UNIVERSITY OF

CALOOCAN CITY
COLLEGE OF BUSINESS
AND ACCOUNTANCY
Biglang Awa St., 12 Avenue
East, Caloocan City
BACHELOR OF
SCIENCE IN
ACCOUNTING
INFORMATION
SYSTEM
st
1 Semester, A.Y. 2022-2023
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COURSE SYLLABUS
UNIVERSITY OF
CALOOCAN CITY
COLLEGE OF BUSINESS
AND ACCOUNTANCY
Biglang Awa St., 12 Avenue
East, Caloocan City
BACHELOR OF
SCIENCE IN
ACCOUNTING

2|Page
INFORMATION
SYSTEM
st
1 Semester, A.Y. 2022-2023
COURSE SYLLABUS PHILIPPINE CHRISTIAN UNIVERSITY
COLLEGE OF BUSINESS ADMINISTRATION AND ACCOUNTANCY
DASMARINAS CITY, CAVITE
1st Semester, A.Y. 2023-2024

Course Title: Regulatory Framework and Legal Issues in Business

The study of the regulatory framework and legal issues in business and the provisions
and procedures to be observed in specific commercial law pertaining to the basic
principles and requisites of special kinds of contracts and their legal consequences will
enable the learners to provide sound advice to their clients in their future practice of the
accounting profession.
This is an in-depth study of the contract of sales, its nature and form as well as the
obligations of the seller and the buyer. This course also includes credit transactions
which involve the study of the different types of loans and deposits. The contracts of
security which include the contract of pledge, real estate mortgage, and chattel
mortgage are part of the course. The Securities Regulation Code, Code of
Corporate Governance, and Intellectual Property Law specifically the Law on Patents,
Trademarks, and Copyrights. PDIC Law, Secrecy of Bank Deposits and Unclaimed
Balances Law, Anti-Money Laundering Law, Data Privacy Act, and E-Commerce Law
are likewise discussed.
Learners are expected to apply the concepts and principles related to the above
commercial laws and inculcate the ethical behavior to be observed in compliance with
the specific commercial laws included in this course.

I. SALES
Nature, forms, and requisites.

Definition.

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Art. 1458. By the contract of sale, one of the contracting parties obligates himself to
transfer the ownership and to deliver a determinate thing, and the other to pay therefor
a price certain in money or its equivalent.
A contract of sale may be absolute or conditional.

Concept of a contract of sale.

The contract of sale is a contract whereby one of the parties (called the seller or vendor)
obligates himself to deliver something to the other (called the buyer or purchaser or
vendee) who, on his part, binds himself to pay therefor a sum of money or its equivalent
(known as the price).

Two kinds of a contract of sale.

a. Absolute. – Where the sale is not subject to any condition whatsoever and where
title of ownership passes to the buyer upon delivery of the thing sold; or
b. Conditional. – Where the sale contemplates a contingency (Art. 1461, 1462, par. 2;
Art. 1465), and in general, where the contract is subject to certain conditions (see Art.
1503, par. 1), usually the full payment of the purchase price. (Art. 1478.) The delivery of
the thing sold does not transfer ownership until the condition is fulfilled.

Essential elements of a contract of sale

a. Consent or meeting of the minds. – This refers to the consent on the part of the
seller or vendor to transfer and deliver and on the part of the buyer or vendee to pay.
The parties must have the legal capacity to give consent and obligate themselves.
Where there is merely an offer by one party, without the acceptance of the other, there
is no consent.
b. Determinate Object or subject matter. – This refers to the determinate thing which
is the object of the contract. The thing must be determinate or at least capable of being
made determinate because if the seller and the buyer differ in regard to the thing sold,
there is no meeting of the minds; therefore, there is no sale.
c. Cause or consideration. This refers to the “price certain in money or its equivalent”
(Art. 1458). Broadly speaking, price is the cost at which something is obtained in
exchange for something else. There can be no sale without a price. (Art. 1474)
Art. 1460. - A thing is determinate when it is particularly designated or physically
segregated from all others of the same class.
The requisite that a thing be determinate is satisfied if at the time the contract is entered
into, the thing is capable of being made determinate without the necessity of a new or
further agreement between the parties. (n)
Price certain in money or its equivalent

Characteristics of a contract of sale

a. Consensual – because it is perfected by mere consent without any further act;
b. Bilateral – because both contracting parties are bound to fulfill obligations
reciprocally toward each other – the seller, to deliver and transfer ownership of the thing
sold and the buyer to pay the price.

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c. Onerous – because the thing sold is conveyed in consideration of the price and vice
versa.
d. Commutative – because the thing sold is considered the equivalent of the price paid
and vice versa.
e. Nominate – because it is given a special name or designation in the Civil Code,
namely, “Sale.”
f. Principal – because it does not depend for its existence and validity upon another
contract.

Forms of Contract.
Article 1356. Contracts shall be obligatory, in whatever form they may have been
entered into, provided all the essential requisites for their validity are present. However,
when the law requires that a contract be in some form in order that it may be valid or
enforceable, or that a contract be proved in a certain way, that requirement is absolute
and indispensable.
In such cases, the rights of the parties stated in the following article cannot be
exercised.
When the form is Essential:

1. when the law requires a form for the validity of the contract.
2. When the law requires certain agreements to be in writing to be enforceable or that
contracts must be proven in a certain way.
3. When the law requires a special form.

EXAMPLE:
Beth left a note in the store of Nathy offering Php 1,000.00 for a table Nathy is selling.
The following day Nathy called Beth by phone accepting the offer of Beth who promised
to pay the next day.
The note and the oral acceptance constitute a legally enforceable contact and both Beth
and Nathy are fully bound.

Article 1357. If the law requires a document or other special form, as in the acts and
contracts enumerated in the following article, the contracting parties may compel each
other to observe that form, once the contract has been perfected. This right may be
exercised simultaneously with the action upon the contract.

EXAMPLE:
Kristia donated a real property to Bryan in a private instrument. The donation is void.
Donation of real property is required to be in a public instrument to be valid.
The sale of Real property orally executed is valid but unenforceable because the law
requires it to be in writing. While the exchange of land is valid although not in writing.

Article 1358. The following must appear in a public document:

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(1) Acts and contracts which have for their object the creation, transmission,
modification or extinguishment of real rights over immovable property; sales of real
property or of an interest therein a governed by Articles 1403, No. 2, and 1405;
(2) The cession, repudiation or renunciation of hereditary rights or of those of the
conjugal partnership of gains;
(3) The power to administer property or any other power which has for its object an act
appearing or which should appear in a public document, or should prejudice a third
person;
(4) The cession of actions or rights proceeding from an act appearing in a public
document.
All other contracts where the amount involved exceeds five hundred pesos must appear
in writing, even a private one. But sales of goods, chattels, or things in action are
governed by Articles, 1403, No. 2, and 1405.

Article 1356 of the Civil Code then provides that ‘contracts shall be obligatory, in
whatever form they may have been entered into, provided all the essential requisites for
their validity are present.’ As a general rule, therefore, a contract under Philippine law
will be valid in whatever form it may be found, whether oral, paper-based, electronic, or
digital.

The Civil Code is supplemented by the Electronic Commerce Act (Republic Act No.
8792) with respect to electronic or digital documents and signatures.
Under the Electronic Commerce Act, electronic documents are expressly declared to
have the same legal effect, validity, and enforceability as any other document or legal
writing provided that the electronic document maintains its integrity and reliability and
can be authenticated. For evidentiary purposes, an electronic document is the functional
equivalent of a written document under existing laws.
An ‘electronic document’ under the Electronic Commerce Act refers to a record
‘generated, communicated, received or stored by electronic means in an information
system or for transmission from one information system to another’. Accordingly, an
online contract would generally be valid and enforceable if it were valid and enforceable
had it been a paper-based document. Further, under the Electronic Commerce Act, an
offer, the acceptance of an offer, and other elements for the formation of contracts may
be expressed in or demonstrated by means of electronic data messages or electronic
documents. No contract is to be denied validity or enforceability on the sole ground that
it is in the form of an electronic data message or electronic documents or that any or all
of the elements required under existing laws for the formation of the contract is
expressed, demonstrated and proved by means of electronic documents.
Thus, the Electronic Commerce Act expressly provides that electronic data messages or
electronic documents ‘shall have the legal effect, validity or enforceability as any other
document or legal writing’.
An electronic document will be considered as the ‘original’ of a document, if:

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there exists a reliable assurance as to the integrity of the electronic document or
electronic data message from the time when it was first generated in its final form and
such integrity is shown by evidence (that is, evidence other than the electronic data
message itself) or otherwise; and the electronic document or electronic data message is
capable of being displayed to the person to whom it is to be present.
As electronic documents are given legal recognition under the Electronic Commerce
Act, the expression of consent to a contract may necessarily be made electronically as
well. Considering that ‘consent’ is an essential requisite to form a binding contract, a
person’s consent, albeit in digital or electronic means, must likewise be sufficiently
established for a contract to be enforceable.
In this regard, similar to electronic documents, electronic signatures are likewise given
express legal recognition under the E-Commerce Act. Under the E-Commerce Act, an
‘electronic signature’ refers to ‘any distinctive mark, characteristic and/or sound in
electronic form, representing the identity of a person and attached to or logically
associated with the electronic data message or electronic document or any
methodology or procedures employed or adopted by a person and executed or adopted
by such person with the intention of authenticating or approving an electronic data
message or electronic document’.

Accordingly, a digital form contract, coupled with an express (albeit electronic)

acknowledgment of the terms and conditions of the contract (ie, ‘I agree and understand
the Terms and Conditions…’), should be enforceable under Philippine law. The parties
should ensure, however, that the elements for the formation of the contract – particularly
the customer’s consent – are properly documented and recorded and, if needed, could
be expressed in or demonstrated in a reliable manner.

Sale distinguished from an agency to sell.

By the contract of agency, a person binds himself to render some service or to do
something in representation or on behalf of another, with the consent or authority of the
latter.
A sale may be distinguished from an agency to sell as follows:
1. In a sale, the buyer receives the goods as owner; in an agency to sell, the agent
receives the goods as the goods of the principal who retains his ownership over them;
2. In a sale, the buyer has to pay the price; in an agency to sell, the agent has simply to
account for the proceeds of the sale he may make on the principal’s behalf;
3. In a sale, the buyer, as a general rule, cannot return the object sold; in an agency to
sell, the agent can return the object in case he is unable to sell the same to a third
person; and
4. In a sale, the seller warrants the thing sold; in an agency to sell, the agent makes no
warranty for which he assumes personal liability as long as he acts within his authority
and in the name of the seller;

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5. In a sale, the buyer can deal with the thing sold as he pleases, being the owner; in an
agency to sell, the agent in dealing with the thing received, must act and is bound
according to the instruction of his principal.

Sale, distinguished from a contract for a piece of work.

By the contract for a piece of work, the contractor binds himself to execute a piece of
work for the employer, in consideration of a certain price or compensation.

Sale, distinguished from a dacion en pago.

Dacion en pago means payment in lieu.
In sale, the cause or consideration is the price and delivery of the object, while in
Dacion en Pago, the cause is the extinguishment of obligation.
Dacion en pago is the delivery and transmission of ownership of a thing by the debtor to
the creditor as an accepted equivalent of the performance of the obligation.

Sale, distinguished from barter.

By the contract of barter or exchange, one of the parties binds himself to give one thing
in consideration of the other’s promise to give another thing. On the other hand, in a
contract of sale, the vendor gives things in consideration for a price in money.
The manifest intention of the parties is paramount in determining whether it is one of
barter or of a sale, and such intention may be ascertained by taking into account the
contemporaneous and subsequent acts of the parties. If such intention does not clearly
appear, it shall be considered barter if the value of the thing given as a part of the
consideration exceeds the amount of the money or its equivalent.

No sale if the price is not certain or ascertainable.

The price in a contract of sale ought to be settled for there can be no sale without a
price. It must be certain or capable of being ascertained in money or its equivalent, and
money is to be understood as currency, and its equivalent means promissory notes,
checks, and other mercantile instruments generally accepted as representing money.

Perfection of contract of sale.

Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds
upon the thing which is the object of the contract and upon the price. From that moment,
the parties may reciprocally demand performance, subject to the provisions of the law
governing the form of contracts.

This provision follows the general rule that contracts are perfected by mere consent
(Art. 1315).
Art. 1315. Contracts are perfected by mere consent, and from that moment the parties
are bound not only to the fulfillment of what has been expressly stipulated but also to all
the consequences which, according to their nature, may be in keeping with good faith,
usage, and law.

Earnest Money as distinguished from option money

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Art. 1482. - Whenever earnest money is given in a contract of sale, it shall be
considered as part of the price and as proof of the perfection of the contract.
Meaning of earnest money.
Earnest money is money 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.
Since earnest money constitutes an advance payment, it must be deducted from the
total price.

Option money.
In sales negotiation, the buyer cannot sometimes make up his mind right away on
whether or not to buy the thing offered for sale. If the seller gives the prospective buyer
time to make up his mind, the buyer usually gives what is called option money. Option
money is an amount distinct from the purchase price, in order to secure for the buyer
the opportunity to make up his mind. Once it is put up, the seller cannot dispose of the
thing during the time agreed upon, otherwise, the seller can be sued for damages.

Earnest money and option money are distinguished as follows:

1. Earnest money is part of the purchase price, while option money (see. Art. 1479, par.
2) is the money given as distinct consideration for the option contract;
2. Earnest money is given only when there is already a sale, while option money applies
to a sale not yet perfected.
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 pay.

Rights/Obligations of vendor and vendee

1. Principal obligations of the vendor:

a. To transfer the ownership of the determinate thing sold;
b. To deliver the thing; (Art. 1497. - Art. The thing sold shall be understood as delivered
when it is placed in the control and possession of the vendee. (1462a)
c. To warrant against eviction and hidden defects (Arts. 1495, 1547.);
Art. 1495. The vendor is bound to transfer the ownership of and deliver, as well as
warrant the thing which is the object of the sale.
Art. 1495. The vendor is bound to transfer the ownership of and deliver, as well as
warrant the thing which is the object of the sale.
d. To take care of the thing, pending delivery, with proper diligence (Art. 1163.);
e. To pay the expenses for the execution and registration of the deed of sale, unless
there is a stipulation to the contrary.

2. Obligations of the vendee:

a. To accept the delivery;
b. To pay the price of the thing sold; and

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c. To bear the expenses for the execution and registration of the sale and putting the
goods in a deliverable state, if such is the stipulation.

Actions for breach of contract of sale of goods

1. Action by the seller for payment of the price (Art. 1595.);
2. Action by the seller for damages for non-acceptance of the goods (Art 1596.);
3. Action by the seller for rescission of the contract (Art. 1597.);
4. Action by the buyer for specific performance (Art. 1598.);
5. Action by the buyer for rescission or damages for breach of warranty (Art. 1599.)

WARRANTY (IN RELATION TO CONSUMER LAWS)

Q: What is the primary law governing all contracts of sale with conditions and
warranties?
A: The provisions of the New Civil Code on conditions and warranties shall govern all
contracts of sales with conditions and warranties.
Q: What are the responsibilities of a seller/vendor under the New Civil Code in cases of
express warranties?
A: Under Article 1561, a vendor or a seller has the responsibility to ensure that the items
he or she sells have no hidden defects.
Q: What kind of defects of the item sold shall make the vendor or seller liable?
A: If the defects should render the item sold totally unfit for the use for which it is
intended, the seller or the vendor shall be liable for such defects. Second, if the defect
should diminish or decrease its fitness or its use to the extent that if the buyer was
aware of such defect he would not have bought the product or would have demanded a
lower price for it.
Q: What are the instances where a vendor or seller may not be held liable in case of
defects?
A: A vendor or seller may not be held liable in cases of patent defects pr those which
are clearly visible upon inspection of the product bought. In case the defects are not
visible, and the buyer is an expert, who by reason of his trade or profession should have
known the defects, then the vendor or seller may not be held liable.
Q: What are the responsibilities of the seller or vendor as to the quality or fitness of the
product sold in case there is no express warranty given to him?
A: The seller or vendor is liable to the buyer in an implied warranty, if such buyer make
known to the seller expressly or impliedly, the particular purpose for which the goods
are acquired. The vendor, by implication, warrants the general fitness or quality of the
product sold to the buyer. Second, the seller or vendor is liable to the buyer if such
buyer relies on the seller’s skill or judgment.
Q: Aside from the provisions of the New Civil Code, what are other laws that may apply
in cases of express warranties?
A: In addition to the New Civil Code provisions on sale with warranties, the provisions of
Title III, Chapter III of the Consumer Act of the Philippines shall govern the sale of
consumer products with warranty.

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Q: What are the minimum terms of express warranty under the Consumer Act that shall
be given by a seller or manufacturer?
A: The following shall be stated in an express warranty:
the terms of warranty, written in a clear and readily understandable language; the
warrantor’s identity; the party’s identity to whom the warranty is extended;
the products or parts covered; the warrantor’s action plan in the event of a defect,
malfunction, or failure to conform to the written warranty; the directive to the consumer
to avail of the right which accrues to the warranty; the period within which, after notice of
defect, malfunction, or failure to conform to the warranty, the warrantor will perform any
obligation under the warranty.
Q: What is the difference between a Full warranty and a Limited warranty (express)?
A: There is a Full Warranty if the warranty conforms with the minimum standards for
warranties. To conform with the requirements, the following should be found in a full
warranty: First, there should be a remedy or relief offered to a consumer within a
reasonable time and without charge in case of defect, malfunction, or failure to conform
with such written warranty. Second, the warranty should give the consumer an option to
either ask for a refund or replacement without charge of such product or part, as the
case may be, where after a reasonable number of attempts to remedy the defect or
malfunction, the product continues to have the defect or to malfunction. A Limited
Warranty, on the other hand, is when the written warranty does not meet the
abovementioned minimum requirements.
Q: When shall the retailer be subsidiarily liable under the express warranty?
A: The retailer may be subsidiarily held liable attaches in the following instance:
In case where both the manufacturer and the distributor failed to honor the warranty the
retailer shoulder the expenses and costs necessary to honor the warranty but the
retailer is not prevented from pursuing actions against the distributor and manufacturer.
Q: What are the documents to be presented to the seller or vendor in case the
consumer opts to have the defective product repaired, replaced, or refunded under an
express warranty?
A: The consumer should present a copy of the warranty card or documents and the
official receipt of the product sold or bought.
Q: What is the minimum duration or period of an express or implied warranty?
A: The duration of a warranty shall be reckoned with the following circumstances:
If there is a stipulation of the period agreed between the seller and the consumer within
which the express warranty shall be enforceable; If the implied warranty on
merchantability accompanies an express warranty, both will be of equal duration; Any
other implied warranty: not less than 60 days nor more than one year following the sale
of a new consumer product.
Q: What are the options given to a consumer in case of a breach of an express
warranty?
A: First, the consumer can have the goods repaired. Warranty work must be made
within 30 days. Such a period may be extended by conditions beyond the control of the
warrantor or his representatives.

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Second, the product or its parts may be replaced.
Third, the consumer may ask for a refund from the warrantor. The amount directly
attributable to the use of the consumer prior to the discovery of the non-conformity shall
be deducted.
Q: What are the options given to a consumer in case of a breach of an implied
warranty?
A: The consumer may retain the goods and recover damages, or reject the goods,
cancel the contract, and refund the amount paid for the product, including damages.
Q: Are secondhand consumer products covered by a warranty?
A: Generally, there is no implied warranty in the sale of secondhand articles, except
when the goods are sold as to raise an implied warranty, i.e. if such buyer makes known
to the seller, the particular purpose for which the goods are acquired. Doing so warrants
the general fitness or quality of the product sold to the buyer. Second, the seller or
vendor is also liable under a warranty in the sale of secondhand products if the seller
has given an express written warranty.
Q: What is the jurisdiction of the DTI in the sale of secondhand consumer products?
A: DTI takes jurisdiction of complaints regarding secondhand products if such
secondhand/surplus products are sold by persons engaged in the business of selling
products and they have, in effect, power to enforce the warranty provided for such
products. On the other hand, the complaint shall be filed with the appropriate regular
courts if the person who sold the secondhand product is not engaged in the business of
selling products, commodities, merchandise, and goods.

CONVENTIONAL REDEMPTION AND LEGAL REDEMPTION.

What is conventional redemption?

Seller reserved the right to repurchase the thing sold coupled with the obligation to
return the price of the sale, expenses of contract & and other legitimate payments, and
the necessary & and useful expenses made on the thing sold Note: Right to repurchase
must be reserved at the time of perfection of sale.
Conventional redemption shall take place when the seller reserves the right to
repurchase the thing sold, with the obligation to comply with the provisions of Article
1616 and other stipulations which may have been agreed upon.
Art. 1616. The vendor cannot avail himself of the right of repurchase without returning
to the vendee the price of the sale, and in addition:
(1) The expenses of the contract, and any other legitimate payments made by reason of
the sale;
(2) The necessary and useful expenses made on the thing sold. (1518)

LEGAL REDEMPTION
What is legal redemption?

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It is the right to be subrogated upon the same terms and conditions stipulated in the
contract, in the place of one who acquires the thing by purchase or by dation in payment
or by other transaction whereby ownership is transmitted by onerous title.

What are the instances of legal redemption?

1. Sale of a co-‐owner of his share to a stranger (Art. 1620)
2. When a credit or other incorporeal right in litigation is sold (Art. 1634)
3. Sale of an heir of his hereditary rights to a stranger (Art. 1088)
4. Sale of adjacent rural lands not exceeding 1 hectare (Art. 1621)
5. Sale of adjacent small urban lands bought merely for speculation (Art. 1622)

What is the period of redemption?

1. No period agreed upon – 4 years from the date of the contract
2. When there is an agreement – should not exceed 10 years; but if it is exceeded, valid
only for the first 10 years.
3. When the period to redeem has expired and there has been a previous suit on the
nature of the contract – the seller still has 30 days from final judgment on the basis that
the contract was a sale with pacto de retro:
Rationale: no redemption due to erroneous belief that it is an equitable mortgage that
can be extinguished by paying the loan.
4. When the period has expired & seller allowed the period of redemption to expire – the
seller is at fault for not having exercised his rights so should not be granted a new
period
Note: Tender of payment is sufficient but it is not in itself a payment that relieves the
seller from his liability to pay the redemption price.

II. AGENCY
Nature, Forms, and Kinds of Agency

Art. 1868. By the contract of agency, a person binds himself to render some service or
to do something in representation or on behalf of another, with the consent or authority
of the latter.

Concept of a contract of agency.

Article 1868 defines the contract of agency. The definition is very broad enough to
include all situations in which one person is employed to render service for another,
excludes, however, from its concept the relationship of employer and employee, of
master and servant, and of employer and independent contractor.
An agency is a relationship that implies the power of an agent to contract with a third
person on behalf of a principal. It is this power to affect the principal’s contractual
relations with third persons that differentiates the agent from the employee, the servant,
and the independent contractor.

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Examples:
P, the owner of the land, wants to construct a building on it. He may do any of the
following:
1. He may hire C, a building contractor, to construct the building with the materials and
labor to be furnished by C; or
2. He himself may construct the building by buying the necessary materials and
employing W, etc. (workers) who shall construct the building under his direction and
supervision; or
3. He may secure the services of A to supervise and act for him in all matters connected
with the construction work.
In the first case, C is an independent contractor, in the second, W, etc. are workers of
employees of P, and in the third, A is an agent of P. Thus, the relationship between the
parties – the hirer of service and the person whose service has been hired – and their
rights and duties will depend upon the terms under which one works, represents, or acts
for another.

Characteristics of a contract of agency.

1. It is consensual – because it is perfected by mere consent;

2. Principal – because it can stand by itself without the need for another contract;
3. Nominate – because it has its own name;
4. Unilateral – if it is gratuitous because it creates obligations for only one of the
parties, i.e., the agent; or bilateral if it is for compensation because it gives rise to
reciprocal rights and obligations; and
5. Preparatory – because it is entered into as a means to an end, i.e., the creation of
other contracts.

Essential elements of agency.

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

Parties to the contract.

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.

Capacity of the parties.

1. Any person who is capacitated to act in his own right may be a principal.
2. In the case of the agent, since he assumes no personal liability, he does not have to
possess full capacity to act insofar as third persons are concerned. But persons who are

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absolutely incapacitated, such as insane persons, cannot be agents. Insofar as his
obligations to his principal are concerned, the agent must be competent to bind himself.

Acts that may be delegated to agents.

1. In general. – The general rule is that what a man may do in person, he may do
through another. Thus, a stockholder may delegate to another his right to inspect the
books of the corporation because this is an act that he can lawfully do personally.
2. Exceptions. – Some acts, however, cannot be done through an agent.
a. Personal acts. – If personal performance is required by law or public policy or the
agreement of the parties, the doing of the act by a person on behalf of another does not
constitute performance by the latter.
i. The right to vote during election cannot be delegated because voting is considered a
purely personal act under the law.
ii. The making of a will is a strictly personal act; it cannot be accomplished through the
instrumentality of an agent or an attorney
iii. Obviously statements that are required to be made under oath should be made
personally.
b. Criminal acts or acts not allowed by law. – An attempt to delegate to another
authority to do an act which, if done by the principal would be illegal, is void. Since
under our Constitution, aliens are not allowed to own private agricultural land, an alien
cannot purchase land through a Filipino agent.

Form of agency.
In general, there are no formal requirements governing the appointment of an agent.
The agent’s authority may be oral or written. An instance when the law requires a
specific form for the agency is Article 1874.
Art. 1874 - When a sale of a piece of land or any interest therein is through an agent,
the authority of the latter shall be in writing; otherwise, the sale shall be void.
Art. 1875. Agency is presumed to be for a compensation unless there is proof to the
contrary.

Presumption as to compensation of agent.

The principal must pay the agent the compensation agreed upon, or the reasonable
value of the agent’s services if no compensation was specified.

Art. 1876. An agency is either general or special.

The former comprises all the business of the principal. The latter, one or more specific
transactions.

Art. 1877. An agency couched in general terms comprises only acts of administration,
even if the principal should state that he withholds no power or that the agent may
execute such acts as he may consider appropriate, or even though the agency should
authorize a general and unlimited management. (n)

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Art. 1878. Special powers of attorney are necessary in the following cases:
(1) To make such payments as are not usually considered as acts of administration;
(2) To effect novations which put an end to obligations already in existence at the time
the agency was constituted;
(3) To compromise, to submit questions to arbitration, to renounce the right to appeal
from a judgment, to waive objections to the venue of an action or to abandon a
prescription already acquired;
(4) To waive any obligation gratuitously;
(5) To enter into any contract by which the ownership of an immovable is transmitted or
acquired either gratuitously or for a valuable consideration;
(6) To make gifts, except customary ones for charity or those made to employees in the
business managed by the agent;
(7) To loan or borrow money, unless the latter act be urgent and indispensable for the
preservation of the things which are under administration;
(8) To lease any real property to another person for more than one year;
(9) To bind the principal to render some service without compensation;
(10) To bind the principal in a contract of partnership;
(11) To obligate the principal as a guarantor or surety;
(12) To create or convey real rights over immovable property;
(13) To accept or repudiate an inheritance;
(14) To ratify or recognize obligations contracted before the agency;
(15) Any other act of strict dominion. (n)

Agents classified.
According to the nature and extent of his authority, an agent may be a:
1. Universal agent or one authorized to do all acts that the principal may personally do,
and which he can lawfully delegate to another the power of doing.
2. General agent or one authorized to transact all the business of his principal, or all
business of a particular kind or in a particular place, or in other words to do all acts,
connected with a particular trade, business, or employment.
3. Special or particular agent or one authorized to act in one or more special
transactions or to act upon a particular occasion.

Obligations of the Agents.

Art. 1884. The agent is bound by his acceptance to carry out the agency and is liable for
the damages which, through his non-performance, the principal may suffer.
He must also finish the business already begun on the death of the principal, should
delay entail any danger.

Specific obligations of the agent to the principal.

1. To carry out the agency in accordance with its terms (Art. 1884).
2. To answer for the damages which through his non-performance the principal may
suffer.

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3. To finish the business already begun on the death of the principal, should delay entail
any danger.
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.
5. To advance the necessary funds should there be a stipulation to that effect.
6. To act in accordance with the instructions of the principal.
7. Not to carry out the agency if the execution would manifestly result in loss or damage
to the principal.
8. To answer to damages should he prefer in case of conflict, his own interests to those
of the principal.
9. Not to loan himself without the consent of the principal when he has been authorized
to lend at interest.
10. To render an account of his transactions and to deliver to the principal whatever he
may have received by virtue of the agency.
11. To distinguish goods by countermarks and designate the merchandise respectively
belonging to each principal, in the case of a commission agent who handles goods of
the same kind and mark, which belong to different owners.
12. To be responsible in certain cases for the acts of the substitute appointed by him.
13. To pay interest on funds he has applied to his own use.
14. To inform the principal, where an authorized sale of credit has been made, of such
sale.
15. To bear the risk of collection should he receive on a sale, a guarantee commission.
16. To indemnify the principal for damages for his failure to collect the credits of his
principal at the time that they become due.
17. To answer for his fraud or negligence.

Art. 1909. The agent is responsible not only for fraud, but also for negligence, which
shall be judged with more or less rigor by the courts, according to whether the agency
was or was not for a compensation.

Obligations of the Principal.

Art. 1910. The principal must comply with all the obligations which the agent may have
contracted within the scope of his authority.
As for any obligation wherein the agent has exceeded his power, the principal is not
bound except when he ratifies it expressly or tacitly.

Specific obligations of the principal to the agent.

1. to comply with the obligations which the agent may have contracted within the scope
of his authority and in the name of the principal.
2. To advance to the agent, should the latter so request, the sums necessary for the
execution of the agency.

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3. To reimburse the agent for all advances made by him provided the agent is free from
fault.
4. To indemnify the agent for all the damages which the execution of the agency may
have caused the latter without fault or negligence on his part.
5. To pay the agent the compensation agreed upon, or if no compensation was
specified, the reasonable value of the agent’s services.

Art. 1916. When two persons contract with regard to the same thing, one of them with
the agent and the other with the principal, and the two contracts are incompatible with
each other, that of prior date shall be preferred, without prejudice to the provisions of
Article 1544.

Rule where two persons contract separately with the agent and the principal.
Two (2) persons may contract separately with the agent and the principal with regard to
the same thing. If the two (2) contracts are incompatible with each other, the one prior
date shall be preferred. This is subject, however, to the rules under Article 1544 of the
Civil Code, which provides as follows:
Art. 1544. If the same thing should have been sold to different vendees, the ownership
shall be transferred to the person who may have first taken possession thereof in good
faith, if it should be movable property.
Should it be immovable property, the ownership shall belong to the person acquiring it
who in good faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in good
faith was first in the possession; and, in the absence thereof, to the person who
presents the oldest title, provided there is good faith.
Examples:
1. P authorized A to contract for the construction of his house for a price of not more
than P100,000.00. Without the knowledge of A, P contracted with B for the construction
of the house for P95,000.00. Later, A entered into a contract with C for the construction
of the same house for P90,000.00.
Under Art. 1916, the contract with B shall be preferred as it is of prior date.
2. P gave authority to A to sell a cash register. Without the knowledge of A, P sold the
cash register to B. It was agreed that P would deliver the register the following day.
Before delivery, A sold the same register to C who bought it in good faith and took
possession thereof.
Under the first paragraph of Art. 1544, C should be considered the owner of the
property.
3. P gave to A a special power of attorney to sell a certain parcel of land. A sold the land
to B. Later P sold the same land to C who in good faith, registered the deed of sale. The
ownership belongs to C.
If neither sale was registered and C took possession of the land in good faith, the
ownership shall also belong to him.
In the absence of registration and possession by B and C, the ownership shall pertain to
B, his title being older than that of C.

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Art. 1918. The principal is not liable for the expenses incurred by the agent in the
following cases:
(1) If the agent acted in contravention of the principal's instructions unless the latter
should wish to avail himself of the benefits derived from the contract;
(2) When the expenses were due to the fault of the agent;
(3) When the agent incurred them with the knowledge that an unfavorable result would
ensue if the principal was not aware thereof;
(4) When it was stipulated that the expenses would be borne by the agent, or that the
latter would be allowed only a certain sum.

When the principal is not liable for expenses.

In the four (4) cases provided for in this article, the principal is not liable for expenses
incurred by the agent.
The reason under No. 1 is evidently to punish the agent for the exception, the
acceptance of benefits is implied ratification;
Under No. 2, it is self-evident (see Art. 1909);
Under No. 3, the agent is guilty of bad faith and lack of diligence.
Under No. 4, an express stipulation that is not contrary to law, morals, etc. is binding
between the parties. Art. 1306. The contracting parties may establish such stipulations,
clauses, terms and conditions as they may deem convenient, provided they are not
contrary to law, morals, good customs, public order, or public policy.

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