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 1 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 2 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. 3 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 4 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 5 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 6 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.) 7 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 8 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.) 9 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. 24 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. 64 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 68 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. 70 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. 71 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. 72 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. 73 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 74 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. 75 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 76 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 77 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. 78 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. 79 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.) 80 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. 81 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 82 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. 83 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 84 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. 85 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. 86 (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. 87 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 88 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 89 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. 90 (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. 91 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 92 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; 93 (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. 94 (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. 95 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. 96 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. 97 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 98 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. 99 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 100 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 101 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.) 102 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. 103 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. 104 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. 115 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.) 116 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. 117 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: 118 (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.) 119 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; 120 (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 121 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 122 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 123 (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. 124 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 125 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: 126 (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 127 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 128 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 129 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 130 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. 131 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. 134 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 135 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. 136 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. 140 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. 141 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. 160 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 161 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 162 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. 164 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: 166 (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 167 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. 168 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 169 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) 170 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. 171 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. 173 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. 174 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) 175 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. 176 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) 177 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; 178 (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) 179 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. 180 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. 182 (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. 185 (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. 186 (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 187 (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 188 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 189 (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. 190 (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; 191 (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: 192 (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; 193 (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; 194 (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. 195 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. 196 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; 197 (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 198 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. 199 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. 200 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 201 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; 202 (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. 203 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 204 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 205 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; 206 (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 207 (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; 208 (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 209 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 210 (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. 211 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 212 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 213 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. 214 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; 218 (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. 220 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 221 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. 222 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. 223 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. 224 (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. 225 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; 226 (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 227 (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. 228 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. 229