LAW ON SALES AND AGENCY - MIDTERM
WHAT ARE THE MODES OR CAUSES FOR
EXTINGUISHMENT OF SALE?
 COMMON – those causes which are also the means
of extinguishing all other contracts like payment, loss
of the thing, condonation, etc. (see Art. 1231.);
 SPECIAL – those causes which are recognized by the
law on sales (such as those covered by Arts. 1484,
1532, 1539, 1540, 1542, 1556, 1560, 1567, and
1591.); and
 EXTRA-SPECIAL – those causes which are given
special discussion by the Civil Code and these are
conventional redemption and legal redemption
CONVENTIONAL REDEMPTION
DEFINE CONVENTIONAL REDEMPTION
Conventional redemption is the right which the vendor
reserves to himself, to reacquire the property sold
provided he:
 Reimburse the vendee of (a) the price, (b) the
expenses of the contract, (c) any other legitimate
payments made therefor, and (d) the necessary and
useful expenses made on the thing sold (Art. 1616.);
and
 Fulfills other stipulations which may have been
agreed upon. (Art. 1601.)
WHAT IS THE NATURE OF CONVENTIONAL
REDEMPTION?
 It is purely contractual right because it is created, not
by mandate of the law, but by virtue of an express
contract;
 It is an accidental stipulation and, therefore, its
nullity cannot affect the sale itself since the latter
might be entered into without said stipulation
 It is a real right because when registered, it bind
third persons (Art. 1608);
 It is a potestative condition because it depends upon
the will of the vendor (see Art. 1182.);
 It is a resolutory condition because when exercised,
the right of ownership acquired by the
 vendee is extinguished (see Art. 1179.);
 It is not an obligation but a power or privilege that
the vendor has reserved for himself; and
 It is reserved at the moment of the perfection of the
contract for if the right to repurchase is agreed upon
afterwards, there is only a promise to sell which
produces different rights and effects. (see 10
Manresa 311.)
WHEN IS A CONTRACT OF SALE WITH A RIGHT TO
REPURCHASE (PACTO DE RETRO SALE) PRESUMED
AN EQUITABLE MORTGAGE?
In the following cases or instances:

When the price of a sale with right to repurchase is
unusually inadequate;
 When the vendor remains in possession as lessee or
otherwise;
 When upon or after the expiration of the right to
repurchase another instrument extending the period
of redemption or granting a new period is executed;
 When the purchaser retains for himself a part of the
purchase price;
 When the vendor binds himself to pay the taxes on
the thing sold; and
 In any other case where it may be fairly inferred that
the real intention of the parties is that the
transaction shall secure the payment of a debt or the
performance of any other obligation. (Art. 1602.)
Note: In any of the foregoing cases, any money, fruits or
other benefit to be received by the vendee as rent or
otherwise shall be considered as interest. The price paid
by the supposed buyer is considered the principal of a
loan and any money, etc. received by him thereafter is
considered as interest of said loan.
DEFINE EQUITABLE MORTGAGE
An equitable mortgage is one which, although it lacks the
proper formalities of a mortgage, shows the intention of
the parties to make the property subject of the contract
of sale with a right to repurchase as security for a debt.
Note: In case of doubt, a contract purporting to be a sale
with right of repurchase shall be construed as an
equitable mortgage. (Art. 1603.)
WITHIN WHAT PERIOD MUST THE RIGHT TO
REPURCHASE IN CONVENTIONAL REDEMPTION BE
EXERCISED?
1. If there is no agreement granting the vendor the right
to redeem, there is no right of redemption since the
sale should be considered an absolute sale.
2. If the parties agree only on the right to redeem on the
part of the vendor but there is a total absence of
express stipulation as to the time within which the
repurchase should be made, then the period of
redemption shall be four (4) years from the date of
the contract.
3. If the parties agree on a definite period of
redemption, then the right to redeem must be
exercised within the period fixed provided it does
not exceed 10 years.
4. If the parties agree that the vendor shall have a right
to redeem and they intend a period which, however,
is not specified (e.g., “at any time the vendor has the
money”), then the redemption period is 10 years.
5. “From the time final judgment was rendered in a civil
action on the basis that the contract was a true sale
with right to repurchase,” the vendor a retro has 30
days within which to exercise the right to repurchase.
(Art. 1606.)
MAY THE PERIOD OF REDEMPTION BE EXTENDED BY
STIPULATION?
 After its expiration. – No, because that which is
extinguished cannot be extended and because the
ownership in the vendee is already consolidated, and
becomes absolute.
 Before its expiration. – Yes, provided the extension
including the original term shall not extend beyond
10 years; otherwise, the extension is void as to the
excess.
IN THE EXERCISE OF THE RIGHT OF REPURCHASE,
WHAT SHOULD THE VENDOR PAY?
1. The price of the sale;
2. The expenses of the contract, and any other
legitimate payments made by reason of the sale; and
3. The necessary and useful expenses made on the
thing sold. (Art. 1616.)
WHAT IS THE EFFECT OF THE FAILURE OF THE
VENDOR TO REDEEM?
 In case of personal property. – The vendee’s title
becomes irrevocable;
 In case of real property. – The consolidation of
ownership in the vendee by virtue of the failure of
the vendor to comply with the provisions of Article
1616 shall not be recorded in the Registry of
Property without a judicial order, after the vendor
has been duly heard. (Art. 1607.) Reason: The
transaction may not be a genuine pacto de recto but
not only an equitable mortgage.
WHAT ARE THE RIGHTS OF THE VENDEE A RETRO?
1. To be subrogated to the vendor’s rights and actions
(Art. 1609.); and
2. To compel the vendor of a part of an undivided
immovable to redeem the whole property in case the
vendee a retro of such part acquires the entire
immovable. (Art. 1611; see Art. 498.) Purpose of law:
to discourage coownership.
LEGAL REDEMPTION
DEFINE LEGAL REDEMPTION
Legal redemption is the right to be subrogated, upon the
same terms and conditions stipulated in the contract, in
the place of one who acquires a thing by purchase or
dation in payment, or by any other transaction whereby
ownership is transmitted by onerous title. (Art. 1619.)
GIVE INSTANCES OF LEGAL REDEMPTION.
 Redemption by a co-heir of the share sold by the
other heir (Art. 1088.);
 Redemption by a co-owner (Art. 1620.);
 Redemption by an adjoining owner of a piece of rural
land (Art. 1621.) or urban land (Art.1622.);

Redemption by a debtor in case of sale of right in
litigation (Art. 1634.); and (5)Under special laws
(among others):
o Redemption by owner of real property sold
for delinquent taxes. The period is one (1)
year (NIRC, Secs. 326, 328.);
o Repurchase by homesteader of homestead
sold under the Public Land Act. The period is
five (5) years (Com. Act No. 141, Sec. 119.);
o Redemption by judgment debtor or
redemptioner of property sold on execution.
The period is 12 months (Rules of Court,
Rule 39, Sec. 29.); (d)Redemption by
mortgagor after mortgaged property has
been judicially foreclosed and sold. The
period is within 90 days but before
confirmation of sale by the court (Ibid., Rule
68, Sec. 3.); and
o Redemption by mortgagor after mortgaged
property has been extrajudicially foreclosed
and sold. The period is within one (1) year
from the registration of the sale. (Act No.
3135, Sec. 16.)
REQUISITES FOR THE EXERCISE OF THE RIGHT OF
LEGAL REDEMPTION BY A CO-OWNER.
1. There must be a co-ownership;
2. There must be alienation of all or of any of the shares
of the other co-owners;
3. The sale must be to a stranger (Art. 1620.); and
4. (4)The sale must be made before partition. (Art.
1088.)
REQUISITES FOR THE EXERCISE OF THE RIGHT OF
LEGAL REDEMPTION OF RURAL LANDS BY
ADJOINING OWNERS.
1. Both the land of the one exercising the right of
redemption and the land sought to be redeemed
must be rural;
2. The lands must be adjacent;
3. There must be an alienation;
4. The piece of rural land alienated must not exceed one
(1) hectare;
5. The vendee must already own some rural land; and
6. The rural land sold must not be separated by brooks,
drains, ravines, roads and other apparent servitudes
from the adjoining lands. (Art. 1621.)
REQUISITES FOR THE EXERCISE OF THE RIGHT OF
LEGAL REDEMPTION OF URBAN LANDS BY
ADJOINING OWNERS.
1. The one exercising the right must be an adjacent
owner;
2. The piece of land sold must be so small and so
situated that a major portion thereof cannot be used
for any practical purpose within a reasonable time;
and
3. Such urban land was bought by its owner merely for
speculation. (Art. 1622.)
Note:
 Article 1622 also gives the adjoining owner the right
of pre-emption, which is the right of purchasing
before others. It is exercised before the sale or resale
against the would-be vendor.
 The right of redemption of co-owners is preferred
over that of adjoining owners. (Art. 1623.)
WHEN MUST THE RIGHT OF LEGAL PRE-EMPTION OR
REDEMPTION BE EXERCISED?
Within 30 days from notice in writing by the prospective
vendor or by the vendor, as the case may be.
ASSIGNMENT OF CREDITS AND OTHER
INCORPOREAL RIGHTS
DEFINE ASSIGNMENT OF CREDIT
Assignment of credit is a contract by which one person
transfers to another his rights and actions against a third
person in consideration of a price certain in money or its
equivalent (see Arts. 1624, 1458.)
Note: It is a consensual, bilateral, onerous, and
commutative or aleatory contract.
WHAT IS THE NATURE OF ASSIGNMENT OF CREDIT?
It is really a sale – a sale of credit – and is, therefore,
governed by the law on sale.
There is, however, one important difference and that is,
after the transfer, a definite third person is obliged;
whereas, in sale, the subject is the whole world which
must respect the title of the buyer.
GIVE THE FORMALITIES REQUIRED OF A VALID
ASSIGNMENT.
1. As between the parties. – The assignment is valid
although it appears in a private document so long as
the law does not require a specific form for its
validity.
2. As against third persons. – To affect them, the
assignment must appear in a public instrument, and
in case it involves real property, that it be recorded
in the Registry of Property. (Art. 1625.)
GIVE THE EFFECTS OF A VALID ASSIGNMENT OF
CREDIT.
1. The assignment transfers title to the assigned credit
to the assignee;
2. It includes all the accessory rights, such as guaranty,
mortgage, pledge, or preference.
3. The assignee takes the credit subject to defenses
which may have been acquired by the debtor before
notice of the assignment. (see Art. 1626.)
IN AN ASSIGNMENT OF CREDIT, IS THE CONSENT OF
THE DEBTOR ESSENTIAL?
No. The law contemplates only notice to the debtor for
the protection of the assignee. So, the debtor who, before
having knowledge of the assignment, pays his creditor,
shall be released from the obligation.
WHAT ARE THE WARRANTIES OF AN ASSIGNOR OF
CREDIT?
1. The existence of the credit; and
2. The legality of the credit, unless it should have been
sold as doubtful.
There is no warranty as to the solvency of the debtor
unless it has been expressly stipulated or unless the
insolvency was prior to the sale and of common
knowledge.
WHAT ARE THE LIABILITIES OF AN ASSIGNOR OF
CREDIT?
For violation of the above warranties:
 If in good faith, he is only liable for (a) the price
received and (b) the expenses of the contract and (c)
any other legitimate payments by reason of the
assignment.
 If in bad faith, he is also liable for damages. (Arts.
1628, 1616.)
WHAT IS THE DURATION OF THE ASSIGNOR’S
LIABILITY WHERE THE DEBTOR’S SOLVENCY IS
EXPRESSLY WARRANTED?
 If there is stipulation, then for the term or period
fixed; (2)If there is no stipulation:
a. For one year from the assignment of the
credit when the period for payment of the
credit has expired; or
b. For one year after its maturity, when such
period for payment has not yet expired.(Art.
The above apply if the assignor acted in good faith.
REQUISITES FOR THE EXERCISE OF THE RIGHT OF
LEGAL REDEMPTION BY THE DEBTOR IN CASE OF
SALE OF CREDIT OR OTHER INCORPOREAL RIGHT IN
LITIGATION.
1. There must be a sale or assignment of a credit;
2. There must be a pending litigation at the time of the
assignment; and
3. The debtor must pay the assignee (a) the price paid
by him; (b) the judicial costs incurred by him; and (c)
the interest on the price from the date the assignee
demands payment from him. (Art. 1634.)
Note:
 The object of the law in allowing redemption by the
debtor is to avoid the sale of credits in litigation
merely for speculation.
 There is no right of redemption if the credit in
litigation is sold:
a. To a co-heir or co-owner of the right
assigned;
b. To a creditor in payment of his credit; or
c.
To the possessor of a tenement or piece of
land which is subject to the right in litigation
assigned.
AGENCY – NATURE, FORM AND KINDS OF AGENCY
DEFINE AGENCY.
Agency is a contract whereby a person binds himself to
render some service or to do something in
representation or on behalf of another, with the consent
or authority of the latter.
Note: It is consensual (exception: Art. 1874, infra.),
nominate, bilateral (unilateral, if gratuitous), principal,
and preparatory contract.
WHAT IS THE BASIS OF AGENCY?
Agency is also a representative relation. Representation
constitutes its basis. By this legal fiction of
representation, the actual absence of the principal is
transferred into legal or juridical presence.
WHAT IS THE PURPOSE OF AGENCY?
The purpose is to extend the personality of the principal.
It enables the activity of man which is naturally limited
in its exercise by the imposition of his physiological
conditions to be extended, permitting him to perform
diverse acts at the same time in different places.
WHO ARE THE PARTIES TO A CONTRACT OF
AGENCY?
1. Principal. – one whom the agent represents and from
whom he derives his authority; he is the person
represented; and
2. Agent. – one who acts for and represents another; he
is the person acting in a representative capacity.
Note: The principal is sometimes called employer,
constituent, or chief. The agent is frequently called an
attorney, or an attorney-in-fact, and occasionally is
spoken of as a proxy, delegate, or representative
WHAT ACTS MAY BE DELEGATED TO AN AGENT?
Generally, what a man may do in person, he may do
through another. Some acts, however, cannot be done
through an agent, e.g., those which are purely personal in
nature, like the right to vote during election and those
which are illegal.
WHAT IS THE NATURE OF THE RELATION BETWEEN
PRINCIPAL AND AGENT?
The relation is fiduciary in character since it is based on
trust and confidence. Hence, the agent is estopped from
asserting or acquiring a title to the subject matter of the
agency adverse to that of the principal.
DISTINGUISH AGENCY FROM SIMILAR CONTRACTS
OR RELATIONS.
1. Loan. – A borrower is given money (a) for purposes
of his own (in agency, to advance principal’s
business) and he must generally (b) return it
whether or not his business is successful.
2. Lease of service. – the (a) basis is employment and
the lessor (like a servant) ordinarily (b) performs
only ministerial (not discretionary) functions.
3. Contract for a piece of work. – The independent
contractor exercise his employment independently
and not in representation of the employer.
4. Partnership. – A partner acts not only for his copartners and the partnership but also as a principal
for himself (in agency, agents acts only for his
principal.)
5. Negotiorum gestio. – It is (a) a quasi-contract; (b) the
gestio acts without authority and knowledge of the
owner of the property of business although
according to his (c) presumed (not express) will by
exercising “all the diligence of a good father of a
family. In both, however, there is representation.
Note: If a person comes to know that another is acting in
his behalf without authority but he does not repudiate,
there is implied agency.
6. Sale. – In sale (as distinguished from agency to sell),
the buyer (a) receives the goods as owner, (b) pays
the price (the agent delivers the proceeds of the sale),
(c) can deal with the thing as he pleases being the
owner (the agent, according to the instructions of the
principal), and (d) as a general rule, cannot return
the object sold.
7. Brokerage. – A broker is merely (a) an intermediary
between the purchaser and the vendor whose only
office is to bring together the parties to the
transaction and has (b) no relation to the thing he
buys or sells, while a (commission) agent maintains
a relation not only with his principal and the
purchaser or vendor but also with the property the
subject matter of the transaction which is placed in
his possession and at his disposal in accordance with
his authority.
8. Relations between guardian and ward. – While the
guardian acts for and on behalf of his ward, he does
not, however, derive his authority to act from the
ward.
HOW MAY AGENCY BE CLASSIFIED?
1. As to manner of its creation:
a. Express. – one where the agent has been
actually authorized by the principal either
orally or in writing (Art. 1869.);
b. Implied. – one which is implied from the acts
of the principal, from his silence or lack of
action, or his failure to repudiate the agency,
knowing that another person as acting on his
behalf without authority.
2. As to its character:
a. Gratuitous. – one where the agent receives
no compensation for his services (Art.
1875.); or
b. Compensated or onerous. – one where the
agent receives compensation for his services.
Agency is presumed to be for a
compensation. (Art. 1875.)
3. As to extent of business covered:
a. General. – one which compromises all the
business of the principal (Art. 1876.); or
b. Special. – one which compromises one or
more specific transactions.
4. As to authority conferred:
a. Couched in general terms. – one which is
created in general terms and is deemed to
comprise only acts of administration (Art.
1877.); or
b. Couched in specific terms. – one authorizing
only the performance of a specific act or acts.
(see Art. 1878.)
5. As to its nature and effects:
a. Ostensible or representative. – one where
the agent acts in the name and
representation of the principal (4 Castan, 4th
ed., p. 490.); or
b. Simple or commission. – one where the
agent acts for the account of the principal but
in his own name.
Note: Agency may be oral unless the law requires a
specific form. (Art. 1869.) (2)When a sale of a piece of
land or any interest (like mortgage, usufruct, etc.) is
through an agent, the authority of the latter shall be in
writing; otherwise, the sale shall be void. (Art. 1874)
2. If by public advertisement. – The agent is considered
as such with regard to any person. Public
advertisement may be made in any form, through the
newspaper, radio, etc., and by posters or billboards.
The power shall continue to be in full force until the
notice is rescind in the same manner in which it was
given. (Art. 1873.)
WHEN IS THERE IMPLIED ACCEPTANCE OF AN
AGENCY BY AN AGENT?
1. As between persons present. – If the principal
(personally) delivers his power of attorney to the
agent and the latter receives it without any objection.
(Art. 1873.)
2. As between persons absent.
a. When the principal transmits his power of
attorney to the agent, who receives it
without any objection;
b. When the principal entrusts to him by letter
or telegram a power of attorney with respect
to the business in which he is habitually
engaged as an agent, and he did not reply to
the letter or telegram. (Art. 1872.) Note: A
power of attorney may be defined as written
authorization to an agent to perform
specified acts in behalf of his principal which
acts, when performed, shall have binding
effect on the principal. (2 Am. Jur. 30.)
HOW MANY AGENTS BE CLASSIFIED?
1. Universal. – One authorized to do all acts that the
principal may personally do, and which he can
lawfully delegate to another the power of doing.
2. General. – One authorized to transact all the business
of the principal or to do acts connected with a
particular trade, business or employment; and
3. Special or particular. – One authorized to act in one
or more specific transactions or to act upon a
particular occasion. (Art. 1876.)
WHAT ARE THE TWO WAYS BY WHICH THE
PRINCIPAL
MAY
GIVE
NOTICE
OF
THE
APPOINTMENT OF AN AGENT?
1. If by special information. – The person appointed as
agent is considered such with respect to the person
to whom the information was given.
DISTINGUISH APPARENT AUTHORITY FROM
AUTHORITY BY ESTOPPEL.
 Apparent authority is that which though not actually
granted, the principal knowingly permits the agent
to exercise or holds him out as possessing .
 Authority by estoppel arises in those cases where the
principal by his culpable negligence permits his
agent to exercise powers not granted to him, even
though the principal may have no notice or
knowledge of the conduct of the agent.
DISTINGUISH IMPLIED AGENCY FROM AGENCY BY
ESTOPPEL.
1. In the former, there is an actual agency. The principal
alone is liable.
2. In an agency by estoppel, the authority of the agent
is not real but only apparent.
a. If the estoppel is caused by the principal, he
is liable to any third person who relied on
the misrepresentation.
b. If the estoppel is caused by the agent, then
only the agent is liable.
GIVE THE LEGAL EFFECT OF AN AGENCY COUCHED IN
GENERAL TERMS. Such an agency comprises only acts
of administration, (a) even if the principal should state
that he withholds no power, or (b) that the agent may
execute such acts as he may consider appropriate, or (c)
even though the agency should authorize a general and
unlimited management.
ENUMERATE THE CASES IN WHICH SPECIAL POWERS
OF ATTORNEY ARE NECESSARY.
1. To make such payments as are not usually
considered as acts of administration;
2. To effect novations which put an end to obligations
already in existence at the time the agency was
constituted;
3. To compromise, to submit questions to arbitration,
to renounce the right to appeal from a judgment, to
waive objections to the venue of an action, or to
abandon a prescription already acquired;
4. To waive any obligation gratuitously;
5. To enter into any contract by which the ownership of
an immovable is transmitted or acquired either
gratuitously or for a valuable consideration;
6. To make gifts, except customary ones for charity or
those made to employees in the business managed
by the agent;
7. To loan or borrow money, unless the latter act be
urgent and indispensable for the preservation of the
things which are under administration;
8. To lease any real property to another person for
more than one year;
9. To bind the principal to render some service without
compensation;
10. To bind the principal in a contract of partnership;
11. To obligate the principal as a guarantor or surety;
12. To create or convey real rights over immovable
property;
13. To accept or repudiate an inheritance;
14. To ratify or recognize obligations contracted before
the agency; and
15. Any other act of strict dominion. (Art. 1878.)
Note:
 The cases enumerated involve acts of strict dominion
or ownership as distinguished from acts of
administration.
 A special power to sell excludes the power to
mortgage; and a special power to mortgage does not
include the power to sell. (Art. 1879.)
 A special power to compromise does not authorize
submission to arbitration. (Art. 1880.)

HOW MAY THE AUTHORITY OF AN AGENT BE
CLASSIFIED?
 Express. – when it is conferred by words (Art. 1869.);
 Implied. – when it is incidental to the transaction or
reasonably necessary to accomplish the purpose of
the agency (Art. 1881.);
 Apparent ostensible. – when it is conferred by
conduct or even by silence. (see Art. 1869.)
Ostensible authority is another name for authority
by estoppel. It is also an implied authority in the
sense that it is not expressly conferred;
 General. – when it refer to all the business of the
principal (see Art. 1876.); (5)Special. – when it is
limited only to one or more specific transactions; and
STATE THE LEGAL EFFECTS WHERE AN AGENT,
BEING AUTHORIZED TO ACT ON BEHALF OF THE
PRINCIPAL, ACTS INSTEAD IN HIS OWN NAME.
1. General rule. – The agent is the one directly liable to
the person with whom he had contracted as if the
transaction were his own. Therefore, the principal
and such person have no right of action against each
other.
2. Exception. – The principal is bound when the
contract involves things belonging to him.
The principal may sue the agent for breach of contract.
Authority by necessity. – when it is demanded by
virtue of the existence of an emergency.
REQUISITES IN ORDER THAT THE PRINCIPAL MAY BE
BOUND BY THE ACT OF THE AGENT.
1. The agent must act within the scope of his authority;
and
2. The agent must act in behalf of the principal. (see
Arts. 1881, 1882.)
IN WHAT CASES IS THE PRINCIPAL BOUND BY THE
ACTS OF AN AGENT WHO EXCEEDED HIS
AUTHORITY?
1. Where his (principal’s) acts have contributed to
deceive a third person in good faith.
2. Where the limitations upon the power created by
him could not have been known by the third person
(see Art. 1900.);
3. Where the principal has placed in the hands of the
agent instruments signed by him in blank (Strong, et
al. vs. Gutierrez Repide, 6 Phil. 680.); and
4. Where the principal has ratified the acts of the agent.
(see Art. 1901.)
HOW MAY PRINCIPALS BE CLASSIFIED?
1. Disclosed. – If at the time of the transaction
contracted by the agent, the other party thereto has
notice that the agent is acting for a principal and of
the principal’s identity;
2. Partially disclosed. – If the other party has notice that
the agent is or may be acting for a principal but has
no notice of the principal’s identity; and
3. Undisclosed. – If the other party has no notice that
the agent is acting for the principal. (Restatement of
the Law on Agency, Sec. 4, pp. 15-16. )