MICKEY MOUSE (Sale, Lease, Agency Notes)

CIVIL LAW REVIEW II
Sales, Lease, Agency, Partnership, Trust and Credit

Transactions
Atty. Crisostomo Uribe
SALES
6. Nominate (1458)
Articles / Laws to Remember: 1458, 1467,
1477 transfer of ownership, 1505, 559 who can
transfer xxx, 1504, 1544, 1484 Recto Law, R.A.
6552, 1602, 1606, 1620, 1623, Redemption xxx
Q: A obliged himself to deliver a certain
thing to B. Upon delivery, B would pay a
sum of money to A. Is that a contract of
sale?
A: Not necessarily. Even if there is an obligation to
deliver, if there is no obligation to transfer
ownership, it will not be a contract of sale. It may
be a contact of lease.
Even if there is transfer of ownership, the
contract may be a contract for a piece of work.
Memorize: Art. 1458
Note: Sale is a contract, so the general principles
in oblicon are applicable to sale but note that
there are provisions which are contrary.
Characteristics of Contract of Sale (COS)
1. Consensual (1475) COS is consensual, it is
perfected by mere meeting of the minds of the
parties as to the object and price.
Note: There is 1 special law which requires a
particular form for the validity of a contract of
sale in that sale, it can be said that kind of sale
is a formal contract Cattle Registration Decree.
In a sale of large cattle, the law provides that the
contract of sale of large cattle must be: in a
public instrument, registered and a certificate of
title should be obtained in order for the sale to be
valid. An oral contract of sale of large cattle is
VOID. But otherwise, the other contracts are
perfected by mere consent or mere meeting of
the minds.
2. Principal sale is a principal contract, it can
stand on its own. It does not depend on other
contracts for its existence and validity.
3. Bilateral (1458) necessarily in a COS, both
parties will be obligated. It is not possible that
only 1 party is obligated because a contract of
sale is essentially onerous.
4. Onerous (1350) COS is essentially onerous.
Otherwise, it may be another contract or any
other act like it may be a donation if there is no
compensation for the transfer of ownership to the
other party.
5. Commutative (2010) meaning there is
equivalency in the value of the prestation to be
performed by both parties. Normally, the thing
sold would be equal to the price paid by the other
party (buyer).
Exception: a contract of sale which is an aleatory
contract like sale of hope. In sale of hope, the
obligation of 1 party will arise upon the
happening of a certain event or condition.
Example Sale of Hope: Sale of a lotto ticket, PCSO
will have the obligation to pay you only if you got
all the 4 or 6 numbers which are drawn
Another Example of Aleatory: Insurance
Classification of
Contract of Sale 1. As to
Nature of Subject
Matter
a.Movable
b.Immovable
Q:
Why there is a need to determine?
A: Because some concepts will apply if the object
is movable or some laws will apply if the object is
immovable.
Examples: Under the Statute of Frauds, you have
to determine if the object if movable or
immovable in order that statute of frauds will
apply. The Recto law will apply if the object is
movable. The Maceda law will apply if the object
is realty. Article 1544 or Double Sale will require
you to determine the nature of the subject
matter.
2. As to Nature
a.Thing
b.Right
Q:
Why there is a need to determine?
A: Relevant in the mode of delivery
Distinctions
1. Deed of Absolute Sale (DAS) vs. Conditional
Sale (CS) vs. Contract to Sell (CTS)
2.Dation in Payment (DIP) vs. COS
3.Contract for a Piece of Work (CPW) vs. COS
4.Barter vs. COS
5.Agency to Sell (ATS) vs. COS
Deed of Absolute Sale (DAS) vs. Conditional
Sale (CS) vs. Contract to Sell (CTS)
DAS seller does not reserve his title over the
thing sold and thus, upon delivery of the thing,
ownership passes regardless of whether or not
the buyer has paid.
CS - condition/s are imposed by the seller before
ownership will pass. Normally, the condition is the
full payment of the price. In CS, ownership
automatically passes to the buyer from the
moment the condition happens. There is no need
for another contract to be entered into.
BE: Receipt was issued by A to B. The
receipts tenor Date of the receipt xxx
Received from B the sum of P75,000.00 as
partial payment for the car xxx the balance
to be paid at the end of the month xxx.
Contract to Sell?
SA: No. It does not pertain to a CTS because in a
CTS ownership is reserved by the seller despite
delivery to the buyer. The buyer does not acquire
ownership. This is an Absolute Sale.
Q: In a CTS, upon the happening of the
condition/s imposed by the seller, would
ownership automatically pass to buyer?
A: No. While a CTS is considered a special kind of
conditional sale, it is a peculiar kind of sale
because despite the happening of the condition
and actual delivery, the buyer does not
automatically
Page 1
acquire
ownership.
In
CTS,
if
condition/s happen, the right of the buyer is to

compel the
Faye Marie C. Martinez Chato Cabigas Jessica A. Lopez Dian Rosapapan

November 2008
seller to execute a final deed of sale. So

ownership does not automatically pass.
Dation in Payment (DIP) vs. COS
DIP (1245) whereby property is alienated to
the creditor. It is provided that the law on sales
shall govern such transaction. It is specifically
provided that the pre-existing obligation must be
in money. If not in money and there is DIP, it will
not be governed by the law on sales but by the
law on novation because practically there is a
change in the object of the contract.
Example 1: If A owes B P100,000.00 instead of
paying P100,000, he offers B and B accepts the
car of A as an equivalent performance this is
DIP and will be governed by the law on sales.
Example 2: If the pre-existing obligation is to
deliver a specific horse but instead of delivering
the horse, the debtor told his creditor and the
creditor accepted, that he will instead deliver his
car it is still DIP but it will not fall on 1245 but
on novation because there is a change in the
object of the obligation which would extinguish
the obligation.
Note: A guide to distinguish one concept from
another is to know the nature, requisites and
effects.
1. As to Nature
DIP a special form of
payment COS - it is a
contract
2. As to Requisites
DIP with a pre-existing
obligation COS not a
requirement
3. As to Effect
DIP to extinguish the obligation either wholly or
partially. COS obligation will arise instead of
being extinguished.
Contract for a Piece of Work (CPW) vs. COS

BE: A team if basketball players went to a
store to buy shoes and out of the 10
members, 5 of them were able to choose
the shoes. They agreed to pay the price
upon delivery. The other 4 members were
able to choose but the shoes were not
available at that time but they are normally
manufactured. The last member could not
find shoes that could fit his 16 inches feet
and therefore he has to order for such kind
of shoes. What transactions were entered
into by these players?
SA: 1467 the first 2 transactions involving a
total of 9 players would be considered a COS
because the shoes which they ordered are being
manufactured or procured in the ordinary course
of business for the general market. However, the
last transaction which will be manufactured only
because of the special order of the player and is
not ordinarily manufactured for the general
market will be considered a CPW which is known
as the Massachusetts rule.
Massachusetts rule rule in determining whether
the contract is a COS or a CPW.
Barter vs. COS
Q: A obliged
himself to
deliver
a
determinate car with a market value of
P250,000.00. B obliged himself to deliver
his watch and P150,000.00 in cash. What
kind of contract?
A: First, you have to consider the intention of the

parties. They may want this transaction to be
considered as a sale or barter and that will
prevail. But if the intention of the parties is not
clear from their agreement then the nature of the
contract will depend on the value of the watch. If
the value of the watch is greater than P150,000
then this is barter. If the value of the watch is
equal or less than P150,000 then this is sale. The
value of the car is irrelevant. What is only
relevant is the value of the thing (watch) in
relation to the cash to be given by one of the
parties.
Agency to Sell (ATS) vs. COS
BE: A gave B the exclusive right to sell his
maong pants (he has his own brand of
maong pants) in Isabela. It was stipulated
in the contract that B has to pay the price
of maong within 30 days from delivery to B.
It was stipulated that B will receive 20%
commission (discount) on sale. The maong
pants were delivered to B. However, before
B could sell the goods, the store was
burned without fault of anyone. Can B be
compelled to pay the price?
From the wordings of the problem you may have
an idea that this is an agency to sell. If this is an
ATS, the fact that the agent has not yet sold the
maong pants when they were burned will not
result in a liability on his part, there being no
negligence on his part because with the delivery
of the thing from the principal to the agent,
ownership does not pass. Under the principle in
the Civil Code res perit domino it will be the
seller (owner) who will bear the loss. But if this
transaction is sale then with the delivery of the
maong pants to B, ownership passed to B
because he did not reserve ownership over the
pants despite the fact that the other party has
Page 2
not paid the price. So when the pants were

burned, it would now be B as the owner who will
bear the loss.
SA: This is exactly the case of Quiroga vs.
Parsons. Article 1466 in construing a contract
containing provisions characteristics of both a
COS and ATS, you have to go into the essential
clauses of the whole instrument. In this problem,
one of the clauses B has to pay the price within
30 days. That would make the contract COS and
not ATS because in 30 days from delivery,
whether or not B has already sold those pants to
other persons, he is already obliged to pay a
price. That is not an ATS. Being a COS, therefore,
after having been delivered, ownership passed to
the buyer and hence under res perit domino rule,
the buyer bears the loss and therefore he can be
compelled to pay the price.
Essential Elements of a
Contract of Sale 1. Consent of
the Contracting Parties
2. Object or Subject Matter which is a

determinate thing or right
Note: Service cannot be the subject matter of
sale.
3. Cause or Consideration as far as seller is
concerned, it is the price in money or the
equivalent of the payment of the price.
CONSENT OF THE
CONTRACTING PARTIES A. No
consent of one or both of the
parties
the contract is void. Under the law on sales, it
is a fictitious contract where the signature of one
of the parties was forged. Normally, the sellers
signature is forged. If the signature of the seller is
forged, that would be a fictitious contract. The
alleged seller will not have participation in the

November 2008
execution of the contract. But another kind of

contract recognized in the Civil Code is a
simulated contract.
Simulated parties to this contract actually would
have participation. They would voluntarily sign in
the deed of sale. However, they do not intend to
be bound at all or they may intend to be bound to
another contract but they executed a deed of
sale. Thus, the law would ratify these contracts
considering there is a simulated sale.
Kinds of Simulated Contracts
1. Absolutely Simulated they do not intend to be
bound at all.
Q: Why would they enter into this kind of
sale?
A: (a) To defraud creditors. The debtor would sell
his remaining assets to make it appear that he
has no more assets which may be reached by his
creditors.
(b) Applicants for residency abroad would
normally be required to present certificate of title
over parcels of land so that the applicant will
appear to have assets. Therefore, hindi mag TNT
yung applicant. These applicants would normally
ask his brother or sister or friends na kunwari that
land would be sold to them. They will have the
property registered in their name. They will
present the title to the Embassy. But actually the
parties do not intend to be bound. Take note that
this may be a root of a valid title as far as 3 rd
persons are concerned. These 3rd persons who
relied on the transfer certificate of title in the
name of the seller even if that seller is not the
owner because the sale is simulated may acquire
ownership.
2. Relatively Simulated sale where they actually
intended another contract which normally would
be a donation.
Q: Why would they execute a deed of sale
instead of executing a deed of donation?
A: (a) To minimize tax liabilities. Donors tax is
higher than capital gains tax or final income tax
and documentary stamp tax.
(b) To circumvent the provisions on legitimes
and collation under succession. This may be
questioned if you can prove that there was no
consideration.
B. If consent was given
If consent was given, it does not necessarily
mean that the
COS is valid. The consent may be given by an
incapacitated person or one with capacity to give
consent. If given by an incapacitated person,
consider the nature of the incapacity. It may be:
a. Absolute Incapacity the party cannot
give consent to any and all contracts.
b. Relative Incapacity the party is
prohibited from entering sometimes with
specific persons and sometimes over
specific things.
Kind of Capacity
1. Juridical Capacity it is the fitness to be the
subject of legal relations. If a party to a sale has
no juridical capacity, the contract is void. Note
that all natural living persons have juridical
capacity. Even if he is a 1 day old baby, he has
juridical capacity. The baby can be the subject of
donation. Even if he is conceived, he has
provisional personality.
Example: One example of a party to a sale

without juridical capacity would be a corporation
not registered with the SEC.
The contract entered by this corporation is a void

contract because one of the parties has no
juridical capacity to enter into that contract.
2. Capacity to Act it is the power to do acts with
legal effects. If the incapacity only pertains to
capacity to act, the contract would normally be
voidable. Without capacity to act or there are
restrictions with ones capacity to act such as
minority, insanity, deaf mute and does not know
how to write and civil interdiction.
Note: Under R.A. 6809 (December 1989) there is
no more creature known as unemancipated
minor. Before 1989, the age of majority was 21.
C. If both parties are incapacitated
not only voidable but unenforceable.
Q: What if one of the parties in a COS is a
minor
and
the
minor
actively
misrepresented as to his age?
A: The SC said that the minor will be bound to
such contract under the principle of estoppel.
Active misrepresentation, can be seen from the
deed itself. In a deed of sale, normally after the
name, the words of age were stated. If the
minor signed that contract, he will be bound. If no
statement in the deed of sale as to his age, in
one case, the fact he misrepresented to the
notary public when he appeared before the
notary public for the notarization of the document
and he was asked by the notary public as to his
age and he again misrepresented, he will be
bound to such contract.
Atty. Uribes Comment: Estoppel is not a good
ground because the minor is not aware.
Page 3
Sale of Necessaries
In sale of necessaries such as food, clothing and
medicine to a minor, the minor has to pay a
reasonable price. This contract is not voidable.
The sale of necessaries will bind the minor and he
will be compelled to pay not really the contract
price but only to reasonable price.
Relative Incapacity (Articles 1490 and 1491)
1. Sale between spouses it is void except:
a. The spouses executed a marriage
settlement and in the marriage settlement
they agreed for a complete separation of
property regime. Then they can sell to
each other.
b. If no marriage settlement, they may have
obtained judicial declaration of separation
of property. After that, they can sell to
each other.
2.Those mentioned in Article 1491
a. A guardian cannot buy the property of the
ward. The guardian is not actually
prohibited from entering into any and all
contracts. It is just that he cannot be the
buyer of a property of his ward.
b. An agent cannot buy without the consent
of the principal a property which he was
supposed to sell or administer.
c. The executors and administrators of the
estate cannot buy a property which is part
of the estate.
d. Public officers, judges, their staff, clerk of
court, stenographers and lawyers are
prohibited from buying those properties
which are the subject of litigation during
the pendency of the case.

November 2008
Q: What is the status of the contracts under

1491?
A:
Prof. Tolentino voidable
Justice Vitug & Prof. Baviera void
Prof. Pineda & Prof. de Leon the first 3
are voidable
and the last 3 are void.
The better answer is void because these persons
are prohibited from entering into these contracts.
Under Article 1409, if the contract is prohibited, it
is void.
Discussion of Prof. De Leons Answer
The first 3 are voidable because these contracts
may be the subject of ratification by means of
and in the form of a NEW CONTRACT. If you will
read his discussion, he based his discussion in the
case of Rubias vs. Batiller wherein the guardian
bought the property of his ward. So the contract
is voidable because if the ward becomes of age,
he can enter a COS over the thing to his guardian
and that sale would be a valid sale. (Pls. read the
full text of Prof. De Leons comment)
Atty. Uribe: It is correct that it is a valid sale.
But does that mean that the sale ratified the 1 st
contract? I disagree because ratification under
the Civil Code has the effect of cleansing the
contract from all its defects from the very
beginning as if the contract was entered into
during the first agreement that the agreement
was valid from the very start. In fact, the SC said
in Rubias vs. Batiller ratification (quote and
quote), because the effect of the second contract
will not retroact to the first contract. It will only be
valid from the time the second contract was
entered into. After all, there is no ratification in
that sense under the Civil Code. Thus, since it
does not retroact to the first, the second contract
is void. Otherwise, if voidable then it can be
ratified. The defect on the first contract would
have been cleansed with the execution of the
second contract.
2. Aliens are prohibited from acquiring by
purchase private lands Take note acquiring
which means buying not selling. They can sell.
Exceptions / when aliens can buy:
a. Former natural born Filipino citizen. Under
the Constitution they are allowed to buy
small land
which they can use for residential
purpose.
b. Another way of acquiring is by succession
but this is not a sale
D. Even if consent was given by one with
capacity to give consent but if the consent
is vitiated
voidable. FIVUM
E. If the party gave such consent in the
name of another without authority of that
person or no authority of law
unenforceable. Take note may be authorized by
the person or by law.
Example of authorized by law: notary public has
the right to sell in pledge because he has the
authority to sell under the law.
OBJECT OR SUBJECT MATTER
The requisites in sale as to thing would almost be
the same as the requisites of contracts in
general.
1. The thing must be within the commerce of men
Examples: sale of a navigable river is void, sale of

a cadaver is void but donation of a cadaver is
allowed, sale of human
organs is void, things which are not appropriated

like air is void but if appropriated it can be the
object of a valid sale.
2. The thing must be licit not contrary to law
Examples: sale of prohibited drugs or shabu is
void, sale of marijuana is void, sale of wild flowers
or wild animals is void
3. Must be determinate
Q: Sale of a car without agreement as to
the features for P1M. On the other hand,
another transaction would be a sale of
Mitsubishi Lancer, 2007, GSL and color
black for P1M. Are these 2 transactions,
valid sale?
Both would pertain to generic thing. Under the
law, a thing is considered determinate only when
it is particularly designated or physically
segregated from all others of the same class.
Both transactions pertain to generic so both
transactions are void?
A: No. The first transaction is void. The second
transaction is valid because Article 1460 requires
that the requirement of the law that a thing
should be determinate would be sufficiently
complied with if the thing which is the object of
the sale is capable of being made determinate
without a need of a new or further agreement.
Example: Sale of 1 gallon Minola pure coconut oil.
Though generic, it is valid under Article 1460.
RULES AS TO OBJECT OF COS
Q: A obliged himself to deliver and transfer
ownership over the palay that will be
harvested from a specific parcel of rice land
in May 2008. What if by May 2008, no palay
was harvested?
Page 4
a. What is the status of the sale?

b. May the seller A be held liable for
damages for failure to comply with his
obligation?
A:
a.Always consider that in a COS there are only 3
requisites. As long as these 3 were complied,
there is a valid sale. In fact, by express provision
of law, sale of things having potential existence
(emptio rei sperati) is valid.
b. Not necessarily because there are excuses to
non-performance such as pestilence, typhoon,
flood and therefore his failure to comply is an
excuse. But if the reason of the seller is because
of his negligence, he cannot find support under
Art. 1174.
Sale of Hope (Emptio Spei)
Example: Sale of a lotto ticket
Q: Assuming the sale of a lotto ticket
happened the day after it was drawn, what
is the status of the sale?
A: It will depend whether the ticket is a winning or
losing ticket. What the law provides is that the
sale of a vain hope is a void sale. If the ticket is a
winning ticket, it is not a vain hope hence, it is a
valid sale.
Q: Why would a person sell a winning
ticket?
A: He may need the money immediately. Parang
discounted yung ticket. Nanalo ng P1M, ibebenta
nya ng P990,000 because he needs the money
immediately.
Q: Sale of a land to B with a right to
repurchase within 1 year which A delivered.
On the 3rd month, B sold the land to C.
However, on the 9th month, A offered to
repurchase the land.

November 2008
(a) What is the status of the

between A and C?
(b) Who will have a better right
over the land? (Sale with a
right to repurchase)
sale
A: (a) Be guided by the fact that a COS is a

consensual contract. The mere meeting of the
minds as to the object and the price, then there is
a valid and perfected sale. Hence, this is a valid
sale even if the object of the sale is a sale with a
right to repurchase. Article 1465 provides that
things subject to a resolutory condition may be
the object of a COS.
Atty. Uribe: Mas tamang sabihin since the
ownership thereof is subject to a resolutory
condition. Hindi naman yung thing is the subject
of resolutory condition, it is the ownership over
the thing.
If A exercises the right to repurchase and such
would be a valid exercise of such right then the
ownership of B would be extinguished. The
exercise of the right is considered a resolutory
condition as to the ownership of B. The fact that
the object of the sale is subject to a repurchase
will not affect the validity of the sale.
(b)
As a rule, it would be A as a seller a retro
because he has the right to repurchase assuming
his repurchase is valid. C may have a better right
if he can claim that he is an innocent purchaser
for value. Example: maybe the right to
repurchase was not annotated at the back of the
title of the land and he has no actual knowledge.
If that is the case, C may have a better right.
SALE OF RIGHT / ASSIGNMENT OF RIGHT
Assignment of right is not necessarily a sale. If
there is a valuable consideration for the
assignment, it is a sale. If there is no valuable
consideration, it may be a donation or dacion en
pago.
Examples of right: credit, shares of stock
Requisite of a right the only requirement is
that the right must not be intransmissible
Q: Why or when a right would not be
transmissible?
A: If it is intransmissible by nature or by
stipulation or by provision of law.
G.R.: As a rule, rights and obligations arising
from contracts are transmissible.
Exceptions:
1.
Intransmissible by Nature Examples:
right as a legitimate child cannot be sold. Any
contract where the personal qualifications has
been considered .
2. Intransmissible because of Stipulation
Example: The parties stipulated in a lease
contract that the right to sublease cannot be
transferred if it is prohibited by the lessor.
3.
Intransmissible because of Law
Example: In partnership, the right in specific
partnership property without all the partners
making the assignment cannot be validly
assigned.
Q: Sale of a right, also perfected by mere
consent?
A: Yes. To bind 3rd persons, it must be in a public
instrument. Recorded in the Registry of Property.
CAUSE OR PRICE CERTAIN IN MONEY OR ITS

EQUIVALENT
Q: A deed of sale was entered into by A and
B. The price agreed upon was 1M yen.
(a) May that be a valid sale?

(b) Can the seller compel the
buyer to pay in yen?
A:
(a) Yes, it is valid. Basis is Article 1458
because the only requirement of the law is in
money. Even Japanese yen is in money. The law
states that it may not even be in money, it may
be equivalent like promissory notes whether or
not negotiable or letters of credit.
(b)If the contract was entered into today,
yes it is valid because of R.A. 8183 which
repealed R.A. 529 in 1996. If COS was entered
before R.A. 8183, the seller cannot compel even
though the contract is valid. The payment has to
be made in Philippine money.
Consider the date of the sale. If parties failed to
stipulate as to which currency, it has to be in
Philippine currency.
Q: Can there be a valid payment in P10,000
- P1 coins?
A: Yes.
Q: Can you compel the seller to accept?
A: No. Under the Philippine law, P1 will have legal
tender power only up to P1,000. He may accept
but he cannot be compelled.
Note: P1, P5, P10 up to
P1,000 less than P1
up to P100
Price Must be Certain

Q: Sale of shares of stocks but there was no
date as to the value of the share, valid?
A: The value of the shares as to what date is
material because the value of the shares changes
almost everyday depending on the shares.
Page 5
Shares of companies who are active in trading

would change every now and then. In fact, even if
the date as to the value of the shares has been
fixed but the time was not considered, maybe the
opening or the closing in a particular exchange
would affect the validity of the sale. For example,
in the opening, the value of the share is P50 but
in the closing it is P39. So again, it has to be
certain.
Q: If you will fix the price by considering
the tuition fee of a student per unit, would
that be a certain price?
A: No because different schools would have
different tuition fees and even in a certain school,
fees per college are different.
Q: Who can fix the price?
A: (1) The best way is for the parties to agree as
to the price.
(2) They may agree that one of them will fix the
price.
Q: May the sale be perfected if the
agreement of the parties was for one of
them to fix the price?
A: Yes, it may be perfected only if the price fixed
by the party who was asked to fix the price was
accepted by the other party. If not accepted,
there was no meeting of the minds.
Note: The perfection will only be considered at
the time of the acceptance of the price fixed by
the other party not from the time of the first
agreement of the parties.
Q: What if a 3rd person was asked to fix the
price A and B agreed that X will fix the
price, may the sale be void?

November 2008
A: Yes, the sale may be void if the third person

does not want to fix the price or unable to fix the
price. Hence, there was no meeting of the minds.
Q: If the 3rd person fixed the price but it
was too high or too low or maybe there was
fraud committed by the 3rd person or he
was in connivance with one of the parties,
may the sale be void?
A: No, because the remedy of the other party is
to go to court for the court to fix the price.
Q: Sale of a car, the price of the car is P1,
valid?
A: Yes, it is valid. It can be a valid sale. Lesion or
gross inadequacy of the price does not as a rule
invalidate a contract unless otherwise specified
by law.
Exception: when otherwise provided by law.
Example: Article 1381 when the guardian sells
the property of the ward and there is lesion of
more than 25% or more than of the value of
the thing. Take note that the buyer must not be
the guardian otherwise 1491 will apply void.
But if the guardian sold it to another person there
being lesion of more than like when the value
of the property is P100,000 was sold for P65,000,
the contract is rescissible.
Note: Under the law on sales, if there is gross
inadequacy, it may reflect vitiation of consent so
the SC would normally enjoin the lower courts to
be warned of the possibility of fraud in case of
lesion. Lesion must be proven as a fact. It is not
presumed.
If there is gross inadequacy, it maybe because
actually they intended another contract and that
would make the sale a simulated sale and
therefore the sale is void.
Example: The value of the property is P1M but
only P10,000 was written in the contract because
they intended it to be a donation void.
TIME OF THE PERFECTION OF THE
CONTRACT
Auction Sale
Auction sale is perfected upon the fall of the
hammer or any other customary manner. Thus,
before the fall of the hammer in an auction sale,
the bidder even if he has already made a bid, he
can still withdraw the bid as long as he would do
that before the fall of the hammer. Otherwise, (if
after the fall of the hammer), there is already a
perfected sale.
Q: Can the auctioneer withdraw the goods
before the fall of the hammer?
A: As a rule, yes because the sale has not been
perfected at the moment unless the bidding or
auction has been announced to be without
reserve.
Note: Before perfection, there is one contract
which maybe perfected. Before perfection
meaning in the negotiation stage this contract
is known as the option contract.
Option Contract
Sanchez vs. Rigos
Facts: Mrs. Rigos offered to sell her land to
Sanchez for a certain price. Rigos gave Sanchez 2
years within which to decide. (Note: The
optionee or promisee or offeree is not bound to
purchase but he has the option to buy or
purchase). In this case, Sanchez has the option.

Before the lapse of 2 years, Sanchez told Rigos
that he is buying and offered the
price agreed upon but Rigos refused claiming that

she was not bound by the written option
agreement
because
no
option
money
(consideration) was given by Sanchez. According
to Rigos, the option contract is void.
Held: Since Sanchez accepted the offer and
decided to buy within the period before the offer
was withdrawn, a perfected COS was created
even without option money. In this case, there
was no option contract because it was merely an
option agreement. Therefore, there was merely
an offer on the part of Rigos and once the offer
was accepted before it was withdrawn, regardless
of whether option money was given and in this
case no option money was given, a perfected
COS was created.
Note: Iba pag may option money
Q: 2 years within which to decide
assuming there was option money, before
the offeree could decide to buy, the offeror
withdraw on the 6th month.
(a) Can the offeree on the 10th month
say I would like to buy?
(b) Can the buyer compel the seller to
sell?
A:(a) No.
(b)No, an action for specific performance will
not prosper because when he said he will but
there was not more offer to be considered. Nawithdraw na eh.
Q: If the offeree files an action for
damages, may that action prosper there
being option money given?
A: Yes, because with the option money, an option
contract is perfected, the offeror is bound to give
the offeree, 2 years within which to decide and
Page 6
failure to that he is liable not based on perfected

COS but on perfected contract of option.
Option Money (OM) vs. Earnest Money (EM)
OM is not part of the price while EM is part of the
price and at the same time, it is a proof of the
perfection of the contract.
Q: Can the parties themselves agree that
there would be a perfected COS and then
the OM would be treated as part of the
price?
A: The SC said that this is binding between the
parties. Though it is an OM, it can be considered
as part of the price as long as it is stipulated.
Without stipulation, the OM cannot be considered
as partial payment because it is a consideration
for the option and therefore not part of the price.
Q: With EM, does it mean that there is
already a perfected COS?
A: Not necessarily. Under the law, it is only a
proof of the perfection of the sale. In fact,
there may not be a perfected sale even if there
was EM given, being merely a part of the
purchase price or total contract price. The parties
may not have actually agreed as to the total
price, therefore, even if they agreed that a
certain amount is part of the price, they have not
agreed on the total price or if they agreed on the
total price, they have not agreed on the object of
the sale. So no perfected COS. EM goes into only
1 of the essential elements, that is not the only
element in COS. That is only a proof of the
perfection of the contract. Take note, a proof does
not necessarily establish a fact, it may not be
sufficient to establish a fact.

November 2008
Q: With a perfected COS, does it mean it is

already enforceable?
A: Not necessarily. Note that upon perfection, the
parties may compel the other party to perform
their respective obligations. But the perfection is
subject to the formalities prescribed by law for
that contract. Therefore, even under 1475, the
perfection of the contract is subject to the
provisions of law on the formalities of COS like
the statute of frauds. There may be meeting of
the minds but if it is not in the form prescribed by
law, it may be unenforceable.
G.R.: A COS may be in any form. Article 1483
provides that a COS may be in writing, partly in
writing xxx. This provision is exactly the same as
Article 1356 in contracts which provides that
contracts may be obligatory in whatever form
they may have been entered into provided all the
essential requisites are present. But then again
even Article 1356 just like Article 1475 would
provide for exceptions.
Exceptions: The law may require a particular
form for its validity. The Cattle Registration
Decree is an example - where the law itself
provides for a particular form for the validity of
the sale. But the law may require particular form
for its enforceability of the sale and that would be
1403 or the statute of frauds. Concretely, the sale
of a parcel of land if not in writing is valid but
unenforceable. It is not void. Note that the price
of the land is irrelevant if immovable.
Example: Before, the sale of a land for P300 is
valid and enforceable even if not in writing. But
presently, it has to be in writing to be
enforceable. The price is still irrelevant.
If the object of the sale is movable, you have to
consider not the value of the thing but the price
agreed upon. The value may be different from the
price. You can sell a thing worth P1,000 for P400
but the law provides for the price. If the price is at
least P500 and the sale is not in writing, it will be
unenforceable.
Q: Sale of a watch P450, not in writing, may
it be unenforceable?
A: It may be unenforceable if by the terms of such
agreement, the obligation therein is not to be
performed within 1 year. If they agreed that the
watch will be delivered 2 years after and the
payment will also be made upon delivery, it
would be unenforceable.
Paredes vs. Espino
Facts: Paredes was a prospective buyer. Espino
owns a land in Palawan. Paredes is from Northern
Luzon. Their negotiation was thru letters and
telegrams. Espino sent a letter to Paredes stating
that he and his wife agreed to sell the land to
Paredes, that the deed of sale will be executed
upon the arrival of Paredes in Palawan. When
Paredes arrived, Espino said he is no longer
interested in selling. Paredes filed a case to
compel Espino to sell the land. Espino contended
that the contract is unenforceable because it is
not in writing. He contended that under the
statute of frauds it is unenforceable. His
contention was sustained by the trial court.
Held: This contract is no longer covered by the
statute of frauds because there was a
letter. Article 1403 provides that a note or
memorandum signed by the part charged

would be sufficient to take that contract out
of the operation of
the statute of frauds. In this case, the

defendant wrote a letter with his signature on it.
The letter took that contract out of the operation
of the statute of frauds and therefore he may be
compelled to execute the final deed of sale.
RIGHTS AND OBLIGATIONS OF THE VENDOR
In a deed of sale (DOS), there can be
hundreds of obligations of the vendor but those
obligations would be because of the stipulation.
But there are only few obligations imposed by
law. The 3 most important:
1. To transfer ownership
2. To deliver
3. To warrant the
thing There are other
obligations:
4. Obligation to take care of the thing sold
with the diligence of a good father of a
family prior to delivery.
5. From the time of the perfection up to the
time of delivery then there would be
obligation to pay for the expenses for the
execution and registration of the sale and
obligation to pay the capital gains tax
would be on the seller as a rule.
6. Obligation to deliver the fruits which is
related to the obligation to deliver the
thing
OBLIGATION TO DELIVER THE FRUITS
BE: A sold a mango plantation to B but they
stipulated that delivery will be after the
signing of the deed of sale. After the
expiration of the 6-month period, B
demanded for the delivery. The vendor was
able to deliver 1 month after the date when
he was supposed to deliver the mango
Page 7
plantation. During this period, the vendor

harvested mango fruits and sold them to X.
The vendor was able to deliver only after
the other fruits were harvested and sold to
Y. Can B recover the mango fruits from Y
during the 6th month period?
SA: Determine first whether B is entitled to the
fruits because if he is not entitled, then he cannot
recover the fruits. Is he entitled to the fruits after
6-month period during the 1-month period prior
to delivery? Yes, in fact, under 1537, the fruits of
the thing sold from the time of perfection shall
pertain to the buyer.
Q: Does it mean that the fruits from the
time of perfection shall pertain to the
buyer?
A: Hindi naman. 1537 should be considered in
relation to 1164. Under 1164, the fruits shall
pertain to the creditor only from the time the
obligation to deliver the thing arises. Thus, B is
entitled to the fruits only from the time of the
expiration of the 6-month period. Di ba may
agreement sila that the mango plantation will be
delivered only after 6 months? Upon the arrival of
this period, the obligation to deliver the thing
arose, therefore, B, consistent with 1164 and
1537 will have the right to the fruits.
Q: Can he recover the fruits from X?
A: No. Under 1164, 2nd paragraph, the buyer or
the creditor will have no real right over the fruits
after the delivery of the thing.
Q: What is the remedy of the buyer?
A: The remedy is to go after the seller for selling
these fruits na hindi naman sya entitled. The
buyer is already entitled

November 2008
although again he will have no real right over the

fruits until the delivery of the thing to him.
does he have the authority to sell, the buyer

acquires no better title than what the seller had.
If his right is only as a lessee that is the most that
can be transferred to the buyer. If he has no title
OBLIGATION TO TAKE CARE OF THE THING
then no title can be transferred to the buyer.
G.R.: The thing sold should be determinate
Exceptions: (When the buyer can acquire a
because if generic (1460, 2nd paragraph) then
there is nothing to be taken cared of. It will
better title than what the seller had. Even if the
become determinate only upon delivery.
seller does not have the right to sell, the buyer
Exceptions: There are sales transactions
may acquire ownership over the thing sold
wherein the vendor would not have this
because the law so provides and not because the
obligation:
seller was able to transfer ownership to the
a. Constructive delivery - brevi manu
buyer.)
There would be no obligation on the
1. By Estoppel
part of the seller to take care of the
2. Estoppel by Deed
thing from the time of perfection
3. Estoppel by Record
because at the time of perfection, the
4. Sale by an Apparent Owner
buyer was already in possession of the
5. Negotiable Document of Title
thing. Maybe he borrowed the thing.
6. Purchases from a Merchants Store xxx
Example: he borrowed the car and he
1. By Estoppel by the principle of estoppel, a
decided to buy it the thing was
person is precluded from denying that another
already in his possession.
person has authority to
b. Kaliwaan ang bentahan upon perfectionsell because of his acts. Also known as Estoppel in
Pais
Q:
May a buyer acquire ownership over
may delivery na then there is nothing
the thing sold if the seller has no right to
to be taken cared of.
sell?
A: The answer by way of exception is yes. But the
OBLIGATION TO PAY EXPENSES / TAXES
general rule here is under 1505 the buyer
These obligations may be the subject of
acquires no better title than what the seller had.
stipulation. By agreement, it would be the buyer
If the seller is neither the owner nor
who will pay xxx Normally, dito hindi natutuloy
ang sale dahil hindi magkasundo kung sino
magbabayad ng tax.
OBLIGATION TO TRANSFER OWNERSHIP
BE: May a person sell something which does
not belong to him? Would the sale be valid?
Would the buyer acquire ownership over
the thing sold, if seller does not own the
thing?
SA: Yes. Ownership over the thing sold is not
an essential requisite for the sale to be
valid. But if the seller does not own the thing, he
may have a problem on his obligation to transfer
ownership. The problem would be whether or not
the buyer would acquire ownership over the thing
sold if the person who sold the thing is not the
owner.
Q: Who can transfer ownership by way of
sales?
A: Only those who have the right to sell.
Q: Who would have the right to sell and
therefore they can transfer ownership by
way of sale?
A: First, is the owner. Even if he is not the owner,
he may have the right to sell because:
(1) He was given the authority by the
owner.
Example: Agent
(2) He may not be the owner but he may
have the authority of the law to sell,
known as Statutory Power to Sell
(Article 1505). Examples: Notary public
in pledge, liquidators, guardians and
receivers.
(3) Those who have the authority of the
court. Example: Sheriff. Note: it is as if
they have the authority of law because
not even the judge can validly sell
something if it is not consistent with
the law.
which is a kind of equitable estoppel because of

the acts / representation of the owner, he may
not later on deny the authority of the 3rd person.
2. Estoppel by Deed
BE: A and B co-owners of land sold (sale is
verbal) to X their land. X subsequently sold
the land to Y. Would Y be considered to
have acquired ownership over the land?
SA: Under 1434 which is considered as Estoppel
by Deed (technical estoppel) when the seller
who was not the ownerat the time of the sale,
acquires ownership, automatically, ownership
passes to the buyer by operation of law. However,
Article 1434 requires delivery to the buyer.
And under the facts, 1434 would not apply
because:
a) There was no showing there was
payment
b) No showing that there was delivery of
the land to
X.
It cannot be said that by operation of law, Y
likewise acquired ownership by way of estoppel
by deed.
3. Estoppel by Record
Page 8
Jurisprudence: Sale by nephew of the owner of

the land. Since the nephew could not deliver the
land, the buyer sued the nephew for estafa. For
the accused to be acquitted, he asked his uncle
to testify that he actually had the authority to
sell. When the uncle testified in court, the
nephew is acquitted. After acquittal, the buyer
demanded from the uncle the delivery of the
land. The uncle refused, claiming that sa totoo
land, I did not authorized my nephew.
Q: Case was filed against the uncle, would
that action prosper?
A: SC said yes because he cannot be allowed now
to claim that his nephew was not authorize to sell
after he testified in court that he gave such
authority.
This is estoppel by record which is considered a
technical estoppel.
4. Sale by an Apparent Owner
A. Factors Act
B.
Recording Laws
C.Any other provision of law enabling the
apparent owner of the goods to dispose of them
as if he was really the owner.
A. Factors Act

November 2008
Factor is an old name for agent. Even if

agent has no right to sell, a third person may
acquire ownership because he may rely on the
power of attorney as written.
Example: Special Power of Attorney (SPA) agent
was authorized to sell a car. However, in a verbal
instruction when the SPA was delivered, the
principal authorized the agent to sell that car to 1
of the members of a certain organization but the
agent did not sell that car to one of the members
of a certain organization.
Q: Would the buyer acquire ownership?
A: Yes. Article 1900 provides that so far as 3 rd
persons are concerned, they only have to rely on
the SPA as written, even if agent has no authority
or right to sell.
B. Recording Laws
*most common question in the bar exam
Mapalo vs. Mapalo
Facts: The elder brother, Miguel Mapalo, donated
half of his land to his younger brother, Maximo
Mapalo, because the latter will get married. But
instead of the younger brother asking his elder
brother to sign a deed of donation over that land,
he asked his elder brother and the latters spouse
to sign a Deed of Sale over the entire parcel of
land. He was able to have the entire property
registered in his name. Few years after, he sold
the land to the Narcisos. Obviously, he does not
have the right to sell the other half. The Narcisos
claimed that they are buyers in good faith from
an apparent owner because the entire property
was in the name of Maximo.
Q: Did the Narcisos acquire ownership?
A: SC Said no, because the law requires that
the sale must not only be a sale by an apparent
owner but the buyer must be a buyer in good
faith. The buyers here were in bad faith because
before they bought the land, they went to the
house of Miguel and asked him whether he would
allow Maximo to sell the entire land. SC said they
are in bad faith.
BE: The owner of a parcel of land covered
by an OCT mortgaged the land to a creditor.
The owner delivered the OCT to the
creditor.
The
mortgagee
forged
the
signature of the owner in a deed of sale. He
was able to register the property in his
name. He sold the land to a third person
who had no knowledge of the transaction.
Did the mortgagee acquire ownership?
SA: No. A forged deed is a void instrument and
cannot convey a valid title to the buyer but under
the law the forged deed may actually be the root
of a valid title under the Mirror Principle when
the buyer bought it from the mortgagee in whose
name the property was registered and relied on
the TCT, then if he bought the property in good
faith, he will be considered the owner under
Article 1505 in relation to P.D. 529. He bought the
land relying on the TCT and bought the land in
good faith then he would have a better right than
the real owner.
Q: When a buyer may be considered a buyer
in good faith?
A: By the mere fact that he had no knowledge at
the time of the execution of the deed does not
necessarily mean that he is in good faith. The law
further requires that he must have fully paid
without knowledge of the defect in the title of the
seller. So if after execution he is in good faith but
before payment he is in bad faith then he is in

bad faith.
BE: A, the owner of a parcel of land

entrusted to his clerk the TCT of the land
for safekeeping. This clerk instead forged
the signature in the DOS with him as the
buyer. Thereafter, he was able to have the
property registered in his name. Then he
sold the land to a third person. Did the
clerk acquire title over the land? Can the
owner of the land have the property
registered in his name?
SA: The 3rd person being in good faith, he is
considered to have acquired ownership over the
thing sold even if the seller had no right to sell.
By way of exception because the buyer bought it
from an apparent owner. An apparent owner who
disposed the thing as if it was owned by him.
5. Negotiable Document of Title
If goods are covered by a negotiable
document of title and it was thereafter
negotiated. If the buyer bought it in good faith
and for value, he will be protected under the law.
He will acquire ownership even if the seller did
not have the right to sell.
Example: The seller may have acquired title by
violence. Binugbog nya yung owner ng goods.
Pero kung negotiable document of title yan and
properly negotiated, lalo na kung bearer
document of title, then the buyer may acquire
ownership even if the seller has no right to sell.
6. Purchases from a Merchants Store /
Markets / Fairs
Sun Brothers vs. Velasco
Facts: Sun Brothers was the owner of a
refrigerator. Sun Brothers was engaged in the
business of selling refrigerator. Sun Brothers sold
a ref to Lopez on installment basis. As stipulated,
Page 9
Sun Brothers reserved ownership until full

payment. Lopez only paid P300 out of P1,500.
The balance to be paid on installment. Lopez then
sold the ref to Velasco.
Q: Would Velasco acquire ownership?
A: No because Article 1505 provides that the
buyer acquired no better title than what the seller
had. However, Velasco was the owner of a store.
On the next day, Velasco sold the ref to Ko Kang
Chu who paid in full. When Sun Brothers learned
this transaction, it filed an action to recover the
ref from Ko Kang Chu.
Q: Can Sun Brothers recover the ref from Ko
Kang Chu by reimbursing the price?
A: SC Said no. Article 1505 provides that the
ownership of the buyer who bought the thing
from a merchants store and he bought it in good
faith is absolute in character. Article 559 does not
apply because Sun Brothers was not unlawfully
deprived of the ref and the ref was neither lost.
559 will apply if the owner was unlawfully
deprived (Example: the thing was lost or stolen).
Under 559 he can recover by reimbursing the
buyer who bought the thing in good faith. He has
to reimburse.
BE: The painting owned by F was stolen
from her and later she noticed the painting
in the room of B. When asked how he
acquired the painting, B said he bought it
from a gallery auction. Can the owner F
recover the painting from B?
SA: The first consideration here is the nature of
the gallery auction. Is it a public sale or not?
Some suggested answers of the UP Law Center
would claim that a gallery auction is not a public
sale.

November 2008
Atty. Uribe: I can agree that some gallery

auctions are private
by invitation. Thus, in that auction I would
definitely agree, hindi yan public sale.
If it is not a public sale then the owner who
was unlawfully deprived can recover that
property even without reimbursement. If the
auction sale is considered a public sale, he
can recover as long as he is willing to
reimburse the buyer of the price paid in
that sale. Article 559 is applicable because the
owner was unlawfully deprived.
BE: F lost her diamond ring in a hold-up.
Later on, this ring was an object of a public
sale of one pawnshop. Can F recover the
ring from the buyer in that public sale?
SA: Yes, Article 559 provides that even if the
buyer is in good faith so long as the owner is
willing to reimburse the buyer of the price paid in
that sale.
Note: Again in 1505, there is no right to recover
as long as the buyer bought it in good faith from
a merchants store, there can be no recovery as a
matter of right.
Q: How transfer of ownership is effected?
A: Under the law, as far as things are concerned,
it is effected by delivery:
(a) Actual
(b) Constructive
There can be no transfer of ownership without
delivery.
Q: Is it correct to say that every time there
is delivery, the buyer acquires ownership
upon delivery?
A: Not necessarily. This is not an absolute rule.
There are kinds of sale where despite delivery the
buyer does not acquire ownership upon delivery:
(1) Conditional Sale ownership is reserved by
the seller such that despite delivery,
ownership does not pass.
Q: So when would the buyer acquire
ownership in conditional sale?
A: Not upon delivery but upon the happening of
the condition which is normally the full payment
of the price.
(2) Sun Brothers Case
(3) Sale on Trial / Sale on Satisfaction / Sale on
Approval upon delivery, even if there is
actual delivery there is no transfer of
ownership at the time of delivery.
Q: When would the buyer acquire
ownership?
A: From the moment he signifies his acceptance
or approval of the thing.
Q: What if he did not signify his
acceptance or approval? May he be
considered
to
have
accepted
and
therefore ownership may be considered to
have passed to him?
A: Yes. 2 Scenarios:
(a) There may be a period agreed upon by the
parties within which the buyer would have
to decide. Even if he failed to signify his
acceptance by the mere lapse of the period,
he is deemed to have accepted (impliedly
accepted) hence, ownership passes to him.
(b) Even before the lapse of the period, he may

be considered to have accepted if he did an
act wherein he would be considered to have
adopted the transaction then ownership
passed to him.
Example: Even if he has 10 days within

which to decide but on the 2nd day, he sold
the car to another. Obviously, he is deemed
to have accepted the thing because he did
an act which is inconsistent with the
ownership of the seller like he donated or
destroyed the thing.
(c) If there is no period agreed upon, the law
says if he did not signify his acceptance he
will be considered to have accepted after
the lapse of a reasonable time. Reasonable
time will depend on the circumstances of
the sale, purpose of the sale, nature of the
thing sold. Example: Perishable goods.
Sale or Return
Q: Ownership passes upon delivery?
A: Yes. However, the buyer is given the right to
revest the title back to the seller normally within
a certain period. Example: Clauses in subscription
magazine which says that you can return within
30 days without payment.
BE: A car was sold for P150,000. P75,000
paid upon the execution of DOS. The
balance payable on a monthly basis.
P75,000 was paid. The car was delivered to
the buyer. However, before he could pay the
balance, the car was destroyed due to a
fortuitous event or was burned xxx Can he
still be compelled to pay the balance?
SA: Yes. Upon the delivery of the car to the buyer,
there being no retention of ownership by the
seller. (Note: Wala sa facts na na-retain ng seller
and ownership). Therefore, ownership passed to
the buyer. Under the principle of res perit domino
Article 1504 the owner bears the loss and
hence it can be compelled to pay the price.
Page 10
G.R.: Res perit domino 1504.

Note: Determination of when ownership passed
is important because if at the time of the loss, the
buyer is not yet the owner, as a rule, the buyer
will not bear the loss like in sale on approval and
he has 10 days within which to decide and the
thing was lost through a fortuitous event within
the 10-day period without fault on his part, the
seller will bear the loss.
Exceptions:
1. Lawyers Cooperative vs. Tabora
Facts: This pertains to a sale of American
Jurisprudence to Atty. Tabora. It was a sale on
installment basis. Upon delivery or on the day the
books were delivered to the office of Atty.
Tabora, the entire block where Atty. Taboras
office was located (in Naga City) was burned. The
office including the books was burned. Atty.
Tabora refused to pay the balance.
Lawyers Cooperative filed a case. Two defenses
were raised by Atty. Tabora: (1) Res perit domino
there was a stipulation in the contract that
Lawyers Cooperative will retain ownership over
the books until full payment. When the books
were lost, no full payment so Atty. Tabora was not
yet the owner. Hence, Lawyers Cooperative
should bear the loss.
Q: Is this argument correct?
A: SC Said no. Although there was a stipulation
that Lawyers
Cooperative retains ownership over the books
until full payment, there was another stipulation
in the contract which states that the risk of loss
shall pertain to the buyer from the time the books
are delivered whatever may be the cause of the
loss.
So with that stipulation, that is one of the
exceptions.

November 2008
2. Title was reserved by the seller only to

secure the payment of the price by the
buyer
Q: But even assuming that there was such
no stipulation under the contract, would
Atty. Tabora have to bear the loss?
A: Yes because it would fall into the other
exceptions under 1504 that when the title was
reserved by the seller only to secure the
payment of the price by the buyer, then by
law, risk of loss will already be with the buyer.
This title of the seller is known as Security
Title and therefore by law xxx the buyer will
bear the loss.
3.
Delay in the Delivery

When there is delay in the delivery due to
the fault of one of the parties, whoever was at
fault will bear the loss. Note that either buyer or
seller may be at fault.
Example 1: The buyer and the seller may have
agreed that the goods are to be obtained by the
buyer at the warehouse of the seller on a specific
date. On the date agreed upon, the seller
demanded the buyer to get the goods. Despite
such, the buyer failed to get the goods. On the
next day, the warehouse was destroyed due to
fortuitous event.
Q: Who is the owner at that time?
A: The seller but there was delay on the part of
the buyer hence under 1504 it is the buyer who
will bear the loss.
Example 2: The seller himself maybe the one at
fault. Thus, he is in delay in delivering the goods
to the buyer.
Q: Why would this be an exception to the
res perit domino rule?
A: Ang premise dito, the ownership has already
passed to the buyer but the goods are still with
the seller. Can this happen? Yes, because of
constructive delivery. If there was constructive
delivery, ownership passes to the buyer but
physical possession is still with the seller. They
may have agreed this time that the seller will be
the one to deliver the goods to the buyer at a
certain date. When the date arrived, despite
demand from the buyer, there was no delivery on
the part of the seller. Even if the goods are
destroyed the next day due to fortuitous event,
take note ang owner ay ang buyer na but who
will bear the loss? The seller because he was in
delay in delivering the goods.
DOUBLE SALE (ARTICLE 1544)
BE: F sold a registered parcel of land to R
who did not register the sale. Thereafter, F
sold the very same parcel of land to C who
registered and obtained a new TCT in his
name. Who would have a better right?
SA: Atty. Uribe: I fully agree with the UP Law
Centers answer. It depends on whether or not C
registered the sale in good faith. Registration is
only one of the requirements good faith is equally
an important requirement.
Note: In 1544 (double sale), as to which rule
applies will depend on the thing sold if movable
or immovable.
Q: If the thing is sold twice, who would
have the better right?
A: If movable, the buyer who first took possession

in good faith will have the better right. If
immovable, the buyer, who first registered in
good faith, will have the better right. If
there was no registration, it will be the first who

took possession in good faith. If no possession in
good faith, the buyer who has the oldest title in
good faith.
Even the 1st buyer is required to be in good faith.
Obviously, the first buyer would have the oldest
title. Yung good faith ditto obviously would not
pertain to absence of knowledge of the 2nd sale
kasi syempre 1st buyer sya. He is nonetheless
required to have bought the thing in good faith.
Good faith means that he had no knowledge of
the defect of the title of the seller.
Warning: Please be careful when you recite
you register the sale not the land.
BE: If a thing is sold to 2 or more persons,
what would be the effect of:
(a) The first buyer who registered the sale
with knowledge of the 2nd sale.
(b) The second buyer who first registered
the sale with knowledge of the prior
sale.
Who would have a better right?
SA: (a) In the first scenario the first buyer who
registered the sale with knowledge of the second
sale would that make him a registrant in bad
faith? No. Yung knowledge would pertain to the
knowledge of the prior sale in order for him to be
a bad faith registrant. Eh una naman syang buyer
eh so even if he registered, it would not make
him a bad faith registrant.
(b) In the second scenario the buyer there is
in bad faith. He has knowledge of the prior sale.
Hence, he has no right.
Q: If a person bought a thing without
knowledge of the prior sale, does that mean
he is a registrant in good faith?
Page 11
A: Not necessarily because from the sale he may

have
acquired
knowledge
prior
to
the
registration. What is required by law is not
being a buyer in good faith but a registrant
in good faith. Pwedeng at the time of the sale
xxx
the
buyer
had
no
knowledge
na
nagkabentahan na pala nung una but after 2
months nung magpaparegister na, the buyer had
the knowledge of the prior sale and therefore he
will be a registrant in bad faith.
Bautista vs. Sioson
Facts: The owner A sold a registered land to B
who did not register and neither did B take
physical possession because after the sale they
executed a lease agreement in which B was now
the lessor. A continued to be in possession of the
land. After the sale and the contract of lease, A
sold the land to C, this time C took physical
possession.
Can he do that? Yes. Kasi lessee sya eh, hence,
he can transfer possession to the 2nd buyer.
Who between B and C would have a better
right? (C did not also register the sale)
SC Said that B would have a better right because
when he executed a lease agreement with
A, he is in contemplation of law in
possession which is legal possession over
the thing and thus making him a possessor
in good faith. Kay C, physical possession nga
pero pangalawang possession lang. Yung legal
possession was with B.
Note: This decision was criticized because some
authors said that it should be actual possession
but the SC said that legal possession would
suffice.

November 2008
Carumba vs. CA
Facts: Sale of land to B who took physical
possession but did not register. He is the first
buyer. However, the seller (A) is a judgment
debtor in one case to a certain creditor named C.
The land became the subject of an execution
sale. The buyer became C who registered the
sale.
Q: Who would have a better right between
C and B (C had no knowledge of the sale)?
A: SC Said B because this land was not
registered under the Torrens System. 1544 would
not apply to unregistered lands.
Q: How would you know that the land is
registered under the Torrens System?
A: Pag may OCT or TCT na. Pero kung ibang
documents lang like tax declaration, it is not
considered registered.
Q: But C registered the sale, does it mean
that it is registered under the Torrens
System?
A: No because there are also systems of
registration of sale of land in which the lands are
still considered as unregistered lands. Sa ibang
libro. Hindi libro under the Torrens System.
Q: If 1544 will not apply, who has the better
right?
A: B because there was delivery to him which was
actual delivery and hence under the general rules
on delivery, ownership passes to the buyer and
when ownership have passed to the buyer, when
the property was sold in an execution sale, ano
makukuha ng buyer sa execution sale?
Wala. He merely steps into the shoes of the
judgment debtor at the time of the sale then he
did not acquire ownership by virtue of that sale.
OBLIGATION TO DELIVER THE OBJECT OF
THE SALE
Determine the subject matter if it is a
thing or a right because there are different modes
of delivery as to thing and as to right.
Things
Kinds
of
delivery
of
things
as
a
consequence of sale known as tradition
under the law:
1. Actual Delivery / Material Delivery / Physical
Delivery / Real Delivery the thing is in the
possession and control of the vendee. Take note
control. Take note to the vendee.
Q: What if the thing was delivered to a 3rd
person?
A: Jurisprudence SC said yes, there maybe
actual delivery if the third person has authority to
receive from the vendee. Thus, making him an
agent of the vendee and that would still be actual
delivery.
Note: Philippine law does not only require actual
delivery constructive delivery may result in
transfer of ownership.
2. Constructive by the execution of a public
instrument if the contrary intention does not
appear on the document. By the mere execution
of the public instrument that is equivalent to
delivery. Hence, ownership passes to the buyer.
Kuenzle & Streiff vs. Macke & Chandler
Facts: The original owner here Stanley and
Griffindor (parang Harry Potter

) and the
property involved here are fixtures of a saloon.
Macke and Chandler are judgment creditor of
Stanley and Griffindor. Because of a judgment in
favor of
Macke and Chandler, the sheriff levied upon

these properties which was still in the possession
of Stanley and Griffindor. The properties under
execution were questioned by Kuenzle and Streiff.
Kuenzle and Streiff claimed that these things
were sold to them prior to the levy. If they
claimed that the properties were sold to them,
the properties should be in their possession. Take
note that Stanley and Griffindor were still in
possession of the goods physically. Hence, there
was no actual delivery.
Held: In order that ownership would pass, it has
to be in a public instrument if that would be by
constructive delivery.
Note: The execution of a public instrument may
be equivalent to actual delivery if the contrary
intention does not appear on the DOS. Kasi
pwedeng notarized but it is clear in the contract
that ownership will not pass until full payment of
the price then that is not equivalent to delivery.
The intention is clear.
Kinds of Constructive Delivery
1. Delivery of the Keys of the place where the
goods are located like a warehouse.
Prof. De Leon: this also called as symbolic
delivery.
2. By Mere Consent or Agreement of the Parties
if at the time of the sale, possession to the goods
cannot be transferred to the buyer. There must be
a reason why it cannot be transferred at the time
of the sale. This is also known as tradition longa
manu.
Example 1: The thing was the subject matter of a
lease with a 3rd person until the expiration of the
lease, the thing cannot be delivered.
Page 12
Example 2: The thing was the subject matter of

commodatum. As a rule, period of commodatum
has to be respected.
3. Brevi Manu this is a kind of constructive
delivery because the buyer was already in
possession of the thing sold at the time of the
perfection of the sale so he will continue to be in
possession after the sale, no longer as a lessee
but this time as the owner. So dati lessee lang
sya that is why he was in possession or maybe
depositary lang sya or maybe he was the agent
at the time prior to the sale.
4. Constitutum Possessorium the seller will
continue to be in the possession of the thing after
the sale but no longer as an owner but in another
capacity like lessee.
Bautista vs. Sioson
Because a lease agreement was entered into by
the buyer and seller after the sale then the buyer
became the lessor and the seller became lessee.
Therefore, the lessee would continue with the
possession no longer as an owner.
Q: What if pursuant to their agreement the
seller delivered the goods to a common
carrier. Upon delivery of the goods to a
common carrier, would that result in
transfer of ownership immediately? (This is
important because in case the goods were
destroyed even due to a fortuitous event
while in transit, who will bear the loss?)
A: If delivery to a common carrier is delivery to
the buyer, then ownership passes to the buyer
upon delivery to the common carrier. That is the
general rule.
Exceptions:

November 2008
(1) If stipulated in the DOS that despite delivery

to common carrier ownership will not pass
to the buyer because ownership will pass
upon full payment.
(2) Even if DOS does not provide for such
stipulation, the seller may have obtained a
bill of lading which provides that the goods
are deliverable to the seller himself or the
agent of the seller.
Rights
Kinds of Delivery of Incorporeal Property
/ Quasi
Tradition:
1. Execution of Public Instrument
2. Placing the Title of Ownership in the Possession
of Vendee
a right would normally be covered by a
certificate. Example: delivery of the
certificate of shares of stocks.
3. Use by the Vendee of His Rights with the

Vendors Consent Example: Sale of shares of
stocks the vendee may not always have the
right to exercise his rights under the shares of
stocks. Concretely, if there is a stockholders
meeting, the books of the corporation will be
closed for 30 days before the meeting. Thus, if
the sale occurred when the books are already
closed, no one will be recognized except those
registered owners. So if you are the buyer of
those stocks, you can only use your right with the
consent of the vendor.
RULES ON SALE AS TO QUANTITY / QUALITY
OF THE THING
SOLD
Q: In a sale involving 1,000 pairs of shoes
with a specific design as agreed upon. The
seller delivered 1,200 pairs of shoes instead
of only 1,000. Can the buyer reject
everything?
A: No. He has the right to reject only the excess.
Reject the 200 but he can be compelled to accept
the 1,000.
Q: What if instead of 1,000, 800 was only
delivered?
A: The buyer cannot be compelled to receive 800
because partial performance is non-performance.
You cannot compel the creditor to accept partial
fulfillment as a rule because (1) it can be a
subject of a stipulation that there can be partial
delivery.
Other Exceptions:
(2)When obligation pertains to obligation which
is partly liquidated and partly unliquidated. The
debtor can compel the creditor to accept the
portion which was already liquidated.
(3)When the obligation is subject to different
terms and conditions.
Q:
The shoes per pair is P1,000. The
seller only delivered 800 pairs out of 1,000
pairs. The buyer accepted. It turned out
that the seller can no longer deliver the
balance (200 pairs). How much can the
buyer be compelled to pay? 800 x P1,000?
A: Not necessarily. You have to make a distinction
as to whether the buyer was aware that the seller
could no longer deliver the balance or when he
accepted, he was not aware.
If he was aware that the seller could no
longer deliver the balance then he can be
compelled to pay at the contract rate so 800

x P1,000 = P800,000. If he had no knowledge,
he can be compelled to pay only the fair value.
Fair value siguro non P700 each instead of
P1,000.
Q: The obligation to deliver 1,000 cavans of

Milagrosa rice. Instead of delivering 1,000
cavans of Milagrosa, the seller delivered
1,100 cavans of both Milagrosa and
Burmese rice. May the buyer reject
everything?
A: Yes, if the goods are indivisible. Meaning each
sack of rice, Milagrosa and Burmese rice were
mixed. However, if it is clear that per sack it is
Milagrosa rice and the 100 sacks, it is clear that
those are Burmese rice that would not be
considered as indivisible. He can be compelled to
accept 1,000 sacks Milagrosa and he has the
right to reject 100 sacks Burmese rice.
SALE OF REALTY
Q: Sale of a parcel of land. Price agreed
upon is P1M. More or less 100 sqm. The
actual area delivered by the seller was only
95 sqm. What are the remedies of the
buyer?
A: (1) Specific performance would be a remedy
if the seller is still in the position to deliver the
balance. Siguro yung katabing lupa sa seller din,
hence, he can afford to give additional 5 sqm.
(2)
Q: If specific performance is not
possible, is
proportional
reduction a
remedy?
A: It depends on whether the sale is considered
as a sale with a statement of an area of a rate of
a certain measure or if it is a lump sum sale.
(a) If lump sum even if the area delivered is
less than the area stated in the DOS, there
is no right to demand for the proportional
reduction of the price. Q: Pero pag
sumobra 120 sqm na deliver, can the
seller demand for the increase of the
price? A: If lump sum sale, no.
(b) If the sale was based at a rate of a certain
price per unit of measure like it was so clear
Page 13
in the contract that the land is being sold at

P10,000 per sqm so P10,000 per sqm x 100
= P1M, the remedy of proportional reduction
of the price or accion quanti minoris is
applicable.
(3) Q: Under the facts, 95 sqm was
delivered, would rescission be a remedy?
A: As a rule no because rescission would only be
a remedy if the area lacking is more than 10% of
that area agreed upon. So kung 100 sqm, dapat
11 sqm or 15 sqm ang kulang, so out of 100 kung
85 lang ang na-deliver, then rescission is a
matter of right.
Q: But kung 95 lang ang na-deliver meaning
the area lacking is less than 10%, may
rescission be a remedy?
A:Yes, by way of exception
(a) If the buyer can prove that he would not
have bought the thing or land hand he
known that is less than 100 sqm. It is a
matter of proof.
This is consistent with a characteristic of
rescission under 1191, that in order for rescission
to prosper the breach must be a fundamental
breach. Kung kulang lang ng 5sqm / 10 sqm at
malaki yung area, there can be no rescission as a
matter of right.
(b) The other one is even if the entire area was
delivered as stated, proportional reduction /
rescission may be a remedy if a part of the
land delivered is of inferior quality than that
stipulated by the parties.
Example: Sale of rice field, it turned out
about 20% of the land is swamp, so hindi
pwede
taniman.
Hence,
proportional
reduction is possible if he still would want

November 2008
the land or rescission would be a remedy

because the area of inferior quality is more
than 10% of the total land area unless he
can prove that he would not have bought
the land had he known a portion of the land
is of inferior quality.
PLACE OF DELIVERY
Read 1524, 1525 and 1198
The seller delivered the goods to the place of
business of the buyer. If the buyer refuses to
receive the goods, the buyer will be considered in
delay and therefore will be liable to the seller
because of unjust refusal.
Q: May the buyer be considered in delay for
his refusal to accept if there is no place
stipulated in the contract?
A: It depends on the kind of thing. Determine if it
is determinate or generic. If the thing is
determinate, the law provides that it will be the
place where the thing is located at the time of the
perfection of the contract.
Q: What if the object of the sale is a generic
thing?
A: Sellers place of business or residence.
Note: If there is no stipulation when to be
delivered, the seller cannot be compelled to
deliver.
Q: What if at the time of the perfection of
sale, though the thing is determinate, it
was on board a ship while in transit. Where
will be the place of delivery?
A: Depending on the shipping arrangement
agreed upon by the parties.
F.O.B. Free on Board
C.I.F. Cost, Insurance, Freight
F.O.B. and C.I.F are rules of presumption which
would have to give way to the real intention of
the parties. So after all, the F.O.B. or C.I.F.
arrangements do not really determine the place
of delivery, they only make rules of presumption.
So in a C.I.F. arrangement, it is only presumed
that the place of delivery is the port of origin.
In a F.O.B. destination, it is only presumed that
the point of destination is the place of delivery.
Q: What really determines the place of
delivery?
A: SC said this indication as to the intention of
the parties as to the place of delivery is the
manner and place of payment. If there is an
agreement as to where and how the price is to be
paid that would be the place considered for
purposes of delivery and therefore for transfer of
ownership.
Concretely, in one case which was C.I.F.
arrangement it was stipulated that the seller
can demand the payment of the price upon the
arrival of the goods at the port of destination.
(Supposedly, in C.I.F. arrangement, the place of
delivery is the port of origin). SC said the place
of delivery because of the stipulation is the port
of destination. It is where the payment is to be
made.
Q: What was the purpose of fixing the

delivery arrangement as a C.I.F. but the
place of delivery is the port of destination?
A: SC said the C.I.F. arrangement may have been
agreed upon only to fix the price. Example: They
fixed the price for P2M
that would include the freight, insurance or cost

but still the place of delivery is the port of
destination.
In another case, F.O.B. destination so
based on the presumption the place of delivery
will be the port of destination xxx the seller would
have to bear all the expenses for the delivery of
the goods up to the port of destination. However,
it was stipulated in the contract that the seller
may demand for the payment of the price by
mere presentation of the bill of lading (BOL).
Q: Where do you get the BOL?
A: At the port of origin. Hence, even in the port
of origin he can already present the BOL to the
buyer and hence compel the buyer to pay the
goods. Again SC ruled in that stipulation, the
place of delivery is the port of origin. And the
purpose of the F.O.B. arrangement, it was only
agreed upon in order to fix the price meaning
that the seller will still have to bear the expenses
for the transportation of the goods up to the
destination although the buyer can already be
compelled to pay the price even at the port of
origin.
So consider always the manner and place
of payment which is determinative as to the place
of delivery.
Read 1582
Obligations which cannot be Waived:
1. Obligation to transfer
2. Obligation to deliver
Page 14
Obligation which can be Waived:

1. Obligation to warrant the thing
Kinds of Warranties under the Law:
1. Express
2. Implied
1. Express any affirmation of fact or any
promise by the seller relating to the thing, the
natural tendency is to induce to purchase the
thing.
Requisites:
(a) There is an affirmation of fact
(b) The fact must pertain to the thing either to
the quality, character or title of the thing
Any other matter may not be considered as an
express warranty.
The use of the words / terminologies is not
conclusive as to whether or not there is an
express warranty.
Example: I guaranty / warranty you that you will
be happy if you buy this car at P100,000 this
does not result in an express warranty
Again, if the affirmation of fact pertains to the
quality of the thing, it is an express warranty.
Example: These 10 sacks of fertilizer would result
in 200 cavans of rice.
The statement of the sellers opinion is not as a
rule considered an express warranty.
Example: This is the best pia cloth it may
turn out that there are better pia cloth.

November 2008
As long as the seller is not an expert on that field,

that would be treated merely as an opinion and
there can be no liability for breach of an express
warranty.
BE: A sold a land to B for P1M in Antipolo.
As agreed upon P100,000 will be paid upon
the signing of the DOS. The balance will be
paid within 30 days from the time the
occupants (squatters) of the land are
evicted. It was so stipulated that if within 6
months, the squatters have not yet been
evicted, the seller should return the
P100,000. Another stipulation states
within the 6-month period, the value of the
land doubled. Despite the filing of an
eviction suit by the seller and the lapse of
the 6-month period, the squatters were still
occupying the land. The seller offers to
return the P100,000 to the buyer. The buyer
refused to accept the P100,000 and told the
seller never mind even if the squatters are
still there. I will still buy the land. So the
buyer offered to pay the balance P900,000
and demanded that a DOS be executed by
the seller. The seller refused to accept the
P900,000. What he did is to file an action to
rescind the contract. Would the action
prosper?
SA: 2 answers:
(1)If the answer is based on rescission, the
action will not prosper because rescission may
only be invoked by the aggrieved party. The seller
is not an aggrieved party.
(2)However, under 1645 if the obligation is
subject to the happening of a certain condition,
Atty. Uribe: Actually, here the performance of
the obligation is subject to the happening of the
condition.
If the condition did not happen, the buyer would
have 3 options:
(a)
Not to proceed with the contract, which is
rescission.
(b)
He may waive the condition (eviction of
the squatters) and proceed with the sale this
was the remedy chosen by the buyer in this case.
(c) He can treat the non-happening of the
condition as a breach of warranty and claim
damages.
Obviously, the buyer chose option (b) and
therefore the seller cannot rescind the contract.
2. Implied
Prof. De Leon: because of this implied warranty,
it cannot be said that Philippine law does not
adopt caveat emptor buyer beware. (Fayes
Caveat : Please check the book of Prof. De Leon
regarding this statement. Thanks )

Even if there is no stipulation as to these
warranties, the law itself would provide for these
warranties and hence if there are hidden defects
he would have remedies under the law or even if
he was deprived of the thing he bought he would
have a remedy against the seller. Hence, it is not
correct to say that Philippine law has adopted
caveat emptor. But there are certain instances
when there would be no such implied warranty
against hidden defects. There may be warranty
as to title or against eviction but there is no
warranty against hidden defects under certain
circumstances.
Warranty Against Eviction / Title
Q: If the seller was able to transfer

ownership to the buyer may the seller
nonetheless be held liable for breach of
warranty against eviction?
A: Yes. These are 2 different obligations: the

obligation to transfer ownership and the
obligation to warrant the thing.
Example: This warranty against eviction would
include the warranty that the buyer from the
moment of the sale have and enjoy the legal and
peaceful possession over the thing sold.
He may be deprived of the thing by a 3 rd person
even if he would not lose ownership.
Q: When would this happen?
A: Maybe the 3rd person has a better right to the
possession of the thing. Maybe there was a lease
agreement entered into which has to be
respected by the buyer.
Note: A contract of lease may last for 99 years.
Q: If there is a claim or a 3rd person claims a
right over the thing bought, does it mean
that the seller will already be liable for
breach of warranty against eviction?
A: No because there are requisites which must be
complied with.
Requisites:
1. There has to be final judgment depriving him
of such thing either wholly or partially. In other
words, a case was filed by a 3 rd person against
the buyer which resulted in a favorable decision
as to the plaintiff resulting in the deprivation of
the property by the buyer.
Note: For the seller to be liable, he must have
been notified of this case against the buyer. In
fact, he should be impleaded as a co-defendant in
the action because:
Page 15
(a) The seller should have an opportunity to

defend his title.
(b) The seller would normally have the
knowledge of the defenses as to the
property which is sold. If there is one
person who can mediate the claim of the
plaintiff between the seller and the buyer
normally it would be the seller.
Q:If there is a decision in favor of the
plaintiff (3rd person) against the buyer in
the trial court, is it required that the buyer
should appeal in order for him to be able to
hold the seller liable?
A:No because the party who should appeal if he
is interested should be the seller. If he does not
want to be held liable, he should appeal the case
up to the SC. If the decision becomes final, he
may be held liable for breach of warranty.
2. Deprivation must be either:
(2.1) Based on a 3rd persons prior right over
the thing prior to the sale or
(2.2) Based on an act after the sale but
imputable to the vendor.
Concretely, the reason for the deprivation maybe
because of non payment of real property taxes
by the seller and not the buyer.
Example: If land was sold in an execution sale
because of the failure of the seller to pay real
property taxes this can be the basis of liability
for breach of warranty.
Based on an Act after the Sale but
Imputable to the Vendor

November 2008
Example: There was a first sale to A and then a

2nd sale to B. Under the law on double sale, B
have a better right if this is a sale involving
immovable, if he was the first one who registered
the sale in good faith.
The first buyer even if he was in possession
maybe evicted from such property by the 2 nd
buyer because the 2nd buyer would have a better
right. This is based on an act of the vendor after
the sale or after the 1st sale hence, there can be a
liability for breach of warranty against eviction.
Q: If during the sale a 3rd person was
already occupying the land by way of
adverse
possession
so
in
an
open,
continuous xxx for 7 years under the color
of title. But after the sale, the buyer did
nothing. And hence, the occupants claiming
a right or ownership was able to complete
the prescriptive period of a minimum of 10
years. Thus, if a 3rd person would be able to
deprive this buyer of ownership over the
thing because of acquisitive prescription,
can the buyer hold the vendor liable for
breach of warranty?
A: No because it was his fault that the 3 rd person
was able to complete the period for acquisitive
prescription. Had he done something to interrupt
the running of the prescriptive period then he
would not have been deprived of the ownership
of the thing.
3. There should be no valid waiver
4. The action to hold the vendor liable should be
filed within the period prescribed by law.
Q: If indeed the seller can be held liable for
breach of warranty against eviction, what
will be the extent of liability of the vendor?
A: The vendor can be held liable for the value of
the thing at the time of the eviction, income or
fruits, cost of suit, egixpenses of the contract and
damages and interest.
Damages may only be claimed if the seller is a
seller in bad faith. As long as he sold the thing in
good faith, he cannot be held liable for damages
regardless of whether there was a waiver or not.
In fact, if there is a waiver but the vendor is in
bad faith, the waiver is void and hence he can be
held liable for everything under the law. If there
was no waiver and the vendor is in bad faith,
again he will not only be liable for expenses xxx
but also for damages, cost of suit xxx everything!
Q: If the seller was aware of the defect of
his title at the time of the sale, hence, he is
a seller in bad faith?
A: Not necessarily. He may be aware but he
informed the buyer of such defect in the title and
hence he cannot be considered bad faith vendor.
Even if he did not inform the buyer but if the
buyer was already aware of the defect.
Q: Why would a buyer buy a thing if the
title of the seller has defect?
A: Maybe because the buyer needs the thing for
his business. If I am the vendor and I know there
is a defect in my title, I will ask the vendee to
execute a waiver.
Q: Thus, if there is such a waiver and
assuming the vendor acted in good faith,
can the vendor be held liable for breach of
warranty?
A: It depends on the kind of waiver.
(a) If waiver consiente the buyer executed a

waiver without knowledge of the defect in
the title of the seller. Also, the vendor
does not know of the defect. The only
liability of the vendor for breach of
warranty against eviction is the value of
the thing at the time of eviction.
(b) If the waiver is intentionada when the
vendee
executed
the
waiver
with
knowledge in the defect of the title of the
seller, hence, he knew of the possibility of
being evicted and nonetheless bought the
thing the vendee cannot hold the vendor
liable.
WARRANTY AGAINST
HIDDEN DEFECTS
Requisites:
1. The defect must exist at the time of the sale. If
the defect started after the sale there can be no
such liability.
2. The defect must be hidden. If the defect is
patent and the buyer nonetheless bought the
thing then he can no longer hold the seller liable.
If the seller is not aware of the hidden defects, he
can be held liable. If he was aware, his liability
will be greater because that makes him a bad
faith seller.
Q: Even if there is such a hidden defect, is it
possible that the vendee cannot hold the
vendor liable despite the fact that there
was hidden defect even if he was not
informed because maybe the seller was not
aware?
A: Yes, he may not be able to hold the seller liable
if he is an expert on the thing. He is expected to
know the defect.
Page 16
3. The defect must result in the thing being unfit

for the purpose of the buyer or at least it diminish
the fitness of the thing such that the buyer would
not have bought it at the price had he known of
such defect.
Q: If the thing which has a hidden defect
was lost or destroyed, can the vendee hold
the vendor liable for this breach of
warranty? Does it matter if the loss was due
to a fortuitous event or maybe the loss was
due to the fault of the buyer himself,
nonetheless, can he hold the vendor liable?
A: Yes. The vendee can hold the vendor liable for
breach of warranty against hidden defects even if
the thing was lost due to fortuitous event or due
to the fault of the vendee himself because of the
hidden defects. But of course, if the cause of the
loss was the defect itself, the liability is greater
than if the cause of the loss was a fortuitous
event or fault of the buyer.
If there would be a problem here as to the extent
of the liability of the vendor, he should first
consider the cause of the loss, maybe it was lost
due to the defect itself or lost through fortuitous
event or lost through the fault of the vendee.
After that, he should determine whether the
vendor was aware of the defects or he was not
aware. Again, if he was aware, damages may be
recovered. If he was not aware, he may not be
held liable for damages unless he can only be
held liable for interest.
If the defect was the cause of the loss, the vendor
would be liable for the return of the price, not
only the price less value but also to refund the
expenses and damages because the vendor was
aware of the defects.

November 2008
If the vendor was not aware of the defects, he

cannot be held liable for damages but he would
only be held liable for the price.
Q: The price may be higher or lower than
the value of the thing?
A: Yes. It does not matter. It may be higher or
lower. The thing may depreciate or appreciate or
maybe the thing was sold at a price less than the
value and therefore at the time of the loss, the
value is still greater than the price but he is only
obliged to return the price.
If the cause of the loss of the thing was a
fortuitous event, he can only be held liable for the
price less value.
Example: If price is P100,000 and the value at the
time of the loss is P80,000. He can be held liable
for P20,000 (P100,000 - 80,000 = P20,000)
Q: How would defect be proven if the thing
was lost or destroyed due to fortuitous
event?
A: It is a matter of proof. The proof may have
been obtained already prior to loss. Pwedeng pina
examine na nya sa expert so meron na syang
evidence of the defects prior to the loss.
If the cause of the loss was fortuitous event
or fault of the vendee and the buyer was
not aware of the defects, is it possible that
the vendor may not be liable even for a
single centavo?
A: Yes, in this scenario because he only had the
obligation to return the price less value at the
time of the loss. If it happens that the value is
greater than the price, the vendor has no liability
even there is hidden defect.
ANY CHARGE OR NON APPARENT
ENCUMBRANCE NOT
DECLARED OR KNOWN TO THE BUYER
Q: Would there be an encumbrance over an
immovable which is a form of easement or
servitude?
A: An example of this is a road right of way.
Q: If the buyer bought the land which
turned out to have a road right of way in
favor of a 3rd person, can he claim breach of
warranty against any charge or non
apparent encumbrance?
A: Of course there are requisites:
(1) The encumbrance or easement or burden or
the road right of way has to be non
apparent.
Q: May a road be non-apparent?
A: Yes, like in rural areas. In rural areas, yung
road right of way mga putik lang yan and
normally the road will only be used by the
person having this right during harvest period.
Harvest period is once every 6 or 3 months. In
the meantime, during the 3 or 6 month
period, puro cogon yan and hence the road
maybe non apparent.
If it is apparent, no liability.
Q: If the encumbrance is non apparent
does that necessarily mean that the vendor
can be held liable?
A: No because the encumbrance may be known
to the buyer. This liability would arise only if the
encumbrance is not known to the buyer.
Q: If he was not aware of this encumbrance

and the encumbrance is non apparent,
vendor will now be liable?
A: Not yet because the encumbrance may be
registered or annotated at the back of the title
negligence of the vendee so he cannot hold the
vendor liable.
Q: If there is an encumbrance, what are the
remedies of the buyer?
A: (a) He can seek for the reduction of the price.
Q: Can he rescind the contract?
A: (b) Yes but the law requires that the action for
rescission must be filed within 1 year from the
date of the contract. If after 1 year, no more
rescission.
(c) If he became aware more than a year, he
may file an action for damages, But the law
requires that the action for damages has to be
filed within 1 year also but from the time of the
discovery of encumbrance. If he filed it for
example, after 2 years from discovery no
recovery of damages.
WARRANTY OF QUALITY
Prof. Deleon, Prof. Vitug, Prof. Baviera: there
is another warranty which is WARRANTY OF
QUALITY which includes:
(1) Warranty of Fitness
(2) Warranty of Merchantability
To some authors the warranty of quality is
considered under the warranty of hidden defects.
Atty. Uribe: I cannot agree that the warranty of
quality is in the warranty of hidden defects. I
agree with Prof. De Leon, Prof. Vitug and Prof,
Baviera that there is a warranty of quality.
WARRANTY OF FITNESS FOR A PARTICULAR
PURPOSE
The thing bought may not actually have any
defect and for 1 million buyers it would be fit for
their purpose. However, it may not be fit for the
purpose of 1 buyer and if all the requisites for this
warranty are present, then he may hold the seller
liable for breach of warranty of fitness for a
particular purpose although there is no hidden
defect but it is not fit for the purpose of the
buyer.
In order for the seller may be held liable:
1. The buyer has to inform the seller of the
particular purpose for which the thing is to
be use and
2. The seller manifested that the thing would
be fit for the purpose and the buyer relied
on such representation of the seller.
Note: If the thing is sold under the trade name
there can be no warranty of fitness for a
particular purpose.
WARRANTY OF MERCHANTABILITY
It pertains to the fact that it is fit for the general
purpose. If the thing was sold by description or by
sample, it is considered that there is such a thing
as warranty of merchantability.
SALE OF ANIMALS WITH DEFECTS RULES:
1. The defect is a redhibitory defect it is such
kind of defect that even by examination of expert
it cannot be discovered.
Q: If one of the animals has redhibitory

defect, can the buyer rescind the entire
contract pertaining to all the animals?
Page 17

November 2008
A: G.R.: No. He can only rescind the contract

pertaining to the animal with redhibitory defect.
He cannot rescind the entire contract pertaining
to all animals.
Exception: If he can prove that he would not
have bought the others had he known the defect
of one then he can rescind the entire contract.
Q: Who has the burden of proof that he
would not have bought the others had he
known of the defect of one?
A: Normally, it would be the buyer. But the law
under certain circumstances would provide for
this presumption that it is presumed that he
would have bought the others had he known of
the defect of one.
Examples: He bought the animals in teams or in
pairs then the presumption arises.
- Love birds (Ang mga love birds, kapag
namatay yung isa later on mamatay din
yung isa. Minsan nga mgsuicide pa sya
pag mag isa na lang sya. Iuuntog nya ulo
nya sa cage nya. )

- Sledge dogs (Sa mga countries na may
nyebe snow may mga sledge dogs.
Kailangan pag binili ang mga dogs, team
sila. May leader pa nga sila eh at
sumusunod sila sa leader nila
Q:
If the animal which was bought, died
of a disease within 10 days, the disease
existing at the time of the sale, may he still
have a remedy under the law?
A:Yes, if the disease turned out to be a
contagious disease. In fact, under the law, the
sale is void. If he has already paid, he can recover
what he paid because the sale is void.
If the disease us not contagious, under the law he
would only have a remedy if the animal died
within 3 days.
Instances whether there would be no
warranty against hidden defects and
therefore caveat emptor may be invoked:
1. Sale which is an as is where is sale which
means as it is found, where it is found xxx bahala
ka sa buhay mo if you want to buy the thing and
you cannot later on claim that there were hidden
defects. (Faye: pls. research the complete
meaning of as is where is sale. Atty. Uribe will
ask the meaning.
Q: Can there be a claim of breach of

A: Yes because the seller would have or would still
warrant the title over the goods.
2.Sale of 2nd hand items
3.Sale of animals in fairs
4.Sale in public auction
Note: There would still be warranty
against eviction. Note: Rules on warranty
also apply to judicial sale.
Q: In sale by authority of law or in
execution sale, can there be breach of
A: Yes. The judgment debtor and not the sheriff
shall be liable.
The law would specifically exempt certain
persons from liability for breach of warranty like
sheriff, auctioneer, mortgagee, pledge and other
persons who sell by virtues of
an authority of law like notary public because

they are not really selling for themselves, they
are selling on behalf of another person.
RIGHTS AND OBLIGATIONS OF THE VENDEE
1. Obligation to accept the thing delivered.
2. Obligation to pay the price (if warranted,
with interest)
1.
Obligation
delivered
to
accept
the
thing
Q: If the buyer received the goods

delivered, does it mean that he already
accepted?
A: No because receiving is preliminary to
accepting. In fact, this is consistent to the right
provided by law to the buyer which is the right of
inspection or the right of examination. Thereafter,
he may reject the goods if defective.
Q: When will he be considered to have
accepted?
A:
(1) When he intimated his acceptance to
the seller.
(2) Even if he did not intimate his
acceptance or rejection, he will be deemed to
have accepted if he did an act which is
inconsistent with the ownership of the seller.
Again, if he pledged the thing to another that is
an act of ownership or if he sold or donated the
thing.
(3) If he did not do anything by mere lapse
of a reasonable time, he will be deemed to have
accepted the thing. What is reasonable time
would depend on the circumstances surrounding
the sale.
Q: What if after an examination or before
the examination, the buyer refused to
accept and informed the seller but the
goods are already in his place? What if the
goods were lost or destroyed in the
possession of the buyer even due to
fortuitous event, who will bear the loss?
A: It will depend on the reason of the rejection. If
there is a just cause for the rejection, then the
seller will have to bear the loss because there will
be no transfer of ownership and he cannot be
compelled to pay the price. However, if the
reason for the rejection is unjustified, ownership
passes to the buyer by operation of law then he
will have to bear the loss under the res perit
domino rule.
2. Obligation to pay the price
Q: When?
A:
(1) As stipulated
(2)
If there is no stipulation, it would
be at the time and place of delivery.
Q: If the delivery was made a year ago but
the payment of the price was made today,
would the buyer be liable for the interest
from the time of delivery up to the time of
payment?
A:G.R. No. Exceptions:
(1) Stipulation the vendor may only agree
for the payment of the price for a certain
time only because there will be interest.
(2) Even if there is no stipulation if the thing
delivered produces fruits or income.
Example 1: The object of sale is a rice land.

Isang taon na sa buyer yung rice land ibig
Page 18
sabihin he harvested twice already. The buyer

should be liable to pay interest.

November 2008
Example 2: Apartment unit. Kumita na yung

buyer sa rentals.
(3) Even if no fruits, he may be liable for
interest if he is in delay. This delay would
start from the time there is judicial or
extrajudicial demand.
A COS is a bilateral contract resulting in
reciprocal obligations under 1169 from the
moment one of the parties in reciprocal obligation
performed his obligation and the other party has
not even without demand, the other party would
be in delay and therefore liable for interest and
damages.
But in this provision, in order for the buyer to be
considered in delay there must be judicial or
extrajudicial demand. This article should be
construed to mean that there was a period fixed
for the payment of the price. Nakalagay sa
agreement
today ang sale, after 1 year payment. Upon the
expiration of the 1 year period, there has to be
judicial or extrajudicial demand which is different
from 1169 when the SC interpreted to mean that
the obligation is already due and demandable at
the time of the perfection of the contract. Hence,
no need for demand anymore.
Right to Inspect or Examine
This right may not be present in all COS because
you can waive the right of inspection. Upon
delivery and receiving the goods, if you agree
that you are deemed to have accepted no more
right to inspect.
In C.O.D. arrangement, the delivery will not be
made until payment has already been made by
the buyer so in that scenario, he has to pay first
even before delivery. This is a sale transaction
where the buyer would have no right of
examination prior to acceptance.
Example
The arrangement between a mining
company and NAPOCOR in the sale of coal.
NAPOCOR will have no right to inspect
preliminary to acceptance, they will always
accept. But after acceptance, that there would be
examination of the quality of the coal not for the
purpose of rejecting but for the purpose of fixing
the price. So this is not a right of examination
prior to acceptance. This is only an examination
for fixing the price.
MACEDA LAW
BE: What is the Maceda Law? Give its
essential features.
A: R.A. 6552 Realty Installment Buyer Protection
Act.
Realty object of the sale is realty (not real
estate). Specifically, residential unit and not
commercial or industrial.
Q: How about a condominium unit?
A: It is covered by the Maceda Law as long as it is
residential in character.
Q: Sale on credit, does it mean that the sale
will be covered by the Maceda Law?
A: No. There is such a sale on credit which is on a
straight term basis.
Example 1
1M down payment of 500,000 today and the

balance to be paid at the end of the year not
covered by Maceda Law
Example 2
300,000 today, the balance of 700,000 to be paid
on 10 equal monthly installments covered by
the Maceda Law
A:
All the provisions under the Maceda Law are for

the benefit of the buyer.
Q: What if it is 20 years 100%?

A: No. Upto 90% only. So if 15 years or 16 years,
still it is 90%.
Q: Is it correct to say that in this law, the

buyer cannot invoke this law if he has not
yet paid for at least 2 years?
A: No. Even if he has only paid for a month, there
will be rights already of such buyer under the
Maceda Law. If he has paid at least 2 years, he
would have better rights.
Q: If he has paid less than 2 years of
installment, what are his rights?
A: (1) The grace period he has a minimum of 60
days grace period (the seller can give him more).
During the 60-day grace period, he can sell his
rights under the contract, he can assign his
rights, he can update his account, he can pay the
balance.
(2)
The right to recover a portion of
what he has paid
cash surrender value (CSV). This CSV is a
minimum of 50% of what he has totally paid. This
includes
installment
payments,
deposit,
downpayment every amount paid 50% of that.
It can be higher depending on the number of
years that he has already paid.
Hence, if he has paid only twice, he may
be entitled to CSV if the payment is on annual
payments not monthly.
Q: The minimum of 50% - when higher?
Page 19
2 years 50% 8 years 60%

7 years - 55% 9 years 65%
10 years 70%
Every year thereafter, additional 5%.
Q: Would the amount recoverable be

bigger?
A: Yes. 90% depends on the total amount paid.
90% pa din pero malaki ang base.
BE: Ayce bought a condo unit for 10M. 3M
downpayment. The balance of 7M payable
in 60 equal monthly payments. Ayce
religiously paid until the 46th installment.
On the 49th installment, she offered to
update her account. The seller
Gerard said I have already cancelled the
sale. Is this cancellation valid?
A: No. Under the Maceda Law, if you have paid a
minimum of 2 years, you are entitled to 30 days
for every year of payment. Under the facts, she
has paid 3 years. Hence, she is entitled to 90
days grace period. Nung nag default sya nung
47th, magstart pa lang yung grace period. On the
48th installment she was only 30 days in default.
49th installment
60 days in default. She was very much within
the 90-day grace period when she decided to
update her account.
Q: What if the installment period is for 15
years. The buyer defaulted on the 3 rd year.
Under the law, she is entitled to a minimum
grace period of 60 days. Thereafter, she
was able to update. But on the 5 th year, she
defaulted again. How many days is her
grace period?

November 2008
A: None. The default must be once for every 5year lifetime of the contract.
Q: If there is a stipulation for the forfeiture
of the payment made the buyer will lose
the house and lot and he will not recover
anything because all his payments will be
treated as rentals is this a valid clause?
A: No, the premise of course if he has already
paid for 2 years because by law he is entitled to
50% CSV.
Q: Upon failure to pay 1 or more
installments without need of notice, the
seller would have the right to cancel the
sale
is this automatic cancellation clause valid?
A: Void. There has to be notice to the buyer but
more than that if the buyer is already entitled to
the CSV, the cancellation will take effect only
upon full payment of the CSV.
Q: Are the remedies under the Maceda Law
alternative? Can the buyer be able to
exercise 2 or more remedies all at the same
time?
A: Yes, remedies under the Maceda Law are
cumulative.
REMEDIES FOR BREACH OF CONTRACT
REMEDIES OF AN
UNPAID SELLER
(ARTICLE 1526)
1. Right to retain the thing in his possession
(possessory lien / withhold delivery)
2. Right of stoppage in transitu / right to
resume possession of the goods
3. Right of Resale
4. Right to Rescind
Q:
Are there other remedies aside from
Article 1526?
A: Yes, the seller may opt to file an action for
specific performance or action for damages.
Q: Under 1526, who may be considered an
unpaid seller? If the buyer has already paid
90% of the price, may the seller invoke
these remedies?
A: Yes, because an unpaid seller is one who has
not been fully paid of the price.
Q: May a person who was not a party to the
sale be able to claim any of these
remedies?
A: Yes, because a seller need not only pertain to a
party to the contract. A person who is in the
position of the seller is actually a seller under the
law.
Q: Who would be in the position of the
seller?
A: The assignee or heirs of the seller or the agent
to whom the bill of lading was indorsed by the
seller.
Q: In unpaid seller, are his remedies
alternative?
A: Not necessarily, because in fact by express
provision of the law, the right of resale and the
right to rescind may only be exercised if the seller
has possessory lien. Pag wala na syang lien, he
can no longer exercise the right of resale or right
to rescind so cumulative to that extent. But if
there are 2 remedies that alternative and cannot
exist at the same time, these are the right of
stoppage in transitu and possessory lien because

a requisite in order for the seller to have a right of
stoppage in transitu is that the seller must have
already parted possession over the goods.
Specific Remedies
1. Right to retain the thing in his possession
(possessory lien / withhold delivery)
Q: Why is it called possessory lien?
A: Because there is another lien in the law. This is
the lien under the rules on concurrence and
preference of credit. This is the lien of the seller
for the price of the thing sold if the thing has
already been delivered to the buyer and the
buyer became insolvent. While the thing is in the
possession of the buyer there is such a lien but
that is not the lien under 1526. 1526 again is the
right to retain the goods in his possession the
possessory lien.
If you remember the discussion on delivery the

rule here is delivery to the common carrier is
delivery to the buyer and therefore when the
seller delivered the goods to a common carrier as
a rule he loses his lien over the goods. The
premise of that is that he did not preserve his
possession over the goods.
Other Instances Where Seller May Invoke

Possessory Lien
1. When there is no stipulation as to the
credit
2. Or there may be a stipulation as to the
period of credit but the period has already
expired.
Atty. Uribes Comment: With due respect to

this article, the article says if he did not reserve
his ownership or possession over the goods. I
dont think that phrase ownership is accurate
because it does not matter under the law
regardless of whether ownership has passed to
the buyer, the seller would have the right to
exercise
any
of
these
4
remedies,
notwithstanding ownership has passed pwede pa
syang magkaron ng possessory lien. In fact, by
express provision of law even if he is only holding
the thing as a bailee, he will still have possessory
lien, hence, ownership is irrelevant even if the
seller did not reserve ownership, with or without
reservation he may or he may not be deemed to
have lost his lien. Pero kung na reserve nya ang
kanyang possession, definitely, he will not be
considered to have lost his lien kasi if under the
bill of lading deliverable to the seller then he will
not be considered to have lost his lien thus there
is no need for him to exercise the right of
stoppage in transitu.
When would the Seller be Considered to

have Lost his Lien
1. If he waives his right
2. If the buyer lawfully obtained possession
over the goods
3. When the thing is delivered to a common
carrier and the seller did not prefer his
ownership and possession over the goods.
Q: If the seller opted to file an action to

compel the buyer to pay the price and the
court decided in favor of the seller. The
court ordered the buyer to pay the price.
Can the buyer tell the seller to deliver the
goods so that he will pay the price? Can the
seller now be compelled to deliver because
there was a final judgment in his favor?
Q: When would the seller have this

possessory lien? Is it required that the
buyer should be insolvent?
A: It is not required that the buyer should be
insolvent but this is one of the instances when
the lien may be invoked when the buyer is
insolvent.
Page 20

November 2008
A: No, the very specific provision of the law just

because there is a final judgment in favor of the
plaintiff, that would not mean he will lose his lien
over the goods.
Atty. Uribes Comment: This is a very
reasonable rule because is there an assurance
that the buyer will pay even with court order?
2. Right of stoppage in transitu / right to
resume possession of the goods
Requisites:
1. Insolvency of the buyer is an essential
requisite
2. The seller must have parted possession
over the goods
3. The goods must be in transit
Q:
Should the debtor be insolvent
already at the time of the perfection of the
sale?
A: No, as long as at the time the right is invoked,
he is insolvent. The insolvency may happen a day
before or 2 days before basta at the time the
right is invoked, the buyer is insolvent.
Q: How is the right exercised?
A: (1) By obtaining actual possession of the goods
(2) By mere notice to the common carrier.
Q: If such notice was sent to the common
carrier but the common carrier refused to
deliver the goods back to the seller, is the
common carrier liable?
A: Not necessarily, if the goods are covered by a
negotiable document of title, the common carrier
can be compelled to deliver the goods pursuant
to the exercise of the right of stoppage in transitu
back to the seller only if after the negotiable
document of title is surrendered to the common
carrier. It should be a negotiable document of
title. This is a protection to the common carrier.
Kasi if not negotiable, pwede yun i-negotiate sa
3rd person who may purchase the goods in good
faith and for value. That 3rd person would have a
better right kaysa sa owner or seller.
Q: If the seller validly exercised the right of
stoppage in transitu, what is the effect?
A: He will be considered to have regained his
possessory lien.
Q: In a scenario where the seller still has
possessory lien, he may have invoked the
right of stoppage in transitu so he regained
possessory lien, in the meantime, the buyer
sold the same goods to another person, so
tatlo na the seller, the buyer and the 3 rd
person. Can this 2nd buyer compel the seller
to deliver the goods to him as the 2 nd
buyer?
A: As a rule no because the sellers lien over the
goods will not be affected by the disposition
made by the buyer of the goods to a 3 rd person.
He will retain his possessory lien. 2 exceptions:
1. If the seller assented to the disposition
2. Even if he did not give his consent to the
sale, he will lose his possory lien if:
a. the goods are covered by a
negotiable document of title
b. the negotiable document of title
was property negotiated to a 3rd
person in good
faith and for value. Not negotiation

to a donee.
3. Right of Resale
Q: When would the seller have this right?
A:
(1) If the goods are perishable
(2)
The right is expressly reserved in
the contract
(3) The buyer has been in default for an
unreasonable time
Note: In order to exercise this right, he must
have at the same time possessory lien.
Q: If necessary for the validity of resale
that the seller should send a notice of the
intention to resell to the buyer which
means that if there is no notice of the
intention to resell and then the resale will
be void. Is that correct? Is it correct to say
that for the resale to be valid, there should
be notice to the buyer of the date, time and
place of resale?
A: The answers to both questions No. They are
not necessary for the validity of the resale.
Q: So what is the relevance of these
notices?
A: First, the notice of the intention to resell will
only be relevant if the ground relied upon by the
seller is that the buyer has been in default for an
unreasonable time. Kasi from the notice makikita
how long the buyer has been in default. Second,
as to the notice of the date, time and place of
resale, this is not necessary for the validity of
resale but may be relevant in determining
whether the sale was a good faith sale. This is
relevant as a consequence of resale, if there is
still a balance. For example, the total contract
price is P100,000. The buyer did not pay a single
centavo. Out of the resale, ang proceeds lang
P60,000. So may balance pang P40,000, can
the buyer be compelled to pay the
deficiency? Yes, but if the sale is not a good
faith sale, he may not be required to pay the
balance. Why? What has the letter got to do
with good faith? Because if a letter was sent,
then the buyer could have been present and
could have determined for himself whether in fact
an actual sale conducted and there were actual
bidders in that sale. Kasi pwedeng gawa gawa
lang ng seller na kunwari may bumili.
Take note under the law, the resale may be a
private sale. The only limitation here is that the
seller cannot buy directly or indirectly.
Q: What if there was an excess? Example
out of the 100k price the buyer paid 20k.
balance 80k. What if in the exercise of the
right of resale, the seller was able to sell it
at 130k? May the buyer be able to recover
at least the amount that he paid?
A: No, because under the law, the seller will not
be responsible for any profit that will derive from
the resale. (See Article 1533)
Q: Would there be unjust enrichment?
A: None, because it was precisely the fault of the
buyer - his failure to pay that the seller exercised
the right of resale.
4. Right to Rescind
Would only be available under 2 instances na

kapareho ng resale. Di ba resale 3 instances- ang
di lang present sa
Page 21
November 2008
rescission yung perishable

goods.
rescission are:
So the grounds
in
that would make the entire balance due and

demandable and
therefore he can be compelled to pay the entire
800k.
a. The right is expressly reserved

b. The buyer has been in default for anQ: This time 3rd installment default sya. After
few months
Law). Because normally sa Recto Law, maliit lang
unreasonable time
binebenta so there can be an acceleration clause
wherein
Note: In resale, SC said - if the ownership of the
thing has already been transferred to the buyer,
in order for the seller to exercise the right of
resale. Should he first rescind the contract?
A: No, he can immediately sell the goods because
the effect of the resale is to terminate the
ownership of the 1st buyer and that ownership
would be vested upon the 2nd buyer by operation
of law, hindi na kailangan mag-rescind.
In rescission, this cannot be exercised for casual
breach. Parang 1191.
Song Fo vs Hawaiian
Facts: The buyer failed to pay around 20 days
from the time the obligation to pay become due.
Held: The SC said, that it not a serious breach of
his obligation to pay which would entitle the
seller the right to rescind the contract. The
number of days would depend on the
circumstances surrounding the sale. In Song Fo,
the sale pertains to molasses/ sugar.
RECTO LAW
- promulgated to protect the buyer
- pertains to the right of the buyer
- if you analyze the law, it only provided 3
remedies
- pertains to movable on installments
Q:
Assuming this is a sale of diamond
ring fro 1M payable in
10 equal annual. 100k each year payable
Jan 1 each year. The buyer was able to pay
1st and 2nd installment. He failed to pay the
3rd installment. Despite demand, the buyer
failed to pay. Can the seller cancel the sale?
A: No, under the Recto Law, cancellation of the
sale and the foreclosure of mortgage may only be
invoked if the buyer has failed to pay 2 or more
installments. If the buyer failed to pay only 1
installment the only remedy available to the
seller is exact fulfillment meaning specific
performance.
Q: If after 2 months (despite demand the
buyer failed to pay) the seller filed an
action to recover a sum of money how much
shall be recovered by the seller? Take note
under the facts he only paid 2 installments and
hence the balance 800k. Can the seller
recover the 800k?
A: As a rule none because in a sale in
installments, this is actually an obligation to pay
with a period. Every time the period would arrive
only then the obligation will become due and
demandable. Ang nagiging due and demandable
lang yung 3rd installment. The 4th installment will
be due only another year and so on. What he can
recover is only 100k which became due on the
third installment. That is the general rule. By way
of exception he may be able to recover 800k or
everything if there is a clause known as
acceleration clause. Kung sa Maceda Law void
ang acceleration clause, sa Recto Law valid (sabi
ni atty. Uribe valid pa rin daw yan sa Maceda
he was able to pay the 3 rd installment.

Nakabayad sya ng 4th, 6th. On the 7th he
defaulted again. Would cancellation now be
a remedy? (Naka-dalawang default na sya
eh)
A: No, under the Recto Law he should have failed
to pay 2 or more installments meaning 2
consecutive installments. Hindi sinabi ng batas failed to pay twice.
Q: If he failed to pay the 3 rd and 4th then
cancellation would now be a remedy. So
what if the seller opted to cancel the sale
(this is rescission di ba?) and the effect of
cancellation di ba mutual restitution and
hence the buyer should return the thing
delivered to him and the seller should
return the amount he received as payment.
Would the seller really be obliged to return
the entire 200k (1st and 2nd installment)?
A: No, under the law, he is allowed to retain a
reasonable sum which may be considered as a
form of rental. Example kung yung car ang binili,
2 years na nyang ginagamit, hence laspag na
yun.
Q: Despite the cancellation of sale which
normally result in mutual restitution, may
the seller this time be able to retain
everything which he received?
A: Yes, if there is a forfeiture clause (sabi ni Atty
Uribe, VOID daw ang stipulation) except if
retaining everything would be unconscionable.
What is unconscionable would depend again on
the circumstances surrounding the sale. Example
200k is not unconscionable for Danding Cojuanco.
But if the sale is a sale of machinery where the
buyer is a poor farmer- 200k is unconscionable.
Page 22
Finally instead of cancellation another remedy is

foreclosure of mortgage.
Q: Buyer bought a car and to secure the
payment of the price, he mortgaged his
diamond ring. The buyer failed to pay 2 or
more
installments
(3rd
and
4th
installments). If the seller foreclosed the
mortgage and it turned out there was still a
deficiency, if payable amount is 500k and in
the foreclosure sale the proceeds was only
300k. May an action for the recovery of
balance prosper?
A: Yes, because under the facts what was bought
was not the one mortgaged. For 1484 (Recto Law)
to apply, where there can be no recovery of the
deficiency of the foreclosure, the thing bought
must be the same thing mortgaged.
BE: Buyer bought a car to secure the
fulfillment of the obligation he mortgaged
the car but the buyer gave another security.
He asked his brother to mortgage his
brothers house and lot. The seller agreed.
The buyer failed to pay 2 or more
installments. The seller foreclosed the
mortgage but there is a deficiency. So the
seller filed an action for the judicial
foreclosure of the REM. May that action
prosper?
A: No, the foreclosure of the 2nd mortgage is in
fact a deficiency judgment. The only purpose of
the foreclosure is to recover the deficiency and
that is prohibited under the Recto Law.
EXTINGUISHMENT OF SALE
Includes the ordinary causes of extinguishment of
obligation:

November 2008
1. Payment
2. Novation
3. Loss of the thing, etc
Under the law on sales
1. The exercise of the right of resale will
result in the extinguishment
of the 1 st
st
sale. The ownership of the 1 buyer will be
terminated and
such ownership will be
vested to the 2nd buyer.
2. Rescission or cancellation will extinguish
COS
3. Redemption either conventional or legal
Kinds:
A. Conventional - it is because the right to
repurchase is expressly reserved in the contract
and thus this right may only arise in 1 kind of
contract. This is a sale with a right to repurchase
or a pacto de retro sale.
B. Legal- may be exercised by co-owners or by
owners of adjacent lot
A. Conventional
If there was no stipulation as to the right of
redemption then no right of redemption
Q: In the exercise of this right, how much
would have to be offered by the seller in
order to redeem the property? Would the
price paid by the buyer be sufficient in
order to repurchase the same?
A: Not necessarily, under the law, the amount
which has to be offered by the seller a retro in the
exercise of the right of redemption are: (1) price
paid; (2) the expenses incurred by the vendee for
the execution of the contract; (3) necessary and
useful expenses incurred by the buyer.
Example
In the sale of land, in order to preserve the land
which is located beside the river, the buyer may
have put up a wall in order that it may not erode.
The expenses incurred by the buyer will be
considered as necessary expenses for the
preservation of the thing sold and such expenses
have to be reimbursed by the seller, in the right
of the seller to repurchase the thing sold.
Growing fruits
Example
Q: In a mango plantation, there may be
fruits at the time of redemption. The value
of the fruits is 100k. Can the seller be
compelled to pay for the value of the fruits?
A: The answer will depend on whether there are
fruits at the time of the sale. If there were fruits
at the time of the sale, the seller will only be
obliged to pay for the fruits at the time of
redemption if at the time of the sale, the buyer
paid for the price of the value of the fruits.
So again, there were fruits at the time of
redemption, whether or not the seller would have
to pay for the fruits at the time of redemption
would depend on whether or not there were fruits
at the time of the sale. Take note that the sale
may have been 2 years before that or 3 years
before that but if at the time of the sale there
were fruits and the buyer paid for the value of
these fruits, it is reasonable that the seller would
also have to pay for the value of the fruits at the
time of repurchase.
But if at the time of the sale, there were fruits but

the buyer did not pay for the value of the fruits
then the seller should not likewise be compelled
to pay for the value of the fruits at the time of
redemption.
There were no fruits at the time of the sale but
there were fruits at the time of redemption.
Q: If a COS was entered into in 2001 and
there were no fruits at the time of the sale.
However, at the time of redemption April 1,
2005 there were fruits. The value of which
is 100k. How much can the seller be
compelled to pay for these fruits?
A: Under the law, the seller can be compelled to
pay for the value of the fruits in proportion to the
period in which the buyer was in counted from
the anniversary date of this contract. Yung
anniversary date ay every Jan 1. Yung
anniversary date this year Jan 1, 2005, from Jan
1, 2005 up to April 1, 2005 - the buyer would be
in possession for 3 months out of 12 months is
of the entire year. Therefore, how much can
the seller be compelled to pay? 25,000 of
the value. The longer the buyer is in possession
of the goods, the bigger the amount which has to
be paid by the seller.
Atty. Uribes Comment: It is reasonable. If the
buyer has been in possession for a longer period
of time then he would have tend more for the
preservation of the thing or fruits. In fact, if the
date of redemption period is July 1 and the seller
would have to pay 50% in proportion to the
period when the buyer was in possession counted
from the anniversary date.
Period in conventional redemption
BE: Ariel sold a land to Jessica for 10k with
a right to repurchase expressly agreed
upon between the parties. Because they
were friends, they did not provide for a
period within which the seller may exercise
the right to repurchase. But again, there
was a reservation of the right to repurchase
only that the parties failed to fix the period.
a. When should the seller a retro
exercise
the
right
to
repurchase?
b. If
the
seller
failed
to
repurchase within the period
agreed upon or the period
prescribed by law, what will be
your advice to the buyer in
order to protect the buyer
more?
A:
(a) The period is 4 years. Under the law, if
there is a right of redemption but the parties
failed to provide for such a period, the law itself
says that right may be exercised only within 4
years. However, if the parties stipulated as to the
period within which the right may be exercised
like 20 years, the law provides, it cannot exceed
10 years and hence the 20-year period will be
reduced. Hindi naman void yung 20 years totally,
it will just be reduced to 10 years because the
law provides that it should not exceed 10 years.
(b)
To
file
an
action
for
the
consolidation of the title.
Q: In a sale with a right to repurchase,
ownership passes when? Upon the
expiration of the period to repurchase?
A: No, it follows the general rule in sale that

ownership passes to the buyer upon the delivery
as a rule.
Page 23
Q: So what will be the effect of the

expiration of the period for repurchase
without the seller exercising such a right?
Or

November 2008
even if he did exercise it was not valid

exercise of a right, like for example: a total
amount which should have offered 500k. He
only offered to pay 300k. Hence, the buyer
can refuse and therefore the right to
repurchase was not validly exercised. Thus,
assuming there was no exercise of the right
to repurchase what is the effect on the
ownership of the buyer?
A: Buyers right or ownership over the thing
becomes absolute. During the period he has
ownership but his ownership is subject to a
resolutory condition which is the valid exercise of
the right to repurchase. If the right to repurchase,
his ownership will be terminated.
Q: Would this be correct - that upon the
lapse of the period without the seller
having exercised the right to repurchase
the ownership of the buyer becomes
absolute? Is this true also in sale of
immovable? Or true only in sale of
movable?
A: It does not matter, it is true in every COS with
a right to repurchase. From the moment by the
fact that the seller was not able to exercise the
right to repurchase within the period provided by
law, the ownership of the buyer becomes
absolute.
Q: The law requires for an action for
consolidation of title, is this necessary in
order the buyer to acquire ownership or at
least to acquire absolute ownership?
A: No, this action is only necessary if he would
want the property to be registered in his name. In
a sale of immovable with a right to repurchase
and the period for repurchase has already expired
without the seller exercising such right, the buyer
can only have the property registered in his name
by filing such an action with the court. Thus, in
order to protect him further maganda yung action
for consolidation of title kaysa naman the thing
will be sold by the seller to another person.
Q: Assuming you are a lawyer, a client
asked you to examine a document which is
denominated as a DOS with a right to
repurchase and that client was the seller
was the seller a retro (he would have the
right
to
repurchase).
However,
upon
examination of the terms and conditions of
the contract, it appears that the right has
long expired. Thus, the client asked, may I
still be able to recover this parcel of land
which is the subject matter of this contract?
A: Consider the possibility that the client may
recover. Ask the client of the circumstances
surrounding the execution of that document. Ask
him Why did you execute this DOS? If the
answer is kasi po atty. nagka utang ako sa kanya
150k tapos sabi nya instead of executing a
mortgage agreement, DOS with a right to
repurchase. Anyway, from the DOS with a right
to repurchase, he may appear to be protected.
Kasi if he owes that person 1M and if he is given
in the debt a period of 1 year within which to pay
in the DOS with a right to repurchase, he would
also have 1 year within which to repurchase. Diba
parang pareho lang? But instead of mortgage he
was asked to sign a DOS. If that is the case,
clearly you can conclude that this is not an
honest to goodness sale with a right to
repurchase. You can treat this transaction merely
as an equitable mortgage. Hence, he may still be
able to recover what was the subject matter of

that transaction.
Q: Why would the creditor ask his debtor to

sign a DOS with a right to repurchase
instead of a mortgage to secure the
fulfillment of his obligation?
A: To ensure that the property will be owned by
him automatically upon the expiration of the
period within which to repurchase and the seller a
retro failed to exercise the right to repurchase
which will not happen in a mortgage. There is a
principle in mortgage known as pactum
commissorium. Upon the default of the debtor the
mortgagee, cannot validly appropriate the thing
for himself. Ownership will not automatically pass
by mere default of the principal debtor because
pactum commissorium is void because the
remedy of the creditor is to have the property
sold in a foreclosure sale not to appropriate the
thing. So to avoid those requirements sa
mortgage, ang gagawin ng seller/ creditor is to
have the debtor sign a DOS with a right to
repurchase because the moment the debtor
failed to repurchase within the period, absolute
ownership goes to the creditor who is in that sale
the buyer (creditor) a retro. Wala na syang
kailangan gawin.
If the instrument is a DOS with a right to
repurchase it may actually be considered as an
equitable mortgage by just examining the terms
and conditions of that contract. There are certain
instances when the law itself provides for a
presumption that this is an equitable mortgage
under 1602.
BE: What are those instances?
1. The price is grossly inadequate.
Example: If the value of land is 1M, the
price stated in the DOS is 100k which is
grossly inadequate. Kaya 100k yun kasi

ang utang nya talaga 100k.
Q:
But is this presumption conclusive?
A: No, this is merely a disputable presumption. In
fact, the SC would sustain the validity of a sale
with a right to repurchase despite the gross
inadequacy of price because somehow it would
be advantageous to the seller a retro. In the
exercise of the right to repurchase, it is more
advantageous if the price is small because he can
easily come up with that amount and repurchase
the thing.
2. If the vendor a retro would continue to be
in the possession of the thing after the
sale, which is unusual because if indeed
this is a sale then the vendee should be in
possession after the sale.
Note: This is only a disputable presumption.
Q: What if there was a stipulation in the
COS that the seller will shoulder the capital
gains tax? Would the presumption that this
is an equitable mortgage will arise?
A: No, the presumption will only arise if the seller
bound himself to pay the tax on the thing not the
capital gains tax. That would be the real property
tax.
Atty. Uribes Story: Hindi ako magaling sa tax.
Sabi ni Justice Vitug, he was our reviewer, kung
sya raw ang examiner, he would only ask
questions on general principles on taxation wala
ung remedies or procedure. Naniniwala ako kay
Justice Vitug, it turned out yung mga questions
talagang general principles kaya naka-tyamba
ako. He He He He
Page 24

November 2008
Anyway, under the law on taxation it is the seller

who has the obligation to pay the capital gains
tax unless otherwise agreed upon with the buyer
would have to pay the tax. The presumption that
this is an equitable mortgage will only arise if the
seller bound himself to pay on the tax of the thing
even after the sale. Kasi hindi sya owner, why
should he pay for the tax on the thing?
Note: Presumptions under 1602 would arise
regardless of whether the sale is denominated as
a sale with a right to repurchase or a DOS. It
doesnt matter. Even if it is a DOS if there is
doubt as to whether or not it is an equitable
mortgage. It has to be resolved as an equitable
mortgage.
Q: Remedy of seller a retro?
A: Reformation because the contract as written
did not reflect the real intention of the parties.
The real intention is to secure the fulfillment of
the obligation of the vendor a retro (debtor).
B. Legal Redemption
Q: Who have the right to redeem?
A: 2 groups
1.Co-owners
2.Owners of adjacent lots (object is lot)
- consider if rural or urban land
Co-owners
Q: Co-owners of what thing, movable or
immovable?
A: It does not matter.
Q: A, B, C, D co-owners of land. D donated
his interest in the land to X. would A, B, C,
have the right to redeem?
A: No, in legal redemption, the alienation by a coowner must be by onerous title (sale, dacion en
pago, barter). This act (donation) is gratuitous
act. Hence, no right of redemption.
Q: What if B sold his interest in the land to
D. would A and C have the right to redeem?
A: No, because for A and C to have the right to
reddem, the alienation should be in favor of a 3 rd
person.
Q: What if B sold his interest in the land to
X. A, D, C, wanted to redeem. May they be
able to exercise the right of redemption? All
of them?
A: Yes. All of them.
Q: Is this the same rule in adjacent lots?
(rural areas)
A: No, in adjacent lots, there can be so many
owners depending on how it is big. The owner
with the smallest land area would have the right
to redeem.
Q: What if the owners of adjacent lots
would have equal area? (rural areas)
A: The first one who manifested his desire to
redeem.
As to Co - owners
reIn each DOS the specific area was already
described. After the execution of the DOS,
these children would actually harvest only
their respective area. They wanted to have
their respective share registered in their
own name. They filed a petition for the
cancellation of the title of their parents for

that property to be divided, they submitted
their individual DOS. But the petition was
denied by the register
of Deeds because they failed to submit a

subdivision plan. The RD cancelled the TCT
in the name of the parents issued another
TCT in the name of the 3 children in one
TCT. One of the children sold the land to a
3rd person. Can the 2 other brothers
redeem as co-owners?
A: No, because under the facts, they are no
longer co-owners. A TCT is not conclusive as to
the rights of the parties to a certain property.
Pwedeng apparently co - owners sila but in reality
there has already been a partition of the
property, yun lang hindi pa naka-reflect sa TCT. In
fact, a property may be registered in a person
who is not the owner kasi na - forge lang yung
signature ng real owner. Thus, the requirement of
the law that the co-owner would have the right to
redeem is not present therefore, there would be
no right of redemption.
Q: A, B, C co-owners. As share . Bs share
. Cs share . B sold his interest in the
land to X. However, A and C both wanted to
redeem. (As co-owners they may have the
right to redeem). If they cannot agree on
the portion of the share of B which will be
redeemed by both of them - what would be
the final sharing?
A: C will have 2/3, A will have 1/3 because they
will have the right to redeem in proportion to
their share in that property. Note: they may
stipulate as to the sharing.
Q: What if in the DOS executed between B
and X, the price stated in DOS was 3M.
Hence, A and C can be compelled to redeem
by paying 3M?
A: Not necessarily, under the law, if the price
stated in this sale is unconscionable, the
Page 25
redemptioners can only be compelled to pay the

reasonable value. Ang posibleng value could only
be 1M pero ang nakalagay sa DOS 3M. Is it
possible that X did not pay 3M? Yes. Why
would they do that? The reason for that is to
pre-empt A and C from exercising the right of
redemption. To discourage them from redeeming
the property kasi kung mura yan they can easily
exercise the right of redemption.
The law protects the redemptioners - if the price
is unconscionable - they may pay reasonable
value.
Q: What if the value is 3M but DOS stated
1M but X actually paid 3M (1M was stated
to reduce tax liability). How much A and C
can be compelled to pay?
A: Doromal vs CA
Held: The co-owners can only be compelled to
pay the price stated in the deed of sale. The trial
court sustained the claim of the buyer that they
be reimbursed the actual amount paid because
according to the trial court that would be immoral
to pay only the amount stated in the contract. SC
said it was more immoral yung ginagawa ng
parties to pay only a small amount where in fact
the real amount paid is a much higher amount.
Because the only purpose of this is to defraud the
government.
Owners of Adjacent Lots
Make a distinction between a sale of an urban
land and sale of rural land.
Sale of Urban land
Requisites:
1. The land is so small and purchased only
for speculation

November 2008
If that is the case, then the adjacent lot

owners would have the right not only right of
redemption but also of right of pre-emption.
(Article 1622)
Dito sa rural wala right of pre-emption
meaning even before the perfection of the sale,
the adjacent lot owners would already have the
right to redeem by way of pre-emption. 30 days
also 30 days from notice of such intention to sell.
But in rural lands and alienation is by onerous
title. Another requisite: the land which was the
object the sale must not be greater than 1
hectare.
Also, for the owners to have the right of
redemption, the buyer from whom the property
will be redeemed must have another rural land.
Another requisite - the land sold and the land
of redemptioner must not be separated by
brooks, rivers in order that these lot owners
would have the right to redeem.
BE: Sisters A and B co-owners of land. B
sold her interest in the land to X a 3 rd
person. X sent a notice to the sister of the
seller, the other co-owner informing her of
such sale and giving her copy of the DOS.
Despite notice, A did nothing. After that, X
requested for the annotation of the sale in
the title of that property in the RD. RD sent
another notice to A. A did not do anything.
After so many months, X wanted the
property to be partitioned. A then give
notice to X that she is exercising the right
to redeem. Does A have the right to
redeem? Right of redemption must be
exercise within 30 days from what?
A: The co-owner still has the right to redeem.
Under 1623, the 30-day period would start to run
only from the time the co-owner received a notice
from the vendor. Sino nagbigay ng notice
from the facts? Una, yung vendee pangalawa
yung RD. so hindi yung vendor amd nagbigay. So
30-day period has not started to run. Hence, he
still has the right to redeem.
Atty. Uribe: Under the facts, she received 2
notices, not only written notices but also copies
of the DOS. Under the principle of estoppel, she
cannot claim that she still has 30 days. In fact, in
a decision of SC involving a sale of a co-owner
share which sale was facilitated by the other coowner. But the latter claimed he can still redeem
because he did not receive notice. SC said sya
ang nag-facilitate ng sale so why he could not be
given notice, hence he had knowledge of the
sale. This is still consistent in the case of
Doromal. If you consider the provision literally it
says 30 days from the time of notice in writing is
given by the vendor to the co-owner. Ang
nakalagay sa batas, notice in writing. Hence,
apparently even a letter written by the
vendor would suffice and hence the 30 day
period would start to run? SC said: No, the coowner should be given a copy of the DOS and it is
only from that moment that the 30-day period will
start to run. This is a good ruling - not any
ordinary notice but a copy of the DOS because in
redemption, the redemptioner is supposed to be
subrogated under the same terms and conditions
as the buyer. How would he know the terms and
conditions of the sale if he is not given a copy of

the DOS. So he must have a copy.
Kinds
1.
2.
3.
of Lease:
Lease of Things
Lease of Work or Service
Lease of Right
LEASE
Notes:
Read the Definition of Lease under Articles
1643, 1644, 1713.
Consider also on Formalities: Articles 1647,
1724 in relation to 1403 on Statute of Frauds
and 1403, 1878 on Agency to Lease.
Assignment and Sublease: Articles 1649, 1650
Implied new lease or tacita recunducion: Article
1670
(important)
Rights and Obligation of the Lessor and
Lessee: Articles 1673, 1678, 1680, 1723 (take
note several questions in the bar have
appeared under these provisions)
Period of the Lease if the parties failed to
Fixed the Period: Articles 1682, 1687
Rights of Third Person: Article 1729 (ex: rights of
owner
of materials against the owner of the building)
Note: The first thing to consider in lease is to
consider the kind of lease.
Page 26
Note: Under the law, under 1642 only lease of

things and work or service are mentioned.
Note: In lease of Service, there are four (4) of
them but three
(3) will not be covered by Civil Law, which are
Household Service and Contract of Labor
(covered by Labor Law), and Contract of Carriage
(covered by Commercial Law). The only kind of
Lease of Service that will be discuss under the
Civil Law is the Contract for a Piece of Work.
Definition:
Q: If a party, binds himself to give another
the enjoyment or use of thing, does that
make the contract one of lease of things?
A: No, the most important distinction here with
that of commodatum is that in lease, it must be
for a price certain, otherwise if there is no
valuable consideration for the use or enjoyment
of the thing it will be commodatum.
Q: If in the agreement one of the parties
binds himself to render service, for price
certain would that be a lease of service?
A: Not necessarily, because it may also be a
contract of agency, where a person binds himself
to render service for another person it may be a
contract of agency, thus under 1644, in order for
the contract to be considered as lease of

November 2008
service, there must be no relation of principal and

agent existing between the parties.
Distinguish a Contract for Piece of Work
from Contract of Agency
Frensel vs. Mariano Ochaco
Facts: Mariano asked Merit to construct an edifice
for him and agreed that Merit was to supply not
only Labor but also Materials. Merit bought the
materials from Frensel, however the price of the
materials remain unpaid so Frensel demanded
payment from Mariano, the ground relied upon by
Frensel is that Merit was an agent of Mariano
therefore, for failure to pay the price, Frensel
claim that Mariano can be held liable for the price
of material.
Held: It is not a contract of agency, since from the
terms and condition of the contract it appears
that the control of Mariano over Merit does not go
into the manner and method of performance of
the obligation but only goes into the result of the
product and therefore it cannot be considered an
Agency Contract.
Note: In Agency, the control of the principal over
the agent is so pervasive that the principal can
control not only the result but also the manner
and method of the performance of the obligation
which is not present in this case and therefore
Merit was not considered an agent of Mariano.
Q: As to the relationship of the taxi driver
with his operator, is this a contract of
lease?
A: SC ruled that this is in fact a lease but not a
lease of thing, but lease of service specifically an
employment contract, this is because of the
control of the operator over the taxi driver, as to
when, what time the drive operates the vehicle.
Q: As to safety deposit boxes does this
involve lease of things?
A: No, in the latest decision of the SC, it
considered the contract as special kind of
deposit. This cannot be considered a lease of
things because the lessee has no control over the
safety deposit box. In fact he cannot even enter
the bank where the safety deposit boxes are
located if it not a banking hour, like when the
bank is close so he cannot enter therein.
Note: Again, to distinguish lease contract from
other legal relationship you have to consider the
characteristic of the contract. The best way to
remember the kinds of contract is to know by
heart what are the real contract (mutuum,
commodatum, deposit, pledge) and formal
contract (antichresis, donation[akala ko ba
donation is not a contract but only an act]). Aside
from that it may be safe to consider as a rule all
the other contract as consensual contract, where
no particular form is required except in
exceptional case: e.g. sale of large cattle.
As a rule lease, therefore is a consensual
contract by mere meeting of the mind as to the
object and to the consideration the contract is
perfected.
A contract of lease of things is essentially
onerous. In fact in one case decided by the SC,
involving an agreement between the Bureau of
Animal Industry and Mr. Bagtas, where 3 bulls

were delivered by the Bureau to Bagtas for
breeding purpose. There was a period agreed

upon for one
(1) year, after the lapse, despite demand for the
return of the bull Bagtas failed to do so,
thereafter he died and so his estate was required
to deliver to deliver the 3 bull but only the 2 were
returned and the third bull could not be returned
allegedly on the ground that the said bull died in
a crossfire between the Hukbalahap and the AFP,
so the claim was fortuitous event.
Claiming
that
the
agreement
was
commodatum it was argued that since there was
no transfer of ownership in commodatum, then
the risk of loss would still pertain to the Bureau.
SC
ruled
that
this
cannot
be
commodatum, because there was stipulation for
the payment of breeding fee that has to be paid
by Bagtas, it cannot be commodatum but a lease
of thing, because there was a compensation to be
paid for the use of the bull. Again a contract of
lease of things is essential onerous.
Note: Lease of things is not essentially personal.
Heirs of Fausto Dimaculangan vs. IAC
Held: Upon the death of parties like death of
lessee, the contract to occupy the premises by
virtue of the lease because it is not extinguish
upon death of lessee.
Characteristic of Lease of is not thereby
terminated. The heirs of the lessee may continue
things
1. Consensual Contract
Page 27
2.
3.
4.
5.
Onerous (essentially onerous)

Bilateral
Nominate
Principal.
Essential Requisites of
Contract of Lease 1. Consent
Note: As a contract again, you have to go into
the essential requisite of contract in general
which would be applicable also to lease.
But specifically as to consent in sale, there
are people who are prohibited from entering in
specific kind of lease, those mentioned in 1490,
1491. When spouses are prohibited from selling
to each other similarly they are also prohibited
from entering in contract of lease as spouses.
As 1491 is also applicable to lease, hence
the guardian cannot lease property of the ward as
much as the agent cannot lease the property of
the principal which he is suppose to administer.
2. Object
Q: In lease of things, may a consumable
thing be the subject matter of lease?
A: Normally when a consumable thing is use in
accordance with its nature it is consumed, as a
rule therefore consumable things cannot be the
subject matter of lease of things. The exception
is, when the use of the things is only for
exhibition, or when they are accessory to an
industrial establishment then it may be a subject
of lease.
3. Cause

November 2008
Lease of thing the consideration for the lessor is

the payment of rental
Lease of work or service - it is the compensation
to be paid by the other party
Lease of right it is the payment of royalties
which is the cause and consideration of the one
leasing the right to another
FORMALITIES
Lease of Service there is no particular form
required by law for the validity of the lease not
even for the enforceability as a rule.
Donald Dy vs. CA
Facts: The brother of Dy had a problem in one of
the casino in Las Vegas, so he ask Atty. Mutuc to
help which when resolve Atty. Mutuc now
demanded for his Atty. Fees.
One of the defenses raised by Dy was that
there was no written contract between the parties
and therefore he is not entitled to Atty. Fees.
Held: Documentary formalism is not an essential
element in the contract. In fact the contract may
be express or implied. Thus, the absence of a
written contract will not preclude a finding that
there was a professional relationship which merit
attorneys fees for professional service rendered.
Lease of Things certain provision of the law
which requires certain forms to be enforceable.
Under 1403, Statute of Fraud, when there
is a contract of lease over an immovable and it is
for more than a year, the contract of lease must
be in writing in order for it to be an enforceable
contract.
In 1878, if a person is authorized to lease
an immovable property of another for more than
1 year, that person or agent should have special
power of attorney.
Note: the problem in lease would normally be a
combination of an agency and lease.
BE: Where a principal appointed an agent
granting
him
unlimited
and
general
management
over
his
properties
withholding no power from him and
authorizing the agent to act as may deemed
appropriate. With this GPA the agent
entered in a contract of sale and two (2)
contracts of lease. The first lease pertains
to a parcel of land in Kalookan for 4 years
and rental to be paid annually for 60k a
year. He also lease a certain land in QC but
they did not fixed the period of lease but
they agreed on payment of rentals on
monthly basis rate of 3k per month. These
contracts were entered into while the
principal was in the hospital. Rule on the
validity and binding effects of the contracts
upon the principal.
A: The problem pertains to both lease and
agency. However in the problem itself there was
no statement if the lease agreement itself was in
writing.
As suggested answer, in the first lease,

since it was for 4 years and involve as lease over
an immovable and
pertains to an act under 1878, then the agent

should have a special power of attorney and
under the facts he was only given a general
power of attorney, hence since armed only by
GPA, the contract is unenforceable as against the
principal.
In the second lease, the agent represented
the principal did not fix the period of the lease
but only fixed the monthly rental of 3k, therefore
under 1687, this will be construed as a month to
month lease. Since only month to month, involve
merely acts of administration therefore not
require SPA therefore the second lease will be
valid and binding upon the principal.
BE: Agreement for the repair of a private
plane and for a certain sum of money,
however additional work was requested by
a person who has the authority of a duly
recognize representative of the owner of
the plane and the request was merely
verbal, when the additional work was
completed, the one who rendered the work
demanded additional payment, the defense
raise was under 1724 in order that a claim
for additional payment for the additional
work, the agreement for the additional
work must be in writing and the changes
should be authorized in writing.
A: The suggested answer of UP will sustain the
defense because of 1724; such change not being
authorized in writing, the request was merely
verbal then the claim may not prosper.
Atty. Uribe agrees more in the alternative
answer where in provides that, the person who
requested though verbal was the authorized
representative of the owner, and this is given
Page 28
already as a fact. If the defense would be sustain

under 1724 then there will be unjust enrichment
on the part of the plane owner.
1724 would give the proprietor the right to
raise the defense that testimony may not be
admitted pertaining to a change in the plans
because it was only verbal change, but the
moment the fact is established already, you can
no longer invoke 1724 but you can raise it as a
defense if there is a witness that is being
presented in the effect that there was request or
additional change by invoking 1724, the
additional change not being in writing then no
person may testify as to such fact.
But in the problem given it was mentioned
as a fact, that the verbal request was made by a
person authorized by the plane owner. Again the
better answer is the alternative answer, that, for
the owner to be able to raise the defense under
1724, would constitute unjust enrichment after
he actually requested for such change thru an
agent.
RIGHTS AND OBLIGATIONS OF THE LESSOR
As to necessary repairs of the thing lease,
this is an obligation of the lessor, under the law
the lessor is oblige to make the necessary
repairs.
Gonzales vs. Mateo
This involved a contract of lease over a cockpit. It
was stipulated in the contract that ang lahat ng
kailangang gagawin sa bahay sabungan ay
ipagagawang lahat ni Ginoong Gonzales (lessee)
sa kanyang sariling ukol, na ang samahan ay
walang sinasagot. In other words the lessee,
bound to do the necessary repairs, so when the
cockpit collapsed the

November 2008
lessee was held liable, even if the lessor under

the law has the obligation to make the necessary
repairs it is still subject to stipulation of the
parties.
expense of the debtor, in fact he can have

another person to do the work at the expense of
the debtor. Notwithstanding that the cost tripled
he may validly do so.
BE: A lease contract was entered into

between A and B over a parcel of land for a
period of 15 years wherein the lessee
conducted
his
business
where
he
constructed a 3 storey bldg for 300, 000.
Upon the lapse of the 15 year period the
parties not having been able to agree on
the extension of the lease, the lessor
demanded the lessee to vacate the
premises. Lessee refuse to vacate until he
is reimburse the 300, 000 and arguing that
since he is a builder in good faith he
therefore has the right to retain the thing
until he is reimbursed. What are the rights
and obligation of the lessor and lessee? Can
the lessee be considered a builder in good
faith in the first place?
A: No, he cannot be considered a builder in good
faith as he was merely a lessee and he is not
claiming ownership over the parcel of land when
he constructed the building therefore he has no
right of retention. In fact under the law the lessor
has the option of appropriating the improvement
or requiring the lessee to vacate the premises
and remove the improvement. But if he decides
to appropriate the improvement for himself he
has to pay 50% of the expense incurred by the
lessee because it is a useful improvement. If the
lessor decides not to appropriate, the lessee may
remove the improvement even if that would
cause damage to the land as long as there is no
unnecessary damage cause to the land.
Under the present practices in the real

estate business this may no longer happen. The
liability of the
BE: Instead of building it was a chapel that

is constructed by the lessee, will the same
rule apply?
A: Consider also as useful improvement by the UP
Law Center.
Note: If the improvement however is an
ornamental improvement and the lessor wants to
appropriate the same, he has to pay for the value
of the improvement not merely 50% but the
value of the improvement itself.
BE: Pertain to construction of a building,
where an architect was authorized aside
from designing of the building also to
supervise the work of the contractor. When
completed it was delivered to the owner
however within 15 years, it collapse
because of the earthquake due to faulty
construction, and it was the only building
that collapse no other building. What are
the rights of the owner against the
architect and contractor? Can the owner
demand the reconstruction of the building
considering
that
the
cost
of
the
construction of the building has tripled
from the time of construction up to the time
of collapse?
A: Under 1723, the owner can hold the architect
and contractor solidarily liable. Because the
architect not merely designed the building but
also supervise the construction hence under
1723, they are solidarily liable.
Under 1167, in obligation to do, if what
has been poorly done may be undone at the
architect and contractor normally may not

happen because the standard practice nowadays
the architect would be totally separated from the
contractor. As of now there would be a project
construction manager that would represent the
owner in supervising the work of the contractor
and no longer the architect.
RIGHTS AND OBLIGATIONS OF THE LESSEE
Note: Two (2) favorite articles are 1649
pertaining to assignment of lease, and 1650 on
sublease.
Q: The question in the Bar may be as simple
as may a lessee sublease the property
without the consent of the lessor and what
are the respective liabilities of the lessee
and sublessee?
A: Articles 1649 and 1650 would tell us that a
lessee may not assign his right on the lease
without the consent of the lessor however he may
sublease the property in whole or in part even
without the knowledge of the lessor as long as he
was not prohibited from subleasing the premises.
BE: In the contract the lessee was
prohibited from assigning the lease in one
(1) floor of the building but what the lessee
did is sublease the property, would that
sublease bind the lessor?
A: Yes. He was only prohibited was assign the
lease but was not prohibited from subleasing the
premises. In fact the lessor need not prohibit the
lessee from assigning because under the law he
is prohibited from assigning his interest as a
lessee without the consent of the lessor. If there
is a stipulation which must be state in the
Page 29
contract is the prohibition to sublease

premises in order to bind the lessee.
the
Ultimately therefore the problem here is if

there is a contract entered into by the lessee with
a third person involving his rights as a lessee,
would that contract involve assignment of the
lease or merely sublease?
Malacat vs. Salazar
Facts: The lessor entered in a contract with the
lessee for a period of 20 years from 1947 to June
1, 1967. however during the lease period, the
lessee entered into agreement with third person
without consent of the lessor, thereafter the
lessor question the validity of the contract on the
ground that this was entered without his consent
and claiming that this was an assignment of
lease, void therefore he can recover the property
from the sub-lessee. Does the contract involve
assignment of lease or merely sublease.
Held: Whether the contract is assignment of lease
or sublease, would depend on whether there was
absolute transfer of rights from the lessee to the
third person, such that he desist himself from the
lease contract and his personality, resulting now
in two (2) persons the lessor and the assignee,
and the latter is now converted in to the new
lessee. However if the lessee retains interest no
matter how small in the contract of lease then it
will be treated only as sublease.
So again, in an assignment of lease there
has to be an absolute transfer of interest by the
lessee of his rights and he disassociated himself
from the contract however if there is

November 2008
reversionary interest retained by him then it will

considered merely as sublease.
In this contract, the SC merely treated it
as a sublease and therefore valid even without
the consent of the lessor, because, first the
contract was with a period that would last only
until May 31, 1967, upon the termination of the
contract, there would still be one (1) day in the
lease agreement, therefore this lessee will be
reverted back to his rights, since he still has until
June 1, so this made it merely as sublease.
There were other stipulations in the
contract which made them to conclude that this
is merely a sublease. Like, in the contract, there
was a prohibition by the lessee upon X from
cutting the trees on that land witout the consent
of the lessee, so why would he prohibit X from
cutting the trees if he would consider himself
from being disassociated from the lease contract.
In other words, he still intervened in the contract
with respect to the subject land.
There was stipulation also as to payment
of taxes. If the contract was really involve
assignment of the lease, he should have nothing
to do anymore with the property. He would have
disassociated himself from the original contract of
lease such that, the parties that would remain
bounded by the contract was only between the
lessor and the assignee.
Frensel vs. Mariano Ochaco
In this case, the theory of Frensel that
Merit was merely an agent was not sustained by
the SC. SC sustained that theory that the
relationship of Merit and Mariano was that of a
employer or a principal an contractor in a
contract of piece of work. Thus, can the
supplier of the material,
Frensel, recover from the employer in a
contract of piece of work? There appears to be
no privity of contract. There would be privity of
contract between the owner of the edifice
Mariano and Merit in their construction
agreement. And it would be Merit and Frensel in
the contract of sale. So Mariano has no privity
with the seller of the material Frensel. Thus as a
rule, there would be no cause of action. In fact SC
dismiss the case filed by Frensel. Although in
fairness, the SC ruled, in the absence of material
mens lien the action may not prosper.
This case was decided in 1960, if the
action was filed today, may the action of
Frensel prosper? Yes, under the theory of unjust
enrichment, incorporated under Article 1729, that
the supplier of material may recover such amount
owing to him by the contractor to the extent that
the owner of the edifice is still indebted to the
contractor.
For example the owner of material is
claiming 3 million, but the owner of the edifice is
still indebted to the contractor for 5 million and
the project has been completed, the supplier may
recover from the owner of the edifice himself
instead of claiming from the contractor.
Again, on the basis of unjust enrichment
principle, since the owner of the edifice really
owes the contractor and this liability of the
contractor may not excuse by the fact that he
already paid the contractor, if the payment was
made in advance. If his obligation was not due

and yet he paid the contractor the supplier of the
material, can still recover the price of the
material from the owner of the edifice.
The liability of the owner may not also be

excuse by the fact that the contractor waived his
claim against the owner.
Ultimately even if the owner has already
fully paid the contractor at the time it is already
due and demandable he may still be held liable to
the supplier of the material if he did not demand
for the delivery of a construction bond which
would answer for the claims of the laborer and
suppliers of materials.
BE: This pertains to the lease of fishpond.
The agreement was for five (5) years
however after one (1) year period of the
lease, the lessee demanded from the lessor
for (a) reduction of the price and (b)
extension of the lease for another 1 year
because he was only able to harvest half of
what is normally being harvested in the
fishpond due to unlawful elements from the
area, extorting money from those leasing
the property in that area.
A: If we are to consider the relevant provision on
this matter, the law provides that reduction of
rental may only be demanded by the lessee if he
harvested less than half of what normally would
be harvested in that property. Normally it can
already be said that he is no longer entitled to the
reduction because under the facts, he was able to
recover one half. At any rate even if he was only
able to harvest less than one half this would not
entitle him to reduction of rentals, because under
the law, this may only be claimed if it was due to
extra ordinary FE event as oppose to merely an
ordinary FE. Storm is an ordinary FE, what could
Page 30
be considered as an extra ordinary FE event is

pestilence, unusual flood.
Thus, the presence merely of unlawful
element may be considered as extra ordinary FE
under the law and may not be considered as a
basis for the claim of reduction of the rental.
As to claim of extension of the lease,
again for the same reason, even if there is a FE in
contract of lease of thing, the happening of which
would not give the lessee the right to have the
contract extended that would only result to
suspension of the lease during the happening of
the FE. Example, war as FE would only have the
lease suspended and the lessee may bot be
compelled to pay the rentals during that period
but would not give the lessee the right to extend
the lease contract.
TERMINATION OF THE LEASE
BE: A building was constructed by A, for
this B gave A 5 million pesos with the
agreement that B will be the lessee of the
entire building for a period of 10 years for
1,000 rentals a month. However, on the 5 th
of the agreement the entire building was
burned due to FE without fault of anyone. A
reconstructed the building, just before the
building is completed, B notified A of his
intent to continue the lease, as to complete
the 10 year period. A refuse, is A justified in
refusing Bs offer to continue the lease?
A: Yes. He was justified because by the
destruction of the lease due to FE the lease
contract was terminated so it can no longer be
continued.

November 2008
BE: Discuss the effect of death of lessee,

lessor, agent and principal.
A: In a lease of thing, death of the lessee does
not terminate the contract. A contract of lease is
not essentially a personal contract therefore upon
the death of the lessee, it may be continued until
the expiration of period of the lease by the heirs.
(Case: Heirs of Dimaculangan vs. IAC)
IMPLIED NEW LEASE
Note: One of the most favorite in the bar exam.
BE: The question in the bar could be as
simple as under what circumstance would
an implied new lease or tacita recunducion
arise?
A: Under the law, the only requirement is that
1.The lease period has expired and
2.The lessee continues to be in possession of the
lease for at least 15 days from the time of the
expiration of the lease and
3.No notice to the contrary from the lessor and
the lessee.
BE: Pertain to contract of lease entered into
for period of 3 years Jan 1, 81 up to 1984.
Rentals were paid on monthly basis. It was
stipulated that the lessee has the option to
buy property at a certain price within a
certain period (option to buy). Despite the
lapse of the 3 year period, the lessee did
not exercise the option, but continued to be
in possession of the property and paying
the monthly rentals and the lessor
accepting the same. This continued until
June 1984 when the lessee stated that he
would now buy the property in accordance
with the option to buy. The lessor refuse,
caliming there was no more option. Was the
lessor correct?
Yes. Was it correct to say that there was
extension of the lease under the facts?
A: Yes, there was an extension known was implied
new lease. However, with the implied new lease it
does not mean that all the terms and condition of
the contract in the original lease continue also.
First as to the term, under the law, the term of
the renewed lease would not be the term agreed
upon but only be of a period depending on the
manner the rentals are paid. If the payment is on
annual basis, the renewal would only be for a
year and if monthly payment of rental is made,
the implied new lease would only last for 30 days.
As to the option, it was renews, SC held, in
an implied new lease, only those terms and
conditions which are germane in a contract of
lease are deemed renewed as to the rest like
option to buy, will not be considered renewed.
Even in the facts of the case itself, it was
stipulated that the option may be exercise within
the period agreed upon (3 years).
Page 31
AGENCY
Definition 1868, 1874 and 1878 - formalities
Because a form is required for the validity or for
the enforceability of the contract entered by the
agent-1878, 1874
1892 - pertain to appointment of the substituteeffect- may the agent nonetheless be held liable
for the loss that incurred by the principal as the
result of the appointment of the substitute.
Other provisions pertain to the right and
obligations of commission agent or more
importantly the guaranty commission agent
1907 - 1908
Effect of death -1919, 1930 and 1931
Either of the agent or principal
Revocation - kind of agency - agency coupled
with interest - 1927
BE: A asked her best friend to B buy for her
certain items in a grocery store. Is there a
nominate contract created between A and
B?
A: Better answer, if B agreed to the request of A,
an agency relationship has been created, a
nominate contract has been created.
Alternative Answer: I can agree with the answer
given by the UP Law Center that a lease of
service may have been created

November 2008
so long as there was no principal agency created

or existing between A and B, although from the
facts hindi ito lease of service, bestfriend eh,
good possibility, so thats why I can agree with
the alternative answer of the UP Law Center the
absence of principal agency relationship may
result in a lease of service.
Q: Im sure all of you or most of you must
have been a proxy in a baptismal or
wedding ceremony, but also you may have
ask by a politician to represent in gathering
because probably he may be in another
gathering in another place, so if youve
been a proxy in a wedding ceremony or
baptismal ceremony, actually accepted the
request of the real ninong or ninang then it
mean an agency relationship created
between you and the actual ninong or
ninang? Or if you have accepted the
request of the politician were for you to
deliver the speech in a gathering would
that result an agency relationship?
A: In both instances, no. It may appear under the
definition of agency under 1868, that there is
such an agency relationship because as defined,
a contract of agency at first bind himself to
render some service or to do something in
representation or on behalf another with the
consent or authority of the latter. So, kung proxy
ka that would fall under 1868 di ba but the
definition has been criticized by some authors,
one of them is Justice Reyes, that the definition of
a contract of agency under 1868 does not
contemplate social and political representation,
hindi kasama ang social representation, political
representation in order to have a contract of
agency under the New Civil Code, the purpose of
the agency must be the execution of the juridical
act, the agent must ask or bind himself to
execute a juridical act, meaning the act that will
be executed by the agent on behalf of the
principal should either create, modify or
extinguish a legal relationship between the
principal and a third person.
Concretely if the agent was authorized to
buy, the act - the contract entered into by the
agent with the third person would create a legal
relationship between the principal and the third
person, that would be a seller-buyer relationship,
so it is a juridical act.
On the other hand, if the agent is
authorized to pay an indebtedness of the
principal to a certain person or to a bank and he
in fact paid the said amount, the result of the act
is the extinguishment of the existing legal
relationship, the legal relationship would be the
debtor-creditor relationship between the principal
and third person, which would be extinguished by
the act of the agent known as payment.
Again therefore for a contract of agency to
arise the subject matter or the object of the
contract must be the execution of the juridical
act, mere social or political representative would
not result to a contract of agency.
Q: If a contract well first if the instrument is
titled or denominated as with agency does
it mean that there is an agency relationship
between the parties entered into a
contract?
A: Not necessarily, again the contract is not the

what parties want to call it to be, but rather how
the law will consider such contract if it is the law
determines the nature of the contact depending
on the stipulation of the parties.
Q: But what if the agency was used by the

parties in the stipulation? Does it mean that
it is a contract of agency?
A: Not necessarily, in Quiroga vs. Parsons the
word agency appeared about 3 times in the
contract but the word agency does not pertain to
a contract of agency but it pertains to another
concept of the word agency. You can use the word
agency several times in another concept like it
may be an instrumentality like a travel agency,
security agency, or even a government agency,
but their is no agency relationship or it may
pertain to exclusive right to sell in a particular
territory diba, so there is an exclusive he is
considered an exclusive agenct to sell a particular
brand in the province of Iloilo, there is actually no
agency relationship created, it is done only in an
exclusive right to sell a particular brand / product
in a territory .
Distinguishing Contact of Agency from other
Contract and other Legal Relationship
Consider the characteristics of a contract of
agency as a contract and as a legal relationship
business organization.
CHARACTERISTICS OF A CONTRACT OF
AGENCY
Q: Real? Formal?
A: Definitely it is not a real contract and also not
a formal contract.
1. Consensual - conclude that it is consensual
contract. It is perfected by mere meeting of the
minds as to the object and consideration of the
contract.
2. Principal - Why it is a preparatory
contract? This is a distinct feature of agency
similar to partnership, they are both preparatory
contracts, they can stand on their own dont
Page 32
depend on any other contract for their validity,

which means that even if the agent did not enter
into another contract, which means he did not
perform their obligation it doesnt mean that the
contract of agency is void, he may be held liable
to such other contract for not performing his
obligations, this is an agency in problems
pertaining to agency, you should always consider
the facts that normally, 2 contracts involved, you
have to deal with the requisite of both contracts,
in order to enable to reach the correct conclusion,
this is the principal - agent with the contract of
agency and second contract will be the contract
entered into by the agent with the third person,
this other contract may be a lease, sale, or any
other contract an act made by the agent.
As of Principal contract, it can stand on its
own even if the agent did not enter into another
contract
Q: Now, is this contract similar to sale as to
cause, in that it is also essentially an
onerous contract?
A: No, but it is presumed to be for compensation,
presumed to be onerous, however it may be
deemed gratuitous. Gratuitous also different from
partnership, because partnership is essentially
onerous, a partner will always have to contribute
something, now after this a nominate contract commutative contract.
As distinguished from other legal relation, you
have to go into the feature of a contract of
agency, how it is created? Then you will know, for
example that is different from other legal
relationships, which are created by operation of
law like, negotiorum gestio, agency and
negotiorum gestio may be similar in the sense
that there is representation in its legal

November 2008
relationship but they can be distinguished as to

their manner of creation in that agency is created
by mere agreement of the parties, negotiorum
gestio created by operation of law.
A feature of agency which is peculiar is
representation.
No representative in a contract - he cannot be
considered as an agent.
Nielson vs. Lepanto Minning (LM)
Held: While there was a claim by LM that there is
an agency, the SC ruled that not a contract of
agency. Nielson has no power of representation to
bind LM with third person even it has power to
buy certain items he still has to obtain or seek
the opinion or approval of the BOD of the LM in
order to buy certain items, which means he is not
really an agent as to their has no right of
representation.
But a feature which would make agency
similar to partnership
It is based on trust and confidence that there are
fiduciary obligations of an agent as much as there
are fiduciary obligations of a partner unlike in
sales or other legal relationships which are not
based on trust and confidence.
Another very important feature of Agency is
the manner of termination.
This is unusual for a contract that it can be
terminated at will by the principal agent, maski
sino. If the termination was made by the
principal, it is called revocation. if made by the
agent it is called withdrawal.
Mariano Case
To extend the contract of one party over another in agency the principal has almost full control of
the agent, he can give specific instructions to the
agent, on how the obligations are to be
performed, the manner of the obligations, the
remedies performed, with whom, where it is to be
performed, lahat, that would be the extent of the
control of the principal over the agent.
But as held in the case of control of one party
over another which only goes into the result, it
cannot be considered as a contract of agency but
it may be considered a contract for a piece of
work.
Another important feature as to effect of
delivery of the thing
If there is a transfer of ownership upon
delivery of one party to the other party, that is
not a contract of agency. In a contract of agency,
when the principal delivers the thing to the
agent, only possession is transferred to the
agent, ownership is retained by the principal
(owner) in fact in agency to sell, an agent who
was not able to sell he has the right to return the
goods to the seller.
Whether there was a stipulation as to there
would be no transfer of ownership despite the
delivery of the goods from one party to another,
and ownership of the goods, first party will only
be terminated upon the sale of the goods to a
third person, despite another stipulation stating
that there is no agency relationship created
between the parties. The SC ruled actually

principal agent ang relationship nila.
2
concepts
similar
in
agency
and
partnership Both of them are business
organizations, both are based on trust and
confidence,
there
would
be
normally
a
representation, however the very important
distinction between the two - in partnership,
there is a juridical personality created separate
and distinct from that of the individual partner. In
agency, despite the perfection of a contract of
agency, wala sila pa rin, the only personalities
would be that personality of the principal and the
personality of the agent.
full power as if he had the authority to buy those

items necessary for the administration of the
restaurant. Aside from that, Mack was able to
prove pieces of evidence - like in the lease
agreement over the building where the restaurant
was located and comes the owner of the
restaurant as lessee and Flores signed as an
agent of the lessee with all these the SC ruled
that the owner of the restaurant is liable under
the Principle of Estoppel.
Some authors would classify contract of

agency into three:
1. Actual agency
2. Apparent / Ostensible
3. Estoppel
Rallos Case
Facts: Letter was sent by B to X, informing X that
A has the authority to enter into a contract with X
specifically to obtain goods from X, like copra,
abaca which goods will be sold by A. After the
sale a portion can be deducted as a commission
and the rest to be delivered to X. After a certain
period, the goods obtained by A from X remained
unpaid. In other words, A will get the goods from
X. A did not deliver the proceeds of the sale. X
demanded payment from B. The defense of B was
as of that moment from that certain period he
has already revoked the authority of the agent
and therefore be bound by any contract entered
into by A in representation of B with 3 rd person.
Is the claim of B tenable?
No, 1873 so far as 3rd person are concerned, this
notice itong letter nya kay X remain in full force
and effect until it is rescinded in the same
manner it was given.
1. Estoppel
Kang Case
Facts: Flores appears to have full control in a
restaurant (Washington Caf) owned by Kang and
in the administration of the restaurant he bought
certain items from Mack - items needed for
restaurant. But a portion / price was not paid by
Flores. So Mack (seller) went after the owner of
the restaurant. The only defense raised by the
owner was that Flores was not his agent.
Take note: It is very difficult to prove actual
agency, because an agreement between 2
persons, eh kung verbal lang ang agreement dun,
how would you be able to prove?
Held: The owner of the restaurant can be held
liable by estoppel because he clothed Flores with
Page 33
2. Apparent / Ostensible
Q: What if B was able to prove that he

posted the notice in Manila Bulletin - notice
of fact of revocation of A. If there was such
publication of notice, would the ruling of
the SC be different?

November 2008
A: No, still the same (Article 1873)

(See phraseology of 1873)
Q: What if in this problem he had actual
knowledge of the revocation even if he did
not receive the letter eh under 1873 he
should be sent a letter in order that the
revocation of authority of A will be effective
as to third person?
A: If the 3rd person has actual knowledge of the
revocation, it is bad faith on his part to continue
transacting with the agent. The agent acting on
behalf of the principal and thus he should not be
allowed to recover.
Pwede nabasa yung publication, informed by
phone, telephone conversation but it is very hard
to prove because the word of the principal is
against the 3rd person.
rd
As far as 3 person are concerned they would

have the right to believe that the agency has the
authority until they have receive a notice in the
same manner that he received notice as to the
authority of the agent.
Q: In agency by estoppel / apparent agency,
is there really an actual agency existing?
A: It does not matter, the principal can be held
liable under the Principle of Estoppel because it is
very hard to prove the existence of the actual
agency. It can only be the principal in estoppel
that can be held liable. Just like in apparent /
ostensible agency sa totoo lng it is possible that
he did not revoke the authority pwede pa din
diba, pwedeng kunwari nirevoke na niya just to
avoid liability to 3rd person but that is a matter or
a claim that he already revoked. Pati mga letter,
halimbawa even assuming the principal held a
letter to the agent that letter can be easily denied
kunwari, pinadala nya 3 months ago pero ngaun
lng pinadala nilagay nya lng ung date nung
unang panahon. Thus, it only protects 3 rd person.
Thus, 1873 is included in the law in agency.
3. Actual Agency
The law itself classifies actual agency into as to
manner of creation, express or implied. There is
no problem with express agency.
A. Express Agency - it is a kind of agency
wherein the consent of both parties is
expressly given.
B. Implied Agency - were the consent of one
of the parties was only impliedly given on
the part of principal.
Dela Pena vs. Hidalgo
Facts: Dela Pena authorized Hidalgo to administer
his properties in the Philippines, He has to leave
the country. Hidalgo managed the properties of
Dela Pena, after a while he has to leave the
country also and go to Spain for health reasons.
So he appointed another person, another Hidalgo
to administer said properties of Dela Pena and
wrote a letter to Dela Pena informing him of the
appointment of another person to replace him as
the administrator of his property. Dela Pena
received a letter, he did not reject the
appointment, he did not question the acts of the
new administrator. After a while he died and his
heirs (Dela Pena heirs) filed an action against
Hidalgo (the 1st agent) for accounting, damages
etcetera for the period after the appointment of
the other agent.
Issues: (1) Who was then the agent during the

period?; (2) Can the 1st agent be held liable after
the appointment of another administrator?
Held: From the silence of the principal, due to his
inaction, due to his failure to repudiate the acts of
the substitute, he is thereby deemed impliedly
consented to the appointment of another person
as the new agent, therefore implied agency was
created.
This goes to implied agency pertaining to the
principal because of the silence of the principal,
because of lack of action of principal, because of
failure to repudiate the acts of another principal,
na alam nyang was acting on his behalf.
Q: However, is this rule applicable also to
the agents or to the other party?
Concretely, if a person was asked to
administer the property of another or to
sell the property, and he said nothing - by
his silence, by his inaction, may he be
deemed to have accepted agency?
A: Not necessarily, thus under the law, you have
to make distinction to determine the scenario
under which the said appointment was made,
okie! The law would say when the 2 parties are
absent, and when the 2 parties are present.
When 2 parties are absent - 1 is in Manila and the
other is in Cebu.
When 2 parties are present - present in the same
room
(A) 2 persons present - present in the same
conference hall
Q: When both parties are within the same
conference hall, A said to B that he would
sell his (B) parcel of land in Cagayan De Oro
City but that B did not react, he just stared
at the speaker, nakatingin lng sya, he said
nothing, by his silence would have deemed
the agency?
A: No.
Q: But if B delivered a special power of
attorney to A, sabi nya Here is the SPA, I
am authorizing you to sell my parcel of land
in Cagayan De Oro City. The SPA was
accepted by A but he said nothing, basta
tinanggap na lng nya, deemed impliedly
consented to that agency?
A: Yes.
(B) If 2 persons are in different place, one in
Manila and the other one in Cebu
Q: What if A was in Manila B in Cebu. A
asked B to be his agent to sell a parcel of
land and B did not say anything, wala lng, is
B considered to have impliedly consented
as an agent?
A: No.
Q: But this time again a SPA was sent by A
(Manila) through DHL to B (Cebu) which was
accepted / received by B, now he did
nothing by his inaction, by silence he is
deemed to have accepted the agency?
A: Not necessarily, it will depend on the nature of

the business of B, kung ang negosyo, again under
the facts in the Special Power of Attorney he was
Page 34
authorized to sell the parcels of land of A, if B was

in the business of piggery /

November 2008
poultry ay walang kinalaman yan sa selling of a

parcel of land. He will not be considered to have
impliedly accepted the agency. However, if B is a
real estate broker, talagang ganun yung negosyo
nya di ba, buying and selling parcels of land, then
and only then on his silence, he is deemed to
have impliedly consented to the agency.
COMPENSATION OF THE AGENT
Q: As to the compensation in a contract of
agency consider again if agency is
gratuitous or onerous?
A: Agency is presumed to be for compensation. If
that principal is claiming that the agent agreed to
render service without compensation the burden
is on him (the principal) to prove that in fact it is
gratuitous because the law presumes that it is for
compensation. But there is one other relevance in
this distinction - for example, due to the
negligence of the agent the principal suffered
damages in the amount of 100k. It was actually
proven that the agency was gratuitous. The
agency in other words sa abogado, pro bono or
libre ang serbisyo nang agent, may the agent
be held liable?
A: Of course sa abogado even if pro bono yan if
he caused damage to the principal or client due
to his negligent acts, he can be held liable.
However, under the law if the contract of agency
is gratuitous in character, the court may mitigate
the liability of the agent, dahil gratuitous.
Atty. Uribes Comment: I definitely agree with
the provision. As to this, the only recognition of
human nature, pag walang sweldo mahirap
mgtrabaho, in fact, mahirap gumising sa umaga.
Buti na lng nauna ang sweldo sakin ditto sa
review kaya ganado ako magsalita
Article 1909 - The liability of the agent for

causing damage to the principal due to his
negligence or even bad faith or fraud committed
against the principal may be mitigated if the
agency is gratuitous in character.
BE: What is the scope of authority of the
agent - whether it only pertains to the acts
of administration or acts of strict dominion?
A: Under Article 1877, if the agency is in general
term this only comprises acts of administration.
Even if the principal beholds power to the agent
or it is stated that the agent may execute any act
as may be deemed appropriate, that will still be
an agency pertaining to act of administration.
FORM OF A CONTRACT OF AGENCY
As to form, the law is clear that it may be oral
however, the law may require a particular
form or specific form for what? for the
validity of agency? Is there a law which
requires a particular form for the validity of
the agency?
A: Wala, there is no such form.
Q: Is there a particular form required by law
for the agency to be enforceable?
A: At least one, under the statutes of frauds if in
the terms or agreement if it is not to be
performed within 1 year, it should be in writing
otherwise, it is unenforceable. The effect of the
agency if the authority of the agent it is not in
writing would go into the contract entered into by
the agent with the 3rd person. 1874 and 1878 formalities.
REQUISITES OF A CONTRACT OF AGENCY
Essential requisites of a contract of agency are

like any other contract - there are 3 essential
elements:
(1) consent of the contracting parties; (2) as
mentioned a while ago, the object of a contact of
agency is the execution of the juridical act; (3) as
to cause, as far as the principal is concerned it is
the service to be rendered by the agent and as to
the agent, it is the compensation to be paid by
the principal or it may just be liberality in
gratuitous contract.
essential elements are only those elements

necessary for the validity of the contract. Once
the contract is valid then the obligations will
arise.
Rallos Case
Held: The SC enumerated the essential elements
or the alleged essentials elements of a contract of
agency:
1. Consent
2. Execution of the juridical act - subject
matter
3. Acts within the scope of authority
4. The acts must be in representation of
the principal
Q: Does it mean that there was no agency

at all?
A: Of course not. There is a contract of agency.
Under the rule, there are consequences if the
agent did not act in representation of the
principal.
Atty. Uribes Comment: These are allegedly

the essential elements. Again, some authors
would discuss in their books that these are the
essential elements. With due respect to the
ponente of this case, medyo mali mali ang
enumeration, first there was nothing mentioned
about the cause or consideration as a contract, a
contract will never validly have a cause or
consideration. Well, it may be liberality, pwede
naman cause yan but there must have a cause.
That the agent act within the scope and that the
agent must act in representation are not essential
elements of a contract of agency. They are
actually obligations of the agent which means
they have already perfected the contract of
agency. No obligation will arise kung void yung
kontrata kung wala pang valid contract. So the
Page 35
Q: If the agent acted outside the scope of

his authority, does it mean that the
contract of agency is void?
A: Of course not. He can be held liable for acting
outside the scope of his authority or if he acted
not in representation of the principal.
PARTIES IN A CONTRACT OF AGENCY

Going to the consent of the parties, 1
author may claim that there are 3 parties in a
contract of agency that is totally wrong!
There are only 2 parties in a contract of
agency the principal and the agent. However, in
problems involving agency, normally, there are
three persons involved. The third person with
whom the agent transacted is no longer part of
the concept agency. The contract entered into
between the principal and the agent is the
contract of agency. But when the agent entered
into another contract, it may be a sale, lease or
other contract and the 3rd person is not a party to
this contract. The 3rd person is a party to a 2 nd
contract.
Again the parties are the principal and the
agent. They may be called in other names the
principal may also be

November 2008
called the employer, constituent, chief. The agent

may
be
called
attorney-in-fact,
proxy,
representative.
1. Consent of the Contracting Parties
Q: What if the principal authorized an agent
who was then 16 years old to sell a house
and lot, giving him a Special Power of
Attorney. Pursuant to his mandate, the
agent (minor) sold the house and lot to X, a
3rd person, thereafter X filed an action to
annul the contract of sale on the ground
that the agent is minor at the time of the
sale, will the action prosper?
A: It will not prosper. On 2 grounds:
(1) In that contract of lease entered into by
the agent and the third person or the
contract of sale between the third person
and the agent, while A is considered as
the seller but only acting on behalf of the
principal still the real party in the contract
is the principal and not the agent
(2) The other reason is under the rules in
contracts In annulment of contract, only
the incapacitated person has the right to
have the contract annulled, the party in
the contract who is not otherwise
incapacitated has no right to institute an
action for annulment.
Either ground would be a valid ground to
dismiss the case.
2. Object of the Contract of Agency
As to the object of the contract of agency we
have mentioned already that this is the execution
of juridical act.
Q: Is it correct to say that any act which a
person can lawfully do, he can delegate to a
3rd person or to an agent?
A: Not all. There are acts which are considered
purely personal acts. This he may not delegate to
an agent like the execution of an affidavit, you
cannot ask somebody to sign on her behalf in an
affidavit or even in succession you cannot
delegate the execution of a will to a 3 rd person,
note that it is execution not drafting of the will.
You can ask somebody to sign for you, under
certain circumstances, but the execution per se
cannot be left to a 3rd person, it is a purely
personal act.
Q: The right to vote may be delegated to
another person?
A: The answer is - it depends. Voting in national /
local election cannot at least be validly
delegated. Well it may be delegated, may have
been delegated by other people, pero pag nahuli
ka, pag bad ka, kulong ka sabi ni Joker

But in a
corporation, as for corporation can there be a
valid delegation of the right to vote? Yes. In
a stockholders meeting, this cannot happen but
in a BODs meeting, in a BOD meeting it is the
personal presence of the Director which will be
counted for the purposes of quorum but for
purposes of voting, you can ask somebody to
observe dun sa proceedings. The members of the
Board would normally not exclude you as an
observer, as a representative of the other BOD.
But obviously if the person himself cannot
lawfully do, cannot delegate anyone like if the
agent cannot buy a parcel of land in the
Philippines, he cannot also delegate such acts to
another person that is void sale.
FORM OF CONTRACT OF AGENCY

As mentioned earlier, agency may be oral. It
doesnt matter if the contract of agency would be
valid but the parties even if it is by verbal
agreement, any effect in the verbal authorization,
the agreement between the agent and the
principal if it was only verbal will only be in the
contract entered into by the agent. Concretely,
under 1874, if the agent was authorized to sell a
parcel of land and his authority is not in writing,
the sale itself is void under 1874, however, if for
example, the agent was authorized to sell a car
and his authority is not in writing, what is the
status of the sale?
Would that be valid and enforceable against
the principal?
A: No, it is unenforceable under 1878. San yung
car sa 1878? It falls under the last paragraph of
1878 - any other act of strict dominion would
require special power of attorney. So 1878 would
enumerate cases, acts of contracts where the law
requires the authority of the agent in writing, it
should have a Special Power of Attorney,
otherwise the contract entered into by the agent
is unenforceable against the Principal.
Q: Concretely, the agent was authorized to
administer a rice land. In the administration
of the rice land, he had to buy fertilizer, if
he paid the sellers of fertilizer without
Special Power of Attorney, would the
payment be binding against the principal?
A: Yes because that payment is only considered
as an act of administration.
Q: However, kung na-harvest na ung palay
then he used the proceeds of the palay to
pay the indebtedness of his principal with a
certain bank (PNB) without SPA, would that
payment be valid and binding as against
the principal?
A: No because that would fall under the first
paragraph of 1878 to make such payment not in
the matter of acts of administration without SPA.
Other Acts / Contracts which Require a SPA
1. Entering into a compromise agreement
with SPA. He cannot submit the matter to
the arbitrator without another SPA, those
are 2 and separate distinct powers - the
power to submit matters in the arbitrator
and the power to compromise.
BE: The agent of the principal entered into
a contract of lease (without SPA) with X and
the period of lease is for 3 years. Would the
contract of lease be valid and enforceable
as against the principal?
A: It depends on the object of the lease. If this
lease involves immovable like a parcel of land, for
a period of 3 years without a SPA, would that be
valid and Binding?
Unahin natin ung car, if it would be a car for 3
years without SPA, even if it is for 3 years this
would be a valid and binding contract of lease as
against the principal. However, if this is an
immovable like a parcel of land, would this
be valid and binding against the principal? It
depends on whether in this contract of lease if
the principal is the lessor or the lessee. Under
Article 1878, this contract is unenforceable as
against the principal only if: (1) in the contract of
lease the principal is the lessor; (2) the object is
immovable and (3) the period is more than 1
year. Take note of the 3 requirements.
Under 1878, it is to lease the property of the

principal to another. Therefore, if the principal is
Page 36
the lessee SPA is not required, kasi ang burden

wala naman sa principal, dun sa

November 2008
lessor, kc property ng lessor yan di ba? Thus, the

law only required the SPA if the principal is a
lessor, and the lease contract involves immovable
property and the period is more than 3 years.
3. To render an account of his transactions and to

deliver to the principal whatever he may have
receive pursuant to an agency even if it not
owing to the principal.
Q: Lease contract was entered into by A in

representation of B, with B as the lessor,
the period of lease of a parcel of land is 3
years. A has a SPA. May this contract be
unenforceable as against the principal?
A: Yes, it is possible if this lease is not in writing.
This time under the Statute of Frauds. Kanina ang
discussion natin ay under 1878 but if you
remember the SOF, a lease over immovable
property for more than 1 year must be in writing
to be enforceable (Article 1403).
1. Primarily, the obligation of the agent is to

carry out the agency. If he failed to carry
out, he may be held liable.
There is an author again who would claim that a

Power of attorney may be oral. He is really wrong.
A power of Attorney by its nature is in writing, by
definition it is a written authority. It cannot be
called a power of attorney if it is not in writing, in
fact, if you consider the specific provision in the
agency all this provisions pertain to a power of
attorney in a written instrument. For example,
Article 1871, pertains to the delivery of a power
of attorney; 1872 refers to transmittal of a power
of attorney; 1900 - power of attorney is written;
1902- presentation of a power of attorney.
Obviously in a power of attorney, you cannot do
that if it is merely a verbal authorization. How
can a third person demand the presentation
of a power of attorney if that alleged power
of attorney is verbal? By its nature, it is in
writing.
Q: Would that power of attorney be valid
and binding as against the principal if it is
not in a public instrument?
A: Yes, even if a power of attorney is only in a
private instrument, the power of attorney is valid
and binding against the principal. The law does
not require that it must be in a public instrument.
Jimenez vs. Rabot
Facts: Jimenez was the owner of certain parcels of
land in Pangasinan. He was then in the province
of North Luzon when he sent a letter to his sister
asking his sister to sell one of his parcels of land.
With that letter, the sister indeed sold one of his
parcels of land to Rabot. However, the sister did
not remit the proceeds of the sale, binulsa lng
nya, so when Jimenez went back to Pangasinan,
he demanded the property, yun ay na kay Rabot
na, so he filed an action against Rabot, the
defense raised by him is that the letter would not
be sufficient a power of attorney to bind him as a
principal in the sale of the parcels of land.
Held: A letter suffices as a power of attorney.
When you sent a letter to your brothers or sisters
you do not notarize such letter.
OBLIGATIONS OF THE AGENT
1.To carry out the agency.
2. In carrying out the agency, there are 2
obligations of the agent:
(a) To act within the scope of authority
(b) To act in behalf of the principal or in
representation of the principal.
Q: Should he carry out the agency after the

death of the principal?
A: As a rule no, because there is no one to be
represented. In fact under 1919, the agency is
extinguished by the death of the principal.
However, the law provides for an exception - if
delay would impair danger for an already began
but then unfinished contract, he should continue
to carry out the agency. Again, if it would cause
danger.
Q: But if he did not carry out agency, he
may not be held liable?
A: As a rule, he is liable for not carrying out the
agency.
Q: So what is the exception?
A: Professor de Leon gave an example of this, if
the agent was authorized to buy a specific car
from a specific person. When the agent was
about to buy the car, he was informed by the
seller that there is a defect in the brake system of
the car. Nonetheless, without informing the
principal he bought the car. If damage was
caused to the principal because of the defective
brake system and a claim is filed against the
agent, can the agent invoke that he merely
carried out the agency?
No, here the law is very clear that he should not
carry out agency if it would result in loss /
damage in the principal.
Another Example
An agency to buy a parcel of land before the Mt.
Pinatubo eruption. During that time, agents all
over Luzon, will buy a parcel of land not only in
Metro Manila but also in Pampanga and South
CALABARZON but if the agent was given
authority and he bought parcels of land
immediately after the eruption somewhere in
Porac / Bacolor Pampanga, mukhang you can be
held liable for buying those parcels of land. That
it would be a valid sale?
A: Yes, that would be a valid and binding sale as
far as the 3rd person is concerned. If nakita
naman na puro lahar, nakita mo pa binili mo pa,
the agent can be held liable because the act
definitely would result in loss or damage to the
principal at least for about 15 years.
2. In carrying out the agency, there are 2
obligations of the agent, he should always
remember:
(a)
To act within the scope of authority
(b)
To act in behalf of the principal or in
representation of the principal.
(a) To act within the scope of authority
Q: How would you know if the agent was
acting within the scope of authority?
A: You will be guided by the power of authority. In
fact, as a 3rd person, you can demand the power
of attorney, so that you will know whether in fact
he had authority to enter into a contract. But sa
totoo lng there are some SPAs which would be
subject of the case up to the SC pertaining to the

scope of authority of the agent.
Page 37
Linal vs. Puno

November 2008
Q: Was Puno authorized to sell the land or

merely authorize to administer the land?
A: There was a dissenting opinion.
Atty. Uribe: Mas magaling ang dissenting
opinion. Sa phraseology ng authority ni Puno he
was only to buy, to sell, etcin the administration
of land, so the buying and selling should not be
construed as a separate authority from the
administration and should be construed as a
buying
and
selling
in
relation
to
the
administration. If you have to administer a parcel
of land, you have to buy so many things, lalo na
kapag agricultural land yan. You have to buy
tools, fertilizers, and therefore you have the
authority to buy. Do you have to authority to
sell? Yes, the products of that land. You have the
authority to sell pero ung ginawa ni Puno, binenta
nya mismo yung land. When the case reached
the SC, the majority of the decision was he has
the authority to sell under the power of authority.
One of the bases of the SC in the
conclusion that there was a power to sell also
because the fact that the agent acted in good
faith, that is an incredible argument, by the
mere allegation that the agent acted in
good faith he already acted within the
scope of the his authority? Parang malabo
yung dalawang yun. Even if I would claim that I
thought I am authorized, does it mean
therefore that I was authorized? Those are 2
different things - believing in good faith that you
have the authority is different from in fact having
the authority.
Nonetheless, again, as a rule you can be
guided by the power of attorney but even if
without the power of attorney or despite the fact
there was a specific mandate of the power of
attorney, you should be guided by specific
provisions of law whether the act is within the
scope of your authority. For example: 1881 - the
agent may do such acts as may be conducive for
the accomplishment of the purpose of agency.
This particular provision has been cited by the SC
in the case of Mack vs. Kang, if a person who is
an agent has the authority to manage the
restaurant, necessarily, he must have the
authority to purchase items for the management
of the restaurant - the act of buying these items,
like plates, these are reasonable and necessary
for the accomplishment of the agency.
Another Article which would help you in
determining if the act is within the scope of the
authority is Article 1882. Example of this, the
principal authorized his agent to sell his car, a
specific car for 300k. The agent sold the car for
400K. It is possible for the principal to say that
you acted outside the scope of authority, galit pa
cya 300k na binebenta pero 400k nabenta.
Technically, yes, the agent indeed may be
considered to have or may be claimed to have
acted outside or in excess of his authority
because he told to sell the car for 300k.
Q: What is the reason that the principal
would claim that the agent acted outside
the scope of his authority?
A: Many reasons: for example he asked to buy
somebody to sell his car because he expected
sum money to arrive from abroad to buy a brand
new car but wala napornada, di binigay ng
kapatid yung pera. Therefore, if the car will be
sold wala na syang kotse and it is an excuse that

the agent acted outside the scope of his authority
but the common reason would be because the
principal already talked to somebody
else which will really buy the car for 400k. When
you may choose this 1? Because dun sa isa,
walang commission di ba sa 1 may commission.
He may not recognize this contract.
authority of the principal can the agent

himself be the lender?
A: The law provides yes, as long as the interest
rate will be the market rate, so the agent may be
the lender.
Article 1882 - the limits of the agents

authority shall not be considered exceeded
should it have been performed in a manner more
advantageous to the principal than that specified
by him. So under the law, that the act is deemed
not in extent of his authority, even on its face
parang in excess, the law will consider it as not in
excess merely because it is advantageous to the
principal.
Q: The agent was authorized to lend money

of the principal, may the agent himself be
the borrower of the money without the
consent of the principal?
A: This time hindi na pwede. He may be a good
agent to lend the money to other person but he
may not be a good debtor. Thus, the law would
protect the principal in that case.
You distinguish these transactions from an

agency to sell 100 kilos of mangoes and there is a
specific instruction that the mangoes will be sold
30 pesos per kilo. If you sold the mangoes for 50
pesos, 30 lang binenta 50 pesos per kilo ang
nangyari out of 100 kilos sisenta lng ang nabenta,
60 sisenta, 70 sitenta, so instead of 30 pesos per
kilo he sold 50 per kilo. Actually, this is a violation
of the instructions of the principal kaya siguro di
lahat nabenta ung mga mangga binenta nya with
a much higher price.
But also, be guided by the decision of the SC as

to the extent of the authority of the agent. For
example in the case of
Insular Drug vs. PNB
Facts: The agent here was authorized to collect
sums of money including checks from the client
of Insular. So may agent ang Insular. He did
collect the sums of money and the checks, and
the checks were payable to Insular but instead of
delivering the checks in the Insular, he encashed
the check or deposited the checks in his account
in PNB.
Another Article 1879 - the law specifically

provides that the special power to sell excludes
the power to mortgage. Even if the agent was
authorized to sell, he cannot mortgage that
without another power of attorney, as much as
the power to mortgage does not include the
power to sell as mentioned a while ago the power
to compromise does not authorize for the
submission to arbitration.
Issue: Does the authority to collect the checks

includes the power to indorse the checks or even
the power to encashed the check?
Held: No, the power to collect does not include
the power to indorse or the power to encash the
checks. So kasalanan ng PNB kung bakit nila
tinanggap ung check without the proper
indorsement samantalang ang payee ay Insula.
Hindi naman si agent.
Q: However, if the principal authorized the

agent to borrow money without the
Page 38

November 2008
Atty. Uribe: In fact, the money involved here is

18,000 and I would still remember na Philippine
Reports pa itong case. The agent (Mr. Foster)
committed suicide when that fraud was
committed. Sabi nung isang nagbasa for sure
ahead pa sa akin, encircle nya 18,000, gago
naman ito 18,000 lng maliit lng ang amount.
But there was another guy, sumunod dun sa isa,
sinagot nya, mas gago ka 1932 pa eto eh
Q: The obligation to act on behalf of the

principal - If the agent acted for himself and
did not disclose his principal, would that 3 rd
person has a cause of action against the
principal?
A: No.
Q: Would that principal have a cause of
action against the 3rd person?
A: Wala din. But there is an exception in this rule
if the object involved in the
contract entered into
by the agent and the 3rd person belongs to the
principalrd- the law grants / gives a cause of action
to the 3 person against the principal and viceversa. It is because of the possible collusion
between the principal and the agent di ba, so that
sasabihin ng principal alam ko yang kotse na yan
sira sira na makina (may katok). Thus, in actual
case the SC said, the vehicle has a knock , SC
decicion yan! Hehehehehe

Kasi may katok ang
kotse, the principal would agree with the agent
just to sell it by yourself in your own rd
name so that
if there would be a complaint the 3 person has
no cause of action against me and the principal.
But to avoid such possibility
the law would grant
a cause of action to the 3rd person if the object of
the contract belongs to the principal.
BE: A authorized B to borrow sum of money
from any bank and he also authorized B to
mortgage a specific parcel of land to secure
that loan. What B did, he borrowed money
for himself from a certain bank without
disclosing his principal. Later on, he
defaulted. Can the bank go after the
principal?
A: Of course no, the contract is between the
agent and the bank only. The principal has
nothing to do with the contract. Under the facts,
the agent borrowed for himself.
However, if you have read the suggested
answer, may 2nd paragraph - to the effect that
the bank can at least foreclose the mortgage they
can. If you remember the question, di tinatanong
ng examiner can the bank go after the principal
as far as the thing is concerned. The only
question pertains to the payment of loan.
Another thing in the suggested answer
which is totally wrong - under the facts, the
principal authorized the agent to mortgage the
property for the loan that will be obtained by the
agent in the name of the principal. If indeed he
mortgaged the land for a loan in his name,
would that mortgage be valid?
A: Definitely not. If he mortgaged it as a
mortgagor the mortgage is void. The law requires
that the mortgagor must be the absolute owner
of the thing mortgaged. On other hand, even if
the agent mortgaged the thing on behalf of the
principal, the principal is the mortgagor. Would
that be a valid and binding mortgage as
against the principal?
A: Also not. His authority to have the property
mortgaged to secure a loan, not to secure any
other persons loan and that
therefore it cannot be within the authority of the

agent and therefore any foreclosure of such
mortgage will not prosper.
Q: If the agent acted within the scope of his

authority and in representation of the
principal, who will be bound in such
contract?
A: Aside from the 3rd person, it will be the
principal because again the agent is merely
representing the principal.
Q: However, is it possible for the agent
himself to be bound in such contract or be
held liable under such contract?
A: Yes. If he expressly binds himself to that
contract, why he would do that? Agent lang
naman sya, when he would bind himself
personally / expressly? In the very nature of the
agency the 3rd person actually knows that it is the
agent and not the principal. Ang nakikita lang ng
3rd person sa palengke eh ung nagtitinda baka
ung principal nasa espana. Therefore, the 3rd
person to whom a thing is offered for sale for
example the agency to sell, the 3rd person will
say that I will buy that if you also bind yourself
as one of the sellers because I dont know the
principal. Eh ang agent gusto kumita, sige na din
di ba. He will bind himself personally in the
contract as a seller and not as an agent.
The agent may be held liable in the
contract even if he acted within the scope, acted
in representation of the principal, he acted
negligently or in bad faith di ba.
Article 1909 is consistent also on the law
on obligations that every person who is guilty of
fraud, negligence, etc.. will be held liable for
damages.
But aside from these 2 scenarios, of course, the
agent may be held liable if he acted beyond the
scope of authority. Also, if he acted beyond the
scope of his authority, however, he may not be
held liable under such contracts and under
certain circumstances:
(a) The principal ratified - then the principal
will be held liable and be bound on such
contract.
(b) Even if the principal did not ratify, if the
3rd person was notified of the fact that the
agent was in excess of his authority or
even if he was not notified, he was aware
of the fact that the agent was in excess of
his authority, the agent will not be held
liable because under 1898 that contract is
void. So this contract being void, the third
person cannot hold him liable for acting
within the scope of authority.
3. One important obligation of an agent is
to render an account of his transactions and
to deliver to the principal whatever he may
have receive pursuant to an agency even if
it not owing to the principal.
In fact, any stipulation exempting him from this
obligation to render an accounting is void.
Domingo vs. Domingo
Facts: The relationship between the principal and
the agent was not mentioned in this case but the
agent Domingo was authorized to sell a property
of the principal Domingo but in pursuant to this
authority, he introduced a perspective buyer to
the principal Oscar de Leon. Oscar, just any other
prospective buyer wanted the price to be
lowered. So he was asking that the price be
Page 39
lowered. During the negotiation, this Oscar de

Leon bid 1,000 to the agent, which amount the

November 2008
agent did not disclose to the principal. However,

may violation na ng obligation ang agent. The
principal on the other hand, somehow to only
accommodate the demand of the prospective
buyer, nakaisip ng paraan, what he did, he had
an agreement with the prospective buyer that
kunwari the sale would no longer push through so
they have this drama that the prospective buyer
was expecting money from abroad and therefore
the principal would have a reason to the agent na
hindi na matutuloy ang agency and therefore I
am revoking your authority as an agent.
Thereafter, the agent discovered that
something is wrong with what happened. He went
to the register of deeds and he discovered that in
fact a sale was executed between Domingo and
Oscar de Leon. The agent demanded for his
commission. May sub agent pa sya dahil
inintroduce cya kay Oscar, did the action
prosper?
Held: No, the SC ruled that for the failure of the
obligation to deliver to the principal for whatever
he may have received pursuant to the agency,
even if that is not only to the principal, that is a
breach of fiduciary relation which resulted in not
giving the agent his commission. But is the
1,000
important?
Supposedly,
parang
10,000
ang
marereceive
nya
as
commission?
A: The answer would be yes because why would
the prospective buyer give 1,000 sa agent? hindi
dahil mahal nya ang agent?! That would be
because he wanted the agent to continue with
the principal to lower the price of the thing which
would be sold, which is inconsistent with the
interest of the principal. As an agent of the
principal, he is supposed to protect the interest of
the principal not to lower the price to be paid by
the buyer. If only for this the SC will not dismiss
the case. In fact, ginawa pa syang liable for the
share of the sub-agent.
Obligation to deliver to the principal what
he may have receive
In fact this obligation is so serious. If the agent
would fail to perform this obligation, he may be
imprisoned.
US vs. Reyes
Facts: The agent was authorized to collect sums
of money for convenience of the principal. More
or less 800 lang yun or 800+ is the amount to be
collected. Now he was able to collect only 500
instead of 800. He claimed that he is entitled to
20% as a commission (20% of 800 is 160). So hee
only remitted 340 to the principal, because of
that the principal demanded a greater amount
than the 340. A criminal complaint was filed (for
estafa).
Held: Regardless of the commission whether 10%
or 20%, the agent was not entitled to retain 160
because even if 20% the 20% of the 500 and he
is not entitled to the 20% of 800. The commission
should be based on the actual amount he
collected not the total amount which he is
supposed to collect. And because of his failure to
deliver 400 to the principal he was convicted.
Obligation to render an accounting
Q: The principal authorized the agent to sell
a car for 300k, the description of the car
was mentioned in the SPA. However, before
the agent would sell the car, the principal

called him by phone and instructed him to
sell the car in QC to a member of IBP
chapter. Instead of selling the car in QC
to an IBP member, he sold the car in Manila

to a person not known by the principal for
300k.
(1)
Can the principal recover the car
from the buyer if that car is already
delivered to the buyer?
(2)
Any remedy provided by the law to
the seller or to the principal?
A: (1) It depends, if that buyer has no knowledge
of that instruction of the principal then he has all
the right to retain
the car and that sale will be valid and binding as
against the principal. As provided under Art. 1900
so far as 3rd persons are concerned they only rely
on the SPA as written. They have no obligation to
inquire on the special instructions made by the
principal which are not mentioned in the SPA, eh
wala naman dun sa SPA na it will be sold to an IBP
member chapter in QC.
(2)
To go after the agent for damages, if there
is any damage sustained by him for his failure to
follow the instructions of the principal.
Article 1898 - if the agent acted outside the
scope of his authority and this was known to the
3rd person the contract is void. Take note by the
specific provision of the law this contract is void
and subject to ratification. This is only the void
contract which can be ratified under Article 1898.
Q: Is it possible that the agent be held
liable to the 3rd person even if the 3 rd
person was aware of the fact that the agent
was in excess or outside his authority?
A: Yes, if the agent promised to obtain the
ratification of the
principal and failed to obtain the ratification.
Nagkwento sya sa 3rd person
you know I was acting in excess of my authority,
but dont worry I will get the ratification of my
Page 40
principal. If he failed to get the ratification of the

principal he will be held liable not because of the
contract itself is void but because of failure to get
the ratification of the principal. If the principal
ratifies the contract, he cannot be held liable
even if it is a void contract because the principal
is bound to the contract.
APPOINTMENT OF SUBSTITUTE
Another possible obligation of an agent may
result from an appointment of substitute
BE: X appoints Y as his agent to sell his (X)
products in Cebu City. Can Y appoint subagent? And if he does what are the effects
of this appointment?
A: Yes, the agent may appoint a substitute or subagent, if the principal does not prohibit him in
doing so. But he shall be responsible for the acts
of the substitute (because he was not given
authority by the principal) especially if one
appointed turns to be incompetent or insolvent.
Atty. Uribe: Is this correct?
Mukhang mali. Mukhang confused ang sagot. Ang
tanong sub-agent? Can Y appoint sub-agent? Yes,
the agent may appoint substitute or sub-agent
which means apparently there is no distinction
between a sub-agent and substitute. With due
respect to the answer of the UP Law Center,
Professor de Leon is really good on this matter, a
sub-agent is very much different from a
substitute.
If it is in replacement (kapalit) that is a
substitute which means that the agent would be
disassociating himself

November 2008
from the agency (Aalis na sya or lalabas na sya

ng Pilipinas etc.) and somebody else must take
over his functions.
An agent who appoints a sub-agent will
continue to be an agent in that agency
relationship. He does not disassociate himself
from the relationship. He is still the agent and
therefore all the rights and obligations would still
be there even if he appointed a sub-agent. But if
the agent appointed a substitute, the answer will
depend on Art 1892.
Kung ang tanong ay substitute and during
the management of the business by the
substitute, losses were incurred by the principal,
mask isang taon pa lng ang substitute 2M was
incurred by the principal, may the principal
hold the agent liable? Iba ung can the
principal hold the substitute liable?
A: The first thing you have to consider is if he was
prohibited in appointing a substitute or not. If he
was prohibited he will be held liable because he
appointed 1 despite the prohibition. In fact, under
the law all acts of the substitute appointed, if it is
against the prohibition, such acts are void. If he
was not prohibited under the law, he shall be
responsible for the acts of the substitute under
certain circumstances. Take note that the
operative word here is responsible and not liable.
You may be responsible - there are consequences.
If he was not prohibited there are 2
scenarios:
(1) Not prohibited but he was neither given the
power to appoint or
(2)
He was not prohibited precisely because
he was given the power to appoint.
Kung he was not prohibited he but he also lacks
the power to appoint, ang scenario dito wala lng
namention sa SPA so nothing was mentioned in
the SPA regarding the appointment of the
substitute. Ang ibig sabihin nun he was not
prohibited and he was neither given the power to
appoint. If that is the case will he be liable
necessarily because of losses which were
incurred by the principal?
A: Hindi naman. If the substitute acted within the
scope of authority in representation of the
principal and the substitute acted in good faith
with the diligence of a good father of the family,
nonetheless losses were incurred by the principal
- Pwede bang mangyari un? Yes, ang negosyo
ay negosyo kahit na napakagaling mo pang
negosyante kung palugi na talaga negosyo, there
are forces beyond the control of every person. To
be factual about this kapag ngcoconstruct ng LRT
halimbawa sa Aurora boulevard, during the
construction stage ilang taon yan 2 or 3 years, sa
tingin nyo kung may restaurant pa dyan
buhay pa ba? Wala na kakain dyan puro
alikabok na.
As long as he acted within the scope of his
authority, in representation of the principal and
he acted with good faith, the agent cannot be
held liable. He is responsible for the acts of the
substitute and if the substitute acted within the
scope of authority di ba. This is consistent to the
principle of agency - that the agent is not the
insurer of the success of the business of the
principal. Otherwise, wala na mag-a-agent dahil
kapag nalugi liable sya.
However, if in the management of the

business of the principal losses were incurred
because the substitute misappropriated the
income of the business or acted with gross
negligence, mga once a week lng nya dinadalaw
ang
business, if that is the case, the agent will be

responsible for the acts of the substitute and he
may be held liable for the losses incurred by the
principal
because
the
substitute
acted
negligently, outside the scope of the authority
and in bad faith.
However, if the agent was given the power
to appoint, there may be 2 scenarios:
(1) The person to be appointed as the substitute
may have been designated or (2) the person to
be appointed was not designated.
Sabi ng principal ok you can appoint a
substitute but if you will appoint a substitute,
appoint Pedro. If the agent appointed Pedro,
would he be held liable for the losses
incurred by the principal coz of the acts of
Pedro?
A: Hindi naman. The substitute was designated
because the principal said that he should appoint
Pedro kaya inaapoint nya si Pedro but this should
be subjected to the provision of agency that he
should not carry out the agency if such would
manifest loss or damage to the principal.
Example
At the time of the appointment, the agent was at
that time fully aware that the person was
notoriously incompetent. He should have at least
informed the principal that the substitute is
notoriously incompetent. If he failed to do so
having the opportunity to inquire, then he can be
held liable.
If the person to be appointed was not
designated, he will only be liable if the substitute
turns out to be notoriously incompetent or
insolvent. (Article 1892).
Page 41
LIABILITIES OF 2 OR MORE AGENTS

Q: If the principal appointed 2 or more
agents for a certain transaction, what
would be the nature of their liability? Can
they be held liable jointly or solidarily?
A: Agents can only be held jointly liable unless
they expressly bound themselves solidarily.
But in fact, even if they bound themselves
solidarily and damage was incurred by the
principal due to the act of one of the agents, it is
still possible that they may not be held solidarily
liable despite that there is an express agreement,
if that agent who caused damage to the principal
acted outside the scope of his authority.
Commission Agent
Authorized to sell and he
commission as to the price.
would
have
Q: If the agent sold a refrigerator on credit

without the consent of the principal pag
on credit, he can still sell it at a higher
price. Kung normally 10k ang sabi ng
principal, he may be able to sell it at 15k
pero 4 gives. If payable every other month,
the next day after the sale, the principal
having been informed of the sale, he
demanded for the proceeds of the sale. Can
the agent be compelled to pay or deliver
the proceeds of the sale kahit hindi pa nya
na-collect?
A: Yes, he can be compelled to deliver the
proceeds as if it was sold on a cash basis because
he sold it on credit without the consent of the
principal.

November 2008
Q: How much would the commission agent

deliver if he was able to sell it at 15k,
payable in 4 months but under the
agreement of the principal and the
commission agent, it should be sold only at
10k?
(Assuming
that
the
agents
commission is 10%)
A: He should deliver 9,000 to the principal
(10,000 x 10% = 1,000 commission... 10,000
1,000 = 9,000)
Q: What if 4 months after, he have already
collected 15k, can the principal claim di ba
you only gave me 9k which is based on the
10k price but you were able to sell it at 15k,
so I should get 90% of the 15k. Is that a
valid claim?
A: No, under the law, if the commission agent
sold the thing on credit without the consent of the
principal, he is entitled to any profit which he
would derive from such obligation.
Q: If he was obliged to collect or sell 10
refrigerators but he was able to sell only 1
refrigerator, can he be held liable for not
selling the remaining refrigerator?
A: Normally, he would be because that is failure
to comply with his obligations as an agent. But he
has a defense exercise of the diligence required.
If there was no law or stipulation, it will be
diligence of a good father of a family. The fact
that he was able to prove that he exercised the
diligence of a good father of a family xxx
nonetheless, he was not able to sell, he can no
longer be held liable. Again, he is not the insurer
of the success of the principal.
BE: The agent was authorized to sell 20
units of refrigerator. He received in addition
to his commission, a guaranty commission.
He was able to sell the refrigerators and
received his guaranty. However, the buyer
failed
to
pay
the
price
of
these
refrigerators. The principal demanded from
the agent the money which he could have
delivered to the principal as a guaranty
commission agent. The defense raised by
the agent is that he has no obligation to
collect the price. The agent said that his
only obligation is to sell the refrigerator. Is
that correct?
A: No, as he received a guaranty commission, he
is known as a guaranty commission agent. He is
also known as del credere agent and as such,
he bears the risk of collection.
OBLIGATIONS OF THE PRINCIPAL
(1)
To comply with the obligations which the
agent may have contracted within the scope of
his authority and in representation of the
principal.
(2) Obligation to advance the money necessary
for the accomplishment of the purpose of the
agency.
(3)
Obligation to Reimburse
(1) To comply with the obligations which the
agent may have contracted within the scope
of his authority and in representation of the
principal.
This is the main obligation of the principal.
If the agent acted outside the scope of his
authority, the principal may not be bound to such
contract. But even if the agent acted beyond or
outside the scope of his authority, the principal

may be bound if:
1. He ratified
2. He contributed to deceive the 3rd person
into believing that the agent acted outside
the scope of his authority (estoppel). The
principal and the agent will be solidarily
liable.
3. When the 3rd person could not have

known of the limitations on the power of
the agent (Example: Verbal limitation)
Article 1900 the third person will only have to
rely on the power of attorney as written.
(2)Obligation
to
advance
the
money
necessary for the accomplishment of the
purpose of the agency.
The principal, unless otherwise stipulated or
unless the he is already insolvent, must advance
the money. Even if the agent bound himself to
advance, if the principal is already insolvent, he
need not advance the sum of money kasi wala ng
mag-re-reimburse sa kanya.
(3)
Obligation to Reimburse
G.R.: The principal
Exc: 1918
a. If the agent is acting in contravention of
the instructions of the principal.
Example: He sold items in Cebu instead in
Cagayan. However, if the principal wants
to avail of the benefits derived by the
agent, the principal will be obliged to
reimburse.
b. Agent was at fault
TWO OR MORE PRINCIPALS APPOINTED AN
AGENT
Q: An agent was appointed to a single and
common transaction and damage was
incurred by the agent. What is the nature of
the liability of the principals?
A: Solidary.
Page 42
Q: Ayce was authorized to lease a specific

property (warehouse). She entered into a
lease contract with Dian. However, the
principal (Chato) also entered into a
contract of lease over the same property
with another person named Gerard. Which
contract will be recognized?
A: Based on priority in time, priority in right. The
prior date should prevail. Take note that this is a
lease of property.
In sale, priority in time is not applicable. See
Article 1544 (double sale).
Q: What if the person filed an action for
damages against both principal and agent,
who will be liable?
A:
G.R.: The principal
EXC.: If agent acted in bad faith
(incompatible contracts)
MODES OF EXTINGUISHING AGENCY
E xpiration of the period
D eath, civil interdiction, insanity
W ithdrawal
A ccomplishment of purpose
R evocation
D issolution of the entity
Q: Is this enumeration exclusive?
A: No, the other modes of extinguishing
obligations are equally applicable to agency.
Example: mutual dissent, loss of the thing due to
fortuitous event.
BE: Ariel authorized Jessica to sell a
pendant with a diamond valued at 5k. While
Jessica was on her way home, 2 persons

November 2008
snatched the bag containing the pendant.

Thus, Jessica was not able to sell the
pendant. Ariel sued Jessica. Jessica raised
the defense that robbery is a fortuitous
event and therefore he cannot be held
liable for the loss of the pendant. Ariel
claimed that before Jessica could invoke
fortuitous event, there has to be conviction
of the perpetrators of the crime and even
though this is a fortuitous event, there was
negligence on the part of Jessica in walking
alone with that pendant. Decide.
A: The case is identical to Austria vs. CA. As to
the contention of Ariel, conviction is not required.
Preponderance of evidence is sufficient. Jessica
cannot be held liable because walking alone is
not a negligent act.
Atty. Uribes Comment: The answer is
erroneous. In the case of Austria which was
decided on June 10, 1971, the incident happened
in the 60s. The SC said, we cannot consider the
agent negligent in going home alone. SC said that
if the incident happened today (referring to year
1971), the agent can be held liable for concurring
negligence, considering the crime rate.
Problem Areas in Extinguishment
BE: What is the effect of the death of the
agent?
A: G.R.: The agency is extinguished (Article
1919).
EXC.: Article 1930 if the agency was constituted
for the benefit of both parties or for the benefit of
a third person who accepted the benefit, then
that agency shall continue even after the death of
the agent.
BE: P authorized A to sell a land (14
hectares). In 1950, before A could sell, P
died. After P died, in 1954, the heirs sold
the land to X. In 1956, A sold it to Y. Who
has a better right?
A: If A has no SPA, this sale is void under Article
1874. X would have a better right. If there was a
SPA, it depends if A has knowledge of the death
of P or if he was in good faith. If A has knowledge
of the death, X has a better right. If Y is in bad
faith (he knows of the death of P), X has a better
right.
Under Article 1931, the act of an agent after the
death of the principal will be valid if he had no
knowledge of the death of the principal and the
third person is in good faith.
Q: What if A has no knowledge and Y is in
good faith?
A: This will be incompatible contracts. Apply
Article 1544 on double sale.
Rallos vs. Felix
Facts: The agent was a brother of his two sisters.
He was authorized to sell the land. The brother
sold the land only after the death of one of the
sisters. He sold it to Felix. The administrator of his
sister filed an action to recover the property.
Issue: What is the effect of the death of one of
the principals?
Held: As to the surviving sisters portion, it is
valid and binding. But as to the deceased sister
(Article 1919), the authority of agent was
terminated after the death. But if agent has no

knowledge of the death it is valid. But
obviously, the brother had knowledge of the
death of her sister.
Note: Civil interdiction accessory penalty (more

than 12 years penalty)
Revocation
It is an act of the principal. The principal can
revoke the authority of the agent at will at any
time.
Q: Would this be correct if the parties
agreed for the period of agency? Can the
agent hold the principal liable for breach of
contract?
A: Baretto vs. Sta. Maria the principal can
revoke anytime even when there is a period
agreed upon because agency is based on trust
and confidence.
Q: If he has the power to revoke, may the
principal be held liable?
A: Yes because even in the exercise of a right, it
must be exercised in good faith. If there is abuse
of right, the liability would be under the
provisions on human relations.
Domingo vs. Domingo
The reason of the principal is that in order for him
to avoid payment of commission, that revocation
is a bad faith revocation. However, in this case,
the agent is also in bad faith.
BE: A sold a land to B at 100M. They agreed
that it will be paid in 10 years. The seller
reserved title over the land. In order for B
to pay the price, A constituted B as his
agent for the development of the land
subdividing the land, constructing houses
and selling the house and lot. Proceeds to
be delivered to the seller who is also the
principal as payment of the price in the sale
of land. However, in the 5 th year, the
Page 43
principal revoked the authority of the

agent. Was the revocation valid?
A: Not valid, because this is an agency which is
coupled with interest. Here, (1) a bilateral
contract depends upon the agency and (2) the
agency is the means of fulfilling an obligation
which has already been contracted.
Atty. Uribe: #2 is correct but #1 is not
applicable to the problem. Ang mas applicable is
the case of Collongco vs. Claparol.
Facts: Claparol was the owner of a nail factory
and he needed additional capital. Collongco
offered to advance the money needed by Claparol
only on the condition that he will be constituted
as agent for some aspects of the business
(example: agent for advertisement).
Held: From that arrangement, it is clear that a
bilateral contract depends upon the agency.
Bilateral contract which is the contract of loan. He
would not have advanced that money, had he not
been constituted as an agent by Claparol. These
contracts are considered agency coupled with
interest.
Note: The SC said that for an agent to claim that
the agency is coupled with interest and hence
cannot be revoked by the principal, the interest
must not be the usual compensation of the agent
which is commission and must be stated in the
SPA.
Q: If agency coupled with interest possible
that it could be revoked?
A: SC said in Collongco Yes, if the revocation
was with a just cause. In the case of Collongco,
there was a just cause because the agent
committed acts contrary to the interest of the
principal. Collongco attempted to ask the
superintendent

November 2008
of the factory to destroy the machinery by

pouring acid. Agent also sent derogatory letters
to banks where Claparol applied for a loan. The
agents motive is because he had an agreement
with another person (Mr. So) that they wanted to
take over the business of Claparol.
A: Yes, Faye was a partner in the business

because there was a contribution of money to a
common fund and there was an agreement to
divide the profit among themselves.
Atty. Uribes Comment: I do not agree with the
answer. Id rather agree with the alternative
answer. WHY? In the alternative answer as can be
seen from the facts, Faye gave 4,000 only as a
financial assistance. It was not a contribution to a
common fund. As such, she actually became a
creditor of Chato. Therefore, she did not
contribute to a common fund.
Q: What about the stipulation that Faye will
have 22% share of the profits?
A: The law on partnership is very clear that a
sharing in the profits does not necessarily result
in a partnership contract because the sharing of
the profits may only be a way of compensating
the other person, in fact that can be a mode of
payment of the loan. Kasi yung loan, supposedly
pwede payable every month with a fixed amount.
But mas maganda ang agreement na ito, 22% of
the profits, so that if walang profit sa isang taon,
wala munang bayad. Di ba thats reasonable
agreement. Only kung may profit, saka lang
babayaran. Kumbaga, friendly loan ito. The
sharing in the profits as expressly provided by law
does not necessarily result in a partnership
contract. Thus, it can be said that really Faye was
not a partner but is actually a creditor of Chato.
DEFINITION OF PARTNERSHIP
Q: What if two or more persons agreed to
put up a partnership but they never
intended to divide the profits among
themselves, would that still be considered a
valid partnership contract?
A: Yes, under the second paragraph of the article,
two or more persons can form a partnership for
the exercise of a profession.
Partnership vs. Co-ownership
Consider the essential features:
Creation:
Partnership is obviously created by agreement.
Co-ownership may be created by agreement, but
it may also be created by operation of law. In fact,
by express provision of the law, the fact that
there is co-ownership does not necessarily mean
that there is a partnership existing between two
persons.
Example: Two persons may inherit a property
from their father or mother, and under the law,
they may be considered as co-owners of the
same property.
Partnership
BE: Chato, using all his savings in the total
amount of 2,000, decided to establish a
restaurant. Faye, however, gave 4,000 as
financial assistance with the agreement
that Faye will have 22% share of the profits
of the business. After 22 years, Faye filed
an action to compel Chato to deliver to her
the share in the profits claiming that she
was a partner. Chato denied that Faye was
her partner. Is Faye a partner of Chato?
Purpose:
Partnership: either to divide profits or exercise a
profession. Co-ownership: Common enjoyment of
the thing or right owned in common; merely to
enjoy the property, thus they may have different
purposes.
A very important feature of partnership in relation
to co-ownership: it has a juridical personality,
separate and distinct from the individual partner
which is obviously not present in co-ownership. In
co-ownership, they have
their respective
personalities and no new personality will be
created.
Powers of the Members:
Partnership: Unless otherwise agreed upon, each

partner is an agent of the other partners and of
the partnership.
Page 44

November 2008
Co-ownership: As a rule, a co-owner cannot act as

an agent of the other co-owners unless otherwise
agreed upon between the co-owners.
PROFITS:
Co-owner: Mas malaki ang profits, mas malaki
ang interest. But not necessarily in partnership,
because the sharing in the profits may be
stipulated upon by the parties. Pero kung walang
stipulation, it may be based on the capital
contribution.
Q: Will death extinguish co-ownership?
A: No, Kapag namatay ang isang co-owner, his
heirs will be the co-owners of the surviving coowners at pwedeng tulou-tuloy lang yan.
However in partnership, if it is a general
partnership, if one of the partners dies, the
partnership is dissolved.
ESSENTIAL ELEMENTS OF PARTNERSHIP
Like any other contract, it should have the three
essential requisites:
1.) Consent
2.) Object: to engage to a lawful activity,
whether a business or profession.
3.) Cause or consideration: the promise of
each partner to contribute money,
property or industry
Note: From the definition alone, it can be known
that a contract of partnership is essentially
onerous-each partner has to contribute either
property, money or industry. Walang free rider sa
partnership.
1. Consent of the contracting parties:
The rules in contract would be equally applicable
but, just like in sales and lease, there are persons
who are prohibited from entering into a contract
of partnership:
1.) Spouses:
BE: May the spouses enter into a limited
partnership to engage in a realty business,
with the wife as a limited partner?
A: Yes, because spouses are only prohibited,
under the New Civil Code, to enter into a
universal partnership. Therefore, if they form a
limited partnership, they can constitute only
Php100,000 each, and that will not be a universal
partnership because that would be a particular
partnership.
2.) Corporations:
BE: Can a corporation enter into a contract
of partnership with an individual? Can a
corporation enter into a contract of
partnership with another corporation?
A: To these two questions, the answer is no.
Ruled by the Supreme Court in the Case
of Tuazon, while a corporation may enter into a
joint venture, it cannot validly enter into a
contract of partnership. Under the Corporation
Code, the business of the corporation is supposed
to be governed by the board of directors, and if
such a corporation will enter into a contract of
partnership, the other partners may bind the
corporation in certain activities without the
consent of the board of directors. Another reason
is that the properties r investments of the
stockholders may be exposed to a risk not
contemplated by the stockholders.
3.) Those persons who are prohibited from

giving each other any donation or advantage
cannot enter into a UNIVERSAL partnership:
a.) those guilty of adultery or concubinage
at the time of the execution of the contract
because it would be easy to circumvent the
provision on donation if they would enter into a
universal partnership, kasi pwedeng yung
paramour ang na-contribute lang Php10.00, while
yung isa ang na-contribute Php10 Million,
however, pagdating ng sharing, kabaligtaran.
Yung paramour, 90%, while yung nag-contribute
ng Php10 Million, 10% lang ng profit. In fact, sa
dissolution, pwedeng ganun din ang agreement.
That would be a circumvention of the provision on
donation.
Other persons prohibited are those
mentioned in Art. 739, those persons mentioned
in the law on donation.
2. Object of Partnership:
To engage in a lawful activity.
Q: If the object is to engage in a lawful
activity, necessarily the partnership is
valid?
A: No. There are specific business activities
wherein the law would require particular business
organization which may engage in such business
activity, specifically the Corporation Code which
provides that only corporation may engage in
insurance and banking business, therefore there
can be no partnership engaging in such business:
banking and insurance.
3. Cause of Partnership
The promise of each partner to contribute either
money, property or industry.
Q: What would be the effect if either the
cause or the object of the partnership is
illegal or if the partnership has an unlawful
cause or object?
A: The contract of partnership is void and under
the law, when the contract is void, it produces no
legal effects whatsoever, therefore, action to
compel a party to the contract to distribute the
profits will never prosper. In fact, under the law
on partnership, the State will confiscate the
profits of such illegal partnership.
Q: Will an action to compel a partner to
render an accounting prosper?
A: No. Any action to enforce a void contract will
never prosper.
Q: May a party to such void contract at
least be able to recover what
he
contributed or delivered pursuant to that
void contract?
A: As a rule, no, because of the in pari delicto rule
under Article 1411.
EXCEPTIONS: Article 1411, 1412, 1414,1415 and
1416. Under these circumstances, a party to a
void contract may be able to recover what he
contributed.
Atty. Uribe: I would always consider one of these
provisions as a very practical one:
In a contract that is void, it is so provided that a
party to such contract may recover what
contributed if he repudiated the contract before
the consummation of the contract and before
damage is incurred by a third person.
Page 45

November 2008
FORMALITIES:
Q: If the agreement of the parties to a
contract of partnership was only a verbal
agreement, would that be a valid and
binding contract? Will there be a juridical
personality created?
A: As a rule, yes. Even if under Art. 1772, the law
provides that every contract of partnership,
having a capital of more than Php3,000 or more,
shall be in a public instrument and must be
registered with the SEC.
The 2nd paragraph of Art. 1772 provides
that despite failure to comply with the
requirements in the preceding paragraph, this is
without prejudice to the liability of the
partnership and the individual partners to third
persons. From that article alone, it is clear that
despite non-compliance with the requirements of
the law as to form, there is a partnership created,
because this is without prejudice to the liability of
the partnership (kung may partnership). But more
directly, Art. 1768, the law provides, the
partnership has a juridical personality separate
and distinct from that of each if the partners,
even in case of failure to comply with the
requirements of Art. 1772, par.1.
After all, a verbal partnership contract is valid and
binding between the parties.
Q: Is there a partnership agreement which
would require a particular form for the
validity of the partnership agreement?
A: Yes. There is only one scenario here: if one of
the contracting parties promised to contribute an
immovable, there has to be an inventory of such
immovable and signed by the contracting parties.
If there is no inventory, the law is very clear, the
partnership is void.
Q: What if there was an agreement to
contribute an immovable and there was an
inventory signed by all the partners,
however, the partnership agreement itself
was not put into writing, what is the status
of that partnership contract?
Atty. Uribe: I agree with the position of Professors
Agbayani and Bautista that, despite Art. 1771, as
long as there is an inventory of such immovable,
the partnership agreement is valid and binding
and the juridical personality will be created.
Why?: As ruled by the SC consistently, like in the
case of
Dauden-Hernaez vs. delos Angeles, for a
contract to be void for non-compliance with the
requirements of the law as to form, the law itself
must provide for the nullity of the contract. If the
law only required a form, but the law itself did not
provide for the nullity of the contract, if the
parties failed to comply with that form, then that
form is not necessary for the validity. It may be
necessary for the enforceability of the contract or
greater efficacy of that contract. Thus, in
partnership, it is said that this requirement as to
form will only be necessary for the greater
efficacy, kasi kailangan naka-register sa SEC.
That is apparently the only reason why the law
would require a particular form in partnership
where there is an immovable contributed by one
of the contracting parties.
Atty. Uribe: The position of Prof. Agbayani is
well-supported by the SC.
A partnership has a juridical personality

which is separate and distinct. This is consistent
with the legal person theory, as opposed to the
partnership in the United States which adheres to
the aggregate theory which states that their
partnership has n juridical personality separate
and distinct from the contracting parties.
Consequences: separate and distinct
personality
1.) It can own its properties;
2.) It can sue and be sued;
3.) It may be found guilty of an act of
insolvency; 4.) It may be dissolved for
committing an act of
insolvency.
Concretely, in the case
of
Campos-Rueda
vs.
Pacific
Commercial
Facts: The partnership here filed a petition for the
dissolution of the partnership, but one of the
creditors opposed the petition for dissolution on
the ground that there was no showing that the
individual partners are already insolvent.
Held: The solvency or insolvency of the individual
partners is irrelevant as to the petition of the
dissolution of the partnership. The partnership
itself, having a separate and distinct personality
may be dissolved or may commit acts of
insolvency regardless of the solvency or
insolvency of the partners.
Actually, if one of the partners in a general
partnership is insolvent, there is already
dissolution of the partnership by operation of law,
if the same be proven.
CLASSIFICATION OF PARTNERSHIP:
As to the object of the partnership is only to
determine whether a person may enter such
partnership, there is a need to distinguish
whether a partnership is a UNIVERSAL or
PARTICULAR partnership.
2 Kinds of Universal Partnership:
1.) Universal Partnership of Property
2.) Universal Partnership of Profit
Under the law, if the partners agreed to form a
universal partnership, however, they failed to
state what kind of universal partnership, it shall
be treated merely as a universal partnership of
profit, meaning, it shall comprise only the result
of their work and industry. In universal
partnership of property, the partners are deemed
to have contributed all their property, not literally
all, for there some properties which are exempt
from execution and under the law may not be
considered as having been contributed by the
partners.
TERM OF PARTNERSHIP
Q: If the partners failed to fix a period, does
it mean that the partners agreed a
partnership at will and may be dissolved at
any time without any liability so long as
they acted in good faith?
A: No, because a partnership may be a
partnership for a particular undertaking even if no
period was fixed by the parties.
In one case, a partner, dissolved a

partnership, claiming it to be a partnership at will,
Page 46
the partnership being involved in a bowling

business. The SC ruled that even if the

November 2008
partners failed to fix a period, the partnership

cannot be considered as a partnership at will
because there was a stipulation in the
partnership agreement that the debt of the
partnership shall paid out of the profits that will
be obtained by the bowling business. Thus, after
all, it cannot be dissolved at will, for the debts will
have to be paid. Therefore, the SC ruled that the
said partnership is a partnership for a particular
undertaking.
CLASSIFICATION OF PARTNERS:
According to the liability of the
partners: 1.) General
2.) Limited
This classification is relevant only in limited
partnership.
In general partnership, partners are
general partners and they are liable for
partnership obligations up to their personal
property. Each one of them has the right to
participate in the management of the partnership
unless otherwise agreed upon by the partners.
In limited partnership, while a limited
partner cannot be held liable up to his personal
property, the liability of a limited partner will only
be up to his capital contribution. He also would
not have the right to participate in the
management of the business of the partnership.
G.R.: A limited partner cannot be held personally
liable for partnership obligations.
EXC: Instances when a limited partner may be
held liable up to his personal property:
1.) If he participates in the management of
the business of the partnership.
2.) If his surname appears in the firm name.
Except: a.) even if a limited partners
name appears in the firm name, if the
surname of a general partner is the same
as that of the limited partner. b.) such
surname was already in the firm name
prior to his entry in the partnership.
3.) When he is a general partner and a limited
partner in the same partnership at the
same time.
Who? A person who is both a general and
limited partner at the same time and in
the same partnership would have all the
rights and obligations of a general partner,
however, he would have a right as to his
contribution as against the other partners,
which he would not have, had he not been
a limited partner. When it comes to
division of assets upon dissolution he has
the priority as a limited partner. That is
the only edge, otherwise, he has all the
rights and obligations of the general
partner.
4.) When
there
is
failure
to
comply
substantially
as
to
the
formalities
prescribed by law in the formation of a
limited partnership.
Under the law, if there is a failure
to
comply
substantially
with
the
formalities for the creation of a limited
partnership, that agreement will be valid
among the partners, however, all of them
can be treated as general partners by
third persons. Therefore, a third person, in

this scenario, can hold a
limited partner liable up to his personal

properties.
The limited partners remedy is to seek
reimbursement from his other partners.
As to the contribution:
1.) Capitalist
2.) Industrial
Q: An industrial partner, may be a general
partner?
A: Yes. A capitalist partner may either be an
industrial or general partner.
Q: May an industrial partner be a limited
partner?
A: No. A limited partner can only contribute
money or property. He cannot contribute service.
Q: But can a partner be both capitalist and
industrial?
A: Yes, he can contribute both money and
industry. He can be both capitalist and industrial
and there will be consequences to that.
BE: A and B formed a partnership to
operate a car repair shop. A contributed
money, B contributed industry. While the
car repair shop was already in operation, A
operated a coffee shop beside the car
repair shop. B also operated a car
accessories store on the other side of the
shop. May these partners engage in those
business activities?
A: As far as A is concerned, he can validly engage
in such business because the law would only
prohibit him from engaging in a similar activity.
As far as B, an industrial partner, is concerned, he
Page 47
cannot engage in any business activity without

any express authority or grant by the partnership
for him to engage in such business. Thus, if A did
not give his consent, B cannot validly engage in
ANY business, not only similar business, for B, as
industrial partner, is supposed to give his time in
the said partnership business.
Incoming Partner:
Q: ABC Partnership is composed of A, B and
C. Thereafter, D became a member of the
partnership. Six months after Ds entry as a
member, a certain obligation, 3 Million
became due and demandable. For this
partnership obligation, can D be held
liable?
A: As was provided in the facts, the 3 Million
became due and demandable. Thus, this
obligation may have been incurred after Ds entry
or before his entry, although it became due after
his entry or admission to the partnership.
If the obligation is incurred after his entry,
there is no question that, if he is a general
partner, he can be held liable up to his personal
properties.
Q: If this obligation is incurred prior to his
entry as a partner, can he be held liable?
A: Yes. As a rule, he may be held liable, but only
to the extent of partnership property which would
include his capital contribution, unless there is a
stipulation to the contrary. Even if the obligation
was incurred prior to his entry, however, if in the
partnership agreement, he agreed to be bound by
those obligations, then he can be held liable even
to the extent of his personal property, though he
is a new partner.

November 2008
Q: X is indebted to ABC Partnership which

may be limited. The same debtor of the
partnership is also a debtor of one of the
partners. The debt to the partnership is
100,000, while the debt to the partner is
50,000. X delivered 30,000 to A. Should this
30,000 be distributed in proportion to the
debts to the partnership and to A, meaning,
20,000 will go to the partnership and
10,000 will go to A.
A: If A is a limited partner, there shall be no
distribution in proportion to the credit of these
two creditors. The law which requires that
payment be distributed in proportion to the two
credits will only apply if the partner to whom the
amount is delivered is a managing partner. If he
is a limited partner, normally, he would not have
any participation in the management of the
partnership business. Thus, if he is a limited
partner, then he can have the right t receive
everything he received.
Q: Assuming that A is in fact a managing
partner and he received the 30,000 from X,
is it possible still for A to retain everything
which he received?
A.: Yes, if this debt is already due and
demandable. In this scenario, the debt is not yet
due and demandable. Such debt MUST be due
and demandable in order for the law on the
proportional distribution to apply to both debts.
Q: A is a managing partner and both debts
are due and demandable. 30,000 was
delivered to A. Is it possible for the
partnership to have the right to the entire
30,000?
A: If A receipted the amount in the name of the
partnership. By specific provision of the law, if the
managing partner who received such amount,
receipted the same in the name of the
partnership, the partnership will be entitled to the
entire amount.
Q: If A, as managing partner, and both
debts being due and demandable, he
received the amount of Php30,000 and
receipted the same in his own name, may
he be entitled to retain everything?
A: Yes, if Xs debt to A is more onerous and X
chose to have this amount paid to this debt.
Under the law, the debtor has the right to choose
to pay the debt which is more onerous. Again, the
premise is the debt to A is more onerous than the
debt to the partnership.
If A, as managing partner, received the same
amount, receipted in the name of the
partnership, both debts are due and demandable
and are of the same burden, there will be a
proportional distribution of the amount, 20,000
will go to the partnership, and 10,000 will go to A,
the debt to the partnership being 100,000 and
the debt to A being 50,000.
PROPERTY RIGHTS
3 Major property rights of a partner:
1.) Right in specific partnership property;
2.) Interest in the partnership; and
3.) The right of the partner to participate in the
management of the business of the partnership.
Property rights considered as minor:
1.) Right to have access to the books of the

partnership; 2.) Rght to demand for a formal
accounting.
Q: Can a partner demand for a formal
accounting at any time?
A: No. The law will only give a right to a formal

accounting under very specific circumstances.
Why? Because a partner already has access to
the books, thus, it may be unnecessary to
demand for a formal accounting at any time.
Right in specific partnership property:
Under the law, a partner is a co-owner
with the other partners as to specific partnership
property. Again, he is a co-owner with his
partners and NOT with the partnership over
specific partnership properties.
Q: How could a person be a co-owner of a
property owned by another if he is not a coowner of that other person? The owner is
the partnership. How can a partner be a coowner of that property if he is not a coowner with the partnership?
A: Other authors would say that the problem with
this provision is that it was copied from the
Uniform Partnership Act of the United States,
where a partnership has no separate and distinct
personality, thus making them merely co-owners.
But, in fairness with the Code commission,
the 2nd sentence would tell you that this coownership has its own incidence. In other words,
this is no ordinary co-ownership under the
property law. Thats why some authors would call
it co-ownership sui generis.
Q: Concretely, in property law, if two
persons are co-owners of a parcel of land,
can a co-owner sell his interest over the
parcel of land without the consent or even
knowledge of the other co-owner? Would
that be a valid assignment of interest?
Page 48
A: Yes. However, in specific partnership property,

there can be no valid assignment of interest by
one partner. The assignment of interest of a
specific partnership property would only be valid
if all the partners would likewise assign their
interests.
Q: May a creditor of a co-owner of a parcel
of land levy upon such portion of the land
interest over that land owned by the debtor
/ co-owner?
A: Yes, there can be such valid levy.
Q: In partnership, can a creditor of a
partner levy upon the rights of the partner
over a specific partnership property?
A: That is not possible. Only partnership creditors
can levy upon partnership assets or partnership
property. This is different in the partners interest
in the partnership for this interest in the
partnership can be validly assigned by one of the
partners even without the consent or knowledge
of the other partners.
Interest in the Partnership
Simply put, this is a partners share in the profit
and surplus.
Whatever is his share in the profit or surplus is his
interest in the partnership.
Q: What would be the share of a partner in
a partnership?
1.) Stipulation. For instance, in a partnership
of 3 persons, they can agree that one
may have 95% of the profits, while the 2
other partners may have 5% of the same
respectively.

November 2008
Q: What if, in such agreement, one of the

partners was excluded in sharing in the
profits?
A: Such stipulation is void. Take note that only
such stipulation is void and not the whole
partnership agreement.
Q: Thus, if the stipulation as to the sharing
of the profits is void, or that there is no
stipulation with this regard, what would be
the sharing in the profits of the partners?
A: It will depend on their capital contribution.
Q: What if one of the partners is an
industrial partner?
A: By express provision of the law, he shall be
given his share by determining the value of the
service rendered. Thus, determine first the value
of the service rendered, give the same to the
industrial partners, then the balance will be
distributed
to the capitalist partners in
accordance to their capital contribution.
BE: A, B and C are partners. In their
partnership agreement, they agreed in the
equal sharing of the profits. Thereafter, C
assigned
his
whole
interest
in
the
partnership to X. X now demanded that he
be
allowed
to
participate
in
the
management of the business of the
partnership and also his share in the profits
in the business of the partnership. Are the
claims f X valid?
A: As to Xs claim t participate in the
management of the business, he has no such
right as an assignee. By express provision of the
law, an assignee has no right to participate in the
management of the business of the partnership,
unless otherwise agreed upon. He will not even
have the access to the books of the partnership.
His only right would be to receive whatever the
assigning partner may receive as share in the
profits and in the surplus.
Q: If profits were declared, for instance, in
the amount of 360,000, would the assignee
have the right to share in the profits?
A: Yes. X is entitled to share of Php120,000, since
the agreement is equal sharing of profits.
Right to participate in the management of
the business of the partnership
BE: W, X, Y and Z formed a partnership. W
and X contributed industry; Y contributed
50,000; Z contributed 20,000. In a meeting,
the
partners
unanimously
agreed
to
designate W and X as managing partners,
such appointment having no stipulation as
to their respective duties nor was there any
statement that neither can act without the
consent of the other. Thereafter, 2 persons
applied for two positions: 1.) as secretary;
and 2.) as an accountant. As far as the
secretary is concerned, it was W and X who
appointed the secretary, opposed by Y and
Z. The accountant was appointed by W
concurred by Z, which was opposed by X
and Y. Whose appointment would bind the
partnership?
A: This management arrangement is known as
joint management. Any managing partner may
execute acts which are merely acts of
administration even if opposed by all the other
partners, kung mag-isa lang sya. But, if there are

two or more managing partners, they have to
decide by a majority vote.
Q: Is the appointment of the secretary an
act of administration?
A: Yes.
Q: Would it bind the partnership?
A: Yes, even if opposed by the other partners, the
capitalist partners, the latter would not have any
right for this is merely an act of administration
well- within the powers of a managing partner.
Q: With regard to the accountant, take note
that the appointment by W was opposed by
another managing partner. How will this tie
be resolved?
A: Under the law, this will be resolved by all the
partners with the controlling interest. The
partners with controlling interest will prevail.
Q: In this case, who has the controlling
interest?
A: Y. The determination as to who has controlling
interest depends on the capital contribution.
Thus, an industrial partner is excluded in such
cases. In this case, it is obvious that 50,000 is
more than the capital contribution, and because Y
opposed to the appointment, such appointment
will not bind the partnership.
Other management arrangements are provided in
Articles 1800, 1801, 1802, 1803.
TYPES OF MANAGEMENT:
1.) Solidary Management:
-without specification as to each others
duties or without stipulation that one of them
shall act without the consent of all.
2.) Joint Management:
Page 49
-two or more managing partners with the

stipulation that none of them shall act without the
consent of all others. The incapacity of one of the
partners, or his absence will not be a valid ground
not to obtain his consent to a contract. It has to
be by unanimous consent, unless, in obtaining his
consent (he is absent or incapacitated) it would
result in irreparable damage to the partnership,
then the consent of the absent or incapacitated
managing partner may be dispensed with. This is
also known as management by consensus.
3.) If there was no management arrangement
agreed upon between the partners, each partner
is considered as an agent of the partnership.
Into these arrangements, if only one partner is
appointed as a manager, he can execute any acts
of administration even if opposed by all the other
partners.
Q: In a partnership of which the business is
into buying and selling cars, the managing
partner decided to buy a vintage Mercedes
Benz, to the opposition of the other
partners
for
they
consider
it
bad
investment, will the decision or the act of
the managing partner in buying the said car
bind the partnership?
A: Yes, because such act is merely an act of
administration. The problem is, if the managing
partner continues to not consider the sentiments
of the other partners, he may be removed as a
managing partner.
Q: The question now is, can he be easily be
removed?

November 2008
was constituted as such in the articles of

partnership or he was merely appointed as
managing partners after the constitution of the
partnership.
If he was constituted as a managing
partner in the articles f partnership, he can only
be validly removed under two conditions:
1.) There has to be just cause; and
2.) by those partners having controlling
interests.
Absent one of these conditions, he cannot be
validly removed. In fact, even if there is just
cause, if the managing partner controls 51% of
the partnership, he can never be removed.
However, if he was appointed as a
managing partner only after the constitution of
the partnership, he can be validly removed even
without just cause, so long as it was done by
those partners having controlling interests.
OBLIGATIONS OF THE PARTNERS AMONG
THEMSELVES AND
AS TO THE PARTNERSHIP
AND
IN
CASE
OF
NONPERFORMANCE OF THE OBLIGATION
3 Obligations of the partners:
1.) To make good his promised contribution;
2.) Fiduciary duties; and
3.) To participate in the losses incurred by the
partnership business.
1. To make good his promised
contribution: A. Money:
In order to know the remedies that may be
availed of by the non-defaulting partners and the
partnership, it must be known first what was
promised by the partner, whether he promised to
contribute money, property or industry.
If the partner promised to contribute
money, for instance, the partners agreed to
contribute 1 Million with 4 partners, without an
agreement as to respective amount to be
contributed, the law provides that they will have
to share equally. Thus, in this example, 1 Million
will have to be divided into 4 or the respective
contribution will be 250,000. If one partner failed
to make good his promised contribution which is
a sum of money, he can be held liable by the
non-defaulting partners up to the amount
promised plus interest. If no rate was stipulated
by the parties, it will be the legal rate of 12%,
because this is forbearance in money. Aside from
paying the interest, which is unusual, not only will
that defaulting party be held liable to pay
interest, he will also be liable to pay damages.
Spe
cific
perf
orm
A: No. The requirements for the removal of a

managing partner would depend on whether he
Normally, in obligations involving money,

in case of damage incurred by another party, the
liability will only be payment of interest. In
partnership, not only will he be liable to pay
interest, but also of damages.
Remedies that may be invoked by the non-defaulting
partners:
1.)
2.) Dissolution - may be an option by the

non-defaulting partners, if that is the only
amount that they are expecting for the
partnership.
Q: Can a non-defaulting partner rescind the
partnership agreement?
A: In a SC decision, it held that rescission is not a
remedy of the non-defaulting partners. Under the
law, the defaulting partners are treated as a
debtor of the partnership by specific provision of
the law. Therefore, the SC held that provision
prevails over the general rule in obligations and
contracts under Art. 1191, wherein rescission
may be a remedy in case of serious breach.
B. Property:
If a partner promised to contribute
property, it must be determined as to what was
really contributed: was it the property itself or the
use of the property.
If it was the ownership of the property that
was contributed then he would have the
obligation to deliver and transfer ownership,
aside from that, under the law, he would have the
obligation to warrant the thing.
Before the delivery of the thing to
the partnership, who will bear the loss? The
partner will bear the loss. The partnership will
bear the loss when the thing is already in its
possession
If what was contributed was merely the
use of the property, the risk of loss will be with
the contributing partner for there was no transfer
Page 50
of ownership in this case. Under the res perit

domino rule, even if possession of the thing is
with the partnership, so long as there is no fault
on the part of the partnership, then the
contributing partner-owner will bear the loss.
EXCEPTIONS:
1.) When the thing contributed is fungible;
2.) or it cannot be kept without
deteriorating; 3.) If contributed by the
partner to be sold; and
4.) When it has an appraised value of such
property.
In all these circumstances, it is the
partnership which will bear the loss if the thing
was lost or destroyed while in the possession of
the partnership.
Again, if the contributing partners fails to
make good his promise to contribute property, he
will be treated as a debtor of the partnership,
thus specific performance will likewise be a
remedy.
C. Industry
If a partner fails to render service as
promised, will specific performance be a remedy?
Ans.: Definitely not. It would be a violation of his
rights against involuntary servitude. The remedy
would be to demand for the value of the service
plus damages. It can be easily done because
there is an industry rate.
2. Fiduciary Duties:
The duty to observe utmost good faith, honesty,
fairness, integrity in being with each other. This
duty commences even during the negotiation
stage.

November 2008
Test to determine whether there was a

violation of this duty:
Whether the partner has an advantage himself at
the expense of the partnership. If he has such
advantage at the expense of the partnership,
then there is a breach of the fiduciary duty. There
need not be a proof of evil motive so long as he
has this advantage at the expense of the
partnership.
This duty lasts, normally,
termination of the partnership.
until
the
Q: May a partner may be held liable for

breach of fiduciary duty even after the
termination of the partnership?
A: Yes. The SC held that even if the act of a
partner was made after the termination of the
partnership, if the foundation of that act was
made during the existence of the partnership that
can still be considered as a breach of fiduciary
duty. In other words, pinaghandaan na nya yun
act during the existence of the partnership,
however, it was executed only after the
termination of the partnership.
3. Participate in the Losses:
Q: What will be the share of the partner in
the losses incurred in the partnership?
A: Consider first whether there was a stipulation
as to losses or there was no stipulation.
If there was a stipulation as to losses, the
first scenario would pertain to, for instance, A, B
and C agreed to share 50%, 30% and 20% of the
losses. This will be a valid and binding stipulation
among the partners.
Q: Would this still be a valid stipulation if
one of them is an industrial partner?
Atty. Uribe: Yes, this would still be a valid
stipulation. If the industrial partner agreed to
share in the losses, then who are we to deny him
that?
Q: What if in the stipulation regarding
losses, one or more of the partners is
excluded in sharing with the same, what
will be the status of the stipulation?
A: It depends on who was excluded. If the
excluded partner is a capitalist partner, that
stipulation is definitely void, 100%.
If the partner excluded is an industrial
partner, it depends. As among the partners, this
stipulation is valid, however, this is void among
third persons. In other words, despite the
stipulation among partners, in excluding the
industrial partner in sharing in the losses, the
creditors of the partnership can still hold such
industrial partner liable for his contractual
obligations. The remedy of the industrial partner,
if held liable, is to go after his partners, for the
agreement is valid among themselves.
Q: What if there is no stipulation as to the
sharing of the losses, or that the stipulation
in void?
The first scenario is, there is an agreement
as to profits. If there is an agreement as to
profits, then the sharing in the profits will be the
same basis in the sharing of the losses which is a
very reasonable rule. Thus, for instance, if A, in
the agreement, is entitled to 90%, B-% and C-5%,
then it would also be reasonable that A share

90% of the loss, B&C 5% of the loss respectively.
The last scenario, there is no stipulation as to

losses and there is also no stipulation as to
profits. In this case, it would depend on their
capital contribution. Their share in the losses
would depend on their capital contribution.
Thus, in this scenario, would the industrial
partner share in the losses?
A: Wala, kasi wala syang capital contribution.
Note: Under Art. 1816, even if he is excluded by
the partners/partnership in sharing in the losses,
that is a void stipulation as to third persons and
can still hold the industrial partner liable as to the
contractual obligation of the partnership.
Q: If indeed a partner, assuming that the
assets of the partnership are not sufficient
to cover the obligations of the partnership,
what would be the nature of the obligation
of the partner? Would the partners be held
solidarily liable? Or would they only be held
jointly liable?
A: It would depend on the nature of the liability.
For contractual obligations, as a rule, the partners
would only be jointly liable, unless they bound
themselves solidarily, for contractual obligations.
However, under Art. 1824, if the obligation arose
from a tortuous act or a wrongful act under Arts.
1822 and 1823, for example, while in the
performance of his obligation, a partner received
a sum of money from one of its clients which sum
of money was misappropriated that partner, such
partner will be held solidarily liable with his
partners and with the partnership. Also, if a sum
of money was delivered, even if it was delivered
to the partnership, however, one of the partners
Page 51
misappropriated the same, all the partners will be

considered solidarily liable among themselves
and with the partnership.
In the United Pioneers General
Construction Case, the creditor filed a
collection suit impleading the 5 general partners.
During the pendency of the case, the creditor
asked for the dismissal of the action as against
one of the partners. Ultimately, the court decided
in favor of the plaintiff. Assuming the amount
which was found to be the liability of the
partnership was Php100,000, the court ruled that
the partnership will have to pay the said amount
and in case that the assets of the partnership will
not be sufficient to cover this indebtedness, the
partners will be liable to pay equally.
So, naging issue yung equally, meaning silang
apat na lang? for the case as against one of the
partners was dismissed. If the amount of the
obligation is 100,000, should they be liable
25,000 each or 20,000 each including the 5 th
partner?
The SC ultimately held, in this case, that
the liability of the partners is only joint, therefore,
the condonation of the liability of one partner will
not increase the liability of the other partners.
Even if the partnership has no assets remaining,
each partner shall only be held liable up to his
share in the partnership indebtedness. Thus, if
the debt is 100,000 and there is no agreement as
the share in the losses, they have to share in the
losses, equally into 20,000, yung apat na lang na
defendants, kasi yung isa, condoned na yung
obligation.
OBLIGATIONS OF PARTNER RE: 3RD PERSONS

November 2008
Q: When would a contract entered into by a

partner bind the partnership?
Ex.: If a partner went to a furniture shop to
buy furniture the of which is Php100,000,
and such amount remained unpaid, can the
seller
demand
payment
from
the
partnership?
A: It depends as to whether the contract was
entered into in the name of the partnership, for
the account of the partnership, under its
signature, by a partner who is authorized to enter
into that contract to bind the partnership. Thus, in
this example, if in the agreement the buyer was
the partner himself and not the partnership, that
partner should be held liable, for the furniture
was not bought in the name of the partnership.
The problem, if the contract would be binding in
the partnership, then would be, whether the
partner who represented the partnership had the
authority to bind the partnership.
Normally, if a partner would enter into a
contract, a partnership resolution is not
necessary. Whether or not a contract would bind
the partnership would depend on the nature of
the act of such partner and the nature of the
business of the partnership.
Q: Concretely, if a partner bought a
complete set of SCRA in the name of the
partnership and signed by that partner,
would that contract bind the partnership for
the set was bought in the name of the
partnership?
A: It would depend on the nature of the act and
the nature of the business of the partnership. In
this example, the partner bought the set of SCRA,
pero naman, and business ng partnership ay
restaurant, hindi naman ata na i-bind nya ang
partnership to such contract, ang negosyo nila
restaurant.
Q: But the seller would raise the defense,

hindi ko naman alam na restaurant yung
business,
e
ang
nagrepresent
ng
partnership si Atty. ABC, so akala law firm.
Is that a valid defense?
A: No. The SC would tell that the third party
contracting with the partnership has the
obligation to know at least the nature of the
business of the partnership. In fact, he can
demand for the presentation of the articles of
partnership in order for the third party to know
the nature of the business of the partnership. For,
if this time, the partnership is a law office, and
the partner bought a set of SCRA, that act of
buying a set of SCRA will be considered
apparently for carrying the business of the
partnership the usual way. Therefore, that
contract will bind the partnership.
Q: Even if he had no authority from the
partners?
A: Yes.
Q: Even if there was a resolution among
partners that he should not be the one who
will enter into the contract? For instance,
A,B,C,D, and E did decide to buy the set,
but designated A to buy the same and not
E, but the E bought the SCRA, would that
contract bind the partnership?
A: Yes, as long as the third person was not aware
of that agreement of the partnership because
such act is an act apparently for carrying on the

business of the partnership the usual way. So, if
the partnership is a law office, but the partner
bought certain things for a restaurant, then such
act is not apparently for carrying on the business
the usual way,
thus such act would require the consent of the

partners in order to bind the partners.
Under Article 1818, there are certain acts which
law requires the unanimous consent of the
partners for such a contract or act to bind the
partnership, like, disposing the goodwill of the
partnership or to contest a judgment against the
partnership or renounce a claim of the
partnership.
DISSOLUTION, WINDING UP AND
TERMINATION
These are three different concepts. Upon
dissolution of the partnership, it is NOT DEEMED
dissolved. It will still have to go through the
process of winding up of the affairs of the
business
of
the
partnership
before
the
partnership itself will be terminated.
Q: When would there be a dissolution of a
partnership?
A: Under the law, there will be a dissolution if
there is a change in the relation of the partners
caused by any of the partners ceasing to be
associated in the carrying on of the business of
the partnership. That will result in the dissolution
of the partnership. Again, if one of the partners
ceased to be associated in the carrying on of the
business of the partnership, that will result in the
dissolution of the partnership.
Q: May there be a dissolution even if none
of the partners ceased to be associated
with the carrying on of the business of the
partnership despite the definition of
dissolution under Art. 1828?
Page 52
A: Yes. One scenario is the admission of a new

partner. With the admission of a new partner,
under Art. 1840, the partnership is dissolved.
Q: What is the effect of the dissolution?
A: Again, it will not result in the termination, it will
only start the winding up process, effectively, this
will terminate the authority of all partners to bind
the partnership, EXCEPT, if that act is necessary
for the winding up of the partnership or
necessary to complete a business which was then
began but was not yet finished at the time of the
CAUSES OF THE DISSOLUTION
1.) Extrajudicial;
2.) Judicial.
Extrajudicial causes:
1.) Voluntary;
2.) Involuntary.
Judicial causes are necessarily voluntary because
it is by application.
Under voluntary causes would fall, the
cause of the dissolution may result on the
violation of the agreement or it may be without
violation
of
the
partnership
agreement.
Concretely, the expiration of the period would be
voluntary, extrajudicial but without violation of
the agreement. The fixing of the term is an
agreement of the parties therefore, it is voluntary.
Termination of a definite term or a
particular undertaking: voluntary but without
violation.

November 2008
By the will of one of the partners: the

partnership may be dissolved without liability on
the part of the partner, if the partnership is a
partnership at will and he dissolved the
partnership in good faith. Those are the two
requirements, in order for a partner to be able to
dissolve the partnership without liability on his
part. Again, in an express will of any partner who
acted in good faith, when no definite term or
particular undertaking is specified, which means,
again that a partnership is a partnership at will.
BE: A, B and C agreed to form a partnership
for a period of five years. After 2 years of
business, C assigned his whole interests to
Philip. The two other partners, realizing
that they would not be able to deal with
Philip, decided to dissolve the partnership.
Philip, not knowing of the dissolution done
by the 2 partners, filed a petition for the
dissolution of the partnership with the
court. Was the partnership dissolved by the
act of the two partners? May the action
filed by Philip to dissolve the partnership
prosper?
A: As already mentioned, by the express will of all
the partners who have not assigned their interest
is a cause for the dissolution of the partnership.
Therefore, the 2 partners validly dissolved the
partnership by mere will of the partners.
Q: As far as Philip was concerned, will his
petition prosper, even assuming that no
dissolution was made by the 2 partners?
A: No. With the assignment of the interest of a
partner to another person that does make the
assignee a partner of the partnership without the
consent of the other partners, therefore, he has
no personality to file a petition for the dissolution
of the partnership.
Expulsion of any partner in good faith, it
maybe because the grounds for expulsion was
agreed upon by the partners and one of the
partners violated such agreement, thus he may
be expelled in good faith, therefore it may be
voluntary and without violation.
In contravention, because one of the
partners may dissolve a partnership, even if the
partnership has a fixed period or it is a
partnership for a particular undertaking and that
particular undertaking has not yet been
completed, that would be in contravention of the
agreement of the partners.
INVOLUNTARY CAUSES:
Q: If one of the partners in a partnership
was elected a Senator, would this dissolve
the partnership by operation of law?
A: No.
Q: Even if it is a partnership of lawyers or a
law office?
A: No.
Under the Constitution, these elected officials are
prohibited only from appearing before tribunals
and not from private pratice.
Q: If a lawyer was appointed in the cabinet,
for instance as Presidential Legal Counsel,
would that result in the dissolution of the

partnership by operation of law?
A: Yes. Under the Constitution, Cabinet

Secretaries are prohibited from private practice of
their profession.
Classic ex.: The Firm (Carpio Villaraza Cruz Law)
This also includes appointment in the judiciary.
Q: What if the law partner was elected as
governor of his province will it result in the
dissolution of the partnership?
A: Yes. Under the Local Government Code, chief
executives are also prohibited from the private
practice of their profession.
Q: What if the partner who died is a partner
in a limited partnership? Would that
dissolve automatically the partnership?
A: It depends as to who is the partner.
If he is a general partner, as a rule, it
dissolves the partnership, unless there was an
agreement in the articles of partnership that they
would continue with business of the partnership
even after the death of the partner. Or even
without such agreement in the articles of
partnership, if the surviving partners decide to
continue with the business of the partnership,
then the partnership is not deemed dissolved
even if the partner who died is a general partner.
If the partner who died is a limited
partner, that does not result in the dissolution of
the partnership. In fact, the executor or
administrator of the estate of the deceased
limited partner will the right to choose or to
appoint a substitute limited partner in the said
partnership.
Page 53
Insolvency or civil interdiction of any partner will

result in the dissolution of the partnership.
Judicial Causes: Grounds:
1.) Insanity or incapacity:
-The courts require that it should be
permanent in character; and
-such incapacity or insanity must affect the
performance of such partner of his obligations
with respect to the partnership business. In
other words, kung wala syang pakialam sa
management ng business ng partnership,
insanity or incapacity is not a valid ground.
2.) Gross misconduct:
a.) wrongful expulsion;
b.) if one partner would refuse to allow
another partner in the management of the
partnership business, if he has such right to
participate in the management ;
c.) if the managing partner would refuse to
distribute the profits of the partnership when
there is such obligation to distribute the profits;
d.) misappropriation of the income of the
partnership business.
Note: If a limited partner becomes a limited
partner in another partnership, that is not a valid
ground to file a petition for the dissolution of the
partnership. Limited partners has nothing to do
with the management of the partnership
business, thus, there is no conflict of interest.
Note: The fact that the partnership incurred
losses for the past three years is not necessarily
a ground for dissolution.

November 2008
However, even if the partnership incurred

losses once and it can be shown by the partners
that there is no prospect for recovery, it can be a
valid ground for the filing of the petition for the
Q: Quarrels among partners, valid ground?
A: Normally, no. However, if such quarrels give
rise to dissension among the partners, affecting
the conduct of the business of the partnership,
this can also be a valid ground, falling under
other circumstances which would render the
dissolution equitable.
Q: Upon the dissolution of the partnership,
and there were assets left, how will these
be distributed? To whom these assets be
given?
A: As far as partnership assets are concerned:
1.) Partnership creditors who are not partners.
2.) Partnership creditors
3.) If there are remaining assets, to the
capitalist partners;
4.) Excess - profits based on their agreement
as to profits.
Q: What if, in their agreement, Partner A
contributed 100,000; Partner B, 50,000;
Partner C, industrial partner. The total
assets of the partnership is 1 Million at the
time of dissolution, however, there were
partnership creditors obligation of which
amounted to 900,000. Would the industrial
partner have a share in that 1 Million asset?
A.: No. Since the amount of the obligation is
Php900,000, the remaining Php100,000 should be
given back to the capitalist partners for their
capital contribution.
Q: Assuming that there was no agreement
as their share in the losses, also there was
no agreement as to their share in the
profits, what if one of the partners became
insolvent, will the other partners liability
be increased?
A: No, because their liability is JOINT.
Q: For instance A, a partner is insolvent, his
assets being 100,000. A is indebted X and Y.
The partnership also has its creditors. To
whom shall this 100,000 be given?
A.: It should be given to the separate creditors of
the individual partner.
For a limited partnership to be formed, there has
to be at least one limited partner and one general
partner.
For the establishment of a limited
partnership, the law requires certain formalities.
Concretely, under Art. 1844, there has to be a
certificate signed and sworn to by the contracting
parties which has to be filed with the SEC. So long
as there was substantial compliance with the
formalities required by law, a limited partnership
will be valid and binding.
Q: What if there was no substantial
compliance as to these formalities?
A: Even if there was no substantial compliance,
the agreement will be valid and binding among
themselves. As to third persons, all of them may
be held liable as general partners, as if all of
them are general partners. Thus, even a limited
partner may be held liable even up to his

personal properties.
TRUST
2 KINDS:
1.) Express;
2.) Implied.
Implied Trust: 2 Kinds:
1.) Resulting trust;
2.) Constructive trust
The classification of trust into two kinds
(express and implied) and implied trust into two
kinds (resulting and
constructive) would be relevant in two
concepts:
1.)
Applicability of the parole evidence
rule; and
2.)
Prescription, specifically, acquisiti
ve
prescription.
Note: An express trust over an immovable may
not be proven by parole evidence. This means
that implied trust over an immovable may be
proven by parole evidence or express trust over a
movable, may be proved by parole evidence.
EXPRESS TRUST
Q: May an express trust over an immovable
be proven by mere testimony of the
witness?
A;Yes, if the lawyer of the other party did not
object to the presentation of the witness.
BE: In an agreement between A and B, a
property of A was to be registered in the
name of B, with an agreement the B
Page 54

November 2008
will reconvey the property to As son upon

the graduation of the said son (As son).
This agreement was entered into in
1980. The property was in fact registered in
the name of B the following yea, 1981. In
1982, A died. In 1983, As son graduated.
Despite that fact, B did not reconvey the
property. He had no knowledge of this
agreement until 1993, when accidentally,
the son of A discovered such instrument
pertaining to the agreement of A and B.
Thus, he demanded that the land be
conveyed to him. B refused raising the
defense of prescription. Is this claim
tenable?
A: Definitely not. This pertains to an express
trust. In an express trust, trustee will be holding
the property only in the name of the beneficiary
or the cestui que trust, therefore, he cannot
acquire the said property by acquisitive
prescription unless there would be adverse
possession over the property.
Q: When would there be adverse
possession?
A: It may only start with repudiation. Without
repudiation, the period for acquisitive prescription
will not start to run. Such act of repudiation
should be made known to the beneficiary.
IMPLIED TRUST
Resulting Trust:
BE: A and B, brother and sister respectively,
inherited two identical parcels of land. For
purposes of convenience, B, sister of A,
agreed to have the land registered in the
name of A. However, when the parcels of
land were registered in the name of A, A
sold one of the parcels of land to a buyer in
good faith and for value. Can B recover the
land from the buyer? What would be the
remedy of B?
A: This question clearly pertains to a resulting
trust. This is specifically, Art. 1451 of the NCC.
B cannot recover the land from the buyer.
As discussed in Sales, a buyer who had bought
the property from a seller who has no right to sell,
but he has apparent authority to sell, who
appears to be the owner and the buyer bought
the property in good faith, he will acquire
ownership over the thing even if the seller has no
right to sell.
Bs remedy would be to go after her
brother for breach of trust in selling the property
without her consent.
BE: A property was bought by a father and
was registered in the name of his
illegitimate
daughter.
The
illegitimate
daughter occupied the said parcel of land
and constructed a house where she and her
husband and their children lived. Several
years thereafter, her father died. The other
heir of her father (his legitimate children)
demanded for the delivery of the said
property to the estate for distribution to
the other heirs, claiming that a trust
relationship was established between the
father and the illegitimate child. Is this a
valid claim?
A: Under the law, there is no presumption as to
trust relationship under 1448, because the donee
in this situation is a child, even if illegitimate, of

the father. Therefore, it may be a donation as
provided under Art. 1448.
Q: Can the other heirs recover that
property?
A: It depends, considering that it is a donation, if
the donation is inofficious. If the same be
inofficious, the other heirs may
demand for the return of the property or at least

the value of the property.
Resulting trust includes Articles 1448, 1451,
1449, 1450,1452,1453,1454.
Constructive Trust:
BE: A applied for the registration of a parcel
of land in his name. However, he was called
in New York to be a chef in a hotel. So, he
asked his cousin to follow up his application
for registration of land while he was in New
York. Instead of ensuring the registration of
the property in the name of A, he had the
property registered in his (cousin) name.
After which, he sold the property to a thi4rd
person who bought the land relying on the
TCT. When A returned to the Phils., he
learned of what his cousin had done. May A
recover the parcel of land from the 3rd
person who bought the property in good
faith and for value?
A: No.
Q: Lets assume that the remedy here is
conveyance, the cousin has not yet been
able to sell the property to the 3 rd person,
Page 55
however the same in registered in the name

of the cousin. If the cousin would raise the
defense that the action was filed more than
one year from the time of registration of
the property in his name, is that claim
tenable?
A: Untenable. The one year period provided by
law is relevant only if the action filed is for the reopening of the registration case because of fraud.
Thus, if the action is for reconveyance, it does not
matter of the one year period has already lapsed.
N.B.: Art. 1456, 1455.
Q: In constructive trust, may the trustee
acquire the property by prescription by
mere lapse of time, without repudiation?
A: Yes, because from the very start, he was
already claiming ownership over the thing. Iba
don sa resulting trust or express trust. When this
trust was constituted, the trustee was holding the
property in the name of another person. Pero sa
constructive trust, itong pinsan at yung abogado
in one case, would be claiming ownership over
the property, right from the very start and
therefore without need of repudiation, yung
prescriptive period will start to run in a
constructive trust.

November 2008
Usufruct vs. Commodatum

1. U is a right to enjoy the property which
means that the usufructuary will not only have
the right to possess but he would have the right
to the fruits of the thing.
C no right to the fruits but only right to use the
thing but it may be expressly stipulated that he
can also use the fruits.
Consensual vs. Real Contracts
1. C are perfected by mere consent thus upon
meeting of the minds as to the object and the
cause there is already a perfected contract
RC are perfected upon delivery of the thing
which is the object of the contract.
Credit transactions
Q: Why credit transactions?
A: Because these transactions all involved credit
meaning there is a belief in the capacity of one of
the parties to perform his obligation in the future.
Note: Credit transactions ang tawag but they are
not all contracts. There can be legal relationship
even without an agreement examples legal
pledge, judicial deposit. But the others are
contracts there are contractual deposit and
pledge by agreement.
Transactions:
A. Kinds of Loans
1. Mutuum
2. Commadatum
B.
Kind of Deposits
1. Judicial
2. Extrajudicial
C.
Guaranty
D.Suretyship
E.Real
1.
2.
3.
4.
Guaranty favorite in the bar exams

Pledge
Chattel Mortgage (CM)
Real Estate Mortgage (REM)
Antichresis
Focus on the following provisions:

1933, 1962, 2047, 2132, 2140
Obligations of the bailee
1942 Obligations of
depositary - 1979 Right to
demand for interest 1956
Requisites of pledge and

mortgage - 2085 Pactum
Commissorium 2088
Indivisibilty Principle
Right to recover the deficiency / excess 2115
Mutuum vs. Commodatum
1. C a thing is delivered to the bailee for the use
of the property and therefore ownership is not
transferred.
M a consumable thing is delivered and therefore
ownership thereof is transferred to the bailee or
borrower.
2.M only consumables are the object
C may be immovables (house, rice field)
Examples of Real Contracts

1316 Commodatum, deposit and
Mutuum (memorize these 4 examples)
pledge
Note: Perfection is subject to the formalities of

the law. Even if the contract has already been
perfected, the contract may be unenforceable
because it is not in the form prescribed by law for
the enforceability of the contract. Example
contract of sale (subject to the provisions of the
statute of frauds)
Note: There are different rules in mutuum and
commodatum. There are also different rules in
judicial and extrajudicial deposit. But all these are
principal
contracts.
All
the
other credit
transactions are accessory contracts guaranty,
suretyship, pledge, CM, REM, antichresis they
depend on other contracts for their existence or
their validity. (memorize)
Note: An accepted promise to loan is consensual.
Saura vs. DBP when the loan application of
Saura was accepted or approved by the bank,
there was already a perfected contract but it is
not mutuum. SC said, it is perfected consensual
contract of loan because the loan itself will only
be perfected upon the delivery of the amount to
the borrower. Until the amount is delivered, there
is no perfected mutuum rather there was only a
perfected consensual contract of loan. Thus, with
that perfected contract, the borrower can already
demand for the delivery of money. That is his
right but until then the mutuum itself will not yet
be perfected. Ganun din sa commodatum, ganun
din sa deposit.
Commodatum
It is essentially gratuitous contract. If there is
compensation, it is not commodatum. In the case
of Republic vs. Bagtas, SC said it is lease not
commodatum because there was an obligation to
pay breeding fee.
Loan
Loan is normally gratuitous (utang mo sa friend
mo) unless there is an express stipulation in
writing. Take note under Article 1956, a creditor in
a contract of mutuum cannot demand for interest
unless it was expressly stipulated in writing. Take
note that we are talking here a kind of interest
known as compensatory interest for the use of
the money. So if you borrowed money in January
payable at the end of the year, during that
period, the creditor may be entitled to an interest
known as compensatory interest but after the
obligation became due and there was demand for

the
Page 56

November 2008
payment nonetheless the borrower failed to pay,

this time there will be a liability to pay interest by
way of damages not compensatory interest. And
this kind of interest (damages) need not be in
writing. This interest by way of damages is the
effect of delay because of the failure to pay
despite demand when the obligation was already
due, he will be liable for damages. In monetary
obligations, the liability for damages is in the
form of interest.
In monetary obligations, if there was a stipulation
that there is liability to pay interest but the
interest rate was not fixed, it will be the legal rate
that can be invoked (12%) loan or forbearance
of money. If there is a stipulation like 6% per
month or 72% per annum, the SC ruled in
Solamon vs. CA, that although the usury law
has already been suspended and therefore
apparently the parties can stipulate any interest
rate is not true. The interest rate agreed upon
may be unconscionable and therefore the SC will
strike down the stipulation and the interest will be
the legal rate. The SC had struck down interest
above 60% per annum. Below 50% per annum,
the SC allowed this interest.
There is still no decision if what is the status if the
interest is between 50% to 60% per annum
Commodatum
In commodatum, the object is movable or
immovable. Usually, it is non-consumable
because the very thing borrowed should also be
the very thing that should be returned. If it is
consumable it will be consumed in accordance
with its nature. But the law provides for
exception, if the purpose of the commodatum is
not for consumption examples for display or
exhibit then there can be a valid commodatum
over a consumable item. But it is non fungible
because it cannot be replaced with a similar kind.
The very thing borrowed should be the same
thing that should be returned.
BE: R upon request loaned his passenger
jeepney to F to enable to bring his wife
from Tarlac to PGH for treatment. On the
way back to Tarlac after leaving his wife in
PGH, people stopped the passenger jeepney
and R allowed them to ride accepting
payments from them just as in the case of
ordinary passenger jeepney. As he was
crossing Bamban, Tarlac, there was an on
rush of lahar from Mt. Pinatubo. The jeep
was wrecked. What do you call the contract
that was entered into by R and F? Is F
obliged to pay R for the use? Is F liable to R
for the loss of the jeep?
SA: This is commadatum. In commadatum, it is
essentially gratuitous (no payment). Take note
the jeep was lost due to a fortuitous event. If you
follow the general rule under 1174, he should not
be held liable. But by express provision of the law
in commodatum, the borrower is liable. Under
1942, when the borrower devotes the thing to
other purpose not agreed upon (the purpose is to
bring the wife to the hospital), the borrower is
liable even if the loss is due to fortuitous event.
Note: Bailor need not be the owner himself
because there is no obligation to transfer
ownership.
BE: M borrowed Bs truck. During a fire that

broke out in Ms garage, M had time to save
only 1 vehicle and M saved his car instead
of Bs truck. Is he liable for the loss of Bs
struck?
SA: Yes. This is an exception to the res perit

domino rule. It would also fall under 1942 that he
chose to save his thing when he had the
opportunity to save one of two things, the other
being a borrowed item.
Yung iba if you kept it longer, it is consistent
with delay under 1165 - in an obligation to deliver
a determinate thing and the thing was lost due to
a fortuitous event, that debtor will still be liable
for the loss if he was in delay.
Republic vs. Bagtas
Held: Even if this is commadatum under Article
1942, it will be the bailee or the borrower who will
bear the loss.
Deposit
The same rule in deposit in deposit, ownership
does not pass to the depositary. Thus, under the
res perit domino rule, it will be the depositor who
will bear the loss if the thing was lost due to a
fortuitous event. In robbery, the depositor will
bear the loss unless there is negligence on the
part of the depositary or if it is stipulated that the
depositary will be liable. (If you are the
depositary, demand for a higher rental so you
have money to pay for insurance)
If he uses it without compensation, he will be
liable because in deposit the purpose of the
delivery is for safekeeping, the depositary is not
supposed to use the thing. So if he uses the
thing, he will be liable for the loss of the thing.
Loan
There is a special kind of commodatum known as
precarium. Precarium in this kind of
Page 57
commodatum the bailor has the right to demand

for the return of the thing at will at any time.
Q: When would there be a precarium?
A: There would be a precarium if there was no
stipulation as to duration nor the use of the thing
unless there is a custom. So no agreement as to
period or no agreement as to particular use then
the bailor would have the right to demand the
thing at any time or the use of the thing is merely
tolerated.
From this rule, you should be able to conclude
that even if commadatum is essentially
gratuitous, if there was a period agreed upon as a
rule the bailor should respect the period. He
cannot demand for the return of the thing just
because there is no payment. But there are
exceptions:
1. Even if there was a period, he can demand
for the return if there is an urgent need on
the part of the bailor. But in that scenario,
the commadatum is not extinguished, it is
only suspended. After the bailor have used
the thing, he should return the thing to the
bailee so the latter could finish the period.
2. When the bailee committed an act of
ingratitude. The grounds will be similar to
donation.
Deposit
Q: Are checking accounts, savings account,
dollar accounts irregular deposits?
A: No. They are not deposits under the law
because they are governed by the rules on
mutuum (loan). The bank is the debtor. SC called
these deposits in the nature of irregular
deposits but not regular deposits because the
banks use the money that is why it is in the
nature of irregular deposits.

November 2008
Irregular Deposits these are deposits where

the depositary has the right to use the thing
because normally in an ordinary deposit, the
depositary has no right to use because the
purpose is safekeeping. But if he has the right to
use, that deposit may be called an irregular
deposit, the limitation of the law is that the use
must not be the principal purpose (the principal
purpose should be the safekeeping).
Examples: Car was delivered to you as depositary.
Kung pwede mo gamitin araw araw sa paghatid
sundo sa mga anak mo, hindi ito deposit,
mukhang commodatum ito kung walang bayad
for the use. But if the delivery is for safekeeping
but the depositor allowed you to use the car for
an occasion that is an irregular deposit because
the depositary has the right to use the thing with
the permission of the depositor.
Another scenario where the depositary would
have the right to use and therefore the deposit is
an irregular deposit - when the preservation of
the thing deposited delivered to depositary
requires the use of the thing like using the car to
preserve it.
BE: The parties in a contract of loan of
money agreed that the yearly interest rate
is 12% and it can be increased if there is a
law that would authorize the increase of
interest rates. Suppose the lender would
increase the rate by 5% to be paid by the
borrower without a law authorizing such
increase. Would the lenders action be just
and valid? What is the remedy of the
borrower?
SA: Not valid because by the agreement of the
parties, the increase in the rate will only be made
if there is a law that would authorize the increase.
SC Case: There can be no valid increase without
a law authorizing it but in this case the Bangko
Sentral issued a resolution increasing the
maximum rate. The SC said the banks cannot
increase the interest rates because a Monetary
Board Resolution is not the same as a law. It may
have the effect of a law but that is not a law and
therefore that could not be a basis.
Credit Transaction notes is incomplete. Refer

to your codal.
Page 58

November 2008
CREDIT TRANSACTIONS
Quiz
1. Deposit is a real contract TRUE
2. A contract of deposit is not covered by the statute of frauds FALSE
3. If deposit has been made by capacitated person, if perfected with another who is not a depositor
shall only have an action to recover the thing deposited while it is still in the possession of the
depositary - FALSE
4. Depositary is obliged to keep the thing safely and to return it to the depositor FALSE
5. If deposit with a third person is allowed, the depositary shall not be liable for the loss FALSE
6. The depositary cannot make use of the thing deposited without the express permission of the
depositor FALSE
7. When depositary has permission to use the thing deposited the contract loses the concept of
deposit and becomes a loan FALSE
8. Depositary cannot demand that the depositor prove his ownership of the thing deposited TRUE
9. The thing deposited must be returned to the depositor even though there is a specified period or
time for such FALSE
10. The deposit of effects made by travelers of inns is a necessary deposit TRUE
11. Contracts of loan and deposit are essentially gratuitous FALSE
12. The bailor in commodatum acquires the use of the thing loaned without compensation but not the
fruits, if there is a stipulation to the contrary, the contract ceases to be commodatum
13. Bailee shall not be liable for loss of thing if it should be through fortuitous event. FALSE
14. A contract of deposit is a consensual contract, thus xxx to deliver arise. FALSE
15. An escalation clause is void if there is no de-escalation clause FALSE (true only if loans in banks)
16. While a surety undertakes to pay if the principal does not pay, the guarantor only binds himself to
pay if the principal cannot pay. The one is the insurer of the debt, the other is the insurer of the
solvency of the debtor. TRUE
17. Guaranty is essentially gratuitous. FALSE
18. A guaranty may be constituted to guaranty the performance of a voidable contract. - TRUE
19. A guaranty may also be given as security for future debts, the amount of which is not yet known.
TRUE
20. The guarantor cannot be compelled to pay the credit unless the latter has exhausted all the
properties of the debtor and has resorted to all the legal remedies against the debtor. - FALSE
Page 59

November 2008

MICKEY MOUSE (Sale, Lease, Agency Notes)

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CIVIL LAW REVIEW II

Sales, Lease, Agency, Partnership, Trust and Credit

condition/s happen, the right of the buyer is to

Faye Marie C. Martinez Chato Cabigas Jessica A. Lopez Dian Rosapapan

seller to execute a final deed of sale. So

Contract for a Piece of Work (CPW) vs. COS

A: First, you have to consider the intention of the

not paid the price. So when the pants were

2. Object or Subject Matter which is a

Faye Marie C. Martinez Chato Cabigas Jessica A. Lopez Dian Rosapapan

execution of the contract. But another kind of

Example: One example of a party to a sale

The contract entered by this corporation is a void

Faye Marie C. Martinez Chato Cabigas Jessica A. Lopez Dian Rosapapan

Q: What is the status of the contracts under

Examples: sale of a navigable river is void, sale of

organs is void, things which are not appropriated

a. What is the status of the sale?

Faye Marie C. Martinez Chato Cabigas Jessica A. Lopez Dian Rosapapan

(a) What is the status of the

A: (a) Be guided by the fact that a COS is a

CAUSE OR PRICE CERTAIN IN MONEY OR ITS

(a) May that be a valid sale?

Price Must be Certain

Shares of companies who are active in trading

Faye Marie C. Martinez Chato Cabigas Jessica A. Lopez Dian Rosapapan

A: Yes, the sale may be void if the third person

purchase). In this case, Sanchez has the option.

price agreed upon but Rigos refused claiming that

failure to that he is liable not based on perfected

Faye Marie C. Martinez Chato Cabigas Jessica A. Lopez Dian Rosapapan

Q: With a perfected COS, does it mean it is

memorandum signed by the part charged

the statute of frauds. In this case, the

plantation. During this period, the vendor

Faye Marie C. Martinez Chato Cabigas Jessica A. Lopez Dian Rosapapan

although again he will have no real right over the

does he have the authority to sell, the buyer

which is a kind of equitable estoppel because of

Jurisprudence: Sale by nephew of the owner of

Faye Marie C. Martinez Chato Cabigas Jessica A. Lopez Dian Rosapapan

Factor is an old name for agent. Even if

before payment he is in bad faith then he is in

BE: A, the owner of a parcel of land

Sun Brothers reserved ownership until full

Faye Marie C. Martinez Chato Cabigas Jessica A. Lopez Dian Rosapapan

Atty. Uribe: I can agree that some gallery

(b) Even before the lapse of the period, he may

Example: Even if he has 10 days within

G.R.: Res perit domino 1504.

Faye Marie C. Martinez Chato Cabigas Jessica A. Lopez Dian Rosapapan

2. Title was reserved by the seller only to

Delay in the Delivery

A: If movable, the buyer who first took possession

there was no registration, it will be the first who

A: Not necessarily because from the sale he may

Faye Marie C. Martinez Chato Cabigas Jessica A. Lopez Dian Rosapapan

Facts: The original owner here Stanley and

Griffindor (parang Harry Potter

Macke and Chandler, the sheriff levied upon

Example 2: The thing was the subject matter of

Faye Marie C. Martinez Chato Cabigas Jessica A. Lopez Dian Rosapapan

(1) If stipulated in the DOS that despite delivery