From Atty. Deanabeth C.

Gonzales, Professor Rizal Technological University, CBET

Sept. 13, 2020

For everyone who will get hold of a copy or portions of this material:

This is posted online in the light of the pandemic covid-virus which adversely affect not just the
Philippines but the entire world. It is a privilege for me to teach part-time in a state university for
more than a decade now. I teach subjects in the College of Business and Entrepreneurial
Technology (CBET), subjects which are all part of the Board Exam for CPAs. Being a CPA-Lawyer,
I know for a fact that having a book is a must in studying any law subject. However, teaching in a
school where many students cannot afford to buy a book, my former students in the past years can
attest to the fact that I went out of my way to pay for books in advance and allow some students to
pay me in installments over the entire semester just for them to have a book. Nevertheless, some
students still cannot afford to buy a book, and attended classes by just walking to school. Being a
product of the Public School System in the Philippines, up to college in PUP Sta. Mesa for
Accountancy, I fully understand the money issue in buying books for many students.

With Social Distancing rules and hygienic issues during this pandemic, students are not encouraged
to make use of the university physical library and the online library is not yet that fully operational.
Hence, I decided to post portions of some books online to help those students who cannot afford to
buy a book, specially now that unemployment in the country has risen at all-time high.

Portions of the book were copied by former CBET students from the book Law on Sales, Agency
and Bailments by Hector De Leon (definitely not the latest edition) and from other books/sources
(i.e., Law on Sales, Agency, Pledges and Mortgages by Carlos Suarez, Alexander Suarez, 2008
ed., etc.) when they were asked to report in class. I wasn’t too happy to see reports which were
mostly copied from the books but I got the softcopies of their reports sent to my email. In the end, I
found myself having a softcopy of many portions of the books on Law of Sales. There is no
copyright infringement here because it is for educational purposes and only portions of the book will
be posted to help students who cannot afford to buy a book in this pandemic times.

Note that the postings will not cover the entire assignment given for each session or particular day.
Rather, the postings will explain only some portions of the assignment for the day based on the
books previously used by the former CBET students. There is no new Civil Code to date so that the
contents of the books still apply. I will not prescribe any book on Sales for this semester in view of
the financial difficulty for most families. Students can buy (but NO available new stock of books in
Rex Bookstore per my online search as of September 10, 2020 nor in National Bookstores) or
borrow any edition of the book on sales by any author. Each student must download the proper civil
code provisions from the internet, make use of whatever postings available in the group/class
messenger that can be helpful for your classmates or do own research. The postings are for
personal use of the student only and not for mass production.

With no intent to have financial gain, but only to help students from the less privilege sector of our
society during this pandemic times, I hope many will benefit from this posting.

It may seem to be a cliché that “The Youth is the Hope of the Fatherland,” spoken by Dr. Jose Rizal.
Yet, in times like this, we need to give hope and to assist all students who will face more challenging
times ahead.

More power to all Filipinos and to all educators who in this pandemic times make extra efforts to
educate all learners.
May God who made heaven and earth continue to bless us all through Jesus Christ, by
whose blood shed on the cross save us all. Maraming salamat po.

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The law on SALES, AGENCY, PLEDGE and MORTGAGES
(2008 Edition) By Carlos B. Suarez, Alexander Q. Suarez

CHAPTER 3 – OBLIGATIONS OF THE PRINCIPAL

(Articles 1910-1981)

ART. 1910. The principal must comply with all the obligations which the agent may
have contracted within the scope of his authority.

As for any obligation wherein the agent has exceeded his power, the principal is not
bound except when he ratifies it expressly or tacitly. (1727)

1. When principal is bound.

The principal is duty bound to comply with all the obligations contracted by his agent
provided the agent contracted:
a. In the name of the principal; and
b. Within the scope of his authority.

2. When principal is not bound.

a. If the agent acts in his own name, except when the contract involves things belonging
to the principal; or
b. If the agent exceeds his power, except when the principal ratifies it expressly or
impliedly.

3. Principal is bound by the agent’s dishonesty

As long as the agent acts within his authority, the principal is bound even by his dishonesty.
Thus, it was ruled that errors of a business agent in the payment of taxes shall bind the
principal who shall be held liable for a fraudulent tax return without prejudice to going after
the erring agent. (Dy Peb. Vs. Collector of Internal Revenue, L – 19375, cited in J. Nolledo;
Sales, Agency and Bailments).

ART 1911. Even when the agent has exceeded his authority, the principal is solidarily
liable with the agent if the former allowed the later to acts as though he had full
powers.

1. Liability of the principal to third persons.

a. If the agent acted within the scope of his authority and in the name of the principal, the
latter is bound by, and liable for, the acts of the agent.
b. If the agent acts in the name of the principal but in excess of his authority, the
principal is not liable, except:

1. If the principal allowed the agent to act as though he had full powers. In which
case, the principal and the agent are liable solidarily.

2. Where estoppel lies.

When the principal allows the agent to act as if he had full powers, he will be guilty of
estoppel. Both the agent and the principal are guilty; the agent because he knows that he
has no authority to act; the principal, because he permits him to act with knowledge that he
did not give him the authority to act.
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ART 1912. The principal must advance to the agent, should the latter so request, the
sums necessary for the execution of the agency.

Should the agent have advanced them, the principal must reimburse him therefor,
even if the business or undertaking was not successful, provided the agent is free
from all fault.

The reimbursement shall include interest on the sums advanced, from the day on
which the advance was made. (1728)

1. Expenses of Agency.

Expenses incurred in carrying out the agency must be for the account of the principal. The
principal is obliged therefore to advance, upon request, the necessary funds for the
execution of the agency. However, the parties may agree that the agent shall advance the
funds, in such a case, the agent is obliged, except if the principal is insolvent.

2. Advances made by the agent.

If the agent used his own money for the furtherance of agency, he shall be entitled to be
reimbursed of the expenses incurred, plus the interest from the day on which the advances
was made. This right is given to the agent even if the undertaking was not successful,
provided that:
a. The agent is free from all fault.
b. There is no agreement that the expenses shall be borne by the agent.

3. When interest will begin to run.

The law provides that the reimbursement shall include interest on the amount advanced
from the date of such advance or may begin from the commencement of the agency itself, if
the latter is of such a nature that it required the agent to set aside funds for its performance.
The reason : the agent in such case is deprived of the use of his money. (11 Manresa 542)

ART. 1913. The principal must also indemnify the agent for all the damages which the
execution of the agency may have caused the latter, without fault or negligence on
his part. (1729)

1. Agent is entitled to indemnity for damages caused by the execution of agency.

Damages suffered by the agent in the execution of the agency must be paid for by the
principal. This assumes that the agent acted within the scope of his authority and that he is
not guilty of fault or negligence.

2. Example:
P appointed A as his agent to sell P’s car for P10,000. While A was the driving the car,
going to a prospective buyer, a 6 x 6 truck sideswiped the car causing damage to the same
and to A because he was bodily injured. In this case, A may demand from P indemnity for
all the damage caused.

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ART. 1914. The agent may retain in pledge the things which are the objects of the
agency until the principal effects the reimbursement and pays the indemnity set forth
in the two preceding articles.

This rule is a protection to the rights for reimbursement as stated in the preceding article. It
is a pledge by operation of law. This is the same as the rule of retention until the price of the
sale is fully paid.

This lien or right of retention is in the nature of legal pledge. Hence, the agent may cause
the sale of the things retained in order to recover his claim. Should the proceed of such sale
is more than the amount due, the excess must be given to the principal.

ART. 1915. If two or more persons have appointed an agent for a common transaction
or undertaking, they shall be solidarily liable to the agent for all the consequences of
the agency. (1731).

Liability of two principals to a common agent.

The liability of two or more principals who appoints an agent for a common transaction is
solidary. Be it noted that that the transaction is a community of interest to all of them. Such
that the if these two principals appointed an agent with an undertaking distinct from one
another, or the powers were conferred at various times by each of the principals, or the
things or services as object of agency be different, there is lacking the community of interest
required for solidarity. (`11 Manresa 551)

Illustrative Case:
a. P1 and P2 appointed A to sell their specific car for P10,000, with 10% commission. A
executed the contract of agency satisfactorily and therefore he is entitled 10%
commission, that is, P1,000. Can A hold P1 or P2 liable for this amount?

Answer:
Yes, because the transaction is common, the principal’s obligation is solidary.

ART. 1916. When two persons contract with regard to the same thing, one of them
with the agent and the other with the principal, and the two contracts are
incompatible with each other, that of prior date shall be preferred, without prejudice
to the provisions of Article 1544.

ART. 1917. In the case referred in the preceding article, if the agent has acted in good
faith, the principal shall be liable in damages to third person whose contract must be
rejected. If the agent acted in bad faith, he alone shall be responsible.

Order of priority.
When the same thing is sold by the principal and the agent to two different persons, the
following rules be observed;
a. If movable
1. The first one who took actual possession in good faith.
2. If none of the two took actual possession, the contract with a prior date shall be
preferred.
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 b. If immovable:
1. The first to register the sale in good faith.
2. If none registered the sale, the first one who took actual possession in good faith.
3. In the absence of both, the oldest title in good faith.

2. Right of the aggrieved party.

a. Against the agent if he acted in bad faith.
b. Against the principal if the agent acted in good faith.

ART. 1918. The principal is not liable for the expense incurred by the agent in the
following cases:

1. If the agent acted in contravention of the principal’s instructions, unless the latter
should wish to avail himself of the benefits derived from the contract;

2. When the expenses were due to the fault of the agent;

3. When the agent incurred them with knowledge that an unfavorable result would
ensure, if the principal was not aware thereof;

4. When it was stipulated that the expenses would be borne by the agent, or that the
latter would be allowed only a certain sum.

Reimbursement of the agent.

As a rule, where an agent is employed by a principal and such agent incurred expenses in
the execution of the agency, the principal is bound to reimburse the agent of all legitimate
and necessary expenses that may be incurred, except:
a. When the agent breached his obligation by acting against the principal’s instruction.
b. If the agent is guilty of fault or negligence in the performance of agency.
c. Expenses in the execution of the agency, knowing that an unfavorable result will
ensue.
d. When it is stipulated that in any event the agent is liable.