LAW ON SALES – NOTES1
CHAPTER 1 NATURE AND FORM OF THE CONTRACT
ARTICLE 1458. BY THE CONTRACT OF SALE ONE OF THE CONTRACTING PARTIES
OBLIGATES HIMSELF TO TRANSFER THE OWNERSHIP OF AND TO DELIVER A
DETERMINATE THING, AND THE OTHER TO PAY THEREFORE A PRICE CERTAIN IN
MONEY OR ITS EQUIVALENT.
A CONTRACT OF SALE MAY BE ABSOLUTE OR CONDITIONAL.
CONCEPT OF CONTRACT OF SALE:
THE CONTRACT OF SALE IS AN AGREEMENT WHEREBY ONE OF THE PARTIES
(CALLED SELLER OR VENDOR) OBLIGATES HIMSELF TO DELIVER SOMETHING TO THE
OTHER (CALLED THE BUYER OR PURCHASER OR VENDEE) WHO, ON HIS PART, BINDS
HIMSELF TO PAY THEREFORE A SUM OF MONEY OR ITS EQUIVALENT (KNOWN AS THE
PRICE).
CHARACTERISTICS OF A CONTRACT OF SALE. THE CONTRACT OF SALE IS:
(1) CONSENSUAL BECAUSE IT IS PERFECTED BY MERE CONSENT WITHOUT ANY
FURTHER ACT;
(2) BILATERAL BECAUSE BOTH CONTRACTING PARTIES ARE BOUND TO FULFILL
CORRELATIVE OBLIGATIONS TOWARDS EACH OTHER ---- THE SELLER, TO DELIVER AND
TRANSFER OWNERSHIP OF THE THING SOLD AND THE BUYER, TO PAY THE PRICE;
(3) ONEROUS BECAUSE THE THING SOLD IS CONVEYED IN CONSIDERATION OF
THE PRICE AND VICE VERSA
(4) COMMUTATIVE BECAUSE THE THING SOLD IS CONSIDERED THE EQUIVALENT
OF THE PRICE PAID AND VICE VERSA. (SEE IBID.) HOWEVER, THE CONTRACT MAY BE
ALEATORY AS IN THE CASE OF THE SALE OF A HOPE, E.G., SWEEPSTAKES TICKET;
(5) NOMINATE BECAUSE IT IS GIVEN A SPECIAL NAME OR DESIGNATION IN THE
CIVIL CODE NAMELY “SALE;” AND
(6) PRINCIPAL BECAUSE IT DOES NOT DEPEND FOR ITS EXISTENCE AND VALIDITY
UPON ANOTHER CONTRACT.
TRANSFER OF TITLE TO PROPERTY FOR A PRICE ESSENCE OF SALE.
THERE CAN BE NO SALE WITHOUT A PRICE. (SEE ART. 1474.) TECHNICALLY, THE
CAUSE IN SALE IS, AS TO THE SELLER, THE BUYER’S PROMISE TO PAY THE PRICE, AND
AS TO THE BUYER, THE SELLER’S PROMISE TO DELIVER THE THING SOLD.
TWO KINDS OF CONTRACT OF SALE.
AS TO THE PRESENCE OR ABSENCE OF CONDITIONS, A SALE MAY BE:
(1) ABSOLUTE – WHERE THE SALE IS NOT SUBJECT TO ANY CONDITION
WHATSOEVER AND WHERE TITLE PASSES TO THE BUYER UPON DELIVERY OF THE
THING SOLD; OR
(2) CONDITIONAL – WHERE THE SALE CONTEMPLATE A CONTINGENCY (ARTS.
1461, 1462, PAR. 2; ART. 1465.), AND IN GENERAL, WHERE THE CONTRACT IS SUBJECT
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TO CERTAIN CONDITIONS (SEE ART. 1503, PAR. 1), USUALLY THE FULLY PAYMENT OF
THE PURCHASE PRICE. (ART. 1478.)
DISTINCTION BETWEEN A CONTRACT OF SALE AND A CONTRACT TO SELL WITH
RESERVED TITLE.
(1) TRANSFER OF TITLE – IN A CONTRACT OF SALE, TITLE PASSES TO THE BUYER
UPON DELIVERY OF THE THING SOLD; WHILE IN A CONTRACT TO SELL (OR OF
“EXCLUSIVE RIGHT AND PRIVILEGE TO PURCHASE”), WHERE IT IS MANIPULATED THAT
OWNERSHIP IN THE THING SHALL NOT PASS TO THE PURCHASER UNTIL HE HAS FULLY
PAID THE PRICE (ART. 1478.), OWNERSHIP IS RESERVED IN THE SELLER AND IS NOT TO
PASS UNTIL THE FULL PAYMENT OF THE PURCHASE PRICE.
(2) PAYMENT OF PRICE - IN THE FIRST CASE, NON-PAYMENT OF THE PRICE IS A
NEGATIVE RESOLUTORY CONDITION (SEE ART. 1179.), IN THE SECOND CASE, FULL
PAYMENT IS A POSITIVE SUSPENSIVE CONDITION.
(3) OWNERSHIP OF VENDOR – IN THE FIRST CASE, THE VENDOR HAS LOST AND
CANNOT RECOVER THE OWNERSHIP OF THE THING SOLD UNTIL AND UNLESS THE
CONTRACT OF SALE ITSELF IS RESOLVED AND SET ASIDE. IN THE CASE, HOWEVER,
THE TITLE REMAINS IN THE VENDOR IF THE VENDEE DOES NOT COMPLY WITH THE
CONDITION PRECEDENT OF MAKING PAYMENT AT THE TIME SPECIFIED IN THE
CONTRACT. THERE IS NO ACTUAL SALE UNTIL AND UNLESS FULL PAYMENT IS MADE.
OTHER CASES OF CONTRACT TO SELL.
WHERE THE SUBJECT-MATTER IS NOT DETERMINATE (ARTS. 1458, 1460.) OR THE
PRICE IS NOT CERTAIN (ART.1458.), THE AGREEMENT IS MERELY A CONTRACT TO SELL.
FOR PURPOSES OF THE PERFECTION OF A CONTRACT OF SALE (SEE ART. 1475.),
THERE IS ALREADY A PRICE CERTAIN WHERE THE DETERMINATION OF THE PRICE IS
LEFT TO THE JUDGMENT OF A SPECIFIED PERSON OR PERSONS (SEE ART. 1469, PAR.1),
AND NOTWITHSTANDING THAT SUCH DETERMINATION HAS YET TO BE MADE.
A SALE OF FUTURE GOODS (SEE ART. 1462.) EVEN THOUGH THE CONTRACT IS IN THE
FORM OF A PRESENT SALE OPERATES AS A CONTRACT TO SELL THE GOODS.
ART. 1459. THE THING MUST BE LICIT AND THE VENDOR MUST HAVE A RIGHT TO
TRANSFER THE OWNERSHIP THEREOF AT THE TIME IT IS DELIVERED.
REQUISITES CONCERNING OBJECT.
1) ASIDE FROM BEING (A) DETERMINATE (ARTS. 1458, 1460.), THE LAW REQUIRES
THAT THE SUBJECT MATTER MUST BE (B) LICIT OR LAWFUL, THAT IS, IT SHOULD NOT
BE CONTRARY TO LAW, MORALS, GOOD CUSTOMS, PUBLIC ORDER, OR PUBLIC POLICY
(ARTS. 1347, 1409, [1, 4].), AND SHOULD (C) NOT IMPOSSIBLE. (ART. 1348.)
IN OTHER WORDS, LIKE ANY OTHER OBJECT OF A CONTRACT, THE THING MUST
BE WITHIN THE COMMERCE OF MEN. IF THE SUBJECT MATTER OF THE SALE IS ILLICIT,
THE CONTRACT IS VOID AND CANNOT, THEREFORE, BE RATIFIED. (ART. 1409.) IN SUCH
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CASE, THE RIGHTS AND OBLIGATIONS OF THE PARTIES ARE DETERMINED BY APPLYING
THE FOLLOWING ARTICLES OF THE CIVIL CODE: 1411, 1412
2) ALL RIGHTS WHICH ARE NOT INTRANSMISSIBLE OR PERSONAL MAY ALSO BE
THE OBJECT OF SALE (ART. 1347.), LIKE THE RIGHT TO USUFRUCT (ART. 572.), THE
RIGHT OF CONVENTIONAL REDEMPTION (ART. 1601.), CREDIT (ART. 1624.), ETC..
EXAMPLES OF INTRANSMISSIBLE RIGHTS ARE THE RIGHT TO VOTE; RIGHT TO PUBLIC
OFFICE; MARITAL AND PARENTAL RIGHTS; ETC. NO CONTRACT MAY BE ENTERED UPON
FUTURE INHERITANCE EXCEPT IN CASES EXPRESSLY AUTHORIZED BY LAW. (ART. 1347,
PAR. 2.)
KINDS OF ILLICIT THINGS.
THE THING MAY BE ILLICIT PER SE (OF ITS NATURE) OR PER ACCIDENS (BECAUSE
OF SOME PROVISIONS OF LAW DECLARING IT ILLEGAL). ARTICLE 1459 REFERS TO
BOTH. DECAYED FOOD UNFIT FOR CONSUMPTION IS ILLICIT PER SE, WHILE LOTTERY
TICKETS (ART. 195, REVISED PENAL CODE.) ARE ILLICIT PER ACCIDENS.
RIGHT TO TRANSFER OWNERSHIP.
(1) ONE CAN SELL ONLY WHAT HE OWNS. – IT IS ESSENTIAL IN ORDER FOR A SALE
TO BE VALID THAT THE VENDOR MUST BE ABLE TO TRANSFER OWNERSHIP (ART. 1458.)
AND, THEREFORE, HE MUST BE THE OWNER OR AT LEAST MUST BE AUTHORIZED BY
THE OWNER OF THE THING SOLD.
(2) RIGHT MUST EXIST AT TIME OF DELIVERY. – ARTICLE 1459, HOWEVER, DOES
NOT REQUIRE THAT THE VENDOR MUST HAVE THE RIGHT TO TRANSFER OWNERSHIP
OF THE PROPERTY SOLD AT THE TIME OF THE PERFECTION OF THE CONTRACT. IT IS
SUFFICIENT IF HE HAS THE “RIGHT TO TRANSFER THE OWNERSHIP THEREOF AT THE
TIME IT IS DELIVERED.” THUS, THE SELLER IS DEEMED ONLY TO IMPLIEDLY WARRANT
THAT “HE HAS A RIGHT TO SELL THE THING AT THE TIME WHEN THE OWNERSHIP IS TO
PASS.” (ART 1547[1].) AN AGREEMENT PROVIDING FOR THE SALE OF PROPERTY YET TO
BE ADJUDICATED BY A COURT IS THUS VALID AND BINDING.
ART. 1460. A THING IS DETERMINATE WHEN IT IS PARTICULARLY DESIGNATED
OR PHYSICALLY SEGREGATED FROM ALL OTHERS OF THE SAME CLASS.
THE REQUISITE THAT A THING BE DETERMINATE IS SATISFIED IF AT THE TIME
THE CONTRACT IS ENTERED INTO, THE THING IS CAPABLE OF BEING MADE
DETERMINATE WITHOUT THE NECESSITY OF A NEW OR FURTHER AGREEMENT
BETWEEN THE PARTIES.
SUBJECT MATTER MUST BE DETERMINATE.
A THING IS DETERMINATE OR SPECIFIC (NOT GENERIC) WHEN IT IS
PARTICULARLY DESIGNATED OR PHYSICALLY SEGREGATED FROM ALL OTHERS OF THE
SAME CLASS.
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ART. 1461. THINGS HAVING A POTENTIAL EXISTENCE MAY BE THE OBJECT OF
THE CONTRACT OF SALE.
THE EFFICACY OF THE SALE OF A MERE HOPE OR EXPECTANCY IS DEEMED SUBJECT
TO THE CONDITION THAT THE THING WILL COME INTO EXISTENCE. THE SALE OF A VAIN
HOPE OR EXPECTANCY IS VOID.
SALE OF THINGS HAVING POTENTIAL EXISTENCE VALID.
EVEN A FUTURE THING (ARTS. 1461, PAR. 1.) NOT EXISTING AT THE TIME THE
CONTRACT IS ENTERED INTO MAY BE THE OBJECT OF SALE PROVIDED IT HAS A
POTENTIAL OR POSSIBLE EXISTENCE, THAT IS, IT IS REASONABLY CERTAIN TO COME
INTO EXISTENCE AS THE NATURAL INCREMENT OR USUAL INCIDENT OF SOMETHING IN
EXISTENCE ALREADY BELONGING TO THE SELLER, AND THE TITLE WILL VEST IN THE
BUYER THE MOMENT THE THING COMES INTO EXISTENCE.
SALE OF VAIN HOPE OR EXPECTANCY VOID.
HOWEVER, THE EFFICACY OF SUCH SALE IS DEEMED SUBJECT TO THE
CONDITION THAT THE THING CONTEMPLATED OR EXPECTED WILL COME INTO
EXISTENCE (PAR. 2.) FOR THE SALE OF A VAIN HOPE OR EXPECTANCY IS VOID. (PAR.3.)
DISTINCTIONS BETWEEN SALE OF A THING EXPECTED (EMPTIO REI SPERATAE) AND
SALE OF THE HOPE ITSELF (EMPTIO SPEI).
EMPTIO REI SPERATAE, IS THE SALE OF A THING NOT YET IN EXISTENCE
SUBJECT TO THE CONDITION THAT THE THING WILL EXIST AND ON FAILURE OF THE
CONDITION, THE CONTACT BECOMES INEFFECTIVE
HENCE, THE BUYER HAS NO
OBLIGATION TO PAY THE PRICE. ON THE OTHER HAND, EMPTIO SPEI IS THE SALE OF
THE HOPE ITSELF THAT THE THING WILL COME INTO EXISTENCE, WHERE IT IS AGREED
THAT THE BUYER WILL PAY THE PRICE EVEN IF THE THING DOES NOT EVENTUALLY
EXIST.
(1) IN EMPTIO REI SPERATAE, THE FUTURE THING IS CERTAIN AS TO ITSELF BUT
UNCERTAIN AS TO ITS QUANTITY AND QUALITY. SUCH SALE IS SUBJECT TO THE
CONDITION THAT THE THING WILL COME INTO EXISTENCE (SEE ART. 1545, PAR. 2.)
WHATEVER ITS QUANTITY OR QUALITY. IN EMPTIO SPEI (LIKE THE SALE OF
SWEEPSTAKE TICKET), IT IS NOT CERTAIN THAT THE THING ITSELF (WINNING A PRICE)
WILL EXIST, MUCH LESS ITS QUANTITY AND QUALITY.
(2) IN EMPTIO REI SPERATAE, THE CONTRACT DEALS WITH A FUTURE THING,
WHILE IN EMPTIO SPEI, THE CONTRACT RELATES TO A THING WHICH EXISTS OR IS
PRESENT THE HOPE OR EXPECTANCY.
(3) IN EMPTIO REI SPERATAE, THE SALE IS SUBJECT TO THE CONDITION THAT THE
THING SHOULD EXIST, SO THAT IF IT DOES NOT, THERE WILL BE NO CONTRACT BY
REASON OF THE ABSENCE OF AN ESSENTIAL ELEMENT. ON THE OTHER HAND, EMPTIO
SPEI PRODUCES EFFECT EVEN THOUGH THE THING DOES NOT COME INTO EXISTENCE
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BECAUSE THE OBJECT OF THE CONTRACT IS THE HOPE ITSELF, UNLESS IT IS A VAIN
HOPE OR EXPECTANCY (LIKE THE SALE OF A FALSIFIED SWEEPSTAKE TICKET WHICH
CAN NEVER WIN).
PRESUMPTION IN CASE OF DOUBT.
IN CASE OF DOUBT, THE PRESUMPTION IS IN FAVOR OF EMPTIO REI SPERATAE
WHICH IS MORE IN KEEPING WITH THE COMMUTATIVE CHARACTER OF THE CONTRACT.
(SEE 10 MANRESA 29-30.)
ART. 1462. THE GOODS WHICH FORM THE SUBJECT OF A CONTRACT OF SALE
MAY BE EITHER EXISTING GOODS, OWNED OR POSSESSED BY THE SELLER, OR GOODS
TO BE MANUFACTURED, RAISED, OR ACQUIRED BY THE SELLER AFTER THE
PERFECTION OF THE CONTRACT OF SALE, IN THIS TITLE CALLED “FUTURE GOODS.”
THERE MAY BE A CONTRACT OF SALE OF GOODS, WHOSE ACQUISITION BY THE
SELLER DEPENDS UPON A CONTINGENCY WHICH MAY OR MAY NOT HAPPEN. (N)
GOODS WHICH MAY BE THE OBJECT OF SALE.
GOODS WHICH FORM THE SUBJECT OF A CONTRACT OF SALE MAY BE EITHER:
(1) EXISTING GOODS OR GOODS OWNED OR POSSESSED BY THE SELLER; OR
(2) FUTURE GOODS, THAT IS, GOODS TO BE MANUFACTURED (LIKE THE SALE OF
MILK BOTTLES TO BE MANUFACTURED WITH THE NAME OF THE BUYER PRESSED IN
THE GLASS), RAISED (LIKE THE SALE OF THE FUTURE HARVEST OF PALAY FROM A
RICEFIELD), OR ACQUIRED (LIKE THE SALE OF A DEFINITE PARCEL OF LAND THE
SELLER EXPECTS TO BUY). (ART. 1460.)
ART. 1463. THE SOLE OWNER OF A THING MAY SELL AN UNDIVIDED INTEREST
THEREIN.
SALE OF UNDIVIDED INTEREST IN A THING.
THE SOLE OWNER OF A THING MAY SELL THE ENTIRE THING; OR ONLY A SPECIFIC
PORTION THEREOF; OR AN UNDIVIDED INTEREST THEREIN AND SUCH INTEREST MAY
BE DESIGNATED AS AN ALIQUOT PART OF THE WHOLE.
THE LEGAL EFFECT OF THE SALE OF AN UNDIVIDED INTEREST IN A THING IS TO
MAKE THE BUYER A CO-OWNER IN THE THING SOLD. AS CO-OWNER, THE BUYER
ACQUIRES FULL OWNERSHIP OF HIS PART AND HE MAY, THEREFORE, SELL IT. SUCH
SALE IS, OF COURSE, LIMITED TO THE PORTION WHICH MAY BE ALLOTTED TO HIM IN
THE DIVISION OF THE THING UPON THE TERMINATION OF THE CO-OWNERSHIP. ART.
493. THIS RULE OPERATES SIMILARLY WITH RESPECT TO OWNERSHIP OF FUNGIBLE
GOODS. (ART. 1464.)
ARTICLE 1463 COVERS ONLY THE SALE BY A SOLE OWNER OF A THING OF AN
UNDIVIDED SHARE OR INTEREST THEREOF.
ART. 1464. IN CASE OF FUNGIBLE GOODS, THERE MAY BE A SALE OF AN
UNDIVIDED SHARE OF A SPECIFIC MASS, THOUGH THE SELLER PURPORTS TO SELL
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AND THE BUYER TO BUY A DEFINITE NUMBER, WEIGHT OR MEASURE OF THE GOODS
IN THE MASS, AND THOUGH THE NUMBER, WEIGHT OR MEASURE OF THE GOODS IN
THE MASS IS UNDETERMINED. BY SUCH A SALE THE BUYER BECOMES OWNER IN
COMMON OF SUCH A SHARE OF THE MASS AS THE NUMBER, WEIGHT OR MEASURE
BOUGHT BEARS TO THE NUMBER, WEIGHT OR MEASURE OF THE MASS. IF THE MASS
CONTAINS LESS THAN THE NUMBER, WEIGHT OR MEASURE BOUGHT, THE BUYER
BECOMES THE OWNER OF THE WHOLE MASS AND THE SELLER IS BOUND TO MAKE
GOOD THE DEFICIENCY FROM GOODS OF THE SAME KIND AND QUALITY, UNLESS A
CONTRARY INTENT APPEARS. (N)
SALE OF AN UNDIVIDED SHARE OF A SPECIFIC MASS
(1) MEANING OF FUNGIBLE GOODS. – IT MEANS OF WHICH ANY UNIT IS, FROM ITS
NATURE OR BY MERCANTILE USAGE, TREATED AS THE EQUIVALENT OF ANY UNIT
(UNIFORM SALES ACT, SEC. 76.) SUCH AS GRAIN, OIL, WINE, GASOLINE, ETC.
(2) EFFECT OF SALE. – THE OWNER OF A MASS OF GOODS MAY SELL ONLY AN
UNDIVIDED SHARE THEREOF PROVIDED THE MASS IS SPECIFIC OR CAPABLE OF BEING
MADE DETERMINATE. (ART. 1460.) BY SUCH SALE, THE BUYER BECOMES A CO-OWNER
WITH THE SELLER OF THE WHOLE MASS IN THE PROPORTION IN WHICH THE DEFINITE
SHARE BOUGHT BEARS TO THE MASS. IT MUST FOLLOW THAT THE ALIQUOT SHARE OF
EACH OWNER CAN BE DETERMINED ONLY BY THE MEASUREMENT OF THE ENTIRE
MASS. IF LATER ON IT BE DISCOVERED THAT THE MASS OF FUNGIBLE GOODS
CONTAINS LESS THAN WHAT WAS SOLD, THE BUYER BECOMES THE OWNER OF THE
WHOLE MASS AND FURTHERMORE, THE SELLER SHALL SUPPLY WHATEVER IS LACKING
FROM GOODS OF THE SAME KIND AND QUALITY, SUBJECT TO ANY STIPULATION TO THE
CONTRARY.
(3) RISK OF LOSS. – IF THE BUYER BECOMES A CO-OWNER, WITH THE SELLER,
OR OTHER OWNERS OF THE REMAINDER OF THE MASS, IT FOLLOWS THAT THE WHOLE
MASS IS AT THE RISK OF ALL THE PARTIES INTERESTED IN IT, IN PROPORTION TO THEIR
VARIOUS HOLDINGS.
(4) SUBJECT MATTER. – TAKE NOTE THAT IN THE SALE OF AN UNDIVIDED SHARE,
EITHER OF A THING (ART. 1463.) OR OF THAT OF MASS OF GOODS (ART. 1464.), THE
SUBJECT MATTER IS AN INCORPOREAL RIGHT. (ART. 1501.) HERE, OWNERSHIP PASSES
TO THE BUYER BY THE INTENTION OF THE PARTIES.
ART. 1465. THINGS SUBJECT TO A RESOLUTORY CONDITION MAY BE THE
OBJECT OF THE CONTRACT OF SALE.
SALE OF THING SUBJECT TO A RESOLUTORY CONDITION.
A RESOLUTORY CONDITION IS AN UNCERTAIN EVENT UPON THE HAPPENING OF
WHICH THE OBLIGATION (OR RIGHT) SUBJECT TO IT IS EXTINGUISHED. HENCE, THE
RIGHT ACQUIRED IN VIRTUE OF THE OBLIGATION IS ALSO EXTINGUISHED.
ONE OF THE OBLIGATIONS OF THE VENDOR IS TO TRANSFER THE OWNERSHIP
OF THE THING OBJECT OF THE CONTRACT. IF THE RESOLUTORY CONDITION
ATTACHING TO THE OBJECT OF THE CONTRACT, WHICH OBJECT MAY INCLUDE THINGS
AS WELL AS RIGHTS SHOULD HAPPEN, THEN THE VENDOR CANNOT TRANSFER THE
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OWNERSHIP OF WHAT HE SOLD SINCE THERE IS NO OBJECT.
ART. 1466. IN CONSTRUING A CONTRACT CONTAINING PROVISIONS
CHARACTERISTIC OF BOTH THE CONTRACT OF SALE AND OF THE CONTRACT OF
AGENCY TO SELL, THE ESSENTIAL CLAUSES OF THE WHOLE INSTRUMENT SHALL BE
CONSIDERED.
SALE DISTINGUISHED FROM AGENCY TO SELL.
BY THE CONTRACT OF AGENCY, 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.
SALE MAY BE DISTINGUISHED FROM AN AGENCY TO SELL, AS FOLLOWS:
(1) IN A SALE, THE BUYER RECEIVES THE GOODS AS OWNER; IN AN AGENCY TO
SELL, THE AGENT RECEIVES THE GOODS AS THE GOODS OF THE PRINCIPAL WHO
RETAINS HIS OWNERSHIP OVER THEM AND HAS THE RIGHT TO FIX THE PRICE AND THE
TERMS OF THE SALE AND RECEIVE THE PROCEEDS LESS THE AGENT’S COMMISSION
UPON THE SALES MADE;
(2) IN A SALE, THE BUYER HAS TO PAY THE PRICE; IN AN AGENCY TO SELL, THE
AGENT HAS SIMPLY TO ACCOUNT FOR THE PROCEEDS OF THE SALE HE MAY MAKE ON
THE PRINCIPAL’S BEHALF;
(3) IN A SALE, THE BUYER, AS A GENERAL RULE, CANNOT RETURN THE OBJECT
SOLD; IN AN AGENCY TO SELL, THE AGENT CAN RETURN THE OBJECT IN CASE HE IS
UNABLE TO SELL THE SAME TO A THIRD PERSON;
(4) IN A SALE, THE SELLER WARRANTS THE THING SOLD; IN AN AGENCY TO SELL,
THE AGENT MAKES NO WARRANTY FOR WHICH HE ASSUMES PERSONAL LIABILITY AS
LONG AS HE ACTS WITHIN HIS AUTHORITY AND IN THE NAME OF THE SELLER; AND
(5) IN A SALE, THE BUYER CAN DEAL WITH THE THING SOLD AS HE PLEASES BEING
THE OWNER; IN AN AGENCY TO SELL, THE AGENT IN DEALING WITH THE THING
RECEIVED, MUST ACT AND IS BOUND ACCORDING TO THE INSTRUCTIONS OF HIS
PRINCIPAL.
ART. 1467. A CONTRACT FOR THE DELIVERY AT A CERTAIN PRICE OF AN ARTICLE
WHICH THE VENDOR IN THE ORDINARY COURSE OF HIS BUSINESS MANUFACTURES OR
PROCURES FOR THE GENERAL MARKET, WHETHER THE SAME IS ON HAND AT THE
TIME OR NOT, IS A CONTRACT OF SALE, BUT IF THE GOODS ARE TO BE
MANUFACTURED SPECIALLY FOR THE CUSTOMER AND UPON HIS SPECIAL ORDER,
AND NOT FOR THE GENERAL MARKET, IT IS A CONTRACT FOR A PIECE OF WORK. (N)
SALE DISTINGUISHED FROM CONTRACT FOR A PIECE OF WORK.
BY THE CONTRACT FOR A PIECE OF WORK THE CONTRACTOR BINDS HIMSELF TO
EXECUTE A PIECE OF WORK FOR THE EMPLOYER, IN CONSIDERATION OF A CERTAIN
PRICE OR COMPENSATION. THE CONTRACTOR MAY EITHER EMPLOY HIS LABOR OR
SKILL, OR ALSO FURNISH THE MATERIAL. (ART. 1713.)
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THE DISTINCTION BETWEEN A CONTRACT OF SALE AND ONE FOR WORK, LABOR
OR MATERIALS OR FOR A PIECE OF WORK IS TESTED BY THE INQUIRY WHETHER THE
THING TRANSFERRED IS ONE NOT IN EXISTENCE AND WHICH NEVER WOULD HAVE
EXISTED BUT FOR THE ORDER OF THE PARTY DESIRING TO ACQUIRE IT, OR A THING
WHICH WOULD HAVE EXISTED AND BEEN THE SUBJECT OF SALE TO SOME OTHER
PERSON, EVEN IF THE ORDER HAD NOT BEEN GIVEN.
(1) IN THE FIRST CASE, THE CONTRACT IS ONE FOR WORK, LABOR AND
MATERIALS AND IN THE SECOND, ONE OF SALE.
(2) IN THE FIRST CASE, THE RISK OF LOSS BEFORE DELIVERY IS BORNE BY THE
WORKER OR CONTRACTOR, NOT BY THE EMPLOYER (THE PERSON WHO ORDERED).
(ARTS. 1717, 1718.) A CONTRACT IS FOR A PIECE OF WORK IF SERVICES DOMINATE THAT
CONTRACT EVEN THOUGH THERE IS A SALE OF GOODS INVOLVED. WHERE THE
PRIMARY OBJECTIVE OF A CONTRACT IS A SALE OF A MANUFACTURED ITEM, IT IS A
SALE OF GOODS EVEN THOUGH THE ITEM IS MANUFACTURED BY LABOR FURNISHED
BY THE SELLER AND UPON PREVIOUS ORDER OF THE CUSTOMER.
(3) THE IMPORTANCE OF MARKING THE LINE THAT DIVIDES CONTRACTS FOR A
PIECE OF WORK FROM CONTRACTS OF SALE ARISES FROM THE FACT THAT THE
FORMER IS NOT WITHIN THE STATUTE OF FRAUDS. (SEE ART. 1483.)
ART. 1468. IF THE CONSIDERATION OF THE CONTRACT CONSISTS PARTLY IN
MONEY, AND PARTLY IN ANOTHER THING, THE TRANSACTION SHALL BE
CHARACTERIZED BY THE MANIFEST INTENTION OF THE PARTIES. IF SUCH INTENTION
DOES NOT CLEARLY APPEAR, IT SHALL BE CONSIDERED A BARTER IF THE VALUE OF
THE THING GIVEN AS A PART OF THE CONSIDERATION EXCEEDS THE AMOUNT OF THE
MONEY OR ITS EQUIVALENT; OTHERWISE, IT IS A SALE. (1446A)
SALE DISTINGUISHED FROM BARTER.
BY THE CONTRACT OF BARTER OR EXCHANGE, ONE OF THE PARTIES BINDS
HIMSELF TO GIVE ONE THING IN CONSIDERATION OF THE OTHER’S PROMISE TO GIVE
ANOTHER THING. (ART. 1638.) ON THE OTHER HAND, IN A CONTRACT OF SALE, THE
VENDOR GIVES A THING IN CONSIDERATION FOR A PRICE IN MONEY. (ART. 1458.)
(1) THE ABOVE DISTINCTION IS NOT ALWAYS ADEQUATE TO DISTINGUISH ONE
FROM THE OTHER. HENCE, THE RULE IN ARTICLE 1468 FOR THOSE CASES IN WHICH
THE THING GIVEN IN EXCHANGE CONSISTS PARTLY IN MONEY AND PARTLY IN
ANOTHER THING.
(A) IN SUCH CASES, THE MANIFEST INTENTION OF THE PARTIES IS
PARAMOUNT IN DETERMINING WHETHER IT IS ONE OF BARTER OR OF SALE AND
SUCH INTENTION MAY BE ASCERTAINED BY TAKING INTO ACCOUNT THE
CONTEMPORANEOUS AND SUBSEQUENT ACTS OF THE PARTIES. (ART. 1371.)
(B) IF THIS INTENTION CANNOT BE ASCERTAINED, THEN THE LAST
SENTENCE OF THE ARTICLE APPLIES. BUT IF THE INTENTION IS THAT THE
CONTRACT SHALL BE ONE OF SALE, THEN SUCH INTENTION MUST BE FOLLOWED
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EVEN THOUGH THE VALUE OF THE THING GIVEN AS A PART CONSIDERATION IS
MORE THAN THE AMOUNT OF THE MONEY GIVEN.
(2) THE ONLY POINT OF DIFFERENCE BETWEEN THE TWO CONTRACTS IS IN THE
ELEMENT WHICH IS PRESENT IN SALE BUT NOT IN BARTER, NAMELY: “PRICE CERTAIN
IN MONEY OR ITS EQUIVALENT.” (SEE ART. 1641.)
SALE DISTINGUISHED FROM LEASE.
IN THE LEASE OF THINGS, ONE OF THE PARTIES BINDS HIMSELF TO GIVE TO
ANOTHER THE ENJOYMENT OR USE OF A THING FOR A PRICE CERTAIN AND FOR A
PERIOD WHICH MAY BE DEFINITE OR INDEFINITE. (ART. 1643.) IN OTHER WORDS, IN A
LEASE, THE LANDLORD OR LESSOR TRANSFERS MERELY THE TEMPORARY
POSSESSION AND ENJOYMENT OF THE THING LEASED. IN A SALE, THE SELLER
TRANSFERS OWNERSHIP OF THE THING SOLD.
SALE DISTINGUISHED FROM DATION IN PAYMENT.
DATION IN PAYMENT (OR DACION EN PAGO) IS THE ALIENATION OF PROPERTY
TO THE CREDITOR IN SATISFACTION OF A DEBT IN MONEY. (SEE ART. 1619.) IT IS
GOVERNED BY THE LAW ON SALES. (ART. 1245.) AS SUCH THE ESSENTIAL ELEMENTS
OF A CONTRACT OF SALES, NAMELY, CONSENT: OBJECT CERTAIN, AND CAUSE OR
CONSIDERATIONS, MUST BE PRESENT.
THE DISTINCTIONS ARE THE FOLLOWING:
(1) IN SALE, THERE IS NO PREEXISTING CREDIT, WHILE IN DATION IN PAYMENT,
THERE IS;
(2) IN SALE, OBLIGATIONS ARE CREATED, WHILE IN DATION IN PAYMENT,
OBLIGATIONS ARE EXTINGUISHED;
(3) IN SALE, THE CAUSE IS THE PRICE PAID, FROM THE VIEWPOINT OF THE
SELLER, OR THE THING SOLD, FROM THE VIEWPOINT OF THE BUYER, WHILE IN DATION
IN PAYMENT, THE EXTINGUISHMENT OF THE DEBT, FROM THE VIEWPOINT OF THE
DEBTOR, OR THE OBJECT ACQUIRED IN LIEU OF THE CREDIT, FROM THE VIEWPOINT OF
THE CREDITOR;11
(4) IN SALE, THERE IS MORE FREEDOM IN FIXING THE PRICE THAN IN DATION IN
PAYMENT; AND
(5) IN SALE, THE BUYER HAS STILL TO PAY THE PRICE, WHILE IN DATION IN
PAYMENT, THE PAYMENT IS RECEIVED BY THE DEBTOR BEFORE THE CONTRACT IS
PERFECTED. (SEE 10 MANRESA 16-17.)
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NOTES 2 - LAW ON SALES
ART. 1469. IN ORDER THAT THE PRICE MAY BE CONSIDERED CERTAIN, IT SHALL
BE SUFFICIENT THAT IT BE SO WITH REFERENCE TO ANOTHER THING CERTAIN, OR
THAT THE DETERMINATION THEREOF BE LEFT TO THE JUDGMENT OF A SPECIFIED
PERSON OR PERSONS.
SHOULD SUCH PERSON OR PERSONS BE UNABLE OR UNWILLING TO FIX IT, THE
CONTRACT SHALL BE INEFFICACIOUS, UNLESS THE PARTIES SUBSEQUENTLY AGREE
UPON THE PRICE.
IF THE THIRD PERSON OR PERSONS ACTED IN BAD FAITH OR BY MISTAKE, THE
COURTS MAY FIX THE PRICE.
WHERE SUCH THIRD PERSON OR PERSONS ARE PREVENTED FROM FIXING THE
PRICE OR TERMS BY FAULT OF THE SELLER OR THE BUYER, THE PARTY NOT IN FAULT
MAY HAVE SUCH REMEDIES AGAINST THE PARTY IN FAULT AS ARE ALLOWED THE
SELLER OR THE BUYER, AS THE CASE MAY BE.
WHEN PRICE CONSIDERED CERTAIN.
THE PRICE IN A CONTRACT OF SALE OUGHT TO BE SETTLED FOR THERE CAN BE
NO SALE WITHOUT A PRICE. IT MUST BE CERTAIN OR CAPABLE OF BEING ASCERTAINED
IN MONEY OR ITS EQUIVALENT; AND MONEY IS TO BE UNDERSTOOD AS CURRENCY,
AND ITS EQUIVALENT MEANS PROMISSORY NOTES, CHECKS AND OTHER MERCANTILE
INSTRUMENTS GENERALLY ACCEPTED AS REPRESENTING MONEY.
UNDER THE ABOVE ARTICLE, THE PRICE IS CERTAIN IF:
(1) THE PARTIES HAVE FIXED OR AGREED UPON A DEFINITE AMOUNT;
(2) IT BE CERTAIN WITH REFERENCE TO ANOTHER THING CERTAIN; OR
(3) THE DETERMINATION OF THE PRICE IS LEFT TO THE JUDGMENT OF A
SPECIFIED PERSON OR PERSONS AND EVEN BEFORE SUCH DETERMINATION.
EFFECT WHERE PRICE FIXED BY THIRD PERSON DESIGNATED.
AS A GENERAL RULE, THE PRICE FIXED BY A THIRD PERSON DESIGNATED BY THE
PARTIES IS BINDING UPON THEM. THERE ARE, HOWEVER, EXCEPTIONS SUCH AS:
(1) WHEN THE THIRD PERSON ACTS IN BAD FAITH OR BY MISTAKE AS WHEN THE
THIRD PERSON FIXED THE PRICE HAVING IN MIND NOT THE THING WHICH IS THE
OBJECT OF THE SALE, BUT ANOTHER ANALOGOUS OR SIMILAR THING IN WHICH CASE
THE COURT MAY FIX THE PRICE. BUT MERE ERROR IN JUDGMENT CANNOT SERVE AS
A BASIS FOR IMPUGNING THE PRICE FIXED; AND
(2) WHEN THE THIRD PERSON DISREGARDS SPECIFIC INSTRUCTIONS OR THE
PROCEDURE MARKED OUT BY THE PARTIES OR THE DATA GIVEN HIM, THEREBY FIXING
AN ARBITRARY PRICE.
ILLUSTRATIVE CASES:
FACTS: S EXECUTED A DOCUMENT WHEREBY HE AGREED TO TRANSFER TO B “ THE
10
WHOLE OF THE RIGHT, TITLE, AND INTEREST” IN A BUSINESS. THIS WHOLE WAS 4/173
OF THE ENTIRE NET VALUE OF THE BUSINESS. THE PARTIES AGREED THAT THE PRICE
SHOULD BE 4/173 OF THE TOTAL NET VALUE. THE ASCERTAINMENT OF SUCH NET
VALUE WAS LEFT UNRESERVEDLY TO THE JUDGMENT OF THE APPRAISERS.
ISSUE: IS THE PRICE CERTAIN?
HELD: YES, FOR THE MINDS OF THE PARTIES HAVE MET ON THE THING AND THE PRICE.
NOTHING WAS LEFT UNFINISHED AND ALL QUESTIONS RELATING THERETO WERE
SETTLED. THIS IS AN EXAMPLE OF PERFECTED SALE.
ART. 1470. GROSS INADEQUACY OF PRICE DOES NOT AFFECT A CONTRACT OF
SALE, EXCEPT AS IT MAY INDICATE A DEFECT IN THE CONSENT, OR THAT THE PARTIES
REALLY INTENDED A DONATION OR SOME OTHER ACT OR CONTRACT. (N)
ART. 1471. IF THE PRICE IS SIMULATED, THE SALE IS VOID, BUT THE ACT MAY BE
SHOWN TO HAVE BEEN IN REALITY A DONATION, OR SOME OTHER ACT OR CONTRACT.
EFFECT OF GROSS INADEQUACY OF PRICE IN VOLUNTARY SALES.
(1) GENERAL RULE. — WHILE A CONTRACT OF SALE IS COMMUTATIVE, MERE
INADEQUACY OF THE PRICE OR ALLEGED HARDNESS OF THE BARGAIN GENERALLY
DOES NOT AFFECT ITS VALIDITY WHEN BOTH PARTIES ARE IN A POSITION TO FORM AN
INDEPENDENT JUDGMENT CONCERNING THE TRANSACTION.
(2) WHERE LOW PRICE INDICATES A DEFECT IN THE CONSENT. — THE
INADEQUACY OF PRICE, HOWEVER, MAY INDICATE A DEFECT IN THE CONSENT SUCH
AS WHEN FRAUD, MISTAKE, OR UNDUE INFLUENCE IS PRESENT (ART. 1355.) IN WHICH
CASE THE CONTRACT MAY BE ANNULLED NOT BECAUSE OF THE INADEQUACY OF THE
PRICE BUT BECAUSE THE CONSENT IS VITIATED.
(3) WHERE PRICE SIMULATED. — IF THE PRICE IS SIMULATED OR FALSE SUCH AS
WHEN THE VENDOR REALLY INTENDED TO TRANSFER THE THING GRATUITOUSLY,
THEN THE SALE IS VOID BUT THE CONTRACT SHALL BE VALID AS A DONATION.
(4) WHERE PARTIES DO NOT INTEND TO BE BOUND AT ALL. — IF THE CONTRACT
IS NOT SHOWN TO BE A DONATION OR ANY OTHER ACT OR CONTRACT TRANSFERRING
OWNERSHIP BECAUSE THE PARTIES DO NOT INTEND TO BE BOUND AT ALL, THE
OWNERSHIP OF THE THIS IS NOT TRANSFERRED. THE CONTRACT IS VOID AND
INEXISTENT.
EFFECT OF GROSS INADEQUACY OF PRICE IN INVOLUNTARY SALES.
(1) GENERAL RULE. — A JUDICIAL OR EXECUTION SALE IS ONE MADE BY A COURT
WITH RESPECT TO THE PROPERTY OF A DEBTOR FOR THE SATISFACTION OF HIS
INDEBTEDNESS.
(2) WHERE PRICE SO LOW AS TO BE “SHOCKING TO CONSCIENCE”. — WHILE IT
IS TRUE THAT MERE INADEQUACY OF PRICE IS NOT A SUFFICIENT GROUND FOR THE
CANCELLATION OF A VOLUNTARY CONTRACT OF SALE, IT HAS BEEN HELD THAT WHERE
THE PRICE IS SO LOW THAT “A MAN IN HIS SENSES AND NOT UNDER A DELUSION”
11
WOULD NOT ACCEPT IT, THE SALE MAY BE SET ASIDE AND DECLARED AN EQUITABLE
MORTGAGE TO SECURE A LOAN.
(3) WHERE SELLER GIVEN THE RIGHT TO REPURCHASE. — THE VALIDITY OF THE
SALE IS NOT NECESSARILY AFFECTED WHERE THE LAW GIVES TO THE OWNER THE
RIGHT TO REDEEM, AS WHEN A SALE IS MADE AT PUBLIC AUCTION, UPON THE THEORY
THAT THE LESSER THE PRICE, THE EASIER IT IS FOR THE OWNER TO BUY BACK THE
PROPERTY.
ART. 1472. THE PRICE OF SECURITIES, GRAIN, LIQUIDS, AND OTHER THINGS
SHALL ALSO BE CONSIDERED CERTAIN, WHEN THE PRICE FIXED IS THAT WHICH THE
THING SOLD WOULD HAVE ON A DEFINITE DAY, OR IN A PARTICULAR EXCHANGE OR
MARKET, OR WHEN AN AMOUNT IS FIXED ABOVE OR BELOW THE PRICE ON SUCH DAY,
OR IN SUCH EXCHANGE OR MARKET, PROVIDED SAID AMOUNT BE CERTAIN.
PRICE ON A GIVEN DAY AT PARTICULAR MARKET.
A PRICE IS CONSIDERED CERTAIN IF IT COULD BE DETERMINED WITH
REFERENCE TO ANOTHER THING CERTAIN.
NOTE THE LAST PHRASE OF THE ABOVE ARTICLE: “PROVIDED SAID AMOUNT BE
CERTAIN.” WHEN AN AMOUNT IS FIXED ABOVE OR BELOW THE PRICE ON A GIVEN DAY
OR IN A PARTICULAR EXCHANGE OR MARKET, THE SAID AMOUNT MUST BE CERTAIN;
OTHERWISE, THE SALE IS INEFFICACIOUS BECAUSE THE PRICE CANNOT BE
DETERMINED.
THIS ARTICLE IS ESPECIALLY APPLICABLE TO FUNGIBLE THINGS LIKE
SECURITIES, GRAIN, LIQUIDS, ETC. THE PRICE OF WHICH ARE SUBJECT TO
FLUCTUATIONS OF THE MARKET.
ART. 1473. THE FIXING OF THE PRICE CAN NEVER BE LEFT TO THE DISCRETION
OF ONE OF THE CONTRACTING PARTIES. HOWEVER, IF THE PRICE FIXED BY ONE OF
THE PARTIES IS ACCEPTED BY THE OTHER, THE SALE IS PERFECTED.
FIXING OF PRICE BY ONE OF THE CONTRACTING PARTIES, NOT ALLOWED.
THE REASON FOR THE RULE IS OBVIOUS.
(1) IF CONSENT IS ESSENTIAL TO A CONTRACT OF SALE, THE DETERMINATION OF
THE PRICE CANNOT BE LEFT TO THE DISCRETION OF ONE OF THE CONTRACTING
PARTIES; OTHERWISE, IT CANNOT BE SAID THAT THE OTHER CONSENTED TO A PRICE
HE DID NOT AND COULD NOT PREVIOUSLY KNOW.
(2) MOREOVER, TO BE JUST, THE PRICE MUST BE DETERMINED IMPARTIALLY BY
BOTH PARTIES (ART. 1458.) OR LEFT TO THE JUDGMENT OF A SPECIFIED PERSON OR
PERSONS. (ART. 1469.)
ART. 1474. WHERE THE PRICE CANNOT BE DETERMINED IN ACCORDANCE WITH
THE PRECEDING ARTICLES, OR IN ANY OTHER MANNER, THE CONTRACT IS
12
INEFFICACIOUS. HOWEVER, IF THE THING OR ANY PART THEREOF HAS BEEN
DELIVERED TO AND APPROPRIATED BY THE BUYER, HE MUST PAY A REASONABLE
PRICE THEREFOR. WHAT IS A REASONABLE PRICE IS A QUESTION OF FACT
DEPENDENT ON THE CIRCUMSTANCES OF EACH PARTICULAR CASE.
EFFECT OF FAILURE TO DETERMINE PRICE.
(1) WHERE CONTRACT EXECUTORY. — IF THE PRICE CANNOT BE DETERMINED IN
ACCORDANCE WITH ARTICLES 1469 AND 1472, OR IN ANY OTHER MANNER, AND THE
BARGAIN IS STILL EXECUTORY, THE CONTRACT IS WITHOUT EFFECT.
(2) WHERE DELIVERY HAS BEEN MADE. — IF THE THING OR ANY PART THEREOF
HAS ALREADY BEEN DELIVERED AND APPROPRIATED BY THE BUYER, THE LATTER
MUST PAY A REASONABLE PRICE THEREFOR.
ART. 1475. THE CONTRACT OF SALE IS PERFECTED AT THE MOMENT THERE IS A
MEETING OF MINDS UPON THE THING WHICH IS THE OBJECT OF THE CONTRACT AND
UPON THE PRICE.
FROM THAT MOMENT, THE PARTIES MAY RECIPROCALLY DEMAND
PERFORMANCE, SUBJECT TO THE PROVISIONS OF THE LAW GOVERNING THE FORM
OF CONTRACTS.
PERFECTION OF CONTRACT OF SALE.
THIS ARTICLE FOLLOWS THE GENERAL RULE THAT CONTRACTS ARE PERFECTED
BY MERE CONSENT. (ART. 1315.) THE CONTRACT OF SALE BEING CONSENSUAL, IT IS
PERFECTED AT THE MOMENT OF CONSENT WITHOUT THE NECESSITY OF ANY OTHER
CIRCUMSTANCES. FROM THE MOMENT THERE IS A MEETING OF MINDS UPON THE
THING WHICH IS THE OBJECT OF THE CONTRACT AND UPON THE PRICE (SEE ART.
1624.), THE RECIPROCAL OBLIGATIONS OF THE PARTIES ARISE EVEN WHEN NEITHER
HAS BEEN DELIVERED.
ART. 1476. IN THE CASE OF A SALE BY AUCTION:
(1) WHERE GOODS ARE PUT UP FOR SALE BY AUCTION IN LOTS, EACH LOT IS
THE SUBJECT OF A SEPARATE CONTRACT OF SALE.
(2) A SALE BY AUCTION IS PERFECTED WHEN THE AUCTIONEER ANNOUNCES ITS
PERFECTION BY THE FALL OF THE HAMMER, OR IN OTHER CUSTOMARY MANNER.
UNTIL SUCH ANNOUNCEMENT IS MADE, ANY BIDDER MAY RETRACT HIS BID; AND THE
AUCTIONEER MAY WITHDRAW THE GOODS FROM THE SALE UNLESS THE AUCTION
HAS BEEN ANNOUNCED TO BE WITHOUT RESERVE.
(3) A RIGHT TO BID MAY BE RESERVED EXPRESSLY BY OR ON BEHALF OF THE
SELLER, UNLESS OTHERWISE PROVIDED BY LAW OR BY STIPULATION.
(4) WHERE NOTICE HAS NOT BEEN GIVEN THAT A SALE BY AUCTION IS SUBJECT
TO A RIGHT TO BID ON BEHALF OF THE SELLER, IT SHALL NOT BE LAWFUL FOR THE
SELLER TO BID HIMSELF OR TO EMPLOY OR INDUCE ANY PERSON TO BID AT SUCH
SALE ON HIS BEHALF OR FOR THE AUCTIONEER, TO EMPLOY OR INDUCE ANY PERSON
13
TO BID AT SUCH SALE ON BEHALF OF THE SELLER OR KNOWINGLY TO TAKE ANY BID
FROM THE SELLER OR ANY PERSON EMPLOYED BY HIM. ANY SALE CONTRAVENING
THIS RULE MAY BE TREATED AS FRAUDULENT BY THE BUYER.
RULES GOVERNING AUCTION SALES.
1. SALES OF SEPARATE LOTS BY AUCTION ARE SEPARATE SALES. — WHERE
SEPARATE LOTS ARE THE SUBJECT OF SEPARATE BIDDINGS AND ARE SEPARATELY
KNOCKED DOWN, THERE IS A SEPARATE CONTRACT IN REGARD TO EACH LOT. AS
SOON AS THE HAMMER FALLS ON THE FIRST LOT, THE PURCHASER OF THAT LOT HAS
A COMPLETE AND SEPARATE BARGAIN.
2. SALE PERFECTED BY THE FALL OF THE HAMMER. — IN PUTTING UP THE GOODS
FOR SALE, THE SELLER IS MERELY MAKING AN INVITATION TO THOSE PRESENT TO
MAKE OFFERS WHICH THEY DO BY MAKING BIDS (ART. 1326.), ONE OF WHICH IS
ULTIMATELY ACCEPTED. EACH BID IS AN OFFER AND THE CONTRACT IS PERFECTED
ONLY BY THE FALL OF THE HAMMER OR IN OTHER CUSTOMARY MANNER.
3. RIGHT OF SELLER TO BID IN THE AUCTION. — THE SELLER OR HIS AGENT MAY
BID IN AN AUCTION SALE PROVIDED: (A) SUCH RIGHT WAS RESERVED; (B) NOTICE WAS
GIVEN THAT THE SALE IS SUBJECT TO A RIGHT TO BID ON BEHALF OF THE SELLER; AND
(C) THE RIGHT TO BID BY THE SELLER IS NOT PROHIBITED BY LAW OR BY STIPULATION.
ART. 1477. THE OWNERSHIP OF THE THING SOLD SHALL BE TRANSFERRED TO
THE VENDEE UPON THE ACTUAL OR CONSTRUCTIVE DELIVERY THEREOF.
ART. 1478. THE PARTIES MAY STIPULATE THAT OWNERSHIP IN THE THING SHALL
NOT PASS TO THE PURCHASER UNTIL HE HAS FULLY PAID THE PRICE.
OWNERSHIP OF THING TRANSFERRED BY DELIVERY.
THE DELIVERY OF THE THING SOLD IS ESSENTIAL IN A CONTRACT OF SALE.
WITHOUT IT, THE PURCHASER MAY NOT ENJOY THE THING SOLD TO HIM. IT IS ONLY
AFTER THE DELIVERY OF THE THING SOLD THAT THE PURCHASER ACQUIRES A REAL
RIGHT OR OWNERSHIP OVER IT.
ART. 1479. A PROMISE TO BUY AND SELL A DETERMINATE THING FOR A PRICE
CERTAIN IS RECIPROCALLY DEMANDABLE.
AN ACCEPTED UNILATERAL PROMISE TO BUY OR TO SELL A DETERMINATE
THING FOR A PRICE CERTAIN IS BINDING UPON THE PROMISSOR IF THE PROMISE IS
SUPPORTED BY A CONSIDERATION DISTINCT FROM THE PRICE.
ART. 1480. ANY INJURY TO OR BENEFIT FROM THE THING SOLD, AFTER THE
CONTRACT HAS BEEN PERFECTED, FROM THE MOMENT OF THE PERFECTION OF THE
CONTRACT TO THE TIME OF DELIVERY, SHALL BE GOVERNED BY ARTICLES 1163 TO
1165, AND 1262.
THIS RULE SHALL APPLY TO THE SALE OF FUNGIBLE THINGS, MADE
INDEPENDENTLY AND FOR A SINGLE PRICE, OR WITHOUT CONSIDERATION OF THEIR
14
WEIGHT, NUMBER, OR MEASURE.
SHOULD FUNGIBLE THINGS BE SOLD FOR A PRICE FIXED ACCORDING TO
WEIGHT, NUMBER, OR MEASURE, THE RISK SHALL NOT BE IMPUTED TO THE VENDEE
UNTIL THEY HAVE BEEN WEIGHED, COUNTED, OR MEASURED, AND DELIVERED,
UNLESS THE LATTER HAS INCURRED IN DELAY. (1452A)
LAW ON SALES – NOTES 3
ART. 1481. IN THE CONTRACT OF SALE OF GOODS BY DESCRIPTION OR BY
SAMPLE, THE CONTRACT MAY BE RESCINDED IF THE BULK OF THE GOODS DELIVERED
DO NOT CORRESPOND WITH THE DESCRIPTION OR THE SAMPLE, AND IF THE
CONTRACT BE BY SAMPLE AS WELL AS DESCRIPTION, IT IS NOT SUFFICIENT THAT THE
BULK OF GOODS CORRESPOND WITH THE SAMPLE IF THEY DO NOT ALSO
CORRESPOND WITH THE DESCRIPTION.
THE BUYER SHALL HAVE A REASONABLE OPPORTUNITY OF COMPARING THE
BULK WITH THE DESCRIPTION OR THE SAMPLE.
SALE OF GOODS BY DESCRIPTION AND/OR SAMPLE.
(1) SALE BY DESCRIPTION. — SALE BY DESCRIPTION OCCURS WHERE A SELLER
SELLS THINGS AS BEING OF A PARTICULAR KIND, THE BUYER NOT KNOW ING WHETHER
THE SELLER’S REPRESENTATIONS ARE TRUE OR FALSE, BUT RELYING ON THEM AS
TRUE; OR, AS OTHERWISE STATED, WHERE THE PURCHASER HAS NOT SEEN THE
ARTICLE SOLD AND RELIES ON THE DESCRIPTION GIVEN HIM BY THE VENDOR, OR HAS
SEEN THE GOODS BUT THE WANT OF IDENTITY IS NOT APPARENT ON INSPECTION.
(2) SALE BY SAMPLE. — TO CONSTITUTE A SALE BY SAMPLE, IT MUST APPEAR
THAT THE PARTIES CONTRACTED SOLELY WITH REFERENCE TO THE SAMPLE, WITH
THE UNDERSTANDING THAT THE BULK WAS LIKE IT. WHETHER A SALE IS BY SAMPLE IS
DETERMINED BY THE INTENT OF THE PARTIES AS SHOWN BY THE TERMS OF THE
CONTRACT AND THE CIRCUMSTANCES SURROUNDING THE TRANSACTION.
(3) SALE BY DESCRIPTION AND SAMPLE. — WHEN A SALE IS MADE BOTH BY
SAMPLE AND BY DESCRIPTION, THE GOODS MUST SATISFY ALL THE WARRANTIES (SEE
ART. 1565.) APPROPRIATE TO EITHER KIND OF SALE, AND IT IS NOT SUFFICIENT THAT
THE BULK OF THE GOODS CORRESPOND WITH THE SAMPLE IF THEY DO NOT ALSO
CORRESPOND WITH THE DESCRIPTION, AND VICE VERSA.
ART. 1482. WHENEVER EARNEST MONEY IS GIVEN IN A CONTRACT OF SALE, IT
SHALL BE CONSIDERED AS PART OF THE PRICE AND AS PROOF OF THE PERFECTION
OF THE CONTRACT. (1454A)
MEANING OF EARNEST MONEY.
EARNEST MONEY IS SOMETHING OF VALUE GIVEN BY THE BUYER TO THE SELLER
TO SHOW THAT THE BUYER IS REALLY IN EARNEST, AND TO BIND THE BARGAIN. IT IS
ACTUALLY A PARTIAL PAYMENT OF THE PURCHASE PRICE AND IS CONSIDERED AS
15
PROOF OF THE PERFECTION OF THE CONTRACT.
EARNEST MONEY AND OPTION MONEY DISTINGUISHED.
THEY MAY BE DISTINGUISHED AS FOLLOWS:
(1) EARNEST MONEY IS PART OF THE PURCHASE PRICE, WHILE OPTION MONEY
(SEE ART. 1479, PAR. 2.) IS THE MONEY GIVEN AS DISTINCT CONSIDERATION FOR AN
OPTION CONTRACT;
(2) EARNEST MONEY IS GIVEN ONLY WHERE THERE IS ALREADY A SALE, WHILE
OPTION MONEY APPLIES TO A SALE NOT YET PERFECTED; AND
(3) WHEN EARNEST MONEY IS GIVEN, THE BUYER IS BOUND TO PAY THE
BALANCE, WHILE THE WOULD BE BUYER WHO GIVES OPTION MONEY IS NOT REQUIRED
TO BUY.
ART. 1483. SUBJECT TO THE PROVISIONS OF THE STATUTE OF FRAUDS AND OF
ANY OTHER APPLICABLE STATUTE, A CONTRACT OF SALE MAY BE MADE IN WRITING,
OR BY WORD OF MOUTH, OR PARTLY IN WRITING AND PARTLY BY WORD OF MOUTH,
OR MAY BE INFERRED FROM THE CONDUCT OF THE PARTIES.
FORM OF CONTRACT OF SALE.
(1) GENERAL RULE. — THE FORM OF A CONTRACT REFERS TO THE MANNER IN
WHICH IT IS EXECUTED OR MANIFESTED. AS A GENERAL RULE, A CONTRACT MAY BE
ENTERED INTO IN ANY FORM PROVIDED ALL THE ESSENTIAL REQUISITES FOR ITS
VALIDITY ARE PRESENT.
(2) WHERE CONTRACT COVERED BY STATUTE OF FRAUDS. — IN CASE THE
CONTRACT OF SALE SHOULD BE COVERED BY THE STATUTE OF FRAUDS, THE LAW
REQUIRES THAT THE AGREEMENT (OR SOME NOTE OR MEMORANDUM THEREOF) BE IN
WRITING SUBSCRIBED BY THE PARTY CHARGED, OR BY HIS AGENT; OTHERWISE, THE
CONTRACT CANNOT BE ENFORCED BY ACTION.
(3) WHERE FORM IS REQUIRED IN ORDER THAT A CONTRACT MAY BE VALID. —
WHERE THE “APPLICABLE STATUTE” REQUIRES THAT THE CONTRACT OF SALE BE IN A
CERTAIN FORM FOR ITS VALIDITY, THE REQUIRED FORM MUST BE OBSERVED IN ORDER
THAT THE CONTRACT MAY BE BOTH VALID AND ENFORCEABLE.
(4) WHERE FORM IS REQUIRED ONLY FOR THE CONVENIENCE OF THE PARTIES.
— IN CERTAIN CASES, A CERTAIN FORM (E.G., PUBLIC INSTRUMENT) IS REQUIRED FOR
THE CONVENIENCE OF THE PARTIES IN ORDER THAT THE SALE MAY BE REGISTERED
IN THE REGISTRY OF DEEDS TO MAKE EFFECTIVE AS AGAINST THIRD PERSONS THE
RIGHT ACQUIRED UNDER SUCH SALE.
ART. 1484. IN A CONTRACT OF SALE OF PERSONAL PROPERTY THE PRICE OF
WHICH IS PAYABLE IN INSTALLMENTS, THE VENDOR MAY EXERCISE ANY OF THE
FOLLOWING REMEDIES:
(1) EXACT FULFILLMENT OF THE OBLIGATION, SHOULD THE VENDEE FAIL TO
PAY;
(2) CANCEL THE SALE, SHOULD THE VENDEE’S FAILURE TO PAY COVER TWO OR
16
MORE INSTALLMENTS;
(3) FORECLOSE THE CHATTEL MORTGAGE ON THE THING SOLD; IF ONE HAS
BEEN CONSTITUTED, SHOULD THE VENDEE’S FAILURE TO PAY COVER TWO OR MORE
INSTALLMENTS. IN THIS CASE, HE SHALL HAVE NO FURTHER ACTION AGAINST THE
PURCHASER TO RECOVER ANY UNPAID BALANCE OF THE PRICE. ANY AGREEMENT TO
THE CONTRARY SHALL BE VOID. (1454AA)
REMEDIES OF VENDOR IN SALE OF PERSONAL PROPERTY PAYABLE IN INSTALLMENTS
THE VENDOR OF PERSONAL PROPERTY PAYABLE IN INSTALLMENTS MAY EXERCISE
ANY OF THE FOLLOWING REMEDIES:
(1) ELECT FULFILLMENT UPON THE VENDEE’S FAILURE TO PAY; OR
(2) CANCEL THE SALE, IF THE VENDEE SHALL HAVE FAILED TO PAY TWO OR MORE
INSTALLMENTS; OR
(3) FORECLOSE THE CHATTEL MORTGAGE, IF ONE HAS BEEN CONSTITUTED, IF
THE VENDEE SHALL HAVE FAILED TO PAY TWO OR MORE INSTALLMENTS.
ART. 1485. THE PRECEDING ARTICLE SHALL BE APPLIED TO CONTRACTS
PURPORTING TO BE LEASES OF PERSONAL PROPERTY WITH OPTION TO BUY, WHEN
THE LESSOR HAS DEPRIVED THE LESSEE OF THE POSSESSION OR ENJOYMENT OF
THE THING.
LEASE OF PERSONAL PROPERTY WITH OPTION TO BUY.
LEASES OF PERSONAL PROPERTY WITH OPTION TO BUY ON THE PART OF THE
LESSEE WHO TAKES POSSESSION OR ENJOYMENT OF THE PROPERTY LEASED ARE
REALLY SALES OF PERSONAL THING PAYABLE IN INSTALLMENTS.
ART. 1486. IN THE CASE REFERRED TO IN TWO PRECEDING ARTICLES, A
STIPULATION THAT THE INSTALLMENTS OR RENTS PAID SHALL NOT BE RETURNED TO
THE VENDEE OR LESSEE SHALL BE VALID INSOFAR AS THE SAME MAY NOT BE
UNCONSCIONABLE UNDER THE CIRCUMSTANCES.
STIPULATION AUTHORIZING THE FORFEITURE OF INSTALLMENTS OR RENTS PAID.
IN SALES OF PERSONAL PROPERTY BY INSTALLMENTS OR LEASES OF PERSONAL
PROPERTY WITH OPTION TO BUY, THE PARTIES MAY STIPULATE THAT THE
INSTALLMENTS OR RENTS PAID ARE NOT TO BE RETURNED.
ART. 1487. THE EXPENSES FOR THE EXECUTION AND REGISTRATION OF THE
SALE SHALL BE BORNE BY THE VENDOR, UNLESS THERE IS A STIPULATION TO THE
CONTRARY.
ART. 1488. THE EXPROPRIATION OF PROPERTY FOR PUBLIC USE IS GOVERNED
BY SPECIAL LAWS.
17
NOTES 4 - LAW ON SALES
CHAPTER 2 - CAPACITY TO BUY OR SELL
ART. 1489. ALL PERSONS WHO ARE AUTHORIZED IN THIS CODE TO OBLIGATE
THEMSELVES, MAY ENTER INTO A CONTRACT OF SALE, SAVING THE MODIFICATIONS
CONTAINED IN THE FOLLOWING ARTICLES.
WHERE NECESSARIES ARE THOSE SOLD AND DELIVERED TO A MINOR OR
OTHER PERSON WITHOUT CAPACITY TO ACT, HE MUST PAY A REASONABLE PRICE
THEREFOR. NECESSARIES ARE THOSE REFERRED TO IN ARTICLE 290.
WHO MAY ENTER INTO A CONTRACT OF SALE
AS A GENERAL RULE, ALL PERSONS, WHETHER NATURAL OR JURIDICAL, WHO
CAN BIND THEMSELVES HAVE ALSO LEGAL CAPACITY TO BUY AND SELL. THERE ARE
EXPECTATIONS TO THIS RULE IN THOSE CASES WHEN THE LAW DETERMINES THAT A
PARTY SUFFERS FROM EITHER ABSOLUTE OR RELATIVE INCAPACITY.
KINDS OF INCAPACITY.
SUCH INCAPACITY IS ABSOLUTE IN THE CASE OF PERSON WHO CANNOT BIND
THEMSELVES; AND RELATIVE WHERE IT EXISTS ONLY WITH REFERENCE TO CERTAIN
CLASS OF PROPERTY. PERSONS WHO ARE MERELY RELATIVELY INCAPACITATED ARE
MENTIONED IN ARTICLES 1490-1491.
THERE ARE NO INCAPACITIES EXCEPT
THOSE PROVIDED BY LAW AND SUCH INCAPACITIES CANNOT BE EXTENDED TO OTHER
CASES BY IMPLICATION FOR THE REASON THAT SUCH CONSTRUCTION WOULD BE IN
CONFLICT WITH THE VERY NATURE OF ARTICLE 1489. (IBID.)
LIABILITY FOR NECESSARIES OF MINOR OR OTHER PERSON WITHOUT CAPACITY TO
ACT.
GENERALLY, THE CONTRACTS ENTERED INTO BY A MINOR AND OTHER
INCAPACITATED PERSONS (E.G., INSANE OR DEMENTED PERSONS, DEAF-MUTES WHO
DO NOT KNOW HOW TO WRITE), ARE VOIDABLE. (ARTS. 1327, 1390.) HOWEVER, WHERE
NECESSARIES ARE SOLD AND DELIVERED TO HIM (WITHOUT THE INTERVENTION OF
THE PARENT OR GUARDIAN), HE MUST PAY A REASONABLE VALUE PAID BY HIM.
NECESSARIES ARE THOSE THINGS WHICH ARE NEEDED FOR SUSTENANCE,
DWELLING, CLOTHING AND MEDICAL ATTENDANCE, ACCORDING TO THE SOCIAL
POSITION OF THE FAMILY OF THE INCAPACITATED PERSON. (ART. 290.) WHETHER THE
NATURE OF THE CONTRACT IS SUCH THAT IT CAN, UNDER ANY CIRCUMSTANCES, BE
REGARDED AS A CONTRACT FOR NECESSARIES, IS A QUESTION WHICH DEPENDS
UPON THE FACTS OF THE PARTICULAR CASE.
18
SALE BY MINORS.
THE COURTS HAVE LAID DOWN THE RULE THAT THE SALE OF REAL ESTATE
EFFECTED BY MINORS WHO HAVE ALREADY PASSED THE AGES OF PUBERTY AND
ADOLESCENCE AND ARE NOW IN THE ADULT AGE, WHEN THEY PRETEND TO HAVE
ALREADY REACHED THEIR MAJORITY, WHILE IN FACT THEY HAVE NOT, IS VALID, AND
THEY CANNOT BE PERMITTED AFTERWARDS THE EXCUSE THEMSELVES FROM
COMPLIANCE WITH THE OBLIGATIONS ASSUMED BY THEM OR TO SEEK THEIR
ANNULMENT. THE DOCTRINE IS ENTIRELY IN ACCORD WITH THE PROVISIONS OF THE
RULES OF COURT (SEE RULE 131, SEC. 1.) AND THE CIVIL CODE (SEE ART. 1431.) WHICH
DETERMINE CASES OF ESTOPPEL.
ART. 1490. THE HUSBAND AND THE WIFE CANNOT SELL PROPERTY TO EACH
OTHER, EXCEPT:
(1) WHEN A SEPARATION OF PROPERTY WAS AGREED UPON IN THE
MARRIAGE SETTLEMENTS; O
(2) WHEN THERE HAS BEEN A JUDICIAL SEPARATION OR PROPERTY
UNDER ARTICLE 191.
RELATIVE INCAPACITY OF HUSBAND AND WIFE.
THE HUSBAND AND THE WIFE ARE PROHIBITED BY THE ABOVE ARTICLE FROM
THE SELLING PROPERTY TO EACH OTHER. THEY ARE ALSO PROHIBITED FROM MAKING
DONATIONS TO EACH OTHER DURING THE MARRIAGE EXCEPT MODERATE GIFTS ON
THE OCCASION OF ANY FAMILY REJOICING. (ART. 133.) HOWEVER, IF THERE HAS BEEN
A SEPARATION OF PROPERTY DECREED BETWEEN THEM BY THE COURT, THE SALES
BETWEEN HUSBAND AND WIFE ARE ALLOWED. THEY HAVE, THEREFORE, IN THE TWO
CASES MENTIONED, CAPACITY TO BUY FROM OR SELL TO EACH OTHER.
INCIDENTALLY, A MARRIAGE SETTLEMENT (ALSO CALLED ANTE-NUPTIAL
CONTRACT) IS AN AGREEMENT ENTERED INTO BY PERSONS WHO ARE ABOUT TO BE
UNITED IN MARRIAGE, AND IN CONSIDERATION THEREOF FOR THE PURPOSE OF FIXING
THE PROPERTY RELATIONS THAT WOULD BE FOLLOWED BY THEM FOR THE DURATION
OF THE MARRIAGE.
EFFECT OF SALE IN VIOLATION OF PROHIBITION.
A SALE BETWEEN HUSBAND AND WIFE IN VIOLATION OF ARTICLE 1490 IN
INEXISTENT AND VOID FROM THE BEGINNING BECAUSE SUCH CONTRACT IS
EXPRESSLY PROHIBITED BY LAW.
PERSONS PERMITTED TO QUESTION SALE.
(1) ALTHOUGH CERTAIN TRANSFERS BETWEEN HUSBAND AND WIFE ARE
PROHIBITED UNDER ARTICLE 1490, SUCH PROHIBITION CAN BE TAKEN ADVANTAGE OF
19
ONLY BY PERSON PERSONS WHO BEAR SUCH RELATION TO THE PARTIES MAKING
TRANSFER INTERFERES WITH THEIR RIGHT OR INTERESTS.
(2) THE GOVERNMENT IS ALWAYS AN INTERESTED PARTY IN ALL MATTERS
INVOLVING TAXABLE TRANSACTIONS. IT IS COMPETENT TO QUESTION THEIR VALIDITY
OR LEGITIMACY WHENEVER NECESSARY TO BLOCK TAX EVASION. IT CAN IMPUGN
SALES BETWEEN HUSBAND AND WIFE. (MEDINA VS. COLLECTOR OF INTERNAL
REVENUE, SUPRA.)
ART. 1491. THE FOLLOWING PERSONS CANNOT ACQUIRE BY PURCHASE, EVEN
AT A PUBLIC OR JUDICIAL AUCTION, EITHER IN PERSON OR THROUGH THE MEDIATION
OF ANOTHER:
(1) THE GUARDIAN, THE PROPERTY OF THE PERSON OR PERSONS WHO MAY BE
UNDER HIS GUARDIANSHIP;
(2) AGENTS, THE PROPERTY WHOSE ADMINISTRATION OR SALE MAY HAVE BEEN
ENTRUSTED TO THEM, UNLESS THE CONSENT OF THE PRINCIPAL HAS BEEN GIVEN;
(3) EXECUTORS AND ADMINISTRATORS, THE PROPERTY OF THE ESTATE UNDER
ADMINISTRATION;
(4) PUBLIC OFFICERS AND EMPLOYEES, THE PROPERTY OF THE STATE OR OF
ANY SUBDIVISION THEREOF, OR OF ANY GOVERNMENT-OWNED OR CONTROLLED
CORPORATION, OR INSTITUTION, THE ADMINISTRATION OF WHICH HAS BEEN
ENTRUSTED TO THEM; THIS PROVISION SHALL APPLY TO JUDGES AND GOVERNMENT
EXPERTS WHO, IN ANY MANNER WHATSOEVER, TAKE PART IN THE SALE;
(5) JUSTICES, JUDGES, PROSECUTING ATTORNEYS, CLERKS OF SUPERIOR AND
INFERIOR COURTS, AND OTHER OFFICERS AND EMPLOYEES CONNECTED WITH THE
ADMINISTRATION OF JUSTICE, THE PROPERTY AND RIGHTS IN LITIGATION OR LEVIED
UPON AN EXECUTION BEFORE THE COURT WITHIN WHOSE JURISDICTION OR
TERRITORY THEY EXERCISE THEIR RESPECTIVE FUNCTIONS; THIS PROHIBITION
INCLUDES THE ACT OF ACQUIRING BY ASSIGNMENT AND SHALL APPLY TO LAWYERS,
WITH RESPECT TO THE PROPERTY AND RIGHTS WHICH MAY BE THE OBJECT OF ANY
LITIGATION IN WHICH THEY MAY TAKE PART BY VIRTUE OF THEIR PROFESSION.
(6) ANY OTHERS SPECIALLY DISQUALIFIED BY LAW.
REASONS FOR PROHIBITIONS UNDER ARTICLE 1491.
THE REASON BEHIND THE ARTICLE IS TO PREVENT FRAUDS ON THE PART OF THE
PERSON ENUMERATED THEREIN AND MINIMIZE TEMPTATIONS TO THE EXERTION OF
UNDUE AND IMPROPER INFLUENCE. THE FEAR THAT GREED MIGHT GET THE BETTER
OF THE SENTIMENTS OF LOYALTY AND DISINTERESTEDNESS IS THE REASON
UNDERLYING ARTICLE 1491.
PROHIBITION WITH RESPECT TO GUARDIANS.
20
THE RELATIONSHIP BETWEEN GUARDIAN AND WARD IS SO INTIMATE, THE
DEPENDENCE SO COMPLETE AND THE INFLUENCE SO GREAT THAT ANY TRANSACTION
BETWEEN THE TWO PARTIES ENTERED WHILE THE RELATIONSHIP EXISTS, ARE IN THE
HIGHEST SENSE, SUSPICIOUS AND PRESUMPTIVELY FRAUDULENT.
PROHIBITION WITH RESPECT TO AGENTS.
THE AGENT’S INCAPACITY TO BUY HIS PRINCIPAL’S PROPERTY RESTS ON THE
FACT THAT THE AGENT AND THE PRINCIPAL FORM ONE JURIDICAL PERSON. LIKE THE
GUARDIAN, THE AGENT STANDS IN A FIDUCIARY RELATION WITH HIS PRINCIPAL. A SALE
MADE BY AN AGENT TO HIMSELF, DIRECTLY OR INDIRECTLY, WITHOUT THE
PERMISSION OF THE PRINCIPAL IS INEFFECTUAL.
PROHIBITION WITH RESPECT TO EXECUTORS AND ADMINISTRATORS.
THE PROHIBITION REFERS ONLY TO PROPERTIES UNDER THE ADMINISTRATION
OF THE EXECUTORS OR ADMINISTRATORS AT THE TIME OF THE ACQUISITION AND
DOES NOT EXTEND, THEREFORE, TO PROPERTY NOT FALLING WITHIN THE CLASS.
EXECUTORS DO NOT ADMINISTER THE HEREDITARY RIGHTS OF ANY HEIR.
PROHIBITION WITH RESPECT TO PUBLIC OFFICIALS AND EMPLOYEES.
THE PROHIBITION REFERS ONLY TO PROPERTIES (1) BELONGING TO THE STATE,
OR ANY SUBDIVISION THEREOF, OR ANY GOVERNMENT OWNED OR CONTROLLED
CORPORATION OR INSTITUTION, (2) THE ADMINISTRATION OF WHICH HAS BEEN
ENTRUSTED TO THE PUBLIC OFFICIALS OR EMPLOYEES. NOTE THAT THE PROHIBITION
INCLUDES JUDGES AND GOVERNMENT EXPERTS WHO IN ANY MANNER, TAKE PART IN
THE SALE.
OTHER PERSONS ESPECIALLY DISQUALIFIED. EXAMPLES OF PERSONS ESPECIALLY
DISQUALIFIED BY LAW:
(1) ALIENS WHO ARE DISQUALIFIED TO PURCHASE PRIVATE AGRICULTURAL
LANDS (ART. XIV, SEC. 14, CONSTITUTION);
(2) UNPAID SELLER HAVING A RIGHT OF LIEN OR HAVING STOPPED THE GOODS
IN TRANSITU, WHO IS PROHIBITED FROM BUYING THE GOODS EITHER DIRECTLY OR
INDIRECTLY IN THE RESALE OF THE SAME AT THE PUBLIC OR PRIVATE SALE WHICH HE
MAY TAKE (ART. 1533, PAR. 5; ART. 1476 [4].); AND
(3) THE OFFICER HOLDING THE EXECUTION OR HIS DEPUTY CANNOT BECOME A
PURCHASER, OR BE INTERESTED DIRECTLY IN ANY PURCHASE AT AN EXECUTION
SALE. (SEC. 21, RULE 39, RULES OF COURT.)
EFFECT OF SALE IN VIOLATION OF PROHIBITION.
IF THE SALE IS MADE, WOULD THE TRANSACTION BE VOID OR MERELY VOIDABLE?
21
(1) WITH RESPECT TO NOS. 1 TO 3, THE SALE SHALL ONLY BE VOIDABLE BECAUSE
IN SUCH CASES ONLY PRIVATE INTERESTS ARE AFFECTED.
(2) WITH RESPECT TO NOS. 4 TO 6, THE SALE SHALL BE NULL AND VOID, PUBLIC
INTERESTS BEING INVOLVED THEREIN.
(3) IN A CASE, THE SUPREME COURT AFFIRMED THE DECISION OF A LOWER
COURT DECLARING INVALID THE SALE MADE BY THE CLIENT IN FAVOR OF HIS
ATTORNEY.
ART. 1492. THE PROHIBITIONS IN THE TWO PRECEDING ARTICLES ARE
APPLICABLE TO SALES IN LEGAL REDEMPTION, COMPROMISES AND RENUNCIATIONS.
PROHIBITION EXTENDS TO SALES IN LEGAL REDEMPTION, ETC.
THE RELATIVE INCAPACITY PROVIDED IN ARTICLES 1490 AND 1491 APPLIES ALSO
TO SALES BY VIRTUE OF LEGAL REDEMPTION (ART. 1619.), COMPROMISES (ART. 2028.)
AND RENUNCIATIONS (SEE ART. 1270.)
THE PERSONS DISQUALIFIED TO BUY
REFERRED TO IN ARTICLES 1490 AND 1491 ARE ALSO DISQUALIFIED TO BECOME
LESSEES OF THINGS MENTIONED THEREIN. (ART. 16546.)
CHAPTER 3 - EFFECTS OF THE CONTRACT, THING SOLD HAS BEEN LOST
ART. 1493. IF AT THE TIME THE CONTRACT OF SALE IS PERFECTED, THE THING
WHICH IS THE OBJECT OF THE CONTRACT HAS BEEN ENTIRELY LOST, THE CONTRACT
SHALL BE WITHOUT ANY EFFECT.
BUT IF THE THING SHOULD HAVE BEEN LOST IN PART ONLY, THE VENDEE MAY
CHOOSE BETWEEN WITHDRAWING FROM THE CONTRACT AND DEMANDING THE
REMAINING PART, PAYING ITS PRICE IN PROPORTION TO THE TOTAL SUM AGREED
UPON.
ART. 1494. WHERE THE PARTIES PURPORT A SALE OF SPECIFIC GOODS, AND
THE GOODS WITHOUT THE KNOWLEDGE OF THE SELLER HAVE PERISHED IN PART OR
HAVE WHOLLY OR IN A MATERIAL PART SO DETERIORATED IN QUALITY AS TO BE
SUBSTANTIALLY CHANGED IN CHARACTER, THE BUYER MAY AT HIS OPTION TREAT
THE SALE: (1) AS AVOIDED; OR (2) AS VALID IN ALL OF THE EXISTING GOODS OR IN SO
MUCH THEREOF AS HAVE NOT DETERIORATED, AND AS BINDING THE BUYER TO PAY
THE AGREED PRICE FOR THE GOODS IN WHICH THE OWNERSHIP WILL PASS, IF THE
SALE WAS DIVISIBLE.
EFFECT OF LOSS IN CASE OF SPECIFIC GOODS
ARTICLE 1493 APPLIES TO A SALE OF SPECIFIC THING. ARTICLE 1494, ON THE
OTHER HAND, APPLIES TO SALES OF GOODS, THAT IS, THE OBJECT OF THE SALE
CONSISTS OF A MASS OF “SPECIFIC GOODS” WHICH MEANS “GOODS IDENTIFIED AND
AGREED UPON AT THE TIME A CONTRACT OF SALE IS MADE.” (ART. 1636.)
22
LAW ON SALES – NOTES 5
CHAPTER 4 - OBLIGATIONS OF THE VENDOR
SECTION 1. — GENERAL PROVISIONS
ART. 1495. THE VENDOR IS BOUND TO TRANSFER THE OWNERSHIP OF AND
DELIVER, AS WELL AS WARRANT THE THING WHICH IS THE OBJECT OF THE SALE.
PRINCIPAL OBLIGATIONS OF THE VENDOR.
THE PRINCIPAL OBLIGATIONS OF A VENDOR ARE:
(1) TO TRANSFER THE OWNERSHIP OF THE DETERMINATE THING SOLD;
(2) TO DELIVER THE THING, WITH ITS ACCESSIONS AND ACCESSORIES, IF ANY, IN THE
CONDITION IN WHICH THEY WERE UPON THE PERFECTION OF THE CONTRACT (ART.
1537.);
(3) TO WARRANT AGAINST EVICTION AND AGAINST HIDDEN DEFECTS (ARTS. 1495,
1547.);
(4) TO TAKE CARE OF THE THING, PENDING DELIVERY, WITH PROPER DILIGENCE (SEE
ART. 1163.); AND
(5) TO PAY FOR THE EXPENSES OF THE DEED OF SALE, UNLESS THERE IS A
STIPULATION TO THE CONTRARY. (ART. 1487.)
ART. 1496. THE OWNERSHIP OF THE THING SOLD IS ACQUIRED BY THE VENDEE
FROM THE MOMENT IT IS DELIVERED TO HIM IN ANY OF THE WAYS SPECIFIED IN
ARTICLES 1497 TO 1501, OR IN ANY OTHER MANNER SIGNIFYING AN AGREEMENT THAT
THE POSSESSION IS TRANSFERRED FROM THE VENDOR TO THE VENDEE.
WAYS OF EFFECTING DELIVERY.
THE OWNERSHIP OF THE THING SOLD SHALL BE TRANSFERRED TO THE VENDEE
UPON THE DELIVERY THEREOF (SEE ART. 1477.) WHICH MAY BE EFFECTED IN ANY OF
THE FOLLOWING WAYS OR MODES:
(1) BY ACTUAL OR REAL DELIVERY (ART. 1497.);
(2) BY CONSTRUCTIVE OR LEGAL DELIVERY (ARTS. 14981501.); OR
(3) BY DELIVERY IN ANY OTHER MANNER SIGNIFYING AN AGREEMENT THAT THE
POSSESSION IS TRANSFERRED TO THE VENDEE. (ARTS. 14961499.)
WAYS OF EFFECTING CONSTRUCTIVE DELIVERY
(A) BY THE EXECUTION OF A PUBLIC INSTRUMENT (ART.1498, PAR. 1.)
(B) BY SYMBOLICAL TRADITION OR TRADITIO SYMBOLICA
(C) BY TRADITIO LONGA MANU (ART. 1499.);
(D) BY TRADITIO BREVI MANU
23
(E) BY TRADITIO CONSTITUTUM POSSESSORIUM (ART. 1500.); OR
(F) BY QUASI-DELIVERY OR QUASI-TRADITIO. (ART. 1501.)
SECTION 2. — DELIVERY OF THE THING SOLD
ART. 1497. THE THING SOLD SHALL BE UNDERSTOOD AS DELIVERED, WHEN IT IS
PLACED IN THE CONTROL AND POSSESSION OF THE VENDEE.
CONCEPT OF TRADITION OR DELIVERY.
TRADITION IS A DERIVATIVE MODE OF ACQUIRING OWNERSHIP BY VIRTUE OF
WHICH ONE WHO HAS THE RIGHT AND INTENTION TO ALIENATE A CORPOREAL THING,
TRANSMITS IT BY VIRTUE OF A JUST TITLE TO ONE WHO ACCEPTS THE SAME.
IMPORTANCE OF TRADITION.
DELIVERY OF THE THING, TOGETHER WITH THE PAYMENT OF THE PRICE, MARKS
THE CONSUMMATION OF THE CONTRACT OF SALE. DELIVERY IS NECESSARY TO
ENABLE THE VENDEE TO ENJOY AND MAKE USE OF THE PROPERTY PURCHASED. IT IS
ONLY AFTER THE DELIVERY, ACTUAL OR CONSTRUCTIVE, THAT A VENDEE ACQUIRES
A REAL RIGHT OVER IT.
ACTUAL DELIVERY OF THING SOLD.
THERE IS ACTUAL DELIVERY WHEN THE THING SOLD IS PLACED IN THE CONTROL
AND POSSESSION OF THE VENDEE. THIS INVOLVES THE PHYSICAL DELIVERY OF THE
THING AND IS USUALLY DONE BY THE PASSING OF A MOVABLE THING FROM HAND TO
HAND.
ART. 1498. WHEN THE SALE IS MADE THROUGH A PUBLIC INSTRUMENT, THE
EXECUTION THEREOF SHALL BE EQUIVALENT TO THE DELIVERY OF THE THING WHICH
IS THE OBJECT OF THE CONTRACT, IF FROM THE DEED THE CONTRARY DOES NOT
APPEAR OR CANNOT CLEARLY BE INFERRED.
WITH REGARD TO MOVABLE PROPERTY, ITS DELIVERY MAY ALSO BE MADE BY
THE DELIVERY OF THE KEYS OF THE PLACE OR DEPOSITORY WHERE IT IS STORED OR
KEPT.
EXECUTION OF A PUBLIC INSTRUMENT OR DOCUMENT.
A PUBLIC INSTRUMENT IS ONE WHICH IS ACKNOWLEDGED BEFORE A NOTARY
PUBLIC OR ANY OFFICIAL AUTHORIZED TO ADMINISTER OATH, BY THE PERSON WHO
EXECUTED THE SAME. THE PARTY MAKING THE ACKNOWLEDGEMENT FORMALLY
DECLARES THAT THE INSTRUMENT IS HIS FREE ACT AND DEED WHILE THE OFFICER
TAKING THE SAME ATTESTS AND CERTIFIES THAT SUCH PARTY IS KNOWN TO HIM AND
THAT HE IS THE SAME PERSON WHO EXECUTED THE INSTRUMENT AND
ACKNOWLEDGED THAT THE INSTRUMENT IS HIS FREE ACT AND DEED.
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SYMBOLIC TRADITION
CONSTRUCTIVE DELIVERY IS SYMBOLIC WHEN TO EFFECT THE DELIVERY, THE
PARTIES MAKE USE OF A TOKEN SYMBOL TO REPRESENT THE THING DELIVERED. THE
DELIVERY OF THE KEY WHERE THE THING SOLD IS STORED OR KEPT IS EQUIVALENT
TO THE DELIVERY OF THE THING (PAR. 2.) BECAUSE THE KEY REPRESENTS THE THING.
SIMILARLY, THERE IS SYMBOLIC DELIVERY OF GOODS TO VENDEE UPON DELIVERY TO
HIM OF DELIVERY ORDERS WHICH WOULD AUTHORIZE HIM TO WITHDRAW THE GOODS
FROM A WAREHOUSE. UPON WITHDRAWAL, THERE IS ACTUAL DELIVERY (SUPRA.)
WHICH CONSUMMATES THE SALE.
ART. 1499. THE DELIVERY OF MOVABLE PROPERTY MAY LIKEWISE BE MADE BY
THE MERE CONSENT OR AGREEMENT OF THE CONTRACTING PARTIES, IF THE THING
SOLD CANNOT BE TRANSFERRED TO THE POSSESSION OF THE VENDEE AT THE TIME
OF THE SALE, OR IF THE LATTER ALREADY HAD IT IN HIS POSSESSION FOR ANY OTHER
REASON.
TRADITIO LONGA MANU.
THE FIRST PART OF ARTICLE 1499 REFERS TO TRADITIO LONGA MANU. THIS
MODE OF DELIVERY TAKES PLACE BY THE MERE CONSENT OR AGREEMENT OF THE
CONTRACTING PARTIES AS WHEN THE VENDOR MERELY POINTS TO THE THING SOLD
WHICH SHALL THEREAFTER BE AT THE CONTROL AND DISPOSAL OF THE VENDEE.
TRADITIO BREVI MANU.
THIS MODE OF LEGAL DELIVERY HAPPENS WHEN THE VENDEE HAS ALREADY THE
POSSESSION OF THE THING SOLD BY VIRTUE OF ANOTHER TITLE AS WHEN THE
LESSOR SELLS THE THING LEASED TO THE LESSEE. INSTEAD OF TURNING OVER THE
THING TO THE VENDOR SO THAT THE LATTER MAY, IN TURN, DELIVER IT, ALL THESE
ARE CONSIDERED DONE BY ACTION OF LAW.
ART. 1500. THERE MAY ALSO BE TRADITION CONSTITUTUM POSSESSORIUM.
TRADITIO CONSTITUTUM POSSESSORIUM.
THIS MODE OF DELIVERY IS THE OPPOSITE OF TRADITIO BREVI MANU. IT TAKES
PLACE WHEN THE VENDOR CONTINUES IN POSSESSION OF THE PROPERTY SOLD NOT
AS OWNER BUT IN SOME OTHER CAPACITY, AS FOR EXAMPLE, WHEN THE VENDOR
STAYS AS A TENANT OF THE VENDEE. IN THIS CASE, INSTEAD OF THE VENDOR
DELIVERING THE THING TO THE VENDEE SO THAT THE LATTER MAY, IN TURN, DELIVER
IT BACK TO THE VENDOR, THE LAW CONSIDERS THAT ALL THESE HAVE TAKEN PLACE
BY MERE CONSENT OR AGREEMENT OF THE PARTIES.
ART. 1501. WITH RESPECT TO INCORPOREAL PROPERTY, THE PROVISIONS OF
THE FIRST PARAGRAPH OF ARTICLE 1498 SHALL GOVERN. IN ANY OTHER CASE
WHEREIN SAID PROVISIONS ARE NOT APPLICABLE, THE PLACING OF THE TITLES OF
OWNERSHIP IN THE POSSESSION OF THE VENDEE OR THE USE BY THE VENDEE OF HIS
RIGHTS, WITH THE VENDOR’S CONSENT, SHALL BE UNDERSTOOD AS A DELIVERY.
25
QUASI-TRADITIO.
TRADITION CAN ONLY BE MADE WITH RESPECT TO CORPOREAL THINGS. IN THE
CASE OF INCORPOREAL THINGS, DELIVERY IS EFFECTED:
(1) BY THE EXECUTION OF A PUBLIC INSTRUMENT; OR
(2) WHEN THAT MODE OF DELIVERY IS NOT APPLICABLE, BY THE PLACING OF THE
TITLES OF OWNERSHIP IN THE POSSESSION OF THE VENDEE; OR
(3) BY ALLOWING THE VENDEE TO USE HIS RIGHTS AS NEW OWNER WITH THE
CONSENT OF THE VENDOR.
ART. 1502. WHEN GOODS ARE DELIVERED TO THE BUYER “ON SALE OR RETURN”
TO GIVE THE BUYER AN OPTION TO RETURN THE GOODS INSTEAD OF PAYING THE
PRICE, THE OWNERSHIP PASSES TO THE BUYER ON DELIVERY, BUT HE MAY REVEST
THE OWNERSHIP IN THE SELLER BY RETURNING OR TENDERING THE GOODS WITHIN
THE TIME FIXED IN THE CONTRACT, OR, IF NO TIME HAS BEEN FIXED, WITHIN A
REASONABLE TIME.
WHEN GOODS ARE DELIVERED TO THE BUYER ON APPROVAL OR ON TRIAL OR
ON SATISFACTION, OR OTHER SIMILAR TERMS, THE OWNERSHIP THEREIN PASSES TO
THE BUYER.
(1) WHEN HE SIGNIFIES HIS APPROVAL OR ACCEPTANCE TO THE SELLER
OR DOES ANY OTHER ACT ADOPTING THE TRANSACTION;
(2) IF HE DOES NOT SIGNIFY HIS APPROVAL OR ACCEPTANCE TO THE
SELLER, BUT RETAINS THE GOODS WITHOUT GIVING NOTICE OF REJECTION,
THEN IF A TIME HAS BEEN FIXED FOR THE RETURN OF THE GOODS, ON THE
EXPIRATION OF SUCH TIME, AND, IF NO TIME HAS BEEN FIXED, ON THE
EXPIRATION OF A REASONABLE TIME. WHAT IS A REASONABLE TIME IS A
QUESTION OF FACT.
CONTRACT OF SALE OR RETURN, AND OF SALE ON TRIAL OR APPROVAL OR
SATISFACTION.
1. SALE OR RETURN. — IT IS A CONTRACT BY WHICH PROPERTY IS SOLD BUT THE
BUYER, WHO BECOMES THE OWNER OF THE PROPERTY ON DELIVERY, HAS THE
OPTION TO RETURN THE SAME TO THE SELLER INSTEAD OF PAYING THE PRICE.
2. SALE ON TRIAL OR APPROVAL. — IT IS A CONTRACT IN THE NATURE OF AN OPTION
TO PURCHASE IF THE GOODS PROVE SATISFACTORY, THE APPROVAL OF THE BUYER
BEING A CONDITION PRECEDENT.
“SALE OR RETURN” DISTINGUISHED FROM SALE ON TRIAL.
(1) “SALE OR RETURN” IS A SALE SUBJECT TO A RESOLUTORY CONDITION, WHILE SALE
ON TRIAL IS SUBJECT TO A SUSPENSIVE CONDITION;
(2) “SALE OR RETURN” DEPENDS ENTIRELY ON THE WILL OF THE BUYER, WHILE SALE
ON TRIAL DEPENDS ON THE CHARACTER OR QUALITY OF THE GOODS;
(3) IN “SALE OR RETURN,” THE RISK OF LOSS OR INJURY RESTS UPON THE BUYER,
WHILE IN SALE ON TRIAL, THE RISK STILL REMAINS WITH THE SELLER.
26
ART. 1503. WHERE THERE IS A CONTRACT OF SALE OF SPECIFIC GOODS, THE
SELLER MAY, BY THE TERMS OF THE CONTRACT, RESERVE THE RIGHT OF
POSSESSION OR OWNERSHIP IN THE GOODS UNTIL CERTAIN CONDITIONS HAVE BEEN
FULFILLED. THE RIGHT OF POSSESSION OR OWNERSHIP MAY BE THUS RESERVED
NOTWITHSTANDING THE DELIVERY OF THE GOODS TO THE BUYER OR TO A CARRIER
OR OTHER BAILEE FOR THE PURPOSE OF TRANSMISSION TO THE BUYER.
WHERE GOODS ARE SHIPPED, AND BY THE BILL OF LADING THE GOODS ARE
DELIVERABLE TO THE SELLER OR HIS AGENT, OR TO THE ORDER OF THE SELLER OR
OF HIS AGENT, THE SELLER THEREBY RESERVES THE OWNERSHIP IN THE GOODS. BUT
IF, EXCEPT FOR THE FORM OF THE BILL OF LADING, THE OWNERSHIP WOULD HAVE
PASSED TO THE BUYER ON SHIPMENT OF THE GOODS, THE SELLER’S PROPERTY IN
THE GOODS SHALL BE DEEMED TO BE ONLY FOR THE PURPOSE OF SECURING
PERFORMANCE BY THE BUYER OF HIS OBLIGATIONS UNDER THE CONTRACT.
WHERE GOODS ARE SHIPPED, AND BY THE BILL OF LADING THE GOODS ARE
DELIVERABLE TO THE ORDER OF THE BUYER OR OF HIS AGENT, BUT POSSESSION OF
THE BILL OF LADING IS RETAINED BY THE SELLER OR HIS AGENT, THE SELLER
THEREBY RESERVES A RIGHT TO THE POSSESSION OF THE GOODS AS AGAINST THE
BUYER.
WHERE THE SELLER OF GOODS DRAWS ON THE BUYER FOR THE PRICE AND
TRANSMITS THE BILL OF EXCHANGE AND BILL OF LADING TOGETHER TO THE BUYER
TO SECURE ACCEPTANCE OR PAYMENT OF THE BILL OF EXCHANGE, THE BUYER IS
BOUND TO RETURN THE BILL OF LADING IF HE DOES NOT HONOR THE BILL OF
EXCHANGE, AND IF HE WRONGFULLY RETAINS THE BILL OF LADING HE ACQUIRES NO
ADDED RIGHT THEREBY. IF, HOWEVER, THE BILL OF LADING PROVIDES THAT THE
GOODS ARE DELIVERABLE TO THE BUYER OR TO THE ORDER OF THE BUYER, OR IS
INDORSED IN BLANK, OR TO THE BUYER BY THE CONSIGNEE NAMED THEREIN, ON WHO
PURCHASES IN GOOD FAITH, FOR VALUE, THE BILL OF LADING, OR GOODS FROM THE
BUYER WILL OBTAIN THE OWNERSHIP IN THE GOODS, ALTHOUGH THE BILL OF
EXCHANGE HAS NOT BEEN HONORED, PROVIDED THAT SUCH PURCHASER HAS
RECEIVED DELIVERY OF THE BILL OF LADING INDORSED BY THE CONSIGNEE NAMED
THEREIN, OR OF THE GOODS, WITHOUT NOTICE OF THE FACTS MAKING THE TRANSFER
WRONGFUL.
ART. 1504. UNLESS OTHERWISE AGREED, THE GOODS REMAIN AT THE SELLER’S
RISK UNTIL THE OWNERSHIP THEREIN IS TRANSFERRED TO THE BUYER, BUT WHEN
THE OWNERSHIP THEREIN IS TRANSFERRED TO THE BUYER, THE GOODS ARE AT THE
BUYER’S RISK WHETHER ACTUAL DELIVERY HAS BEEN MADE OR NOT, EXCEPT THAT:
(1) WHERE DELIVERY OF THE GOODS HAS BEEN MADE TO THE BUYER OR TO A
BAILEE FOR THE BUYER, IN PURSUANCE OF THE CONTRACT AND THE OWNERSHIP IN
THE GOODS HAS BEEN RETAINED BY THE SELLER MERELY TO SECURE
PERFORMANCE BY THE BUYER OF HIS OBLIGATIONS UNDER THE CONTRACT, THE
GOODS ARE AT THE BUYER’S RISK FROM THE TIME OF SUCH DELIVERY;
27
(2) WHERE ACTUAL DELIVERY HAS BEEN DELAYED THROUGH THE FAULT OF
EITHER THE BUYER OR SELLER THE GOODS ARE AT THE RISK OF THE PARTY IN FAULT.
(N)
RISK OF LOSS GENERALLY ATTENDS TITLE.
AS A GENERAL RULE, IF THE THING IS LOST BY FORTUITOUS EVENT, THE RISK IS
BORNE BY THE OWNER OF THE THING AT THE TIME OF THE LOSS UNDER THE
PRINCIPLE OF RES PERIT DOMINO. ABOVE STATES THE EXCEPTIONS.
(1) WHERE THE SELLER RESERVES THE OWNERSHIP OF THE GOODS MERELY TO
SECURE THE PERFORMANCE BY THE BUYER OF HIS OBLIGATIONS UNDER THE
CONTRACT, THE OWNERSHIP IS CONSIDERED TRANSFERRED TO THE BUYER WHO,
THEREFORE, ASSUMES THE RISK FROM THE TIME OF DELIVERY
(2) WHERE ACTUAL DELIVERY HAD BEEN DELAYED THROUGH THE FAULT OF
EITHER THE BUYER OR SELLER, THE GOODS ARE AT THE RISK OF THE PARTY AT FAULT
WITH RESPECT TO ANY LOSS WHICH MIGHT NOT HAVE OCCURRED BUT FOR SUCH
FAULT. IN THIS CASE, THE LAW PUNISHES THE PARTY AT FAULT.
ART. 1505. SUBJECT TO THE PROVISIONS OF THIS TITLE, WHERE GOODS ARE
SOLD BY A PERSON WHO IS NOT THE OWNER THEREOF, AND WHO DOES NOT SELL
THEM UNDER AUTHORITY OR WITH THE CONSENT OF THE OWNER, THE BUYER
ACQUIRES NO BETTER TITLE TO THE GOODS THAN THE SELLER HAD, UNLESS THE
OWNER OF THE GOODS IS BY HIS CONDUCT PRECLUDED FROM DENYING THE
SELLER’S AUTHORITY TO SELL.
NOTHING IN THIS TITLE, HOWEVER, SHALL AFFECT:
(1) THE PROVISIONS OF ANY FACTORS’ ACTS, RECORDING LAWS, OR ANY OTHER
PROVISION OF LAW ENABLING THE APPARENT OWNER OF GOODS TO DISPOSE OF
THEM AS IF HE WERE THE TRUE OWNER THEREOF;
(2) THE VALIDITY OF ANY CONTRACT OF SALE UNDER STATUTORY POWER OF
SALE OR UNDER THE ORDER OF A COURT OF COMPETENT JURISDICTION;
(3) PURCHASES MADE IN A MERCHANT’S STORE, OR IN FAIRS, OR MARKETS, IN
ACCORDANCE WITH THE CODE OF COMMERCE AND SPECIAL LAWS. (N)
SALE BY A PERSON NOT THE OWNER.
IT IS A FUNDAMENTAL DOCTRINE OF LAW THAT NO ONE CAN GIVE WHAT HE HAS
NOT OR TRANSFER A GREATER RIGHT TO ANOTHER THAN HE HIMSELF HAS. SALE IS A
DERIVATIVE MODE OF ACQUIRING OWNERSHIP AND THE BUYER GETS ONLY SUCH
RIGHTS AS THE SELLER HAD. (SEE ARTS. 1458-1459.) A DERIVATIVE RIGHT CANNOT
EXIST HIGHER THAN ITS SOURCE.
(1) WHERE THE OWNER OF THE GOODS IS, BY HIS CONDUCT, PRECLUDED FROM
DENYING THE SELLER’S AUTHORITY TO SELL
(2) WHERE THE LAW ENABLES THE APPARENT OWNER TO DISPOSE OF THE
GOODS AS IF HE WERE THE TRUE OWNER THEREOF.
ART. 1506. WHERE THE SELLER OF GOODS HAS A VOIDABLE TITLE THERETO,
BUT HIS TITLE HAS NOT BEEN AVOIDED AT THE TIME OF THE SALE, THE BUYER
28
ACQUIRES A GOOD TITLE TO THE GOODS, PROVIDED HE BUYS THEM IN GOOD FAITH,
FOR VALUE, AND WITHOUT NOTICE OF THE SELLER’S DEFECT OF TITLE. (N)
SALE BY ONE HAVING A VOIDABLE TITLE.
(1) REQUISITES FOR ACQUISITION OF GOOD TITLE BY BUYER. — IF THE SELLER
HAS ONLY A VOIDABLE TITLE TO THE GOODS, THE BUYER ACQUIRES A GOOD TITLE TO
THE GOODS PROVIDED HE BUYS THEM: (A) BEFORE THE TITLE OF THE SELLER HAS
BEEN AVOIDED; (B) IN GOOD FAITH FOR VALUE; AND (C) WITHOUT NOTICE OF THE
SELLER’S DEFECT OF TITLE.
(2) BASIS OF RULE. — ARTICLE 1506 SEEMS TO BE PREDICATED ON THE
PRINCIPLE THAT WHERE LOSS HAS HAPPENED WHICH MUST FALL ON ONE OF TWO
INNOCENT PERSONS, IT SHOULD BE BORNE BY HIM WHO IS THE OCCASION OF THE
LOSS. IT IS SIMILAR TO THE RULE IN P.D. NO. 1529 (PROPERTY REGISTRATION DECREE)
REFERRING TO AN INNOCENT PURCHASER FOR VALUE IN GOOD FAITH (SEC. 51
THEREOF.) AND TO THE RULE IN ACT NO. 2031 (NEGOTIABLE INSTRUMENTS LAW)
REFERRING TO A HOLDER IN DUE COURSE TO WHOM A NEGOTIABLE INSTRUMENT IS
NEGOTIATED FOR VALUE AND IN GOOD FAITH.
LAW ON SALES – NOTES 6
ART. 1507. A DOCUMENT OF TITLE IN WHICH IT IS STATED THAT THE GOODS
REFERRED TO THEREIN WILL BE DELIVERED TO THE BEARER, OR TO THE ORDER OF
ANY PERSON NAMED IN SUCH DOCUMENT IS A NEGOTIABLE DOCUMENT OF TITLE.
DEFINITION OF TERMS.
1. DOCUMENT OF TITLE TO GOODS. — INCLUDES ANY BILL OF LADING, DOCK
WARRANT, “QUEDAN,” OR WAREHOUSE RECEIPT OR ORDER FOR THE DELIVERY OF
GOODS, OR ANY OTHER DOCUMENT USED IN THE ORDINARY COURSE OF BUSINESS IN
THE SALE OR TRANSFER OF GOODS, AS PROOF OF THE POSSESSION OR CONTROL OF
THE GOODS, OR AUTHORIZING OR PURPORTING TO AUTHORIZE THE POSSESSOR OF
THE DOCUMENT TO TRANSFER OR RECEIVE, EITHER BY INDORSEMENT OR BY
DELIVERY, GOODS REPRESENTED BY SUCH DOCUMENT. (ART. 1636[1].)
2. GOODS. — INCLUDED ALL CHATTELS PERSONAL BUT NOT THINGS IN ACTION
OR MONEY OF LEGAL TENDER IN THE PHILIPPINES. THE TERM INCLUDES GROWING
FRUITS OR CROPS. (IBID.)
3.ORDER. — RELATING TO DOCUMENTS OF TITLE MEANS AN ORDER BY
INDORSEMENT ON THE DOCUMENTS. (IBID.)
CLASSES OF DOCUMENTS OF TITLES.
DOCUMENTS OF TITLE MAY BE EITHER:
1. NEGOTIABLE DOCUMENTS OF TITLE OR THOSE BY THE TERMS OF WHICH THE BAILEE
UNDERTAKES TO DELIVER THE GOODS TO THE BEARER AND THOSE BY THE TERMS OF
WHICH THE BAILEE UNDERTAKES TO DELIVER THE GOODS TO THE ORDER OF A
SPECIFIED PERSON (ART. 1508.);
29
2. NON-NEGOTIABLE DOCUMENTS OF TITLE OR THOSE BY THE TERMS OF WHICH THE
GOODS COVERED ARE DELIVERABLE TO A SPECIFIED PERSON. (ART. 1511.)
ART. 1508. A NEGOTIABLE DOCUMENT OF TITLE MAY BE NEGOTIATED BY
DELIVERY:
(1) WHERE BY THE TERMS OF THE DOCUMENT THE CARRIER, WAREHOUSEMAN
OR OTHER BAILEE ISSUING THE SAME UNDERTAKES TO DELIVER THE GOODS TO THE
BEARER; OR
(2) WHERE BY THE TERMS OF THE DOCUMENT THE CARRIER, WAREHOUSEMAN
OR OTHER BAILEE ISSUING THE SAME UNDERTAKES TO DELIVER THE GOODS TO THE
ORDER OF A SPECIFIED PERSON, AND SUCH PERSON OR A SUBSEQUENT INDORSEE
OF THE DOCUMENT HAS INDORSED IT IN BLANK OR TO THE BEARER.
(3) WHERE BY THE TERMS OF A NEGOTIABLE DOCUMENT OF TITLE THE GOODS
ARE DELIVERABLE TO BEARER OR WHERE A NEGOTIABLE DOCUMENT OF TITLE HAS
BEEN INDORSED IN BLANK OR TO BEARER, ANY HOLDER MAY INDORSE THE SAME TO
HIMSELF OR TO ANY SPECIFIED PERSON, AND IN SUCH CASE THE DOCUMENT SHALL
THEREAFTER BE NEGOTIATED ONLY BY THE INDORSEMENT OF SUCH INDORSEE.
NEGOTIATION OF NEGOTIABLE DOCUMENT BY DELIVERY.
A NEGOTIABLE DOCUMENT OF TITLE IS NEGOTIABLE BY DELIVERY IF THE GOODS
ARE DELIVERABLE TO THE BEARER, OR WHEN IT IS INDORSED IN BLANK OR TO THE
BEARER BY THE PERSON TO WHOSE ORDER THE GOODS ARE DELIVERABLE OR BY A
SUBSEQUENT INDORSEE. AN INDORSEMENT IS IN BLANK WHEN THE HOLDER MERELY
SIGNS HIS NAME AT THE BACK OF THE RECEIPT WITHOUT SPECIFYING TO WHOM THE
GOODS ARE TO BE DELIVERED.
ART. 1509. A NEGOTIABLE DOCUMENT OF TITLE MAY BE NEGOTIATED BY THE
INDORSEMENT OF THE PERSON TO WHOSE ORDER THE GOODS ARE BY THE TERMS
OF THE DOCUMENT DELIVERABLE. SUCH INDORSEMENT MAY BE IN BLANK, TO
BEARER OR TO A SPECIFIED PERSON. IF INDORSED TO A SPECIFIED PERSON, IT MAY
BE AGAIN NEGOTIATED BY THE INDORSEMENT OF SUCH PERSON IN BLANK, TO
BEARER OR TO ANOTHER SPECIFIED PERSON. SUBSEQUENT NEGOTIATIONS MAY BE
MADE IN LIKE MANNER.
NEGOTIATION OF NEGOTIABLE DOCUMENT BY INDORSEMENT.
A NEGOTIABLE DOCUMENT OF TITLE BY THE TERMS OF WHICH THE GOODS ARE
DELIVERABLE TO A PERSON SPECIFIED THEREIN MAY BE NEGOTIATED ONLY BY THE
INDORSEMENT OF SUCH PERSON.
1. IF INDORSED IN BLANK OR TO BEARER, THE DOCUMENT BECOMES NEGOTIABLE BY
DELIVERY. (ART. 1508)
2. IF INDORSED TO A SPECIFIED PERSON, IT MAY BE AGAIN NEGOTIATED BY THE
INDORSEMENT OF SUCH PERSON IN BLANK, TO BEARER, OR TO ANOTHER SPECIFIED
PERSON. DELIVERY ALONE IS NOT SUFFICIENT.
30
ART. 1510. IF A DOCUMENT OF TITLE WHICH CONTAINS AN UNDERTAKING BY A
CARRIER, WAREHOUSEMAN OR OTHER BAILEE TO DELIVER THE GOODS TO BEARER,
TO A SPECIFIED PERSON OR ORDER OF A SPECIFIED PERSON OR WHICH CONTAINS
WORDS OF LIKE IMPORT, HAS PLACED UPON IT THE WORDS “NOT NEGOTIABLE”
“NONNEGOTIABLE,” OR THE LIKE, SUCH DOCUMENT MAY NEVERTHELESS BE
NEGOTIATED BY THE HOLDER AND IS A NEGOTIABLE DOCUMENT OF TITLE WITHIN THE
MEANING OF THIS TITLE. BUT NOTHING IN THIS TITLE CONTAINED SHALL BE
CONSTRUED AS LIMITING OR DEFINING THE EFFECT UPON THE OBLIGATIONS OF THE
CARRIER, WAREHOUSEMAN, OR OTHER BAILEE ISSUING A DOCUMENT OF TITLE OR
PLACING THEREON THE WORDS “NOT NEGOTIABLE,” “NONNEGOTIABLE,” OR THE
LIKE.
NEGOTIABLE DOCUMENTS OF TITLE MARKED “NONNEGOTIABLE.”
UNDER ARTICLE 1510, THE WORDS “NOT NEGOTIABLE,” “NONNEGOTIABLE” AND
THE LIKE WHEN PLACED UPON A DOCUMENT OF TITLE IN WHICH THE GOODS ARE TO
BE DELIVERED TO “ORDER” OR TO “BEARER” HAVE NO EFFECT AND THE DOCUMENT
CONTINUES TO BE NEGOTIABLE.
WHEN THE DOCUMENT OF TITLE IS TO ORDER, THE BAILEE IS OBLIGED TO TAKE
IT UP BEFORE DELIVERING THE GOODS. ACCORDINGLY, HE IS LIABLE TO THE HOLDER
OF AN ORDER DOCUMENT IF THE GOODS ARE DELIVERED TO THE CONSIGNEE
WITHOUT SURRENDER OF THE DOCUMENT EVEN THOUGH THE LATTER WAS MARKED
“NOT NEGOTIABLE.”
ART. 1511. A DOCUMENT OF TITLE WHICH IS NOT IN SUCH FORM THAT IT CAN BE
NEGOTIATED BY DELIVERY MAY BE TRANSFERRED BY THE HOLDER BY DELIVERY TO
A PURCHASER OR DONEE. A NONNEGOTIABLE DOCUMENT CANNOT BE NEGOTIATED
AND THE INDORSEMENT OF SUCH A DOCUMENT GIVES THE TRANSFEREE NO
ADDITIONAL RIGHT.
TRANSFER OF NONNEGOTIABLE DOCUMENTS.
A NONNEGOTIABLE DOCUMENT OF TITLE CANNOT BE NEGOTIATED.
NEVERTHELESS, IT CAN BE TRANSFERRED OR ASSIGNED BY DELIVERY. IN SUCH A
CASE, THE TRANSFEREE OR ASSIGNEE ACQUIRES ONLY THE RIGHTS STATED IN
ARTICLE 1514. EVEN IF THE DOCUMENT IS INDORSED, THE TRANSFEREE ACQUIRES NO
ADDITIONAL RIGHT.
ART. 1512. A NEGOTIABLE DOCUMENT OF TITLE MAY BE NEGOTIATED:
1. BY THE OWNER THEREOF; OR
2. BY ANY PERSON TO WHOM THE POSSESSION OR CUSTODY OF THE
DOCUMENT HAS BEEN ENTRUSTED BY THE OWNER, IF, BY THE TERMS OF THE
DOCUMENT THE BAILEE ISSUING THE DOCUMENT UNDERTAKES TO DELIVER THE
GOODS TO THE ORDER OF THE PERSON TO WHOM THE POSSESSION OR CUSTODY OF
THE DOCUMENT HAS BEEN ENTRUSTED, OR IF AT THE TIME OF SUCH ENTRUSTING THE
DOCUMENT IS IN SUCH FORM THAT IT MAY BE NEGOTIATED BY DELIVERY.
31
PERSONS WHO MAY NEGOTIATE A DOCUMENT.
IT WILL BE NOTICED THAT THE PROVISION DOES NOT GIVE A POWER TO
NEGOTIATE DOCUMENTS OF TITLE EQUAL TO THAT ALLOWED UNDER THE NEGOTIABLE
INSTRUMENTS LAW (ACT NO. 2031.) IN THE CASE OF BILLS OF EXCHANGE AND
PROMISSORY NOTES INASMUCH AS NEITHER A THIEF NOR A FINDER IS WITHIN THE
TERMS OF THE ARTICLE.
ART. 1513. A PERSON TO WHOM A NEGOTIABLE DOCUMENT OF TITLE HAS BEEN
DULY NEGOTIATED ACQUIRES THEREBY:
1. SUCH TITLE TO THE GOODS AS THE PERSON NEGOTIATING THE DOCUMENT
TO HIM HAD OR HAD ABILITY TO CONVEY TO A PURCHASER IN GOOD FAITH FOR VALUE
AND ALSO SUCH TITLE TO THE GOODS AS THE PERSON TO WHOSE ORDER THE GOODS
WERE TO BE DELIVERED BY THE TERMS OF THE DOCUMENT HAD OR HAD ABILITY TO
CONVEY TO A PURCHASER IN GOOD FAITH FOR VALUE; AND
2. THE DIRECT OBLIGATION OF THE BAILEE ISSUING THE DOCUMENT TO HOLD
POSSESSION OF THE GOODS FOR HIM ACCORDING TO THE TERMS OF THE DOCUMENT
AS FULLY AS IF SUCH BAILEE HAD CONTRACTED DIRECTLY WITH HIM.
RIGHTS OF PERSON TO WHOM DOCUMENT HAS BEEN NEGOTIATED.
THIS ARTICLE SPECIFIES THE RIGHTS OF A PERSON TO WHOM A NEGOTIABLE
DOCUMENT OF TITLE HAS BEEN DULY NEGOTIATED, EITHER BY DELIVERY, IN THE CASE
OF A DOCUMENT OF TITLE TO BEARER, OR BY INDORSEMENT AND DELIVERY, IN THE
CASE OF A DOCUMENT OF TITLE TO ORDER. SUCH PERSON ACQUIRES.
1. THE TITLE OF THE PERSON NEGOTIATING THE DOCUMENT, OVER THE GOODS
COVERED BY THE DOCUMENT;
2. THE TITLE OF THE PERSON (DEPOSITOR OR OWNER) TO WHOSE ORDER BY
THE TERMS OF THE DOCUMENT THE GOODS WERE TO BE DELIVERED, OVER SUCH
GOODS; AND
3. THE DIRECT OBLIGATION OF THE BAILEE (WAREHOUSEMAN OR CARRIER) TO
HOLD POSSESSION OF THE GOODS FOR HIM, AS IF THE BAILEE HAD CONTRACTED
DIRECTLY WITH HIM.
ART. 1514. A PERSON TO WHOM A DOCUMENT OF TITLE HAS BEEN
TRANSFERRED, BUT NOT NEGOTIATED, ACQUIRES THEREBY, AS AGAINST THE
TRANSFEROR, THE TITLE TO THE GOODS, SUBJECT TO THE TERMS OF ANY
AGREEMENT WITH THE TRANSFEROR.
IF THE DOCUMENT IS NONNEGOTIABLE, SUCH PERSON ALSO ACQUIRES THE
RIGHT TO NOTIFY THE BAILEE WHO ISSUED THE DOCUMENT OF THE TRANSFER
THEREOF, AND THEREBY TO ACQUIRE THE DIRECT OBLIGATION OF SUCH BAILEE TO
HOLD POSSESSION OF THE GOODS FOR HIM ACCORDING TO THE TERMS OF THE
DOCUMENT
PRIOR TO THE NOTIFICATION TO SUCH BAILEE BY THE TRANSFEROR OR
TRANSFEREE OF A NONNEGOTIABLE DOCUMENT OF TITLE, THE TITLE OF THE
32
TRANSFEREE TO THE GOODS AND THE RIGHT TO ACQUIRE THE OBLIGATION OF SUCH
BAILEE MAY BE DEFEATED BY THE LEVY OF AN ATTACHMENT OF EXECUTION UPON
THE GOODS BY A CREDITOR OF THE TRANSFEROR, OR BY A NOTIFICATION TO SUCH
BAILEE BY THE TRANSFEROR OR A SUBSEQUENT PURCHASER FROM THE
TRANSFEROR OF A SUBSEQUENT SALE OF THE GOODS BY THE TRANSFEROR.
ART. 1515. WHERE A NEGOTIABLE DOCUMENT OF TITLE IS TRANSFERRED FOR
VALUE BY DELIVERY, AND THE INDORSEMENT OF THE TRANSFEROR IS ESSENTIAL
FOR NEGOTIATION, THE TRANSFEREE ACQUIRES A RIGHT AGAINST THE TRANSFEROR
TO COMPEL HIM TO INDORSE THE DOCUMENT UNLESS A CONTRARY INTENTION
APPEARS. THE NEGOTIATION SHALL TAKE EFFECT AS OF THE TIME WHEN THE
INDORSEMENT IS ACTUALLY MADE. (N)
ART. 1516. A PERSON WHO FOR VALUE NEGOTIATES OR TRANSFERS A
DOCUMENT OF TITLE BY INDORSEMENT OR DELIVERY, INCLUDING ONE WHO ASSIGNS
FOR VALUE A CLAIM SECURED BY A DOCUMENT OF TITLE UNLESS CONTRARY
INTENTION APPEARS, WARRANTS:
(1) THAT THE DOCUMENT IS GENUINE;
(2) THAT HE HAS A LEGAL RIGHT TO NEGOTIATE OR TRANSFER IT;
(3) THAT HE HAS KNOWLEDGE OF NO FACT WHICH WOULD IMPAIR THE VALIDITY
OR WORTH OF THE DOCUMENT; AND
(4) THAT HE HAS A RIGHT TO TRANSFER THE TITLE TO THE GOODS AND THAT
THE GOODS ARE MERCHANTABLE OR FIT FOR A PARTICULAR PURPOSE, WHENEVER
SUCH WARRANTIES WOULD HAVE BEEN IMPLIED IF THE CONTRACT OF THE PARTIES
HAD BEEN TO TRANSFER WITHOUT A DOCUMENT OF TITLE THE GOODS REPRESENTED
THEREBY.
WARRANTIES ON SALE OF DOCUMENTS.
THIS ARTICLE TREATS OF THE WARRANTIES OR LIABILITIES OF A PERSON
NEGOTIATING OR TRANSFERRING A DOCUMENT. THEY ARE SIMILAR TO THOSE OF A
PERSON NEGOTIATING AN INSTRUMENT BY DELIVERY OR BY A QUALIFIED
INDORSEMENT UNDER THE NEGOTIABLE INSTRUMENTS LAW.
THE LIABILITY IS LIMITED ONLY TO A VIOLATION OF THE FOUR WARRANTIES SET
FORTH IN ARTICLE 1516-1517.
RIGHTS OF PERSON TO WHOM DOCUMENT HAS BEEN TRANSFERRED.
THIS ARTICLE REFERS TO THE RIGHTS OF A PERSON TO WHOM A NEGOTIABLE
DOCUMENT OF TITLE (NOT DULY NEGOTIATED) HAS BEEN TRANSFERRED OR OF THE
TRANSFEREE OF A NONNEGOTIABLE DOCUMENT. SUCH PERSON ACQUIRES:
1. THE TITLE TO THE GOODS AS AGAINST THE TRANSFEROR;
2. THE RIGHT TO NOTIFY THE BAILEE OF THE TRANSFER THEREOF; AND
3. THE RIGHT, THEREAFTER, TO ACQUIRE THE OBLIGATION OF THE BAILEE TO
HOLD THE GOODS FOR HIM.
33
ART. 1517. THE INDORSEMENT OF A DOCUMENT OF TITLE SHALL NOT MAKE THE
INDORSER LIABLE FOR ANY FAILURE ON THE PART OF THE BAILEE WHO ISSUED THE
DOCUMENT OR PREVIOUS INDORSERS THEREOF TO FULFILL THEIR RESPECTIVE
OBLIGATIONS. (N)
INDORSER NOT A GUARANTOR.
THE INDORSEMENT OF A NEGOTIABLE INSTRUMENT HAS A DOUBLE EFFECT. IT
IS AT THE SAME TIME A CONVEYANCE OF THE INSTRUMENT AND A CONTRACT OF THE
INDORSER WITH THE INDORSEE THAT ON CERTAIN CONDITIONS THE INDORSER WILL
PAY THE INSTRUMENT IF THE PARTY PRIMARILY LIABLE FAILS TO DO SO.
THE INDORSEMENT OF A DOCUMENT OF TITLE AMOUNTS MERELY TO A
CONVEYANCE BY THE INDORSER, NOT A CONTRACT OF GUARANTY. ACCORDINGLY, AN
INDORSER OF A DOCUMENT OF TITLE SHALL NOT BE LIABLE TO THE HOLDER IF, FOR
EXAMPLE, THE BAILEE FAILS TO DELIVER THE GOODS BECAUSE THEY WERE LOST DUE
TO HIS FAULT OR NEGLIGENCE.
ART. 1518. THE VALIDITY OF THE NEGOTIATION OF A NEGOTIABLE DOCUMENT
OF TITLE IS NOT IMPAIRED BY THE FACT THAT THE NEGOTIATION WAS A BREACH OF
DUTY ON THE PART OF THE PERSON MAKING THE NEGOTIATION, OR BY THE FACT
THAT THE OWNER OF THE DOCUMENT WAS DEPRIVED OF THE POSSESSION OF THE
SAME BY LOSS, THEFT, FRAUD, ACCIDENT, MISTAKE, DURESS, OR CONVERSION, IF
THE PERSON TO WHOM THE DOCUMENT WAS NEGOTIATED OR A PERSON TO WHOM
THE DOCUMENT WAS SUBSEQUENTLY NEGOTIATED PAID VALUE THEREFOR IN GOOD
FAITH WITHOUT NOTICE OF THE BREACH OF DUTY, OR LOSS, THEFT, FRAUD,
ACCIDENT, MISTAKEN, DURESS OR CONVERSION. (N)
LAW ON SALES – NOTES 7
ART. 1519. IF GOODS ARE DELIVERED TO A BAILEE BY THE OWNER OR BY A
PERSON WHOSE ACT IN CONVEYING THE TITLE TO THEM TO A PURCHASER IN GOOD
FAITH FOR VALUE WOULD BIND THE OWNER AND A NEGOTIABLE DOCUMENT OF TITLE
IS ISSUED FOR THEM THEY CANNOT THEREAFTER, WHILE IN POSSESSION OF SUCH
BAILEE, BE ATTACHED BY GARNISHMENT OR OTHERWISE OR BE LEVIED UNDER AN
EXECUTION UNLESS THE DOCUMENT BE FIRST SURRENDERED TO THE BAILEE OR ITS
NEGOTIATION ENJOINED. THE BAILEE SHALL IN NO CASE BE COMPELLED TO DELIVER
UP THE ACTUAL POSSESSION OF THE GOODS UNTIL THE DOCUMENT IS
SURRENDERED TO HIM OR IMPOUNDED BY THE COURT.
ATTACHMENT OR LEVY UPON GOODS COVERED BY A NEGOTIABLE DOCUMENT.
THE BAILEE HAS THE DIRECT OBLIGATION TO HOLD POSSESSION OF THE GOODS
FOR THE ORIGINAL OWNER OR TO THE PERSON TO WHOM THE NEGOTIABLE
DOCUMENT OF TITLE HAS BEEN DULY NEGOTIATED. WHILE IN THE POSSESSION OF
SUCH BAILEE, THE GOODS CANNOT BE ATTACHED OR LEVIED UNDER AN EXECUTION
34
UNLESS THE DOCUMENT BE FIRST SURRENDERED, OR ITS NEGOTIATION PROHIBITED
BY THE COURT.
THE BAILEE CANNOT BE COMPELLED TO DELIVER UP THE POSSESSION OF THE
GOODS UNTIL THE DOCUMENT IS SURRENDERED TO HIM OR IMPOUNDED BY THE
COURT. THIS PROHIBITION IS FOR THE PROTECTION OF THE BAILEE SINCE HE COULD
BE MADE LIABLE TO A SUBSEQUENT PURCHASER FOR VALUE IN GOOD FAITH.
ART. 1520. A CREDITOR WHOSE DEBTOR IS THE OWNER OF A NEGOTIABLE
DOCUMENT OF TITLE SHALL BE ENTITLED TO SUCH AID FROM COURTS OF
APPROPRIATE JURISDICTION BY INJUNCTION AND OTHERWISE IN ATTACHING SUCH
DOCUMENT OR IN SATISFYING THE CLAIM BY MEANS THEREOF AS IS ALLOWED AT
LAW OR IN EQUITY IN REGARD TO PROPERTY WHICH CANNOT READILY BE ATTACHED
OR LEVIED UPON BY ORDINARY LEGAL PROCESS.
CREDITOR’S REMEDIES TO REACH NEGOTIABLE DOCUMENTS.
INASMUCH AS THE GOODS THEMSELVES CANNOT READILY BE ATTACHED OR
LEVIED UPON BY ORDINARY LEGAL PROCESS, AS LIMITED BY THE PRECEDING ARTICLE,
THIS ARTICLE EXPRESSLY GIVES THE COURT FULL POWER TO AID BY INJUNCTION AND
OTHERWISE A CREDITOR SEEKING TO GET A NEGOTIABLE DOCUMENT COVERING
SUCH GOODS.
ART. 1521. WHETHER IT IS FOR THE BUYER TO TAKE POSSESSION OF THE GOODS
OR FOR THE SELLER TO SEND THEM TO THE BUYER IS A QUESTION DEPENDING IN
EACH CASE ON THE CONTRACT, EXPRESS OR IMPLIED, BETWEEN THE PARTIES.
APART FROM ANY SUCH CONTRACT, EXPRESS OR IMPLIED, OR USAGE OF TRADE TO
THE CONTRARY, THE PLACE OF DELIVERY IS THE SELLER’S PLACE OF BUSINESS IF HE
HAS ONE, AND IF NOT, HIS RESIDENCE; BUT IN CASE OF A CONTRACT OF SALE OF
SPECIFIC GOODS, WHICH TO THE KNOWLEDGE OF THE PARTIES WHEN THE CONTRACT
OR THE SALE WAS MADE WERE IN SOME OTHER PLACE, THEN THAT PLACE IS THE
PLACE OF DELIVERY.
WHERE BY A CONTRACT OF SALE THE SELLER IS BOUND TO SEND THE GOODS
TO THE BUYER, BUT NO TIME FOR SENDING THEM IS FIXED, THE SELLER IS BOUND TO
SEND THEM WITHIN A REASONABLE TIME.
WHERE THE GOODS AT THE TIME OF SALE ARE IN THE POSSESSION OF A THIRD
PERSON, THE SELLER HAS NOT FULFILLED HIS OBLIGATION TO DELIVER TO THE
BUYER UNLESS AND UNTIL SUCH THIRD PERSON ACKNOWLEDGES TO THE BUYER
THAT HE HOLDS THE GOODS ON THE BUYER’S BEHALF.
DEMAND OR TENDER OF DELIVERY MAY BE TREATED AS INEFFECTUAL UNLESS
MADE AT A REASONABLE HOUR. WHAT IS A REASONABLE HOUR IS A QUESTION OF
FACT.
UNLESS OTHERWISE AGREED, THE EXPENSES OF AND INCIDENTAL TO PUTTING
THE GOODS INTO A DELIVERABLE STATE MUST BE BORNE BY THE SELLER.
PLACE OF DELIVERY OF GOODS SOLD.
SHOULD THE BUYER TAKE POSSESSION OF THE GOODS OR SHOULD THE SELLER
SEND THEM? IN OTHER WORDS, WHERE IS THE PLACE OF DELIVERY?
35
THE FOLLOWING ARE THE RULES:
1. WHERE THERE IS AN AGREEMENT, EXPRESS OR IMPLIED, THE PLACE OF
DELIVERY IS THAT AGREED UPON;
2. WHERE THERE IS NO AGREEMENT, THE PLACE OF DELIVERY IS THAT DETERMINED
BY USAGE OF TRADE;
3. WHERE THERE IS NO AGREEMENT AND THERE IS ALSO NO PREVALENT USAGE,
THE PLACE OF DELIVERY IS THE SELLER’S PLACE OF BUSINESS;
4. IN ANY OTHER CASE, THE PLACE OF DELIVERY IS THE SELLER’S RESIDENCE; AND
5. IN CASE OF SPECIFIC GOODS, WHICH TO THE KNOWLEDGE OF THE PARTIES AT
THE TIME THE CONTRACT WAS MADE WERE IN SOME OTHER PLACE, THAT PLACE IS
THE PLACE OF DELIVERY, IN THE ABSENCE OF ANY AGREEMENT OR USAGE OF TRADE
TO THE CONTRARY.
ART. 1522. WHERE THE SELLER DELIVERS TO THE BUYER A QUANTITY OF GOODS
LESS THAN HE CONTRACTED TO SELL, THE BUYER MAY REJECT THEM, BUT IF THE
BUYER ACCEPTS OR RETAINS THE GOODS SO DELIVERED, KNOWING THAT THE
SELLER IS NOT GOING TO PERFORM THE CONTRACT IN FULL, HE MUST PAY FOR THEM
AT THE CONTRACT RATE. IF, HOWEVER, THE BUYER HAS USED OR DISPOSED OF THE
GOODS DELIVERED BEFORE HE KNOWS THAT THE SELLER IS NOT GOING TO PERFORM
HIS CONTRACT IN FULL, THE BUYER SHALL NOT BE LIABLE FOR MORE THAN THE FAIR
VALUE TO HIM OF THE GOODS SO RECEIVED.
WHERE THE SELLER DELIVERS TO THE BUYER A QUANTITY OF GOODS LARGER
THAN HE CONTRACTED TO SELL, THE BUYER MAY ACCEPT THE GOODS INCLUDED IN
THE CONTRACT AND REJECT THE REST. IF THE BUYER ACCEPTS THE WHOLE OF THE
GOODS SO DELIVERED HE MUST PAY FOR THEM AT THE CONTRACT RATE.
WHERE THE SELLER DELIVERS TO THE BUYER THE GOODS HE CONTRACTED TO
SELL MIXED WITH GOODS OF A DIFFERENT DESCRIPTION NOT INCLUDED IN THE
CONTRACT, THE BUYER MAY ACCEPT THE GOODS WHICH ARE IN ACCORDANCE WITH
THE CONTRACT AND REJECT THE REST.
IN THE PRECEDING TWO PARAGRAPHS, IF THE SUBJECT MATTER IS INDIVISIBLE,
THE BUYER MAY REJECT THE WHOLE OF THE GOODS.
THE PROVISIONS OF THIS ARTICLE ARE SUBJECT TO ANY USAGE OF TRADE,
SPECIAL AGREEMENT, OR COURSE OF DEALING BETWEEN THE PARTIES. (N)
DELIVERY OF GOODS LESS THAN QUANTITY CONTRACTED.
WHERE THE SELLER IS UNDER A CONTRACT TO DELIVER A SPECIFIC QUANTITY
OF GOODS AND HE DELIVERS A SMALLER QUANTITY AS FULL PERFORMANCE OF HIS
OBLIGATION, THE BUYER MAY REJECT THE GOODS SO DELIVERED. (SEE ART. 1233.)
THE BUYER MAY, HOWEVER, ACCEPT THE GOODS IN WHICH CASE HE MUST PAY FOR
THEIR (1) PRICE AT THE CONTRACT RATE IF HE KNEW THAT NO MORE WERE TO BE
DELIVERED OR (2) THE FAIR VALUE TO HIM OF THE GOODS, IF HE DID NOT KNOW THAT
THE SELLER IS GOING TO BE GUILTY OF A BREACH OF CONTRACT. (PAR. 1.)
ART. 1523. WHERE, IN PURSUANCE OF A CONTRACT OF SALE, THE SELLER IS
AUTHORIZED OR REQUIRED TO SEND THE GOODS TO THE BUYER, DELIVERY OF THE
36
GOODS TO A CARRIER, WHETHER NAMED BY THE BUYER OR NOT, FOR THE PURPOSE
OF TRANSMISSION TO THE BUYER IS DEEMED TO BE A DELIVERY OF THE GOODS TO
THE BUYER, EXCEPT IN THE CASES PROVIDED FOR IN ARTICLE 1503, FIRST, SECOND
AND THIRD PARAGRAPHS, OR UNLESS A CONTRARY INTENT APPEARS.
UNLESS OTHERWISE AUTHORIZED BY THE BUYER, THE SELLER MUST MAKE
SUCH CONTRACT WITH THE CARRIER ON BEHALF OF THE BUYER AS MAY BE
REASONABLE, HAVING REGARD TO THE NATURE OF THE GOODS AND THE OTHER
CIRCUMSTANCES OF THE CASE. IF THE SELLER OMITS SO TO DO, AND THE GOODS
ARE LOST OR DAMAGED IN COURSE OF TRANSIT, THE BUYER MAY DECLINE TO TREAT
THE DELIVERY TO THE CARRIER AS A DELIVERY TO HIMSELF, OR MAY HOLD THE
SELLER RESPONSIBLE IN DAMAGES.
UNLESS OTHERWISE AGREED, WHERE GOODS ARE SENT BY THE SELLER TO
THE BUYER UNDER CIRCUMSTANCES IN WHICH THE SELLER KNOWS OR OUGHT TO
KNOW THAT IT IS USUAL TO INSURE, THE SELLER MUST GIVE SUCH NOTICE TO THE
BUYER AS MAY ENABLE HIM TO INSURE THEM DURING THEIR TRANSIT, AND, IF THE
SELLER FAILS TO DO SO, THE GOODS SHALL BE DEEMED TO BE AT HIS RISK DURING
SUCH TRANSIT. (N)
DELIVERY TO CARRIER ON BEHALF OF BUYER.
WHERE THE SELLER IS AUTHORIZED OR REQUIRED TO SEND THE GOODS TO THE
BUYER (ART. 1521, PAR. 1.), THE GENERAL RULE IS THAT DELIVERY OF SUCH GOODS
TO THE CARRIER6 CONSTITUTES DELIVERY TO THE BUYER, WHETHER THE CARRIER IS
NAMED BY THE BUYER OR NOT.
SELLER’S DUTY AFTER DELIVERY TO CARRIER.
THE FACT THAT THE OWNERSHIP IN THE GOODS MAY HAVE PASSED TO THE BUYER
DOES NOT MEAN THAT THE SELLER HAS ALREADY FULFILLED HIS DUTY TO THE BUYER.
1. TO ENTER ON BEHALF OF BUYER INTO SUCH CONTRACT REASONABLE UNDER
THE CIRCUMSTANCES. — THE SELLER MUST MAKE SUCH CONTRACT WITH THE
CARRIER ON BEHALF OF THE BUYER AS MAY BE REASONABLE UNDER THE
CIRCUMSTANCES.
2. TO GIVE NOTICE TO BUYER REGARDING NECESSITY TO INSURE GOODS. —THE
SELLER MUST GIVE NOTICE TO THE BUYER AS MAY ENABLE HIM TO INSURE THE GOODS
DURING THEIR TRANSIT IF UNDER THE CIRCUMSTANCES IT IS USUAL TO INSURE THEM.
ART. 1524. THE VENDOR SHALL NOT BE BOUND TO DELIVER THE THING SOLD, IF
THE VENDEE HAS NOT PAID HIM THE PRICE, OR IF NO PERIOD FOR THE PAYMENT HAS
BEEN FIXED IN THE CONTRACT.
DELIVERY, SIMULTANEOUS WITH PAYMENT OF PRICE.
AS A GENERAL RULE, THE OBLIGATION TO DELIVER THE THING SUBJECT MATTER
OF A CONTRACT ARISES FROM THE MOMENT OF ITS PERFECTION AND FROM THAT TIME
THE OBLIGATION MAY BE ENFORCED. BUT THE CONTRACT OF PURCHASE AND SALE IS
BILATERAL AND FROM IT ARISES NOT ONLY THE OBLIGATION TO DELIVER THE THING
BUT ALSO THAT OF PAYING THE PRICE. THE OBLIGATIONS ARE RECIPROCAL.
37
CONSEQUENTLY, IF THE VENDOR IS BOUND TO DELIVER THE THING SOLD, IT IS NO
LESS CERTAIN THAT THE VENDEE MUST PAY THE PRICE.
WHEN DELIVERY MUST BE MADE BEFORE PAYMENT OF PRICE.
THE PROVISIONS OF ARTICLE 1524 CONTAIN A RULE AND AN EXCEPTION:
THE RULE IS THAT THE THING SHALL NOT BE DELIVERED UNLESS THE PRICE BE
PAID; AND THE EXCEPTION IS THAT THE THING MUST BE DELIVERED THOUGH THE
PRICE BE NOT FIRST PAID, IF TIME FOR SUCH PAYMENT HAS BEEN FIXED IN THE
CONTRACT.
LAW ON SALES – NOTES 8
ART. 1525. THE SELLER OF GOODS IS DEEMED TO BE AN UNPAID SELLER WITHIN
THE MEANING OF THIS TITLE:
1. WHEN THE WHOLE OF THE PRICE HAS NOT BEEN PAID OR TENDERED;
2. WHEN A BILL OF EXCHANGE OR OTHER NEGOTIABLE INSTRUMENT HAS BEEN
RECEIVED AS CONDITIONAL PAYMENT, AND THE CONDITION ON WHICH IT WAS
RECEIVED HAS BEEN BROKEN BY REASON OF THE DISHONOR OF THE INSTRUMENT,
THE INSOLVENCY OF THE BUYER, OR OTHERWISE.
IN ARTICLES 1525 AND 1535 THE TERM “SELLER” INCLUDES AN AGENT OF THE
SELLER TO WHOM THE BILL OF LADING HAS BEEN INDORSED, OR A CONSIGNOR OR
AGENT WHO HAS HIMSELF PAID, OR IS DIRECTLY RESPONSIBLE FOR THE PRICE, OR
ANY OTHER PERSON WHO IS IN THE POSITION OF A SELLER.
MEANING OF UNPAID SELLER.
AN UNPAID SELLER IS ONE WHO HAS NOT BEEN PAID OR TENDERED THE WHOLE
PRICE OR WHO HAS RECEIVED A BILL OF EXCHANGE OR OTHER NEGOTIABLE
INSTRUMENT AS CONDITIONAL PAYMENT AND THE CONDITION ON WHICH IT WAS
RECEIVED HAS BEEN BROKEN BY REASON OF THE DISHONOR OF THE INSTRUMENT.
THE TERM “UNPAID SELLER” WITHIN THE SCOPE OF ARTICLES 1525 UP TO 1535
INCLUDES:
(1) AN AGENT OF THE SELLER;
(2) A CONSIGNOR OR AGENT WHO HAS HIMSELF PAID OR IS DIRECTLY
RESPONSIBLE FOR THE PRICE; OR
(3) ANY OTHER PERSON IN THE POSITION OF THE SELLER. A SELLER IS UNPAID
WITHIN THE DEFINITION WHETHER TITLE HAS OR HAS NOT PASSED.
WHERE WHOLE OF PRICE HAS NOT BEEN PAID.
(1) TENDER OF PAYMENT BY BUYER. — ALTHOUGH TENDER OF PAYMENT IS NOT
THE SAME AS PERFORMANCE, AND A SELLER TO WHOM THE PRICE OF GOODS HAS
BEEN TENDERED IS STRICTLY UNPAID, AND CAN, THEREFORE, BRING AN ACTION
SUBSEQUENTLY FOR THE PRICE, WHICH HE HAS REFUSED, YET TENDER DESTROYS
THE SELLER’S LIEN.
38
(2) PAYMENT OF PART OF PRICE. — PAYMENT OF A PART ONLY OF THE PRICE DOES
NOT DESTROY A SELLER’S LIEN. (2 WILLISTON, OP. CIT., PP. 9697.) THE SELLER REMAINS
AN UNPAID SELLER EVEN IF TITLE HAS PASSED TO THE BUYER.
(3) PAYMENT BY NEGOTIABLE INSTRUMENT. — ACCORDING TO PARAGRAPH 2 OF
ARTICLE 1249 (CIVIL CODE), “THE DELIVERY OF PROMISSORY NOTES PAYABLE TO
ORDER, OR BILLS OF EXCHANGE OR OTHER MERCANTILE DOCUMENTS SHALL
PRODUCE THE EFFECT OF PAYMENT ONLY WHEN THEY HAVE BEEN CASHED OR WHEN
THROUGH THE FAULT OF THE CREDITOR THEY HAVE BEEN IMPAIRED.”
ART. 1526. SUBJECT TO THE PROVISIONS OF THIS TITLE, NOTWITHSTANDING THAT
THE OWNERSHIP IN THE GOODS MAY HAVE PASSED TO THE BUYER, THE UNPAID
SELLER OF GOODS, AS SUCH, HAS:
1. A LIEN ON THE GOODS OR RIGHT TO RETAIN THEM FOR THE PRICE WHILE HE IS
IN POSSESSION OF THEM;
2. IN CASE OF THE INSOLVENCY OF THE BUYER, A RIGHT OF STOPPING THE GOODS
IN TRANSITU AFTER HE HAS PARTED WITH THE POSSESSION OF THEM;
3. A RIGHT OF RESALE AS LIMITED BY THIS TITLE;
4. A RIGHT TO RESCIND THE SALE AS LIKEWISE LIMITED BY THIS TITLE.
WHERE THE OWNERSHIP IN THE GOODS HAS NOT PASSED TO THE BUYER, THE
UNPAID SELLER HAS, IN ADDITION TO HIS OTHER REMEDIES, A RIGHT OF
WITHHOLDING DELIVERY SIMILAR TO AND COEXTENSIVE WITH HIS RIGHTS OF LIEN
AND STOPPAGE IN TRANSITU WHERE THE OWNERSHIP HAS PASSED TO THE BUYER.
(N)
BASIS OF RIGHTS OF UNPAID SELLER.
THE GROUND UPON WHICH AN UNPAID SELLER IS ALLOWED A LIEN AND KINDRED
REMEDIES IS THE INHERENT INJUSTICE OF DEPRIVING HIM OF GOODS WITH WHICH HE
HAS NOT FINALLY PARTED WHERE IT IS EVIDENT THAT HE HAS NOT BEEN OR WILL NOT
BE PAID THE PRICE FOR THEM WHEN IT IS DUE. THE SAME PRINCIPLE OF JUSTICE IS
APPLICABLE IN EVERY CASE WHERE A POSSESSOR OF GOODS IS ENTITLED TO
RECEIVE A PRICE ON THE SURRENDER OF THE GOODS. ACCORDINGLY, THE TERM
“UNPAID SELLER’’ HAS A WIDER MEANING THAN THE LITERAL LANGUAGE WOULD
IMPORT.
ART. 1527. SUBJECT TO THE PROVISIONS OF THIS TITLE, THE UNPAID SELLER OF
GOODS WHO IS IN POSSESSION OF THEM IS ENTITLED TO RETAIN POSSESSION OF
THEM UNTIL PAYMENT OR TENDER OF THE PRICE IN THE FOLLOWING CASES, NAMELY:
1. WHERE THE GOODS HAVE BEEN SOLD WITHOUT ANY STIPULATION AS TO
CREDIT;
2. WHERE THE GOODS HAVE BEEN SOLD ON CREDIT, BUT THE TERM OF CREDIT
HAS EXPIRED;
3. WHERE THE BUYER BECOMES INSOLVENT.
39
THE SELLER MAY EXERCISE HIS RIGHT OF LIEN NOTWITHSTANDING THAT HE IS
IN POSSESSION OF THE GOODS AS AGENT OR BAILEE FOR THE BUYER. (N)
WHEN UNPAID SELLER’S POSSESSORY LIEN MAY BE EXERCISED.
(1) SALE WITHOUT STIPULATION AS TO CREDIT. — IN A CREDIT SALE, THE SELLER
BINDS HIMSELF TO GIVE THE GOODS OVER TO THE BUYER WITHOUT RECEIVING AT
THAT TIME PAYMENT FOR THEM. WHERE THERE IS A “STIPULATION AS TO CREDIT” (NO.
1.), A PERIOD FOR PAYMENT OF THE PRICE HAS BEEN FIXED IN THE CONTRACT.
(2) EXPIRATION OF TERM OF CREDIT. — EVEN WHERE THE PARTIES AGREE UPON
A SALE ON CREDIT, THE SELLER’S RIGHT OF LIEN MAY BE EXERCISED. BY THE NATURE
OF A CREDIT SALE, THE BUYER IS ENTITLED TO POSSESSION OF THE GOODS WITHOUT
PAYING THE PRICE; BUT IF HE FAILS TO EXERCISE HIS RIGHT UNTIL THE TERM OF
CREDIT HAS EXPIRED AND THE PRICE BECOMES DUE, HE LOSES THE RIGHT WHICH HE
THERETOFORE HAD.
(3) INSOLVENCY OF THE BUYER. — THE INSOLVENCY OF THE BUYER IS ANOTHER
SITUATION WHERE THE LIEN OF THE SELLER IN POSSESSION IS REVIVED EVEN
THOUGH THE TIME FOR PAYMENT OF THE PRICE HAS NOT YET ARRIVED. THIS
DOCTRINE IS ONLY AN APPLICATION OF A GENERAL PRINCIPLE IN THE LAW OF
CONTRACTS THAT WHEN ONE PARTY TO A BILATERAL CONTRACT IS INCAPACITATED
FROM PERFORMING HIS PART OF THE AGREEMENT, THE OTHER PARTY ALSO IS
EXCUSED FROM PERFORMING.
ART. 1528. WHERE AN UNPAID SELLER HAS MADE PART DELIVERY OF THE
GOODS, HE MAY EXERCISE HIS RIGHT OF LIEN ON THE REMAINDER, UNLESS SUCH
PART DELIVERY HAS BEEN MADE UNDER SUCH CIRCUMSTANCES AS TO SHOW AN
INTENT TO WAIVE THE LIEN OR RIGHT OF RETENTION. (N)
LIEN GENERALLY NOT LOST BY PART DELIVERY.
WHEN PART OF THE GOODS ARE DELIVERED, THE UNPAID SELLER HAS A LIEN
UPON THE REMAINDER FOR THE PROPORTION OF THE PRICE WHICH IS DUE ON
ACCOUNT OF THE GOODS SO RETAINED. HOWEVER, IF THE DELIVERY OF THE PART IS
INTENDED AS SYMBOLICAL DELIVERY OF THE WHOLE, AND, THEREFORE, A WAIVER OF
ANY RIGHT OF RETENTION AS TO THE REMAINDER, THE LIEN IS LOST.
ART. 1529. THE UNPAID SELLER OF GOODS LOSES HIS LIEN THEREON:
1. WHEN HE DELIVERS THE GOODS TO A CARRIER OR OTHER BAILEE FOR THE
PURPOSE OF TRANSMISSION TO THE BUYER WITHOUT RESERVING THE
OWNERSHIP IN THE GOODS OR THE RIGHT TO THE POSSESSION THEREOF;
2. WHEN THE BUYER OR HIS AGENT LAWFULLY OBTAINS POSSESSION OF THE
GOODS;
3. BY WAIVER THEREOF.
THE UNPAID SELLER OF GOODS, HAVING A LIEN THEREON, DOES NOT LOSE
HIS LIEN BY REASON ONLY THAT HE HAS OBTAINED JUDGMENT OR DECREE FOR
THE PRICE OF THE GOODS.
40
WHEN UNPAID SELLER LOSES POSSESSORY LIEN.
(1) DELIVERY TO AGENT OR BAILEE OF BUYER. — AN UNCONDITIONAL DELIVERY
TO AN AGENT OR BAILEE FOR THE BUYER IS, SO FAR AS THE SELLER’S LIEN IS
CONCERNED, THE SAME AS DELIVERY TO THE BUYER HIMSELF.
(2) POSSESSION BY BUYER OR HIS AGENT. — IF THE GOODS ARE ALREADY IN
THE POSSESSION OF THE BUYER AT THE TIME OF THE BARGAIN, IT IS PLAIN THAT WHEN
THE OWNERSHIP IS TRANSFERRED, THE SELLER HAS NO LIEN SIMPLY BECAUSE HE
HAS NO POSSESSION NECESSARY FOR A LIEN.
(3) WAIVER OF THE LIEN. — THE SELLER MAY LOSE HIS LIEN EITHER BY EXPRESS
AGREEMENT TO SURRENDER IT. THUS, IT HAS BEEN HELD THAT WHERE THE BUYER
WAS ALLOWED TO ALTER THE CHARACTER OF THE GOODS AND MAKE THEM MUCH
MORE VALUABLE, THE SELLER COULD NO LONGER ASSERT A LIEN.
ART. 1530. SUBJECT TO THE PROVISIONS OF THIS TITLE, WHEN THE BUYER OF
GOODS IS OR BECOMES INSOLVENT, THE UNPAID SELLER WHO HAS PARTED WITH THE
POSSESSION OF THE GOODS HAS THE RIGHT OF STOPPING THEM IN TRANSITU, THAT
IS TO SAY, HE MAY RESUME POSSESSION OF THE GOODS AT ANY TIME WHILE THEY
ARE IN TRANSIT, AND HE WILL THEN BECOME ENTITLED TO THE SAME RIGHTS IN
REGARD TO THE GOODS AS HE WOULD HAVE HAD IF HE HAD NEVER PARTED WITH
THE POSSESSION. (N)
RIGHT OF SELLER TO STOP GOODS IN TRANSITU.
IF THE UNPAID SELLER HAS ALREADY PARTED WITH THE POSSESSION OF THE
GOODS, HE MAY STILL EXERCISE THE SECOND RIGHT OF STOPPAGE IN TRANSITU (ART.
1520[2].), THAT IS, HE MAY RESUME POSSESSION OF THE GOODS WHILE THEY ARE IN
TRANSIT, WHEN THE BUYER IS OR BECOMES INSOLVENT. THE RIGHT IS EXERCISED
EITHER BY OBTAINING ACTUAL POSSESSION OF THE GOODS OR BY GIVING NOTICE OF
HIS CLAIM TO THE CARRIER OR OTHER BAILEE IN POSSESSION.
REQUISITES FOR THE EXERCISE OF RIGHT OF STOPPAGE IN TRANSITU.
THE FOLLOWING ARE THE REQUISITES FOR THE EXISTENCE OF THE RIGHT:
1. THE SELLER MUST BE UNPAID (ART. 1525.);
2. THE BUYER MUST BE INSOLVENT;
3. THE GOODS MUST BE IN TRANSIT (ART. 1531.);
4. THE SELLER MUST EITHER ACTUALLY TAKE POSSESSION OF THE GOODS SOLD
OR GIVE NOTICE OF HIS CLAIM TO THE CARRIER OR OTHER PERSON IN POSSESSION
(ART. 1532, PAR. 1.);
5. THE SELLER MUST SURRENDER THE NEGOTIABLE DOCUMENT OF TITLE, IF ANY,
ISSUED BY THE CARRIER OR BAILEE (IBID., PAR. 2.); AND
6. THE SELLER MUST BEAR THE EXPENSES OF DELIVERY OF THE GOODS AFTER THE
EXERCISE OF THE RIGHT. (IBID.)
ART. 1531. GOODS ARE IN TRANSIT WITHIN THE MEANING OF THE PRECEDING
ARTICLE:
41
(1) FROM THE TIME WHEN THEY ARE DELIVERED TO A CARRIER BY LAND,
WATER, OR AIR, OR OTHER BAILEE FOR THE PURPOSE OF TRANSMISSION TO THE
BUYER, UNTIL THE BUYER, OR HIS AGENT IN THAT BEHALF, TAKES DELIVERY OF THEM
FROM SUCH CARRIER OR OTHER BAILEE;
(2) IF THE GOODS ARE REJECTED BY THE BUYER, AND THE CARRIER OR OTHER
BAILEE CONTINUES IN POSSESSION OF THEM, EVEN IF THE SELLER HAS REFUSED TO
RECEIVE THEM BACK;
GOODS ARE NO LONGER IN TRANSIT WITHIN THE MEANING OF THE PRECEDING
ARTICLE:
1. IF THE BUYER, OR HIS AGENT IN THAT BEHALF, OBTAINS DELIVERY OF THE
GOODS BEFORE THEIR ARRIVAL AT THE APPOINTED DESTINATION;
2. IF, AFTER THE ARRIVAL OF THE GOODS AT THE APPOINTED DESTINATION, THE
CARRIER OR OTHER BAILEE ACKNOWLEDGES TO THE BUYER OR HIS AGENT THAT HE
HOLDS THE GOODS ON HIS BEHALF AND CONTINUES IN POSSESSION OF THEM AS
BAILEE FOR THE BUYER OR HIS AGENT; AND IT IS IMMATERIAL THAT FURTHER
DESTINATION FOR THE GOODS MAY HAVE BEEN INDICATED BY THE BUYER;
3. IF THE CARRIER OR OTHER BAILEE WRONGFULLY REFUSES TO DELIVER THE
GOODS TO THE BUYER OR HIS AGENT IN THAT BEHALF.
IF THE GOODS ARE DELIVERED TO A SHIP, FREIGHT TRAIN, TRUCK, OR AIRPLANE
CHARTERED BY THE BUYER, IT IS A QUESTION DEPENDING ON THE CIRCUMSTANCES
OF THE PARTICULAR CASE, WHETHER THEY ARE IN THE POSSESSION OF THE CARRIER
AS SUCH OR AS AGENT OF THE BUYER.
IF PART DELIVERY OF THE GOODS HAS BEEN MADE TO THE BUYER, OR HIS AGENT
IN THAT BEHALF, THE REMAINDER OF THE GOODS MAY BE STOPPED IN TRANSITU,
UNLESS SUCH PART DELIVERY HAS BEEN UNDER SUCH CIRCUMSTANCES AS TO
SHOW AN AGREEMENT WITH THE BUYER TO GIVE UP POSSESSION OF THE WHOLE OF
THE GOODS. (N)
WHEN GOODS CONSIDERED NO LONGER IN TRANSIT.
THE RIGHT OF STOPPAGE IN TRANSITU ARISES SOLELY WHEN AN UNPAID SELLER
HAS SHIPPED GOODS TO AN INSOLVENT BUYER. THE RIGHT TO RETAKE CONTINUES
ONLY WHILE THE GOODS ARE IN TRANSIT. THE GOODS ARE NO LONGER IN TRANSIT IN
THE FOLLOWING CASES:
1. AFTER DELIVERY TO THE BUYER OR HIS AGENT IN THAT BEHALF;
2. IF THE BUYER OR HIS AGENT OBTAINS POSSESSION OF THE GOODS AT A POINT
BEFORE THE DESTINATION ORIGINALLY FIXED;
3. IF THE CARRIER OR BAILEE ACKNOWLEDGES TO HOLD THE GOODS ON BEHALF
OF THE BUYER; AND
4. IF THE CARRIER OR BAILEE WRONGFULLY REFUSES TO DELIVER THE GOODS TO
THE BUYER. (PAR. 2.)
EFFECT OF REFUSAL OF CARRIER TO ATTORN OR DELIVER THE GOODS.
THE CARRIER IS NOT ALLOWED TO ENLARGE THE SELLER’S RIGHT BY
WRONGFULLY REFUSING TO DELIVER OR ATTORN AS THE BUYER’S AGENT. (ART. 1531,
42
PAR. 2[3].) BUT A RIGHTFUL REFUSAL BY THE CARRIER, BASED FOR INSTANCE, ON THE
REFUSAL OF THE BUYER OR HIS AGENT TO PAY THE FREIGHT WILL NOT TERMINATE
THE RIGHT TO STOP.
DELIVERY TO A SHIP, ETC., CHARTERED OR OWNED BY BUYER.
1. CHARTERED BY THE BUYER. — THE MERE FACT THAT THE CARRIER IS
CHARTERED BY THE BUYER DOES NOT MAKE A DELIVERY TO THE CARRIER A DELIVERY
TO THE BUYER. WHETHER DELIVERY TO A CARRIER CHARTERED BY THE BUYER MEANS
POSSESSION BY THE CARRIER AS SUCH OR POSSESSION BY THE CARRIER AS AGENT
OF THE BUYER, IN WHICH CASE, THE GOODS ARE NO LONGER IN TRANSIT, IS A
QUESTION DEPENDING ON THE CIRCUMSTANCES OF THE PARTICULAR CASE.
2. OWNED BY THE BUYER. — AS DELIVERY TO AN AGENT, OTHER THAN ONE
WHOSE ONLY DUTY IS TO FORWARD THE GOODS, IS A DELIVERY TO THE PRINCIPAL,
DELIVERY TO THE BUYER’S SERVANT WHO IS UNDER A GENERAL DUTY TO OBEY HIS
MASTER’S ORDER, IS NECESSARILY A DELIVERY TO THE BUYER.
EFFECT OF PARTIAL DELIVERY.
THE MERE FACT THAT PART OF THE GOODS HAS BEEN DELIVERED DOES NOT
DEPRIVE THE SELLER OF THE RIGHT TO STOP WITH RESPECT TO THE REMAINDER
(PAR. 4.) JUST AS THE SELLER MAY STILL EXERCISE HIS RIGHT OF LIEN ON THE
REMAINDER AFTER PART OF THE GOODS HAD BEEN DELIVERED. (ART. 1528.)
HOWEVER, IT MAY BE SHOWN THAT THE SELLER HAS AN AGREEMENT WITH THE BUYER
TO GIVE UP POSSESSION OF THE WHOLE OF THE GOODS.
ART. 1532. THE UNPAID SELLER MAY EXERCISE HIS RIGHT OF STOPPAGE IN
TRANSITU EITHER BY OBTAINING ACTUAL POSSESSION OF THE GOODS OR BY GIVING
NOTICE OF HIS CLAIM TO THE CARRIER OR OTHER BAILEE IN WHOSE POSSESSION THE
GOODS ARE. SUCH NOTICE MAY BE GIVEN EITHER TO THE PERSON IN ACTUAL
POSSESSION OF THE GOODS OR TO HIS PRINCIPAL. IN THE LATTER CASE, THE NOTICE,
TO BE EFFECTUAL, MUST BE GIVEN AT SUCH TIME AND UNDER SUCH CIRCUMSTANCES
THAT THE PRINCIPAL, BY THE EXERCISE OF REASONABLE DILIGENCE, MAY PREVENT
A DELIVERY TO THE BUYER.
WHEN NOTICE OF STOPPAGE IN TRANSITU IS GIVEN BY THE SELLER TO THE
CARRIER, OR OTHER BAILEE IN POSSESSION OF THE GOODS, HE MUST REDELIVER
THE GOODS TO, OR ACCORDING TO THE DIRECTIONS OF, THE SELLER. THE EXPENSES
OF SUCH DELIVERY MUST BE BORNE BY THE SELLER. IF, HOWEVER, A NEGOTIABLE
DOCUMENT OF TITLE REPRESENTING THE GOODS HAS BEEN ISSUED BY THE CARRIER
OR OTHER BAILEE, HE SHALL NOT BE OBLIGED TO DELIVER OR JUSTIFIED IN
DELIVERING THE GOODS TO THE SELLER UNLESS SUCH DOCUMENT IS FIRST
SURRENDERED FOR CANCELLATION. (N)
WAYS OF EXERCISING THE RIGHT TO STOP.
THE SELLER MAY EXERCISE THE RIGHT OF STOPPAGE IN TRANSITU EITHER:
1. BY TAKING ACTUAL POSSESSION OF THE GOODS.
2. BY GIVING NOTICE OF HIS CLAIM TO THE CARRIER OR BAILEE. — TO
MAKE A NOTICE EFFECTIVE AS A STOPPAGE IN TRANSITU, IT MUST BE GIVEN AT
43
SUCH TIME, AND UNDER SUCH CIRCUMSTANCES THAT THE PRINCIPAL, BY THE
EXERCISE OF REASONABLE DILIGENCE, MAY COMMUNICATE IT TO HIS AGENT TO
PREVENT THE DELIVERY TO THE BUYER.
ART. 1533. WHERE THE GOODS ARE OF PERISHABLE NATURE, OR WHERE THE
SELLER EXPRESSLY RESERVES THE RIGHT OF RESALE IN CASE THE BUYER SHOULD
MAKE DEFAULT, OR WHERE THE BUYER HAS BEEN IN DEFAULT IN THE PAYMENT OF
THE PRICE FOR AN UNREASONABLE TIME, AN UNPAID SELLER HAVING A RIGHT OF
LIEN OR HAVING STOPPED THE GOODS IN TRANSITU MAY RESELL THE GOODS. HE
SHALL NOT THEREAFTER BE LIABLE TO THE ORIGINAL BUYER UPON THE CONTRACT
OF SALE FOR ANY PROFIT MADE BY SUCH RESALE, BUT MAY RECOVER FROM THE
BUYER DAMAGES FOR ANY LOSS OCCASIONED BY THE BREACH OF THE CONTRACT
OF SALE.
WHERE A RESALE IS MADE, AS AUTHORIZED IN THIS ARTICLE, THE BUYER
ACQUIRES A GOOD TITLE AS AGAINST THE ORIGINAL BUYER.
IT IS NOT ESSENTIAL TO THE VALIDITY OF A RESALE THAT NOTICE OF AN
INTENTION TO RESELL THE GOODS BE GIVEN BY THE SELLER TO THE ORIGINAL
BUYER. BUT WHERE THE RIGHT TO RESELL IS NOT BASED ON THE PERISHABLE
NATURE OF THE GOODS OR UPON AN EXPRESS PROVISION OF THE CONTRACT OF
SALE, THE GIVING OR FAILURE TO GIVE SUCH NOTICE SHALL BE RELEVANT IN ANY
ISSUE INVOLVING THE QUESTION WHETHER THE BUYER HAD BEEN IN DEFAULT FOR
AN UNREASONABLE TIME BEFORE THE RESALE WAS MADE.
IT IS NOT ESSENTIAL TO THE VALIDITY OF A RESALE THAT NOTICE OF THE TIME
AND PLACE OF SUCH RESALE SHOULD BE GIVEN BY THE SELLER TO THE ORIGINAL
BUYER.
THE SELLER IS BOUND TO EXERCISE REASONABLE CARE AND JUDGMENT IN
MAKING A RESALE, AND SUBJECT TO THIS REQUIREMENT MAY MAKE A RESALE
EITHER BY PUBLIC OR PRIVATE SALE. HE CANNOT, HOWEVER, DIRECTLY OR
INDIRECTLY BUY THE GOODS.
UNPAID SELLER’S RIGHT OF RESALE.
(1) WHEN RESALE ALLOWABLE. — THE THIRD RIGHT OF AN UNPAID SELLER IS
THE RIGHT OF RESALE. (ART. 1526[3].) AN UNPAID SELLER CAN EXERCISE THE RIGHT
TO RESELL ONLY WHEN HE HAS EITHER A RIGHT OF LIEN (IBID., [1].) OR A RIGHT TO
STOP THE GOODS IN TRANSITU (IBID., [2].) AND UNDER ANY OF THE THREE FOLLOWING
CASES:
(A) WHERE THE GOODS ARE PERISHABLE IN NATURE;
(B) WHERE THE RIGHT TO RESELL IS EXPRESSLY RESERVED IN CASE THE
BUYER SHOULD MAKE A DEFAULT; AND
(C) WHERE THE BUYER DELAYS IN THE PAYMENT OF THE PRICE FOR AN
UNREASONABLE TIME. (SEE HANLON VS. HAUSSERMANN AND BEAM, 40 PHIL. 796
[1920].)
ARTICLE 1533 PROVIDES THAT THE SELLER HAVING THE RIGHT “MAY RESELL THE
GOODS.” THE LANGUAGE IS PERMISSIVE IN NATURE RATHER THAN MANDATORY.
44
(2) EFFECT OF RESALE. — IN CASE OF RESALE, THE SELLER IS NOT LIABLE FOR
ANY PROFIT MADE BY SUCH RESALE; BUT IF HE SELLS FOR LESS THAN THE PRICE, HE
HAS A RIGHT TO SUE FOR THE BALANCE. (PAR. 1.) AS AGAINST THE ORIGINAL BUYER,
THE NEW BUYER ACQUIRES A GOOD TITLE TO THE GOODS. (PAR. 2.)
ART. 1534. AN UNPAID SELLER HAVING THE RIGHT OF LIEN OR HAVING STOPPED
THE GOODS IN TRANSITU, MAY RESCIND THE TRANSFER OF TITLE AND RESUME THE
OWNERSHIP IN THE GOODS, WHERE HE EXPRESSLY RESERVED THE RIGHT TO DO SO
IN CASE THE BUYER SHOULD MAKE DEFAULT, OR WHERE THE BUYER HAS BEEN IN
DEFAULT IN THE PAYMENT OF THE PRICE FOR AN UNREASONABLE TIME. THE SELLER
SHALL NOT THEREAFTER BE LIABLE TO THE BUYER UPON THE CONTRACT OF SALE,
BUT MAY RECOVER FROM THE BUYER DAMAGES FOR ANY LOSS OCCASIONED BY THE
BREACH OF THE CONTRACT.
THE TRANSFER OF TITLE SHALL NOT BE HELD TO HAVE BEEN RESCINDED BY
AN UNPAID SELLER UNTIL HE HAS MANIFESTED BY NOTICE TO THE BUYER OR BY
SOME OTHER OVERT ACT AN INTENTION TO RESCIND. IT IS NOT NECESSARY THAT
SUCH OVERT ACT SHOULD BE COMMUNICATED TO THE BUYER, BUT THE GIVING OR
FAILURE TO GIVE NOTICE TO THE BUYER OF THE INTENTION TO RESCIND SHALL BE
RELEVANT IN ANY ISSUE INVOLVING THE QUESTION WHETHER THE BUYER HAD BEEN
IN DEFAULT FOR AN UNREASONABLE TIME BEFORE THE RIGHT OF RESCISSION WAS
ASSERTED. (N)
WHEN THE SELLER MAY RESCIND
THE FOURTH RIGHT OF AN UNPAID SELLER IS THE RIGHT TO RESCIND THE SALE.
AN UNPAID SELLER HAS A RIGHT TO RESCIND ONLY IF HE HAS EITHER A RIGHT OF LIEN
OR A RIGHT TO STAY THE GOODS IN TRANSIT AND UNDER EITHER OF TWO SITUATIONS:
(A) WHERE THE RIGHT TO RESCIND IS EXPRESSLY RESERVED IN CASE THE
BUYER SHOULD MAKE A DEFAULT; OR
(B) WHERE THE BUYER DELAYS IN THE PAYMENT OF THE PRICE FOR AN
UNREASONABLE TIME.
EFFECT OF RESCISSION.
IN THE CASE OF RESCISSION, THE SELLER RESUMES OWNERSHIP IN THE GOODS.
WHILE THE SELLER SHALL NOT BE LIABLE TO THE BUYER UPON THE CONTRACT OF
SALE, THE LATTER, HOWEVER, MAY BE MADE LIABLE TO THE SELLER FOR DAMAGES
FOR ANY LOSS OCCASIONED BY THE BREACH OF CONTRACT.
ART. 1535. SUBJECT TO THE PROVISION OF THIS TITLE, THE UNPAID SELLER’S
RIGHT OF LIEN OR STOPPAGE IN TRANSITU IS NOT AFFECTED BY ANY SALE, OR OTHER
DISPOSITION OF THE GOODS WHICH THE BUYER MAY HAVE MADE, UNLESS THE
SELLER HAS ASSENTED THERETO.
IF, HOWEVER, A NEGOTIABLE DOCUMENT OF TITLE HAS BEEN ISSUED FOR
GOODS, NO SELLER’S LIEN OR RIGHT OF STOPPAGE IN TRANSITU SHALL DEFEAT THE
RIGHT OF ANY PURCHASER FOR VALUE IN GOOD FAITH TO WHOM SUCH DOCUMENT
HAS BEEN NEGOTIATED, WHETHER SUCH NEGOTIATION BE PRIOR OR SUBSEQUENT
45
TO THE NOTIFICATION TO THE CARRIER, OR OTHER BAILEE WHO ISSUED SUCH
DOCUMENT, OF THE SELLER’S CLAIM TO A LIEN OR RIGHT OF STOPPAGE IN TRANSITU.
(N)
EFFECT OF SALE OF GOODS SUBJECT TO LIEN OR STOPPAGE IN TRANSITU.
(1) WHERE GOODS NOT COVERED BY NEGOTIABLE DOCUMENT OF TITLE. — IT IS
FUNDAMENTAL, AS A GENERAL RULE, THAT A SELLER CAN GIVE NO LARGER RIGHT
THAN HE HAS. WHEN, THEREFORE, GOODS ARE SUBJECT TO A LEGAL LIEN, AS THEY
ARE WHEN AN UNPAID SELLER IS IN POSSESSION OF THEM, A PURCHASER FROM THE
ORIGINAL BUYER CAN ACQUIRE ONLY SUCH RIGHT AS THE BUYER THEN HAD
(2) WHERE GOODS COVERED BY NEGOTIABLE DOCUMENT OF TITLE. — IF,
HOWEVER, THE GOODS ARE COVERED BY A NEGOTIABLE DOCUMENT OF TITLE, THE
SELLER’S LIEN CANNOT PREVAIL AGAINST THE RIGHTS OF A PURCHASER FOR VALUE
IN GOOD FAITH TO WHOM THE DOCUMENT HAS BEEN INDORSED. THE REASON FOR
THIS PROVISION RESTS UPON THE NATURE OF A NEGOTIABLE DOCUMENT OF TITLE
WHICH IN LEGAL FICTION OPERATES AS A DELIVERY OF THE GOODS DESCRIBED
THEREIN WHEN INDORSED. THE RULE PROTECTS A PURCHASER WITHOUT NOTICE
AFTER THE SELLER HAD STOPPED THE GOODS EITHER BY VIRTUE OF HIS RIGHT OF
LIEN OR STOPPAGE IN TRANSITU.
ART. 1536. THE VENDOR IS NOT BOUND TO DELIVER THE THING SOLD IN CASE
THE VENDEE SHOULD LOSE THE RIGHT TO MAKE USE OF THE TERM AS PROVIDED IN
ARTICLE 1198. (1467A)
RIGHT OF VENDOR TO WITHHOLD DELIVERY IN SALE ON CREDIT.
IN A CONTRACT OF SALE, THE OBLIGATION TO PAY THE PRICE IS CORRELATIVE
TO THE OBLIGATION TO DELIVER THE THING SOLD. ACCORDINGLY, THE VENDOR IS NOT
BOUND TO MAKE DELIVERY IF THE VENDEE HAS NOT PAID HIM THE PRICE
THE DEBTOR [VENDEE] SHALL LOSE EVERY RIGHT TO MAKE USE OF THE PERIOD:
(1) WHEN AFTER THE OBLIGATION HAS BEEN CONTRACTED, HE BECOMES
INSOLVENT, UNLESS HE GIVES A GUARANTY OR SECURITY FOR THE DEBT
[PRICE];
(2) WHEN HE DOES NOT FURNISH TO THE CREDITOR [VENDOR] THE
GUARANTIES OR SECURITIES WHICH HE HAS PROMISED;
(3) WHEN BY HIS OWN ACTS HE HAS IMPAIRED SAID GUARAN-TIES OR
SECURITIES AFTER THEIR ESTABLISHMENT, AND WHEN THROUGH A
FORTUITOUS EVENT THEY DISAPPEAR, UNLESS HE IMMEDIATELY GIVES NEW
ONES EQUALLY SATISFACTORY;
(4) WHEN THE DEBTOR [VENDEE] VIOLATES ANY UNDERTAKING, IN
CONSIDERATION OF WHICH THE CREDITOR AGREED TO THE PERIOD;
(5) WHEN THE DEBTOR [VENDEE] ATTEMPTS TO ABSCOND.”
ART. 1537. THE VENDOR IS BOUND TO DELIVER THE THING SOLD AND ITS
ACCESSIONS AND ACCESSORIES IN THE CONDITION IN WHICH THEY WERE UPON THE
PERFECTION OF THE CONTRACT.
46
ALL THE FRUITS SHALL PERTAIN TO THE VENDEE FROM THE DAY ON WHICH THE
CONTRACT WAS PERFECTED. (1468A)
LAW ON SALES NOTES 9
ART. 1538. IN CASE OF LOSS, DETERIORATION OR IMPROVEMENT OF THE THING
BEFORE ITS DELIVERY, THE RULES IN ARTICLE 1189 SHALL BE OBSERVED, THE
VENDOR BEING CONSIDERED THE DEBTOR. (N)
RULES IN CASE OF LOSS, DETERIORATION, OR IMPROVEMENT OF THING BEFORE
DELIVERY.
ARTICLE 1189 OF THE CIVIL CODE STATES:
“WHEN THE CONDITIONS HAVE BEEN IMPOSED WITH THE INTENTION OF
SUSPENDING THE EFFICACY OF AN OBLIGATION TO GIVE, THE FOLLOWING RULES
SHALL BE OBSERVED IN CASE OF THE IMPROVEMENT, LOSS OR DETERIORATION OF
THE THING DURING THE PENDENCY OF THE CONDITION:
1. IF THE THING IS LOST WITHOUT THE FAULT OF THE DEBTOR, THE OBLIGATION
SHALL BE EXTINGUISHED;
2. IF THE THING IS LOST THROUGH THE FAULT OF THE DEBTOR, HE SHALL BE
OBLIGED TO PAY DAMAGES; IT IS UNDERSTOOD THAT THE THING IS LOST WHEN IT
PERISHES, OR GOES OUT OF COMMERCE, OR DISAPPEARS IN SUCH A WAY THAT ITS
EXISTENCE IS UNKNOWN OR IT CANNOT BE RECOVERED;
3. WHEN THE THING DETERIORATES WITHOUT THE FAULT OF THE DEBTOR, THE
IMPAIRMENT IS TO BE BORNE BY THE CREDITOR;
4. IF IT DETERIORATES THROUGH THE FAULT OF THE DEBTOR, THE CREDITOR MAY
CHOOSE BETWEEN THE RESCISSION OF THE OBLIGATION AND ITS FULFILLMENT, WITH
INDEMNITY FOR DAMAGES IN EITHER CASE;
5. IF THE THING IS IMPROVED BY ITS NATURE, OR BY TIME, THE IMPROVEMENT
SHALL INURE TO THE BENEFIT OF THE CREDITOR;
6. IF IT IS IMPROVED AT THE EXPENSE OF THE DEBTOR, HE SHALL HAVE NO OTHER
RIGHT THAN THAT GRANTED TO THE USUFRUCTUARY.”
ART. 1539. THE OBLIGATION TO DELIVER THE THING SOLD INCLUDES THAT OF
PLACING IN THE CONTROL OF THE VENDEE ALL THAT IS MENTIONED IN THE
CONTRACT, IN CONFORMITY WITH THE FOLLOWING RULES:
IF THE SALE OF REAL ESTATE SHOULD BE MADE WITH A STATEMENT OF ITS AREA,
AT THE RATE OF A CERTAIN PRICE FOR A UNIT OF MEASURE OR NUMBER, THE VENDOR
SHALL BE OBLIGED TO DELIVER TO THE VENDEE, IF THE LATTER SHOULD DEMAND IT,
ALL THAT MAY HAVE BEEN STATED IN THE CONTRACT; BUT, SHOULD THIS BE NOT
POSSIBLE, THE VENDEE MAY CHOOSE BETWEEN A PROPORTIONAL REDUCTION OF
THE PRICE AND THE RESCISSION OF THE CONTRACT, PROVIDED THAT, IN THE LATTER
CASE, THE LACK IN THE AREA BE NOT LESS THAN ONETENTH OF THAT STATED.
47
THE SAME SHALL BE DONE, EVEN WHEN THE AREA IS THE SAME, IF ANY PART OF
THE IMMOVABLE IS NOT OF THE QUALITY SPECIFIED IN THE CONTRACT.
THE RESCISSION, IN THIS CASE, SHALL ONLY TAKE PLACE AT THE WILL OF THE
VENDEE, WHEN THE INFERIOR VALUE OF THE THING SOLD EXCEEDS ONETENTH OF
THE PRICE AGREED UPON.
NEVERTHELESS, IF THE VENDEE WOULD NOT HAVE BOUGHT THE IMMOVABLE HAD
HE KNOWN OF ITS SMALLER AREA OR INFERIOR QUALITY, HE MAY RESCIND THE SALE.
SALE OF REAL PROPERTY BY UNIT OF MEASURE OR NUMBER.
1. ENTIRE AREA STATED IN CONTRACT MUST BE DELIVERED. — IF THE SALE OF
REAL ESTATE SHOULD BE MADE WITH A STATEMENT OF ITS AREA, AT THE RATE OF A
CERTAIN PRICE PER UNIT OF MEASURE OR NUMBER, THE CAUSE OF THE CONTRACT
WITH RESPECT TO THE VENDEE IS THE NUMBER OF SUCH UNITS OR, IF YOU WISH, THE
THING PURCHASED AS DETERMINED BY THE STIPULATED NUMBER OF UNITS.
2. WHERE ENTIRE AREA COULD NOT BE DELIVERED. — IF ALL THAT IS INCLUDED
WITHIN THE STIPULATED BOUNDARIES IS NOT DELIVERED, THEN THE OBJECT OF THE
CONTRACT, ITS CAUSE AS FAR AS THE VENDEE IS CONCERNED, IS NOT DELIVERED.
WHEN VENDEE ENTITLED TO RESCIND SALE OF REAL PROPERTY.
UNDER THE ABOVE ARTICLE, THE RIGHT OF RESCISSION IS AVAILABLE TO THE VENDEE
IN THE FOLLOWING CASES:
1. IF THE LACK IN AREA IS AT LEAST 1/10TH THAN THAT STATED OR STIPULATED.
(PAR. 2.) THE 1/10TH MENTIONED MUST BE BASED ON THE AREA STIPULATED IN THE
CONTRACT, AND NOT ON THE REAL AREA WHICH THE THING MAY ACTUALLY HAVE;
2. IF THE DEFICIENCY IN THE QUALITY SPECIFIED IN THE CONTRACT EXCEEDS
1/10TH OF THE PRICE AGREED UPON (PAR. 3.); AND
3. IF THE VENDEE WOULD NOT HAVE BROUGHT THE IMMOVABLE HAD HE KNOWN OF
ITS SMALLER AREA OR INFERIOR QUALITY IRRESPECTIVE OF THE EXTENT OF THE LACK
IN AREA OR QUALITY. (PARS. 4 AND 5.)
ART. 1540. IF, IN THE CASE OF THE PRECEDING ARTICLE, THERE IS A GREATER
AREA OR NUMBER IN THE IMMOVABLE THAN THAT STATED IN THE CONTRACT, THE
VENDEE MAY ACCEPT THE AREA INCLUDED IN THE CONTRACT AND REJECT THE REST.
IF HE ACCEPTS THE WHOLE AREA, HE MUST PAY FOR THE SAME AT THE CONTRACT
RATE. (1470A)
WHERE IMMOVABLE OF A GREATER AREA OR NUMBER.
IF THE AREA OR NUMBER IN THE IMMOVABLE IS GREATER THAN THAT
STIPULATED IN THE CONTRACT, THE VENDEE MAY ACCEPT THE AREA INCLUDED IN THE
CONTRACT AND REJECT THE REST. IF HE ACCEPTS THE WHOLE, HE MAKES HIMSELF
LIABLE FOR THE PRICE OF THE SAME AT THE CONTRACT RATE. (SEE COMMENTS
UNDER ARTICLE 1522, PAR. 2.)
THE VENDEE MAY NOT WITHDRAW FROM THE CONTRACT.
ART. 1541. THE PROVISIONS OF THE TWO PRECEDING ARTICLES SHALL APPLY
TO JUDICIAL SALES. (N)
48
APPLICATION OF ARTICLES 1539 AND 1540 TO JUDICIAL SALES.
THE PROVISIONS OF ARTICLES 1539 AND 1540 ARE APPLICABLE TO BOTH
PRIVATE (VOLUNTARY) AND JUDICIAL SALES WHEN THE IMMOVABLE SOLD IS LACKING
IN AREA OR IS OF INFERIOR QUALITY OR IS GREATER IN AREA THAN STATED IN THE
CONTRACT. (SEE ARTS. 1552 AND 1570.)
ART. 1542. IN THE SALE OF REAL ESTATE, MADE FOR A LUMP SUM AND NOT AT
THE RATE OF A CERTAIN SUM FOR A UNIT OF MEASURE OR NUMBER, THERE SHALL
BE NO INCREASE OR DECREASE OF THE PRICE, ALTHOUGH THERE BE A GREATER OR
LESS AREA OR NUMBER THAN THAT STATED IN THE CONTRACT.
THE SAME RULE SHALL BE APPLIED WHEN TWO OR MORE IMMOVABLES ARE
SOLD FOR A SINGLE PRICE; BUT IF, BESIDES MENTIONING THE BOUNDARIES, WHICH
IS INDISPENSABLE IN EVERY CONVEYANCE OF REAL ESTATE, ITS AREA OR NUMBER
SHOULD BE DESIGNATED IN THE CONTRACT, THE VENDOR SHALL BE BOUND TO
DELIVER ALL THAT IS INCLUDED WITHIN SAID BOUNDARIES, EVEN WHEN IT EXCEEDS
THE AREA OR NUMBER SPECIFIED IN THE CONTRACT; AND SHOULD HE NOT BE ABLE
TO DO SO, HE SHALL SUFFER A REDUCTION IN THE PRICE, IN PROPORTION TO WHAT
IS LACKING IN THE AREA OR NUMBER, UNLESS THE CONTRACT IS RESCINDED
BECAUSE THE VENDEE DOES NOT ACCEDE TO THE FAILURE TO DELIVER WHAT HAS
BEEN STIPULATED.
SALE OF REAL ESTATE MADE FOR A LUMP SUM.
(1) MISTAKE IN AREA STATED IN CONTRACT IMMATERIAL. — IF THE SALE IS MADE
FOR A LUMP SUM, AND NOT SO MUCH PER UNIT OF MEASURE OR NUMBER, THE CAUSE
OF THE CONTRACT IS THE THING SOLD INDEPENDENT AND IRRESPECTIVE OF ITS
NUMBER OR MEASURE. IN THIS CASE, THE LAW PRESUMES THAT THE PURCHASER
HAD IN MIND A DETERMINATE PRICE FOR THE REAL ESTATE AND THAT HE
ASCERTAINED ITS AREA AND QUALITY BEFORE THE CONTRACT WAS PERFECTED.
(2) WHERE AREA OR NUMBER STATED TOGETHER WITH BOUNDARIES. — IF THE
VENDOR CANNOT DELIVER TO THE VENDEE ALL THAT IS INCLUDED WITHIN THE
BOUNDARIES MENTIONED IN THE CONTRACT, THE LATTER HAS THE OPTION TO
REDUCE THE PRICE IN PROPORTION TO THE DEFICIENCY OR TO SET ASIDE THE
CONTRACT.
ART. 1543. THE ACTIONS ARISING FROM ARTICLES 1539 AND 1542 SHALL
PRESCRIBE IN SIX MONTHS, COUNTED FROM THE DAY OF DELIVERY. (1472A)
PRESCRIPTION OF ACTIONS.
THE ACTIONS BASED ON ARTICLES 1539 AND 1542 FOR EITHER RESCISSION OF
THE CONTRACT OR PROPORTIONATE REDUCTION OF THE PRICE MUST BE BROUGHT
WITHIN SIX MONTHS COUNTED FROM THE DAY OF DELIVERY.
49
ART. 1544. IF THE SAME THING SHOULD HAVE BEEN SOLD TO DIFFERENT
VENDEES, THE OWNERSHIP SHALL BE TRANSFERRED TO THE PERSON WHO MAY
HAVE FIRST TAKEN POSSESSION THEREOF IN GOOD FAITH, IF IT SHOULD BE MOVABLE
PROPERTY.
SHOULD IT BE IMMOVABLE PROPERTY, THE OWNERSHIP SHALL BELONG TO THE
PERSON ACQUIRING IT WHO IN GOOD FAITH FIRST RECORDED IT IN THE REGISTRY OF
PROPERTY.
SHOULD THERE BE NO INSCRIPTION, THE OWNERSHIP SHALL PERTAIN TO THE
PERSON, WHO IN GOOD FAITH WAS FIRST IN THE POSSESSION; AND, IN THE ABSENCE
THEREOF, TO THE PERSON WHO PRESENTS THE OLDEST TITLE, PROVIDED THERE IS
GOOD FAITH. (1473)
LAW ON SALES NOTES 10.
SECTION 3. — CONDITIONS AND WARRANTIES
ART. 1545. WHERE THE OBLIGATION OF EITHER PARTY TO A CONTRACT OF SALE
IS SUBJECT TO ANY CONDITION WHICH IS NOT PERFORMED, SUCH PARTY MAY
REFUSE TO PROCEED WITH THE CONTRACT OR HE MAY WAIVE PERFORMANCE OF THE
CONDITION. IF THE OTHER PARTY HAS PROMISED THAT THE CONDITION SHOULD
HAPPEN OR BE PERFORMED, SUCH FIRST MENTIONED PARTY MAY ALSO TREAT THE
NONPERFORMANCE OF THE CONDITION AS A BREACH OF WARRANTY.
WHERE THE OWNERSHIP IN THE THING HAS NOT PASSED, THE BUYER MAY
TREAT THE FULFILLMENT BY THE SELLER OF HIS OBLIGATION TO DELIVER THE SAME
AS DESCRIBED AND AS WARRANTED EXPRESSLY OR BY IMPLICATION IN THE
CONTRACT OF SALE AS A CONDITION OF THE OBLIGATION OF THE BUYER TO
PERFORM HIS PROMISE TO ACCEPT AND PAY FOR THE THING.
MEANING OF CONDITION.
A CONDITION, AS USED IN ARTICLE 1545, MEANS AN UNCERTAIN EVENT OR
CONTINGENCY ON THE HAPPENING OF WHICH THE OBLIGATION (OR RIGHT) OF THE
CONTRACT DEPENDS. IN SUCH A CASE, THE OBLIGATION OF THE CONTRACT DOES NOT
ATTACH UNTIL THE CONDITION IS PERFORMED. (SEE ART. 1462)
EFFECT OF NONFULFILLMENT OF CONDITION.
A CONTRACT OF SALE MAY BE ABSOLUTE OR CONDITIONAL. (ART. 1458.)
1.IF THE OBLIGATION1 OF EITHER PARTY IS SUBJECT TO ANY CONDITION AND
SUCH CONDITION IS NOT FULFILLED, SUCH PARTY MAY EITHER:
(A) REFUSE TO PROCEED WITH THE CONTRACT; OR
(B) PROCEED WITH THE CONTRACT, WAIVING THE PERFORMANCE OF THE
CONDITION.
2. IF THE CONDITION IS IN THE NATURE OF A PROMISE THAT IT SHOULD HAPPEN,
THE NONPERFORMANCE OF SUCH CONDITION MAY BE TREATED BY THE OTHER PARTY
AS A BREACH OF WARRANTY. (SEE ART. 1546.)
50
ART. 1546. ANY AFFIRMATION OF FACT OR ANY PROMISE BY THE SELLER
RELATING TO THE THING IS AN EXPRESS WARRANTY IF THE NATURAL TENDENCY OF
SUCH AFFIRMATION OR PROMISE IS TO INDUCE THE BUYER TO PURCHASE THE SAME,
AND IF THE BUYER PURCHASES THE THING RELYING THEREON. NO AFFIRMATION OF
THE VALUE OF THE THING, NOR ANY STATEMENT PURPORTING TO BE A STATEMENT
OF THE SELLER’S OPINION ONLY, SHALL BE CONSTRUED AS A WARRANTY, UNLESS
THE SELLER MADE SUCH AFFIRMATION OR STATEMENT AS AN EXPERT AND IT WAS
RELIED UPON BY THE BUYER. (N)
EFFECT OF EXPRESS WARRANTY.
WARRANTIES BY THE SELLER MAY BE EXPRESS, AS IN THE ABOVE ARTICLE, OR
IMPLIED, AS IN ARTICLE 1547. AN EXPRESS WARRANTY IS ANY AFFIRMATION OF FACT
OR ANY PROMISE BY THE SELLER RELATING TO THE THING, THE NATURAL TENDENCY
OF WHICH IS TO INDUCE THE BUYER TO PURCHASE THE THING AND THE BUYER THUS
INDUCED, DOES PURCHASE THE SAME.
EFFECT OF EXPRESSION OF OPINION.
A MERE EXPRESSION OF OPINION, NO MATTER HOW POSITIVELY ASSERTED,
DOES NOT IMPORT A WARRANTY UNLESS THE SELLER IS AN EXPERT AND HIS OPINION
WAS RELIED UPON BY THE BUYER. THUS, ASSERTIONS THAT THINGS ARE FINE OR
VALUABLE OR BETTER THAN PRODUCTS OF RIVAL MANUFACTURERS ARE IN THEIR
NATURE SO DEPENDENT ON INDIVIDUAL OPINION THAT NO MATTER HOW POSITIVE THE
SELLER’S ASSERTION MAY BE, THEY ARE NOT HELD TO CREATE A WARRANTY.
ART. 1547. IN A CONTRACT OF A SALE, UNLESS A CONTRARY INTENTION APPEARS,
THERE IS:
(1) AN IMPLIED WARRANTY ON THE PART OF THE SELLER THAT HE HAS A RIGHT
TO SELL THE THING AT THE TIME WHEN THE OWNERSHIP IS TO PASS, AND THAT THE
BUYER SHALL FROM THAT TIME HAVE AND ENJOY THE LEGAL AND PEACEFUL
POSSESSION OF THE THING;
(2) AN IMPLIED WARRANTY THAT THE THING SHALL BE FREE FROM ANY HIDDEN
FAULTS OR DEFECTS, OR ANY CHARGE OR ENCUMBRANCE NOT DECLARED OR
KNOWN TO THE BUYER.
THIS ARTICLE SHALL NOT, HOWEVER, BE HELD TO RENDER LIABLE A SHERIFF,
AUCTIONEER, MORTGAGEE, PLEDGEE, OR OTHER PERSON PROFESSING TO SELL BY
VIRTUE OF AUTHORITY IN FACT OR LAW, FOR THE SALE OF A THING IN WHICH A THIRD
PERSON HAS A LEGAL OR EQUITABLE INTEREST. (N)
IMPLIED WARRANTIES IN SALE.
THE TERM IMPLIED WARRANTY IS RESERVED FOR CASES WHERE THE LAW
ATTACHES AN OBLIGATION TO THE SELLER WHICH IS NOT EXPRESSED IN ANY WORDS.
(1 WILLISTON, OP. CIT., P. 498.) IMPLIED WARRANTIES UNDER ARTICLES 1547 AND 1562
ARE:
(1) IMPLIED WARRANTY AS TO SELLER’S TITLE. — THAT THE SELLER
GUARANTEES THAT HE HAS A RIGHT TO SELL THE THING SOLD AND TO TRANSFER
51
OWNERSHIP TO THE BUYER WHO SHALL NOT BE DISTURBED IN HIS LEGAL AND
PEACEFUL POSSESSION THEREOF (ART. 1548.);
(2) IMPLIED WARRANTY AGAINST HIDDEN DEFECTS OR UNKNOWN
ENCUMBRANCE. — THAT THE SELLER GUARANTEES THAT THE THING SOLD IS FREE
FROM ANY HIDDEN FAULTS OR DEFECTS OR ANY CHARGE OR ENCUMBRANCE NOT
DECLARED OR KNOWN TO THE BUYER (ART. 1561.);
(3) IMPLIED WARRANTY AS TO FITNESS OR MERCHANTABILITY. — THAT THE
SELLER GUARANTEES THAT THE THING SOLD IS REASONABLY FIT FOR THE KNOWN
PARTICULAR PURPOSE FOR WHICH IT WAS ACQUIRED BY THE BUYER OR, WHERE IT
WAS BOUGHT BY DESCRIPTION, THAT IT IS OF MERCHANTABLE QUALITY. (ART. 1562.)
SUBSECTION 1. — WARRANTY IN CASE OF EVICTION
ART. 1548. EVICTION SHALL TAKE PLACE WHENEVER BY A FINAL JUDGMENT
BASED ON A RIGHT PRIOR TO THE SALE OR AN ACT IMPUTABLE TO THE VENDOR, THE
VENDEE IS DEPRIVED OF THE WHOLE OR OF A PART OF THE THING PURCHASED.
THE VENDOR SHALL ANSWER FOR THE EVICTION EVEN THOUGH NOTHING HAS
BEEN SAID IN THE CONTRACT ON THE SUBJECT.
THE CONTRACTING PARTIES, HOWEVER, MAY INCREASE, DIMINISH, OR
SUPPRESS THIS LEGAL OBLIGATION OF THE VENDOR.
MEANING OF EVICTION.
EVICTION MAY BE DEFINED AS THE JUDICIAL PROCESS, WHEREBY THE VENDEE
IS DEPRIVED OF THE WHOLE OR PART OF THE THING PURCHASED BY VIRTUE OF A
FINAL JUDGMENT BASED ON A RIGHT PRIOR TO THE SALE OR AN ACT IMPUTABLE TO
THE VENDOR.
ESSENTIAL ELEMENTS OF WARRANTY AGAINST EVICTION.
THE ESSENTIAL ELEMENTS ARE:
1. THE VENDEE IS DEPRIVED IN WHOLE OR IN PART OF THE THING PURCHASED;
2. HE IS SO DEPRIVED BY VIRTUE OF A FINAL JUDGMENT (ART. 1557.);
3. THE JUDGMENT IS BASED ON A RIGHT PRIOR TO THE SALE OR AN ACT IMPUTABLE
TO THE VENDOR;
4. THE VENDOR WAS SUMMONED IN THE SUIT FOR EVICTION AT THE INSTANCE OF
THE VENDEE (ART. 1558.);
5. THERE IS NO WAIVER ON THE PART OF THE VENDEE.
WARRANTY AGAINST EVICTION REFERS TO TRESPASS IN LAW.
MERE TRESPASS IN FACT DOES NOT GIVE RISE TO THE APPLICATION OF THE
DOCTRINE OF EVICTION. (SEE ART. 1590.) IN SUCH CASE, THE VENDEE HAS A DIRECT
ACTION AGAINST THE TRESPASSER IN THE SAME WAY AS THE LESSEE HAS SUCH
RIGHT. (ART. 1664.)
THE DISTURBANCE REFERRED TO IN THE CASE OF EVICTION IS A DISTURBANCE
IN LAW WHICH REQUIRES THAT A PERSON GO TO THE COURTS OF JUSTICE CLAIMING
THE THING SOLD, OR PART THEREOF, AND INVOKING REASONS. IF FINAL JUDGMENT IS
52
RENDERED DEPRIVING THE VENDEE OF THE THING SOLD OR ANY PART THEREOF, THE
DOCTRINE OF EVICTION BECOMES APPLICABLE.
VENDOR’S LIABILITY IS WAIVABLE.
WARRANTY IS NOT AN ESSENTIAL ELEMENT OF A CONTRACT OF SALE AND MAY,
THEREFORE, BE INCREASED, DIMINISHED, OR SUPPRESSED BY AGREEMENT OF THE
PARTIES. (ART. 1548, PAR.3.)
ANY STIPULATION, HOWEVER, EXEMPTING THE VENDOR FROM THE OBLIGATION
TO ANSWER FOR EVICTION SHALL BE VOID IF HE ACTED IN BAD FAITH. (ART. 1553.)
ART. 1549. THE VENDEE NEED NOT APPEAL FROM THE DECISION IN ORDER THAT
THE VENDOR MAY BECOME LIABLE FOR EVICTION.
VENDEE HAS NO DUTY TO APPEAL FROM JUDGMENT.
THE VENDEE’S RIGHT AGAINST THE VENDOR IS NOT LOST BECAUSE HE, THE
VENDEE, DID NOT APPEAL. WITH A JUDGMENT BECOMING FINAL WHATEVER BE THE
CAUSE OF FINALITY, THE REQUIREMENT OF THE LAW IS DEEMED SATISFIED.
FURTHERMORE, THE VENDOR, HAVING BEEN NOTIFIED OF THE ACTION, COULD
HAVE VERY WELL FOLLOWED UP THE CASE AND MADE USE OF ALL POSSIBLE
REMEDIES. IF HE DID NOT DO THAT, HE SHOULD SUFFER FOR HIS OMISSION. IN
REALITY, HE DOES NOT HAVE THE RIGHT TO DEMAND OF THE VENDEE SUCH DILIGENCE
THAT HE HIMSELF DID NOT HAVE AND WHICH HE WAS MORE OBLIGED TO OBSERVE,
ESPECIALLY IF THE CAUSE OF EVICTION WAS ANTERIOR TO THE SALE.
ART. 1550. WHEN ADVERSE POSSESSION HAD BEEN COMMENCED BEFORE THE
SALE BUT THE PRESCRIPTIVE PERIOD IS COMPLETED AFTER THE TRANSFER, THE
VENDOR SHALL NOT BE LIABLE FOR EVICTION.
EFFECT OF PRESCRIPTION.
BY PRESCRIPTION, ONE ACQUIRES OWNERSHIP AND OTHER REAL RIGHTS
THROUGH THE LAPSE OF TIME IN THE MANNER AND UNDER THE CONDITIONS
PRESCRIBED BY LAW. IN THE SAME WAY, RIGHTS AND ACTIONS ARE LOST BY
PRESCRIPTION. (ART. 1106.)
(1) COMPLETED BEFORE SALE. — THE VENDEE MAY LOSE THE THING
PURCHASED TO A THIRD PERSON WHO HAS ACQUIRED TITLE THERETO BY
PRESCRIPTION. WHEN PRESCRIPTION HAS COMMENCED TO RUN AGAINST THE
VENDOR AND WAS ALREADY COMPLETE BEFORE THE SALE, THE VENDEE CAN
ENFORCE THE WARRANTY AGAINST EVICTION.
(2) COMPLETED AFTER SALE. — EVEN IF PRESCRIPTION HAS STARTED BEFORE
THE SALE BUT HAS REACHED THE LIMIT PRESCRIBED BY LAW AFTER THE SALE, THE
VENDOR IS NOT LIABLE FOR EVICTION. THE REASON IS THAT THE VENDEE COULD
EASILY INTERRUPT THE RUNNING OF THE PRESCRIPTIVE PERIOD BY BRINGING THE
NECESSARY ACTION.
53
ART. 1551. IF THE PROPERTY IS SOLD FOR NONPAYMENT OF TAXES DUE AND
NOT MADE KNOWN TO THE VENDEE BEFORE THE SALE, THE VENDOR IS LIABLE FOR
EVICTION. (N)
DEPRIVATION FOR NONPAYMENT OF TAXES.
IF THE VENDEE IS DEPRIVED OF THE OWNERSHIP OF THE PROPERTY BECAUSE
IT IS SOLD AT PUBLIC FOR NONPAYMENT OF TAXES DUE FROM THE VENDOR, THE
LATTER IS LIABLE FOR EVICTION FOR AN ACT IMPUTABLE TO HIM. IT IS REQUIRED,
HOWEVER, THAT AT THE TIME OF THE SALE, THE NONPAYMENT OF TAXES WAS NOT
KNOWN TO THE VENDEE.
ART. 1552. THE JUDGMENT DEBTOR IS ALSO RESPONSIBLE FOR EVICTION IN
JUDICIAL SALES, UNLESS IT IS OTHERWISE DECREED IN THE JUDGMENT. (N)
LIABILITY OF JUDGMENT DEBTOR.
WHILE THE RULE ON IMPLIED WARRANTY DOES NOT APPLY TO A SHERIFF WHO
SELLS BY VIRTUE OF AUTHORITY IN LAW (ART. 1549, PAR. 2.), THE JUDGMENT DEBTOR
IS RESPONSIBLE FOR EVICTION (ART. 1552.) AND HIDDEN DEFECTS (ART. 1570.) EVEN
IN JUDICIAL SALES, UNLESS OTHERWISE DECREED IN THE JUDGMENT.
ARTICLE 1552 IS BASED ON THE GENERAL PRINCIPLE THAT A PERSON MAY NOT
ENRICH HIMSELF AT THE EXPENSE OF ANOTHER.
ART. 1553. ANY STIPULATION EXEMPTING THE VENDOR FROM THE OBLIGATION
TO ANSWER FOR EVICTION SHALL BE VOID, IF HE ACTED IN BAD FAITH.
STIPULATION WAIVING WARRANTY.
1. EFFECT OF VENDOR’S BAD FAITH. — THE VENDOR’S BAD FAITH UNDER ARTICLE 1553
CONSISTS IN HIS KNOWING BEFOREHAND AT THE TIME OF THE SALE, OF THE
PRESENCE OF THE FACT GIVING RISE TO EVICTION, AND ITS POSSIBLE CONSEQUENCE.
2. EFFECT OF VENDEE’S BAD FAITH. — IT IS A REQUISITE, HOWEVER, THAT THE VENDEE
IS NOT HIMSELF GUILTY OF BAD FAITH IN THE EXECUTION OF THE SALE. IF HE KNEW
THE DEFECT OF TITLE AT THE TIME OF SALE, OR HAD KNOWLEDGE OF THE FACTS
WHICH SHOULD HAVE PUT HIM UPON INQUIRY AND INVESTIGATION AS MIGHT BE
NECESSARY TO ACQUAINT HIM WITH THE DEFECTS OF THE TITLE OF THE VENDOR, HE
CANNOT CLAIM THAT THE VENDOR HAS WARRANTED HIS LEGAL AND PEACEFUL
POSSESSION OF THE PROPERTY SOLD ON THE THEORY THAT HE PROCEEDED WITH
THE SALE WITH THE ASSUMPTION OF THE DANGER OF EVICTION.
ART. 1554. IF THE VENDEE HAS RENOUNCED THE RIGHT TO WARRANTY IN CASE
OF EVICTION, AND EVICTION SHOULD TAKE PLACE, THE VENDOR SHALL ONLY PAY
THE VALUE WHICH THE THING SOLD HAD AT THE TIME OF THE EVICTION. SHOULD THE
VENDEE HAVE MADE THE WAIVER WITH KNOWLEDGE OF THE RISKS OF EVICTION AND
ASSUMED ITS CONSEQUENCES, THE VENDOR SHALL NOT BE LIABLE.
KINDS OF WAIVER OF EVICTION.
ARTICLE 1554 TREATS OF TWO KINDS OF WAIVER, NAMELY:
54
(1) CONSCIENTE, THAT IS, THE WAIVER IS VOLUNTARILY MADE BY THE VENDEE
WITHOUT THE KNOWLEDGE AND ASSUMPTION OF THE RISKS OF EVICTION; AND
(2) INTENCIONADA, THAT IS, THE WAIVER IS MADE BY THE VENDEE WITH
KNOWLEDGE OF THE RISKS OF EVICTION AND ASSUMPTION OF ITS CONSEQUENCES.
EFFECT OF WAIVER BY VENDEE.
1. IF THE WAIVER WAS ONLY CONSCIOUS, THE VENDOR SHALL PAY ONLY THE
VALUE WHICH THE THING SOLD HAD AT THE TIME OF EVICTION.
2. IN THE SECOND KIND OF WAIVER, THE VENDOR IS EXEMPTED FROM THE
OBLIGATION TO ANSWER FOR EVICTION, PROVIDED HE DID NOT ACT IN BAD FAITH.
ART. 1555. WHEN THE WARRANTY HAS BEEN AGREED UPON OR NOTHING HAS
BEEN STIPULATED ON THIS POINT, IN CASE EVICTION OCCURS, THE VENDEE SHALL
HAVE THE RIGHT TO DEMAND OF THE VENDOR:
(1) THE RETURN OF THE VALUE WHICH THE THING SOLD HAD AT THE TIME OF
THE EVICTION, BE IT GREATER OR LESS THAN THE PRICE OF THE SALE;
(2) THE INCOME OR FRUITS, IF HE HAS BEEN ORDERED TO DELIVER THEM TO THE
PARTY WHO WON THE SUIT AGAINST HIM;
(3) THE COSTS OF THE SUIT WHICH CAUSED THE EVICTION AND, IN A PROPER
CASE, THOSE OF THE SUIT BROUGHT AGAINST THE VENDOR FOR THE WARRANTY;
(4) THE EXPENSES OF THE CONTRACT, IF THE VENDEE HAS PAID THEM;
(5) THE DAMAGES AND INTERESTS AND ORNAMENTAL EXPENSES, IF THE SALE
WAS MADE IN BAD FAITH. (1478)
RIGHTS AND LIABILITIES IN CASE EVICTION OCCURS.
THE PROVISIONS OF THE ABOVE ARTICLE SPECIFY IN DETAIL THE RIGHTS AND
LIABILITIES OF THE VENDOR AND THE VENDEE IN THE EVENT EVICTION TAKES PLACE
“WHEN THE WARRANTY HAS BEEN AGREED UPON OR NOTHING HAS BEEN STIPULATED
ON THIS POINT,” THAT IS, IN THE ABSENCE OF WAIVER OF EVICTION BY THE VENDEE.
(ART. 1554.)
1. RETURN OF VALUE OF THING. — IF AT THE TIME OF THE EVICTION THE VALUE
OF THE PROPERTY IS REALLY MORE OR LESS THAN ITS VALUE AT THE TIME OF THE
SALE, BY REASON OF IMPROVEMENTS OR DETERIORATION, IT IS BUT JUST THAT THE
VENDOR SHOULD PAY THE EXCESS OR NOT SUFFER THE DAMAGE. ALL KINDS OF
IMPROVEMENTS WHETHER USEFUL OR NECESSARY OR EVEN RECREATIONAL
EXPENSE VOLUNTARILY INCURRED BY THE VENDEE (ARTS. 546548.) OR CAUSED BY
NATURE OR TIME (ART. 551, IBID.) INSOFAR AS THEY MAY AFFECT THE VALUE OF
PROPERTY, ARE TAKEN INTO ACCOUNT IN DETERMINING THE INCREASE IN VALUE.
2. INCOME OR FRUITS OF THING. — THE VENDEE IS LIABLE TO THE PARTY WHO
WON THE SUIT AGAINST HIM FOR THE INCOME OR FRUITS RECEIVED ONLY IF SO
DECREED BY THE COURT. THE OBVIOUS INFERENCE FROM THIS PROVISION IS THAT
TO THE VENDEE BELONGS THE USE, FREE OF ANY LIABILITY, OF THE SUBJECT MATTER
OF THE SALE. AND THIS BENEFIT IS NOT BY ANY MEANS GRATUITOUS. IT IS OFFSET BY
THE USE WITHOUT INTEREST OF THE MONEY OF THE VENDEE BY THE VENDOR.
55
3. COSTS OF THE SUIT. — THE VENDEE IS ALSO ENTITLED TO RECOVER THE
EXPENSE OF LITIGATION RESULTING IN EVICTION, INCLUDING THE COSTS OF THE
ACTION BROUGHT AGAINST THE VENDOR TO ENFORCE HIS WARRANTY. “COSTS OF
THE SUIT” MENTIONED IN NO. (3) DOES NOT INCLUDE TRAVELLING EXPENSES
INCURRED BY THE VENDEE IN DEFENDING HIMSELF IN THE ACTION. HE IS NOT
ENTITLED TO RECOVER DAMAGES UNLESS THE SALE WAS MADE BY THE VENDOR IN
BAD FAITH. (NO. 5.)
4. EXPENSES OF THE CONTRACT. — IN THE ABSENCE OF ANY STIPULATION TO
THE CONTRARY, THE EXPENSES IN THE EXECUTION AND REGISTRATION OF THE SALE
ARE BORNE BY THE VENDOR. HOWEVER, IF THE VENDEE SHOULD HAVE PAID FOR SUCH
EXPENSES, HE SHALL HAVE THE RIGHT TO DEMAND THE SAME FROM THE VENDOR.
5. DAMAGES AND INTERESTS. — THE RIGHT OF THE VENDEE TO DEMAND
“DAMAGES AND INTERESTS AND ORNAMENTAL EXPENSES” IS QUALIFIED BY THE
CONDITION THAT THE SALE WAS MADE IN BAD FAITH. IF GOOD FAITH IS PRESUMED,
THE VENDEE IS NOT ENTITLED TO RECOVER DAMAGES UNLESS BAD FAITH ON THE
PART OF THE VENDOR IS SHOWN IN MAKING THE SALE.
ART. 1556. SHOULD THE VENDEE LOSE, BY REASON OF THE EVICTION, A PART
OF THING SOLD OF SUCH IMPORTANCE, IN RELATION TO THE WHOLE, THAT HE WOULD
NOT HAVE BOUGHT IT WITHOUT SAID PART, HE MAY DEMAND THE RESCISSION OF THE
CONTRACT; BUT WITH THE OBLIGATION TO RETURN THE THING WITHOUT OTHER
ENCUMBRANCES THAN THOSE WHICH IT HAD WHEN HE ACQUIRED IT.
HE MAY EXERCISE THIS RIGHT OF ACTION, INSTEAD OF ENFORCING THE
VENDOR’S LIABILITY FOR EVICTION.
THE SAME RULE SHALL BE OBSERVED WHEN TWO OR MORE THINGS HAVE BEEN
JOINTLY SOLD FOR A LUMP SUM, OR FOR A SEPARATE PRICE FOR EACH OF THEM, IF
IT SHOULD CLEARLY APPEAR THAT THE VENDEE WOULD NOT HAVE PURCHASED ONE
WITHOUT THE OTHER.
ALTERNATIVE RIGHTS OF VENDEE IN CASE OF PARTIAL EVICTION.
THIS ARTICLE CONTEMPLATES OF PARTIAL EVICTION, WHILE ARTICLE 1554 TREATS
OF TOTAL EVICTION. IT STATES THE RULE THAT IF THERE IS PARTIAL EVICTION, THE
VENDEE HAS THE OPTION EITHER TO ENFORCE THE VENDOR’S LIABILITY FOR EVICTION
(ART. 1555.) OR TO DEMAND RESCISSION OF THE CONTRACT. THE ABOVE RULE IS
APPLICABLE —
(1) WHEN THE VENDEE IS DEPRIVED OF A PART OF THE THING SOLD IF SUCH PART
IS OF SUCH IMPORTANCE TO THE WHOLE THAT HE WOULD NOT HAVE BOUGHT THE
THING WITHOUT SAID PART (PAR. 1.); OR
(2) WHEN TWO OR MORE THINGS ARE JOINTLY SOLD WHETHER FOR A LUMP SUM
OR FOR A SEPARATE PRICE FOR EACH, AND THE VENDEE WOULD NOT HAVE
PURCHASED ONE WITHOUT THE OTHER. (PAR. 2.)
ART. 1557. THE WARRANTY CANNOT BE ENFORCED UNTIL A FINAL JUDGMENT
HAS BEEN RENDERED, WHEREBY THE VENDEE LOSES THE THING ACQUIRED OR A
PART THEREOF.
56
ART. 1558. THE VENDOR SHALL NOT BE OBLIGED TO MAKE GOOD THE PROPER
WARRANTY, UNLESS HE IS SUMMONED IN THE SUIT FOR EVICTION AT THE INSTANCE
OF THE VENDEE.
FORMAL SUMMONS TO VENDOR ESSENTIAL.
ANOTHER ESSENTIAL REQUISITE BEFORE A VENDOR MAY BE LEGALLY LIABLE
FOR EVICTION IS THAT HE SHOULD BE SUMMONED IN THE SUIT FOR EVICTION AT THE
INSTANCE OF THE VENDEE, TO GIVE THE VENDOR AN OPPORTUNITY TO INTERVENE
AND DEFEND THE TITLE THAT HE HAS TRANSFERRED.
ART. 1559. THE DEFENDANT VENDEE SHALL ASK, WITHIN THE TIME FIXED IN THE
RULES OF COURT FOR ANSWERING THE COMPLAINT, THAT THE VENDOR BE MADE A
CODEFENDANT.
ART. 1560. IF THE IMMOVABLE SOLD SHOULD BE ENCUMBERED WITH ANY NONAPPARENT BURDEN OR SERVITUDE, NOT MENTIONED IN THE AGREEMENT, OF SUCH A
NATURE THAT IT MUST BE PRESUMED THAT THE VENDEE WOULD NOT HAVE
ACQUIRED IT HAD HE BEEN AWARE THEREOF, HE MAY ASK FOR THE RESCISSION OF
THE CONTRACT, UNLESS HE SHOULD PREFER THE APPROPRIATE INDEMNITY.
NEITHER RIGHT CAN BE EXERCISED IF THE NON-APPARENT BURDEN OR SERVITUDE
IS RECORDED IN THE REGISTRY OF PROPERTY, UNLESS THERE IS AN EXPRESS
WARRANTY THAT THE THING IS FREE FROM ALL BURDENS AND ENCUMBRANCES.
WITHIN ONE YEAR, TO BE COMPUTED FROM THE EXECUTION OF THE DEED, THE
VENDEE MAY BRING THE ACTION FOR RESCISSION, OR SUE FOR DAMAGES.
ONE YEAR HAVING ELAPSED, HE MAY ONLY BRING AN ACTION FOR DAMAGES
WITHIN AN EQUAL PERIOD, TO BE COUNTED FROM THE DATE ON WHICH HE
DISCOVERED THE BURDEN OR SERVITUDE.
LAW ON SALES – NOTES 11
SUBSECTION 2. - WARRANTY AGAINST HIDDEN DEFECTS OF OR ENCUMBRANCES
UPON THE THING SOLD
ART. 1561. THE VENDOR SHALL BE RESPONSIBLE FOR WARRANTY AGAINST THE
HIDDEN DEFECTS WHICH THE THING SOLD MAY HAVE, SHOULD THEY RENDER IT UNFIT
FOR THE USE FOR WHICH IT IS INTENDED, OR SHOULD THEY DIMINISH ITS FITNESS FOR
SUCH USE TO SUCH AN EXTENT THAT, HAD THE VENDEE BEEN AWARE THEREOF, HE
WOULD NOT HAVE ACQUIRED IT OR WOULD HAVE GIVEN A LOWER PRICE FOR IT; BUT
SAID VENDOR SHALL NOT BE ANSWERABLE FOR PATENT DEFECTS OR THOSE WHICH
MAY BE VISIBLE, OR FOR THOSE WHICH ARE NOT VISIBLE IF THE VENDEE IS AN
EXPERT WHO, BY REASON OF HIS TRADE OR PROFESSION, SHOULD HAVE KNOWN
THEM.
57
ART. 1562. IN A SALE OF GOODS, THERE IS AN IMPLIED WARRANTY OR
CONDITION AS TO THE QUALITY OR FITNESS OF THE GOODS, AS FOLLOWS:
(1) WHERE THE BUYER, EXPRESSLY OR BY IMPLICATION, MAKES KNOWN TO THE
SELLER THE PARTICULAR PURPOSE FOR WHICH THE GOODS ARE ACQUIRED, AND IT
APPEARS THAT THE BUYER RELIES ON THE SELLER'S SKILL OR JUDGMENT (WHETHER
HE BE THE GROWER OR MANUFACTURER OR NOT), THERE IS AN IMPLIED WARRANTY
THAT THE GOODS SHALL BE REASONABLY FIT FOR SUCH PURPOSE;
(2) WHERE THE GOODS ARE BROUGHT BY DESCRIPTION FROM A SELLER WHO
DEALS IN GOODS OF THAT DESCRIPTION (WHETHER HE BE THE GROWER OR
MANUFACTURER OR NOT), THERE IS AN IMPLIED WARRANTY THAT THE GOODS SHALL
BE OF MERCHANTABLE QUALITY. (N)
IMPLIED WARRANTIES OF QUALITY.
QUALITY OF GOODS INCLUDES THEIR STATE OR CONDITION. (ART. 1636) THE
PURPOSE OF HOLDING THE SELLER ON HIS IMPLIED WARRANTIES IS TO PROMOTE
HIGH STANDARD IN BUSINESS AND TO DISCOURAGE SHARP DEALINGS.
(1) IMPLIED WARRANTY OF FITNESS. – THERE IS NO IMPLIED WARRANTY AS TO
THE QUALITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF GOODS UNDER A
CONTRACT OF SALE, EXCEPT AS FOLLOWS: WHERE (A) THE BUYER, EXPRESSLY OR BY
IMPLICATION, MANIFESTS TO THE SELLER THE PARTICULAR PURPOSE FOR WHICH THE
GOODS ARE REQUIRED, AND (B) THE BUYER RELIES UPON THE SELLER’S SKILL OR
JUDGMENT. THEN, WHETHER HE BE THE GROWER OR MANUFACTURER OR NOT –
THERE IS AN IMPLIED WARRANTY THAT THE GOODS ARE REASONABLY FIT FOR SUCH
PURPOSE.
(2) IMPLIED WARRANTY OF MERCHANTABILITY. – WHERE GOODS ARE BROUGHT
BY DESCRIPTION, THE SELLER IMPLIEDLY WARRANTS THAT THE GOODS ARE OF
MERCHANTABLE QUALITY. MERCHANTABILITY IS NOT A WARRANTY OF QUALITY IN THE
SENSE OF REQUIRING A PARTICULAR GRADE, BUT IT DOES REQUIRE IDENTITY
BETWEEN WHAT IS DESCRIBED IN THE CONTRACT AND WHAT IS TENDERED, IN THE
SENSE THAT THE LATTER IS SUCH OF QUALITY TO HAVE SOME VALUE. JUDICIAL
SYNONYMS FOR “MERCHANTABILITY” INCLUDE “SALABLE,” “STANDARD,” OR “AVERAGE
QUALITY” (OF GOODS SOLD UNDER A PARTICULAR DESCRIPTION.)
WARRANTY OF FITNESS AND WARRANTY OF MERCHANTABILITY DISTINGUISHED.
A WARRANTY OF MERCHANTABILITY IS A WARRANTY THAT THE GOODS ARE
REASONABLY FIT FOR THE GENERAL PURPOSE FOR WHICH THEY ARE SOLD, WHILE
WARRANTY OF WITNESS IS A WARRANTY THAT THE GOODS ARE SUITABLE FOR THE
SPECIAL PURPOSE OF THE BUYER WHICH WILL NOT BE SATISFIED BY MERE FITNESS
FOR GENERAL PURPOSES. (DUNFOR BROS. CO. VS. CONSOLIDATED IRON-STEEL MFG.
CO., C.C.A. COMM. 1928, 23 F. 2ND. 461.)
ART. 1563. IN THE CASE OF CONTRACT OF SALE OF A SPECIFIED ARTICLE UNDER
ITS PATENT OR OTHER TRADE NAME, THERE IS NO WARRANTY AS TO ITS FITNESS FOR
ANY PARTICULAR PURPOSE, UNLESS THERE IS A STIPULATION TO THE CONTRARY.
SALE UNDER A PATENT OR TRADE NAME.
58
UNDER ARTICLE 1562 (NO. 1.), THE BUYER MAKES KNOWN TO THE SELLER THE
PARTICULAR PURPOSE FOR WHICH THE GOODS ARE DESIRED. ARTICLE 1563 IS
NATURALLY A PROVISION LIMITING THE APPLICATION OF ARTICLE 1562.
(1) BY EXACTLY DEFINING WHAT HE WANTS, THE BUYER HAS EXERCISED HIS
OWN JUDGMENT INSTEAD OF RELYING UPON THAT OF THE SELLER. THIS DEFINITION
MAY BE GIVEN BY MEANS OF A TRADE-NAME OR IN ANY OTHER WAY. THE DESCRIPTION
MUST BE THE BUYER’S CHOICE, HOWEVER, OR THE GOODS MUST NOT ONLY BE
DESCRIBED OR DEFINITE BUT KNOWN, IN ORDER TO PRECLUDE WARRANTY OF
FITNESS. (IBID., SEC. 236, P. 612.)
ARTICLE 1563 PROVIDES AN EXCEPTION IN CASE OF “A STIPULATION TO THE
CONTRARY.” THUS, THERE IS STILL AN IMPLIED WARRANTY OF FITNESS FOR
PARTICULAR PURPOSE WHERE THE BUYER RELIED UPON THE SELLER’S JUDGMENT
RATHER THAN THE PATENT OR TRADE NAME.
“PARTICULAR PURPOSE” AS USED IN ARTICLE 1563 MEANS A USAGE DIFFERENT
FROM THE ORDINARY USES THE ARTICLE WAS MADE TO MEET. (GRANT MFG. CO. V.
YATES AMERICAN MACHINE CO., 111 F. 2D. 360.)
(2) THE PROVISION DOES NOT PRECLUDE AN IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PURPOSE FOR WHICH SUCH SPECIFIED ARTICLE
IS ORDINARILY OR GENERALLY SOLD. THUS, IF THE SELLER IS A DEALER IN FOOD, AND
THE BUYER IS BUYING FOR IMMEDIATE CONSUMPTION AND RELIES ON THE SELLER’S
SKILL OR JUDGMENT, THERE IS AN IMPLIED WARRANTY THAT THE ARTICLE SOLD IS FIT
FOR HUMAN CONSUMPTION.
IT MUST BE MADE CLEAR THAT THE WARRANTY THAT THE GOODS ARE OF
MERCHANTABLE QUALITY (ART. 1562 [2].) APPLIES TO ALL GOODS BOUGHT FROM A
SELLER WHO DEALS IN GOODS IN THAT DESCRIPTION, WHETHER THEY ARE SOLD
UNDER A PATENT OR TRADE NAME OR OTHERWISE.
ART. 1564. AN IMPLIED WARRANTY OR CONDITION AS TO THE QUALITY OR
FITNESS FOR A PARTICULAR PURPOSE MAY BE ANNEXED BY THE USAGE OF TRADE.
EFFECT OF USAGE OF TRADE.
A WARRANTY AS TO THE QUALITY OR FITNESS FOR A PARTICULAR PURPOSE MAY
BE ATTACHED BY USAGE TO A CONTRACT CONTAINING NO EXPRESS PROVISION IN
REGARD TO WARRANTY WOULD BE IMPLIED. THE USAGE IS RELIED ON FOR THE
PURPOSE OF SHOWING THE INTENTION OF THE PARTIES. IF THERE IS NO USAGE THE
PARTIES WOULD NATURALLY EXPRESS THEIR INTENTION. BUT A USAGE IN ORDER TO
BIND BOTH OTHER MUST BE JUSTIFIED IN ASSUMING KNOWLEDGE ON THE PART OF
THE PERSON WITH WHOM HE IS DEALING.
ART. 1565. IN THE CASE OF A CONTRACT OF SALE BY SAMPLE, IF THE SELLER IS
A DEALER IN GOODS OF THAT KIND, THERE IS AN IMPLIED WARRANTY THAT THE
GOODS SHALL BE FREE FROM ANY DEFECT RENDERING THEM UNMERCHANTABLE
WHICH WOULD NOT BE APPARENT ON REASONABLE EXAMINATION OF THE SAMPLE.
(N)
59
MERCHANTABILITY OF GOODS SOLD BY SAMPLE
AS A GENERAL RULE, ALL BUYERS IS ENTITLED TO, IN CASE OF A SALE OR
CONTRACT TO SELL BY SAMPLE, IS THAT THE GOODS BE LIKE THE SAMPLE. SO HE HAS
NO RIGHT TO HAVE THE GOODS MERCHANTABLE IF THE SAMPLE WHICH HE HAS
INSPECTED IS NOT. THE REASON UPON WHICH THIS RULE IS BASED IS IDENTICAL WITH
THAT WHICH DENIES AN IMPLIED WARRANTY GENERALLY A BUYER WHO HAS
INSPECTED THE GOODS WHICH HE BUYS. (SEE PMC VS. GO JUCO, 48 PHIL. 621; CHANG
YONG TEK VS. SANTOS, 31 PHIL. 152.)
WHERE SAMPLE SUBJECT TO LATENT DEFECT.
WHERE THE DEFECT IN THE GOODS IS SUCH A CHARACTER THAT INSPECTION
WILL NOT REVEAL IT, SO IN THE CASE OF A SALE BY SAMPLE, IF THE SAMPLE IS
SUBJECT TO A LATENT DEFECT AND THE BUYER REASONABLY RELIES ON THE
SELLER’S SKILL OR JUDGMENT, THE BUYER IS ENTITLED NOT SIMPLY TO GOODS LIKE
THE SAMPLE, BUT THE GOODS LIKE THOSE WHICH THE SAMPLE SEEMS TO
REPRESENT, THAT IS, MERCHANTABLE GOODS OF THAT KIND AND CHARACTER.
UNDER ARTICLE 1481, THE CONTRACT MAY BE RESCINDED WHERE THE BULK OF
THE GOODS DELIVERED DO NOT CORRESPOND WITH THE SAMPLE.
ART. 1566. THE VENDOR IS RESPONSIBLE TO THE VENDEE FOR ANY HIDDEN
FAULTS OR DEFECTS IN THE THING SOLD, EVEN THOUGH HE WAS NOT AWARE
THEREOF.
THIS PROVISION SHALL NOT APPLY IF THE CONTRARY HAS BEEN STIPULATED,
AND THE VENDOR WAS NOT AWARE OF THE HIDDEN FAULTS OR DEFECTS IN THE
THING SOLD. (1485)
EFFECT OF IGNORANCE OF VENDOR OF HIDDEN DEFECTS.
THE IGNORANCE OF THE VENDOR DOES NOT RELIEVE HIM FROM LIABILITY TO
THE VENDEE FOR ANY HIDDEN FAULTS OR DEFECTS IN THE THING SOLD. (SEE BRYAN
VS. HANKINS AND BIALOGOUSKI, 44 PHIL. 87.) IN OTHER WORDS, GOOD FAITH CANNOT
BE AVAILED OF AS A DEFENSE BY THE VENDOR.
IF THE VENDEE IS AWARE OF THE DEFECT IN THE THING HE BUYS OR LACK OF
TITLE IN THE VENDOR, HE CANNOT LATER COMPLAIN THEREOF. HE IS DEEMED TO HAVE
WILLFULLY AND VOLUNTARILY ASSUMED THE RISK ATTENDANT TO THE SALE.
(MARTINEZ VS. COURT OF APPEALS, L-31271, APRIL 29, 1974.)
DOCTRINES OF “CAVEAT VENDITOR” AND “CAVEAT EMPTOR.”
AT EARLY COMMON LAW, THE IMPLIED WARRANTY OF QUALITY WAS NOT
RECOGNIZED AND THE RULE WAS THEN CAVEAT EMPTOR (LET THE BUYER BEWARE).
(SEE ART. 1544, 1ST PAR.) THE SELLER’S LIABILITY FOR DEFECTS OF THE GOODS SOLD
WAS THEN CONFINED TO CASES OF EXPRESS PROMISE TO WARRANT THE QUALITY OF
SUCH GOODS AND TO THOSE IN WHICH THE SELLER HAD KNOWLEDGE OF THE HIDDEN
DEFECTS AND THE SALE MADE WITHOUT THE SELLER REVEALING THEM, BUT IN THE
LATER CASES, THE BASIS OF THE SELLER’S LIABILITY WAS FOR FRAUD.
(1) THE DOCTRINE OF CAVEAT VENDITOR (LET THE SELLER BEWARE) WAS
ADOPTED IN ACCORDANCE WITH WHICH “THE VENDOR IS LIABLE TO THE VENDEE FOR
60
ANY HIDDEN FAULTS OR DEFECTS IN THE THING SOLD, EVEN THOUGH HE WAS NOT
AWARE. (ART. 1566 OF OUR NEW CIVIL CODE.) THE DOCTRINE IS BASED ON THE
PRINCIPLE THAT A SOUND PRICE WARRANTS A SOUND ARTICLE.
ART. 1567. IN THE CASES OF ARTICLES 1561, 1562, 1564, 1565 AND 1566, THE
VENDEE MAY ELECT BETWEEN WITHDRAWING FROM THE CONTRACT AND DEMANDING
A PROPORTIONATE REDUCTION OF THE PRICE, WITH DAMAGES IN EITHER CASE.
ART. 1568. IF THE THING SOLD SHOULD BE LOST IN CONSEQUENCE OF THE
HIDDEN FAULTS, AND THE VENDOR WAS AWARE OF THEM, HE SHALL BEAR THE LOSS,
AND SHALL BE OBLIGED TO RETURN THE PRICE AND REFUND THE EXPENSES OF THE
CONTRACT, WITH DAMAGES. IF HE WAS NOT AWARE OF THEM, HE SHALL ONLY
RETURN THE PRICE AND INTEREST THEREON, AND REIMBURSE THE EXPENSES OF THE
CONTRACT WHICH THE VENDEE MIGHT HAVE PAID.
ART. 1569. IF THE THING SOLD HAD ANY HIDDEN FAULT AT THE TIME OF THE
SALE, AND SHOULD THEREAFTER BE LOST BY A FORTUITOUS EVENT OR THROUGH
THE FAULT OF THE VENDEE, THE LATTER MAY DEMAND OF THE VENDOR THE PRICE
WHICH HE PAID, LESS THE VALUE WHICH THE THING HAD WHEN IT WAS LOST.
IF THE VENDOR ACTED IN BAD FAITH, HE SHALL PAY DAMAGES TO THE VENDEE.
EFFECT OF LOSS OF DEFECTIVE THING SOLD BY FORTUITOUS EVENT OR THROUGH
FAULT OF VENDEE
IF THE THING SOLD HAD NO HIDDEN DEFECTS, ITS LOSS THROUGH A
FORTUITOUS EVENT OR THROUGH THE FAULT OF THE VENDEE IS, OF COURSE, TO BE
BORNE BY THE VENDEE. HOWEVER, THE VENDOR IS OBLIGED TO RETURN THE PRICE
PAID LESS THE VALUE OF THE THING AT THE TIME OF ITS LOSS IN CASE WHERE HIDDEN
DEFECTS EXISTED. IN OTHER WORDS, UNDER ARTICLE 1569, THE VENDOR IS STILL
MADE LIABLE ON HIS WARRANTY. THE DIFFERENCE BETWEEN THE PRICE PAID FOR
THE THING AND THE VALUE AT THE TIME OF THE LOSS, REPRESENTS THE DAMAGE
SUFFERED BY THE VENDEE AND IS AT THE SAME TIME THE AMOUNT WITH WHICH THE
VENDOR ENRICHED HIMSELF AT THE EXPENSE OF THE VENDEE. IF THE VENDOR ACTED
IN BAD FAITH, HE SHALL ALSO BE LIABLE FOR DAMAGES.
ART. 1570. THE PRECEDING ARTICLES OF THIS SUBSECTION SHALL BE
APPLICABLE TO JUDICIAL SALES, EXCEPT THAT THE JUDGMENT DEBTOR SHALL NOT
BE LIABLE FOR DAMAGES. (1489A)
WARRANTY IN JUDICIAL SALES.
(1) AS TO JUDGMENT DEBTOR. — IN A JUDICIAL SALE, IT IS NOT REALLY THE
SHERIFF WHO SELLS BUT THE JUDGMENT DEBTOR. HENCE, THE PROVISIONS
REGARDING WARRANTY ARE ALSO APPLICABLE TO JUDICIAL SALES. (SEE ART. 1574.)
THE BUYER CAN AVAIL EITHER OF THE ALTERNATIVE REMEDIES TO ENFORCE THE
WARRANTY AND THE PROVISIONS OF ARTICLES 1568 AND 1569. HOWEVER, SINCE THE
JUDGMENT DEBTOR IS FORCED TO SELL, THERE CAN BE NO LIABILITY FOR DAMAGES.
THE PUBLICITY SURROUNDING A JUDICIAL SALE AND THE FACT THAT THE SELLER
61
DOES NOT TAKE AN ACTIVE PART IN THE SALE AND IN THE DETERMINATION OF THE
PRICE PRECLUDES THE EXISTENCE OF BAD FAITH ON HIS PART. (SEE 10 MANRESA 242.)
WHILE IN VOLUNTARY SALES OR TRANSACTIONS THE VENDOR OR TRANSFEROR CAN
BE EXPECTED TO DEFEND HIS TITLE BECAUSE OF HIS WARRANTY TO THE VENDEE, NO
SUCH OBLIGATION IS OWED BY THE OWNER WHOSE LAND IS SOLD AT EXECUTION
SALE.
(2) AS TO GOVERNMENT. — IN JUDICIAL SALES, THE PRINCIPLE OF CAVEAT
EMPTOR APPLIES, ACCORDING TO WHICH THE PURCHASER ACQUIRES BY HIS
PURCHASE NO HIGHER OR BETTER TITLE OR RIGHT THAN THAT OF THE JUDGMENT
DEBTOR. IF THE LATTER HAS NO RIGHT, INTEREST, OR LIEN IN AND TO THE PROPERTY
SOLD, THE PURCHASER ACQUIRES NONE.
RIGHT OF PURCHASER IN JUDICIAL SALES.
(1) THE PURCHASER OF PROPERTY ON SALE UNDER EXECUTION AND LEVY
TAKES AS ASSIGNEE ONLY. INDEED, AT A SHERIFF’S SALE WHAT IS SOLD IS NOT THE
PROPERTY ADVERTISED, BUT SIMPLY THE INTEREST OF THE DEBTOR IN THE
PROPERTY; IF IT AFTERWARDS DEVELOPS THAT HE HAS NONE, THE PURCHASER IS
STILL LIABLE ON HIS BID BECAUSE HE HAS OFFERED SO MUCH FOR THE DEBTOR’S
INTEREST IN OPEN MARKET AND IT IS FOR HIM TO DETERMINE BEFORE HE BIDS WHAT
THE DEBTOR’S INTEREST IS WORTH.
(2) WHERE A JUDICIAL SALE IS VOIDED OR SET ASIDE WITHOUT FAULT OF THE
PURCHASER, THE LATTER IS ENTITLED TO REIMBURSEMENT OF THE PURCHASE
MONEY PAID BY HIM SUBJECT TO SET-OFF FOR BENEFITS ENJOYED WHILE HE HAD
POSSESSION OF THE PROPERTY. AS A GENERAL RULE, A JUDICIAL SALE CAN ONLY BE
SET ASIDE UPON THE RETURN TO THE BUYER OF THE PURCHASE PRICE WITH SIMPLE
INTEREST AND OTHER EXPENSES INCURRED BY HIM. HE IS ORDINARILY ENTITLED TO
A LIEN ON THE PROPERTY UNTIL HE IS REPAID WHATEVER MAY BE DUE HIM.
LAW ON SALE – NOTES 12
ART. 1571. ACTIONS ARISING FROM THE PROVISIONS OF THE PRECEDING TEN
ARTICLES SHALL BE BARRED AFTER SIX MONTHS, FROM THE DELIVERY OF THE THING
SOLD. (1490)
PRESCRIPTION OF ACTIONS IN CASES OF IMPLIED/EXPRESS WARRANTY.
(1) THE ACTION FOR RESCISSION OF THE CONTRACT OR REDUCTION OF THE
PURCHASE PRICE (ART. 1567.) PRESCRIBES SIX MONTHS FROM THE DATE OF DELIVERY
OF THE THING SOLD. OUTSIDE THIS PERIOD THE ACTION IS BARRED. IT FOLLOWS THAT
A VENDEE SHOULD NOT BE PERMITTED TO OFFER AS A DEFENSE, HIDDEN DEFECTS IN
THE THING SOLD SIX MONTHS AFTER HE HAD RECEIVED IT. (GABA VS. ALMONIDOVAR,
[C.A.] NO. 24703-R, FEB. 24, 1960.) IF THE ACTION IS NOT FOR BREACH OF WARRANTY
BUT QUASI-DELICT OR NEGLIGENCE, THE PRESCRIPTIVE PERIOD IS FOUR (4) YEARS.
(SEE ART. 1146[2].)
62
THE TEN PRECEDING ARTICLES REFERRED TO DEFINE THE VENDOR’S LIABILITY
FOR THE DEFECTS IN THE THING SOLD. (IBID.) A CURSORY READING OF SAID ARTICLES
REVEALS THAT ARTICLE 1571 MAY BE APPLIED ONLY IN CASES OF IMPLIED WARRANTY.
(2) WITH RESPECT TO AN EXPRESS WARRANTY, IN ACCORDANCE WITH THE
GENERAL RULE ON RESCISSION OF CONTRACT, THE PRESCRIPTIVE PERIOD WHICH IS
FOUR (4) YEARS, SHALL APPLY
ART. 1572. IF TWO OR MORE ANIMALS ARE SOLD TOGETHER, WHETHER FOR A
LUMP SUM OR FOR A SEPARATE PRICE FOR EACH OF THEM, THE REDHIBITORY
DEFECT OF ONE SHALL ONLY GIVE RISE TO ITS REDHIBITION, AND NOT THAT OF THE
OTHERS; UNLESS IT SHOULD APPEAR THAT THE VENDEE WOULD NOT HAVE
PURCHASED THE SOUND ANIMAL OR ANIMALS WITHOUT THE DEFECTIVE ONE.
THE LATTER CASE SHALL BE PRESUMED WHEN A TEAM, YOKE, PAIR, OR SET IS
BOUGHT, EVEN IF A SEPARATE PRICE HAS BEEN FIXED FOR EACH ONE OF THE
ANIMALS COMPOSING THE SAME. (1491)
SALE OF TWO OR MORE ANIMALS TOGETHER.
WHEN TWO OR MORE ANIMALS HAVE BEEN SOLD AT THE SAME TIME AND THE
REDHIBITORY DEFECT (ART. 1576.) IS IN ONE, OR SOME OF THEM BUT NOT IN ALL, THE
GENERAL RULE IS THAT THE REDHIBITION WILL NOT AFFECT THE OTHERS WITHOUT IT.
IT IS IMMATERIAL WHETHER THE PRICE HAS BEEN FIXED FOR A LUMP SUM FOR ALL THE
ANIMALS OR FOR A SEPARATE PRICE FOR EACH.
THE EXCEPTION IS WHEN IT CAN BE SHOWN BY THE VENDEE THAT HE WOULD
NOT HAVE PURCHASED THE SOUND ONES WITHOUT THOSE WHICH ARE DEFECTIVE.
(SEE ART. 1556, PAR. 1.) SUCH INTENTION NEED NOT BE ESTABLISHED BY THE VENDEE
BUT SHALL BE PRESUMED WHEN A TEAM, YOKE, PAIR OR SET IS BOUGHT UNLESS THE
VENDOR PROVES THE CONTRARY.
ALTHOUGH ARTICLE 1572 PROVIDES ONLY FOR REDHIBITORY ACTIONS, IT DOES
NOT BAR THE RIGHT OF THE VENDEE TO BRING AN ACTION QUANTI MINORIS. (SEE
ARTS. 1580, 1567.)
ART. 1573. THE PROVISIONS OF THE PRECEDING ARTICLE WITH RESPECT TO THE
SALE OF ANIMALS SHALL IN LIKE MANNER BE APPLICABLE TO THE SALE OF OTHER
THINGS. (1492)
SALE OF TWO OR MORE THINGS TOGETHER.
THE POINTS CONSIDERED IN THE PRECEDING ARTICLE APPLY ALSO TO SALE OF
TWO OR MORE THINGS WHERE ONLY ONE OR MORE OF THEM BUT NOT ALL HAVE
HIDDEN DEFECTS.
ART. 1574. THERE IS NO WARRANTY AGAINST HIDDEN DEFECTS OF ANIMALS
SOLD AT FAIRS OR AT PUBLIC AUCTIONS, OR OF LIVESTOCK SOLD AS CONDEMNED.
(1493A)
SALE OF ANIMALS AT FAIRS OR AT PUBLIC AUCTIONS OR AS CONDEMNED.
63
THIS ARTICLE IS A LIMITATION TO THE PROVISIONS OF ARTICLE 1570. IT IS BASED
ON THE ASSUMPTION THAT THE DEFECTS MUST HAVE BEEN CLEARLY KNOWN TO THE
BUYER.
SINCE THE LAW DOES NOT MAKE ANY DISTINCTION, THE PUBLIC AUCTIONS
REFERRED TO MAY BE JUDICIAL OR EXTRAJUDICIAL. SALE OF ANIMALS AS
CONDEMNED PRECLUDES ALL IDEA OF WARRANTY AGAINST HIDDEN DEFECTS. (ART.
1561.) SUCH ANIMALS ARE BOUGHT NOT BECAUSE OF THEIR QUALITY OR CAPACITY
FOR WORK.
ART. 1575. THE SALE OF ANIMALS SUFFERING FROM CONTAGIOUS DISEASES
SHALL BE VOID.
A CONTRACT OF SALE OF ANIMALS SHALL ALSO BE VOID IF THE USE OR
SERVICE FOR WHICH THEY ARE ACQUIRED HAS BEEN STATED IN THE CONTRACT, AND
THEY ARE FOUND TO BE UNFIT THEREFOR. (1494A)
WHEN SALE OF ANIMALS VOID.
THE ARTICLE DECLARES THE CLASS OF ANIMALS WHICH CANNOT BE THE
OBJECT OF COMMERCE — ANIMALS SUFFERING FROM CONTAGIOUS DISEASES AND
THOSE FOUND UNFIT FOR THE USE OR SERVICE STATED. THE SALE OF SUCH ANIMALS
IS VOID AS AGAINST PUBLIC INTEREST AND NOT MERELY SUBJECT TO RESCISSION OR
REDUCTION OF THE PRICE. (ART. 1567.) IT IS TO BE GOVERNED BY THE RULES
RELATING TO NULLITY OF CONTRACTS. (SEE ART. 1409.)
EVEN IF THE ANIMALS ARE FOUND FIT FOR THE USE OR SERVICE STATED IN THE
CONTRACT, THE VENDEE MAY STILL RESCIND THE CONTRACT UNDER ARTICLE 1561.
THIS ARTICLE CONTEMPLATES A SALE THAT HAS BEEN PERFECTED AND
CONSUMMATED.
ART. 1576. IF THE HIDDEN DEFECT OF ANIMALS, EVEN IN CASE A PROFESSIONAL
INSPECTION HAS BEEN MADE, SHOULD BE OF SUCH A NATURE THAT EXPERT
KNOWLEDGE IS NOT SUFFICIENT TO DISCOVER IT, THE DEFECT SHALL BE
CONSIDERED AS REDHIBITORY.
BUT IF THE VETERINARIAN, THROUGH IGNORANCE OR BAD FAITH, SHOULD FAIL
TO DISCOVER OR DISCLOSE IT, HE SHALL BE LIABLE FOR DAMAGES. (1495)
WHAT CONSTITUTES REDHIBITORY DEFECT OF ANIMALS?
ARTICLE 1576 IS ANOTHER RULE ESPECIALLY APPLICABLE TO ANIMALS.
TO BE CONSIDERED REDHIBITORY, THE DEFECT MUST NOT ONLY BE HIDDEN. IT
MUST BE OF SUCH A NATURE THAT EXPERT KNOWLEDGE IS NOT SUFFICIENT TO
DISCOVER IT. HOWEVER, IF THE VETERINARIAN FAILED TO DISCOVER IT THROUGH HIS
IGNORANCE, OR FAILED TO DISCLOSE IT TO THE VENDEE THROUGH BAD FAITH, HE
SHALL BE LIABLE FOR DAMAGES. THE RESPONSIBILITY IS HIS AND NOT THE VENDOR’S.
ART. 1577. THE REDHIBITORY ACTION, BASED ON THE FAULTS OR DEFECTS OF
ANIMALS, MUST BE BROUGHT WITHIN FORTY DAYS FROM THE DATE OF THEIR
DELIVERY TO THE VENDEE.
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THIS ACTION CAN ONLY BE EXERCISED WITH RESPECT TO FAULTS AND
DEFECTS WHICH ARE DETERMINED BY LAW OR BY LOCAL CUSTOMS. (1496A)
LIMITATION OF ACTION IN SALE OF ANIMALS.
THE REDHIBITORY ACTION BASED ON THE FAULTS OF ANIMALS SHALL BE
BARRED UNLESS BROUGHT WITHIN FORTY DAYS FROM THE DATE OF THEIR DELIVERY
TO THE VENDEE.
ACCORDING TO THE SECOND PARAGRAPH, WHAT SHOULD BE CONSIDERED
REDHIBITORY DEFECTS IN THE SALE OF ANIMALS ARE ONLY THOSE DETERMINED BY
LAW OR BY LOCAL CUSTOMS. IF THE DEFECTS ARE PATENT, THERE IS NO WARRANTY
AGAINST SUCH DEFECTS ALTHOUGH THERE EXISTS A REDHIBITORY VICE.
ART. 1578. IF THE ANIMAL SHOULD DIE WITHIN THREE DAYS AFTER ITS
PURCHASE, THE VENDOR SHALL BE LIABLE IF THE DISEASE WHICH CAUSED THE
DEATH EXISTED AT TIME OF THE CONTRACT. (1497A)
RESPONSIBILITY OF VENDOR WHERE ANIMAL DIES.
IF THE ANIMAL SOLD IS SUFFERING FROM ANY DISEASE AT THE TIME OF THE
SALE, THE VENDOR IS LIABLE SHOULD IT DIE OF SAID DISEASE WITHIN THREE DAYS
FROM THE DATE OF THE SALE (NOT DATE OF DELIVERY). THIS CLAIM OF THE VENDEE
MUST BE BASED ON A FINDING OF AN EXPERT THAT THE DISEASE CAUSING THE DEATH
EXISTED AT THE TIME OF THE CONTRACT.
IF THE DEATH OCCURS AFTER THREE DAYS OR THE DEFECT IS PATENT OR
VISIBLE, HE IS NOT LIABLE. IF THE LOSS IS CAUSED BY A FORTUITOUS EVENT OR BY
THE FAULT OF THE VENDEE, AND THE ANIMAL HAS VICES, ARTICLE 1569 SHOULD BE
APPLIED.
ART. 1579. IF THE SALE BE RESCINDED, THE ANIMAL SHALL BE RETURNED IN
THE CONDITION IN WHICH IT WAS SOLD AND DELIVERED, THE VENDEE BEING
ANSWERABLE FOR ANY INJURY DUE TO HIS NEGLIGENCE, AND NOT ARISING FROM
REDHIBITORY FAULT OR DEFECT. (1498)
LIABILITY OF BUYER IN CASE SALE OF ANIMAL IS RESCINDED.
IF THE VENDEE AVAILS HIMSELF OF THE REMEDIES GRANTED BY ARTICLE 1567
(SEE ART. 1580.), THE VENDEE MUST RETURN THE ANIMAL IN THE CONDITION IN WHICH
IT WAS SOLD AND DELIVERED. IN CASE OF INJURY DUE TO HIS NEGLIGENCE, THE
VENDEE SHALL BE RESPONSIBLE BUT THIS WOULD BE NO OBSTACLE TO THE
RESCISSION OF THE CONTRACT DUE TO THE REDHIBITORY DEFECT OR FAULT OF THE
ANIMAL. (SEE ART. 1569.)
UNDER ARTICLE 1556, THE BUYER MAY NOT ASK FOR RESCISSION WHERE HE
HAS CREATED NEW ENCUMBRANCES UPON THE THING SOLD.
ART. 1580. IN THE SALE OF ANIMALS WITH REDHIBITORY DEFECTS, THE VENDEE
SHALL ALSO ENJOY THE RIGHT MENTIONED IN ARTICLE 1567; BUT HE MUST MAKE USE
THEREOF WITHIN THE SAME PERIOD WHICH HE HAS BEEN FIXED FOR THE EXERCISE
OF THE REDHIBITORY ACTION. (1499)
65
ALTERNATIVE REMEDIES OF VENDEE IN SALE OF ANIMALS.
THE VENDEE HAS THE SAME RIGHT TO BRING AT HIS OPTION, EITHER A
REDHIBITORY ACTION OR AN ACTION QUANTI MINORIS. THE ACTION MUST BE
BROUGHT WITHIN FORTY DAYS FROM THE DATE OF THE DELIVERY OF THE ANIMALS TO
THE VENDEE. (ART. 1577.)
ART. 1581. THE FORM OF SALE OF LARGE CATTLE SHALL BE GOVERNED BY
SPECIAL LAWS. (N)
FORM OF SALE OF LARGE CATTLE.
THE SPECIAL LAW GOVERNING THE SALE OF LARGE CATTLE IS ACT NO. 4117, NOW
FOUND IN SECTIONS 511 TO 536 OF THE REVISED ADMINISTRATIVE CODE, AS
AMENDED, PROVIDING FOR THE REGISTRATION, BRANDING, CONVEYANCE, AND
SLAUGHTER OF LARGE CATTLE. THE SALE MUST APPEAR IN A PUBLIC DOCUMENT. (SEE
ART. 1358.)
LAW ON SALE – NOTES 13
CHAPTER 5 OBLIGATIONS OF THE VENDEE
ART. 1582. THE VENDEE IS BOUND TO ACCEPT DELIVERY AND TO PAY THE PRICE
OF THE THING SOLD AT THE TIME AND PLACE STIPULATED IN THE CONTRACT.
IF THE TIME AND PLACE SHOULD NOT HAVE BEEN STIPULATED, THE PAYMENT
MUST BE MADE AT THE TIME AND PLACE OF THE DELIVERY OF THE THING SOLD.
(1500A)
PRINCIPAL OBLIGATIONS OF VENDEE
THE PRINCIPAL OBLIGATIONS OF THE VENDEE ARE:
(1) TO ACCEPT DELIVERY; OF THE THING SOLD; AND
(2) TO PAY THE PRICE1 OF THE THING SOLD AT THE TIME AND PLACE
STIPULATED IN THE CONTRACT; AND
(3) TO BEAR THE EXPENSES FOR THE EXECUTION AND REGISTRATION OF
THE SALE AND PUTTING THE GOODS IN A DELIVERABLE STATE, IF SUCH IS THE
STIPULATION.\
A GRACE PERIOD GRANTED THE VENDEE IN CASE OF FAILURE TO PAY THE
AMOUNT/S DUE IS A RIGHT, NOT AN OBLIGATION. WHEN UNCONDITIONALLY
CONFERRED, IT IS EFFECTIVE WITHOUT FURTHER NEED OF DEMAND EITHER CALLING
FOR THE PAYMENT OF THE OBLIGATION OR FOR HONORING THE RIGHT. THE GRACE
PERIOD MUST NOT BE LIKENED TO AN OBLIGATION, THE NON-PAYMENT OF WHICH,
UNDER ARTICLE 1169 OF THE CIVIL CODE, WOULD GENERALLY STILL REQUIRE JUDICIAL
OR EXTRAJUDICIAL DEMAND BEFORE “DEFAULT” CAN BE SAID TO ARISE.
THE GENERAL RULE IS THAT AN AGREEMENT TO EXTEND THE TIME OF PAYMENT
IN ORDER TO BE VALID, MUST BE FOR A DEFINITE TIME. ALTHOUGH NO PRECISE DATE
66
IS FIXED, IT IS SUFFICIENT THAT THE TIME CAN READILY BE DETERMINED. THE FACT
THAT THE SELLER DID NOT ACT ON THE REQUEST FOR WHAT AMOUNTS TO AN
INDEFINITE EXTENSION MAY BE CONSTRUED JUST AS LOGICALLY AS A DENIAL
THEREOF.
PERTINENT RULES.
IN CONNECTION WITH THE ABOVE OBLIGATIONS, THE FOLLOWING RULES MUST
BE BORNE IN MIND:
(1) IN A CONTRACT OF SALE, THE VENDOR IS NOT REQUIRED TO DELIVER
THE THING SOLD UNTIL THE PRICE IS PAID NOR THE VENDEE TO PAY THE PRICE
BEFORE THE THING IS DELIVERED IN THE ABSENCE OF AN AGREEMENT TO THE
CONTRARY (LA FONT VS. PASCACIO, 5 PHIL. 591 [1906]; SEE ART. 1524.);
(2) IF STIPULATED, THEN THE VENDEE IS BOUND TO ACCEPT DELIVERY
AND TO PAY THE PRICE AT THE TIME AND PLACE DESIGNATED;
(3) IF THERE IS NO STIPULATION AS TO THE TIME AND PLACE OF PAYMENT
AND DELIVERY, THE VENDEE IS BOUND TO PAY AT THE TIME AND PLACE OF
DELIVERY;
(4) IN THE ABSENCE ALSO OF STIPULATION, AS TO THE PLACE OF
DELIVERY, IT SHALL BE MADE WHEREVER THE THING MIGHT BE AT THE MOMENT
THE CONTRACT WAS PERFECTED (ART. 1251.); AND
(5) IF ONLY THE TIME FOR DELIVERY OF THE THING SOLD HAS BEEN FIXED
IN THE CONTRACT, THE VENDEE IS REQUIRED TO PAY EVEN BEFORE THE THING
IS DELIVERED TO HIM; IF ONLY THE TIME FOR PAYMENT OF THE PRICE HAS BEEN
FIXED, THE VENDEE IS ENTITLED TO DELIVERY EVEN BEFORE THE PRICE IS PAID
BY HIM.
LIABILITY OF VENDEE FOR OBLIGATIONS OF COMPANY BOUGHT OUT.
(1) OBLIGATION NOT OF CONSIDERABLE AMOUNT OR VALUE. — IN SOME CASES,
WHEN ONE COMPANY BUYS OUT ANOTHER AND CONTINUES THE BUSINESS OF THE
LATTER COMPANY, THE BUYER MAY BE SAID TO ASSUME THE OBLIGATIONS OF THE
COMPANY BOUGHT OUT WHEN SAID OBLIGATIONS ARE NOT OF CONSIDERABLE
AMOUNT OR VALUE, ESPECIALLY WHEN INCURRED IN THE ORDINARY COURSE OF
TRADE AND WHEN THE BUSINESS OF THE LATTER COMPANY IS CONTINUED.
(2) OBLIGATION OF CONSIDERABLE AMOUNT OR VALUE. — WHEN SAID
OBLIGATIONS ARE OF EXTRAORDINARY VALUE AND THE COMPANY WAS BROUGHT OUT
NOT TO CONTINUE ITS BUSINESS BUT TO STOP ITS OPERATION ART. 1582 343 IN ORDER
TO ELIMINATE COMPETITION, IT CANNOT BE SAID THAT THE VENDEE ASSUMED ALL THE
OBLIGATIONS OF THE RIVAL COMPANY
ART. 1583. UNLESS OTHERWISE AGREED, THE BUYER OF GOODS IS NOT BOUND
TO ACCEPT DELIVERY THEREOF BY INSTALLMENTS.
WHERE THERE IS A CONTRACT OF SALE OF GOODS TO BE DELIVERED BY
STATED INSTALLMENTS, WHICH ARE TO BE SEPARATELY PAID FOR, AND THE SELLER
MAKES DEFECTIVE DELIVERIES IN RESPECT OF ONE OR MORE INSTALLMENTS, OR THE
BUYER NEGLECTS OR REFUSES WITHOUT JUST CAUSE TO TAKE DELIVERY OF OR PAY
67
FOR ONE OR MORE INSTALLMENTS, IT DEPENDS IN EACH CASE ON THE TERMS OF THE
CONTRACT AND THE CIRCUMSTANCES OF THE CASE, WHETHER THE BREACH OF
CONTRACT IS SO MATERIAL AS TO JUSTIFY THE INJURED PARTY IN REFUSING TO
PROCEED FURTHER AND SUING FOR DAMAGES FOR BREACH OF THE ENTIRE
CONTRACT, OR WHETHER THE BREACH IS SEVERABLE, GIVING RISE TO A CLAIM FOR
COMPENSATION BUT NOT A RIGHT TO TREAT THE WHOLE CONTRACT AS BROKEN. (N)
RULES GOVERNING DELIVERY IN INSTALLMENTS.
(1) GENERAL RULE. — IN AN ORDINARY CONTRACT FOR THE SALE OF GOODS,
THE BUYER IS NOT BOUND TO RECEIVE DELIVERY OF THE GOODS IN INSTALLMENTS.
HE IS ENTITLED TO DELIVERY OF ALL THE GOODS AT THE SAME TIME AND, IT MAY BE
ADDED, IS BOUND TO RECEIVE DELIVERY OF ALL AT ART. 1583 345 THE SAME TIME.
SIMILARLY, A BUYER HAS NO RIGHT TO PAY THE PRICE IN INSTALLMENTS. NEITHER
CAN HE BE REQUIRED TO MAKE PARTIAL PAYMENTS. BY AGREEMENT, HOWEVER, THE
GOODS MAY BE DELIVERABLE BY INSTALLMENTS OR THE PRICE PAYABLE IN
INSTALLMENTS. (SEE ART. 1248.)
(2) WHERE SEPARATE PRICE HAS BEEN FIXED FOR EACH INSTALLMENT. —
WHERE THE CONTRACT PROVIDES FOR THE DELIVERY OF GOODS BY INSTALLMENTS
AND A SEPARATE PRICE HAS BEEN AGREED UPON FOR EACH INSTALLMENT, IT
DEPENDS IN EACH CASE ON THE TERMS OF THE CONTRACT AND THE CIRCUMSTANCES
OF THE CASE WHETHER THE BREACH THEREOF IS SEVERABLE OR NOT.
(A) WHERE BREACH AFFECTS WHOLE CONTRACT. — IF THE SELLER MAKES
DEFECTIVE, PARTIAL OR INCOMPLETE DELIVERIES OR THE BUYER WRONGFULLY
NEGLECTS OR REFUSES TO ACCEPT DELIVERY OR FAILS TO PAY ANY
INSTALLMENT, THE INJURED PARTY MAY SUE FOR DAMAGES FOR BREACH OF
THE ENTIRE CONTRACT IF THE BREACH IS SO MATERIAL (E.G., BREACH OF ONE
INSTALLMENT PREVENTS THE FURTHER PERFORMANCE OF THE CONTRACT) AS
TO AFFECT THE CONTRACT AS A WHOLE.
(B) WHERE BREACH SEVERABLE. — WHERE THE BREACH IS SEVERABLE, IT
WILL MERELY GIVE RISE TO A CLAIM FOR COMPENSATION FOR THE PARTICULAR
BREACH BUT NOT A RIGHT TO TREAT THE WHOLE CONTRACT AS BROKEN.
ART. 1584. WHERE GOODS ARE DELIVERED TO THE BUYER WHICH HE HAS NOT
PREVIOUSLY EXAMINED, HE IS NOT DEEMED TO HAVE ACCEPTED THEM UNLESS AND
UNTIL HE HAS HAD A REASONABLE OPPORTUNITY OF EXAMINING THEM FOR THE
PURPOSE OF ASCERTAINING WHETHER THEY ARE IN CONFORMITY WITH THE
CONTRACT, IF THERE IS NO STIPULATION TO THE CONTRARY.
UNLESS OTHERWISE AGREED, WHEN THE SELLER TENDERS DELIVERY OF
GOODS TO THE BUYER, HE IS BOUND, ON REQUEST, TO AFFORD THE BUYER A
REASONABLE OPPORTUNITY OF EXAMINING THE GOODS FOR THE PURPOSE OF
ASCERTAINING WHETHER THEY ARE IN CONFORMITY WITH THE CONTRACT.
WHERE GOODS ARE DELIVERED TO A CARRIER BY THE SELLER, IN
ACCORDANCE WITH AN ORDER FROM OR AGREEMENT WITH THE BUYER, UPON THE
TERMS THAT THE GOODS SHALL NOT BE DELIVERED BY THE CARRIER TO THE BUYER
UNTIL HE HAS PAID THE PRICE, WHETHER SUCH TERMS ARE INDICATED BY MARKING
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THE GOODS WITH THE WORDS “COLLECT ON DELIVERY,” OR OTHERWISE, THE BUYER
IS NOT ENTITLED TO EXAMINE THE GOODS BEFORE THE PAYMENT OF THE PRICE, IN
THE ABSENCE OF AGREEMENT OR USAGE OF TRADE PERMITTING SUCH
EXAMINATION. (N)
BUYER’S RIGHT TO EXAMINE THE GOODS.
ACCEPTANCE, AS USED IN ARTICLE 1584, IS ASSENT TO BECOME OWNER OF THE
SPECIFIC GOODS WHEN DELIVERY OF THEM IS OFFERED TO THE BUYER. (3 WILLISTON,
OP. CIT., P. 31.)
(1) ACTUAL DELIVERY CONTEMPLATED. — THE DELIVERY REFERRED TO IN SAID
ARTICLE, AS CAN BE GATHERED FROM ITS CONTEXT, IS ACTUAL DELIVERY. IN OTHER
WORDS, THE OWNERSHIP OF THE GOODS SHALL BE TRANSFERRED ONLY UPON
ACTUAL DELIVERY SUBJECT TO A REASONABLE OPPORTUNITY OF EXAMINING THEM
TO DETERMINE IF THEY ARE IN CONFORMITY WITH THE CONTRACT. (PAR. 1; SEE ARTS.
1481, 1501, PAR. 2.)
THE RIGHT OF EXAMINATION OR INSPECTION UNDER PARAGRAPH 1 IS THUS A
CONDITION PRECEDENT TO THE TRANSFER OF OWNERSHIP UNLESS THERE IS A
STIPULATION TO THE CONTRARY.
(2) GOODS DELIVERED C.O.D./NOT C.O.D. — WHERE, IN PURSUANCE OF A
CONTRACT OF SALE, THE SELLER IS AUTHORIZED OR REQUIRED TO SEND ART. 1584
347 THE GOODS TO THE BUYER, DELIVERY OF THE GOODS TO A CARRIER FOR THE
PURPOSE OF TRANSMISSION TO THE BUYER IS DEEMED TO BE DELIVERY TO THE
BUYER. (SEE ART. 1523, PAR. 1.)
(A) ALTHOUGH TITLE PASSES TO THE BUYER BY THE MERE DELIVERY TO
THE CARRIER, THE BUYER UNLESS THE GOODS ARE SENT C.O.D. WHICH IS THE
NORMAL PROCEDURE IN IMPORTATIONS, HAS THE RIGHT TO EXAMINE THE
GOODS BEFORE PAYING. IN THIS CASE, THE RIGHT TO EXAMINE THE GOODS IS A
CONDITION PRECEDENT TO PAYING THE PRICE AFTER OWNERSHIP HAS PASSED.
(B) IT SHOULD BE NOTED THAT EVEN IN A C.O.D. SALE, THE BUYER IS
ALLOWED TO EXAMINE THE GOODS BEFORE PAYMENT OF THE PRICE SHOULD IT
HAVE BEEN SO AGREED UPON OR IF IT IS PERMITTED BY USAGE. (PAR. 3.)
(3) RIGHT OF EXAMINATION NOT ABSOLUTE. — THE BUYER DOES NOT HAVE AN
ABSOLUTE RIGHT OF EXAMINATION SINCE THE SELLER IS BOUND TO AFFORD THE
BUYER A REASONABLE OPPORTUNITY OF EXAMINING THE GOODS ONLY “ON
REQUEST.” (PAR. 2.) IF THE SELLER REFUSED TO ALLOW OPPORTUNITY FOR THE
INSPECTION, THE BUYER MAY RESCIND THE CONTRACT AND RECOVER THE PRICE OR
ANY PART OF IT THAT HE HAS PAID.
(4) RIGHT TO BE EXERCISED WITHIN REASONABLE TIME. — WHILE ARTICLE 1584
ACCORDS THE BUYER THE RIGHT TO A REASONABLE OPPORTUNITY TO EXAMINE THE
GOODS TO ASCERTAIN WHETHER THEY ARE IN CONFORMITY WITH THE CONTRACT,
SUCH OPPORTUNITY TO EXAMINE SHOULD BE AVAILED OF WITHIN A REASONABLE TIME
IN ORDER THAT THE SELLER MAY NOT SUFFER UNDUE DELAY OR PREJUDICE.
(GRAGEDA VS. INTERMEDIATE APPELLATE COURT, 155 SCRA 95 [1987].)
(5) WAIVER OF RIGHT TO EXAMINE BEFORE PAYMENT. — THE RIGHT OF
INSPECTION MAY, OF COURSE, BE GIVEN UP BY THE BUYER BY STIPULATION. (IBID.)
THE WAIVER, HOWEVER, NEED NOT BE IN EXPRESS TERMS. AN ILLUSTRATION OF A
69
BARGAIN INCONSISTENT WITH EXAMINATION OF THE GOODS BEFORE PAYMENT IS A
CONTRACT BY WHICH GOODS ARE TO BE SENT TO THE BUYER C.O.D. (PAR. 3.) BUT THE
BUYER IS STILL ENTITLED TO EXAMINE THE GOODS AFTER THEIR DELIVERY AND
PAYMENT OF THE PRICE. (PAR. 1.) HERE, THE RIGHT OF EXAMINATION IS A CONDITION
SUBSEQUENT AFTER TRANSFER OF OWNERSHIP AND PAYMENT OF THE PRICE.
ART. 1585. THE BUYER IS DEEMED TO HAVE ACCEPTED THE GOODS WHEN HE
INTIMATES TO THE SELLER THAT HE HAS ACCEPTED THEM, OR WHEN THE GOODS
HAVE BEEN DELIVERED TO HIM, AND HE DOES ANY ACT IN RELATION TO THEM WHICH
IS INCONSISTENT WITH THE OWNERSHIP OF THE SELLER, OR WHEN, AFTER THE LAPSE
OF A REASONABLE TIME, HE RETAINS THE GOODS WITHOUT INTIMATING TO THE
SELLER THAT HE HAS REJECTED THEM. (N)
MODES OF MANIFESTING ACCEPTANCE.
ARTICLE 1585 EXPRESSES A DEFINITION OF ACCEPTANCE. IT MAY BE
MANIFESTED EITHER EXPRESSLY OR IMPLIEDLY.
(1) EXPRESS ACCEPTANCE TAKES PLACE WHEN THE BUYER, AFTER DELIVERY
OF THE GOODS, INTIMATES TO THE SELLER, VERBALLY OR IN WRITING, THAT HE HAS
ACCEPTED THEM.
(2) IMPLIED ACCEPTANCE TAKES PLACE:
(A) WHEN THE BUYER, AFTER DELIVERY OF GOODS, DOES ANY ACT
INCONSISTENT WITH THE SELLER’S OWNERSHIP, AS WHEN HE SELLS OR
ATTEMPTS TO SELL THE GOODS, OR HE USES OR MAKES ALTERATION IN THEM
IN A MANNER PROPER ONLY FOR AN OWNER; OR
(B) WHEN THE BUYER, AFTER THE LAPSE OF A REASONABLE TIME,
RETAINS THE GOODS WITHOUT INTIMATING HIS REJECTION. THUS, THE FAILURE
OF THE BUYER TO INTERPOSE ANY OBJECTION TO THE INVOICES ISSUED TO IT,
TO EVIDENCE DELIVERY OF THE MATERIALS ORDERED AS PER AGREEMENT
WITH THE SELLER AND WHICH CONTAINED THE CONDITIONS IN QUESTION,
SHOULD BE DEEMED AS AN IMPLIED ACCEPTANCE BY THE BUYER OF THE SAID
CONDITIONS.
THE RETENTION OF THE GOODS IS A STRONG EVIDENCE THAT THE BUYER
HAS ACCEPTED OWNERSHIP OF THE GOODS. WHILE RETENTION MAY BE
CONSIDERED AN ACT INCONSISTENT WITH THE OWNERSHIP OF THE SELLER, IT
IS STATED AS A SEPARATE MODE OF MANIFESTING ACCEPTANCE AS IT IS
MERELY A NEGATIVE INDICATION WHICH MAY BE DUE MERELY TO
CARELESSNESS.
DELIVERY AND ACCEPTANCE, SEPARATE ACTS.
DELIVERY AND ACCEPTANCE ARE TWO DISTINCT AND SEPARATE ACTS OF DIFFERENT
PARTIES.
(1) ACCEPTANCE, NOT A CONDITION TO COMPLETE DELIVERY. — DELIVERY IS AN
ACT OF THE VENDOR. THUS, ONE OF THE OBLIGATIONS OF THE VENDOR IS THE
DELIVERY OF THE THING SOLD. (ART. 1495.) THE VENDEE HAS NOTHING TO DO WITH
THE ACT OF DELIVERY BY THE VENDOR.
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ON THE OTHER HAND, ACCEPTANCE IS AN OBLIGATION ON THE PART OF THE
VENDEE. (ART. 1582.) CONSEQUENTLY, ACCEPTANCE CANNOT BE REGARDED AS A
CONDITION TO COMPLETE DELIVERY. (LA FUERZA, INC. VS. COURT OF APPEALS, 23
SCRA 1217 [1968].) IN OTHER WORDS, THE SELLER MUST COMPLY WITH HIS OBLIGATION
TO DELIVER ALTHOUGH THERE IS NO ACCEPTANCE YET BY THE BUYER.
(2) ACCEPTANCE AND ACTUAL RECEIPT DO NOT IMPLY THE OTHER. —
ACCEPTANCE OF THE BUYER MAY PRECEDE ACTUAL DELIVERY. THERE MAY BE AN
ACTUAL RECEIPT WITHOUT ANY ACCEPTANCE AND THERE MAY BE ACCEPTANCE
WITHOUT ANY RECEIPT. (1 WILLISTON, 4TH ED., OP. CIT., PP. 129-130.)
ART. 1586. IN THE ABSENCE OF EXPRESS OR IMPLIED AGREEMENT OF THE
PARTIES, ACCEPTANCE OF THE GOODS BY THE BUYER SHALL NOT DISCHARGE THE
SELLER FROM LIABILITY IN DAMAGES OR OTHER LEGAL REMEDY FOR BREACH OF
ANY PROMISE OR WARRANTY IN THE CONTRACT OF SALE. BUT, IF, AFTER
ACCEPTANCE OF THE GOODS, THE BUYER FAILS TO GIVE NOTICE TO THE SELLER OF
THE BREACH IN ANY PROMISE OF WARRANTY WITHIN A REASONABLE TIME AFTER THE
BUYER KNOWS, OR OUGHT TO KNOW OF SUCH BREACH, THE SELLER SHALL NOT BE
LIABLE THEREFOR. (N)
ART. 1587. UNLESS OTHERWISE AGREED, WHERE GOODS ARE DELIVERED TO
THE BUYER, AND HE REFUSES TO ACCEPT THEM, HAVING THE RIGHT SO TO DO, HE IS
NOT BOUND TO RETURN THEM TO THE SELLER, BUT IT IS SUFFICIENT IF HE NOTIFIES
THE SELLER THAT HE REFUSES TO ACCEPT THEM. IF HE VOLUNTARILY CONSTITUTES
HIMSELF A DEPOSITARY THEREOF, HE SHALL BE LIABLE AS SUCH. (N)
WHERE BUYER’S REFUSAL TO ACCEPT JUSTIFIED.
(1) DUTY OF BUYER TO TAKE CARE OF GOODS WITHOUT OBLIGATION TO RETURN.
— IF THE GOODS HAVE BEEN SENT TO THE BUYER AND HE RIGHTFULLY REFUSES TO
ACCEPT THEM, AS IN THE CASE WHERE THE GOODS ARE OF NOT THE KIND AND
QUALITY AGREED UPON, HE IS IN THE POSITION OF A BAILEE WHO HAS HAD GOODS
THRUST UPON HIM WITHOUT HIS ASSENT. DOUBTLESS, HE HAS THE OBLIGATION TO
TAKE REASONABLE CARE OF THE GOODS, ART. 1587 351 BUT NOTHING MORE CAN BE
DEMANDED OF HIM. ACCORDINGLY, HE IS UNDER NO OBLIGATION TO RETURN THE
GOODS TO THE SELLER.
(2) DUTY OF SELLER TO TAKE DELIVERY OF GOODS. — AFTER NOTICE THAT THE
GOODS HAVE NOT BEEN AND WILL NOT BE ACCEPTED, THE SELLER MUST HAVE THE
BURDEN OF TAKING DELIVERY OF SAID GOODS.
(3) SELLER’S RISK OF LOSS OF GOODS. — WHILE THE GOODS REMAIN IN THE
BUYER’S POSSESSION UNDER THESE CIRCUMSTANCES, THEY ARE, OF COURSE, AT
THE SELLER’S RISK. BUT THE BUYER IS NOT DEEMED AND IS NOT LIABLE AS A
DEPOSITARY, UNLESS HE VOLUNTARILY CONSTITUTES HIMSELF AS SUCH.
(4) RIGHT OF BUYER TO RESELL GOODS. — SHOULD THE SELLER, WHEN
NOTIFIED TO TAKE DELIVERY OF THE GOODS FAILS TO DO SO, THE BUYER MAY RESELL
THE GOODS. THE PROVISIONS GOVERNING RESALE BY THE SELLER WHEN THE BUYER
IS IN DEFAULT, IT SEEMS, WILL GENERALLY APPLY.
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ART. 1588. IF THERE IS NO STIPULATION AS SPECIFIED IN THE FIRST PARAGRAPH
OF ARTICLE 1523, WHEN THE BUYER’S REFUSAL TO ACCEPT THE GOODS IS WITHOUT
JUST CAUSE, THE TITLE THERETO PASSES TO HIM FROM THE MOMENT THEY ARE
PLACED AT HIS DISPOSAL. (N)
WHERE BUYER’S REFUSAL TO ACCEPT WRONGFUL.
UNDER THIS ARTICLE, THE BUYER’S REFUSAL TO ACCEPT THE GOODS IS
WITHOUT JUST CAUSE WHILE UNDER ARTICLE 1587, THE REFUSAL IS WITH A RIGHT TO
DO SO.
AS A GENERAL RULE, THE DELIVERY OF THE GOODS TO A CARRIER IS DEEMED
TO BE A DELIVERY OF THE GOODS TO THE BUYER. (ART. 1523, PAR. 1.) THIS IS TRUE
EVEN IF THE BUYER REFUSES TO ACCEPT THE GOODS IN CASE HIS REFUSAL IS
WITHOUT JUST CAUSE. THE TITLE PASSES TO THE BUYER AND, THEREFORE, THE RISK
OF LOSS IS BORNE BY HIM (ART. 1504.) FROM THE MOMENT THEY ARE PLACED AT HIS
DISPOSAL. (ART. 1588.) IN THOSE CASES WHERE THE RIGHT OF THE BUYER TO INSPECT
GOODS AT THE TIME OF DELIVERY IS A CONDITION PRECEDENT TO TRANSFER OF
OWNERSHIP (ART. 1584, PAR. 1.), THE OWNERSHIP PASSES BY OPERATION OF LAW
AFTER SUCH INSPECTION.
ART. 1589. THE VENDEE SHALL OWE INTEREST FOR THE PERIOD BETWEEN THE
DELIVERY OF THE THING AND THE PAYMENT OF THE PRICE, IN THE FOLLOWING THREE
CASES:
(1) SHOULD IT HAVE BEEN SO STIPULATED;
(2) SHOULD THE THING SOLD AND DELIVERED PRODUCE FRUITS OR INCOME;
(3) SHOULD HE BE IN DEFAULT, FROM THE TIME OF JUDICIAL OR EXTRAJUDICIAL
DEMAND FOR THE PAYMENT OF THE PRICE. (1501A)
LIABILITY OF VENDEE FOR INTEREST WHERE PAYMENT IS MADE AFTER DELIVERY.
THIS ARTICLE PRESUPPOSES THAT THE DELIVERY OF THE THING SOLD AND THE
PAYMENT OF THE PRICE WERE NOT MADE SIMULTANEOUSLY BUT THE THING SOLD
WAS DELIVERED, FIRST FOLLOWED BY THE PAYMENT OF THE PRICE AFTER THE LAPSE
OF A CERTAIN PERIOD OF TIME. THE VENDEE IS LIABLE TO PAY INTEREST FROM THE
DELIVERY OF THE THING UNTIL THE PAYMENT OF THE PRICE.
(1) INTEREST EXPRESSLY STIPULATED. — IN SUCH CASE, THE RATE STIPULATED
GOVERNS. THE STIPULATION OF THE PARTIES TO PAY INTEREST MAY BE ORAL.
ARTICLE 1956 OF THE CIVIL CODE WHICH PROVIDES THAT “NO INTEREST SHALL BE DUE
UNLESS IT HAS BEEN EXPRESSLY STIPULATED IN WRITING” SHOULD BE CONSTRUED
AS APPLICABLE ONLY TO CONTRACTS OF LOAN. IF THE PARTIES FAILED TO FIX THE
RATE, THEN THE LEGAL RATE OF INTEREST SHALL BE DUE.
(2) FRUITS OR INCOME RECEIVED BY VENDEE FROM THING SOLD. — UNDER NO.
2, TWO CONDITIONS MUST EXIST: (A) THAT THE THING SOLD HAS BEEN DELIVERED, AND
(B) THAT IT PRODUCES FRUITS OR INCOME. IF THE VENDEE WOULD NOT BE BOUND TO
PAY INTEREST FOR THE USE OF THE MONEY, WHICH HE SHOULD HAVE PAID, THE
PRINCIPLE OF BILATERALITY WHICH CHARACTERIZES A CONTRACT OF SALE WOULD
NO LONGER EXIST.
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SINCE THE LAW MAKES NO DISTINCTION, THE VENDEE IS STILL BOUND TO PAY
INTEREST EVEN IF A TERM HAS BEEN FIXED FOR THE PAYMENT OF THE PRICE.
(3) VENDEE GUILTY OF DEFAULT. — IF THE VENDEE INCURS DELAY IN THE
PAYMENT OF THE AGREED PRICE (SEE ART. 1169.), THE INTEREST IS DUE FROM THE
TIME OF JUDICIAL OR EXTRAJUDICIAL DEMAND BY THE VENDOR FOR THE PAYMENT OF
THE PRICE. THIS DEMAND BY THE VENDOR IS THE STARTING POINT FOR THE
COMMENCEMENT OF DEFAULT OR DELAY ON THE PART OF THE VENDEE
ART. 1590. SHOULD THE VENDEE BE DISTURBED IN THE POSSESSION OR
OWNERSHIP OF THE THING ACQUIRED, OR SHOULD HE HAVE REASONABLE GROUNDS
TO FEAR SUCH DISTURBANCE, BY A VINDICATORY ACTION OR A FORECLOSURE OF
MORTGAGE, HE MAY SUSPEND THE PAYMENT OF THE PRICE UNTIL THE VENDOR HAS
CAUSED THE DISTURBANCE OR DANGER TO CEASE, UNLESS THE LATTER GIVES
SECURITY FOR THE RETURN OF THE PRICE IN A PROPER CASE, OR IT HAS BEEN
STIPULATED THAT, NOTWITHSTANDING ANY SUCH CONTINGENCY, THE VENDEE
SHALL BE BOUND TO MAKE THE PAYMENT. A MERE ACT OF TRESPASS SHALL NOT
AUTHORIZE THE SUSPENSION OF THE PAYMENT OF THE PRICE. (1502A)
RIGHT OF VENDEE TO SUSPEND PAYMENT OF PRICE.
(1) WHEN VENDEE HAS RIGHT. — THE VENDEE, UNDER THIS ARTICLE, MAY
SUSPEND THE PAYMENT OF THE PRICE IN TWO CASES ONLY:
(A) IF HE IS DISTURBED IN THE POSSESSION OR OWNERSHIP OF THE THING
BOUGHT; OR
(B) IF HE HAS A WELL-GROUNDED FEAR THAT HIS POSSESSION OR
OWNERSHIP WOULD BE DISTURBED BY A VINDICATORY ACTION OR
FORECLOSURE OF MORTGAGE.
UNDER THE CIRCUMSTANCES PROVIDED FOR BY ARTICLE 1590, THE VENDEE IS
ONLY ENTITLED TO RETAIN THE PRICE THAT HAS NOT BEEN PAID TO THE VENDOR. HE
IS NOT ENTITLED TO RECOVER WHAT HAS ALREADY BEEN PAID. UNDER THE SECOND
CASE, IT IS NOT NECESSARY THAT AN ACTION BE BROUGHT AGAINST THE VENDEE.
IT HAS BEEN HELD THAT A BUYER OF A CONDOMINIUM UNIT IS JUSTIFIED IN
SUSPENDING PAYMENT OF HIS MONTHLY AMORTIZATIONS WHERE THE SELLER FAILS
TO GIVE HIM A COPY OF THE CONTRACT TO SELL DESPITE REPEATED DEMANDS
THEREFOR. A BUYER IS ENTITLED TO A COPY OF THE CONTRACT TO SELL; OTHERWISE,
HE WOULD NOT BE INFORMED OF HIS RIGHTS AND OBLIGATIONS UNDER THE
CONTRACT.
(2) WHEN VENDEE HAS NO RIGHT. — IN THE FOLLOWING CASES, THE VENDEE
CANNOT SUSPEND THE PAYMENT OF THE PRICE EVEN IF THERE IS DISTURBANCE IN
HIS POSSESSION OR OWNERSHIP OF THE THING SOLD:
(A) IF THE VENDOR GIVES SECURITY FOR THE RETURN OF THE PRICE IN A
PROPER CASE;
(B) IF IT HAS BEEN STIPULATED THAT NOTWITHSTANDING ANY SUCH
CONTINGENCY, THE VENDEE MUST MAKE PAYMENT (SEE ART. 1548, PAR. 3.);
(C) IF THE VENDOR HAS CAUSED THE DISTURBANCE OR DANGER TO CEASE
(D) IF THE DISTURBANCE IS A MERE ACT OF TRESPASS; AND
(E) IF THE VENDEE HAS FULLY PAID THE PRICE.
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IF THE THING SOLD IS IN THE POSSESSION OF THE VENDEE AND THE PRICE IS
ALREADY IN THE HANDS OF THE VENDOR, THE SALE IS A CONSUMMATED CONTRACT
AND ARTICLE 1590 IS NO LONGER APPLICABLE. ARTICLE 1590 PRESUPPOSES THAT THE
PRICE OR ANY PART THEREOF HAS NOT YET BEEN PAID AND THE CONTRACT HAS NOT
YET BEEN CONSUMMATED.
ART. 1591. SHOULD THE VENDOR HAVE REASONABLE GROUNDS TO FEAR THE
LOSS OF IMMOVABLE PROPERTY SOLD AND ITS PRICE, HE MAY IMMEDIATELY SUE FOR
THE RESCISSION OF THE SALE.
SHOULD SUCH GROUND NOT EXIST, THE PROVISIONS OF ARTICLE 1191 SHALL
BE OBSERVED. (1503)
RIGHT OF VENDOR TO RESCIND SALE OF IMMOVABLE PROPERTY.
THIS ARTICLE REFERS ONLY TO A SALE OF IMMOVABLE OR REAL PROPERTY
WHERE THE VENDOR HAS GOOD REASONS TO FEAR THE LOSS OF THE PROPERTY AND
ITS PRICE. IT CONTEMPLATES A SITUATION WHERE THERE HAS BEEN A DELIVERY OF
THE IMMOVABLE PROPERTY BUT THE VENDEE HAS NOT YET PAID THE PRICE.
ART. 1592. IN THE SALE OF IMMOVABLE PROPERTY, EVEN THOUGH IT MAY HAVE
BEEN STIPULATED THAT UPON FAILURE TO PAY THE PRICE AT THE TIME AGREED
UPON THE RESCISSION OF THE CONTRACT SHALL OF RIGHT TAKE PLACE, THE
VENDEE MAY PAY, EVEN AFTER THE EXPIRATION OF THE PERIOD, AS LONG AS NO
DEMAND FOR RESCISSION OF THE CONTRACT HAS BEEN MADE UPON HIM EITHER
JUDICIALLY OR BY A NOTARIAL ACT. AFTER THE DEMAND, THE COURT MAY NOT
GRANT HIM A NEW TERM. (1504A)
RULE WHERE AUTOMATIC RESCISSION OF SALE OF IMMOVABLE PROPERTY
STIPULATED.
AS A GENERAL RULE, THE VENDOR MAY SUE FOR RESCISSION OF THE
CONTRACT SHOULD THE VENDEE FAIL TO PAY THE AGREED PRICE. (ART. 1191.) THE
SALE OF REAL PROPERTY, HOWEVER, IS SUBJECT TO THE STIPULATIONS AGREED
UPON BY THE PARTIES AND TO THE PROVISIONS OF ARTICLE 1592 WHICH SPEAKS OF
NON-PAYMENT OF THE PURCHASE PRICE AS A RESOLUTORY CONDITION. ARTICLE
11912 IS SUBORDINATED TO THE PROVISIONS OF ARTICLE 1592 WHEN APPLIED TO
SALES OF IMMOVABLE PROPERTY
ART. 1593. WITH RESPECT TO MOVABLE PROPERTY, THE RESCISSION OF THE
SALE SHALL OF RIGHT TAKE PLACE IN THE INTEREST OF THE VENDOR, IF THE VENDEE,
UPON THE EXPIRATION OF THE PERIOD FIXED FOR THE DELIVERY OF THE THING,
SHOULD NOT HAVE APPEARED TO RECEIVE IT, OR HAVING APPEARED, HE SHOULD
NOT HAVE TENDERED THE PRICE AT THE SAME TIME UNLESS A LONGER PERIOD HAS
BEEN STIPULATED FOR ITS PAYMENT. (1505)
LAW ON SALES – NOTES 14
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CHAPTER 6 ACTIONS FOR BREACH OF CONTRACT OF SALE OF GOODS
ART. 1594. ACTIONS FOR BREACH OF THE CONTRACT OF SALE OF GOODS SHALL
BE GOVERNED PARTICULARLY BY THE PROVISIONS OF THIS CHAPTER, AND AS TO
MATTERS NOT SPECIFICALLY PROVIDED FOR HEREIN, BY OTHER APPLICABLE
PROVISIONS OF THIS TITLE.
PROVISIONS GOVERNING BREACH OF CONTRACT OF SALE OF GOODS.
“GOODS” INCLUDE ALL CHATTELS PERSONAL BUT NOT THINGS IN ACTION OR
MONEY OF LEGAL TENDER IN THE PHILIPPINES. THE TERM INCLUDES GROWING FRUITS
OR CROPS.
ACTIONS FOR BREACH OF THE CONTRACT OF SALE OF GOODS ARE GOVERNED
PRIMARILY BY THE PROVISIONS OF CHAPTER 6 (ARTS. 1595-1599.) AND SECONDARILY,
BY THE OTHER PROVISIONS OF THE TITLE ON SALES SO FAR AS SAID PROVISIONS CAN
APPLY. HOWEVER, PROVISIONS CONCERNING THE SALE OF IMMOVABLE PROPERTY
HAVE NO APPLICATION TO THE SALE OF GOODS.
ACTIONS AVAILABLE.
IN GENERAL, THE ACTIONS AVAILABLE FOR BREACH OF THE CONTRACT OF SALE
OF GOODS ARE THE FOLLOWING:
(1) ACTION BY THE SELLER FOR PAYMENT OF THE PRICE.
(2) ACTION BY THE SELLER FOR DAMAGES FOR NON-ACCEPTANCE OF THE
GOODS.
(3) ACTION BY THE SELLER FOR RESCISSION OF THE CONTRACT FOR BREACH
THEREOF.
(4) ACTION BY THE BUYER FOR SPECIFIC PERFORMANCE.
(5) ACTION BY THE BUYER FOR RESCISSION OR DAMAGES FOR BREACH OF
WARRANTY.
ART. 1595. WHERE, UNDER A CONTRACT OF SALE, THE OWNERSHIP OF THE
GOODS HAS PASSED TO THE BUYER, AND HE WRONGFULLY NEGLECTS OR REFUSES
TO PAY FOR THE GOODS ACCORDING TO THE TERMS OF THE CONTRACT OF SALE, THE
SELLER MAY MAINTAIN AN ACTION AGAINST HIM FOR THE PRICE OF THE GOODS.
WHERE, UNDER A CONTRACT OF SALE, THE PRICE IS PAYABLE ON A CERTAIN
DAY, IRRESPECTIVE OF DELIVERY OR OF TRANSFER OF TITLE, AND THE BUYER
WRONGFULLY NEGLECTS OR REFUSES TO PAY SUCH PRICE, THE SELLER MAY
MAINTAIN AN ACTION FOR THE PRICE, ALTHOUGH THE OWNERSHIP IN THE GOODS HAS
NOT PASSED. BUT IT SHALL BE A DEFENSE TO SUCH AN ACTION THAT THE SELLER AT
ANY TIME BEFORE THE JUDGMENT IN SUCH ACTION HAS MANIFESTED AN INABILITY
TO PERFORM THE CONTRACT OF SALE ON HIS PART OR AN INTENTION NOT TO
PERFORM IT.
ALTHOUGH THE OWNERSHIP IN THE GOODS HAS NOT PASSED, IF THEY CANNOT
READILY BE RESOLD FOR A REASONABLE PRICE, AND IF THE PROVISIONS OF ARTICLE
1596, FOURTH PARAGRAPH, ARE NOT APPLICABLE, THE SELLER MAY OFFER TO
DELIVER THE GOODS TO THE BUYER, AND, IF THE BUYER REFUSES TO RECEIVE THEM,
MAY NOTIFY THE BUYER THAT THE GOODS ARE THEREAFTER HELD BY THE SELLER
AS BAILEE FOR THE BUYER. THEREAFTER THE SELLER MAY TREAT THE GOODS AS
THE BUYER’S AND MAY MAINTAIN AN ACTION FOR THE PRICE.
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SELLER’S RIGHT OF ACTION FOR THE PRICE.
THE ABOVE ARTICLE PROVIDES THE THREE CASES WHEN AN ACTION FOR THE PRICE
OF THE GOODS UNDER A CONTRACT OF SALE CAN BE MAINTAINED BY THE SELLER:
(1) WHEN THE OWNERSHIP OF THE GOODS HAS PASSED TO THE BUYER AND HE
WRONGFULLY NEGLECTS OR REFUSES TO PAY FOR THE PRICE.
(2) WHEN THE PRICE IS PAYABLE ON A CERTAIN DAY AND THE BUYER WRONGFULLY
NEGLECTS OR REFUSES TO PAY SUCH PRICE, IRRESPECTIVE OF DELIVERY OR OF
TRANSFER OF THE TITLE.
(3) WHEN THE GOODS CANNOT READILY BE RESOLD FOR A REASONABLE PRICE AND
THE BUYER WRONGFULLY REFUSES TO ACCEPT THEM EVEN BEFORE THE OWNERSHIP
IN THE GOODS HAS PASSED, IF THE PROVISIONS OF ARTICLE 1596, 4TH PARAGRAPH
(INFRA.) ARE NOT APPLICABLE.
WHERE OWNERSHIP IN GOODS HAS NOT PASSED.
UNLESS THE CONTRARY APPEARS, THE PRESUMPTION IS THAT THE PAYMENT
OF THE PRICE AND THE DELIVERY OF THE GOODS WERE INTENDED TO BE
CONCURRENT ACTS AND THE OBLIGATION OF EACH PARTY TO PERFORM WILL BE
DEPENDENT UPON THE SIMULTANEOUS PERFORMANCE BY THE OTHER PARTY.
FROM THE ABOVE, IT CAN BE DEDUCED THAT THE SELLER CANNOT MAINTAIN AN
ACTION FOR THE PRICE IF THE OWNERSHIP IN THE GOODS HAS NOT PASSED TO THE
BUYER, (1) UNLESS THE PRICE IS PAYABLE ON A CERTAIN DAY OR (2) UNLESS THE
GOODS CANNOT READILY BE RESOLD FOR A CERTAIN PRICE AND THE PROVISIONS OF
ARTICLE 1596, 4TH PARAGRAPH ARE NOT APPLICABLE.
IT MUST BE NOTED THAT UNDER ARTICLE 1588, THE TITLE TO THE GOODS
PASSES TO THE BUYER FROM THE MOMENT THEY ARE PLACED AT HIS DISPOSAL WHEN
HIS REFUSAL TO ACCEPT THEM IS WITHOUT JUST CAUSE. THE SELLER MAY,
THEREFORE, BRING AN ACTION FOR THE PRICE UPON WRONGFUL REFUSAL OF THE
BUYER TO ACCEPT.
RECOVERY OF PRICE PAYABLE ON A CERTAIN DAY.
IF DIFFERENT TIMES ARE FIXED FOR THE PAYMENT OF THE PRICE AND THE
DELIVERY OF THE GOODS, THE GENERAL RULE IS THAT THE ACT WHICH IS TO BE
PERFORMED FIRST IS ABSOLUTELY DUE ON THAT DAY, WHILE THE PERFORMANCE
WHICH IS TO TAKE PLACE ON A LATER DAY IS NOT DUE UNLESS, AS A CONDITION
PRECEDENT, THE PRIOR PERFORMANCE HAS BEEN RENDERED.
(1) BUYER GIVEN CREDIT FOR THE PRICE. — IT IS COMMON FOR SELLERS TO GIVE
CREDIT FOR THE PRICE. BUT IT IS NOT COMMON FOR BUYERS TO GIVE CREDIT FOR
THE GOODS. IT MAY, HOWEVER, HAPPEN THAT THE BUYER PROMISES TO PAY THE
PRICE BEFORE ACQUIRING THE OWNERSHIP OR EVEN THE POSSESSION OF THE
GOODS. IN SUCH A CASE, THE PROVISIONS OF ARTICLE 1595, PARAGRAPH 2 ARE
APPLICABLE.
(2) DEFENSE TO ACTION FOR THE PRICE. — SAID PARAGRAPH 2 EXCUSES,
HOWEVER, THE BUYER FROM HIS OBLIGATION TO PAY THE PRICE WHEN, BEFORE THE
TIME OF PAYMENT, THE SELLER HAS MANIFESTED AN INABILITY TO PERFORM THE
CONTRACT OF SALE OR AN INTENTION NOT TO PERFORM IT. A CONTRACT OF SALE
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CONTEMPLATES A DOUBLE EXCHANGE. ACCORDINGLY, THERE IS JUSTICE AS WELL AS
GOOD REASON FOR EXCUSING THE BUYER FROM PRIOR PERFORMANCE WHEN HE
WILL NOT GET SUBSEQUENT PERFORMANCE FROM THE SELLER. IN THIS CASE,
PROSPECTIVE FAILURE TO RECEIVE THE THING PROMISED IS AS GOOD AS A DEFENSE
AS A FAILURE WHICH HAS ACTUALLY OCCURRED.
ART. 1596. WHERE THE BUYER WRONGFULLY NEGLECTS OR REFUSES TO
ACCEPT AND PAY FOR THE GOODS, THE SELLER MAY MAINTAIN AN ACTION AGAINST
HIM FOR DAMAGES FOR NON-ACCEPTANCE.
THE MEASURE OF DAMAGES IS THE ESTIMATED LOSS DIRECTLY AND
NATURALLY RESULTING IN THE ORDINARY COURSE OF EVENTS, FROM THE BUYER’S
BREACH OF CONTRACT.
WHERE THERE IS AN AVAILABLE MARKET FOR THE GOODS IN QUESTION, THE
MEASURE OF DAMAGES IS, IN THE ABSENCE OF SPECIAL CIRCUMSTANCES SHOWING
PROXIMATE DAMAGE OF A DIFFERENT AMOUNT, THE DIFFERENCE BETWEEN THE
CONTRACT PRICE AND THE MARKET OR CURRENT PRICE AT THE TIME OR TIMES WHEN
THE GOODS OUGHT TO HAVE BEEN ACCEPTED, OR, IF NO TIME WAS FIXED FOR
ACCEPTANCE, THEN AT TIME OF THE REFUSAL TO ACCEPT.
IF, WHILE LABOR OR EXPENSE OF MATERIAL AMOUNT IS NECESSARY ON THE
PART OF THE SELLER TO ENABLE HIM TO FULFILL HIS OBLIGATIONS UNDER THE
CONTRACT OF SALE, THE BUYER REPUDIATES THE CONTRACT OR NOTIFIES THE
SELLER TO PROCEED NO FURTHER THEREWITH, THE BUYER SHALL BE LIABLE TO THE
SELLER FOR LABOR PERFORMED OR EXPENSES MADE BEFORE RECEIVING NOTICE
OF THE BUYER’S REPUDIATION OR COUNTERMAND. THE PROFIT THE SELLER WOULD
HAVE MADE IF THE CONTRACT OR THE SALE HAD BEEN FULLY PERFORMED SHALL BE
CONSIDERED IN AWARDING THE DAMAGES. (N)
SELLER’S RIGHT OF ACTION FOR DAMAGES.
(1) IF THE BUYER WITHOUT LAWFUL CAUSE NEGLECTS OR REFUSES TO ACCEPT AND
PAY FOR THE GOODS HE AGREED TO BUY, THE SELLER MAY MAINTAIN AN ACTION
AGAINST HIM FOR DAMAGES FOR NON-ACCEPTANCE.
(2) IN AN EXECUTORY CONTRACT, WHERE THE OWNERSHIP IN THE GOODS HAS NOT
PASSED, AND THE SELLER CANNOT MAINTAIN AN ACTION TO RECOVER THE PRICE, THE
SELLER’S REMEDY WILL BE ALSO AN ACTION FOR DAMAGES.
(3) IF THE GOODS ARE NOT YET IDENTIFIED AT THE TIME OF THE CONTRACT OR
SUBSEQUENTLY, THE SELLER’S RIGHT IS NECESSARILY CONFINED TO AN ACTION FOR
DAMAGES.
MEASURE OF DAMAGES FOR NON-ACCEPTANCE.
(1) DIFFERENCE BETWEEN CONTRACT PRICE AND MARKET PRICE. — THE MEASURE OF
DAMAGE IS THE ESTIMATED LOSS DIRECTLY AND NATURALLY RESULTING FROM THE
BUYER’S BREACH OF CONTRACT. IT IS CONVENIENTLY EXPRESSED BY THE FORMULA
— THE DIFFERENCE BETWEEN THE CONTRACT PRICE, THAT IS, THE AMOUNT OF THE
OBLIGATION WHICH THE BUYER FAILED TO FULFILL, AND THE MARKET OR CURRENT
PRICE, THAT IS, THE VALUE OF THE GOODS WHICH THE SELLER HAS LEFT UPON HIS
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HANDS. THIS FOLLOWS THE GENERAL RULE THAT DAMAGES COMPREHEND NOT ONLY
THE ACTUAL LOSS SUFFERED BUT ALSO UNREALIZED PROFIT.
(A) AS THE MARKET PRICE VARIES WITH TIME AND PLACE, THE MARKET PRICE IS
FIXED AT THE TIME WHEN AND THE PLACE WHERE THE GOODS OUGHT TO HAVE BEEN
ACCEPTED OR, IF NO TIME WAS FIXED, AT THE TIME OF REFUSAL TO ACCEPT.
(B) AS THE BURDEN IS UPON THE SELLER TO SHOW WHAT DAMAGE, IF ANY, HE
HAS SUFFERED, IT IS INCUMBENT UPON HIM, IN ORDER TO MAKE OUT A CASE FOR
RECOVERY OF MORE THAN NOMINAL DAMAGES, TO SHOW THAT THE MARKET VALUE
OF THE GOODS IS LESS THAN THE CONTRACT PRICE.
(2) FULL AMOUNT OF DAMAGE. — IF THERE IS NO AVAILABLE MARKET IN WHICH THE
GOODS CAN BE SOLD AT THE TIME, THE SELLER IS “ENTITLED TO THE FULL AMOUNT
OF DAMAGE WHICH HE HAS REALLY SUSTAINED BY A BREACH OF THE CONTRACT.”
(3) PROXIMATE DAMAGES. — ARTICLE 1596 (PAR. 3.) ALLOWS THE SELLER UNDER
“SPECIAL CIRCUMSTANCES” PROXIMATE DAMAGES OF A GREATER AMOUNT THAN THE
DIFFERENCE BETWEEN THE CONTRACT PRICE AND MARKET PRICE WHEN SUCH
DAMAGES “MAY BE REASONABLY ATTRIBUTED TO THE NON-PERFORMANCE OF THE
OBLIGATION.”
MEASURE OF DAMAGES FOR REPUDIATION OR COUNTERMAND.
IN CASE THE BUYER REPUDIATES THE CONTRACT OR NOTIFIES THE SELLER TO
PROCEED NO FURTHER THEREWITH, THE MEASURE OF DAMAGES TO WHICH THE
SELLER IS ENTITLED WOULD INCLUDE:
(1) THE LABOR PERFORMED AND EXPENSES INCURRED FOR MATERIALS BEFORE
RECEIVING NOTICE OF THE BUYER’S REPUDIATION; AND
(2) THE PROFIT HE WOULD HAVE REALIZED IF THE SALE HAD BEEN FULLY PERFORMED.
ART. 1597. WHERE THE GOODS HAVE NOT BEEN DELIVERED TO THE BUYER, AND
THE BUYER HAS REPUDIATED THE CONTRACT OF SALE, OR HAS MANIFESTED HIS
INABILITY TO PERFORM HIS OBLIGATIONS THEREUNDER, OR HAS COMMITTED A
BREACH THEREOF, THE SELLER MAY TOTALLY RESCIND THE CONTRACT OF SALE BY
GIVING NOTICE OF HIS ELECTION SO TO DO TO THE BUYER. (N)
SELLER’S RIGHT OF RESCISSION BEFORE DELIVERY.
THE ABOVE ARTICLE SPECIFIES THE CASES WHEN THE SELLER MAY RESCIND A
CONTRACT OF SALE OF GOODS WHICH HAVE NOT YET BEEN DELIVERED TO THE
BUYER. THEY ARE:
(1) WHEN THE BUYER HAS REPUDIATED THE CONTRACT OF SALE;
(2) WHEN THE BUYER HAS MANIFESTED HIS INABILITY TO PERFORM HIS OBLIGATIONS
THEREUNDER; AND
(3) WHEN THE BUYER HAS COMMITTED A BREACH OF THE CONTRACT OF SALE.
IN A CASE, THE SELLER WAS NOT ALLOWED TO TOTALLY RESCIND A CONTRACT
TO SELL TWO LOTS, IT APPEARING THAT THE INSTALLMENTS PAID BY THE BUYER WERE
MORE THAN THE VALUE OF ONE LOT. THE CONVEYANCE TO THE BUYER OF ONE OF
THE TWO LOTS WAS ORDERED.
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IF THE GOODS HAVE BEEN DELIVERED, THE SELLER MAY RECOVER THE VALUE OF
WHAT HE HAS GIVEN.
GIVING OF NOTICE REQUIRED.
THE RIGHT GRANTED TO THE SELLER FOLLOWS THE GENERAL RULE IN RECIPROCAL
OBLIGATIONS THAT A PARTY TO A CONTRACT INJURED BY NONFULFILLMENT, MAY
RESCIND THE CONTRACT AND AT THE SAME TIME ASK FOR DAMAGES
ART. 1598. WHERE THE SELLER HAS BROKEN A CONTRACT TO DELIVER
SPECIFIC OR ASCERTAINED GOODS, A COURT MAY, ON THE APPLICATION OF THE
BUYER, DIRECT THAT THE CONTRACT SHALL BE PERFORMED SPECIFICALLY,
WITHOUT GIVING THE SELLER THE OPTION OF RETAINING THE GOODS ON PAYMENT
OF DAMAGES. THE JUDGMENT OR DECREE MAY BE UNCONDITIONAL, OR UPON SUCH
TERMS AND CONDITIONS AS TO DAMAGES, PAYMENT OF THE PRICE AND OTHERWISE,
AS THE COURT MAY DEEM JUST. (N)
BUYER’S RIGHT TO SPECIFIC PERFORMANCE.
THE ARTICLE APPLIES ONLY WHERE THE GOODS TO BE DELIVERED ARE
SPECIFIC OR ASCERTAINED.
IN RECIPROCAL OBLIGATIONS, IT IS THE INJURED PARTY WHO HAS A RIGHT TO
CHOOSE BETWEEN FULFILLMENT AND RESCISSION, WITH THE PAYMENT OF DAMAGES
IN EITHER CASE. CONSEQUENTLY, THE RIGHT OF THE INJURED PARTY TO DEMAND
SPECIFIC PERFORMANCE CANNOT BE DEFEATED BY THE GUILTY PARTY’S CHOICE TO
RESCIND THE CONTRACT.
THIS IS ALSO THE RULE IN ARTICLE 1598 WHICH GRANTS TO THE BUYER, AS A
MATTER OF RIGHT, THE REMEDY OF SPECIFIC PERFORMANCE IN CASE THE SELLER
SHOULD VIOLATE HIS OBLIGATION TO MAKE DELIVERY. THE SELLER CANNOT RETAIN
THE GOODS ON PAYMENT OF DAMAGES BECAUSE DAMAGES ARE IMPOSED BY LAW TO
INSURE FULFILLMENT OF CONTRACT AND NOT TO SUBSTITUTE FOR IT. IN GRANTING
SPECIFIC PERFORMANCE, THE COURT MAY IMPOSE SUCH TERMS AND CONDITIONS AS
TO DAMAGES, PAYMENT OF THE PRICE AND OTHERWISE, AS IT MAY DEEM JUST.
ART. 1599. WHERE THERE IS A BREACH OF WARRANTY BY THE SELLER, THE
BUYER MAY, AT HIS ELECTION:
(1) ACCEPT OR KEEP THE GOODS AND SET UP AGAINST THE SELLER, THE
BREACH OF WARRANTY BY WAY OF RECOUPMENT IN DIMINUTION OR EXTINCTION OF
THE PRICE;
(2) ACCEPT OR KEEP THE GOODS AND MAINTAIN AN ACTION AGAINST THE
SELLER FOR DAMAGES FOR THE BREACH OF WARRANTY;
(3) REFUSE TO ACCEPT THE GOODS, AND MAINTAIN AN ACTION AGAINST THE
SELLER FOR DAMAGES FOR THE BREACH OF WARRANTY;
(4) RESCIND THE CONTRACT OF SALE AND REFUSE TO RECEIVE THE GOODS OR
IF THE GOODS HAVE ALREADY BEEN RECEIVED, RETURN THEM OR OFFER TO RETURN
THEM TO THE SELLER AND RECOVER THE PRICE OR ANY PART THEREOF WHICH HAS
BEEN PAID.
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WHEN THE BUYER HAS CLAIMED AND BEEN GRANTED A REMEDY IN ANY ONE OF
THESE WAYS, NO OTHER REMEDY CAN THEREAFTER BE GRANTED, WITHOUT
PREJUDICE TO THE PROVISIONS OF THE SECOND PARAGRAPH OF ARTICLE 1191.
WHERE THE GOODS HAVE BEEN DELIVERED TO THE BUYER, HE CANNOT
RESCIND THE SALE IF HE KNEW OF THE BREACH OF WARRANTY WHEN HE ACCEPTED
THE GOODS WITHOUT PROTEST, OR IF HE FAILS TO NOTIFY THE SELLER WITHIN A
REASONABLE TIME OF THE ELECTION TO RESCIND, OR IF HE FAILS TO RETURN OR TO
OFFER TO RETURN THE GOODS TO THE SELLER IN SUBSTANTIALLY AS GOOD
CONDITION AS THEY WERE IN AT THE TIME THE OWNERSHIP WAS TRANSFERRED TO
THE BUYER. BUT IF DETERIORATION OR INJURY OF THE GOODS IS DUE TO THE
BREACH OF WARRANTY, SUCH DETERIORATION OR INJURY SHALL NOT PREVENT THE
BUYER FROM RETURNING OR OFFERING TO RETURN THE GOODS TO THE SELLER AND
RESCINDING THE SALE.
WHERE THE BUYER IS ENTITLED TO RESCIND THE SALE AND ELECTS TO DO SO,
HE SHALL CEASE TO BE LIABLE FOR THE PRICE UPON RETURNING OR OFFERING TO
RETURN THE GOODS. IF THE PRICE OR ANY PART THEREOF HAS ALREADY BEEN PAID,
THE SELLER SHALL BE LIABLE TO REPAY SO MUCH THEREOF AS HAS BEEN PAID,
CONCURRENTLY WITH THE RETURN OF THE GOODS, OR IMMEDIATELY AFTER AN
OFFER TO RETURN THE GOODS IN EXCHANGE FOR REPAYMENT OF THE PRICE.
WHERE THE BUYER IS ENTITLED TO RESCIND THE SALE AND ELECTS TO DO SO,
IF THE SELLER REFUSES TO ACCEPT AN OFFER OF THE BUYER TO RETURN THE
GOODS, THE BUYER SHALL THEREAFTER BE DEEMED TO HOLD THE GOODS AS BAILEE
FOR THE SELLER, BUT SUBJECT TO A LIEN TO SECURE THE PAYMENT OF ANY
PORTION OF THE PRICE WHICH HAS BEEN PAID, AND WITH THE REMEDIES FOR THE
ENFORCEMENT OF SUCH LIEN ALLOWED TO AN UNPAID SELLER BY ARTICLE 1526.
(5) IN THE CASE OF BREACH OF WARRANTY OF QUALITY, SUCH LOSS, IN THE
ABSENCE OF SPECIAL CIRCUMSTANCES SHOWING PROXIMATE DAMAGE OF A
GREATER AMOUNT, IS THE DIFFERENCE BETWEEN THE VALUE OF THE GOODS AT THE
TIME OF DELIVERY TO THE BUYER AND THE VALUE THEY WOULD HAVE HAD IF THEY
HAD ANSWERED TO THE WARRANTY. (N)
REMEDIES OF BUYER FOR BREACH OF WARRANTY BY SELLER.
THIS ARTICLE APPLIES BOTH TO IMPLIED WARRANTIES AND TO EXPRESS WARRANTIES,
WHETHER OF QUALITY OR OF TITLE.
THE REMEDIES ALLOWED TO THE BUYER WHEN THE SELLER HAS BEEN GUILTY OF A
BREACH OF PROMISE OR WARRANTY ARE:
(1) ACCEPT THE GOODS AND SET UP THE SELLER’S BREACH TO REDUCE OR
EXTINGUISH THE PRICE;
(2) ACCEPT THE GOODS AND MAINTAIN AN ACTION FOR DAMAGES FOR THE
BREACH OF THE WARRANTY;
(3) REFUSE TO ACCEPT THE GOODS AND MAINTAIN AN ACTION FOR DAMAGES
FOR THE BREACH OF THE WARRANTY; AND
(4) RESCIND THE CONTRACT OF SALE BY RETURNING OR OFFERING THE RETURN
OF THE GOODS, AND RECOVER THE PRICE OR ANY PART THEREOF WHICH HAS BEEN
PAID. (NOS. 1-4.)
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THE REMEDIES OPEN TO THE BUYER UNDER THE ARTICLE MAY BE GROUPED INTO
THREE, TO WIT: (A) RECOUPMENT (NO. 1.); (B) ACTION (NO. 3.) OR COUNTERCLAIM FOR
DAMAGES (NO. 2.); AND (C) RESCISSION. (NO. 4.)
REMEDIES ALTERNATIVE.
THE ABOVE REMEDIES ARE ALTERNATIVE. ONCE A REMEDY HAS BEEN GRANTED
TO THE BUYER, NO OTHER REMEDY CAN THEREAFTER BE EXERCISED OR GRANTED.
THE ONLY EXCEPTION IS WHEN AFTER THE BUYER HAS CHOSEN FULFILLMENT,
IT SHOULD BECOME IMPOSSIBLE, IN WHICH CASE HE MAY ALSO SUE FOR RESCISSION.
RECOUPMENT IN DIMINUTION OF THE PRICE.
THE THEORY OF RECOUPMENT IS THAT THE SELLER’S DAMAGES ARE CUT DOWN
TO AN AMOUNT WHICH WILL COMPENSATE HIM FOR THE VALUE OF WHAT HE HAS
GIVEN.
IN VIEW OF THE BREACH OF WARRANTY BY THE SELLER, THE BUYER IS NOT
BOUND TO PERFORM THE CONTRACT ON HIS PART, BUT THE BUYER HAS RECEIVED
SOMETHING OF VALUE FOR WHICH HE OUGHT TO PAY. BY MEANS OF RECOUPMENT,
THE BUYER IS ALLOWED TO AVOID THE CONTRACT AND SUBSTITUTE IN ITS STEAD A
QUASI-CONTRACTUAL OBLIGATION FOR THE VALUE OF WHAT HE HAS RECEIVED. THE
WORD IS NEARLY THOUGH NOT QUITE SYNONYMOUS WITH DISCOUNT, REDUCTION OR
DEDUCTION.
ACTION OR COUNTERCLAIM FOR DAMAGES.
THE LAW PROVIDES THAT THE BUYER MAY “REFUSE TO ACCEPT THE GOODS,
AND MAINTAIN AN ACTION AGAINST THE SELLER FOR DAMAGES FOR THE BREACH OF
WARRANTY.” (NO. 3.) IT IS FUNDAMENTAL THAT THE BREACH OF AN OBLIGATION GIVES
RISE TO AN ACTION FOR DAMAGES. IT IS, THEREFORE, UNNECESSARY TO DISCUSS SO
PLAIN A POINT.
ACCEPTANCE WITH KNOWLEDGE OF THE BREACH OF WARRANTY DOES
PRECLUDE RESCISSION BUT IT DOES NOT NECESSARILY PRECLUDE A RIGHT TO
RECOUPMENT OR DAMAGES.
WHEN RESCISSION BY THE BUYER NOT ALLOWED.
THE REMEDY OF RESCISSION IS ALLOWED ON BROAD PRINCIPLES OF JUSTICE. THE
BASIS OF THE REMEDY IS THAT THE BUYER HAS NOT RECEIVED WHAT HE HAS
BARGAINED FOR.
IT CANNOT BE AVAILED OF, HOWEVER, IN THE FOLLOWING CASES:
(1) IF THE BUYER ACCEPTED THE GOODS KNOWING OF THE BREACH OF WARRANTY
WITHOUT PROTEST;
(2) IF HE FAILS TO NOTIFY THE SELLER WITHIN A REASONABLE TIME OF HIS ELECTION
TO RESCIND; AND
(3) IF HE FAILS TO RETURN OR OFFER TO RETURN THE GOODS IN SUBSTANTIALLY AS
GOOD CONDITION AS THEY WERE IN AT THE TIME OF THE TRANSFER OF OWNERSHIP
TO HIM. BUT WHERE THE INJURY TO THE GOODS WAS CAUSED BY THE VERY DEFECT
AGAINST WHICH THE SELLER WARRANTED, THE BUYER MAY STILL RESCIND THE SALE.
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RIGHTS AND OBLIGATIONS OF BUYER IN CASE OF RESCISSION.
THEY ARE AS FOLLOWS:
(1) IN CASE OF RESCISSION, THE BUYER SHALL CEASE TO BE LIABLE FOR THE PRICE,
HIS ONLY OBLIGATION BEING TO RETURN THE GOODS;
(2) IF HE HAS PAID THE PRICE OR ANY PART THEREOF, HE MAY RECOVER IT FROM THE
SELLER
(3) HE HAS THE RIGHT TO HOLD THE GOODS AS BAILEE FOR THE SELLER SHOULD THE
LATTER REFUSE THE RETURN OF THE GOODS; AND
(4) HE HAS THE RIGHT TO HAVE A LIEN ON THE GOODS FOR ANY PORTION OF THE
PRICE ALREADY PAID WHICH LIEN HE MAY ENFORCE AS IF HE WERE AN UNPAID
SELLER.
LAW ON SALES – NOTES 15
CHAPTER 7 - EXTINGUISHMENT OF SALE
ART. 1600. SALES ARE EXTINGUISHED BY THE SAME CAUSES AS ALL OTHER
OBLIGATIONS, BY THOSE STATED IN THE PRECEDING ARTICLES OF THIS TITLE, AND
BY CONVENTIONAL OR LEGAL REDEMPTION.
CAUSES FOR EXTINGUISHMENT OF SALE.
THE MODES OR CAUSES OF EXTINGUISHING THE CONTRACT OF SALE MAY BE
CLASSIFIED INTO:
(1) COMMON OR THOSE CAUSES WHICH ARE ALSO THE MEANS OF EXTINGUISHING
ALL OTHER CONTRACTS LIKE PAYMENT, LOSS OF THE THING, CONDONATION, ETC.
(2) SPECIAL OR THOSE CAUSES WHICH ARE RECOGNIZED BY THE LAW ON SALES
(SUCH AS THOSE COVERED BY ARTICLES 1484, 1532, 1539, 1540, 1542, 1556, 1560, 1567,
AND 1591.); AND
(3) EXTRA-SPECIAL OR THOSE CAUSES WHICH ARE GIVEN SPECIAL DISCUSSION BY
THE CIVIL CODE AND THESE ARE CONVENTIONAL REDEMPTION AND LEGAL
REDEMPTION.
SECTION 1. - CONVENTIONAL REDEMPTION
ART. 1601. CONVENTIONAL REDEMPTION SHALL TAKE PLACE WHEN THE
VENDOR RESERVES THE RIGHT TO REPURCHASE THE THING SOLD, WITH THE
OBLIGATION TO COMPLY WITH THE PROVISIONS OF ARTICLE 1616 AND OTHER
STIPULATIONS WHICH MAY HAVE BEEN AGREED UPON.
CONVENTIONAL REDEMPTION DEFINED.
CONVENTIONAL REDEMPTION IS THE RIGHT WHICH THE VENDOR RESERVES TO
HIMSELF, TO REACQUIRE THE PROPERTY SOLD PROVIDED HE RETURNS TO THE
VENDEE THE PRICE OF THE SALE, THE EXPENSES OF THE CONTRACT, ANY OTHER
LEGITIMATE PAYMENTS MADE THEREFOR AND THE NECESSARY AND USEFUL
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EXPENSES MADE ON THE THING SOLD (ART. 1616.), AND FULFILLS OTHER
STIPULATIONS WHICH MAY HAVE BEEN AGREED UPON.
SUBJECT MATTER OF CONVENTIONAL REDEMPTION.
BOTH REAL AND PERSONAL PROPERTY MAY BE THE SUBJECT MATTER OF PACTO
DE RETRO SALES OR SALES WITH RIGHT TO REPURCHASE ALTHOUGH THERE ARE
CERTAIN ARTICLES (ARTS. 1607, 1611, 1612, 1613, 1614, 1617, 1618.) WHICH ARE
APPLICABLE ONLY TO IMMOVABLES.
ART. 1602. THE CONTRACT SHALL BE PRESUMED TO BE AN EQUITABLE
MORTGAGE, IN ANY OF THE FOLLOWING CASES:
(1) WHEN THE PRICE OF A SALE WITH RIGHT TO REPURCHASE IS UNUSUALLY
INADEQUATE;
(2) WHEN THE VENDOR REMAINS IN POSSESSION AS LESSEE OR OTHERWISE;
(3) WHEN UPON OR AFTER THE EXPIRATION OF THE RIGHT TO REPURCHASE
ANOTHER INSTRUMENT EXTENDING THE PERIOD OF REDEMPTION OR GRANTING A
NEW PERIOD IS EXECUTED;
(4) WHEN THE PURCHASER RETAINS FOR HIMSELF A PART OF THE PURCHASE
PRICE;
(5) WHEN THE VENDOR BINDS HIMSELF TO PAY THE TAXES ON THE THING SOLD;
(6) IN ANY OTHER CASE WHERE IT MAY BE FAIRLY INFERRED THAT THE REAL
INTENTION OF THE PARTIES IS THAT THE TRANSACTION SHALL SECURE THE PAYMENT
OF A DEBT OR THE PERFORMANCE OF ANY OTHER OBLIGATION.
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 WHICH SHALL BE SUBJECT TO THE USURY LAWS.
EQUITABLE MORTGAGE
CONCEPT - AN EQUITABLE MORTGAGE IS ONE WHICH, ALTHOUGH LACKING IN SOME
FORMALITY, OR FORM OR WORDS, OR OTHER REQUISITES DEMANDED BY STATUTE,
NEVERTHELESS REVEALS THE INTENTION OF THE PARTIES TO CHARGE REAL
PROPERTY AS SECURITY FOR A DEBT, AND CONTAINS NOTHING IMPOSSIBLE OR
CONTRARY TO LAW.
EQUITABLE MORTGAGE - ESSENTIAL ELEMENTS ARE:
A. THE PARTIES ENTER INTO THAT APPEARS TO BE A CONTRACT OF SALE.
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B. THEIR INTENTION IS TO SECURE AN EXISTING DEBT BY WAY OF MORTGAGE.
PRICE IN PACTO DE RETRO SALES
IN A CONTRACT OF SALE WITH PACTO DE RETRO, THE PRICE USUALLY IS LESS THAN
IN ABSOLUTE SALES FOR THE REASON THAT IN PACTO DE RETRO SALES, THE VENDOR
EXPECTS TO REACQUIRE OR REDEEM THE PROPERTY SOLD, OR ELSE HE MAY SELL
HIS RIGHT TO REDEEM AND THUS RECOVER THE LOSS HE CLAIMS SUFFERED BY
REASON OF THE INADEQUACY OF THE PRICE.
ART. 1603. IN CASE OF DOUBT, A CONTRACT PURPORTING TO BE A SALE WITH
RIGHT TO REPURCHASE SHALL BE CONSTRUED AS AN EQUITABLE MORTGAGE. (N)
ART. 1604. THE PROVISIONS OF ARTICLE 1602 SHALL ALSO APPLY TO A
CONTRACT PURPORTING TO BE AN ABSOLUTE SALE. (N)
PRESUMPTION IN CASE OF DOUBT.
(1) DOUBT RESOLVED IN FAVOR OF EQUITABLE MORTGAGE. — WHETHER THE SALE IS
ABSOLUTE OR PACTO DE RETRO, IT SHALL BE PRESUMED TO BE AN EQUITABLE
MORTGAGE EVEN IF ONLY ONE OF THE CIRCUMSTANCES MENTIONED IN ARTICLE 1602
IS PRESENT. THIS IS SO BECAUSE PACTO DE RETRO SALES, WITH THE STRINGENT AND
ONEROUS EFFECTS THAT ACCOMPANY THEM, ARE NOT FAVORED.
(2) PRESUMPTION, AN EXCEPTION TO GENERAL RULE. — ARTICLE 1603 IS AN
EXCEPTION TO THE RULE THAT DOUBTS AFFECTING AN ONEROUS CONTRACT SHALL
BE SETTLED IN FAVOR OF THE GREATEST RECIPROCITY OF INTERESTS.
(3) PAROL EVIDENCE ADMISSIBLE. — PAROL EVIDENCE IS ADMISSIBLE TO SHOW THAT
A TRANSACTION PURPORTING TO BE AN ABSOLUTE OR A PACTO DE RETRO SALE IS
REALLY ONE OF LOAN WITH A SECURITY AND, THEREFORE, A MORTGAGE.
(4) WHERE CONTRACT APPEARS TO BE A GENUINE SALE. — IF FROM ALL INDICATIONS,
THE CONTRACT APPEARS TO BE A GENUINE SALE WITH RIGHT OF REPURCHASE (OR
AN ABSOLUTE SALE) AND NONE OF THE SUSPICIOUS CIRCUMSTANCES MENTIONED IN
ARTICLE 1602 IS PRESENT, THE TRUE AGREEMENT WILL BE UPHELD.
EFFECT WHERE CONTRACT HELD AS AN EQUITABLE MORTGAGE.
(1) FORMAL REQUIREMENTS OF MORTGAGE DEEMED COMPLIED WITH. — WHEN A
CONTRACT PURPORTING TO BE SALE WITH A RIGHT TO REPURCHASE IS HELD AS AN
EQUITABLE MORTGAGE, THE SAME SHALL BE GIVEN EFFECT AS IF IT HAS COMPLIED
WITH THE FORMAL REQUIREMENTS OF MORTGAGE.
(2) CONTRACT SUBORDINATE TO A SUBSEQUENT REGISTERED MORTGAGE. — THE
EQUITABLE MORTGAGE, WHILE VALID AS BETWEEN THE IMMEDIATE PARTIES THERETO,
CANNOT, HOWEVER, PREVAIL OVER A SUBSEQUENT REGISTERED MORTGAGE.
(3) TITLE OF PROPERTY REMAINS IN SUPPOSED VENDOR. — THE CIRCUMSTANCE THAT
THE ORIGINAL TRANSACTION IS SUBSEQUENTLY DECLARED TO BE AN EQUITABLE
MORTGAGE MEANS THAT THE TITLE TO THE MORTGAGED PROPERTY WHICH HAD BEEN
TRANSFERRED TO THE SUPPOSED VENDEE.
(4) REMEDY OF CREDITOR IS TO FORECLOSE. — ACCORDINGLY, IT IS NOT PROPER FOR
A COURT TO DECLARE THE PROPERTY AS ALREADY OWNED BY THE MORTGAGEE
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UPON FAILURE OF THE MORTGAGOR TO PAY HIS OBLIGATION WITHIN THE REQUIRED
PERIOD, AS IT WOULD PRODUCE THE SAME EFFECT AS A PACTUM COMMISSORIUM, A
FORFEITURE CLAUSE THAT HAS TRADITIONALLY BEEN HELD AS CONTRARY TO GOOD
MORALS AND PUBLIC POLICY AND, THEREFORE, VOID.
(5) CONVEYANCE OF LAND NOT TO AFFECT MORTGAGOR’S RIGHT OF REDEMPTION. —
NEITHER IS A PERSON’S RIGHT AS A MORTGAGOR IN EQUITY AFFECTED BY THE FACT
THAT THE SUBJECT PROPERTY WAS ALREADY TITLED IN THE NAME OF THE SUPPOSED
VENDEE BASED ON THE MISTAKEN NOTION THAT THE PROPERTY WAS SOLD A RETRO.
ART. 1605. IN CASES REFERRED TO IN ARTICLES 1602 AND 1604, THE
APPARENT VENDOR MAY ASK FOR THE REFORMATION OF THE INSTRUMENT.
RIGHT TO REFORMATION.
REFORMATION IS THAT REMEDY IN EQUITY BY MEANS OF WHICH A WRITTEN
INSTRUMENT IS MADE OR CONSTRUED SO AS TO EXPRESS OR CONFORM TO THE REAL
INTENTION OF THE PARTIES WHEN SUCH INTENTION IS NOT EXPRESSED IN THE
INSTRUMENT.
THE APPARENT VENDOR MAY ASK FOR THE REFORMATION OF THE
INSTRUMENT IN THE CONTRACTS PRESUMED TO BE AN EQUITABLE MORTGAGE. IN
REFORMATION, THERE HAS BEEN A MEETING OF MINDS BETWEEN THE PARTIES.
WHERE THERE HAS BEEN NO MEETING OF MINDS, THE REMEDY IS ANNULMENT.
ART. 1606. THE RIGHT REFERRED TO IN ARTICLE 1601, IN THE ABSENCE OF AN
EXPRESS AGREEMENT, SHALL LAST FOUR YEARS FROM THE DATE OF THE
CONTRACT.
SHOULD THERE BE AN AGREEMENT, THE PERIOD CANNOT EXCEED TEN YEARS.
HOWEVER, THE VENDOR MAY STILL EXERCISE THE RIGHT TO REPURCHASE
WITHIN THIRTY DAYS 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.
PERIOD FOR EXERCISE OF RIGHT OF REDEMPTION:
1. NO AGREEMENT/GRANTING RIGHT. – 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. AGREEMENT MERELY GRANTS RIGHT. – IF THE PARTIES AGREE ONLY ON THE
RIGHT TO REDEEM ON THE PART OF THE VENDOR BUT THERE IS 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.
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3. DEFINITE PERIOD OF REDEMPTION AGREED UPON. – 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 TEN (10)
YEARS.
4. PERIOD OF REDEMPTION AGREED UPON NOT SPECIFIED. – IF THE PARTIES
AGREE THAT THE VENDOR SHALL HAVE A RIGHT TO REDEEM AND THEY INTEND
A PERIOD WHICH, HOWEVER, IS NOT SPECIFIED, THEN THE REDEMPTION IS TEN
(10) YEARS.
5. PERIOD AGREED UPON EXCEEDS TEN YEARS. – WHERE THE AGREED PERIOD
EXCEEDS TEN (10) YEARS, THE VENDOR A RETRO HAS TEN (10) YEARS FROM
THE EXECUTION OF THE CONTRACT TO EXERCISE HIS RIGHT OF REDEMPTION.
FINAL JUDGMENT RENDERED THE CONTRACT PACTO DE RETRO. – “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 THIRTY (30) DAYS WITHIN WHICH TO EXERCISE THE RIGHT TO REPURCHASE.
ART. 1607. 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.
JUDICIAL ORDER FOR RECORDING OF CONSOLIDATION OF OWNERSHIP.
(1) NECESSITY. — IF REAL PROPERTY IS INVOLVED AND THE VENDOR FAILED TO
REDEEM WITHIN THE PERIOD AGREED UPON, THE VENDEE’S TITLE BECOMES
IRREVOCABLE BUT THE CONSOLIDATION OF OWNERSHIP IN THE VENDEE SHALL NOT
BE RECORDED IN THE REGISTRY OF PROPERTY WITHOUT A JUDICIAL ORDER AND
UNTIL AFTER THE VENDOR HAS BEEN DULY HEARD. THE REASON IS THAT THE
TRANSACTION MAY NOT BE A GENUINE PACTO DE RETRO BUT ONLY AN EQUITABLE
MORTGAGE.
(2) PURPOSE. — THE REQUIREMENT PROVIDES ADDITIONAL SAFEGUARDS TO
DEBTORS. THE PURPOSE IS NOT ONLY TO HAVE ALL DOUBTS OVER THE TRUE NATURE
OF THE TRANSACTION SPEEDILY ASCERTAINED AND DECIDED, BUT ALSO TO PREVENT
THE INTERPOSITION OF BUYERS IN GOOD FAITH WHILE SUCH DETERMINATION IS
BEING MADE.
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(3) FORMER METHOD. — UNDER THE FORMER METHOD OF CONSOLIDATION BY A MERE
EXTRA-JUDICIAL AFFIDAVIT OF THE BUYER A RETRO, THE LATTER COULD EASILY CUT
OFF ANY CLAIMS OF THE SELLER BY DISPOSING OF THE PROPERTY AFTER SUCH
CONSOLIDATION TO STRANGERS IN GOOD FAITH AND WITHOUT NOTICE.
(4) ACQUISITION OF OWNERSHIP BY VENDEE A RETRO. — IT IS PLAIN FROM ARTICLE
1607 THAT THE ACQUISITION OF OWNERSHIP BY A VENDEE A RETRO IS AUTOMATIC
ONCE THERE IS FAILURE TO REDEEM WITHIN THE STIPULATED PERIOD, OWNERSHIP
OF THE PROPERTY SOLD BECOMES VESTED OR CONSOLIDATED BY OPERATION OF
LAW ON THE VENDEE.
(5) EFFECT OF FAILURE TO COMPLY WITH THE REQUIREMENT. — THE ONLY EFFECT OF
THE FAILURE OF THE VENDEE A RETRO TO COMPLY WITH ARTICLE 1607 IS THAT THE
ABSOLUTE OWNERSHIP OF THE VENDEE A RETRO CANNOT BE RECORDED IN THE
REGISTRY OF PROPERTY.
ART. 1608. THE VENDOR MAY BRING HIS ACTION AGAINST EVERY POSSESSOR
WHOSE RIGHT IS DERIVED FROM THE VENDEE, EVEN IF IN THE SECOND CONTRACT NO
MENTION SHOULD HAVE BEEN MADE OF THE RIGHT TO REPURCHASE, WITHOUT
PREJUDICE TO THE PROVISIONS OF THE MORTGAGE LAW AND THE LAND
REGISTRATION LAW WITH RESPECT TO THIRD PERSONS. (1510)
RIGHT TO REDEEM, A REAL RIGHT
BY VIRTUE OF THE PROVISION OF THIS ARTICLE, IT CAN BE CONCLUDED THAT
THE RIGHT TO REPURCHASE IS OF A REAL CHARACTER AND SHOULD BE NOT
CONSIDERED PERSONAL. HOWEVER, EXCEPTION IS TO BE MADE TO THE PROVISIONS
OF THE MORTGAGE LAW AND THE LAND REGISTRATION LAW WITH RESPECT TO THIRD
PERSONS. (10 MANRESA 314.) THIS MEANS THAT THE VENDOR A RETRO CANNOT
EXERCISE HIS RIGHT OF REDEMPTION AGAINST A SUBSEQUENT TRANSFEREE FOR
VALUE AND IN GOOD FAITH IF HIS RIGHT IS NOT PROPERLY REGISTERED OR
ANNOTATED.
AVAILABILITY OF THE RIGHT OF REDEMPTION
A. AGAINST A BUYER A RETRO
B. AGAINST EVERY POSSESSOR WHO DERIVED HIS RIGHT FROM THE VENDEE A
RETRO, SUBJECT HOWEVER, TO THE PROVISIONS OF MORTGAGE LAW AND LAND
REGISTRATION LAW.
ART. 1609. THE VENDEE IS SUBROGATED TO THE VENDOR'S RIGHTS AND
ACTIONS.
VENDEE IS SUBROGATED TO VENDOR’S RIGHTS.
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SUBROGATION TRANSFERS TO THE PERSON SUBROGATED THE CREDIT WITH
ALL THE RIGHTS THERETO APPERTAINING. (ART. 1303.)
THE ABOVE ARTICLE IS LOGICAL BECAUSE A PACTO DE RETRO SALE TRANSFERS
OWNERSHIP TO THE VENDEE ALTHOUGH SUBJECT TO THE CONDITION OF
REPURCHASE. AS OWNER, THE VENDEE, FOR MAY TRANSFER OR ALIENATE HIS RIGHT
TO A THIRD PERSON, MORTGAGE THE PROPERTY, ENJOY THE FRUIT THEREOF,
RECOVER THE PROPERTY AGAINST EVERY POSSESSOR, AND PERFORM ALL OTHER
ACTS OF OWNERSHIP SUBJECT ONLY TO THE RIGHT OF REDEMPTION OF THE VENDOR.
ART. 1610. THE CREDITORS OF THE VENDOR CANNOT MAKE USE OF THE RIGHT
OF REDEMPTION AGAINST THE VENDEE, UNTIL AFTER THEY HAVE EXHAUSTED THE
PROPERTY OF THE VENDOR.
REDEMPTION BY CREDITORS OF THE VENDOR
REDEMPTION IS A RIGHT PERTAINING TO THE VENDOR AS WELL AS TO HIS
CREDITORS. HOWEVER, THIS RIGHT COULD ONLY BE AVAILED OF AFTER THE
CREDITORS EXHAUSTED THE PROPERTY OF THE VENDOR.
EXAMPLE: ANA SOLD TO MARIE A SPECIFIC PIECE OF LAND FOR P500,000/00
WITH A RIGHT TO REPURCHASE. BPI IS AN UNPAID CREDITOR OF ANA FOR P400,000.00.
BPI CAN MAKE USE OF ANA’S RIGHT TO REDEEM, ONLY AFTER BPI HAS EXHAUSTED
THE PROPERTIES OF ANA TO PAY OFF HER LOAN TO BPI.
ART. 1611. IN A SALE WITH A RIGHT TO REPURCHASE, THE VENDEE OF A PART
OF AN UNDIVIDED IMMOVABLE WHO ACQUIRES THE WHOLE THEREOF IN THE CASE OF
ARTICLE 498, MAY COMPEL THE VENDOR TO REDEEM THE WHOLE PROPERTY, IF THE
LATTER WISHES TO MAKE USE OF THE RIGHT OF REDEMPTION.
THE LAW AGAINST CO-OWNERSHIP.
ARTICLE 198 OF THE CIVIL CODE PROVIDES THAT “WHENEVER THE THING IS
ESSENTIALLY INDIVISIBLE AND THE CO-OWNERS CANNOT AGREE THAT IT BE
ALLOWED TO ONE OF THEM WHO SHALL INDEMNIFY THE OTHERS, IS SHALL BE SOLD
AND ITS PROCEED DISTRIBUTED.”
EXAMPLE: A AND B ARE CO-OWNERS OF A HOUSE AND LOT. A SOLD HIS INTEREST
TO X WITH A RIGHT TO REPURCHASE, WHILE B SOLD HIS INTEREST TO X ABSOLUTELY.
IF A WISH TO EXERCISE HIS RIGHT, X CAN COMPEL HIM TO REDEEM THE ENTIRE
PROPERTY, FOR IF ONLY A PARTIAL REDEMPTION IS GRANTED THE RESULT WILL BE
A CO-OWNERSHIP AGAIN BETWEEN A AND X. IT IS THEREFORE THE INTENTION OF THE
LAW TO DISCOURAGE CO-OWNERSHIP BECAUSE IT SUSPENDS THE RIGHT TO ENJOY
ONE’S PROPERTY. THE LAW COMES TO AID OF THE BUYER, BY GIVING HIM A RIGHT
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NOT STIPULATED IN THE CONTRACT TO COMPEL THE VENDOR TO REDEEM THE WHOLE
PROPERTY SHOULD HE DESIRE TO MAKE USE OF HIS RIGHT OF REDEMPTION.
ART. 1612. IF SEVERAL PERSONS, JOINTLY AND IN THE SAME CONTRACT,
SHOULD SELL AN UNDIVIDED IMMOVABLE WITH A RIGHT OF REPURCHASE, NONE OF
THEM MAY EXERCISE THIS RIGHT FOR MORE THAN HIS RESPECTIVE SHARE.
THE SAME RULE SHALL APPLY IF THE PERSON WHO SOLD AN IMMOVABLE
ALONE HAS LEFT SEVERAL HEIRS, IN WHICH CASE EACH OF THE LATTER MAY ONLY
REDEEM THE PART WHICH HE MAY HAVE ACQUIRED.
1. REDEMPTION IN JOINT SALE OF UNDIVIDED IMMOVABLE.
IF AN IMMOVABLE OWNED IN COMMON IS SOLD BY THE CO-OWNERS JOINTLY AND
IN ONE CONTRACT, NONE OF THE CO-OWNERS MAY EXERCISE THE RIGHT OF
REDEMPTION FOR MORE THAN HIS SHARE IN THE CO-OWNERSHIP. THE VENDEE A
RETRO CANNOT BE COMPELLED TO GRANT PARTIAL REDEMPTION OF THE WHOLE
PROPERTY, AND IF THEY CANNOT REDEEM THE ENTIRE PROPERTY. THERE WILL BE NO
MORE REDEMPTION.
ART. 1613. IN THE CASE OF THE PRECEDING ARTICLE, THE VENDEE MAY DEMAND
OF ALL THE VENDORS OR CO-HEIRS THAT THEY COME TO AN AGREEMENT UPON THE
PURCHASE OF THE WHOLE THING SOLD; AND SHOULD THEY FAIL TO DO SO, THE
VENDEE CANNOT BE COMPELLED TO CONSENT TO A PARTIAL REDEMPTION.
BUYER CANNOT BE COMPELLED TO ACCEPT PARTIAL REDEMPTION.
REDEMPTION IN JOINT SALE BY CO-OWNERS OF UNDIVIDED IMMOVABLE.
THE CO-OWNERS OF AN UNDIVIDED IMMOVABLE SOLD BY THEM JOINTLY OR
COLLECTIVELY AND IN THE SAME CONTRACT WITH THE RIGHT TO REPURCHASE, CAN
EXERCISE SUCH RIGHT ONLY AS REGARDS THEIR RESPECTIVE SHARES. (ART. 1612,
PAR. 1.) SIMILARLY, THE CO-HEIRS OF THE VENDOR OF AN UNDIVIDED IMMOVABLE, CAN
EXERCISE THE RIGHT OF REDEMPTION ONLY FOR THE RESPECTIVE PORTIONS THEY
HAVE INHERITED. (IBID., PAR. 2.) BUT THE VENDEE A RETRO CAN REFUSE PARTIAL
REDEMPTION; HE MAY REQUIRE ALL THE VENDORS OR ALL THE HEIRS TO REDEEM THE
ENTIRE PROPERTY OR TO AGREE TO ITS REDEMPTION BY ANY ONE OF THEM. (ART.
1613.) THIS RIGHT IS GIVEN TO THE VENDEE IN LINE WITH THE OBJECT OF THE LAW
(SEE ART. 1620.) TO PUT AN END TO CO-OWNERSHIPS WHENEVER POSSIBLE.
ART. 1614. EACH ONE OF THE CO-OWNERS OF AN UNDIVIDED IMMOVABLE WHO
MAY HAVE SOLD HIS SHARE SEPARATELY, MAY INDEPENDENTLY EXERCISE THE
RIGHT OF REPURCHASE AS REGARDS HIS OWN SHARE, AND THE VENDEE CANNOT
COMPEL HIM TO REDEEM THE WHOLE PROPERTY.
REDEMPTION IN SEPARATE SALES BY CO-OWNERS OF UNDIVIDED IMMOVABLE.
ALTHOUGH IT IS THE POLICY OF THE LAW TO AVOID INDIVISION, IT WOULD BE
UNJUST, IF THE SALE WAS MADE SEPARATELY AND INDEPENDENTLY, TO REQUIRE THE
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CO-OWNERS TO COME AN AGREEMENT WITH REGARD TO THE REPURCHASE OF THE
THING SOLD, AND CERTAINLY, IT WOULD BE WORSE TO DEPRIVE THEM OF THEIR RIGHT
IN CASE THEY FAIL TO AGREE. THE VERY PURPOSE OF THE ARTICLE IS TO PREVENT
SUCH INJUSTICE. (10 MANRESA 332.)
ART. 1615. IF THE VENDEE SHOULD LEAVE SEVERAL HEIRS, THE ACTION FOR
REDEMPTION CANNOT BE BROUGHT AGAINST EACH OF THEM EXCEPT FOR HIS OWN
SHARE, WHETHER THE THING BE UNDIVIDED, OR IT HAS BEEN PARTITIONED AMONG
THEM.
BUT IF THE INHERITANCE HAS BEEN DIVIDED, AND THE THING SOLD HAS BEEN
AWARDED TO ONE OF THE HEIRS, THE ACTION FOR REDEMPTION MAY BE INSTITUTED
AGAINST HIM FOR THE WHOLE.
LAW ON SALES – NOTES16
ART. 1616. THE VENDOR CANNOT AVAIL HIMSELF OF THE RIGHT OF
REPURCHASE WITHOUT RETURNING TO THE VENDEE THE PRICE OF THE SALE, AND IN
ADDITION:
(1) THE EXPENSES OF THE CONTRACT, AND ANY OTHER LEGITIMATE PAYMENTS
MADE BY REASON OF THE SALE;
(2) THE NECESSARY AND USEFUL EXPENSES MADE ON THE THING SOLD.
OBLIGATION OF VENDOR A RETRO IN CASE OF REDEMPTION.
ARTICLE 1616 DEFINES THE OBLIGATIONS OF THE VENDOR WHO DESIRES TO EXERCISE
HIS RIGHT OF REPURCHASE. HE MUST RETURN TO THE VENDEE A RETRO:
(1) THE PRICE. — THE LAW SPEAKS OF “PRICE OF THE SALE” AND NOT THE VALUE OF
THE THING. IT IS LAWFUL, HOWEVER, FOR THE PARTIES TO AGREE THAT THE PRICE TO
BE RETURNED WILL BE MORE OR LESS THAN THE ORIGINAL SUM PAID BY THE VENDEE.
(2) EXPENSES OF CONTRACT AND OTHER LEGITIMATE EXPENSES. — IF THE EXPENSES
FOR THE EXECUTION AND REGISTRATION OF THE SALE WERE PAID BY THE VENDEE,
THE SAME SHALL BE REIMBURSED BY THE VENDOR.
(3) NECESSARY AND USEFUL EXPENSES. — THE FIRST ARE EXPENSES INCURRED FOR
THE PRESERVATION OF THE THING OR THOSE WHICH SEEK TO PREVENT THE WASTE,
DETERIORATION OR LOSS OF THE THING, WHILE THE SECOND ARE WHICH INCREASE
THE VALUE OF THE THING OR CREATE IMPROVEMENTS THEREON, SUCH AS A HOUSE.
(A) THE NECESSARY EXPENSES WHICH MUST BE REPAID TO THE VENDEE ARE
NOT THOSE WHICH ARE ORDINARY AND SIMPLE EXPENSES OF PRESERVATION
BECAUSE THESE EXPENSES ARE INCIDENT TO THE ENJOYMENT OF THE THING AND
SHOULD BE BORNE BY THE VENDEE.
(B) USEFUL EXPENSES ARE REFUNDED TO THE VENDEE A RETRO BECAUSE HE
IS CONSIDERED A POSSESSOR IN GOOD FAITH.
(C) THE VENDOR A RETRO IS GIVEN NO OPTION TO REQUIRE THE VENDEE A
RETRO TO REMOVE THE USEFUL IMPROVEMENTS ON THE LAND SUBJECT OF THE SALE
A RETRO, UNLIKE THAT GRANTED THE OWNER OF A LAND.
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(D) THE VENDOR A RETRO MUST PAY FOR THE USEFUL IMPROVEMENTS
INTRODUCED BY THE VENDEE A RETRO; OTHERWISE, THE LATTER MAY RETAIN
POSSESSION OF THE LAND UNTIL REIMBURSEMENT IS MADE.
(E) THE PAYMENT OF LAND TAX HAS BEEN AS NEITHER NECESSARY NOR USEFUL.
IT IS A CHARGE AGAINST THE PROPERTY. THE OBJECT OF THE LAND TAX IS TO
CONTRIBUTE TO THE EXPENSES OF THE GOVERNMENT IN THE PROTECTION OF THE
VENDEE’S RIGHT AS OWNER AND IT IS BUT JUST THAT HE SHOULD BEAR SAID
CHARGES.
OFFER TO REDEEM AND TENDER OF PAYMENT GENERALLY REQUIRED.
(1) OFFER TO REDEEM MUST BE BONA FIDE. — THE MERE DECLARATION OF THE
VENDOR OF HIS INTENTION TO EXERCISE THE RIGHT OF REPURCHASE IS NOT
SUFFICIENT TO PRESERVE THE RIGHT OF REDEMPTION.
(2) WHEN TENDER OF PAYMENT NOT NECESSARY. — NEITHER IS IT NECESSARY TO
TENDER PAYMENT OF THE REPURCHASE PRICE IF THE VENDEE HAS ALREADY FLATLY
REFUSED TO RECONVEY.
IF THE TENDER IS MADE AFTER THE PERIOD OF REPURCHASE HAS EXPIRED, ITS
ACCEPTANCE WOULD AMOUNT ONLY TO A PROMISE TO SELL ON THE PART OF THE
VENDEE BECAUSE THE RIGHT OF REPURCHASE HAVING EXPIRED, THERE WAS NO
MORE RIGHT THAT COULD HAVE BEEN PRESERVED.
CONSIGNATION OF PRICE GENERALLY NOT REQUIRED.
(1) WHERE RIGHT OF REPURCHASE JUDICIALLY DECLARED. — WHERE THE RIGHT
OF THE VENDOR A RETRO TO REPURCHASE HAD BEEN JUDICIALLY DECLARED TO
EXIST, THE EFFECT OF THE JUDGMENT IS TO DEFINITELY FIX THE RELATION OF THE
VENDOR A RETRO AND THE VENDEE A RETRO, AS THAT OF DEBTOR AND CREDITOR,
RESPECTIVELY, IN THE AMOUNT AND WITHIN THE PERIOD FIXED IN THE JUDGMENT.
SHOULD THE VENDEE (CREDITOR) REFUSE TO ACCEPT THE AMOUNT OF THE
REDEMPTION PRICE OFFERED, THE VENDOR (DEBTOR) MUST DEPOSIT IT IN COURT.
(2) IN CASE OF ABSENCE OF THE VENDEE A RETRO. — IN SUCH CASE, THE RIGHT
OF REDEMPTION MAY STILL BE EXERCISED AS A VENDOR WHO DECIDES TO REDEEM A
PROPERTY SOLD WITH PACTO DE RETRO, IN A SENSE, STANDS AS THE DEBTOR AND
THE VENDEE AS THE CREDITOR OF THE PURCHASE PRICE. THE VENDOR CAN AND
SHOULD EXERCISE HIS RIGHT OF REDEMPTION AGAINST THE VENDEE BY FILING A SUIT
AGAINST HIM AND MAKING A CONSIGNATION WITH THE COURT OF THE AMOUNT DUE
FOR REDEMPTION NOT THAT DEPOSIT OR CONSIGNATION IS LEGALLY ESSENTIAL TO
PRESERVE HIS RESERVED RIGHT OF REDEMPTION BUT BECAUSE HE SHOULD BE
REGARDED AS HAVING DONE THAT WHICH SHOULD HAVE BEEN DONE TO TERMINATE
THE RIGHT OF THE VENDEE OVER THE PROPERTY WHERE THE REDEMPTION PRICE IS
ALREADY DUE AND PAYABLE.
ART. 1617. IF AT THE TIME OF THE EXECUTION OF THE SALE THERE SHOULD BE
ON THE LAND, VISIBLE OR GROWING FRUITS, THERE SHALL BE NO REIMBURSEMENT
FOR OR PRORATING OF THOSE EXISTING AT THE TIME OF REDEMPTION, IF NO
INDEMNITY WAS PAID BY THE PURCHASER WHEN THE SALE WAS EXECUTED.
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SHOULD THERE HAVE BEEN NO FRUITS AT THE TIME OF THE SALE, AND SOME EXIST
AT THE TIME OF REDEMPTION, THEY SHALL BE PRORATED BETWEEN THE
REDEMPTIONER AND THE VENDEE, GIVING THE LATTER THE PART CORRESPONDING
TO THE TIME HE POSSESSED THE LAND IN THE LAST YEAR, COUNTED FROM THE
ANNIVERSARY OF THE DATE OF THE SALE.
RIGHT OF PARTIES AS TO FRUITS OF LAND.
THIS ARTICLE APPLIES ONLY WHEN THE PARTIES HAVE NOT PROVIDED FOR ANY
SHARING ARRANGEMENT WITH RESPECT TO THE FRUITS EXISTING AT THE TIME OF
REDEMPTION. IT REFERS ONLY TO NATURAL AND INDUSTRIAL FRUITS. CIVIL FRUITS
ARE DEEMED TO ACCRUE DAILY AND BELONG TO THE VENDEE IN THAT PROPORTION.
(1) IF THERE WERE FRUITS AT THE TIME OF THE SALE AND THE VENDEE PAID FOR
THEM, HE MUST BE REIMBURSED AT THE TIME OF REDEMPTION AS THE PAYMENT
FORMS PART OF THE PURCHASE PRICE.
(2) IF NO INDEMNITY WAS PAID BY THE VENDEE FOR THE FRUITS, THERE SHALL BE NO
REIMBURSEMENT FOR THOSE EXISTING AT THE TIME OF REDEMPTION.
(3) IF THE PROPERTY HAD NO FRUITS AT THE TIME OF THE SALE AND SOME EXIST AT
THE TIME OF REDEMPTION, THEY SHALL BE APPORTIONED PROPORTIONATELY
BETWEEN THE REDEMPTIONER AND THE VENDEE, GIVING THE LATTER A SHARE IN
PROPORTION TO THE TIME HE POSSESSED THE PROPERTY DURING THE LAST YEAR
COUNTED FROM THE ANNIVERSARY OF THE DATE OF THE SALE TO COMPENSATE THE
VENDEE FOR HIS EXPENSE.
ART. 1618. THE VENDOR WHO RECOVERS THE THING SOLD SHALL RECEIVE IT
FREE FROM ALL CHARGES OR MORTGAGES CONSTITUTED BY THE VENDEE, BUT HE
SHALL RESPECT THE LEASES WHICH THE LATTER MAY HAVE EXECUTED IN GOOD
FAITH, AND IN ACCORDANCE WITH THE CUSTOMS OF THE PLACE WHERE THE LAND IS
SITUATED.
RIGHT OF VENDOR A RETRO TO RECOVER THING SOLD FREE FROM CHARGES.
THE VENDEE A RETRO MAY ALIENATE, ENCUMBER, OR PERFORM OTHER ACTS
OF OWNERSHIP OVER THE THING SOLD. BUT HIS OWNERSHIP BEING REVOCABLE UPON
REDEMPTION, ALL ACTS DONE BY HIM ARE ALSO REVOCABLE. THUS, HE MAY BORROW
MONEY AND MORTGAGE THE PROPERTY BUT WHEN THE VENDOR A RETRO REDEEMS,
THE VENDEE A RETRO IS OBLIGED TO REDEEM THE MORTGAGE. THE VENDOR HAS THE
RIGHT TO RECEIVE THE PROPERTY IN THE SAME CONDITION IN WHICH IT WAS AT THE
TIME OF THE SALE. THE LAW, HOWEVER, ESTABLISHES AN EXCEPTION WITH RESPECT
TO LEASES WHICH THE VENDEE MAY HAVE ENTERED INTO IN GOOD FAITH ACCORDING
TO THE CUSTOM OF THE PLACE WHERE THE LAND IS LOCATED. THE EXCEPTION IS
DICTATED BY PUBLIC CONVENIENCE IN THE INTEREST OF AGRICULTURE.
SECTION 2 - LEGAL REDEMPTION
ART.1619. LEGAL REDEMPTION IS THE RIGHT TO BE SUBROGATED, UPON THE SAME
TERMS AND CONDITIONS STIPULATED IN THE CONTRACT, IN THE PLACE OF ONE WHO
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ACQUIRES A THING BY PURCHASE OR DATION IN PAYMENT, OR BY ANY OTHER
TRANSACTION WHEREBY OWNERSHIP IS TRANSMITTED BY ONEROUS TITLE.
1) CONTRACT WHERE LEGAL REDEMPTION IS AVAILABLE
a) PURCHASE OR SALE
b) DATION IN PAYMENT
c) OTHER TRANSACTIONS WHEREBY OWNERSHIP IS TRANSFERRED BY
ONEROUS TITLE
2) PURPOSE OF LEGAL REDEMPTION
LEGAL REDEMPTION IS INTENDED TO MINIMIZE CO-OWNERSHIP, AND ITS
APPLICABILITY COVERS BOTH MOVABLE AND IMMOVABLE PROPERTY.
3) BASIS AND NATURE OF RIGHT OF LEGAL REDEMPTION
WHILE CONVENTIONAL REDEMPTION ARISES FROM THE VOLUNTARY
AGREEMENT OF THE PARTIES, LEGAL REDEMPTION PROCEEDS FROM LAW.
LEGAL REDEMPTION IS IN THE NATURE OF A PRIVILEGE CREATED PARTLY FOR
REASON OF PUBLIC POLICY AND PARTLY FOR THE BENEFIT AND CONVENIENCE OF THE
REDEMPTIONER TO AFFORD HIM A WAY OUT OF WHAT MIGHT BE DISAGREEABLE OR
INCONVENIENT ASSOCIATION ONTO WHICH HE HAS BEEN THRUST.
4) CONVERSION OF LEGAL REDEMPTION TO A CONVENTIONAL REDEMPTION –
HAPPENS WHEN PARTIES AGREED TO EXTEND THE REDEMPTION PERIOD.
ART. 1620. A CO-OWNER OF A THING MAY EXERCISE THE RIGHT OF REDEMPTION
IN CASE THE SHARES OF ALL THE OTHER CO-OWNERS OR OF ANY OF THEM, ARE SOLD
TO A THIRD PERSON. IF THE PRICE OF THE ALIENATION IS GROSSLY EXCESSIVE, THE
REDEMPTIONER SHALL PAY ONLY A REASONABLE ONE.
SHOULD TWO OR MORE CO-OWNERS DESIRE TO EXERCISE THE RIGHT OF
REDEMPTION, THEY MAY ONLY DO SO IN PROPORTION TO THE SHARE THEY MAY
RESPECTIVELY HAVE IN THE THING OWNED IN COMMON.
RIGHT OF LEGAL REDEMPTION OF CO-OWNER.
THE RIGHT OF LEGAL REDEMPTION AMONG CO-OWNERS PRESUPPOSED OF
COURSE, THE EXISTENCE OF A CO-OWNERSHIP. THE FOLLOWING ARE THE REQUISITES
FOR THE RIGHT TO EXIST:
(1) THERE MUST BE CO-OWNERSHIP OF A THING;
(2) THERE MUST BE ALIENATION OF ALL OR OF ANY OF THE SHARES OF THE
OTHER CO-OWNERS;
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(3) THE SALE MUST BE TO A THIRD PERSON OR STRANGER, I.E., A NON-COOWNER;
(4) THE SALE MUST BE BEFORE PARTITION.
(5) THE RIGHT MUST BE EXERCISED WITHIN THE PERIOD PROVIDED IN ARTICLE
1623;
(6) THE VENDEE MUST BE REIMBURSED FOR THE PRICE OF THE SALE.
LEGAL REDEMPTION CAN NO LONGER BE INVOKED WHERE THERE HAS BEEN AN
ACTUAL PARTITION OF THE PROPERTY SO THAT CO-OWNERSHIP NO LONGER EXISTS.
CO-OWNERS HAVE NO RIGHT OF LEGAL REDEMPTION AGAINST EACH OTHER.
THE RIGHT OF LEGAL REDEMPTION IS NOT GRANTED SOLELY AND EXCLUSIVELY TO
THE ORIGINAL CO-OWNER BUT APPLIES TO THOSE WHO SUBSEQUENTLY ACQUIRE
THEIR RESPECTIVE SHARES WHILE THE CO-OWNERSHIP SUBSISTS.
BY WHOM AND AGAINST WHOM RIGHT MAY BE EXERCISED.
(1) A CO-OWNER HAS THE LEGAL RIGHT TO SELL, ASSIGN, OR MORTGAGE HIS
IDEAL SHARE IN THE PROPERTY HELD IN COMMON. BY THE VERY NATURE OF THE
RIGHT OF LEGAL REDEMPTION, A CO-OWNER’S RIGHT TO REDEEM IS INVOKED ONLY
AFTER THE SHARES OF THE OTHER CO-OWNERS ARE SOLD TO A THIRD PARTY OR
STRANGER.
(2) CO-OWNERS HAVE NO RIGHT OF LEGAL REDEMPTION AGAINST EACH OTHER
TO WHOM THE LAW GRANTS THE SAME PRIVILEGE, BUT ONLY AGAINST A THIRD
PERSON. A THIRD PERSON, WITHIN THE MEANING OF ARTICLE 1620, IS ANYONE WHO IS
NOT A CO-OWNER. ARTICLE 1620 IS INTENDED TO MINIMIZE CO-OWNERSHIP.
(3) SHOULD ANY OF THE HEIRS SELL HIS HEREDITARY RIGHT TO A STRANGER
BEFORE PARTITION, ANY OR ALL OF THE CO-HEIRS MAY BE SUBROGATED TO THE
RIGHTS OF THE PURCHASER BY REIMBURSING HIM FOR THE PURCHASE PRICE,
PROVIDED IT BE DONE WITHIN THE PERIOD OF ONE (1) MONTH TO BE COUNTED FROM
THE TIME THEY WERE NOTIFIED IN WRITING OF THE SALE BY THE VENDOR. ONCE THE
PORTION CORRESPONDING TO EACH HEIR IS FIXED, THE CO-HEIRS TURN INTO COOWNERS AND THEIR RIGHT OF LEGAL REDEMPTION SHOULD BE GOVERNED BY
ARTICLES 1620 AND 1623.
(4) THE RIGHT OF LEGAL REDEMPTION IS NOT GRANTED SOLELY AND
EXCLUSIVELY TO THE ORIGINAL CO-OWNERS BUT APPLIES TO THOSE WHO
SUBSEQUENTLY ACQUIRE THEIR RESPECTIVE SHARES WHILE THE COMMUNITY
SUBSISTS.
PRICE OF REDEMPTION
(1) IN GENERAL. — THE REDEMPTION PRICE IS GENERALLY THE PURCHASE
PRICE PAID BY THE OWNER TO THE SELLING CO-OWNER. THERE IS NO LEGAL
REDEMPTION IN CASE OF A MERE LEASE.
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(2) REASONABLE PRICE. — THE LAW REQUIRES THE REDEMPTIONER TO PAY
ONLY A REASONABLE PRICE IF THE PRICE OF THE ALIENATION IS GROSSLY
EXCESSIVE. THIS IS TO PREVENT COLLUSION BETWEEN THE BUYER AND THE
SELLING CO-OWNER.
THE RIGHT OF THE REDEMPTIONER TO PAY A REASONABLE PRICE UNDER
ARTICLE 1620 DOES NOT EXCUSE HIM FROM THE DUTY TO MAKE PROPER TENDER OF
THE PRICE THAT CAN BE HONESTLY DEEMED REASONABLE UNDER THE
CIRCUMSTANCES, WITHOUT PREJUDICE TO FINAL ARBITRATION BY THE COURTS, NOR
DOES IT AUTHORIZE SAID REDEMPTIONER TO DEMAND THAT THE VENDEE ACCEPT
PAYMENT BY INSTALLMENTS.
(3) PRICE UNDERSTATED IN THE DEED OF SALE. — THE PRACTICE OF
UNDERSTATING THE CONSIDERATION OF TRANSACTIONS FOR THE PURPOSE OF
EVADING TAXES AND FEES DUE THE GOVERNMENT IS VIOLATE OF PUBLIC POLICY AND
INJURIOUS TO PUBLIC INTEREST AND MUST BE CONDEMNED AND THE PARTIES GUILTY
THEREOF MUST BE MADE TO SUFFER THE CONSEQUENCES OF THEIR ILL-ADVISED
AGREEMENTS TO DEFRAUD THE STATE. IN A CASE WHERE ONLY P30,000 WAS THE
PRICE STATED IN THE DEED OF SALE OF THE INTEREST OF A CO-OWNER IN A PIECE OF
LAND “TO MINIMIZE THE PAYMENT OF THE REGISTRATION FEES, STAMPS AND SALES
TAX,” THE COURT RULED THAT THE CO-OWNER EXERCISING THE RIGHT OF LEGAL
REDEMPTION SHOULD PAY ONLY P30,000, ALTHOUGH MUCH MORE HAD BEEN PAID BY
THE BUYER.
(4) AMOUNT ACTUALLY PAID BY THE BUYER. — ON THE OTHER HAND, IF BY
FALSE REPRESENTATIONS THE BUYER OBTAINS FROM THE REDEMPTIONER AN
AMOUNT GREATER THAN THE PRICE WHICH HE ACTUALLY PAID, THE CO-OWNER WHO
MADE THE REPURCHASE CAN RECOVER FROM THE BUYER THE DIFFERENCE IN AN
APPROPRIATE ACTION.
ART. 1621. THE OWNERS OF ADJOINING LANDS SHALL ALSO HAVE THE RIGHT
OF REDEMPTION WHEN A PIECE OF RURAL LAND, THE AREA OF WHICH DOES NOT
EXCEED ONE HECTARE, IS ALIENATED, UNLESS THE GRANTEE DOES NOT OWN ANY
RURAL LAND.
THIS RIGHT IS NOT APPLICABLE TO ADJACENT LANDS WHICH ARE SEPARATED
BY BROOKS, DRAINS, RAVINES, ROADS AND OTHER APPARENT SERVITUDES FOR THE
BENEFIT OF OTHER ESTATES.
IF TWO OR MORE ADJOINING OWNERS DESIRE TO EXERCISE THE RIGHT OF
REDEMPTION AT THE SAME TIME, THE OWNER OF THE ADJOINING LAND OF SMALLER
AREA SHALL BE PREFERRED; AND SHOULD BOTH LANDS HAVE THE SAME AREA, THE
ONE WHO FIRST REQUESTED THE REDEMPTION.
RIGHT OF LEGAL REDEMPTION OF ADJACENT OWNERS OF RURAL LANDS.
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THE FOLLOWING ARE THE REQUISITES FOR THE EXERCISE OF THE RIGHT UNDER THIS
ARTICLE:
(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 GRANTEE OR VENDEE MUST ALREADY OWN ANY OTHER 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.
IN CASE TWO (2) OR MORE ADJACENT OWNERS DESIRE TO EXERCISE THE RIGHT
OF REDEMPTION, THE LAW GIVES PREFERENCE TO THE OWNER OF THE ADJOINING
LAND OF SMALLER AREA BUT IF BOTH LANDS HAVE THE SAME AREA, TO THE ONE WHO
FIRST REQUESTED THE REDEMPTION. UNDER ARTICLE 1620, THE CO-OWNERS
EXERCISE THEIR RIGHT OF REDEMPTION PRO RATA.
PURPOSE OF THE GRANT OF RIGHT TO OWNERS OF ADJOINING RURAL LANDS.
THE OBJECT OF THE LAWMAKER IN ALLOWING THE REDEMPTION BY ADJACENT
OWNER IS TO PREVENT AN ADJOINING REAL ESTATE BELONGING TO ANOTHER OWNER
OR OWNERS, THE AREA OF WHICH DOES NOT EXCEED ONE (1) HECTARE, FROM
PASSING INTO THE HANDS OF A PERSON OTHER THAN SOMEONE OF THE ADJACENT
OWNERS WHO ARE INTERESTED IN MAKING USE OF THE ALIENATED PROPERTY FOR
THE IMPROVEMENT AND DEVELOPMENT OF THEIR OWN LAND.
IN SHORT, THE PURPOSE IS TO ENCOURAGE THE MAXIMUM DEVELOPMENT AND
UTILIZATION OF AGRICULTURAL LANDS.
ART. 1622. WHENEVER A PIECE OF URBAN LAND WHICH IS SO SMALL AND SO
SITUATED THAT A MAJOR PORTION THEREOF CANNOT BE USED FOR ANY PRACTICAL
PURPOSE WITHIN A REASONABLE TIME, HAVING BEEN BOUGHT MERELY FOR
SPECULATION, IS ABOUT TO BE RE-SOLD, THE OWNER OF ANY ADJOINING LAND HAS
A RIGHT OF PRE-EMPTION AT A REASONABLE PRICE.
IF THE RE-SALE HAS BEEN PERFECTED, THE OWNER OF THE ADJOINING LAND
SHALL HAVE A RIGHT OF REDEMPTION, ALSO AT A REASONABLE PRICE.
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WHEN TWO OR MORE OWNERS OF ADJOINING LANDS WISH TO EXERCISE THE
RIGHT OF PRE-EMPTION OR REDEMPTION, THE OWNER WHOSE INTENDED USE OF THE
LAND IN QUESTION APPEARS BEST JUSTIFIED SHALL BE PREFERRED.
RIGHTS OF PRE-EMPTION AND LEGAL REDEMPTION OF
ADJACENT OWNERS OF URBAN LANDS.
(1) MEANING — ARTICLE 1622 RECOGNIZES TWO RIGHTS; NAMELY:
(A) PRE-EMPTION, WHICH HAS BEEN DEFINED AS THE ACT OR RIGHT OF
PURCHASING BEFORE OTHERS. IT IS EXERCISED BEFORE THE SALE OR RESALE
AGAINST THE WOULD-BE VENDOR; AND
(B) REDEMPTION, WHICH IS EXERCISED AFTER THE SALE HAS BEEN
PERFECTED AGAINST THE VENDEE.
(2) REQUISITES — THE CONDITIONS OR REQUISITES FOR THE EXERCISE OF THE
RIGHT OF PRE-EMPTION OR REDEMPTION, AS THE CASE MAY BE, ARE THE FOLLOWING:
(A) THE PIECE OF LAND IS URBAN LAND;
(B) THE ONE EXERCISING THE RIGHT MUST BE AN ADJACENT OWNER;
(C) 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;
(D) SUCH URBAN LAND WAS BROUGHT BY ITS OWNER MERELY FOR
SPECULATION;
(E) IT IS ABOUT TO BE RESOLD, OR THAT ITS RESALE HAS BEEN
PERFECTED.
(3) PRICE. — THE PRICE TO BE PAID IS A REASONABLE PRICE.
(4) PREFERENCE AS BETWEEN TWO OR MORE ADJACENT OWNERS. — IN CASE
TWO OR MORE ADJOINING OWNERS DESIRE TO EXERCISE THE RIGHT OF LEGAL
REDEMPTION, THE LAW PREFERS HIM WHOSE INTENDED USE OF THE LAND APPEARS
BEST JUSTIFIED.
PURPOSE OF THE GRANT OF RIGHT TO OWNERS OF ADJOINING URBAN LANDS.
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THE EVIDENT PURPOSE IS TO DISCOURAGE SPECULATION IN REAL ESTATE AND
THE CONSEQUENT AGGRAVATION OF THE HOUSING PROBLEMS IN CENTERS OF
POPULATION. IN THE CASE OF RURAL LANDS, THE RIGHT OF REDEMPTION IS TO
ENCOURAGE THE DEVELOPMENT AND UTILIZATION OF AGRICULTURAL LANDS.
ART. 1623. THE RIGHT OF LEGAL PRE-EMPTION OR REDEMPTION SHALL NOT BE
EXERCISED EXCEPT WITHIN THIRTY DAYS FROM THE NOTICE IN WRITING BY THE
PROSPECTIVE VENDOR, OR BY THE VENDOR, AS THE CASE MAY BE. THE DEED OF
SALE SHALL NOT BE RECORDED IN THE REGISTRY OF PROPERTY, UNLESS
ACCOMPANIED BY AN AFFIDAVIT OF THE VENDOR THAT HE HAS GIVEN WRITTEN
NOTICE THEREOF TO ALL POSSIBLE REDEMPTIONERS.
THE RIGHT OF REDEMPTION OF CO-OWNERS EXCLUDES THAT OF ADJOINING
OWNERS.
PERIOD FOR EXERCISE OF RIGHT OF PRE-EMPTION OR REDEMPTION.
THE PERIOD PROVIDED IN THE ABOVE ARTICLE IS ABSOLUTE AND NONEXTENDIBLE. THE FUNDAMENTAL POLICY OF THE LAW IS TO DISCOURAGE THE
KEEPING FOR A LONG TIME OF PROPERTY IN A STATE OF UNCERTAINTY A SITUATION
WHICH OBVIOUSLY IS UNJUST TO THE PURCHASES AND PREJUDICIAL TO PUBLIC
INTEREST.
THE PERIOD OF 30 DAYS IS COUNTED FROM THE NOTICE IN WRITING GIVEN BY
THE VENDOR. NOTE THAT THE RIGHT OF REDEMPTION OF CO-OWNERS IS PREFERRED
OVER THAT OF ADJOINING OWNERS.
LAW ON SALES – NOTES 17
CHAPTER 8 - ASSIGNMENT OF CREDITS AND OTHER INCORPOREAL RIGHTS
ART. 1624. AN ASSIGNMENT OF CREDITORS AND OTHER INCORPOREAL RIGHTS
SHALL BE PERFECTED IN ACCORDANCE WITH THE PROVISIONS OF ARTICLE 1475. (N)
ASSIGNMENT OF CREDIT DEFINED.
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 MONEY OR ITS EQUIVALENT. (SEE ART. 1485.) IT IS A
CONSENSUAL, BILATERAL, ONEROUS, AND COMMUTATIVE OR ALEATORY CONTRACT.
NATURE OF ASSIGNMENT OF CREDIT.
ASSIGNMENT OF CREDITS AND OTHER INCORPOREAL RIGHTS IS A CONSENSUAL,
BILATERAL, ONEROUS, AND COMMUTATIVE OR ALEATORY CONTRACT. IT IS REALLY A
SALE. THUS, THE SUBJECT MATTER IS THE CREDIT OR RIGHT ASSIGNED; THE
CONSIDERATION IS THE PRICE PAID FOR THE CREDIT OR RIGHT; AND THE CONSENT IS
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THE AGREEMENT OF THE PARTIES TO THE ASSIGNMENT OF THE CREDIT OR RIGHT AT
THE AGREED PRICE. HENCE, ARTICLE 1475 IS MADE APPLICABLE.
THERE IS, HOWEVER, ONE IMPORTANT DIFFERENCE AND, THAT IS, AFTER THE
TRANSFER, A DEFINITE THIRD PERSON IS OBLIGED; WHEREAS, IN SALE, THE SUBJECT
OBLIGED IS THE WHOLE WORLD WHICH MUST RESPECT THE TITLE TO THE BUYER. (10
MANRESA 376.) AS A GENERAL RULE, ALL PRINCIPLES GOVERNING SALES ALSO APPLY
TO THIS TRANSACTION.
PERFECTION OF CONTRACT FOR ASSIGNMENT OF CREDIT.
THE CONTRACT FOR THE ASSIGNMENT OR TRANSFER OF CREDIT AND OTHER
INCORPOREAL RIGHTS IS PERFECTED FROM THE MOMENT THE PARTIES AGREE UPON
THE CREDIT OR RIGHT ASSIGNED AND UPON THE PRICE EVEN IF NEITHER HAS BEEN
DELIVERED. (SEE ART. 1475.) HOWEVER, THE ASSIGNEE WILL ACQUIRE OWNERSHIP
ONLY UPON DELIVERY. (SEE ARTS. 1498, PAR. 2 AND 1501.)
ASSIGNMENT DISTINGUISHED FROM OTHER TERMS.
(1) RENUNCIATION IS THE ABANDONMENT OF A RIGHT WITHOUT A TRANSFER
TO ANOTHER. (SEE ART. 1270.)
(2) AGENCY INVOLVES REPRESENTATION, NOT TRANSMISSION, WHEREIN THE
AGENT ACTS FOR THE PRINCIPAL.
(3) SUBSTITUTION IS THE CHANGE OF A NEW DEBTOR FOR THE PREVIOUS
DEBTOR WITH THE CREDIT REMAINING IN THE SAME CREDITOR. (SEE 10 MANRESA
377.)
(4) SUBROGATION IS THE CHANGE IN THE PERSON OF THE CREDITOR WITH
THE CREDIT BEING EXTINGUISHED (SEE 8 MANRESA 400.)
ART. 1625. AN ASSIGNMENT OF A CREDIT, RIGHT OR ACTION SHALL PRODUCE
NO EFFECT AS AGAINST THIRD PERSON, UNLESS IT APPEARS IN A PUBLIC
INSTRUMENT, OR THE INSTRUMENT IS RECORDED IN THE REGISTRY OF PROPERTY IN
CASE THE ASSIGNMENT INVOLVES REAL PROPERTY.
BINDING EFFECT OF ASSIGNMENT.
(1) AS BETWEEN THE PARTIES, THE ASSIGNMENT IS VALID ALTHOUGH IT
APPEARS ONLY IN PRIVATE DOCUMENT SO LONG AS THE LAW DOES NOT REQUIRE A
SPECIFIC FORM OF ITS VALIDITY. (SEE ART. 1356.)
(2) TO AFFECT THIRD PERSONS, THE ASSIGNMENT MUST APPEAR IN A PUBLIC
INSTRUMENT, AND IN CASE IT INVOLVES REAL PROPERTY, IT IS INDISPENSABLE THAT
IT BE RECORDED IN THE REGISTRY OF PROPERTY. (SEE LOPEZ VS. ALVAREZ, ET AL.,
9 PHIL. 28)
(3) THE ASSIGNEE MERELY STEPS INTO THE SHOES OF THE ASSIGNOR, THE
FORMER ACQUIRING THE CREDIT SUBJECT TO DEFENSES (E.G., FRAUD,
PRESCRIPTION, ETC.) AVAILABLE TO THE DEBTOR AGAINST THE ASSIGNOR.
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ART. 1626. THE DEBTOR WHO, BEFORE HAVING KNOWLEDGE OF THE
ASSIGNMENT, PAYS HIS CREDITOR SHALL BE RELEASED FROM THE OBLIGATION.
(1527)
IN AS ASSIGNMENT OF CREDIT, THE CONSENT OF THE DEBTOR IS NOT
ESSENTIAL. THE LAW SPEAKS NOT OF CONSENT BUT OF NOTICE TO THE DEBTOR. THE
PURPOSE OF THE NOTICE BY THE ASSIGNEE IS TO INFORM THE DEBTOR THAT FROM
THE DATE OF THE ASSIGNMENT HE SHOULD MAKE PAYMENT TO THE ASSIGNEE AND
NOT TO THE ORIGINAL CREDITOR.
EFFECT OF PAYMENT BY DEBTOR AFTER ASSIGNMENT OF CREDIT.
(1) THE NOTICE IS THUS FOR THE PROTECTION OF THE ASSIGNEE BECAUSE
BEFORE THE SAID NOTICE, PAYMENT TO THE ORIGINAL CREDITOR IS VALID.
()ELIZALDE & CO., INC. VS. BINAN TRANSPORATION CO., [C.A.] 56 O.G. 5886.) IN SUCH
CASE, THE ASSIGNEE HAS A RIGHT OF ACTION AGAINST THE ASSIGNOR, THE ORIGINAL
CREDITOR. IN THE ABSENCE OF NOTICE, THE BURDEN OF PROVING THAT THE DEBTOR
HAD KNOWLEDGE OF THE ASIGNEMNT IS ON THE INTERESTED PARTY WHICH IS THE
ASSIGNEE. (SEE 10 MANRESA 377.) IT HAS BEEN HELD THAT SINCE THE LAW DOES NOT
REQUIRE THE REGISTRATION OF AN ASSIGNMENT OF A CHATTEL MORTGAGE, ITS
REGISTRATION DOES NOT IPSO FACTO OPERATE AS CONSTRUCTIVE NOTICE TO THE
MORTGAGOR. (SISON VS. YAP TICO, 37 PHIL. 584.)
(2) EVEN WITHOUT NOTICE, THE DEBTOR WILL NOT BE RELATED FROM HIS
OBLIGATION SHOULD HE PAY THE CREDITOR AFTER HAVING HAD KNOWLEDGE OF THE
ASSIGNMENT. HE THEREBY ACTS IN BAD FAITH. HE CAN BE MADE TO PAY AGAIN BY
THE ASSIGNEE.
ART. 1627. THE ASSIGNMENT OF A CREDIT INCLUDES ALL THE ACCESSORY
RIGHTS, SUCH AS A GUARANTY, MORTGAGE, PLEDGE OR PREFERENCE. (1528)
EXTENT OF ASSIGNMENT OF CREDIT.
THE ASSIGNMENT OF CREDIT INCLUDES NOT ONLY THE CREDIT ITSELF BUT
ALSO ALL RIGHTS ACCESSORY THERETO. (SEE ART. 1537.) THIS FOLLOWS THE
FAMILIAR RULE THAT THE ACCESSORY FOLLOWS THE PRINCIPAL. BUT THE PARTIES
MAY STIPULATE THAT THE ACCESSORY RIGHTS SHALL NOT BE INCLUDED IN THE
ASSIGNMENT.
ART. 1628. THE VENDOR IN GOOD FAITH SHALL BE RESPONSIBLE FOR THE
EXISTENCE AND LEGALITY OF THE CREDIT AT THE TIME OF THE SALE, UNLESS IT
SHOULD HAVE BEEN SOLD AS DOUBTFUL; BUT NOT FOR THE SOLVENCY OF THE
DEBTOR, UNLESS IT HAS BEEN SO EXPRESSLY STIPULATED OR UNLESS THE
INSOLVENCY WAS PRIOR TO THE SALE AND OF COMMON KNOWLEDGE.
EVEN IN THESE CASES HE SHALL ONLY BE LIABLE FOR THE PRICE RECEIVED
AND FOR THE EXPENSES SPECIFIED IN NO. 1 OF ARTICLE 1616. THE VENDOR IN BAD
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FAITH SHALL ALWAYS BE ANSWERABLE FOR THE PAYMENT OF ALL EXPENSES, AND
FOR DAMAGES. (1529)
WARRANTIES OF THE ASSIGNOR OF CREDIT.
WHEN A CREDITOR ASSIGNS HIS CREDIT, HE WARRANTS ONLY THE (1)
EXISTENCE AND (2) LEGALITY OF THE CREDIT AT THE PERFECTION OF THE CONTRACT.
HE IS NOT EVEN LIABLE FOR THE WARRANTY IF THE CREDIT HAD BEEN SOLD AS
DOUBTFUL. THERE IS NO WARRANTY AS TO THE SOLVENCY OF THE DEBTOR UNLESS
IT IS EXPRESSLY STIPULATED OR UNLESS THE INSOLVENCY WAS ALREADY EXISTING
AND OF PUBLIC KNOWLEDGE AT THE TIME OF THE ASSIGNMENT.
LIABILITIES OF THE ASSIGNOR OF CREDIT.
(1) FOR VIOLATION OF THE ABOVE WARRANTIES, THE LIABILITY OF THE
VENDOR (ASSIGNOR) IN GOOD FAITH IS LIMITED ONLY TO THE PRICE RECEIVED AND
TO THE EXPENSES OF THE CONTRACT, AND ANY OTHER LEGITIMATE PAYMENTS BY
REASON OF THE ASSIGNMENT.(ART. 1616, PAR. 1.)
(2) BUT THE ASSIGNOR IN BAD FAITH IS LIABLE NOT ONLY FOR THE PAYMENT
OF THE PRICE AND ALL EXPENSES, BUT ALSO FOR DAMAGES. AS ASSIGNOR IN BAD
FAITH IS ONE WHO HAS KNOWLEDGE OF ANY OF THE CIRCUMSTANCES MENTIONED
ABOVE WHILE AN ASSIGNOR IN GOOD FAITH IS ONE WHO IS IGNORANT OF THEM. (10
MANRESA 394.)
ART. 1629. IN CASE THE ASSIGNOR IN GOOD FAITH SHOULD HAVE MADE HIMSELF
RESPONSIBLE FOR THE SOLVENCY OF THE DEBTOR, AND THE CONTRACTING PARTIES
SHOULD NOT HAVE AGREED UPON THE DURATION OF THE LIABILITY, IT SHALL LAST
FOR ONE YEAR ONLY, FROM THE TIME OF THE ASSIGNMENT IF THE PERIOD HAD
ALREADY EXPIRED.
IF THE CREDIT SHOULD BE PAYABLE WITHIN A TERM OR PERIOD WHICH HAS NOT
YET EXPIRED, THE LIABILITY SHALL CEASE ONE YEAR AFTER THE MATURITY. (1530A).
DURATION OF ASSIGNOR’S LIABILITY WHERE DEBTOR’S SOLVENCY GUARANTEED.
THIS PROVISION DOES NOT APPLY IF THE ASSIGNOR ACTED IN BAD FAITH. (SEE
ART. 1628.)
IN CASE THE ASSIGNOR HAS EXPRESSLY WARRANTED THE SOLVENCY OF THE
DEBTOR, THE DURATION OF THE ASSIGNOR’S LIABILITY SHALL BE AS FOLLOWS:
(1)
(2)
IF THERE IS A STIPULATION, THEN FOR THE TERM OR PERIOD FIXED;
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
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b. FOR ONE YEAR AFTER ITS MATURITY, WHEN SUCH PERIOD FOR PAYMENT
HAS NOT YET EXPIRED.
REASONS FOR THE RULE.
THERE ARE TWO REASONS FOR THE RULE CONTAINED IN ARTICLE 1629.
FIRST, TO PREVENT FRAUD WHICH MAY BE COMMITTED BY FEIGNING THE
SOLVENCY OF THE DEBTOR AT THE TIME OF THE ASSIGNMENT WHEN IN FACT HE IS
INSOLVENT; AND
SECOND, TO OBLIGE THE ASSIGNEE TO EXERT EFFORT IN THE RECOVERY OF
THE CREDIT AND THEREBY AVOID THAT BY HIS OVERSIGHT THE ASSIGNOR MAY
SUFFER. (10 MANRESA 400-401.)
ART. 1630. ONE WHO SELLS AN INHERITANCE WITHOUT ENUMERATING THE
THINGS OF WHICH IT IS COMPOSED, SHALL ONLY BE ANSWERABLE FOR HIS
CHARACTER AS AN HEIR. (1531)
SALE OF SUCCESSIONAL RIGHTS.
THIS ARTICLE REFERS TO THE SALE OF SUCCESSIONAL RIGHT OR THE RIGHT TO
AN INHERITANCE BEFORE PARTITION.
(1)
SUBJECT OF SALE IS HEREDITARY RIGHT NOT OBJECTS WHICH MAKE UP
INHERITANCE. – AN INHERITANCE MAY SOLD EITHER WITH SPECIFICATION OF THE
PROPERTIES MAY BE SOLD EITHER WITH SPECIFICATION OF THE PROPERTIES TO BE
ALIENATED OR WITHOUT ENUMERATING THE THINGS COMPRISING IT, THAT IS TO SAY,
THE HEREDITARY RIGHTS ONLY. (ARTS. 1630, 1632.) WHAT THE LAW PROHIBITS IS THE
SALE OF A FUTURE INHERITANCE, UPON WHICH NO CONTRACT CAN BE MADE OTHER
THAN THOSE MAKING A DIVISION INTER VIVOS OF AN ESTATE IN ACCORDANCE WITH
ARTICLE 1347 OF THE CIVIL CODE. (ABELLA VS. CINCO, [C.A.] 37) O.G. 924.)
(2) WARRANTIES OF SELLER. –THE SELLER OF AN INHERITANCE WARRANTS
ONLY THE OBJECTS OF HIS HEIRSHIP BUT HE DOES NOT WARRANT THE OBJECTS
WHICH MAKE UP HIS INHERITANCE. THE SALE IS THEREFORE, A SORT OF AN
ALEATORY CONTRACT BECAUSE THE ASSIGNEE BEARS THE RISK THAT THE ESTATE
MAY NOT BE SUFFICIENT TO PAY THE OBLIGATIONS OF THE DECEASED. (10 MANRESA
404; SEE ART. 2010.)
(3) LIMITATION – THERE IS NO LAW WHICH PROHIBITS AN HEIR FROM SELLING
HIS INTERESTS IN AN INHERITANCE BEFORE PARTITION (SEE ART. 1088.) EXCEPT
THAT ANY SUCH SALE MUST BE PROCEEDINGS AND ANY PENDING LITIGATION.
(BELTRAN VS. SORIANO, 32 PHIL.66.). PURSUANT TO ARTICLE 774 (CIVIL CODE), “THE
RIGHTS TO THE SUCCESSION ARE TRANSMITTED FROM THE PERSON CONCERNED IS
AN HEIR AND MAY EXERCISE HIS RIGHTS AS SUCH, FROM THE VERY MOMENT OF THE
DEATH OF THE DECEDENT. (SATURNINO VS. PAULINO, 97 PHIL. 50.)
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ART. 1631. ONE WHO SELLS FOR A LUMP SUM THE WHOLE OF CERTAIN RIGHTS,
RENTS, OR PRODUCTS, SHALL COMPLY BY ANSWERING FOR THE LEGITIMACY OF THE
WHOLE IN GENERAL; BUT HE SHALL NOT BE OBLIGED TO WARRANT EACH OF THE
VARIOUS PARTS OF WHICH IT MAY BE COMPOSED, EXCEPT IN THE CASE OF EVICTION
FROM THE WHOLE OR THE PART OF GREATER VALUE. (1532A)
SALE OF WHOLE OF CERTAIN RIGHTS, RENTS, OR PRODUCTS.
IN THE SALE OF THE WHOLE OF CERTAIN RIGHTS, RENTS, OR PRODUCTS FOR A
LUMP SUM, THE SUBJECT MATTER IS THE TOTALITY OF SUCH RIGHTS, RENTS, OR
PRODUCTS. AS A CONSEQUENCE, THE VENDOR WARRANTS ONLY THE LEGITIMACY OF
THE WHOLE AND NOT THE VARIOUS PARTS OF WHICH IT MAY BE COMPOSED. THE
VENDOR IS NOT LIABLE FOR EVICTION OF EACH OF THE VARIOUS PARTS UNLESS THE
EVICTION INVOLVES THE WHOLE OR THE PART OF GREATER VALUE.
ART. 1632. SHOULD THE VENDOR HAVE PROFITED BY SOME OF THE FRUITS OR
RECEIVED ANYTHING FROM THE INHERITANCE SOLD, HE SHALL PAY THE VENDEE
THEREOF, IF THE CONTRARY HAS NOT BEEN STIPULATED. (1533)
LIABILITY OF VENDOR OF INHERITANCE FOR FRUITS RECEIVED.
UNLESS OTHERWISE STIPULATED, THE FRUITS OF AN INHERITANCE ARE
INCLUDED IN THE SALE THEREOF. (SEE ARTICLE 1537.) IF THE VENDOR MERELY
RECEIVED THE FRUITS, HE MUST DELIVER THEM TO THE VENDEE; IF THEY HAVE BEEN
CONSUMED, HE MUST REIMBURSE THE VENDEE; IF THEY HAVE BEEN SOLD, HE MUST
DELIVER THE PRICE OF THE SALE. (SEE 10 MANRESA 406.)
THE LIABILITY OF THE VENDOR FOR ANYTHING RECEIVED FROM THE
INHERITANCE SOLD IS SUBJECT TO ANY AGREEMENT TO THE CONTRARY.
ART. 1633. THE VENDEE SHALL, ON HIS PART, REIMBURSE THE VENDOR FOR ALL
THAT THE LATTER MAY HAVE PAID FOR THE DEBTS OF AND CHARGES ON THE ESTATE
AND SATISFY THE CREDITS HE MAY HAVE AGAINST THE SAME, UNLESS THERE IS AN
AGREEMENT TO THE CONTRARY. (1534)
LIABILITY OF VENDEE FOR DEBTS OF AND CHARGES ON ESTATE.
SINCE UNDER ARTICLE 1632 THE VENDOR IS OBLIGED TO PAY THE VENDEE THE
FRUITS OR ANYTHING RECEIVED FROM THE INHERITANCE, IT IS ALSO JUST THAT THE
VENDEE BE REQUIRED TO REIMBURSE THE VENDOR FOR WHATEVER THE LATTER HAS
PAID FOR THE DEBTS OF AND CHARGES ON THE ESTATE.
THE LIABILITY OF THE VENDEE FOR THE DEBTS AND CHARGES IS LIKEWISE
SUBJECT TO ANY CONTRARY AGREEMENT.
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ART. 1634. WHEN A CREDIT OR OTHER INCORPOREAL RIGHT IN LITIGATION IS
SOLD, THE DEBTOR SHALL HAVE A RIGHT TO EXTINGUISH IT BY REIMBURSING THE
ASSIGNEE FOR THE PRICE THE LATTER PAID THEREFOR, THE JUDICIAL COSTS
INCURRED BY HIM, AND THE INTEREST ON THE PRICE FROM THE DAY ON WHICH THE
SAME WAS PAID.
A CREDIT OR OTHER INCORPOREAL RIGHT SHALL BE CONSIDERED IN
LITIGATION FROM THE TIME THE COMPLAINT CONCERNING THE SAME IS ANSWERED.
THE DEBTOR MAY EXERCISE HIS RIGHT WITHIN THIRTY DAYS FROM THE DATE
THE ASSIGNEE DEMANDS PAYMENT FROM HIM. (1535)
LEGAL REDEMPTION IN SALE OF CREDIT OR OTHER INCORPOREAL RIGHT IN
LITIGATION
THIS ARTICLE IS AN INSTANCE OF LEGAL REDEMPTION.
THE FOLLOWING ARE THE REQUISITES BEFORE THE RIGHT OF LEGAL
REDEMPTION CAN BE EXERCISED:
(1) THERE MUST BE A SALE OR ASSIGNMENT OF A CREDIT. THE CONCEPT OF
SALE MUST BE UNDERSTOOD IN ITS RESTRICTED SENSE. THE RIGHT CANNOT BE
EXERCISED IF THE TRANSACTION IS EXCHANGE OR DONATION (SEE 10 MANRESA 416.);
(2) THERE MUST BE A PENDING LITIGATION AT THE TIME OF THE
ASSIGNMENT. THE COMPLAINT BY THE ASSIGNOR MUST HAVE BEEN FILED, AND
ANSWERED BY THE CREDITOR BEFORE THE SALE OF THE CREDIT. ARTICLE 1634
APPLIES ONLY TO CLAIM IN LITIGATION THE MEANING OF WHICH IS NOT CLAIM OPEN
TO LITIGATION, BUT ONE WHICH IS ACTUALLY LITIGATED; THAT IS TO SAY, DISPUTED
OR CONTESTED, WHICH HAPPENS ONLY AFTER AN ANSWER INTERPOSED IN A SUIT.
(ROBINSON VS. GARRY, 8 PHIL. 275.)
(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 OF PAYMENT; AND
(4) THE RIGHT MUST BE EXERCISED BY THE DEBTOR WITHIN THIRTY DAYS
FROM THE DATE THE ASSIGNED DEMANDS (JUDICIALLY OR EXTRA-JUDICIALLY)
PAYMENT FROM HIM. A DEBTOR WHO HAS PAID THE FULL AMOUNT OF A LITIGATED
CREDIT TO ONE WHO HAS PURCHASED SUCH LITIGATED CREDIT CANNOT
COUNTERCLAIM THE DIFFERENCE BETWEEN THE AMOUNT PAID BY SUCH DEBTOR
AND THE AMOUNT PAID BY THE PURCHASER OF SUCH LITIGATED CREDIT UNLESS
SUCH DEBTOR SHALL MAKE USE OF HIS RIGHT TO DO SO WITHIN THE PRESCRIBED
PERIOD.
PURPOSE OF GRANT OF RIGHT TO DEBTOR.
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THE ABOVE PROVISION GIVES AN ADVANTAGE TO THE DEBTOR BECAUSE HE
WILL PAY LESS THAN THE VALUE OF THE CREDIT ASSIGNED IF HE EXERCISES HIS
RIGHT TO REDEEM THE SAME.
THE OBJECT OF THE LAW IN ALLOWING THE REDEMPTION BY THE DEBTOR IS TO
AVOID THE PURCHASE BY THE THIRD PERSON OF CREDITS IN LITIGATION MERELY FOR
SPECULATION.
ART. 1635. FROM THE PROVISIONS OF THE PRECEDING ARTICLE SHALL BE
EXCEPTED THE ASSIGNMENTS OR SALES MADE:
(1) TO A CO-HEIR OR CO-OWNER OF THE RIGHT ASSIGNED;
(2) TO A CREDITOR IN PAYMENT OF HIS CREDIT;
(3) TO THE POSSESSOR OF A TENEMENT OR PIECE OF LAND WHICH IS SUBJECT TO
THE RIGHT IN LITIGATION ASSIGNED. (1536)
EXCEPTIONS TO DEBTOR’S RIGHT TO LEGAL REDEMPTION.
THIS ARTICLE ENUMERATES THREE INSTANCES OF ASSIGNMENTS OR SALES AS
EXCEPTIONS TO THE PROVISIONS OF ARTICLE 1634. (SEE ART. 1491 [5].)
IT MUST BE EMPHASIZED THAT BOTH UNDER ARTICLES 1634 AND 1635 THE
DEBTOR CANNOT REDEEM IF THE CREDIT OR OTHER INCORPOREAL RIGHT IS NOT IN
LITIGATION WHEN THE SAME IS SOLD.
(1) SALE TO CO-HEIR OR CO-OWNER. – THIS EXCEPTION IS BASED ON THE
DESIRE TO DO AWAY WITH CO-OWNERSHIP OR PRO-INDIVISION. MOREOVER, IF THE
RIGHT OF REDEMPTION IS GRANTED TO THE DEBTOR, IT WOULD NOT TERMINATE
LITIGATION WHICH IS THE PURPOSE OF THIS ARTICLE BECAUSE THE CO-OWNER OR
CO-HEIR MAY STILL SUE THE DEBTOR FOR THE SHARE THAT CORRESPONDS TO THE
FORMER IN THE CREDIT. (10 MANRESA 4169.)
(2) SALE TO CREDITOR. – THERE IS A LAWFUL BASIS FOR THE ASSIGNMENT
AS THE ASSIGNEE CANNOT BE CONSIDERED AS A VENDEE OF A RIGHT IN LITIGATION
AND AS SPECULATOR. IT REALLY REFERS TO A DATION IN PAYMENT. (SEE ART. 1245;
10 MANRESA 419.)
(3) SALE TO POSSESSOR. – THE REASON FOR THIS EXCEPTION IS THAT THE
ASSIGNEE IS MOVED BY A DESIRE TO PRESERVE THE PROPERTY AND NOT TO
SPECULATE AT THE EXPENSE OF THE DEBTOR.
LAW ON SALES – NOTES 18
CHAPTER 9 - GENERAL PROVISIONS
105
ART. 1636. IN THE PRECEDING ARTICLES IN THIS TITLE GOVERNING THE SALE OF
GOODS, UNLESS THE CONTEXT OR SUBJECT MATTER OTHERWISE REQUIRES:
(1) "DOCUMENT OF TITLE TO GOODS" INCLUDES ANY BILL OF LADING, DOCK
WARRANT, "QUEDAN," OR WAREHOUSE RECEIPT OR ORDER FOR THE DELIVERY
OF GOODS, OR ANY OTHER DOCUMENT USED IN THE ORDINARY COURSE OF
BUSINESS IN THE SALE OR TRANSFER OF GOODS, AS PROOF OF THE
POSSESSION OR CONTROL OF THE GOODS, OR AUTHORIZING OR PURPORTING
TO AUTHORIZE THE POSSESSOR OF THE DOCUMENT TO TRANSFER OR RECEIVE,
EITHER BY ENDORSEMENT OR BY DELIVERY, GOODS REPRESENTED BY SUCH
DOCUMENT.
"GOODS" INCLUDES ALL CHATTELS PERSONAL BUT NOT THINGS IN ACTION OR
MONEY OF LEGAL TENDER IN THE PHILIPPINES. THE TERM INCLUDES GROWING
FRUITS OR CROPS.
"ORDER" RELATING TO DOCUMENTS OF TITLE MEANS AN ORDER BY
ENDORSEMENT ON THE DOCUMENTS.
"QUALITY OF GOODS" INCLUDES THEIR STATE OR CONDITION.
"SPECIFIC GOODS" MEANS GOODS IDENTIFIED AND AGREED UPON AT THE TIME
A CONTRACT OF SALE IS MADE.
AN ANTECEDENT OR PRE-EXISTING CLAIM, WHETHER FOR MONEY OR NOT,
CONSTITUTES "VALUE" WHERE GOODS OR DOCUMENTS OF TITLE ARE TAKEN
EITHER IN SATISFACTION THEREOF OR AS SECURITY THEREFOR.
(2) A PERSON IS INSOLVENT WITHIN THE MEANING OF THIS TITLE WHO EITHER
HAS CEASED TO PAY HIS DEBTS IN THE ORDINARY COURSE OF BUSINESS OR
CANNOT PAY HIS DEBTS AS THEY BECOME DUE, WHETHER INSOLVENCY
PROCEEDINGS HAVE BEEN COMMENCED OR NOT.
(3) GOODS ARE IN A "DELIVERABLE STATE" WITHIN THE MEANING OF THIS TITLE
WHEN THEY ARE IN SUCH A STATE THAT THE BUYER WOULD, UNDER THE
CONTRACT, BE BOUND TO TAKE DELIVERY OF THEM. (N)
DEFINITION OF TERMS.
THIS ARTICLE DEFINES OR EXPLAINS THE VARIOUS TERMS USED IN THE
PRECEDING ARTICLES GOVERNING THE SALE OF GOODS. THEY HARDLY REQUIRE
COMMENT. THE DEFINITIONS IN THIS ARTICLE DO NOT APPLY IF THE CONTEXT OR
SUBJECT MATTER OF ANY PARTICULAR PORTION OF THE LAW OTHERWISE REQUIRES.
106
(1) “GOODS” DOES NOT INCLUDE THINGS OR CHOOSES IN ACTION OR
NEGOTIABLE INSTRUMENTS. A CHOSE IN ACTION IS ANY CLAIM OR RIGHT WHICH MAY
BE PLEADED IN A SUIT AT LAW, SUCH AS A CLAIM OF REPARATION FOR A TORT OR
QUASI-DELICT, OR A RIGHT ACQUIRED UNDER A CONTRACT. STOCK CERTIFICATES,
HOWEVER, HAVE BEEN HELD TO BE GOODS WITHIN THE MEANING OF THE U.S.
UNIFORM SALES ACT. (BABB & MARTIN, OP. CIT., P. 86.) REAL PROPERTY IS NOT THE
PROPER SUBJECT OF A TRANSACTION INVOLVING A SALE OF GOODS WITHIN THE
DEFINITION OF THE TERM. HOWEVER, GROWING CROPS OR FRUITS WHICH ARE
AGREED TO BE SEVERED UNDER THE CONTRACT OF SALE ARE TREATED AS GOODS
AND NOT AS INTEREST IN REALITY.
THE (U.S.) UNIFORM COMMERCIAL CODE EXCLUDES MONEY FROM THE TERM
“GOODS” BUT ONLY WHERE MONEY IS THE MEDIUM OF PAYMENT. SAID ANOTHER WAY,
MONEY IN WHICH THE PRICE IS TO BE PAID FOR THE GOODS INVOLVED, IS NOT TO BE
CONSIDERED PART OF THE GOODS WHICH ARE THE SUBJECT MATTER OF THE
TRANSACTION. SAID CODE (SEC. 2-105 THEREOF) SPECIFICALLY PROVIDES THAT
MONEY, WHEN TREATED AS A COMMODITY, IS A GOOD AND THE CONTRACT FORMED
OUT OF THE TRANSACTION IS ONE FOR THE SALE OF GOODS. (1 WILLISTON, 4TH ED., P.
152.)
ANY TRANSACTION BETWEEN THE PARTIES, EVEN IF IN THE FORM OF AN
UNCONDITIONAL CONTRACT TO SELL OR WHEN IF IN THE FORM OF PRESENT SALE, IS
EXCLUDED FROM THE SALE OF GOODS IF THE PARTIES TO THE TRANSACTION
INTENDED THAT THE TRANSACTION OPERATE ONLY AS A SECURITY TRANSACTION BUT
THE PROVISION ON SALES WILL GOVERN THE GENERAL SALES ASPECTS OF SUCH
TRANSACTION. (IBID., P.176.)
(2) ASCERTAINED GOODS MEANS GOODS THAT ARE IDENTIFIED AND AGREED
UPON AS FORMING THE SUBJECT MATTER OF THE BARGAIN. THEY ARE “SPECIFIC” IF
THEY ARE IDENTIFIED AND AGREED UPON AT THE TIME THE CONTRACT OF SALE IS
MADE. IF IDENTIFICATION TAKES PLACE AFTERWARD, THE GOODS ARE SPECIFIED BUT
NOT SPECIFIC. EXISTING GOODS (OWNED OR POSSESSED BY THE SELLER) MAY OR
NOT BE SPECIFIC. FUTURE GOODS (TO BE MANUFACTURED OR ACQUIRED BY THE
SELLER AFTER THE MAKING OF THE CONTRACT TO SELL) CANNOT BE SPECIFIC. (IBID.,
PP. 101-102.)
ART. 1637. THE PROVISIONS OF THIS TITLE ARE SUBJECT TO THE RULES LAID
DOWN BY THE MORTGAGE LAW AND THE LAND REGISTRATION LAW WITH REGARD
TO IMMOVABLE PROPERTY.
SALE OF IMMOVABLE SUBJECT TO REGISTRATION LAW.
UNDER THE SPANISH MORTGAGE LAW AND THE LAND REGISTRATION LAW, THE
REGISTRATION OF DOCUMENTS OR TITLES PERTAINING TO IMMOVABLE PROPERTY IS
THE OPERATIVE ACT THAT BINDS THE PROPERTY AND SERVES AS CONSTRUCTIVE
NOTICE TO THE PUBLIC. THIS MEANS THAT THE RIGHTS OF THIRD PERSONS ARE NOT
107
ADVERSELY AFFECTED BY THE SALE OF IMMOVABLE PROPERTY UNTIL AFTER ITS
REGISTRATION.
THE SPANISH MORTGAGE LAW HAS BEEN DISCONTINUED BY PRESIDENTIAL
DECREE NO. 892. THIS DISCONTINUANCE WAS REITERATED IN PRESIDENTIAL DECREE
NO. 1529, THE PROPERTY REGISTRATION DECREE, WHICH SUPERSEDED ACT NO. 496,
AS AMENDED, THE LAND REGISTRATION LAW. UNDER THE DECREE, “NO DEED,
MORTGAGE, LEASE OR OTHER VOLUNTARY INSTRUMENT, EXCEPT THE WILL
PURPORTING TO CONVEY OR AFFECT REGISTERED LAND SHALL TAKE EFFECT AS A
CONVEYANCE OR BIND THE LAND, BUT SHALL OPERATE ONLY AS A CONTRACT
BETWEEN THE PARTIES AND AS EVIDENCE OF AUTHORITY TO THE REGISTER OF DEEDS
TO MAKE REGISTRATION. THE ACT OF REGISTRATION SHALL BE THE OPERATIVE ACT
TO CONVEY OR AFFECT THE LAND INSOFAR AS THIRD PERSONS ARE CONCERNED.”
(SEC. 51 THEREOF.) ”THE REGISTRATION SHALL BE MADE IN THE OFFICE OF THE
REGISTER OF DEEDS FOR THE PROVINCE OR CITY WHERE THE LAND LIES.” (SEC. 51
THEREOF.)
LAW ON AGENCY – NOTES 19
AGENCY
ART. 1868. BY THE CONTRACT OF AGENCY 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.
CONCEPT OF CONTRACT OF AGENCY.
ARTICLE 1868 DEFINES THE CONTRACT OF AGENCY. THE DEFINITION, WHICH IS
VERY BROAD ENOUGH TO INCLUDE ALL SITUATIONS IN WHICH ONE PERSON IS
EMPLOYED TO RENDER SERVICE FOR
ANOTHER, EXCLUDES, HOWEVER, FROM ITS CONCEPT THE RELATIONSHIP OF
EMPLOYER AND EMPLOYEE
(ART. 1700), OF MASTER AND SERVANT (ART. 1680), AND OF EMPLOYER AND
INDEPENDENT CONTRACTOR
(ART. 1713).
AGENCY IS A RELATIONSHIP WHICH IMPLIES A POWER IN AN AGENT TO
CONTRACT WITH A THIRD PERSON ON BEHALF OF A PRINCIPAL. IT IS THIS POWER TO
AFFECT THE PRINCIPAL’S CONTRACTUAL RELATIONS WITH THIRD PERSONS THAT
DIFFERENTIATES THE AGENT FROM THE EMPLOYEE, THE SERVANT, AND THE
INDEPENDENT CONTRACTOR.
EXAMPLES:
108
P, OWNER OF A LAND, WANTS TO CONSTRUCT A BUILDING ON IT. HE MAY DO ANY OF
THE FF:
HE MAY HIRE C, A BUILDING CONTRACTOR, TO CONSTRUCT THE BUILDING
WITH THE MATERIALS AND LABOR TO BE FURNISHED BY C; OR
(2) HE HIMSELF MAY CONSTRUCT THE BUILDING, BUYING THE NECESSARY
MATERIALS AND EMPLOYING W, ETC. (WORKERS) WHO SHALL CONSTRUCT
THE BUILDING UNDER HIS DIRECTION AND SUPERVISION; OR
(3) HE MAY SECURE THE SERVICES OF A TO SUPERVISE AND TO ACT FOR HIM IN
ALL MATTERS CONNECTED WITH THE CONSTRUCTION WORK.
(1)
“AGENCY” IS SOMETIMES USED IN A SENSE OTHER THAN TO DENOTE THE
RELATIONSHIP OF PRINCIPAL AND AGENT.
THUS, IT MAY BE USED TO DENOTE THE PLACE AT WHICH THE BUSINESS IS
TRANSACTED. WHEN USED IN THE SENSE OF PLACE OF BUSINESS, THE
RELATIONSHIP OF PRINCIPAL AND AGENT IS NOT NECESSARILY IMPLIED.
(2) LIKEWISE, THE TERM MAY BE USED IN THE SENSE OF INSTRUMENTALITY BY
WHICH A THING IS DONE.
(3) IT IS ALSO USED TO REFER TO THE EXCLUSIVE RIGHT OF A PERSON TO SELL
A PRODUCT OF ANOTHER IN A SPECIFIC TERRITORY.
(1)
CHARACTERISTIC OF A CONTRACT OF AGENCY.
(1) CONSENSUAL BECAUSE IT IS PERFECTED BY MERE CONSENT
(2) PRINCIPAL BECAUSE IT CAN STAND ALONE WITHOUT THE NEED OF ANOTHER
CONTRACT;
(3) NOMINATE BECAUSE IT HAS ITS OWN NAME;
(4) UNILATERAL IF IT IS GRATUITOUS BECAUSE IT CREATES OBLIGATIONS FOR
ONLY ONE OF THE PARTIES, I.E., THE AGENT; OR BILATERAL IF IT IS FOR
COMPENSATION BECAUSE IT GIVES RISE RECIPROCAL RIGHTS AND
OBLIGATIONS; AND
(5) PREPARATORY BECAUSE IT IS ENTERED INTO AS A MEANS TO AN END, I.E.,
THE CREATION OF OTHER CONTRACTS.
ESSENTIAL ELEMENTS OF AGENCY.
THERE IS CONSENT, EXPRESS OR IMPLIED, OF THE PARTIES TO ESTABLISH THE
RELATIONSHIP;
(2) THE OBJECT IS THE EXECUTION OF A JURIDICAL ACT IN RELATION TO THIS
PERSONS,
(3) THE AGENT ACTS AS A REPRESENTATIVE AND NOT FOR HIMSELF; AND
(4) THE AGENT ACTS WITHIN THE SCOPE OF HIS AUTHORITY,
IN ADDITION, THE PARTIES MUST BE COMPETENT UNDER THE LAW TO ACT AS
PRINCIPAL AND AGENT.
(1)
109
NATURE, BASIS, AND PURPOSE OF AGENCY.
THE WORD “AGENCY” WHEN USED IN ITS BROADEST MEANING IS BOTH A
CONTRACT AND A REPRESENTATIVE RELATION.
(1)
SINCE AGENCY IS A CONTRACT, THE FOLLOWING REQUISITES MUST CONCUR:
(A) CONSENT OF THE CONTRACTING PARTIES; (B) OBJECT WHICH IS THE
SUBJECT MATTER OF THE CONTRACT; AND (C) CAUSE WHICH IS
ESTABLISHED. (ART. 1318.) ARTICLE 1868 DEFINES AGENCY FROM THE
VIEWPOINT OF A CONTRACT.
(2)
AGENCY IS ALSO A REPRESENTATIVE RELATION. THE AGENT RENDERS SOME
SERVICE OR DOES SOMETHING “IN REPRESENTATION OR ON BEHALF OF
ANOTHER.” (ART. 1868) REPRESENTATION CONSTITUTES THE BASIS OF
AGENCY.
(3)
THE PURPOSE OF AGENCY IS TO EXTEND THE PERSONALITY OF THE
PRINCIPAL THROUGH THE ACTS OF THE AGENT. IT ENABLES THE ACTIVITY OF
MAN WHICH IS NATURALLY LIMITED IN ITS EXERCISE BY HIS PHYSIOLOGICAL
CONDITIONS TO BE EXTENDED, PERMITTING HIM TO PERFORM OR CARRY ON
MANY DIFFERENT ACTIVITIES THROUGH ANOTHER, WHEN HIS PHYSICAL
PRESENCE IS IMPOSSIBLE OR INADVISABLE, AT THE SAME TIME IN DIFFERENT
PLACES. (SEE 11MANRESA 434)
PARTIES TO THE CONTRACT.
THE TWO (2) PARTIES TO THE CONTRACT ARE THE:
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. THE AGENT MAY BE
PERFORMING HIS TASKS AS ATTORNEY, PROXY, DELEGATE, OR
REPRESENTATIVE.
(1)
AGENCY IMPLIES THE CONTEMPORANEOUS EXISTENCE OF BOTH THE PRINCIPAL
AND AGENT AND THERE IS NO AGENCY UNLESS ONE IS ACTING FOR AND IN BEHALF OF
ANOTHER WITH THE LATTER’S EXPRESS OR IMPLIED CONSENT OR AUTHORIZATION.
THE PRINCIPAL OR AGENT MAY BE EITHER A NATURAL PERSON OR A JUDICIAL ENTITY.
CAPACITY OF THE PARTIES.
(1)
ANY PERSON WHO IS CAPACITATED UNDER THE LAW (SEE ART. 11327, 1329) TO
ACT IN HIS OWN RIGHT MAY BE A PRINCIPAL.
110
IN THIS CASE OF THE AGENT, SINCE HE ASSUMES NO PERSONAL LIABILITY, HE
DOES NOT HAVE TO PROCESS FULL CAPACITY TO ACT INSOFAR AS THIRD
PERSONS ARE CONCERNED. BUT PERSONS
WHO ARE ABSOLUTELY INCAPACITATED, SUCH AS INSANE PERSONS, CANNOT BE
AGENTS. INSOFAR AS HIS OBLIGATIONS TO HIS PRINCIPAL ARE CONCERNED, THE
AGENT MUST BE COMPETENT TO BIND HIMSELF.
(2)
ACTS THAT MAY/MAY NOT BE DELEGATED TO AGENTS.
IN GENERAL. – THE GENERAL RULE IS THAT WHAT A MAN MAY DO IN PERSON, HE
MAY DO THROUGH ANOTHER. THUS,
(2) EXEMPTION. – SOME ACTS, HOWEVER, CANNOT BE DONE THROUGH AN AGENT.
(A) PERSONAL ACTS. - IF PERSONAL PERFORMANCE IS REQUIRED BY LAW OR
PUBLIC POLICY OR THE AGREEMENT OF THE PARTIES, THE DOING OF THE ACT
BY A PERSON ON BEHALF OF ANOTHER DOES NOT CONSTITUTE
PERFORMANCE BY THE LATTER.
1.) THE RIGHT TO VOTE DURING ELECTION CANNOT BE DELEGATED BECAUSE
VOTING IS CONSIDERED A PURELY PERSONAL ACT UNDER THE LAW. A
MEMBER OF THE BOARD OF
DIRECTORS OF A CORPORATION CANNOT VALIDLY ACT BY PROXY
BECAUSE HIS RIGHT TO ATTEND THE BOARD MEETINGS IS PERSONAL TO
HIM. (SEC. 25, LAST PAR., CORPORATION CODE.)
2.) THE MAKING OF A WILL IS A STRICTLY PERSONAL ACT; IT CANNOT BE
ACCOMPLISHED THROUGH THE INSTRUMENTALITY OF AN AGENT OR AN
ATTORNEY. (ART. 784.)
3.) OBVIOUSLY, STATEMENTS WHICH ARE REQUIRED TO BE MADE UNDER
OATH SHOULD BE MADE PERSONALLY.
4.) UNDER THE CORPORATION CODE, A MEMBER OF THE BOARD OF
DIRECTORS OR TRUSTLESS OF A CORPORATION CANNOT VALIDLY ACT BY
PROXY BECAUSE HIS RIGHT TO ATTEND BOARD MEETINGS IS PERSONAL
TO HIM. (SEE SEC. 25, LAST PAR., B.P. BLG. 68.)
5.) AN AGENT CANNOT DELEGATE TO A SUB-AGENT THE PERFORMANCE OF
ACTS WHICH HE HAS BEEN APPOINTED TO PERFORM IN PERSON. (SEE ART.
1892-1893.)
(1)
(B) CRIMINAL ACTS OR ACTS NOT ALLOWED BY LAW. – AN ATTEMPT TO
DELEGATE TO ANOTHER
AUTHORITY TO DO AN ACT WHICH, IF DONE BY THE PRINCIPAL WOULD BE
ILLEGAL, IS VOID. (2
C.J. 1039.)
NATURE OF RELATIONS BETWEEN PRINCIPAL AND AGENT.
111
RELATIONS FIDUCIARY IN CHARACTER. – THE RELATIONS OF AN AGENT TO
HIS PRINCIPAL ARE FIDUCIARY IN CHARACTER SINCE THEY ARE BASED ON
TRUST AND CONFIDENCE, ON A DEGREE WHICH VARIES CONSIDERABLY
FROM SITUATION TO SITUATION.
(2) AGENT ESTOPPED FROM ASSERTING INTEREST ADVERSE TO HIS PRINCIPAL.
– IN REGARD TO PROPERTY FORMING THE SUBJECT MATTER OF THE AGENCY,
THE AGENT IS ESTOPPED FORM ASSERTING OR ACQUIRING A TITLE ADVERSE
TO THAT PRINCIPAL. HIS POSITION IS ANALOGOUS TO THAT OF A TRUSTEE
AND HE CANNOT, CONSISTENTLY WITH THE PRINCIPLES OF GOOD FAITH, BE
ALLOWED TO CREATE IN HIMSELF AN INTEREST IN OPPOSITION TO THAT OF
HIS PRINCIPAL.
(3) AGENT MUST NOT ACT FOR AN ADVERSE PARTY.- AN AGENT CANNOT SERVE
TWO (2) MASTERS, UNLESS BOTH (E.G., REAL ESTATE BROKER) WITH NO
INDEPENDENT INITIATIVE.
(4) AGENT MUST NOT USE OR DISCLOSE SECRET INFORMATION. –
REQUIREMENTS OF GOOD FAITH AND LOYALTY DEMAND OF THE AGENT THE
DUTY NOT TO USE DIVULGE CONFIDENTIAL INFORMATION OBTAINED IN THE
COURSE OF HIS AGENCY FOR HIS OWN BENEFIT TO THE PRINCIPAL’S INJURY
AND EXPENSE.
(1)
AGENCY DISTINGUISHED FROM SIMILAR CONTRACTS.
LOAN. – AN AGENT MAY BE GIVEN FUNDS BY THE PRINCIPAL TO ADVANCE THE
LATTER’S BUSINESS, WHILE A BORROWER IS GIVEN MONEY FOR PURPOSES OF
HIS OWN AND HE MUST GENERALLY
RETURN IT WHETHER OR NOT HIS OWN BUSINESS IS SUCCESSFUL. A LOT,
HOWEVER, DEPENDS ON THE INTENT OF THE PARTIES. (2 C.J. 1030.)
(2) LEASE OF SERVICE. –IN AGENCY, THE BASIS IS REPRESENTATION, WHILE IN
LEASE OF SERVICE (ARTS. 1644, 1689.) IT IS EMPLOYMENT. IN AGENCY, THE
AGENT EXERCISES DISCRETIONARY POWERS, WHILE IN LEASE OF SERVICE, THE
LESSOR (LIKE A SERVANT) ORDINARILY PERFORMS ONLY MINISTERIAL
FUNCTIONS.
(3) INDEPENDENT CONTACT. –WHERE ONE PARTY TO A CONTRACT UNDERTAKES TO
ACCOMPLISH A CERTAIN RESULT (AS THE CONSTRUCTION OF A HOUSE)
ACCORDING TO HIS OWN METHODS AND WITHOUT BEING SUBJECT TO THE
OTHER PARTY’S CONTROL EXCEPT AS TO THE RESULT OF THE WORK, THE
CONTRACT IS ONE FOR A PIECE OF WORK (ART.1713.) AND NOT AGENCY.
(FRESSEL VS. MARIANO UY CHACO SONS & CO., 34 PHIL. 122.)
(1)
IN THE AGENCY, THE AGENT IS SUBJECT TO CONTROL AND DIRECTION OF THE
PRINCIPAL WHOM
112
HE PRESENTS. IN A CONTRACT FOR A PIECE OF WORK, THE INDEPENDENT
CONTRACTOR EXERCISES HIS EMPLOYMENT INDEPENDENTLY, AND NOT IN
REPRESENTATION OF THE EMPLOYER.
PARTNERSHIP. –WHILE AN AGENT ACTS ONLY FOR HIS PRINCIPAL, A PARTNER
ACTS NOT ONLY
FOR HIS CO-PARTNERS AND THE PARTNERSHIP BUT ALSO AS PRINCIPAL OF
HIMSELF. (ARTS. 1767,
1803.)
(5) NEGOTIORIUM GESTIO. –IN BOTH AGENCY AND NEGOTIORIUM GESTIO OR THE
MANAGEMENT OF
THE BUSINESS OR AFFAIRS OF AN ABSENTEE (ART. 2144.), THERE IS
REPRESENTATION. THE
DISTINCTION LIES IN THE FACT THAT IN THE FIRST, THE PRESENTATION IS
EXPRESSLY CONFERRED, WHILE IN THE SECOND, IT IS NOT ONLY WITHOUT THE
AUTHORITY OF THE OWNER OF THE BUSINESS BUT IS WITHOUT HIS
KNOWLEDGE. WHILE THE AGENT ACTS ACCORDING TO THE
EXPRESS WILL OF THE PRINCIPAL, THE GESTOR ACTS ACCORDING TO THE
PRESUMED WILL OF THE OWNER BY EXERCISING ‘ALL THE DILIGENCE OF A GOOD
FATHER OF A FAMILY.’ (ART. 2145.)
(4)
AGENCY IS A CONTRACT, WHILE NEGOTIORUM GESTIO IS A QUASI-CONTRACT.
HENCE, THEIR JURIDICIAL RELATIONS ARE DIFFERENT.
(6)
BROKERAGE. – A COMMISSION AGENT IS ONE ENGAGED IN THE PURCHASE OR
SALE FOR ANOTHER OF PERSONAL PROPERTY WHICH, FOR THIS PURPOSE IS
PLACED IN HIS POSSESSION AND AT HIS DISPOSAL. A BROKER HAS NO
RELATION WITH THE THING HE BUYS OR SELLS. HE IS MERELY AN INTERMEDIARY
BETWEEN THE PURCHASER AND THE VENDOR.
(7)
SALE. –AN AGENCY TO SELL IS DIFFERENT FROM SALE. (ART. 1458, CIVIL CODE.)
FOR THE DISTINCTIONS BETWEEN THE TWO AND EXAMPLE, SEE ARTICLE 1466,
SALES. (PAR. 1.)
ART. 1869. AGENCY MAY BE EXPRESS, OR IMPLIED FROM THE ACTS OF THE
PRINCIPALS, FROM HIS SILENCE OR LACK OF ACTION, OR HIS FAILURE TO REPUDIATE
THE AGENCY, KNOWING THAT ANOTHER PERSON IS ACTING ON HIS BEHALF WITHOUT
AUTHORITY.
AGENCY MAY BE ORAL, UNLESS THE LAW REQUIRES A SPECIFIC FORM.
KINDS OF AGENCY. AGENCY MAY BE CLASSIFIED AS FOLLOWS
(1) AS TO MANNER OF ITS CREATION:
113
EXPRESS. – ONE WHERE THE AGENT HAS BEEN ACTUALLY AUTHORIZED BY
THE PRINCIPAL EITHER ORALLY OR IN WRITING (ART. 1869.); OR
(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 IS ACTING ON HIS BEHALF
WITHOUT AUTHORITY (IBID.) OR FROM THE ACTS OF THE
AGENT WHICH CARRY OUT THE AGENCY, OR FROM HIS SILENCE OR INACTION
ACCORDING TO THE CIRCUMSTANCES. (ART. 1870)
(a)
THE ENUMERATION OF CASES OF IMPLIED AGENCY IN ARTICLES 1869 AND 1870
IS NOT EXCLUSIVE.
AN IMPLIED AGENCY IS AN ACTUAL AGENCY AS MUCH AS AN EXPRESS AGENCY.
(2) AS TO ITS CHARACTER:
(a) GRATUITOUS. –ONE WHERE THE AGENT RECEIVES NO COMPENSATION FOR
HIS SERVICES.
(LBID.)
(b) COMPENSATED OR ONEROUS. – ONE WHERE THE AGENT RECEIVES
COMPENSATION FOR HIS SERVICES. (LBID.)
(3) AS TO EXTENT OF BUSINESS COBERED:
(a) GENERAL. –ONE WHICH COMPRISES ALL THE BUSINESS OF THE PRINCIPAL
(ART. 1876.); OR
(b) SPECIAL. –ONE WHICH COMPRISES ONE OR MORE SPECIFIC TRANSACTIONS.
(IBID)
(4)
AS 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; OR
(b) SIMPLE OR COMMISSION. –ONE WHERE THE AGENT ACTS FOR THE ACCOUNT
OF THE PRINCIPAL BUT IN HIS OWN NAME. (SEE ART. 1882.)
FORM OF AGENCY.
IN GENERAL, THERE ARE NO FORMAL REQUIREMENTS GOVERNING THE
APPOINTMENT OF AN AGENT. THE AGENT’S AUTHORITY MAY BE ORAL OR WRITTEN. AN
INSTANCE WHEN THE LAW REQUIRES A SPECIFIC FORM FOR THE AGENCY IS ARTICLE
1874.
114
ART. 1870. ACCEPTANCE BY THE AGENT MAY ALSO BE EXPRESS, OR IMPLIED FROM
HIS ACTS WHICH CARRY OUT THE AGENCY, OR FROM HIS SILENCE OR INACTION
ACCORDING TO THE CIRCUMSTANCES.
FORM OF ACCEPTANCE BY AGENT.
SINCE AGENCY IS A CONTRACT, THERE MUST BE CONSENT BY BOTH PARTIES.
AN AGENCY IS
EITHER EXPRESS OR IMPLIED, AND THIS IS TRUE ON THE PART OF THE PRINCIPAL
(ART. 1869.) AS WELL AS ON THAT OF THE AGENT. (ART. 1870.)
ART. 1871. BETWEEN PERSONS WHO ARE PRESENT, THE ACCEPTANCE OF THE
AGENCY MAY ALSO BE IMPLIED IF THE PRINCIPAL DELIVERS HIS POWER OF
ATTORNEY TO THE AGENT AND THE LATTER RECEIVES IT WITHOUT ANY OBJECTION.
(N)
ACCEPTANCE BETWEEN PERSONS PRESENT.
AS REGARDS IMPLIED ACCEPTANCE BY THE AGENT, THE LAW DISTINGUISHES
BETWEEN CASES (1) WHERE PERSONS ARE PRESENT (ART. 1871.) AND (2) WHERE
PERSONS ARE ABSENT. (ART. 1872.) THE AGENCY IS IMPLIEDLY ACCEPTED IF THE
AGENT RECEIVES A POWER OF ATTORNEY FROM THE PRINCIPAL HIMSELF
PERSONALLY WITHOUT ANY OBJECTION, BOTH BEING PRESENT.
THE PRESUMPTION OF ACCEPTANCE MAY BE REBUTTED BY CONTRARY PROOF.
A POWER OF ATTORNEY IS A “WRITTEN AUTHORIZATION TO AN AGENT TO
PERFORM SPECIFIED ACTS IN BEHALF OF HIS PRINCIPAL WHICH ACTS, WHEN
PERFORMED, SHALL HAVE BINDING EFFECTS ON THE PRINCIPAL.
ART. 1872. BETWEEN PERSONS WHO ARE ABSENT, THE ACCEPTANCE OF THE
AGENCY CANNOT BE IMPLIED FROM THE SILENCE OF THE AGENT, EXCEPT:
(1) WHEN THE PRINCIPAL TRANSMITS HIS POWER OF ATTORNEY TO THE AGENT,
WHO RECEIVES IT WITHOUT ANY OBJECTION;
(2) 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. (N)
ACCEPTANCE BETWEEN PERSONS ABSENT.
IF BOTH THE PRINCIPAL AND THE AGENT ARE ABSENT, ACCEPTANCE OF THE
AGENCY BY THE AGENT IS NOT IMPLIED FROM HIS SILENCE OR INACTION. SINCE THE
AGENT IS NOT BOUND TO ACCEPT THE AGENCY, HE CAN SIMPLY IGNORE THE OFFER.
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HOWEVER, IN THE TWO CASES MENTIONED IN ARTICLE 1872, AGENCY IS IMPLIED.
THUS, THERE IS IMPLIED ACCEPTANCE IF THE AGENT WRITES A LETTER
ACKNOWLEDGING RECEIPT OF THE POWER OF ATTORNEY BUT OFFERS NO OBJECTION
TO THE CREATION OF THE AGENCY. (NO. 1.) BUT HIS MERE FAILURE TO GIVE A REPLY
DOES NOT MEAN THAT THE AGENCY HAS BEEN ACCEPTED UNLESS THE “POWER OF
ATTORNEY IS WITH RESPECT TO THE BUSINESS IN WHICH HE IS HABITUALLY ENGAGED
AS AN AGENT” (NO. 2.),31 OR THE ACCEPTANCE COULD BE INFERRED FROM HIS ACTS
WHICH CARRY OUT THE AGENCY (ART. 1870.) AS WHEN HE BEGINS TO ACT UNDER THE
AUTHORITY CONFERRED UPON HIM.
IT SHOULD BE NOTED THAT UNDER ARTICLE 1872, THE PRINCIPAL TRANSMITS
THE POWER OF ATTORNEY TO THE AGENT. IN ARTICLE 1871, HE PERSONALLY
DELIVERS THE POWER OF ATTORNEY TO THE AGENT.
ART. 1873. IF A PERSON SPECIALLY INFORMS ANOTHER OR STATES BY PUBLIC
ADVERTISEMENT THAT HE HAS GIVEN A POWER OF ATTORNEY TO A THIRD PERSON,
THE LATTER THEREBY BECOMES A DULY AUTHORIZED AGENT, IN THE FORMER CASE
WITH RESPECT TO THE PERSON WHO RECEIVED THE SPECIAL INFORMATION, AND IN
THE LATTER CASE WITH REGARD TO ANY PERSON.
THE POWER SHALL CONTINUE TO BE IN FULL FORCE UNTIL THE NOTICE IS
RESCINDED IN THE SAME MANNER IN WHICH IT WAS GIVEN. (N)
COMMUNICATION OF EXISTENCE OF AGENCY.
THERE ARE TWO WAYS OF GIVING NOTICE OF AGENCY WITH DIFFERENT
EFFECTS:
(1) IF BY SPECIAL INFORMATION (E.G., BY LETTER), THE PERSON APPOINTED AS
AGENT IS CONSIDERED SUCH WITH RESPECT TO THE PERSON TO WHOM IT WAS GIVEN.
(2) IF BY PUBLIC ADVERTISEMENT, THE AGENT IS CONSIDERED AS SUCH WITH
REGARD TO ANY PERSON. PUBLIC ADVERTISEMENT MAY BE MADE IN ANY FORM —
THROUGH THE NEWSPAPER, RADIO, ETC. AND BY POSTERS OR BILLBOARDS.
IN EITHER CASE, THE AGENCY IS DEEMED TO EXIST WHETHER THERE IS
ACTUALLY AN AGENCY OR NOT.
MANNER OF REVOCATION OF AGENCY.
THE POWER OF ATTORNEY MUST BE REVOKED IN THE SAME MANNER IN WHICH IT WAS
GIVEN. (PAR. 2.)
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IF THE AGENCY HAS BEEN ENTRUSTED FOR THE PURPOSE OF CONTRACTING
WITH SPECIFIED PERSONS, ITS REVOCATION SHALL NOT PREJUDICE THE LATTER IF
THEY WERE NOT GIVEN NOTICE THEREOF. (ART. 1921.) IF THE AGENT HAD GENERAL
POWERS, REVOCATION OF THE AGENCY DOES NOT PREJUDICE THIRD PERSONS WHO
ACTED IN GOOD FAITH AND WITHOUT KNOWLEDGE OF THE REVOCATION. NOTICE OF
THE REVOCATION IN A NEWSPAPER OF GENERAL CIRCULATION IS A SUFFICIENT
WARNING TO THIRD PERSONS. (ART. 1922.) NEVERTHELESS, REVOCATION MADE IN ANY
MANNER IS EFFECTIVE WHERE THE PERSON DEALING WITH THE AGENT HAS ACTUAL
KNOWLEDGE THEREOF; OTHERWISE, BAD FAITH AND FRAUD WOULD BE COMMITTED.
EXAMPLE:
P ESPECIALLY INFORMS X THAT HE HAS GIVEN A A POWER OF ATTORNEY. WITH
RESPECT TO X, A THEREBY BECOMES A DULY AUTHORIZED AGENT OF P. TO RESCIND
THE POWER OF ATTORNEY, P MUST GIVE NOTICE IN THE SAME MANNER IN WHICH HE
WAS GIVEN, NAMELY, BY SPECIAL INFORMATION TO X.
PUBLIC ADVERTISEMENT IS NOT SUFFI CIENT UNLESS X HAS ACTUAL
KNOWLEDGE OF THE REVOCATION. BUT IF P MAKES KNOWN THE APPOINTMENT OF A
BY PUBLIC ADVERTISEMENT, TERMINATION OF THE AGENCY BY SPECIAL INFORMATION
TO X OR BY PUBLIC ADVERTISEMENT IS EFFECTIVE AGAINST HIM.
ART. 1874. WHEN A SALE OF A PIECE OF LAND OR ANY INTEREST THEREIN IS
THROUGH AN AGENT, THE AUTHORITY OF THE LATTER SHALL BE IN WRITING;
OTHERWISE, THE SALE SHALL BE VOID. (N)
SALE OF LAND THROUGH AGENT.
UNDER THIS ARTICLE, THE SALE OF A PIECE OF LAND OR ANY INTEREST
THEREON, LIKE USUFRUCT, MORTGAGE, ETC., THROUGH AN AGENT IS VOID UNLESS
THE AUTHORITY OF THE AGENT IS IN WRITING. A LETTER CONTAINING THE AUTHORITY
TO SELL IS HELD SUFFICIENT. (JIMENEZ VS. ROBOT, 38 PHIL 387.) UNDER ARTICLE 1403,
NO. 2, PARAGRAPH (E) OF THE CIVIL CODE AN AGREEMENT FOR THE SALE OF REAL
PROPERTY OR OF AN INTEREST IS UNENFORCEABLE EVEN IF THERE IS NO AGENT.
NOTE THAT ARTICLE 1874 SPEAKS ONLY OF AN AGENCY FOR: "SALE OF A PIECE
OF LAND OR ANY INTEREST THEREIN." IT MAY BE ARGUED, THEREFORE, THAT AN
AGENCY TO PURCHASE NEED NOT BE IN WRITING. SUCH AN AGENCY HOWEVER, IS
COVERED BY ARTICLE 1878(5).
ART. 1875. AGENCY IS PRESUMED TO BE FOR A COM PENSATION UNLESS THERE
IS PROOF TO THE CONTRARY.
PRESUMPTION AS TO COMPENSATION OF AGENT.
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THE PRINCIPAL MUST PAY THE AGENT THE COMPENSATION AGREED UPON, OR
THE REASONABLE VALUE OF THE AGENT'S SERVICES IF NO COMPENSATION WAS
SPECIFIED. THIS PRESUPPOSES, HOWEVER, THAT THE AGENT HAS COMPLIED WITH HIS
OBLIGATION AS SUCH TO THE PRINCIPAL.
THE CIRCUMSTANCE THAT THE AGENCY WAS FOR COMPENSATION OR NOT
SHALL BE CONSIDERED BY THE COURT IN DETERMINING THE EXTENT LIABILITY OF AN
AGENT FOR FRAUD OR FOR NEGLIGENCE. (ART. 1909.) THE PRESUMPTION THAT THE
AGENCY IS FOR A COMPENSATION MAY BE INDICTED BY CONTRARY EVIDENCE.
ART. 1876. AN AGENCY IS EITHER GENERAL OR SPECIAL. THE FORMER
COMPRISES ALL THE BUSINESS OF THE PRINCIPAL. THE LATTER, ONE OR MORE
SPECIFIC TRANSACTIONS.
GENERAL AND SPECIAL AGENCIES.
THE DISTINCTION HERE IS BASED ON THE SCOPE OF THE BUSINESS COVERED.
A GENERAL AGENCY IS NOT IDENTICAL TO ONE COUCHED IN GENERAL TERMS
(ART. 1877) WHICH IS A SPECIAL AGENCY WHEN IT INVOLVES ONLY ONE (1) OR MORE
SPECIFIC TRANSACTIONS. (ART. 1876, PAR. 2.)
AGENTS CLASSIFIED.
ACCORDING TO THE NATURE AND EXTENT OF HIS AUTHORITY, AN AGENT MAY
BE A:
(1) UNIVERSAL AGENT OR ONE AUTHORIZED TO DO ALL ACTS THAT THE
PRINCIPAL MAY PERSONALLY DO, AND WHICH HE CAN LAWFULLY DELEGATE TO
ANOTHER THE POWER OF DOING. SO FAR AS SUCH CONDITION IS POSSIBLE, THE
AGENT IS SAID TO HAVE UNIVERSAL AUTHORITY (2 C.J., P. 427 MECHEM. SEC. 58.);
(2) GENERAL AGENT OR ONE AUTHORIZED TO TRANSACT ALL THE BUSINESS OF
HIS PRINCIPAL, OR ALL BUSINESS OF A PARTICULAR KIND OR IN A PARTICULAR PLACE,
OR IN OTHER WORDS TO DO ALL ACTS, CONNECTED WITH A PARTICULAR TRADE,
BUSINESS OR EMPLOYMENT (2 C.J. 427.); AND
(3) SPECIAL OR PARTICULAR AGENT OR ONE AUTHORIZED TO ACT IN ONE OR
MORE SPECIFIC TRANSACTION OR TO ACT UPON A PARTICULAR OCCASION.
SPECIAL TYPES OF AGENTS.
THE MORE COMMON SPECIAL TYPES OF AGENTS ARE THE FOLLOWING:
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(1) ATTORNEY AT LAW, OR ONE WHOSE BUSINESS IS TO REPRESENT CLIENTS IN
LEGAL PROCEEDINGS;
(2) AUCTIONEER, OR ONE WHOSE BUSINESS IS TO SELL PROPERTY FOR OTHERS
TO THE HIGHEST BIDDER AT A PUBLIC SALE;
(3) BROKER, OR ONE WHOSE BUSINESS IS TO ACT AS INTERMEDIARY BETWEEN
TWO OTHER PARTIES SUCH AS INSURANCE BROKER AND REAL ESTATE BROKER;
(4) FACTOR (SYNONYMOUS WITH COMMISSION MERCHANT), OR ONE WHOSE
BUSINESS IS TO RECEIVE AND SELL GOODS FOR A COMMISSION, BEING ENTRUSTED
WITH THE POSSESSION OF THE GOODS INVOLVED IN THE TRANSACTION. (SEE ART.
1903.);
(5) CASHIER IN BANK, OR ONE WHOSE BUSINESS IS TO REPRESENT A BANKING
INSTITUTION IN ITS FINANCIAL TRANSACTIONS; AND;
(6) ATTORNEY-IN-FACT OR ONE WHO IS GIVEN AUTHORITY BY HIS PRINCIPAL TO
DO A PARTICULAR ACT NOT OF A LEGAL CHARACTER. THE TERM IS, IN LOOSE
LANGUAGE, USED TO INCLUDE AGENTS OF ALL KINDS, BUT IN ITS STRICT LEGAL SENSE,
IT MEANS AS AGENT HAVING SPECIAL AUTHORITY GRANTED BY THE PRINCIPAL.
ART. 1877. AN AGENCY COUCHED IN GENERAL TERMS COMPRISES ONLY ACTS
OF ADMINISTRATION, EVEN IF THE PRINCIPAL SHOULD STATE THAT HE WITHHOLDS
NO POWER OR THAT THE AGENT MAY EXECUTE SUCH ACTS AS HE MAY CONSIDER
APPROPRIATE, OR EVEN THOUGH THE AGENCY SHOULD AUTHORIZE A GENERAL AND
UNLIMITED MANAGEMENT. (N)
AGENCY COUCHED IN GENERAL TERMS.
AS TO THE EXTENT OF THE POWER CONFERRED, AGENCY MAY BE COUCHED IN
GENERAL TERMS (ART. 1877.) OR COUCHED IN SPECIFIC TERMS. (ART. 1878.)
AN AGENCY COUCHED IN GENERAL TERMS MAY BE A GENERAL AGENCY (ART.
1876, PAR. 1.) OR A SPECIAL AGENCY. (IBID., PAR. 2.) IT INCLUDES ONLY ACTS OF
ADMINISTRATION AND AN EXPRESS POWER IS NECESSARY TO PERFORM ANY ACT OF
STRICT OWNERSHIP (ART. 1878.), EVEN IF THE PRINCIPAL STATES THAT
(1) HE WITHHOLDS NO POWER, OR THAT
(2) THE AGENT MAY EXECUTE SUCH ACTS AS HE MAY CONSIDER APPROPRIATE,
OR THAT
(3) HE AUTHORIZES A GENERAL OR UNLIMITED MANAGEMENT. (ART. 1877.)
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MEANING OF ACTS OF ADMINISTRATION.
IT SEEMS EASY TO ANSWER THAT ACTS OF ADMINISTRATION ARE THOSE WHICH
DO NOT IMPLY THE AUTHORITY TO ALIENATE FOR THE EXERCISE OF WHICH AN
EXPRESS POWER IS NECESSARY. YET WHAT ARE ACTS OF ADMINISTRATION WILL
ALWAYS BE A QUESTION OF FACT, RATHER THAN OF LAW, BECAUSE THERE CAN BE NO
DOUBT THAT SOUND MANAGEMENT WILL SOMETIMES REQUIRE THE PERFORMANCE
OF AN ACT OF OWNERSHIP. BUT, UNLESS THE CONTRARY APPEARS, THE AUTHORITY
OF AN AGENT IS PRESUMED TO INCLUDE ALL THE NECESSARY AND USUAL MEANS TO
CARRY OUT THE AGENCY INTO EFFECT.
(1) A PERSON EMPLOYED TO SELL GOODS IN A RETAIL STORE CAN SELL WITHOUT
SPECIAL POWER OF ATTORNEY BECAUSE SELLING ITSELF IS AN ACT OF
ADMINISTRATION.
(2) AN ATTORNEY-IN-FACT EMPOWERED TO PAY THE DEBTS OF THE PRINCIPAL
AND TO EMPLOY ATTORNEYS TO DEFEND THE LATTER’S INTERESTS IS IMPLIEDLY
EMPOWERED TO PAY ATTORNEY’S FEES FOR SERVICES RENDERED IN THE INTERESTS
OF THE PRINCIPAL. (MUNICIPAL COUNCIL OF ILOILO VS. EVANGELISTA, 55 PHIL. 290
[1930].)
(3) A PERSON WHO IS MADE AN ATTORNEY-IN-FACT WITH THE SAME POWER AND
AUTHORITY TO DEAL WITH PROPERTY WHICH THE PRINCIPAL MIGHT OR COULD HAVE
DONE IF PERSONALLY PRESENT, MAY ENGAGE THE SERVICES OF A LAWYER TO
PRESERVE THE OWNERSHIP AND POSSESSION OF THE PRINCIPAL’S PROPERTY.
(4) THE AUTHORITY TO TAKE CHARGE OF CERTAIN PROPERTIES INCLUDES,
UNLESS IT IS OTHERWISE AGREED, THE IMPLIED AUTHORITY TO TAKE REASONABLE
MEASURES APPROPRIATE TO THE SUBJECT MATTER, TO PROTECT IT AGAINST LOSS
OR DESTRUCTION, TO KEEP IT IN REASONABLE REPAIR, TO RECOVER IT IF LOST OR
STOLEN, AND, IF THE SUBJECT MATTER IS ORDINARILY INSURED BY THE OWNERS, TO
INSURE IT.
ART. 1878. SPECIAL POWERS OF ATTORNEY ARE NECESSARY IN THE
FOLLOWING CASES:
(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 JUDGMENT, TO WAIVE OBJECTIONS TO THE VENUE OF
AN ACTION OR TO ABANDON A PRESCRIPTION ALREADY ACQUIRED;
(4) TO WAIVE ANY OBLIGATION GRATUITOUSLY;
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(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
COMPENSATION;
THE
PRINCIPAL
TO
RENDER
SOME
SERVICE
WITHOUT
(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;
(15) ANY OTHER ACT OF STRICT DOMINION. (N)
WHEN SPECIAL POWERS ARE NECESSARY.
IN THE 15 CASES ENUMERATED, ARE GENERAL ACTS OF STRICT DOMINION OR
OWNERSHIP AS DISTINGUISHED FROM ACTS OF ADMINISTRATION. HENCE, A SPECIAL
POWER OF ATTORNEY IS NECESSARY FOR THEIR EXECUTION THROUGH AN AGENT.
INCIDENTALLY, A POWER OF ATTORNEY IS VALID ALTHOUGH NO NOTARY PUBLIC
INTERVENED IN ITS EXECUTION (BARRETTO VS. TUAZON, 59 PHIL. 845.)
(1) TO MAKE PAYMENT. - PAYMENT IS THE DELIVERY OF MONEY OR THE
PERFORMANCE IN ANY OTHER MANNER OF AN OBLIGATION. (ART. 1232.) IT IS AN ACT
OF OWNERSHIP BECAUSE IT INVOLVES THE CONVEYANCE OF OWNERSHIP OF MONEY
OR PROPERTY. BUT WHEN PAYMENT IS MADE IN THE ORDINARY COURSE OF
MANAGEMENT IT IS CONSIDERED A MERE ACT OF ADMINISTRATION. IT IS INCLUDED IN
AN AGENCY COUCHED IN GENERAL TERMS (ART. 1877.) AND HENCE, NO SPECIAL
POWER OF ATTORNEY IS NEEDED. THUS, A SPECIAL POWER TO MAKE PAYMENT IS
IMPLIED FROM THE AUTHORITY TO BUY A DESIGNATED PIECE OF LAND AT A CERTAIN
PRICE.
(2) TO EFFECT NOVATIONS. – NOVATION IS THE EXTINCTION OF AN OBLIGATION
THROUGH THE CREATION OF A NEW ONE WHICH SUBSTITUTES IT BY CHANGING THE
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OBJECT OR PRINCIPAL CONDITIONS THEREOF. SUBSTITUTING A DEBTOR, OR
SUBROGATING ANOTHER IN THE RIGHT OF THE CREDITOR. (ART. 1291.) NOTE THAT THE
OBLIGATION MUST ALREADY BE IN EXISTENCE AT THE TIME THE AGENCY WAS
CONSTITUTED.
(3) TO COMPROMISE, ETC. – COMPROMISE IS A CONTRACT WHEREBY THE
PARTIES, BY MAKING RECIPROCAL CONCESSIONS, AVOID A LITIGATION OR PUT AN END
TO ONE ALREADY COMMENCED. (ART. 2028.) ARBITRATION IS WHERE THE PARTIES
SUBMIT THEIR CONTROVERSIES TO ONE OR MORE ARBITRATORS FOR DECISION. (ART.
2042: SEE ART. 1880.) THESE ARE ACTS OF OWNERSHIP SINCE THEY INVOLVE THE
POSSIBILITY OF DISPOSING OF THE THING OR RIGHT SUBJECT OF THE COMPROMISE
OR ARBITRATION. THE SAME IS TRUE ALSO WITH RESPECT TO THE AUTHORITY OF THE
AGENT WAIVE: (A) THE RIGHT TO APPEAL FROM A JUDGMENT; (B) OBJECTIONS TO THE
VENUE OF AN ACTION, AND (C) A PRESCRIPTION ALREADY ACQUIRED. BY
PRESCRIPTION, ONE ACQUIRES OWNERSHIP AND OTHER REAL RIGHTS THROUGH THE
LAPSE OF TIME. IN THE SAME WAY, RIGHTS AND ACTIONS ARE LOST BY PRESCRIPTION.
(ART. 1106)
THE GRANT OF SPECIAL POWER REGARDING ONE OF THE ACTS MENTIONED IN
NO. 3 OF ARTICLE 1878 IS NOT ENOUGH TO AUTHORIZE THE OTHERS,
(4) TO WAIVE AN OBLIGATION GRATUITOUSLY. - THIS IS CONDONATION OR
REMISSION. (ART. 1270.) THE AGENT CANNOT WAIVE A RIGHT BELONGING TO THE
PRINCIPAL WITHOUT VALUABLE CONSIDERATION OR EVEN FOR A NOMINAL
CONSIDERATION. HE CANNOT BIND THE PRINCIPAL WHO IS THE OBLIGEE UNLESS
SPECIALLY AUTHORIZED TO DO SO.
(5) TO CONVEY OR ACQUIRE IMMOVABLE. NOTE THAT NO.5 APPLIES WHETHER
THE CONTRACT IS GRATUITOUS OR ONEROUS. (SEE ART. 1874.) NOTE ALSO THAT IT
REFERS ONLY TO IMMOVABLES. (SEE NO. 15.)
(6) TO MAKE GIFTS. - GIFT OR DONATION IS AN ACT OF LIBERALITY WHEREBY A
PERSON DISPOSES GRATUITOUSLY OF A THING OR RIGHT IN FAVOR OF ANOTHER WHO
ACCEPTS IT. (ART. 725.) AN AGENT WITHOUT SPECIAL POWER FROM THE PRINCIPAL
CANNOT MAKE GIFTS. BUT THE MAKING OF CUSTOMARY GIFTS FOR CHARITY, OR
THOSE MADE TO EMPLOYEES IN THE BUSINESS MANAGED BY THE AGENT ARE
CONSIDERED ACTS OF ADMINISTRATION.
(7) TO LOAN OR BORROW MONEY. - IN A LOAN OF MONEY, THE BORROWER "IS
BOUND TO PAY TO THE CREDITOR AN EQUAL AMOUNT OF THE SAME KIND AND
QUALITY." (ART. 1953.) NOTE THAT THE EXCEPTION IN NO. (7) REFERS TO "BORROW"
AND NOT TO "LOAN." THE AGENT, HOWEVER, MAY BE EMPOWERED TO BORROW
MONEY. (ART. 1890.) NOTE ALSO THAT NO (7) REFERS ONLY TO MONEY AND NOT TO
OTHER FUNGIBLE THINGS. (SEE ART. 1953, PART III-A, CHAP. 2.)
(8) TO LEASE REALLY FOR MORE THAN ONE YEAR. - IN THE LEASE OF THINGS,
THE LESSOR GIVES TO THE LESSEE THE ENJOYMENT OR USE OF A THING FOR A PRICE
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CERTAIN, AND FOR A PERIOD WHICH MAY BE DEFINITE OR INDEFINITE. (ART. 1643.) AN
UNRECORDED LEASE OF REAL ESTATE IS NOT BINDING UPON THIRD PERSONS. (ART.
1648.) BY IMPLICATION, THE LEASE OF REALTY TO ANOTHER PERSON FOR ONE (1) YEAR
OR LESS IS AN ACT OF MERE ADMINISTRATION PROVIDED THE LEASE IS NOT
REGISTERED. NOTE THAT NO. 8 DOES NOT REFER TO LEASE OF REAL PROPERTY FROM
ANOTHER PERSON AND TO LEASE OF PERSONAL PROPERTY. AN AGREEMENT FOR THE
LEASING OF REAL PROPERTY FOR A LONGER PERIOD THAN ONE (1) YEAR IS
UNENFORCEABLE UNLESS MADE IN WRITING ART. 1403(2, EL IBID.) IT FOLLOWS THAT
EVEN IF THE AGENT IS ESPECIALLY AUTHORIZED, THE LEASE IS NOT ENFORCEABLE
AGAINST THE PRINCIPAL IF IT IS NOT IN WRITING.
(9) TO HIND THE PRINCIPAL TO RENDER SERVICE GRATUITOUSLY. AGENT MAY
BIND HIMSELF TO RENDER SERVICE WITHOUT COMPENSATION. - THE (ART. 1875.)
HOWEVER, TO BIND THE PRINCIPAL TO THAT EFFECT, A SPECIAL POWER IS
NECESSARY.
(10) TO BIND THE PRINCIPAL IN A CONTRACT OF PARTNERSHIP. - BY THE
CONTRACT OF PARTNERSHIP, THE PARTNERS BIND THEMSELVES TO CONTRIBUTE
MONEY PROPERTY, OR INDUSTRY TO A COMMON FUND WITH THE INTENTION OF
DIVIDING THE PROFITS AMONG THEMSELVES. (ART. 1767.) THE CONTRACT OF
PARTNERSHIP THUS CREATES OBLIGATIONS THE FULFILLMENT OF WHICH REQUIRES
AN ACT OF STRICT OWNERSHIP. FURTHERMORE, THE PRINCIPAL MUST PERSONALLY
HAVE TRUST AND CONFIDENCE IN THE PROPOSED PARTNERS.
(11) TO OBLIGATE PRINCIPAL AS GUARANTOR OR SURETY. - BY THE CONTRACT
OF GUARANTY, THE GUARANTOR BINDS HIMSELF TO FULFILL THE OBLIGATION OF THE
PRINCIPAL DEBTOR IN CASE THE LATTER SHOULD FAIL TO DO SO. IF THE PERSON
BINDS HIMSELF SOLIDARILY, HE IS A SURETY AND THE CONTRACT IS CALLED A
SURETYSHIP. (ART. 2047.)
IT HAS BEEN HELD THAT A CONTRACT OF GUARANTY OR SURETY CANNOT BE
INFERRED FROM THE USE OF VAGUE OR GENERAL WORDS. THUS, A POWER OF
ATTORNEY GIVEN TO SELL OR TO LEASE THE PROPERTY OF THE PRINCIPAL AND
GENERALLY "TO PERFORM AND EXECUTE ALL AND EVERY LAWFUL AND REASONABLE
ACT AS FULLY AND EFFECTIVELY AS I MIGHT OR COULD DO IF PERSONALLY PRESENT
DOES NOT OPERATE TO AUTHORIZE THE AGENT TO SIGN IN BEHALF OF THE PRINCIPAL
A SURETY BOND IN FAVOR OF THE GOVERNMENT IN CONNECTION WITH THE
PURCHASE OF CERTAIN MATERIALS DREDGED FROM A FISH POND. THE POWER TO
CREATE A CONTRACT OF SURETYSHIP CANNOT BE INFERRED; IT MUST BE EXPRESSED.
(DIRECTOR OF PUBLIC WORKS VS. SING JUCO, 53 PHIL. 205.)
A CONTRACT OF GUARANTY IS UNENFORCEABLE UNLESS IT IS MADE WRITING.
(ART. 1403[2, B].)
(12) TO CREATE OR COUNTY REAL RIGHTS OVER IMMOVABLE PROPERTY
BELONGING TO HIS PRINCIPAL WITHOUT SPECIAL POWER. - THAT IS AN ACT STRICT
OWNERSHIP
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(13) TO ACCEPT OR REPUDIATE AN INHERITANCE. - ANY PERSON HAVING THE
FREE DISPOSAL OF HIS PROPERTY MAY ACCEPT OR REPUDIATE AN INHERITANCE.
(ART. 1044) THIS ACT IS ONE OF STRICT DOMINION HENCE, THE NECESSITY OF A
SPECIAL AUTHORITY.
(14) TO RATIFY OBLIGATIONS CONTRACTED BEFORE THE AGENCY. - AN AGENT
CANNOT EFFECT NOVATION OF OBLIGATIONS EXISTING AT THE TIME NF THE
CONSTITUTION OF THE AGENCY UNLESS HE BE SPECIALLY AUTHORIZED TO DO SO.
(SEE NO. 2.) ON THE SAME PRINCIPLE, HE CANNOT RATIF OR RECOGNIZE OBLIGATIONS
CONTRACTED BEFORE THE AGENCY WITHOUT SPECIAL POWER FROM THE PRINCIPAL.
(15) ANY OTHER ACT OF STRICT DOMINION. - GENERALLY, A SALE OR PURCHASE
OF PERSONAL PROPERLY IS AN ACT OF STRICT DOMINION. HENCE, A SPECIAL POWER
IS NECESSARY IN ORDER THAT THE ACT SHALL BE BINDING ON THE PRINCIPAL. THUS,
AN AGENT APPOINTED TO MANAGE A TAILORING SHOP CANNOT SELL SEWING
MACHINES USED IN SAID ESTABLISHMENT. BUT A SALE OR PURCHASE MADE IN THE
ORDINARY COURSE OF MANAGEMENT (E.G, SALE OF BOOKS IN A BOOKSTORE) IS
MERELY AN ACT OF ADMINISTRATION AND THEREFORE, INCLUDED IN AN AGENCY
COUCHED IN GENERAL TERMS. (ART. 1877.)
ART. 1879. A SPECIAL POWER TO SELL EXCLUDES THE POWER TO MORTGAGE;
AND A SPECIAL POWER TO MORTGAGE DOES NOT INCLUDE THE POWER TO SELL. (N)
SCOPE OF AUTHORITY TO SELL/ TO MORTGAGE.
THE AGENT CANNOT SELL (ART. 1878, NOS. 5, 15.) OR MORTGAGE (NO. 12.) THE
PROPERTY BELONGING TO THE PRINCIPAL WITHOUT SPECIAL POWER.
AN AUTHORITY TO SELL THE PRINCIPAL’S PROPERTY DOES NOT CARRY WITH IT
OR IMPLY THE AUTHORITY TO MORTGAGE. AND VICE VERSA, THE SPECIAL POWER TO
MORTGAGE IS NOT TO BE IMPLIED FROM THE POWER TO SELL. IN THE ABSENCE OF
SPECIAL AUTHORITY, THE SALE OR MORTGAGE WILL BE UNENFORCEABLE AGAINST
THE PRINCIPAL AS THE AGENT “HAS ACTED BEYOND HIS POWERS.” (ART. 1403[1]; ART.
1881.)
ART. 1880. A SPECIAL POWER TO COMPROMISE DOES NOT AUTHORIZE
SUBMISSION TO ARBITRATION.
SCOPE OF SPECIAL POWER TO COMPROMISE/ TO SUBMIT TO ARBITRATION.
IF THE AGENT IS GRANTED A SPECIAL POWER TO COMPROMISE HE CAN DO
ANYTHING WHICH THE PRINCIPAL HIMSELF CAN DO TO EFFECT SETTLEMENT. BUT HE
IS NOT THEREBY AUTHORIZED TO SUBMIT TO ARBITRATION BECAUSE WHILE THE
PRINCIPAL MAY HAVE CONFIDENCE IN THE AGENT’S JUDGMENT, THE ARBITRATOR
DESIGNATED MAY NOT POSSESS THE TRUST OF THE PRINCIPAL.
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ART. 1881. THE AGENT MUST ACT WITHIN THE SCOPE OF HIS AUTHORITY. HE MAY
DO SUCH ACTS AS MAY BE CONDUCIVE TO THE ACCOMPLISHMENT OF THE PURPOSE
OF THE AGENCY.
ART. 1882. THE LIMITS OF THE AGENT’S AUTHORITY SHALL NOT BE CONSIDERED
EXCEEDED SHOULD IT HAVE BEEN PERFORMED IN A MANNER MORE ADVANTAGEOUS
TO THE PRINCIPAL THAN THAT SPECIFIED BY HIM.
AUTHORITY OF AN AGENT DEFINED.
AUTHORITY OF AN AGENT IS THE POWER OF THE AGENT TO AFFECT THE LEGAL
RELATIONS OF THE PRINCIPAL BY ACTS DONE IN ACCORDANCE WITH THE PRINCIPAL’S
MANIFESTATION OF CONSENT TO HIM.
AUTHORITY DISTINGUISHED FROM POWER.
(1) AS TO EXISTENCE. — WHILE “AUTHORITY” AND “POWER” ARE OFTEN USED
SYNONYMOUSLY, THE FORMER MAY BE CONSIDERED THE SOURCE OR CAUSE, WHILE
THE LATTER, THE EFFECT. THUS, AN AGENT GRANTED AUTHORITY BY THE PRINCIPAL
HAS THEREBY THE “POWER” TO ACT FOR HIM.
(2) AS BETWEEN AN AGENT AND A PRINCIPAL. – AN ACT IS WITHIN THE AUTHORITY
OF THE AGENT IF IT IS NOT A VIOLATION OF HIS DUTY TO THE PRINCIPAL, AND ACT IS
WITHIN HIS POWER, ALTHOUGH IT CONSTITUTES A VIOLATION OF HIS DUTY TO THE
PRINCIPAL, IF HE HAS THE LEGAL ABILITY TO BIND THE PRINCIPAL. IN FINE, AN AGENT
WITH AUTHORITY TO DO AN ACT HAS ALSO THE POWER TO BIND THE PRINCIPAL, BUT
THE LATTER MAY EXIST WITHOUT THE AUTHORITY.
(3) SO FAR AS THIRD PERSONS ARE CONCERNED, NO DISTINCTION EXISTS. AN
ACT WITHIN THE POWER OF THE AGENT IS DEEMED WITHIN THE SCOPE OF HIS
AUTHORITY EVEN IF THE AGENT HAS, IN FACT, EXCEEDED THE LIMITS OF HIS
AUTHORITY (SEE EXAMPLES UNDER ARTS. 1900 AND 1911.)
KINDS OF AUTHORITY.
THE AUTHORITY OF THE AGENT MAY BE:
(1) ACTUAL. — WHEN IT IS ACTUALLY GRANTED, AND IT MAY BE EXPRESS OR
IMPLIED.
(2) EXPRESS. — WHEN IT IS DIRECTLY CONFERRED BY WORDS (ART. 1869.);
(3) IMPLIED. — WHEN IT IS INCIDENTAL TO THE TRANSACTION OR REASONABLY
NECESSARY TO ACCOMPLISH THE MAIN PURPOSE OF THE AGENCY (ART. 1881.)
(4) APPARENT OR OSTENSIBLE. — WHEN IT IS CONFERRED BY CONDUCT OR
EVEN BY SILENCE. (SEE ART. 1869.) OSTENSIBLE AUTHORITY IS ANOTHER NAME FOR
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AUTHORITY BY ESTOPPEL, ALTHOUGH A DISTINCTION IS GIVEN BETWEEN THE TWO. IT
IS ALSO AN IMPLIED AUTHORITY IN THE SENSE THAT IT IS NOT EXPRESSLY
CONFERRED.
(5) GENERAL. — WHEN IT REFERS TO ALL THE BUSINESS OF THE PRINCIPAL (SEE
ART. 1876.);
(6) SPECIAL. — WHEN IT IS LIMITED ONLY TO ONE OR MORE SPECIFIC
TRANSACTIONS (IBID.); AND
(7) AUTHORITY BY NECESSITY. — WHEN IT IS DEMANDED BY VIRTUE OF THE
EXISTENCE OF AN EMERGENCY.
WHEN PRINCIPAL BOUND BY ACT OF AGENT.
(1) REQUISITES. — IN ORDER THAT THE PRINCIPAL MAY BE BOUND TO THIRD
PERSONS BY THE ACT OF THE AGENT, THERE ARE TWO REQUISITES:
(A) THE AGENT MUST ACT WITHIN THE SCOPE OF HIS (ACTUAL OR
APPARENT) AUTHORITY; AND
(B) THE AGENT MUST ACT IN BEHALF OF THE PRINCIPAL.
(2) RATIFICATION BY PRINCIPAL – IF THE "AGENT" ACTS WITHOUT AUTHORITY OR
IN EXCESS OR BEYOND THE SCOPE OF HIS AUTHORITY, SUCH ACT SHALL
UNENFORCEABLE, UNLESS IT IS RATIFIED, EXPRESSLY OR IMPLIED, BY THE PERSON
ON WHOSE BEHALF IT HAS BEEN EXECUTED BEFORE IT IS REVOKED BY THE OTHER
CONTRACTING PARTY.
(3) PERFORMANCE OF AGENCY MORE ADVANTAGEOUS TO PRINCIPAL – BUT THE
AGENT IS NOT DEEMED TO HAVE EXCEEDED THE LIMITS OF HIS AUTHORITY SHOULD
HE PERFORM THE AGENCY IN A MANNER MORE ADVANTAGEOUS TO THE PRINCIPAL
THAN THAT INDICATED BY HIM SINCE HE IS AUTHORIZED TO DO SUCH ACTS AS MAY BE
CONDUCIVE TO THE ACCOMPLISHMENT OF THE PURPOSE OF THE AGENCY. IF THE
AGENT ACTS WITHIN THE SCOPE OF HIS AUTHORITY BUT IN HIS OWN NAME, ARTICLE
1883 APPLIES.
WHEN PRINCIPAL BOUND BY ACTS OF AGENT BEYOND HIS POWERS.
AS A GENERAL RULE, THE PRINCIPAL IS NOT BOUND BY THE ACTS OF AN AGENT
BEYOND HIS LIMITED POWERS. IN OTHER WORDS THIRD PERSONS DEALING WITH AN
AGENT DO SO AT THEIR PERIL AND ARE BOUND TO INQUIRE AS TO THE EXTENT OF HIS
POWERS. THERE ARE, HOWEVER, QUALIFICATIONS WHEREBY THE PRINCIPAL IS HELD
BOUND, TO WIT:
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(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;
(3) WHERE THE PRINCIPAL HAS PLACED IN THE HANDS OF THE AGENT
INSTRUMENTS SIGNED BY HIM IN BLANK AND
(4) WHERE THE PRINCIPAL HAS RATIFIED THE ACTS OF THE AGENT. (SEE ART.
1901.)
ART. 1883. IF AN AGENT ACTS IN HIS OWN NAME, THE PRINCIPAL HAS NO RIGHT
OF ACTION AGAINST THE PERSONS WITH WHOM THE AGENT HAS CONTRACTED;
NEITHER HAVE SUCH PERSONS AGAINST THE PRINCIPAL. IN SUCH CASE, THE AGENT
IS THE ONE DIRECTLY BOUND IN FAVOR OF THE PERSON WITH WHOM HE HAS
CONTRACTED, AS IF THE TRANSACTION WERE HIS OWN, EXCEPT WHEN THE
CONTRACT INVOLVES THINGS BELONGING TO THE PRINCIPAL. THE PROVISIONS OF
THIS ARTICLE SHALL BE UNDERSTOOD TO BE WITHOUT PREJUDICE TO THE ACTIONS
BETWEEN THE PRINCIPAL AND AGENT.
KINDS OF PRINCIPAL.
THE PRINCIPAL MAY BE DISCLOSED, PARTIALLY DISCLOSED, OR UNDISCLOSED.
(1) DISCLOSED PRINCIPAL. — 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. THIS IS THE
USUAL TYPE OF AGENCY.
(2) PARTIALLY DISCLOSED PRINCIPAL. — 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.
(3) UNDISCLOSED PRINCIPAL. — IF THE PARTY HAS NO NOTICE OF THE FACT
THAT THE AGENT IS ACTING AS SUCH FOR A PRINCIPAL.
AGENCY WITH UNDISCLOSED PRINCIPAL.
IN ORDER THAT AN AGENT MAY BIND HIS PRINCIPAL (WHETHER IDENTIFIED BY
NAME OR NOT) HE MUST ACT ON BEHALF OF THE LATTER AND WITHIN THE SCOPE OF
HIS AUTHORITY (ART. 1881
(1) AGENT DIRECTLY RESPONSIBLE. - ARTICLE 1883 SPEAKS OF A CASE WHERE
THE AGENT (A) BEING AUTHORIZED TO ACT ON BEHALF THE PRINCIPAL, (B) ACTS
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INSTEAD IN HIS OWN NAME. IN SUCH CASE THE GENERAL RULE IS THAT THE AGENT IS
THE ONE DIRECTLY LIABLE TO THE PERSON WITH WHOM HE HAD CONTRACTED AS IF
THE TRANSACTION WERE HIS OWN. THE REASON IS THAT THERE IS NO
REPRESENTATION OF PRINCIPAL WHEN THE AGENT ACTS IN HIS OWN NAME. IN EFFECT
THE RESULTING CONTRACTUAL RELATION IS ONLY BETWEEN THE AGENT AND THE
THIRD PERSON. THEREFORE, THE PRINCIPAL DOES NOT HAVE A RIGHT OF ACTION
AGAINST THE THIRD PERSON NOR THE THIRD PERSON AGAINST HIM.
(2) WHERE CONTRACT INVOLVES THINGS BELONGING TO PRINCIPAL. – THE
EXCEPTION TO THE RULE THAT AN AGENT ACTING IN HIS OWN NAME DOES NOT BIND
THE PRINCIPAL IS WHEN THE CONTRACT INVOLVES THING BELONGING TO THE
PRINCIPAL. (ART. 1883, PAR. 2.) IN SUCH CASE, THE CONTRACT IS CONSIDERED AS
ENTERED INTO BETWEEN THE PRINCIPAL AND THE THIRD PERSON. THIS EXCEPTION IS
NECESSARY FOR THE PROTECTION OF THIRD PERSONS AGAINST POSSIBLE
COLLUSION BETWEEN THE AGENT AND THE PRINCIPAL.
THE FOREGOING IS WITHOUT PREJUDICE TO THE PRINCIPAL'S RIGHT TO
DEMAND FROM THE AGENT DAMAGES FOR HIS FAILURE TO COMPLY WITH THE
AGENCY. (IBID., PAR. 3; ART. 1884, PAR. 1.)
LAW ON AGENCY – NOTES 20
CHAPTER 2 - OBLIGATIONS OF THE AGENT
ART. 1884. THE AGENT IS BOUND BY HIS ACCEPTANCE TO CARRY OUT THE
AGENCY, AND IS LIABLE FOR THE DAMAGES WHICH, THROUGH HIS NONPERFORMANCE, THE PRINCIPAL MAY SUFFER.
HE MUST ALSO FINISH THE BUSINESS ALREADY BEGUN ON THE DEATH OF THE
PRINCIPAL, SHOULD DELAY ENTAIL ANY DANGER.
ART. 1885. IN CASE A PERSON DECLINES AN AGENCY, HE IS BOUND TO OBSERVE
THE DILIGENCE OF A GOOD FATHER OF A FAMILY IN THE CUSTODY AND
PRESERVATION OF THE GOODS FORWARDED TO HIM BY THE OWNER UNTIL THE
LATTER SHOULD APPOINT AN AGENT OR TAKE CHARGE OF THE GOODS.
1. NECESSITY
OF ACCEPTANCE.
THE MOMENT THE AGENT ACCEPTS THE AGENCY, EXPRESSLY OR IMPLIEDLY, SAID
ACCEPTANCE GIVES
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BIRTH TO CONTRACTUAL RELATIONS BETWEEN THE PRINCIPAL AND THE AGENT. IF
AFTER ACCEPTANCE, THE AGENTS FAIL TO PERFORM HIS DUTIES AS SUCH, THE
PRINCIPAL MAY SUE HIM FOR DAMAGES FOR BREACH OF CONTRACT.
HOWEVER, THE AGENT CANNOT BE COMPELLED TO ACCEPT AN AGENCY. HE IS FREE
TO REFUSE TO REFUSE THE TRUST AND CONFIDENCE REPOSED IN HIM. THIS HE MAY
DO SO BY INFORMING THE
PRINCIPAL OF HIS REJECTION. BUT IF GOODS ARE FORWARDED TO HIM, AND DECLINE
THE AGENCY, HE IS DUTY BOUND TO OBSERVE THE DILIGENCE OF A GOOD FATHER OF
A FAMILY I THE CUSTODY OR PRESERVATION OF THE GOODS UNTIL THE PRINCIPAL
HAS APPOINTED A NEW AGENT OR HE HIMSELF TAKES CHARGE OF THE GOODS.
2. DEATH
OF THE PRINCIPAL.
DEATH OF THE PRINCIPAL TERMINATES THE AGENCY. HOWEVER, SHOULD DELAY
ENTAIL ANY DANGER, THE AGENT MUST FINISH THE BUSINESS ALREADY BEGUN ON
THE DEATH OF THE PRINCIPAL, AND OTHERWISE THE AGENT WILL ANSWER FOR
DAMAGES.
3. OBLIGATION
OF THE AGENT WHO ACCEPTS THE AGENCY.
TO CARRY OUT THE AGENCY.
b. TO ACT WITHIN THE SCOPE OF HIS AUTHORITY.
c. TO ACT IN BEHALF OF THE PRINCIPAL.
a.
4. OBLIGATION
OF THE AGENT WHO DECLINES THE AGENCY.
TO NOTIFY THE PRINCIPAL THAT HE IS DECLINING THE AGENCY.
b. TO PRESERVE THE GOODS FORWARDED TO HIM UNTIL THE PRINCIPAL APPOINTS
ANOTHER AGENT.
a.
ART. 1886. SHOULD THERE BE A STIPULATION THAT THE AGENT SHALL ADVANCE
THE NECESSARY FUNDS, HE SHALL BE BOUND TO DO SO EXCEPT WHEN THE
PRINCIPAL IS INSOLVENT.
ART. 1887. IN THE EXECUTION OF THE AGENCY, THE AGENT SHALL ACT IN
ACCORDANCE WITH THE INSTRUCTIONS OF THE PRINCIPAL.
IN DEFAULT THEREOF, HE SHALL DO ALL THAT A GOOD FATHER OF A FAMILY
WOULD DO, AS REQUIRED BY THE NATURE OF THE BUSINESS.
1. INSTRUCTIONS
EXPLAINED.
THESE ARE ORDERS GIVEN BY THE PRINCIPAL TO HIS AGENT IN RELATION TO THE
BUSINESS OF HIS AGENCY. IF THE AGENT ACTS WITHIN HIS AUTHORITY BUT FAILS TO
FOLLOW THE INSTRUCTIONS OF THE PRINCIPAL, THE CONTRACT WITH THE THIRD
PERSON BINDS THE PRINCIPAL, BUT THE AGENT MAY BE HELD ANSWERABLE FOR
DAMAGES TO THE PRINCIPAL. CONVERSELY, IF THE AGENT FOLLOWED THE
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INSTRUCTIONS OF THE PRINCIPAL AND HAS NOT EXCEEDED HIS AUTHORITY, THE
PRINCIPAL CANNOT SUCCESSFULLY INVOKE THE FAILURE IN THE ACCOMPLISHMENT
OF THE OBJECT FOR WHICH THE AGENCY IS CONSTITUTED (GUTIERREZ HERMANAS
VS. ORIA HERMANAS, 30 PHILO. 491).
2. HOW
THE AGENT WILL EXECUTE THE AGENCY.
IF WITH INSTRUCTION FROM THE PRINCIPAL: THE AGENT SHALL ACT IN
ACCORDANCE WITH THE INSTRUCTION OF THE PRINCIPAL. THE ACT MUST BE
FOR THE BENEFIT AND NOT TO THE DETRIMENT OF THE PRINCIPAL.
b. IF WITHOUT INSTRUCTION FROM THE PRINCIPAL: THE AGENT MUST ACT WITH
THE DILIGENCE OF THE GOOD FATHER OF FAMILY, AS REQUIRED BY THE NATURE
OF THE BUSINESS.
a.
ART. 1888. AN AGENT SHALL NOT CARRY OUT AN AGENCY IF ITS EXECUTION
WOULD MANIFESTLY RESULT IN LOSS OR DAMAGE TO THE PRINCIPAL.
1. AGENT IS AN EXTENSION OF THE PERSONALITY OF THE PRINCIPAL
IN AGENCY, THE AGENT IS AN EXTENSION OF THAT OF THE PRINCIPAL. SUCH BEING
THE CASE, THE AGENT IS FORBIDDEN TO DO AN ACT WHICH THE PRINCIPAL WOULD
NOT TO DO. IF AN ACT WOULD MANIFESTLY RESULT IN LOSS OR DAMAGE TO HIM, IT IS
OBVIOUS THAT THE PRINCIPAL WILL NOT EXECUTE THE ACT. THEREFORE, BEING AN
AGENT, HE MUST NOT CARRY OUT THE AGENCY IF HE KNEW THAT IT WOULD
MANIFESTLY RESULT IN LOSS OR DAMAGE TO HIM, IT IS OBVIOUS THAT THE PRINCIPAL
WILL NOT EXECUTE THE ACT. THEREFORE, BEING AN AGENT, HE MUST NOT CARRY
OUT THE AGENCY IF HE KNEW THAT IT WOULD MANIFESTLY RESULT IN LOSS OR
DAMAGE TO THE PRINCIPAL.
ART. 1889. THE AGENT SHALL BE LIABLE FOR DAMAGES IF, THERE BEING A
CONFLICT BETWEEN HIS INTERESTS AND THOSE OF THE PRINCIPAL, HE SHOULD
PREFER HIS OWN.
1. AGENT MUST NOT COMPETE WITH THE PRINCIPAL UNDER THE PRINCIPLE OF
LOYALTY
IT IS A WELL SETTLED RULE THAT AN AGENT IS A FIDUCIARY WITH RESPECT TO
MATTERS WITHIN THE
SCOPE OF AGENCY. IT IS BASED ON UTMOST TRUST AND CONFIDENCE. THEREFORE,
THE AGENT IS BOUND TO EXECUTE THE AGENCY IN GOOD FAITH AND LOYALTY TO HIS
PRINCIPAL. SHORT OF THIS EXPECTATION IS CONSIDERED A BETRAYAL. IN ANY EVENT,
WHENEVER THERE IS A CONFLICT OF INTEREST, THE AGENT IS CALLED UPON TO
SACRIFICE HIS INTEREST AND GIVE IT TO THE PRINCIPAL.
ART. 1890. IF THE AGENT HAS BEEN EMPOWERED TO BORROW MONEY, HE MAY
HIMSELF BE THE LENDER AT THE CURRENT RATE OF INTEREST. IF HE HAS BEEN
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AUTHORIZED TO LEND MONEY AT INTEREST, HE CANNOT BORROW IT WITHOUT THE
CONSENT OF THE PRINCIPAL.
1. AGENT’S
AUTHORITY TO LEND MONEY TO THE PRINCIPAL.
IF THE AGENT HAS BEEN EMPOWERED TO BORROW MONEY, HE MAY HIMSELF BE THE
LENDER AT THE CURRENT RATE OF INTEREST AND THIS RULE CANNOT CAUSE
PREJUDICE TO THE PRINCIPAL BECAUSE THE INTEREST IS AT THE CURRENT RATE.
2. AGENT’S
AUTHORITY TO BORROW MONEY TO THE PRINCIPAL.
IF THE AGENT IS AUTHORIZED TO LEND MONEY, HE CANNOT BE THE BORROWER,
EXCEPT WITH THE CONSENT OF THE PRINCIPAL.
ART. 1891. EVERY AGENT IS BOUND TO RENDER AN ACCOUNT OF HIS TRANSACTIONS
AND TO DELIVER TO THE PRINCIPAL WHATEVER HE MAY HAVE RECEIVED BY VIRTUE
OF THE AGENCY, EVEN THOUGH IT MAY NOT BE OWING TO THE PRINCIPAL.
EVERY STIPULATION EXEMPTING THE AGENT FROM THE OBLIGATION TO RENDER AN
ACCOUNT SHALL BE VOID.
ART. 1892. THE AGENT MAY APPOINT A SUBSTITUTE IF THE PRINCIPAL HAS NOT
PROHIBITED HIM FROM DOING SO; BUT HE SHALL BE RESPONSIBLE FOR THE ACTS OF
THE SUBSTITUTE:
(1) WHEN
HE WAS NOT GIVEN THE POWER TO APPOINT ONE;
(2) WHEN
HE WAS GIVEN SUCH POWER, BUT WITHOUT DESIGNATING THE
PERSON, AND THE PERSON APPOINTED WAS NOTORIOUSLY INCOMPETENT
OR INSOLVENT.
ALL ACTS OF THE SUBSTITUTE APPOINTED AGAINST THE PROHIBITION OF THE
PRINCIPAL SHALL BE VOID.
ART. 1893. IN THE CASES MENTIONED IN NOS. 1 AND 2 OF THE PRECEDING ARTICLE,
THE PRINCIPAL MAY FURTHERMORE BRING AN ACTION AGAINST THE SUBSTITUTE
WITH RESPECT TO THE OBLIGATIONS WHICH THE LATTER HAS CONTRACTED UNDER
THE SUBSTITUTION.
1. DELEGATION
OF AUTHORITY.
AS A RULE, THE AGENT MAY APPOINT A SUB-AGENT OR A SUBSTITUTE UNLESS
PROHIBITED BY THE PRINCIPAL.
2. APPOINTMENT
a.
OF A SUBSTITUTE.
THE AGENT WHO APPOINTS A SUBSTITUTE OR SUB-AGENT WITHOUT AUTHORITY
FROM THE PRINCIPAL, BUT NOT PROHIBITED IS LIABLE FOR THE ACTS OF THE
SUB-AGENT IF THE PRINCIPAL SUFFERS DAMAGES.
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IF THE AGENT IS GIVEN POWER TO APPOINT A SUB-AGENT WITHOUT
DESIGNATING THE PERSON, THE AGENT IS LIABLE IF THE SUB-AGENT IS
NOTORIOUSLY INCOMPETENT OR INSOLVENT.
c. IF THE AGENT IS GIVEN POWER TO APPOINT A SUB-AGENT, AND THE PRINCIPAL
DESIGNATED THE PERSON APPOINTED AS A SUB-AGENT, THE AGENT IS NOT
LIABLE FOR THE ACTS OF THE SUBAGENT.
d. IF THE AGENT APPOINTS A SUBSTITUTE AGAINST THE EXPRESSED WILL OF THE
PRINCIPAL, THE ACTS OF SAID SUBSTITUTE OR SUB-AGENT IS WITHOUT LEGAL
EFFECT, HENCE, THEY ARE VOID OR INEXISTENT. (MANRESA, 419-420)
b.
3. LIABILITY
OF A SUB-AGENT OR SUBSTITUTE.
THE APPOINTED SUB-AGENT FALLING UNDER ARTICLE 1890, PARAGRAPHS 1 AND 2, IS
LIABLE TO THE PRINCIPAL WITH RESPECT TO THE OBLIGATIONS WHICH THE LATTER
HAS CONTRACTED UNDER THE SUBSTITUTIONS.
ART. 1894. THE RESPONSIBILITY OF TWO OR MORE AGENTS, EVEN THOUGH THEY
HAVE BEEN APPOINTED SIMULTANEOUSLY, IS NOT SOLIDARY, IF SOLIDARITY HAS NOT
BEEN EXPRESSLY STIPULATED.
ART. 1895. IF SOLIDARITY HAS BEEN AGREED UPON, EACH OF THE AGENTS IS
RESPONSIBLE FOR THE NON-FULFILLMENT OF AGENCY, AND FOR THE FAULT OR
NEGLIGENCE OF HIS FELLOW AGENTS, EXCEPT IN THE LATTER CASE WHEN THE
FELLOW AGENTS ACTED BEYOND THE SCOPE OF THEIR AUTHORITY.
1. NATURE
OF THE LIABILITY OF TWO OR MORE AGENTS TO THE PRINCIPAL.
AS A RULE, EACH AGENT IS LIABLE ONLY FOR HIS OWN ACTS, OR OMISSION, EVEN
THOUGH THEY HAVE BEEN APPOINTED AT THE SAME TIME OR SIMULTANEOUSLY.
HOWEVER, THE PARTIES MAY AGREE THAT
THEIR OBLIGATION IS SOLIDARY. IF AGREED, EACH OF THE AGENTS IS LIABLE FOR THE
NONPERFORMANCE OF THE AGENCY, EXCEPT WHEN THE OTHER AGENTS ACTED
BEYOND THE SCOPE OF THEIR AUTHORITY.
2. EXTENT
OF LIABILITY IN CASE SOLIDARY RESPONSIBILITY IS AGREED UPON.
EACH OF THE AGENTS SHALL BE RESPONSIBLE FOR:
NON-FULFILLMENT OF THE AGENCY, BECAUSE THERE IS A BREACH OF CONTRACT.
b. DAMAGES BOUGHT ABOUT BY THE FAULT OR NEGLIGENCE OF ONE OF THE
AGENTS WHILE ACTING FOR THE AGENCY.
BE NOTED THAT IF THE ACT OF AN AGENT IS NOT RELATED TO THE AGENCY OR IS
BEYOND THE LIMITS OF THE AGENCY, HE ALONE SHALL BE RESPONSIBLE.
a.
ART. 1896. THE AGENT OWES INTEREST ON THE SUMS HE HAS APPLIED TO HIS OWN
USE FROM THE DAY ON WHICH HE DID SO, AND ON THOSE WHICH HE STILL OWES
AFTER THE EXTINGUISHMENT OF THE AGENCY.
132
1. AGENT’S LIABILITY FOR FAILURE TO DELIVER FUNDS OR PROPERTY AFTER THE
TERMINATION OF AGENCY.
THE AGENT IS DUTY BOUND TO DELIVER AGENCY FUNDS OR PROPERTY TO HIS
PRINCIPAL UPON THE TERMINATION OF AGENCY, AND IF HE SHOULD FAIL, HE SHOULD
ACCOUNT FOR ITS VALUE OR THE AMOUNT HE FAILED TO RETURN PLUS INTEREST.
ART. 1897. THE AGENT WHO ACTS AS SUCH IS NOT PERSONALLY LIABLE TO THE
PARTY WITH WHOM HE CONTRACTS, UNLESS HE EXPRESSLY BINDS HIMSELF OR
EXCEEDS THE LIMITS OF HIS AUTHORITY WITHOUT GIVING SUCH PARTY SUFFICIENT
NOTICE OF HIS POWERS.
1. AGENT EXCEEDS HIS AUTHORITY WITHOUT GIVING NOTICE TO THIRD PERSON.
AS A RULE, THE MOMENT THE AGENT EXECUTES THE AGENCY, HE MUST DO SO
WITHIN THE SCOPE OF HIS AUTHORITY, AND IN THE NAME OF HIS PRINCIPAL. AND IF HE
DOES SO, HE WILL ESCAPE PERSONAL LIABILITY, AND IT IS THE PRINCIPAL WHO IS
LIABLE, EXCEPT:
a.
IF THE AGENT BINDS HIMSELF EITHER AS A PRINCIPAL OR SURETY IN WHICH CASE
HE SHALL BE LIABLE TO THIRD PERSON WITH WHOM HE CONTRACTED.
b.
IF THE AGENT EXCEEDED THE LIMIT OF HIS AUTHORITY WITHOUT GIVING NOTICE
TO SUCH EXCESS OF AUTHORITY WITHOUT GIVING NOTICE TO SUCH EXCESS OF
AUTHORITY TO THIRD PERSON. BUT IF THE AGENT GAVE NOTICE TO THE THIRD
PERSON, AND DESPITE THE NOTICE, THE THIRD PERSON STILL CONTRACTED WITH
HIM, THE AGENT IS NOT LIABLE.
ART. 1898. IF THE AGENT CONTRACTS IN THE NAME OF THE PRINCIPAL, EXCEEDING
THE SCOPE OF HIS AUTHORITY, AND THE PRINCIPAL DOES NOT RATIFY THE
CONTRACT, IT SHALL BE VOID IF THE PARTY WITH WHOM THE AGENT CONTRACTED IS
AWARE OF THE LIMITS OF THE POWERS GRANTED BY THE PRINCIPAL. IN THIS CASE,
HOWEVER, THE AGENT IS LIABLE IF HE UNDERTOOK TO SECURE THE PRINCIPAL'S
RATIFICATION.
ART. 1899. IF A DULY AUTHORIZED AGENT ACTS IN ACCORDANCE WITH THE ORDERS
OF THE PRINCIPAL, THE LATTER CANNOT SET UP THE IGNORANCE OF THE AGENT AS
TO CIRCUMSTANCES WHEREOF HE HIMSELF WAS, OR OUGHT TO HAVE BEEN, AWARE.
ART. 1900. SO FAR AS THIRD PERSONS ARE CONCERNED, AN ACT IS DEEMED TO
HAVE BEEN PERFORMED WITHIN THE SCOPE OF THE AGENT'S AUTHORITY, IF SUCH
ACT IS WITHIN THE TERMS OF THE POWER OF ATTORNEY, AS WRITTEN, EVEN IF THE
AGENT HAS IN FACT EXCEEDED THE LIMITS OF HIS AUTHORITY ACCORDING TO AN
UNDERSTANDING BETWEEN THE PRINCIPAL AND THE AGENT.
133
ART. 1901. A THIRD PERSON CANNOT SET UP THE FACT THAT THE AGENT HAS
EXCEEDED HIS POWERS, IF THE PRINCIPAL HAS RATIFIED, OR HAS SIGNIFIED HIS
WILLINGNESS TO RATIFY THE AGENT'S ACTS.
RATIFICATION BY THE PRINCIPAL OF UNAUTHORIZED CONTRACT ENTERED BY THE
AGENT.
RATIFICATION CLEANSES THE CONTRACT FROM ALL ITS DEFECT FROM THE MOMENT
IT WAS CONSTITUTED. IF THE CONTRACT ENTERED BY THE AGENT IS UNAUTHORIZED
OR DISAUTHORIZED BUT LATER RATIFIED BY THE PRINCIPAL, OR HAS SIGNIFIED HIS
WILLINGNESS TO RATIFY THE AGENT’S ACT, THEY BECOME ENFORCEABLE. THIRD
PERSONS CAN NO LONGER SET THE DEFENSE THAT THE AGENT EXCEEDED HIS
POWER.
ART. 1902. A THIRD PERSON WITH WHOM THE AGENT WISHES TO CONTRACT ON
BEHALF OF THE
PRINCIPAL MAY REQUIRE THE PRESENTATION OF THE POWER OF ATTORNEY, OR THE
INSTRUCTIONS AS
REGARDS THE AGENCY. PRIVATE OR SECRET ORDERS AND INSTRUCTIONS OF THE
PRINCIPAL DO NOT PREJUDICE THIRD PERSONS WHO HAVE RELIED UPON THE POWER
OF ATTORNEY OR INSTRUCTIONS SHOWN THEM. (N)
ART. 1903. THE COMMISSION AGENT SHALL BE RESPONSIBLE FOR THE GOODS
RECEIVED BY HIM IN THE TERMS AND CONDITIONS AND AS DESCRIBED IN THE
CONSIGNMENT, UNLESS UPON RECEIVING THEM HE SHOULD MAKE A WRITTEN
STATEMENT OF THE DAMAGE AND DETERIORATION SUFFERED BY THE SAME.
(N)
1. COMMISSION AGENT AND BROKER DEFINED.
COMMISSION AGENT IS ONE WHO RECEIVES GOODS, CHATTELS, OR
MERCHANDISE, FOR SALE, EXCHANGE FOR A COMPENSATION OR COMMISSION,
TO BE PAID BY THE OWNER FROM THE SALE OF GOODS.
b. BROKER IS A MIDDLEMAN OR INTERMEDIARY WHO, IN BEHALF OF OTHERS, AND
FOR COMMISSION OR FEE, NEGOTIATES CONTRACTS OR TRANSACTIONS
RELATIVE TO REAL OR PERSONAL PROPERTIES.
a.
ART. 1904. THE COMMISSION AGENT WHO HANDLES GOODS OF THE SAME KIND AND
MARK, WHICH BELONG TO DIFFERENT OWNERS, SHALL DISTINGUISH THEM BY
COUNTERMARKS, AND DESIGNATE THE MERCHANDISE RESPECTIVELY BELONGING
TO EACH PRINCIPAL. (N)
ART. 1905. THE COMMISSION AGENT CANNOT, WITHOUT THE EXPRESS OR IMPLIED
CONSENT OF THE PRINCIPAL, SELL ON CREDIT. SHOULD HE DO SO, THE PRINCIPAL
MAY DEMAND FROM HIM PAYMENT IN CASH, BUT THE COMMISSION AGENT SHALL BE
ENTITLED TO ANY INTEREST OR BENEFIT, WHICH MAY RESULT FROM SUCH SALE.
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ART. 1906. SHOULD THE COMMISSION AGENT, WITH AUTHORITY OF THE PRINCIPAL,
SELL ON CREDIT, HE SHALL SO INFORM THE PRINCIPAL, WITH A STATEMENT OF THE
NAMES OF THE BUYERS. SHOULD HE FAIL TO DO SO, THE SALE SHALL BE DEEMED
TO HAVE BEEN MADE FOR CASH INSOFAR AS THE PRINCIPAL IS CONCERNED.
ART. 1907. SHOULD THE COMMISSION AGENT RECEIVE ON A SALE, IN ADDITION TO
THE ORDINARY COMMISSION, ANOTHER CALLED A GUARANTEE COMMISSION, HE
SHALL BEAR THE RISK OF COLLECTION AND SHALL PAY THE PRINCIPAL THE
PROCEEDS OF THE SALE ON THE SAME TERMS AGREED UPON WITH THE
PURCHASER. (N)
ART. 1908. THE COMMISSION AGENT WHO DOES NOT COLLECT THE CREDITS OF HIS
PRINCIPAL AT THE TIME WHEN THEY BECOME DUE AND DEMANDABLE SHALL BE
LIABLE FOR DAMAGES, UNLESS HE PROVES THAT HE EXERCISED DUE DILIGENCE
FOR THAT PURPOSE. (N)
ART. 1909. THE AGENT IS RESPONSIBLE NOT ONLY FOR FRAUD, BUT ALSO FOR
NEGLIGENCE, WHICH SHALL BE JUDGED WITH MORE OR LESS RIGOR BY THE
COURTS, ACCORDING TO WHETHER THE AGENCY WAS OR WAS NOT FOR A
COMPENSATION. (1726)
LAW ON AGENCY – NOTES 21
CHAPTER 3 – OBLIGATIONS OF THE PRINCIPAL (ARTICLES 1910 1981)
ART. 1910. THE PRINCIPAL MUST COMPLY WITH ALL THE OBLIGATIONS WHICH THE
AGENT MAY HAVE CONTRACTED WITHIN THE SCOPE OF HIS AUTHORITY.
AS FOR ANY OBLIGATION WHEREIN THE AGENT HAS EXCEEDED HIS POWER, THE
PRINCIPAL IS NOT BOUND EXCEPT WHEN HE RATIFIES IT EXPRESSLY OR TACITLY.
(1727)
1. WHEN
PRINCIPAL IS BOUND.
THE PRINCIPAL IS DUTY BOUND TO COMPLY WITH ALL THE OBLIGATIONS CONTRACTED
BY HIS AGENT PROVIDED THE AGENT CONTRACTED:
a. IN THE NAME OF THE PRINCIPAL; AND
b. WITHIN THE SCOPE OF HIS AUTHORITY.
2. WHEN
PRINCIPAL IS NOT BOUND.
a. IF THE AGENT ACTS IN HIS OWN NAME, EXCEPT WHEN THE CONTRACT INVOLVES
THINGS
BELONGING TO THE PRINCIPAL; OR
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b.
IF THE AGENT EXCEEDS HIS POWER, EXCEPT WHEN THE PRINCIPAL RATIFIES IT
EXPRESSLY OR IMPLIEDLY.
3. PRINCIPAL
IS BOUND BY THE AGENT’S DISHONESTY
AS LONG AS THE AGENT ACTS WITHIN HIS AUTHORITY, THE PRINCIPAL IS BOUND EVEN
BY HIS
DISHONESTY. THUS, IT WAS RULED THAT ERRORS OF A BUSINESS AGENT IN THE
PAYMENT OF TAXES
SHALL BIND THE PRINCIPAL WHO SHALL BE HELD LIABLE FOR A FRAUDULENT TAX
RETURN WITHOUT PREJUDICE TO GOING AFTER THE ERRING AGENT. (DY PEB. VS.
COLLECTOR OF INTERNAL REVENUE, L – 19375, CITED IN J. NOLLEDO; SALES, AGENCY
AND BAILMENTS).
ART 1911. EVEN WHEN THE AGENT HAS EXCEEDED HIS AUTHORITY, THE PRINCIPAL IS
SOLIDARILY LIABLE WITH THE AGENT IF THE FORMER ALLOWED THE LATER TO ACTS
AS THOUGH HE HAD FULL POWERS.
1. LIABILITY
OF THE PRINCIPAL TO THIRD PERSONS.
a. IF THE AGENT ACTED WITHIN THE SCOPE OF HIS AUTHORITY AND IN THE NAME
OF THE PRINCIPAL, THE LATTER IS BOUND BY, AND LIABLE FOR, THE ACTS OF THE
AGENT.
b. IF THE AGENT ACTS IN THE NAME OF THE PRINCIPAL BUT IN EXCESS OF HIS
AUTHORITY, THE PRINCIPAL IS NOT LIABLE, EXCEPT:
1. IF THE PRINCIPAL ALLOWED THE AGENT TO ACT AS THOUGH HE HAD FULL
POWERS. IN WHICH CASE, THE PRINCIPAL AND THE AGENT ARE LIABLE
SOLIDARILY.
2. WHERE
ESTOPPEL LIES.
WHEN THE PRINCIPAL ALLOWS THE AGENT TO ACT AS IF HE HAD FULL POWERS, HE
WILL BE GUILTY OF ESTOPPEL. BOTH THE AGENT AND THE PRINCIPAL ARE GUILTY; THE
AGENT BECAUSE HE KNOWS THAT HE HAS NO AUTHORITY TO ACT; THE PRINCIPAL,
BECAUSE HE PERMITS HIM TO ACT WITH KNOWLEDGE THAT HE DID NOT GIVE HIM THE
AUTHORITY TO ACT.
ART 1912. THE PRINCIPAL MUST ADVANCE TO THE AGENT, SHOULD THE LATTER SO
REQUEST, THE SUMS NECESSARY FOR THE EXECUTION OF THE AGENCY.
SHOULD THE AGENT HAVE ADVANCED THEM, THE PRINCIPAL MUST REIMBURSE HIM
THEREFOR, EVEN IF THE BUSINESS OR UNDERTAKING WAS NOT SUCCESSFUL,
PROVIDED THE AGENT IS FREE FROM ALL FAULT.
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THE REIMBURSEMENT SHALL INCLUDE INTEREST ON THE SUMS ADVANCED, FROM
THE DAY ON WHICH THE ADVANCE WAS MADE. (1728)
1. EXPENSES
OF AGENCY.
EXPENSES INCURRED IN CARRYING OUT THE AGENCY MUST BE FOR THE ACCOUNT OF
THE PRINCIPAL. THE PRINCIPAL IS OBLIGED THEREFORE TO ADVANCE, UPON
REQUEST, THE NECESSARY FUNDS FOR THE EXECUTION OF THE AGENCY. HOWEVER,
THE PARTIES MAY AGREE THAT THE AGENT SHALL ADVANCE THE FUNDS, IN SUCH A
CASE, THE AGENT IS OBLIGED, EXCEPT IF THE PRINCIPAL IS INSOLVENT.
2. ADVANCES
MADE BY THE AGENT.
IF THE AGENT USED HIS OWN MONEY FOR THE FURTHERANCE OF AGENCY, HE SHALL
BE ENTITLED TO BE REIMBURSED OF THE EXPENSES INCURRED, PLUS THE INTEREST
FROM THE DAY ON WHICH THE ADVANCES WAS MADE. THIS RIGHT IS GIVEN TO THE
AGENT EVEN IF THE UNDERTAKING WAS NOT SUCCESSFUL, PROVIDED THAT:
a. THE AGENT IS FREE FROM ALL FAULT.
b. THERE IS NO AGREEMENT THAT THE EXPENSES SHALL BE BORNE BY THE AGENT.
3. WHEN
INTEREST WILL BEGIN TO RUN.
THE LAW PROVIDES THAT THE REIMBURSEMENT SHALL INCLUDE INTEREST ON THE
AMOUNT ADVANCED FROM THE DATE OF SUCH ADVANCE OR MAY BEGIN FROM THE
COMMENCEMENT OF THE AGENCY ITSELF, IF THE LATTER IS OF SUCH A NATURE THAT
IT REQUIRED THE AGENT TO SET ASIDE FUNDS FOR ITS PERFORMANCE. THE REASON
: THE AGENT IN SUCH CASE IS DEPRIVED OF THE USE OF HIS MONEY. (11
MANRESA 542)
ART. 1913. THE PRINCIPAL MUST ALSO INDEMNIFY THE AGENT FOR ALL THE DAMAGES
WHICH THE EXECUTION OF THE AGENCY MAY HAVE CAUSED THE LATTER, WITHOUT
FAULT OR NEGLIGENCE ON HIS PART. (1729)
1. AGENT
IS ENTITLED TO INDEMNITY FOR DAMAGES CAUSED BY THE EXECUTION OF
AGENCY.
DAMAGES SUFFERED BY THE AGENT IN THE EXECUTION OF THE AGENCY MUST BE
PAID FOR BY THE PRINCIPAL. THIS ASSUMES THAT THE AGENT ACTED WITHIN THE
SCOPE OF HIS AUTHORITY AND THAT HE IS NOT GUILTY OF FAULT OR NEGLIGENCE.
2. EXAMPLE:
P APPOINTED A AS HIS AGENT TO SELL P’S CAR FOR P10,000. WHILE A WAS THE DRIVING
THE CAR, GOING TO A PROSPECTIVE BUYER, A 6 X 6 TRUCK SIDESWIPED THE CAR
CAUSING DAMAGE TO THE SAME AND TO A BECAUSE HE WAS BODILY INJURED. IN THIS
CASE, A MAY DEMAND FROM P INDEMNITY FOR ALL THE DAMAGE CAUSED.
137
ART. 1914. THE AGENT MAY RETAIN IN PLEDGE THE THINGS WHICH ARE THE OBJECTS
OF THE AGENCY UNTIL THE PRINCIPAL EFFECTS THE REIMBURSEMENT AND PAYS THE
INDEMNITY SET FORTH IN THE TWO PRECEDING ARTICLES.
THIS RULE IS A PROTECTION TO THE RIGHTS FOR REIMBURSEMENT AS STATED IN THE
PRECEDING ARTICLE. IT IS A PLEDGE BY OPERATION OF LAW. THIS IS THE SAME AS
THE RULE OF RETENTION UNTIL THE PRICE OF THE SALE IS FULLY PAID.
THIS LIEN OR RIGHT OF RETENTION IS IN THE NATURE OF LEGAL PLEDGE. HENCE, THE
AGENT MAY CAUSE THE SALE OF THE THINGS RETAINED IN ORDER TO RECOVER HIS
CLAIM. SHOULD THE PROCEED OF SUCH SALE IS MORE THAN THE AMOUNT DUE, THE
EXCESS MUST BE GIVEN TO THE PRINCIPAL.
ART. 1915. IF TWO OR MORE PERSONS HAVE APPOINTED AN AGENT FOR A COMMON
TRANSACTION OR UNDERTAKING, THEY SHALL BE SOLIDARILY LIABLE TO THE AGENT
FOR ALL THE CONSEQUENCES OF THE AGENCY. (1731).
LIABILITY OF TWO PRINCIPALS TO A COMMON AGENT.
THE LIABILITY OF TWO OR MORE PRINCIPALS WHO APPOINTS AN AGENT FOR A
COMMON TRANSACTION IS SOLIDARY. BE IT NOTED THAT THAT THE TRANSACTION IS
A COMMUNITY OF INTEREST TO ALL OF THEM. SUCH THAT THE IF THESE TWO
PRINCIPALS APPOINTED AN AGENT WITH AN UNDERTAKING DISTINCT FROM
ONE ANOTHER, OR THE POWERS WERE CONFERRED AT VARIOUS TIMES BY EACH OF
THE PRINCIPALS, OR THE THINGS OR SERVICES AS OBJECT OF AGENCY BE DIFFERENT,
THERE IS LACKING THE COMMUNITY OF INTEREST REQUIRED FOR SOLIDARITY. (`11
MANRESA 551)
ILLUSTRATIVE CASE:
A. P1 AND P2 APPOINTED A TO SELL THEIR SPECIFIC CAR FOR P10,000, WITH 10%
COMMISSION. A EXECUTED THE CONTRACT OF AGENCY SATISFACTORILY AND
THEREFORE HE IS ENTITLED 10% COMMISSION, THAT IS, P1,000. CAN A HOLD P1
OR P2 LIABLE FOR THIS AMOUNT?
ANSWER:
YES, BECAUSE THE TRANSACTION IS COMMON, THE PRINCIPAL’S OBLIGATION IS
SOLIDARY.
ART. 1916. WHEN TWO PERSONS CONTRACT WITH REGARD TO THE SAME THING, ONE
OF THEM WITH THE
138
AGENT AND THE OTHER WITH THE PRINCIPAL, AND THE TWO CONTRACTS ARE
INCOMPATIBLE WITH EACH OTHER, THAT OF PRIOR DATE SHALL BE PREFERRED,
WITHOUT PREJUDICE TO THE PROVISIONS OF ARTICLE 1544.
ART. 1917. IN THE CASE REFERRED IN THE PRECEDING ARTICLE, IF THE AGENT HAS
ACTED IN GOOD FAITH, THE PRINCIPAL SHALL BE LIABLE IN DAMAGES TO THIRD
PERSON WHOSE CONTRACT MUST BE REJECTED. IF THE AGENT ACTED IN BAD FAITH,
HE ALONE SHALL BE RESPONSIBLE.
ORDER OF PRIORITY.
WHEN THE SAME THING IS SOLD BY THE PRINCIPAL AND THE AGENT TO TWO
DIFFERENT PERSONS, THE
FOLLOWING RULES BE OBSERVED;
a. IF MOVABLE
1. THE FIRST ONE WHO TOOK ACTUAL POSSESSION IN GOOD FAITH.
2. IF NONE OF THE TWO TOOK ACTUAL POSSESSION, THE CONTRACT WITH A
PRIOR DATE SHALL BE PREFERRED.
b. IF IMMOVABLE:
1. THE FIRST TO REGISTER THE SALE IN GOOD FAITH.
2. IF NONE REGISTERED THE SALE, THE FIRST ONE WHO TOOK ACTUAL
POSSESSION IN GOOD FAITH.
3. IN THE ABSENCE OF BOTH, THE OLDEST TITLE IN GOOD FAITH.
2. RIGHT OF THE AGGRIEVED PARTY.
a. AGAINST THE AGENT IF HE ACTED IN BAD FAITH.
b. AGAINST THE PRINCIPAL IF THE AGENT ACTED IN GOOD FAITH.
ART. 1918. THE PRINCIPAL IS NOT LIABLE FOR THE EXPENSE INCURRED BY THE AGENT
IN THE FOLLOWING CASES:
IF THE AGENT ACTED IN CONTRAVENTION OF THE PRINCIPAL’S INSTRUCTIONS,
UNLESS THE LATTER
SHOULD WISH TO AVAIL HIMSELF OF THE BENEFITS DERIVED FROM THE CONTRACT;
1.
2.
WHEN THE EXPENSES WERE DUE TO THE FAULT OF THE AGENT;
3.
WHEN THE AGENT INCURRED THEM WITH KNOWLEDGE THAT AN UNFAVORABLE
RESULT WOULD ENSURE, IF THE PRINCIPAL WAS NOT AWARE THEREOF;
4.
WHEN IT WAS STIPULATED THAT THE EXPENSES WOULD BE BORNE BY THE AGENT,
OR THAT THE LATTER WOULD BE ALLOWED ONLY A CERTAIN SUM.
139
REIMBURSEMENT OF THE AGENT.
AS A RULE, WHERE AN AGENT IS EMPLOYED BY A PRINCIPAL AND SUCH AGENT
INCURRED EXPENSES IN THE EXECUTION OF THE AGENCY, THE PRINCIPAL IS BOUND
TO REIMBURSE THE AGENT OF ALL LEGITIMATE AND NECESSARY EXPENSES THAT MAY
BE INCURRED, EXCEPT:
a. WHEN THE AGENT BREACHED HIS OBLIGATION BY ACTING AGAINST THE
PRINCIPAL’S INSTRUCTION.
b. IF THE AGENT IS GUILTY OF FAULT OR NEGLIGENCE IN THE PERFORMANCE OF
AGENCY.
c. EXPENSES IN THE EXECUTION OF THE AGENCY, KNOWING THAT AN
UNFAVORABLE RESULT WILL ENSUE.
d. WHEN IT IS STIPULATED THAT IN ANY EVENT THE AGENT IS LIABLE.
LAW ON AGENCY – NOTES 22
CHAPTER 4 – MODES OF EXTINGUISHMENT OF AGENCY
ART. 1919. AGENCY IS EXTINGUISHED
1. BY
ITS REVOCATION;
2. BY THE WITHDRAWAL OF THE AGENT;
3. BY THE DEATH, CIVIL INTERDICTION, INSANITY OR INSOLVENCY OF THE PRINCIPAL
OR OF THE AGENT;
4. BY THE DISSOLUTION OF THE FIRM OR CORPORATION WHICH ENTRUSTED OR
ACCEPTED THE AGENCY;
5. BY THE ACCOMPLISHMENT OF THE OBJECT OR PURPOSE OF THE AGENCY;
6. BY THE EXPIRATION OF THE PERIOD FOR WHICH THE AGENCY WAS CONSTITUTED.
(1732A)
1. MODES
OF EXTINGUISHING AN AGENCY. (EDWARD)
a. EXPIRATION.
WHERE THE TIME FOR THE CONTINUANCE OF THE AGENCY IS FIXED BY ITS
TERMS, THE AGENCY IS EXTINGUISHED AFTER THE EXPIRATION OF THAT PERIOD.
b. DEATH, CIVIL INTERDICTION, INSANITY OR INSOLVENCY OF THE PRINCIPAL OR
AGENT.
1. DEATH OF THE PRINCIPAL – NO ONE IS TO BE REPRESENTED AFTER HIS
DEATH, SUBJECT TO THE EXCEPTIONS LAID DOWN IN ARTICLE 1930 OF THE
CIVIL CODE.
2. DEATH OF THE AGENT – THERE IS NO ONE TO REPRESENT THE PRINCIPAL
AFTER THE DEATH OF THE AGENT.
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CIVIL INTERDICTION – ACCESSORY PENALTY DEPRIVING THE OFFENDER
DURING THE TIME OF ITS SENTENCE OF THE RIGHT TO MANAGE HIS PROPERTY
BY ANY ACT OR ANY CONVEYANCE INTERVIVOS. THEREFORE, IF THE
PRINCIPAL OF THE AGENT ARE CIVILLY INTERDICTED, THE AGENCY IS
EXTINGUISHED.
4. INSANITY – AGENCY IS EXTINGUISHED BECAUSE THE PRINCIPAL OR THE
AGENT ARE DEPRIVED THE CAPACITY TO ACT.
5. INSOLVENCY – AGENCY IS EXTINGUISHED IF THE PRINCIPAL OR THE AGENT
BECOMES INSOLVENT.
3.
c. WITHDRAWAL OF THE AGENT.
THE WITHDRAWAL OF THE AGENT TERMINATING THE AGENCY MAY BE EXPRESS
OR IMPLIED. IT WAS
HELD THAT A SUIT BY THE AGENT AGAINST HIS PRINCIPAL FOR RECOVERY OF
WHAT IS DUE THE AGENT AFTER LIQUIDATION OF ACCOUNTS IS EQUIVALENT TO
RENUNCIATION OF THE AGENCY BY THE AGENT, AND THIS IS CALLED IMPLIED
REVOCATION.
d. ACCOMPLISHMENT OF THE OBJECTIVE.
WHEN THE OBJECT OF THE AGENCY IS ALREADY ACCOMPLISHED THE AGENCY IS
EXTINGUISHED.
e. REVOCATION.
A CONTRACT OF AGENCY IS REVOCABLE AT WILL BECAUSE AGENCY IS FIDUCIARY
IN NATURE. SUCH THAT WHEN THE PRINCIPAL LOSES CONFIDENCE IN THE AGENT,
HE HAS RIGHT TO REVOKE THE AGENCY EVEN IF A PERIOD OR TERM HAS BEEN
STIPULATED WITHIN THE AGENCY IS TO LAST.
AS CITED BY AMERICAN AND SPANISH JURISPRUDENCE, IT IS EVEN THE RIGHT OF
THE PRINCIPAL
TO REVOKE THE AGENCY AT ANYTIME HE PLEASES, AND FOR THE AGENT, HE
CANNOT ASK
DAMAGES OF ANY KIND BECAUSE THE EXERCISE OF A LEGAL RIGHT CANNOT GIVE
RISE TO ANY LIABILITY FOR DAMAGES TO THE AGENT. HOWEVER, THE PRINCIPAL
IS LIABLE FOR DAMAGES ON EXCEPTIONAL CASES, TO WIT:
REVOCATION IS DONE IN BAD FAITH, AS CITED IN THE CASE OF DANON VS.
RIMO & CO., 42 PHIL, 133, WHEREIN THE PRINCIPAL REVOKED THE AGENCY
TO AVOID PAYMENT OF COMPENSATION TO THE AGENT.
b. WHEN IT IS AGREED THAT THE PRINCIPAL WILL ANSWER FOR LOSSES
SUFFERED, DUE TO THE PRINCIPAL’S ACTION OF TERMINATING AN AGENCY
AT WILL.
a.
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2. OTHER
a.
b.
c.
d.
e.
CAUSES OF EXTINGUISHING AN AGENCY.
BY AGREEMENT OF THE PARTIES.
TRANSFER OR SALE OF THE OBJECT OF THE AGENCY.
LOSS OR DESTRUCTION OF THE OBJECT OF AGENCY.
CONTINUATION BECOMES ILLEGAL.
WAR, WHEN ALLEGIANCE OF EITHER PARTLY BECOMES IN CONFLICT.
(2 AM. JUR. 37, 50, 59, 60, 61)
ART. 1920. THE PRINCIPAL MAY REVOKE THE AGENCY AT WILL, AND COMPEL THE
AGENT TO RETURN THE DOCUMENT EVIDENCING THE AGENCY. SUCH REVOCATION
MAY BE EXPRESS OR IMPLIED. (1733A)
1. REVOCATION
OF AGENCY.
THE AGENT’S AUTHORITY TO ACT FOR THE PRINCIPAL REMAINS AS LONG AS THE
CONFIDENCE REPOSED IN HIM BY THE PRINCIPAL EXISTS. BUT AS SOON AS THIS
CONFIDENCE DISAPPEARS, THE PRINCIPAL MAY REVOKE THE POWER SO CONFERRED.
IN CONJUNCTION WITH THIS, THE PRINCIPAL MAY COMPEL THE AGENT TO RETURN THE
DOCUMENT EVIDENCING THE AGENCY.
2. EXCEPTIONS
a.
b.
c.
d.
e.
f.
TO THE RULE THAT AN AGENCY IS REVOCABLE AT WILL.
WHEN THERE IS STIPULATION TO THE CONTRARY.
WHEN A BILATERAL CONTRACT DEPENDS UPON THE AGENCY.
WHEN THE AGENCY IS A MEANS OF FULFILLING THE OBLIGATION ALREADY
CONTRACTED.
WHEN THE AGENCY HAS BEEN CONSTITUTED FOR THE BENEFITS OF THE
PRINCIPAL AND THE AGENT.
WHEN THE AGENCY CARRIES AN STIPULATION IN FAVOR OF A THIRD PERSON
WHO HAS ACCEPTED THE STIPULATION IN HIS FAVOR.
PARTNER APPOINTED AS A MANAGER IN THE ARTICLES OF PARTNERSHIP, AND
REMOVAL IS UNJUSTIFIABLE. (ARTICLE 1927, 1930, CIVIL CODE.)
ART. 1921. IF THE AGENCY HAS BEEN ENTRUSTED FOR THE PURPOSE OF
CONTRACTING WITH SPECIFIED PERSONS. ITS REVOCATION SHALL NOT PREJUDICE
THE LATTER IF THEY WERE NOT GIVEN NOTICE THEREOF. (1734)
ART. 1922. IF THE AGENT HAD GENERAL POWERS, REVOCATION OF THE AGENCY DOES
NOT PREJUDICE
THIRD PERSONS WHO ACTED IN GOOD FAITH AND WITHOUT KNOWLEDGE OF THE
REVOCATION. NOTICE OF THE REVOCATION IN A NEWSPAPER OF GENERAL
CIRCULATION IS A SUFFICIENT WARNING TO THIRD PERSONS.
1. NOTICE OF REVOCATION TO THIRD PERSONS.
142
AUTHORITY OF THE AGENT IS TO DEAL WITH SPECIFIC PERSON.
IF THE PRINCIPAL HAS GIVEN THIRD PERSONS SPECIAL INVITATION, OR IF THE
NOTIFICATION TO THEM IS BY SPECIAL INFORMATION, THE PRINCIPAL UPON
TERMINATION MUST ALSO INFORM THIS THIRD PERSON BY SPECIAL
INFORMATION. OTHERWISE, HE WILL BE HELD LIABLE TO THE THIRD PERSON
ACTING IN GOOD FAITH RELYING UPON SUCH AGENCY. THIS NOTICE REQUIRED
BY THE REVOCATION MAY BE WRITTEN OR ORAL.
b. AUTHORITY OF THE AGENT IS TO DEAL WITH THE PUBLIC OR ANY PERSON.
IF THE PRINCIPAL INFORMS THE PUBLIC OF THE AGENCY BY PUBLIC
INFORMATION, ITS REVOCATION MUST ALSO BE MADE PUBLICLY. IF NO NOTICE
IS GIVEN HE WILL NOT BE RELIEVED
OF HIS OBLIGATION TO THIRD PERSON ACTING IN GOOD FAITH. NOTICE OF THE
REVOCATION IN A NEWSPAPER OF GENERAL CIRCULATION IS A SUFFICIENT
WARNING TO THIRD PERSONS. BE IT NOTED THAT NOTICE NEED NOT BE GIVEN
TO PERSONS WITH KNOWLEDGE OF THE REVOCATION.
a.
ART. 1923. THE APPOINTED OF A NEW AGENT FOR THE SAME BUSINESS OR
TRANSACTION REVOKES THE PREVIOUS AGENCY FROM THE DAY ON WHICH NOTICE
THEREOF WAS GIVEN TO THE FORMER AGENT, WITHOUT PREJUDICE TO THE
PROVISIONS OF THE TWO PRECEDING ARTICLES. (1735A)
1. REVOCATION
BY APPOINTING A NEW AGENT.
THE APPOINTED OF A NEW AGENT REVOKES THE FIRST AGENCY ONLY IN CASE OF
INCOMPATIBILITY BETWEEN THE FIRST AND THE SECOND AGENCY, AND ONLY FROM
THE DAY ON WHICH NOTICE THEREOF IS GIVEN TO THE FORMER AGENT. IF NO NOTICE
IS SENT TO THE FIRST AGENT, IT IS UNDERSTOOD THAT THE FIRST AGENCY STILL
EXISTS.
2. EXAMPLE:
P APPOINTED A, AS HIS AGENT, TO SELL A SPECIFIC CAR ON JAN. 1. ON JAN. 5, P
APPOINTED X, TO SELL THE SAME CAR AS COVERED BY THE FIRST AGENCY. IN THIS
CASE, P’S OBLIGATION IS TO NOTIFY A ABOUT THE APPOINTMENT OF X AS THE NEW
AGENT, IMPLYING THAT HE IS REVOKING THE FIRST AGENCY EXECUTED BETWEEN HIM
AND A. HENCE, IF A IS NOT NOTIFIED, IT IS UNDERSTOOD THAT THE FIRST
AGENCY TILL EXISTS. (GARCIA VS. DE MANZANO, 39 PHIL. 577)
ART. 1924. THE AGENCY IS REVOKED IF THE PRINCIPAL DIRECTLY MANAGES THE
BUSINESS ENTRUSTED TO THE AGENT, DEALING DIRECTLY WITH THIRD PERSONS.
DIRECT MANAGEMENT BY THE PRINCIPAL.
143
THIS IS ANOTHER IMPLIED REVOCATION. THE AGENCY IS IMPLIEDLY REVOKED IF THE
PRINCIPAL DIRECTLY MANAGES THE BUSINESS ENTRUSTED TO THE AGENT. BUT WHEN
THE PRINCIPAL MOTIVE IS ONLY TO HELP THE AGENT IN THE MANAGEMENT OF THE
BUSINESS, AGENCY IS NOT REVOKED.
ART. 1925. WHEN TWO OR MORE PRINCIPALS HAVE GRANTED A POWER OF ATTORNEY
FOR A COMMON TRANSACTION, ANY ONE OF THEM MAY REVOKE THE SAME WITHOUT
THE CONSENT OF THE OTHERS.
REVOCATION BY ONE OR TWO OR MORE PRINCIPALS.
ACCORDING TO ARTICLE 1915, WHEN TWO OR MORE PERSONS APPOINT AN AGENT
FOR A COMMON
TRANSACTION OR UNDERTAKING, THEY SHALL BE SOLIDARITY LIABLE TO THE AGENT
FOR ALL THE CONSEQUENCES OF THE AGENCY. SINCE THEIR OBLIGATION IS
SOLIDARY, THAT IS, ONE OF THE
PRINCIPALS CAN BE MADE ANSWERABLE TO THE AGENT FOR ALL THE CONSEQUENCES
OF AGENCY, IT IS BUT PROPER THAT ANY ONE OF THE PRINCIPALS CAN ALSO REVOKE
THE AGENCY EVEN WITHOUT THE CONSENT OF THE OTHERS. BE IT NOTED THAT THE
NON-REVOKING PRINCIPALS MAY LET THE AGENT CONTINUE THE CONTRACT OF
AGENCY WITH RESPECT TO HIS INTEREST.
ART. 1926. A GENERAL POWER OF ATTORNEY IS REVOKED BY A SPECIAL ONE
GRANTED TO ANOTHER AGENT, AS REGARDS THE SPECIAL MATTER INVOLVED IN THE
LATTER.
IMPLIED REVOCATION OF THE AGENT’S AUTHORITY
THIS IS ANOTHER IMPLIED REVOCATION. THE APPOINTMENT OF A NEW AGENT FOR THE
SAME BUSINESS
OR TRANSACTION REVOKES A PREVIOUS AGENCY. OUR SUPREME COURT HELD THAT
IF A NEW APPOINTMENT IS MADE, WHETHER IT ENLARGES OR LIMITS THE AUTHORITY
OF THE AGENT, THE SAME I HELD TO REVOKE THE FORMER POWER OF ATTORNEY IN
CASE OF INCONSISTENCY.
THIS ARTICLE CONTEMPLATES ONLY A PARTIAL REVOCATION OF THE AGENCY.
EXAMPLE: P APPOINTS A, AS HIS GENERAL AGENT (WITH GENERAL POWERS), TO
ADMINISTER HIS PROPERTIES SITUATED IN MALOLOS, BULACAN, AND A TEN (10)
HECTARES OF AGRICULTURAL LAND SITUATED IN CAPAS, TARLAC. SUBSEQUENTLY, P
APPOINTED X TO ADMINISTER AND SELL THAT LAND SITUATED IN CAPAS, TARLAC. IN
THIS CASE, THE AUTHORITY OF A TO ADMINISTER THE PROPERTY IN BULACAN WILL
CONTINUE, BUT THE ONE IN CAPAS IS IMPLIEDLY REVOKED BECAUSE THE GENERAL
POWER GIVEN TO A IS CONSIDERED REVOKED BY THE SPECIAL POWER GRANTED TO
THE OTHER AGENT.
144
ART. 1927. AN AGENCY CANNOT BE REVOKED IF A BILATERAL CONTRACT DEPENDS
UPON IT, OR IF IT IS THE MEANS OF FULFILLING AN OBLIGATION ALREADY
CONTRACTED, OR IF A PARTNER IS APPOINTED MANAGER OF A PARTNERSHIP IN THE
CONTRACT OF PARTNERSHIP AND HIS REMOVAL FROM THE MANAGEMENT IS
UNJUSTIFIABLE.
1. INSTANCES
WHERE THE PRINCIPAL CANNOT REVOKE THE AGENCY WITHOUT BEING
LIABLE FOR DAMAGES.
AS A RULE, THE AGENCY CAN BE REVOKED AT ANYTIME BECAUSE IT IS REVOCABLE “AT
WILL”. IN THE FOLLOWING CASES REVOCATION IS FORBIDDEN; OTHERWISE, HE WILL
ANSWER FOR DAMAGES, TO WIT:
a.
A BILATERAL CONTRACT DEPENDS UPON THE AGENCY:
EXAMPLE: P APPOINTED A AS HIS AGENT TO SELL SLICED HAM TO THE PUBLIC. P
AND A AGREED THAT THE LATTER WILL LEASE THE ICE STORAGE OF X TO FREEZE
THE SLICED HAM FOR ONE YEAR, THE EXPECTED TIME WHEN THE HAM WILL LAST.
IN HERE, P CANNOT REVOKE THE AGENCY AT WILL BECAUSE A BILATERAL
CONTRACT (LEASE CONTRACT) DEPENDS UPON THE AGENCY. IF HE WILL REVOKE
THE CONTRACT, HE WILL ANSWER FOR DAMAGES.
b.
IF THE AGENCY IS A MEANS OF FULFILLING AN OBLIGATION ALREADY
CONTRACTED.
EXAMPLE: D IS INDEBTED TO C FOR P10,000. D MEANTIME HAS NO MONEY. SO, D
APPOINTS C AS
HIS AGENT TO SELL A PARCEL OF LAND BELONGING TO D FOR P10,000 AND APPLY
THE PROCEEDS
OF THE SALE TO THE OBLIGATION OF D TO C. D CANNOT REVOKE THE CONTRACT
OF AGENCY BECAUSE THERE WAS ALREADY AN OBLIGATION BEFORE THE
AGENCY. IN SHORT, THE AGENCY IS THE MEANS OF FULFILLING AN OBLIGATION
ALREADY CONTRACTED.
c.
IF A PARTNER IS APPOINTED MANAGER OF A PARTNERSHIP AND HIS REMOVAL IS
UNJUSTIFIABLE.
2. REVOCATION
COULD STILL BE MADE FOR A JUST CAUSE.
IN THE CASE OF VICENTE COLEONEO VS. EDUARDO CLAPARALS (L-18616,10 SCRA 577),
THE SUPREME COURT, SPEAKING THROUGH MR. JUSTICE J. B. L. REYES, SAID: “IT IS
NOT OPEN TO SERIOUS, DOUBT THAT THE IRREVOCABILITY OF THE POWER OF
ATTORNEY MAY NOT BE USED TO SHIELD THE PERPETRATION OF ACTS IN BAD FAITH,
BREACH OF CONFIDENCE, OR BETRAYAL OF TRUST, BY THE AGENT FOR THAT WOULD
AMOUNT TO HOLDING THAT A POWER COUPLED WITH AN INTEREST AUTHORIZES THE
AGENT TO COMMIT FRAUDS AGAINST THE PRINCIPAL.”
145
THE CONCLUSION THEREFORE, IS THAT AN AGENCY COUPLED WITH AN INTEREST MAY
STILL BE REVOKED IN CASES OF FRAUD , BAD FAITH, BREACH OF CONFIDENCE, OR
BETRAYAL OF TRUST, COMMITTED BY THE AGENT.
ART. 1928. THE AGENT MAY WITHDRAW FROM THE AGENCY BY GIVING DUE NOTICE TO
THE PRINCIPAL. IF THE LATTER SHOULD SUFFER ANY DAMAGE BY REASON OF THE
WITHDRAWAL, THE AGENT MUST INDEMNIFY HIM THEREFOR, UNLESS THE AGENT
SHOULD BASE HIS WITHDRAWAL UPON THE IMPOSSIBILITY OF CONTINUING THE
PERFORMANCE OF THE AGENCY WITHOUT GRAVE DETRIMENT TO HIMSELF. (1736A)
ART. 1929. THE AGENT, EVEN IF HE SHOULD WITHDRAW FROM THE AGENCY FOR A
VALID REASON, MUST CONTINUE TO ACT UNTIL THE PRINCIPAL HAS HAD
REASONABLE OPPORTUNITY TO TAKE THE NECESSARY STEPS TO MEET THE
SITUATION. (1737A)
1. WITHDRAWAL
BY THE AGENT.
IF THE PRINCIPAL CAN REVOKE THE AGENCY AT WILL, THE AGENT CAN ALSO PUT TO
AN END THE AGENCY AT HIS WILL AND PLEASURE, BY GIVING NOTICE TO THE
PRINCIPAL, RENOUNCING THE POWER CONFERRED UPON HIM BY THE PRINCIPAL. BUT
IF THE PRINCIPAL SUFFERED DAMAGES BY REASON OF THE WITHDRAWAL, THE AGENT
MUST INDEMNIFY HIM, EXCEPT:
a. IF THE AGENCY CANNOT BE CONTINUED WITHOUT GRAVE DETRIMENT TO THE
AGENT.
b. WHEN THE DURATION OF THE AGENCY IS INDEFINITE AND THE AGENT GIVES
REASONABLE NOTICE TO HIS PRINCIPAL.
c. FOR CAUSES ATTRIBUTABLE TO THE PRINCIPAL. (2 C. J.S. 1169, 1170)
2. CONTINUATION
OF AGENCY EVEN AFTER WITHDRAWAL.
THE AGENT EVEN AFTER A VALID AND REASONABLE WITHDRAWAL, SHALL CONTINUE
THE AGENCY UNTIL THE PRINCIPAL HAS HAD OPPORTUNITY TO TAKE THE NECESSARY
STEPS TO MEET THE SITUATION.
ART. 1930. THE AGENCY SHALL REMAIN IN FULL FORCE AND EFFECT EVEN AFTER THE
DEATH OF THE PRINCIPAL, IF IT HAS BEEN CONSTITUTED IN THE COMMON INTEREST
OF THE LATTER AND OF THE AGENT, OR IN THE INTEREST OF A THIRD PERSON WHO
HAS ACCEPTED THE STIPULATION IN HIS FAVOR.
1. DEATH
OF THE PRINCIPAL.
AS A RULE, THE DEATH OF THE PRINCIPAL EXTINGUISHES THE AGENCY, EXCEPT:
a. WHEN THE AGENCY IS CONSTITUTED IN THE COMMON INTEREST OF THE
PRINCIPAL AND THE AGENT.
EXAMPLE:
146
BORROWED FROM C P10,000, AND A SECURITY HE GAVE A SPECIFIC RING
TO C WHICH THE LATTER CAN SELL IF D CANNOT PAY HIS DEBT AT THE TIME OF
MATURITY. IN THIS CASE, IF D DIES, AGENCY OF C IS NOT TERMINATED BUT WILL
CONTINUE UNTIL THE SALE OF THE RING BECAUSE I IS FOR THE BENEFIT OF BOTH
THE PRINCIPAL AND THE AGENT.
D
b.
WHEN THE AGENCY IS CONSTITUTED IN THE COMMON INTEREST OF A THIRD
PERSON WHO HAS ACCEPTED THE STIPULATION IN HIS FAVOR.
EXAMPLE:
D
OWES C P10,000 PAYABLE AS SOON AS POSSIBLE. AFTER THE OBLIGATION
IS CONTRACTED, D SELLS HIS LAND TO A AND APPOINTS THE LATTER AS HIS
AGENT IN PAYING WITH THE PURCHASE PRICE WHAT D OWES C. IN THIS CASE,
EVEN IF D DIES, THE AGENCY OF A SHALL CONTINUE TO EXIST BECAUSE THIS IS
FOR THE BENEFIT OF C, A THIRD PERSON.
2. THE
PRINCIPLE “COUPLED WITH INTEREST” MUST BE APPOINTED AND BE PROVEN
EVEN OF THE POWER OF ATTORNEY SHOULD STATE THAT THE AGENCY IS ONE
COUPLED WITH AN
INTEREST, THE COUT SHALL DISREGARD SAID STATEMENT IF IN FACT, THE AGENCY I
NOT REALLY
COUPLED WITH AN INTEREST. THE COURT HELD: A MERE STATEMENT IN THE POWER
OF ATTORNEY THAT HE AGENCY CREATED IS ONE COUPLED WITH AN INTEREST IS
INSUFFICIENT. IT MUST BE STATED IN WHAT SUCH INTEREST CONSISTS. THE FACT
THAT P (OWNER) MORTGAGED THE IMPROVEMENTS OF HIS LAND
TO A (AGENT) IS NOT ENOUGH INTEREST THAT WOULD RENDER THE POWER OF
ATTORNEY IRREVOCABLE. IN FACT NO MENTION OF THE MORTGAGE WAS MADE IN THE
POWER OF ATTORNEY. THE DEATH OF P TERMINATED THE AGENCY OF A AND
THEREFORE, THE SALE MADE AFTER THE DEATH WAS NULL AND VOID.
ART. 1931. ANYTHING DONE BY THE AGENT, WITHOUT KNOWLEDGE OF THE DEATH OF
THE PRINCIPAL OR OF ANY OTHER CAUSE WHICH EXTINGUISHES THE AGENCY, IS
VALID AND SHALL BE FULLY EFFECTIVE WITH RESPECT TO THIRD PERSONS WHO MAY
HAVE CONTRACTED WITH HIM IN GOOD FAITH. (1738)
1. ACTS
DONE BY THE AGENT AFTER THE DEATH OF THE PRINCIPAL.
ACTS DONE BY THE AGENT IN GOOD FAITH AFTER THE PRINCIPAL’S DEATH ARE VALID
AND BINDING UPON THE REPRESENTATIVE HEIRS, OR ESTATE OF THE PRINCIPAL.
2. WHEN ESTATE OF THE PRINCIPAL NOT BOUND.
a. WHEN THE THIRD PERSON IS AWARE OF THE DEATH OF THE PRINCIPAL.
b. WHEN THE AGENT IS AWARE OF THE DEATH OF THE PRINCIPAL.
3. EFFECT OF THE CONTRACT AND THEIR STATUS IF ENTERED INTO AFTER THE DEATH
OF THE PRINCIPAL.
147
IF THE CAUSE FOR REVOCATION UNKNOWN TO THE AGENT IS THE DEATH OF THE
PRINCIPAL, THE ESTATE OF THE PRINCIPAL (AND HIS HEIRS) MUST RESPECT AND
HONOR THE CONTRACTS ENTERED BY THE AGENT. THUS, IT WAS HELD BY THE
SUPREME COURT THAT THE DEATH OF THE PRINCIPAL DOES NOT
RENDER THE ACT OF AN AGENT UNENFORCEABLE, WHERE THE LATTER HAD NO
KNOWLEDGE OF SUCH DEATH. (NAVIDAD HERRERA VS. LUCY KIM GUAN, L-17043)
IN THIS REGARD, EXPLAINING ARTICLE 1931, THE SUPREME COURT, SPEAKING
THROUGH JUSTICE CECILLIA MUÑOZ-PALMA SAID:
“AN ACT DONE BY THE AGENT AFTER THE DEATH OF THE PRINCIPAL IS VALID AND
EFFECTIVE ONLY UNDER TWO CONDITIONS: 1) THAT THE AGENT ACTED WITHOUT
KNOWLEDGE OF THE DEATH OF THE PRINCIPAL, AND 2) THAT THE THIRD PERSON WHO
CONTRACTED WITH THE AGENT HIMSELF ACTED IN GOOD FAITH. GOOD FAITH HERE
MEANS THAT THE THIRD PERSON WAS NOT AWARE OF THE DEATH OF THE PRINCIPAL
AT THE TIME HE CONTRACTED WITH SAID AGENT. THESE TWO REQUISITES MUST
CONCUR. THE ABSENCE OF ONE WILL RENDER THE ACT OF THE AGENT INVALID AND
UNENFORCEABLE”. (RALLOS VS. FELIX GO CHAN AND SONS REALLY CORPORATION, 74
O.G. 2823)
ART. 1932. IF THE AGENT DIES, HIS HEIRS MUST NOTIFY THE PRINCIPAL THEREOF, AND
IN THE MEANTIME ADOPT SUCH MEASURES AS THE CIRCUMSTANCES MAY DEMAND IN
THE INTEREST OF THE LATTER.
AGENCY BY OPERATION OF LAW.
THIS OBLIGATION CONFERRED TO THE HEIRS OF THE AGENT OR HIS LEGAL
REPRESENTATIVE IS CALLED PRESUMED AGENCY, OR TACIT AGENCY, OR AN
AGENCY BY OPERATION OF LAW.
THE BEST OPINION IS THAT ADVANCE BY THE SUPREME COURT OF SPAIN WHICH
HAS DECLARED REPEATEDLY BEFORE AND AFTER THE PROMULGATION OF OUR
CIVIL CODE THAT THE CONTRACT
OF AGENCY IS VERY PERSONAL AND THE SAME IS EXTINGUISHED FROM THE
MOMENT EITHER
PARTY CEASES TO EXIST (11 MANRESA, 588 – 589, CITED IN A, PADILLA; AGENCY,
TEXT AND CASES)
LAW ON BAILMENTS – NOTES 23
CIVIL CODE OF THE PHILS.
TITLE XI -
LOANS/BAILMENTS/ALEATORY CONTRACTS
148
GENERAL PROVISIONS
ART. 1933. BY THE CONTRACT OF LOAN, ONE OF THE PARTIES DELIVERS TO ANOTHER,
EITHER SOMETHING NOT CONSUMABLE SO THAT THE LATTER MAY USE THE SAME
FOR A CERTAIN TIME AND RETURN IT, IN WHICH CASE THE CONTRACT IS CALLED A
COMMODATUM; OR MONEY OR OTHER CONSUMABLE THING, UPON THE CONDITION
THAT THE SAME AMOUNT OF THE SAME KIND AND QUALITY SHALL BE PAID, IN WHICH
CASE THE CONTRACT IS SIMPLY CALLED A LOAN OR MUTUUM.
COMMODATUM IS ESSENTIALLY GRATUITOUS.
SIMPLE LOAN MAY BE GRATUITOUS OR WITH A STIPULATION TO PAY INTEREST.
IN COMMODATUM THE BAILOR RETAINS THE OWNERSHIP OF THE THING LOANED,
WHILE IN SIMPLE LOAN, OWNERSHIP PASSES TO THE BORROWER. (1740A)
ART. 1934. AN ACCEPTED PROMISE TO DELIVER SOMETHING BY WAY OF
COMMODATUM OR SIMPLE LOAN IS BINDING UPON PARTIES, BUT THE COMMODATUM
OR SIMPLE LOAN ITSELF SHALL NOT BE PERFECTED UNTIL THE DELIVERY OF THE
OBJECT OF THE CONTRACT.
CHAPTER 1 - COMMODATUM
SECTION 1 - NATURE OF COMMODATUM
ART. 1935. THE BAILEE IN COMMODATUM ACQUIRES THE USED OF THE THING LOANED
BUT NOT ITS FRUITS; IF ANY COMPENSATION IS TO BE PAID BY HIM WHO ACQUIRES
THE USE, THE CONTRACT CEASES TO BE A COMMODATUM. (1941A)
ART. 1936. CONSUMABLE GOODS MAY BE THE SUBJECT OF COMMODATUM IF THE
PURPOSE OF THE CONTRACT IS NOT THE CONSUMPTION OF THE OBJECT, AS WHEN IT
IS MERELY FOR EXHIBITION. (N)
ART. 1937. MOVABLE OR IMMOVABLE PROPERTY MAY BE THE OBJECT OF
COMMODATUM. (N)
ART. 1938. THE BAILOR IN COMMODATUM NEED NOT BE THE OWNER OF THE THING
LOANED. (N)
149
ART.
1939.
COMMODATUM
IS
PURELY
PERSONAL
IN
CHARACTER.
CONSEQUENTLY:
(1) THE
DEATH OF EITHER THE BAILOR OR THE BAILEE EXTINGUISHES THE
CONTRACT;
(2) THE
BAILEE CAN NEITHER LEND NOR LEASE THE OBJECT OF THE CONTRACT
TO A THIRD PERSON. HOWEVER, THE MEMBERS OF THE BAILEE'S
HOUSEHOLD MAY MAKE USE OF THE THING LOANED, UNLESS THERE IS A
STIPULATION TO THE CONTRARY, OR UNLESS THE NATURE OF THE THING
FORBIDS SUCH USE. (N)
ART. 1940. A STIPULATION THAT THE BAILEE MAY MAKE USE OF THE FRUITS OF THE
THING LOANED IS VALID. (N)
SECTION 2. - OBLIGATIONS OF THE BAILEE
ART. 1941. THE BAILEE IS OBLIGED TO PAY FOR THE ORDINARY EXPENSES FOR THE
USE AND PRESERVATION OF THE THING LOANED. (1743A)
ART. 1942. THE BAILEE IS LIABLE FOR THE LOSS OF THE THING, EVEN IF IT SHOULD BE
THROUGH A FORTUITOUS EVENT:
IF HE DEVOTES THE THING TO ANY PURPOSE DIFFERENT FROM THAT FOR
WHICH IT HAS BEEN LOANED;
(1)
IF HE KEEPS IT LONGER THAN THE PERIOD STIPULATED, OR AFTER THE
ACCOMPLISHMENT OF THE USE FOR WHICH THE COMMODATUM HAS BEEN
CONSTITUTED;
(2)
IF THE THING LOANED HAS BEEN DELIVERED WITH APPRAISAL OF ITS
VALUE, UNLESS THERE IS A STIPULATION EXEMPTION THE BAILEE FROM
RESPONSIBILITY IN CASE OF A FORTUITOUS EVENT;
(3)
IF HE LENDS OR LEASES THE THING TO A THIRD PERSON, WHO IS NOT A
MEMBER OF HIS HOUSEHOLD;
(4)
IF, BEING ABLE TO SAVE EITHER THE THING BORROWED OR HIS OWN
THING, HE CHOSE TO SAVE THE LATTER. (1744A AND 1745)
(5)
150
ART. 1943. THE BAILEE DOES NOT ANSWER FOR THE DETERIORATION OF THE THING
LOANED DUE ONLY TO THE USE THEREOF AND WITHOUT HIS FAULT. (1746)
ART. 1944. THE BAILEE CANNOT RETAIN THE THING LOANED ON THE GROUND THAT
THE BAILOR OWES
HIM SOMETHING, EVEN THOUGH IT MAY BE BY REASON OF EXPENSES. HOWEVER, THE
BAILEE HAS A RIGHT OF RETENTION FOR DAMAGES MENTIONED IN ARTICLE 1951.
(1747A)
ART. 1945. WHEN THERE ARE TWO OR MORE BAILEES TO WHOM A THING IS LOANED
IN THE SAME CONTRACT, THEY ARE LIABLE SOLIDARILY. (1748A)
SECTION 3. - OBLIGATIONS OF THE BAILOR
ART. 1946. THE BAILOR CANNOT DEMAND THE RETURN OF THE THING LOANED TILL
AFTER THE
EXPIRATION OF THE PERIOD STIPULATED, OR AFTER THE ACCOMPLISHMENT OF THE
USE FOR WHICH THE COMMODATUM HAS BEEN CONSTITUTED. HOWEVER, IF IN THE
MEANTIME, HE SHOULD HAVE URGENT NEED OF THE THING, HE MAY DEMAND ITS
RETURN OR TEMPORARY USE.
IN CASE OF TEMPORARY USE BY THE BAILOR, THE CONTRACT OF COMMODATUM IS
SUSPENDED WHILE THE THING IS IN THE POSSESSION OF THE BAILOR. (1749A)
ART. 1947. THE BAILOR MAY DEMAND THE THING AT WILL, AND THE CONTRACTUAL
RELATION IS CALLED A PRECARIUM, IN THE FOLLOWING CASES:
(1) IF
NEITHER THE DURATION OF THE CONTRACT NOR THE USE TO WHICH THE
THING LOANED SHOULD BE DEVOTED, HAS BEEN STIPULATED; OR
(2) IF
THE USE OF THE THING IS MERELY TOLERATED BY THE OWNER. (1750A)
ART. 1948. THE BAILOR MAY DEMAND THE IMMEDIATE RETURN OF THE THING IF THE
BAILEE COMMITS ANY ACT OF INGRATITUDE SPECIFIED IN ARTICLE 765. (N)
ART. 1949. THE BAILOR SHALL REFUND THE EXTRAORDINARY EXPENSES DURING THE
CONTRACT FOR THE PRESERVATION OF THE THING LOANED, PROVIDED THE BAILEE
BRINGS THE SAME TO THE KNOWLEDGE OF THE BAILOR BEFORE INCURRING THEM,
EXCEPT WHEN THEY ARE SO URGENT THAT THE REPLY TO THE NOTIFICATION
CANNOT BE AWAITED WITHOUT DANGER.
IF THE EXTRAORDINARY EXPENSES ARISE ON THE OCCASION OF THE ACTUAL USE OF
THE THING BY THE BAILEE, EVEN THOUGH HE ACTED WITHOUT FAULT, THEY SHALL
151
BE BORNE EQUALLY BY BOTH THE BAILOR AND THE BAILEE, UNLESS THERE IS A
STIPULATION TO THE CONTRARY. (1751A)
ART. 1950. IF, FOR THE PURPOSE OF MAKING USE OF THE THING, THE BAILEE INCURS
EXPENSES OTHER THAN THOSE REFERRED TO IN ARTICLES 1941 AND 1949, HE IS NOT
ENTITLED TO REIMBURSEMENT. (N)
ART. 1951. THE BAILOR WHO, KNOWING THE FLAWS OF THE THING LOANED, DOES NOT
ADVISE THE BAILEE OF THE SAME, SHALL BE LIABLE TO THE LATTER FOR THE
DAMAGES WHICH HE MAY SUFFER BY REASON THEREOF.
ART. 1952. THE BAILOR CANNOT EXEMPT HIMSELF FROM THE PAYMENT OF EXPENSES
OR DAMAGES BY ABANDONING THE THING TO THE BAILEE.
LAW ON BAILMENTS – NOTES 24
CHAPTER 2 - SIMPLE LOAN OR MUTUUM
ART. 1953. A PERSON WHO RECEIVES A LOAN OF MONEY OR ANY OTHER FUNGIBLE
THING ACQUIRES THE OWNERSHIP THEREOF, AND IS BOUND TO PAY TO THE
CREDITOR AN EQUAL AMOUNT OF THE SAME KIND AND QUALITY. (1753A)
ART. 1954. A CONTRACT WHEREBY ONE PERSON TRANSFERS THE OWNERSHIP OF
NON-FUNGIBLE THINGS TO ANOTHER WITH THE OBLIGATION ON THE PART OF THE
LATTER TO GIVE THINGS OF THE SAME KIND, QUANTITY, AND QUALITY SHALL BE
CONSIDERED A BARTER. (N)
ART. 1955. THE OBLIGATION OF A PERSON WHO BORROWS MONEY SHALL BE
GOVERNED BY THE PROVISIONS OF ARTICLES 1249 AND 1250 OF THIS CODE.
IF WHAT WAS LOANED IS A FUNGIBLE THING OTHER THAN MONEY, THE DEBTOR OWES
ANOTHER THING OF THE SAME KIND, QUANTITY AND QUALITY, EVEN IF IT SHOULD
CHANGE IN VALUE. IN CASE IT IS IMPOSSIBLE TO DELIVER THE SAME KIND, ITS VALUE
AT THE TIME OF THE PERFECTION OF THE LOAN SHALL BE PAID. (1754A)
ART. 1956. NO INTEREST SHALL BE DUE UNLESS IT HAS BEEN EXPRESSLY STIPULATED
IN WRITING. (1755A)
ART. 1957. CONTRACTS AND STIPULATIONS, UNDER ANY CLOAK OR DEVICE
WHATEVER, INTENDED TO CIRCUMVENT THE LAWS AGAINST USURY SHALL BE VOID.
THE BORROWER MAY RECOVER IN ACCORDANCE WITH THE LAWS ON USURY. (N)
ART. 1958. IN THE DETERMINATION OF THE INTEREST, IF IT IS PAYABLE IN KIND, ITS
VALUE SHALL BE APPRAISED AT THE CURRENT PRICE OF THE PRODUCTS OR GOODS
AT THE TIME AND PLACE OF PAYMENT. (N)
152
ART. 1959. WITHOUT PREJUDICE TO THE PROVISIONS OF ARTICLE 2212, INTEREST DUE
AND UNPAID SHALL NOT EARN INTEREST. HOWEVER, THE CONTRACTING PARTIES
MAY BY STIPULATION CAPITALIZE THE INTEREST DUE AND UNPAID, WHICH AS ADDED
PRINCIPAL, SHALL EARN NEW INTEREST. (N)
ART. 1960. IF THE BORROWER PAYS INTEREST WHEN THERE HAS BEEN NO
STIPULATION THEREFOR, THE PROVISIONS OF THIS CODE CONCERNING SOLUTIO
INDEBITI, OR NATURAL OBLIGATIONS, SHALL BE APPLIED, AS THE CASE MAY BE.
ART. 1961. USURIOUS CONTRACTS SHALL BE GOVERNED BY THE USURY LAW AND
OTHER SPECIAL LAWS, SO FAR AS THEY ARE NOT INCONSISTENT WITH THIS CODE.
CREDIT TRANSACTION – NOTES 25
ACT NO. 2137 THE WAREHOUSE RECEIPTS LAW
SECTION 1.Persons who may issue receipts.- Warehouse receipts may be issued by any
warehouseman.
SECTION 2.Form of receipts; essential terms.- Warehouse receipts need not be in any
particular form but every such receipt must embody within its written or printed terms:
(a) The location of the warehouse where the goods are stored,
(b) The date of the issue of the receipt,
(c) The consecutive number of the receipt,
(d) A statement whether the goods received will be delivered to the bearer, to a specified person
or to a specified person or his order,
(e) The rate of storage charges,
(f) A description of the goods or of the packages containing them,
(g) The signature of the warehouseman which may be made by his authorized agent,
(h) If the receipt is issued for goods of which the warehouseman is owner, either solely or jointly
or in common with others, the fact of such ownership, and
(i) A statement of the amount of advances made and of liabilities incurred for which the
warehouseman claims a lien. If the precise amount of such advances made or of such liabilities
incurred is, at the time of the issue of, unknown to the warehouseman or to his agent who issues
it, a statement of the fact that advances have been made or liabilities incurred and the purpose
thereof is sufficient.
A warehouseman shall be liable to any person injured thereby for all damages caused by the
omission from a negotiable receipt of any of the terms herein required.
SECTION 3. Form of receipts. - What terms may be inserted.- A warehouseman may
insert in a receipt issued by him any other terms and conditions provided that such terms and
conditions shall not:
(a) Be contrary to the provisions of this Act.
153
(b) In any way impair his obligation to exercise that degree of care in the safe-keeping of the goods
entrusted to him which is reasonably careful man would exercise in regard to similar goods of his
own.
SECTION 4. Definition of non-negotiable receipt.- A receipt in which it is stated that the goods
received will be delivered to the depositor or to any other specified person, is anon-negotiable
receipt.
SECTION 5. Definition of negotiable receipt.- A receipt in which it is stated that the goods
received will be delivered to the bearer or to the order of any person named in such receipt is a
negotiable receipt. No provision shall be inserted in a negotiable receipt that it is non-negotiable.
Such provision, if inserted shall be void.
SECTION 6. Duplicate receipts must be so marked.- When more than one negotiable receipt
is issued for the same goods, the word "duplicate" shall be plainly placed upon the face of every
such receipt, except the first one issued. A warehouseman shall be liable for all damages caused
by his failure so to do to any one who purchased the subsequent receipt for value supposing it to
be an original, even though the purchase be after the delivery of the goods by the warehouseman
to the holder of the original receipt.
LETTERS OF CREDIT
1. LETTERS OF CREDIT
A letter of credit is an engagement by a bank or other person made at the request of a
customer that the issuer will honor drafts or other demands for payment upon compliance with the
conditions specified in the credit (Prudential Bank v. IAC, 216 SCRA 257 [1992]).
2. GOVERNING LAWS
a) Code of Commerce on Letters of Credit.
1) Issued in favor of a definite person and not to order; and
2) Limited to a fixed and specified amount or to one or more undetermined amount but with
maximum limit stated exactly.
b) Customs, primarily those embodied in the Uniform Customs and Practice for Documentary
Credits (UCP for short) which was adopted by the International Chamber of Commerce
(Bank of America, NT & SA v. CA, 228 SCRA 357 [1993]).
3. PARTIES
There are at least three (3) parties in a Letter of Credit Transaction:
a) The buyer, who procures the letter of credit and obliges himself to reimburse the issuing
bank upon receipt of the documents of title;
b) The bank issuing, the letter of credit known as “issuing bank,” which undertakes to pay the
seller upon receipt of the draft and proper documents of titles and to surrender the
documents to the buyer upon reimbursement; and
c) The seller, who in compliance with the contract of sale ships the goods to the buyer and
delivers the documents of title and draft to the issuing bank to recover payment (Ibid.).
154
The number of the parties may be increased and may include:
i. An advising (notifying) bank which may be utilized to convey to the seller the
existence of the credit;
ii. A confirming bank which will lend credence to the letter of credit issued by a
lesser known issuing bank; the confirming bank is directly liable to pay the sellerbeneficiary;
iii. A paying bank which undertakes to encash the drafts drawn by the
exporter/seller;
Further, instead of going to the place of the issuing bank to claim payment, the
buyer may approach another bank, termed the negotiating bank to have the
draft discounted Ibid..; see also Charles lee v. CA, G.R.. NO. 117913, Feb. 1,
2002).
Note: Unless the contrary is expressly provided for, the liability of the issuing
bank is solidary with the buyer-applicant (MWSS v. Daway, G.R. No. 160732,
June 21, 2004).
4. INDEPENDENT CONTRACTS
There are at least three (3) distinct and independent contracts involved in a letter of credit
namely:
(1) the contract of sale between the buyer and seller,
(2) the contract of the buyer with the issuing bank, and
(3) the letter of credit proper.
In the second contract – between the buyer and the issuing bank – the bank agrees to issue the
letter of credit in favor of the seller subject to reimbursement or payment by the buyer of whatever
is paid to the seller plus proper consideration agreed upon by the parties. In the third contract
which is the letter of credit proper, the bank obligates itself to pay the seller or to the order of the
seller (that is, it will honor the bills or drafts drawn by the seller) after presentation to the bank of
tender documents stipulated upon, which normally includes the document of title (Keng Hua Paper
Products v CA, 286 SCRA 257 [1998]).
4.01. INDEPENDENCE PRINCIPLE
It is important to emphasize in this connection that few things are more clearly settled in
law than that the contracts involved in a letter of credit arrangement are to be maintained in a
state of perpetual separation. The undertaking of the bank to pay, accept, and pay drafts or
negotiate and/or fulfill any obligation under the Credit is not subject to claims or defenses by the
Applicant resulting from his relationship with the issuing bank or the beneficiary. In the same
manner, the beneficiary can, in no case, avail himself of the contractual relationships existing
between the banks or between the applicant and the issuing bank (Keng Hua Paper Products v.
CA, ibid.).
4.02. A direct consequence of the “independence principle” is the rule that banks only deal with
documents and not with goods, services or obligations to which they relate (BPI v. De Remy
Fabric, 35 SCRA 256). Example: The bank has no duty to verify whether what has been described
in the letters of credit or drafts or shipping documents actually tallies with what was loaded aboard
155
the ship (See Transfield Phils. v. Luzon Hydro Corp., 443 SCRA 307 [2004]; Land Bank v.
Monset’s Export Mfg. Corp., G.R.No. 161865, March 10,2005).
4.03. Fraud Exception
Under the “independence principle,” the applicant cannot enjoin the payment of the
obligation of the issuing bank under the letter of Credit based on any irregularity or nonperformance of an obligation. The exception is when there is fraud or forgery in the underlying
transaction or the tender documents (See Transfield Phils. v. Luzon Hydro Corp., 443 SCRA 307
[2004]).
4.04. Doctrine of Strict Compliance
The Issuing Bank or the Confirming Bank, as the case may be, must examine the Tender
Documents (including shipping documents) and must make sure that the terms and conditions of
the Letter of Credit are strictly complied with. There is no discretion on the part of the bank to waive
any requirement. The tender documents must not only be complete but they must on their faces
be in compliance with the terms of the Credit. Documents that are not stipulated as tender
documents will not examined (Art. 13, UCP 500; Feati Bank & Trust Co. v. CA, G.R. No. 94209,
April 30, 1991).
5. KINDS OF LETTERS OF CREDIT
a) Confirmed LC – whenever the beneficiary stipulates that the obligation of the opening bank
shall also be made the obligation of another bank (also bank that notifies) to himself.
b) Irrevocable – is a definite undertaking on the part of the issuing bank and constitutes the
engagement of that bank to the beneficiary and bona fide holders of drafts drawn and or
documents presented thereunder, that the provisions for payment, acceptance, or
negotiation contained in the credit will be duly fulfilled, provided that all the terms and
conditions of the credit are complied with.
c) Revolving Letter of Credit – one that provides for renewed credit to become available as
soon as the opening bank has advised that the negotiating or paying bank that the drafts
already drawn by the beneficiary have been reimbursed to the opening bank by the buyer.
d) Back-to-Back Letter of Credit – a credit with identical documentary requirements and
covering the same merchandise another letter of credit, except for a difference in the price
of the merchandise as shown by the invoice and the draft. The second letter of credit can
be negotiated only after the first is negotiated.
e) Standby Letter of Credit – a security arrangement for the performance of certain obligations.
It can be drawn against only if another business transaction is not performed. It may be
issued in lieu of a performance bond.
1) Thus, this should be distinguished from an ordinary commercial credit where the
beneficiary will recover if he can show that he performed his obligation (delivery of the
purchased goods). In a Standby LC, the beneficiary will prove that the obligor failed to
perform the second obligation.
Example: The contractor failed to construct the building on time.
156
THE WAREHOUSE RECEIPTS LAW
WHO MAY ISSUE WAREHOUSE RECEIPT?
> A warehouseman is a person lawfully engaged in the business of storing goods for profit.
>
Only
a
warehouseman
may
issue
warehouse
receipts
WHAT SHOULD BE DONE TO PUT THE RECEIPT WITHIN THE PURVIEW OF WAREHOUSE
RECEIPTS LAW?
>
The
warehouse
receipt
should
be
issued
by
the
warehouseman
FORM OF RECEIPTS; ESSENTIAL TERMS
1.
2.
3.
4.
or
The
location
of
the
warehouse
where
the
goods
are
stored
The
date
of
issue
of
the
receipt
Consecutive
number
of
the
receipt
A statement whether the goods received will be delivered to the bearer, to a specified person
to
a
specified
person
or
his
order
5. The
rate
of
storage
charges
6. A
description
of
the
goods
or
of
the
packages
containing them
7. The signature of the warehouseman which may be made by his authorized agent
8. If
the
receipt
is
issued
for
goods
of
which
the
warehouseman is owner, either solely or jointly or in common with others, the fact of such
ownership
9. A
statement
of
the
amount
of
advances
made
and
of
liabilities incurred for which the warehouseman claims as lien. If the precise amount for such
advances made or of such liabilities incurred is, at the same time of the issue of the receipt,
unknown
to
the
warehouseman
or
to
his
agent
who issues it, a statement of the fact that advances have been made or liabilities incurred and the
purpose
thereof
is
sufficient
EFFECT OF OMISSION OF THE ESSENTIAL CONTENTS
>
A
warehouseman
shall
be
liable
to
any
person
injured
thereby all damages caused by the omission from a negotiable receipt of any of the terms
157
herein
>
>
required
Validity
Negotiability
of
of
the
the
receipt
receipt
not
not
affected
affected
TERMS THAT CANNOT BE INCLUDED IN THE WAREHOUSE RECEIPT
1. Those
contrary
2. In
any
wise
exercise
that
degree
to
impair
of
any
the
care
provision
of
the
warehouseman’s
obligation
in
the
safekeeping
of
law
to
the
goods entrusted to him which a reasonably careful man would exercise with regard to similar
goods
of
his
own
NON-NEGOTIABLE WAREHOUSE RECEIPT
> Receipt in which it is stated that the goods received will be delivered to the depositor or to any
specified
person
NEGOTIABLE WAREHOUSE RECEIPT
>
Receipt
in
which
it
is
stated
that
the
goods
received
will
be
delivered to the bearer or to the order of any person named in such receipt
> No provision shall be inserted in a negotiable receipt that it is non-negotiable. Such provision if
inserted
shall
be
void.
DUPLICATE RECEIPTS MUST BE MARKED
>
When
more
than
one
is
issued
for
the
same
goods,
the
word “duplicate” shall be plainly placed upon the face of every such receipt, except the first
one issued
> A warehouseman shall be held liable for damages for failure to do so to anyone who
purchased the subsequent receipt for value supposing it to be original, even though
the purchaser be after the delivery of the goods by the warehouseman to the holder of the
original
receipt
158
OBLIGATIONS
AND
RIGHTS
OF
WAREHOUSEMAN
UPON
THEIR
RECEIPTS
PRINCIPAL OBLIGATIONS OF THE WAREHOUSEMAN
1. To take care of the goods entrusted to his safekeeping
2. To
deliver
them
to
the
holder
of
the
receipt
or
the
depositor provided the following conditions are fulfilled—there is demand by the depositor
accompanied
by
either
a. An
offer
to
satisfy
the
warehouseman’s
lien
b.
An
offer
to
surrender
the
receipt,
if
negotiable
with
such indorsements as would be necessary for the negotiation of the receipts
c. A readiness and willingness to
sign,
when
the
goods are
delivered,
an
acknowledgement
that
they have been delivered, if such signature is requested by the warehouseman
WHAT SHOULD ACCOMPANY THE DEMAND FOR THE RETURN OF THE GOODS?
1. An
offer
to
satisfy
the
lien
warehouseman’s
2. An offer to surrender the receipt, if negotiable with such indorsements as would be
necessary
for
the
negotiation
of
the
receipts
3.
A
readiness
and
willingness
to
sign,
when
the
goods
are
delivered,
an
acknowledgement
that
they
have
been
delivered,
if
such
signature
is
requested
by
the
warehouseman
A WAREHOUSEMAN IS JUSTIFIED IN DELIVERING THE GOODS TO ONE WHO IS—
1.
Person lawfully entitled to the possession of the goods, or his agent
2. Person who either himself entitled to delivery by the terms of the non-negotiable receipt issued
for the goods, or who has written authority from the person so entitled either endorsed upon
the
receipt
or
written
on
another
paper
3.
Person
in
possession
of
a
negotiable
receipt
by
the
terms
of which the goods are deliverable to him or order, or to bearer, or which has been
indorsed to him or in blank by the person to whom delivery was promised by the terms of the
receipt
or
by
his
mediate
or
immediate
indorser.
159
WAREHOUSEMAN’S LIABILITY FOR MISDELIVERY
> Where a warehouseman delivers the goods to one who is not in fact lawfully entitled to the
possession of them, the warehouseman shall be liable for malversation/estafa to all having a
right of property or possession in the goods if he delivered the goods otherwise than as authorized
> And though he delivered the goods as authorized he shall be so liable if prior to such delivery
he had either—
o
Been
lawfully entitled
requested,
to a right
by
or
on
behalf
of
the
person
of property or possession in the goods, not to make such
delivery.
CREDIT TRANSACTION – NOTES 26
TRUST RECEIPTS LAW (P.D. No. 115)
1. BACKGROUND
A bank that issues a letter of credit has the right to ask for reimbursement from the
applicant-buyer. This obligation to pay the issuing bank may also be secured by trust receipts.
Under the law, the bank becomes the entruster of the goods while the buyer-importer is the
entrustee. The goods will in effect be released by the bank to the buyer by the delivery of the
document of title/bill of lading covering the goods. The buyer as entrustee is obligated to sell the
goods and to apply the proceeds thereof to the payment of the loan extended by the entrusterbank. The buyer will only get the balance of the proceeds of the sale after making such application.
a) “Entrustee” shall refer to the person having or taking possession of goods, documents, or
instruments under a trust receipt transaction, and any successor-in-interest of such person
for the purpose or purposes specified in the trust receipt agreement.
b) “Entruster” shall refer to the person holding title over the goods, documents, or instruments
subject of a trust receipt transaction, and any successor-in-interest of such successor.
c) “Goods” shall include chattels and personal property other than money, things in action, or
things so affixed to land as to become a part thereof.
d) “Security Interest” means a property interest in goods, documents, or instruments to secure
performance of some obligations of the entrustee or of some third persons to the entruster
and includes titles, whether or not expressed to be absolute, whenever such title is in
substance taken or retained for security only.
2. WHAT IS A TRUST RECIEPT?
A trust receipt is a security transaction intended to aid in financing importers or dealers in
merchandise by allowing them to obtain delivery of goods under certain covenants.
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2.01. The sale of goods, documents or instruments by a person in the business of selling goods,
documents or instruments for profit who, at the outset of the transaction, has, as against
the buyer, general property rights in such goods, documents or instruments, or who sells
the same to the buyer on credit, retaining title or other interest as security for the payment
of the purchase price, does not constitute a trust receipt transaction and is outside the
purview and coverage of the Trust Receipt Law (Sec. 4, Trust Receipts Law or TRL for
short).
2.02. Usually the entruster releases the goods to the entrustee so that the latter may sell the
goods. However, the purpose is not limited to sale the goods. However, the purpose is
not limited to sale the goods. However, the purpose is not limited to sale (DBP v.
Prudential Bank, 475 SCRA 623 [2005]; Ching v. Secretary of Justice, 481 SCRA 623
[2005]; Ching v. Secretary of Justice, 481 SCRA 601 [2006]). Hence, the goods may also
be released for other purposes substantially equivalent to the following:
1) Their sale or the procurement of their sale;
2) Their manufacture or processing with the purpose of ultimate sale, in which case the
entruster retains his title over the said goods whether in their original or processed
form until the entrustee has complied fully with his obligation under the trust receipt;
or
3) The loading unloading, shipment or transshipment or otherwise dealing with them in a
manner preliminary or necessary to their sale.
Note: The entrustee may still be criminally liable under the TRL even if the goods that
were released by virtue of the trust receipt were not resold but were used as spare parts for
machineries.
3. OBLIGATIONS OF: (A) ENTRUSTER AND (B) ENTRUSTEE
a) Entruster – releases the possession of the goods to the entrustee upon the latter’s
execution of the trust receipt.
b) Entrustee –
1) Binds himself to hold the goods in trust for the entrustor;
2) Sell or otherwise dispose of the goods and to turn over to the entrustor the amount still
owing; and
3) To return the goods if unsold.
Note: The entrustee is still liable to pay the entruster (bank) even if the goods were
returned to the latter (Landl & Co. [phil.] v. Metrobank, G.R. No. 159622, July 30, 2004).
3.01. Remedies of the Entruster
a) If the goods are sold or disposed by the entrustee and the latter did not remit the
proceeds: (1) file estafa case against the entrustee; or (2) file a separate case to collect
the proceeds or the money obligation secured by the trust receipt.
b) If the goods are unsold and are still with the entrustee: (1) cancel the trust and take
possession of the goods, documents or instruments subject of the trust; (2) after taking
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possession, sell the goods and apply the proceeds of the sale to the expenses of sale
and retaking of the goods and the indebtedness; and (30 as an alternative to taking
possession and sale, the entruster can file a case to collect the indebtedness secured
by the trust receipt.
Note: The obligation of the entrustee is not extinguished in case of repossession and sale
of the goods, the entrustee is entitled to any surplus while the entruster can still recover the
balance of the indebtedness in case there is a deficiency.
NO AGENCY IS ESTABLISHED
No agency relationship is established when the entrustee executes the trust receipt.
However, an entrustee’s breach will make him liable for estafa. As held by the Supreme Court in
People v. Cuervo (104 SCRA 312), the enactment of Presidential Decree No. 115 within its penal
sanction is in reality, merely confirmatory of existing jurisprudence on situation covered by Article
315(1)(b) of the Revised Penal Code. The entrustee in a trust receipt who failed to account for
the proceeds of the goods sold or to return the goods, as the case may be, is guilty of estafa even
where the offense was committed before the promulgation of Presidential Decree No. 115 now
expresses a criminal liability on the part of responsible officers of corporations and juridical entities.
5. NATURE OF ENTRUSTER’S TITLE
a) The entruster-bank acquires “security interest” in the goods as holder of a security
title for the advances it had made to the entrustee (Melvin Colinares v. CA, G.R. No. 90828,
Sept. 5, 2000). By fiction of law, the ownershipofthe merchandise continues to be vested in
the person who had advanced payment until he has been paid in full or if the merchandise
has been already sold, the proceeds of the sale should be turned over to him by the importer
or by his representative or successor-in-interest. To secure that the bank shall be paid, it
takes full title to the goods are sold and the vendee is called upon o pay for them; hence,
the importer has never owned the goods and is not able to deliver possession (Ibid.).
b) However, since the interest of the entruster is a mere security interest:
1) The entruster shall not, merely by virtue of such interest, be responsible as
principal or as vendor under any sale or contract to sell made by entrustee (Sec.
8, P.D. No. 115).
2) The entrustee bears the loss of the goods after delivery to him (sec. 11, P.D. No. 115).
c) Note, however that in Development Bank of the Philippines v. Prudential Bank (G.R. No.
14377, Nov. 22, 2005), the Supreme Court sustained the view that the entrustee is not the
owner of the property in question. Hence, the entrustee cannot mortgage the property.
However, it is believed that the entrustee is still the owner and the entruster acquires only
security interest. The entrustee cannot mortgage the property not because he is not the
owner but because he does not have free diposal of the property to be mortgaged.
5.01. Security Interest
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Security interest means a property interest in goods, documents or instruments to
secure performance of some obligations of the entrustee or of some third persons to the
entruster and includes title, whether or not expressed to be absolute, whenever such title in
substance taken or retained for security only (Sec. 3[h], P.D. No. 115).
a) A purchaser in good faith and for value (from an entrustee with a right to sell) acquires
the goods, documents or instrument free from the entruster’s security interest (Sec. 11,
P.D. No. 115).
b) The security interest of the entruster prevails as against all creditors of the entrustee for
the duration of the Trust Receipt Agreement (Sec. 12, P.D. No, 115).
THE BULK SALES LAW
AN ACT TO REGULATE THE SALE, TRANSFER, MORTGAGE OR ASSIGNMENT OF GOODS,
WARES, MERCHANDISE, PROVISIONS OR MATERIALS, IN BULK, AND PRESCRIBING
PENALTIES FOR THE VIOLATION OF THE PROVISIONS THEREOF
Section 1.This Act shall be known as "The Bulk Sales Law."
Sec. 2. Sale and transfer in bulk. — Any sale, transfer, mortgage or assignment of a stock of
goods, wares, merchandise, provisions, or materials otherwise than in the ordinary course of trade
and the regular prosecution of the business of the vendor, mortgagor, transferor, or assignor, or
sale, transfer, mortgage or assignment of all, or substantially all, of the business or trade
theretofore conducted by the vendor, mortgagor, transferor, or assignor, or of all, or substantially
all, of the fixtures and equipment used in and about the business of the vendor, mortgagor,
transferor, or assignor, shall be deemed to be a sale and transfer in bulk, in contemplation of this
Act: Provided, however, That if such vendor, mortgagor, transferor or assignor, produces and
delivers a written waiver of the provisions of this Act from his creditors as shown by verified
statements, then, and in that case, the provisions of this section shall not apply.
Sec. 3. Statement of creditors. — It shall be the duty of every person who shall sell, mortgage,
transfer, or assign any stock of goods, wares, merchandise, provisions or materials in bulk, for
cash or on credit, before receiving from the vendee, mortgagee, or his, or its agent or
representative any part of the purchase price thereof, or any promissory note, memorandum, or
other evidence therefor, to deliver to such vendee, mortgagee, or agent, or if the vendee,
mortgagee, or agent be a corporation, then to the president, vice-president, treasurer, secretary
or manager of said corporation, or, if such vendee or mortgagee be a partnership firm, then to a
member thereof, a written statement, sworn to substantially as hereinafter provided, of the names
and addresses of all creditors to whom said vendor or mortgagor may be indebted, together with
the amount of indebtedness due or owing, or to become due or owing by said vendor or mortgagor
to each of said creditors, which statement shall be verified by an oath to the following effect:
PHILIPPINE
PROVINCE OR CITY OF _________________}
ISLANDS
Before me, the undersigned authority, personally appeared __________________ (vendor,
mortgagor, agent or representative, as the case may be), bearing cedula No.
163
____________ issued at ___________ on the day of _____________ who, by me being
first duly sworn, upon his oath, deposes and states that the foregoing statement contains
the names of all of the creditors of ________________ (vendor, or mortgagor) together with
their addresses, and that the amount set opposite each of said respective names, is the
amount now due and owing, and which shall become due and owing by _____________
(vendor or mortgagor) to such creditors, and that there are no creditors holding claims due
or which shall become due, for or on account of goods, wares, merchandise, provisions or
materials purchased upon credit or on account of money borrowed, to carry on the business
of which said goods, wares, merchandise, provisions or materials are a part, other than as
set forth in said statement.
Subscribed and sworn to before me this _______ day of ______, 19___, at ________
Sec. 4.Fraudulent and void sale, transfer or mortgage.— Whenever any person shall sell,
mortgage, transfer, or assign any stock of goods, wares, merchandise, provisions or materials, in
bulk, for cash or on credit, and shall receive any part of the purchase price, or any promissory
note, or other evidence of indebtedness for said purchase price or advance upon mortgage,
without having first delivered to the vendee or mortgagee or to his or its agent or representative,
the sworn statement provided for in section three hereof, and without applying the purchase or
mortgage money of the said property to the pro rata payment of the bona fide claim or claims of
the creditors of the vendor or mortgagor, as shown upon such sworn statement, he shall be
deemed to have violated this Act, and any such sale, transfer or mortgage shall be fraudulent and
void.
Sec. 5.Inventory.— It shall be the duty of every vendor, transferor, mortgagor, or assignor, at least
ten days before the sale, transfer or execution of a mortgage upon any stock of goods, wares,
merchandise, provisions or materials, in bulk, to make a full detailed inventory thereof and to
preserve the same showing the quantity and, so far as is possible with the exercise of reasonable
diligence, the cost price to the vendor, transferor, mortgagor or assignor of each article to be
included in the sale, transfer or mortgage, and notify every creditor whose name and address is
set forth in the verified statement of the vendor, transferor, mortgagor, or assignor, at least ten
days before transferring possession thereof, personally or by registered mail, of the price, terms
conditions of the sale, transfer, mortgage, or assignment.
Sec. 6.Any vendor, transferor, mortgagor or assignor of any stock of goods, wares, merchandise,
provisions or materials, in bulk, or any person acting for, or on behalf of any such vendor,
transferor, mortgagor, or assignor, who shall knowingly or wilfully make, or deliver or cause to be
made or delivered, a statement, as provided for in section three hereof, which shall not include the
names of all such creditors, with the correct amount due and to become due to each of them, or
shall contain any false or untrue statement, shall be deemed to have violated the provisions of this
Act.
Sec. 7. It shall be unlawful for any person, firm or corporation, as owner of any stock of goods,
wares, merchandise, provisions or materials, in bulk, to transfer title to the same without
consideration or for a nominal consideration only.
Sec. 8. Nothing in this Act contained shall apply to executors, administrators, receivers, assignees
in insolvency, or public officers, acting under judicial process.
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Sec. 9. The sworn statement containing the names and addresses of all creditors of the vendor or
mortgagor provided for in section three of this Act, shall be registered in the Bureau of Commerce.
For the registration of each such sworn statement a fee of five pesos shall be charged to the
vendor or mortgagor of the stock of goods, wares, merchandise, provisions or materials, in bulk.
Sec. 10. The provisions of this Act shall be administered by the Director of the Bureau of
Commerce and Industry, who is hereby empowered, with the approval of the Department Head,
to prescribe and adopt from time to time such rules and regulations as may be deemed necessary
for the proper and efficient enforcement of the provisions of this Act.
Sec. 11. Any person violating any provision of this Act shall, upon conviction thereof, be punished
by imprisonment not less than six months, nor more than five years, or fined in sum not exceeding
five thousand pesos, or both such imprisonment and fine, in the discretion of the court.
Sec. 12. This Act shall take effect on its approval.
What is Bulk Sales Law?
"Bulk sales" laws are intended to prevent business owners from defrauding or evading creditors
by transferring all (or a substantial portion) of the assets of the business to another individual or
entity.
The Bulk Sales Law does not apply to all bulk sales
Whenever one sells all or substantially all of his assets, both the lawyer of the buyer and of the
seller often require the seller to comply with the requirements of the Bulk Sales Law before the
sale actually takes place. The Law requires certain inconvenient formalities to be complied with
before a sale of transfer in bulk of items specified in the Law may take place, other than in the
ordinary course of business. Under the Law, if the seller is unable to obtain a written waiver from
all his creditors of the provisions of the Law, the sale will be void as against the seller's creditors,
unless the seller delivers to the purchaser a list of his creditors with the amount owing to each,
conducts an inventory of the assets and gives prior notice of at least 10 days to his creditors of
the proposed sale and the terms of the proposed sale. However, in most cases, the sale of all or
substantially all of one assets is not covered by the Law, for the Law covers only the bulk sales
contemplated in Section 2.
Law Applies to Merchants. Bulk sales laws generally apply to retail merchants, traders and dealers
and generally only to persons of that class . On the basis of Section 2, the Bulk Sales Law does
not apply to a bulk sale by a manufacturer because of the nature of the latter’s business,
i.e., it is not engaged in the business of selling stocks in trade . The sale of an entire automobile
repair shop, together with its goodwill, credit, machineries, tools and because this would involve
the sale of a business engaged in rendering services and not the sale of goods. In addition, the
sale of a barber shop would not be covered by the Law, since no stocks in trade are really involved
in the operation of a barber shop.
OBLIGATIONS OF THE VENDOR UNDER THE BULK SALES LAW
165
The
vendor,
mortgagor,
transferor
or
assignor
must:
1. deliver to the vendee, mortgagee, transferee, or assignee a written statement of:
a. names and addresses of all creditors to whom said vendor or mortgagor may be indebted
b.
amount
of
indebtedness
due
or
owing
to
each
of
said
creditors
2. apply the purchase money to the pro-rata payment of bona fide claims of the creditors
as
shown
in
the
verified
statement.
3.
at
least
10
days
before
the
sale,
shall:
a. make a full detailed inventory of the goods, merchandise cost price of each article to be included
in the sale
b. notify every creditor at least 10 days before transferring possession of the goods, of the price,
terms and conditions of the sale
Effect of Waiver And estoppel of creditors
Creditors may waive the right to the benefit of the statue or estop themselves to claim that the sale
was invalid because the requirement of statue were not complied.
Effect of Violation
As between parties-A sale is not in compliance in bulk sales statue is valid against all persons
other than creditors
As against creditors- Purchaser In violation of law acquires no right in the property purchased
against the creditors of the seller.
Merchandise
Something that is sold everyday and constantly going out and being replaced by other goods.
CREDIT TRANSACTION – NOTES 27
CHAPTER 1 - Provisions Common to Pledge and Mortgage
Article 2085. The following requisites are essential to the contracts of pledge and mortgage:
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(1) That they be constituted to secure the fulfillment of a principal obligation;
(2) That the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged;
(3) That the persons constituting the pledge or mortgage have the free disposal of their
property, and in the absence thereof, that they be legally authorized for the purpose.
Third persons who are not parties to the principal obligation may secure the latter by pledging or
mortgaging their own property.
Article 2086. The provisions of article 2052 are applicable to a pledge or mortgage.
Article 2087. It is also of the essence of these contracts that when the principal obligation
becomes due, the things in which the pledge or mortgage consists may be alienated for the
payment to the creditor.
Article 2088. The creditor cannot appropriate the things given by way of pledge or mortgage, or
dispose of them. Any stipulation to the contrary is null and void.
Article 2089. A pledge or mortgage is indivisible, even though the debt may be divided among the
successors in interest of the debtor or of the creditor.
Therefore, the debtor's heir who has paid a part of the debt cannot ask for the proportionate
extinguishment of the pledge or mortgage as long as the debt is not completely satisfied.
Neither can the creditor's heir who received his share of the debt return the pledge or cancel the
mortgage, to the prejudice of the other heirs who have not been paid.
From these provisions is excepted the case in which, there being several things given in mortgage
or pledge, each one of them guarantees only a determinate portion of the credit.
The debtor, in this case, shall have a right to the extinguishment of the pledge or mortgage as the
portion of the debt for which each thing is specially answerable is satisfied.
Article 2090. The indivisibility of a pledge or mortgage is not affected by the fact that the debtors
are not solidarily liable.
Article 2091. The contract of pledge or mortgage may secure all kinds of obligations, be they pure
or subject to a suspensive or resolutory condition.
Article 2092. A promise to constitute a pledge or mortgage gives rise only to a personal action
between the contracting parties, without prejudice to the criminal responsibility incurred by him
who defrauds another, by offering in pledge or mortgage as unencumbered, things which he knew
were subject to some burden, or by misrepresenting himself to be the owner of the same.
CHAPTER 2 - Pledge
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Article 2093. In addition to the requisites prescribed in article 2085, it is necessary, in order to
constitute the contract of pledge, that the thing pledged be placed in the possession of the creditor,
or of a third person by common agreement.
Article 2094. All movables which are within commerce may be pledged, provided they are
susceptible of possession.
Article 2095. Incorporeal rights, evidenced by negotiable instruments, bills of lading, shares of
stock, bonds, warehouse receipts and similar documents may also be pledged. The instrument
proving the right pledged shall be delivered to the creditor, and if negotiable, must be indorsed.
Article 2096. A pledge shall not take effect against third persons if a description of the thing
pledged and the date of the pledge do not appear in a public instrument.
Article 2097. With the consent of the pledgee, the thing pledged may be alienated by the pledgor
or owner, subject to the pledge. The ownership of the thing pledged is transmitted to the vendee
or transferee as soon as the pledgee consents to the alienation, but the latter shall continue in
possession.
Article 2098. The contract of pledge gives a right to the creditor to retain the thing in his
possession or in that of a third person to whom it has been delivered, until the debt is paid.
Article 2099. The creditor shall take care of the thing pledged with the diligence of a good father
of a family; he has a right to the reimbursement of the expenses made for its preservation, and is
liable for its loss or deterioration, in conformity with the provisions of this Code.
Article 2100. The pledgee cannot deposit the thing pledged with a third person, unless there is a
stipulation authorizing him to do so.
The pledgee is responsible for the acts of his agents or employees with respect to the thing
pledged.
Article 2101. The pledgor has the same responsibility as a bailor in commodatum in the case
under article 1951.
Article 2102. If the pledge earns or produces fruits, income, dividends, or interests, the creditor
shall compensate what he receives with those which are owing him; but if none are owing him, or
insofar as the amount may exceed that which is due, he shall apply it to the principal. Unless there
is a stipulation to the contrary, the pledge shall extend to the interest and earnings of the right
pledged.
In case of a pledge of animals, their offspring shall pertain to the pledgor or owner of animals
pledged, but shall be subject to the pledge, if there is no stipulation to the contrary.
Article 2103. Unless the thing pledged is expropriated, the debtor continues to be the owner
thereof.
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Nevertheless, the creditor may bring the actions which pertain to the owner of the thing pledged
in order to recover it from, or defend it against a third person.
Article 2104. The creditor cannot use the thing pledged, without the authority of the owner, and if
he should do so, or should misuse the thing in any other way, the owner may ask that it be judicially
or extrajudicially deposited. When the preservation of the thing pledged requires its use, it must
be used by the creditor but only for that purpose.
Article 2105. The debtor cannot ask for the return of the thing pledged against the will of the
creditor, unless and until he has paid the debt and its interest, with expenses in a proper case.
Article 2106. If through the negligence or willful act of the pledgee, the thing pledged is in danger
of being lost or impaired, the pledgor may require that it be deposited with a third person.
Article 2107. If there are reasonable grounds to fear the destruction or impairment of the thing
pledged, without the fault of the pledgee, the pledgor may demand the return of the thing, upon
offering another thing in pledge, provided the latter is of the same kind as the former and not of
inferior quality, and without prejudice to the right of the pledgee under the provisions of the
following article.
The pledgee is bound to advise the pledgor, without delay, of any danger to the thing pledged.
Article 2108. If, without the fault of the pledgee, there is danger of destruction, impairment, or
diminution in value of the thing pledged, he may cause the same to be sold at a public sale. The
proceeds of the auction shall be a security for the principal obligation in the same manner as the
thing originally pledged. (n)
Article 2109. If the creditor is deceived on the substance or quality of the thing pledged, he may
either claim another thing in its stead, or demand immediate payment of the principal obligation.
(n)
Article 2110. If the thing pledged is returned by the pledgee to the pledgor or owner, the pledge
is extinguished. Any stipulation to the contrary shall be void.
If subsequent to the perfection of the pledge, the thing is in the possession of the pledgor or owner,
there is a prima facie presumption that the same has been returned by the pledgee. This same
presumption exists if the thing pledged is in the possession of a third person who has received it
from the pledgor or owner after the constitution of the pledge. (n)
Article 2111. A statement in writing by the pledgee that he renounces or abandons the pledge is
sufficient to extinguish the pledge. For this purpose, neither the acceptance by the pledgor or
owner, nor the return of the thing pledged is necessary, the pledgee becoming a depositary. (n)
Article 2112. The creditor to whom the credit has not been satisfied in due time, may proceed
before a Notary Public to the sale of the thing pledged. This sale shall be made at a public auction,
and with notification to the debtor and the owner of the thing pledged in a proper case, stating the
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amount for which the public sale is to be held. If at the first auction the thing is not sold, a second
one with the same formalities shall be held; and if at the second auction there is no sale either,
the creditor may appropriate the thing pledged. In this case he shall be obliged to give an
acquittance for his entire claim. (1872a)
Article 2113. At the public auction, the pledgor or owner may bid. He shall, moreover, have a
better right if he should offer the same terms as the highest bidder.
The pledgee may also bid, but his offer shall not be valid if he is the only bidder. (n)
Article 2114. All bids at the public auction shall offer to pay the purchase price at once. If any
other bid is accepted, the pledgee is deemed to have been received the purchase price, as far as
the pledgor or owner is concerned. (n)
Article 2115. The sale of the thing pledged shall extinguish the principal obligation, whether or not
the proceeds of the sale are equal to the amount of the principal obligation, interest and expenses
in a proper case. If the price of the sale is more than said amount, the debtor shall not be entitled
to the excess, unless it is otherwise agreed. If the price of the sale is less, neither shall the creditor
be entitled to recover the deficiency, notwithstanding any stipulation to the contrary. (n)
Article 2116. After the public auction, the pledgee shall promptly advise the pledgor or owner of
the result thereof. (n)
Article 2117. Any third person who has any right in or to the thing pledged may satisfy the principal
obligation as soon as the latter becomes due and demandable.
Article 2118. If a credit which has been pledged becomes due before it is redeemed, the pledgee
may collect and receive the amount due. He shall apply the same to the payment of his claim, and
deliver the surplus, should there be any, to the pledgor. (n)
Article 2119. If two or more things are pledged, the pledgee may choose which he will cause to
be sold, unless there is a stipulation to the contrary. He may demand the sale of only as many of
the things as are necessary for the payment of the debt. (n) ARTICLE 2120. If a third party secures
an obligation by pledging his own movable property under the provisions of article 2085 he shall
have the same rights as a guarantor under articles 2066 to 2070, and articles 2077 to 2081. He is
not prejudiced by any waiver of defense by the principal obligor. (n)
Article 2121. Pledges created by operation of law, such as those referred to in articles 546, 1731,
and 1994, are governed by the foregoing articles on the possession, care and sale of the thing as
well as on the termination of the pledge. However, after payment of the debt and expenses, the
remainder of the price of the sale shall be delivered to the obligor. (n)
Article 2122. A thing under a pledge by operation of law may be sold only after demand of the
amount for which the thing is retained. The public auction shall take place within one month after
such demand. If, without just grounds, the creditor does not cause the public sale to be held within
such period, the debtor may require the return of the thing. (n)
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Article 2123. With regard to pawnshops and other establishments, which are engaged in making
loans secured by pledges, the special laws and regulations concerning them shall be observed,
and subsidiarily, the provisions of this Title.
CHAPTER 3 - Mortgage
Article 2124. Only the following property may be the object of a contract of mortgage:
(1) Immovables;
(2) Alienable real rights in accordance with the laws, imposed upon immovables.
Nevertheless, movables may be the object of a chattel mortgage. (
Article 2125. In addition to the requisites stated in article 2085, it is indispensable, in order that a
mortgage may be validly constituted, that the document in which it appears be recorded in the
Registry of Property. If the instrument is not recorded, the mortgage is nevertheless binding
between the parties.
The persons in whose favor the law establishes a mortgage have no other right than to demand
the execution and the recording of the document in which the mortgage is formalized.
Article 2126. The mortgage directly and immediately subjects the property upon which it is
imposed, whoever the possessor may be, to the fulfillment of the obligation for whose security it
was constituted.
Article 2127. The mortgage extends to the natural accessions, to the improvements, growing
fruits, and the rents or income not yet received when the obligation becomes due, and to the
amount of the indemnity granted or owing to the proprietor from the insurers of the property
mortgaged, or in virtue of expropriation for public use, with the declarations, amplifications and
limitations established by law, whether the estate remains in the possession of the mortgagor, or
it passes into the hands of a third person.
Article 2128. The mortgage credit may be alienated or assigned to a third person, in whole or in
part, with the formalities required by law.
Article 2129. The creditor may claim from a third person in possession of the mortgaged property,
the payment of the part of the credit secured by the property which said third person possesses,
in the terms and with the formalities which the law establishes.
Article 2130. A stipulation forbidding the owner from alienating the immovable mortgaged shall
be void.
Article 2131. The form, extent and consequences of a mortgage, both as to its constitution,
modification and extinguishment, and as to other matters not included in this Chapter, shall be
governed by the provisions of the Mortgage Law and of the Land Registration Law.
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CHAPTER 4 - Antichresis
Article 2132. By the contract of antichresis the creditor acquires the right to receive the fruits of
an immovable of his debtor, with the obligation to apply them to the payment of the interest, if
owing, and thereafter to the principal of his credit.
Article 2133. The actual market value of the fruits at the time of the application thereof to the
interest and principal shall be the measure of such application. (n)
Article 2134. The amount of the principal and of the interest shall be specified in writing; otherwise,
the contract of antichresis shall be void. (n)
Article 2135. The creditor, unless there is a stipulation to the contrary, is obliged to pay the taxes
and charges upon the estate.
He is also bound to bear the expenses necessary for its preservation and repair.
The sums spent for the purposes stated in this article shall be deducted from the fruits.
Article 2136. The debtor cannot reacquire the enjoyment of the immovable without first having
totally paid what he owes the creditor.
But the latter, in order to exempt himself from the obligations imposed upon him by the preceding
article, may always compel the debtor to enter again upon the enjoyment of the property, except
when there is a stipulation to the contrary. (1883)
Article 2137. The creditor does not acquire the ownership of the real estate for non-payment of
the debt within the period agreed upon.
Every stipulation to the contrary shall be void. But the creditor may petition the court for the
payment of the debt or the sale of the real property. In this case, the Rules of Court on the
foreclosure of mortgages shall apply. (1884a)
Article 2138. The contracting parties may stipulate that the interest upon the debt be
compensated with the fruits of the property which is the object of the antichresis, provided that if
the value of the fruits should exceed the amount of interest allowed by the laws against usury, the
excess shall be applied to the principal.
Article 2139. The last paragraph of article 2085, and articles 2089 to 2091 are applicable to this
contract.
CHAPTER 5 Chattel Mortgage
Article 2140. By a chattel mortgage, personal property is recorded in the Chattel Mortgage
Register as a security for the performance of an obligation. If the movable, instead of being
172
recorded, is delivered to the creditor or a third person, the contract is a pledge and not a chattel
mortgage.
Chattel Mortgage refers to a contract by virtue, which involves recording the personal property in
the Chattel Mortgage Register as security for the performance of an obligation. The Chattel
Mortgage can either be a formal contract or an accessory contract. It is required if the debtor has
to retain the property.
Article 2141. The provisions of this Code on pledge, insofar as they are not in conflict with the
Chattel Mortgage Law shall be applicable to chattel mortgages.
CREDIT TRANSACTION – NOTES 28
REAL ESTATE MORTGAGE (Civil Code Art. 2124-2131)
Art. 2124. Only the following property may be the object of a contract of mortgage:
(1) Immovables;
(2) Alienable real rights in accordance with the laws, imposed upon immovables.
Nevertheless, movables may be the object of a chattel mortgage.
Concept
Mortgage (otherwise known as “real estate mortgage” or “real mortgage”) is a contract
whereby the debtor secures to the creditor the fulfillment of a principal obligation, especially
subjecting to such security, immovable property or real rights over immovable property in case the
principal obligation is not complied with the time stipulated.
Kinds of Real Mortgage
1. Conventional or voluntary - one created by agreement of the parties.
2. Legal – one constituted pursuant to an express requirement of the law.
3. Equitable – one which, although lacking some formality, form of words or other requisites
prescribed by law, show the intention of the parties to charge real property as security for
a debt and contain nothing impossible or contrary to law.
Characteristics of Real Mortgages:
1. Nominate- it has a special designation or name under the civil code.
2. Consensual- perfected my mere consent.
3. Accessory- its validity depends upon the validity of the principal contract.
4. Unilateral- only the mortgagor has an obligation in favor of the mortgages.
5. Real right- it binds ad creates a lien on the real property
6. Real property- a mortgage on real property is by itself real property also.
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7. Indivisible – as long as the principal obligation remains unpaid, the real estate mortgage
will continue to subsist.
8. Inseparable- the mortgage on real property, regardless of who its owner may subsequently
be.
Art. 2125. In addition to the requisites stated in Article 2085, it is indispensable, in order
that a mortgage may be validly constituted, that the document in which it appears be
recorded in the Registry of Property. If the instrument is not recorded, the mortgage is
nevertheless binding between the parties.
The persons in whose favor the law establishes a mortgage have no other right than to
demand the execution and the recording of the document in which the mortgage is
formalized. (1875a)
Requisites of real mortgage
1. That it be constituted to secure the fulfillment of a principal obligation.
2. That the mortgagor be the absolute owner of the thing mortgaged.
3. That the person constituting the mortgage have the free disposal of his property, and in the
absence thereof, that he be legally, authorized for the purpose.
4. That the document in which it appears be recorded in the Registry of Property.
Effect of unregistered mortgage
1. Between the parties
Even if the mortgage is not registered, the mortgage is nevertheless binding between
the parties.
2. Against third person
a. Without knowledge
An unregistered mortgage does not affect innocent third persons.
b. With knowledge
Third persons with knowledge of the existence of the mortgage are bound
because as to them, knowledge of a prior unregistered mortgage is the
equivalent of registration.
Art. 2126. The mortgage directly and immediately subjects the property upon which it is
imposed, whoever the possessor may be, to the fulfillment of the obligation for whose
security it was constituted.
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Effect of mortgage
(1) Creates a real right- a mortgage creates what is called a real right which is enforceable
against the whole world. It follows the property wherever it goes.
(2) Creates merely an encumbrance- the mortgage, however, is merely an encumbrance
upon the property and does not extinguish the title of the debtor who does not lose his
principal attribute as owner, that is, the right to dispose .
Art. 2127. The mortgage extends to the natural accessions, to the improvements, growing
fruits, and the rents or income not yet received when the obligation becomes due, and to
the amount of the indemnity granted or owing to the proprietor from the insurers of the
property mortgaged, or in virtue of expropriation for public use, with the declarations,
amplifications and limitations established by law, whether the estate remains in the
possession of the mortgagor, or it passes into the hands of a third person.
Extent of real mortgage:
A contract of real mortgage shall cover the ff:
➢ The property mortgaged
➢ Natural accessions
➢ Improvements
➢ Growing fruits
➢ Rents and income not yet received when the obligation becomes due.
➢ Indemnity granted or owing to the proprietor from the insurers of the property
mortgaged, or in virtue of expropriations for public use.
Art. 2128. The mortgage credit may be alienated or assigned to a third person, in whole or
in part, with the formalities required by law. (1878)
Validity to third persons
1. Public document and registration in the Registry of Property
2. Notice of the assignment to the debtor. Thus, if the debtor is not given notice of the
assignment, the debtor who before having knowledge of the assignment, pays his creditor
shall be released from the obligation.
Art. 2129. The creditor may claim from a third person in possession of the mortgaged
property, the payment of the part of the credit secured by the property which said third
person possesses, in the terms and with the formalities which the law establishes. (1879)
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Art. 2130. A stipulation forbidding the owner from alienating the immovable mortgaged
shall be void. (n)
Stipulation prohibiting alienation and second mortgage
1. Alienation
A stipulation forbidding the owner from alienating te immovable mortgaged shall be
void.
2. Second mortgage
The mortgagor, being the owner of the property mortgaged, may execute a second
mortgage thereon, even without the consent of the mortgagee. This is an incident of
ownership.
However, the mortgagor and mortgagee may validly enter into a stipulation
prohibiting a second mortgage with respect to property registered under the Torrens
System.
Art. 2131. The form, extent and consequences of a mortgage, both as to its constitution,
modification and extinguishment, and as to other matters not included in this Chapter, shall
be governed by the provisions of the Mortgage Law and of the Land Registration Law.
(1880a)
Foreclosure of mortgage
1. Concept
Foreclosure – a proceeding by which the creditor subjects the thing mortgaged for
the payment of the obligation secured.
2. Kinds
a. Judicial – foreclosure under Rule 68 of the Rules of Court.
b. Extrajudicial - foreclosure under Act No. 3135, as amended by Act No. 4118.
3. Grounds for Foreclosure
a. Non-payment of the principal obligation on maturity.
b. Violation of any condition, stipulation or warranty by the mortgagor.
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Redemption
1. Concept
Redemption – a transaction through which the mortgagor or one claiming in his
right, by means of a payment or the performance of a condition, re-acquires or buys back
the value of the title which may have passed under the mortgage, or divests the mortgaged
premises of the lien which the mortgage may have created.
2. Kinds of Redemption
1. Equity of Redemption – right of mortgagor to redeem the mortgaged property after his default
in the performance of the conditions of the mortgage within the 90-day period from the date of
the service of the order of foreclosure or even thereafter but before the confirmation of the sale.
Applies to judicial foreclosure of real mortgage and chattel mortgage foreclosure.
2. Right of Redemption – right of mortgagor to redeem the mortgaged property within one year
from the date of registration of the certificate of sale. Applies only to extrajudicial foreclosure
of real mortgage.
TITLE XII CONCURRENCE AND PREFERENCE OF CREDITS
CHAPTER 1 General Provisions
Article 2236. The debtor is liable with all his property, present and future, for the fulfillment of his
obligations, subject to the exemptions provided by law. (1911a)
Article 2237. Insolvency shall be governed by special laws insofar as they are not inconsistent
with this Code. (n)
Article 2238. So long as the conjugal partnership or absolute community subsists, its property
shall not be among the assets to be taken possession of by the assignee for the payment of the
insolvent debtor's obligations, except insofar as the latter have redounded to the benefit of the
family. If it is the husband who is insolvent, the administration of the conjugal partnership or
absolute community may, by order of the court, be transferred to the wife or to a third person other
than the assignee. (n)
Article 2239. If there is property, other than that mentioned in the preceding article, owned by two
or more persons, one of whom is the insolvent debtor, his undivided share or interest therein shall
be among the assets to be taken possession of by the assignee for the payment of the insolvent
debtor's obligations. (n)
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Article 2240. Property held by the insolvent debtor as a trustee of an express or implied trust,
shall be excluded from the insolvency proceedings. (n)
CHAPTER 2 Classification of Credits
Article 2241. With reference to specific movable property of the debtor, the following claims or
liens shall be preferred:
(1) Duties, taxes and fees due thereon to the State or any subdivision thereof;
(2) Claims arising from misappropriation, breach of trust, or malfeasance by public officials
committed in the performance of their duties, on the movables, money or securities
obtained by them;
(3) Claims for the unpaid price of movables sold, on said movables, so long as they are in
the possession of the debtor, up to the value of the same; and if the movable has been
resold by the debtor and the price is still unpaid, the lien may be enforced on the price; this
right is not lost by the immobilization of the thing by destination, provided it has not lost its
form, substance and identity; neither is the right lost by the sale of the thing together with
other property for a lump sum, when the price thereof can be determined proportionally;
(4) Credits guaranteed with a pledge so long as the things pledged are in the hands of the
creditor, or those guaranteed by a chattel mortgage, upon the things pledged or mortgaged,
up to the value thereof;
(5) Credits for the making, repair, safekeeping or preservation of personal property, on the
movable thus made, repaired, kept or possessed;
(6) Claims for laborers' wages, on the goods manufactured or the work done;
(7) For expenses of salvage, upon the goods salvaged;
(8) Credits between the landlord and the tenant, arising from the contract of tenancy on
shares, on the share of each in the fruits or harvest;
(9) Credits for transportation, upon the goods carried, for the price of the contract and
incidental expenses, until their delivery and for thirty days thereafter;
(10) Credits for lodging and supplies usually furnished to travellers by hotel keepers, on the
movables belonging to the guest as long as such movables are in the hotel, but not for
money loaned to the guests;
(11) Credits for seeds and expenses for cultivation and harvest advanced to the debtor,
upon the fruits harvested;
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(12) Credits for rent for one year, upon the personal property of the lessee existing on the
immovable leased and on the fruits of the same, but not on money or instruments of credit;
(13) Claims in favor of the depositor if the depositary has wrongfully sold the thing
deposited, upon the price of the sale.
In the foregoing cases, if the movables to which the lien or preference attaches have been
wrongfully taken, the creditor may demand them from any possessor, within thirty days from the
unlawful seizure. (1922a)
Article 2242. With reference to specific immovable property and real rights of the debtor, the
following claims, mortgages and liens shall be preferred, and shall constitute an encumbrance on
the immovable or real right:
(1) Taxes due upon the land or building;
(2) For the unpaid price of real property sold, upon the immovable sold;
(3) Claims of laborers, masons, mechanics and other workmen, as well as of architects,
engineers and contractors, engaged in the construction, reconstruction or repair of
buildings, canals or other works, upon said buildings, canals or other works;
(4) Claims of furnishers of materials used in the construction, reconstruction, or repair of
buildings, canals or other works, upon said buildings, canals or other works;
(5) Mortgage credits recorded in the Registry of Property, upon the real estate mortgaged;
(6) Expenses for the preservation or improvement of real property when the law authorizes
reimbursement, upon the immovable preserved or improved;
(7) Credits annotated in the Registry of Property, in virtue of a judicial order, by attachments
or executions, upon the property affected, and only as to later credits;
(8) Claims of co-heirs for warranty in the partition of an immovable among them, upon the
real property thus divided;
(9) Claims of donors or real property for pecuniary charges or other conditions imposed
upon the donee, upon the immovable donated;
(10) Credits of insurers, upon the property insured, for the insurance premium for two years.
(1923a)
Article 2243. The claims or credits enumerated in the two preceding articles shall be considered
as mortgages or pledges of real or personal property, or liens within the purview of legal provisions
governing insolvency. Taxes mentioned in No. 1, article 2241, and No. 1, article 2242, shall first
be satisfied. (n)
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Article 2244. With reference to other property, real and personal, of the debtor, the following
claims or credits shall be preferred in the order named:
(1) Proper funeral expenses for the debtor, or children under his or her parental authority
who have no property of their own, when approved by the court;
(2) Credits for services rendered the insolvent by employees, laborers, or household
helpers for one year preceding the commencement of the proceedings in insolvency;
(3) Expenses during the last illness of the debtor or of his or her spouse and children under
his or her parental authority, if they have no property of their own;
(4) Compensation due the laborers or their dependents under laws providing for indemnity
for damages in cases of labor accident, or illness resulting from the nature of the
employment;
(5) Credits and advancements made to the debtor for support of himself or herself, and
family, during the last year preceding the insolvency;
(6) Support during the insolvency proceedings, and for three months thereafter;
(7) Fines and civil indemnification arising from a criminal offense;
(8) Legal expenses, and expenses incurred in the administration of the insolvent's estate
for the common interest of the creditors, when properly authorized and approved by the
court;
(9) Taxes and assessments due the national government, other than those mentioned in
articles 2241, No. 1, and 2242, No. 1;
(10) Taxes and assessments due any province, other than those referred to in articles 2241,
No. 1, and 2242, No. 1;
(11) Taxes and assessments due any city or municipality, other than those indicated in
articles 2241, No. 1, and 2242, No. 1;
(12) Damages for death or personal injuries caused by a quasi-delict;
(13) Gifts due to public and private institutions of charity or beneficence;
(14) Credits which, without special privilege, appear in (a) a public instrument; or (b) in a
final judgment, if they have been the subject of litigation. These credits shall have
preference among themselves in the order of priority of the dates of the instruments and of
the judgments, respectively.
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Article 2245. Credits of any other kind or class, or by any other right or title not comprised in the
four preceding articles, shall enjoy no preference.
CHAPTER 3 Order of Preference of Credits
Article 2246. Those credits which enjoy preference with respect to specific movables, exclude all
others to the extent of the value of the personal property to which the preference refers.
Article 2247. If there are two or more credits with respect to the same specific movable property,
they shall be satisfied pro rata, after the payment of duties, taxes and fees due the State or any
subdivision thereof. (1926a)
Article 2248. Those credits which enjoy preference in relation to specific real property or real
rights, exclude all others to the extent of the value of the immovable or real right to which the
preference refers.
Article 2249. If there are two or more credits with respect to the same specific real property or
real rights, they shall be satisfied pro rata, after the payment of the taxes and assessments upon
the immovable property or real right. (1927a)
Article 2250. The excess, if any, after the payment of the credits which enjoy preference with
respect to specific property, real or personal, shall be added to the free property which the debtor
may have, for the payment of the other credits. (1928a)
Article 2251. Those credits which do not enjoy any preference with respect to specific property,
and those which enjoy preference, as to the amount not paid, shall be satisfied according to the
following rules:
(1) In the order established in article 2244;
(2) Common credits referred to in article 2245 shall be paid pro rata regardless of dates.
CREDIT TRANSACTION – NOTES 29 & 30
REPUBLIC ACT No. 10142
AN ACT PROVIDING FOR THE REHABILITATION OR LIQUIDATION
OF FINANCIALLY DISTRESSED ENTERPRISES AND INDIVIDUALS
CHAPTER I GENERAL PROVISIONS
181
Section 1. Title. - This Act shall be known as the "Financial Rehabilitation and Insolvency
Act (FRIA) of 2010".
Section 2. Declaration of Policy. - It is the policy of the State to encourage debtors,
both juridical and natural persons, and their creditors to collectively and realistically
resolve and adjust competing claims and property rights. In furtherance thereof, the
State shall ensure a timely, fair, transparent, effective and efficient rehabilitation or
liquidation of debtors. The rehabilitation or liquidation shall be made with a view to
ensure or maintain certainly and predictability in commercial affairs, preserve and
maximize the value of the assets of these debtors, recognize creditor rights and
respect priority of claims, and ensure equitable treatment of creditors who are similarly
situated. When rehabilitation is not feasible, it is in the interest of the State to facilities
a speedy and orderly liquidation of these debtor's assets and the settlement of their
obligations.
Section 3. Nature of Proceedings. - The proceedings under this Act shall be in rem.
Jurisdiction over all persons affected by the proceedings shall be considered as
acquired upon publication of the notice of the commencement of the proceedings in
any newspaper of general circulation in the Philippines in the manner prescribed by
the rules of procedure to be promulgated by the Supreme Court.
The proceedings shall be conducted in a summary and non-adversarial manner
consistent with the declared policies of this Act and in accordance with the rules of
procedure that the Supreme Court may promulgate.
Section 4. Definition of Terms. - As used in this Act, the term:
Administrative expenses shall refer to those reasonable and necessary expenses:
incurred or arising from the filing of a petition under the provisions of this Act;
arising from, or in connection with, the conduct of the proceedings under
this Act, including those incurred for the rehabilitation or liquidation of the
debtor;
incurred in the ordinary course of business of the debtor after the
commencement date;
for the payment of new obligations obtained after the commencement
date to finance the rehabilitation of the debtor;
incurred for the fees of the rehabilitation receiver or liquidator and of the
professionals engaged by them; and
that are otherwise authorized or mandated under this Act or such other
expenses as may be allowed by the Supreme Court in its rules.
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(b) Affiliate shall refer to a corporation that directly or indirectly, through one or
more intermediaries, is controlled by, or is under the common control of another
corporation.
(c) Claim shall refer to all claims or demands of whatever nature or character
against the debtor or its property, whether for money or otherwise, liquidated or
unliquidated, fixed or contingent, matured or unmatured, disputed or undisputed,
including, but not limited to; (1) all claims of the government, whether national or
local, including taxes, tariffs and customs duties; and (2) claims against directors
and officers of the debtor arising from acts done in the discharge of their functions
falling within the scope of their authority: Provided, That, this inclusion does not
prohibit the creditors or third parties from filing cases against the directors and
officers acting in their personal capacities.
(d) Commencement date shall refer to the date on which the court issues the
Commencement Order, which shall be retroactive to the date of filing of the
petition for voluntary or involuntary proceedings.
(e)
Commencement Order shall refer to the order issued by the court under
Section 16 of this Act.
(f) Control shall refer to the power of a parent corporation to direct or govern the
financial and operating policies of an enterprise so as to obtain benefits from its
activities. Control is presumed to exist when the parent owns, directly or indirectly
through subsidiaries or affiliates, more than one-half (1/2) of the voting power of
an enterprise unless, in exceptional circumstances, it can clearly be
demonstrated that such ownership does not constitute control. Control also exists
even when the parent owns one-half (1/2) or less of the voting power of an
enterprise when there is power:
(1)over more than one-half (1/2) of the voting rights by virtue of an agreement with
investors;
(2) to direct or govern the financial and operating policies of the enterprise
under a statute or an agreement;
(3)to appoint or remove the majority of the members of the board of directors
or equivalent governing body; or
(4)to cast the majority votes at meetings of the board of directors or equivalent
governing body.
(g)Court shall refer to the court designated by the Supreme Court to hear and
determine, at the first instance, the cases brought under this Act.
(h) Creditor shall refer to a natural or juridical person which has a claim against
the debtor that arose on or before the commencement date.
183
(i) Date of liquidation shall refer to the date on which the court issues the Liquidation
Order.
(j) Days shall refer to calendar days unless otherwise specifically stated in this Act.
(k) Debtor shall refer to, unless specifically excluded by a provision of this Act, a
sole proprietorship duly registered with the Department of Trade and Industry
(DTI), a partnership duly registered with the Securities and Exchange
Commission (SEC), a corporation duly organized and existing under Philippine
laws, or an individual debtor who has become insolvent as defined herein.
(l) Encumbered property shall refer to real or personal property of the debtor upon which
a lien attaches.
(m)General unsecured creditor shall refer to a creditor whose claim or a portion
thereof its neither secured, preferred nor subordinated under this Act.
(n) Group of debtors shall refer to and can cover only: (1) corporations that are
financially related to one another as parent corporations, subsidiaries or affiliates;
(2) partnerships that are owned more than fifty percent (50%) by the same
person; and (3) single proprietorships that are owned by the same person. When
the petition covers a group of debtors, all reference under these rules to debtor
shall include and apply to the group of debtors.
(o) Individual debtor shall refer to a natural person who is a resident and citizen
of the Philippines that has become insolvent as defined herein.
(p)Insolvent shall refer to the financial condition of a debtor that is generally
unable to pay its or his liabilities as they fall due in the ordinary course of business
or has liabilities that are greater than its or his assets.
(q) Insolvent debtor's estate shall refer to the estate of the insolvent debtor, which
includes all the property and assets of the debtor as of commencement date, plus
the property and assets acquired by the rehabilitation receiver or liquidator after
that date, as well as all other property and assets in which the debtor has an
ownership interest, whether or not these property and assets are in the debtor's
possession as of commencement date: Provided, That trust assets and bailment,
and other property and assets of a third party that are in the possession of the
debtor as of commencement date, are excluded therefrom.
(r) Involuntary proceedings shall refer to proceedings initiated by creditors.
(s) Liabilities shall refer to monetary claims against the debtor, including
stockholder's advances that have been recorded in the debtor's audited financial
statements as advances for future subscriptions.
184
(t) Lien shall refer to a statutory or contractual claim or judicial charge on real or
personal property that legality entities a creditor to resort to said property for
payment of the claim or debt secured by such lien.
(u)
Liquidation shall refer to the proceedings under Chapter V of this Act.
(v) Liquidation Order shall refer to the Order issued by the court under Section 112 of
this Act.
(w)
Liquidator shall refer to the natural person or juridical entity appointed
as such by the court and entrusted with such powers and duties as set forth in
this Act: Provided, That, if the liquidator is a juridical entity, it must designated a
natural person who possesses all the qualifications and none of the
disqualifications as its representative, it being understood that the juridical entity
and the representative are solidarity liable for all obligations and responsibilities
of the liquidator.
(x) Officer shall refer to a natural person holding a management position
described in or contemplated by a juridical entity's articles of incorporation,
bylaws or equivalent documents, except for the corporate secretary, the assistant
corporate secretary and the external auditor.
(y) Ordinary course of business shall refer to transactions in the pursuit of the
individual debtor's or debtor's business operations prior to rehabilitation or
insolvency proceedings and on ordinary business terms.
(z) Ownership interest shall refer to the ownership interest of third parties in
property held by the debtor, including those covered by trust receipts or
assignments of receivables.
(aa)
Parent shall refer to a corporation which has control over another
corporation either directly or indirectly through one or more intermediaries.
(bb) Party to the proceedings shall refer to the debtor, a creditor, the unsecured
creditors' committee, a stakeholder, a party with an ownership interest in property
held by the debtor, a secured creditor, the rehabilitation receiver, liquidator or any
other juridical or natural person who stands to be benefited or injured by the
outcome of the proceedings and whose notice of appearance is accepted by the
court.
(cc) Possessory lien shall refer to a lien on property, the possession of which has
been transferred to a creditor or a representative or agent thereof.
(dd)
Proceedings shall refer to judicial proceedings commenced by the
court's acceptance of a petition filed under this Act.
(ee)
Property of others shall refer to property held by the debtor in which
other persons have an ownership interest.
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(ff) Publication notice shall refer to notice through publication in a newspaper of
general circulation in the Philippines on a business day for two (2) consecutive
weeks.
(gg) Rehabilitation shall refer to the restoration of the debtor to a condition of
successful operation and solvency, if it is shown that its continuance of operation
is economically feasible and its creditors can recover by way of the present value
of payments projected in the plan, more if the debtor continues as a going
concern than if it is immediately liquidated.
(hh)
Rehabilitation receiver shall refer to the person or persons, natural or
juridical, appointed as such by the court pursuant to this Act and which shall be
entrusted with such powers and duties as set forth herein.
(ii) Rehabilitation Plan shall refer to a plan by which the financial well-being and
viability of an insolvent debtor can be restored using various means including, but
not limited to, debt forgiveness, debt rescheduling, reorganization or quasireorganization, dacion en pago, debt-equity conversion and sale of the business
(or parts of it) as a going concern, or setting-up of new business entity as
prescribed in Section 62 hereof, or other similar arrangements as may be
approved by the court or creditors.
(jj)Secured claim shall refer to a claim that is secured by a lien.
(kk)
Secured creditor shall refer to a creditor with a secured claim.
(ll)Secured party shall refer to a secured creditor or the agent or representative of such
secured creditor.
(mm)
Securities market participant shall refer to a broker dealer, underwriter,
transfer agent or other juridical persons transacting securities in the capital
market.
(nn)
Stakeholder shall refer, in addition to a holder of shares of a corporation,
to a member of a non-stock corporation or association or a partner in a
partnership.
(oo)
Subsidiary shall refer to a corporation more than fifty percent (50%) of
the voting stock of which is owned or controlled directly or indirectly through one
or more intermediaries by another corporation, which thereby becomes its parent
corporation.
(pp)
Unsecured claim shall refer to a claim that is not secured by a lien.
(qq)
Unsecured creditor shall refer to a creditor with an unsecured claim.
(rr)
Voluntary proceedings shall refer to proceedings initiated by the debtor.
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(ss)Voting creditor shall refer to a creditor that is a member of a class of creditors,
the consent of which is necessary for the approval of a Rehabilitation Plan under
this Act.
Section 5. Exclusions. - The term debtor does not include banks, insurance companies,
pre-need companies, and national and local government agencies or units.
For purposes of this section:
(a) Bank shall refer to any duly licensed bank or quasi-bank that is potentially or
actually subject to conservatorship, receivership or liquidation proceedings under
the New Central Bank Act (Republic Act No. 7653) or successor legislation;
(b) Insurance company shall refer to those companies that are potentially or
actually subject to insolvency proceedings under the Insurance Code
(Presidential Decree No. 1460) or successor legislation; and
(c) Pre-need company shall refer to any corporation authorized/licensed to sell or offer
to sell pre-need plans.
Provided, That government financial institutions other than banks and governmentowned or controlled corporations shall be covered by this Act, unless their specific
charter provides otherwise.
Section 6. Designation of Courts and Promulgation of Procedural Rules. - The
Supreme Court shall designate the court or courts that will hear and resolve cases
brought under this Act and shall promulgate the rules of pleading, practice and
procedure to govern the proceedings brought under this Act.
Section 7. Substantive and Procedural Consolidation. - Each juridical entity shall be
considered as a separate entity under the proceedings in this Act. Under these
proceedings, the assets and liabilities of a debtor may not be commingled or
aggregated with those of another, unless the latter is a related enterprise that is owned
or controlled directly or indirectly by the same interests: Provided, however, That the
commingling or aggregation of assets and liabilities of the debtor with those of a related
enterprise may only be allowed where:
(a) there was commingling in fact of assets and liabilities of the debtor and the
related enterprise prior to the commencement of the proceedings;
(b) the debtor and the related enterprise have common creditors and it will be
more convenient to treat them together rather than separately;
(c) the related enterprise voluntarily accedes to join the debtor as party petitioner
and to commingle its assets and liabilities with the debtor's; and
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(d) The consolidation of assets and liabilities of the debtor and the related
enterprise is beneficial to all concerned and promotes the objectives of
rehabilitation.
Provided, finally, That nothing in this section shall prevent the court from joining other
entities affiliated with the debtor as parties pursuant to the rules of procedure as may
be promulgated by the Supreme Court.
Section 8. Decisions of Creditors. - Decisions of creditors shall be made according to
the relevant provisions of the Corporation Code in the case of stock or non-stock
corporations or the Civil Code in the case of partnerships that are not inconsistent with
this Act.
Section 9. Creditors Representatives. - Creditors may designate representatives to
vote or otherwise act on their behalf by filing notice of such representation with the
court and serving a copy on the rehabilitation receiver or liquidator.
Section 10. Liability of Individual Debtor, Owner of a Sole Proprietorship, Partners in a
Partnership, or Directors and Officers. - Individual debtor, owner of a sole
proprietorship, partners in a partnership, or directors and officers of a debtor shall be
liable for double the value of the property sold, embezzled or disposed of or double the
amount of the transaction involved, whichever is higher to be recovered for benefit of
the debtor and the creditors, if they, having notice of the commencement of the
proceedings, or having reason to believe that proceedings are about to be
commenced, or in contemplation of the proceedings, willfully commit the following acts:
(a) Dispose or cause to be disposed of any property of the debtor other than in
the ordinary course of business or authorize or approve any transaction in fraud
of creditors or in a manner grossly disadvantageous to the debtor and/or
creditors; or
(b) Conceal or authorize or approve the concealment, from the creditors, or
embezzles or misappropriates, any property of the debtor.
The court shall determine the extent of the liability of an owner, partner, director or
officer under this section. In this connection, in case of partnerships and corporations,
the court shall consider the amount of the shareholding or partnership or equity interest
of such partner, director or officer, the degree of control of such partner, director or
officer over the debtor, and the extent of the involvement of such partner, director or
debtor in the actual management of the operations of the debtor.
Section 11. Authorization to Exchange Debt for Equity. - Notwithstanding applicable
banking legislation to the contrary, any bank, whether universal or not, may acquire
and hold an equity interest or investment in a debtor or its subsidiaries when conveyed
to such bank in satisfaction of debts pursuant to a Rehabilitation or Liquidation Plan
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approved by the court: Provided, That such ownership shall be subject to the
ownership limits applicable to universal banks for equity investments and: Provided,
further, That any equity investment or interest acquired or held pursuant to this section
shall be disposed by the bank within a period of five (5) years or as may be prescribed
by the Monetary Board.
CHAPTER II COURT-SUPERVISED REHABILITATION
(A)Initiation Proceedings.
(1) Voluntary Proceedings.
Section 12. Petition to Initiate Voluntary Proceedings by Debtor. - When approved by
the owner in case of a sole proprietorship, or by a majority of the partners in case of a
partnership, or in case of a corporation, by a majority vote of the board of directors or
trustees and authorized by the vote of the stockholders representing at least two-thirds
(2/3) of the outstanding capital stock, or in case of non-stock corporation, by the vote
of at least two-thirds (2/3) of the members, in a stockholder's or member's meeting
duly called for the purpose, an insolvent debtor may initiate voluntary proceedings
under this Act by filing a petition for rehabilitation with the court and on the grounds
hereinafter specifically provided. The petition shall be verified to establish the
insolvency of the debtor and the viability of its rehabilitation, and include, whether as
an attachment or as part of the body of the petition, as a minimum the following:
(a)
Identification of the debtor, its principal activities and its addresses;
(b) Statement of the fact of and the cause of the debtor's insolvency or inability to
pay its obligations as they become due;
(c) The specific relief sought pursuant to this Act;
(d)
The grounds upon which the petition is based;
(e)
Other information that may be required under this Act depending on the form
of relief requested;
(f) Schedule of the debtor's debts and liabilities including a list of creditors with
their addresses, amounts of claims and collaterals, or securities, if any;
(g)
An inventory of all its assets including receivables and claims against third
parties;
(h)
A Rehabilitation Plan;
(i) The names of at least three (3) nominees to the position of rehabilitation receiver;
and
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(j) Other documents required to be filed with the petition pursuant to this Act and
the rules of procedure as may be promulgated by the Supreme Court.
A group of debtors may jointly file a petition for rehabilitation under this Act when one
or more of its members foresee the impossibility of meeting debts when they
respectively fall due, and the financial distress would likely adversely affect the
financial condition and/or operations of the other members of the group and/or the
participation of the other members of the group is essential under the terms and
conditions of the proposed Rehabilitation Plan.
(2) Involuntary Proceedings.
Section 13. Circumstances Necessary to Initiate Involuntary Proceedings. - Any
creditor or group of creditors with a claim of, or the aggregate of whose claims is, at
least One Million Pesos (Php1,000,000.00) or at least twenty-five percent (25%) of the
subscribed capital stock or partners' contributions, whichever is higher, may initiate
involuntary proceedings against the debtor by filing a petition for rehabilitation with the
court if:
(a) there is no genuine issue of fact on law on the claim/s of the petitioner/s, and
that the due and demandable payments thereon have not been made for at least
sixty (60) days or that the debtor has failed generally to meet its liabilities as they
fall due; or
(b) a creditor, other than the petitioner/s, has initiated foreclosure proceedings
against the debtor that will prevent the debtor from paying its debts as they
become due or will render it insolvent.
Section 14. Petition to Initiate Involuntary Proceedings. - The creditor/s' petition for
rehabilitation shall be verified to establish the substantial likelihood that the debtor may
be rehabilitated, and include:
(a)
identification of the debtor its principal activities and its address;
(b) the circumstances sufficient to support a petition to initiate involuntary
rehabilitation proceedings under Section 13 of this Act;
(c) the specific relief sought under this Act;
(d)
a Rehabilitation Plan;
(e)
the names of at least three (3) nominees to the position of rehabilitation
receiver;
(f)other information that may be required under this Act depending on the form of relief
requested; and
(g) other documents required to be filed with the petition pursuant to this Act and
the rules of procedure as may be promulgated by the Supreme Court.
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(B)Action on the Petition and Commencement of Proceedings.
Section 15. Action on the Petition. - If the court finds the petition for rehabilitation to be
sufficient in form and substance, it shall, within five (5) working days from the filing of
the petition, issue a Commencement Order. If, within the same period, the court finds
the petition deficient in form or substance, the court may, in its discretion, give the
petitioner/s a reasonable period of time within which to amend or supplement the
petition, or to submit such documents as may be necessary or proper to put the petition
in proper order. In such case, the five (5) working days provided above for the issuance
of the Commencement Order shall be reckoned from the date of the filing of the
amended or supplemental petition or the submission of such documents.
Section 16. Commencement of Proceedings and Issuance of a Commencement
Order. - The rehabilitation proceedings shall commence upon the issuance of the
Commencement Order, which shall:
(a)
identify the debtor, its principal business or activity/ies and its principal place
of business;
(b)
summarize the ground/s for initiating the proceedings;
(c) state the relief sought under this Act and any requirement or procedure particular to
the relief sought;
(d)
state the legal effects of the Commencement Order, including those
mentioned in Section 17 hereof;
(e)
declare that the debtor is under rehabilitation;
(f) direct the publication of the Commencement Order in a newspaper of general
circulation in the Philippines once a week for at least two (2) consecutive weeks,
with the first publication to be made within seven (7) days from the time of its
issuance;
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(g) If the petitioner is the debtor direct the service by personal delivery of a copy of the
petition on each creditor holding at least ten percent (10%) of the total liabilities of the
debtor as determined from the schedule attached to the petition within five (5) days; if the
petitioner/s is/are creditor/s, direct the service by personal delivery of a copy of the petition
on the debtor within five (5) days;
(h) appoint a rehabilitation receiver who may or not be from among the nominees of the
petitioner/s and who shall exercise such powers and duties defined in this Act as well as
the procedural rules that the Supreme Court will promulgate;
(i) summarize the requirements and deadlines for creditors to establish their claims against
the debtor and direct all creditors to their claims with the court at least five (5) days before
the initial hearing;
(j) direct Bureau of internal Revenue (BIR) to file and serve on the debtor its comment on
or opposition to the petition or its claim/s against the debtor under such procedures as the
Supreme Court provide;
(k) prohibit the debtor's suppliers of goods or services from withholding the supply of goods
and services in the ordinary course of business for as long as the debtor makes payments
for the services or goods supplied after the issuance of the Commencement Order;
(l) authorize the payment of administrative expenses as they become due;
(m)set the case for initial hearing, which shall not be more than forty (40) days from the
date of filing of the petition for the purpose of determining whether there is substantial
likelihood for the debtor to be rehabilitated;
(n) make available copies of the petition and rehabilitation plan for examination and
copying by any interested party;
(o) indicate the location or locations at which documents regarding the debtor and the
proceedings under Act may be reviewed and copied;
(p) state that any creditor or debtor who is not the petitioner, may submit the name or
nominate any other qualified person to the position of rehabilitation receiver at least five
(5) days before the initial hearing;
(q)
includes Stay or Suspension Order which shall:
(1) suspend all actions or proceedings, in court or otherwise, for the enforcement of
claims against the debtor;
(2)suspend all actions to enforce any judgment, attachment or other provisional
remedies against the debtor;
(3) prohibit the debtor from selling, encumbering, transferring or disposing in any
manner any of its properties except in the ordinary course of business; and
(4)prohibit the debtor from making any payment of its liabilities outstanding as of the
commencement date except as may be provided herein.
Section 17. Effects of the Commencement Order. - Unless otherwise provided for in this Act,
the court's issuance of a Commencement Order shall, in addition to the effects of a Stay or
Suspension Order described in Section 16 hereof:
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(a) vest the rehabilitation with all the powers and functions provided for this Act, such as
the right to review and obtain records to which the debtor's management and directors
have access, including bank accounts or whatever nature of the debtor subject to the
approval by the court of the performance bond filed by the rehabilitation receiver;
(b) prohibit or otherwise serve as the legal basis rendering null and void the results of any
extrajudicial activity or process to seize property, sell encumbered property, or otherwise
attempt to collection or enforce a claim against the debtor after commencement date
unless otherwise allowed in this Act, subject to the provisions of Section 50 hereof;
(c) serve as the legal basis for rendering null and void any setoff after the commencement
date of any debt owed to the debtor by any of the debtor's creditors;
(d) serve as the legal basis for rendering null and void the perfection of any lien against
the debtor's property after the commencement date; and
(e) consolidate the resolution of all legal proceedings by and against the debtor to the court
Provided. However, That the court may allow the continuation of cases on other courts
where the debtor had initiated the suit.
Attempts to seek legal of other resource against the debtor outside these proceedings shall be
sufficient to support a finding of indirect contempt of court.
Section 18. Exceptions to the Stay or Suspension Order. - The Stay or Suspension Order shall not
apply:
(a)to cases already pending appeal in the Supreme Court as of commencement date
Provided, That any final and executory judgment arising from such appeal shall be referred
to the court for appropriate action;
(b) subject to the discretion of the court, to cases pending or filed at a specialized court or
quasi-judicial agency which, upon determination by the court is capable of resolving the
claim more quickly, fairly and efficiently than the court: Provided, That any final and
executory judgment of such court or agency shall be referred to the court and shall be
treated as a non-disputed claim;
(c) to the enforcement of claims against sureties and other persons solidarily liable with
the debtor, and third party or accommodation mortgagors as well as issuers of letters of
credit, unless the property subject of the third party or accommodation mortgage is
necessary for the rehabilitation of the debtor as determined by the court upon
recommendation by the rehabilitation receiver;
(d) to any form of action of customers or clients of a securities market participant to
recover or otherwise claim moneys and securities entrusted to the latter in the ordinary
course of the latter's business as well as any action of such securities market participant
or the appropriate regulatory agency or self-regulatory organization to pay or settle such
claims or liabilities;
(e) to the actions of a licensed broker or dealer to sell pledged securities of a debtor
pursuant to a securities pledge or margin agreement for the settlement of securities
transactions in accordance with the provisions of the Securities Regulation Code and its
implementing rules and regulations;
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(f) the clearing and settlement of financial transactions through the facilities of a clearing
agency or similar entities duly authorized, registered and/or recognized by the appropriate
regulatory agency like the Bangko Sentral ng Pilipinas (BSP) and the SEC as well as any
form of actions of such agencies or entities to reimburse themselves for any transactions
settled for the debtor; and
(g) any criminal action against individual debtor or owner, partner, director or officer of a
debtor shall not be affected by any proceeding commend under this Act.
Section 19. Waiver of taxes and Fees Due to the National Government and to Local
Government Units (LGUs). - Upon issuance of the Commencement Order by the court, and
until the approval of the Rehabilitation Plan or dismissal of the petition, whichever is earlier, the
imposition of all taxes and fees including penalties, interests and charges thereof due to the
national government or to LGUs shall be considered waived, in furtherance of the objectives of
rehabilitation.
Section 20. Application of Stay or Suspension Order to Government Financial Institutions. - The
provisions of this Act concerning the effects of the Commencement Order and the Stay or
Suspension Order on the suspension of rights to foreclose or otherwise pursue legal remedies
shall apply to government financial institutions, notwithstanding provisions in their charters or
other laws to the contrary.
Section 21. Effectivity and Duration of Commencement Order. - Unless lifted by the court, the
Commencement Order shall be for the effective for the duration of the rehabilitation proceedings
for as long as there is a substantial likelihood that the debtor will be successfully rehabilitated.
In determining whether there is substantial likelihood for the debtor to be successfully
rehabilitated, the court shall ensure that the following minimum requirements are met:
(a)
The proposed Rehabilitation Plan submitted complies with the minimum contents
prescribed by this Act;
(b) There is sufficient monitoring by the rehabilitation receiver of the debtor's business for
the protection of creditors;
(c) The debtor has met with its creditors to the extent reasonably possible in attempts to
reach consensus on the proposed Rehabilitation Plan;
(d) The rehabilitation receiver submits a report, based on preliminary evaluation, stating
that the underlying assumptions and the goals stated in the petitioner's Rehabilitation Plan
are realistic reasonable and reasonable or if not, there is, in any case, a substantial
likelihood for the debtor to be successfully rehabilitated because, among others:
(1)there are sufficient assets with/which to rehabilitate the debtor;
(2)there is sufficient cash flow to maintain the operations of the debtor;
(3) the debtor's, partners, stockholders, directors and officers have been acting in
good faith and which due diligence;
(4)the petition is not s sham filing intended only to delay the enforcement of the rights
of the creditor's or of any group of creditors; and
(5)the debtor would likely be able to pursue a viable Rehabilitation Plan;
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(e) The petition, the Rehabilitation Plan and the attachments thereto do not contain any
materially false or misleading statement;
(f) If the petitioner is the debtor, that the debtor has met with its creditor/s representing at
least three-fourths (3/4) of its total obligations to the extent reasonably possible and made
a good faith effort to reach a consensus on the proposed Rehabilitation Plan if the
petitioner/s is/are a creditor or group of creditors, that/ the petitioner/s has/have met with
the debtor and made a good faith effort to reach a consensus on the proposed
Rehabilitation Plan; and
(g)
The debtor has not committed acts misrepresentation or in fraud of its creditor/s or a
group of creditors.
Section 22. Action at the Initial Hearing. - At the initial hearing, the court shall:
(a)
determine the creditors who have made timely and proper filing of their notice of
claims;
(b)hear and determine any objection to the qualifications of the appointment of the
rehabilitation receiver and, if necessary appoint a new one in accordance with this Act;
(c) direct the creditors to comment on the petition and the Rehabilitation Plan, and to
submit the same to the court and to the rehabilitation receiver within a period of not more
than twenty (20) days; and
(d) direct the rehabilitation receiver to evaluate the financial condition of the debtor and to
prepare and submit to the court within forty (40) days from initial hearing the report
provided in Section 24 hereof.
Section 23. Effect of Failure to File Notice of Claim. - A creditor whose claim is not listed in the
schedule of debts and liabilities and who fails to file a notice of claim in accordance with the
Commencement Order but subsequently files a belated claim shall not be entitled to participate
in the rehabilitation proceedings but shall be entitled to receive distributions arising therefrom.
Section 24. Report of the Rehabilitation Receiver. - Within forty (40) days from the initial hearing
and with or without the comments of the creditors or any of them, the rehabilitation receiver
shall submit a report to the court stating his preliminary findings and recommendations on
whether:
(a) the debtor is insolvent and if so, the causes thereof and any unlawful or irregular act or
acts committed by the owner/s of a sole proprietorship partners of a partnership or
directors or officers of a corporation in contemplation of the insolvency of the debtor or
which may have contributed to the insolvency of the debtor;
(b) the underlying assumptions, the financial goals and the procedures to accomplish such
goals as stated in the petitioner's Rehabilitation Plan are realistic, feasible and reasonable;
(c) there is a substantial likelihood for the debtor to be successfully rehabilitated;
(d)
the petition should be dismissed; and
(e)
the debtor should be dissolved and/or liquidated.
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Section 25. Giving Due Course to or Dismissal of Petition, or Conversion of Proceedings. Within ten (10) days from receipt of the report of the rehabilitation receiver mentioned in Section
24 hereof the court may:
(a)
give due course to the petition upon a finding that:
(1)the debtor is insolvent; and
(2)there is a substantial likelihood for the debtor to be successfully rehabilitated;
(b)
dismiss the petition upon a finding that:
(1) debtor is not insolvent;
(2) the petition i8 a sham filing intended only to delay the enforcement of the rights
of the creditor/s or of any group of creditors;
(3) the petition, the Rehabilitation Plan and the attachments thereto contain any
materially false or misleading statements; or
(4) the debtor has committed acts of misrepresentation or in fraud of its creditor/s or
a group of creditors;
(c) convert the proceedings into one for the liquidation of the debtor upon a finding that:
(1) the debtor is insolvent; and
(2) there is no substantial likelihood for the debtor to be successfully rehabilitated as
determined in accordance with the rules to be promulgated by the Supreme Court.
Section 26. Petition Given Due Course. - If the petition is given due course, the court shall direct
the rehabilitation receiver to review, revise and/or recommend action on the Rehabilitation Plan
and submit the same or a new one to the court within a period of not more than ninety (90)
days.
The court may refer any dispute relating to the Rehabilitation Plan or the rehabilitation
proceedings pending before it to arbitration or other modes of dispute resolution, as provided
for under Republic Act No. 9285, Or the Alternative Dispute Resolution Act of 2004, should it
determine that such mode will resolve the dispute more quickly, fairly and efficiently than the
court.
Section 27. Dismissal of Petition. - If the petition is dismissed pursuant to paragraph (b) of
Section 25 hereof, then the court may, in its discretion, order the petitioner to pay damages to
any creditor or to the debtor, as the case may be, who may have been injured by the filing of
the petition, to the extent of any such injury.
(C) The Rehabilitation Receiver, Management Committee and Creditors' Committee.
Section 28. Who May Serve as a Rehabilitation Receiver. - Any qualified natural or juridical
person may serve as a rehabilitation receiver: Provided, That if the rehabilitation receiver is a
juridical entity, it must designate a natural person/s who possess/es all the qualifications and
none of the disqualification’s as its representative, it being understood that the juridical entity
and the representative/s are solidarily liable for all obligations and responsibilities of the
rehabilitation receiver.
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Section 29. Qualifications of a Rehabilitation Receiver. - The rehabilitation receiver shall have
the following minimum qualifications:
(a)A citizen of the Philippines or a resident of the Philippines in the six (6) months
immediately preceding his nomination;
(b)Of good moral character and with acknowledged integrity, impartiality and independence;
(c)Has the requisite knowledge of insolvency and other relevant commercial laws, rules
and procedures, as well as the relevant training and/or experience that may be necessary
to enable him to properly discharge the duties and obligations of a rehabilitation receiver;
and
(d)Has no conflict of interest: Provided, That such conflict of interest may be waived,
expressly or impliedly, by a party who may be prejudiced thereby.
Other qualifications and disqualification’s of the rehabilitation receiver shall be set forth in
procedural rules, taking into consideration the nature of the business of the debtor and the need
to protect the interest of all stakeholders concerned.
Section 30. Initial Appointment of the Rehabilitation Receiver. - The court shall initially appoint
the rehabilitation receiver, who mayor may not be from among the nominees of the petitioner,
However, at the initial hearing of the petition, the creditors and the debtor who are not petitioners
may nominate other persons to the position. The court may retain the rehabilitation receiver
initially appointed or appoint another who mayor may not be from among those nominated.
In case the debtor is a securities market participant, the court shall give priority to the nominee
of the appropriate securities or investor protection fund.
If a qualified natural person or entity is nominated by more than fifty percent (50%) of the
secured creditors and the general unsecured creditors, and satisfactory evidence is submitted,
the court shall appoint the creditors' nominee as rehabilitation receiver.
Section 31. Powers, Duties and Responsibilities of the Rehabilitation Receiver. - The
rehabilitation receiver shall be deemed an officer of the court with the principal duty of
preserving and maximizing the value of the assets of the debtor during the rehabilitation
proceedings, determining the viability of the rehabilitation of the debtor, preparing and
recommending a Rehabilitation Plan to the court, and implementing the approved Rehabilitation
Plan, To this end, and without limiting the generality of the foregoing, the rehabilitation receiver
shall have the following powers, duties and responsibilities:
(a)To verify the accuracy of the factual allegations in the petition and its annexes;
(b)To verify and correct, if necessary, the inventory of all of the assets of the debtor, and their
valuation;
(c)To verify and correct, if necessary, the schedule of debts and liabilities of the debtor;
(d)To evaluate the validity, genuineness and true amount of all the claims against the debtor;
(e)To take possession, custody and control, and to preserve the value of all the property of the
debtor;
(f)To sue and recover, with the approval of the court, all amounts owed to, and all
properties pertaining to the debtor;
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(g)To have access to all information necessary, proper or relevant to the operations and
business of the debtor and for its rehabilitation;
(h) To sue and recover, with the. approval of the court, all property or money of the debtor
paid, transferred or disbursed in fraud of the debtor or its creditors, or which constitute
undue preference of creditor/s;
(i) To monitor the operations and the business of the debtor to ensure that no payments
or transfers of property are made other than in the ordinary course of business;
(j) With the court's approval, to engage the services of or to employ persons or entities to
assist him in the discharge of his functions;
(k) To determine the manner by which the debtor may be best rehabilitated, to review)
revise and/or recommend action on the Rehabilitation Plan and submit the same or a new
one to the court for approval;
(1) To implement the Rehabilitation Plan as approved by the court, if 80 provided under
the Rehabilitation Plan;
(m) To assume and exercise the powers of management of the debtor, if directed by the
court pursuant to Section 36 hereof;
(n)
To exercise such other powers as may, from time to time, be conferred upon him by
the court; and
To submit a status report on the rehabilitation proceedings every quarter or as may be
required by the court motu proprio. or upon motion of any creditor. or as may be provided,
in the Rehabilitation Plan.
Unless appointed by the court, pursuant to Section 36 hereof, the rehabilitation receiver
shall not take over the management and control of the debtor but may recommend the
appointment of a management committee over the debtor in the cases provided by this
Act.
Section 32. Removal of the Rehabilitation Receiver. – The rehabilitation receiver may be
removed at any time by the court either motu proprio or upon motion by any creditor/s holding
more than fifty percent (50%) of the total obligations of the debtor, on such grounds as the rules
of procedure may provide which shall include, but are not limited to, the following:
(a) Incompetence, gross negligence, failure to perform or failure to exercise the proper
degree of care in the performance of his duties and powers;
(b)
Lack of a particular or specialized competency required by the specific case;
(c) Illegal acts or conduct in the performance of his duties and powers;
(d)
Lack of qualification or presence of any disqualification;
(e)
Conflict of interest that arises after his appointment; and
(f) Manifest lack of independence that is detrimental to the general body of the stakeholders.
Section 33. Compensation and Terms of Service. The rehabilitation receiver and his direct
employees or independent contractors shall be entitled to compensation for reasonable fees
and expenses from the debtor according to the terms approved by the court after notice and
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hearing. Prior to such hearing, the rehabilitation receiver and his direct employees shall be
entitled to reasonable compensation based on quantum merit. Such costs shall be considered
administrative expenses.
Section 34. Oath and Bond of the Rehabilitation Receiver. Prior to entering upon his powers,
duties and responsibilities, the rehabilitation receiver shall take an oath and file a bond, in such
amount to be fixed by the court, conditioned upon the faithful and proper discharge of his
powers, duties and responsibilities.
Section 35. Vacancy. - Incase the position of rehabilitation receiver is vacated for any reason
whatsoever. the court shall direct the debtor and the creditors to submit the name/s of their
nominee/s to the position. The court may appoint any of the qualified nominees. or any other
person qualified for the position.
Section 36. Displacement of Existing Management by the Rehabilitation Receiver or
Management Committee. – Upon motion of any interested party, the court may appoint and
direct the rehabilitation receiver to assume the powers of management of the debtor, or appoint
a management committee that will undertake the management of the debtor. upon clear and
convincing evidence of any of the following circumstances:
(a) Actual or imminent danger of dissipation, loss, wastage or destruction of the debtor’s
assets or other properties;
(b)
Paralyzation of the business operations of the debtor; or
(c) Gross mismanagement of the debtor. or fraud or other wrongful conduct on the part of,
or gross or willful violation of this Act by. existing management of the debtor Or the owner,
partner, director, officer or representative/s in management of the debtor.
In case the court appoints the rehabilitation receiver to assume the powers of management of
the debtor. the court may:
(1)
require the rehabilitation receiver to post an additional bond;
(2) authorize him to engage the services or to employ persona or entities to assist him in
the discharge of his managerial functions; and
(3)
authorize a commensurate increase in his compensation.
Section 37. Role of the Management Committee. – When appointed pursuant to the foregoing
section, the management committee shall take the place of the management and the governing
body of the debtor and assume their rights and responsibilities.
The specific powers and duties of the management committee, whose members shall be
considered as officers of the court, shall be prescribed by the procedural rules.
Section 38. Qualifications of Members of the Management Committee. - The qualifications and
disqualification’s of the members of the management committee shall be set forth in the
procedural rules, taking into consideration the nature of the business of the debtor and the need
to protect the interest of all stakeholders concerned.
Section 39. Employment of Professionals. - Upon approval of the court, and after notice and
hearing, the rehabilitation receiver or the management committee may employ specialized
professionals and other experts to assist each in the performance of their duties. Such
professionals and other experts shall be considered either employees or independent
contractors of the rehabilitation receiver or the management committee, as the case may be.
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The qualifications and disqualification’s of the professionals and experts may be set forth in
procedural rules, taking into consideration the nature of the business of the debtor and the need
to protect the interest of all stakeholders concerned.
Section 40. Conflict of Interest. - No person may be appointed as a rehabilitation receiver,
member of a_ management committee, or be employed by the rehabilitation receiver or the
management committee if he has a conflict of interest.
An individual shall be deemed to have a conflict of interest if he is so situated as to be materially
influenced in the exercise of his judgment for or against any party to the proceedings. Without
limiting the generality of the foregoing, an individual shall be deemed to have a conflict of
interest if:
(a) he is a creditor, owner, partner or stockholder of the debtor;
(b)
he is engaged in a line of business which competes with that of the debtor;
(c) he is, or was, within five (5) years from the filing of the petition, a director, officer, owner,
partner or employee of the debtor or any of the creditors, or the auditor or accountant of
the debtor;
(d)he is, or was, within two (2) years from the filing of the petition, an underwriter of the
outstanding securities of the debtor;
(e) he is related by consanguinity or affinity within the fourth civil degree to any individual
creditor, owners of a sale proprietorship-debtor, partners of a partnership- debtor or to any
stockholder, director, officer, employee or underwriter of a corporation-debtor; or
(f)he has any other direct or indirect material interest in the debtor or any of the creditors.
Any rehabilitation receiver, member of the management committee or persons employed or
contracted by them possessing any conflict of interest shall make the appropriate disclosure
either to the court or to the creditors in case of out-of-court rehabilitation proceedings. Any party
to the proceeding adversely affected by the appointment of any person with a conflict of interest
to any of the positions enumerated above may however waive his right to object to such
appointment and, if the waiver is unreasonably withheld, the court may disregard the conflict of
interest, taking into account the general interest of the stakeholders.
Section 41. Immunity. - The rehabilitation receiver and all persons employed by him, and the
members of the management committee and all persons employed by it, shall not be subject to
any action. claim or demand in connection with any act done or omitted to be done by them in
good faith in connection with the exercise of their powers and functions under this Act or other
actions duly approved by the court.
Section 42. Creditors' Committee. - After the creditors' meeting called pursuant to Section 63
hereof, the creditors belonging to a class may formally organize a committee among
themselves. In addition, the creditors may, as a body, agree to form a creditors' committee
composed of a representative from each class of creditors, such as the following:
(a)
(b)
Secured creditors;
Unsecured creditors;
(c) Trade creditors and suppliers; and
(d)
Employees of the debtor.
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In the election of the creditors' representatives, the rehabilitation receiver or his representative
shall attend such meeting and extend the appropriate assistance as may be defined in the
procedural rules.
Section 43.Role of Creditors' Committee. - The creditors' committee when constituted pursuant
to Section 42 of this Act shall assist the rehabilitation receiver in communicating with the
creditors and shall be the primary liaison between the rehabilitation receiver and the creditors.
The creditors' committee cannot exercise or waive any right or give any consent on behalf of
any creditor unless specifically authorized in writing by such creditor. The creditors' committee
may be authorized by the court or by the rehabilitation receiver to perform such other tasks and
functions as may be defined by the procedural rules in order to facilitate the rehabilitation
process.
(D) Determination of Claims.
Section 44. Registry of Claims. - Within twenty (20) days from his assumption into office, the
rehabilitation receiver shall establish a preliminary registry of claims. The rehabilitation receiver
shall make the registry available for public inspection and provide
publication notice to the debtor, creditors and stakeholders on where and when they may
inspect it. All claims included in the registry of claims must be duly supported by sufficient
evidence.
Section 45. Opposition or Challenge of Claims. – Within thirty (30) days from the expiration of
the period stated in the immediately preceding section, the debtor, creditors, stakeholders and
other interested parties may submit a challenge to claim/s to the court, serving a certified copy
on the rehabilitation receiver and the creditor holding the challenged claim/so Upon the
expiration of the thirty (30)-day period, the rehabilitation receiver shall submit to the court the
registry of claims which shall include undisputed claims that have not been subject to challenge.
Section 46. Appeal. - Any decision of the rehabilitation receiver regarding a claim may be appealed
to the court.
(E) Governance.
Section 47. Management. - Unless otherwise provided herein, the management of the juridical
debtor shall remain with the existing management subject to the applicable law/s and
agreement/s, if any, on the election or appointment of directors, managers Or managing
partner. However, all disbursements, payments or sale, disposal, assignment, transfer or
encumbrance of property , or any other act affecting title or interest in property, shall be subject
to the approval of the rehabilitation receiver and/or the court, as provided in the following
subchapter.
(F) Use, Preservation and Disposal of Assets and Treatment of Assets and Claims after
Commencement Date.
Section 48. Use or Disposition of Assets. - Except as otherwise provided herein, no funds or
property of the debtor shall he used or disposed of except in the ordinary course of business of
the debtor, or unless necessary to finance the administrative expenses of the rehabilitation
proceedings.
Section 49. Sale of Assets. - The court, upon application of the rehabilitation receiver, may
authorize the sale of unencumbered property of the debtor outside the ordinary course of
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business upon a showing that the property, by its nature or because of other circumstance, is
perishable, costly to maintain, susceptible to devaluation or otherwise in jeopardy.
Section 50. Sale or Disposal of Encumbered Property of the Debtor and Assets of Third Parties
Held by Debtor. The court may authorize the sale, transfer, conveyance or disposal of
encumbered property of the debtor, or property of others held by the debtor where there is a
security interest pertaining to third parties under a financial, credit or other similar transactions
if, upon application of the rehabilitation receiver and with the consent of the affected owners of
the property, or secured creditor/s in the case of encumbered property of the debtor and, after
notice and hearing, the court determines that:
(a) such sale, transfer, conveyance or disposal is necessary for the continued operation
of the debtor's business; and
(b) the debtor has made arrangements to provide a substitute lien or ownership right that
provides an equal level of security for the counter-party's claim or right.
Provided, That properties held by the debtor where the debtor has authority to sell such as trust
receipt or consignment arrangements may be sold or disposed of by the .debtor, if such sale or
disposal is necessary for the operation of the debtor's business, and the debtor has made
arrangements to provide a substitute lien or ownership right that provides an equal level of
security for the counter-party's claim or right.
Sale or disposal of property under this section shall not give rise to any criminal liability under
applicable laws.
Section 51. Assets of Debtor Held by Third Parties. – In the case of possessory pledges,
mechanic's liens or similar claims, third parties who have in their possession or control property
of the debtor shall not transfer, conveyor otherwise dispose of the same to persons other than
the debtor, unless upon prior approval of the rehabilitation receiver. The rehabilitation receiver
may also:
(a) demand the surrender or the transfer of the possession or control of such property to
the rehabilitation receiver or any other person, subject to payment of the claims secured
by any possessory Iien/s thereon;
(b) allow said third parties to retain possession or control, if such an arrangement would
more likely preserve or increase the value of the property in question or the total value of
the assets of the debtor; or
(c) undertake any otI1er disposition of the said property as may be beneficial for the
rehabilitation of the debtor, after notice and hearing, and approval of the court.
Section 52. Rescission or Nullity of Sale, Payment, Transfer or Conveyance of Assets. - The
court may rescind or declare as null and void any sale, payment, transfer or conveyance of the
debtor's unencumbered property or any encumbering thereof by the debtor or its agents or
representatives after the commencement date which are not in the ordinary course of the
business of the debtor: Provided, however, That the unencumbered property may be sold,
encumbered or otherwise disposed of upon order of the court after notice and hearing:
(a) if such are in the interest of administering the debtor and facilitating the preparation and
implementation of a Rehabilitation Plan;
(b)
in order to provide a substitute lien, mortgage or pledge of property under this Act;
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(c) for payments made to meet administrative expenses as they arise;
(d) for payments to victims of quasi-delicts upon a showing that the claim is valid and the
debtor has insurance to reimburse the debtor for the payments made;
(e) for payments made to repurchase property of the debtor that is auctioned off in a judicial
or extrajudicial sale under. This Act; or
(f)for payments made to reclaim property of the debtor held pursuant to a possessory lien.
Section 53 .Assets Subject to Rapid Obsolescence, Depreciation and Diminution of Value. Upon the application of a secured creditor holding a lien against or holder of an ownership
interest in property held by the debtor that is subject to potentially rapid obsolescence,
depreciation or diminution in value, the court shall, after notice and hearing, order the debtor or
rehabilitation receiver to take reasonable steps necessary to prevent the depreciation. If
depreciation cannot be avoided and such depreciation is jeopardizing the security or property
interest of the secured creditor or owner, the court shall:
(a) allow the encumbered property to be foreclosed upon by the secured creditor according
to the relevant agreement between the debtor and the secured creditor, applicable rules
of procedure and relevant legislation: Provided. That the proceeds of the sale will be
distributed in accordance with the order prescribed under the rules of concurrence and
preference of credits; or
(b) upon motion of, or with the consent of the affected secured creditor or interest owner.
order the conveyance of a lien against or ownership interest in substitute property of the
debtor to the secured creditor: Provided. That other creditors holding liens on such
property, if any, do not object thereto, or, if such property is not available;
(c) order the conveyance to the secured creditor or holder . of an ownership interest of a
lien on the residual funds from the sale of encumbered property during the proceedings;
or
(d) allow the sale or disposition of the property: Provided. That the sale or disposition will
maximize the value of the property for the benefit of the secured creditor and the debtor,
and the proceeds of the sale will be distributed in accordance with the order prescribed
under the rules of concurrence and preference of credits.
Section 54.Post-commencement Interest. - The rate and term of interest, if any, on secured and
unsecured claims shall be determined and provided for in the approved Rehabilitation Plan.
Section 55.Post-commencement Loans and Obligations. - With the approval of the court upon
the recommendation of the rehabilitation receiver, the debtor, in order to enhance its
rehabilitation may:
(a)
enter into credit arrangements; or
(b) enter into credit arrangements, secured by mortgages of its unencumbered property
or secondary mortgages of encumbered property with the approval of senior secured
parties with regard to the encumbered property; or
(c) incur other obligations as may be essential for its rehabilitation.
The payment of the foregoing obligations shall be considered administrative expenses under this Act.
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Section 56.Treatment of Employees, Claims. Compensation of employees required to carry on
the business shall be considered an administrative expense. Claims of separation pay for
months worked prior to the commencement date shall be considered a pre- ommencement
claim. Claims for salary and separation pay for work performed after the commencement date
shall be an administrative expense.
Section 57.Treatment of Contracts. - Unless cancelled by virtue of a final judgment of a court
of competent jurisdiction issued prior to the issuance of the Commencement Order, or at
anytime thereafter by the court before which the rehabilitation proceedings are pending, all valid
and subbsisting contracts of the debtor with creditors and other third parties as at the
commencement date shall continue in force: Provided, That within ninety (90) days following
the commencement of proceedings, the debtor, with the consent of the rehabilitation receiver,
shall notify each contractual counter-party of whether it is confirming the particular contract.
Contractual obligations of the debtor arising or performed during this period, and afterwards for
confirmed contracts, shall be considered administrative expenses. Contracts not confirmed
within the required deadline shall be considered terminated. Claims for actual damages, if any,
arising as a result of the election to terminate a contract shall be considered a precommencement claim against the debtor. Nothing contained herein shall prevent the
cancellation or termination of any contract of the debtor for any ground provided by law.
(G) Avoidance Proceedings.
Section 58.Rescission or Nullity of Certain Pre-commencement Transactions. Any transaction
occurring prior to commencement date entered into by the debtor or involving its funds or assets
may be rescinded or declared null and void on the ground that the same was executed with
intent to defraud a creditor or creditors or which constitute undue preference of creditors.
Without limiting the generality of the foregoing, a disputable presumption of such design shall
arise if the transaction:
(a) provides unreasonably inadequate consideration to the debtor and is executed within
ninety (90) days prior to the commencement date;
(b) involves an accelerated payment of a claim to a creditor within ninety (90) days prior
to the commencement date;
(c) provides security or additional security executed within ninety (90) days prior to the
commencement date;
(d) involves creditors, where a creditor obtained, or received the benefit of, more than its
pro rata share in the assets of the debtor, executed at a time when the debtor was
insolvent; or
(e) is intended to defeat, delay or hinder the ability of the creditors to collect claims where
the effect of the transaction is to put assets of the debtor beyond the reach of creditors or
to otherwise prejudice the interests of creditors.
Provided, however, That nothing in this section shall prevent the court from rescinding or
declaring as null and void a transaction on other grounds provided by relevant legislation and
jurisprudence: Provided, further, That the provisions of the Civil Code on rescission shall in any
case apply to these transactions.
Section 59.Actions for Rescission or Nullity. - (a) The rehabilitation receiver or, with his
conformity, any creditor may initiate and prosecute any action to rescind, or declare null and
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void any transaction described in Section 58 hereof. If the rehabilitation receiver does not
consent to the filing or prosecution of such action,
(b) If leave of court is granted under subsection (a), the rehabilitation receiver shall assign and
transfer to the creditor all rights, title and interest in the chose in action or subject matter of the
proceeding, including any document in support thereof.
(c) Any benefit derived from a proceeding taken pursuant to subsection (a), to the extent of his
claim and the costs, belongs exclusively to the creditor instituting the proceeding, and the
surplus, if any, belongs to the estate.
(d) Where, before an order is made under subsection (a), the rehabilitation receiver (or
liquidator) signifies to the court his readiness to institute the proceeding for the benefit of the
creditors, the order shall fix the time within which he shall do so and, m that case, the benefit
derived from the proceeding, if instituted within the time limits so fixed, belongs to the estate.
(H) Treatment of Secured Creditors.
Section 60.No Diminution of Secured Creditor Rights. The issuance of the Commencement
Order and the Suspension or Stay Order, and any other provision of this Act, shall not be
deemed in any way to diminish or impair the security or lien of a secured creditor, or the value
of his lien or security, except that his right to enforce said security or lien may be suspended
during the term of the Stay Order.
The court, upon motion or recommendation of the rehabilitation receiver, may allow a secured
creditor to enforce his security or lien, or foreclose upon property of the debtor
securing his/its claim, if the said property is not necessary for the rehabilitation of the debtor.
The secured creditor and/or the other lien holders shall be admitted to the rehabilitation
proceedings only for the balance of his claim, if any.
Section 61.Lack of Adequate Protection. - The court, on motion or motu proprio, may terminate,
modify or set conditions for the continuance of suspension of payment, or relieve a claim from
the coverage thereof, upon showing that: (a) a creditor does not have adequate protection over
property securing its claim; or
(b) the value of a claim secured by a lien on property which is not necessary for rehabilitation of
the debtor exceeds the fair market value of the said property.
For purposes of this section, a creditor shall be deemed to lack adequate protection if it can be shown
that:
(a)
the debtor fails or refuses to honor a pre-existing agreement with the creditor to keep
the property insured;
(b)
the debtor fails or refuses to take commercially reasonable steps to maintain the
property; or
(c) the property has depreciated to an extent that the creditor is under secured.
Upon showing of a lack of protection, the court shall order the debtor or the rehabilitation
receiver to make arrangements to provide for the insurance or maintenance of the property; or
to make payments or otherwise provide additional or replacement security such that the
obligation is fully secured. If such arrangements are not feasible, the court may modify the Stay
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Order to allow the secured creditor lacking adequate protection to enforce its security claim
against the debtor: Provided, however, That the court may deny the creditor the remedies in
this paragraph if the property subject of the enforcement is required for the rehabilitation of the
debtor.
(i) Administration of Proceedings.
Section 62.Contents of a Rehabilitation Plan. – The Rehabilitation Plan shall, as a minimum:
(a) specify the underlying assumptions, the financial goals and the procedures proposed
to accomplish such goals;
(b) compare the amounts expected to be received by the creditors under the Rehabilitation
Plan with those that they will receive if liquidation ensues within the next one hundred
twenty (120) days;
(c) contain information sufficient to give the various classes of creditors a reasonable basis
for determining whether supporting the Plan is in their financial interest when compared
to the immediate liquidation of the debtor, including any reduction of principal interest and
penalties payable to the creditors;
(d)
establish classes of voting creditors;
(e)
establish subclasses of voting creditors if prior approval has been granted by the court;
(f) indicate how the insolvent debtor will be rehabilitated including, but not limited to, debt
forgiveness, debt rescheduling, reorganization or quasi-reorganization. dacion en pago,
debt-equity conversion and sale of the business (or parts of it) as a going concern, or
setting-up of a new business entity or other similar arrangements as may be necessary to
restore the financial well-being and visibility of the insolvent debtor;
(g)
specify the treatment of each class or subclass described in subsections (d) and (e);
(h) provide for equal treatment of all claims within the same class or subclass, unless a
particular creditor voluntarily agrees to less favorable treatment;
(i) ensure that the payments made under the plan follow the priority established under the
provisions of the Civil Code on concurrence and preference of credits and other applicable
laws;
(j) maintain the security interest of secured creditors and preserve the liquidation value of
the security unless such has been waived or modified voluntarily;
(k) disclose all payments to creditors for pre-commencement debts made during the
proceedings and the justifications thereof;
(1) describe the disputed claims and the provisioning of funds to account for appropriate
payments should the claim be ruled valid or its amount adjusted;
(m)
identify the debtor's role in the implementation of the Plan;
(n) state any rehabilitation covenants of the debtor, the breach of which shall be considered
a material breach of the Plan;
(o) identify those responsible for the future management of the debtor and the supervision
and implementation of the Plan, their affiliation with the debtor and their remuneration;
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(p)
address the treatment of claims arising after the confirmation of the Rehabilitation
Plan;
(q)require the debtor and its counter-parties to adhere to the terms of all contracts that the
debtor has chosen to confirm;
(r) arrange for the payment of all outstanding administrative expenses as a condition to
the Plan's approval unless such condition has been waived in writing by the creditors
concerned;
(s) arrange for the payment" of all outstanding taxes and assessments, or an adjusted
amount pursuant to a compromise settlement with the BlR or other applicable tax
authorities;
(t) include a certified copy of a certificate of tax clearance or evidence of a compromise
settlement with the BIR;
(u) include a valid and binding r(,solution of a meeting of the debtor's stockholders to
increase the shares by the required amount in cases where the Plan contemplates an
additional issuance of shares by the debtor;
(v) state the compensation and status, if any, of the rehabilitation receiver after the approval of
the Plan; and
(w)contain provisions for conciliation and/or mediation as a prerequisite to court
assistance or intervention in the event of any disagreement in the interpretation or
implementation of the Rehabilitation Plan.
Section 63.Consultation with Debtor and Creditors. – if the court gives due course to the
petition, the rehabilitation receiver shall confer with the debtor and all the classes of creditors,
and may consider their views and proposals ill the review, revision or preparation of a new
Rehabilitation Plan.
Section 64.Creditor Approval of Rehabilitation Plan. – The rehabilitation receiver shall notify the
creditors and stakeholders that the Plan is ready for their examination. Within twenty (2Q) days
from the said notification, the rehabilitation receiver shall convene the creditors, either as a
whole or per class, for purposes of voting on the approval of the Plan. The Plan shall be deemed
rejected unless approved by all classes of creditors w hose rights are adversely modified or
affected by the Plan. For purposes of this section, the Plan is deemed to have been approved
by a class of creditors if members of the said class holding more than fifty percent (50%) of the
total claims of the said class vote in favor of the Plan. The votes of the creditors shall be based
solely on the amount of their respective claims based on the registry of claims submitted by the
rehabilitation receiver pursuant to Section 44 hereof.
Notwithstanding the rejection of the Rehabilitation Plan, the court may confirm the Rehabilitation
Plan if all of the following circumstances are present:
(a)The Rehabilitation Plan complies with the requirements specified in this Act.
(b)
The rehabilitation receiver recommends the confirmation of the Rehabilitation Plan;
(c) The shareholders, owners or partners of the juridical debtor lose at least their
controlling interest as a result of the Rehabilitation Plan; and
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(d) The Rehabilitation Plan would likely provide the objecting class of creditors with
compensation which has a net present value greater than that which they would have
received if the debtor were under liquidation.
Section 65.Submission of Rehabilitation Plan to the Court. - 1fthe Rehabilitation Plan is
approved, the rehabilitation receiver shall submit the same to the court for confirmation. Within
five (5) days from receipt of the Rehabilitation Plan, the court shall notify the creditors that the
Rehabilitation Plan has been submitted for confirmation, that any creditor may obtain copies of
the Rehabilitation Plan and that any creditor may file an objection thereto.
Section 66.Filing of Objections to Rehabilitation Plan. – A creditor may file an objection to the
Rehabilitation Plan within twenty (20) days from receipt of notice from the court that the
Rehabilitation Plan has been submitted for confirmation. Objections to a Rehabilitation Plan
shall be limited to the following:
(a) The creditors' support was induced by fraud;
(b)The documents or data relied upon in the Rehabilitation Plan are materially false or
misleading; or
(c)The Rehabilitation Plan is in fact not supported by the voting creditors.
Section 67.Hearing on the Objections. - If objections have been submitted during the relevant
period, the court shall issue an order setting the time and date for the hearing or hearings on
the objections.
If the court finds merit in the objection, it shall order the rehabilitation receiver or other party to
cure the defect, whenever feasible. If the court determines that the debtor acted in bad faith, or
that it is not feasible to cure the defect, the court shall convert the proceedings into one for the
liquidation of the debtor under Chapter V of this Act.
Section 68.Confirmation of the Rehabilitation Plan. – If no objections are filed within the relevant
period or, if objections are filed, the court finds them lacking in merit, or determines that the
basis for the objection has been cured, or determines that the debtor has complied with an
order to cure the objection, the court shall issue an order confirming the Rehabilitation Plan.
The court may confirm the Rehabilitation Plan notwithstanding unresolved disputes over claims
if the Rehabilitation Plan has made adequate provisions for paying such claims.
For the avoidance of doubt, the provisions of other laws to the contrary notwithstanding, the
court shall have the power to approve or implement the Rehabilitation Plan despite the lack of
approval, or objection from the owners, partners or stockholders of the insolvent debtor:
Provided, That the terms thereof are necessary to restore the financial well-being and viability
of the insolvent debtor.
Section 69.Effect of Confirmation of the Rehabilitation Plan, - The confirmation of the
Rehabilitation Plan by the court shall result in the following:
(a) The Rehabilitation Plan and its provisions shall be binding upon the debtor and all
persons who may be affected by it, including the creditors, whether or not such persons
have participated in the proceedings or opposed the Rehabilitation Plan or whether or not
their claims have been scheduled;
(b) The debtor shall comply with the provisions of the Rehabilitation Plan and shall take all
actions necessary to carry out the Plan;
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(c) Payments shall be made to the creditors in accordance with the provisions of the
Rehabilitation Plan;
(d) Contracts and other arrangements between the debtor and its creditors shall be
interpreted as continuing to apply to the extent that they do not conflict with the provisions
of the Rehabilitation Plan;
(e) Any compromises on amounts or rescheduling of timing of payments by the debtor
shall be binding on creditors regardless of whether or not the Plan is successfully
implement; and
(f) Claims arising after approval of the Plan that are otherwise not treated by the Plan are
not subject to any Suspension Order.
The Order confirming the Plan shall comply with Rules 36 of the Rules of Court: Provided,
however, That the court may maintain jurisdiction over the case in order to resolve claims
against the debtor that remain contested and allegations that the debtor has breached the Plan.
Section 70. Liability of General Partners of a Partnership for Unpaid Balances Under an
Approved Plan. - The approval of the Plan shall not affect the rights of creditors to pursue
actions against the general partners of a partnership to the extent they are liable under relevant
legislation for the debts thereof.
Section 71. Treatment of Amounts of Indebtedness or Obligations Forgiven or Reduced. Amounts of any indebtedness or obligations reduced or forgiven in connection with a Plan's
approval shall not be subject to any tax in furtherance of the purposes of this Act.
Section 72. Period for Confirmation of the Rehabilitation Plan. - The court shall have a maximum
period of one (1) year from the date of the filing of the petition to confirm a Rehabilitation Plan.
If no Rehabilitation Plan is confirmed within the said period, the proceedings may upon motion
or motu propio, be converted into one for the liquidation of the debtor .
Section 73. Accounting Discharge of Rehabilitation Receiver. - Upon the confirmation of the
Rehabilitation Plan, the rehabilitation receiver shall provide a final report and accounting to the
court. Unless the Rehabilitation Plan specifically requires and describes the role of the
rehabilitation receiver after the approval of the Rehabilitation Plan, the court shall discharge the
rehabilitation receiver of his duties.
(j) Termination of Proceedings
Section 74. Termination of Proceedings. - The rehabilitation proceedings under Chapter II shall,
upon motion by any stakeholder or the rehabilitation receiver be terminated by order of the court
either declaring a successful implementation of the Rehabilitation Plan or a failure of
rehabilitation.
There is failure of rehabilitation in the following cases:
(a)
Dismissal of the petition by the court;
(b)
The debtor fails to submit a Rehabilitation Plan;
(c) Under the Rehabilitation Plan submitted by the debtor, there is no substantial likelihood
that the debtor can be rehabilitated within a reasonable period;
(d) The Rehabilitation Plan or its amendment is approved by the court but in the
implementation thereof, the debtor fails to perform its obligations thereunder or there is a
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failure to realize the objectives, targets or goals set forth therein, including the timelines
and conditions for the settlement of the obligations due to the creditors and other
claimants;
(e)
The commission of fraud in securing the approval of the Rehabilitation Plan or its
amendment; an
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(f) Other analogous circumstances as may be defined by the rules of procedure.
Upon a breach of, or upon a failure of the Rehabilitation Plan the court, upon motion by an affected
party may:
(1) Issue an order directing that the breach be cured within a specified period of time,
falling which the proceedings may be converted to a liquidation;
(2)
Issue an order converting the proceedings to a liquidation;
(3) Allow the debtor or rehabilitation receiver to submit amendments to the Rehabilitation
Plan, the approval of which shall be governed by the same requirements for the approval
of a Rehabilitation Plan under this subchapter;
(4) Issue any other order to remedy the breach consistent with the present regulation, other
applicable law and the best interests of the creditors; or
(5)
Enforce the applicable provisions of the Rehabilitation Plan through a writ of execution.
Section 75. Effects of Termination. - Termination of the proceedings shall result in the following:
(a)
The discharge of the rehabilitation receiver subject to his submission of a final
accounting; and
(b) The lifting of the Stay Order and any other court order holding in abeyance any action
for the enforcement of a claim against the debtor.
Provided, however, That if the termination of proceedings is due to failure of rehabilitation or
dismissal of the petition for reasons other than technical grounds, the proceedings shall be
immediately converted to liquidation as provided in Section 92 of this Act.
CHAPTER III PRE-NEGOTIATED REHABILITATION
Section 76. Petition by Debtor. - An insolvent debtor, by itself or jointly with any of its creditors,
may file a verified petition with the court for the approval of a pre-negotiated Rehabilitation Plan
which has been endorsed or approved by creditors holding at least two-thirds (2/3) of the total
liabilities of the debtor, including secured creditors holding more than fifty percent (50%) of the
total secured claims of the debtor and unsecured creditors holding more than fifty percent (50%)
of the total unsecured claims of the debtor. The petition shall include as a minimum:
(a)
a schedule of the debtor's debts and liabilities;
(b)
an inventory of the debtor's assets;
(c) the pre-negotiated Rehabilitation Plan, including the names of at least three (3)
qualified nominees for rehabilitation receiver; and
(d) a summary of disputed claims against the debtor and a report on the provisioning of
funds to account for appropriate payments should any such claims be ruled valid or their
amounts adjusted.
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Section 77. Issuance of Order. - Within five (5) working days, and after determination that the
petition is sufficient in form and substance, the court shall issue an Order which shall;
(a)
identify the debtor, its principal business of activity/ies and its principal place of
business;
(b)
declare that the debtor is under rehabilitation;
(c) summarize the ground./s for the filling of the petition;
(d) direct the publication of the Order in a newspaper of general circulation in the
Philippines once a week for at least two (2) consecutive weeks, with the first publication
to be made within seven (7) days from the time of its issuance;
(e) direct the service by personal delivery of a copy of the petition on each creditor who is
not a petitioner holding at least ten percent (10%) of the total liabilities of the debtor, as
determined in the schedule attached to the petition, within three (3) days;
(f) state that copies of the petition and the Rehabilitation Plan are available for examination
and copying by any interested party;
(g) state that creditors and other interested parties opposing the petition or Rehabilitation
Plan may file their objections or comments thereto within a period of not later than twenty
(20) days from the second publication of the Order;
(h)
appoint a rehabilitation receiver, if provided for in the Plan; and
(i) include a Suspension or Stay Order as described in this Act.
Section 78. Approval of the Plan. - Within ten (10) days from the date of the second publication
of the Order, the court shall approve the Rehabilitation Plan unless a creditor or other interested
party submits an objection to it in accordance with the next succeeding section.
Section 79. Objection to the Petition or Rehabilitation Plan. - Any creditor or other interested
party may submit to the court a verified objection to the petition or the Rehabilitation Plan not
later than eight (8) days from the date of the second publication of the Order mentioned in
Section 77 hereof. The objections shall be limited to the following:
(a) The allegations in the petition or the Rehabilitation Plan or the attachments thereto are
materially false or misleading;
(b)
The majority of any class of creditors do not in fact support the Rehabilitation Plan;
(c) The Rehabilitation Plan fails to accurately account for a claim against the debtor and
the claim in not categorically declared as a contested claim; or
(d)
The support of the creditors, or any of them was induced by fraud.
Copies of any objection to the petition of the Rehabilitation Plan shall be served on the debtor,
the rehabilitation receiver (if applicable), the secured creditor with the largest claim and who
supports the Rehabilitation Plan, and the unsecured creditor with the largest claim and who
supports the Rehabilitation Plan.
Section 80. Hearing on the Objections. - After receipt of an objection, the court shall set the
same for hearing. The date of the hearing shall be no earlier than twenty (20) days and no later
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than thirty (30) days from the date of the second publication of the Order mentioned in Section
77 hereof. If the court finds merit in the objection, it shall direct the debtor, when feasible to cure
the detect within a reasonable period. If the court determines that the debtor or creditors
supporting the Rehabilitation Plan acted in bad faith, or that the objection is non-curable, the
court may order the conversion of the proceedings into liquidation. A finding by the court that
the objection has no substantial merit, or that the same has been cured shall be deemed an
approval of the Rehabilitation Plan.
Section 81. Period for Approval of Rehabilitation Plan. - The court shall have a maximum period
of one hundred twenty (120) days from the date of the filing of the petition to approve the
Rehabilitation Plan. If the court fails to act within the said period, the Rehabilitation Plan shall
be deemed approved.
Section 82. Effect of Approval. - Approval of a Plan under this chapter shall have the same legal
effect as confirmation of a Plan under Chapter II of this Act.
CHAPTER IV OUT-OF-COURT
REHABILITATION PLANS
OR
INFORMAL
RESTRUCTURING
AGREEMENTS
OR
Section 83. Out-of-Court or Informal Restructuring Agreements and Rehabilitation Plans. - An
out-of-curt or informal restructuring agreement or Rehabilitation Plan that meets the minimum
requirements prescribed in this chapter is hereby recognized as consistent with the objectives
of this Act.
Section 84. Minimum Requirements of Out-of-Court or Informal Restructuring Agreements and
Rehabilitation Plans.
- For an out-of-court or informal restructuring/workout agreement or Rehabilitation Plan to
qualify under this chapter, it must meet the following minimum requirements:
(a) The debtor must agree to the out-of-court or informal restructuring/workout agreement
or Rehabilitation Plan;
(b) It must be approved by creditors representing at least sixty-seven (67%) of the secured
obligations of the debtor;
(c) It must be approved by creditors representing at least seventy-five percent (75%) of
the unsecured obligations of the debtor; and
(d) It must be approved by creditors holding at least eighty-five percent (85%) of the total
liabilities, secured and unsecured, of the debtor.
Section 85. Standstill Period. - A standstill period that may be agreed upon by the parties
pending negotiation and finalization of the out-of-court or informal restructuring/workout
agreement or Rehabilitation Plan contemplated herein shall be effective and enforceable not
only against the contracting parties but also against the other creditors: Provided, That (a) such
agreement is approved by creditors representing more than fifty percent (50%) of the total
liabilities of the debtor; (b) notice thereof is publishing in a newspaper of general circulation in
the Philippines once a week for two (2) consecutive weeks; and (c) the standstill period does
not exceed one hundred twenty (120) days from the date of effectivity. The notice must invite
creditors to participate in the negotiation for out-of-court rehabilitation or restructuring
agreement and notify them that said agreement will be binding on all creditors if the required
majority votes prescribed in Section 84 of this Act are met.
Section 86. Cram Down Effect. - A restructuring/workout agreement or Rehabilitation Plan that
is approved pursuant to an informal workout framework referred to in this chapter shall have
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the same legal effect as confirmation of a Plan under Section 69 hereof. The notice of the
Rehabilitation Plan or restructuring agreement or Plan shall be published once a week for at
least three (3) consecutive weeks in a newspaper of general circulation in the Philippines. The
Rehabilitation Plan or restructuring agreement shall take effect upon the lapse of fifteen (15)
days from the date of the last publication of the notice thereof.
Section 87. Amendment or Modification. - Any amendment of an out-of-court
restructuring/workout agreement or Rehabilitation Plan must be made in accordance with the
terms of the agreement and with due notice on all creditors.
Section 88. Effect of Court Action or Other Proceedings. - Any court action or other proceedings
arising from, or relating to, the out-of-court or informal restructuring/workout agreement or
Rehabilitation Plan shall not stay its implementation, unless the relevant party is able to secure
a temporary restraining order or injunctive relief from the Court of Appeals.
Section 89. Court Assistance. - The insolvent debtor and/or creditor may seek court assistance
for the execution or implementation of a Rehabilitation Plan under this Chapter, under such
rules of procedure as may be promulgated by the Supreme Court.
CHAPTER V LIQUIDATION OF INSOLVENT JURIDICAL DEBTORS
Section 90. Voluntary Liquidation. - An insolvent debtor may apply for liquidation by filing a
petition for liquidation with the court. The petition shall be verified, shall establish the insolvency
of the debtor and shall contain, whether as an attachment or as part of the body of the petition;
(a) a schedule of the debtor's debts and liabilities including a list of creditors with their
addresses, amounts of claims and collaterals, or securities, if any;
(b)
an inventory of all its assets including receivables and claims against third parties; and
(c) the names of at least three (3) nominees to the position of liquidator.
At any time during the pendency of court-supervised or pre-negotiated rehabilitation
proceedings, the debtor may also initiate liquidation proceedings by filing a motion in the same
court where the rehabilitation proceedings are pending to convert the rehabilitation proceedings
into liquidation proceedings. The motion shall be verified, shall contain or set forth the same
matters required in the preceding paragraph, and state that the debtor is seeking immediate
dissolution and termination of its corporate existence.
If the petition or the motion, as the case may be, is sufficient in form and substance, the court
shall issue a Liquidation Order mentioned in Section 112 hereof.
Section 91. Involuntary Liquidation. - Three (3) or more creditors the aggregate of whose claims
is at least either One million pesos (Php1,000,000,00) or at least twenty-five percent (25%0 of
the subscribed capital stock or partner's contributions of the debtor, whichever is higher, may
apply for and seek the liquidation of an insolvent debtor by filing a petition for liquidation of the
debtor with the court. The petition shall show that:
(a) there is no genuine issue of fact or law on the claims/s of the petitioner/s, and that the
due and demandable payments thereon have not been made for at least one hundred
eighty (180) days or that the debtor has failed generally to meet its liabilities as they fall
due; and
(b)
there is no substantial likelihood that the debtor may be rehabilitated.
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At any time during the pendency of or after a rehabilitation court-supervised or pre-negotiated
rehabilitation proceedings, three (3) or more creditors whose claims is at least either One million
pesos (Php1,000,000.00) or at least twenty-five percent (25%) of the subscribed capital or
partner's contributions of the debtor, whichever is higher, may also initiate liquidation
proceedings by filing a motion in the same court where the rehabilitation proceedings are
pending to convert the rehabilitation proceedings into liquidation proceedings. The motion shall
be verified, shall contain or set forth the same matters required in the preceding paragraph, and
state that the movants are seeking the immediate liquidation of the debtor.
If the petition or motion is sufficient in form and substance, the court shall issue an Order:
(1)
directing the publication of the petition or motion in a newspaper of general circulation
once a week for two
(2)
consecutive weeks; and
(2) directing the debtor and all creditors who are not the petitioners to file their comment
on the petition or motion within fifteen (15) days from the date of last publication.
If, after considering the comments filed, the court determines that the petition or motion is
meritorious, it shall issue the Liquidation Order mentioned in Section 112 hereof.
Section 92. Conversion by the Court into Liquidation Proceedings. - During the pendency of
court-supervised or pre-negotiated rehabilitation proceedings, the court may order the
conversion of rehabilitation proceedings to liquidation proceedings pursuant to (a) Section 25(c)
of this Act; or (b) Section 72 of this Act; or (c) Section 75 of this Act; or (d) Section 90 of this
Act; or at any other time upon the recommendation of the rehabilitation receiver that the
rehabilitation of the debtor is not feasible. Thereupon, the court shall issue the Liquidation Order
mentioned in Section 112 hereof.
Section 93. Powers of the Securities and Exchange Commission (SEC). - The provisions of this
chapter shall not affect the regulatory powers of the SEC under Section 6 of Presidential Decree
No. 902-A, as amended, with respect to any dissolution and liquidation proceeding initiated and
heard before it.
CHAPTER VI - INSOLVENCY OF INDIVIDUAL DEBTORS
(A) Suspension of Payments.
Section 94. Petition. - An individual debtor who, possessing sufficient property to cover all his
debts but foreseeing the impossibility of meeting them when they respectively fall due, may file
a verified petition that he be declared in the state of suspension of payments by the court of the
province or city in which he has resides for six (6) months prior to the filing of his petition. He
shall attach to his petition, as a minimum: (a) a schedule of debts and liabilities; (b) an inventory
of assess; and (c) a proposed agreement with his creditors.
Section 95. Action on the Petition. - If the court finds the petition sufficient in form and substance, it
shall, within five
(5)
working days from the filing of the petition, issue an Order:
(a) calling a meeting of all the creditors named in the schedule of debts and liabilities at
such time not less than fifteen (15) days nor more than forty (40) days from the date of
such Order and designating the date, time and place of the meeting;
(b) directing such creditors to prepare and present written evidence of their claims before
the scheduled creditors' meeting;
215
(c) directing the publication of the said order in a newspaper of general circulation
published in the province or city in which the petition is filed once a week for two (2)
consecutive weeks, with the first publication to be made within seven (7) days from the
time of the issuance of the Order;
(d) directing the clerk of court to cause the sending of a copy of the Order by registered
mail, postage prepaid, to all creditors named in the schedule of debts and liabilities;
(e) forbidding the individual debtor from selling, transferring, encumbering or disposing in
any manner of his property, except those used in the ordinary operations of commerce or
of industry in which the petitioning individual debtor is engaged so long as the proceedings
relative to the suspension of payments are pending;
(f) prohibiting the individual debtor from making any payment outside of the necessary or
legitimate expenses of his business or industry, so long as the proceedings relative to the
suspension of payments are pending; and
(g)
appointing a commissioner to preside over the creditors' meeting.
Section 96. Actions Suspended. - Upon motion filed by the individual debtor, the court may
issue an order suspending any pending execution against the individual debtor. Provide, That
properties held as security by secured creditors shall not be the subject of such suspension
order. The suspension order shall lapse when three months shall have passed without the
proposed agreement being accepted by the creditors or as soon as such agreement is denied.
No creditor shall sue or institute proceedings to collect his claim from the debtor from the time
of the filing of the petition for suspension of payments and for as long as proceedings remain
pending except:
(a) those creditors having claims for personal labor, maintenance, expense of last illness
and funeral of the wife or children of the debtor incurred in the sixty (60) days immediately
prior to the filing of the petition; and
(b)
secured creditors.
Section 97. Creditors' Meeting. - The presence of creditors holding claims amounting to at least
three-fifths (3/5) of the liabilities shall be necessary for holding a meeting. The commissioner
appointed by the court shall preside over the meeting and the clerk of court shall act as the
secretary thereof, subject to the following rules:
(a)
The clerk shall record the creditors present and amount of their respective claims;
(b) The commissioner shall examine the written evidence of the claims. If the creditors
present hold at least three-fifths (3/5) of the liabilities of the individual debtor, the
commissioner shall declare the meeting open for business;
(c) The creditors and individual debtor shall discuss the propositions in the proposed
agreement and put them to a vote;
(d)
To form a majority, it is necessary:
(1)that two-thirds (2/3) of the creditors voting unite upon the same proposition; and
216
(2) that the claims represented by said majority vote amount to at least three-fifths
(3/5) of the total liabilities of the debtor mentioned in the petition; and
(e) After the result of the voting has been announced, all protests made against the
majority vote shall be drawn up, and the commissioner and the individual debtor together
with all creditors taking part in the voting shall sign the affirmed propositions.
No creditor who incurred his credit within ninety (90) days prior to the filing of the petition shall be
entitled to vote.
Section 98. Persons Who May Refrain From Voting. - Creditors who are unaffected by the
Suspension Order may refrain from attending the meeting and from voting therein. Such
persons shall not be bound by any agreement determined upon at such meeting, but if they
should join in the voting they shall be bound in the same manner as are the other creditors.
Section 99. Rejection of the Proposed Agreement. - The proposed agreement shall be deemed
rejected if the number of creditors required for holding a meeting do not attend thereat, or if the
two (2) majorities mentioned in Section 97 hereof are not in favor thereof. In such instances,
the proceeding shall be terminated without recourse and the parties concerned shall be at
liberty to enforce the rights which may correspond to them.
Section 100. Objections. - If the proposal of the individual debtor, or any amendment thereof
made during the creditors' meeting, is approved by the majority of creditors in accordance with
Section 97 hereof, any creditor who attended the meeting and who dissented from and
protested against the vote of the majority may file an objection with the court within ten (10)
days from the date of the last creditors' meeting. The causes for which objection may be made
to the decision made by the majority during the meeting shall be:
(a) defects in the call for the meeting, in the holding thereof and in the deliberations had thereat
which prejudice the rights of the creditors;
(b) fraudulent connivance between one or more creditors and the individual debtor to vote in
favor of the proposed agreement; or
(c)fraudulent conveyance of claims for the purpose of obtaining a majority. The court shall hear
and pass upon such objection as soon as possible and in a summary manner.
In case the decision of the majority of creditors to approve the individual debtor's proposal or
any amendment thereof made during the creditors' meeting is annulled by the court, the court
shall declare the proceedings terminated and the creditors shall be at liberty to exercise the
rights which may correspond to them.
Section 101. Effects of Approval of Proposed Agreement. - If the decision of the majority of the
creditors to approve the proposed agreement or any amendment thereof made during the
creditors' meeting is uphold by the court, or when no opposition or objection to said decision
has been presented, the court shall order that the agreement be carried out and all parties
bound thereby to comply with its terms.
The court may also issue all orders which may be necessary or proper to enforce the agreement
on motion of any affected party. The Order confirming the approval of the proposed agreement
or any amendment thereof made during the creditors' meeting shall be binding upon all creditors
whose claims are included in the schedule of debts and liabilities submitted by the individual
debtor and who were properly summoned, but not upon: (a) those creditors having claims for
personal labor, maintenance, expenses of last illness and funeral of the wife or children of the
217
debtor incurred in the sixty (60) days immediately prior to the filing of the petition; and (b)
secured creditors who failed to attend the meeting or refrained from voting therein.
Section 102. Failure of Individual Debtor to Perform Agreement. - If the individual debtor fails,
wholly or in part, to perform the agreement decided upon at the meeting of the creditors, all the
rights which the creditors had against the individual debtor before the agreement shall revest
in them. In such case the individual debtor may be made subject to the insolvency proceedings
in the manner established by this Act.
(B) Voluntary Liquidation.
Section 103. Application. - An individual debtor whose properties are not sufficient to cover his
liabilities, and owing debts exceeding Five hundred thousand pesos (Php500,000.00), may
apply to be discharged from his debts and liabilities by filing a verified petition with the court of
the province or city in which he has resided for six (6) months prior to the filing of such petition.
He shall attach to his petition a schedule of debts and liabilities and an inventory of assets. The
filing of such petition shall be an act of insolvency.
Section 104. Liquidation Order. - If the court finds the petition sufficient in form and substance
it shall, within five (5) working days issue the Liquidation Order mentioned in Section 112 hereof.
(C) In voluntary Liquidation.
Section 105. Petition; Acts of Insolvency. - Any creditor or group of creditors with a claim of, or
with claims aggregating at least Five hundred thousand pesos (Php500, 000.00) may file a
verified petition for liquidation with the court of the province or city in which the individual debtor
resides.
The following shall be considered acts of insolvency, and the petition for liquidation shall set
forth or allege at least one of such acts:
(a) That such person is about to depart or has departed from the Republic of the
Philippines, with intent to defraud his creditors;
(b) That being absent from the Republic of the Philippines, with intent to defraud his
creditors, he remains absent;
(c) That he conceals himself to avoid the service of legal process for the purpose of
hindering or delaying the liquidation or of defrauding his creditors;
(d)
That he conceals, or is removing, any of his property to avoid its being attached or
taken on legal process;
(e) That he has suffered his property to remain under attachment or legal process for three
(3) days for the purpose of hindering or delaying the liquidation or of defrauding his
creditors;
(f) That he has confessed or offered to allow judgment in favor of any creditor or claimant
for the purpose of hindering or delaying the liquidation or of defrauding any creditors or
claimant;
(g) That he has willfully suffered judgment to be taken against him by default for the
purpose of hindering or delaying the liquidation or of defrauding his creditors;
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(h) That he has suffered or procured his property to be taken on legal process with intent
to give a preference to one or more of his creditors and thereby hinder or delay the
liquidation or defraud any one of his creditors;
(i) That he has made any assignment, gift, sale, conveyance or transfer of his estate,
property, rights or credits with intent to hinder or delay the liquidation or defraud his
creditors;
(j) That he has, in contemplation of insolvency, made any payment, gift, grant, sale,
conveyance or transfer of his estate, property, rights or credits;
(k) That being a merchant or tradesman, he has generally defaulted in the payment of his
current obligations for a period of thirty (30) days;
(l) That for a period of thirty (30) days, he has failed, after demand, to pay any moneys
deposited with him or received by him in a fiduciary; and
(m)
That an execution having been issued against him on final judgment for money,
he shall have been found to be without sufficient property subject to execution to satisfy
the judgment.
The petitioning creditor/s shall post a bond in such as the court shall direct, conditioned that if
the petition for liquidation is dismissed by the court, or withdrawn by the petitioner, or if the
debtor shall not be declared an insolvent the petitioners will pay to the debtor all costs,
expenses, damages occasioned by the proceedings and attorney's fees.
Section 106. Order to Individual Debtor to Show Cause. - Upon the filing of such creditors'
petition, the court shall issue an Order requiring the individual debtor to show cause, at a time
and place to be fixed by the said court, why he should not be adjudged an insolvent. Upon good
cause shown, the court may issue an Order forbidding the individual debtor from making
payments of any of his debts, and transferring any property belonging to him. However, nothing
contained herein shall affect or impair the rights of a secured creditor to enforce his lien in
accordance with its terms.
Section 107. Default. - If the individual debtor shall default or if, after trial, the issues are found
in favor of the petitioning creditors the court shall issue the Liquidation Order mentioned in
Section 112 hereof.
Section 108. Absent Individual Debtor. - In all cases where the individual debtor resides out of
the Republic of the Philippines; or has departed therefrom; or cannot, after due diligence, be
found therein; or conceals himself to avoid service of the Order to show cause, or any other
preliminary process or orders in the matter, then the petitioning creditors, upon submitting the
affidavits requisite to procedure an Order of publication, and presenting a bond in double the
amount of the aggregate sum of their claims against the individual debtor, shall be entitled to
an Order of the court directing the sheriff of the province or city in which the matter is pending
to take into his custody a sufficient amount of property of the individual debtor to satisfy the
demands of the petitioning creditors and the costs of the proceedings. Upon receiving such
Order of the court to take into custody of the property of the individual debtor, it shall be the
duty of the sheriff to take possession of the property and effects of the individual debtor, not
exempt from execution, to an extent sufficient to cover the amount provided for and to prepare
within three (3) days from the time of taking such possession, a complete inventory of all the
property so taken, and to return it to the court as soon as completed. The time for taking the
219
inventory and making return thereof may be extended for good cause shown to the court. The
sheriff shall also prepare a schedule of the names and residences of the creditors, and the
amount due each, from the books of the debtor, or from such other papers or data of the
individual debtor available as may come to his possession, and shall file such schedule or list
of creditors and inventory with the clerk of court.
Section 109. All Property Taken to be Held for All Creditors; Appeal Bonds; Exemptions to
Sureties. - In all cases where property is taken into custody by the sheriff, if it does not embrace
all the property and effects of the debtor not exempt from execution, any other creditor or
creditors of the individual debtor, upon giving bond to be approved by the court in double the
amount of their claims, singly or jointly, shall be entitled to similar orders and to like action, by
the sheriff; until all claims be provided for, if there be sufficient property or effects. All property
taken into custody by the sheriff by virtue of the giving of any such bonds shall be held by him
for the benefit of all creditors of the individual debtor whose claims shall be duly proved as
provided in this Act. The bonds provided for in this section and the preceding section to procure
the order for custody of the property and effects of the individual debtor shall be conditioned
that if, upon final hearing of the petition in insolvency, the court shall find in favor of the
petitioners, such bonds and all of them shall be void; if the decision be in favor of the individual
debtor, the proceedings shall be dismissed, and the individual debtor, his heirs, administrators,
executors or assigns shall be entitled to recover such sum of money as shall be sufficient to
cover the damages sustained by him, not to exceed the amount of the respective bonds. Such
damages shall be fixed and allowed by the court. If either the petitioners or the debtor shall
appeal from the decision of the court, upon final hearing of the petition, the appellant shall be
required to give bond to the successful party in a sum double the amount of the value of the
property in controversy, and for the costs of the proceedings.
Any person interested in the estate may take exception to the sufficiency of the sureties on such
bond or bonds. When excepted to the petitioner's sureties, upon notice to the person excepting
of not less than two (2) nor more than five (5) days, must justify as to their sufficiency; and upon
failure to justify, or of others in their place fail to justify at the time and place appointed the judge
shall issue an Order vacating the order to take the property of the individual debtor into the
custody of the sheriff, or denying the appeal, as the case may be.
Section 110. Sale Under Execution. - If, in any case, proper affidavits and bonds are presented
to the court or a judge thereof, asking for and obtaining an Order of publication and an Order
for the custody of the property of the individual debtor and thereafter the petitioners shall make
it appear satisfactorily to the court or a judge thereof that the interest of the parties to the
proceedings will be subserved by a sale thereof, the court may order such property to be sold
in the same manner as property is sold under execution, the proceeds to de deposited in the
court to abide by the result of the proceedings.
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VII
PROVISIONS
COMMON
AND JURIDICAL DEBTORS
TO
LIQUIDATION
IN
INSOLVENCY
OF
INDIVIDUAL
Section 111. Use of Term Debtor. - For purposes of this chapter, the term debtor shall include
both individual debtor as defined in Section 4(o) and debtor as defined in Section 4(k) of this
Act.
(A) The Liquidation Order.
Section 112. Liquidation Order. - The Liquidation Order shall:
(a)
declare the debtor insolvent;
(b)
order the liquidation of the debtor and, in the case of a juridical debtor, declare it as
dissolved;
(c) order the sheriff to take possession and control of all the property of the debtor, except
those that may be exempt from execution;
(d)order the publication of the petition or motion in a newspaper of general circulation once
a week for two (2) consecutive weeks;
(e)
direct payments of any claims and conveyance of any property due the debtor to the
liquidator;
(f)prohibit payments by the debtor and the transfer of any property by the debtor;
(g)
direct all creditors to file their claims with the liquidator within the period set by the rules
of procedure;
(h)
authorize the payment of administrative expenses as they become due;
(i) state that the debtor and creditors who are not petitioner/s may submit the names of
other nominees to the position of liquidator; and
(j) set the case for hearing for the election and appointment of the liquidator, which date
shall not be less than thirty (30) days nor more than forty-five (45) days from the date of
the last publication.
Section 113. Effects of the Liquidation Order. - Upon the issuance of the Liquidation Order:
(a)
the juridical debtor shall be deemed dissolved and its corporate or juridical existence
terminated;
(b) legal title to and control of all the assets of the debtor, except those that may be exempt
from execution, shall be deemed vested in the liquidator or, pending his election or
appointment, with the court;
(c) all contracts of the debtor shall be deemed terminated and/or breached, unless the
liquidator, within ninety (90) days from the date of his assumption of office, declares
otherwise and the contracting party agrees;
(d) no separate action for the collection of an unsecured claim shall be allowed. Such
actions already pending will be transferred to the Liquidator for him to accept and settle or
contest. If the liquidator contests or disputes the claim, the court shall allow, hear and
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resolve such contest except when the case is already on appeal. In such a case, the suit
may proceed to judgment, and any final and executor judgment therein for a claim against
the debtor shall be filed and allowed in court; and
(e)
no foreclosure proceeding shall be allowed for a period of one hundred eighty (180)
days.
Section 114. Rights of Secured Creditors. - The Liquidation Order shall not affect the right of a
secured creditor to enforce his lien in accordance with the applicable contract or law. A secured
creditor may:
(a) waive his right under the security or lien, prove his claim in the liquidation proceedings
and share in the distribution of the assets of the debtor; or
(b)
maintain his rights under the security or lien:
If the secured creditor maintains his rights under the security or lien:
(1) the value of the property may be fixed in a manner agreed upon by the creditor and
the liquidator. When the value of the property is less than the claim it secures, the liquidator
may convey the property to the secured creditor and the latter will be admitted in the
liquidation proceedings as a creditor for the balance. If its value exceeds the claim
secured, the liquidator may convey the property to the creditor and waive the debtor's right
of redemption upon receiving the excess from the creditor;
(2) the liquidator may sell the property and satisfy the secured creditor's entire claim from
the proceeds of the sale; or
(3)
the secure creditor may enforce the lien or foreclose on the property pursuant to
applicable laws.
(B)The Liquidator.
Section 115. Election of Liquidator. - Only creditors who have filed their claims within the period
set by the court, and whose claims are not barred by the statute of limitations, will be allowed
to vote in the election of the liquidator. A secured creditor will not be allowed to vote, unless:
(a) he waives his security or lien; or (b) has the value of the property subject of his security or
lien fixed by agreement with the liquidator, and is admitted for the balance of his claim.
The creditors entitled to vote will elect the liquidator in open court. The nominee receiving the
highest number of votes cast in terms of amount of claims, ad who is qualified pursuant to
Section 118 hereof, shall be appointed as the liquidator.
Section 116. Court-Appointed Liquidator. - The court may appoint the liquidator if:
(a)
on the date set for the election of the liquidator, the creditors do not attend;
(b)
the creditors who attend, fail or refuse to elect a liquidator;
(c) after being elected, the liquidator fails to qualify; or
(d) a vacancy occurs for any reason whatsoever, In any of the cases provided herein, the
court may instead set another hearing of the election of the liquidator.
Provided further, That nothing in this section shall be construed to prevent a rehabilitation
receiver, who was administering the debtor prior to the commencement of the liquidation, from
being appointed as a liquidator.
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Section 117. Oath and Bond of the Liquidator. -Prior to entering upon his powers, duties and
responsibilities, the liquidator shall take an oath and file a bond, In such amount to be fixed by
the court, conditioned upon the proper and faithful discharge of his powers, duties and
responsibilities.
Section 118. Qualifications of the Liquidator. - The liquidator shall have the qualifications
enumerated in Section 29 hereof. He may be removed at any time by the court for cause, either
motu propio or upon motion of any creditor entitled to vote for the election of the liquidator.
Section 119. Powers, Duties and Responsibilities of the Liquidator. - The liquidator shall be
deemed an officer of the court with the principal duly of preserving and maximizing the value
and recovering the assets of the debtor, with the end of liquidating them and discharging to the
extent possible all the claims against the debtor. The powers, duties and responsibilities of the
liquidator shall include, but not limited to:
(a)
to sue and recover all the assets, debts and claims, belonging or due to the debtor;
(b)
to take possession of all the property of the debtor except property exempt by law from
execution;
(c) to sell, with the approval of the court, any property of the debtor which has come into
his possession or control;
(d) to redeem all mortgages and pledges, and so satisfy any judgement which may be an
encumbrance on any property sold by him;
(e)
to settle all accounts between the debtor and his creditors, subject to the approval of
the court;
(f)to recover any property or its value, fraudulently conveyed by the debtor;
(g) to recommend to the court the creation of a creditors' committee which will assist him
in the discharge of the functions and which shall have powers as the court deems just,
reasonable and necessary; and
(h) upon approval of the court, to engage such professional as may be necessary and
reasonable to assist him in the discharge of his duties.
In addition to the rights and duties of a rehabilitation receiver, the liquidator, shall have the right
and duty to take all reasonable steps to manage and dispose of the debtor's assets with a view
towards maximizing the proceedings therefrom, to pay creditors and stockholders, and to
terminate the debtor's legal existence. Other duties of the liquidator in accordance with this
section may be established by procedural rules.
A liquidator shall be subject to removal pursuant to procedures for removing a rehabilitation receiver.
Section 120. Compensation of the Liquidator. - The liquidator and the persons and entities
engaged or employed by him to assist in the discharge of his powers and duties shall be entitled
to such reasonable compensation as may determined by the liquidation court, which shall not
exceed the maximum amount as may be prescribed by the Supreme Court.
Section 121. Reporting Requiremen5ts. - The liquidator shall make and keep a record of all
moneys received and all disbursements mad by him or under his authority as liquidator. He
shall render a quarterly report thereof to the court , which report shall be made available to all
interested parties. The liquidator shall also submit such reports as may be required by the court
from time to time as well as a final report at the end of the liquidation proceedings.
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Section 122. Discharge of Liquidator. - In preparation for the final settlement of all the claims
against the debtor , the liquidator will notify all the creditors, either by publication in a newspaper
of general circulation or such other mode as the court may direct or allow, that will apply with
the court for the settlement of his account and his discharge from liability as liquidator. The
liquidator will file a final accounting with the court, with proof of notice to all creditors. The
accounting will be set for hearing. If the court finds the same in order, the court will discharge
the liquidator.
(C) Determination of Claims
Section 123. Registry of Claims. - Within twenty (20) days from his assumption into office the
liquidator shall prepare a preliminary registry of claims of secured and unsecured creditors.
Secured creditors who have waived their security or lien, or have fixed the value of the property
subject of their security or lien by agreement with the liquidator and is admitted as a creditor for
the balance , shall be considered as unsecured creditors. The liquidator shall make the registry
available for public inspection and provide publication notice to creditors, individual debtors
owner/s of the sole proprietorship-debtor, the partners of the partnership-debtor and
shareholders or members of the corporation-debtor, on where and when they may inspect it.
All claims must be duly proven before being paid.
Section 124. Right of Set-off. - If the debtor and creditor are mutually debtor and creditor of
each other one debt shall be set off against the other, and only the balance, if any shall be
allowed in the liquidation proceedings.
Section 125. - Opposition or Challenge to Claims. - Within thirty (30 ) days from the expiration
of the period for filing of applications for recognition of claims, creditors, individual debtors,
owner/s of the sole proprietorship-debtor, partners of the partnership-debtor and shareholders
or members of the corporation -debtor and other interested parties may submit a challenge to
claim or claims to the court, serving a certified copy on the liquidator and the creditor holding
the challenged claim. Upon the expiration of the (30) day period, the rehabilitation receiver shall
submit to the court the registry of claims containing the undisputed claims that have not been
subject to challenge. Such claims shall become final upon the filling of the register and may be
subsequently set aside only on grounds or fraud, accident, mistake or inexcusable neglect.
Section 126. Submission of Disputed to the Court. - The liquidator shall resolve disputed claims
and submit his findings thereon to the court for final approval. The liquidator may disallow
claims.
(D) Avoidance Proceedings.
Section 127. Rescission or Nullity of Certain Transactions. - Any transaction occurring prior to
the issuance of the Liquidation Order or, in case of the conversion of the rehabilitation
proceedings prior to the commencement date, entered into by the debtor or involving its assets,
may be rescinded or declared null and void on the ground that the same was executed with
intent to defraud a creditor or creditors or which constitute undue preference of creditors. The
presumptions set forth in Section 58 hereof shall apply.
Section 128. Actions for Rescission or Nullity. - (a) The liquidator or, with his conformity, a
creditor may initiate and prosecute any action to rescind, or declare null and void any
transaction described in the immediately preceding paragraph. If the liquidator does not consent
to the filling or prosecution of such action, any creditor may seek leave of the court to commence
said action.
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(b) if leave of court is granted under subsection (a) hereof, the liquidator shall assign and
transfer to the creditor all rights, title and interest in the chose in action or subject matter
of the proceeding, including any document in support thereof.
(c) Any benefit derived from a proceeding taken pursuant to subsection (a) hereof, to the
extent of his claim and the costs, belongs exclusively to the creditor instituting the
proceeding, and the surplus, if any, belongs to the estate.
(d) Where, before an orders is made under subsection (a) hereof, the liquidator signifies
to the court his readiness to the institute the proceeding for the benefit of the creditors, the
order shall fix the time within which he shall do so and, in that case the benefit derived
from the proceedings, if instituted within the time limits so fixed, belongs to the estate.
(E)
The Liquidation Plan.
Section 129. The Liquidation Plan. - Within three (3) months from his assumption into office,
the Liquidator shall submit a Liquidation Plan to the court. The Liquidation Plan shall, as a
minimum enumerate all the assets of the debtor and a schedule of liquidation of the assets and
payment of the claims.
Section 130. Exempt Property to be Set Apart. - It shall be the duty of the court, upon petition
and after hearing, to exempt and set apart, for the use and benefit of the said insolvent, such
real and personal property as is by law exempt from execution, and also a homestead; but no
such petition shall be heard as aforesaid until it is first proved that notice of the hearing of the
application therefor has been duly given by the clerk, by causing such notice to be posted it at
least three (3) public places in the province or city at least ten (10) days prior to the time of such
hearing, which notice shall set forth the name of the said insolvent debtor, and the time and
place appointed for the hearing of such application, and shall briefly indicate the homestead
sought to be exempted or the property sought to be set aside; and the decree must show that
such proof was made to the satisfaction of the court, and shall be conclusive evidence of that
fact.
Section 131. Sale of Assets in Liquidation. - The liquidator may sell the unencumbered assets
of the debtor and convert the same into money. The sale shall be made at public auction.
However, a private sale may be allowed with the approval of the court if; (a) the goods to be
sold are of a perishable nature, or are liable to quickly deteriorate in value, or are
disproportionately expensive to keep or maintain; or (b) the private sale is for the best interest
of the debtor and his creditors.
With the approval of the court, unencumbered property of the debtor may also be conveyed to
a creditor in satisfaction of his claim or part thereof.
Section 132. manner of Implementing the Liquidation Plan. - The Liquidator shall implement the
Liquidation Plan as approved by the court. Payments shall be made to the creditors only in
accordance with the provisions of the Plan.
Section 133. Concurrence and Preference of Credits. - The Liquidation Plan and its
Implementation shall ensure that the concurrence and preference of credits as enumerated in
the Civil Code of the Philippines and other relevant laws shall be observed, unless a preferred
creditor voluntarily waives his preferred right. For purposes of this chapter, credits for services
rendered by employees or laborers to the debtor shall enjoy first preference under Article 2244
of the Civil Code, unless the claims constitute legal liens under Article 2241 and 2242 thereof.
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Section 134. Order Removing the Debtor from the List of Registered Entitles at the Securities
and Exchange Commission. - Upon determining that the liquidation has been completed
according to this Act and applicable law, the court shall issue an Order approving the report
and ordering the SEC to remove the debtor from the registry of legal entities.
Section 135. Termination of Proceedings. - Upon receipt of evidence showing that the debtor
has been removed from the registry of legal entities at the SEC. The court shall issue an Order
terminating the proceedings.
(F) Liquidation of a Securities Market Participant.
Section 136. Liquidation of a Securities Market Participant. - The foregoing provisions of this
chapter shall be without prejudice to the power of a regulatory agency or self- regulatory
organization to liquidate trade-related claims of clients or customers of a securities market
participant which, for purposes of investor protection, are hereby deemed to have absolute
priority over other claims of whatever nature or kind insofar as trade-related assets are
concerned.
For purposes of this section, trade -related assets include cash, securities, trading right and
other owned and used by the securities market participant in the ordinary course of this
business.
CHAPTER VIII
PROCEEDINGS ANCILLARY TO OTHER INSOLVENCY OR REHABILITAION PROCEEDINGS
(A) Banks and Other Financial Institutions Under Rehabilitation Receivership Pursuant to a
State-funded or State-mandated Insurance System.
Section 137. Provision of Assistance. - The court shall issue orders, adjudicate claims and
provide other relief necessary to assist in the liquidation of a financial under rehabilitation
receivership established by a state-funded or state-mandated insurance system.
Section 138. Application of Relevant Legislation. - The liquidation of bank, financial institutions,
insurance companies and pre-need companies shall be determined by relevant legislation. The
provisions in this Act shall apply in a suppletory manner.
(B) Cross-Border Insolvency Proceedings.
Section 139. Adoption of Uncitral Model Law on Cross-Border Insolvency. - Subject to the
provision of Section 136 hereof and the rules of procedure that may be adopted by the Supreme
Court, the Model Law on Cross-Border Insolvency of the United Nations Center for International
Trade and Development is hereby adopted as part of this Act.
Section 140. Initiation of Proceedings. - The court shall set a hearing in connection with an
insolvency or rehabilitation proceeding taking place in a foreign jurisdiction, upon the
submission of a petition by the representative of the foreign entity that is the subject of the
foreign proceeding.
Section 141. Provision of Relief. - The court may issue orders:
(a) suspending any action to enforce claims against the entity or otherwise seize or
foreclose on property of the foreign entity located in the Philippines;
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(b)
requiring the surrender property of the foreign entity to the foreign representative;
(c) providing other necessary relief.
Section 142. Factors in Granting Relief. - In determining whether to grant relief under this
subchapter, the court shall consider;
(a) the protection of creditors in the Philippines and the inconvenience in pursuing their
claim in a foreign proceeding;
(b)
the just treatment of all creditors through resort to a unified insolvency or rehabilitation
proceedings;
(c) whether other jurisdictions have given recognition to the foreign proceeding;
(d) the extent that the foreign proceeding recognizes the rights of creditors and other
interested parties in a manner substantially in accordance with the manner prescribed in
this Act; and
(e) the extent that the foreign proceeding has recognized and shown deference to
proceedings under this Act and previous legislation.
CHAPTER IX
FUNDS FOR REHABILITATION OF GOVERNMENT-OWNED AND CONTROLLED CORPORATIONS
Section 143. Funds for Rehabilitation of Government -owned and Controlled Corporations. Public funds for the rehabilitation of government-owned and controlled corporations shall be
released only pursuant to an appropriation by Congress and shall be supported by funds
actually available as certified by the National Treasurer.
The Department of Finance, in collaboration with the Department of Budget and Management,
shall promulgate the rules for the use and release of said funds.
CHAPTER X - MISCELLANEOUS PROVISIOS
Section 144. Applicability of Provisions. - The provisions in Chapter II, insofar as they are
applicable, shall likewise apply to proceedings in Chapters II and IV.
Section 145. Penalties. - An owner, partner, director, officer or other employee of the debtor
who commits any one of the following acts shall, upon conviction thereof, be punished by a fine
of not more than One million pesos (Php 1, 000,000.00) and imprisonment for not less than
three(3) months nor more than five (5) years for each offense;
(a) if he shall, having notice of the commencement of the proceedings, or having reason
to believe that proceedings are about to be commented, or in contemplation of the
proceedings hide or conceal, or destroy or cause to be destroyed or hidden any property
belonging to the debtor or if he shall hide, destroy, after mutilate or falsify, or cause to be
hidden, destroyed, altered, mutilated or falsified, any book, deed, document or writing
relating thereto; if he shall, with intent to defraud the creditors of the debtor, make any
payment sale, assignment, transfer or conveyance of any property belongings to the
debtor
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(b) if he shall, having knowledge belief of any person having proved a false or fictitious
claim against the debtor, fail to disclose the same to the rehabilitation receiver of liquidator
within one (1) month after coming to said knowledge or belief; or if he shall attempt to
account for any of the debtors property by fictitious losses or expense; or
(c) if he shall knowingly violate a prohibition or knowingly fail to undertake an obligation
established by this Act.
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Section 146. Application to Pending Insolvency, Suspension of Payments and
Rehabilitation Cases. - This Act shall govern all petitions filed after it has taken
effect. All further proceedings in insolvency, suspension of payments and
rehabilitation cases then pending, except to the extent that in opinion of the
court their application would not be feasible or would work injustice, in which
event the procedures set forth in prior laws and regulations shall apply.
Section 147. Application to Pending Contracts. - This Act shall apply to all
contracts of the debtor regardless of the date of perfection.
Section 148. Repeating Clause. - The Insolvency Law (Act No. 1956). As
amended is hereby repealed. All other laws, orders, rules and regulations or
parts thereof inconsistent with any provision of this Act are hereby repealed
or modified accordingly.
Section 149. Separability Clause. - If any provision of this Act shall be held
invalid, the remainder of this Act not otherwise affected shall remain in full
force effect
Section 150. Effectivity Clause. - This Act shall take effect fifteen (15) days
after its complete publication in the Official Gazette or in at least two (2)
national newspaper of general circulation.
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