Contracts of Sale: Nature, Goods, Conditions, and Warranties, Study notes of Law

Download Contracts of Sale: Nature, Goods, Conditions, and Warranties and more Study notes Law in PDF only on Docsity! IV. – SALES Chapter 1. – NATURE AND FORM OF THE CONTRACT 1. Define contract of sale. By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefore a price certain or its equivalent. (Art.1458) Note: Sale is consensual, bilateral, onerous, cumulative, nominate, and principal contract. (see III. – Contracts.) 2. Give the requisites of a contract of sale. They are: (1)Consent or meeting of minds. – On the part of the seller, to transfer and deliver, and on the part of the buyer, to pay; (2)Object or subject matter. – A determinate thing; and (3)Cause. – Price certain in money or its equivalent, such as a check or promissory note. 3. As to the presence or absence of conditions, what are the two kinds of contract of sale? They are: (1)Absolute. – where the sale is not subject to any condition whatsoever and where title passes to the buyer upon delivery of the thing sold; and (2)Conditional. – where the sale contemplates a contingency (Arts. 1461, 1462, par.2; Art. 1465.) and in general, where the contract is subject to certain conditions (see Art. 503, par. 1.) usually the full payment of the purchase price. (Art. 1478.) 4. What is the difference between a contract of sale and a contract to sell? In contract of sale, title passes to the buyer upon delivery of the thing sold, while in a contract to sell (or of “exclusive right and privilege to purchase”), ownership is reserved in the seller and is not to pass until the full payment of the purchase price. 5. Give the requisites in order that a thing may be the object of sale. They are: (1)The thing must be existing, or at least have a future or contingent existence (Arts. 1461, 1462, 1465.); (2)It must be licit or legal (Art. 1459.); (3)It must be determinate or determinable by description or segregation (Art. 140.); and (4)The vendor must have a right to transfer the ownership of the thing at the time it is delivered. (Art. 1459.) Note: It is not required that the vendor must have the right to transfer ownership at the time of the perfection of the contract. 6. When is a thing determinate? A thing is determinate (or specific) when it is particularly designated or physically segregated from all others of the same class (e.g., the watch I am wearing). The requisite that a thing be determinate is satisfied if at the time the contract is entered into, the thing is capable of being made determinate without the necessity of a new or further agreement between the parties. (Art. 1460; e.g., all the cavans of rice in a particular bodega.) 7. Give examples of a thing having potential existence. They are: (1)Wine a vineyard is expected to produce; (2)Palay a field may grow in a given time; (3)Milk a cow may yield in the coming year; (4)The wool that may grow upon a sheep; (5)The next catch of a fisherman’s net; and (6)The goodwill a newly established business may develop. (Sibal vs. Valdez, 50 Phil. 512.) 8. Can there be a sale of a mere hope or expectancy Sale of a mere hope or expectancy is the sale of the hope itself that the thing will come into existence, where it is agreed that the buyer will pay the price even if the thing does not eventually exist. Thus, in the sale of sweepstakes ticket, it is not certain that the thing itself (winning a prize) will exist much less its quantity and quality. The sale of a vain hope or expectancy (e.g., the sale of a falsified sweepstakes ticket which can never win) is void. (Art. 1461.) 9. What are the two kinds of goods which may form the subject matter of a contract of sale? (1)Existing goods or those owned or possessed by the seller; and (2)Future goods or those to be manufactured (e.g., the sale of milk bottles to be manufactured (e.g., the sale of milk bottles to be manufactured with the name of the buyer pressed in the glass), raised (e.g., the sale of the future harvest of palay from a ricefield), or acquired (e.g., the sale of a definite parcel of land the seller expects to buy) by the seller after the perfection of the contract of sale. (Art. 1462.) Note: The acquisition by the seller may defend upon a contingency which may or may not happen. 10. Give the effect of the sale by the sole owner of a thing of his undivided interest therein. The buyer becomes a co-owner of the thing sold. (Art. 1463.) As much coowner, he acquires full ownership of his part and he may, therefore, sell it. (see Art. 493.) 11. Give the effect of the sale of an undivided share of a specific mass of fungible goods. (1)The buyer (e.g., of 250 cavans of palay in a warehouse) becomes a coowner of such share (1/4) of the mass (1,000 cavans stored in the warehouse) as the number, weight or measure bought (250 cavans) bears to the number, weight or measure of the mass (1,000 cavans). (2)If the mass contains less than what was sold (e.g., 200 cavans), the buyer becomes the owner of the whole mass and furthermore, the seller is bound to make good the deficiency (50 cavans) from goods of the same kind and quality subject to any stipulation to the contrary. (Art. 1464.) But if the buyer bought, say, ¼ share of the contents, it is obvious that in such case, the obligation of the seller “to make good the deficiency” will not arise. Note: Fungible goods means goods of which any unit is from its nature or by mercantile usage treated as the equivalent of any other unit (Uniform Sales Act, Sec. 76.), such as grain, oil, wine, gasoline, etc. 12. May things subject to a resolutory condition be the subject a contract of sale? Yes (Art. 1465.), but the sale shall be extinguished in case the condition happens. EXAMPLE: S (vendor a retro) sold a parcel of land to B (vendee a retro), subject to the condition that S can repurchase the property within 2years from the date of the sale. If S exercises the right to repurchase, then the sale made by B to C before the lapse of the 2-year period falls. The rule, however, that a vendor cannot transfer to his vendee a better right than he had himself, suffers an exception in case of property with Torrens title still in the name of the vendor who sold it again to a second buyer in good faith. 13. Distinguished the contract of sale from the contract for a piece of work. By the contract for a piece of work, the contractor binds himself to execute a piece of work for the employer (e.g., to construct a house) in consideration of a certain price or 23. What is the effect of failure to determine a price certain? The contract is inefficacious. However, if the thing or any part thereof has already been delivered to and appropriated by the buyer, he is under obligation to pay a reasonable price therefor. (Art. 1474.) 24. When is a contract of sale perfected ? The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. (Art. 1475.) 25. Give the effects of the perfection of a contract of sale. They are: (1)From the moment of consent above, the reciprocal obligations of the parties arise, and they may reciprocally demand performance, subject to the Statue of Frauds (see III. – Contracts, Chap. 8.); (2)The ownership of the thing sold is not transferred until it is delivered, actually or constructively, to the buyer (Art. 1477.); and (3)In case one of the contracting parties does not comply with what is incumbent upon him, the injured party may sue for fulfillment or rescission with the right to damages in either case. (Art. 1191.) Note: The parties may stipulate that ownership in the thing shall not pass to the purchaser until he has fully paid the price (Art. 1478.) 26. When is sale by auction perfected? It is perfected when the auctioneer announces its perfection by the fall of the hammer, or in other customary manner. Until such announcement is made, any bidder may retract his bid; and the auctioneer may withdraw the goods from the sale unless the auction has been announced to be without reserve. (Art. 1476 [2].) 27. What is the effect of an unaccepted promise or offer to sell or to buy a thing for a price certain? It creates no juridical effect or legal bond. Such an unaccepted offer is called policitacion. 28. What is the effect of “an accepted unilateral promise or offer to sell or to buy a thing for a price certain?” (1)Such a unilateral promise, also known as option contract, does not bind the promisor and may be withdrawn at any time. (2)If the promise, however, is supported by a consideration (i.e., option money) distinct from the price, its acceptance gives rise to the perfection of the contract. EXAMPLE: S offers to sell to B his car at a stated price. If B accepts the promise of S (this is case of an accepted unilateral promise to sell), S is not bound to sell his car to B. However, if the promise to pay a sum to S for giving him the right to buy the car if he chooses within an agreed period at a fixed price, its acceptance produces consent or meeting of the minds. Note: Under Article 1324 (III. – Contracts.), the offer cannot be withdrawn after its acceptance. Said provision must be interpreted as modified by Article 1479 which applies specifically to a “promise to buy or sell.” The Supreme Court, however, has ruled that under Article 1479, acceptance made before withdrawal of the offer constitutes a binding contract of sale although the option is given without consideration. (Sanchez vs. Rigos, L-25494, June 4, 1872.) 29. What is the effect of a bilateral promise to buy and sell a thing for a price certain? When the promise is bilateral, that is, one party accepts the other’s promise to buy and the latter, the former’s promise to sell, a determine thing for a price certain, it has practically the same effect as a perfected contract of sale since it is reciprocally demandable. But there is no contract of sale yet until it is executed. 30. Give the rules with regard to any injury to, or benefit from, the thing sold after the contract is perfected but before delivery. They are: (1)The vendor is obliged to take care of the thing with proper diligence (see Art. 1163); (2)The vendee has a right to the fruits of the thing from the time the obligation to deliver it arises but shall acquire no real right or ownership over it until the same has been delivered to him (Art. 1164; see Art. 1537.); (3)If the thing is determinate, the vendee may compel the vendor to make the delivery, and hold him liable for damages by reason of fraud, delay, etc. (Arts. 1165, 1170.); (4)If the thing is generic, he may ask that the obligation be complied with at the expense of the vendor if the latter fails to make the delivery also with a right to damages in the proper case (Arts. 1165, 1170.); (5)If the thing is determinate, and it is lost or destroyed – (a) Through the fault of one party, the party at fault is liable for damages; (b)Through a fortuitous event, the vendor is released from his obligation to deliver and the vendee is liable to pay the price if he has not yet paid the same. (see Arts. 1480, 1538, 1189 and 1269; Art. 1504, par. 1, however, provides a rule contrary to Art. 1480.); (c) The vendor shall be responsible for any fortuitous event if it is so stipulated, or if the same took place after he has incurred in delay, or he has promised to deliver the same thing to two or more persons who do not have the same interest (Arts. 1164, 1262.); (d)The rule under letter (b) applies to the sale of fungible things, made independently and for a single price or without consideration of their weight, number or measurement (Art. 1480.) Reason: In such case, the fungible things have been “particularly designated or physically segregated”; (e) It does not apply where the fungible things have been sold for a price fixed in relation to weight, number or measure. In such case, the risk shall not be imputed to the vendee until they have been weighed, counted or measured and delivered (Ibid.); and (6)If the thing is generic, the loss, with or without the vendor’s fault, of anything of the same kind does not extinguish his obligation to deliver. (1262.) 31. State the special rules governing the sale of goods by description and/or by sample. (1)In the contract of sale of goods by description or by sample, the contract may be rescinded if the bulk of the goods delivered do not correspond with the description or the sample; (2)If the contract be by sample as well as by description, it is not sufficient that the bulk of goods correspond with the sample if they do not also correspond with the description; and (3)The buyer shall have a reasonable opportunity of comparing bulk with the description or the sample. (Art. 1481.) Note: The term “bulk of goods” is not used to designate the greater portion of the goods but means the same as “goods” which as a whole body must correspond substantially with the sample and/or description. 32. What is earnest money? Earnest money is that given by the buyer to the seller to bind the bargain. It is actually a partial payment of the purchase price and is considered as proof of the perfection of the contract. 33. Give the distinctions between earnest money and option money. They are: (1)Earnest money is part of the purchase price, while option money (see question No. 28.) is the money given as distinct consideration for an option contract; (2)Earnest money is given only where there is already a sale, while option money applies to a sale not yet perfected; and (3)When earnest money is given, the buyer is bound to pay the balance, while when the would- be-buyer gives option money, he is not required to buy. But option money may become earnest money if the parties so agree. 34. What is the form required by law for a contract of sale? (1)Generally. – No particular form is required. (Art. 1483) (2)For enforceability. – The Statue of Frauds applies to the following: (a) Sale of personal property at a price not less than P500; (b)Sale of real property or an interest therein regardless of the price involved; and (c) Sale of property not to be performed within one (1) year from the date thereof regardless of the nature of the property and the price involved. (Art. 1403 [2]) (3)For validity. – Where the applicable statue requires that the contract of sale be in a certain form for its validity, the required form must be observed in order that the contract may be both valid and enforceable. (see III. – Contracts, Art. 1356.) (4)For convenience. – In order that a sale of real property may be effective against third persons, it must be in public document and registered in the Register of Deeds of the province or city where the property is located. (see III. – Contracts, Arts. 1357, 1358.) 35. State the alternative remedies of the vendor in sale of personal property payable in installments. He may exercise any of the following: (1)Elect fulfillment upon the vendee has failed to pay; (2)Cancel the sale, if the vendee has failed to pay two or more installments; or (3)Foreclose the chattel mortgage, if one has been constituted, if the vendee shall have failed to pay two or more installments. In the third case, the vendor shall have no further action to recover any unpaid balance of the price (deficiency) and any agreement to the contrary shall be void. (Art. 1484.) Purpose of the law. – To avoid the situation where the mortgagor finds himself minus the property and still owing practically the full amount of his original indebtedness resulting from the mortgagee being able to buy the property at foreclosure sale at a low price. Note: (1)Article 1484 does not apply to a sale of personal property on straight term. Where the balance, after payment of the initial sum, should be paid in its totality at the time specified, the transaction is not by installment as contemplated in Article 1484. (2)It applies to contracts purporting to be leases of personal property with option to buy, when the lessor has deprived the lessee of the possession or enjoyment of the thing.(Art. 1485.) 36. In transactions or contracts involving the sale or financing of real estate on installment payments, including residential condominium apartments, what rights are given to the buyer who has paid at least two (2) years of installments in case he defaults in the payment of succeeding installments? The following: (1)To pay without additional interest, the unpaid installments due within the total grace period earned by him fixed at the rate of one (1)-month grace period for every one (1) year of installment payments made. This right, however, shall be exercised by him only once in every five (5) years of the life of the contract and its extensions, if any; and (2)If the contract is cancelled, the seller shall refund to the buyer the cash surrender value of the payments on the property equivalent to 50% of the total payments made and, after (5) years of installments, an additional 5% every year but not to exceed 90% of the total payments made. (Sec. 3, R.A. No. 6552 [Realty Installment Buyer Protection Act].) (3)To warrant against eviction and against hidden defects (Art. 1495; see Art. 1547.); (4)To take care of the thing pending delivery with proper diligence (Art. 1163.); and (5)To pay for the expenses of the deed of sale, unless there is a stipulation to the contrary. (Art. 1487.) 2. When is the ownership of the thing sold acquired by the vendee? Generally, it is acquired from the moment the thing is delivered to him in any of the ways provided by law. (Art. 1496.) Section 2. – DELIVERY OF THE THING SOLD 1. Define tradition or delivery. Tradition is a derivative mode of acquiring ownership by virtue of which one who has the right and intention to alienate a corporeal thing, transmits to one who accepts the same. Note: A contract of sale gives only the right to acquire ownership of the thing sold. It is a derivative, not an independent mode of acquiring ownership because it presupposes the existence of a contract giving rise to the obligation to deliver. 2. What are the different ways of effecting delivery? Explain each. They are: (1)Actual or real. – When the thing sold is placed in the physical control and possession of the vendee (Art. 1497.); (2)Constructive or legal. – Delivery may be effected in any of the following ways: (a)By execution of a public instrument. – It is equivalent to the delivery of the thing sold (movable or immovable) provided: 1) From the deed the contrary does not appear or cannot be clearly inferred (Art. 1498.); and 2) There is no actual impediment to physical delivery (as when the property is in the possession of a third person); (b)By symbolic delivery or tradition simbolica. – With regard to movable property, when the parties make use of a token symbol to represent the thing delivered, such as by the delivery of the key of the place or depository where the thing sold is stored or kept (Ibid.); (c) By traditio longa manu. – It takes place by the mere consent or agreement of the contracting parties as when the vendor merely points to the thing sold which shall thereafter be at the control and disposal of the vendee, if the thing sold cannot be transferred to the possession of the vendee at the time of the sale (Art. 1499.); (d)By tradition brevi manu. – It takes place by the mere consent or agreement of the parties if the vendee is already in possession of the thing sold by virtue of another title (Ibid) as when the lessor sells the thing leased to the lessee; (e)By constitutum possessorium. – This mode of delivery is the opposite of tradition brevi manu. It takes place when the vendor continues in possession of the property sold not as owner but in some other capacity, as for example, when the vendor stays as a tenant of the vendee (see Art. 1500.); or (f) By quasi-deliveryor quasi-traditio. – In the case of incorporeal things, delivery is effected by the execution of a public instrument, or when that mode is not applicable, by the placing of the titles of ownership in the possession of the vendee or by allowing the vendee to use his rights as new owner with the consent of the vendor. (Art. 1501.) Thus, the delivery of negotiable document of title in which it is stated that the goods referred to therein will be delivered to the bearer amounts to delivery (Arts. 1507, 1508, infra.); and (3)Others. – Delivery may also be effected by any other manner signifying an agreement that the possession is transferred to the vendee. (Art. 1496.) Thus, when the parties agree that the delivery of the logs sold should be made alongside a vessel of the vendee and that was done by the vendor, the delivery transfers the right of property although the price has not been paid, nor the thing actually delivered. (Ben Admr. Vs. the Cadwallader Co., 10 Phil. 1606.) Note: In fine, in all the different modes of effecting delivery, it is the real intention of the parties which gives legal effect to the act. 3. Enumerate the cases when delivery does not transfer ownership over the thing sold. They are: (1)Where a contrary intention appears by the terms of the contract: (a) In case of express reservation by the seller of his title, until certain conditions have been fulfilled (Art. 1503. Par. 1.), particularly the full payment of the purchase price (Art. 1478.); (b)In case of implied reservation of title as when goods are deliverable to the order odf the seller or his agent (Ibid., par 2.); and (c) In sale on approval, or on satisfaction (Art. 1502, infra.); (2)Where the seller failed to make such contract with the carrier on behalf of the buyer as may be reasonable under the circumstances (see Art. 1523, par. 2.); and (3)Where the seller failed to give notice to the buyer as may enable him to insure the goods during their transit if under the circumstances it is usual to insure them. (see Ibid., par. 3.) Note: Nos. 2 and 3 are also exceptions to the general rule that delivery to the carrier is deemed delivery to the buyer. (Ibid., par. 1.) 4. Explain “sale of return” and “sale on approval or on trial or on satisfaction.” (1)Sale or return. – It is a contract by which property is sold but the buyer, who becomes the owner of the property on delivery, has the option to return the same to the seller instead of paying the price. (2)Sale on trial or approval. – It is a contract in the nature of an option to purchase if the goods prove satisfactory, the approval of the buyer being a condition precedent. (55 C.J 430-431.) In this kind of contract, the title shall continue in the seller until the sale has become absolute: (a) Upon the buyer’s approval or acceptance made known to the seller; (b)Upon the buyer’s doing any other act adopting the transaction; or (c) Upon the retention by the buyer of the goods beyond the time fixed (or a reasonable time) without giving notice of rejection.(Art. 1502.) Note: In “sale or return,” the risk of loss or injury rests upon the buyer while in sale on approval, the risk still remains in the seller. 5. As a rule, the buyer acquires no better title to the goods sold than the seller has. What are the exceptions to this rule? They are: (1)Where the owner of the goods is, by his conduct, precluded from denying the seller’s authority to sell; (2)Where the law enables the apparent owner to dispose of the goods as if he were the true owner thereof; (3)Where the sale is sanctioned by statutory or judicial authority; (4)Where the sale is made at merchant’s stores, fairs or markets (Art. 1505.); and (5)Where the seller has a violable title which has not been avoided at the time of the sale provided the buyer acted in good faith. (Art. 1506.) 6. What is a trust receipt? A trust receipt is a receipt signed by an importer in favor of a bank which advanced on his credit the price on the goods received, generally providing that the title to the goods shall remain in the bank and authorizing the importer to sell the same for its account, and to pay the proceeds to the said bank. If the importer violates the trust by converting the proceeds to his own use, he is guilty of estafa. 7. Define document of title to goods. Document of title to goods is any document used in the ordinary course of business in the sale or transfer of goods, as proof of the possession or control of the goods, or authorizing or purporting to authorize the possessor of the document to transfer or receive, either by indorsement or by delivery, goods represented by such document. (Art. 1636 [1].) 8. What is the nature of documents of title ? Documents of title refer to goods and not to money. They all have this in common: that they are receipts of a bailee, or orders upon a bailee. 9. What is the function of documents of title? A document of title is a symbol of the goods covered by it, serving as evidence of (1) transfer of title and (2) transfer of possession. It also serves as an evidence of the (3) contract between parties who are bound by its terms. So far as concerns the transfer of property between the parties, their intention would be effectual without the document, but where third parties rights are involved, the form of the document becomes important. 10. What are the most common forms of documents of title? They are: (1)Bill of lading. – A contract or receipt for the transport of goods and their delivery to the person named therein, to order or to bearer. It usually involves three persons – the carrier, the shipper, and the consignee. The shipper and the consignee may be one and the same person; (2)Dock warrant. – An instrument given by dock owners to an importer of goods warehoused on the dock recognizing the importer’s title to the said goods; and (3)Warehouse receipt. – A contract or receipt for goods deposited with a warehouseman containing the latter’s undertaking to hold and deliver the said goods to a specified person, to order, or to bearer. Quedan is warehouse receipt usually for sugar received by a warehouseman. 11. What laws govern documents of title? The following: (1)The Civil Code (in Arts. 1507 to 1520, 1532 [2nd par.], 1535 [2nd par.], and 1749.) primarily governs documents of title other than warehouse receipts; (2)The Warehouse Receipts Law (Act No. 2137.) primarily governs warehouse receipts; and (3)The Code of Commerce subsidiary governs bills of lading issued by land carriers (in Arts. 350 to 353.) and by maritime carriers (in Arts. 706 to 718.). 12. What are the classes of documents of title? They may be either: (1)Negotiable documents of title. – Those by the terms of which the bailee undertakes to deliver the goods to the bearer and those by the terms of which the bailee undertakes to deliver the goods to the order of a specified person (Art. 1508.); (2)Non-negotiable documents of title. – Those by the terms of which the goods covered are deliverable to a specific person (Art. 1511.) 13. When may a negotiable document of title be negotiated by delivery? In the following cases: (1)Where by the terms of the document the carrier, warehouseman or other bailee issuing the same undertakes to deliver the goods to the bearer; or The following are the rules: (1)Where there is an agreement, express or implied, the place of delivery is that agreed upon; (2)Where there is no agreement, the place of delivery is that determined by usage of trade; (3)Where there is no agreement and there is also no prevalent usage, the place of delivery is the seller’s place of business; (4)In any other case, the place of delivery is the seller’s residence; and (5)In case of specific goods, which to the knowledge of the parties at the time the contract was made were in some other place, that place is the place of delivery, in the absence of any agreement or usage of trade to the contrary. (Art. 1521; see Art. 1251.) 26. At what time must the goods sold be delivered? (1)At the time or period stipulated; or (2)If there is no stipulation, at a reasonable time and hour which is a question of fact (Art. 1521.), i.e., a matter that must be proved in case of disagreement. 27. When is the vendor not bound to deliver the thing sold notwithstanding the perfection of the contract of sale? (1)If the vendee has not paid the price and no period for payment has been fixed in the contract. (Art. 1524.) Reason: The obligation to deliver the thing sold is correlative to the obligation to pay the price; (2)If a period has been fixed for payment (i.e., sale is on credit), but the vendee has lost the right to make use of the period or term (Art. 1536; see II. – Obligations, Chap. 3, Sec. 2, question No. 9.); and (3)If a period (which has not yet arrived) has been fixed for delivery, although the price has already been paid. (see Art. 1595.) 28. Explain F.O.B., C.I.F., F.A.S., C. & F., Ex (Point of Origin) and Ex Dock. (1) F.O.B. – The initials stand for the words, “free on board.” They mean that the goods are to be delivered free of expenses to the buyer to the point where they are F.O.B. (2) C.I.F. – The initials stand for the words “coat, insurance and freight.” They signify that the price fixed covers not only the cost of the goods, but the expenses of freight and insurance to be paid by the seller up to the point specially named. (3) F.A.S. – The initials mean “free alongside vessel” (named port of shipment). Under this term, the seller pays all charges and bear the risk until the goods are placed alongside overseas vessel and within reach of its loading tackle. (4) C. & F. – The initials signify that the price fixed includes cost and freight to the named point of destination. (5)Ex factory, Ex Warehouse, etc. (named point of origin). – Under this term, the price quoted applies only at the point of origin, and the seller agrees to place the goods at the disposal of the buyer at the agreed place on the date within the period fixed. (6)Ex Doc (named port of importation). – Under this term, the seller quotes a price including the cost of the goods on the dock at the named port of importation. 29. Define an unpaid seller. An unpaid seller is one – (1)Who has not been paid or tendered the whole price; or (2)Who has received a bill of exchange or other negotiable instrument as conditional payment and the condition on which it was received has been broken by reason of the dishonor of the instrument. (Art. 1525.) 30. What are rights of the unpaid seller? Even if the ownership in the goods or right to retain them for the price while in his possession; (1) A lien on the goods or right to retain them for the price while in his possession; (2) A right of stopping the goods in transit in case of insolvency of the buyer; (3) A right of resale; and (4) A right of rescind the sale. If the unpaid seller still retains ownership in the goods, he cannot be said to have a lien (on his goods). But he does have, in addition to his other remedies, right of withholding delivery. (Art. 1526.) 31. In what cases may the unpaid seller exercise his right of possessory lien? In any of the following: (1)Where the goods have been sold without any stipulation as to credit; (2)Where the goods have been sold on credit, but the term of credit has expired; and (3)Where the buyer becomes insolvent. The seller may exercise his right of lien notwithstanding that he is in possession of the goods as agent or bailee for the buyer. (Art. 1527.) 32. When will an unpaid seller of goods lose his lien thereon? In any of the following cases: (1)When he delivers the goods to a carrier or other bailee for the purpose of transmission to the buyer without reserving the ownership in the goods or the right of possession thereof; (2)When the buyer or his agent lawfully obtains possession of the goods; and (3)When the unpaid seller waives his lien. Mere judgment by a court obtained by the unpaid seller for the price of the goods is not a ground for the loss of his lien. (Art. 1529.) 33. What is the right of stoppage in transit? The right of stoppage in transit is the right of the unpaid seller who has parted with the possession of the goods, when the buyer is or becomes insolvent, to stop them and resume possession while they are in transit. The unpaid seller will become entitled to the same rights to the goods as if he had never parted with possession. (Art. 1530.) 34.Give the requisites for the exercise of the right of stoppage. The following are the requisites for the existence of the right: (1) The seller must be unpaid (Art. 1525.); (2) The buyer must be insolvent; (3) The goods must be in transit (Art. 1531.); (4) The seller must either actually take possession of the goods sold or give notice of his claim to the carrier or other person in possession (Art. 1532, par. 1.); (5) The seller must surrender the negotiable document of title, if any, issued by the carrier or bailee (Ibid., par. 2.); and (6) The seller must bear the expenses of delivery of the goods after the exercise of the right. (Ibid.) 35.How may the unpaid seller exercise the right to stop the goods in transit? Either: (1)By taking actual possession of the goods; or (2)By giving notice of his claim to the carrier of bailee in whose possession the goods are. The seller must surrender the negotiable document of title, if any, issued by the carrier of bailee. (Art. 1532.) 36. When are goods no longer in transit? The goods are no longer in transit after delivery to the buyer or his agent in that behalf and in the following cases: (1)If the buyer or his agent obtains possession of the goods at a point before the destination originally fixed; (2)If the carrier or bailee acknowledges to hold the goods on behalf of the buyer; and (3)If the carrier or bailee wrongfully refuses to deliver the goods to the buyer. (Art. 1531.) 37. In what cases may an unpaid seller exercise his right of resale? In any of the following: (1)When the goods are perishable in nature; (2)When the right to resell is expressly reserved; and (3)When the buyer defaults or delays in the payment of the price for an unreasonable time. In case of resale, the seller is not liable for any profit made by such resale; but if he sells for less than the price, he has a right to sue for the balance. As against the original buyer, the new buyer acquires a good title to the goods. (Art. 1533.) Note: An unpaid seller exercising the right to resell must have either a right of lien or a right to stop the goods in transit. 38.In what cases may an unpaid seller exercise his right to rescind? Under either of two situations, namely: (1)When the right to rescind is expressly reserved; or (2)When the buyer defaults or delays in the payment of the price for an unreasonable time. In the case of rescission, the seller resumes ownership in the goods. While the seller shall not be liable to the buyer upon the contract of sale, the latter, however, may be made liable to the seller for damages for any loss occasioned by the breach of contract. (Art. 1534.) Note: An unpaid seller has a right to rescind only if he has either a right of lien or a right to stop the goods in transit. 39.Give the effects of the sale of goods subjects to the unpaid seller’s right of lien or stoppage in transitu. They are: (1)The seller’s right is not affected by any disposition of goods made by the buyer, unless he has assented thereto. (2)If, however, the goods are covered by a negotiable document of title, the seller’s right cannot prevail against the rights of a purchaser for value in good faith to whom the document has been indorsed. (Art. 1535.) 40. In the sale of real estate, what are the rules in case the area or number is greater or less than that stated in the contract? They are: (1)The sale is made with a statement of its area at the rate of a certain price for a unit of measure or number – Suppose a parcel of land stated as having an area of 1,000 square meters is sold at P2,000.00 per square meter – (a) If the actual area, for example, is 1,100 square meters. – The vendee may accept the area included in the contract (1,000 square meters) and the rest (100 square meters). If he accepts the whole area, he must pay for the same at the contract rate, or P2,200,000. (Art. 1546.) (b) If the actual area is 900 square meters. – The vendee may choose between a proportional reduction of the price (P1,800,00) and the rescission of the contract, provided in the latter case the lack in the area be not less than 1/10 (i.e., 1/10 or more) of that stated. (see Art. 1539.) (2)The sale is made for a lump sum – There shall be no increase or decrease of the price. (Art. 1542.) Reason: The law presumes that the purchaser had in mind a determinate price for the real estate and that he ascertained the area and quality before the contract was perfected. This rule applies when two or more immovable are sold for a single price. (see Art. 1541.) It does not apply if the deficiency is so material as to go to the essence of the (1)Mere trespass in fact (when a third person claims no right whatever) does not give rise to the application of the doctrine of eviction. (see Art. 1590.) In such case, the vendee has a direct action against the trespasser in the same way as the lessee has such right. (Art. 1664.) The disturbance referred to in the case of eviction is a disturbance in law which requires that a person go to the courts of justice claiming the thing sold, or part thereof, and invoking reasons. (2)Any stipulation exempting the vendor from the obligation to answer for eviction is void if he acted in bad faith. (Art. 1563.) 3. What are the kinds of waiver of eviction? They are: (1)Consciente. – The waiver is voluntarily made by the vendee without the knowledge and assumption of the risks of eviction. The vendor shall only pay the value which the thing sold had at the time of eviction; and (2)Intencionada. – The waiver is made by the vendee with knowledge of the risks of eviction and assumption of its consequences. (Art. 1554,) The vendor is not liable for eviction if he acted in good faith. (Art. 1553.) Any waiver is presumed to be consciente. 4. What are the rights of the vendee in case eviction occurs? The vendee shall have the right to demand of the vendor: (1)The return of the value which the thing sold had at the time of the eviction, be it greater or less than the price of the sale; (2)The income or fruits, if he has been ordered to deliver them to the party who won the suit against him; (3)The costs of the suit which caused the eviction and, in a proper case, those of the suit brought against the vendor for the warranty; (4)The expenses of the contract, if the vendee has paid them; and (5)The damages and interests, and ornamental expenses, if the sale was made in bad faith. (Art. 1555.) Note: (1)In case of partial eviction, the vendee has the option either to enforce the vendor’s liability for eviction (Art. 1555.) or to demand rescission of the contract. (see Art. 1556.) (2)In case the vendee is totally evicted from the thing sold, he cannot avail of the remedy of rescission, because this remedy contemplates that the one demanding it is able to return whatever he has received under the contract. Subsection 2. – WARRANTY AGAINST HIDDEN DEFECTS, OR ENCUMBRANCES UPON, THE THING SOLD 1. What is redhibition? Redhibition is the avoidance of a sale on account of some vice or defect in the thing sold, which renders its use impossible, or so inconvenient and imperfect that it must be supposed that the buyer would not have purchased it had he known of the vice. 2. Give the requisites of the warranty against redhibitory (hidden, physical) defects. They are: (1)The defect must be serious or important; (2)It must be hidden; (3)It must exist at the time of the sale; (4)The vendee must give notice of the defect to the vendor within a reasonable time (Art. 1586.); (5)The action for rescission or reduction of the price must be brought within the proper period – 6 months from the delivery of the thing sold (Art.1571.) or within 40 days from the date of delivery in case of animals (Art. 1577, par. 1.); and (6)There must be no waiver of warranty on the part of the vendee. 3. When is a defect important? The defect is important if: (1)It renders the thing sold unfit for the use for which it is intended; or (2)It diminishes its fitness for such use to such an extent that the vendee would not have acquired it had he been aware thereof or would have given a lower price for it. (Art. 1561.) 4. When is a defect hidden? The defect is hidden if it was not known and could not have been known to the vendee. Hence, there is no warranty if the defect is patent or visible. For the same reason, the vendor’s liability for warranty cannot be enforced although the defect is hidden if the vendee is an expert who, by reason of his trade or profession, should have known them. 5. Give the requisites of the warranty against hidden encumbrances. They are: (1)The encumbrances must be important (the vendee would not have purchased the property had he been aware of its existence); (2)The encumbrance is not registered , unless expressly warranted free from burdens. Reason: Registration constitutes constructive notice; (3)The vendee had no knowledge of the encumbrance, whether it is registered or not. Reason: Otherwise, there is no warranty; and (4)The action for rescission or damages must be brought within the proper period (supra.); in the case of immovable property encumbered with any non-apparent burden or easement – within one year from the execution of the deed of sale. (Art. 1560.) If the period of one year has already elapsed, the vendee of an immovable may only bring an action for damages also within one year from the discovery of the non-apparent burden or servitude. 6. Distinguish warranty of merchantability and warranty of fitness. A warranty of merchantability is a warranty that goods are reasonably fit for the general purpose for which they are sold, while warranty of fitness is a warranty that the goods are suitable for the special purpose of the buyer which will not be satisfied by mere fitness for general purposes. Note: In the case of contract of sale of a specific article under its patent or other trade name, there is no warranty as to its fitness for any particular purpose, unless there is a stipulation to the contrary. (Art. 1563.) 7. Is there an implied warranty as to the quality or fitness for any particular purpose of goods under a contract of sale? No, except as follows: where (1)The buyer, expressly or by implication, manifests to the seller the particular purpose for which the goods are acquired; and (2)The buyer relies upon the seller’s skill or judgment. 8. Is the vendor responsible for hidden faults or defects in the thing sold, even though he was not aware thereof? Yes, except when the contrary has been stipulated and the vendor was not aware of the hidden faults or defects. (Art. 1566.) This is the doctrine of caveat venditor. Formerly the rule was caveat emptor (buyer beware). 9. What is the effect of the loss of the thing sold in consequence of its hidden defects? (1)The vendor was aware of them. – (a) He shall bear the loss, and shall be obliged (b) to return the price and (c) refund the expenses of the contract, with damages. (2)The vendor was not aware of them. – (a) He shall only return the price and interest thereon and (b) reimburse the expense of the contract which the vendee might have paid. (Art. 1568.) 10. What is the effect if the defective thing is lost by fortuitous event or through the fault of the vendee? (1)Vendor acted in good faith. – The vendee may demand of the vendor the price which he paid, less the value which the thing had when it was lost. (2)Vendor acted in bad faith. – He shall also be liable for damages. (Art. 1569.) 11. State the rules when two or more animals (or other things) are sold together and redhibitory defect is only in one or some of them but not in all. (1)General rule. – The redhibition will not effect the others without it. (2)Exception. – The vendee is able to show that he would not have purchased the sound ones without those which are defective. Such intention is presumed when a team, yoke, pair or set (e.g., the animals bought are a male and a female) is bought. (Arts. 1572, 1573.) Note: (1)There is no warranty against hidden defects of animals sold at fairs or at public auctions, or of livestock sold as condemned. (Art. 1574.) (2)In the case of animals, in order that the defects may be considered redhibitory, the defect must not only be hidden but of such a nature that expert knowledge is not sufficient to discover it. (Art. 1576.) 12. What class of animals cannot be the object of commerce? They are: (1)Those suffering from contagious diseases; and (2)Those found unfit for the use or service for which they are acquired when such use or service has been stated in the contract. The sale of such animals is declared void (Art. 1575.), being against public interest. (see Art. 1409 [7].) Chapter 5. – OBLIGATIONS OF THE VENDEE 1. What are the principal obligations of the vendee? They are: (1)To accept delivery; and (2)To pay the price of the thing sold. (Art. 1582.) 2. When and where must the vendee accept delivery and pay? (1)At the time and place stipulated in the contract; and (2)If there is no stipulation as to the time place of payment, it must be made at the time when and place where the thing sold is delivered by the vendor. (Art. 1582; see II. – Obligations, Art. 1251.) Note: (1)If only the time for delivery of the thing sold has been fixed in the contract, the vendee is required to pay even before the thing is delivered to him. (2)In the absence of an agreement to the contrary, the vendee is not required to pay before the thing is delivered. EXAMPLES: (1)S sold to B a specific refrigerator for P8,000.00. S is not bound to deliver the refrigerator until payment by B; neither is B required to pay P8,000.00 until delivery by S. From the (2)When the buyer has manifested his inability to perform his obligations thereunder; and (3)When the buyer has committed a breach of the contract of sale. (Art. 1597.) Note: If the goods have been delivered, the seller may recover the value of what he has given. 5. When may a buyer maintain an action against the seller for specific performance? In case the seller fails to comply with his contract to deliver specific or ascertained goods, the seller cannot retain the goods on payment of damages. (Art. 1598.) Reason: Damages are imposed by law to insure fulfillment of the contract and not to substitute for it. (see II. – Obligations, Art. 1911.) 6. What are the remedies available to the buyer when the seller has been guilty of as breach of promise or warranty? They are: (1)Recoupment. – accept the goods and set up the seller’s breach to reduce or extinguish the price; (2)Action for damages. – accept the goods and maintain an action for damages for the breach of the warranty; (3)Counterclaim for damages. – refuse to accept the goods and maintain an action for damages for the breach of the warranty; and (4)Rescission. – rescind the contract of sale by returning or offering the return of the goods and recover the price. (Art. 1599.) Note: The above remedies are alternative. The only exception is when after the buyer has chosen fulfillment, it should become impossible, in which case he may also sue for rescission (Art. 1191.) 7. When is the remedy of rescission not available in case of breach of warranty by the seller? In the following cases: (1)If the buyer, knowing of the breach of warranty, accepted the goods without protest; (2)If he fails to notify the seller within a reasonable time of his election to rescind; and (3)If he fails to return or offer to return the goods in substantially as good condition as they were in at the time of the transfer of ownership to him. But where the injury to the goods was caused by the very defect against which the seller warranted, the buyer may still rescind the sale. (Art. 1599.) 8. Give the rights and obligations of the buyer in case of rescission. They are as follows: (1)In case of rescission, the buyer shall cease to be liable for the price his only obligation being to return the goods. (2)If he has paid the price or any part thereof, he may recover it from the seller. (par. 4.) (3)He has also the right to hold the goods as bailee for the seller should the latter refuse the return of the goods and to have a lien thereon for any portion of the price already paid which lien he may enforce as if he were an unpaid seller. Chapter 7. – EXTINGUISHMENT OF SALE 1. What are the modes or causes for extinguishment of sale? They are: (1)Common. – those causes which are also the means of extinguishing all other contracts like payment, loss of the thing, condonation, etc. (see Art. 1231.); (2)Special. – those causes which are recognized by the law on sales (such as those covered by Arts. 1484, 1532, 1539, 1540, 1542, 1556, 1560, 1567, and 1591.); and (3)Extra-special. – those causes which are given special discussion by the Civil Code and these are conventional redemption and legal redemption Section 1. – CONVENTIONAL REDEMPTION 1. Define conventional redemption. Conventional redemption is the right which the vendor reserves to himself, to reacquire the property sold provided he: (1)Reimburse the vendee of (a) the price, (b) the expenses of the contract, (c) any other legitimate payments made therefor, and (d) the necessary and useful expenses made on the thing sold (Art. 1616.); and (2)Fulfills other stipulations which may have been agreed upon. (Art. 1601.) 2. What is the nature of conventional redemption? (1)It is purely contractual right because it is created, not by mandate of the law, but by virtue of an express contract; (2)It is an accidental stipulation and, therefore, its nullity cannot affect the sale itself since the latter might be entered into without said stipulation (3)It is a real right because when registered, it bind third persons (Art. 1608); (4)It is a potestative condition because it depends upon the will of the vendor (see Art. 1182.); (5)It is a resolutory condition because when exercised, the right of ownership acquired by the vendee is extinguished (see Art. 1179.); (6)It is not an obligation but a power or privilege that the vendor has reserved for himself; and (7) It is reserved at the moment of the perfection of the contract for if the right to repurchase is agreed upon afterwards, there is only a promise to sell which produces different rights and effects. (see 10 Manresa 311.) 3. When is a contract of sale with a right to repurchase (pacto de retro sale) presumed an equitable mortgage? In the following cases or instances: (1)When the price of a sale with right to repurchase is unusually inadequate; (2)When the vendor remains in possession as lessee or otherwise; (3)When upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new period is executed; (4)When the purchaser retains for himself a part of the purchase price; (5)When the vendor binds himself to pay the taxes on the thing sold; and (6)In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation. (Art. 1602.) Note: In any of the foregoing cases, any money, fruits or other benefit to be received by the vendee as rent or otherwise shall be considered as interest. The price paid by the supposed buyer is considered the principal of a loan and any money, etc. received by him thereafter is considered as interest of said loan. 4. Define equitable mortgage. An equitable mortgage is one which, although it lacks the proper formalities of a mortgage, shows the intention of the parties to make the property subject of the contract of sale with a right to repurchase as security for a debt. Note: In case of doubt, a contract purporting to be a sale with right of repurchase shall be construed as an equitable mortgage. (Art. 1603.) 5. Within what period must the right to repurchase in conventional redemption be exercised? (1)If there is no agreement granting the vendor the right to redeem, there is no right of redemption since the sale should be considered an absolute sale. (2)If the parties agree only on the right to redeem on the part of the vendor but there is a total absence of express stipulation as to the time within which the repurchase should be made, then the period of redemption shall be four (4) years from the date of the contract. (3)If the parties agree on a definite period of redemption, then the right to redeem must be exercised within the period fixed provided it does not exceed 10 years. (4)If the parties agree that the vendor shall have a right to redeem and they intend a period which, however, is not specified (e.g., “at any time the vendor has the money”), then the redemption period is 10 years. (5)“From the time final judgment was rendered in a civil action on the basis that the contract was a true sale with right to repurchase,” the vendor a retro has 30 days within which to exercise the right to repurchase. (Art. 1606.) 6. May the period of redemption be extended by stipulation? (1)After its expiration. – No, because that which is extinguished cannot be extended and because the ownership in the vendee is already consolidated, and becomes absolute. (2)Before its expiration. – Yes, provided the extension including the original term shall not extend beyond 10 years; otherwise, the extension is void as to the excess. 7. In the exercise of the right of repurchase, what should the vendor pay? The following: (1)The price of the sale; (2)The expenses of the contract, and any other legitimate payments made by reason of the sale; and (3)The necessary and useful expenses made on the thing sold. (Art. 1616.) 8. What is the effect of the failure of the vendor to redeem? (1)In case of personal property. – The vendee’s title becomes irrevocable; (2)In case of real property. – The consolidation of ownership in the vendee by virtue of the failure of the vendor to comply with the provisions of Article 1616 shall not be recorded in the Registry of Property without a judicial order, after the vendor has been duly heard. (Art. 1607.) Reason: The transaction may not be a genuine pacto de recto but not only an equitable mortgage. 9. What are the rights of the vendee a retro? They are: (1)To be subrogated to the vendor’s rights and actions (Art. 1609.); and (2)To compel the vendor of a part of an undivided immovable to redeem the whole property in case the vendee a retro of such part acquires the entire immovable. (Art. 1611; see Art. 498.) Purpose of law: to discourage coownership. Section 2. – LEGAL REDEMPTION 1. Define legal redemption. Legal redemption is the right to be subrogated, upon the same terms and conditions stipulated in the contract, in the place of one who acquires a thing by purchase or dation in payment, or by any other transaction whereby ownership is transmitted by onerous title. (Art. 1619.) 2. Give instances of legal redemption. They are: (1)Redemption by a co-heir of the share sold by the other heir (Art. 1088.); (2)Redemption by a co-owner (Art. 1620.); (3)Redemption by an adjoining owner of a piece of rural land (Art. 1621.) or urban land (Art. 1622.); (4)Redemption by a debtor in case of sale of right in litigation (Art. 1634.); and (5)Under special laws (among others): (a) Redemption by owner of real property sold for delinquent taxes. The period is one (1) year (NIRC, Secs. 326, 328.); But C is not liable if D cannot fulfill his obligation due to insolvency because insolvency has nothing to do with the existence and legality of the credit unless it has been expressly stipulated or the insolvency of D was existing prior to the assignment and of common or public knowledge although it was not known to C (for C is conclusively presumed to have known of the same) or known to C although it was not of common knowledge. 8. What is the duration of the assignor’s liability where the debtor’s solvency is expressly warranted? As follows: (1)If there is stipulation, then for the term or period fixed; (2)If there is no stipulation: (a) For one year from the assignment of the credit when the period for payment of the credit has expired; or (b)For one year after its maturity, when such period for payment has not yet expired.(Art. 1629.) The above apply if the assignor acted in good faith. EXAMPLE: D owed C P1,000.00 payable on July 1, 1999. C assigns his credit to T with C making himself responsible for the solvency of D. If the agreement is that the duration of C’s liability shall last for two years from July 1, 1999, then his guaranty shall last as agreed upon. If there is no stipulation, and the assignment is made on August 1, 1999, the liability is limited to one year from the assignment. However, if the assignment is made on June 1, 1999, the responsibility shall cease exactly one year after July 1, 1999, or one year after the maturity of the debt. 9. Give the requisites for the exercise of the right of legal redemption by the debtor in case of sale of credit or other incorporeal right in litigation. They are: (1)There must be a sale or assignment of a credit; (2)There must be a pending litigation at the time of the assignment; and (3)The debtor must pay the assignee (a) the price paid by him; (b) the judicial costs incurred by him; and (c) the interest on the price from the date the assignee demands payment from him. (Art. 1634.) Note: (1)The object of the law in allowing redemption by the debtor is to avoid the sale of credits in litigation merely for speculation. (2)There is no right of redemption if the credit in litigation is sold: (a) To a co-heir or co-owner of the right assigned; (b)To a creditor in payment of his credit; or (c) To the possessor of a tenement or piece of land which is subject to the right in litigation assigned. (Art. 1635.) V. – AGENCY Chapter 1. – NATURE, FORM AND KINDS OF AGENCY 1. Define agency. Agency is a contract whereby a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter. (Art. 1868.) Note: It is consensual (exception: Art. 1874, infra.), nominate, bilateral (unilateral, if gratuitous), principal, and preparatory contract. (see III. – Contracts.) 2. What is the basis of agency? Agency is also a representative relation. Representation constitutes its basis. By this legal fiction of representation, the actual absence of the principal is transferred into legal or juridical presence. 3. What is the purpose of agency? The purpose is to extend the personality of the principal. It enables the activity of man which is naturally limited in its exercise by the imposition of his physiological conditions to be extended, permitting him to perform diverse acts at the same time in different places. (see 11 Manresa 434.) 4. Who are the parties to a contract of agency? They are: (1)Principal. – one whom the agent represents and from whom he derives his authority; he is the person represented; and (2)Agent. – one who acts for and represents another; he is the person acting in a representative capacity. Note: The principal is sometimes called employer, constituent, or chief. The agent is frequently called an attorney, or an attorney-in-fact, and occasionally is spoken of as a proxy, delegate, or representative. (Mechem, Sec. 26.) 5. What acts may be delegated to an agent? Generally, what a man may do in person, he may do through another. Some acts, however, cannot be done through an agent, e.g., those which are purely personal in nature, like the right to vote during election and those which are illegal. 6. What is the nature of the relation between principal and agent? The relation is fiduciary in character since it is based on trust and confidence. Hence, the agent is estopped from asserting or acquiring a title to the subject matter of the agency adverse to that of the principal. 7. Distinguish agency from similar contracts or relations. (1)Loan. – A borrower is given money (a) for purposes of his own (in agency, to advance principal’s business) and he must generally (b) return it whether or not his business is successful. (2)Lease of service. – the (a) basis is employment and the lessor (like a servant) ordinarily (b) performs only ministerial (not discretionary) functions. (3)Contract for a piece of work. – The independent contractor exercise his employment independently and not in representation of the employer. (4)Partnership. – A partner acts not only for his co-partners and the partnership but also as a principal for himself (in agency, agents acts only for his principal.) (5)Negotiorum gestio. – It is (a) a qyuasi-contract; (b) the gestio acts without authority and knowledge of the owner of the property of business although according to his (c) presumed (not express) will by exercising “all the diligence of a good father of a family.”(Art. 2145.) In both, however, there is representation. Note: If a person comes to know that another is acting in his behalf without authority but he does not repudiate, there is implied agency. (6)Sale. – In sale (as distinguished from agency to sell), the buyer (a) receives the goods as owner, (b) pays the price (the agent delivers the proceeds of the sale), (c) can deal with the thing as he pleases being the owner (the agent, according to the instructions of the principal), and (d) as a general rule, cannot return the object sold. (7)Brokerage. – A broker is merely (a) an intermediary between the purchaser and the vendor whose only office is to bring together the parties to the transaction and has (b) no relation to the thing he buys or sells, while a (commission) agent maintains a relation not only with his principal and the purchaser or vendor but also with the property the subject matter of the transaction which is placed in his possession and at his disposal in accordance with his authority. (8)Relations between guardian and ward. – While the guardian acts for and on behalf of his ward, he does not, however, derive his authority to act from the ward. 8. How may agency be classified? As follows: (1)As to manner of its creation: (a)Express. – one where the agent has been actually authorized by the principal either orally or in writing (Art. 1869.); (b)Implied. – one which is implied from the acts of the principal, from his silence or lack of action, or his failure to repudiate the agency, knowing that another person as acting on his behalf without authority. (2)As to its character: (a)Gratuitous. – one where the agent receives no compensation for his services (Art. 1875.); or (b)Compensated or onerous. – one where the agent receives compensation for his services. Agency is presumed to be for a compensation. (Art. 1875.) (3)As to extent of business covered: (a)General. – one which compromises all the business of the principal (Art. 1876.); or (b)Special. – one which compromises one or more specific transactions. (4)As to authority conferred: (a)Couched in general terms. – one which is created in general terms and is deemed to comprise only acts of administration (Art. 1877.); or (b)Couched in specific terms. – one authorizing only the performance of a specific act or acts. (see Art. 1878.) (5)As to its nature and effects: (a)Ostensible or representative. – one where the agent acts in the name and representation of the principal (4 Castan, 4th ed., p. 490.); or (b)Simple or commission. – one where the agent acts for the account of the principal but in his own name. Note: (1)Agency may be oral unless the law requires a specific form. (Art. 1869.) (2)When a sale of a piece of land or any interest (like mortgage, usufruct, etc.) is through an agent, the authority of the latter shall be in writing; otherwise, the sale shall be void. (Art. 1874) 9. When is there implied acceptance of an agency by an agent? (1)As between persons present. – If the principal (personally) delivers his power of attorney to the agent and the latter receives it without any objection. (Art. 1873.) (2)As between persons absent. (a) When the principal transmits his power of attorney to the agent, who receives it without any objection; (b)When the principal entrusts to him by letter or telegram a power of attorney with respect to the business in which he is habitually engaged as an agent, and he did not reply to the letter or telegram. (Art. 1872.) Note: A power of attorney may be defined as written authorization to an agent to perform specified acts in behalf of his principal which acts, when performed, shall have binding effect on the principal. (2 Am. Jur. 30.) 10.What are the two ways by which the principal may give notice of the appointment of an agent? Give their effects. EXAMPLE: P gave a power of attorney to A authorizing him to sell P’s car for P100,000.00 payable in cash. Here, the authority of A to sell the car is express. It includes the implied authority to receive payment and to give a receipt as they are acts necessary to accomplish the purposes of the agency. If P privately instructed A not to consummate the sale, the sale by A is binding upon P as A had ostensible authority to sell. The effect is as if A had actual authority. The same is true if P had not authorized A to sell the car but having knowledge that A was acting for him, he kept silent and after the consummation of the sale, receive the proceeds thereof from A. The authority given to A to sell the car is special because it involves a particular transaction. A has no authority to use the car for purposes of his own but he can use it in an emergency, as for example, to take a member of his family who is seriously hurt to a hospital. In this case, his authority is demanded by necessity. 17. Give the requisites in order that the principal may be bound by the act of the agent. They are: (1)The agent must act within the scope of his authority; and (2)The agent must act in behalf of the principal. (see Arts. 1881, 1882.) 18. In what cases is the principal bound by the acts of an agent who exceeded his authority? They are: (1)Where his (principal’s) acts have contributed to deceive a third person in good faith (see Art. 1911.); (2)Where the limitations upon the power created by him could not have been known by the third person (see Art. 1900.); (3)Where the principal has placed in the hands of the agent instruments signed by him in blank (Strong, et al. vs. Gutierrez Repide, 6 Phil. 680.); and (4) Where the principal has ratified the acts of the agent. (see Art. 1901.) 19. How may principals be classified? As follows: (1)Disclosed. – If at the time of the transaction contracted by the agent, the other party thereto has notice that the agent is acting for a principal and of the principal’s identity; (2)Partially disclosed. – If the other party has notice that the agent is or may be acting for a principal but has no notice of the principal’s identity; and (3)Undisclosed. – If the other party has no notice that the agent is acting for the principal. (Restatement of the Law on Agency, Sec. 4, pp. 15-16. ) 20. State the legal effects where an agent, being authorized to act on behalf of the principal, acts instead in his own name. They are: (1)General rule. – The agent is the one directly liable to the person with whom he had contracted as if the transaction were his own. Therefore, the principal and such person have no right of action against each other. (2)Exception. – The principal is bound when the contract involves things belonging to him. The principal may sue the agent for breach of contract (Art. 1883.) EXAMPLES: (1) P authorized A to bid for him in the construction of a certain building. A acted in his own name, that is, without disclosing that his bid was on behalf of P. If the bid of A was lowest, only A and the owner of the building would be bound to each other. But A is liable to P under the contract of agency. (2) P authorized A to sell the former’s car. A sold the car to B. A acted in his own name. Here, the contract involves a thing in belonging to the principal. The sale is completely valid. The contract is deemed entered into between P and B. So B can sue P in case the car has hidden defects. (3) P told A to buy a car. A bought a car from B with money belonging to P. A acted in his own name. B and P have a right of action against each other. Thus, P can sue B in case the car has hidden defects. Chapter 2. – OBLIGATIONS OF THE AGENT 1. What are the specific obligations of the agent? They are: (1)To carry out the agency in accordance with its terms; otherwise, he shall be liable for damages. (Art. 1884.) Reason: He betrays the confidence reposed on him by the principal; (2)To answer for the damages which through his nonperformance the principal may suffer; (3)To finish the business already begun on the death of the principal should delay entail any danger. Reason: In such case, the agency is still deemed in full force; (4)To observe the diligence of a good father of a family in the custody and preservation of the goods forwarded to him by the owner in case he declines an agency, until an agent is appointed (Art. 1885.); (5)To advance the necessary funds if such is the stipulation, except when the principal is insolvent (Art. 1886.); (6)To act in accordance with the instructions of the principal, and in the absence thereof , to do all that a good father of a family would do, as required by the nature of the business (Art. 1887.); (7)Not to carry out the agency if its execution would manifestly result in loss or damage to the principal. (Art. 1888.) Reason: The duty of the agent is to render service for the benefit and not to the detriment of the principal; (8)There being a conflict, not to prefer his own interests to those of the principal (e.g., buying goods of the principal or selling his own goods to the principal without informing the principal); otherwise, he shall be liable for damages. (Art. 1889.) Reason: Agency is a fiduciary relation involving trust and confidence; (9)Not to borrow money of the principal who has authorized him to lend although at interest, without his consent. (Art. 1890.) Reason: The agent may prove to be a bad debtor. But if the agent has been authorized to borrow money he may himself be the lender at the current rate. Reason: There is no danger of the principal suffering any damage; (10) To render an account of his transactions and to deliver to the principal whatever he may have received by virtue of the agency though it may not be owing to the principal (Art. 1891.); (11) To be responsible in certain cases for the acts of the substitute appointed by him (Art. 1892.); (12) To pay interest on funds he has applied to his own use (Art. 1896.); (13) To be responsible for the goods received by him, etc., to sell on credit only with the consent of the principal, etc., and to collect with due diligence the credits of the principal (Arts. 1903-1908.); and (14) To answer for his fraud or negligence. (Art. 1909.) Note: A stipulation exempting the agent from the obligation to render an account is declared void. Reason: It is contrary to public policy as it would encourage fraud. 2. What are the duties of the parties in case an emergency is declined? (1)The person who declines the agency is bound to observe the diligence of a good father of a family in the custody and preservation of the goods forwarded to him by the owner until the latter should appoint an agent; and (2)The owner shall, as soon as practicable, either appoint an agent or take charge of the goods. (Art. 1885.) 3. Distinguish authority from instructions. (1)Authority is the extent or the limitation of the agent’s power to represent the principal. Instructions are directions which the principal may give the agent to follow in the discharge of his duties as such agent. (2)Third persons dealing with an agent do so at their own risk and are duty bound to investigate his authority because if the act is done outside the scope of his authority, the principal is not bound. But persons dealing with the agent need not verify or investigate the instructions of the principal since they concern only the principal and the agent. EXAMPLE: P writes to B that A is authorized to buy certain merchandise. P privately instructs A not to buy but merely to obtain B’s lowest price. In violation of said instruction, A buys the merchandise. In this case, the sale is binding upon P because A has authority to make the purchase although it is not in accordance with the instruction given. 4. Who is a sub-agent? A sub-agent (or substitute) is a person to whom the agent delegates, as his agent, the performance of an act for the principal which the agent has been empowered to perform. 5. Enumerate the cases when an agent is responsible for the acts of the substitute appointed by him. In the following cases: (1)When he was not given the power to appoint one; (2)When he was given such power, but without designating the person, and the person appointed was notoriously incompetent or insolvent; and (3)When he was prohibited from appointing a substitute. (see Art. 1892.) Note: (1)All acts of the substitute appointed against the prohibition of the principal are void. (2)Unless prohibited by the principal, the agent may appoint a substitute. 6. When is the agent bound to the party with whom he contracts? (1)When he expressly binds himself; and (2)When he exceeds the limits of his authority without giving such party sufficient notice of his powers. (Art. 1897.) Reason: The contract being unenforceable, the third person is deprived of any remedy against the principal. 7. What is the scope of an agent’s authority as far as third persons are concerned? An act is deemed to have been performed within the scope of the agent’s authority, if such act is within the terms of the power of attorney, as written, even if the agent has in fact exceeded the limits of his authority according to an understanding between the principal and the agent. (Art. 1900.) Purpose of the rule: To protect the interests of third persons. 8. State the rules when there is multiplicity of agents. They are: (1)The responsibility of two or more agents is not solidary (II. – Obligations, Chap. 3, Sec. 4.) unless it is expressly stipulated (Art. 1894.); and (2)If solidarity has been agreed upon, each of them is responsible for: (a) The deliberate non-fulfillment of the agency; and (b)The fault or negligence of his fellow agents except when the latter acted beyond the scope of their authority. (Art. 1895.) 9. Who is a commission agent? exercise of the power (e.g., where the principal pledges his property to the agent as security for his debt and gives the agent the power to dispose of it should he be in default); (2)If a bilateral contract depends on the agency (e.g., where it is stipulated that the ownership of the factory sold would be transferred to the buyer only after payment of the balance of the purchase price and that the seller (principal) would appoint A (agent) to manage the factory and that any profits would be used to pay off the balance); (3)If the agency is a means of fulfilling an obligation already contracted (i.e., agency in favor of creditor to collect sums due debtor-principal from a third person); and (4)If partner is appointed manager in a contract of partnership, his appointment being revocable only upon just and lawful cause and upon the vote of the partners representing the controlling interest. (see Art. 1927; see VII. – Partnerships, Art. 1800.) 4. When is an agency not immediately terminated by the death of the principal? In the following cases, the agency remains in full force and effect: (1)If the agency is necessary to finish the business already begun on the death of the principal, where delay should entail any danger (Art. 1884.); (2)If it has been constituted in the common interest or for the benefit of both the principal and the agent (Art. 1930.); (3)If it has been constituted in the interest of a third person who has accepted the stipulation in his favor. (Ibid.; see III. – Contracts, Art. 1311.) VI. – PLEDGE AND MORTGAGE Chapter 1. – PROVISIONS COMMON TO PLEDGE AND MORTGAGE 1. What are the essential requisites common to pledge and mortgage? They are: (1)That they be constituted to secure the fulfillment of a principal obligation; (2)That the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged; (3)That the persons constituting the pledge or mortgage have the free disposal of their property, and in the absence thereof, that they be legally authorized for the purpose (Art. 2085.); and (4)That when the principal obligation becomes due, the things in which the pledge or mortgage consists may be alienated for the payment of the creditor. (Art. 2087.) Note: (1) Third persons who are not parties to the principal obligation may secure the latter by pledging or mortgaging their own property. (Art. 2085.) (2) Any kind of obligation whether, pure or conditional, including natural, voidable and unenforceable obligations may be secured by a contract of pledge and mortgage. (Art. 2091.) 2. Define pactum commissorium. Pactum commissorium is a stipulation authorizing the creditor to appropriate the things given by way of pledge or mortgage or to dispose of them. It is declared null and void by law. (Art. 2088.) Reason: The amount of the loan is ordinarily much less than value of the security. 3. Give the rules on the indivisibility of pledge and mortgage.They are: (1) 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; (2) Therefore, the debtor's heir who has paid a part of the debt cannot ask for the proportionate extinguishment of the pledge or mortgage as long as the debt is not completely satisfied; (3) 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; (4) The above rules, however, do not apply where, there being several things given in mortgage or pledge, each of them guarantees only a determinate portion of the credit. In this case, 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 especially answerable is satisfied (Art. 2089.); and (5) The indivisibility of a pledge or mortgage is not affected by the fact that the debtors are not solidarily liable. (Art. 2090.) EXAMPLES: (1) D borrowed from C P10,000.00 and to guarantee payment, D pledge his diamond ring worth P4,000.00 and a pair of earrings worth P6,000.00. If D pays P4,000.00, he cannot ask for the return of the ring because both the ring and the earrings are given to secure payment of the entire obligation of P10,000.00.The same is true if D dies leaving W and X as his heirs and W pays P4,000.00 to C. If the creditors are C and R, and D pays C P4,000.00, C cannot return the ring to the prejudice of R who has not received his share. The same is true if C is the only creditor and he dies leaving Y and Z as his heirs and D pays Y P4,000.00. However, if it is agreed that the ring was given to secure the payment of P4,000.00 and the earrings, the balance of P6,000.00, and D (or his heir W) pays P4,000.00, D (or W) can demand the return of the ring. (2) D and E re jointly liable to C in the sum of P9,000.00 secured by D's ring worth P5,000.00 and E's watch worth P4,000.00. If D pays P5,000.00, he cannot demand the return of the ring even if their liability is only joint or proportionate because pledge is indivisible. 4. What is the legal effect of a promise to constitute a pledge or mortgage? It gives rise only to a personal right binding upon the parties but it creates no real right in the property. (see Art. 2092.) Chapter 2. - PROVISIONS APPLICABLE ONLY TO PLEDGE 1. Define pledge. Pledge is a contract by virtue of which the debtor delivers to creditor or to a third person a movable, or instrument evidencing corporeal rights, for yhe purpose of securing the fulfillment of a principal obligation with the understanding that when the obligation with all its fruits and accessions. Note: (1) It is a real, accessory , and unilateral contract. (see III. - Contracts.) It is also a subsidiary contract because the obligation incurred does not arise until the fulfillment of the principal obligation which is secured. (2) In addition to the common to the common requisites of pledge and mortgage(Art. 2085, supra.), It is necessary in order to constitute the contract of pledge, that the thing pledge in the possession of the creditor, or of a third person by common agreement (Art. 2093.) 2. What is the cause or consideration in pledge? Insofar as the pledgor is concerned, it is the principal obligation. But if he is not the debtor (Art. 2085.), the cause is the compensation stipulated for the pledge or the mere liberality of the pledgor. 3. What are the kinds of pledge?.Pledge may be either: (1)Voluntary or conventional. – one which is created by agreement of the parties; or (2)Legal. – one which is created by operation of the law. (Art. 2121.) 4. State the additional requirements in order that pledge shall takeeffect against third persons. It is essential that it be embodied in a public instrument wherein shall appear: (1)The description of the thing pledged; and (2)The date of the pledge. (Art. 2076.) Note: The object of the requirement is to forestall fraud, because a debtor may attempt to conceal his property from his creditors when he sees it in danger of execution by simulating a pledge thereof with an accomplice. 5. May the thing pledge be alienated? Yes, provided the pledgee consents to the sale. Ownership passes to the vendee but subject to the rights of the pledgee. (Art. 2097.) 6. Enumerate the rights of the pledgee. They are: (1)To retain the thing in his possession or in that of a third person to whom it has been delivered, until the debt is paid (Art. 2098.); (2)To be reimbursed for expenses incurred in its preservation (Art. 2099.); (3)To compensate (set-off) the fruits, income, dividends or interests earned or produced by the thing pledged and received with those which are due to him (Art. 2012.); (4)To bring the actions which pertain to the owner of the thing pledged in order to recover it from, or defend it against, a third person (Art. 2103.); (5)To sell the thing pledged at public auction, if without his fault, there is danger of destruction, impairment or diminution in the value of the thing (Art. 2108.); (6)To claim a substitute or demand immediate payment, if he is deceived in the substance or quality of the thing pledged (Art. 2109); (7)To sell the thing pledged at public auction if the obligation secured is not paid (Art. 2112.); (8)To bid at the public sale (Art. 2114.); (9)To collect the amount that becomes due on a credit pledged before such credit is redeemed (Art. 2118.); and (10) To choose which one of several things pledged shall be sold. (Art. 2119.) (11) Note: (12) (1) Third persons who are not parties to the principal obligation may secure the latter by pledging or mortgaging their own property. (Art. 2085.) (13) (2) Any kind of obligation whether, pure or conditional, including natural, voidable and unenforceable obligations may be secured by a contract of pledge and mortgage. (Art. 2091.) (14) 2. Define pactum commissorium. (15) Pactum commissorium is a stipulation authorizing the creditor to appropriate the things given by way of pledge or mortgage or to dispose of them. It is declared null and void by law. (Art. 2088.) Reason: The amount of the loan is ordinarily much less than value of the security. (16) 3. Give the rules on the indivisibility of pledge and mortgage. (17) They are: (18) (1) 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; (19) (2) Therefore, the debtor's heir who has paid a part of the debt cannot ask for the proportionate extinguishment of the pledge or mortgage as long as the debt is not completely satisfied; (20) (3) 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; (3)To substitute the thing pledge if it is endangered without fault of the pledgee without prejudice to pledgee’s right to have the thing sold at public sale (Art. 2107; see Art. 2108, supra.); (4)To bid and have preference at the foreclosure sale if he should offer the same terms as the bidder (Art. 2113.); and (5)To demand the return of the thing pledged upon the extinction of the principal obligation. (see Art. 2085 [1].) 12.Enumerate the obligations of the pledgor. They are: (1)To notify the pledgee of any flaw or defect of the thing pledge known to him; otherwise, he answers for damages suffered by the pledgee (Art. 2101.); (2)To reimburse the pledgee for expenses made for its preservation (Art. 2099.); and (3)To fulfill his principal obligation. (see Art. 2035 [1].) 13.What are the causes for the extinguishment of pledge? They are: (1)Return of the thing pledged by the pledgee to the pledgor or owner, any stipulation to the contrary being void (Art. 2110.); (2)Renunciation or abandonment executed in writing by the pledgee even without return of the thing (Art. 2111.); (3)Destruction or loss of the thing pledged; (4)Extinction of the principal obligation by payment or sale of the thing pledged; and (5)Other causes of extinguishment of ordinary obligations. (see II. – Obligations, Art. 1231.) Chapter 3. – REAL MORTGAGE 1. Define mortgage. Mortgage (otherwise known as real estate mortgage or real mortgage) is a contract whereby the debtor secures to the creditor the fulfillment of a principal obligation, especially subjecting to such security immovable property or real rights over immovable property in case the principal obligation is not complied with at the time stipulated. Note: It is a real, accessory, unilateral, and subsidiary contract. 2. Distinguish pledge from mortgage. The distinctions are: (1)Pledge is constituted on movables (Art. 2094.), while mortgage, on immovable (Art. 2124.); (2)In pledge, the property is delivered to the pledgee, or by common consent to a third person (Art. 2093.), while in mortgage, delivery is not necessary; and (3)Pledge is not valid against third persons unless a description of the thing pledge and the date of the pledge appear on a public instrument (Art. 2096.), while mortgage is not valid against third persons if not registered even if embodied in a public instrument. (Art. 2125.) Note: Both are extinguished by the fulfillment of the principal obligation and by the destruction of the property pledged or mortgaged. 3. What is the cause or consideration in mortgage? Its consideration is that of the principal contract from which it receives its life, although the obligation secured is incurred by a third person (China Banking Corporation vs. Lichauco, 46 Phil. 460.), that is, the principal debtor is other than the mortgagor. 4. What are the kinds of mortgage? They are: (1)Voluntary. – one which is agreed to between the parties or constituted by the will of the owner of the property on which it is created (Art. 138, Spanish Mortgage Law.); (2)Legal. – one required by law to be executed in favor of certain persons (see Art. 2125, par. 2; see also Arts. 2082,2083, supra.); and (3)Equitable. – one which, although it lacks the proper formalities of a mortgage, shows the intention of the parties to make the property as a security for a debt. (see 41 C.J. 303.) 5. What property may be the object of mortgage? The following: (1)Immovables; and (2)Inalienable real rights in accordance with the laws, imposed upon immovable. (Art. 2124.) 6. What are the effects of a mortgage? They are: (1)It creates a real right, i.e., it directly and immediately subjects the property upon which it is imposed, whoever the possessor may be, to the fulfillment of the obligation for whose security it was constituted (Art. 2126.); (2)The mortgagee (creditor) may, therefore, demand payment from any possessor of the mortgaged property (see Art. 2129.); (3)He may alienate or assign the mortgage credit (his right as mortgagee) to a third person (Art. 2128.); and (4)The mortgage does not extinguish the title of the mortgagor (debtor) who does not, therefore, lose his right to dispose of the mortgaged property. Indeed, the law considers void any stipulation forbidding the owner from alienating the property mortgaged. (Art. 2130.) EXAMPLE: D mortgaged his land worth P100,000.00 in favor of C to secure D’s debt of P18,000.00. D then sold the land to X. In this case, the obligation of D to pay the debt is not affected by the transfer. On the duedate of the obligation, C may demand payment from D and if D fails to pay, C may foreclose the mortgage. (see Art. 2131.) C has the right to claim from X the payment of P100,000.00 which is part of the credit secured by the property sold to X. X is not responsible for any deficiency in the absence of a contrary stipulation. The remedy of X is to proceed against D. 7. What is the extent or scope of mortgage? The mortgage extends to and includes the following: (1)Natural accessions; (2)Improvements (even if subsequently made); (3)Growing fruits; (4)Rents or income (belonging to the mortgagor) not yet received when the obligation becomes due; (5)Proceeds of insurance received or owing from insurance of the property; and (6)Amounts received or owing in virtue of the expropriation of the property for public use. (Art. 2127.) Note: (1)The above are deemed included in the mortgage unless expressly excluded. (2)But the mortgage does not extend to improvements made by a third person subsequent to the mortgage and after the property has passed to him. 8. Define foreclosure. Foreclosure is the remedy available to the mortgagee by which he subjects the mortgaged property to the satisfaction of the obligation to secure which the mortgage was given (41 C.J. 830.) through the sale of the property at public auction and the application of the proceeds thereof to the payment of his claims. 9. What are the kinds of foreclosure? They are: (1)Judicial foreclosure. – A mortgage may be foreclosed judicially by bringing an action for that purpose in the Regional Trial Court of the province or city where the real property or any part thereof lies (Sec. 2, Rule 4, Rules of Court.); and (2)Extrajudicial foreclosure. – A mortgage may be foreclosed extrajudicially where there is inserted in the contract a clause giving the mortgagee the power upon default of the debtor to foreclose the mortgage by an extrajudicial sale of the mortgaged property. (Sec. 1, Act No. 3155, as amended by Act No. 4148.) 10. Define redemption. Redemption may be defined as a transaction by which the mortgagor reacquires or buys back the property which may have passed under the mortgage or divests the property of the lien which the mortgage may have created. (42 C.J. 341.) 11. What are the kinds of redemption? They are: (1)Equity of redemption. – The right of the mortgagor to redeem the mortgaged property after his default in the performance of the conditions of the mortgage but before the sale of the mortgaged property. In judicial foreclosure, the mortgagor may exercise his equity of redemption before but not5 after the sale is confirmed by the court (Sec. 3, Rule 68, rules of Court.); and (2)Right of redemption. – The right of the mortgagor to redeem the mortgaged property within a certain period after it was sold for the satisfaction of the mortgage debt. In all cases of extrajudicial sale, the mortgagor may redeem the property at any time within the term of one year from and after the date of the registration of the sale. (see Sec. 16, Act No. 3135.) In judicial foreclosure, the general rule is that the mortgagor cannot exercise his right of redemption after the sale is confirmed by an order of the Court. Chapter 4. – CHATTEL MORTGAGE (ACT NO. 1508, AS AMENDED.) 1. Define chattel mortgage. Chattel mortgage is a contract by virtue of which personal property is recorded in the Chattel Mortgage Register as a security for the performance of an obligation. (Art. 2140.) Note: (1)It is an accessory, unilateral, and formal contract. (see III. – Contracts.) (2)If the chattel mortgage (or real mortgage) is not recorded, the mortgagee acquires the right to demand registration of the contract. (see Art. 2125.) 2. What laws principally govern chattel mortgages? They are: (1)Chattel Mortgage Law (Act. No. 1508.); (2)Civil Code; (3)Revised Administrative Code; and (4)Revised Penal Code. 3. Give the similarities between pledge and chattel mortgage. They are: (1)Both are executed to secure performance of a principal obligation; (2)Both are constituted only on personal property; (3)Both are indivisible; (4)Both constitute a lien on the property;