LLAW113.

03 Law on Business Transactions 

Modules  Valid 
Exceptions  Void 
Voidable 
 

MODULE 0-1: ​REVIEW​ OF CONTRACT LAW; ​REQUISITES​ OF CONTRACT OF SALES 

Contract  Art. 1301​. Meeting of minds between 2 persons whereby one binds himself with respect to 
the other, to give something or to render so service 
 
Art. 1156.​ An obligation is a juridical necessity to give, to do, or not to do 
 
Art. 1157​. Contract is a source of obligation 
➔ Obligation not necessarily a contract 
➔ Contract always an obligation 
 

General Provisions  1. Autonomy of contracts ​(Art. 1306) 

➔ May agree on stipulations, T&C 
➔ Should not be contrary to law, morals, good customs, public order, public 
policy 
2. Mutuality of contracts​ (Art. 1308) 
➔ Must bind both contracting parties 
➔ Validity or compliance cannot be left to the will of one of them 
➔ Exceptions​: 
◆ Art. 1309: Determination of the performance by a 3rd person 
◆ Art. 1310: If inequitable, the courts will decide 
3. Relativity 
➔ Only the parties, their assigns, and heirs can have rights and obligations under 
the contract (Art. 1311) 
➔ Exceptions​: 
◆ By their nature (e.g. personal qualifications i.e. singing, etc.) 
◆ By stipulation of the parties 
◆ By law (e.g. agency, partnership, etc) 
4. Privity​ (Art. 1311) 
➔ Bind only contracting parties 
➔ 3rd person stranger has no rights and obligations 
➔ Exceptions​: 
◆ Stipulation pour autrui (Art. 1311) 
◆ Contracts creating real rights (Art. 1312) 
◆ Contracts intended to defraud creditors (Art. 1313) 
◆ Contractual interference (Art. 1314) 

Essential Requisites  1. Consent 

for a Valid Contract  a. Offer 
➔ Definite, complete, intentional 
➔ Expression of willingness to enter into a bargain 
➔ Communicated to the other party 
➔ Show genuine intent to contract 
➔ Negotiations or inquiries are not contracts and offers 
➔ E.g. I intend to sell my cell phone for P15,000 --NO 
➔ E.g. I will sell my cell phone for P15,000 -- YES 
b. Acceptance 
➔ Absolute, unqualified, identical in all respects to the offer 
➔ Express or implied 
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 ➔ Manifestation of agreement to the terms 
c. Offer and Acceptance 
➔ Offer is accepted when other makes oral or written promise to abide 
by terms 
➔ Form a valid contract when they show mutual consent to essential 
terms 
➔ Who Can Enter​ into Contracts 
1. 18 years old and above 
2. Parties of sound mind 
3. No disqualifications for certain kinds of contracts such as sales, lease, 
etc. 
➔ Defects​ in Consent 
1. Incapacity to give consent (Art. 1327-1328) ​VOIDABLE 
a. Minor 
➔ Exceptions 
◆ Buying necessaries 
◆ Minor claims he is of age (estoppel) 
b. Insane 
➔ Exceptions 
◆ Contracts entered into during lucid intervals 
◆ Valid​, if sane when contract; when insane 
already, payment made by guardian 
c. Deaf-mutes 
d. Drunk, etc. 
2. Vices of consent (Art. 1331-1344) ​VOIDABLE 
a. Error or Mistake 
➔ Must refer to object or conditions 
➔ Mistake of identity or qualification will consent only 
when such has been principal cause 
b. Violence or Intimidation 
➔ Violence requires employment of physical force 
➔ Intimidation requires: 
1. Produce reasonable and well-grounded fear of 
an evil 
2. Evil must be imminent and grave 
3. Evil must be upon his person or property or that 
of his spouse, descendants, ascendants 
4. The reason why contract is entered into 
c. Undue Influence 
➔ Employed upon a party which controls volition 
➔ To some extent destroys freedom to decide 
➔ Can’t independently determine advantage or 
disadvantage 
➔ E.g. You will go to hell if you don’t donate 
➔ Circumstances to be considered: 
1. Confidential, family, spiritual, etc 
2. Mental weakness 
3. Ignorance 
4. Financial distress of person alleged to have been 
duly influenced 
d. Causal Fraud  
➔ Committed by one party before or at time of contract to 
secure consent of the other 
➔ Committed through ​insidious words or machinations​ or 
concealment 
➔ E.g. Entice buyer to buy diamond ring and telling buyer 

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 it is from S. Africa, etc.. 
➔ Different from Art. 1170 Fraud in Performance 
◆ Obligated to deliver 5,000 bottles; delivered 
only 3,500, but said it is 5,000 
➔ Requisites 
1. Misrepresentation or concealment of material 
fact with knowledge of falsity 
2. Must be serious 
3. Must have been employed by 1 of the 
contracting parties 
4. Must be made in bad faith or with intent to 
deceive the other who had knowledge of fraud 
5. Must have induced consent of other party 
6. Must be alleged and proved by clear and 
convincing evidence 
3. Absolutely simulated contract ​VOID 
➔ At least one requisite is absent 
➔ When contract does not really exist 
➔ Parties do not intend to be bound 
➔ Intend to defraud creditor 
➔ E.g. B has 10M property and debt, doesn't want bank to know;  
◆ Execute contract with a friend 
◆ No contract at all 
◆ Lacks consent, object, and cause 
➔ Bilateral Contract 
◆ Acceptance of payment is consent to contract of sale 
➔ 3 Kinds of Sale (in case of expropriation; sale against will of owner) 
1. Ordinary Execution Sale 
2. Judicial Foreclosure Sale 
3. Extra-Judicial Foreclosure Sale 
➔ Manifestation of Consent 
1. By meeting of minds 
2. Parties must have legal capacity 
2. Object 
➔ Things, rights, services 
➔ Requisites 
1. Within the same commerce of men (Art. 1347) 
2. Not impossible, legally or physically (Art. 1348) 
3. In existence or capable of coming into existence (Art. 1461, 1493, 
1495) 
4. Determinate or determinable (Art. 1349, 1460) 
5. Transmissible  
➔ Valid Objects 
1. Future thing provided that it has potential existence 
a. As long as own it already during delivery 
b. E.g. Pre-selling of condo 
c. Future inheritance VOID  
2. Real/immovable property 
3. Personal/movable property 
4. Tangible or intangible 
5. Undivided interest in a thing 
6. Undivided share of a specific mass 
7. Subject to resolutory condition 
➔ Characteristics 
1. determinate or at least capable of being made determinate 
2. may be present or future property 

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 3. licit, not impossible, transmissible 
4. vendor must have a right to transfer ownership at the time it is 
delivered 
3. Cause 
➔ Basic reason which moves the parties to enter into an agreement 
➔ Different from motive 
➔ Types of Cause 
1. Onerous 
➔ Cause for each party is thing promised 
2. Remuneratory 
➔ Gives something or grants benefit for other past services 
3. Gratuitous 
➔ Cause is mere liability of benefactor 
➔ Effects 
1. Absence of cause ​VOID 
2. Illegality of cause ​VOID 
3. False cause (absolute simulation) ​VOID 
4. False cause (relative simulation) ​VALID 
5. Inadequacy of cause ​VALID 
➔ Exceptions 
◆ Fraud 
◆ Mistake 
◆ Undue influence 
➔ “I did not know fair market value” ​VALID 
◆ We should exercise due diligence when transacting 
◆ Seller and buyer should know how much price is 
6. Failure of cause ​VALID 
➔ E.g. Actual price: P5M, Contract price: P3M; to lower tax; ​VALID​ but subject to 
punishment 
➔ Cause as to Seller 
◆ Price certain in money or its equivalent 
➔ Cause as to buyer 
◆ Thing or right sold 
➔ Price must be certain or ascertainable  
◆ parties have fixed or agreed upon a definite amount 
◆ certain with reference to another thing certain 
◆ determination of the price is left to the judgement of a specified 
person/s 

Other Essential  1. Offer and Acceptance 

Requisites (Video)  2. Consideration 
➔ Bargained for exchange 
➔ Each must provide consideration 
➔ E.g. A: payment, B: item sold 
3. Competent Parties 
4. Legal Purpose 
➔ Must not violate law or public polish 
➔ Will be void and unenforceable 

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Contract to Sell 
(Conditional)  ➔ Seller promises to sell and buyer promises to buy 
➔ Ownership is not transferred upon signing of contract 
➔ Transfer of ​ownership when conditions are complied​ with 
➔ E.g. Real estate transactions 
◆ Developers or individual sellers with buyer 
◆ Usual agreements:  

Seller’s Promise  - Build house 

- Sell house to buyer 

Buyer’s Promise  - Buy house (installments or full; cash, etc.) 

Ownership  Transferred when house is completely built and full 

price has been paid 

Contract of Sale  ➔ Obligates himself to transfer ownership of and to deliver determinate thing 
(Absolute)  ➔ Other party pays a price 
➔ Seller agrees to give or deliver something ; buyer agrees to pay 
➔ Transfer of ownership ​when buyer pays and seller delivers 
◆ N/A when seller is not yet ready to delivery 
◆ N/A where buyer is not yet ready to pay in full 
● May still agree on transfer even if buyer cannot pay in full now 
● Provided seller can readily deliver 
● Subject resolutory condition — seller take back if buyer fails to pay 
➔ E.g. Real estate transactions 
◆ Only when property is ready and buyer is ready to pay in full 
◆ Legally own a property only when paid in full 

Form 
➔ May even be ​inferred​ from conduct of parties 
➔ Verbal contract of sales 
➔ Perfection of Contracts 
◆ Classifications 
1. Consensual Contracts (by mere consent) 
a. Sale of good less than P500 
2. Real Contracts (delivery required) 
a. Pledge, depositum, commodatum 
3. Solemn Contracts (compliance with certain formalities) 
➔ General Rule (Art. 1356) 
◆ Oral or written, provided all requisites are present 
➔ Exceptions (Form is required) 
1. For validity 
a. Donation of real property 
i. must be in a public instrument 
b. Donation of a personal property the value exceeds P5,000 
i. must be in writing 
c. Sale of land through agent 
i. The authority of the agent must be in writing 
d. Stipulation to pay interest 
i. It must be in writing 
e. Contract of partnership 

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 i.
If immovables are contributed, it must be in a public instrument 
with the signed inventory as attachment 
2. For enforceability —must be in writing (Art. 1403) 
a. Effects if not in writing 
i. Valid unenforceable contract 
ii. No recourse to court 
iii. Can be ratified 
iv. Exception 
1. Partially or completely executed 
2. Can be proven by oral testimony, receipts, etc. 
b. Contracts needed to be in writing 
i. For executory contracts only 
ii. Agreement not be performed w/in 1 year from the making 
iii. Promise to answer for the debt, default, miscarriage of another; 
iv. Agreement in consideration of marriage other than a mutual 
promise to marry; 
v. Agreement for sale of goods at price not less than P500; 
vi. Agreement for leasing for a longer period than 1 year; 
vii. Agreement for the sale of real property or an interest 
viii. Representation as to the credit of a third person. 
3. For convenience of parties 
4. For purpose of affecting 3rd person 

Sale Distinguished 
from Agency to Sell   

  Contract of Sale  Contract to Sell 

Transfer of title  Passes to buyer upon delivery  Remains with seller until full 
payment 

Payment of Price  - Nonpayment is ​negative  - Full payment is ​positive 

resolutory condition  suspensive condition 
- Remedy is to exact fulfillment  - Failure not a breach 
or rescind contract  - Simply an event that 
prevents obligation of 
vendor to convey title 

Ownership  - Vendor loses and can’t recover  - Remains in vendor until full 
- Until and unless contract is  payment of price 
resolved and set aside 

Sale Distinguished 
from a Contract for   
a Piece of Work 
Sale  Contract for a Piece of Work 

- Thing is one which would  - Thing is not in existence and which never would 
have existed  have existed but for order of party 

- Risk of loss with buyer  - Risk of loss before delivery borne by worker 

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 - Sale is within Statute of  - Not within Statute of Fraud 
Frauds  

Sale Distinguished 
from Barter   

Sale  Barter 

- Vendor gives thing in consideration  - One party binds himself to give one thing 
for price in money  in consideration of other’s promise to give 
another 

Obligations of the 
Seller  1. To transfer ownership of the determinate thing sold 
➔ What vests ownership? 
◆ No need to be the owner at time of perfection 
● Sufficient that he has a right to transfer at the time it is 
delivered (Art. 1459). 
◆ Transferred when thing has been delivered to 
● Not when parties enter into an agreement (A1164). 
◆ Acquire real right only when delivered 
◆ Real right enforceable against the whole world 
◆ Prior to delivery rights 
● Buyer has only a personal right against the seller 
● Consists mainly of the right to demand delivery when due 
➔ Sale by a non-owner under Art. 1505 
◆ VOID 
◆ VALID IF 
● Owner is precluded from denying seller's authority to sell 
● Law enables apparent owner to dispose of goods as if he were 
true owner 
● Sale is sanctioned by statutory or judicial authority 
● Sale is made at merchant's stores, fairs, markets 
● Seller has voidable title which has not been avoided at the time 
of sale 
● Seller subsequently acquires title 
2. To deliver the thing 
➔ If no agreement, still is a ​VALID​ contract 
➔ What​ does delivery mean? 
◆ Placed in the control and possession of the vendee (Art. 1497) 
➔ When​ should delivery be made? (Art. 1524) 
◆ General Rule 
● Simultaneous with payment of price 
◆ Exception 
● If a time for payment has been fixed in the contract  
○ Made before the payment of the price 
➔ How​ do we make a delivery? 

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 ◆ Actual delivery (Art.1497) 
◆ Constructive or legal delivery 
● By the execution of a public instrument (Art. 1498) 
● By symbolical tradition (Art. 1498) 
● By tradition longa manu (Art. 1499) 
● By tradition constitutum possessorium (Art. 1500) 
● By quasi-delivery (Art. 1501) 
◆ Any other manner signifying an agreement that the possession is 
transferred to the vendee (Art. 1496-1499) 
➔ Where​ is the place of delivery (Art. 1521) 

There is agreement  Place agreed upon 

No agreement  Determined by usage of trade 

No agreement, no prevalent usage  Seller’s place of business 

Any other case  Seller’s residence 

➔ What time​ should the delivery be made (Art. 1521) 

Agreement  Time agreed upon 

No Agreement  Usage of trade 

No Agreement, no prevalent usage  Within reasonable time 

3. To warrant against eviction and hidden defects 

➔ Kinds of Warranties 
Express Warranties  Implied Warranties 

- Any affirmation of fact or any  - Implied warranty as to seller’s title 

promise by seller relating to  [warranty against eviction] (Arts. 1547, 
the thing  1555-1556) 
- Natural tendency is to induce  - Implied warranty against hidden defects or 
buyer to purchase  unknown encumbrances (Arts. 1547 and 
- Buyer induced, purchase it  1567) 
- Implied warranty as to fitness or 
merchantability (Art. 1567) 

4. To take care of the thing pending delivery 

➔ Who bears the risk of loss? 
◆ Loss by ​fortuitous​ event ​before perfection​ and ​before delivery​ – 
SELLER 
◆ Loss by ​fortuitous​ event ​after perfection​ but ​before delivery 
● under Art. 1480 – BUYER 
● under Art. 1504, para. 1 – SELLER 
◆ Loss at the ​time of sale​ - SELLER (Art. 1493) 
◆ Loss in case of specific goods (Art. 1494) 
5. To pay for the expenses for the execution and registration of the deed of sale 
➔ Rights of an unpaid seller? 
◆ To retain them for the price while in his possession 
◆ Stopping the goods ​in transitu​ in case of insolvency of the buyer;  
● Requisites: 
1. Seller is unpaid 
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 2. Buyer is insolvent 
3. Goods must be in transit 
4. Seller must either actually take possession of the goods 
sold or give notice of his claim to the carrier or other 
person in possession; 
5. Seller must surrender the negotiable document of title, 
if any, issued by the carrier or bailee; and 
6. Seller must bear the expenses of delivery 
◆ A right of resale 
◆ A right to rescind the sale. 

Obligations of the 
Buyer  1. To pay the price 
➔ The following rules must be borne in mind: 
◆ Contract of sale 
● vendor not required to deliver the thing sold until the price is 
paid 
● nor the vendee pay the price before the thing is delivered in the 
absence of an agreement to the contrary [La Font vs. Pascacio, 
5 Phil. 591]. 
◆ If stipulated (delivery and payment) 
● vendee is bound to accept delivery and to pay the price at the 
time and place designated. 
◆ If no stipulation (time and place of payment and delivery) 
● vendee is bound to pay at the time and place of delivery. 
◆ In the absence also of stipulation (place of delivery) 
● it shall be made wherever the thing might be at the moment the 
contract was perfected (Art. 1251). 
◆ If only the time for delivery of the thing sold has been fixed in the 
contract 
● the vendee is required to pay even before the thing is delivered 
to him 
● if only the time for payment of the price has been fixed 
○ the vendee is entitled to delivery even before the price 
is paid by him (Art. 1524). 
➔ Instances when the vendee may suspend the payment of the price: 
◆ Should he be disturbed in the possession or ownership of the thing 
sold; 
◆ Should he have reasonable grounds to fear such disturbance by a 
vindicatory action or by a foreclosure of mortgage; 
➔ These rights do not exist in the following cases: 
◆ Should there be a stipulation to that effect; or 
◆ Should the vendor give security for the return of the price; or 
◆ Should the vendor have caused the disturbance or danger to cease; or 
◆ Should the disturbance consist only of a mere act or trespass. 

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 2. To accept delivery 
➔ Why does the buyer need to accept the delivery? 
◆ Based on the right of the buyer to examine or inspect the goods  
◆ To ensure that the goods delivered conforms to the contact. (Art. 
1584) 
➔ What does acceptance mean and how is it done? 
◆ acceptance is the assent to become the owner of the specific goods 
when delivery of them is offered to the buyer. 
◆ modes of acceptance 
● Express acceptance – verbal or written 
● Implied 
◆ when the buyer, after the lapse of a reasonable time, retains the goods 
without intimating his rejection when the buyer, after delivery, does 
any act inconsistent with the seller’s ownership e.g. he sells the thing, 
makes alterations, etc. 
➔ Possible issues of the buyer? 
1. Quantity 
➔ Delivery of goods ​less than​ contracted: 
◆ Options: 
1. Buyer may reject 
2. Buyer may accept 
➔ Delivery of goods more than contracted 
2. If the goods do not correspond in kind, quality, condition, or amount 
agreed upon, the buyer may reject it. 
◆ Important Note​: 
● acceptance of the goods does not discharge seller from liability in 
damages or other legal remedy for breach of any promise or warranty 
in the contract of sale (Art. 1586) 

Actions for Breach 

of Contract  ➔ Actions Available to the Seller: 
◆ For payment for the price (Art. 1595) 
◆ For damages for non-acceptance of the goods (Art. 1596) 
◆ For rescission of the contract (Art. 1597) 
➔ Actions Available to the Buyer: 
◆ For specific performance (Art. 1598) 
◆ For rescission or damages for breach of warranty (Art. 1599) 

   

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MODULE 2: KNOWING THE NATURE OF AN ​AGENCY CONTRACT 

Nature, Form,  Contract of Agency 

and Kinds  ➔ Person binds himself to render some service 
➔ Do something in representation or on behalf of another w/consent of latter 
 
Essential Requisites for a Valid Agency 
1. Consent (Offer + Acceptance) 
◆ Offer 
● May be express or implied 
○ Implied from acts of principle 
○ From silence 
○ Lack of action 
○ Failure to repudiate agency 
○ Knowing another person is acting on his behalf w/o 
authority 
◆ Acceptance — Express or implied 
● From acts which carry out agency 
● From silence or inaction 
● Between persons who are present 
○ Principal delivers POA to agent and agent no objection 
● Between persons who are absent 
○ Cannot be implied from silence except: 
◆ Principal transmits POA to agent and no 
objection 
◆ Principal entrusts by letter or telegram a POA 
with respect to business in which he is habitually 
engaged as an agent and no reply 
2. Object 
◆ Service to be rendered 
3. Cause  
◆ Agency presumed to be for compensation 
◆ Unless proof of contrary 
 
Form of Contract 
➔ Oral, unless law requires specific form 
➔ Written if sale of land or any interest therein is through an agent 
 
Kinds of Agency 
1. General  
◆ Comprises all business of principal 
◆ Comprises only acts of administration 
2. Special  
◆ Special powers of attorney necessary in ff: 
● Make payments 
● To effect novations 
● To compromise, submit questions, renounce right to appeal, 
waive objections 
● Waive any obligation 
● Enter contract by which ownership of an immovable is 
transmitted gratuitously or for valuable consideration 
● Make gifts, except for customary ones 
● To loan or borrow money 
● Lease real property to another for a year 
● Bind principal in contract of partnership 
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 ● Obligate principal as guarantor 
● Create or convey real rights over immovable property 
● Accept or repudiate inheritance 
● Ratify or recognize obligations contracted before agency 
● Any other act of strict dominion 
◆ Special power to sell 
● No power to mortgage 
◆ Special power to mortgage 
● No power to sell 
◆ Special power to compromise 
● Does not authorize submission to arbitration 
 
Guides 
➔ Agent acts without authority on behalf of principal 
◆ VALID transaction 
◆ Principal liable to third party 
◆ Agent not personally liable unless he is bound [Article 1897] 
 
➔ Agent acts with authority in his own name 
◆ Not binding on principal who has no right of action against third persons 
and vice versa 
◆ Agent is directly bound in favor of person with whom he has contracted 
with 
◆ No prejudice to actions between principal and agent [Article 1883] 
◆ If item belongs to principal 
● Contract considered and entered into between principal and 
third person 
● If obligations belong to principal, to him alone must also belong 
the rights from contract 
 
➔ Agent acts without authority in his own name 
◆ Will not bind principal 
◆ VALID as regards to agent, whether or not thing belongs to principal 
◆ At time of delivery, agent can legally transfer ownership 
◆ Otherwise, agent liable to third party for breach of warranty against 
eviction or damages 

Obligations of  Articles 1884, 1887, 1888, 18889, 1891, 1903-1908, 1909 
the Agent   
➔ Carry out agency in accordance with its terms 
➔ Answer for damages which through his non-performance principal may suffer 
➔ Act in accordance with the instructions of principal 
➔ Not carry out agency if execution would manifestly result in loss to principal 
➔ Answer for damages should he prefer, in case of conflict, his own interests to 
those of principal 
➔ Render an account of his transactions and deliver to principal whatever he may 
have received by virtue of agency 
➔ Responsible for goods received, to sell on credit only with consent, to collect 
with due diligence credits of principal 
➔ Answer for his fraud or negligence 

Obligations of  Articles 1868, 1883, 1912, 1913, 1875, 1306 

the Principal   
➔ Comply with all obligations which agent may have contracted within scope of 
his authority 

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 ➔ Advance to agent, should latter so request, the sums necessary for execution of 
agency 
➔ Reimburse agent for all advances provided agent is free from fault 
➔ Indemnify agent for all damages which execution of agency may have caused 
the latter without fault or negligence on his part 
➔ Pay agent compensation agreed upon 
◆ If no agreement, reasonable value 

Modes of  ➔ By agreement such as accomplishment of object/purpose 

Extinguishment  ➔ By subsequent acts of parties 
◆ Either by act of both parties or mutual consent or unilateral act of one 
➔ By operation of law 
◆ Death 
◆ Civil interdiction 
◆ Insanity 
◆ Insolvency of principal/agent 
◆ Dissolution of principal corporation 

Required  De Leon, H. S. (2016). The law on sales, agency, and credit transactions 
Readings  1. Why do we enter into agency contracts? 
2. What is an agency contract? 
3. What is an obligation of an agent? 
4. What is an obligation of a principal? 
5. How does one terminate an agency contract? 
 
Civil Code of the Philippines 
1. Article 1317 
- No one may contract in the name of another without being authorized 
by the latter, or unless he has by law a right to represent him. 
2. Article 1403 paragraph 1 
- The following contracts are unenforceable, unless they are ratified: 
- Those entered into in the name of another person by one who 
has been given no authority or legal representation, or who has 
acted beyond his powers; 
 
   

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