CONTRACTS
CONTRACT: a meeting of minds between two persons whereby one
binds himself, with respect to the other, to give something or to render
some service.
b. Gratuitous – those where one party receives no equivalent
consideration (such as donation and commodatum). These
contracts are referred to contracts of pure beneficence, the
cause of which is the liberality of the benefactor.
c. Remuneratory – those where the cause is the service or benefit
remunerated.
Elements of a Contract
According to Importance or Dependence of One Upon Another
Essential Elements
Those without which there will be no contract
a. Consent of the contracting parties
b. Object certain which is the subject matter of the contract
c. Cause of the obligation which must be established.
Natural Elements
Those found in certain contracts unless set aside or suppressed by the
parties (such as warranty against eviction and warranty against hidden
defects in a contract of sale)
Accidental Elements
Those that refer to particular stipulations of the parties (such as terms
of payment, interest rate, place of payment)
Classification of Contracts
According to Perfection or Formation
a. Consensual – those that are perfected by mere consent (such
as sale and lease)
b. Real – those that are perfected by the delivery of the object of
the contract (such as depositum, pledge, and commodatum)
c. Formal or solemn – those which must be in the form provided
by law for their perfection (such as the donation of an
immovable which, together, with the acceptance by the donee,
must be in a public instrument to be valid)
According to Cause
a. Onerous – those where there is an exchange of valuable
considerations (such as sale and barter). For each contracting
party, the cause is the prestation or the promise of a thing or
service by the other.
a. Principal – one that can stand by itself (such as sale or loan)
b. Accessory – one whose existence depends upon another
contract (such as pledge or mortgage which is dependent upon
a principal contract such as loan)
c. Preparatory – one which serves as a means by which other
contracts may be entered into (such as agency and partnership)
According to Name or Designation
a. Nominate – those which have a name under the law (such as
sale, loan and barter)
b. Innominate – those without any name under the law
Rules that Govern Innominate Contracts
1. Stipulations of the parties
2. The provisions of Obligations and Contracts
3. The rules governing the most analogous nominate contracts
and
4. The customs of the place
According to Risk or Fulfillment
a. Commutative – those where the parties give equivalent values
(such as sale and barter); hence, there is real fulfillment
b. Aleatory – those whose fulfillment depends upon chance (such
as an insurance contract)
According to Parties Obligated
a. Unilateral – those where only one of the parties is obligated to
give or do something (such as commodatum and gratuitous
deposit)
b. Bilateral – those where both parties are required to give or do
something (such as sale and barter). They may be reciprocal or
non-reciprocal.
According to Subject Matter
a. Contracts involving things (sale or barter)
b. Contracts involving rights or credits (usufruct or assignment
of credits)
c. Contracts involving services (agency or lease of service)
According to the Time of Fulfillment
a. Executed – one which has been performed
b. Executory – one that has not yet been performed
According to the Number of Person Physically Entering into the
Contract
a. Ordinary – where two parties are represented by different
persons (sale or barter)
b. Auto-contract – where only one person represents the two
opposite parties to the contract (such as when an agent lends
money to his principal whom he represents as borrower)
According to the Number of Persons who Participated in the Drafting
and Preparation of the Contract
a. Ordinary – where both parties participated in the drafting of the
contract (sale)
b. Contract of adhesion – where only one party drafted the
contract (insurance)
Summary
Perfection/Formation
Cause
Importance or Dependence
of One Upon Another
Name or Designation
Risk or Fulfillment
Consensual, real, formal/solemn
Onerous, gratuitous, remuneratory
Principal, accessory, preparatory
Nominate, innominate
Commutative, aleatory
Parties Obligated
Subject Matter
Time of Fulfillment
Number
of
Person
Physically Entering into the
Contract
Number of Persons who
Participated in the Drafting
and Preparation of the
Contract
Unilateral, bilateral
Things, rights/credits, services
Executed, executory
Ordinary, auto-contract
Ordinary, contract of adhesion
Stages of a Contract
1.
Preparation or conception – this involves preliminary
negotiations and bargaining, discussion of terms and
conditions, with no arrival yet of a definite agreement.
Negotiation begins from the time the prospective contracting
parties manifest their interest in the contract and ends at the
moment of their agreement.
2.
Perfection or birth – this is the point when there is meeting of
minds between the parties on a definite subject matter and valid
cause.
3.
Consummation or death or termination – this occurs when
the parties fulfill or perform the terms agreed upon in the
contract, culminating in the extinguishment thereof.
Contract of Sale (Art. 1458)
A contract whereby one of the parties (called the 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 therefor a
sum of money or its equivalent (known as the price).
Elements of a Contract of Sale
Essential Elements/Requisites
a. Consent
b. Subject matter
c. Price
The buyer is required to pay the
price
The agent is required to turn over
to the principal the price of the
goods which he received from
the buyer.
Natural Elements
a. Warranty against eviction
b. Warranty against hidden defects and encumbrance
Accidental Elements
Particular stipulations of the parties such as terms, place and time of
payment, and other conditions agreed upon.
Contract of Sale vs. Contract to Sell
Sale
Title to the property (ownership)
passes to the vendee upon the
delivery of the thing sold
Non-payment of the purchase
price is a negative resolutory
condition, meaning the sale
becomes ineffective upon the
happening of such condition
The vendor loses ownership of
the property and cannot
recover it until and unless the
contract of sales is resolved or
rescinded.
Sell
Ownership is, by agreement,
reserved to the vendor and is not
to passed to the vendee until full
payment of the purchase price
The payment in full is a positive
suspensive condition, meaning, if
the purchase price is not paid, the
obligation to deliver and to transfer
ownership on the part of the seller
does not become effective
Whether there is delivery or not,
the seller retains the ownership of
the object. If the seller, due to nonpayment of the price is ousting the
buyer from the property, he (seller)
is not rescinding the contract of
sale but is precisely enforcing it.
Sale vs. Agency to Sell
Sale
Title to the goods is transferred to
the buyer upon delivery of the
thing sold
Agency to Sell
Title to goods is not transferred to
the agent upon delivery
Sale vs. Dacion en Pago
Sale
No pre-existing credit
Creates obligations
Cause or consideration is the
price (seller’s pov) and the
delivery of the object (buyer’s
pov)
Dacion en Pago
There’s a pre-existing credit
Extinguishes obligations
Property is alienated to the
creditor in satisfaction of a debt in
money
Greater freedom in fixing the
price
Less freedom in fixing the price
because of the amount of the
pre-existing credit, which the
parties seek to extinguish
Rules on the Object of the Contract of Sale
1. Requisites of object of a contract of sale
a. The thing must be within the commerce of men.
b. The thing must be licit, not contrary to law, morals, good
customs, public order or public policy
c. The thing must be determinate.
2. Vendor must have the right to transfer the ownership of the
thing at the time that it is delivered
3. Things having a potential existence may be the object of a
contract of sale
PRICE: The sum stipulated as the equivalent of the thing sold, and also
every incident taken into consideration for the fixing of the same, put to
the debit of the vendee, and agreed to by him.
When is a Contract of Sale Perfected?
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A 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 law governing the form
of contracts.
Forms of a Contract of Sale
1. Subject to the provisions of the Statute of Frauds and of
any other applicable statute, a contract of sale may be:
a.
b.
c.
d.
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
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Transactions covered are sale or financing of real estate on
installment payments, including residential condominium apartments,
but excluding industrial lots, commercial buildings and sales to tenants
under RA 3844 as amended by RA No. 6389 (Land Reform Law), where
buyer has paid at least two years of installments.
Rights of the Buyer
Grace period to pay installment in case of default
1. If at least 2 years of installments had been paid at the time of
default:
a.
2. Under the Statute of Frauds, the sale involving the
following must be in writing to be enforceable:
a.
b.
Sale of real property or of any interest therein (regardless of
the price)
Sale of goods, chattels or things in action the price of which
is 500 or more. Things in action include credit, shares of
stock and other incorporeal properties.
3. Sale of a piece of land through an agent
The authority of the agent to sell a piece of land must be in
writing; otherwise, the sale is void.
Rescission by Buyer
If the goods delivered do not correspond with the sample description,
or sample and description, as the case may be, the buyer may ask for
the rescission of the sale.
Sale of Real Property in Installments (RA 6552)
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“Maceda Law”
“Realty Installment Buyer Act”
“Protect buyers of real estate on installments against onerous
and oppressive conditions”
b.
To pay, without additional interest, the unpaid installments due
within the total grace period earned by him, which is fixed at
the rate of (1) one month grace period for every (1) one year
of installment paid. This right shall be exercised by the buyer
only once in every five (5) years of the life of the contract and
its extensions, if any.
If the contract is cancelled, he shall be entitled to the refund of
the cash surrender value of the payments on the property
equivalent to fifty (50%) percent of the total payments made,
and after five (5) years of installments, an additional five (5%)
percent every year but not to exceed ninety percent (90%) of
the total payments made.
CANCELLATION: The actual cancellation shall take place after thirty
(30) days from receipt by the buyer of the notice of cancellation or the
demand for rescission of the contract by notarial act, and upon full
payment of the cash surrender value to the buyer.
2. If less than two (2) years of installments had been paid at the
time of default:
The buyer shall be given a grace period of not less than sixty (60) days
from the date the installment became due to pay.
CANCELLATION: If the buyer fails to pay the installment due upon the
expiration of the grace period, the seller may cancel the sale thirty (30)
days from receipt by the buyer of the notice of cancellation or the
demand for rescission of the contract by notarial act.
The following requisites are essential to the contracts of pledge and real
estate mortgage:
Additional Rights
1)
1. The buyer shall have the right during the grace period before
cancellation of the contract:
2)
3)
a. To sell his rights to another by notarial act;
b. To assign his rights to another by notarial act; or
c. To reinstate the contract by updating the account.
4)
2. To pay in advance any installment or the full unpaid balance any
time without interest.
4. To ask for the annotation of the full payment of the
purchase price in the certificate of title governing the
property.
MORTGAGE and ANTICHRESIS
REAL ESTATE MORTGAGE: a real right constituted to secure an
obligation upon real property or rights therein to satisfy with the
proceeds of the sale thereof such obligation when the same becomes
due and has not been paid or fulfilled.
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The mortgagor generally retains possession of the mortgaged
property because by mortgaging a piece of property, a debtor
merely subjects it to a lien but ownership thereof is not parted
with.
In case of the debtor’s nonpayment of the debt secured by the
mortgage, the only right of the mortgagee is to foreclose the
mortgage and have the encumbered property sold to satisfy the
outstanding indebtedness.
The mortgagors default does not operate to vest in the
mortgagee the ownership of the encumbered property, for any
such effect is against public policy.
Even if the property is sold at a foreclosure sale, only upon
expiration of the redemption period, without the judgment debtor
having made use of his right of redemption, does ownership of
the land sold become consolidated in the purchaser.
Essential Requisites
That they be constituted to secure the fulfillment of a principal
obligation;
That the pledgor or mortgagor be the absolute owner of the thing
mortgaged;
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.
In the contract of pledge, it is further necessary, in order to
constitute the said contract, that the thing pledge be placed in
the possession of the creditor, or of a third person by common
agreement.
First Requisite: It be constituted to secure fulfillment of a principal
obligation.
Both contracts of pledge and real estate mortgage are accessory
contracts. Hence, they cannot exist without a valid principal obligation.
Assignment as security: An assignment which is not an absolute
conveyance which confers ownership on the assignee but merely to
guarantee an obligation is in effect a real estate mortgage, if the subject
matter, is a real property, or a pledge, if the subject matter is a personal
property.
Second Requisite: The pledgor or mortgagor be the absolute
owner of thing pledged or mortgaged.
Effect if mortgagor is not absolute owner: In a real estate mortgage
contract, it is essential that the mortgagor be the absolute owner of the
property to be mortgaged; otherwise, the mortgage is void, as well as
any subsequent foreclosure sale of the mortgaged property. Thus, a
mortgage, constituted by an impostor, is void.
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However, an exception to this rule is the doctrine of “mortgagee
in good faith.” Under this doctrine, even if the mortgagor is not
the owner of the mortgaged property, the mortgage contract and
any foreclosure sale arising therefrom are given effect by
reason of public policy.
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This principle is based on the rule that all persons dealing with
property covered by a Torrens Certificate of Title, as buyers or
mortgagees, are not required to go beyond what appears on the
face of the title. This is the same rule that underlies the principle
of “innocent purchasers for value.”
The prevailing jurisprudence is that a mortgagee has a right to
rely in good faith on the certificate of the title of the mortgagor
to the property given as security and in the absence of any sign
that might arouse suspicion, has no obligation to undertake
further investigation.
Hence, even if the mortgagor is not the rightful owner of, or does
not have a valid title to the mortgaged property, the mortgagee
in good faith is, nonetheless, entitled to protection.
Instances where the mortgagee cannot simply rely on the face of
the title:
1. Where there are circumstances which will arise suspicion:
Although it is a recognized principle that a person dealing on a
registered land need not go beyond its certificate of title, it is
also a firmly settled rule that where there are circumstances
which would put a party on guard and prompt him to investigate
or inspect the property being sold to him, such as the presence
of occupants/tenants thereon, it is of course, expected from the
purchaser of a valued piece of land to inquire first into the status
or nature of possession of the occupants, i.e., whether or not
the occupants possess the land en concepto de dueño, in the
concept of the owner.
2. Where mortgagee is a bank: The rule that persons dealing
with registered lands can rely solely on the certificate of title
does not apply to banks. As between two innocent persons, the
mortgagee and the owner of the mortgaged property, one of
whom must suffer the consequence of a breach of trust, the one
who made it possible by his act of confidence must bear the
loss. This is a principle that accords more with justice and equity,
in the light of the common practice of banking institution, which
is a matter of public knowledge, before approving a loan, to
send representatives to the premises of the land offered as
collateral and investigate who are the true owners thereof.
3. Where mortgagee is an investment and financing
corporation: In Sunshine Finance and Investment Corp. v.
Intermediate Appellate Court, the Court presumed that an
investment and financing corporation is experienced in its
business. Ascertainment of the status and condition of
properties offered to it as security for loans it extends must be a
standard and indispensable part of its operations.
4. Where the mortgagee is GSIS: GSIS, as mortgagee, cannot
likewise rely solely on the certificate of title because the GSIS
Act grants the GSIS the power to invest its funds, directly or
indirectly. Being allowed to engage in financing, the GSIS
should, therefore, exercise care and prudence in investing its
funds, such as in granting loans. Although the GSIS is
categorized as a social security and insurance entity, its
ancilliary function of investing funds im- poses upon it the duty
of exercising due diligence in dealing with properties submitted
as collateral for loans.
5. Where mortgagee is private individual engaged in the
business of lending money secured by real estate
mortgages: A person engaged in the real estate business,
including the grant of loans secured by real estate mortgages,
is expected to ascertain the status and condition of the
properties offered to him as collaterals, as well as to verify the
identities of the persons he transacts business with.
Third requisite: Pledgor or mortgagor must have free disposal or
legally authorized.
Rule on third-party mortgage or pledge (or accommodation
mortgagor/pledgor): Third persons who are not parties to the principal
obligation may secure the latter by pledging or mortgaging their own
property. Since the validity of an accommodation mortgage is allowed,
an accommodation mortgage is not necessarily void simply because
the accommodation mortgagor did not benefit from the same.
Third-party mortgagor, not solidarily bound: There is no legal provision
nor jurisprudence in our jurisdiction which makes a third person who
secures the fulfillment of another’s obligation by mortgaging his own
property, to be solidarily bound with the principal obligor. The signatory
to the principal contract - loan - remains to be primarily bound. It is only
upon default of the latter that the creditor may have recourse on the
mortgagors by foreclosing the mortgaged properties in lieu of an action
for the recovery of the amount of the loan. And the liability of the thirdparty mortgagors extends only to the property mortgaged. Should there
be any deficiency, the creditor has recourse on the principal debtor.
Pactum commissorium: Prohibition against appropriation or disposal of
property: The rule is that the creditor cannot appropriate the things
given by way of pledge or mortgage, or dispose of them. With respect
to mortgage, the only right of a mortgagee in case of non- payment of
a debt secured by mortgage would be to foreclose the mortgage and
have the encumbered property sold to satisfy the outstanding
indebtedness. The mortgagor's default does not operate to vest in the
mortgagee the orfasole ownership of the encumbered property, for any
such effect is against public policy. The same rule applies in pledge.
With respect to pledge, the creditor has no right to appropriate the
chattels and effects pledged, or to make payment to himself and by
himself of his credit with the value thereof, for he is only allowed to
collect the debt out of the proceeds of the sale of the effects and
chattels pledged.
Rule on indivisibility of pledge or mortgage: 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. The indivisibility of a pledge
or mortgage is not affected by the fact that the debtors are not solidarily
liable.
Consequences:
• As to debtor's heirs: 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.
• As to creditor's heirs: 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.
Exception to rule: In case there be several things given in mortgage or
pledge and each one of them guarantees only a determinate portion of
the credit, the debtor 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.
Nature and Characteristics
Realty as subject-matter: The subject-matter of a real estate mortgage
is always a real property. Only the following properties may be the
object of a contract of real estate mortgage:
a) immovables; and
b) alienable real rights in accordance with the laws, imposed
upon immovables.
Building erected on land of another: A valid real estate mortgage can
be constituted on the building erected on the land belonging to another.
In the enumeration of properties under Article 415 of the Civil Code of
the Philippines, the Court has ruled that, “it is obvious that the inclusion
of “building” separate and distinct from the land, in said provision of law
can only mean that a building is by itself an immovable property.” Thus,
while it is true that a mortgage of land necessarily includes, in the
absence of stipulation of the improvements thereon, buildings, still a
building by itself may be mortgaged apart from the land on which it has
been built. Such a mortgage would be still a real estate mortgage for
the building would still be considered immovable property even if dealt
with separately and apart from the land.
Rule under the new Civil Code: Under the new Civil Code, a stipulation
forbidding the owner from alienating the immovable mortgaged is void.
Is “mortgage” included in this prohibition? In Sps. Litonjua v. L &R
Corporation, the Court held that no similar prohibition forbidding the
owner of mortgaged property from subsequently mortgaging the
immovable mortgaged is found in our laws.
Properties Which Cannot Be Mortgaged
• Growing crops
• Servitudes
• Movables permanently placed in buildings
Kinds of Mortgage
• Voluntary: Those agreed to between the parties or imposed at
the volition of the owner of the property over which they are
constituted.
• Legal: Those which the law requires to be constituted.
o For example, the claims or credits enumerated in Article
2242 of the Civil Code shall be considered as mortgages
of real property, or liens within the purview of legal
provisions governing insolvency. However, the persons
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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. In other words, to have a legal mortgage is
to have, not a lien or real charge over the property of the
debtor nor a mortgage already constituted, but merely
the right to require the latter to constitute it in due form.
Equitable Mortgage: An equitable mortgage has been defined
as one which although lacking in some formality, or form or
words, or other requisites demanded by a 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. The essential requisites of an equitable mortgage are:
(1) the parties enter into what appears to be a contract of sale,
(2) but their intention is to secure an existing debt by way of
mortgage.
Extent of Mortgage
With respect to property covered: The mortgage extends to the natural
accessions, to the improvements, growing of 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.
Remedies Available to Mortgagee-Creditor
Available remedies: Where a debt is secured by a mortgage and there
is a default in payment on the part of the mortgagor, the mortgagee has
a choice of one of two remedies, but he cannot have both. The
mortgagee may either:
(1) foreclosure the mortgage; or
(2) file an ordinary action to collect the debt.
A. Extrajudicial Foreclosure
Governing law and rules: Extrajudicial foreclosure is governed by Act
No. 3135, as amended by Act No. 4118, and A.M. No. 99-10-105-0, as
amended.
Applicability of extrajudicial foreclosure: Act No. 3135, as amended,
only covers real estate mortgages and is intended merely to regulate
the extrajudicial sale of the property mortgaged if and when the
mortgagee is given a special power or express authority to do so in the
deed itself, or in a document annexed thereto. The power to foreclose
is not an ordinary agency that contemplates be exclusively the
representation of the principal by the agent but is primarily an authority
conferred upon the mortgagee for the latter's own protection. That
power survives the death of the mortgagor.
Who may conduct extrajudicial foreclosure: The extrajudicial
foreclosure of mortgage may either be under the direction of the sheriff
or a notary public. But whether the extrajudicial foreclosure is under the
direction of the sheriff or the notary public, it is now required that all
applications for extrajudicial foreclosure of mortgage, pursuant to Act
3135, as amended by Act 4118, and Act 1508, as amended, be filed
with the Executive Judge, through the Clerk of Court who is also the
Ex-Officio Sheriff.
B. Judicial Foreclosure
Governing law: Judicial foreclosure of real estate mortgages is
governed by Rule 68 of the 1997 Revised Rules of Civil Procedure.
Right to recover deficiency: The mortgagee has the right to recover
deficiency in case of judicial foreclosure by way of a mere motion. Such
deficiency judgment is immediately executory if the balance is all due.
Exception: Where the mortgage was executed by a third person to
secure the obligation of a debtor, such third person not having assumed
personal liability for the payment of the debt, the extent of recovery in
the judgment of foreclosure shall be limited to the purchase price at the
foreclosure sale and no deficiency judgment can be recovered against
said person. The remedy of the mortgagee is to proceed against the
debtor in an ordinary action for a sum of money to recover the balance
of the debt due.
ANTICHRESIS: 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.
Subject-matter: From its definition, it is clear that the object of the
contract is an immovable property. Such immovable need not be owned
by the debtor because third persons not parties to the principal
obligation may secure the latter by delivering in antichresis their own
property.
Essence of antichresis: In order that there be antichresis, there must
be an agreement in the contract that the creditor shall have the right to
receive the fruits of the immovable with the obligation of applying it to
the interest, if owing, or the excess to the principal. Without that
agreement, there is no antichresis. Thus, if a contract of loan with
security does not stipulate the payment of interest but provides for the
delivery to the creditor by the debtor of the property given as security,
in order that the latter may gather its fruits, without stating that said fruits
are to be applied to the payment of interest, if any, and afterwards that
of the principal, the contract is a mortgage and not antichresis.
Delivery of possession: The delivery of possession of the immovable is
not essential to the perfection of the contract of antichresis so that this
contract is classified as a simple consensual contract.
Characteristics of the Contract
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It is an accessory contract.
Third-party antichresis: Third persons not parties to the principal
obligation may secure the latter by delivering in antichresis their
own property.
Kinds of obligations secured: The contract of antichresis may
secure all kinds of obligations, be they pure or subject to a
suspensive or resolutory condition.
It is a consensual contract: In antichresis, the immovable
property is delivered to the creditor so that the latter may receive
the fruits for the purpose of applying the same to the payment
of the interest, if owing, and thereafter to the principal. However,
it is not necessary, in order to constitute the contract of
antichresis that the creditor be placed in possession of the
immovable. In other words, the delivery of possession is not
essential to the perfection of the contract of antichresis.
It is a real right and registerable.
It is also indivisible. Thus, each and every property lains under
antichresis answers for entire debt.
Distinguished From Real Estate Mortgage
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In antichresis, the immovable property is delivered to the
creditor; whereas, in mortgage, the mortgagor, as a rule, retains
the possession of the property mortgaged.
However, it is not an essential requisite of the contract of
mortgage that the property mortgaged remains in the
possession of the mortgagor. Hence, the latter may deliver said
property to the mortgagee, without thereby altering the true
nature of the contract.
What truly distinguishes antichresis from mortgage is that in the
former, the creditor acquires rights over the fruits of the property
with the obligation to apply them to the payment of the interest,
if owing, and thereafter to the principal of his credit. Thus, even
if the contract of loan provides for the delivery to the creditor of
the immovable property given as security in order that the latter
may gather its fruits, but without stating that said fruits are to be
applied to the payment of interest, if any, and afterwards that of
the principal, the contract is a mortgage and not antichresis.
Formality Required
Formality required: The amount of the principal and of the interest shall
be specified in writing; otherwise, the contract of antichresis shall be
void.
Antichresis need not be in writing: The law does not require the contract
of antichresis to be in writing. Instead, what is required to be specified
in writing is only the amount of the principal and interest, if owing.
Hence, if such specification has already been made in the principal
contract of loan, then the contract of antichresis itself need not be in
writing. After all, an accessory contract such as antichresis must be
interpreted in conjunction with the principal contract of loan pursuant to
the rule in contract interpretation known as "complementary- contractsconstrued-together" doctrine. In addition, the Supreme Court in a case
that arose under the Old Civil Code upheld the validity and binding force
of a verbal contract of antichresis.
Rights and Obligations of the Creditor
Rights of antichretic creditor
1) He acquires the right to receive the fruits of the immovable of
the antichretic debtor.
2) He acquires the right to take possession of the immovable and
to retain the same until the obligation is totally paid.
Obligations of antichretic creditor
1) To apply the fruits to the payment of the interest, if owing, and
thereafter to the principal of his credit. The measure of such
application shall be the actual market value of the fruits at the
time of the application thereof to the interest and principal.
2) Unless there is a stipulation to the contrary, he 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 these purposes shall, however, be deducted
from the fruits.
Exemption: If the creditor wants to exempt himself from the obligations
mentioned in number 2 above, he may compel the debtor to enter again
upon the enjoyment of the property, except when there is a stipulation
to the contrary.
Enforcement of security: Prohibition against pactum commissorium
where 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 void.
Alternative remedies of antichretic creditor
He may either:
1) Petition the court for the payment of debt; or
2) Petition for the sale of the immovable property in which case,
the procedures for judicial foreclosure shall apply.
AGENCY
a. Capacity to be a principal – Agency being a contract, any
person with legal capacity may appoint an agent for any
legal purpose whatsoever.
b. Effect if principal is incapacitated – if the principal is
incapacitated but the agent is capacitated, the contract
of agency is voidable at the instance of the principal.
AGENCY: a contract whereby a person binds himself to render service
or to do something in representation or in behalf of another the consent
and authority of the latter (Art. 1868).
Importance of Agency
Agency enables a person to perform diverse juridical acts at the same
time by enabling him to be constructively present in many places, which
would not be possible for him to do physically
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a. Capacity to be a principal – A person capable of acting
for himself can be an agent of another. Legal capacity is
not required for the validity of the agent’s acts which are
considered those of the principal since the agent is
merely an extension of the personality of the principal.
The agent, however, needs to possess some mental
capacity.
b. Effect if principal is incapacitated – The contract of
agency is voidable if the agent is incapable of giving
consent.
Elements of a Contract of Agency
1) Consent, express or implied, of the parties to establish the
relationship
2) The Object is the execution of a juridical act in relation to a third
person
3) The Agent acts as representative and not for himself
4) The Agent acts within the scope of his authority
Characteristics of Agency
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Principal – it can stand by itself
Preparatory – it is a means by which other contracts may be
entered into
Consensual – perfected by mere consent
Onerous – presumed to be for compensation, unless there is
proof to the contrary
Nominate – it has a name given to it by law
Bilateral – the parties are bound reciprocally to each other
Commutative – parties give and receive almost equivalent
values; hence, there is real fulfillment
Parties to a Contract of Agency, Capacity of the Parties
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Principal – The person represented by the agent and from
whom the latter derives his authority; he is the party primarily
and originally concerned in the contract of agency.
Agent – He who acts for and represents the principal and from
whom he derives his authority.
Acts that may be Delegated
Any act which one may lawfully do personally may be delegated.
However, the following acts may not be delegated:
1) Acts which are personal in nature
2) Acts that are prohibited by law to be delegated
Relationship between Principal and Agent
The relation of an agent to his principal is fiduciary since it is based on
trust and confidence.
How Agency Relationship is Created?
1)
2)
3)
4)
By Appointment (thru SPA)
By Ratification
By Estoppel
By Necessity
Kinds of Agency
1) Express
a. Oral agreement, valid unless the law requires a specific
form
b. Written agreement
2) Implied – an agency may be implied from the following:
a. Acts of the principal
b. Silence of the principal
c. Lack of action of the principal
d. Failure of the principal to repudiate the agency knowing
that another person is acting in his behalf without
authority.
According to Extent
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General agency
Special agency
According to Authority Conferred
a. General power of attorney
b. Special power of attorney
Kinds of Acceptance
1) Express – may be orally or in writing
2) Implied – may be implied from his acts which carry out the
agency; silence or inaction according to circumstances
General Obligations of an Agent
1) To carry out the agency
2) To be liable for damages which, through his non-performance,
the principal may suffer
3) To finish the business already begun on the death of the
principal, should delay entail any danger
Specific Obligations of an Agent
1) To advance the necessary funds if there was a stipulation to that
effect, except when the principal is insolvent (Art. 1886)
2) To act in accordance with the instructions of the principal in the
execution of the agency. In the absence of specific instructions
from the principal, he shall do all that a good father of a family
would do, as required by the nature of the business (Art. 1887)
3) Not to carry put an agency if its execution would manifestly
result in loss or damage to the principal (Art. 1888)
4) To be liable for damages if there being a conflict between his
interest and that of the principal, he should prefer his own (Art.
1889)
5) Not to borrow the money of the principal without the principal’s
consent, if the latter has authorized him to lend the principal’s
money at interest (Art. 1890)
6) To render an accounting of his transactions and to deliver to the
principal whatever he may not be owing to the principal. Any
stipulation exempting the agent from the obligation to render an
account shall be void (Art. 1891)
7) The agent may appoint a substitute, however he shall be
responsible for the acts of the substitute.
a. If the agent is authorized to appoint a substitute, he shall
be liable if the person he appointed as substitute is
notoriously incompetent or insolvent.
b. If the principal designated the person to be appointed as
substitute, the agent is not responsible for the acts of the
substitute even if the latter is notoriously incompetent or
insolvent
c. If the agent is prohibited to appoint a substitute, all the
acts of the substitute shall be void (Art. 1892)
8) Liability of two or more agents if they have been appointed
simultaneously
GR: Each agent is liable only for his own acts or omissions.
Expn: The agent’s liability shall be solidary if the same has been
agreed upon. In this case, each of the agents shall be
responsible for the ff.
a. Non-fulfillment of the agency
b. Fault or negligence of his fellow agents, except when the
latter acted beyond the scope of their authority.
9) To be liable for the 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 (Art. 1896)
10) The agent who acts as such shall not be liable to the party with
whom he contracts, except:
5) To be liable for damages if he does not collect the credits of the
principal at the same time when they become due and
demandable, unless he proves that he exercised due diligence
for that purpose. This apply only to an ordinary commission
agent (Art.1908)
(1) if he expressly binds himself and
(2) If he exceeds the limits of his authority without giving such
party sufficient notice of his powers.
Obligations of the Principal
1) To comply with all the obligations which the agent may have
contracted within the scope of his authority (Art.1910)
11) To be responsible not only for fraud, nut 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 (Art. 1909)
2) To be bound for any obligation wherein the agent has exceeded
his power if he ratifies such obligation expressly or tacitly
(Art.1910)
COMMISSION AGENT: one who buys and sells or chattels consigned
or delivered to him by his principal; for a compensation known as
commission.
Obligations of a Commission Agent
1) To 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. (Art.1903)
2) To distinguish by countermarks goods of the same kind and
mark which belong to different owners, and designate the
merchandise respectively belonging to each principal.
(Art.1904)
3) The commission agent cannot sell on credit except when there
is an express or implied consent of the principal (Art.1905)
3) To be solidarily liable with the agent if he allowed the latter to
act as though he had full powers when the agent exceeded his
authority (Art.1911)
4) To advance the agent the sums necessary for the execution of
the agency should the agent so request (Art.1912)
5) To reimburse the agent the sums advanced by the latter even if
the business or undertaking was not successful provided the
agent is free from all fault (Art.1912)
6) To indemnify the agent for all damages which the execution of
the agency may have caused the latter, without fault or
negligence on his part (Art.1913)
7) When two or more persons have appointed an agent for a
common transaction or undertaking, they shall be solidarily
liable for all the consequences of the agency. (Art.1915)
Incompatible Contracts with Agent and Principal
4) To bear the risk of collection and to pay the principal the
proceeds of the sales on the same terms agreed upon with the
purchaser if he receives on a sale, in addition to the ordinary
commission, another called a guarantee commission.
(Art.1907)
Rules in incompatible contract:
1. If the thing is a movable – ownership shall belong to:
a. The first possessor in good faith
b. In the absence thereof, the contract with a prior date shall be
preferred (Art.1544, 1516)
2. If the thing is an immovable – ownership shall belong to:
a. The first registrant in good faith
b. In the absence thereof, the first possessor in good faith
c. In the absence of both, the one who presents the oldest title in
good faith (Art.1544)
Liability for damages to third person whose contract is rejected in
incompatible contracts:
a. Agent is liable if he acted in bad faith
b. Principal is liable if the agent acted in good faith (Art.19417)
Extinguishment of Agency
Modes of Extinguishment
1) By revocation
2) By withdrawal of the agent
3) By the death, civil interdiction, insanity, or insolvency of the
principal or 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 (Art. 1919)
Withdrawal by yhe Agent
How withdrawal is made? By the agent giving notice to the principal of
his withdrawal (Art. 1928)
Liability/obligation of an agent who withdraws
a. The agent must indemnify the principal for any damage suffered
by the latter by reason of the withdrawal, unless the agent
should base his withdrawal upon the impossibility of continuing
the performance of the agency without grave detriment to
himself. (Art. 1928)
b. The agent who withdraws must continue to act as such until the
principal has had reasonable opportunity to take the necessary
steps to meet the situation, even if he withdraws for a valid
reason. (Art. 1929)
Death of the Principal
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Revocation by Principal
REVOCATION: refers to the act of the principal of terminating the
agency at will confidence and representation being the foundation of
the contract
Who may revoke agency when there are two or more principals? When
the power of attorney was granted for a common transaction, any one
of the principals may revoke the same without the consent of the others
(Art. 1925)
Notice of Revocation
a. If the agency has been entrusted for the purpose of contracting
with specified persons, the principal must give a timely notice of the
revocation to such third persons
b. If the agent had general powers, revocation of the agency does
not prejudice third persons who acted in good faith and without
knowledge thereof.
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As a general rule, the death of the principal extinguishes the
agency, except:
a. If the agency has been constituted in the common
interest of the principal and the agent
b. If the agency has been constituted in the interest of a
third person who has accepted the stipulation in his
favor. (Art 1930)
Validity of agent’s acts without the knowledge of the death of the
principal or other cause of extinguishment of the agency.
Death of the Agent
The death of the agent extinguishes the agency.
Duty of Agent’s Heirs
a. To notify the principal of the agent’s death
b. To adopt in the meantime such measures as the
circumstances may demand in the interest of the principal (Art.
1932)