Law On Sales, Agencies and Bulk Sales Law

The Bulk Sales Law
A sale is considered in bulk in any of the following instances:

1.) There is a sale, transfer, mortgage or assignment of stock other than in the
ordinary course of business
2.) All or substantially all of the trade or business is sold, transferred or
mortgaged
3.) All or substantially all of the fixtures and equipment of the business are
sold
The purpose of the bulk sales law (Act 3952) is to prevent the defrauding of
creditors by secret sale or disposal in bulk of all or substantially all of the
merchant's stock or goods. "Substantially" means 80%. It doesn't only apply to
creditors whose claims are already due at the time of the sale, but also to those
whose claims aren't due but are already existing at the time of the sale.
The bulk sales law will not apply to the following:
1.) Sales/transfers in the ordinary course of trade or business
2.) There is a written waiver from the creditors
3.) If the sale is made by an executor, administrator, receiver or assignee
in insolvency proceedings or a public officer acting under judicial process
When a bulk sale is made, the seller must do the following:
1.) Deliver a sworn statement containing a list of all his creditors with the
corresponding amounts of indebtedness to the buyer
2.) Apply the payment received from the sale pro rata to the claims of the
creditors as shown in the sworn statement
3.) Make a full and detailed inventory of the stock to be sold/mortgaged in
bulk
4.) Inform the creditors of the sale at least 10 days before it actually takes
place
Penalties
Violations of the bulk sales law makes the sale valid between the parties but
void for the affected creditors. The buyer will hold the property in trust for the
seller and is liable to the seller's creditors for properties forming part of the
bulk and already disposed by him.
Also, the seller can be punished with a prison term of 6 months to 5 years
and/or a fine of up to Php5,000.00.
Acceptance of delivery and payment of purchase price
The buyer is obligated to accept delivery and to pay the price of the thing sold
at the time and place[1] stipulated in the contract.[2]Except as otherwise
agreed upon, the buyer is not required to accept delivery by installments.[3]
Reasonable opportunity to examine
If the buyer has not yet previously examined goods delivered to him, he is
deemed not to have accepted them unless and until he has had a reasonable
opportunity of examining them for the purpose of ascertaining whether they
are in conformity with the contract if there is no stipulation to the contrary.
[4] If the seller physically tenders delivery of the goods to the buyer, the seller
is required, upon request of the buyer, to afford the buyer a reasonable
opportunity of examining the goods for the purpose of ascertaining whether
they are in conformity with the contract.[5]
Goods delivered to a carrier
If the seller delivers the goods to a carrier pursuant to an agreement or order
from the buyer, upon the terms that the goods are not to be delivered by the
carrier to the buyer until he has paid the price, whether such terms are
indicated by marking the goods with the words collect on delivery, or
otherwise, the buyer is not entitled to examine the goods before the payment
of the price, in the absence of agreement or usage of trade permitting such
examination.[6]
Implied acceptance
The buyer is deemed to have accepted the goods in any of the following
situations:
1. If he intimates to the seller that he has accepted them; [7]
2.
If the goods have been delivered to him, and he does any act in
relation to them which is inconsistent with the ownership of the
seller; [8] or
3.
If, after the lapse of a reasonable time, he retains the goods without
intimating to the seller that he has rejected them.[9]
Non-discharge of seller from liability

Unless otherwise stipulated or by implied agreement, the buyers acceptance
of the goods does not discharge the seller from liability in damages or other
legal remedy for breach of any promise or warranty in the sales contract.
[10] However, the buyer is required to give notice to the seller of the breach in
any of the warranty within a reasonable period of time after the buyer knows
or ought to know of such breach; otherwise, the seller will not be held be
liable for such breach.[11]
Buyer not obligated to return goods despite refusal to accept
Except as otherwise agreed upon, if goods are delivered to the buyer, and he
refuses to accept them, having the right so to do, 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.[12] Ife he voluntarily constitutes himself a depositary thereof, he
will be liable as such.[13]
Buyer owes interest from delivery to payment
The buyer is required to pay interest for the period between the delivery of the
thing and the payment of the price, in the following three cases: (a) should it
have been so stipulated; (b) should the thing sold and delivered produce fruits
or income; or (c) should he be in default, from the time of judicial or
extrajudicial demand for the payment of the price.[14]
Right to suspend payment
The buyer may suspend payment of the price until the seller has caused to
stop the disturbance or danger in cases where the buyer is disturbed in the
possession or ownership of the thing acquired, or if he has reasonable grounds
to fear such disturbance, by a vindicatory action or a foreclosure of mortgage.
[15] Such right of suspension will not apply if the seller has given security for
the return of the price in a proper case, or it has been stipulated that,
notwithstanding any such contingency, the vendee is bound to make the
payment.[16] The right of suspension does not cover a mere act of trespass.
[17]
Rescission of sale for fear of loss of immovable property sold and price
The seller may initiate an action for rescission of the sale if he has reasonable
grounds to fear the loss of immovable property sold and its price.[18]
Payment after expiration of period in a sale of immovable property
In a sale of immovable property with a stipulation that failure to pay the price
at the agreed time rescission will take place by right, the buyer may still pay,
even after the expiration of the period, as long as no demand for rescission of
the contract has been made upon him either judicially or by a notarial act.[19]
Rescission of sale of movable in favor of seller
The rescission of the sale will take place by right in the interest of the seller in
case the buyer upon the expiration of the period fixed for the delivery of the
thing, should not have appeared to receive it, or, having appeared, he should
not have tendered the price at the same time, unless a longer period has been
stipulated for its payment.[20]
[1] If the time and place should not have been stipulated, the payment must
be made at the time and place of the delivery of the thing sold (Paragraph 2,
Article 1582, Civil Code).
[2] CIVIL CODE. Paragraph 1, Article 1582.
[3] Ibid. Paragraph 1, Article 1583. Where there is a sales contract of goods
to be delivered by stated instalments, which are to be separately paid for, and
the seller makes defective deliveries in respect of one or more instalments, or
the buyer neglects or refuses without just cause to take delivery of or pay for
one or more instalments, it depends in each case on the terms of the contract
and the circumstances of the case, whether the breach of contract is so
material as to justify the injured party in refusing to proceed further and suing
for damages for breach of the entire contract, or whether the breach is
severable, giving rise to a claim for compensation but not to a right to treat the
whole contract as broken (Paragraph 2, Article 1583, Civil Code).
Actions for price of goods by seller
In case of breach of sales contract of goods, the seller may have the following
actions against the buyer for the price of goods if:
1.
The ownership of the goods has passed to the buyer and he

wrongfully neglects or refuses to pay for the goods according to
the terms of the sales contract;[1] or
2.
The price is payable on a certain day, irrespective of delivery or of

transfer of title and the buyer wrongfully neglects or refuses to pay
such price, the seller may maintain an action for the price although
the ownership[2] in the goods has not passed.[3]
Action for damages by seller due to non-acceptance by the buyer

The seller may initiate an action against the buyer for damages[4] arising from
non-acceptance of the goods if the buyer wrongfully neglects or refuses to
accept and pay for the goods.[5]
Rescission by seller
The seller may totally rescind the sales contract after due notice thereof to the
buyer if the goods have not been delivered to the buyer, and the buyer has
repudiated the sales contract, or has manifested his inability to perform his
obligations thereunder, or has committed a breach thereof.[6]
Specific performance by buyer
If the seller has breached the contract to deliver specific or ascertained goods,
the buyer may initiate an action for specific performance with a competent
court[7] for the purpose of obtaining an order which would direct that the
contract is to be performed specifically, without giving the seller the option of
retaining the goods on payment of damages.[8]
For breach of warranty by seller, buyer may initiate various actions
If the seller is guilty of breach of warranty, the buyer may, at his election:
1.
Accept or keep the goods and set up against the seller, the breach
of warranty by way of recoupment in diminution or extinction of
the price;[9]
2.
Accept or keep the goods and maintain an action against the seller
for damages for the breach of warranty;[10]
3.
Refuse to accept the goods, and maintain an action against the

seller for damages for the breach of warranty;[11]
4.
Rescind the sales contract and refuse to receive the goods or if the
goods have already been received, return them or offer to return
them to the seller and recover the price or any part thereof which
has been paid;[12]
5.
In the case of breach of warranty of quality, such loss, in the

absence of special circumstances showing proximate damage of a
greater amount, is the difference between the value of the goods at
the time of delivery to the buyer and the value they would have
had if they had answered to the warranty.[13]
Extinguishment of sale in general

In general, a sales contract may be extinguished by the same causes as all
other obligations and by conventional or legal redemption.[1]
Conventional redemption
Conventional redemption happens when the vendor reserves the right to
repurchase the thing sold, with the obligations to comply with the provisions
of Article 1616[2] and other stipulations which may have been agreed
upon.[3] The right to repurchase lasts only for four years from date of the
contract unless otherwise stipulated.[4] If there is an express agreement to
extend the right to repurchase, it cannot exceed 10 years.[5]
Equitable mortgage
A contract, including one purporting to be a deed of absolute sale,[6] is
presumed to be an equitable mortgage in any of the following instances:[7]
1.
If the price of a sale with right to repurchase is unusually

inadequate;[8]
2.
If the vendor remains in possession as lessee or otherwise;[9]
3.
If upon or after the expiration of the right to repurchase another

instrument extending the period of redemption or granting a new
period is executed;[10]
4.
If the purchaser retains for himself a part of the purchase price;[11]
5.
If the vendor binds himself to pay the taxes on the thing sold;[12]
6.
In any other case where it may be fairly inferred that the real
intention of the parties is that the transaction is to secure the
payment of a debt or the performance of any other obligation.[13]
Money, fruit, benefit considered interest
In any of the above instances considered an equitable mortgage, the money,
fruits, or other benefit to be received by the buyer as rent or otherwise is
considered an interest.[14]
Right to repurchase; Requirements
Before the seller can avail of the right to repurchase, the seller is required
first: (a) to return to the buyer the price of the sale; (b) to pay for the expenses
of the contract, and any other legitimate payments made by virtue of the sale;
and (c) to pay for the necessary and useful expenses made on the thing sold.
[15] If the sale involves a real property, a judicial order, after the seller has
been duly heard, is required for the registration and consolidation of the
ownership in the buyer.[16]
Action against every possessor
To enforce his rights, the seller may initiate an action against every possessor
whose right is derived from the buyer.[17] The seller may do so even if the
contract between the buyer and the possessor does not mention the sellers
right to repurchase, without prejudice to the Mortgage Law and the Land
Registration Law in relation to third persons.[18]
Subrogation by buyer
The buyer is subrogated to the sellers rights and actions despite existence of
right of repurchase.[19]
Creditors to exhaust property of seller
The sellers creditors are required to exhaust the property of the seller before
they can make use of the right of redemption against the buyer.[20]
Undivided immovable property sold jointly
If several persons jointly sell an undivided immovable in the same contract
and it provides for a right of repurchase, each one may exercise his right to the
extent of his respective share only.[21] The same rule applies if a seller has
several heirs.[22] However, the buyer may demand of all the sellers or coheirs that they come to an agreement upon the repurchase of the whole thing
sold.[23] If the sellers or heirs fail to do so, the buyer cannot be compelled to
consent to a partial redemption.[24]
Co-owner may repurchase respective share only
A co-owner who may have sold his share separately may independently
exercise the right of repurchase as regards his own share.[25]The buyer cannot
require said co-owner to redeem the entire property.[26]
Buyers heirs subject to redemption to proportionate share only
The buyers heirs may be the subject of the sellers right of redemption to
their proportionate share only regardless of whether the property is undivided
or it has already been partitioned.[27] However, if the inheritance has already
been divided, and the thing sold has already been awarded to an heir, he may
be the subject of an action for redemption for the whole property.[28]
No reimbursement or prorating for fruits
If there were visible and growing fruits at the time of the execution of the sale,
a reimbursement or prorating of existing fruits is not required unless the buyer
paid indemnity when the sale was executed.[29] Conversely, if no fruits were
existing at the time of the sale but later on exist at the time of redemption, the
fruits will be prorated between the redemptioner and the buyer.[30] The
buyers share is to correspond to the time he possessed the land in the last
year, counted from the anniversary of the date of the sale.[31]
Redemptioner to receive property free from charges or mortgages
The redemptioner will receive the property free form all charges or mortgages
which may have been constituted by the buyer.[32]However, the redemptioner
is to respect the leases which the latter may have executed in good faith, and
in accordance with customs of the place where the land is situated.[33]
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.[34]
Co-owners right of redemption
A co-owner may exercise the right of redemption in case the shares of all the
co-owners or of any of them, are sold to a third person.[35] The redemption is
required only to pay a reasonable one if the price of the alienation is grossly
excessive.[36] If there are two or more co-owners desiring to exercise the
right of redemption, they may only do so in proportion to the share they may
respectively have in the thing owned in common.[37]
Adjoining lot owners right of redemption
For rural land that does not exceed one hectare, the owners or adjoining lands
may exercise the right of redemption unless the grantee/buyer does not have
any rural land.[38] The owner of the adjoining land of smaller area is
preferred should there be several prospective buyers.[39] If the lands have the
same area, the first who requested the redemption is preferred.[40] This right
cannot be exercised on adjacent lands which are separated by brooks, drains,
ravines, roads, and other apparent servitudes for the benefit of other estates.
[41]
Right of pre-emption of adjoining land owner
If a piece of urban land bought for speculation is so small and so situated that
a major portion thereof cannot be used for any practical purpose within a
reasonable time is about to be re-sold, the adjoining land owner has a right of
pre-emption at a reasonable price.[42] If the same has already been sold, the
adjoining landowner has the right of redemption for a reasonable price.[43] If
there are two or more who desires to exercise the right of pre-emption or
redemption, the owner whose intended use of the land in question appears to
best justified is preferred.[44]
Right of pre-emption or redemption when exercised
The redemption may only exercise the right of legal pre-emption or
redemption within 30 days from the notice in writing by the prospective seller,
or by the seller, as the case may be.[45] The said seller is required to
accompany the deed of sale with an affidavit stating therein that he has given
written notice thereof to all possible redemptioners; otherwise, the Registry of
Deeds will not record the deed of sale.[46]
Right of redemption of co-owners excludes adjoining land owners
Should there be a conflict between a co-owner and adjoining land owners, the
right of redemption of co-owners prevails and will exclude the adjoining land
owners.[47]
1. against hidden defect - N/A because intangibles has no physical existence

2. existence & legality of credit - there is warranty except when expressly sold
as a doubtful account
3. solvency of debtor - no warranty, unless
a. there is stipulation
b. insolvency was prior to assignment & of common knowledge
warranty shall last for 1 year only
4. one who assigns inheritance right w/o enumerating rights shall be
answerable for his character as an heir
5. one who sells whole of certain rights for a lump sum, shall be answerable
for legitimacy of the whole in general but not for each of the various parts
BREACH OF WARRANTY
1. if in good faith - expenses of the contract & other legitimate payments
made by reason of the assessment
2. if in bad faith - expenses of contract & other legitimate payments plus
useful & necessary expenses
ASSIGNMENT
ASSIGNMENT OF CREDIT OR INCORPOREAL RIGHT IN LITIGATION
Sale of credits & other incorporeal things
presumption: buyers purpose is speculation
Technical term but basically a sale
law would rather benefit the debtor of such credits rather than the one who
merely speculates for profit
WHAT MAKES ASSIGNMENT DIFFERENT FROM SPECIES SALE:
when credit or incorporeal right in litigation is assigned or sold, debtor has

a right to extinguish it by reimbursing the assignee for the price the buyer paid
plus interest
ASSIGNMENT
Subject matter: Intangibles
Form: Consensual
Binding effect to 3rd persons: Recorded in registry of property or in public
instrument
right to redeem to be exercised within 30 days from demand by assignee

for payment
SALE
Subject matter: Tangibles
Form: Consensual
Binding effect to 3rd persons:No recording needed to such effect
RIGHT TO REDEEM BY DEBTOR NOT AVAILABLE IN THE

FOLLOWING INSTANCES
(NOT CONSIDERED SPECULATIVE)
EFFECT OF ASSIGNMENT
2. assignment to creditor in payment for his credit
1. lack of knowledge or consent of debtor not essential for validity but has
legal effects
3. assignment to possessor of tenement or piece of land which is subject to the

right in litigation assigned
Barter or Exchamge
What is a contract of barter or exchange?
1. assignment of credit / incorporeal right to co-heir or co-worker
2. assignment of rights made w/o knowledge of debtor debtor may set up

against assignee the compensation w/c would pertain to him against assignor
of all credits prior to assignment and of later ones until he had knowledge of
the assignment
Barter is a contract whereby one of the parties binds himself to give one thing
in consideration of the other's promise to give another thing. (Art. 1638)
3. debtor has consented to assignment cannot set up compensation unless

assignor was notified by debtor that he reserved his right to the compensation
When is the contract of barter perfected?
4. debtor has knowledge but no consent - may still set up compensation of

debts previous to assignment but not the subsequent ones.
The contract is perfected from the moment there is a meeting of minds upon
the things promised by each party in consideration of the other.
TRANSFER OF OWNERSHIP
When is the contract of barter consummated?
by tradition & not by perfection
Barter is consummated from the time of mutual delivery by the contracting

parties of the things promised.
execution of public instrument because intangibles cannot be physically

transferred
What laws govern the contract of barter?
ACCESSORIES & ACCESSIONS

includes all accessory rights such as guaranty, mortgage, pledge or
preference
WARRANTIES
1.
2.
Articles 1638 to 1940 of the Civil Code

Suppletorily, the provisions on sales.
Best Legal Practices:

What is the effect if the giver is not the lawful owner of the thing
delivered?
The aggrieved party cannot be compelled to deliver that which he offered in
exchange, but he shall be entitled to damages. (Art. 1639)
What are the remedies of a party in a contract of barter if he loses the

thing which he had received in barter by eviction?
In case of eviction, the injured party is given the option either to:
1.
2.
Recover that which he has given in exchange with a right to

damages, or
Only demand an indemnity for damages.
However, he can only make use of the right to recover the thing which he has
delivered while the same remains in the possession of the other party, and
without prejudice to the rights acquired in good faith in the meantime by a
third person. (Art. 1640)
- See more at: http://legalvault.blogspot.com/2014/09/barter-orexchange.html#sthash.hksX1wdy.dpuf
Agency
In a contract of agency, a person binds himself to render some service or to
do something in representation or on behalf of another, with the consent or
authority of the latter.[1]
The essential elements of an agency are: (1) that there is consent, whether
express or implied, of the parties to establish a relationship of agency; (2) that
the object is the execution of a juridical act in relation to a third person; (3)
that the agent acts as a representative and not for himself; and (4) that the
agent acts within the scope of his authority.[2]
A contract of agency is personal, representative, and derivative.[3] 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.[4]
Express or Implied
An agency may be expressly agreed upon or implied.[1] It may be oral unless
otherwise required by law to be in a specific form.[2]Conversely, it is implied
from: (a) the acts of the principal, or (b) his silence or his failure to repudiate
the agency, in both cases the principal knows that another person is acting on
his behalf without his authority.[3]
An agent may accept the agency expressly or impliedly.[4] Acceptance is
implied from: (a) agents acts which carry out the agency, or (b) his silence or
inaction according to the circumstances.[5]
Publish in papers of general circulation the revocation of agency As

revocation of an agency depends on how third persons were notified, the
manner previously observed in notifying a third party of the agency should be
followed in the revocation as well. If a third person is given notice of the
agency through a letter, another letter should be sent informing him of the
revocation. The same goes for notice made by publication.
Publish in papers of general circulation the revocation of agency For good
measure, and even after a special notice of revocation, it is best to publish the
revocation of the agency in papers of general circulation. The publishing of
notices in such manner binds the whole world so to speak.
If the principal states by public advertisement that he has given a power of
attorney to a third person, the latter becomes the duly authorized agent to any
person or everyone.[9] In both circumstances, the power of agency continues
to be in full force until the notice is rescinded in the same manner in which it
was given.[10]
An agency is presumed to be for a compensation, unless otherwise agreed and
upon and there is such a proof.[1]
Kinds and Scope of Agency
The kinds and scope of agency depend on the terms and conditions of the
agency contract.
General and special agency
An agency may be general or special.[1] A general agency comprises all the
business of the principal.[2] A special agency comprises one or more
specific transactions.[3]
Agency couched in general terms
If an agency is couched in general terms, it comprises only act of
administration even if: (a) the principal should state that he withholds no
power or that the agent may execute such acts as he may consider appropriate,
or (b) the agency should authorize a general and unlimited management.[4]
Limited powers
A special power to sell does not include the power to mortgage.
[5] Conversely, a special power to mortgage does not include the power to
sell.[6]
A special power to compromise does not authorize submission to arbitration.
[7]
Between those who were present or absent

Ultra vires in agency
Between persons who are present in the same place, the acceptance of the
agency may also be implied if the principal delivers his power of attorney to
the agent and the latter receives it without any objection.[6] Between those
who are absent, the acceptance of the agency cannot be implied from the
silence of the agent, except: (a) when the principal transmits his power of
attorney to the agent, who receives it without any objection, or (b) when the
principal entrusts to him by letter or telegram a power of attorney with respect
to the business in which he is habitually engaged as an agent, and he did not
reply to the letter or telegram.[7]
Notice via special information or public advertisement
If the principal specially informs another that the former has given a power of
attorney to a third person, the latter becomes the duly authorized agent.[8]
The agent is required to act within the scope of his authority.[1] If the agent
acts outside the scope of his power, his acts are ultra vires[2] resulting in their
nullity and they cannot be given any effect.[3]
Secure board resolution from authorized representative of a corporation
When transacting with an authorized representative of a corporation or firm,
secure the board resolution evidencing the authority and power granted to
such person. As corporate powers are exercised by the board of directors, the
proper legal document showing that the board authorized a representative is a
board resolution.
Executive Committee resolution sufficient in lieu of board resolution If an

executive committee has been formed which is authorized to exercise certain
powers of the board, a committee resolution will be sufficient in lieu of a
board resolution as evidence of authority granted to a representative.
Secretarys certificate sufficient for ordinary transactions In commercial
transactions, a secretarys certificate is ordinarily considered acceptable as
proof of authorization. This practice is borne out of convenience due to the
difficulty of obtaining a board resolution requiring the signatures of the
directors. By legal standards, a secretarys certificate may suffer from
infirmity as it is a document which simply states that the corporate secretary
attests or certifies that a board resolution exists on a subject matter. If no such
board resolution exists, the corporation cannot be held liable.
Obtain directors certificate for high level transactions For high level
transactions or those involving substantial amounts, it is best to obtain a
directors certificate whereby all the required signatures of the directors will
be reflected.
When more advantageous to principal
In acting within the scope of authority, the agent may do such acts as may be
conducive to the accomplishment of the purpose other than what principal has
specified.[4] Consequently, the limits of the agents authority are not exceeded
if it has been performed in a manner more advantageous to the principal than
that specified by him.[5]
Scope and extent of power expressly stated in written power of attorney The
agent should ensure that the scope and extent of the powers granted to him by
the principal be expressly stated in the written power of attorney.
Duties and responsibilities also stipulated in written power of attorney The
agent should also ensure that the exact duties and responsibilities be
stipulated in the written power of attorney.
Insofar as third persons are concerned, an act is deemed to have been
performed within the scope of the agents authority, if such act is within the
terms of the power of attorney, as written, even if the agent has in fact
exceeded the limits of his authority according to an understanding between the
principal and the agent.[4]
In the above mentioned situation, the third person cannot set up the fact that
the agent has exceeded his powers if the principal has: (a) ratified it, or (b)
signified his willingness to ratify the agents acts.[5]
To be obligated by third person to present power of attorney
The third person may require the agent to present the power of attorney, or the
instructions as regards the agency, both coming from the principal.[6]
Third persons who have relied upon the power of attorney or instructions
shown them cannot be prejudiced by private or secret orders and instructions
of the principal.[7]
When agent acts in his own name

If the agent acts in his own name, the principal has no right of action against
the person with whom the agent has contracted.[6]Conversely, the third person
does not have any right of action against the principal.[7] It is the agent who is
directly bound in favor of the person with whom he has contracted, as if the
transaction were his own, except when the contract involves things belonging
to the principal.[8]
Agent not personally liable by default
The agent who acts in his capacity as such is not personally liable to the party
with whom he contracts unless: (a) the agent expressly binds himself; or (b)
the agent exceeds the limits of his authority without giving such party
sufficient notice of his powers.[9]
Agent to expressly declare in what capacity he/she is exercising when dealing
with third party The agent should expressly declare in what capacity,
whether personal or as an agent, he/she is exercising when dealing with a
third party.
When agent is not personally liable despite ultra vires
If the agent enters into a contract in the name of the principal and the agent
acts in ultra vires in so doing, and the principal does not ratify such contract, it
is void if the party with whom the agent contracted is aware of the limits of
the powers granted by the principal.[10] The agent is liable only if he
undertook to secure the principals ratification.[11]
Obligations of the Agent
Agent to bring original and photocopies of authorization The agent should

bring original and photocopies of the authorization documents during the first
meeting with a third party. If the third party requires the agent to present the
authorization documents, the agent may deliver the photocopy and compare it
with the original one.
Caveat is on third party dealing with an agent The caveat (warning) is on
the third party dealing with an agent. If later on it is found out that the agent
was not authorized by the principal, the third party will not have any claim
against the principal. It is for this reason that the law grants the third party a
right to require the agent to present the power of attorney or instructions from
principal.
To observe diligence of a good father of a family in the
custody and preservation of goods received
If a person refuses or declines an agency, he is bound to observe the diligence
of a good father of a family in the custody and preservation of the good
forwarded to him by the owner until the latter should appoint an agent or take
charge of the goods.[8]
To advance necessary funds if required by contract
The agent is required to advance the necessary funds if there is a stipulation to
that effect except when the principal is insolvent.[9]
To follow instructions of principal
In the performance of the agency, the agent is to act in accordance with the
instructions of the principal.[10]
To be liable for damages

The agent is bound by his acceptance to carry out the agency.
[1] Consequently, he is liable for the damages which, through his nonperformance, the principal may suffer.[2] For business that already began on
the death of the principal, the agent must finish the same if delay entails any
danger.[3]
By default, the agent is required to observe all that a good father of a family
would do, as required by the nature of the business.[11]
To not to act in a way that it will manifestly result in loss or
damage to principal
The agent cannot carry out an agency if its execution or performance would
manifestly result in the loss or damage to the principal.[12]
The agent is liable for damages if, there being a conflict between his interests
and those of the principal, he should prefer his own.[13]
him payment in cash; however, the commission agent is entitled to any

interest or benefit, which may result from such sale.[28]
The agent may be the lender at the current rate of interest if he was
empowered to borrow money.[14] If the agent is authorized to lend money at
interest, he cannot borrow it without the consent of the principal.[15]
Commission agent who has guaranteed commission bears risk

of collection
To account and deliver whatever received by virtue of agency

Every agent is required 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.[16] Any stipulation waiving the
agents obligation to account is void.[17]
Agent to disclose all information received The agent should disclose all
information received in writing (e.g. e-mail) to have a documentation of such
fact.
In addition to ordinary commission, the commission agent may receive on

sale a guarantee commission.[29] If so, the commission agent bears the risk of
collection and he is required to pay the principal the proceeds of the sale on
the same terms and conditions agreed upon with the purchaser.[30]
Liability of commission agent when credit is due and
demandable
Unless otherwise the commission agent proves that he has exercised due
diligence, the commission agent is liable for damages if he does not collect the
credits owing to the principal at the time when they become due and
demandable.[31]
Agent to turn-over any and all property received The agent is required to
turn-over any and all property received by him even if the same is his
commission or compensation. Otherwise, the agent may open himself to
criminal liability forestafa, among others.
Release, Waiver, and Quitclaim After the termination of the contract of

agency, the agent should ask from the principal a release, waiver, and
quitclaim.
To be liable for substitute appointed by agent
Extent of liability of agent for fraud and negligence
If the principal has not prohibited it,[18] the agent may appoint a substitute
but he remains responsible for the acts of the substitute when: (a) when the
agent was not given the power to appoint one,[19] or (b) he was given such
power, but without designating the person, and the person was notoriously
incompetent or insolvent.[20]
The agent is liable for fraud and negligence, which shall be judged with more
or less rigor by the courts, according to whether the agency was or was not for
compensation.[32]
To be solidarily liable with other agents if stipulated

If solidarity has not been expressly stipulated, two or more agents even if
appointed simultaneously are not solidarily liable.[21] If solidarity has been
expressly stipulated, each of the agents is responsible for the non-fulfillment
of 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.
[22]
To be liability for interest
The agent owes interest on the sums he has applied to his own use from the
day on which he did so, and those which he still owes after the extinguishment
of the agency.[23]
Obligations of a Commission agent
The commission agent is responsible for the goods received by him in the
terms and conditions and as described in the consignment, unless upon
receiving them he should make a written statement of the damage and
deterioration suffered by the same.[24]
Distinguish goods of same kind and mark belonging to
different owners
If the commission agent handles goods of the same kind and mark belonging
to different owners, he is required to distinguish them by countermarks, and
designate the merchandise respectively belonging to each principal.[25]
Cannot sell on credit without consent from principal
Without the express or implied consent of the principal, the commission agent
cannot sell on credit.[26] If the commission agent has the required consent, he
is required to inform the principal through a statement of the names of the
buyers.[27] If without the required consent, the principal may demand from
Obligations of the Principal in a Contract of Agency

To be bound by obligations contracted by agent
The principal is required to comply with all the obligations which the agent
may have contracted within the scope of his authority.[1]The principal cannot
set up the ignorance of the agent as to circumstances whereof the principal
himself was, or ought to have been, aware.[2]
Unless the principal expressly or tacitly ratifies an ultra vires act of the agent,
the principal is not bound to any obligations where the agent has exceeded his
powers.[3]
To advance for expenses of agent
If the agent requires it, the principal is obligated to advance to the agent the
sums necessary for the execution of the agency.[4] In case the agent has made
the advance, the principal is required to make reimbursement even if the
business or undertaking was not successful so long as the agent is free from
all fault.[5] The reimbursement includes interest on the sums advanced
reckoned from the day it was made.[6]
Principal to ask for regular accounting and update The principal should ask
for regular accounting and update from the agent. Preferably, the demand
should be done in writing (e.g. e-mail) so the same may be documented. This
is to avoid any possible charge of negligence or consequence of estoppel.
Ask for performance bond If the agency is for compensation, the principal
may require the agent to execute and submit a performance bond to ensure
the due execution of the agency.
To indemnify agent for damages
If the agent is without fault or negligence, the principal is obligated to
indemnify the agent for all the damages which the execution of the agency
may have caused the latter.
Agents lien
To ensure payment of indemnity as well as for reimbursements of advances
made, the agent may retain in pledge the things which are the object of the
agency until payment is made.
Extent of liability to third person who contracted with principal or agent
If two or more persons contracted in relation to the same thing, where one did
so with the agent and the other with the principal, and the two contracts are
incompatible, that of prior date is to be preferred without prejudice to rules on
double sale of properties.[7] If the agent acted in good faith, the principal is
liable for damages to the third person whose contract is rejected as a

consequence.[8] If the agent acted in bad faith, he alone is liable.[9]
Solidary liability if principal allowed agent to do ultra vires
The principal is solidarily liable with the agent who acted in ultra vires if the
principal allowed the agent to act as though he had full powers.[10]
If there are two or more principals who commonly appointed an agent for a
common transaction/undertaking, they are solidarily liable to the agent for any
and all the consequences of the agency.[11]
When a contract of agency is at will, the principal may compel the agent to
return the document evidencing the agency at any time.[7] If the agency was
constituted in order to contract with specified persons, the revocation of the
agency does not prejudice the latter if they were not given notice thereof.
[8] Notice in these cases are crucial.
When principal is not liable for agents expenses

The principal is not liable for the agents expenses in these situations:[12]
Send written notice of revocation to specific third parties It is a good and

sound practice to send written notices of revocation of the agency to specific
third parties. These will bar them from dealing with the unauthorized agent
and prevent them from claiming good faith.
1.
If the agent acted in contravention of the principals instructions,

unless the latter should wish to avail himself of the benefits
derived from the contract;[13]
2.
If the expenses were due to the fault of the agent;[14]
3.
If the agent incurred them with knowledge that an unfavorable

result would ensure, if the principal was not aware thereof;[15]and
4.
If it was stipulated that the expenses would be borne by the agent,

or that the latter would be allowed only a certain sum.[16]
Principal to ask for return of authorization documents After the termination
of the agency, the principal should require the return of the authorization
documents to avoid untoward incidents where the agent continues performing
the agency resulting the principal being bound.
How to terminate a contract of agency
The contract of agency may be extinguished by the following modes:
1.
By revocation of the agency;
2.
By the withdrawal of the agent;
3.
By the death, civil interdiction, insanity or insolvency of the

principal or of the agent;
4.
By the dissolution of the firm or corporation which entrusted or

accepted the agency;
5.
By the accomplishment of the object or purpose of the agency; or
6.
By the expiration of the period for which the agency was

constituted.[1]
The acts done for the principal by the agent who had no knowledge of the
death of the principal or any other causes/ modes of extinguishing the agency
is valid, binding, and fully effective with respect to third persons who may
have contracted with him in good faith.[2]
Promptly inform agent of extinguishment of agency Given the strict
consequences for failing to inform the agent of the extinguishment of the
agency, the principal should promptly inform the agent of the termination of
their contract.
Require agent to deliver authorization after extinguishment of agency For
good measure, the principal should require the principal agent to undertake
to deliver the authorization documents after extinguishment of agency
regardless of the mode of termination.
By revocation of the agency
The contract of agency is primarily based on trust and confidence.[3] Hence,
the principal has generally the right to revoke the agency at will.
[4] Revocation may be express or implied.[5]
Ther are exceptions to the general rule above. The agency cannot be
unilaterally revoked by the principal when: (a) bilateral contracts depend upon
it; (b) it is the means of fulfilling an obligation already contracted; (c) a
partner is appointed manager of a partnership in the contract of partnership
and his removal from the management is unjustifiable.[6]
Publish revocation whenever practicable For added protection, the

revocation of the ageny should be published in newspaper of general
circulation whenever practicable. Publication is notice to the whole world.
Industry Practices: In businesses where transactions and activities are

heavily dependen on agents, it is a recognized practice to publish in
newspaper of general circulation the revocation of the authority or power
granted to an agent. This protects consumers from dealing with unauthorized
persons.
If the agent had general powers, the revocation of the agency will not
prejudice third persons who acted in good faith and without knowledge of the
revocation.[9] Consequently, notice of the revocation in a newspaper of
general circulation is a sufficient warning to third persons.[10]
When the principal appoints a new agent for the same business or transaction,
the previously appointed agent loses his authority and his agency is effectively
revoked from the day on which notice thereof was given to him.[11]
In some instances, the principal directly manages the business entrusted to the
agent and/or deals with third persons. This results in the revocation of the
agency.[12]
For situations wherein two or more principals have granted a power of
attorney for a common transaction, either one of them may revoke the agency
without the consent of the others.[13]
Meanwhile, the general power of attorney is revoked by a special power of
attorney of another agent as regards only to the special matter involved in the
latter authority.[14]
In any mode of revocation, it is a best practice to inform third parties of the
termination of the authority of the agent so as to avoid liabilities. To be clear,
the revocation of the authority of the agent may bind the latter but not
necessarily third parties who were not properly informed as required by law.
By the withdrawal of the agent
As agency is a contract, the agent may choose to withdraw from his duties and
responsibilities for valid reasons.[15] However, the law expressly requires that
the agent should give due notice to the principal.[16]
The agent may held liable for any damages suffered by the principal by reason
of the withdrawal unless it is on the ground of impossibility of continuing the
performance of the agency without grave detriment to himself.[17]
Send written notice of withdrawal While the law does not expressly state
that the notice of withdrawal should be in writing, the agent should send a
written notice of withdrawal to the principal. The agent should retain a
receiving copy or any proof of service to serve as documentary evidence.
Reasonable time for notice There is no expressly stated time as when the
notice should be given. As such, the notice should be given within a
reasonable time prior to actual termination in order to give the principal
ample time to respond accordingly. The reasonable time may vary per
industry and on a case-to-case basis.
Exercise caution in withdrawing Due to the potential liability, the agent
should execise caution in withdrawing. The agent should communicate first
the intent to withdraw prior to the actual termination date.
Commodatum is essentially gratuitous.

Simple loan may be gratuitous or with a stipulation to pay interest.
In commodatum the bailor retains the ownership of the thing loaned,
while in simple loan, ownership passes to the borrower. (1740a)
CONTRACT OF LOAN
Document damages caused by agents withdrawal On the other hand, the
principal who suffers damage due to the agents withdrawal should document
them to serve as evidence later on.
Even if the agent withdrew for a valid reason, he must continue to act until the
principal has had reasonable opportunity to take the necessary steps to meet
the situation.[18]
By the death, civil interdiction, insanity or insolvency of the
principal or of the agent
As a general rule, the death of the principal extinguishes the agency.
[19] However, the contract of agency may survive despite the death of the
principal in these situations: (a) if the agency has been constituted in the
common interest of the principal and the agent; (b) in the interest of a third
person who has accepted the stipulation in his favor.[20]
If the agent dies, his heirs are obligated to notify the principal.[21] In the
meantime, they are required to adopt such measures as the circumstances may
demand in the interest of the principal.[22]
> The abovementioned defines the two kinds of loan and gives their
characteristics
CHARACTERISTICS OF THE CONTRACT
1. Real contractbecause the delivery of the thing loaned is necessary for
the perfection of the contract
2. Unilateral contractonce the subject matter has been delivered, it
creates obligations on the part of only one of the parties
CAUSE OR CONSIDERATION IN A CONTRACT OF LOAN

>
>
For the borrowerthe acquisition of the thing

For the lenderthe right to demand its return or its equivalent
KINDS OF LOAN
By the dissolution of the firm or corporation which entrusted

or accepted the agency
1. COMMODATUMwhere the bailor delivers to the bailee a nonconsumable thing so that the latter may use it for a certain time and
return the identical thing
As a necessary and logical consequences of the dissolution of the form or

corporation which entrusted or accepted the agency, the contract of agency is
terminated as either the principal or agent is no longer existing following the
termination of their respective firm.[23]
2. SIMPLE LOAN OR MUTUUMwhere the lender delivers to the

borrower money or other consumable thing upon the condition that the
latter shall pay he same amount of the same kind and quality
By the accomplishment of the object or purpose of the agency
WHEN IS A THING CONSUMABLE?
If the contract of agency specifically and expressly provides that the agency is
created for a particular object or purpose and the same has been achieved, then
the agency agreement automatically terminates.[24]
It is consumable when used in a manner appropriate for its purpose or

nature, like gasoline, rice, money, fruit, firewood, etc.
By the expiration of the period for which the agency was

constituted
1. In commodatum, if you do not return the thing when it is due, you will be
liable for estafa because ownership of the property is not transferred to the
borrower.
For contracts of agency which carry a period and the same has already lapsed,
the agency agreements ipso facto terminates as the same has been agreed upon
by the parties.[25]
Expiration of power of attorney The power of attorney should have an
expiration which may be a date certain or the completion of a task or
undertaking.
2. In loan, the borrower who does not pay is not criminally liable for
estafa. His liability is only a civil liability for the breach of the obligation
to pay. This is because in loan, ownership of the thing is transferred
to the borrower, so there is no unlawful taking of property belonging to
another.
Art. 1934. An accepted promise to deliver something by way of commodatum
or simple loan is binding upon parties, but the commodatum or simple loan
itself shall not be perfected until the delivery of the object of the contract. (n)
DELIVERY ESSENTIAL TO PERFECTION OF LOAN

GENERAL PROVISIONS ON LOAN
Art. 1933. By the contract of loan, one of the parties delivers to

another, either something not consumable so that the latter may use the
same for a certain time and return it, in which case the contract is
called a commodatum; or money or other consumable thing, upon the
condition that the same amount of the same kind and quality shall be
paid, in which case the contract is simply called a loan or mutuum.
> The abovementioned is a necessary consequence of the fact that

commodatum and mutuum are real contracts which require the delivery of
the subject matter thereof for their perfection
ACCEPTED PROMISE TO MAKE A FUTURE LOAN
> Is there a contract of loan at this point? No, because loan is a real
contract and is perfected only upon delivery of the thing.
thing loaned. If this is the case, then the subject matter may be that
of a consumable thing
6. The bailor NEED NOT BE THE OWNER of thing loaned
FORMALITY IN LOAN
7. Commodatum is PURELY PERSONAL in character.
> There are no formal requisites for the validity of a contract of loan except
if there is a stipulation for the payment of interest. A stipulation for the
payment of interest must be in writing.
COMMODATUM
Consequently:
a. The death of either the bailor or the bailee extinguishes the contract;
b. The bailee can neither lend nor lease the object of the contract to a third
person. However, the
members of the bailee's household may make use of the thing loaned, unless
there is a stipulation to
the contrary, or unless the nature of the thing forbids such use.
NATURE OF COMMODATUM
OBLIGATIONS OF THE BAILEE
Art. 1935. The bailee in commodatum acquires the used of the thing loaned
but not its fruits; if any compensation is to be paid by him who acquires the
use, the contract ceases to be a commodatum. (1941a)
KINDS OF COMMODATUM
1. ORDINARY COMMODATUM
2. PRECARIUMone whereby the bailor may demand the thing loaned
at will
Art. 1936. Consumable goods may be the subject of
commodatum if the purpose of the contract is not the consumption
of the object, as when it is merely for exhibition. (n)
Art. 1937. Movable or immovable property may be the object of
commodatum. (n)
Art. 1938. The bailor in commodatum need not be the owner of the
thing loaned. (n)
Art. 1939. Commodatum is purely personal in character .
Consequently:
Art. 1941. The bailee is obliged to pay for the ordinary expenses for
the use and preservation of the thing loaned. (1743a)
Art. 1942. The bailee is liable for the loss of the thing, even if it should be
through a fortuitous event:
(1) If he devotes the thing to any purpose different from that for
which it has been loaned;
(2) If he keeps it longer than the period stipulated, or after the
accomplishment of the use for which the commodatum has been
constituted;
(3) If the thing loaned has been delivered with appraisal of its value,
unless there is a stipulation exemption the bailee from responsibility in
case of a fortuitous event;
(4) If he lends or leases the thing to a third person, who is not a member
of his household;
(1) The death of either the bailor or the bailee extinguishes the contract;
(5) If, being able to save either the thing borrowed or his own thing, he
chose to save the latter. (1744a and 1745)
(2) The bailee can neither lend nor lease the object of the contract to a
third person. However, the members of the bailee's household may make
use of the thing loaned, unless there is a stipulation to the contrary, or
unless the nature of the thing forbids such use. (n)
Art. 1943. The bailee does not answer for the deterioration of the thing
loaned due only to the use thereof and without his fault. (1746)
Art. 1940. A stipulation that the bailee may make use of the fruits of the
thing loaned is valid. (n)
NATURE OF COMMODATUM SUMMARIZED
Art. 1944. The bailee cannot retain the thing loaned on the ground that
the bailor owes him something, even though it may be by reason of
expenses. However, the bailee has a right of retention for damages
mentioned in Article 1951. (1747a)
1. COMMODATUM IS ESSENTIALLY GRATUITOUS

a. A commodatum is essentially gratuitous
b. The contract ceases to be a commodatum if any compensation is to
be paid by the borrower who acquires the use
c. A commodatum is similar to a donation in that it confers a benefit to
the recipient
Art. 1945. When there are two or more bailees to whom a thing is
loaned in the same contract, they are liable solidarily. (1748a)
2. EXTENT OF BAILEES RIGHT TO USE is limited to the thing loaned

but not to the fruits unless there is stipulation to the contrary
a. As the bailor is the owner of the thing loaned, the bailor is naturally
entitled to its fruits
1. The bailee is liable for ordinary expensesthe borrower should

defray the expenses for the use and preservation of the thing loaned for
after all, he acquires the use of the same and he is supposed to return the
identical thing
2. The borrower must take good care of the thing with the diligence of
a good father of a family (due diligence)
3. Generally, the borrower would not be liable for the loss of a thing due to a
fortuitous event but he would be liable in case of the following
circumstances:
a. If he devotes the thing to any purpose different from that for which it
has been loaned;
b. If he keeps it longer than the period stipulated, or after the
accomplishment of the use for which the
commodatum has been constituted;
c. If the thing loaned has been delivered with appraisal of its
value, unless there is a stipulation
exemption the bailee from responsibility in case of a fortuitous event;
d. If he lends or leases the thing to a third person, who is not a member
3. CAN THERE BE A STIPULATION GRANTING THE BAILEE USE

OF THE FRUITS? Of course. The law sanctions such stipulation BUT such
use should only be incidental and not the main cause of the contract. Because
if it is the main cause, then the contract may that one of a usufruct.
4. The PURPOSE of a commodatum is the temporary use of thing
loaned
a. If the bailee is not entitled to the use of the thing loaned, the contract may
be that of deposit
5. The SUBJECT MATTER is generally a non-consumable things,
whether real or personal
a. It may be the case that the purpose is for exhibition only of the
OBLIGATIONS OF THE BAILEE
of his household;
e. If, being able to save either the thing borrowed or his own thing, he chose
to save the latter. (JPSP:
should be considered as an exemption. This is actually based on
ingratitude. Nonetheless, this
provision tends to control ones instinct for self-preservation)
4. The bailee is not liable for the deterioration of the thing loaned due
only to the use thereof and without his fault
5. He cannot retain the thing loaned on the ground that the bailor owes him
something, even though it may be for the reason of expenses. He can
have the right to retain though for damages as mentioned in Article
1951The bailor who, knowing the flaws of the thing loaned, does not
advise the bailee of the same, shall be liable to the latter for the damages
which he may suffer by reason thereof.
6. When there are two or more bailees to whom a thing is loaned in
the same contract, they are liable solidarily to the bailor
a. To safeguard effectively the rights of the lender b. Law presumes that
the bailor takes into account the personal integrity and responsibility of
all the bailees and that, therefore, he would not have constituted the
commodatum is there were only one liable
OBLIGATIONS OF THE BAILOR
1. The primary obligation of the bailor is to allow the bailee the use of
the thing loaned for the duration of the period stipulated or until the
accomplishment of the purpose for which the commodatum was constituted
a. However, the lender may demand its return or temporary use if he
has the urgent need of the thing or if the borrower commits an act
of ingratitude
2. PRECARIUM: a kind of commodatum where the bailor may demand the
thing at will. In this kind of commodatum, the lender may demand at will
the return of thing under the following circumstances:
a. If neither the duration of the contract nor the use to which the thing
loaned should be devoted, has been stipulated; or
b. If the use of the thing is merely tolerated by the owner.
c. the law recognizes the urgency as well as it is gratuitous.
d. Take note that in precarium, there is no stipulated period or the use is
merely tolerated
7. He is liable to the bailee for damages in case he has knowledge of

flaws of the thing loaned, and he didn't advise the bailee of the same
a. There is flaw or defect in the thing loaned
b. The flaw or defect is hidden
c. The bailor is aware thereof
d. He doesn't advise the bailee of the same
e. The bailee suffers damages by reason of the said flaw or defect
8. He cannot excuse himself from liability for any expense or damages by
abandoning the thing to the bailee
SIMPLE LOAN OR MUTUUM
Article 1953. A person who receives a loan of money or any other fungible
thing acquires the ownership thereof, and is bound to pay the creditor an equal
amount of the same kind and quality
SIMPLE LOAN OR MUTUUM

> Contract whereby one of the parties delivers to another money or
another consumable thing with the understanding that the same
amount of the same kind and quality shall be paid
> It involves the return of the equivalent only and not the identical
thing because the borrower acquires ownership thereof
OBLIGATION OF DEBTOR IS TO PAY

> The law uses the word to pay and the word return
> The consumption of the thing loaned is the distinguishing character of
the contract of mutuum from that of commodatum
> The promise of the borrower to pay is the consideration for the obligation
of the lender to furnish the loan
> A loan is a bilateral contract
NO ESTAFA IS COMMITTED BY A PERSON WHO REFUSES TO
PAY HIS DEBT OR DENIES ITS EXISTENCE
3. He may demand the immediate return of the thing if the bailee

commits any act of ingratitude
a. If the bailee should commit some offenses against the person, honor or the
property of the bailor, or
of his wife, and children under his parental authority
b. If the bailee imputes to the bailor any criminal offense or any act
involving moral turpitude, even
though he should prove it, unless the crime or act has been committed
against himself, his wife and
children under his authority
c. If the bailee unduly refuses the bailor support when the bailee is
legally or morally bound to give
support
> The borrower acquires ownership

> Being the owner, the borrower can dispose of the thing borrowed
and his act will not be considered as appropriation thereof
4. He has the obligation to refund extraordinary expenses for the preservation

of the thing loanedit is him who profits from the said expenses anyway.
a. As a rule, notice is required because it is possible that the bailor
may not want to incur the
extraordinary expenses at all
b. An exception of course is where there is urgency that the reply to the
notification cannot be awaited without danger
c. you have to determine if its ordinary or extraordinary
d. why would you advance for the extraordinary expenses when
you can return the
thing and make the lender pay for the expenses?
5. Regarding, extraordinary expenses arising from the actual use of the thing,
the division of liability between the bailor and bailee is 50-50. This is the
default rule but the parties may stipulate for a different apportionment.
WHAT IS DEPOSIT?
6. For expenses other than ordinary expenses and expenses for the
preservation and use of the thing, the bailor is not liable for the same.
DEPOSIT IN GENERAL
Art. 1962. A deposit is constituted from the moment a person
receives a thing belonging to another, with the obligation of safely
keeping it and of returning the same. If the safekeeping of the thing
delivered is not the principal purpose of the contract, there is no
deposit but some other contract. (1758a)
A deposit is constituted from the moment a person receives a thing

belonging to another, with the obligation of safely keeping it and of returning
the same.
If the safekeeping of the thing delivered is not the principal purpose of the
contract, there is no deposit but some other contract.
CHARACTERISTICS OF THE CONTRACT

1. It is a real contract since it is perfected by the delivery of the thing
deposited
2. When the contract is gratuitous, it is a unilateral contract because only
the depositary has an obligation. But when he deposit is for
compensation, the juridical relation created becomes bilateral because
it gives rise to obligations on both parties
SAFEKEEPING IS THE PRINCIPAL PURPOSE OF THE

CONTRACT
Art. 1963. An agreement to constitute a deposit is binding, but the deposit
itself is not perfected until the delivery of the thing. (n)
WHERE THERE ARE SEVERAL DEPOSITORS

Two or more persons each claiming to be entitled to the thing
deposited, may deposit the same with a third person
Art. 1969. A contract of deposit may be entered into orally or in writing. (n)
BINDING EFFECT OF AGREEMENT TO DEPOSIT

A deposit is a real contract and is perfected only by the delivery of
the thing deposited
Art. 1964. A deposit may be constituted judicially or extrajudicially.
(1759)
CREATION OF DEPOSIT
Deposit may be created by virtue of a court order or by law and not
by the will of the parties
Art. 1965. A deposit is a gratuitous contract, except when there is an
agreement to the contrary, or unless the depositary is engaged in the
business of storing goods. (1760a)
CONTRACT OF DEPOSIT GENERALLY GRATUITOUS

1. Where there is contrary stipulationthe parties may establish any
stipulation that may deem convenient provided it is not contrary to
law, morals, good customs, public order and public policy
2. Where depositary engaged in the business of storing goodsfor
compensation and not pure liberality
3. Where property saved from destruction without knowledge of the owner
the owner is bound to pay just compensation
Art. 1966. Only movable things may be the object of a deposit. (1761)
Art. 1970. If a person having capacity to contract accepts a deposit made

by one who is incapacitated, the former shall be subject to all the
obligations of a depositary, and may be compelled to return the
thing by the guardian, or administrator, of the person who made
the deposit, or by the latter himself if he should acquire capacity. (1764)
WHERE DEPOSITARY CAPACITATED AND THE DEPOSITOR

INCAPACITATED
If the depositary is capacitated, he is subject to all the obligations of
a depositary, whether or not the depositor is capacitated
In the latter case, the depositary must return the property to the legal
representative of the incapacitated or the depositor himself if he should
acquire capacity
WHAT IF THE CAPACITATED DEPOSITOR CANNOT RETURN
IT TO THE LEGAL REPRESENTATIVE?
He can be held liable for estafa.
WHAT CAN HE OPT TO DO?
Consignation is not advisable. It is too costly.
Art. 1971. If the deposit has been made by a capacitated person
with another who is not, the depositor shall only have an action to
recover the thing deposited while it is still in the possession of the
depositary, or to compel the latter to pay him the amount by which he
may have enriched or benefited himself with the thing or its price.
However, if a third person who acquired the thing acted in bad faith, the
depositor may bring an action against him for its recovery. (1765a)
SUBJECT MATTER OF DEPOSIT

1. Only personal property may be the subject of extrajudicial deposit
2. Both personal and real property may be the subject of judicial
deposit
Art. 1967. An extrajudicial deposit is either voluntary or necessary.
(1762)
VOLUNTARY DEPOSIT
GENERAL PROVISIONS
Art. 1968. A voluntary deposit is that wherein the delivery is made by
the will of the depositor. A deposit may also be made by two or more
persons each of whom believes himself entitled to the thing deposited
with a third person, who shall deliver it in a proper case to the one to
whom it belongs. (1763)
VOLUNTARY DEPOSIT
One wherein the delivery is made by the will of the depositor
Generally, the depositor must be the owner of the thing deposited
But it may belong to another person
The depositary cannot dispute the title of the depositor to the thing
deposited
WHERE DEPOSITARY INCAPACITATED AND THE DEPOSITOR

CAPACITATED
The incapacitated depositary doesnt incur the obligation of the
depositary
However, he is liable to return
o To return the thing deposited while still in his possession
o To the pay the depositor the amount by which he may have benefited
himself with the thing or its price subject to the right of a third person
who acquired the thing in good faith
WHAT IS THE BENEFIT CONTEMPLATED BY LAW?
Reasonable and judicious use
OBLIGATIONS OF THE DEPOSITARY
Art. 1972. The depositary is obliged to keep the thing safely and to return it,
when required, to the depositor, or to his heirs and successors, or to the
person who may have been designated in the contract. His responsibility, with
regard to the safekeeping and the loss of the thing, shall be governed by the
provisions of Title I of this Book.
If the deposit is gratuitous, this fact shall be taken into account in
determining the degree of care that the depositary must observe.
(1766a)
OBLIGATION TO KEEP THE THING DEPOSITED AND RETURN IT

1. Degree of careordinarily, the depositor must exercise over the
thing deposited the same diligence as he would exercise over his property
a. Because it is an essential requisite of the judicial relation which
involves the depositors confidence in good faith and trustworthiness
b. Presumption that the depositor in choosing the depositary took into
account the diligence which the depositary is accustomed with respect
to his own property
2. Rules applicable
a. Art. 1163. 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,
unless the law or the stipulation of the parties requires another standard
of care. (1094a)
b. Art. 1170. Those who in the performance of their obligations are
guilty of fraud, negligence, or delay, and those who in any manner
contravene the tenor thereof, are liable for damages. (1101)
c. Art. 1265. Whenever the thing is lost in the possession of the debtor,
it shall be presumed that
the loss was due to his fault, unless there is proof to the contrary, and
without prejudice to the
provisions of article 1165. This presumption does not apply in case of
earthquake, flood, storm, or
other natural calamity. (1183a)
d. The required degree of care is greater if the deposit is made for
compensation than when it is gratuitous.
3. Return before specified termthe thing deposited must be returned to
the depositor whenever he claims it, even though a specified term or
time for such may have been stipulated in the contract.
CAN THERE BE A STIPULATION FOR A LESSER DEGREE OF
CARE? Yes.
CAN THERE BE STIPULATION THAT THERE WOULD ONLY BE
LIABILITY WITH REGARD GROSS NEGLIGENCE AND NOT
ORDINARY NEGLIGENCE? Yes.
Art. 1973. Unless there is a stipulation to the contrary, the depositary
cannot deposit the thing with a third person. If deposit with a third
person is allowed, the depositary is liable for the loss if he
deposited the thing with a person who is manifestly careless or
unfit. The depositary is responsible for the negligence of his employees.
(n)
The above provision shall not apply to contracts for the rent of safety
deposit boxes. (n)
IF THE THING DEPOSITED SHOULD EARN INTEREST, THE

DEPOSITARY IS UNDER THE OBLIGATION
1. To collect the interest as it becomes due
2. To take steps as may be necessary to preserve its value and the
rights corresponding to it
SAFETY DEPOSIT BOXES
The contract for rent of safety deposit boxes is not an ordinary
contract of lease of things because the full and absolute possession and
control of the safety deposit box is not given to the party renting.
It is actually a special kind of deposit. It is a contractual relation between
the parties. The liability rules are governed by the Civil Code
provisions on obligations and contracts, and not on donations.
IS A STIPULATION WHICH EXEMPTS THE BANK FROM

LIABILITY FOR THE THINGS CONTAINED IN THE SAFETY
DEPOSIT BOX VALID?
The stipulation is void. Even if as a rule, the Bank may limit its
liability to some extent by agreement or stipulation, the agreement
or stipulation must not be contrary to law and public policy.
The law on deposit provides that the depositary is liable for loss due to
fraud, negligence, delay, or contravention of the tenor of the
agreement. Any contrary stipulation would be void.
Art. 1976. Unless there is a stipulation to the contrary, the depositary
may commingle grain or other articles of the same kind and quality,
in which case the various depositors shall own or have a proportionate
interest in the mass. (n)
Art. 1977. The depositary cannot make use of the thing deposited
without the express permission of the depositor.
Otherwise, he shall be liable for damages.
However, when the preservation of the thing deposited requires its
use, it must be used but only for that purpose. (1767a)
OBLIGATION NOT TO TRANSFER DEPOSIT

1. Liability for loss
a. If he deposits it with a third person without authority even if there
has been no negligence
from his part and on the third person
b. If deposit with a third person is allowed, he is liable still if he
deposited the thing with a person who is manifestly careless or unfit
2. Exemption from liability
a. The depositor is not responsible in case the thing is lost without
negligence of the third person with whom he was allowed to deposit the
thing if such person is not manifestly careless or unfit
Art. 1974. The depositary may change the way of the deposit if
under the circumstances he may reasonably presume that the
depositor would consent to the change if he knew of the facts of the
situation. However, before the depositary may make such change, he
shall notify the depositor thereof and wait for his decision, unless
delay would cause danger. (n)
Art. 1975. The depositary holding certificates, bonds, securities or
instruments which earn interest shall be bound to collect the latter when
it becomes due, and to take such steps as may be necessary in order that
the securities may preserve their value and the rights corresponding
to them according to law.
GENERALLY THE DEPOSITARY CANNOT MAKE USE OF THE

THING DEPOSITED WITHOUT THE EXPRESS PERMISSION OF
THE DEPOSITOR. WHAT ARE THE EXCEPTIONS?
1. When the depositor has given his express permission to the
depositary to use the thing deposited
2. When the preservation of the thing deposited requires its use, it must
be used but only for that purpose
WHAT IS THE REASON FOR THIS RULE?

The principal purpose of deposit is safekeeping, not use of the thing. If the
purpose is use, it is not deposit anymore.
If the depositary uses the thing deposited without permission of
the depositor, he shall be liable for damages. In addition, if the thing is
lost even through fortuitous event, the depositary shall bear the loss.
Art. 1978. When the depositary has permission to use the thing
deposited, the contract loses the concept of a deposit and becomes a loan
or commodatum, except where safekeeping is still the principal purpose of
the contract.
The permission shall not be presumed, and its existence must be proved.
(1768a)
WHAT HAPPENS IF THE DEPOSITARY IS GIVEN PERMISSION TO

USE?
of ownership
1. If the purpose of the contract is still for safekeeping, then it retains its
concept as a deposit
OBLIGATION TO PAY INTEREST ON SUMS CONVERTED TO

PERSONAL USE
2. If the purpose has become for the use or consumption of the thing
a. Commodatumif the purpose is for a non-consumable thing
b. Mutuumif the purpose is for a consumable thing or money
If what has been deposited is money, the depositary has no right to

make use thereof and therefore, he is not liable to pay interest
If the depositary be in delay or has used the money without
permission, he shall be liable for interest as indemnity
The depositary owes interest on the sums he has applied to his own use
from the day on which he did so, and those which he still owes after the
extinguishment of the deposit
Art. 1979. The depositary is liable for the loss of the thing through a
fortuitous event:
(1) If it is so stipulated;
(2) If he uses the thing without the depositor's permission;
(3) If he delays its return;
(4) If he allows others to use it, even though he himself may have been
authorized to use the same.(n)
WHEN IS THE DEPOSITARY LIABLE FOR THE LOSS OF THE

THING THROUGH A FORTUITOUS EVENT?
1. If it is so stipulated;
2. If he uses the thing without the depositor's permission;
3. If he delays its return;
4. If he allows others to use it, even though he himself may have been
authorized to use the same. (n)
Art. 1984. The depositary cannot demand that the depositor prove his
ownership of the thing deposited.
Nevertheless, should he discover that the thing has been stolen and
who its true owner is, he must advise the latter of the deposit.
If the owner, in spite of such information, does not claim it within the
period of one month, the depositary shall be relieved of all
responsibility by returning the thing deposited to the depositor.
If the depositary has reasonable grounds to believe that the thing has
not been lawfully acquired by the depositor, the former may return
the same. (1771a)
DEPOSITOR NEED NOT PROVE OWNERSHIP
Art. 1980. Fixed, savings, and current deposits of money in banks and
similar institutions shall be governed by the provisions concerning
simple loan. (n)
The depositary who receives the thing in deposit cannot require that
the depositor prove his ownership over the thing
Art. 1981. When the thing deposited is delivered closed and sealed, the
depositary must return it in the same condition, and he shall be liable for
damages should the seal or lock be broken through his fault.
WHERE THIRD PERSON APPEARS TO BE THE OWNER
Fault on the part of the depositary is presumed, unless there is proof

to the contrary.
As regards the value of the thing deposited, the statement of the
depositor shall be accepted, when the forcible opening is imputable to
the depositary, should there be no proof to the contrary. However, the
courts may pass upon the credibility of the depositor with respect
to the value claimed by him.
When the seal or lock is broken, with or without the depositary's
fault, he shall keep the secret of the deposit. (1769a)
Art. 1982. When it becomes necessary to open a locked box or receptacle,
the depositary is presumed authorized to do so, if the key has been
delivered to him; or when the instructions of the depositor as regards
the deposit cannot be executed without opening the box or receptacle. (n)
Art. 1983. The thing deposited shall be returned with all its products,
accessories and accessions.
Should he discover that the thing has been stolen and who its true owner is,
he must advise the latter of the deposit
If the owner, in spite of such information, does not claim it within the
period of one month, the depositary shall be relieved of all
responsibility by returning the thing deposited to the depositor
If the depositary has reasonable grounds to believe that the thing has
not been lawfully acquired by the depositor, the former may return the
same.
CAN THE DEPOSITARY REQUIRE THE PRESENTATION OF AN

ID?
Yes.
Proof of identification is different from proof of ownership.
CAN THE DEPOSITARY REQUIRE THE PRESENTATION OF

THE RECEIPT?
Yes.
It is only a proof of identification and not ownership.
Should the deposit consist of money, the provisions relative to agents in

article 1896 shall be applied to the depositary. (1770)
IN DEPOSIT, WHAT SHOULD BE ASCERTAINED AT THE VERY
LEAST?
OBLIGATION TO RETURN PRODUCTS, ACCESSORIES, AND
ACCESSIONS
The depositor is the owner of or at least represents the owner of the
things deposited
The depositary must therefore return not only the thing itself but
also all its products, accessions and accessories which are a consequence
Authority to make deposit should be ascertained. Take note that before the
deposit, proof of ownership may be required. The prohibition applies
subsequent to the deposit. There is required due diligence review.
Art. 1985. When there are two or more depositors, if they are not
solidary, and the thing admits of division, each one cannot demand more
than his share.
When there is solidarity or the thing does not admit of division,

the provisions of Articles 1212 and 1214 shall govern. However, if
there is a stipulation that the thing
should be returned to one of the depositors, the depositary shall return it
only to the person designated. (1772a)
RIGHT OF TWO OR MORE DEPOSITORS

1. Thing deposited divisible and depositors not solidaryif the thing
deposited is divisible and there are two or more depositors who are not
solidary, each one can demand only his proportionate share thereto
2. Obligation solidary or thing deposited not divisibleif the obligation
is solidary or the thing is not divisible, the rules on active solidarity shall
apply, to the effect that each one of the solidary depositors may do whatever
may be useful to the others but not anything which may be prejudicial to the
latter, and the depositary may return the thing to any one of the solidary
depositors unless a demand for its return has been made by one of
them in which case delivery should be made to him
3. Return to one of depositors stipulatedif by stipulation the thing should
be returned to one of the depositors, the depositary is bound to return
it only to the person designated although he has not made any demand for
its return.
Art. 1986. If the depositor should lose his capacity to contract after
having made the deposit, the thing cannot be returned except to the
persons who may have the administration of his property and rights.
(1773)
PERSON TO WHOM RETURN MUST BE MADE

1. The depositary is obliged to return the thing deposited when
required, to the depositor, to his heirs and successors, or to the
person who may have been designated in the contract
2. If the person was incapacitated at the time of making the deposit, the
property must be returned to his guardian or administrator or the person
who made the deposit or to the depositor himself should he acquire
capacity
3. Even if the depositor had capacity at the time of making the
deposit but he subsequently loses his capacity during the deposit, the
thing must be returned to his legal representative
Art. 1987. If at the time the deposit was made a place was designated for
the return of the thing, the depositary must take the thing deposited to
such place; but the expenses for transportation shall be borne by the
depositor.
If no place has been designated for the return, it shall be made
where the thing deposited may be, even if it should not be the
same place where the deposit was made, provided that there was no
malice on the part of the depositary. (1774)
PLACE OF RETURN
The thing must be returned at the place agreed upon by the parties,
and in the absence of stipulation, at the place where the thing deposited might
even if it shouldnt be the same place where the original deposit was made
provided the transfer was accomplished without malice on the part of the
depositary
In the first place, the expenses for transportation shall be borne by the
depositor. This is just because the deposit is constituted for the benefit of
the depositor and not the depositary who assumes no more than the
safekeeping and the return of the thing
Art. 1988. The thing deposited must be returned to the depositor
upon demand, even though a specified period or time for such return
may have been fixed.
This provision shall not apply when the thing is judicially attached
while in the depositary's possession, or should he have been notified of the
opposition of a third person to the return or the removal of the thing
deposited. In these cases, the depositary must immediately inform

the depositor of the attachment or opposition. (1775)
TIME OF RETURN
As a rule, the depositor can demand the return of the thing deposited at
will and this is true whether the period has been stipulated or not
If the deposit is for compensation, the depositary is entitled to the
compensation for the whole period. In this case, the period is for both the
depositor and depositary.
WHEN DEPOSITARY IS NOT OBLIGED TO RETURN THING
DEPOSITED
1. When the thing has been judicially attached while in the
depositarys possessionhe would be disobeying the judicial order of
attachment
2. When he has been notified of the opposition of a third person to the
return or removal of the thing deposited
Art. 1989. Unless the deposit is for a valuable
consideration, the depositary who may have justifiable reasons for
not keeping the thing deposited may, even before the time designated,
return it to the depositor; and if the latter should refuse to receive it,
the depositary may secure its consignation from the court. (1776a)
RIGHT OF DEPOSITARY TO RETURN THING DEPOSITED

1. Deposit gratuitousthe depositary may likewise return the thing
deposited notwithstanding that a period has been fixed for the thing if
a. The deposit is gratuitous
b. Justifiable reasons
2. Deposit for a valuable considerationif the deposit is for a valuable
consideration, the depositary has no right to return the thing deposited
before the expiration of the time designated even if he should suffer
inconvenience as a consequence
Art. 1990. If the depositary by force majeure or government order loses
the thing and receives money or another thing in its place, he shall
deliver the sum or other thing to the depositor. (1777a)
LIABILITY FOR LOSS BY FORCE MAJEURE OR GOVERNMENT

ORDER
The depositary has the obligation to return the thing deposited
But he isnt liable for loss of the thing by force majeure or by government
order
However, if in place of the thing he receives money or another thing,
he has the duty to deliver to the depositor what he has acquired otherwise,
he would enrich himself at the expense of the depositor
Art. 1991. The depositor's heir who in good faith may have sold the thing
which he did not know was deposited, shall only be bound to return the
price he may have received or to assign his right of action against the
buyer in case the price has not been paid him. (1778)
ALIENATION IN GOOD FAITH BY DEPOSITARYS HEIR

This above article envisions a situation where the depositary dies
and the object of the deposit is left with his heir who, in good faith, sells it
The obligation of the heir is limited to the return of the price
received or to assign the right to collect the same if it hasnt been paid and not
the real value of the thing
The rule is based on considerations of equity
If the purchaser who acquired the thing acted in bad faith, the depositor
may bring an action against him for its recovery
If the heir acts in bad faith, he is liable for damages. The sale or
appropriation of the thing constitutes estafa.
OBLIGATIONS OF THE DEPOSITOR
Art. 1996. A deposit is necessary:

(1) When it is made in compliance with a legal obligation;
(2) When it takes place on the occasion of any calamity, such as fire,
storm, flood, pillage, shipwreck, or other similar events. (1781a)
Art. 1992. If the deposit is gratuitous, the depositor is obliged to

reimburse the depositary for the expenses he may have incurred
for the preservation of the thing deposited. (1779a)
OBLIGATION TO PAY EXPENSES OF PRESERVATION
1. Deposit gratuitousthe above article applies only if the deposit is
gratuitous. It rests on equity. The depositor would have incurred just the
same had the thing remained with him. Without the duty of reimbursement
imposed by the article, the depositor would be enriching himself at the
expense of the depositary. The rule is different in commodatum.
2. Deposit for compensationif the deposit is for valuable
consideration, the expenses of preservation are borne by the depositary
because they are deemed included in the compensation. There can
however be a contrary stipulation.
Art. 1993. The depositor shall reimburse the depositary for any loss
arising from the character of the thing deposited, unless at the time of
the constitution of the deposit the former was not aware of, or was not
expected to know the dangerous character of the thing, or unless he
notified the depositary of the same, or the latter was aware of it
without advice from the depositor. (n)
Art. 1994. The depositary may retain the thing in pledge until the
full payment of what may be due him by reason of the deposit. (1780)
DEPOSITARYS RIGHT OF RETENTION

Talks about legal pledge
The thing retained serves as security for payment of what may be due to
the depositary by reason of the deposit
Depositary may foreclose through public auction
Art. 1995. A deposit its extinguished:
(1) Upon the loss or destruction of the thing deposited;
(2) In case of a gratuitous deposit, upon the death of either the
depositor or the depositary. (n)
CAUSES OF EXTINGUISHMENT OF DEPOSIT

The causes mentioned are not exclusive
There could also be other causes such as return of the thing,
Novation, merger, expiration of term, fulfillment of resolutory condition
EFFECT OF DEATH OF DEPOSITOR OR DEPOSITARY

1. Deposit gratuitousif the deposit is gratuitous, the death of either
the depositor or depositary extinguishes the deposit.
2. Deposit for compensationa deposit for a compensation isnt
extinguished by the death of either party because unlike a gratuitous
deposit, an onerous deposit isnt personal in nature. Hence, the rights
and obligations arising therefrom are transmissible to their respective
heirs. But the heirs of either party have a right to terminate the
deposit even before the expiration of the
term.
NECESSARY DEPOSIT
Art. 1997. The deposit referred to in No. 1 of the preceding article shall
be governed by the provisions of the law establishing it, and in case of
its deficiency, by the rules on voluntary deposit.
The deposit mentioned in No. 2 of the preceding article shall be regulated
by the provisions concerning voluntary deposit and by Article 2168.
(1782)
WHEN DEPOSIT IS NECESSARY
1. When it is made in compliance with a legal obligation
2. When it takes place on the occasion of any calamity, such as fire, storm,
flood, pillage, shipwreck, or other similar events
3. Travelers in hotels or inns
4. Made by passengers with common carriers
NECESSARY DEPOSIT IN COMPLIANCE WITH A LEGAL
OBLIGATION
1. The judicial deposit of a thing the possession of which is being
disputed in a litigation by two or more persons
2. The deposit with a bank or public institution of public bonds or
instruments of credit payable to order or bearer given in usufruct when
the usufructuary doesnt give proper security for their conservation
3. The deposit of a thing pledged when the creditor uses the same without
the authority of the owner or misuses it in any other way
4. Those required in suits as provided for in the Rules of Court
5. Those constituted to guarantee contracts with the government. In
this last case, the deposit arises from an obligation of a public or
administrative character.
Art. 1998. The deposit of effects made by the travelers in hotels or
inns shall also be regarded as necessary. The keepers of hotels or
inns shall be responsible for them as depositaries, provided that notice
was given to them, or to their employees, of the effects brought by
the guests and that, on the part of the latter, they take the
precautions which said hotel-keepers or their substitutes advised
relative to the care and vigilance of their effects. (1783)
Art. 1999. The hotel-keeper is liable for the vehicles, animals and
articles which have been introduced or placed in the annexes of the hotel.
(n)
DEPOSIT BY TRAVELLERS IN HOTELS AND INNS
1. They have been previously informed about the effects brought by their
guests
2. The latter have taken the precautions prescribed regarding their
safekeeping
EXTENT OF LIABILITY OF KEEPERS OF HOTELS AND INNS
The liability isnt limited to effects lost or damaged in the hotel rooms
which come under the term baggage or articles such as clothing as are
ordinarily used by travelers but include those lost or damaged in hotel annexes
such as vehicles in the hotels garage
The responsibility extends to all those who offer lodging for a
compensation, whatever may be their character
DEFINITION OF TERMS
1. Travelers or guestsit refers to transients and not to boarders.
Non-transients are governed by the rules on lease.
2. Hotel-keeper and inn-keeper
a. Hotela house or large building that supplies rooms and food for
pay to travelers and others;
inn.
b. Inna place where travelers and others can get meals and a room to
sleep in. Hotels have largely
taken the place of the old inns.
c. Motela roadside hotel or group of furnished cottages or cabins
providing overnight lodging for
motorists; motor court.
Art. 2000. The responsibility referred to in the two preceding
articles shall include the loss of, or injury to the personal property of
the guests caused by the servants or

employees of the keepers of hotels or inns as well as strangers; but
not that which may proceed from any force majeure. The fact that
travelers are constrained to rely on
the vigilance of the keeper of the hotels or inns shall be considered
in determining the degree of care required of him. (1784a)
Art. 2001. The act of a thief or robber, who has entered the hotel is not
deemed force majeure, unless it is done with the use of arms or
through an irresistible force. (n)
Art. 2002. The hotel-keeper is not liable for compensation if the loss is due
to the acts of the guest, his family, servants or visitors, or if the loss
arises from the character of the
things brought into the hotel. (n)
WHEN HOTEL-KEEPER LIABLE

1. The loss or injury is caused by his servants or employees as well as by
strangers provided that notice has been given and proper precautions taken
2. The loss is caused by the act of the thief or robber done without
the use of arms and irresistible force for in this case, the hotel-keeper is
apparently negligent.
WHEN HOTEL-KEEPER IS NOT LIABLE

1. The loss or injury is caused by force majeure, theft or robbery by a
stranger with the use of arms or irresistible force, unless he is guilty of
fault or negligence in failing to provide against the loss or injury from his
cause
2. The loss is due to the acts of the guests, his family, servants, or
visitors
3. The loss arises from the character of the things brought into the
hotel
Art. 2003. The hotel-keeper cannot free himself from
responsibility by posting notices to the effect that he is not liable for the
articles brought by the guest. Any stipulation
between the hotel-keeper and the guest whereby the responsibility of
the former as set forth in articles 1998 to 2001 is suppressed or
diminished shall be void. (n)
EXEMPTION OR DIMUNITION OF LIABILITY
The rule in this article is similar to the rule on common carriers
which doesnt allow a common carrier to dispense with or limit his
responsibility by stipulation or by posting of notices
Such stipulations is deemed contrary to law, morals, and public
policy
1. Hotel-keepers and inn-keepers in offering their
accommodations to the public, practically volunteer as depositaries, and
as such, they should be subject to an extraordinary degree of
responsibility for the protection and safety of travelers who have no
alternative but rely on good faith and care of those with whom they take
lodging
2. Inn-keepers by the nature of their business, have supervision and
control of their inns and the premises thereof. As a matter of fact,
authorities are to the effect that it is not necessary in order to hold an
inn-keeper liable that the effects of the guests be actually delivered to him or
his employee, it is enough that they are within the inn.
CAN THERE BE STIPULATION EXEMPTING LIABILITY FOR
GROSS NEGLIGENCE?
No since you cannot waive liability for gross negligence as this would
be tantamount to waiving liability for fraud.
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A guaranty is a contract where a person (the guarantor) binds himself to the
creditor to fulfill the principal debtor's obligation in case the principal debtor
can't do it. It must be in writing (Art. 1403, Civil Code) or it can't be enforced.
It also cannot be presumed. In case of a married woman, she binds herself
with her separate property with 2 exceptions: if she binds the conjugal
property or if in cases which benefits the family -in both cases, her husband's
consent is required.
A guaranty isn't presumed. It requires the guarantor's consent for the assurance
that the guarantor will bind himself and to make certain that when it is made,
the guarantor will proceed accordingly.
A guaranty is generally gratuitous except it there is a stipulation to the
contrary. Also, the guarantor's liability can't exceed the amount of the
principal obligation but can be lesser than the principal obligation's amount.
The exceptions are the following:
1.) Interest, judicial costs and attorney's fees may be recovered as part of
damages. Creditors suing on a surety bond can recover legal interest,
attorney's fees and judicial costs from the surety if appropriate, even if there is
no stipulation and even if the surety would become liable for more than the
amount in the bond. This is because the surety is made to pay, not by virtue of
the contract, but his failure to pay when demanded by the creditor resulted in
the filing of a case. The interest starts to accumulate either (a) when the
complaint is filed (upon judicial demand) or (b) the time demand was made on
the surety until the principal obligation is fully paid (upon extra-judicial
demand.)
2.) The penalty may be provided in the bond and the surety can be held liable
for the violation so penalized.
Classifications
A guaranty is personal if it's the credit given by the person who guarantees the
fulfillment of the principal obligation and real if the guaranty is movable or
immovable property. It is conventional if agreed on by the parties, legal if
imposed by law or judicial if ordered by the court to guarantee the eventual
right of one of the parties to the case. If the guarantor doesn't receive any
payment for acting as a guarantor, it's gratuitous; if he does, it's onerous. A
single guaranty is constituted solely for the purpose of securing the principal
obligation; a double guaranty, on the other hand, is constituted to secure the
fulfillment by the guarantor of a previous obligation. It is definite if secured
only for the principal obligation or a part of it and indefinite/simple if the
guaranty includes the principal's accessory obligations.
A surety is a contract where a person engages himself to answer for the debt,
default or miscarriage of the principal debtor.
Nature and Extent of the Guaranty
1.) Consensual
2.) Accessory to a principal obligation (can't exist without the principal
obligation)
3.) Makes the guarantor subsidiarily liable
4.) Unilateral (may be entered into even without the principal debtor's
consent)
Double/Sub-guaranty
This happens when another guarantor is bound to answer for the first
guarantor. It should not be confused with several guarantors being bound to
guarantee the same obligation.
Art. 2004. The hotel-keeper has a right to retain the things brought into the
hotel by the guest, as a security for credits on account of lodging, and
supplies usually furnished to hotel guests. (n)
A guaranty may be made to secure the performance of a voidable contract, an

unenforceable one or a natural obligation, but not a void one. If the contract is
void, there is no guaranty. The rules are:
HOTEL-KEEPERS RIGHT TO RETAIN

Nature of a pledge created by operation of law
Incidentally, the act of obtaining food or accommodation in a hotel or inn
without paying thereof constitutes estafa.
Guaranty and Suretyship
Wednesday, February 15, 2012
in Civil, Law
1.) Voidable contract -binding until annulled by a proper court action.

2.) Unenforceable contract -binding simply because it isn't void.
3.) Natural obligation -the creditor can proceed against the guarantor even if
he has no right of action against the principal debtor because the principal
debtor obligation isn't civilly liable. If the debtor himself offers a guaranty for
his natural obligation, he impliedly recognizes his liability and his obligation
changes from natural to civil.
Extinguishment of Guaranty
The following instances will extinguish a contract of guaranty:
1.) Release in favor of one of the guarantors, without the others' consent, will
benefit all to the extent of the share of the guarantor who was released from
his liability.
2.) If the creditor voluntarily accepts immovable or other property in payment
of the debt, even if he loses them later through eviction or conveyance of
property.
3.) Effect of eviction: revival or the principal property but not the guaranty
4.) If by an act of the creditor the guarantors, though solidarily liable, can't be
subrogated to the creditor's rights, mortgages and preferences.
5.) For the same causes as all obligations under Art. 1231 of the Civil Code
(extinguishment
of
obligations:
payment/performance,
loss,
condonation/remission, confusion/merger of rights, compensation, novation,
annulment, recission, prescription and fulfillment of a resolutory condition.)
6.) When the principal obligation is extinguished.
7.) Extension granted by the creditor to the debtor without the guarantor's
consent.

Law On Sales, Agencies and Bulk Sales Law

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Law On Sales, Agencies and Bulk Sales Law

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The Bulk Sales Law

A sale is considered in bulk in any of the following instances:

Non-discharge of seller from liability

The ownership of the goods has passed to the buyer and he

The price is payable on a certain day, irrespective of delivery or of

Action for damages by seller due to non-acceptance by the buyer

Refuse to accept the goods, and maintain an action against the

In the case of breach of warranty of quality, such loss, in the

Extinguishment of sale in general

If the price of a sale with right to repurchase is unusually

If the vendor remains in possession as lessee or otherwise;[9]

If upon or after the expiration of the right to repurchase another

If the purchaser retains for himself a part of the purchase price;[11]

1. against hidden defect - N/A because intangibles has no physical existence

ASSIGNMENT OF CREDIT OR INCORPOREAL RIGHT IN LITIGATION

Sale of credits & other incorporeal things

presumption: buyers purpose is speculation

Technical term but basically a sale

WHAT MAKES ASSIGNMENT DIFFERENT FROM SPECIES SALE:

when credit or incorporeal right in litigation is assigned or sold, debtor has

right to redeem to be exercised within 30 days from demand by assignee

RIGHT TO REDEEM BY DEBTOR NOT AVAILABLE IN THE

2. assignment to creditor in payment for his credit

3. assignment to possessor of tenement or piece of land which is subject to the

1. assignment of credit / incorporeal right to co-heir or co-worker

2. assignment of rights made w/o knowledge of debtor debtor may set up

3. debtor has consented to assignment cannot set up compensation unless

When is the contract of barter perfected?

4. debtor has knowledge but no consent - may still set up compensation of

When is the contract of barter consummated?

by tradition & not by perfection

Barter is consummated from the time of mutual delivery by the contracting

execution of public instrument because intangibles cannot be physically

What laws govern the contract of barter?

ACCESSORIES & ACCESSIONS

Articles 1638 to 1940 of the Civil Code

Best Legal Practices:

What are the remedies of a party in a contract of barter if he loses the

Recover that which he has given in exchange with a right to

Publish in papers of general circulation the revocation of agency As

Between those who were present or absent

Executive Committee resolution sufficient in lieu of board resolution If an

When agent acts in his own name

Agent to bring original and photocopies of authorization The agent should

To be liable for damages

him payment in cash; however, the commission agent is entitled to any

Commission agent who has guaranteed commission bears risk

To account and deliver whatever received by virtue of agency

In addition to ordinary commission, the commission agent may receive on

Release, Waiver, and Quitclaim After the termination of the contract of

To be liable for substitute appointed by agent

Extent of liability of agent for fraud and negligence

To be solidarily liable with other agents if stipulated

Obligations of the Principal in a Contract of Agency

liable for damages to the third person whose contract is rejected as a

When principal is not liable for agents expenses

Send written notice of revocation to specific third parties It is a good and

If the agent acted in contravention of the principals instructions,

If the expenses were due to the fault of the agent;[14]

If the agent incurred them with knowledge that an unfavorable

If it was stipulated that the expenses would be borne by the agent,

By revocation of the agency;