale on
he is deemed to have accepted (impliedly installment basis. Upon delivery or on the day the
accepted) hence, ownership passes to him. books were delivered to the office of Atty. Tabora,
(b) Even before the lapse of the period, he may the entire block where Atty. Tabora’s office was
be considered to have accepted if he did an located (in Naga City) was burned. The office
act wherein he would be considered to have including the books was burned. Atty. Tabora
adopted the transaction then ownership refused to pay the balance. Lawyers’ Cooperative
passed to him. filed a case. Two defenses were raised by Atty.
Example: Even if he has 10 days within Tabora: (1) Res perit domino – there was a
which to decide but on the 2nd day, he sold stipulation in the contract that Lawyers’
the car to another. Obviously, he is deemed Cooperative will retain ownership over the books
to have accepted the thing because he did until full payment. When the books were lost, no
an act which is inconsistent with the full payment so Atty. Tabora was not yet the owner.
ownership of the seller like he donated or Hence, Lawyers’ Cooperative should bear the loss.
destroyed the thing. Q: Is this argument correct?
(c) If there is no period agreed upon, the law A: SC Said no. Although there was a stipulation
says if he did not signify his acceptance he that Lawyers’ Cooperative retains ownership over
will be considered to have accepted after the the books until full payment, there was another
lapse of a reasonable time. Reasonable time stipulation in the contract which states that the risk
will depend on the circumstances of the of loss shall pertain to the buyer from the time the
sale, purpose of the sale, nature of the thing books are delivered whatever may be the cause of
sold. Example: Perishable goods. the loss.
So with that stipulation, that is one of the
Sale or Return exceptions.
Q: Ownership passes upon delivery?
A: Yes. However, the buyer is given the right to 2. Title was reserved by the seller only to
revest the title back to the seller normally within a secure the payment of the price by the buyer
certain period. Example: Clauses in subscription Q: But even assuming that there was such no
magazine which says that you can return within 30 stipulation under the contract, would Atty.
days without payment. Tabora have to bear the loss?
A: Yes because it would fall into the other
BE: A car was sold for P150,000. P75,000 paid exceptions under 1504 that when the title was
upon the execution of DOS. The balance reserved by the seller only to secure the payment
payable on a monthly basis. P75,000 was paid. of the price by the buyer, then by law, risk of loss
The car was delivered to the buyer. However, will already be with the buyer. This title of the seller
before he could pay the balance, the car was is known as “Security Title” and therefore by law
destroyed due to a fortuitous event or was xxx the buyer will bear the loss.
burned xxx Can he still be compelled to pay the
balance? 3. Delay in the Delivery
SA: Yes. Upon the delivery of the car to the buyer, When there is delay in the delivery due to
there being no retention of ownership by the seller. the fault of one of the parties, whoever was at fault
(Note: Wala sa facts na na-retain ng seller and will bear the loss. Note that either buyer or seller
ownership). Therefore, ownership passed to the may be at fault.
buyer. Under the principle of res perit domino –
Article 1504 – the owner bears the loss and hence Example 1: The buyer and the seller may have
it can be compelled to pay the price. agreed that the goods are to be obtained by the
buyer at the warehouse of the seller on a specific
G.R.: Res perit domino – 1504. date. On the date agreed upon, the seller
Note: Determination of when ownership passed is demanded the buyer to get the goods. Despite
important because if at the time of the loss, the such, the buyer failed to get the goods. On the next
buyer is not yet the owner, as a rule, the buyer will day, the warehouse was destroyed due to
not bear the loss like in sale on approval and he fortuitous event.
has 10 days within which to decide and the thing Q: Who is the owner at that time?
was lost through a fortuitous event within the 10- A: The seller but there was delay on the part of the
day period without fault on his part, the seller will buyer hence under 1504 it is the buyer who will
bear the loss. bear the loss.
Exceptions:
1. Lawyers’ Cooperative vs. Tabora
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Example 2: The seller himself maybe the one at BE: If a thing is sold to 2 or more persons, what
fault. Thus, he is in delay in delivering the goods to would be the effect of:
the buyer. (a) The first buyer who registered the sale
Q: Why would this be an exception to the res with knowledge of the 2nd sale.
perit domino rule? (b) The second buyer who first registered the
A: Ang premise dito, the ownership has already sale with knowledge of the prior sale.
passed to the buyer but the goods are still with the Who would have a better right?
seller. Can this happen? Yes, because of SA: (a) In the first scenario – the first buyer who
constructive delivery. If there was constructive registered the sale with knowledge of the second
delivery, ownership passes to the buyer but sale would that make him a registrant in bad
physical possession is still with the seller. They faith? No. Yung knowledge would pertain to the
may have agreed this time that the seller will be the knowledge of the prior sale in order for him to be a
one to deliver the goods to the buyer at a certain bad faith registrant. Eh una naman syang buyer eh
date. When the date arrived, despite demand from so even if he registered, it would not make him a
the buyer, there was no delivery on the part of the bad faith registrant.
seller. Even if the goods are destroyed the next (b) In the second scenario – the buyer there is
day due to fortuitous event, take note ang owner in bad faith. He has knowledge of the prior sale.
ay ang buyer na but who will bear the loss? The Hence, he has no right.
seller because he was in delay in delivering the
goods. Q: If a person bought a thing without
knowledge of the prior sale, does that mean he
is a registrant in good faith?
DOUBLE SALE (ARTICLE 1544) A: Not necessarily because from the sale he may
BE: F sold a registered parcel of land to R who have acquired knowledge prior to the registration.
did not register the sale. Thereafter, F sold the What is required by law is not being a buyer in
very same parcel of land to C who registered good faith but a registrant in good faith. Pwedeng
and obtained a new TCT in his name. Who at the time of the sale xxx the buyer had no
would have a better right? knowledge na nagkabentahan na pala nung una
SA: Atty. Uribe: I fully agree with the UP Law but after 2 months nung magpaparegister na, the
Center’s answer. It depends on whether or not C buyer had the knowledge of the prior sale and
registered the sale in good faith. Registration is therefore he will be a registrant in bad faith.
only one of the requirements good faith is equally
an important requirement. Bautista vs. Sioson
Facts: The owner A sold a registered land to B who
Note: In 1544 (double sale), as to which rule did not register and neither did B take physical
applies will depend on the thing sold if movable or possession because after the sale they executed a
immovable. lease agreement in which B was now the lessor. A
continued to be in possession of the land. After the
Q: If the thing is sold twice, who would have sale and the contract of lease, A sold the land to C,
the better right? this time C took physical possession.
A: If movable, the buyer who first took possession Can he do that? Yes. Kasi lessee sya eh, hence,
in good faith will have the better right. If he can transfer possession to the 2nd buyer.
immovable, the buyer, who first registered in good Who between B and C would have a better
faith, will have the better right. If there was no right? (C did not also register the sale)
registration, it will be the first who took possession SC Said that B would have a better right because
in good faith. If no possession in good faith, the when he executed a lease agreement with A, he is
buyer who has the oldest title in good faith. in contemplation of law in possession which is legal
Even the 1st buyer is required to be in good faith. possession over the thing and thus making him a
Obviously, the first buyer would have the oldest possessor in good faith. Kay C, physical
title. Yung good faith ditto obviously would not possession nga pero pangalawang possession
pertain to absence of knowledge of the 2nd sale lang. Yung legal possession was with B.
kasi syempre 1st buyer sya. He is nonetheless
required to have bought the thing in good faith. Note: This decision was criticized because some
Good faith means that he had no knowledge of the authors said that it should be actual possession but
defect of the title of the seller. the SC said that legal possession would suffice.
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buyer. However, the seller (A) is a judgment debtor Note: Philippine law does not only require actual
in one case to a certain creditor named C. The land delivery – constructive delivery may result in
became the subject of an execution sale. The transfer of ownership.
buyer became C who registered the sale.
2. Constructive – by the execution of a public
Q: Who would have a better right between C instrument if the contrary intention does not appear
and B (C had no knowledge of the sale)? on the document. By the mere execution of the
A: SC Said → B because this land was not public instrument that is equivalent to delivery.
registered under the Torrens System. 1544 would Hence, ownership passes to the buyer.
not apply to unregistered lands.
Kuenzle & Streiff vs. Macke & Chandler
Q: How would you know that the land is Facts: The original owner here Stanley and
registered under the Torrens System? Griffindor (parang Harry Potter ) and the property
A: Pag may OCT or TCT na. Pero kung ibang involved here are fixtures of a saloon. Macke and
documents lang like tax declaration, it is not Chandler are judgment creditor of Stanley and
considered registered. Griffindor. Because of a judgment in favor of
Macke and Chandler, the sheriff levied upon these
Q: But C registered the sale, does it mean that properties which was still in the possession of
it is registered under the Torrens System? Stanley and Griffindor. The properties under
A: No because there are also systems of execution were questioned by Kuenzle and Streiff.
registration of sale of land in which the lands are Kuenzle and Streiff claimed that these things were
still considered as unregistered lands. Sa ibang sold to them prior to the levy. If they claimed that
libro. Hindi libro under the Torrens System. the properties were sold to them, the properties
should be in their possession. Take note that
Q: If 1544 will not apply, who has the better Stanley and Griffindor were still in possession of
right? the goods physically. Hence, there was no actual
A: B because there was delivery to him which was delivery.
actual delivery and hence under the general rules Held: In order that ownership would pass, it has to
on delivery, ownership passes to the buyer and be in a public instrument if that would be by
when ownership have passed to the buyer, when constructive delivery.
the property was sold in an execution sale, ano
makukuha ng buyer sa execution sale? Wala. Note: The execution of a public instrument may be
He merely steps into the shoes of the judgment equivalent to actual delivery if the contrary intention
debtor at the time of the sale then he did not does not appear on the DOS. Kasi pwedeng
acquire ownership by virtue of that sale. notarized but it is clear in the contract that
ownership will not pass until full payment of the
OBLIGATION TO DELIVER THE OBJECT OF price then that is not equivalent to delivery. The
THE SALE intention is clear.
Determine the subject matter if it is a thing
or a right because there are different modes of Kinds of Constructive Delivery
delivery as to thing and as to right. 1. Delivery of the Keys – of the place where the
goods are located like a warehouse.
Things Prof. De Leon: this also called as symbolic
Kinds of delivery of things as a consequence of delivery.
sale known as “tradition” – under the law:
1. Actual Delivery / Material Delivery / Physical 2. By Mere Consent or Agreement of the Parties –
Delivery / Real Delivery – the thing is in the if at the time of the sale, possession to the goods
possession and control of the vendee. Take note cannot be transferred to the buyer. There must be
“control”. Take note “to the vendee”. a reason why it cannot be transferred at the time of
Q: What if the thing was delivered to a 3rd the sale. This is also known as tradition longa
person? manu.
A: Jurisprudence – SC said → yes, there maybe Example 1: The thing was the subject matter of a
actual delivery if the third person has authority to lease with a 3rd person until the expiration of the
receive from the vendee. Thus, making him an lease, the thing cannot be delivered.
agent of the vendee and that would still be actual
delivery. Example 2: The thing was the subject matter of
commodatum. As a rule, period of commodatum
has to be respected.
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3. Brevi Manu – this is a kind of constructive Example: Sale of shares of stocks → the vendee
delivery because the buyer was already in may not always have the right to exercise his rights
possession of the thing sold at the time of the under the shares of stocks. Concretely, if there is a
perfection of the sale so he will continue to be in stockholders’ meeting, the books of the corporation
possession after the sale, no longer as a lessee will be closed for 30 days before the meeting.
but this time as the owner. So dati lessee lang sya Thus, if the sale occurred when the books are
that is why he was in possession or maybe already closed, no one will be recognized except
depositary lang sya or maybe he was the agent at those registered owners. So if you are the buyer of
the time prior to the sale. those stocks, you can only use your right with the
consent of the vendor.
4. Constitutum Possessorium – the seller will
continue to be in the possession of the thing after RULES ON SALE AS TO QUANTITY / QUALITY
the sale but no longer as an owner but in another OF THE THING SOLD
capacity like lessee. Q: In a sale involving 1,000 pairs of shoes with
a specific design as agreed upon. The seller
Bautista vs. Sioson delivered 1,200 pairs of shoes instead of only
Because a lease agreement was entered into by 1,000. Can the buyer reject everything?
the buyer and seller after the sale then the buyer A: No. He has the right to reject only the excess.
became the lessor and the seller became lessee. Reject the 200 but he can be compelled to accept
Therefore, the lessee would continue with the the 1,000.
possession no longer as an owner.
Q: What if instead of 1,000, 800 was only
Q: What if pursuant to their agreement the delivered?
seller delivered the goods to a common carrier. A: The buyer cannot be compelled to receive 800
Upon delivery of the goods to a common because partial performance is non-performance.
carrier, would that result in transfer of You cannot compel the creditor to accept partial
ownership immediately? (This is important fulfillment as a rule because (1) it can be a subject
because in case the goods were destroyed of a stipulation that there can be partial delivery.
even due to a fortuitous event while in transit, Other Exceptions:
who will bear the loss?) (2) When obligation pertains to obligation which
A: If delivery to a common carrier is delivery to the is partly liquidated and partly unliquidated. The
buyer, then ownership passes to the buyer upon debtor can compel the creditor to accept the
delivery to the common carrier. That is the general portion which was already liquidated.
rule. (3) When the obligation is subject to different
Exceptions: terms and conditions.
(1) If stipulated in the DOS that despite delivery
to common carrier ownership will not pass to Q: The shoes per pair is P1,000. The seller only
the buyer because ownership will pass upon delivered 800 pairs out of 1,000 pairs. The
full payment. buyer accepted. It turned out that the seller can
(2) Even if DOS does not provide for such no longer deliver the balance (200 pairs). How
stipulation, the seller may have obtained a much can the buyer be compelled to pay? 800 x
bill of lading which provides that the goods P1,000?
are deliverable to the seller himself or the A: Not necessarily. You have to make a distinction
agent of the seller. as to whether the buyer was aware that the seller
could no longer deliver the balance or when he
Rights accepted, he was not aware. If he was aware that
Kinds of Delivery of Incorporeal Property / the seller could no longer deliver the balance then
Quasi – Tradition: he can be compelled to pay at the contract rate so
1. Execution of Public Instrument 800 x P1,000 = P800,000. If he had no knowledge,
he can be compelled to pay only the fair value. Fair
2. Placing the Title of Ownership in the Possession value siguro non P700 each instead of P1,000.
of Vendee – a right would normally be covered by
a certificate. Q: The obligation to deliver 1,000 cavans of
Example: delivery of the certificate of shares of Milagrosa rice. Instead of delivering 1,000
stocks. cavans of Milagrosa, the seller delivered 1,100
cavans of both Milagrosa and Burmese rice.
3. Use by the Vendee of His Rights with the May the buyer reject everything?
Vendor’s Consent A: Yes, if the goods are indivisible. Meaning each
sack of rice, Milagrosa and Burmese rice were
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mixed. However, if it is clear that per sack it is (b) The other one is even if the entire area was
Milagrosa rice and the 100 sacks, it is clear that delivered as stated, proportional reduction /
those are Burmese rice that would not be rescission may be a remedy if a part of the
considered as indivisible. He can be compelled to land delivered is of inferior quality than that
accept 1,000 sacks Milagrosa and he has the right stipulated by the parties.
to reject 100 sacks Burmese rice. Example: Sale of rice field, it turned out
about 20% of the land is swamp, so hindi
SALE OF REALTY pwede taniman. Hence, proportional
Q: Sale of a parcel of land. Price agreed upon is reduction is possible if he still would want
P1M. More or less 100 sqm. The actual area the land or rescission would be a remedy
delivered by the seller was only 95 sqm. What because the area of inferior quality is more
are the remedies of the buyer? than 10% of the total land area unless he
A: (1) Specific performance – would be a remedy if can prove that he would not have bought the
the seller is still in the position to deliver the land had he known a portion of the land is of
balance. Siguro yung katabing lupa sa seller din, inferior quality.
hence, he can afford to give additional 5 sqm.
(2) Q: If specific performance is not possible, is PLACE OF DELIVERY
proportional reduction a remedy? Read 1524, 1525 and 1198
A: It depends on whether the sale is considered as The seller delivered the goods to the place of
a sale with a statement of an area of a rate of a business of the buyer. If the buyer refuses to
certain measure or if it is a lump sum sale. receive the goods, the buyer will be considered in
(a) If lump sum – even if the area delivered is delay and therefore will be liable to the seller
less than the area stated in the DOS, there because of unjust refusal.
is no right to demand for the proportional Q: May the buyer be considered in delay for his
reduction of the price. Q: Pero pag refusal to accept if there is no place stipulated
sumobra – 120 sqm na deliver, can the in the contract?
seller demand for the increase of the A: It depends on the kind of thing. Determine if it is
price? A: If lump sum sale, no. determinate or generic. If the thing is determinate,
(b) If the sale was based at a rate of a certain the law provides that it will be the place where the
price per unit of measure like it was so clear thing is located at the time of the perfection of the
in the contract that the land is being sold at contract.
P10,000 per sqm so P10,000 per sqm x 100
= P1M, the remedy of proportional reduction Q: What if the object of the sale is a generic
of the price or accion quanti minoris is thing?
applicable. A: Seller’s place of business or residence.
(3) Q: Under the facts, 95 sqm was delivered,
would rescission be a remedy? Note: If there is no stipulation when to be
A: As a rule no because rescission would only be delivered, the seller cannot be compelled to
a remedy if the area lacking is more than 10% of deliver.
that area agreed upon. So kung 100 sqm, dapat 11
sqm or 15 sqm ang kulang, so out of 100 kung 85 Q: What if at the time of the perfection of sale,
lang ang na-deliver, then rescission is a matter of though the thing is determinate, it was on
right. board a ship while in transit. Where will be the
place of delivery?
Q: But kung 95 lang ang na-deliver meaning the A: Depending on the shipping arrangement agreed
area lacking is less than 10%, may rescission upon by the parties.
be a remedy?
A: Yes, by way of exception F.O.B. – Free on Board
(a) If the buyer can prove that he would not C.I.F. – Cost, Insurance, Freight
have bought the thing or land hand he
known that is less than 100 sqm. It is a F.O.B. and C.I.F are rules of presumption which
matter of proof. would have to give way to the real intention of the
parties. So after all, the F.O.B. or C.I.F.
This is consistent with a characteristic of rescission arrangements do not really determine the place of
under 1191, that in order for rescission to prosper – delivery, they only make rules of presumption.
the breach must be a fundamental breach. Kung
kulang lang ng 5sqm / 10 sqm at malaki yung area, So in a C.I.F. arrangement, it is only presumed that
there can be no rescission as a matter of right. the place of delivery is the port of origin.
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In a F.O.B. destination, it is only presumed that the 1. Obligation to transfer
point of destination is the place of delivery. 2. Obligation to deliver
Q: What was the purpose of fixing the delivery The use of the words / terminologies is not
arrangement as a C.I.F. but the place of delivery conclusive as to whether or not there is an express
is the port of destination? warranty.
A: SC said the C.I.F. arrangement may have been Example: “I guaranty / warranty you that you will be
agreed upon only to fix the price. Example: They happy if you buy this car at P100,000”→ this does
fixed the price for P2M that would include the not result in an express warranty
freight, insurance or cost but still the place of
delivery is the port of destination. Again, if the affirmation of fact pertains to the
quality of the thing, it is an express warranty.
In another case, F.O.B. destination so Example: These 10 sacks of fertilizer would result
based on the presumption the place of delivery will in 200 cavans of rice.
be the port of destination xxx the seller would have
to bear all the expenses for the delivery of the The statement of the seller’s opinion is not as a
goods up to the port of destination. However, it was rule considered an express warranty.
stipulated in the contract that the seller may Example: “This is the best piña cloth” → it may turn
demand for the payment of the price by mere out that there are better piña cloth.
presentation of the bill of lading (BOL).
As long as the seller is not an expert on that field,
Q: Where do you get the BOL? that would be treated merely as an opinion and
A: At the port of origin. Hence, even in the port of there can be no liability for breach of an express
origin he can already present the BOL to the buyer warranty.
and hence compel the buyer to pay the goods.
Again SC ruled in that stipulation, the place of BE: “A” sold a land to B for P1M in Antipolo. As
delivery is the port of origin. And the purpose of the agreed upon P100,000 will be paid upon the
F.O.B. arrangement, it was only agreed upon in signing of the DOS. The balance will be paid
order to fix the price meaning that the seller will still within 30 days from the time the occupants
have to bear the expenses for the transportation of (squatters) of the land are evicted. It was so
the goods up to the destination although the buyer stipulated that if within 6 months, the squatters
can already be compelled to pay the price even at have not yet been evicted, the seller should
the port of origin. return the P100,000. Another stipulation states
– within the 6-month period, the value of the
So consider always the manner and place land doubled. Despite the filing of an eviction
of payment which is determinative as to the place suit by the seller and the lapse of the 6-month
of delivery. period, the squatters were still occupying the
land. The seller offers to return the P100,000 to
Read 1582 the buyer. The buyer refused to accept the
P100,000 and told the seller “never mind even if
Obligations which cannot be Waived: the squatters are still there. I will still buy the
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land”. So the buyer offered to pay the balance Example: This warranty against eviction would
P900,000 and demanded that a DOS be include the warranty that the buyer from the
executed by the seller. The seller refused to moment of the sale have and enjoy the legal and
accept the P900,000. What he did is to file an peaceful possession over the thing sold.
action to rescind the contract. Would the action
prosper? He may be deprived of the thing by a 3rd person
SA: 2 answers: even if he would not lose ownership.
(1) If the answer is based on rescission, the Q: When would this happen?
action will not prosper because rescission may only A: Maybe the 3rd person has a better right to the
be invoked by the aggrieved party. The seller is not possession of the thing. Maybe there was a lease
an aggrieved party. agreement entered into which has to be respected
(2) However, under 1645 if the obligation is by the buyer.
subject to the happening of a certain condition, Note: A contract of lease may last for 99 years.
Atty. Uribe: Actually, here the performance of the
obligation is subject to the happening of the Q: If there is a claim or a 3rd person claims a
condition. right over the thing bought, does it mean that
If the condition did not happen, the buyer would the seller will already be liable for breach of
have 3 options: warranty against eviction?
(a) Not to proceed with the contract, which is A: No because there are requisites which must be
rescission. complied with.
(b) He may waive the condition (eviction of the
squatters) and proceed with the sale → this was Requisites:
the remedy chosen by the buyer in this case. 1. There has to be final judgment depriving him of
(c) He can treat the non-happening of the condition such thing either wholly or partially. In other words,
as a breach of warranty and claim damages. a case was filed by a 3rd person against the buyer
which resulted in a favorable decision as to the
Obviously, the buyer chose option (b) and plaintiff resulting in the deprivation of the property
therefore the seller cannot rescind the contract. by the buyer.
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Concretely, the reason for the deprivation maybe fact, if there is a waiver but the vendor is in bad
because of non – payment of real property taxes faith, the waiver is void and hence he can be held
by the seller and not the buyer. liable for everything under the law. If there was no
Example: If land was sold in an execution sale waiver and the vendor is in bad faith, again he will
because of the failure of the seller to pay real not only be liable for expenses xxx but also for
property taxes → this can be the basis of liability damages, cost of suit xxx everything!
for breach of warranty.
Q: If the seller was aware of the defect of his
Based on an Act after the Sale but Imputable to title at the time of the sale, hence, he is a seller
the Vendor in bad faith?
Example: There was a first sale to A and then a 2nd A: Not necessarily. He may be aware but he
sale to B. Under the law on double sale, B have a informed the buyer of such defect in the title and
better right if this is a sale involving immovable, if hence he cannot be considered bad faith vendor.
he was the first one who registered the sale in Even if he did not inform the buyer but if the buyer
good faith. was already aware of the defect.
The first buyer even if he was in possession maybe Q: Why would a buyer buy a thing if the title of
evicted from such property by the 2nd buyer the seller has defect?
because the 2nd buyer would have a better right. A: Maybe because the buyer needs the thing for
This is based on an act of the vendor after the sale his business.
or after the 1st sale hence, there can be a liability If I am the vendor and I know there is a defect in
for breach of warranty against eviction. my title, I will ask the vendee to execute a waiver.
Q: Thus, if there is such a waiver and assuming
Q: If during the sale a 3rd person was already the vendor acted in good faith, can the vendor
occupying the land by way of adverse be held liable for breach of warranty?
possession so in an open, continuous xxx for 7 A: It depends on the kind of waiver.
years under the color of title. But after the sale, (a) If waiver consiente – the buyer executed a
the buyer did nothing. And hence, the waiver without knowledge of the defect in
occupants claiming a right or ownership was the title of the seller. Also, the vendor does
able to complete the prescriptive period of a not know of the defect. The only liability of
minimum of 10 years. Thus, if a 3rd person the vendor for breach of warranty against
would be able to deprive this buyer of eviction is the value of the thing at the time
ownership over the thing because of of eviction.
acquisitive prescription, can the buyer hold the (b) If the waiver is intentionada – when the
vendor liable for breach of warranty? vendee executed the waiver with
A: No because it was his fault that the 3rd person knowledge in the defect of the title of the
was able to complete the period for acquisitive seller, hence, he knew of the possibility of
prescription. Had he done something to interrupt being evicted and nonetheless bought the
the running of the prescriptive period then he would thing the vendee cannot hold the vendor
not have been deprived of the ownership of the liable.
thing.
WARRANTY AGAINST HIDDEN DEFECTS
3. There should be no valid waiver Requisites:
1. The defect must exist at the time of the sale. If
4. The action to hold the vendor liable should be the defect started after the sale there can be no
filed within the period prescribed by law. such liability.
Q: If indeed the seller can be held liable for 2. The defect must be hidden. If the defect is
breach of warranty against eviction, what will patent and the buyer nonetheless bought the thing
be the extent of liability of the vendor? then he can no longer hold the seller liable.
A: The vendor can be held liable for the value of If the seller is not aware of the hidden defects, he
the thing at the time of the eviction, income or can be held liable. If he was aware, his liability will
fruits, cost of suit, expenses of the contract and be greater because that makes him a bad faith
damages and interest. seller.
Damages may only be claimed if the seller is a Q: Even if there is such a hidden defect, is it
seller in bad faith. As long as he sold the thing in possible that the vendee cannot hold the
good faith, he cannot be held liable for damages vendor liable despite the fact that there was
regardless of whether there was a waiver or not. In
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hidden defect even if he was not informed If the cause of the loss of the thing was a fortuitous
because maybe the seller was not aware? event, he can only be held liable for the price less
A: Yes, he may not be able to hold the seller liable value.
if he is an expert on the thing. He is expected to Example: If price is P100,000 and the value at the
know the defect. time of the loss is P80,000. He can be held liable
for P20,000 (P100,000 - 80,000 = P20,000)
3. The defect must result in the thing being unfit for
the purpose of the buyer or at least it diminish the Q: How would defect be proven if the thing was
fitness of the thing such that the buyer would not lost or destroyed due to fortuitous event?
have bought it at the price had he known of such A: It is a matter of proof. The proof may have been
defect. obtained already prior to loss. Pwedeng pina –
examine na nya sa expert so meron na syang
Q: If the thing which has a hidden defect was evidence of the defects prior to the loss.
lost or destroyed, can the vendee hold the
vendor liable for this breach of warranty? Does If the cause of the loss was fortuitous event or
it matter if the loss was due to a fortuitous fault of the vendee and the buyer was not
event or maybe the loss was due to the fault of aware of the defects, is it possible that the
the buyer himself, nonetheless, can he hold the vendor may not be liable even for a single
vendor liable? centavo?
A: Yes. The vendee can hold the vendor liable for A: Yes, in this scenario because he only had the
breach of warranty against hidden defects even if obligation to return the price less value at the time
the thing was lost due to fortuitous event or due to of the loss. If it happens that the value is greater
the fault of the vendee himself because of the than the price, the vendor has no liability even
hidden defects. But of course, if the cause of the there is hidden defect.
loss was the defect itself, the liability is greater than
if the cause of the loss was a fortuitous event or ANY CHARGE OR NON – APPARENT
fault of the buyer. ENCUMBRANCE NOT DECLARED OR KNOWN
TO THE BUYER
If there would be a problem here as to the extent of Q: Would there be an encumbrance over an
the liability of the vendor, he should first consider immovable which is a form of easement or
the cause of the loss, maybe it was lost due to the servitude?
defect itself or lost through fortuitous event or lost A: An example of this is a road right of way.
through the fault of the vendee. After that, he
should determine whether the vendor was aware of Q: If the buyer bought the land which turned
the defects or he was not aware. Again, if he was out to have a road right of way in favor of a 3rd
aware, damages may be recovered. If he was not person, can he claim breach of warranty
aware, he may not be held liable for damages against any charge or non – apparent
unless he can only be held liable for interest. encumbrance?
A: Of course there are requisites:
If the defect was the cause of the loss, the vendor (1) The encumbrance or easement or burden or
would be liable for the return of the price, not only the road right of way has to be non –
the price less value but also to refund the apparent.
expenses and damages because the vendor was Q: May a road be non-apparent?
aware of the defects. A: Yes, like in rural areas. In rural areas, yung
road right of way mga putik lang yan and
If the vendor was not aware of the defects, he normally the road will only be used by the person
cannot be held liable for damages but he would having this right during harvest period. Harvest
only be held liable for the price. period is once every 6 or 3 months. In the
meantime, during the 3 or 6 – month period, puro
Q: The price may be higher or lower than the cogon yan and hence the road maybe non –
value of the thing? apparent.
A: Yes. It does not matter. It may be higher or
lower. The thing may depreciate or appreciate or If it is apparent, no liability.
maybe the thing was sold at a price less than the
value and therefore at the time of the loss, the Q: If the encumbrance is non – apparent does
value is still greater than the price but he is only that necessarily mean that the vendor can be
obliged to return the price. held liable?
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A: No because the encumbrance may be known to 2. The seller manifested that the thing would
the buyer. This liability would arise only if the be fit for the purpose and the buyer relied
encumbrance is not known to the buyer. on such representation of the seller.
Q: If he was not aware of this encumbrance and Note: If the thing is sold under the trade name
the encumbrance is non – apparent, vendor will there can be no warranty of fitness for a particular
now be liable? purpose.
A: Not yet because the encumbrance may be
registered or annotated at the back of the title – WARRANTY OF MERCHANTABILITY
negligence of the vendee so he cannot hold the It pertains to the fact that it is fit for the general
vendor liable. purpose. If the thing was sold by description or by
sample, it is considered that there is such a thing
Q: If there is an encumbrance, what are the as warranty of merchantability.
remedies of the buyer?
A: (a) He can seek for the reduction of the price. SALE OF ANIMALS WITH DEFECTS – RULES:
1. The defect is a redhibitory defect – it is such kind
Q: Can he rescind the contract? of defect that even by examination of expert it
A: (b) Yes but the law requires that the action for cannot be discovered.
rescission must be filed within 1 year from the date
of the contract. If after 1 year, no more rescission. Q: If one of the animals has redhibitory defect,
can the buyer rescind the entire contract
(c) If he became aware more than a year, he pertaining to all the animals?
may file an action for damages, But the law A: G.R.: No. He can only rescind the contract
requires that the action for damages has to be filed pertaining to the animal with redhibitory defect. He
within 1 year also but from the time of the cannot rescind the entire contract pertaining to all
discovery of encumbrance. If he filed it for animals.
example, after 2 years from discovery – no Exception: If he can prove that he would not have
recovery of damages. bought the others had he known the defect of one
then he can rescind the entire contract.
WARRANTY OF QUALITY
Prof. Deleon, Prof. Vitug, Prof. Baviera: there is Q: Who has the burden of proof that he would
another warranty which is WARRANTY OF not have bought the others had he known of
QUALITY which includes: the defect of one?
(1) Warranty of Fitness A: Normally, it would be the buyer. But the law
(2) Warranty of Merchantability under certain circumstances would provide for this
presumption that it is presumed that he would have
To some authors the warranty of quality is bought the others had he known of the defect of
considered under the warranty of hidden defects. one.
Atty. Uribe: I cannot agree that the warranty of Examples: He bought the animals in teams or in
quality is in the warranty of hidden defects. I agree pairs then the presumption arises.
with Prof. De Leon, Prof. Vitug and Prof, Baviera - Love birds (Ang mga love birds, kapag
that there is a warranty of quality. namatay yung isa later on mamatay din
yung isa. Minsan nga mgsuicide pa sya
WARRANTY OF FITNESS FOR A PARTICULAR pag mag isa na lang sya. Iuuntog nya ulo
PURPOSE nya sa cage nya. )
The thing bought may not actually have any defect - Sledge dogs (Sa mga countries na may
and for 1 million buyers it would be fit for their nyebe “snow” may mga sledge dogs.
purpose. However, it may not be fit for the purpose Kailangan pag binili ang mga dogs, team
of 1 buyer and if all the requisites for this warranty sila. May leader pa nga sila eh at
are present, then he may hold the seller liable for sumusunod sila sa leader nila )
breach of warranty of fitness for a particular
purpose although there is no hidden defect but it is Q: If the animal which was bought, died of a
not fit for the purpose of the buyer. disease within 10 days, the disease existing at
In order for the seller may be held liable: the time of the sale, may he still have a remedy
1. The buyer has to inform the seller of the under the law?
particular purpose for which the thing is to A: Yes, if the disease turned out to be a contagious
be use and disease. In fact, under the law, the sale is void. If
he has already paid, he can recover what he paid
because the sale is void.
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Q: When will he be considered to have
If the disease us not contagious, under the law he accepted?
would only have a remedy if the animal died within A: (1) When he intimated his acceptance to
3 days. the seller.
(2) Even if he did not intimate his
Instances whether there would be no warranty acceptance or rejection, he will be deemed to have
against hidden defects and therefore caveat accepted if he did an act which is inconsistent with
emptor may be invoked: the ownership of the seller. Again, if he pledged
1. Sale which is an “as is where is” sale which the thing to another that is an act of ownership or if
means as it is found, where it is found xxx bahala he sold or donated the thing.
ka sa buhay mo if you want to buy the thing and (3) If he did not do anything by mere lapse
you cannot later on claim that there were hidden of a reasonable time, he will be deemed to have
defects. (Faye: pls. research the complete meaning accepted the thing. What is reasonable time would
of “as is where is” sale. Atty. Uribe will ask the depend on the circumstances surrounding the sale.
meaning. )
Q: What if after an examination or before the
Q: Can there be a claim of breach of warranty examination, the buyer refused to accept and
against eviction? informed the seller but the goods are already in
A: Yes because the seller would have or would still his place? What if the goods were lost or
warrant the title over the goods. destroyed in the possession of the buyer even
due to fortuitous event, who will bear the loss?
2. Sale of 2nd hand items A: It will depend on the reason of the rejection. If
3. Sale of animals in fairs there is a just cause for the rejection, then the
4. Sale in public auction seller will have to bear the loss because there will
be no transfer of ownership and he cannot be
Note: There would still be warranty against compelled to pay the price. However, if the reason
eviction. for the rejection is unjustified, ownership passes to
Note: Rules on warranty also apply to judicial sale. the buyer by operation of law then he will have to
bear the loss under the res perit domino rule.
Q: In sale by authority of law or in execution
sale, can there be breach of warranty against 2. Obligation to pay the price
eviction? Q: When?
A: Yes. The judgment debtor and not the sheriff A: (1) As stipulated
shall be liable. (2) If there is no stipulation, it would be at
the time and place of delivery.
The law would specifically exempt certain persons
from liability for breach of warranty like sheriff, Q: If the delivery was made a year ago but the
auctioneer, mortgagee, pledge and other persons payment of the price was made today, would
who sell by virtues of an authority of law like notary the buyer be liable for the interest from the time
public because they are not really selling for of delivery up to the time of payment?
themselves, they are selling on behalf of another A: G.R. No. Exceptions:
person. (1) Stipulation – the vendor may only agree
for the payment of the price for a certain
RIGHTS AND OBLIGATIONS OF THE VENDEE time only because there will be interest.
1. Obligation to accept the thing delivered.
2. Obligation to pay the price (if warranted, (2) Even if there is no stipulation – if the thing
with interest) delivered produces fruits or income.
Example 1: The object of sale is a rice land.
1. Obligation to accept the thing delivered Isang taon na sa buyer yung rice land ibig
sabihin he harvested twice already. The buyer
Q: If the buyer received the goods delivered, should be liable to pay interest.
does it mean that he already accepted? Example 2: Apartment unit. Kumita na yung
A: No because receiving is preliminary to buyer sa rentals.
accepting. In fact, this is consistent to the right
provided by law to the buyer which is the right of (3) Even if no fruits, he may be liable for
inspection or the right of examination. Thereafter, interest if he is in delay. This delay would
he may reject the goods if defective. start from the time there is judicial or
extrajudicial demand.
Page 23 Faye Marie C. Martinez – Chato Cabigas – Jessica A. Lopez – Dian Rosapapan
Ariel Maniacop, Gerard Sayas, Ayce Ann Sadiwa
A COS is a bilateral contract resulting in reciprocal A: No. There is such a sale on credit which is on a
obligations under 1169 from the moment one of the straight term basis.
parties in reciprocal obligation performed his
obligation and the other party has not even without Example 1
demand, the other party would be in delay and 1M – down payment of 500,000 today and the
therefore liable for interest and damages. balance to be paid at the end of the year → not
covered by Maceda Law
But in this provision, in order for the buyer to be
considered in delay there must be judicial or Example 2
extrajudicial demand. This article should be 300,000 today, the balance of 700,000 to be paid
construed to mean that there was a period fixed for on 10 equal monthly installments → covered by the
the payment of the price. Nakalagay sa agreement Maceda Law
“today ang sale, after 1 year payment”. Upon the
expiration of the 1 year period, there has to be All the provisions under the Maceda Law are for
judicial or extrajudicial demand which is different the benefit of the buyer.
from 1169 when the SC interpreted to mean that
the obligation is already due and demandable at Q: Is it correct to say that in this law, the buyer
the time of the perfection of the contract. Hence, no cannot invoke this law if he has not yet paid for
need for demand anymore. at least 2 years?
A: No. Even if he has only paid for a month, there
Right to Inspect or Examine will be rights already of such buyer under the
This right may not be present in all COS because Maceda Law. If he has paid at least 2 years, he
you can waive the right of inspection. Upon would have better rights.
delivery and receiving the goods, if you agree that
you are deemed to have accepted – no more right Q: If he has paid less than 2 years of
to inspect. installment, what are his rights?
A: (1) The grace period – he has a minimum
In C.O.D. arrangement, the delivery will not be of 60 days grace period (the seller can give him
made until payment has already been made by the more). During the 60-day grace period, he can sell
buyer so in that scenario, he has to pay first even his rights under the contract, he can assign his
before delivery. This is a sale transaction where rights, he can update his account, he can pay the
the buyer would have no right of examination prior balance.
to acceptance.
Example (2) The right to recover a portion of what
The arrangement between a mining he has paid – cash surrender value (CSV). This
company and NAPOCOR in the sale of coal. CSV is a minimum of 50% of what he has totally
NAPOCOR will have no right to inspect preliminary paid. This includes installment payments, deposit,
to acceptance, they will always accept. But after downpayment – every amount paid – 50% of that.
acceptance, that there would be examination of the It can be higher depending on the number of years
quality of the coal not for the purpose of rejecting that he has already paid.
but for the purpose of fixing the price. So this is not
a right of examination prior to acceptance. This is Hence, if he has paid only twice, he may
only an examination for fixing the price. be entitled to CSV if the payment is on annual
payments not monthly.
MACEDA LAW
BE: What is the Maceda Law? Give its essential Q: The minimum of 50% - when higher?
features. A: 2 years – 50% 8 years – 60%
A: R.A. 6552 “Realty Installment Buyer Protection 7 years - 55% 9 years – 65%
Act”. 10 years – 70%
Realty – object of the sale is realty (not real Every year thereafter, additional 5%.
estate). Specifically, residential unit and not
commercial or industrial. Q: What if it is 20 years – 100%?
A: No. Upto 90% only. So if 15 years or 16 years,
Q: How about a condominium unit? still it is 90%.
A: It is covered by the Maceda Law as long as it is
residential in character. Q: Would the amount recoverable be bigger?
A: Yes. 90% depends on the total amount paid.
Q: Sale on credit, does it mean that the sale will 90% pa din pero malaki ang base.
be covered by the Maceda Law?
Page 24 Faye Marie C. Martinez – Chato Cabigas – Jessica A. Lopez – Dian Rosapapan
Ariel Maniacop, Gerard Sayas, Ayce Ann Sadiwa
BE: Ayce bought a condo unit for 10M. 3M
downpayment. The balance of 7M payable in 60 Q: Are there other remedies aside from Article
equal monthly payments. Ayce religiously paid 1526?
until the 46th installment. On the 49th A: Yes, the seller may opt to file an action for
installment, she offered to update her account. specific performance or action for damages.
The seller Gerard said “I have already cancelled
the sale”. Is this cancellation valid? Q: Under 1526, who may be considered an
A: No. Under the Maceda Law, if you have paid a unpaid seller? If the buyer has already paid
minimum of 2 years, you are entitled to 30 days for 90% of the price, may the seller invoke these
every year of payment. Under the facts, she has remedies?
paid 3 years. Hence, she is entitled to 90 days A: Yes, because an unpaid seller is one who has
grace period. Nung nag default sya nung 47th, not been fully paid of the price.
magstart pa lang yung grace period. On the 48th
installment – she was only 30 days in default. 49th Q: May a person who was not a party to the
installment – 60 days in default. She was very sale be able to claim any of these remedies?
much within the 90-day grace period when she A: Yes, because a seller need not only pertain to a
decided to update her account. party to the contract. A person who is in the
position of the seller is actually a seller under the
Q: What if the installment period is for 15 years. law.
The buyer defaulted on the 3rd year. Under the
law, she is entitled to a minimum grace period Q: Who would be in the position of the seller?
of 60 days. Thereafter, she was able to update. A: The assignee or heirs of the seller or the agent
But on the 5th year, she defaulted again. How to whom the bill of lading was indorsed by the
many days is her grace period? seller.
A: None. The default must be once for every 5-year
lifetime of the contract. Q: In unpaid seller, are his remedies
Q: If there is a stipulation for the forfeiture of alternative?
the payment made – “the buyer will lose the A: Not necessarily, because in fact by express
house and lot and he will not recover anything provision of the law, the right of resale and the right
because all his payments will be treated as to rescind may only be exercised if the seller has
rentals” – is this a valid clause? possessory lien. Pag wala na syang lien, he can no
A: No, the premise of course if he has already paid longer exercise the right of resale or right to
for 2 years because by law he is entitled to 50% rescind so cumulative to that extent. But if there
CSV. are 2 remedies that alternative and cannot exist at
the same time, these are the right of stoppage in
Q: “Upon failure to pay 1 or more installments transitu and possessory lien because a requisite in
without need of notice, the seller would have order for the seller to have a right of stoppage in
the right to cancel the sale” – is this automatic transitu is that the seller must have already parted
cancellation clause valid? possession over the goods.
A: Void. There has to be notice to the buyer but
more than that if the buyer is already entitled to the Specific Remedies
CSV, the cancellation will take effect only upon full 1. Right to retain the thing in his possession
payment of the CSV. (possessory lien / withhold delivery)
Q: Why is it called possessory lien?
Q: Are the remedies under the Maceda Law A: Because there is another lien in the law. This is
alternative? Can the buyer be able to exercise 2 the lien under the rules on concurrence and
or more remedies all at the same time? preference of credit. This is the lien of the seller for
A: Yes, remedies under the Maceda Law are the price of the thing sold if the thing has already
cumulative. been delivered to the buyer and the buyer became
insolvent. While the thing is in the possession of
REMEDIES FOR BREACH OF CONTRACT the buyer there is such a lien but that is not the lien
REMEDIES OF AN UNPAID SELLER under 1526. 1526 again is the right to retain the
(ARTICLE 1526) goods in his possession – the possessory lien.
1. Right to retain the thing in his possession
(possessory lien / withhold delivery) Q: When would the seller have this possessory
2. Right of stoppage in transitu / right to lien? Is it required that the buyer should be
resume possession of the goods insolvent?
3. Right of Resale
4. Right to Rescind
Page 25 Faye Marie C. Martinez – Chato Cabigas – Jessica A. Lopez – Dian Rosapapan
Ariel Maniacop, Gerard Sayas, Ayce Ann Sadiwa
A: It is not required that the buyer should be to deliver because there was a final judgment in
insolvent but this is one of the instances when the his favor?
lien may be invoked when the buyer is insolvent. A: No, the very specific provision of the law – just
because there is a final judgment in favor of the
Other Instances Where Seller May Invoke plaintiff, that would not mean he will lose his lien
Possessory Lien over the goods.
1. When there is no stipulation as to the
credit Atty. Uribe’s Comment: This is a very reasonable
2. Or there may be a stipulation as to the rule because is there an assurance that the buyer
period of credit but the period has already will pay even with court order?
expired.
2. Right of stoppage in transitu / right to
When would the Seller be Considered to have resume possession of the goods
Lost his Lien
1. If he waives his right Requisites:
2. If the buyer lawfully obtained possession 1. Insolvency of the buyer is an essential
over the goods requisite
3. When the thing is delivered to a common 2. The seller must have parted possession
carrier and the seller did not prefer his over the goods
ownership and possession over the 3. The goods must be in transit
goods.
Q: Should the debtor be insolvent already at
If you remember the discussion on delivery – the the time of the perfection of the sale?
rule here is delivery to the common carrier is A: No, as long as at the time the right is invoked,
delivery to the buyer and therefore when the seller he is insolvent. The insolvency may happen a day
delivered the goods to a common carrier as a rule before or 2 days before basta at the time the right
he loses his lien over the goods. The premise of is invoked, the buyer is insolvent.
that is that he did not preserve his possession over
the goods. Q: How is the right exercised?
A: (1) By obtaining actual possession of the goods
Atty. Uribe’s Comment: With due respect to this (2) By mere notice to the common carrier.
article, the article says “if he did not reserve his
ownership or possession over the goods”. I don’t Q: If such notice was sent to the common
think that phrase ownership is accurate because it carrier but the common carrier refused to
does not matter under the law regardless of deliver the goods back to the seller, is the
whether ownership has passed to the buyer, the common carrier liable?
seller would have the right to exercise any of these A: Not necessarily, if the goods are covered by a
4 remedies, notwithstanding ownership has passed negotiable document of title, the common carrier
pwede pa syang magkaron ng possessory lien. In can be compelled to deliver the goods pursuant to
fact, by express provision of law even if he is only the exercise of the right of stoppage in transitu
holding the thing as a bailee, he will still have back to the seller only if after the negotiable
possessory lien, hence, ownership is irrelevant document of title is surrendered to the common
even if the seller did not reserve ownership, with or carrier. It should be a negotiable document of title.
without reservation he may or he may not be This is a protection to the common carrier. Kasi if
deemed to have lost his lien. Pero kung na reserve not negotiable, pwede yun i-negotiate sa 3rd person
nya ang kanyang possession, definitely, he will not who may purchase the goods in good faith and for
be considered to have lost his lien kasi if under the value. That 3rd person would have a better right
bill of lading deliverable to the seller then he will kaysa sa owner or seller.
not be considered to have lost his lien thus there is
no need for him to exercise the right of stoppage in Q: If the seller validly exercised the right of
transitu. stoppage in transitu, what is the effect?
A: He will be considered to have regained his
Q: If the seller opted to file an action to compel possessory lien.
the buyer to pay the price and the court
decided in favor of the seller. The court ordered Q: In a scenario where the seller still has
the buyer to pay the price. Can the buyer tell possessory lien, he may have invoked the right
the seller to deliver the goods so that he will of stoppage in transitu so he regained
pay the price? Can the seller now be compelled possessory lien, in the meantime, the buyer
sold the same goods to another person, so
Page 26 Faye Marie C. Martinez – Chato Cabigas – Jessica A. Lopez – Dian Rosapapan
Ariel Maniacop, Gerard Sayas, Ayce Ann Sadiwa
tatlo na – the seller, the buyer and the 3rd present and could have determined for himself
person. Can this 2nd buyer compel the seller to whether in fact an actual sale conducted and there
deliver the goods to him as the 2nd buyer? were actual bidders in that sale. Kasi pwedeng
A: As a rule no because the seller’s lien over the gawa gawa lang ng seller na kunwari may bumili.
goods will not be affected by the disposition made
by the buyer of the goods to a 3rd person. He will Take note under the law, the resale may be a
retain his possessory lien. 2 exceptions: private sale. The only limitation here is that the
1. If the seller assented to the disposition seller cannot buy directly or indirectly.
2. Even if he did not give his consent to the
sale, he will lose his possory lien if: Q: What if there was an excess? Example – out
a. the goods are covered by a of the 100k price the buyer paid 20k. balance
negotiable document of title 80k. What if in the exercise of the right of
b. the negotiable document of title resale, the seller was able to sell it at 130k?
was property negotiated to a 3rd May the buyer be able to recover at least the
person in good faith and for value. amount that he paid?
Not negotiation to a donee. A: No, because under the law, the seller will not be
responsible for any profit that will derive from the
3. Right of Resale resale. (See Article 1533)
Q: When would the seller have this right?
A: (1) If the goods are perishable Q: Would there be unjust enrichment?
(2) The right is expressly reserved in the A: None, because it was precisely the fault of the
contract buyer - his failure to pay that the seller exercised
(3) The buyer has been in default for an the right of resale.
unreasonable time
4. Right to Rescind
Note: In order to exercise this right, he must have Would only be available under 2 instances na
at the same time possessory lien. kapareho ng resale. Di ba resale 3 instances- ang
di lang present sa rescission yung perishable
Q: If necessary for the validity of resale that the goods. So the grounds in rescission are:
seller should send a notice of the intention to a. The right is expressly reserved
resell to the buyer which means that if there is b. The buyer has been in default for an
no notice of the intention to resell and then the unreasonable time
resale will be void. Is that correct? Is it correct
to say that for the resale to be valid, there Note: In resale, SC said - if the ownership of the
should be notice to the buyer of the date, time thing has already been transferred to the buyer, in
and place of resale? order for the seller to exercise the right of resale.
A: The answers to both questions → No. They are Should he first rescind the contract?
not necessary for the validity of the resale. A: No, he can immediately sell the goods because
the effect of the resale is to terminate the
Q: So what is the relevance of these notices? ownership of the 1st buyer and that ownership
A: First, the notice of the intention to resell will only would be vested upon the 2nd buyer by operation of
be relevant if the ground relied upon by the seller is law, hindi na kailangan mag-rescind.
that the buyer has been in default for an
unreasonable time. Kasi from the notice makikita In rescission, this cannot be exercised for casual
how long the buyer has been in default. Second, breach. Parang 1191.
as to the notice of the date, time and place of
resale, this is not necessary for the validity of Song Fo vs Hawaiian
resale but may be relevant in determining whether Facts: The buyer failed to pay around 20 days from
the sale was a good faith sale. This is relevant as a the time the obligation to pay become due.
consequence of resale, if there is still a balance.
For example, the total contract price is P100,000. Held: The SC said, that it not a serious breach of
The buyer did not pay a single centavo. Out of the his obligation to pay which would entitle the seller
resale, ang proceeds lang P60,000. So may the right to rescind the contract. The number of
balance pang P40,000, can the buyer be days would depend on the circumstances
compelled to pay the deficiency? Yes, but if the surrounding the sale. In Song Fo, the sale pertains
sale is not a good faith sale, he may not be to molasses/ sugar.
required to pay the balance. Why? What has the
letter got to do with good faith? Because if a RECTO LAW
letter was sent, then the buyer could have been - promulgated to protect the buyer
Page 27 Faye Marie C. Martinez – Chato Cabigas – Jessica A. Lopez – Dian Rosapapan
Ariel Maniacop, Gerard Sayas, Ayce Ann Sadiwa
- pertains to the right of the buyer should return the thing delivered to him and the
- if you analyze the law, it only provided 3 seller should return the amount he received as
remedies payment. Would the seller really be obliged to
- pertains to movable on installments return the entire 200k (1st and 2nd installment)?
A: No, under the law, he is allowed to retain a
Q: Assuming this is a sale of diamond ring fro reasonable sum which may be considered as a
1M payable in 10 equal annual. 100k each year form of rental. Example kung yung car ang binili, 2
payable Jan 1 each year. The buyer was able to years na nyang ginagamit, hence laspag na yun.
pay 1st and 2nd installment. He failed to pay the
3rd installment. Despite demand, the buyer Q: Despite the cancellation of sale which
failed to pay. Can the seller cancel the sale? normally result in mutual restitution, may the
A: No, under the Recto Law, cancellation of the seller this time be able to retain everything
sale and the foreclosure of mortgage may only be which he received?
invoked if the buyer has failed to pay 2 or more A: Yes, if there is a forfeiture clause except if
installments. If the buyer failed to pay only 1 retaining everything would be unconscionable.
installment the only remedy available to the seller What is unconscionable would depend again on
is exact fulfillment meaning specific performance. the circumstances surrounding the sale. Example
200k is not unconscionable for Danding Cojuanco.
Q: If after 2 months (despite demand the buyer But if the sale is a sale of machinery where the
failed to pay) the seller filed an action to buyer is a poor farmer- 200k is unconscionable.
recover a sum of money how much shall be
recovered by the seller? Take note under the Finally instead of cancellation another remedy is
facts he only paid 2 installments and hence the foreclosure of mortgage.
balance 800k. Can the seller recover the 800k?
A: As a rule none because in a sale in installments, Q: Buyer bought a car and to secure the
this is actually an obligation to pay with a period. payment of the price, he mortgaged his
Every time the period would arrive only then the diamond ring. The buyer failed to pay 2 or more
obligation will become due and demandable. Ang installments (3rd and 4th installments). If the
nagiging due and demandable lang yung 3rd seller foreclosed the mortgage and it turned out
installment. The 4th installment will be due only there was still a deficiency, if payable amount
another year and so on. What he can recover is is 500k and in the foreclosure sale the
only 100k which became due on the third proceeds was only 300k. May an action for the
installment. That is the general rule. By way of recovery of balance prosper?
exception he may be able to recover 800k or A: Yes, because under the facts what was bought
everything if there is a clause known as was not the one mortgaged. For 1484 (Recto Law)
acceleration clause. Kung sa Maceda Law void to apply, where there can be no recovery of the
ang acceleration clause, sa Recto Law valid. deficiency of the foreclosure, the thing bought must
Because normally sa Recto Law, maliit lang be the same thing mortgaged.
binebenta so there can be an acceleration clause
wherein that would make the entire balance due BE: Buyer bought a car to secure the fulfillment
and demandable and therefore he can be of the obligation he mortgaged the car but the
compelled to pay the entire 800k. buyer gave another security. He asked his
brother to mortgage his brother’s house and
Q: This time 3rd installment default sya. After lot. The seller agreed. The buyer failed to pay 2
few months he was able to pay the 3rd or more installments. The seller foreclosed the
installment. Nakabayad sya ng 4th, 6th. On the mortgage but there is a deficiency. So the seller
7th he defaulted again. Would cancellation now filed an action for the judicial foreclosure of the
be a remedy? (Naka-dalawang default na sya REM. May that action prosper?
eh) A: No, the foreclosure of the 2nd mortgage is in fact
A: No, under the Recto Law he should have failed a deficiency judgment. The only purpose of the
to pay 2 or more installments meaning 2 foreclosure is to recover the deficiency and that is
consecutive installments. Hindi sinabi ng batas - prohibited under the Recto Law.
”failed to pay twice”.
EXTINGUISHMENT OF SALE
Q: If he failed to pay the 3rd and 4th then Includes the ordinary causes of extinguishment of
cancellation would now be a remedy. So what if obligation:
the seller opted to cancel the sale (this is 1. Payment
rescission di ba?) and the effect of cancellation 2. Novation
di ba mutual restitution and hence the buyer 3. Loss of the thing, etc…
Page 28 Faye Marie C. Martinez – Chato Cabigas – Jessica A. Lopez – Dian Rosapapan
Ariel Maniacop, Gerard Sayas, Ayce Ann Sadiwa
Under the law on sales So again, there were fruits at the time of
1. The exercise of the right of resale will redemption, whether or not the seller would have to
result in the extinguishment of the 1st sale. pay for the fruits at the time of redemption would
The ownership of the 1st buyer will be depend on whether or not there were fruits at the
terminated and such ownership will be time of the sale. Take note that the sale may have
vested to the 2nd buyer. been 2 years before that or 3 years before that but
2. Rescission or cancellation will extinguish if at the time of the sale there were fruits and the
COS buyer paid for the value of these fruits, it is
3. Redemption either conventional or legal reasonable that the seller would also have to pay
for the value of the fruits at the time of repurchase.
Kinds:
A. Conventional - it is because the right to But if at the time of the sale, there were fruits but
repurchase is expressly reserved in the contract the buyer did not pay for the value of the fruits then
and thus this right may only arise in 1 kind of the seller should not likewise be compelled to pay
contract. This is a sale with a right to repurchase or for the value of the fruits at the time of redemption.
a pacto de retro sale.
There were no fruits at the time of the sale but
B. Legal- may be exercised by co-owners or by there were fruits at the time of redemption.
owners of adjacent lot
Q: If a COS was entered into in 2001 and there
A. Conventional were no fruits at the time of the sale. However,
If there was no stipulation as to the right of at the time of redemption April 1, 2005 there
redemption then no right of redemption were fruits. The value of which is 100k. How
much can the seller be compelled to pay for
Q: In the exercise of this right, how much these fruits?
would have to be offered by the seller in order A: Under the law, the seller can be compelled to
to redeem the property? Would the price paid pay for the value of the fruits in proportion to the
by the buyer be sufficient in order to period in which the buyer was in counted from the
repurchase the same? anniversary date of this contract. Yung anniversary
A: Not necessarily, under the law, the amount date ay every Jan 1. Yung anniversary date this
which has to be offered by the seller a retro in the year Jan 1, 2005, from Jan 1, 2005 up to April 1,
exercise of the right of redemption are: (1) price 2005 - the buyer would be in possession for 3
paid; (2) the expenses incurred by the vendee for months out of 12 months is ¼ of the entire year.
the execution of the contract; (3) necessary and Therefore, how much can the seller be
useful expenses incurred by the buyer. compelled to pay? 25,000 – ¼ of the value. The
longer the buyer is in possession of the goods, the
Example bigger the amount which has to be paid by the
In the sale of land, in order to preserve the land seller.
which is located beside the river, the buyer may
have put up a wall in order that it may not erode. Atty. Uribe’s Comment: It is reasonable. If the
The expenses incurred by the buyer will be buyer has been in possession for a longer period of
considered as necessary expenses for the time then he would have tend more for the
preservation of the thing sold and such expenses preservation of the thing or fruits. In fact, if the date
have to be reimbursed by the seller, in the right of of redemption period is July 1 and the seller would
the seller to repurchase the thing sold. have to pay 50% in proportion to the period when
the buyer was in possession counted from the
Growing fruits anniversary date.
Example
Q: In a mango plantation, there may be fruits at Period in conventional redemption
the time of redemption. The value of the fruits BE: Ariel sold a land to Jessica for 10k with a
is 100k. Can the seller be compelled to pay for right to repurchase expressly agreed upon
the value of the fruits? between the parties. Because they were
A: The answer will depend on whether there are friends, they did not provide for a period within
fruits at the time of the sale. If there were fruits at which the seller may exercise the right to
the time of the sale, the seller will only be obliged repurchase. But again, there was a reservation
to pay for the fruits at the time of redemption if at of the right to repurchase only that the parties
the time of the sale, the buyer paid for the price of failed to fix the period.
the value of the fruits.
Page 29 Faye Marie C. Martinez – Chato Cabigas – Jessica A. Lopez – Dian Rosapapan
Ariel Maniacop, Gerard Sayas, Ayce Ann Sadiwa
a. When should the seller a retro repurchase within the period provided by law, the
exercise the right to ownership of the buyer becomes absolute.
repurchase?
b. If the seller failed to Q: The law requires for an action for
repurchase within the period consolidation of title, is this necessary in order
agreed upon or the period the buyer to acquire ownership or at least to
prescribed by law, what will be acquire absolute ownership?
your advice to the buyer in A: No, this action is only necessary if he would
order to protect the buyer want the property to be registered in his name. In a
more? sale of immovable with a right to repurchase and
A: (a) The period is 4 years. Under the law, if the period for repurchase has already expired
there is a right of redemption but the parties failed without the seller exercising such right, the buyer
to provide for such a period, the law itself says that can only have the property registered in his name
right may be exercised only within 4 years. by filing such an action with the court. Thus, in
However, if the parties stipulated as to the period order to protect him further maganda yung action
within which the right may be exercised like 20 for consolidation of title kaysa naman the thing will
years, the law provides, it cannot exceed 10 years be sold by the seller to another person.
and hence the 20-year period will be reduced.
Hindi naman void yung 20 years totally, it will just Q: Assuming you are a lawyer, a client asked
be reduced to 10 years because the law provides you to examine a document which is
that it should not exceed 10 years. denominated as a DOS with a right to
(b) To file an action for the consolidation of repurchase and that client was the seller was
the title. the seller a retro (he would have the right to
repurchase). However, upon examination of the
Q: In a sale with a right to repurchase, terms and conditions of the contract, it appears
ownership passes when? Upon the expiration that the right has long expired. Thus, the client
of the period to repurchase? asked, may I still be able to recover this parcel
A: No, it follows the general rule in sale that of land which is the subject matter of this
ownership passes to the buyer upon the delivery contract?
as a rule. A: Consider the possibility that the client may
recover. Ask the client of the circumstances
Q: So what will be the effect of the expiration of surrounding the execution of that document. Ask
the period for repurchase without the seller him “Why did you execute this DOS?” If the answer
exercising such a right? Or even if he did is “kasi po atty. nagka utang ako sa kanya 150k
exercise it was not valid exercise of a right, like tapos sabi nya instead of executing a mortgage
for example: a total amount which should have agreement, DOS with a right to repurchase”.
offered 500k. He only offered to pay 300k. Anyway, from the DOS with a right to repurchase,
Hence, the buyer can refuse and therefore the he may appear to be protected. Kasi if he owes
right to repurchase was not validly exercised. that person 1M and if he is given in the debt a
Thus, assuming there was no exercise of the period of 1 year within which to pay in the DOS
right to repurchase what is the effect on the with a right to repurchase, he would also have 1
ownership of the buyer? year within which to repurchase. Diba parang
A: Buyers right or ownership over the thing pareho lang? But instead of mortgage he was
becomes absolute. During the period he has asked to sign a DOS. If that is the case, clearly you
ownership but his ownership is subject to a can conclude that this is not an honest to
resolutory condition which is the valid exercise of goodness sale with a right to repurchase. You can
the right to repurchase. If the right to repurchase, treat this transaction merely as an equitable
his ownership will be terminated. mortgage. Hence, he may still be able to recover
what was the subject matter of that transaction.
Q: Would this be correct - that upon the lapse
of the period without the seller having Q: Why would the creditor ask his debtor to
exercised the right to repurchase the sign a DOS with a right to repurchase instead
ownership of the buyer becomes absolute? Is of a mortgage to secure the fulfillment of his
this true also in sale of immovable? Or true obligation?
only in sale of movable? A: To ensure that the property will be owned by
A: It does not matter, it is true in every COS with a him automatically upon the expiration of the period
right to repurchase. From the moment by the fact within which to repurchase and the seller a retro
that the seller was not able to exercise the right to failed to exercise the right to repurchase which will
not happen in a mortgage. There is a principle in
Page 30 Faye Marie C. Martinez – Chato Cabigas – Jessica A. Lopez – Dian Rosapapan
Ariel Maniacop, Gerard Sayas, Ayce Ann Sadiwa
mortgage known as pactum commissorium. Upon Atty. Uribe’s Story: Hindi ako magaling sa tax.
the default of the debtor the mortgagee, cannot Sabi ni Justice Vitug, he was our reviewer, kung
validly appropriate the thing for himself. Ownership sya raw ang examiner, he would only ask
will not automatically pass by mere default of the questions on general principles on taxation wala
principal debtor because pactum commissorium is ung remedies or procedure. Naniniwala ako kay
void because the remedy of the creditor is to have Justice Vitug, it turned out yung mga questions
the property sold in a foreclosure sale not to talagang general principles kaya naka-tyamba ako.
appropriate the thing. So to avoid those He He He He
requirements sa mortgage, ang gagawin ng seller/
creditor is to have the debtor sign a DOS with a Anyway, under the law on taxation it is the seller
right to repurchase because the moment the debtor who has the obligation to pay the capital gains tax
failed to repurchase within the period, absolute unless otherwise agreed upon with the buyer would
ownership goes to the creditor who is in that sale have to pay the tax. The presumption that this is an
the buyer (creditor) a retro. Wala na syang equitable mortgage will only arise if the seller
kailangan gawin. bound himself to pay on the tax of the thing even
after the sale. Kasi hindi sya owner, why should he
If the instrument is a DOS with a right to pay for the tax on the thing?
repurchase it may actually be considered as an
equitable mortgage by just examining the terms Note: Presumptions under 1602 would arise
and conditions of that contract. There are certain regardless of whether the sale is denominated as a
instances when the law itself provides for a sale with a right to repurchase or a DOS. It doesn’t
presumption that this is an equitable mortgage matter. Even if it is a DOS if there is doubt as to
under 1602. whether or not it is an equitable mortgage. It has to
be resolved as an equitable mortgage.
BE: What are those instances?
1. The price is grossly inadequate. Q: Remedy of seller a retro?
Example: If the value of land is 1M, the A: Reformation because the contract as written did
price stated in the DOS is 100k which is not reflect the real intention of the parties. The real
grossly inadequate. Kaya 100k yun kasi intention is to secure the fulfillment of the obligation
ang utang nya talaga 100k. of the vendor a retro (debtor).
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Q: What if B sold his interest in the land to X. A, Q: What if in the DOS executed between B and
D, C, wanted to redeem. May they be able to X, the price stated in DOS was 3M. Hence, A
exercise the right of redemption? All of them? and C can be compelled to redeem by paying
A: Yes. All of them. 3M?
A: Not necessarily, under the law, if the price
Q: Is this the same rule in adjacent lots? stated in this sale is unconscionable, the
A: No, in adjacent lots, there can be so many redemptioners can only be compelled to pay the
owners depending on how it is big. The owner with reasonable value. Ang posibleng value could only
the smallest land area would have the right to be 1M pero ang nakalagay sa DOS 3M. Is it
redeem. possible that X did not pay 3M? Yes. Why
would they do that? The reason for that is to pre-
Q: What if the owners of adjacent lots would empt A and C from exercising the right of
have equal area? redemption. To discourage them from redeeming
A: The first one who manifested his desire to the property kasi kung mura yan they can easily
redeem. exercise the right of redemption.
Page 32 Faye Marie C. Martinez – Chato Cabigas – Jessica A. Lopez – Dian Rosapapan
Ariel Maniacop, Gerard Sayas, Ayce Ann Sadiwa
Also, for the owners to have the right of
redemption, the buyer from whom the property will
be redeemed must have another rural land.
Page 33 Faye Marie C. Martinez – Chato Cabigas – Jessica A. Lopez – Dian Rosapapan
Ariel Maniacop, Gerard Sayas, Ayce Ann Sadiwa
Q: If in the agreement one of the parties binds
LEASE himself to render service, for price certain
would that be a lease of service?
Notes: A: Not necessarily, because it may also be a
Read the Definition of Lease under Articles contract of agency, where a person binds himself
1643, 1644, 1713. to render service for another person it may be a
contract of agency, thus under 1644, in order for
Consider also on Formalities: Articles 1647, the contract to be considered as lease of service,
1724 in relation to 1403 on Statute of Frauds there must be no relation of principal and agent
and 1403, 1878 on Agency to Lease. existing between the parties.
Assignment and Sublease: Articles 1649, 1650 Distinguish a Contract for Piece of Work from
Contract of Agency
Implied new lease or tacita recunducion:
Article 1670 (important) Frensel vs. Mariano Ochaco
Facts: Mariano asked Merit to construct an edifice
for him and agreed that Merit was to supply not
Rights and Obligation of the Lessor and
only Labor but also Materials. Merit bought the
Lessee: Articles 1673, 1678, 1680, 1723 (take
materials from Frensel, however the price of the
note several questions in the bar have
materials remain unpaid so Frensel demanded
appeared under these provisions)
payment from Mariano, the ground relied upon by
Frensel is that Merit was an agent of Mariano
Period of the Lease if the parties failed to
therefore, for failure to pay the price, Frensel claim
Fixed the Period: Articles 1682, 1687
that Mariano can be held liable for the price of
material.
Rights of Third Person: Article 1729 (ex: rights
of owner of materials against the owner of the Held: It is not a contract of agency, since from the
building) terms and condition of the contract it appears that
Note: The first thing to consider in lease is to the control of Mariano over Merit does not go into
consider the kind of lease. the manner and method of performance of the
obligation but only goes into the result of the
Kinds of Lease: product and therefore it cannot be considered an
1. Lease of Things Agency Contract.
2. Lease of Work or Service
3. Lease of Right Note: In Agency, the control of the principal over
the agent is so pervasive that the principal can
Note: Under the law, under 1642 only lease of control not only the result but also the manner and
things and work or service are mentioned. method of the performance of the obligation which
is not present in this case and therefore Merit was
Note: In lease of Service, there are four (4) of them not considered an agent of Mariano.
but three (3) will not be covered by Civil Law, which
are Household Service and Contract of Labor Q: As to the relationship of the taxi driver with
(covered by Labor Law), and Contract of Carriage his operator, is this a contract of lease?
(covered by Commercial Law). The only kind of A: SC ruled that this is in fact a lease but not a
Lease of Service that will be discuss under the Civil lease of thing, but lease of service specifically an
Law is the Contract for a Piece of Work. employment contract, this is because of the control
of the operator over the taxi driver, as to when,
Definition: what time the drive operates the vehicle.
Q: If a party, binds himself to give another the Q: As to safety deposit boxes does this involve
enjoyment or use of thing, does that make the lease of things?
contract one of lease of things? A: No, in the latest decision of the SC, it
A: No, the most important distinction here with that considered the contract as special kind of deposit.
of commodatum is that in lease, it must be for a This cannot be considered a lease of things
price certain, otherwise if there is no valuable because the lessee has no control over the safety
consideration for the use or enjoyment of the thing deposit box. In fact he cannot even enter the bank
it will be commodatum. where the safety deposit boxes are located if it not
a banking hour, like when the bank is close so he
cannot enter therein.
Page 34 Faye Marie C. Martinez – Chato Cabigas – Jessica A. Lopez – Dian Rosapapan
Ariel Maniacop, Gerard Sayas, Ayce Ann Sadiwa
4. Nominate
Note: Again, to distinguish lease contract from 5. Principal.
other legal relationship you have to consider the
characteristic of the contract. The best way to Essential Requisites of Contract of Lease
remember the kinds of contract is to know by heart 1. Consent
what are the real contract (mutuum, commodatum, Note: As a contract again, you have to go into the
deposit, pledge) and formal contract (antichresis, essential requisite of contract in general which
donation). Aside from that it may be safe to would be applicable also to lease.
consider as a rule all the other contract as
consensual contract, where no particular form is But specifically as to consent in sale, there
required except in exceptional case: e.g. sale of are people who are prohibited from entering in
large cattle. specific kind of lease, those mentioned in 1490,
1491. When spouses are prohibited from selling to
As a rule lease, therefore is a consensual each other similarly they are also prohibited from
contract by mere meeting of the mind as to the entering in contract of lease as spouses.
object and to the consideration the contract is
perfected. As 1491 is also applicable to lease, hence
the guardian cannot lease property of the ward as
A contract of lease of things is essentially much as the agent cannot lease the property of the
onerous. In fact in one case decided by the SC, principal which he is suppose to administer.
involving an agreement between the Bureau of
Animal Industry and Mr. Bagtas, where 3 bulls 2. Object
were delivered by the Bureau to Bagtas for Q: In lease of things, may a consumable thing
breeding purpose. There was a period agreed be the subject matter of lease?
upon for one (1) year, after the lapse, despite A: Normally when a consumable thing is use in
demand for the return of the bull Bagtas failed to accordance with its nature it is consumed, as a rule
do so, thereafter he died and so his estate was therefore consumable things cannot be the subject
required to deliver to deliver the 3 bull but only the matter of lease of things. The exception is, when
2 were returned and the third bull could not be the use of the things is only for exhibition, or when
returned allegedly on the ground that the said bull they are accessory to an industrial establishment
died in a crossfire between the Hukbalahap and then it may be a subject of lease.
the AFP, so the claim was fortuitous event.
3. Cause
Claiming that the agreement was Lease of thing – the consideration for the lessor is
commodatum it was argued that since there was the payment of rental
no transfer of ownership in commodatum, then the
risk of loss would still pertain to the Bureau. Lease of work or service - it is the compensation to
be paid by the other party
SC ruled that this cannot be
commodatum, because there was stipulation for Lease of right – it is the payment of royalties which
the payment of breeding fee that has to be paid by is the cause and consideration of the one leasing
Bagtas, it cannot be commodatum but a lease of the right to another
thing, because there was a compensation to be
paid for the use of the bull. Again a contract of FORMALITIES
lease of things is essential onerous. Lease of Service – there is no particular form
required by law for the validity of the lease not
Note: Lease of things is not essentially personal. even for the enforceability as a rule.
Page 35 Faye Marie C. Martinez – Chato Cabigas – Jessica A. Lopez – Dian Rosapapan
Ariel Maniacop, Gerard Sayas, Ayce Ann Sadiwa
Held: Documentary formalism is not an essential involve merely acts of administration therefore not
element in the contract. In fact the contract may be require SPA therefore the second lease will be
express or implied. Thus, the absence of a written valid and binding upon the principal.
contract will not preclude a finding that there was a
professional relationship which merit attorney’s BE: Agreement for the repair of a private plane
fees for professional service rendered. and for a certain sum of money, however
additional work was requested by a person who
Lease of Things – certain provision of the law has the authority of a duly recognize
which requires certain forms to be enforceable. representative of the owner of the plane and
the request was merely verbal, when the
Under 1403, Statute of Fraud, when there additional work was completed, the one who
is a contract of lease over an immovable and it is rendered the work demanded additional
for more than a year, the contract of lease must be payment, the defense raise was under 1724 in
in writing in order for it to be an enforceable order that a claim for additional payment for the
contract. additional work, the agreement for the
additional work must be in writing and the
In 1878, if a person is authorized to lease changes should be authorized in writing.
an immovable property of another for more than 1 A: The suggested answer of UP will sustain the
year, that person or agent should have special defense because of 1724; such change not being
power of attorney. authorized in writing, the request was merely
verbal then the claim may not prosper.
Note: the problem in lease would normally be a
combination of an agency and lease. Atty. Uribe agrees more in the alternative
answer where in provides that, the person who
BE: Where a principal appointed an agent requested though verbal was the authorized
granting him unlimited and general representative of the owner, and this is given
management over his properties withholding already as a fact. If the defense would be sustain
no power from him and authorizing the agent to under 1724 then there will be unjust enrichment on
act as may deemed appropriate. With this GPA the part of the plane owner.
the agent entered in a contract of sale and two 1724 would give the proprietor the right to
(2) contracts of lease. The first lease pertains to raise the defense that testimony may not be
a parcel of land in Kalookan for 4 years and admitted pertaining to a change in the plans
rental to be paid annually for 60k a year. He because it was only verbal change, but the
also lease a certain land in QC but they did not moment the fact is established already, you can no
fixed the period of lease but they agreed on longer invoke 1724 but you can raise it as a
payment of rentals on monthly basis rate of 3k defense if there is a witness that is being presented
per month. These contracts were entered into in the effect that there was request or additional
while the principal was in the hospital. Rule on change by invoking 1724, the additional change
the validity and binding effects of the contracts not being in writing then no person may testify as
upon the principal. to such fact.
A: The problem pertains to both lease and agency.
However in the problem itself there was no But in the problem given it was mentioned
statement if the lease agreement itself was in as a fact, that the verbal request was made by a
writing. person authorized by the plane owner. Again the
better answer is the alternative answer, that, for the
As suggested answer, in the first lease, owner to be able to raise the defense under 1724,
since it was for 4 years and involve as lease over would constitute unjust enrichment after he actually
an immovable and pertains to an act under 1878, requested for such change thru an agent.
then the agent should have a special power of
attorney and under the facts he was only given a RIGHTS AND OBLIGATIONS OF THE LESSOR
general power of attorney, hence since armed only
by GPA, the contract is unenforceable as against As to necessary repairs of the thing lease,
the principal. this is an obligation of the lessor, under the law the
lessor is oblige to make the necessary repairs.
In the second lease, the agent
represented the principal did not fix the period of Gonzales vs. Mateo
the lease but only fixed the monthly rental of 3k, This involved a contract of lease over a cockpit. It
therefore under 1687, this will be construed as a was stipulated in the contract that “ang lahat ng
month to month lease. Since only month to month, kailangang gagawin sa bahay sabungan ay
Page 36 Faye Marie C. Martinez – Chato Cabigas – Jessica A. Lopez – Dian Rosapapan
Ariel Maniacop, Gerard Sayas, Ayce Ann Sadiwa
ipagagawang lahat ni Ginoong Gonzales (lessee) that collapse no other building. What are the
sa kanyang sariling ukol, na ang samahan ay rights of the owner against the architect and
walang sinasagot”. In other words the lessee, contractor? Can the owner demand the
bound to do the necessary repairs, so when the reconstruction of the building considering that
cockpit collapsed the lessee was held liable, even the cost of the construction of the building has
if the lessor under the law has the obligation to tripled from the time of construction up to the
make the necessary repairs it is still subject to time of collapse?
stipulation of the parties. A: Under 1723, the owner can hold the architect
and contractor solidarily liable. Because the
BE: A lease contract was entered into between architect not merely designed the building but also
A and B over a parcel of land for a period of 15 supervise the construction hence under 1723, they
years wherein the lessee conducted his are solidarily liable.
business where he constructed a 3 storey bldg
for 300, 000. Upon the lapse of the 15 year Under 1167, in obligation to do, if what
period the parties not having been able to has been poorly done may be undone at the
agree on the extension of the lease, the lessor expense of the debtor, in fact he can have another
demanded the lessee to vacate the premises. person to do the work at the expense of the debtor.
Lessee refuse to vacate until he is reimburse Notwithstanding that the cost tripled he may validly
the 300, 000 and arguing that since he is a do so.
builder in good faith he therefore has the right
to retain the thing until he is reimbursed. What Under the present practices in the real
are the rights and obligation of the lessor and estate business this may no longer happen. The
lessee? Can the lessee be considered a builder liability of the architect and contractor normally may
in good faith in the first place? not happen because the standard practice
A: No, he cannot be considered a builder in good nowadays the architect would be totally separated
faith as he was merely a lessee and he is not from the contractor. As of now there would be a
claiming ownership over the parcel of land when he project construction manager that would represent
constructed the building therefore he has no right the owner in supervising the work of the contractor
of retention. In fact under the law the lessor has and no longer the architect.
the option of appropriating the improvement or
requiring the lessee to vacate the premises and RIGHTS AND OBLIGATIONS OF THE LESSEE
remove the improvement. But if he decides to
appropriate the improvement for himself he has to Note: Two (2) favorite articles are 1649 pertaining
pay 50% of the expense incurred by the lessee to assignment of lease, and 1650 on sublease.
because it is a useful improvement. If the lessor
decides not to appropriate, the lessee may remove Q: The question in the Bar may be as simple as
the improvement even if that would cause damage may a lessee sublease the property without the
to the land as long as there is no unnecessary consent of the lessor and what are the
damage cause to the land. respective liabilities of the lessee and
sublessee?
BE: Instead of building it was a chapel that is A: Articles 1649 and 1650 would tell us that a
constructed by the lessee, will the same rule lessee may not assign his right on the lease
apply? without the consent of the lessor however he may
A: Consider also as useful improvement by the UP sublease the property in whole or in part even
Law Center. without the knowledge of the lessor as long as he
was not prohibited from subleasing the premises.
Note: If the improvement however is an
ornamental improvement and the lessor wants to BE: In the contract the lessee was prohibited
appropriate the same, he has to pay for the value from assigning the lease in one (1) floor of the
of the improvement not merely 50% but the value building but what the lessee did is sublease the
of the improvement itself. property, would that sublease bind the lessor?
A: Yes. He was only prohibited was assign the
BE: Pertain to construction of a building, where lease but was not prohibited from subleasing the
an architect was authorized aside from premises. In fact the lessor need not prohibit the
designing of the building also to supervise the lessee from assigning because under the law he is
work of the contractor. When completed it was prohibited from assigning his interest as a lessee
delivered to the owner however within 15 years, without the consent of the lessor. If there is a
it collapse because of the earthquake due to stipulation which must be state in the contract is
faulty construction, and it was the only building
Page 37 Faye Marie C. Martinez – Chato Cabigas – Jessica A. Lopez – Dian Rosapapan
Ariel Maniacop, Gerard Sayas, Ayce Ann Sadiwa
the prohibition to sublease the premises in order to words, he still intervened in the contract with
bind the lessee. respect to the subject land”.
Ultimately therefore the problem here is if There was stipulation also as to payment
there is a contract entered into by the lessee with a of taxes. If the contract was really involve
third person involving his rights as a lessee, would assignment of the lease, he should have nothing to
that contract involve assignment of the lease or do anymore with the property. He would have
merely sublease? disassociated himself from the original contract of
lease such that, the parties that would remain
Malacat vs. Salazar bounded by the contract was only between the
Facts: The lessor entered in a contract with the lessor and the assignee.
lessee for a period of 20 years from 1947 to June
1, 1967. however during the lease period, the Frensel vs. Mariano Ochaco
lessee entered into agreement with third person In this case, the theory of Frensel that
without consent of the lessor, thereafter the lessor Merit was merely an agent was not sustained by
question the validity of the contract on the ground the SC. SC sustained that theory that the
that this was entered without his consent and relationship of Merit and Mariano was that of a
claiming that this was an assignment of lease, void employer or a principal an contractor in a contract
therefore he can recover the property from the sub- of piece of work. Thus, can the supplier of the
lessee. Does the contract involve assignment of material, Frensel, recover from the employer in
lease or merely sublease. a contract of piece of work? There appears to
be no privity of contract. There would be privity of
Held: Whether the contract is assignment of lease contract between the owner of the edifice Mariano
or sublease, would depend on whether there was and Merit in their construction agreement. And it
absolute transfer of rights from the lessee to the would be Merit and Frensel in the contract of sale.
third person, such that he desist himself from the So Mariano has no privity with the seller of the
lease contract and his personality, resulting now in material Frensel. Thus as a rule, there would be
two (2) persons the lessor and the assignee, and no cause of action. In fact SC dismiss the case
the latter is now converted in to the new lessee. filed by Frensel. Although in fairness, the SC
However if the lessee retains interest no matter ruled, in the absence of material mens lien the
how small in the contract of lease then it will be action may not prosper.
treated only as sublease. This case was decided in 1960, if the
action was filed today, may the action of
So again, in an assignment of lease there Frensel prosper? Yes, under the theory of unjust
has to be an absolute transfer of interest by the enrichment, incorporated under Article 1729, that
lessee of his rights and he disassociated himself the supplier of material may recover such amount
from the contract however if there is reversionary owing to him by the contractor to the extent that the
interest retained by him then it will considered owner of the edifice is still indebted to the
merely as sublease. contractor.
In this contract, the SC merely treated it as For example the owner of material is
a sublease and therefore valid even without the claiming 3 million, but the owner of the edifice is
consent of the lessor, because, first the contract still indebted to the contractor for 5 million and the
was with a period that would last only until May 31, project has been completed, the supplier may
1967, upon the termination of the contract, there recover from the owner of the edifice himself
would still be one (1) day in the lease agreement, instead of claiming from the contractor.
therefore this lessee will be reverted back to his
rights, since he still has until June 1, so this made it Again, on the basis of unjust enrichment
merely as sublease. principle, since the owner of the edifice really owes
the contractor and this liability of the contractor
There were other stipulations in the may not excuse by the fact that he already paid the
contract which made them to conclude that this is contractor, if the payment was made in advance. If
merely a sublease. Like, in the contract, there was his obligation was not due and yet he paid the
a prohibition by the lessee upon X from cutting the contractor the supplier of the material, can still
trees on that land witout the consent of the lessee, recover the price of the material from the owner of
so why would he prohibit X from cutting the trees if the edifice.
he would consider himself from being
disassociated from the lease contract. In other
Page 38 Faye Marie C. Martinez – Chato Cabigas – Jessica A. Lopez – Dian Rosapapan
Ariel Maniacop, Gerard Sayas, Ayce Ann Sadiwa
The liability of the owner may not also be B will be the lessee of the entire building for a
excuse by the fact that the contractor waived his period of 10 years for 1,000 rentals a month.
claim against the owner. However, on the 5th of the agreement the entire
building was burned due to FE without fault of
Ultimately even if the owner has already anyone. A reconstructed the building, just
fully paid the contractor at the time it is already due before the building is completed, B notified A
and demandable he may still be held liable to the of his intent to continue the lease, as to
supplier of the material if he did not demand for the complete the 10 year period. A refuse, is A
delivery of a construction bond which would justified in refusing B’s offer to continue the
answer for the claims of the laborer and suppliers lease?
of materials. A: Yes. He was justified because by the destruction
of the lease due to FE the lease contract was
BE: This pertains to the lease of fishpond. The terminated so it can no longer be continued.
agreement was for five (5) years however after
one (1) year period of the lease, the lessee BE: Discuss the effect of death of lessee,
demanded from the lessor for (a) reduction of lessor, agent and principal.
the price and (b) extension of the lease for A: In a lease of thing, death of the lessee does not
another 1 year because he was only able to terminate the contract. A contract of lease is not
harvest half of what is normally being essentially a personal contract therefore upon the
harvested in the fishpond due to unlawful death of the lessee, it may be continued until the
elements from the area, extorting money from expiration of period of the lease by the heirs.
those leasing the property in that area. (Case: Heirs of Dimaculangan vs. IAC)
A: If we are to consider the relevant provision on
this matter, the law provides that reduction of rental IMPLIED NEW LEASE
may only be demanded by the lessee if he
harvested less than half of what normally would be Note: One of the most favorite in the bar exam.
harvested in that property. Normally it can already
be said that he is no longer entitled to the reduction BE: The question in the bar could be as simple
because under the facts, he was able to recover as under what circumstance would an implied
one half. At any rate even if he was only able to new lease or tacita recunducion arise?
harvest less than one half this would not entitle him A: Under the law, the only requirement is that
to reduction of rentals, because under the law, this 1. The lease period has expired and
may only be claimed if it was due to extra ordinary 2. The lessee continues to be in possession of the
FE event as oppose to merely an ordinary FE. lease for at least 15 days from the time of the
Storm is an ordinary FE, what could be considered expiration of the lease and
as an extra ordinary FE event is pestilence, 3. No notice to the contrary from the lessor and the
unusual flood. lessee.
Thus, the presence merely of unlawful BE: Pertain to contract of lease entered into for
element may be considered as extra ordinary FE period of 3 years Jan 1, 81 up to 1984. Rentals
under the law and may not be considered as a were paid on monthly basis. It was stipulated
basis for the claim of reduction of the rental. that the lessee has the option to buy property
at a certain price within a certain period (option
As to claim of extension of the lease, to buy). Despite the lapse of the 3 year period,
again for the same reason, even if there is a FE in the lessee did not exercise the option, but
contract of lease of thing, the happening of which continued to be in possession of the property
would not give the lessee the right to have the and paying the monthly rentals and the lessor
contract extended that would only result to accepting the same. This continued until June
suspension of the lease during the happening of 1984 when the lessee stated that he would now
the FE. Example, war as FE would only have the buy the property in accordance with the option
lease suspended and the lessee may bot be to buy. The lessor refuse, caliming there was
compelled to pay the rentals during that period but no more option. Was the lessor correct? Yes.
would not give the lessee the right to extend the Was it correct to say that there was extension
lease contract. of the lease under the facts?
A: Yes, there was an extension known was implied
TERMINATION OF THE LEASE new lease. However, with the implied new lease it
does not mean that all the terms and condition of
BE: A building was constructed by A, for this B the contract in the original lease continue also.
gave A 5 million pesos with the agreement that First as to the term, under the law, the term of the
Page 39 Faye Marie C. Martinez – Chato Cabigas – Jessica A. Lopez – Dian Rosapapan
Ariel Maniacop, Gerard Sayas, Ayce Ann Sadiwa
renewed lease would not be the term agreed upon
but only be of a period depending on the manner
the rentals are paid. If the payment is on annual
basis, the renewal would only be for a year and if
monthly payment of rental is made, the implied
new lease would only last for 30 days.
Page 40 Faye Marie C. Martinez – Chato Cabigas – Jessica A. Lopez – Dian Rosapapan
Ariel Maniacop, Gerard Sayas, Ayce Ann Sadiwa
or on behalf another with the consent or authority
AGENCY of the latter. So, kung proxy ka that would fall
under 1868 di ba but the definition has been
Definition 1868, 1874 and 1878 - formalities criticized by some authors, one of them is Justice
Reyes, that the definition of a contract of agency
Because a form is required for the validity or for under 1868 does not contemplate social and
the enforceability of the contract entered by the political representation, hindi kasama ang social
agent-1878, 1874 representation, political representation in order to
have a contract of agency under the New Civil
1892 - pertain to appointment of the substitute- Code, the purpose of the agency must be the
effect- may the agent nonetheless be held liable for execution of the juridical act, the agent must ask or
the loss that incurred by the principal as the result bind himself to execute a juridical act, meaning the
of the appointment of the substitute. act that will be executed by the agent on behalf of
the principal should either create, modify or
Other provisions pertain to the right and obligations extinguish a legal relationship between the
of commission agent or more importantly the principal and a third person.
guaranty commission agent – 1907 - 1908
Concretely if the agent was authorized to
Effect of death -1919, 1930 and 1931 buy, the act - the contract entered into by the agent
Either of the agent or principal with the third person would create a legal
relationship between the principal and the third
Revocation - kind of agency - agency coupled with person, that would be a seller-buyer relationship,
interest - 1927 so it is a juridical act.
BE: A asked her best friend to B buy for her On the other hand, if the agent is
certain items in a grocery store. Is there a authorized to pay an indebtedness of the principal
nominate contract created between A and B? to a certain person or to a bank and he in fact paid
A: Better answer, if B agreed to the request of A, the said amount, the result of the act is the
an agency relationship has been created, a extinguishment of the existing legal relationship,
nominate contract has been created. the legal relationship would be the debtor-creditor
Alternative Answer: I can agree with the answer relationship between the principal and third person,
given by the UP Law Center that a lease of service which would be extinguished by the act of the
may have been created so long as there was no agent known as payment.
principal agency created or existing between A and
B, although from the facts hindi ito lease of service, Again therefore for a contract of agency to
bestfriend eh, good possibility, so that’s why I can arise the subject matter or the object of the
agree with the alternative answer of the UP Law contract must be the execution of the juridical act,
Center the absence of principal agency relationship mere social or political representative would not
may result in a lease of service. result to a contract of agency.
Q: I’m sure all of you or most of you must have Q: If a contract well first if the instrument is
been a proxy in a baptismal or wedding titled or denominated as with agency does it
ceremony, but also you may have ask by a mean that there is an agency relationship
politician to represent in gathering because between the parties entered into a contract?
probably he may be in another gathering in A: Not necessarily, again the contract is not the
another place, so if you’ve been a proxy in a what parties want to call it to be, but rather how the
wedding ceremony or baptismal ceremony, law will consider such contract if it is the law
actually accepted the request of the real ninong determines the nature of the contact depending on
or ninang then it mean an agency relationship the stipulation of the parties.
created between you and the actual ninong or
ninang? Or if you have accepted the request of Q: But what if the agency was used by the
the politician were for you to deliver the speech parties in the stipulation? Does it mean that it
in a gathering would that result an agency is a contract of agency?
relationship? A: Not necessarily, in Quiroga vs. Parsons the
A: In both instances, no. It may appear under the word agency appeared about 3 times in the
definition of agency under 1868, that there is such contract but the word agency does not pertain to a
an agency relationship because as defined, a contract of agency but it pertains to another
contract of agency at first bind himself to render concept of the word agency. You can use the word
some service or to do something in representation agency several times in another concept like it may
Page 41 Faye Marie C. Martinez – Chato Cabigas – Jessica A. Lopez – Dian Rosapapan
Ariel Maniacop, Gerard Sayas, Ayce Ann Sadiwa
be an instrumentality like a travel agency, security something, now after this a nominate contract -
agency, or even a government agency, but their is commutative contract.
no agency relationship or it may pertain to
exclusive right to sell in a particular territory diba, As distinguished from other legal relation, you
so there is an exclusive he is considered an have to go into the feature of a contract of agency,
exclusive agenct to sell a particular brand in the how it is created? Then you will know, for example
province of Iloilo, there is actually no agency that is different from other legal relationships,
relationship created, it is done only in an exclusive which are created by operation of law like,
right to sell a particular brand / product in a territory negotiorum gestio, agency and negotiorum gestio
. may be similar in the sense that there is
Distinguishing Contact of Agency from other representation in its legal relationship but they can
Contract and other Legal Relationship be distinguished as to their manner of creation in
Consider the characteristics of a contract of agency that agency is created by mere agreement of the
as a contract and as a legal relationship business parties, negotiorum gestio created by operation of
organization. law.
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Ariel Maniacop, Gerard Sayas, Ayce Ann Sadiwa
But as held in the case of control of one party persons, eh kung verbal lang ang agreement dun,
over another which only goes into the result, it how would you be able to prove?
cannot be considered as a contract of agency but it
may be considered a contract for a piece of work. Held: The owner of the restaurant can be held
liable by estoppel because he clothed Flores with
Another important feature as to effect of full power as if he had the authority to buy those
delivery of the thing items necessary for the administration of the
If there is a transfer of ownership upon delivery restaurant. Aside from that, Mack was able to
of one party to the other party, that is not a contract prove pieces of evidence - like in the lease
of agency. In a contract of agency, when the agreement over the building where the restaurant
principal delivers the thing to the agent, only was located and comes the owner of the restaurant
possession is transferred to the agent, ownership as lessee and Flores signed as an agent of the
is retained by the principal (owner) in fact in lessee with all these the SC ruled that the owner of
agency to sell, an agent who was not able to sell the restaurant is liable under the Principle of
he has the right to return the goods to the seller. Estoppel.
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Pwede nabasa yung publication, informed by (the 1st agent) for accounting, damages etcetera for
phone, telephone conversation but it is very hard to the period after the appointment of the other agent.
prove because the word of the principal is against
the 3rd person. Issues: (1) Who was then the agent during the
period?; (2) Can the 1st agent be held liable after
As far as 3rd person are concerned they would the appointment of another administrator?
have the right to believe that the agency has the
authority until they have receive a notice in the Held: From the silence of the principal, due to his
same manner that he received notice as to the inaction, due to his failure to repudiate the acts of
authority of the agent. the substitute, he is thereby deemed impliedly
consented to the appointment of another person as
Q: In agency by estoppel / apparent agency, is the new agent, therefore implied agency was
there really an actual agency existing? created.
A: It does not matter, the principal can be held
liable under the Principle of Estoppel because it is This goes to implied agency pertaining to the
very hard to prove the existence of the actual principal because of the silence of the principal,
agency. It can only be the principal in estoppel that because of lack of action of principal, because of
can be held liable. Just like in apparent / ostensible failure to repudiate the acts of another principal, na
agency sa totoo lng it is possible that he did not alam nyang was acting on his behalf.
revoke the authority pwede pa din diba, pwedeng
kunwari nirevoke na niya just to avoid liability to 3rd Q: However, is this rule applicable also to the
person but that is a matter or a claim that he agents or to the other party? Concretely, if a
already revoked. Pati mga letter, halimbawa even person was asked to administer the property of
assuming the principal held a letter to the agent another or to sell the property, and he said
that letter can be easily denied kunwari, pinadala nothing - by his silence, by his inaction, may he
nya 3 months ago pero ngaun lng pinadala nilagay be deemed to have accepted agency?
nya lng ung date nung unang panahon. Thus, it A: Not necessarily, thus under the law, you have to
only protects 3rd person. Thus, 1873 is included in make distinction to determine the scenario under
the law in agency. which the said appointment was made, okie! The
law would say when the 2 parties are absent, and
3. Actual Agency when the 2 parties are present.
The law itself classifies actual agency into – as to
manner of creation, express or implied. There is no When 2 parties are absent - 1 is in Manila and the
problem with express agency. other is in Cebu.
A. Express Agency - it is a kind of agency When 2 parties are present - present in the same
wherein the consent of both parties is room
expressly given.
(A) 2 persons present - present in the same
B. Implied Agency - were the consent of one conference hall
of the parties was only impliedly given on
the part of principal. Q: When both parties are within the same
conference hall, A said to B that he would sell
Dela Pena vs. Hidalgo his (B) parcel of land in Cagayan De Oro City
Facts: Dela Pena authorized Hidalgo to administer but that B did not react, he just stared at the
his properties in the Philippines, He has to leave speaker, nakatingin lng sya, he said nothing, by
the country. Hidalgo managed the properties of his silence would have deemed the agency?
Dela Pena, after a while he has to leave the A: No.
country also and go to Spain for health reasons. So
he appointed another person, another Hidalgo to Q: But if B delivered a special power of
administer said properties of Dela Pena and wrote attorney to A, sabi nya “Here is the SPA, I am
a letter to Dela Pena informing him of the authorizing you to sell my parcel of land in
appointment of another person to replace him as Cagayan De Oro City”. The SPA was accepted
the administrator of his property. Dela Pena by B but he said nothing, basta tinanggap na
received a letter, he did not reject the appointment, lng nya, deemed impliedly consented to that
he did not question the acts of the new agency?
administrator. After a while he died and his heirs A: Yes.
(Dela Pena heirs) filed an action against Hidalgo
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Ariel Maniacop, Gerard Sayas, Ayce Ann Sadiwa
(B) If 2 persons are in different place, one in even bad faith or fraud committed against the
Manila and the other one in Cebu principal may be mitigated if the agency is
gratuitous in character.
Q: What if A was in Manila B in Cebu. A asked
B to be his agent to sell a parcel of land and B BE: What is the scope of authority of the agent
did not say anything, wala lng, is B considered - whether it only pertains to the acts of
to have impliedly consented as an agent? administration or acts of strict dominion?
A: No. A: Under Article 1877, if the agency is in general
term this only comprises acts of administration.
Q: But this time again a SPA was sent by A Even if the principal beholds power to the agent or
(Manila) through DHL to B (Cebu) which was it is stated that the agent may execute any act as
accepted / received by B, now he did nothing may be deemed appropriate, that will still be an
by his inaction, by silence he is deemed to agency pertaining to act of administration.
have accepted the agency?
A: Not necessarily, it will depend on the nature of FORM OF A CONTRACT OF AGENCY
the business of B, kung ang negosyo, again under As to form, the law is clear that it may be oral
the facts in the Special Power of Attorney he was however, the law may require a particular form
authorized to sell the parcels of land of A, if B was or specific form for what? for the validity of
in the business of piggery / poultry ay walang agency? Is there a law which requires a
kinalaman yan sa selling of a parcel of land. He will particular form for the validity of the agency?
not be considered to have impliedly accepted the A: Wala, there is no such form.
agency. However, if B is a real estate broker,
talagang ganun yung negosyo nya di ba, buying Q: Is there a particular form required by law for
and selling parcels of land, then and only then on the agency to be enforceable?
his silence, he is deemed to have impliedly A: At least one, under the statutes of frauds – if in
consented to the agency. the terms or agreement if it is not to be performed
within 1 year, it should be in writing otherwise, it is
COMPENSATION OF THE AGENT unenforceable. The effect of the agency if the
Q: As to the compensation in a contract of authority of the agent it is not in writing would go
agency consider again if agency is gratuitous into the contract entered into by the agent with the
or onerous? 3rd person. 1874 and 1878 - formalities.
A: Agency is presumed to be for compensation. If
that principal is claiming that the agent agreed to REQUISITES OF A CONTRACT OF AGENCY
render service without compensation the burden is Essential requisites of a contract of agency are like
on him (the principal) to prove that in fact it is any other contract - there are 3 essential elements:
gratuitous because the law presumes that it is for (1) consent of the contracting parties; (2) as
compensation. But there is one other relevance in mentioned a while ago, the object of a contact of
this distinction - for example, due to the negligence agency is the execution of the juridical act; (3) as to
of the agent the principal suffered damages in the cause, as far as the principal is concerned it is the
amount of 100k. It was actually proven that the service to be rendered by the agent and as to the
agency was gratuitous. The agency in other words agent, it is the compensation to be paid by the
sa abogado, pro bono or libre ang serbisyo nang principal or it may just be liberality in gratuitous
agent, may the agent be held liable? contract.
A: Of course sa abogado even if pro bono yan if he
caused damage to the principal or client due to his Rallos Case
negligent acts, he can be held liable. However, Held: The SC enumerated the essential elements
under the law if the contract of agency is gratuitous or the alleged essentials elements of a contract of
in character, the court may mitigate the liability of agency:
the agent, dahil gratuitous. 1. Consent
2. Execution of the juridical act - subject
Atty. Uribe’s Comment: I definitely agree with the matter
provision. As to this, the only recognition of human 3. Acts within the scope of authority
nature, pag walang sweldo mahirap mgtrabaho, in 4. The acts must be in representation of
fact, mahirap gumising sa umaga. Buti na lng the principal
nauna ang sweldo sakin ditto sa review kaya
ganado ako magsalita Atty. Uribe’s Comment: These are allegedly the
essential elements. Again, some authors would
Article 1909 - The liability of the agent for causing discuss in their books that these are the essential
damage to the principal due to his negligence or elements. With due respect to the ponente of this
Page 45 Faye Marie C. Martinez – Chato Cabigas – Jessica A. Lopez – Dian Rosapapan
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case, medyo mali mali ang enumeration, first there X filed an action to annul the contract of sale
was nothing mentioned about the cause or on the ground that the agent is minor at the
consideration as a contract, a contract will never time of the sale, will the action prosper?
validly have a cause or consideration. Well, it may A: It will not prosper. On 2 grounds:
be liberality, pwede naman cause yan but there (1) In that contract of lease entered into by
must have a cause. That the agent act within the the agent and the third person or the
scope and that the agent must act in contract of sale between the third person
representation are not essential elements of a and the agent, while A is considered as
contract of agency. They are actually obligations of the seller but only acting on behalf of the
the agent which means they have already principal still the real party in the contract
perfected the contract of agency. No obligation will is the principal and not the agent
arise kung void yung kontrata kung wala pang valid (2) The other reason is under the rules in
contract. So the essential elements are only those contracts – In annulment of contract, only
elements necessary for the validity of the contract. the incapacitated person has the right to
Once the contract is valid then the obligations will have the contract annulled, the party in
arise. the contract who is not otherwise
incapacitated has no right to institute an
Q: If the agent acted outside the scope of his action for annulment.
authority, does it mean that the contract of
agency is void? Either ground would be a valid ground to
A: Of course not. He can be held liable for acting dismiss the case.
outside the scope of his authority or if he acted not
in representation of the principal. 2. Object of the Contract of Agency
As to the object of the contract of agency we have
Q: Does it mean that there was no agency at mentioned already that this is the execution of
all? juridical act.
A: Of course not. There is a contract of agency.
Under the rule, there are consequences if the Q: Is it correct to say that any act which a
agent did not act in representation of the principal. person can lawfully do, he can delegate to a 3rd
person or to an agent?
PARTIES IN A CONTRACT OF AGENCY A: Not all. There are acts which are considered
Going to the consent of the parties, 1 purely personal acts. This he may not delegate to
author may claim that there are 3 parties in a an agent – like the execution of an affidavit, you
contract of agency that is totally wrong! cannot ask somebody to sign on her behalf in an
affidavit or even in succession you cannot
There are only 2 parties in a contract of delegate the execution of a will to a 3 rd person,
agency the principal and the agent. However, in note that it is execution not drafting of the will. You
problems involving agency, normally, there are can ask somebody to sign for you, under certain
three persons involved. The third person with circumstances, but the execution per se cannot be
whom the agent transacted is no longer part of the left to a 3rd person, it is a purely personal act.
concept agency. The contract entered into between
the principal and the agent is the contract of Q: The right to vote may be delegated to
agency. But when the agent entered into another another person?
contract, it may be a sale, lease or other contract A: The answer is - it depends. Voting in national /
and the 3rd person is not a party to this contract. local election cannot at least be validly delegated.
The 3rd person is a party to a 2nd contract. Well it may be delegated, may have been
delegated by other people, pero pag nahuli ka, pag
Again the parties are the principal and the bad ka, kulong ka sabi ni Joker But in a
agent. They may be called in other names the corporation, as for corporation can there be a
principal may also be called the employer, valid delegation of the right to vote? Yes. In a
constituent, chief. The agent may be called stockholders’ meeting, this cannot happen but in a
attorney-in-fact, proxy, representative. BOD’s meeting, in a BOD meeting it is the personal
presence of the Director which will be counted for
1. Consent of the Contracting Parties the purposes of quorum but for purposes of voting,
Q: What if the principal authorized an agent you can ask somebody to observe dun sa
who was then 16 years old to sell a house and proceedings. The members of the Board would
lot, giving him a Special Power of Attorney. normally not exclude you as an observer, as a
Pursuant to his mandate, the agent (minor) sold representative of the other BOD.
the house and lot to X, a 3rd person, thereafter
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But obviously if the person himself cannot lawfully period of lease is for 3 years. Would the
do, cannot delegate anyone like if the agent cannot contract of lease be valid and enforceable as
buy a parcel of land in the Philippines, he cannot against the principal?
also delegate such acts to another person that is A: It depends on the object of the lease. If this
void sale. lease involves immovable like a parcel of land, for
a period of 3 years without a SPA, would that be
FORM OF CONTRACT OF AGENCY valid and Binding?
As mentioned earlier, agency may be oral. It Unahin natin ung car, if it would be a car for 3
doesn’t matter if the contract of agency would be years without SPA, even if it is for 3 years this
valid but the parties even if it is by verbal would be a valid and binding contract of lease as
agreement, any effect in the verbal authorization, against the principal. However, if this is an
the agreement between the agent and the principal immovable like a parcel of land, would this be
if it was only verbal will only be in the contract valid and binding against the principal? It
entered into by the agent. Concretely, under 1874, depends on whether in this contract of lease if the
if the agent was authorized to sell a parcel of land principal is the lessor or the lessee. Under Article
and his authority is not in writing, the sale itself is 1878, this contract is unenforceable as against the
void under 1874, however, if for example, the principal only if: (1) in the contract of lease the
agent was authorized to sell a car and his authority principal is the lessor; (2) the object is immovable
is not in writing, what is the status of the sale? and (3) the period is more than 1 year. Take note
Would that be valid and enforceable against the of the 3 requirements.
principal?
A: No, it is unenforceable under 1878. San yung Under 1878, it is to lease the property of the
car sa 1878? It falls under the last paragraph of principal to another. Therefore, if the principal is
1878 - any other act of strict dominion would the lessee SPA is not required, kasi ang burden
require special power of attorney. So 1878 would wala naman sa principal, dun sa lessor, kc property
enumerate cases, acts of contracts where the law ng lessor yan di ba? Thus, the law only required
requires the authority of the agent in writing, it the SPA if the principal is a lessor, and the lease
should have a Special Power of Attorney, contract involves immovable property and the
otherwise the contract entered into by the agent is period is more than 3 years.
unenforceable against the Principal.
Q: Lease contract was entered into by A in
Q: Concretely, the agent was authorized to representation of B, with B as the lessor, the
administer a rice land. In the administration of period of lease of a parcel of land is 3 years. A
the rice land, he had to buy fertilizer, if he paid has a SPA. May this contract be unenforceable
the sellers of fertilizer without Special Power of as against the principal?
Attorney, would the payment be binding A: Yes, it is possible if this lease is not in writing.
against the principal? This time under the Statute of Frauds. Kanina ang
A: Yes because that payment is only considered as discussion natin ay under 1878 but if you
an act of administration. remember the SOF, a lease over immovable
property for more than 1 year must be in writing to
Q: However, kung na-harvest na ung palay then be enforceable (Article 1403).
he used the proceeds of the palay to pay the
indebtedness of his principal with a certain There is an author again who would claim that a
bank (PNB) without SPA, would that payment Power of attorney may be oral. He is really
be valid and binding as against the principal? wrong. A power of Attorney by its nature is in
A: No because that would fall under the first writing, by definition it is a written authority. It
paragraph of 1878 – to make such payment not in cannot be called a power of attorney if it is not in
the matter of acts of administration without SPA. writing, in fact, if you consider the specific provision
in the agency all this provisions pertain to a power
Other Acts / Contracts which Require a SPA of attorney in a written instrument. For example,
1. Entering into a compromise agreement Article 1871, pertains to the delivery of a power of
with SPA. He cannot submit the matter to attorney; 1872 refers to transmittal of a power of
the arbitrator without another SPA, those attorney; 1900 - power of attorney is written; 1902-
are 2 and separate distinct powers - the presentation of a power of attorney.
power to submit matters in the arbitrator
and the power to compromise. Obviously in a power of attorney, you cannot do
that if it is merely a verbal authorization. How can
BE: The agent of the principal entered into a a third person demand the presentation of a
contract of lease (without SPA) with X and the
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power of attorney if that alleged power of A: As a rule, he is liable for not carrying out the
attorney is verbal? By its nature, it is in writing. agency.
1. Primarily, the obligation of the agent is to (a) To act within the scope of authority
carry out the agency. If he failed to carry out, Q: How would you know if the agent was acting
he may be held liable. within the scope of authority?
A: You will be guided by the power of authority. In
Q: Should he carry out the agency after the fact, as a 3rd person, you can demand the power of
death of the principal? attorney, so that you will know whether in fact he
A: As a rule no, because there is no one to be had authority to enter into a contract. But sa totoo
represented. In fact under 1919, the agency is lng there are some SPAs which would be subject
extinguished by the death of the principal. of the case up to the SC pertaining to the scope of
However, the law provides for an exception - if authority of the agent.
delay would impair danger for an already began
but then unfinished contract, he should continue to Linal vs. Puno
carry out the agency. Again, if it would cause Q: Was Puno authorized to sell the land or
danger. merely authorize to administer the land?
A: There was a dissenting opinion.
Q: But if he did not carry out agency, he may Atty. Uribe: Mas magaling ang dissenting opinion.
not be held liable? Sa phraseology ng authority ni Puno he was only
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to buy, to sell, etc…in the administration of land, so
the buying and selling should not be construed as Q: What is the reason that the principal would
a separate authority from the administration and claim that the agent acted outside the scope of
should be construed as a buying and selling in his authority?
relation to the administration. If you have to A: Many reasons: for example he asked to buy
administer a parcel of land, you have to buy so somebody to sell his car because he expected sum
many things, lalo na kapag agricultural land yan. money to arrive from abroad to buy a brand new
You have to buy tools, fertilizers, and therefore you car but wala napornada, di binigay ng kapatid yung
have the authority to buy. Do you have to pera. Therefore, if the car will be sold wala na
authority to sell? Yes, the products of that land. syang kotse and it is an excuse that the agent
You have the authority to sell pero ung ginawa ni acted outside the scope of his authority but the
Puno, binenta nya mismo yung land. When the common reason would be because the principal
case reached the SC, the majority of the decision already talked to somebody else which will really
was – he has the authority to sell under the power buy the car for 400k. When you may choose this
of authority. 1? Because dun sa isa, walang commission di ba
sa 1 may commission. He may not recognize this
One of the bases of the SC in the contract.
conclusion that there was a power to sell also
because the fact that the agent acted in good faith, Article 1882 - the limits of the agent’s
that is an incredible argument, by the mere authority shall not be considered exceeded should
allegation that the agent acted in good faith he it have been performed in a manner more
already acted within the scope of the his advantageous to the principal than that specified
authority? Parang malabo yung dalawang yun. by him. So under the law, that the act is deemed
Even if I would claim that I thought I am authorized, not in extent of his authority, even on its face
does it mean therefore that I was authorized? parang in excess, the law will consider it as not in
Those are 2 different things - believing in good faith excess merely because it is advantageous to the
that you have the authority is different from in fact principal.
having the authority.
You distinguish these transactions from an
Nonetheless, again, as a rule you can be agency to sell 100 kilos of mangoes and there is a
guided by the power of attorney but even if without specific instruction that the mangoes will be sold 30
the power of attorney or despite the fact there was pesos per kilo. If you sold the mangoes for 50
a specific mandate of the power of attorney, you pesos, 30 lang binenta 50 pesos per kilo ang
should be guided by specific provisions of law nangyari out of 100 kilos sisenta lng ang nabenta,
whether the act is within the scope of your 60 sisenta, 70 sitenta, so instead of 30 pesos per
authority. For example: 1881 - the agent may do kilo he sold 50 per kilo. Actually, this is a violation
such acts as may be conducive for the of the instructions of the principal kaya siguro di
accomplishment of the purpose of agency. This lahat nabenta ung mga mangga binenta nya with a
particular provision has been cited by the SC in the much higher price.
case of Mack vs. Kang, if a person who is an
agent has the authority to manage the restaurant, Another Article 1879 - the law specifically
necessarily, he must have the authority to provides that the special power to sell excludes the
purchase items for the management of the power to mortgage. Even if the agent was
restaurant - the act of buying these items, like authorized to sell, he cannot mortgage that without
plates, these are reasonable and necessary for the another power of attorney, as much as the power
accomplishment of the agency. to mortgage does not include the power to sell as
mentioned a while ago the power to compromise
Another Article which would help you in does not authorize for the submission to arbitration.
determining if the act is within the scope of the
authority is Article 1882. Q: However, if the principal authorized the
Example of this, the principal authorized his agent agent to borrow money without the authority of
to sell his car, a specific car for 300k. The agent the principal can the agent himself be the
sold the car for 400K. It is possible for the principal lender?
to say that you acted outside the scope of A: The law provides yes, as long as the interest
authority, galit pa cya 300k na binebenta pero 400k rate will be the market rate, so the agent may be
nabenta. Technically, yes, the agent indeed may the lender.
be considered to have or may be claimed to have
acted outside or in excess of his authority because Q: The agent was authorized to lend money of
he told to sell the car for 300k. the principal, may the agent himself be the
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Ariel Maniacop, Gerard Sayas, Ayce Ann Sadiwa
borrower of the money without the consent of to sell it by yourself in your own name so that if
the principal? there would be a complaint the 3 rd person has no
A: This time hindi na pwede. He may be a good cause of action against me and the principal. But to
agent to lend the money to other person but he avoid such possibility the law would grant a cause
may not be a good debtor. Thus, the law would of action to the 3rd person if the object of the
protect the principal in that case. contract belongs to the principal.
But also, be guided by the decision of the SC as to BE: A authorized B to borrow sum of money
the extent of the authority of the agent. For from any bank and he also authorized B to
example in the case of Insular Drug vs. PNB mortgage a specific parcel of land to secure
Facts: The agent here was authorized to collect that loan. What B did, he borrowed money for
sums of money including checks from the client of himself from a certain bank without disclosing
Insular. So may agent ang Insular. He did collect his principal. Later on, he defaulted. Can the
the sums of money and the checks, and the checks bank go after the principal?
were payable to Insular but instead of delivering A: Of course no, the contract is between the agent
the checks in the Insular, he encashed the check and the bank only. The principal has nothing to do
or deposited the checks in his account in PNB. with the contract. Under the facts, the agent
borrowed for himself.
Issue: Does the authority to collect the checks
includes the power to indorse the checks or even However, if you have read the suggested
the power to encashed the check? answer, may 2nd paragraph - to the effect that the
bank can at least foreclose the mortgage they can.
Held: No, the power to collect does not include the If you remember the question, di tinatanong ng
power to indorse or the power to encash the examiner can the bank go after the principal as far
checks. So kasalanan ng PNB kung bakit nila as the thing is concerned. The only question
tinanggap ung check without the proper pertains to the payment of loan.
indorsement samantalang ang payee ay Insula.
Hindi naman si agent. Another thing in the suggested answer
which is totally wrong - under the facts, the
Atty. Uribe: In fact, the money involved here is principal authorized the agent to mortgage the
18,000 and I would still remember na Philippine property for the loan that will be obtained by the
Reports pa itong case. The agent (Mr. Foster) agent in the name of the principal. If indeed he
committed suicide when that fraud was committed. mortgaged the land for a loan in his name, would
Sabi nung isang nagbasa for sure ahead pa sa that mortgage be valid?
akin, encircle nya 18,000, gago naman ito 18,000 A: Definitely not. If he mortgaged it as a mortgagor
lng maliit lng ang amount…. But there was another the mortgage is void. The law requires that the
guy, sumunod dun sa isa, sinagot nya, mas gago mortgagor must be the absolute owner of the thing
ka 1932 pa eto eh… mortgaged. On other hand, even if the agent
mortgaged the thing on behalf of the principal, the
Q: The obligation to act on behalf of the principal is the mortgagor. Would that be a valid
principal - If the agent acted for himself and did and binding mortgage as against the principal?
not disclose his principal, would that 3rd person A: Also not. His authority to have the property
has a cause of action against the principal? mortgaged to secure a loan, not to secure any
A: No. other person’s loan and that therefore it cannot be
within the authority of the agent and therefore any
Q: Would that principal have a cause of action foreclosure of such mortgage will not prosper.
against the 3rd person?
A: Wala din. But there is an exception in this rule if
the object involved in the contract entered into by Q: If the agent acted within the scope of his
the agent and the 3rd person belongs to the authority and in representation of the principal,
principal - the law grants / gives a cause of action who will be bound in such contract?
to the 3rd person against the principal and vice- A: Aside from the 3rd person, it will be the principal
versa. It is because of the possible collusion because again the agent is merely representing the
between the principal and the agent di ba, so that principal.
sasabihin ng principal alam ko yang kotse na yan
sira sira na makina (may katok). Thus, in actual Q: However, is it possible for the agent himself
case the SC said, the vehicle has a “knock” , SC to be bound in such contract or be held liable
decicion yan! Hehehehehe Kasi may katok ang under such contract?
kotse, the principal would agree with the agent just
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A: Yes. If he expressly binds himself to that principal Oscar de Leon. Oscar, just any other
contract, why he would do that? Agent lang naman prospective buyer wanted the price to be lowered.
sya, when he would bind himself personally / So he was asking that the price be lowered. During
expressly? In the very nature of the agency the 3rd the negotiation, this Oscar de Leon bid 1,000 to the
person actually knows that it is the agent and not agent, which amount the agent did not disclose to
the principal. Ang nakikita lang ng 3rd person sa the principal. However, may violation na ng
palengke eh ung nagtitinda baka ung principal obligation ang agent. The principal on the other
nasa espana. Therefore, the 3rd person to whom a hand, somehow to only accommodate the demand
thing is offered for sale for example the agency to of the prospective buyer, nakaisip ng paraan, what
sell, the 3rd person will say that “I will buy that if you he did, he had an agreement with the prospective
also bind yourself as one of the sellers” because I buyer that kunwari the sale would no longer push
don’t know the principal. Eh ang agent gusto through so they have this drama that the
kumita, sige na din di ba. He will bind himself prospective buyer was expecting money from
personally in the contract as a seller and not as an abroad and therefore the principal would have a
agent. reason to the agent na hindi na matutuloy ang
agency and therefore I am revoking your authority
The agent may be held liable in the as an agent.
contract even if he acted within the scope, acted in
representation of the principal, he acted negligently Thereafter, the agent discovered that
or in bad faith di ba. something is wrong with what happened. He went
to the register of deeds and he discovered that in
Article 1909 is consistent also on the law fact a sale was executed between Domingo and
on obligations that every person who is guilty of Oscar de Leon. The agent demanded for his
fraud, negligence, etc.. will be held liable for commission. May sub agent pa sya dahil
damages. inintroduce cya kay Oscar, did the action
But aside from these 2 scenarios, of course, the prosper?
agent may be held liable if he acted beyond the Held: No, the SC ruled that for the failure of the
scope of authority. Also, if he acted beyond the obligation to deliver to the principal for whatever he
scope of his authority, however, he may not be may have received pursuant to the agency, even if
held liable under such contracts and under certain that is not only to the principal, that is a breach of
circumstances: fiduciary relation which resulted in not giving the
(a) The principal ratified - then the principal agent his commission. But is the 1,000
will be held liable and be bound on such important? Supposedly, parang 10,000 ang
contract. marereceive nya as commission?
(b) Even if the principal did not ratify, if the 3rd A: The answer would be yes because why would
person was notified of the fact that the the prospective buyer give 1,000 sa agent? hindi
agent was in excess of his authority or dahil mahal nya ang agent?! That would be
even if he was not notified, he was aware because he wanted the agent to continue with the
of the fact that the agent was in excess of principal to lower the price of the thing which would
his authority, the agent will not be held be sold, which is inconsistent with the interest of
liable because under 1898 that contract is the principal. As an agent of the principal, he is
void. So this contract being void, the third supposed to protect the interest of the principal not
person cannot hold him liable for acting to lower the price to be paid by the buyer. If only for
within the scope of authority. this the SC will not dismiss the case. In fact,
ginawa pa syang liable for the share of the sub-
3. One important obligation of an agent is to agent.
render an account of his transactions and to
deliver to the principal whatever he may have Obligation to deliver to the principal what he
receive pursuant to an agency even if it not may have receive
owing to the principal. In fact this obligation is so serious. If the agent
In fact, any stipulation exempting him from this would fail to perform this obligation, he may be
obligation to render an accounting is void. imprisoned.
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Ariel Maniacop, Gerard Sayas, Ayce Ann Sadiwa
20% as a commission (20% of 800 is 160). So hee principal”. If he failed to get the ratification of the
only remitted 340 to the principal, because of that principal he will be held liable not because of the
the principal demanded a greater amount than the contract itself is void but because of failure to get
340. A criminal complaint was filed (for estafa). the ratification of the principal. If the principal
ratifies the contract, he cannot be held liable even
Held: Regardless of the commission whether 10% if it is a void contract because the principal is
or 20%, the agent was not entitled to retain 160 bound to the contract.
because even if 20% the 20% of the 500 and he is
not entitled to the 20% of 800. The commission APPOINTMENT OF SUBSTITUTE
should be based on the actual amount he collected Another possible obligation of an agent may result
not the total amount which he is supposed to from an appointment of substitute
collect. And because of his failure to deliver 400 to
the principal he was convicted. BE: X appoints Y as his agent to sell his (X)
products in Cebu City. Can Y appoint sub-
Obligation to render an accounting agent? And if he does what are the effects of
Q: The principal authorized the agent to sell a this appointment?
car for 300k, the description of the car was A: Yes, the agent may appoint a substitute or sub-
mentioned in the SPA. However, before the agent, if the principal does not prohibit him in doing
agent would sell the car, the principal called so. But he shall be responsible for the acts of the
him by phone and instructed him to sell the car substitute (because he was not given authority by
in QC to a member of IBP chapter. Instead of the principal) especially if one appointed turns to
selling the car in QC to an IBP member, he sold be incompetent or insolvent.
the car in Manila to a person not known by the
principal for 300k. Atty. Uribe: Is this correct?
(1) Can the principal recover the car from the Mukhang mali. Mukhang confused ang sagot. Ang
buyer if that car is already delivered to the tanong sub-agent? Can Y appoint sub-agent? Yes,
buyer? the agent may appoint substitute or sub-agent
(2) Any remedy provided by the law to the seller which means apparently there is no distinction
or to the principal? between a sub-agent and substitute. With due
A: (1) It depends, if that buyer has no knowledge of respect to the answer of the UP Law Center,
that instruction of the principal then he has all the Professor de Leon is really good on this matter, a
right to retain the car and that sale will be valid and sub-agent is very much different from a substitute.
binding as against the principal. As provided under
Art. 1900 so far as 3 rd persons are concerned they If it is in replacement (kapalit) that is a
only rely on the SPA as written. They have no substitute which means that the agent would be
obligation to inquire on the special instructions disassociating himself from the agency (Aalis na
made by the principal which are not mentioned in sya or lalabas na sya ng Pilipinas etc.) and
the SPA, eh wala naman dun sa SPA na it will be somebody else must take over his functions.
sold to an IBP member chapter in QC.
(2) To go after the agent for damages, if there is An agent who appoints a sub-agent will
any damage sustained by him for his failure to continue to be an agent in that agency relationship.
follow the instructions of the principal. He does not disassociate himself from the
relationship. He is still the agent and therefore all
Article 1898 - if the agent acted outside the scope the rights and obligations would still be there even
of his authority and this was known to the 3rd if he appointed a sub-agent. But if the agent
person the contract is void. Take note by the appointed a substitute, the answer will depend on
specific provision of the law this contract is void Art 1892.
and subject to ratification. This is only the void
contract which can be ratified under Article 1898. Kung ang tanong ay substitute and during
the management of the business by the substitute,
Q: Is it possible that the agent be held liable to losses were incurred by the principal, mask isang
the 3rd person even if the 3rd person was aware taon pa lng ang substitute 2M was incurred by the
of the fact that the agent was in excess or principal, may the principal hold the agent
outside his authority? liable? Iba ung can the principal hold the
A: Yes, if the agent promised to obtain the substitute liable?
ratification of the principal and failed to obtain the A: The first thing you have to consider is if he was
ratification. Nagkwento sya sa 3rd person prohibited in appointing a substitute or not. If he
”you know I was acting in excess of my authority, was prohibited he will be held liable because he
but don’t worry I will get the ratification of my appointed 1 despite the prohibition. In fact, under
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Ariel Maniacop, Gerard Sayas, Ayce Ann Sadiwa
the law all acts of the substitute appointed, if it is
against the prohibition, such acts are void. If he However, if the agent was given the power
was not prohibited under the law, he shall be to appoint, there may be 2 scenarios:
responsible for the acts of the substitute under (1) The person to be appointed as the substitute
certain circumstances. Take note that the operative may have been designated or (2) the person to be
word here is responsible and not liable. You may appointed was not designated.
be responsible - there are consequences.
Sabi ng principal – “ok you can appoint a
If he was not prohibited there are 2 substitute but if you will appoint a substitute,
scenarios: appoint Pedro”. If the agent appointed Pedro,
(1) Not prohibited but he was neither given the would he be held liable for the losses incurred
power to appoint or by the principal coz of the acts of Pedro?
(2) He was not prohibited precisely because he A: Hindi naman. The substitute was designated
was given the power to appoint. because the principal said that he should appoint
Kung he was not prohibited he but he also lacks Pedro kaya inaapoint nya si Pedro but this should
the power to appoint, ang scenario dito wala lng be subjected to the provision of agency that he
namention sa SPA so nothing was mentioned in should not carry out the agency if such would
the SPA regarding the appointment of the manifest loss or damage to the principal.
substitute. Ang ibig sabihin nun he was not
prohibited and he was neither given the power to Example
appoint. If that is the case will he be liable At the time of the appointment, the agent was at
necessarily because of losses which were that time fully aware that the person was
incurred by the principal? notoriously incompetent. He should have at least
A: Hindi naman. If the substitute acted within the informed the principal that the substitute is
scope of authority in representation of the principal notoriously incompetent. If he failed to do so
and the substitute acted in good faith with the having the opportunity to inquire, then he can be
diligence of a good father of the family, held liable.
nonetheless losses were incurred by the principal -
Pwede bang mangyari un? Yes, ang negosyo ay If the person to be appointed was not
negosyo kahit na napakagaling mo pang designated, he will only be liable if the substitute
negosyante kung palugi na talaga negosyo, there turns out to be notoriously incompetent or
are forces beyond the control of every person. To insolvent. (Article 1892).
be factual about this kapag ngcoconstruct ng LRT
halimbawa sa Aurora boulevard, during the LIABILITIES OF 2 OR MORE AGENTS
construction stage ilang taon yan 2 or 3 years, sa Q: If the principal appointed 2 or more agents
tingin nyo kung may restaurant pa dyan buhay for a certain transaction, what would be the
pa ba? Wala na kakain dyan puro alikabok na. nature of their liability? Can they be held liable
jointly or solidarily?
As long as he acted within the scope of his A: Agents can only be held jointly liable unless they
authority, in representation of the principal and he expressly bound themselves solidarily.
acted with good faith, the agent cannot be held
liable. He is responsible for the acts of the But in fact, even if they bound themselves solidarily
substitute and if the substitute acted within the and damage was incurred by the principal due to
scope of authority di ba. This is consistent to the the act of one of the agents, it is still possible that
principle of agency - that the agent is not the they may not be held solidarily liable despite that
insurer of the success of the business of the there is an express agreement, if that agent who
principal. Otherwise, wala na mag-a-agent dahil caused damage to the principal acted outside the
kapag nalugi liable sya. scope of his authority.
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the principal having been informed of the sale, A: No, as he received a guaranty commission, he
he demanded for the proceeds of the sale. Can is known as a guaranty commission agent. He is
the agent be compelled to pay or deliver the also known as “del credere agent” and as such, he
proceeds of the sale kahit hindi pa nya na- bears the risk of collection.
collect?
A: Yes, he can be compelled to deliver the OBLIGATIONS OF THE PRINCIPAL
proceeds as if it was sold on a cash basis because (1) To comply with the obligations which the agent
he sold it on credit without the consent of the may have contracted within the scope of his
principal. authority and in representation of the principal.
(2) Obligation to advance the money necessary for
Q: How much would the commission agent the accomplishment of the purpose of the agency.
deliver if he was able to sell it at 15k, payable in (3) Obligation to Reimburse
4 months but under the agreement of the
principal and the commission agent, it should (1) To comply with the obligations which the
be sold only at 10k? (Assuming that the agent’s agent may have contracted within the scope of
commission is 10%) his authority and in representation of the
A: He should deliver 9,000 to the principal (10,000 principal.
x 10% = 1,000 commission... 10,000 – 1,000 = This is the main obligation of the principal.
9,000)
If the agent acted outside the scope of his
Q: What if 4 months after, he have already authority, the principal may not be bound to such
collected 15k, can the principal claim “di ba contract. But even if the agent acted beyond or
you only gave me 9k which is based on the 10k outside the scope of his authority, the principal may
price but you were able to sell it at 15k, so I be bound if:
should get 90% of the 15k”. Is that a valid 1. He ratified
claim? 2. He contributed to deceive the 3rd person
A: No, under the law, if the commission agent sold into believing that the agent acted outside
the thing on credit without the consent of the the scope of his authority (estoppel). The
principal, he is entitled to any profit which he would principal and the agent will be solidarily
derive from such obligation. liable.
3. When the 3rd person could not have
Q: If he was obliged to collect or sell 10 known of the limitations on the power of
refrigerators but he was able to sell only 1 the agent (Example: Verbal limitation)
refrigerator, can he be held liable for not selling
the remaining refrigerator? Article 1900 – the third person will only have to
A: Normally, he would be because that is failure to rely on the power of attorney as written.
comply with his obligations as an agent. But he has
a defense – exercise of the diligence required. If (2) Obligation to advance the money necessary
there was no law or stipulation, it will be diligence for the accomplishment of the purpose of the
of a good father of a family. The fact that he was agency.
able to prove that he exercised the diligence of a The principal, unless otherwise stipulated or unless
good father of a family xxx nonetheless, he was not the he is already insolvent, must advance the
able to sell, he can no longer be held liable. Again, money. Even if the agent bound himself to
he is not the insurer of the success of the principal. advance, if the principal is already insolvent, he
need not advance the sum of money kasi wala ng
BE: The agent was authorized to sell 20 units of mag-re-reimburse sa kanya.
refrigerator. He received in addition to his
commission, a guaranty commission. He was (3) Obligation to Reimburse
able to sell the refrigerators and received his G.R.: The principal
guaranty. However, the buyer failed to pay the Exc: 1918
price of these refrigerators. The principal a. If the agent is acting in contravention of
demanded from the agent the money which he the instructions of the principal.
could have delivered to the principal as a Example: He sold items in Cebu instead in
guaranty commission agent. The defense Cagayan.
raised by the agent is that he has no obligation However, if the principal wants to avail of
to collect the price. The agent said that his only the benefits derived by the agent, the
obligation is to sell the refrigerator. Is that principal will be obliged to reimburse.
correct? b. Agent was at fault
Page 54 Faye Marie C. Martinez – Chato Cabigas – Jessica A. Lopez – Dian Rosapapan
Ariel Maniacop, Gerard Sayas, Ayce Ann Sadiwa
TWO OR MORE PRINCIPALS APPOINTED AN cannot be held liable because walking alone is not
AGENT a negligent act.
Q: An agent was appointed to a single and
common transaction and damage was incurred Atty. Uribe’s Comment: The answer is erroneous.
by the agent. What is the nature of the liability In the case of Austria which was decided on June
of the principals? 10, 1971, the incident happened in the 60’s. The
A: Solidary. SC said, we cannot consider the agent negligent in
going home alone. SC said that if the incident
Q: Ayce was authorized to lease a specific happened today (referring to year 1971), the agent
property (warehouse). She entered into a lease can be held liable for concurring negligence,
contract with Dian. However, the principal considering the crime rate.
(Chato) also entered into a contract of lease
over the same property with another person Problem Areas in Extinguishment
named Gerard. Which contract will be BE: What is the effect of the death of the
recognized? agent?
A: Based on priority in time, priority in right. The A: G.R.: The agency is extinguished (Article 1919).
prior date should prevail. Take note that this is a EXC.: Article 1930 – if the agency was constituted
lease of property. for the benefit of both parties or for the benefit of a
third person who accepted the benefit, then that
In sale, priority in time is not applicable. See Article agency shall continue even after the death of the
1544 (double sale). agent.
Q: What if the person filed an action for BE: P authorized A to sell a land (14 hectares).
damages against both principal and agent, who In 1950, before A could sell, P died. After P
will be liable? died, in 1954, the heirs sold the land to X. In
A: G.R.: The principal 1956, A sold it to Y. Who has a better right?
EXC.: If agent acted in bad faith A: If A has no SPA, this sale is void under Article
(incompatible contracts) 1874. X would have a better right. If there was a
SPA, it depends if A has knowledge of the death of
MODES OF EXTINGUISHING AGENCY P or if he was in good faith. If A has knowledge of
E – xpiration of the period the death, X has a better right. If Y is in bad faith
D – eath, civil interdiction, insanity (he knows of the death of P), X has a better right.
W – ithdrawal
A – ccomplishment of purpose Under Article 1931, the act of an agent after the
R – evocation death of the principal will be valid if he had no
D – issolution of the entity knowledge of the death of the principal and the
third person is in good faith.
Q: Is this enumeration exclusive?
A: No, the other modes of extinguishing obligations Q: What if A has no knowledge and Y is in good
are equally applicable to agency. Example: mutual faith?
dissent, loss of the thing due to fortuitous event. A: This will be incompatible contracts. Apply Article
1544.
BE: Ariel authorized Jessica to sell a pendant
with a diamond valued at 5k. While Jessica was Rallos vs. Felix
on her way home, 2 persons snatched the bag Facts: The agent was a brother of his two sisters.
containing the pendant. Thus, Jessica was not He was authorized to sell the land. The brother
able to sell the pendant. Ariel sued Jessica. sold the land only after the death of one of the
Jessica raised the defense that robbery is a sisters. He sold it to Felix. The administrator of his
fortuitous event and therefore he cannot be sister filed an action to recover the property.
held liable for the loss of the pendant. Ariel
claimed that before Jessica could invoke Issue: What is the effect of the death of one of the
fortuitous event, there has to be conviction of principals?
the perpetrators of the crime and even though
this is a fortuitous event, there was negligence Held: As to the surviving sister’s portion, it is valid
on the part of Jessica in walking alone with that and binding. But as to the deceased sister (Article
pendant. Decide. 1919), the authority of agent was terminated after
A: The case is identical to Austria vs. CA. As to the death. But if agent has no knowledge of the
the contention of Ariel, conviction is not required. death – it is valid. But obviously, the brother had
Preponderance of evidence is sufficient. Jessica knowledge of the death of her sister.
And acted in GF
Page 55 Faye Marie C. Martinez – Chato Cabigas – Jessica A. Lopez – Dian Rosapapan
Ariel Maniacop, Gerard Sayas, Ayce Ann Sadiwa
contracts are considered agency coupled with
Note: Civil interdiction – accessory penalty (more interest.
than 12 years penalty)
Note: The SC said that for an agent to claim that
Revocation the agency is coupled with interest and hence
It is an act of the principal. The principal can cannot be revoked by the principal, the interest
revoke the authority of the agent at will at any time. must not be the usual compensation of the agent
Q: Would this be correct if the parties agreed which is commission and must be stated in the
for the period of agency? Can the agent hold SPA.
the principal liable for breach of contract?
A: Baretto vs. Sta. Maria – the principal can Q: If agency coupled with interest – possible
revoke anytime even when there is a period agreed that it could be revoked?
upon because agency is based on trust and A: SC said in Collongco – Yes, if the revocation
confidence. was with a just cause. In the case of Collongco,
there was a just cause because the agent
Q: If he has the power to revoke, may the committed acts contrary to the interest of the
principal be held liable? principal. Collongco attempted to ask the
A: Yes because even in the exercise of a right, it superintendent of the factory to destroy the
must be exercised in good faith. If there is abuse of machinery by pouring acid. Agent also sent
right, the liability would be under the provisions on derogatory letters to banks where Claparol applied
human relations. for a loan. The agent’s motive is because he had
an agreement with another person (Mr. So) that
Domingo vs. Domingo they wanted to take over the business of Claparol.
The reason of the principal is that in order for him
to avoid payment of commission, that revocation is
a bad faith revocation. However, in this case, the
agent is also in bad faith. As long as the interest is
still existing, the principal
BE: A sold a land to B at 100M. They agreed cannot revoke the
that it will be paid in 10 years. The seller
contract of agency????
reserved title over the land. In order for B to
pay the price, A constituted B as his agent for
the development of the land – subdividing the
land, constructing houses and selling the
house and lot. Proceeds to be delivered to the
seller who is also the principal as payment of
the price in the sale of land. However, in the 5 th
year, the principal revoked the authority of the
agent. Was the revocation valid?
A: Not valid, because this is an agency which is
coupled with interest. Here, (1) a bilateral contract
depends upon the agency and (2) the agency is
the means of fulfilling an obligation which has
already been contracted.
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Creation:
Partnership Partnership is obviously created by agreement. Co-
ownership may be created by agreement, but it
BE: Chato, using all his savings in the total may also be created by operation of law. In fact, by
amount of 2,000, decided to establish a express provision of the law, the fact that there is
restaurant. Faye, however, gave 4,000 as co-ownership does not necessarily mean that there
“financial assistance” with the agreement that is a partnership existing between two persons.
Faye will have 22% share of the profits of the Example: Two persons may inherit a property from
business. After 22 years, Faye filed an action to their father or mother, and under the law, they may
compel Chato to deliver to her the share in the be considered as co-owners of the same property.
profits claiming that she was a partner. Chato
denied that Faye was her partner. Is Faye a Purpose:
partner of Chato? Partnership: either to divide profits or exercise a
A: Yes, Faye was a partner in the business profession.
because there was a contribution of money to a Co-ownership: Common enjoyment of the thing or
common fund and there was an agreement to right owned in common; merely to enjoy the
divide the profit among themselves. property, thus they may have different purposes.
Atty. Uribe’s Comment: I do not agree with the A very important feature of partnership in relation
answer. I’d rather agree with the alternative to co-ownership: it has a juridical personality,
answer. WHY? In the alternative answer as can be separate and distinct from the individual partner
seen from the facts, Faye gave 4,000 only as a which is obviously not present in co-ownership. In
financial assistance. It was not a contribution to a co-ownership, they have their respective
common fund. As such, she actually became a personalities and no new personality will be
creditor of Chato. Therefore, she did not contribute created.
to a common fund.
Powers of the Members:
Q: What about the stipulation that Faye will Partnership: Unless otherwise agreed upon, each
have 22% share of the profits? partner is an agent of the other partners and of the
A: The law on partnership is very clear that a partnership.
sharing in the profits does not necessarily result in Co-ownership: As a rule, a co-owner cannot act as
a partnership contract because the sharing of the an agent of the other co-owners unless otherwise
profits may only be a way of compensating the agreed upon between the co-owners.
other person, in fact that can be a mode of PROFITS:
payment of the loan. Kasi yung loan, supposedly Co-owner: Mas malaki ang profits, mas malaki ang
pwede payable every month with a fixed amount. interest. But not necessarily in partnership,
But mas maganda ang agreement na ito, 22% of because the sharing in the profits may be
the profits, so that if walang profit sa isang taon, stipulated upon by the parties. Pero kung walang
wala munang bayad. ‘Di ba that’s reasonable stipulation, it may be based on the capital
agreement. Only kung may profit, saka lang contribution.
babayaran. Kumbaga, friendly loan ito. The sharing
in the profits as expressly provided by law does not Q: Will death extinguish co-ownership?
necessarily result in a partnership contract. Thus, it A: No, Kapag namatay ang isang co-owner, his
can be said that really Faye was not a partner but heirs will be the co-owners of the surviving co-
is actually a creditor of Chato. owners at pwedeng tulou-tuloy lang yan. However
in partnership, if it is a general partnership, if one of
DEFINITION OF PARTNERSHIP the partners dies, the partnership is dissolved.
Q: What if two or more persons agreed to put If general partner dies, partnership dissolved
up a partnership but they never intended to ESSENTIAL ELEMENTS OF PARTNERSHIP
divide the profits among themselves, would Like any other contract, it should have the three
that still be considered a valid partnership essential requisites:
contract? 1.) Consent
A: Yes, under the second paragraph of the article, 2.) Object: to engage to a lawful activity,
two or more persons can form a partnership for the whether a business or profession.
exercise of a profession. 3.) Cause or consideration: the promise of
each partner to contribute money, property
Partnership vs. Co-ownership or industry
Consider the essential features:
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Note: From the definition alone, it can be known Other persons prohibited are those
that a contract of partnership is essentially mentioned in Art. 1739, those persons mentioned
onerous-each partner has to contribute either in the law on donation.
property, money or industry. Walang free rider sa
partnership. 2. Object of Partnership:
To engage in a lawful activity.
1. Consent of the contracting parties:
The rules in contract would be equally applicable Q: If the object is to engage in a lawful activity,
but, just like in sales and lease, there are persons necessarily the partnership is valid?
who are prohibited from entering into a contract of A: No. There are specific business activities
partnership: wherein the law would require particular business
1.) Spouses: organization which may engage in such business
activity, specifically the Corporation Code which
BE: May the spouses enter into a limited provides that only corporation may engage in
partnership to engage in a realty business, with insurance and banking business, therefore there
the wife as a limited partner? can be no partnership engaging in such business:
A: Yes, because spouses are only prohibited, banking and insurance.
under the New Civil Code, to enter into a universal
partnership. Therefore, if they form a limited 3. Cause of Partnership
partnership, they can constitute only Php100,000 The promise of each partner to contribute either
each, and that will not be a universal partnership money, property or industry.
because that would be a particular partnership.
Q: What would be the effect if either the cause
2.) Corporations: or the object of the partnership is illegal or if
the partnership has an unlawful cause or
BE: Can a corporation enter into a contract of object?
partnership with an individual? Can a A: The contract of partnership is void and under the
corporation enter into a contract of partnership law, when the contract is void, it produces no legal
with another corporation? effects whatsoever, therefore, action to compel a
A: To these two questions, the answer is no. party to the contract to distribute the profits will
Ruled by the Supreme Court in the Case never prosper. In fact, under the law on
of Tuazon, while a corporation may enter into a partnership, the State will confiscate the profits of
joint venture, it cannot validly enter into a contract such illegal partnership.
of partnership. Under the Corporation Code, the
business of the corporation is supposed to be Q: Will an action to compel a partner to render
governed by the board of directors, and if such a an accounting prosper?
corporation will enter into a contract of partnership, A: No. Any action to enforce a void contract will
the other partners may bind the corporation in never prosper.
certain activities without the consent of the board of
directors. Another reason is that the properties r Q: May a party to such void contract at least be
investments of the stockholders may be exposed to able to recover what he contributed or
a risk not contemplated by the stockholders. delivered pursuant to that void contract?
A: As a rule, no, because of the in pari delicto rule
3.) Those persons who are prohibited from under Article 1411.
giving each other any donation or advantage EXCEPTIONS: Article 1411, 1412, 1414,1415 and
cannot enter into a UNIVERSAL partnership: 1416. Under these circumstances, a party to a void
a.) those guilty of adultery or concubinage contract may be able to recover what he
at the time of the execution of the contract because contributed.
it would be easy to circumvent the provision on
donation if they would enter into a universal Atty. Uribe: I would always consider one of these
partnership, kasi pwede’ng yung paramour ang na- provisions as a very practical one:
contribute lang Php10.00, while yung isa ang na- In a contract that is void, it is so provided that a
contribute Php10 Million, however, pagdating ng party to such contract may recover what
sharing, kabaligtaran. Yung paramour, 90%, while contributed if he repudiated the contract before the
yung nag-contribute ng Php10 Million, 10% lang ng consummation of the contract and before damage
profit. In fact, sa dissolution, pwedeng ganun din is incurred by a third person.
ang agreement. That would be a circumvention of
the provision on donation.
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FORMALITIES: of that contract. Thus, in partnership, it is said that
Q: If the agreement of the parties to a contract this requirement as to form will only be necessary
of partnership was only a verbal agreement, for the greater efficacy, kasi kailangan naka-
would that be a valid and binding contract? Will register sa SEC. That is apparently the only reason
there be a juridical personality created? why the law would require a particular form in
A: As a rule, yes. Even if under Art. 1772, the law partnership where there is an immovable
provides that every contract of partnership, having contributed by one of the contracting parties.
a capital of more than Php3,000 or more, shall be Atty. Uribe: The position of Prof. Agbayani is well-
in a public instrument and must be registered with supported by the SC.
the SEC.
A partnership has a juridical personality
The 2nd paragraph of Art. 1772 provides which is separate and distinct. This is consistent
that despite failure to comply with the requirements with the “legal person theory,” as opposed to the
in the preceding paragraph, this is without partnership in the United States which adheres to
prejudice to the liability of the partnership and the the “aggregate theory” which states that their
individual partners to third persons. From that partnership has n juridical personality separate and
article alone, it is clear that despite non-compliance distinct from the contracting parties.
with the requirements of the law as to form, there is
a partnership created, because this is without Consequences: separate and distinct
prejudice to the liability of the partnership (kung personality
may partnership). But more directly, Art. 1768, the 1.) It can own its properties;
law provides, the partnership has a juridical 2.) It can sue and be sued;
personality separate and distinct from that of each 3.) It may be found guilty of an act of
if the partners, even in case of failure to comply insolvency;
with the requirements of Art. 1772, par.1. 4.) It may be dissolved for committing an
After all, a verbal partnership contract is valid and act of insolvency.
binding between the parties. Concretely, in the case of Campos-Rueda vs.
Pacific Commercial
Q: Is there a partnership agreement which Facts: The partnership here filed a petition for the
would require a particular form for the validity dissolution of the partnership, but one of the
of the partnership agreement? creditors opposed the petition for dissolution on the
A: Yes. There is only one scenario here: if one of ground that there was no showing that the
the contracting parties promised to contribute an individual partners are already insolvent.
immovable, there has to be an inventory of such
immovable and signed by the contracting parties. If Held: The solvency or insolvency of the individual
there is no inventory, the law is very clear, the partners is irrelevant as to the petition of the
partnership is void. dissolution of the partnership. The partnership
itself, having a separate and distinct personality
Q: What if there was an agreement to may be dissolved or may commit acts of insolvency
contribute an immovable and there was an regardless of the solvency or insolvency of the
inventory signed by all the partners, however, partners.
the partnership agreement itself was not put
into writing, what is the status of that Actually, if one of the partners in a general
partnership contract? partnership is insolvent, there is already dissolution
Atty. Uribe: I agree with the position of Professors of the partnership by operation of law, if the same
Agbayani and Bautista that, despite Art. 1771, as be proven.
long as there is an inventory of such immovable,
the partnership agreement is valid and binding and CLASSIFICATION OF PARTNERSHIP:
the juridical personality will be created. As to the object of the partnership is only to
Why?: As ruled by the SC consistently, like in the determine whether a person may enter such
case of Dauden-Hernaez vs. delos Angeles, for a partnership, there is a need to distinguish whether
contract to be void for non-compliance with the a partnership is a UNIVERSAL or PARTICULAR
requirements of the law as to form, the law itself partnership.
must provide for the nullity of the contract. If the
law only required a form, but the law itself did not 2 Kinds of Universal Partnership:
provide for the nullity of the contract, if the parties 1.) Universal Partnership of Property
failed to comply with that form, then that form is not 2.) Universal Partnership of Profit
necessary for the validity. It may be necessary for
the enforceability of the contract or greater efficacy
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Under the law, if the partners agreed to form a G.R.: A limited partner cannot be held personally
universal partnership, however, they failed to state liable for partnership obligations.
what kind of universal partnership, it shall be EXC: Instances when a limited partner may be
treated merely as a universal partnership of profit, held liable up to his personal property:
meaning, it shall comprise only the result of their 1.) If he participates in the management of
work and industry. In universal partnership of the business of the partnership.
property, the partners are deemed to have
contributed all their property, not literally all, for 2.) If his surname appears in the firm name.
there some properties which are exempt from Except: a.) even if a limited partner’s
execution and under the law may not be name appears in the firm name, if the
considered as having been contributed by the surname of a general partner is the same
partners. as that of the limited partner. b.) such
surname was already in the firm name
TERM OF PARTNERSHIP prior to his entry in the partnership.
Q: If the partners failed to fix a period, does it 3.) When he is a general partner and a limited
mean that the partners agreed a partnership at partner in the same partnership at the
will and may be dissolved at any time without same time.
any liability so long as they acted in good Who? A person who is both a general and
faith? limited partner at the same time and in the
A: No, because a partnership may be a partnership same partnership would have all the rights
for a particular undertaking even if no period was and obligations of a general partner,
fixed by the parties. however, he would have a right as to his
Partnership for a particular undertaking contribution as against the other partners,
In one case, a partner, dissolved a which he would not have, had he not been
partnership, claiming it to be a partnership at will, a limited partner. When it comes to
the partnership being involved in a bowling division of assets upon dissolution he has
business. The SC ruled that even if the partners the priority as a limited partner. That is the
failed to fix a period, the partnership cannot be only edge, otherwise, he has all the rights
considered as a partnership at will because there and obligations of the general partner.
was a stipulation in the partnership agreement that
the debt of the partnership shall paid out of the All of them4.) When there is failure to comply
profits that will be obtained by the bowling can be treatedsubstantially as to the formalities
business. Thus, after all, it cannot be dissolved at as general prescribed by law in the formation of a
will, for the debts will have to be paid. Therefore, partners by limited partnership.
the SC ruled that the said partnership is a third persons,
partnership for a particular undertaking. so limited Under the law, if there is a failure
partner may to comply substantially with the formalities
CLASSIFICATION OF PARTNERS: be held liable for the creation of a limited partnership,
According to the liability of the partners: up to his that agreement will be valid among the
1.) General personal partners, however, all of them can be
2.) Limited treated as general partners by third
property
persons. Therefore, a third person, in this
subject to
This classification is relevant only in limited scenario, can hold a limited partner liable
partnership.
reimbursemenup to his personal properties. The limited
t from other partner’s remedy is to seek
In general partnership, partners are partners reimbursement from his other partners.
general partners and they are liable for partnership
obligations up to their personal property. Each one As to the contribution:
of them has the right to participate in the 1.) Capitalist
management of the partnership unless otherwise 2.) Industrial
agreed upon by the partners.
Q: An industrial partner, may be a general
In limited partnership, while a limited partner?
partner cannot be held liable up to his personal A: Yes. A capitalist partner may either be an
property, the liability of a limited partner will only be industrial or general partner.
up to his capital contribution. He also would not
have the right to participate in the management of Q: May an industrial partner be a limited
the business of the partnership. partner?
In general partnership- general partners are liable up to their
personal property
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A: No. A limited partner can only contribute money Q: X is indebted to ABC Partnership which may
or property. He cannot contribute service. be limited. The same debtor of the partnership
is also a debtor of one of the partners. The debt
Q: But can a partner be both capitalist and to the partnership is 100,000, while the debt to
industrial? the partner is 50,000. X delivered 30,000 to A.
A: Yes, he can contribute both money and industry. Should this 30,000 be distributed in proportion
He can be both capitalist and industrial and there to the debts to the partnership and to A,
will be consequences to that. meaning, 20,000 will go to the partnership and
10,000 will go to A.
BE: A and B formed a partnership to operate a A: If A is a limited partner, there shall be no
car repair shop. A contributed money, B distribution in proportion to the credit of these two
contributed industry. While the car repair shop creditors. The law which requires that payment be
was already in operation, A operated a coffee distributed in proportion to the two credits will only
shop beside the car repair shop. B also apply if the partner to whom the amount is
operated a car accessories store on the other delivered is a managing partner. If he is a limited
If limited
side of the shop. May these partners engage in partner, normally, he would not have any
those business activities? participation in the management of the partnership partner
A: As far as A is concerned, he can validly engage business. Thus, if he is a limited partner, then he then he
in such business because the law would only can have the right t receive everything he received. can have
prohibit him from engaging in a similar activity. As the right
far as B, an industrial partner, is concerned, he Q: Assuming that A is in fact a managing to receive
cannot engage in any business activity without any partner and he received the 30,000 from X, is it everything
express authority or grant by the partnership for possible still for A to retain everything which
him to engage in such business. Thus, if A did not he received?
give his consent, B cannot validly engage in ANY A.: Yes, if this debt is already due and
business, not only similar business, for B, as demandable. In this scenario, the debt is not yet
industrial partner, is supposed to give his time in due and demandable. Such debt MUST be due
the said partnership business. and demandable in order for the law on the
proportional distribution to apply to both debts.
Incoming Partner:
Q: ABC Partnership is composed of A, B and C. Q: A is a managing partner and both debts are
Thereafter, D became a member of the due and demandable. 30,000 was delivered to
partnership. Six months after D’s entry as a A. Is it possible for the partnership to have the
member, a certain obligation, 3 Million became right to the entire 30,000?
due and demandable. For this partnership A: If A receipted the amount in the name of the
obligation, can D be held liable? partnership. By specific provision of the law, if the
A: As was provided in the facts, the 3 Million managing partner who received such amount,
became due and demandable. Thus, this obligation receipted the same in the name of the partnership,
may have been incurred after D’s entry or before the partnership will be entitled to the entire amount.
his entry, although it became due after his entry or
admission to the partnership. Q: If A, as managing partner, and both debts
being due and demandable, he received the
If the obligation is incurred after his entry, amount of Php30,000 and receipted the same in
there is no question that, if he is a general partner, his own name, may he be entitled to retain If the debt is
he can be held liable up to his personal properties. everything? more
A: Yes, if X’s debt to A is more onerous and X onerous and
Q: If this obligation is incurred prior to his entry chose to have this amount paid to this debt. Under the debtor
as a partner, can he be held liable? the law, the debtor has the right to choose to pay chooses to
A: Yes. As a rule, he may be held liable, but only to the debt which is more onerous. Again, the apply the
the extent of partnership property which would premise is the debt to A is more onerous than the amount
include his capital contribution, unless there is a debt to the partnership. owed to the
stipulation to the contrary. Even if the obligation partner
was incurred prior to his entry, however, if in the If A, as managing partner, received the same
partnership agreement, he agreed to be bound by amount, receipted in the name of the partnership,
those obligations, then he can be held liable even both debts are due and demandable and are of the
to the extent of his personal property, though he is same burden, there will be a proportional
a new partner. distribution of the amount, 20,000 will go to the
partnership, and 10,000 will go to A, the debt to the
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partnership being 100,000 and the debt to A being partnership property would only be valid if all the
50,000. partners would likewise assign their interests.
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Ariel Maniacop, Gerard Sayas, Ayce Ann Sadiwa
to X. X now demanded that he be allowed to Q: With regard to the accountant, take note that
participate in the management of the business the appointment by W was opposed by another
of the partnership and also his share in the managing partner. How will this tie be
profits in the business of the partnership. Are resolved?
the claims f X valid? A: Under the law, this will be resolved by all the
A: As to X’s claim t participate in the management partners with the controlling interest. The partners
of the business, he has no such right as an with controlling interest will prevail.
assignee. By express provision of the law, an
assignee has no right to participate in the Q: In this case, who has the controlling
management of the business of the partnership, interest?
unless otherwise agreed upon. He will not even A: Y. The determination as to who has controlling
have the access to the books of the partnership. interest depends on the capital contribution. Thus,
His only right would be to receive whatever the an industrial partner is excluded in such cases. In
assigning partner may receive as share in the this case, it is obvious that 50,000 is more than the
profits and in the surplus. capital contribution, and because Y opposed to the
appointment, such appointment will not bind the
Q: If profits were declared, for instance, in the partnership.
amount of 360,000, would the assignee have
the right to share in the profits? Other management arrangements are provided in
A: Yes. X is entitled to share of Php120,000, since Articles 1800, 1801, 1802, 1803.
the agreement is equal sharing of profits.
TYPES OF MANAGEMENT:
Right to participate in the management of the 1.) Solidary Management:
business of the partnership -without specification as to each other’s
duties or without stipulation that one of them shall
BE: W, X, Y and Z formed a partnership. W and act without the consent of all.
X contributed industry; Y contributed 50,000; Z
contributed 20,000. In a meeting, the partners 2.) Joint Management:
unanimously agreed to designate W and X as -two or more managing partners with the
managing partners, such appointment having stipulation that none of them shall act without the
no stipulation as to their respective duties nor consent of all others. The incapacity of one of the
was there any statement that neither can act partners, or his absence will not be a valid ground
without the consent of the other. Thereafter, 2 not to obtain his consent to a contract. It has to be
persons applied for two positions: 1.) as by unanimous consent, unless, in obtaining his
secretary; and 2.) as an accountant. As far as consent (he is absent or incapacitated) it would
the secretary is concerned, it was W and X who result in irreparable damage to the partnership,
appointed the secretary, opposed by W and Z. then the consent of the absent or incapacitated
The accountant was appointed by W concurred managing partner may be dispensed with. This is
by Z, which was opposed by X and Y. Whose also known as management by consensus.
appointment would bind the partnership?
A: This management arrangement is known as 3.) If there was management arrangement
joint management. Any managing partner may agreed upon between the partners, each partner is
execute acts which are merely acts of considered as an agent of the partnership.
administration even if opposed by all the other
partners, kung mag-isa lang sya. But, if there are Into these arrangements, if only one partner is
two or more managing partners, they have to appointed as a manager, he can execute any acts
decide by a majority vote. of administration even if opposed by all the other
partners.
Q: Is the appointment of the secretary an act of
administration? Q: In a partnership of which the business is
A: Yes. into buying and selling cars, the managing
partner decided to buy a vintage Mercedes
Q: Would it bind the partnership? Benz, to the opposition of the other partners for
A: Yes, even if opposed by the other partners, the they consider it bad investment, will the
capitalist partners, the latter would not have any decision or the act of the managing partner in
right for this is merely an act of administration well- buying the said car bind the partnership?
within the powers of a managing partner. A: Yes, because such act is merely an act of
administration. The problem is, if the managing
partner continues to not consider the sentiments of
Controlling interest based on capital
contribution
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the other partners, he may be removed as a defaulting partners up to the amount promised plus
managing partner. interest. If no rate was stipulated by the parties, it
will be the legal rate of 12%, because this is
Q: The question now is, can he be easily be forbearance in money. Aside from paying the
removed? interest, which is unusual, not only will that
A: No. The requirements for the removal of a defaulting party be held liable to pay interest, he
managing partner would depend on whether he will also be liable to pay damages.
was constituted as such in the articles of
partnership or he was merely appointed as Normally, in obligations involving money,
managing partners after the constitution of the in case of damage incurred by another party, the
partnership. liability will only be payment of interest. In
partnership, not only will he be liable to pay
If he was constituted as a managing interest, but also of damages.
partner in the articles f partnership, he can only be
validly removed under two conditions: Remedies that may be invoked by the non-
1.) There has to be just cause; and defaulting partners:
2.) by those partners having controlling 1.) Specific performance - the other partners
interests. can compel him to make good his
promised contribution.
Absent one of these conditions, he cannot be 2.) Dissolution - may be an option by the
validly removed. In fact, even if there is just cause, non-defaulting partners, if that is the only
if the managing partner controls 51% of the amount that they are expecting for the
partnership, he can never be removed. partnership.
1. To make good his promised contribution: If it was the ownership of the property that
A. Money: was contributed then he would have the obligation
In order to know the remedies that may be to deliver and transfer ownership, aside from that,
availed of by the non-defaulting partners and the under the law, he would have the obligation to
partnership, it must be known first what was warrant the thing.
promised by the partner, whether he promised to
contribute money, property or industry. Before the delivery of the thing to the
partnership, who will bear the loss? The partner
If the partner promised to contribute will bear the loss. The partnership will bear the loss
money, for instance, the partners agreed to when the thing is already in its possession
contribute 1 Million with 4 partners, without an
agreement as to respective amount to be If what was contributed was merely the
contributed, the law provides that they will have to use of the property, the risk of loss will be with the
share equally. Thus, in this example, 1 Million will contributing partner for there was no transfer of
have to be divided into 4 or the respective ownership in this case. Under the res perit domino
contribution will be 250,000. If one partner failed to rule, even if possession of the thing is with the
make good his promised contribution which is a partnership, so long as there is no fault on the part
sum of money, he can be held liable by the non-
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Not liable with
their personal
Individual partners property as long
are liable as there is
subsidiary partnership
property
of the partnership, then the contributing partner- executed only after the termination of the
owner will bear the loss. partnership.
EXCEPTIONS:
1.) When the thing contributed is fungible; 3. Participate in the Losses:
2.) or it cannot be kept without Q: What will be the share of the partner in the
deteriorating; losses incurred in the partnership?
3.) If contributed by the partner to be sold; A: Consider first whether there was a stipulation as
and to losses or there was no stipulation.
4.) When it has an appraised value of such
property. If there was a stipulation as to losses, the
first scenario would pertain to, for instance, A, B
In all these circumstances, it is the partnership and C agreed to share 50%, 30% and 20% of the
which will bear the loss if the thing was lost or losses. This will be a valid and binding stipulation
destroyed while in the possession of the among the partners.
partnership.
Q: Would this still be a valid stipulation if one
Again, if the contributing partners fails to make of them is an industrial partner?
good his promise to contribute property, he will be Atty. Uribe: Yes, this would still be a valid
treated as a debtor of the partnership, thus specific stipulation. If the industrial partner agreed to share
performance will likewise be a remedy. in the losses, then who are we to deny him that?
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Thus, in this scenario, would the industrial the partnership indebtedness. Thus, if the debt is
partner share in the losses? 100,000 and there is no agreement as the share in
A: Wala, kasi wala syang capital contribution. the losses, they have to share in the losses,
equally into 20,000, yung apat na lang na
Note: Under Art. 1816, even if he is excluded by defendants, kasi yung isa, condoned na yung
the partners/partnership in sharing in the losses, obligation.
that is a void stipulation as to third persons and can
still hold the industrial partner liable as to the OBLIGATIONS OF PARTNER RE: 3RD PERSONS
contractual obligation of the partnership. Q: When would a contract entered into by a
partner bind the partnership?
Q: If indeed a partner, assuming that the assets Ex.: If a partner went to a furniture shop to buy
of the partnership are not sufficient to cover furniture the of which is Php100,000, and such
the obligations of the partnership, what would amount remained unpaid, can the seller
be the nature of the obligation of the partner? demand payment from the partnership?
Would the partners be held solidarily liable? Or A: It depends as to whether the contract was
would they only be held jointly liable? entered into in the name of the partnership, for the
A: It would depend on the nature of the liability. For account of the partnership, under its signature, by
contractual obligations, as a rule, the partners a partner who is authorized to enter into that
would only be jointly liable, unless they bound contract to bind the partnership. Thus, in this
themselves solidarily, for contractual obligations. example, if in the agreement the buyer was the
However, under Art. 1824, if the obligation arose partner himself and not the partnership, that
from a tortuous act or a wrongful act under Arts. partner should be held liable, for the furniture was
1822 and 1823, for example, while in the not bought in the name of the partnership.
performance of his obligation, a partner received a
sum of money from one of its clients which sum of The problem, if the contract would be binding in the
money was misappropriated that partner, such partnership, then would be, whether the partner
partner will be held solidarily liable with his partners who represented the partnership had the authority
and with the partnership. Also, if a sum of money to bind the partnership.
was delivered, even if it was delivered to the
partnership, however, one of the partners Normally, if a partner would enter into a
misappropriated the same, all the partners will be contract, a partnership resolution is not necessary.
considered solidarily liable among themselves and Whether or not a contract would bind the
with the partnership. partnership would depend on the nature of the act
of such partner and the nature of the business of
In the United Pioneers General the partnership.
Construction Case, the creditor filed a collection
suit impleading the 5 general partners. During the Q: Concretely, if a partner bought a complete
pendency of the case, the creditor asked for the set of SCRA in the name of the partnership and
dismissal of the action as against one of the signed by that partner, would that contract bind
partners. Ultimately, the court decided in favor of the partnership for the set was bought in the
the plaintiff. Assuming the amount which was found name of the partnership?
to be the liability of the partnership was A: It would depend on the nature of the act and the
Php100,000, the court ruled that the partnership nature of the business of the partnership. In this
will have to pay the said amount and in case that example, the partner bought the set of SCRA, pero
the assets of the partnership will not be sufficient to naman, and business ng partnership ay restaurant,
cover this indebtedness, the partners will be liable hindi naman ata na i-bind nya ang partnership to
to pay equally. So, naging issue yung “equally,” such contract, ang negosyo nila restaurant.
meaning silang apat na lang? for the case as
against one of the partners was dismissed. If the Q: But the seller would raise the defense,
amount of the obligation is 100,000, should they be “hindi ko naman alam na restaurant yung
liable 25,000 each or 20,000 each including the 5th business, e ang nagrepresent ng partnership si
partner? Atty. ABC, so akala law firm.” Is that a valid
defense?
The SC ultimately held, in this case, that A: No. The SC would tell that the third party
the liability of the partners is only joint, therefore, contracting with the partnership has the obligation
the condonation of the liability of one partner will to know at least the nature of the business of the
not increase the liability of the other partners. Even partnership. In fact, he can demand for the
if the partnership has no assets remaining, each presentation of the articles of partnership in order
partner shall only be held liable up to his share in for the third party to know the nature of the
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business of the partnership. For, if this time, the carrying on of the business of the partnership
partnership is a law office, and the partner bought despite the definition of dissolution under Art.
a set of SCRA, that act of buying a set of SCRA 1828?
will be considered apparently for carrying the A: Yes. One scenario is the admission of a new
business of the partnership the usual way. partner. With the admission of a new partner,
Therefore, that contract will bind the partnership. under Art. 1840, the partnership is dissolved.
Q: Even if he had no authority from the Q: What is the effect of the dissolution?
partners? A: Again, it will not result in the termination, it will
A: Yes. only start the winding up process, effectively, this
will terminate the authority of all partners to bind
Q: Even if there was a resolution among the partnership, EXCEPT, if that act is necessary
partners that he should not be the one who will for the winding up of the partnership or necessary
enter into the contract? For instance, A,B,C,D, to complete a business which was then began but
and E did decide to buy the set, but designated was not yet finished at the time of the dissolution of
A to buy the same and not E, but the E bought the partnership.
the SCRA, would that contract bind the
partnership? CAUSES OF THE DISSOLUTION
A: Yes, as long as the third person was not aware 1.) Extrajudicial;
of that agreement of the partnership because such 2.) Judicial.
act is an act apparently for carrying on the
business of the partnership the usual way. So, if Extrajudicial causes:
the partnership is a law office, but the partner 1.) Voluntary;
bought certain things for a restaurant, then such 2.) Involuntary.
act is not apparently for carrying on the business
the usual way, thus such act would require the Judicial causes are necessarily voluntary because
consent of the partners in order to bind the it is by application.
partners.
Under voluntary causes would fall, the
Under Article 1818, there are certain acts which cause of the dissolution may result on the violation
law requires the unanimous consent of the partners of the agreement or it may be without violation of
for such a contract or act to bind the partnership, the partnership agreement. Concretely, the
like, disposing the goodwill of the partnership or to expiration of the period would be voluntary,
contest a judgment against the partnership or extrajudicial but without violation of the agreement.
renounce a claim of the partnership. The fixing of the term is an agreement of the
parties therefore, it is voluntary.
DISSOLUTION, WINDING UP AND
TERMINATION Termination of a definite term or a
These are three different concepts. Upon particular undertaking: voluntary but without
dissolution of the partnership, it is NOT DEEMED violation.
dissolved. It will still have to go through the process
of winding up of the affairs of the business of the By the will of one of the partners: the
partnership before the partnership itself will be partnership may be dissolved without liability on
terminated. the part of the partner, if the partnership is a
partnership at will and he dissolved the partnership
Q: When would there be a dissolution of a in good faith. Those are the two requirements, in
partnership? order for a partner to be able to dissolve the
A: Under the law, there will be a dissolution if there partnership without liability on his part. Again, in an
is a change in the relation of the partners caused express will of any partner who acted in good faith,
by any of the partners ceasing to be associated in when no definite term or particular undertaking is
the carrying on of the business of the partnership. specified, which means, again that a partnership is
That will result in the dissolution of the partnership. a partnership at will.
Again, if one of the partners ceased to be
associated in the carrying on of the business of the BE: A, B and C agreed to form a partnership for
partnership, that will result in the dissolution of the a period of five years. After 2 years of business,
partnership. C assigned his whole interests to Philip. The
two other partners, realizing that they would
Q: May there be a dissolution even if none of not be able to deal with Philip, decided to
the partners ceased to be associated with the dissolve the partnership. Philip, not knowing of
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Ariel Maniacop, Gerard Sayas, Ayce Ann Sadiwa
the dissolution done by the 2 partners, filed a Classic ex.: The Firm (Carpio Villaraza Cruz Law)
petition for the dissolution of the partnership This also includes appointment in the judiciary.
with the court. Was the partnership dissolved
by the act of the two partners? May the action Q: What if the law partner was elected as
filed by Philip to dissolve the partnership governor of his province will it result in the
prosper? dissolution of the partnership?
A: As already mentioned, by the express will of all A: Yes. Under the Local Government Code, chief
the partners who have not assigned their interest is executives are also prohibited from the private
a cause for the dissolution of the partnership. practice of their profession.
Therefore, the 2 partners validly dissolved the
partnership by mere will of the partners. Q: What if the partner who died is a partner in a
limited partnership? Would that dissolve
Q: As far as Philip was concerned, will his automatically the partnership?
petition prosper, even assuming that no A: It depends as to who is the partner.
dissolution was made by the 2 partners?
A: No. With the assignment of the interest of a If he is a general partner, as a rule, it
partner to another person that does make the dissolves the partnership, unless there was an
assignee a partner of the partnership without the agreement in the articles of partnership that they
consent of the other partners, therefore, he has no would continue with business of the partnership
personality to file a petition for the dissolution of the even after the death of the partner. Or even without
partnership. such agreement in the articles of partnership, if the
surviving partners decide to continue with the
Expulsion of any partner in good faith, it business of the partnership, then the partnership is
maybe because the grounds for expulsion was not deemed dissolved even if the partner who died
agreed upon by the partners and one of the is a general partner.
partners violated such agreement, thus he may be
expelled in good faith, therefore it may be voluntary If the partner who died is a limited partner,
and without violation. that does not result in the dissolution of the
partnership. In fact, the executor or administrator of
In contravention, because one of the the estate of the deceased limited partner will the
partners may dissolve a partnership, even if the right to choose or to appoint a substitute limited
partnership has a fixed period or it is a partnership partner in the said partnership.
for a particular undertaking and that particular
undertaking has not yet been completed, that Insolvency or civil interdiction of any partner will
would be in contravention of the agreement of the result in the dissolution of the partnership.
partners.
Judicial Causes: Grounds:
INVOLUNTARY CAUSES: 1.) Insanity or incapacity:
-The courts require that it should be
Q: If one of the partners in a partnership was permanent in character; and
elected a Senator, would this dissolve the -such incapacity or insanity must affect the
partnership by operation of law? performance of such partner of his obligations
A: No. with respect to the partnership business. In
other words, kung wala syang pakialam sa
Q: Even if it is a partnership of lawyers or a law management ng business ng partnership,
office? insanity or incapacity is not a valid ground.
A: No.
2.) Gross misconduct: Serious misconduct
Under the Constitution, these elected officials are a.) wrongful expulsion;
prohibited only from appearing before tribunals and b.) if one partner would refuse to allow
not from private pratice. another partner in the management of the
partnership business, if he has such right to
Q: If a lawyer was appointed in the cabinet, for participate in the management ;
instance as Presidential Legal Counsel, would c.) if the managing partner would refuse to
that result in the dissolution of the partnership distribute the profits of the partnership when there
by operation of law? is such obligation to distribute the profits;
A: Yes. Under the Constitution, Cabinet d.) misappropriation of the income of the
Secretaries are prohibited from private practice of partnership business.
their profession.
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Note: If a limited partner becomes a limited partner The partnership also has its creditors. To
in another partnership, that is not a valid ground to whom shall this 100,000 be given?
file a petition for the dissolution of the partnership. A.: It should be given to the separate creditors of
Limited partners has nothing to do with the the individual partner.
management of the partnership business, thus,
there is no conflict of interest. For a limited partnership to be formed, there has to
be at least one limited partner and one general
Note: The fact that the partnership incurred losses partner.
for the past three years is not necessarily a ground
for dissolution. For the establishment of a limited
partnership, the law requires certain formalities.
However, even if the partnership incurred Concretely, under Art. 1844, there has to be a
losses once and it can be shown by the partners certificate signed and sworn to by the contracting
that there is no prospect for recovery, it can be a parties which has to be filed with the SEC. So long
valid ground for the filing of the petition for the as there was substantial compliance with the
dissolution of the partnership. formalities required by law, a limited partnership
will be valid and binding.
Q: Quarrels among partners, valid ground?
A: Normally, no. However, if such quarrels give rise Q: What if there was no substantial compliance
to dissension among the partners, affecting the as to these formalities?
conduct of the business of the partnership, this can A: Even if there was no substantial compliance, the
also be a valid ground, falling under “other agreement will be valid and binding among
circumstances” which would render the dissolution themselves. As to third persons, all of them may be
equitable. held liable as general partners, as if all of them are
general partners. Thus, even a limited partner may
Q: Upon the dissolution of the partnership, and be held liable even up to his personal properties.
there were assets left, how will these be
distributed? To whom these assets be given?
A: As far as partnership assets are concerned:
1.) Partnership creditors who are not
partners.
2.) Partnership creditors
3.) If there are remaining assets, to the
capitalist partners;
4.) Excess - profits based on their agreement
as to profits.
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will not start to run. Such act of repudiation should
TRUST be made known to the beneficiary.
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BE: A applied for the registration of a parcel of
land in his name. However, he was called in
New York to be a chef in a hotel. So, he asked
his cousin to follow up his application for
registration of land while he was in New York.
Instead of ensuring the registration of the
property in the name of A, he had the property
registered in his (cousin) name. After which, he
sold the property to a thi4rd person who
bought the land relying on the TCT. When A
returned to the Phils., he learned of what his
cousin had done. May A recover the parcel of
land from the 3rd person who bought the
property in good faith and for value?
A: No.
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possess but he would have the right to the fruits of
Credit transactions the thing.
C – no right to the fruits but only right to use the
thing but it may be expressly stipulated that he can
Q: Why credit transactions? also use the fruits.
A: Because these transactions all involved credit
meaning there is a belief in the capacity of one of Consensual vs. Real Contracts
the parties to perform his obligation in the future. 1. C – are perfected by mere consent thus upon
meeting of the minds as to the object and the
Note: Credit transactions ang tawag but they are cause there is already a perfected contract
not all contracts. There can be legal relationship RC – are perfected upon delivery of the thing which
even without an agreement – examples – legal is the object of the contract.
pledge, judicial deposit. But the others are
contracts – there are contractual deposit and Examples of Real Contracts
pledge by agreement. 1316 – Commodatum, deposit and pledge
Mutuum (memorize these 4 examples)
Transactions:
A. Kinds of Loans Note: Perfection is subject to the formalities of the
1. Mutuum law. Even if the contract has already been
2. Commadatum perfected, the contract may be unenforceable
because it is not in the form prescribed by law for
B. Kind of Deposits the enforceability of the contract. Example –
1. Judicial contract of sale (subject to the provisions of the
2. Extrajudicial statute of frauds)
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Loan is normally gratuitous (utang mo sa friend them to ride accepting payments from them
mo) unless there is an express stipulation in just as in the case of ordinary passenger
writing. Take note under Article 1956, a creditor in jeepney. As he was crossing Bamban, Tarlac,
a contract of mutuum cannot demand for interest there was an on rush of lahar from Mt.
unless it was expressly stipulated in writing. Take Pinatubo. The jeep was wrecked. What do you
note that we are talking here a kind of interest call the contract that was entered into by R and
known as compensatory interest for the use of the F? Is F obliged to pay R for the use? Is F liable
money. So if you borrowed money in January to R for the loss of the jeep?
payable at the end of the year, during that period, SA: This is commadatum. In commadatum, it is
the creditor may be entitled to an interest known as essentially gratuitous (no payment). Take note the
compensatory interest but after the obligation jeep was lost due to a fortuitous event. If you follow
became due and there was demand for the the general rule under 1174, he should not be held
payment nonetheless the borrower failed to pay, liable. But by express provision of the law in
this time there will be a liability to pay interest by commodatum, the borrower is liable. Under 1942,
way of damages not compensatory interest. And when the borrower devotes the thing to other
this kind of interest (damages) need not be in purpose not agreed upon (the purpose is to bring
writing. This interest by way of damages is the the wife to the hospital), the borrower is liable even
effect of delay because of the failure to pay despite if the loss is due to fortuitous event.
demand when the obligation was already due, he
will be liable for damages. In monetary obligations, Note: Bailor need not be the owner himself
the liability for damages is in the form of interest. because there is no obligation to transfer
ownership.
In monetary obligations, if there was a stipulation
that there is liability to pay interest but the interest BE: M borrowed B’s truck. During a fire that
rate was not fixed, it will be the legal rate that can broke out in M’s garage, M had time to save
be invoked (12%) – loan or forbearance of money. only 1 vehicle and M saved his car instead of
If there is a stipulation like 6% per month or 72% B’s truck. Is he liable for the loss of B’s struck?
per annum, the SC ruled in Solamon vs. CA, that SA: Yes. This is an exception to the res perit
although the usury law has already been domino rule. It would also fall under 1942 that he
suspended and therefore apparently the parties chose to save his thing when he had the
can stipulate any interest rate is not true. The opportunity to save one of two things, the other
interest rate agreed upon may be unconscionable being a borrowed item.
and therefore the SC will strike down the stipulation
and the interest will be the legal rate. The SC had Yung iba – if you kept it longer, it is consistent with
struck down interest above 60% per annum. Below delay under 1165 - in an obligation to deliver a
50% per annum, the SC allowed this interest. determinate thing and the thing was lost due to a
fortuitous event, that debtor will still be liable for the
There is still no decision if what is the status if the loss if he was in delay.
interest is between 50% to 60% per annum
Republic vs. Bagtas
Commodatum Held: Even if this is commadatum under Article
In commodatum, the object is movable or 1942, it will be the bailee or the borrower who will
immovable. Usually, it is non-consumable because bear the loss.
the very thing borrowed should also be the very
thing that should be returned. If it is consumable it Deposit
will be consumed in accordance with its nature. But The same rule in deposit – in deposit, ownership
the law provides for exception, if the purpose of the does not pass to the depositary. Thus, under the
commodatum is not for consumption – examples – res perit domino rule, it will be the depositor who
for display or exhibit – then there can be a valid will bear the loss if the thing was lost due to a
commodatum over a consumable item. But it is non fortuitous event. In robbery, the depositor will bear
– fungible because it cannot be replaced with a the loss unless there is negligence on the part of
similar kind. The very thing borrowed should be the the depositary or if it is stipulated that the
same thing that should be returned. depositary will be liable. (If you are the depositary,
demand for a higher rental so you have money to
BE: R upon request loaned his passenger pay for insurance)
jeepney to F to enable to bring his wife from
Tarlac to PGH for treatment. On the way back to If he uses it without compensation, he will be liable
Tarlac after leaving his wife in PGH, people because in deposit the purpose of the delivery is
stopped the passenger jeepney and R allowed for safekeeping, the depositary is not supposed to
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use the thing. So if he uses the thing, he will be Examples: Car was delivered to you as depositary.
liable for the loss of the thing. Kung pwede mo gamitin araw araw sa paghatid
sundo sa mga anak mo, hindi ito deposit, mukhang
Loan commodatum ito kung walang bayad for the use.
There is a special kind of commodatum known as But if the delivery is for safekeeping but the
precarium. Precarium – in this kind of depositor allowed you to use the car for an
commodatum the bailor has the right to demand for occasion – that is an irregular deposit because the
the return of the thing at will at any time. depositary has the right to use the thing with the
permission of the depositor.
Q: When would there be a precarium?
A: There would be a precarium if there was no Another scenario where the depositary would have
stipulation as to duration nor the use of the thing the right to use and therefore the deposit is an
unless there is a custom. So no agreement as to irregular deposit - when the preservation of the
period or no agreement as to particular use then thing deposited delivered to depositary requires the
the bailor would have the right to demand the thing use of the thing like using the car to preserve it.
at any time or the use of the thing is merely
tolerated. BE: The parties in a contract of loan of money
agreed that the yearly interest rate is 12% and it
From this rule, you should be able to conclude that can be increased if there is a law that would
even if commadatum is essentially gratuitous, if authorize the increase of interest rates.
there was a period agreed upon as a rule the bailor Suppose the lender would increase the rate by
should respect the period. He cannot demand for 5% to be paid by the borrower without a law
the return of the thing just because there is no authorizing such increase. Would the lender’s
payment. But there are exceptions: action be just and valid? What is the remedy of
1. Even if there was a period, he can the borrower?
demand for the return if there is an urgent SA: Not valid because by the agreement of the
need on the part of the bailor. But in that parties, the increase in the rate will only be made if
scenario, the commadatum is not there is a law that would authorize the increase.
extinguished, it is only suspended. After
the bailor have used the thing, he should SC Case: There can be no valid increase without a
return the thing to the bailee so the latter law authorizing it but in this case the Bangko
could finish the period. Sentral issued a resolution increasing the
maximum rate. The SC said the banks cannot
2. When the bailee committed an act of increase the interest rates because a Monetary
ingratitude. The grounds will be similar to Board Resolution is not the same as a law. It may
donation. have the effect of a law but that is not a law and
Deposit therefore that could not be a basis.
Q: Are checking accounts, savings account,
dollar accounts irregular deposits?
A: No. They are not deposits under the law
because they are governed by the rules on Credit Transaction notes is incomplete. Refer
mutuum (loan). The bank is the debtor. SC called to your codal.
these deposits “in the nature of irregular deposits”
but not irregular deposits because the banks use
the money that is why it is in the nature of irregular
deposits.
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