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SALES 4. Barter vs.

COS
5. Agency to Sell (ATS) 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, Deed of Absolute Sale (DAS) vs. Conditional Sale (CS) vs. Contract to
1602, 1606, 1620, 1623, Redemption xxx Sell (CTS)
DAS – seller does not reserve his title over the thing sold and thus, upon
Q: A obliged himself to deliver a certain thing to B. Upon delivery, B delivery of the thing, ownership passes regardless of whether or not the
would pay a sum of money to A. Is that a contract of sale? buyer has paid.
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 CS - condition/s are imposed by the seller before ownership will pass.
contact of lease. Normally, the condition is the full payment of the price. In CS, ownership
automatically passes to the buyer from the moment the condition happens.
Memorize: Art. 1458 There is no need for another contract to be entered into.

Note: Sale is a contract, so the general principles in oblicon are applicable BE: Receipt was issued by A to B. The receipt’s tenor “Date of the
to sale but note that there are provisions which are contrary. 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”.
Characteristics of Contract of Sale (COS) Contract to Sell?
1. Consensual (1475) – COS is consensual, it is perfected by mere SA: No. It does not pertain to a CTS because in a CTS ownership is
meeting of the minds of the parties as to the object and price. reserved by the seller despite delivery to the buyer. The buyer does not
Note: There is 1 special law which requires a particular form for the validity acquire ownership. This is an Absolute Sale.
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 Q: In a CTS, upon the happening of the condition/s imposed by the
provides that the contract of sale of large cattle must be: in a public seller, would ownership automatically pass to buyer?
instrument, registered and a certificate of title should be obtained in order A: No. While a CTS is considered a special kind of conditional sale, it is a
for the sale to be valid. But otherwise, the other contracts are perfected by peculiar kind of sale because despite the happening of the condition and
mere consent or mere meeting of the minds. 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
2. Principal – sale is a principal contract, it can stand on its own. It does execute a final deed of sale. So ownership does not automatically pass.
not depend on other contracts for its existence and validity.
Dation in Payment (DIP) vs. COS
3. Bilateral (1458) – necessarily in a COS, both parties will be obligated. It DIP (1245) – whereby property is alienated to the creditor. It is provided that
is not possible that only 1 party is obligated because a contract of sale is the law on sales shall govern such transaction. It is specifically provided
essentially onerous. 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
4. Onerous (1350) – COS is essentially onerous. Otherwise, it may be because practically there is a change in the object of the contract.
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. 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
5. Commutative (2010) – meaning there is equivalency in the value of the and will be governed by the law on sales.
prestation to be performed by both parties. Normally, the thing sold would
be equal to the price paid by the other party (buyer). 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
Exception: a contract of sale which is an aleatory contract like sale of hope. accepted, that he will instead deliver his car → it is still DIP but it will not fall
In sale of hope, the obligation of 1 party will arise upon the happening of a on 1245 but on novation because there is a change in the object of the
certain event or condition. obligation which would extinguish the obligation.

Example Sale of Hope: Sale of a lotto ticket, PCSO will have the obligation Note: A guide to distinguish one concept from another is to know the
to pay you only if you got all the 4 or 6 numbers which are drawn nature, requisites and effects.

Another Example of Aleatory: Insurance 1. As to Nature


DIP – a special form of payment
6. Nominate (1458) COS - it is a contract

Classification of Contract of Sale 2. As to Requisites


1. As to Nature of Subject Matter DIP – with a pre-existing obligation
a. Movable COS – not a requirement
b. Immovable
3. As to Effect
Q: Why there is a need to determine? DIP – to extinguish the obligation either wholly or partially.
A: Because some concepts will apply if the object is movable or some laws COS – obligation will arise instead of being extinguished.
will apply if the object is immovable.
Contract for a Piece of Work (CPW) vs. COS
Examples: Under the Statute of Frauds, you have to determine if the object BE: A team if basketball players went to a store to buy shoes and out
if movable or immovable in order that statute of frauds will apply. The Recto of the 10 members, 5 of them were able to choose the shoes. They
law will apply if the object is movable. The Maceda law will apply if the agreed to pay the price upon delivery. The other 4 members were able
object is realty. Article 1544 or Double Sale will require you to determine the to choose but the shoes were not available at that time but they are
nature of the subject matter. 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
2. As to Nature of shoes. What transactions were entered into by these players?
a. Thing SA: 1467 → the first 2 transactions involving a total of 9 players would be
b. Right considered a COS because the shoes which they ordered are being
manufactured or procured in the ordinary course of business for the general
Q: Why there is a need to determine? market. However, the last transaction which will be manufactured only
A: Relevant in the mode of delivery because of the special order of the player and is not ordinarily
manufactured for the general market will be considered a CPW which is
Distinctions known as the Massachusetts rule.
1. Deed of Absolute Sale (DAS) vs. Conditional Sale (CS) vs. Contract to Massachusetts rule – rule in determining whether the contract is a COS or a
Sell (CTS) CPW.
2. Dation in Payment (DIP) vs. COS
3. Contract for a Piece of Work (CPW) vs. COS Barter vs. COS
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Q: A obliged himself to deliver a determinate car with a market value b. Relative Incapacity – the party is prohibited from entering
of P250,000.00. B obliged himself to deliver his watch and P150,000.00 sometimes with specific persons and sometimes over specific
in cash. What kind of contract? things.
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 Kind of Capacity
if the intention of the parties is not clear from their agreement then the 1. Juridical Capacity – it is the fitness to be the subject of legal relations. If a
nature of the contract will depend on the value of the watch. If the value of party to a sale has no juridical capacity, the contract is void. Note that all
the watch is greater than P150,000 then this is barter. If the value of the natural living persons have juridical capacity. Even if he is a 1 day old baby,
watch is equal or less than P150,000 then this is sale. The value of the car he has juridical capacity. The baby can be the subject of donation. Even if
is irrelevant. What is only relevant is the value of the thing (watch) in he is conceived, he has provisional personality.
relation to the cash to be given by one of the parties.
Example: One example of a party to a sale without juridical capacity would
Agency to Sell (ATS) vs. COS be a corporation not registered with the SEC. The contract entered by this
BE: A gave B the exclusive right to sell his maong pants (he has his corporation is a void contract because one of the parties has no juridical
own brand of maong pants) in Isabela. It was stipulated in the contract capacity to enter into that 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 2. Capacity to Act – it is the power to do acts with legal effects. If the
sale. The maong pants were delivered to B. However, before B could incapacity only pertains to capacity to act, the contract would normally be
sell the goods, the store was burned without fault of anyone. Can B be voidable. Without capacity to act or there are restrictions with one’s capacity
compelled to pay the price? to act such as minority, insanity, deaf mute and does not know how to write
From the wordings of the problem you may have an idea that this is an and civil interdiction.
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, Note: Under R.A. 6809 (December 1989) there is no more creature known
there being no negligence on his part because with the delivery of the thing as “unemancipated minor”. Before 1989, the age of majority was 21.
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) C. If both parties are incapacitated
who will bear the loss. But if this transaction is sale then with the delivery of → not only voidable but unenforceable.
the maong pants to B, ownership passed to B because he did not reserve Q: What if one of the parties in a COS is a minor and the minor
ownership over the pants despite the fact that the other party has not paid actively misrepresented as to his age?
the price. So when the pants were burned, it would now be B as the owner A: The SC said that the minor will be bound to such contract under the
who will bear the loss. principle of estoppel.

SA: This is exactly the case of Quiroga vs. Parsons. Article 1466 – in Atty. Uribe’s Comment: Estoppel is not a good ground because the minor
construing a contract containing provisions characteristics of both a COS is not aware.
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”. Sale of Necessaries
That would make the contract COS and not ATS because in 30 days from In sale of necessaries such as food, clothing and medicine to a minor, the
delivery, whether or not B has already sold those pants to other persons, he minor has to pay a reasonable price. This contract is not voidable. The sale
is already obliged to pay a price. That is not an ATS. Being a COS, of necessaries will bind the minor and he will be compelled to pay not really
therefore, after having been delivered, ownership passed to the buyer and the contract price but only to reasonable price.
hence under res perit domino rule, the buyer bears the loss and therefore
he can be compelled to pay the price. Relative Incapacity (Articles 1490 and 1491)
1. Sale between spouses – it is void except:
Essential Elements of a Contract of Sale a. The spouses executed a marriage settlement and in the
1. Consent of the Contracting Parties marriage settlement they agreed for a complete separation of
2. Object or Subject Matter – which is a determinate thing or right property regime. Then they can sell to each other.
Note: Service cannot be the subject matter of sale. b. If no marriage settlement, they may have obtained judicial
3. Cause or Consideration – as far as seller is concerned, it is the price declaration of separation of property. After that, they can sell to
in money or the equivalent of the payment of the price. each other.

CONSENT OF THE CONTRACTING PARTIES 2. Those mentioned in Article 1491


A. No consent of one or both of the parties a. A guardian cannot buy the property of the ward. The guardian is
→ the contract is void. Under the law on sales, it is a fictitious contract not actually prohibited from entering into any and all contracts. It
where the signature of one of the parties was forged. Normally, the seller’s is just that he cannot be the buyer of a property of his ward.
signature is forged. If the signature of the seller is forged, that would be a b. An agent cannot buy without the consent of the principal a
fictitious contract. The alleged seller will not have participation in the property which he was supposed to sell or administer.
execution of the contract. But another kind of contract recognized in the c. The executors and administrators of the estate cannot buy a
Civil Code is a simulated contract. property which is part of the estate.
d. Public officers, judges, their staff, clerk of court, stenographers
Simulated – parties to this contract actually would have participation. They and lawyers are prohibited from buying those properties which
would voluntarily sign in the deed of sale. However, they do not intend to be are the subject of litigation during the pendency of the case.
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 Q: What is the status of the contracts under 1491?
considering there is a simulated sale. A: Prof. Tolentino – voidable
Justice Vitug & Prof. Baviera – void
Kinds of Simulated Contracts Prof. Pineda & Prof. de Leon – the first 3 are voidable and the
1. Absolutely Simulated – they do not intend to be bound at all. last 3 are void.
Q: Why would they enter into this kind of sale? The better answer is void because these persons are prohibited from
A: To defraud creditors entering into these contracts. Under Article 1409, if the contract is
prohibited, it is void.
2. Relatively Simulated – sale where they actually intended another contract
which normally would be a donation. 3. Aliens are prohibited from acquiring by purchase private lands – Take
note “acquiring” which means buying not selling. They can sell.
B. If consent was given Exceptions / when aliens can buy:
→ If consent was given, it does not necessarily mean that the COS is valid. a. Former natural born Filipino citizen. Under the Constitution they
The consent may be given by an incapacitated person or one with capacity are allowed to buy small land which they can use for residential
to give consent. If given by an incapacitated person, consider the nature of purpose.
the incapacity. It may be: b. Another way of acquiring is by succession but this is not a sale
a. Absolute Incapacity – the party cannot give consent to any and
all contracts. D. Even if consent was given by one with capacity to give consent but
if the consent is vitiated
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→ voidable. FIVUM Exceptions:
1. Intransmissible by Nature
E. If the party gave such consent in the name of another without 2. Intransmissible because of Stipulation
authority of that person or no authority of law 3. Intransmissible because 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 CAUSE OR PRICE CERTAIN IN MONEY OR ITS EQUIVALENT
because he has the authority to sell under the law.
Q: A deed of sale was entered into by A and B. The price agreed upon
OBJECT OR SUBJECT MATTER was 1M yen.
The requisites in sale as to thing would almost be the same as the (a) May that be a valid sale?
requisites of contracts in general. (b) Can the seller compel the buyer to pay in yen?
1. The thing must be within the commerce of men A: (a) Yes, it is valid. Basis is Article 1458 because the only
Examples: sale of a navigable river is void, sale of a cadaver is void but requirement of the law is “in money”. Even Japanese yen is in money. The
donation of a cadaver is allowed, sale of human organs is void, things law states that it may not even be in money, it may be “equivalent” like
which are not appropriated like air is void but if appropriated it can be the promissory notes whether or not negotiable or letters of credit.
object of a valid sale. (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
2. The thing must be licit – not contrary to law R.A. 8183, the seller cannot compel even though the contract is valid. The
Examples: sale of prohibited drugs or shabu is void, sale of marijuana is payment has to be made in Philippine money.
void, sale of wild flowers or wild animals is void Consider the date of the sale. If parties failed to stipulate as to which
currency, it has to be in Philippine currency.
3. Must be determinate
Read Article 1460 Price Must be Certain

RULES AS TO OBJECT OF COS Q: Who can fix the price?


Q: A obliged himself to deliver and transfer ownership over the palay A: (1) The best way is for the parties to agree as to the price. (2) They may
that will be harvested from a specific parcel of rice land in May 2008. agree that one of them will fix the price.
What if by May 2008, no palay was harvested?
a. What is the status of the sale? Q: May the sale be perfected if the agreement of the parties was for
b. May the seller “A” be held liable for damages for failure to one of them to fix the price?
comply with his obligation? A: Yes, it may be perfected only if the price fixed by the party who was
A: asked to fix the price was accepted by the other party. If not accepted, there
a. Always consider that in a COS there are only 3 requisites. As long as was no meeting of the minds.
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. Note: The perfection will only be considered at the time of the acceptance
b. Not necessarily because there are excuses to non-performance such of the price fixed by the other party not from the time of the first agreement
as pestilence, typhoon, flood and therefore his failure to comply is an of the parties.
excuse. But if the reason of the seller is because of his negligence, he
cannot find support under Art. 1174. 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?
Sale of Hope (Emptio Spei) A: Yes, the sale may be void if the third person does not want to fix the
Example: Sale of a lotto ticket price or unable to fix the price. Hence, there was no meeting of the minds.

Q: Sale of a land to B with a right to repurchase within 1 year which A Q: If the 3rd person fixed the price but it was too high or too low or
delivered. On the 3rd month, B sold the land to C. However, on the 9 th maybe there was fraud committed by the 3 rd person or he was in
month, A offered to repurchase the land. connivance with one of the parties, may the sale be void?
(a) What is the status of the sale between A and C? A: No, because the remedy of the other party is to go to court for the court
(b) Who will have a better right over the land? to fix the price.
(Sale with a right to repurchase)
Note: Lesion or gross inadequacy of the price does not as a rule invalidate
A: (a) Be guided by the fact that a COS is a consensual contract. The mere a contract unless otherwise specified by law.
meeting of the minds as to the object and the price, then there is a valid and Exception: when otherwise provided by law.
perfected sale. Hence, this is a valid sale even if the object of the sale is a Example: Article 1381.
sale with a right to repurchase. Article 1465 provides that things subject to a
resolutory condition may be the object of a COS. Note: Under the law on sales, if there is gross inadequacy, it may reflect
Atty. Uribe: Mas tamang sabihin – since the ownership thereof is subject to vitiation of consent so the SC would normally enjoin the lower courts to be
a resolutory condition. Hindi naman yung thing is the subject of resolutory warned of the possibility of fraud in case of lesion. Lesion must be proven
condition, it is the ownership over the thing. as a fact. It is not presumed.
If A exercises the right to repurchase and such would be a valid exercise of If there is gross inadequacy, it maybe because actually they intended
such right then the ownership of B would be extinguished. The exercise of another contract and that would make the sale a simulated sale and
the right is considered a resolutory condition as to the ownership of B. The therefore the sale is void.
fact that the object of the sale is subject to a repurchase will not affect the Example: The value of the property is P1M but only P10,000 was written in
validity of the sale. the contract because they intended it to be a donation → void.
(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 TIME OF THE PERFECTION OF THE CONTRACT
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 Auction Sale
and he has no actual knowledge. If that is the case, C may have a better Auction sale is perfected upon the fall of the hammer or any other
right. 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
SALE OF RIGHT / ASSIGNMENT OF RIGHT as long as he would do that before the fall of the hammer. Otherwise, (if
Assignment of right is not necessarily a sale. If there is a valuable after the fall of the hammer), there is already a perfected sale.
consideration for the assignment, it is a sale. If there is no valuable
consideration, it may be a donation or dacion en pago. Q: Can the auctioneer withdraw the goods before the fall of the
hammer?
Examples of right: credit, shares of stock 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.
Requisite of a right → the only requirement is that the right must not be
intransmissible Note: Before perfection, there is one contract which maybe perfected.
G.R.: As a rule, rights and obligations arising from contracts are Before perfection meaning in the negotiation stage → this contract is known
transmissible. as the option contract.
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the statute of frauds and therefore he may be compelled to execute the final
Option Contract deed of sale.
Sanchez vs. Rigos
Facts: Mrs. Rigos offered to sell her land to Sanchez for a certain price. RIGHTS AND OBLIGATIONS OF THE VENDOR
Rigos gave Sanchez 2 years within which to decide. (Note: The optionee or In a deed of sale (DOS), there can be hundreds of obligations of
promisee or offeree is not bound to purchase but he has the option to buy the vendor but those obligations would be because of the stipulation. But
or purchase). In this case, Sanchez has the option. Before the lapse of 2 there are only few obligations imposed by law. The 3 most important:
years, Sanchez told Rigos that he is buying and offered the price agreed 1. To transfer ownership
upon but Rigos refused claiming that she was not bound by the written 2. To deliver
option agreement because no option money (consideration) was given by 3. To warrant the thing
Sanchez. According to Rigos, the option contract is void. There are other obligations:
Held: Since Sanchez accepted the offer and decided to buy within the 4. Obligation to take care of the thing sold with the diligence of a
period before the offer was withdrawn, a perfected COS was created even good father of a family prior to delivery.
without option money. In this case, there was no option contract because it 5. From the time of the perfection up to the time of delivery then
was merely an option agreement. Therefore, there was merely an offer on there would be obligation to pay for the expenses for the
the part of Rigos and once the offer was accepted before it was withdrawn, execution and registration of the sale and obligation to pay the
regardless of whether option money was given and in this case no option capital gains tax would be on the seller as a rule.
money was given, a perfected COS was created. 6. Obligation to deliver the fruits which is related to the obligation to
Note: Iba pag may option money deliver the thing
Q: 2 years within which to decide – assuming there was option
money, before the offeree could decide to buy, the offeror withdraw OBLIGATION TO DELIVER THE FRUITS
on the 6th month. BE: A sold a mango plantation to B but they stipulated that delivery
(a) Can the offeree on the 10 th month say “I would like to will be after the signing of the deed of sale. After the expiration of the
buy”? 6-month period, B demanded for the delivery. The vendor was able to
(b) Can the buyer compel the seller to sell? deliver 1 month after the date when he was supposed to deliver the
A: (a) No. mango plantation. During this period, the vendor harvested mango
(b) No, an action for specific performance will not prosper because when fruits and sold them to X. The vendor was able to deliver only after the
he said he will but there was not more offer to be considered. Na-withdraw other fruits were harvested and sold to Y. Can B recover the mango
na eh. fruits from Y during the 6th month period?
SA: Determine first whether B is entitled to the fruits because if he is not
Q: If the offeree files an action for damages, may that action prosper entitled, then he cannot recover the fruits. Is he entitled to the fruits after 6-
there being option money given? month period during the 1-month period prior to delivery? Yes, in fact, under
A: Yes, because with the option money, an option contract is perfected, the 1537, the fruits of the thing sold from the time of perfection shall pertain to
offeror is bound to give the offeree, 2 years within which to decide and the buyer.
failure to that he is liable not based on perfected COS but on perfected
contract of option. OBLIGATION TO TAKE CARE OF THE THING
G.R.: The thing sold should be determinate because if generic (1460, 2nd
Option Money (OM) vs. Earnest Money (EM) paragraph) then there is nothing to be taken cared of. It will become
OM is not part of the price while EM is part of the price and at the same determinate only upon delivery.
time, it is a proof of the perfection of the contract. Exceptions: There are sales transactions wherein the vendor would not
have this obligation:
G.R.: A COS may be in any form. Article 1483 provides that a COS may be a. Constructive delivery - brevi manu – There would be no
in writing, partly in writing xxx. This provision is exactly the same as Article obligation on the part of the seller to take care of the thing
1356 in contracts which provides that contracts may be obligatory in from the time of perfection because at the time of
whatever form they may have been entered into provided all the essential perfection, the buyer was already in possession of the
requisites are present. But then again even Article 1356 just like Article thing. Maybe he borrowed the thing. Example: he borrowed
1475 would provide for exceptions. the car and he decided to buy it – the thing was already in
Exceptions: The law may require a particular form for its validity. The his possession.
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 OBLIGATION TO PAY EXPENSES / TAXES
particular form for its enforceability of the sale and that would be 1403 or These obligations may be the subject of stipulation. By
the statute of frauds. Concretely, the sale of a parcel of land if not in writing agreement, it would be the buyer who will pay xxx Normally, dito hindi
is valid but unenforceable. It is not void. Note that the price of the land is natutuloy ang sale dahil hindi magkasundo kung sino magbabayad ng tax.
irrelevant if immovable.
OBLIGATION TO TRANSFER OWNERSHIP
Example: Before, the sale of a land for P300 is valid and enforceable even BE: May a person sell something which does not belong to him?
if not in writing. But presently, it has to be in writing to be enforceable. The Would the sale be valid? Would the buyer acquire ownership over the
price is still irrelevant. thing sold, if seller does not own the thing?
SA: Yes. Ownership over the thing sold is not an essential requisite for the
If the object of the sale is movable, you have to consider not the value of sale to be valid. But if the seller does not own the thing, he may have a
the thing but the price agreed upon. The value may be different from the problem on his obligation to transfer ownership. The problem would be
price. You can sell a thing worth P1,000 for P400 but the law provides for whether or not the buyer would acquire ownership over the thing sold if the
the price. If the price is at least P500 and the sale is not in writing, it will be person who sold the thing is not the owner.
unenforceable.
Q: Who would have the right to sell and therefore they can transfer
Paredes vs. Espino ownership by way of sale?
Facts: Paredes was a prospective buyer. Espino owns a land in Palawan. A: First, is the owner. Even if he is not the owner, he may have the right to
Paredes is from Northern Luzon. Their negotiation was thru letters and sell because:
telegrams. Espino sent a letter to Paredes stating that he and his wife (1) He was given the authority by the owner. Example: Agent
agreed to sell the land to Paredes, that the deed of sale will be executed (2) He may be the owner but he may have the authority of the
upon the arrival of Paredes in Palawan. When Paredes arrived, Espino said law to sell, known as “Statutory Power to Sell” (Article
he is no longer interested in selling. Paredes filed a case to compel Espino 1505). Examples: Notary public in pledge, liquidators,
to sell the land. Espino contended that the contract is unenforceable guardians and receivers.
because it is not in writing. He contended that under the statute of frauds it (3) Those who have the authority of the court. Example:
is unenforceable. His contention was sustained by the trial court. Sheriff. Note: it is as if they have the authority of law
Held: This contract is no longer covered by the statute of frauds because because not even the judge can validly sell something if it
there was a letter. Article 1403 provides that a note or memorandum signed is not consistent with the law.
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 Q: May a buyer acquire ownership over the thing sold if the seller has
with his signature on it. The letter took that contract out of the operation of no right to sell?

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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 Q: Would Velasco acquire ownership?
the seller is neither the owner nor does he have the authority to sell, the A: No because Article 1505 provides that the buyer acquired no better title
buyer acquires no better title than what the seller had. If his right is only as than what the seller had. However, Velasco was the owner of a store. On
a lessee that is the most that can be transferred to the buyer. If he has no the next day, Velasco sold the ref to Ko Kang Chu who paid in full. When
title then no title can be transferred to the buyer. Sun Brothers learned this transaction, it filed an action to recover the ref
Exceptions: (When the buyer can acquire a better title than what the seller from Ko Kang Chu.
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 BE: F lost her diamond ring in a hold-up. Later on, this ring was an
the seller was able to transfer ownership to the buyer.) object of a public sale of one pawnshop. Can F recover the ring from
1. By Estoppel the buyer in that public sale?
2. Estoppel by Deed SA: Yes, Article 559 provides that even if the buyer is in good faith so long
3. Estoppel by Record as the owner is willing to reimburse the buyer of the price paid in that sale.
4. Sale by an Apparent Owner
5. Negotiable Document of Title Note: Again in 1505, there is no right to recover as long as the buyer
6. Purchases from a Merchant’s Store xxx bought it in good faith from a merchant’s store, there can be no recovery as
1. By Estoppel – by the principle of estoppel, a person is precluded from a matter of right.
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 Q: How transfer of ownership is effected?
of the acts / representation of the owner, he may not later on deny the A: Under the law, as far as things are concerned, it is effected by delivery:
authority of the 3rd person. (a) Actual
(b) Constructive
2. Estoppel by Deed There can be no transfer of ownership without delivery.
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 Notes:
acquired ownership over the land? (a) There may be a period agreed upon by the parties within which the
SA: Under 1434 which is considered as “Estoppel by Deed” (technical buyer would have to decide. Even if he failed to signify his
estoppel) – when the seller who was not the ownerat the time of the sale, acceptance by the mere lapse of the period, he is deemed to have
acquires ownership, automatically, ownership passes to the buyer by accepted (impliedly accepted) hence, ownership passes to him.
operation of law. However, Article 1434 requires delivery to the buyer. And (b) Even before the lapse of the period, he may be considered to have
under the facts, 1434 would not apply because: accepted if he did an act wherein he would be considered to have
a) There was no showing there was payment adopted the transaction then ownership passed to him.
b) No showing that there was delivery of the land to X. Example: Even if he has 10 days within which to decide but on the
It cannot be said that by operation of law, Y likewise acquired ownership by 2nd day, he sold the car to another. Obviously, he is deemed to
way of estoppel by deed. have accepted the thing because he did an act which is
inconsistent with the ownership of the seller like he donated or
3. Estoppel by Record destroyed the thing.
Jurisprudence: Sale by nephew of the owner of the land. Since the (c) If there is no period agreed upon, the law says if he did not signify
nephew could not deliver the land, the buyer sued the nephew for estafa. his acceptance he will be considered to have accepted after the
For the accused to be acquitted, he asked his uncle to testify that he lapse of a reasonable time. Reasonable time will depend on the
actually had the authority to sell. When the uncle testified in court, the circumstances of the sale, purpose of the sale, nature of the thing
nephew is acquitted. After acquittal, the buyer demanded from the uncle the sold. Example: Perishable goods.
delivery of the land. The uncle refused, claiming that “sa totoo land, I did not
authorized my nephew”. Sale or Return
Q: Case was filed against the uncle, would that action prosper? Q: Ownership passes upon delivery?
A: SC said yes because he cannot be allowed now to claim that his nephew A: Yes. However, the buyer is given the right to revest the title back to the
was not authorize to sell after he testified in court that he gave such seller normally within a certain period. Example: Clauses in subscription
authority. magazine which says that you can return within 30 days without payment.
This is estoppel by record which is considered a technical estoppel.
BE: A car was sold for P150,000. P75,000 paid upon the execution of
4. Sale by an Apparent Owner DOS. The balance payable on a monthly basis. P75,000 was paid. The
A. Factor’s Act car was delivered to the buyer. However, before he could pay the
B. Recording Laws balance, the car was destroyed due to a fortuitous event or was
C. Any other provision of law enabling the apparent owner of the goods to burned xxx Can he still be compelled to pay the balance?
dispose of them as if he was really the owner. 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
A. Factor’s Act ownership). Therefore, ownership passed to the buyer. Under the principle
Even if agent has no right to sell, a third person may acquire ownership of res perit domino – Article 1504 – the owner bears the loss and hence it
because he may rely on the power of attorney as written. can be compelled to pay the price.

B. Recording Laws G.R.: Res perit domino – 1504.


*most common question in the bar exam 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
Read: Mapalo vs. Mapalo not bear the loss like in sale on approval and he has 10 days within which
5. Negotiable Document of Title to decide and the thing was lost through a fortuitous event within the 10-day
If goods are covered by a negotiable document of title and it was period without fault on his part, the seller will bear the loss.
thereafter negotiated. If the buyer bought it in good faith and for value, he Exceptions:
will be protected under the law. He will acquire ownership even if the seller 1. Read Lawyers’ Cooperative vs. Tabora
did not have the right to sell.
Example: The seller may have acquired title by violence. Binugbog nya 2. Delay in the Delivery
yung owner ng goods. Pero kung negotiable document of title yan and When there is delay in the delivery due to the fault of one of the
properly negotiated, lalo na kung bearer document of title, then the buyer parties, whoever was at fault will bear the loss. Note that either buyer or
may acquire ownership even if the seller has no right to sell. seller may be at fault.

6. Purchases from a Merchant’s Store / Markets / Fairs Example 1: The buyer and the seller may have agreed that the goods are to
Sun Brothers vs. Velasco be obtained by the buyer at the warehouse of the seller on a specific date.
Facts: Sun Brothers was the owner of a refrigerator. Sun Brothers was On the date agreed upon, the seller demanded the buyer to get the goods.
engaged in the business of selling refrigerator. Sun Brothers sold a ref to Despite such, the buyer failed to get the goods. On the next day, the
Lopez on installment basis. As stipulated, Sun Brothers reserved ownership warehouse was destroyed due to fortuitous event.
until full payment. Lopez only paid P300 out of P1,500. The balance to be Q: Who is the owner at that time?
paid on installment. Lopez then sold the ref to Velasco.
L.R.B. BASTE
5
A: The seller but there was delay on the part of the buyer hence under 1504 Kuenzle & Streiff vs. Macke & Chandler
it is the buyer who will bear the loss. Facts: The original owner here Stanley and Griffindor (parang Harry Potter
) and the property involved here are fixtures of a saloon. Macke and
Example 2: The seller himself maybe the one at fault. Thus, he is in delay in Chandler are judgment creditor of Stanley and Griffindor. Because of a
delivering the goods to the buyer. judgment in favor of Macke and Chandler, the sheriff levied upon these
Q: Why would this be an exception to the res perit domino rule? properties which was still in the possession of Stanley and Griffindor. The
A: Ang premise dito, the ownership has already passed to the buyer but the properties under execution were questioned by Kuenzle and Streiff.
goods are still with the seller. Can this happen? Yes, because of Kuenzle and Streiff claimed that these things were sold to them prior to the
constructive delivery. If there was constructive delivery, ownership passes levy. If they claimed that the properties were sold to them, the properties
to the buyer but physical possession is still with the seller. They may have should be in their possession. Take note that Stanley and Griffindor were
agreed this time that the seller will be the one to deliver the goods to the still in possession of the goods physically. Hence, there was no actual
buyer at a certain date. When the date arrived, despite demand from the delivery.
buyer, there was no delivery on the part of the seller. Even if the goods are Held: In order that ownership would pass, it has to be in a public instrument
destroyed the next day due to fortuitous event, take note ang owner ay ang if that would be by constructive delivery.
buyer na but who will bear the loss? The seller because he was in delay
in delivering the goods. Kinds of Constructive Delivery
1. Delivery of the Keys – of the place where the goods are located like a
warehouse.
DOUBLE SALE (ARTICLE 1544) Prof. De Leon: this also called as symbolic delivery.
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 2. By Mere Consent or Agreement of the Parties – if at the time of the sale,
registered and obtained a new TCT in his name. Who would have a possession to the goods cannot be transferred to the buyer. There must be
better right? a reason why it cannot be transferred at the time of the sale. This is also
SA: Atty. Uribe: I fully agree with the UP Law Center’s answer. It depends known as tradition longa manu.
on whether or not C registered the sale in good faith. Registration is only Example 1: The thing was the subject matter of a lease with a 3 rd person
one of the requirements good faith is equally an important requirement. until the expiration of the lease, the thing cannot be delivered.

Note: In 1544 (double sale), as to which rule applies will depend on the Example 2: The thing was the subject matter of commodatum. As a rule,
thing sold if movable or immovable. period of commodatum has to be respected.

Q: If the thing is sold twice, who would have the better right? 3. Brevi Manu – this is a kind of constructive delivery because the buyer
A: If movable, the buyer who first took possession in good faith will have the was already in possession of the thing sold at the time of the perfection of
better right. If immovable, the buyer, who first registered in good faith, will the sale so he will continue to be in possession after the sale, no longer as
have the better right. If there was no registration, it will be the first who took a lessee but this time as the owner. So dati lessee lang sya that is why he
possession in good faith. If no possession in good faith, the was in possession or maybe depositary lang sya or maybe he was the
buyer who has the oldest title in good faith. agent at the time prior to the sale.
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 4. Constitutum Possessorium – the seller will continue to be in the
to absence of knowledge of the 2 nd sale kasi syempre 1 st buyer sya. He is possession of the thing after the sale but no longer as an owner but in
nonetheless required to have bought the thing in good faith. Good faith another capacity like lessee.
means that he had no knowledge of the defect of the title of the seller.
Bautista vs. Sioson
Warning: Please be careful when you recite – you register the sale not the Because a lease agreement was entered into by the buyer and seller after
land. 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
Read: Bautista vs. Sioson owner.

Carumba vs. CA Rights


Facts: Sale of land to B who took physical possession but did not register. Kinds of Delivery of Incorporeal Property / Quasi – Tradition:
He is the first buyer. However, the seller (A) is a judgment debtor in one 1. Execution of Public Instrument
case to a certain creditor named C. The land became the subject of an
execution sale. The buyer became C who registered the sale. 2. Placing the Title of Ownership in the Possession of Vendee – a right
would normally be covered by a certificate.
Q: Who would have a better right between C and B (C had no Example: delivery of the certificate of shares of stocks.
knowledge of the sale)?
A: SC Said → B because this land was not registered under the Torrens 3. Use by the Vendee of His Rights with the Vendor’s Consent
System. 1544 would not apply to unregistered lands. 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
OBLIGATION TO DELIVER THE OBJECT OF THE SALE a stockholders’ meeting, the books of the corporation will be closed for 30
Determine the subject matter if it is a thing or a right because days before the meeting. Thus, if the sale occurred when the books are
there are different modes of delivery as to thing and as to right. 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
Things consent of the vendor.
Kinds of delivery of things as a consequence of sale known as
“tradition” – under the law: RULES ON SALE AS TO QUANTITY / QUALITY OF THE THING SOLD
1. Actual Delivery / Material Delivery / Physical Delivery / Real Delivery – Q: In a sale involving 1,000 pairs of shoes with a specific design as
the thing is in the possession and control of the vendee. Take note agreed upon. The seller delivered 1,200 pairs of shoes instead of only
“control”. Take note “to the vendee”. 1,000. Can the buyer reject everything?
Q: What if the thing was delivered to a 3 rd person? A: No. He has the right to reject only the excess. Reject the 200 but he can
A: Jurisprudence – SC said → yes, there maybe actual delivery if the third be compelled to accept the 1,000.
person has authority to receive from the vendee. Thus, making him an
agent of the vendee and that would still be actual delivery. Q: What if instead of 1,000, 800 was only delivered?
A: The buyer cannot be compelled to receive 800 because partial
Note: Philippine law does not only require actual delivery – constructive performance is non-performance. You cannot compel the creditor to accept
delivery may result in transfer of ownership. partial fulfillment as a rule because it can be a subject of a stipulation that
there can be partial delivery.
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 Q: The obligation to deliver 1,000 cavans of Milagrosa rice. Instead of
public instrument that is equivalent to delivery. Hence, ownership passes to delivering 1,000 cavans of Milagrosa, the seller delivered 1,100 cavans
the buyer. of both Milagrosa and Burmese rice. May the buyer reject everything?

L.R.B. BASTE
6
A: Yes, if the goods are indivisible. Meaning each sack of rice, Milagrosa 1. Express – any affirmation of fact or any promise by the seller relating to
and Burmese rice were mixed. However, if it is clear that per sack it is the thing, the natural tendency is to induce to purchase the thing.
Milagrosa rice and the 100 sacks, it is clear that those are Burmese rice Requisites:
that would not be considered as indivisible. He can be compelled to accept (a) There is an affirmation of fact
1,000 sacks Milagrosa and he has the right to reject 100 sacks Burmese (b) The fact must pertain to the thing either to the quality, character or
rice. title of the thing

SALE OF REALTY Any other matter may not be considered as an express warranty.
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 The use of the words / terminologies is not conclusive as to whether or not
are the remedies of the buyer? there is an express warranty.
A: (1) Specific performance – would be a remedy if the seller is still in the Example: “I guaranty / warranty you that you will be happy if you buy this
position to deliver the balance. Siguro yung katabing lupa sa seller din, car at P100,000”→ this does not result in an express warranty
hence, he can afford to give additional 5 sqm.
(2) Q: If specific performance is not possible, is proportional Again, if the affirmation of fact pertains to the quality of the thing, it is an
reduction a remedy? express warranty.
A: It depends on whether the sale is considered as a sale with a statement Example: These 10 sacks of fertilizer would result in 200 cavans of rice.
of an area of a rate of a certain measure or if it is a lump sum sale.
The statement of the seller’s opinion is not as a rule considered an express
Q: Under the facts, 95 sqm was delivered, would rescission be a warranty.
remedy? Example: “This is the best piña cloth” → it may turn out that there are better
A: As a rule no because rescission would only be a remedy if the area piña cloth.
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- As long as the seller is not an expert on that field, that would be treated
deliver, then rescission is a matter of right. merely as an opinion and there can be no liability for breach of an express
warranty.
PLACE OF DELIVERY
Read 1524, 1525 and 1198 BE: “A” sold a land to B for P1M in Antipolo. As agreed upon
The seller delivered the goods to the place of business of the buyer. If the P100,000 will be paid upon the signing of the DOS. The balance will be
buyer refuses to receive the goods, the buyer will be considered in delay paid within 30 days from the time the occupants (squatters) of the
and therefore will be liable to the seller because of unjust refusal. land are evicted. It was so stipulated that if within 6 months, the
Q: May the buyer be considered in delay for his refusal to accept if squatters have not yet been evicted, the seller should return the
there is no place stipulated in the contract? P100,000. Another stipulation states – within the 6-month period, the
A: It depends on the kind of thing. Determine if it is determinate or generic. value of the land doubled. Despite the filing of an eviction suit by the
If the thing is determinate, the law provides that it will be the place where seller and the lapse of the 6-month period, the squatters were still
the thing is located at the time of the perfection of the contract. 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
Q: What if the object of the sale is a generic thing? “never mind even if the squatters are still there. I will still buy the
A: Seller’s place of business or residence. 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
Note: If there is no stipulation when to be delivered, the seller cannot be accept the P900,000. What he did is to file an action to rescind the
compelled to deliver. contract. Would the action prosper?
SA: If the answer is based on rescission, the action will not prosper
Q: What if at the time of the perfection of sale, though the thing is because rescission may only be invoked by the aggrieved party. The seller
determinate, it was on board a ship while in transit. Where will be the is not an aggrieved party.
place of delivery?
A: Depending on the shipping arrangement agreed upon by the parties. 2. Implied –
Prof. De Leon: because of this implied warranty, it cannot be said that
F.O.B. – Free on Board Philippine law does not adopt caveat emptor “buyer beware”. (Faye’s
C.I.F. – Cost, Insurance, Freight Caveat : Please check the book of Prof. De Leon regarding this
statement. Thanks )
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. Even if there is no stipulation as to these warranties, the law itself would
arrangements do not really determine the place of delivery, they only make provide for these warranties and hence if there are hidden defects he would
rules of presumption. 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
So in a C.I.F. arrangement, it is only presumed that the place of delivery is to say that Philippine law has adopted caveat emptor. But there are certain
the port of origin. 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
In a F.O.B. destination, it is only presumed that the point of destination is warranty against hidden defects under certain circumstances.
the place of delivery.
Warranty Against Eviction / Title
Q: What really determines the place of delivery? Q: If the seller was able to transfer ownership to the buyer may the
A: SC said this indication as to the intention of the parties as to the place seller nonetheless be held liable for breach of warranty against
of delivery is the manner and place of payment. If there is an agreement as eviction?
to where and how the price is to be paid that would be the place considered A: Yes. These are 2 different obligations: the obligation to transfer
for purposes of delivery and therefore for transfer of ownership. ownership and the obligation to warrant the thing.

Read 1582 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
Obligations which cannot be Waived: possession over the thing sold.
1. Obligation to transfer
2. Obligation to deliver Requisites of warranty against eviction:
1. There has to be final judgment depriving him of such thing either wholly
Obligation which can be Waived: or partially. In other words, a case was filed by a 3 rd person against the
1. Obligation to warrant the thing buyer which resulted in a favorable decision as to the plaintiff resulting in
the deprivation of the property by the buyer.
Kinds of Warranties under the Law:
1. Express 2. Deprivation must be either:
2. Implied (2.1) Based on a 3rd person’s prior right over the thing prior to the sale
or
L.R.B. BASTE
7
(2.2) Based on an act after the sale but imputable to the vendor.
WARRANTY OF QUALITY
3. There should be no valid waiver Prof. Deleon, Prof. Vitug, Prof. Baviera: there is another warranty which
is WARRANTY OF QUALITY which includes:
4. The action to hold the vendor liable should be filed within the period (1) Warranty of Fitness
prescribed by law. (2) Warranty of Merchantability

WARRANTY AGAINST HIDDEN DEFECTS To some authors the warranty of quality is considered under the warranty of
Requisites: hidden defects.
1. The defect must exist at the time of the sale. If the defect started after the Atty. Uribe: I cannot agree that the warranty of quality is in the warranty of
sale there can be no such liability. hidden defects. I agree with Prof. De Leon, Prof. Vitug and Prof, Baviera
that there is a warranty of quality.
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. WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE
If the seller is not aware of the hidden defects, he can be held liable. If he The thing bought may not actually have any defect and for 1 million buyers
was aware, his liability will be greater because that makes him a bad faith it would be fit for their purpose. However, it may not be fit for the purpose of
seller. 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
Q: Even if there is such a hidden defect, is it possible that the vendee purpose although there is no hidden defect but it is not fit for the purpose of
cannot hold the vendor liable despite the fact that there was hidden the buyer.
defect even if he was not informed because maybe the seller was not In order for the seller may be held liable:
aware? 1. The buyer has to inform the seller of the particular purpose for
A: Yes, he may not be able to hold the seller liable if he is an expert on the which the thing is to be use and
thing. He is expected to know the defect. 2. The seller manifested that the thing would be fit for the purpose
and the buyer relied on such representation of the seller.
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 Note: If the thing is sold under the trade name there can be no warranty of
would not have bought it at the price had he known of such defect. fitness for a particular purpose.

Q: If the thing which has a hidden defect was lost or destroyed, can WARRANTY OF MERCHANTABILITY
the vendee hold the vendor liable for this breach of warranty? Does it It pertains to the fact that it is fit for the general purpose. If the thing was
matter if the loss was due to a fortuitous event or maybe the loss was sold by description or by sample, it is considered that there is such a thing
due to the fault of the buyer himself, nonetheless, can he hold the as warranty of merchantability.
vendor liable?
A: Yes. The vendee can hold the vendor liable for breach of warranty SALE OF ANIMALS WITH DEFECTS – RULES:
against hidden defects even if the thing was lost due to fortuitous event or 1. The defect is a redhibitory defect – it is such kind of defect that even by
due to the fault of the vendee himself because of the hidden defects. But of examination of expert it cannot be discovered.
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. Q: If one of the animals has redhibitory defect, can the buyer rescind
the entire contract pertaining to all the animals?
If there would be a problem here as to the extent of the liability of the A: G.R.: No. He can only rescind the contract pertaining to the animal with
vendor, he should first consider the cause of the loss, maybe it was lost due redhibitory defect. He cannot rescind the entire contract pertaining to all
to the defect itself or lost through fortuitous event or lost through the fault of animals.
the vendee. After that, he should determine whether the vendor was aware Exception: If he can prove that he would not have bought the others had
of the defects or he was not aware. Again, if he was aware, damages may he known the defect of one then he can rescind the entire contract.
be recovered. If he was not aware, he may not be held liable for damages
unless he can only be held liable for interest. Q: Who has the burden of proof that he would not have bought the
others had he known of the defect of one?
If the defect was the cause of the loss, the vendor would be liable for the A: Normally, it would be the buyer. But the law under certain circumstances
return of the price, not only the price less value but also to refund the would provide for this presumption that it is presumed that he would have
expenses and damages because the vendor was aware of the defects. bought the others had he known of the defect of one.
Examples: He bought the animals in teams or in pairs then the presumption
If the vendor was not aware of the defects, he cannot be held liable for arises.
damages but he would only be held liable for the price. - Love birds (Ang mga love birds, kapag namatay yung isa later
on mamatay din yung isa. Minsan nga mgsuicide pa sya pag
If the cause of the loss of the thing was a fortuitous event, he can only be mag isa na lang sya. Iuuntog nya ulo nya sa cage nya. )
held liable for the price less value.
Instances whether there would be no warranty against hidden defects
ANY CHARGE OR NON – APPARENT ENCUMBRANCE NOT and therefore caveat emptor may be invoked:
DECLARED OR KNOWN TO THE BUYER 1. Sale which is an “as is where is” sale which means sale where it is found
Q: Would there be an encumbrance over an immovable which is a xxx bahala ka sa buhay mo if you want to buy the thing and you cannot
form of easement or servitude? later on claim that there were hidden defects. (Faye: pls. research the
A: An example of this is a road right of way. complete meaning of “as is where is” sale. Atty. Uribe will ask the meaning.
)
Q: If the buyer bought the land which turned out to have a road right 2. Sale of 2nd hand items
of way in favor of a 3 rd person, can he claim breach of warranty 3. Sale of animals in fairs
against any charge or non – apparent encumbrance? 4. Sale in public auction
A: Of course there are requisites:
(1) The encumbrance or easement or burden or the road right of way Note: There would still be warranty against eviction.
has to be non – apparent. Note: Rules on warranty also apply to judicial sale.

Q: If there is an encumbrance, what are the remedies of the buyer? Q: In sale by authority of law or in execution sale, can there be breach
A: (a) He can seek for the reduction of the price. of warranty against eviction?
(b) Rescission - the law requires that the action for rescission must be A: Yes. The judgment debtor and not the sheriff shall be liable.
filed within 1 year from the date of the contract. If after 1 year, no more
rescission. The law would specifically exempt certain persons from liability for breach
of warranty like sheriff, auctioneer, mortgagee, pledge and other persons
(c) If he became aware more than a year, he may file an action for who sell by virtues of an authority of law like notary public because they are
damages, But the law requires that the action for damages has to be filed not really selling for themselves, they are selling on behalf of another
within 1 year also but from the time of the discovery of encumbrance. If he person.
filed it for example, after 2 years from discovery – no recovery of damages.
L.R.B. BASTE
8
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
Note: Two (2) favorite articles are 1649 pertaining to assignment of lease,
Q: As to the relationship of the taxi driver with his operator, is this a and 1650 on sublease.
contract of lease?
A: SC, ruled that this is in fact a lease but not a lease of thing, but lease of The question in the Bar may be as simple as may a lessee
service specifically an employment contract, this is because of the control of sublease the property without the consent of the lessor and what are the
the operator over the taxi driver, as to when, what time the drive operates respective liabilities of the lessee and sublessee.
the vehicle.
Articles 1649 and 1650 would tell us that a lessee may not
Note: Again, to distinguish lease contract from other legal relationship you assign his right on the lease without the consent of the lessor however he
have to consider the characteristic of the contract. The best way to may sublease the property in whole or in part even without the knowledge
remember the kinds of contract is to know by heart what are the real of the lessor as long as he was not prohibited from subleasing the
contract (mutuum, commodatum, deposit, pledge) and formal contract premises.
(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 Read: Malacat vs. Salazar
required except in exceptional case: e.g. sale of large cattle. Frensel vs. Mariano
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 TERMINATION OF THE LEASE
perfected.
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.
Note: Lease of things is not essentially personal. 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
Heirs of Fausto Dimaculangan vs. IAC. Upon the death of parties like lease by the heirs. (Case: Heirs of Dimaculangan vs. IAC)
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. IMPLIED NEW LEASE
Note: one of the most favorite in the bar exam.
Characteristic of Lease of things
♦ Consensual Contract Requisites:
♦ Onerous 1. The lease period has expired and
♦ Bilateral 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
♦ Nominate
3. No notice to the contrary from the lessor and the lessee.
♦ Principal.
BE: Pertain to contract of lease entered into for period of 3 years Jan
Essential Requisites of Contract of Lease 1, 81 up to 1984. Rentals were paid on monthly basis. It was
1. CONSENT stipulated that the lessee has the option to buy property at a certain
2. OBJECT price within a certain period (option to buy). Despite the lapse of the 3
Q: In lease of things, may a consumable thing be the subject matter of year period, the lessee did not exercise the option, but continued to
lease? be in possession of the property and paying the monthly rentals and
A: Normally when a consumable thing is use in accordance with its nature it the lessor accepting the same. This continued until June 1984 when
is consumed, as a rule therefore consumable things cannot be the subject the lessee stated that he would now buy the property in accordance
matter of lease of things. The exception is, when the use of the things is with the option to buy. The lessor refuse, claiming there was no more
only for exhibition, or when they are accessory to an industrial option. Was the lessor correct? Yes. Was it correct to say that there
establishment then it may be a subject of lease. was extension of the lease under the facts? SA: Yes, there was an
3. CAUSE 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
FORMALITIES original lease continue also. First as to the term, under the law, the term of
Lease of Service – there is no particular form required by law for the validity the renewed lease would not be the term agreed upon but only be of a
of the lease not even for the enforceability as a rule. period depending on the manner the rentals are paid. If the payment is on
Read: Donald Dy vs. CA 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.
Lease of Things – certain provision of the law which requires certain forms As to the option, it was renews, SC held, in an implied new
to be enforceable. 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
Note: the problem in lease would normally be a combination of an agency considered renewed. Even in the facts of the case itself, it was stipulated
and lease. that the option may be exercise within the period agreed upon (3 years).

BE: Agreement for the repair of a private plane and for a certain sum AGENCY
of money, however additional work was requested by a person who
has the authority of a duly recognize representative of the owner of Definition 1868, 1874 and 1878- formalities
the plane and the request was merely verbal, when the additional
work was completed, the one who rendered the work demanded Coz a form is required for the validity or for the enforceability of the contract
additional payment, the defense raise was under 1724 in order that a entered by the agent-1878, 1874
claim for additional payment for the additional work, the agreement
for the additional work must be in writing and the changes should be 1892- pertain to appointment of the substitute- effect- may the agent
authorized in writing nonetheless be held liable for the loss that incurred by the principle as the
SA: The suggested answer of UP will sustain the defense because of 1724; result of the appointment of the substitute.
such change not being authorized in writing, the request was merely verbal
then the claim may not prosper. Other provisions pertain to the right and obligations of commission agent or
more importantly the guaranty commission agent-1907-1908
RIGHTS AND OBLIGATION OF THE LESSOR
Effect of death-1919, 1930 and 1931
As to necessary repairs of the thing lease, this is an obligation of Either of the agent or principal
the lessor, under the law the lessor is oblige to make the necessary repairs.
Revocation-kind of agency- agency coupled with interest-1927
Read: Gonzales vs. Mateo
BE: A asked her best friend to B buy for her certain items in a grocery
RIGHTS AND OBLIGATIONS OF THE LESSEE store. Is there a nominate contract created between A and B?

L.R.B. BASTE
10
SA: Better answer, if B agreed to the request of A, an agency relationship Read: 1909 - the liability of the agent for damage to the principal due to his
has been created, a nominate contract has been created. negligence or even bad faith or fraud committed against the principal may
be mitigated if the agency is gratuitous in character.
Read: Quiroga vs Parsons
BE: Scope of authority of the agent whether it only pertains to the
Distinguishing contact of agency from other contract and other legal acts of administration or acts of anu yun dominion?
relationship. Consider the characteristics of a contract of agency as a SA: Under this provision 1877 if the agency is comes in general term this
contract and as a legal relationship business organization. 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
Read: Lepanto Mining case deemed appropriate. That will still be an agency pertaining to act of
Mariano case administration.

Some authors would classify contract of agency into three, not As to form, the law is clear that it may be oral however the law may require
concepts. a particular form.
1. Actual agency
2. Apparent / dormant ESSENTIAL ELEMENTS OF A CONTRACT OF AGENCY
3. Estoppel Read: Rallos case
The SC enumerated the essential elements or the alleged essentials
1. Estoppel elements of a contract of agency.
Kang case 1. Consent
Facts: Flores appears to have full control of a restaurant, owned by Kang 2. Execution of the juridical act- subject matter
and in the administration of the restaurant he bought certain items from 3. Acts within the scope of authority
Mack, items needed for restaurant but a portion / price to be paid, not by 4. The acts must be in representation of the principal
Flores, so Mack ( seller ) went after the owner of the resto. The only This are allegedly the essential element again some authors would discuss
defense raised by the owner was that Flores was not his agent. in their books with due respect to the ponente of this case, medyo mali mali
Take note: it is very difficult to prove actual agency, because an ang enumeration, first there was nothing mention about the cause or
agreement between 2 persons, eh kung verbal lang ang agreement dun, consideration as a contract, a contract will never validly have a cause or
how would you be able to prove, the owner of the restaurant can be held consideration well it may be liberality pwede naman cause yan but there
liable by estoppel because he cloth Flores with full power as if he has the must have a cause if only for that the enumeration be defective more than
authority to buy those items necessary for the administration of restaurant that that last 2 mention that the agent act within the scope and that the
aside from that Mack was able to prove pieces of evidence like in the lease agent must act in representation are not essential elements of a contract of
agreement over the building where restaurant was located and comes the agency they are actually obligations of agent which means they have been
owner of the restaurant as lessee and Flores sign as an agent of the lessee already perfected of contract of agency, no obligation will arise kung void
with all this the ung kontrata kung wala pang valid contract, so essential elements are only
Held: The owner of the restaurant is liable under the Principle of Estoppel. 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
2. Apparent / Ostensible scope of authority does it mean that the contract of agency is void? Of
Q: A letter was sent by B to X, informing X that A has the authority to course not, he can be held liable for acting outside the scope of authority or
enter into a contract with X specifically to obtain goods from X, like if he acted not in contemplation of the principal, does it mean that there
copra, abaca which goods will be sold by A, after the sale a portion was no agency at all? Of course not, there is a contract of agency. Under
can be deducted as a commission and the restaurant to be delivered the rule the consequences if the agent did not act in the representation of
to X. after a certain period, the goods obtain by A from X remained the principal.
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 PARTIES
B was as of that moment from that certain period he has already Going to the consent of the parties, well 1 author claims that there are 3
revoked the authority of the agent and therefore be bound by any parties in a contract of agency that is totally wrong! There are only 2 parties
contract entered into by A in representation of B with 3 rd person. Is the in a contract of agency the principal and the agent, however in problems
claim of B tenable? involving agency there may be there would be normally three persons
SA: No. 1873 so far as 3 rd person are concern, this notice itong letter nya involve, the third persons with whom the agent transacted, no longer part of
kay X remain in full force and effect until it is rescinded in the same manner the concept agency, this is the agency, the contract entered into between
it was given. 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
3 Actual agency this contract, the 3rd person is a party to a 2 nd contract, that again the parties
The law itself classify actual agency into as manner of creation, express / is the principal and the agent, they may be called in another names the
implied. There is no problem with express agency. principal- employer, constituent, chief; the agent may be called attorney-in-
3. Express agency-it is a kind of agency the consent of both parties fact, proxy, representative.
were expressly given.
4. Implied agency- were the consent of one parties was only OBJECT
impliedly given on the part of principal- the leading case is Dela As to the object of the contract of agency - this is the execution of juridical
Pena vs. Hidalgo act.

FORM
Q: If a person was asked to administer the property of another to sell Agency may be oral. It does not matter, the contract of agency would be
the property, and he said nothing- by his silence, by his inactions may valid but the parties even if it is by verbal agreement, however any effect of
be deemed accept agency? the verbal authorization, the agreement between the agent and the principal
A: Not necessarily. Under the law, you have to make distinction to if it was only verbal will be in the contract entered into by the agent.
determine the scenario under which the said appointment was made, okie! Read 1874
The law would say when the 2 parties are absent, and when the 2 parties
are present. Contracts which require a SPA – see codal
When 2 parties are absent- 1 is in Manila and the other is in Cebu. Jimenez vs. Rabot
When 2 parties are present- present in the same room 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
(a) 2 persons present- present in the same conference hall asking his sister to sell one of his parcels of land and with that letter the
(b) If 2 persons are in different place, one in Manila and the other one sister indeed sold one of his parcels of land to Rabot, however the sister did
in Cebu 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,
Compensation so he filed an action against Rabot, the defense raised by him that the letter
As to the compensation in a contract of agency consider if the agency is would not be sufficient a power of attorney to bind him as a principal the
gratuitous or onerous. 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.
L.R.B. BASTE
11
2. Go after the agent or damages if there is any damage sustain by him
Obligations of the Agent: for his failure to follow the instructions of the principal.
1. To carry out the agency
2. In carrying out the agency, there are 2 obligations of the agent, Read: 1898
he should always remember:
a. to act within the scope authority Appointment of Substitute
b. to act in behalf of the principal Read: Substitute vs. Sub Agent (Prof. De Leon’s book)

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 PARTNERSHIP
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 BE: A, using all his savings in the total amount f Php2,000, decided t
would be subject of the case up to the SC pertaining to the scope of establish a restaurant. B, however, gave Php4,000 as “financial
authority of the agent. 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
Read: Linal vs. Puno 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?
Read: Insular vs. PNB 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
BE: A authorize B to borrow sum of money from any bank and he also among themselves.
authorize B to mortgage specific property specific parcel of land to
secure that loan what B did he borrow money for himself from a Atty. Uribe: I do not agree with the answer. I’d rather agree with the
certain bank without disclosing his principal, later on he defaulted the alternative answer.
question was can the bank go after the principal? WHY: In the alternative answer as can be seen from the facts, B gave
A: Of course No, the contract is between the agent and the bank only the Php4,000 only as a financial assistance. It was not a contribution to a
principal has nothing to do with the contract, under the facts, the agent common fund. As such, he actually became a creditor of A. Therefore, he
borrow for himself sya talaga, however if you have read the suggested did not contribute to a common fund.
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 Q: What about the stipulation that B will have 22% share of the
the question, di tinatanong ng examiner can the bank go after the principal profits?
as far as the thing is concerned. The only question pertains to the payment A: The law on partnership is very clear that a sharing in the profits does not
of loan. Another thing of the suggested answer it is totally wrong, under the necessarily does not result in a partnership contract because the sharing of
facts, the principal authorize the agent to mortgage the property for the loan the profits may only be a way of compensating the other person, in fact that
that will be obtain by the agent in the name of the principal. 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
Q: If indeed he mortgaged the land for a loan in his name, would that agreement na ito, 22% of the profits, so that if walang profit sa isang taon,
mortgage be valid? wala munang bayad. ‘Di ba that’s reasonable agreement. Only kung may
A: Definitely not. If he mortgaged it as a mortgagor the mortgage is void, the profit, saka lang babayaran. Kumbaga, friendly loan ito. The sharing in the
law requires that the mortgagor must be the absolute owner of the thing profits as expressly provided by law does not necessarily result in a
mortgage. partnership contract. Thus, it can be said that really B was not a partner but
is actually a creditor of A.
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 Definition of Partnership
binding mortgage as against the principal?
A: Also not, also his authority to have the property to mortgage to secure a Q: What if two or more persons agreed to put up a partnership but
loan, not to secure any other persons loan and that therefore it cannot be they never intended to divide the profits among themselves, would
within the authority of the agent and therefore any foreclosure of such that still be considered a valid partnership contract?
mortgage will not prosper. A: Yes. Under the second paragraph of the article, two or more persons can
form a partnership for the exercise of a profession.
Q: If the agent acted within the scope of his authority and in
representation of the principal, who will be bound in that such Partnership vs. Co-ownership
contract? Consider the essential features:
A: Aside from the 3rd person, it will be the principal because again the agent CREATION
merely representing the principal. However, it is possible for the agent Partnership is obviously created by agreement. Co-ownership may be
himself to be bound in such contract be held liable under such created by agreement, but it may also be created by operation of law. In
contract? fact, by express provision of the law, the fact that there is co-ownership
A: Yes, one if he expressly binds himself to that contract. does not necessarily mean that there is a partnership existing between two
persons.
Read: Domingo vs. Domingo 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.
Read: US vs. Reyes
PURPOSE
Obligation to render an accounting Partnership: either to divide profits or exercise a profession.
If this time the principal authorize the agent to sell his car for 300k, the Co-ownership: Common enjoyment of the thing or right owned in common;
description of the car was mention in the SPA at least 300k however before merely to enjoy the property, thus they may have different purposes.
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 A very important feature of partnership in relation to co-ownership, it has a
selling the car in QC IBP member chapter he sold the car in Manila not juridical personality, separate and distinct from the individual partner which
known by the principal for 300k, (1) Can the principal recover the car is obviously not present in co-ownership. In co-ownership, they have their
from the buyer if that car is already delivered to the buyer? (2)Any respective personalities and no new personality will be created.
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 POWERS OF THE MEMBERS
principal then he has all the right to retain the car and that sale will be Partnership: Unless otherwise agreed upon, each partner is an agent of the
valid and binding as against the principal. As provided under Art. 1900 other partners and of the partnership.
so far as 3rd persons are concerned they only rely on the SPA as Co-ownership: As a rule, a co-owner cannot act as an agent of the other co-
written they have no obligation to inquire on the special instructions owners unless otherwise agreed upon between the co-owners.
made by the principal which are not mention in the SPA, eh wala PROFITS:
naman dun sa SPA na it will be sold to an IBP member chapter in QC. Co-owner: Mas malaki ang profits, mas malaki ang interest. But not
necessarily in partnership, because the sharing in the profits may be
L.R.B. BASTE
12
stipulated upon by the parties. Pero kung walang stipulation, it may be The SC ruled that even if the partners failed to fix a period, the partnership
based on the capital contribution. cannot be considered as a partnership at will because there was a
stipulation in the partnership agreement that the debt of the partnership
Q: Will death extinguish co-ownership? shall paid out of the profits that will be obtained by the bowling business.
A: No, Kapag namatay ang isang co-owner, his heirs will be the co-owners Thus, after all, it cannot be dissolved at will, for the debts will have to be
of the surviving co-owners at pwedeng tulou-tuloy lang yan. However in paid. Therefore, the SC ruled that the said partnership is a partnership for a
partnership, if it is a general partnership, if one of the partners dies, the particular undertaking.
partnership is dissolved.
CLASSIFICATION OF PARTNERS:
ESSENTIAL ELEMENTS OF PARTNERSHIP According to the liability of the partners:
Like any other contract, it should have the three essential requisites: 1.) General
1.) Consent 2.) Limited
2.) Object: to engage to a lawful activity, whether a business or This classification is relevant only in limited partnership.
profession.
3.) Cause or consideration: the promise of each partner to Note: A limited partner cannot be held personally liable for partnership
contribute money, property or industry obligations but there are exceptions

Consent of the contracting parties: As to the contribution:


The rules in contract would be equally applicable but, just like in 1.) capitalist
sales and lease, there are persons who are prohibited from entering into a 2.) industrial
contract of partnership.
Q: An industrial partner, may be a general partner?
Object A: Yes. A capitalist partner may either be an industrial or general partner.
To engage in a lawful activity.
Q: May an industrial partner be a limited partner?
Q: If the object is to engage in a lawful activity, necessarily the A.: No. A limited partner can only contribute money or property. He cannot
partnership is valid? contribute service.
A: No. There are specific business activities wherein the law would require
particular business organization which may engage in such business Q: But can a partner be both capitalist and industrial?
activity, specifically the Corporation Code which provides that only A: Yes, he can contribute both money and industry. He can be both
corporation may engage in insurance and banking business, therefore there capitalist and industrial and there will be consequences to that.
can be no partnership engaging in such business: banking and insurance.
PROPERTY RIGHTS
Cause 3 Major property rights of a partner:
The promise of each partner to contribute either money, property or 1.) right in specific partnership property;
industry. 2.) interest in the partnership; and
Formalities 3.) the right of the partner to participate in the management of the business
Q: If the agreement of the parties to a contract of partnership was only of the partnership.
a verbal agreement, would that be a valid and binding contract? Will
there be a juridical personality created? Property rights considered as minor:
A: As a rule, yes. Even if under Art. 1772, the law provides that every 1.) right to have access to the books of the partnership;
contract of partnership, having a capital of more than Php3,000 or more, 2.) right to demand for a formal accounting.
shall be in a public instrument and must be registered with the SEC.
The 2nd paragraph of Art. 1772 provides that despite failure to TYPES OF MANAGEMENT:
comply with the requirements in the preceding paragraph, this is without 1.) Solidary Management:
prejudice to the liability of the partnership and the individual partners to third -without specification as to each other’s duties or without
persons. From that article alone, it is clear that despite non-compliance with stipulation that one of them shall act without the consent of all.
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 2.) Joint Management:
partnership). But more directly, Art. 1768, the law provides, the partnership -two or more managing partners with the stipulation that none of
has a juridical personality separate and distinct from that of each if the them shall act without the consent of all others. The incapacity of one of the
partners, even in case of failure to comply with the requirements of Art. partners, or his absence will not be a valid ground not to obtain his consent
1772, par.1. to a contract. It has to be by unanimous consent, unless, in obtaining his
After all, a verbal partnership contract is valid and binding between the consent (he is absent or incapacitated) it would result in irreparable damage
parties. to the partnership, then the consent of the absent or incapacitated
managing partner may be dispensed with. This is also known as
Consequences: separate and distinct personality management by consensus.
1.) It can own its properties;
2.) It can sue and be sued; 3.) If there was management arrangement agreed upon between
3.) It may be found guilty of an act of insolvency; the partners, each partner is considered as an agent of the partnership.
4.) It may be dissolved for committing an act of insolvency.
Into these arrangements, if only one partner is appointed as a manager, he
Read: Campos-Rueda vs. Pacific Commercial can execute any acts of administration even if opposed by all the other
partners.
CLASSIFICATION OF PARTNERSHIP: Ex. In a partnership of which the business is into buying and selling cars,
As to the object of the partnership is only to determine whether a person the managing partner decided to buy a vintage Mercedes Benz, to the
may enter such partnership, there is a need to distinguish whether a opposition of the other partners for they consider it bad investment, will the
partnership is a UNIVERSAL or PARTICULAR partnership decision or the act of the managing partner in buying the said car bind the
partnership?
2 Kinds of Universal Partnership: Ans.: Yes, because such act is merely an act of administration. The
1.) Universal Partnership of Property problem is, if the managing partner continues to not consider the
2.) Universal Partnership of Profit sentiments of the other partners, he may be removed as a managing
partner.
TERM OF PARTNERSHIP: The question now is, can he be easily be removed?
Q: If the partners failed to fix a period, does it mean that the partners Ans.: No. The requirements for the removal of a managing partner would
agreed a partnership at will and may be dissolved at any time without depend on whether he was constituted as such in the articles of partnership
any liability so long as they acted in good faith? or he was merely appointed as managing partners after the constitution of
A: No, because a partnership may be a partnership for a particular the partnership.
undertaking even if no period was fixed by the parties. If he was constituted as a managing partner in the articles f
In one case, a partner, dissolved a partnership, claiming it to be partnership, he can only be validly removed under two conditions:
a partnership at will, the partnership being involved in a bowling business. 1.) there has to be just cause; and
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2.) by those partners having controlling interests. Q: May a partner may be held liable for breach of fiduciary duty even
Absent one of these conditions, he cannot be validly removed. In fact, even after the termination of the partnership?
if there is just cause, if the managing partner controls 51% of the A: Yes. The SC held that even if the act of a partner was made after the
partnership, he can never be removed. 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
However, if he was appointed as a managing partner only after fiduciary duty. In other words, pinaghandaan na nya yun act during the
the constitution of the partnership, he can be validly removed even without existence of the partnership, however, it was executed only after the
just cause, so long as it was done by those partners having controlling termination of the partnership.
interests.
Participate in the Losses:
OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES AND AS Q: What will be the share of the partner in the losses incurred in the
TO THE PARTNERSHIP AND IN CASE OF NON-PERFORMANCE OF partnership?
THE OBLIGATION Ans.: Consider first whether there was a stipulation as to losses or there
was no stipulation.
3 Obligations of the partners:
1.) To make good his promised contribution; OBLIGATIONS OF PARTNER RE: 3RD PERSONS
2.) Fiduciary duties; and
3.) To participate in the losses incurred by the partnership business. Q: When would a contract entered into by a partner bind the
partnership?
To make good his promised contribution: Ex.: If a partner went to a furniture shop to buy furniture the of which is
A. Money: Php100,000, and such amount remained unpaid, can the seller demand
In order to know the remedies that may be availed of by the non- payment from the partnership?
defaulting partners and the partnership, it must be known first what was A: It depends as to whether the contract was entered into in the name of the
promised by the partner, whether he promised to contribute money, partnership, for the account of the partnership, under its signature, by a
property or industry. partner who is authorized to enter into that contract to bind the partnership.
If the partner promised to contribute money, for instance, the Thus, in this example, if in the agreement the buyer was the partner himself
partners agreed to contribute Php1 Million with 4 partners, without an and not the partnership, that partner should be held liable, for the furniture
agreement as to respective amount to be contributed, the law provides that was not bought in the name of the partnership.
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 The problem, if the contract would be binding in the partnership, then would
partner failed to make good his promised contribution which is a sum of be, whether the partner who represented the partnership had the authority
money, he can be held liable by the non-defaulting partners up to the to bind the partnership.
amount promised plus interest. If no rate was stipulated by the parties, it will Normally, if a partner would enter into a contract, a partnership
be the legal rate of 12%, because this is forbearance in money. Aside from resolution is not necessary. Whether or not a contract would bind the
paying the interest, which is unusual, not only will that defaulting party be partnership would depend on the nature of the act of such partner and the
held liable to pay interest, he will also be liable to pay damages. nature of the business of the partnership.
Normally, in obligations involving money, in case of damage
incurred by another party, the liability will only be payment of interest. In Q: Concretely, if a partner bought a complete set of SCRA in the name
partnership, not only will he be liable to pay interest, but also of damages. of the partnership and signed by that partner, would that contract
bind the partnership for the set was bought in the name of the
Remedies that may be invoked by the non-defaulting partners: partnership?
1.) Specific performance- the other partners can compel him to A: It would depend on the nature of the act and the nature of the business
make good his promised contribution. of the partnership. In this example, the partner bought the set of SCRA,
2.) Dissolution- may be an option by the non-defaulting partners, if pero naman, and business ng partnership ay restaurant, hindi naman ata
that is the only amount that they are expecting for the na i-bind nya ang partnership to such contract, ang negosyo nila restaurant.
partnership. 
But the seller would raise the defense, “hindi ko naman alam na
restaurant yung business, e ang nagrepresent ng partnership si Atty. ABC,
B. Property: so akala law firm.” Is that a valid defense?
If a partner promised to contribute property, it must be determined as to Ans.: No. The SC would tell that the third party contracting with the
what was really contributed: was it the property itself or the use of the partnership has the obligation to know at least the nature of the business of
property. the partnership. In fact, he can demand for the presentation of the articles
If it was the ownership of the property that was contributed then of partnership in order for the third party to know the nature of the business
he would have the obligation to deliver and transfer ownership, aside from of the partnership. For, if this time, the partnership is a law office, and the
that, under the law, he would have the obligation to warrant the thing. 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
Q: Before the delivery of the thing to the partnership, who will bear way. Therefore, that contract will bind the partnership.
the loss?
A: The partner will bear the loss. The partnership will bear the loss when DISSOLUTION, WINDING UP AND TERMINATION
the thing is already in its possession 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
C. Industry winding up of the affairs of the business of the partnership before the
Q: If a partner fails to render service as promised, will specific partnership itself will be terminated.
performance be a remedy?
A: Definitely not. It would be a violation of his rights against involuntary Q: When would there be a dissolution of a partnership?
servitude. The remedy would be to demand for the value of the service plus Under the law, there will be a dissolution if there is a change in
damages. It can be easily done because there is an industry rate. 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
Fiduciary Duties: result in the dissolution of the partnership. Again, if one of the partners
The duty to observe utmost good faith, honesty, fairness, ceased to be associated in the carrying on of the business of the
integrity in being with each other. This duty commences even during the partnership, that will result in the dissolution of the partnership.
negotiation stage.
CAUSES OF THE DISSOLUTION
Test to determine whether there was a violation of this duty: 1.) Extrajudicial;
Whether the partner has an advantage himself at the expense of 2.) Judicial.
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 Extrajudicial causes:
evil motive so long as he has this advantage at the expense of the 1.) voluntary;
partnership. 2.) involuntary.
This duty lasts, normally, until the termination of the partnership.
Judicial causes are necessarily voluntary because it is by application.
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B’s remedy would be to go after her brother for breach of trust in selling the
INVOLUNTARY CAUSES property without her consent.
Q: If one of the partners in a partnership was elected a Senator, would
this dissolve the partnership by operation of law? Resulting trust includes Articles 1448, 1451, 1449, 1450,1452,1453,1454.
Ans.: No.
Constructive Trust:
Q: Even if it is a partnership of lawyers or a law office? BE: A applied for the registration of a parcel of land in his name.
Ans.: No. 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
Judicial Causes: Grounds: while he was in New York. Instead of ensuring the registration of the
1.) Insanity or incapacity: property in the name of A, he had the property registered in his
-The courts require that it should be permanent in character; and (cousin) name. After which, he sold the property to a thi4rd person
-such incapacity or insanity must affect the performance of such who bought the land relying on the TCT. When A returned to the
partner of his obligations with respect to the partnership business. In Phils., he learned of what his cousin had done. May A recover the
other words, kung wala syang pakialam sa management ng business parcel of land from the 3 rd person who bought the property in good
ng partnership, insanity or incapacity is not a valid ground. faith and for value?
A: No.
2.) Gross misconduct:
a.) wrongful expulsion; N.B.: Art. 1456, 1455.
b.) if one partner would refuse to allow another partner in the
management of the partnership business, if he has such right to participate Q: In constructive trust, may the trustee acquire the property by
in the management ; prescription by mere lapse of time, without repudiation?
c.) if the managing partner would refuse to distribute the profits A: Yes.
of the partnership when there is such obligation to distribute the profits;
d.) misappropriation of the income of the partnership business.

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

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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