Law on Sales, Agencies and Bulk sales law

8/16/2019 Law on Sales, Agencies and Bulk sales law

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The Bulk Sales Law

A sale is considered in bulk in any of the following instances:

1.) There is a sale, transfer, mortgage or assignment of stock other than in theordinary course of business

2.) All or substantially all of the trade or business is sold, transferred or

mortgaged

3.) All or substantially all of the fixtures and eui!ment of the business are

sold

The !ur!ose of the bulk sales law "Act 3#$2) is to !re%ent the defrauding of

creditors by secret sale or dis!osal in bulk of all or substantially all of the

merchant&s stock or goods. '(ubstantially' means *+. t doesn&t only a!!ly tocreditors whose claims are already due at the time of the sale, but also to those

whose claims aren&t due but are already existing at the time of the sale.

The bulk sales law will not a!!ly to the following:

1.) (ales-transfers in the ordinary course of trade or business

2.) There is a written wai%er from the creditors

3.) f the sale is made by an executor, administrator, recei%er or assignee

in insol%ency !roceedings or a !ublic officer acting under udicial !rocess

/hen a bulk sale is made, the seller must do the following:

1.) 0eli%er a sworn statement containing a list of all his creditors with thecorres!onding amounts of indebtedness to the buyer

2.) A!!ly the !ayment recei%ed from the sale pro rata to the claims of the

creditors as shown in the sworn statement3.) ake a full and detailed in%entory of the stock to be sold-mortgaged in

bulk

.) nform the creditors of the sale at least 1* days before it actually takes !lace

enalties

4iolations of the bulk sales law makes the sale %alid between the !arties but

%oid for the affected creditors. The buyer will hold the !ro!erty in trust for the

seller and is liable to the seller&s creditors for !ro!erties forming !art of the

bulk and already dis!osed by him.

Also, the seller can be !unished with a !rison term of 5 months to $ yearsand-or a fine of u! to h!$,***.**.

Acce!tance of deli%ery and !ayment of !urchase !rice

The buyer is obligated to acce!t deli%ery and to !ay the !rice of the thing sold

at the time and !lace617 sti!ulated in the contract.86279xce!t as otherwiseagreed u!on, the buyer is not reuired to acce!t deli%ery by installments.637

easonable o!!ortunity to examine

f the buyer has not yet !re%iously examined goods deli%ered to him, he is

deemed not to ha%e acce!ted them unless and until he has had a reasonable

o!!ortunity of examining them for the !ur!ose of ascertaining whether they

are in conformity with the contract if there is no sti!ulation to the contrary.

67 f the seller !hysically tenders deli%ery of the goods to the buyer, the seller is reuired, u!on reuest of the buyer, to afford the buyer a reasonable

o!!ortunity of examining the goods for the !ur!ose of ascertaining whether

they are in conformity with the contract.6$7

;oods deli%ered to a carrier

f the seller deli%ers the goods to a carrier !ursuant to an agreement or order

from the buyer, u!on the terms that the goods are not to be deli%ered by thecarrier to the buyer until he has !aid the !rice, whether such terms areindicated by marking the goods with the words 7

2. f the goods ha%e been deli%ered to him, and he does any act in

relation to them which is inconsistent with the ownershi! of the

seller= 67 or

3. f, after the la!se of a reasonable time, he retains the goods withou

intimating to the seller that he has reected them. 6#7

?on@discharge of seller from liability

nless otherwise sti!ulated or by im!lied agreement, the buyersB acce!tance

of the goods does not discharge the seller from liability in damages or other

legal remedy for breach of any !romise or warranty in the sales contract.

61*7 Cowe%er, the buyer is reuired to gi%e notice to the seller of the breach in

any of the warranty within a reasonable !eriod of time after the buyer knowsor ought to know of such breach= otherwise, the seller will not be held be

liable for such breach.6117

Duyer not obligated to return goods des!ite refusal to acce!t

9xce!t as otherwise agreed u!on, if goods are deli%ered to the buyer, and he

refuses to acce!t them, ha%ing the right so to do, he is not bound to return

them to the seller, but it is sufficient if he notifies the seller that he refuses toacce!t them.6127 fe he %oluntarily constitutes himself a de!ositary thereof, he

will be liable as such.6137

Duyer owes interest from deli%ery to !ayment

The buyer is reuired to !ay interest for the !eriod between the deli%ery of the

thing and the !ayment of the !rice, in the following three cases: "a) should it

ha%e been so sti!ulated= "b) should the thing sold and deli%ered !roduce fruits

or income= or "c) should he be in default, from the time of udicial orextraudicial demand for the !ayment of the !rice.617

ight to sus!end !ayment

The buyer may sus!end !ayment of the !rice until the seller has caused tosto! the disturbance or danger in cases where the buyer is disturbed in the

!ossession or ownershi! of the thing acuired, or if he has reasonable groundsto fear such disturbance, by a %indicatory action or a foreclosure of mortgage.

61$7 (uch right of sus!ension will not a!!ly if the seller has gi%en security for

the return of the !rice in a !ro!er case, or it has been sti!ulated that,notwithstanding any such contingency, the %endee is bound to make the

!ayment.6157 The right of sus!ension does not co%er a mere act of tres!ass.

61>7

escission of sale for fear of loss of immo%able !ro!erty sold and !rice

The seller may initiate an action for rescission of the sale if he has reasonable

grounds to fear the loss of immo%able !ro!erty sold and its !rice.617

ayment after ex!iration of !eriod in a sale of immo%able !ro!erty

n a sale of immo%able !ro!erty with a sti!ulation that failure to !ay the !rice

at the agreed time rescission will take !lace by right, the buyer may still !ay,

e%en after the ex!iration of the !eriod, as long as no demand for rescission ofthe contract has been made u!on him either udicially or by a notarial act.61#7

escission of sale of mo%able in fa%or of seller

The rescission of the sale will take !lace by right in the interest of the seller in

case the buyer u!on the ex!iration of the !eriod fixed for the deli%ery of the

thing, should not ha%e a!!eared to recei%e it, or, ha%ing a!!eared, he should

not ha%e tendered the !rice at the same time, unless a longer !eriod has been

sti!ulated for its !ayment.62*7

E E E

617


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2. The !rice is !ayable on a certain day, irres!ecti%e of deli%ery or of

transfer of title and the buyer wrongfully neglects or refuses to !ay

such !rice, the seller may maintain an action for the !rice althoughthe ownershi!627 in the goods has not !assed.637

Action for damages by seller due to non@acce!tance by the buyer

The seller may initiate an action against the buyer for damages67 arising from

non@acce!tance of the goods if the buyer wrongfully neglects or refuses to

acce!t and !ay for the goods.6$7

escission by seller

The seller may totally rescind the sales contract after due notice thereof to the

buyer if the goods ha%e not been deli%ered to the buyer, and the buyer hasre!udiated the sales contract, or has manifested his inability to !erform his

obligations thereunder, or has committed a breach thereof.8657

(!ecific !erformance by buyer

f the seller has breached the contract to deli%er s!ecific or ascertained goods,the buyer may initiate an action for s!ecific !erformance with a com!etent

cour t6>7 for the !ur!ose of obtaining an order which would direct that the

contract is to be !erformed s!ecifically, without gi%ing the seller the o!tion of

retaining the goods on !ayment of damages.67

Ior breach of warranty by seller, buyer may initiate %arious actions

f the seller is guilty of breach of warranty, the buyer may, at his election:

1. Acce!t or kee! the goods and set u! against the seller, the breach

of warranty by way of recou!ment in diminution or extinction of

the !rice=6#7

2. Acce!t or kee! the goods and maintain an action against the sellerfor damages for the breach of warranty=61*7

3. efuse to acce!t the goods, and maintain an action against the

seller for damages for the breach of warranty=6117

. escind the sales contract and refuse to recei%e the goods or if the

goods ha%e already been recei%ed, return them or offer to return

them to the seller and reco%er the !rice or any !art thereof which

has been !aid=6127

$. n the case of breach of warranty of uality, such loss, in the

absence of s!ecial circumstances showing !roximate damage of a

greater amount, is the difference between the %alue of the goods atthe time of deli%ery to the buyer and the %alue they would ha%e

had if they had answered to the warranty.6137

Extinguishment of sale in general

n general, a sales contract may be extinguished by the same causes as allother obligations and by con%entional or legal redem!tion.617

Fon%entional redem!tion

Fon%entional redem!tion ha!!ens 7

1. f the !rice of a sale with right to re!urchase is unusually

inadeuate=67

2. f the %endor remains in !ossession as lessee or otherwise=6#7

3. f u!on or after the ex!iration of the right to re!urchase another

instrument extending the !eriod of redem!tion or granting a new

!eriod is executed=61*7

. f the !urchaser retains for himself a !art of the !urchase !rice=6117

$. f the %endor binds himself to !ay the taxes on the thing sold=6127

5. n any other case where it may be fairly inferred that the real

intention of the !arties is that the transaction is to secure the

!ayment of a debt or the !erformance of any other obligation.6137

oney, fruit, benefit considered interest

n any of the abo%e instances considered an euitable mortgage, the money,fruits, or other benefit to be recei%ed by the buyer as rent or otherwise is

considered an interest.617

ight to re!urchase= euirements

Defore the seller can a%ail of the right to re!urchase, the seller is reuired

first: "a) to return to the buyer the !rice of the sale= "b) to !ay for the ex!ensesof the contract, and any other legitimate !ayments made by %irtue of the sale=

and "c) to !ay for the necessary and useful ex!enses made on the thing sold.61$7 f the sale in%ol%es a real !ro!erty, a udicial order, after the seller has

been duly heard, is reuired for the registration and consolidation of the

ownershi! in the buyer .6157

Action against e%ery !ossessor

To enforce his rights, the seller may init iate an action against e%ery !ossessor

whose right is deri%ed from the buyer .61>7 The seller may do so e%en if the

contract between the buyer and the !ossessor does not mention the sellerBsright to re!urchase, without !reudice to the ortgage Gaw and the Gand

egistration Gaw in relation to third !ersons.617

(ubrogation by buyer

The buyer is subrogated to the sellerBs rights and actions des!ite existence of

right of re!urchase.61#7

Freditors to exhaust !ro!erty of seller

The sellerBs creditors are reuired to exhaust the !ro!erty of the seller before

they can make use of the right of redem!tion against the buyer.62*7

ndi%ided immo%able !ro!erty sold ointly

f se%eral !ersons ointly sell an undi%ided immo%able in the same contractand it !ro%ides for a right of re!urchase, each one may exercise his right to the

extent of his res!ecti%e share only.6217 The same rule a!!lies if a seller has

se%eral heirs.6227 Cowe%er, the buyer may demand of all the sel lers or co@

heirs that they come to an agreement u!on the re!urchase of the whole thing

sold.6237 f the sellers or heirs fail to do so, the buyer cannot be com!elled toconsent to a !artial redem!tion.627

Fo@owner may re!urchase res!ecti%e share only

A co@owner who may ha%e sold his share se!arately may inde!endently

exercise the right of re!urchase as regards his own share.62$7The buyer canno

reuire said co@owner to redeem the entire !ro!erty.6257

DuyerBs heirs subect to redem!tion to !ro!ortionate share only

The buyerBs heirs may be the subect of the sellerBs right of redem!tion to

their !ro!ortionate share only regardless of whether the !ro!erty is undi%ided

or it has already been !artitioned.62>7 Cowe%er, if the inheritance has already been di%ided, and the thing sold has already been awarded to an heir, he may

be the subect of an action for redem!tion for the whole !ro!erty.627

?o reimbursement or !rorating for fruits

f there were %isible and growing fruits at the time of the execution of the sale

a reimbursement or !rorating of existing fruits is not reuired unless the buyer

!aid indemnity when the sale was executed.62#7 Fon%ersely, if no fruits wereexisting at the time of the sale but later on exist at the time of redem!tion, the

fruits will be !rorated between the redem!tioner and the buyer.63*7 The

buyerBs share is to corres!ond to the time he !ossessed the land in the last

year, counted from the anni%ersary of the date of the sale.6317

edem!tioner to recei%e !ro!erty free from charges or mortgages

The redem!tioner will recei%e the !ro!erty free form all charges or mortgages

which may ha%e been constituted by the buyer .6327Cowe%er, the redem!tioneris to res!ect the leases which the latter may ha%e executed in good faith, and

in accordance with customs of the !lace where the land is situated.6337

Legal Redemption

Gegal redem!tion is 7

Adoining lot ownerBs right of redem!tion

Ior rural land that does not exceed one hectare, the owners or adoining lands

may exercise the right of redem!tion unless the grantee-buyer does not ha%e

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any rural land.637 The owner of the adoining land of smaller area is

!referred should there be se%eral !ros!ecti%e buyers.63#7 f the lands ha%e the

same area, the first who reuested the redem!tion is !referred.6*7 This rightcannot be exercised on adacent lands which are se!arated by brooks, drains,

ra%ines, roads, and other a!!arent ser%itudes for the benefit of other estates.

617

ight of !re@em!tion of adoining land owner

f a !iece of urban land bought for s!eculation is so small and so situated that

a maor !ortion thereof cannot be used for any !ractical !ur!ose within a

reasonable time is about to be re@sold, the adoining land owner has a right of !re@em!tion at a reasonable !rice.627 f the same has already been sold, the

adoining landowner has the right of redem!tion for a reasonable !rice.637 f

there are two or more who desires to exercise the right of !re@em!tion orredem!tion, the owner whose intended use of the land in uestion a!!ears to

best ustified is !referred.67

ight of !re@em!tion or redem!tion when exercised

The redem!tion may only exercise the right of legal !re@em!tion orredem!tion within 3* days from the notice in writing by the !ros!ecti%e seller,

or by the seller, as the case may be.6$7 The said seller is reuired to

accom!any the deed of sale with an affida%it stating therein that he has gi%en

written notice thereof to all !ossible redem!tioners= otherwise, the egistry of

0eeds will not record the deed of sale.657

ight of redem!tion of co@owners excludes adoining land owners

(hould there be a conflict between a co@owner and adoining land owners, theright of redem!tion of co@owners !re%ails and will exclude the adoining land

owners.6>7

ASSI!"E!T

(ale of credits J other incor!oreal things�

Technical term but basically a sale�

/CAT AK9( A((;?9?T 0II99?T IH (9F9( (AG9:

A((;?9?T

(ubect matter: ntangibles

Iorm: Fonsensual

Dinding effect to 3rd !ersons: ecorded in registry of !ro!erty or in !ublic

instrument

(AG9

(ubect matter: Tangibles

Iorm: Fonsensual

Dinding effect to 3rd !ersons:?o recording needed to such effect

9II9FT HI A((;?9?T

1. lack of knowledge or consent of debtor not essential for %alidity but has

legal effects

2. assignment of rights made w-o knowledge of debtor debtor may set u!�against assignee the com!ensation w-c would !ertain to him against assignorof all credits !rior to assignment and of later ones until he had knowledge of

the assignment

3. debtor has consented to assignment cannot set u! com!ensation unless�assignor was notified by debtor that he reser%ed his right to the com!ensation

. debtor has knowledge but no consent @ may still set u! com!ensation of

debts !re%ious to assignment but not the subseuent ones.

TA?(I9 HI H/?9(C

by tradition J not by !erfection�

execution of !ublic instrument because intangibles cannot be !hysically�transferred

AFF9((H9( J AFF9((H?(

includes all accessory rights such as guaranty, mortgage, !ledge or� !reference

/AA?T9(

1. against hidden defect @ ?-A because intangibles has no !hysical existence

2. existence J legality of credit @ there is warranty exce!t when ex!ressly sold

as a doubtful account

3. sol%ency of debtor @ no warranty, unless

a. there is sti!ulation

b. insol%ency was !rior to assignment J of common knowledge

warranty shall last for 1 year only�

. one who assigns inheritance right w-o enumerating rights shall be

answerable for his character as an heir

$. one who sells whole of certain rights for a lum! sum, shall be answerablefor legitimacy of the whole in general but not for each of the %arious !arts

D9AFC HI /AA?TL

1. if in good faith @ ex!enses of the contract J other legitimate !aymentsmade by reason of the assessment

2. if in bad faith @ ex!enses of contract J other legitimate !ayments !lus

useful J necessary ex!enses

A((;?9?T HI F90T H ?FHH9AG ;CT ? GT;ATH?

!resum!tion: buyer s !ur!ose is s!eculation� �

law would rather benefit the debtor of such credits rather than the one who�merely s!eculates for !rofit

when credit or incor!oreal right in litigation is assigned or sold, debtor has�a right to extinguish it by reimbursing the assignee for the !rice the buyer !aid

!lus interest

right to redeem to be exercised within 3* days from demand by assignee�for !ayment

;CT TH 9099 DL 09DTH ?HT A4AGADG9 ? TC9IHGGH/?; ?(TA?F9(

"?HT FH?(0990 (9FGAT49)

1. assignment of credit - incor!oreal right to co@heir or co@worker

2. assignment to creditor in !ayment for his credit

3. assignment to !ossessor of tenement or !iece of land which is subect to the

right in litigation assigned

Darter or 9xchamge

#hat is a contract of barter or exchange$

Darter is a contract whereby one of the !arties binds himself to gi%e one thingin consideration of the other&s !romise to gi%e another thing. " Art. 1638)

#hen is the contract of barter perfected$

The contract is !erfected from the moment there is a meeting of minds u!on

the things !romised by each !arty in consideration of the other.

#hen is the contract of barter consummated$

Darter is consummated from the time of mutual deli%ery by the contracting

!arties of the things !romised.

#hat laws go%ern the contract of barter$

1. Articles 153 to 1#* of the Fi%il Fode

2. (u!!letorily, the !ro%isions on sales.

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#hat is the effect if the gi%er is not the lawful owner of the thing

deli%ered$

The aggrie%ed !arty cannot be com!elled to deli%er that which he offered in

exchange, but he shall be entitled to damages. " Art. 1639)

#hat are the remedies of a party in a contract of barter if he loses the

thing which he had recei%ed in barter by e%iction$

n case of e%iction, the inured !arty is gi%en the o!tion either to:

1. eco%er t hat which he h as gi%en i n exchange w ith a r ight t odamages, or

2. Hnly demand an indemnity for damages.

Cowe%er, he can only make use of the right to reco%er the thing which he has

deli%ered while the same remains in the !ossession of the other !arty, and

without !reudice to the rights acuired in good faith in the meantime by a

third !erson. " Art. 1640)

@ (ee more at: htt!:--legal%ault.blogs!ot.com-2*1-*#-barter@or@

exchange.htmlMsthash.hksN1wdy.d!uf

Agency

n a contract of agency, 7

Notice via special information or public advertisement

f the !rinci!al s!ecially informs another that the former has gi%en a !ower ofattorney to a third !erson, the latter becomes the duly authoriOed agent.67

Best Legal Practices:

Publish in papers of general circulation the revocation of agenc ! As

revocation of an agenc depends on ho" third persons "ere notified# the

$anner previousl observed in notifing a third part of the agenc should be follo"ed in the revocation as "ell. If a third person is given notice of the

agenc through a letter# another letter should be sent infor$ing hi$ of the

revocation. %he sa$e goes for notice $ade b publication.

Publish in papers of general circulation the revocation of agenc ! &or good

$easure# and even after a special notice of revocation# it is best to publish the

revocation of the agenc in papers of general circulation. %he publishing ofnotices in such $anner binds the "hole "orld so to spea'.

f the !rinci!al states by !ublic ad%ertisement that he has gi%en a !ower of

attorney to a third !erson, the latter becomes the duly authoriOed agent to any

!erson or e%eryone.6#7 n both circumstances, the !ower of agency continues

to be in full force until the notice is rescinded in the same manner in which it

was gi%en.861*7

An agency is !resumed to be for a com!ensation, unless otherwise agreed andu!on and there is such a !roof .617

Kinds and Scope of Agency

The kinds and sco!e of agency de!end on the terms and conditions of the

agency contract.

General and special agency

An agency may be general or s!ecial.617 A general agency com!rises 7

Ultra vires in agency

The agent is reuired to act within the sco!e of his authority.617 f the agent

acts outside the sco!e of his !ower, his acts are ultra vires627 resulting in their

nullity and they cannot be gi%en any effect.637


(ecure board resolution fro$ authoried representative of a corporation !

*hen transacting "ith an authoried representative of a corporation or fir$#

secure the board resolution evidencing the authorit and po"er granted to such person. As corporate po"ers are e+ercised b the board of directors# the

proper legal docu$ent sho"ing that the board authoried a representative is a

board resolution.

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5/17

,+ecutive -o$$ittee resolution sufficient in lieu of board resolution ! If an

e+ecutive co$$ittee has been for$ed "hich is authoried to e+ercise certain

po"ers of the board# a co$$ittee resolution "ill be sufficient in lieu of a

board resolution as evidence of authorit granted to a representative.

(ecretars certificate sufficient for ordinar transactions ! In co$$ercial

transactions# a secretars certificate is ordinaril considered acceptable as

proof of authoriation. %his practice is borne out of convenience due to the

difficult of obtaining a board resolution re/uiring the signatures of the

directors. legal standards# a secretars certificate $a suffer fro$infir$it as it is a docu$ent "hich si$pl states that the corporate secretar

attests or certifies that a board resolution e+ists on a subect $atter. If no such

board resolution e+ists# the corporation cannot be held liable.

2btain directors certificate for high level transactions ! &or high level

transactions or those involving substantial a$ounts# it is best to obtain a

directors certificate "hereb all the re/uired signatures of the directors "illbe reflected.

When more advantageous to principal

n acting within the sco!e of authority, the agent may do such acts as may be

conduci%e to the accom!lishment of the !ur!ose other than what !rinci!al hass!ecified.67 Fonseuently, the limits of the agentBs authority are not exceeded

if it has been !erformed in a manner more ad%antageous to the !rinci!al than

that s!ecified by him.6$7

When agent acts in his own name

f the agent acts in his own name, the !rinci!al has no right of action againstthe !erson with whom the agent has contracted.657Fon%ersely, the third !erson

does not ha%e any right of action against the !rinci!al.6>7 t is the agent who is

directly bound in fa%or of the !erson with whom he has contracted, as if the

transaction were his own, exce!t when the contract in%ol%es things belonging

to the !rinci!al.67

Agent not personally liable by default

The agent who acts in his ca!acity as such is not !ersonally liable to the !arty

with whom he contracts unless: "a) the agent ex!ressly binds himself= or "b)

the agent exceeds the limits of his authority without gi%ing such !arty

sufficient notice of his !owers.6#7


Agent to e+pressl declare in "hat capacit heshe is e+ercising "hen dealing

"ith third part ! %he agent should e+pressl declare in "hat capacit#

"hether personal or as an agent# heshe is e+ercising "hen dealing "ith a

third part.

When agent is not personally liable despite ultra vires

f the agent enters into a contract in the name of the !rinci!al and the agent

acts in ultra vires in so doing, and the !rinci!al does not ratify such contract, it

is %oid if the !arty with whom the agent contracted is aware of the limits of

the !owers granted by the !rinci!al.61*7 The agent is liable only if he

undertook to secure the !rinci!alBs ratification.6117

bligations of the Agent

!o be liable for damages

The agent is bound by his acce!tance to carry out the agency.

617 Fonseuently, he is liable for the damages which, through his non@ !erformance, the !rinci!al may suffer .627 Ior business that already began on

the death of the !rinci!al, the agent must finish the same if delay entails any

danger .637


(cope and e+tent of po"er e+pressl stated in "ritten po"er of attorne ! %he

agent should ensure that the scope and e+tent of the po"ers granted to hi$ b

the principal be e+pressl stated in the "ritten po"er of attorne.

uties and responsibilities also stipulated in "ritten po"er of attorne ! %heagent should also ensure that the e+act duties and responsibilities be

stipulated in the "ritten po"er of attorne.

nsofar as third !ersons are concerned, an act is deemed to ha%e been

!erformed within the sco!e of the agentBs authority, if such act is within the

terms of the !ower of at torney, as written, e%en if the agent has in fact

exceeded the limits of his authority according to an understanding between the !rinci!al and the agent.67

n the abo%e mentioned situation, the third !erson cannot set u! the fact that

the agent has exceeded his !owers if the !rinci!al has: "a) ratified it, or "b)

signified his willingness to ratify the agentBs acts.6$7

!o be obligated by third person to present power of attorney

The third !erson may reuire the agent to !resent the !ower of attorney, or the

instructions as regards the agency, both coming from the !rinci!al.657

Third !ersons who ha%e relied u!on the !ower of attorney or instructions

shown them cannot be !reudiced by !ri%ate or secret orders and instructions

of the !rinci!al.6>7


Agent to bring original and photocopies of authoriation ! %he agent should

bring original and photocopies of the authoriation docu$ents during the firs$eeting "ith a third part. If the third part re/uires the agent to present the

authoriation docu$ents# the agent $a deliver the photocop and co$pare it

"ith the original one.

-aveat is on third part dealing "ith an agent ! %he caveat 5"arning) is on

the third part dealing "ith an agent. If later on it is found out that the agent"as not authoried b the principal# the third part "ill not have an clai$

against the principal. It is for this reason that the la" grants the third part a

right to re/uire the agent to present the po"er of attorne or instructions fro$

principal.

!o observe diligence of a good father of a family in thecustody and preservation of goods received

f a !erson refuses or declines an agency, he is bound to obser%e the diligence

of a good father of a family in the custody and !reser%ation of the goodforwarded to him by the owner until the latter should a!!oint an agent or take

charge of the goods.67

!o advance necessary funds if re"uired by contract

The agent is reuired to ad%ance the necessary funds if there is a sti!ulation to

that effect exce!t when the !rinci!al is insol%ent.6#7

!o follow instructions of principal

n the !erformance of the agency, the agent is to act in accordance with the

instructions of the !rinci!al.861*7

Dy default, the agent is reuired to obser%e all that a good father of a family

would do, as reuired by the nature of the business.6117

!o not to act in a way that it will manifestly result in loss ordamage to principal

The agent cannot carry out an agency if its execution or !erformance wouldmanifestly result in the loss or damage to the !rinci!al.6127

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6/17

The agent is liable for damages if, there being a conflict between his interests

and those of the !rinci!al, he should !refer his own.6137

The agent may be the lender at the current rate of interest if he was

em!owered to borrow money.617 f the agent is authoriOed to lend money atinterest, he cannot borrow it without the consent of the !rinci!al.61$7

!o account and deliver whatever received by virtue of agency

9%ery agent is reuired to render an account of his transactions and to deli%er

to the !rinci!al whate%er he may ha%e recei%ed by %irtue of the agency, e%enthough it may not be owing to the !rinci!al.6157 Any sti!ulation wai%ing the

agentBs obligation to account is %oid.61>7


Agent to disclose all infor$ation received ! %he agent should disclose all

infor$ation received in "riting 5e.g. e$ail) to have a docu$entation of such

fact.

Agent to turnover an and all propert received ! %he agent is re/uired to

turnover an and all propert received b hi$ even if the sa$e is hisco$$ission or co$pensation. 2ther"ise# the agent $a open hi$self to

cri$inal liabilit forestafa# a$ong others.

!o be liable for substitute appointed by agent

f the !rinci!al has not !rohibited it,617 the agent may a!!oint a substitute

but he remains res!onsible for the acts of the substitute when: "a) when theagent was not gi%en the !ower to a!!oint one,61#7 or "b) he was gi%en such

!ower, but without designating the !erson, and the !erson was notoriously

incom!etent or insol%ent.62*7

!o be solidarily liable with other agents if stipulated

f solidarity has not been ex!ressly sti!ulated, two or more agents e%en if

a!!ointed simultaneously are not solidarily liable.6217 f solidarity has been

ex!ressly sti!ulated, each of the agents is res!onsible for the non@fulfillment

of agency, and for the fault or negligence of his fellow agents, exce!t in the

latter case when the fellow agents acted beyond the sco!e of their authority.

6227

!o be liability for interest

The agent owes interest on the sums he has a!!lied to his own use from the

day on which he did so, and those which he still owes after the extinguishment

of the agency.6237

bligations of a #ommission agent

The commission agent is res!onsible for the goods recei%ed by him in the

terms and conditions and as described in the consignment, unless u!on

recei%ing them he should make a written statement of the damage anddeterioration suffered by the same.627

$istinguish goods of same %ind and mar% belonging todi&erent owners

f the commission agent handles goods of the same kind and mark belonging

to different owners, he is reuired to distinguish them by countermarks, and

designate the merchandise res!ecti%ely belonging to each !rinci!al.62$7

#annot sell on credit without consent from principal

/ithout the ex!ress or im!lied consent of the !rinci!al, the commission agentcannot sell on credit.6257 f the commission agent has the reuired consent, he

is reuired to inform the !rinci!al through a statement of the names of the

buyers.62>7 f without the reuired consent, the !rinci!al may demand from

him !ayment in cash= howe%er, the commission agent is entitled to any

interest or benefit, which may result from such sale.627

#ommission agent who has guaranteed commission bears ris%of collection

n addition to ordinary commission, the commission agent may recei%e on

sale a guarantee commission.62#7 f so, the commission agent bears the risk ofcollection and he is reuired to !ay the !rinci!al the !roceeds of the sale on

the same terms and conditions agreed u!on with the !urchaser .63*7

Liability of commission agent when credit is due anddemandable

nless otherwise the commission agent !ro%es that he has exercised due

diligence, the commission agent is liable for damages if he does not collect the

credits owing to the !rinci!al at the time when they become due and

demandable.6317


7elease# *aiver# and uitclai$ ! After the ter$ination of the contract ofagenc# the agent should as' fro$ the principal a release# "aiver# and

/uitclai$.

'(tent of liability of agent for fraud and negligence

The agent is liable for fraud and negligence, which shall be udged with moreor less rigor by the courts, according to whether the agency was or was not for

com!ensation.6327

bligations of the )rincipal in a #ontract of Agency

To be bound by obligations contracted by agent

The !rinci!al is reuired to com!ly with all the obligations which the agent

may ha%e contracted within the sco!e of his authority.617The !rinci!al cannot

set u! the ignorance of the agent as to circumstances whereof the !rinci!al

himself was, or ought to ha%e been, aware.627

nless the !rinci!al ex!ressly or tacitly ratifies an ultra vires act of the agent,

the !rinci!al is not bound to any obligations where the agent has exceeded his

!owers.637

To ad%ance for ex!enses of agent

f the agent reuires it, the !rinci!al is obligated to ad%ance to the agent thesums necessary for the execution of the agency.67 n case the agent has made

the ad%ance, the !rinci!al is reuired to make reimbursement e%en if the

business or undertaking was not successful so long as the agent is free from

all fault.6$7 The reimbursement includes interest on the sums ad%anced

reckoned from the day it was made.657


Principal to as' for regular accounting and update ! %he principal should as' for regular accounting and update fro$ the agent. Preferabl# the de$and

should be done in "riting 5e.g. e$ail) so the sa$e $a be docu$ented. %his

is to avoid an possible charge of negligence or conse/uence of estoppel.

As' for perfor$ance bond ! If the agenc is for co$pensation# the principal$a re/uire the agent to e+ecute and sub$it a perfor$ance bond to ensure

the due e+ecution of the agenc.

To indemnify agent for damages

f the agent is without fault or negligence, the !rinci!al is obligated to

indemnify the agent for all the damages which the execution of the agency

may ha%e caused the latter.

AgentBs lien

To ensure !ayment of indemnity as well as for reimbursements of ad%ances

made, the agent may retain in !ledge the things which are the obect of the

agency until !ayment is made.

9xtent of liability to third !erson who contracted with !rinci!al or agent

f two or more !ersons contracted in relation to the same thing, where one did

so with the agent and the other with the !rinci!al, and the two contracts are

incom!atible, that of !rior date is to be !referred without !reudice to rules on

double sale of !ro!erties.6>7 f the agent acted in good faith, the !rinci!al is

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liable for damages to the third !erson whose contract is reected as a

conseuence.67 f the agent acted in bad faith, he alone is liable. 6#7

(olidary liability if !rinci!al allowed agent to do ultra %ires

The !rinci!al is solidarily liable with the agent who acted in ultra vires if the

!rinci!al allowed the agent to act as though he had full !owers.61*7

f there are two or more !rinci!als who commonly a!!ointed an agent for a

common transaction-undertaking, they are solidarily liable to the agent for any

and all the conseuences of the agency.6117

/hen !rinci!al is not liable for agentBs ex!enses

The !rinci!al is not liable for the agentBs ex!enses in these situations:6127

1. f the agent acted in contra%ention of the !rinci!alBs instructions,unless the latter should wish to a%ail himself of the benefits

deri%ed from the contract=6137

2. f the ex!enses were due to the fault of the agent=617

3. f the agent incurred them with knowledge that an unfa%orable

result would ensure, if the !rinci!al was not aware thereof =61$7and

. f it was sti!ulated that the ex!enses would be borne by the agent,

or that the latter would be allowed only a certain sum.6157


Principal to as' for return of authoriation docu$ents ! After the ter$ination

of the agenc# the principal should re/uire the return of the authoriationdocu$ents to avoid unto"ard incidents "here the agent continues perfor$ing

the agenc resulting the principal being bound.

*ow to terminate a contract of agency

The contract of agency may be extinguished by the following modes:

1. Dy re%ocation of the agency=

2. Dy the withdrawal of the agent=

3. Dy the death, ci%il interdiction, insanity or insol%ency of the !rinci!al or of the agent=

. Dy the dissolution of the firm or cor!oration which entrusted oracce!ted the agency=

$. Dy the accom!lishment of the obect or !ur!ose of the agency= or

5. Dy the ex!iration of the !eriod for which the agency was

constituted.617

The acts done for the !rinci!al by the agent who had no knowledge of the

death of the !rinci!al or any other causes- modes of extinguishing the agency

is %alid, binding, and fully effecti%e with res!ect to third !ersons who may

ha%e contracted with him in good faith.627


Pro$ptl infor$ agent of e+tinguish$ent of agenc ! iven the strict

conse/uences for failing to infor$ the agent of the e+tinguish$ent of theagenc# the principal should pro$ptl infor$ the agent of the ter$ination of

their contract. 7e/uire agent to deliver authoriation after e+tinguish$ent of agenc ! &or

good $easure# the principal should re/uire the principal agent to underta'eto deliver the authoriation docu$ents after e+tinguish$ent of agenc

regardless of the $ode of ter$ination.

Dy re%ocation of the agency

The contract of agency is !rimarily based on trust and confidence.637 Cence,

the !rinci!al has generally the right to re%oke the agency at will.

67 e%ocation may be ex!ress or im!lied.6$7

Ther are exce!tions to the general rule abo%e. The agency cannot be

unilaterally re%oked by the !rinci!al when: "a) bilateral contracts de!end u!on

it= "b) it is the means of fulfilling an obligation already contracted= "c) a

!artner is a!!ointed manager of a !artnershi! in the contract of !artnershi!and his remo%al from the management is unustifiable.657

/hen a contract of agency is at will, the !rinci!al may com!el the agent to

return the document e%idencing the agency at any time.6>7 f the agency was

constituted in order to contract with s!ecified !ersons, the re%ocation of theagency does not !reudice the latter if they were not gi%en notice thereof.

67 ?otice in these cases are crucial.


(end "ritten notice of revocation to specific third parties ! It is a good and

sound practice to send "ritten notices of revocation of the agenc to specific

third parties. %hese "ill bar the$ fro$ dealing "ith the unauthoried agent

and prevent the$ fro$ clai$ing good faith.

Publish revocation "henever practicable ! &or added protection# therevocation of the agen should be published in ne"spaper of general

circulation "henever practicable. Publication is notice to the "hole "orld.

E E E

Industry &ractices' n businesses where transactions and acti%ities are

hea%ily de!enden on agents, it is a recogniOed !ractice to !ublish in

news!a!er of general circulation the re%ocation of the authority or !ower

granted to an agent. This !rotects consumers from dealing with unauthoriOed !ersons.

E E E

f the agent had general !owers, the re%ocation of the agency will not

!reudice third !ersons who acted in good faith and without knowledge of the

re%ocation.6#7 Fonseuently, notice of the re%ocation in a news!a!er of

general circulation is a sufficient warning to third !ersons.61*7

/hen the !rinci!al a!!oints a new agent for the same business or transaction,the !re%iously a!!ointed agent loses his authority and his agency is effecti%ely

re%oked from the day on which notice thereof was gi%en to him.6117

n some instances, the !rinci!al directly manages the business entrusted to the

agent and-or deals with third !ersons. This results in the re%ocation of the

agency.6127

Ior situations wherein two or more !rinci!als ha%e granted a !ower ofattorney for a common transaction, either one of them may re%oke the agencywithout the consent of the others.6137

eanwhile, the general !ower of attorney is re%oked by a s!ecial !ower of

attorney of another agent as regards only to the s!ecial matter in%ol%ed in the

latter authority.617

n any mode of re%ocation, it is a best !ractice to inform third !arties of the

termination of the authority of the agent so as to a%oid liabilities. To be clear,the re%ocation of the authority of the agent may bind the latter but not

necessarily third !arties who were not !ro!erly informed as reuired by law.

By the withdrawal of the agent

As agency is a contract, the agent may choose to withdraw from his duties andres!onsibilities for %alid reasons.61$7 Cowe%er, the law ex!ressly reuires tha

the agent should gi%e due notice to the !rinci!al.6157

The agent may held l iable for any damages suffered by the !rinci!al by reason

of the withdrawal unless it is on the ground of im!ossibility of continuing the

!erformance of the agency without gra%e detriment to himself.61>7


(end "ritten notice of "ithdra"al ! *hile the la" does not e+pressl state

that the notice of "ithdra"al should be in "riting# the agent should send a"ritten notice of "ithdra"al to the principal. %he agent should retain a

receiving cop or an proof of service to serve as docu$entar evidence.

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7easonable ti$e for notice ! %here is no e+pressl stated ti$e as "hen the

notice should be given. As such# the notice should be given "ithin a

reasonable ti$e prior to actual ter$ination in order to give the principal

a$ple ti$e to respond accordingl. %he reasonable ti$e $a var perindustr and on a casetocase basis.

,+ercise caution in "ithdra"ing ! ue to the potential liabilit# the agent

should e+ecise caution in "ithdra"ing. %he agent should co$$unicate first

the intent to "ithdra" prior to the actual ter$ination date.

ocu$ent da$ages caused b agents "ithdra"al ! 2n the other hand# the

principal "ho suffers da$age due to the agents "ithdra"al should docu$entthe$ to serve as evidence later on.

9%en if the agent withdrew for a %alid reason, he must continue to act until the

!rinci!al has had reasonable o!!ortunity to take the necessary ste!s to meet

the situation.617

By the death+ civil interdiction+ insanity or insolvency of theprincipal or of the agent

As a general rule, the death of the !rinci!al extinguishes the agency.

61#7 Cowe%er, the contract of agency may sur%i%e des!ite the death of the

!rinci!al in these situations: "a) if the agency has been constituted in thecommon interest of the !rinci!al and the agent= "b) in the interest of a third

!erson who has acce!ted the sti!ulation in his fa%or .62*7

f the agent dies, his heirs are obligated to notify the !rinci!al.6217 n the

meantime, they are reuired to ado!t such measures as the circumstances may

demand in the interest of the !rinci!al.6227

By the dissolution of the ,rm or corporation which entrustedor accepted the agency

As a necessary and logical conseuences of the dissolution of the form orcor!oration which entrusted or acce!ted the agency, the contract of agency is

terminated as either the !rinci!al or agent is no longer existing following the

termination of their res!ecti%e firm.6237

By the accomplishment of the ob-ect or purpose of the agency

f the contract of agency s!ecifically and ex!ressly !ro%ides that the agency is

created for a !articular obect or !ur!ose and the same has been achie%ed, then

the agency agreement automatically terminates.627

By the e(piration of the period for which the agency wasconstituted

Ior contracts of agency which carry a !eriod and the same has already la!sed,

the agency agreements ipso facto terminates as the same has been agreed u!on

by the !arties.62$7


,+piration of po"er of attorne ! %he po"er of attorne should have ane+piration "hich $a be a date certain or the co$pletion of a tas' or

underta'ing.

G'N'.AL )./0S0NS N LAN

Art. 1#33. Dy the contract of loan, one of the !arties deli%ers toanother, either something not consumable so that the latter may use the

same for a certain time and return it, in which case the contract is

called a commodatum= or money or other consumable thing, u!on the

condition that the same amount of the same kind and uality shall be !aid, in which case the contract is sim!ly called a loan or mutuum.

Fommodatum is essentially gratuitous.

(im!le loan may be gratuitous or with a sti!ulation to !ay interest.

n commodatum the bailor retains the ownershi! of the thing loaned,

while in sim!le loan, ownershi! !asses to the borrower. "1>*a)

#N!.A#! 1 LAN

P The abo%ementioned defines the two kinds of loan and gi%es theircharacteristics

#*A.A#!'.0S!0#S 1 !*' #N!.A#!

1. eal contractQbecause the deli%ery of the thing loaned is necessary forthe !erfection of the contract

2. nilateral contractQonce the subect matter has been deli%ered, it

creates obligations on the !art of only one of the !arties

#AUS' . #NS0$'.A!0N 0N A #N!.A#! 1 LAN

P Ior the borrowerQthe acuisition of the thing

P Ior the lenderQthe right to demand its return or its eui%alent

K0N$S 1 LAN

1. FHH0ATQwhere the bailor deli%ers to the bailee a non@

consumable thing so that the latter may use it for a certain time and

return the identical thing

2. (G9 GHA? H TQwhere the lender deli%ers to the

borrower money or other consumable thing u!on the condition that the

latter shall !ay he same amount of the same kind and uality

W*'N 0S A !*0NG #NSU2ABL'3

t is consumable when used in a manner a!!ro!riate for its !ur!ose or

nature, like gasoline, rice, money, fruit, firewood, etc.

1. n commodatum, if you do not return the thing when it is due, you will beliable for estafa because ownershi! of the !ro!erty is not transferred to the

borrower.

2. n loan, the borrower who does not !ay is not criminally liable for

estafa. Cis liability is only a ci%il liability for the breach of the obligation

to !ay. This is because in loan, ownershi! of the thing is transferred

to the borrower, so there is no unlawful taking of !ro!erty belonging toanother.

Art. 1#3. An acce!ted !romise to deli%er something by way of commodatum

or sim!le loan is binding u!on !arties, but the commodatum or sim!le loanitself shall not be !erfected until the deli%ery of the obect of the contract. "n)

$'L0/'.4 'SS'N!0AL ! )'.1'#!0N 1 LAN

P The abo%ementioned is a necessary conseuence of the fact that

commodatum and mutuum are real contracts which reuire the deli%ery of

the subect matter thereof for their !erfection

A##')!'$ ).20S' ! 2AK' A 1U!U.' LAN

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9/17

P s there a contract of loan at this !ointR ?o, because loan is a real

contract and is !erfected only u!on deli%ery of the thing.

1.2AL0!4 0N LAN

P There are no formal reuisites for the %alidity of a contract of loan exce!t

if there is a sti!ulation for the !ayment of interest. A sti!ulation for the

!ayment of interest must be in writing.

#22$A!U2

?AT9 HI FHH0AT

Art. 1#3$. The bailee in commodatum acuires the used of the thing loaned

but not its fruits= if any com!ensation is to be !aid by him who acuires theuse, the contract ceases to be a commodatum. "1#1a)

K?0( HI FHH0AT

1. (R)I!AR* +(""()AT,"2. &RE+ARI," Qone whereby the bailor may demand the thing loaned

at will

Art- ./01- +onsumable goods may be the sub2ect of

commodatum if the purpose of the contract is not the consumptionof the ob2ect3 as when it is merely for exhibition- 4n5

Art- ./06- "o%able or immo%able property may be the ob2ect of

commodatum- 4n5

Art- ./07- The bailor in commodatum need not be the owner of the

thing loaned- 4n5

Art- ./0/- +ommodatum is purely personal in character .

Fonseuently:

"1) The death of either the bailor or the bailee extinguishes the contract=

"2) The bailee can neither lend nor lease the obect of the contract to athird !erson. Cowe%er, the members of the bailee&s household may make

use of the thing loaned, unless there is a sti!ulation to the contrary, or

unless the nature of the thing forbids such use. "n)

Art- ./89- A stipulation that the bailee may make use of the fruits of the

thing loaned is %alid- 4n5

!AT,RE (: +(""()AT," S,""ARI;E)

1. FHH0AT ( 9((9?TAGGL ;ATTH(

a. A commodatum is essentially gratuitous b. The contract ceases to be a commodatum if any com!ensation is to

be !aid by the borrower who acuires the use

c. A commodatum is similar to a donation in that it confers a benefit to

the reci!ient

2. 9NT9?T HI DAG99B( ;CT TH (9 is limited to the thing loaned

but not to the fruits unless there is sti!ulation to the contrary

a. As the bailor is the owner of the thing loaned, the bailor is naturallyentitled to its fruits

3. FA? TC99 D9 A (TGATH? ;A?T?; TC9 DAG99 (9

HI TC9 IT(R Hf course. The law sanctions such sti!ulation DT such

use should only be incidental and not the main cause of the contract. Decause

if it is the main cause, then the contract may that one of a usufruct.

. The H(9 of a commodatum is the tem!orary use of thing

loaned

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