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SALES because a contract of sale is essentially

onerous.
Articles / Laws to Remember: 1458, 1467,
4. Onerous (1350) – COS is essentially
1477 transfer of ownership, 1505, 559 who
onerous. Otherwise, it may be another
can transfer xxx, 1504, 1544, 1484 Recto
contract or any other act like it may be a
Law, R.A. 6552, 1602, 1606, 1620, 1623,
donation if there is no compensation for the
Redemption xxx
transfer of ownership to the other party.
Q: A obliged himself to deliver a certain
5. Commutative (2010) – meaning there is
thing to B. Upon delivery, B would pay a
equivalency in the value of the prestation to
sum of money to A. Is that a contract of
be performed by both parties. Normally, the
sale?
thing sold would be equal to the price paid
A: Not necessarily. Even if there is an
by the other party (buyer).
obligation to deliver, if there is no obligation
to transfer ownership, it will not be a
Exception: a contract of sale which is an
contract of sale. It may be a contact of
aleatory contract like sale of hope. In sale of
lease.
hope, the obligation of 1 party will arise
upon the happening of a certain event or
Memorize: Art. 1458
condition.
Note: Sale is a contract, so the general
Example Sale of Hope: Sale of a lotto ticket,
principles in oblicon are applicable to sale
PCSO will have the obligation to pay you
but note that there are provisions which are
only if you got all the 4 or 6 numbers which
contrary.
are drawn
Characteristics of Contract of Sale (COS)
Another Example of Aleatory: Insurance
1. Consensual (1475) – COS is
consensual, it is perfected by mere meeting
6. Nominate (1458)
of the minds of the parties as to the object
and price.
Classification of Contract of Sale
Note: There is 1 special law which requires
1. As to Nature of Subject Matter
a particular form for the validity of a contract
a. Movable
of sale – in that sale, it can be said that kind
b. Immovable
of sale is a formal contract → Cattle
Registration Decree. In a sale of large
Q: Why there is a need to determine?
cattle, the law provides that the contract of
A: Because some concepts will apply if the
sale of large cattle must be: in a public
object is movable or some laws will apply if
instrument, registered and a certificate of
the object is immovable.
title should be obtained in order for the sale
to be valid. But otherwise, the other
Examples: Under the Statute of Frauds, you
contracts are perfected by mere consent or
have to determine if the object if movable or
mere meeting of the minds.
immovable in order that statute of frauds will
apply. The Recto law will apply if the object
2. Principal – sale is a principal contract, it
is movable. The Maceda law will apply if the
can stand on its own. It does not depend on
object is realty. Article 1544 or Double Sale
other contracts for its existence and validity.
will require you to determine the nature of
the subject matter.
3. Bilateral (1458) – necessarily in a COS,
both parties will be obligated. It is not
2. As to Nature
possible that only 1 party is obligated
a. Thing

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


1 November 2008
b. Right In CTS, if condition/s happen, the right of
the buyer is to compel the seller to execute
Q: Why there is a need to determine? a final deed of sale. So ownership does not
A: Relevant in the mode of delivery automatically pass.

Distinctions Dation in Payment (DIP) vs. COS


1. Deed of Absolute Sale (DAS) vs. DIP (1245) – whereby property is alienated
Conditional Sale (CS) vs. Contract to Sell to the creditor. It is provided that the law on
(CTS) sales shall govern such transaction. It is
2. Dation in Payment (DIP) vs. COS specifically provided that the pre-existing
3. Contract for a Piece of Work (CPW) vs. obligation must be in money. If not in money
COS and there is DIP, it will not be governed by
4. Barter vs. COS the law on sales but by the law on novation
5. Agency to Sell (ATS) vs. COS because practically there is a change in the
object of the contract.
Deed of Absolute Sale (DAS) vs.
Conditional Sale (CS) vs. Contract to Sell Example 1: If A owes B P100,000.00
(CTS) instead of paying P100,000, he offers B and
DAS – seller does not reserve his title over B accepts the car of A as an equivalent
the thing sold and thus, upon delivery of the performance → this is DIP and will be
thing, ownership passes regardless of governed by the law on sales.
whether or not the buyer has paid.
Example 2: If the pre-existing obligation is to
CS - condition/s are imposed by the seller deliver a specific horse but instead of
before ownership will pass. Normally, the delivering the horse, the debtor told his
condition is the full payment of the price. In creditor and the creditor accepted, that he
CS, ownership automatically passes to the will instead deliver his car → it is still DIP
buyer from the moment the condition but it will not fall on 1245 but on novation
happens. There is no need for another because there is a change in the object of
contract to be entered into. the obligation which would extinguish the
obligation.
BE: Receipt was issued by A to B. The
receipt’s tenor “Date of the receipt xxx Note: A guide to distinguish one concept
Received from B the sum of P75,000.00 from another is to know the nature,
as partial payment for the car xxx the requisites and effects.
balance to be paid at the end of the
month xxx”. Contract to Sell? 1. As to Nature
SA: No. It does not pertain to a CTS DIP – a special form of payment
because in a CTS ownership is reserved by COS - it is a contract
the seller despite delivery to the buyer. The
buyer does not acquire ownership. This is 2. As to Requisites
an Absolute Sale. DIP – with a pre-existing obligation
COS – not a requirement
Q: In a CTS, upon the happening of the
condition/s imposed by the seller, would 3. As to Effect
ownership automatically pass to buyer? DIP – to extinguish the obligation either
A: No. While a CTS is considered a special wholly or partially.
kind of conditional sale, it is a peculiar kind COS – obligation will arise instead of being
of sale because despite the happening of extinguished.
the condition and actual delivery, the buyer
does not automatically acquire ownership.

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


2 November 2008
Contract for a Piece of Work (CPW) vs. BE: A gave B the exclusive right to sell
COS his maong pants (he has his own brand
BE: A team if basketball players went to of maong pants) in Isabela. It was
a store to buy shoes and out of the 10 stipulated in the contract that B has to
members, 5 of them were able to choose pay the price of maong within 30 days
the shoes. They agreed to pay the price from delivery to B. It was stipulated that
upon delivery. The other 4 members B will receive 20% commission
were able to choose but the shoes were (discount) on sale. The maong pants
not available at that time but they are were delivered to B. However, before B
normally manufactured. The last could sell the goods, the store was
member could not find shoes that could burned without fault of anyone. Can B be
fit his 16 inches feet and therefore he compelled to pay the price?
has to order for such kind of shoes. From the wordings of the problem you may
What transactions were entered into by have an idea that this is an agency to sell. If
these players? this is an ATS, the fact that the agent has
SA: 1467 → the first 2 transactions involving not yet sold the maong pants when they
a total of 9 players would be considered a were burned will not result in a liability on
COS because the shoes which they ordered his part, there being no negligence on his
are being manufactured or procured in the part because with the delivery of the thing
ordinary course of business for the general from the principal to the agent, ownership
market. However, the last transaction which does not pass. Under the principle in the
will be manufactured only because of the Civil Code – res perit domino – it will be the
special order of the player and is not seller (owner) who will bear the loss. But if
ordinarily manufactured for the general this transaction is sale then with the delivery
market will be considered a CPW which is of the maong pants to B, ownership passed
known as the Massachusetts rule. to B because he did not reserve ownership
Massachusetts rule – rule in determining over the pants despite the fact that the other
whether the contract is a COS or a CPW. party has not paid the price. So when the
pants were burned, it would now be B as
Barter vs. COS the owner who will bear the loss.
Q: A obliged himself to deliver a
determinate car with a market value of SA: This is exactly the case of Quiroga vs.
P250,000.00. B obliged himself to deliver Parsons. Article 1466 – in construing a
his watch and P150,000.00 in cash. What contract containing provisions
kind of contract? characteristics of both a COS and ATS, you
A: First, you have to consider the intention have to go into the essential clauses of the
of the parties. They may want this whole instrument. In this problem, one of
transaction to be considered as a sale or the clauses “B has to pay the price within 30
barter and that will prevail. But if the days”. That would make the contract COS
intention of the parties is not clear from their and not ATS because in 30 days from
agreement then the nature of the contract delivery, whether or not B has already sold
will depend on the value of the watch. If the those pants to other persons, he is already
value of the watch is greater than P150,000 obliged to pay a price. That is not an ATS.
then this is barter. If the value of the watch Being a COS, therefore, after having been
is equal or less than P150,000 then this is delivered, ownership passed to the buyer
sale. The value of the car is irrelevant. What and hence under res perit domino rule, the
is only relevant is the value of the thing buyer bears the loss and therefore he can
(watch) in relation to the cash to be given by be compelled to pay the price.
one of the parties.
Essential Elements of a Contract of Sale
Agency to Sell (ATS) vs. COS 1. Consent of the Contracting Parties

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


3 November 2008
2. Object or Subject Matter – which is a consider the nature of the incapacity. It may
determinate thing or right be:
Note: Service cannot be the subject matter a. Absolute Incapacity – the party
of sale. cannot give consent to any and all
3. Cause or Consideration – as far as contracts.
seller is concerned, it is the price in b. Relative Incapacity – the party is
money or the equivalent of the payment of prohibited from entering sometimes
the price. with specific persons and sometimes
over specific things.
CONSENT OF THE CONTRACTING
PARTIES Kind of Capacity
A. No consent of one or both of the 1. Juridical Capacity – it is the fitness to be
parties the subject of legal relations. If a party to a
→ the contract is void. Under the law on sale has no juridical capacity, the contract is
sales, it is a fictitious contract where the void. Note that all natural living persons
signature of one of the parties was forged. have juridical capacity. Even if he is a 1 day
Normally, the seller’s signature is forged. If old baby, he has juridical capacity. The baby
the signature of the seller is forged, that can be the subject of donation. Even if he is
would be a fictitious contract. The alleged conceived, he has provisional personality.
seller will not have participation in the
execution of the contract. But another kind Example: One example of a party to a sale
of contract recognized in the Civil Code is a without juridical capacity would be a
simulated contract. corporation not registered with the SEC.
The contract entered by this corporation is a
Simulated – parties to this contract actually void contract because one of the parties has
would have participation. They would no juridical capacity to enter into that
voluntarily sign in the deed of sale. contract.
However, they do not intend to be bound at
all or they may intend to be bound to 2. Capacity to Act – it is the power to do
another contract but they executed a deed acts with legal effects. If the incapacity only
of sale. Thus, the law would ratify these pertains to capacity to act, the contract
contracts considering there is a simulated would normally be voidable. Without
sale. capacity to act or there are restrictions with
one’s capacity to act such as minority,
Kinds of Simulated Contracts insanity, deaf mute and does not know how
1. Absolutely Simulated – they do not intend to write and civil interdiction.
to be bound at all.
Q: Why would they enter into this kind of Note: Under R.A. 6809 (December 1989)
sale? there is no more creature known as
A: To defraud creditors “unemancipated minor”. Before 1989, the
age of majority was 21.
2. Relatively Simulated – sale where they
actually intended another contract which C. If both parties are incapacitated
normally would be a donation. → not only voidable but unenforceable.
Q: What if one of the parties in a COS is
B. If consent was given a minor and the minor actively
→ If consent was given, it does not misrepresented as to his age?
necessarily mean that the COS is valid. The A: The SC said that the minor will be bound
consent may be given by an incapacitated to such contract under the principle of
person or one with capacity to give consent. estoppel.
If given by an incapacitated person,

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


4 November 2008
Atty. Uribe’s Comment: Estoppel is not a Justice Vitug & Prof. Baviera – void
good ground because the minor is not Prof. Pineda & Prof. de Leon – the
aware. first 3 are voidable and the last 3 are
void.
Sale of Necessaries The better answer is void because these
In sale of necessaries such as food, clothing persons are prohibited from entering into
and medicine to a minor, the minor has to these contracts. Under Article 1409, if the
pay a reasonable price. This contract is not contract is prohibited, it is void.
voidable. The sale of necessaries will bind
the minor and he will be compelled to pay 3. Aliens are prohibited from acquiring by
not really the contract price but only to purchase private lands – Take note
reasonable price. “acquiring” which means buying not selling.
They can sell.
Relative Incapacity (Articles 1490 and Exceptions / when aliens can buy:
1491) a. Former natural born Filipino citizen.
1. Sale between spouses – it is void except: Under the Constitution they are
a. The spouses executed a marriage allowed to buy small land which they
settlement and in the marriage can use for residential purpose.
settlement they agreed for a b. Another way of acquiring is by
complete separation of property succession but this is not a sale
regime. Then they can sell to each
other. D. Even if consent was given by one with
b. If no marriage settlement, they may capacity to give consent but if the
have obtained judicial declaration of consent is vitiated
separation of property. After that, → voidable. FIVUM
they can sell to each other.
E. If the party gave such consent in the
2. Those mentioned in Article 1491 name of another without authority of that
a. A guardian cannot buy the property person or no authority of law
of the ward. The guardian is not → unenforceable. Take note may be
actually prohibited from entering into authorized by the person or by law.
any and all contracts. It is just that Example of authorized by law: notary public
he cannot be the buyer of a property has the right to sell in pledge because he
of his ward. has the authority to sell under the law.
b. An agent cannot buy without the
consent of the principal a property OBJECT OR SUBJECT MATTER
which he was supposed to sell or The requisites in sale as to thing would
administer. almost be the same as the requisites of
c. The executors and administrators of contracts in general.
the estate cannot buy a property 1. The thing must be within the commerce
which is part of the estate. of men
d. Public officers, judges, their staff, Examples: sale of a navigable river is void,
clerk of court, stenographers and sale of a cadaver is void but donation of a
lawyers are prohibited from buying cadaver is allowed, sale of human organs is
those properties which are the void, things which are not appropriated like
subject of litigation during the air is void but if appropriated it can be the
pendency of the case. object of a valid sale.

Q: What is the status of the contracts 2. The thing must be licit – not contrary to
under 1491? law
A: Prof. Tolentino – voidable

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


5 November 2008
Examples: sale of prohibited drugs or shabu of the sale is a sale with a right to
is void, sale of marijuana is void, sale of wild repurchase. Article 1465 provides that
flowers or wild animals is void things subject to a resolutory condition may
be the object of a COS.
3. Must be determinate Atty. Uribe: Mas tamang sabihin – since
Read Article 1460 the ownership thereof is subject to a
resolutory condition. Hindi naman yung
RULES AS TO OBJECT OF COS thing is the subject of resolutory condition, it
Q: A obliged himself to deliver and is the ownership over the thing.
transfer ownership over the palay that If A exercises the right to repurchase and
will be harvested from a specific parcel such would be a valid exercise of such right
of rice land in May 2008. What if by May then the ownership of B would be
2008, no palay was harvested? extinguished. The exercise of the right is
a. What is the status of the sale? considered a resolutory condition as to the
b. May the seller “A” be held liable for ownership of B. The fact that the object of
damages for failure to comply with the sale is subject to a repurchase will not
his obligation? affect the validity of the sale.
A: (b) As a rule, it would be A as a seller a
a. Always consider that in a COS there retro because he has the right to
are only 3 requisites. As long as these 3 repurchase assuming his repurchase is
were complied, there is a valid sale. In fact, valid. C may have a better right if he can
by express provision of law, sale of things claim that he is an innocent purchaser for
having potential existence (emptio rei value. Example: maybe the right to
sperati) is valid. repurchase was not annotated at the back
b. Not necessarily because there are of the title of the land and he has no actual
excuses to non-performance such as knowledge. If that is the case, C may have a
pestilence, typhoon, flood and therefore his better right.
failure to comply is an excuse. But if the
reason of the seller is because of his SALE OF RIGHT / ASSIGNMENT OF
negligence, he cannot find support under RIGHT
Art. 1174. Assignment of right is not necessarily a
sale. If there is a valuable consideration for
Sale of Hope (Emptio Spei) the assignment, it is a sale. If there is no
Example: Sale of a lotto ticket valuable consideration, it may be a donation
or dacion en pago.
Q: Sale of a land to B with a right to
repurchase within 1 year which A Examples of right: credit, shares of stock
delivered. On the 3rd month, B sold the
land to C. However, on the 9th month, A Requisite of a right → the only
offered to repurchase the land. requirement is that the right must not be
(a) What is the status of the sale intransmissible
between A and C? G.R.: As a rule, rights and obligations
(b) Who will have a better right over arising from contracts are transmissible.
the land? Exceptions:
(Sale with a right to repurchase) 1. Intransmissible by Nature
2. Intransmissible because of Stipulation
A: (a) Be guided by the fact that a COS is a 3. Intransmissible because of Law
consensual contract. The mere meeting of
the minds as to the object and the price, CAUSE OR PRICE CERTAIN IN MONEY
then there is a valid and perfected sale. OR ITS EQUIVALENT
Hence, this is a valid sale even if the object

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


6 November 2008
Q: A deed of sale was entered into by A unable to fix the price. Hence, there was no
and B. The price agreed upon was 1M meeting of the minds.
yen.
(a) May that be a valid sale? Q: If the 3rd person fixed the price but it
(b) Can the seller compel the was too high or too low or maybe there
buyer to pay in yen? was fraud committed by the 3rd person or
A: (a) Yes, it is valid. Basis is Article he was in connivance with one of the
1458 because the only requirement of the parties, may the sale be void?
law is “in money”. Even Japanese yen is in A: No, because the remedy of the other
money. The law states that it may not even party is to go to court for the court to fix the
be in money, it may be “equivalent” like price.
promissory notes whether or not negotiable
or letters of credit. Note: Lesion or gross inadequacy of the
(b) If the contract was entered into price does not as a rule invalidate a contract
today, yes it is valid because of R.A. 8183 unless otherwise specified by law.
which repealed R.A. 529 in 1996. If COS Exception: when otherwise provided by law.
was entered before R.A. 8183, the seller Example: Article 1381.
cannot compel even though the contract is
valid. The payment has to be made in Note: Under the law on sales, if there is
Philippine money. gross inadequacy, it may reflect vitiation of
Consider the date of the sale. If parties consent so the SC would normally enjoin
failed to stipulate as to which currency, it the lower courts to be warned of the
has to be in Philippine currency. possibility of fraud in case of lesion. Lesion
must be proven as a fact. It is not
Price Must be Certain presumed.
If there is gross inadequacy, it maybe
Q: Who can fix the price? because actually they intended another
A: (1) The best way is for the parties to contract and that would make the sale a
agree as to the price. (2) They may agree simulated sale and therefore the sale is
that one of them will fix the price. void.
Example: The value of the property is P1M
Q: May the sale be perfected if the but only P10,000 was written in the contract
agreement of the parties was for one of because they intended it to be a donation →
them to fix the price? void.
A: Yes, it may be perfected only if the price
fixed by the party who was asked to fix the TIME OF THE PERFECTION OF THE
price was accepted by the other party. If not CONTRACT
accepted, there was no meeting of the
minds. Auction Sale
Auction sale is perfected upon the fall of the
Note: The perfection will only be considered hammer or any other customary manner.
at the time of the acceptance of the price Thus, before the fall of the hammer in an
fixed by the other party not from the time of auction sale, the bidder even if he has
the first agreement of the parties. already made a bid, he can still withdraw
the bid as long as he would do that before
Q: What if a 3rd person was asked to fix the fall of the hammer. Otherwise, (if after
the price – A and B agreed that X will fix the fall of the hammer), there is already a
the price, may the sale be void? perfected sale.
A: Yes, the sale may be void if the third
person does not want to fix the price or Q: Can the auctioneer withdraw the
goods before the fall of the hammer?

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


7 November 2008
A: As a rule, yes because the sale has not (b) No, an action for specific performance
been perfected at the moment unless the will not prosper because when he said he
bidding or auction has been announced to will but there was not more offer to be
be without reserve. considered. Na-withdraw na eh.

Note: Before perfection, there is one Q: If the offeree files an action for
contract which maybe perfected. Before damages, may that action prosper there
perfection meaning in the negotiation stage being option money given?
→ this contract is known as the option A: Yes, because with the option money, an
contract. option contract is perfected, the offeror is
bound to give the offeree, 2 years within
Option Contract which to decide and failure to that he is
Sanchez vs. Rigos liable not based on perfected COS but on
Facts: Mrs. Rigos offered to sell her land to perfected contract of option.
Sanchez for a certain price. Rigos gave
Sanchez 2 years within which to decide. Option Money (OM) vs. Earnest Money
(Note: The optionee or promisee or offeree (EM)
is not bound to purchase but he has the OM is not part of the price while EM is part
option to buy or purchase). In this case, of the price and at the same time, it is a
Sanchez has the option. Before the lapse of proof of the perfection of the contract.
2 years, Sanchez told Rigos that he is
buying and offered the price agreed upon G.R.: A COS may be in any form. Article
but Rigos refused claiming that she was not 1483 provides that a COS may be in writing,
bound by the written option agreement partly in writing xxx. This provision is exactly
because no option money (consideration) the same as Article 1356 in contracts which
was given by Sanchez. According to Rigos, provides that contracts may be obligatory in
the option contract is void. whatever form they may have been entered
Held: Since Sanchez accepted the offer and into provided all the essential requisites are
decided to buy within the period before the present. But then again even Article 1356
offer was withdrawn, a perfected COS was just like Article 1475 would provide for
created even without option money. In this exceptions.
case, there was no option contract because Exceptions: The law may require a
it was merely an option agreement. particular form for its validity. The Cattle
Therefore, there was merely an offer on the Registration Decree is an example - where
part of Rigos and once the offer was the law itself provides for a particular form
accepted before it was withdrawn, for the validity of the sale. But the law may
regardless of whether option money was require particular form for its enforceability
given and in this case no option money was of the sale and that would be 1403 or the
given, a perfected COS was created. statute of frauds. Concretely, the sale of a
Note: Iba pag may option money parcel of land if not in writing is valid but
Q: 2 years within which to decide – unenforceable. It is not void. Note that the
assuming there was option money, price of the land is irrelevant if immovable.
before the offeree could decide to buy,
the offeror withdraw on the 6th month. Example: Before, the sale of a land for P300
(a) Can the offeree on the 10th is valid and enforceable even if not in
month say “I would like to writing. But presently, it has to be in writing
buy”? to be enforceable. The price is still
(b) Can the buyer compel the irrelevant.
seller to sell?
A: (a) No. If the object of the sale is movable, you
have to consider not the value of the thing

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


8 November 2008
but the price agreed upon. The value may 5. From the time of the perfection up to
be different from the price. You can sell a the time of delivery then there would
thing worth P1,000 for P400 but the law be obligation to pay for the expenses
provides for the price. If the price is at least for the execution and registration of
P500 and the sale is not in writing, it will be the sale and obligation to pay the
unenforceable. capital gains tax would be on the
seller as a rule.
Paredes vs. Espino 6. Obligation to deliver the fruits which
Facts: Paredes was a prospective buyer. is related to the obligation to deliver
Espino owns a land in Palawan. Paredes is the thing
from Northern Luzon. Their negotiation was
thru letters and telegrams. Espino sent a OBLIGATION TO DELIVER THE FRUITS
letter to Paredes stating that he and his wife BE: A sold a mango plantation to B but
agreed to sell the land to Paredes, that the they stipulated that delivery will be after
deed of sale will be executed upon the the signing of the deed of sale. After the
arrival of Paredes in Palawan. When expiration of the 6-month period, B
Paredes arrived, Espino said he is no longer demanded for the delivery. The vendor
interested in selling. Paredes filed a case to was able to deliver 1 month after the
compel Espino to sell the land. Espino date when he was supposed to deliver
contended that the contract is the mango plantation. During this
unenforceable because it is not in writing. period, the vendor harvested mango
He contended that under the statute of fruits and sold them to X. The vendor
frauds it is unenforceable. His contention was able to deliver only after the other
was sustained by the trial court. fruits were harvested and sold to Y. Can
Held: This contract is no longer covered by B recover the mango fruits from Y during
the statute of frauds because there was a the 6th month period?
letter. Article 1403 provides that a note or SA: Determine first whether B is entitled to
memorandum signed by the part charged the fruits because if he is not entitled, then
would be sufficient to take that contract out he cannot recover the fruits. Is he entitled to
of the operation of the statute of frauds. In the fruits after 6-month period during the 1-
this case, the defendant wrote a letter with month period prior to delivery? Yes, in fact,
his signature on it. The letter took that under 1537, the fruits of the thing sold from
contract out of the operation of the statute of the time of perfection shall pertain to the
frauds and therefore he may be compelled buyer.
to execute the final deed of sale.
OBLIGATION TO TAKE CARE OF THE
RIGHTS AND OBLIGATIONS OF THE THING
VENDOR G.R.: The thing sold should be determinate
In a deed of sale (DOS), there can because if generic (1460, 2nd paragraph)
be hundreds of obligations of the vendor but then there is nothing to be taken cared of. It
those obligations would be because of the will become determinate only upon delivery.
stipulation. But there are only few Exceptions: There are sales transactions
obligations imposed by law. The 3 most wherein the vendor would not have this
important: obligation:
1. To transfer ownership a. Constructive delivery - brevi
2. To deliver manu – There would be no
3. To warrant the thing obligation on the part of the
There are other obligations: seller to take care of the thing
4. Obligation to take care of the thing from the time of perfection
sold with the diligence of a good because at the time of
father of a family prior to delivery. perfection, the buyer was

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


9 November 2008
already in possession of the authority of law because not
thing. Maybe he borrowed the even the judge can validly sell
thing. Example: he borrowed the something if it is not consistent
car and he decided to buy it – with the law.
the thing was already in his
possession. Q: May a buyer acquire ownership over
the thing sold if the seller has no right to
OBLIGATION TO PAY EXPENSES / sell?
TAXES A: The answer by way of exception is yes.
These obligations may be the But the general rule here is under 1505 –
subject of stipulation. By agreement, it the buyer acquires no better title than what
would be the buyer who will pay xxx the seller had. If the seller is neither the
Normally, dito hindi natutuloy ang sale dahil owner nor does he have the authority to
hindi magkasundo kung sino magbabayad sell, the buyer acquires no better title than
ng tax. what the seller had. If his right is only as a
lessee that is the most that can be
OBLIGATION TO TRANSFER transferred to the buyer. If he has no title
OWNERSHIP then no title can be transferred to the buyer.
BE: May a person sell something which Exceptions: (When the buyer can acquire a
does not belong to him? Would the sale better title than what the seller had. Even if
be valid? Would the buyer acquire the seller does not have the right to sell, the
ownership over the thing sold, if seller buyer may acquire ownership over the thing
does not own the thing? sold because the law so provides and not
SA: Yes. Ownership over the thing sold is because the seller was able to transfer
not an essential requisite for the sale to be ownership to the buyer.)
valid. But if the seller does not own the 1. By Estoppel
thing, he may have a problem on his 2. Estoppel by Deed
obligation to transfer ownership. The 3. Estoppel by Record
problem would be whether or not the buyer 4. Sale by an Apparent Owner
would acquire ownership over the thing sold 5. Negotiable Document of Title
if the person who sold the thing is not the 6. Purchases from a Merchant’s Store
owner. xxx
1. By Estoppel – by the principle of
Q: Who would have the right to sell and estoppel, a person is precluded from
therefore they can transfer ownership by denying that another person has authority to
way of sale? sell because of his acts. Also known as
A: First, is the owner. Even if he is not the “Estoppel in Pais” which is a kind of
owner, he may have the right to sell equitable estoppel because of the acts /
because: representation of the owner, he may not
(1) He was given the authority by later on deny the authority of the 3rd person.
the owner. Example: Agent
(2) He may be the owner but he 2. Estoppel by Deed
may have the authority of the law BE: A and B co-owners of land sold (sale
to sell, known as “Statutory is verbal) to X their land. X subsequently
Power to Sell” (Article 1505). sold the land to Y. Would Y be
Examples: Notary public in considered to have acquired ownership
pledge, liquidators, guardians over the land?
and receivers. SA: Under 1434 which is considered as
(3) Those who have the authority of “Estoppel by Deed” (technical estoppel) –
the court. Example: Sheriff. when the seller who was not the ownerat
Note: it is as if they have the the time of the sale, acquires ownership,

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10 November 2008
automatically, ownership passes to the 5. Negotiable Document of Title
buyer by operation of law. However, Article If goods are covered by a negotiable
1434 requires delivery to the buyer. And document of title and it was thereafter
under the facts, 1434 would not apply negotiated. If the buyer bought it in good
because: faith and for value, he will be protected
a) There was no showing there was under the law. He will acquire ownership
payment even if the seller did not have the right to
b) No showing that there was delivery sell.
of the land to X. Example: The seller may have acquired title
It cannot be said that by operation of law, Y by violence. Binugbog nya yung owner ng
likewise acquired ownership by way of goods. Pero kung negotiable document of
estoppel by deed. title yan and properly negotiated, lalo na
kung bearer document of title, then the
3. Estoppel by Record buyer may acquire ownership even if the
Jurisprudence: Sale by nephew of the seller has no right to sell.
owner of the land. Since the nephew could
not deliver the land, the buyer sued the 6. Purchases from a Merchant’s Store /
nephew for estafa. For the accused to be Markets / Fairs
acquitted, he asked his uncle to testify that Sun Brothers vs. Velasco
he actually had the authority to sell. When Facts: Sun Brothers was the owner of a
the uncle testified in court, the nephew is refrigerator. Sun Brothers was engaged in
acquitted. After acquittal, the buyer the business of selling refrigerator. Sun
demanded from the uncle the delivery of the Brothers sold a ref to Lopez on installment
land. The uncle refused, claiming that “sa basis. As stipulated, Sun Brothers reserved
totoo land, I did not authorized my nephew”. ownership until full payment. Lopez only
Q: Case was filed against the uncle, paid P300 out of P1,500. The balance to be
would that action prosper? paid on installment. Lopez then sold the ref
A: SC said yes because he cannot be to Velasco.
allowed now to claim that his nephew was
not authorize to sell after he testified in court Q: Would Velasco acquire ownership?
that he gave such authority. A: No because Article 1505 provides that
This is estoppel by record which is the buyer acquired no better title than what
considered a technical estoppel. the seller had. However, Velasco was the
owner of a store. On the next day, Velasco
4. Sale by an Apparent Owner sold the ref to Ko Kang Chu who paid in full.
A. Factor’s Act When Sun Brothers learned this transaction,
B. Recording Laws it filed an action to recover the ref from Ko
C. Any other provision of law enabling the Kang Chu.
apparent owner of the goods to dispose of
them as if he was really the owner. BE: F lost her diamond ring in a hold-up.
Later on, this ring was an object of a
A. Factor’s Act public sale of one pawnshop. Can F
Even if agent has no right to sell, a third recover the ring from the buyer in that
person may acquire ownership because he public sale?
may rely on the power of attorney as SA: Yes, Article 559 provides that even if the
written. buyer is in good faith so long as the owner
is willing to reimburse the buyer of the price
B. Recording Laws paid in that sale.
*most common question in the bar exam
Note: Again in 1505, there is no right to
Read: Mapalo vs. Mapalo recover as long as the buyer bought it in

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11 November 2008
good faith from a merchant’s store, there
can be no recovery as a matter of right. BE: A car was sold for P150,000. P75,000
paid upon the execution of DOS. The
Q: How transfer of ownership is balance payable on a monthly basis.
effected? P75,000 was paid. The car was delivered
A: Under the law, as far as things are to the buyer. However, before he could
concerned, it is effected by delivery: pay the balance, the car was destroyed
(a) Actual due to a fortuitous event or was burned
(b) Constructive xxx Can he still be compelled to pay the
There can be no transfer of ownership balance?
without delivery. SA: Yes. Upon the delivery of the car to the
buyer, there being no retention of ownership
Notes: by the seller. (Note: Wala sa facts na na-
(a) There may be a period agreed upon retain ng seller and ownership). Therefore,
by the parties within which the buyer ownership passed to the buyer. Under the
would have to decide. Even if he failed principle of res perit domino – Article 1504 –
to signify his acceptance by the mere the owner bears the loss and hence it can
lapse of the period, he is deemed to be compelled to pay the price.
have accepted (impliedly accepted)
hence, ownership passes to him. G.R.: Res perit domino – 1504.
(b) Even before the lapse of the period, Note: Determination of when ownership
he may be considered to have passed is important because if at the time of
accepted if he did an act wherein he the loss, the buyer is not yet the owner, as a
would be considered to have adopted rule, the buyer will not bear the loss like in
the transaction then ownership passed sale on approval and he has 10 days within
to him. which to decide and the thing was lost
Example: Even if he has 10 days through a fortuitous event within the 10-day
within which to decide but on the 2nd period without fault on his part, the seller will
day, he sold the car to another. bear the loss.
Obviously, he is deemed to have Exceptions:
accepted the thing because he did an 1. Read Lawyers’ Cooperative vs.
act which is inconsistent with the Tabora
ownership of the seller like he donated
or destroyed the thing. 2. Delay in the Delivery
(c) If there is no period agreed upon, the When there is delay in the delivery
law says if he did not signify his due to the fault of one of the parties,
acceptance he will be considered to whoever was at fault will bear the loss. Note
have accepted after the lapse of a that either buyer or seller may be at fault.
reasonable time. Reasonable time will
depend on the circumstances of the Example 1: The buyer and the seller may
sale, purpose of the sale, nature of the have agreed that the goods are to be
thing sold. Example: Perishable obtained by the buyer at the warehouse of
goods. the seller on a specific date. On the date
agreed upon, the seller demanded the
Sale or Return buyer to get the goods. Despite such, the
Q: Ownership passes upon delivery? buyer failed to get the goods. On the next
A: Yes. However, the buyer is given the right day, the warehouse was destroyed due to
to revest the title back to the seller normally fortuitous event.
within a certain period. Example: Clauses in Q: Who is the owner at that time?
subscription magazine which says that you
can return within 30 days without payment.

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12 November 2008
A: The seller but there was delay on the part registered in good faith, will have the better
of the buyer hence under 1504 it is the right. If there was no registration, it will be
buyer who will bear the loss. the first who took possession in good faith.
If no possession in good faith, the
Example 2: The seller himself maybe the buyer who has the oldest title in good faith.
one at fault. Thus, he is in delay in Even the 1st buyer is required to be in good
delivering the goods to the buyer. faith. Obviously, the first buyer would have
Q: Why would this be an exception to the oldest title. Yung good faith ditto
the res perit domino rule? obviously would not pertain to absence of
A: Ang premise dito, the ownership has knowledge of the 2nd sale kasi syempre 1st
already passed to the buyer but the goods buyer sya. He is nonetheless required to
are still with the seller. Can this happen? have bought the thing in good faith. Good
Yes, because of constructive delivery. If faith means that he had no knowledge of
there was constructive delivery, ownership the defect of the title of the seller.
passes to the buyer but physical possession
is still with the seller. They may have agreed Warning: Please be careful when you
this time that the seller will be the one to recite – you register the sale not the land.
deliver the goods to the buyer at a certain
date. When the date arrived, despite Read: Bautista vs. Sioson
demand from the buyer, there was no
delivery on the part of the seller. Even if the Carumba vs. CA
goods are destroyed the next day due to Facts: Sale of land to B who took physical
fortuitous event, take note ang owner ay possession but did not register. He is the
ang buyer na but who will bear the loss? first buyer. However, the seller (A) is a
The seller because he was in delay in judgment debtor in one case to a certain
delivering the goods. creditor named C. The land became the
subject of an execution sale. The buyer
became C who registered the sale.
DOUBLE SALE (ARTICLE 1544)
BE: F sold a registered parcel of land to Q: Who would have a better right
R who did not register the sale. between C and B (C had no knowledge
Thereafter, F sold the very same parcel of the sale)?
of land to C who registered and obtained A: SC Said → B because this land was not
a new TCT in his name. Who would have registered under the Torrens System. 1544
a better right? would not apply to unregistered lands.
SA: Atty. Uribe: I fully agree with the UP
Law Center’s answer. It depends on OBLIGATION TO DELIVER THE OBJECT
whether or not C registered the sale in good OF THE SALE
faith. Registration is only one of the Determine the subject matter if it is a
requirements good faith is equally an thing or a right because there are different
important requirement. modes of delivery as to thing and as to right.

Note: In 1544 (double sale), as to which Things


rule applies will depend on the thing sold if Kinds of delivery of things as a
movable or immovable. consequence of sale known as
“tradition” – under the law:
Q: If the thing is sold twice, who would 1. Actual Delivery / Material Delivery /
have the better right? Physical Delivery / Real Delivery – the thing
A: If movable, the buyer who first took is in the possession and control of the
possession in good faith will have the better vendee. Take note “control”. Take note “to
right. If immovable, the buyer, who first the vendee”.

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


13 November 2008
Q: What if the thing was delivered to a 3 rd transferred to the buyer. There must be a
person? reason why it cannot be transferred at the
A: Jurisprudence – SC said → yes, there time of the sale. This is also known as
maybe actual delivery if the third person has tradition longa manu.
authority to receive from the vendee. Thus, Example 1: The thing was the subject
making him an agent of the vendee and that matter of a lease with a 3rd person until the
would still be actual delivery. expiration of the lease, the thing cannot be
delivered.
Note: Philippine law does not only require
actual delivery – constructive delivery may Example 2: The thing was the subject
result in transfer of ownership. matter of commodatum. As a rule, period of
commodatum has to be respected.
2. Constructive – by the execution of a
public instrument if the contrary intention 3. Brevi Manu – this is a kind of constructive
does not appear on the document. By the delivery because the buyer was already in
mere execution of the public instrument that possession of the thing sold at the time of
is equivalent to delivery. Hence, ownership the perfection of the sale so he will continue
passes to the buyer. to be in possession after the sale, no longer
as a lessee but this time as the owner. So
Kuenzle & Streiff vs. Macke & Chandler dati lessee lang sya that is why he was in
Facts: The original owner here Stanley and possession or maybe depositary lang sya or
Griffindor (parang Harry Potter ) and the maybe he was the agent at the time prior to
property involved here are fixtures of a the sale.
saloon. Macke and Chandler are judgment
creditor of Stanley and Griffindor. Because 4. Constitutum Possessorium – the seller
of a judgment in favor of Macke and will continue to be in the possession of the
Chandler, the sheriff levied upon these thing after the sale but no longer as an
properties which was still in the possession owner but in another capacity like lessee.
of Stanley and Griffindor. The properties
under execution were questioned by Bautista vs. Sioson
Kuenzle and Streiff. Kuenzle and Streiff Because a lease agreement was entered
claimed that these things were sold to them into by the buyer and seller after the sale
prior to the levy. If they claimed that the then the buyer became the lessor and the
properties were sold to them, the properties seller became lessee. Therefore, the lessee
should be in their possession. Take note would continue with the possession no
that Stanley and Griffindor were still in longer as an owner.
possession of the goods physically. Hence,
there was no actual delivery. Rights
Held: In order that ownership would pass, it Kinds of Delivery of Incorporeal Property
has to be in a public instrument if that would / Quasi – Tradition:
be by constructive delivery. 1. Execution of Public Instrument

Kinds of Constructive Delivery 2. Placing the Title of Ownership in the


1. Delivery of the Keys – of the place where Possession of Vendee – a right would
the goods are located like a warehouse. normally be covered by a certificate.
Prof. De Leon: this also called as symbolic Example: delivery of the certificate of shares
delivery. of stocks.

2. By Mere Consent or Agreement of the 3. Use by the Vendee of His Rights with the
Parties – if at the time of the sale, Vendor’s Consent
possession to the goods cannot be

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14 November 2008
Example: Sale of shares of stocks → the Q: Sale of a parcel of land. Price agreed
vendee may not always have the right to upon is P1M. More or less 100 sqm. The
exercise his rights under the shares of actual area delivered by the seller was
stocks. Concretely, if there is a stockholders’ only 95 sqm. What are the remedies of
meeting, the books of the corporation will be the buyer?
closed for 30 days before the meeting. A: (1) Specific performance – would be a
Thus, if the sale occurred when the books remedy if the seller is still in the position to
are already closed, no one will be deliver the balance. Siguro yung katabing
recognized except those registered owners. lupa sa seller din, hence, he can afford to
So if you are the buyer of those stocks, you give additional 5 sqm.
can only use your right with the consent of (2) Q: If specific performance is not
the vendor. possible, is proportional reduction a
remedy?
RULES ON SALE AS TO QUANTITY / A: It depends on whether the sale is
QUALITY OF THE THING SOLD considered as a sale with a statement of an
Q: In a sale involving 1,000 pairs of area of a rate of a certain measure or if it is
shoes with a specific design as agreed a lump sum sale.
upon. The seller delivered 1,200 pairs of
shoes instead of only 1,000. Can the Q: Under the facts, 95 sqm was
buyer reject everything? delivered, would rescission be a
A: No. He has the right to reject only the remedy?
excess. Reject the 200 but he can be A: As a rule no because rescission would
compelled to accept the 1,000. only be a remedy if the area lacking is more
than 10% of that area agreed upon. So
Q: What if instead of 1,000, 800 was only kung 100 sqm, dapat 11 sqm or 15 sqm ang
delivered? kulang, so out of 100 kung 85 lang ang na-
A: The buyer cannot be compelled to deliver, then rescission is a matter of right.
receive 800 because partial performance is
non-performance. You cannot compel the PLACE OF DELIVERY
creditor to accept partial fulfillment as a rule Read 1524, 1525 and 1198
because it can be a subject of a stipulation The seller delivered the goods to the place
that there can be partial delivery. of business of the buyer. If the buyer
refuses to receive the goods, the buyer will
Q: The obligation to deliver 1,000 cavans be considered in delay and therefore will be
of Milagrosa rice. Instead of delivering liable to the seller because of unjust refusal.
1,000 cavans of Milagrosa, the seller Q: May the buyer be considered in delay
delivered 1,100 cavans of both Milagrosa for his refusal to accept if there is no
and Burmese rice. May the buyer reject place stipulated in the contract?
everything? A: It depends on the kind of thing.
A: Yes, if the goods are indivisible. Meaning Determine if it is determinate or generic. If
each sack of rice, Milagrosa and Burmese the thing is determinate, the law provides
rice were mixed. However, if it is clear that that it will be the place where the thing is
per sack it is Milagrosa rice and the 100 located at the time of the perfection of the
sacks, it is clear that those are Burmese rice contract.
that would not be considered as indivisible.
He can be compelled to accept 1,000 sacks Q: What if the object of the sale is a
Milagrosa and he has the right to reject 100 generic thing?
sacks Burmese rice. A: Seller’s place of business or residence.

SALE OF REALTY

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


15 November 2008
Note: If there is no stipulation when to be 2. Implied
delivered, the seller cannot be compelled to
deliver. 1. Express – any affirmation of fact or any
promise by the seller relating to the thing,
Q: What if at the time of the perfection of the natural tendency is to induce to
sale, though the thing is determinate, it purchase the thing.
was on board a ship while in transit. Requisites:
Where will be the place of delivery? (a) There is an affirmation of fact
A: Depending on the shipping arrangement (b) The fact must pertain to the thing
agreed upon by the parties. either to the quality, character or title
of the thing
F.O.B. – Free on Board
C.I.F. – Cost, Insurance, Freight Any other matter may not be considered as
an express warranty.
F.O.B. and C.I.F are rules of presumption
which would have to give way to the real The use of the words / terminologies is not
intention of the parties. So after all, the conclusive as to whether or not there is an
F.O.B. or C.I.F. arrangements do not really express warranty.
determine the place of delivery, they only Example: “I guaranty / warranty you that you
make rules of presumption. will be happy if you buy this car at
P100,000”→ this does not result in an
So in a C.I.F. arrangement, it is only express warranty
presumed that the place of delivery is the
port of origin. Again, if the affirmation of fact pertains to
the quality of the thing, it is an express
In a F.O.B. destination, it is only presumed warranty.
that the point of destination is the place of Example: These 10 sacks of fertilizer would
delivery. result in 200 cavans of rice.

Q: What really determines the place of The statement of the seller’s opinion is not
delivery? as a rule considered an express warranty.
A: SC said this indication as to the Example: “This is the best piña cloth” → it
intention of the parties as to the place of may turn out that there are better piña cloth.
delivery is the manner and place of
payment. If there is an agreement as to As long as the seller is not an expert on that
where and how the price is to be paid that field, that would be treated merely as an
would be the place considered for purposes opinion and there can be no liability for
of delivery and therefore for transfer of breach of an express warranty.
ownership.
BE: “A” sold a land to B for P1M in
Read 1582 Antipolo. As agreed upon P100,000 will
be paid upon the signing of the DOS.
Obligations which cannot be Waived: The balance will be paid within 30 days
1. Obligation to transfer from the time the occupants (squatters)
2. Obligation to deliver of the land are evicted. It was so
stipulated that if within 6 months, the
Obligation which can be Waived: squatters have not yet been evicted, the
1. Obligation to warrant the thing seller should return the P100,000.
Another stipulation states – within the 6-
Kinds of Warranties under the Law: month period, the value of the land
1. Express doubled. Despite the filing of an eviction

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


16 November 2008
suit by the seller and the lapse of the 6- A: Yes. These are 2 different obligations: the
month period, the squatters were still obligation to transfer ownership and the
occupying the land. The seller offers to obligation to warrant the thing.
return the P100,000 to the buyer. The
buyer refused to accept the P100,000 Example: This warranty against eviction
and told the seller “never mind even if would include the warranty that the buyer
the squatters are still there. I will still from the moment of the sale have and enjoy
buy the land”. So the buyer offered to the legal and peaceful possession over the
pay the balance P900,000 and demanded thing sold.
that a DOS be executed by the seller.
The seller refused to accept the Requisites of warranty against eviction:
P900,000. What he did is to file an action 1. There has to be final judgment depriving
to rescind the contract. Would the action him of such thing either wholly or partially. In
prosper? other words, a case was filed by a 3 rd
SA: If the answer is based on rescission, person against the buyer which resulted in a
the action will not prosper because favorable decision as to the plaintiff
rescission may only be invoked by the resulting in the deprivation of the property
aggrieved party. The seller is not an by the buyer.
aggrieved party.
2. Deprivation must be either:
2. Implied – (2.1) Based on a 3rd person’s prior right
Prof. De Leon: because of this implied over the thing prior to the sale or
warranty, it cannot be said that Philippine (2.2) Based on an act after the sale but
law does not adopt caveat emptor “buyer imputable to the vendor.
beware”. (Faye’s Caveat : Please check
the book of Prof. De Leon regarding this 3. There should be no valid waiver
statement. Thanks )
4. The action to hold the vendor liable
Even if there is no stipulation as to these should be filed within the period prescribed
warranties, the law itself would provide for by law.
these warranties and hence if there are
hidden defects he would have remedies WARRANTY AGAINST HIDDEN DEFECTS
under the law or even if he was deprived of Requisites:
the thing he bought he would have a 1. The defect must exist at the time of the
remedy against the seller. Hence, it is not sale. If the defect started after the sale there
correct to say that Philippine law has can be no such liability.
adopted caveat emptor. But there are
certain instances when there would be no 2. The defect must be hidden. If the defect
such implied warranty against hidden is patent and the buyer nonetheless bought
defects. There may be warranty as to title or the thing then he can no longer hold the
against eviction but there is no warranty seller liable.
against hidden defects under certain If the seller is not aware of the hidden
circumstances. defects, he can be held liable. If he was
aware, his liability will be greater because
Warranty Against Eviction / Title that makes him a bad faith seller.
Q: If the seller was able to transfer
ownership to the buyer may the seller Q: Even if there is such a hidden defect,
nonetheless be held liable for breach of is it possible that the vendee cannot
warranty against eviction? hold the vendor liable despite the fact
that there was hidden defect even if he

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


17 November 2008
was not informed because maybe the If the vendor was not aware of the defects,
seller was not aware? he cannot be held liable for damages but he
A: Yes, he may not be able to hold the seller would only be held liable for the price.
liable if he is an expert on the thing. He is
expected to know the defect. If the cause of the loss of the thing was a
fortuitous event, he can only be held liable
3. The defect must result in the thing being for the price less value.
unfit for the purpose of the buyer or at least
it diminish the fitness of the thing such that ANY CHARGE OR NON – APPARENT
the buyer would not have bought it at the ENCUMBRANCE NOT DECLARED OR
price had he known of such defect. KNOWN TO THE BUYER
Q: Would there be an encumbrance over
Q: If the thing which has a hidden defect an immovable which is a form of
was lost or destroyed, can the vendee easement or servitude?
hold the vendor liable for this breach of A: An example of this is a road right of way.
warranty? Does it matter if the loss was
due to a fortuitous event or maybe the Q: If the buyer bought the land which
loss was due to the fault of the buyer turned out to have a road right of way in
himself, nonetheless, can he hold the favor of a 3rd person, can he claim
vendor liable? breach of warranty against any charge
A: Yes. The vendee can hold the vendor or non – apparent encumbrance?
liable for breach of warranty against hidden A: Of course there are requisites:
defects even if the thing was lost due to (1) The encumbrance or easement or
fortuitous event or due to the fault of the burden or the road right of way has to
vendee himself because of the hidden be non – apparent.
defects. But of course, if the cause of the
loss was the defect itself, the liability is Q: If there is an encumbrance, what are
greater than if the cause of the loss was a the remedies of the buyer?
fortuitous event or fault of the buyer. A: (a) He can seek for the reduction of the
price.
If there would be a problem here as to the (b) Rescission - the law requires that the
extent of the liability of the vendor, he action for rescission must be filed within 1
should first consider the cause of the loss, year from the date of the contract. If after 1
maybe it was lost due to the defect itself or year, no more rescission.
lost through fortuitous event or lost through
the fault of the vendee. After that, he should (c) If he became aware more than a
determine whether the vendor was aware of year, he may file an action for damages, But
the defects or he was not aware. Again, if the law requires that the action for damages
he was aware, damages may be recovered. has to be filed within 1 year also but from
If he was not aware, he may not be held the time of the discovery of encumbrance. If
liable for damages unless he can only be he filed it for example, after 2 years from
held liable for interest. discovery – no recovery of damages.

If the defect was the cause of the loss, the WARRANTY OF QUALITY
vendor would be liable for the return of the Prof. Deleon, Prof. Vitug, Prof. Baviera:
price, not only the price less value but also there is another warranty which is
to refund the expenses and damages WARRANTY OF QUALITY which includes:
because the vendor was aware of the (1) Warranty of Fitness
defects. (2) Warranty of Merchantability

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


18 November 2008
To some authors the warranty of quality is A: G.R.: No. He can only rescind the
considered under the warranty of hidden contract pertaining to the animal with
defects. redhibitory defect. He cannot rescind the
Atty. Uribe: I cannot agree that the entire contract pertaining to all animals.
warranty of quality is in the warranty of Exception: If he can prove that he would
hidden defects. I agree with Prof. De Leon, not have bought the others had he known
Prof. Vitug and Prof, Baviera that there is a the defect of one then he can rescind the
warranty of quality. entire contract.

WARRANTY OF FITNESS FOR A Q: Who has the burden of proof that he


PARTICULAR PURPOSE would not have bought the others had
The thing bought may not actually have any he known of the defect of one?
defect and for 1 million buyers it would be fit A: Normally, it would be the buyer. But the
for their purpose. However, it may not be fit law under certain circumstances would
for the purpose of 1 buyer and if all the provide for this presumption that it is
requisites for this warranty are present, then presumed that he would have bought the
he may hold the seller liable for breach of others had he known of the defect of one.
warranty of fitness for a particular purpose Examples: He bought the animals in teams
although there is no hidden defect but it is or in pairs then the presumption arises.
not fit for the purpose of the buyer. - Love birds (Ang mga love birds,
In order for the seller may be held liable: kapag namatay yung isa later on
1. The buyer has to inform the seller of mamatay din yung isa. Minsan nga
the particular purpose for which the mgsuicide pa sya pag mag isa na
thing is to be use and lang sya. Iuuntog nya ulo nya sa
2. The seller manifested that the thing cage nya. )
would be fit for the purpose and the
buyer relied on such representation Instances whether there would be no
of the seller. warranty against hidden defects and
therefore caveat emptor may be invoked:
Note: If the thing is sold under the trade 1. Sale which is an “as is where is” sale
name there can be no warranty of fitness for which means sale where it is found xxx
a particular purpose. bahala ka sa buhay mo if you want to buy
the thing and you cannot later on claim that
WARRANTY OF MERCHANTABILITY there were hidden defects. (Faye: pls.
It pertains to the fact that it is fit for the research the complete meaning of “as is
general purpose. If the thing was sold by where is” sale. Atty. Uribe will ask the
description or by sample, it is considered meaning. )
that there is such a thing as warranty of 2. Sale of 2nd hand items
merchantability. 3. Sale of animals in fairs
4. Sale in public auction
SALE OF ANIMALS WITH DEFECTS –
RULES: Note: There would still be warranty against
1. The defect is a redhibitory defect – it is eviction.
such kind of defect that even by Note: Rules on warranty also apply to
examination of expert it cannot be judicial sale.
discovered.
Q: In sale by authority of law or in
Q: If one of the animals has redhibitory execution sale, can there be breach of
defect, can the buyer rescind the entire warranty against eviction?
contract pertaining to all the animals? A: Yes. The judgment debtor and not the
sheriff shall be liable.

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


19 November 2008
REMEDIES FOR BREACH OF
The law would specifically exempt certain CONTRACT
persons from liability for breach of warranty REMEDIES OF AN UNPAID SELLER
like sheriff, auctioneer, mortgagee, pledge (ARTICLE 1526)
and other persons who sell by virtues of an (1) Right to retain the thing in his
authority of law like notary public because possession (possessory lien)
they are not really selling for themselves, (2) Right of stoppage in transitu / right to
they are selling on behalf of another person. resume possession of the goods
(3) Right of resale
RIGHTS AND OBLIGATIONS OF THE (4) Right to rescind
VENDEE
1. Obligation to accept the thing Q: Are there other remedies aside 1526?
delivered. A: Yes. The seller may opt to file an action
2. Obligation to pay the price (if for specific performance or an action for
warranted, with interest) damages.

1. Obligation to accept the thing Unpaid seller – is one who has not been
delivered fully paif of the price.

Q: If the buyer received the goods Note: remedies of the unpaid seller are not
delivered, does it mean that he already necessarily alternative. The right of resale
accepted? and the right to rescind may only be
A: No because receiving is preliminary to exercised if the seller has possessory lien.
accepting. In fact, this is consistent to the
right provided by law to the buyer which is POSSESSORY LIEN
the right of inspection or the right of Q: Why is it called possessory lien?
examination. Thereafter, he may reject the A: because there another lien in the law.
goods if defective. This is the lien under the rules on
concurrence and preference of credit.
2. Obligation to pay the price
Q: When? Note: The buyer is not required to be
A: (1) As stipulated insolvent.
(2) If there is no stipulation, it would
be at the time and place of delivery. Q: When would the seller be considered
to have lost his lien?
Right to Inspect / Examine A:
This may be waived. (1) If he waives his right
Example: C.O.D. arrangement. (2) If the buyer lawfully obtained
possession over the goods
MACEDA LAW (3) When the thing is delivered to a
Study Maceda Law and its essential common carrier and the seller
features (see book of Prof. Baviera) did not prefer his ownership and
possession over the goods.
Q: Are the remedies under the Maceda
Law alternative? Can the buyer be able STOPPAGE IN TRANSITU
to exercise 2 or more remedies all at the Requisites:
same time? (1) Insolvency of the buyer
A: Yes. Remedies under the Maceda Law (2) The seller must have parted
are cumulative. possession over the goods
(3) The goods must be in transit

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


20 November 2008
How right is exercised:
(1) By obtaining actual possession of
the goods
(2) This may be exercised by mere
notice to the common carrier

If the seller validly exercised the right of


stoppage in transitu, he will be considered
to have regained his possessory lien.

RIGHT OF RESALE
Q: When would the seller have this
right?
A:
(1) If the goods are perishable
(2) The right is expressly
reserved in the contract
(3) The buyer has been in default
for an unreasonable time.

Note: The seller should send a notice of the


intention to resell to the buyer.

Note: The resale may be a private sale or a


public sale. The only limitation here is that
the seller cannot buy directly or indirectly.

RECTO LAW
Pls. read Sales by Prof. Baviera

EXTINGUISHMENT OF SALE
Pls. read Sales by Prof. Baviera

1. Payment
2. Novation
3. Loss of the thing

Under the law on sales


1. The exercise of the right of resale
will result in the extinguishment of
the 1st sale. The ownership of the 1st
buyer will be terminated and such
ownership will be vested to the 2nd
buyer
2. Rescission or cancellation will
extinguish COS
3. Redemption

Kinds of Redemption
1. Conventional
2. Legal

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


21 November 2008
Definition:

Q: If a party binds himself to give


LEASE another the enjoyment or use of thing,
does that make the contract one of lease
of things?
Note:
A: No, the most important distinction here
 Read the Definition of Lease under
with that of commodatum is that in lease, it
Articles 1643, 1644, 1713.
must be for a price certain, otherwise if
there is no valuable consideration for the
 Consider also on Formalities: Articles use or enjoyment of the thing it will be
1647, 1724 in relation to 1403 on commodatum.
Statute of Frauds and 1403, 1878 on
Agency to Lease. Distinguish a Contract for Piece of Work
from Contract of Agency
 Assignment and Sublease: Articles Read: Frensel vs. Mariano
1649, 1650
Note: In Agency, the control of the principal
 Implied new lease or tacita recunducion: over the agent is so pervasive that the
Article 1670 (important) principal can control not only the result but
also the manner and method of the
 Rights and Obligation of the Lessor and performance of the obligation which is not
Lessee: Articles 1673, 1678, 1680, 1723 present in this case and therefore Merit was
(take note several questions in the bar not considered an agent of Mariano.
have appeared under these provisions)
Q: As to the relationship of the taxi
 Period of the Lease if the parties failed driver with his operator, is this a
to Fixed the Period: Articles 1682, 1687 contract of lease?
A: SC, ruled that this is in fact a lease but
 Rights of Third Person: Article 1729 (ex: not a lease of thing, but lease of service
rights of owner of materials against the specifically an employment contract, this is
owner of the building) because of the control of the operator over
the taxi driver, as to when, what time the
Note: The first thing to consider in lease is drive operates the vehicle.
to consider the kind of lease.
Note: Again, to distinguish lease contract
Kinds of Lease: from other legal relationship you have to
1. Lease of Things consider the characteristic of the contract.
2. Lease of Work or Service The best way to remember the kinds of
3. Lease of Right contract is to know by heart what are the
real contract (mutuum, commodatum,
Note: In lease of Service, there are four (4) deposit, pledge) and formal contract
of them but three (3) will not be covered by (antichresis, donation). Aside from that it
Civil Law, which are Household Service and may be safe to consider as a rule all the
Contract of Labor (covered by Labor Law), other contract as consensual contract,
and Contract of Carriage (covered by where no particular form is required except
Commercial Law). The only kind of Lease in exceptional case: e.g. sale of large cattle.
of Service that will be discuss under the As a rule lease, therefore is a
Civil Law is the Contract for a Piece of consensual contract by mere meeting of the
Work. mind as to the object and to the
consideration the contract is perfected.

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


22 November 2008
Note: Lease of things is not essentially BE: Agreement for the repair of a private
personal. plane and for a certain sum of money,
however additional work was requested
Heirs of Fausto Dimaculangan vs. IAC. by a person who has the authority of a
Upon the death of parties like death of duly recognize representative of the
lessee, the contract is not thereby owner of the plane and the request was
terminated. The heirs of the lessee may merely verbal, when the additional work
continue to occupy the premises by virtue of was completed, the one who rendered
the lease because it is not extinguish upon the work demanded additional payment,
death of lessee. the defense raise was under 1724 in
order that a claim for additional payment
Characteristic of Lease of things for the additional work, the agreement
 Consensual Contract for the additional work must be in
 Onerous writing and the changes should be
 Bilateral authorized in writing
 Nominate SA: The suggested answer of UP will
 Principal. sustain the defense because of 1724; such
change not being authorized in writing, the
Essential Requisites of Contract of request was merely verbal then the claim
Lease may not prosper.
1. CONSENT
2. OBJECT RIGHTS AND OBLIGATION OF THE
Q: In lease of things, may a consumable LESSOR
thing be the subject matter of lease?
A: Normally when a consumable thing is As to necessary repairs of the thing
use in accordance with its nature it is lease, this is an obligation of the lessor,
consumed, as a rule therefore consumable under the law the lessor is oblige to make
things cannot be the subject matter of lease the necessary repairs.
of things. The exception is, when the use of
the things is only for exhibition, or when Read: Gonzales vs. Mateo
they are accessory to an industrial
establishment then it may be a subject of RIGHTS AND OBLIGATIONS OF THE
lease. LESSEE
3. CAUSE
Note: Two (2) favorite articles are 1649
FORMALITIES pertaining to assignment of lease, and 1650
Lease of Service – there is no particular on sublease.
form required by law for the validity of the
lease not even for the enforceability as a The question in the Bar may be as
rule. simple as may a lessee sublease the
Read: Donald Dy vs. CA property without the consent of the lessor
and what are the respective liabilities of the
Lease of Things – certain provision of the lessee and sublessee.
law which requires certain forms to be
enforceable. Articles 1649 and 1650 would tell us
that a lessee may not assign his right on the
Note: the problem in lease would normally lease without the consent of the lessor
be a combination of an agency and lease. however he may sublease the property in
whole or in part even without the knowledge

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


23 November 2008
of the lessor as long as he was not SA: Yes, there was an extension known was
prohibited from subleasing the premises. implied new lease. However, with the
implied new lease it does not mean that all
Read: Malacat vs. Salazar the terms and condition of the contract in
Frensel vs. Mariano the original lease continue also. First as to
the term, under the law, the term of the
TERMINATION OF THE LEASE renewed lease would not be the term
agreed upon but only be of a period
BE: Discuss the effect of death of depending on the manner the rentals are
lessee, lessor, agent and principal. paid. If the payment is on annual basis, the
SA: In a lease of thing, death of the lessee renewal would only be for a year and if
does not terminate the contract. A contract monthly payment of rental is made, the
of lease is not essentially a personal implied new lease would only last for 30
contract therefore upon the death of the days.
lessee, it may be continued until the As to the option, it was renews, SC
expiration of period of the lease by the held, in an implied new lease, only those
heirs. (Case: Heirs of Dimaculangan vs. terms and conditions which are germane in
IAC) a contract of lease are deemed renewed as
to the rest like option to buy, will not be
considered renewed. Even in the facts of
IMPLIED NEW LEASE the case itself, it was stipulated that the
Note: one of the most favorite in the bar option may be exercise within the period
exam. agreed upon (3 years).

Requisites:
1. The lease period has expired and
2. The lessee continues to be in possession
of the lease for at least 15 days from the
time of the expiration of the lease and
3. No notice to the contrary from the lessor
and the lessee.

BE: Pertain to contract of lease entered


into for period of 3 years Jan 1, 81 up to
1984. Rentals were paid on monthly
basis. It was stipulated that the lessee
has the option to buy property at a
certain price within a certain period
(option to buy). Despite the lapse of the
3 year period, the lessee did not exercise
the option, but continued to be in
possession of the property and paying
the monthly rentals and the lessor
accepting the same. This continued
until June 1984 when the lessee stated
that he would now buy the property in
accordance with the option to buy. The
lessor refuse, claiming there was no
more option. Was the lessor correct?
Yes. Was it correct to say that there was
extension of the lease under the facts?

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


24 November 2008
1. Actual agency
2. Apparent / dormant
3. Estoppel
AGENCY
1. Estoppel
Definition 1868, 1874 and 1878- formalities Kang case
Facts: Flores appears to have full control of
Coz a form is required for the validity or for a restaurant, owned by Kang and in the
the enforceability of the contract entered by administration of the restaurant he bought
the agent-1878, 1874 certain items from Mack, items needed for
restaurant but a portion / price to be paid,
1892- pertain to appointment of the not by Flores, so Mack ( seller ) went after
substitute- effect- may the agent the owner of the resto. The only defense
nonetheless be held liable for the loss that raised by the owner was that Flores was not
incurred by the principle as the result of the his agent.
appointment of the substitute. Take note: it is very difficult to prove actual
agency, because an agreement between 2
Other provisions pertain to the right and persons, eh kung verbal lang ang
obligations of commission agent or more agreement dun, how would you be able to
importantly the guaranty commission agent- prove, the owner of the restaurant can be
1907-1908 held liable by estoppel because he cloth
Flores with full power as if he has the
Effect of death-1919, 1930 and 1931 authority to buy those items necessary for
Either of the agent or principal the administration of restaurant aside from
that Mack was able to prove pieces of
Revocation-kind of agency- agency coupled evidence like in the lease agreement over
with interest-1927 the building where restaurant was located
and comes the owner of the restaurant as
BE: A asked her best friend to B buy for lessee and Flores sign as an agent of the
her certain items in a grocery store. Is lessee with all this the
there a nominate contract created Held: The owner of the restaurant is liable
between A and B? under the Principle of Estoppel.
SA: Better answer, if B agreed to the
request of A, an agency relationship has 2. Apparent / Ostensible
been created, a nominate contract has been Q: A letter was sent by B to X, informing
created. X that A has the authority to enter into a
contract with X specifically to obtain
Read: Quiroga vs Parsons goods from X, like copra, abaca which
goods will be sold by A, after the sale a
Distinguishing contact of agency from other portion can be deducted as a
contract and other legal relationship. commission and the restaurant to be
Consider the characteristics of a contract of delivered to X. after a certain period, the
agency as a contract and as a legal goods obtain by A from X remained
relationship business organization. unpaid. In other words A will get the
goods from X, A did not deliver the
Read: Lepanto Mining case proceeds of the sale. X demanded
Mariano case payment from B. The defense of B was
as of that moment from that certain
Some authors would classify contract of period he has already revoked the
agency into three, not concepts. authority of the agent and therefore be
bound by any contract entered into by A

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


25 November 2008
in representation of B with 3rd person. Is mitigated if the agency is gratuitous in
the claim of B tenable? character.
SA: No. 1873 so far as 3rd person are
concern, this notice itong letter nya kay X BE: Scope of authority of the agent
remain in full force and effect until it is whether it only pertains to the acts of
rescinded in the same manner it was given. administration or acts of anu yun
dominion?
3 Actual agency SA: Under this provision 1877 if the agency
The law itself classify actual agency into as is comes in general term this only comprise
manner of creation, express / implied. There acts of administration even if the principal
is no problem with express agency. beholds power to the agent or it is stated
3. Express agency-it is a kind of that the agent may execute any act as may
agency the consent of both parties be deemed appropriate. That will still be an
were expressly given. agency pertaining to act of administration.
4. Implied agency- were the consent of
one parties was only impliedly given As to form, the law is clear that it may be
on the part of principal- the leading oral however the law may require a
case is Dela Pena vs. Hidalgo particular form.

ESSENTIAL ELEMENTS OF A
Q: If a person was asked to administer CONTRACT OF AGENCY
the property of another to sell the Read: Rallos case
property, and he said nothing- by his The SC enumerated the essential elements
silence, by his inactions may be deemed or the alleged essentials elements of a
accept agency? contract of agency.
A: Not necessarily. Under the law, you have 1. Consent
to make distinction to determine the 2. Execution of the juridical act-
scenario under which the said appointment subject matter
was made, okie! The law would say when 3. Acts within the scope of authority
the 2 parties are absent, and when the 2 4. The acts must be in
parties are present. representation of the principal
When 2 parties are absent- 1 is in Manila This are allegedly the essential element
and the other is in Cebu. again some authors would discuss in their
When 2 parties are present- present in the books with due respect to the ponente of
same room this case, medyo mali mali ang
enumeration, first there was nothing
(a) 2 persons present- present in the mention about the cause or consideration
same conference hall as a contract, a contract will never validly
(b) If 2 persons are in different place, have a cause or consideration well it may
one in Manila and the other one in Cebu be liberality pwede naman cause yan but
there must have a cause if only for that the
Compensation enumeration be defective more than that
As to the compensation in a contract of that last 2 mention that the agent act within
agency consider if the agency is gratuitous the scope and that the agent must act in
or onerous. representation are not essential elements of
a contract of agency they are actually
Read: 1909 - the liability of the agent for obligations of agent which means they have
damage to the principal due to his been already perfected of contract of
negligence or even bad faith or fraud agency, no obligation will arise kung void
committed against the principal may be ung kontrata kung wala pang valid contract,
so essential elements are only those

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


26 November 2008
elements necessarily for the validity of the
contract, once the contract is valid then the Contracts which require a SPA – see
obligations will arise even if the agent codal
acted outside the scope of authority Jimenez vs. Rabot
does it mean that the contract of agency Facts: Jimenez was the owner of a certain
is void? Of course not, he can be held parcels of land in Pangasinan, he was then
liable for acting outside the scope of in the province of North Luzon, he sent a
authority or if he acted not in contemplation letter to his sister asking his sister to sell
of the principal, does it mean that there one of his parcels of land and with that letter
was no agency at all? Of course not, there the sister indeed sold one of his parcels of
is a contract of agency. Under the rule the land to Rabot, however the sister did not
consequences if the agent did not act in the remit the proceeds of th sale, binulsa lng
representation of the principal. nya, so when Jimenez went back to
Pangasinan, he demanded the property,
PARTIES yun ay na kay Rabot na, so he filed an
Going to the consent of the parties, well 1 action against Rabot, the defense raised by
author claims that there are 3 parties in a him that the letter would not be sufficient a
contract of agency that is totally wrong! power of attorney to bind him as a principal
There are only 2 parties in a contract of the sale of the parcels of land.
agency the principal and the agent, however Held: A letter suffices as a power of
in problems involving agency there may be attorney. When you sent a letter to your
there would be normally three persons brothers or sisters you do not notarize first.
involve, the third persons with whom the
agent transacted, no longer part of the Obligations of the Agent:
concept agency, this is the agency, the 1. To carry out the agency
contract entered into between by the 2. In carrying out the agency, there are
principal and the agent, but when the agent 2 obligations of the agent, he should
entered into a contract it may be a sale, always remember:
lease or other contract and the 3rd person is a. to act within the scope
not a party to this contract, the 3rd person is authority
a party to a 2nd contract, that again the b. to act in behalf of the
parties is the principal and the agent, they principal
may be called in another names the
principal- employer, constituent, chief; the a. Acting within the scope of authority
agent may be called attorney-in-fact, proxy, Q: how would you know if the agent was
representative. acting within the scope of authority?
A: Be guided by the power of authority. In
OBJECT fact as a 3rd person, you can demand the
As to the object of the contract of agency - power of authority, so that you will know
this is the execution of juridical act. whether in fact he had authority to enter into
a contract but sa totoo lng there are some
FORM SPA which would be subject of the case up
Agency may be oral. It does not matter, the to the SC pertaining to the scope of
contract of agency would be valid but the authority of the agent.
parties even if it is by verbal agreement,
however any effect of the verbal Read: Linal vs. Puno
authorization, the agreement between the
agent and the principal if it was only verbal Read: Insular vs. PNB
will be in the contract entered into by the
agent. BE: A authorize B to borrow sum of
Read 1874 money from any bank and he also

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


27 November 2008
authorize B to mortgage specific A: Aside from the 3rd person, it will be the
property specific parcel of land to principal because again the agent merely
secure that loan what B did he borrow representing the principal. However, it is
money for himself from a certain bank possible for the agent himself to be
without disclosing his principal, later on bound in such contract be held liable
he defaulted the question was can the under such contract?
bank go after the principal? A: Yes, one if he expressly binds himself to
A: Of course No, the contract is between the that contract.
agent and the bank only the principal has
nothing to do with the contract, under the Read: Domingo vs. Domingo
facts, the agent borrow for himself sya
talaga, however if you have read the Read: US vs. Reyes
suggested answer, my 2nd paragraph to the
effect that the bank can at least foreclose Obligation to render an accounting
the mortgage they can after the property of If this time the principal authorize the agent
the principal. If you remember the question, to sell his car for 300k, the description of the
di tinatanong ng examiner can the bank go car was mention in the SPA at least 300k
after the principal as far as the thing is however before the agent would sell the car,
concerned. The only question pertains to the principal called him by phone instructed
the payment of loan. Another thing of the him to sell the cart in QC to a member of
suggested answer it is totally wrong, under IBP member chapter, instead of selling the
the facts, the principal authorize the agent car in QC IBP member chapter he sold the
to mortgage the property for the loan that car in Manila not known by the principal for
will be obtain by the agent in the name of 300k, (1) Can the principal recover the
the principal. car from the buyer if that car is already
delivered to the buyer? (2)Any remedy
Q: If indeed he mortgaged the land for a provided by the law to the seller or to the
loan in his name, would that mortgage principal?
be valid? 1. It depends, if that buyer has no
A: Definitely not. If he mortgaged it as a knowledge of that instruction of the
mortgagor the mortgage is void, the law principal then he has all the right to
requires that the mortgagor must be the retain the car and that sale will be valid
absolute owner of the thing mortgage. and binding as against the principal. As
provided under Art. 1900 so far as 3rd
Q: On other hand even if the agent persons are concerned they only rely on
mortgaged the thing on behalf of the the SPA as written they have no
principal, the principal is the mortgagor, obligation to inquire on the special
would that be a valid and binding instructions made by the principal which
mortgage as against the principal? are not mention in the SPA, eh wala
A: Also not, also his authority to have the naman dun sa SPA na it will be sold to
property to mortgage to secure a loan, not an IBP member chapter in QC.
to secure any other persons loan and that 2. Go after the agent or damages if there is
therefore it cannot be within the authority of any damage sustain by him for his
the agent and therefore any foreclosure of failure to follow the instructions of the
such mortgage will not prosper. principal.

Q: If the agent acted within the scope of Read: 1898


his authority and in representation of the
principal, who will be bound in that such Appointment of Substitute
contract? Read: Substitute vs. Sub Agent (Prof. De
Leon’s book)

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


28 November 2008
Thus, it can be said that really B was not a
partner but is actually a creditor of A.

Definition of Partnership
PARTNERSHIP Q: What if two or more persons agreed
to put up a partnership but they never
BE: A, using all his savings in the total
intended to divide the profits among
amount f Php2,000, decided t establish a
themselves, would that still be
restaurant. B, however, gave Php4,000
considered a valid partnership contract?
as “financial assistance” with the
A: Yes. Under the second paragraph of the
agreement that B will have 22% share of
article, two or more persons can form a
the profits of the business. After 22
partnership for the exercise of a profession.
years, B filed an action to compel A to
deliver to him his share in the profits
Partnership vs. Co-ownership
claiming that he was a partner. A denied
Consider the essential features:
that B was his partner. Is B a partner of
CREATION
A?
Partnership is obviously created by
SA: Yes, B was a partner in the business
agreement. Co-ownership may be created
because there was a contribution of money
by agreement, but it may also be created by
to a common fund and there was an
operation of law. In fact, by express
agreement to divide the profit among
provision of the law, the fact that there is co-
themselves.
ownership does not necessarily mean that
there is a partnership existing between two
Atty. Uribe: I do not agree with the answer.
persons.
I’d rather agree with the alternative answer.
Ex.: two persons may inherit a property from
WHY: In the alternative answer as can be
their father or mother, and under the law,
seen from the facts, B gave Php4,000 only
they may be considered as co-owners of the
as a financial assistance. It was not a
same property.
contribution to a common fund. As such, he
actually became a creditor of A. Therefore,
PURPOSE
he did not contribute to a common fund.
Partnership: either to divide profits or
exercise a profession.
Q: What about the stipulation that B will
Co-ownership: Common enjoyment of the
have 22% share of the profits?
thing or right owned in common; merely to
A: The law on partnership is very clear that
enjoy the property, thus they may have
a sharing in the profits does not necessarily
different purposes.
does not result in a partnership contract
because the sharing of the profits may only
A very important feature of partnership in
be a way of compensating the other person,
relation to co-ownership, it has a juridical
in fact that can be a mode of payment of the
personality, separate and distinct from the
loan. Kasi yung loan, supposedly pwede
individual partner which is obviously not
payable every month with a fixed amount.
present in co-ownership. In co-ownership,
But mas maganda ang agreement na ito,
they have their respective personalities and
22% of the profits, so that if walang profit sa
no new personality will be created.
isang taon, wala munang bayad. ‘Di ba
that’s reasonable agreement. Only kung
POWERS OF THE MEMBERS
may profit, saka lang babayaran. Kumbaga,
Partnership: Unless otherwise agreed upon,
friendly loan ito. The sharing in the profits as
each partner is an agent of the other
expressly provided by law does not
partners and of the partnership.
necessarily result in a partnership contract.

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


29 November 2008
Co-ownership: As a rule, a co-owner cannot partnership engaging in such business:
act as an agent of the other co-owners banking and insurance.
unless otherwise agreed upon between the
co-owners. Cause
PROFITS: The promise of each partner to contribute
Co-owner: Mas malaki ang profits, mas either money, property or industry.
malaki ang interest. But not necessarily in Formalities
partnership, because the sharing in the Q: If the agreement of the parties to a
profits may be stipulated upon by the contract of partnership was only a verbal
parties. Pero kung walang stipulation, it may agreement, would that be a valid and
be based on the capital contribution. binding contract? Will there be a
juridical personality created?
Q: Will death extinguish co-ownership? A: As a rule, yes. Even if under Art. 1772,
A: No, Kapag namatay ang isang co-owner, the law provides that every contract of
his heirs will be the co-owners of the partnership, having a capital of more than
surviving co-owners at pwedeng tulou-tuloy Php3,000 or more, shall be in a public
lang yan. However in partnership, if it is a instrument and must be registered with the
general partnership, if one of the partners SEC.
dies, the partnership is dissolved. The 2nd paragraph of Art. 1772
provides that despite failure to comply with
ESSENTIAL ELEMENTS OF the requirements in the preceding
PARTNERSHIP paragraph, this is without prejudice to the
Like any other contract, it should have the liability of the partnership and the individual
three essential requisites: partners to third persons. From that article
1.) Consent alone, it is clear that despite non-
2.) Object: to engage to a lawful activity, compliance with the requirements of the law
whether a business or profession. as to form, there is a partnership created,
3.) Cause or consideration: the promise because this is without prejudice to the
of each partner to contribute money, liability of the partnership (kung may
property or industry partnership). But more directly, Art. 1768,
the law provides, the partnership has a
Consent of the contracting parties: juridical personality separate and distinct
The rules in contract would be from that of each if the partners, even in
equally applicable but, just like in sales and case of failure to comply with the
lease, there are persons who are prohibited requirements of Art. 1772, par.1.
from entering into a contract of partnership. After all, a verbal partnership contract is
valid and binding between the parties.
Object
To engage in a lawful activity. Consequences: separate and distinct
personality
Q: If the object is to engage in a lawful 1.) It can own its properties;
activity, necessarily the partnership is 2.) It can sue and be sued;
valid? 3.) It may be found guilty of an act
A: No. There are specific business activities of insolvency;
wherein the law would require particular 4.) It may be dissolved for
business organization which may engage in committing an act of insolvency.
such business activity, specifically the
Corporation Code which provides that only Read: Campos-Rueda vs. Pacific
corporation may engage in insurance and Commercial
banking business, therefore there can be no
CLASSIFICATION OF PARTNERSHIP:

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30 November 2008
As to the object of the partnership is only to Q: An industrial partner, may be a
determine whether a person may enter such general partner?
partnership, there is a need to distinguish A: Yes. A capitalist partner may either be an
whether a partnership is a UNIVERSAL or industrial or general partner.
PARTICULAR partnership
Q: May an industrial partner be a limited
2 Kinds of Universal Partnership: partner?
1.) Universal Partnership of Property A.: No. A limited partner can only contribute
2.) Universal Partnership of Profit money or property. He cannot contribute
service.
TERM OF PARTNERSHIP:
Q: If the partners failed to fix a period, Q: But can a partner be both capitalist
does it mean that the partners agreed a and industrial?
partnership at will and may be dissolved A: Yes, he can contribute both money and
at any time without any liability so long industry. He can be both capitalist and
as they acted in good faith? industrial and there will be consequences to
A: No, because a partnership may be a that.
partnership for a particular undertaking even
if no period was fixed by the parties. PROPERTY RIGHTS
In one case, a partner, dissolved a 3 Major property rights of a partner:
partnership, claiming it to be a partnership 1.) right in specific partnership property;
at will, the partnership being involved in a 2.) interest in the partnership; and
bowling business. The SC ruled that even if 3.) the right of the partner to participate in
the partners failed to fix a period, the the management of the business of the
partnership cannot be considered as a partnership.
partnership at will because there was a
stipulation in the partnership agreement that Property rights considered as minor:
the debt of the partnership shall paid out of 1.) right to have access to the books of
the profits that will be obtained by the the partnership;
bowling business. Thus, after all, it cannot 2.) right to demand for a formal
be dissolved at will, for the debts will have accounting.
to be paid. Therefore, the SC ruled that the
said partnership is a partnership for a TYPES OF MANAGEMENT:
particular undertaking. 1.) Solidary Management:
-without specification as to each
CLASSIFICATION OF PARTNERS: other’s duties or without stipulation that one
According to the liability of the partners: of them shall act without the consent of all.
1.) General
2.) Limited 2.) Joint Management:
This classification is relevant only in limited -two or more managing partners with
partnership. the stipulation that none of them shall act
without the consent of all others. The
Note: A limited partner cannot be held incapacity of one of the partners, or his
personally liable for partnership obligations absence will not be a valid ground not to
but there are exceptions obtain his consent to a contract. It has to be
by unanimous consent, unless, in obtaining
As to the contribution: his consent (he is absent or incapacitated) it
1.) capitalist would result in irreparable damage to the
2.) industrial partnership, then the consent of the absent
or incapacitated managing partner may be

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31 November 2008
dispensed with. This is also known as
management by consensus. OBLIGATIONS OF THE PARTNERS
AMONG THEMSELVES AND AS TO THE
3.) If there was management PARTNERSHIP AND IN CASE OF NON-
arrangement agreed upon between the PERFORMANCE OF THE OBLIGATION
partners, each partner is considered as an
agent of the partnership. 3 Obligations of the partners:
1.) To make good his promised contribution;
Into these arrangements, if only one partner 2.) Fiduciary duties; and
is appointed as a manager, he can execute 3.) To participate in the losses incurred by
any acts of administration even if opposed the partnership business.
by all the other partners.
Ex. In a partnership of which the business is To make good his promised
into buying and selling cars, the managing contribution:
partner decided to buy a vintage Mercedes A. Money:
Benz, to the opposition of the other partners In order to know the remedies that
for they consider it bad investment, will the may be availed of by the non-defaulting
decision or the act of the managing partner partners and the partnership, it must be
in buying the said car bind the partnership? known first what was promised by the
Ans.: Yes, because such act is merely an partner, whether he promised to contribute
act of administration. The problem is, if the money, property or industry.
managing partner continues to not consider If the partner promised to contribute
the sentiments of the other partners, he may money, for instance, the partners agreed to
be removed as a managing partner. contribute Php1 Million with 4 partners,
The question now is, can he be easily be without an agreement as to respective
removed? amount to be contributed, the law provides
Ans.: No. The requirements for the removal that they will have to share equally. Thus, in
of a managing partner would depend on this example, Php1 Million will have to be
whether he was constituted as such in the divided into 4 or the respective contribution
articles of partnership or he was merely will be Php250,000. If one partner failed to
appointed as managing partners after the make good his promised contribution which
constitution of the partnership. is a sum of money, he can be held liable by
If he was constituted as a managing the non-defaulting partners up to the
partner in the articles f partnership, he can amount promised plus interest. If no rate
only be validly removed under two was stipulated by the parties, it will be the
conditions: legal rate of 12%, because this is
1.) there has to be just cause; and forbearance in money. Aside from paying
2.) by those partners having the interest, which is unusual, not only will
controlling interests. that defaulting party be held liable to pay
Absent one of these conditions, he cannot interest, he will also be liable to pay
be validly removed. In fact, even if there is damages.
just cause, if the managing partner controls Normally, in obligations involving
51% of the partnership, he can never be money, in case of damage incurred by
removed. another party, the liability will only be
payment of interest. In partnership, not only
However, if he was appointed as a will he be liable to pay interest, but also of
managing partner only after the constitution damages.
of the partnership, he can be validly
removed even without just cause, so long Remedies that may be invoked by the
as it was done by those partners having non-defaulting partners:
controlling interests.

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32 November 2008
1.) Specific performance- the other this advantage at the expense of the
partners can compel him to make partnership.
good his promised contribution. This duty lasts, normally, until the
2.) Dissolution- may be an option by termination of the partnership.
the non-defaulting partners, if that
is the only amount that they are Q: May a partner may be held liable for
expecting for the partnership. breach of fiduciary duty even after the
termination of the partnership?
A: Yes. The SC held that even if the act of a
B. Property: partner was made after the termination of
If a partner promised to contribute property, the partnership, if the foundation of that act
it must be determined as to what was really was made during the existence of the
contributed: was it the property itself or the partnership, that can still be considered as a
use of the property. breach of fiduciary duty. In other words,
If it was the ownership of the pinaghandaan na nya yun act during the
property that was contributed then he would existence of the partnership, however, it
have the obligation to deliver and transfer was executed only after the termination of
ownership, aside from that, under the law, the partnership.
he would have the obligation to warrant the
thing. Participate in the Losses:
Q: What will be the share of the partner
Q: Before the delivery of the thing to the in the losses incurred in the
partnership, who will bear the loss? partnership?
A: The partner will bear the loss. The Ans.: Consider first whether there was a
partnership will bear the loss when the thing stipulation as to losses or there was no
is already in its possession stipulation.

C. Industry OBLIGATIONS OF PARTNER RE: 3RD


Q: If a partner fails to render service as PERSONS
promised, will specific performance be a
remedy? Q: When would a contract entered into
A: Definitely not. It would be a violation of by a partner bind the partnership?
his rights against involuntary servitude. The Ex.: If a partner went to a furniture shop to
remedy would be to demand for the value of buy furniture the of which is Php100,000,
the service plus damages. It can be easily and such amount remained unpaid, can the
done because there is an industry rate. seller demand payment from the
partnership?
Fiduciary Duties: A: It depends as to whether the contract
The duty to observe utmost good was entered into in the name of the
faith, honesty, fairness, integrity in being partnership, for the account of the
with each other. This duty commences even partnership, under its signature, by a
during the negotiation stage. partner who is authorized to enter into that
contract to bind the partnership. Thus, in
Test to determine whether there was a this example, if in the agreement the buyer
violation of this duty: was the partner himself and not the
Whether the partner has an partnership, that partner should be held
advantage himself at the expense of the liable, for the furniture was not bought in the
partnership. If he has such advantage at the name of the partnership.
expense of the partnership, then there is a
breach of the fiduciary duty. There need not The problem, if the contract would be
be a proof of evil motive so long as he has binding in the partnership, then would be,

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33 November 2008
whether the partner who represented the before the partnership itself will be
partnership had the authority to bind the terminated.
partnership.
Normally, if a partner would enter Q: When would there be a dissolution of
into a contract, a partnership resolution is a partnership?
not necessary. Whether or not a contract Under the law, there will be a
would bind the partnership would depend on dissolution if there is a change in the
the nature of the act of such partner and the relation of the partners caused by any of the
nature of the business of the partnership. partners ceasing to be associated in the
carrying on of the business of the
Q: Concretely, if a partner bought a partnership. That will result in the
complete set of SCRA in the name of the dissolution of the partnership. Again, if one
partnership and signed by that partner, of the partners ceased to be associated in
would that contract bind the partnership the carrying on of the business of the
for the set was bought in the name of the partnership, that will result in the dissolution
partnership? of the partnership.
A: It would depend on the nature of the act
and the nature of the business of the CAUSES OF THE DISSOLUTION
partnership. In this example, the partner 1.) Extrajudicial;
bought the set of SCRA, pero naman, and 2.) Judicial.
business ng partnership ay restaurant, hindi
naman ata na i-bind nya ang partnership to Extrajudicial causes:
such contract, ang negosyo nila restaurant. 1.) voluntary;
 2.) involuntary.
But the seller would raise the
defense, “hindi ko naman alam na Judicial causes are necessarily voluntary
restaurant yung business, e ang because it is by application.
nagrepresent ng partnership si Atty. ABC, so
akala law firm.” Is that a valid defense? INVOLUNTARY CAUSES
Ans.: No. The SC would tell that the third Q: If one of the partners in a partnership
party contracting with the partnership has was elected a Senator, would this
the obligation to know at least the nature of dissolve the partnership by operation of
the business of the partnership. In fact, he law?
can demand for the presentation of the Ans.: No.
articles of partnership in order for the third
party to know the nature of the business of Q: Even if it is a partnership of lawyers
the partnership. For, if this time, the or a law office?
partnership is a law office, and the partner Ans.: No.
bought a set of SCRA, that act of buying a
set of SCRA will be considered apparently Judicial Causes: Grounds:
for carrying the business of the partnership 1.) Insanity or incapacity:
the usual way. Therefore, that contract will -The courts require that it should be
bind the partnership. permanent in character; and
-such incapacity or insanity must affect
DISSOLUTION, WINDING UP AND the performance of such partner of his
TERMINATION obligations with respect to the
These are three different concepts. Upon partnership business. In other words,
dissolution of the partnership, it is NOT kung wala syang pakialam sa
DEEMED dissolved. It will still have to go management ng business ng
through the process of winding up of the partnership, insanity or incapacity is not
affairs of the business of the partnership a valid ground.

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34 November 2008
2.) Gross misconduct:
a.) wrongful expulsion;
b.) if one partner would refuse to
allow another partner in the management of
the partnership business, if he has such
right to participate in the management ;
c.) if the managing partner would
refuse to distribute the profits of the
partnership when there is such obligation to
distribute the profits;
d.) misappropriation of the income of
the partnership business.

Q: Upon the dissolution of the


partnership, and there were assets left,
how will these be distributed? To whom
these assets be given?
A: As far as partnership assets are
concerned:
1.) Partnership creditors who are not
partners.
2.) Partnership creditors
3.) If there are remaining assets, to the
capitalist partners;
4.) Excess profits - based on their
agreement as to profits.

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35 November 2008
were registered in the name of A, A sold
one of the parcels of land to a buyer in
good faith and for value. Can B recover
the land from the buyer? What would be
the remedy of B?
SA: This question clearly pertains to a
resulting trust. This is specifically, Art. 1451
of the NCC.
TRUST
B cannot recover the land from the buyer.
2 KINDS: As discussed in Sales, a buyer who had
1.) Express bought the property from a seller who has
2.) Implied no right to sell, but he has apparent
authority to sell, who appears to be the
Implied Trust: 2 Kinds: owner and the buyer bought the property in
1.) resulting trust; good faith, he will acquire ownership over
2.) constructive trust the thing even if the seller has no right to
sell.
The classification of trust into two kinds
(express and implied) and implied trust into B’s remedy would be to go after her brother
two kinds (resulting and constructive) would for breach of trust in selling the property
be relevant in two concepts: without her consent.
1.) applicability of the parole
evidence rule; and Resulting trust includes Articles 1448, 1451,
2.) prescription, specifically, 1449, 1450,1452,1453,1454.
acquisitive prescription.
Constructive Trust:
N.B.: An express trust over an immovable BE: A applied for the registration of a
may not be proven by parole evidence. This parcel of land in his name. However, he
means that implied trust over an immovable was called in New York to be a chef in a
may be proven by parole evidence or hotel. So, he asked his cousin to follow
express trust over a movable, may be up his application for registration of land
proved by parole evidence. while he was in New York. Instead of
ensuring the registration of the property
EXPRESS TRUST in the name of A, he had the property
registered in his (cousin) name. After
Q: May an express trust over an which, he sold the property to a thi4rd
immovable be proven by mere testimony person who bought the land relying on
of the witness? the TCT. When A returned to the Phils.,
A: Yes, if the lawyer of the other party did he learned of what his cousin had done.
not object to the presentation of the witness. May A recover the parcel of land from
the 3rd person who bought the property
IMPLIED TRUST in good faith and for value?
A: No.
Resulting Trust
BE: A and B, brother and sister N.B.: Art. 1456, 1455.
respectively, inherited two identical
parcels of land. For purposes of Q: In constructive trust, may the trustee
convenience, B, sister of A, agreed to acquire the property by prescription by
have the land registered in the name of mere lapse of time, without repudiation?
A. However, when the parcels of land A: Yes.

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36 November 2008
Faye Marie C. Martinez – Chato Cabigas – Jessica A. Lopez – Dian Rosapapan
37 November 2008