PART I

OBLIGATIONS AND CONTRACTS

OBLIGATIONS

1. Q - What is the law on “Obligations and Contracts”?

A - The law on obligations and contracts is the body of rules which deals with the
nature and sources of obligations and rights and duties arising from agreements and
contracts.

2. Q - Source of the “Law on Obligations and Contracts”:

A - The source of the Law on Obligations and Contracts is the Civil Code of the
Philippines (Republic Act No. 386), which was approved on June 18, 1949 and took
effect on August 30, 1950. The Civil Code of Spain which took effect in the Philippines
on December 7, 1889.

3. Q - What is an obligation?
A - 1. Civil Code Definition -
An obligation is a juridical necessity to give, to do, or not to do. (Art 1156)

2. Manresa’s Definition -
An obligation is the legal relation between one party and another, the latter is
bound to the fulfillment of the prestation which the former may demand of him.

4. Requisites or elements of an obligation.

1. Active subject - known as the creditor or obligee; the person who is entitled to
demand the fulfillment of an obligation.

2. Passive subject - known as the debtor or obligor; the person who is bound to the
fulfillment of an obligation.

3. Prestation - the promise or the particular contracts to be observed in the

performance of an obligation, and may consist of giving, doing, or not doing a
thing.

4. Efficient cause - the legal tie which binds the parties to the obligation; otherwise
known as juridical tie or vinculum juris.
Example:
D promises to buy C’s car as a result of an agreement. (Here D is the obligor; C
is the obligee; the car is the object or prestation; the agreement or contracts is
the efficient cause.)
5. Kinds of obligations:
A. Viewpoint of sanction
a) Civil Obligations - give a right of action to compel their performance.
b) Natural Obligations - not based on positive law but on equity and natural
law; do not grant a right of action to enforce their performance, but after
voluntary fulfillment by the obligor, they authorize the retention of what has
been delivered or rendered by reason thereof.
c) Moral Obligations – those that cannot be enforced by action but which is
binding on the party who makes it conscience and natural law. Under our
law, moral obligations are now merged with natural obligations.

Civil Obligations
Example - D promise to pay C his (D’s) debt of P50,000

Natural Obligations
Example - D is indebted to C in the amount of P50,000. But the debt has
already prescribed. Still, D paid C. D cannot later on get back what he
voluntarily paid.

Moral Obligations
Example - The duty of a husband and wife to observe fidelity. The duty of
Catholics to hear mass on Sundays and holy days of obligations.

B. Viewpoint of performance
A. Positive - to give or to do
B. Negative - not to do

C. Viewpoint of subject matter

A. Real Obligation - to give
B. Personal Obligation - to do or not to do

D. Viewpoint of persons obliged

A. Unilateral - where only one of the parties is bound
B. Bilateral - where both parties are bound

6. Q - Source of obligations: (Art. 1157, CC)

A - 1. Law
2. Contracts
3. Quasi - contracts
4. Act or omission punishable by law
5. Quasi - delicts

7. Law as a source of obligation

Obligation derived from law are not presumed. Only those expressly determined in
 this code or by special laws are demandable, and shall be regulated by the precepts
of the law which established them; and as to what has not been foreseen, by the
provisions of this book. (Art. 1158, CC)

8. Contract as a source of obligation

Obligations arising from contracts have the full force of law between the contracting
parties and should be complied with in good faith. (Art. 1159, CC)

9. Quasi - contract as a source of obligation

It is the juridical relation resulting from lawful, voluntary and unilateral acts by virtue
of which the parties become bound to each other to the end that no one will be
unjustly enriched or benefited at the expense of another.

Kinds of quasi-contract
1. Negotiorum Gestio - the voluntary management of the property or affairs of
another without the knowledge or consent of the latter. (Art. 2144, Civil Code)
2. Solutio Indebiti - the juridical relation which is created when something is
received when there is no right to demand it and it was unduly delivered through
mistake.

10. Delict as a source of obligation

Every person criminally liable for a felony is also civilly liable. (Article 100, Revised
Penal Code)

11. Quasi-delict or culpa aquiliana or tort as a source of obligation

One which causes damage to another, there being fault or negligence, but there is
no pre-existing contractual relation between the parties. (Art. 2176, Civil Code)

12. Obligations ex lege not presumed

Obligations arising from law are not presumed. To be demandable and
enforceable, the obligation must be stated by the law which created the obligation.
Such being the case, the agreement of the parties under this obligation is no longer
necessary because it is the law which governs their obligation.

13. Law governing obligations derived from law

Obligations derived from law shall be governed by the law which establishes
them. In case of insufficiency, the same shall be supplemented by the provisions of
the Civil Code.

Examples:
A. The obligation of husband and wife to support each other. (Art. 68, Family Code)
B. The obligation of a taxpayer to file his income tax return. (Title VI, Section 44,
NIRC)
C. The obligation of the legitimate ascendants and descendants to support each
other. (Art. 70, Family Code)

14. Meaning of the article “Obligations derived from law are not presumed.”
The law says “obligations derived from law are not presumed.” this merely means
that the obligation must be clearly set forth in the Civil Code or special laws.

ILLUSTRATIVE CASE. SG, while employed as a guard of a movie house by O, shot

and killed a gatecrasher, X, who attacked SG with a knife after having been refused
entrance without first providing himself with a ticket. SG was criminally charged with
homicide but the case was dismissed by the trial court. For the expenses incurred in his
defense, SG demanded reimbursement from the owner. When the owner refused, he
filed his action for the recovery of the amount paid to his lawyer plus moral damages.

HELD: The owner, “O”, is not liable because the giving of legal assistance to an
employee is not a legal obligation.

While it may be true that it may be considered as a moral obligation, it does not, at
present, count with the legal sanction of any man-made law. If the owner is not legally
obliged to give legal assistance to the employee, then the latter cannot recover the
amount paid by him to his lawyer. In short, obligations arising from law cannot be
presumed, it must be stated before it becomes obligatory. (De la Cruz vs. Northern
Theatrical Ent. 50 O.G. 422, Sept. 1954)

15. Validity of Contract

In contracts, as to their general formation, it is what we call freedom to contract or
autonomy of will. The “contract” entered into between the parties shall have the
force of law between them. Any violation by either party shall produce a cause of
action against the violator. However, in order for a contract to be valid and
enforceable, it must not be contrary to law, morals, good customs, public order or
public policy, otherwise, the contract is void. (Arts. 1306, 1409, Civil Code)

16. Effect if part of the contract is void

If part of the contract is void but the contract is susceptible of division, that part
which is not affected may be enforced disregarding that part which is void. Such that
if the contract is falsified by the unauthorized insertion of additional stipulation, this
falsified insertion shall be considered inexistent and the part unaffected shall be
enforced.

17. Concept of Quasi - Contract

It is a juridical relation which arises from certain lawful voluntary, and unilateral acts,
to the end that no one may be unjustly enriched or benefited at the expense of
 another.
A quasi-contract is not an implied contract because in a quasi-contract (unlike in an
implied contract) there is no meeting of the minds.

Two principal kinds of Quasi-Contracts

1. Negotiorum Gestio - voluntary administration of the property, business or affairs
of a third person without the consent or authority of its owner.
2. Solutio Indebiti - payment by mistake of an obligation which was not due when
paid.
The distinctive mark of a quasi-contract from contract is that in contract, there is
consent of the parties, while on quasi-contract, the obligation arises without a
contract.

18. Some example of Quasi-Contract

1. Art. 2144. Whoever voluntarily takes charge of the agency or management of the
business or property of another, without any power from the latter, is obliged to continue
the same until the termination of the affair and its incidents, or to require the person
concerned to substitute him, if the owner is in a position to do so.
Example:
D, a merchant-farmer, and owner pf a ten-hectare agricultural land left for USA
on a pleasure trip. While enroute to USA, typhoon “Dading” devastated the entire
Philippines, including the land owned by D. Before the typhoon reached our area of
responsibility, C, a neighbor of D, employed six (6) farmers to harvest the palay
planted on the land of D. The expenses incurred is P600. In here, the obligation of D
upon arrival is to reimburse C P600 because he must not be enriched at the
expense of another.

2. Art. 2154. If something is received where there is no right demand it, and it was
unduly delivered through mistake, the obligation to return it arises.

Example:
D owes C P10,000 payable on December 25, 2010. On December 25, 2009, D,
thinking that the obligation was already due paid C the full amount of the obligation.
In this case, C’s obligation is to return the amount paid because the obligation is not
yet due and the obligee (C) has no right to demand it.

3. Art. 2164. When, without the knowledge of the person obliged to give support, it is
given by a stranger, the latter shall have a right to claim the same from the former,
unless it appears that he gave it out of piety and without intention of being repaid.

4. Art. 2167. When. Through an accident or other cause, a person is injured or

becomes seriously ill, and he is treated or helped while he is not in a condition
to give consent to a contract, he shall be liable to pay for the services of the
physician or other person aiding him, unless the service has been rendered out of
 pure generosity.

5. Art. 2168. When, during a fire, flood, storm, or other calamity, property is saved
from destruction by another person without the knowledge of the owner, the latter
is bound to pay the former just compensation.

6. Art. 2147. When, in a small community, a majority of the inhabitants of age

decides upon a measure for protection against lawlessness, fire, flood, storm, or
other calamity, anyone who objects to the plan and refuses to contribute to the
expenses but is benefited by the project as executed shall be liable to pay his share
of said expenses.

19. Rules governing obligation ex delicto or ex maleficio

1. Philippine Revised Penal Code and other penal laws, subject to the provisions of
Article 2177 of the Civil Code.
2. Chapter II, Preliminary Title, on Human Relations of the Civil Code.
3. Civil Code on damages, Title 18 of Book IV.

20. Commission of a crime as a source of an obligation

Every person who is criminally liable is also civilly liable under Art. 100 of the
Revised Penal Code. If a person therefore is guilty of the crime charged, he must
not only be imprisoned but he shall also answer for damages as a civil obligation.
Such civil obligation is a necessary consequence of criminal responsibility, and is to
be declared and enforced in the same criminal proceeding except when the injured
party reserved his right to file the civil action independently from the criminal action.
(Sec. I, Rule 111, Revised Rules of Court).

21. Commission o a crime or felony will not always make a person civilly liable.
As a rule, when a person commits a crime, he can be held criminally liable and
in addition, he can also be held civilly liable because most often the commission of a
crime causes not only moral evil but also material damage. However, not all crimes
cause material injury. Therefore, if there is no material damage to be compensated
or to be indemnified, there is no civil liability to be indemnified.

22. What is included in civil liability?

1. Restitution - Art. 105, Revised Penal Code - The restitution of the thing itself must
be made whenever possible, with allowance for any deterioration or diminution of
value as determined by the court.

The thing itself shall be restored, even though it be found in the possession of a
third person who has acquired it by lawful means, saving to the latter his action
against the proper person who may be liable to him.

This provision is not applicable is cases in which the thing has been acquired by
 the third person in the manner and under the requirements which, by law, bar an
action for its recovery.

2. Reparation of the damage caused - Art. 106, Revised Penal Code - The court
shall determined the amount of damage, taking into consideration the price of the
thing, whenever possible, and its special sentimental value to the injured party, and
reparation shall be made accordingly.

3. Indemnification from consequential damages - Art. 107, Revised Penal Code -

Indemnification for consequential damages shall include not inly those caused by
the injured party, but also those suffered by his family of by a third a personby
reason of the crime.

Example:
D stole that car of C. While driving the stolen car looking for a buyer, a 6x6 truck
sideswiped the car causing a damage of P50,000. In this case, the obligation of D is to
restore or return the car to the owner C and to pay the damage caused amounting to
P50,000. D must also pay the consequential damage suffered by C, and those suffered
by his family or by third persons by reason of the crime.

23. Proof or evidence required

1. Proof or evidence beyond reasonable doubt - when civil liability for damage is
included in the criminal case,
2. Mere preponderance of evidence - when claim for damage is filed separately with
the criminal action.

24. Effect if the guilty party died pending trial

The civil obligation is not extinguished. The injured party may file his claim
against the estate of the offender, but the heirs are not liable beyond the value of the
property they received from the decedent. (Arts. 1178 and 1311, CC)

25. Effect if the guilty party is acquitted of the criminal action filed
The extinction of the penal action does not carry with it extinction of the civil
action. However, the civil action based on delict shall be deemed extinguished if
there is a finding in a final judgment in the criminal action that the act or omission
from which the civil liability may arise did not exist. (Section 2, Rule 111, Revised
Rules of Court).

26. Minimum recoverable in case of death

The minimum amount of damages recoverable in case of death caused by a
crime or quasi-delict is P50,000 without the need of presenting evidence or proof of
damages. However, other damages may be recovered by the injured party. (People
vs. De Guzman, 194 SCRA 618)
27. May a person who committed an act constituting a crime be exempted from
criminal liability?
Yes, this is provided for in article 12 of the Revised Penal Code. The following
persons are exempted from criminal liability even if the act committed constitutes a
crime:

1. An imbicile or insane person, unless he acted during a lucid interval.

2. A person under 9 years old
3. A person over 9 years old but below 15, unless he acted with discernment
4. Accident
5. Persons acting under the compulsion of an irresistible force.
6. Persons acting under the impulse of an uncontrollable fear of an equal or
greater injury.
7. Persons who fail to perform an act required by law when prevented by some
lawful or insuperable cause.

Note: These persons are exempted from criminal liability but not from civil
liability, except paragraphs 4 and 7. This civil liability shall devolve upon their
guardians or persons whom they are under control or authority.

28. Concept of quasi-delict or culpa aquiliana

Quasi-delict, or tort, or Culpa Aquiliana, is the wrong committed against a
person independent of contract and without criminal intent.

Example:
D, while driving his car negligently hit a pedestrian X, inflicting upon the latter
bodily injury. In here, D is liable because of his negligent act and this is called quasi-
delict.

29. Basis of liability

Manresa, a Spanish Commentator in Civil Law states that the liability for quasi-
delict is founded upon an indisputable principle of equity; namely, the fault or
negligence cannot prejudice anyone else besides its author, and in no case should
its consequences be borne by him who, without will of fault on his part, becomes the
victim of the result or suffers the harm produced by such fault or negligence.

He goes further and opined that a man is responsible not only for his voluntary
willful act executed consciously and intentionally, but also for those acts performed
with lack of foresight, care and diligence, which caused material harm to society or
to other individuals.

30. Requisites or elements to concur before the person is liable

1. The act or omission complained of is due to the fault or negligence of the
offending party.
 2. The act or omission causes damage or injury.
3. There is a direct relation of cause and effect between the fault or negligence and
the damage or injury.
4. There is no pre-existing relation between the offender and the offended parties.

31. Definition of negligence

Negligence is the omission of that diligence which is required by the
circumstances of person, place, and time.

Kinds of negligence
1. Culpa acquillana or quasi-delict - The negligence as a source of an obligation.
2. Culpa contractual - The negligence in the performance of an obligation arising
from contract.
3. Culpa criminal - That negligence that results to a crime.

32. Culpa or negligence distinguished from Dolo or Fraud

In Culpa, it is not the act or omission which gives rise to the responsibility, but the
want of care required from the circumstances. In dolo, the act done or executed by
the actor is willful or deliberate with an intention to cause the resulting loss.

33. Culpa or negligence as distinguished from crimes

1. In culpa or quasi-delict, whenever in the execution of the act or its omission, fault
or negligence supervenes, the actor is liable; while in crimes, there is no crime
unless there is a law penalizing it. The notion is “Nullum Crimen, Nullum Poena sine
lege”.
2. In culpa or quasi-delict, criminal intent is not necessary, while in crimes, criminal
intent is necessary, except in criminal negligence.
3. In culpa or quasi-delict, damages is awarded to the injured party; while in crimes,
some violations will not make the person liable for damages because there is no one
injured.
4. In culpa or quasi-delict, the right violated is a private right; while in crimes, the
right violated is a public right.
5. In culpa or quasi-delict, the proof of fault or negligence will only be by
preponderance of evidence; while in crimes, it is beyond reasonable doubt.

Illustrative Case: X ordered a 10-year old boy, C, to climb a high and slippery santol
tree, with a promise to give him parts of the fruits. C slipped, fell on the ground and
died instantaneously. Is X liable?

Yes, in view of his negligent act in making the order. His act was clearly a
departure from the standard conduct required of a prudent man. He should not have
ordered the boy to climb the tree because it is treacherous, a veritable trap. In this
case, there is no criminal liability because there is no intention to kill the boy, but
only damages based on culpa acquillana or torts.
34. The prestation in an obligation
1. To give
2. To do
3. Not to do

35. Obligations of a person obliged to give something

A. Obligation is determinate.
1. To deliver the thing
2. To take care of the thing with the proper diligence of a good father of a family.
(Art. 1163, CC).
3. To deliver all accessions and accessories (Art. 1166, CC)
4. To pay damages in case of breach of the obligation (Art. 1170, CC)

B. Obligation is indeterminate or generic

1. To deliver a thing which must be neither of superior nor inferior quality. (Art.
1246, CC)
2. To pay damages in case of breach of the obligation. (Art. 1170, CC)

36. Diligence required in the preservation and delivery of a determinate thing

1. By provision of law. Example, the extraordinary diligence required of a common
carrier with respect to its passengers. (Art. 1755, Civil Code)
2. By stipulation of the parties.
3. In the absence of both, the diligence of a good father of a family.

37. Meaning o the phrase “good father of a family or bonum pater familia”.
If a person is obliged to give something, he must take good care of it as if he is
the real owner. Short of that expectation, he will answer for damages.

Example: January 1, 2010, D obliged himself to give C a specific racing horse

on December 25, 2010. The obligation of D in this case is to deliver the horse on
December 25, 2010. But from January 1 up to December 25, he must take good
care of the horse as if he is the owner. Since this is a racing horse, D must feed the
horse three times a day until the date of delivery. Failure to do so, and the horse, as
a consequence, dies, D will answer for damages because he is guilty under this
article.
38. Creditor’s right to the fruits of the thing
The creditor has a right to the fruits of the thing from the time the obligation to
delivery it arises. (Art. 1164, CC)

Example: June 1, 2010, D obliged himself to give C a specific parcel of land on

December 31, 2010. However, this land is leased to X for P12,000 per month. In
here, the only right of C on December 31 is to demand delivery, but he cannot
require D to give the rentals X paid D from June up to December, because he is
 entitled to the fruits only from the moment the obligation to deliver it arises.
However, if D could not deliver the land after demand on December 31, 2010, and
delivers it only December 31, 2011. C now can demand payment of the rentals for
P12,000 because C is entitled to the fruits from December 31, 2010 to December
31, 2011.

39. Creditor’s right to the fruits, personal and real rights explained
1. Before delivery of the fruits - the creditor’s right is personal or jus in personam, a
right which is enforceable only against a definite passive subject, the debtor.
2. After delivery of the fruits - the creditor has now a real right over the fruits from
the time of delivery and becomes enforceable against the whole world. In short, it gives
a person a direct and immediate juridical power over a thing which can be exercised not
only against a definite passive subject but against the whole world. The rights of
ownership and possession are real rights.
40. Delivery or tradition is a requisite for the purpose of acquiring ownership
It is a fundamental principle in contract of sales that what transfers ownership of
a thing is not the agreement but the delivery of the object. So, before delivery, the
creditor’s right is only personal, that is, to demand delivery of the object and its
fruits.

Example:
1. Personal right or jus in personam
On June 1, 2010, D obliged himself to deliver to C a specific horse on
June 30, 2010. D fails to deliver on the date promised and in the meantime
the horse gave birth to a colt on July 15. In here, C can demand from D the
delivery of the horse and the colt which was born after the due date of the
obligation. This right is personal to be directed only against the passive
subject which is D.
However, if D sold and delivered the horse and the colt to X, a buyer in
good faith. C has no right against X because what transfers ownership is
the delivery of the object. X now is the owner but C’s right is to ask for
damages because of D’s failure to deliver.

2. Real right or jus in rem

In the above example, if D delivered the horse and the colt to C on July
16, C becomes the owner of the horse and colt on July 16, the date of
delivery. Take note that C’s right is converted into a real right enforceable
against the whole world.
41. Kinds of fruits: N I C
1. Natural fruits - spontaneous products of the soil without the intervention of
human labor, and the young and other product of animals with or without the
intervention of human labor, such as forest products.
2. Industrial fruits - products of the soil through cultivation or human labor, such as
palay and vegetables, planted by farmers.
 3. Civil fruits - fruits as a result of civilization or fruits arising out of a juridical
relation, such as rent of lands, apartments and buildings.

42. Definition of terms and examples

1. Determinate - particularly designated or physically segregated from all others of
the same class.
Examples:
A. A 1968 Toyota Crown, with engine No. 007 and plate No. PAW - 008.
B. Apartment No. 9, situated at the corner of Reten Street and San Anton Street,
Sampaloc, Manila.
2. Indeterminate or generic - not particularly designated or separated from the
others of the same class.
Examples:
A. A 1968 Toyota crown
B. A horse
C. P10,000
43. Illustrative Case: S bound himself to deliver to B the following:
A. 21-inch 2006 model TV set
B. 14 cubic feet, white Westinghouse refrigerator, with Motor No. 007.
S did none of these things. May the court compel S to deliver the TV set and the
refrigerator? Why?
A. TV set No, because the object is generic. The right of B is to demand a
TV set which is neither superior nor inferior in quality as provided for in Article
1246, which states that “when the obligation consists in the delivery of an
indeterminate or generic thing, whose quality and circumstances have not been
stated, the creditor cannot demand a thing of superior quality. Neither can the
debtor deliver a thing of inferior quality”. Therefore, specific performance is
physically or legally impossible.
B. Refrigerator - Yes, because the object is determinate.
B. Suppose that the object of the obligation to give is lost or destroyed through a
fortuitous event, can the debtor or obligor still be held liable for damages?
Answer: It depends. If the obligation is determinate, as a general rule, the
obligor or debtor cannot be held liable for damages (Art. 1174, CC)
If the obligation, however, is indeterminate or generic, the debtor or obligor can
still be held liable for damages (Art. 1263, CC). An indeterminate or generic hing can
never perish (genus nunquan peruit).
44. Accessions and accessories defined and exemplified
1. Accessories are those things which are used for the embellishment, use, or
preservation of another thing of more importance.
Example: Tools and spare parts, with respect to a machine, the keys with respect
to a house; the jack with respect to a specific car.
2. Accessions include everything which is produced by a thing, incorporated or
attached thereto, either naturally or scientifically. It includes natural accession,
such as alluvion, and industrial accession, such as building, planting and sowing.
45. Creditor’s right to the accession or accessories of a determine thing
The creditor is entitled to everything that is attached, naturally or artificially, to
the principal thing. Accordingly, even when the accessions and accessories have
been temporarily separated, the obligor is still bound to make the necessary
delivery. However, the parties may stipulate that the accession and accessories may
be excluded from the obligation to deliver.
46. Creditor’s right in an obligation to do something
1. If the debtor fails to perform the obligation.
A. The creditor may demand that the obligation be performed by the debtor himself
or by a third person at the expense of the debtor. However, the debtor cannot be
compelled to comply with his obligation for this will amount to involuntary servitude in
violation of his constitutional right. Even when the obligation is too personal that only the
debtor can do it, the only remedy is to recover damages in case of non-performance.
B. To demand damages against the debtor for breach of contract under Article
1170.
2. If the debtor performed the obligation but in contravention of the agreement.
A. The creditor may ask that another person perform the obligation at the expense
of the debtor.
B. The creditor may demand damages against the debtor for breach of contract
under Article 1170.
3. If the obligation is poorly done.
A. The creditor may ask that it be undone at his (debtor’s) expense.
B. The creditor may demand damages against the debtor under Article 1170.
47. Illustrative Case:
D obliges himself to construct a one-kilometer Sabo dam in Bacolor, Pampanga,
to protect the property of C against the lahar fury of the Mount Pinatubo eruption. It
was stipulated that the height of the dam from the basement shall be four meter, and
crushed stone measuring two inches in diameter shall be used.
1. If D does not construct the dam on time, C may ask another contractor to do the
job at the expense of D plus damages.
2. If D constructed the dam but used 1/2-inch diameter of crushed stone, C may ask
that D comply with his obligation or may ask another contractor to do the job at
the expense of D plus damages.
3. If D constructed the dam according to specification combination but the height is
only 3 meters, C may ask another contractor to do the job for C at D’s expense
plus damages.
48. When an obligation is breached
When an obligation, regardless of its source, i.e., law, contracts, quasi-
contracts, delicts, or quasi-delicts, is breached, the contravener can be held liable
for damages. The provisions under Title XVII on “damages” of the Civil Code govern
in determining the measure of recoverable damages.
With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is
imposed as follows:
 1. When the obligation is breached, and it consists in the payment of a sum of
money, i.e., a loan or forbearance of money, the interest due should be that which may
have been stipulated in writing. Furthermore, the interest due shall itself earn legal
interest from the time it is judicially demanded. In the absence of stipulation, the rate of
interest shall be 12% per annum to be computed from default, i.e., from judicial or extra-
judicial demand under and subject to the provisions of Art. 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached,
an interest on the amount of damages awarded may be imposed at the discretion of the
court at the rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages except when or until the demand can be established
with reasonable certainty. Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is made judicially or
extra-judicially (Art. 1169, Civil Code), but when such certainty cannot so reasonably
established at the time demand is made, the interest shall begin to run only from the
date the judgment of the court is made (at which time the qualification of damages may
be deemed to have been reasonably ascertained). The actual base for the computation
of legal interest shall, in any case, be on the amount finally adjudged. (Eastern Shipping
Lines, Inc. Vs. Court of Appeals, 234 SCRA 78)
49. Creditor’s right against the debtor if the debtor does what has been forbidden
1. To ask that it be undone at the expense of the debtor.
2. Demand damages for breach of contract.
Illustrative Case: X and Y are owners of two adjoining pieces of land situated in
Bocaue, Bulacan. The parties agreed that X will give P10,000 to Y on the condition
that Y will not construct any tenement, temporary or permanent on his land for five
years because X will use it as his garage for five years. After one year, Y
constructed a semi-structure garage to house his three (3) for hire tricycles. In here, X
may ask that Y demolish the structure, or to ask a third person to do the job at the
expense of Y plus damages.
50. Q - When Does the Obligation to Deliver Arises?
A - 1. If there is no term or condition, then from the perfection of the contract.
2. If there is a term or a condition, then from the moment the term arrives or the
condition happens.
51. Concept of delay, default or mora
It is a delay or nonfulfillment of an obligation with respect on time.
Kinds of Mora or Delay
1. Mora solvendi - debtor’s part.
2. Mora accipiendi - creditor’s part.
3. Compensatio Morae - both parties defaulted.
52. Q - In obligations to give or to do, when does the obligor or debtor incur in
delay?
A - The debtor incurs in delay from the time the creditor judicially or extrajudicially
demands from him the fulfillment of his obligation and in spite of such demand, he is
unable to comply with the obligation. (Art. 1169 par. 1.)
Requisites of Mora Solvendi
 1. The obligation must be liquidated, due and demandable.
2. The debtor is guilty of non-performance.
3. There was demand made judicially or extra-judicially.
53. Effects of Mora Solvendi
1. The creditor may ask for damages.
2. The debtor is liable even if the loss is due to fortuitous event.
3. The debtor shall bear the risk of loss.
54. Instances when there is no default or mora solvendi
1. In negative obligation, because one can never be late in not doing or not giving
something.
2. In natural obligation, because the performance is optional or voluntary on the part
of the debtor.
55. Rules on Mora, delay or default
1. Unilateral obligations: As a rule, “No demand - no delay”. Therefore the mere
expiration of the period fixed by the parties is not enough in order that the debtor
may incur delay. There must be judicial or extrajudicial demand to be made before
or simultaneous to the maturity of the obligation. Failure to demand performance
will not make the debtor in default under the principle of “No demand - no delay”.
Exceptions to this rule are:
A. When stipulated by the parties
Example: D obliges himself to give C a specific car on June 30, 2010
without the need of a demand. If on June 30 D does not deliver, the next day he
is considered in default without the need of a demand.
Let it be noted that it is not enough that there is a specific date for its
performance. The obligation must expressly state that “there is no need for
demand”, otherwise he will not be considered in default.
B. By provision of law
Example: Article 1788 of the Civil Code - a partner who has undertaken to
contribute a sum of money and fails to do so becomes a debtor for the interest and
damages from the time he should have complied with his obligation without the need of
a demand.
C. When time is of the essence of the contract
Example: D obliges himself to construct in favor of C a one-kilometer Sabo
dam in Bacolor, Pampanga, to protect the property of C against the lahar coming
from Mount Pinatubo. If by June of this year, D has not yet started the construction,
he can already be declared in default without demand because time of is the
essence of the contract.
D. Demand will be useless
Example: S and B executed a contract on June 15, 2009 by the terms of
which S undertook to sell and B promised to buy A’s white horse. Delivery of
the horse was to be made on December 25, 2009 at which time, B would pay
the agreed price of P10,000. On June 30, 2009, S sold and delivered the same
white horse irrevocably to X. In here, S is considered in default after he sold
and delivered the horse to X without demand because the demand to be made
 by B will be useless. S could no longer perform his obligation since X after
delivery is already the owner.
Illustrative Cases of Exception Nos. 1 and 2:
1. “D” borrowed P10,000 from “C” on December 1, 2009. He executed a
promissory note promising to pay the indebtness on December 29, 2009. Upon the
arrival of the designated date for payment, is demand necessary in order that “D”
shall incur in delay?

ANSWER:
It is sumbitted that the answer is Yes, and the first exception will not apply.
According to the decision of the Supreme Court as well as authorities in Civil
Law, in order that the first exception as provided for in Article 1169 can be
applied, it is indispensable that the law or the stipulation should expressly add
that the obligor shall incur in delay if he fails to fulfill the obligationupon the
arrival of a designated date “without the need of a demand”, otherwise demand
is necessary to declare the debtor in default.

2. “A” and “B” entered into a contract of partnership for the purpose of buying and
selling textbooks, with the former as capitalist partner and the latter as industrial partner.
It was agreed that “A” shall contribute P50,000 to the common fund on January 10,
2010. Upon the arrival of the designated date for payment, is demand necessary in order
that “A” shall incur in delay?

ANSWER:
Demand is not necessary in order that “A” shall incur in delay. According to
the Civil Code, where one of the partners who has undertaken to contribute a sum
of money to the common fund at a specific date but fails to do so, he becomes a
debtor of the partnership not only for the amount which he has promised to
contribute but also for interest and damages from the time he should have complied
with his obligation without the need of a demand. (Arts. 1786, 1788, Civil Code).

2. Reciprocal obligations: These are obligations arising out of the same cause and
are to be fulfilled at the same time.

Example: In Contract of Sales, when the obligation of the seller and the buyer will
take place at the same time.

56. Delay in reciprocal obligation

From the time one of the parties fulfills his obligation, the other party incurs
delay. If neither party performs his undertaking, neither incurs delay.

Example: S sold to B a specific car for P10,000. Both parties agreed that the
delivery and payment shall take place on June 30. If on June 30, B is paying S
P10,000 and the latter cannot deliver, S is considered in default. Likewise, if on June
 30 S tenders delivery and B cannot pay the price, the latter is considered in default.

57. Effects of Mora

When there i delay, the injured party may ask for damages. But this benefit
arising from Mora, default or delay may cease upon:
1. Renunciation by the creditor
2. Prescription of action
3. Extension of time for the fulfillment of the obligation

58. A. Requisites of Mora Accipiendi

1. Offer of performance by the debtor, and
2. Refusal of the creditor to accept without just cause.
B. Effects of Mora Accipiendi
1. Creditor shall bear the risk of loss.
2. All expenses for the preservation of the thing after the delay shall be borne by
the creditor.
3. Creditor is liable for damages.

59. Grounds for liability to pay damages

1. Fraud or dolo
2. Negligence or culpa
3. Delay or mora
4. Contravention of the term of the agreement

60. Non-performance by fraud

Fraud may be defined as the voluntary execution of a wrongful act, or a wilfull
omission, knowing and intending the effects which will arise from such act or
omission. This is distinguished from negligence, in the sense, that in fraud, there is
intentional evation of the normal fulfillment of the obligations. This fraud is called
incidental fraud or dolo incidente, committed in the performance of the obligation or
after the contract is already perfected.

The other fraud referred to in Civil law is provided in Article 1338, and this is
committed before or at the moment of creating the obligation.

Fraud, as a ground for damages, implies some kind of malice or dishonesty and
it does not cover cases of mistake and error of judgment made in good faith. The
test is the element of mistake, and not the actual harm done.

61. Fault or Negligence or Culpa

This fault or negligence is called culpa contractual and not culpa acquiliana or
culpa extra-contractual. Culpa contractual is the fault or negligence of the debtor as
an incident in the fulfillment of an obligation, while culpa acquiliana is the fault or
 negligence which constitutes an independent source of an obligation between
parties not previously bound.

62. In contravention of the terms of the agreement

In general, every debtor who fails in the performance of his obligation is bound
to indemnify the aggrieved party for the losses and damages caused thereby. By the
phrase “in any manner contravenes the tenor” means any illicit act which impairs the
strict and faithful fulfillment of the obligation, or every kind of defective performance.
It is therefore immaterial whether or not the actor is in bad faith or negligent, what is
required is that it is his fault or the act done contravenes their agreement.

63. Kinds of damages

M - Moral and physcal anguish
E - Exemplary - corrective or to set an example
N - Nominal - to vindicate a right
T - Temperate - exact amount cannot be determined
A - Actual - actual losses and unrealized profit
L - Liquidated - predeterminated beforehand by agreement

DAMAGE: Refers to the harm done and what may be recovered.

INJURY: Refers to the wrongful or unlawful act.

64. A. Definition of Fraud

Fraud or dolo consists in the conscious and intentional proposition to evade the
normal fulfillment of an obligation (8 Manresa Bk. 1. P.168)

B. Kinds of Fraud
1. Fraud in obtaining consent.
2. Fraud in performing a contract.

65. Example of fraudin obtaining consent

S sold to B for P10,000 a specific ring misrepresenting it as a diamond ring when in
fact it is fake. B bought the ring because of the misrepresentation of S. Later, it turns out
that the ring is only made of glittering glass. In here, right of B is to annul the contract
because the fraud is committed at the time the contract is perfected. This is called dolo
causanti. The fraud employed is the very reason why B entered into the contract.

Example of Fraud in performing a contract

Today, D promised to deliver to C 100 cavans of C-4 variety rice, delivery to take
place after 10 days. Upon delivery, D delivered the C-4 variety but mixed them with C-6,
an inferior variety. In here, the right of C is to ask for damages. C cannot ask for
annulment or cancellation of the contract because the fraud is committed at the time of
performance. This fraud is called dolo incidenti.
66. Renunciation of Fraud
1. Future fraud cannot be renounced because the advance renunciation of the
creditor would practically leave the obligation without effect. (Art. 1171, CC)
2. Past fraud can be renounced. The fraud referred to is fraud in Article 1170, which
is the malice or bad faith in the performance of the obligation.

67. Test of Negligence

The test of negligence is:
Did the actor in doing the alleged negligent act use the reasonable care and
caution which an ordinarily prudent person whould have used in the same situation?
If not, then he is guilty of negligence.

68. Kinds of Culpa or Negligence

1. Culpa acquiliana - the wrong or negligence committed independent of contract
and without criminal intent.
2. Culpa contractual - the wrong or negligence in the performance of a contract.
3. Culpa criminal - the wrong or negigence in the commission of a crime.

69. Distinguish Culpa Acquiliana from Culpa Contractual

1. In culpa contractual, there is a pre-existing contractual relation between the
parties; while in culpa acquiliana, there is no contractual relation.
2. In culpa contractual, the negligence of the actor is merely an incident in the
performance of the oligation; while in culpa acquiliana, it is a substantive and
independent.
3. In culpa contractual, the source of liability of the actor is the breach of contract;
while in culpa acquiliana, it is the negligent act or the omission itself.
4. In culpa contractual, the proof of contract and the breach is sufficient proof to
warrant recovery of damages; while in culpa acquiliana, the negligence of the actor must
be proved.

70. Illustrative Case:

Taxi driver D, driving recklessly, killed pedestrian X and his passenger P. What are the
sources of the obligation of D and that of his employer to P and to X?
1. The right of the heirs o X, the pedestrian, is to proceed against D or his employer,
this is bases on quasi-delict or culpa acquiliana because there is no existing contract
between D and X. The liability of both is direct and primary.
However, the employer or operator can relieve himself of this liability by
proving the due diligence of a good father of a damily is made in the selection and
supervision of his driver and this is based on Article 2180, Civil Code.

2. The heirs of P may proceed against D’s operator only. The source of the liability
of D’s employer is the breach of contract of carriage with P, and this is known as Culpa
Contractual.
Article 1755 of the Civil Code provides that a common carrier is bound to carry the
passengers safely as far as human care and foresight can provide using the utmost
diligence of very cautious persons, with a due regard for all the circumstances.
Be it noted that the heirs of P must bring the action against the owner-operator of the
taxi, and not against the driver, because the contract is between the passenger and the
owner, and not between the passenger and the driver, who merely represents the
owner. Of course the owner can later ask reimbursemnt from the driver.

Likewise, the operator cannot escape from his liability by proving that he exercised due
diligence in the selection and supervision of the driver, but it might mitigate his
culpanility. This is based on the legal maxim “respondeat superior” or the master-servant
rule, that the negligence of the servant is the negligence of the master.

71. Degree of diligence required

1. Diligence required by law, if any.
2. Diligence required by the parties.
3. In the absence of both, diligence of a good father of a family.

72. Distinguish fraud from negligence

1. In fraud, there is a deliberate intention to cause damages while in negligence,
there is no intent to cause damage.
2. In fraud, the liability of the actor cannot be reduced by the court while in
negligence, the libility may be reduced by the court.

73. A. Concept of fortuitous events

Fortuitous event or caso fortuito are events which cannot be foreseen or which,
though foreseeable are inevitable. These are acts of God which could neither be
foreseen nor resisted, such as floods, storm, lightning, typhoon and perils of the sea
and eruptions of volcano.

B. Requisites of Fortuitous Events or Caso fortuito

1. That the event must be independent of the will of the debtor.
2. That it must be either unforseeable or unavoidable.
3. That the occurrence must render it impossible for the debtor to fulfill the
obligation in a normal manner.
4. That the debtor must be free of participation in, or aggravation of, the injury to
the creditor (Austria vs. Court of Appeals, 39 SCRA

74. Fortuitous event distinguished from force majeure

Force majeure is a superior or irresistable force which is essentially an act of
man, such as wars, strikes, riots, acts of robbers, pirates and brigands.

75. Effects of fortuitous events in the performance of an obligation

When a debtor is unable to fulfill his obligation because of fortuitous event, his
obligation to comply is extinguished subject to the following exceptions:
 1. When stipulated by the parties that the happening of an event fortuitous in nature
shall now exempt the debtor from his liability.

2. When the law expressly so provides

A. Article 1165 - if the debtor delays, or has promised to deliver the same thing to
two or more persons who do not have the same interest, he shall be responsible for any
fortuitous event until he has effected the delivery.
B. Article 1268 - when the debt of a thing certain and determinate proceeds from a
criminal offense, the debtor shall not be exempted from the payment of the price,
whatever may be the cause for the loss, unless there is refusal without justification on
the part of the creditor to accept the thing.
C. Article 1942, Paragraph 1 - the bailee is liable for the loss of the thing even if it
should be through a fortuitous event, if he devotes the thing to any purpose
different from that for which it has been loaned.

3. Where the nature of the agreement requires the assumption of risk

This is known as the doctrine of “assumption of risk”. It refers to a situation
in which the obligor or debtor with full knowledge of the risk, voluntarily assumes
such risk. This is based on the principle, “no wrong is done to one who consents”.
This is illustrated in insurance contracts, whereby the obligor an insurer is liable to
pay even if the property is lost by fire and this is fortuitous in nature.

76. Illustrative Case:

P was injured while he was a passenger of a Love Bus operated by O and
company. The proximate cause of the accident was the failure of the steering
knuckle to work causing the driver to lose control of the wheel as a result of which
the bus feel into a ditch.

1. Can the operator exempt himself due to fortuitous event?

ANSWER: The weight of authority sustains the view that a passenger is entitled to
recover damages from the carrier for an injury resulting from a defect in an
equipment purchased from a manufacture, unless extraordinary diligence has been
exercised with regard to inspection and application of the necessary tests.

2. Suppose the proximate cause of the accident was a tire blowout, is that fortuitous
in nature?
ANSWER: Our Supreme Court repeatedly stated in its decisions that defective
brakes, the blowout of tires and others of similar nature cannot be classified as
fortuitous event per se within the meaning of the law.

77. Receipt of the Principal without reservation as to the interest

This article must be gleaned with Article 1253 which provides that if a debt
produces interest, payment of the principal shall not be deemed to have been made
 until the interest has been covered. This article therefore raises a rebuttable
presumption that the receipt of the principal without reservation as to to the payment
of interest shall raise the presumption that the said interest has been paid.

EXAMPLE: D borrowed form C P10,000 at 12% interest per annum. On the date of
maturity D paid C, and the latter issued a receipt under the following tenor: Received
from D P10,000 in payment of his obligation. (Sgd. C) In here, the law presumes
that the interest of 12% was already paid because in the payment of an obligation in
money, the payment is applied first to cover the interest, then the principal
obligation.

If the interest has not yet been paid, C should have reserved the payment of
interest in the receipt, to read as follows: Received from D P10,000 in payment of
his obligation. Interest unpaid. (SGD. C)

78. Receipt of a later installment without reservation as to prior installments

A receipt acknowledging the payment of a later installment without reservation
as to the earlier installment due, will raise the presumption that the prior installment
is also paid. But this presumption is not conclusive. It can be controverted by proof
to the contrary. (Art. 1176, CC)

EXAMPLE: S sold to B a specific car for P20,000 payable in four equal installments:
January 1 - P5,000
February 1 - 5,000
March 1 - 5,000
April 1 - 5,000

B paid S the first and second installments, but failed to pay the third. If he
tenders payment on April 1, the payment must be applied on the third installment,
otherwise it will raise a presumption that the later installment was already paid:
However, he may accept the fourth installment but he must make a reservation in
the receipt that the third installment is not yet paid.

79. The right of the creditor as against the debtor

In order to satisfy his claim against the debtor, the creditor has the following
successive rights.

1. To demand fulfillment of the obligation or specific performance.

2. To attach the properties of the debtor, except those exempt by law from
execution.
3. To exercise all the rights of the debtor except those inherent and personal to him.
This is Accion Subrogatoria.
4. To ask for the rescission of contracts intended to defraud him. This is Accion
 Pauliana.

80. Accion subrogatoria or the right to be subrogated

The action which the creditor may exercise in the place of his debtor in order to
preserve or recover the property lost or transferred so that he can satisfy his own
credit is called accion subrogatoria or subrogatory action.

81. Accion Pauliana or the right to rescind or impugn fraudulent act

The creditor as a last resort has the right to set aside or revoke or cancel the
acts which the debtor may have done to defraud him and this is called Accion
Pauliana or the right to rescind.

82. Remedies which are available to the creditor in order to protect his rights
against the debtor
1. Exhaust the property in possession of the debtor
2. To be subrogated to all of the rights and actions of the debtor save those which
are inherent in his person (accion subrogatoria)
3. To impugn all of the acts which the debtor may have done to defraud him (accion
pauliana)
Note: The second and third are subsidiary to the first.

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Illustrative case exemplifying the rights of the creditor
D owns a specific parcel of land and at the same time owes C P100,000
payable on December 25. On the due date, D failed to pay. What are the
successive rights of C?
1. To demand payment.
2. To bring an action against D if D fails to pay after demand. If judgment is favorable, to
attach the properties of D in satisfaction of the obligation, except those exempt from
attachment.
3. To compel D to assign to C whatever rights D may have against third person and this
is called Accion Subrogatoria.
4. To rescind or impugn acts executed by D in order to defraud C. This is called Accion
Pauliana. Such that in the illustration given, if D sold the land to X on December 20
without reserving properties to answer for his obligation to C, the right of C is to rescind
or cancel the sale between D and X because this is considered a fraudulent act. This
right of rescission is applicable only if X is in bad faith.
NOTE: There are, however, some personal rights of the debtor which the creditor cannot
exercise.
Examples:
a. the right of existence or support
b. the right of an honorary character
c. the power to carry out the contract of agency
d. the right or relation as public character
e. the right to a government gratuity or pension

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83. Transmissibility of rights.
As a rule, all rights acquired in virtue of an obligation are transmissible, if there has
been no stipulation to the contrary. Be it noted that it is the right of a person that is
transmissible, the obligation is not transmissible. (Art, 1178 CC)
1Example: D owes C P10, 000 payable on December 25. His would-be-heirs are X, Y, Z.
If D dies on December 20, D's obligation to C to pay P10,000 is extinguished. Hence, C's
right is to file an action or claim against the estate of the deceased debtor. However, the
heirs are not liable beyond the value of the property received from their decedent. If,
however, it was C who dies and he is survived by his only heirs S, O, N, the heirs can
demand payment from D because rights are transmissible.
84. Exception to transmissibility of rights.
1. When the parties agreed against transmission.
2. When the law prohibits the transmission of rights.
3. When the nature of the obligation does not permit transmission of rights, such as
when the right is personal.
85. Classification of Obligations
1. PRIMARY classification according to the Civil Code.
a. pure and conditional
b. with a period or with a term
c. alternative and facultative
d. joint and solidary
e. divisible and indivisible
f. with a penal clause
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2. SECONDARY classification according to the Civil Code.
a. unilateral and bilateral
b. real and personal
c. determinate and indeterminate
d. positive and negative
e. legal and conventional
f. civil and natural
86. Concept of pure and conditional obligation
1. Pure obligation - one without a condition or a term, therefore demandable at once.
Example:
a. I promise to give you a specific car.
b. I obliged to give you P10,000 on demand.
2. Conditional obligation - when there is a condition imposed in its performance.
87. 1. Q - What is a condition?
A - A condition is a future and uncertain event upon which an obligation Is
subordinated or made to depend. (Esriche, Law Dictionary)
 2. Q - What are the requisites of condition?
A - a. Futurity
b. Uncertainty
3. Kinds of conditions
1. Suspensive - one which suspends the effectivety of the obligation until the
condition is fulfilled. It is the fulfillment of the condition that produces the efficacy
of the obligation. No fulfillment, no obligation.
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Example: I will give you P10,000 if you will pass the next CPA examination. This
is suspensive because it suspends the demandability of the obligation
2. Resolutory - one which extinguishes the obligation upon the happening of the
condition. The obligation takes effect at once, but will terminate upon happening
of the event.
Example: I will let you use my car until yes pass the next CPA examinations. The
promise is made today. Tomorrow you can demand delivery from me, But if you
pass the examination, let us say on May 30, my obligation is already
extinguished because the event already happened and from that time there is a
revertion of personality, the "debtor becomes the creditor, and the creditor
becomes the debtor”. So, your obligation is to return the car to me because you
are in possession and my obligation is already extinguished since the event
already happened.
88. When an obligation is demandable at once.
1. When it is pure
2. When the obligation is subject to a resolutory condition or period
89. Debtor to pay the creditor "when his means permit'
If debtor will pay when his means permit him to do so or words of similar import,
such as,
1. "When I can afford"
2. "When I am able to"
P45 3. "When I have money"
the obligation Is not conditional but with a period. The payment hero does not
depend upon the will of the debtor - it is only the time when payment is to be made.
Since we are referring to the time of effectivity, we consider it a term or a period.
90. When is the obligation demandable?
Since the time for payment (not the payment) depends upon the will of the debtor,
immediate performance cannot be enforced, the right of the creditor is to go to court
and let the court fix the date for payment. The creditor in this case is not demanding
payment, he is only asking the court to fix the date for payment. Once fixed by the court,
the obligation becomes demandable on the date fixed.
91. Kinds of condition under Article 1182.
1. Potestative - one which depends upon the will of one of the parties. This is called
facultative condition.
a. Potestative on the part of the debtor if suspensive both the condition and the
obligation are void.
 Example: I'll give you P10,000 if l like.
b. Potestative on the part of the debtor if resolutory: the obligation and the condition
are valid. Example: I'll give you P10,000 until I return from Tarlac.
c. Potestative on the part of the creditor, the obligation and the condition are valid.
Example: I will give you P10,000 if you like.
2. Casual- one which depends exclusively upon chance. This is a valid obligation.
Example: I'll give you P10,000 if I win the Lotto draw next Wednesday.
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3. Mixed -one which demands upon the will of one of the contracting parties and partly
upon chance or the will of a third person. This is also a valid obligation. Example: I will
give you P10.000 if you'll marry X this year.
Illustrative Case: I will give you P10,000 if I can sell My land this year. If I succeed in
selling my land this year, am I under obligation to give you P10,000?
It is submitted that the answer is yes, because the condition attached in the
obligation is not entirely dependent upon the will of the debtor, but instead it is
considered mixed, dependent upon the will of the debtor and a third person, that is, the
buyer, his availability and willingness to buy.
Effects of Potestative, Casual, and Mixed Conditions.
A. Potestative
If the condition is potestative and the fulfillment depends exclusively upon the
will of the debtor, the conditional obligation shall be void. If the condition is
potestative and the fulfillment depends exclusively upon the will of the creditor,
the conditional obligation shall be valid.

B. Casual
If the condition is casual and its fulfillment depends upon chance and/or upon
the will of a third person, the obligation shall be valid.
C. Mixed
If the condition is mixed and its fulfillment depends partly upon the will of a
party to the obligation and partly.
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Upon chance and/or the will of a third person, the obligation shall be valid.
Exceptions to the rule that when the fulfillment of the condition depends upon the sole
will of the debtor, the conditional obligation shall be void.
1. If the condition is resolutory and potestative. The obligation is valid even if the
fulfillment of condition is made to depend upon the sole will of debtor. (Taylor vs.
Uy Tieng Piao, 43 Phil. 873)
2. The rule that even the obligation itself shall be void is applicable only to an
obligation which depends for its perfection upon the fulfillment of the potestative
condition and not to a pre-existing obligation. (Trilliana vs. Quezon Colleges, 93
Phil. 383)
92. When does an obligation to deliver arise?
1. When there is no term, period, or condition, the obligation to deliver arises from the
perfection of the contract or its constitution or creation, the obligation is being pure.
2. If subject to a suspensive term or period, the obligation to deliver arises from the
moment the condition happens.
3. If subject to a suspensive term or period, the obligation to deliver arises upon the
expiration of the term or period.
4. In obligations arising from law, quasi-delicts, quasi-contract and crimes, the specific
provision of the law applicable shall control.
Example: In a contract of sale, Art. 1537, all the fruit shall pertain to the vendee from
the day the contract was perfected.
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93. Effect of Impossible and illegal condition:
1. Impossible physically: to make a dead man alive
Impossible logically: to make a circle that is at the same, time a square
2. Illegal condition: to kill X
Effects:
1. If the condition is to do an impossible or illegal thing, both the condition and the
obligation are void. Example: I’ll give you P10,000 if you will make a dead man alive.
2. If, the condition is negative, that is, not to do an illegal thing, both the condition and
the obligation are valid. Example: I will give you P10,000 if you will not kill X.
3. If the condition is negative, that is, not to do the impossible, just disregard the
condition, but the obligation remains. Example: I will give you P10,000: if you cannot
make a circle that is at the same time a square.

94. Effects of positive condition.

Example: I will give you specific car if you will marry X this year.
1. If you marry X on December 25, my obligation is to give you the car.
2. If on December 25, X died, without marriage, my obligation is extinguished because
one party is dead. Marriage is impossible to take place.
3. If the year has ended, no marriage taking place, both parties are alive, just the same
my obligation is extinguished because the time indicated has already elapsed.
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95. Effects of negative condition.
Example: I will give you a specific car if you will not marry X this year.
1. If on December 25 you marry X, my obligation is extinguished because you
violated the condition.
2. If on December 25, X died and no marriage took place, my obligation becomes
effective (not extinguished), because the expected event cannot occur anymore.
3. If the year has ended, and no marriage took place, both parties are still alive, my
obligation becomes effective time extinguished) because the time indicated as
already elapsed.
96. Effect when the debtor voluntarily prevents fulfillment of the condition.
When the debtor voluntarily prevents the fulfillment of the condition, the condition is
deemed fulfilled. The obligation, therefore, is effective. This is called constructive or
presumed fulfillment.
 Illustrative Case: O was an hacienda owner, who contracted the services of C, a
sugar central, to grind O's sugar cane. It was agreed further as a condition that C may
construct railroad to pass on O's hacienda to facilitate the easy movement of sugar
wagon from one point to another. When C is asking the written permission of O, the
latter refused. Yet, he sued C for failure to grind the sugar cane on time. Will the
action of O prosper?
No because 0 voluntarily prevented the fulfillment of the condition, the obligor must
be released in whole or in part.
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97. Effects of fulfillment of suspensive condition.
The Obligation becomes effective on the day the obligation is constituted. In
other words, the effect is retroactive.
Example: On June 25, 2010, S will sell his parcel of land to a for P10,000, if B will
pass the CPA examination on May 25, 2012.
1. On June 25, 2010 after the promise was made up to May 25, 2012. S remains to
be the owner because the condition is not yet fulfilled.
2. If on May 25, 2012, B passed the examination, after payment and delivery, B
becomes the owner and the effect is retroactive dating back from the time the
obligation was constituted, that is June 25, 2010.
3. One year after the promise was made or on May 25, 2011, S sold the land to X. Is
the sale valid?
Yes, because S is still the owner on the date stated.
4. Supposing on May 25, 2012, B passed the examination, how will the dispute
between B and X be resolved?
If after the promise made by S to B (2010), B preserved his right by having the
conditional sale noted at the Register of Deeds, the passing will vest in him an
absolute right OVER the property. X cannot question B's right because of his (X)
knowledge of the conditional sale inscribed in the Torrens Title. If no inscription is,
made the right of B will be defeated because a buyer in good faith is protected by the
law.
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98. Retroactive effects as to the fruits and Interest.
1. If unilateral, the debtor as a rule will get the fruits and Interest.
2. If reciprocal, the fruits and interest during the pendency of the condition are
deemed mutually compensated although unequal.
99. Rules to be observed in case the loss, deterioration or improvement of the thing
during the pendency of the condition.
1. If the thing is lost without the fault of the debtor, the obligation shall be
extinguished.
2. If the thing is lost through the fault of the debtor, he shall be obliged to pay
damages.
3. When the thing deteriorates without the fault of one debtor, the impairment is to be
borne by the creditor.
4. If it deteriorates through the fault of the debtor, the creditor may choose between
 the rescission of the obligation and its fulfillment, with indemnity for damages in
either case.
5. If the thing is improved by its nature, or by time, the improvement shall inure to the
benefit of the creditor.
6. If it is improved at the expense of the debtor, he shall have no other right than that
granted to the usufructuary. (Art. 1189)

Q — What is the meaning of the term "lost"?

A — It is understood that the thing is lost when it perishes, or goes out of commerce,
or disappears in such a way that its existence is unknown or it cannot be
recovered. (Art. 1189)
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100. Rule on loss:
1. Loss without debtor’s fault -obligation is extinguish.
2. Loss without debtor’s fault -obligation is to pay damages.
101. Rule on deterioration:
1. Without debtor’s fault - impairment shall be borne by the creditor, debtor is not
liable.
2. Due to debtor's fault - creditor may choose between:
a. rescission plus damages
b. fulfillment plus damages

Example I will give you a specific table, chocolate brown if you will pass the CPA
examination.
Sad to say, the passing took place after 2 years. In two years' time the painting
will fade. After passing, your only right is to demand delivery of the table in its
faded condition because it deteriorated without my fault. However, if after the
promise was made, I exposed the table to the heat of the sun and the tempest of
the rain, deterioration is due to my fault, your right after passing is to demand
delivery or to rescind the contract, in either case, plus damages.
102. Rule in improvement of the thing:
1. By nature or by time - it shall inure to the benefit of the creditor.
2. At the expense of the debtor - debtor's right is that granted to a usufructuary.
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Exemple:
a. I will give you a specific horse if you will pass the May 30, 2010 CPA examination
If on May 20, 2010 the horse gave birth to a colt, your right after passing is to
demand the of the delivery of the horse and colt because the improvement is by
nature
b. I will give you a specific car if you will pass the May 30, 2010 CPA examination.
However, on May 12, 2010, I installed an air conditioning unit inside the car because
of the dry season spell. If you pass the CPA exams, my right is to remove the air
conditioning unit if it will not cause destruction on the car, and if it will cause
 destruction or injury to the car, my obligation is to deliver the car with its improvement
because my right is that of a usufructuary.
Article 579 - The usufructuary may make on the property held in usufruct such useful
improvements or expenses for mere pleasure as he may deem proper, provided he
does not after its form or substance, he shall have no right to be indemnified therefor.
He may, however, remove such improvements, should it be possible to do so without
damage to the property.
Article 580 - The usufructuary may set off the improvements he may have made on
the property against any damage to the same.
103. Improvement if partly by natum and partly at the expense of the debtor.
Example: I will give you a specific horse if you will pass the May 2010 CPA
examinations. However, on May 1, the horse gave birth by artificial insemination at
the expense of the
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debtor. In here, the right of C after passing the examination is to demand the delivery
of the horse and the colt, he must reimburse D on the expense incurred due to the
insemination.
104. Effects when resolutory condition is fulfilled.
1. The obligation is extinguished.
2. The parties should return or restore to each other what they have received
including the fruits and interest.
3. The rules in Article 1189 will apply to whoever has got a duty to return in case of
loss, deterioration or improvement of the thing.
4. If the obligation is to do or not to do, the courts are given, the power to determine
the retroactivity of the fulfillment of the condition as stated in Article 1187.
105. Concept of Rescission as used in Article 1191.
The power to rescind means the right to cancel or to resolve the contract in case
of non-fulfillment of the obligation on the part of one of them.
This is not the rescission referred to in Article 1380, which involves damage or
lesion, or injury to the economic interest of a person. The rescission contemplated by
this Article (1191), is the breach of faith committed by the person who is supposed to
comply with the obligation.
Characteristics of the right to rescind under Article 1191.
a. It exists only in reciprocal obligations.
b. It can be demanded only if the plaintiff is ready, willing, and able to comply with his
own obligation and the other is not. (Seva vs. Berwia, 48 Phil 581)
106. Essential features of rescission in reciprocal obligation.
1 The right to rescind is implied, so there is no need to stipulate it in the contract.
2 This right is not automatic or absolute. The injured party should apply to the court
for a decree of rescission.
3. The court is given discretionary power to fix a period, instead of rescinding the
obligation especially if the breach is slight or casual. Neither will rescission take
place if the object is in the possession of a third person who acted in good faith.
107. Exception to the rule when judicial approval is necessary for rescission.
 1. When the object is not yet delivered.
2. When even if there has been delivery, the contract states that either party can
rescind the same or take possession of the property upon non-fulfillment of the
obligation by the other party.
108. Concepts:
1. Period - a period is a certain length of time which determines the effectivity or the
extinguishment of an obligation. According to Manresa, a Spanish commentator in
Civil Law, a period or term consists in a space of time which has an influence on
obligations as a result of a juridical act and either suspends their demandableness,
or produces their extinguishment.
2. Day certain - the day which will necessarily come whether we like it or not.
109. Kinds of Period.
1. According to source
a. Legal- fixed
b. voluntary - fixed, by the parties’
c. Judicial - fixed by the court
2. According to effect
a. Ex-die (suspensive period) a period which must lapse before the obligations can
be demanded.
b. In-diem (resolutory period) a period after whlch the obligation is extinguished.
3. According to definiteness
a. Definite- refers to a fixed known date or time.
Example: I will give you a specific car on Decent, 25, 2010.
b. Indefinite- refers to an event which will necessarily happen but the date of its
happening is not knowm. Example: I will give you a specific car when X dies
110. Requisites of Period.
1. It must refer to the future.
2. It must be certain.
3. It must be possible.
111. Distinction between a condition and a term or period.
Condition Term or Period
1. refers to an event 1. refers to an interval of time
2. has for its requisites 2. has for its requisites
futurity and uncertainty futurity and certainty.

3. may or may not happen 3. will surely come to pass, although it may not be
known
when.
Note: a. when we know that something will happen but we are uncertain as to the
time it will happen, this is a period or a term.
b. When we are not even sure it something will happen. As a fact or not, this is
a condition.
112. Illustrative Case: “A” Corporation, engaged in the sale of subdivision residential
lots, sold to "B" a lot of 1,000 square meters. The contract provides that the
 corporation should put up an artesian well with tank, within a reasonable time, from
the date thereof and sufficient for the needs of the buyers. Five years thereafter, no
well and tank have been put up by the corporation. "B” sued the corporation for
specific performance. Will the action prosper? Why?
No, the action will not prosper. The obligation is to be performed "within a
reasonable time", the performance of which is in the future, that is, after the
obligation was contracted. It is therefore subject to a period. The right of B is to go
to court so that the court will he the date of performance. After the date is fixed and
still, the debtor cannot comply with his obligation, specific performance is the right
of the creditor.
113. Effect of payment before the arrival of the period
The debtor may recover what he has paid including the fruits and interest if he is
unaware of the period. If he paid voluntarily knowing that the obligation is not yet
due, he cannot recover what he had paid.

114. Illustrative Case: On January 1, 2008, D borrowed from C P10,000 payable on

January 1, 2010, that is 2 years with 6% interest annually. On January 2009 D thinking
that the obligation is already due, paid C principal plus P1,200 interest. In this case, D
can recover from C the principal sum of 10,000 plus P600 interest, that is, the interest to
be due from 2009 to 2010. This is a case of solutio indebiti or undue payment.
115. The benefit of the period in an obligation.
Whenever in an obligation a period is designate, it is presumed to have been
established for the benefit of both the creditor and the debtor, unless from the tenor of s
same or other circumstances, it should appear that period has been established in favor
of the other.
Example: On December 25, 2008, D binds himself to pay, C P16,000 with 14% interest
annually on December25, 2010. Before December 25, 2010 C cannot demand payment.
Likewise, on December 25, 2009 if D is paying C, the latter can refuse the tendered
payment, because the period is for the benefit of both the debtor and creditor. The
benefit of the creditor in this case is the interest to be paid by D from 2009 to 2010.
116. Example of an obligation for the benefit of the debtor.
D obliges himself to pay C P10,000 on or before December 25, 2010. Before
December 25, 2010, D can pay the obligation but before that date, C cannot demand
payment because the period is for the benefit of D.
117. Example of an obligation for the benefit of the creditor.
D obliges himself to give C P10,000 on demand. In here, C can demand payment
from D after a reasonable time from the date the promise was made because the period
is for his own benefit.
118. For whose benefit is the period in the following obligations?
1. D binds himself to pay C P10,000 on December 25, 2010. This is for the benefit of
both D and C.
2. D binds himself to pay C "within 2 years". This is for the benefit of D only. D can pay
before the end of 2 years, but he cannot be compelled to pay before the two-year period.
3. D binds himself to pay C "within 2 years on demand". This is for the benefit of C
because of the words "on demand".
119. When the court may fix a period.
1. When the duration depends upon the will of the debtor.
Examples:
a. Obligation stating that payment is "When my means permit me to do so". (Art. 1180,
Civil Code).
b. "I will pay, you little by little".
C. "As soon as possible".
d. "As soon as I have money"".
e. "In partial payment".

Example: D obliges himself to pay C P10,000 "as soon as possible". Three months after,
C demanded payment from D but the latter refuses to pay. Can C file an action in court
compelling D to pay the obligation?
No. This obligation is subject to a period. C's right is to go to court so that the court will
fix the date of payment.
2. When, though the obligation does not fix a period, it can be inferred that a period was
intended. a. In sale on credit when the period of payment was not stated.
b. Construction of Sabo Dam in Bacolor, Pampanga where the date of construction and
the date of completion is not stated in the contract.
C. The period is not stated in the construction of a house.

120. Instances when the court may not fix the term or period.
1. When no term was specified by the parties because no term was ever intended, in
which case it is considered a pure obligation.
2. When the obligation is payable on demand.
3. When specified period is provided by law.
Example: Contract of employment
121. How the court fixes the period.
The court determines the period by considering the time probably contemplated
by the parties. Once the period is fixed by the court, the period becomes part of the
contract, and the court cannot change it. However, the parties may change the period by
mutual agreement or even disregard the period making it demandable at once.
122. Instances when the debtor loses the benefit of the period.

1. When, after the obligation has been contracted, the debtor becomes insolvent, unless
he gives a guaranty or security for the debt.
2. When he does not furnish to the creditor the guaranties or securities which he has
promised.
3. When by his own acts he has impaired said guaranties or securities after their
establishment, and when through a fortuitous event they disappear, unless he
immediately gives new ones equally satisfactory.
4. When the debtor violates any undertaking in consideration of which the creditor
agreed to the period.
5. When the debtor attempts to abscond. (Art. 1198, CC)
NOTE: In a CPA examination, this question was paraphrased: When can the creditor
demand payment of the obligation even if such obligation is not yet due?
123. Definition of Alternative Obligation:
Alternative obligation is one where out of two or more prestations which may be given,
only one is due. In short, there are several things due but the delivery of one is sufficient
to extinguish the obligation.

Example: D obliged himself to give C object No. 1, or object No. 2, or object No. 3 on
June 30. D does not have to give C all the three objects stated. The giving of one of the
three is enough to comply with his obligation. Be it noted that the obligation of the obligor
is to deliver completely any of the objects he promised because the creditor cannot be
compelled to receive part of one and part of the other undertaking.
124. Right to Choose
General rule: The right belongs to the debtor
Exception : Unless given to the creditor

Example: D obliged himself to give C, object No. 1, or object No. 2. The contract giving
rise to the obligation did not mention the right to choose. On the date of maturity, can C
demand from D the delivery of object No. 1?
Answer: No, because the obligation is silent, the right of choice belongs to D.
Example: When the right to choose belongs to C.
D obliged himself to give C. Object No. 1, or object No. 2 or object No. 3 at C’s option. In
her, the creditor is given the right to choose what the debtor will delivery.

125. Illustrative Case: X insured his specific house to Y insurer.

The contract stated that if the house is damaged or destroyed by the peril insured
against, Y will pay the policy or rebuild it in a sufficient manner. Is this an alternate
obligation of the insurer?
Answer: Yes, because after the occurrence of loss, he may pay the proceeds of the
policy or rebuilt it.
126. Limitations on the right of the debtor to choose.
The debtors shall have no right to choose those prestations which are:
1. Impossible.
2. Unlawful.
3. Those which could not have been the object of the obligation.
Example: D obliges himself to deliver to C, a can of opium; or a can of opium: or a can of
carabao milk taken from a cow: or a specific car. The right of D is to deliver the last
object because object 1 is unlawful, while object 2 is impossible.
127. When alternative obligation is converted into a simple obligation.
1. When the debtor's choice is communicated to the creditor.
2. When the creditor communicated his choice to t debtor, if given the right to choose.
3. When only one of the prestations due is practicable.
128. Example: When only one of the prestations due is practicable.
D obliged himself to give C either object No. 1 or object No. 2 or object No. 3. If object
No. 1 and No. 2 got lost due to fortuitous event before the change is made, D loses his
right to choose because among the prestations due, only one is practicable. And if later
on, object No. 3 got lost due to fortuitous event, the obligation is totally extinguished.
129. Effect of impossibility of selection due to the acts of the creditor.
If the debtor cannot make a choice because of the acts of the creditor, his right is to
rescind the contract and ask for damages.
130. Example: D obliged himself to paint the house of C or to paint the picture of C, in a
standing position, using ten by ten canvass. Later, because of financial reverses, C sold
his house to X. In here, D is given the option to do the painting of Cs picture, or to
rescind the contract plus damages.
131. The effect if one or more or all of the things the debtor promised to deliver got lost.
The creditor shall have a right to, indemnity for damages when, through the fault of the
debtor, all the things which are alternatively the object of the obligation have become
impossible.
The indemnity shall be fixed taking as a basis the value of the fast thing which
disappeared, or that of the service which last became impossible.
Damage other than the value of the last thing or service may also be awarded. (Art.
1204, CC)
134. Summary of the rules, obligations and rights of the debtor and creditor In an
alternative obligation if the debtor binds himself alternatively to deliver three (3) objects.

1. Choice belongs to the debtor:

a. Loss is due to fortuitous event
1. If all are lost, Obligation is extinguished
2. If 2 or more of the objects remain, the debtor can deliver any of the two remaining
3. If only one remains, there is no more alternative obligation but a pure and simple
obligation. What he should deliver is the remaining object.
b. Loss is due to debtor's fault
1. If all are lost, the obligation is converted into monetary consideration as indemnity for
damages taking into consideration the value of the last thing lost plus damages.
2. If 2 or more objects remain, the debtor can choose which one to deliver (between the
two) but no damages.
3. If only one remains, there is no more alternative obligation but a pure and simple
obligation. What he should deliver is the remaining object but no damages.
2. Choice belongs to the creditor:
1. Loss is due to fortuitous event - if the toss is due to a fortuitous event, the effects are
the same as where the right of choice belongs to the debtor.
Example 1: D obliges himself to deliver to C object 1, or object 2, or object 3, on
December 25, 2010. On December 20, all the things got lost due to debtor's fault. In
here, the right of C is to demand the value of the last thing lost plus damages. This
example is without communication. If there was communication before the loss, the
obligation is converted into a simple obligation.
Example 2: D obliges himself to deliver to C object 1, or object 2 or object 3, on
December 25, 2010. On December 20 o object 1 and object 2 got lost due to D's fault.
The next day, D communicated to C that he will deliver object No.3 on December 25, but
the day before performance, that is on December 24 the object got lost due to fortuitous
event. The obligation here is totally extinguished because after the communication, it
becomes a simple obligation. Hence, we follow the rule that if the thing determinate and
it was lost due to fortuitous event the obligation is totally extinguished.
132. The legal effect when the choice has been expressly given to the creditor in
alternative obligations
The obligation shall cease to be alternative from the day when the selection has
been communicated to the debtor (Art. 1205). When the creditor's choice the e is
communicated to the debtor, the obligation is reduced to a simple one.
133. Illustrative Case: D obliges himself to deliver to C object 1, or object 2, or object 3 at
C's option on December 25, 2010. If before December 25, all the things got lost due to
D's fault, the right of C is to demand the value of any of the things lost due to D's fault
because the right of choice belongs to him. However, if before communication object 1
and 2 got lost due to D's fault and afterwards, D communicated to C that he will deliver
the last object, but the latter got lost due to fortuitous event, the obligation is totally
extinguished under the principle of fortuitous event.
2. Loss is due Co debtors’ fault
a. if none remains, the obligation is converted into monetary consideration taking into
consideration the valise of any of the objects chosen by the creditor because he is given
the right of choice plus damages
b. If two or more remain, the obligation is still remain, alternative; the right of the creditor
is to choose between the two remaining objects with damages. If he chooses the lost
object, the debtor is liable for the value plus damages
C. If only one remains, the obligation is converted remaining a simple ones The creditor
may choose the remaining object with damages. If he chooses any one of the two which
were lost, the debtor must pay the value plus damages.

Note No. 1: In paragraph 2, sub-paragraph a, b and c, there are damages to be awarded

because the creditor was deprived of his right to choose.
Note No. 2: In all cases, there are no communications made, for if there was already a
communication, there is no more alternative obligation. These rules are no longer
applicable.
135. Facultative obligation defined.
It is one where only one prestation has been agreed upon but the debtor may give
another object as a substitute. Example: I will give you a specific car or m substitutes y
specific wagon as a substitute.

136. Distinguish facultative obligations from alternative obligations.

Facultative
1. Only one object is due 1.
2. May be complied with by the delivery of another object or the performance another
prestation in substitution of that which is due.
3. Right of choice pertains only to the debtor
Alternative
1. Several objects are due
2. May be complied with by the delivery of one of the objects or by the performance of
one of the prestations which are alternatively due.
3. Right of choice may pertain even to the creditor or to a third person.
137. The effect of the loss of the thing in facultative obligation.
1. Before Substitution - If the principal thing is lost due to fortuitous event, obligation is
extinguished: if due to debtor's fault, he is liable for damages.
If the thing intended as a substitute is the one which was lost, with or without
debtor's fault, the obligation to deliver the substitute is extinguished because what is to
be delivered is the principal object and not the substitute. The loss of this substitute is
immaterial.
2. After Substitution - if principal thing is lost, the debtor is no longer liable whatever be
the cause of the loss, because it is no longer due. If the substitute is lost due to
fortuitous event, obligation is extinguished; if due to debtor's fault, he is liable for
damages.
Example: D obliges himself to give C object No. 1 but if D wants, he may give object No.
2 as substitute. If object No. 2 is lost due to fortuitous event before, substitution; C's
right is only to demand the delivery object No. 1 but no damages. Likewise, even if
Object No. 2 is lost due to D's fault, C s right is the same as if it were lost due to
fortuitous event because he (D) has no obligation to deliver object No. 2 since this is only
substitute prestation.
However, if the substitution is already made, the the loss of the substitute due to his fault
will render him liable for the value of object No. 2 plus damages.
138. Definition of Joint Obligations.
Joint Obligation - is one where the whole liability is to be paid or fulfilled proportionately
by the different debtors and/ or is to be demanded also proportionately by the different
creditors.
139. Definition of Solidary Obligations.
Solidary Obligation - is one where each one of the debtors is bound to render
compliance of the entire obligation and/ or each one of the creditors has a right to
demand entire compliance of the prestation.

NOTE: The street parlance for joint and solidary obligation is for joint obligation, to each
his own; while for solidary obligation, one for all and all for one.
140. Synonyms for joint and solidary obligations.
Joint:
a. Pro-rata
b. Proportionate
C. Mancomunada
d. Mancomunada simple
Solidary:
a. In solidum
b. Jointly and severally
c. Individually and collective
d. Mancomunada solidaria
141. Presumption that the obligation is joint.
General Rule:
Even when there are two or more debtors, or two or more creditors, the obligation is still
joint, hence.
1. The debt shall be divided into as many shares as there are creditors or debtors.
2. The creditors or the debtors will be considered distinct from one another, but for
purposes of bringing the action, the Rules of Court governing the multiplicity of suit will
apply.

Rule: Obligations are presumed to be joints

Except:
1. When the obligation expressly so states
2. When the law or the nature of the obligation requires solidarity.
42. Examples of joint obligation
1. D1 and D2 are joint debtors of C to the amount of P10,000. in here, C can demand
only P5,000 from D1, and only P5,000 from D2. In short, divide the obligation into the
number of debtors.
2. D1 and D2 are joint debtors of C1 , C2, C3 and C4 to the amount of P10,000. How
much can C4 collect from D1?
Answer: P1,250. Divide the P10,000 into two, that is, the number of debtors. Then,
divide the result (P5, 000) into four, that is, the number of creditors.
43. Some features of joint liability.
1. Insolvency of one debtor does not make the others liable.
Example: D1, D2, and D3 are joint debtors of C for P30,000. If D1 is insolvent, D3 is
liable only for P10,000, his own proportionate share.
2. Vitiated consent on the part of one debtor does not affect the others.
Example: D1 and D2 are joint debtors of C for P20,000. The consent of D1 was obtained
by C thru fraud. In this case, D1 is not liable but D2 will still be liable for P10,000, that is,
one-half of the obligation.
3. Demand made to one of the debtors is not a demand to all because the debt of one is
distinct from the others.
4. When the creditor interrupts the' running of the prescriptive period by demanding
judicially from one the others are not affected (Agoncilto and Marino vs Javier, 38 Phil.
424)
5. Defenses of one debtor are not necessarily available to the others. (8 Manresa 200-
201)
144. Kinds of solidarity
1. Active - solidarity among creditors
2. Passive - solidarity among debtors
3. Mixed - solidarity on the part of the creditors and debtors
145. Some instances when the law requires solidarity.
1. All partners are liable solidarity with the partnership if the act complained of arises
from a crime or quasi-delict.
2. In agency, if two or more persons have appointed an agent for a common transaction,
they shall be solidarity liable to the agent for all the consequences of the agency.
3. The responsibility of two or more persons who are liable for a quasi-delict is solidary.
4. The responsibility of two or more payees, when there i has been payment of what is
not due, is solidary.
5. Legal provisions regarding the obligations of devises and legatees.
6. Liability of principals, accomplices, and accessories of a felony.
7. Bailees in commodatum.
146. Obligation may be joint on the side of the creditors and solidary on the side of the
debtors or vice-versa.
Example Na. 1: D1 and D2 are joint debtors of C1 02, and C3, solidary creditors, to the
amount of P30,000. How much can C3 collect from D1?
Answer: Even if C3 is a solidary creditor, he can only collect from D1 P15,000 because
D1 is only a joint debtor. D1’s share in the obligation is one-half, that is, P15,000.
Example No. 2: Dl and D2 are solidary debtors of C1, C2, and 03, joint creditors, to the
amount of P30,000. How much can C collect from D1?
Answer: Even if D1 is a solidary debtor his obligation to C3 is only P10,000 because C3
is only a joint creditor. P30, 000 divided into three (3) joint creditors will give us P10,000.
After D1 paid C3 P10,000, his right is to ask reimbursement from D2 P5,000. Had C3
been a solidary creditor he can collect from D1 P30, 000 and after DI paid C3 P30, 000,
his right is to ask reimbursement from D2 P15,000, that is, one-half of the entire
obligation.
147. Concept of joint indivisible obligation.
The object or prestation is indivisible, not susceptible of division; while the tie between
the parties is joint, that is, liable only to a proportionate share.
Example: D1 and D2 obligated themselves to give C a specific car valued P12,000. The
object here is indivisible, yet the obligation is joint.
148. Characteristics of joint indivisible obligation.
1. Demand must be made to all the joint debtors.
2. The creditor must proceed against all the joint debtors, because the compliance of the
obligation is possible only if all of the joint debtors would act together.
3. If one of the debtors is insolvent, the other shall not be liable for his share.
4. If one of the debtors cannot comply, the obligation is converted into monetary
consideration. One who is ready and willing to corn ply will pay his proportionate share,
and the other not willing shall pay his share plus damages when his financial condition
will improve.
5. If there are more than one creditor, delivery must be made to all, unless one is
authorized to receive for the others.
149. Illustrative Case: D1, D2 and D3 obliged themselves to give C a specific car valued
at P30,000. If C demanded payment to all, D1 and D2 are willing to deliver, but D3 is
insolvent, how much will D1 pay C?
Answer P10,000. The obligation will be converted into monetary obligation. The value is
P30,000 divided into three (3) debtors, thus, each is answerable for P10,000. The
insolvency of D3 will not affect the liability of D1and D2, because the share of each is
separate and distinct from one another. Be it noted that the obligation is joint. If it is
solidary, C can demand from D1 alone P30,000.
150. Illustrative Case:
1. A, B and C are solidary debtors of X for P12,000 under the following terms and period:
A - P2,000 due on December 25: 2008
B - P4,000 due on December 25, 2009
C - P6,000 dun on December 25, 2010
On due date of A's obligation, X did not demand payment. On December 25, 2009 can
he collect from A P6,000, that is, the share of A and that of B?
Yes, because both debts are due and the obligation is solidaty. However, afterA paid X
P6.000, 's right is to ask from B P4,000,
2. In the same example, supposing on the due date of A's and B's obligations, X did not
demand payment, and on December 25, 2010, C is insolvent, can X collect from A or B
the full amount of 12,000?
Yes, because the obligation is solidary. The answer would be different if the obligation is
joint.
151. Assignment of creditor's right.
The assignment of a solidary creditor's right in an obligation must be made with the
consent of the others.
The prohibition on the assignment is invalid if it is only made to a third person. If made to
a co-creditor in an obligation, the assignment is valid.
152. Illustrative Case: D is obliged to give solidary creditors C1 and C2 P10,000 on June
30. If on June 25, C1 assigns his right to X, the latter cannot collect the obligation on the
due date because the assignment is invalid. However, C1 may assign his right in the
obligation to C2, and this assignmentis validd because C2 is a co-creditor.

1. Question: supposing after the assignment of C1 to X, D paid X, is the obligation

extinguished?
Answer: it is submitted that the obligation is not extinguished because the assignment is
not valid

2. Question: What will happen to the payment made by D to X?

Answer: D will be permitted to recover from X under solutio indebiti, or undue payment.
153.
Q – To whom must the debtor pay?
A -General rule: to any of the solidary creditors.
Exception: payament must be made to any of the solidary creditor demanding payment
judicially or extra-judicially
Illustrative Cases:
a. A, B and C are solidary debtors of X and Y, solidary creditors, for P30,000. X makes a
demand to A. To whom should A pay?
Answer: To X because it was X who made the demand.
b. In the preceding question, supposing A paid Y and not x, is the obligation
extinguished?
Answer: No, because the law states "payment must be made to him", referring to the
demanding creditor. However, we may consider the obligation of the debtor to Y as
extinguished.
c. A and B solidary debtors of X, Y and Z, solidary creditors. X demands, payment from
A, but B, upon whom no demand is made paid Z the entire obligation.
Question:
1. Is B allowed to do so?
Yes because X did not demand payment from B. B therefore can pay any one of the
solidary creditors
2. Is the obligation totally extinguished?
Yes, because the payment was made by the debtor to whom demand was not
made. If A was the one who paid Z then the obligation is extinguished partially.
154. Concepts and effects of Novation.
Article 2091: Novation is the modification of an obligation by:
1. Changing the principal object and condition.
2 Substituting the person in the rights of the creditor.
3. Subrogating a third person in the rights of the creditor.
Example: A and B are solidarily liable to X and Y, solidary creditors, for the payment of
P10,000. Later, the parties agreed that instead of paying X and Y P10,000, they will first
deliver A SPECIFIC CAR. In here, the obligation to pay P10,000 is extinguished but
another one is created, that is, to give a specific car.

Question No 1: Supposing it was only A and X who agreed to the novation, is B bound to
comply with the novation?

Answer: No, because B did not consent to the novation.

Question No. 2: What now is the right of Y?

Answer: To proceed against X and collect his right in the obligation because the law
states “ he who collects the debt shall be liable to the others for the share in the
obligation corresponding to them”,

155. Effect of confusion or merger.

Confusion takes place when the characters of the debtor and the creditor are merged in
the same person (Art, 2170).
Example; A and B are solidary debtors of X for P30,000 evidenced by a negotiable
promissory note. X endorsed the note to Y, Y to Z, Z to A. A now, who is a debtor
becomes a creditor. The obligation of A and B is totally extinguished but A’s right is to
proceed against B to collect P15,000.
156. Against whom can a solidary creditor demand payment?
The creditors or any of them may demand payment of the entire obligation against
one, some or all of the debtors. The debtor or debtors against whom the demand was
made are bound to pay the whole obligation. If, however, the creditor is unable to collect
the whole amount against one or some of the debtors, the balance can be recovered
against the other.
157. Illustrative case. In a solidary obligation, A and B are indebted to X and Y for
P30,000. On the due date X demanded payment from A, and the latter paid P20,000
only.
Question: Can X still demand the balance of P10,000 from B?
Answer: Yes, Because the law states, “that the demand made against one of them shall
not be an obstacle to those which may subsequently be directed against the others, so
long as the debt has not been fully collected”. (ART, 1216 civil code).

158. Concept and effect of payment.

Payment is one of the ways in which an obligation is extinguished and consists is the
delivery of the thing or the rendition of the services which is the object of the obligation.
If the obligation is paid by any of the solidary debtors, the obligation debtors offered to
pay, the creditor may choose which to accept.
159. Illustrative Case: D1, D2, and D3 are solidary indebted to C. D1 and D2 offered to
pay C. C can still demand payment from D3, without accepting the tendered payment of
D1 and D2?
Answer: it is submitted that the answer should be yes because the first paragraph of
Article 1216 states the creditor may proceed against anyone of the solidary debtors.
160- When a paying solidary debtor is entitled to the payment of interest
1. If paid at or after maturity, interest shall run from the date of payment until
reimbursement is made.
2. If paid before maturity, interest shall run from maturity until reimbursement is
made.
Example: D1, D2, and D3 bind themselves solidarily to pay c p30,000 ON JUNE 30,
2009. If D1 paid C on the due date, he can ask reimbursement from D2 and D3
without interest. HOWEVER, if D2 and D3 will pay their share after one year from the
date of payment made by D1, they have to pay interest from the due date up to the
time reimbursement is made.
Question: Supposing D1 paid the obligation on April 30, that is 2 months before maturity,
can he collect interest from April 30 to June 30?
Answer: No, because at the time he paid the obligation the same is not yet due.
However, if D2 and D3 are willing to pay or can reimburse their share only on December
30,2009, then, they have to pay interest from june 30 up to December 30.
161. Insolvency of one of the solidary debtors.
When one of the debtors cannot, due to insolvency. Reimburse his share to the debtor
paying the obligation the latter as well as the other debtors shall bear such share in
proportion to their bolgation.
Example: D1, D2, and D3 oblige themselves solidary to pay c P30,000 on june 30. C
demanded payment from D1, nad paid C P30,000. After D1 paid the whole obligation he
demanded reimbursement from D2 and D3, but the latter became insolvent.
Q’s No. 1: Can D1 and D2 be held answerable for the share of D3? If yes, how muh is
the share of each solven debtor?
A’s: Yes, D1 and D2 are liable to shoulder the share of D3, that is P5,000 each. The total
share of each solvent debtor is P15,000.
Q’s No, 2: If the solidary debtors had the following shares: D1- P5,000: D2 – P10,000;
D3 – P15,000, how much will D1 and D2 be held liable?
A’s: D1 – P5000 plus P5000 (1/3 of P15,000) for the share of D3
d2 – P10,000 plus P10,000 (2/3 of P15,000) for the share of D3.
NOTE: 1. The law states that the liability of the solvent debtors is proportionate.
Answer: No, because at the time he paid the obligation the same is not yet due.
However, if D2 and D3 are Willing to pay or can reimburse their share only on December
30, 2009, then, they have to pay interest from June 30 Up to December 30.
161. Insolvency of one of the solidary debtors.
When one of the debtors cannot, due to insolvency, reimburse his share to the debtor
paying the obligation, the latter as well as the other debtors shall bear such share in
proportion to their obligation.
Example: D1 , D2, and D3 oblige themselves solidarity to pay C P30,000 on June 30. C
demanded payment from L1, and D1 paid C P30,000. After D1 paid the whole obligation
he demanded reimbursement from D2 and D3, but the latter became insolvent.
Question No. 1: Can D1 and D2 be held answerable for the share of D3? If yes, how
much is the share of each solvent debtor?
Answer: Yes, D1 and D2 are liable to shoulder the share of D3, that is, P5, 000 each.
The total share of each solvent debtor is P15, 000.
Question No. 2: If the solidary debtors had the following shares: D1 P5,000; D2 -
P10,000; D3 P15,000, how much will D1 and D2 be held liable?
Answer: D1 P5,000 plus P5,000 (1/3 of P15,000) for the share of 03.
D2 - P10,000 plus P10,000 (2/3 of P15,000) for the share of D3.
NOTE: 1. The law states that the liability of the solvent debtors is proportionate.

2. The above solution is the share of each debtor, but the creditor (C) can demand
payment of the en-tire obligation from any of the debtors because the obligation is
solidary.
162. Effect of remission in solidary obligation.
1. If made to one of the solidarily debtors, the latter can still be held liable for the share
of the other co-debtor.
2. If made to one of them totally, the latter cannot ask reimbursement from his co-
debtors because this will fall under solutio indebiti, unjust enrichment.
3. If remission took place after payment was made by one of the solidary debtors, the
latter can still ask reimbursement from his co-debtors.
163. II1Wrative Case: 1. Dl1, D2 and D3 are solidarily indebted to C for P30,000. C
however, remitted or renounced D1's share. Therefore, on the due date, D2 paid C only
P20,000. Can D2 ask for reimbursements?
Answer: Yes, but only from D3, not from Dl because the share of the latter was
renounced. The renunciation here took place before payment. 2
. In the preceding question, supposing after the remission of D1's share, D3 became
insolvent, can D1 be held liable for the share of the insolvent debtor?
Answer: Yes, because the rule states that "the share of the insolvent debtor shall be
borne by all his co-debtors in proportion to the debt of each "(Article 1217). For the
meantime therefore, the share of D3 shall be borne by D1 and D2. D1must pay P5,000,
and D2 must pay his share of P10,000 plus P5,000 representing share of D3. Later,
when D3’s financial condition will improve, he must reimburse D1and D2.
164. Problem: D1 and D2 are solidarily liable to C for P10,000 On the date of payment,
C renounces the share of D1. Can C still collect from D1 P5,000, that is, the share of
D2?
165. Answer. Yes, because the obligation is solidary. If however, C renounces in favor of
Dl the entire obligation, Di cannot ask reimbursement from 02 because he did not pay to
C, hence reimbursement is not due, and otherwise it will fall under solutio indebiti.
165. Effect of loss or impossibility of performance.
1. Without fault or due to fortuitous event — no liability is attached, except if there is
default or delay
2. With fault --- liable for the value plus damages and interest.
Example: DI and D2 oblige themselves solidarily to give C a specific car valued at
P12,000. While Del is in possession of the car, it got lost due to his fault. In this case, the
right of C is to demand the value of the car from D1 or D2 plus damages. If D paid the
value of the car, he may ask reimbursement from D1 the amount he paid C. D1 shall
shoulder the full amount paid because he is the one at fault.
166. Illustrative Case: D1, D2 and 03 are solidarity obliged to give C a particular car
valued at P30,000. Subsequently, the car, while in the possession of D3, got lost due to
his fault.

Pointers in Business Law (For CPA Reviewees)

Question No. 1: Can C hold D1 liable even if it is the fault of D3?

Answer Yes, because the obligation is solidary. Article 1221, paragraph 2 states that if
there was fault on the part of any one of them, all shall be responsible to the creditor, for
the price and the payment of damages and interest, without prejudice to their action
against the guilty or negligent debtor.
Question No. 2: in the preceding question, supposing on the date of delivery, C
demanded delivery from the debtors, but the latter failed to deliver, and subsequently the
car got lost due to fortuitous event, is the obligation extinguished?
Answer: No, because there was delay in the performance. The occurrence of an event
even if fortuitous in nature shall not extinguish the obligation.
67. What is the principle of "Quantum Meriut"?
"Quantum Meriut" allows recovery of the reasonable value of the work done regardless
of any agreement as to value.
It entitles the party to "as much as he reasonably deserves" as distinguished from
"quantum valebant" or to "as much as what is reasonably worth."
The settlement of claim under the quantum meriut principle requires applications of
judgement and discretion and cannot be adjusted by simple arithmetical process. (FE
Maracop vs. CA. G.R. 122196, January 15, 1997)
Effects of "Quantum Meriut" in divisible and indivisible obligations.
a. Divisible obligation: If the obligation is divisible but only partially performed, the obligor
can enforce his right in proportion to the services performed.
b. indivisible obligation: If the, obligation is indivisible, and the, obligor fails to perform the
work completely, he cannot recover on the quantum meriut theory because in indivisible
obligation, partial performance is equivalent to non-performance.
168. Concept and nature of a penalty.
In an obligation with a penal clause, the penalty shall substitute the indemnity for
damages and the payment of interest in case of non-compliance, if there is no stipulation
to the contrary. A penal clause is an accessory undertaking to assume greater liability in
case of breach.
it is attached to an obligation:
. To ensure their performance,
2. To substitute a penalty for the indemnity of damages and I the payment of interest in
case of non-compliance, and
3. To punish the debtor for the non-fulfillment of his obligation.
169. Exceptions where aside from penalty, damages and interest may be demanded by
the creditors:
a. When it is stipulated.
B. When the debtor is guilty of fraud.
c. When the debtor refuses to pay the penalty. (Art. 1226, CC)
170. Double functions of penalty:

1 To provide for liquidated damages.

2. To strengthen the coercive force of the obligation, by the threat of greater
responsibility in the event of breach.
171. Kinds of Penalties
1. Legal when it is constituted by law.
2. Conventional when it is Constituted by agreement of the parties.
3. Compensatory - when it is established for the purpose of indemnifying the damages
suffered by the obligee or creditor in case of breach of the obligation.
4. Punitive — when it is established for the purpose of punishing the obligor or debtor in
case of breach of the obligation.
5. Subsidiary or alternative --- in case of non-performance, only the penalty is
demandable.
6. Joint or cumulative — both the principal undertaking and the penalty may be
demanded.
Example: 1. D obliged himself to give a specific car to C on June 25 and if D fails to do
so, D will pay P200,000. If D failed to deliver after demand, he is liable to pay the
penalty, and C cannot ask for the car and the penalty at the same time because the
penalty is subsidiary or alternative.
2. D obliged himself to give C a specific car on June 25, and if he fails to do so, D in
addition to the car must pay C P10,000 as penalty. If D failed to deliver after demand, C
is entitled to ask for the delivery of the car and payment of P10,000, because the
penalty's joint or cumulative.
172. When the creditor can demand fulfillment and payment of the penalty.

As a rule, the creditor cannot demand payment of the principal and satisfaction of the
penalty at the same time, except:
1. Upon agreement of the parties.
2. When fulfillment is impossible due to the fault of the debtor, then the penalty can be
demanded.
173. Example: D obliges himself to repaint the car of C and to finish it within a month,
otherwise D is going to pay C P5,000 as penalty. What are the rights and obligation of
the parties?

1. D cannot just pay P5,000 and refuse to repaint the car of C, unless of course, if there
is an agreement giving him that option.
2. C cannot demand from D that the latter will repaint the car and at the same time pay
P5,000, unless agreed upon.
3. If C demanded fulfillment, but the performance became impossible due to D's fault, C
can ask the payment of penalty.
174. Illustrative Cases:
1. D promises to deliver to C 10 bottles of Hennesy (cognac) or upon failure, to pay a
penalty of P5,000. if on the date agreed, D was able to deliver only 9 bottles of the 10
bottle's promised, C cannot demand the P5,000 penalty. Instead it will be reduced
because there was partial or irregular compliance:

2. D obliges himself to pay C P10,000 plus a penalty of P12,000 in case of

noncompliance. If D cannot comply. he cannot demand the P12,000 because it is
iniquitous or unreasonable. Instead, it will be reduced by the court. Take note that the
penalty is more than the principal obligation.

175. Effect of nullity of the penal clause: If the principal obligation is void, the penalty is
also void, if the penalty is void, the principal obligation remains to subsist. (Art. 1230,
CC)
176. Question - S obligated himself to sell B for P10,000 a specific horse then pregnant,
after giving birth to a foal (offspring), or in default thereof, to pay P3,000 as penalty.
However, the horse died while giving birth to a foal. May B sue S for the recovery of the
penalty of P3,000? Why?
Answer. No more, because when the principal obligation is extinguished, accessory will
follow.
177. Modes of extinguishing an obligation.
1. By payment or performance
2. Loss of the thing due
3. Condonation or remission of the debt
4. Confusion or merger
5. Compensation
6. Novation (Art. 1231, CC) In addition:
7. Annulment
8. Rescission
9. Fulfillment of a resolutory condition
10. Prescription
11. Death of a party in case the obligation is personal
12. Mutual desistance
13. Compromise
14. Impossibility of fulfillment 15. Happening of fortuitous event
178. Concept of payment Payment or fulfillment consists in the delivery of a sum of
money or a thing, or doing a thing, or not doing something. (Art. 1232, CC)
179. How payment or performance is made.
1. If obligation is monetary, by delivery of the money In full
2. If his a thing or an object, by delivery of the thing or object.
3. If to do something, by the performance of the same undertaking.
4. if not doing a thing, to desist or refrain from doing the thing.

180. No right to rescind under this article.

The right to rescind under Article 1191 does not apply, in this case because there is only
a slight breach in the obligation. The court may even grant a term or a period for
the‘performance of the obligation. (Article 1191 , Paragraph 3.)

181. Effect of payment by a third person:

1. If made without the consent or against the will of the debtor, the payor can recover
only insofar as the payment was beneficial to the debtor. The recovery is only up to the
extent or amount of the debt at the time of payment.
Example No- 1.: D. owes CC P10,000 payable on December 25,2009. X, a third person,
pays C without the consent of D. In here, X can ask reimbursement from D P10,000
because he was benefited by the payment is made with or without the consent of D, the
latter is liable to X.
2. If made with the consent of the debtor, the payor shall have the right of
reimbursement and subrogation, that is, to recover what he has paid and to acquire all
the rights of the creditor.
Example No. 2: D borrowed from C P10,000 payable on December 25, 2009. G. is the
guarantor of D. On due date,.X paid C P10,000 without the consent of D. If later, D
cannot reimburse X, can the iatter ask C, to subrogate him in his right so that C can
proceed against G, under the role of subrogation?
No, because X paid without the consent of If payment was made without the
knowledge or against them of the debtor, the payor cannot compel the creditor to
subrogate him in his right, such as those arising from mortgage, guaranty, or penalty.

3. If made by a third person who does not intend to be reimbursed, it is deemed to be a

donation. (Arts. 1236, 1237, 1238, CC)

182. What is the legal effect of a payment made by a third person who does not intend to
be reimbursed by the debtor?
Such payment is deemed to be a donation which requires the debtor’s consent but tack
of this consent does affect the validity of the payment made” to the creditor who has
accepted the_same. (Art.1238).
Example: In example No 1, Suppose X offered to pay C telling D that after payment, D
need not reimburse X, and C accepted payment. Can X ask reimburse X, and C
accepted payment. Can X ask reimbursement from D? It depends, if D refused the
generosity of X, the latter can still ask reimbursement because D just the same was
benefited by the payment. However, if D accepted the generosity of X, the latter cannot
ask reimbursement because the payment is considered as a donation.
183. Illustrative Case: On May 1, D borrowed from C P10,000 . and mortgaged his land,
payable on May 25. However, on May 10, X, a third person paid C P10,000 without the
knowledge of D. When the obligation falls due, D is already insolvent, he cannot
reimburse X of what the latter paid C.
1. Can X foreclose the mortgaged property?
No, because he paid without D’s knowledge, he cannot compel the creditor to subrogate
him in his right as a mortgagee. In short, there is no legal subrogation.
2. Supposing X paid _C with D’s consent, will your answer be the same? '
No, because he paid with D’s consent. x is subrogated to the right of the creditor-
mortgagee.

184. Effect Of payment by person who is incapacitated.

As the rule,, the payment is not valid, the creditor cannot even be compelled to accept
it.
185. .Who are the persons from whom the creditor must it accept payment?
1. The debtor
2: Person who has an interest in an obligation.
3: Person stipulated in the contract to make the payment.

186. Who are the persons to whom payment must be made?

Payment shall be made to:

1. Creditor
2. Successor in interest.
3. Person authorized to receive payment. (art. 1240,CC).
187. Illustrative Case: D owes C P20,000 which became due and payable last June 25.
On that date, D offered C P19,000, the only money he then had, but C refused to accept
the payment. D, thereafter, met 8, C‘s 22—year old son, to whom he gave P19,000 with
a request that he turn the money over to C, his father. However, the money was stolen
while in S’s possession.
Q - Was C justified in refusing to accept the tendered payment? .
A - Yes, because under Art. 1248, unless otherwise stipulated, the creditor cannot be
compelled partially to receive the prestations in which the obligation consists. Neither
may be debtor be required to make partial payments.
Q - May C still recover the full amount of P20,000 from D?
A - Yes, because the son of C is not the creditor of D. The tendered payment made by
D to S is not valid, unless he (S) is authorized to receive payment, or if the payment
made to S redounded to the benefit of C.

188. Payment to an incapacitated or unauthorized person;

Payment to a person who is incapacitated to administer his property is not a valid
payment; except:
1. If he has kept the thing delivered:
2. Insofar as the payment is beneficial to him (creditor).
Example: D is indebted to C P100,000. When D paid C, the latter is already of unsound
mind. Since C does not appreciate what he is doing, he gave all the P100,000 as
bonanza to all his neighbors. In here, the obligation of D is not extinguished. However, if
C deposited to P20,000 at
Banco Fino, and gave the P80,000 as bonanza to his neighbors, the obligation is
extinguished partially for 'P20,000, because this is the amount beneficial to C.
189. Payment to third person.
Payment to a third person is not valid, except:
1. When the third person-is authorized to receive it.
2. When the payment to the third person has redounded to the benefit of the creditor.
3. When the third person is in possession cf the credit and payment was in good faith.
190. Concept of Dation in payment (Dacion en pago)
Dation is the mode of extinguishing an obligation whereby the debtor alienates property
in favor of the creditor for a satisfaction of monetary obligation. in short, the obligation is
money, the payment is property. The other names for Dation in payment are:

1. Datio in solutum.
2. adjudecacion en pago.
3. payment in kind.
191. Dation distinguished from Sale.
1. In dation, there is a pre-exting credit, while in sale, there is no pre-existing credit.
2. In dation, the obligation is extinguished, while in sale, it gives rise to an obligation.
3. In dation, there is less freedom in determining the price, where in sale, there is greater
freedom in determining the price.
4. In dation, the giving of the object in lieu of the obligation in money will totally or
partially extinguish the obligation; When in sale, the payment of the price will as a rule,
extinguish totally the obligation of the buyer.
192. What is legal tender?
Currency which a debtor can compel a creditor to accept in payment of a debt in money
when tendered by the debtor in the right amount.
193. Legal Tender in the Philippines.
1. For denominations of twenty-five centavos (25¢) and above, coins shall be legal
tender in amounts not exceeding fifty pesos (P50.) .
2. For denominations of Ten centavos (10¢) or less, in amounts not exceeding Twenty
pesos. (P20).
3. All bills are valid legal tender for any amount.
194. A check is not legal tender.
A creditor cannot be compelled to accept a check in payment of the debt in his favor
because a check is not a legal tender. But If he (the creditor), decides to accept a check
in payment of the obligation in his favor, such payment does not produce the effect of
payment until the check is cashed, or through the fault of the creditor, it could not be
cashed. But the Supreme Court held that a creditor may not validly refuse to accept a
cashier’s check from a reputable bank where the check was issued in the name of the
creditor.
195. Legal Character of Checks
Checks representing demand demand deposits do not have legal tender power and their
acceptance in the payment of debts, both public and private, is at the option of the
creditor. Provided, however, that a check which has been cleared and credited to the
account of the creditor shall be equivalent to a delivery to the creditor shall be
equivalent to a delivery in the creditor of cost in an amount equal to the amount credited
to his account.
196. Summary of the delivery of commercial instrument as payment:
1. A check is not a legal tender, even if it is a manager’s check. So, the creditor cannot
be compelled to accept.
2. Acceptance of this commercial document is equivalent to payment when:
a. the creditor is in estoppel or he had previously promised he would accept a check.
b. when the check has lost its Value because of the fault of the creditor.
C. When the check has been cashed. (Art. 1249. CC)
197. Example: D owes C P10,000 payable On December 25. 2009. D is paying C a
Check of P10.000.
A. Can C refuse to accept? Yes, because a check is not a cash until it is encashed.
B. Can he accept? Yes, that is his option.
C. If he accepts, is that equivalent to payment? No, until it is encased.
198. What is Republic Act. No. 8183?
RA 8183 - An act to assure uniform value of Philippine coin and currency.
Sec. 1 - All monetary obligations shall be settled in the Philippine Currency which is legal
tender in the Philippines. However, the parties may agree that the obligation or
transaction shall be settled in any other currency at the time of payment.
Sec. 2 - RA. 529 is hereby repealed.

199. Inflation and deflation defined.

Inflation is the sharp, sudden increase in value of money or credit or both without a
corresponding increase in business transaction; while deflation is the sudden decrease
of the value of money.

200. Inflation Or deflation must be extraordinary.

Today, the inflation in the Philippines is only ordinary and not extraordinary. If it becomes
extraordinary, the basis of payment is the value of the currency at the time the obligation
is constituted. and not at the time of payment.
201. Place where the obligation shall be paid.
1. If there is a stipulation -at the place designated
2. If there is no stipulation:
A. Delivery of a specific or determinate thing - payment shall be made at the, place
where the things was at the time of perfection.
B. Delivery of indeterminate thing - delivery or payment must be made at the domicile of
the debtor. (art, 1251).
202. Illustrative Case: T, tenant of apartment No. 9. was being ousted by his landlord on
the ground of non-payment or rentals. T alleged in his defense that he cannot be ejected
because in previous months, the collector is the one going to the apartment bringing with
him the receipt of collections. Since T is ready to pay, he cannot be ejected because the
non-payment is due to the omission or neglect of the landlord.
Question: Is the defense of T tenable?
Answer: Yes, because payment is in money, considered as generic or indeterminate, the
place of payment therefore must be at the domicile of the debtor (T) there being no
stipulation to the contrary.
203. What are the special modes of payment?
1. Application of payment or imputation of payment.
2. Cession of payment or assignment.
3. Dation in payment or adjudication en pago or datio in solutum.
4. Tender of payment and consignation.
204. Concept of application of payment
It is the designation of the debt to which should be applied when payment is made by a
debtor who owes several debts in favor of the same creditor. The purpose is to know
which debt out two or more debts owing the creditor should be extinguished.
205. Requisites for application of payment
1. Two or more debts.
2. Of he same kind.
3. One debtor and one creditor.
4. All debts are due.
5. Tendered payment is not sufficient to extinguish all obligations.
206. Payment must be applied to the interest before the principal.
In the payment of an. obligation producing interest, when the amount being paid is not
sufficrent to cover the principal and interest due, the amount paid must apply to the
Interest, the excess,if following, shall be applied to the principal obligation.
Example: D owes C P10,000 with 14% interest. On the due date; D tenders payment but
only for P10,000, when It should be P11,400. How will you apply the payment?
Answer: Apply the payment first to the interest of P1, 400, then the balance of P8,600
must be applied to the principal amount, leaving a balance of P1,400. This P1,400 shall
be considered as principal obligation.
207. Q - To whom does the right to make an application of payment belong?
A - As a general rule, the right to make an application of payment belongs to the debtor.
However, if he does not avail himself of this right, the creditor may be given the initiative
by giving to him a receipt designating the debt to which the payment shall be applied
(Art. 1252).
208. Rules if no application of payment made.
1. Apply it to the most onerous, in case the, debts are of different nature.
2. If both are of the same nature and burden, apply them proportionately.

209. Summary of the rules in application of payment.

1. Debtor has to choose which obligation he wishes to extinguish.

2. If debtor does not apply payment, the creditor may make the designation by stating In
the receipt of payment.
3. if No. 1 and No. 2 will not apply, the most onerous to the debtor among those due
must be paid.
4. If the debts due are of the same nature and burden, apply to all of them
proportionately. (Arts. 1252, 1254)

210. Cession in payment defined.

It is the process by which a debtor transfers all the properties not subject to
execution in favor of his creditors so that the latter may sell them and apply the proceeds
to their credits.

211. Requisites of cession in payment.

1. More than one debt.
2. More than one creditor.
3. Complete or partial insolvency of the debtor.
4. Abandonment of all debtor’s properties‘not exempt from execution.

212. Effects of Cession or Assignment.

1. The creditors do not become the owners they are considered assignees with power to
sell the property.
2. The debtor is released from his obligation to the extent of the net proceeds of the sale.
3. Creditors will collect credits in the order of preference as agreed upon, or else in the
order established by law.
213. Distinguish dation from cession.
1. Dation does not affect all properties: cession generally affects all properties of the
debtor.
2. Dation does not require plurality of creditors; cession requires more than one creditor.
3. Dation may take place during the solvency of the debtor, cession requires full or
partial insolvency.
4. Dation transfers ownership upon delivery; cession does not transfer ownership.
5. Dation is an act of novation; cession is not an act of novafion.
214. Tender of payment defined.
It is the act, on the part of the debtor, of offering to the creditor the thing due or
amount due. The debtor must show that he has in his possession the thing or money to
be delivered at the time of the offer.
For a valid tender of payment, it is necessary that there be a fusion of intent, ability and
capability to make good such offer, which must be absolute and cover the amount due.
Though a check is not a legal tender, and a creditor may validly refuse to accept it if
tendered as payment one in fact accepted. A fully funded check after the debtor’s
manifestation that it had been given to settle an obligation is estopped from later on
denouncing teh efficacy of such tender of payment.
Tender of payment involves a positive and unconditional act bythe obligor of offering
legal tender currency as payment to the obligee for the forme’rs obligation and
demanding that the latter accept the same. Thus a tender of payment cannot be
presumed by mere inferences from surrounding circumstances. At most, sufficiency of
available funds is only affirmative of the capacity or ability of the obligor to fulfill his part
of the bargain. But whether or not the obligor avails himself of such funds to settle his
outstanding account remains to be proven by independent and credible evidence.
Tender of payment presupposes not only that the obligor is able, ready, and willing, but
more so, in the act of performing his obligation. (Roman Catholic Bishop of Malolos, Inc.;
vs. Intermediate Appellate Court 191 SCRA 411)
215. Consignation defined.
It is the act of depositing the thing or amount due with the proper court when the creditor
does not desire or cannot receive it, after complying with the formalities required by law.

216. Distinguish tender of payment from consignation.

1. Tender of payment is the antecedent act, the preparatory act to extinguish the
obligation while consignation is the principal act which will produce the effects of
payment.
2. Tender of payment‘is extrajudicial while consignation is udicial.

217. Requisites valid consignation.

1. Existence of a valid debt which is due.
2. Tender of payment by the debtor and refusal without justifiable reason by the creditor
to accept it.
3. Previous notice of consignation to person interested in the fulfillment of the obligation.
4. Consignation of the thing or sum due
5. Subsequent notice of consignation made to teh interested parties.
218. Effect of tender without consignation.
Tender of payment without consignation shall not extinguish the obligation. In
short, there must be an offer not pay. If refused without reason, consign or deposit the
object in court before the obligation is extinguished. It is also required that notice of
con5ignation must be sent to all persons interested in the fulfillment of the obligation,
such as the creditor, co-debtors, sureties or guarantors.

219. In the following cases, consignation alone without tender of payment will extinguish
the obligation.

1. When the creditor is absent or unknown, or does not appear at the place of payment.
2. When-the creditor is incapacitated to receive payment at the time it is due.
3. When, without just cause, the creditor refuses to give a receipt.
4. When two or, more persons claim the same right to collect.
5. When the title of the obligation has been lost.
220. Effects of consignation if properly made.
1. The debtor may ask the judge to order the cancellation of the obligation.
2. The running of the interest is suspended.
3. Before the creditor accepts or before the judge declares that consignation is properly
made, the obligation remains to subsist.
221. Release of co-debtors, guarantors and sureties.
If the thing deposited is Withdrawn as a matter of privilege, the solidary co-
debtors (not joint) are released from the solidary ties. Not from their share because they
are considered principal debtors. Be it noted that the liabilities of joint debtors are
separate and distinct,
Example: D borrowed from C P10,000 with G as the guarantor. On the due date, D
tendered payment but C refused to accept. D, therefore, made the proper consignation.
After the court cancelled the obligation, C allowed D to withdraw the thing deposited, and
subsequently he became insolvent.
Question: Can C proceed against G, the guarantor?
Answer: No. If after consignation, the court cancelled the obligation or if the creditor
allows the withdrawal of the thing deposited, he (creditor) shall lose every preference
which he may have over the thing. The co-debtors, guarantors, and sureties shall be
released.
222. Concept of “LOSS”
There is loss when:
1. The thing perishes.
2. Goes out of commerce.
3. When it disappears in such away that the existence is unknown or cannot be
recovered:
223. Kinds of impossibility of performance:
1. Physical impossibility
2. Legal impossibility
3. Moral impossibility
224. Effects of loss
1. If specific or determinate: the obligation is extinguished, except:
a. If the debtor is at fault.
b. When the debtor is liable, by provision of law, by contractual stipulation, or when the
nature of the obligation requires the assumption of risk.
2. If generic or indeterminate, the obligation, is not extinguished under the principle
genus never perishes (genus nunquam perit), except if it is a delimited generic thing.
Example: D obliged himself to deliver to C 100 cavans of C4 rice from his December
harvest and such harvest was completely destroyed by typhoon. The obligation of D is
totally extinguished because the object is delimited generic thing.
225. Examples of instances when obligation is not extinguished despite fortuitous event.
1. Article 1165, debtor is in default
2. Article- 1265, obligation arising from crime
3. When payee in solutio indebiti is in bad faith.
4. When the debtor promised to deliver the same thing to two or more persons who do
not have the same interest.
5. When the nature of the obligation requires the assuming of risk
6. Obligation is to give a generic thing
7. When it is stipulated.

226. Meaning of “Obligation is extinguished”.

If the thing is specific and it is lost due to fortuitous event the “obligation is
extinguished". By this, we mean the obligation to deliver the same thing is no longer
possible because there is no more thing to deliver. Hence, if there is default on the part
of the debtor, the debtor's obligation to deliver the same thing is extinguished but the
same is converted into monetary consideration for damages. The same holds true if the
debtor is at fault - the obligation is converted into monetary consideration.
227. When is partial loss considered as a total loss.
The partial loss of the thing is considered as a total loss, when the loss is so
material and the remaining portion of the object is insignificant or immaterial.
Examples:
1. The loss of the body of a ballpen, what remains is the cover.
2. in marine insurance, when more than three fourths of the vessel is lost, it is
considered a total loss, the insurred may recover the proceeds of the entire policy.

225. Example of lmpossibility.

1. Legal =delivery of an object declared illegal by the law after the constitution of the
obligation.
2. Physical - to repair the hull of a vessel lost n her voyage after the perfection of the
contract.
229. Illustrative Case: B bought a house and lot in a subdivision subject to the condition,
annotated on the certificate of title, that they shall be used for residential purposes only.
Ten years later, B sold the property to X who converted it into a restaurant. The owner of
subdivision demand its closure but X refused, alleging that his lot has been reclassified
by an ordinance as commercial and this in fact became commercial because of Its
proximity to some stores and a shopping center in an adjoining subdivision. ls X's
allegation tenable?
Yes, the conversion of the land into commercial by ordinance is valued under the police
power of the state. There is here a clear case of impossibility of performance. The
stipulation in the contract that it shall be used exclusively for residential purposes
becomes futile because the laws state under Article 1266, the debtor in obligation to do
shall also be released when the prestation becomes legally or physically impossible
without the fault or the obligor.
230. Effects of loss in criminal offense.
if the thing proceeds from a criminal offense, the loss of such thing shall not extinguish
the obligation unless the creditor is in default.
231. Example: D commits the crime of theft, and was asked to return the car stolen to
the owner under the principle of restoration or restitution of the property stolen. The night
before delivery, the car got lost due to fire.
Question No. 1: ls D’s obligation extinguished?
Answer: No, because the thing to be returned proceeded from criminal offense, the loss
of it shall not extinguish the obligation.
Question No. 2: Supposing on the date of delivery, D tendered delivery but C refused to
accept. Subsequently, the car got lost due to fire. Is the obligation to deliver
extinguished?
Answer: Yes, because the creditor is in default, mora accipiendi.
Question No. 3: If the creditor refused to accept, what must he (D) do?
Answer: D may either deposit the thing in court, that is, consignation, or he may keep the
thing in his possession:
232. Remission or condonation defined.
It is the gratuitous abandonment by the Creditor of his right. (Art. 1270)
233. Essential requisites of remission.
1. There must be an agreement.
2. The parties must be capacitated.
3. There must be a subject matter.
4. The cause or consideration is generosity.
5. Obligation is demandable at the time of remission.
6. Remission must not be inofficious.

234. Effect of the renunciation of the principal and/or accessory obligation.

If the principal obligation is remitted or renounced, the accessory will follow, but if it is the
accessory which is remitted or renounced' the principal shall subsist. (Art. 1271)

235. Effect of delivery of the thing pledge to the debtor by the creditor.
Contract of pledge is extinguished but not principal obligation. Debtor is still indebted but
there is no more security. (art. 1274)
236. Illustrative Case: D owes C P10,000 payable on December 25, 2010, and as a
security, D pledged his ring to C. Since this is a contract of pledge, the ring was
delivered to C. On the due date, the ring is found in the possession of D when it should
be in the possession of C. What is extinguished here is the contract of pledge, the
principal obligation of P10,000 remains to-subsist. In other words, D is still indebted to C
for P10,000, only this time, no more security.

237. Confusion or merger defined.

It is the meeting in one person of the qualities of creditor and debtor with respect to the
same obligation. (Art. 1275)

238. Requisites for a valid merger.

1. It must take place between the principal. Debtor and creditor.
2. The merger must be clear and definite.

239.‘ Example: D obliges himself to pay C P10,000 by virtue of a negotiable promissory

note executed by D to C. C endorsed the note to X, X to Y, Y to Z, and Z to D. D here,
who is the principal debtor, becomes the creditor. The obligation of D is extinguished by
merger or confusion.
240. Effect of merger and confusion
1. Obligation is extinguished.
2. If there is a guarantor and the merger is in the principal debtor, the obligation is
extinguished and the guarantor is released. “Accessory follows the principal”.
3. If there is a guarantor and the merger is not the principal debtor but only on the
guarantor, the principal obligation is not extinguished but the accessory is extinguished.

241. Confusion in joint and solidary obligations.

1. If the obligation is joint, only the share corresponding to the creditor or debtor in whom
the two characters concur,
Example: D1 and D2 are jointly indebted to C for P10.000. C endorsed the instrument to
X, X to Y, Y endorsed back to D1 only. In here, the obligation of D1 is extinguished and
not D2. Instead, the right of D1 is to proceed against D2 and collect P5,000.

2. If the obligation is solidary, the obligation is totally extinguished.

Example: D1 and D2 are solidarily liable to C for P10,000. C endorsed to X, X to Y, Y
endorsed back to D1. The obligation here is totally extinguished but D1's right is to
proceed against D2 and collect P5,000.
242. Compensation defined.
It is the extinguishment to the concurrent amount of the debts of two persons
who, in their own rights are debtors and creditors of each other. Manresa defines
compensation as a sort of balancing two Obligations simultaneously in or to extinguish
them to the extent in which the amount of one is covered by the other.
This compensation is sometimes called abbreviated or simplified payment, because
the two debts are extinguished without the transfer of money or property from on party to
the-other.
243. Compensation distinguished from payment
1. In compensation, partial payment is always permitted: while payment , it must be
complete and indivisible as a rule.
2. In compensation, the mode may take place by operation of law; while in payment, it
involves action or delivery of the amount paid.
244. Compensation distinguished from merger.
1. In compensation, there must be two persons who are mutually creditor and debtor to
each other; while in merger or confusion, there is only one person in whom is merged
the qualities of creditor and debtor.
2. In compensation, there must be two persons involved; while in confusion, there can
be only one person.
245. Distinguish set-off or-counterclaim from compensation.
A set-off or counterclaim must be pleaded to be effectual whereas compensation
takes place by mere operation of law and extinguishes the two debts reciprocally.

246. What are the kinds of compensation

1: to their effects:
A. Total - same amount
B. Partial - not 'equal
2. As to origin:
A. Legal - operation of law
B. Facultative - one party can claim compensation the other cannot
C. Conventional - by agreement of parties
D. Judicial - decree by the court, in case where there is counterclaim.
247. Legal compensation or operation of law.
The requisites mention apply to compensation by operation of law. Even if there is no
agreement voluntarily and validly entered into, there is compensation by operation of
law.
248. Requisites of legal compensation exemplified.
1. That each of the obligors be bound principally, and that he be at the same time a
principally, and that he at the same time a principal creditor of the other.
Example: D owes C, guaranteed by G. In another obligation, C owes G. There is no
compensation in this case because G is not a principal debtor. he is only a guarantor of
the principal debtor.
2. That both debts consist in a sum of money, or if the things due are consumable, they
be of the same kind, and also of the same quality if the latter has been stated.
Example: Ten (10) sacks of rice cannot be compensated by ten (1 O) sacks of wheat
because they are not of the same kind.
3. That the two debts are due.

Example: D owes c P10,000 due on June 30, white C owes D P10,000 due on June 15.
On June 15, is there compensation? None, under legal compensation because one of
the debts term yet due.
4. That they be liquidated and demandable.
Example: D owes c P10,000 due on June 30. In another obligation C owes D a profit to
be realized on their business venture in the month of June, On June 30 there can be no
compensation because one of the debts is unliquidated and not yet demandable.
5. That over neither of the debts must there be any retention or controversy commenced
by third person and communicated in due time to the debtor.

Example: D owes C P10,000 and C also owes D P10,000. However, X, a third person
has filed a garnishment proceeding against D’s credit because X claims to be 'an unpaid
creditor of D. In this case, there can be no Compensation in the meantime until the
controversy is resolved. Be it noted that the controversy must be communicated to the
debtor in due time.

249. Guarantor may set up compensation with respect to principal debt.

Example; D owes C P10,000 guaranteed by G. C owes D P8,000. On the due date, D is

insolvent. How much is the liability of G?
Answer: G is liable for P2, 000 because the law states that the guarantor in an
obligation may set up compensation as regards what the creditor owes the principal
debtor. (Art. 1280 )

250. Illustrative Case: D Owes C 1910.000. X is the guarantor of D in another obligation,

C owes X P'10 ,000. When C sues D for P10000, may D successfully put up the defense
of compensation, after all C(his creditor) is indebted to X, his guarantor?
Answer: No, because X is not bound in his own right. Besides, d is not a creditor of C.
251. Rescissible or voidable debts can be compensated,
In a contract where the debts are rescissible or voidable the same may be
compensated, provided they are not yet declared rescinded or avoided. This :5 because
rescissible and voidable debts are valid and binding until cancelled or declared void.

252. Assignment of the creditor’s right.

1. with the consent of the debtor.
The debtor, who has consented .to the assignment of the creditor’s right to a third
person, cannot set Up against the assignee the compensation which pertains to him
against the assignor, unless he reserved his right to compensate.
2. with notice from the creditor but without the debtor’s consent.
The debtor can set up against the assignee the compensation of debts previous to the
cession, but not of subsequent ones.

253. May the debtor, who has consented to the assignment of rights made by a creditor
in favor of a third person, set up against the assignee the compensation which would
pertain to him against the assignor?
No, Unless the asslgnor was notified by the debtor at the time he gave his consent that
he reserved his right to the compensation.
Example: D owe C P1,000. C owes D P500. Now, C wants to assign his rights against
D to X with D’s consent. If D does not reserve his right to compensation at the time his
consent is given, X will have the right to collect the whole P1,000 from D.
254. When legal compensation cannot take place:

1. When one debt arises from a depositum in a contract of deposit (not in bank deposit,
for this is really a loan).
2. When one debt arises from the obligation of a bailee in commodatum.
3. When one debt arises because of a claim for support.
4. When one of the debt consists in civil liability arising from criminal offense.

Note: In No. 1, the relation of .a depositor with a bank is considered a debtor-creditor

relation, so the bank may set up compensation. '

255. Illustrative Cases:

No. 1. C deposited with W (a warehouseman) 100 cavans of wagwag rice valued at
P10,000. However, C is indebted P100,000 to W. When C is withdrawing. the deposited
rice, _W refuses to deliver, claiming compensation. ls W allowed to compensate?
No, because this is an obligation arising from it cannot be the object of compensation.

No. 2 D deposited with Banco Fino P10,000. However D is indebted to Banco Fino also
for P10,000. Can the bank set up compensation?
Yes, because deposits in bank, whether fixed or savings or current are governed by
contract of laon, and not by contract of deposit. The depositor is the creditor, while the
bnk is the debtor. The bank therefore can set up compensation.

P112

256. D Owes C P10,000 payable on June 50. Later, in an encounter between the two, C
inflicted physical injuries against the person of D. D filed it criminal action against C, and
the court rendered judgement , against C criminally, and in addition to pay 0 p10,000 as
civil obligation under the principle that a person who is criminally liable is also civilly
liable. in here, C must pay D P10,000 and cannot set up compensation because civil
obligation arising from criminal offense cannot be compensated. If it is D who wants to
compensate, majority opinions of commentators in Civil Law says that he can do so and
this will be a case of facultative compensation.

257. Novation defined.

It is the extinction of an obligation through the creation of a new one which substitutes
the old one.

258. Obligation may be modified by:

1. Changing their object or principal condition.
2. Substituting the person of the debtor.
3. Subrogating a third person in the rights of the creditor.
259. Dual purpose of Novation.
1. Original obligation is extinguished.
2. A new obligation is created.
260. Requisites of novation:
1. Previous valid obligation.
2. Capacity and intention of parties to modify or extinguish the obligation.
3. The modification or extinguishment of the obligation
4. The creation of a new, valid obligation.
261. Kinds of Novation
1. Personal - refers to the substitution of another in the person of the debtor or to the
subrogation of a third person in the rights of the debtor.
2. Real— refers to the change either in the cause, object or principal conditions of the
obligation.
3. Mixed — refers to the combination of personal or real novation.

Kinds of Novation exemplified:

Example of Personal Novation: D owes C P10,000. Later, D, C, and N agreed that
instead of D paying C, it will be N who will pay C. This is a personal novation by
substituting a third person in the person of the debtor.

Example of Real Novation: D obliges himself to give C a specIfic car. Later, D and C
agreed that instead of D giving C a car, D will just deliver a specific jeep. This is a real .
novation, the new obligation is to deliver a jeep.
Example of Mixed Novation: D obliged himself to give a specific car to C. Later, D, C and
X agreed that instead of D giving C a specific car, X will just deliver a specific truck
(6x6)to C. There is here a mixed novation because there is changed, and also the
person of the debtor.
262. Change in period or term or time of payment.
A. If time of payment is shortened, say from 10 years to 5 years, there is novation
because the two obligations are incompatible with another.
B. If the payment is extended, say from 5 years to 10 years, there is no novation
because the two obligations are compatible to one another, they can stand together.
There is no essential change or alteration of the principal term of the original contract.
263. Expromission defined and exemplified.
That which takes place when a third person on his own initiative and without the
knowledge or against the will of the original debtor assumes the obligation.
Example: D owes C 910,000 due on December 25, 2009, X goes to C and assumed the
obligation of D to C consented.
1. Is D's obligation to C extinguished? Yes, because C consented to the novation.
2. Supposing X becomes insolvent. Can C proceed against D to collect the P10,000?
No, because in novation, the moment the creditor consented to the novation, the
obligation is totally extinguished.

264. Illustrative Case: D owes C P10 000 X wrote C a letter stating that he would be the
one to take care of D's debt as soon as X had made a shipment of logs to Japan X never
made such shipment. X did not pay C. Is X liable to C?
No, based on two counts:
1. There is no novation by expromission because C never consented to the offer of X. In
order that the Obligation will be extinguished by expromission, the creditor must consent
and that by agreement, the debtor will be released from his obligation.
2. The offer made by X is subject to a suspensive condition. Since the condition was not
fulfilled, the liability never became effective.

265. Delegacion define and exemplified.

One which takes place when the creditor accepts a third person to take the place of the
debtor at the instance of the latter.

The insolvency of the new debtor, who has been proposed by the original debtor and
accepted by the creditor, shall not revive the action of the latter against the original
obligor. Except when said insolvency was already existing and of public knowledge, or
known to the debtor,’ when he delegated his debt. (Art. 1295)
Example: D owes C P10,000 due on December 25, 2009. Before the due date, D
delegated his obligation to X, consented by C.

1. Is D’s obligation to C extinguished? Yes, because C consented to the novation.

2. Supposing X becomes insolvent, can C proceed against D to collect the P10,000? No,
except if at the time of delegation, D knew that X is already insolvent or if it is of public
knowledge that X is insolvent because D here acted in bad faith.

266. Requisites of expromission and delegacion:

a. Expromission
1. initiative of payment comes from the third person.
2. The consent of the creditor and new debtor is' required.
3. The obligation of the old debtorextinguished.

B. Delegacion
1. Initiative of payment comes from the debtor.
2. The original debtor, the creditor and the third person, or the new debtor must consent.
3. The obligation of the old debtor is generally extinguished.

267. May novation which consists in substituting a new debtor in the place of the original
one be made without the knowledge or against the will of such debtor? What is the effect
of the payment by the new debtor?
Yes, but the substitution must always be with the consent Of the creditor. (Art. 1293)
Payment by the new debtor entitles him to demand from the original debtor what he Has
paid except that if he paid Without the knowledge or against the will of the original
debtor, he can recover only insofar as the payment has been beneficial to the debtor and
in such case, the new debtor cannot compel the creditor to subrogate him in his
(creditor’s) right such as those arising from a mortgage, guaranty or penalty. (Art. 1237)

268. Effects of Novation on accessory obligation.

If the principal obligation is extinguished by novation, the accessory obligation shall
subsist only insofar as they may benefit third persons who did not give their consent.
Exampie: D owes c P10,000 with 14% interest. The interest of 14% should "be given to
X. Later, D and C agreed That instead of paying C P10,000, D will just give C a speciflc
car. in here, D’s original obligation to pay C P10,000 is extinguished, but the 14%
interest to be given to X is net extinguished unlessOf course if X consented to the
novation of D and C.
269. Effect of novation in void obligation.
If the original obligation is void, the novating contract is also void. If the novating contract
is the one which is void, the original one shall subsist.
Example: D obliged himself to give C a can of opium. Later, D and C agreed that instead
of a can of opium, D will just give C P10,000. In here, there is no novation, there is no
obligation to deliver the opium or to pay P10,000 because the original obligation is void
or inexistent, so there is nothing to change or to novate.
270. Effect of novation if old obligation is voidable.
If the original is voidable only, a valid novation can take place because voidable contacts
are valid until annulled by proper action in court.
Example: C intimidated D to execute a promissory note ‘for P10,000 payable on June
15. However,‘ after the intimidation had ceased, and within four (4) years from the
execution of the promissory note, D and C novated the contract, such that instead of
giving C P10,000, he will just give C a specific horse. D’s obligation to give C a specific
horse is valid because the first obligation is only VOidable, valid until annulled by action
in court.
271. Effect if the new obligation is voidable.
If the new obligation is voidable, not void, the old one is extinguished and the new one
shall be given force and effect until it Is annulled. Take note that voidable contracts are
Subject to ratification to give them a lasting effect.
272. Effect if the original obligation is subject to a condition.
If the original obligation was subject to a suspensive or resolutory condition, the new
obligation shall be under the same condition, unless it is otherwise stipulated. (Art. 1299)
Example: D will give C a specific car if C will pass the May 2010 CPA examination.
Later, D and C agreed that istead of D giving C a specific car, he will just give a specific
jeep.
However, they did not mention the condition in the second contract. In his case, if C
failed the examination, he cannot demand delivery because the condition In the first
obligation is still in full force and effect.
273. Subrogation defined.
Manresa defines subrogation as the transfer to a third person of all the rights
appertaining to the creditor, including the right to proceed against the guarantor,
possesors of mortgages, subject to any legal provision or any modification that may be
agreed upon.

274. Subrogating a third person in the rights of the creditor may be:
1. Conventional subrogation - taking place by the agreement of the original creditor, the
third person substituting the original creditor and the debtor.
2. Legal subrogation - taking place by operation of law. Legal subrogation cannot be
presumed, except in cases provided by law.
275. When is it presumed that there is legal subrogation?
1. When a creditor pays another creditor who is prefereed even if without the debtor’s
knowledge.
2. When a third person not interested in the obligation pays with the express or tacit
approval of the debtor.
3. When, even without the knowledge of the debtor, a person interested in the fulfillment
of the oblgiation pays, without prejudice to the effects of confusion as to the latter share.
Example of No. 1: D owes C1 and CZ. C1, a mortgage creditor for P10,000 and C2, an
ordinary creditor for P5,000. C2, without D’s knowledge paid D’s debt of P10,000 to C1.
Here, C2 will be subrogated to the rights of Cl. C2 will be a mortgage creditor for
P10,000 and an ordinary, creditor for P5,000. If D cannot reimburse C2 of the P10,000
paid to C1, CZ can have the property foreclosed because there is legal subrogation.
Example of No. 2: D owes c P10,000 due on December 25, 2009. X paid C P10,000 with
the consent of D. Here, X is subrogated to the right of C. 80 that if the debt is secured by
a mortgaged property, X can foreclose the mortgage if D cannot reimburse X. However,
if X paid without the consent of D, he cannot foreclose the mortgaged property because
there is no legal subrogation.
Example of No. 3: D owes C P10,000‘secured by a mortgage and guaranteed by G. If G
paid C even without the knowledge of D, he will be subrogated to all the rights of C
because as a guarantor, he is interested in the payment of the obligation.

276. What are the effects of subrogation?

Subrogation transfers to the person subrogated the credit all the rights appertaining
thereto either against The debtor or against third persons, be they guarantors or
Posessors of mortgages, subject to stipulation in a conventional subrogation.
Example: D owes C P10,000. G is the guarantor X paid C P10,000 with the consent of D
and C, X is now subrogated in the place of C, so that if D cannot pay X P10,000 as
reimbursement, X can proceed against the guarantor, G.
In the same example, if there is no guarantor, but there is a property mortgaged to C, if
D cannot reimburse X, the right of X is to foreclose the mortgaged property because D
consented to the payment of X, There exists a legal subrogation.
227. Give at least two distinctions between conventional subrogation and
assignment of rights.
1. In conventional subrogation, the original subrogation, the original obligation is
extinguished but another one is created while in assignment of right, there is only a
transfer of right or credit.
2. In conventional subrogation, the debtor’s consent is required while in assignment of
right, what is required is only a notice.
278. Subrogation in case partial payment is made
As between the creditor and the third person who may have been partially
subrogated in the rights of the creditor, it is still the first creditor who is preferred.
Example: D owes C P10,000. Before the due date of the obligation, a third person, X
paid C P6,000 with the consent of D. D now has got two creditors, C for the balance of
P4,000 and X for P6,000. If D now has only P4,000 to pay his obligation between C and
X, who is preferred?
Answer: C, because a creditor, to whom partial payment has been made, may exercise
his right for the remainder, and he shall be preferred to the person who has been
subrogated in his place in virtue of the partial payment of the same credit.
EXERCISES IN OBLIGATIONS INCLUDING
CPA EXAMINATION QUESTIONS
TRUE OR FALSE
1. Payment of debtor’s obligation may be mde by a third person even without the
knowledge and consent of the debtor.
2. Payment made by one who does not have the free disposal of the thing due and
capacity to alienate is valid.
3. Payment to an incapacitated creditor is not valid except when he has kept the thing
delivered, or insofar as the payment has been beneficial to him.
4. An obligation with a period may at times become a pure obligation demandable at
once.
5. Fixed, savings, and current deposits made with a bank are considered money
deposits but are governed by contract of loan susceptible of compensation.
6. If the original obligation was subject to a suspensive or resolutory condition, the new
obligation shall be under the same condition, unless it is otherwise stipulated.
7. There is legal subrogation when, even without the knowledge of the debtor, a third
person, not interested in the obligation, pays the creditor.
8. Unless it is otherwise stipulated, the extrajudicial expenses required for the payment
shall be for the account of the creditor.
9. In an obligation to deliver a generic thing, the loss or destruction of anything of the
same kind does not extinguish the obligation.
10. Condonation or remission is generally gratuitous.
11. The renunciation of the principal debt shall extinguish, the accessory obligation, but
the waiver of the latter shall leave the former in force.
12. A is obliged by contract to deliver a specific car to B. A is not obliged to deliver the
"jack" of the car to B because the delivery of the jack is not mentioned in the contract.
13. The giving of money order for the full amount of the obligation is payment.
14. Prescription is the extinguishment of an obligation by the passage of time.
15. Solutio indebiti is a contract.
16. Ten sacks of corn cannot be compensated legally by ten sacks of rice.
17. In civil obligation, the fulfillment of the obligation depends solely on the conscience of
the person.
18. Civil fruits are those produced by lands of any kind through cultivation.
19. A quasi-contract does not require consent of the contracting parties.
20. Efficient cause is the legal or juridical tie which binds the parties to the obligation.
21. Prestation is the object or subject matter of the obligation.
22. Obligation arising from the contracts have the force of law between the contracting
parties and should be complied with in good faith.
23. Without demand from the creditor, the debtor, even if he fails to perform the
obligation on the agreed date, does not incur delay.
24. As a rule, the creditor has a right to the fruits of the thing from the time the obligation
is perfected. 25. As a rule, the creditor has a right to the fruits of the thing from the time
the obligation to deliver it arises.
26. Payment made by a third person who does not intend to be reimbursed by the debtor
is deemed to be a donation, which requires the debtor's consent. If the debtor's consent
is not given, the obligation is not extinguished.
27. Suspensive condition is one which extinguishes the obligation upon the happening of
the condition.
28. Every person obliged to give something is also obliged to take care of it with the
proper diligence of a good father of a family.
29. Unless the law or stipulation of the parties requires another standard of care, the
debtor is obliged to take care of the thing with the proper diligence of a good father of a
family.
30. Obligations for whose fulfillment a day certain has been fixed, shall be demandable
only when that day comes. Obligation with a resolutory period takes effect at once, but
terminates upon arrival of the day certain.
31. D binds himself to pay “little by little”. The obligation is for the benefit of the debtor.
32. The concurrence of two or more debtors and two or more creditors in the same
obligation is presumed to be a solidary obligation.
33. The creditor acquires real rights over the thing from the moment the thing is
delivered and not from the time the obligation to deliver it arises.
34. In question No. 26, if the debtor’s consent or permission is not given, but the third
person paid the creditor, his right is to proceed against the creditor, not the debtor, for
reimbursement and not against the debtor.
35. Payment made by the debtor to a third person who is not the creditor shall never
extinguish the obligation.
36. D binds himself to pay C P10,000. The court in this case shall fix the period, since
the parties failes to fix the period.
39. The nullity of the principal obligation does not carry with it that of the penal clause.
40. Mora is a term used to denote delay or default in the performance or fulfillment of an
obligation. Mora accipiendi is that delay or default which is attributable to both parties in
reciprocal obligations.
41. The delivery to and acceptance by the creditor of a certified cashier's check
produces payment of the debtor's obligation.
42. Loss of a generic thing which is the object of an obligation, even without the fault of
the debtor, does not extinguish the debtor's obligation.
43. An example of debt may be compensated is that arising from a deposit.
44. A person is obliged to deliver a determinate thing including its accession and
accessories, even though they may not have been mentioned in the agreement.
45. An example of an obligation with a period is when A promises to pay B P10,000 one
month from the death of C.
46. Solidarity cannot exist if the creditors and the debtors are not bound in the same
manner and by the same periods and conditions.
47. A solidary debtor is at all times entitled to reimbursement from his co-debtors if he
pays for their obligations.
48. Interests are recoverable if obligations consist in payment of money upon judicial
demand.
49. Responsibility arising from negligence or culpa in the performance of an obligation is
demandable. Culpa aquiliana is that fault or negligence which results from breach of
contract.
50. Negligence signifies the idea of delay in the fulfillment of an obligation.
51. When the debtor is guilty of fraud in the fulfillment of an obligation, a creditor can
demand payment of damages and interest in addition to the penalty.
52. In joint obligation, if one of the debtors is insolvent, the others shall not be liable for
the payment of his share.
53. A solidary creditor cannot assign his rights, without consent of the others.
54. Payment by cession does not always extinguish the whole obligation.
55 In order that the creditor can demand the penalty in an obligation with a penal clause,
it is necessary that he show proof of actual damage suffered by him.
56. In an alternative obligation, the right of choice belongs to the creditor, unless it has
been expressly granted to the debtor.
57. The concurrence of 2 or more creditors or 2 or more debtors in one and the same
obligation does not imply that each one of the creditors has a right to demand, or that
each one of the debtors is bound to render entire compliance with the obligation.
58. In case an extraordinary inflation or deflation of the currency stipulated should
supervene, the value of currency at the time of maturity of the obligation shall be the
basis of payment.
59. If the debt produces interest, payment of the interest shall not be doomed to have
been made until the principal has be covered or paid.
60. In alternative obligation, both parties have equal rights of choice.
61. The condition not to do an impossible thing shah render the obligation demandable
at once.
62. Novation, which consists in substituting a new debtor in the place of the original one,
may not be made without the consent of the debtor.
63. In delegacion, the insolvency of the new debtor may at times revive the original
debtor's obligation.
64. In expromission, the insolvency of the new debtor may at times revive the original
debtor's obligation.
65. The nullity of the penal clause carries with it that of the principal obligation.
66. There is no delay in an obligation not to do something.
67. The payment of debts in money shall be made in the currency stipulated, and if it is
not possible to deliver such currency, then in the currency which is legal tender in the
Philippines.
68. The creditor is not compelled to accept the payment in other or other negotiable
instruments.
69. When the fulfillment of the suspensive or resolutory condition depends upon the sole
will of the debtor, the conditional obligation shall be void.
70. The thing is deemed lost when it perishes, or goes out on commerce, or disappears
in such a way that its existing is unknown or it cannot be recovered.
71. When the debtor binds himself to pay when his means permit him to do so, the
obligation shall be deemed to be conditional.
72. If an obligation states that the debtors bind themselves, jointly and severally, the
obligation is considered joint.
73. Proof of actual damage suffered by the creditor is not necessary in order that the
penalty in an obligation with a penal clause maybe demanded.
74. An obligation payable "as soon as possible" is an obligation with a period for the
benefit of both the debtor and the, creditor.
75. A stipulation to pay a domestic obligation in foreign currency shall render it void but
the obligation remains to be valid.
76. When the conditions have for their purpose the extinguishment of an obligation to
give, the parties, upon the fulfillment of said conditions, shall return to each other what
they received.
77. Whenever in an obligation a period is designated, it is presumed to have been
established for the benefit of the debtor, unless from the tenor of the same it should
appear that the period has been established in favor of the creditor.
78. Whenever in an obligation a period is designated, it is presumed to have been
established for the benefit of both the creditor and the debtor
79. In order to be awarded damages, the creditor must prove negligence in breaches of
contracts through negligence as the latter is a substantial incident of the obligation.
80. In novation by way of expromission, there can be a revival of the original debtor’s
obligation should the new debtor turns out to be the insolvent and such is of public
knowledge.
81. D obliged himself “to pay to C the sum of P50.000 which he owes him when he (D)
feels like it". This kind of obligation is valid and legally enforceable.
82. After the obligation became due and demandable, the creditor agreed to a proposal
by the debtor to give him a specific cow instead of paying P25,000.00. This is a case of
novation by changing the term or the object of an obligation.
83 The indivisibility of an obligation necessary implies solidarity.
84. The principal remedy of the creditor in case the debtor is guilty of fraud in the
performance of an obligation is basically to file an annulment of the obligation with
damages.
85. In obligations arising from law, duty to deliver the fruits arises from the duty to deliver
the principal object.
86. “I promise to give you a specific ring if I go to Subic this Sunday”. This kind of
obligation is valid and legally demand able from the creditor should he really go to Subic
promised.
87. In alternative obligations, what converts the same into a pure or simple obligation is
the choice of prestation to be performed by the debtor.
88. Remission of an obligation obtained by one of the solidary debtors shall entitle him to
get a share from his co-debtors by the way of reimbursement.
89. An obligation “to pay P300,000” contracted by X, Y and Z in favor of A, B and C is a
divisible obligation.
90. Future fraud on the part of the debtor can be waived.
91. A natural obligation is a valid obligation.
92. D obliged himself to give C P1,000,000 if the latter would not kill X, a third person. In
this case, both the condition as well as the obligation is void.
93. Delay or mora is defined as the failure of the debtor to observe the required standard
of care required by the nature of the obligation taking into consideration the
circumstances of time, person event and place.
94. D issued a promissory note payable to the order of C with Gas the guarantor. The
same note was validly negotiated by C to A, A to B, B to E, then lastly from E to G. The
merger taking place in the person of G extinguishes the principal obligation.

95. The receipt by the principal of the payment for the principal amount without
reservation as to the payment of the interest creates a presumption that the interest has
been paid while the receipt of the principal of a latter installment without reservation as
to the payment of a prior installment creates a conclusive presumption that the prior
installment has been paid.

96. The owner and operator of a taxicab who had been negligent while driving the cab
can be held liable for damages for injuries sustained by his passenger based on culpa
aquiliana.
97. In culpa contractual, negligence on the part of the debtor must first proved by the
injured person in order to be awarded with damages.
98. In an obligation subject to a suspensive period, what is suspended is the birth or the
obligation.
99. Just before the obligation became due and demandable, the debtor proposed to the
creditor that he would give him a specific car instead of paying P150,000.00, and which
proposal was accepted by the creditor. Here, there is extinguishment of an obligation by
way of dacion en pago.
100. After substitution in facultative obligations, the toss of the principal through the fault
or negligence of the debtor shalt render him liable for damages in favor of the creditor.
101. Debtor obliges himself to pay Creditor P500,000 on or before December 31. 2009
on demand. In this case the period is established for the benefits of the debtor.
102. In facultative compensations, the debtor is legally allowed to have the two
obligation set-off.
103. An obligation in money is a divisible obligation,
104. The obligation to give a determinate thing includes that a delivering all the
accessions and accessories, even though they may not have been mentioned in the
agreement
105. Responsibility arising from fraud is demandable in all obligations. Any waiver of an
action for future fraud is void.
106. No person shall be responsible for events which could not be foreseen, or which,
though foreseen, were inevitable.
107. All rights acquired in virtue of an obligation are transmitted in the absence of any
law or stipulation to the contrary.
108. Payment made in good faith to any person in possession of the credit shall
extinguish the debtor’s obligation.
109. Payment means not only the delivery of money but also the performance, in any
other manner of an obligation.
110. A lender can recover the principal of a loan in a usurious contract even if the
contract is void as to the interest.
111. A person can assume an obligation in favor of another even without any contractual
relationship.
112. Resolutory condition is one which suspends the effectivity of the obligation until the
condition is fulfilled.
MULTIPLE CHOICE
1. Which of the following is not an obligation with a period?
a. payable sooner
b. An obligation payable little by lime by little
c. will pay you P10,000 "if I like"
d. payable "within 2 years from today”,
e. All of the above
2. If obligation is payable in foreign currency
a, the obligation is void.
b. the obligation is valid. But the stipulation is void.
 c. the creditor can compel the debtor to pay in foreign currency as per
agreement.
d. The stipulation and the obligation are void.
3. Which of the following statements is false?
a. The nullity of the principal carries with it that of the penal clause.
b. proof of actual damages suffered by the creditor is not necessary in order that
the penalty may be demanded
c. I will pay you P10.000 "soonest" is for the benefit of the debtor.
d. Condonation is essentially gratuitous.
4. “I”ll give you my car one year after your death." The obligation is
a. valid, because the event is sure to come.
b. valid, the obligation is conditional.
c. Valid, but disregard the condition.
d. Void, not legally possible

5. A sold his cow to B for P2,500. No date was stipulated fir the delivery of the cow.
While still in the possession of A the cow gave birth to a calf.
a. A is entitled to the calf because it was born before his obligation to deliver the
cow arises.
b. A is entitled to the calf as B has not paid the price.
c. B is entitled to the calf which was born after the perfection of the contract.
d. B, in order to be entitled to the calf, should pay additional cost for the calf to
be agreed upon by both parties.
6. Statement No. 1: The concurrence of more than one creditor, for or more than one
debtor in one and the Same obligation implies solidarity.
Statement No. 2: In alternative obligations where the right of choice is exercised by the
creditor, consent of the debtor as to the creditor's choice of which prestation to perform
is necessary.
a. Both are true.
b. Both are false.
c. No. 1 is true; No. 2 is false.
d. No. 1 is false; No. 2 is true.
7. The kind of compensation which may only be raised by the creditor and not by the
debtor in the obligation to give gratuitous support:
a. Judicial compensation
b. Conventional compensation
c. Facultative compensation
d. Legal compensation
8. Statement No. 1: Legal Compensation takes places by operation of law even if the
parties may not be aware of it.
Statement No. 2: The indivisibility of an obligation necessarily implies solidarity.
a. Both are true.
b. Both are false.
c. No. 1 is true; No. 2 is false.
 d. No. 1 is false; No. 2 is true.
9. Statement No. 1: Responsibility arising from fraud is demandable in all obligations. A
waiver of an action for future fraud is void.
Statement No. 2: When the fulfillment of the condition depends upon the sole will of
the debtor, the conditional obligation shall be void. If it depends upon chance or upon
the will of a third person, the obligation shall take effect in conformity with the
provisions of laws.
a. Both are true.
b. Both are false.
c. No. 1 is true; No. 2 is false.
d. No. 1 is false; No. 2 is true.
10. Statement No. 1: D obliged himself to give C a specific car tomorrow. If D failed to
deliver tomorrow after demand is made, C may compel D to do his obligation and
may ask for damages.
Statement No. 2: D obliged himself to deliver a car to C tomorrow. If D failed to
deliver tomorrow after demand is made. C’s right is to ask a third person to deliver a
car to him at the expense of D plus damage.
a. Both are true.
b. Both are false.
c. No. 1 is true; No. 2 is false.
d. No. 1 is false; No. 2 is true.
11. A person obliged to give something must preserve the, object using a standard of
care or diligence. This stand, of care or diligence may be:
a. Diligence provided by law.
b. Diligence provided by agreement of the parties.
c. Diligence of a good father of the family.
d. Any of the above. 12. An obligation wherein various things are due but the
complete performance of all of them is necessary to extinguish the obligation.
12. An obligation wherein various things are due but the complete performance of all of
them is necessary to extinguish the obligation.
a. Facultative obligation.
b. Conjoint obligation.
c. Alternative obligation.
d. Pure or simple obligation.
13. D1, D2 and D3 are solidary debtors of C for P30,000. The obligation was in writing.
After the lapsed of the ten-year prescriptive period, which of the following statements is
incorrect.
a. If D1 Paid C that the obligation has already prescribed, D1 cannot ask
reimbursement from D2 and D3.
b. If D1 paid C not knowing that the obligation has already prescribed, D1
cannot ask reimbursement from D2 and D3.
c. If D1 paid C not knowing that the obligation has already prescribed. D1
cannot ask reimbursement from D2 and D3.
d. None of the above.
14. S owns specific ring and sells it to B for P10,000. B paid S the price, and S promised
to deliver the ring five (5) days after. After the sale, S gets a loan from X and pledged the
ring in a private instrument
Statement 1 - between B and X, B has got a better title because pledge did not appear in
a public instrument.
Statement 2 - However, if S delivers the ring to X, X will have a better title because there
was delivery
a. Both are true.
b. Both are false.
c. No. 1 is true; No. 2 is false.
d. No. 1 is false; No. 2 is true.
15. S sold to B a specific car for P10,000 and promised to deliver on December 25.
2010. The next day, after the sale is made, he sold the same car to X and delivered it to
X on the same day. If no delivery is made by S to B on December 26, 2010, which of the
following is correct?
a. S is not in default because there was no demand
b. B can cancel the contract between S and X because the contract of S and B
was perfected ahead of X
c. S is liable to B for the value of the car plus damages
d. S is in default, even if there was no demand. Hence he will answer for
16. Change of persons or objects:
a. Confusion
b. Novation
c. Solutio indebiti
d. None of the above
17. Statement No. 1: In solutio indebiti, the contract of the parties is the basis for
damages in case of non-performance.
Statement No. 2: “Dolo”, as a ground for awarding dam ages, is the deliberate
intention to cause damage or injury' to another person.
a. Both are true.
b. Both are false.
c. No. 1 is true; No. 2 is false.
d. No. 1 is false; No. 2 is true.
18. Statement No. 1: "I will give you a specific car if you will not marry X this year
(2010). If by the end of 2010, both parties are alive and no marriage has taken place,
my obligation is extinguished.
Statement No. 2: "I will give you P10,000 if you cannot make a dead man alive. This
is an impossible condition, obligation not demandable.
a. Both are true.
b. Both are false.
c. No. 1 is true; No. 2 is false.
d. No. 1 is false; No. 2 is true.
19. A, B and C are joint debtors of joint creditors W, X, Y and Z in the amount of
P300,000. How much can W and X can collect from B?
 a. P75,000
b. P150,000
c. P100,000
d. None of the above
20. Which of the following is considered as quasi-contract?
a. Solutio indebiti
b. When the third person, without the knowledge of the debtor, pays the debt.
c. Reimbursement due the person who saved property during fire or storm without
the knowledge of the owner.
d. All of the above.
21. Statement No. 1: The receipt of the Principal obligation without reservation as to the
payment of interest shall raise a conclusive presumption that the interest is also paid.
Statement No. 2: The receipt of the latter installment of a debt without reservation as
to prior installment, shall not raise a conclusive presumption that the prior
installments also paid.
a. Both are true.
b. Both are false.
c. No. 1 is true; No. 2 is false.
d. No. 1 is false; No. 2 is true.
22. Statement No. 1: If the obligation does not fix a period, but from its nature and the
circumstances, it can be inferred that a period was intended, the court may fix the
duration thereof. Once it is fixed by the court, the parties cannot change the fixed
date for performance.
Statement No.2: “I will give you P10,000 as soon as possible.” This is an obligation
with a period for the benefit of both the debtor and creditor.
a. Both are true.
b. Both are false.
c. No. 1 is true; No. 2 is false.
d. No. 1 is false; No. 2 is true.

23. Example No. 1: D obliged himself to give C P10,000. However, the day before the
obligation falls due, D's apartment was completely gutted by accidental fire. There is
no question that the money was also razed by fire. The obligation of D is totally
extinguished because of fortuitous event.
Example No. 2: D obliged himself to pay C P10,000 with 6% interest. On the due
date, D tendered P10,000 with a promise to pay the P600 interest the day after. If C
refused to accept, he can be compelled to accept the tendered payment because the
obligation is divisible.
a. Both are true.
b. Both are false.
c. No. 1 is true; No. 2 is false.
d. No. 1 is false; No. 2 is true.
24. Example No 1: D for P10,000 mortgaged his land to C. C instead of a deed of
mortgage executed a deed of sale and let D sign his name. D's right is to go to court and
ask for annulment.
Example No. 2: D obliged himself to give object No. 1 or No. 2 to C. In here, both objects
are due.
a. Both are true.
b. Both are false.
c. No. 1 is true; No. 2 is false.
d. No. 1 is false; No. 2 is true.

25. S owns an oil painting. Being in need of money, S sold the painting to B for P1,000.
After the sale, S discovered that he painting was valuable and was worth P5,000. A
a. S may rescind the contract on ground of lesion or inadequacy of cause.
b. S may annul the contract on ground of fraud.
c. S may annul the contract on ground of error.
d. B is entitled to the benefit of the contract because it is valid and binding.
26. G was appointed guardian of S, the latter being 16 years old. S sold his parcel of
land in writing to B valued at P100,000 for P75,000, suffering lesion to 1/4 of the value,
What is the status of the contract?
a. Rescissible
b. Unenforceable
c. Enforceable
d. Voidable
27. On June 1, 2010, S sold to B the former's horse for P10,000. S promised to deliver
on June 25, 2010, while B did not promise when to pay.
a. B can demand delivery from S any time after June 1, upon payment of the price of
the sale.
b. S cannot demand payment until he delivers the horse.
c. Obligation of B to pay is subject to the condition that S will deliver the horse.
d. S can demand from B payment anytime from June 1 because B's obligation is not
subject to any condition.

28. Example No. 1: D owes C, P10,000 due on December 25. C owes D P6,000 due on
December 25. D's obligation is guaranteed by G. On the due date. D is insolvent. G is
liable to C for P10,00: he (c) cannot set up compensation because he is not a principle
debtor.
Example No. 2: D owes C P10,000 payable on December 25. Later, D, through
intimidation, was able to make C sign a promissory note stating that C is indebted to D
for, the same amount. In here, D cannot be acquired to pay C, 10000 because he (D)
can set up compensation against C.

a. Both examples are true.

b. Both are -false.
C. Only No. 1 is true; No. 2 is false.
d. Only No, 1 is false; No. 2 is true,

29. In which of these cases is advanced payment recoverable by the debtor?

a. If the Payment is only of interest credited for the proper period.
b. If the debtor voluntarily paid the obligation knowing that is not yet due and
demandable.
c. If the debtor was unaware of the period.
d. If the obligation is reciprocal and both parties advance payment
30. A judicial relation know Negotiorum Gestio takes place.

a When a person Voluntarily takes charge of another’s abandoned business or

property without the owner‘s consent.
b. When something ls received and their; is no right to demand it and it was
delivered through mistake.
c. When a person is appointed by a court to take the property or business of
another.
d. None of the above
31.A owes B P2,000 demandable and due on September 10, 2010. B. on the other
hand, owes A 132,000 demand- able and due on or before September 30, 2010. If 8
claims compensation on September 10, 2010, can A rightfully oppose?
a. No. 8, who was giving the benefit of the term, may claim compensation because he
could then choose to pay his debt on September 10, 2010 which is actually “on or before
September 30, 2010."
b. Yes, A can properly oppose because for compensation to take place, mutual consent
of both parties is necessary
c. Yes, A can properly oppose and if B still refuses to accept his payment made on
September 30, 2010, A can deposit his payment in court.
d. None of the above

32. The wrongful act or tort which causes loss or harm to another is called:

a. Damages
b. Damage
c. Injury
d. None of the above

33. The loss or harm suffered by one person on his property is called :

a. Damages
b. Damage
c. Injury
d. None of the above

34. When debtor binds himself to pay when his means permit him to so, the obligation is:
a. Pure
b. Conditional
c. With a period
d. Simple
e. None of the above

35. Every obligation whose performance does not depend upon future or uncertain
event, or upon a past event unknown to the he parties, is demandable at once. This
refers to:

A. Divisible and Indivisible obligations

B. Joint and Solidary obligation
C. Obligations with a period
D. Pure obligation

36. When there is a return of what was not lawfully required, there is:

A. Solutio indebiti.
B. Nogotiorum gestio
C. Cessio en pago
D. None of the above

37 Consignation alone shall give rise to the extinguishment of an Obligation. EXCEPT:

a. When the creditor if; absent or unknown, or does not appear at the place of payment

b. When he is incapacitated to receive the payment at the time it is due

C. When two or more persons claim the same right to collect.

d. When the title of the obligation has been lost.

e. None of the above

38. Obligation may be modified by:

a. Changing their object or principal conditions.

b. Substituting the person of the debtor.
c. Subrogating a third person in the rights of the creditor.
d. All of the above.
39. The following are causes vitiating consent, EXCEPT:

A. Violence
B. Intimidation
C. Fraud
D. None of the above

40. D owes C P10,000 payable on December 25. Later, D forced C to sign a promissory
note for P10,000 payable on December 25. If all the other requisites of compensation
are present, are both debts extinguished?

A. Yes, under legal compensation.

B. No, B’s consent was obtained by force
C. Yes, with the approval of the court.
D. Not given.

41. Which of the following is not a conditional obligation?

A. D to give P1,000, if C passes the examination.

B. D to pay C P1,000, if C has the means.
C. D to give C a horse, if C marries X
D. None of the above

42. The passage of time extinguishes the obligation:

A. Prescription
B. Fulfillment of resolutory condition
C. Arrival of resolutory period
D. Remission
E. Recission

43. The delivery and transmission of ownership of the thing by the debtor to the creditor
as an accepted equivalent performance of an obligation is called :
A. Dacion en pago
B. Payment by cession
C. Consignation
D. Remission

44. Which of the following is not a special mode of payment?

A. Dacion en pago
B. Payment by cession
C. Tender of payment and consignation
D. Consignation alone without the need of tender of payment in cases provided for by
law
E. None of the above

45. Example 1 - D obliged himself to give C a specific ring upon failure to give C
P10,000.
Example 2 - D obliged himself to give C a specific ring. However, if he so desires. D may
instead give C P10,000.

A. Both are valid obligations.

B. Only No. 2 is valid.
C. Only No. 1 is valid.
D. Both obligations are invalid because both depends upon the sole will of D.

46. A and B are solidary debtors of X and Y, solidary creditors to the amount of P4,000.
On the due date. X renounced in favor of A the entire obligation. Which of the following
is correct?

a. B shall give A P2,000.

b. Y can still collect from A or B P2,000.
c. Y can collect from X P2,000.
d. Any of the three.
e. None of the above.

47. The extinguishment of obligations when two persons, in their own right. Are debtors
and creditors of each other is called

A. Compensation
b. Merger
c. Remission
D. Novation

48. Meeting in one person of the characteristics of both debtor and creditor in one and
the same obligation extinguishes the obligation by way of:

A. Novation
B. Merger of confusion
C. Compensation or set-off
D. Condonation or remission

49 Consignation alone, as a special form of payment, may extinguish an obligation

under any of the following instances which is the exception?
A. When the creditor is absent, or is unknown or does not appear in the place of
payment
B. When the creditor is capacitated to receive payment
C. When the creditor is refuses to issue receipts
D. When there are two or more persons claiming title to one and the same obligation
E. When title to the same obligation has been lost.

50. The act of abandoning all his properties in fair if his creditors so that the latter may
cause their sale and apply the proceeds thereof to their claims proportionately is called:

A. Dacion en pago
B. Set off
C. Payment by cession
D. Tender of payment and consignation

51. Conrad and Charlie are jointly indebted to Pete for P100,000. Pete assigned his
interest to Crispin who assigned it back to Conrad.

A. The debt is totally extinguished by compensation.

B. The debt is totally extinguished by merger
C. The debt is partially extinguished by compensation.
D. The debt is partially extinguished by merger

52. Which obligation is not valid?

A. “I promise to give you P100,000 on December 25,2010.”

B. “I promise to give you P100,000, If I go to Sampaloc, Quezon this weekend”
C. “I promise to give you P100,000, if your patient dies”
D. “I promise to give you P100,000 if you pass the May 2010 CPA Board Examination.”

53. Three of these are characteristics of payment by cession. Which is the exception?

a. complete or partial insolvency.

b. more than one debt.
C. Abandonment of all the debtor's properties except those exempt from execution.
d. one debtor, one creditor.

54. A source of obligation where there exists criminal negligence

a. culpa contractual
b. Quasi-contract
c. Culpa Delictual
d. Culpa Aquiliana
55. Statement No. 1: When the prestation is negative and the debtor is precluded from
doing an impossible or unlawful condition, the entire obligation. Including the condition,
is null and void.

Statement Now 2: In an obligation subject to a period, what is suspended is the birth of

the obligation.

A. Both statements are true.

B. Both statements are false.
C. Statement No. 1 is true while statement No. 2 is false.
D. Statement No. I is false while statement No. 2 is true.

56. Which of the following is an obligation with ap eriod for the benefit of both the debtor
and the creditor?

a. Payable if I like
b. Payable when you like
C. Payable on or before December 25,2010
d. Payable on December 24, 2010

57. Statement No. 1: ln culpa aquiliana, negligence on the part of the debtor is a
substantial issue which must be proved by the creditor in order to be entitled to an award
of damages,

Statement No. 2: The highest standard of care that a person obliged to give something is
that diligence of a good father of a family.

A. Both statements are true.

B. Both statements are false.
C. Statement No. 1 is true while statement No. 2 is false.
D. Statement No. I is false while statement No. 2 is true.

58. Which of the following obligations is not subject to a period?

A. Payable soonest
B. Payable “little by little”
C. Payable whenever “I like it”
D. Payable “when my means permits me to”

59. The following, except one, are secondary modes of extinguishing obligation. Which is
that exception?

A. Death of both parties

B. Prescription
C. Compromise
D. Changing the object of the obligation with the consent of the parties

53. Which of the following is not a generic obligation?

a. obligation to pay P5,000

b. obligation to deliver 2009 Nissan Sentra Series lll
c. obligation to deliver 50 cavans of rice
d. obligation to give a delimited generic object

54. Statement No. 1: D obliged himself “to pay C the sum of P50,000 which he owes him
when he (D) feels like it”. This kind of obligation is valid and legally enforceable.

Statement No. 2: After the obligation became due and demandable, the creditor agreed
to a proposal by the debtor to give him a specific cow instead of paying P25,000. This is
a case of novation by changing the term or the object of an obligation.

a. Both are true.

b. Both are false.
c. No. ‘l is true, No. 2 is false.
d. No. 1 is false. No. 2 is true.

62. A and B are the debtors and X and Y are the creditors in a solidary obligation to the
tune of P80,000. On due date, X renounce in favor of A the entire obligation which was
validly accepted by A. Which of the following is true?

A. B shall give P40,000 to A

B. Y can collect from X P40,000
C. Y can still collect from A or B the whole amount
D. A can collect P40,000 from B
63.Statement No. 1: In alternative obligations, it is the choice of which prestation to
perform made by the debtor that will covert the alternative obligation into a pure or
simple one.

Statement No. 2: In facultative obligations, the right of substitution may be transferred to

the creditor.

a. Both are true.

b. Both are false.
c. No. ‘l is true, No. 2 is false.
d. No. 1 is false. No. 2 is true.
64.The following, except one, are requisites of payment as an a mode of extinguishing
an ordinary obligation. Which is the exception?

A. Complete or full payment

B. Payment in due course when the obligation is due and demandable
C. Payment using negotiable instrument
D. Payment using legal tender, except if payable in foreign currency

65.not a ground for damages :

A. Culpa
B. Bad faith
C. Dolo causante
D. Mora

66.Statement No. 1: An obligation which has for its object the delivery of a “delimited
generic” Object may be lost by reason of fortuitous event.

Statement No. 2: There can be no delay in an obligation not to do

a. Both statements are true.

b, Both statements are false.
c. Statement No. 1 is true while statement no. 2 is false
d. Statement No. 1 is false while statement No. 2 is true;

67. D obliged himself to give C 100 cavans of rice on December 25, 2010. On said date,
D failed to make delivery, despite repeated demands from C.

a. C can compel D to deliver 100 cavans of rice plus damages“

b. C has no remedy under the law.
c. C may ask a third person to deliver 100 cavans of rice to him, the value recoverable
from D plus damages.
D. D can rescind the contract because the object is indeterminate.

68. Wrong committed independent of contract and with criminal intent is

A. Culpa contractual
B. Culpa auqiliana
C. Quasi-contract
D. None of the above

69. A and B signed a promissory note to borrow P6,000 from X, Y and Z, payable in 6
months’ time. B gave as a P10,000 diamond ring as security for the amout borrowed.
How much can Y collect from B?

A. P1,000
B. 6,000
C. P2,000
D. 3,000

70. If in the situation given in No. 69 above, the diamond ring is returned by agreement
to B, which of the following statement is correct?

A. Principal obligation is extinguished.

B. Only P2,000 of the obligation is extinguished
C. Only P3,000 of the obligation is extinguished
D. None of the above.

71. Which of the following is not an obligation with a period?

A. “payable soonest”
B. An obligation payable little by little
C. Payable “with 2 years from today”
D. None of the above

72. A, B and C executed a promissory note worded as follows: We promise to pay X, Y,

and Z the sum of P90,000 (sgd.) A, B and C

A. A is obliged to pay X, Y and Z P90,000

B. A is obliged to pay X P30,000
C. A is obliged to pay X P60,000
D. None of the above

73. The act of abandoning or transferring all the debtor’s property to his creditors so that
the creditors may sell them, and out its net proceeds to recover their claim is called.

A. Dacion en pago
B. Payment by cession
C. Tender of payment and consignation
D. Remission

74. The distinction between period and condition is

a. Period may or may not happen.

b. Condition will always happen.
c. Period may refer to a past event unknown to the parties.
d. Answer not given.
75. Solidary debtors A, B and C owes joint creditors X, Y, Z and W P12,000. X, Y and Z
can collect from a

a. P12,000
b. 6.000
c. 9,000
d. 3,000

76. Statement No. 1: “I will give you a specific car if you will not marry X this year (2010).
If by the end of 2010, both parties are alive and no marriage has taken place, my
obligation is extinguished.

Statement No. 2: “I will give you P10,000 if you cannot make a dead man alive. This is
impossible condition, not demandable,

a. Both statements are true.

b. Both statements are false.
c. Statement No. 1 is true while statement no. 2 is false
d. Statement No. 1 is false while statement No. 2 is true;

77. A and B are jointly and severally liable to C for P20,000. A is a minor

A. C can collect P20,000 from B

B. C can collect P10,000 from A, that is the share of B
C. C can collect P20,000 because minority is not a defense
D. C can collect P10,000 from B.

78. The debtor shalt lose every right to make use of the period except: .

a. When he does not furnish a guaranty or security to the creditor.

b. When after the obligation has been constituted: becomes insolvent, unless he gives a
guaranty or for the debts.
C. When the debtor attempts to abscond
D. When the debtor violates any undertaking in. considerations of which the creditor
agreed to the period.

79. Which of the following is not a special mode of payment?'

a. Dacion en pago
b. Payment by cession
c. Tender of payment
d. None of the above

‘80. A owes B P100,000 due on December 11, 2010. A mortgaged his house to B as
guaranty for the debt. Shorty, how-ever, the mortgaged house was completely destroyed
by typhoon “Nitang”. Thereafter, B demanded payment from A on October 11, 2010. Is
B’s demand valid? '

a. No, The obligation is one with a definite period, must the creditor cannot demand
fulfillment of the obligation as such would be prejudicial to the rights of the debtor.
B. No. The obligation is extinguished because the object of the obligation is lost through
a fortuitous event”.
C. Yes, The debt becomes due at once because the guaranty was lost even though a
fortuitous event, unless the debtor can mortgage another property that is equally
satisfactory.

D. Yes. The debt becomes due at once because from the tenor of the obligation, the
period established is for the benefit of the creditor solely thereby giving the creditor the
right to demand performance even before the date stipulated.

81. Payment of the obligation by a solidary debtor shall not entitle him to reimbursement
from his co-debtors.
a. if such payment was made before the obligation is due
b. if such payment was made after the obligation has prescribed or become illegal.
c. if such payment was made in compliance with the demand made to him by all the
creditors.
d. if such payment was made after the obligation has be-' come due and demandable
and notice of payment was made only to him.
82. Statement No 1: When the fulfillment of the suspensive or resolutory condition
depends upon the sole will of the debtor, the conditional obligation shall be void.
Statement No. 2: If the original obligation is subject to a suspensive or resolutory
condition and the contract is no-voted the new obligation shall be under the same
conditions unless otherwise stipulated.
a. Both are true.
b. Both are false.
c. No 1 is true; No. 2 is false.
d. No. 1 is false; No. 2 is true.
83. A sold to B the former's horse for P5,000. No date is fixed by the parties for the
performance of their respective obligations. The obligation of A is:
a. To deliver the horse immediately as there is perfected contract.
b. To deliver the horse upon the payment of B of P5000.
c. The deliver for the horse within a reasonable time of two month from the contract date.
d. To rescind the contract as there is no time fixed for the delivery and payment.
84. The substitution or change of an obligation by a subsequent one which extinguishes
or modifies the first, either by changing the object or principal conditions, or by
substituting the person of the debtor, rights subrogating a third person in the rights of the
creditor is called:

a. Commodatum
b. Compensation
c. Merger
d. Novation
85. X obliged himself to give to Y his brand-new Rolex watch if the latter cannot make a
circle that is at the same time square.

a. The obligation is unenforceable because the condition is immoral.

b. The condition is void because of the positive impossible condition.
c. The obligation is valid because the impossible condition is negative.
d. The obligation is void, net enforceable.

86. Proof of pecuniary loss is necessary for the award of:

a. Liquidated damages
b. Exemplary damages
c. Actual damages
d. Temperate damages

87. The execution of obligation, liability for malice or bad faith:

a. Extends to the natural consequences even it they exceed the debtor’s exceptions.
b. Extends only to results intended but excluding exemplary damages.
c. Is demandable in all obligations but may be renounce,
d. Extends not only to results intended but also to their foreseen consequences.
88. In contracts and quasi-contracts, the liability of the debtor who acted in good faith:
a. Extends to all natural and probable consequences the breach of the obligation, and
which the parties have foreseen or could have reasonably foreseen at the time the
obligation was constituted.
b. Extends only to results intended but excluding exemplary damages.
c. Extends to all damages which may be reasonably attributable to the non-performance
of the obligation.
d. Extends to all damages which may be renounced in advanced.
89. In delicts and quasi-delicts, the defendant shall be liable for:
a. Damages which are natural and probable consequences of the act or omission
complained of whether or not such damages have been foreseen or could have
reasonably been foreseen by the offender.
b. Not only for results intended but also to their foreseen consequences.
c. Damages which may be renounced in advanced.
d. Damages intended but excluding exemplary damages.
90. Extinguishes the, obligation upon the happen, of the condition
a. Resolutory
b. Suspensive
c. Pure
d. None of the above
91. Extinguishment of debt may be made by creditor either verbally or in writing
a. Partial payment
b. Implied remission
c. Express remission
d. None of the above
92. The creditor is entitled to recover damages and interest in addition to the penalty
stipulated.
a. When the parties so agreed.
b. When the debtor refuses to pay the penalty.
c. When the debtor is guilty of fraud in the fulfillment of the obligation.
d. All of the above.
93. Which of the following is not a ground for the extinguishment of an obligation?
a. Remission
b. Merger
c. Compensation
d. Death of either debtor or creditor
e. None of the above
94. Contracts entered into during lucid-interval:
a. Voidable
b. Unenforceable
c. Void
d. None of the above

95. An absolutely simulated or fictitious contract is:

a. Void
b. Voidable
c. Dolo causante
d. Mora solvendi
97. When the period is “on or before a date”, the debtor has debtor has the benefit of the
period. This benefit is lost and the obligation becomes demandable when
a. the debtors attempts to abscond
b. after contracting the obligation, the creditor suspects the debtor to becoming
insolvent.
c. the guarantee given by the debtor is not acceptable to the creditor.
d. demand by the debtor could be useless.
98. A was bad in need of money. He offered to sell his parcel land to B for P100,000.0. B
greed and paid A the P100,000.00 and A signed a receipt. When B wanted to register
the sale, he needed a Deed of Absolute Sale. What can B do?
a. B may sue A to return the P100,000.00 under the legal maxim ''No one shall enrich
himself at the expense of another".
b. B may possess and utilize A’s land as a buyer in good faith.
c. B may compel A to execute the Deed of Absolute Sale because the contract is valid.
d. B cannot get back the P100,000.00 because the con-tract is not enforceable.

99. A promissory note signed by D and dated March15,2010’s worded as follows: "I
promise to pay C the sum of P50,000 provided that if she should in the October 2010
CPA Examination, she shall return to me the said amount . “The above note gives rise to
an obligation with

a. Suspensive condition
b. Casual condition
c. resolutory condition
d. None of the above
100. "Conrad° will continue giving Pedro the latter's meal allowance until the end of this
year” is an obligation subject to:
a. a resolutory period.
b. a suspensive condition.
c. a resolutory condition.
d. a suspensive period.
101. Statement No. 1: In cases of extra-ordinary inflation, the basis of payment is the
value of the obligation at the time it, was constituted.
Statement No. 2: After substitution, the loss of the principal object through the fault or
negligence of the debtor shall render him liable for damages.
a. Both statements are true.
b. Both statements are false.
c. Statement No. 1 is true while statement No. 2 is false.
d. Statement No. 1 is false while statement No. 2 is true.

102. Statement No. 1: Payment by cession does not totally extinguish the whole
obligation.
Statement No. 2: In obligation with penal clauses, if necessary for the creditor to show
proof of actual damages suffered by him on account of the non-performance of the
obligation by the debtor.
a. Both statements are true.
b. Both statements are false.
c. Statement No 1 is true while statement No. 2 is false
d. Statement No. 1 is false while statement No. 2 is true.

103. Statement No. 1: Merger taking place in the person of the guarantor shall
extinguish only not the secondary contract such as the contract of guaranty but not the
principal obligation.

Statement No. 2: When the debtor promises to pay his obligation "whenever his means
permit him to do so” the obligations is with a period.
a. Both statements are true.
b. Both statements are false.
c. Statement No 1 is true while statement No. 2 is false
d. Statement No. 1 is false while statement No. 2 is true.
104. In three of the following cases; facultative compensation shall prosper. Which is the
exception?
a. gratuitous support
b. civil liability arising from crime
c. Mutuum
d. depositum
105. Statement No. 1: In solution in debiti, the contract of the parties is the basis for
damages in case of non-compliance.
Statement No. 2: Negligence, as a ground for damages refers to the non-performance of
an obligation with respect to time.
a. Both statements are true.
b. Both statements are false.
c. Statement No 1 is true while statement No. 2 is false
d. Statement No. 1 is false while statement No. 2 is true.
106. Statement No 1: The creditor may be compelled to accept payment in checks as
long as the check is negotiable.
Statement No. 2: An obligation payable "should the client die for diabetes “is an
obligation subject to a period.
a. Both statements are true.
b. Both statements are false.
c. Statement No 1 is true while statement No. 2 is false
d. Statement No. 1 is false while statement No. 2 is true.
107. The buyer has the right to the fruit of the thing from:
a. the time the thing is delivered.
b. the time the contract is perfected.
c. the time the obligation to deliver the thing arises.
d. the time the fruits are delivered.
108. The kind of compensation which arises by way of proved counterclaim in a case is
called:
a. legal compensation.
b. voluntary compensation.
c. judicial compensation.
d. facultative compensation.
109. Statement No 1: In an obligation subject to suspensive period, if the object is
improved by time, the same insure to the benefit-of the creditor.
Statement No. 2: Culpa aquiliana is that fault which results from breach of contracts.
a. Both statements are true.
b. Both statements are false.
c. Statement No 1 is true while statement No. 2 is false
d. Statement No. 1 is false while statement No. 2 is true.
110 . Debtor obliged himself to deliver 100 cavans of rice on June 1, 2010. On said date,
D failed to make delivery despite repeated demands by C. In this case:
a. C has no remedy under the law.
b. C can compel D to deliver 100 cavans of rice plus damages.
c. C may ask a third person to deliver 100 cavans of rice to him, the value recoverable
from D plus damages.
d. None of the above.
111. Statement No. 1: In alternative obligations, it is the notice of which prestation to
perform made by the debtor shall convert the alternative obligation into a pure or simple
one.
Statement No. 2: In case of a joint obligation, the co-debtors may be held liable for the
share of an insolvent co-debtor.
a. Both statements are true.
b. Both statements are false.
c. Statement No 1 is true while statement No. 2 is false
d. Statement No. 1 is false while statement No. 2 is true.

112. Insolvency of the debtor is required in:

a. Dation in payment
b. Payment by cession
c. Tender of payment and consignation
d. Application of payment
113. A, a minor, and B, a capable person, bind themselves solidarity to pay X the sum of
P10,000:
a. A may be compelled to pay P10,000
b. A may be compelled to pay P5,000 only
c. B may be compelled to pay P10,000
d. B may be compelled to pay P5,000 only
114. D obliged himself to paint the house of C or to paint the picture of C, in a standing
position, using 10 by 10 canvass. Later, because of financial reverses, C sold his house
to X. Which of the following statements is incorrect?
a. The obligation of D Is extinguished because he cannot, make a choice.
b. D may just paint the picture of C.
c. D may cancel the contract and ask for damages.
d. None of the above.
115. A and B are jointly indebted to C for P1,000. C assigns the 1 credit to D and D
assigns it back to A.
a. The debt is partially extinguished by compensation.
b. The debt is partially extinguished by merger.
c. The debt is totally extinguished by merger.
d. The debt is not extinguished either totally or partially.

116. Requisites of application of payment, except

a. Debts are all due.
b. Debts are of different kinds.
c. Two or more debts.
d. One debtor and one creditor
117. Statement No. 1: Payment made by a third person who does not intend to be
reimbursed by the debtor is deemed to be a donation, which requires the debtor’s
consent. If the debtor’s consent is not given. The obligation is not extinguish.
Statement No. 2: if the debtor’s consent or permission is not given. But the third person
paid the creditor, his right is to proceed against the creditor for reimbursement and not
against the debto.r
a. Statement No 1 is true while statement No. 2 is false
b. Statement No. 1 is false while statement No. 2 is true.
c. Both statements are false.
d. Both statements are true.

118. In tender and consignation: if after consignation is made, the creditor allow the
debtor to withdraw the thing deposited in court, which of the following statements is
incorrect?
a. Co-debtors, guarantors, and sureties are released from the obligation unless they
consented.
b. The obligation remain to subsist.
c. The obligation is extinguished.
d. None of the above.
119. Statement No 1: Obligation for whose fulfillment a day certain has been fixed, shall
be demandable only when that day comes. Obligation with a resolutory period takes
effect at once, but terminates upon arrival the day certain.
Statement No. 2: D binds himself to pay "little by little”. The obligation is for the benefit of
the debtor.
a. Both statements are true.
b. Both statements are false.
c. Statement No 1 is true while statement No. 2 is false
d. Statement No. 1 is false while statement No. 2 is true.
120. Statements No 1: "I promise to pay within 2 year” is an obligation with a period, the
creditor having a right to demand payment within 2 years from the date of the
instrument.

Statements No. 2. Ten sacks of corn cannot be compensated (legal compensation) by

ten sacks of rice.
a. Both are true.
b. Both are false.
C. No. 1 is true, No. 2 is false.
d. No. 1 is false, No. 2 is true.
121. Mr. Cruz executed a first mortgage of his house in favor of Mr. Dizon on May 15,
2010 to guaranty a mortgage loan of P200,000 due of payment on May 15, 2013. On
September 16, 2012, the house was completely destroyed by typhoon. On September
18, 2012, Mr. Dizon demanded payment from Mr. Cruz of the loan. Is Mr. Dizon's
demand for payment valid?
a. No. The obligation is one with a definite period, so the creditors cannot demand
payment until the definite due date arrives.
b. No. The obligation is extinguished because the object of the obligation is lost through
a fortuitous event.
c. Yes. The obligation becomes due at once because the benefit is solely for the
creditor. The creditor can demand payment even before the date stipulated.
d. Yes. The obligation becomes due at once because the guaranty was lost even though
a fortuitous event, unless the debtor can mortgage another property equally satisfactory.
122. Example 1 — D promised to give C a specific car valued at P100,000 after C has
killed X. Later, after the killing, the contract was novated instead of giving C a specific
car, he will just give a specific land to be delivered on February 28, 2010. Meanwhile,
both parties died. In here, the heirs of C may compel the execution of the second
contract, that is, the delivery of the specific land. Example 2 — S sold to B a specific
residential house situated in Quezon for P1 M, unknown to both parties, one (1) hour
before the sale, the property was totally gutted by fire caused by electrical defect. In
here, B can be required to pay the price of the sale, because the subject is determine.
S's obligation to deliver is extinguished, while B's obligation remain to subsist.
a. Both examples are true.
b. Only No. 2 is true, while No. 1 is false.
c. Only no. 2 is false, while No. 1 is true.
d. Both examples are false

123. Which of the following obligation is void?

a. Obligation payable within a reasonable time.
b. Obligation payable if the debtor cannot make a circle at the same time a square.
c. Obligation payable if the debtor cannot make dead man alive
d. None of the above
124 Mr. Debtor owes Mr. Creditor, who has two legitimate emancipated children,
P50,000 payable on December 31,2010.
a. If Mr. Debtor dies before December 31, 2010, Mr. Creditor cannot collect from the
heirs of Mr. Debtor
b. If Mr. Debtor dies before December 31, 2010, Mr. Creditor can collect from the heirs of
Mr. Debtor.
c. If Mr. Creditor dies, his two (2) legitimate emancipated children cannot recover from
Mr. Debtor his obligation.
d. If both Mr. Debtor and Mr. Creditor die, the heirs of Mr. Creditor can collect from the
heirs of Mr. Debtor.
125. A owes B P5,000. C is the guarantor of A. A was able to Pay B P3,000, thus
leaving P2,000 unpaid. X, against the will of A and without the knowledge of the partial
payment made by A, paid B the sum of P5,000. How does this payment affect the
obligation?
a. The obligation is extinguished. X, however, cannot recover any amount from A since
the payment was made against will of A. Instead, A can demand payment from C, the
guarantor, to the amount of P5.000.
b. The obligation is extinguished X, however, can demand only P2000 from A as this is
the amount which benefited A. If A cannot pay, X, having been subrogated into the rights
of B can proceed against guarantor C.
c. The obligation is extinguished, X can demand P2000 against guarantor C because
having paid against the will of A, X is not entitled to subrogation.
d. X’s payment, having been made against the will of A does not extinguish the
obligation.

126. The officious manager or gestor is liable for any fortuitous event EXCEPT:
a. If he has undertaken risky operations which the owner was accustomed to embark
upon.
b. If he has preferred his own interest to that of the owner.
c. If he fails to return the property or business after demend by the owner.
d. If he assumed the management in bad faith.
e. None of the above.
127. A tie or juridical relation, which by virtue of a payment of what is not due, made
through mistake, is created between the person who paid and the one who received the
payment, compelling the latter, in consequence thereof , to return what he has received:
a. Solutio indebiti
b. Natural obligation
c. Civil obligation
d. Moral obligation
e. None of the above
128. On Oct 4, 2010, A is indebted to B for P50,000 for a 20-day period. A proposed to B
that X will pay A’s debt and that A will be free from all liabilities. B and X agreed the
proposal. On Oct 25,2010, when B tries to collect from X, he finds that X is insolvent. At
the time of delegation, X was already insolvent bt this was not known to A. The
insolvency is not of public knowledge. So B, sues A on the ground that it was A who
made the proposal and that A really guaranteed X’s solvency. Decide:
a. A is liable because he is presumed to have guaranteed X's solvency.
b. A is not liable, because A does not know the insolvency of X at the time of delegation
and neither was the insolvency of public knowledge.
c. A is liable because he did not exercise due diligence in determining the insolvency of
X.
d. A is liable because X agreed to the proposal to make himself solidary liable for the
obligation.
129. Remission is:
a. Essentially gratuitous
b. Naturally gratuitous
c. Absolutely gratuitous
d. All of the above
130. Statement No. 1: The debtor of a thing cannot compel the creditor to receive a
different one, although the latter may be of the same value or more valuable than that
which is due.
Statement No. 2: In dation in payment, ownership of the thing delivered is transferred to
the creditor; while in cession, it merely authorizes the creditor to convert the property into
cash and out of the proceeds to extinguish the obligation partially.
a. Both are true.
b. Both are false.
c. No 1 is true; No. 2 is false.
d. No. 1 is false; No. 2 is true.
131. Effect of the loss of the thing in a facultative obligation. Which is incorrect?
a. Before substitution: if the principal thing is lost due to fortuitous event, there is no
more obligation.
b. Before substitution: If the substitute thing is lost due to debtor’s fault, there is no more
obligation.
c. After substitution, if the principal thing is lost, the debtor is no longer liable even if it is
was lost due to ‘his fault’.
d. None of the above.
132. D1 and D2 are joint debtors of C1, C2, C3, and C4, solidary creditors to the amount
of P1,000. How much can C3 collect from D1?
a. 500
b. 1000
c. 250
d. 125
133. On July 1, 2010, A signs a promissory note and bind himself to pay X P100,000
plus 15% per annum interest on June 30, 2012.
a. Before June 30, 2012, X can demand payment.
b. If on June 30, 2011, A is paying X, X cannot refuse the payment.
c. Because the period is for the benefit of the debtor, A can compel creditor X to accept
payment any date before June 30, 2012.
d. Because the period is for the benefit of the debtor and creditor, X can refuse any
tendered payment before June 30, 2012.
134. “I will give you this book provided that if I like to have it a back, you will return the
same to me”.
a. The obligation is void, because the fulfillment upon the will of the debtor.
b. The obligation is void, because the fulfillment depends upon the will of the creditor.
c. The obligation is valid because, the condition merely causes the loss of rights already
acquired.
d. Combination of A of B.
135. D obliged himself to give a specific car to C on December 25, 2010, stipulating that
D is liable even if the thing due to fortuitous event, and without the need of a demand,
On the due date, the car got lost due to fortuitous event. Which of the following is
correct?
a. Obligation remains to subsist, but converted into monetary consideration.
b. C can compel D to deliver another car.
c. C can require another person to deliver a car, expenses chargeable to D.
d. Obligation is totally extinguished.
136. D owes C P10,000 payable on December 25, while C owes D P10,000 payable on
December 30. In here, C can set up compensation (or cum pondere) on December 25,
and this is called:
a. Legal
b. Partial
c. Judicial or “set-off”
d. facultative
137. In novation, which of the following is incorrect?
a. If the new obligation is void, original obligation shal subsist.
b. In expromission, the insolvency of the new debtor shall not revive the action of the
creditor against the original debtor.
c. If the original obligation is subject to a suspensive condition, the new obligation is not
subject to the same condition unless stated.
d. If the condition is resolutory, the new is also resotutory condition, unless otherwise
stated.
138 The following except one are primary modes of extinguishing obligations which is
the exception?
a. Confusion
b. Compensation
c. Condonation
d. Compromise
139. Which of the following does not have negligence as its basis?
a. Culpa contractual
b. Culpa aquiliana
c. Solutio indebiti
d. Culpa delictual
140. Source of obligation which is a rule of conduct, just and obligatory, promulgated by
legitimate authorities for common good, benefit and observance.
a. Contracts
b. Law
c. Quasi-contracts
d. Quasi-delict
e. Delict
141. In an Obligation worded as follows: “ I promise to continue allowing X to stay in my
condo unit until he marries,” the obligation is subject to:
a. Suspensive condition
b. Suspensive Period
c. Resolutory condition
d. Resolutory period
142. X, Y and Z solidarity bound themselves to pay to solid creditors A, B and C the
amount of P75,000.. The loan was secured by a mortgage on B's land. Out of gratuity, in
a public instrument, renounced the obligation in favor of X, with the formality required by
law. In this case, which statement is correct?
a. The principal obligation is extinguished.
b. The real estate mortgage is extinguished.
c. Both the principal obligation and the mortgage are extinguished by remission
d. Both the principal and the accessory obligations subsist.
143. D obliged to give C, either object No. 1 valued at P15,000; or object No. 2 valued at
P10,000; or object No. 3 valued at P5,000. All the objects were lost due to D's fault in the
following order stated.
a. D's obligation is extinguished.
b. D's obligation is to pay the value of object No. 1 plus damages.
c. C's right is to demand the value of any of the object plus damages.
d. None of the above.
144. In question no. 143, if object no. 1 is lost due to fortuitous event; No. 2 is lost due to
debto’s fault; No. 3 is subsisting;
a. The right of C is to demand the value of object No. 2 plus damages.
b. C has no right because he did not communicate what object the debtor will deliver.
C. The obligation of D is to deliver object No. 3
d. D’s obligation is totally extinguished.
145. D owes C P10000 payable on dec 25. Later D forced C to sign a promissory note
for P10000 payable on Dec 25. If all the other requisites of compensation are present,
are both debts extinguished?
a. Yes, under legal compensation
b. No, B’s consent was obtained by force
c. Yes, with the approval of the court.
d. Not given.
146. Statement No. 1: just before the obligation became due and demandable, the
debtor proposed to the creditor that he would give him a specific car instead of paying
p150,000.00, and which proposal was accepted by the creditor. Here, there is
extinguishment of an obligation by way of dacion en pago.
Statement No. 2: After substitution in facultative obligations, the loss of the principal
through the fault or negligence of the debtor shall render him liable for damages in favor
of the creditor.

a. Both are true.

b. Both are false.
c. No. 1 is true, No 2 is false.
d. No. 1 is false, No. 2 is true.
147. Statement No. 1: In novation by way of expromission, there can be revival of the
original debtor’s obligation should the new debtor turns out to be insolvent and such is of
public knowledge.

Statement No. 2: In alternative obligations, what converts the same into a pure or simple
obligation is the choice of prestation to be performed by the debtor.

a. Both are true.

b. Both are false.
c. No. 1 is true, No 2 is false.
d. No. 1 is false, No. 2 is true.
148. A1, A2 and A3 obliged themselves solidarily to give C a specific valued at P12,000.
On the due date, c demanded delivery but the debtors failed to deliver. The next day,
while A1 still in possession of the car, it got lost due to fortuitous event. The right of C is

a. None, obligation is totally extinguished.

b. Proceed against any of the debtors for the value and damages.
c. Proceed against Al only, because he is the one is possession at the time it was lost.
d. Proceed against A2 or A3 but only P4,000 each.
149. Which of the following is not a conditional obligation?
a. D to give C P1,000 if C passes the examination.
b. D to pay C P1,000 if C has the means.
c. D to give C a horse if C marries X.
d. None of the above.
147. Statement No. 1: In novation by way of expromission, there ca n be a revival of the
original debtor’s obligation should the new debtor turns out to be insolvent and such is of
public knowledge.
Statement No. 2: In alternative obligations, what converts the same into a pure or
simple obligation is the choice of prestation to be performed by the debtor.
a. Both are true.
b. Both are false
c. C. No 1 is true, No. 2 is false.
d. No. 1 is false, No 2 is true.

148. A1, A2 and A3 obliged themselves solidarily to give C a specific car valued at
P12,000. On the due date , C demanded delivery but the debtors failed to deliver. The
next day, while A1 still in possession of the car, it got lost due to fortuitous event. The
right of C is
a. None, obligation is totally extinguished.
b. Proceed against any of the debtors for the value and damages.
c. Proceed against A1 only, because he is the one is possession at the time it was
lost.
 d. Proceed against A2 or A3 but only P4,000 each.

149. Which of the following is not a conditional obligation?

a. D to give C P1,000 if C passes the examination.
b. D to pay C P1,000 if C has the means.
c. D to give C a horse if C marries X.
d. None of the above.

150. On June 25, 2010, S promised to sell his land to B for P10,000, if B will pass the
CPA exams on June 25, 2012. Which is false?
a. From June 2010 up to June 2012, S remains to be the owner because the
condition is not yet fulfilled.
b. If on June 25, 2012, B passed the examination, after payment and delivery, B
becomes the owner and the effect is retroactive dating back from the time the obligation
was constituted, that is, June 25, 2010.
c. If one year after the promise was made or on June 25, 2011, S sold the land to X
the sale is not valid because the land was already sold to B on June 25, 2010.
d. If one year after the promise was made or on June 25, 2011, S sold the land to X,
the sale is valid whether or not B passes the examination on December 25, 2012.

151. I will give you specific car if you will marry X this year (2010). Which of the following
statements is incorrect?
a. If on December 25, X died, without marriage, my obligation is effective because
one party is dead, marriage is impossible to take place.
b. If on December 25, X died, without marriage, my obligation is extinguished
because one party is dead. Marriage is impossible to take place.
c. If the year has ended, no marriage taking place, both parties are alive, just the
same my obligation is extinguished because the time indicated has already elapsed.
d. If you marry X on December 25, my obligation is to give you the car.
152. I will give you a specific car if you will not marry X this year (2010). Which of the
following statements is incorrect?
a. If on December 25, X died and no marriage took place, my obligation becomes
effective (not extinguished) because the expected event cannot occur anymore.
b. If on December 25, you marry X, my obligation is extinguished because you
violated the condition.
c. If the year has ended, and no marriage took place, both parties are still alive, my
obligation becomes effective (not extinguished) because the time indicated has already
elapsed.
d. If on December 25, X entered the convent, the obligation can be demanded
immediately because it is clear.
e. All of the above.

153. In a solidary obligation, D1 and D2 bind themselves to give C1 and C2 P10,000.

Which of the following statements is false?
 a. C1 cannot renounce the obligation of D1 and D2 to pay P10,000 because the act
is prejudicial to the other.
b. C1 can renounce the obligation of D1 and D2 to pay P10,000 but C1 must give
C2 P5,000.
c. If C1 and C2 will renounce the obligation in favor of D1, the total obligation is
extinguished and D1 is to ask P5,000 from D2 representing the share of the latter.
d. D1 and D2 can pay anyone of the creditors and if accepted the obligation is totally
extinguished.
154. D will support C until the end of this year is an obligation with:
a. A suspensive condition.
b. A resolutory condition.
c. An EX DIE period.
d. An IN DIEM period.

155. Whenever in an obligation a period is designated, it is presumed to have been

established for the benefit of the:
a. Debtor
b. Creditor
c. Both the creditor and the debtor.
d. None of the above

156. The debtor shall lose every right to make use of the period EXCEPT:
a. When after the obligation has been constituted, he becomes insolvent,
unless he gives a guaranty or security of the debt.
b. When he does not furnish a guaranty or security to the creditor.
c. When the debtor attempts to abscond.
d. When the debtor violates any undertaking in consideration.
157. No person shall be responsible for events which could not be foreseen, or which,
though foreseen, were inevitable, EXCEPT:
a. When the debtor is guilty of delay.
b. When the nature of the obligation requires the assumption of risk.
c. When the law expressly provides for the debtor’s liability even in cases of
fortuitous events.
d. When the subject matter of the obligation is a generic thing.
e. All of the above.

158. S sold to B to a specific car for P20,000 to be paid as follows; P5,000 upon
delivery oof the car to B, and the balance at the rate of P500 every three months
thereafter. Subsequently, the car got burned in the possession of B, without his fault,
before payment of the balance. Is B obliged to pay the balance?
a. No, because the car was lost without his fault. B’s obligation is extinguished.
b. No, because this is an installment sale, until the buyer pays the price of the sale, S
remains to be the owner.
c. Yes, because of the principle “the thing perishes with the owner”.
d. Yes, but S must give another car because of the principle “Genus nuquam perit” of
Genus never perishes.

159. An obligation wherein various things are due, but the payment of one of them is
sufficient to extinguish the obligation is called:
a. Simple obligation
b. Alternative obligation
C. Conjoint obligation
d. Facultative obligation

160. D obliged himself to give C a specific car if the latter cannot make a circle that is at
the same time a square.
a. The obligation is impossible, therefore, void.
b. The obligation is void because the condition is outside the commerce of man.
c. D cannot be obliged to deliver at all.
d. Answer not given.

161. in a solidary obligation, D obliged himself to pay C1, C2, C3 P6,000 on Dec 25. If
on date of maturity, C1 demanded payment from D but the latter paid C3 the full amount
of P6,000, which of the following statement is true?
a. Obligation is totally extinguished because C3 accepted t he payment.
b. No obligation is extinguish.
c. The obligation of D to C2 and C1 are totally extinguished.
d. Only the obligation of D to C3 which is P2,000 is extinguished.

162. Statement 1: In alternative obligations, all the objects promise by the debtor to the
creditor are all due.
Statement 2: In facultative obligations, there are two objects due but the obligor can
deliver one thing due and the obligation is extinguished.
a. No. 1 is true; No.2 is false.
b. No. 1 is false; No.2 is true.
c. Both are true
d. Both are false

163. Statement 1: “I will give you P10,000 if you like” This obligation is subject to a
potestative condition and demandable at once.
Statement 2:”I will give you P10,000 if you cannot make a dead man alive”. This is a
pure obligation and demandable at once.
a. Both are true
b. Both are false.
c. No 1 is true; No 2 is false
d. No 1 is false; No 2 is true
164. Statement 1: “I will give you P10,000 if you pass the May 2010 CPA examination”
On the first day of the examination that is May 12, I poisoned you and you failed to take
the examinations. The next day my obligation is extinguished because you cannot pass
the examinations anymore.
Statement 2: “ I will give you P10,000 if I like”. In the case, the court may fixed
the duration of the period because It depends upon the will of the debtor.
A. Both are true
B. Both are false
C. No 1 is true, No 2 is false
D. No 1 is false, No 2 is true

165. In three of the following enumerations, the proper remedy is reformation of the
instrument. Which is the exception?
a. If mistake, fraud, inequitable conduct or accident has prevented the meeting of the
minds of the contracting parties.
b. If the true intention of the contracting parties is not expressed in the instrument
purporting to embody the agreement by reason of mistake, fraud, inequitable conduct or
accident
c. If the mutual mistake of the parties causes the failure of the instrument to disclose
their real agreement.
d. If one party is mistaken and the other acted fraudulently or inequitable in such a way
that the instrument does not show their true intention

166. A-1 and A-2 are solidary debtors of B-1, B-2 and B-3, joint creditors in the amount
of P90,000. How much can B-3 collect from A-2?

a. B-3 could collect P30,000 from A-2.

b. B-3 could collect P90,000 from A-2 and give P30,000 each to B-1 and B-2
c. B-3 could collect P45,000 from A-2 and give P13,000 each to B-1 and B-2
d. B-3 could collect P15,000 form A-2 and P13,000 from A-1

167. A obliges himself to pay X P100,000 in 30 days plus a penalty of P20,000 if A fails
to pay the obligation in due time. A failed to pay the obligation in 30 days. X can demand
from A
a. The principal of P100,000 plus P20,000 penalty.
b. The principal of P100,000 plus P20,000 penalty, plus legal interest.
c. The principal of P100,000 plus legal interest
d. The principal of P100,000 plus P20,000 penalty, plus legal interest, plus damages.

168. In three of the following cases, compensation shall not be proper. Which is the
exeption?
a. Commodatum
b. Gratuitous support
c. Civil liability arising out of criminal offenses
d. Bank deposit

169. Which of the following is an obligation with a period for the benefit of the debtor and
the creditor?
a. Payable when “you like”
b. Payable when debtor’s means permit him to do so
c. payable on or before December 25, 1997
d. payable “if I like”
e. Any of the above

170. Proof of pecuniary loss is not necessary for the award of

a. Moral damages
b. Nominal damages
c. Temperate damages
d. Exemplary damages
e. All of the above

171. Three of the following are requisites of an obligation. Which is the exception?
a. Prestation
b. Efficient cause
c. Delivery
d. Passive Subject

172. Statement 1: In an obligation with a penal clause, interest and damage, aside form
the penalty, may be awarded to the creditor if the debtor is guilty of fraud
Statement 2: In an obligation that is impossible of division, the debt can be enforced only
by proceeding against all the debtors. If one of the debtors should be insolvent, the other
shall not be liable for his share.

a. Both are true

b. Both are false
c. No. 1 is true; No 2 is false
d. No 1 is false; No 2 is true

173. Statement 1: Solutio indebiti may apply to payment by mistake of a prescribed

obligation.
Statement 2: Dolo causante refers to fraud in the performance of an obligation.
a. Both statements are true
b. Both statements are false
c. Statement 1 is true while statement 2 is false
 d. Statement 1 is false while statement 2 is true

174. An obligation where only one prestation is due, with no period or condition needed
is called.
a. pure or simple obligation
b. conjoint obligation
c. alternative obligation
d. none of the above

175. Statement 1: In alternative obligations, the right of choice belongs to the creditor
unless it has been expressly granted to the debtor.
Statement 2: A solidary creditor cannot assign his right to a co-creditor without the
consent of the rest of the creditors.
a. Both statements are true
b. Both statements are false
c. Statement 1 is t true while statement 2 is false
d. Statement 1 is false while statement 2 is true

176. Amazed by the skill of X who can paint portraits using paint brushes inserted in his
right armpit, Y entered unto a contract with the former to have his own portrait done and
gave X P50,000 as full payment therefore. After he has started painting the portrait but
before its complexion, X was swiped by a speeding car while he was drunk and walking
beside the railway causing the doctors to have his right arm amputated. In this case,
what is the remedy of Y?
a. Nothing, as the service became impossible by reason of an act independent of
the will of the debtor.
b. Equivalent performance in terms of damages
c. Specific performance by compelling X to go on painting Y’s portrait.
d. Substitute performance by allowing a third person to do his portrait with expenses
therefor charged to X.

177. Fruits as resulting from spontaneous products of the soil without the intervention of
human labor, as well as animal offspring are:
a. Industrial fruits
b. Civil fruits
c. Natural fruits
d. All of the above fruits

178. Statement 1: D obliges himself to give C a specific ring, upon failure, to give C
P5,000. This is a case of facultative obligation.
Statement 2: D obliges himself to give C a specific ring. However, if he so desires, D
may instead give C P5,000. This is an example of an obligation with a penal clause.
Given these examples, which statement is correct?
 a. Both obligations are valid but both are mislabeled as to their classification as
obligations.
b. Both obligations are not valid.
c. Both obligations are valid and are properly labeled as to their classification as
obligations
d. Both statements are invalid and improperly labeled as to their classification as
obligations
179. D is indebted to solidary creditors X, Y and Z for P30,000. Without the knowledge of
X and Y, Z remitted or renounced the obligation of D.
a. The obligation of D is not extinguished.
b. The obligation of D is extinguished to the extend of P20,000
c. The obligation of D is extinguished to the extent of P10,000
d. The obligation to pay P30,000 is extinguished, but X and Y may proceed against Z for
their share.
e. None of the above

180. In novation, which of the following is incorrect?

a. If the new obligation is void, original obligation shall subsist.
b. In expromission, the insolvency of the new debtor shall not revive the action of the
creditor against the original debtor.
c. If the original obligation is subject to a suspensive condition, the new obligation is not
subject to the same condition unless stated.
d. If the condition is resolutory, the new is also subject to a resolutory condition, unless
otherwise stated

181. Statement No. 1: The debtor of a thing cannot compel the creditor to receive a
different one, although the latter may be of the same value or more valuable than that
which is due.

Statement No. 2: In dation of payment, ownership of the thing delivered is transferred to

the creditor; while in cession, it merely authorizes the creditor to convert the property into
cash and out of the proceeds to extinguish the obligation partially.

a. Both are true.

b. Both are false.
c. No. 1 is true, No. 2 is false.
d. No. 1 is false, No. 2 is true.

182. A promissory note signed by D and dated March 15, 2010 is worded as follows: “I
promise to pay C the sum of Fifty Thousand Pesos (50,000) provided that if she should
fail in the October 2010 CPA Examination, she shall return to me said amount”. The
above note gives rise to an obligation with
a. Suspensive condition.
b. Casual condition.
c. Resolutory condition.
d. None of the above.

183. “I will give you this book provided that if I like to have it back, you will return the
same to me”
a. The obligation is void, because the fulfillment depends upon the will of the debtor.
b. The obligation is void, because the fulfillment depends upon the will of the creditor.
c. The obligation is valid, because the condition merely causes the loss of rights already
acquired.
d. Combination of A and B.

184. It refers to a joint obligation:

a. One in which each debtor is liable for the entire obligation, and each creditor is
entitled to demand the whole obligation.
b. One in which either one of the parties is indispensable and the other is not necessary.
c. One in which the obligation of one is a resolutory condition of the obligation of the
other, the non-fulfillment of which entitles the other party to rescind the contract.
d. One in which each of the debtors is liable only for a proportionate part of the debt and
each creditor is entitled only for a proportionate part of the credit.

185. An obligation where each of the debtors is liable only for a proportionate part of the
debt, and each creditor is entitled only to a proportionate part of the credit is called:
a. Conjoint obligation
b. Joint obligation
c. Solidary obligation
d. Divisible obligation

186. An obligation where each of the debtors is liable for the entire obligation, and each
creditor is entitled to demand payment of the whole obligation is called:
a. Conjoint obligation
b. Joint obligation
c. Solidary obligation
d. Divisible obligation

187. Which of the following statements is true?

a. A condition always refers to the future.
b. The debtor loses the period if he does give any security to the creditor.
c. The condition not to do an impossible thing does not render the obligation void.
d. The alternative obligations the right to select which of the prestation shall be delivered
belongs to the creditor, unless expressly given to the debtor.

188. Contract with false cause is:

a. Voidable
b. Void
c. Unenforceable
d. All of the above

189. A thing is considered lost when it:

a. Perishes
b. Goes out of commerce
c. Stolen or robbed
d. All of the above

190. The debtor who cedes or assigns his property to his creditor in payment of his debt
shall be released from his obligation
a. to the extent of the net proceeds of the thing leased.
b. to the extent allowed by the creditor.
c. only to the extent of the net proceeds of the thing assigned.
d. totally extinguished under dation in payment.

191. Acceptance of a commercial document is equivalent to payment when

a. The check has been cashed.
b. The check became valueless due to the creditor’s fault.
c. Creditor is in estoppels
d. All of the above.

192. A is obliged to give B his only car on September 1, 2010. On the said date, A did
not deliver. On September 2, 2010 an earthquake completely destroyed the car, is A still
liable?
a. No. Considering that no demand to deliver was made by B and the specific thing was
lost due to fortuitous event, the obligation is extinguished.
b. No. The obligation is extinguished, even if the debtor is already in default because the
debtor can plead impossibility of performance.
c. Yes. A is already in legal delay, thus the obligation to deliver the lost specific thing is
converted into monetary claim for damages.
d. Yes. The creditor can instead demand for a substitute of equivalent value from the
debtor.

193. B and C promised to deliver a particular car valued at P100,000 to M on or before

September 15, 2010. On September 15, 2010, M demanded delivery from B and C. B
was willing to deliver but C refused to deliver. In the case at bar
a. An action for specific performance will lie against both B and C
b. Both B and C shall be liable for P50,000 each with damages.
c. B shall be liable for P50,000 without damages and C shall be liable for P50,000 and
damages.
d. None of the above.
194. A, B and C executed a promissory note worded as follows: “We promise to pay to
X, Y and Z the sum of P90,000 (Sgd.) A, B and C”.
a. A is obliged to pay to X, Y and Z P90,000
b. A is obliged to pay to X P30,000
c. A is obliged to pay to X P60,000
d. A is obliged to pay to X P10,000
e. None of the above.

195. If in the situation given in No. 194, there is a diamond ring pledged by the debtors,
subsequently returned by the creditors:
a. The total principal obligation is extinguished.
b. Only P30,000 of the obligation is extinguished.
c. Only P60,000 of the obligation is extinguished.
d. Principal obligation is not extinguished at all.

196. A is indebted to B for P20,000. X is the guarantor of A. B is also indebted to A for

P8,000. How much will X be liable as guarantor if B sues A, and cannot pay?
a. P12,000
b. P20,000
c. P8,000
d. X has no liability

197. Statement No. 1: Payment made to an incapacitated person is good only up to the
extent that he was benefited or up to the amount that he was able to keep.

Statement No. 2: In obligations arising from quasi-contracts, consent of the parties is not
necessary.

a. Statement No. 1 is false while statement No. 2 is true.

b. Statement No. 1 is true while statement No. 2 is false.
c. Both statements are true.
d. Both statements are false.

198. Statement No. 1: In novation by expromission, there can be a revival of the

obligation if the new debtor turn out to be insolvent, and such insolvency is of public
knowledge.

Statement No. 2; A debtor paying a natural obligation in and in favor of a creditor by

mistake can still recover the same from the latter.

a. Both statements are true.

d. Both statements are false.
c. Statement No. 1 is false while statement No. 2 is true.
d. Statement No. 1 is true while statement No. 2 is false.
199. Statement No. 1: D obliged to give a specific car to C on Dec 20, 2003. If on the
date stated, D did not comply with his obligation, the next day he is considered in default
without the need of a demand.

Statement No. 2: S sold to B a specific car for P10,000. Both parties promise to comply
with their obligations the day after tomorrow. If on the date stated, 8 delivers the car to B,
but 8 is not ready to comply with his’ obligation, from thereon he is considered in default
without the need of a demand.

A. Both are true

B. Both are false
C. No. 1 is true; No. 2 is false
D. No. 1 is false; No. 2 is true

200. Statement No. 1: “I will give you P10,000 if you will not marry X this year (2010)”. If
on Dec. 25, 2010, X entered the convent, the next day, Dec 26, my obligation is
extinguished.

Statement No. 2: “I will give you P10,000 when my means permit me to do so”. This is
conditional obligation for the benefit of the debtor.

A. Both are true

B. Both are false
C. No. 1 is true; No. 2 is false
D. No. 1 is false; No. 2 is true

201. D1, D2, and D3, obliged themselves jointly to pay C P15,000. To secure the
obligation, D1 pledged his ring D2 his T.V., D3, his refrigerator. On the date of maturity,
D1 paid C P10000. Which of the following statements is true?

A. D1 can redeem object 1 because the obligation is joint

B. D1 can redeem object 1 and object 2 because they are proportionate to the amount
paid.
C. D1 can redeem any of the object pledged.
D. D1 cannot redeem any of the thing pledged because the indivisibility of the contract of
pledge is not affected by the fact that the obligation is not solidary.

202. D owes C P10.000 with G as guarantor. Third person X, pays the obligation without
the consent of the debtor. X ask for reimbursement from D but D is insolvent.

A. X is by right subrogated to the rights of C.

B. X can compel C to return the payment.
C. The obligation of D to C subrogate him in his rights.
D. The obligation of D to C is not extinguished.

203. A obtained a loan from b for P1,500 with interest at 14% per annum. The payment
of which was secured by guarantor C. After maturity of the loan, D without the
knowledge of A paid B, P1400 and thereupon B signed a receipt and gave it to D with
this tenor: “Received from D in full payment of A’s obligation in my favor”. (Sgd.) B.
A. D can recover from P1,500 because the whole obligation of A and B has been
extinguished.
B. D can recover from A P1,500 because the balance of P100 is considered
extinguished by partial remission.
C. D can recover from A P1,400 because that was presumably the extent to which was
benefited.
D. D can recover from A because he paid without the knowledge of A.

204. Which of the following is not legal subrogation?

a. When a creditor pays another creditor who is preferred.

B. When a third person, not interested in obligation, pays with the approval of the debtor.
C. When a third person interested in the obligation pays even without the approval of the
debtor.
D. None of them.

205. P authorized A, 16 years old, to sell his car to B. A sold the Car to P100,000. One
week after, because of the floating rate of peso, prices of car went up. P now wanted to
disallow the sale, claiming that A, his agent was a minor and therefore the contract is
voidable and no liability is at-

A. Both A and P are jointly liable to B.

B. Only A is liable because he executed teh agency knowling for himself that he is a
minor.
C. P and A are solidary liable to B.
D. None of the above

206. D1, d2 and d3 borrowed from C P300,000 and as a security they mortgaged their
undivided agricultural land to C. Subsequently, D1 paid C P100,000. Is the mortgage on
D1’s share of the land extinguished?

A. Yes, because the obligation of D1 on the debt is only P100,000.

B. Yes, the obligation of the debtors is joint, D1 is answerable only for P100,000.
C. No, because the obligation is solidary payment in par shall not extinguish the
obligation secured by the mortgage.
D. No, because mortgages are considered individual payment in part shall not extinguish
the mortgage.
207. Example No. 1: D owes C P10,000 due on December 25 C owes D P6000 due on
December 25.D’s is insolvent G is liable for C for P10,000 . On the due date, if D is
insolvent G is liable to C for P10,000. The latter (G) cannot set up compensation against
a principal debtor.

Example No. 2: D owes C P10,000 payable or December 25. Later, D, through

intimidation, was able to make C signs promissory note stating that C is indebted to for
the D for the same amount. In here, D cannot be acquired to pay C P10,000 because he
(D) can set up compensation against C.

A. Both are true

B. Both are false
C. No. 1 is true; No. 2 is false
D. No. 1 is false; No. 2 is true

208. Statement No. 1: "To Maria, my true love, obliged myself to give you my one and
only horse when I feel like it.
Statement No. 2: "To Perla, my true sweetheart, I obliged myself to pay you the P500.00
I owe you when I feel like it Months passed but the promisor never bothered to make
good his signed promises. Based on the settings, decide on the validity of the
Conditions.
A. Both conditions are void.
B. Both conditions are void.
C. No. 1 is void and No. 2 is valid.
D. No. 1 is valid and No. 2 is void

209. In the preceding question

A. Both obligations are enforceable.

B. Both obligations are not enforceable.
C. No. 1 is enforceable and No. 2 is not enforceable
D. No. 1 is not enforceable and No. 2 is enforceable

210. Delivery by the debtor of specific thing to the creditor in payment of an obligation
consisting of money.

A. Assignment of cession of property

B. Dation in payment
C. Tender of payment and consignation.
D. Application of payment.

211. One is not a requisite needed in order that obligations shall be extinguished by loss
or destruction of thing due.
a. When the thing lost is generic
b. When the thing is lost without the fault of the debtor
c. When the thing lost is specific.
d. When the thing is lost before the debtor has incurred in delay.

212. A, B and C are solidary debtors of X and V, solidary creditors I to the amount of
P10,000. Later, Najd X the whole obligation, Which of the following is considered a false
Statement as to the effects of C paying X the whole obligation?

A. C becomes a creditor’s reimbursement.

B. After C paid X the whole obligation, the same is converted into a join obligation of
reimbursement.
C. If the debtor A becomes insolvent C can collect from B P6,000.
D. None of the above.

213. A and B solidary debtors of X and Y, solidary creditors to the amount of P10,000.
Later, X told A that he was renouncing the whole obligation in favor of A. Under this
premise, which of the following statement is incorrect?

A. The obligation of A to X and Y is totally extinguished.

B. The obligation of A and B to X and Y is totally extinguished.
C. A can collect from B P5,000, that is B’s share is the obligation.
D. X must give Y P5,000, that is, Y’s right to the obligation.

214. The obligation is demandable on the date of the obligation and shall continue to be
in force up to the arrival of the day certain.

A. Resolutory period
B. Suspension period
C. Indefinite period
D. Legal period

215. Contracts entered into in a state of drunkenness or during a hynotic spell are

A.binding
B.Valid
C.Voidable
D.All of the stated

216. In order that fraud may make a contract voidable,

A. It may be serious and the parties must be in pari delicto.

B. It may be incidental but both parties should not be in pari delicto.
C. It should be serious and should not have been employed by the contracting parties.
D. It may be incidental but should have been employed by both parties.

217. Bernie offered Zo a specific parcel of land at a specified price. Bernie gave Zo
60days within which to accept. Zo agreed.

A. Within 60days, Bernie cannot withdraw but may increase the price.
B. There can be no withdrawal because the period is binding.
C. Bernie may withdraw or increase the price within the 60days period.
D. There can be no withdrawal because there is a perfected option contract.

218. An obligation based on positive law and gives right to enforce its performance.

A. Moral obligation
B. Civil obligation
C. Legal obligation
D. Natural obligation

219. Which of the following is a primary classification of obligations under Civil Code?

A. Real and personal obligations.

B. Joint and solidary obligations.
C. Unilateral and bilateral obligations.
D. Civil and natural obligation.

220. Which of the following is a secondary classification of obligations under the Civil
Code?

A. Alternative and facultative obligations.

B. Obligations with a period or obligations with a term.
C. Pure and conditional obligations.
D. Determinate and generic obligations.

TRUE OR FALSE

1. T 10. F 19. T 28. T

2. F 11. T 20. T 29. T
3. T 12. F 21. T 30. T
4. T 13. F 22. T 31. F
5. T 14. T 23. T 32. F
6. T 15. F 24. F 33. T
7. F 16. T 25. T 34. F
8. F 17. F 26. F 35. F
9. T 18. F 27. F 36. F
37. T 56. F 75. F 94. F
38. T 57. T 76. T 95. F
39. F 58. F 77. F 96. F
40. F 59. F 78. T 97. F
41. F 60. F 79. F 98. F
42. T 61. T 80. F 99. F
43. F 62. F 81. T 100. F
44. T 63. F 82. F 101. F
45. T 64. F 83. F 102. F
46. F 65. F 84. F 103. F
47. F 66. T 85. F 104. T
48. T 67. F 86. F 105. T
49. F 68. T 87. F 106. T
50. F 69. F 88. F 107. T
51. T 70. T 89. F 108. T
52. T 71. F 90. F 109. T
53. T 72. F 91. T 110. T
54. T 73. T 92. F 111. T
55. F 74. T 93. F 112. F

MULTIPLE CHOICE

1. C 19. D 37. E 55. B

2. C 20. D 38. D 56. D
3. C 21. D 39. E 57. C
4. D 22. D 40. A 58. C
5. C 23. B 41. B 59. D
6. B 24. D 42. A 60. D
7. C 25. D 43. A 61. A
8. C 26. D 44. E 62. B
9. A 27. D 45. A 63. B
10. A 28. D 46. C 64. C
11. D 29. C 47. A 65. C
12. B 30. A 48. B 66. A
13. D 31. A 49. B 67. C
14. C 32. C 50. C 68. D
15. D 33. B 51. D 69. A
16. B 34. C 52. B 70. D
17. D 35. D 53. D 71. D
18. B 36. D 54. C 72. D
73. B 110. C 147. B 184. D
74. D 111. B 148. B 185. B
75. C 112. B 149. B 186. C
76. B 113. D 150. C 187. C
77. D 114. A 151. A 188. B
78. A 115. B 152. D 189. D
79. C 116. B 153. C 190. C
80. C 117. C 154. D 191. D
81. B 118. B 155. C 192. A
82. D 119. C 156. B 193. C
83. B 120. C 157. E 194. D
84. D 121. D 158. C 195. D
85. C 122. D 159. B 196. A
86. C 123. D 160. D 197. C
87. A 124. A 161. D 198. B
88. A 125. C 162. A 199. D
89. A 126. A 163. A 200. B
90. A 127. A 164. B 201. D
91. C 128. B 165. A 202. C
92. D 129. A 166. A 203. C
93. D 130. A 167. A 204. D
94. D 131. B 168. D 205. D
95. B 132. A 169. B 206. D
96. B 133. D 170. E 207. D
97. A 134. C 171. C 208. C
98. C 135. A 172. A 209. D
99. C 136. D 173. D 210. B
100. A 137. C 174. A 211. A
101. C 138. D 175. B 212. C
102. C 139. C 176. A 213. C
103. A 140. B 177. C 214. A
104. C 141. C 178. A 215. D
105. B 142. C 179. D 216. C
106. B 143. D 180. C 217. C
107. B 144. C 181. A 218. B
108. C 145. A 182. C 219. B
109. C 146. B 183. C 220. D

CONTRACTS
1. Contracts defined:
Sanchez Roman’s definition -
A juridical convention manifested in legal form, by virtue of which, one or more
persons bind themselves in favor of another or others, or reciprocally, to the
fulfillment of a prestation to give, to do, or not to do.

Civil Code definition -

A meeting of minds between two persons whereby one binds himself, with
respect to the other, to give something or to render some service. (Art. 1305).

2. Elements of Contract
A. Essential Elements - without them a contract cannot exist because these are
indispensable requirements.

1. Consent
2. Subject
3. Cause or consideration

B. Natural elements - these are found in certain contracts and presumed to exist,
unless excluded by stipulation of the parties.

Example: Warrant against eviction and against hidden defects in contract of sale.

C. Accidental elements - not considered agreed by the parties unless stipulated.

Example: Payment of interest in a contract of loan.

3. The stages in the life of contract.

1. Preparation on conception - this is the preparatory step taken by the parties leading
to the perfection of the contract, otherwise known as the bargaining point.
2. Perfection or birth - the meeting of minds regarding the subject matter and the
cause of the contract.
3. Consummation or death or termination - the point of time when the parties have
performed their respective obligation and the contract is put to an end.

Example: Today, S offered for sale a specific car to B for P1,000,000. Tomorrow, B
countered the offer by telling S that he will buy the car if S will give it for P800,000. S
consented to the proposal (counter) of B, Two days thereafter, S delivered the car and B
paid the price of P800,000

Today is the preparation of the contract because this is the bargaining point, that is,
when negotiation is on progress
 Tomorrow is the perfection, that is, when their minds met as the offer and the cause
of the contract.

Two days after is the consumption, that is, when S delivered the object and B paid
the price.

4. Distinguish an ordinary contract from:

1. Contract of marriage
2. Obligation
3. Pact
4. Stipulation

1. In ordinary contract the parties may be two or more persons of the same or different
sexes while in a marriage contract, it is necessary that the parties must be one man and
one woman. Ordinary contract may be terminated by mere agreement of the parties
while in marriage contract, termination is with the consent of the state.

2. The contract is the cause, while the obligation is the effect. There can be an obligation
without a contract, but there can be no contract without an obligation.

3. A pact is an incidental part of a contract which can be separated from the agreement
itself.

4. Stipulation is the dispositive part of a contract which cannot be separated from the
principal agreement.

5. What are the basic principle or characteristic of a contract?

1. Freedom (or liberty) to stipulate (Art. 1306)

2. Obligatory force and compliance in good faith (Arts. 1159, 13150
3. Perfection by mere consent (Art. 1315)
4. Both parties are mutually bound (Art. 1308)
5. Relativity: binding between in the parties only, their assigns and heirs. (Art. 1311)

6. Different kinds of contracts.

A. According to perfection

a. Consensual - perfected by mere consent, such as sale and barter

b. Real - perfected by the delivery of the object of the contract, such as pledge, loan
and deposit.
B. According to degree of importance

a. Principal - can stand alone, such as sale, barter, deposit and loan.
b. Accessory - its existence and validity is dependent upon another contract, such
as pledge, mortgage and guaranty.

c. Preparatory - contract is not an end by itself, but a means thru which other
contacts may be made.

Example: contact of Partnership and Contract of Agency.

C. According to subject matter.

a. Contract involving things, such as sale, barter.

b. Contract involving rights and credits, such as usufruct or assignment of credit.

c. Contracts involving services, such as agency, lease of services and contract of

carriage.

D. According to name

a. Nominate - with a special name, such as pledge, barter and lease.

b. Innominate - without any name.

E. According to cause.

a. Onerous - there is an exchange of consideration such as sale, barter and lease.

b. Gratuitous - there is no consideration received in exchange for what has been
Given. Such as donation, remission and commodatum.
c. Remunetory - something is given for a benefit or service performed without any
legal obligation to do so.

F. According to nature of obligation produced or number of parties obligated.

a. Unilateral - where only one of the parties is obliged to give or to do something,

such as commodatum, gratuitous deposit and gratuitous mutuum.

1. Commodatum is a contract o loan whereby one of the parties delivers to

another, either something no consumable so that the latter may use the same for a
certain time to return it. This contract is essentially gratuitous. (Art. 1933)
 2. Mutuum is a contract of loan whereby one of the parties delivers money or
other consumable things, upon the condition that some amount of the same kind
and quality shall be paid. This contract may be gratuitous or with a stipulation to pay
interest (Art. 1933)

b. Bilateral or “sinalagmatico” - where both parties are obliged to give or to do

something, such as sale, barter and lease.
G. According to risk.

a. Commutative - where equivalent values are given by the both parties, such
as sale, barter and lease.

b. Aleatory - where fulfillment of the contract is dependent upon chance, such

as insurance.

7. The concept of “ liberty to contract”

The contacting parties may establish such stipulations, clauses, terms, and
conditions as they may deem convenient, provided they are not contrary to law,
morals, good customs, public order, or public policy. This is otherwise known as the
“principle of autonomy. (Art. 1306)

Example of the prohibition:

a. Against the law - D agreed to kill X for a consideration of P10,000. Should D kill X,
D cannot collect the P10,000 because the agreement is contrary to law.

b. Immoral agreements - promise of the marriage based on carnal knowledge is

immoral.

c. Against custom - an agreement to vote to a certain candidate for a consideration.

d. Against public policy - restraint of trade.

e. Against public order - agreement in a contract of lease that lessee can be ejected
by the use of force upon violation of the contract of lease.

Note: to simplify the meaning of the article, the contracting parties can enter into any
stipulation provided it is not contrary to law or morals.

.8. Illustrative cases of liberty to Contract:

 No 1. Is the agreement between two candidates in an election that whoever loses in
the convention should not run against the winner valid? Why?

A. No, because political rights are outside the commerce of man.

No 2. In the contact of employment between A and B, the latter agreed that for a
period of five years after the termination of his employment, he shall neither engage or
interest himself in any business enterprise similar to or in competition with those
operated by the A, nor enter into the employment of any enterprise in the Philippines,
except after obtaining the written permission of A. Is the agreement valid? Reasons?

A. The agreement is void because it is contrary to public policy. Our courts

repeatedly held that such prohibition is an undue or unreasonable restraint of trade
because it is permanent in nature.

No 3. A took up law at the Arellano University. He left the University and enrolled for
the last semester of his fourth year in the Abad Santos Law School. Subsequently, he
passed the bar examinations. During his stay at the Arellano University, he was a
constant recipient of scholarship grants. However, he was made to sign a waiver of his
right to transfer to another school unless he refunds to the University the equivalent of
his scholarship grants. Since taking the bar examinations, he had to secure his transcipt
of records from the University. He was required to make a refund, which he did. He was
required to make refund, which he did, but under protest. Subsequently, he brought an
action to remove the amount which he had paid. Will the action prosper?

A. Yes, because the waiver signed by A is contrary to public policy, therefore void.
Scholarship grants are awarded in recognition of merit and not to attract brilliant students
in school for their propaganda value. (Cul vs. Arellano University, 122 Phil. 135)

No 4. In the contract of sale of a drugstore it was stipulated that the seller shall not
open or have any interest directly or indirectly in any drugstore either in his own name or
in the name of another or have connection with or be employed in any drugstore within
four kilometer form the municipality of San Fernando, Pampanga while the said
purchaser or his heirs may own or have a right to open a drugstore or have an interest in
any other within the limits of San Fernando, Pampanga. Are the limitations or restrictions
placed upon the seller valid? Reasons.

A. Yes because the restriction imposed is only on a limited scale. The answer would be
different if the seller is forbidden in business within the Philippines, or during his lifetime
he cannot engage in drugstore business, or to engage this kind of business he must
obtain the written consent of the buyer, for this is contrary to public policy considered by
the court as restraint of trade.
 No 5. The Constitution enjoins the State to “protect the rights of workers and
promote their welfare,” “to afford labor full protection.” the State, therefore, has the right
and duty to regulate and relations between capital and labor. Theses relations are not
merely, contractual but are so impressed with public interest that labor contracts,
collective bargaining agreements included, must yield to the common good. Should such
contracts contain stipulations that are contrary to public policy, courts would not hesitate
to strike down these stipulation. (Metrobank vs. Court of Appeals, et, al., G.R.
No.122899, June 8, 2000)

9. Contract of Adhesion.

A contract executed is the law between the parties, and they are obliged to comply
fully and not selectively with its terms. A contract of adhesion is no exception. A contract
of adhesion is just as binding as ordinary contracts.

It is true that the court has, on occasion, struck down such contracts as being
assailable when the weaker party is left with no choice by the dominant bargaining party
and is thus completely derived of an opportunity to bargain effectively. Nevertheless,
contracts or adhesion are to prohibited even as the courts remain careful in scrutinizing
the factual circumstances underlying each case to determine the respective claims of
contending parties on their efficacy. The rule is that, should there be ambiguities in a
contract of adhesion, such ambiguities are to be construed against the party that
prepared it. If, however, the stipulations are not obscure, but are clear and leave no
doubt on the intention of the parties, the literal meaning of its stipulations must be held
controlling. (PILTEL vs. Tecson, G.R. No.156966, May 7, 2004)

10. Determination of a contract by the third person.

Although the performance in a contract cannot be left to the will of one of the parties,
the determination of the performance may be left to a third person. The division of the
third person is not binding until it has been made known to both contracting parties.

Exception to the determination of performance by third person.

The determination of performance by the third person may be cancelled if it is

inequitable. In such a case, the court shall decide what is quitable under the
circumstances.

Illustrative Case: A legend a certain building to B and C. In the contract to lease, there is
a stipulation that B and C can continue occupying the building indefinitely so long as
they should faithfully fulfill their obligation of paying the rentals. In an action for ejectment
can B and C successfully set up the defense that under the contract, they can continue
occupying the building so long as they faithfully fulfill their obligation of paying the
rentals? Reasons.
 No, because the continuance of the contract would depend upon the sole will of
Band C, completely depriving the owner of all say on the matter. The law states that “ the
validity and compliance of the contract cannot be left to the will of one of them”. (Art.
1308)

11. The parties bound by the contract, otherwise known as the “principle of
relativity”.

Contracts take effect only between the parties, their assigns and heirs, except in
cases where the rights and obligations arising from the contract are not transmissible bt
their nature, or by stipulation or by provision of law. The heir is not liable beyond the
value of the property he received from the decedent.

If the contract should contain some stipulation in favor of a third person, he may
demand it’s fulfillment provided he communicated his acceptance to the obligor of a
person is not sufficient. The contracting parties must have clearly and deliberately
conferred a for upon a third person. (Art. 1311)

Note: the second paragraph is called stipulation Pour Autrui”/

12. What are some of the exceptions to the “Rule of relativity”.

A. Obligations arising from contract which are not transmissible by their nature,
stipulation or provision of law”. (Art. 1311)

B. Stipulation pour autrui. (Art. 1311)

C. When a third person induces another to violate his contract. (Art. 1314)

D. The right of a creditor to sue on a contact entered into by his debtor. (Art.
1313)

13. Illustrative Case: L leased his property to X. X subleased party of the premises to
SL in violation of the condition of the contract of lease between L and X. L therefore
goes to court to rescind the contract.

Question: Can SL object the rescissions on the ground that if the contract is
rescinded, the sub-lease contract would be affected?

Answer: No, because L is not bound by the sub-lease contract between X and SL
inasmuch as he did not participate therein.

14. Stipulation “Pour Autrui” explained.

 It is stipulation in favor of a a third person made by the contracting parties with the
clear and deliberate intention of conferring a favor upon such third person and whose
fulfillment the latter may demand by communicating his acceptance to the obligor before
its revocation, (Art. 1311)

Requisites:

1. Stipulation is in favor of a third person

2. The parties clearly and deliberately conferred the faovr to the third person.

3. The stipulation must be a part of the contract.

4. The acceptance of the third person must be communicated to the parties of the
contract.

Example No. 1: D owes C P10,000 with 14% interest payable on June 15. The 14%
interest must be given to a third person, X. Take note that the parties in the contract is D
and C but it carries a stipulation in favor of “X”. In this case, X must communicate his
acceptance to D and C, otherwise, he (X) will not be entitled to the benefit of the
contract. This is stipulation “Pour Autrui’.

Example No. 2: Insurance of motor vehicles as public utilities, take by their owners
or operators in favor of the passengers. The contract here is between the owner-
operator and the insurers but the favored person are the passengers, a third person.

15. How contracts are perfected.

1. If consensual - by mere consent.

Example: contract of sale

2. If real - by delivery
Example: contract of pledge and mortgage

3. If formal or solemn - special form is required for its perfection.

Example: donation of a real property, it must be in a public instrument to be valid.

16. Perfection of real contracts.

If the contract is real, the perfection is the same as if the contract is consensual. In
addition, there must be delivery of the object. If the object of the contract is not delivered,
the contract is not perfected. The contracts referred to this article are deposit, pledge,
and commodatum.
 Take note that if the agreement is a contract “to make deposit, or to make a pledge”
the contract is consensual. The perfection is upon the meeting of minds. After delivery,
the contract becomes as real contract.

Example: today, June 1, D borrowed money from C P10,000 with a promise that D
will give his diamond ring to C as a security on June 1. Before June 15 even if C gave D
the p10,000, the contract is not yet perfected because in a contract of pledge, the
perfection is only upon the delivery of the object pledged.

17. Concept of consent

Consent is the manifestation of the meeting of the offer and the acceptance upon
the thing and the cause of the contract.

18. Requisites of consent

1. Must be given by two or more parties.

2. Parties are capacitated to contract
3. Consent must be intelligently or freely given
4. Express manifestation of the will of the contracting parties

19. Nature of acceptance

Acceptance of the offer must be absolute. If qualified, it constitutes only a counter-

offer and the contract is not perfected unless the counter-offer is counter accepted. In
shirt, a counter-offer extinguishes the original offer.

20. Q - What are the different kind of innominate contracts and how are they
regulated?

1. Do ut des - I give that you give

2. Do ut facias - I give give that you do
3. Facio ut des - I do that you give
4. Facio ut Facia - I do that you do

These contracts shall be regulated by the stipulation of the parties, by the

general provisions or principles of obligations and contracts, by the rules governing
the most analogous nominate contracts, and by the custom of the place.

Illustrative Cases:

1. S offered 1,000 ball pens to B for P5,00 each. B answered by letter that he is
willing to but if S could deliver 1,500. Is the contract perfected?
 No, because the acceptance is qualified. It continues a counter-offer. (Art. 1319)

2. On January 5, 2010, S wrote a letter to B offering to him the sale of a specific

building. On January 6, 2010, at 7:00 AM. B sent a letter of acceptance which was
received by S at 11:00 A.M.. That day. But at 10:00A.M., S had already send B a letter
of withdrawal of the offer which was received by B at 5:00 P.M. Was the contract
perfected?

No, because there was no more offer at the time of acceptance.

3. S writes B offering to sell a piece of land for P10,000 and at the same time
receives from B a letter offering to buy the said land for P10,000. Is there a perfected
contract?

None, because neither party knew the offer of the other at the time the letter was
written. For the contract to be perfected it is necessary that one party should accept the
offer made by the other. This is otherwise known as “crossing of letters”.

21. Perfection of contract: if send by letter or telegram

Acceptance made by letter or telegram does not bind the offeror except from the
time it comes to his knowledge. An offer becomes ineffective upon death, civil,
interdiction, insanity, or insolvency of either party before acceptance is conveyed.

Example 1: S offered 1-- ball pens to B for P1.00 each. B answered through a letter
that he is willing to buy if S can deliver 150. Is the contract perfected? No, because B’s
acceptance is qualified, therefore it constitutes a counter-offer.

Example 2: on December 1, S offered for sale a specific car to B for P100,000 by

letter. B received the letter and consented to buy on December 5. He wrote the letter of
acceptance and dropped it at the mailbox on December 10. While the letter is in the
course of mail, B died, but the letter was received by X on December 15, is the contract
perfected? No. The death of either party before the acceptance is conveyed shall render
the offer and acceptance ineffective.

22. Expedition theory, Cognition theory, and Manifestation theory as applied to

perfection of contracts.

A. In Expedition theory, the contract is perfected from the moment the acceptance is
declared or made even if not made known to the offeror. In short, if the offer is made by
the letter or telegram, from the moment the offeree transmits the notification of
acceptance in the mailbox, the contract was already perfected. This is the common law
principle adopted by majority of American courts.
B. In Cognition Theory, the contract is perfected from the moment the acceptance
comes to the knowledge of the offeror. In short, there is no perfected contract until it has
come to the knowledge of the person making the offer. This is the theory adopted in the
Philippines.

C. In Manifestation Theory, the contract is perfected from the moment the acceptance is
declared or made. This is the theory followed by the Code of Commerce. (Art. 54, Code
of Commerce)

23. Revocation of Acceptance

The acceptance by the offeree may be revoked before reaching the knowledge of
the offeror. If it is revoked, the contract is not perfected if the notice of revocation
reaches to the offeror before the letter of acceptance is received. (4 tolentino civil code
418)

24. In unilateral promise, specific acceptance is not required.

According to authorities in Civil law, if an obligor promises a reward for the

realization of an act or achievement of a particular result, said obligor is obliged to pay
the reward to anyone who performs the act or attains the result. No specific acceptance
is required because the offer is made to the public. This is an exception to the rule of law
that if the offer is not accepted the same is not binding. (4 Tolentino Civil Code 57)

25. Acceptance of offer made thru an agent.

If the offer is made thru an agent, the contract is perfected from the time the
acceptance of the offeree is communicated to the agent even before it is conveyed
to the principal under the principle in agency that the personality of the agent is an
extension of that of the principal. (Art. 1322)

Illustrative case:

P appointed A as his agent to sell a specific car for P10,000. A offered it to

B on June 10 by letter, which the latter (B) received on the same date. B sends
his letter of acceptance to A on June 15 and was received by A on the same
date. A communicated the acceptance of B to his principal on June 20

Question: when is the contract perfected?

 Answer: June 15, because this is the date when the acceptance of B came
to the knowledge of A. The principle in agency is that the personality of the
agent is an extension of that of the principal.

26. Effect of death civil interdiction, insolvency or insanity of either party before
acceptance is conveyed.

The offer and the acceptance becomes ineffective.

Illustrative Case: X applied for a life annuity of One million pesos payable annually.
He paid one million and was issued a provisional receipt. The application was forwarded
to the office of the company in New York. However, the notice of acceptance was
received at the residence of X one day after his death.

Q - Can his legal heirs still recover the One million pesos paid?

A - Yes, because there was no perfected contract of life annuity for the following
reasons:

1. Death will render the offer ineffective.

2. Offer by communication becomes effective only from the time it has come to
knowledge of the person making the offer. (Enriquez vs. Sun life Assurance Co., 41
Phil. 269)

Question: Supposing this is a life insurance for one million pesos and X paid
P50,000 as premium for one year. Can X’s heirs recover the P50,000 premium paid or
will they collect the one million policy?

Answer: X’s heirs can recover only the premium paid of P50,000 because there was
no perfected contract of insurance.
27. Rule in case of an offer sell

When the offer has allowed the offeree a certain period to accept, the offer may be
withdrawn at any time before acceptance by communicating such withdrawal, except
when the potion is founded upon a consideration as something paid or promised. (Art.
1324)

Option Contract - one giving a person a certain period within which to accept the offer of
the offeror.

Option Money - money paid or promised to be paid in consideration for the option.

Question no. 1: S offered to sell his house and lot for P10,000 to B, who was
interested in buying the same. In his letter to B, S stated that he was giving a period of
10 days beginning January 2 within which to accept the offer. On January 5, S went to B
withdrawing the offer to sell. Can S validly do so?

Yes, because this is a mere offer withdrawable at any time.

Question no. 2: in the preceding question, suppose B gave S P1,000 as option, can
s withdraw within the 10-day period?

No, because the offer is founded on a consideration distinct from the price of the
sale, the seller cannot withdraw until after the lapse of the 10-day period.

Question no.3 : in the preceding illustration, suppose B consented to the offer, how
much will he pay S, P10,000 or P9,000?

P10,000 because the P1,000 is not a part of the purchase price. The amount is a
consideration of the 10-day option period independent from the purchase price.

28. Illustrative Case: X, the owner of a house and lot in Quezon City, gave an option to
A to purchase said property for P100,000 within ninety days from May 1, 2006. A gave X
one (P1.00) peso as option money. Before the expiration of the ninety-day period, A
went to X to exercise his option and to pay the purchase price but X refused because
somebody wanted to buy his property for P150,000 and because there was no sufficient
consideration for the option. A sued X to compel him to accept payment and execute a
deed of sale in his favor. Decide the case. X can be compelled to accept the purchase
price of P100,000 and to execute the Deed of Sale. It is true that this is only an offer to
sell, but when A gave X a consideration of P1.00 as option money, the latter could no
longer withdraw the offer until after the 90-day period. When therefore A tendered the
purchase price to X, in effect he is exercising his option, and the contract is perfected.
Many authors in Civil Law maintained that the insufficiency of the consideration paid by
virtue of the option is irrelevant, because this is not the price of the sale.

29. Are business advertisements of things for sale definite offers?

If the offer is definite or certain, that is, all specific particulars needed in the contract
are present in the advertisements, the offer is definite. If important details are not stated,
it is only considered as a mere invitation to make an offer.

Rules: a. Unless it appears otherwise, business advertisements of things for sale

are not definite offers, but mere invitations to make an offer. (Art. 1325).
 b. Advertisements for bidders are simply invitations to make proposals, and the
advertiser is not bound to accept the highest or lowest bidder, unless the contrary
appears. (Art. 1326).

30. Illustrative Case: “K” and Co. Published in the newspaper an “Invitation to
Bid” inviting proposals to supply labor and materials for a construction project
described in the invitation. “L”. “M” and “N” submitted bids. When the bids were
opened, it appeared that ‘L” submitted the lowest bid. However “K” and Co.
Awarded the contract to “N”, the highest bidder, on the ground that he was the
most experienced and responsible bidder. “L” brought an action against “K” and
Co. To compel the award of the contract to him and to recover damages. Is “L’s”
position meritorious?

Answer: “L’s” position is not meritorious. According to law, advertisements for bidder are
simply invitations to make proposals, and the advertiser is not bound to accept the
highest or lowest bidder unless the contrary appears. (Art. 1326) (Civil Law Reviewer,
Jurado, 19th Ed)

31. Illustrative Case: X advertised his lot for sale in a newspaper of general circulation.
The advertisement states: “For sale: 500sq.m.located at No.3333 Buendia Avenue,
Makati, Metro Manila. Price P500,000.00. Term of payment: Cash only”. W accepted the
offer by sending a letter to X which the latter received. Can X still back out from his
advertisement is merely an invitation to make an offer?

Answer: Since the offer is certain and accepted by the buyer(W), the seller (X) could
no longer withdraw otherwise he will answer for damages.

32. Persons incapable of giving consent to contract

1. Minors
2. Insane or demented persons
3. Deaf-mutes who do not know how to write
4. Persons suffering from civil interdiction
5. Incompetents under guardianship
6. Married women of age in cases specified by law

Minors - persons who have not yet reached the age of majority. (Art. 1327)

Deaf-mutes who do not know how to write are incapacitated. However, if they know
how to read, but do not know how to write, they are capable of understanding, and
therefore capacitated to contract.

33. Can an unemancipated minor enter into a contract of sale?

 As a rule, no, because are incapable of giving consent, except where necessities
are sold and delivered to a minor or other person without capacity to act, then he must
pay only a reasonable price. (Art. 1489)

Note no. 1:

Question: what is the age if majority in the Philippines?

Answer: Republic Act No. 6809

“ An Act lowering the age of majority from twenty-one to eighteen years,

Amending for the purpose Executive Order numbered two hundred Nine and for
other purposes.”

Section 1. Article 234 of Executive Order No. 209, the family Code of the
Philippines, is hereby amended to read as follows.”

Art. 234 “Emancipation takes place by the attainment of majority. Unless

otherwise provided, majority commences at the age of eighteen years.”

Note No.2:

Marriage of a minor, voluntary concession of the father or mother exercising

parental authority are no longer considered ground for emancipation because the
age of majority is lowered to 18 years old. ( Art. 234, Family Code of the Philippines)

34. Give at least two (2) exceptions to the rule that a contract entered into
by an unemancipated minor without the consent of his parents or guardians is
voidable.

The following are considered exceptions:

(a) Where the contract is entered into by a minor who misrepresent his age,
applying the doctrine of estoppel.

(b) Where the contract involves the sale and delivery of necessities to the minor.
(Art.1489)

35. Q - Define estoppel

 A - Estoppel is a condition or state by virtue of which an admission or representation
is rendered conclusive upon the person making it, and cannot be denied or disproved as
against the person replying thereon. (Art. 1431).

Illustrative Cases:

a. X, of age, entered into a contract with Y, a minor, X knew and the contract
specifically stated the age of Y. May X successfully demand annulment of the contract?
Why?

No, because in a contract, the person who is capacitated cannot allege the
incapacity of the person who is incapacitated by reason of estoppel.

b. S, a minor, misrepresenting himself to be of age, sold a parcel of land to B, who is

legal age. May S successfully demand annulment to give consent because of minority?

Answer:

No. The courts had repeatedly stated that, in sale of real estate by a minor who
represented himself to have reached the age of majority, the contract is valid, and he
cannot be permitted afterwards to excuse himself from compliance of his obligation by
reason of estoppel. Under Art. 1431, the law provides “Through estoppel an admission
or representation is rendered conclusive upon the person making it, and cannot be
denied or disproved as against the person relying thereon:.

36. Effect if a party is in lucis interval.

Contracts entered into during a luci interval are valid. Contracts agreed upon in a
state of drunkenness or during hypnotic spell are voidable. (Art. 1328)

Lucid interval - is a temporary period of sanity. This is the period of suspension of

insanity to sanity, again to insanity. Be it noted that if the contract is entered into during
lucid interval or during a state of sanity, the contract is binding between the parties
because voidable contracts are valid until annulled by a proper action in court.
37. Five causes vitiating consent

Q - What are the vices of consent?

A - 1. Mistake or error
2. Intimidation or threat
3. Violence or force
4. Undue influence
5. Fraud or deceit (Art. 1330)
 CODE: MIVUF

38. When error or mistake vitiates consent

1. It must be substantial regarding

a. Objet of contract
b. Conditions which principally moved one or both parties to enter into the
contract
c. Identity or qualification of persons

2. Error must be excusable, not caused by negligence.

3. The error must be a mistake of fact, and not of law.

Note: simple error or mistake as to account will give rise to correction, not
annulment of the contract.

Yes, S is liable because the defense of minority has already prescribed if the contract is
voidable by reason of minority the Prescriptive period of four years shall be counted from
the time guardianship ceases. The defense of minority is correct if the action is filed
against S within four years after reaching the age of majority In the latter case, if the
contract is annulled, S is still liable to return the money received by him to the extent he
was benefited (Art. 1397) (Braganza vs. Villa Abrille 105 Phil 456)

e) D, who owns a parcel of land, is Indebted to C for P10.000. X, who is interested in

buying the land, intimidated D to sign a deed of sale transferring the land to X.

1. Can C annul the contract between D and X?

2. What can C do in order to protect his interest?

1. No, because he ¡s not a party to the contract. In short, C is not obliged by the terms of
the contract, either principally or subsidiarily.

2. C can ask for the rescission because the contract between D and X prejudices him g!
D could no longer pay the obligation to C.

104. What is the effect of the annulment of a voidable contract?

1. 1f the contract is executory, the parties are not bound to comply with their
presentation.

2. If the contract was already executed, the parties shall restore to each other the object
of the contract, that is, the money plus interest, the property together with its fruits.
However if the ground for annulment is incapacity of the other party, the party
incapacitated is bound to return only to the extent he was benefited. (Arts. 1398 and
1402)
3. The guilty party is liable to answer for damages.

105. Illustrative Case:

S, a minor, owns a parcel of land planted with camote S sold this land to B for P10,000.
After reaching the age of majority1 but within four (4) years, S filed an action for
annulment and the court annulled the contract.

Question No. 1: What are the rights and obligations of the parties?

Answer. S must return the P10,000 plus ‘the interest. B must return the property or land
plus the fruits of the land.

Question No. 2: Supposing S, after receiving the P10,000, deposited the P4.000 at
Banco Fino, while the last P6,000 was taken unlawfully by X. Up to what amount is he
obliged
to return?

Answer: P4,000 only, because the law states that “if the ground for annulment is
incapacity, the person incapacitated is only bound to return to the extent he was
benefited’:

106. Qualifying illustrative case: S and B, both of age, entered into a contract of sale,
regarding a parcel of land for P10,000. B intimidated s, rendering the contract voidable.
Of the P10,000 received by S, the P4,000 was deposited at Banco Fino, while the
P6,000
was taken unlawfully by X.

Question: How much is S obliged to return to B if the contract is annulled?

Answer P10,000, because the beneficial interest stated in Article 1399 is applicable Only
if the ground for Annulment is incapacity of one of the parties. If the ground, Annulment
is of the five (5) causes the party who is return is obliged to return even to the extent he
was not benefited.

107. Loss of the thing while in the possession of the party who can annul the
contract

1. If due to his fault the right to annul is extinguished In short the party has no more right
to annul.

2. If due to fortuitous event — the contract can still be annulled, unless if the innocent
party could no longer restore what in virtue of the decree of annulment he is bound to
return.

Illustrative Case: S forced B to sign a contract of sale of a specific house for P10,000. In
here, B got the house and destroyed it.
Question: Can B still file an action for annulment?
Answer; No more, because by the act of destroying he loses his right to file the action for
annulment.
Illustrative Case: S sold a specific house to B, a minor, for P10,000. Later, the house
was destroyed by fortuitous event.

Question: Can B still file an action for annulment

Answer: Yes. If the right of action ¡s based upon the incapacity of anyone of the
contracting parties the loss of the thing shall not be an obstacle to the success of the
action, Be it noted that the loss is due to fortuitous event and the minor is not guilty of
fraud or fault.

108. Unenforceable contracts

Those that cannot be enforced in court or sued upon by reason of defects provided by
law until and unless they are ratified according to law.

109. Concept of unenforceable contract:

An unenforceable contract is one which cannot be enforced unless it is first ratified.
These are called contracts without effect, but if ratified, they are valid contracts
Sometimes, these are called “validable” contracts.

110. Distinguish unenforceable from voidable and

rescissible contracts:

Voidable and rescissible are valid and binding until annulled or rescinded; while
unenforceable contracts are without effect unless ratified.

111. Kinds of unenforceable contracts

1. Those executed by one in the name of another without 115 any authority or in excess
of such authority.
2. Those that do not comply with the Statute of Frauds.
3. Those where both parties are incapable of giving consent.

NOTE. The enumeration under Article 1403 of the CMI

Code is exclusive.

112. Unauthorized or disauthorized contracts.

Contracts entered into in the name of another person by one who has been given no
authority or legal representation or who has acted beyond his power are unenforceable
unless ratified.

Example: O is the owner of a specific car. X sold the car to B without authority from O. In
this case, B cannot demand delivery from O because the contract is unenforceable.
However, if B gave X the purchase price and X gave it to O who accepted it the contract
becomes enforceable there was ratification.

113. What is Statute of Frauds?

be It is a law which requires that certain contracts must be in writing otherwise
unenforceable

114. What is its purpose?

In the case of Facturan vs. Sabonal, 81 Philippine and Report 512, the Court has this to
say: Since memory is many times unreliable, oral agreement may sometimes until result
in injustice. To aid human memory, to prevent the re commission of injustice due to fault
memory, to discourage intentional misrepresentations a principal aims of the Statute of
Frauds.

115. Form required.

Contracts falling under the Statute of Frauds are required to be in writing or there should
be a note or memorandum subscribed by the party charged, or his agent. Failure to
execute the contract in writing does not render the contract void, but only unenforceable.
116. Application
Statute of Frauds is applicable only to executory contracts and not to contracts totally or
partially executed.

Example: S sold a parcel of land to B for P10,000. The contract was orally entered into.
The contract here is unenforceable because the Statute of Frauds requires that if the
object is immovable property the contract must be in to writing. However, if B paid the
price of the sale, accepted rid by S, the latter cannot refuse to deliver because there was
partial performance of the contract, and the same becomes enforceable. Likewise, if S
delivered the land to B and B accepted delivery the contract becomes enforceable
because there was partial execution of the contract does not comply with his obligation
to marry the other, the injured party cannot compel the other party to proceed with the
marriage proposition. His only right is to ask for damages because of the breach of
promise.

4. An agreement for the sale of goods, chattels, or things in action at a price of five
hundred pesos or more.

Example: S and B entered orally into a contract of sale of a specific table for P600.
Delivery and payment are to take place on June 30. If on the date stated, S refused to
deliver, B cannot compel him to do so even if he is willing to pay because the contract
falls under the Statute of Frauds: to be enforceable it must be in writing.

5. An agreement for the leasing for a longer period than one year, of the sale of real
property or an Interest therein:

Instances covered:

a. if the lease is one year or less, oral contract is enforceable even if the object is real or
personal property.

b. If the lease is for more than one year and the object is immovable, it must be ¡n
writing otherwise unenforceable.

c. if it Is a sale of immovable property, irrespective of the price of the sale, it must be in

writing, otherwise unenforceable.

6. A representation as to the credit of a third person.

Example: D wanted to borrow P100,000 at Banco Fino. Before the bank released the
money, the bank inquired from R about the credit status of D. R orally assured the bank
that the credit is good, a well-known client of other banks in the locality, and could easily
pay his loan if given. By virtue of such statement, Banco Fino released the money.

Question: If on the duo date, D cannot pay, can the bank hold R liable?

Answer No, because the representation as to the credit of other person must be in
writing, otherwise unenforceable.

118. Sufficiency of the note or memorandum.

The note or memorandum is sufficient if it contains me name of the contracting parties,
the date, and the place of the contract, the terms and condition, the description of the
object, and the signature of the party assuming the obligation.

119. Incapacity of both parties.

S, 16 years old, sold to B, 17 years old, a specific ring for P10,000. This contract cannot
be enforced because both parties are incapable of giving consent.

120. Ratification or contracts falling under the Statute of

Frauds.

1. Failure to object to the presentation of oral evidence

2. Acceptance of benefits under them, hence if the contract is partially or totally
executed, Statute of Frauds will not apply.

Acts considered as partial performance.

1. Possession
2. Payment of taxes
3. Improving the property
4. Tender of payment followed by surveying the lot at the expense of the buyer

121. If the contract is totally or partially executed, will

Statute of Frauds still apply?
No, Statute of Frauds is applicable only if the contract is
Executory.

Example: s sold orally to B a specific radio for P600, to be delivered after 10 days from
its perfection. The contract is supposed to be in writing because the price is more than
P500 otherwise unenforceable However, If B paid already the price of the sale, S must
deliver the radio and cannot claim the benefit of the Statute of Frauds because
Part of the contract was already executed.

122. Does a contract of loan for P1,000 to be in writing to be enforceable?

No, because a contract of loan does not fall under the statute of Frauds. What is covered
under the Statute of Frauds is the sale of goods or movable property.

123. Can an oral sale of land be judicially enforced as between the contracting
parties, if the land has not been delivered but the buyer has paid ten percent (10%)
of the purchase price?
Yes, contracts performed totally or partially are not governed by the Statute of Frauds.
The acceptance of the seller of the 10% purchase price amounts to ratification.

124. “0” verbally leased his house and lot to “L” for two years at a monthly rental
of P250.00. After the first year, “O” demanded a rental of P500.00 claiming that due
to
the energy crisis, with the sudden increase of the price of oil, which no one
expected there was also a general Increase in prices. “O” proved an inflation rate
of 100%. When “L” refused to vacate the house, “0” brought an action for
ejectment. “O” denied that they had agreed to a lease for two years. Can the
lessee testify on a verbal contract of lease? Reasons.

Yes, because “0” accepted the benefits of the contract by accepting the monthly rentals
for one year True, the contract, is unenforceable because it is a lease for a longer Period
than one year, but since the lessor has accepted the rentals the contract becomes
enforceable by ratification.

125. Right of the party to compel the other to execute the needed instrument.

When a public Instrument is required for mere convenience of the parties, the same my
compel each other to execute the necessary documents, but only if the following
elements are present:
1. The contract must be valid.
2. The contract is enforceable.

126. Illustrative Case:

1. S sold to B a parcel of land ¡n a private instrument. Later, B wanted to have the sale
registered in the Registry of Property requiring a public instrument.
Question: Can B compel S to execute the needed public instrument?

Answer: Yes. The contract is valid because all the essential elements are present. Not
only that the contract is valid but also ¡t is enforceable because it is in writing. The right
of B is to request S to execute the public instrument, and if S refused, his right is to go to
court so that the court can compel him to execute the needed instrument. (Art. 1357)

2. S sold to B for P10,000 a parcel of land orally. Later, B wanted to have the sale
registered which requires the execution of a public instrument.

a. Is the sale valid?

Yes, because all the essential elements are present.

b. Is the sale enforceable?

No, because it is orally made. The law requires that in sale of immovable property, the
contract must be in writing, otherwise unenforceable (Art. 1403)

c. Can B Compel S to execute the public instrument needed? No. Although the contract
is valid, it is unenforceable before B can compel S to execute to public instrument, it is
necessary that the contract is valid and enforceable.

d. Supposing the contract remains to be oral, but B paid the price of the sale which was
accepted by S.

Can B compel S to execute the public instrument?

Yes. If a contract is totally or partially executed, it becomes enforceable under the rule of
ratification.

3. Example:

S, 16 years old, and B. 17 years old, entered into a contract of sale of a watch without
the consent of their parents or guardian. The contract ¡s unenforceable because both
parties are incapacitated. If later, the guardian of S ratifies the contract, the same
becomes voidable because there is only one party incapacitated. If later on, the guardian
of B ratifies also the contract, it becomes enforceable upon its inception, or effective
when the contract was perfected.

127. Is “mutual promise to marry” enforceable even ¡f oral?

Yes, because this is an exception as it is not embraced. Under the Statute of Frauds.
However, it is made clear. That we are not compelling the parties to marry each other
because of the promise. The only right of the Injured is to ask for damages because of
the breach of promise, not specific performance.

128. L leased to X in a public instrument registered in the. Registry of Property,

Apartment No.9 for five (5) years beginning January 1, 2010. On the third year, L
sold the apartment to B.

1. Is the sale between L and B valid? Yes, because L remains to be the owner of the
apartment, even it fit is leased to X.

2. After the sale between L and B, must X vacate the apartment because the new owner
is B?

No, because in contract creating real rights, third persons who come info possession of
the object of the contract are bound thereby. (Art. 1312). 8, therefore, must respect the
lease contract up to its expiration.

3. If the contract of lease is orally made, is the contract of sale valid?

Yes. Although the law requires that contract of lease longer than 1 year must be in
writing, this requirement is for enforceability and not for validity.

4. If the contract of lease was orally entered into, is the contract of sale enforceable?
No, because in sale of immovable property or interest therein, the contract must be in
writing. Otherwise unenforceable. However, if part of the contract, was already executed
by one or both parties the contract becomes enforceable.

129. Does a mere telegram comply with the statue of frauds?

No, because the law requires that contract falling under the Statute of Frauds must be ¡n
writing otherwise unenforceable However If a written note or memorandum or letters or
telegrams provides the essentials of the contracts and signed by the parties charged or
their agents, the Statute of Frauds is complied with.

130. Is the oral sale of immovable property for a price of P400 enforceable?

No, because this is immovable property. Irrespective of the price of the sale, ¡t must
always be in writing. Otherwise unenforceable.

131. Void contracts defined.

These are contracts which have absolutely no force and effect and are inexistent from
the beginning. The maxim is “No contract at aIl”.

The following contracts are inexistent and void from the beginning:

1. Those whose cause, object or purpose is contrary to law, morals, good customs,
public order or public policy;
2. Those which are absolutely simulated or fictitious;
3. Those whose cause or object did not exist at the time of the transaction;
4. Those whose object is outside the commerce of men
5. Those which contemplate an impossible service:
6. Those where the intention of the parties relative to the principal object of the contract
cannot be ascertained;
7. Those expressly prohibited or declared void by law. (Art.
1409)

132. Special classification of void contracts.

Our Supreme Court, thru Justice J. B. L. Reyes stated that there are two kinds of void
contracts.

1. The inexistent ones. The formalities required by law a not met. The contract has no
effect at all.

Example: donation of land in a private instrument.

2. The illegal or illicit ones.

Example: donation made with immoral condition, such as sexual intercourse.

133. Some of the characteristics of a void contract.

1. Defense of illegality cannot be waived.

2. They are not subject to ratification.

3. The action to declare the contract inexistent does not prescribe.

4. Generally, no action to declare them void is needed.

5. The defense of illegality of contracts is not available to third persons whose interests
are not directly affected.

134. Distinguish void and inexistent contracts from the other defective contracts.

A void or inexistent contract may be distinguished from a rescissible contract in the

following ways:

1. A void or in existent contract produces as a rule no effect even if it is not set aside by
a direct action, whereas a rescissible contract is valid unless it is rescinded. (Art.
1409)

2. The defect of the former consists in absolute lack in fact or in law of one or some or all
of the essential elements of a contract, whereas the defect of the latter consists in lesion
or damage to one of the contracting parties or to third persons (Art. 1380)

3. The action for the declaration of the nullity or inexistence of a contract is

imprescriptible whereas the action for the rescission of a contract is prescriptible (Art.
1410)

4. The nullity or inexistence of a contract cannot as a rule be assailed by third persons

whose interests are not directly affected, whereas the rescissible character of
a contract may be assailed by third persons. (Art. 1421)

135. A void contract may be distinguished from a voidable contract in the

following ways:

1. A void or inexistent contract produces as a rule no effect even if it is not set aside by a
direct action, whereas avoidable contract is binding unless ¡t is annulled. (Art.
1409, 1390)

2. The former is not susceptible of ratification, whereas the latter is susceptible of

ratification. (Art. 1409, 1395)

3. The action for declaration of the nullity or inexistence of a contract is imprescriptible,

whereas the action for the annulment of a contract is prescriptible. (Art. 1410, 1391)

4. The defense of inexistence or absolute nullity is available to third persons whose

interests are directly affected, whereas the defense of annul ability is not available to
third persons. (Art. 1421)
136. A void contract may be distinguished from an unenforceable contract ¡n the
following ways:

1. In a void or inexistent contract, there is in law or ¡n reality no contract at all, whereas

in an unenforceable contract there is actually a contract which cannot be enforced by a
court action unless it is ratified. (Art. 1409, 1407)

2. The former is not susceptible of ratification, while the latter is susceptible of

ratification. (Art. 1409, 1407)

3. The former can be assailed by third persons whose interests are directly affected,
whereas the latter cannot be assailed by third persons. (Art. 1408)

137. Effects of contract where there is a criminal offense:

1. Those where both parties are guilty.

Example: Sale of opium

Effects: a. No right of action against each other,
b. Both will be prosecuted.
c. Effects or instruments of the crime will be confiscated in favor of the
government

2. Only one party is guilty.

Example: S sold a government property to B, who is in good faith.

Effects: a. The guilty party will be prosecuted.

b. Property sold as the instrument of the
crime will be confiscated in favor of the government.

c. Innocent party can claim what he has given.

138. What is the principle of “in pari delicto”

Where the defect of a void contract is the illegality of the cause or object of the contract,
both parties are at fault or “in pan delicto”, no remedy could be given to any of the
parties, and the court leaves them where they are. This S universally the accepted
principle in law under the maxim “he who comes to court must do so with clean hands.

Exceptions:

1. Ficttious or absolute simulated contracts because they are inexistent

2. Payment of usurious interest, the law allows recovery of the principal and the legal
interest,

3. When public policy intervenes.

Example: In sale of homestead land, the owner may recover the land under the principle,
•‘land for the landless”.

4. Payment of any amount in excess of the maximum price of any article or commodity
fixed by law, the buyer may recover the excess.

5. One of the parties in a contract is less guilty than the other, as it will be presented in
the next question.

139. Illustrative Case: H, married to W, donated in 2010, a parcel of land belonging

to the conjugal partnership to M, a minor of 16, subject to the condition that M
shall
become his mistress. The donation was duly accepted by M and her parents. After
the donation, M became the mistress of H. Subsequently, after 5 years H and W
died. After the death of the parents, the legitimate children want to recover the
land from M, alleging that the donation is void or inexistent because the cause of
giving is premised on an illegal and immoral act.

a. Is the contract valid, or void or inexistent?

b. If void, what are its effects, if any?

Answer a. The contract is void, because the purpose of giving is not the liberality of the
donor but to gratify his sexual and passionate desire. ‘

b. The donor cannot recover what he has given and the donee cannot be compelled to
comply with her promise. (Liguez vs. CA 102 Phil. 577)

Question: In the preceding illustration, if the contract is void and inexistent or without
effect, why can’t the heirs of the donor recover after all there was no donation because
the
contract did not exist as it is inexistent?

Answer: The court did not apply the rules both parties that are at fault, instead they
applied the second rule, that is, if one party is at fault and the other is less guilty than the
other, the guilty party cannot recover what he has given, and the less guilty cannot be
compelled to comply with her promise. The court further stated, what makes M less
guilty is that she is a minor. Under Philippine laws, minors occupy a privileged position
because of their tender age, they are easy prey for deceit and exploitation.

140. Another exception of “Pari delicto rule”. When money is paid or property
delivered for an illegal purpose the contract may be repudiated by one of the
parties before the purpose has been accomplished, or before any damage has
been caused to a third person. This rule is not absolute. The courts are given
discretionary powers to allow recovery or not. Take note that recovery could be
made only if:

1. The purpose has not yet been accomplished.

2. Damage has not been caused to third person.
Example: For P10000, K promised to kill X for R. R gave the reward in advance. Before
K could Kill X, R withdrew from his evil design.

Question 1: Is R allowed to do so?

Answer: Yes, because the act has yet been accomplished and no damage was caused
for a third person.

Question 2: May R recover what he has paid?

Answer That is discretionary on the part of the court.

Question 3: Supposing the repudiation took place after the act of killing was executed?

Answer: Both parties will be prosecuted as principals of the crime of murder.

141. Example of one party incapacitated:

For P10,000, M, a nine (9) year-old boy, acting without discernment ordered K to kill X.
Before the evil act was consummated, M withdraw from his plan.

Question 1: If the reward was already given to K, is M entitled to recover what he gave to
K?

Answer: Yes, this is another instance whereby the guilty party is allowed recovery, that
¡s. if he is a minor or person who is incapacitated.

Question 2: The act was already consummated, can M still recover?

Answer: No more, instead K will be prosecuted criminally and civilly, while M is not liable
criminally because being a minor he is exempted from criminal liability under Article 12 of
the Revised Penal Code. However, from civil obligations, he is not exempted and it shall
devolve upon those having such person under their legal authority or control, unless ¡t
appears that there was no fault or negligence on their part.

142. What are the “merely” prohibited contracts.

These contracts are also forbidden because of private interest. There may be recovery:

1. if the contract is not illegal per se.

2. the prohibition is for the protection of the plaintiff.

3. public policy will be enhanced by allowing the recovered,

143. F, a Filipino, sold and delivered to C, a Chinese alien, a parcel of land for
P100,000. Although both parties are at fault, the land delivered to C may be
recovered. The rule is an exception of the pari delicto rule because the act is not
illegal per se but only prohibited. Public policy is hereby enhanced for if you will
not allow recovery, the principle of conserving land for the Filipino will be
defeated,
144. Illegal terms of the contract.

a. If indivisible, the whole contract is void, even if only some parts or terms are illegal.

b. If divisible, the legal terms may be enforced if they can be separated from the illegal
terms.

Example:

On January 1, 1982, D borrowed money from C P10,000 at 20% interest per annum.
The principal obligation of P10,000 is valid, but the payment of interest is invalid.
Therefore, D must pay the P10,000, but as to the interest he cannot be required to pay.

NOTE: 20% interest is usurious before January 1983 under Bangko Sentral Circular
905-82 the usury law had been suspended in our country since Jan. 1, 1983. Interest will
now depend on the mutual agreement of borrower and lender.

145. Effect of Contract executed Which is a direct result of a pervious illegal

contract

If a new contract is executed and it is a direct result of a previous contract, the effect of
such contract Is void and inexistent.

Example:
D promised to give K a specific car if K kills X. Alter the act was Consummated D and K
novated the contract, that Instead of D giving K a car, he will just give K P300,000.

Question: What is the effect of the new or novating contract of giving K P300,000.

Answer: The contract is void or ¡in existent because it is a direct result of a previous
illegal contract.

146. Kinds of obligations from the viewpoint of sanction.

1. Civil obligations — those obligations whereby the creditors are given a right of action
to compel their performance.

2. Natural obligations — they are not based on positive law but on equity. They do not
grant a right of action to enforce their performance but after voluntary fulfillment by the
obligor, they authorize the retention of what has been delivered or rendered by reason
thereof.

147. Period of extinctive prescription.

a. oral contract — the prescriptive period is six (6) years.

b. written contract—the prescriptive period is ten (10) years.

148. Q — fjenaturaI0b11gatb0ITh
A — Natural obligations are those based on equity and natural law, which are not
enforceable by means of a court action, but which, after voluntary fulfillment by the
obligee of what has been delivered or rendered by reason thereof (4 Tolentino, Civil
Code p.588)

149. Examples of natural obligations:

1. D borrowed money from C in the amount of P10.000 ten (10) years ago, evidenced by
a written promissory note. Ten years had elapsed, yet no payment was made by D, and
no demand was made by C. The obligation of D. therefore, is extinguished by
prescription. If later on, D knowing that the obligation was already extinguished,
voluntarily paid C, can D still recover the amount paid?

Answer: No, because when a right to sue upon a civil obligation has prescribed, the
obligor who voluntarily performs the contract cannot recover anymore what he paid or
delivered.

2. D owes C P10,000. The debt soon prescribed. Later X, a third person, pays C
P10,000. D here does not have to reimburse X because the debt already prescribed
when X paid C. If subsequently, D reimburses X voluntarily, after the reimbursement can
D still recover what he paid X?

Answer: No more, because this is another case of natural obligation provided for in
Article 1425. The law states “when without the knowledge or against the will of the
debtor, a third person pays a debt which the obligor is not legally bound to pay because
the action thereon as prescribed, but the debtor later voluntarily reimburses the third
person, the obligor cannot recover what he has paid.

3. Example: D owes c P10,000 evidenced by a promissory note due on June 10, 2010.
On the date of maturity, D failed to pay. C files an action for collection, but the same ¡s
Unsuccessful because the evidence of the obligation which is the Promissory note got
lost. No appeal was made, and the judgment becomes final. If later, D still paid C
voluntarily, can D still recover what he paid?

Answer. No more, because the law says that when. After an action to enforce a civil
obligation has failed, the defendant voluntarily performs the obligation, he cannot
demand the return of what he has delivered or the payment of the value of the service
he has rendered (‘Article 1428).

4. Payment of legacy in a void will. If the will or last will and testament is void, the legacy
would also be void, and the deceased is considered to have died intestate, that is,
without a will The property, therefore, will be distributed according to law because he
died intestate.

Example:
T, testator, executed a will giving a specific car to X as legacy and the remaining portion
of his property to be given to his compulsory heirs. However, one of the pages of the will
was left unsigned. By provision of law, the will ¡s not valid, so as if T died, all property
therefore including the specific car must be given to his legal heirs. If later on, the legal
heirs voluntarily delivered the legacy (the car) to X they car not recover anymore what
they have given.
EXERCISES IN CONTRACTS INCLUDING CPA
EXAMINATION QUESTIONS

TRUE OR FALSE

1. Obligations and contracts are identical.

2. The object of a contract of sale is its subject matter.

3. If a valid contract is novated to avoid contract, both contracts re considered void.

4. Without contract, a person cannot be liable to another.

5. The interpretation of obscure words or stipulations in a contract shall not favor the
party who caused the obscurity.

6. Advertisements for bidders are simply invitations to make proposals, and the
advertiser is not bound to accept the highest or lowest bidder, unless the contrary
appears.

7. Contracts entered into during a lucid interval are valid. Contracts agreed to in a state
of drunkenness or during a hypnotic spell are binding.

8. Consent is the manifestation of the meeting of the offer and the acceptance upon the
thing and the cause of the contract.

9. Acceptance made by letter or telegram does not bind the offeror except from the time
it came to his knowledge.

10. Dolo causante shall make a contract voidable.

11. Dolo incidente only obliges the person employing it to pay

damages.

12. X advertised his lot for sale in a newspaper of general circulation. The advertisement
states: “For sale: 500sq. m. located at No. 3333 Buendia Avenue, Makati, Metro Manila.
Price: P500,000,00. Term of payment: Cash only. W accepted the offer by sending a
letter to X which the latter received. X can still back out from his offer because his
advertisement is merely an invitation to make an offer.

13. Unless it appears otherwise, a business advertisement is merely an Invitation to

make an offer.

14. The contracting parties may establish such stipulation, clauses, terms and conditions
as they may deem convenient, provided they are not contrary to law, morals, good
customs, public order, or public policy.
15. A mere expression of an opinion does not signify fraud, unless made by an expert
and the other party has relied on the former’s special knowledge

16. Contracts take effect only between the parties, their as signs and heirs, except in
cases where the rights and obligations arising from the contract are not transmissible by
their nature, or by stipulation or by provision of law. The heir is not liable beyond the
value of the property he received from the decedent.

17. The action or defense for the declaration of the Inexistence of void contract does not
prescribe.

18. Voidable contracts cannot be ratified.

19. A contract which is the direct result of a previous illegal contract, is also void and
inexistent.

20. Contracts entered into during a lucid interval are voidable.

21. There is intimidation when in order to wrest consent, serious or irresistible force is
employed.

22. Misrepresentation made in good faith is not fraudulent but may constitute error.

23. In order that mistake may invalidate consent, it should refer to the substance of the
thing which is the object of the contract, or to those conditions which have principally
moved one or both parties to enter into the contract.

24. A threat to enforce ones claim through competent authority, if the claim is just or
legal, does not vitiate consent.

25. Violence or intimidation shall not annul the obligation, if it was employed by a third
person who did not take part in the contract.

26. Failure to disclose facts, when there is a duty to reveal them, as when the parties are
bound by confidential relations, constitutes fraud.

27, Contracts must bond both contracting parties; their validity or compliance cannot be
left to the will of one of them.

28, Contracts take effect only between the contracting parties.

29. Consensual contracts are not perfected until the delivery

of the object of the obligation.

30. Real contracts are perfected by mere consent.

31. If the cause is not stated in the contract It 1s presumed that it is unlawful.
32. When the real agreement of the parties stated in a contract is void the parties can
ask for reforming of the instrument.

33. By provision of the law on contract, where the amount involved in the contract
exceeds P500.Oo, IL must appear ¡n writing or in public instrument. A contracted a loan
of P5.000.00 from B which is not reduced in public instrument or writing. B cannot
recover the loan because the contract is not valid.

34. Consummation of a contract is manifested by the offer and acceptance.

35. The statement of a false cause in contracts shall render them void, ¡f ¡t should not be
proved that they were founded if it upon another cause which is true and lawful.

36 Annulment Is available only to persons who are obliged principally or subsidiarily. It is

not available to third persons.

37. If mistake, fraud, inequitable conduct, or accident has prevented a meeting of the
minds of the parties, the proper remedy is not reformation of the instrument but
annulment of the contract.

38. Cause is the essential or more proximate purpose which the parties have in view in
entering into the contract.

39, Contracts shall be obligatory, in whatever form they may have been entered into,
provided all the essential requisites for their validity are present.

40. When, there having been a meeting of the minds of the parties to a contract, their
true intention is not expressed in reason of mistake, fraud, inequitable conduct on
accident, one of the parties may ask for the reformation of the instrument.

41. Qualified acceptance is considered a counter offer.

42. An offer becomes ineffective upon the death, civil interdiction, insanity, or insolvency
of either party before acceptance is conveyed.

43. When the offeror has allowed the offeree a certain period to accept, the offerer may
withdraw the offer at any time.

44. Acceptance made by letter or telegram does not bind the offeror except from the
time it came to his knowledge. The contract, in such a case, is presumed to have been
entered into in the place where the offer was made.

45. If one or both debts are voidable, the same may be compensated provided they are
not yet avoided.

46. An agreement by its term is to be performed within a year 5 from the making thereof
is enforceable even if entered into orally.
47. An offer made through an agent is perfected from the time acceptance is
communicated to the principal.

48. Misrepresentation made in good faith is not fraudulent but may constitute error.

49. In order that fraud may make a contract voidable, it should be serious and should not
have been employed by both contracting parties. Incidental fraud only obliges the person
employing it to pay damages.

50. If one party was mistaken and the other acted fraudulently or in such a way that the
instrument does not show their true intention, the former may ask for the annulment of
the Instrument.

51. When offeror has allowed the offer a certain period to accept, the offer may be
withdrawn it any time before acceptance by communicating such withdrawal, except
when the option is founded upon a consideration as something paid or promised

52. Mutual promise to marry, or orally entered into is unenforceable.

53. The action for annulment on the ground of fraud shall be brought within four (4)
years from the time of the perfection of contract.

54. In the case of an illegal contract where there is a criminal offense, the parties cannot
be prosecuted if they are both in pari-delicto.

55. Persons who are capable cannot allege the incapacity of those with whom they
contracted.

56. The action for rescission is subsidiary; it cannot be instituted except when there is no
other legal means to obtain reparation for damages suffered.

57. Void contracts cannot be ratified. Neither can the right to set up the defense of
illegality be waived.

58. Delivery of the subject is necessary to the perfection the contract of sales.

59. An offer becomes effective even with the death of either party after acceptance ¡s
conveyed.

60. When one party is insane and the other is an unemancipated minor, the contract is
unenforceable.

61. Accidental elements of a contract are those agreed upon by the parties, and cannot
exist without being stipulated.
EXERCISES IN CONTRACTS INCLUDING
CPA EXAMINATION QUESTIONS
MULTIPLE. CHOICE

1. Which of the following is not a requisite for the validity of a contract?

a. Consent d. Delivery of the thing

b. Object e. None of the above

c. Cause or consideration

2. Before acceptance is conveyed an offer becomes ineffective upon the:

a. Death d. Involvency of either party

b. Civil interdiction e. All of the above

c. Insanity

3. X alleged that Y promised to give X one hectare of land. This is consideration of Y’s
meritorious services to Y. Y pleads in defense that since the promise was not in writing it
is unenforceable under the Statute of Frauds. Decide.

a. The promise is uneniorceable because it is not a writing.

b. The Statute of Frauds is applied because A has rendered services.

c. The Statute of Frauds is inapplicable here, because the promise to give the land is not
a sale of real property.

d. The Statute of Frauds can apply to partially executed contract.

4. The stipulation in a contract to the effect that the debtor should remain as a servant in
the house and the service of her creditor so long as she had not paid her debt is void
because it is:

a. Contrary to good custom

b. Contrary to public policy

c. Contrary to law and morality

d. None of the above.

5. X, after the death of his father sold his inheritance thought its amount has not yet
been determined to B, for a considered ration of P50,000.

a. The contract is valid only if the inheritance values at least equal or more than
P50,000.

b. The contract is rescissible.

c. The contract is valid even though nothing remains of the inheritance to be turned over
to B.

d. Contract is void, future inheritance cannot be the object of sale.

6. Which of the following contracts is void?

a Those which object is outside the commerce of men.

b. Those which contemplate an impossible service.

C. those where the intention of the parties relative to the principal object of the contract
cannot be ascertained.

d. Those expressly prohibited or declared void by law.

e. All of the above

7. Statement No.1: if the contract is entered into without authority the contract is
validable.

Statement No. 2: Contracts take effect only between the parties, their assigns and heirs,
except in case where the rights and obligations arising from the contract are not
transmissible by their nature, or by stipulation or by provision of law. The heir is not liable
beyond the value of the property he received from the decedent.

a. Both are true c. No. 1 is true No. 2 is false

b. Both are false d. No. 1 is false No. 2 is true

8. Reluctantly and against her good sense and judgment, Rosemarie entered into a
contract for the delivery of 5 tables to Corazon for a price of P15,000 Contract is:

a. Void c. Unenforceable

b. Voidable d. Valid
9. G was appointed guardian of S, the latter being 16 years old. S sold his parcel of land
in writing to B valued at P100.000 for P75,000, suffering lesion by 1/4 of the value.
What is the status of the contract?

a. Rescissible c. Enforceable

b. Unenforceable d. Voidable

10. Which is the least defective contract?

a. Rescissible contract C. Unenforceable contract

b. Voidable contract d. Void contract

11. Which of the following contract is not rescissble?

a. Those which are entered into by guardians whenever the wards whom they represent
suffer a lesion of more than 1/4 of the value of the object of the contract.

b. Those executed in representation of an absentee, if the latter Suffer a lesion of more

than 1/4 of the value of the object of the contract

c. Those where One of the parties is incapable of giving Consent to a Contract

d. Those undertaken ¡n fraud of creditors when the latter cannot in any other rnnr1er
collect the claims due them

e. Those which refer to things under litigation if they have been entered into by the
defendant without the knowledge and approval of the litigants or of competent judicial
authority.

12. Statement No.1: The legal life of a contract begins from its perfection stage. While
the death of the contract is the performance or fulfillment of the obligation.

Stament No.2: Misrepresentation made in good faith is not fraudulent but may constitute
error and renders the contract voidable.

a. Both are true

b. Both are false

c. No. 1 is true; No. 2 is false

d. No. 1 is false; No. 2 is true

13. A contract where both parties are incapable of giving consent is:

a. Rescissible d. Void

b. Voidable e. None of the above

C. Unenforceable

14. Three of the following contracts are void. Which is the exception?

a. Those whose cause, object or purpose is contrary to law, morals, good customs,
public order or public policy,

b. Those which are absolutely simulated or fictitious,

c. Those which cause or object did not exist at the time of the transaction.

d. Those where both parties are incapable of giving consent to a contract.

15. S sold his car to B because of the intimidation of F3.

a. S can ratify the contract

b. S can ratify the sale with the conformity of B

c. B has the right to ask for annulment

d. B has only four years to ask for annulment

16. Three of the following are rescissible, which is not?

a. Sale of property under litigation made by defendant without the knowledge of the
plaintiff and authority of the court.

b. Those made to defraud creditors when the creditors has no other means to recover
his claim.

c. Those agreed upon in representation of absentees, if the absentee suffers lesion by

more than 1/4 of the value of the property subject of the Contract.

d. None of the above.

17 S and M agreed in print that, debtor for P3,000 will work as a servant of M Without
pay until she could find money with which to pay her debt. Meantime, S absconded her
obligation and failed to comply with her promise under this premise, which of the
following statements is correct?
a. The agreement to work as a servant is void because It is immoral.

b. To act as a servant without pay is unconstitutional because this is equivalent to

involuntary servitude.

c. The obligation to pay is enforceable because this is in accordance with law.

d. All of the above.

18. Which of the following a public document contracts is not required to appear

a. Acts and contracts which have for their object the creation, transmission, modification
or extinguishment of real rights over immovable property, sales of real property or of an
interest.

b. The cession, repudiation or renunciation of hereditary

rights.

c. The power to administer property.

d. Sale of immovable property.

e. None of the above.

19. In order that a stipulation in favor of a third person in a contract would be valid and
binding upon the parties thereto, three of the requisites are mentioned in the following
enumeration. Which among them is not a requisite?

a. There must be a stipulation in favor of a third person.

b. The contracting parties must have clearly and deliberately conferred a favor upon that
third person.

c. The third person communicated his acceptance to the obligor before its revocation.

d. That there must be an existing agency between either of the contracting parties and
the third person.

20. A contract whereby he offeree is given by the offeror a certain period of time within
which to buy or not to buy a certain thing for a certain price is called:

a. Option contract c. Contract to sell

b. Contract of sale d. Barter

21. Which of the following statement is false?

a. Remission is essentially gratuitous.

b. Cession is a special mode of payments.

c. The liability of a guarantor is primary.

d. In alternative obligations, the debtor is required to perform only one presentation.

22. Which of the following is presumed not to be legal subrogation?

a. When a creditor pays another creditor who is preferred

b. When a third person, not interested in obligation, pays with the approval of the debtor.

c. When a third person interested in the obligation, pays even without the approval of the
debtor.

d. None of them.

23. D is indebted to C for P 10,000. For the purpose of defrauding C, D sold his only
parcel of land to X valued

P10,000. X had no knowledge of the intention of D.

a. The contract between D and X is binding.

b. The contract is voidable because D is in bad faith.

c. The right of C is to rescind the contract because the transaction is fraudulent.

d. The contract between D and X rescissible.

24. In order to defraud C, his creditor, D by means of force 21 compelled B to buy his
(d’s) land. B has no knowledge of such fact.

a. As to C, the contract is rescissible

b. As to 8, the contract is voidable

c. Both of(a) and (b)

d. None of(a) and (b)

25. The duty not to recover what has voluntarily been paid although Payment was no
longer required.

a. Natural obligation c. Civil obligation

b. Moral obligation d. None of the above

26. X Company bought out a competitor, Y, with a stipulation that Y should thereafter not
engage in any business in the Philippines without the consent of X Company.
a. The stipulation is not valid because the parties as a rule have no absolute freedom to
stipulate terms and conditions in a contract.

b. The stipulation is not valid because this is against public policy.

c. The stipulation is valid, only it will create a monopoly in trade.

d. The stipulation is valid, it can be ratified.

27. Statement No. 1: Mutual promise to marry if orally entered into is unenforceable.

Statement No. 2: Violence or intimidation shall not annul the obligation, if it was
employed by a third person who did not take part in the contract.

a. Both are true c. No, is true; No.2 is false

b. Both are false d. No. 1 is false: No.2 is true

28. D is indebted to C in the sum of P101000. For the purpose of avoiding the claims of
C, D donated all his properties worth the same amount to X.

a. The contract is absolutely simulated.

b. The contract is recissible

e. The contract is merely voidable

d. The contract is void.

29. In three of the following, the transaction is void. Which is the exception?

a. Oral contract of partnership the capital is P3,000 or more

b. Contracts in writing contemplating impossible services.

c, Authority of the agent orally made In sale of immovable property.

d. Oral contract of partnership whenever immovable property is contributed.

30. D owes C P500. However, C’s right has already prescribed. Notwithstanding the
knowledge of this fact. D paid the amount. Realizing this mistake, D wants to recover the
amount he paid.

a. D can be made to recover on ground of mistake.

b. D can be made to recover on the ground that his obligation ¡s not legally enforceable.

c. D can be made to recover because this will enrich C at the expense of D.

d. D cannot recover.
31. Which of the following contracts is voidable?

a. Those whose object is outside the commerce of men.

b. Those which are absolutely fictitious.

c. Those where one of the parties IS incapacitated.

d. Those which contemplate an impossible service.

32. X, a former government employee, suffered from severe parancia and was confined
In the mental hospital in 2010 After his release he was placed under the guardianship of
his wife to enable him to get his retirement pay. In 2013, he became a mining prospector
and sold some mining claims In 2018, he sue to annul the sale claiming that he was not
mentally capacitated at the time of sale. The sale in question was —

a. Illegal

C. Voidable

b. Void

d. Valid

33. Example No. 1: G, guardian of W, sold W’s house valued at P50,000 for P37,500 or
a lesion by one-fourth of the value.

Example No. 2: S sold his house valued at P50,000 for only Pl .000 because S did not
know the true value of the house.

a. Both contracts are rescissible.

b. Only No. 1 is rescissible.

c. No. 2 is voidable because there is an error or mistake.

d. Both contracts are valid and enforceable.

34. Bi Company bought outta competitor, B2 Corporation, with a stipulation that 82

Corporation should not there after engage in any business in the Philippines unless
consented to and approved by Bi Company.

a. The stipulation is defective but subject to ratification.

b. The stipulation is valid because the parties are free to enter into any stipulation, terms
and conditions such as this one.

c. The stipulation is unenforceable as there was no showing that the sale was done in
writing.
d. The stipulation is void because it is contrary to public policy.

35. Statement No. 1: In voidable contracts. There is no deed to ratify the same before
they can be considered valid, in unenforceable contracts, ratification is mandatory before
they can be considered enforceable.

Statement No.2: There is undue influence if insidious Words or machinations were

employed by a party on the Other just to obtain the latter’s consent, without which the
latter would not have entered into the contract.

a. Both are true c. No.1 is true; No. 2 is false ‘

b. Both are false d. No 1 is false; No.2 is true

36. Statement No. 1: Dolo incident entitles the person against whom it was employed the
right to seek the annulment of the contract,

Statement No. 2: A stipulation pour autrui is an exception to the rule on relativity of

contracts.

a. Both are true c. No. 1 is true; No.2 is false

b. Both are false d. No. I is false; No.2 is true

37 Example No. 1 — W, 16 years old, sold his house valued at Pl M for P50,000 or a
lesion by more than one-fourth of the value of the said house.

Example No. 2: S sold his house valued at Pl M tor only P400,000 because S did not
know the true value thereof

a. Both examples are unenforceable

b. No. 1 is rescissible; while No.2 is unenforceable

c. No. 2 is unenforceable

d. Both contracts are binding

38. D forced C to lend him P 10,000. The promissory note is in writing.

a. Contract remains to be valid.

b. The contract is rescissible because the contract is fraudulent.

c. The contract is void.

d. C cannot demand payment from D because the Contract is unforceabje.

Statement No.2: There is undue influence if insidious Words or machinations were
employed by a party on the Other just to obtain the latter’s consent, without which the
latte1 would not have entered into the contract.

a. Both are true c. No. 1 is true; No. 2 is false ‘

b. Both are false d. No 1 is false; No.2 is true

36. Statement No. 1: Dolo incidente entitled s the person against whom it was employed
the right to seek the annulment of the contract,

Statement No. 2: A stipulation pour autrui is an exception to the rule on relativity of

contracts.

a. Both are true c. No. 1 is true; No.2 is false

b. Both are false d. No. I is false; No.2 is true

37 Example No. 1 — W, 16 years old, sold his house valued at Pl M for P50,000 or a
lesion by more than one-fourth of the value of the said house.

Example No. 2: S sold his house valued at Pl M tor only P400,000 because S did not
know the true value thereof

a. Both examples are unenforceable

b. No. 1 is rescissible; while No.2 is unenforceable

c. No. 2 is unenforceable

d. Both contracts are binding

38. D forced C to lend him P 10,000. The promissory note is in writing.

a. Contract remains to be valid.

b. The contract is rescissible because the contract is fraudulent.

c. The contract is void.

d. C cannot demand payment from D because the Contract is unenforceable.

39. on July 15,2010, X entered in a contract with Y. On February 10, 2011, X discovered
that fraud was committed at the time he entered into the contract, a fraud that vitiated his
consent. The action for annulment shall be bought.

a. Within three years from the time of the fraud

b. Within four years from February 10,2011

c. Within four years from the time A entered into the contract

d. On February 10,2011

40. One of the stipulations contained in the contract between M Company and its
employees is that the company shall pay a bonus to employees of the company who
shall continue its employment for at least 2 consecutive years, unless he quits or is
discharged before the expiration of the period of 2 years. X, an employee of the
company was discharged without just one week before the completion of the two-year
period.

a. X is not entitled to the bonus because his discharge was in accordance with the
contract.

b. X is not entitled to the bonus, because the employer’s right to terminate is superior to
the right of the employee to be employed.

c. X is entitled to the bonus whether the discharge is with or without cause.

d. X is entitled to the bonus because the debtor company has voluntarily prevented the
happening of the condition

41. Statement No 1: If one party was mistaken and the other fraudulently of inequitably
in such a way that the instrument does not show their true intention, the former may ask
for the annulment of the instrument.

Statement No. 2: The statement of a false cause in Contracts shall render them void, if it
should not be proven that they were founded upon another caused which is true and
lawful.

a. Both are true c. N. 1 is true; No.2 is false

b. Both are false d. No. 1 is false; No.2 is true

42. When there is concurrence of offered acceptance, there is:

a, Payment c. Consent

b. Revocation d. None of the above

43. Essential requisites of a contract:

a. Consent c. Subject 48.

b. Cause d. All of them

44. Which of the following instruments is not subject to reformation?

a. Simple donations inter vivos wherein no condition is imposed

b. Wills

c. When the real agreement is void

d. All of the above

45. Simulation of Contract — Absolute or relative. Relative when

a. Parties not bound at all

b. The contract is void

c. The parties conceal their true agreement

d. None of the above

46. Which of the following contract is enforceable even if not reduced in writing.

a. Contract executed by one of the parties in a contract

b. Representation as to the credit of a third person

c. Lease of immovable for a period longer than one year

d. Agreement for the sale of immovable property

47. An intimidated B to marry his daughter. After a year, B would like to file action for
annulment but could not to do so because A was around to intimidate him. The marriage
contract is —

a. Rescissible c. Void

b. Voidable d. Unenforceable

48. The following, except one, are the characteristics of avoid or inexistent contract.
Which is the exception?

a. The defense of illegality of the contract is available to third persons whose interests
are not directly affected.

b They are not subject to ratification.

c. The right to raise defense of illegality cannot be waived.

d. The action or defense for declaration of their nullity or inexistence of the contract does
not prescribe.
49. D owes C P10,000. But the debt soon prescribes. Later X, against the consent of D,
pays C P10,000.

a. X can recover from D P10,000 because the latter was enriched at the expense of X

b. X has no right

c. X cannot recover from D what he pays C

d. Both D and C are liable to X

50. The guardian of an insane person sells a house and a lot belonging to the latter,
valued at P100,000, to B, buyer for P74,000 with the approval of the court. The contract
is:

a. Valid d. Undenforceable

b. Rescissible e. Void

c. Voidable

51. A conferment of a direct benefit in a contract between two persons in favor of a third
person who must accept such benefit before the same is withdrawn is known as:

a. Policitacion c. Donation propter nuptias

b. Stipulation por autrui d. Counter-offer

52. Statement No. 1: Advertisements for bidders are simply invitations to make
proposals, and the advertiser is not bound to accept the highest or lowest bidder, unless
the
contrary appears.

Statement No. 2: Accidental elements of a contract are those agreed upon by the
parties, and cannot exist without being stipulated.

a. Both are true C. No. 1 is true; No.2 is false

b. Both are false d. No. 1 is false; No.2 is true

53. Statement No. 1: The action for annulment on the ground of fraud shall be bought
within 4 years from the time of the perfection of contract.

Statement No. 2: If a valid contract is novated to a void contract, both contracts are
considered void.

a. Both are true c. No. 1 is true; No.2 is false

b. Both are false d No. I is false; No.2 is true

54. Contract with a false causè is —

a. Voidable c. Unenforceabe

b. Void d. All of the above

55. Three of the following are void contracts. Which is the exception?

a. Contracts where the cause is immoral.

b. Contracts to prevent a known supporter of a political rival from voting for his candidate
for a valuable consideration.

C. Contracts with valid consideration but with unlawful motives.

d. Absolutely simulated contracts.

56. Which of the following contract is not valid?

a. Mutual promise to marry entered into orally

b. Sale of immovable property orally entered into

c. One of the parties in a contract is Incapable of giving consent

d. None of the above

57. D forced C to lend him P10,000. The promissory note is in writing.

a. The contract is rescissible because the contract is fraudulent

b. The contract is void

C. C cannot demand payment from D because the contract is unenforceable

d. Contract remains to be valid

58. Type of defective contract that creates rights and impose no obligation, but are
susceptible of ratification.

a. Voidable Contracts c. Rescissible Contracts

b. Unenforceable Contracts d. Void Contracts

59. Statement No. 1: An agreement which, by its terms and Conditions, is to be

performed within a year from the making Thereof is enforceable even if entered into
orally
Statement No. 2: A contract for the sales of necessaries to minor is a voidable contract.

a. Both are true c. No. 1 is true; No. 2 is false

b. Both are false d. No. 1 is false; No. 2 is true
60. S owns an oil painting, In need of money, S sold the painting to B for P1,000.
After the sale, it was discovered that the painting was valuable and worth P5,000.

a. S may rescind the contract on ground of lesion or inadequency of cause

b. S may rescind the contract on ground of fraud
c. S may annul the contract on the ground of error
d. B is entitled to benefit of the contract because it is valid and binding
61. A, bachelor lawyer, raped W twice. Upon learning this, “F” The father of W, was able
to force A to marry W under pain of being Sued in court and disbarred from the practice
of his law profession.
Which statement is correct?
a. The marriage may be annulled on the ground of force or violence
b. The marriage may be annulled on the ground of threat or intimidation
c. The defective marriage may, however, be ratified
d. There was no defect, the marriage was perfectly valid
62. A contact where one of the parties is incapable of giving consent is:
a. Rescissible d. Void
b. Voidable e. None of the above
c. Unenforceable
63. S, a minor, owns a specific property valued P50,000. B capacitated, By means of
fraud induced S to sell his property to him (B) for P10,000 which S did so. The contract
writing,

a. The contract is binding form start.

b. The contract remains unenforceable because it falls under the Statue of Frauds.
c. The contract is rescissible because the ward suffered lesion by more than
one-fourth of the value.
d. The contract is void.

64. Must be in writing to be enforceable:

a. Lease of land for 12 months

b. Lease of car for 18 months
c. Both of a and b
d. None of a and b
65. This kind of defective contracts refers to that contract which is validly
Agreed upon because all the essential elements exits, but courts can nullify it when
there
Is damage or prejudice to one of the parties or to a third person. Its enforcement
Would cause injustice by reason of some external facts.
 a. Voidable Contract
b. Void or Inexistence Contract
c. Rescissible Contract
d. Unenforceable Contract
66. S and B orally agree that S would sell and B would buy S’s radio for P400, two years
from
the date of the agreement. At the end of two-year period, S refused to deliver the radio
although
B was willing to pay

a. B can compel S to deliver because B is willing to pay the price.

b. The contract falls under the Statute of Frauds, therefore unenforceable.
c. Statute of Frauds inapplicable because the price is less than P500.
d. The object is movable, oral contract is enforceable.
67. Statement No.1: A stipulation in a contract of lease, which provides that the leased
Premises so long as he pays the monthly rentals thereon, is valid stipulation.

Statement No. 2: The seller sold to a minor some necessaries in the amount of P600.
The goods
Were delivered to minor who, in turn paid the purchase price therefore.
The contract is unenforceable.

a. Both are true c. No. 1 is true; No. 2 is false

b. Both are true d. No. 1 is false ; No. 2 is true

68. Which of the following contracts is voidable?

a. Those where both parties are incapable of giving consent to a contract.

b. Those undertaken in fraud of creditors when the latter cannot in any other
manner collect the claims due them.
c. Those where the consent is vitiated by mistake, violence, intimidation, undue
influence or fraud.
d. Those whose object is outside the commerce of men.

69. S was forced by X to sign a contract with B for the sale of specific property for
P10,000. C, a creditor of S, is prejudiced by the contract. What can S do?

a. S may ask annulment of the contract

b. S may ask for rescission of the contract
c. S may ask C to declare the contract avoided
d. C may ask for the annulment of the contract

70. In the preceding number, what can C do?

 a. C may ask for the rescission of the contract
b. C may ask for the reformation
c. C may ask S to declare the contract avoided
d. C may ask for the annulment of the contract

71. Statement No. 1: Ratification of voidable contract is necessary for its validity.

Statement No. 2: One can ask for annulment of a contract based on dolo incidente.

a. Both are true c. No. 1 is true; No. 2 is false

b. Both are false d. No. 1 is false; No. 2 is true

72. Example 1 – S sold B in a private instrument his land Later, B wanted to have the
sale registered, but
Registration requires a public instrument. In here, B may compel S to execute the
needed public instrument.

Example 2 – S Sold to B orally his specific land. After B paid S the sale, he want to
register the land in his name but he needed a public instrument of sale. In here B may
compel S to execute the needed public instrument.

a. Both examples are false

b. Only 1 is true
c. Only 2 is true
d. Both examples are true

73. In a contract of sale executed by S and B, it appears S sold his motor vehicle to B
and B bought it for P10,000. It turned out however, S has three motor vehicles. Gallant
valued P80,000: Hi-Ace valued P70,000; and jeep valued P60,000. Which of the
following is correct?

a. The contract shall be reformed because there was mistake.

b. The parties can ask for interpretation because the word Motor vehicle is
ambiguous.
c. The parties can ask for annulment of the contract.
d. There is no contract.

74. Valid until annulled unless there has been a ratification

a. Rescissible contract c. Voidable contract

b. Inexistence contract d. None of the above
75. In three of following defective contracts, ratification cleanses the defects. Which is the
exception?
 a. Both parties are incapable of giving consent
b. Sale of immovable property or interest orally entered into
c. Sale of piece of land thru an agent the authority is oral
d. Contracts entered into by a person who has been given no authority

76. Statement No. 1: A threat to enforce one’s claim through competent authority. If the
claim is just or legal, does not vitiate consent.

Statement No. 2: Contracts entered into during a lucid interval are valid. Contracts agree
to in a state of drunkenness or during a hypnotic spell are binding.

a. Both are true c. No. 1 is true; No. 2 is false

b. Both are false d. No. 1 is false; No. 2 is true

77. An incidental element of a contract

a. Implied warranty
b. Payment of investment in a loan
c. Delivery of the object in contract of pledge
d. All of the above

78. Statute of Frauds is applicable to

a. Partially executed contract

b. Oral contract of load when the amount involved is less than P500
c. Contract not be performed within a year from the making thereof
d. All of the above

79. Contract which has no effect at all and cannot be ratified is a/an:

a. Unenforceable contract c. Voidable

b. Void contract d. All of them
80. An obligation which cannot be enforced by court action, but which is binding on the
party
Who makes it in conscience and according to natural justice is called

a. Civil obligation c. pure obligation

b. Natural obligation d. Simple obligation

81. B called C by telephone to guaranty the debt of D to C. The contract between B and
C is:
a. Unenforceable c. Rescissible
b. Voidable d. None of them
82. Because of the intimidation employed by X, a third person, S sold his car to B. This
contract is:

a. Void c. Unenforceable
b. Voidable d. Rescissible

83. Statement No. 1: If the cause is not stated in then contract, it is presumed that it is
unlawful.
Statement No. 2: the action for rescission is subsidiary ; it cannot be instituted except
when there is no other legal means to obtain reparation damages suffered.

a. Both are true c. No. 1 is ture; No. 2 is false

b. Both are false d. No 1 is false; No. 2 is true

84. S entered into a contract with B by threatening B that if B does not agree to make the
contract. S will publish defamatory matter concerning B’s wife.

a. The contract is valid because the defarmatory matter to be published does not
relate to B, the contracting party.
b. The contract is voidable because such publication when carried out, whether true
or not, will cause a serious harm to B and his wife.
c. The contract is unenforceable but B is entitled to damages the moment the
publication is made.
d. Contract is void.

85. Statement No.1: The interpretation of obscure words or stipulation in a contract shall
not favor the party who caused the obscurity.

Statement No. 2 : Gross inadequacy of the price does not affect the validity of
contracts unless it can be shown that there was fraud, force or violence, error or
mistake, undue influence, or threat or intimidation attending the execution thereof.

a. Both are true b. No. 1 is true; No. 2 is false

b. Both are false d. No. 1 is false; No. 2 is true

86. Which of the following can be considered as a feature of the void contract?

a. Subject to ratification
b. They exist
c. Action or defense for nullity is subject to prescription
d. None of them
87. L entered into a contract of lease with X. T, the clerk of L. typed the document. Due
to T’s negligence, the document made was that of sale instead of lease.

a. The remedy is annulment

b. Parties may go to court for interpretation
c. Parties may enforce their right because it is enforceable
d. None of the above

88. These person are bound by contracts:

a. Contracting Parties c. Heirs
b. Assigns or assign d. All of them

89. Who is liable for the loss of the subject matter by fortuitous event?

a. Creditor c. Both creditor and debtor

b. Debtor d. None of them

90. Contract that is made for a valuable consideration is:

a. Onerous c. Onerous and gratuitous

b. Gratuitous d. None of them

91. Contracts that cannot be sued upon unless ratified:

a. Voidable c. Rescissible
b. Unenforceable d. None of the above

92. Which of the following contracts is rescissible?

a. Those where one of the parties is incapable of giving consent to a contract.

b. Those where both parties are incapable of giving consent to a contract.
c. Those which are entered into by guardians whenever the wards whom they
represent suffer a lesion of more than ¼ of the value of the object of the contract.
d. Those which are absolutely simulated of fictitious.

93. The stage of “conception” of a contract is:

a. When the contract is fully executed

b. When the parties come to an agreement
c. When negotiations are in progress
d. When there is a meeting of the parties’ minds
94. In a contract as written, D promises to pay C P10,000 on September 15, 2010. The
consideration
Received by D is not stated in the contract.

a. The contract is valid because the cause is always presumed to exist.

b. The contract is valid so long as it in writing.
c. The contract is valid because the cause is not stated.

95. S makes an offer to B on January 1, 2010. B makes known his acceptance in a letter
sent on January 2, and received by S on January 10, Meantime, on January 1, S
became insane.

a. The contract is voidable because on party is insane.

b. There is already a meeting is minds, the contract is perfected.
c. The contract is not binding because there is no meeting of minds.
d. None of the above.
96. In the preceding number, S is perfectly sane but only an unemancipated minor at the
time the acceptance is communicated to him.
a. There is no meeting of minds between the parties, unless ratified by the guardian
of S.
b. The contract is binding because the party is incapacitated.
c. The contract is binding between the parties.
d. None of the above.
97. Which of the following contracts is required to be writing to be enforceable?

a. An agreement that by its terms is not to be performed within a year from the
making thereof.
b. A special promise to answer for the debt, default or miscarriage of another.
c. An agreement made in consideration of marriage, other than a mutual promise to
marry.
d. Sales of goods, chattels or things in action at a price not less than P500.00.
e. All of the above.

98. Rescission of contract take place in this

a. When the things which are the object the contract are legally in the possession of
third persons who acted in good faith.
b. When he who demands rescission can return whatever he may be obliged to
restore.
c. When the party seeking rescission can perform only as to part and rescind as to
remainder.
d. When the seller cannot return the installment paid to him by the buyer.

99. An agreement in restraint of trade.

 a. Perfectly valid c. Unenforceable
b. Voidable d. Void

100. Example No. 1: The husband, by intimidation, was able to obtain the consent of
his wife, with regards to the sale of a piece of land belonging to his wife for P1
million. The contract is voidable because there was intimidation.

Example No. 2: In the above example, the right of the wife is to go to Court and
file an action for annulment within four (4) years from the time intimidation ceased.

a. Both are true

b. Both are false

c. No. 1 is true; No. 2 is false.

101. Consent is manifested by the meeting to the offer and the acceptance upon the
thing and the cause which are to constitute the contract. Which of the following
constitutes a definite offer.

a. An offer made through an agent

b. Business advertisement of things for sale

c. Advertisement for bidders

d. All of the above

102, On July 15, 2010, X entered into a contract with Y. On February 10,2011, X
discovered that fraud was committed at the time he entered into the contract, a fraud
that vitiated his consent. The action for annulment shall be brought.

a. Within three years from the time of the fraud

b. Within four years from February 10,2011

C. Within four years from the time A entered into the contract

d. On February 10, 2011

103. In an Invitation to bid”, B proposes the following: “I will buy the property for
P10,000. If the bid of any other offerors or bidders shall be considered the best terms of
amount and conditions, I am to equal that offer”.

a. The offer Is speculative, because it cannot be considered as against another offer

which is certain

b. The offer is considered a counter offer

c. This is a continuing offer which is very certain

d. The advertiser is not bound to accept the higher bidder

104. In the preceding question, which of the following statement is correct?

a. If there is no more offer made, the contract is perfected on the offer of B because he
will be considered as the highest bidder.

b. However, if another bidder, X, bidder P15,000, he will be considered as the highest

bidder and the contract is perfected.

c. In letter (b), if X increase his bid for P20,000, and no more bid equals his bid, the
contract is perfected for P20,000.

d. Answer not given.

105. The following contracts should observe the Statute of Frauds, except
a. Guaranty

b. Lease of personal property longer than one year

c. Representation as to the credit of a third person

d. Lease of real property longer than one year

106. Which of the following is correct?

a. An action to enforce judicially a natural obligation prescribes in 4 years

b. An action for annulment of contract is imprescriptible

c. An action to declare a contract void is not subject to prescription

d. An action for rescission of contract prescribes in five (5) years counted from the
execution of the contract

107. B fraudulently induces S to sell to him (B) a masterpiece painting for P10,00OE
Subsequently B sold it to X for Pl 2,000, a good faith purchaser s is entitled

a. Rescind the Contract with B plus damages

b. Recover the Painting from X but no damages

c. Recover damages from B

d. Rescind the contract between B and X

108. This principle means that contracts take effect only the contracting parties, their
assigns or successors-in-interest

a. Relativity of contract c. Mutuality of contract

b. Obligatoriness of contract d. Freedom of contract

109. By this principle, the validity and efficacy of the contract cannot be left to the will of
one of the contracting parties.

a. Relativity of contract C. Mutuality of contract

b. Obligatoriness of contract d. Freedom of contract

110. S offers to sell his house to B for P100,000. B asks him if he would accept P80,000.
Which of the following is correct?

a. Because of ambiguity, both offers are terminated by operation of law.

b. B’s response is a counter-offer effectively terminating the P 10,000 offer and

instigating an offer for P80,000.

c. B’s response is a rejection of the P100,000 offer, and there is no offer for P80,000
because it is too indefinite to be an offer.

d. B’s response is an inquiry the p100,000 offer by S is still in force.

Sale of right (assignment of right or a credit, a sale of copyright, trademark, or goodwill. If

the object is tangible, it is called chose in possession if the object is intangible, it is
referred to as chose in action.

3. Validity or defect of the transaction:

a. valid sale
b. rescissible sale
c. voidable sale
d. unenforceable or validable sale
e. void sale
4. Legality of the object:

a. sale of a licit object

b. sale of an illicit object

5. As to whether wholesale or retail

a. Wholesale — when the goods are resold by the buyer for a profit, the goods being
unaltered when resold. And usually ¡n large quantity.
b. Retail — when the goods are sold directly to the general public and usually ¡n small
quantity.

6. As to the payment of the price

a. Cash sale
b. Installment sale
c. Straight term

7. Proximate inducement for the sale

a. Sale by sample
b. Sale by description
c. Sale by sample and description

KEY ANSWERS

CONTRACTS

TRUE OR FALSE

1. False 21. False 41. T

2.T 22.T 42.T

3. False 23. T 43. T

4.False 24.T 44.T

5.T 25.False 45.T

6T 26.T 46.T

7T 27.T 47.False

8.T 28.False 48.T

9.T 29.False 49.T

10.T 30.False 50.False

11.T 31.False 51.T

12.False 32.False 52.False

13.T 33.False 53.False

14 T 34.False 54.False

15.T 35.T 55.T

16.T 36.T 56.T

17.T 37.T 57.T

18.False 38. T 58.False

19.T 39,T 59.T

20.False 40. T 60.T

61.T

KEY ANSWERS

CONTRACTS

CHOICE

1.D 23.A 45.C 67.B 89.D

2.E 24.B 46.A 68.C 90.A

3.C 25.A 47.B 69.A 91.B

4.C 26.B 48.A 70.A 92.C

5.C 27.B 49.C 71.B 93.C

6.E 28.B 50.A 71.B 94.A

7.A 29.A 51.B 73.D 95.C

8.D 30.D 52.A 74.C 96.C

9.D 31.C 53.B 75.C 97.E

10.A 32.D 54.B 16.A 98.B

11.C 33.D 55.C 77.B 99.D

12.A 34.D 56.D 78.C 100.B

13.C 35.C 57.D 79.B 101.A

14.D 36.D 58.B 80.B 102.B

15.A 37.D 59.C 81.A 103.D

16.D 38.A 60.D 82.B 104.D

17.D 39.B 61.D 83.D 105.B

18.D 40.D 62.B 84.B 106.C

19.D 41.D 63.A 85.A 107.C

20.A 42.C 64.D 86.D 108.A

21.C 43.D 65.C 87.D 109.C

22.D 44.D 66.B 88.D 110.D

PART 2
CONTRACT OF SALES

1. Sale defined
Sale is a contract where one party (known to be the seller or vendor), binds himself to
transfer the ownership of and to deliver a determine thing, while the other party (known
to be the buyer or vendee), binds himself to pay for said thing a price certain in money or
its equivalent. (Art. 1458)

2. Characteristics of the contract of Sale

1. Consensual, because it is perfected by mere consent. 4. St.

Unlike in real contracts, example pledge or deposit, their perfection is upon delivery.

2. Bilateral and reciprocal, because both parties are bound by obligation dependent
upon each other.

3. Cumulative, because the values exchanged are almost equivalent to each other.

4. Principal, because it does not depend upon the existence of other contracts.

5. Onerous, because valuable consideration is given.

6. Nominate, because there is a name provided for in the
Civil Code.

3. Elements of Sale
1. Essential Elements:
a. Consent of the contracting party with respect to the transfer of ownership and the
payment of the price
b. Object of the contract which should be determinate

c. Price which should be certain in money or is equivalent Be it noted that the price need
not be in money.

2. Natural Elements or those which are deemed to exist in the contract unless excluded.
a. Warranty against eviction
b. Warranty against hidden detects

3. Accidental Elements or those preser.t only if stipulated, such as time and place of
payment.

4. Stages in a Contract of Sale.

1. Preparation — when negotiation is in progress.
2. Perfection— meeting of minds, birth of the contract.
3. Consummation — when the object is delivered and the price is paid, this is the death
of the contract.

5. Kinds of Sales
1. General classification.
a. Absolute sale— no condition attached.
b. Conditional sale — the sale ¡s subject to a contingent event. Example: sale with a
right to repurchase: sale of things having a potential existence: sale of future harvest of a
designated parcel of land: or sale of a
residential house, except the “furniture inside”

2. Other classification.
a. As to the nature of the subject matter.

1. Sale of real or immovable property

2. SaIe of personal or movable property

b. Whether object is tangible or intangible.

Sale of property (tangible or corpbral)

Sale of right (assignment of right or a credit, a sale of copyright, trademark, or goodwill. If

the object is tangible, it is called chose in possession; if the object is intangible, it is
referred to as chose
in action.

3. Validity or defect 01 the transaction:

a. valid sale
b. rescissible sale
c. voidable sale
d. unenforceable or validable sale
e. void sale
4. Legality of the object:
a. sale of a licit object

5. sale of an illicit object

. AS to whether wholesale or retail

a. Wholesale — when the goods are resold by the buyer for a profit, the goods being
unaltered when resold and usually ¡n large quantity.

b. Retail — when the goods are sold directly to the

general public and usually ¡n small quantity.

6. As to the payment of the price

a. Cash sale 3.
b. Installment sale
c. Straight term

7. Proximate inducement for the sale

a. Sale by sample
b. Sale by description
c. Sale by sample and description

6. Sale distinguished from other contracts.

1. From contract to sell

a. In contract of sale, Ownership passes to the buyer upon delivery; while in contract to
sell, the title to the goods does not pass to the buyer until some future time and
oftentimes upon payment of the price

b. In sale, the risk of loss or damage to the goods upon delivery is on the buyer, under
the rule ‘res perit domino”, the thing perishes with the owner while in contract to sell, the
risk is borne by the seller base on the same principle that the thing perishes with the
owner.

C. In sale, the non-payment of the price is a resolutory condition; while in contract to sell,
the payment in full of the price is a positive suspensive condition. If the price therefore is
not paid, the obligations of the seller to deliver and to transfer ownership never existed.

2. From barter
In sale, the consideration is in money; while in barter, the consideration is another thing.
Or the exchange of two things.

3. From agency to sell

1. In sale, ownership passes to the buyer, in agency to sell, ownership is retained by the
principal.

2. In sale, the buyer pays the seller; while in agency to sell, the buyer pays the agent
and the latter transmits the money to the principal.

3. In sale, the goods are delivered by the seller to the buyer; while in agency to sell, it is
the agent who delivers the goods to the buyer.

4. From dacion en pago

1. In sale, there is no pre-existing credit; while in dation there is pre-existing credit.

2. In sale, obligations are created: while in dation en pago, the obligation is extinguished.

3. In sale, the consideration or the cause of the contract is the price: while in dacion, the
cause is the extinguishment of the debtor’s obligation.

5. From lease

In sale. the seller transfers ownership to the buyer; while in lease, what is merely
transferred is only the use and possession of the thing leased to the lessee.

6. Requisites of the object in a contract of sale:

7.
1. The thing must be licit and that the vendor must have a
right to transfer ownership at the time the object is delivered.

2. The object must be determinate or specific otherwise

there is no sale. This requirement is met if at. the time of
perfection the object of sale is capable of being made determinate or it can be
ascertained without the need of entering into a new agreement.

8. Transfer of ownership

It is an essential element in a contract of sale that the seller must be the owner of the
object sold. This requirement is premised under the principle that nobody can dispose of
that which does not belong to him. However, this requirement of ownership is at the time
of delivery and not at the time of the perfection of the contract. There can be a sale even
if at the time of perfection the seller is not the owner, what is required is that at the time
of delivery the seller must be the owner.
A. Example. Today, S sold to B a specific car owned by X for P100,000 S promised to
deliver the car to B ten days after. If on the ninth day, S bought the car from X, and
delivered it to B the following day, the sale is valid because of the requirement that the
seller must be the owner at the time of delivery is complied with.

B. Jurisprudence
In contracts of sale, the vendor need not possess the title to the thing sold at the
perfection of the contract. However, the vendor must possess title and must be able to
transfer at the time of delivery. In a contract of sale, title passes to the vendee upon full
payment of the stipulated consideration, or upon delivery of the thing sold. (Heirs of
Severina San Miguel vs. Court of Appeals, et. al.. G.R. No. 136054, September 5, 2001)

The issuance. of a sales invoice does not prove transfer of ownership of the thing sold to
the buyer. An invoice is nothing more than a detailed statement of the nature, quantity
and cost of the thing sold and hasbeen considered not a bill of sale. (P.T. Cerna
Corporation vs. Court of Appeals, 221 SCRA 19)

9. Illustrative Case:

D borrowed from C P100,000 and as a security D mortgaged his land to C. Later, D sold
the same land to X for P50,000. Is the sale between D and X valid sale? Yes, because D
is still the owner of 1h
it was mortgaged to C. However. payment, D cannot pay C, C’s right is to foreclose the
mortgage property because his right is superior than that of X.

10. Things with potential existence:

A. Concept
Object of sale, which though not yet actually in existence are reasonably certain to come
into existence as the natural increment or usual incident of something already ¡n
existence owned by the vendor shall pass to the vendee the moment the thing comes
into existence and these are called object with potential existence.(Sibal vs. Valdez, 50
Phil. 5)

Examples:

1. Goodwill of a trade or business.

2. Sale of wine that a vineyard is expected to produce.
3. Milk the cow may yield during the coming year.
4. Next catch of a fisherman’s net.

B. Emptio reí speratae (Art. 1461)

This is a sale of a thing which is expected to come into existence, the quality and
quantity of which are unknown but not the thing itself which will definitely come into
existence. The validity of this titled sale, Emptio rei seperatae, shall depend upon the
intention of the parties that if the thing does not come into existence the contract is
without effect and as such there is no obligation to pay the price. This kind of contract is
valid under the second paragraph of this Article.
Example of Emptio Rel Speratae

Today, for P 10.000, S sold to B his future harvest of palay on December. The price was
already paid by OTo S. If on December, there is no harvest, B can recover from S what
he paid, and if B did not yet pay, he cannot be obliged to pay because the agreement is
without effect, no object no sale.

C. Emptio spei (Art. 1461)

Sale of hope or expectancy, its quality and quantity are uncertain. The validity of this
titled saie, Emptio Spei, will depend upon the agreement of the parties that the contract
shall exist at all events, so that the buyer will have to pay the price even if the thing does
not actually come into existence. This ¡s called sale of hope or expectancy, an aleatory
contract. Be It noted however that if the hope was already in vain, the contract is void
under the last paragraph of this article because this is
a sale of a ‘hopeless case”. Example: S sold to B for P10,000 a lottery ticket No. 007 for
tomorrow. Unfortunately, the ticket did not win the price. In this case. B cannot recover
the P10,000 he paid S because what he is buying Is the “hope” that he will win.
However, if the draw was made yesterday and the ticket was bought by B today, he can
recover
from S the P10,000 because the contract is void, this is a sale of a “vain hope” or
“hopeless case Be it noted in this example that ‘collectors item” are excepted.

D. Emptio Rel Speratae distinguished from Emptio Spei:

a. Emptio rei speratae is a sale of a future thing, emptio spei is a sale of a present thing,
that is the hope or expectancy.

b. In emptio rei separate, the thing expected will definitely come into existence, but its
quantity an unknown; in emptio spei, it is not certain will exist much less its quantity and
quality.

c. emptio rei speratae is subject to the condition that the thing should exist, so that if it
does not, there will be no contract by reason of the absence of essential element —
subject matter; emptio Spei produces effects even though the thing does not come into
existence and it cannot be said that One of the essential elements of a contract was
absent because, as already stated, the subject matter of the same is the hope (10
Manresa 29).

11. Sale of share in a specific mass

Example: S is the owner of C4 rice stored in his bodega, the exact number of cavans still
unknown. B buys 100 cavans, If the content of the bodega Is 150 cavans, B becomes a
CO-owner of 213 of the entire mass, if, however,
the mass contains only 50 cavans, S must supply the deficit of 100 cavans of the same
kind and quality.

12. Summary of the sale of share in a specific mass.

a. When the quantity of the mass is more than the quantity sold, the parties shall
become co-owners,

b. When quantity of the mass is less than the quantity sold, the buyer becomes the
owner of the whole mass, and if there is a deficiency of the goods sold the seller is
bound to make good the deficiency of the same kind and quality, unless of course the
contrary was stipulated. .

13. Illustrative Case:

X acquired a booklet of 10 sweepstakes tickets directly from the office of the Philippine
Charity Sweepstakes. X paid P40 for the booklet, less the customary discount.

Question:

1. What was the legal nature of X’s act in acquiring the ticket?
2. Did he enter into a contract of sale or agency to sell? Explain?

Answer:

1. This is a Contract of sale. Being referred to as an agent is of no moment because ¡n

agency to sell, the agent is required to sell the object while in this case, there was no
obligation on the part of X to resell them. Also, the delivery of the tickets transferred the
ownership to him: and this is not true in agency to sell.

2. The contract entered by X is a contract of sale because of the following.

1. X is not obliged to resell the tickets to others,

2. X cannot return the unsold tickets because he was not given the right to do so.
3. X was considered the owner of the tickets upon delivery to him, and this is not true in
agency to sell.

4. The mere fact that X was entitled to an agent’s prize should any of the tickets he
purchased win a prize is immaterial.

14. Contract for a piece of work defined.

A contract for the delivery at a certain price of an article which the vendor in the ordinary
course of his business manufactures or procures for the genera’ market, whether the
same is on hand at the time or not is a contract of sale, but if the goods are to be
manufactured especially for the customer and upon his special order, and not for the
general market, it is a contract for a piece of work. (Art. 1467)
Example No. 1: If a buyer goes to Shoe Store buying shoes of a particular style, size No.
12, but which are out of stock, and the buyer just the same placed his order, is the
transaction a sale or fora piece of work? The contract is a sale because the shoes are
produced or manufactured in the ordinary course of business, only they are Out of stock.
Now, if the order is size No. 15, flaming red Color which, in the ordinary course of
business the store does not manufacture, but only made specially for him, the contract ¡s
a contract for a piece of work.
Example No.2: X Shoe Store, Inc. entered into a separate contract with Iwo movie stars,
Bi nd B2. With Bi, the agreement, was that the Shoe Size shall deliver at a specified date
for a price of P 1,000 a pair of shoes of a 16. specified brand which the store had been
manufacturing for the general public but which at the time of the contract had already
been sold out, and with 02, the agreement was that the shoe store shall deliver at a
specified date for a price of P2,000 a pair of shoes to be made specially far him, in
accordance with a design submitted by him. What is the nature of these two contracts?

Answer: Between B1 and X, the contract is a sale because the goods he ordered are
procured ¡n the ordinary course of business, only they are out of stock. Since the seller
intends to manufacture again, it is considered a contract of sale. However, the contract
between B2 and X is a contract for a piece of work because they are specially ordered
by the buyer from the seller and they are not 18 procured in the ordinary courts course of
business.

15. Summary of rules in sale and barter if partly ¡n money and partly ¡n another
thing.

1. The intention of the parties will control the situation. Thus the contract ¡s a sale if
the parties intended it to be a sale even if the value of the thing is more than the
monetary consideration. Conversely, it is a barter ¡t the parties intended it to be a
barter even if the monetary consideration is more than the value of the thing.

2. If the intention does not appear.

a. It is barter, if the value of the thing is more than the monetary consideration,

b. It is a sale, if the monetary consideration s more

than the value of the thing.

c. If the monetary consideration and the value of the

thing are the same, the majority view maintained that the contract is a contract of sale.

16. Exchange of foreign currency

If I were to change Australian Dollars for Philippine Pesos

at the PNB at the prevailing rate of exchange, the transaction is to be considered a
contract of sale, and not a barter

17. A Seller sold to a Buyer a piece of jewelry for a price of P30,000. The contract
provides that the Buyer will pay the Seller the cash of P10,000 and for the balance,
the Buyer will give the Seller a micro oven worth P20,000. What is the nature of the
contract?

Answer: It ¡s a sale because the intention of the seller j

to sell. The word used: the seller “sold’

18. B ordered for his employees 1,000 pieces of T-shirts

of various sizes from S Garment Manufacturing Corporation. The T-shirts although
not available at the time, are manufactured by the corporation and
consigned regularly to its various sales outlets. The contract entered into between
B and S is called?

Answer: The contract ¡s a sale because the goods are procured ¡n the ordinary course
of business, only they are not available but the manufacturer intends to manufacture
facture again.

19. Price defined

The sum stipulated as the equivalent of the thing Sold and also every incident taken into
consideration for the fixing of the price of the sale.

20. Requisites of the price

a. It must be certain.
b. It must be real, not fictitious.
c. As a rule, not inferior to the value; of the thing.

There is a valid sale though the purchase price is not paid in full. The unpaid seller’s
remedy is an action to collect the balance or rescind the contract, within the time allowed
by law. (Soilva vs. Villalba, GR. No. 154017, December 8, 2003)

21. Instances when the price is certain:

a. When it is stipulated.
b. When it is with reference to another thing which is certain.
c. When it is fixed by a third person.
d. When it is fixed by the court.

e. In case of grains, liquids, securities, the price is certain, when the price fixed is that
which the thing sold would have on a definite day, or ¡n a particular exchange or market,
or when an amount is fixed above or below the 25, price on such day, or in such
exchange or market, provided said amount is also certain.

Example; S offered for sale to B 100 cavans of wag-wag rice. B asked S the price per
cavan. S told B that the price per sack ¡s P5,00 over the price at X store in Divisoria
market. If the price at X store” is P300. The price of S is P305, and the same is
considered certain.

22. Effect of failure to fix the price by a third person.

If the third per5on or persons are unable or refuses to fix the price the sale shall be
inefficacious unless the parties subsequently agree upon the price. However, where the
third person or persons are prevented from fixing the price by the fault of the seller or
buyer the aggrieved party may have such remedies against the party at fault as are
allowed by the law under Article 1469.

23. Adequacy of the price:

Adequacy of the price is not necessary for the validity of the contract of sale. It is enough
that there is a price and such price is certain.

24. Effect of inadequacy of price.

Gross inadequacy of price will not invalidate a contract of sale. However, if the
inadequacy of the price is coupled with a vitiated consent, the contract can be set aside
due to defect in the consent. Likewise, when it appears that A side from the manifest
inadequacy of the price, there ¡s the added circumstance that the vendor was in an
abnormal state of mind, the courts should step in to protect the vendor from the
transaction. (A. Tolentino, C. C., Volume V)

25. Inadequacy of the price in judicial sale.

A judicial sale of real property will be set aside when the price is so inadequate as to
shock the conscience of the court, and when there be additional circumstances against
its fairness.

26. A Simulated price

If the price in a contract of sale is simulated, the contract is valid as a donation or some
other agreement, provided the requirements of donations or other agreements are
complied with. Hence, if these requirements do not exist the contract is absolutely void,
not merely voidable.

Example: M bought from S a specific parcel of land for P1,000,000. Three months after,
M sold the same land to her daughter for P50,000 only. The fact indicates that the sale
was fictitious, therefore, void. (Castillo vs. Castillo, L. 18238, Jan. 22, 1980)

B. Simulated deed of sale

A simulated deed of sale has no legal effect, and the transfer certificate of title issued in
consequence thereof should be cancelled. Pari delicto does not apply simulated sales.
(Guan vs. Ong, G.R. no. 144735, October 29.
18,2001)
27. Certainty of price in case of grains, liquids and other
things on a definite date or amount is fixed above or below on a day, provided such
amount is also certain.

Example: Today, S offered for sale 100 cavans of wag-wag rice. B asked S the price per
cavan. S told B that the price per cavan Is P20.00 over the price at “X store in Divisoria
market. If the price at “X store” ¡s P600, the price of S is P620,00, and the same is
considered certain because the amount is fixed above the price on such day.

28. Effect when price Is uncertain

If the price cannot be determined in accordance with the preceding articles, or in any
other manner, the contract ineffective. However, if the thing or any part thereof has been
delivered to and appropriated by the buyer, he (buyer) is required to pay a reasonable
price under the principle Jed that no person shall be enrich at the are expense of
another.

Q “A” sold his 2005 Ford Explorer to “B”, a Compadre and leaves it to “B” to determine
for the price. If “B” refuses to fix a price and simply takes the car, is he still obliged to pay
the price?

A — Yes, B is still obligated to pay the price. The law states that the fixing of the price
can never be left to the discretion of one of the parties in a contract. Therefore, the act of
A is illegal but will not affect the validity of the sale since B accepted the delivery the and
appropriated it, therefore, he must pay a reasonable price.

29. A. Nature of the Contract and its perfection

Sale is a consensual contract, perfected only by mere consent. The delivery of the thing
and payment of the price is not essential for its perfection. What ¡s required is only or the
meeting of minds of both parties with respect to the object and cause which will
constitute the contract.

B. Jurisprudence

A contract of sale is perfected at the moment there is a in meeting of minds upon the
thing which is the object of the contract and upon the price. It is, therefore, not required
that, at the perfection stage, the seller be the owner of the thing sold or even that such
subject matter of the sale exists at the point in time. Thus, under Art. 1434 of the Civil
Code. when a person sells or alienates a thing which, at that time, was not his, but later
acquires title thereto, such title passes by operation of law to the buyer or grantee. This
is the same principle behind the sale of “future goods” under Art. 1462 of the Civil Code.

However, at the time of delivery or consummation stage of the sale, it is required that the
seller be the Owner of the thing sold. Otherwise, he will not be able to comply with
obligation to transfer ownership to the buyer. (Cavite Development Bank, et. al. vs. Court
of Appeals, et. al., G.R. No. 131679, February 1, 2000)
30. Requirements for perfection

1. When parties are face to face, the offer must be accepted without qualification.
Qualified acceptance constitutes a counter-offer.

2. When the contract is thru correspondence or thru telegram, there is perfection

when the offeror receives the letter of acceptance or has knowledge of the
acceptance of the offeree.

3. When a sale is made subject to a suspensive condition, the perfection is from the
moment the condition is fulfilled.

31. Illustrative Case:

X and Y are good friends. X sold and delivered his car to Y. It was agreed and
understood that next Sunday, X will name and fix the price of the car. Sunday came, X
called Y by telephone and stated and fixed the price at P150,000. Was the sale
perfected?

Answer: No, because the price of the sale was left to the discretion of one of the parties,
that is, the seller, and was not consented by the buyer.

32. M, a rice miller from Tarlac, accepted the offer of B to buy 500 cavans of C4
rice at P800 per cavan. They agreed that the rice will be delivered the following
day at B’s store, where the latter will pay the purchase price to the agent of M. As
agreed upon, M delivered the 800 cavans of rice to B’s store, but the buyer was
nowhere to be found when the agent of M tried to collect the purchase price.

Question: Was the sale perfected? Can M demand the performance of the obligation?

Answer: Yes, there was a perfected sale because there was a meeting of minds
between the parties with respect to the offer and cause which will constitute the contract.
Can demand performance after the perfect in because the law states that from the
moment of perfection, the parties may demand performance subject to the rules
governing the forms of contracts, (Art. 1475)

33. S sold in writing a residential land to B. B paid the consideration. When B

wanted to register the sale at the Register of Deeds, the latter refused to register it
and required the presentation of the certificate of capital gains tax payment. What
can B do?

Answer: B may compel S to pay the capital gains and secure the certificate of capital
gains tax receipt. He may also compel S to execute, the deed of sale in a public
instrument so that it can be registered with the Register of Deeds. The execution of a
public instrument can be done because the sale is valid and enforceable.

34. Auction Sale

1. Perfection

A sale by auction ¡s perfected when the auctioneer announces its perfection by the fall of
the hammer, or in any other customary manner. (M. 1476).

2. Owner’s right to withdraw the goods from auction sale.

a. Before perfection

The owner or auctioneer may, before the fall of the hammer, withdraw the goods from
the safe. Unless there was an announcement that the auction is without reserve.

b. After perfection

After the fall of the hammer, the owner can no longer withdraw the goods.

35. Bidder’s right to retract his bid

1. Before perfection
A bidder may, before the fall of the hammer, retract his bid

2. After perfection
After the fall of the hammer, the sale is perfected, therefore the bidder can no longer
retract his bid.

36. By-bidding or puffing

1. Concept

By-bidders or puffers are the persons who, without any intention to buy are employed by
the seller to raise the price by fictitious bids, thereby increasing the competition among
the bidders. These bidders and puffers are not bound by their bids because they are the
agents of the seller.

2. Rights of owners to employ by-bidders

a. When right is reserved — the owner may give notice that he may employ third
persons to bid in his behalf and this ¡s valid because the right is reserved.

b. When right is not reserved — when notice is not given that the auction sale is subject
to a right to bid on behalf of the seller, the seller cannot employ by bidders, otherwise,
the transaction is considered fraudulent and may be set aside by the buyer.

37. Transfer of ownership of the thing sold.

Ownership of the thing sold is transferred not by the perfection of contract but by the
delivery of the thing sold.
Payment of the purchase price is not essential to the transfer of ownership unless
otherwise stipulated. This reservation of ownership is called pactum reseivati dornini
reservati.

38. Delivery of the thing sold.

The Civil Code imposes upon the vendor the obligation to deliver the thing sold. The
thing is considered to be delivered when ¡t is placed “in the hands and possession of the
vendee.” (Civil Code, Art. 1462)

It is true that the same article declares that the execution of a public instrument is
equivalent to the delivery of the thing which is the object of the contract, but, in order that
this symbolic delivery may produce the effect of tradition, it is necessary that the vendor
shall have had the control over the thing sold that, at the moment of the sale, its material
delivery could have been made.

it is not enough to confer upon the purchaser the ownership

and the right of possession. The thing sold must be placed in his control. When there is
no impediment whatever to prevent the thing sold passing into the tenancy of the
purchaser by the sole will of the vendor, symbolic delivery through the execution of a
public instrument is sufficient.

But it, notwithstanding the execution of the instrument the purchaser cannot have the
enjoyment and material tenancy of the thing and make use of it himself or through
another in his name, because such tenancy and enjoyment are opposed by the
interposition of another will, then fiction yields to reality, the delivery has not been
effected, (Union Motor Corporation vs. Court of Appeals, et. al., GR. No.
117187, July 20, 2001)

39. Kinds of delivery

a. Actual or real delivery

b. Constructive delivery
c. Any agreement that the possession is transferred, in any other manner from the
vendor to the vendee.

40. Rules in unilateral promise to sell or to buy

a. Not accepted by the offeree: A unilateral promise to sell or to buy if not accepted by
the offeree does not produce any legal effect, this is known as policitation.

b. Accepted by offeree: An offer, even if accepted by the offeree, can still be withdrawn,
if not supported by any consideration. (Southern Sugar and Molasses Co. Vs.
Atlantic Gulf and Pacific Co, 500. G. 3447). The rule however, was modified in the case
of Sanchez vs. Rigor. 45 SCRA 368-378, citing the Atkens case. The latest decision is
that if an option is given without consideration, it is a mere offer to sell which is binding
until accepted. However, if acceptance is made before a withdrawal, it constitutes a
binding sale. Ever though the option was not supported by a sufficient consideration
(Civil Code, volume 3, pages 34 by Justice Ramon C. Aquino).

If the offer is supported by a Consideration distinct from the price, the acceptance of the
promissory will create a binding force upon the promissory. However, the privilege of
demanding its performance exists only on the part of the offeree, who may, if he so
desires, demand its performance or not, but he cannot be compelled to buy or sell the
thing.

41. Bilateral promise

A promise to buy or sell a determinate thing for a price certain when accepted by both
parties has the same effect as a contract of sale which is reciprocally demandable.

Example:
S promises to sell to B a specific radio for P900. B accepts the promises of S and in turn
promise to buy the radio for the same amount. In here, there is already a perfected
contract of sale which gives to the contracting parties the right to demand performance
of their respective obligation.

Illustrative Case
S offered for sale to B a specific car for P10,000 and offered him (B) a 10-day period
within which to accept counted from January 1.

1. On January 8, can B withdraw the offer? Yes, because this is a mere offer. It can
be withdrawn at any time.

2. On January 11, can S withdraw the offer? With more reasons he can withdraw
because the 10-day period has already elapsed.

Supposing B gave S p1,000 by virtue of the offer:

1. On January 8, can s withdraw the offer? No, because he gave consideration

distinct from the price. This is called option money.
2. On January 11. can S withdraw the offer? Yes, if there is no consent on the part
of B. If B consented the Offer within the 10-day period, S cannot withdraw
because, the contract was already perfected.
3. II B consented how much will he pay S? P10,000 because the P1,000 given as
option money is not a part of the purchase price.

42. Illustrative Case.

A offered to sell his house and lot to B who was interested in buying the same for
P200,000. In his letter to B, A stated that he was giving B a period of one month within
which to raise the amount and that as soon as B is ready, they will sign the deed of sale.
One week before the expiration of the one-month period, A went to B and told him that
he is no longer willing to sell the property unless the price is increased to P250,000. May
B compel A to accept the P200000 first offered, and execute the deed of sale? Reasons.
No, the offer of A is merely a unilateral promise to sell which is not binding without
consideration distinct from the price of the sale. The option does not bind the offereror
for lack of a cause or consideration.

43. Contract to Sell is not an absolute sale

A contract or promise to sell is not a contract of sale. Such a contract to sell would exist
when a parcel of land is promised to be sold and title given only after the down payment
and the monthly installment therefore shall have all been paid. Failure to pay is non-
compliance of a suspensive condition, and of course, the obligor is not obliged to convey
title. Also, if the obligor sells the property to another, no right of action accrues on the
original buyer because of failure to pay the installment due. (E. Paras, Civil Code,
Volume V).

In contracts to se where ownership is retained by the seller and is not to pass until the
lull payment of the price, such payment is a positive suspensive condition, the failure of
which is not a breach casual or serious, but simply an event that prevented the
obligation of the vendor to convey title from acquiring binding force. To argue that there
was only a casual breach (and therefore rescission should not be allowed) is to proceed
from the wrong assumption that the contract is one of absolute sale, where non-payment
is a resolutory condition which is not the case. (Luzori Brokerage Co. Inc. Vs. Maritime
Building, 86 SCRA 209) (Opinion expressed by Justice Guerrero)

In a contract to sell real property on installments, the full payment of the purchases price
is a positive suspensive condition, the failure of which is not considered a breach.
Casual or serious, but simply an event that prevented the obligations of the vendor to
convey title from acquiring any obligatory force. The transfer of ownership and title would
occur after full payment of the price. (Rifo vs. Court o’
Appeals, 340 Phil. 570)

44. Loss by fortuitous event of the object of sale.

If the thing is lost due to fortuitous event after perfection and before delivery there being
no negligence or delay the part of the vendor, the loss shall be borne by the vendee.
Hence, the vendor’s obligation to deliver the thing lost is extinguished, but the buyer’s
obligation to pay remains to subsist, except:
1. When there is stipulation to the contrary.
2. When the seller’s obligation requires the assumption of risk
3. When by the provisions of law, the lost even if due to fortuitous event shall not
extinguished obligation.
The principle that the vendee shall pay the price of the sale is based under the following
arguments:

a. Under Article 1537, the fruits pertain to the vendee from the perfection of the contract,
and as such he must also shoulder the disadvantages.

b. Under Roman Law, the obligation of the parties are considered separate and distinct
stipulations, therefore the extinguishment of one does not affect the other.

c. The object of the sale is specific, the loss of such thing without the fault of the debtor
shall extinguish the obligation. The price of money is generic, the loss of a generic thing
shall not extinguish the obligation. This view was expressed by Manresa, Castan, De
Buen and Bonet of the Spanish Civil Code.

However, others like Perez. Alguer, and one of our eminent commentators in Civil Law,
Arturo Tolentino states that the vendee must not pay the price under the following
arguments:

1. Ownership is transferred by delivery, hence, before delivery, the vendor owns the
thing and should suffer its loss; under the principle of res pent domino, If he is
allowed to recover the price, he suffers no loss.

2. The obligation of both parties is reciprocal, one depends upon the other. If the
obligation of the vendor to deliver is extinguished, then the obligation of the
vendee to pay the price is also extinguished.

45. Loss is due to the fault of a third person.

illustrative Case:

S On March 112010 sold for P900,000 to B his (S) house and lot. It was agreed that the
delivery of the house and lot and the payment would be made on April 1, 2010.
Unfortunately, x, a stranger negligently set the house on fire on March 1, 2010, and the
house was completely destroyed, On April 1, does S still have to deliver anything, and
does B have to pay for anything? Reasons.

Answer:

1. S’s obligation was extinguished because the object to be delivered is specific and
if got lost due to fortuitous event. Therefore, he is not bound to deliver anything.

2. Although B is not yet the owner of the house, he must bear the risk of loss, just
as he would have been benefited if the house had increased in value or had
improved. As stated by many authors ¡n Civil Law, the buyer gets the benefit
during the intervening period, it ¡s clear that he must also bear the loss. (Paras,
Civil Code Vol. V, page 60).
3. However, 8, has a right to proceed against X, the negligent stranger, and ask for
damages under the rule on subrogation. The law states “the obligation having
been extinguished by the loss of the thing, the creditor, shall have all the rights of
action which the debtor may have against third persons by reason of the loss”
(Art. 1269).

46. Sale of fungible things.

Fungibles are personal property which may be replaced with equivalent things.

If the goods are fungibles and are to be counted weighed, or measured, the counting,
weighing
Measuring is a suspensive condition, and before fulfillment no obligation exists.
Therefore, the loss is not imputable to the vendee. But if the goods have already been
placed at the disposal of the vendee, and they are of a nature that: are generally
received and counted, measured or weighed
if subsequently they were lost by fortuitous event before they are actually counted,
weighed or measured, the loss must be borne by the vendee. (Art. 1480)

47. Sale by sample.

In sale by sample, the parties contract solely with reference to the sample, with the
understanding that the bulk of the good: (not majority) correspond with the sample
shown to the vendee. Otherwise the contract is rescissible under Article 1481.

48. Sale by description.

In here, the seller sells things of being of a certain kind, the buyer relying on the seller’s
representations or descriptions. The goods delivered must correspond with the
description, otherwise the contract can be rescinded. However, if the goods delivered
tally with the description even if the intention of the buyer is not fitted, the contract
cannot be rescinded. (Art. 1481)

49. Sale by sample and by description.

In here, the seller warrants that the goods correspond with the sample and description,
otherwise, the contract 5 can be rescinded.

50. Sale by sample of goods “AS IS”.

The requirement that the goods sold by sample must be of the same quality and kind
represented by the sample is not affected by the fact that the goods are sold ‘as ¡s’,
The phrase imply refers to the Condition of the goods and they must be of the quality
represented even ¡fin damaged condition,

51. Illustrative Cases:

1. B purchase a quantity of bed sheets which were wrapped up in bale, the sale was
done in a warehouse. Some bed sheets were pulled out, displayed, and found to be all
right. B then purchased loo bales, which he later discovered to be bug-eaten. What are
the rights of B, if any?

Answer: This ¡s a sale by sample. B’s right is:

a. to return the bed sheets and recover the money paid.
b. to retain the bed sheets and still sue for the breach
of warranty. (Paras, Civil Code, Volume V)

2. S sold to B a refrigerator by description for P10,000. Although the description was

completely correct (as described), the machine would not work properly in the cold store
for which it has been purchased. The buyer refused to pay the balance of the purchase
price, hence this action.

Answer:
This is a sale by description, and the description
is correct, the buyer therefore must pay the price because the object delivered tallied
with the description. (Pacific Corn., Co. vs. Ermita Market and Cold Storage 56 Phil. 617)

52. Concept of earnest money

Earnest money is payment of the sum of money as a token, upon the making of a
contract for the sale of goods to bind the bargain, the delivery and acceptance of which
marks the final and conclusive assent of both parties to the contract. This money is a
part of the purchase price.

53. Proof of perfection

The giving and acceptance of earnest money is a proof
of the perfection of the contract of sale.

54. Earnest money distinguished from option money.

1. Earnest money is given only when a contract is perfected while option money is given
to bind the Off in a unilateral promise to sell or to buy.

2. Earnest money is part of the purchase price; while option money is separate and
distinct from the purchase price.

3. If the sale is consummated, the money given as earnest is deductible on the purchase
price, while option money, is not deductible on the purchase price.

55. Seller is bound to return the earnest money if sale was not consummated.
If the sale was not consummated, the seller is obliged to return the earnest money given.
However, the parties may agree that the earnest money (ARRAS) given may be forfeited
in favor of the seller, especially if the seller cannot deliver the object of sale by reason of
causes not imputable to him.

56. The form of a contract of sale.

1. For validity
A contract of sale may be entered into in any form may be made orally or in writing,
partly orally and in writing, or may be inferred from the conduct of the parties.

2. For enforceability
a. Sale of real Property or of an interest therein must be in writing otherwise the sale is
unenforceable. (Art. 1403).
b. Sale of movables
1. price is P500 or more; it must be in writing. Otherwise, the sale is unenforceable (art.
1403).
2. Price is less than P500: oral contract enforceable.

57. Sale made thru an agent.

When a sale of a piece of land or any interest therein is through an agent, the authority
of the agent shall be in writing otherwise the sale is void. (Art. 1874)

58. Sale of immovable by the seller to the buyer.

1. Between the seller and the buyer, the contract is valid even if orally entered into.
2. However, to be enforceable it must be in writing.
3. To affect third persons it must appear ¡n a public instrument and it must be recorded
in the Registry of Property.

59. Illustrative Case:

S entered into a contract with B whereby S sold his land orally to B. The land has been
delivered and the money has been paid. Is the oral sale of the land valid and
enforceable?

Answer:
Yes. The contract ¡s valid because all the essential elements of the contract are present;
and enforceable because the contract was already executed.

60. What are the rights of the seller in sale of personal property by installment
otherwise known as the Recto Law?

1. Exact fulfillment of the obligation, should the vendee fail to pay;

2. Cancel the sale, should the vendee’s failure to Pay 63 cover two or more installments;
3. Foreclose the chattel mortgage on the thing sold if one has been constituted, should
the vendee‘s failure to pay cover two or more installments. In this case, he shall have no
further action against the purchaser to recover any unpaid balance of the price. Any
agreement to the contrary shall be void

61. Purpose of Recto Law.

Undoubtedly, the principal object of Art. 1484 known as the Recto Law is to remedy the
abuses committed in connection with the foreclosure of chattel mortgages. The law
prevents the mortgagee from seizing the mortgaged property, buying it at foreclosure
sale for a low price and then bringing suit against the mortgagor for a deficiency
judgment. The almost invariable result of this procedure is that the mortgagor finds
himself minus the property and still owing practically the full amount of the original
indebtedness (Bachrach Motor Co. Vs. Millan, 61 Phil. 409)

62. Requisites to concur ¡n the application of Recto Law.

In order that the provisions of Recto Law will apply it must appear that there is a contract
of sale of:
1. Personal property.
2. The price of the sale is payable in installment.
3. That there has been a failure to pay 1w Œ more installme1’
4. Chattel mortgage has been executed.

The following, therefore are excluded from its coverage

1. Sale of personal property on straight term or sate partly in cash and partly in one term.
2. Sale of real property.

63. Illustrative Case:

S sold to B a specific car for P20,000 payable in four (4) equal installments.

1. If B defaulted in the payment of one of the installments can S exact fulfillment of the
obligation? No. 1 does not require default in two or more installments. In here, S is not
canceling the sale, he is only demanding payment.

2. Supposing R .ailed to pay the 1st and 2nd installments.

a. Can S exact fulfillment of the obligation Yes, because of B’s failure to pay any of the
installments its
b. Can S rescind or cancel the contract of sale?
3. Supposing B, as a security, executed a chattel mortgage
Yes, because of B’s failure to pay two Installment, on the car, but failed to pay two (2)
installments.

a. Can S foreclose the chattel mortgage? Yes, because of B‘s failure to pay two (2)
installments.
b. In the foreclosure sale, the sum obtained is less than what B owed S, can S still
collect the deficiency?
No, even if there is stipulation, because the stipulation ¡s void, this is the provision of the
“Recto Law”.
C. When can S recover the deficiency?
If he will not foreclose, instead file an action as an ordinary creditor, the balance is
recoverable.

64. B bought from X Co. a truck, payable in monthly installments. As security for
the payment of the balance of the purchase price, he constituted a chattel
mortgage on the truck in favor of the company. Because of his failure to pay three
consecutive monthly installments the company filed a complaint against him to
recover the unpaid balance. A writ of attachment was subsequently issued against
his properties. Thereafter the truck was sold at public auction in which the
company was the only bidder for P50,000. Since there was still a deficiency of
more than P60,000, the court condemned B to pay to the company the deficiency
plus the interest. Is this is accordance with law?

Yes, because X Company did not foreclose the mortgage property therefore the
deficiency is recoverable. The answer would be different if he foreclosed the chattel
mortgage here, the company filed an action as an ordinary creditor

65. Example of sale on straight term.

S sold to B a specific car for P300,000. Upon delivery, B paid S p 100.000 and the
balance of P200,000 is to be paid one month after. To secure its payment, B mortgaged
the car to S. One month after, B failed to pay, and so S foreclosed the chattel mortgage
on the car and was sold
for the net amount of P180,000, after deducting the expenses of the sale, Is S entitled to
recover payment of the deficiency of P200,000’rom B?

Answer:
Yes, the third paragraph of Article 1484, known as
Recto Law, will not apply because this is a sale of personal property on straight term,
that is, one which the balance of the purchase price, after payment of the initial sum to
be paid in its totality at the time stipulated. The law to apply in this case is the Chattel
Mortgage Law, and the law states that if the Property mortgage was foreclosed and
there was deficiency, the mortgagee may maintain an action against the buyer for the
recovery of the deficiency.
66. Lease Contract Construed as a contract of sale.
Contract of lease of personal property contains a
stipulation that the alleged lessee shall pay a certain amount upon the signing of the
contract, and on or before the 5th day every month another specific amount is to be paid
by way of rental, giving the alleged lessee the right or option to buy the said personal
property before expiration of the contract of lease, the payments made by way of
advance and alleged rentals to be deducted from the purchase price, the contract is
construed as a contract of sale and not of lease.

Illustrative Case:
“O”, owner of a copying machine, leased it to “L” at a rental of P4,000.00 a month for a
period of one year with an option on the part of “L” to buy the copying machine at the
end of one year for P80,000.00 to be paid by applying the rentals, so that “L” needs only
to pay P32,000.00.

“L” failed to pay rentals for the 4th, 5th and 6th month so sold that “O” terminated the
lease and repossessed the copying the machine then sued “L” for the unpaid rental of
three months, of or P12,000.00. Is C’s suit legally tenable? Explain.

O ‘s suit is legally untenable, When O ‘ possession of the copying machine, “O” has no
further action against “L “to recover the unpaid rents. In sale of personal property by
installment and lease with option to buy, the moment vendee failed to pay two or more
installments, the vendor may foreclose the chattel mortgage, but in this case he cannot
recover the unpaid balance from the vendee Any stipulation to the contrary is void.

67. Meceda Law or the Realty Installment Buyer Protection Act (R.A. No. 6552)

The Maceda Law (R.A. No. 6552) is applicable to sales of immovable property on
installments. The most important features are:

1. After having paid installments for at least two years, the buyer is entitled to a
mandatory grace period of One month for every year of installment payments made, to
pay the unpaid installments without interest. If the contract is cancelled, the seller shall
refund to the buyer the cash surrender value equivalent to fifty percent (50%) of the total
payments made, and after five years of installments, an additional five percent (5) every
year but not to exceed ninety percent (90%) of the total payments made.

2. In case the installments paid were Less than 2 years, the seller shall give the buyer a
grace period of not less than 60 days. If the buyer fails to pay the installments due at the
expiration of the grace period, the seller may 6 cancel the contract after 30 days from
receipt by the buyer of the notice of the cancellation or demand for rescission by notarial
act.
Republic Act No. 6552 recognizes in conditional sales of all kinds of real estate
(industrial, commercial residential) the right of the seller to cancel the contract upon non-
payment of an installment by the buyer, which is simply an event that prevents the
obligation of the vendor to convey title from acquiring binding force. The law also
provides for the rights of the buyer in case of cancellation. (Leaño vs. Court of Appeals,
et. al., G.R No.129018, November 15 2001)

68. Obligation of the Seller when the sale is cancelled

As a rule, if the Contract of sale ¡S cancelled the seller is obliged to return to the vendee
the paid installment minus the reasonable amount of rent, except when there is
agreement to the Contrary and the same is not Unconscionable

Example:
S sold to B a specific radio for P4,000 in four equal installments. B paid the 1st and 2nd
installments but defaulted on the 3rd and 4th installments S, therefore, cancelled the
sale. Is S under obligation to return the sum paid by B on the 1st and 2nd installments?

Yes, because ¡f is fundamental in rescissible contacts that lithe contract is cancelled or

rescinded, the obligation of the parties ¡s to return what they have received. Except, of
course, ¡f there ¡s stipulation stating that the installment paid will be forfeited in favor of
the seller.

69. Capacity to enter into a contract of sale.

As a rule, only persons who may oblige themselves may enter into a contract of sale.
Hence, incapacitated persons, like minors, demented persons. Imbeciles, prodigals, deaf
and dumb, insane, and those subject to Civil interdiction cannot enter into a contract
because their personality is restricted. However, when necessaries are sold and
delivered to a minor or incapacitated person, the latter is obliged to pay reasonable
price.

Necessaries are everything indispensable for sustenance, dwelling, clothing medical

attendance, and educational expenses whether professional or vocational. (Art. 290
Family Code)

70. Persons suffering from relative incapacity.

The following persons cannot acquire by purchase, even at a public or judicial auction,
either in person or through that mediation of another;

1. The guardian, the property of the person or persons who may be under his
guardianship;
2. Agents, the property whose administration or sale may have been entrusted to them,
unless the consent of the principal has been given;
3. Executors and administrators, the property of the estate under administration;
4. Public officers and employees, the property of the State or of any subdivision thereof,
or of any government owned or controlled corporation, or institution, the administration of
which has been entrusted to them; this provision shall apply to judges and government
experts who, in any manner whatsoever, take part in the sale;
5. Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and
other officers and employees connected with the administration of justice. the property
and rights in litigation or levied upon on execution before the court within whose
jurisdiction or territory they exercise their respective functions; this prohibition includes
the act of acquiring by assignment and shall apply to lawyers, with respect to the
property and rights which may be the object of any litigation if which they may take part
by virtue of their profession.
6. Any others specially disqualified by law. (Art. 1491)

71. Reason for this prohibition

These prohibitions are established for reason of public policy and seek to prevent fraud
on the part of the persons enumerated therein and to minimize temptations to the
exertion of vendee and improper influence, it also establishes the incapacity of certain
persons to acquire by purchase certain property by reason of their relation to the vendor
or to the property itself. Their relative incapacity Laid down in this article is intended to
avoid situation where a person may find his personal interests conflicting with the
interest of those whom he represents. It is feared that greed may overcome the
sentiments of loyalty.

72. Total loss of the thing sold before perfection.

When the thing sold was entirely lost at the time the contract was perfected, the contract
of sale is ineffective, or inexistent because one of the essential elements of the contract
is absent, that is, the object of the contract. In such a case, there is no need of an action
to annul the contract, because annulment is a remedy for voidable contracts, while in
this case, the contract is void or inexistent.

However, if the thing was lost due to the fault of the seller as he knew already of the lost
before the contract was perfected, he must pay damages to the buyer.

Illustrative Case:
S offered to sell a set of furniture to B for P10,000 immediately accept the offer.
However, S was gutted by fire ore hour before the total, including the furniture. Is B
required to purchase price on the ground that the contract was already perfected

No, the contract did not exist because the law says
that If at the time the contract of sale is perfected, the thing
which is the object of the sale is entirely lost, the contract shall be without effect,
However, if the loss is only partial the vendee may choose between withdrawing from the
contract and demanding the remaining part, paying its price in proportion to the total sum
agreed upon. (Art, 1493)

73. Obligation of the seller,

a. To deliver the thing.

b. To transfer its ownership.

c. To warrant the thing sold.

d. To take good care of thing pending delivery. (Art. 1163)

74. Kinds of delivery or tradition.

a. Actual or real delivery

b. Constructive delivery

1. Legal formalities
2. Symbolical delivery

3. Traditio longa manu

4. Traditio brevi manu

5. Constitutum possesorium

6. Quasi-tradition

c. Any agreement that possession is transferred from me

vendor to the vendee.

75. Kinds of delivery:

1 Actual — when the goods are placed ¡n the control and possession of the vendee

2. Constructive delivery

1 Legal formalities — execution of a public Instrument

2. Symbolic delivery - delivery of the key where the

things are stored or kept, or symbol or token of delivery.

3 Tradition longa manu — by mere pointing at the object

4, Tradition brevi manu - no need to deliver because

the buyer is already in possession.

5. Constitutum possessorium - no need to deliver

because the seller will continue to be in possession

6. Quasi-tradition the object is Intangible or

incorporeal thing. The placing of the title of ownership in the name of the vendee with the
consent of the vendor is equivalent to delivery.

Example of No. 5: S sold to B a one-hectare agricultural

land, in the contract executed, the parties agreed that S will continue to possess the
property, this time, no longer
as an owner but as a lessee. This constructive delivery is called constitutum
possessorium

Example of No. 6: S sold to 8 100 shares of stock. If S endorsed the certificate of stock
to B, the ownership is transferred. This transfer or delivery is called “quasi-tradition.”

76. Delivery by legal formalities.

Execution of a public instrument or legal formalities.

A public instrument, the When the sale is made through the delivery of execution of such
instrument is ownership to the buyer. This is understood that the intension of the party
executing.

The instrument is to transfer the ownership. There is therefore no constructive delivery

when a certain day is fixed when the buyer should take possession of the thing, or if it is
a sale of installment, ¡t is stipulated that ownership is to pass only upon payment of the
last installment. This mode of delivery applies to both movable and immovable property
Example:

S sold to B a specific piano by means of a private instrument of sale for P10,000. Who is
the owner of the piano at the moment after B had paid the P10,000 to S?

Answer;
S is still the owner because what transfers ownership over the thing ¡s not the execution
of private instrument but instead a public instrument. Payment of the price of the sale by
B without deliver,’ is not a mode of acquiring ownership. Exception, of course, if there
was a mutual agreement by the parties.

77. Concept of symbolical delivery.

This is delivery made by the use of symbol or token to represent the thing which is the
subject matter of the contract of sale.
Example:

Delivery of the key where the things are stored or kept.

78. Concept of longa manu, brevi manu

1. Traditio longa manu or long hands delivery;

This is effected by pointing at the thing sold.

2. Traditio brevi manu — upon perfection of the contract, the object is considered
delivered because the buyer at the time of perfection is already ¡n possession.

Potersj4nessLa
79. Example of Brevi Manu
Today, S loaned his specific car to 13 and delivered the same, for a period of one (1)
month. Five days after, S sold the car to B for P1OO00 In here, upon the perfection of
the contract there is already a transfer of ownership by means of traditio brevi manu.
There is no need for S to deliver because B is already ¡n Possession.

80. Concept of traditio Constitutum possesorium

This is delivery taking place when the Owner of a thing sells it to another but continues in
Possession of the thing even after the sale as lessee, depository, or otherwise.

Example:
S owns a specific car and sells ¡t to B for P300,000. In’ another contract executed on the
same day, B agreed to lease the same car to S for one year. In this case, there is no
need for S to deliver the car to B because S will continue to possess it, this time no
longer as an owner but instead as a lessee.

81. Delivery of incorporeal property (Quasi-Tradition)

1. By constructive delivery — execution of public instrument
2. Placing the title of ownership in the possession of the vendee.
3. Use of the vendee of his right, with the vendors consent shall be understood as a
delivery.

Example:
S sold to B the 1000 shares of stocks he owns from
X’acto Corporation for P1000 per share. The endorsement of the certificate of stock,
which is the evidence of ownership, transfers the ownership to B by means of quasi
tradition. The same may be effected by executing a Public instrument notarized by a
notary public.

82. Illustrative Cases on delivery.

1. A sold his piano to B, who immediately paid the price
Because the piano was at the repair shop at the time the contract was perfected, no
delivery was made
Before delivery could be made, C, a creditor of A, wh0 has filed a suit against him,
attached the piano.

Question: What right has B over the piano? May B oppose the attachment levied by C?
Reasons.

Answer:
B has no right over the piano, because he ¡s not yet the owner since no delivery was
made. The remedy of B is to proceed against A for indemnification of damages.

2. A agrees to sell to B a particular sewing machine for cash placing said machine on
board the delivery wagon of B, while the latter goes home to fetch money. Before B
returns,
C appears and claims ownership of the sewing machine, exhibiting a document signed
by B selling the said machine to C. A rejects the claim of C alleging that he (A) is still the
owner of the machine. Who owns the machine? Explain?

Answer;
A remains to be the owner because in a contract
to selI, the owner remains the Owner until the purchase price is fully paid.

3. S sold to B his parcel of land for P200,000. If S delivered the land title deeds to B,
Ownership is transferred. The rule was laid down by our Supreme Court in the case of
Tablante vs. Aquino, 28 Phil. 35, wherein it was stated.

That although there has been no material delivery, the delivery of the title of the Property
to the vendee s equivalent to the Property itself, especially where the vendee made use
of his rights with the consent of the vendor.
4. Qualifying Illustrative case on execution of public instrument

S sold to be an agricultural land for P500,000. The parties executed a public instrument
of sale with a stipulation that “the vendee shall have the right to take possession of the
land immediately after the execution of the document together with all improvements
now existing on the same land, such as palays and others” In here, the court held that
the transfer of ownership is by physical possession; such that, even if there was
execution of the document, ownership is not yet transferred to the buyer if the
improvements are not actually and physically delivered to the buyer. The failure
therefore of the seller to affect actual delivery will be a sufficient ground for cancellation
and ownership is not considered transferred. (Gonzales vs. Hoberes, 47 Phil 380, cited
by A. Tolentino, C. C. Volume V)

5. “S”, an American resident of Manila, about to leave on a vacation, sold his car to “B”
for U.S. $2,000.00, the payment to be made ten days after delivery Lo “X’, a third party
depository agreed upon who shall deliver the car to ‘4B” upon receipt by “X” of the
purchase price.
It was stipulated that ownership is retained by “S” until delivery of the car to “X”. Five
days after delivery of the car to “X”, it was destroyed in a fire which gutted the house of
“X” without the fault of either “X” or ‘B”.

1. Is buyer B still legally obligated to pay the purchase price?

2. May S demand payment in U S. dollars?

Answer:

1. Yes, because there was already delivery to x constituted as bailee or oppository. The
delivery to X transfers the ownership to B. Since B ¡ considered the owner, he sha11
bear the risk of loss,

2. Yes, under Republic Act No. 8183 which provides that the obligation or transaction
maybe settled in any other currency at the time of payment.

83. Loss due to fortuitous event after perfection but before delivery. In Article
1496, the rule states that the ownership of the thing sold is transferred to the
vendee from the time of delivery, whether actual or constructive. Before delivery,
therefore, the loss is borne by the vendor. Hence, if the goods are lost due to
fortuitous event, the seller cannot demand payment from the buyer, except:

a. When there is an agreement to the effect.

b. When the goods have been delivered to the buyer or to a bailee for the buyer and
although ownership of the goods have been retained by the seller, such retention of
ownership is merely to secure performance by the buyer of his obligation under the
contract.
84. Comments
Our eminent jurist, Arturo M. Tolentino, stated in his commentaries in special contract,
Volume V, Civil Code, that the ultimate determination of the question as to who must
bear the loss in the event after the contract of sale Is

entered into and the Property is lost due to fortuitous event, depends on whether the title
has passed, Since it is the general rule that in the absence of a contrary intention or
agreement, the risk of loss follows the title, If the title has passed to the buyer, even
though there has been no delivery of the Property to him, the loss falls on the buyer, and
he has no claim against the seller for the recovery of the price if it has been paid, nor
can he escape liability to the seller for the price if it has not been paid. On the other
hand, if the title has not passed at the time the property was destroyed, the loss falls on
the seller1 and he cannot recover from the buyer the price agreed to be paid. If the
buyer has paid the price or any part thereof, he may recover the same from the seller.
Be it noted that this commentaries were supported by American cases decided by
American Courts.

Another eminent jurists, Justice Edgardo L. Paras, stated in his book, Civil Code Volume
V, that this Article
1504 apparently contradicts Article 1480. It was noted in his book, that under American
Law, the mere perfection of a contract transfers the ownership of the thing sold, while
under our law, what transfers ownership is the delivery of the object. It is also noted by
the author of this book that Article 1480 is an adaptation of the old Civil Code taken from
the Spanish Civil Code, while, Article 1504 is a new provision taken from the American
Uniform Sales Act.

85.
Examples:
1. S sold to B 100 cavans of specific rice today for P10,000, and executed a public
instrument of sale. The next day, the rice got lost due to fortuitous event while still in the
possession of S. S, in this case, can demand payment of the price from B, the risk or
loss is already shifted to him because execution of a public instrument is a mode of
transferring ownership to the buyer.

If B is to demand from S the deficiency of 200 square meters, and if this is not possible,
to rescind the contract of sale because the lack in area is 200 square meters, and
this is more than one-tenth (1/1 0) of the total area.

Supposing in the above illustration, the lack in area is 50 square meters, can B ask for
rescission?

No, because the lack in the area is only 50 square meters, and this is less than one-
tenth (1/10) of the area stated. However, he may ask for reduction in the Price and pay
only P95,000.

127. Illustrative Case:

B goes to S telling him that he wanted to buy a parcel of land measuring exactly 1,000
square meters. Since S has the exact measurement, he offered it for sale to B, at P100
per unit of measure. B consented to buy, but upon delivery the land measures only 950
square meters, which is less than one-tenth (1/1 0) of the total area stated. Can there be
rescission?
Yes, because it is clear that B would not buy the land had he known of the smaller area.
In here, B manifested his intention to S.

128. Remedies of the vendee in the delivery of thing of Inferior quality

1. Rescission of the sale if the inferior value of the thing exceeds one-tenth of the price
agreed upon.

Example: B bought from S 10 hectares first class irrigated rice field at the rate of
P10,000 per hectare. If two (2) hectares out of the 10 hectares is not irrigated falling
under the second class category with a price of P8,000 per hectare, the sale can be
rescinded because the inferior value exceeds one-tenth.

To the named port of destination. Under the titled sale, ownership is not to pass until the
goods reaches the point of destination The seller therefore is liable for the loss of, or
injury to the goods before reaching the port of destination.

88. What is sale or return?

In sale or return, the ownership of the thing sold is transferred to the vendee upon
delivery, but the vendee, if not interested, is given the option to return,

Vendee’s right to return

In sale on trial, the vendee instead of approving the sale. May return the goods to the
seller within the time fixed in the contract, or, if no time is fixed within a reasonable time,
otherwise the sale shall become absolute.

90. Illustrative Case:

Today, S sold to B a specific refrigerator for P10,000, “sale on trial 10 days”. The
delivery of the refrigerator to B will not transfer ownership to B because the sale is on
trial. However, if on the fourth day, B signifies his approval the sale becomes absolute.
Meantime, if B finds that the object delivered is not satisfactory to him, he may return the
same to the seller within the 10 day period, or, if no period was stipulated within a
reasonable time, otherwise he will be obliged to pay the price he under the principle of
implied approval.

91. Sale on trial, satisfaction and approval.

1. in “sale on trial, the ownership of the thing sold is retained by the seller
notwithstanding delivery of the thing to the vendee, but the buyer agrees to pay its price.
If found to be satisfactory. Be it noted that ii it is stipulated that the third person will be
the one to approve the sale, the stipulation is valid, but the third person must be in good
faith. If refusal to accept is not justified, the seller may still sue for the price of the sale.
Also, the delivery of the object to a buyer who is an expert is not considered a sale on
trial satisfaction or approval. (Azcona vs. Pacific Commercial Co., 89 Phil. 269)

2. Transfer of ownership.
a. When the buyer signifies his approval.
b. When the vendee does an act adopting the transaction.

Example: If the original buyer sells the goods to another buyer.

c. When after the expiration of the time fixed in the contract, or if no time is fixed, after
the expiration of a reasonable time, the vendee retain the goods without giving notice of
rejection or acceptance to the vendor.

92. Distinguish “sale or return” from “sale on trial”

a. In sale or return, ownership passes to the vendee upon delivery; in sale on trial,
ownership does not pass to the vendee until he accepts the goods after trial.

b. In sale or return, the risk of loss is on the vendee; in sale or trial, the risk of loss is on
the vendor.

c. In sale or return, the vendee has a right to retain or reject and return the object
delivered without reference to the quality; while sale on trial, the vendee’s right to retain
or reject the thing is dependent upon the quality of the thing sold.

93. Ownership of the thing sold

As a rule, nobody can dispose that which does not belong to him, and that the buyer
acquires no better title to the goods than the seller had, except:

1. When the seller is authorized by the owner under the principle of agency.

2. When the Owner is precIuded from denying the authority of the seller.

3. Sales made under statutory power of sale, such as sale made by guardian.

4. Sales made by order of the court, such as those conducted by the sheriff.

5. Sales made in a merchant’s store, or in fairs or in markets.

6. Sales under recording law, or any other provision of law enabling the apparent
owner of goods to dispose them as if he were the true owner.

Example of No. 2: X is the owner of a specific radio. S sold the radio to B in the
presence of X, and X did not object. B here, upon delivery, becomes the owner
because X is estopped from denying S’s authority to sell.

Example of No. 4: D owes C P10,000 and mortgaged his parcel of land as a

security. On the date of maturity, D failed to pay. C foreclosed the property and the
sheriff of
the court sold it at public auction. B was the highest bidder. Will ownership pass to B
even if the sheriff is not the owner of the property? Yes, because this is a sale
ordered by a Court of competent jurisdiction.
 Example of No. 5: X is engaged in buying, selling and repairing second hand shoes.
B bought from X a pair of shoes, colored flaming red”. Later, it was discovered that
the shoes did not belong to the store but to a customer who had left it there for
repair. Did B acquire a better title to the shoes? Yes, because B bought them in a
merchant’s
store. In this case, the right of the owner is to file an action against X and ask for
damages.

Examples of No. 6:

a. Xis a government employee. He bought a parcel of land worth P1 million. Fearing that
he may be questioned under the “unexplained wealth principle”, he titled the land in the
name of 0. Later, 0 sold the land to B. Is B considered the owner of the land? Yes,
because under the Land Registration Law, the one whose name appears in the Torrens
Title is considered the rightful owner.

b. S sold to B his specific car for P200,000. However, B did not register the sale with the
Land Transportation Office (LTO). Five days after, S sold the same car to X, in good
faith, registered the sale with the LTO. Who is the rightful owner?

Answer: X is the rightful owner. The rule states that no transfer of motor vehicle shall be
valid unless the same is recorded with the LTO, and a certification of transfer of title is
obtained by the buyer.

c. When actual delivery has been delayed through the fault of the buyer.

94. Effect if seller’s title is voidable.

Under Article 1390, voidable contracts are binding until annulled by a proper action in
court. Therefore, if the thing is sold before the title of the seller is avoided, the buyer
good faith and for value acquires a good title to the goods.

Example:
B bought from X (a minor), a Specific car. B sold the same car to X, a buyer in good
faith. Is X the owner of the car?

Yes, because the Contract between B and S is only voidable, valid and binding until
annulled by a proper action in court. Therefore, the- title of B is only voidable, but he is
considered the owner. He may transfer ownership of the car because the contract is not
yet avoided.

95. Illustrative Case:

X stole a fountain pen from “0” and sold it to a Bazaar who pays for it in good faith,
not knowing it was stolen. The Bazaar then sold it to B, a student of C PAR. Will
ownership pass to B even if 0 is the real owner?

Yes, because it was purchased in a merchant store. This is an exception to the rule that
the seller must be the owner at the time of delivery otherwise the buyer cannot become
the owner.
96. Effect of sale on “lost movable property”:

The possession of movable property acquired in good faith is equivalent to a title.

Nevertheless, one who has lost any movable or has been unlawfully deprived thereof,
may recover it from the person in possession of the same.

If the possessor of a movable lost or of which the owner has been unlawfully deprived,
has acquired it in good faith at public sale, the owner cannot obtain its return without
reimbursing the price paid thereof. (Art. 599)

Example No. 1: B, in good faith, bought a diamond ring from S. Two years after, X
identified the ring as one she had lost about a year ago. There is no question as to the
veracity of X’s claim. In the meantime, S has disappear Can X get the right from B,
without reimbursing him (B) the amount B paid S?

Yes, because the law says that one who lost any movable may recover it from the
person in possession of the same, without reimbursement, except if the acquisition is in
good faith and had been at a public sale or auction.
Example No. 2: S stole the ring of X and sold it to a buyer B in good faith After one
month, X identified the ring as the one she had lost a week ago. There is no question as
to the veracity of X’s claim. In the meantime, S has disappeared. Can X get the ring from
B?

Yes, because X, the owner, was unlawfully deprived of possession. X need not
reimburse B, even if B is in good faith because the ring was stolen. This is the second
concept of the principle “Buyer Beware”.

Example No. 3: In example No. 2, would the answer be the same if B bought it in good
faith at a public auction?

Yes, but this time X must reimburse B of the price paid because it was purchased in an
auction sale in good faith.

97. Rules when the quantity is more than what was

contracted to sell:

1. Buyer may reject all.

2. Buyer may accept the goods agreed upon and reject the rest. If he gets all, he must
pay for them at the contract rate.

Example: S sold to B 1,000 cans of “Triple 5” sardines at P1 per can. However, S

delivered 1,200 cans. What are the rights of B?
1. He may reject the 200 cane’ and pay P1,000.
2. He may accept all and pay P1,200.

Note: Can B reject all the 1200 Cans?

It is Submitted that he can reject because B is not obliged to separate the 200 cans from
the 1,200.
98. Rules when the quantity is less than agreed upon:

1. Buyer may reject all.

2. Buyer may accept what has been delivered at the contract rate.

Example: B bought from S 1,000 cans of ‘Triple 5” sardines at P1.00 per can. S
delivered 750 cans. What are the rights of B?

1. B may reject all.

2. B may accept the 750 cans and pay P750.00.

99. Rules when quantity is different.

1. Accept the goods which are in accordance with the contract.

2. Reject the rest. If the sale is indivisible, the buyer may reject all.

Example: S sold to B 1000 cans of “Triple 5” sardines. However, S delivered to B 700

cans of ‘Triple 5” and 300 cans of ‘4Ligo”. What are the rights of B?

1. Accept the 700 ‘4TripIe 5” and pay the contract price.

2. Reject the rest, and if the sale is indivisible, the buyer may reject all.

100. Effect of partial acceptance

A buyer who accepts the goods that are in accord with the contract and rejects the
balance does not have the right to claim for damages if he will not give the seller the
opportunity to make the proper substitution for the goods rejected. This rule is applicable
only if the goods delivered is mixed with other goods not in conformity with the contract.

101. Reciprocal obligation in Contract of Sale.

The obligations of the parties in a contract of sale are reciprocal. If the vendee does
not pay the price, the vendor is not bound to deliver the thing, except when there is a
period or term for the payment of the price of the sale.

102. Instances when the vendor is not obliged to deliver

the thing sold.

1. If the vendee has not paid him the price.

2. If no period for the payment has been fixed in the contract.
3. Even if there is a period fixed for the payment of the price - if vendee should lose the
right to make use of the period or terms as provided for in Article 1198.

103. Effect if a period is fixed for payment.

If a period has been fixed for the payment, the seller is bound to deliver the goods sold
even if said period has not yet arrived. The vendor in this case will have to wait for the
end of the period before he can demand the price.
104. Who is deemed an unpaid seller?

1. When the whole of the price has not been paid or tendered:

2. When a bill of exchange or other negotiable instrument has been received as

Conditional payment, and the condition on which it was received has been broken by
reason of the dishonor of the instrument the insolvency of the buyer, or otherwise

In Articles 1525 to 1535 the term “seller” includes an agent of the seller to whom the bill
of lading has been endorsed, or a Consignor or agent who has himself paid, or is directly
responsible for the price, or any other person who is in the Position of a seller.

When seller is deemed an unpaid seller” under this article, the seller is deemed an
unpaid seller if:

1. Only a part of the price has been paid or tendered.

2. When a negotiable instrument has been received as a conditional payment, and the
condition in which it was received was broken by dishonor of the instrument.

Be it noted that the term seller includes an agent of the seller to whom a bill of
lading has been endorsed, or a consignor or agent who has himself paid, or is directly
responsible for the price, or any other person who is in the position of a seller.

105. Rights of an unpaid seller: (Art. 1526)

1. A lien in the goods or right to retain them for me price while he is in possession of
them

2. In case of the insolvency of the buyer, a right of stopping the goods in transit after he
has parted with the possession.

3. A right of resale as limited by this title.

4. A right to rescind the sale as likewise limited by this title. Where the ownership in the
goods has not passed to the buyer, the unpaid seller has, in addition to his other
remedies, a right of withholding delivery similar to and co-extensive with his rights of lien
and stoppage in transit where the ownership has passed to the buyer.

5. A right to enforce payment.

106. Requisites of seller’s Possessory lien.

1. Seller is unpaid
2. Goods are in the possession of the seller.
3. Goods are sold without any Stipulation as to credit or the term of credit as expired; or
the buyer becomes insolvent.
107. Example of the right of retention.

S sold to B for P10,000 a specific ring. No term of credit was given. In this illustration, s
can retain possession until he is paid the price of the sale.

Supposing he delivered the ring to B, the latter promised to pay within 3 months. The
term has ended and B failed to pay. What right does S have? S still has a lienon the ring
(but no longer possessor,’ lien because he parted possession) instead a lien on the
goods for the price of the sale.

In the above example, supposing S transferred ownership of the ring to B, but there was
an agreement that S shall continue to possess the ring as a depository or bailee, can B
compel S to deliver the ring to him (B) because he is already the owner since there was
delivery?
No, because the law says ‘the seller may exercise his right of lien or retention
notwithstanding that the ownership in the goods may have passed to the buyer.” (Art.
1526)

108. When possessory lien is lost.

1. Delivery of the goods to the common carrier or other bailee for transmission to the
buyer without reserving the ownership or possession.

2. When the buyer or his agent lawfully obtains possession of the goods.

3. By waiver thereof.

109. Illustrative Case:

S, an Unpaid seller, who Possessed the goods thru a warehouseman delivered to

the buyer a negotiable warehouse receipt. Does the Unpaid seller still have a
possessory lien?

Answer: No more, for the negotiable warehouse receipt automatically transferred both
title and right of possession to the goods on the buyer. This is a case, when the buyer or
his agent lawfully obtains possession of the goods”.
(Justice E. Para C. C., Volume V).

110. Right of stoppage in transitu.

This is the right of an unpaid seller to resume possession of the goods sold while in
transit by virtue of which he will then be entitled to the same rights he would have had if
he had never parted possession.

Requisites of stoppage in transitu.

1. The seller is unpaid.

2. The seller parted possession of the goods.
3. The goods are still in transit.
4. The buyer is or becomes insolvent.

111. When goods are in transit.

Goods are in transit from the time they are delivered to the carrier for the purpose of
delivery to the buyer or his agent.

112. When goods are no longer in transit.

1. When before the arrival of the goods at the place of destination, the buyer, or his
agents1 Intercepts them.

2. When the carrier 8knowIedgeS possession for the buyer after the arrival of the goods
at the place of destination,

3. When the carrier wrongfully refuses to deliver to the buyer.

113. How may the right of stoppage in transit be exercised?

1. By taking actual possession of the thing.

2. By giving notice of the seller’s claim.

114. To whom notice is given?

1. To the person in actual possession of the goods:
2. Or to his principal.

115. Effects if the right is exercised.

1. The goods are no longer in transit.
2. The contract of carriage ends, the carrier now becomes a bailee, and as such, he is
bound to redeliver the goods according to the instruction of the seller, otherwise, he will
answer for damages.

3. If a negotiable document of title has been issued by the carrier, he shall not be obliged
to deliver the goods according to the instructions of the seller unless such document is
first surrendered for cancellation.

116. Requisites of the right to resell.

1. The seller is unpaid.

2. The buyer is in default in the payment of the price.
3. The seller has a right of lien on the goods.
4. The goods are perishable, or seller reserves the right of resale, or the buyer has been
in default in the payment of the price for an Unreasonable time.
5. The title of the goods must have passed to the vendee

117. When right of resale is available.

1. Goods must be perishable

2. Seller reserves his right of resale.
3. Buyer guilty 01 unreasonable default in the payment of the price.
118. Example of resale:
S sold 100 crates of mangoes to B, and shipped them to a common carrier. The
price of the sale is P10,000. P100 per crate. The term of the sale is COD. When the
carrier reached the point of destination, S demanded payment from B, but B failed to
pay. Since the goods are perishable, S can resell the goods to another buyer, example
X.

Question No. 1: What if he succeeded in selling the goods to X for P12,000, is he (S)
entftled to the excess of P2,000?
Yes, because the law says, he shall not be liable to the original buyer for any profit made
by virtue of the resale.
(Art. 1533)

Question No. 2: What if the resale is only for P8,000, can he collect the deficiency from
B?

Yes, for the law further says, the seller may recover from the original buyer damages for
any loss occasioned by the breach of the contract of sale.

119. Requisites of rescission.

1. Seller is unpaid.
2. Seller has a right of lien on the goods.
3. Seller reserves his right of rescission if the buyer makes default.
4. The buyer has been in default in the payment of the price for an unreasonable time.

120. Acts of rescission.

1. By giving notice to the buyer.

2. By performing an overt act showing an intention rescind the sale.

Example: By claiming ownership, offering the goods for sale to third persons.

121. Recovery of the deficiency.

After the resale, the seller does not lose his right of action against the original buyer
for the deficiency between the original purchase price and the price of resale.

122. Excess of resale belongs to the seller.

If the amount obtained in the resale is more than the original price, the seller is entitled
to the profit made by such resale.

123. Example of the right of rescission.

S sold 100 crates of mangoes to B and shipped them to a common carrier. The price of
the sale is P10,000, P100 per crate. The term of the sale is COD. When the carrier
reached the point of destination, S demanded payment from B, but B failed to pay. Since
B cannot comply with what is incumbent upon him, S may rescind the contract of sale by
notifying S of his intention to rescind.
NOTE: Since the goods are perishable, S may exercise his right to resell the goods. This
is an overt act of an intention to rescind.

ART. 1535. Subject to the provisions of this Title, the unpaid seller’s right of lien or
stoppage in transitu is not affected by any sale, or other disposition of the goods
which the buyer may have made, unless the seller has assented thereto. If,
however a negotiable document of title has been issued for goods, no seller’s lien
or right of stoppage in transitu shall defeat the right of any purchaser for value in
good faith to whom such document has been negotiated, whether such
negotiation be prior or subsequent to the notification to the carrier, or other bailee
who issued such document, of the seller’s claim to a lien or right of stoppage in
transitu.

Effect if the buyer has already sold the goods.

If the buyer sold the goods, the seller’s lien or stoppage in transitu remains except:

1. When the seller consented to the sale.

2. When the goods are covered by a negotiable document
of title which has been negotiated to a purchaser in good faith and for value.

124. Delivery of the thing.

When a period is fixed by the parties for the payment of the price, the vendor is bound to
deliver the thing even before the arrival of the period and the vendor cannot exercise his
right under Article 1524, which states that the vendor is not bound to deliver the thing
sold, if the vendee has not paid him the price. The reason for this rule is that, the
obligation of the vendor is pure while that of the vendee is subject to a period, except of
course:

a. If after the sale was perfected the vendee becomes insolvent, unless he gives a
guaranty or security for the price.

b. When the vendee fails to furnish to the vendor the guarantees or securities which he
promised.

c. When by the vendees act the guaranty and securities were impaired or even if lost
due to fortuitous event, unless he gives another equally satisfactorily.

d. When the vendee violates any undertaking in consideration of which the vendor
agreed to the period.

e. When the Vendee attempts to abscond.

Example:

Today, S sold to B 100 cavans of rice for P30,000 payable 10 days after. The
obligation of S is pure because he did not promise when to deliver In this case, B may
demand delivery from S within the ten-day period even if no payment is made. But if
before the rice are delivered B becomes insolvent s cannot be compelled to deliver
unless B gives a guaranty or security for the price.

125. Delivery of the fruits is included in the delegation of the vendor.

All the fruits of the thing sold shall pertain to the vendee from the clay on which
the contract was perfected.

Example No. 1

Today, S sold to B a specific pig, for P4,000, delivery to take place after 30 days. On
the 15th day, while still in the possession of S, the pig gave birth to 10 piglets. Is S
obliged to deliver the pig and piglets?

Answer: Yes, because all the fruits shall pertain to the vendee from the day on which the
contract is perfected unless otherwise stipulated.

Example No. 2

“X” enters the restaurant of wy and asks the waiter to bring him a dozen of fresh
oysters in their shell. After eating, he notices an almost perfect pearl in one of the shells.
He is about to take it when the restaurant Owner claims the pearl. To whom does the
pearl belong? Why?

‘X” is the owner because the rule states that the owner of the principal is also the owner
of the accessory. Besides, the rule stated in this article is that the vendor is bound to
deliver the thing sold together with the accessions and accessories upon the perfection
of the contract.

126. Sale of real estate for a unit of measure (SUM).

1. Area to be delivered

The vendor is bound to deliver the area stated in the contract of sale.

2. If the vendor fails to deliver the whole area stated in the contract, the vendee may

a. Rescind the sale if the lack in area is one-tenth (1/ 10) or more of that stated.

b. Ask for a proportionate reduction of the price if the deficiency in the area is less than
one-tenth of that stated, unless the vendee would not have bought the thing had he
known of its smaller area, in which case he may either rescind the sale or ask for a
proportionate reduction in the price.

Example:
S sold to B a specific parcel of land measuring 1,000 square meters. At P100 per unit of
measure. Upon delivery the exact measurement is only 800 square meters, the right of B
is to demand from S the deficiency of 200 square meters, and if this is not possible, to
rescind the contract of sale because the lack in area is 200 square meters, and this is
more than one-tenth (1/1 0) of the total area.
 Supposing in the above illustration, the lack in area is 50 square meters, can B
ask for rescission?

No, because the lack in the area is only 50 square meters, and this is less than
one-tenth (1/10) of the area stated. However, he may ask for reduction in the price and
pay only P95,000.

127. Illustrative Case:

B goes to S telling him that he wanted to buy a parcel of land measuring exactly
1,000 square meters. Since S has the exact measurement, he offered it for sale to B, at
P100 per unit of measure. B consented to buy, but upon delivery the land measures only
950 square meters, which is less than one-tenth (1/1 0) of the total area stated. Can
there be rescission?

Yes, because it is clear that B would not buy the land had he known of the smaller
area. In here, B manifested his intention to S.

128. Remedies of the vendee in the delivery of thing of Inferior quality

1. Rescission of the sale if the inferior value of the thing exceeds one-tenth of the price
agreed upon.

Example: B bought from S 10 hectares first class irrigated rice field at the rate of
P10,000 per hectare. If two (2) hectares out of the 10 hectares is not irrigate, falling
under the second class category with a price of P8,000 per hectare, the sale can be
rescinded because the inferior value exceeds one-tenth.

Computation:

Agreed price (P10000 X 2) = P20,000

lnferior value(P8000 X 2) = 16,000
------------
Difference P 4,000

Ratio 4,000 = 20% (or 1/5) - this is more

---------
20,000
than one-tenth the contract is rescissjble.

2. Proportionate reduction of the price if the inferior value or any part of the thing does
not exceed one-tenth of the value agreed.

Example: B bought from S 10 hectares first class irrigated rice field at the rate of
P10,000 per hectare. If two (2) hectares out of the ten (10) hectares is not irrigated
falling under the second class category with a price P9,500 per hectare, the vendee can
only ask for a reduction in the price because the inferior value is less than one-tenth.

Computation:
Agreed price (P 10.000 x 2) = P20,000
lnferiorvalue(P9,500 X 2) = 19,000
-----------------
Difference P1,000

Ratio 1,000 = 5% (or 1/20) this is not more

-----------
20,000
than one-tenth, the right is reduction of the price.

129. Delivery of greater area

If the area delivered to the buyer is greater than the area agreed upon, the buyer may at
his option:

1. Accept the area stipulated and reject the rest.

2. Accept the whole area and pay for them at the contract rate.

S sold to B 1,000 square meters of land situated in Pampanga, P100 per unit of
measure. S delivered 1,200 square meters, instead of 1,000. What are the rights and
obligations of B?

1. Reject the 200 square meters, and pay P100,000 ; or 2. Accept the 1,200 square
meters, and pay P120,000

130. Sale of real estate for a lump sum price (LSP)

Sale fora lump sum price — In the sale of real estate made for a lump sum and not at
the rate of a certain sum for a unit of measure or number, there shall be no increase or
decrease of the price, although there be a greater or less area or number than that
stated in the contract. If the vendor cannot deliver what is stated within the boundary, the
vendee has got two rights:

1. To ask for rescission.

2. To ask for reduction of the price proportionately.

A. Area to be delivered.

The vendor is bound to deliver everything that is 13 included within the boundaries
mentioned in the contract of sale, whether there be a greater or less than that stated in
the contract.

B. Price to be paid.

The vendee is bound to pay the lump sum price stipulated. There shall be no
increase or decrease in the price, although there be a greater or less area than that
stated in the contract so long as the entire area within the boundaries mentioned in the
contract has been delivered.

Example of LSP:
 S sold to B a parcel of land measuring 750 square meters for a lump sum price of
P120.000 The boundaries were mentioned in the Contract but it contained 1 000 square
meters.

1. Is S bound to deliver the excess of 250 sq. meters?

Yes, because S’s obligation in sale fora lump sum price is to deliver all what is stated
within the boundaries.

2. Can S ask for an increase in the price?

No, because this is a sale for a lump sum price. The increase in area is in mater
provided it is included within the boundaries.

3. What if S cannot deliver the 250 square meters, what are the rights of B?

a. To rescind the contract because of S’s failure to deliver what has been stipulated.

b. To ask a proportionate reduction in the price. one fourth (1/4) less than the purchase
price of P120,000, that is, P90,000.

131. Illustrative Case

S sold to B a specific parcel of land for a lump sum price of P50,000, the contract
stating the area to be 500 square meters. Subsequently, it was ascertained that the area
included within the boundaries is really 550 square meters. Can B compel S to deliver all
the 550 S. M., and pay only P50.000?

Yes, because this is a sale for a lump sum price (LSP). In this kind of sale, the
obligation of the seller is to deliver all that is within the boundaries, and the buyer to pay
only the contract price.

1. Suppose in the above question, what IS Within the boundaries is 450 S. M., how
much will B pay?

B will pay P50,000 and cannot ask for a reduction inthe price because it is a sale for a
lump sum price.

2. Would the answer be the same if the sale is per unit of measure?

No, B will pay only P45,000, because he can ask for a reduction in the price.

3. In question No.2, can B ask for rescission of the contract?

Yes, because the lack in area is equal to 1/10 of the total area.

132. Rules of preference in case of double sale on movable and immovable

property.

1: Movable property — the first vendee who took actual possession in good faith.
2. Immovable or real property —

a. The first one who registers it in good faith;

b. If no one registered the sale, the first one who took actual possession in good faith;
c. If no one registered the sale and no one took actual possession, the first one who can
present the oldest title shall be considered the owner.
(Art. 1544)

133. Example of double sale on movable property.

S sold to B a specific radio on January 1. The same radio was sold by S to X on

January 5, and X took actual possession of the radio. As between B and X, who is
considered the owner?

X, because he was the one who took actual possession. It is assumed that X is in
good faith.

134. Examples of double sale on immovable property

1. S sold a parcel of land to B on January 1. The same land was sold by S to X on

January 5 and registered the sale. As between B and X, who is considered the Owner?

It both are in good faith, X is considered the rightful owner. However, if X had
knowledge of the sale between S and 8, X’s right will be defeated because of his bad
faith.

2. S sold a parcel of land to B on January 1. The same land was sold by S to X on

January 5. Neither of the two registered the sale, On January 6, X took actual
possession. Who is the owner?

X, because he was the one who first took actual possession in good faith. The sale
of S to B although ahead of X does not give him the ownership because there was no
registration. In the absence of registration, the law says. The first one who took actual
possession in good faith is considered the owner.

3. S sold a parcel ofland to B on January 1. The same land was sold by S to X on

January 5. Who is considered the owner, B or X?

a. If no one registered the sale, B is considered the owner because he has an older title.

b. If no one registered the sale, but X took actual possession of the land in good faith, he
(X) shall be considered the owner.

C. If no one registered the sale. X taking actual possession but had knowledge of the
sale between S and B. B is the owner because of the bad faith of X.

135. Illustrative Cases:

1. On January 27, 2010, S sold a 195-square meter lot located in Paranaque, Metro
Manila to B for P2M. This was evidenced by an informal memorandum agreement of
sale written in the Pampango dialect. Three days later, he sold the same to X for P4M.
This was
evidenced by a formal deed of sale. Upon buying the property, X, who was aware of the
first sale, immediately took possession of the lot. Informed of the second sale, on
February 8, 2010, B registered an adverse claim to the property. On February 12, 2010.
X registered the deed of sale in her favor. Subsequently, B brought an action against
both S and X praying that she be declared the lawful owner of the lot. Will the action
prosper? Why?

Yes, because he has an older title. The registration of X and the taking of actual
Possession is of no moment because he is in bad faith.

2. S sold a piece of pasture land to B. On the same days S sold it again to X. Both sales
were made in private documents, bearing the same date. Neither of the purchasers
succeeded in taking physical possession of the land because it was already in the
Possession of another person under a contract of lease for one year executed by S a
month before, also in a private document.
Who is the rightful Owner of the land, on the supposition that both purchasers acted in
good faith? Why?

B, because he has the older title. In double sale, the principle is first in time, stronger in
right”

3. Sale by two or more sellers

If the Property is sold by two or more sellers to two or more buyers, this article will not
apply, except When one of the sellers is the principal and the other is an agent of the
principal

Example:

S the Owner sold to B his parcel of land today. B took actual Possession of the
land without the proper registration Five days after, X sold the land to V who registered
the sale in good faith. In here, B is considered the Owner even if he did not register the
sale, because the transfer of Possession of X to Y will not vest the latter ownership
because X is not the owner. However, if X is an agent of S, a case of double sale arises,
and Article 1544 will apply.

136. Effect of non-performance of the condition in a Contract of Sale.

If the sale is subject to a condition which is not fulfilled, the other party to the contract
may:

a. Refuse to proceed with the contract.

b. Waive performance of the condition arid proceed with the contract of sale.

137. Illustrative Case

S offered for sale a specific parcel of land to B for P1 million, that is, 1,000 sq. m., at
P1,000 per square meter. The area is inhabited by squatters. The parties agreed that B
shall advance the amount of P100,000 to be used for the ejectment of squatters and this
amount shall be considered as partial payment of the balance of P900,000 to be paid
after the removal of the squatters. If 60 days after the execution of the “conditional Deed
of Sale”, S shall not be able to remove the squatters, the P100,000 paid shall be
returned to B, and if B failed to pay the balance within 30 days after notice of the
removal of squatters, the amount of P100,000 shall be forfeited in favor of S. Meantime,
S failed to eject the squatters, and offered to return the P100,000 to B because the
condition was not complied with, B refused to accept the money, instead, he told S that
he will be the one to take care of the squatters removal and will just deduct the expenses
to be incurred to the balance of
P900,000. S therefore, sued for rescission and consigned the P100,000 in court. Will the
action for rescission prosper?

Answer:

No, the action for rescission will not prosper, the parties at their option may
proceed with the contract of sale. Disregarding the fulfillment of the condition. The law
states that, where the obligation of either party to a contract of sale is subject to any
condition which was not performed, such party may proceed with the contract or he may
waive performance of the condition.

138. Effect of dealer’s talk in sale.

The law allows considerable latitude to seller’s statement or dealer’s talk.

Seller’s exaggerated statements concerning the qualities and characteristics of property
sold, which he refused to warrant as true, cannot be a ground for avoiding the contract.
(Songco vs. Sellner 37 PhI.254) The principle therefore is “caveat emptor o’ buyer
beware’.

139. Implied warranties In contract of sale:

1. An implied warran1J on the part of the seller that he has a right to sell the thing at the
time when the ownership is to pass and that the buyer shall from that time have and
enjoy the legal and peaceful possession of the thing. This is the principle of ‘No
Eviction”.

2. An implied warranty that the thing shall be free from any hidden faults or defects, or
any charge or encumbrance not declared or known to the buyer.

3. The goods must be reasonably fit for the purpose in which it was acquired.

4. The goods must be merchantable in quality.

Example of No. 1: S sold a parcel of land to B owned by X. B entered and occupied the
property. Subsequently, B was evicted of possession by court order. What right does B
have? Since B did not enjoy peaceful possession of the property in question, B’s right is
to file an action against S for his warranty against eviction.

Example of No. 2: S sold to B a specific car for P100,000. While B is driving the car, the
two front tires gave away at the same time, At the time of the sale, these tires are
already worn-out. Can B file an action for warranty against hidden defect? No, because
the defects are not hidden. The warranty extends only to those defects which are not
visible by apparent examination. The defects in this case are visible. So the seller cannot
be held answerable for eviction.

Note: The following are the requisites to concur before seller is liable for hidden defects:

a. Defect must be hidden (not known).

b. Defect must exist at the time of the sale

The absence of one of the two shall not render the vendor
liable for warranty against hidden defects.

Example of No. 3: B goes to a hardware store to buy nails, 7 inches long and 7 kilos in
weight. B told S that he will use them for cement purposes. S gave 8, 7 inches long
weighing 7 kilos. It turns out that the goods delivered are wood nails and not concrete
nails. Can B rescind the contract of sale? Yes, because B manifested his intention and
the very purpose of acquiring the goods from S. Since the goods are not reasonably fit
for the purpose in which they are acquired, B s right is to rescind the contract of sale.

Example of No. 4. S sold to B one can of “Ligo” sardines. When B opened it, he found
out that bubbles are coming out of the can. Since the goods is perishable he concluded
that it
is already spoiled. Can B ask for rescission of the contract? Yes, because the goods are
not merchantable in quality.

140. Vendors who are not liable for breach of warranty.

a. Sheriff.
b. Auctioner.
c. Mortgagee.
d. Pledgee.
e. Other person professing to sell by virtue oi authority fact or in law.

141. Effect when vendee is aware of encumbrances

The warranty that the thing sold is free from any charge or encumbrances as provided in
the Article, paragraph 2. Does not apply if the vendee is aware of such encumbrances
and if it appears from the circumstances of the transaction that neither of the parties
contemplates the conveyance of an unencumbered title. (B. Paulino, Contract of Sale).

142. Illustrative Case:

S sold to B a specific parcel of land for P100,000. A deed of sale was executed stating
that the land is free from all liens and encumbrances. After full payment of the purchase
price, B came to know that the land has been mortgaged and is Subject of a levy on
execution Is S liable for his express Warranty?

Answer: Yes, not only liable civilly, but also criminally for the crime of estafa. (Antazo vs.
People, G. R. No. 45278)

143. Eviction as an implied warranty.

 It is a juridical process whenever by a final judgment based on a right prior to the
sale or an act imputable to the, vendor, the vendee is deprived of the whole or of a part
of the thing purchased.

144. Basis for eviction

a. On a right prior to the sale.

b. An act imputable to the vendor.

145. Requisites of eviction.

a. Final judgment
b. The vendee is deprived of the whole or art of the thing sold
c. Deprivation is based on a right previous to the state or an act imputable to the vendor.

d. The vendor is notified of the suit at the instance of the vendee.

Example:

S sold to B a parcel of land. F3 registered the sale, Later S sold the same land to X and
the latter occupied the land B filed an action against X for 1wnership and Possession
because it was X who is occupy g the land and refused to deliver the land to B. X asked
the court to summon S to defend the action filed against him. The court declares B to be
the owner by applying Article le 1544, and evicted X of ownership and possession. In
this case, S is liable to X for warranty against eviction.

146. If the property is sold for non-payment of taxes.

If the property is sold for non-payment of taxes due and such fact is not made known to
the vendee before the sale, the vendor is liable for eviction.

147. Waiver of warranty in case of eviction and the vendor is in bad faith.

If the vendee has renounced his right to warranty against eviction, and eviction should
take place, the vendor just the same is liable to pay the value which the thing sold had at
the time of eviction. The vender’s bad faith which annuls the waiver of the warranty
against eviction consists in knowing beforehand at the time of the sale the facts that will
give rise to eviction. (Angelo vs. Pacheco, 56 PhiL 70)

148. Waiver of warranty in case of eviction and the vendor is in good faith.

If at the time of waiver the vendor is in good faith, that is, without knowledge giving rise
to eviction, the vendor IS not liable.

Kinds of Waiver:

1. Waiver consciente — waiver without knowledge of the risk of eviction.

In case eviction should take place, the vendor shall only pay the value which the
thing sold had at the time of eviction.
 This rule is premise under the rule laid down in Article 2154, that is, Solutio indebiti
or payment by mistake.

Article 2154: If something is received when there is no right to demand it, and it was
unduly delivered through mistake, the obligation to return it arises.

Civil Law Commentator, Dean Jose N. Nolledo, has this to say:

“When eviction occurs, the contract is left without the cause as to the vendee, and
inasmuch as his obligation to pay the price is conditioned upon the delivery of the thing
by the vendor, from the moment the vendee is deprived of the possession of the thing,
the payment of the price really becomes a payment of what is not due”.

2. Waiver intentionada — waiver with knowledge of the risks of eviction coupled with an
assumption of its consequences.

If there is a waiver with knowledge of the risk of eviction and its consequences, the
vendor is not liable. The contract of sale now becomes aleatory. (10
Man resa, pages 205 - 207)

149. Liabilities of seller in good faith If buyer Is evicted.

a. Value of the thing at the time of eviction

b. Income or fruits
c. Costs
d. Expenses

15C. Liabilities of the seller in bad faith if buyer is evicted.

a. Value of the thing at the time of eviction

b. Income or fruits
c. Costs
d. Expenses
e. Damages - interest, and ornamental expenses

151. Example:

S sold to B a parcel of land for P500,000. The real owner is X. If after 3 years, B is
evicted of possession by virtue of a final judgment, and at the time of execution, the
value has appreciated and is now worth P700,000, this is the amount which B is entitled
to recover from S.

152. Partial eviction taking place.

For eviction to take place, it is not necessary that the vendee be deprived of the whole
thing bought from the vendor. It may also take place when the vendee is deprived of a
part of the thing sold to such importance in relation to the whole that he would not have
bought it without said part.

153. Example:
B, a fanner with an intention of planting watermelons, bought from S one hectare of
agricultural land. B told S of his intention. Upon delivery only 1/2 of land is hilly, the other
half cannot be planted with watermelons because it is a low land.
1. Can B rescind the sale?
Yes, because B would not have bought the land had he known that 1/2 cannot be
planted with watermelons.
2. Supposing all the land is hilly, but the owner of 1/2 is X land so, B was evicted. Can B
rescind the sale?
Yes, because any part of the thing sold is so important. That B would not have bought
the whole without said part.
154. Easement and servitude defined.
An encumbrance imposed upon an immovable for the benefit of another immovable
belonging to a different owner (Art. 613).
155. Kinds
a. Apparent — those which are made known and are continually kept in view by external
signs that reveal the use and enjoyment of the same (Art. 615)
b. Non-apparent — that which show no indication of their existence (Art. 615)
156. Requisites for warranty.
1. That the encumbrances be hidden, not stated in the contract, and not recorded in the
Registry of Property.
2. That the vendee would not have acquired the property had he known of the
encumbrances.
3. That the action to enforce the warranty must be brought within the proper period.
157. When vendor s not liable.
1. When the easement is apparent.
2. When easement is recorded in the Registry of property unless there is an express
warranty that the thing is free from burdens and encumbrances.
3. When the buyer had knowledge of the encumbrances
158. Defects covered by this warranty.
1. Hidden - defects not patent or visible.
2. Indispensable - defects which renders the thing Unfit for the use for which it was
intended, or diminishes its fitness for such use to such an extent that, had the vendee
been aware thereof, he would not have acquired it or would have given a lower price for
it.
3. Existing at the time of sale.

159. Requisites of this warranty.

1. The defect must be hidden.
2. The defect must be really important. 16
3. The defect must be unknown to the vendee.
4. The defect must exist at the time of transfer of risk
5. The defect is not excluded in the contract.
6. The claim to enforce this warranty must be brought within the proper period (10
Manresa, 227-230).
160. Unfit for the use intended 16’
The use of the thing purchased must be stated if not contract, or can be inferred from the
nature of the object from the trade or occupation of the buyer. However if not stated, ¡t
should be understood that the thing was brought for such use as is warranted by the
nature of the thing. In any event, if the vendee is an expert and as such, the expert. by
reason of his trade or profession, should have known the defect. (10 Manresa 237). Be it
noted, that as a rule, there is no warranty in the sale of second hand articles. (Moles vs.
Intermediate Appellate Court, 169 SCRA 777).

161. Warranty of fitness for a particular purpose

Requisites before the seller could be held liable,
1. Notice is given by the vendee to the vendor of the particular purpose for which the
goods are bought.
2. The vendee must have relied on the seller’s skill or judgment.
3. Warranty of merchantability in sale by description. The vendor warrants that the goods
are merchantable, saleable or of medium quality. It signifies that the goods are fit for the
general purpose for which they are manufactured and sold.
162. Distinguish warranty of fitness from warranty of merchantability.
Warranty of fitness warrants that the goods are suitable for the special purpose of the
buyer which will not be satisfied by mere fitness for general purpose. Warranty of
merchantability is a warranty that the goods are reasonably fit for the general purpose
for which they are sold.
163. Decided Illustrative U.S. Cases.
1. The purchaser of a sealed can of beans from the defendant retail dealer was entitled
to recover for injuries resulting from a foreign substance in the beans the action was
based on an implied warranty of fitness.
2. The sale of a cow for breeding purpose raises an implied warranty for breeding.
3. In the sale of seeds necessarily intended for planting, a warranty will ordinarily be
implied that the seeds are reasonably fertile and will germinate if properly planted (J. N.
Nolledo, Sales, Agency and Bailment)

164. Sales of goods under patent or trade name.

If goods are sold under their patent or trade name, there is no warranty that they are fit
for any particular purpose.
Exemptions:
1. If there is stipulation to that effect.
2. If the buyer relied upon the seller’s skill and judgment.
3. If the goods are sold by one who habitually deals on said goods.

165. In sale by sample, the seller who is a dealer of goods of the same kind as the
sample warrants:
1. That the goods sold shall be exactly the same as the sample as provided for in Article
1481.
2. That the goods sold shall be free from any defect rendering them unmerchantable
which would not be apparent on reasonable examination of the sample.
166. Vendee’S right if warranty is broken.
1. Rescission with damages — accion redhibitoria
2. Reduction of the price, with damages — accion quantis minoris
167. Accion redhibitoria
This is directed against the vendor to rescind the sale on account of same vice or defect
in the thing sold which renders it unfit for the use intended or which will diminish its
fitness for such use or to such an extent that had the vendees been aware therefore, he
would not have acquired it.

168. Accion quanti minoris

This is directed against the vendor for title return of part of the purchase price because
of the hidden defect

169. Loss of the thing due to hidden defect, vendor with knowledge of the defect
(Bad faith).
1. Liable to return the price of the sale.
2. Refund of the expenses of the contract,
3. Damages.
4. Shall bear the loss.

170. Loss of the thing due to hidden defects, vend without knowledge of the
defect. (Good Faith)
1. Liable to return the price.
2. Interest of the price.
3. Refund the expenses of the contract if paid by the vendee

171. Loss of the thing due to fortuitous event or fault of the vendee, vendor
without knowledge of hidden defect (Good Faith) Vendor is liable to return the
difference between the Price paid and the value of the thing it was lost. Such that,
¡f the price is p10,000 and at the time of the OSS the in thing sold was only P8,000,
the vendee may still recover from the vendor P2,000. II the vendor acted in bad
faith shall pay damages to the vendee.

172. Sale of animals with redhibitory defect. In sale of animals, the redhibitory defect
of one animalshall give rise only to its redhibition and this will not apply to the other
sound animal, unless the buyer could prove that he would not have purchased the sound
animal or animals without the defective one. This proof is unnecessary when animals are
bought as tem, yoke, pair or set, even if a separate price has been fixed for each one of
them.

Illustrative case:
B bought from S two carabaos for P50,000, to be used for breeding purposes. The male
carabao is infected with foot and mouth disease, category B (not contagious), while the
female carabao is in sound state. In here, the right of B is to ask for the rescission of the
contract because this is bought in “set” for breeding purposes.

Be it noted that if these carabaos will not be used for ¡ breeding purposes, the only right
of B is to ask for rescission or reduction in the price pertaining to the male carabao, or
unless it is shown that he would not have bought the sound animal without the other.
173. When sale of animals is void.

1. Animals sold are suffering from contagious diseases.

Example: Anthrax, mouth and foot disease, category A

2. When the animals are found to be unfit for the use or Set stated in the contract for
which they are acquired.

Example. B manifested to S that he is buying a mate carabao for breeding purposes. S

offered to B his carabao for P20,000, a tested bore” for breeding it turns out that the
carabao is castrated, the sale is void because it will be unfit for the use or service stated.

174. Redhibitory defect, defined.

It ¡s a defect of such a nature that expert knowledge even in case of professional
inspection, is not sufficient to discover,
Nature of defect
To be redhibitory, it is not sufficient that the defect was not discovered by an expert.
What required is that the defect would not have been discovered even with the aid of an
expert. However, if the expert through ignorance failed to discover ¡t, or through bad
faith, failed to reveal the same to the vendee, he shall be held liable for damages. (10
Manresa 253)

175. Prescriptive period to bring action.

The redhibitory action must be filed within forty (40) days from the date of delivery of the
animals to the buyer. (Art. 1577)
76. Requisites to concur before the vendor is liable in sale of animals.
1. Existence of the disease at the time of the sale.
2. That disease must have been the cause of death.
3. Death of the animal should take place within three days after the purchase.
77. Obligation of the vendee
1. To accept delivery of the thing sold
2. To pay the price of the sale In addition:
3. Other obligations stated in the contract.

Example: Payment of the expenses of the Contract qualifying the rule that the vendor
must pay the expenses of the contract
178. Illustrative Case
Today, S sold to B a specific car for P500,000 There is no agreement as to the time of
payment and place of delivery
1. When is the time of payment?
 The time of payment is the time when S tenders delivery to B, because there was no
stipulation.
2. Where is the place of delivery?
The place of delivery is the place when B tenders payment to S, there being no
stipulation.
3. Tomorrow, if B demanded delivery from S, is the latter bound to deliver, even if B did
not yet pay the price of the sale?
No, because the vendor shall not be bound to deliver the thing sold, if the vendee has
not paid him the price, or if no period for payment has been fixed in the contract. (Art.
1524). It ¡s understood that in this case, S is demanding payment simultaneous with the
demand of B that S will deliver. For its will not demand payment, he (S) ¡s bound to
deliver because the contract was already perfected and his obligation is pure because if
is not subject to any term, period or condition.
179. Examination of the goods
As a rule, the seller is bound, on request, to give the buyer a reasonable opportunity to
examine the goods delivered to ascertain whether they are in conformity with the
contract before acceptance and payment. But this rule may be modified by the parties
and may stipulate that the carriers shall not deliver the goods to the buyer until he had
paid the price of the sale.
180. C.O.D. sale
In C.O.D sale, the buyer has no right to examine the goods before he pays the price
except:
1. If agree upon.
2. If examination before by usage of trade, re payment of the price is permitted
181. Three instances showing acceptance of goods.
1. When the buyer intimates to the seller that he has accepted the goods.
Example: By writing a letter to the seller acknowledging receipt of the goods.
2. When the buyer does an act inconsistent with ownership of the goods by the seller.
Example: By reselling the goods to another buyer.
3. When the buyer retains or keeps the goods within a reasonable time from delivery.
182. Buyer not bound to return
If a right is granted to the buyer in refusing to accept the goods, he is not bound to return
them to the seller, but it is sufficient if he notifies the seller that he refuses to accept
them. If he voluntarily constitutes himself a depository, he shall be liable as such.
Be it noted that if the buyer accepted the goods, and he seeks to rescind for fraud or
breach of warranty, it is the duty of the buyer to return the goods to the seller. (3
Williston, Sec. 497)

183. Effect of rightful refusal to accept delivery

After the buyer gave notice to the seller of his refusal accept, the title on the goods does
not pass to the buy and the latter is not obliged to pay the price of the sale.
184. Wrongful refusal to accept delivery.
When the buyer refuses to accept the goods without reasons (wrongful refusal), the title
thereto passes to him from the moment they are at his disposal, and of course he is
bound to pay the price.
185. Instances when vendee can suspend payment of the price.
1. Disturbances in the possession or Ownership of the ‘thing he bought.
2. Reasonable or well-grounded fear of a vindicatory action or foreclosure of mortgage
on the thing bought.
186. Nature of disturbance.
A simple disturbance in fact ¡s not a ground for suspension of payment because the
seller could easily defend himself. The disturbances or fear of such disturbances must
be due to actual or possible exercise of reinvidicatory action or foreclosure of mortgage.
(10 Manresa 280-281)

Example:
S sold to B a specific land for P100,000. Two days after, X claims ownership of the land.
Can B suspend payment of the price? Yes, because there is a fear that an action to
recover the property may be brought against him.

Note: If the vendor has caused the disturbance or danger to cease the Vendee is bound
to make payment A mere act of trespass Shall not authorize the suspension on of the
payment of the price (Art. 1590)
187. Vendee’s right of partial retention
If the disturbance affects the whole ownership, the entire price may be retained1 but
when it affects only a part of the property, only the value of the part affected should be
retained.
188. Consignation of the price.
Some authorities in Civil Law maintains that the price should be consigned in court
because it ¡s just for him to keep the price in his possession and at the same time
benefit from the thing purchased. However, majority opinions and decisions of courts
maintained that although such view is equitable, yet the law imposes no obligation to
consign the price ¡n court. (A. Tolentino, C. C., Volumen V)
189. When vendee not entitled to suspension of payment.
1. When the vendor gives security for the return of the price.
2. When it has been stipulated that, notwithstanding any disturbance, the vendee shall
pay the price.
3. When the disturbance is a mere trespass in fact.
4. When the vendor gives security or bond, mortgage or pledge satisfactory to the
vendee for restitution of the price.
190. When vendor entitled to immediate rescissions.
1. There must be a reasonable ground to fear the loss of the immovable property sold.
2. Reasonable ground to fear the loss of the price.

191. Concept of pactum commisorium (Art. 2098)

An agreement that the sale shall be void upon the vendee’s failure to pay the price at the
time stipulated and the vendor shall retain any part of the price paid.
192. Validity in sale of immovable.
The stipulation of automatic rescission is void. The vendee can still pay the price of the
sale even after the period granted, unless there is demand for rescission notarially or
judicially made at the instance of the seller.
However, a stipulation in sale of immovable payable in installment giving the vendor the
right to cancel the sale upon failure of the vendee to pay two or more installments and to
retain the installment paid is valid unless unconscionable.
193. Automatic rescission in sale of immovable and movable property.
1. In immovable property — there is no automatic rescission. The vendee may still pay
the price even after expiration of the period of payment unless there is demand for
rescission of. the contract judicially or notarial made at the instance of the seller.
2. In movable property — there is automatic rescission of the contract the moment the
vendee cannot pay the price of the sale or does not appear at the place of delivery
Example: On January 1, S sold to B a specific parcel of land for P 100,000, payment
and delivery to be made on January 15. It was stated in the contract that if the payment
not made on January 15, the contract is automatically rescinded. Can B still pay after
January 15?

Yes, because in sale of immovable property, there is no automatic rescission even If

stated in the contract. Before S can recission even if stated to B notarial or judicial (not
extrajudicial) demand.
Note: The demand ¡s for rescission not for the payment of price because these rights are
incompatible with one another. 194. Where payments for principal for two lots cover
more than the value of one lot.
The Supreme Court ruled that, in a purchase from the subdivision owner of two
lots, where the buyer has paid more than the value of one lot, ¡t was held that the
buyer is entitled to a certificate of title to one lot in case of default. (Legarda
Hermanos vs. Saldaña, 55 SCRA 324)
195. Remedies of the vendor when vendee refuses to accept and pay for the price
1. Demand payment for damages incurred.
2. Demand payment of the price after the vendee’s refusal to accept the vendor as a
bailee or depository of the vendee.
3. Rescission of the sale after due notice to the vendee of his intention to rescind.
196. Measure of damages.
The measure of damages is the difference between contract price and the market price
of the goods at the time when and the place where the contract should have been
performed. If there is no availabl9 market price at the place of performance1 the value at
the nearest available market will be acceptable. Taking the expense of transportation
into account.
414
197. Seller is not given the right to retain the goods
When the seller has broken a contract to deliver specific or ascertained goods, he is not
given the right to retain the goods even if he ¡s willing to pay damages.
198. Reason for the denial of his right to return.
The breach refers to the seller’s failure to deliver goods that are ascertained,
determinate, or specific. He cannot retain the goods by offering to pay damages to the
buyer, it can be reasoned out that the breach of the seller to retain the goods may
possibly be due to the fact of seller looking for another buyer for a much higher price, or
because he needs the goods badly for his business, or wants to retain them for
speculative purposes.
Example:
On December 1,2010, S sold to B, loo cases of apples for P60,000. The parties agreed
that payment and delivery will take place on December 22. If on the date of delivery, S
fails to deliver the apples, B may sue for specific performance plus damages. S, in this
case cannot refuse to proceed with the contract by just paying damages. Be it noted that
the date of performance is December when fruits, like apples, are in demand.
199. Examples of buyer’s alternative remedies in case of breach of contract.
S sold to B 10 gallons of Halo-Halo Milk, bottled by –x acto” Corporation. The price per
gallon is Pl ,000. Upon delivery, B examines them and finds out that the last e gallons
contained spoiled milk. What are the alternatives remedies of the buyer?

1. Accept the 10 gallons of milk, and set up by way of recoupment, a deduction of the
contract price equivalent to the value of the 3 gallons. The amount to be paid is P7,000.
2. Accept the 10 gallons of milk and maintain an action against S for payment of
damages for the breach of warranty.
3. Refuse to accept the 10 gallons of milk and maintain an action against S for payment
of damages for the breach of warranty.
4. Rescind the contract of sale and refuse to receive the10 gallons of milk. After
rescission, B is no longer required to pay the price of the sale.
200. Cases where the buyer can no longer rescind.
1. If the buyer knew of the breach of warranty when he accepted the goods without
protest
2. If the buyer fails to notify the seller within a reasonable time of the election to rescind.
3. If the buyer fails to return or to offer to return the goods to the seller in substantially as
good condition as they were at the time of the transfer of ownership to him, except if the
deterioration or injury was due to the breach warranty;
4. If the buyer has resold the goods he claimed to be defective.
5. If the buyer retained the goods for himself; and
6. If the buyer used the goods beyond what is necessary for trial, that is, he has derived
sufficient benefits from such goods even if the goods are still substantially the same as
of the time of delivery. (J. Nolledo Sales, Agency and Bailments).

201. How sales are extinguished.

1. By the same causes as all other obligations
Example; payment, loss, rescission, confusion, compensation, novation, prescription,
etc.
2. By those in the preceding Articles
Examples:
a. Cancellation of sale of personal property payable in installment. (Art. 1484)
b. Return of goods by the buyer to the seller in SaIe or return or “Sale on trial”. (Art.
1502)
C. Seller stopping the goods in transit. (Art. 1532)
d. Unpaid seller reselling the goods. (Art. 1533)
e. Unpaid seller rescinding the contract of sale. (Art 1534)
f. Rescission of sale when the thing delivered was lacking in area or inferior in quality.
g. Rescission of sale when there is a breach of warranty. (Art. 1567)
h. Rescission of sale of animals with redhibitory defects. (Art. 1580)
I. ETC.
3. By conventional and legal redemption

202. What is conventional redemption?

Conventional redemption shall take place when the vendor reserves the right to
repurchase the thing SO with the obligation to comply with the provisions 0f Allied 1616
and other stipulations which may have been agreed upon.

Kinds of redemption.
Conventional redemption (Retracto Conventional or pact o de Retro) — is one whereby
the parties by their voluntary will or agreement, who seek to serve their interest,
stipulates that the vendor shall have the right to acquire by complying with the provision
of Article 1616, to wit:
a. To return to the vendee the price paid.
b. The expenses or payment by reason of the sale.
c. Necessary and useful expenses made on the thing sold.
Conventional redemption implies a resolutory condition, because the compliance by the
vendor with the obligation stated. extinguishes the contract of sale. This right to
repurchase is a real right which may be alienated or mortgaged (10 Manresa, 317). 8e it
noted that this right in order to exist must be stipulated in writing at the moment of
perfection and not afterwards. If the obligations ar& made subsequent to the perfection
of the contract, instead of a resale, there would be merely a promise to sell, which will be
governed by the provision of Art. 1479.
Legal redemption — 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 other transaction whereby ownership is transmitted by onerous title
(Art. 1619).
204. Example of pacto de retro or conVeflti0fl redemption
Today S sold to B a specific land for p10,000 with a repurchase within 3 years. In this
case, after the already the owner but subject to the right of S to e the thing sold within 3
years. 1f S will not exercise within 3 years. B becomes the absolute owner.
205. presumption of equitable mortgages.
ART. 1602. The contract shall be presumed to be an equitable mortgage, in any of
the following cases.
1.When the price of a sale with right to repurchase is unusually inadequate;
2. When the vendor remains in possession as lessee 01 otherwise;
3. 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;
4. When the purchaser retains for himself a part of the purchase price;
5. When the vendor binds himself to pay the taxes on the thing sold;
6. In any other case, where it may be fairly inferred that the real intention of the parties’
¡s that the transaction shall secure the payment of a debt or the performance of any
other obligation.
Nothing in Article 1602 of the Civil Code indicates that the provision applies only in the
absence of an express agreement between the parties. Further, we applied Article 1602
in several cases despite the presence of an express or written contract between the
parties. (Tolentino, et. al, vs. Court of Appeals! et. al, G.R. No. 128759, August 1, 2002)
206. Equitable mortgage defined.
It is one although lacking in some formality, form of Words or other requisites demanded
by statutes nevertheless reveals the intention of the parties to charge a real estate as for
a debt, and contains nothing impossible or contrary to law (B. Paulino, Sales, Agency
and Bailments)

207. Purpose of the article

This was formulated by the Code Commission to minimize the evils of Usury by money
lenders who have used the contract of sale with pacto de retro as a devise to attain their
purpose, lays down this rebuttable presumption that it is an equitable mortgage.
Examples:
1. If a land with a fair market value of Pl million ¡s sold for P100,000 only, there is a
presumption that this is only an equitable mortgage. Be it noted that this presumption ¡S
rebuttable, that ¡s, if the parties really agreed that the purchase price is only P1 00,000,
then they shall not be disturbed of their intentions. After all, there is concern object, and
cause of the contract. Besides, ¡n Article 1470, the law states that, the gross inadequacy
of the price shall not invalidate a contract of sale unless it could be proven that the
parties really intended a donation or some other act or contract, or when it indicates a
defect in the consent
(Paragraph 1).
2. S sold to B a specific land for P100,000 with a right to repurchase within 3 years. After
the lapse of 3 years, when B could already consolidate his absolute ownership, S
extended the period of redemption for another 5 years. In this case, there is a
presumption that the act ¡s only an equitable mortgage, unless ¡t could be shown that it
¡s really a sale with a right to repurchase. (Paragraph 3).
3. S sold to B a specific land for P100,000 with a right to repurchase within 3 years.
However, it was also stipulated that S shall continue paying the realty taxes on the land.
In here, a rebuttable presumption arises the contract ¡s only an equitable mortgage
considering that realty taxes are paid by the owner of land, and n pacto de retro, B, the
buyer, is already owner although conditional only. (Paragraph 5)

208. Mortgage distinguished from Pacto de Retro.

1. Mortgage does not transfer ownership to the fl1Ortg)( while ¡n pacto de retro,
ownership is transferred buyer. e
2. In mortgage, the possession of the object is not transferred to the mortgagee; while in
sale a retro, the possession ‘s transferred to the vendee.
3. In mortgage, the mortgagee becomes the Owner of the property if it is foreclosed, and
the mortgagee buys the property at a public auction; while in sale a retro, the buyer
becomes the absolute owner upon expiration of the term for redemption if the seller will
not redeem
4. Mortgage is an accessory contract, while sale a retro is a principal contract
209. Period of redemption
1. When no period ¡s fixed
The right of redemption is within four (4) years 1101 the date of the contract. (Art. 1606)
a. Whenever there is a prohibitive period of redemption the period shall be computed
within 4 years after the prohibitive period. Such that if S sold his land to B with a right to
repurchase, but such right can exercised within five (5) years, then, the p repurchase
shall be within four years after the five prohibitive period, from the sixth year up to the
9th year
b. If the prohibitive period and the four year period exceeded 10 years, over and above
the bye year period, such period is void. In the above example, if the period of
redemption cannot be Exercised within 8 years from the date of the contract, then the
period of redemption be o (2) years only after the prohibited period, because over and
above the l0-year period is void.
2. When a period is fixed
The contracting parties may fix the date when redemption will take place. The period
fixed by the parties may be definite or indefinite but ¡n no case, shall the period fixed be
in excess of ten years. Otherwise the stipulation in excess of the 1 0-year period is void.
(Art 1606)
a. Where period fixed is definite
The vendor can exercise his right within the given period. Thus, if it is stipulated that the
vendor can repurchase the thing sold within six (6) years, the right to repurchase may
only be exercised within six (6) years.
b. Where period fixed is indefinite if the period fixed for redemption is indefinite the
vendor may redeem the thing sold within ten years from the date of the contract.
21O. Example of counting the period in right to repurchase:
1. S sold to B a parcel of land on January 1, 2010 with a right to repurchase. The right of
repurchase can be exercised from January 2, 2010 to J January 1, 2014. That ¡s four
years, because there ¡s no stipulation.)
2. S sold to B parcel of land on June 1, 2010 for with P100,000 a right to repurchase. It
was stated ¡n the contract that the right shall be exercised when ‘S has the means or
anytime he has the money”.

The right can be exercised within 10 years from June 2, 2010 to June 1, 2020 because
the agreement is with a period, although indefinite.
3. On June 1, 2010, S sold a land to B with a right to repurchase, but such right cannot
be exercised within 3 years.
The right can be exercised from June 2, 2013 June 1, 2016, because there is a time
agreement. Exclude first the three-year period, then begin counting the four-year period.
4. On June 1, 2010, S sold a land to B with a right to repurchase, but such right cannot
be exercised within 8 years.
The right can be exercised from June 2, 2018 to June 1, 2022. Exclude the eight-year
period, then count the four-year period. If the prohibitive period and the four-year period
exceed ten years, over and above the ten-year period is void.
Note: What is void is only the period in excess of 10 years. The excess does not affect
the validity of the contract of sale because the stipulation is only an accidental element
and not an essential element.
5. S sold to B a specific parcel of land with a right to repurchase. However, as stipulated,
the period of repurchase cannot be exercised within 10 years. In this case, the
stipulation is void, the vendor can exercise his right to repurchase within 10 years from
the date of the contract. (Santos vs. Heirs of Crisostomo and Tiongson 41 Phil. 342)

211. Extension of the Period of redemption

1 before expiration of the period of redemption
The period can he extended before the expiration of the original period provided that the
extension, including the original period shall not exceed 10 years.
2 After expiration of the period of redemption
After the period of redemption has expired, no possible extension could be made
because that which is extinguished or terminate cannot be extended Moreover, once the
period of redemption has expired. The right of ownership in the vendee is consolidated
and becomes absolute (10 Manresa 304)
212. Period of redemption may be suspended.
an action is instituted in good faith relating to the sale of pacto de retro, the term for the
period may be suspended. And where the vendee refuses to allow the vendor to
redeem, it ¡s enough that the vendors tenders valid payment, he is not required to make
consignation (Paez vs Magno. L-793).
213. Consolidation of ownership.
The vendor will not exercise his right to redeem on time becomes the absolute owner of
the thing sold However the consolidation of ownership shall not be recorded In the
Registry of Property without a judicial order after the vendor has been duly hoard. Such
being the case. the vendor a retro must be named defendant in the caption and title of
petition for consolidation of ownership and duly summoned and heard Where the vendor
is not duly summoned and heard, any Order by the Court ¡n the proceeding is a patent
nullity (Crisologo vs. Centeno. L-20014)

214. Availability of the right of redemption.

1. Against a buyer a retro.
2. Against every possessor who derived his right from the vendee a retro, subject,
however to the provisions of Mortgage Law and Land Registration Law.
Example:
S sold to B a parcel of land with the right of repurchase within 5 years. Two years after,
B sold the land to X. If on the third year, S wishes to exercise his right of repurchase he
may do so even if S’s right to repurchase is not stated to the contract between B and X,
provided S’s right of repurchase has been recorded in the Registry of Property. The
same will be the answer even if not recorded. X has knowledge that the sale between S
and B is with a right to repurchase, for it is now a settled rule that actual knowledge is
equivalent to registration.
215. Example of rights of vendor transferred to the vendee.
1. Right to mortgage the property.
2. Right to continue the period of prescription.
3. Right to receive the fruits on the land.
216. Redemption by creditors of the vendor.
Redemption ¡s a right pertaining to the vendor as well as to his creditors. However, this
right could only be availed of: after the creditors exhausted the property of the vendor.
Example:
S sold to B a specific land for P100,000 with a right to repurchase. X is an unpaid
creditor of S for P50,00 this case, X can make use of S’s right to redeem, but only after
exhausting the properties of S. Be it noted that the sold the property to defraud his
creditors, the latter’s rig is to rescind the contract under Article 1381.
217. The law against C0-ownersl,p
Article 498 of the Civil code provides wherever the thing is essentially indivisible and the
co-owners cannot agree that it be allotted to one of them ho shall indemnity the others, it
shall be sold and its proceed distributed.
Example of undivided interest with repurchase.
A and B are co-owners of a house and also A sold his interest to X with a right to
repurchase, while B sold also has interest to X absolutely. 11 A wish to exercise his right
repurchase, X can compel him to redeem the entire properly for if only a partial
redemption is granted the result will be co-ownership again between A and X. It is
therefore the intention of the law to discourage co-ownership because it suspends the
right to enjoy one’s property. The Law comes to the aid of the buyer, by giving him a
right not stipulated in contract to compel the vendor to redeem the whole property should
he desire to make use of his right of redemption
218. Redemption in joint sale of undivided immovable.
If an immovable owned in common is sold h the co- owners jointly and in one contract,
none of the co-owners may exercise the right of redemption for more than his share in
the co-ownership. The vendee a retro cannot be compelled o grant partial redemption.
He has the right to require all the co-owners or co-heirs to come to an agreement upon
the redemption of the whole property, and ¡f they cannot redeem the entire property,
there will be no more redemption

Illustrative case.
A, B, and C jointly and in the same contract Sold an undivided parcel of land to X with a
right to repurchase Prior to the expiration of the period of redemption. B wanted to
repurchase the whole land. X refused alleging that B was entitled to repurchase only his
share, Is X correct?
Answer Yes, the law states that none of the co-owner may exercise his right for more
than his respective share.
219. Buyer cannot, be compelled to accept part redemption.
Example:
In the illustrative case given in Article 1612, X has the right to refuse to let B redeem his
share. X may ask A, B, and C to redeem the entire property sold, and if they fail to do so,
X cannot be compelled to consent to a partial redemption.
220. When co-owners sell their share separately.
When the co-owners of an undivided immovable sell their respective shares to the same
buyer separately, all with a right of redemption, each co-owner may redeem his own
snare and the buyer cannot compel the vendor to redeem the entire property sold.
Illustrative Case:
A. B, and C, co-owners of an undivided parcel of land sold their respective interest to X
separately, each of them 1/3 If later, B wishes to exercise his right of redemption X is
compelled to grant to him redemption of his share of 1/3. X cannot compel him (B) to
redeem the entire property because the sale is separate.
221. Rule if buyer dies, leaving several heirs.
Should the vendee a retro die leaving several heirs, vendor a retro can exercise his right
of redemption 39 each heir separately to the extent of the latter’s sha5 the inheritance,
whether the thing be undivided, or it has been partitioned among them.
Illustrative case
S sold to B a parcel of land with right of redemption, B dies leaving X and Y as heirs. If S
wishes to exercise his right of redemption he may redeem from X only 1/2 of the property
because that is only the share o. X. But if the inheritance has already been divided, and
the land sold has been awarded to X, then S can redeem the whole property from X.
222. Obligation of the seller if he wants to redeem.
The seller, if he wants to redeem, must give to the buyer the following: .
1. Price of the sale
2 Expenses of the contract
3. Other legitimate payments made by reason of the sale,
4. Necessary expenses made on the thing sold
5. Useful expenses on the thing sold
223. Price to be returned, not the value.
The price to be returned is not the value of the thing sold, but the price fixed in the
contract of sale. However, the parties may agree that the price to be returned maybe
more or less the sum paid by the vendee. (10 Manresa 338)
224. Illustrative Case:
The wife, during the marriage, sold under pacto de retro her paraphernal property
consisting of a house and lot. A few weeks later, she died. The husband thereupon
repurchased the property with his exclusive capital.
Question: To whom will the property belong, to the husband or to the heirs of the wife?
Reasons.

Answer. The properly will belong to the heirs of the wife of whom is the husband
himself. Being paraphernal at the time of its sale under pact o de retro, its redemption
repurchase by the husband must be deemed as re vested its ownership in the heirs of
the wife, subject to alien in favor of the husband for the amount paid out w, exclusive
capital. The nature of the property repurchas1snot determined by the character of the
money used for its re purchased, but by the ownership of the right of redemption, (J.
Paras, Civil Code, Volume V)
225. Condition of the property at the time of redemption
In sale pacto de retro, the ownership is transferred to the vendee upon delivery. But the
ownership of the vendee is only conditional. The sale is subject to a resolutory condition
that, at any time during the period of redemption, the vendor may extinguish the sale by
redeeming the thing sold. Hence, the buyer as a conditional owner may sell, lease or
mortgage the thing while waiting for its redemption. And when the thing is finally
redeemed by the vendor, the thing must be returned in the condition in which ¡t was at
the time of the sale. It must be free from all charges or encumbrances, lien, or
mortgages constituted by the vendee, except leases executed in good faith, and in
accordance of the custom of the place where the land is situated.
Example
S sold to B a parcel of land with a right to repurchase within 3 years. After the first year,
B executed a mortgage on the land in favor of X. If on the second year, S wishes
exercise the right of redemption, B must free the land from the mortgage lien such that it
will be returned to S in the Condition at which it was at the time of the sale.

226. What is legal redemption?

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 other transaction whereby ownership is transmitted by onerous
title. (Art. 1619)
227. Contract where legal redemption is available
1. Purchase or Sale
2. Dation in payment.
3. Other transaction whereby ownership is transferred by onerous title.
228. Instances of legal redemption
1. A co-owner may exercise the right of redemption in case the shares of all the other
co-owner, or any of them, are sold to a third person. (Art. 1620)
2. Adjacent owner has the right of redemption in case a rural land of not more than one
(1) hectare is alienated to a stranger. (Art. 1621)
3. Adjacent owner has the right of legal redemption in case a piece of urban land bought
for speculation is resold. (Art. 1622)
4. Co-heirs may exercise the right of redemption when any of the heirs sell his hereditary
rights. (Art. 1088)
5. The debtor shall have the right of legal redemption when a credit in litigation ¡s
assigned.
6. Owners of property seized and sold for tax delinquency shall have the right of legal
redemption. (Sec. 321, NIRC)
7. Judgment debtors shall have the right of redeeming property sold at public auction.
(Sec. 29, Rule 39, Rules of Court)

430
229. Legal redemption by CO-owner.
1. When available — the right of redemption is avail only if a property, or ¡f a part
thereof, has been third person who is not a CO-owner. it cannot in any manner be
exercised against another co-owner same Property to whom the law allows the same
privilege of redemption (Estrada vs. Reyes, 33 Phil. 31)
Example: A, B, and C are CO-owners of an Undivided
parcel of land. B sold his interest to X. in this case A and C can exercise the right of
redemption against However, if B sold his interest to A or C, or to both of them, legal
redemption is not applicable. Take note that the sale must be absolute and not
conditional or a sale with a right to repurchase.
2. Who may exercise the right of redemption — this right is not limited to co-owner. It
may also apply to those who subsequently acquire their respective shares while the
community subsists.
Example: A, B, and C are the original co-owners of an undivided parcel of land. B sells
his share to X. In this case, A and C can redeem the share of B to X. However, if they do
not exercise their right, and later the share of A is sold to X may redeem the share of A
from Y because X is already a co-owner of A and C.
230. Illustrative case
A and B are co-owners of a parcel of land. B sells interest to X who now becomes A’s
co-owner because did not exercise his right of legal redemption. Later X resells his
interest to B. May A exercise the right.

Answer: It is submitted that the answer is yes, because B is now deemed a stranger or
third person The fact that he is a former co-owner is immaterial (Caindeg vs. Parel,
530. G. 6123)
231. Requisites before the right of redemption can be exercised by an adjoining
owner.
a. The land sold must be rural.
b. The area sold must not exceed one (1) hectare.
c. The buyer or grantee already owns a rural land regardless of area.
d. The rural land sold must be an adjacent land, not separated by brooks, drains,
ravines, roads and other servitudes for the benefit of other estates.
232. Distinguish redemption from pre-emption.
1. Redemption is a right after the sale; while pre-emption is before the sale.
2. Redemption gives right of rescission of the original sale: while pre-emption gives no
right of rescission because there is no sale.
3. Redemption is directed against the buyer, while pre-emption is directed against
prospective buyer.
Example:
A and B are co-owners of a parcel of land adjacent to the land of C. If B sells his
interest to X, a stranger, and A and C wish to exercise the right of redemption, who will
be preferred? Answer. A, because a co-owners right of redemption excludes that of an
adjoining owner.

233. Concept of assignment of credit. F

Assignment of credit is the transfer of the right of the assignor to the assignee, who is
now allowed to proceed the debtor.

234. Perfection of assignment

Assignment of rights is perfected in accordance with the provisions of Article 1475 which
states:
“The contract of sale is perfected at the moment there is a meeting of minds upon the
thing which is the object of the contract and upon the price.”
“From that moment, the parties may reciprocally demand performance, subject to the
provisions of the law governing the form of contract.”
235. Validity of sale or assignment of credit.
As stated in Article 1356, contracts are obligatory in whatever form they may have been
entered, provided 3h the essential requisites for their validity are present. It may
therefore be written or oral. 2
236. Effectivity against third persons.
1. If personal property is involved — a public instrument needed to make the
assignment effective against the persons.
2. If real property ¡s involved — registration in the Registry of Property would be
needed.

237. Failure to observe the registration required public documents or registration

A mortgage that ¡s assigned is valid and therefore transfers the dominion or Ownership
of the credit transferred, even if the transfer of said credit were not recorded in the
registry, because the registration is officially necessary in order that it may be effective
against third person. (Villaneuva vs. Perez, 28 SCRA 928).
238. Effect of payment made by debtor to the creditor
1. Before having knowledge of the assignment
If made before having knowledge of the assignment.
the debtor ¡s released from his obligation. This is true even if the assignment is duly
registered.
2. After having knowledge of the assignment
if made with knowledge of the assignment even if not notified, the payment made by him
to the assignor will not relieve him from responsibility to the assignee.
239. Illustrative Case
D owes C P10,000 payable in 2 years. One year after, C assigns the promissory note in
favor of X for P6.000 but X failed to notify D. Upon maturity of the note. D in good faith
pays C who issues a receipt for the payment. In here. C becomes a person ¡n
possession of the credit. X’s right therefore is to proceed against C and not against D.
Art. 1627. The assignment of a credit includes all the accessory rights such as a
guaranty. Mortgage, pledge or preference.
Effect of assignment of credit
Assignment of credit transfers to the assignee, the credit with all its accessory rights,
such as a guar pledge or preference.
Example:
D owes C P10,000 secured by a mortgage on D’ house and lot. Later, C assigns in a
public document duly registered the credit to X with notice to D. If D fails to pay X, X can
foreclose the mortgage on D’s house and lot, unless there is an agreement that the
assignment shall not include that right to the mortgage.
240. Warranties of the assignor in sale of credit.
1. That the credit exists.
2. That it is legal, unless sold as doubtful.
241. No warranty as to the solvency of the debtor.
As a rule, the assignor does not warrant the solvency of the debtor unless,
a. It is expressly stipulated, that is, the assignor voluntarily warrants or assumes
responsibility for debtor’s insolvency.
b. The debtor’s insolvency was prior to the sale and It is of common knowledge.
An assignor in good faith who violates any of his warranties shall be liable
a. For the price paid by the assignee.
b. For the expenses of the assignment and other legitimate payment borne by the
assignee.

242. Effect of assign, of doubtful credit

If the credit assigned is doubtful with a disclosure of that fact at the time of the sale, the
vendor cannot logically be held responsible for the existence and legality of the credit
(10 Manresa 395).
illustrative Case:
1. D owes C P10,000. Later, in good faith, C assigns the credit to X. As it falls due, X
proceeded against D, but the tatter is insolvent. Is C liable to X?
Answer: No, because the assignor of credit does not warrant the solvency of the debtor,
unless of course ¡f stipulated, or if it is of public knowledge that D was insolvent before
the assignment was made
2. D owes C P10,000. After the obligation has prescribed, C sold the credit to X. Is C
liable to X?

Answer: Yes, because the vendor is responsible for of the existence and legality of the
credit at the time of the sale, unless the credit was sold as doubtful.
243. Duration of the warranty for debtor’s solvency
1. Time or period agreed upon
2. If no time was agreed upon:
a. One year from the time of assignment — if the debt was already due.
b. One year from the time of maturity — ¡f the debt was not yet due.
Example:
a. D owes c pi 0,000. c assigns the credit to X. It was agreed that C is liable for me
solvency of D. However the parties did riot agree on the duration of the liability If the
debt was due on July 1, 2010, and the ass was made on August 1, 2010, until when is
the or Warranty?
Answer. August 1, 2011, or one(1)year on the time of the assignment because the debt
was already due.
b.. In the same illustration, supposing the date of was June 1,2010, until when is the
guaranty or warranty,
Answer: July 1, 2011, or one (1) your from the time of maturity because the debt is not
yet due,
244. Sale of hereditary right.
This article refers to the sale of hereditary or successional rights. It does not refer to the
sale of inherited’ objects, nor to the mere expectation to inherit. This is a sort of an
aleatory contract, because while the vendor guarantees the fact of his heirship, he does
not warrant what makes up his inheritance. (10 Manresa 404)
Example:
A, B and C are the heirs of T. Before partition of the estate left by T, B sells his 1/3 share
of the Would—be inheritance to \ for P500 ,000. If upon partition of the estate, the 1/3
share of B is less than P500,000, B cannot be held liable by X because B is answerable
only for his character as an heir.
245. Illustrative case:
X, after the death of his father, sold his inhe1Ita though its amount has not yet been
determined to consideration of P50, 000. After liquidation of the nothing was left for X to
inherit. Is the sale between B valid? Why?
Yes, because this is a sale of he redilar’1 right. The law states “One who sells an
inheritance without enumerating the things of Which if is composed shall only be
answerable for his character as an i”(Ad. 1630)

Note: What is prohibited is the sale of future inheritance which is void from the
beginning.
246. Sale for a lump sum of the whole of certain rights, rents, or products.
The vendor warrants the legitimacy of the hole because this is the object of the sale, and
is not obligated to warrant each of the various parts. (10 Manresa 410)
247. When vendee is liable for vendee’s eviction.
1. When the vendee is evicted from the whole.
2. When the vendee is evicted from the part of greater value and not just from the
greater part of the right rents or product. (10 Manresa 411)
248. Legal redemption of credit in litigation.
1. Period of redemption
The period of redemption is within 30 days from the assignee’s demand for payment.
2. Redemption price
1. Price paid by the assignee to the assignor.
2. Interest on the price from the date it was paid.
3. Judicial costs.

249. When legal redemption is available

Legal redemption in this article is applicable only when the credit 16 actually in litigation,
that is to say , really disputed and contested, This takes place only after an answer
interposed in a suit. (Robinson vs. Carry, 8 Phil, .275)
Example
C sues D for P10,000. When the complaint t was answered by D, the credit may now be
said to be in litigation If C sells the credit to X for P5000 (purpose is to avoid the delay of
collection), D may redeem the credit from X by paying X the sum of P5,000, within 30
days from the time X demands payment of P10,000. (E. Paras, Civil Code Volume V)
250. Instances when legal redemption is denied.
1. To a co-heir or co-owner of the righttassigned
Example:
D owes C and C2 P10,000. For failure to pay, C1 and C2 filed an action against D. While
the case is pending in court, C1 is assigns his credit lo C2. D, in this case, cannot
exercise his right of redemption against C2. The law again will not favor co-ownership.

2. To a creditor in payment of his credit.

Example:
D owes C P10,000. For failure to pay, C sues D for collection. While the case is pending
in court, D cannot D’s credit to X, a creditor of C. In this case, exercise his right of
redemption against X because this an assignment to a creditor in payment of his credit.
3. To the possession f a tenement or piece of land which is subject to the right in
litigation assigned.
Example:
A mortgaged his land to B, but A sold it to C. Later, while a suit is pending, C acquires
mortgage credit assigned to him by B. A has no right to redeem the mortgage credit.
This is because C’s purpose is presumably to preserve the tenement. (E. Paras, Civil
ode, Volume V)

EXERCISES IN CONTRACT OF SALE

INCLUDING CPA EXAMINATION QUESTIONS
TRUE OR FALSE
1. The thing must be licit and the vendor must have a right to transfer the Ownership
thereof at the time it ¡s delivered
2. In contract to sell, ownership passes to the buyer upon actual or constructive delivery.
3. The delivery of movable property may likewise be made by the mere consent or
agreement of the contracting parties, if the thing sold cannot be transferred to the
possession of the vendee at the time of the sale, or if the latter already had it in his
possession for any other reason.
4. The expenses for registration and execution of the sale shall always be borne by the
vendor.
5. A contract to sell, even if accepted by the buyer, is not an absolute sale.
6. A contract of sale is valid, even if at the time of sale, the seller is not the owner of
what he is selling.
7. In the sale by sample, be it understood that the bulk ¡s like the sample.
8. A clause in a contract to sell allowing unilateral aUtOm3t rescission on the part of the
seller in the event the buyer fails to pay any of the installments due is valid.
9. There is no automatic rescission in sale of movable and immovable property.
10. The only remedy of the seller in sale of personal property by installment if the buyer’s
failure to pay covers 2 or more installment is to cancel the sale.
11. The expenses for the execution and registration of the safe shall be borne by the
vendor, unless there is a stipulation to the contrary.
12. When the sale is made through a public instrument the execution thereof shall be
equivalent to the delivery of the thing, which is the object of the contract, if from the deed
the contrary does not appear or cannot clearly be inferred
13. Gross inadequacy of price does not affect a contract of sale, except as it may
indicate a defect in the consent, or that the parties really intended a donation or some
other act or contract.
14. In case of doubt, a contract purporting to be a sale right with to repurchase shall be
construed as an equitable mortgage.
15. The vendee a retro is subrogated to the vendor’s rights and actions.
16. There is a presumption of an equitable mortgage when upon the expiration of the
right to repurchase another instrument extending the period of granting new period is
executed.
17. The sole owner of a thing may sell an undivided interest therein.
18. If the price is simulated the sale is void, but the act may be shown to have been ¡n
reality a donation or some act or contract. Some

19. The fixing of the price can never be left to the discretion of one of the contracting
parties. However, ¡f the price fixed’ by one of the parties is accepted by the other, the
sale is perfected.
20. In sale with a right to repurchase, the vendee a retro is liable to return to the vendor
the Uftiia ice and its interest at the time of redemption.

21. Unless otherwise agreed, where goods are delivered to the buyer and he refuses to
accept them, having the right to do so, he is not bound to return them to the seller, but it
is sufficient if he notifies the seller that he refuses to accept them. If he voluntarily
constitutes himself a depositor thereof, he shall be liable as such.
22. If several persons, jointly and in the same contract, should sell an ‘undivided
immovable with a right of repurchase none of them may exercises this right for more
than his respective share.
23. If two or more adjoining owners desire to exercise the right of redemption at the
same time, the owner of the adjoining land of smaller area shall be preferred; and should
both lands have the same area, the one who first request redemption.
24 The right of redemption of co-owners excludes that adjoining owners
25. The ownership in the thing shall not pass to the purchaser until he has fully paid the
price.
26. If at the time the contract of sale is perfected, the thing which is the object of the
Contract has been partially lost, the contract shall be without effect.
27. The vendor need not to be the owner at the time the sale is perfected. it is sufficient
that he is the owner at the time the thing sold is delivered.
28. The sale of a vain hope or expectancy is voidable.
29. If the consideration of the contract consist partly in money and partly in another
thing, it shall be considered a barter if the value of the thing given as a part of the
consideration exceeds the amount of the money or its equivalent.
30. 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 other transaction whereby ownership is transmitted by onerous
title.
31. There may be a contract of sale of goods, whose acquisition by the seller depends
upon a contingency which may or may not happen.
32. Conventional redemption can be exercised within 4 years if without stipulation as to
period.
33. Where the seller of goods has a voidable title thereto, but his title has not been
avoided at the time of the sale. The buyer acquires a title to the goods whether or not the
acquisition is in good faith.
34. The vendor shall answer for the eviction even though nothing has been said in the
contract on the subject. The contracting parties, however, may increase, diminish or
Sup-press this legal obligation of the vendor.
35. The vendor is responsible to the vendee e for any hidden faults or defects in the
thing sold only if he y as aware thereof.
36. The creditors of the vendor cannot make use of the right of redemption against the
vendee, until they have exhausted the property of the vendor.
37. The parties may stipulate that ownership in the thing shall not pass to the purchaser
until he has fully paid the price.
38. Whenever earnest money ¡s given in a contract of sale, it shall be considered as part
of the price and as proof of the perfection of the contract.
39. The vendor shall not be bound to deliver the thing sold, if the vendee has not paid
him the price, or if no period for the payment has been fixed in the contract.
40. Where an unpaid seller has made past delivery of the goods, he may exercise his
right of lien on the remainder. Unless such part delivery has been made under uh
circumstances as to show an intent to waive the lien or right of retention.
41. In sale of real estate for a lump sum price (LSP), the seller cannot ask for an
increase in the price even if the land is more than that stated within the boundaries.
42. In sale of real property for lump sum price (LSP), the buyer can ask for reduction in
the price if the seller cannot deliver what is stated within the boundaries.

43. ARRAS is a proof of perfection of the Contract of sale. In the consummation of a

contract of sale, the option money given by the buyer to the seller is deductible from the
purchase price.
45. In sale, the obligation of the vendor is extinguished; while in dation in payment,
obligation is created.
46. The vendor is bound to deliver the thing sold and its accessions and accessories in
the condition in which they were upon the perfection of the contract. All the fruits shall
pertain to the vendee from the day which the contract was perfected.
47. If the same thing should have been sold to different vendees, the ownership shall be
transferred to the person who may have first taken possession thereof in good faith, if I
should be movable property.
48. A promise to buy and sell a determine thing for a price certain is reciprocally
demandable.
49. In COD (cash on delivery), the carrier is the agent of the seller to deliver the goods to
the buyer at the point of destination
50. The contract of sale is perfected at the moment there is a meeting of minds upon the
thing which is the object of the contract and upon the price.
51. An assignment of a credit, right or act on shall produce effect as against third
persons unless it appears in a public instrument, or he instrument is recorded ¡n the
Registry of Property in case the sSigflm1t involves real property.
52. The abbreviation CIF (Cost, insurance, Freight) when used in a contract means that
the price fixed covers the cost of the goods and the expense of freight and insurance to
be paid by the seller.
53. The vendor is bound to deliver the thing sold and its accessories and accessions in
the condition in which they were upon the perfection of the contract. All the fruits shall
pertain to the vendee from the time the obligation to deliver the thing arises.
54. The sale of a piece of land or interest therein when made thru an agent is void
unless the agent’s authority to sell is in writing even if the sale itself is in a public
instrument and has been registered. .
55. Sale of a vain hope or expectancy ¡s governed by conditional sale.
56. The sale of a mere hope or expectancy s conditional that the thing will come into
existence.
57. Sale is a consensual contract; therefore delivery or payment is not essential for
perfection.
58. Owners of property seized and sold for tax delinquency shall have no right of legal
redemption.
59. Emptio rei separate is the sale of thing which is expected to come into existence, the
quality and quantity of which are unknown.
60. Where necessaries are sold and delivered to a other, person without capacity to act,
he must pay a reasonable price therefore.

MULTIPLE
Three of the following are Conditional sales. Which is the exception?
a. Sale of expectancy
b. Sale with a right to repurchase
c. Sale of a vain hope
d. Sale subject to a Contingency
2. S sold to B orally a parcel of land for P200,000. Delivery was made of the land. The
payment of the price was to be made three months later. At the end of the three month
period,
a. B may refuse to pay claiming as his defense the Statute of Frauds.
b. B may return the parcel of land to S.
c. S can collect from B because the contract was already executed partially.
d. B may refuse to pay on the ground that there is no writ ten contract to support the
sale.
3 There ¡s a contract of sale:
a. When goods are delivered to a distributor on consignment.
b. When the manufacturer delivers the goods to an agent where the former retains the
ownership and dictates the terms of the sale.
C. When goods are delivered to a person on charge account. When goods are delivered
to an agent to be sold by him and the agent is not liable to the manufacturer of the
goods.
4. Which of the following obligation5 of the Vendor cannot be waived.
a. To allow the buyer to examine the goods sold
b. To transfer ownership to the buyer.
c. To pay the expenses of the deed of sale.
d. To warrant the thing sold.
5. Mr. Renato Tala-od owns a mango tree bearing fruits, ready for harvest. He sells all
the fruits of that tree to Mr. Marcelo Abalos who pays Tala-od the sum of P5,000. Tala-
od tells Abalos that he can just harvest the fruits anytime he likes pointing at the
particular tree. For legal purposes, Talaod has fulfilled his obligation to deliver the mango
fruits to Abalos by
a. Traditio brevi manu C. traditio longa manu
b. Traditio simbolica d. Answer not given

6. The vendor
a. Is liable to the vendee for hidden fault or defect of the thing sold even if he is not
aware thereof.
b. Is not liable to the vendee for hidden fault or defect of the thing sold if he is not aware
thereof.
c. Is liable to the vendee for hidden fault or defect of the thing sold if he is not aware
thereof ¡f stipulated.
d. None of the above.
7. When it is stipulated that the repurchase of the propel1Y sold could be made at any
time, the repurchase shall exercised
a. Within four years from the date of the contract.
b. Within ten years from the date of the contract.
c. After ten years from the date of the contract.
d. None of them.

8. S offered for sale to B to Cavans of wagwag rice. B asks

S the price per cavan. S told B that the price per sack is
P5.00 over the price in Divisoria Market The price is
a. certain because ¡t has got reference to another thing which is certain
b. not certain parties w 1go to court,
c. not certain because the price at Divisoria Market is not stated
d none of the above.

9. S sells to B his 2010 Cougar car, and leaves to B to deter mine the price. B refuses to
fix the price but took the car for his price. Which of the following statements is correct?
a. No sale, because the price is not fixed by the parties.
b. There is a sale. B must pay a reasonable price
C. No sale until a third person fixes the price.
d. S may go to court and ask for damages.
10. S sold to B a specific piano. It was agreed that S would fix the price a week later. At
the appointed time. S named the price P6, 000. B agreed. Is the sale perfected?

a. No, because the price was left to the discretion of one of the contracting parties.
b. No, because at the time of sale the price was not fixed.
C Yes, because the price fixed by one of the parties was accepted by the other.
d. Answer not given.
11 Three of the following are implied warranties ‘n a contract `
of sale Which is the exception?

a. Reasonably fit for the purpose they are acquired.

b. Right to sell the thing at the time the contract is perfected.
C. Merchantable ¡s quality.
d. Free from charges or encumbrances not declared or known to the buyer.

12. Connie transferred to Violeta a parcel of land for the price of P100, 000; P30,000 to
be paid in cash and for the difference, she will convey her Car worth P70,000. What kind
of contract is this?
a. Lease contract c. Obligation to sell
b. Contract of Sale d. Barter

13. The unpaid seller is not entitled to retain possession of the goods where
a. The goods have been sold without any stipulation as to credit.
b. The goods have been sold on credit, but the term of credit has expired.
c. The buyer is insolvent.
d. The possession of the seller on the goods is only as agent or bailee for the buyer.
e. None of the above.
14. The seller who executed a deed of sale in a public instru ment for the sale of specific
car transferred ownership to the buyer by
a. Symbolic delivery d. Quasi-tradition
b. Traditio brevi-manu e. None of the above c. Constitutum possessorium
15. X stole a fountain pen from “0” and sold it to a Bazaar who pays for it in good faith,
not knowing it was stolen. The Bazaar then sold it to B, a Student.
a. The Bazaar having bought it in good faith becomes the legal Owner and as such, he
can transfer ownership to B.
b. Ownership passed to B because he bought it in a merchant store.
c. 4Q may recover the fountain pen from B without reimbursement because he is the
legal owner.
d. B cannot become the owner because X, the original seller, is not the owner.

16. In a contract of sale of a specific mare dated September 1, 2010, seller S is obliged
to deliver to the buyer the mare on October31, 2010. A week before the due date, the
mare gave birth to a colt. The colt belongs to:
a. Seller, because the sale is already perfected prior to its birth.
b. Seller, because there was no specific agreement that it shall belong to the buyer.
c. Buyer, because the fruit arose after the sale was perfected.
d. Buyer, if he pays the price in full.

17. Four of the following are kinds of constructive delivery. What is the exception?
a. Execution of a public instrument.
b. Quasi-tradition.
c. Actual delivery.
d. Need not be delivered because the buyer ¡S already ¡n possession.
e. Symbol or token signifying delivery.

18. When goods are delivered to the buyer on “sale or return” for a period of 10 days,
ownership of the goods passes to the buyer.
a. On perfection of the contract.
b. On expiration of 10 days.
c. On delivery of the goods.
d. When the buyer signifies his acceptance to the seller.
e. None of the above.
19. S sold to B a specific refrigerator for a price of P10,000. It was stipulated in the
contract that B will pay only P6,000 and for the difference B will convey a specific
television valued a P4,00Q. what is the nature of the contract?
a. Barter
b. party sale and party barter
C. commodatum
d. Sake
e. None of the above
20. On January1O, 2010, S sold a piece of land Lo B in a public instrument. On January
p11. 2010. B paid for the price On January 12, 2010, B took possession of the land On
January 13, 2OlOrB registered the public instrument under the circumstances given, B
became the owner on:
a. January 10,2010 c. January 12,2O10
b. January 11,2010 d. January 13,20.10

21. The Recto Law is applicable:

a. Sale of car on straight term.
b. Sale of hose on installment.
c. Sale of car on installment where the buyer constituted a mortgage on his truck.
d. None of the above.

22. Ownership of Incorporeal property, transferred to the buyer

a. Execution of the sale in a public instrument
b. Placing the titles of Ownership in the possession of the buyer.
c. Use of the buyer of his right, with the seller consent
d. All of the above
23. Consideration in sale:
Statement No. 1: If the price is grossly inadequate, the contract of sale affected. And if
the price is absolutely simulated, the contract is void

Statement No. 2: The fixing of the price can never be left the discretion of one of the
parties. However, it may be fixed by a third person.
a. Both are true c. No. 1 is true; No. 2 is false. .
b. Both are false d. No. 1 is false; No. 2 is true

24. What mode of extinguishing a contract of sale is effected when a person is

subrogated upon the same term and condition stipulated in the contract in the place of
one who acquires a thing by onerous title?
a. Compensation c. Legal redemption
b. Conventional redemption d. None of the above

25. S sold to B a parcel of land for a lump sum of P50,000. The contract states that the
area is 500 square meters. .Subsequently, ¡t was ascertained that the area included
within the boundaries is really 550 square meters. ,
a. S ¡s bound to deliver 500 square meters and B to pay P50,000.
b. S ¡s bound to deliver 500 square meters and B to pay P55,000.
C. S or B can rescind the sale because there is no meeting of minds.
d. None of the above.

26. In the preceding question, if the land contains 445 square meters, which of the
following is correct?
a. S is bound to deliver 500 square meters and B to pay P50, 000.
b. S is bound to deliver 445 square meters and B to pay P44, 500.
c. B may rescind the sale because the lack in area is more than 1/10 of the total area.
d. None of the above.

27 If the price is uncertain

a. The transaction is void.
b. The price is to be fixed by the court.
c. The buyer must pay a reasonable price.
d. None of the above.
28. Present n every contract of sale:
a. implied warranty of fitness
b. Implied warranty of merchantability
c. Implied warranty against eviction
d. All of the above
.9 A offered to sell his lot to B for P100, 000. In his offer to sell. it was stated that B is
given 60 days to prepare the P100,000, and as soon as B is ready with the money, A
will execute a deed of sale. Before the end of 60 days. A informed B that the price of the
lot was increased to P120.000. May B compel A to accept P100 ,000 offered previously
by A and make him execute the deed of sale.

a. Yes, because A is already estopped bi his signed letter.

b. No, for B never already estopped by his signed letter,
c. Yes because his acceptance of A’s offer, parties, there Was actual meeting of minds
of the
d. Answer not any of the above

30. In question No, 61, ii S did not foreclose the mortgaged property and Instead, he
filed his action as an ordinary creditor, what would be your answer?
a. S can recover from 8 the balance of P2, 000.
b. S can recover from B the balance of P2 ,000 if there is stipulation to that effect.
c. S can not recover the deficiency any more even if there is stipulation to that effect.
d. None of the above.

31. Three of the following are elements of the vendor’s right of stoppage in transitu.
Which is the exception?
a. The buyer must be insolvent.
b. The goods must be in transit
c. The seller must be unpaid.
d. The seller must be in possession of the goods.

32. A, B and C are co-owners of an undivided parcel of land. B sold his 1/3 interest to C
absolutely. Which is correct?
a. A may exercise his right of redemption on the interest sold by B to C.
b. A cannot exercise the right of redemption because the sale was made in favor of a co-
owner
c. The sale made by B to C is void because it was not made in favor of a stranger
d. A may redeem only 1/2 of the interest sold by B to C.

33 P the owner of a piece of residential land, orally authorized A to sell the land for
P500.00 with 5% commission. Today, A sold the land to C. One day later. P sold the
same land to D. Assuming that both buyers are in good faith. Who is the lawful owner?
a. C, being the first buyer.
b. C, because A was given authority by P.
c. D, because the sale made by A to C ¡s only voidable.
d. D, because the sale between A and C is void.

34. Which statement is true?

a. In contract to sell, ownership is transferred to the buyer upon delivery.
b. In sale with a tight to repurchase, upon delivery the buyer ¡s the absolute owner.
c. Sale con pacto de retro is an example of sale subject to a suspensive condition.
d. When the vendor binds herself to pay the taxes on the thing sold”, it is presumed that
the transaction ¡s a mortgage and not governed by contract of sale.
35. B went to a store and offered to buy a certain watch for 1, 000. S said that he is
willing to give it for P1, 200. B to go away because he did not want to pay the price to
him (B) and said he was willing to sell the watch for P1, 000. Is the contract perfected?
a. Yes because there was a meeting of minds between S and B
b. No, S made another offer not accepted by B.
c. Yes, because the consent was already manifested at time of the offer.
d. Yes, because B’s acceptance is not qualified.

36. In a contract of sale executed by S and B, it appears S sold his motor vehicle to B
and B bought it for P50 ,000. It turned out however1 that S has three motor vehicles:
Galant valued at P80,000; Hi-Ace van valued at P70,000; and a Jeep valued at P60,000.
Which of the following is correct?
a. The contract shall be reformed because there was mistake.
b. The parties can ask for interpretation because the word motor vehicle is ambigous.
c. The parties can ask for annulment of the contract
d. There is no contract, because the object is not certain

37. Which of the following cannot be the object of a contract of sale?

a. Hereditary right.
b. Sale of credit.
c. Young of animal not yet conceived at the time of perfection.
d. Land which the seller expects to
e. None of the above

38. Bidders in sale:

Statement No. 1: Invitation to bid are not definite offers the advertiser is not bound to
accept the highest or lowest bidder. Statement No. 2: By-bidders are persons bidding is
an auction sale in behalf of the seller: the purpose the price by fictitious id
a. Both are true. C. No. 1 is true; No.2 is false
b. Both are false. d. No .1 is false; No.2 is True

39. In distinguishing Earnest Money from Option Money, Earnest Money is:
a. Given when there is no contract of sale.
b. Given only when there is a perfected contract of sale.
c. Given to bind the offeror in a unilateral promise to sell or buy.
d. Given as a separate consideration from the purchase price.

40. Statement No, 1: In sale for a lump sum price (LSP), the vendee may ask for
reduction in the price, if the vendor cannot deliver all what is stated in the boundaries.
Statement No. 2.: There ¡s an implied warranty ¡n contracts of sale that the vendor must
have a right to sell at the time the contract is perfected.
a. Both are true.
b. Both are false.
c. No. 1 ¡s true; No. 2 is false.
d. no.1 is false; No.2 is true.

41. X, after the death of his father, sold his inheritance though amount has not yet been
determined to B, for a consideration of P50, 000. The contract is valid only if the
inheritance values least equal to or more than P50, 000.
a. the contract is valid only if the inheritance values at least equal to or more than
P50,000
b. the contract is rescissible
c. the contract is valid even though nothing remains of the inheritance to be turned over
to B.
d. Contract is void, future inheritance cannot be the object of sale.

42. S 16 years old, Sold to B. of legal age, a specific diamond ring for P10, 000. Later, B
sold it to X. Which of the following statements is incorrect?
a. S has got a voidable title because at the time of sale he is a minor.
b. X, if in good faith, shall become the owner upon delivery to him.
c. X, if in bad faith, shall also be the owner, except that his title ¡s voidable.
d. None of the above

43. S sold residential land to B. B paid the consideration, When B wanted to register the
sale at the Register of Deeds, the latter refused to register it and required the
presentation of’ the certificate of capital gains tax payment. What can B do?
a. B may sue S to refund the consideration paid by B under the maxim, “no one shall
enrich himself at the expense of another.”
b. B cannot compel S to return the selling price because the contract is not enforceable.
c. B may possess the residential land as a buyer in good faith.
d. B may compel S to pay the capital gains tax and secure the certificate of capital gains
tax payment.
44. Quasi-tradition is equivalent to
a. Longa manu
b. Execution of a public instrument
c. Symbolical delivery
d. Brevi-manu
e. All of the above
49. Which of the following statements is false?

a In Contract to sell, Ownership Is not transferred to the buyer upon delivery

b. Stoppage If transitu can be exercised by the unpaid seller if the buyer IS insolvent and
the vendor has not yet parted with the thing sold.
c. The price is considered certain if it is in reference to another thing certain.
d. Dock warrant is an example of a negotiable document of title.

50. Ownership of the thing sold

a. is transferred to the buyer upon actual delivery.
b. Is acquired by the buyer upon the perfection of the contract.
c. Is transferred to the buyer upon constructive or actual delivery of the thing.
d. Is retained by the seller in 1sale or return’.
e. None of the above.

51. Three of the following must be given by the seller to the buyer if redemption is to be
made. Which is the exception?

a. Expenses of the contract.

b. Price of the sale.
c. Necessary expenses of the thing sold.
d. Interest on the price of the sale.

52. Sale is distinguished from dation in payment, in that in sale,

a. There is a pie-existing obligation or credit.

b. The cause is the price.
C. It is a mode of extinguishing an obligation in the form of
payment.
d. None of the above.

53. Mr. Fernan orders for his workers, 1,000 pieces of T-shirts ranging in size from small
to large from the Lapulapu Garments mMfg. Corporation. The specified sizes, although
not
then available, are manufactured by said corporation and consigned to its sales outlets
regularly The contract entered into by Mr. Fernan with Lapulapu Garments Mfg.
Corporation is

a. Contract for a piece of work.

b. Contract subject to a resolutory Condition.
c. A contract of sale.
d. None of the above.

54. S sold to B a specific car for P100,000 payable in five (5) equal installments. B
mortgaged the car to C to answer the unpaid installment. First and second installments B
failed to pay. The right of S is:

a. Exact fulfillment of the obligation.

b. Cancel the sale.
c. Demand payment from B.
d. All of the above.

55. S sold to B a specific “fighting cock” by pointing it to B. What kind of delivery is

effected?

a. Brevi manu c. Constitutum possessorium

b. Quasi tradition d. None of the above
56. A sold to B the former’s horse for P5,000. No date is fixed by the parties for the
performance of their respective obligations. The obligation of A is

a. To deliver the horse immediately as there is a perfected contract.

b. To deliver the horse Upon payment by B of P5,000.
c. To deliever the horse within a reasonable time of two months from the contract date.
d. To rescind the contract as there is no time fixed for the delivery and payment.

57. D owes C P10,000 payable on December 25, 2010, and as a security D mortgaged
car to C, On December 25, 2010, D failed to pay his obligation. C foreclosed to
mortgaged car and was sold at public auction for a price of P12,000.

a. D can recover from C the excess of P2,000.

b. D cannot recover from C the P2,000.
c. D can recover from C the P2,000 if there is stipulation.
d. None of the above.

58. S sold to B a specific car for P20,000 payable in four equal installments. S delivered
the car to B to mortgage it back to S to answer for the unpaid installments. B paid the 1 st
installment, but the last three he failed to pay. S foreclosed the mortgage property and
sold it to public auction for P13,000.

a. S can recover from B the balance of P2,000.

b. S can recover from B the balance of P2,000, if there is stipulation to that effect.
c, S cannot recover the deficiency any more even if there is stipulation to that effect.
d. None of the above.

59. On June 10, 2010, S sold to B a specific car which S acquired from a friend last June
1, 2010. On August 10, 2010, the car was totally destroyed which was traced to a crack
in the engine block. S was not aware of the defect. Is S, the seller, liable to B?

a. No, because S was innocent and a seller in good faith.

b. No. because S has all the opportunity to examine the car before buying it,
c. Yes. S is liable to return the price and expenses by B
d. Yes. S is liable to return the price expenses and damages actually suffered by B.

60. The following are the alternative remedies, except one available to the buyer, in case
of breach of warranty by the seller:

a. Keep the goods and ask for damages.

b. Refuse to accept the goods and ask for damages.
c. Rescind the sale and retain the goods.
d. Keep the goods and setup against the seller by way of recoupment in price.

61. B bought a refrigerator on installment from S and to secure his indebtedness, B

executed a chattel mortgage on the refrigerator in favor of S. Upon default by B
on his two (2) payments, the refrigerator was foreclosed and sold for P8,000
which was less than the balance of P10.000 due to S. How much can still collect
from B?
a. P2,000 c. P10,000
 b. 8,000 d. Nothing

62 Statement No 1: Where an unpaid seller has made part delivery of the goods, he may
exercise his right of lien on the remainder unless such part delivery h. s been
made under such circumstances as to show intent to waive the lien or right of
retention.

Statement No.2: In Contract to sell, ownership passes to the buyer upon actual or
constructive delivery.

a. Both are true c. No. 1 is true, No.2 is false,

b. Both are false. d. No.2 s false, No.2 is true.

63. S entered into a Contract with B whereby S sold his land orally to B. The land has
been delivered and the money has been paid. Is the oral sale of the land valid?

a. The contract is not valid because it is not in writing as required by the Statute of
Frauds.
b. The contract is not valid because the contract is not made in public instrument.
c. The contract is Unenforceable
d. The contract is valid because the contract is already perfected and executed.

64. Statement No. 1: The sale of a mere hope ort expectancy is conditioned that the
thing will come into existence.

Statement No. 2: The vendor need not be the owner at the time the sale is perfected. It
is sufficient that he is the owner at the time the thing sold is delivered.

a. Both are true c. No. I is true; No.2 is false.

b. Both are false. d. No. 1 is false; No. is true.

65. Statement No. 1: If the consideration of the contract consists partly in money arid
partly in another thing, and the intention of the parties is not clear, it shall be considered
a barter if the value of the thing given as a part of the consideration exceeds the amount
of the money or its equivalent.

Statement No.2: Emptio rei spate is the sale of thing. Which is expected to come into
existence, the quality and quantity of which are unknown.

a. Both are true c. No.1 is true; No.2 is false.

b. Both are false. d. No.1 is false; No.2 is true

66. Statement No.1: The ownership in the thing shall not pass to the purchaser until he
has fully paid the price.

Statement No.2: If at time the contract of the sale is perfected, the thing which is the
object of the contract has been partially lost, the contract shall be without effect.

a. Both are true c. No.1 is true; No.2 is false.

b. Both are false. d. No.1 is false; No.2 is true
67. Statement No.1: Sale is a consensual contract, therefore delivery or payment is not
essential for perfection.

Statement No.2: The vendor is responsible to the vendee for any hidden faults or defects
in the thing sold only if he was aware thereof.

a Both are true. c. No. 1 is true; No. 2 isfalse.

b. Both are false. d. No. 1 is false; No.2 is true.

68. Where it is stipulated that the repurchase of the property sold could be made at any
time, the repurchase shall be exercised

a. Within four years from the date of the contract.

b. Within ten years from the date of the contract.
c. After ten years from the date of the contract.
d. None of them.

69. B imports electric fans from China and specifically asks for 220 Volts fans. The fans
arrived duty labeled 220 volts and sells them to the public as as such. Later, it turned out
that the fans has been mislabeled by the manufacturer and were only good for 110 volts.

a. B is liable to the vendee for any hidden defects in the thing sold, even though
he was not ware thereof.
b. B Is not liable because he was in good faith, and this is shown by specifically
asking for 220 volts.
c. B is not liable under the principle of “let the buyer beware”.
d. B is liable because the vendee did not enjoy legal and
peaceful possession of the object of sale.

72. Statement No.1: Sale of future inheritance is void: the sale of hereditary right is valid,
the seller is liable character as an heir.
Statement No. 2: In contract to sell, delivery to the buyer will not make him the owner
until the price of the sale is totally paid.
a. Both are true. c. No. 1 ¡s true; No. 2 is false.
b. Both are false. d. No. 1 is false; No.2 ¡s true

73. G , guardian of W, sold W’s house and lot worth P480,000 for P240,000.
a. The contract can be rescinded because of inadequacy of price.
b. The contract cannot be rescinded because there is no fraud, mistake or undue
influence.
c. The contract cannot be rescinded because all the essential elements of the contract
are present.
d. The contract cannot be rescinded but can be annulled on the ground of minorit1 of the
ward (W).

74. S offers to B 100 radio sets for P50,000 payable in 30 days with 10% interest per
annum. B cables S to advise that he accepts provided the interest is reduced to 5%. If S
and B are both merchants and there is no further communication between them relating
to the terms, then
a. B has made a Counter offer.
b. The contract is formed incorporating only the terms of S.
c. The contract ¡s perfected with B’s reduced interest rate becoming part of the
agreement
d. None of the above.

75. X Shoe Store, Inc. entered into separate Contracts with two movie stars, Bi and B2.
With Bi, the agreement was that the shoe Store shall deliver at a specified date for a
price of P1 ,000 a pair of shoes of a specified brand which the store had been
manufacturing for the general public but which at the time of the Contract had already
been sold out, and with B2, the agreement was that the store shall deliver at a specified
date for a price of P2,000 a pair of shoes to be made especially for him, in accordance
with a design submitted by him. What is the nature of these two contracts?
a. Contract of piece of work c. Agency to sell
b. Sale d. Combination of A and B

76. In three of the following, there is no warranty against hid den defects of animals.
Which is the exception?
a. Animals sold at fairs.
b. Livestock sold as condemned, declared known to the buyer.
c. Animals sold at public auction.
d. None of the above.

77. In three of the following, the sale is void. Which is the exception?
a. Sale of animals suffering from contagious diseases.
b. Sale of Animals ¡f the use or service for which they are acquired has been stated ¡n
the contract and they are found to be unfit therefore.
c. Sale of a vain hope or expectancy.
d. Sale of hereditary rights.

78 Delivery of movable may be made by the keys of the place or depository where
movables are kept or stored. This kind of delivery is called:
a. Traditio longa manu
b. Traditio brevi manu
c. Traditio clavium
d. Traditio constitum possessorium

79. If immovable property should have been sold to different vendees, the ownership
shall be transferred to the person
a. Who have first taken possession in good faith.
b. Who presents the oldest title in good faith.
c. Who in good faith recorded it in the Registry of Property
d. Who have paid in good faith the purchase price in full.

80. In the preceding question, if movable property, it shall be long to the person
a. Who have paid in good faith the purchase price in full.
b. Who in good faith first recorded it in the Registry of Property.
c. Presents the oldest title in good faith.
d. Who have first taken possession in good faith.

81. Which of the statements is not true?

a. In sale or return, ownership is transferred to the upon delivery.
b. Warranty against hidden defects is an accidental of a Contract of sale.
c. In sale the obligation of the buyer is not only the payment of the price.
d. In dacion en Pago, an ObIÍg3tion Is extinguished while
in contract of sale, Obligation arise.

82. A borrowed from B P200, 000 To secure payment of the loan, A mortgaged his
house and lot to B. The mortgage is duly recorded. Then, Without the Consent of B, A
sold and delivered the house and lot to C and C took possession of the house and lot.
a. The sale to C ¡s void.
b. A cannot transfer ownership to C because did not give his consent to the sale.
c. A is liable to B for damages.
d. Ownership is transferred to C subject to the right of mortgagee B.

83. Statement No. 1: Where the seller of goods has a void able title there to but his title
has not been avoided at the time of the sale, the buyer acquires a title to the goods
whether or not the acquisition is in good faith.
Statement No. 2: If several persons, jointly and in the same contract, should sell an
undivided immovable with a right of repurchase, none of them may exercise this right for
more than his respective share.
a. Both are true. C. No. 1 is true; No.2 is false.
b. Both are false. d. No. 1 is false; No.2 is true.

4. B wrote S, his sister, to sell his parcel of land. The land was purchased by X, but S did
not forward the money to B. Now, B wants to recover the parcel of land.
a. B cannot recover because the sale is valid.
b. B can recover because the sale between S and X is void, therefore there is no sale.
C. B can recover only ¡f B can return the money paid by X to S.
d. Answer not given.

85. S sold a car for P3OOE000 to B. Unknown to B, the Car then had a cracked engine
block, the replacement of which would cost P75,000. Despite his knowledge of this
defect, s o tamed a waiver from B of the latter’s right under the Warranty against hidden
defects. Subsequently, the car was wrecked due to the recklessness of B who only then
discovered the defects. Which of the following statements is true?
a. S still liable to reimburse B of P75, 000, the difference between the purchase price
and the true value.
b. The waiver is void because B has no knowledge of the defect.
c. S is not liable anymore because the car got loss due to the recklessness of B.
d. The liability of S remains to be P300, 000 because of breach of warranty against
hidden defect.

86. S agreed to sell B 100 cases of napkins with the name of B’s restaurant on the
napkins, in the enforceable contract, it was specified that delivery will take place on April
15, 2010 which is one (1) month after Sand B signed the contract. B wanted the napkins
by April 15 because the grand opening of the restaurant was scheduled for April 17. On
April II, S tells B that he has too many orders and will not be able to deliver the napkins.
What options does B have?
I. Treat it as a present breach of Contract and cancel the contract.
II. Wait for a reasonable time to see if S will deliver.
Ill. Ask a third person to perform the obligation at the expense of S but no damages.
a. I only. C. Either I or II
b. II only. d. Either I or II or III

37. R brought her diamond ring to a jewelry shop for cleaning. The jewelry shop
undertook to return the ring by February 1, 2010. When the said date arrived, the jewelry
shop in formed R that the job was not yet finished. They asked her to return five days
after, On February6, 2010, R went to the shop to claim the ring, but she was informed
that the same was stolen by a thief who entered the shop the night
Statement No. 1: The jewelry shop is not liable because the lost of the ring is due to
force majuere. The right of R is to proceed against T, the theft.
Statement No. 2: The right of R is to proceed against the jewelry shop owner and ask
for the value of the ring plus damages because there was breach of contract. The shop
cannot escape liability because there was delay.
a. Both are true. C. Statement 1 s true; No.2 is false.
b. Both are false. d. Statement 1 is false; No.2 is true.

KEY ANSWERS
CONTRACT OF SALES
TRUE OR FALSE
1. T 21.T 41.T
2. False 22. T 42. T
-3. T 23. T 43. T
4. False 24.T 44. False
5. T 25. False 45. False
6. T 26. False 46. T
7. T 27.T 47.T
8. T 28. False 48. T
9. False 29. False 49. T
10. False 30. T 50. T
11. T 31.T 51. T
12.T 32.T 52.T
13. T 33. T 53. False
14.T 34.T 54.T
15, T 35. False 55. False
16.T 36.T 56.T
17.T 37.T 57.T
18. T 38. T 58. False
19.T 39.T 59.T
20. False 40. T 60. T

KEY ANSWERS
CONTRACT OF SALES.
MULTIPLE CHOICE
l.C 30.A 59.C
2.C 31.D 60.C
3.c 32.B 61.D
4. b 33.D 62.C
5.c 34.D 63.D
6.A 35.B 64.A
7.B 36.D 65.A
8. C 37.E 66.B
9. B 38.A 67.C
10. C 39. B 68.B
11. B 40.C 69.A
12 D 41.A 70.A
13 E 42.D 71.A
43 D 72.A
14E 44.8 73.A
15:B 45 C 74.A
16 C 46:C 75.D
17:C 47.A 76.D
18. C 48.B 77.D
78: C
19.D 49.B 79.C
20.A 50.C 80.D
21. D 51.D 81.B
22.D 52.B 82.D
23. D 53 C 83.A
24.D 54.D 84.A
25. D 55.D 85.A
26.D 56.B 86.C
27.A 57.A 87.D
28.D 58.C
29.B

PART 3
AGENCY
1. Agency defined
1. Agency is the relationship which results from the manifestation of consent by one
person to another that the other shall act on his behalf and subject to his control and
consented by the other so to act. (Restatement 1 the Law of Agency, Sec. 1)
2. Agency is an act which one person gives to another the power to do something for the
principal and in his name. (French Civil Code)
3. It is a contract where one person called mandans authorized another person called
the mandatarius to do something for him. (Roman Law). In Spanish, the principal is
called mandante, while the agent is referred to as the mandatario, the contract is called
mandato
2. Essential elements of Agency.
1. Consent of the contracting parties
2. The object which is the execution of a judicial act in relation to third person, the agent,
the agent acting within the scope of his authority and in the name of the principal.
3. The cause which is the payment or consideration given by the principal to the agent.
3. Characteristics of a contract of agency
1. Consensual because it is perfected by mere consent.
2. Principal because the existence and validity is not dependent Upon Other contracts
3. Bilateral because both parties are bound by obligations reciprocally.
4. Preparatory because it is a means through which other transaction may be
accomplished.
5. Nominate because there is a name provided for in the Civil Code.
6. Onerous because the agent is paid a compensation unless otherwise stipulated.

4. Parties to the contract

1. Principal— the person whom the agent represents and from whom he derives his
authority; the person represented. The other name is employer.
2. Agent — the person who acts for and represents another he is the person acting in a
representative capacity. The other name is attorney-in-fact or proxy.

5. Capacity of the principal

Any person who is capacitated to act for himself, can act thru an agent. He must
therefore be capacitated to give consent. The principal may be a natural or juridical
person. Example of this juridical person; a corporation or a partnership acts thru their
officers of such entity as their agent.
6. Capacity of the agent
What is required of an agent is his capacity to bind Himself in a contract. However, as to
third persons, it is enough that his principal be the one capacitated.

Illustrative Case:
P appoints A, a minor, 17 years of age, his agent to sell his car. A sells the car to X.
Soon thereafter, the price 0f cars went up with the floating rate of the peso, and P
promptly sought to set aside the sale and brought an action to recover the car on the
ground that A’s act was void since a minor cannot be an agent. May P avoid the
contract to entered into by A in favor of X on the ground of his agents incapacity?
Explain your answer.
No. In a contract of agency, what is important is the capacity of the principal and not of
the agent. If the Principal ¡s capacitated, the contract ¡s with full force and effect even if
the agent ¡s incapacitated, under the principle “agent’s personality is only an extension
of that of the principal”
7. Acts that may be delegated to the agent
1. In general— what a man may do in person, he may do thru another.
2. Exception — acts that cannot be done thru an agent.
a. Personal Act — This personal act cannot be delegated to others because the
delegation is contrary to law or public policy.
Example: The right to vote during election cannot be delegated because voting is a
personal act under the law. Another example, directors of corporations cannot vote by
proxy because attending and voting board meetings are personal to him.
b. Criminal acts or acts not allowed by law. Any done by the principal is considered
cannot be delegated to an agent.

Example.: Under Our constitution aliens are not allowed to acquire land, therefore an
alien Cannot purchase land through a Filipino agent.
8. Relations between Principal and agent the relation of an agent to his principal
is fiduciary since it is based on utmost trust and Confidence. It creates a relation
whereby the agent is forbidden to prefer his interest that may come in Conflict
with those of the principal. The rule in agency, said the Supreme Court, stands on
the moral obligation to refrain from placing one’s self in a position which
ordinarily excites Conflicts between self Interest and integrity. It seeks to remove
the temptations that might arise out of such a relation to service one’s self-
interest at the expense of one’s integrity and duty to another, by making it
impossible to profit by yielding to temptation. (J. Nolledo, Sales, Agency and
Bailments).
By the relationship of agency, one party called the principal authorizes another called the
agent to act for and his behalf in transactions with third persons. The authority of the
agent to act emanates from the powers granted to him by his principal, his act is the act
of the principal if done within the scope of the authority. (Siredy Enterprises, Inc., vs.
Court of Appeals, et. al, G.R. No. 129039, September 17,2002)

9. Agency distinguished from other contracts.

1. Agency from guardianship:
a. An agent represents a capacitated person: while a guardian represents an
incapacitated person.
b. An agent is appointed by the principal, while a guardian is appointed by the court.
c. The agent is subject to the direction of the principal: while the guardian is not subject
to the directions of the ward.

2. Agency from lease of services:

a. Agent represents the principal lessor of services does not represent his employers
b. The relation of both can be terminated at either the principal or agent; while the
relationship in lease as rule can only be terminated at the will of both.
C. The agent exercises discretionary powers: while The employer in lease of services
exercise ministerial power.

3. Agency from independent contractor:

a. The agent acts under the control of the principal; while the contractor does the act
according to his method.
b. The sub-agent may be controlled by the principal: while the employees of the
contractor are not the employees of the employer of the contractor
c. The negligence of the agent is imputable to t principal; while the negligence of the
contractor is generally not imputable to the employer.
4. Agency from negotorium gestio:
a. In agency there is a meeting of minds between the parties; white in negotorium
gestio, there is no meeting of minds1 the representation was not agreed upon but may
be ratified.
b. Agent is controlled by the principal; while the officious manager follows his judgment
and the presumed will of the owner.
c. The legal relation is created by the parties; while in negotorium gestio, the legal
relation is created by law
5. Agency to sell from sale:
a. Ownership of the goods is not transferred to the agent; white in sale, upon delivery
ownership transferred to the buyer.
b. The agent delivers the price; while in sale, the buyer pays the price.
c. Agent does not warrant the thing against hidden defects; while in sale seller warrants
the thing against this defect
6. Agency from Partnership:
The partner when acting for the partnership binds himself and his co-partners; while an
agent acts for and binds his principal alone. it may be said that a Partnership is a branch
of agency,

10. Kinds of Agent

1. Actual agent or those expressly authorized to act for or on behalf of the principal.
2. Implied agent, one who becomes an agent by implication, from the acts of the
principal who did not object to the agency.
3. Genera/agent, one who is authorized to administer the whole of the principal’s
business, or all of a particular kind of such business.
4. Special agent, one employed to act in specific transactions or on a specific act for a
particular purpose.
5. Universal agent, one appointed to do all that a principal may personally do. He is an
agent who is authorized to transact all of the business of the principal of every kind.
6. Ostensible agent, one known to be acting for and on behalf of the principal.
7. Agent by necessity, one whose authority is enlarged because of an impending
necessity or emergency.
NOTE: An agent may also be joint or solidary or a sub-agent. Ho may also be an
attorney-in-fact, that is, an agent having a special authority created by deed.

11. Kinds of agency according to manner of Constitution

1. Express
2. Implied
a. Acts of the principal
b. Principal’s silence
c. Principal’s lack of action
d. Principal’s failure to repudiate an agency
12. Creation of agency
1. By the consent of the principal and the agent
2. By operation of law
3. By estoppel
4. By ratification
Example of No. 2:
P appointed A as his agent to sell a parcel of land. Later, A died leaving X, Y, and Z as
his legal heirs. In here, the obligation of X, Y, and Z, ¡s to take care of the object of
agency until P takes appropriate action. This is agency by operation of law. Article 1932
states “If the agent dies, his heirs must notify the principal thereof, and in the meantime
adopt such measures as the circumstances may demand in the interest of the latter.”
Example of No. 3.
Vaux owns a rostrum in room No.9. While I am lecturing agency in the same room, I
offered it for sale to you without Vaux’ authority. He (Vaux) is also in the same room
isten1flg to my lecture. He heard my offer but did not object. If I delivered the rostrum to
you, after delivery, YOU are the owner. Because Valix is preclude sell and this is called
agency from denying mv authority to sell this is called agency estoppel.
Example of No. 4 :
If in example No.3. Valix after the class, he Came 01X was mot inside the room, but if
room and approves my act, know what transpired inside the there is an agency by
ratification.
13. Implied a estoppel agency distinguished from agency by estoppel
1. As between principal and agent:
In implied agency, the agent is a true agent with all the rights and duties of an agent;
while an estoppel, the latter is not a true agent and as such is not possessed with the
rights of an agent.
2. As to third person: In implied agency, the principal is always liable to third persons;
while in estoppel, the principal is liable only if they acted on the misrepresentation of the
principal
14. Form of Agency
1. Oral
2. Written
15. Instances when contract of agency must be in writing
1. In cases where special powers of attorney is required 4 as enumerated in Article
1878, the contract must be in ( writing otherwise, if oral, it may only be an authority and
need not be in writing.
2. When it is a sale of a piece of land or any interest therein is through an agent, the
authority of the latter must be in writing otherwise the sale is void under Article 1874.

16. Requisites of the written authority given to the agent

1. Intention of the principal.
2. Identity of the agent.
3. Subject matter of the agency, and the acts to be performed by the agent.
4. Signature of the principal.
17. implication of agency if agency can be implied from the acts of the principal by
reason of the principal’s silence, lack of action, or failure to repudiate, knowing
already that another person is acting in his behalf, agency can also be implied
from the acts of the agent which may be interpreted as implied acceptance of his
appointment as agent.
18. Kinds of acceptance
1. Express
2. Implied from
a. Acts of the agent in carrying out the agency
b. Silence of the agent
c. inaction of the agent according to the circumstances,
Example:
P sends a power of attorney to A appointing the latter as his agent to sell his specific car
for P10, 000 A received the Power of attorney and started looking fora buyer. In here,
the acceptance of A is implied otherwise, he will not be looking for a buyer had he
Objected to his appointment Likewise may be said that if A receives the Power of
attorney and does not return it Within a reasonable time he will be regarded as having
accepted the agent tacitly although he has written to ¿ his principal refusing the agency.
(2 C.J.S. page 1044)

19. Illustrative case:

A, before going to Spain appointed B as his agent to administer his properties in wrote A
that he (B) was Thereafter B wrote the agency because of poor health. 3, in the same
letter said that he appointed C as his Substitute and that A should extend a new
appointment to C. C took over the duties of B but A did not bother to appoint C to act as
his agent until his death. A’s heirs brought an action against C for accounting. C raised
the defense that he was not validly constituted as agent of A. Is the defense tenable?
Answer: No. Although A did not extend formal appointment to C, the latter ¡s an implied
agent because he acted without opposition from or prohibition by the principal. (see De
la Peña v Hidalgo, 16 Phil. 450)

20. Power of attorney defined

This is 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. (2 Am.
Jur. 30)
The scope of the agent’s authority is what appears in the written terms of the power of
attorney. While third persons are bound to inquire into the extend or scope of the agent’s
authority, they are not required to go beyond the terms of the written power of attorney.
Third persons cannot be adversely affected by an understanding between the principal
and his agent as to the limits of the latter’s authority. In the same way, third persons
need not concern themselves with instructions given by the principal to his agent outside
of the written Power of attorney. (Siredy Enterprises Inc., vs. Court of Appeals, et. aL,
c3.R. No. 129039 September 17, 2002)
21. Implied acceptance of agency between persons wh0 are present.
The agency is impliedly accepted if the agent receives a power of attorney from the
principal personally without objection. Be it noted that this presumption is rebuttable and
can be overcome by proof to the contrary.
22. Effect of silence of the person sought to be appointed as agent.
As a rule, when the persons are absent (not face to face, or they reside in different
places), the silence of the agent riot to be interpreted as an acceptance, except:
1. When the principal transmits a prepared power of attorney to the agent and the latter
receives it without objection.
Requisites of this exception: ‘
a. There is a power of attorney sent to the agent.
b. The power of attorney was duly executed and signed by the principal.
c. The agent receives the power of attorney sent presumed to have read it.
d. There was no objection on the part of the agent either by returning the power of
attorney, or informing the principal of his rejection

2. The principal appoints by letter or telegram a person as an agent with respect to the
business habitually engaged in by him as agent and did not reply to the letter or
telegram, rejecting the appointment.

23. Example:
1. P appoints A as his agent by delivering to him personally a power of attorney to sell P
s specific car for P10,00 A receives the power of attorney without registering any
objection. In this case A is deemed to have impliedly accepted the agency because as
between persons who are present, acceptance of the agency is implied if the principal
delivers his power of attorney to the agent, and the latter receives it without any
objection.
2. P sends a letter to A in Tarlac, Authorizing A to sell his specific car for P10,000. If no
reply was made by A, is there a presumption of implied agency between the two of
them?
Answer: None, because person between persons who are absent, acceptance o. the
agency cannot be resumed from the silence of the agent.
3. Agent A who resides in Angeles City and habitual engaged in buying and selling
second hand car receive a letter from P, authorizing him (A) to sell the specific car of P
for P 10,000. A did not reply to the letter of P. is there any agency establishment
between two?

Answer: Yes. Because he did not reply to the letter send by P entrusting a power of
attorney with respect to business in which he is habitually engaged as an agent. Ways of
0mmUnicatiflg agency to third persons.
4. Ways of communicating agency third persons
1. By special information
This is done when a person specially informs another that he has given a power of
attorney to a third person tatter thereby becomes an agent with respect t’ who received
the special information.
The power of such agent shall remain in full force and effect until it is rescinded in the
same manner was given.

2. By public advertisement.
This is done when a person states by public advertisement, such as by newspaper,
signs, Posters billboards, banner, slide on television, that he has given power of
attorney to a third person, the latter becomes agent with regard to any person. In this
case, the agent may deal with the public and his authority to act shall remain effective
until rescinded in the same manner if it was given. Be it noted that revocation in any
manner is effective against all persons having actual knowledge.
Illustrative case:
P appointed A as his special agent to sell a specific land for P10, 000. P sends A his
papers of appointment including a letter addressed to X notifying the latter of the
appointment of A as his agent. Ten days after, P revoked’ the agency and published it in
a newspaper of general circulation. X did not read the newspaper publication but has got
actual knowledge of the revocation. Later, A and X transacted business. Is the act of A
binding against P?
Answer; No. X, having knowledge of the revocation, is Considered in bad faith.
25. Agent authority to sell a piece of land or interest therein.
A contract of agency may be entered into orally. But when it is a sale of a piece of land
thru an agent, the authority of the agent to sell must be in writing, otherwise the sale is
void.

26. Sale of other immovable

Sale by an agent of immovable other than land or an interest therein, example the right
of occupancy on a building is valid Upon the Principal although the authority of the agent
is only oral.

27. “Any interest therein” explained

The words any interest therein” includes any interest on right of the land itself, such as,
the usufruct over a land, leasehold right covering land, mortgagee’s right on the land
mortgaged. Be it noted that any right over a land is also a real right.
28. Illustrative cases
1. P in writing appoints A as his agent to sell his specific parcel of land for P10 ,000. A
sold to X orally. Is the contract between A and X valid?
Answer: Yes, because the appointment was in writing. And all essential elements of a
contract of sale are present.
2. P orally appoints A as his agent to sell his specific land for P10, 000. A sold it to X ¡n
writing. Is the sale to X by A valid contract?
Answer: No, the sale ¡is void because this ¡s a sale of a parcel of land thru an agent, the
authority of the agent must be in writing. The sale to X is void and inexistent.
3. P is the owner of the house constructed on a parcel of land belonging to X. P
appointed A orally tJ sell the house to B for P10,000. Is the appointment of A as agent of
P valida
Answer: Yes, this ¡s a sale of immovable property (the house), and not the land itself or
interest: therein. The authority of the agent may be oral.
4. B wrote S, his sister, to sell his parcel of land was purchased by X, but S did not
forward the money to B. B now wants to recover the parcel of land.
Answer: B cannot recover because the sale is valid the authority of S is in writing.

5. P. the owner of a piece of residential land orally authorized A to sell the land for
P500.00 with 5% commission A sold the land to C. One day later P sold the same land
D. Assuming that both buyers are in good faith, C and D who is considered the lawful
owner.
Answer: D, because the authority of A to sell was given orally. Therefore, any
transactions entered by A With respect to the sale of the land is void.
29. Presumption that the contract of agency is for a compensation
Agency is an onerous contract and therefore the agents are to be compensated for their
services rendered. Accordingly, an agent ¡s entitled to be compensated even if he did
not succeed in the agency despite efforts exerted by him. However, this is rebuttable,
such that if it C proven that there is an agreement that the agent is not to be
compensated or that the compensation ¡s dependent upon his success in the execution,
the presumption of compensation will not be observed.

30. Issue of compensation decided by our courts.

1. A broker who did not succeed in bringing the minds of the buyer and seller to an
agreement is not entitled to compensation. (Rocha vs. Pratts and Co., 43 Phil. 397)
2. If the principal breaks off from negotiation with the buyer for the purpose of dealing
directly with that buyer Iate the agent who brought the buyer to the principal is entitled to
compensation (Infante vs. Cunanan, GR N.518O)
3. Although the authority of the agent has already expired the court by reason of equity,
granted compensation for the agents effort and assistance in the transaCtl0fl which
however was formalized and consummated after the expiration of his exclusive authority.
(Pratts VS. of Appeals L-39822)

31. Kinds of agency according to the extent of Coverage

1. General agency — One comprising all the business of the principal
2. Special agency — One embracing transaction g more Specific
32. General agent explained
A general agent in a general agency conducts all the business of the principal. It
involves continuity of performance of services
Example:
R who owns a five (5) hectares of agricultural land, planted with eggplants and
ampalaya, appointed A as his agent, to administer his properties while P is in a world
tour for one (1) month. A, in this case, is considered a general agent and c perform acts
of administration such as gathering of the products, planting them with new crops, hiring
laborers to do the works related to the gathering and planting. Paying their salaries,
buying fertilizer, and others necessary for the accomplishment of the agency. However,
he cannot sell the land because selling involves acts of ownership.
33. Special agent explained
A special agent performs specific acts which do not involve the element of continuity. It
covers only or o more specific transactions.
Exam pie:
If P appoints A as his agent with a special power of attorney to sell a specific parcel of
land and to deposit the proceed of the sale on the account of P at Banco Pino, A is
considered a special agent or (SA).
34. Kinds of agency according to power or author conferred.
1 Agency couched in general term
2. Agency couched in specific terms or agency requiring special power of attorney.
35. Agency if couched in general terms
If the agency is couched in general terms, what the agent could do is only to perform
acts of administration, it does not authorize the performance of acts of strict dominion
Which Requires special power of attorney under Article 1878.
36 Acts of administration
By acts of administration is meant the acts which do not imply the power to alienate or
acts in which the ownership of the thing is transferred, However, as opined by Manersa
this act of administration will always be a question of facts, rather than of law, and it is up
for the courts to resolve.
As a gesture to this opinion, our courts rendered the following decisions on the matters
of acts of administration:
1. That even if the agency is couched in special or general terms, the authority of the
agent is presumed to include all the necessary and usual means of caring out the
agency into effect. (Mocke et. al. vs. Campos, 7 Phil, 553)
2. An agent empowered to pay the debts of the principal, and to employ attorneys to
defend the principal’s interest, is implied by empowered to pay the attorney’s fees
rendered, and for that matter may satisfy them by an assignment of a judgment rendered
in favor of the principal. (Mun. Council of iloilo vs. Evangelista et. al, 55 Phil. 290)
3. An agent with authority to collect money belonging to his principal does not have the
implied authority to endorse check received in payment (Insular Drug Co. vs. National
Bank. 58 Phil. 684)

Examle:
P appoints a as his agent under the following terms:
“I hereby appoint you as my agent with respect to all my properties. I am giving you
general and unlimited management you may execute all acts necessary to accomplish
the agency.”
The agency is couched in general terms. Therefore. What the agent can do is only acts
of administration and not acts of strict ownership. He is authorized to execute any or all
of the following acts:
1. To make customary gifts for charity or to hire employees under his management.
2. To lease real property for one year or less.
3. To borrow money ¡fit is urgent and indispensable for the preservation of the thing
under his administration.
4. To lease personal property even for a longer period than one year.
Note: He cannot perform any of the acts enumerated under
Article 1878.
Be it noted that the following powers written in the contract of agency are declared by
law, Article 1877, and decided by our courts as agency couched in general terms and
will not authorize the agent to perform acts for which a special power of attorney is
required in the next Article.
1. That the agent can do all acts which could be done by the principal.
2. That the agent may execute such acts as he may consider appropriate.

3. That the agent is authorized to conduct on behalf of the principal a general and
unlimited management.
Q — An agent with genera: powers of administration couched in general terms, given to
him by the principal writing, desirous of improving the finance condition of his principal,
sold two pa cells of rice field, One for less than the price appearing in the inventory
prepared by the principal, and the other for double the price that appeared in the said
inventory.
Can the two (2) contracts be enforced against the principal?
Answer: No, because the agency ¡s couched in general term, what the agent can
perform is only acts of administration. Selling ¡s an act of strict dominion.
37. Special powers require special power of attorney.
Special powers of attorney are necessary in the following cases:
1. To make such payments as are not usually considered as acts of administration:
2. To effect novations which put an end to obligations already in existence at the time
the agency was
Constituted;
3. To compromise, to submit questions to arbitration, to renounce the right to appeal
from a judgment, to waive objection to the venue of an action or to abandon a
prescription already acquired;
4. To waive any obligation gratuitously;
5. To enter into any contract by which the ownership of an Immovable is transmitted or
acquired either gratuitously for a valuable Consideration;
6. To make gifts, except customary ones for charity or those made to employees in the
business managed by the agent;
7. To loan or borrow money1 unless the latter act be urgent and indispensable for the
preservation of the things which are under administration;
8. To lease any real property to another person for more than one year.
9. To bind the principal to render some service without compensation.
1O.To bind the principal ¡n a contract of partnership;
11. To obligate the principal as a guarantor or surety;
12. To create or convey real rights over immovable property;
13. To accept or repudiate an inheritance;
14. To ratify or recognize obligations contracted before the agency;
15. Any other act of strict dominion. (Art. 1878)
38. Acts of ownership and dominion needs special power of attorney. The
instances enumerated above requires a special power of attorney.
These acts cannot be done by an agent exercising mere acts of administration they
cannot be legally performed by an agent possessing a general power of attorney.
39. Meaning and scope of the Article
1. To make payments as are not usually considered acts of administration. These
payments alluded to in this enumeration are those made not in the ordinary course of
business Hence, if such payments are performed in the ordinary course of business in
which the Payment of agent may do will be considered as mere acts administration and
therefore it is covered in an age couched in general terms- Example of this act
administration: payment of salaries of employees a laborers, payment of electric and
water bills, expenses for the preservation of the object of agency.
Example of payments considered unusual:
a. Debts incurred by the principal not connected with the business in which he was
appointed as an agent
b. Mortgage debt of property mortgaged by the principal before his appointment as an
agent.
c. Collectible expenses incurred on the material ordered by the principal, while A is not
yet an agent, and no bearing or relation to the object of agency.
2. Power to effect Novation: A special power is required to enable an agent to effect
novation which put an end to obligations already in existence at the time the agency was
constituted.
3. Power to enter into compromise: A special power of attorney is required to enable an
agent to compromise to submit to arbitrations, to renounce appeal from a judgment, to
waive objections to the venue of an action abandon a prescription already acquired. The
grant of a special power for one of these acts does not operate to authorize the agent to
perform one or all of the other acts enumerated.
These acts mentioned are practices in court litigation the agent is the lawyer who
performs services to his dent the principal. As held in one case, when the lawyer entered
into a compromise with the adverse party theact executed by the agent is unenforceable
but can be ratified by the client. To compromise needs a special power from the
principal.
4, Power to waive obligation gratuitously: If an agent waives an obligation gratuitously
that is, without Consideration to be given to the principal a special power of attorney S
required.
5. Power to acquire and convey immovables: Whether gratuitously or for a valuable
consideration, an agent cannot enter into any contract whereby ownership of an
immovable is transmitted or acquired.
6. Power to make gift: Donating property belonging to the principal involves acts of
ownership because you are parting the ownership over the property and cannot be
considered an act of administration.
Exceptions:
a. Gift to charity, but it must be customary and reasonable.
b. Gift to employee as bonus, must also be reasonable.
7. To loan or borrow money: to lend or borrow money belonging to the principal needs a
special power. This rule applies even ¡f the loan bears interest. But when the agent
borrows money urgently needed for the preservation of the object of agency, special
power is not needed anymore.
8. Power to lease real property: This involves real property for more than one year. If the
lease is one year or less, an agency in general terms will cover. The same is true with
respect to leases of personal property even if it is more than one year.
9. Power to bind the principal to render service gratuitously: With or without
compensation the agent cannot bind his principal except when the authority is written
and specified.
10. Power to bind the principal in a contract of partnership Entering into a contract of
partnership if involves investment of funds or rendition of services which the principal
may not be willing to do. To have a binding force, the agent must have a special power
of attorney
11. Power to obligate the principal as guarantor or surety. To bind the principal as
guarantor in an obligation is an act which the principal is not willing to perform because a
solidary guarantor or surety is principally liable in an obligation.
12. Power to create or convey real rights over immovable property: To convey these real
rights over immovable property, the agent needs a special power of attorney
Examples of these real rights over ¡mmovabIes.
a. Usufruct
b. Mortgage
c. Right of way
d. Lease for more than one year
13. To accept or repudiate an inheritance: An existing inheritance cannot be repudiated
by the agent unless the power is written in a special power of attorney. This inheritance
is already vested and strictly personal to the heirs, it cannot be accepted or repudiated
by an agent without a special power of attorney.
14. To ratify or recognize obligations contracted before the agency: A special Power of
attorney is required to enable an agent to ratify or recognize obligation Contracted
before the agency because agency in its operation is generally prospective and not
retroactive.
If these obligations were ratified by the agent without special Power, the acts are
unenforceable against the principal but may b enforceable, e ratified by the principal to
make it
15. Power to do other acts of strict dominion: The following are considered acts of strict
dominion necessitating a special Power of attorney:
a. Making useful improvement on the thing.
b. Selling personal property of the principal unless required by the nature of the business
under his administration.
c. Selling stocks owned by the principal.
d. Making luxurious improvements on things administered by the agent.
e. Using the principal’s money in stock investment. (J. Nolledo, Sales, Agency and
Bailments)
40. Form of special power of attorney
It is not necessary that a special power of attorney be in a public instrument because this
is not one of those enumerated in Article 1358, requiring that the contracts must appear
¡n a public instrument. However, it is advisable that it be notarized.
In one recent case, the Supreme Court said: the requirement of a special power of
attorney as required in Article 1878 is to the nature of authorization and not its form. The
requirement ¡s met if there is a clear manifestation from the principal specifically
authorizing the agent to perform the act this mandate or manifestation may be either oral
or written, and it must be express. If the special authority IS not written, then it must be
duly established by evidence (Pin Vs. Tan, et. al, G. R. No. 47740, J. Nolledo, Sales,
Agency and Bailments)

41. Illustrative Case5

1. An agent with general powers of administration, leased to another person two parcels
of land belonging to his principal with one for ten years at P1,000 a year payable
annually, and with the other without a fixed term at P100.00 a month payable monthly.
Do you think that these contracts are valid and binding upon the principal? Give your
reasons.
The first contract is not valid and binding because according to law, to lease any real
property to another person for more than one year, a special power of attorney is
necessary. The second, however, is valid and binding because the contract involves
merely a. simple act of administration.

2. An agent with general powers of administration, desirous of improving the financial

condition of his principal’s business, sold a piece of land belonging to his principal for
double the price that appeared in an inventory prepared by the principal before leaving
the place. Do you think the agent has exceeded his powers? Why?
Yes, the agent exceeded his authority. Selling involves act of ownership requiring a
special power of attorney the fact that the amount received is double the price is of no
moment.
42. Power to sell and mortgage are specific acts of Ownership
Selling a property is conveying or transferring ownership of that property to another;
while Constituting a mortgage is not parting of ownership but it may lead to that if it is
foreclosed each act may be exercised independently from the other.

The Power to sell does not in the absence of authority carry with it the Power:
1. To sell on credit
2. To barter
3. To mortgage or to pledge
The Power to mortgage does not carry with it the power to:
1. To sell
2. To execute a second mortgage
3. To barter
43. Example
P appointed A to sell a specific car for P10,000 on cash basis. A succeeded in selling it
for P15 ,000 on credit. Did A act within the scope of his authority?
Answer: No, because the power to sell on cash does not include the power to sell in
credit. This is riot even considered advantageous to the principal because the buyer is
not sure to pay the price on t:me.
44. Power to compromise
Compromise is a contract whereby the parties, by making reciprocal concessions, avoid
a litigation or put an end to one already commenced. (Art. 2028, C. C.)
45. Power to submit to arbitration
Arbitration is the investigation and determination of a matter of difference between two
persons and settled by arbitration, or referees. Arbitration does not end the litigation, but
the issue is submitted to arbitrators for decision.

46. To compromise does not authorize submission to arbitration

If the agent is given power to compromise, he cannot submit the issues or questions to
arbitration, because the judgment of the agent in defending the interest of the principal is
different from the judgment and Opinions of the arbitrators. It may be because the
principal has unlimited confidence in his agent’s discretion, or because of his experience
in dealing compromise cases, and such experience is absent from among the arbitrators.
47. Authority defined
This is the power of the agent to effect relations of the principal by acts done in
accordance with the principals, Manifestation of consent to him (2 Am. Jur. 68)
48. Kinds of authority
1. Express — extent of authority is clearly defined.
2. Implied— acts unnecessary for the accomplishment of the purpose of the agency.
3. General— agent is given a full discretion to act.
4. Special— authority to act on a particular case, manner or transaction, with specific
instruction.
5. Apparent — when third persons are led to believe by acts, conduct or words of the
principal that the agent is authorized, when in fact he is not.
49. Agent is acting within the scope of his authority
The agents act is within the scope of his authority if the act executed granted to him as
written in the to him, or if not written, the act done is e him. He is also given manifested
by the principal to conducive to the Power to do acts as may be accomplishment of the
purpose of agency.
If the agent acts beyond the scope of his authority, he no longer represents the principal
and therefore, for the acts executed, the principal is no longer bound. These contracts
Outside the Power of the agent are unenforceable but may be enforced after ratification
by the principal.
50. Third person must ascertain the authority of the agent
A third person dealing with the agent must ascertain whether or not the agent is acting
within the scope of his authority. If he will not ascertain or investigate the agent’s
authority, he is acting at his own peril.
Example:
P owns five (5) parcels of land. B, her brother-in-law forged powers of attorney
purporting to show that he (B) was authorized to mortgage P’s land. Thereafter, B
mortgaged the land to C for P 100,000. B failed to pay and C foreclosed the mortgage. X
bought the lands at a public auction. P, after learning of B’s fraudulent acts sought to
annul II 1e sale to X. is P’s action to annul the sale in question proper?
Answer:
Yes, because X acted negligently in not verifying the genuineness of the alleged power
of attorney presented by B. ‘Every person”1 said the Supreme Court, dealing with an
agent ¡s put upon inquiry, and must discover, upon his peril the authority of the agent.
(Veloso vs. La Urbana. 58 Phil. 681) (J. Nolledo, Sales, AgencY1 and BailmentS).

51. Authority distinguished from power

Authority is the order or mandate given to the agent by the principal, while power is the
right to execute the agency to the extent of the order or mandate. The authority therefore
is the cause, while the power is the effect.
52. Agency by necessity
Agency by necessity s a doctrine whereby the agent’s authority, because of an
emergency, becomes enlarged in order to cope with the emergencies or necessities.
Accordingly, after the authority is given to the agent an unforeseen situation arises for
which the terms of the authorization make no provision, and it is impractical for the agent
to communicate with his principal, he is authorized, in the absence of an agreement to a
contra effect, to do what he believes to be necessary in order to prevent substantial loss
to the principal. (2 Am. Jur. 72-73)

53. Agent’s act is more advantageous than that instructed

If the agent performs the contract of agency in a manner more advantageous than that
instructed by the principal the agent is not deemed to have exceed his power. Wh4 I
exceeded here is the manner of performance and not the authority of the agent. If,
however, the agent really exceeded his authority, even if this is favorable to the principal,
the latter may refuse to be bound and therefore the contract is unenforceable
54. Illustrative case:
1. P appoints A as his agent to sell a specific car for P10, 000 with a 10% cornmssj0 A
succeeded ‚“selling it for P12,000, under this article, the agent is not deemed to have
exceeded his authority because the act done is more advantageous than that instructed
As a matter of equity, as expressed by many authors in agency, the agent’s commission
must be based on the P12, 000 and not on the P10000
Question:
Is the agent bound to give to his principal the excess amount of P2,0009
Answer:
Yes, under Article 1891, it is the duty of the agent to render an accounting of the
transaction and give everything to his principal even if it is not owing to him.
2. In No. 1, if article instead of selling the land, mortgages the same for a loan of
P12,000 with five (5%) percent interest payable within five (5) years, a transaction
advantageous to the principal because he will not lose ownership of the land, the
principal in this case may nevertheless refuse to be bound and such contract will be
treated as an unenforceable contract because the agent exceeded his authority under
the principle of The power to sell does not include the power to mortgage”.
Kinds of principal
1. Disclosed principal — If at the time of the transaction conducted by the agent, the
third party has noticed that the agent is acting for a principal and of the principal identity.
2. Undisclosed principal— If the other party has not noticed that the agent is an agent for
a principal.
3. Partially disclosed principal — If the other party has noticed that the agent is or may
be acting for a principal but has no notice of the principal’s identity.

56. Examples
P appointed A as his agent to buy a Specific car. A bought the car of X on credit for
P200,000 acting in his own name as the buyer. Can X proceed against P for the
purchase price?
Answer
No, because A acted in his name.
2. P appointed A as his agent to sell a specific car for P200, 000. A sold it to X on credit
payable 10 days after without informing X that he was acting as agent of p. On the date
of maturity, can P ask payment from X?
Answer
Yes, because the contract involves things belonging to the principal.
57. The legal effects if an agent acting ¡n his own name.
1. The principal shall have no right of action against the persons with whom the agent
has contracted neither such persons have the right to proceed against the principal.
2. The agent shall be the one directly liable to the person with whom he has contracted
as If the transaction were his Own except when the Contract involves things belonging to
the principal in Which case the latter shall be bound even if the agent acted in his Own
name;
3. The principal may sue the agent for breach of contract. (Art. 1883)
58. The effect of the execution 01 agency ¡f the agent acted with authority
If the agent acted within the Scope of his authority, the following are effects:
1 If he acted in behalf of his principal the transaction is valid; the principal is the One
liable.
2. If he acted in his behalf, the transaction is not binding on the principal; the agent and
the third party are the only parties, except ¡f the thing belongs to the principal.

59. The effect of the execution of agency if the agent acted without authority.
If the agent acted outside the scope of his authority, the following are the effects:
1. If he acted in behalf of his principal, the contract is unauthorized and therefore
unenforceable under Art. 1403. This contract may be ratified, in which case it may be
validated from the very beginning.
2. If he acted in his behalf, the transaction is the same in No. 1, unenforceable on the
part of the principal. As between the agent and the third person, the contract may be
valid if the transaction is lawful taking into consideration the other provision of law.
Example:
If A sold the land of P to B for P 10,000 and promised to deliver 10 days after, and on
the 9th day, A bought the land from P, such that on the 10th day he can transfer
ownership to B, the sale between A and B is a valid sale, because what is required by
law is that at the time of delivery, the seller can transfer ownership to the buyer.
60. Illustrative Cases
Case No. 1: P appointed A to borrow money from X. P10.000. A borrowed p10, 000
acting in the name of P.

Upon maturity, P is liable personally to X because A acted in the name of P and within
the scope of his authority.
Case No. 2: In the preceding problem, Suppose A borrowed from X P12, 000 in the
name of P. How much
1. if A gave P10,000 to P; the latter is liable P10, 000 and A is liable for P2,000.
2. If P accepted the P12, 000, he must pay X P12, 000 because the act of accepting is
Considered an act of ratification on the part of the principal.
Case No. 3” P appointed A to borrow money from X. P10, 000. A borrowed P12, 000
acting in his Own name (as agent). A gave P10, 000 and Personally spent the P2,000
Upon maturity, who will answer for the P12,000? Give the rights and obligations.
1. A will answer the P12,000 to X because A acted in his name.
2. P will answer the P10 ,000 to A and not to X, because the transact/on as to the P10,Q
¡s between P and A, P and X have no right of act on against each other
Case No. 4: p appointed A to sell P’s car for P100, 000. A sold it to X for the same
amount but only, he acted in his own name. Upon delivery and after examination the car
has hidden defect. Can X file an action against P even if A acted in his (A) Own name?
Yes, because this ¡s a Contract involving things belonging to the Principal. This is an
exception.

61. Agent must Sign as an agent

A person who signs as an agent must first put the name of his Principal and Signs his
name, indicating that he is an agent or that he signs ¡n a representative capacity, to
exemplify:

For: CARLOS B. SUAREZ

By: Conrado T. Valix (agent or attorney-in-fact)
or
By: Conrado T. Vaux (agent or ttomey-in-fact)
For: Carlos B. Suarez
or
Conrado T. Valix agent of Carlos B. Suarez

62. Obligation of the agent who accepts the agency

1. To carry out th3 agency
2. To act within the scope of his authority
3. To act in behalf of the principal

63. Obligation of the agent who declines the agency

1. To notify the principal that he is declining the agency
2. To preserve the goods forwarded to him until the principal appoints another agent.

64. Advance of funds necessary for the execution of agency.

As a rule, the principal should, upon request, advance the funds for the agency.
However, if it was agreed that the agent shall advance the funds, he is bound to do so,
except if the principal is insolvent.
65. Instructions explained
These are orders given by the principal to his agent in relation to the business of his
agency. If he agent acts within his authority but fails to follow the instructions of the
principal the contract with the third person binds the principal, but the agent may be held
answerable for damages to the principal. Conversely if the agent followed the principal
and has not exceed his cannot successfully invoke the failure in the of the object for
which the agency is constituted Hermanas vs. Oria Hermanas, 30 Phil. 491)
66. Authority distinguished from ¡nstruct1o
1. Authority refers to transaction which the age commissioned to act; while instruction
relates to manner in which the agent action will be based
2. Authority ¡n so acting will affect third persons. While instruction is only between the
principal and the age
3. Authority of the agent may be investigated or be inquired by a third person dealing
with the agent; while instructions of the agent need not be determined by third person
67. Agent is an extension of the person of the principal
In agency the agent is an extension of that of the principal Such being the case, the
agent is forbidden to do an act which the principal would not do. If an act would
manifestly result in loss or damages to him, it is obvious that the principal will not
execute the act. Therefore being an agent, he must not carry Out the agency if he knew
that it would manifestly result in loss or damage to the principal.

68. Illustrative Case

P instructed his agent A to character a boat from Japan to Manila and to load goods
belonging to P with specific instruction to sail from Japan to Manila on October 1.
Furthermore Upon arrival at the port of destination (Manila) to sell the goods to the
prospective buyers. However, Japan’s “PAGASA’ 8flflounced on the date of scheduled
departure that a strong typhoon Was directly to cross the path of the boat and to
navigate is disastrous because of the tempest of the sea. Premises considered A
concluded that it is safe to sail after One week. Meantime, the prices of the goods went
down by 50%. In short, P’s expected profit was not realized. Is A liable to P? Why?
Answer:
No, an agent must not execute the contract of agency if its execution would manifestly
result in loss or damage to the principal.
69. Agent must not compete with the principal under the principle of loyalty.
It is a well settled rule that an agent is a fiduciary with respect to matters within the scope
of agency. It is based on utmost trust and confidence. Therefore, the agent is bound to
execute the agency in good faith and his loyalty to be given to his principal. Short of this
expectation is considered a betrayal. In any event, whenever there is a conflict of
interest, the agent is called upon to sacrifice his interest and give it to the principal.
70. Agent’s authority to lend money to principal.
If the agent has been empowered to borrow money, he may himself be the lender at the
current rate of interest and this rule cannot cause prejudice to the principal because the
interest is at the current rate.

71. Agent’s authority to borrow money of the principal.

If the agent is authorized to lend money, he cannot be the borrower, except with the
consent of the principal

72. Obligation of the agent to render account

Again, under the principle of a fiduciary relation the duty of the agent to render a full
accounting transaction and to account to his principal for all propei.t or funds belonging
to his principal which come into hands in the course of agency. (3 C. J. s., 47)
He is duty bound to deliver to the principal whatever r may have received by virtue of the
agency even though it may not be owing to the principal. In connection with t duty to
account, the following commentators has this to say:
Manresa says:
“The rendition of account is essential to the contract of
agency, and while it is true that it is the right of the parties to agree and their agreement
shall become the Contract between them, yet, the individual will of the contracting
parties cannot abrogate what is essential to the contract of agency’. (Cited in Asiatic
Petroleum vs. Que Sin Poo, 40,0. G. 44)
Professor Mechem says:
The agent is bound to account to his principal for all money and property which may
come into his hands by virtue of the agency. This rule embraces not only money and
property as may be received directly from the principal, but also that which comes into
the hands for the principal as the rest agency.” In addition, our Revised Penal Code has
this to say:
“An agent who converts the money of the principal own use is criminally liable for
estafa.” (Article 315, R. P. C)
73. Secret profit of the agent an agent morally weak as he is, ma of making more
than his Commission by conniving with a third person. In this regard, Our
Supreme Court, through Mr. Justice Felix Makasiar said:

“The aforecited provisions demand the utmost good faith, fidelity, honesty, candor and
fairness on the part of the agent, the real estate broker in this case, to his principal, the
vendor, The law imposes upon the agent the absolute obligation to make a full
disclosure or complete account to his principal of all his transactions and other material
facts relevant to the agency, so much so that the law as amended does not countenance
any stipulation exempting the agent from such an obligation and considers such an
exemption as void, The duty of an agent is likened to that of a trustee. This is not
technical or arbitrary rule but a rule founded on the highest and lowest principle of
morality as well as of the strictest justice.”

Hence, an agent who takes a secret profit in the nature of a bonus, gratuity or personal
benefit from the vendee. without revealing the same to his principal, the vendee, is guilty
of a breach of his loyalty to the principal and forfeits his right to collect the commission
from his principal, even if the principal does not suffer any injury by reason of such
breach of fidelity, or that he obtained better results or mat the agency is a gratuitous one,
or that usage or custom allow it, because the rule is to prevent the possibility of any
wrong, not to remedy or repair an actual damage. By taking such profit or bonus or gift
or profina from the vendee. The agent thereby assumes a position wholly inconsistent
with that of being an agent for his principal, who has a right to treat him, insofar as his
commission is concerned, as if no agency had existed. The fact that the principal may
have been benefited by the valuable services of the said agent does not exculpate the
agent who has only himself to blame for such a result by reason of his treachery or
ferfidy (Domingo vs. oming0. L-30573)
74. Illustrative cases
1. X authorized Y to sell his car for P 10,000 cash with commission. Y was able to sell
the car for P12, 000 or P2, 000 more than X’s price. For what amount ¡s accountable to
X? Explain your answer.
Answer:
P12,000, because every agent ¡s bound to render an account of his transactions and to
deliver to the Principal whatever he may have received by virtue of the agency even
though it may not be owing to the principal. Every stipulation exempting the agent from
the obligation to render an account shall be void. (Art. 1891)
2. X authorized Y to sell his car for P10, 000 cash. His commission is over the price of
the sale. Y was able to sell the car for P12, 000 cash or P2, 000 more than X’s price. For
what amount is Y accountable to X?
Answer
P10, 000 only Y ¡s not under obligation to give the excess amount of P2, 000, because
that is considered his compensation.

75. Delegation of authority

As a rule, the agent may appoint a sub-agent or a substitute unless prohibited by the
principal
76. Appointment of a substitute
1. The agent who appoints a substitute or sub-agent without authority from the principal
but not prohibited, is liable for the acts of the sub-agent if the principal suffers damages.

2. If the agent is given Power to appoint a sub-agent without designating the person, the
agent is liable if the sub—agent is notoriously incompetent or insolvent.
3. If the agent is given Power to appoint a sub-agent, and the principal designated the
person appointed as a sub-agent, the agent is not liable for the acts of the sub-agent.
4. If the agent appoints a Substitute against the expressed will of the principal, the acts
of said substitute or sub agent is without legal effect, hence1 they are void or inexistent.
(Sec. 11 Manresa, 41 9-420)
77. Liability of the sub-agent or substitute
The appointed sub-agent falling under Article 1890, paragraphs 1 and 2, is liable to the
principal with respect to the obligations which the latter has contracted under the
substitutions. Paragraphs I and 2 is No. I and 2 of the preceding question.
Illustrative case
1. P appointed A as is agent to sell a specific car for P10, 000. Can A appoint SA as his
sub-agent or substitute?
Answer:
Yes, because he ¡s not prohibited to appoint one.
2. SA executed the agency to the detriment of the principal. Damage caused was P2,
000. Is A liable to P?
Answer: the power to appoint one.
Yes, he was not given Likewise, A can also be held liable if the person he appointed ¡s
notoriously incompetent or insolvent.
3. En No. 1, A was given the power to appoint a sub-agent and P named X to be the
sub-agent. In its execution there damage caused because of the fault of X. Is A liable?
Answer:
No. because he was given the power to appoint one, and the sub-agent was designated
by the principal.
4. In No. 1, A was prohibited lo appoint a sub-agent, is the act of the sub-agent binding
against the principal?
Answer:
No, because all acts executed by the sub-agent are considered void, lithe agent ¡s
prohibited to appoint a sub-agent.
78. Nature of the liability of two or more agents to the principal
As a rule, each agent is liable only for his own acts, or omission, even though they have
been appointed at the same time or simultaneously. However, the parties may agree
that their obligation is solidary. If agreed each of the agent is liable for the non-
performance of the agency, as well as to the fault or negligence of the other agents,
except when the other agents acted beyond the scope of their authority. (Art. 1895)

79. Extent of liability in case solidary responsibility is agreed upon.

Each of the agent shall be responsible for:
1. Non-fulfillment of the agency, because there is a breach of contract.
2. Damages brought about by the fault or negligence or one of the agents while acting
for the agency.
Be it noted that if the act of an agent is not related to agency or is beyond the limits of
the agency, he alone be responsible.

80. P appointed Al and 42 as co-agent to sell the specific car of P for P10, 000 cash
basis A1 sold the car to X but only for P8, 000,000 Cash. If solidarity has been
agreed upon, can P hold 42 liable for P2, 000?
Answer:
No, because A 1 acted beyond the Scope of his authority. Even if the agreement is
solidarity A2 cannot be held liable because the acting agent acted beyond the scope of
his authority.
81. Appointment of two or more agents independently appointed.
If two or more agents are appointed by the principal independently, the consent of one is
not necessary to validate the acts of another or others unless such is the intention of the
principal. (Mun. Council of bib vs. Evangelista, 55 Phil, 200)
32. Misappropriation of the money of the principal
An agent, will be found guilty of conversion where he embezzles or converts goods or
money of his principal and will be held liable for the value of the property so converted,
together with interest on the sums misappropriated from the day he did so. (3 C. J. S.
19) (Article 1896, C. C.)
Be it noted that the payment of interest on the sum converted by the agent does not
exempt the latter from his criminal responsibility for estafa.
3. Agent’s liability for failure to deliver funds or property after the termination of agency
The agent is duty bound to deliver agency funds or property to his principal upon the
termination of agency, and if he should fail, he should account for its value or the amount
he failed to return plus interest.

84. Agent exceeds his authority without giving notice t third person
As a rule, the moment the agent executes the agency he must do so within the scope of
his authority, and in the name of his principal. And if he does, he will escape personal
liability, and it is the pnncipal who is liable, except
1. 1f the agent binds himself either as a principal or surely in which case he shall be
liable to the third person within whom he contracted.
2. If the agent exceeds the limit of his authority without giving notice to such excess of
authority to third person But if the agent gave notice to the third person, an despite the
notice, the third person still contracted with him, the agent is not liable,
Example
P appoints A as his agent to sell P’s car for P10, 000, sold it to X for P8 000. P refused
to deliver the car tc because his agent (A) acted beyond the scope of authority. Can X
hold liable A for damages?
Answer
Yes, because A exceeded his authority. However, Notified X of his exceeded authority
and despite of th transacted with A, the principle of “to each is own” app A is not liable to
X.
85. Agent’s liability to third persons
If the agent executes the agency in the principal but exceeding the scope of his authorial
is the one personally liable, except:
1. If the principal ratifies the act of the agent.

2. Agent gave notice to the thud Person about the fact that he exceed his authority
Under Article 1897 In this case the third person cannot hold the Principal or the agent
liable
86. When agent ¡S personally liable
1. When he expressly binds himself
2. When he acts for another with no authority in fact from his principal
3. Unless third person has knowledge thereof, a purported agent contracting for a non-
existing or incompetent principal is Personally liable. (3 C. J. S. 113, 118)
4. When he exceeds the limit of his authority without giving notice to third person. (Article
1897)
5. When although the act is unauthorized but the third person knows the lack of authority
and the agent undertook to secure the principal’s ratification and the principal does not
ratify the contract.
37. Comments on Article 1898
Art. 1898. If the agent contracts in the name of the principal, exceeding the scope of his
authority, and the principal does no. ratify the contract, ¡t shall be void if the party with
whom the agent contracted is aware of the limits of the powers granted by the principal.
In this case, however, the agent is liable if he undertook to secure the principal’s
ratification.”

The word ‘void” is meant “unenforceable’, because a void contract cannot be the object
of ratification. While in this Article it ¡s stated that ¡f the agent exceeded his authority the
contract is void if the third party with whom the agent contracted is aware of the limits of
the powers granted bythe principal, the agent can still be held liable if he u to secure the
principal’s ratification.
It follows therefore, that if the contract is ratified, it enforceable, and if not ratified it is
without effect it is void.
88. Authority of the agent is that which ¡s written with respect to third person.
Where the power of an agent is reduced in writing, his authority is limited to those which
are specified and defined in his written authority. Private or secret instructions of the
principal shall not prejudice third persons who have relied on the instruction as shown to
them.
89. P appointed A as his agent to sell a specific car for P10, 000, cash basis. The
authority of A is written. Subsequently, P and A, agreed orally that the price be
increased to P15, 000, On the basis of the written authority, A sold it to X for P10,
000. After the perfection of the contract, P refused to deliver the car to X alleging
that the price was already increased to P15 ,000. Is P’s contention tenable?
Answer:
No, because the power of the agent ¡s that which is writes on the document itself. Secret
understanding or oral instructions shall not prejudice third persons who relied upon the
power of attorney or instructions shown to them.
90. Duty of the third person to assert or investigate authority of the agent.
A person dealing wit1 an agent must not trust the agent’s statement as to the extent of
his authority; he is charge with an obligation to know the extent of the authority of the
agent; he must use his diligence and Prudence whether or not the agent is acting Within
the limits of his Power; for ¡f not. He does So at his own risk, Such being the case, the
third person may require the presentation of the Power of attorney, Or the instructions of
the agency. Private or secret orders and instructions shall not prejudice third persons
who have relied on the Power of attorney as expressed or defined.
91. Commission agent and broker defined
1. Commission agent is one who receives goods chattels, or merchandise, for sale,
exchange for a compensation or commission, to be paid by the Owner from the sales of
goods.
2. Broker is a middleman or intermediary who, ¡n behalf of others, and for commission or
free, negotiates contracts or transactions relative to real or personal property.
92. Commission agent distinguished from a broker
1. A commission agent holds the property in his possession and at his disposal: while a
broker is purely an intermediary or go-between of both the seller and the buyer.
2. A commission agent buys or sells personal property for his principal; while a broker
buys or sells for his clients either personal or real property.

93. Sale on credit

Ordinarily, when the agents authorized to sell, it implies that the sale is for cash, and not
on credit. However, the agent may sell on credit:
1. When such is the usage of the business in which he is engaged.
2. When authorized by the principal.
94. Effects of sale on credit
1. Agent not authorized: The principal may either require the agent to pay on cash basis,
in such a case, the agent will be entitled to all benefits of the contract; or he may ratify
the sale on credit, in which case as if the agent was authorized to sell on credit.
2. When agent was authorized: If the agent is authorized to sell on credit, he must inform
the principal of the sale, with a statement of the names of the buyers. If he does not, the
principal may demand from him payment in cash.
95. Features of a commission agent
1. Has the option to act in his own name.
2. Generally, cannot sell on credit.
3. May be an agente del credere if he receives guaranty commission.
96. Illustrative Case:
A. On January 1 P appointed A as his agent for 10% in the sale of his car for P10, 000.
on January 10, A sold the car to B for P 12,000 on credit payable on January 25. What
are the rights and obligations of P and A?
1. P may demand from A payment of P10, 000 on
January 10, because a commission agent cannot sell on credit without the consent of
the principal. After A paid P P10, 000 on January 10, P’s obligation is to give A his 10%
commission which is P1,000.

2. On January 25, A Can demand Payment from B P12, 000 and he P the excess s no
longer under obligation to give amount of P2, 000 because a commission agent ¡f
requires to pay in cash ¡s entitled to all the benefits of the sale.
3. P may ratify the sale and demand payment on January 25 from A P12,000 However
he must give A P1,200, that is, 10% of P12,000 because there was ratification.
B. A and B entered into a contract with X whereby they agreed to sell a house and lot
belonging to the latter for P2 million for a commission of 6% plus overprice. They
introduced C, a prospective buyer, to X, but she informed them that she was no longer
interested in selling the property. Subsequently, however, she sold the property to C for
P2.5 million. A and B sued X for the payment of the 6% commission plus overprice. Are
they correct?
Answer: Yes, A and B are correct. There was bad faith on the part of X. This act of bad
faith cannot serve as a basis for her to escape payment of the compensation agreed
upon. (Infante vs. Cunanan, 490ff Gaz. 3320)
97. Agente del Credere or guaranty commission agent defined
He is the person appointed by the principal, who, aside from ordinary commission, gets
guarantee commission the purpose of which is to guaranty the payment of the buyer and
if the buyer does not pay, he is liable to the principal
98. Example of an ordinary agent
P appoints A as his agent to sell his specific car for P10, 000, on credit. A sold the car to
X for p10, 000 on credit in the name of the principal payable on December 25. If on
December 25 X will not pay A, is A liable to P?

Answer:
No, because he acted within the scope of his authority and in the name of the principal.
99. Example of guaranty commission agent
P appoints A as guaranty commission agent to sell hi specific car for P10, 000. A is
given 10% ordinary commission and 10% guarantee commission. Later. A sold the car to
X on credit for P10,000 payable on December 25, If on December 25, X failed to pay A,
can P require A to pay the purchase price of P10. 000?
Answer:
Yes because a guaranty commission agent. Guarantees the payment of the buyer, and if
he fails, the agent is liable to the principal. In this case, P must give the agent a
commission of 20% or P2, 000.
Features of a guarantee commission agent
1. Bears the risk of collection on the same terms agree upon with the purchaser.
2. Is liable to the principal even if the buyer ¡s really insolvent.
3. Is liable for damages if he will not collect the cred time.
4, Is entitled to another commission aside from ordinary commission.
101. Agent liability for fraud or negligence
The agent shall be liable for the damages to the principal if he commits a breach of the
contract of agency.
Examples
1. Failure to render a full accounting of the transaction
2. Acting in excess of his authority
3. appointment of a substitute in violation of the prohibition by the principal

If however, the agent acts without compensation, his liability may be mitigated by the
court.
102. When principal is bound
The principal is duty bound to comply with all the obligations Contracted by his agent
provided the agent contracted;
1. In the name of the principal; and
2. Within the scope of his authority.
103. When principal is not bound
1. If the agent acts in his own name, except when the contract involves things belonging
to the principal, or
2. If the agent exceeds his power, except when the principal ratifies it expressly or
impliedly.
104. Liability of the principal to third person
1. If the agent acted within the scope of his authority and in the name of the principal the
latter is bound by, and liable for, the acts of the agent.
2. If the agent acts in the name of the principal but in excess of his authority, the
principal is not liable, except
a. If the principal ratifies the contract.
b. When the principal allowed the agent to act as though he had full powers, in which
case, the principal and the agent are liable solidarity.
105. Where estoppel lies
When the principal allows the agent to act as if he had full powers, he will be guilty of
estoppel, both the agent and the principal are guilty; the agent because he knows that
he has no authority to act; the principal, because he permits him to act with knowledge
that he did not give him the authority to act.
106. Agent is entitled to indemnity for damages caused by the execution of agency
Damages suffered by the agent in the execution of the agency must be paid for by the
principal. This assumes that the agent acted within the scope of his authority and that he
is not guilty of fault or negligence.
Example:
P appointed A as his agent to sell P’s car for P10, 000. A, while driving the car, going to
a prospective buyer, a 6 x 6 truck sideswiped the car causing damage to the car, and to
A because he was bodily injured. In this case, A may demand from P indemnity for all
the damage caused.

107. Liability of two principals to a common agent

The liability of two or more principals who appoints an agent for a common transaction is
solidary. Be it noted that the transaction is a community of interest to all of them. Such
that if these two principals appointed an agent with an undertaking distinct from one
another, or the power were conferred at various times by each of the principles or the
things or services as Object o there ¡s lacking the community of agency be different
solidarity. (11 Manresa 551) interest required for
108. Common transaction
A common transaction is that were the interest of the principals are in unity and
harmony. (11 Manresa 552)
109. Illustrative Cases
1. P1 and P2 appointed A to sell their specific car for
P10, 000, with 10% commission. A executed the contract of agency satisfactorily and
therefore he s entitled 10% commission, that ¡s, Pl, 000. Can A hold Pl or P2 liable for
this amount?
Answer:
Yes, because the transaction is common, the principal‘s obligation is solidarity.
2. P1 appointed A to sell his specific car for P10.000 with 10% commission. Likewise, P2
appoints also A to sell his specific car for P 10,000 with 10% commission If A succeeded
in selling Pl car for P10, 000 can demand P1, 000 commission from P2?
Answer:
No, because the undertaking of the agent to sell Pl car ¡s separate and distinct to sell the
car of P2. Therefore, the requisites of solidarity failed.
110. Order of priority in the sale of the same thing by the principal and the agent.
When the same thing was sold by the principal and the agent to two different persons
the following rules shall be observed:
1. If movable —
a. The first one who took actual possession in good faith.
b. If none of the two took actual possession the contract with a prior date shall be
preferred.
2. If immovable—
a. The first to register the sale in good faith
b. If none registered the sale, the first one who took actual possession in good faith
c. In the absence of both, the oldest title in good faith

Ill. Rights of the aggrieved party

1. against the agent if he acted in bad faith
2. Against the principal if the agent acted in good faith.
112. Illustrative Case
Today, P appointed A as agent, in writing, to sell his parcel of land for P200, 000.
Tomorrow P, without notice to A, sold it to B. The day after tomorrow, A sold it to X.
Question No. 1: Who between B and X is considered the rightful owner?
Answer: If no one registers the sale, and no one took actual possession of the land; B is
considered the rightful owner because he has an older title.
Question No. 2: What is the right of the aggrieved party?
Answer. X can ask damages against P because of warranty against eviction.

113. Reimbursement of the agent

As a rule, Where an agent ¡s employed by a Principal and such agent incurred expenses
in the execute of the agency, the principal is bound to reimburse the agent of all
legitimate and necessary expenses that may be incurred except:
1. When the agent breached his obligation by acting against the principal’s instruction
2. If the agent is guilty of fault or negligence in the performance of agency.
3. Expenses in the execution of agency, knowing that an unfavorable result will ensure.
4. When it is stipulated that in any event the agent is liable.
114. Modes of extinguishing an agency (Art. 1919) —
CODE: EDWARD
1. Expiration
Where the time for the continuance of the agency is fixed by its terms, the agency ¡s
extinguished after the expiration of that period.
2. Death, civil interdiction, insanity or insolvency of the principal or agent.
a. Death of the principal— no one is to be represented after his death, subject to the
exceptions laid down in Article 1930.
b. Death of the agent — there is no one to represent the principal after the death of the
agent.

c. Civil interdiction — accessory penalty depriving the offender during of the time of its
sentence of the right to manage his property by any convergence inter-vivos. Therefore,
if the principle or the agent are civilly interdicted, the agency is extinguished.

d. Insanity — agency is extinguished because the principal or the agent are deprived of
the capacity to act.
e. Insolvency— agency is extinguished if the principal or the agent becomes insolvent.
3. Withdrawal of the agent.
The withdrawal of the agent terminating the agency may be express or implied. It was
held that a suit by the agent against his principal for recovery of what ¡s due to the agent
after liquidation of accounts is equivalent to renunciation of the agency by the agent, and
this is called implied revocation.
4. Accomplishment of the objective
When the object of the agency has already been accomplished, the agency is
extinguished.
5. Revocation
A contract of agency is revocable at will because agency is fiduciary in nature. Such that
when the principal loses confidence in the agent, he has a right to revoke the agency
even if a period or term has been stipulated within which the agency is to last. As cited
by American and Spanish jurisprudence, it ¡s even the right of the principal to, revoke
the agency at any time he pleases, and for the agent, he cannot ask damages of any
kind, because the exercise of a legal right cannot give rise to any liability for damages to
the agent. However, the principal is liable for damages on exceptional cases, to wit:
1. Revocation is done in bad faith, as cited in the case of Danon vs. Brimo & Co., 42
Phil. 133, wherein principal revoked the agency to avoid payment compensation to the
agent.
2. When it is agreed that the principal will answer for losses suffered due to the
Principal’s action of terminating an agency at will.
6. Dissolution of the firm or corporation entrusting or accepting the agency.
When a corporation is dissolve the juridical existence and civil Personality ceased to
exist such being the case, when the corporation entrusting or accepting the agency is
dissolved, agency is extinguished.
115. Other causes of extinguishing an agency
1. By agreement of the parties.
2, Transfer or sale of the object of the agency.
3. Loss or destruction of the object of agency.
4. Continuation becomes illegal.
5. War, when allegiance of either party becomes in conflict. (2 Am. Jur. 37, 50, 59,
60,61)
116. Revocation of agency
The agent’s authority to act for the principal remains as long as the confidence reposed
in him by the principal exists, but as soon as this confidence disappears the principal
may revoke the power so conferred. Under this article, the law stated categorically that if
the principal’s confidence is lost, he can terminate the agency because it is revocable at
will. In conjunction with this, the principal may compel the agent to return the document
evidencing the agency.
117. Exceptions to the rule that an agency revocable a twill.
1. When there ¡s stipulation on the contract.
2 When a bilateral contract depends upon the agency.
3. When the agency is a means of fuIfil1ifl the obligation already contract.
4. When the agency has been constituted for the benefit of the principal and the agent.
5. When the agency carries a stipulation in favor of a third person who has accepted the
stipulation in his favor.
6. Partner appointed as a manager in the Articles of Partnership, and removal is
unjustifiable. (Article 1927, 1930, C. C.).
118. Notice of revocation to third persons
1. Authority of the agent is to deal with specific person. If the principal has given third
persons special invitation, or if the notification to them is by special information, the
principal upon termination, must also inform this third person by special information,
otherwise, he will be held liable to third person acting in good faith relying upon such
agency. This notice required by the revocation may be written or oral.
2. Authority of the agent is to deal with the public or any person.
If the principal informs the public of the agency by public information, its revocation must
also be made publicly. If no notice is given he will not be relieved of his obligation to third
person acting in good faith. Notice of the revocation in a newspaper of general
circulation ¡s a sufficient warning to third persons. Be ¡t noted notice need not be given
to persons with knowledge the revocation.

119. Illustrative Case

M Company wrote a circular to its a Customers introducing a certain A as its duty
authorized agent X, customer dealt or transacted business with A. Later, A’s authority
was revoked and was published in a newspaper of general circulation notwithstanding
his knowledge of such rev0jo X continue to transact business with M Company thru A. Is
M Company still liable for the agent act even after revocation?
Answer:
No more, because the third person (X) is in bad faith.
120. Revocation by appointing a new agent
The appointment of a new agent revokes the first agency only in case of incompatibility
between the first and the second agency, and only from the day on which notice thereof
is given to the former agent. If no notice is sent to the first agent, it is understood that the
first agency still exists.
Example:
P appointed A, as his agent, to sell a Specific car on Jan. 1. On Jan. 5, P appointed X, to
sell the same car as covered by the first agency. In this case, P’s obligation is to notify A
about the appointment of X as the new agent, implying that he is revoking the first
agency executed by P and A. Hence, it is A
was not notified, it is understood that the first agency still exists, (Garcia vs. De
Manzano, 39 Phil. 577)

121. Direct management by the principal

This is another implied revocation. The agency is impliedly revoked if the principal
directly manages the business entrusted to the agent. But when the principal motive is
only to help the agent in the management of the business, agency is not revoked.

122. Revocation by one or two or more principals

According to Article 1915, when two or more persons appoint an agent for a common
transaction or undertaking they shall be solidarity liable to the agent for all the
consequences of the agency. Since their obligation solidary, that is, one of the principals
can be made answerable to the agent for all the consequences of agency, it is but
proper that any one of the principals can also revoke the agency even without the
consent of the others. Be it noted that the non-revoking principals may let the agent
continue the contract of agency with respect to his interest.
123. Implied revocation of the agent’s authority
This is another implied revocation. The appointment of a new agent for the same
business or transaction revokes a previous agency. In the Dy Buncio case, our Supreme
Court held that if a new appointment was made, whether enlarges or limits the authority
of the agent, the same was held to revoke the former power of attorney in case of
inconsistency.
This article contemplates only a partial revocation of the agency.
Example: P appoints A, as his general agent (with general powers), to administer his
properties situated in Malolos, Bulacan, and a ten (10) hectares agricultural land situated
in Capas, Tarlac. In this case, the authority of A to administer the property in Bulacan will
continue, but the one in is impliedly revoked because the general power given A is
considered revoked by the special power the other agent.

124. Instances where the principal agency without being liable for cannot revoke
the Agency without being liable for damages
As a rule, the agency can be revoked at anytime because it is revocable at will. In the
following case, revocation is forbidden, otherwise, he will answer for damage, to wit:
1. If a bilateral contract depends upon the agency;
Example: P appointed A as his agent to sell sliced ham to the public, weighing ten (10)
tons. P and A agreed that the latter will lease the ice storage of X to freeze the sliced
ham for one year, the expected time when the ham will last. In here, P cannot revoke the
agency at will because a bilateral contract (Lease Contract) depends upon the agency. If
he will revoke the contract, he will answer for damages.
Example: P appointed A as his agent to sell 10,000 crates of onions in Tarlac. A day
after, because of the perishable character of the goods, A notified P of a necessity to
rent a storage to store the onions for at least 6 months. P assented to A’s request, and
the latter immediately entered into a contract of lease with W for 6 months, paying
P2,000 as advanced payment. In this case, P cannot revoke the agency without
incurring liability until after the six-month lease contract has elapsed.
2. If the agency is a means of fulfilling an obligation already contracted.
Example: D is indebted to C for P10, 000. D, in the meantime, has no money. So, D
appoints C as his agent to sell a parcel of land belonging to D for p10, 000 and apply the
proceeds of the sale to the obligation of D to C. D, in this illustration, cannot revoke the
contract of agency because there was already an obligation before the agency. In short,
the agency is the means of fulfilling an obligation already contracted. The above
example contemplates an a coupled with an interest.

3. if a partner is appointed manager of a partnership and his removal is unjustifiable.

125. Revocation could still be made for a just cause
In the case of Vicente Coleoneo vs. Eduardo Claparats (L-18616, 10 SCRA 577), the
Supreme Court, speaking through Mr. Justice J. B. L. Reyes, said: “It is not open to
serious doubt that the irrevocability of the power of attorney may not be used to shield
the perpetration of acts in bad faith, breach of confidence, or betrayal of trust, by the
agent for that would amount to holding that a power coupled with an interest authorizes
the agent to commit frauds against the principal”
The conclusion therefore, is that an agency coupled with an interest may still be revoked
¡n cases of fraud, bad faith, or breached of trust, committed by the agent.
126. Withdrawal by the agent
If the principal can revoke the agency at will, the agent can also put to an end the
agency, at his will and pleasure, by giving notice to the principal, renouncing the power
conferred upon him by the principal. But if the principal suffered damages by reason of
the withdrawal, the agent must indemnify him, except:

1. If the agency cannot be continued without detriment to the agent.

2. When the duration of the agency is indefinite and agent gives reasonable notice to his
principal.
3. For causes attributable to the principal. (2 C. J. S.
1170; Article 1928).

127. Continuation of agency even after Withdrawal

The agent, even after a valid and reasonable withdrawal shall continue the agency until
the principal has an opportunity to take the necessary steps to meet the situation.
128. Death of the principal
As a rule, the death of the principal extinguishes the agency, except:
1. When the agency is constituted in the common interest of the principal and the agent.
Example:
D borrowed from C P10, 000, and as a security he gave a specific ring to C which the
latter can sell if D cannot pay his debt at the time of maturity, In this case, if D dies, the
agency of C is not terminated but will continue until the sale of the ring because it is for’
the benefit of both the principal and the agent.
2. When the agency is constituted in the interest of a third person who has accepted the
stipulation in his favor.
Example.’
D owes C P10, 000 payable as soon as possible. After the obligation was contracted, D
sold his land to A and appoints A as his agent in paying with the purchase price what D
owes C. In this case, even if D dies, the agency of A and shall continue to exist because
this s for the benefit of C, a third person.

129. The principle “coupled with Interest” must be appointed and be proven
Even if the power of attorney should state that the agency is one coupled with an
interest, the court shall disregard said statement if, in fact) the agency is not really
coupled with an interest. This ruling was laid down in the case of Eulogio Del Rosario vs.
Abad and Abad, L-10881. The court held A mere statement in the power of attorney that
the agency created is one coupled with an interest is insufficient it must be stated in
what such interest consists. That fact P (owner) mortgaged the improvements of his land
to A (agent) Is not enough interest that would render the power of attorney irrevocable.
In fact no mention of the mortgage was made in the power of attorney. The death of P
terminated the agency of A and therefore, the sale made after the death was null and
void.

130. Acts done by the agent after the death of the principal
Acts done by the agent in good faith after the principal’s death are valid and binding
upon the representative heirs, or estate, of the principal
131. When estate of the principal not bound.
1. When the third person is aware of the death of the principal.
2. When the agent is aware of the death of the principal.
132. Effect of the contract and their status if entered into after the death of the
principal
If the cause for revocation unknown to the agent) ¡S death of the Principal the estate of
the principal (a heirs) must respect and honor the contracts entered agent. Thus, it was
held by the Supreme Court that the death of the principal does unenforceable, where
render an agent death. (Natividad Herrera vs Lucy no knowledge of such . Kim Guan
L.17043)

In this regard, explaining Article 1931, the Supreme Court, speaking king through Justice
Cecilia Muñoz – Palma said:
“An act done by the agent after the death of the principal is valid and effective only under
two Conditions: 1) That the agent acted without knowledge of the death of the principal,
and 2) that the third person who Contracted with the agent himself acted in good faith.
Good faith here means that the third person was not aware of the death of the principal
at the time he contracted with said agent. These two requisites must concur. The
absence of one will render the act of the agent invalid and unenforceable”. (Rallos vs.
Felix Go Chan and Sons Realty Corporation, 740. G. 2823).
133. Death of the agent
Upon the death of the agent, as a rule, the agency is extinguished except if the agency
is coupled with an interest, the death of the agent does not extinguish the agency.
From this article, upon the death of the agent, the heirs are constituted as temporary
agents of the principal, with an obligation to notify the principal of the death and
meantime to adopt measures as the circumstances may demand in the interest of the
principal. The expense incurred by the agent in preserving the thing shall be reimbursed
by the principal.
134. Agency by operation of law
This obligation conferred the heirs of the agent or his legal representative is called,
presumed agency or tacit agency, or an agency b operation of law.

135. Continuation of agency despite death of the principal or agent.

1. First view: A stipulation continuing the agency after the death of either party is not
contrary to good custom or public order, therefore it is valid. But, how will the relation
continue, when the law states that the agency is extinguished after the death of either
party?
2. Second view: By will of the parties, agency may be extended even after death
depending upon the nature of the acts or services which are the objects of agency. For
example, ¡f the agent has made advances to the principal and the principal because of
his advances gave him the power to sell properties for reimbursement, it ¡s clear that his
death cannot prevent the consummation of the agency. However, this example may be
objected because it would confuse juridical acts distinct from agency as that would
constitute an assignment of property for the payment of debts as stated in Article 1635,
paragraph 2, and if agency really exist, it would only be an accessory thereto.
The best opinion is that advance by the Supreme Court of Spain which has declared
repeatedly before and after the promulgation of our Civil Code that the contract of
agency is very personal and the same is extinguished from the moment either party
ceases to exist (11 Manresa, 588 - 589) (Citation, A. Padilla; Agency, Text and Cases)

EXERCISE IN AGENCY INCLUDING PAST CPA EXAMINATION QUESTIONS

TRUE OR FALSE
1. In agency, the “authority” while “power” refers given to an agent is the mandate;
to the extent of the mandate.
2. The agent, if author lender, but generalize to borrow money, he can be the authorized
to lend he cannot be the borrower if he is authorized to lend.
3. The agent is called upon to sacrifice his interest and give it to the principal if there is a
conflict of interest.
4. The agent is responsible for the acts of his sub-agent, if he (agent) was not given the
power to appoint one and he is not also prohibited from appointing one.
5. A commission agent is an agent having the option of acting in his own name or in that
of his principal.
6. If the agency has been entrusted for the purpose of contracting with specified
persons1 its revocation shall not prejudice the latter if they were not given notice thereof.
7. An agency cannot be revoked if a bilateral contract depends upon it, or if it ¡s the
means of fulfilling an obligation already contracted, or if a partner is appointed manager
of a partnership in the contract of partnership and his removal from the management is
unjustifiable.
8. In agency, the agent represents an incapacitated person.
9. When a sale of a piece of land is made through an agent, his authority must be in
writing otherwise, the sale is unenforceable
10. if the agent dies, the heirs must notify the principal immediately and must continue
the objective of the agency until its accomplished or until the principal appoints a new
agent.
11. If an agent acts in his own name, the principal has no right of action against the
persons with whom the agent has contracted; neither have such persons against the
principal.
In such case, the agent is the one directly bound in favor of the person with whom he
has contracted; as if the transactions were his own, except when the contract involves
things belonging to the principal.
12. Every agent is bound to render an account of his transactions and to deliver to the
principal whatever he may have received by virtue of the agency, even though it may not
be owning to the principal
13.If a person Specially informs another or states by public advertisement that he has
given a power of attorney to a third person, the latter thereby becomes a duly authorized
agent, in the former case with respect to the person who received the special
information, and in the latter case with regard to any person. The power shall continue to
be in full force until the notice is rescinded in the same manner in which it was given.
14. When two or more principals have granted a power attorney for a common
transaction, any one of them revoke the same without the consent of the others.
I15. Anything done by the agent1 without knowledge of the death of the principal or of
any other cause which extinguished the agency is valid and shall be fully effective With
respect to third persons who may have contracted with him in good faith.
16. The limits of the agent authority shall not be considered exceeded should it have
been performed in a manner more advantageous to the principal than that specified by
him.
17. The principal may revoke the agency at will, and compel the agent to return the
document evidencing the agency. Such revocation may be express or implied.
18. In agency, there is fiduciary relation between two persons because it is based on
utmost trust and confidence.
19. If the agent is incapacitated, the contract between him and the third person is binding
against the principal, provided the principal is capacitated.
20. The general rule is that a guardian cannot purchase the property of a person under
guardianship. However, he may do so at a public auction when done through his agent.
21. To lease real property to another person, the authority of the agent must be in a
special power of attorney if the lease is for one year.
22. The responsibility of two or more agents even though they have been appointed
simultaneously, is not solidary, if solidarity has not been expressly stipulated. If solidarity
has been agreed upon each of the agents is responsible for the 0futfiIlment of the
agency and for the fault the latter case or negligence of his fellow agents except in the
latter case when the fellow agent acted beyond the scope of their authority

23. Should the commission agent receive on a sale, in addition to the ordinary
commission, another called a guarantee commission, he shall bear the risks of collection
and shall pay the principal the proceeds of the sale on the same terms agreed upon with
the purchaser.
24. If the agent is prohibited from appointing a sub-agent, any act executed by the latter
is unenforceable on the part of the principal.
25. The agency shall remain in full force and effect even after the death of the principal,
if it has been constituted in the common interest of the latter and of the agent, or in the
interest of a third person who has accepted the stipulation in his favor.
26. An agency couched in general terms comprises only acts of administration, even if
the principal should state that he withholds no power or that the agent may execute such
acts as he may consider appropriate, or even though the agency should authorize a
general and unlimited management.
27. If the principal directly manages the business entrusted to the agent, there is implied
revocation of the agency.
28. In agency, there is a meeting of minds between the parties, expressly or impliedly;
while in negotiorium gestio, there is no meeting of minds between the two persons
because the relation is created by operation of law.
29. To make customary gifts for charity, the authority of the agent must be a special
power of attorney.
30. II the agent acted in the name of the principal, but authority, the contract is
unenforceable subject to ratification.

MULTIPLE CHOICE
1. It is a contract wherein a person binds himself to render special service or to do
something in behalf of another with consent of the latter.
a. Contract of piece of work
b. Contract of service
c. Contract of agency
d. Contract of exchange
2. If P leads X to believe that A is his (P’s) agent, as a matter of fact such is not true, and
A acts on such misrepresentation, there is
a. An implied agency
b. An agency by estoppel
c. An agency by necessity
d. An express agency by words spoken
3. M Company wrote a circular letter to its customers introducing a certain A as its duly
authorized agent. X, a customer, dealt or transacted business with A. Later, A’s authority
was revoked and was published in a newspaper of general circulation. Notwithstanding
his knowledge of such revocation, X continues to transact business with M Company
thru A. Is M Company still liable for the agent act even after revocation?
a. Yes, because the revocation was not given in the same way the power was granted.
b. No more, because the third person (X) is in bad faith.
C. No more, because the transaction that will be entered after revocation will be void.
d. Answer not give

4. Today, P appointed Al his agent covered by general to lease his car to X for 6 months.
The next day, P an A2 with special power to lease the same car to X b months. On the
third day, P directly transacted bus with X leasing the car for 2 months. What is the effect
agency between the parties?
a. The appointment of Al remains to be valid because has got a prior date.
b. The appointment of A2 is still in full force and effect because it is covered by a special
power.
c. The agency of Al and A2 are considered revoked because the principal direct
transacted with X.
d. None of the above

5. A passenger bus while in motion collided with another bus X, the conductor of the bus
was injured. D, the although not authorized, engaged the services of a physician in the
name of the company. In here, there is an
a. Implied agency c. Agency y necessity
b. Agency by estoppel d. None of the above
6. Agency ¡s extinguished by any of the following causes
EXCEPT
a. By its revocation
b. By the withdrawal of the agent
c. By the death of the agent or of the principal
d. None of the above
7. The principal ¡s not liable for the expenses incurred by agent—
a. If the agent acted in contravention of the instruction.
b. Expenses were due to the fault of the agent.
c. Agent incurred them knowing that an unfavorable result would ensure1 and the
principal was not aware thereof.
d. All of the above
8. A appoints B as his agent to sell his land, which of the following is valid?
a. The authority of B is in writing but B mortgages it also in writing.
b. The authority of B from A is by way of letter and B sells the land to C in writing.
c. The authority of B is oral and B soils the land to C for P50,000 in a written Contract of
sale.
d. The authority of B is in writing but the sale of the land in writing was made beyond the
period expressly set forth by A.
9. A was retained, in writing, to act as P’s agent for the sale of
P’s memorabilia collection. Which of the following statements is correct?
I. To be an agent, A must be at least 10 years of age.
Il. P would be liable to A if the collection was destroyed before A found a purchaser.
a. l only d. Neither I nor II
b. Il only c. Both I and II
10. Statement 1: If the agent dies, the heirs must notify the principal immediately, and
must continue the objective of the agency until it is accomplished or until the principal
appoints a new agent.
Statement 2: If the agent is prohibited from appointing sub-agent, any act executed by
the latter is unenforceable on the part of the principal.
a. Both are true C. No. 1 is true; No. 2 is false
b. Both are false d. No. 1 is false; No. 2 is tr
11. Statement 1: If the agent ¡s incapacitated, the contract between him and the third
person is binding against the principal, provided the principal is capacitated.
Statement 2: In agency, there is fiduciary relation between two persons because it is
based on outmost trust and Confidence.
a. Both are true C. No. 1 is true; No. 2 is false
b. Both are false d. No. 1 is false; No. 2 is true
12. A foreign manufacturer of computers and a Philippine distributor entered into a
contract where the distributor agreed to order 1,000 units of the manufacturer’s
computers every month and to resell them in the Philippines at the manufacturer’s
suggested prices plus 10%. All unsold units at the end of the year shall be bought back
by the manufacturer at the same price they were ordered. The manufacturer shall hold
the distributor free from any claim for defects in the units. What agreement did the
parties entered into?
a. Contract of Sale because the distributor has a right to resell them.
b. Sale with a right to repurchase, because the manufacture may buy back the unsold
units at the end of the year.
c. Contract of sale, because the warranty for defects borne by the seller manufacturer.
d. Agency to sell because there is no intention to transfer Ownership to the buyer.

13. Statement 1: The agency shall remain in full force and effect even after the death of
principal, if it has been constituted in the common interest of the latter of the agent, or in
the interest of a third person who has accepted the stipulation in his favor.
Statement 2: If sub the thing pledge is sequent to the perfection of the pledge there is a
prima fad the Possession of the pledged or owner e presumption that the same has
been returned by the pledgee, extinguishing the contract of pledge.
a. Both are true C. No. I is true; No. 2 is false.
b. Both are false d. No. 1 is false; No. 2 is true

14. P wrote a letter authorizing A to sell his parcel of land situated in Quezon. The land
was purchased by X, but the agent (A) did not give the money to P, the sale of A to X is:
a. Void because the authority of A is not in a public instrument.
b. Unenforceable because the authority of A is not in a public instrument.
c. Inexistent because the authority of A is in a private writing.
d. Valid and enforceable.
15. Statement 1: Should the commission agent receive on a sale, ¡n addition to the
ordinary commission, another called a guarantee commission, he shall bear the risks of
collection and shall pay the principal the proceeds of the sale on the same terms agreed
upon with the purchaser.
Statement 2: The responsibility of two or more agents even though they have been
appointed simultaneously is not solidary, if solidarity has not been expressly stipulated. if
solidarity has been agreed upon, each of the agents responsible for the non-fulfillment of
the agency, and for the fault or negligence of his fellow agents, except in the latter case
when the fellow agents acted beyond the scope of their authority
a. Both are true c. No. I is true; No.2 is false
b. Both are false d. No. 1 is false; No. 2 is true
Statement 1: Every agents bound to render an account of his transactions and to deliver
to the principal whatever he may have received by virtue of the agency, even though it
may not be owning to the principal. Every stipulation exempting the agent from the
obligation to render an account shall be void.
Statement 2: An agency couched in general terms comprises only act of administration,
even if the principal should state that he withholds no power or that the agent may
execute such acts as he may consider appropriate, or even though the agency should
authorize a general and unlimited management.
a. Both are true c. No. 1 is true; No.2 ¡s false
b. Both are false d. No. 1 is false; No.2 is true
The principal ¡s not liable for expenses incurred by the agent —
a. When the agent has complied with his obligations by acting according to the principal
instructions.
b. When it was stipulated that the agent would only be allowed a certain sum.
c. When the expenses were incurred without the fault of the agent.
d. When the agent incurred them with knowledge that an unfavorable result would ensue
and the principal was aware of it.

If solidarity has been agreed upon each of the agent is responsible for the non-fulfillment
of the agency, and for the fault or negligence of his fellow agents except in the latter
case when the fellow agents acted beyond the scope of their authority.

a. Both are true c. No. 1 is true: No. 2 is false

b. Both are false d. No. 1 is false; No. 2 is true

16. Statement 1: Every agent is bound to render an account of his transactions and to
deliver to the principal whatever he may have received by virtue of the agency, even
though it may not be owning to the principal. Every stipulation exempting the agent from
the obligation to render an account shall be void.

Statement 2: An agency couched in general terms comprises only act of administration,

even if the principal should state that he withholds no power or that the agent may
execute such acts as he may consider appropriate, or even though the agency should
authorize a general and unlimited management.

a. Both are true c. No.1 is true; No.2 is false

b. Both are false d. No.1 is false; No.2 is true

17. The principal is not liable for expenses incurred by the agent—

a. When the agent has complied with his obligations by acting according to the principal
instructions.

b. When it was stipulated that the agent would only be allowed a certain sum.

c. When the expenses were incurred without the fault of the agent.

d. When the agent incurred them with knowledge that an unfavorable result would ensue
and the principal was aware of it.

18. P sent a telegram to his uncle A to sell his specific parcel of land located in Quezon
for P400,000. A. in carrying out his authority to sell, looked for a buyer and orally sold
the land to X, his best friend of ten (10) years in straight-term for P500,000 with
P400,000 down payment and the balance payable one month after delivery with a
specific promise that the Deed of Absolute Sale shall be executed upon complete
payment of the purchase price. As soon as he got the down payment, A fled without
giving the giving the money to P and reneging on his promise to X. X is in a position to
deliver the balance of P100,00000. Given this scenario, which statement is incorrect?

a. The sale between A and X is valid.

b. The sale between A and X is unenforceable
c. X can validly sue P to enforce the sale.
d. None of the above
19, Which of the following transactions involving the properties of the principal is valid if
made by an agent even if the agent’s authority is not in writing?

a. P authorizing his agent to sell Ps leasehold ri1ht in the land owned by X:

b. P authorizing his agent to sell his house located in the land belonging to X:
C. P authorizing his agent to assign P’s real estate mortgage right constituted over the
land belonging to X:
d. P authorizing his agent to sell his specific house and lot.

20. A instructed his agent A to immediately charter a small pump boat that would
transport the formers (P’s) 500 pieces of clay pots from Masbate to Sorsogon and sell all
of them for
P25 per pot at p15/pot profit. However PAGASA issued a typhoon bulletin preventing all
small sea vessels from sailing across the stormy waters of the Visayas and Bicol
regions.
A decided that it would be to transport the products after one week. Meanwhile, prices of
clay pots dipped to P15 per pot causing reducing profits on the part of P.
Premises considered:

a. A is not liable to P for the unrealized profits as he was not Supposed to execute the
agency as it would have resulted to injury, losses or damages to the principal.
b. A is liable to P for the entire unrealized profits as consequence of his failure to follow
and execute the instruction of P
c. A is liable to P only for the difference between the expected and realized profit;
d. A is liable to P but the liability is tempered or limited as he could not execute the
agency by reason of fortuitous event beyond his control.

21. Which of the following statements concerning agency law is (are) true?

I. A contract is needed to have an agency relationship

II. The agent owes a fiduciary duty to the principal.
III. The principle owes a fiduciary duty to the agent.

a. I and II only c. II only

b. land Ill only d. l , ll and Ill

22. Statement No.1: Authority refers to the orders given by the principal to his agent in
relation to the business of the agency; while instructions relate to the transaction that the
agent is commissioned to act.

Statement No.2: Authority of the agent may be investigated or inquired into by third
persons dealing with the agent, while instructions of the agent need not be determined
by third persons.

a. Both statements are true.

b. Both statements are false.
c. 1 S statement is true while 2 statement is false.
d. 1 statement is false while 2 statement is true.

23. P after becoming an American citizen, came back to the Philippines to visit and be
with his ailing mother in Leyte. X a former neighbor and classmate in high school
approached P and offered to sell his house and lot fronting a beach for nearly half the
market value of the property that is for P1 Million, P nearing his retirement age, left the
Philippines after appointing his brother A as his attorney-in-fact for the purpose of buying
the said property for such price as offered by X. Said appointment was through an
unnotarized special power of attorney (SPA). Y, the only child and heir of X, was very
much opposed to the sale as he wanted to sell the property Tar P2.4 Million, therefore, a
lesion of more than ¼ of the value of the property. He refuses to surrender the transfer
Certificate of Title (TCT) to the property which is presently in his possess on. What is the
status of the sale between X and A acting for P?

a. Voidable because P is incapacitated because he is an alien while X is legally

capacitated to sell the property .
b. Void because the agent is being made to perform an act that the principal is, under
the law. Prohibited performing by himself.
c. Unenforceable because the SPA was not notarized, thus not binding on Y who is the
possessor of the title to the property.
d. rescissible because seller suffered a lesion of more than 1/4 of the value of the
property

24. If the agent appoints a substitute against the expressed will of the principal, and the
sub-agent enters into a contract with third persons, which is correct?

a. The agent is not liable at all for the acts of the sub-agent with respect to third persons
who may suffer damages.
b. The acts of the sub-agent are without legal effect as far as the principal is concerned,
hence, considered void or inexistent.
c. The appointment is valid but the agent is liable for acts of the sub-agent only if the
principal suffers damages.
d. The appointment is valid but the agent is liable only if the sub-agent is notoriously
incompetent or insolvent.

25. Three of the following requires a special power of attorney.

Which is the exception?

a. Accept inheritance.
b. To waive obligation gratuitously.
c. To bind the principal in a contract of partnership.
d. None of the above.

26. P appointed A as his agent to borrow P10,000 from C. A borrowed P10,000 but
acted in his name. Upon maturity, who is liable?

a. A only c. Both A and P

b. P only d. Contract is void

27. A guarantee commission agent —

a. Bears the risk of collection on the same terms agreed upon with the purchaser.
b. Is liable to the principal even if the buyer is really insolvent.
c. Is liable for damages if he will not collect the credit n time.
d. Is entitled to another commission aside from ordinary commission.
e. All of the above.

28. An agent without any express authority from the principal appointed a sub-agent to
help him carry out the agency.

a. The substitution is void.

b. The substitution is valid but the agent is the only one liable for the acts of the sub-
agent
c. Both the agent and the sub-agent are liable to the principal for the acts of the sub-
agent under the valid substitution.
d. The substitution is valid but the substitute is the only one liable for his own acts.
e. None of the above.

29. In three of the following, a special power of attorney is required. Which one is
considered the exception?

a. To obligate the principal as guarantor.

b. To effect novations which put an end to obligation already contracted before the
agency.
c. To borrow money not necessary for the preservation of the property under
administration.
d. To lease real property to another person for one year.

30. Three of the following are modes of extinguishing an agency. Which is the
exception?

a. Insanity of the principle or agent.

b. Death of the principal but the agency is for the interest of the principal and agent.
C. Accomplishment of agency.
d. Dissolution of the firm or corporation which entrusted or accepted the agency.

31. Agency may be created by:

a. Appointment d. Necessity
b. Ratification e. All of the above
c. Estoppel

32. P delivered to A 10,000 pieces of Cebu fabricated shell craft jewelry for the purpose
of selling them at P1.00 each. Out of the proceeds of the expected sale, A is to receive a
10% commission. After 3 days, however, A sold all the items at P1.50 each to B. hut on
30-day credit. Under the situation:

a. A must pay P 10,000 immediately.

b. A cannot be compelled to pay at all.
c. A must pay P15,000 immediately.
d. A must pay P5,000 immediately and P10,000 after 60 days.’
e. A must pay P10,000 after collection from B.

33. Without P’s authority, S sold P’s car to B in P’s behalf.

a. The transaction entered by S is unauthorized therefore unenforceable.
b. The right of B is only against S as a rule,
c. The contract can be ratified, hence it is considered as a validable contract.
d. All of the above

34. The agent has no implied authority in three of the following. Which is the exception?

a. lf he is authorized to collect a debt from a debtor

b. If he is authorized to collect a debt, he is not authorized to receive partial payment.
c. But he has got implied authority to endorse the check he received as partial payment.
d. None of the above.

35. An agent with general power of administration given to him by the principal in writing,
desirous of improving the financial condition of his principal, sold two parcels of rice
fields, one for less than the price appearing in the inventory prepared by the principal,
and the Other for double the price that appeared in the said Inventory .

a. The sale for double the price appearing in the inventory is binding upon the principal
b. The two contracts cannot be enforced against the principal.
c. The sale for less than the price appearing in the inventory is binding upon the principal

d. Both contracts are binding upon the principal.

e. None of the above

36. Which of the following statements is true?

a. If a principal appoints an agent in writing with respect to the sale of a piece of land
and the latter sold it to a buyer orally the contract between the agent and the buyer is
void.
b. A contract of agency is generally gratuitous.
c. To lease personal property to another person for more than one year does not require
a special power of attorney.
d The insolvency of the principal but not the agent shall extinguish the agency.

37. If an agent contract, the name of his principals exceeding the scope of his authority1
what would be the status and effect of the contract?

a. Unenforceable
b. Void
C. Voidable
d. Valid
e. None of the above

38. A commission agent:

a. Has the option to act in his own name.

b. Generally, cannot sell on credit
c. May be an agente del creditor if he receives guaranty commission.
d. All of the above.
39. In agency, the agent represents:

a. A person who is capacitated.

b. A person who is incapacitated.
c. Heirs and creditors of the estate of the debtor.
d. Judicial court.
e. None of the above.

40. Without P’s authority, A (agent), sold P’s car to X in P’s behalf. The contract is:

a. Unauthorized C. Subject to ratification

b. Unenforceable d. All of the above

41. A special power to sell includes the power to —

a. Mortgage C. Sell on credit

b. Barter d. None of the above

42. Bears risk of collecting from the buyer the price of the sale —

a. Commission agent
b. Delegacion
c. Quasi-traditio
d. Agente del credere
e. None of the above

43. P appointed A as his agent to sell his specific car in cash for P10,000 with S
commission. A using persuasive skills Was able to sell it for P15,000 on credit. After the
sale but Before payment of the buyer

a. A must give P10 000 only.

b. A must give P 10:000 minus the commission
c. A must give P15,000 minus the commission.
d. A must give P15,000 and in turn is to give A P5,000 as commission

44. P appointed A to sell the former’s car for P200.000. A sold the car to X for P200.000
but A acted in her own name. After delivery X inspected the car and she found hidden
defects in the car. Can X file an action against P even when A acted in her own name?

a, No, under ‘’caveat emptor” let the buyer beware

b. Yes, because this is a contract involving property belonging to the principal.
c. No, because A acted in her own name not of the principal.
d. No, because the contract of sale is already perfected.

45. P appointed A as his agent orally to sell his parcel of land for P10,000. Five days
after, A sold to B the parcel of land for P8,000 by means of public instrument executed
between
A and B. What is the effect and the status of sale between A and B?

a. The sale is valid because it was executed in a public instrument.

b. The sale s unenforceable because the agent acted beyond the scope of his authority
for selling the land for less than the price instructed. Appointment of the agent
C. The sale is void because the app is oral.
d. The sale be ratified although the appointment of A is oral, because the sale by A to B
is in a public instrument.

46. A appoints B to sell his land.

Query # 1: If the authority of B is oral and B sells the land in writing. The sale is valid.

Query#2: If the authority of B is in writing and B sells the land orally. The sale is valid.
Which of the following is correct?

a. First example is false but the second example is true,

b. Both examples are true.
c. Both examples are false.
d. First example is true but the second example is false.

47. Considered “mere acts of administration”, which an agent is authorized to do if given

an agency couched in “general term”. Which is the exception?

a. To sue for the collection of debts and to engage services of a counsel to preserve the
ownership and possession of the principal’s property.
b. To give customary gifts for charity or to employees in the business managed by the
agent.
c. Unregistered lease of real property to another person for one year.
d. None of the above,

48. An implied agency may be created by —

a. Ratification
b. Lack of action by the principal
c. Silence of the principal
d. All of the above

TRUE OR FALSE

1.True 16.True
2.True 17.True
3.T rue 18.T rue
4.True 19.True
5. True 20. False
6. True 21. False
7.T rue 22.True
8. False 23. True
9. False 24. False
10. False 25. True
11.True 26.T rue
12.T rue 27.T rue
13.True 28.T rue
14. True 29. False
15.T rue 30.T rue

MULTIPLE CHOICE
1.C 26.A
2.B 27.E
3.B 28.C
4.C 29.D
5.C 30.B
6.D 31.E
7.D 32.A
8.B 33.D
9.D 34.D
10.B 35.8
11.A 36.C
12.D 37.A
13.A 38.D
14.D 39.A
15.A 40.D
16.A 41.D
17.D 42.D
18.B 43.A
19.B 44.B
20.A 45.C
21.C 46.A
22D 47.D
23.B 48.D
24.B 49.B
25.D 50.B

Part 4

PLEDGE AND MORTGAGES

1. Requisites common to pledge and mortgages.

The following requisites are essential to the contracts of pledge and mortgages:

1. That they be constituted to secure the fulfillment of a principal obligation;

2. That the pledgor or mortgagor be the absolute owner of the thing pledged or
mortgaged;

3. That the persons constituting the pledge or mortgage have the free disposal of
their property, and in the absence thereof, that they be legally authorized for the
purpose.
 Third persons who are not parties to the principal obligation may secure the latter
by pledging or mortgaging their own property. (Art. 2085)

2. Pledge defined.

Pledge is a contract by virtue of which the debtor delivers to the creditor or to a

third person, movable property, or instrument evidencing incorporeal rights, the purpose
of which is to secure the fulfillment of a principal obligation with an understanding that
when the obligation is fulfilled, the thing delivered shall be returned with all its fruits and
accessions.

3. Characteristics of pledge

1. A real contract because its perfection is upon delivery of the thing pledged.

2. Accessory contract because it is constituted to secure the fulfillment of a

principal obligation

3. Unilateral Contract because it creates an obligation solely on the part of the

Creditor to return the object pledged upon fulfillment of the principal obligation.

4. Kinds of pledge.
1. Voluntary or conventional one parties, created by agents of the
2. Legal, created by Operation of law

5. Essential elements of pledge.

1. Pledge is constituted to serve the payment of the principal obligation.

2. Pledgor is the absolute owner of the property pledged.
3. The person constituting the pledge has free disposal of his property or if he is an
agent or representative, that he is legally authorized.
4. The thing pledged must be placed in the possession of the creditor or of a third person
by common agreement. (Art. 2093)
5. To take effect against third persons that the description of the thing pledged must be
constituted in a public instrument.
6. Pledge is constituted to secure a principal obligation. A contract of pledge is an
accessory contract. It cannot
exist without a valid obligation. However, it may guarantee a voidable, unenforceable
rescissible or a natural obligation.

7. Pledgor or mortgagor is the absolute owner.

The person constituting the pledge must be the absolute owner of the thing pledged or
mortgaged, otherwise it is void. Be it noted that the principal debtor may not be the
pledgor of the thing pledged.

8. Pledgor has free disposal or legal authority.

Pledging a property involves act of ownership. Such being the case, the pledgor must
have the capacity or authority to dispose the property pledged.
9. Delivery of the thing pledged.

It is also the essence of pledge that the object pledged must be delivered to the
creditor If the object is not delivered to the creditor but is also given as a security of an
obligation, the contract is not a contract of pledge but a chattel mortgage.

10. Pledge distinguished from mortgage.

1. Pledge is constituted on movable property; while mortgage may be movable or

immovable.

2. In pledge, the property is delivered to the creditor or by common agreement to a third

person; while in mortgage, delivery is not necessary.

3. Pledge is not valid against third persons unless a description of the thing pledged and
the date of the pledge appear in a public instrument; while mortgage is not valid against
third person if not registered

11. Sale of Property Pledged or mortgage before maturity.

The creditor cannot mortgaged Anystipui3t1 dispose the thing pledged or on authorizing
the creditor to sell the obligation IS void, the property pledged or mortgaged before the
maturity of However should there be stipulation in a contract of mortgage (not Pledge)
regarding installment sale, and the object sold is mortgaged back to the seller to answer
the unpaid installment; or upon failure to pay any installment due, all installments shall
become due and payable. The mortgagee is given the right to foreclose and sell the
property at public auction to recover the unpaid balance. Likewise, if there is a stipulation
in a contract of mortgage that the mortgagor cannot enter into a second mortgage
without the consent of the first mortgagee and the violation of such agreement will make
the obligation due and demandable, the mortgagee may continue to foreclose and sell
the property at public auction.

2. Sale of property pledged or mortgaged after maturity.

If after maturity, the obligation remains unpaid, the thing pledged or mortgaged may be
sold for payment to the creditor.

3. Pactum Commissorium (Art. 2088)

It is a stipulation in a contract of pledge or mortgage whereby the thing pledged or

mortgaged shall become the property of the creditor in the event the debt is not paid on
maturity. This stipulation is void, because as a rule, the creditor’s only right after the
obligation falls due and remains unpaid. is to alienate but appropriate the thing pledged
or mortgaged any stipulation to the contrary is declared void by law.

Pactum commissorium is an agree before the maturity of the obligation while dation
in Payment is made after the maturity of the obligation

17. Illustrative Case

 D borrowed from C P10,000 and as a security D pledged his ring to C. After the
obligation fans due, D goes to C relinquishing Ownership of the Pledged in favor of C

Question: Is the relinquish of the Ownership of the thing pledged valid?

Answer: Yes, the relinquish was made after the obligation falls due. It will be considered
as dation payment.
18. Indivisibility of pledge or mortgage A pledge or mortgage is indivisible, except when
that being several things given in pledge or mortgage, each one of them guaranties only
a determinate portion of the credit.
19. Illustrative Cases:
1. D borrowed from C P90,000, and as a security, he pledged Object 1, Object 2 and
Object 3. On the date of payment, D paid C P30,000. Can D compel C release one of
the objects pledged?
No, because a contract of pledge and mortgage are Tthe same rule shall apply if the
divisible. (Art. 2089) several heirs, the latter cannot debtor should die lea vinreduction of
the Obligation. Ask for a proportionate the object In the preceding only a
pledged or mortgaged the answer be the same?
portion of the credit,
No, if there being several things given ¡n mortgage or pledge, each one guaranties only
a determinate portion of the credit. The debtor shall have a right to extinguish the pledge
or mortgage as the portion of the debt for which each thing is especially answerable.
(Art. 2089)
3. D borrowed P30, 000 from C, secured by a diamond ring as pledge. D died leaving
children X, Y and Z. X paid C P10, 000. Can X ask for the proportionate extinguishment
of the pledge?
No, the debtor’s heir who has paid a part of the debt cannot ask for the proportionate
extinguishment of the pledge or mortgage as long as the debt was not completely
satisfied. Neither can the creditor’s heir who received his share of the debt return the
pledge or cancel the mortgage, to the prejudice of the other, heirs who have not been
paid.
20. Indivisibility of an obligation does not necessarily give rise to solidarity.
The indivisibility referred to in this article is to the security given and not to the liability of
the debtors.
Example
A, B, and C jointly borrowed P15, 000 from X. To secure its payment, A pledged or
mortgaged his ring; B his T.V. set; and C his refrigerator. If A pays X P5,000, the pledge
or mortgage on A’s ring is not extinguished. Although the debtors are not solidarity
bound, the pledge or mortgage on the three things is indivisible.
21. Promise to Constitute or mortgage.
A promise to constitute a pledge or mortgage is binding between the parties. The debtor
who made the promise can be compelled to fulfill his promises be requiring him to
execute the pledge or mortgage. However, in one case decided by the Supreme Court,
the debtor execute the mortgage, but instead the court stated that there is a alien over
such Property in favor or the creditor under the principal of the quality (Lapian vs.
Garchitorena Cherau 48 Phil. 163)
22. Criminal liability of pretenders
Article 316, Revised Penal Code.
1. Any person who is pretending to be the owner of any real property, shall convey, sell,
encumber or mortgage the same.
2. Or any person who, knowing that real property is encumbered, shall dispose of the
same, although such encumbrance be not recorded.
Article 319, Revised Penal Code:
Removal, sale or pledge of mortgaged property of the penalty of arresto mayor or a fine
amounting to twice the value of the property shall be imposed upon:
1. Any persons who shall knowing remove any personal property mortgaged under the
Chattel Mortgage Law to any province or city other than the one ¡n which it was located
at the time of the execution of the mortgage, without the written consent of the
mortgagee or his executors, administrators or assigns;
2. Any mortgagor who shall sell or pledge personal property already pledged, or any part
thereof, under the terms of the Chattel Mortgage Law, without the consent of the
mortgagee written on the back of the mortgage and noted on the record thereof in the
office of the Register of Deeds of the pro Vinci where such property is located. When the
above article ¡s violated, subsequent payment of the debt will not erase criminal
responsibility (U.S. VS. Kilayko, 32 Phil. 619)
23. Additional requisites of pledge.
To the requisites set forth in Article 2085, these two requisites are added:
1. Delivery of the thing pledged to the creditor, or a third person by common agreement.
2. To affect third persons the description of the thing Pledged and the date of pledge
must appear in a public instrument
24. Delivery as an element or requisite.
Without delivery of the thing pledged; the contract is void. Mere taking of possession
may not be enough, it must be actual possession, not merely constructive possession,
(El Banco - Filipino vs. Peterson, 7 Phil. 409)
25. Object of pledge.
Only personal or movable property Susceptive of possession can be pledged.
Immovable property cannot be the object of pledge. Be it noted even if the thing is a
personal property, it cannot be pledged if it is not susceptible of actual possession by the
pledge or a third person, by mutual agreement of the parties.
26. Movable or personal property.
The following are deemed movable or personal property.
1. Those movables susceptible of appropriation which are not included ¡n Article 415;
2. Real property which by any special provision of law ¡s considered as personal;
3. Forces of nature which are brought under control by science;

4. In general all things which can be transported from place to Place without impairment
of the real property to which they are fixed (Art. 416)

Art. 417 The following are also considered as personal property:

1. Obligation and actions which have for their objects movables or demandable sums;
and
2. Shares of stock of agricultural commercial and industrial entities, although they may
have real estate”.

27. Pledge of incorporeal right.

Incorporeal rights can be pledged. However, since incorporeal rights, are intangible and
could not be delivered physically, the instrument evidencing the right pledged shall be
delivered to the creditor, and if negotiable, must be endorsed.
28. Form required in a contract of pledge.
A contract of pledge can be constituted in whatever form, as all other contracts, and will
produce its natural and legal consequences with respect to the contracting parties and to
their assigns.
29. Effectivity as to third persons.
To be valid and effective against third persons it must appear in a public instrument.
Mere delivery of the thing parties is not sufficient to affect although valid between in the
public instrument, where third persons unless it appears the description of the thing
pledged and the date of the pledge is set forth.
Illustrative Cases:
1. D borrowed P100, 000 from C, and as a security, he pledged his diamond ring. In the
public instrument executed, there is no description of the ring and no date of pledge
appearing. If D will sell the ring to X, ownership transferred to X?
Yes, although a pledge must be described in the instrument, and the date of pledge
must be stated, absence of these requirements shall not affect third persons who come
into possession. For X, the pledge ¡s not valid and effective.
2. S owns specific ring and sells it to B for P10, 000. B paid S the price, and S promised
to deliver the ring five (5) days after. The day after the sale, S gets a loan from X and
pledged the ring in a private instrument.
Question No. 1: Who, between the two, has a better right?
Answer: B has a better title because the pledge did not appear ¡n a public instrument.
Question No.2: Will the answer be the same if the ring was delivered to X?
Answer: Yes, for the same reason.
Question No. 3: Supposing the instrument of pledge appears in a public instrument, but
there was no delivery who has a better right?
Answer: B, because there was no pledge. To constitute a pledge, there must be a
delivery of the thing pledged.
Question No. 4: Supposing the instrument of pledge appears in writing and the object is
delivered to X, does B still has a right?

Answer: Yes, because the contract of the pledge did not appear in public instrument. As
far as B is concerned, there is no contract of pledge, he may therefore compel X to
deliver the thing to him (B).
3. Pledgor’s right the thing to him (B).
A thing given in pledge is only a security for the fulfillment of the principal obligation Even
if the thing is delivered to the creditor, or even if the debtor fails to pay the obligation the
Pledgor remains to be the owner. It follows therefore, that the Pledgor can sell the thing
pledged to anybody with or without the consent of the pledgee.
4. Effect of this article of the pledgor’s right to sell Article 2097 of the Civil Code states
that “with the consent of the pledgee, the thing pledged may be alienated by the pledgor
or owner, subject to the pledge”. Although the law states “with the consent of the
pledgee”, this is only for the purpose of transferring the ownership to the buyer. If the
pledgee consents to the sale, the ownership ¡s automatically transferred to the buyer
under symbolical delivery, but the pledgee may shall retain the thing pledged until the
obligation is totally paid. Under the rule on ownership (jus dispondendi), the owner is at
liberty to dispose or sell his property to anybody unless the law otherwise provides.
Example of this exception is in a contract of chattel mortgage whereby the mortgagor is
forbidden to transfer or sell the thing mortgaged otherwise he is liable criminally.
30, Rule if the thing pledged is re-pledged.
The property held in lawful pledge cannot be re-pledged to anymore, because the
element of delivery to the second pledgee is lacking. (Mission de San Vicente vs. Reyes,
19 Phil. 524)

31. Pledgee’s right of retention.

The right of retention is given to the pledgee because pledge ¡s a security contract. The
purpose is to secure the obligation. Therefore, until the obligation is paid the right of
retention continues. This right of retention can be waived by remission or renunciation of
the thing pledged to the pledgor, but the principal obligation still exists.
32. Deposit of the pledged.
The thing pledged cannot be deposited with a third person without the consent of the
pledgor.
33. Pledgor’s liability for hidden defects.
The pledgor who, knowing the flaws of the thing pledged does not advise the pledgee of
the same, shall be liable to the latter for damages which he may suffer by reason
thereof. (Article 1951)
34. Extent of pledge.
A pledge shall extend to the interest and earnings of the thing pledged as well as the
offsprings of the animals pledged, unless otherwise stipulated.

35. Right on the fruits.

The pledgee shall apply the fruits and earnings pledged ¡n payment of the expenses
incurred; interest, if any, and the principal obligation.
Example:
D owes C P100, 000 payable after two (2) years, with 14% interest annually. As security,
D pledges to C, 100 shares of stock of San Miguel Corporation If the corporation
declared interest due and the excess, if any, in payment of the principal
36. Effect the sale of the thing Pledged.
The sale of the thing pledged shall extinguish the principal obligation
are equal to the amount, whether or not the proceeds of the sale are equal to the
amount of the principal obligation, interest and expenses in a proper case.
If the price of the sale is more than said amount the debtor shall not be entitled to the
excess, unless it is otherwise agree. If the price of the sale is less, neither shall the
creditor be entitled to recover the deficiency notwithstanding any stipulation to the
contrary.
37. Ownership remains with the pledgor.
The ownership of the thing pledged although in the possession of the pledgee remains
with the pledgor. Nevertheless, the creditor may bring actions which pertains to the
owner of the thing pledged in order to recover it from, or defend it against third persons.
38. Creditor or pledgee has possessions but not “jusutendi”.
The creditor although in possession of the thing pledged has no right to use the thing
unless required by its preservation Should the creditor use the thing pledged without
authority, or without being demanded by its preservation or although authorized to use t,
misuses it contributing to rapid deterioration, the owner may ask that the thing be
deposited with third person either judicially or extra judicially.
39. When debtor can ask for the return of the thing pledged
1. When he has paid the debt secured by the pledge including its interest.
2. When he reimbursed expenses for the Preservation the thing or other expenses that
are borne by the owner.
3. When the pledgee is guilty of Article 2099, that is the duty to observe the proper
diligence in taking care of the thing, or there is a danger of impairing or losing the thing)
the pledgor may demand that such thing be deposited with a third person

40. Extinguishment of pledge

1. Direct causes — when the pledge ¡s extinguished independent of the principal
obligation.
1. Return of the thing pledged by the pledgee or Owner
2. Abandonment of pledge in writing
3. Sale of the thing pledged
4. Appropriation of the thing pledged by the pledgee.
2. Indirect cause — the extinguishment of the principal’ obligation carries with it the
extinguishment of the contract of pledge.
41. Return of the thing pledged
A contract of pledge s perfected upon the delivery of the thing pledged to the creditor,
who is given a right of retention until the obligation is totally paid. The debtor cannot ask
for the return of the object pledged unless and until the obligation is paid. However, if the
thing pledged is returned by the pledgor or owner, the pledge is extinguished. Any
stipulation contrary to this rule is void. Be it noted that what ¡s extinguished is only the
contract of pledge. The principal obligation may or may not be extinguished. Also, if after
the delivery of the thing to the pledgee, the thing is found, the possession of the pledgor
or owner or third person in behalf of the owner, the pledgee shall be presumed to have
returned the object pledged voluntarily in order to extinguish the pledge.

42. Right of the creditor if credit is not paid.

According to Article 2087, when the principal obligation is not paid Upon maturity, the
thing consists may be alienated for the payment to the creditor

43 Required formalities in the sale of pledged.

1. The debt is already due.
2. Intervention of a notary public.
3. Public auction.
4. Notice to the debtor or owner stating the amount due.
44. When the thing is to be sold.
If the amount due is not raid on time, the creditor may, with the help of a Notary Public,
sell the thing at public auction with notice to the debtor and the Owner of the thing,
pledged of the amount for which the sale is to be made.

If at the first and second auction, the thing is not sold. the creditor may appropriate the
thing pledged. Be it noted that the creditor cannot appropriate, he can only alienate the
thing pledged. This is therefore at his option. And if, he will appropriate, he shall be
obliged to give acquittance for his entire claim.
If in the auction sale, the value of the thing is less than the principal debt, the pledgee is
not entitled to the deficiency, even if there is a stipulation to that effect. And if the value
of the thing is more than the debt secured the pledgee is entitled to the excess, unless
otherwise stipulated.
45. Illustrative Cases
D owes C p10, 000 and pledges his ring to C as security. On maturity, D fails to pay. C
foreclosed the pledge and thru a notary-public auctioned the ring. i, two auction sales,
there were no bidders.
Question: Can C appropriate the ring pledged?
Answer: Yes, there was a failure of two (2) auction sales.
Question: Supposing the ring was devalued at P8, 000, 41. can C collect the deficiency?
Answer: No, C having appropriated the ring pledged, is obliged to give an acquittance for
his entire claim. Also, if the ring ¡s worth P15 000, C ¡s entitled to the excess of P5.000.
2. To secure an obligation of P10, 000, D pledged 100 shares of stock of S Corporation
in favor of C. Because D defaulted, C sold at public auction the said shares of stock
previously delivered to him by D. In the auction sale, the shares were sold to B for P15,
000. It turned out, however, that after the pledge, but before the auction sale, D had
executed a bill of sale transferring the shares to X.
QI: Who acquires the ownership of the shares?
Q2: How will the excess of P5, 000 be applied?
a. B acquires ownership of the stock, because he was the buyer at the auction sale. The
sale or transfer of D to X ¡s ¡n valid because it was made without the consent of the
pledgee. (Art. 2097) The law further states that even ¡f the pled gee consented to the
transfer, the ownership ¡s transmitted to the buyer, but the pled gee shall continue in
possession.
b. The excess of P5, 000 shall belong to the creditor (C), unless otherwise stipulated.
(Art. 2115)

46. Pledgor’s right to bid.

The pledgor or owner may bid at the Public action Should there be several high5 bidders
offering the same terms and One of them ¡S the Pledgor or Owner the latter is given
preference of buying the thing.
47. Pledgee’s right to bid.
The pledgee may bid at the public auction sale 1f he is the only bidder, his bid ¡s not
valid, except if he is given the right to appropriate the thing for failure to sell on two (2)
auction sales.

48. Effects of sale after foreclosure.

1. The principal obligation is extinguished whether or not the proceeds of the sale are
sufficient to cover the deb’ secured.
2. If price of sale is less than the debt: The creditor ¡s nor entitled to recover the
deficiency, even if agreed o stipulated, because such stipulation is void.
3. If price of sale is more than the debt: The creditor is entitled to the excess, unless
otherwise stipulated.
49. Illustrative Case
D owes C P10, 000, and as a security, pledged his ring to C. On maturity, D failed to
pay, so C foreclosed the pledge and thru a notary public, auctioned the ring in favor of X,
as the highest bidder, for P7, 000.
Question: Is C entitled to recover fr0m D P3, 000, the excess?
Answer: No, even ¡f there ¡s a stipulation to the effect.
Question: Supposing in the auction sale, the highest bidder is P13, 000, who is entitled
to the excess?
Answer: C is entitled to the excess unless stipulated.
50. Right of ubrogati0fl
Example:
D owes C p10, 000, and as a security, D Pledged m ring of X (with consent). On
maturity, D failed to pay1 so e thru a notary public scheduled the auction sale. In this
case X may stop the foreclosure proceeding by offering to C the principal obligation so
that C will release the thing pledged. After payment, X is subrogated to the right of C and
may ask reimbursement from D.
51. Pledgee’s obligation to collect and receive the amount due.
Example:
D owes C P10, 000 payable on December 25. To secure the payment, D pledged to C a
promissory note executed by X, a third party, payable to the order of D in The amount of
P15, 000 due on December 20. D endorsed and delivered the note to C. If on December
20, the obligation of D to C is still unpaid, C may collect from X the P15, 000 the P5, 000
excess must be returned by C to D.
52. Where separable things are pledged.
Where separable things are pledged, upon debtors default, the pledgee has a right to
choose which of the thing shall be sold unless, by stipulation, the right of choice belongs
to the debtor or pledgor. The pledgee may sell only as many of the things as are
necessary for the payment of the debt.

53. Third person as pledgor.

1. Rights against debtor after payment
a. Right to be subrogated to all the rights of the credit0l after payment
b. Right of reimbursement against the debtor

54. Object of the thing mortgaged

Only the following property may be the object of a contract of mortgage:
1. Immovables:
2. Alienable real rights in accordance with the law, imposed upon immovables.
Nevertheless movables may be the object of a chattel mortgage. (Art. 2124)
55. Concept
Real Mortgage — a contract which the debtor secures to, the creditor the fulfillment of a
principal obligation, especially subjecting to such security real property in case of non
fulfillment of said obligation at the time stipulated (12 Manresa 460)
56. Kinds of Real Mortgages
1. Conventional or voluntary_ one created by agreement of the parties. (Spanish
Mortgage Law)
2. Legal — one Constituted pursuant to an express requirement of the law. (Spanish
Mortgage Law)
3. Equitable which, although lacking Some formality, form of words or other requisites
prescribed by law, show the intention of the parties to charge real property as security
for a debt and Contain nothing impossible or contract to law (41 C. S. 303)

57 Conventional mortgage defined

It is a contract by which a person binds the whole of his property or a portion thereof, in
favor of another to secure the execution of some engage but with divesting himself of
possession (Black’s Law Dictionary page 1162)
58. Legal mortgage defined.
A privilege which the law alone in certain cases gives to a creditor over the property of
his debtor, without being stipulated by the parties.

59. Equitable mortgage defined.

A specific lien upon real property to secure the payment of money or the performance of
some other obligation which a court of equity will recognize and enforce. This equitable
mortgage is found ¡n Article 1602 of the Civil Code.
6O. Characteristics of Real Mortgage.
1. Nominate — it has a special designation or name under the Civil Code.
2. Consensual— perfected by mere consent.
3. Accessory— its validity is dependent upon the validity of the principal contract.
4. Unilateral — only the mortgagor has an obligation favor of the mortgages.
5. Real right — it binds and creates a lien on the real property.
6. Real property— a mortgage on real property is by itself real property also.
7. Indivisible — as long as the principal obligation remains unpaid, the real estate
mortgage will continue to subsist it is indivisible even though the debt may be divided
among the successors in interest of the debtor or of the creditor
8. Inseparable — the mortgage on real property adheres to the property, regardless of
who its owner may subsequently be.
61. Immovable property
The following are immovable property:
1. Land, buildings, roads and construction of all kinds adhered to the soil;
2. Trees, plants, and growing fruits, while they are attached to the land or form an
integral part of an 1m movable.
3. Everything attached to an immovable in a fixed manner, ¡n such a way that it cannot
be separated therefrom without breaking the material or deterioration of the object;
4. Statutes, reliefs, paintings or other objects for use or omamentation, placed in
buildings or on lands by the owner of the immovable ¡n such a manner that it reveals the
intention to attach them permanently to the tenements;
5. Machinery, receptacles, instruments or implements intended by the owner of the
tenement for an industry or works which may be carried on in a building or on a piece of
land, and which tend directly to meet the needs of the said industry or works;
6. Animal houses, pigeon houses, beehives, fish ponds or breeding places of similar
nature, ¡n case their Owner has placed them or preserved them with the intention to
have them permanently attached to the land, and forming a permanent part of it; the
animals in these places are included;
7. Fertilizer actually used on a piece of land:

8. Mines, quarries and slag piece of land; thereof forms Part of the bed mp5 White the
mater or stagnant; ‘and waters either running
9. Docks and structures which though floating are intended by their nature and object to
remain at a fixed place on a river, lake, or coasts
10. Contracts for public Works, and Servitudes and other real rights over immovable
property. (Art. 415, N. C.C.)
62. Building can be a Separate object of real estate mortgage.
In the case of Prudential Bank vs. Panis, G. R. No. 50008, the Court said that “while it is
true that mortgage of land necessarily includes, in the absence of stipulation, the
improvements thereon, still a building by itself may be mortgaged apart from the land on
which it has been built. Such a mortgage would still be considered immovable property
even if dealt with separately and apart from the land”.
63. Real mortgage distinguished from other contracts.
1. From pledge
a. Real mortgage is constituted on immovable pledge is constituted on movables.
b. In real mortgage, the thing is not delivered to the creditor; in pledge1 the thing IS
delivered to the pledgee or third person by agreement of the parties.
C. Real mortgage to be effective against the third persons should be registered pledge
to be effective against third persons require the public document. The date of the pledge
to appear in a public document.
d. In real mortgage, deficiency ¡s recoverable; pledge, deficiency cannot be recovered.
e. In real mortgage, the excess of the proceeds of the sale goes to the mortgagor even
in the absence of an agreement to that effect; in pledge, the excess retained by the
pledgee, or less otherwise stipulated
f. In real mortgage, the mortgagee can never appropriate the thing mortgaged; ¡n
pledge, the pledgee can appropriate the thing pledged after failure to sell the thing in at
least two auction Sales.
2. From chattel mortgage
a. Real mortgage is constituted on immovable; chattel mortgage is constituted on
movables.
b. Real mortgage may secure future obligations; chattel mortgage cannot secure future
obligations.
c. Real mortgage, to be effective against third persons, should be registered in the
Registry of Property of the province or city where the property is situated; chattel
mortgage, to be effective against third persons, should be accompanied by an affidavit of
good faith and registered in the Chattel Mortgage Registry of the province or city where
the mortgagor resides and where the thing is Situated.

3. From sale with right of repurchase

a. Real estate mortgage is an accessory contract; sale with right of repurchase is a
principal contract.
b. In real estate mortgage, possession and ownership of the thing are not transferred to
the mortgagee: in sale with right of repurchase, there is transfer of possession and
Ownership of the thing although conditional.
c. In real estate mortgage the creditor has no right to the fruits of the property mortgage
in sale With right of repurchase, the buyer a retro is entitled to the fruits even during the
period of redempj0
d. In real estate mortgage ¡f the debtor fails to pay, the mortgage does not acquire
ownership of the property mortgage; while in sale with right of repurchase, if the vendor
a retro does not redeem the property within the time agreed Upon the vendee a retro
irrevocably acquires absolute Ownership thereof.
e. In real estate mortgage, the mortgagee cannot sell the thing; while in sale with right of
repurchase, the buyer a retro may sell the thing although the sale is subject to the
seller’s right of redemption.
64. Additional requirement of Contract of Mortgage
ART. 2125. In addition to the requisites stated in article 2085, it is indispensable, in order
that a mortgage may be validity constituted, that the document in which it appears be
recorded in the Registry of Property. If the instrument is not recorded, the mortgage is
nevertheless binding between the parties.
The persons in whose favor the law mortgage have no other right establishes and the
execution and the recording of the document in which the mortgage is formalized.
65. Requisites of real mortgage
1. That it be constituted to secure the fulfillment of a principal obligation.
2. That the mortgagor be the absolute owner of the thing mortgaged.
3. That the person constituting the mortgage have the free disposal of his property, and
in the absence thereof that he be legally authorized for the purpose. (Art. 2085)
4. That the document ¡n which h appears be recorded in the Registry of Property (Art. . :
125)
66. Registration
A contract of mortgage should be in a public document (Art. 1358) and recorded n the
Registry of Property of the province or city where the thing is situated. (Art. 2125)
67. Effect of unregistered mortgage.
1. Between the parties
Even if the mortgage is not registered, the mortgage is nevertheless binding between the
parties. (Art. 2125; Guintu vs. Ortiz, NAL-9332, Nov. 28, 1956)

2. Against third persons

a. Without knowledge
An unregistered mortgage does not affect innocent third persons.
b. With knowledge
Third persons with knowledge of the existence of the mortgage are bound because as to
them, knowledge of a prior unregistered mortgage is the equivalent of registration.
(Noblejas, Land Titles Deeds, 281-282)

68. Right of mortgagee if the mortgage is unregistered

An unregistered or unrecorded real estate mortgage while not binding upon innocent
third Persons, are binding between the parties. If, therefore the mortgage is unrecorded,
the Party in interest that is, the mortgagee, may demand from the mortgag0 put the
mortgage in a public instrument and have it register As soon as a public instrument is
executed, the mortgagee may cause the registration even without the consent of the
mortgagor.
When the real estate mortgage is Constituted In form and substance, the register thereof
cannot be refused by the Register of Deeds in the face of a claim of the mortgagor that
there was lack of Consideration which is presumed to exist by law. This question of
absence of consideration can be litigated after registration. (Samanilla vs. Cajucom, L-
13683)
69. Innocent mortgagee of real estate covered by Torrens
Title ¡s protected.
Our Supreme Court rules:
1. A bank is not required before accepting a mortgage to make an investigation of the
title of the property being given as security, and where an innocent mortgagee, relying
on the certificate of title, acquire rights over the property, their rights cannot be
disre9arded. (Duran vs. lAC, 138 SCRA 489) .
2. Any subsequent lien or encumbrance annoted at the back of the certificate of in any
way prejudice the mortgage previously red. Otherwise, the value of the mort “j destroyed
by a subsequent record of an adverse claim, for no one would purchase at foreclosure
sale if bound by the posterior claim.

3. A foreclosure sale, though essentially a “forced sale,” is still a sale ¡n accordance with
Article 1458 of the Civil Code, under which the mortgagor in default, the forced seller,
becomes obliged to transfer the ownership of the thing sold to the highest bidder who, ¡n
turn, is obliged to pay therefore the bid price in money or its equivalent. Being a sale, the
rule that the seller must be the owner of the thing sold also applies in foreclosure sale.
This is the reason Art. 2085 of the Civil Code, in providing for the essential requisites of
the contract of mortgage and pledge, requires, among other things, that the mortgagor or
pledgor be the absolute owner of the thing pledged or mortgaged, in anticipation of a
possible foreclosure sale should the mortgagor default in the payment of the loan.
There ¡s, however, a situation where, despite the fact that the mortgagor is not the
owner of the mortgaged property, his title being fraudulent, the mortgage contract and
any foreclosure sale arising thereto are given effect by reason of public policy. This is the
doctrine of “the mortgagee ¡n good faith” based on the rule that all persons dealing with
property covered by a Torrens Certificate of Title, as buyers or mortgagees, are not
required to go beyond what appears on the face of the title. (Cavite Development Bank,
et. al., vs. Court of Appeals, et. al., G.R. No. 131679, February 1, 2000)
70. Illustrative Case:
D executed a chattel mortgage on certain personal properties belonging to him in favor
of C to secure a debt. The chattel mortgage was not registered. Subsequently. The
mortgaged properties were attached by X, knowing that the said properties have been
mortgaged to C. As between X and C, who has a better right to the properties? Why? C,
because X is in bad faith. Although Undeniably, an unregistered mortgage shall bind the
Contracting parties, the fact that X has knowledge shall exclude him to the benefit of the
law Under the Principle that “actual knowledge is equivalent to registrtj0
71. Mortgage is inseparable.
The mortgage lien follows the Property until the mortgaged debt is paid (Lopez vs.
Director of Lands, 47 Phil. 23) regardless of who its owner may subsequently be
(McCullough vs. Veloso, 46 Phil. 1), provided, however, that the mortgage was duly
registered or if not, if the transferee is a purchaser with knowledge of the existence of
the mortgage. Thus, the sale of mortgaged property to a third person is no bar to the
mortgagee’s action for the recovery of his credit and the foreclosure of his mortgage,
and the purchaser acquires the property subject to the mortg8gee’s rights. (Santos vs.
Macapinlac, 41 Phil. 224)
72. Extent of mortgage.
1. Immovable property itself given as mortgage.
2. Natural accessions. Thus, if a land bordering a river is mortgaged and its area is
increased by alluvial deposits or sediments the increase in area is likewise subject to the
mortgage.
3. Improvements. Thus, present and future houses on the land mortgaged are subject to
the mortgage, unless otherwise stipulated. If the old house on the land and a new one
was mortgaged was demolished ctedhouseiS5UbItt0 constructed, the newly otherwise
stipulated. (Phil. Sugar Estate. Co. Dev vs. Campos, 36 Phil. 85) (B. Paulino, Estate
Dey. Co. Sales, Agency and Bailments)

4. Growing fruits. Thus, a mortgage upon real estate includes all fruits of the mortgaged
property not collection when the obligation falls due. It does not, however, include fruits
already harvested before the obligation falls due. Neither are pending fruits included
when the mortgaged premises pass into the hands of third persons, except the net
proceeds of the growing crops after deducting the expenses made for the production,
gathering and preservation.
5. Compensation paid or payable by the government that has taken the property
mortgaged for public use in the exercise of the right of eminent domain.
6. Machineries and accessories on the mortgage property, under the principle,
accessory follows the principal. (Cu Unjieng & Hijos vs. Mabalacat Sugar Co., 58 Phil.
439)
7. Even machinery temporarily removed from the , mortgaged land ¡s included in the
mortgage. (Serra vs. National Bank, 45 Phil. 907)
8. Rents and income not yet received when the obligation falls due.
9. Indemnity owing or granted to the proprietor from the insurers of the property
mortgaged, or in virtue of expropriation for public use. (Art. 2127)
73. Assignments of mortgage credit.
The mortgagee may alienate or assign the whole or part of the mortgage credit to a third
person provided that the assignment appears in a public document and recorded in the
Registry of Property. But even if the assignment of the mortgage credit was not
registered, the assignment was nevertheless valid and binding between the parties. The
registration of the assignment is only necessary in order that it may be effectual as
against third persons (Lopez vs. Alvarez et. at, 9 Phil. 28) Be it noted that what is being
assigned is the credit.

74 Validity to third persons

1. Public document and registration in the Registry of Property.
2. Notice of the assignmeflt0 debtor. Thus, if the debtor is not given notice of the
assignment the debtor who, before having knowledge of the assignment pays his
creditor shall be released from the obligation. (Art. 1626)
75. Buyer of mortgaged property ¡s liable.
The mortgage lien follows the property whoever be its possessor until the mortgaged
debt is paid. Thus, even if the property ¡S transferred to a third person, the mortgagee
may claim from the third person payment of the part of the credit secured by the property
which said third person acquires, (Art. 2129) provided, however, that a demand for
payment has been made against the debtor and the latter fails to pay. (B. Paulino, Sales,
Agency and Bailments)

76. Illustrative Case.

D owes C P100, 000 secured by a recorded mortgage over a parcel of land owned by D.
Later, D sold the land to X. If D defaults upon demand for payment of the debt, C is
given the right to foreclose the mortgaged property. However, C, at his option, may notify
X about D’s demandable obligation, to give him a chance to pay before C will foreclose.
If X pays C the mortgage credit, he can ask reimbursement from D under the principle of
legal subrogation as stated in Article 1302.
77. Mortgagor’s right to alienate property mortgaged.
A mortgagor of a property mortgaged retains ownership of the property and any
prohibition on alienation of said property by the owner is declared void, because such
prohibition would be contrary to the public good1 inasmuch as the transmission of
property should not be unduly impeded.

78. Second, third, or fourth mortgages.

The right to charge immovable property for the payment of a principal obligation is an
incident of ownership. Hence, the mortgagor who is the owner of the thing may even,
without the consent of the mortgagee, execute a second, third, or fourth mortgage over
the thing, with the first mortgage generally enjoying preference.
79. Prohibition against subsequent mortgages without the consent of the
mortgagee.
1. Property registered under the Mortgage Law
Any stipulation prohibiting the making of subsequent mortgages is ineffective, being in
violation of Article 107, No.4, of the Mortgage Law, and is, therefore, no obstacle to the
registration of second mortgages. (Phil. Industrial Co. vs. El Hogar Filipino and Vallejo,
45 Phil. 336)
2. Property registered under the Torrens System
Any stipulation not to make a new mortgage, not being contrary to law, morals or public
order, is valid and is therefore, not an obstacle to the registration of subsequent
mortgages in the registry of property. (Phil. Industrial Co vs. El Hogar Filipino and
Vallejo, 45 Phil. 336)
80. Illustrative Cases:
I. D borrowed from C P10,000, and as a security,
Mortgaged his land to C. The parties stipulated they cannot sell the mortgaged property
during the p of mortgage. Is the stipulation valid? Reason. A stipulation forbidding the
owner from al the immovable mortgaged shall be void. (Art. 2130)

2. D borrowed from C P100, 000 and as a security, he mortgaged his land to C. The
parties stipulated that if D wishes to mortgage the Property to a second mortgage, the
Consent of the first mortgagee must be obtained. Is the Stipulation of the parties valid?
Reason.

Yes, but this does not mean that ¡f there is a violation on the condition the second
mortgage contract ¡s void. Both mortgages are valid. Only, the first mortgagee has a
superior right.
81. Effect of fixing the price of the property mortgaged in the foreclosure
proceedings.
The stipulation is void. The property foreclosed must be sold to the highest bidder.
Example: D borrowed money from C, and as a security, the mortgaged his land to C.
The parties agreed that if the property mortgaged is sold at public auction, the value
shal1 not exceed P100, 000. This stipulation is void. The property mortgaged must be
sold to the highest bidder.
82. Property mortgaged sold to a third person.
Example:
1. D borrowed from C P100, 000, and as a security, he mortgaged his parcel of land.
Later, D sold the mortgaged property to X.
a. Is X bound to respect the mortgage between D and C? Why?
b. If C foreclosed the mortgaged property because of D’s failure to pay the amount
realized is less than the principal obligation1 is the buyer (X) bound to pay the
deficiency?

Answer
a. Yes, because the mortgage directly and immediately subjects the property upon which
it is opposed, me possessor may be, to the fulfillment of the obligation for whose security
was constituted. (Art. 2126)
b. No, because the encumbrance is only on the property mortgaged. However, the
parties may agree that the buyer ¡s liable to the deficiency, and this ¡s actually a
novation of the contract.
2. D is the owner of a parcel of land mortgaged to C for
P100, 000. Later, D sold to X one-third of the property mortgaged.
Questions:
a If D failed to pay the obligation of P100,000, can X redeem the entire property? Why?
b. If D failed to pay C on maturity date, can C foreclosed the mortgage property?
Answers:
a. It ¡s submitted that X cannot redeem the entire property because his eight on the
property ¡s only one-third.
b. Yes, because the mortgaged was made ahead of the sale, assuming that the other
elements are present.
3. D mortgaged his parcel of land to C to secure a P100, 000 obligation. Later, D sold
the land to X. Upon maturity, what right does C have? Reason.
Proceed against D. If D cannot pay, he may proceed against X because a creditor may
claim from a third person in possession of the mortgaged property, the payment of the
part of the credit secured by the property which said third person possesses, ¡n the
terms and with the formalities which the law establishes. (Art. 2129)

83. Foreclosure of mortgage

1. Concept
Foreclosure — a Proceeding by which the creditor subjects the thing mortgaged
obligation secured, for the payment of the
2. Kinds
a. Judicial—foreclosure under Court. Rule 68 of the Rules of Court.
b. Extrajudicial— foreclosure under Act No. 3135, as amended by Act No. 4118.
3. Grounds
a. Non-payment of the principal obligation on maturity. ‘
b. Violation of any condition, stipulation or warranty by the mortgagor.

84. Judicial Foreclosure

1. Where petition filed
Foreclosure of mortgage must be brought in the Regional Trial Court or Municipal Trial
Court, depending on the value of the property mortgaged where the land or any part
thereof lies. (Rule 68. 1997 Rules of Civil Procedure)
2. Sale of property
If the defendant fails to pay within the time directed in the order, the court shall order the
property to be sold in the manner and under the regulati01S that govern sales of real
estate under execution. (Sec. 3, Rule 68. New Rules of Court)

600 Part 4/ Contract of Pledge and

a. Effect of safe on senior mortgagee
The safe of the mortgaged property by a junior mortgagee does not affect the right of
persons holding prior incumbrances upon the same estate (Sec. 3, Rule 68, New Rules
of Court) The foreclosure and sale of the property is subject t prior liens existing thereon.
(Mariano Velasco & 0, vs. Gochuico & Co., 33 Phil. 363)

b. Effect of safe on junior mortgagees

The sale, when confirmed by decree of the court, shall operate to divest the rights of all
the parties to the action and to vest their rights in the purchaser subject to such rights of
redemption as may be allowed by law. (Sec. 3, Rule, 68, New Rules of Court) Thus,
where the mortgaged property was foreclosed by the first mortgagee and upon sale was
lawfully bought by said mortgagee, all subsequent mortgages over the same are
extinguished
C. Tipo or upset price
1. Concept
a. Tipo or upset price — the price at which any subject, as lands or goods, is exposed to
sale by auction, below which it is not to e sold. (Bouvier’s Law Dict. 3377)
2. Effect
Even though a clause be inserted in a mortgage fixing a tipo or upset price to become
operation in the event of a foreclosure, nevertheless, the sale must take place and the
property be awarded to the highest bidder Parties cannot by agreement contravene the
statutes an interfere with the lawful procedure of the court’ (Anco Español-Filipino vs.
Donaldson. Sir’ ‘ Co., 5 Phil. 418; Yangco vs. Cruz, 11 Phil. 402).

d. Payment of deficiency
If after applying theproceed of the sale there is still a balance due to the court, upon
motion, shall render a Judgment against We debt for any such balance. (Sec. 6. Ruse
68. New Rules of Court). Provided however that one mortgages his property to secure
the debt of another without expressly assuming personal liability for the debt, cannot be
complied to pay the deficiency remaining due after the mortgage s foreclost (Phil. Tust &
Co. vs. Ectaus Tan Sua 52 Phil . 1 Such deficiency IS recoverable against the debtor
himself.

85. Extra-judicial foreclosure

1. When available A stipulation in a mortgage of real property authorizing the mortgagee
to have the mortgaged property sold without the necessity of an action in court ¡s valid.
(El Hogar Filipino vs. Paredes. 45 Phil. 178) But it is only where there is a special power
to sell inserted in or attached to a real estate mortgage may such mortgage be
foreclosed without proceed j in court. If it is stipulated in the contract that mortgage may
be foreclosed extrajudicially the proceed should be governed by the provisions of Act :
3135. As amended by Act No.4118. (Noblejas Land Titles and Deeds, i48)
2. Place of sale
The sale shall be made in the municipal building of the municipality ¡n which the property
o( part thereof situated. (Sec. 2, Act No. 3135)

86. Redemption
1. Concept
Redemption — a transaction through which the mortgagor or one claiming in his right, by
means of a payment or the performance of a condition, re-acquires or buys back value
of the title which may have passed Under the mortgage, or divests the mortgaged
premises of the lien which the mortgage may have created. (42 C. J. 341)
2. Kinds of redemption
a. Equity redemption — the right of the mortgagor to redeem the property mortgaged
after his default but before the property is sold.
b. Right of redemption — the right of the mortgago0 redeem or repurchase the property
sold for the payment of the mortgage debt.
3. Right of redemption and Equity of redemption distinguished.
Equity of redemption is the right of the mortgagor after judgment, in judicial foreclosure,
to redeem the property by paying to the court the amount of the judgment debt before
the sale or confirmation of the sale. On the other hand, right of redemption is the right of
the mortgagor to redeem the property sold at an extra-judicial foreclosure by paying to
the buyer in the foreclosure sale the amount paid by the buyer within one year from such
sale.
87. Remedies of mortgagee where the mortgagor subsequently dies.
1. He may abandon his security and share ¡n the general distribution of the estate; or
2. He may foreclose, secure a deficiency prove his deficiency judgment and claims; or by
judgment before the committee claims; or
3. He may rely upon his security alone, in which case he can receive no share in the
distribution of the assets of the estate (Sec. 708, C. C. P.; Bank of Phil. Islands vs.
Concepcion & Hijas, Inc., 53 Phil. 806)
88. Chattel mortgage defined.
Chattel mortgage is a contract whereby personal property is recorded in the Chattel
Mortgage Registry as a security for the performance of an obligation.
89. Requisites of Chattel Mortgage.
1. That it be constituted to secure the fulfillment of a principal obligation.
2. That the mortgagor be the absolute owner of the thing mortgaged.
3. That the person constituting the mortgage have the free disposal of his property, and
in the absence thereof, that he be legally authorized for the purpose. (Art. 2085)
4. That the mortgage be recorded in the Chattel Mortgage Register. (Art. 2140)
5. That the object be personal or movable property.
90. Chattel mortgage distinguished from Pledge
1. In chattel mortgage, registration in the Chattel Mortgage Registry is required; in
pledge registration is not necessary
2. In chattel mortgage, the thing is not delivered to the creator; in pledge, the thing is
delivered to the creditor or third person by agreement of the parties.
3. In chattel mortgage, affidavit of good faith is necessary to affect third persons; in
pledge, affidavit of good faith is not required, but the description of the thing pledgee
and the date of the pledge should appear in public document ¡n order to affect third
persons.
4. In chattel mortgage, the mortgagor is entitled to excess of the proceeds of the S 31e;
in pledgor is not entitled to the excess of the sale, unless otherwise stipulated.
5. In chattel mortgage, the mortgagee is entitled to deficiency: in pledge, the pledgee
cannot recover deficiency notwithstanding any agreement to that
91. Characteristics of Chattel Mortgage.
1. Nominate —it has a special designation or name the Civil Code
2. Consensual— perfected by mere consent
3. Accessory — its validity is dependent upon of the principal contract.
4. Unilateral — only the mortgagor has an favor of the mortgagee.
5. Indivisible — as long as the principal obligation unpaid, the chattel mortgage will
continue to is indivisible even though the debt may among the successors in interest of
the creditor.
6. Formal contract — the public document clear and complete description of mortgaged
must be registered in the C Registry, otherwise the mortgage contract is not valid.
THE CHATTEL MORTGAGE LAW
(Act No. 1508, as amended)

1. Purpose of the Chattel Mortgage Law

The Chattel Mortgage Law, according to the Supreme Court, is designed to promote
business and trade, and to give impetus to the economic development of the country.
2. Objects Covered by chattel mortgage only personal property may be the subject
matter of chattel mortgage (Sec. 2, Act 1508), such as
1. Shares of stock of corporations. (Monserrat vs. Ceron. 58 Phil. 469)
2. Growing crops. (Sec. 7, Act 1508; Sibal vs. Valdez, 50 Phil. 512)
3. Interest in business. (Involuntary Insolvency of Strochecker vs. Ramirez, 44 Phil. 933)
4. Vessels. (Phil. Refining Co. vs. Jargue, 61 Phil. 229)
5. Large cattles. (Sec. 7, Act 1508)
3. Personal property
The following things are deemed to be personal property:
a. Those movables susceptible of appropriation which are not included in the preceding
article;
b. Real property which by any special provision of law is considered as personality;
C. Forces of nature which are brought under control by science;
d. In general, all things which can be transported from place to place without impairment
of the real property to which they are fixed; (Art. 416)
e. Obligations and actions which have for ‘their object movables or demandable sums
f. Shares of stock of agricultural, commercial and industrial entities, although they may
have real estate. (Art. 417)
4. Chattel mortgage on buildings
A building is an immovable property, irrespective of whether or not said building and the
land on which it is adhered to belong to the same owner. (Lopez vs. Orosa, et. al., L-
10817-18, Feb. 28, 1958). Hence, the execution and registration of a chattel mortgage
on a building is void (De la Riva vs. Ah Kee, 60 Phil. 899; Associated Insurance & Surety
Co. vs. Iya, et. al., L-10837-38, May 30, 1958), except when the house mortgaged is
intended to be demolished or removed. (3 Manresa 19)
However, in the case of Navarro vs. Pineda, the court held, that the parties may stipulate
to treat the building as e movable property and as a subject of chattel mortgage this shall
not in any way prejudice third persons. (L-18456, Nov.30, 1963)
5. Nature of chattel mortgage under the Civil Code;
a chattel mortgage is not a conditional sale. In Serna vs Rodriguez (L-25546, April 22,
1974 SC RA, p. 538). The Supreme Court said that the old that a chattel mortgage s a
conditional sale is now obsolete by the New Civil Code (Art. 2140). Supreme Court,
speaking through Mr. Justice
4. Chattel mortgage on buildings.

“Under Section 14 of Rule 57of the Revised rules of Court, a third-party Claimant to a
Property levied upon by a write of attachment must Show that he has a title thereto or
right to the Possession thereof. This excludes a chattel mortgage because a chattel
mortgage is merely a security for a loan and does not transfer title of the property
mortgage. Neither is a chattel mortgagee entitled to the possession of the property upon
the execution of the chattel mortgage for otherwise the Contract becomes a pledge and
ceases to be a chattel mortgage. The old view that a chattel mortgage is a conditional
sale and therefore transfers immediately the title to the chattel mortgagee who may thus
properly file a third-party claim to a property subject matter of attachment, (Contraras vs.
Molina, 64 Phil. I), has expressly been repudiated by Article 2140 of the new Civil Code,
which defines a chattel mortgage, thus: Art. 2140. By chattel mortgage, personal
property is recorded in the Chattel Mortgage Register as a security for the performance
of an obligation. If the movable, instead of being recorded delivered to the creditor or a
third person, the contract is a pledge and not a chattel mortgage”.
“The change was deliberate according to the Code Commission, which categorically
stated that the ‘definition of the chattel mortgage even in the Chattel Mortgage Law is
inaccurate for it considers a chattel mortgage as a conditional sale. Therefore, a new
definition is given in Article 2140”. (J. Nolledo, Sales, Agency and Bailments)
6. House may be treated as chattel by the parties.
As between the parties a chattel mortgage executed is now well-settled that an on a
house is perfectly valid for ¡ o had only a temporary object placed one land by one who
had right on the same, such as lessee or usufructuary does not become immobilized by
attachment. Hence, of a house built on land belonging to another person it may be
mortgaged as a personal property if so stipulated in tge document. (Evangelista vs.
Abad 360. G 2013)
7. Machinery placed by a tenant in a plant belonging another may be a subject of
chattel mortgage.
Machinery which s movable in its nature only become immobilized when placed in a
party by the owner of the property or pam. II such machinery therefore is placed by a
tenant, lessee, or usufructuary, or any person shall be treated as movable personal
property subject to chattel mortgage.

8. Effect of real estate mortgage and chattel mortgage in one instrument.

The inclusion of a real estate mortgage and chattel mortgage in one instrument does not
mean that the securities given are indivisible. The mortgagee may foreclose the real
estate mortgage and leave the other mortgage in full force and effect.
9. Effect of Article 2140 of the Civil Code.
Article 2140 has modified the provision of section 4, Chattel Mortgage Law, which
provides that “If the movable, instead of being recorded, is delivered to the creditor or to
a third person, the contract is a pledge and not a chattel mortgage.” If, therefore, a deed
of chattel mortgage S required, but the possession of the chattel was delivered and
retained by the creditor, the transaction is considered as a pledge.

10. Place of registration

a. Mortgage domicile of the Philippines — Chattel, Mortgage Registry of the province in
which the mortgagor resides. .
b. Mortgagor domicile abroad — Chattel Mortgage Registry of the province in v.1îich the
property is situated.
c. Mortgagor domicile of the Philippines. But the property is situated in a different
province — Chattel Mortgage Registry of both the province in which the mortgagor
resides and that in which the property is situated.
2. Chattel mortgage of vessels
Place of registration — office of the collector of customs at port of entry. Registration in
the Register of Deeds is no longer required. (Phil. Refining Co. vs. Jargue, 61 Phil. 200)
3. Chattel Mortgage of Motor vehicle
Place of registration — Chattel Mortgage registry and the Land Transportation Office.
11. Chattel mortgage of shares.
Place of registration Chattel Mortgage Registry in the domicile of the mortgagor and in
that of the corporation unless their domicile is the same, in which case a single
registration s sufficient. (Chua Guan vs. Samahang Magsasaka Inc., 62 phil. 472)

12. Effect of lack of registration.

Registration of the chattel mortgage in the Chattel Mortgage Registry is essential for the
validity of the contract. This is evident from the definition of chattel mortgage as
enunciated in Article 2140 of the New Civil Code. (Associated Insurance & Surety Co.
vs. Lim Ang, CA, 52 0. G. 5218; Malonzo vs. Luneta Motors, CA 530. G. 556)
consequently, if the chattel mortgage was not registered, the contract is null and void.
But the nullity of the chattel mortgage does not affect the validity of the otherwise valid
principal obligation. The principal obligation can be enforced even if the chattel mortgage
cannot be foreclosed.
13. Unregistered chattel mortgage.
An unregistered chattel mortgage is valid and binding upon the parties but void as to
innocent third persons.
14. Effect of delivery.
If the movable, instead of being recorded, is delivered to the creditor or a third person,
the contract is a pledge and not a chattel mortgage. (Art. 2140)
15. When mortgage papers are ¡n order.
When the mortgage papers are in order, it was held that the Register of Deeds has no
power, judicial o extrajudicial, to question the nature of the mortgage as t power pertains
to the courts. (Standard Oil Co. of New vs. Jaranillo, 44 Phil. 630)
16. Chattel mortgage over future obligation.
Chattel mortgage cannot cover debts subsequently contracted. However, ¡n a case
presented to the Sup Court for decision, the court said, “that the provision mortgage
deed including as part of the obligation future amounts that may be borrowed by the
mortgagor, is not improper for it has been held that the amounts name as : consideration
In a contract of mortgage do not limit the amount for which the mortgage may stand as
security, if from the four corners of the instrument the intent to secure future and other
indebtedness can be gathered.” (Ang Lion Tak vs. Luneta Motor Co., 66 Phil. 457)
17. After-acquired property.
As a rule, future property may not be covered by chattel mortgage. But when such
property is a renewal of, or in substitution for goods on hand when the mortgage was
executed, or is purchased with the proceed of sale of such goods, said property may
then be covered by chattel mortgage. Thus, goods or articles in stores which are
constantly ‘ sold and substituted with new stock, may be mortgaged under the Chattel
Mortgage Law. (Torres vs. Simjap, 56 Phil. 141) (Cited by J. Nolledo,; Sales, Agency
and Bailments)
18. If a corporation, notation is not necessary.
The corporation does not require the notation upon the books of a corporation of
transaction relating to its shares, except the transfer of possession and ownership.

19. As to third persons.

The absence of an affidavit of good faith vitiates a mortgage as against creditors and
subsequent encumbrancers and ¡s unenforceable against third persons. (Phil. Refining
Co. vs. Jargue, 61 Phil. 229; Giverson vs. A. N. Jureidini Bros., 44 Phil. 216), unless they
have noticed that the mortgage was made ¡n good faith and for a full consideration.
(Roberts VS. Crawford, 58 N. H. 499).

20. Description of property mortgaged.

The property mortgaged must be described to enable the parties to the mortgage, or any
other p sons, after reasonable inquiry and investigation, to identify the same (Sec. 7, Act.
1508)
21. Property covered.
In general, a mortgage will include all the property ascertainable from the description
therein; but property not so ascertainable and not within the description will not pass
under it. (14 C.J.s. 727) It does not cover like or substituted property thereafter acquired
by the mortgagor and placed in the same depositary as the property originally
mortgaged, anything in the mortgage to the contrary notwithstanding. (Sec. 7, Act 1508)
However, that provision is not applicable to drug stores, bazaars and all other stores in
the nature of a revolving and floating business. Hence, a stipulation in a chattel
mortgage of the contents of drug store authorizing the mortgagor to sell the goods
covered thereby and to replace them with other goods thereafter acquired is valid.
(Torres vs. Limjap, 56 Phil. 414, Dee Ho Kim vs. Busiang, 56 Phil. 181)
22. Removal, sale or pledge of mortgaged property.
1. The penalty of arresto mayor or a fine amounting to twice the value of the property
shall be imposed upon:
a. Any person who shall knowingly remove any personal property mortgaged under the
Chattel Mortgage Law to any province or city other than the one in which it was located
at the time of the execution of the mortgage, without the written consent of the
mortgagee or his executors. Administrators or assigns.

b. Any mortgagor who shall sell or pledge personal property already pledged, or any
part thereof, under the terms of the Chattel Mortgage Law1 without the consent of the
mortgagee written on the back of the mortgage and noted on the record thereof in the
office of the Register of Deeds of the province where such property is located. (Art 319.
Revised Penal Code)
2. Owner may dispose thing mortgage but is subject to criminal liability.
The mortgagors who gave as security the property under a chattel mortgage do not part
with the ownership over the same. They have the right to sell it because the mortgagor is
the owner, but they are subject to criminal prosecution under Article 319, Revised Penal
Code. (U. S. Vs. Kilayco, 32 Phil. 619)

3. Decided cases on transfer to property mortgaged.

a. Unauthorized removal or transfer of property from one place to another is punishable
under Article 319 Penal Code.
b. Bona tide change of residence without felonious interest ¡s not punishable.
C. Unauthorized sale or pledge of property mortgagee is punishable.
23. Rights of junior mortgagee.
a. Before thing is sold by the senior mortgagee The right of the junior mortgagee ¡s
limited to the mortgagor’s right of redemption (Tizon vs. Valdez, 48 Phil. 910), that is to
redeem the thing by paying or delivering to the mortgagee the amount due on such
mortgage and the reasonable costs and expenses incurred by such breach of condition
before the sale thereof. (Sec. 13, Act. 1508).
b. After thing is sold by the senior mortgagee
Where the mortgaged property is foreclosed by the first mortgagee and upon sale is
acquired by a purchaser, all subsequent mortgages over the same are extinguished. (El
Hogar Filipino vs. National Bank, 64 Phil. 582)
24. Rights of junior mortgagee or subsequent attaching creditor who redeemed
the property.
Junior mortgagees or subsequent attaching creditors who redeemed the property after
the condition of the chattel mortgage is broken shall be subrogated to the rights of the
mortgagee and entitled to foreclose the mortgage in the same manner that the
mortgagee could foreclose it.
25. Foreclosure of chattel mortgage kinds:
1. Judicial foreclosure.
2. Extrajudicial foreclosure.
26. Judicial foreclosure.
Procedure:
In judicial foreclosure, where an action is filed in court, the procedure laid down under
Section 14 of the Chattel Mortgage Law should be followed as far as practicable.
(Bachrach Motor Co. vs. Summers, 42 Phil. 3)
27. Extrajudicial foreclosure.
1. Possession of thing condition precedent. When default occurs and the creditor
foreclose, he must necessarily take the mortgaged property into his hands; and his right
to do this is clearly implied in the provision which gives the right to sell. Possession of
the thing is necessary in foreclosing the mortgage because the power to sell implies a
power to deliver the thing sold possession delivery is the buyer, and without actual
possession deliver is impossible. (Bachrach Motor actual Co. vs. Summers, 42 Phil. 3)

2. Creditor’s remedy where debtor refuses to deliver the thing

Where the debtor refuses to deliver the thing, the creditor must institute an action, either
to effect a judicial foreclosure directly, or to secure possession as a preliminary to the
sale (extrajudicial foreclosure) contemplated in Section 14. (Bachrach Motor Co. vs.
Summers, 42 Phil. 3)
3. Who conducts the Sale:
a. Sheriff, or
b. Notary Public (Art. 2112) or
c. Mortgagee, when authorized by the contract of mortgage (Peterson vs. Azada, 8 phil.
432), or when authorized by special law as in mortgages executed in favor of the Phil.
National Bank. (Sec. 33, Act No. 2938)
28. Place of sale.
The foreclosure said should, unless the mortgagor otherwise agrees, be conducted in
the municipality where the mortgagor lives, or where the mortgaged property is situated:
and the latter expression has reference to the place where the thing is kept for use by
the mortgagor. The mortgagee cannot, without the consent of the mortgagor, legally
remove the property to another municipality or province for the purpose of selling it,
otherwise he shall be liable to the mortgagor for its full value. (Bachrach vs. Golingco, 39
phil. 138) However the sale may be made elsewhere ¡f the parties so agree
(St1hianopolus vs. Riosa 380. G. 801)

29. Sale by the creditor or mortgagee, notice not required

1. When stipulated
The contracting parties may stipulate that in case of the violation of the conditions of the
mortgage contract, the creditor may sell, at private sale and without previous
advertisement or notice, the whole or part of the goods mortgaged for the purpose of
applying the proceeds on the payment of debts. Said stipulation not contrary to law or
public order, and therefore ìt I valid. (A. Agbayani1 Commercial Laws, citing Peterson vs.
Azoda, 8 Phil. 432)
2. When authorized by special law.
The charter of the Philippine National Bank, under 33 of Art. No. 2938, is authorized to
sell the property at a public or private sale even without prev notice. (Boahroah
Motor vs. Summer, 42 Phil. 3, 10)
30. Distribution of proceeds of sale.
1. Costs of sale.
2. Claim of the person foreclosing the mortgage.
3. Claims of persons holding subsequent mortgage their order.
4. Surplus, ¡f any, to be returned to the mortgagor.
31. Payment of deficiency.
If the thing is foreclosed and there is a de mortgagee may maintain an action against the
recovery of that deficiency (Bank of Rl. vs. 01’ Co. 47 Phil. 20) however, if the thing
foreclose acquired and mortgaged under the Installment the seller cannot recover
deficiency from the buyer.
32. Effect of sale
1. on senior mortgagees
The foreclosure and sale of the thing mortgaged by a junior mortgagee does not affect
the rights of persons holding prior encumbrances upon the same thing. The purchaser of
the thing in that foreclosure sale acquires it subject to the right of foreclosure given to
senior mortgagees.
2. On junior mortgagees
The foreclosure and sale of the thing mortgaged by the senior mortgagee extinguishes
all subsequent mortgages.
EXERCISES IN PLEDGE AND MORTGAGES
INCLUDING PAST CPA EXAMINATION QUESTIONS
TRUE OR FALSE
1. If the thing pledged ¡s returned by the pledgee to the pledger or owner, the principal
obligation is extinguished.
2. A chattel mortgage exists when personal property is re corded ¡n the Chattel
Mortgage Register as a security for the performance of an obligation.
3. In chattel mortgage, the mortgagor must execute an affidavit of good faith in order that
the mortgage shall be valid against third persons.
4. If the thing pledged is sold, but the proceeds of the sale is less than the principal
obligation, the pledgee can collect the deficiency from the pledgor.
5. Any stipulation ¡n a contract of pledge authorizing the pledgee to sell the thing
pledged if the pledgor cannot pay is void.
6. Incorporeal rights, evidenced by negotiable instruments, bills of lading, shares of
stock, bonds, warehouse receipts and similar documents may also be pledged. The
instrument proving the right pledged shall be delivered to the creditor and if negotiable,
must be endorsed.
7. If the pledge earns or produces fruits, income, dividends, or interests, the creditor
shall compensate what he receives with those which are owing him; but if none arc
owing him, or insofar as the amount may exceed that which is due, he shall apply it to
the principal Unless there is a stipulation to the contrary, the pledge shall extend to the
interest and earnings of the right pledge.
8. Pledge is a real contract which is perfected from the time the thing pledged is placed
in the possession of the creditor, or of a third person by common agreement.
9. If two or more things are pledged, the pledgee may choose which he will cause to be
sold, unless there is stipulation to the contrary. He may demand the sale of only as many
of the things as are necessary for the payment of the debt.
10. Pledge is a consensual contract which is perfected from the time the thing pledged is
placed in the possession of the creditor, or of a third person by common agreement.
11. If the thing pledged is alienated by the pledgor, consented by the pledge the
ownership and possession is transmitted to the vendee after alienation.
12. In mortgage, the mortgagee is entitled to the entire proceeds of the sale of the thing
mortgaged.
13. In chattel mortgage, and in sale con pacto de retro, the title to the subject matter of
the contract is transferred to the other party.
14. If the immovable mortgaged is sold, and the amount realized is less than the
mortgage debt, the buyer of the mortgaged property is liable to pay the deficiency, if any.
15. A stipulation fbiddih1g the owner from alienating the immovable mortgage is valid.
16. A real estate mortgage is inseparable and directly and Immediately subjects the
property upon which it is imposed, whenever the possessor maybe, to the fulfillment of
the ob ligation.
17. In case of pledge of animals, their offspring shall pertain to the pledgor of the animal
pledged and are no longer subject to the pledge, unless stipulated.
18. In case of diminution or impairment in the value of the thing pledged, without the fault
of the pledgee, the same may be sold at a public sale, without notifying the pledgor.
19. An unregistered chattel mortgage is valid upon the parties . but void as to innocent
third persons.
20. The mortgagee has the right to take possession of the chattel mortgage upon default
of the mortgagor.
21. Real estate mortgage is an accessory contract.
22. A real estate mortgage may guarantee future obligations, while a chattel mortgage
cannot guarantee future obligations.
23. The insurable interest of the mortgagor is to the value of the property, while the
mortgagee is to the amount of the credit.
24. The equity of redemption by the mortgagor ¡s exercised after the property mortgaged
is sold for the purpose of paying the mortgage debt.
25. Shares of stock can be the object of pledge and mortgage.
26. in case the pledgee is deceived on the substance or quality of the thing pledged, the
pledgee is authorized to sell it at public auction, the proceed of the sale shall be applied
to the principal obligation.
27. Third persons who are not parties to the principal obligation cannot give as security
in pledge their property to answer the principal obligation.
28. If the thing pledged is deposited to a third person by the pledgee, consented by the
pledgor, the former is no longer liable to the acts of his agent or employees.
29. A pledge shall not take effect against third persons if a description of the thing
pledged and the date of the pledge do not appear in a public instrument.
30. The contract of pledge gives a right to the creditor to retain the thing in his
possession or ¡n that of third person to whom ¡t has been delivered, until the debt is
paid.
31. If through the negligence or willful act of the pledgee, the thing pledged is in danger
of being lost or impaired, the pledgor may require that it be deposited with a third person.
32. Any third person who has any right in or to the thing pledged may satisfy the
principal obligation as soon as the latter becomes due and demandable.
33. Any stipulation authorizing the pledgee to appropriate the thing pledged is void and
without effect.

34. Growing crops attached to the land are considered immovables and therefore cannot
be the subject of chattel mort gage.
35 The parties to a mortgage of a house and lot cannot validly stipulate that the
mortgaged property cannot be sold except with the consent of the mortgagee.
36. If a credit which has been pledged becomes due before ¡t is redeemed, the pledgee
may collect and receive the amount due. He shall apply the same to the payment of his
claim, and deliver the surplus, should there be any, to the pledgor.
37. A stipulation in a contract of mortgage stipulating an upset price, at which the
property may be sold is void.
38. If subsequent to the perfection of the pledge, the thing pledged is in the possession
of the pledgor or owner, there is a prima fade presumption that the same has been re
turned by the pledgee, extinguishing the contract of pledge.
39. The mortgage credit may be alienated or assigned to a third person, in whole or in
part.
40. If after the second auction sale, the thing pledged is not sold, the pledgee can
appropriate the thing pledged.
41. The creditor cannot use the thing pledged, without the au authority of the owner, and
if he should do so or should the thing in any other way, the own 9r may ask that it
officially or extrajudically deposited When the thing pledged requires its use, it must be
used creditor but only for that purpose.
42. The sale of the thing pledged shall extinguish the principal obligation, whether or not
the proceeds of the sale are equal to the amount of the principal obligation1 interest and
expenses in a proper case.
If the price of the sale is more than said amount, the debtor shall be entitled to the
excess, un less it is otherwise agreed. If the price of the sale is less, neither shall the
creditor be entitled to recover the deficiency, notwithstanding any stipulation to the
contrary.
43. In sale at public auction, the pledgor or owner may bid and he shall have a better
right if he should offer the same term as the highest bidder.
44. In the preceding question, the bid is not valid if he is the only bidder,

EXERCISES IN PLEDGE AND MORTGAGES

INCLUDING PAST CPA EXAMINATION QUESTIONS
MULTIPLE CHOICE
1. In real estate mortgage, the mortgagor can sell the mortgaged property:
a. With the consent of the mortgagee in writing.
b. Even without the consent of the mortgagee.
c. Only with the consent of the mortgagee in writing or orally.
d. None of the above.

2. Real mortgage —
a. May guarantee future debts.
b. Objects is immovable property.
c. Is a accessory contract.
d. All of the above.
3. Real property mortgaged —
a. Generally, is not possessed by the creditor.
b. Cannot be acquired by the creditor, even if he is in possession for 30 years by
prescription.
c. Mortgagee cannot appropriate the property for himself, even if stipulated.
d. All of the above.

4. Effect f sale on the thing pledged if it is less than the principal obligation
a. Creditor cannot recover the deficiency
b. Creditor can recover the deficiency
c. Creditor cannot recover the deficiency even if there is stipulation. . . .
d. Creditor can recover the deficiency if there is stipUlatb01.
e. None of the above.

5. In question No. 4, if the sale is in excess of the principal obligation:

a. D cannot recover the excess.
b. D cannot recover the excess even if stipulated.
c. D can recover the excess. .
d. Answer not given.

6. Real estate mortgage —

a. Has for its object movables as well as immovables.
b. Is perfected the moment the contract is registered with the Registry of Property.
c. Is inseparable because the mortgage directly and immediately subjects the property
upon which it is imposed, whoever the possessor may be, to the fulfillment of the
obligation for whose security it was constituted.
d. Entitles the mortgagee to the fruits of the thing mort gaged.

7. Which of the following statements is true and correct?

a. Pledge and mortgage are accessory contracts because they cannot exist by
themselves.
b. In both pledge and mortgage, the creditor is entitled to deficiency judgment.
c. Where an obligation is secured by a pledge or mortgage and it is not paid when due,
the pledgee or mortgagee may appropriate the thing pledged or mortgaged if there is an
agreement to that effect between the parties.
d. Unless otherwise agreed upon by the parties, the sale of the mortgaged property
extinguished in full the obligation of the mortgagor to the mortgagee.

8. A borrowed from B P50, 000. A offered his specific ring by way of pledge. It was
expressly stipulated that upon non payment of the debt on time, the ring would belong to
B. This forfeiture clause, which has traditionally not been al lowed ¡s called a
a. Caveat emptor. c. Pacto comrnisorio.
b. Dacion en pago. d. Pacto de retro. S
9. A thing pledged —
a. Even if stipulated, cannot be appropriated if debt is not paid.
b. Is indivisible even among successors in interest.
C. May guarantee the debts of another person.
d. May secure all kinds of obligation, be they pure or subject to a suspensive or
resolutory condition.
e. All of the above.

10. Three of the following are considered elements of contract of pledge and mortgage.
Which is the exception?
a. Accessory contract.
b. Pledgor or mortgagor must be the absolute owner.
c. Thing pledged may be appropriated ¡f debtor cannot
d. Pledgor or mortgagor must have a free disposal thing pledged.

11. Statement 1: contract of pledge gives a right to the creditor in his possession or in
that of a third person to whom it has been delivered until debt is paid
Statement 2: A pledge shall not take effect against third persons if a description of the
thing pledged and the date of the pledge do not appear in a public instrument.
a. Both are true. C. no.1 is true; no.2 in false
b. Both are false d. no.1 is false; no.2 is true

12. Statement 1: A stipulation in a contract of mortgage stipulating an upset price, at

which the property may be sold is void.
Statement 2: if the immovable mortgaged is sold, and the amount realized is less
than the mortgage debt, the buyer of the mortgaged property is liable to pay the
deficiency, if any;
a. Both are true c. no.1 is true; no.2 is false
b. Both are false d. no.1 is false; no.2 is true

13. Statement 1: A real mortgage may guarantee future obligations, while a chattel
mortgage cannot guarantee future obligations.
Statement 2: The mortgagee has the right to take possession of the chattel mortgage
upon default of the mortgagor.
a. Both are true. C. no. 1 is true; no. 2 is false
b. Both are false. D. no. 1 is false; no. 2 is true
14. S sold to B a specific car for P20, 000 payable in four equal installments. S delivered
the car to B but required B to mortgage it back to S to answer the unpaid installment. B
paid the 1st installment, but the last three he failed to pay. S foreclosed the mortgaged
property and sold it at public auction for P13, 000.
a. S can recover from B the balance of P2, 000.
b. S can recover from B the balance of P2, 000, if there is stipulation to the effect.
c. S cannot recover the deficiency any more even if there is stipulation to that effect and
this is covered by Recto Law.

d. None of the above.

15. Statement 1: In chattel mortgage, the mortgagor must execute an affidavit of goon
faith in order that the mortgage shall be valid against third person.
Statement 2: An agency cannot be revoked if a bilateral contract depends upon it, or if it
is the means of fulfilling an obligation already contracted, or if a partner is appointed
manager of a partnership in the contract of partnership and his removal from the
management is unjustifiable.
a. Both are true. C. No. 1 s true; No.2 is false.
b. Both are false. d. No.1 is false; No. 2istrue.

16. Statement 1. D borrowed P 100,000 from C, and as a security, he pledged his

diamond ring. In the public instrument executed, there is no description of the ring and
no date e pledge appearing but the ring is delivered to C. If D will sell the ring to X, will X
have a better title than C?
Yes, because to him (X) the pledge is not valid and effective
Statement 2: Any stipulation in a contract of pledge, the debt is not paid at maturity, the
thing pledge will be acquired by the creditor at the current market price is
a. Both are true C. No. 1 is true; No. 2 is false
b. Both are false. d. No. 1 is false; No. 2 is true
17. D pledged his ring to C for P10, 000. D failed to pay his obligation on time. C sold it
at public auction for P8, 000.
a. C can recover the deficiency even without stipulation
b. C cannot recover the deficiency even if there is stipulation
c. C cannot recover the deficiency
d. C can recover the deficiency

18. Dl, D2 and D3 borrowed from C P300, 000, and as a security, he mortgaged their
undivided agricultural land to C. Subsequently, Dl paid C Pl 00.000. Is the mortgage on
D1’s share of the land extinguished?
a. Yes, because the obligation of Dl on the debt is only P100, 000.
b. Yes, the obligation of the debtors is joint, Dl is answer able only for P100, 000.
c. No, because the obligation is solidary payment in part shall not extinguish the
obligation secured by the mortgage.
d. No, because mortgages are considered indivisible, payment in part shall not
extinguish the mortgage.
19. Statement 1: If the thing pledged is returned by the pledgee to the pledgor or owner,
the principal obligation is extinguished.
Statement 2: In case of pledge of animals, their offspring shall pertain to the pledgor of
the animal pledged and are no longer subject to the pledge, unless stipulated.
a. Both are true. c. No. 1 is true; No.2 is false.
b. Both are false. d. No. 1 is false; No.2 is true.

20. Statement 1: If the thing pledged is alienated by the pledgor, and consented by the
pledgee, the ownership and possession is transmitted to the vendee after alienation.
Statement 2: In sales at public auction, the pledgor or Owner may bid and shall have a
better right if he should offer the same terms as the highest bidder.
a. Both are true. c. No. 1 is true; No.2 is false.
b. Both are false. d. No.lisfalse;NO. 2 is true.

21. 1st Statement: The mortgagor of a real property can sell the land despite the
agreement with the mortgagee not to sell the same until the principal obligation is
completely and fully satisfied.
2nd Statement: In pledge, if the sale of the pledged property resulted into an excess, the
pledgee may not keep the excess unless there is a stipulation to the contrary.
a. Both statements are true.
b. Both statements are false.
c. 1st statement is true while 2nd statement is false.
d. 1st statement is false while 2nd statement is true.

22. S, minor of 16 years, sold her bracelet to B for P8, 000 on, B, needing money to pay
her daughter’s tuition fee CPAR plus some allowance for books and personal r borrowed
P15, 000 from C, and as a security, pledge bracelet to the latter. B failed to pay C
resulting into the auction sale of the bracelet in favor of P for P10, 000 only of the
following statements is correct?
a. The title of B over the bracelet is not valid, hence to the pledge as well as the sale of
said bracelet is likewise defective. The pledgor must be the owner of the thing pledge.
b. The deficiency of P5, 000 may still be recovered by C from B if there is a stipulation to
this effect.
c. C can no longer recover the deficiency of P5, 000 from B. The pledge, together with
the sale is valid. The void able title of B is valid because it ¡s not annulled.
d. If P was a purchaser in bad faith as he knew of the defective title of B over the
bracelet from S, ownership will not pass to him (P).

23. In the preceding number, assuming what was executed by B in favor of C was a valid
chattel mortgage which was eventually foreclosed and the bracelet was sold to P at the
public auction for the same amount, which statement is correct?
a. The title of B over the bracelet s not valid, hence the chattel mortgage, as well as the
sale of said bracelet is likewise defective. The mortgagor must be the owner of the thing
pledged.
b. The deficiency of P5, 000 may still be recovered by C from B.
c. C can no longer recover the deficiency of P5, 000 from B as the mortgage, together
with the foreclosure sale, was valid. The title of B was still valid. .
d. If P was a purchaser in bad faith as he knew of the defective title of B over the
bracelet, ownership will not pass to him (P).

24. Dl, D2, D3 obliged themselves jointly to pay C P15, 000. To secure the obligation, Dl
pledged his ring, D2 his T.V., D3. His refrigerator. On the date of maturity, DI paid C
P10, 000. Which of the following statements is true?
a. Dl can redeem object 1 because the obligation is joint.
b. Dl can redeem object 1 and object 2 because they are proportionate to the amount
paid.
c. DI can redeem any of the object pledged.
d. Dl cannot redeem any of the thing pledged because the indivisibility of the contract of
pledge is not affected by the fact that the obligation is not solidary.

25. 1st Statement: Future property may be a valid object of a contract of pledge or
mortgage.
2nd Statement: If the creditor is deceived on the substance or quality of the thing
pledged, his only right is to immediately demand the payment of the principal obligation.
a. Both statements are true.
b. Both statements are false.
c. 1st statement is true while 2nd statement is false.
d. 1st statement is false while 2nd statement is true.

26. The principal debtor could not pay his principal obligation as secured by a pledge to
the creditor that resulted into the sale of the thing at a public auction. If the proceeds of
the sale of the thing pledged sold at a public auction are less than the principal
obligation, can the creditor recover the deficiency from the debtor?
1st Answer: Yes, if there is a stipulation to this effect in the contract of pledge.
2nd Answer: No, the creditor cannot recover the deficiency from the debtor.
a. Both answers are wrong.
b. Both answers are false.
c. Only the 1st answer ¡s correct.
d. Only the 2nd answer is correct.
27. 1st Item: The creditor, by himself and before the debt be comes due and
demandable, may sell the thing pledged. 2nd Item: D borrowed P10, 000 from C, and as
a security, he pledge his diamond ring. In the public instrument executed for the
purpose, there is no description of the ring and no date of pledge appearing. If D will sell
the ring to B, B has a better right to the ring over C.
a. Both items are true.
b. Both items are false.
c. 1st item is true while 2nd item is false.
d. 1st item is false while 2nd item is true.

28. A, B and C are solidarity indebted to X for the sum of P1.5 Million which is payable
on or before April 15, 2010. To secure their obligation to X, they executed the following
contracts to wit:
A — a chattel mortgage contract on his Isuzu Highlander
B — a real estate mortgage on his land located in Gapan, Nueva Ecija
C — a pledge of his two diamond rings
On April 3, 2011, A went to X and was paying P500, 000 as his share of the obligation,
and demanded the release or cancellation of the mortgage on his Isuzu Highlander
vehicle. On April 5, 2011, C went to X paying P500, 000 and demanding the return of the
diamond rings.
1st Answer: X may not be compelled to cancel the mortgage on the Isuzu vehicles as
the obligation is indivisible in character, so is the mortgage.
2nd Answer: X may be compelled to return the diamond rings to C as the same is
capable of manual delivery.
a. Both answers are true. c. Only the 1st answer is true.
b. Both answers are false. d. Only the 2nd answer is true.

29. Personal properties that can be mortgaged under the Chattel Mortgage Law:
a. Shared of stock.
b. Ungathered fruits or products.
c. Interest in business.
d. All of the above.

30. Debtor “A” issued a promissory note in the amount of Pl 0M ¡n favor of commercial
bank “Y” secured by mortgage of his properties worth P3OM. When “A” failed to pay his
indebtedness, despite demands made by bank “Y”I the fatter instituted a collection suit
to enforce payment of the Pl 0M account. Subsequently, bank “Y” also filed foreclosure
proceedings against “A” for the security given for the account. Which of the following
statements is false?
a. If the amount realized in the auction sale is P35, can collect from bank the excess
amount of R
b. if it is P25M, bank “Y” can collect from “A” the deficiency of P5M. c. “Y” cannot institute
an action for collection and at the same time foreclose the mortgage property.
d. In letter (a), “A’ can only collect the excess amount if there is a stipulation to that
effect.

KEY ANSWERS
PLEDGE AND MORTGAGES
TRUE OR FALSE

I. False 23. T
2. T 24. False
3.T 25.T
4. False 26. False
5. False 27. False
6. T 28. False
7.T 29.T
8.T 30.T
9. T 31.T
10. False 32. T
11. False 33. T
12. False 34. False
13. False 35. T
14. False 36. T
15. False 37. T
16.T 38.T
17. False 39. T
18.T 40.T
19.T 41.T
20. T 42. False
21.T 43.T
22. T 44. False

KEY AÑSWERS
PLEDGE AND MORTGAGES
MULTIPLE CHOICE
1.B 16.A
2.0 17.B
3.D 18.D
4.C 19.B
5.A 20.D
6.C 21.C
7.A 22.C
8.C 23.B
9.E 24.D
I0.C 25.B
11.A 26.D
12.C 27.D
13.A 28.C
14.C 29.D
15.A 30.C