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1. Contract of Agency – a person binds himself to render some service or to do something in

representation or on behalf of another, with consent or authority of the latter.
2. Principal – one whom the agent represents and from whom he derives his authority; person
3. Agent – one who acts for and represents another; person acting in a representative capacity.
4. Gratuitous – one where the agent receives no compensation for his service (opposite of
5. Power of attorney – written authorization to an agent to perform specified acts in behalf of his
principal which acts, when performed, shall have binding effect on the principal.
6. Authority – the extent or the limitation of the agent’s power to represent the principal.
7. Instruction – directions which the principal may give the agent to follow in the discharge of his
duties as such agent.
8. Subagent – a person to whom the agent delegates as his agent, the performance of an act for
the principal which the agent has been empowered to perform through his representation.
9. Factor/commission agent – one whose business is to receive and sell goods for a commission
and who is entrusted by the principal with the possession of goods to be sold.
10. Guarantee commission – one where in consideration of an increased commission the factor or
commission agent guarantees to the principal the payment of debts arising through his agency.
(Del credere commission)
11. Del credere agent – agent who receives a guarantee commission.
12. Estoppel – a bar which precludes a person from denying or asserting anything contrary to that
which has been established as the truth by his own deed or representation either express or
13. Apparent authority – that which though not actually granted, the principal knowingly permits
the agent to exercise or holds him out as possessing.
14. Authority by estoppel – arises in those cases where the principal by his culpable negligence
permits his agent to exercise powers not granted to him, even though the principal may no
notice or knowledge of the conduct of the agent.
15. Civil Interdiction – a form of disqualification which deprives the offender during the period of his
sentence of the right to manage his property and dispose of such property by any act or any
conveyance inter vivos.
16. Revocation – principal terminated the agency.
17. Renunciation – agent terminated the agency.
18. Credit transaction – include all transactions involving the purchase or loan of goods, services, or
money in the present with a promise to pay or deliver in the future.
19. Secured transactions/contracts of real security – those supported by a collateral or an
encumbrance of property.
20. Unsecured transactions/contracts of personal security – those the fulfillment of which by the
principal debtor is secured or supported only by a promise to pay or the personal commitment
of another such as a guarantor or surety
21. Bailment – comes from the French word “bailer,” meaning “to deliver.”
22. Bailor – the giver; the party who delivers the possession or custody of the thing bailed.
23. Bailee – the recipient; the party who receives the possession or custody of the thing thus
24. Commodatum – where the bailor delivers to the bailee a non-consumable thing so that the
latter may use it for a certain time and return the identical thing.
25. Simple loan/mutuum – where the lender delivers to the borrower money or other consumable
thing upon the condition that the latter shall pay the same amount of the same kind and quality.
26. Precarium – one whereby the bailor may demand the thing loaned at will.
27. Fungible things – those which usually dealt with by number, weight or measure so that any
given unit or portion is treated as the equivalent of any other unit or portion.
28. Contract of barter/exchange –one of the parties binds himself to give one thing in consideration
of the other’s promise to give another thing.
29. Usury – contracting for or receiving something in excess of the amount allowed by law for the
loan or forbearance of money, goods or chattels.
30. Interest – compensation allowed by law or fixed by the parties for the loan or forbearance of
money, goods, or credit.
31. Deposit – constituted from the moment a person receives a thing belonging to another, with the
obligation of safely keeping it and of returning the same.
32. Voluntary deposit – one wherein the delivery is made by the will of the depositor.
33. Necessary deposit – one when it is made in compliance with a legal obligation or when it takes
place on the occasion of any calamity, such as fire, storm, flood, pillage, shipwreck, or other
similar events.
34. Judicial deposit/sequestration – when an attachment or seizure of property in litigation is




Article 1968: P, owner of a land, wants to construct a building on it but does not know how to build it
himself. What are his options?

(1)He may construct it himself, buying the necessary materials and employing workers under his
direction, (2) he may hire a building contractor with materials and labor furnished by the person, and (3)
he may hire an agent to represent him and create an agency for the construction of the building.
Article 1969: (1) A sold the goods belonging to P without the consent of the latter. With knowledge of
the facts, P received the proceeds of the sale and even gave A a commission. Is the agency implied?

Yes, as the acts of P constitute ratification thereby giving the contract the same effect as if he had
originally authorized it.

(2) P’s property was being administered by A. Later, B took charge of the administration of said property
through designation by A who had to absent himself from the place for reasons of health. P did not
oppose the designation of A nor did P appoint a new agent although the designation was expressly
communicated to him. He remained silent for one year allowing A take charge of the property. Is it

Yes, as it must be concluded that A acted by virtue of an implied agency equivalent to a legitimate
agency, tacitly conferred by P.

Article 1873: P especially informs X that he has given A a power of attorney. With respect X, A thereby
becomes a duly authorized agent of P. How will the principal revoke the agency?

To rescind the power of attorney, P must give notice in the same manner in which it was given, namely,
by special information to X. Public advertisement is not sufficient unless X has actual knowledge of the
revocation. But if P makes known the appointment of A by public advertisement, special information to
X is effective against him.

Article 1882: (1) P gave a power of attorney to A authorizing him to sell P’s car for P100,000.00 payable
in cash. In the preceding example, if A sells the car to B in P’s name for cash, is it valid? (2) If P privately
instructed A not to consummate the sale. If A sells the car without authority, or being authorized, he
sells the car to B for P80,000 cash or P100,000 payable in 10 monthly installments, is it valid?(3) P had
not authorized A to sell the car but having knowledge that A was acting for him kept silent and after the
consummation of the sale, received the proceeds thereof from A. Suppose A sold the car for P120,000
cash, did he exceed his power?

(1) The authority is sell the car is express with implied authority to receive payment and give receipt.
They are both actual authority. The transaction is valid.

(2) The sale by A is binding upon P as A has apparent or ostensible authority to sell. As to third person,
the effect is as if A had actual authority. The transaction insofar as P is concerned is an authorized act
which renders it unenforceable. Hence, P is not bound unless he ratifies the sale provided he has not
already been revoked by B

(3) A’s authority rests on estoppel on the part of P to deny such authority. No, because the price is more
advantageous than P100,000 but there is no prohibition against selling it at a better price if said price
can be obtained.

Article 1883: (1) P authorized A to bid for him in the construction of a certain building. A acted in his
own name, that is, without disclosing that his bid was on behalf of P. Is he bound? (2) P authorized A to
sell the former’s car. A sold the car to B. A acted in his own name. Is it valid? (3) P told A to buy a car. A
bought a car from B with money belonging to P. A acted in his own name. Is it valid?

(1) If the bid of A was the lowest, only A and the owner of the building would be bound to each other.
But A is liable to P under the contract of agency. (2) The contract involves a thing belonging to the
principal. The sale is completely valid. The contract is deemed entered into between P and B. So B can
sue P in case has hidden defects. (3) B and P have a right of action against each other. Thus, P can sue B
in case the car has hidden defects.


Article 1884: In consideration of a fixed compensation, A agreed to collect for P funds which are due and
payable periodically from D. For unexplained reasons, A failed to collect all the moneys falling due in
favor of P from D until the latter became insolvent.

A is liable for the damages which P may suffer through his non-performance.

Article 1887: (1) P writes to B that A is authorized to buy certain merchandise. P privately instructs A not
to buy but merely to obtain B’s lowest price. In violation of said instruction, A buys the merchandise. Is it
binding? (2) P employed A to sell P’s horse at the best possible price, with private direction that A may
receive P10,000, but no less. A sold the horse as agent of P for only P8,000 to T. Is it binding?

(1) The sale is binding upon P because A has authority to make the purchase although it is not in
accordance with the instruction given. (2) P is bound by the sale. The permission to sell for P10,000 and
the direction not to sell for less, are not ordinarily to be communicated to T, although intended to
control the action of A, and are not to be regarded as limitations upon A’s authority. A’s violation of the
instruction makes him liable to P.

Article 1887: (1) P ordered A, his broker, to sell 10,000 shares at a minimum price of P1 per share. All the
transactions in the market showed that the said shares were being traded at P1.10 per share. (2)
Suppose, in the same example, A was given the discretion to sell the shares if he believes it would be
profitable to P or not to sell them if he believes their price would still go up. A sold the shares. The ext
day the price rose to P1.15 per share.

(1) If A sold the shares at only P1 per share, P is entitled to recover the difference of P.10 for each of the
10,000 shares. Good faith and ordinary prudence demand that A should sell the shares at the price most
profitable to P. (2) A is not liable to P if he acted in good faith for losses suffered by P due to A’s error of

Article 1889: (1) P authorized A to buy specified goods. A sells his own goods to P. Is it valid? (2) Suppose
P authorized A to sell goods. Can he sell to himself the goods? (3) P authorized A to sell specific goods
for a certain price. Can A sell goods of the same kind and quality belonging to him?
(1) A must not sell P goods belonging to him as such sale is voidable although the price may have been
just. The reason is that A’s obligation to P requires him to buy the lowest possible price while his self-
interest prompts him to sell at the highest price obtainable. However, P may elect to ratify the sale. (2) A
must not sell to himself directly or indirectly. The reason is that his duty to sell at the highest price for
the principal conflicts with his interest to buy at the lowest possible price. (3) If A instead sells goods of
the same kind and quality belonging to him for the same price to B, A is liable for damages. He should
not prefer his own interests to those of P.

Article 1891: (1) P employs A as a full-time salesman. Can he take the profit of overpriced proceeds
received? (2) In the same example, A also sold goods for B without the knowledge of P. Is it binding?

(1) A must turn over to P any overprice received by him for goods he is to sell at a certain price. He may
not make any profit out of the agency beyond his stipulated compensation. (2) P is also entitled to all
commissions or compensation earned by A on sales of B’s goods in violation of the contract of agency.

Article 1893: P authorized A to manage P’s business affairs during the same that P was in the province. A
allowed T to manage the store for him. (1) Is A responsible for damages caused by the acts of T? (2) Is
the substitution valid? (3) Are the acts of T in the name of P valid?

(1) Yes, if T was appointed by A against the prohibition of P that he shall not entrust the management of
the store to another person; or he was not given the power to appoint one; or he was given the power,
but T is notoriously incompetent or insolvent. No, if A was given the power and T was not notoriously
incompetent or insolvent or T is the person designated by P to be appointed as substitute. (2)No, If A
was prohibited by P from appointing a substitute. Yes, if A was given the power, or even if he was not
given the power, there was no prohibition imposed by P. (3) No, if T was appointed by A against the
prohibition of P or T acted beyond the scope of his authority.

Article 1895: A and B were appointed by P to manage the latter’s business. Is A liable to P for damages in
the amount of P10,000 caused by the fault or negligence of B?

(1) The presumption is that their responsibility is joint. Hence, A is not liable. But if both A and B were at
fault, they shall be liable P5,000 each. (2) If solidarity has been agreed upon, P may recover P10,000
either from A or B, If A pays P5,000, P can still go after A or B for the balance as long as the entire
amount has not been paid.

Article 1897: A was given a power of attorney by P to sell the latter’s car for P300,000. He sold it to B for
P280,000. Is the sale enforceable?

The sale is unenforceable against P but A becomes personally liable to B. However, if B was shown the
power of attorney by A, neither P nor A will be liable.

Article 1898: If B, in the preceding example, knew that was not authorized to sell P’s car for P300,000
and still bought it, then is the sale valid?
The sale is void even as between A and B. However, if B bought the car on the assurance of A that he
would obtain such ratification. If P’s consent is subsequently given, then there is ratification and the sale
is binding on P.

Article 1900: P gave A a written power of attorney wherein A is authorized to sell P’s factory for such
price and upon such terms and conditions as A may deem reasonable. However, P and A had an
understanding to the effect that A should sell the factory for not less than P5,000,000 and for cash. A
sold the factory to B on credit for P4,500,000

P is bound. As far as B is concerned, A acted within the scope of his authority. Here, A acted within the
scope of his authority. Here, A has the power to make the sale binding on P even though as between
them, A has no authority to make such sale.

Article 1902: (1) P employed A under a power of attorney to sell the former’s land for not less than
P500,000. Can he sell less than the amount? (2) Suppose, in the example, the authority given to A is to
sell at any reasonable amount, with a secret instruction to sell at not less than P500,000. A sold the
property for P450,000. Is he bound?

(1) A has no power to sell the property for less than P500,000. A’s statement to T (buyer) that he was
authorized to sell at a lower price is not binding upon P. (2) P is bound by the sale, his liability being
based on the apparent authority of A.

Article 1905: P authorized A, his commission agent, to sell certain merchandise for P2,000 cash. A sold
the merchandise to B on credit for P2,200. Is it valid?

P may demand the payment of P2,000 in cash. Should A eventually collect P2,200 from B, A need not
turn over the overprice of P200 as he is entitled to it. If P ratified the sale on credit and B could pay only
up to P1,900, A is not liable for the difference of P300.

Article 1906: Suppose in the preceding example, A was authorized by P to sell on credit but he failed to
so inform P with a statement of the buyer. Is it valid?

P may demand from A the payment of the P2,000 in cash. As far as the buyer is concerned, the sale is on
credit and he is not liable to pay before the arrival of the period agreed upon.


Article 1911: P authorized A to sell P’s land, the purchase price payable to P in 12 monthly installments.
A sold the land. What if (1) P permits A to collect from X, and (2) A collects from X without informing P
but P has knowledge of such collection.

(1) If P knowingly permits A to collect from X, A may be said to have apparent authority to receive
payment. (2) If A collects from X without informing P but under, such circumstances as to charge P with
knowledge of such collection, as to where X has not paif him even a single installment notwithstanding
that several months have already passed, there arises in this case authority by estoppel founded on the
negligence of P.

Article 1911: (1) P tells X that A is authorized to sell certain merchandise. P privately instructs A not to
consummate the sale but merely to find out the highest price X is willing to pay for the merchandise. A
makes a sale to X. Is it binding? (2) P authorized A to sell the former’s car. A sold the car to X who paid A
the purchase price, However, A did not give the money to P.

(1) The sale is binding on P who is in estoppel to deny A’s authority. In this case, no agency created but
there is a power created in A to create contractual relations between P and X, without having authority
to sell. (2) X is not liable to P. A has implied authority to receive payment.

Article 1915: P and O engage the professional services of L, a lawyer, for the recovery of a parcel of land
of which they are co-owners. Are both principal liable?

They are liable solidarily for the attorney’s fees. If P pays the attorney’s fees, he may claim from O the
share which corresponds to the latter.

Article 1916: (1) P authorized A to contract for the construction of his house for a price of not more than
P100,000. Without the knowledge of A, P contracted with B for the construction of the house for
P95,000. Later, A entered into a contract with C for the construction of the same house for P90,000. (2)
P gave authority to sell a cash register. Without the knowledge of A, P sold the cash register to B. It was
agreed that P would deliver the register the following the following day. Before delivery, A sold the
same register to C who bought it in good faith and took possession thereof. (3) P gave to A a special
power of attorney to sell a certain parcel of land. A sold the land to B. Later P sold the same land to C
who in good faith, registered the deed of sale. What if neither sale was registered?

(1) Under Article 1916, the contract with B shall be preferred as it is of prior date. (2) Under first
paragraph of Article 1544, C should be considered the owner of the property. (3) The ownership belongs
to C. If neither and one of them took possession, the ownership belongs to him. In absence of
registration and possession, the ownership shall pertain to B, his title being older than that of C.

Article 1917: In the preceding example (1), is P liable for damages?

If A acted in good faith, P shall be liable in damages to C whose contract must be rejected. If A acted in
bad faith, he alone shall be responsible to C.


Article 1922: P authorized A to especially transact the purchase of a parcel of a parcel of land belonging
to B who was given a notice of the authorization given to A. Pending negotiations, P revoked the
authority of A but P did not give the notice to B. Is P liable if there was still a sale?
If the purchased is pushed through, P is still liable for the price assuming B acted in good faith and
without knowledge of the revocation.

Article 1923: P authorized A to sell the former’s land. Subsequently, P also gave authority to B to sell the
same land. Is the agency with A revoked?

There is no implied revocation of the previous agency. The intention of P may be to authorize both A
and B for the same transaction. But if B was given an exclusive authority to sell, there is an implied
revocation of the previous agency. In either case the knowledge by one agent of the sale or contract for
sale of the land by the other agent terminates the authority of the said agent.

Article 1924: (1) P authorized A to manage the former’s printing press. Every now and then, P takes
direct part in the management of the business. Can P revoke? (2) P authorized A to collect whatever
amounts may be due from X. Subsequently, P demanded payment from X telling the latter to remit to
him the amount the collection of which he entrusted to A. Is the agency revoked?

(1) There is no implied revocation where the only purpose of P is to help A in the management if the
business. (2) The agency is revoked as the purpose of the agency if fulfilled.

Article 1926: P appoints A as manager of P’s business. The authority of A to manage P’s business
includes the authority to enter into reasonable contracts of employment of such personnel as are usual
and necessary in the conduct of the business. Is the agency revoked if he gave B a special power to hire
personnel for his business?

As regards to the matter of hiring employees, the general power granted to A is revoked. As to matters
not covered by the special power, the general power remains valid.

Article 1927: (1) P sold to B a factory for P1,000,000. B paid only P800,000. It was stipulated that the
ownership in the factory would be transferred to B only after the payment of the balance of P200,000 to
be made within 6 months. It was further agreed that P would appoint A to manage the factory and that
any profits would be used to pay off the balance of the purchase price. Can he revoke? (2) P borrowed
from B P50,000. As security for the debt, P gives A power of attorney to collect rents due from tenants
of P and authorizes A to apply the same to debt of P50,000. Can he revoke? (3) A, B and C are partners in
business by common agreement. A was appointed a manager in the articles of partnership. Can he

(1) P cannot revoke the agency at will for a bilateral contract depends upon it. (2) P cannot revoke the
agency, without any justifiable cause, for it is a means of fulfilling his obligation to B. (3) The
appointment of A is revocable only upon just and lawful cause and upon the vote of the partners
representing the controlling interest.

Article 1927: (1) P owes B P10,000. At the request of P, A consented to be P’s surety but only after P
delivered to A a certificate of stock as security with a power to transfer it in case he becomes liable to B.
Can he revoke? (2) P borrows from A P10,000. P pledges his property to A as security for the debt and
gives A the power o dispose of it should P default. (3) P appoints A as his agent to sell specific goods on
commission and with power to retain such commission out of the proceeds of the sale.

(1) P cannot revoke the agency unless he pays B first. (2) It is irrevocable as there is also an agency
coupled with an interest. (3) The power given to A is not given as security nor is it coupled with interest
because his interest is merely in the commission which will arise from the exercise of the power. Hence,
P can revoke the agency at will.

Article 1930: P borrows from B P5,000 payable in 1 year. Before due date of the obligation, P sells his
land to B and he authorizes A to pay P’s debt out of the purchase price. B accepts the agency of A. Can
death be a reason to not receive payments?

The right of B to receive payment from A cannot be defeated by the death of P.

Article 1931: P authorized A to sell the former’s land. Subsequently, P died. Without knowledge of P’s
death, A sold the land to X. Can the heirs of P recover the land from X?

No, if both A and X acted in good faith. Yes, if either A or X acted in bad faith.

Credit Transactions


Article 1934: L Corporation (lender) approved the application of B for a loan of money. B executed the
corresponding mortgage on his land in favor of L, which mortgage was registered in the Registry of
Property. Is there a perfected real contract of loan?

No, what exists, however, is a biding consensual contract to make a future loan which is enforceable by


Article 1941: X borrows the car of Y. X must pay for the gasoline, motor oil, washing, greasing and
spraying, etc., bills. Can the bailee demand reimbursement?

He cannot demand reimbursement for ordinary expenses as it is his obligation to pay for these. If these
were extraordinary expenses, Article 1949 governs.

Article 1951: If L lends to B his car without informing the latter that its brake is not working properly. Is
he liable if B is injured due to it? If it is due to patent?

L will be liable in case B is injured by reason thereof. The liability imposed by law is a just sanction for
the bad faith committed by L (presumed to take necessary precautions). If the defect if patent or could
have been known to B after inspection of L was not aware of the defect, L is not liable (because
commodatum is gratuitous).


Article 1955: (1) B borrowed from L P5,000 payable after five years. On the maturity of the obligation,
the value of P5,000 dropped to P2,500 because of inflation. What is the basis of payment? (2) B
borrowed from L two sacks of rice of a certain kind and quality. At time the loan was perfected, the price
of each sack was P400. It increased to P500 at time of payment. What is the basis of payment?

(1) The basis of payment shall be the equivalent value of the currency today to that five years ago.
Hence, B is liable to pay L P10,000 unless there is an agreement to the contrary. (2)B should return to L
two sacks of rice of the same kind and quality although at the time of the payment the price had
increased to P500. If on the due date of the obligation, the same kind of rice could not be delivered by B
because it was not available for some reason, then B should pay L the sum of P800 instead, the value of
the rice at the time of the perfection of the loan.

Article 1956: (1) Under a written contract of loan, B obliged himself to pay L the sum of P10,000. What is
the interest? (2) What if B incurs in delay? (3) Suppose the payment of 18% interest is stipulated and B
incurred in delay for one year. It was stipulated that interest of 18% shall be paid for indemnity. How
much should he pay? (4) What if the interest was judicially demanded 6 months after B incurred in

(1) If nothing was mentioned about the payment of interest, then no interest is due, If the contract
provides for the payment of 18% interest a year which is lawful, all the requirements to entitle L to
recover interest are present. (2) If B incurs in delay, he is liable to pay interest agreed upon, and in the
absence of stipulation, interest at the legal rate which is 12% per annum from the date of delay. (3) The
indemnity for damages requires that B shall be liable to pay a total of P3,600. (4) The interest due shall
earn legal interest from that time until payment is made.

Article 1957: B borrowed from L P10,000 with interest of 24% per annum. Assume that the interest is
usurious. To hide the usurious transaction, the contract entered into by the parties is pacto de retro
whereby B sells his land to L for P10,000 with the right to repurchase the same within a fixed period. It is
stipulated that B will continue in possession as lessee, agreeing to pay a fixed rental of P2,400 per year.

The real intention of the party is that the pretended purchase price is the money loaned and the
simulated rent is the interest. The courts have held this form of agreement as a mere cloak or device to
circumvent the Usury Law.

Article 1958: B borrowed P1,000 from L payable in 1 year in palay which shall be appraised at the
current market price at the time and place of payment. When the contract was entered into, the price
per cavan of palay was P400. On the due date of the loan, the price increased to P500. How much shall
be appraised?
The value of the palay shall be appraised at P500 per cavan.


Voluntary Deposit

Article 1971: R deposited a watch with Y, a minor, who sold it to C. What if C acted in bad faith? In good

If C acted in bad faith, R may recover the watch from him. But if C acted in good faith, R’s only recourse
is against Y to compel him to return the price received for the watch or the amount by which he may
have benefited himself.

Article 1976: Y received from R for deposit 12 cavans of rice, from S, 8 cavans, and from T, 4 cavans, the
rice being of the same kind and quality. Can he commingle them?

Y can commingle the 24 cavans and R, S, and T would become the co-owners of the entire 24 cavans in
the proportion of 3/6, 2/6, and 1/6, respectively. If the articles deposited which belong to the different
depositors are not of the same kind and quality, it is the duty of the depositary to keep them separate or
at least identifiable as he must return to each depositor the identical article delivered.

Article 1987: Suppose the deposit is made in the residence of Y in Manila and Y transfers his residence to
Tanay, Rizal and he has to bring the thing deposited to his new place of residence. Where should he
return the thing?

In the absence of a contrary stipulation, the place of return is the residence of Y in Tanay, Rizal, provided
there was no malice on the part of Y.

Article 1991: Believing in good faith that the thing deposited by R with Y worth P10,000 belonged to Y, C,
heir of Y, sold the thing to D who paid him P8,000.

Under Article 1991, C is bound to return to R P8,000, the price he received, and not P10,000, or C may
assign to R the right to collect from D the P8,000 if it has not been paid. If C acted in bad faith he is liable
to pay R P10,000 thus damages which R may have suffered. C is also criminally liable for estafa.