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Nature of a Contract of Sale

Contract of Sale defined

One party transfers ownership and delivers thing

One pays price certain in money or equivalent (negotiable instrument)

Elements of contract of sale

Consent meeting of the minds

Object determinate thing
Cause price

Characteristics of contract

Consensual perfected by mere consent

Principal can stand alone
Bilateral reciprocal obligation
Onerous with valuable consideration
Commutative exchange of values
Nominate particular name

Object of contract

Thing or right
- Determinate
o Specifically or particularly designated
o Can be determinable: capable of being determinate
- Licit
o Not contrary to law, public policy
o Not outside commerce of man
o Not impossible
- Right to transfer ownership at time of delivery

Exist in the present or future

May be presently existing or in the future

Future (potential) existence
- Thing will come into existence as natural increment on thing already in
- Future goods
o Intends to acquire by producing or purchasing before delivery
- Conditional sale
o Depends upon contingency
o Resolutory condition
Extinguish previous contract
Ex. right of repurchase

Mere hope or expectancy

o Hope existed that thing will come into existence

Right as object of sale

Not transmissible if
- Provision of law
- Stipulation
- Personal in character
Sell undivided interest
- Object is right until divided
Sale of fungible goods
- Undivided share of specific mass though weight is undetermined
- Buyer becomes owner in common of such share of the mass bought

Provisions on price

When price is certain

- Parties fixed
- Reference to another thing certain
- Judgment of specified persons
o Unable to fix, parties fix
o Acted in bad faith, court fix
o Prevented from fixing by fault of one party, party not in fault can
have remedies
Sale of securities, grains and liquid
- Definite day
- Particular market
- Above or below value on day or market
Gross inadequacy of price
- Does not affect contract = valid
- Indicate defect of consent = voidable
- Intended as donation
Simulated price
- Void
One party fix price
- No binding effect unless other party agrees
No price fixed
- No contract
- Reasonable price (market value at delivery time and place) if partly

Capacity to buy or sell

Who may enter in contract of sale

Persons capacitated to enter into any contract

Juridical capacity
o Upon birth

o Subject of contract
Legal capacity
o Reach age of majority (18)
o Enter into contract with legal effect
Sale to minor (valid)
- Necessaries: basic needs
- Estoppel: misrepresentation
- Minor pays reasonable price

Kinds of incapacity

- Cannot bind himself
- Minors, demented persons, do not know how to write
- Voidable: valid and binding until annulled upon capability
- Can be ratified to be valid
- Both parties incapable, unenforceable
- Can give consent but not in respect to persons or thing
- Husband and wife
o Cannot sell to each other for protection of creditors against
o Prohibited from making donations except moderate gifts
o Null and void
o Only heirs of spouses and creditors can avail defense of legality
o Exceptions
Separation agreed upon marriage settlements
Judicial separation
Civil interdiction
Loss of parental authority
Failed to comply to obligations
Abused power
Reconciliation highly improbable
- Persons in relation to property
o Guardian
Under their guardianship
o Agent
Entrusted to them
Cannot buy whats sold
Cannot sell whats bought
Can buy and sell with consent of principal
o Executors and administration
Property of the estate under their administration
o Public officers and employees
Property of the State
o Administration of justice
Object of litigation

o Voidable
Disqualified by law
o Aliens
Cannot buy private agricultural lands, only lease
o Unpaid seller
Makes resale
o Voidable

Form of contract
General provision

No required form
Preferred to be in writing
- Existence of contract cannot be denied
- Oral contract need evidences
- Certain classes need to be in writing
P500 for immovable
o Real property
o Not to be performed within 1 year
o Sale of agents
o Sale to 3rd persons
Valid even without writing
- Part or whole of goods has been delivered and buyer received
- Part or whole of purchase price has been paid even without delivery
- Sales by auction
o Perfected by fall of hammer
o Owner prescribe terms of sale
Before perfection - Bidder retract bid, Auctioneer withdraw
o Seller may bid
Right reserved expressly
Not prohibited by law
Notice given
Exception: no notice given
Seller bid
Auctioneer bid for seller
Auctioneer take bid from seller
Fraudulent sale


Law on sales
Vendee pays, vendor
Buyer can do anything

Law on agency
Agent accounts transactions and give
proceeds to principal, principal pays
Agent follows principals instructions


Buyer cannot return


Agent can return


Sale vs Piece of Work

For general market

For specific customer



amount of money or

amount of money or

Sale vs Dation in Payment

- Debtor delivers property as equivalent performance of obligation in
- Governed by law of sales
- With former obligation
- No pre-existing obligation

Promise to buy or sell

Reciprocally demandable
- Unaccepted unilateral promise
- Certain period to accept
- May be withdrawn any time before acceptance except when there is
Accepted unilateral promise
- Supported by consideration distinct from price
Bilateral promise
- Perfected contract of sale

Earnest money

Down payment
For contract of sale
Part and parcel of price
VS Option Money
- For option contract
- Separate and distinct from price

Effects on contract for lost thing sold

Loss before or during contract perfection

Void contract
Borne by seller-owner

If thing is partially lost

Buyer has two options

- Withdrawal
- Demand remaining part and pay contract price proportion to total sum

Loss of specific goods

Without knowledge of seller

Sale can be:
- Avoided
- Valid in all existing goods and pay agreed price

Loss after contract perfection

After delivery buyer

Before delivery
- Fungible for price according to weight seller until weighed and
o Exception: buyer incurs delay
- Non-fungible and fungible for price not according to weight buyer
o Take care with proper diligence
o Buyer has rights to fruits from delivery
o Delay, fortuitous event or sold to two persons seller liable
o Determinate thing not delayed or lost without sellers fault
Sellers obligation is extinguished
Buyers still bound to pay
Generic thing (money) never perishes

Reconciliation after perfection before delivery

General: Buyer suffers risk of loss

Exception: agreed that goods remain at sellers risk until ownership is
- Exceptions to the exceptions:
o Ownership retained by seller to secure performance of buyer but
the risk is passed to the buyer on delivery
o Delivery delayed, loss risk to party at fault

Sale or return

Buyer has option to return goods instead of paying within time fixed or
reasonable time
Ownership passes upon delivery but can be revert upon returning
Res perit domino: thing perishes with owner

Approval or Trial

Ownership passes upon

- Signify approval
- Does not signify on expiration of time fixed to return the goods
Still no contract of sale upon delivery
General: Risk is borne by seller
Exception: buyer fails to signify, he bears the risk

Obligation of the Vendor

Main obligations

Transfer ownership
Deliver the thing
Warrant the thing sold
Take care with proper diligence (as if its yours)
Pay for deed of sale expenses

Transfer of ownership

Only the owner can pass ownership

Ownership passed upon delivery
- Owner is prevented from denying sellers authority (owner under
- Provision of law enabling apparent owner to sell
- Sale under statutory power of sale
- Purchase made in merchants store (in accordance to Code of
- Seller has voidable title
o Not avoided
o Buyer purchased in good faith, without notice of defective title

Obligation to Deliver/Tradition

General: Understood delivered if placed in control and possession of buyer

Four kinds
- Real tradition
o Movable only
o Physical transfer (hand to hand)
- Legal or Constructive
o Other signs or symbols
o Legal: pubic instrument (notarized)
o Symbolic tradition: ex. Keys of the house
o Traditio longa manu: point out, must be in sight
o Traditio brevi manu: lessee to owner; no change in possession
o Traditio constitutum possessorium: owner to lessee
- Quasi-tradition

o Right or incorporeal property (intangible)

- Tradition by operation of law
o Express provision of law
- Sale or return: ownership can be returned
- Approval or trial: until acceptance is signified
- Stipulated until fully paid

Delivery of goods to common carrier

General: Deemed to be delivery to the buyer
- Seller ships the goods and takes bill of lading
o Delivered to seller or sellers agent
o Delivered to order of seller or sellers agent
- Contrary intention appears
o FOB (Freight on Board)
Shipment: ownership to buyer when placed on board
Destination: ownership to buyer when in destination
o FAS vessel (Freight Alongside)
Deliver goods in port provided by buyer
Obtain and tender receipt for goods
o CIF and CF (Cost, insurance, freight)
Ownership transfers on actual delivery
o Delivery Ex-Ship
Not restricted to specific ship
Delivery from ship at port where goods of kind are
Ownership pass to buyer upon proper unloading of goods
- Seller or agent retains bill of lading
o Practice right of lien as unpaid seller
- Seller sends bill of exchange and lading
o Buyer dishonors bill of exchange
o Buyer is bound to return bill of lading
o General: Seller still has rights over the goods
o Exception: bill of exchange is negotiable, buyer has ownership
Place of delivery

Usage of trade
Perfection of contract
Sellers place of business or residence

Time of delivery

Reasonable time: depends on circumstances

Goods in hands of third person

Third person acknowledges he holds on behalf of the buyer

Delivers less than quantity sold

- With knowledge of nonperformance: contract price
- Without knowledge of non-completion: fair value

Delivers more than quantity sold

Accept goods included in contract, reject excess

Accept whole, pay contract rate

Delivers with mixed goods (divisible)

Exact quantity delivered

- Reject entire
- Accept goods included in contract, pay contract rate
More than quantity delivered
- Has to accept goods in accordance, reject excess
- Less than agreed upon, reject whole
- Less than agreed upon, accepts goods in accordance, must pay contract

Condition to be delivered

Same condition upon contract perfection

Fruits pertain to the buyer from contract perfection
Accessions: necessary to the principal
Accessories: ornaments

Loss, deterioration, improvement before delivery

- Without sellers fault: seller liability extinguished
- With sellers fault: seller answers damages
- Without sellers fault: impairment borne by buyer
- With sellers fault: buyer rescission or seller fulfillment with damages
- By nature: benefit to buyer
- By seller: usufruct

Seller not bound to deliver

Buyer has not paid

No period for payment has been fixed

Buyer lose right to use period (Badges of Fraud)
- Insolvent
- No securities
- Impaired securities, unless new ones given
- Violates undertaking
- Attempts to abscond

Delivery in sale of real estate

Deliver all mentioned in contract

Delivered lacking area
- Proportionate reduction of price

Rescission of contract if area lacking is

1/10 area contracted

Delivered inferior quality

- Proportionate reduction of price
- Rescission if inferior value > 1/10 price agreed
Buyer proves he would not buy had he known of small area or inferior
- Rescind contract even if < 1/10 area lack or inferior quality price
Delivered greater in area
- Accept area included in contract, reject rest
- Accepts whole, pay contract rate
Immovable property for lump sum
- No increase or decrease in price even if greater or lesser area
2 or more immovable property for single price
- No increase or decrease in price
- With boundaries
o Deliver all included in boundary
o If failed to do so, reduction in price

Prescription for price reduction or rescission

6 months from delivery date

Execution of public document is equivalent to delivery

Sale warranties

Ownership not passed

Buyer treats sellers obligation fulfillment was warranted expressly or
Condition of the obligation of the buyer to fulfill his promise to accept and
General: condition is not a warranty
Exception: obligation subject to condition
- Non-performance of condition is breach of warranty
Express warranty

Affirmation of fact or promise by seller that induces buyer to buy and

actually buys it
- Immaterial whether seller knows or does not know the truth or falsity of
his words
- Sellers opinion as warranty: made as an expert and buyer relied on it
Implied warranty
- Arises from mere fact that a contract of sale is perfected
- Seller cannot avoid liability by insisting that there is no warranty
- Does not apply to seller by virtue of authority in fact or law
- Buyer assumes risk for deprivation of thing
- Warranty for Eviction
o Transfer ownership
o Buyer enjoys legal and peaceful possession of thing
- Warranty for Hidden Defects
o Free from hidden faults or defects
Can be waived or increased or decreased by agreement

Warranty against Eviction

Buyer is deprived of thing purchased

Deprived by virtue of judgment
Judgment based on right prior or act subsequent to sale
Seller summoned in the suit for eviction
No waiver from buyer
General: seller liable for deprivation of ownership
Exception: Seller not liable for a mere trespasser


Acquires or lose ownership and real rights through lapse of time

Acquisitive = acquire
- With good faith, acquired in 10 years
- Without good faith, acquired in 30 years
Extinctive = lose
Also applicable to judicial sales
- Judgment debtor will only be free from liability if judgment decrees
Prescription periods
- 6 months after delivery: real rights and hidden defects
- 1 year after delivery: non-apparent
- 40 days after delivery: redhibitory

Waiver of warranty

- Without knowledge of risk
- With knowledge of risk
Stipulation exempting vendor for obligation for eviction shall be void, if hes
in bad faith

Liability of seller in eviction cases

- Pay value at eviction
- No liability
- Value at eviction
- Income or fruits
- Cost of the suit
- Contract expenses
- Damages and interest

Partial eviction

Buyer may demand rescission

Cases for rescission
- Lost part of the thing
- Sold for lump sum
- Sold for separate price
Buyer returns thing without encumbrance (burden or hindrance)

Non-apparent burden or servitude

Easement or servitude
- Burden imposed upon immovable for benefit of someone elses
Apparent easement
- Made known
- Continually kept in view by external signs that reveal use and enjoyment
Non-apparent easement
- No external indication of existence
- Buyer has two alternatives
o Rescission
o Recover for damages
- Buyers rights exercised
o Within 1 year from execution
o Discovery after one year of existence, bring action 1 year from
- Buyers rights cannot be exercised
o Recorded in registry of property - Already a public notice
o Buyer has knowledge even if not registered

Warranty against hidden defects

Hidden defects not visible to buyer

Seller liable
- Defect exist at time of sale
- Unfit for use
- Buyer give notice to seller within reasonable time

Rescission or price reduction within prescriptive period (6 months after

- Buyer did not waive sellers liability
Warranty exist even if seller acted in good faith
Division of warranty for hidden defects
- Merchantable
- Particular purpose
- Quality


Resale marketable as goods of same nature

Usage fit for use
Bought by description from seller who deals goods of that description
Restricted to smaller group

Implied warranty in sale by sample

Free from defect not apparent on reasonable examination of sample

Bulk of goods correspond to sample

Warranty for fitness for particular purpose

Reasonably fit for such purpose

Requisites for sellers liability
- Bought for particular purpose
- Seller knows the purpose
- Buyer relies on sellers skill or judgment
Buys specified patent or trade name
- Buyer think it will likely serve his purpose
- Did not rely on sellers judgment
- No warranty for fitness for particular purpose

Warranty as to quality

Annexed by usage of trade

No implied warranty as to quality
over the counter sales
- Caveat emptor: Let buyer beware
- Examine goods before he makes purchase

Liability of seller for loss of things which has hidden defects

Vendor aware: return price and damages

Vendor not aware: return price, interest, contract expenses
Fortuitous event: price less value when lost
Vendor bad faith: damages

Applicability to judicial sales

Judgment debtor not liable for damages

Redhibitory defects of animals sold

Expert knowledge is not sufficient to discover defect

Veterinarian liable if fails to identify through ignorance or bad faith

Sale of two or more animals together

General: defect of one will not affect the other

- Buyer would not have purchased the good ones with the defective ones
- Animals sold as team, yoke, pair or set

When implied warranty is not applicable

Sold at fairs, public auctions or livestock

Presumes buyer already knows the defects

When animal sale is void

Contagious disease
Unfit for purpose

Liability of seller

Death of animal
- Within 3 days from purchase
- Disease exist at contract perfection
- Prescription brought within 40 days from delivery

Effect of rescission of animal sale

Buyer return in condition delivered

Buyer liable for injury due to negligence or redhibitory

Alternative rights of vendee

Withdraw from contract

Proportionate price reduction

Double sale

Single thing, One seller, Two or more buyers with different interest
Rules applied
- Movable
o Possession, good faith
- Immovable
o Registered, good faith actual registration
o Possession, good faith actual or constructive possession

o Oldest title, good faith

Obligations of a Vendee
Primary obligations

Accept thing
Pay purchase price

Obligation to accept delivery (exceptions)

Quantity less
Quantity more, reject excess
Mixed goods
- Divisible, reject not in accordance
- Indivisible, reject whole
Installment delivery but no stipulation to that effect

Buyers right of inspection

Inspect before acceptance

Accept and pay before inspection

Acceptance by buyer

Tell seller
Acts inconsistent with sellers ownership
Retains thing after reasonable time

Effect of acceptance

Seller liable for breach

Seller not liable
- Stipulated
- No notice of breach given

Buyer refuse to accept

Just cause
- Do not return goods
- Notify seller
Without cause
- Buyer owns upon delivery (buyers risk)

Obligation to pay the price

Pay upon delivery

Pay with interest
- Stipulated
- Fruits

Buyer defaults

Buyer can suspend payment

Disturbed in possession
Reasonable ground to fear possession
- Vendor removed disturbance
- Seller gives security for price return
- Stipulated
- Disturbance by mere trespasser

Automatic rescission of immovable

Not authorized
Must have judicial or notarial act

Automatic rescission of movable

Take place in interest of seller

Buyer did not receive thing or received but no payment

Unpaid seller

Not been paid

Negotiable instrument as conditional payment, condition broken

Included in term unpaid seller

Agent of seller
Consignor who paid
Person in position of seller
- Responsible for price on behalf of principal

Remedies of unpaid seller

- Seller possess the thing
- Loses right when:
o No ownership reservation
o Buyer obtains goods
o Waiver
- Partly delivered, right on remaining goods
Goods in transit
- Requisites
o Seller lost possession
o Goods in transit
Delivered to carrier
Buyer reject, carrier possess

o Buyer insolvent
o Actual possession of seller
o Notice to carrier
o Carrier redeliver goods to seller in sellers instructions
With negotiable bill of lading, not obliged to deliver to seller

Not in transit
o Buyer has goods
o Carrier has goods on behalf of buyer
o Carrier refuse to deliver
- Requisites
o Perishable
o Expressly reserve right
o Buyer default
- Ways
o No need for notice except for missing 3rd requisite
- Requisite
o Reserve right
o Buyer default
- Ways
o Notice to buyer
o Act showing intention
o Recover any loss from buyer

Remedy for sale of immovable

Reasonable ground
- Rescind
Without grounds
- Fulfillment with damages
- Rescind with damages
- Fulfill then rescind if cannot be fulfilled

Remedies from instalment sale

Exact fulfillment
- For one installment default
- Recover unpaid balance
Cancel sale
- Only for two or more installment default
- Not bound to return payments made
Foreclose chattel mortgage
- Only for two or more installment default
- Recover unpaid balance
- Agreement to contrary shall be void

Lease of personal property with option to buy

Non-recovery of unpaid balance when lessor deprived lessee of possession

- Contract of lease with option to buy
- Express stipulation of option to buy
- Rentals paid as part of purchase price
Any stipulation to contrary is void

Sellers remedy for buyers breach

Failed to pay
- Collection
- Specific performance
- Seller as buyers bailee, buyers goods
Refuse to accept
- Recover damages
o Loss
o Difference in MV and contract price
o Labor expense
o Profit
Repudiation of contract
- Rescind contract

Buyers remedies for sellers breach

Failed to deliver
- Contract performed
- Damages payment
Breach of warranty
- Accept goods, reduced or extinguished price, pay price
- Accept goods, recover damages, pay price
- Refuse goods, recover damages, do not pay price
- Rescind contract, refuse goods, and return, recover price paid

Effect of buyers rescission

Not liable for price

Recover price paid
Hold goods as sellers bailee

Buyer cannot rescind

Accepts goods with breach knowledge

Fails to notify seller
Fails to return thing in good condition

Breach of warranty as to quality

Recover difference in value at delivery and value if answered to warranty

Extinguishment of sale
Conventional redemption

Right to repurchase
Return price paid plus contract expense

Nature of conventional redemption

Express agreement of parties

Accidental element of contract

Equitable mortgage

Shows intention of property as security for obligation fulfillment

Price unusually inadequate
- Vendor can afford repurchase
Vendor remains possession as lessee
- No intention to transfer ownership
Extend repurchase period
- No intention to acquire thing
Buyer retains part of purchase price
- Retention = interest
Seller pays taxes
- Owner pay taxes of thing

Pacto de retro sale period of redemption

No agreement, 4 years from contract

Agreed on period and fixed, fixed period
Agreed on period and no fixed period, 10 years from contract
Upon final judgment, 30 days from judgment

Consolidation of ownership in buyer

Redemption period lapsed

Thing not repurchased
Not recoded in registry without judicial order
Buyer may sell thing to another

Vendors right of repurchase

Real right
Attaches to thing sold
Repurchase from whoever possess the thing with the said right
Pacto de retro sale on undivided immovable

General rule
- Sell without consent of others

- Only seller has right to repurchase

Partitioning not agreed
- Sell their portions
- Buyer acquires the whole
- Partial redemption not allowed
Sold shares in same contract
- Each may repurchase only his share
- May demand sellers to repurchase whole thing
Sold shares separately
- Independent exercise of right
- Buyer cannot compel whole redemption
Vendor who exercised right must return:
- Price
- Contract expense
Necessary and useful expense

Proration of fruits at redemption time

Fruits at sale and redemption

- Buyer didnt pay
- No reimbursement
Fruits at sale and redemption
- Buyer pays
- Reimburse
No fruits at sale but at redemption
- Prorate between seller and buyer
- Buyer gets amount from time of sale

Property redeemed free of charges

Buyer can do anything with the thing

Free from charges upon redemption
Seller respects lease (if any) executed in good faith

Legal redemption

Right to be subrogated
In place one who acquires thing by purchase or dation
Ownership transmitted by onerous title
Created by law
Can be exercised by co-owners or owners of adjoining lands
- All shares sold
- Sale to third person
- Ownership transferred by onerous title
Purpose: reduce participants as hindrance to development of property

Legal redemption of co-owner

Sold to 3rd person, can redeem

Sold to co-owner, cannot redeem

Two or more co-owners like to redeem, proportion to their share in the thing

Legal redemption of adjacent owners

Rural land
- Requisites
o < 1 hectare
o Not separated by apparent servitude
o Alienation by onerous title
o 3rd person owns another rural land
- Redemption preference with two or more adjacent owners who wish to
o With land smaller in area
o First who requested redemption
Urban land
- Small area, major portion cant be used for practical purpose
- Bought for speculation

Rights to adjacent owners


- 30 days from notice, not recorded in registry unless with affidavit of
- Excludes adjoining owners (co-owners over adjacent owners)

Creation of an Agency
Importance of agency

Principal delegates
Agent contracts with persons in representation of principal
Purpose extend personality of principal

Agency defined

Person binds himself to render service in representation of another with

latters consent
Independent contract
- Performed by independent contractors
- Work according to his own method
- Output is under control of principal
Employer and employee
- Employee cannot bind employer
- Not fiduciary
- Employee does not exercise discretionary powers


Consensual perfected by mere consent

Bilateral reciprocal obligation
Nominate particular name
Principal can stand alone
Preparatory give rise to other contracts
Onerous compensation

Who may be principal

Legally competent to act for himself

Cannot be performed by agent
- Voting
- Executing a will
- Make affidavit
- BOD meeting
Cannot authorize another for unlawful acts

Who may be an agent

Legally competent to enter into any contract

Need not be absolutely capacitated
Ordinary intelligence is sufficient
Keeps self within scope of authority

Creation of agency

Principal creates agency

- Express agency
- Unequivocal terms
- Oral or written except in sale of land, must be in writing
- Acts of principal
- Silence of principal
- Failed to repudiate agency knowing a person is unauthorized to act as
Acceptance by agent
- Carry out agency
- Silence or inaction
o Persons who are present
Principal personally delivers power of attorney
Agent receives without objection
o Persons who are absent
Principal transmits power to agent and agent receives
without objection
Principal entrusts power to him by letter in business where
agent is engage

Announcing the Agency

- Special information
o Agent to specific persons informed
- Public advertisement
o Agent to any person
o Newspaper, TV, radio, posters

General and special agency

General all business of the principal

Special specific transactions

Agency couched in general terms

Acts of administration

Kinds of agents

- Transacts principals business of particular kind or at given place
- Act in connection with entrusted business
- Conducive to accomplishment of agency purpose
- General power of attorney
- Specific acts
- Limited powers
- Special power of attorney
- Purchase or sale for another personal property
- Placed in his possession and disposal
Del credere or guarantee commission agent
- Receives additional commission
- Bears risk of collection
- Guarantees payment to principal

Power of attorney

Authority given to agent in writing

Authority source
Power effect

Require special power

Not in line of business


Operation of Agency

Obligation of agent to principal

Carry out agency

- Liable for damages if non-performance of obligation
- Finish existing business on death of principal
Act within scope of authority
- Conducive to accomplishment of agency purpose
o Exceeds scope but ratified, valid
o Not considered exceeded if performed to be more advantageous to
o Right of 3rd person to require agent to show agents power
o Not ratified, 3rd person not aware of limits, void
o Agent liable if he promised to secure principals ratification
- Act in name of principal
o Agent acts in own name, principal has no right against 3rd persons
o Agent directly bound to 3rd persons
o Exception: involves thing of the principal
Act in accordance to principals instructions
- Do all that a good father would do
- Instructions
o Private orders of principal
o Not binding upon 3rd persons unless he has personal knowledge
Conflict between agents interest and principal
- Agent liable for damages if he chose his own
- Cannot take any interest contrary to that of principal
Advance necessary funds
- Stipulated except if principal is insolvent
Empowered to borrow or lend money
- Can be lender but not borrower without consent
Render accounting
- Every stipulation exempting agent from obligation is void
- Obligatory
- Includes anything the agent receives by virtue of agency
- Stipulated that agent is entitled to excess
Appoint substitute
- No prohibition, appointment valid
- Responsible for acts of substitute
o No power given
o With power, no designation, incompetent sub
- Prohibited to appoint, appoints one, void
- With power, designation, incompetent sub, not liable
Pay interest
- Applied principals money for own use
- Lawfully obtained payment but did not give to principal
Declines agency
- Diligence of good father in custody and preservation of thing until new
agent is appointed
Responsibility for fraud
- Liable for damages

Responsibility of 2 or more agents

General: Joint
Exception: Solidary
- Stipulated
- Responsible for non-fulfillment and fault of fellow agent
- Except fellow agent acts beyond scope

Responsibility of commission agent

Goods received in terms described

Mix goods, mark, distinguish owner
Sell for cash
- May sell for credit with consent of principal
- Sold on credit without consent, pay principal in cash upon demand
Authorized to sell on credit
- Inform principal of names of buyers

Obligation of Del credere

Risk of collection
Pay principal proceeds of sale
Liable for damages if not collected

Obligations of principal

Comply with obligations entered by agent within his scope

Not liable for obligations in excess of scope unless ratified
Advance necessary funds
Reimburse agents advances
Indemnify agent for damages for execution
- Agent may retain the thing if not reimbursed or indemnified
Solidary liable with agent
Solidary liable to agent for 2 or more principals

Principal is not liable

Agent acted in contravention of instructions

Expenses at fault of agent
With agents knowledge, incurred unfavorable result

Principal and agent contracted with different persons for same thing

Service earlier date

Movable 1st possession in good faith
Immovable 1st registers, 1st possession, earlier date

Remedy of 3rd person for rejected contract

Agent good faith, principal liable

Agent bad faith, agent liable

Extinguishment of Agency

Only principal can revoke

- Words spoken
- Principal appoints new agent, revoked from day notice is given to old
- Principal manages business
- Principal executes special power, only special matter is revoked
Two or more principals
- Any one may revoke without consent of the other
- Solidary liable
Not revocable at will
- General: Revocable at will
- Exception
o Fulfill existing obligation
o Bilateral contract
o Partner appointed as manager
o Coupled with interest

Withdrawal of agent

Give notice to principal

Principal suffers damage from withdrawal
- Indemnify principal unless prove it is because of impossibility
Valid reason
- Act until principal is able
Prevents damage to principal

Death of principal

General: Extinguishes agency

Exception: Agency remains even after death
- Common interest of principal and agent
- Interest of 3rd person who has accepted stipulation
Agent unaware of death
- Acts have same effect as if principal is alive
o Agent has no knowledge of death
o 3rd person contracted on good faith
- Agent bound to finish business should delay entail danger

Death of agent

Not at once extinguished

Law imposes upon heirs of agent
Notify principal



Similarities and differences of pledge, mortgage and chattel mortgage


- Secure fulfillment of principal obligation
- Pledgor or mortgagor be the absolute owner
- Has freed disposal or legally authorized
Principal obligation secured
Alienation of thing pledged or mortgaged
- May alienate thing pledged
o With consent of pledgee
o Ownership transfers to buyer
o Pledgee retains possession
- May alienate thing mortgaged
o With formalities required by aw
o Valid between parties even if not registered
Right of pledgee or mortgagee
- Alienate thing (auction or foreclosure)
- Apply proceed to principal obligation
Pacto comisorio
- Creditor appropriates or disposes thing, void
- Debtor can assign property creditor upon failure to pay
Indivisibility of pledge or mortgage
- Cannot ask for proportionate extinguishment of pledge
- Several things pledged: guarantee only determinate portion of pledge
Indivisibility not affected if joint or solidary liable
Promise to constitute pledge
- Rise to personal right, not pledge or mortgage
Criminal responsibility of pledgor or mortgagor
- Thing has burden
- Misrepresentation to be owner

Subject matter
Against 3rd
Extent of


Chattel Mortgage

Movable and Incorporeal rights

Creditors possession
Public document
(date and
Interest and earnings
Offspring to owner

Real Estate Mortgage

Immovable and Alienable

Chattel Mortgage

Registry of Property

CMR, Affidavit of Good


Registry of Property

Property described and

future goods

Permanently attached to
land or building

Right of creditor
for due

Proceed to notary
public for public


Apply proceeds

Principal obligation
(more than: excess
to creditor, less
than: cant recover)

Sale expense, principal

obligation, next
mortgagee, balance to
mortgagor; less
proceeds, recover lack


Person with right to


Mortgagor, next
mortgage, attaching

Foreclose EJ (with
stipulation), or Judicially
(w/o stipulation)

Equity (EJ: before sale, J:

before sale confirmation)
and Right (EJ: 1 year form
sale registration, J:
cannot redeem)

Rights, liabilities of pledgor and pledgee


Take care, reimburse expenses for preservation, liable for loss

Cannot deposit, responsible for acts of agent
Cannot use without consent
Advise pledgor for danger
Bring actions against 3rd persons
Two or more things pledged, choose which to use
Tell pledgor of auction result
Due before redeemed, excess to debtor
Deceived of substance, claim another or immediate payment


Still owner unless expropriated

Deposit if used without consent
Cannot ask for return unless paid
Ask 3rd person to deposit if thing is in danger with pledgees fault
Public sale if in danger without pledgees fault

Extinguishment of pledge

Extinguishment of principal obligation

Return thing to pledgor (stipulation to contrary is void)
Written statement by pledgee that he abandons pledge

Legal pledges

Necessary expenses to all possessor

Useful expenses to possessor in good faith
Right of retention

Possessor in good faith

Executed work

Sale of thing pledged by operation of law


Sold at public auction within 1 month after demand for payment

Proceeds to principal obligation, excess to debtor
Voluntary pledge, excess to creditor
Creditor did not sell without just grounds, return thing to debtor

Nature and extent of contract


Founded on another contract

Cannot exist without valid obligation


Guarantor binds himself to creditor to fulfill obligation of principal debtor if

he fails to do so
Suretyship: person binds himself solidary with the debtor

Arise of liability

Pay after debtor cannot
Answer for debt
Exhaust all debtors properties

Arises upon agreed contract
Creates primary obligation
Debtor does not pay


Accessory needs principal obligation

Consensual perfected by mere consent
Nominate particular name
Generally gratuitous no consideration


- Conventional: parties agreed
- Legal: provision of law
- Judicial: decree of court
- Gratuitous: no compensation
- Onerous: valuable consideration
Without knowledge of debtor, reimburse to extent beneficial to debtor

With debtors knowledge, reimburse everything paid

Sub-guaranty: guaranty in favor of another guarantor with or without
latters consent
Co-guarantors: 2 or more guarantors of same debtor

Extent of guaranty

Less than principal obligation (If bound more than obligation, reduced to
limits of debtor)
Security for future debts
- Amount unknown
- Creditor cannot claim until debt is liquidated
May comprise accessories
- Judicial cost: incurred after judicial required to pay

Qualifications of guarantor

Capacity to bind himself
Sufficient property

Married woman as guarantor

May guarantee even without husbands consent

Cannot bind conjugal property

When guarantor loses capacity

Convicted or Insolvent
General: Creditor demand another
Exception: convicted or insolvent guarantor was specified by creditor

Effects of guaranty
Between guarantor and creditor

Benefit of exhaustion
- Creditor exhaust all debtors properties & resort to legal remedies then
go to guarantor
- Guarantor set up exhaustion benefit to creditor and point to him debtors
- Creditor negligent of exhaustion after pointed out properties, suffer loss
Guarantor loses benefit of exhaustion
- Renounced it
- Solidary liable with debtor
- Insolvent debtor
- Abscond or cannot be sue within Philippines
- Insufficient property of debtor
Several guarantors of one debtor
- Benefit of exhaustion and division

Co-guarantors liable only to proportionate share

Between debtor and guarantor

Guarantors rights if he pays

- Indemnify for debt, interest, expenses and damages
- Subrogated to creditors rights
- Reimburse in case of absent debtor

Effect of compromise
- Creditor and debtor: benefits guarantor
- Guarantor and creditor: cant demand debtor more than what he paid
Payment without notice to debtor
- Debtor bring defenses against guarantor
- Debtor is deprived to set up defenses against creditor
- G paid without notice to debtor and debtor pays, G reimburse from
- Gratuitous guaranty: didnt notify debtor because of fortuitous event, G
reimburse from D
Payment by guarantor before maturity
- Cannot demand reimbursement until period expires
- Can ask reimbursement if payment is ratified
G proceed to D even if not yet paid
- Sued for payment
- Insolvent debtor
- Debtor relieved him from guaranty
- Demandable debt
- Lapse of 10 years if no fixed period
- Fear that debtor absconds
- Debtor in danger of being insolvent

Between co-guarantors

One insolvent, borne by others according to their share

Payment by virtue of judicial demand
Insolvent debtor

Extinguishment of guaranty
Aside from principal obligation extinguishment

Acceptance of immovable as payment

Extension of period without guarantors consent
Guarantor not subrogated to creditors rights
Release to one of the guarantors

Legal and judicial bonds

Suretyship: bond offered by virtue of provision of law or judicial order

Judicial bondsman: no benefit of exhaustion


Sub-surety: cannot demand exhaustion


Introduction to Loan
Contract of loan defined

Deliver to another not consumable thing to use and return

Deliver to another consumable thing to be paid in same amount of same
kind or quality



Gratuitous or Onerous

Real or Personal


Return before expiration

Cant demand payment before term



Bailor delivers to bailee real or personal property not consumable

Precarium: bailor may demand thing at will

Nature of commodatum

- Contract of lease if bailee has to pay
Real contract
- Perfected by delivery of object
- Consensual contract: accepted promise to deliver
- Death extinguishes contract
- Cant lend or lease
- Bailees household can use unless stipulated to contrary

Capacity of parties

Bailor need not be owner of thing loaned

Obligations of bailee

Take care of thing

Pay ordinary expenses for use and preservation
Loss and deterioration even through fortuitous event
- Used for different purpose
- Kept longer than time specified
- Delivered with appraisal value
- Lend or lease to another not household
- Saves own thing
Return the thing
Solidary liable if 2 or more bailees
Cannot use the fruits unless stipulated
Cant retain the thing if bailor owes him something
May retain thing for damages caused by things flaws

Obligations of bailor

Refund extraordinary expenses for preservation

Extraordinary expenses from actual use
Indemnify bailee for damages by flaws
Cannot abandon thing loaned

Rights of bailor

Temporary use, commodatum suspended

Immediate return if bailee commits offenses
Return at will for tolerated use


Expiration of period
Accomplishment of use
Death of bailor or bailee

Simple Loan or Mutuum


Lender delivers to borrower money or consumable thing

Borrower pays lender equal amount of same kind and quality

Capacity of Parties

Lender owner or has authority from owner

Borrower enter into any contract

Form and nature

Real contract
No required form except if with interest (written)

Obligations of borrower

Pay in legal tender

- Inflation cases, value at time obligation was incurred
- No interest stipulation, no interest due
- With interest stipulation yet unpaid, interest from time judicially
- Interest payable in kind, current price
- Paid without interest stipulation, lender returns money
Fungible thing other than money
- Pay another things of same kind, quantity and quality
- Impossible to deliver same kind, value at loan perfection



Nature and Kinds of Deposit

Deposit defined

Real contract
Person receives thing of another for safekeeping and returning the same


Real contract perfected by delivery of object

Principal can stand alone
Nominate particular name
Generally gratuitous except when theres agreement to contrary
Unilateral/Bilateral no compensation or with compensation

Parties to deposit

- Delivers thing
- Whom thing is delivered

Kinds of deposit

- sequestration
- Attachment or seizure of property in litigation is ordered
- Voluntary
o Agreed by parties
- Necessary
o Legal obligation

o Calamity
o Travelers with hotel keepers or common carriers
Ordered by

Protection of plaintiff
Movable or Immovable
Depositary cant be
relived until controversy

Depositor may demand
return of thing before
term ends

Effect of deposit by or with incapacitated person

Depositor incapacitated, depositary capacitated

- Voidable
- Depositary compelled to return thing
Depositor capacitated, depositary incapacitated
- Voidable
- Depositor have right to recover thing deposited only
- Compel depositary to pay amount he used

Obligations of depositary

Keep thing safe

Return when required
Return upon demand except when judicially attached
Return with all products, accessions and accessories
Return at place designated
Return if unlawfully acquired
Collect interest
Return sealed
Keep secret the content if sealed
Liable for loss through fortuitous event
- Stipulated
- Used without permission
- Delays return
- Allows others to use
Deliver sum of money in place of thing lost by force majeure or government
Liable for damages if used without consent

Prohibitions upon depositary

Use without consent

Open sealed deposits unless given the key to open
Demand ownership proof
- Stolen thing, advise real owner

Not claimed within one month, relieved from responsibility of returning

the thing

Rights of depositary

Return even before time lapse

Retain thing until full payment (reimbursement or losses)

Obligations of depositor

Reimburse the depositary for preservation expenses

Reimburse depositary for loss except
- Depositor not aware of danger or notified depositary
- Depositary aware of danger without advice from depositor

Rights of 2 or more depositors

Not solidary
- Cant demand more than his share
- Do whatever may be useful to others
- Depositary return thing to any of the depositors

When depositor loses capacity after deposit

Thing cannot be returned except to persons who may have property


Extinguishment of deposit

Loss or thing destruction

Gratuitous, death of either party
Onerous, right transmitted to heirs
- Heir sold thing without knowledge of deposit, return price received