SALES 4. Barter vs.
COS
Articles / Laws to Remember: 1458, 1467, 1477 transfer of ownership,
1505, 559 who can transfer xxx, 1504, 1544, 1484 Recto Law, R.A. 6552,
1602, 1606, 1620, 1623, Redemption xxx
Q: A obliged himself to deliver a certain thing to B. Upon delivery, B
would pay a sum of money to A. Is that a contract of sale?
A: Not necessarily. Even if there is an obligation to deliver, if there is no
obligation to transfer ownership, it will not be a contract of sale. It may be a
contact of lease.
Memorize: Art. 1458
Note: Sale is a contract, so the general principles in oblicon are applicable
to sale but note that there are provisions which are contrary.
Characteristics of Contract of Sale (COS)
1. Consensual (1475) – COS is consensual, it is perfected by mere
meeting of the minds of the parties as to the object and price.
Note: There is 1 special law which requires a particular form for the validity
of a contract of sale – in that sale, it can be said that kind of sale is a formal
contract → Cattle Registration Decree. In a sale of large cattle, the law
provides that the contract of sale of large cattle must be: in a public
instrument, registered and a certificate of title should be obtained in order
for the sale to be valid. But otherwise, the other contracts are perfected by
mere consent or mere meeting of the minds.
2. Principal – sale is a principal contract, it can stand on its own. It does
not depend on other contracts for its existence and validity.
3. Bilateral (1458) – necessarily in a COS, both parties will be obligated. It
is not possible that only 1 party is obligated because a contract of sale is
essentially onerous.
4. Onerous (1350) – COS is essentially onerous. Otherwise, it may be
another contract or any other act like it may be a donation if there is no
compensation for the transfer of ownership to the other party.
5. Commutative (2010) – meaning there is equivalency in the value of the
prestation to be performed by both parties. Normally, the thing sold would
be equal to the price paid by the other party (buyer).
Exception: a contract of sale which is an aleatory contract like sale of hope.
In sale of hope, the obligation of 1 party will arise upon the happening of a
certain event or condition.
Example Sale of Hope: Sale of a lotto ticket, PCSO will have the obligation
to pay you only if you got all the 4 or 6 numbers which are drawn
Another Example of Aleatory: Insurance
6. Nominate (1458)
Classification of Contract of Sale
1. As to Nature of Subject Matter
a. Movable
b. Immovable
Q: Why there is a need to determine?
A: Because some concepts will apply if the object is movable or some laws
will apply if the object is immovable.
Examples: Under the Statute of Frauds, you have to determine if the object
if movable or immovable in order that statute of frauds will apply. The Recto
law will apply if the object is movable. The Maceda law will apply if the
object is realty. Article 1544 or Double Sale will require you to determine the
nature of the subject matter.
2. As to Nature
a. Thing
b. Right
Q: Why there is a need to determine?
A: Relevant in the mode of delivery
Distinctions
1. Deed of Absolute Sale (DAS) vs. Conditional Sale (CS) vs. Contract to
Sell (CTS)
2. Dation in Payment (DIP) vs. COS
3. Contract for a Piece of Work (CPW) vs. COS
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5. Agency to Sell (ATS) vs. COS
Deed of Absolute Sale (DAS) vs. Conditional Sale (CS) vs. Contract to
Sell (CTS)
DAS – seller does not reserve his title over the thing sold and thus, upon
delivery of the thing, ownership passes regardless of whether or not the
buyer has paid.
CS - condition/s are imposed by the seller before ownership will pass.
Normally, the condition is the full payment of the price. In CS, ownership
automatically passes to the buyer from the moment the condition happens.
There is no need for another contract to be entered into.
BE: Receipt was issued by A to B. The receipt’s tenor “Date of the
receipt xxx Received from B the sum of P75,000.00 as partial payment
for the car xxx the balance to be paid at the end of the month xxx”.
Contract to Sell?
SA: No. It does not pertain to a CTS because in a CTS ownership is
reserved by the seller despite delivery to the buyer. The buyer does not
acquire ownership. This is an Absolute Sale.
Q: In a CTS, upon the happening of the condition/s imposed by the
seller, would ownership automatically pass to buyer?
A: No. While a CTS is considered a special kind of conditional sale, it is a
peculiar kind of sale because despite the happening of the condition and
actual delivery, the buyer does not automatically acquire ownership. In
CTS, if condition/s happen, the right of the buyer is to compel the seller to
execute a final deed of sale. So ownership does not automatically pass.
Dation in Payment (DIP) vs. COS
DIP (1245) – whereby property is alienated to the creditor. It is provided that
the law on sales shall govern such transaction. It is specifically provided
that the pre-existing obligation must be in money. If not in money and there
is DIP, it will not be governed by the law on sales but by the law on novation
because practically there is a change in the object of the contract.
Example 1: If A owes B P100,000.00 instead of paying P100,000, he offers
B and B accepts the car of A as an equivalent performance → this is DIP
and will be governed by the law on sales.
Example 2: If the pre-existing obligation is to deliver a specific horse but
instead of delivering the horse, the debtor told his creditor and the creditor
accepted, that he will instead deliver his car → it is still DIP but it will not fall
on 1245 but on novation because there is a change in the object of the
obligation which would extinguish the obligation.
Note: A guide to distinguish one concept from another is to know the
nature, requisites and effects.
1. As to Nature
DIP – a special form of payment
COS - it is a contract
2. As to Requisites
DIP – with a pre-existing obligation
COS – not a requirement
3. As to Effect
DIP – to extinguish the obligation either wholly or partially.
COS – obligation will arise instead of being extinguished.
Contract for a Piece of Work (CPW) vs. COS
BE: A team if basketball players went to a store to buy shoes and out
of the 10 members, 5 of them were able to choose the shoes. They
agreed to pay the price upon delivery. The other 4 members were able
to choose but the shoes were not available at that time but they are
normally manufactured. The last member could not find shoes that
could fit his 16 inches feet and therefore he has to order for such kind
of shoes. What transactions were entered into by these players?
SA: 1467 → the first 2 transactions involving a total of 9 players would be
considered a COS because the shoes which they ordered are being
manufactured or procured in the ordinary course of business for the general
market. However, the last transaction which will be manufactured only
because of the special order of the player and is not ordinarily
manufactured for the general market will be considered a CPW which is
known as the Massachusetts rule.
Massachusetts rule – rule in determining whether the contract is a COS or a
CPW.
Barter vs. COS
Q: A obliged himself to deliver a determinate car with a market value
of P250,000.00. B obliged himself to deliver his watch and P150,000.00
in cash. What kind of contract?
A: First, you have to consider the intention of the parties. They may want
this transaction to be considered as a sale or barter and that will prevail. But
if the intention of the parties is not clear from their agreement then the
nature of the contract will depend on the value of the watch. If the value of
the watch is greater than P150,000 then this is barter. If the value of the
watch is equal or less than P150,000 then this is sale. The value of the car
is irrelevant. What is only relevant is the value of the thing (watch) in
relation to the cash to be given by one of the parties.
Agency to Sell (ATS) vs. COS
BE: A gave B the exclusive right to sell his maong pants (he has his
own brand of maong pants) in Isabela. It was stipulated in the contract
that B has to pay the price of maong within 30 days from delivery to B.
It was stipulated that B will receive 20% commission (discount) on
sale. The maong pants were delivered to B. However, before B could
sell the goods, the store was burned without fault of anyone. Can B be
compelled to pay the price?
From the wordings of the problem you may have an idea that this is an
agency to sell. If this is an ATS, the fact that the agent has not yet sold the
maong pants when they were burned will not result in a liability on his part,
there being no negligence on his part because with the delivery of the thing
from the principal to the agent, ownership does not pass. Under the
principle in the Civil Code – res perit domino – it will be the seller (owner)
who will bear the loss. But if this transaction is sale then with the delivery of
the maong pants to B, ownership passed to B because he did not reserve
ownership over the pants despite the fact that the other party has not paid
the price. So when the pants were burned, it would now be B as the owner
who will bear the loss.
SA: This is exactly the case of Quiroga vs. Parsons. Article 1466 – in
construing a contract containing provisions characteristics of both a COS
and ATS, you have to go into the essential clauses of the whole instrument.
In this problem, one of the clauses “B has to pay the price within 30 days”.
That would make the contract COS and not ATS because in 30 days from
delivery, whether or not B has already sold those pants to other persons, he
is already obliged to pay a price. That is not an ATS. Being a COS,
therefore, after having been delivered, ownership passed to the buyer and
hence under res perit domino rule, the buyer bears the loss and therefore
he can be compelled to pay the price.
Essential Elements of a Contract of Sale
1. Consent of the Contracting Parties
2. Object or Subject Matter – which is a determinate thing or right
Note: Service cannot be the subject matter of sale.
3. Cause or Consideration – as far as seller is concerned, it is the price
in money or the equivalent of the payment of the price.
CONSENT OF THE CONTRACTING PARTIES
A. No consent of one or both of the parties
→ the contract is void. Under the law on sales, it is a fictitious contract
where the signature of one of the parties was forged. Normally, the seller’s
signature is forged. If the signature of the seller is forged, that would be a
fictitious contract. The alleged seller will not have participation in the
execution of the contract. But another kind of contract recognized in the
Civil Code is a simulated contract.
Simulated – parties to this contract actually would have participation. They
would voluntarily sign in the deed of sale. However, they do not intend to be
bound at all or they may intend to be bound to another contract but they
executed a deed of sale. Thus, the law would ratify these contracts
considering there is a simulated sale.
Kinds of Simulated Contracts
1. Absolutely Simulated – they do not intend to be bound at all.
Q: Why would they enter into this kind of sale?
A: To defraud creditors
2. Relatively Simulated – sale where they actually intended another contract
which normally would be a donation.
B. If consent was given
→ If consent was given, it does not necessarily mean that the COS is valid.
The consent may be given by an incapacitated person or one with capacity
to give consent. If given by an incapacitated person, consider the nature of
the incapacity. It may be:
a. Absolute Incapacity – the party cannot give consent to any and
all contracts.
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b. Relative Incapacity – the party is prohibited from entering
sometimes with specific persons and sometimes over specific
things.
Kind of Capacity
1. Juridical Capacity – it is the fitness to be the subject of legal relations. If a
party to a sale has no juridical capacity, the contract is void. Note that all
natural living persons have juridical capacity. Even if he is a 1 day old baby,
he has juridical capacity. The baby can be the subject of donation. Even if
he is conceived, he has provisional personality.
Example: One example of a party to a sale without juridical capacity would
be a corporation not registered with the SEC. The contract entered by this
corporation is a void contract because one of the parties has no juridical
capacity to enter into that contract.
2. Capacity to Act – it is the power to do acts with legal effects. If the
incapacity only pertains to capacity to act, the contract would normally be
voidable. Without capacity to act or there are restrictions with one’s capacity
to act such as minority, insanity, deaf mute and does not know how to write
and civil interdiction.
Note: Under R.A. 6809 (December 1989) there is no more creature known
as “unemancipated minor”. Before 1989, the age of majority was 21.
C. If both parties are incapacitated
→ not only voidable but unenforceable.
Q: What if one of the parties in a COS is a minor and the minor
actively misrepresented as to his age?
A: The SC said that the minor will be bound to such contract under the
principle of estoppel.
Atty. Uribe’s Comment: Estoppel is not a good ground because the minor
is not aware.
Sale of Necessaries
In sale of necessaries such as food, clothing and medicine to a minor, the
minor has to pay a reasonable price. This contract is not voidable. The sale
of necessaries will bind the minor and he will be compelled to pay not really
the contract price but only to reasonable price.
Relative Incapacity (Articles 1490 and 1491)
1. Sale between spouses – it is void except:
a. The spouses executed a marriage settlement and in the
marriage settlement they agreed for a complete separation of
property regime. Then they can sell to each other.
b. If no marriage settlement, they may have obtained judicial
declaration of separation of property. After that, they can sell to
each other.
2. Those mentioned in Article 1491
a. A guardian cannot buy the property of the ward. The guardian is
not actually prohibited from entering into any and all contracts. It
is just that he cannot be the buyer of a property of his ward.
b. An agent cannot buy without the consent of the principal a
property which he was supposed to sell or administer.
c. The executors and administrators of the estate cannot buy a
property which is part of the estate.
d. Public officers, judges, their staff, clerk of court, stenographers
and lawyers are prohibited from buying those properties which
are the subject of litigation during the pendency of the case.
Q: What is the status of the contracts under 1491?
A: Prof. Tolentino – voidable
Justice Vitug & Prof. Baviera – void
Prof. Pineda & Prof. de Leon – the first 3 are voidable and the
last 3 are void.
The better answer is void because these persons are prohibited from
entering into these contracts. Under Article 1409, if the contract is
prohibited, it is void.
3. Aliens are prohibited from acquiring by purchase private lands – Take
note “acquiring” which means buying not selling. They can sell.
Exceptions / when aliens can buy:
a. Former natural born Filipino citizen. Under the Constitution they
are allowed to buy small land which they can use for residential
purpose.
b. Another way of acquiring is by succession but this is not a sale
D. Even if consent was given by one with capacity to give consent but
if the consent is vitiated
→ voidable. FIVUM
E. If the party gave such consent in the name of another without
authority of that person or no authority of law
→ unenforceable. Take note may be authorized by the person or by law.
Example of authorized by law: notary public has the right to sell in pledge
because he has the authority to sell under the law.
OBJECT OR SUBJECT MATTER
The requisites in sale as to thing would almost be the same as the
requisites of contracts in general.
1. The thing must be within the commerce of men
Examples: sale of a navigable river is void, sale of a cadaver is void but
donation of a cadaver is allowed, sale of human organs is void, things
which are not appropriated like air is void but if appropriated it can be the
object of a valid sale.
2. The thing must be licit – not contrary to law
Examples: sale of prohibited drugs or shabu is void, sale of marijuana is
void, sale of wild flowers or wild animals is void
3. Must be determinate
Read Article 1460
RULES AS TO OBJECT OF COS
Q: A obliged himself to deliver and transfer ownership over the palay
that will be harvested from a specific parcel of rice land in May 2008.
What if by May 2008, no palay was harvested?
a. What is the status of the sale?
b. May the seller “A” be held liable for damages for failure to
comply with his obligation?
A:
a. Always consider that in a COS there are only 3 requisites. As long as
these 3 were complied, there is a valid sale. In fact, by express provision of
law, sale of things having potential existence (emptio rei sperati) is valid.
b. Not necessarily because there are excuses to non-performance such
as pestilence, typhoon, flood and therefore his failure to comply is an
excuse. But if the reason of the seller is because of his negligence, he
cannot find support under Art. 1174.
Sale of Hope (Emptio Spei)
Example: Sale of a lotto ticket
Q: Sale of a land to B with a right to repurchase within 1 year which A
delivered. On the 3rd month, B sold the land to C. However, on the 9 th
month, A offered to repurchase the land.
(a) What is the status of the sale between A and C?
(b) Who will have a better right over the land?
(Sale with a right to repurchase)
A: (a) Be guided by the fact that a COS is a consensual contract. The mere
meeting of the minds as to the object and the price, then there is a valid and
perfected sale. Hence, this is a valid sale even if the object of the sale is a
sale with a right to repurchase. Article 1465 provides that things subject to a
resolutory condition may be the object of a COS.
Atty. Uribe: Mas tamang sabihin – since the ownership thereof is subject to
a resolutory condition. Hindi naman yung thing is the subject of resolutory
condition, it is the ownership over the thing.
If A exercises the right to repurchase and such would be a valid exercise of
such right then the ownership of B would be extinguished. The exercise of
the right is considered a resolutory condition as to the ownership of B. The
fact that the object of the sale is subject to a repurchase will not affect the
validity of the sale.
(b) As a rule, it would be A as a seller a retro because he has the right to
repurchase assuming his repurchase is valid. C may have a better right if
he can claim that he is an innocent purchaser for value. Example: maybe
the right to repurchase was not annotated at the back of the title of the land
and he has no actual knowledge. If that is the case, C may have a better
right.
SALE OF RIGHT / ASSIGNMENT OF RIGHT
Assignment of right is not necessarily a sale. If there is a valuable
consideration for the assignment, it is a sale. If there is no valuable
consideration, it may be a donation or dacion en pago.
Examples of right: credit, shares of stock
Requisite of a right → the only requirement is that the right must not be
intransmissible
G.R.: As a rule, rights and obligations arising from contracts are
transmissible.
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Exceptions:
1. Intransmissible by Nature
2. Intransmissible because of Stipulation
3. Intransmissible because of Law
CAUSE OR PRICE CERTAIN IN MONEY OR ITS EQUIVALENT
Q: A deed of sale was entered into by A and B. The price agreed upon
was 1M yen.
(a) May that be a valid sale?
(b) Can the seller compel the buyer to pay in yen?
A: (a) Yes, it is valid. Basis is Article 1458 because the only
requirement of the law is “in money”. Even Japanese yen is in money. The
law states that it may not even be in money, it may be “equivalent” like
promissory notes whether or not negotiable or letters of credit.
(b) If the contract was entered into today, yes it is valid because
of R.A. 8183 which repealed R.A. 529 in 1996. If COS was entered before
R.A. 8183, the seller cannot compel even though the contract is valid. The
payment has to be made in Philippine money.
Consider the date of the sale. If parties failed to stipulate as to which
currency, it has to be in Philippine currency.
Price Must be Certain
Q: Who can fix the price?
A: (1) The best way is for the parties to agree as to the price. (2) They may
agree that one of them will fix the price.
Q: May the sale be perfected if the agreement of the parties was for
one of them to fix the price?
A: Yes, it may be perfected only if the price fixed by the party who was
asked to fix the price was accepted by the other party. If not accepted, there
was no meeting of the minds.
Note: The perfection will only be considered at the time of the acceptance
of the price fixed by the other party not from the time of the first agreement
of the parties.
Q: What if a 3rd person was asked to fix the price – A and B agreed
that X will fix the price, may the sale be void?
A: Yes, the sale may be void if the third person does not want to fix the
price or unable to fix the price. Hence, there was no meeting of the minds.
Q: If the 3rd person fixed the price but it was too high or too low or
maybe there was fraud committed by the 3 rd person or he was in
connivance with one of the parties, may the sale be void?
A: No, because the remedy of the other party is to go to court for the court
to fix the price.
Note: Lesion or gross inadequacy of the price does not as a rule invalidate
a contract unless otherwise specified by law.
Exception: when otherwise provided by law.
Example: Article 1381.
Note: Under the law on sales, if there is gross inadequacy, it may reflect
vitiation of consent so the SC would normally enjoin the lower courts to be
warned of the possibility of fraud in case of lesion. Lesion must be proven
as a fact. It is not presumed.
If there is gross inadequacy, it maybe because actually they intended
another contract and that would make the sale a simulated sale and
therefore the sale is void.
Example: The value of the property is P1M but only P10,000 was written in
the contract because they intended it to be a donation → void.
TIME OF THE PERFECTION OF THE CONTRACT
Auction Sale
Auction sale is perfected upon the fall of the hammer or any other
customary manner. Thus, before the fall of the hammer in an auction sale,
the bidder even if he has already made a bid, he can still withdraw the bid
as long as he would do that before the fall of the hammer. Otherwise, (if
after the fall of the hammer), there is already a perfected sale.
Q: Can the auctioneer withdraw the goods before the fall of the
hammer?
A: As a rule, yes because the sale has not been perfected at the moment
unless the bidding or auction has been announced to be without reserve.
Note: Before perfection, there is one contract which maybe perfected.
Before perfection meaning in the negotiation stage → this contract is known
as the option contract.

Option Contract
Sanchez vs. Rigos
Facts: Mrs. Rigos offered to sell her land to Sanchez for a certain price.
Rigos gave Sanchez 2 years within which to decide. (Note: The optionee or
promisee or offeree is not bound to purchase but he has the option to buy
or purchase). In this case, Sanchez has the option. Before the lapse of 2
years, Sanchez told Rigos that he is buying and offered the price agreed
upon but Rigos refused claiming that she was not bound by the written
option agreement because no option money (consideration) was given by
Sanchez. According to Rigos, the option contract is void.
Held: Since Sanchez accepted the offer and decided to buy within the
period before the offer was withdrawn, a perfected COS was created even
without option money. In this case, there was no option contract because it
was merely an option agreement. Therefore, there was merely an offer on
the part of Rigos and once the offer was accepted before it was withdrawn,
regardless of whether option money was given and in this case no option
money was given, a perfected COS was created.
Note: Iba pag may option money
Q: 2 years within which to decide – assuming there was option
money, before the offeree could decide to buy, the offeror withdraw
on the 6th month.
(a) Can the offeree on the 10 th month say “I would like to
buy”?
(b) Can the buyer compel the seller to sell?
A: (a) No.
(b) No, an action for specific performance will not prosper because when
he said he will but there was not more offer to be considered. Na-withdraw
na eh.
Q: If the offeree files an action for damages, may that action prosper
there being option money given?
A: Yes, because with the option money, an option contract is perfected, the
offeror is bound to give the offeree, 2 years within which to decide and
failure to that he is liable not based on perfected COS but on perfected
contract of option.
Option Money (OM) vs. Earnest Money (EM)
OM is not part of the price while EM is part of the price and at the same
time, it is a proof of the perfection of the contract.
G.R.: A COS may be in any form. Article 1483 provides that a COS may be
in writing, partly in writing xxx. This provision is exactly the same as Article
1356 in contracts which provides that contracts may be obligatory in
whatever form they may have been entered into provided all the essential
requisites are present. But then again even Article 1356 just like Article
1475 would provide for exceptions.
Exceptions: The law may require a particular form for its validity. The
Cattle Registration Decree is an example - where the law itself provides for
a particular form for the validity of the sale. But the law may require
particular form for its enforceability of the sale and that would be 1403 or
the statute of frauds. Concretely, the sale of a parcel of land if not in writing
is valid but unenforceable. It is not void. Note that the price of the land is
irrelevant if immovable.
Example: Before, the sale of a land for P300 is valid and enforceable even
if not in writing. But presently, it has to be in writing to be enforceable. The
price is still irrelevant.
If the object of the sale is movable, you have to consider not the value of
the thing but the price agreed upon. The value may be different from the
price. You can sell a thing worth P1,000 for P400 but the law provides for
the price. If the price is at least P500 and the sale is not in writing, it will be
unenforceable.
Paredes vs. Espino
Facts: Paredes was a prospective buyer. Espino owns a land in Palawan.
Paredes is from Northern Luzon. Their negotiation was thru letters and
telegrams. Espino sent a letter to Paredes stating that he and his wife
agreed to sell the land to Paredes, that the deed of sale will be executed
upon the arrival of Paredes in Palawan. When Paredes arrived, Espino said
he is no longer interested in selling. Paredes filed a case to compel Espino
to sell the land. Espino contended that the contract is unenforceable
because it is not in writing. He contended that under the statute of frauds it
is unenforceable. His contention was sustained by the trial court.
Held: This contract is no longer covered by the statute of frauds because
there was a letter. Article 1403 provides that a note or memorandum signed
by the part charged would be sufficient to take that contract out of the
operation of the statute of frauds. In this case, the defendant wrote a letter
with his signature on it. The letter took that contract out of the operation of
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the statute of frauds and therefore he may be compelled to execute the final
deed of sale.
RIGHTS AND OBLIGATIONS OF THE VENDOR
In a deed of sale (DOS), there can be hundreds of obligations of
the vendor but those obligations would be because of the stipulation. But
there are only few obligations imposed by law. The 3 most important:
1. To transfer ownership
2. To deliver
3. To warrant the thing
There are other obligations:
4. Obligation to take care of the thing sold with the diligence of a
good father of a family prior to delivery.
5. From the time of the perfection up to the time of delivery then
there would be obligation to pay for the expenses for the
execution and registration of the sale and obligation to pay the
capital gains tax would be on the seller as a rule.
6. Obligation to deliver the fruits which is related to the obligation to
deliver the thing
OBLIGATION TO DELIVER THE FRUITS
BE: A sold a mango plantation to B but they stipulated that delivery
will be after the signing of the deed of sale. After the expiration of the
6-month period, B demanded for the delivery. The vendor was able to
deliver 1 month after the date when he was supposed to deliver the
mango plantation. During this period, the vendor harvested mango
fruits and sold them to X. The vendor was able to deliver only after the
other fruits were harvested and sold to Y. Can B recover the mango
fruits from Y during the 6th month period?
SA: Determine first whether B is entitled to the fruits because if he is not
entitled, then he cannot recover the fruits. Is he entitled to the fruits after 6-
month period during the 1-month period prior to delivery? Yes, in fact, under
1537, the fruits of the thing sold from the time of perfection shall pertain to
the buyer.
OBLIGATION TO TAKE CARE OF THE THING
G.R.: The thing sold should be determinate because if generic (1460, 2nd
paragraph) then there is nothing to be taken cared of. It will become
determinate only upon delivery.
Exceptions: There are sales transactions wherein the vendor would not
have this obligation:
a. Constructive delivery - brevi manu – There would be no
obligation on the part of the seller to take care of the thing
from the time of perfection because at the time of
perfection, the buyer was already in possession of the
thing. Maybe he borrowed the thing. Example: he borrowed
the car and he decided to buy it – the thing was already in
his possession.
OBLIGATION TO PAY EXPENSES / TAXES
These obligations may be the subject of stipulation. By
agreement, it would be the buyer who will pay xxx Normally, dito hindi
natutuloy ang sale dahil hindi magkasundo kung sino magbabayad ng tax.
OBLIGATION TO TRANSFER OWNERSHIP
BE: May a person sell something which does not belong to him?
Would the sale be valid? Would the buyer acquire ownership over the
thing sold, if seller does not own the thing?
SA: Yes. Ownership over the thing sold is not an essential requisite for the
sale to be valid. But if the seller does not own the thing, he may have a
problem on his obligation to transfer ownership. The problem would be
whether or not the buyer would acquire ownership over the thing sold if the
person who sold the thing is not the owner.
Q: Who would have the right to sell and therefore they can transfer
ownership by way of sale?
A: First, is the owner. Even if he is not the owner, he may have the right to
sell because:
(1) He was given the authority by the owner. Example: Agent
(2) He may be the owner but he may have the authority of the
law to sell, known as “Statutory Power to Sell” (Article
1505). Examples: Notary public in pledge, liquidators,
guardians and receivers.
(3) Those who have the authority of the court. Example:
Sheriff. Note: it is as if they have the authority of law
because not even the judge can validly sell something if it
is not consistent with the law.
Q: May a buyer acquire ownership over the thing sold if the seller has
no right to sell?
A: The answer by way of exception is yes. But the general rule here is
under 1505 – the buyer acquires no better title than what the seller had. If
the seller is neither the owner nor does he have the authority to sell, the
buyer acquires no better title than what the seller had. If his right is only as
a lessee that is the most that can be transferred to the buyer. If he has no
title then no title can be transferred to the buyer.
Exceptions: (When the buyer can acquire a better title than what the seller
had. Even if the seller does not have the right to sell, the buyer may acquire
ownership over the thing sold because the law so provides and not because
the seller was able to transfer ownership to the buyer.)
1. By Estoppel
2. Estoppel by Deed
3. Estoppel by Record
4. Sale by an Apparent Owner
5. Negotiable Document of Title
6. Purchases from a Merchant’s Store xxx
1. By Estoppel – by the principle of estoppel, a person is precluded from
denying that another person has authority to sell because of his acts. Also
known as “Estoppel in Pais” which is a kind of equitable estoppel because
of the acts / representation of the owner, he may not later on deny the
authority of the 3rd person.
2. Estoppel by Deed
BE: A and B co-owners of land sold (sale is verbal) to X their land. X
subsequently sold the land to Y. Would Y be considered to have
acquired ownership over the land?
SA: Under 1434 which is considered as “Estoppel by Deed” (technical
estoppel) – when the seller who was not the ownerat the time of the sale,
acquires ownership, automatically, ownership passes to the buyer by
operation of law. However, Article 1434 requires delivery to the buyer. And
under the facts, 1434 would not apply because:
a) There was no showing there was payment
b) No showing that there was delivery of the land to X.
It cannot be said that by operation of law, Y likewise acquired ownership by
way of estoppel by deed.
3. Estoppel by Record
Jurisprudence: Sale by nephew of the owner of the land. Since the
nephew could not deliver the land, the buyer sued the nephew for estafa.
For the accused to be acquitted, he asked his uncle to testify that he
actually had the authority to sell. When the uncle testified in court, the
nephew is acquitted. After acquittal, the buyer demanded from the uncle the
delivery of the land. The uncle refused, claiming that “sa totoo land, I did not
authorized my nephew”.
Q: Case was filed against the uncle, would that action prosper?
A: SC said yes because he cannot be allowed now to claim that his nephew
was not authorize to sell after he testified in court that he gave such
authority.
This is estoppel by record which is considered a technical estoppel.
4. Sale by an Apparent Owner
A. Factor’s Act
B. Recording Laws
C. Any other provision of law enabling the apparent owner of the goods to
dispose of them as if he was really the owner.
A. Factor’s Act
Even if agent has no right to sell, a third person may acquire ownership
because he may rely on the power of attorney as written.
B. Recording Laws
*most common question in the bar exam
Read: Mapalo vs. Mapalo
5. Negotiable Document of Title
If goods are covered by a negotiable document of title and it was
thereafter negotiated. If the buyer bought it in good faith and for value, he
will be protected under the law. He will acquire ownership even if the seller
did not have the right to sell.
Example: The seller may have acquired title by violence. Binugbog nya
yung owner ng goods. Pero kung negotiable document of title yan and
properly negotiated, lalo na kung bearer document of title, then the buyer
may acquire ownership even if the seller has no right to sell.
6. Purchases from a Merchant’s Store / Markets / Fairs
Sun Brothers vs. Velasco
Facts: Sun Brothers was the owner of a refrigerator. Sun Brothers was
engaged in the business of selling refrigerator. Sun Brothers sold a ref to
Lopez on installment basis. As stipulated, Sun Brothers reserved ownership
until full payment. Lopez only paid P300 out of P1,500. The balance to be
paid on installment. Lopez then sold the ref to Velasco.
L.R.B. BASTE
5
Q: Would Velasco acquire ownership?
A: No because Article 1505 provides that the buyer acquired no better title
than what the seller had. However, Velasco was the owner of a store. On
the next day, Velasco sold the ref to Ko Kang Chu who paid in full. When
Sun Brothers learned this transaction, it filed an action to recover the ref
from Ko Kang Chu.
BE: F lost her diamond ring in a hold-up. Later on, this ring was an
object of a public sale of one pawnshop. Can F recover the ring from
the buyer in that public sale?
SA: Yes, Article 559 provides that even if the buyer is in good faith so long
as the owner is willing to reimburse the buyer of the price paid in that sale.
Note: Again in 1505, there is no right to recover as long as the buyer
bought it in good faith from a merchant’s store, there can be no recovery as
a matter of right.
Q: How transfer of ownership is effected?
A: Under the law, as far as things are concerned, it is effected by delivery:
(a) Actual
(b) Constructive
There can be no transfer of ownership without delivery.
Notes:
(a) There may be a period agreed upon by the parties within which the
buyer would have to decide. Even if he failed to signify his
acceptance by the mere lapse of the period, he is deemed to have
accepted (impliedly accepted) hence, ownership passes to him.
(b) Even before the lapse of the period, he may be considered to have
accepted if he did an act wherein he would be considered to have
adopted the transaction then ownership passed to him.
Example: Even if he has 10 days within which to decide but on the
2nd day, he sold the car to another. Obviously, he is deemed to
have accepted the thing because he did an act which is
inconsistent with the ownership of the seller like he donated or
destroyed the thing.
(c) If there is no period agreed upon, the law says if he did not signify
his acceptance he will be considered to have accepted after the
lapse of a reasonable time. Reasonable time will depend on the
circumstances of the sale, purpose of the sale, nature of the thing
sold. Example: Perishable goods.
Sale or Return
Q: Ownership passes upon delivery?
A: Yes. However, the buyer is given the right to revest the title back to the
seller normally within a certain period. Example: Clauses in subscription
magazine which says that you can return within 30 days without payment.
BE: A car was sold for P150,000. P75,000 paid upon the execution of
DOS. The balance payable on a monthly basis. P75,000 was paid. The
car was delivered to the buyer. However, before he could pay the
balance, the car was destroyed due to a fortuitous event or was
burned xxx Can he still be compelled to pay the balance?
SA: Yes. Upon the delivery of the car to the buyer, there being no retention
of ownership by the seller. (Note: Wala sa facts na na-retain ng seller and
ownership). Therefore, ownership passed to the buyer. Under the principle
of res perit domino – Article 1504 – the owner bears the loss and hence it
can be compelled to pay the price.
G.R.: Res perit domino – 1504.
Note: Determination of when ownership passed is important because if at
the time of the loss, the buyer is not yet the owner, as a rule, the buyer will
not bear the loss like in sale on approval and he has 10 days within which
to decide and the thing was lost through a fortuitous event within the 10-day
period without fault on his part, the seller will bear the loss.
Exceptions:
1. Read Lawyers’ Cooperative vs. Tabora
2. Delay in the Delivery
When there is delay in the delivery due to the fault of one of the
parties, whoever was at fault will bear the loss. Note that either buyer or
seller may be at fault.
Example 1: The buyer and the seller may have agreed that the goods are to
be obtained by the buyer at the warehouse of the seller on a specific date.
On the date agreed upon, the seller demanded the buyer to get the goods.
Despite such, the buyer failed to get the goods. On the next day, the
warehouse was destroyed due to fortuitous event.
Q: Who is the owner at that time?
A: The seller but there was delay on the part of the buyer hence under 1504
it is the buyer who will bear the loss.
Example 2: The seller himself maybe the one at fault. Thus, he is in delay in
delivering the goods to the buyer.
Q: Why would this be an exception to the res perit domino rule?
A: Ang premise dito, the ownership has already passed to the buyer but the
goods are still with the seller. Can this happen? Yes, because of
constructive delivery. If there was constructive delivery, ownership passes
to the buyer but physical possession is still with the seller. They may have
agreed this time that the seller will be the one to deliver the goods to the
buyer at a certain date. When the date arrived, despite demand from the
buyer, there was no delivery on the part of the seller. Even if the goods are
destroyed the next day due to fortuitous event, take note ang owner ay ang
buyer na but who will bear the loss? The seller because he was in delay
in delivering the goods.
DOUBLE SALE (ARTICLE 1544)
BE: F sold a registered parcel of land to R who did not register the
sale. Thereafter, F sold the very same parcel of land to C who
registered and obtained a new TCT in his name. Who would have a
better right?
SA: Atty. Uribe: I fully agree with the UP Law Center’s answer. It depends
on whether or not C registered the sale in good faith. Registration is only
one of the requirements good faith is equally an important requirement.
Note: In 1544 (double sale), as to which rule applies will depend on the
thing sold if movable or immovable.
Q: If the thing is sold twice, who would have the better right?
A: If movable, the buyer who first took possession in good faith will have the
better right. If immovable, the buyer, who first registered in good faith, will
have the better right. If there was no registration, it will be the first who took
possession in good faith. If no possession in good faith, the
buyer who has the oldest title in good faith.
Even the 1st buyer is required to be in good faith. Obviously, the first buyer
would have the oldest title. Yung good faith ditto obviously would not pertain
to absence of knowledge of the 2 nd sale kasi syempre 1 st buyer sya. He is
nonetheless required to have bought the thing in good faith. Good faith
means that he had no knowledge of the defect of the title of the seller.
Warning: Please be careful when you recite – you register the sale not the
land.
Read: Bautista vs. Sioson
Carumba vs. CA
Facts: Sale of land to B who took physical possession but did not register.
He is the first buyer. However, the seller (A) is a judgment debtor in one
case to a certain creditor named C. The land became the subject of an
execution sale. The buyer became C who registered the sale.
Q: Who would have a better right between C and B (C had no
knowledge of the sale)?
A: SC Said → B because this land was not registered under the Torrens
System. 1544 would not apply to unregistered lands.
OBLIGATION TO DELIVER THE OBJECT OF THE SALE
Determine the subject matter if it is a thing or a right because
there are different modes of delivery as to thing and as to right.
Things
Kinds of delivery of things as a consequence of sale known as
“tradition” – under the law:
1. Actual Delivery / Material Delivery / Physical Delivery / Real Delivery –
the thing is in the possession and control of the vendee. Take note
“control”. Take note “to the vendee”.
Q: What if the thing was delivered to a 3 rd person?
A: Jurisprudence – SC said → yes, there maybe actual delivery if the third
person has authority to receive from the vendee. Thus, making him an
agent of the vendee and that would still be actual delivery.
Note: Philippine law does not only require actual delivery – constructive
delivery may result in transfer of ownership.
2. Constructive – by the execution of a public instrument if the contrary
intention does not appear on the document. By the mere execution of the
public instrument that is equivalent to delivery. Hence, ownership passes to
the buyer.
L.R.B. BASTE
6
Kuenzle & Streiff vs. Macke & Chandler
Facts: The original owner here Stanley and Griffindor (parang Harry Potter
) and the property involved here are fixtures of a saloon. Macke and
Chandler are judgment creditor of Stanley and Griffindor. Because of a
judgment in favor of Macke and Chandler, the sheriff levied upon these
properties which was still in the possession of Stanley and Griffindor. The
properties under execution were questioned by Kuenzle and Streiff.
Kuenzle and Streiff claimed that these things were sold to them prior to the
levy. If they claimed that the properties were sold to them, the properties
should be in their possession. Take note that Stanley and Griffindor were
still in possession of the goods physically. Hence, there was no actual
delivery.
Held: In order that ownership would pass, it has to be in a public instrument
if that would be by constructive delivery.
Kinds of Constructive Delivery
1. Delivery of the Keys – of the place where the goods are located like a
warehouse.
Prof. De Leon: this also called as symbolic delivery.
2. By Mere Consent or Agreement of the Parties – if at the time of the sale,
possession to the goods cannot be transferred to the buyer. There must be
a reason why it cannot be transferred at the time of the sale. This is also
known as tradition longa manu.
Example 1: The thing was the subject matter of a lease with a 3 rd person
until the expiration of the lease, the thing cannot be delivered.
Example 2: The thing was the subject matter of commodatum. As a rule,
period of commodatum has to be respected.
3. Brevi Manu – this is a kind of constructive delivery because the buyer
was already in possession of the thing sold at the time of the perfection of
the sale so he will continue to be in possession after the sale, no longer as
a lessee but this time as the owner. So dati lessee lang sya that is why he
was in possession or maybe depositary lang sya or maybe he was the
agent at the time prior to the sale.
4. Constitutum Possessorium – the seller will continue to be in the
possession of the thing after the sale but no longer as an owner but in
another capacity like lessee.
Bautista vs. Sioson
Because a lease agreement was entered into by the buyer and seller after
the sale then the buyer became the lessor and the seller became lessee.
Therefore, the lessee would continue with the possession no longer as an
owner.
Rights
Kinds of Delivery of Incorporeal Property / Quasi – Tradition:
1. Execution of Public Instrument
2. Placing the Title of Ownership in the Possession of Vendee – a right
would normally be covered by a certificate.
Example: delivery of the certificate of shares of stocks.
3. Use by the Vendee of His Rights with the Vendor’s Consent
Example: Sale of shares of stocks → the vendee may not always have the
right to exercise his rights under the shares of stocks. Concretely, if there is
a stockholders’ meeting, the books of the corporation will be closed for 30
days before the meeting. Thus, if the sale occurred when the books are
already closed, no one will be recognized except those registered owners.
So if you are the buyer of those stocks, you can only use your right with the
consent of the vendor.
RULES ON SALE AS TO QUANTITY / QUALITY OF THE THING SOLD
Q: In a sale involving 1,000 pairs of shoes with a specific design as
agreed upon. The seller delivered 1,200 pairs of shoes instead of only
1,000. Can the buyer reject everything?
A: No. He has the right to reject only the excess. Reject the 200 but he can
be compelled to accept the 1,000.
Q: What if instead of 1,000, 800 was only delivered?
A: The buyer cannot be compelled to receive 800 because partial
performance is non-performance. You cannot compel the creditor to accept
partial fulfillment as a rule because it can be a subject of a stipulation that
there can be partial delivery.
Q: The obligation to deliver 1,000 cavans of Milagrosa rice. Instead of
delivering 1,000 cavans of Milagrosa, the seller delivered 1,100 cavans
of both Milagrosa and Burmese rice. May the buyer reject everything?
A: Yes, if the goods are indivisible. Meaning each sack of rice, Milagrosa
and Burmese rice were mixed. However, if it is clear that per sack it is
Milagrosa rice and the 100 sacks, it is clear that those are Burmese rice
that would not be considered as indivisible. He can be compelled to accept
1,000 sacks Milagrosa and he has the right to reject 100 sacks Burmese
rice.
SALE OF REALTY
Q: Sale of a parcel of land. Price agreed upon is P1M. More or less 100
sqm. The actual area delivered by the seller was only 95 sqm. What
are the remedies of the buyer?
A: (1) Specific performance – would be a remedy if the seller is still in the
position to deliver the balance. Siguro yung katabing lupa sa seller din,
hence, he can afford to give additional 5 sqm.
(2) Q: If specific performance is not possible, is proportional
reduction a remedy?
A: It depends on whether the sale is considered as a sale with a statement
of an area of a rate of a certain measure or if it is a lump sum sale.
Q: Under the facts, 95 sqm was delivered, would rescission be a
remedy?
A: As a rule no because rescission would only be a remedy if the area
lacking is more than 10% of that area agreed upon. So kung 100 sqm,
dapat 11 sqm or 15 sqm ang kulang, so out of 100 kung 85 lang ang na-
deliver, then rescission is a matter of right.
PLACE OF DELIVERY
Read 1524, 1525 and 1198
The seller delivered the goods to the place of business of the buyer. If the
buyer refuses to receive the goods, the buyer will be considered in delay
and therefore will be liable to the seller because of unjust refusal.
Q: May the buyer be considered in delay for his refusal to accept if
there is no place stipulated in the contract?
A: It depends on the kind of thing. Determine if it is determinate or generic.
If the thing is determinate, the law provides that it will be the place where
the thing is located at the time of the perfection of the contract.
Q: What if the object of the sale is a generic thing?
A: Seller’s place of business or residence.
Note: If there is no stipulation when to be delivered, the seller cannot be
compelled to deliver.
Q: What if at the time of the perfection of sale, though the thing is
determinate, it was on board a ship while in transit. Where will be the
place of delivery?
A: Depending on the shipping arrangement agreed upon by the parties.
F.O.B. – Free on Board
C.I.F. – Cost, Insurance, Freight
F.O.B. and C.I.F are rules of presumption which would have to give way to
the real intention of the parties. So after all, the F.O.B. or C.I.F.
arrangements do not really determine the place of delivery, they only make
rules of presumption.
So in a C.I.F. arrangement, it is only presumed that the place of delivery is
the port of origin.
In a F.O.B. destination, it is only presumed that the point of destination is
the place of delivery.
Q: What really determines the place of delivery?
A: SC said this indication as to the intention of the parties as to the place
of delivery is the manner and place of payment. If there is an agreement as
to where and how the price is to be paid that would be the place considered
for purposes of delivery and therefore for transfer of ownership.
Read 1582
Obligations which cannot be Waived:
1. Obligation to transfer
2. Obligation to deliver
Obligation which can be Waived:
1. Obligation to warrant the thing
Kinds of Warranties under the Law:
1. Express
2. Implied
L.R.B. BASTE
7
1. Express – any affirmation of fact or any promise by the seller relating to
the thing, the natural tendency is to induce to purchase the thing.
Requisites:
(a) There is an affirmation of fact
(b) The fact must pertain to the thing either to the quality, character or
title of the thing
Any other matter may not be considered as an express warranty.
The use of the words / terminologies is not conclusive as to whether or not
there is an express warranty.
Example: “I guaranty / warranty you that you will be happy if you buy this
car at P100,000”→ this does not result in an express warranty
Again, if the affirmation of fact pertains to the quality of the thing, it is an
express warranty.
Example: These 10 sacks of fertilizer would result in 200 cavans of rice.
The statement of the seller’s opinion is not as a rule considered an express
warranty.
Example: “This is the best piña cloth” → it may turn out that there are better
piña cloth.
As long as the seller is not an expert on that field, that would be treated
merely as an opinion and there can be no liability for breach of an express
warranty.
BE: “A” sold a land to B for P1M in Antipolo. As agreed upon
P100,000 will be paid upon the signing of the DOS. The balance will be
paid within 30 days from the time the occupants (squatters) of the
land are evicted. It was so stipulated that if within 6 months, the
squatters have not yet been evicted, the seller should return the
P100,000. Another stipulation states – within the 6-month period, the
value of the land doubled. Despite the filing of an eviction suit by the
seller and the lapse of the 6-month period, the squatters were still
occupying the land. The seller offers to return the P100,000 to the
buyer. The buyer refused to accept the P100,000 and told the seller
“never mind even if the squatters are still there. I will still buy the
land”. So the buyer offered to pay the balance P900,000 and
demanded that a DOS be executed by the seller. The seller refused to
accept the P900,000. What he did is to file an action to rescind the
contract. Would the action prosper?
SA: If the answer is based on rescission, the action will not prosper
because rescission may only be invoked by the aggrieved party. The seller
is not an aggrieved party.
2. Implied –
Prof. De Leon: because of this implied warranty, it cannot be said that
Philippine law does not adopt caveat emptor “buyer beware”. (Faye’s
Caveat : Please check the book of Prof. De Leon regarding this
statement. Thanks )
Even if there is no stipulation as to these warranties, the law itself would
provide for these warranties and hence if there are hidden defects he would
have remedies under the law or even if he was deprived of the thing he
bought he would have a remedy against the seller. Hence, it is not correct
to say that Philippine law has adopted caveat emptor. But there are certain
instances when there would be no such implied warranty against hidden
defects. There may be warranty as to title or against eviction but there is no
warranty against hidden defects under certain circumstances.
Warranty Against Eviction / Title
Q: If the seller was able to transfer ownership to the buyer may the
seller nonetheless be held liable for breach of warranty against
eviction?
A: Yes. These are 2 different obligations: the obligation to transfer
ownership and the obligation to warrant the thing.
Example: This warranty against eviction would include the warranty that the
buyer from the moment of the sale have and enjoy the legal and peaceful
possession over the thing sold.
Requisites of warranty against eviction:
1. There has to be final judgment depriving him of such thing either wholly
or partially. In other words, a case was filed by a 3 rd person against the
buyer which resulted in a favorable decision as to the plaintiff resulting in
the deprivation of the property by the buyer.
2. Deprivation must be either:
(2.1) Based on a 3rd person’s prior right over the thing prior to the sale
or
 (2.2) Based on an act after the sale but imputable to the vendor.
3. There should be no valid waiver
4. The action to hold the vendor liable should be filed within the period
prescribed by law.
WARRANTY AGAINST HIDDEN DEFECTS
Requisites:
1. The defect must exist at the time of the sale. If the defect started after the
sale there can be no such liability.
2. The defect must be hidden. If the defect is patent and the buyer
nonetheless bought the thing then he can no longer hold the seller liable.
If the seller is not aware of the hidden defects, he can be held liable. If he
was aware, his liability will be greater because that makes him a bad faith
seller.
Q: Even if there is such a hidden defect, is it possible that the vendee
cannot hold the vendor liable despite the fact that there was hidden
defect even if he was not informed because maybe the seller was not
aware?
A: Yes, he may not be able to hold the seller liable if he is an expert on the
thing. He is expected to know the defect.
3. The defect must result in the thing being unfit for the purpose of the
buyer or at least it diminish the fitness of the thing such that the buyer
would not have bought it at the price had he known of such defect.
Q: If the thing which has a hidden defect was lost or destroyed, can
the vendee hold the vendor liable for this breach of warranty? Does it
matter if the loss was due to a fortuitous event or maybe the loss was
due to the fault of the buyer himself, nonetheless, can he hold the
vendor liable?
A: Yes. The vendee can hold the vendor liable for breach of warranty
against hidden defects even if the thing was lost due to fortuitous event or
due to the fault of the vendee himself because of the hidden defects. But of
course, if the cause of the loss was the defect itself, the liability is greater
than if the cause of the loss was a fortuitous event or fault of the buyer.
If there would be a problem here as to the extent of the liability of the
vendor, he should first consider the cause of the loss, maybe it was lost due
to the defect itself or lost through fortuitous event or lost through the fault of
the vendee. After that, he should determine whether the vendor was aware
of the defects or he was not aware. Again, if he was aware, damages may
be recovered. If he was not aware, he may not be held liable for damages
unless he can only be held liable for interest.
If the defect was the cause of the loss, the vendor would be liable for the
return of the price, not only the price less value but also to refund the
expenses and damages because the vendor was aware of the defects.
If the vendor was not aware of the defects, he cannot be held liable for
damages but he would only be held liable for the price.
If the cause of the loss of the thing was a fortuitous event, he can only be
held liable for the price less value.
ANY CHARGE OR NON – APPARENT ENCUMBRANCE NOT
DECLARED OR KNOWN TO THE BUYER
Q: Would there be an encumbrance over an immovable which is a
form of easement or servitude?
A: An example of this is a road right of way.
Q: If the buyer bought the land which turned out to have a road right
of way in favor of a 3 rd person, can he claim breach of warranty
against any charge or non – apparent encumbrance?
A: Of course there are requisites:
(1) The encumbrance or easement or burden or the road right of way
has to be non – apparent.
Q: If there is an encumbrance, what are the remedies of the buyer?
A: (a) He can seek for the reduction of the price.
(b) Rescission - the law requires that the action for rescission must be
filed within 1 year from the date of the contract. If after 1 year, no more
rescission.
(c) If he became aware more than a year, he may file an action for
damages, But the law requires that the action for damages has to be filed
within 1 year also but from the time of the discovery of encumbrance. If he
filed it for example, after 2 years from discovery – no recovery of damages.
L.R.B. BASTE
8
WARRANTY OF QUALITY
Prof. Deleon, Prof. Vitug, Prof. Baviera: there is another warranty which
is WARRANTY OF QUALITY which includes:
(1) Warranty of Fitness
(2) Warranty of Merchantability
To some authors the warranty of quality is considered under the warranty of
hidden defects.
Atty. Uribe: I cannot agree that the warranty of quality is in the warranty of
hidden defects. I agree with Prof. De Leon, Prof. Vitug and Prof, Baviera
that there is a warranty of quality.
WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE
The thing bought may not actually have any defect and for 1 million buyers
it would be fit for their purpose. However, it may not be fit for the purpose of
1 buyer and if all the requisites for this warranty are present, then he may
hold the seller liable for breach of warranty of fitness for a particular
purpose although there is no hidden defect but it is not fit for the purpose of
the buyer.
In order for the seller may be held liable:
1. The buyer has to inform the seller of the particular purpose for
which the thing is to be use and
2. The seller manifested that the thing would be fit for the purpose
and the buyer relied on such representation of the seller.
Note: If the thing is sold under the trade name there can be no warranty of
fitness for a particular purpose.
WARRANTY OF MERCHANTABILITY
It pertains to the fact that it is fit for the general purpose. If the thing was
sold by description or by sample, it is considered that there is such a thing
as warranty of merchantability.
SALE OF ANIMALS WITH DEFECTS – RULES:
1. The defect is a redhibitory defect – it is such kind of defect that even by
examination of expert it cannot be discovered.
Q: If one of the animals has redhibitory defect, can the buyer rescind
the entire contract pertaining to all the animals?
A: G.R.: No. He can only rescind the contract pertaining to the animal with
redhibitory defect. He cannot rescind the entire contract pertaining to all
animals.
Exception: If he can prove that he would not have bought the others had
he known the defect of one then he can rescind the entire contract.
Q: Who has the burden of proof that he would not have bought the
others had he known of the defect of one?
A: Normally, it would be the buyer. But the law under certain circumstances
would provide for this presumption that it is presumed that he would have
bought the others had he known of the defect of one.
Examples: He bought the animals in teams or in pairs then the presumption
arises.
- Love birds (Ang mga love birds, kapag namatay yung isa later
on mamatay din yung isa. Minsan nga mgsuicide pa sya pag
mag isa na lang sya. Iuuntog nya ulo nya sa cage nya. )
Instances whether there would be no warranty against hidden defects
and therefore caveat emptor may be invoked:
1. Sale which is an “as is where is” sale which means sale where it is found
xxx bahala ka sa buhay mo if you want to buy the thing and you cannot
later on claim that there were hidden defects. (Faye: pls. research the
complete meaning of “as is where is” sale. Atty. Uribe will ask the meaning.
)
2. Sale of 2nd hand items
3. Sale of animals in fairs
4. Sale in public auction
Note: There would still be warranty against eviction.
Note: Rules on warranty also apply to judicial sale.
Q: In sale by authority of law or in execution sale, can there be breach
of warranty against eviction?
A: Yes. The judgment debtor and not the sheriff shall be liable.
The law would specifically exempt certain persons from liability for breach
of warranty like sheriff, auctioneer, mortgagee, pledge and other persons
who sell by virtues of an authority of law like notary public because they are
not really selling for themselves, they are selling on behalf of another
person.
RIGHTS AND OBLIGATIONS OF THE VENDEE (3) The buyer has been in default for an unreasonable time.
1. Obligation to accept the thing delivered.
2. Obligation to pay the price (if warranted, with interest) Note: The seller should send a notice of the intention to resell to the buyer.

1. Obligation to accept the thing delivered Note: The resale may be a private sale or a public sale. The only limitation
here is that the seller cannot buy directly or indirectly.
Q: If the buyer received the goods delivered, does it mean that he
already accepted? RECTO LAW
A: No because receiving is preliminary to accepting. In fact, this is Pls. read Sales by Prof. Baviera
consistent to the right provided by law to the buyer which is the right of
inspection or the right of examination. Thereafter, he may reject the goods if EXTINGUISHMENT OF SALE
defective. Pls. read Sales by Prof. Baviera

2. Obligation to pay the price 1. Payment

Q: When? 2. Novation
A: (1) As stipulated 3. Loss of the thing
(2) If there is no stipulation, it would be at the time and place of
delivery. Under the law on sales
1. The exercise of the right of resale will result in the
Right to Inspect / Examine extinguishment of the 1st sale. The ownership of the 1 st buyer will
This may be waived. be terminated and such ownership will be vested to the 2 nd buyer
Example: C.O.D. arrangement. 2. Rescission or cancellation will extinguish COS
3. Redemption
MACEDA LAW
Study Maceda Law and its essential features (see book of Prof. Baviera) Kinds of Redemption
1. Conventional
Q: Are the remedies under the Maceda Law alternative? Can the buyer 2. Legal
be able to exercise 2 or more remedies all at the same time?
A: Yes. Remedies under the Maceda Law are cumulative.

REMEDIES FOR BREACH OF CONTRACT LEASE

REMEDIES OF AN UNPAID SELLER (ARTICLE 1526)
(1) Right to retain the thing in his possession (possessory lien) Note:
(2) Right of stoppage in transitu / right to resume possession of the • Read the Definition of Lease under Articles 1643, 1644, 1713.
goods
(3) Right of resale • Consider also on Formalities: Articles 1647, 1724 in relation to 1403
(4) Right to rescind on Statute of Frauds and 1403, 1878 on Agency to Lease.
Q: Are there other remedies aside 1526? • Assignment and Sublease: Articles 1649, 1650
A: Yes. The seller may opt to file an action for specific performance or an
action for damages.
• Implied new lease or tacita recunducion: Article 1670 (important)
Unpaid seller – is one who has not been fully paif of the price.
• Rights and Obligation of the Lessor and Lessee: Articles 1673, 1678,
Note: remedies of the unpaid seller are not necessarily alternative. The 1680, 1723 (take note several questions in the bar have appeared
right of resale and the right to rescind may only be exercised if the seller under these provisions)
has possessory lien.
• Period of the Lease if the parties failed to Fixed the Period: Articles
POSSESSORY LIEN 1682, 1687
Q: Why is it called possessory lien?
A: because there another lien in the law. This is the lien under the rules on • Rights of Third Person: Article 1729 (ex: rights of owner of materials
concurrence and preference of credit. against the owner of the building)

Note: The buyer is not required to be insolvent. Note: The first thing to consider in lease is to consider the kind of lease.

Q: When would the seller be considered to have lost his lien? Kinds of Lease:
A: 1. Lease of Things
(1) If he waives his right 2. Lease of Work or Service
(2) If the buyer lawfully obtained possession over the goods 3. Lease of Right
(3) When the thing is delivered to a common carrier and the
seller did not prefer his ownership and possession over the Note: In lease of Service, there are four (4) of them but three (3) will not be
goods. covered by Civil Law, which are Household Service and Contract of Labor
(covered by Labor Law), and Contract of Carriage (covered by Commercial
STOPPAGE IN TRANSITU Law). The only kind of Lease of Service that will be discuss under the Civil
Requisites: Law is the Contract for a Piece of Work.
(1) Insolvency of the buyer
(2) The seller must have parted possession over the goods Definition:
(3) The goods must be in transit
Q: If a party binds himself to give another the enjoyment or use of
How right is exercised: thing, does that make the contract one of lease of things?
(1) By obtaining actual possession of the goods A: No, the most important distinction here with that of commodatum is that
(2) This may be exercised by mere notice to the common carrier in lease, it must be for a price certain, otherwise if there is no valuable
consideration for the use or enjoyment of the thing it will be commodatum.
If the seller validly exercised the right of stoppage in transitu, he will be
considered to have regained his possessory lien. Distinguish a Contract for Piece of Work from Contract of Agency
Read: Frensel vs. Mariano
RIGHT OF RESALE
Q: When would the seller have this right? Note: In Agency, the control of the principal over the agent is so pervasive
A: that the principal can control not only the result but also the manner and
(1) If the goods are perishable method of the performance of the obligation which is not present in this
(2) The right is expressly reserved in the contract case and therefore Merit was not considered an agent of Mariano.
L.R.B. BASTE
9

Q: As to the relationship of the taxi driver with his operator, is this a
contract of lease?
A: SC, ruled that this is in fact a lease but not a lease of thing, but lease of
service specifically an employment contract, this is because of the control of
the operator over the taxi driver, as to when, what time the drive operates
the vehicle.
Note: Again, to distinguish lease contract from other legal relationship you
have to consider the characteristic of the contract. The best way to
remember the kinds of contract is to know by heart what are the real
contract (mutuum, commodatum, deposit, pledge) and formal contract
(antichresis, donation). Aside from that it may be safe to consider as a rule
all the other contract as consensual contract, where no particular form is
required except in exceptional case: e.g. sale of large cattle.
As a rule lease, therefore is a consensual contract by mere
meeting of the mind as to the object and to the consideration the contract is
perfected.
Note: Lease of things is not essentially personal.
Heirs of Fausto Dimaculangan vs. IAC. Upon the death of parties like
death of lessee, the contract is not thereby terminated. The heirs of the
lessee may continue to occupy the premises by virtue of the lease because
it is not extinguish upon death of lessee.
Characteristic of Lease of things
♦ Consensual Contract
♦ Onerous
♦ Bilateral
♦ Nominate
♦ Principal.
Essential Requisites of Contract of Lease
1. CONSENT
2. OBJECT
Q: In lease of things, may a consumable thing be the subject matter of
lease?
A: Normally when a consumable thing is use in accordance with its nature it
is consumed, as a rule therefore consumable things cannot be the subject
matter of lease of things. The exception is, when the use of the things is
only for exhibition, or when they are accessory to an industrial
establishment then it may be a subject of lease.
3. CAUSE
FORMALITIES
Lease of Service – there is no particular form required by law for the validity
of the lease not even for the enforceability as a rule.
Read: Donald Dy vs. CA
Lease of Things – certain provision of the law which requires certain forms
to be enforceable.
Note: the problem in lease would normally be a combination of an agency
and lease.
BE: Agreement for the repair of a private plane and for a certain sum
of money, however additional work was requested by a person who
has the authority of a duly recognize representative of the owner of
the plane and the request was merely verbal, when the additional
work was completed, the one who rendered the work demanded
additional payment, the defense raise was under 1724 in order that a
claim for additional payment for the additional work, the agreement
for the additional work must be in writing and the changes should be
authorized in writing
SA: The suggested answer of UP will sustain the defense because of 1724;
such change not being authorized in writing, the request was merely verbal
then the claim may not prosper.
RIGHTS AND OBLIGATION OF THE LESSOR
As to necessary repairs of the thing lease, this is an obligation of
the lessor, under the law the lessor is oblige to make the necessary repairs.
Read: Gonzales vs. Mateo
RIGHTS AND OBLIGATIONS OF THE LESSEE
L.R.B. BASTE
10
Note: Two (2) favorite articles are 1649 pertaining to assignment of lease,
and 1650 on sublease.
The question in the Bar may be as simple as may a lessee
sublease the property without the consent of the lessor and what are the
respective liabilities of the lessee and sublessee.
Articles 1649 and 1650 would tell us that a lessee may not
assign his right on the lease without the consent of the lessor however he
may sublease the property in whole or in part even without the knowledge
of the lessor as long as he was not prohibited from subleasing the
premises.
Read: Malacat vs. Salazar
Frensel vs. Mariano
TERMINATION OF THE LEASE
BE: Discuss the effect of death of lessee, lessor, agent and principal.
SA: In a lease of thing, death of the lessee does not terminate the contract.
A contract of lease is not essentially a personal contract therefore upon the
death of the lessee, it may be continued until the expiration of period of the
lease by the heirs. (Case: Heirs of Dimaculangan vs. IAC)
IMPLIED NEW LEASE
Note: one of the most favorite in the bar exam.
Requisites:
1. The lease period has expired and
2. The lessee continues to be in possession of the lease for at least 15 days
from the time of the expiration of the lease and
3. No notice to the contrary from the lessor and the lessee.
BE: Pertain to contract of lease entered into for period of 3 years Jan
1, 81 up to 1984. Rentals were paid on monthly basis. It was
stipulated that the lessee has the option to buy property at a certain
price within a certain period (option to buy). Despite the lapse of the 3
year period, the lessee did not exercise the option, but continued to
be in possession of the property and paying the monthly rentals and
the lessor accepting the same. This continued until June 1984 when
the lessee stated that he would now buy the property in accordance
with the option to buy. The lessor refuse, claiming there was no more
option. Was the lessor correct? Yes. Was it correct to say that there
was extension of the lease under the facts? SA: Yes, there was an
extension known was implied new lease. However, with the implied new
lease it does not mean that all the terms and condition of the contract in the
original lease continue also. First as to the term, under the law, the term of
the renewed lease would not be the term agreed upon but only be of a
period depending on the manner the rentals are paid. If the payment is on
annual basis, the renewal would only be for a year and if monthly payment
of rental is made, the implied new lease would only last for 30 days.
As to the option, it was renews, SC held, in an implied new
lease, only those terms and conditions which are germane in a contract of
lease are deemed renewed as to the rest like option to buy, will not be
considered renewed. Even in the facts of the case itself, it was stipulated
that the option may be exercise within the period agreed upon (3 years).
AGENCY
Definition 1868, 1874 and 1878- formalities
Coz a form is required for the validity or for the enforceability of the contract
entered by the agent-1878, 1874
1892- pertain to appointment of the substitute- effect- may the agent
nonetheless be held liable for the loss that incurred by the principle as the
result of the appointment of the substitute.
Other provisions pertain to the right and obligations of commission agent or
more importantly the guaranty commission agent-1907-1908
Effect of death-1919, 1930 and 1931
Either of the agent or principal
Revocation-kind of agency- agency coupled with interest-1927
BE: A asked her best friend to B buy for her certain items in a grocery
store. Is there a nominate contract created between A and B?
SA: Better answer, if B agreed to the request of A, an agency relationship
has been created, a nominate contract has been created.
Read: Quiroga vs Parsons
Distinguishing contact of agency from other contract and other legal
relationship. Consider the characteristics of a contract of agency as a
contract and as a legal relationship business organization.
Read: Lepanto Mining case
Mariano case
Some authors would classify contract of agency into three, not
concepts.
1. Actual agency
2. Apparent / dormant
3. Estoppel
1. Estoppel
Kang case
Facts: Flores appears to have full control of a restaurant, owned by Kang
and in the administration of the restaurant he bought certain items from
Mack, items needed for restaurant but a portion / price to be paid, not by
Flores, so Mack ( seller ) went after the owner of the resto. The only
defense raised by the owner was that Flores was not his agent.
Take note: it is very difficult to prove actual agency, because an
agreement between 2 persons, eh kung verbal lang ang agreement dun,
how would you be able to prove, the owner of the restaurant can be held
liable by estoppel because he cloth Flores with full power as if he has the
authority to buy those items necessary for the administration of restaurant
aside from that Mack was able to prove pieces of evidence like in the lease
agreement over the building where restaurant was located and comes the
owner of the restaurant as lessee and Flores sign as an agent of the lessee
with all this the
Held: The owner of the restaurant is liable under the Principle of Estoppel.
2. Apparent / Ostensible
Q: A letter was sent by B to X, informing X that A has the authority to
enter into a contract with X specifically to obtain goods from X, like
copra, abaca which goods will be sold by A, after the sale a portion
can be deducted as a commission and the restaurant to be delivered
to X. after a certain period, the goods obtain by A from X remained
unpaid. In other words A will get the goods from X, A did not deliver
the proceeds of the sale. X demanded payment from B. The defense of
B was as of that moment from that certain period he has already
revoked the authority of the agent and therefore be bound by any
contract entered into by A in representation of B with 3 rd person. Is the
claim of B tenable?
SA: No. 1873 so far as 3 rd person are concern, this notice itong letter nya
kay X remain in full force and effect until it is rescinded in the same manner
it was given.
3 Actual agency
The law itself classify actual agency into as manner of creation, express /
implied. There is no problem with express agency.
3. Express agency-it is a kind of agency the consent of both parties
were expressly given.
4. Implied agency- were the consent of one parties was only
impliedly given on the part of principal- the leading case is Dela
Pena vs. Hidalgo
Q: If a person was asked to administer the property of another to sell
the property, and he said nothing- by his silence, by his inactions may
be deemed accept agency?
A: Not necessarily. Under the law, you have to make distinction to
determine the scenario under which the said appointment was made, okie!
The law would say when the 2 parties are absent, and when the 2 parties
are present.
When 2 parties are absent- 1 is in Manila and the other is in Cebu.
When 2 parties are present- present in the same room
(a) 2 persons present- present in the same conference hall
(b) If 2 persons are in different place, one in Manila and the other one
in Cebu
Compensation
As to the compensation in a contract of agency consider if the agency is
gratuitous or onerous.
L.R.B. BASTE
11
Read: 1909 - the liability of the agent for damage to the principal due to his
negligence or even bad faith or fraud committed against the principal may
be mitigated if the agency is gratuitous in character.
BE: Scope of authority of the agent whether it only pertains to the
acts of administration or acts of anu yun dominion?
SA: Under this provision 1877 if the agency is comes in general term this
only comprise acts of administration even if the principal beholds power to
the agent or it is stated that the agent may execute any act as may be
deemed appropriate. That will still be an agency pertaining to act of
administration.
As to form, the law is clear that it may be oral however the law may require
a particular form.
ESSENTIAL ELEMENTS OF A CONTRACT OF AGENCY
Read: Rallos case
The SC enumerated the essential elements or the alleged essentials
elements of a contract of agency.
1. Consent
2. Execution of the juridical act- subject matter
3. Acts within the scope of authority
4. The acts must be in representation of the principal
This are allegedly the essential element again some authors would discuss
in their books with due respect to the ponente of this case, medyo mali mali
ang enumeration, first there was nothing mention about the cause or
consideration as a contract, a contract will never validly have a cause or
consideration well it may be liberality pwede naman cause yan but there
must have a cause if only for that the enumeration be defective more than
that that last 2 mention that the agent act within the scope and that the
agent must act in representation are not essential elements of a contract of
agency they are actually obligations of agent which means they have been
already perfected of contract of agency, no obligation will arise kung void
ung kontrata kung wala pang valid contract, so essential elements are only
those elements necessarily for the validity of the contract, once the contract
is valid then the obligations will arise even if the agent acted outside the
scope of authority does it mean that the contract of agency is void? Of
course not, he can be held liable for acting outside the scope of authority or
if he acted not in contemplation of the principal, does it mean that there
was no agency at all? Of course not, there is a contract of agency. Under
the rule the consequences if the agent did not act in the representation of
the principal.
PARTIES
Going to the consent of the parties, well 1 author claims that there are 3
parties in a contract of agency that is totally wrong! There are only 2 parties
in a contract of agency the principal and the agent, however in problems
involving agency there may be there would be normally three persons
involve, the third persons with whom the agent transacted, no longer part of
the concept agency, this is the agency, the contract entered into between
by the principal and the agent, but when the agent entered into a contract it
may be a sale, lease or other contract and the 3 rd person is not a party to
this contract, the 3rd person is a party to a 2 nd contract, that again the parties
is the principal and the agent, they may be called in another names the
principal- employer, constituent, chief; the agent may be called attorney-in-
fact, proxy, representative.
OBJECT
As to the object of the contract of agency - this is the execution of juridical
act.
FORM
Agency may be oral. It does not matter, the contract of agency would be
valid but the parties even if it is by verbal agreement, however any effect of
the verbal authorization, the agreement between the agent and the principal
if it was only verbal will be in the contract entered into by the agent.
Read 1874
Contracts which require a SPA – see codal
Jimenez vs. Rabot
Facts: Jimenez was the owner of a certain parcels of land in Pangasinan,
he was then in the province of North Luzon, he sent a letter to his sister
asking his sister to sell one of his parcels of land and with that letter the
sister indeed sold one of his parcels of land to Rabot, however the sister did
not remit the proceeds of th sale, binulsa lng nya, so when Jimenez went
back to Pangasinan, he demanded the property, yun ay na kay Rabot na,
so he filed an action against Rabot, the defense raised by him that the letter
would not be sufficient a power of attorney to bind him as a principal the
sale of the parcels of land.
Held: A letter suffices as a power of attorney. When you sent a letter to your
brothers or sisters you do not notarize first.

Obligations of the Agent:
1. To carry out the agency
2. In carrying out the agency, there are 2 obligations of the agent,
he should always remember:
a. to act within the scope authority
b. to act in behalf of the principal
a. Acting within the scope of authority
Q: how would you know if the agent was acting within the scope of
authority?
A: Be guided by the power of authority. In fact as a 3 rd person, you can
demand the power of authority, so that you will know whether in fact he had
authority to enter into a contract but sa totoo lng there are some SPA which
would be subject of the case up to the SC pertaining to the scope of
authority of the agent.
Read: Linal vs. Puno
Read: Insular vs. PNB
BE: A authorize B to borrow sum of money from any bank and he also
authorize B to mortgage specific property specific parcel of land to
secure that loan what B did he borrow money for himself from a
certain bank without disclosing his principal, later on he defaulted the
question was can the bank go after the principal?
A: Of course No, the contract is between the agent and the bank only the
principal has nothing to do with the contract, under the facts, the agent
borrow for himself sya talaga, however if you have read the suggested
answer, my 2nd paragraph to the effect that the bank can at least foreclose
the mortgage they can after the property of the principal. If you remember
the question, di tinatanong ng examiner can the bank go after the principal
as far as the thing is concerned. The only question pertains to the payment
of loan. Another thing of the suggested answer it is totally wrong, under the
facts, the principal authorize the agent to mortgage the property for the loan
that will be obtain by the agent in the name of the principal.
Q: If indeed he mortgaged the land for a loan in his name, would that
mortgage be valid?
A: Definitely not. If he mortgaged it as a mortgagor the mortgage is void, the
law requires that the mortgagor must be the absolute owner of the thing
mortgage.
Q: On other hand even if the agent mortgaged the thing on behalf of
the principal, the principal is the mortgagor, would that be a valid and
binding mortgage as against the principal?
A: Also not, also his authority to have the property to mortgage to secure a
loan, not to secure any other persons loan and that therefore it cannot be
within the authority of the agent and therefore any foreclosure of such
mortgage will not prosper.
Q: If the agent acted within the scope of his authority and in
representation of the principal, who will be bound in that such
contract?
A: Aside from the 3rd person, it will be the principal because again the agent
merely representing the principal. However, it is possible for the agent
himself to be bound in such contract be held liable under such
contract?
A: Yes, one if he expressly binds himself to that contract.
Read: Domingo vs. Domingo
Read: US vs. Reyes
Obligation to render an accounting
If this time the principal authorize the agent to sell his car for 300k, the
description of the car was mention in the SPA at least 300k however before
the agent would sell the car, the principal called him by phone instructed
him to sell the cart in QC to a member of IBP member chapter, instead of
selling the car in QC IBP member chapter he sold the car in Manila not
known by the principal for 300k, (1) Can the principal recover the car
from the buyer if that car is already delivered to the buyer? (2)Any
remedy provided by the law to the seller or to the principal?
1. It depends, if that buyer has no knowledge of that instruction of the
principal then he has all the right to retain the car and that sale will be
valid and binding as against the principal. As provided under Art. 1900
so far as 3rd persons are concerned they only rely on the SPA as
written they have no obligation to inquire on the special instructions
made by the principal which are not mention in the SPA, eh wala
naman dun sa SPA na it will be sold to an IBP member chapter in QC.
L.R.B. BASTE
12
2. Go after the agent or damages if there is any damage sustain by him
for his failure to follow the instructions of the principal.
Read: 1898
Appointment of Substitute
Read: Substitute vs. Sub Agent (Prof. De Leon’s book)
PARTNERSHIP
BE: A, using all his savings in the total amount f Php2,000, decided t
establish a restaurant. B, however, gave Php4,000 as “financial
assistance” with the agreement that B will have 22% share of the
profits of the business. After 22 years, B filed an action to compel A to
deliver to him his share in the profits claiming that he was a partner. A
denied that B was his partner. Is B a partner of A?
SA: Yes, B was a partner in the business because there was a contribution
of money to a common fund and there was an agreement to divide the profit
among themselves.
Atty. Uribe: I do not agree with the answer. I’d rather agree with the
alternative answer.
WHY: In the alternative answer as can be seen from the facts, B gave
Php4,000 only as a financial assistance. It was not a contribution to a
common fund. As such, he actually became a creditor of A. Therefore, he
did not contribute to a common fund.
Q: What about the stipulation that B will have 22% share of the
profits?
A: The law on partnership is very clear that a sharing in the profits does not
necessarily does not result in a partnership contract because the sharing of
the profits may only be a way of compensating the other person, in fact that
can be a mode of payment of the loan. Kasi yung loan, supposedly pwede
payable every month with a fixed amount. But mas maganda ang
agreement na ito, 22% of the profits, so that if walang profit sa isang taon,
wala munang bayad. ‘Di ba that’s reasonable agreement. Only kung may
profit, saka lang babayaran. Kumbaga, friendly loan ito. The sharing in the
profits as expressly provided by law does not necessarily result in a
partnership contract. Thus, it can be said that really B was not a partner but
is actually a creditor of A.
Definition of Partnership
Q: What if two or more persons agreed to put up a partnership but
they never intended to divide the profits among themselves, would
that still be considered a valid partnership contract?
A: Yes. Under the second paragraph of the article, two or more persons can
form a partnership for the exercise of a profession.
Partnership vs. Co-ownership
Consider the essential features:
CREATION
Partnership is obviously created by agreement. Co-ownership may be
created by agreement, but it may also be created by operation of law. In
fact, by express provision of the law, the fact that there is co-ownership
does not necessarily mean that there is a partnership existing between two
persons.
Ex.: two persons may inherit a property from their father or mother, and
under the law, they may be considered as co-owners of the same property.
PURPOSE
Partnership: either to divide profits or exercise a profession.
Co-ownership: Common enjoyment of the thing or right owned in common;
merely to enjoy the property, thus they may have different purposes.
A very important feature of partnership in relation to co-ownership, it has a
juridical personality, separate and distinct from the individual partner which
is obviously not present in co-ownership. In co-ownership, they have their
respective personalities and no new personality will be created.
POWERS OF THE MEMBERS
Partnership: Unless otherwise agreed upon, each partner is an agent of the
other partners and of the partnership.
Co-ownership: As a rule, a co-owner cannot act as an agent of the other co-
owners unless otherwise agreed upon between the co-owners.
PROFITS:
Co-owner: Mas malaki ang profits, mas malaki ang interest. But not
necessarily in partnership, because the sharing in the profits may be
stipulated upon by the parties. Pero kung walang stipulation, it may be
based on the capital contribution.
Q: Will death extinguish co-ownership?
A: No, Kapag namatay ang isang co-owner, his heirs will be the co-owners
of the surviving co-owners at pwedeng tulou-tuloy lang yan. However in
partnership, if it is a general partnership, if one of the partners dies, the
partnership is dissolved.
ESSENTIAL ELEMENTS OF PARTNERSHIP
Like any other contract, it should have the three essential requisites:
1.) Consent
2.) Object: to engage to a lawful activity, whether a business or
profession.
3.) Cause or consideration: the promise of each partner to
contribute money, property or industry
Consent of the contracting parties:
The rules in contract would be equally applicable but, just like in
sales and lease, there are persons who are prohibited from entering into a
contract of partnership.
Object
To engage in a lawful activity.
Q: If the object is to engage in a lawful activity, necessarily the
partnership is valid?
A: No. There are specific business activities wherein the law would require
particular business organization which may engage in such business
activity, specifically the Corporation Code which provides that only
corporation may engage in insurance and banking business, therefore there
can be no partnership engaging in such business: banking and insurance.
Cause
The promise of each partner to contribute either money, property or
industry.
Formalities
Q: If the agreement of the parties to a contract of partnership was only
a verbal agreement, would that be a valid and binding contract? Will
there be a juridical personality created?
A: As a rule, yes. Even if under Art. 1772, the law provides that every
contract of partnership, having a capital of more than Php3,000 or more,
shall be in a public instrument and must be registered with the SEC.
The 2nd paragraph of Art. 1772 provides that despite failure to
comply with the requirements in the preceding paragraph, this is without
prejudice to the liability of the partnership and the individual partners to third
persons. From that article alone, it is clear that despite non-compliance with
the requirements of the law as to form, there is a partnership created,
because this is without prejudice to the liability of the partnership (kung may
partnership). But more directly, Art. 1768, the law provides, the partnership
has a juridical personality separate and distinct from that of each if the
partners, even in case of failure to comply with the requirements of Art.
1772, par.1.
After all, a verbal partnership contract is valid and binding between the
parties.
Consequences: separate and distinct personality
1.) It can own its properties;
2.) It can sue and be sued;
3.) It may be found guilty of an act of insolvency;
4.) It may be dissolved for committing an act of insolvency.
Read: Campos-Rueda vs. Pacific Commercial
CLASSIFICATION OF PARTNERSHIP:
As to the object of the partnership is only to determine whether a person
may enter such partnership, there is a need to distinguish whether a
partnership is a UNIVERSAL or PARTICULAR partnership
2 Kinds of Universal Partnership:
1.) Universal Partnership of Property
2.) Universal Partnership of Profit
TERM OF PARTNERSHIP:
Q: If the partners failed to fix a period, does it mean that the partners
agreed a partnership at will and may be dissolved at any time without
any liability so long as they acted in good faith?
A: No, because a partnership may be a partnership for a particular
undertaking even if no period was fixed by the parties.
In one case, a partner, dissolved a partnership, claiming it to be
a partnership at will, the partnership being involved in a bowling business.
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The SC ruled that even if the partners failed to fix a period, the partnership
cannot be considered as a partnership at will because there was a
stipulation in the partnership agreement that the debt of the partnership
shall paid out of the profits that will be obtained by the bowling business.
Thus, after all, it cannot be dissolved at will, for the debts will have to be
paid. Therefore, the SC ruled that the said partnership is a partnership for a
particular undertaking.
CLASSIFICATION OF PARTNERS:
According to the liability of the partners:
1.) General
2.) Limited
This classification is relevant only in limited partnership.
Note: A limited partner cannot be held personally liable for partnership
obligations but there are exceptions
As to the contribution:
1.) capitalist
2.) industrial
Q: An industrial partner, may be a general partner?
A: Yes. A capitalist partner may either be an industrial or general partner.
Q: May an industrial partner be a limited partner?
A.: No. A limited partner can only contribute money or property. He cannot
contribute service.
Q: But can a partner be both capitalist and industrial?
A: Yes, he can contribute both money and industry. He can be both
capitalist and industrial and there will be consequences to that.
PROPERTY RIGHTS
3 Major property rights of a partner:
1.) right in specific partnership property;
2.) interest in the partnership; and
3.) the right of the partner to participate in the management of the business
of the partnership.
Property rights considered as minor:
1.) right to have access to the books of the partnership;
2.) right to demand for a formal accounting.
TYPES OF MANAGEMENT:
1.) Solidary Management:
-without specification as to each other’s duties or without
stipulation that one of them shall act without the consent of all.
2.) Joint Management:
-two or more managing partners with the stipulation that none of
them shall act without the consent of all others. The incapacity of one of the
partners, or his absence will not be a valid ground not to obtain his consent
to a contract. It has to be by unanimous consent, unless, in obtaining his
consent (he is absent or incapacitated) it would result in irreparable damage
to the partnership, then the consent of the absent or incapacitated
managing partner may be dispensed with. This is also known as
management by consensus.
3.) If there was management arrangement agreed upon between
the partners, each partner is considered as an agent of the partnership.
Into these arrangements, if only one partner is appointed as a manager, he
can execute any acts of administration even if opposed by all the other
partners.
Ex. In a partnership of which the business is into buying and selling cars,
the managing partner decided to buy a vintage Mercedes Benz, to the
opposition of the other partners for they consider it bad investment, will the
decision or the act of the managing partner in buying the said car bind the
partnership?
Ans.: Yes, because such act is merely an act of administration. The
problem is, if the managing partner continues to not consider the
sentiments of the other partners, he may be removed as a managing
partner.
The question now is, can he be easily be removed?
Ans.: No. The requirements for the removal of a managing partner would
depend on whether he was constituted as such in the articles of partnership
or he was merely appointed as managing partners after the constitution of
the partnership.
If he was constituted as a managing partner in the articles f
partnership, he can only be validly removed under two conditions:
1.) there has to be just cause; and
 2.) by those partners having controlling interests.
Absent one of these conditions, he cannot be validly removed. In fact, even
if there is just cause, if the managing partner controls 51% of the
partnership, he can never be removed.
However, if he was appointed as a managing partner only after
the constitution of the partnership, he can be validly removed even without
just cause, so long as it was done by those partners having controlling
interests.
OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES AND AS
TO THE PARTNERSHIP AND IN CASE OF NON-PERFORMANCE OF
THE OBLIGATION
3 Obligations of the partners:
1.) To make good his promised contribution;
2.) Fiduciary duties; and
3.) To participate in the losses incurred by the partnership business.
To make good his promised contribution:
A. Money:
In order to know the remedies that may be availed of by the non-
defaulting partners and the partnership, it must be known first what was
promised by the partner, whether he promised to contribute money,
property or industry.
If the partner promised to contribute money, for instance, the
partners agreed to contribute Php1 Million with 4 partners, without an
agreement as to respective amount to be contributed, the law provides that
they will have to share equally. Thus, in this example, Php1 Million will have
to be divided into 4 or the respective contribution will be Php250,000. If one
partner failed to make good his promised contribution which is a sum of
money, he can be held liable by the non-defaulting partners up to the
amount promised plus interest. If no rate was stipulated by the parties, it will
be the legal rate of 12%, because this is forbearance in money. Aside from
paying the interest, which is unusual, not only will that defaulting party be
held liable to pay interest, he will also be liable to pay damages.
Normally, in obligations involving money, in case of damage
incurred by another party, the liability will only be payment of interest. In
partnership, not only will he be liable to pay interest, but also of damages.
Remedies that may be invoked by the non-defaulting partners:
1.) Specific performance- the other partners can compel him to
make good his promised contribution.
2.) Dissolution- may be an option by the non-defaulting partners, if
that is the only amount that they are expecting for the
partnership.
B. Property:
If a partner promised to contribute property, it must be determined as to
what was really contributed: was it the property itself or the use of the
property.
If it was the ownership of the property that was contributed then
he would have the obligation to deliver and transfer ownership, aside from
that, under the law, he would have the obligation to warrant the thing.
Q: Before the delivery of the thing to the partnership, who will bear
the loss?
A: The partner will bear the loss. The partnership will bear the loss when
the thing is already in its possession
C. Industry
Q: If a partner fails to render service as promised, will specific
performance be a remedy?
A: Definitely not. It would be a violation of his rights against involuntary
servitude. The remedy would be to demand for the value of the service plus
damages. It can be easily done because there is an industry rate.
Fiduciary Duties:
The duty to observe utmost good faith, honesty, fairness,
integrity in being with each other. This duty commences even during the
negotiation stage.
Test to determine whether there was a violation of this duty:
Whether the partner has an advantage himself at the expense of
the partnership. If he has such advantage at the expense of the partnership,
then there is a breach of the fiduciary duty. There need not be a proof of
evil motive so long as he has this advantage at the expense of the
partnership.
This duty lasts, normally, until the termination of the partnership.
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Q: May a partner may be held liable for breach of fiduciary duty even
after the termination of the partnership?
A: Yes. The SC held that even if the act of a partner was made after the
termination of the partnership, if the foundation of that act was made during
the existence of the partnership, that can still be considered as a breach of
fiduciary duty. In other words, pinaghandaan na nya yun act during the
existence of the partnership, however, it was executed only after the
termination of the partnership.
Participate in the Losses:
Q: What will be the share of the partner in the losses incurred in the
partnership?
Ans.: Consider first whether there was a stipulation as to losses or there
was no stipulation.
OBLIGATIONS OF PARTNER RE: 3RD PERSONS
Q: When would a contract entered into by a partner bind the
partnership?
Ex.: If a partner went to a furniture shop to buy furniture the of which is
Php100,000, and such amount remained unpaid, can the seller demand
payment from the partnership?
A: It depends as to whether the contract was entered into in the name of the
partnership, for the account of the partnership, under its signature, by a
partner who is authorized to enter into that contract to bind the partnership.
Thus, in this example, if in the agreement the buyer was the partner himself
and not the partnership, that partner should be held liable, for the furniture
was not bought in the name of the partnership.
The problem, if the contract would be binding in the partnership, then would
be, whether the partner who represented the partnership had the authority
to bind the partnership.
Normally, if a partner would enter into a contract, a partnership
resolution is not necessary. Whether or not a contract would bind the
partnership would depend on the nature of the act of such partner and the
nature of the business of the partnership.
Q: Concretely, if a partner bought a complete set of SCRA in the name
of the partnership and signed by that partner, would that contract
bind the partnership for the set was bought in the name of the
partnership?
A: It would depend on the nature of the act and the nature of the business
of the partnership. In this example, the partner bought the set of SCRA,
pero naman, and business ng partnership ay restaurant, hindi naman ata
na i-bind nya ang partnership to such contract, ang negosyo nila restaurant.

But the seller would raise the defense, “hindi ko naman alam na
restaurant yung business, e ang nagrepresent ng partnership si Atty. ABC,
so akala law firm.” Is that a valid defense?
Ans.: No. The SC would tell that the third party contracting with the
partnership has the obligation to know at least the nature of the business of
the partnership. In fact, he can demand for the presentation of the articles
of partnership in order for the third party to know the nature of the business
of the partnership. For, if this time, the partnership is a law office, and the
partner bought a set of SCRA, that act of buying a set of SCRA will be
considered apparently for carrying the business of the partnership the usual
way. Therefore, that contract will bind the partnership.
DISSOLUTION, WINDING UP AND TERMINATION
These are three different concepts. Upon dissolution of the partnership, it is
NOT DEEMED dissolved. It will still have to go through the process of
winding up of the affairs of the business of the partnership before the
partnership itself will be terminated.
Q: When would there be a dissolution of a partnership?
Under the law, there will be a dissolution if there is a change in
the relation of the partners caused by any of the partners ceasing to be
associated in the carrying on of the business of the partnership. That will
result in the dissolution of the partnership. Again, if one of the partners
ceased to be associated in the carrying on of the business of the
partnership, that will result in the dissolution of the partnership.
CAUSES OF THE DISSOLUTION
1.) Extrajudicial;
2.) Judicial.
Extrajudicial causes:
1.) voluntary;
2.) involuntary.
Judicial causes are necessarily voluntary because it is by application.

INVOLUNTARY CAUSES
Q: If one of the partners in a partnership was elected a Senator, would
this dissolve the partnership by operation of law?
Ans.: No.
Q: Even if it is a partnership of lawyers or a law office?
Ans.: No.
Judicial Causes: Grounds:
1.) Insanity or incapacity:
-The courts require that it should be permanent in character; and
-such incapacity or insanity must affect the performance of such
partner of his obligations with respect to the partnership business. In
other words, kung wala syang pakialam sa management ng business
ng partnership, insanity or incapacity is not a valid ground.
2.) Gross misconduct:
a.) wrongful expulsion;
b.) if one partner would refuse to allow another partner in the
management of the partnership business, if he has such right to participate
in the management ;
c.) if the managing partner would refuse to distribute the profits
of the partnership when there is such obligation to distribute the profits;
d.) misappropriation of the income of the partnership business.
B’s remedy would be to go after her brother for breach of trust in selling the
property without her consent.
Resulting trust includes Articles 1448, 1451, 1449, 1450,1452,1453,1454.
Constructive Trust:
BE: A applied for the registration of a parcel of land in his name.
However, he was called in New York to be a chef in a hotel. So, he
asked his cousin to follow up his application for registration of land
while he was in New York. Instead of ensuring the registration of the
property in the name of A, he had the property registered in his
(cousin) name. After which, he sold the property to a thi4rd person
who bought the land relying on the TCT. When A returned to the
Phils., he learned of what his cousin had done. May A recover the
parcel of land from the 3 rd person who bought the property in good
faith and for value?
A: No.
N.B.: Art. 1456, 1455.
Q: In constructive trust, may the trustee acquire the property by
prescription by mere lapse of time, without repudiation?
A: Yes.

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

TRUST

2 KINDS:
1.) Express
2.) Implied

Implied Trust: 2 Kinds:

1.) resulting trust;
2.) constructive trust

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

N.B.: An express trust over an immovable may not be proven by parole

evidence. This means that implied trust over an immovable may be proven
by parole evidence or express trust over a movable, may be proved by
parole evidence.

EXPRESS TRUST

Q: May an express trust over an immovable be proven by mere

testimony of the witness?
A: Yes, if the lawyer of the other party did not object to the presentation of
the witness.

IMPLIED TRUST

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

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

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