IV. – SALES Chapter 1.

NATURE AND FORM OF THE CONTRACT

1. Define contract of sale.

By the contract of sale one of the contracting parties obligates himself to transfer the
ownership of and to deliver a determinate thing, and the other to pay therefore a price certain
or its equivalent. (Art.1458)

Note: Sale is consensual, bilateral, onerous, cumulative, nominate, and principal

contract. (see III. – Contracts.)
2. Give the requisites of a contract of sale.
They are:
(1)Consent or meeting of minds. – On the part of the seller, to transfer and deliver, and on the
part of the buyer, to pay;
(2)Object or subject matter. – A determinate thing; and
(3)Cause. – Price certain in money or its equivalent, such as a check or promissory note.
3. As to the presence or absence of conditions, what are the two kinds of contract of sale?
They are:
(1)Absolute. – where the sale is not subject to any condition whatsoever and where title passes
to the buyer upon delivery of the thing sold; and
(2)Conditional. – where the sale contemplates a contingency (Arts. 1461, 1462, par.2; Art.
1465.) and in general, where the contract is subject to certain conditions (see Art. 503, par.
1.) usually the full payment of the purchase price. (Art. 1478.)
4. What is the difference between a contract of sale and a contract to sell?
In contract of sale, title passes to the buyer upon delivery of the thing sold, while in a
contract to sell (or of “exclusive right and privilege to purchase”), ownership is reserved in the
seller and is not to pass until the full payment of the purchase price.
5. Give the requisites in order that a thing may be the object of sale. They are:
(1)The thing must be existing, or at least have a future or contingent existence (Arts. 1461, 1462,
1465.);
(2)It must be licit or legal (Art. 1459.);
(3)It must be determinate or determinable by description or segregation (Art. 140.); and
(4)The vendor must have a right to transfer the ownership of the thing at the time it is delivered.
(Art. 1459.)
Note: It is not required that the vendor must have the right to transfer ownership at the
time of the perfection of the contract.
6. When is a thing determinate?
A thing is determinate (or specific) when it is particularly designated or physically
segregated from all others of the same class (e.g., the watch I am wearing).
The requisite that a thing be determinate is satisfied if at the time the contract is
entered into, the thing is capable of being made determinate without the necessity of a new or
further agreement between the parties.
(Art. 1460; e.g., all the cavans of rice in a particular bodega.)
7. Give examples of a thing having potential existence. They are:
(1)Wine a vineyard is expected to produce;
(2)Palay a field may grow in a given time;
 (3)Milk a cow may yield in the coming year;
(4)The wool that may grow upon a sheep;
(5)The next catch of a fisherman’s net; and
(6)The goodwill a newly established business may develop. (Sibal vs. Valdez, 50 Phil. 512.)
8. Can there be a sale of a mere hope or expectancy
Sale of a mere hope or expectancy is the sale of the hope itself that the thing will come
into existence, where it is agreed that the buyer will pay the price even if the thing does not
eventually exist. Thus, in the sale of sweepstakes ticket, it is not certain that the thing itself
(winning a prize) will exist much less its quantity and quality. The sale of a vain hope or
expectancy (e.g., the sale of a falsified sweepstakes ticket which can never win) is void. (Art.
1461.)
9. What are the two kinds of goods which may form the subject matter of a contract of sale?
(1)Existing goods or those owned or possessed by the seller; and
(2)Future goods or those to be manufactured (e.g., the sale of milk bottles to be manufactured
(e.g., the sale of milk bottles to be manufactured with the name of the buyer pressed in the
glass), raised (e.g., the sale of the future harvest of palay from a ricefield), or acquired (e.g.,
the sale of a definite parcel of land the seller expects to buy) by the seller after the
perfection of the contract of sale. (Art. 1462.)
Note: The acquisition by the seller may defend upon a contingency which may or may not
happen.
10. Give the effect of the sale by the sole owner of a thing of his undivided interest therein.
The buyer becomes a co-owner of the thing sold. (Art. 1463.) As much coowner, he acquires full
ownership of his part and he may, therefore, sell it. (see Art. 493.)
11. Give the effect of the sale of an undivided share of a specific mass of fungible goods.
(1)The buyer (e.g., of 250 cavans of palay in a warehouse) becomes a coowner of such share
(1/4) of the mass (1,000 cavans stored in the warehouse) as the number, weight or measure
bought (250 cavans) bears to the number, weight or measure of the mass (1,000 cavans).
(2)If the mass contains less than what was sold (e.g., 200 cavans), the buyer becomes the owner
of the whole mass and furthermore, the seller is bound to make good the deficiency (50
cavans) from goods of the same kind and quality subject to any stipulation to the contrary.
(Art. 1464.) But if the buyer bought, say, ¼ share of the contents, it is obvious that in such
case, the obligation of the seller “to make good the deficiency” will not arise.
Note: Fungible goods means goods of which any unit is from its nature or by mercantile
usage treated as the equivalent of any other unit (Uniform Sales Act, Sec. 76.), such as grain,
oil, wine, gasoline, etc.
12. May things subject to a resolutory condition be the subject a contract of sale?
Yes (Art. 1465.), but the sale shall be extinguished in case the condition happens.
EXAMPLE: S (vendor a retro) sold a parcel of land to B (vendee a retro), subject to the
condition that S can repurchase the property within 2years from the date of the sale. If S
exercises the right to repurchase, then the sale made by B to C before the lapse of the 2-year
period falls.
The rule, however, that a vendor cannot transfer to his vendee a better right than he
had himself, suffers an exception in case of property with Torrens title still in the name of the
vendor who sold it again to a second buyer in good faith.
13. Distinguished the contract of sale from the contract for a piece of work.
By the contract for a piece of work, the contractor binds himself to execute a piece of
work for the employer (e.g., to construct a house) in consideration of a certain price or
 compensation. The contractor may either employ his labor or skill, or also furnish the material.
(Art. 1713.)
A contract for the delivery at a certain price of an article which the vendor in the
ordinary course of his business manufactures or procures for the general market, whether the
same Is on hand at the time or not, is a contract of sale, but if the goods are to be manufactured
especially for the customer and upon his special order (e.g., dress made on the basis of the body
measurement of the customer) and not for the general market, it is a contract for a piece of
work. (Art. 1467.)
14. Distinguish the contract of sale from the contract of barter or exchange.
By the contract of barter or exchange, one of the parties binds himself to give one
thing in consideration of the other’s promise to give another thing. (Art. 1638, Ibid.) On the
other hand, in a contract of sale, the vendor gives a thing in consideration for a price in money.
(Art. 1485.)
15. State the rules in those cases in which the thing given in exchange consists partly in money
and partly in another thing.
They are:
(1)The transaction shall be ascertained by considering the manifest intention of the parties; and
(2)If such intention does not clearly appear, it shall be considered:
(a) A bater, if the value of the thing given as part of the consideration exceeds the amount
of the money or its equivalent; and
(b) A sale, if otherwise. (Art. 1468.)

EXAMPLES:
(1)S, a sugar miller, and W, a manufacturer and dealer in whiskey, entered into an
agreement whereby S was to deliver sugar worth P20,000.00. This is a contract of
baster.
(2)Suppose at the date of delivery, W had only 25 bottles of whiskey.
With the consent of S, W paid the difference of P15,000.00 in cash. In this case the
contract is still baster. The consideration for the sugar is not cash but the whiskey,
and the amount of P15,000.00 paid by W is in consideration of the 75 bottles of
whiskey.
(3)Suppose in the same example, W had no whiskey at the date of delivery and he paid
S P20,000.00 instead of giving whiskey. Did the contract become one of sale? No,
because the payment is in consideration of the value of the whiskey and not of the
sugar. The manifest intention of the parties was to enter into a contract of barter.
(4)Suppose the contract between S and W was for S to deliver sugar to W who agreed to
give 100 bottles of whiskey or to pay P10, 000 cash. W paid in cash. It is clear that
the resulting contract is that of sale, and not barter.
(5)If the obligation of W is to deliver 50 bottles of whiskey and pay P10,000.00 cash or
75 bottles of whiskey and P5,000.00 cash or 25 bottles of whiskey and P15,000.00
cash, the transaction shall be considered a barter or sale depending upon the
manifest intention of the parties. Under Article 1468, if such intention does not
clearly appear, the contract shall be considered a barter where the cash involved is
P5,000.00, or a sale in case it is P10,000.00.
16. What are the requisites of price in a contract of sale? They are:
(1)The price must be in money or its equivalent (Art. 1458.);
(2)It must be certain or ascertainable (Art. 1469.); and
(3)It must be real, i.e., not simulated. (Art. 1471.)
17. Distinguish sale from dation in payment.
 The distinctions are:
(1)In sale, there is no pre-existing credit, while in dation in payment (see III. – Obligations, Chap.
4, Sec. 1, Subsecs. 1,2.), there is;
(2)In sale, obligations are created, while in dation in payment, obligations are extinguished;
(3)In sale, the cause is the price from the viewpoint of the seller, or the thing sold from the
viewpoint of the buyer, while in dation in payment, the extinguishment of the debt, from
the viewpoint of the debtor, or the object acquired in lieu of the credit, from the viewpoint
of the creditor; and
(4)In sale, the buyer has still to pay the price, while in dation in payment, the payment is
received before the contract is perfected. (10 Manresa 1617.)
18. When is a price certain?
The price is certain if:
(1)The parties have fixed or agreed upon a definite amount; or
(2)It be certain with reference to another thing certain (see Art. 1472 ; e.g., where the buyer
agrees to pay the price of goods as indicated in the invoices; or fixed above and below the
price on a given day in the stock exchange.); or
(3)The determination of the price is left to the judgment of a specified person or person or
persons. (Art. 1469.)
Note: The last two cases are applicable only when no specific amount has been stipulated
by the parties.
19. Give the rules where the determination of the price is left by the parties to the
judgment of a specified person or persons.
They are:
(1)The price fixed by the third person is binding except when he acts in bad faith or by mistake;
(2)In such case, the courts may fix the price;
(3)If the third person is unable or unwilling to fix the price, the contract shall be inefficacious
(without effect), unless the parties subsequently come to an agreement; and
(4)If the third person is prevented from fixing the price by the fault of the seller or buyer, the
party not in fault may choose between rescission or fulfillment with damages in either case.
20. What is the effect on the sale if the price is simulated? The sale is void but the act may
be shown to have been in reality a donation or some other act or contract (Art. 1471.),
like barter.
21. What is the effect of gross inadequacy of price (i.e., lesion) upon a contract of sale?
It does not by itself affect its validity except as such inadequacy may indicate:
(1)That there is defect in the consent such as when fraud, mistake, or undue influence is present
(e.g., sale of land worth P200,000 sold for only P170,000 is valid unless fraud, etc. on the
part of the buyer can be shown); or
(2)The parties intended a donation or some other act or contract (Art. 1470.), as when the price
is simulated or false, in which case the contract is valid as a donation.
Note: It has been held, that where the price is so low that “a man in his senses and not
under a delusion” would not accept, a voluntary contract of sale may be set aside and
declared an equitable mortgagee to secure a loan. (Aguilar vs. Rubiato, 40 Phil 570; see Art.
1602 [1], infra.)
Likewise , a judicial or execution sale, say, of real property, will be set aside if “the price
is so inadequate as to shock the conscience of the court” as where a land with an assessed
value of P60,000 was sold for only P877.25. (Director of Lands vs. Abarca, 61 Phil. 70.)
22. May the fixing of the price be left to the discretion of one of the contracting parties?
No, because it cannot be said that there is meeting of minds upon the price fixed. (see Art.
1308.) But if the price fixed is accepted by the other, the sale is deemed perfected. (Art. 1473.)
23. What is the effect of failure to determine a price certain? The contract is inefficacious.
However, if the thing or any part thereof has already been delivered to and
appropriated by the buyer, he is under obligation to pay a reasonable price therefor.
(Art. 1474.)
24. When is a contract of sale perfected ?
The contract of sale is perfected at the moment there is a meeting of minds upon the thing
which is the object of the contract and upon the price. (Art. 1475.)
25. Give the effects of the perfection of a contract of sale. They are:
(1)From the moment of consent above, the reciprocal obligations of the parties arise, and they
may reciprocally demand performance, subject to the Statue of Frauds (see III. – Contracts,
Chap. 8.);
(2)The ownership of the thing sold is not transferred until it is delivered, actually or
constructively, to the buyer (Art. 1477.); and
(3)In case one of the contracting parties does not comply with what is incumbent upon him, the
injured party may sue for fulfillment or rescission with the right to damages in either case.
(Art. 1191.)
Note: The parties may stipulate that ownership in the thing shall not pass to the
purchaser until he has fully paid the price (Art. 1478.)
26. When is sale by auction perfected?
It is perfected when the auctioneer announces its perfection by the fall of the hammer, or in
other customary manner. Until such announcement is made, any bidder may retract his bid; and
the auctioneer may withdraw the goods from the sale unless the auction has been announced
to be without reserve. (Art. 1476 [2].)
27. What is the effect of an unaccepted promise or offer to sell or to buy a thing for a price
certain?
It creates no juridical effect or legal bond. Such an unaccepted offer is called policitacion.
28. What is the effect of “an accepted unilateral promise or offer to sell or to buy a thing
for a price certain?”
(1)Such a unilateral promise, also known as option contract, does not bind the promisor and
may be withdrawn at any time.
(2)If the promise, however, is supported by a consideration ( i.e., option money) distinct from
the price, its acceptance gives rise to the perfection of the contract.
EXAMPLE: S offers to sell to B his car at a stated price. If B accepts the promise of S (this
is case of an accepted unilateral promise to sell), S is not bound to sell his car to B. However,
if the promise to pay a sum to S for giving him the right to buy the car if he chooses within
an agreed period at a fixed price, its acceptance produces consent or meeting of the minds.
Note: Under Article 1324 (III. – Contracts.), the offer cannot be withdrawn after its
acceptance. Said provision must be interpreted as modified by Article 1479 which applies
specifically to a “promise to buy or sell.” The Supreme Court, however, has ruled that under
Article 1479, acceptance made before withdrawal of the offer constitutes a binding contract
of sale although the option is given without consideration.
(Sanchez vs. Rigos, L-25494, June 4, 1872.)
29. What is the effect of a bilateral promise to buy and sell a thing for a price certain?
When the promise is bilateral, that is, one party accepts the other’s promise to buy and the
latter, the former’s promise to sell, a determine thing for a price certain, it has practically the
same effect as a perfected contract of sale since it is reciprocally demandable. But there is no
contract of sale yet until it is executed.
30. Give the rules with regard to any injury to, or benefit from, the thing sold after the contract is
perfected but before delivery.
 They are:
(1)The vendor is obliged to take care of the thing with proper diligence (see Art. 1163);
(2)The vendee has a right to the fruits of the thing from the time the obligation to deliver it
arises but shall acquire no real right or ownership over it until the same has been delivered
to him (Art. 1164; see Art. 1537.);
(3)If the thing is determinate, the vendee may compel the vendor to make the delivery, and hold
him liable for damages by reason of fraud, delay, etc. (Arts. 1165, 1170.);
(4)If the thing is generic, he may ask that the obligation be complied with at the expense of the
vendor if the latter fails to make the delivery also with a right to damages in the proper case
(Arts. 1165, 1170.);
(5)If the thing is determinate, and it is lost or destroyed –
(a) Through the fault of one party, the party at fault is liable for damages;
(b)Through a fortuitous event, the vendor is released from his obligation to deliver and the
vendee is liable to pay the price if he has not yet paid the same. (see Arts. 1480, 1538,
1189 and 1269; Art. 1504, par.
1, however, provides a rule contrary to Art. 1480.);
(c) The vendor shall be responsible for any fortuitous event if it is so stipulated, or if the
same took place after he has incurred in delay, or he has promised to deliver the same
thing to two or more persons who do not have the same interest (Arts. 1164, 1262.);
(d)The rule under letter (b) applies to the sale of fungible things, made independently and
for a single price or without consideration of their weight, number or measurement
(Art. 1480.) Reason: In such case, the fungible things have been “particularly designated
or physically segregated”;
(e) It does not apply where the fungible things have been sold for a price fixed in relation to
weight, number or measure. In such case, the risk shall not be imputed to the vendee
until they have been weighed, counted or measured and delivered (Ibid.); and
(6)If the thing is generic, the loss, with or without the vendor’s fault, of anything of the same
kind does not extinguish his obligation to deliver. (1262.)
31. State the special rules governing the sale of goods by description and/or by sample.
(1)In the contract of sale of goods by description or by sample, the contract may be rescinded if
the bulk of the goods delivered do not correspond with the description or the sample;
(2)If the contract be by sample as well as by description, it is not sufficient that the bulk of goods
correspond with the sample if they do not also correspond with the description; and
(3)The buyer shall have a reasonable opportunity of comparing bulk with the description or the
sample. (Art. 1481.)
Note: The term “bulk of goods” is not used to designate the greater portion of the goods
but means the same as “goods” which as a whole body must correspond substantially with
the sample and/or description.
32. What is earnest money?
Earnest money is that given by the buyer to the seller to bind the bargain. It is actually a partial
payment of the purchase price and is considered as proof of the perfection of the contract.
33. Give the distinctions between earnest money and option money.
They are:
(1)Earnest money is part of the purchase price, while option money (see question No. 28.) is the
money given as distinct consideration for an option contract;
(2)Earnest money is given only where there is already a sale, while option money applies to a
sale not yet perfected; and
(3)When earnest money is given, the buyer is bound to pay the balance, while when the would-
be-buyer gives option money, he is not required to buy.
But option money may become earnest money if the parties so agree.
34. What is the form required by law for a contract of sale?
(1)Generally. – No particular form is required. (Art. 1483)
(2)For enforceability. – The Statue of Frauds applies to the following:
(a) Sale of personal property at a price not less than P500;
(b)Sale of real property or an interest therein regardless of the price involved; and
(c) Sale of property not to be performed within one (1) year from the date thereof
regardless of the nature of the property and the price involved. (Art. 1403 [2])
(3)For validity. – Where the applicable statue requires that the contract of sale be in a certain
form for its validity, the required form must be observed in order that the contract may be
both valid and enforceable. (see III. – Contracts, Art. 1356.)
(4)For convenience. – In order that a sale of real property may be effective against third
persons, it must be in public document and registered in the Register of Deeds of the
province or city where the property is located.
(see III. – Contracts, Arts. 1357, 1358.)
35. State the alternative remedies of the vendor in sale of personal property payable in
installments.
He may exercise any of the following:
(1)Elect fulfillment upon the vendee has failed to pay;
(2)Cancel the sale, if the vendee has failed to pay two or more installments; or
(3)Foreclose the chattel mortgage, if one has been constituted, if the vendee shall have failed to
pay two or more installments.
In the third case, the vendor shall have no further action to recover any unpaid balance
of the price (deficiency) and any agreement to the contrary shall be void. (Art. 1484.)
Purpose of the law. – To avoid the situation where the mortgagor finds himself minus
the property and still owing practically the full amount of his original indebtedness resulting
from the mortgagee being able to buy the property at foreclosure sale at a low price.
Note:
(1)Article 1484 does not apply to a sale of personal property on straight term. Where
the balance, after payment of the initial sum, should be paid in its totality at the
time specified, the transaction is not by installment as contemplated in Article 1484.
(2)It applies to contracts purporting to be leases of personal property with option to
buy, when the lessor has deprived the lessee of the possession or enjoyment of the
thing.(Art. 1485.)
36. In transactions or contracts involving the sale or financing of real estate on installment
payments, including residential condominium apartments, what rights are given to the buyer
who has paid at least two (2) years of installments in case he defaults in the payment of
succeeding installments?
The following:
(1)To pay without additional interest, the unpaid installments due within the total grace period
earned by him fixed at the rate of one (1)-month grace period for every one (1) year of
installment payments made. This right, however, shall be exercised by him only once in
every five (5) years of the life of the contract and its extensions, if any; and
(2)If the contract is cancelled, the seller shall refund to the buyer the cash surrender value of the
payments on the property equivalent to 50% of the total payments made and, after (5)
years of installments, an additional 5% every year but not to exceed 90% of the total
payments made. (Sec. 3,
R.A. No. 6552 [Realty Installment Buyer Protection Act].)
 Purpose of the law. – To protect buyers of real estate of installment payments against
onerous and oppressive conditions. (Sec. 2, Ibid.) Note:
(1)The law excludes from its operation sales on installments of industrial lots and
commercial buildings and sales to tenants under the Code of Agrarian Reforms (R.A.
No. 3844, as amended). (Sec. 3,
R.A. No. 6552.) The new agrarian reform law is known as the
Comprehensive Agrarian Reform Law. (R.A. No. 6657.)
(2)The actual cancellation shall take place after 30 days from receipt by the buyer of the
notice of cancellation or the demand for rescission by a notarial act and upon full
payment of the cash surrender value to the buyer. (Sec. 3, R.A. No. 6552.)
(3)Down payments, deposits or options on the contract shall be included in the
computation of the total number of installment payments made. (Ibid.)
37. What is the rule in case the defaulting buyer has paid less than two (2) years of installments?
The seller shall give him a grace period of not less than 60 days from the date the installment
became due. If he fails to pay the installments due at the expiration of the grace period, the
seller may cancel the contract after 30 days from receipt by the buyer of the notice of
cancellation or the demand for rescission of the contract by a notarial act. (Sec. 4, Ibid.)
Note: The buyer has the right to sell his right or assign the same before actual
cancellation of the contract (see Sec. 5, Ibid.) an to pay in advance any unpaid installment
anytime without interest. (see Sec. 6, Ibid.)
38.Who bears the expenses of the contract of sale?
The expenses for the execution and registration of the sale and of putting the goods in a
deliverable state are borne by the vendor, unless there is a stipulation to the contrary. (Arts.
1478, 1521, last par.)

Chapter 2. – CAPACITY TO BUY OR SELL

1. Who may enter into a contract of sale?

(1)General rule. – All persons, whether natural or juridical, who are authorized by the Civil Code
to oblige themselves may enter into a contract of sale.
(2)Exceptions. – They refer to those cases where the law determines that a party suffers from
either:
(a)Absolute incapacity. – It exists in the case of persons who cannot bind themselves; or
(b)Relative incapacity. – It exists only with reference to certain persons or a certain class of
persons, and they are those mentioned in Articles 1490-1491. (infra.)
(3)Minors and other incapacitated persons. – They may validly enter into a contract of sale on
necessaries and the price payable in such case shall be the reasonable price. (Art. 1489)
2. W ho are the persons specially disqualified to buy? They are:
(1)The husband and wife cannot sell property to each other, except:
(a) When a separation of property was agreed upon in the marriage settlement (i.e.,
agreement between the future spouses fixing the property relations between them
during the marriage); or
(b)When there has been a judicial separation of property (Art. 1490.);
(2)Persons who, because of their position and relation with the person under their charge or
with property under their control, are prohibited from acquiring said property, either
directly or indirectly and whether in private or public sale, namely:
(a) Guardians;
(b)Agents;
 (c) Executors and administrators;
(d)Public officers and employees;
(e) Judicial officers and employees and lawyers; and
(f) Others specially disqualified by law (Art. 1491.);
(3)The seller in an auction sale may not bid unless notice is given reserving such right (Art. 1476
[4]);
(4)An unpaid seller cannot buy, directly or indirectly, the goods sold by him, in case of resale.
(Art. 1533, infra.)
The prohibitions under Nos. 1 and 2 are applicable to sales by virtue of legal redemption
(see Chap. 7, Sec. 2.), compromises (i.e., amicable settlement of a controversy and
renunciations (i.e., gratuitous condonation by the creditor of his right. (see II. – Obligations,
Chap. 4, Sec. 3.) (Art. 1492.)

Chapter 3. – EFFECTS OF THE CONTRACT WHEN THE THING SOLD HAS BEEN LOST

1. State the rules regarding risk of loss.

They are given below.
(1)If the thing is lost before perfection, the seller and not the one who intends to purchase it
bears the loss in accordance with the principle that the thing perishes with the owner ( res
perit domino).
(2)If the thing is lost at the time of perfection, the contract is void or inexistent. (Art. 1409 [3])
The legal effect is the same as when the object is lost before the perfection of the contract
of sale. (see Art. 1493.)
(a) If the subject matter (i.e., a specific thing or a mass of specific goods such as 100 cavans
of rice in a particular warehouse) is only partially lost, the vendee may choose between
withdrawing from the contract and demanding the remaining part, paying its
proportionate price. (Ibid.; Art. 1494.)
EXAMPLE: S sold his car to B. Unknown to both of them, the car has been totally destroyed
before they agree on the sale. In this case, there is no valid contract of sale for lack of
object. S, as owner, bears the loss and B does not have to pay for the price.
If the car is only partially destroyed, there still remains the object. However, since it is not of
the character or in the condition contemplated by the parties, the buyer may withdraw
from the contract or demand delivery of the car, paying its proportionate price.
(3)If the thing is lost after perfection but before its delivery, that is, even before the ownership is
transferred to the buyer, the risk of loss is shifted to the buyer as an exception to the rule of
res perit domino. (Arts. 1480, pars. 1 & 2, 1538, 1189, and 1269.)
(4)If the thing is lost after delivery, the buyer bears the risk of loss following the general rule of
res perit domino.
(a) Where the seller reserves the ownership of the goods merely to secure the performance
by the buyer of his obligations under the contract, the goods are at the buyer’s risk from
the time of delivery.
(b)Where actual delivery has been delayed through the fault of either the buyer or the
seller, the goods are at the risk of the party at fault. (Art.
1504.)
Chapter 4. – OBLIGATIONS OF THE VENDOR

Section 1. – GENERAL PROVISIONS

1. Enumerate the principal obligations of the vendor. They are:
(1)To transfer the ownership of the determinate thing sold;
(2)To deliver the thing;
 (3)To warrant against eviction and against hidden defects (Art. 1495; see Art. 1547.);
(4)To take care of the thing pending delivery with proper diligence (Art. 1163.); and
(5)To pay for the expenses of the deed of sale, unless there is a stipulation to the contrary. (Art.
1487.)
2. When is the ownership of the thing sold acquired by the vendee? Generally, it is
acquired from the moment the thing is delivered to him in any of the ways provided
by law. (Art. 1496.)

Section 2. – DELIVERY OF THE THING SOLD

1. Define tradition or delivery.
Tradition is a derivative mode of acquiring ownership by virtue of which one who has the right
and intention to alienate a corporeal thing, transmits to one who accepts the same.
Note: A contract of sale gives only the right to acquire ownership of the thing sold. It is a
derivative, not an independent mode of acquiring ownership because it presupposes the
existence of a contract giving rise to the obligation to deliver.
2. What are the different ways of effecting delivery?
Explain each.
They are:
(1)Actual or real. – When the thing sold is placed in the physical control and possession of the
vendee (Art. 1497.);
(2)Constructive or legal. – Delivery may be effected in any of the following ways:
(a)By execution of a public instrument. – It is equivalent to the delivery of the thing sold
(movable or immovable) provided:
1) From the deed the contrary does not appear or cannot be clearly inferred (Art.
1498.); and
2) There is no actual impediment to physical delivery (as when the property is in the
possession of a third person);
(b)By symbolic delivery or tradition simbolica. – With regard to movable property,
when the parties make use of a token symbol to represent the thing delivered, such
as by the delivery of the key of the place or depository where the thing sold is stored
or kept (Ibid.);
(c) By traditio longa manu. – It takes place by the mere consent or agreement of the
contracting parties as when the vendor merely points to the thing sold which shall
thereafter be at the control and disposal of the vendee, if the thing sold cannot be
transferred to the possession of the vendee at the time of the sale (Art. 1499.);
(d)By tradition brevi manu. – It takes place by the mere consent or agreement of the
parties if the vendee is already in possession of the thing sold by virtue of another title
(Ibid) as when the lessor sells the thing leased to the lessee;
(e)By constitutum possessorium. – This mode of delivery is the opposite of tradition brevi
manu. It takes place when the vendor continues in possession of the property sold not
as owner but in some other capacity, as for example, when the vendor stays as a tenant
of the vendee (see Art. 1500.); or
(f) By quasi-deliveryor quasi-traditio. – In the case of incorporeal things, delivery is
effected by the execution of a public instrument, or when that mode is not applicable,
by the placing of the titles of ownership in the possession of the vendee or by allowing
the vendee to use his rights as new owner with the consent of the vendor. (Art. 1501.)
Thus, the delivery of negotiable document of title in which it is stated that the goods
referred to therein will be delivered to the bearer amounts to delivery (Arts. 1507, 1508,
infra.); and
 (3)Others. – Delivery may also be effected by any other manner signifying an agreement that
the possession is transferred to the vendee. (Art. 1496.) Thus, when the parties agree that
the delivery of the logs sold should be made alongside a vessel of the vendee and that was
done by the vendor, the delivery transfers the right of property although the price has not
been paid, nor the thing actually delivered. (Ben Admr. Vs. the
Cadwallader Co., 10 Phil. 1606.)
Note: In fine, in all the different modes of effecting delivery, it is the real intention of the
parties which gives legal effect to the act.
3. Enumerate the cases when delivery does not transfer ownership over the thing sold.
They are:
(1)Where a contrary intention appears by the terms of the contract:
(a) In case of express reservation by the seller of his title, until certain conditions have been
fulfilled (Art. 1503. Par. 1.), particularly the full payment of the purchase price (Art.
1478.);
(b)In case of implied reservation of title as when goods are deliverable to the order odf the
seller or his agent (Ibid., par 2.); and
(c) In sale on approval, or on satisfaction (Art. 1502, infra.);
(2)Where the seller failed to make such contract with the carrier on behalf of the buyer as may
be reasonable under the circumstances (see Art. 1523, par. 2.); and
(3)Where the seller failed to give notice to the buyer as may enable him to insure the goods
during their transit if under the circumstances it is usual to insure them. (see Ibid., par. 3.)
Note: Nos. 2 and 3 are also exceptions to the general rule that delivery to the carrier is
deemed delivery to the buyer. (Ibid., par. 1.)
4. Explain “sale of return” and “sale on approval or on trial or on satisfaction.”
(1)Sale or return. – It is a contract by which property is sold but the buyer, who becomes the
owner of the property on delivery, has the option to return the same to the seller instead of
paying the price.
(2)Sale on trial or approval. – It is a contract in the nature of an option to purchase if the goods
prove satisfactory, the approval of the buyer being a condition precedent. (55 C.J 430-431.) In
this kind of contract, the title shall continue in the seller until the sale has become absolute:
(a) Upon the buyer’s approval or acceptance made known to the seller;
(b)Upon the buyer’s doing any other act adopting the transaction; or
(c) Upon the retention by the buyer of the goods beyond the time fixed (or a reasonable time)
without giving notice of rejection.(Art. 1502.) Note: In “sale or return,” the risk of loss or
injury rests upon the buyer while in sale on approval, the risk still remains in the seller.
5. As a rule, the buyer acquires no better title to the goods sold than the seller has. What
are the exceptions to this rule?
They are:
(1)Where the owner of the goods is, by his conduct, precluded from denying the seller’s
authority to sell;
(2)Where the law enables the apparent owner to dispose of the goods as if he were the true
owner thereof;
(3)Where the sale is sanctioned by statutory or judicial authority;
(4)Where the sale is made at merchant’s stores, fairs or markets (Art. 1505.); and
(5)Where the seller has a violable title which has not been avoided at the time of the sale
provided the buyer acted in good faith. (Art. 1506.)
6. What is a trust receipt?
A trust receipt is a receipt signed by an importer in favor of a bank which advanced on his
credit the price on the goods received, generally providing that the title to the goods shall
 remain in the bank and authorizing the importer to sell the same for its account, and to pay the
proceeds to the said bank. If the importer violates the trust by converting the proceeds to his
own use, he is guilty of estafa.
7. Define document of title to goods.
Document of title to goods is any document used in the ordinary course of business in the sale
or transfer of goods, as proof of the possession or control of the goods, or authorizing or
purporting to authorize the possessor of the document to transfer or receive, either by
indorsement or by delivery, goods represented by such document. (Art. 1636 [1].)
8. What is the nature of documents of title ?
Documents of title refer to goods and not to money. They all have this in common: that they are
receipts of a bailee, or orders upon a bailee.
9. What is the function of documents of title?
A document of title is a symbol of the goods covered by it, serving as evidence of (1)
transfer of title and (2) transfer of possession. It also serves as an evidence of the (3) contract
between parties who are bound by its terms. So far as concerns the transfer of property
between the parties, their intention would be effectual without the document, but where third
parties rights are involved, the form of the document becomes important.
10. What are the most common forms of documents of title?
They are:
(1)Bill of lading. – A contract or receipt for the transport of goods and their delivery to the
person named therein, to order or to bearer. It usually involves three persons – the carrier,
the shipper, and the consignee. The shipper and the consignee may be one and the same
person;
(2)Dock warrant. – An instrument given by dock owners to an importer of goods warehoused
on the dock recognizing the importer’s title to the said goods; and
(3)Warehouse receipt. – A contract or receipt for goods deposited with a warehouseman
containing the latter’s undertaking to hold and deliver the said goods to a specified person,
to order, or to bearer. Quedan is warehouse receipt usually for sugar received by a
warehouseman.
11. What laws govern documents of title?
The following:
(1)The Civil Code (in Arts. 1507 to 1520, 1532 [2 nd par.], 1535 [2nd par.], and 1749.) primarily
governs documents of title other than warehouse receipts;
(2)The Warehouse Receipts Law (Act No. 2137.) primarily governs warehouse receipts; and
(3)The Code of Commerce subsidiary governs bills of lading issued by land carriers (in Arts. 350
to 353.) and by maritime carriers (in Arts. 706 to 718.).
12. What are the classes of documents of title?
They may be either:
(1)Negotiable documents of title. – Those by the terms of which the bailee undertakes to
deliver the goods to the bearer and those by the terms of which the bailee undertakes to
deliver the goods to the order of a specified person (Art. 1508.);
(2)Non-negotiable documents of title. – Those by the terms of which the goods covered are
deliverable to a specific person (Art. 1511.)
13. When may a negotiable document of title be negotiated by delivery?
In the following cases:
(1)Where by the terms of the document the carrier, warehouseman or other bailee issuing the
same undertakes to deliver the goods to the bearer; or
 (2)Where by the terms of the document the carrier, warehouse or other bailee issuing the same
undertakes to deliver the goods to the order of a specified person, and such person or a
subsequent indorsee of the document has indorsed it in blank or to the bearer. (Art. 1508.)
14.When may a negotiable document of title be negotiated by indorsement?
Such document by the terms of which the goods are deliverable to s person specified therein
may be negotiated only by the indorsement of such person.
(1)If indorsed in blank or to bearer, the document becomes negotiable by delivery; and
(2)If indorsed to a specified person, it may be again negotiated by the indorsement of such
person in blank, to bearer, or to another person. Delivery alone is not sufficient. (Art. 1509.)
15.What is the effect if the words “non-negotiable,” “not negotiable” and the like are placed
upon a negotiable document of title? The words have no effect and the document continues
to be negotiable. (Art. 1510.)
16.What is the effect if a non-negotiable document of title is indorsed?
Such document cannot be negotiated and the indorsement gives the transferee or assignee no
additional right. (Art. 1511; see Art. 1514.)
17.Who may negotiate a document or title?
A negotiable document of title may be negotiated:
(1)By the owner thereof; or
(2)By any person to whom the possession or custody of the document has been entrusted by
the owner:
(a) If, by the terms of the document the bailee issuing the document undertakes to deliver
the goods to the order of the person to whom the possession or custody of the
document has been entrusted; or
(b)If at the time of such entrusting the document is in such form that it may be negotiated
by delivery. (Art. 1512.)
Note: The above provision does not give a power to negotiate documents of title equal
to that allowed by law in the case of bills of exchange and promissory notes in as much
as neither a thief nor finder is within the terms thereof. (see, however, Article 1518,
infra.)
18.What are the rights of a person to whom a negotiable document of title has been negotiated?
Such person acquires:
(1)The title of the person negotiating the document, over the goods covered by the document;
(2)The title of the person (depositor or owner) to whose order by the terms of the document the
goods were to be delivered, over such goods; and
(3)The direct obligation of the bailee (warehouseman or carrier) to hold possession of the goods
for him, as if the bailee directly contracted with him. (Art. 1513.)
The purchaser, therefore, of a negotiable document of title issued over stolen goods cannot
acquire title, irrespective of his good faith.
19.What are the rights of the transferee of a non-negotiable document of title or of a person to
whom a negotiable document of title has been transferred but not negotiated?
Such person acquires:
(1)The title to the goods as against the transferor;
(2)The right to notify the bailee of the transfer thereof; and
(3)The right, thereafter, to acquire the obligation of the bailee to hold the goods for him. (Art.
1514.)
Before notification, the bailee is not bound to the transferee whose right may be defeated
by a levy of an attachment or execution upon the goods by the creditor of the transferor or
by a notification to such bailee of the subsequent sale of the goods. (Ibid.)
20. What are the rights of a person to whom an order document of title has been delivered
without indorsement?
Such person acquires:
(1)The right to the goods as against the transferor (Art. 1514.); and
(2)The right to compel the transferor to indorse the indorsement , unless a contrary intention
appears. (Art. 1515.)
For the purpose of determining whether the transferee is a purchaser for value in good faith
without notice (see Arts. 1506, 1513.), the negotiation shall take effect as of the time when
the indorsement is actually made, not at the time the document is delivered. (Art. 1515.)
21. Give the warranties of one who negotiates or transfers a document of title.
Unless a countrary intention appears, they are:
(1)That the document is genuine;
(2)That he has a legal right to negotiate or transfer it;
(3)That he has knowledge of no fact which would impair the validity or worth of the document;
and
(4)That he has a right to transfer the title to the goods and that the goods are merchantable or
fit for a particular purpose, whenever such warranties would have been implied if the
contract of the parties had been to transfer without a document of title the goods
represented thereby. (Art. 1516.)
22. Is the indorser of a document of title liable to the holder for failure of the bailee or previous
indorsers to fulfill their respective obligations?
No (Art. 1517.) The indorsement amounts merely to a conveyance by the indorser, not a
contract of guaranty. Accordingly, the indorser is not liable, if for example, the bailee fails to
deliver the goods through the latter’s fault.
23. May a thief or finder of a negotiable document of title validly negotiate the same?
Article 1518 provides:
“The validity of the negotiation of a negotiable document of title is not impaired by the
fact that the negotiation was a breach of duty on the part of the person making the negotiation,
or by the fact that the owner of the document was deprived of the possession of the same by
loss, theft, fraud, accident, mistake, duress, or conversion, if the person to whom the document
was negotiated or a person to whom the document was subsequently negotiated pay value
therefore in good faith without notice of the breach of duty, or loss, theft, fraud, accident,
mistake, duress or conversion.”
(underscoring supplied)
Under the above article, the negotiation is not invalidated by the fact that the owner of
the document was deprived of its possession by loss or theft. It will be remembered that under
Article 1512 (question No. 17) neither a thief nor a finder may negotiate a negotiable document
of title. The two provisions thus appear contradictory to each other.
24. May goods for which a negotiable document of title has been issued be attached or levied
upon while in the possession of the bailee?
No, unless:
(1)The document be first surrendered; or
(2)Its negotiation is enjoined; or
(3)It is impounded by the court. (Art. 1519.)
The courts, however, have full power to aid by injunction or otherwise, a creditor in
attaching the document covering such goods. (Art. 1520.)
25. Should the buyer take possession of the goods or should the seller send them? In other words,
where is the place of delivery of goods sold?
 The following are the rules:
(1)Where there is an agreement, express or implied, the place of delivery is that agreed upon;
(2)Where there is no agreement, the place of delivery is that determined by usage of trade;
(3)Where there is no agreement and there is also no prevalent usage, the place of delivery is the
seller’s place of business;
(4)In any other case, the place of delivery is the seller’s residence; and
(5)In case of specific goods, which to the knowledge of the parties at the time the contract was
made were in some other place, that place is the place of delivery, in the absence of any
agreement or usage of trade to the contrary. (Art. 1521; see Art. 1251.)
26. At what time must the goods sold be delivered?
(1)At the time or period stipulated; or
(2)If there is no stipulation, at a reasonable time and hour which is a question of fact (Art.
1521.), i.e., a matter that must be proved in case of disagreement.
27. When is the vendor not bound to deliver the thing sold notwithstanding the perfection
of the contract of sale?
(1)If the vendee has not paid the price and no period for payment has been fixed in the contract.
(Art. 1524.) Reason: The obligation to deliver the thing sold is correlative to the obligation
to pay the price;
(2)If a period has been fixed for payment (i.e., sale is on credit), but the vendee has lost the right
to make use of the period or term (Art. 1536; see II. – Obligations, Chap. 3, Sec. 2, question
No. 9.); and
(3)If a period (which has not yet arrived) has been fixed for delivery, although the price has
already been paid. (see Art. 1595.)
28. Explain F.O.B., C.I.F., F.A.S., C. & F., Ex (Point of Origin) and Ex Dock.
(1) F.O.B. – The initials stand for the words, “free on board.” They mean that the goods are to
be delivered free of expenses to the buyer to the point where they are F.O.B.
(2) C.I.F. – The initials stand for the words “coat, insurance and freight.” They signify that the
price fixed covers not only the cost of the goods, but the expenses of freight and insurance
to be paid by the seller up to the point specially named.
(3) F.A.S. – The initials mean “free alongside vessel” (named port of shipment). Under this term,
the seller pays all charges and bear the risk until the goods are placed alongside overseas
vessel and within reach of its loading tackle.
(4) C. & F. – The initials signify that the price fixed includes cost and freight to the named point
of destination.
(5)Ex factory, Ex Warehouse, etc. (named point of origin). – Under this term, the price quoted
applies only at the point of origin, and the seller agrees to place the goods at the disposal of
the buyer at the agreed place on the date within the period fixed.
(6)Ex Doc (named port of importation). – Under this term, the seller quotes a price including the
cost of the goods on the dock at the named port of importation.
29. Define an unpaid seller.
An unpaid seller is one –
(1)Who has not been paid or tendered the whole price; or
(2)Who has received a bill of exchange or other negotiable instrument as conditional payment
and the condition on which it was received has been broken by reason of the dishonor of
the instrument. (Art. 1525.)
30. What are rights of the unpaid seller?
Even if the ownership in the goods or right to retain them for the price while in his possession;
(1) A lien on the goods or right to retain them for the price while in his possession;
(2) A right of stopping the goods in transit in case of insolvency of the buyer;
 (3) A right of resale; and
(4) A right of rescind the sale.
If the unpaid seller still retains ownership in the goods, he cannot be said to have a lien (on his
goods). But he does have, in addition to his other remedies, right of withholding delivery. (Art.
1526.)
31. In what cases may the unpaid seller exercise his right of possessory lien?
In any of the following:
(1)Where the goods have been sold without any stipulation as to credit;
(2)Where the goods have been sold on credit, but the term of credit has expired; and
(3)Where the buyer becomes insolvent.
The seller may exercise his right of lien notwithstanding that he is in possession of the goods as
agent or bailee for the buyer. (Art. 1527.)
32. When will an unpaid seller of goods lose his lien thereon?
In any of the following cases:
(1)When he delivers the goods to a carrier or other bailee for the purpose of transmission to the
buyer without reserving the ownership in the goods or the right of possession thereof;
(2)When the buyer or his agent lawfully obtains possession of the goods; and
(3)When the unpaid seller waives his lien.
Mere judgment by a court obtained by the unpaid seller for the price of the goods is not a
ground for the loss of his lien. (Art. 1529.)
33. What is the right of stoppage in transit?
The right of stoppage in transit is the right of the unpaid seller who has parted with the
possession of the goods, when the buyer is or becomes insolvent, to stop them and resume
possession while they are in transit. The unpaid seller will become entitled to the same rights to
the goods as if he had never parted with possession. (Art. 1530.)
34.Give the requisites for the exercise of the right of stoppage.
The following are the requisites for the existence of the right:
(1) The seller must be unpaid (Art. 1525.);
(2) The buyer must be insolvent;
(3) The goods must be in transit (Art. 1531.);
(4) The seller must either actually take possession of the goods sold or give notice of his claim
to the carrier or other person in possession (Art. 1532, par. 1.);
(5) The seller must surrender the negotiable document of title, if any, issued by the carrier or
bailee (Ibid., par. 2.); and
(6) The seller must bear the expenses of delivery of the goods after the exercise of the right.
(Ibid.)
35.How may the unpaid seller exercise the right to stop the goods in transit?
Either:
(1)By taking actual possession of the goods; or
(2)By giving notice of his claim to the carrier of bailee in whose possession the goods are.
The seller must surrender the negotiable document of title, if any, issued by the carrier of bailee.
(Art. 1532.)
36. When are goods no longer in transit?
The goods are no longer in transit after delivery to the buyer or his agent in that behalf and in
the following cases:
(1)If the buyer or his agent obtains possession of the goods at a point before the destination
originally fixed;
(2)If the carrier or bailee acknowledges to hold the goods on behalf of the buyer; and
 (3)If the carrier or bailee wrongfully refuses to deliver the goods to the buyer. (Art. 1531.)
37. In what cases may an unpaid seller exercise his right of resale?
In any of the following:
(1)When the goods are perishable in nature;
(2)When the right to resell is expressly reserved; and
(3)When the buyer defaults or delays in the payment of the price for an unreasonable time.
In case of resale, the seller is not liable for any profit made by such resale; but if he sells for less
than the price, he has a right to sue for the balance. As against the original buyer, the new buyer
acquires a good title to the goods. (Art. 1533.)
Note: An unpaid seller exercising the right to resell must have either a right of lien or a right to
stop the goods in transit.
38.In what cases may an unpaid seller exercise his right to rescind?
Under either of two situations, namely:
(1)When the right to rescind is expressly reserved; or
(2)When the buyer defaults or delays in the payment of the price for an unreasonable time.
In the case of rescission, the seller resumes ownership in the goods. While the seller shall
not be liable to the buyer upon the contract of sale, the latter, however, may be made liable
to the seller for damages for any loss occasioned by the breach of contract. (Art. 1534.)
Note: An unpaid seller has a right to rescind only if he has either a right of lien or a right to
stop the goods in transit.
39.Give the effects of the sale of goods subjects to the unpaid seller’s right of lien or stoppage in
transitu.
They are:
(1)The seller’s right is not affected by any disposition of goods made by the buyer, unless he has
assented thereto.
(2)If, however, the goods are covered by a negotiable document of title, the seller’s right cannot
prevail against the rights of a purchaser for value in good faith to whom the document has
been indorsed. (Art. 1535.)
40. In the sale of real estate, what are the rules in case the area or number is greater or less than
that stated in the contract?
They are:
(1)The sale is made with a statement of its area at the rate of a certain price for a unit of
measure or number –
Suppose a parcel of land stated as having an area of 1,000 square meters is sold at P2,000.00
per square meter –
(a) If the actual area, for example, is 1,100 square meters. – The vendee may accept the
area included in the contract (1,000 square meters) and the rest (100 square meters). If
he accepts the whole area, he must pay for the same at the contract rate, or
P2,200,000. (Art. 1546.)
(b) If the actual area is 900 square meters. – The vendee may choose between a
proportional reduction of the price (P1,800,00) and the rescission of the contract,
provided in the latter case the lack in the area be not less than 1/10 (i.e., 1/10 or more)
of that stated. (see Art. 1539.)
(2)The sale is made for a lump sum – There shall be no increase or decrease of the price. (Art.
1542.) Reason: The law presumes that the purchaser had in mind a determinate price for
the real estate and that he ascertained the area and quality before the contract was
perfected. This rule applies when two or more immovable are sold for a single price. (see
Art. 1541.) It does not apply if the deficiency is so material as to go to the essence of the
 contract, for under such circumstances, gross mistake may be inferred. (Asian vs. Jalandoni,
45 Phil. 296.)
EXAMPLE: S sold to B a parcel of land for the lump sum of
P180,000.00. The contract states that the area is 500 square meters.
Subsequently, it was ascertained that the area included within the boundaries is really
600 square meters. In this case, S is bound to deliver all the 600 square meters which are
included within said boundaries without increase in price. If S does not deliver also the extra
100 square meters, B has the right to rescind the contract or pay a proportionately reduced
price, namely: 5/6 of the original price or P150,000.00
If the land is actually less in area than that stated in the contract, B cannot claim a
proportional reduction of the price.
41. Who is deemed to be the owner in sales of the same thing to different vendees by the same
vendor?
The rules are:
(1)If the property sold is movable, the ownership shall be acquired by the vendee who first took
possession in good faith.
(2)If the property sold is immovable, the ownership shall belong to:
(a) The vendee who first registered the sale in good faith in the Registry of Property
(Registry of Deeds);
(b)In the absence of registration, the vendees who, in good faith, first took possession; and
(c) In the absence of both registration and possession, the vendee who presents the oldest
title (who first bought the property), provided there is good faith. (Art. 1544.)
EXAMPLES:
(1) S sold to B a cash register. The register, however, was allowed to remain in the hands
of S. Subsequently, S sold the same register to C who bought it in good faith and took
possession thereof. C should be considered as the owner of the property sold.
(2) S sold a parcel of land to B. Later, S sold the same land to C.
(a) If C, in good faith, first registered the deed of sale, the ownership belongs to C. The
remedy of B is to sue S for breach of warranty against eviction. (Art. 1548.)
(b)In the case of double registration, the title should remain in the name of the person
first securing registration in good faith.
(c) If neither sale was registered and C took possession of the land, in good faith, the
ownership shall also belong to him.
(d)If the absence of registration and possession by B and C, the ownership shall pertain
to B, his title being older than that of C.
Note: The rules on double sales above do not apply if:
(1)The contract of sale first registered is fictitious or forged;
(2)The vendor is not the owner of the property; or
(3)The sale is not made by the same vendor;

Section 3. – CONDITIONS AND WARRANTIES

1. Where the obligation of either party to a contract of sale is subject to a condition, what is the
right of such party if the condition is not fulfilled?
Such party may either:
(1)Refuse to proceed with the contract; or
(2)Proceed with the contract, waiving the performance of the condition. If the condition is in the
nature of a promise that it should happen, the non-performance of such condition may be
treated by the other party as a breach of warranty. (Art. 1545.) EXAMPLES:
 (1) B (buyer) entered into a contract with S for the purchase of certain machinery. The
arrival of the goods to be shipped from Japan is made a condition of the bargain, there
being no promise by S that the goods will arrive. If the machinery does not arrive, S is
not guilty of breach of contract.
But if S promises or warrants that the machinery will be shipped or that it was already
on its way, the non-arrival constitutes a breach of contract. (see McCullough vs. Berger,
43 Phil. 823’ Soler Vs. Chesley, 43 Phil. 529.)
(2) S promises to sell his parcel of land to B should S win a case pending in the Supreme
Court. S lost the case. S may either refuse to sell the parcel of land or he may waive the
performance of the condition and sell the parcel of land.
2. What are the kinds of warranties in a contract of sale?
They are:
(1)Express or promissory warranties. – They are any affirmation of fact or any promise by the
seller relating to the thing, the natural tendency of which is to induce the buyer to purchase
the thing and the buyer thus induced purchases the same. (Art. 1546.) Being a part of the
contract, it is immaterial whether the seller did not know that a warranty (e.g., the
statement that the car being sold is in excellent running condition) was true or false. Intent
is not necessary; and
(2)Implied warranties. – They are agreements or stipulations the existence of which is
presumed although not expressed in any words in the contract.
3. What are the implied warranties in a contract of sale?
Unless a contrary intention appears, they are:
(1)Warranty against eviction. – The seller guarantees that he has a right to sell the thing sold
and to transfer ownership to the buyer who shall not be disturbed in his legal and peaceful
possession thereof;
(2)Warranty against hidden defects or unknown encumbrances. – The seller guarantees that
the thing sold is free from any hidden faults or defects or any charge or encumbrance not
declared or known to the buyer (Art. 1547.); and
(3)Warranty as to fitness or merchantability. – The seller guarantees that the thing sold is
reasonably fit for the known particular purpose for which it was acquired by the buyer or,
where it was bought by description, that it is of merchantable quality. (Art. 1562.)
Note: The rule on implied warranty does not apply to a sheriff, auctioneer, mortgagee,
pledgee, or other person who sells by virtue of authority in fact or law. In other words, the
persons enumerated are not liable to a third person with a legal or equitable interest in the
thing sold.
(Art. 1547, par 2.)
Subsection 1. – WARRANTY IN CASE OF EVICTION
1. Define eviction.
Eviction may be defined as the judicial process whereby the vendee is deprived of the
whole or part of the thing purchased by virtue of a final judgment based on a right prior
to the sale or an act imputable to the vendor. (Art. 1548.)
2. Give the requisites for warranty against evictiction. They are:
(1)The vendee is deprived in whole or in part of the thing purchased;
(2)He is deprived by virtue of a final judgment (Art. 1557.);
(3)The judgment is based on a right prior to the sale or an act imputable to the vendor;
(4)The vendor was summoned in the suit for eviction at the instance of the vendee (Art.
1558.); and
(5)There is no waiver on the part of the vendee. (Art. 1548.) Note:
 (1)Mere trespass in fact (when a third person claims no right whatever) does
not give rise to the application of the doctrine of eviction. (see Art. 1590.) In
such case, the vendee has a direct action against the trespasser in the same
way as the lessee has such right. (Art. 1664.) The disturbance referred to in
the case of eviction is a disturbance in law which requires that a person go
to the courts of justice claiming the thing sold, or part thereof, and invoking
reasons.
(2)Any stipulation exempting the vendor from the obligation to answer for
eviction is void if he acted in bad faith. (Art. 1563.)
3. What are the kinds of waiver of eviction?
They are:
(1)Consciente. – The waiver is voluntarily made by the vendee without the knowledge
and assumption of the risks of eviction. The vendor shall only pay the value which
the thing sold had at the time of eviction; and
(2)Intencionada. – The waiver is made by the vendee with knowledge of the risks of
eviction and assumption of its consequences. (Art. 1554,) The vendor is not liable
for eviction if he acted in good faith.
(Art. 1553.)
Any waiver is presumed to be consciente.
4. What are the rights of the vendee in case eviction occurs? The vendee shall have the
right to demand of the vendor:
(1)The return of the value which the thing sold had at the time of the eviction, be it
greater or less than the price of the sale;
(2)The income or fruits, if he has been ordered to deliver them to the party who won
the suit against him;
(3)The costs of the suit which caused the eviction and, in a proper case, those of the suit
brought against the vendor for the warranty;
(4)The expenses of the contract, if the vendee has paid them; and
(5)The damages and interests, and ornamental expenses, if the sale was made in bad
faith. (Art. 1555.)
Note:
(1)In case of partial eviction, the vendee has the option either to enforce the
vendor’s liability for eviction (Art. 1555.) or to demand rescission of the
contract. (see Art. 1556.)
(2)In case the vendee is totally evicted from the thing sold, he cannot avail of the
remedy of rescission, because this remedy contemplates that the one
demanding it is able to return whatever he has received under the contract.
Subsection 2. – WARRANTY AGAINST HIDDEN DEFECTS,
OR ENCUMBRANCES UPON, THE THING SOLD
1. What is redhibition?
Redhibition is the avoidance of a sale on account of some vice or defect in the thing sold, which
renders its use impossible, or so inconvenient and imperfect that it must be supposed that the
buyer would not have purchased it had he known of the vice.
2. Give the requisites of the warranty against redhibitory (hidden, physical) defects.
They are:
(1)The defect must be serious or important;
(2)It must be hidden;
(3)It must exist at the time of the sale;
 (4)The vendee must give notice of the defect to the vendor within a reasonable time (Art.
1586.);
(5)The action for rescission or reduction of the price must be brought within the proper period –
6 months from the delivery of the thing sold (Art.1571.) or within 40 days from the date of
delivery in case of animals (Art. 1577, par. 1.); and
(6)There must be no waiver of warranty on the part of the vendee.
3. When is a defect important?
The defect is important if:
(1)It renders the thing sold unfit for the use for which it is intended; or
(2)It diminishes its fitness for such use to such an extent that the vendee would not have
acquired it had he been aware thereof or would have given a lower price for it. (Art. 1561.)
4. When is a defect hidden?
The defect is hidden if it was not known and could not have been known to the vendee. Hence,
there is no warranty if the defect is patent or visible. For the same reason, the vendor’s liability
for warranty cannot be enforced although the defect is hidden if the vendee is an expert who,
by reason of his trade or profession, should have known them.
5. Give the requisites of the warranty against hidden encumbrances. They are:
(1)The encumbrances must be important (the vendee would not have purchased the property
had he been aware of its existence);
(2)The encumbrance is not registered , unless expressly warranted free from burdens. Reason:
Registration constitutes constructive notice;
(3)The vendee had no knowledge of the encumbrance, whether it is registered or not. Reason:
Otherwise, there is no warranty; and
(4)The action for rescission or damages must be brought within the proper period (supra.); in
the case of immovable property encumbered with any non-apparent burden or easement –
within one year from the execution of the deed of sale. (Art. 1560.)
If the period of one year has already elapsed, the vendee of an immovable may only bring
an action for damages also within one year from the discovery of the non-apparent burden
or servitude.
6. Distinguish warranty of merchantability and warranty of fitness. A warranty of
merchantability is a warranty that goods are reasonably fit for the general purpose for which
they are sold, while warranty of fitness is a warranty that the goods are suitable for the special
purpose of the buyer which will not be satisfied by mere fitness for general purposes.
Note: In the case of contract of sale of a specific article under its patent or other trade name,
there is no warranty as to its fitness for any particular purpose, unless there is a stipulation to
the contrary. (Art. 1563.)
7. Is there an implied warranty as to the quality or fitness for any particular purpose of goods
under a contract of sale?
No, except as follows: where
(1)The buyer, expressly or by implication, manifests to the seller the particular purpose for
which the goods are acquired; and
(2)The buyer relies upon the seller’s skill or judgment.
8. Is the vendor responsible for hidden faults or defects in the thing sold, even though he was
not aware thereof?
Yes, except when the contrary has been stipulated and the vendor was not aware of the hidden
faults or defects. (Art. 1566.) This is the doctrine of
caveat venditor. Formerly the rule was caveat emptor (buyer beware).
9. What is the effect of the loss of the thing sold in consequence of its hidden defects?
 (1)The vendor was aware of them. – (a) He shall bear the loss, and shall be obliged (b) to return
the price and (c) refund the expenses of the contract, with damages.
(2)The vendor was not aware of them. – (a) He shall only return the price and interest thereon
and (b) reimburse the expense of the contract which the vendee might have paid. (Art.
1568.)
10. What is the effect if the defective thing is lost by fortuitous event or through the fault of the
vendee?
(1)Vendor acted in good faith. – The vendee may demand of the vendor the price which he
paid, less the value which the thing had when it was lost.
(2)Vendor acted in bad faith. – He shall also be liable for damages. (Art. 1569.)
11. State the rules when two or more animals (or other things) are sold together and redhibitory
defect is only in one or some of them but not in all.
(1)General rule. – The redhibition will not effect the others without it.
(2)Exception. – The vendee is able to show that he would not have purchased the sound ones
without those which are defective. Such intention is presumed when a team, yoke, pair or
set (e.g., the animals bought are a
male and a female) is bought. (Arts. 1572, 1573.) Note:
(1)There is no warranty against hidden defects of animals sold at fairs or at public auctions,
or of livestock sold as condemned. (Art. 1574.)
(2)In the case of animals, in order that the defects may be considered redhibitory, the
defect must not only be hidden but of such a nature that expert knowledge is not sufficient to
discover it. (Art. 1576.) 12. What class of animals cannot be the object of commerce?
They are:
(1)Those suffering from contagious diseases; and
(2)Those found unfit for the use or service for which they are acquired when such use or service
has been stated in the contract.
The sale of such animals is declared void (Art. 1575.), being against public interest. (see Art.
1409 [7].)

Chapter 5. – OBLIGATIONS OF THE VENDEE

1. What are the principal obligations of the vendee?
They are:
(1)To accept delivery; and
(2)To pay the price of the thing sold. (Art. 1582.)
2. When and where must the vendee accept delivery and pay?
(1)At the time and place stipulated in the contract; and
(2)If there is no stipulation as to the time place of payment, it must be made at the time when
and place where the thing sold is delivered by the vendor. (Art. 1582; see II. – Obligations,
Art. 1251.)
Note:
(1)If only the time for delivery of the thing sold has been fixed in the contract, the vendee is
required to pay even before the thing is delivered to him.
(2)In the absence of an agreement to the contrary, the vendee is not required to pay before
the thing is delivered.
EXAMPLES:
(1)S sold to B a specific refrigerator for P8,000.00. S is not bound to deliver the refrigerator
until payment by B; neither is B required to pay P8,000.00 until delivery by S. From the
 moment either party performs his obligation, the other must comply with his part,
otherwise, he will be guilty of delay. (Art. 1169, par. 3, Civil Code.)
(2)If it has been stipulated that B must accept the refrigerator and pay the price at the
house of S on October 10, then B is bound to accept delivery and to pay the price on
October 10 at the house of S.
(3)If there is no stipulation as to the time and place of delivery and S delivers the
refrigerator at the house of B on October 10, then B is bound to pay at the same time
and place.
(4)If there is also no stipulation, S is not required to deliver the refrigerator at the house of
B because in such case the place of delivery shall be where the refrigerator was at the
moment the contract was perfected. So, if it was at the house of S at that time, then
that is the place of payment. (Art. 1582, par. 2.)
(5)If the obligation of S to deliver is subject to a period which has not yet arrived, B is bound
to pay even before the refrigerator is delivered to him.
3. When is the buyer not entitled to examine the goods before payment of the price?
In a C.O.D. sale, in the absence of agreement or usage of trade permitting such examination. But
the buyer is still entitled to examine the goods after their delivery and payment of the price for
the purpose of ascertaining whether they are in conformity with the contract. (Art. 1584.)
4. When is the buyer deemed to have accepted the goods sold?
(1)Express. – when he intimates to the seller that he accepts them; or
(2)Implied. – (a) when the buyer, after delivery of goods, does any act inconsistent with the
sellser’s ownership, as when he sells or attempts to sell the goods, or he uses or makes
alteration in them in a manner proper only for an owner; or (b) when the buyer, after the
lapse of a reasonable time, retains the goods without intimating his rejection. (Art. 1585.)
Note: Acceptance may precede actual delivery.
5. Give the effect of the buyer’s refusal to accept the goods without just cause.
The title to the goods passes to him from the moment they are placed at his disposal. (Art.
1588.)
6. When is the vendee obliged to pay interest for the price for the period between delivery of
the thing and payment of the price?
In the following cases:
(1)Should it have been so stipulated;
(2)Should the thing sold and delivered produce fruits or income; and
(3)Should he be in default, from the time of judicial or extrajudicial demand for the payment of
the price. (Art. 1589.)
7. When may the vendee suspend the payment of the price? In two cases, namely:
(1)If he is disturbed in the possession or ownership of the thing bought; or
(2)If he has a well-grounded fear that his possession or ownership would be disturbed by a
vindicatory action (i.e., action to recover) or foreclosure of mortgage. (Art. 1590.)
8. Give the cases when the vendee is not permitted to suspend the payment of the price even if
there is disturbance in his ownership or possession of the thing bought.
In the following cases:
(1)If the vendor gives security for the return of the price in a proper case;
(2)If it has been stipulated that notwithstanding any such contingency the vendee must make
payment;
(3)If the vendor has caused the disturbance of danger to cease; and
(4)If the disturbance is a mere act of trespass.
Of course, the vendee can no longer suspend payment in case he has fully paid the price.
9. When may the vendor immediately sue for rescission of the sale of immovable property?
 When he should have reasonable grounds to fear the loss of the immovable property sold (and
delivered but not yet paid) and its price as when the vendee has become insolvent and intends
to sell the property. (Art. 1591.)
10.What is the effect of a stipulation that upon failure to pay the price at the time agreed upon,
the rescission of the contract of sale of right take place?
(1)With respect to immovable property. – Before a demand for rescission has been made by
the vendor, either judicially or by notarial act, the vendee may still pay the price even after
the expiration of the stipulated period for payment. After such demand, the court may not
grant the vendee a new term. (Art. 1592.)
(2)With respect movable property. – The vendor can rescind the contract, as a matter of right ,
if the vendee without valid cause does not (1) accept delivery or (2) pay the price unless a
credit period for its payment has been stipulated. (Art. 1593.) Reason: The price of personal
properties are so changeable that any delay in their disposal might cause the vendor great
prejudice. (10 Manresa 291.)
Note: There is no existing provision in our laws authorizing the automatic rescission of
contracts of sale of immovable property for non-payment of the purchase price.

Chapter 6. – ACTIONS FOR BREACH OF SALE OF GOODS

1. In general, what actions are available for breach of the contract of sale of goods?
They are:
(1)Action by the seller for payment of the price (Art. 1595.);
(2)Action by the seller for damages for non-acceptance of the goods (Art. 1596.);
(3)Action by the seller for rescission of the contract (Art. 1597.);
(4)Action by the buyer for specific performance (Art. 1598.); and
(5)Action by the buyer for rescission or damages for breach of warranty. (Art. 1599.)
Note: “Goods” include all chattels personal but not things in action or money of
legal tender in the Philippines. The term includes growing fruits or crops. (Art.
1636[1].)
2. Give the cases when an action for the price of goods under a contract of sale can be
maintained by the seller.
They are:
(1)When the ownership of the goods has passed to the buyer and he wrongfully
neglects or refuses to pay such price, irrespective of delivery or transfer of title;
(2)When the price is payable on a certain day and the buyer wrongfully neglects or
refuses to pay such price, irrespective of delivery or transfer of title; and
(3)When the goods cannot readily be resold for a reasonable price and the buyer
wrongfully refuses to accept them even before the ownership in the goods has
passed. (Art. 1595.)
3. When may the seller maintain an action against the buyer for damages for non-
acceptance?
In case the buyer wrongfully neglects or refuses to accept and pay for the goods, the
seller may maintain an action against him for damages for non-acceptance. (see Art.
1596.)
4. Give the cases when the seller may rescind a contract of sale of goods which have not
yet been delivered to the buyer.
They are:
(1)When the buyer has repudiated the contract of sale;
 (2)When the buyer has manifested his inability to perform his obligations thereunder;
and
(3)When the buyer has committed a breach of the contract of sale. (Art. 1597.)
Note: If the goods have been delivered, the seller may recover the value of what he
has given.
5. When may a buyer maintain an action against the seller for specific performance?
In case the seller fails to comply with his contract to deliver specific or ascertained
goods, the seller cannot retain the goods on payment of damages. (Art. 1598.) Reason:
Damages are imposed by law to insure fulfillment of the contract and not to substitute
for it. (see II. – Obligations, Art. 1911.)
6. What are the remedies available to the buyer when the seller has been guilty of as
breach of promise or warranty?
They are:
(1)Recoupment. – accept the goods and set up the seller’s breach to reduce or
extinguish the price;
(2)Action for damages. – accept the goods and maintain an action for damages for the
breach of the warranty;
(3)Counterclaim for damages. – refuse to accept the goods and maintain an action for
damages for the breach of the warranty; and
(4)Rescission. – rescind the contract of sale by returning or offering the return of the
goods and recover the price. (Art. 1599.) Note: The above remedies are alternative.
The only exception is when after the buyer has chosen fulfillment, it should become
impossible, in which case he may also sue for rescission (Art. 1191.)
7. When is the remedy of rescission not available in case of breach of warranty by
the seller?
In the following cases:
(1)If the buyer, knowing of the breach of warranty, accepted the goods without protest;
(2)If he fails to notify the seller within a reasonable time of his election to rescind; and
(3)If he fails to return or offer to return the goods in substantially as good condition as
they were in at the time of the transfer of ownership to him. But where the injury to
the goods was caused by the very defect against which the seller warranted, the
buyer may still rescind the sale. (Art. 1599.)
8. Give the rights and obligations of the buyer in case of rescission. They are as
follows:
(1)In case of rescission, the buyer shall cease to be liable for the price his only obligation
being to return the goods.
(2)If he has paid the price or any part thereof, he may recover it from the seller. (par. 4.)
(3)He has also the right to hold the goods as bailee for the seller should the latter refuse
the return of the goods and to have a lien thereon for any portion of the price
already paid which lien he may enforce as if he were an unpaid seller.

Chapter 7. – EXTINGUISHMENT OF SALE

1. What are the modes or causes for extinguishment of sale? They are:
(1)Common. – those causes which are also the means of extinguishing all other contracts like
payment, loss of the thing, condonation, etc. (see Art. 1231.);
(2)Special. – those causes which are recognized by the law on sales (such as those covered by
Arts. 1484, 1532, 1539, 1540, 1542, 1556, 1560, 1567, and 1591.); and
(3)Extra-special. – those causes which are given special discussion by the
Civil Code and these are conventional redemption and legal redemption
Section 1. – CONVENTIONAL REDEMPTION
1. Define conventional redemption.
Conventional redemption is the right which the vendor reserves to himself, to reacquire the
property sold provided he:
(1)Reimburse the vendee of (a) the price, (b) the expenses of the contract, (c) any other
legitimate payments made therefor, and (d) the necessary and useful expenses made on the
thing sold (Art. 1616.); and
(2)Fulfills other stipulations which may have been agreed upon. (Art. 1601.) 2. What is the
nature of conventional redemption?
(1)It is purely contractual right because it is created, not by mandate of the law, but by virtue of
an express contract;
(2)It is an accidental stipulation and, therefore, its nullity cannot affect the sale itself since the
latter might be entered into without said stipulation
(3)It is a real right because when registered, it bind third persons (Art. 1608);
(4)It is a potestative condition because it depends upon the will of the vendor (see Art. 1182.);
(5)It is a resolutory condition because when exercised, the right of ownership acquired by the
vendee is extinguished (see Art. 1179.);
(6)It is not an obligation but a power or privilege that the vendor has reserved for himself; and
(7) It is reserved at the moment of the perfection of the contract for if the right to repurchase
is agreed upon afterwards, there is only a promise to sell which produces different rights
and effects. (see 10 Manresa 311.)
3. When is a contract of sale with a right to repurchase (pacto de retro sale) presumed an
equitable mortgage?
In the following cases or instances:
(1)When the price of a sale with right to repurchase is unusually inadequate;
(2)When the vendor remains in possession as lessee or otherwise;
(3)When upon or after the expiration of the right to repurchase another instrument extending
the period of redemption or granting a new period is executed;
(4)When the purchaser retains for himself a part of the purchase price;
(5)When the vendor binds himself to pay the taxes on the thing sold; and
(6)In any other case where it may be fairly inferred that the real intention of the parties is that
the transaction shall secure the payment of a debt or the performance of any other
obligation. (Art. 1602.)
Note: In any of the foregoing cases, any money, fruits or other benefit to be received by the
vendee as rent or otherwise shall be considered as interest. The price paid by the supposed
buyer is considered the principal of a loan and any money, etc. received by him thereafter is
considered as interest of said loan.
4. Define equitable mortgage.
An equitable mortgage is one which, although it lacks the proper formalities of a mortgage,
shows the intention of the parties to make the property subject of the contract of sale with a
right to repurchase as security for a debt.
Note: In case of doubt, a contract purporting to be a sale with right of repurchase shall be
construed as an equitable mortgage. (Art. 1603.)
5. Within what period must the right to repurchase in conventional redemption be exercised?
(1)If there is no agreement granting the vendor the right to redeem, there is no right of
redemption since the sale should be considered an absolute sale.
(2)If the parties agree only on the right to redeem on the part of the vendor but there is a total
absence of express stipulation as to the time within which the repurchase should be made,
then the period of redemption shall be four (4) years from the date of the contract.
 (3)If the parties agree on a definite period of redemption, then the right to redeem must be
exercised within the period fixed provided it does not exceed 10 years.
(4)If the parties agree that the vendor shall have a right to redeem and they intend a period
which, however, is not specified (e.g., “at any time the vendor has the money”), then the
redemption period is 10 years.
(5)“From the time final judgment was rendered in a civil action on the basis that the contract
was a true sale with right to repurchase,” the vendor a retro has 30 days within which to
exercise the right to repurchase. (Art. 1606.)
6. May the period of redemption be extended by stipulation?
(1)After its expiration. – No, because that which is extinguished cannot be extended and
because the ownership in the vendee is already consolidated, and becomes absolute.
(2)Before its expiration. – Yes, provided the extension including the original term shall not
extend beyond 10 years; otherwise, the extension is void as to the excess.
7. In the exercise of the right of repurchase, what should the vendor pay?
The following:
(1)The price of the sale;
(2)The expenses of the contract, and any other legitimate payments made by reason of the sale;
and
(3)The necessary and useful expenses made on the thing sold. (Art. 1616.)
8. What is the effect of the failure of the vendor to redeem?
(1)In case of personal property. – The vendee’s title becomes irrevocable;
(2)In case of real property. – The consolidation of ownership in the vendee by virtue of the
failure of the vendor to comply with the provisions of Article 1616 shall not be recorded in
the Registry of Property without a judicial order, after the vendor has been duly heard. (Art.
1607.) Reason: The transaction may not be a genuine pacto de recto but not only an
equitable mortgage.
9. What are the rights of the vendee a retro?
They are:
(1)To be subrogated to the vendor’s rights and actions (Art. 1609.); and
(2)To compel the vendor of a part of an undivided immovable to redeem the whole property in
case the vendee a retro of such part acquires the entire immovable. (Art. 1611; see Art.
498.) Purpose of law: to discourage coownership.
Section 2. – LEGAL REDEMPTION
1. Define legal redemption.
Legal redemption is the right to be subrogated, upon the same terms and conditions stipulated
in the contract, in the place of one who acquires a thing by purchase or dation in payment, or by
any other transaction whereby ownership is transmitted by onerous title. (Art. 1619.)
2. Give instances of legal redemption.
They are:
(1)Redemption by a co-heir of the share sold by the other heir (Art. 1088.);
(2)Redemption by a co-owner (Art. 1620.);
(3)Redemption by an adjoining owner of a piece of rural land (Art. 1621.) or urban land (Art.
1622.);
(4)Redemption by a debtor in case of sale of right in litigation (Art. 1634.); and
(5)Under special laws (among others):
(a) Redemption by owner of real property sold for delinquent taxes. The period is one (1)
year (NIRC, Secs. 326, 328.);
 (b)Repurchase by homesteader of homestead sold under the Public Land Act. The period is
five (5) years (Com. Act No. 141, Sec. 119.);
(c) Redemption by judgment debtor or redemptioner of property sold on execution. The
period is 12 months (Rules of Court, Rule 39, Sec. 29.); (d)Redemption by mortgagor
after mortgaged property has been judicially foreclosed and sold. The period is within
90 days but before confirmation of sale by the court (Ibid., Rule 68, Sec. 3.); and
(e) Redemption by mortgagor after mortgaged property has been extrajudicially forclosed
and sold. The period is within one (1) year from the registration of the sale. (Act No.
3135, Sec. 16.)
3. Give the requisites for the exercise of the right of legal redemption by a co-owner.
They are:
(1)There must be a co-ownership;
(2)There must be alienation of all or of any of the shares of the other coowners;
(3)The sale must be to a stranger (Art. 1620.); and (4)The sale must be
made before partition. (Art. 1088.) EXAMPLE:
X,Y, and Z are co-owners of an undivided property valued at
P500,000.00 X sells his interest to B for P200,000.00
Y or Z may exercise the right of redemption by reimbursing B the price of the sale. If
both Y and Z redeem the interest sold by X, each of them shall pay P100,000.00 to B which is the
proportion of their respective shares in the co-ownership. If the price of P200,000.00 is grossly
excessive, the same may be equitably reduced by the court.
Co-owners have no right of legal redemption against each other. The right of legal
redemption is not granted solely and exclusively to the original co-owner but applies to those
who subsequently acquire their respective shares while the co-ownership subsists.
4. Give the requisites for the exercise of the right of legal redemption of rural lands by adjoining
owners.
They are:
(1)Both the land of the one exercising the right of redemption and the land sought to be
redeemed must be rural;
(2)The lands must be adjacent;
(3)There must be an alienation;
(4)The piece of rural land alienated must not exceed one (1) hectare;
(5)The vendee must already own some rural land; and
(6)The rural land sold must not be separated by brooks, drains, ravines, roads and other
apparent servitudes from the adjoining lands. (Art. 1621.)
5. Give the requisites for the exercise of the right of legal redemption of urban lands by adjoining
owners.
They are:
(1)The one exercising the right must be an adjacent owner;
(2)The piece of land sold must be so small and so situated that a major portion thereof cannot
be used for any practical purpose within a reasonable time; and
(3)Such urban land was bought by its owner merely for speculation. (Art. 1622.)
Note:
(1)Article 1622 also gives the adjoining owner the right of pre-emption, which is the right of
purchasing before others. It is exercised before the sale or resale against the would-be
vendor.
(2)The right of redemption of co-owners is preferred over that of adjoining owners. (Art.
1623.)
6. When must the right of legal pre-emption or redemption be exercised?
 Within 30 days from notice in writing by the prospective vendor or by the vendor, as the case
may be.

Chapter 8. – ASSIGNMENT OF CREDITS AND OTHER INCORPOREAL RIGHTS

1. Define assignment of credit.
Assignment of credit is a contract by which one person transfers to another his rights and
actions against a third person in consideration of a price certain in money or its equivalent (see
Arts. 1624, 1458.)
Note: It is a consensual, bilateral, onerous, and commutative or aleatory contract. (see
III. – Contracts.)
2. What is the nature of assignment of credit?
It is really a sale – a sale of credit – and is, therefore, governed by the law on sale.
There is, however, one important difference and that is, after the transfer, a definite
third person is obliged; whereas, in sale, the subject is the whole world which must respect the
title of the buyer. (10 Manresa 376.)
3. Give the formalities required of a valid assignment.
(1)As between the parties. – The assignment is valid although it appears in a private document
so long as the law does not require a specific form for its validity. (see III. – Contracts, Art.
1356.)
(2)As against third persons. – To affect them, the assignment must appear in a public
instrument, and in case it involves real property, that it be recorded in the Registry of
Property. (Art. 1625.)
4. Give the effects of a valid assignment of credit.
They are:
(1)The assignment transfers title to the assigned credit to the assignee;
(2)It includes all the accessory rights, such as guaranty, mortgage, pledge, or preference (Art.
1627.); and
(3)The assignee takes the credit subject to defenses which may have been acquired by the
debtor before notice of the assignment. (see Art. 1626.)
5. In an assignment of credit, is the consent of the debtor essential? No. The law contemplates
only notice to the debtor for the protection of the assignee. So, the debtor who, before having
knowledge of the assignment, pays his creditor, shall be released from the obligation. (Art.
1626.)
6. What are the warranties of an assignor of credit?
He warrants:
(1)The existence of the credit; and
(2)The legality of the credit, unless it should have been sold as doubtful. (Art.
1628.)
There is no warranty as to the solvency of the debtor unless it has been expressly
stipulated or unless the insolvency was prior to the sale and of common knowledge.
7. What are the liabilities of an assignor of credit?
For violation of the above warranties –
(1)If in good faith, he is only liable for (a) the price received and (b) the expenses of the contract
and (c) any other legitimate payments by reason of the assignment.
(2)If in bad faith, he is also liable for damages. (Arts. 1628, 1616.) EXAMPLE:
D owes C P200,000 which represents the purchase price of a car bought by D. C assigns
the credit to T. C is liable to T if at the time of the assignment, the credit has already
prescribed, or has been paid, or is annullable and its nullity is subsequently declared,
because C warrants the existence and legality of the credit.
 But C is not liable if D cannot fulfill his obligation due to insolvency because insolvency
has nothing to do with the existence and legality of the credit unless it has been expressly
stipulated or the insolvency of D was existing prior to the assignment and of common or
public knowledge although it was not known to C (for C is conclusively presumed to have
known of the same) or known to C although it was not of common knowledge.
8. What is the duration of the assignor’s liability where the debtor’s solvency is expressly
warranted?
As follows:
(1)If there is stipulation, then for the term or period fixed;
(2)If there is no stipulation:
(a) For one year from the assignment of the credit when the period for payment of the
credit has expired; or
(b)For one year after its maturity, when such period for payment has not yet expired.(Art.
1629.)
The above apply if the assignor acted in good faith.
EXAMPLE: D owed C P1,000.00 payable on July 1, 1999. C assigns his credit to T
with C making himself responsible for the solvency of D.
If the agreement is that the duration of C’s liability shall last for two years from
July 1, 1999, then his guaranty shall last as agreed upon.
If there is no stipulation, and the assignment is made on August 1, 1999, the liability is
limited to one year from the assignment. However, if the assignment is made on June 1,
1999, the responsibility shall cease exactly one year after July 1, 1999, or one year after
the maturity of the debt.
9. Give the requisites for the exercise of the right of legal redemption by the debtor in case of sale
of credit or other incorporeal right in litigation.
They are:
(1)There must be a sale or assignment of a credit;
(2)There must be a pending litigation at the time of the assignment; and
(3)The debtor must pay the assignee (a) the price paid by him; (b) the judicial costs incurred
by him; and (c) the interest on the price from the date the assignee demands payment
from him. (Art. 1634.) Note:
(1)The object of the law in allowing redemption by the debtor is to avoid the sale of credits
in litigation merely for speculation.
(2)There is no right of redemption if the credit in litigation is sold:
(a) To a co-heir or co-owner of the right assigned;
(b)To a creditor in payment of his credit; or
(c) To the possessor of a tenement or piece of land which is subject to the right in
litigation assigned. (Art. 1635.)

V. – AGENCY
Chapter 1. – NATURE, FORM AND KINDS OF AGENCY
1. Define agency.
Agency is a contract whereby a person binds himself to render some service or to do something
in representation or on behalf of another, with the consent or authority of the latter. (Art.
1868.)
Note: It is consensual (exception: Art. 1874, infra.), nominate, bilateral (unilateral, if
gratuitous), principal, and preparatory contract. (see III. – Contracts.)
2. What is the basis of agency?
 Agency is also a representative relation. Representation constitutes its basis. By this legal fiction
of representation, the actual absence of the principal is transferred into legal or juridical
presence.
3. What is the purpose of agency?
The purpose is to extend the personality of the principal. It enables the activity of man which is
naturally limited in its exercise by the imposition of his physiological conditions to be extended,
permitting him to perform diverse acts at the same time in different places. (see 11 Manresa
434.)
4. Who are the parties to a contract of agency?
They are:
(1)Principal. – one whom the agent represents and from whom he derives his authority; he is
the person represented; and
(2)Agent. – one who acts for and represents another; he is the person acting in a representative
capacity.
Note: The principal is sometimes called employer, constituent, or chief. The agent is
frequently called an attorney, or an attorney-in-fact, and occasionally is spoken of as a
proxy, delegate, or representative. (Mechem, Sec. 26.)
5. What acts may be delegated to an agent?
Generally, what a man may do in person, he may do through another. Some acts, however,
cannot be done through an agent, e.g., those which are purely personal in nature, like the right
to vote during election and those which are illegal.
6. What is the nature of the relation between principal and agent?
The relation is fiduciary in character since it is based on trust and confidence. Hence, the agent is
estopped from asserting or acquiring a title to the subject matter of the agency adverse to that
of the principal.
7. Distinguish agency from similar contracts or relations.
(1)Loan. – A borrower is given money (a) for purposes of his own (in agency, to advance
principal’s business) and he must generally (b) return it whether or not his business is
successful.
(2)Lease of service. – the (a) basis is employment and the lessor (like a servant) ordinarily (b)
performs only ministerial (not discretionary) functions.
(3)Contract for a piece of work. – The independent contractor exercise his employment
independently and not in representation of the employer.
(4)Partnership. – A partner acts not only for his co-partners and the partnership but also as a
principal for himself (in agency, agents acts only for his principal.)
(5)Negotiorum gestio. – It is (a) a qyuasi-contract; (b) the gestio acts without authority and
knowledge of the owner of the property of business although according to his (c) presumed
(not express) will by exercising “all the diligence of a good father of a family.”(Art. 2145.) In
both, however, there is representation.
Note: If a person comes to know that another is acting in his behalf without authority but he
does not repudiate, there is implied agency.
(6)Sale. – In sale (as distinguished from agency to sell), the buyer (a) receives the goods as
owner, (b) pays the price (the agent delivers the proceeds of the sale), (c) can deal with the
thing as he pleases being the owner (the agent, according to the instructions of the
principal), and (d) as a general rule, cannot return the object sold.
(7)Brokerage. – A broker is merely (a) an intermediary between the purchaser and the vendor
whose only office is to bring together the parties to the transaction and has (b) no relation
to the thing he buys or sells, while a (commission) agent maintains a relation not only with
his principal and the purchaser or vendor but also with the property the subject matter of
 the transaction which is placed in his possession and at his disposal in accordance with his
authority.
(8)Relations between guardian and ward. – While the guardian acts for and on behalf of his
ward, he does not, however, derive his authority to act from the ward.
8. How may agency be classified?
As follows:
(1)As to manner of its creation:
(a)Express. – one where the agent has been actually authorized by the principal either orally
or in writing (Art. 1869.);
(b)Implied. – one which is implied from the acts of the principal, from his silence or lack of
action, or his failure to repudiate the agency, knowing that another person as acting on
his behalf without authority.
(2)As to its character:
(a)Gratuitous. – one where the agent receives no compensation for his services (Art. 1875.);
or
(b)Compensated or onerous. – one where the agent receives compensation for his
services. Agency is presumed to be for a compensation. (Art. 1875.)
(3)As to extent of business covered:
(a)General. – one which compromises all the business of the principal (Art. 1876.); or
(b)Special. – one which compromises one or more specific transactions.
(4)As to authority conferred:
(a)Couched in general terms. – one which is created in general terms and is deemed to
comprise only acts of administration (Art. 1877.); or
(b)Couched in specific terms. – one authorizing only the performance of a specific act or
acts. (see Art. 1878.)
(5)As to its nature and effects:
(a)Ostensible or representative. – one where the agent acts in the name and
representation of the principal (4 Castan, 4 th ed., p. 490.); or
(b)Simple or commission. – one where the agent acts for the account of the principal but in
his own name.
Note:
(1)Agency may be oral unless the law requires a specific form. (Art. 1869.)
(2)When a sale of a piece of land or any interest (like mortgage, usufruct, etc.) is
through an agent, the authority of the latter shall be in writing; otherwise, the sale
shall be void. (Art. 1874)
9. When is there implied acceptance of an agency by an agent?
(1)As between persons present. – If the principal (personally) delivers his power of attorney to
the agent and the latter receives it without any objection. (Art. 1873.)
(2)As between persons absent.
(a) When the principal transmits his power of attorney to the agent, who receives it without
any objection;
(b)When the principal entrusts to him by letter or telegram a power of attorney with respect
to the business in which he is habitually engaged as an agent, and he did not reply to the
letter or telegram. (Art. 1872.) Note: A power of attorney may be defined as written
authorization to an agent to perform specified acts in behalf of his principal which acts,
when performed, shall have binding effect on the principal. (2 Am. Jur. 30.)
10.What are the two ways by which the principal may give notice of the appointment of an agent?
Give their effects.
 (1)If by special information. – The person appointed as agent is considered such with respect to
the person to whom the information was given.
(2)If by public advertisement. – The agent is considered as such with regard to any person.
Public advertisement may be made in any form, through the newspaper, radio, etc., and by
posters or billboards.
The power shall continue to be in full force until the notice is rescind in the same
manner in which it was given. (Art. 1873.)
EXAMPLE: P especially informs X that he has given A a power of attorney. With respect
to X, A hereby becomes a duly authorized agent of P.
To rescind the power of attorney, P must give notice in the same manner in which it
was given, namely, by special information to X. Public advertisement is not sufficient unless
X has actual knowledge of the revocation.
But if P makes known the appointment of A by public advertisement, revocation by
public advertisement or by special information to X is effective against him.
11. Distinguish apparent authority from authority by estoppel.
(1)Apparent authority is that which though not actually granted, the principal knowingly
permits the agent to exercise or holds him out as possessing .
(2)Authority by estoppel arises in those cases where the principal by his culpable negligence
permits his agent to exercise powers not granted to him, even though the principal may
have no notice or knowledge of the conduct of the agent.
EXAMPLE: P authorized A to sell P’s land, the purchase price payable to P in 12 monthly
installments. A sold the land to X.
If P knowingly permits A to collect from X, A may be said to have apparent authority to
receive payment.
But if A collects from X without informing P but under such circumstances as to charge P
with knowledge of such collection, as that several months have already passed, there arises
in this case authority by estoppel founded on the negligence of P.
12. Distinguish implied agency from agency by estoppel.
(1)In the former, there is an actual agency. The principal alone is liable.
(2)In an agency by estoppel, the authority of the agent is not real but only apparent.
(a) If the estoppel is caused by the principal, he is liable to any third person who relied on
the misrepresentation.
(b)If the estoppel is caused by the agent, then only the agent is liable.
EXAMPLES:
(1) P tells X that A is authorized to sell certain merchandise. P privately instructs A not
to consummate the sale but merely to find out the highest price X is willing to pay
for the merchandise.
If A makes a sale to X, the sale is binding on P who is in estoppel to deny A’s
authority. In this case, there is no agency created but there is a power created in A
to create contractual relations between P and X, without having authority to do so.
The legal result is the same as if A had authority to sell.
(2) P authorized A to sell the former’s car. A sold the car to X who paid A the purchase
price. However, A did not give the money to P. X is not liable to P. A has implied
authority to receive payment.
13. How many agents be classified?
As follows:
(1)Universal. – One authorized to do all acts that the principal may personally do, and which he
can lawfully deligate to another the power of doing (2
C.J. 427.);
 (2)General. – One authorized to transact all the business of the principal or to do acts connected
with a particular trade, business or employment; and
(3)Special or particular. – One authorized to act in one or more specific transactions or to act
upon a particular occasion. (Art. 1876.)
14.Give the legal effect of an agency couched in general terms. Such an agency comprises only
acts of administration, (a) even if the principal should state that he withholds no power, or (b)
that the agent may execute such acts as he may consider appropriate, or (c) even though the
agency should authorize a general and unlimited management. (Art. 1877.)
15.Enumerate the cases in which special powers of attorney are necessary.
They are:
(1)To make such payments as are not usually considered as acts of administration;
(2)To effect novations which put an end to obligations already in existence at the time the
agency was constituted;
(3)To compromise, to submit questions to arbitration, to renounce the right to appeal from a
judgment, to waive objections to the venue of an action, or to abandon a prescription
already acquired;
(4)To waive any obligation gratuitously;
(5)To enter into any contract by which the ownership of an immovable is transmitted or
acquired either gratuitously or for a valuable consideration;
(6)To make gifts, except customary ones for charity or those made to employees in the business
managed by the agent;
(7)To loan or borrow money, unless the latter act be urgent and indispensable for the
preservation of the things which are under administration;
(8)To lease any real property to another person for more than one year;
(9)To bind the principal to render some service without compensation;
(10) To bind the principal in a contract of partnership;
(11) To obligate the principal as a guarantor or surety;
(12) To create or convey real rights over immovable property;
(13) To accept or repudiate an inheritance;
(14) To ratify or recognize obligations contracted before the agency; and
(15) Any other act of strict dominion. (Art. 1878.) Note:
(1)The cases enumerated involve acts of strict dominion or ownership as distinguished
from acts of administration.
(2) A special power to sell excludes the power to mortgage; and a special power to
mortgage does not include the power to sell. (Art. 1879.)
(3) A special power to compromise does not authorize submission to arbitration. (Art.
1880.)
16. How may the authority of an agent be classified?
As follows:
(1)Express. – when it is conferred by words (Art. 1869.);
(2)Implied. – when it is incidental to the transaction or reasonably necessary to accomplish the
purpose of the agency (Art. 1881.);
(3)Apparent ostensible. – when it is conferred by conduct or even by silence. (see Art. 1869.)
Ostensible authority is another name for authority by estoppel. It is also an implied
authority in the sense that it is not expressly conferred;
(4)General. – when it refer to all the business of the principal (see Art. 1876.); (5) Special. –
when it is limited only to one or more specific transactions; and
(6)Authority by necessity. – when it is demanded by virtue of the existence of an emergency.
 EXAMPLE: P gave a power of attorney to A authorizing him to sell P’s car for
P100,000.00 payable in cash. Here, the authority of A to sell the car is express. It includes
the implied authority to receive payment and to give a receipt as they are acts necessary to
accomplish the purposes of the agency.
If P privately instructed A not to consummate the sale, the sale by A is binding upon P as
A had ostensible authority to sell. The effect is as if A had actual authority. The same is true
if P had not authorized A to sell the car but having knowledge that A was acting for him, he
kept silent and after the consummation of the sale, receive the proceeds thereof from A.
The authority given to A to sell the car is special because it involves a particular
transaction. A has no authority to use the car for purposes of his own but he can use it in an
emergency, as for example, to take a member of his family who is seriously hurt to a
hospital. In this case, his authority is demanded by necessity.
17. Give the requisites in order that the principal may be bound by the act of the agent.
They are:
(1)The agent must act within the scope of his authority; and
(2)The agent must act in behalf of the principal. (see Arts. 1881, 1882.)
18. In what cases is the principal bound by the acts of an agent who exceeded his
authority?
They are:
(1)Where his (principal’s) acts have contributed to deceive a third person in good faith (see Art.
1911.);
(2)Where the limitations upon the power created by him could not have been known by the
third person (see Art. 1900.);
(3)Where the principal has placed in the hands of the agent instruments signed by him in blank
(Strong, et al. vs. Gutierrez Repide, 6 Phil. 680.); and
(4) Where the principal has ratified the acts of the agent. (see Art. 1901.)
19. How may principals be classified?
As follows:
(1)Disclosed. – If at the time of the transaction contracted by the agent, the other party thereto
has notice that the agent is acting for a principal and of the principal’s identity;
(2)Partially disclosed. – If the other party has notice that the agent is or may be acting for a
principal but has no notice of the principal’s identity; and
(3)Undisclosed. – If the other party has no notice that the agent is acting for the principal.
(Restatement of the Law on Agency, Sec. 4, pp. 15-16. )
20. State the legal effects where an agent, being authorized to act on behalf of the
principal, acts instead in his own name.
They are:
(1)General rule. – The agent is the one directly liable to the person with whom he had
contracted as if the transaction were his own. Therefore, the principal and such person have
no right of action against each other.
(2)Exception. – The principal is bound when the contract involves things belonging to him.
The principal may sue the agent for breach of contract (Art. 1883.) EXAMPLES:
(1) P authorized A to bid for him in the construction of a certain building. A acted in his own
name, that is, without disclosing that his bid was on behalf of P. If the bid of A was
lowest, only A and the owner of the building would be bound to each other. But A is
liable to P under the contract of agency.
(2) P authorized A to sell the former’s car. A sold the car to B. A acted in his own name.
Here, the contract involves a thing in belonging to the principal. The sale is completely
 valid. The contract is deemed entered into between P and B. So B can sue P in case the
car has hidden defects.
(3) P told A to buy a car. A bought a car from B with money belonging to P. A acted in his
own name. B and P have a right of action against each other. Thus, P can sue B in case
the car has hidden defects.

Chapter 2. – OBLIGATIONS OF THE AGENT

1. What are the specific obligations of the agent?
They are:
(1)To carry out the agency in accordance with its terms; otherwise, he shall be liable for
damages. (Art. 1884.) Reason: He betrays the confidence reposed on him by the principal;
(2)To answer for the damages which through his nonperformance the principal may suffer;
(3)To finish the business already begun on the death of the principal should delay entail any
danger. Reason: In such case, the agency is still deemed in full force;
(4)To observe the diligence of a good father of a family in the custody and preservation of the
goods forwarded to him by the owner in case he declines an agency, until an agent is
appointed (Art. 1885.);
(5)To advance the necessary funds if such is the stipulation, except when the principal is
insolvent (Art. 1886.);
(6)To act in accordance with the instructions of the principal, and in the absence thereof , to do
all that a good father of a family would do, as required by the nature of the business (Art.
1887.);
(7)Not to carry out the agency if its execution would manifestly result in loss or damage to the
principal. (Art. 1888.) Reason: The duty of the agent is to render service for the benefit and
not to the detriment of the principal;
(8)There being a conflict, not to prefer his own interests to those of the principal (e.g., buying
goods of the principal or selling his own goods to the principal without informing the
principal); otherwise, he shall be liable for damages. (Art. 1889.) Reason: Agency is a
fiduciary relation involving trust and confidence;
(9)Not to borrow money of the principal who has authorized him to lend although at interest,
without his consent. (Art. 1890.) Reason: The agent may prove to be a bad debtor. But if the
agent has been authorized to borrow money he may himself be the lender at the current
rate. Reason: There is no danger of the principal suffering any damage;
(10) To render an account of his transactions and to deliver to the principal whatever he
may have received by virtue of the agency though it may not be owing to the principal
(Art. 1891.);
(11) To be responsible in certain cases for the acts of the substitute appointed by him (Art.
1892.);
(12) To pay interest on funds he has applied to his own use (Art. 1896.);
(13) To be responsible for the goods received by him, etc., to sell on credit only with the
consent of the principal, etc., and to collect with due diligence the credits of the
principal (Arts. 1903-1908.); and
(14) To answer for his fraud or negligence. (Art. 1909.)
Note: A stipulation exempting the agent from the obligation to render an account is
declared void. Reason: It is contrary to public policy as it would encourage fraud.
2. What are the duties of the parties in case an emergency is declined?
(1)The person who declines the agency is bound to observe the diligence of a good father of a
family in the custody and preservation of the goods forwarded to him by the owner until the
latter should appoint an agent; and
 (2)The owner shall, as soon as practicable, either appoint an agent or take charge of the goods.
(Art. 1885.)
3. Distinguish authority from instructions.
(1)Authority is the extent or the limitation of the agent’s power to represent the principal.
Instructions are directions which the principal may give the agent to follow in the discharge
of his duties as such agent.
(2)Third persons dealing with an agent do so at their own risk and are duty bound to investigate
his authority because if the act is done outside the scope of his authority, the principal is not
bound. But persons dealing with the agent need not verify or investigate the instructions of
the principal since they concern only the principal and the agent.
EXAMPLE: P writes to B that A is authorized to buy certain merchandise. P privately
instructs A not to buy but merely to obtain B’s lowest price. In violation of said
instruction, A buys the merchandise. In this case, the sale is binding upon P because A
has authority to make the purchase although it is not in accordance with the instruction
given.
4. Who is a sub-agent?
A sub-agent (or substitute) is a person to whom the agent delegates, as his agent, the
performance of an act for the principal which the agent has been empowered to perform.
5. Enumerate the cases when an agent is responsible for the acts of the substitute appointed by
him.
In the following cases:
(1)When he was not given the power to appoint one;
(2)When he was given such power, but without designating the person, and the person
appointed was notoriously incompetent or insolvent; and
(3)When he was prohibited from appointing a substitute. (see Art. 1892.)

Note:
(1)All acts of the substitute appointed against the prohibition of the principal are void.
(2)Unless prohibited by the principal, the agent may appoint a substitute.
6. When is the agent bound to the party with whom he contracts?
(1)When he expressly binds himself; and
(2)When he exceeds the limits of his authority without giving such party sufficient notice of his
powers. (Art. 1897.) Reason: The contract being unenforceable, the third person is deprived
of any remedy against the principal.
7. What is the scope of an agent’s authority as far as third persons are concerned?
An act is deemed to have been performed within the scope of the agent’s authority, if such act
is within the terms of the power of attorney, as written, even if the agent has in fact exceeded
the limits of his authority according to an understanding between the principal and the agent.
(Art. 1900.) Purpose
of the rule: To protect the interests of third persons.
8. State the rules when there is multiplicity of agents.
They are:
(1)The responsibility of two or more agents is not solidary (II. – Obligations, Chap. 3, Sec. 4.)
unless it is expressly stipulated (Art. 1894.); and
(2)If solidarity has been agreed upon, each of them is responsible for:
(a) The deliberate non-fulfillment of the agency; and
(b)The fault or negligence of his fellow agents except when the latter acted beyond the
scope of their authority. (Art. 1895.)
9. Who is a commission agent?
 A commission agent (or factor) is one whose business is to receive and sell goods for a
commission and who is entrusted by the principal with the possession of goods to be sold. He
may act in his own name or in that of the principal.
10. What rights are given to the principal where a sale on credit is made without authority?
He may either:
(1)Require payment in cash, in which case, any interest or benefit from the sale shall belong to
the agent since the principal cannot be allowed to enrich himself at the agent’s expense; or
(2)Ratify the sale on credit in which case it will have all the risks and advantages to him. (Art.
1905.)
Note: A commission agent can sell on credit only with the express or implied consent of
the principal.
EXAMPLE: P authorized A, his commission agent, to sell certain merchandise for
P20,000.00 cash. A sold the merchandise to B on credit for P22,000.00.
P may demand the payment of P20,000.00 in cash. Should A eventually collect
P22,000.00 from B, A need not turn over the P2,000.00 as he is entitled to it.
11. Define del credere commission.
Del credere commission (also called guarantee commission) is an additional commission by
which the agent (who also gets his ordinary commission) shall bear the risk of collection and
shall pay the principal the proceeds of the sale on the same terms agreed upon with the
purchaser. (Art. 1907.) Purpose: To compensate the agent for the risks that he will have to bear.

Chapter 3. – OBLIGATIONS OF THE PRINCIPAL

1. What are the specific obligations of the principal?
They are:
(1)To comply with all the obligations which the agent may have contracted within the scope of
his authority (Arts. 1910, 1881.) and in the name of the principal (Arts. 1868, 1883.);
(2)To advance to the agent, should the latter so request, the sums necessary for the execution
of the agency (Art. 1912.);
(3)To reimburse the agent for all advances made by him, provided the agent is free from fault;
(4)To 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 (Art. 1913.); and
(5)To pay the agent the compensation agreed upon, or if no compensation was specified, the
reasonable value of the agent’s services.(Art. 1875.)
2. When is the principal solidarily liable with the agent even when the latter exceeded his
authority?
If the principal allowed the agent to act as though he had full powers. (Art. 1191.) This rule is
based on the principle of estoppel.
3. Give the rules in case two persons contract with regard to the same thing, one of them with
the agent and other with the principal.
(1)If the two contracts are compatible separately (e.g., repairs of different parts of a house) to
each other (can exist independently of each other), both shall be enforced;
(2)If they are incompatible with each other (e.g., construction of house according to an existing
building plan), that of prior date shall be preferred subject to the provisions of Article 1544
(Art. 1916; see IV. – Sales, Chap. 4, Sec 2, question no. 41.);
(3)If the agent acted in good faith, the principal shall be liable to the third person whose
contract must be rejected; and
(4)If the agent acted in bad faith, he alone shall be responsible. (Art. 1917.) 4. What is the
rule when there is multiplicity of principals? When 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. (Art. 1915.)
5. In what cases is the principal not liable for the expenses incurred by the agent?
They are:
(1)If the agent acted in contravention of the principal’s instruction, 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 ensue, if the
principal was not aware thereof; and
(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. (Art. 1918.)
Chapter 4. – MODES OF EXTINGUISHMENT OF AGENCY
1. How is agency extinguished?
(1)By its revocation by the principal;
(2)By the withdrawal of the agent;
(3)By the death, civil interdiction, insanity or insolvency of the principal or of the agent;
(4)By the dissolution of the firm or corporation which entrusted or accepted the agency;
(5)By the accomplishment of the object or purpose of the agency; and
(6)By the expiration of the period for which the agency was constituted. (Art. 1919.)
Note: The other modes of extinguishment of obligations in general may also apply. (see II. –
Obligations, Art. 1231.)
Note: The other modes of extinguishment of obligations in general may also apply. (see II. –
Obligations, Art. 1231.)
2. How may a contract of agency be revoked by the principal?
(1)Expressly; or
(2)Impliedly –
(a) by the appointment of a new agent for the same business or transaction. (Art. 1923.)
EXAMPLE: P authorized A s=to sell the former’s land. Subsequently, P also gave
authority to B to sell the same land.
There is no implied revocation of the previous agency. The intention of P may be to
authorize both A and B for the same transaction. But if B was given an exclusive authority to sell,
there is an implied revocation of the previous agency.
(b) by direct management by the principal of the business entrusted to the agent. (Art.
1924.) EXAMPLES:
(1) P authorized A to manage the former’s printing press. Every now and then, P takes
direct part in the management of the business. There is no implied revocation
where the only purpose of P is to help A in the management of the business.
(2) P authorized A to collect whatever amounts may be due P from X. Subsequently, P
demanded payment from X telling the letter to remit to him (P) the amount the
collection of which he entrusted to A. The agency to A is revoked.
(c) With respect to a general power of attorney previously granted (e.g., to manage a
business), by granting a special power of attorney to another (e.g., to hire personnel for
the business) as regards the matter involved in the latter. (Art. 1926.)
3. What are the cases when an agency is irrevocable?
The principal may generally revoke an agency at will. (Art. 1920.) In the following cases, he has
no right to revoke the agency without incurring liability for damages:
(1)If the agency is coupled with interest, i.e., the agent possesses an interest in the subject
matter of the power conferred and not merely in the compensation arising from the
 exercise of the power (e.g., where the principal pledges his property to the agent as security
for his debt and gives the agent the power to dispose of it should he be in default);
(2)If a bilateral contract depends on the agency (e.g., where it is stipulated that the ownership of
the factory sold would be transferred to the buyer only after payment of the balance of the
purchase price and that the seller (principal) would appoint A (agent) to manage the factory
and that any profits would be used to pay off the balance);
(3)If the agency is a means of fulfilling an obligation already contracted (i.e., agency in favor of
creditor to collect sums due debtor-principal from a third person); and
(4)If partner is appointed manager in a contract of partnership, his appointment being revocable
only upon just and lawful cause and upon the vote of the partners representing the
controlling interest. (see Art.
1927; see VII. – Partnerships, Art. 1800.)
4. When is an agency not immediately terminated by the death of the principal?
In the following cases, the agency remains in full force and effect:
(1)If the agency is necessary to finish the business already begun on the death of the principal,
where delay should entail any danger (Art. 1884.);
(2)If it has been constituted in the common interest or for the benefit of both the principal and
the agent (Art. 1930.);
(3)If it has been constituted in the interest of a third person who has accepted the stipulation in
his favor. (Ibid.; see III. – Contracts, Art. 1311.)

VI. – PLEDGE AND MORTGAGE

Chapter 1. – PROVISIONS COMMON TO PLEDGE AND MORTGAGE
1. What are the essential requisites common to pledge and mortgage? They are:
(1)That they be constituted to secure the fulfillment of a principal obligation;
(2)That the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged;
(3)That the persons constituting the pledge or mortgage have the free disposal of their property,
and in the absence thereof, that they be legally authorized for the purpose (Art. 2085.); and
(4)That when the principal obligation becomes due, the things in which the pledge or
mortgage consists may be alienated for the payment of the creditor. (Art. 2087.) Note:
(1) Third persons who are not parties to the principal obligation may secure the latter by
pledging or mortgaging their own property. (Art.
2085.)
(2) Any kind of obligation whether, pure or conditional, including natural, voidable and
unenforceable obligations may be secured by a contract of pledge and mortgage. (Art.
2091.)

2. Define pactum commissorium.

Pactum commissorium is a stipulation authorizing the creditor to appropriate the things given
by way of pledge or mortgage or to dispose of them. It is declared null and void by law. (Art. 2088.)
Reason: The amount of the loan is ordinarily much less than value of the security.
3. Give the rules on the indivisibility of pledge and mortgage.They are:
(1) A pledge or mortgage is indivisible, even though the debt may be divided among the
successors in interest of the debtor or of the creditor; (2) Therefore, the debtor's heir who
has paid a part of the debt cannot ask for the proportionate extinguishment of the pledge
or mortgage as long as the debt is not completely satisfied;
(3) Neither can the creditor's heir who received his share of the debt return the pledge or
cancel the mortgage to the prejudice of the other heirs who have not been paid;
 (4) The above rules, however, do not apply where, there being several things given in
mortgage or pledge, each of them guarantees only a determinate portion of the credit.
In this case, the debtor shall have a right to the extinguishment of the pledge or
mortgage as the portion of the debt for which each thing is especially answerable is
satisfied (Art.
2089.); and
(5) The indivisibility of a pledge or mortgage is not affected by the fact
that the debtors are not solidarily liable. (Art. 2090.) EXAMPLES:
(1) D borrowed from C P10,000.00 and to guarantee payment, D pledge his diamond ring
worth P4,000.00 and a pair of earrings worth P6,000.00.
If D pays P4,000.00, he cannot ask for the return of the ring because both the ring and
the earrings are given to secure payment of the entire obligation of P10,000.00.The same is
true if D dies leaving W and X as his heirs and W pays P4,000.00 to C.
If the creditors are C and R, and D pays C P4,000.00, C cannot return the ring to the
prejudice of R who has not received his share.
The same is true if C is the only creditor and he dies leaving Y and Z as his heirs and D
pays Y P4,000.00.
However, if it is agreed that the ring was given to secure the payment of P4,000.00 and
the earrings, the balance of P6,000.00, and D (or his heir W) pays P4,000.00, D (or W) can
demand the return of the ring.
(2) D and E re jointly liable to C in the sum of P9,000.00 secured by D's ring worth P5,000.00
and E's watch worth P4,000.00. If D pays P5,000.00, he cannot demand the return of the
ring even if their liability is only joint or proportionate because pledge is indivisible.

4. What is the legal effect of a promise to constitute a pledge or mortgage?

It gives rise only to a personal right binding upon the parties but it creates no real right in
the property. (see Art. 2092.)

Chapter 2. - PROVISIONS APPLICABLE ONLY TO PLEDGE

1. Define pledge.
Pledge is a contract by virtue of which the debtor delivers to creditor or to a third person a
movable, or instrument evidencing corporeal rights, for yhe purpose of securing the fulfillment of a
principal obligation with the understanding that when the obligation with all its fruits and
accessions.
Note:
(1) It is a real, accessory , and unilateral contract. (see III. - Contracts.) It is also a subsidiary contract
because the obligation incurred does not arise until the fulfillment of the principal obligation which
is secured.
(2) In addition to the common to the common requisites of pledge and mortgage(Art. 2085, supra.),
It is necessary in order to constitute the contract of pledge, that the thing pledge in the possession
of the creditor, or of a third person by common agreement (Art. 2093.)
2. What is the cause or consideration in pledge?
Insofar as the pledgor is concerned, it is the principal obligation. But if he is not the debtor (Art.
2085.), the cause is the compensation stipulated for the pledge or the mere liberality of the
pledgor.
3. What are the kinds of pledge?.Pledge may be either:
(1)Voluntary or conventional. – one which is created by agreement of the parties; or
(2)Legal. – one which is created by operation of the law. (Art. 2121.)
4. State the additional requirements in order that pledge shall takeeffect against third persons.
It is essential that it be embodied in a public instrument wherein shall appear:
(1)The description of the thing pledged; and
(2)The date of the pledge. (Art. 2076.)
Note: The object of the requirement is to forestall fraud, because a debtor may attempt to
conceal his property from his creditors when he sees it in danger of execution by simulating
a pledge thereof with an accomplice.
5. May the thing pledge be alienated?
Yes, provided the pledgee consents to the sale. Ownership passes to the vendee but subject to
the rights of the pledgee. (Art. 2097.)
6. Enumerate the rights of the pledgee.
They are:
(1)To retain the thing in his possession or in that of a third person to whom it has been
delivered, until the debt is paid (Art. 2098.);
(2)To be reimbursed for expenses incurred in its preservation (Art. 2099.);
(3)To compensate (set-off) the fruits, income, dividends or interests earned or produced by the
thing pledged and received with those which are due to him (Art. 2012.);
(4)To bring the actions which pertain to the owner of the thing pledged in order to recover it
from, or defend it against, a third person (Art. 2103.);
(5)To sell the thing pledged at public auction, if without his fault, there is danger of destruction,
impairment or diminution in the value of the thing (Art. 2108.);
(6)To claim a substitute or demand immediate payment, if he is deceived in the substance or
quality of the thing pledged (Art. 2109);
(7)To sell the thing pledged at public auction if the obligation secured is not paid (Art. 2112.);
(8)To bid at the public sale (Art. 2114.);
(9)To collect the amount that becomes due on a credit pledged before such credit is redeemed
(Art. 2118.); and
(10) To choose which one of several things pledged shall be sold. (Art. 2119.)
(11) Note:
(12) (1) Third persons who are not parties to the principal obligation may secure the latter
by pledging or mortgaging their own property. (Art. 2085.)
(13) (2) Any kind of obligation whether, pure or conditional, including natural, voidable and
unenforceable obligations may be secured by a contract of pledge and mortgage. (Art.
2091.)
(14) 2. Define pactum commissorium.
(15) Pactum commissorium is a stipulation authorizing the creditor to appropriate the
things given by way of pledge or mortgage or to dispose of them. It is declared null and
void by law. (Art. 2088.) Reason: The amount of the loan is ordinarily much less than
value of the security.
(16) 3. Give the rules on the indivisibility of pledge and mortgage.
(17) They are:
(18) (1) A pledge or mortgage is indivisible, even though the debt may be divided among
the successors in interest of the debtor or of the creditor;
(19) (2) Therefore, the debtor's heir who has paid a part of the debt cannot ask for the
proportionate extinguishment of the pledge or mortgage as long as the debt is not
completely satisfied;
(20) (3) Neither can the creditor's heir who received his share of the debt return the pledge
or cancel the mortgage to the prejudice of the other heirs who have not been paid;
 (21) (4) The above rules, however, do not apply where, there being several things given in
mortgage or pledge, each of them guarantees only a determinate portion of the credit.
In this case, the debtor shall have a right to the extinguishment of the pledge or
mortgage as the portion of the debt for which each thing is especially answerable is
satisfied (Art. 2089.); and
(22) (5) The indivisibility of a pledge or mortgage is not affected by the fact that the debtors
are not solidarily liable. (Art. 2090.)
(23) EXAMPLES:
(24) (1) D borrowed from C P10,000.00 and to guarantee payment, D pledge his diamond
ring worth P4,000.00 and a pair of earrings worth P6,000.00.
(25) If D pays P4,000.00, he cannot ask for the return of the ring because both the ring and
the earrings are given to secure payment of the entire obligation of P10,000.00.The
same is true if D dies leaving W and X as his heirs and W pays P4,000.00 to C.
(26) If the creditors are C and R, and D pays C P4,000.00, C cannot return the ring to the
prejudice of R who has not received his share.
(27) The same is true if C is the only creditor and he dies leaving Y and Z
as his heirs and D pays Y P4,000.00.
(28) However, if it is agreed that the ring was given to secure the paymentof P4,000.00 and
the earrings, the balance of P6,000.00, and D (or his heir W) pays P4,000.00, D (or W)
can demand the return of the ring.
(29) (2) D and E re jointly liable to C in the sum of P9,000.00 secured by D's ring worth
P5,000.00 and E's watch worth P4,000.00. If D pays P5,000.00, he cannot demand the
return of the ring even if their liability is only joint or proportionate because pledge is
indivisible.
(30) 4. What is the legal effect of a promise to constitute a pledge or mortgage?
(31) It gives rise only to a personal right binding upon the parties but it creates no real right
in the property. (see Art. 2092.)
(32) Chapter 2. - PROVISIONS APPLICABLE ONLY TO PLEDGE
(33) 1. Define pledge.
(34) Pledge is a contract by virtue of which the debtor delivers to creditor or to a third
person a movable, or instrument evidencing corporeal rights, for the purpose of
securing the fulfillment of a principal obligation with the understanding that when the
obligation with all its fruits and accessions.
(35) Note:
(36) (1) It is a real, accessory , and unilateral contract. (see III. - Contracts.) It is also a
subsidiary contract because the obligation incurred does not arise until the fulfillment of
the principal obligation which is secured.
(37) (2) In addition to the common to the common requisites of pledge and mortgage (Art.
2085, supra.), It is necessary in order to constitute the contract of pledge, that the thing
pledge in the possession of the creditor, or of a third person by common agreement
(Art. 2093.)
7. Enumerate the obligations of the pledgee.
They are:
(1)To take care of the thing pledged with the diligence of a good father of a family (Art. 2099.);
(2)To answer for its loss or deterioration in the proper case (Ibid.);
(3)Not to deposit the thing pledged with a third person unless authorized (Art. 2100.);
(4)To be responsible for the acts of his agents or employees with respect to the thing pledged
(Art. 2100.);
 (5)Not to use the thing pledged unless authorized or its preservation so requires (Art. 2104.);
(6)To advise the pledgor, without delay, of any danger to the thing pledged (Art. 2104.);
(7)To promptly advise the pledgor or owner in case of sale at public auction of the result thereof
(Art. 2116.);
(8)To return the thing pledged when the principal obligation is paid.
8. What are the conditions required in an extra-judicial foreclosure sale of the thing pledged?
They are:
(1)The debt is due and unpaid;
(2)The sale must be at a public auction;
(3)There must be notice to the pledgor and owner, stating the amount due; and
(4)The sale must be made with the intervention of a notary public.
Note: the pledgee may appropriate the thing pledged if after the first and second auctions,
the thing is not sold. If the creditor appropriated the thing, it shall be considered as full
payment for his entire claim. He is thus obliged to give an acquittance for the same. (see Art.
2115.)
9. State the rules on the proceeds after sale of the thing pledged. They are:
(1)Price of sale more than the amount due. – The debtor is not entitled to the excess, unless
otherwise agreed; and
(2)Price of sale less than the amount due. – The creditor is not entitled to recover any
deficiency, notwithstanding any stipulation to the contrary. (Art. 2115.) Reason: To compel
the creditor to hold an honest public sale. Furthermore, the creditor should see to it that he
loans only as much as he is likely to realize at a public sale.
Note:
(1)The creditor, however, may sue on the principal obligation instead of electing to sell the
thing pledged.
(2)In pledge by operation of law, after payment of the debt and expenses, the remainder of
the price shall be delivered to the obligor. (Arts. 2121, 2122.)
(3)Under the Chattel Mortgage Law, the mortgagor can also recover the excess. (Act No.
1508, Sec. 14.)
10. Give instances of legal pledges or pledges by operation of law.
(1)Possessor in good faith. – for necessary and useful expenses incurred over the thing (Art.
546);
(2)Usufructuary.- for taxes and extraordinary expenses (Art. 612.);
(3)Bailee. – for damages suffered by reason of the flaws in the thing loaned (Arts. 1944, 1951.);
(4)Agent. – for expenses advanced and damages caused by the agency (Art. 1914.);
(5)Depository. – for the payment of what may be due him by reason of the deposit (Art. 1994.);
(6)Hotel keeper. – for credits for lodging and supplies furnished (Art. 2004.); and
(7)Independent contractor. – He who has executed work upon a movable has also a right to
retain it by way of pledge until he is paid. (Art. 1731; see also Art. 1701.)
11.Enumerate the rights of the pledgor.
They are:
(1)To continue to be the owner of the thing pledged, until it sale , unless it is expropriated (Art.
2103.);
(2)To demand the deposit of the thing pledged should the creditor use it without authority, or
misuse it in any other way (Art. 2104.);
 (3)To substitute the thing pledge if it is endangered without fault of the pledgee without
prejudice to pledgee’s right to have the thing sold at public sale (Art. 2107; see Art. 2108,
supra.);
(4)To bid and have preference at the foreclosure sale if he should offer the same terms as the
bidder (Art. 2113.); and
(5)To demand the return of the thing pledged upon the extinction of the principal obligation.
(see Art. 2085 [1].)
12.Enumerate the obligations of the pledgor.
They are:
(1)To notify the pledgee of any flaw or defect of the thing pledge known to him; otherwise, he
answers for damages suffered by the pledgee (Art. 2101.);
(2)To reimburse the pledgee for expenses made for its preservation (Art. 2099.); and
(3)To fulfill his principal obligation. (see Art. 2035 [1].)
13.What are the causes for the extinguishment of pledge?
They are:
(1)Return of the thing pledged by the pledgee to the pledgor or owner, any stipulation to the
contrary being void (Art. 2110.);
(2)Renunciation or abandonment executed in writing by the pledgee even without return of the
thing (Art. 2111.);
(3)Destruction or loss of the thing pledged;
(4)Extinction of the principal obligation by payment or sale of the thing pledged; and
(5)Other causes of extinguishment of ordinary obligations. (see II. – Obligations, Art. 1231.)

Chapter 3. – REAL MORTGAGE

1. Define mortgage.
Mortgage (otherwise known as real estate mortgage or real mortgage) is a contract
whereby the debtor secures to the creditor the fulfillment of a principal obligation,
especially subjecting to such security immovable property or real rights over immovable
property in case the principal obligation is not complied with at the time stipulated.
Note: It is a real, accessory, unilateral, and subsidiary contract.
2. Distinguish pledge from mortgage.
The distinctions are:
(1)Pledge is constituted on movables (Art. 2094.), while mortgage, on immovable (Art. 2124.);
(2)In pledge, the property is delivered to the pledgee, or by common consent to a third person
(Art. 2093.), while in mortgage, delivery is not necessary; and
(3)Pledge is not valid against third persons unless a description of the thing pledge and the date
of the pledge appear on a public instrument (Art. 2096.), while mortgage is not valid against
third persons if not registered even if embodied in a public instrument. (Art. 2125.)
Note: Both are extinguished by the fulfillment of the principal obligation and by the
destruction of the property pledged or mortgaged.
3. What is the cause or consideration in mortgage?
Its consideration is that of the principal contract from which it receives its life, although the
obligation secured is incurred by a third person (China Banking Corporation vs. Lichauco, 46 Phil.
460.), that is, the principal debtor is other than the mortgagor.
4. What are the kinds of mortgage?
They are:
 (1)Voluntary. – one which is agreed to between the parties or constituted by the will of the
owner of the property on which it is created (Art. 138, Spanish Mortgage Law.);
(2)Legal. – one required by law to be executed in favor of certain persons
(see Art. 2125, par. 2; see also Arts. 2082,2083, supra.); and
(3)Equitable. – one which, although it lacks the proper formalities of a mortgage, shows the
intention of the parties to make the property as a security for a debt. (see 41 C.J. 303.)
5. What property may be the object of mortgage?
The following:
(1)Immovables; and
(2)Inalienable real rights in accordance with the laws, imposed upon immovable. (Art. 2124.)
6. What are the effects of a mortgage?
They are:
(1)It creates a real right, i.e., it directly and immediately subjects the property upon which it is
imposed, whoever the possessor may be, to the fulfillment of the obligation for whose
security it was constituted (Art. 2126.);
(2)The mortgagee (creditor) may, therefore, demand payment from any possessor of the
mortgaged property (see Art. 2129.);
(3)He may alienate or assign the mortgage credit (his right as mortgagee) to a third person (Art.
2128.); and
(4)The mortgage does not extinguish the title of the mortgagor (debtor) who does not,
therefore, lose his right to dispose of the mortgaged property. Indeed, the law considers
void any stipulation forbidding the owner from
alienating the property mortgaged. (Art. 2130.) EXAMPLE:
D mortgaged his land worth P100,000.00 in favor of C to secure D’s debt of P18,000.00.
D then sold the land to X.
In this case, the obligation of D to pay the debt is not affected by the transfer. On the
duedate of the obligation, C may demand payment from D and if D fails to pay, C may
foreclose the mortgage. (see Art. 2131.) C has the right to claim from X the payment of
P100,000.00 which is part of the credit secured by the property sold to X.
X is not responsible for any deficiency in the absence of a contrary stipulation. The
remedy of X is to proceed against D.
7. What is the extent or scope of mortgage?
The mortgage extends to and includes the following:
(1)Natural accessions;
(2)Improvements (even if subsequently made);
(3)Growing fruits;
(4)Rents or income (belonging to the mortgagor) not yet received when the obligation becomes
due;
(5)Proceeds of insurance received or owing from insurance of the property; and
(6)Amounts received or owing in virtue of the expropriation of the property for public use.
(Art. 2127.) Note:
(1)The above are deemed included in the mortgage unless expressly excluded.
(2)But the mortgage does not extend to improvements made by a third person subsequent
to the mortgage and after the property has passed to him.
8. Define foreclosure.
Foreclosure is the remedy available to the mortgagee by which he subjects the mortgaged
property to the satisfaction of the obligation to secure which the mortgage was given (41 C.J.
 830.) through the sale of the property at public auction and the application of the proceeds
thereof to the payment of his claims.
9. What are the kinds of foreclosure?
They are:
(1)Judicial foreclosure. – A mortgage may be foreclosed judicially by bringing an action for that
purpose in the Regional Trial Court of the province or city where the real property or any
part thereof lies (Sec. 2, Rule 4, Rules of Court.); and
(2)Extrajudicial foreclosure. – A mortgage may be foreclosed extrajudicially where there is
inserted in the contract a clause giving the mortgagee the power upon default of the debtor
to foreclose the mortgage by an extrajudicial sale of the mortgaged property. (Sec. 1, Act
No. 3155, as amended by Act No. 4148.)
10. Define redemption.
Redemption may be defined as a transaction by which the mortgagor reacquires or buys back
the property which may have passed under the mortgage or divests the property of the lien
which the mortgage may have created. (42 C.J. 341.)
11. What are the kinds of redemption?
They are:
(1)Equity of redemption. – The right of the mortgagor to redeem the mortgaged property
after his default in the performance of the conditions of the mortgage but before the sale
of the mortgaged property. In judicial foreclosure, the mortgagor may exercise his equity
of redemption before but not5 after the sale is confirmed by the court (Sec.
3, Rule 68, rules of Court.); and
(2)Right of redemption. – The right of the mortgagor to redeem the mortgaged property within
a certain period after it was sold for the satisfaction of the mortgage debt.
In all cases of extrajudicial sale, the mortgagor may redeem the property at any time within
the term of one year from and after the date of the registration of the sale. (see Sec. 16, Act
No. 3135.) In judicial foreclosure, the general rule is that the mortgagor cannot exercise his
right of redemption after the sale is confirmed by an order of the Court.

Chapter 4. – CHATTEL MORTGAGE (ACT NO. 1508, AS AMENDED.)

1. Define chattel mortgage.
Chattel mortgage is a contract by virtue of which personal property is recorded in the Chattel
Mortgage Register as a security for the performance of an obligation. (Art. 2140.) Note:
(1)It is an accessory, unilateral, and formal contract. (see III. – Contracts.)
(2)If the chattel mortgage (or real mortgage) is not recorded, the mortgagee acquires the right
to demand registration of the contract. (see Art. 2125.)
2. What laws principally govern chattel mortgages? They are:
(1)Chattel Mortgage Law (Act. No. 1508.);
(2)Civil Code;
(3)Revised Administrative Code; and
(4)Revised Penal Code.
3. Give the similarities between pledge and chattel mortgage. They are:
(1)Both are executed to secure performance of a principal obligation;
(2)Both are constituted only on personal property;
(3)Both are indivisible;
(4)Both constitute a lien on the property;
 (5)In both cases, the creditor cannot appropriate the property to himself in payment of the
debt;
(6)In both cases, when the debtor defaults, the property must be sold for the payment of the
creditor; and
(7)Both are extinguished by the destruction of the property pledged or mortgaged.
4. Distinguish chattel mortgage from pledge.
(1)In chattel mortgage, the delivery of the personal property to the mortgagee is not necessary,
while in pledge, such delivery is necessary;
(2)In chattel mortgage, the registration of the same in the chattel Mortgage
Register is necessary for its vailidity, while in pedge, registration in the Registry of Property
is not necessary;
(3)The procedure for the sale of the thing given as security is different. In chattel mortgage, the
procedure is found in Section 14 of Act No. 1508, as amended, while in pledge, it is found in
Article 2112 of the Civil Code;
(4)In chattel mortgage, the excess over the amount due after foreclosure, goes to the debtor
(Act No. 1508, Sec. 14.), while in pledge, if the property is sold, the debtor is not entitled to
the excess unless it is otherwise agreed (Art. 2115.) or except in the case of a legal pledge
(Art. 2121.); and
(5)In chattel mortgage, the creditor is entitled to recover any deficiency except if the chattel
mortgage is a security for the purchase of personal property in installments (see IV. – Sales,
Art. 1484.), while in pledge, the creditor is not entitled, any stipulation to the contrary
notwithstanding. (Art. 2115, supra.)
5. What may be the object of a chattel mortgage contract? Only movable or personal
properties such as:
(1)Shares of stock (the mortgage to be registered both in the Chattel Mortgage Registries of the
province where the mortgagor resides, and the province where the corporation has its
principal business);
(2)Interest in business;
(3)Growing crops;
(4)Large cattles;
(5)Vehicles (the mortgage to be registered also with the Land Transportation Office); and
(6)Vessels (the mortgage to be registered with the Office of the Philippine
Coast Guard of the Port of Documentation of such vessels (Pres. Decree No. 1521, Sec. 3
[a].);
(7)House built on rented land but as between the parties only under the doctrine of estoppel
(Standard Oil Co. of New York vs. Jaramillo, 44 Phil.
630; Piensay vs. David, 12 SCRA 227.); and
(8)House to be demolished and portable nipa huts for what are really mortgaged in this case are
the materials thereof and they are, therefore, personal property.
Note: Growing crops and large cattle are considered personal property under the Chattel
Mortgage Law. (Act NO. 1508, Sec. 7.) They cannot, however, be the object of a contract of
pledge because they are considered immovable under the Civil Code which principally
governs pledge. (see Art. 415 [2, 6].
6. What is the extent or scope of chattel mortgage?
It covers only property described in the contract, and excludes like or substituted property
thereafter acquired by the mortgagor, notwithstanding any thing in the contract to the contrary.
(Act No. 1508, Sec. 7.) Exception: In the case of stock or merchandise contained in drugstores,
grocery stores, etc., which are constantly sold and substituted with new stock.
 7. What is the affidavit of good faith?
The affidavit of good faith is an oath in a contract of chattel mortgage wherein the parties
“severally swear that the mortgage is made for the purpose of securing the obligation specified
in the conditions thereof and for no other purpose and that the same is a valid obligation and
one not entered into for the purpose of fraud.” (Ibid., Sec. 5.)
Note: The absence of the affidavit vitiates a mortgage only as against third persons without
notice, like creditors and subsequent encumbrances. In other words, they are not bound by the
mortgage.
8. Who may exercise the right of redemption when the condition of a chattel mortgage is
broken?
They are:
(1)The mortgagor;
(2) A person holding a subsequent mortgage; or
(3) A subsequent attaching creditor.
The redemption is made by paying or delivering to the mortgagee the amount due on such
mortgage and the costs and expenses incurred by such breach of condition before the sale
thereof. (Ibid., Sec. 13.)
9. What are the kinds of foreclosure of chattel mortgage? They are:
(1)Judicial foreclosure. – the mortgagee institutes an action in court; and
(2)Extrajudicial foreclosure. – the sale made by the mortgagee himself when authorized by the
chattel mortgage contract or by special law.
Note: After payment of the debt or the performance of the condition specified in the
chattel mortgage (Sec. 3, Ibid.), the mortgagee must discharge the mortgage in the manner
provided by law, otherwise he may be held liable for damages by any person entitled to
redeem the mortgage. (Sec. 8, Ibid.)
If the mortgagor defaults in the payment of the secured debt or otherwise fails to
comply with the conditions of the mortgage, the creditor has no right to appropriate to
himself the personal property (Arts. 2114, 2088.) because he is permitted only to recover his
credit from the proceeds of the sale of the property at public auction through a public
officer in the manner prescribed in Section 4 of Act No. 1508.
10. Does the mortgagee have the right to recover deficiency in case the price of the
foreclosure sale is less than the amount> Yes, although the Chattel Mortgage Law is
silent on this point. But if the chattel mortgage is constituted as security for the
purchase of personal property (not for a loan) payable in installments, no deficiency
judgment can be asked and any agreement to the contrary shall be void. (see Art. 1484,
Civil Code.)
11. How should the proceeds of the foreclosure be applied?
To the payment of the following in their order:
(1)Costs and expenses of keeping and sale;
(2)Payment of the obligation secured by the mortgage;
(3)Claims of persons holding subsequent mortgages in their order; and
(4)The balance, if any, shall be paid to the mortgagor, or person holding under him. (Ibid., Sec.

Credits:
Castaneda
De Leon
Sundiang