Part I

SALES

Chapter 1. — Nature and Form of the Contract

I. Definitions

1. Contract of Sale
- In a contract of Sale, one of the contracting parties are obligates to
transfer the ownership and to deliver a determinate thing and the
other to pay the price in money or its equivalent.

2. Natural Elements
- Those inherent in a contract of sale, which in the absence of
stipulation excluding them, are deemed to exist. Like; warranty
against eviction and warranty against hidden defects and
encumbrances
.
3. Sale by description
- The parties contract solely with reference to the description. The
seller warrants that the bulk of the goods delivered correspond with
the description of the goods presented to the buyer.

4. Fungible goods
- Goods of which any unit is, from its nature or by mercantile usage,
treated as the equivalent of any other unit

5. Conditional Sale
- Where the sale contemplates a contingency and in general, usually
the full payment of the purchase price. The delivery of the thing
sold does not transfer ownership until the condition is fulfilled.

II. Discussions
1. Distinguish earnest money from option money.
- Earnest Money title passes to the buyer upon delivery of the thing
sold while Option Money is the ownership is reserved to the seller
and is not to pass until full payment.

2. (a) What remedies are available to a vendor in sale of

personal property payable in installments? (b) Is the vendor
allowed to recover the unpaid balance of the price??
- A. The remedies are elect fulfillment upon the vendees failure to
pay, to cancel the sale if the vendees shall have failed to pay two or
more installments; Foreclose the chattel mortgage, if one has been
constituted, if the vendee shall have failed to pay two or more
installments.
- B. It depends on the remedies of the vendor.
Remedy of specific performance, he may still recover from the
purchaser the unpaid balance of the price, if any on the real and
personal property of the purchaser not exempt by law.
Remedy of cancellation, if the vendor chooses recission or
cancellation of the contract upon the vendee’s failure to pay two or
more installments, the latter can demand only the return of
payment.
Remedy of foreclosure, he shall have no further action against the
vendee for the recovery of any unpaid balance of the price, and any
agreement to contrary is void.
 3. Give the characteristics of a contract of sale. Explain at least
three (3) of them.
- Consensual – because it is perfected by mere consent of the parties.
- Principal – because it can exist by itself without being dependent by
one another contract.
- Commutative – because the parties exchange almost equivalent
values.

4. Under the Statute of Frauds, what contract of sale must be

in writing to be enforceable by court action?
- Sale of personal property at a price not less than P500
- Sale of Real property or an interest therein regardless of the price
involved.
- Sale of Property not to be performed within a year from the date
thereof regardless of the nature of the property and price involved.
5. Give at least three (3) distinctions between a contract of
sale and a contract of agency to sell.
- In sale title to the goods is transferred to the buyer upon delivery of
the thing sold. In agency to sell, title of the goods is retained by the
owner despite the delivery of the goods to the agent.
- In sale, the buyer is required to pay the price. In agency to sell, the
agent is required to turn over to the principal the price of the goods
which he received to the buyer.
- In sale, the buyer of the property may do with the property as he
pleases. In agency to sell, the principal retains the control of the
property.

III. Problems

1. S sold to B certain goods. At the time of the sale, C is not

the owner of the goods. May there be a valid sale to B?
- Yes, it is not necessary if C is not the owner. It only sufficient that he
is the right to sell the thing at the time when ownership is passed.

2. Same Example. The only problem now is that the goods sold
have not yet been identified at the time of the contract. May
there be a valid sale to b?
- No, because the thing that must be sold is determinate.

3. The property sold by S is a portion of a parcel of land

without indicating the specific portion thereof. May there be
a valid sale to B?
- Yes, because in article 1463, the sole owner of the thing may sell
the undivided interest there in.

4. Same example. The only problem now is that S and B have

not agreed upon a definite price at the time of sale. May
there still be a valid contract of sale between them?
- Yes, because the judgment of the determination price left to another
or third person.

5. Same example. The only problem in the case is that the

price was fixed only by S. Is the sale valid?
- It depends, if it fixed by S and accepted by the other party the
contract is perfected upon the meeting of the minds of the party.
 Chapter 2. — Capacity to Buy or Sell

I. Definitions

1. Necessaries – are those things which are needed for sustenance,

dwelling, clothing and medical attendance in keeping with the
financial capacity of the family of the incapacitated person.

2. Compromise – is a contract whereby the parties, by reciprocal

concessions avoid litigation or put an end to one already
commenced.

II. Discussions

1. Are husband and wife allowed to sell property to each

other?
- The husband and wife cannot sell the property of each other except,
when they have a separation of property like the prenuptial
agreement. And when there has been judicial separation of property.

2. Under the law, who may enter into a contract of sale?

- All person whether natural or judicial, who have the capacity to buy
and sell.

III. Problems

1. B, a minor bought a pair of imported shoes worth P3,000.00

from a department store. Can F, father, cancel the sale on
the ground of minority of B?
- It depends, generally the contracts entered into minor or
incapacitated person is voidable however when necessaries are
sold, the minor must pay the reasonable price.

2. H and W are husband and wife. After selling his property to

W, H borrowed a big amount of money from C. It appears
that H is now bankrupt. Has C the right to question the sale
of H’s property to W in order to have said property answer
for H’s indebtedness to him?
- No, because the husband and wife cannot sell the property to each
other, and also it is protection to the third person who relying upon
the property either of the spouse.

Chapter 3. — Effects of the Contract When the Thing Sold Has Been
Lost

I. Definitions

1. Specific goods – goods identified and agreed upon at the time a

contract of sale is made.

2. Divisible contract – a contract is divisible when its consideration is

made up of several parts.
II. Discussions

1. When is a thing considered lost?

- A thing lost when it perishes or goes out commerce or disappear in
such way that its existence is unknown or it cannot be recovered.

2. Give the effect in case the thing sold is

a.) Lost totally – if the entire thing is lost the contract shall be
without any effect.
b.) Lost partially – if the thing have been lost part only, the
vendee may choose to withdraw and demanding the
remaining part, paying its price in proportion to the total sum
agreed upon.

III. Problems

Explain or state briefly the rule or reason for your answer.

1. S sold to B 100 bags of sugar at P70.00 per bag for a total
price of P70,000 S was able to deliver only 98 bags because
the 2 bags were stolen without the fault of S. Has S the
right to insist that B pay for the 98 bags since there was no
fault in his part and only 2 bags are lacking? What rights, if
any, are given by law to B?
- No, because B has the option to withdraw the contract without the
needs to pay the price or to deliver the thing.

2. Same example. The price was fixed at P70,000 for the whole
lot, irrespective of the number of bags which happens to be
also 100 bags. Will your answer be the same?
- Yes, because he will pay to the only amount of 70,000 which is fixed
in their contract.

Chapter 4. — Obligations of the Vendor

I. Definitions
Define or give the meaning of the following:
1. Unpaid seller of goods – one who has not been paid or tendered
the whole price or who has received a bill of exchanged or other
negotiable instrument as conditional payment.

2. Traditio brevi manu – Delivery that takes place when the vendee
is already in the possession of the thing sold even before the sale
and after.

3. Sale or return – the ownership of the goods is transferred to the

buyer on delivery, but the buyer has the option to revest their
ownership on the seller by returning them within the time fixed in
contract.

4. Tradition – mode of acquiring ownership whereby the object of the

contract is placed in the control or possession of the vendee.
 5. Redhibitory defect – defect of such nature that expert knowledge,
even after a professional inspection has been made, is not sufficient
to discover it.

6. Implied warranty of fitness – The buyer makes known to the

seller the particular purpose for which the good are acquired.

7. Eviction – deprivation of the vendee of the whole or part of the

thing sold by a virtue of a final judgement based on the right.

8. Caveat venditor – the vendor is liable to the vendee for any

hidden defaults or defects on the thing sold.

II. Discussions

1. Give the cases when a sale of property is valid although the

seller is not the owner thereof.
- Where the owner of the goods is, by his conduct precluded from
denying the seller authority to sell.
- Where the law enables the apparent owner to dispose of the goods
as if he were the true owner thereof.
- Where the sale is sanctioned by the statutory or juridical authority.
- Where the sale is made at merchants store fairs or markets.

2. What are the different ways of effecting delivery to the

buyer of the thing sold?
- By actual or real delivery
- By constructive or legal delivery
- By delivery in any other manner signifying an agreement the
possession is transferred to the vendee.

3. Give the requisites for the exercise by an unpaid seller of his

right of stoppage in transit.
- The seller must be unpaid.
- The buyer must be insolvent.
- The goods must be in transit.
- The seller must bear the expenses of delivery of the goods after
exercise of the right.

4. What are the implied warranties in a contract of sale?

- Implied warranties as to sellers title.
- Implied warranties against hidden defects
- Implied warranties as to fitness or merchantability.
5. Distinguish “sale or return” to “sale on trial”.
- Sale or return it is the contract by which property is sold but buyer,
who becomes the owner of the property on delivery, has the option
to return the same to the seller instead paying the price.
- Sale on Trial it is the contract in the nature of an option to purchase
if the goods proves satisfactory, the approval of the buyer.

6. Suppose the parties failed to stipulate the place of delivery

of the thing sold, where is the place of delivery?
 - When there is no agreement the place of the delivery is the seller’s
place of business.

7. What are the principal obligations of the vendor?

- To transfer the ownership of the determinate thing.
- To deliver the thing.
- To warrant against eviction and hidden defects
- To take care of the thing, pending delivery, with proper diligence.

8. Suppose the thing sold is lost after perfection of the sale

but before its delivery to the buyer, who shall bear the loss
by a fortuitous event? Explain
- The risk of the thing sold passes to the buyer, even though the thing
has not been delivered to him, the risk of loss by a fortuitous event
without the seller’s fault is borne by the buyer as an exception to
the rule of res perit domino.

III. Problems

1. S sold to B a parcel of land with an area of 500 sq. meters at

P2,000.00 per sq. meters. It turns out that the area is only
451 sq. meters. Has B the right to cancel or rescind the sale
even if S is willing to accept a proportionate reduction of the
price, or only P902,000.00?
- It depends, because the vendor must deliver the entire area as what
is stated. But because the land is lack 1/10 in the stipulation, the
buyer may rescind the contract.

2. Same example, but the price is fixed at P1,000,000.00

without the statement of the price per sq. meter. Has B the
right to enforce the contract with the corresponding
reduction of the price to P902,000.00?
- No, because S is bound to deliver the entire square meters without
the decrease in the price.

3. Same example. The only problem is that S subsequently sold

the same property to C who immediately registered the sale
in his name.
a.) Who has a better right to the property: B or C?
- C is the better right of the property because C is the first person
who register it in good faith.
b.) Suppose C did not also register the sale. To
whom should the property be awarded?
- It depends, The first person who possessed the property in good
faith has the right of the property.

4. Same example. C was declared by a court to have a better

right. Is S liable to B for the former’s failure to comply with
his warranty against eviction?
- No, because the vendor is not liable therefor. B is evicted

5. S sold to B a piano for P10,000.00. it was agreed that the

payment shall be made within 10 days. Has B the right to
demand delivery even before he has paid?
- Yes, because as a rule the obligation to deliver the thing which is the
subject matter of a contract.
 6. B, through fraud, made S sign a contract of sale of a parcel
of land. Here, B’s title is voidable which may be declared
void by court in an action by S. However, B was able to sell
the property to C. Has B the right to recover the property to
C?
- It depends, if C acted in good faith, B doesn’t have the right to
recover property from C, But if C acted in bad faith, he can recover
it.

7. B brought a bottle of medicine in a drug store. Its label says

it provides a “very effective relief from asthma”. However, B
continues to suffer from asthma attacks. Has B the right to
complain for misrepresentations the against drug
manufacturer?
- No, because B doesn’t have the right to complain for
misrepresentation since the label ‘it is very effective relief from
asthma,’ is not a promised of the manufacturer to the buyer.

8. S sold to B a parcel of land located in Quezon City under a

public instrument signed by both parties and notarized in
Manila. Is B considered already the owner of the property?
- It depends, where the vendor must deliver the thing sold which is
the object of the contract.

Chapter 5. — Obligations of the Vendee

I. Definitions
Define or give the meaning of the following:
1. Acceptance of goods – assent to become owner of the specific
goods when delivery of them is offered to the buyer.

2. Wrongful refusal of buyer to accept – is without just cause, the

refusal is with a right to do so.

II. Discussions
1. When is there implied acceptance by the vendee of the
goods sold?
- When the buyer, after delivery of the goods, does any act
inconsistent with the seller 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 owner.

2. Give the cases when the vendee is given the right to

suspend payment of the purchase price.
- If he is disturbed in the possession or ownership of the thing bought.
- If he has a well-grounded fear that his possession or ownership
would be disturbed by a vindicatory action or foreclosure of
mortgage.

III. Problems
Explain or state briefly the rule or reason for your answer.
1. S sold to B a parcel of land with the stipulation that upon
failure to pay the price within 30 days the sale shall be
deemed automatically cancelled.
a.) May S refuse to accept payment from B after 30
days on the ground that the sale is already rescinded?
 - It depends. Because the right to rescind is not absolute, and the
court may extend the period of payment, but if S filed a recission
the court may not grant the vendee a new period.
b.) Suppose the property sold is movable will your
answer be the same?
- No, S can rescind the contract, as the matter of the right because B
does not pay the price in the time of their stipulation.

2. S sold a 3-door apartment to B who paid the purchase price

only after 1 year from the date agreed upon. Is B liable to
pay S interest which was not stipulated by them?
- It depends, if B is incurs in delay of payment of the agreed price, the
interest is due from the time of judicial demand by S for the
payment of the price.

Chapter 6. — Actions for Breach of Contract of Sale of Goods

I. Definitions

Define or give the meaning of the following:

1. Goods – all chattels or personal but not things in action or money of
legal tender in the Philippines. The term includes growing fruits or
crops.

2. Recoupment – 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.

II. Discussions
1. In general, what actions are available to the buyer in case of
breach of warranty by the seller of the goods?
- Action by the seller for payment of the price.
- Action by the seller for damages and non-acceptance of the goods.
- Action by the seller for recission of the contract.
- Action by the buyer for specific performance.
- Action by the buyer for recission or damages for breach of warranty.

2. When is the buyer not given the right to rescind although

the seller committed a breach of warranty?
- 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.

3. Give 3 situations where the seller is given the right to bring

an action for damages against B.
- 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.
- In an executory contract, where the ownership in the goods has not
passed, and the seller cannot maintain an action to the price, the
seller remedy will also be an action for damages.
 - If the goods are not yet identified at the time of the contract or
subsequently, the seller right is necessarily confined to an action for
damages.

4. Give 2 situations where the seller of specific goods is given

the right be paid notwithstanding that delivery to B has not
been effected.
- When the price is payable on a certain day and the buyer wrongfully
neglects or refuses to pay such price or to transfer the title.
- When the goods cannot readily be resold for a reasonable price and
the buyer wrongfully refuses to accept them even before ownership
in the goods has passed.

III. Problems
Explain or state briefly the rule or reason for your answer.
1. S agreed to sell and deliver to B specific goods. B refused to
accept the goods on the date designated. S was so
infuriated that he was hospitalized for a mild stroke. May S
hold B liable for his hospitalization expense?
- It depends, if the refusal of B to accept delivery so that S was so
infuriated a mild stroke for which he hospitalize, hospitalization
expense may also be recovered to B.

2. Same example. The goods are not of the quality warranted

by B. S informed B to deliver the goods at a reduced price. B
communicated his acceptance. May S rescind the sale and
require B to pay damages?
- It depends, B can set up breach of warranty to S by way of
recoupment of the price which means is lower or reduced the price.
But at the article stated that one alternative remedies will be
exercised. So if S want to Rescind the sale he cannot sue B to pay
damages.

Chapter 7. — Extinguishment of Sales

I. Definitions

1. Legal redemption – right to be subrogated, upon the same term

and conditions stipulated in the contract, in the place who acquires
in a thing by purchase or dation in payment, or by other transaction
whereby ownership is transmitted by onerous title.

2. Equitable mortgage – one which, although it lacks the proper

formalities of a mortgage, shows the intention of the parties to
make the property subject of the contract as a security for the
fulfillment of the obligation.

3. Conventional redemption – shall takes place when the vendor

reserves the right to repurchase the thing sold, with the obligation
comply with the provisions of article 1616 and other stipulations
agreed upon.

II. Discussions
 1. What are the requisites for the right of legal redemption of
a co-owner to exist?
- There must be co-ownership
- There must be alienation of all or of any of the shares of the other
co-owners
- The sale must be to a third person or stranger
- The sale must be before partition
- The right must be exercised within the period
- The vendee must be reimbursed for the price of the sale.

2. Give the cases when a contract shall be presumed by law to

be an equitable mortgage.
- When the price of sale with the right to re purchase is unusually or
inadequate
- When the vendor remains in possession as lesee or otherwise
- When the purchaser retains himself a part of purchase price
- When the vendor binds himself to pay the taxes on the thing sold.

3. What are the obligations of the vendor a retro who desires

to exercise his right of repurchase?
- He must return to the vendee the
1. The price
2. Expenses of contract and other legitimate expenses like
Necessary and useful expenses.

III. Problems
Explain or state briefly the rule or reason for your answer.
1. S signed a document purporting to be a sale of his parcel of
land to B with right to repurchase. S claims that what he
intended is to mortgage his property to B for money loaned
on him. What remedy is available to S: reformation or
annulment?
- It depends, if S claims that he intended is to mortgage his property
to B and the instruments states that it is right to repurchase this is
reformation. But if does not express their true intention by reason
for fraud, when there has no meeting of the minds, the remedy is
annulment.

2. S sold his house to B with a right to repurchase.

a.) May B lease the property, knowing that S will
certainly exercise his right of redemption?
- Yes, because as owner have the right to perform all other acts of
ownership subject to the right of redemption of the vendor.

b.) Has B the obligation to respect the lease after

exercising right of redemption?
- It depends, if S repurchase his house from free from all charges and
mortgages must respect the leases which the latter may have
executed in good faith.

3. A, B, C, and D are co-owners of a parcel of land sold to E

with a right of repurchase. May E require all on them to
repurchase the whole property instead of partial repurchase
by each of them as regards his own share?
- It depends, in this case, each one may repurchase only to the extent
of 1/3 undivided interest, however X may demand A B C D come to
 an agreement to redeem the whole property, and if they fail to do
so. X cannot be compelled to consent to a partial redemption.

Chapter 8. — Assignment of Credits and Other Incorporeal Rights

I. Definitions

Define assignment of credit.

- Contract by which one person transfer to another his rights and
actions against a third person in consideration of price certain
money or its equivalent.

II. Discussions
1. What does an assignor of credit warrant and what liabilities
will he incur in case of violation thereof?
- When a creditor assigns his credit, he warrants only the existence
and legality of the credit at the perfection of the contract.
- There is no warranty as to the solvency of the debtor unless it is
expressly stipulated or unless the insolvency was already existing.

2. Why is assignment of credit regarded as really a sale?

- It is really a sale, because the subject matter is the credit or right
assigned; the consideration is the price paid for the credit or right;
and the consent is the agreement of the parties.

III. Problems
Explain or state briefly the rule or reason for your answer.
1. S, being in need of money, sold to B for P500,000.00 his
right to inheritance from his father who died telling B that
he believes that its value is more than P500,000.00. it turns
out that the value is only P300,000.00. Is S liable to B?
- It depends, In this case S only warrants the fact that he is an heir to
his father, He is not liable for B should his share after partition.

2. C, creditor, assigned his credit against D, debtor, to T,

without securing the consent of D. Subsequently, D paid C
who became bankrupt. Has T the right to recover from D the
payment made to C?
- It depends, In assignment of credit consent is not essential,.

Chapter 9. — General Provisions

I. Definitions
Define or give the meaning of the following
1. Legal Tender – currency which the debtor can legally compel a
creditor to accept in payment of debt in money when tendered by
debtor in the right amount.

2. Thing or chose in action – any claim or right which may be

pleaded in suit at law such as claim of reparation for tort or right
guaranteed under certain types of contracts.
II. Discussions
1. As used in the law, what does the phrase “document of title
of goods” include?
 - Bill of lading, dock warrant or warehouse receipt or order for the
delivery of goods or any other document used in ordinary course of
business in sale.

2. Under the law, when is a person deemed insolvent and when

are goods considered in a “deliverable state?”
- A person is insolvent within the meaning of this title who either has
ceased to pay his debts in the ordinary course of business as they
become due.

III. Problem
Explain or state briefly the rule or reason for your answer.
1. S sold to B a parcel of land. Is T, a third person, that is, one
who is not party to a contract, be bound by the sale in case he
should later acquire a right or interest in the property?
- It depends, the right of T are not adversely affected by the sale of
immovable property until after registration.

Chapter 10. — Barter or Exchange

I. Definition
Define Barter – 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
is considered a barter.

II. Discussions
1. Why is barter considered as sale?
- It is similar to sale with the only difference that instead of paying a
price in money, another thing is given in lieu thereof.

2. When is the contract of barter perfected and consummated?

- The contract of barter is perfected from the moment there is a
meeting of the minds upon the promised by each party in
consideration of the other.
- It is consummated from the time of mutual delivery by the
contracting parties as they promised.

III. Problems
Explain or state briefly the rule or reason for your answer.
1. S exchanged his parcel of land for a new car of B. It turns
out the car was subject to a chattel mortgage and was sold
at public auction for failure of B to comply with the
conditions of the mortgage. What rights are given by law to
S?
- S cannot be compelled to deliver the thing he has promise, he is
entitled to claim the damages.

2. Same example. The only problem here is that B was

judicially evicted from the land by C who was adjudged the
true owner in an action by him against S. What rights are
given by law to B?
- B has the option to recover the property he has given exchange with
damages or only claim an indemnity for damages.
 Chapter 11. — The Bulk Sales Law

I. Definitions
1. Fixtures – mechandise usually possessed and annexed to the
premises occupied by the merchant to enable them to store, handle,
and display their wares and which are commonly known as trade
fixtures.

2. Merchandise – must be construed to mean such thing as are

usually bought and sold in trade by merchants.

II. Discussions
1. Under the law, when is sale or transfer considered in bulk?
- When there is a sale, transfer, mortgage, or disposition other than
the ordinary course of trade and regular prosecution of the business
- The sale is all or substantially of the business.
- All or substantially, of the fixtures and equipment used in the
business of the vendor, mortgagor, transferor, or assignor.

2. Give the purpose and general scheme of the law.

- The general scheme of the law is to declare such bulk sales
fraudulent and void as to creditors of the vendor.

III. Problems
1. S, a businessman with many unpaid debts, is planning to
sell substantially all the assets of his business to B. what
obligations are imposed by law on S for the benefit or
protection of the latter’s creditors?
- It requires S to deliver to B a written statement of the names and
address of all creditors to whom said vendor etc, may be indebted
together with the amount and at least 10 days before the sale to
make full inventory showing the quantity and the cost price of the
goods and to notify every creditor to the price terms and conditions.

2. Same example. The assets were sold without complying with

the requirements prescribed by law. Give the effects of the
sale if B acted in faith.
- A purchaser violation of the law acquires no right to his property
purchased against the creditors to the seller.
 Part II
AGENCY
Chapter 1. — Nature, Form and Kinds of Agency
I. Definitions
1. General Agent – one authorized to transact all the business of his
principal or all business of a particular kind or in particular place, or
in other words to do all acts, connected with particular trade and
business.

2. Authority of an Agent – power of an agent to affect legal relations

of the principal by the acts done in accordance with principal
manifestation of consent to him.

3. Contract of Agency – which one person is employed to render

service for another, excludes however from its concept the
relationship of employer and employee.

4. Power of Attorney – written authorization to an agent to perform

specified acts in behalf of his principal when performed shall have
binding effect on the principal.

II. Discussions

1. May a principal be bound by the act of an agent beyond his

power? Explain.
- Where his principal acts have contributed to deceived third person
in good faith.
- Where the limitations upon the power created by him could not
have been known by third person.
- Where the principal has placed in the hands of agent instrument
signed by him in blank.
- Where the principal has ratified acts of the agent.

2. What do you understand by the statement that agency is a

representative relation?
- The agent renders some service or does something in
representation or on behalf or another. Representation constitutes
the basis of agency. The acts of the agent on behalf of the principal
within the scope of his authority produce the same legal and binding
effect as if they were personally done by the principal.
 3. Give at least four (4) cases when a special power of attorney
is necessary for their execution by an agent.
- To make such payment as are not usually considered as acts of
administration
- To effect novations which put an end to obligation already in
existence at the time the agency was constituted.
- To waive any obligation gratuitously
- To bind the principal to render some service without compensation

4. Enumerate the four (4) essential elements of agency.

- There is consent, express or implied of the parties establish the
relationship.
- The object is the execution of a juridical act in relation to third
person.
- The agent acts as a representative and not for himself
- The agent acts within the scope of his authority.

III. Problems
1. A receives a power of attorney from P appointing him as
agent with respect to a particular business transaction. Is
A’s silence or inaction, or lack of objection be deemed an
implied acceptance by him of the agency?
- Yes, because A’s silence or being inaction is kind of implied agency.

2. Same example. A expressly accepted the agency but he

acted in his own name without disclosing that P was his
principal to T, the other contracting party. Does T have a
right of action against P?
- It depends, if A acts in his own name, T has no right of action
against P.

3. A, agent, and P, principal, are very good friends. On many

occasions, P has done favors to A which are more than the
value of the services that A will perform for P. in view of
this, is P still bound to compensate A as his agent?
- Yes, according to article 1875, P is must pay A the compensation
agreed upon on a reasonable value on A service.

4. P, Inc. appointed A as its agent in connection with the

company’s business and advertised the appointment in a
newspaper. Before the advertisement, T, a client who
happened to drop by, was informed of the appointment
which was revoked also by advertisement after a few
months. A week later, T entered into a contract with A as
agent of P, Inc. Now, T seeks to make P, Inc. liable. Can T
recover from P, Inc.?
- It depends, public advertisement is not sufficient, T has actual
knowledge of the revocation, but P known the appointment of A by
advertisement.

Chapter 2. — Obligations of the Agent

I. Definitions
 1. Commission Agent – one whose business is to receive and sell
goods for commission and who is entrusted by the principal with the
possession of the goods to be sold.

2. Sub-agent – person to whom the agent delegates as his agent, the

performance of an act of principal which the agent has been
empowered to perform through his representative.

3. Guarantee Commission – one where is consideration of an

increase commission the factor or commission agent guarantees to
the principal the payment of debts arising through his agency.

II. Discussions

1. When may an agent incur personal liability to the party with

whom he contracts?
- When the agent expressly binds himself he thereby obligates
himself personally by his own act.
- When the agent exceeds his authority he really acts without
authority and therefore, the contract is unenforceable against the
principal.

2. State the right given to the principal in case sale on credit is

made by the agent without authority from the principal.
- He may require payment in cash, in which case, any interest or
benefit from the sale shall belong to the agent since the principal
cannot be allowed to enrich himself.
- He may ratify the sale on credit in which case it will have all the risk
and advantage to him.

3. Give at least five (5) specific obligations of the agent.

- To carry out the agency in accordance with its terms.
- To answer for the damages which through his non-performance the
principal may suffer.
- To finish the business already begun on the death of the principal,
should delay detail any danger.
- To advance the necessary funds should there be stipulation to that
effect.
- To act in accordance with the instruction of the principal.

III. Problems

1. P appointed A, as agent, who in turn, appointed S as sub-

agent or substitute to perform that which A was supposed
to do for P.
a) Is the substitution valid?
- Yes, may A appoint S as sub agent, because P as the principal not
prohibited A from doing it.
b) Is A liable to P for damage caused by S’s negligence?
- Yes, because P as principal can bring an action against A with the
respect of the obligations of A which contracted under the
substitution.
c) Assuming that the substitution was authorized, may A
be still liable for S’s negligence?
 - It depends, if P given the power and the sub agent is incompetent,
all acts A as appointed against the prohibition of P shall void.

2. P, principal, authorized A, agent, to sell the former’s car for

not less than ₱500,000.00. A sold the car for ₱550,000.00. Is
A entitled to the ₱50,000.00 overprice?
- No, because A must turn over to P any overprice he received for
what he sell at a certain price. A have the duty to deliver all the
money which may have come to his hands.

3. Same example. Can A buy the car of P for ₱500,000.00?

- No, if P authorized to sell the car, A must not sell to himself. The
reason is to not have any conflict between buying it in the lowest
price.

Chapter 3. — Obligations of the Principal

I. Definitions

1. Apparent Authority – which thought not actually granted, the

principal knowingly permits the agent to exercise or holds him out
as possessing.

2. Authority by Estoppel – arise in those cases, where the principal

by his culpable negligence permits his agent to exercise his powers
not granted to him, even though the principal may have no notice or
knowledge of the conduct of the agent.

II. Discussions
1. Give at least four (4) specific obligations of the principal.
- To comply with the obligations which the agent may have
contracted within the scope of his authority.
- To advance the agent, should the latter so request the sums
necessary for the execution of agency.
- To reimburse the agent of all advances made by him provided the
agent is free from fault.
- To indemnify the agent for all the damages which the execution of
the agency may have caused the latter without the fault or
negligence on his part.

2. In what cases will the principal not be liable for expenses

incurred by the agent in the performance of the agency?
- 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.
- When the expenses were due to the fault of the agent.
- When the agent incurred them with knowing that an unfavourable
result would ensure, if the principal was not aware thereof.

III. Problems
1. A, agent, went beyond his authority given to him by P,
principal, when he entered into a contract with X. State two
(2) situations when P would still be liable to X.
 - To comply with the obligation which A may have contracted within
the scope of his authority.
- Can X demand the payment of damages suffered by him to A or P.

2. P authorized A to sell former’s car. P sold the car today to X

without informing A who sold the same to Y the following
day. Who has a better right to the car?
- It depends, if A sold it to Y and Y is in good faith, C is has the better
right in the car. But if the date is looking. P sold the car to X as early
so the car will go to Y.

Chapter 4. — Modes of Extinguishment of Agency

I. Definition

1. What is meant by an agency coupled with interest?

- Cannot be terminated by the sole will of the principal although it is
revocable after the interest ceases.

II. Discussions
1. What are the three (3) modes of extinguishing an agency?
- By agreement
- By the subsequent acts of the parties which may be either by the
act of both parties or by mutual consent, for by unilateral act of one
of them.
- By operation of law.

2. Give three (3) examples of implied revocation of agency.

- When the principals appoint a new agent for the same business or
transaction provided there is incompatibility.
- The agency is revoked if the principal directly manages the business
entrusted to the agent, dealing directly with third person.
- A general power of attorney is revoked by a special one granted to
another agent, as regards the special matter involved in the latter.

III. Problems
1. A is the agent of P. May A withdraw from the agency at any
time with or without any valid reason? State the law on A’s
right to withdraw.
- According to Article 1928, the agent may withdraw from the agency
by giving due notice to the principal. If the latter should suffer any
damages by reason of the withdrawal the agent must indemnify
him.
- According to Article 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.

2. Same example. May P revoke the agency at any time with or

without any valid reason? State the law on P’s right to
revoke the agency.
- According to Article 1920, the agency may revoke the agent at will
and compel the agent to return the document evidencing the
agency. Such revocation will be express or implied.
 - According to Article 1927, an agency cannot be revoked if a bilateral
contracts depend upon it.

Part III
CREDIT TRANSACTIONS
Introduction
I. Definition
Define or give the meaning of the term “Credit Transactions”.
- Include all transactions involving the purchase or loan of goods,
services or money in the present with a promise to pay or deliver in
the future.

II. Discussion
How is bailment credited?
- When the property returned or duly accounted for, when the special
purpose is accomplished or kept until the bailor reclaims it.

III. Problem
Under a contract of bailment, property was received by E from
R. In general, what are the obligations of E? For whose benefit
is the contractual bailment created?
- The obligation is to restore the subject of the bailment in the same
or in altered form or account therefor. Those for the sole benefit of
the bailor, bailee and both parties.

A. LOAN
General Provisions
I. Definition
Define or give the meaning of the term “Contract of Loan”
- One of the parties deliver to another either something not
consumable so that the latter may use the same for the certain time
and return it.

II. Discussion
Give at least four (4) distinctions between commodatum and
mutuum (simple loan).
- In commodatum, ownership of the thing loaned is retained by the
lender, while in mutuum the ownership is transferred to the
borrower.
- Commodatum is essentially gratuitous, while mutuum may be
gratuitous or it may be onerous, that is with stipulation to pay
interest.
- Commodatum is a loan for use, while mutuum is loan for
consumption.
 - Commodatum may involve real property and personal, while
mutuum refers only to personal property.

III. Problems
Yesterday, C and D signed an agreement whereby C loans a
sum of money to D today.
a) Is there already a contract of loan today?
- It depends, because what exist is the binding of consensual contract
to make a future loan. But if D delivery and gave the money. The
contract of loan is perfected.

b) Suppose C is able to give the money the following day.

How will you characterize their contract? Why?
- Unilateral contract because once the subject matter is delivered, it
creates the obligation to the borrower.

Chapter 1. — Commodatum
I. Definition
Define or give the meaning of the term “precarium”.
- Kind of commodatum where the bailor may demand the thing at
will.

II. Discussions
1. In what cases is the bailee/borrower liable to the
bailor/lender for loss of the thing loaned even if through a
fortuitous event without his fault?
- If he is acted in bad faith
- If he incurs delay
- The law presumes that the parties intended the borrower

2. When is the bailor given the right to demand the return of

the thing loaned at any time?
- If neither the duration of contract nor the use to which the thing
should be devoted. Has been stipulated.
- If the use of the thing is merely torelated by the owner.
- If the bailee should commit some offenses against the person, the
honor or the property of the bailor, or his wife or children.

III. Problems
1. E borrowed a cavan of rice from B. Is the contract one of
commodatum?
- It depends, if the thing is consumable goods it may be the subject of
commodatum.

2. E borrowed R’s car to be used by him for 15 days. Now the

car needs major repairs. Is E obliged to pay for the
expenses?
- Yes, because E is obliged to pay for the ordinary expenses for the
use and preservation of the thing loaned.

Chapter 2. — Simple Loan or Mutuum

I. Definitions
 1. Fungible Things – those which are usually dealt with by number,
weight, or measure such as grain, oil, sugar and etc. so that any
given unit or portion is treated as the equivalent to any other unit or
portion.

2. Compound Interest – that which is imposed upon interest due and

unpaid. The accrued interest is added to the principal and sum and
the whole plus principal and accrued interest is treated as a new
principal upon which the interest for the new period is calculated.

II. Discussions
1. Distinguish mutuum and commodatum from barter.
- The distinction between mutuum and barter lies in the subject
matter. It is the money or any other fungible things in the latter non-
fungible things.
- In commodatum, the bailee is bound to return the identical thing
borrowed when the time has expired or the purpose has been
served.

2. How shall the interest be determined if for money loaned,

the same shall be payable instead in kind?
- If the value of the thing is appraised at the current price of the
products at the time of payment.

III. Problems
1. E. borrowed money from R. There was no stipulation to pay
interest. After paying interest, E seeks to recover the
amount thereof. Is R obliged to return the interest paid?
- It depends, if E paid by mistake, he can recover the interest. But if E
paid voluntarily because he felt that he is morally obliged to pay the
interest since he borrowed money, there can be no recovery of the
interest paid as the case of natural obligations.

2. Same example. There was a stipulation to pay interest which

E has not paid. Does R have the right to demand interest?
- It depends, because no interest shall be due unless it is in writing
but there are exceptions to the rule which, If E incurs delay, he is
liable to pay the interest as damages as agreed upon.

B. DEPOSIT
Chapter 1. — Deposit in General and its Different Kinds
I. Definition
Define or give the meaning of the term “Deposit”.
- Deposit is constituted from the moment a person receives a thing
belonging to another, with the obligation of safely keeping it and
returning the same.

II. Discussions
1. Distinguish deposit from mutuum.
- In deposit, the principal purpose is safekeeping, while in mutuum,
the consumption of the subject matter.
- In deposit, the depositor can demand the return of the subject
matter at will, while in mutuum, the lender must wait until the
expiration of the period granted.
 2. Distinguish deposit from commodatum.
- In deposit, the principal purpose is safekeeping while in
commodatum, the transfer of the use.
- Deposit may be gratuitous, while commodatum is essentially and
always gratuitous.

III. Problems
1. R agreed to entrust to Y the former’s jewelry and other
personal property for safekeeping for a certain period of
time in consideration of the payment by R of ₱2,000.00.
Immediately, R paid Y. Is there already a perfected contract
of deposit?
- No, because a deposit is a real contract, but to be perfected it must
deliver the object of the contract. In this case there will be a
payment and agreement but they not still deliver the thing which is
the jewelry.

2. Same example. There was no stipulation as to how much

shall be paid by R. Is Y entitled to compensation?
- It depends, if they have a stipulation that the thing is engaged in
the business or storing the goods.

Chapter 2. — Voluntary Deposit

I. Definition
Define or give the meaning of voluntary deposit, distinguishing it
from necessary deposit.
- Voluntary deposit is one where delivery is made by the will of the
depositor.
- The difference between voluntary deposit and necessary deposit is
that the depositor has complete freedom to determine who the
depository would be.

II. Discussions
1. What is the nature of the relation between a bank and a
depositor?
- Contract of loan – deposit money in bank whether fixed, saving or
current are really loans to a bank because bank can use the same
for its ordinary transaction. While the bank has the obligation to
return the amount deposited it has, no obligation to return or deliver
the same money that was deposited.

2. May the depositor make use of the thing deposited?

- It depends, when the preservation of the thing deposited requires it
for use, it must be used but only on purpose. But if it unauthorized
then the depositor used it, it will make him liable for damages.

3. When is the depositary liable to the depositor for loss if the

thing deposited even due through a fortuitous event
- If it is so stipulated
- If he uses the thing without the depositor’s permission
- If he delays its return
- If he allows others use it, even though he himself, may have been
authorized to use the same.
III. Problems
1. Y, depositary, has good reason to believe that R, depositor,
is not the owner of the thing deposited. Does Y have the
justification not to return the thing to R?
- No, because generally the depositor must be the owner of the thing
deposited, but it may be belong to a person other than the
depositor, Y cannot dispute the title of R to the thing deposited.

2. The period of time stipulated for the duration of the deposit

has not yet arrived. May R, depositor, nevertheless demand
the return of the thing deposited?
- It depends, R can demand to return the thing deposited at will
whether the period has been stipulated or not, but this is not will
apply if the thing is attached in Y possession.

3. Y, depositary, died. H, his heir, sold the thing deposited to T,

believing it belonged to Y. Does H have any obligation to R,
depositor?
- Yes, H is bound to return what he sold to R, the price what he
received, or H may assign to R the right to collect from T if it has not
been paid.

Chapter 3. — Necessary Deposit

I. Definition
Define or give the meaning of the term “necessary deposit”.
- When it take place on the occasion of any calamity, such as fire,
storm, flood, pillage, shipwreck, or other similar events.

II. Discussions
1. Give at least three (3) examples of necessary deposit made
in compliance with a legal obligation?
- The juridical deposit of the thing the possession of which is being
disputed in litigation by two or more persons.
- The deposit of thing pledged when the creditor used the same
without the authority of the owner misused it in any other way.
- Those required in suit as provided in the rules of court

2. When is a hotel-keeper not liable for loss of, or injury to,

effects deposited by guests or travelers?
- The loss or injury is caused by force majeure like flood, fire, robbery
by force or intimidation.
- The loss is due to the acts of the guest, his family servants or
visitors.
- The loss arises from the character of the things brought into the
hotel.

III. Problems
1. The hotel-keeper posted a notice to the effect that it is not
responsible for the articles brought by guests. G, guest, lost
his camera. Can G hold the hotel-keeper liable?
- Yes, as hotel keeper they are responsible to take care of the thing
deposited to them.
 2. Same example. An investigation disclosed that the camera
was stolen by a person who entered the hotel and opened
the door with the use of a false key. Is the hotel-keeper
liable?
- Yes, the act of thief or robber, who has entered the hotel is not force
majeure, unless it is done with the use of arms and force.

Chapter 4. — Sequestration or Judicial Deposit

I. Definition
Define or give the meaning of the term “Judicial Deposit” or
“Sequestration”.
- Takes place when an attachment or seizure of property litigation is
ordered.

II. Discussion
Give at least four (4) distinctions between judicial and
extrajudicial deposits.
- In judicial, by the will of the court while extrajudicial by the will of
the parties hence there is a contract.
- In judicial, as security and to secure the right of the party to recover
in case of favourable judgements while extrajudicial, custody and
safekeeping of the thing.
- In judicial either movable or immovable property but generally
immovable property. While in extrajudicial, only movable property.
- In judicial, always onerous while in extrajudicial, may be
compensated or not but, generally gratuitous.

III. Problem
Y was appointed by the court as depositary of certain goods
involved in a suit between W and X. Does Y have the right to
resign if W and X have no objection
- No, Y don’t have the right to resign because he as depositary cannot
be relieved of the responsibility unless the court orders.

C. GUARANTY

Chapter 1. — Nature and Extent of Guaranty

I. Definitions
1. Guaranty – binds himself to the creditor to fulfill the obligation of
the principal debtor in case the latter should fail to do so.

2. Personal Guaranty – guaranty in strict sense. The guarantee is

the credit given by the person who guarantees the fulfillment of the
principal obligation.

II. Discussions
1. Distinguish guaranty from suretyship.
- A guarantor and surety are unlike in that the surety assumes liability
as a regular party to the undertaking, while the liability of the
 guarantor depends upon an independent agreement to pay the
obligation if the primary debtor fails to do so.
- The guarantor is secondarily liable or subsidiarily , while the surety
is primarily liable.

2. Why is guaranty an accessory, subsidiary, and unilateral

contract?
- It is accessory because it is dependent for its existence upon the
principal obligation guaranteed by it.
- It is subsidiary because it takes effect only when the principal
debtor fails in his obligation.
- It is unilateral because it gives rise only to a duty on the part of the
guarantor in relation to the creditor and not vice versa.

III. Problems
1. D, debtor, C, creditor, and E, guarantor for D’s obligation of
P50,000.00. Because of failure of D to pay, C sued D who
was judged to pay interests, penalties and judicial cost in
the amount P15,000.00. G claims that his liability is limited
only to P50,000.00. Decide
- The liability of G is only to the extent of 50,000 what is the debtor
stipulated upon. Because his obligation cannot exceed the limits.

2. Same parties, except that G binds himself to guarantee

P55,000.00. D pad C P50,000.00. G refuses to pay P5,000.00
demanded by C. Decide.
- C can claim from G the balance of 5,000 by virtue of the latter’s
guaranty, this is so because the payment of D must be applied first
to the unsecured debt.

Chapter 2. — Effects of Guaranty

I. Definition
What is meant by the term “benefit of excussion”?
- The guarantor binds himself to the creditor to fulfill the obligation of
the principal debtor only in case the latter should fail to do so. It is
the rule that distinguishes guaranty of suretyship.

II. Discussions
1. Give at least four (4) cases when the benefit of excussion
shall not take place.
- If the guarantor has expressly renounced it.
- If he has bound himself solidarily with the debtor.
- In case of insolvency of the debtor.
- When he has absconded, or cannot be sued within the Philippines
unless he has left a manager or representative.

2. Give at least four (4) cases when the guarantor is allowed to

sue the principal debtor even before the guarantor has paid
the creditor.
- When he is sued for payment.
- In case of insolvency of the principal debtor.
- When the debtor has bound himself to relieve him from the
guaranty within specified period, and this period expired.
- When the debt has become demandable by reason of the expiration
of the period payment.
III. Problems
1. D, debtor, C, creditor, and G, guarantor for D’s debt of
P30,000.00. D paid C P20,000.00. Subsequently, G, without
notifying D, being unaware of the payment, paid C
P30,000.00. G demands reimbursement from D who refuses.
Decide.
- G cannot demand reimbursement from D because of the fault of G
not notifying the debtor. It is also in general rule that before G pays
C he must first notify D as debtor, if he fails to do it. D will make
repeat the payment.

2. Same example. Suppose the guaranty is gratuitous, i.e., G

makes the guaranty without compensation. Is G entitled to
reimbursement? Decide.
- In gratuitous guaranty, G receives nothing and it would be unfair if
he cannot recover from the principal D. if the C is insolvent, G must
still recover from him.

Chapter 3. — Extinguishment of Guaranty

I. Definitions
Guaranty – binds himself to the creditor to fulfill the obligation of the
principal debtor in case the latter should fail to do so.

Personal Guaranty – guaranty in strict sense. The guarantee is the

credit given by the person who guarantees the fulfillment of the
principal obligation.

II. Discussions
1. Give three (3) situations when a guarantor is released from
his undertaking although the principal obligation still
remains.
- If the creditor voluntarily accepts immovable or other property in
payment of the debt.
- A release made by the creditor in favor of one guarantors.
- Extension granted to the debtor by the creditors without the
consent of the guarantor extinguishes the guaranty.

2. Give at least five (5) causes of extinguishment of an

obligation which result in the extinguishment of a guaranty
or an accessory contract.
- Payment or performance
- Loss of the thing due
- Condonation or remission of debt.
- Confusion or Merger of the rights of the creditor and debtor
- Compensation and Novation.

III. Problems
1. D, debtor, C, creditor, and E, F, and G, guarantors of the
indebtedness of D in the amount of P15,000.00. C releases E
who is a very close friend of his from the guaranty. D failed
to pay. Can C recover P7,500.00 each from F and G?
- It depends, If E is released without the consent of F and G, then F
and G will liable only to the extent of 1/3 which is 5,000 and both of
 them will be benefited for the 5,000. But if E is released with their
consent, they will be liable for 7,500.

2. Same parties. After one (1) year from date of maturity of D’s
obligation, D has not yet paid C; neither has C demanded
payment, much less filed a complaint against D. E, F, and G
claim release from their guaranty. Decide.
- If C grants the extension of time to the debtor without the consent
of E F G , they is discharged from undertaking. D become insolvent
during the extension thus the guarantor has right to reimburse.

3. Same parties. For lack of funds, D gave C a piano in full

settlement of his debt. The piano was awarded to X in a suit
by the latter against D. C tries to recover from E, F, and G
under their guaranty. Decide.
- If C accepted the piano in full settlement of debt of D, the
guarantor’s which is E, F, G is relieved in the responsibility.

Chapter 4. — Legal and Judicial Bonds

I. Definitions
1. Bondsman – surety offered in virtue of provision of law or of a
judicial order.

2. Bond – when required by law, is commonly understood to mean an

undertaking that is sufficiently secured and not for cash or currency.

II. Discussion
What can be given in lieu of bond, if the person bound to give
it is unable to do so?
- If the person required to give legal or judicial bond should not be
able to do so, a pledge or mortgage sufficient to cover the
obligation shall be admitted in lieu thereof.

III. Problem
X filed an action against Y for recovery of personal
property. The court issued an order placing the property in the
meantime in the custody of the sheriff and requiring X to file a
bond to answer for damages that might be suffered by Y. X lost
the case. B, bondsman, claims that the he should be made able
liable to Y only after it has been shown that X has no means to
so pay the amount of the bond. Decide.
- B the bondsman are not entitled to the benefit of excussion because
they are not guarantors but sureties whose liability is primary and
solidary.

D. — PLEDGE*

Chapter 1. — Provisions Common to Pledge and Mortgage

I. Definitions
1. Pledge – contract by virtue of which the debtor delivers to the
creditor or to third persons a movable or instrument evidencing
incorporeal right for the purpose of securing the fulfillment of
principal obligation.
 2. Pacto comisorio – prohibited by article 2088 is the automatic
appropriation by the creditor of the thing pledge or mortgaged upon
failure of the debtor to pay his debt within the period agreed upon
by virtue of authority.

II. Discussions

1. Distinguish pledge from mortgage.

- Pledge is constituted on movables while mortgaged on immovables.
- In pledge, the property is delivered to the pledgee , or by in
common consent to the third person while in mortgage, delivery is
not necessary.

2. What are the essential requisites of pledge or mortage?

- Constituted to secure fulfillment of principal obligation
- Pledgor or mortgagor is absolute owner.
- Pledgor or mortgagor has free disposal of property or has legal
authority.
- Thing pledged or mortgaged may be alienated.

III. Problems
1. D, pledgor/debtor, and C, pledgee/creditor. When D failed to
pay, it was agreed that the thing pledged shall already
become the property of C. Is the agreement valid?
- Yes, because the thing pledge by D stands as security for the
fulfillment of the obligation and yet D, fails to comply with the
obligation. C is entitled to the thing pledged with the formalities
required by law.

2. Same parties. The amount of the obligation is P25,000.00

for which D pledged his wristwatch and a camera the value
of which is stated as P15,000.00 and P10,000.00,
respectively. After paying P12,000.00, D demands the return
of the camera. Has C the right to reject D’s demand?
- If D pays 12,000 he cannot ask for the return of camera because
both the wristwatch and camera are given to secure payment of the
entire obligation of 25,000.

Chapter 2. — Provisions Applicable Only to Pledge

I. Definitions
………
II. Discussions
1. What are the formalities or requisites required before a
pledgee may cause the sale of the thing pledged?
- The debt is due and unpaid.
- The sale must be at public auction.
- There must be notice to the pledger and owner, stating the amount
due.
- The sale must be made with the intervention of a notary public.

2. Mention four (4) obligations of the pledgee.

- The pledge cannot deposit the thing pledge with third person,
unless there is stipulated on authorizing him to do so.
 - The pledgee is responsible for the acts of his agents or employees
with respect to the thing pledged.
- The pledgee who is in possession of the thing pledged has no right
to make use of it without permission from the owner.
- Enable the pledgor or owner to take steps for the protection of his
rights where he has reasonable grounds to believe that the sale was
not an honest one.

3. Mention at least four (4) rights of the pledgor.

- The pledgor retains his ownership of the thing pledged.
- The pledgee who is in possession of the thing pledge has no right to
make use of it without permission from the owner.
- The debtor cannot ask for the return of the thing pledge against the
will of the creditor unless and until he has paid the debt and its
interest.
- The pledgee has the duty to preserve the thing pledged with the
diligence of good father in family.

III. Problems
1. D, pledgor/debtor, and C, pledgee/creditor. The contract of
pledge of jewelry was put in writing signed by them.
Subsequently, D sold to T the jewelry now in the position of
C. The jewelry was previously offered for sale to T before
the pledge. May T recover the jewelry from C?
- No, the contract of pledge is not effective against third person
unless to deliver the thing pledged.

2. Same parties. C caused the sale at public auction of the

jewelry for only P20,000.00. The indebtedness of D is
P25,000.00. Their agreement is that C may recover the
difference. Is D still liable for P5,000.00?
- D is not entitled to the excess, unless there is an agreement to the
contrary.

3. Same parties the jewelry is later found in D’s possession. D

claims that C is returned the jewelry after he paid hi
obligation and the pledge are extinguished. C disputes D’s
allegations. Decide.
- The possession of the thing pledged by the D or the owner
subsequent to the perfection of the pledge give rise to a prima
facie, that the thing was return to D .

E. — REAL MORTGAGE*
I. Definitions
1. Mortgage – is a contract whereby the debtor secures to the
creditor the fulfilment of principal obligation.

2. Foreclosure – remedy available to the mortagagee by which he

subjects the mortgaged property to the satisfaction of the obligation
to secure which mortgage is given.

II. Discussions
1. What may be the object matter of a contract of mortgage?
 - The object of contract of mortgage are immovables and alienable
real rights imposed upon immovable.

2. Distinguish equity of redemption and right of redemption.

- Equity redemption is the right of the mortgagor to redeem the
mortgaged property after his default in the performance of the
conditions of the mortgage.
- Right of redemption is the right of mortgagor to redeem the
mortgaged property within certain period after it was sold for the
satisfaction of the mortgage debt.

III. Problems
1. D, debtor mortgagor/debtor, and C, mortgage/creditor. The
subject matter of the mortgage is a parcel of land with a
market value of P180,000.00 to secure a debt of
P200,000.00. D sold the property to T for P160,000.00.
Subsequently C foreclosed the mortgage. The land was sold
for P180,000.00 at the foreclosure sale. Is T liable to C for
the deficiency?
- No, T is not responsible for any deficiency of 20,000 in the absence
of stipulation. The remedy of T is to proceed against D.

2. Same example. There was a stipulation between C and D

against sale of the property by D. Is the sale to T is valid?
- Yes, the sale is valid even if it not registered. Registration is
necessary only to affect third person.

F. — ANTICHRESIS*
I. Definition
Define the contract of antichresis.
- Accessory contract because it secures the performance of principal
obligation.

II. Discussions
1. Compare antichresis and mortgage.
- In antichresis, the property is delivered to the creditor, while in
mortgage, the debtor usually retains possession of the property.
- In antichresis, the creditor aquires the right to receive the fruits of
the property, while in mortgage, the creditor does not have any
rights to receive the fruits.

2. Compare antichresis and pledge.

- Antichresis refers to real property, while pledge to real property.
- Antichresis being consensual contract, is perfected by mere
consent, while pledge being real contract is perfecred by the
delivery of the pledge,

III. Problems
1. D, debtor, and C, creditor. Under the written contract of
antichresis, the indebtedness in the amount of P50,000.00
shall be satisfied from the harvest of the land given as
security. Later, D agreed to pay, in addition, P6,000.00 as
interest. Has D the right to demand the return of the
property once the market value of the harvest reaches
P50,000.00?
 - It depends, because the contract to become valid is need to be in
form and not only to affect the third person, even the antichresis is
void, the principal obligation is still valid.

2. Same Example
(a) What obligations are imposed by law on C?
- To bear the expenses necessary for its preservation and repair.
Apply the fruits after receiving them to the interest of owing and
thereafter to the principal.

(b) Suppose for whatever reason no harvest can be

applied to D’s obligation, what remedy does C have?
- To bring an action for specific performance, to petition for the sale of
real property as in foreclosure of mortgage under rule 68 of the
rules of the court.

G. — CHATTEL MORTGAGE*
I. Definitions
1. Chattel mortgage – contract by virtue of which personal property
is recorded in the chattel mortgage register as security for the
performance of the obligation.

2. Affidavit of good faith – oath in the contract of chattel mortgage

where in the parties severally swear that the mortgage is made for
the purpose of securing obligation and specified conditions thereof.

II. Discussions
1. Give at least four (4) distinctions between chattel mortgage
and pledge.
- In chattel mortgage, the delivery of the personal property of the
mortgage is not necessary, while in pledge, such delivery is
necessary.
- In chattel mortgage, the registration of the same in the chattel
mortgage register is required by law, while in pledge, registration in
the registry of property is not necessary.
- In chattel mortgage, if the property is foreclosed the excess over the
amount due goes to the debtor, while in pledge if the property is
sold, the debtor is not entitled to the excess unless it is otherwise
agreed. Or except in the case of legal pledge.
- In chattel mortgage, if the property is foreclosed and there is an
deficiency, the creditor is entitled to recover the deficiency from the
debtor except in the chattel mortgage is a security for the purchase
of personal property in instalments. In pledge, if the property is sold,
and there is a deficiency, the creditor is not entitled to recover the
deficiency notwithstanding any stipulation in the contrary.

2. Give at least five (5) similarities between chattel mortgage

and pledge.
- Both are executed to secure performance of a principal obligations.
- Both are constituted only personal property.
- Both are indivisible.
- Both constitute a lien on the property.
 - Both are extinguished by the fulfilment of the principal obligation of
the destruction of the property pledged or mortgaged.

3. In the event the chattel mortgage is foreclosed, how shall

the proceeds of the sale to be applied?
- Cost and expesnses of keeping and sale.
- Payment of the obligation secured by a mortgaged.
- Claims of persons holding subsequent mortgages in their order.
- The balance, if any shall be paid to the mortgagor or person holding
under him.

III. Problems
1. May immovable property be mortgaged under the Chattel
Mortgage Law?
- It depends, but it must be always personal and movable property.
But if it is capable of being mortgage in under of chattel mortgage
law. There will no problem between the chattel mortgage law and
civil code.

2. A contract of chattel mortgage does not include an affidavit

of good faith appended to it as required by law. Is the
mortgage valid?
- It depends, because the absence of the affidavit of faith vitiates a
mortgage only as against to third person without the notice like
creditors.