Civil Review2 Sales To Trust

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

November 2008
1
SALES

Articles / Laws to Remember: 1458, 1467,
1477 transfer of ownership, 1505, 559 who
can transfer xxx, 1504, 1544, 1484 Recto
Law, R.A. 6552, 1602, 1606, 1620, 1623,
Redemption xxx

Q: A obliged himself to deliver a certain
thing to B. Upon delivery, B would pay a
sum of money to A. Is that a contract of
sale?
A: Not necessarily. Even if there is an
obligation to deliver, if there is no obligation
to transfer ownership, it will not be a
contract of sale. It may be a contact of
lease.

Memorize: Art. 1458

Note: Sale is a contract, so the general
principles in oblicon are applicable to sale
but note that there are provisions which are
contrary.

Characteristics of Contract of Sale (COS)
1. Consensual (1475) COS is
consensual, it is perfected by mere meeting
of the minds of the parties as to the object
and price.
Note: There is 1 special law which requires
a particular form for the validity of a contract
of sale in that sale, it can be said that kind
of sale is a formal contract ! Cattle
Registration Decree. In a sale of large
cattle, the law provides that the contract of
sale of large cattle must be: in a public
instrument, registered and a certificate of
title should be obtained in order for the sale
to be valid. But otherwise, the other
contracts are perfected by mere consent or
mere meeting of the minds.

2. Principal sale is a principal contract, it
can stand on its own. It does not depend on
other contracts for its existence and validity.

3. Bilateral (1458) necessarily in a COS,
both parties will be obligated. It is not
possible that only 1 party is obligated
because a contract of sale is essentially
onerous.

4. Onerous (1350) COS is essentially
onerous. Otherwise, it may be another
contract or any other act like it may be a
donation if there is no compensation for the
transfer of ownership to the other party.

5. Commutative (2010) meaning there is
equivalency in the value of the prestation to
be performed by both parties. Normally, the
thing sold would be equal to the price paid
by the other party (buyer).

Exception: a contract of sale which is an
aleatory contract like sale of hope. In sale of
hope, the obligation of 1 party will arise
upon the happening of a certain event or
condition.

Example Sale of Hope: Sale of a lotto ticket,
PCSO will have the obligation to pay you
only if you got all the 4 or 6 numbers which
are drawn

Another Example of Aleatory: Insurance

6. Nominate (1458)

Classification of Contract of Sale
1. As to Nature of Subject Matter
a. Movable
b. Immovable

Q: Why there is a need to determine?
A: Because some concepts will apply if the
object is movable or some laws will apply if
the object is immovable.

Examples: Under the Statute of Frauds, you
have to determine if the object if movable or
immovable in order that statute of frauds will
apply. The Recto law will apply if the object
is movable. The Maceda law will apply if the
object is realty. Article 1544 or Double Sale
will require you to determine the nature of
the subject matter.

2. As to Nature
a. Thing

Faye Marie C. Martinez Chato Cabigas Jessica A. Lopez Dian Rosapapan
November 2008
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b. Right

Q: Why there is a need to determine?
A: Relevant in the mode of delivery

Distinctions
1. Deed of Absolute Sale (DAS) vs.
Conditional Sale (CS) vs. Contract to Sell
(CTS)
2. Dation in Payment (DIP) vs. COS
3. Contract for a Piece of Work (CPW) vs.
COS
4. Barter vs. COS
5. Agency to Sell (ATS) vs. COS

Deed of Absolute Sale (DAS) vs.
Conditional Sale (CS) vs. Contract to Sell
(CTS)
DAS seller does not reserve his title over
the thing sold and thus, upon delivery of the
thing, ownership passes regardless of
whether or not the buyer has paid.

CS - condition/s are imposed by the seller
before ownership will pass. Normally, the
condition is the full payment of the price. In
CS, ownership automatically passes to the
buyer from the moment the condition
happens. There is no need for another
contract to be entered into.

BE: Receipt was issued by A to B. The
receipts tenor Date of the receipt xxx
Received from B the sum of P75,000.00
as partial payment for the car xxx the
balance to be paid at the end of the
month xxx. Contract to Sell?
SA: No. It does not pertain to a CTS
because in a CTS ownership is reserved by
the seller despite delivery to the buyer. The
buyer does not acquire ownership. This is
an Absolute Sale.

Q: In a CTS, upon the happening of the
condition/s imposed by the seller, would
ownership automatically pass to buyer?
A: No. While a CTS is considered a special
kind of conditional sale, it is a peculiar kind
of sale because despite the happening of
the condition and actual delivery, the buyer
does not automatically acquire ownership.
In CTS, if condition/s happen, the right of
the buyer is to compel the seller to execute
a final deed of sale. So ownership does not
automatically pass.

Dation in Payment (DIP) vs. COS
DIP (1245) whereby property is alienated
to the creditor. It is provided that the law on
sales shall govern such transaction. It is
specifically provided that the pre-existing
obligation must be in money. If not in money
and there is DIP, it will not be governed by
the law on sales but by the law on novation
because practically there is a change in the
object of the contract.

Example 1: If A owes B P100,000.00
instead of paying P100,000, he offers B and
B accepts the car of A as an equivalent
performance ! this is DIP and will be
governed by the law on sales.

Example 2: If the pre-existing obligation is to
deliver a specific horse but instead of
delivering the horse, the debtor told his
creditor and the creditor accepted, that he
will instead deliver his car ! it is still DIP
but it will not fall on 1245 but on novation
because there is a change in the object of
the obligation which would extinguish the
obligation.

Note: A guide to distinguish one concept
from another is to know the nature,
requisites and effects.

1. As to Nature
DIP a special form of payment
COS - it is a contract

2. As to Requisites
DIP with a pre-existing obligation
COS not a requirement

3. As to Effect
DIP to extinguish the obligation either
wholly or partially.
COS obligation will arise instead of being
extinguished.

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

Barter vs. COS
Q: A obliged himself to deliver a
determinate car with a market value of
P250,000.00. B obliged himself to deliver
his watch and P150,000.00 in cash. What
kind of contract?
A: First, you have to consider the intention
of the parties. They may want this
transaction to be considered as a sale or
barter and that will prevail. But if the
intention of the parties is not clear from their
agreement then the nature of the contract
will depend on the value of the watch. If the
value of the watch is greater than P150,000
then this is barter. If the value of the watch
is equal or less than P150,000 then this is
sale. The value of the car is irrelevant. What
is only relevant is the value of the thing
(watch) in relation to the cash to be given by
one of the parties.

Agency to Sell (ATS) vs. COS
BE: A gave B the exclusive right to sell
his maong pants (he has his own brand
of maong pants) in Isabela. It was
stipulated in the contract that B has to
pay the price of maong within 30 days
from delivery to B. It was stipulated that
B will receive 20% commission
(discount) on sale. The maong pants
were delivered to B. However, before B
could sell the goods, the store was
burned without fault of anyone. Can B be
compelled to pay the price?
From the wordings of the problem you may
have an idea that this is an agency to sell. If
this is an ATS, the fact that the agent has
not yet sold the maong pants when they
were burned will not result in a liability on
his part, there being no negligence on his
part because with the delivery of the thing
from the principal to the agent, ownership
does not pass. Under the principle in the
Civil Code res perit domino it will be the
seller (owner) who will bear the loss. But if
this transaction is sale then with the delivery
of the maong pants to B, ownership passed
to B because he did not reserve ownership
over the pants despite the fact that the other
party has not paid the price. So when the
pants were burned, it would now be B as
the owner who will bear the loss.

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

Essential Elements of a Contract of Sale
1. Consent of the Contracting Parties

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2. Object or Subject Matter which is a
determinate thing or right
Note: Service cannot be the subject matter
of sale.
3. Cause or Consideration as far as
seller is concerned, it is the price in
money or the equivalent of the payment of
the price.

CONSENT OF THE CONTRACTING
PARTIES
A. No consent of one or both of the
parties
! the contract is void. Under the law on
sales, it is a fictitious contract where the
signature of one of the parties was forged.
Normally, the sellers signature is forged. If
the signature of the seller is forged, that
would be a fictitious contract. The alleged
seller will not have participation in the
execution of the contract. But another kind
of contract recognized in the Civil Code is a
simulated contract.

Simulated parties to this contract actually
would have participation. They would
voluntarily sign in the deed of sale.
However, they do not intend to be bound at
all or they may intend to be bound to
another contract but they executed a deed
of sale. Thus, the law would ratify these
contracts considering there is a simulated
sale.

Kinds of Simulated Contracts
1. Absolutely Simulated they do not intend
to be bound at all.
Q: Why would they enter into this kind of
sale?
A: To defraud creditors

2. Relatively Simulated sale where they
actually intended another contract which
normally would be a donation.

B. If consent was given
! If consent was given, it does not
necessarily mean that the COS is valid. The
consent may be given by an incapacitated
person or one with capacity to give consent.
If given by an incapacitated person,
consider the nature of the incapacity. It may
be:
a. Absolute Incapacity the party
cannot give consent to any and all
contracts.
b. Relative Incapacity the party is
prohibited from entering sometimes
with specific persons and sometimes
over specific things.

Kind of Capacity
1. Juridical Capacity it is the fitness to be
the subject of legal relations. If a party to a
sale has no juridical capacity, the contract is
void. Note that all natural living persons
have juridical capacity. Even if he is a 1 day
old baby, he has juridical capacity. The
baby can be the subject of donation. Even if
he is conceived, he has provisional
personality.

Example: One example of a party to a sale
without juridical capacity would be a
corporation not registered with the SEC.
The contract entered by this corporation is a
void contract because one of the parties has
no juridical capacity to enter into that
contract.

2. Capacity to Act it is the power to do
acts with legal effects. If the incapacity only
pertains to capacity to act, the contract
would normally be voidable. Without
capacity to act or there are restrictions with
ones capacity to act such as minority,
insanity, deaf mute and does not know how
to write and civil interdiction.

Note: Under R.A. 6809 (December 1989)
there is no more creature known as
unemancipated minor. Before 1989, the
age of majority was 21.

C. If both parties are incapacitated
! not only voidable but unenforceable.
Q: What if one of the parties in a COS is
a minor and the minor actively
misrepresented as to his age?
A: The SC said that the minor will be bound
to such contract under the principle of
estoppel.

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Atty. Uribes Comment: Estoppel is not a
good ground because the minor is not
aware.

Sale of Necessaries
In sale of necessaries such as food, clothing
and medicine to a minor, the minor has to
pay a reasonable price. This contract is not
voidable. The sale of necessaries will bind
the minor and he will be compelled to pay
not really the contract price but only to
reasonable price.

Relative Incapacity (Articles 1490 and
1491)
1. Sale between spouses it is void except:
a. The spouses executed a marriage
settlement and in the marriage
settlement they agreed for a
complete separation of property
regime. Then they can sell to each
other.
b. If no marriage settlement, they may
have obtained judicial declaration of
separation of property. After that,
they can sell to each other.

2. Those mentioned in Article 1491
a. A guardian cannot buy the property
of the ward. The guardian is not
actually prohibited from entering into
any and all contracts. It is just that
he cannot be the buyer of a property
of his ward.
b. An agent cannot buy without the
consent of the principal a property
which he was supposed to sell or
administer.
c. The executors and administrators of
the estate cannot buy a property
which is part of the estate.
d. Public officers, judges, their staff,
clerk of court, stenographers and
lawyers are prohibited from buying
those properties which are the
subject of litigation during the
pendency of the case.

Q: What is the status of the contracts
under 1491?
A: Prof. Tolentino voidable
Justice Vitug & Prof. Baviera void
Prof. Pineda & Prof. de Leon the
first 3 are voidable and the last 3 are
void.
The better answer is void because these
persons are prohibited from entering into
these contracts. Under Article 1409, if the
contract is prohibited, it is void.

3. Aliens are prohibited from acquiring by
purchase private lands Take note
acquiring which means buying not selling.
They can sell.
Exceptions / when aliens can buy:
a. Former natural born Filipino citizen.
Under the Constitution they are
allowed to buy small land which they
can use for residential purpose.
b. Another way of acquiring is by
succession but this is not a sale

D. Even if consent was given by one with
capacity to give consent but if the
consent is vitiated
! voidable. FIVUM

E. If the party gave such consent in the
name of another without authority of that
person or no authority of law
! unenforceable. Take note may be
authorized by the person or by law.
Example of authorized by law: notary public
has the right to sell in pledge because he
has the authority to sell under the law.

OBJECT OR SUBJECT MATTER
The requisites in sale as to thing would
almost be the same as the requisites of
contracts in general.
1. The thing must be within the commerce
of men
Examples: sale of a navigable river is void,
sale of a cadaver is void but donation of a
cadaver is allowed, sale of human organs is
void, things which are not appropriated like
air is void but if appropriated it can be the
object of a valid sale.

2. The thing must be licit not contrary to
law

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Examples: sale of prohibited drugs or shabu
is void, sale of marijuana is void, sale of wild
flowers or wild animals is void

3. Must be determinate
Read Article 1460

RULES AS TO OBJECT OF COS
Q: A obliged himself to deliver and
transfer ownership over the palay that
will be harvested from a specific parcel
of rice land in May 2008. What if by May
2008, no palay was harvested?
a. What is the status of the sale?
b. May the seller A be held liable for
damages for failure to comply with
his obligation?
A:
a. Always consider that in a COS there
are only 3 requisites. As long as these 3
were complied, there is a valid sale. In fact,
by express provision of law, sale of things
having potential existence (emptio rei
sperati) is valid.
b. Not necessarily because there are
excuses to non-performance such as
pestilence, typhoon, flood and therefore his
failure to comply is an excuse. But if the
reason of the seller is because of his
negligence, he cannot find support under
Art. 1174.

Sale of Hope (Emptio Spei)
Example: Sale of a lotto ticket

Q: Sale of a land to B with a right to
repurchase within 1 year which A
delivered. On the 3
rd
month, B sold the
land to C. However, on the 9
th
month, A
offered to repurchase the land.
(a) What is the status of the sale
between A and C?
(b) Who will have a better right over the
land?
(Sale with a right to repurchase)

A: (a) Be guided by the fact that a COS is a
consensual contract. The mere meeting of
the minds as to the object and the price,
then there is a valid and perfected sale.
Hence, this is a valid sale even if the object
of the sale is a sale with a right to
repurchase. Article 1465 provides that
things subject to a resolutory condition may
be the object of a COS.
Atty. Uribe: Mas tamang sabihin since
the ownership thereof is subject to a
resolutory condition. Hindi naman yung
thing is the subject of resolutory condition, it
is the ownership over the thing.
If A exercises the right to repurchase and
such would be a valid exercise of such right
then the ownership of B would be
extinguished. The exercise of the right is
considered a resolutory condition as to the
ownership of B. The fact that the object of
the sale is subject to a repurchase will not
affect the validity of the sale.
(b) As a rule, it would be A as a seller a
retro because he has the right to
repurchase assuming his repurchase is
valid. C may have a better right if he can
claim that he is an innocent purchaser for
value. Example: maybe the right to
repurchase was not annotated at the back
of the title of the land and he has no actual
knowledge. If that is the case, C may have a
better right.

SALE OF RIGHT / ASSIGNMENT OF
RIGHT
Assignment of right is not necessarily a
sale. If there is a valuable consideration for
the assignment, it is a sale. If there is no
valuable consideration, it may be a donation
or dacion en pago.

Examples of right: credit, shares of stock

Requisite of a right ! the only
requirement is that the right must not be
intransmissible
G.R.: As a rule, rights and obligations
arising from contracts are transmissible.
Exceptions:
1. Intransmissible by Nature
2. Intransmissible because of Stipulation
3. Intransmissible because of Law

CAUSE OR PRICE CERTAIN IN MONEY
OR ITS EQUIVALENT

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Q: A deed of sale was entered into by A
and B. The price agreed upon was 1M
yen.
(a) May that be a valid sale?
(b) Can the seller compel the
buyer to pay in yen?
A: (a) Yes, it is valid. Basis is Article
1458 because the only requirement of the
law is in money. Even Japanese yen is in
money. The law states that it may not even
be in money, it may be equivalent like
promissory notes whether or not negotiable
or letters of credit.
(b) If the contract was entered into
today, yes it is valid because of R.A. 8183
which repealed R.A. 529 in 1996. If COS
was entered before R.A. 8183, the seller
cannot compel even though the contract is
valid. The payment has to be made in
Philippine money.
Consider the date of the sale. If parties
failed to stipulate as to which currency, it
has to be in Philippine currency.

Price Must be Certain

Q: Who can fix the price?
A: (1) The best way is for the parties to
agree as to the price. (2) They may agree
that one of them will fix the price.

Q: May the sale be perfected if the
agreement of the parties was for one of
them to fix the price?
A: Yes, it may be perfected only if the price
fixed by the party who was asked to fix the
price was accepted by the other party. If not
accepted, there was no meeting of the
minds.

Note: The perfection will only be considered
at the time of the acceptance of the price
fixed by the other party not from the time of
the first agreement of the parties.

Q: What if a 3
rd
person was asked to fix
the price A and B agreed that X will fix
the price, may the sale be void?
A: Yes, the sale may be void if the third
person does not want to fix the price or
unable to fix the price. Hence, there was no
meeting of the minds.

Q: If the 3
rd
person fixed the price but it
was too high or too low or maybe there
was fraud committed by the 3
rd
person or
he was in connivance with one of the
parties, may the sale be void?
A: No, because the remedy of the other
party is to go to court for the court to fix the
price.

Note: Lesion or gross inadequacy of the
price does not as a rule invalidate a contract
unless otherwise specified by law.
Exception: when otherwise provided by law.
Example: Article 1381.

Note: Under the law on sales, if there is
gross inadequacy, it may reflect vitiation of
consent so the SC would normally enjoin
the lower courts to be warned of the
possibility of fraud in case of lesion. Lesion
must be proven as a fact. It is not
presumed.
If there is gross inadequacy, it maybe
because actually they intended another
contract and that would make the sale a
simulated sale and therefore the sale is
void.
Example: The value of the property is P1M
but only P10,000 was written in the contract
because they intended it to be a donation !
void.

TIME OF THE PERFECTION OF THE
CONTRACT

Auction Sale
Auction sale is perfected upon the fall of the
hammer or any other customary manner.
Thus, before the fall of the hammer in an
auction sale, the bidder even if he has
already made a bid, he can still withdraw
the bid as long as he would do that before
the fall of the hammer. Otherwise, (if after
the fall of the hammer), there is already a
perfected sale.

Q: Can the auctioneer withdraw the
goods before the fall of the hammer?

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A: As a rule, yes because the sale has not
been perfected at the moment unless the
bidding or auction has been announced to
be without reserve.

Note: Before perfection, there is one
contract which maybe perfected. Before
perfection meaning in the negotiation stage
! this contract is known as the option
contract.

Option Contract
Sanchez vs. Rigos
Facts: Mrs. Rigos offered to sell her land to
Sanchez for a certain price. Rigos gave
Sanchez 2 years within which to decide.
(Note: The optionee or promisee or offeree
is not bound to purchase but he has the
option to buy or purchase). In this case,
Sanchez has the option. Before the lapse of
2 years, Sanchez told Rigos that he is
buying and offered the price agreed upon
but Rigos refused claiming that she was not
bound by the written option agreement
because no option money (consideration)
was given by Sanchez. According to Rigos,
the option contract is void.
Held: Since Sanchez accepted the offer and
decided to buy within the period before the
offer was withdrawn, a perfected COS was
created even without option money. In this
case, there was no option contract because
it was merely an option agreement.
Therefore, there was merely an offer on the
part of Rigos and once the offer was
accepted before it was withdrawn,
regardless of whether option money was
given and in this case no option money was
given, a perfected COS was created.
Note: Iba pag may option money
Q: 2 years within which to decide
assuming there was option money,
before the offeree could decide to buy,
the offeror withdraw on the 6
th
month.
(a) Can the offeree on the 10
th

month say I would like to
buy?
(b) Can the buyer compel the
seller to sell?
A: (a) No.
(b) No, an action for specific performance
will not prosper because when he said he
will but there was not more offer to be
considered. Na-withdraw na eh.

Q: If the offeree files an action for
damages, may that action prosper there
being option money given?
A: Yes, because with the option money, an
option contract is perfected, the offeror is
bound to give the offeree, 2 years within
which to decide and failure to that he is
liable not based on perfected COS but on
perfected contract of option.

Option Money (OM) vs. Earnest Money
(EM)
OM is not part of the price while EM is part
of the price and at the same time, it is a
proof of the perfection of the contract.

G.R.: A COS may be in any form. Article
1483 provides that a COS may be in writing,
partly in writing xxx. This provision is exactly
the same as Article 1356 in contracts which
provides that contracts may be obligatory in
whatever form they may have been entered
into provided all the essential requisites are
present. But then again even Article 1356
just like Article 1475 would provide for
exceptions.
Exceptions: The law may require a
particular form for its validity. The Cattle
Registration Decree is an example - where
the law itself provides for a particular form
for the validity of the sale. But the law may
require particular form for its enforceability
of the sale and that would be 1403 or the
statute of frauds. Concretely, the sale of a
parcel of land if not in writing is valid but
unenforceable. It is not void. Note that the
price of the land is irrelevant if immovable.

Example: Before, the sale of a land for P300
is valid and enforceable even if not in
writing. But presently, it has to be in writing
to be enforceable. The price is still
irrelevant.

If the object of the sale is movable, you
have to consider not the value of the thing

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but the price agreed upon. The value may
be different from the price. You can sell a
thing worth P1,000 for P400 but the law
provides for the price. If the price is at least
P500 and the sale is not in writing, it will be
unenforceable.

Paredes vs. Espino
Facts: Paredes was a prospective buyer.
Espino owns a land in Palawan. Paredes is
from Northern Luzon. Their negotiation was
thru letters and telegrams. Espino sent a
letter to Paredes stating that he and his wife
agreed to sell the land to Paredes, that the
deed of sale will be executed upon the
arrival of Paredes in Palawan. When
Paredes arrived, Espino said he is no longer
interested in selling. Paredes filed a case to
compel Espino to sell the land. Espino
contended that the contract is
unenforceable because it is not in writing.
He contended that under the statute of
frauds it is unenforceable. His contention
was sustained by the trial court.
Held: This contract is no longer covered by
the statute of frauds because there was a
letter. Article 1403 provides that a note or
memorandum signed by the part charged
would be sufficient to take that contract out
of the operation of the statute of frauds. In
this case, the defendant wrote a letter with
his signature on it. The letter took that
contract out of the operation of the statute of
frauds and therefore he may be compelled
to execute the final deed of sale.

RIGHTS AND OBLIGATIONS OF THE
VENDOR
In a deed of sale (DOS), there can
be hundreds of obligations of the vendor but
those obligations would be because of the
stipulation. But there are only few
obligations imposed by law. The 3 most
important:
1. To transfer ownership
2. To deliver
3. To warrant the thing
There are other obligations:
4. Obligation to take care of the thing
sold with the diligence of a good
father of a family prior to delivery.
5. From the time of the perfection up to
the time of delivery then there would
be obligation to pay for the expenses
for the execution and registration of
the sale and obligation to pay the
capital gains tax would be on the
seller as a rule.
6. Obligation to deliver the fruits which
is related to the obligation to deliver
the thing

OBLIGATION TO DELIVER THE FRUITS
BE: A sold a mango plantation to B but
they stipulated that delivery will be after
the signing of the deed of sale. After the
expiration of the 6-month period, B
demanded for the delivery. The vendor
was able to deliver 1 month after the date
when he was supposed to deliver the
mango plantation. During this period, the
vendor harvested mango fruits and sold
them to X. The vendor was able to
deliver only after the other fruits were
harvested and sold to Y. Can B recover
the mango fruits from Y during the 6
th

month period?
SA: Determine first whether B is entitled to
the fruits because if he is not entitled, then
he cannot recover the fruits. Is he entitled to
the fruits after 6-month period during the 1-
month period prior to delivery? Yes, in fact,
under 1537, the fruits of the thing sold from
the time of perfection shall pertain to the
buyer.

OBLIGATION TO TAKE CARE OF THE
THING
G.R.: The thing sold should be determinate
because if generic (1460, 2
nd
paragraph)
then there is nothing to be taken cared of. It
will become determinate only upon delivery.
Exceptions: There are sales transactions
wherein the vendor would not have this
obligation:
a. Constructive delivery - brevi
manu There would be no
obligation on the part of the
seller to take care of the thing
from the time of perfection
because at the time of
perfection, the buyer was

November 2008
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already in possession of the
thing. Maybe he borrowed the
thing. Example: he borrowed the
car and he decided to buy it
the thing was already in his
possession.

OBLIGATION TO PAY EXPENSES /
TAXES
These obligations may be the
subject of stipulation. By agreement, it
would be the buyer who will pay xxx
Normally, dito hindi natutuloy ang sale dahil
hindi magkasundo kung sino magbabayad
ng tax.

OBLIGATION TO TRANSFER
OWNERSHIP
BE: May a person sell something which
does not belong to him? Would the sale
be valid? Would the buyer acquire
ownership over the thing sold, if seller
does not own the thing?
SA: Yes. Ownership over the thing sold is
not an essential requisite for the sale to be
valid. But if the seller does not own the
thing, he may have a problem on his
obligation to transfer ownership. The
problem would be whether or not the buyer
would acquire ownership over the thing sold
if the person who sold the thing is not the
owner.

Q: Who would have the right to sell and
therefore they can transfer ownership by
way of sale?
A: First, is the owner. Even if he is not the
owner, he may have the right to sell
because:
(1) He was given the authority by
the owner. Example: Agent
(2) He may be the owner but he
may have the authority of the law
to sell, known as Statutory
Power to Sell (Article 1505).
Examples: Notary public in
pledge, liquidators, guardians
and receivers.
(3) Those who have the authority of
the court. Example: Sheriff.
Note: it is as if they have the
authority of law because not
even the judge can validly sell
something if it is not consistent
with the law.

Q: May a buyer acquire ownership over
the thing sold if the seller has no right to
sell?
A: The answer by way of exception is yes.
But the general rule here is under 1505
the buyer acquires no better title than what
the seller had. If the seller is neither the
owner nor does he have the authority to
sell, the buyer acquires no better title than
what the seller had. If his right is only as a
lessee that is the most that can be
transferred to the buyer. If he has no title
then no title can be transferred to the buyer.
Exceptions: (When the buyer can acquire a
better title than what the seller had. Even if
the seller does not have the right to sell, the
buyer may acquire ownership over the thing
sold because the law so provides and not
because the seller was able to transfer
ownership to the buyer.)
1. By Estoppel
2. Estoppel by Deed
3. Estoppel by Record
4. Sale by an Apparent Owner
5. Negotiable Document of Title
6. Purchases from a Merchants Store
xxx
1. By Estoppel by the principle of
estoppel, a person is precluded from
denying that another person has authority to
sell because of his acts. Also known as
Estoppel in Pais which is a kind of
equitable estoppel because of the acts /
representation of the owner, he may not
later on deny the authority of the 3
rd
person.

2. Estoppel by Deed
BE: A and B co-owners of land sold (sale
is verbal) to X their land. X subsequently
sold the land to Y. Would Y be
considered to have acquired ownership
over the land?
SA: Under 1434 which is considered as
Estoppel by Deed (technical estoppel)
when the seller who was not the ownerat
the time of the sale, acquires ownership,

November 2008
11
automatically, ownership passes to the
buyer by operation of law. However, Article
1434 requires delivery to the buyer. And
under the facts, 1434 would not apply
because:
a) There was no showing there was
payment
b) No showing that there was delivery
of the land to X.
It cannot be said that by operation of law, Y
likewise acquired ownership by way of
estoppel by deed.

3. Estoppel by Record
Jurisprudence: Sale by nephew of the
owner of the land. Since the nephew could
not deliver the land, the buyer sued the
nephew for estafa. For the accused to be
acquitted, he asked his uncle to testify that
he actually had the authority to sell. When
the uncle testified in court, the nephew is
acquitted. After acquittal, the buyer
demanded from the uncle the delivery of the
land. The uncle refused, claiming that sa
totoo land, I did not authorized my nephew.
Q: Case was filed against the uncle,
would that action prosper?
A: SC said yes because he cannot be
allowed now to claim that his nephew was
not authorize to sell after he testified in court
that he gave such authority.
This is estoppel by record which is
considered a technical estoppel.

4. Sale by an Apparent Owner
A. Factors Act
B. Recording Laws
C. Any other provision of law enabling the
apparent owner of the goods to dispose of
them as if he was really the owner.

A. Factors Act
Even if agent has no right to sell, a third
person may acquire ownership because he
may rely on the power of attorney as
written.

B. Recording Laws
*most common question in the bar exam

Read: Mapalo vs. Mapalo
5. Negotiable Document of Title
If goods are covered by a negotiable
document of title and it was thereafter
negotiated. If the buyer bought it in good
faith and for value, he will be protected
under the law. He will acquire ownership
even if the seller did not have the right to
sell.
Example: The seller may have acquired title
by violence. Binugbog nya yung owner ng
goods. Pero kung negotiable document of
title yan and properly negotiated, lalo na
kung bearer document of title, then the
buyer may acquire ownership even if the
seller has no right to sell.

6. Purchases from a Merchants Store /
Markets / Fairs
Sun Brothers vs. Velasco
Facts: Sun Brothers was the owner of a
refrigerator. Sun Brothers was engaged in
the business of selling refrigerator. Sun
Brothers sold a ref to Lopez on installment
basis. As stipulated, Sun Brothers reserved
ownership until full payment. Lopez only
paid P300 out of P1,500. The balance to be
paid on installment. Lopez then sold the ref
to Velasco.

Q: Would Velasco acquire ownership?
A: No because Article 1505 provides that
the buyer acquired no better title than what
the seller had. However, Velasco was the
owner of a store. On the next day, Velasco
sold the ref to Ko Kang Chu who paid in full.
When Sun Brothers learned this transaction,
it filed an action to recover the ref from Ko
Kang Chu.

BE: F lost her diamond ring in a hold-up.
Later on, this ring was an object of a
public sale of one pawnshop. Can F
recover the ring from the buyer in that
public sale?
SA: Yes, Article 559 provides that even if
the buyer is in good faith so long as the
owner is willing to reimburse the buyer of
the price paid in that sale.

Note: Again in 1505, there is no right to
recover as long as the buyer bought it in

November 2008
12
good faith from a merchants store, there
can be no recovery as a matter of right.

Q: How transfer of ownership is
effected?
A: Under the law, as far as things are
concerned, it is effected by delivery:
(a) Actual
(b) Constructive
There can be no transfer of ownership
without delivery.

Notes:
(a) There may be a period agreed upon
by the parties within which the buyer
would have to decide. Even if he failed
to signify his acceptance by the mere
lapse of the period, he is deemed to
have accepted (impliedly accepted)
hence, ownership passes to him.
(b) Even before the lapse of the period,
he may be considered to have
accepted if he did an act wherein he
would be considered to have adopted
the transaction then ownership passed
to him.
Example: Even if he has 10 days
within which to decide but on the 2
nd

day, he sold the car to another.
Obviously, he is deemed to have
accepted the thing because he did an
act which is inconsistent with the
ownership of the seller like he donated
or destroyed the thing.
(c) If there is no period agreed upon, the
law says if he did not signify his
acceptance he will be considered to
have accepted after the lapse of a
reasonable time. Reasonable time will
depend on the circumstances of the
sale, purpose of the sale, nature of the
thing sold. Example: Perishable
goods.

Sale or Return
Q: Ownership passes upon delivery?
A: Yes. However, the buyer is given the
right to revest the title back to the seller
normally within a certain period. Example:
Clauses in subscription magazine which
says that you can return within 30 days
without payment.

BE: A car was sold for P150,000. P75,000
paid upon the execution of DOS. The
balance payable on a monthly basis.
P75,000 was paid. The car was delivered
to the buyer. However, before he could
pay the balance, the car was destroyed
due to a fortuitous event or was burned
xxx Can he still be compelled to pay the
balance?
SA: Yes. Upon the delivery of the car to the
buyer, there being no retention of ownership
by the seller. (Note: Wala sa facts na na-
retain ng seller and ownership). Therefore,
ownership passed to the buyer. Under the
principle of res perit domino Article 1504
the owner bears the loss and hence it can
be compelled to pay the price.

G.R.: Res perit domino 1504.
Note: Determination of when ownership
passed is important because if at the time of
the loss, the buyer is not yet the owner, as a
rule, the buyer will not bear the loss like in
sale on approval and he has 10 days within
which to decide and the thing was lost
through a fortuitous event within the 10-day
period without fault on his part, the seller will
bear the loss.
Exceptions:
1. Read Lawyers Cooperative vs.
Tabora

2. Delay in the Delivery
When there is delay in the delivery
due to the fault of one of the parties,
whoever was at fault will bear the loss. Note
that either buyer or seller may be at fault.

Example 1: The buyer and the seller may
have agreed that the goods are to be
obtained by the buyer at the warehouse of
the seller on a specific date. On the date
agreed upon, the seller demanded the
buyer to get the goods. Despite such, the
buyer failed to get the goods. On the next
day, the warehouse was destroyed due to
fortuitous event.
Q: Who is the owner at that time?

November 2008
13
A: The seller but there was delay on the part
of the buyer hence under 1504 it is the
buyer who will bear the loss.

Example 2: The seller himself maybe the
one at fault. Thus, he is in delay in
delivering the goods to the buyer.
Q: Why would this be an exception to the
res perit domino rule?
A: Ang premise dito, the ownership has
already passed to the buyer but the goods
are still with the seller. Can this happen?
Yes, because of constructive delivery. If
there was constructive delivery, ownership
passes to the buyer but physical possession
is still with the seller. They may have agreed
this time that the seller will be the one to
deliver the goods to the buyer at a certain
date. When the date arrived, despite
demand from the buyer, there was no
delivery on the part of the seller. Even if the
goods are destroyed the next day due to
fortuitous event, take note ang owner ay
ang buyer na but who will bear the loss?
The seller because he was in delay in
delivering the goods.

DOUBLE SALE (ARTICLE 1544)
BE: F sold a registered parcel of land to
R who did not register the sale.
Thereafter, F sold the very same parcel
of land to C who registered and obtained
a new TCT in his name. Who would have
a better right?
SA: Atty. Uribe: I fully agree with the UP
Law Centers answer. It depends on
whether or not C registered the sale in good
faith. Registration is only one of the
requirements good faith is equally an
important requirement.

Note: In 1544 (double sale), as to which
rule applies will depend on the thing sold if
movable or immovable.

Q: If the thing is sold twice, who would
have the better right?
A: If movable, the buyer who first took
possession in good faith will have the better
right. If immovable, the buyer, who first
registered in good faith, will have the better
right. If there was no registration, it will be
the first who took possession in good faith.
If no possession in good faith, the
buyer who has the oldest title in good faith.
Even the 1
st
buyer is required to be in good
faith. Obviously, the first buyer would have
the oldest title. Yung good faith ditto
obviously would not pertain to absence of
knowledge of the 2
nd
sale kasi syempre 1
st

buyer sya. He is nonetheless required to
have bought the thing in good faith. Good
faith means that he had no knowledge of
the defect of the title of the seller.

Warning: Please be careful when you recite
you register the sale not the land.

Read: Bautista vs. Sioson

Carumba vs. CA
Facts: Sale of land to B who took physical
possession but did not register. He is the
first buyer. However, the seller (A) is a
judgment debtor in one case to a certain
creditor named C. The land became the
subject of an execution sale. The buyer
became C who registered the sale.

Q: Who would have a better right
between C and B (C had no knowledge of
the sale)?
A: SC Said ! B because this land was not
registered under the Torrens System. 1544
would not apply to unregistered lands.

OBLIGATION TO DELIVER THE OBJECT
OF THE SALE
Determine the subject matter if it is a
thing or a right because there are different
modes of delivery as to thing and as to right.

Things
Kinds of delivery of things as a
consequence of sale known as
tradition under the law:
1. Actual Delivery / Material Delivery /
Physical Delivery / Real Delivery the thing
is in the possession and control of the
vendee. Take note control. Take note to
the vendee.

November 2008
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Q: What if the thing was delivered to a 3
rd

person?
A: Jurisprudence SC said ! yes, there
maybe actual delivery if the third person has
authority to receive from the vendee. Thus,
making him an agent of the vendee and that
would still be actual delivery.

Note: Philippine law does not only require
actual delivery constructive delivery may
result in transfer of ownership.

2. Constructive by the execution of a
public instrument if the contrary intention
does not appear on the document. By the
mere execution of the public instrument that
is equivalent to delivery. Hence, ownership
passes to the buyer.

Kuenzle & Streiff vs. Macke & Chandler
Facts: The original owner here Stanley and
Griffindor (parang Harry Potter !) and the
property involved here are fixtures of a
saloon. Macke and Chandler are judgment
creditor of Stanley and Griffindor. Because
of a judgment in favor of Macke and
Chandler, the sheriff levied upon these
properties which was still in the possession
of Stanley and Griffindor. The properties
under execution were questioned by
Kuenzle and Streiff. Kuenzle and Streiff
claimed that these things were sold to them
prior to the levy. If they claimed that the
properties were sold to them, the properties
should be in their possession. Take note
that Stanley and Griffindor were still in
possession of the goods physically. Hence,
there was no actual delivery.
Held: In order that ownership would pass, it
has to be in a public instrument if that would
be by constructive delivery.

Kinds of Constructive Delivery
1. Delivery of the Keys of the place where
the goods are located like a warehouse.
Prof. De Leon: this also called as symbolic
delivery.

2. By Mere Consent or Agreement of the
Parties if at the time of the sale,
possession to the goods cannot be
transferred to the buyer. There must be a
reason why it cannot be transferred at the
time of the sale. This is also known as
tradition longa manu.
Example 1: The thing was the subject
matter of a lease with a 3
rd
person until the
expiration of the lease, the thing cannot be
delivered.

Example 2: The thing was the subject
matter of commodatum. As a rule, period of
commodatum has to be respected.

3. Brevi Manu this is a kind of constructive
delivery because the buyer was already in
possession of the thing sold at the time of
the perfection of the sale so he will continue
to be in possession after the sale, no longer
as a lessee but this time as the owner. So
dati lessee lang sya that is why he was in
possession or maybe depositary lang sya or
maybe he was the agent at the time prior to
the sale.

4. Constitutum Possessorium the seller
will continue to be in the possession of the
thing after the sale but no longer as an
owner but in another capacity like lessee.

Bautista vs. Sioson
Because a lease agreement was entered
into by the buyer and seller after the sale
then the buyer became the lessor and the
seller became lessee. Therefore, the lessee
would continue with the possession no
longer as an owner.

Rights
Kinds of Delivery of Incorporeal Property
/ Quasi Tradition:
1. Execution of Public Instrument

2. Placing the Title of Ownership in the
Possession of Vendee a right would
normally be covered by a certificate.
Example: delivery of the certificate of shares
of stocks.

3. Use by the Vendee of His Rights with the
Vendors Consent

November 2008
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Example: Sale of shares of stocks ! the
vendee may not always have the right to
exercise his rights under the shares of
stocks. Concretely, if there is a
stockholders meeting, the books of the
corporation will be closed for 30 days before
the meeting. Thus, if the sale occurred
when the books are already closed, no one
will be recognized except those registered
owners. So if you are the buyer of those
stocks, you can only use your right with the
consent of the vendor.

RULES ON SALE AS TO QUANTITY /
QUALITY OF THE THING SOLD
Q: In a sale involving 1,000 pairs of
shoes with a specific design as agreed
upon. The seller delivered 1,200 pairs of
shoes instead of only 1,000. Can the
buyer reject everything?
A: No. He has the right to reject only the
excess. Reject the 200 but he can be
compelled to accept the 1,000.

Q: What if instead of 1,000, 800 was only
delivered?
A: The buyer cannot be compelled to
receive 800 because partial performance is
non-performance. You cannot compel the
creditor to accept partial fulfillment as a rule
because it can be a subject of a stipulation
that there can be partial delivery.

Q: The obligation to deliver 1,000 cavans
of Milagrosa rice. Instead of delivering
1,000 cavans of Milagrosa, the seller
delivered 1,100 cavans of both Milagrosa
and Burmese rice. May the buyer reject
everything?
A: Yes, if the goods are indivisible. Meaning
each sack of rice, Milagrosa and Burmese
rice were mixed. However, if it is clear that
per sack it is Milagrosa rice and the 100
sacks, it is clear that those are Burmese rice
that would not be considered as indivisible.
He can be compelled to accept 1,000 sacks
Milagrosa and he has the right to reject 100
sacks Burmese rice.

SALE OF REALTY
Q: Sale of a parcel of land. Price agreed
upon is P1M. More or less 100 sqm. The
actual area delivered by the seller was
only 95 sqm. What are the remedies of
the buyer?
A: (1) Specific performance would be a
remedy if the seller is still in the position to
deliver the balance. Siguro yung katabing
lupa sa seller din, hence, he can afford to
give additional 5 sqm.
(2) Q: If specific performance is not
possible, is proportional reduction a
remedy?
A: It depends on whether the sale is
considered as a sale with a statement of an
area of a rate of a certain measure or if it is
a lump sum sale.

Q: Under the facts, 95 sqm was
delivered, would rescission be a
remedy?
A: As a rule no because rescission would
only be a remedy if the area lacking is more
than 10% of that area agreed upon. So
kung 100 sqm, dapat 11 sqm or 15 sqm ang
kulang, so out of 100 kung 85 lang ang na-
deliver, then rescission is a matter of right.

PLACE OF DELIVERY
Read 1524, 1525 and 1198
The seller delivered the goods to the place
of business of the buyer. If the buyer
refuses to receive the goods, the buyer will
be considered in delay and therefore will be
liable to the seller because of unjust refusal.
Q: May the buyer be considered in delay
for his refusal to accept if there is no
place stipulated in the contract?
A: It depends on the kind of thing.
Determine if it is determinate or generic. If
the thing is determinate, the law provides
that it will be the place where the thing is
located at the time of the perfection of the
contract.

Q: What if the object of the sale is a
generic thing?
A: Sellers place of business or residence.

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Note: If there is no stipulation when to be
delivered, the seller cannot be compelled to
deliver.

Q: What if at the time of the perfection of
sale, though the thing is determinate, it
was on board a ship while in transit.
Where will be the place of delivery?
A: Depending on the shipping arrangement
agreed upon by the parties.

F.O.B. Free on Board
C.I.F. Cost, Insurance, Freight

F.O.B. and C.I.F are rules of presumption
which would have to give way to the real
intention of the parties. So after all, the
F.O.B. or C.I.F. arrangements do not really
determine the place of delivery, they only
make rules of presumption.

So in a C.I.F. arrangement, it is only
presumed that the place of delivery is the
port of origin.

In a F.O.B. destination, it is only presumed
that the point of destination is the place of
delivery.

Q: What really determines the place of
delivery?
A: SC said this indication as to the
intention of the parties as to the place of
delivery is the manner and place of
payment. If there is an agreement as to
where and how the price is to be paid that
would be the place considered for purposes
of delivery and therefore for transfer of
ownership.

Read 1582

Obligations which cannot be Waived:
1. Obligation to transfer
2. Obligation to deliver

Obligation which can be Waived:
1. Obligation to warrant the thing

Kinds of Warranties under the Law:
1. Express
2. Implied

1. Express any affirmation of fact or any
promise by the seller relating to the thing,
the natural tendency is to induce to
purchase the thing.
Requisites:
(a) There is an affirmation of fact
(b) The fact must pertain to the thing
either to the quality, character or title
of the thing

Any other matter may not be considered as
an express warranty.

The use of the words / terminologies is not
conclusive as to whether or not there is an
express warranty.
Example: I guaranty / warranty you that you
will be happy if you buy this car at
P100,000! this does not result in an
express warranty

Again, if the affirmation of fact pertains to
the quality of the thing, it is an express
warranty.
Example: These 10 sacks of fertilizer would
result in 200 cavans of rice.

The statement of the sellers opinion is not
as a rule considered an express warranty.
Example: This is the best pia cloth ! it
may turn out that there are better pia cloth.

As long as the seller is not an expert on that
field, that would be treated merely as an
opinion and there can be no liability for
breach of an express warranty.

BE: A sold a land to B for P1M in
Antipolo. As agreed upon P100,000 will
be paid upon the signing of the DOS. The
balance will be paid within 30 days from
the time the occupants (squatters) of the
land are evicted. It was so stipulated that
if within 6 months, the squatters have
not yet been evicted, the seller should
return the P100,000. Another stipulation
states within the 6-month period, the
value of the land doubled. Despite the
filing of an eviction suit by the seller and

November 2008
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the lapse of the 6-month period, the
squatters were still occupying the land.
The seller offers to return the P100,000
to the buyer. The buyer refused to accept
the P100,000 and told the seller never
mind even if the squatters are still there.
I will still buy the land. So the buyer
offered to pay the balance P900,000 and
demanded that a DOS be executed by
the seller. The seller refused to accept
the P900,000. What he did is to file an
action to rescind the contract. Would the
action prosper?
SA: If the answer is based on rescission,
the action will not prosper because
rescission may only be invoked by the
aggrieved party. The seller is not an
aggrieved party.

2. Implied
Prof. De Leon: because of this implied
warranty, it cannot be said that Philippine
law does not adopt caveat emptor buyer
beware. (Fayes Caveat !: Please check
the book of Prof. De Leon regarding this
statement. Thanks !)

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

Warranty Against Eviction / Title
Q: If the seller was able to transfer
ownership to the buyer may the seller
nonetheless be held liable for breach of
warranty against eviction?
A: Yes. These are 2 different obligations:
the obligation to transfer ownership and the
obligation to warrant the thing.

Example: This warranty against eviction
would include the warranty that the buyer
from the moment of the sale have and enjoy
the legal and peaceful possession over the
thing sold.

Requisites of warranty against eviction:
1. There has to be final judgment depriving
him of such thing either wholly or partially.
In other words, a case was filed by a 3
rd

person against the buyer which resulted in a
favorable decision as to the plaintiff
resulting in the deprivation of the property
by the buyer.

2. Deprivation must be either:
(2.1) Based on a 3
rd
persons prior right
over the thing prior to the sale or
(2.2) Based on an act after the sale but
imputable to the vendor.

3. There should be no valid waiver

4. The action to hold the vendor liable
should be filed within the period prescribed
by law.

WARRANTY AGAINST HIDDEN
DEFECTS
Requisites:
1. The defect must exist at the time of the
sale. If the defect started after the sale there
can be no such liability.

2. The defect must be hidden. If the defect
is patent and the buyer nonetheless bought
the thing then he can no longer hold the
seller liable.
If the seller is not aware of the hidden
defects, he can be held liable. If he was
aware, his liability will be greater because
that makes him a bad faith seller.

Q: Even if there is such a hidden defect,
is it possible that the vendee cannot hold
the vendor liable despite the fact that
there was hidden defect even if he was
not informed because maybe the seller
was not aware?

November 2008
18
A: Yes, he may not be able to hold the seller
liable if he is an expert on the thing. He is
expected to know the defect.

3. The defect must result in the thing being
unfit for the purpose of the buyer or at least
it diminish the fitness of the thing such that
the buyer would not have bought it at the
price had he known of such defect.

Q: If the thing which has a hidden defect
was lost or destroyed, can the vendee
hold the vendor liable for this breach of
warranty? Does it matter if the loss was
due to a fortuitous event or maybe the
loss was due to the fault of the buyer
himself, nonetheless, can he hold the
vendor liable?
A: Yes. The vendee can hold the vendor
liable for breach of warranty against hidden
defects even if the thing was lost due to
fortuitous event or due to the fault of the
vendee himself because of the hidden
defects. But of course, if the cause of the
loss was the defect itself, the liability is
greater than if the cause of the loss was a
fortuitous event or fault of the buyer.

If there would be a problem here as to the
extent of the liability of the vendor, he
should first consider the cause of the loss,
maybe it was lost due to the defect itself or
lost through fortuitous event or lost through
the fault of the vendee. After that, he should
determine whether the vendor was aware of
the defects or he was not aware. Again, if
he was aware, damages may be recovered.
If he was not aware, he may not be held
liable for damages unless he can only be
held liable for interest.

If the defect was the cause of the loss, the
vendor would be liable for the return of the
price, not only the price less value but also
to refund the expenses and damages
because the vendor was aware of the
defects.

If the vendor was not aware of the defects,
he cannot be held liable for damages but he
would only be held liable for the price.

If the cause of the loss of the thing was a
fortuitous event, he can only be held liable
for the price less value.

ANY CHARGE OR NON APPARENT
ENCUMBRANCE NOT DECLARED OR
KNOWN TO THE BUYER
Q: Would there be an encumbrance over
an immovable which is a form of
easement or servitude?
A: An example of this is a road right of way.

Q: If the buyer bought the land which
turned out to have a road right of way in
favor of a 3
rd
person, can he claim
breach of warranty against any charge or
non apparent encumbrance?
A: Of course there are requisites:
(1) The encumbrance or easement or
burden or the road right of way has to
be non apparent.

Q: If there is an encumbrance, what are
the remedies of the buyer?
A: (a) He can seek for the reduction of the
price.
(b) Rescission - the law requires that the
action for rescission must be filed within 1
year from the date of the contract. If after 1
year, no more rescission.

(c) If he became aware more than a
year, he may file an action for damages, But
the law requires that the action for damages
has to be filed within 1 year also but from
the time of the discovery of encumbrance. If
he filed it for example, after 2 years from
discovery no recovery of damages.

WARRANTY OF QUALITY
Prof. Deleon, Prof. Vitug, Prof. Baviera:
there is another warranty which is
WARRANTY OF QUALITY which includes:
(1) Warranty of Fitness
(2) Warranty of Merchantability

To some authors the warranty of quality is
considered under the warranty of hidden
defects.

November 2008
19
Atty. Uribe: I cannot agree that the
warranty of quality is in the warranty of
hidden defects. I agree with Prof. De Leon,
Prof. Vitug and Prof, Baviera that there is a
warranty of quality.

WARRANTY OF FITNESS FOR A
PARTICULAR PURPOSE
The thing bought may not actually have any
defect and for 1 million buyers it would be fit
for their purpose. However, it may not be fit
for the purpose of 1 buyer and if all the
requisites for this warranty are present, then
he may hold the seller liable for breach of
warranty of fitness for a particular purpose
although there is no hidden defect but it is
not fit for the purpose of the buyer.
In order for the seller may be held liable:
1. The buyer has to inform the seller of
the particular purpose for which the
thing is to be use and
2. The seller manifested that the thing
would be fit for the purpose and the
buyer relied on such representation
of the seller.

Note: If the thing is sold under the trade
name there can be no warranty of fitness for
a particular purpose.

WARRANTY OF MERCHANTABILITY
It pertains to the fact that it is fit for the
general purpose. If the thing was sold by
description or by sample, it is considered
that there is such a thing as warranty of
merchantability.

SALE OF ANIMALS WITH DEFECTS
RULES:
1. The defect is a redhibitory defect it is
such kind of defect that even by
examination of expert it cannot be
discovered.

Q: If one of the animals has redhibitory
defect, can the buyer rescind the entire
contract pertaining to all the animals?
A: G.R.: No. He can only rescind the
contract pertaining to the animal with
redhibitory defect. He cannot rescind the
entire contract pertaining to all animals.
Exception: If he can prove that he would
not have bought the others had he known
the defect of one then he can rescind the
entire contract.

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

Instances whether there would be no
warranty against hidden defects and
therefore caveat emptor may be invoked:
1. Sale which is an as is where is sale
which means sale where it is found xxx
bahala ka sa buhay mo if you want to buy
the thing and you cannot later on claim that
there were hidden defects. (Faye: pls.
research the complete meaning of as is
where is sale. Atty. Uribe will ask the
meaning. !)
2. Sale of 2
nd
hand items
3. Sale of animals in fairs
4. Sale in public auction

Note: There would still be warranty against
eviction.
Note: Rules on warranty also apply to
judicial sale.

Q: In sale by authority of law or in
execution sale, can there be breach of
warranty against eviction?
A: Yes. The judgment debtor and not the
sheriff shall be liable.

The law would specifically exempt certain
persons from liability for breach of warranty
like sheriff, auctioneer, mortgagee, pledge

November 2008
20
and other persons who sell by virtues of an
authority of law like notary public because
they are not really selling for themselves,
they are selling on behalf of another person.

VENDEE
1. Obligation to accept the thing
delivered.
2. Obligation to pay the price (if
warranted, with interest)

1. Obligation to accept the thing
delivered

Q: If the buyer received the goods
delivered, does it mean that he already
accepted?
A: No because receiving is preliminary to
accepting. In fact, this is consistent to the
right provided by law to the buyer which is
the right of inspection or the right of
examination. Thereafter, he may reject the
goods if defective.

2. Obligation to pay the price
Q: When?
A: (1) As stipulated
(2) If there is no stipulation, it would
be at the time and place of delivery.

Right to Inspect / Examine
This may be waived.
Example: C.O.D. arrangement.

MACEDA LAW
Study Maceda Law and its essential
features (see book of Prof. Baviera)

Q: Are the remedies under the Maceda
Law alternative? Can the buyer be able
to exercise 2 or more remedies all at the
same time?
A: Yes. Remedies under the Maceda Law
are cumulative.

REMEDIES FOR BREACH OF
CONTRACT
REMEDIES OF AN UNPAID SELLER
(ARTICLE 1526)
(1) Right to retain the thing in his
possession (possessory lien)
(2) Right of stoppage in transitu / right to
resume possession of the goods
(3) Right of resale
(4) Right to rescind

Q: Are there other remedies aside 1526?
A: Yes. The seller may opt to file an action
for specific performance or an action for
damages.

Unpaid seller is one who has not been
fully paif of the price.

Note: remedies of the unpaid seller are not
necessarily alternative. The right of resale
and the right to rescind may only be
exercised if the seller has possessory lien.

POSSESSORY LIEN
Q: Why is it called possessory lien?
A: because there another lien in the law.
This is the lien under the rules on
concurrence and preference of credit.

Note: The buyer is not required to be
insolvent.

Q: When would the seller be considered
to have lost his lien?
A:
(1) If he waives his right
(2) If the buyer lawfully obtained
possession over the goods
(3) When the thing is delivered to a
common carrier and the seller
did not prefer his ownership and
possession over the goods.

STOPPAGE IN TRANSITU
Requisites:
(1) Insolvency of the buyer
(2) The seller must have parted
possession over the goods
(3) The goods must be in transit

How right is exercised:
(1) By obtaining actual possession of
the goods

November 2008
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(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 1
st
sale. The ownership of the 1
st

buyer will be terminated and such
ownership will be vested to the 2
nd

buyer
2. Rescission or cancellation will
extinguish COS
3. Redemption

Kinds of Redemption
1. Conventional
2. Legal

November 2008
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LEASE

Note:
Read the Definition of Lease under
Articles 1643, 1644, 1713.

Consider also on Formalities: Articles
1647, 1724 in relation to 1403 on
Statute of Frauds and 1403, 1878 on
Agency to Lease.

Assignment and Sublease: Articles
1649, 1650

Implied new lease or tacita recunducion:
Article 1670 (important)

Rights and Obligation of the Lessor and
Lessee: Articles 1673, 1678, 1680, 1723
(take note several questions in the bar
have appeared under these provisions)

Period of the Lease if the parties failed
to Fixed the Period: Articles 1682, 1687

Rights of Third Person: Article 1729 (ex:
rights of owner of materials against the
owner of the building)

Note: The first thing to consider in lease is
to consider the kind of lease.

Kinds of Lease:
1. Lease of Things
2. Lease of Work or Service
3. Lease of Right

Note: In lease of Service, there are four (4)
of them but three (3) will not be covered by
Civil Law, which are Household Service and
Contract of Labor (covered by Labor Law),
and Contract of Carriage (covered by
Commercial Law). The only kind of Lease
of Service that will be discuss under the
Civil Law is the Contract for a Piece of
Work.

Definition:

Q: If a party binds himself to give
another the enjoyment or use of thing,
does that make the contract one of lease
of things?
A: No, the most important distinction here
with that of commodatum is that in lease, it
must be for a price certain, otherwise if
there is no valuable consideration for the
use or enjoyment of the thing it will be
commodatum.

Distinguish a Contract for Piece of Work
from Contract of Agency
Read: Frensel vs. Mariano

Note: In Agency, the control of the principal
over the agent is so pervasive that the
principal can control not only the result but
also the manner and method of the
performance of the obligation which is not
present in this case and therefore Merit was
not considered an agent of Mariano.

Q: As to the relationship of the taxi
driver with his operator, is this a contract
of lease?
A: SC, ruled that this is in fact a lease but
not a lease of thing, but lease of service
specifically an employment contract, this is
because of the control of the operator over
the taxi driver, as to when, what time the
drive operates the vehicle.

Note: Again, to distinguish lease contract
from other legal relationship you have to
consider the characteristic of the contract.
The best way to remember the kinds of
contract is to know by heart what are the
real contract (mutuum, commodatum,
deposit, pledge) and formal contract
(antichresis, donation). Aside from that it
may be safe to consider as a rule all the
other contract as consensual contract,
where no particular form is required except
in exceptional case: e.g. sale of large cattle.
As a rule lease, therefore is a
consensual contract by mere meeting of the
mind as to the object and to the
consideration the contract is perfected.

November 2008
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Note: Lease of things is not essentially
personal.

Heirs of Fausto Dimaculangan vs. IAC.
Upon the death of parties like death of
lessee, the contract is not thereby
terminated. The heirs of the lessee may
continue to occupy the premises by virtue of
the lease because it is not extinguish upon
death of lessee.

Characteristic of Lease of things
! Consensual Contract
! Onerous
! Bilateral
! Nominate
! Principal.

Essential Requisites of Contract of
Lease
1. CONSENT
2. OBJECT
Q: In lease of things, may a consumable
thing be the subject matter of lease?
A: Normally when a consumable thing is
use in accordance with its nature it is
consumed, as a rule therefore consumable
things cannot be the subject matter of lease
of things. The exception is, when the use of
the things is only for exhibition, or when
they are accessory to an industrial
establishment then it may be a subject of
lease.
3. CAUSE

FORMALITIES
Lease of Service there is no particular
form required by law for the validity of the
lease not even for the enforceability as a
rule.
Read: Donald Dy vs. CA

Lease of Things certain provision of the
law which requires certain forms to be
enforceable.

Note: the problem in lease would normally
be a combination of an agency and lease.

BE: Agreement for the repair of a private
plane and for a certain sum of money,
however additional work was requested
by a person who has the authority of a
duly recognize representative of the
owner of the plane and the request was
merely verbal, when the additional work
was completed, the one who rendered
the work demanded additional payment,
the defense raise was under 1724 in
order that a claim for additional payment
for the additional work, the agreement
for the additional work must be in writing
and the changes should be authorized in
writing
SA: The suggested answer of UP will
sustain the defense because of 1724; such
change not being authorized in writing, the
request was merely verbal then the claim
may not prosper.

RIGHTS AND OBLIGATION OF THE
LESSOR

As to necessary repairs of the thing
lease, this is an obligation of the lessor,
under the law the lessor is oblige to make
the necessary repairs.

Read: Gonzales vs. Mateo

LESSEE

Note: Two (2) favorite articles are 1649
pertaining to assignment of lease, and 1650
on sublease.

The question in the Bar may be as
simple as may a lessee sublease the
property without the consent of the lessor
and what are the respective liabilities of the
lessee and sublessee.

Articles 1649 and 1650 would tell us
that a lessee may not assign his right on the
lease without the consent of the lessor
however he may sublease the property in
whole or in part even without the knowledge
of the lessor as long as he was not
prohibited from subleasing the premises.

November 2008
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Read: Malacat vs. Salazar
Frensel vs. Mariano

TERMINATION OF THE LEASE

BE: Discuss the effect of death of lessee,
lessor, agent and principal.
SA: In a lease of thing, death of the lessee
does not terminate the contract. A contract
of lease is not essentially a personal
contract therefore upon the death of the
lessee, it may be continued until the
expiration of period of the lease by the
heirs. (Case: Heirs of Dimaculangan vs.
IAC)

IMPLIED NEW LEASE
Note: one of the most favorite in the bar
exam.

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?
SA: Yes, there was an extension known
was implied new lease. However, with the
implied new lease it does not mean that all
the terms and condition of the contract in
the original lease continue also. First as to
the term, under the law, the term of the
renewed lease would not be the term
agreed upon but only be of a period
depending on the manner the rentals are
paid. If the payment is on annual basis, the
renewal would only be for a year and if
monthly payment of rental is made, the
implied new lease would only last for 30
days.
As to the option, it was renews, SC
held, in an implied new lease, only those
terms and conditions which are germane in
a contract of lease are deemed renewed as
to the rest like option to buy, will not be
considered renewed. Even in the facts of
the case itself, it was stipulated that the
option may be exercise within the period
agreed upon (3 years).

November 2008
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AGENCY

Definition 1868, 1874 and 1878- formalities

Coz a form is required for the validity or for
the enforceability of the contract entered by
the agent-1878, 1874

1892- pertain to appointment of the
substitute- effect- may the agent
nonetheless be held liable for the loss that
incurred by the principle as the result of the
appointment of the substitute.

Other provisions pertain to the right and
obligations of commission agent or more
importantly the guaranty commission agent-
1907-1908

Effect of death-1919, 1930 and 1931
Either of the agent or principal

Revocation-kind of agency- agency coupled
with interest-1927

BE: A asked her best friend to B buy for
her certain items in a grocery store. Is
there a nominate contract created
between A and B?
SA: Better answer, if B agreed to the
request of A, an agency relationship has
been created, a nominate contract has been
created.

Read: Quiroga vs Parsons

Distinguishing contact of agency from other
contract and other legal relationship.
Consider the characteristics of a contract of
agency as a contract and as a legal
relationship business organization.

Read: Lepanto Mining case
Mariano case

Some authors would classify contract of
agency into three, not concepts.
1. Actual agency
2. Apparent / dormant
3. Estoppel

1. Estoppel
Kang case
Facts: Flores appears to have full control of
a restaurant, owned by Kang and in the
administration of the restaurant he bought
certain items from Mack, items needed for
restaurant but a portion / price to be paid,
not by Flores, so Mack ( seller ) went after
the owner of the resto. The only defense
raised by the owner was that Flores was not
his agent.
Take note: it is very difficult to prove actual
agency, because an agreement between 2
persons, eh kung verbal lang ang
agreement dun, how would you be able to
prove, the owner of the restaurant can be
held liable by estoppel because he cloth
Flores with full power as if he has the
authority to buy those items necessary for
the administration of restaurant aside from
that Mack was able to prove pieces of
evidence like in the lease agreement over
the building where restaurant was located
and comes the owner of the restaurant as
lessee and Flores sign as an agent of the
lessee with all this the
Held: The owner of the restaurant is liable
under the Principle of Estoppel.

2. Apparent / Ostensible
Q: A letter was sent by B to X, informing
X that A has the authority to enter into a
contract with X specifically to obtain
goods from X, like copra, abaca which
goods will be sold by A, after the sale a
portion can be deducted as a
commission and the restaurant to be
delivered to X. after a certain period, the
goods obtain by A from X remained
unpaid. In other words A will get the
goods from X, A did not deliver the
proceeds of the sale. X demanded
payment from B. The defense of B was
as of that moment from that certain
period he has already revoked the
authority of the agent and therefore be
bound by any contract entered into by A
in representation of B with 3
rd
person. Is
the claim of B tenable?

November 2008
26
SA: No. 1873 so far as 3
rd
person are
concern, this notice itong letter nya kay X
remain in full force and effect until it is
rescinded in the same manner it was given.

3 Actual agency
The law itself classify actual agency into as
manner of creation, express / implied. There
is no problem with express agency.
3. Express agency-it is a kind of
agency the consent of both parties
were expressly given.
4. Implied agency- were the consent of
one parties was only impliedly given
on the part of principal- the leading
case is Dela Pena vs. Hidalgo

Q: If a person was asked to administer
the property of another to sell the
property, and he said nothing- by his
silence, by his inactions may be deemed
accept agency?
A: Not necessarily. Under the law, you have
to make distinction to determine the
scenario under which the said appointment
was made, okie! The law would say when
the 2 parties are absent, and when the 2
parties are present.
When 2 parties are absent- 1 is in Manila
and the other is in Cebu.
When 2 parties are present- present in the
same room

(a) 2 persons present- present in the
same conference hall
(b) If 2 persons are in different place,
one in Manila and the other one in Cebu

Compensation
As to the compensation in a contract of
agency consider if the agency is gratuitous
or onerous.

Read: 1909 - the liability of the agent for
damage to the principal due to his
negligence or even bad faith or fraud
committed against the principal may be
mitigated if the agency is gratuitous in
character.

BE: Scope of authority of the agent
whether it only pertains to the acts of
administration or acts of anu yun
dominion?
SA: Under this provision 1877 if the agency
is comes in general term this only comprise
acts of administration even if the principal
beholds power to the agent or it is stated
that the agent may execute any act as may
be deemed appropriate. That will still be an
agency pertaining to act of administration.

As to form, the law is clear that it may be
oral however the law may require a
particular form.

ESSENTIAL ELEMENTS OF A
CONTRACT OF AGENCY
Read: Rallos case
The SC enumerated the essential elements
or the alleged essentials elements of a
contract of agency.
1. Consent
2. Execution of the juridical act-
subject matter
3. Acts within the scope of authority
4. The acts must be in
representation of the principal
This are allegedly the essential element
again some authors would discuss in their
books with due respect to the ponente of
this case, medyo mali mali ang
enumeration, first there was nothing
mention about the cause or consideration
as a contract, a contract will never validly
have a cause or consideration well it may
be liberality pwede naman cause yan but
there must have a cause if only for that the
enumeration be defective more than that
that last 2 mention that the agent act within
the scope and that the agent must act in
representation are not essential elements of
a contract of agency they are actually
obligations of agent which means they have
been already perfected of contract of
agency, no obligation will arise kung void
ung kontrata kung wala pang valid contract,
so essential elements are only those
elements necessarily for the validity of the
contract, once the contract is valid then the
obligations will arise even if the agent

November 2008
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acted outside the scope of authority
does it mean that the contract of agency
is void? Of course not, he can be held
liable for acting outside the scope of
authority or if he acted not in contemplation
of the principal, does it mean that there
was no agency at all? Of course not, there
is a contract of agency. Under the rule the
consequences if the agent did not act in the
representation of the principal.

PARTIES
Going to the consent of the parties, well 1
author claims that there are 3 parties in a
contract of agency that is totally wrong!
There are only 2 parties in a contract of
agency the principal and the agent, however
in problems involving agency there may be
there would be normally three persons
involve, the third persons with whom the
agent transacted, no longer part of the
concept agency, this is the agency, the
contract entered into between by the
principal and the agent, but when the agent
entered into a contract it may be a sale,
lease or other contract and the 3
rd
person is
not a party to this contract, the 3
rd
person is
a party to a 2
nd
contract, that again the
parties is the principal and the agent, they
may be called in another names the
principal- employer, constituent, chief; the
agent may be called attorney-in-fact, proxy,
representative.

OBJECT
As to the object of the contract of agency -
this is the execution of juridical act.

FORM
Agency may be oral. It does not matter, the
contract of agency would be valid but the
parties even if it is by verbal agreement,
however any effect of the verbal
authorization, the agreement between the
agent and the principal if it was only verbal
will be in the contract entered into by the
agent.
Read 1874

Contracts which require a SPA see
codal
Jimenez vs. Rabot
Facts: Jimenez was the owner of a certain
parcels of land in Pangasinan, he was then
in the province of North Luzon, he sent a
letter to his sister asking his sister to sell
one of his parcels of land and with that letter
the sister indeed sold one of his parcels of
land to Rabot, however the sister did not
remit the proceeds of th sale, binulsa lng
nya, so when Jimenez went back to
Pangasinan, he demanded the property,
yun ay na kay Rabot na, so he filed an
action against Rabot, the defense raised by
him that the letter would not be sufficient a
power of attorney to bind him as a principal
the sale of the parcels of land.
Held: A letter suffices as a power of
attorney. When you sent a letter to your
brothers or sisters you do not notarize first.

Obligations of the Agent:
1. To carry out the agency
2. In carrying out the agency, there are
2 obligations of the agent, he should
always remember:
a. to act within the scope
authority
b. to act in behalf of the
principal

a. Acting within the scope of authority
Q: how would you know if the agent was
acting within the scope of authority?
A: Be guided by the power of authority. In
fact as a 3
rd
person, you can demand the
power of authority, so that you will know
whether in fact he had authority to enter into
a contract but sa totoo lng there are some
SPA which would be subject of the case up
to the SC pertaining to the scope of
authority of the agent.

Read: Linal vs. Puno

Read: Insular vs. PNB

BE: A authorize B to borrow sum of
money from any bank and he also
authorize B to mortgage specific
property specific parcel of land to secure
that loan what B did he borrow money

November 2008
28
for himself from a certain bank without
disclosing his principal, later on he
defaulted the question was can the bank
go after the principal?
A: Of course No, the contract is between the
agent and the bank only the principal has
nothing to do with the contract, under the
facts, the agent borrow for himself sya
talaga, however if you have read the
suggested answer, my 2
nd
paragraph to the
effect that the bank can at least foreclose
the mortgage they can after the property of
the principal. If you remember the question,
di tinatanong ng examiner can the bank go
after the principal as far as the thing is
concerned. The only question pertains to
the payment of loan. Another thing of the
suggested answer it is totally wrong, under
the facts, the principal authorize the agent
to mortgage the property for the loan that
will be obtain by the agent in the name of
the principal.

Q: If indeed he mortgaged the land for a
loan in his name, would that mortgage
be valid?
A: Definitely not. If he mortgaged it as a
mortgagor the mortgage is void, the law
requires that the mortgagor must be the
absolute owner of the thing mortgage.

Q: On other hand even if the agent
mortgaged the thing on behalf of the
principal, the principal is the mortgagor,
would that be a valid and binding
mortgage as against the principal?
A: Also not, also his authority to have the
property to mortgage to secure a loan, not
to secure any other persons loan and that
therefore it cannot be within the authority of
the agent and therefore any foreclosure of
such mortgage will not prosper.

Q: If the agent acted within the scope of
his authority and in representation of the
principal, who will be bound in that such
contract?
A: Aside from the 3
rd
person, it will be the
principal because again the agent merely
representing the principal. However, it is
possible for the agent himself to be
bound in such contract be held liable
under such contract?
A: Yes, one if he expressly binds himself to
that contract.

Read: Domingo vs. Domingo

Read: US vs. Reyes

Obligation to render an accounting
If this time the principal authorize the agent
to sell his car for 300k, the description of the
car was mention in the SPA at least 300k
however before the agent would sell the car,
the principal called him by phone instructed
him to sell the cart in QC to a member of
IBP member chapter, instead of selling the
car in QC IBP member chapter he sold the
car in Manila not known by the principal for
300k, (1) Can the principal recover the
car from the buyer if that car is already
delivered to the buyer? (2)Any remedy
provided by the law to the seller or to the
principal?
1. It depends, if that buyer has no
knowledge of that instruction of the
principal then he has all the right to
retain the car and that sale will be valid
and binding as against the principal. As
provided under Art. 1900 so far as 3
rd

persons are concerned they only rely on
the SPA as written they have no
obligation to inquire on the special
instructions made by the principal which
are not mention in the SPA, eh wala
naman dun sa SPA na it will be sold to
an IBP member chapter in QC.
2. Go after the agent or damages if there is
any damage sustain by him for his
failure to follow the instructions of the
principal.

Read: 1898

Appointment of Substitute
Read: Substitute vs. Sub Agent (Prof. De
Leons book)

November 2008
29
PARTNERSHIP

BE: A, using all his savings in the total
amount f Php2,000, decided t establish a
restaurant. B, however, gave Php4,000
as financial assistance with the
agreement that B will have 22% share of
the profits of the business. After 22
years, B filed an action to compel A to
deliver to him his share in the profits
claiming that he was a partner. A denied
that B was his partner. Is B a partner of
A?
SA: Yes, B was a partner in the business
because there was a contribution of money
to a common fund and there was an
agreement to divide the profit among
themselves.

Atty. Uribe: I do not agree with the answer.
Id rather agree with the alternative answer.
WHY: In the alternative answer as can be
seen from the facts, B gave Php4,000 only
as a financial assistance. It was not a
contribution to a common fund. As such, he
actually became a creditor of A. Therefore,
he did not contribute to a common fund.

Q: What about the stipulation that B will
have 22% share of the profits?
A: The law on partnership is very clear that
a sharing in the profits does not necessarily
does not result in a partnership contract
because the sharing of the profits may only
be a way of compensating the other person,
in fact that can be a mode of payment of the
loan. Kasi yung loan, supposedly pwede
payable every month with a fixed amount.
But mas maganda ang agreement na ito,
22% of the profits, so that if walang profit sa
isang taon, wala munang bayad. Di ba
thats reasonable agreement. Only kung
may profit, saka lang babayaran. Kumbaga,
friendly loan ito. The sharing in the profits as
expressly provided by law does not
necessarily result in a partnership contract.
Thus, it can be said that really B was not a
partner but is actually a creditor of A.

Definition of Partnership

Q: What if two or more persons agreed
to put up a partnership but they never
intended to divide the profits among
themselves, would that still be
considered a valid partnership contract?
A: Yes. Under the second paragraph of the
article, two or more persons can form a
partnership for the exercise of a profession.

Partnership vs. Co-ownership
Consider the essential features:
CREATION
Partnership is obviously created by
agreement. Co-ownership may be created
by agreement, but it may also be created by
operation of law. In fact, by express
provision of the law, the fact that there is co-
ownership does not necessarily mean that
there is a partnership existing between two
persons.
Ex.: two persons may inherit a property from
their father or mother, and under the law,
they may be considered as co-owners of the
same property.

PURPOSE
Partnership: either to divide profits or
exercise a profession.
Co-ownership: Common enjoyment of the
thing or right owned in common; merely to
enjoy the property, thus they may have
different purposes.

A very important feature of partnership in
relation to co-ownership, it has a juridical
personality, separate and distinct from the
individual partner which is obviously not
present in co-ownership. In co-ownership,
they have their respective personalities and
no new personality will be created.

POWERS OF THE MEMBERS
Partnership: Unless otherwise agreed upon,
each partner is an agent of the other
partners and of the partnership.
Co-ownership: As a rule, a co-owner cannot
act as an agent of the other co-owners
unless otherwise agreed upon between the
co-owners.
PROFITS:

November 2008
30
Co-owner: Mas malaki ang profits, mas
malaki ang interest. But not necessarily in
partnership, because the sharing in the
profits may be stipulated upon by the
parties. Pero kung walang stipulation, it may
be based on the capital contribution.

Q: Will death extinguish co-ownership?
A: No, Kapag namatay ang isang co-owner,
his heirs will be the co-owners of the
surviving co-owners at pwedeng tulou-tuloy
lang yan. However in partnership, if it is a
general partnership, if one of the partners
dies, the partnership is dissolved.

ESSENTIAL ELEMENTS OF
PARTNERSHIP
Like any other contract, it should have the
three essential requisites:
1.) Consent
2.) Object: to engage to a lawful activity,
whether a business or profession.
3.) Cause or consideration: the promise
of each partner to contribute money,
property or industry

Consent of the contracting parties:
The rules in contract would be
equally applicable but, just like in sales and
lease, there are persons who are prohibited
from entering into a contract of partnership.

Object
To engage in a lawful activity.

Q: If the object is to engage in a lawful
activity, necessarily the partnership is
valid?
A: No. There are specific business activities
wherein the law would require particular
business organization which may engage in
such business activity, specifically the
Corporation Code which provides that only
corporation may engage in insurance and
banking business, therefore there can be no
partnership engaging in such business:
banking and insurance.

Cause
The promise of each partner to contribute
either money, property or industry.
Formalities
Q: If the agreement of the parties to a
contract of partnership was only a verbal
agreement, would that be a valid and
binding contract? Will there be a juridical
personality created?
A: As a rule, yes. Even if under Art. 1772,
the law provides that every contract of
partnership, having a capital of more than
Php3,000 or more, shall be in a public
instrument and must be registered with the
SEC.
The 2
nd
paragraph of Art. 1772
provides that despite failure to comply with
the requirements in the preceding
paragraph, this is without prejudice to the
liability of the partnership and the individual
partners to third persons. From that article
alone, it is clear that despite non-
compliance with the requirements of the law
as to form, there is a partnership created,
because this is without prejudice to the
liability of the partnership (kung may
partnership). But more directly, Art. 1768,
the law provides, the partnership has a
juridical personality separate and distinct
from that of each if the partners, even in
case of failure to comply with the
requirements of Art. 1772, par.1.
After all, a verbal partnership contract is
valid and binding between the parties.

Consequences: separate and distinct
personality
1.) It can own its properties;
2.) It can sue and be sued;
3.) It may be found guilty of an act
of insolvency;
4.) It may be dissolved for
committing an act of insolvency.

Read: Campos-Rueda vs. Pacific
Commercial

CLASSIFICATION OF PARTNERSHIP:
As to the object of the partnership is only to
determine whether a person may enter such
partnership, there is a need to distinguish
whether a partnership is a UNIVERSAL or
PARTICULAR partnership

November 2008
31
2 Kinds of Universal Partnership:
1.) Universal Partnership of Property
2.) Universal Partnership of Profit

TERM OF PARTNERSHIP:
Q: If the partners failed to fix a period,
does it mean that the partners agreed a
partnership at will and may be dissolved
at any time without any liability so long
as they acted in good faith?
A: No, because a partnership may be a
partnership for a particular undertaking even
if no period was fixed by the parties.
In one case, a partner, dissolved a
partnership, claiming it to be a partnership
at will, the partnership being involved in a
bowling business. The SC ruled that even if
the partners failed to fix a period, the
partnership cannot be considered as a
partnership at will because there was a
stipulation in the partnership agreement that
the debt of the partnership shall paid out of
the profits that will be obtained by the
bowling business. Thus, after all, it cannot
be dissolved at will, for the debts will have
to be paid. Therefore, the SC ruled that the
said partnership is a partnership for a
particular undertaking.

CLASSIFICATION OF PARTNERS:
According to the liability of the partners:
1.) General
2.) Limited
This classification is relevant only in limited
partnership.

Note: A limited partner cannot be held
personally liable for partnership obligations
but there are exceptions

As to the contribution:
1.) capitalist
2.) industrial

Q: An industrial partner, may be a
general partner?
A: Yes. A capitalist partner may either be an
industrial or general partner.

Q: May an industrial partner be a limited
partner?
A.: No. A limited partner can only contribute
money or property. He cannot contribute
service.

Q: But can a partner be both capitalist
and industrial?
A: Yes, he can contribute both money and
industry. He can be both capitalist and
industrial and there will be consequences to
that.

PROPERTY RIGHTS
3 Major property rights of a partner:
1.) right in specific partnership property;
2.) interest in the partnership; and
3.) the right of the partner to participate in
the management of the business of the
partnership.

Property rights considered as minor:
1.) right to have access to the books of
the partnership;
2.) right to demand for a formal
accounting.

TYPES OF MANAGEMENT:
1.) Solidary Management:
-without specification as to each
others duties or without stipulation that one
of them shall act without the consent of all.

2.) Joint Management:
-two or more managing partners with
the stipulation that none of them shall act
without the consent of all others. The
incapacity of one of the partners, or his
absence will not be a valid ground not to
obtain his consent to a contract. It has to be
by unanimous consent, unless, in obtaining
his consent (he is absent or incapacitated) it
would result in irreparable damage to the
partnership, then the consent of the absent
or incapacitated managing partner may be
dispensed with. This is also known as
management by consensus.

3.) If there was management
arrangement agreed upon between the
partners, each partner is considered as an
agent of the partnership.

November 2008
32
Into these arrangements, if only one partner
is appointed as a manager, he can execute
any acts of administration even if opposed
by all the other partners.
Ex. In a partnership of which the business is
into buying and selling cars, the managing
partner decided to buy a vintage Mercedes
Benz, to the opposition of the other partners
for they consider it bad investment, will the
decision or the act of the managing partner
in buying the said car bind the partnership?
Ans.: Yes, because such act is merely an
act of administration. The problem is, if the
managing partner continues to not consider
the sentiments of the other partners, he may
be removed as a managing partner.
The question now is, can he be easily be
removed?
Ans.: No. The requirements for the removal
of a managing partner would depend on
whether he was constituted as such in the
articles of partnership or he was merely
appointed as managing partners after the
constitution of the partnership.
If he was constituted as a managing
partner in the articles f partnership, he can
only be validly removed under two
conditions:
1.) there has to be just cause; and
2.) by those partners having
controlling interests.
Absent one of these conditions, he cannot
be validly removed. In fact, even if there is
just cause, if the managing partner controls
51% of the partnership, he can never be
removed.

However, if he was appointed as a
managing partner only after the constitution
of the partnership, he can be validly
removed even without just cause, so long
as it was done by those partners having
controlling interests.

OBLIGATIONS OF THE PARTNERS
AMONG THEMSELVES AND AS TO THE
PARTNERSHIP AND IN CASE OF NON-
PERFORMANCE OF THE OBLIGATION

3 Obligations of the partners:
1.) To make good his promised contribution;
2.) Fiduciary duties; and
3.) To participate in the losses incurred by
the partnership business.

To make good his promised
contribution:
A. Money:
In order to know the remedies that
may be availed of by the non-defaulting
partners and the partnership, it must be
known first what was promised by the
partner, whether he promised to contribute
money, property or industry.
If the partner promised to contribute
money, for instance, the partners agreed to
contribute Php1 Million with 4 partners,
without an agreement as to respective
amount to be contributed, the law provides
that they will have to share equally. Thus, in
this example, Php1 Million will have to be
divided into 4 or the respective contribution
will be Php250,000. If one partner failed to
make good his promised contribution which
is a sum of money, he can be held liable by
the non-defaulting partners up to the
amount promised plus interest. If no rate
was stipulated by the parties, it will be the
legal rate of 12%, because this is
forbearance in money. Aside from paying
the interest, which is unusual, not only will
that defaulting party be held liable to pay
interest, he will also be liable to pay
damages.
Normally, in obligations involving
money, in case of damage incurred by
another party, the liability will only be
payment of interest. In partnership, not only
will he be liable to pay interest, but also of
damages.

Remedies that may be invoked by the
non-defaulting partners:
1.) Specific performance- the other
partners can compel him to make
good his promised contribution.
2.) Dissolution- may be an option by
the non-defaulting partners, if that
is the only amount that they are
expecting for the partnership.

November 2008
33
B. Property:
If a partner promised to contribute property,
it must be determined as to what was really
contributed: was it the property itself or the
use of the property.
If it was the ownership of the
property that was contributed then he would
have the obligation to deliver and transfer
ownership, aside from that, under the law,
he would have the obligation to warrant the
thing.

Q: Before the delivery of the thing to the
partnership, who will bear the loss?
A: The partner will bear the loss. The
partnership will bear the loss when the thing
is already in its possession

C. Industry
Q: If a partner fails to render service as
promised, will specific performance be a
remedy?
A: Definitely not. It would be a violation of
his rights against involuntary servitude. The
remedy would be to demand for the value of
the service plus damages. It can be easily
done because there is an industry rate.

Fiduciary Duties:
The duty to observe utmost good
faith, honesty, fairness, integrity in being
with each other. This duty commences even
during the negotiation stage.

Test to determine whether there was a
violation of this duty:
Whether the partner has an
advantage himself at the expense of the
partnership. If he has such advantage at the
expense of the partnership, then there is a
breach of the fiduciary duty. There need not
be a proof of evil motive so long as he has
this advantage at the expense of the
partnership.
This duty lasts, normally, until the
termination of the partnership.

Q: May a partner may be held liable for
breach of fiduciary duty even after the
termination of the partnership?
A: Yes. The SC held that even if the act of a
partner was made after the termination of
the partnership, if the foundation of that act
was made during the existence of the
partnership, that can still be considered as a
breach of fiduciary duty. In other words,
pinaghandaan na nya yun act during the
existence of the partnership, however, it
was executed only after the termination of
the partnership.

Participate in the Losses:
Q: What will be the share of the partner
in the losses incurred in the
partnership?
Ans.: Consider first whether there was a
stipulation as to losses or there was no
stipulation.

OBLIGATIONS OF PARTNER RE: 3
RD

PERSONS

Q: When would a contract entered into
by a partner bind the partnership?
Ex.: If a partner went to a furniture shop to
buy furniture the of which is Php100,000,
and such amount remained unpaid, can the
seller demand payment from the
partnership?
A: It depends as to whether the contract
was entered into in the name of the
partnership, for the account of the
partnership, under its signature, by a
partner who is authorized to enter into that
contract to bind the partnership. Thus, in
this example, if in the agreement the buyer
was the partner himself and not the
partnership, that partner should be held
liable, for the furniture was not bought in the
name of the partnership.

The problem, if the contract would be
binding in the partnership, then would be,
whether the partner who represented the
partnership had the authority to bind the
partnership.
Normally, if a partner would enter
into a contract, a partnership resolution is
not necessary. Whether or not a contract
would bind the partnership would depend on

November 2008
34
the nature of the act of such partner and the
nature of the business of the partnership.

Q: Concretely, if a partner bought a
complete set of SCRA in the name of the
partnership and signed by that partner,
would that contract bind the partnership
for the set was bought in the name of the
partnership?
A: It would depend on the nature of the act
and the nature of the business of the
partnership. In this example, the partner
bought the set of SCRA, pero naman, and
business ng partnership ay restaurant, hindi
naman ata na i-bind nya ang partnership to
such contract, ang negosyo nila restaurant.
!
But the seller would raise the
defense, hindi ko naman alam na
restaurant yung business, e ang
nagrepresent ng partnership si Atty. ABC,
so akala law firm. Is that a valid defense?
Ans.: No. The SC would tell that the third
party contracting with the partnership has
the obligation to know at least the nature of
the business of the partnership. In fact, he
can demand for the presentation of the
articles of partnership in order for the third
party to know the nature of the business of
the partnership. For, if this time, the
partnership is a law office, and the partner
bought a set of SCRA, that act of buying a
set of SCRA will be considered apparently
for carrying the business of the partnership
the usual way. Therefore, that contract will
bind the partnership.

DISSOLUTION, WINDING UP AND
TERMINATION
These are three different concepts. Upon
dissolution of the partnership, it is NOT
DEEMED dissolved. It will still have to go
through the process of winding up of the
affairs of the business of the partnership
before the partnership itself will be
terminated.

Q: When would there be a dissolution of
a partnership?
Under the law, there will be a
dissolution if there is a change in the
relation of the partners caused by any of the
partners ceasing to be associated in the
carrying on of the business of the
partnership. That will result in the
dissolution of the partnership. Again, if one
of the partners ceased to be associated in
the carrying on of the business of the
partnership, that will result in the dissolution
of the partnership.

CAUSES OF THE DISSOLUTION
1.) Extrajudicial;
2.) Judicial.

Extrajudicial causes:
1.) voluntary;
2.) involuntary.

Judicial causes are necessarily voluntary
because it is by application.

INVOLUNTARY CAUSES
Q: If one of the partners in a partnership
was elected a Senator, would this
dissolve the partnership by operation of
law?
Ans.: No.

Q: Even if it is a partnership of lawyers
or a law office?
Ans.: No.

Judicial Causes: Grounds:
1.) Insanity or incapacity:
-The courts require that it should be
permanent in character; and
-such incapacity or insanity must affect
the performance of such partner of his
obligations with respect to the
partnership business. In other words,
kung wala syang pakialam sa
management ng business ng
partnership, insanity or incapacity is not
a valid ground.

2.) Gross misconduct:
a.) wrongful expulsion;
b.) if one partner would refuse to
allow another partner in the management of
the partnership business, if he has such
right to participate in the management ;

November 2008
35
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.

November 2008
36
TRUST

2 KINDS:
1.) Express
2.) Implied

Implied Trust: 2 Kinds:
1.) resulting trust;
2.) constructive trust

The classification of trust into two kinds
(express and implied) and implied trust into
two kinds (resulting and constructive) would
be relevant in two concepts:
1.) applicability of the parole
evidence rule; and
2.) prescription, specifically,
acquisitive prescription.

N.B.: An express trust over an immovable
may not be proven by parole evidence. This
means that implied trust over an immovable
may be proven by parole evidence or
express trust over a movable, may be
proved by parole evidence.

EXPRESS TRUST

Q: May an express trust over an
immovable be proven by mere testimony
of the witness?
A: Yes, if the lawyer of the other party did
not object to the presentation of the witness.

IMPLIED TRUST

Resulting Trust
BE: A and B, brother and sister
respectively, inherited two identical
parcels of land. For purposes of
convenience, B, sister of A, agreed to
have the land registered in the name of
A. However, when the parcels of land
were registered in the name of A, A sold
one of the parcels of land to a buyer in
good faith and for value. Can B recover
the land from the buyer? What would be
the remedy of B?
SA: This question clearly pertains to a
resulting trust. This is specifically, Art. 1451
of the NCC.

B cannot recover the land from the buyer.
As discussed in Sales, a buyer who had
bought the property from a seller who has
no right to sell, but he has apparent
authority to sell, who appears to be the
owner and the buyer bought the property in
good faith, he will acquire ownership over
the thing even if the seller has no right to
sell.

Bs remedy would be to go after her brother
for breach of trust in selling the property
without her consent.

Resulting trust includes Articles 1448, 1451,
1449, 1450,1452,1453,1454.

Constructive Trust:
BE: A applied for the registration of a
parcel of land in his name. However, he
was called in New York to be a chef in a
hotel. So, he asked his cousin to follow
up his application for registration of land
while he was in New York. Instead of
ensuring the registration of the property
in the name of A, he had the property
registered in his (cousin) name. After
which, he sold the property to a thi4rd
person who bought the land relying on
the TCT. When A returned to the Phils.,
he learned of what his cousin had done.
May A recover the parcel of land from
the 3
rd
person who bought the property
in good faith and for value?
A: No.

N.B.: Art. 1456, 1455.

Q: In constructive trust, may the trustee
acquire the property by prescription by
mere lapse of time, without repudiation?
A: Yes.

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Civil Review2 Sales To Trust

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Faye Marie C. Martinez Chato Cabigas Jessica A.

Lopez Dian Rosapapan

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