SALES

Chapter 1: Nature and Form of the Contract

Contract of Sale
Is a contract whereby one of the parties (seller) obligates himself to deliver something to the other (buyer)
who, on his part, binds himself to pay therefore a sum of money or equivalent ( known as the price).

Characteristics of a contract of sale

1. Consensual - perfected by mere consent without further act at the
moment there is a meeting of the minds upon the
price on the object of the contract
2. Bilateral - the seller and the buyer are bound to fulfill its
obligation to each other
3. Onerous - because the thing sold is conveyed in consideration
of the price and vice versa
4. Commutative - the thing sold is considered the equivalent of the
price paid and vice versa
5. Nominate - because it is given a special name or designation in
the Civil Code
6.Principal - because it does not depend for its existence and
validity upon another contract

Essential requisites of a contract of sale

 Consent or meeting of the minds - the parties must have legal capacity to give capacity
to enter into a contract.
 Object or subject matter - the thing must be determinate or at least capable of being made determinate

Requisites concerning object

a. Things - aside from being determinate the object must be licit or lawful
and should not be impossible
b. Rights - rights that are not in transmissible or personal may also be the
object of sale. (Ex. Right of usufruct and right of conventional redemption.)

 Cause or consideration - this refers to the " price certain in money or its equivalent"

Natural and accidental elements

Natural elements Accidental elements
An element which are deemed to exist in certain An element which may be present or absent
contracts, in the absence of any stipulation to the depending on the stipulation of the parties.
contrary.

Two kinds of contract of sale

 Absolute - the sale is not subject to any conditions
 Conditional - the contract of sale is subject to certain condition usually the full payment of the purchase
price

Kinds of illicit things

 Illicit per se (by its nature)
 Illicit per accidens (some provisions of law declaring it illegal)

Rights of the vendor to transfer ownership

1. One can sell only what he owns
2. Sufficient if right exist at the time of delivery

Sale of things having potential existence

A sale of future thing not existing at the time the contract is entered into, may be the object of sale provided
it has a potential or possible existence. The thing sold must be specific and identified and be also owned by the
seller at the time it is to be delivered.

Sale of a mere hope or expectancy

The sale of hope or expectancy itself is valid even if the thing hoped or expected does not come into
existence, unless the hope or expectancy is vain, in which case, the sale is void.

Goods which may be the object of sale

1. Existing goods or goods owned or possessed by the seller
2. Future goods or goods to be manufactured, raised, or acquired.

Sale of future goods

A sale of future goods is valid as an executory contract to be fulfilled by the acquisition and delivery of the
goods specified.

Sale of undivided interest in a thing

By sale owner By co-owner
A sole owner of a thing may sell the entire thing, in a The co-owner of a thing being a co-owner of his
specific portion thereof; or an undivided interest undivided interest therein, can dispose of his share even
therein and such interest may be designated as an without the consent of the co-owner.
aliquot part of the whole.
The legal effect of the sale of an undivided interest in
the thing is to make the buyer a co-owner in the thing
sold. As a co-owner, he acquires full ownership of his
part and he may, therefore, sell it.
Fungible goods
A goods of which any unit is, from its nature or by mercantile usage, treated as the equivalent of any other
unit such as grain, oil, wine, gasoline, etc.

Resolutory condition
An uncertain event upon the happening of which the obligation (or right) subject to it is extinguished.

Contract of agency
By the contract of agency, a person binds himself to render some service or to do something in
representation of on behalf of another, with consent or authority of the latter.
In a contract of sale,
 The agent receives the goods as the goods of the principal who retains his ownership over them.
 The agent has simply to account for the proceeds of the sale he may make on the principal's behalf.
 The agent can return the object in case he is unable to sell the same to a third person.
 The agent makes no warranty for which he assumes personal liability as long as he acts within his
authority and in the name of the seller.
 The agent in dealing with the thing received, must act and is bound according to the instruction of his
principal.

Contract for a piece of work

By the contract for a piece of work, the contractor binds himself to execute a piece of work for the employer,
in consideration of a certain price or compensation.
In a contract for a piece of work,
 the thing transferred is one not in existence and which never would have existed but for the order of the
party desiring to acquire it
 the risk of loss before delivery is borne by worker or contractor and if after the delivery the thing is loss
the risk of loss is borne by the buyer (the person who ordered)
 unlike in the "contract of sale" are not within the Statute of Fraud

Contract of barter or exchange

One of the parties binds himself to give one thing in consideration if the other's promise to give another
thing.

When is the price considered certain?

a) The parties have fixed or agreed upon a definite amount.
b) It be certain with reference to another thing certain.
c) The determination of the price is left to the judgment of a specific person or persons.
Note: It must be understood that the last two cases are applicable only when no specific amount has been
stipulated by the parties.

Stages of a contract of sale

1) Negotiation - covering the period from the time the prospective contracting parties interest in the contract
to the time the contract is perfected
2) Perfection - at the time there is a meeting of the minds as to the object of the contract and upon the price
 3) Consummation - begins when the parties perform their respective undertakings under the contract of sale,
culminating in the extinguishment thereof.

Difference between Earnest Money and Option Money

Earnest Money
Is money given by the buyer to the seller to bind the bargain, it is actually the partial payment of the
purchased price and is considered as proof of the perfection of the contract.

Option Money
Is a privilege (i.e.,no binding obligation) existing in one person for which he has paid a consideration which
gives him the right to buy and sell.

Earnest Money Option Money

Part of Purchase Price Money given as distinct consideration for the option
contract
Given only where there is a sale Applies to a sale not yet perfected
When earnest money is given, buyer is bound to pay Would-be-buyer is not required to buy when he gives
the balance option money

Sale by description
Occurs where a seller sells things as being of a particular kind, the buyer not knowing whether the seller’s
representations are true or false.
Note: If the bulk of the goods delivered do not correspond with the description, the contract may be
rescinded.

Remedies available to a vendor in sale of personal property payable in installments

 Elect fulfillment upon the vendee’s failure to pay
 Cancel the sale, if the vendee shall have failed to pay two or more installments
 Foreclose the chattel mortgage, if one has been constituted, if the vendee shall have paid to pay two or
more installments

Contracts of sale that must be in writing to be enforceable by court action (Under Statute of Frauds):
 Sale of personal property at a price not less than P500
 Sale of real property or an interest therein regardless of the price involved
 Sale of property not to be performed within a year from the date thereof regardless of the nature of the
property and the price involved

Chapter 2: Capacity to Buy or Sell

Who are the person who may enter into a contract of sale?
All person, whether natural of judicial, who can bind themselves by contract have also legal capacity to buy
and sell.
Kinds of incapacity
1) Absolute - in the case of persons who cannot bind themselves
2) Relative - it exist only with reference to certain person or certain class of property

Necessaries
Those things which are needed for sustenance, dwelling, clothing and medical attendance, in keeping with
the financial capacity of the family of the incapacitated person.

Relative incapacity of husband and wife

Husband and wife are prohibited by the above article from selling property to each other.

Compromise
A contract whereby the parties, by reciprocal concessions, avoid a litigation or put an end to one already
commenced
Renunciation
A creditor gratuitously abandons his right against his creditor. In other terms used by the law are
condonation and remission.

Chapter 3: Effect of the Contract When the Thing Sold Has Been Lost

Specific goods
Goods identified and agreed upon at the time a contract of sale is made

Divisible contract
Its consideration is made up of several parts

When a thing is considered lost?

 When it perishes or goes out of commerce.
“ perishes” – material deterioration or complete change in the nature of the thing
 Disappears in such a way that its existence is unknown or it cannot be recovered

Effect of loss of thing at the time of sale

 Lost totally:
- Contract is inexistent and void because there is no object
 Lost partially:
 Vendee may:
- Withdraw from the contract or
- Demand the remaining part, paying its proportionate price

Chapter 4: Obligations of the Vendor

Unpaid Seller of Goods – one who has not been paid or tendered the whole price

Sale or Return – A contract by which property is sold but the buyer (who becomes the owner of the property on
delivery), has the option to return the same to the seller instead of paying the price.

Redhibitory defect – a defect in the article sold against which defect the seller is bound to warrant
 Defect must be hidden; and
 It must be of such nature that expert knowledge is not sufficient to discover it
 If veterinarian acts in bad faith (through ignorance or failure of disclosure), he shall be liable for damages
> Article only applies to sale of animals

Implied Warranty of Fitness – seller guarantees that the thing sold is reasonably fit for the known particular
purpose for which it was acquired by the buyer
> If bought by description, it should be reasonably fit on its merchantable quality

Eviction – judicial process whereby the vendee is deprived of the whole or part of the thing purchased by virtue
of a final judgment based on a right prior to the sale or an act imputable to the vendor

Caveat venditor – doctrine that states that the vendor is liable to the vendee for any hidden faults or defects in
the thing sold, even though h was not aware thereof.

Principal Obligations of the Vendor

 To transfer ownership of the determinate thing sold
 To deliver the thing
 To warrant against eviction and hidden defects
 To take care of the thing, pending delivery, with proper diligence
 To pay for the expenses for the execution and registration of the deed of sale, unless there is stipulation to
the contrary

Ways of effecting delivery

 By actual or real delivery
 By constructive or legal delivery
 By delivery in any other manner signifying an agreement that the possession is transferred to the
vendee
Ways of effecting constructive delivery
 By the execution of a public instrument
 By symbolical tradition of traditio symbolica
 By traditio longa manu
- Takes place by mere consent or agreement of the contracting parties as when the vendor merely
points to the thing sold which shall thereafter be at the control/disposal of the vendee.
- Only qualifies if the thing sold cannot be delivered to the vendee at time of sale
 By traditio brevi manu
 - Happens when the vendee has already the possession of the thing sold by virtue of another title
as when the lessor sells the thing leased to the lessee.
 By traditio constitutum possessorium
- Takes place when the vendor continues in possession of the property sold not as owner but in
some other capacity, as for example, when the vendor stays as a tenant on the vendee.
 By quasi-delivery or quasi traditio
- The delivery to a person of a negotiable document of title in which it is stated that the goods
referred to therein will be delivered to the bearer amounts to delivery of the goods to such person.

Tradition
A derivative mode of acquiring ownership by virtue of which one who has the right and intention to alienate a
corporeal thing, transmit it by virtue of a just title to one who accept the same.

Sale or return” distinguished from “Sale on Trial”

Sale or Return
A contract by which property is sold but the buyer (who becomes the owner of the property on delivery), has
the option to return the same to the seller instead of paying the price.
- Option to ‘sale or return’ rests on the buyer
Sale on trial
Is a contract of an option to purchase if the goods prove satisfactory, the approval of the buyer being a
condition precedent.

Sale or Return Sale on Trial

Sale subject to a resolutory condition
Depends entirely on the will of the buyer
Ownership of the goods passes to the buyer on delivery
and subsequent return of the goods revert ownership in
the seller
Risk of loss or injury rests upon the buyer
Subject to a suspensive condition
Depends on the character or quality of the goods
Ownership remains in the seller until the buyer
signifies his approval or acceptance to the seller
Risk remains with the seller

Risk of loss by fortuitous event after perfection but before delivery

- Borne by the buyer (as an exception to the rule of res perit domino)

Implied warranties in sale

 Implied warranty as to seller’s title
- Seller guarantees that he has a right to the sell the thing sold and transfer ownership
 Implied warranty against hidden defects or unknown encumbrances
- Seller guarantees that the thing sold is free from any hidden defects
 Implied warranty as to fitness or merchantability

Place of delivery of goods sold (with no agreement)

 Place of delivery is that determined by usage of trade
 When there is also no prevalent usage, the place of delivery is the seller’s place of business
Requisites for the exercise of right of stoppage in transit
 Seller must be unpaid
 Buyer must be insolvent
 Goods must be in transit
 Seller must either actually take possession of the goods sold or give notice of his claim to the carrier or
other person in possession
 o Seller must surrender the negotiable instrument of title, if any, issued by the carrier or bailee
 o Seller must bear the expenses of delivery of the goods after the exercise of the right

Chapter 5: Obligation of the Vendee

What are principal obligation of the vendee?

1. To accept the delivery
2. To pay the price of the thing sold
3. To bear the expenses for the execution and registration of the sale and putting the goods in a deliverable
state, if such is the stipulation

Acceptance of the goods

Is assent to become owner of the specific goods when delivery of them is offered to the buyer

Buyer's right to examine the goods

1. Right of inspection - to determine whether it conforms with the contract
2. Actual delivery contemplated - the ownership of the goods shall be transferred only upon the actual
delivery subject to a reasonable opportunity of examining them to determine if they are in conformity
with the contract
3. Goods delivered C.O.D/not C.O.D - the buyer is required to send the goods to the buyer, the delivery of
a goods to a carrier for the purpose of transmission to the buyer is deemed to be delivery to the buyer

Rejection of goods
 Upon inspection of the buyer it proved to be inconformity with the contract, the buyer may refuse to
accept them.
a) The buyer is not bound to return them to the seller and it is sufficient if he notifies the seller that he
refuses to acct them.
b) The option to reject must be exercised and notice of rejection given to the seller within a reasonable
time unless a definite period is fixed by the contract.
c) The reject of goods under contract of sale constitute an acceptance of them if the right of rejection is
not exercised within a reasonable time.

Modes of Manifesting Acceptance

1. Express acceptance
 Takes place when the buyer, after delivery of goods, intimates to the seller, verbally or in writing that
he has accepts them.
2. Implied acceptance
  Takes place when the buyer, after delivery of goods, does any act of inconsistency with the seller,
ownership, as when he sells or attempts to sell the goods.
 Takes place when the buyer, after the lapse of reasonable time, retains the goods without intimating
his rejection.
Note: The retention of the buyer of the goods is an evidence of acceptance. While the retention be
considered an act of inconsistent with the ownership of the seller.

Wrongful refusal of buyer to accept

When buyer refuses to accept the goods without just cause
 Risk of loss is borne by him from the moment they are placed in his disposal

When the vendee can suspend payment of price?

1. If he disturbed in the possession or ownership of the thing bought.
2. If he has a well-ground fear that his possession or ownership would be disturbed by a vindicatory action
or foreclosure of mortgage

When the vendee cannot suspend payment of price?

1. If the vendor gives security for the return of the price in proper case
2. If it has been stipulated that notwithstanding any such contingency the vendee must make payment
3. It the vendor has caused the disturbance or danger to cease
4. If the disturbance is a mere act of trespass
5. If the vendee has fully paid the price

Chapter 6: Actions for Breach of Contract of Sale of Goods

Goods – includes all chattels personal but not things in action or money of legal tender in the Philippines. This
term also includes growing fruits or crops
Recoupment – accept the goods and set up the seller’s breach to reduce or extinguish the price

Actions available for breach of the contract of sale of goods

1. Action by the seller for payment of the price
2. Action by the seller for damages for non-acceptance of the goods
3. Action by the seller for rescission of the contract
4. Action by the buyer for specific performance
5. Action by the buyer for rescission or damages for breach of warranty

Seller's right of action for the price

1. When the ownership of the goods has passed to the buyer and wrongfully neglect or refuses to pay for the
price
2. When the price is payable on a certain day and the buyer wrongfully neglects or refuses to pay such price,
irrespective of delivery or of transfer of title
3. When the goods cannot readily be resold for a reasonable price and the buyer wrongfully refuses to accept
hem even before the ownership in the goods has passed.

Situations where the seller is given the right to bring an action for damages against the buyer
  If the buyer, without lawful cause, neglects or refuses to accept and pay for the goods he agreed to buy
(damages for non-acceptance)
 In an executory contract, where the ownership in the goods has not passed, and the seller cannot maintain
an action to the price, seller’s remedy will be also an action for damages
 If the goods are not yet identified at the time of the contract or subsequently, the seller’s right is
necessarily confined to an action for damages

Actions available to the buyer in case of breach of warranty by the seller of the goods:
 Recoupment:
- Accept the goods and set up the seller’s breach to reduce or extinguish price
 Action or counterclaim for damages:
- Accept the goods and maintain an action for damages
- Refuse to accept the goods and maintain an action for damages for the breach of the warranty
 Rescission:
- Rescind the contract of sale by returning or offering the return of the goods and recover the
Price

Cases where rescission by the buyer is not allowed although the seller has committed a breach of warranty:
 If the buyer accepted the goods knowing of the breach of warranty without protest
 If the buyer fails to notify the seller within a reasonable time of his election to rescind
 If the buyer fails to return or offer to return the goods in substantially as good condition as they were in at
the time of the transfer of ownership to him
- Situations where the seller is given the right to bring an action

Chapter 7: Extinguishment of Sale

Causes for extinguishment of sale

1. Common or those which are also the means of extinguishing all other contracts like payment, loss of the
thing condonation
2. Special - which are recognized by the law of sales
3. Extra-special - which are given special discussion by the Civil Code and these are conventional
redemption and legal redemption

Conventional Redemption
Is the right which the vendor reserves to himself, to reacquire the property sold provided he reimburses the
vendee of the price, the expenses of the contract, any other legitimate payments made therefor and the necessary
and useful expenses made on the thing sold and fulfills other stipulations which may have been agreed upon.

Cases when the contract shall be presumed to be an equitable mortgage:

 When the price of a sale with right to repurchase is unusually inadequate
 When the vendor remains in possession as lessee or otherwise
  When upon or after the expiration of the right to repurchase another instrument extending the period of
redemption or granting a new period is executed
 When the purchaser retains for himself a part of the purchase price
 When the vendor binds himself to pay the taxes on the thing sold
 In any other case where it may be fairly inferred that the real intention of the parties is that the transaction
shall secure the payment of a debt or the performance of any other obligation

Equitable Mortgage
One which, although it lacks the proper formalities of a mortgage, shows the intention of the parties to make
the property subject of the contract as a security for the fulfillment of an obligation

Effect of redemption by co-owner of entire property

A co-owner cannot redeemed more than his share in the property in the co-ownership. The redemption by a
co-owner of a property in it’s entirely, shouldering the expenses thereof, does not make him the co-owner at all of
it.

Obligations of a vendor a retro in case of redemption

 The vendor must return to the vendee:
- Price of the sale (not the value of the thing)
- Expenses of contract and other legitimate expenses
> Necessary expenses – those incurred for the preservation of the thing
> Useful expenses – those which increase the value of the thing or create improvements
thereon

Legal Redemption – is the right to be subrogated, upon the same terms and conditions stipulated in the contract,
in the place of one who acquires a thing by purchase or dation in payment, or by any transaction whereby
ownership is transmitted by onerous title

Requisites for the right of legal redemption of a co-owner to exist

 There must be co-ownership
 There must be alienation of all or of any of the shares of the other co-owners
 Sale must be to a third person or stranger
 Sale must the before partition
 Right must be exercised within the period provided in Article 1623
 Vendee must be reimbursed for the price of the sale

Chapter 8: Assignment of Credits and Other Incorporeal Rights

Assignment of credit – a contract by which one person transfers to another his rights and actions against a third
person (debtor) in consideration of a price certain in money or its equivalent

Nature of assignment of credit

- It is really a sale
  Subject matter: credit or right assigned
 Consideration: Price paid for the credit or right
 Consent: The agreement of the parties to the assignment at the agreed price

Warranties of the assignor of credit

 The assignor of credit only warrants the existence and legality of the credit at the perfection of the
contract
 There is no warranty as to solvency of the debtor unless expressly stipulated or unless the insolvency was
already existing (and of public knowledge) at the time of the assignment

Liabilities of the assignor of credit

 The liability of the assignor in good faith is limited only to the price received and to the expenses of the
contract, and any other legitimate payments by reason of the assignment
 The assignor in bad faith is liable not only for the payment of the price and all expenses, but also for
damages.
Sale of successional or hereditary rights
An inheritance may be sold either with specification of the properties to be alienated or without
enumerating the thing compromising it, that is to say, the hereditary rights only.

Chapter 9: General Provisions

Document of title of goods

Includes any bill of lading, dock warrant, "quedan", or warehouse receipts or any other document used in
the ordinary course of business is the sale or transfer of goods, as a proof of the possession or control of the
goods, or authorizing or purporting to authorized the possessor of the document to transfer or received by
endorsement or by delivery, goods represented by such document.

Goods
Includes all chattel personal but not things in action or money of legal tender in the Philippines, including
growing fruits or crops.

Order
Relating to documents of title means an order by endorsement on the documents

Quality of goods
Includes their state or conditions

Specific goods
Means goods identified and agreed upon at the time a contract of sale is made

Legal tender
That currency which a debtor can legally compel a creditor to accept in payment of a debt in money when
tendered by the debtor in the right amount.
Thing or chose in action
Is any claim or right which may be pleaded in a suit at law, such as claim of reparation for a tort or right
guaranteed under certain types of contracts

A person is deemed insolvent when:

 A person who was ceased to pay his debt in the ordinary course of business

Goods are in a deliverable state when:

 They are in such a state that the buyer would, under the contract, be bound to take delivery of them

Chapter 10: Barter or Exchange

Barter - one of the parties binds himself to give one thing in consideration of the other’s promise to give another
thing.

Perfection and Consummation of the Contract of Barter

1. Perfected from the moment there is a meeting of minds upon the things promised by each party in
consideration of the other
2. It is consummated from the time of mutual delivery by the contracting parties of things they promised

Why is barter considered a sale?

Barter is similar to sale with the only difference is that instead of paying a price in money, another thing is
given in lieu thereof.

Chapter 11: The Bulk Sales Law

Purpose of the law

Is designed to prevent defrauding of creditors by the secret sale in bulk of all or substantially all of a
merchant's stock of goods.

Scheme of the law

That such Bulk Sales are fraudulent and void as to creditors of the vendor, or presumptively so, unless
specified formalities are observed such as
 Demanding and giving list of creditors
 Giving of actual or constructive notice to such creditors
 Making of an inventory

When sale or transfer in bulk

A sale in transfer and bulk under the Bulk Sales Law is any sale, transfer, mortgage or assignment of,
 a) A stock of goods, wares, and merchandise otherwise than in the ordinary course of trade and the regular
prosecution of the business
b) All or substantially all, of the business or trade
c) All or substantially all, of the fixtures and equipment used in the business of the vendor, mortgagor,
transferor, or assignor

When sale or transfer in bulk is not covered by the Bulk Sales Law
1. If the sale of transfer is in the ordinary course of trade and the regular prosecution of the business of the
vendor
2. If it is made by one who produces and delivers a written waiver of the provisions of the Bulk Sales Act
from his creditor
3. If it is made by an executor, administrator, receiver, assignee in insolvency, or public officer, acting under
judicial process
4. It refers to properties exempt from attachment or execution

Stock - these are goods that are kept in mercantile house for future sale

Merchandise – must be construed to mean such things as are usually bought and sold in trade by merchants

Fixtures – merchandise usually possessed and annexed to the premises occupied by merchants to enable them
better to store, handle, and display their wares
 AGENCY
Chapter 1: Nature, Forms and Kinds of Agency

Contract of Agency
A person binds himself to render some service or to do something in representation or on behalf of another,
with the consent of authority of the latter
Use the term in other senses:
1. Thus, it may be used to denote the place at which the business is transacted. When used in the sense of
place of business, the relationship of principal and agent is not necessarily implied.
2. It may be used in the sense of instrumentality by which a thing is done
3. It is used to refer to the exclusive right of a person to sell a product of another in a specific territory.

Characteristics of a contract of sale

1. Consensual - perfected by mere consent
2. Principal - it can stand by itself without the need of another contract
3. Nominate - it has its own name under our Civil Code
4. Unilateral - it only creates obligation for only one of the parties or bilateral if it is for compensation
because it gives rise to reciprocal rights and obligation
5. Preparatory - it is entered into as a means of an end

Essential elements of agency

1. There is consent, express or implied, of the parties to establish the relationship
2. The object is the execution of a juridical act in relation to third person
3. The agent acts as a representative and not for himself
4. The agent acts within the scope of his authority
Parties to a Contract of Agency
1. Principal - one whom the agent represents and from whom he derives his authority
2. Agent - one who act for and represents another, he is a person acting in a representative capacity
 Agency distinguish from similar contracts
Contracts Similar contracts
Loan The borrower is given money for
purpose of his own and he must
generally return it whether or not
his own business is successful.
Lease of service  In lease it is employment
 The lessor ordinarily
performs only ministerial
functions
Independent contract In a contract for a piece of work, the
independent contractor exercises his
employment independently, and not
in representation of the employer.
Partnership A partner acts not only for his co-
partners and the partnership but also
as principal of himself
Negotiorium gestio Negotiorum gestio is a quasi
contract
Brokerage A broker has no relation with the
thing he buys or sells. He is merely
an intermediary between the
purchaser and the vendor
Contract of agency
An agent may be given funds by the
principal to advance the latter's
business.
 In agency, the basis is
representation
 The agent exercises
discretionary powers
The agent is subject to the control
and direction of the principal whom
he represents
An agent acts only for his principal
Agency is a contract
A commission agent is one engage
in the purchase or sale for another
of personal property which, for this
purpose is placed in his possession
and at his disposal

Power of attorney
A written authorization to an agent to perform specified acts in behalf of his principal which acts, when
performed, shall have binding effect on the principal

Classification of agency
1. Universal agent - one authorized to do all acts that the principal may personally do, and which he can
lawfully delegate to another the power of doing
2. General agent - one authorized to transact all the business of a particular kind or in a particular place, or
in other words to do all acts, connected with a particular trade, business ir employment
3. Special or particular agent - one authorized to act one or more specific transactions or to act upon a
particular occasion.

Authority of an agent
The power of the agent to affect the legal relations of the principal by acts done in accordance with the
principal's manifestation of consent to him.

Chapter 2: Obligation of the Agent

Specific obligation of agent to principal

 1. To carry out the agency in accordance with its terms
2. To answer for the damages which through his non-performance the principal may suffer
3. To finish the business already begun on the death of the principal, should delay detail any danger
4. To observe the diligence of a good father of a family in the custody and preservation of the goods
forwarded to him by the owner in case he declines an agency, until an agent is appointed
5. To advance the necessary funds should there be a stipulation to that effect
6. To act in accordance with the instructions of the principal
7. Not to carry out the agency id its execution would manifestly result in loss or damage to the principal
8. To answer for damages should he prefer in case of conflict, his own interest to those of the principal
9. Not to loan to himself without the consent of the principal when he has been authorized to lend at interest
10. To reader an account of his transactions and to deliver to the principal whatever he may have received by
virtue of the agency
11. To distinguish goods by countermarks and designate the merchandise perceptively belonging to each
principal, and the case of a commission agent who handles goods of the same kind and mark, which
belong to different owners
12. To be responsible in certain cases of the acts of the substitute appointed by him
13. To pay interest on fund

Instruction distinguished from authority

Authority
The extent of the limitation of the agent's power to
represent the principal.
Third persons dealing with an agent do so at their own
risk and are duty to investigate his authority because if
the act is done outside the scope of his authority the
principal is not bound.
Instruction
Are private directions which the principal may give the
agent to follow in the discharge of his duties as such
agent.
A person dealing with the agent need not to verify or
investigate the instruction of the principal since they
concern only the principal and the agent.

Rule where there are no specific instruction

In the absence of specific instruction of the principal, the agent shall do all that good father of a family
would do as required by the nature of the business.

Right to disobey principal's instruction

Where it calls for the performance of illegal acts, or he is privileged to do so to protect his security interest
in the subject matter of the agency.

Subagent
A person to whom the agent delegates as his agent, the performance of an act for the principal which the
agent has been empowered to perform through his representative.

Factor or commission agent

One whose business is to receive and sell goods for a commission and who is entrusted but the principal with
the possession of goods to be sold.
 Guarantee Commission (del credere commission)
One where in consideration of an increased commission the factor or commission agent guarantees to the
principal the payment of debts arising through his agency. An agent who receives a guarantee commission is
called (del credere ) agent.

Chapter 3: Obligations of the Principal

Specific obligations of the principal

1. To comply with all the obligations which the agent may have contracted within the scope of his authority
and in the name of the principal.
2. To advance to the agent in the latter's request the sums necessary for the execution of the agency.
3. To reimburse the agent for all advances made by him provided the agent is free from fault
4. Ro indemnify the agent for all the damages which the execution of the agency may have caused the latter
without fault or negligence on his part.
5. To pay the agent the compensation agreed upon, or if no compensation was specified, the reasonable
value of the agent's services.

Ratification
It is the adoption by a person of a prior act which did not bind him, but which was done or professed to be
done on his account thus giving effect to the acts as if originally authorized by him.

Agency by estoppel
IT is a bar which precludes a person from denying or asserting anything contrary to that which has been
established as the truth by his own deed or representation either express or implied.

Apparent authority distinguished from authority by estoppel

Apparent authority Authority by estoppel
Is that which though not actually granted, the principal Arises in those cases where the principal by his
knowingly permits the agent to exercise or holds him culpable negligence permits his agent to exercise
out as possessing. powers not granted to him, even though the principal
may have no notice or knowledge of the conduct of the
agent.

Implied agency distinguished from agency by estoppel

Implied agency
There is an actual agency.
The principal is liable alone.
Agency by estoppel
The authority of the agent is not real but only apparent
Caused by principal - liable to any third person who
relied on the misrepresentation
Caused by an agent - only the agent is liable

Chapter 4: Modes of Extinguishment of Agency

Agency is extinguished by:

 1. By its revocation
2. By the withdrawal of the agent
3. By the death, civil interdiction, insanity or insolvency of the principal or of the agent
4. By the dissolution of the firm or corporation which entrusted of accepted the agency
5. By the accomplishment of the object or purpose of the agency
6. By the expiration of the period for which the agency was constituted

Modes of extinguishing an agency

1. By agreement
2. By the subsequent acts of the parties which may be either
a) By the act of both parties or by mutual consent
b) By the unilateral act of one of them
3. By the operation of law

CREDIT TRANSACTIONS
Credit transactions
Includes all transactions involving the purchase or load of goods, services, or money in the present with a
promise to pay or deliver in future.

2 kinds of contract of security (Credit transactions)

1. Secured transactions or contract of real security - supported by collateral or an encumbrance of property
2. Unsecured transactions or contract of personal security - secured or supported only by a promise to pay
or the personal commitment of another such as a guarantor or surety.

Bailment (French word: "bailer" means "to deliver")

Means the delivery of property by one person to another in trust for a specific purpose, with a contract,
express or implied, that the trust shall be faithfully executed and the property returned or duly accounted for
when the special purpose is accomplished or kept until the bailor reclaims it.

Parties in Bailment
1. Bailor - the giver or the one who delivers the thing bailed
2. Bailee - the recipient or the who receives the thing bailed

A. Loan

2 kinds of loan
1. Real contract - the delivery of the thing is necessary for the perfection of the contract
2. Unilateral contract - when the subject matter has been delivered, it creates obligation on the part of only
one of the parties

Cause and consideration in a contract of loan

Borrower - the acquisition of the thing
Lender - the right to demand its return or its equivalent

Kinds of Loan
1. Commodatum - the bailor (lender) delivers to the bailee (borrower) a non-consumable thing so that the
latter may use it for a certain time and return the identical thing
2. Simple loan or mutuum - lenders delivers to the borrower money or other consumable thing upon the
condition that the latter shall pay the same amount of the same kind and quality

Chapter 1: Commodatum

Commodatum
Is essentially gratuitous. The contract ceases to be commodatum if any compensation is to one paid by the
borrower who acquires the use. In this case there is a lease contract.
Similar to donation in that it confers a benefit to the recipient.

Chapter 2: Simple Loan or Mutuum

Mutuum
Is a contract whereby one of the parties delivers to another money to other consumable thing with the
understanding that the same amount of the same kind and quality shall be paid.

Interest
Is the compensation allowed by the law or fixed by the parties for the loan or forbearance of money, goods, or
credits.

Kinds of Interest
1. Simple interest - paid for the principal at a certain or fixed rate or stipulation by the parties
2. Compound interest - imposed upon interest due and unpaid
3. Legal interest - the law directs to be charge in the absence of any agreement as to the rate between the
parties
4. Lawful interest - law allows or do not prohibits, that is, the rate of interest is within the maximum
prescribed by law
5. Unlawful or unsurious interest - paid or stipulated to paid beyond the maximum fixed by law

B. Deposit
1. Is a real like commodatum and mutuum because it is perfected by the delivery of the subject matter
2. When the contract is gratuitous it is a unilateral contact because only the depository (depositorio) has
an obligation.
3. When deposit is for compensation, the judicial relation created become bilateral because it gives rise to
obligation on the part of both the depository and depositor (depositante)

Deposit distinguish from mutuum

Deposit Mutuum
The principal purpose is for safe keeping
The depositor can demand the return of the subject
matter
Both movable and immovable property may be the
object
Is for consumption
The lender must wait until the expiration of the period
granted to the debtor
Only money and any other fungible thing

Deposit distinguish from commodatum

Deposit Commodatum
The purpose is for safekeeping The purpose is the transfer of the use
May be gratuitous Always gratuitous
In extrajudicial deposit, only movable thing may be Both movable and immovable property may be the
the object object

Kinds of deposit
1. Judicial - one which takes place when an attachment or seizure of property in litigation is ordered
2. Extrajudicial
a) Voluntary - is one wherein the delivery is made by the will of the depositor
b) Necessary - made in the compliance with a legal obligation, or on the occasion of any calamity, or by
travelers in hotel and inns or by travelers with common carriers

C. Guaranty

1. It is accessory because it depends for its existence upon the principal obligation obligation guaranteed by
it;
2. It is subsidiary because it takes effect only when the principal debtor fails in his obligation
3. It is unilateral
a) It gives only to a duty on the part of the guarantor
b) It may be entered into even without the intervention of the principal debtor
4. It is a contract which requires that the guarantor must be a person distinct from the debtor because a
person cannot be the personal guarantor of himself

Classification of guaranty
1. Guaranty in the broad sense:
a) Personal - This refers to guaranty properly so-called if guaranty in the strict sense. The guarantee is
the credit given by the person who guarantees the fulfillment of the principal
b) Real - The guarantee is property, movable or immovable. If (immovable) the guaranty is in the form
of real mortgage and if (movable) in the form of pledge or chattel mortgage.
2. As to its origin:
a) Conventional - constitute by agreement of the parties
b) Legal - imposed by law
c) Judicial - one required by the court to guarantee the eventual right of one of the parties in a case
3. As to its consideration:
a) Gratuitous - the guarantor does not receives any price or remuneration for acting as such; or
b) Onerous - one where the guarantor receives valuable consideration for his guaranty
4. As to the person guaranteed:
a) Single - one constituted solely to guarantee or secure performance of the principal obligation
b) Double or sub-guaranty - one constituted to secure the fulfillment of a prior guaranty
 5. As to its scope and extent:
a) Definite - one where the guaranty is limited to the principal obligation only, or to a specific portion
thereof
b) Indefinite or simple - one where the guaranty includes not only the principal obligation but also all
its accessories including judicial cost

Suretyship
Defined as a relation which exists where on person (principal) has undertaken an obligation and another
person (surety) is also under a direct and primary obligation or other duty to the obligee, who is entitled to but
one performance, and as between the two who are bound, the second rather than the first should perform.

Compromise
It is a contract whereby the parties, by making reciprocal concessions, avoid a litigation or put an end to one
already commenced

D. Pledge

Is a contract by virtue of which the debtor delivers to the creditor or to a third person a movable, or
instrument evidencing incorporeal rights for the purpose of securing the fulfillment of a principal obligation with
the understanding that when the obligation is fulfilled, the thing delivered shall be returned with all its fruits and
accession.
The contract of pledge is;
1. Real contract
2. Accessory contract
3. Unilateral contract

Kinds of pledge
1. Voluntary or conventional - created by agreement of the parties
2. Legal - created by operation of law

E. Real Mortgage

Mortgage
A contract whereby the debtor secures to the creditor the fulfillment of a principal obligation, especially
subjecting to such security, immovable property or real rights over immovable property in case the principal
obligation is not complied with at the time stipulated.

Kinds of Mortgage
1. Voluntary
2. Legal
3. Equitable - the intention of the parties is to make the property a security for a debt

Foreclosure
 It is the remedy available to the mortgagee by which he subjects the mortgaged property to the satisfaction
of the obligation to secure which the mortgage was given through the sale of the property at public auction and
the application of the proceeds thereof to the payment of his claim.

Kinds of foreclosure
1. Judicial foreclosure - by bringing the action to the Regional Trial Court of the province or city where the
real property or any part thereof lies
2. Extrajudicial foreclosure - a mortgage may be foreclose judicially where there is interested in the
contract, a clause giving the mortgagee the power, upon default of the debtor, to foreclose the mortgage
by an extrajudicial sale of the mortgage property

Redemption
A contract by which the mortgagor-owner of mortgaged property reacquires or buys back the property
within a certain period and for a certain amount after his default or after the foreclosure sale of the property for
the satisfaction of the mortgaged debt.

Kinds or redemption
1. Equity of redemption - the right of the mortgagor to redeem the mortgaged property after his default in
the performance of the conditions of the mortgage but before the sale of the mortgaged property
2. Right of redemption - is the right of the mortgagor to redeem the mortgaged property within a certain
period after it was sold for the satisfaction of the mortgage debt

F. Antichresis

1. Is an accessory contract - it the secured the performance of a principal obligation

2. Is a formal contract - it must be in a specified form to be valid

Antichresis distinguished from pledge

Antichresis Pledge
Refers to real property Personal property
Perfected by mere consent Perfected by delivery of the thing pledged

Antichresis distinguished from mortgage

Atichresis
Property is delivered to the creditor
The creditor acquires the right to receive the fruit of the
property
Creditor, unless there is a stipulation to the contrary,
the obliged to pay the taxes and charges upon the estate
Mortgage
The debtor retains possession of the property
The creditor does not have any right to receive the
fruits
The creditor has no such obligation

G. Chattel Mortgage
IT is that contract by virtue of which personal property is recorded in the Chattel Mortgage Register as a
security for the performance of an obligation.
 Chattel mortgage is a;
1. Accessory contract
2. Formal contract
3. Unilateral contract

Chattel mortgage distinguished from pledge

Chattel mortgage
Delivery of the personal property to the mortgage is not
necessary
The registration of the same in the Chattel Mortgage
Register is required by law
The procedure is found in Section 14 of Act No. 1508,
as amended
If the property is foreclosed, the excess over the
amount due goes to the debtor
If the property is foreclosed and there is a deficiency,
the creditor is entitled to recover the deficiency from
the debtor except if the chattel mortgage is a security
for the purchase of personal property in installment
Pledge
The delivery is necessary
The registration in the Registry of propert is not
necessary
It is found in Article 2112 of the Civil Code
If the property is sold, the debtor is not entitled to the
excess unless it is otherwise agreed or except in the
case of a legal pledge
If the property is sold, and there is a deficiency, the
creditor is not entitled to recover the deficiency
notwithstanding any stipulation to the contrary

Affidavit of good faith

Is an oath in a contract of chattel mortgage wherein he parties "several swear that the mortgage is made for
the purpose of securing the obligation specified in the condition thereof and for no other purposes and that the
same is a just valid obligation and one not entered into for the purpose of fraud".