AE415 - Regulatory Framework and Legal Issues PDF

**Lesson 1: Contract of Sale** ============================== Nature and Form of Contract 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. Contract of Sale. It is a contract whereby one of the contracting parties (called the seller or vendor) obligates himself to transfer the ownership and to deliver a determinate thing, and the other (called the buyer or purchaser or vendee) to pay therefore a price certain in money or its equivalent. (Art. 1458) Two kinds of contract of sale. 1\. Absolute. If the contract of sale is not subject to any condition and title or ownership passes to the buyer upon delivery of the thing sold. 2\. Conditional. If the contract of sale contemplates a contingency, and in general, where the contract is subject to certain conditions. The delivery of the thing sold does not transfer ownership until the condition is fulfilled Characteristics of a Contract of sale 1\. Consensual - perfected by mere consent 2\. Bilateral - the parties are bound by reciprocal obligations 3\. Onerous - valuable considerations are given by both parties to acquire rights 4\. Commutative - the parties exchange almost equivalent values 5\. Nominate - it has a special name given to it by law 6\. Principal - it can exist by itself without being dependent upon another contract Essential requisites of a contract of sales 1\. Consent (or meeting of the minds). This refers to the consent on the part of the seller to transfer and deliver, and on the part of the buyer to pay. 2\. Object or subject matter. This refers to the determinate thing which is the object of the contract. 3\. Cause or Consideration (Price). This refers to price certain in money or its equivalent such as check or a promissory note. Requisites in order that a thing may be the object of a contract of sale: 1\. The thing must be determinate or at least capable of being determinate. 2\. The thing must be licit or lawful. (Art. 1459) 3\. The thing must not be impossible. 4\. The thing must be within the commerce of men. 5\. The vendor must have a right to transfer ownership of the thing at the time it is delivered. (Art. 1459) Art. 1459. The thing must be licit and the vendor must have a right to transfer the ownership thereof at the time it is delivered. Goods which may be the object of contract of sale: a\. Existing goods owned or possessed by the seller. b\. Future goods or goods to be manufactured, raised, or acquired by the seller after the perfection of the contract of sale. There may be a contract of sale of goods, whose acquisition by the seller depends upon a contingency which may or may not happen. (Art. 1462) Art. 1462. The goods which form the subject of a contract of sale may be either existing goods. Owned or possessed by the seller, or goods to be manufactured, raised, or acquired by the seller after the perfection of the contract of sale, in this Title called "future goods". Art. 1461. Things having a potential existence may be the object of the contract of sale. The efficacy of the sale of a mere hope or expectancy is deemed subject to the condition that the thing will come into existence. The sale of a vain hope or expectancy is void. Emptio rei sperati Emptio spei ----------------------------------------------------------------------- ------------------------------------------------------------------------------------------ Sale of an expected thing. Sale of the hope itself. If the expected thing does not materialize the sale is not effective. Sale is effective even if the thing does not come into existence unless it is vain hope. Refers to future thing that which is expected. Refers to present thing - for certainly the hope or expectancy already exists. Note: There may be a contract of sale of goods, whose acquisition by the seller depends upon a contingency which may or may not happen. Example: F obliged himself to deliver and transfer ownership of his car to S if the latter will pass the CPA board exam next month. At present, S can sell the said car to B. When is a thing determinate A thing is determinate when it is particularly designated or physical segregated from all other 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. (Art. 1460) Art. 1460. A thing is determinate when it is particularly designed or physically segregated from all others of the same class. Example: "My only car", "The only laptop that I am using at present", "My house located at 123 Brgy. Sto. Cristo, SJDM Bulacan. Art. 1463. The sole owner of a thing may sell an undivided interest therein. The legal effect of the sale of an undivided interest in a thing is to make the buyer a co-owner in the thing sold. As such co-owner, he acquires full ownership of his part and he may, therefore, sell it. Example: B owns a parcel of land with an area of 400 sq.m. If B decides to sell 100 sq.m to C, then they will become co-owners of the said land. Thus, B owns 300 sq. m (3/4) while C 100 sq.m (1/4). Sale of fungible goods. Fungible goods - are goods of which any unit, from its nature or by commercial usage, is regarded as the equivalent of any other such unit such as oil, grain, etc. a\. If the quantity, i.e., the number, weight or measure, of the mass is more than the quantity sold, the parties shall become co-owners of the mass.(Art. 1464) b\. If the quantity of the mass is less than the quantity sold, the buyer becomes the owner of the whole mass, with the seller being bound to make good the deficiency from goods of the same kind and quality, unless a contrary intent appears. (Art. 1464) Art. 1464. In the case of fungible goods, there may be a sale of an undivided share of a specific mass, though the seller purports to sell and the buyer to buy a definite number, weight or measure of the goods in the mass, and though the number, weight or measure of the goods in the mass is undetermined. Example: S is engagedin the business of buy and sell of rice and he owns a bodega filled with undetermined sacks of rice. Subsequently, B buys 100 sacks of rice. If there are 300 sacks of rice stored in the bodega, then S and B will be co-owners where S owns 200 sacks while B owns 100 sacks of rice. However, if there are 95 sacks of rice stored in the bodega, S is liable for the deficiency of 5 sacks of rice to B because the contract of sale is still valid. The 5 sacks of rice should be of the same kind and quality. Resolutory Condition Art. 1465. Things subject to a resolutory condition may be the object of the contract of sale. Example: S (vendor a retro) sold a parcel of land to B (vendee a retro) subject to the condition that S can repurchase the property within two years from the date of sale. If S exercises the right to repurchase, then thesale made by B to C before the lapse of the 2-year period falls. Sale distinguished from agency to sell. Art. 1466. In construing a contract containing provisions characteristics of sale of the contract of agency to sell, the essential clauses of the whole instrument shall be considered. Contract of sale Agency to sell ---------------------------------------- ------------------------------------------------------------- Buyer pay the price Agent remit the price to his principal Buyer becomes the owner after delivery Agent does not become the owner after delivery to him Buyer cannot return the object sold Agent can return the object in case he is unable to sell it There is warranty by the seller No warranty by the agent Sale distinguished from contract for a piece of work Art. 1467. A contract for the delivery at a certain price of an article which the vendor in the ordinary course of his business manufactures or procures for the general market, whether the same is on hand at the time or not, is a contract of sale, but if the goods are to be manufactured specially for the customer and upon his special order, and not for the general market, it is a contract for a piece of work. Contract of sale Piece of work ----------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------- Ordinary course of business Not ordinary course of business Produce for the general market Manufactured specially Risk of loss before delivery is borne by the buyer Risk of loss before delivery is borne by the worker or contractor, not by person who ordered Covered by statute of fraud if the sale of personal property is P500 or more or sale of real property regardless of amount. Not covered by statute of fraud provided it will be performed within one year. Rule if the consideration of the contract consists partly in money, and partly in another thing. a\. Manifest intention of the parties. b\. If such intention does not clearly appear, I. Barter if value of the thing is less than the money paid ii. II\. Sale if value of the thing is equal to or more than the money paid. Art. 1468. If the consideration of the contract consists partly in money and partly in another thing, the transaction shall be characterized by the manifest intention of the parties. If such does not clearly appear, it shall be considered a barter if the value of the thing given as a part of the consideration exceeds the amount of the money or its equivalent; otherwise, it is a sale. Sale Barter ----------------------------------------------------------------------------- ------------------------------------------------ A thing is given in exchange of a price certain in money or its equivalent. A thing is given in exchange of another things When price is considered certain. a\. Specific amount agreed upon b\. If there is no specific amount agreed upon I. Certainty with reference to another thing certain II\. Determination of price was left to the judgment of third person. ü Should such person or persons be unable or unwilling to fix it, the contract shall be inefficacious, unless the parties subsequently agree upon the price. ü If the third person or persons acted in bad faith or by mistake, the courts may fix the price. ü Where such third person or persons are prevented from fixing the price or terms by fault of the seller or the buyer, the party not in fault may have such remedies against the party in fault as are allowed the seller or the buyer, as the case maybe.(Art. 1469) Art. 1469. In order that the price may be considered certain, it shall be sufficient that is be so with reference to another thing certain, or that the determination thereof be left to the judgement of a special person or persons. **Lesson 2: Capacity to Buy and Sell** ====================================== *Art. 1489. All persons who are authorized in this Code to obligate themselves, may enter into a contract of sale, saving the modifications contained in the following articles.* *Where necessaries are those sold and delivered to a minor or other person without capacity to act, he must pay a reasonable price therefor.* A contract of sale is an agreement between a seller and a buyer. The seller agrees to deliver or sell something to a buyer for a set price that the buyer has agreed to pay. With these contracts, the transfer of ownership happens when the buyer pays and the seller delivers Persons Who May Enter Into a Contract of Sale As a general rule, all persons, whether natural or juridical, who can bind themselves, have the legal capacity to buy and sell. Kinds of Incapacity ✓ Absolute Incapacity ✓ Relative Incapacity 1\. Absolute Incapacity -- These are the persons who cannot enter into a contract of sale in all circumstances; otherwise, the contract of sale is defective, either voidable or unenforceable. Examples: · Minor · Insane or demented persons · Deaf-mutes who do not know how to read and write · Contracts entered into by a minor and other incapacitated persons are [voidable]. However, where the \*\*\*necessaries are sold and delivered to him without the intervention of the parent or guardian, he must pay a reasonable price therefor. The contract is therefore valid, but the minor has the right to recover any excess above a reasonable value paid by him. *\*\*\* Necessaries---those things which are needed for sustenance, dwelling, clothing and medical attendance, in keeping with the financial capacity of the family of the incapacitated person.* Sale of real property by minors who have already passed the ages of puberty and adolescence and are now in the adult age, when they pretended to have already reached their majority, while in fact they have not, is [valid], and they cannot be permitted afterwards to excuse themselves from compliance with the obligations assumed by them or to seek their annulment. This is in accord with the doctrine of estoppels*.* 2\. Relative Incapacity- These are certain persons, under certain circumstances, cannot buy certain property. Examples: · Husband and wife; · The guardian, the property of the person or persons who may be under his guardianships; · Agents, the property whose administration or sale may have been entrusted to them, unless the consent of the principal has been given; · Executors and administrators, the property of the estate under administration; · Public officers and employees, the property of the State of any subdivision thereof, or any government-owned or controlled corporation, or institution, the administration of which has been entrusted to them; · Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other officers and employees connected with the administration of justice, the property and rights in litigation or levied upon an execution before the court within whose jurisdiction or territory they exercise their respective functions *Art. 1490. The husband and the wife cannot sell property to each other, except:* *(1) When a separation of property was agreed upon in the marriage settlements; or* *(2) When there has been a judicial separation of property under article 191.* The Court decided that sale between common law spouses is null and void because Art. 1490 prohibits sales between spouses to prevent the exercise of undue influence by one spouse over the other, as well as to protect the institution of marriage. The prohibition applies to a couple living as husband and wife without the benefit of marriage, otherwise, the condition of those incurred guilt would turn out to be better than those in legal union. REASON FOR THE RULE · To prevent commission of fraud or prejudice to third persons · To prevent one from unduly influencing the other · To avoid indirect donations *Note: The proscription against sale of property between spouses applies even to common law relationships.* A common-law marriage is a relationship between a man and a woman who live exclusively with each other just like a husband and wife without the benefit of marriage or when the marriage is void. Under the Family Code, the effects of a common-law relationship is expressly recognized. For instance, property relations between a man and a woman in a common-law relationship are expressly governed under the Family Code (Art. 147). Even illegitimate children of common-law spouses are entitled to support (Arts. 195, 196, 197, 200, and 201, Family Code of the Philippines) and to inheritance (Art. 988 to 994, Civil Code of the Philippines). Moreover, no license is necessary for the marriage of a man and a woman who have lived together as husband and wife for at least five years and without legal impediment to marry each other are exempt from the requirement of marriage license should they decide to get married (Art. 34, Family Code of the Philippines). *Art. 1491. The following persons cannot acquire by purchase, even at a public or judicial auction, either in person or through the mediation of another:* *(1) The guardian, the property of the person or persons who may be under his guardianship;* *(2) Agents, the property whose administration or sale may have been entrusted to them, unless the consent of the principal has been given;* *(3) Executors and administrators, the property of the estate under administration;* *(4) Public officers and employees, the property of the State or of any subdivision thereof, or of any government-owned or controlled corporation, or institution, the administration of which has been entrusted to them; this provision shall apply to judges and government experts who, in any manner whatsoever, take part in the sale;* *(5) Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other officers and employees connected with the administration of justice, the property and rights in litigation or levied upon an execution before the court within whose jurisdiction or territory they exercise their respective functions; this prohibition includes the act of acquiring by assignment and shall apply to lawyers, with respect to the property and rights which may be the object of any litigation in which they may take part by virtue of their profession;* *(6) Any others specially disqualified by law.* \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ \(a) Guardian -- as to the property of his ward \(b) Agents -- as to the property whose administration or sale has been entrusted to them, unless consent of the principal is given \(c) Executors or administrators -- as to the state under their administration \(d) Public officers and employees -- as to the property of the State or any subdivision thereof, or of the government-owned or controlled corporations, the administration of which is entrusted to them Judges and government experts who take part in the sale of the property and rights under litigation · The prohibition is based on the fiduciary relationship (based on trust), to prevent fraud and undue and improper influence. · With respect to (b) to (d), the sale shall only be voidable because in such cases only private interests are affected. The defect can be cured by ratification by the seller. With respect to (e) and (f), the sale shall be null and void, public interests being involved therein. \(e) Aliens who are disqualified to purchase private agricultural lands under Art. XII, Secs. 3 and 7 of the Constitution *(f)* Unpaid seller having a right of lien or having stopped the goods *in transit.* \(g) Officer holding the execution or his deputy. *Art. 1492. The provision in the two preceding articles are applicable to sales in legal redemption, compromises and renunciations*. The prohibition ordered in paragraph 5 Article 1491 and Article 1492 is founded on public policy because, by virtue of his office, an attorney may easily take advantage of the credulity and ignorance of his client and unduly enrich himself at the expense of his client. **Lesson 3: Obligation of the Vendor** ====================================== SECTION 1. General Provisions 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. Obligations of the vendor 1\. To transfer ownership of the thing sold; 2\. To deliver the thing; 3\. To warrant the object sold against eviction and hidden defects; 4\. To take care of the object sold pending delivery; and 5\. To pay for the expenses for the execution and registration of the contract of sale unless there is a stipulation to the contrary. DELIVERY \"Delivery\" as used in the Law on Sales refers to the concurrent transfer of two things: (1) possession and (2) ownership. This is the rationale behind the jurisprudential doctrine that presumptive delivery via execution of a public instrument is negated by the reality that the vendee actually failed to obtain material possession of the land subject of the sale. In the same vein, if the vendee is placed in actual possession of the property, but by agreement of the parties, ownership of the same is retained by the vendor until the vendee has fully paid the price, the mere transfer of the possession of the property subject of the sale is not the \"delivery\" contemplated in the Law on Sales or as used in Article 1543 of the Civil Code.1 Purpose of delivery Under the Civil Code, ownership does not pass by mere stipulation but only by delivery. Manresa explains, \"the delivery of the thing. Signifies that title has passed from the seller to the buyer.\" According to Tolentino, the purpose of delivery is not only for the enjoyment of the thing but also a mode of acquiring dominion and determines the transmission of ownership, the birth of the real right. The delivery under any of the forms provided by Articles 1497 to 1505 of the Civil Code signifies that the transmission of ownership from vendor to vendee has taken place.2 Thus, ownership does not pass by mere stipulation but only by delivery. Manresa explains, \"the delivery of the thing x x x signifies that title has passed from the seller to the buyer.\" Moreover, according to Tolentino, the purpose of delivery is not only for the enjoyment of the thing but also a mode of acquiring dominion and determines the transmission of ownership, the birth of the real right. What is actual delivery? Actual delivery of a thing sold occurs when it is placed under the control and possession of the vendee. Art. 1496. The ownership of the thing sold is acquired by the vendee from the moment it is delivered to him in any of the ways specified in Articles 1497 to 1501, or in any other manner signifying an agreement that the possession is transferred from the vendor to the vendee. General Rule: Ownership of the thing sold is acquired only upon its delivery, actual or constructive, to the buyer. Exceptions: 1\. When the seller and the buyer agree that the ownership shall remain with the seller until the full payment of the purchase price; 2\. Contract to sell; 3\. Sale on approval, trial or satisfaction; and 4\. Implied reservation of ownership. Payment is NOT essential to transfer of ownership The Civil Code states that ownership of the thing sold is transferred to the vendee upon the actual or constructive delivery of the same. And the thing is understood as delivered when it is placed in the control and i possession of the vendee. Payment of the purchase price is not essential to the transfer of ownership as long as the property sold has been delivered; and such delivery (traditio) operated to divest the vendor of title to the property which may not be regained or recovered until and unless the contract is resolved or rescinded in accordance with law. In relation to Article 1498 of the Civil Code reading: ART. 1498. When the sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary does not appear or cannot clearly be inferred. SECTION 2. Delivery of the Thing Sold Art.1497.The thing sold shall be understood as delivered, when it is placed in the control and possession of the vendee. What is Article real or actual delivery? Article 1497 above contemplates what is known as real or actual delivery, when the thing sold is placed in the control and possession of the vendee. Article1498, on the one hand, refers to symbolic delivery by the execution of a public instrument. It should be noted, however, that Article 1498doesnotsaythat the execution of the deed provides a conclusive presumption of the delivery of possession. It confines itself to providing that the execution thereof is equivalent to delivery, which means that the presumption therein can be rebutted by means of clear and convincing evidence. Thus, the presumptive delivery by the execution of a public instrument can be negated by the failure of the vendee to take actual possession of the land sold. Kinds of Delivery 1\. Real or Actual The thing sold is placed in the control and possession of the vendee. 2\. Legal or Constructive It is a delivery by operation of law. 3\. Quasi-Tradition Delivery of rights, credits, or incorporeal property, made by: a\. Execution of public instrument; b\. Placing of titles of ownership in the hands of buyer; or c\. Allowing buyer to make use of rights. Kinds of Legal or Constructive Delivery a\. Legal Formalities When the sale is made through a public instrument. The delivery by execution of public instrument gives rise to prima facie presumption of delivery, which is destroyed when actual delivery is not affected due to legal impediment. b\. Symbolical Tradition or Traditio simbolica The parties use a symbol to represent the thing delivered. Example: With regard to movable property, its delivery may also be made by the delivery of the keys of the place or depository where it is stored or kept. c\. Traditio Longa Manu The delivery is by mere consent or agreement of the contracting parties where the seller points out to the buyer the object of sale without the need of actually delivering it. d\. Traditio Brevi Manu This occurs when the would be buyer had already the possession of the object even before the contract of sale by virtue of another title which is not ownership (like a lessee in a Contract of Lease), and pursuant to a contract of sale, he would now hold possession in the concept of an owner (like a buyer of a house where he was a former lessee of the same house). This is opposite of constitutum possessorium. e\. Traditio Constitutum Possessorium The delivery consists in the owner\'s continuous possession of the property he had already sold to another person but his present like possession that of is a lessee.no longer that of an owner but under another capacity, This is opposite of traditio brevi manu. Place of delivery 1\. The place of delivery agreed upon; 2\. If there is no agreement, it is determined by usage of trade; 3\. If there is no agreement and usage of trade, it is of the seller\'s place of business if he has one, and if not his residence; 4\. In case of a contract of sale of specific goods, which to the knowledge of the parties when the contract or the sale was made were in some other place, then that place is the place of delivery. Note: Where the delivery was not effected at the place specified in the contract but the buyer accepted the goods without complaint, the buyer would be deemed to have waived the seller's failure to deliver according to the terms of the contract, and would be liable to pay the price agreed upon. Time of delivery 1\. Stipulated time 2\. In the absence of agreement, within a reasonable time. Where the goods at the time of sale are in the possession of a third person The seller has not fulfilled his obligation to deliver to the buyer unless and until such third person acknowledges to the buyer that he holds the goods on the buyer's behalf. When must demand or tender of delivery be made? At a reasonable hour. Note: What is a reasonable hour is a question of fact. Who pays for the expenses of putting the goods into a deliverable state? The seller, unless otherwise agreed. Quantity of goods delivered is LESS 1\. Buyer may reject the goods; or 2\. Buyer may accept: a\. If the acceptance is with knowledge that the seller is not going to perform the contract, the buyer shall pay at contract rate; b\. If the buyer has used or disposed of the goods delivered before he knows that the seller is not going to perform his contract in full, the buyer shall not be liable for more than the fair value to him of the goods so received. FAIR VALUE An estimate of a good, service, or asset\'s potential price, based on a rational and unbiased assessment of the amount at which it could currently be bought and sold between willing parties. Example: S and B entered into a contract of sale of 100 chairs at P100 per chair. At the date of delivery, S delivered 80 chairs only. In this case, B may reject the 80 chairs. However, if B accepts the chairs with knowledge that S is not going to perform the contract, B shall pay the 80 chairs at P100 per chair. If B has used or disposed of the 80 chairs delivered before he knows that the seller is not going to perform his contract in full, B shall not be liable for more than the fair value to him of the goods so received. Quantity of goods delivered is MORE 1\. Buyer may accept the goods included in the contract and reject the rest; or 2\. Buyer may accept the whole of the goods and pay for them at the contract rate; or 3\. If indivisible, the buyer may reject the whole of the goods. Example: S and B entered into a contract of sale of 100 chairs at P100 per chair. At the date of delivery, S delivered 110 chairs. In this case, B may accept the 100 chairs and reject the 10 chairs or B may accept the 110 chairs and pay for them at P100 per chair which is the contract rate. **Lesson 4: Obligation of the Vendee** ====================================== Who is vendee in law? Buyer or purchaser; an individual to whom anything is transferred by a sale. The term vendee is ordinarily used in reference to a buyer of real property. Art.1582. The vendee is bound to accept delivery and to pay the price of the thing sold at the time and place stipulated in the contract. If the time and place should not have been stipulated, the payment must be made at the time and place of the delivery of the thing sold. Acceptance, meaning An offeree\'s assent, either by express act or by implication from conduct, to the terms of an offer in a manner authorized or requested by the offeror, so that a binding contract is formed. If an acceptance modifies the terms or adds new ones, it generally operates as a counteroffer.1 Principal obligations of the vendee 1. 2. Problem: C Inc. is a domestic corporation engaged in the trading and distribution of consumer goods in wholesale and retail bases, while M Corp. is one engaged in the supply of computer hardware and equipment. On September 26, 2001, M Corp. sent a letter-proposal for the delivery and sale of the subject products to be installed at various offices of C, Inc. Aside from the itemization of the products offered for sale, the said proposal further provides for the following terms, viz.: TERMS: Thirty (30) days upon delivery VALIDITY: Prices are based on current dollar rate and subject to changes without prior notice. DELIVERY: Immediate delivery for items on stock, otherwise thirty (30) to forty-five days upon receipt of \[Purchase Order\] WARRANTY: One (1) year on parts and services. Accessories not included in warranty. On October 29, 2001, C Inc. accepted M Corp.\'s proposal amounting to P646,464. Thereafter, or on March 4, 2002, M Corp. delivered the said products to C, Inc. After delivery, the subject products were then installed and configured in C Inc.\'s premises. M Corp.\'s demands against C Inc. to pay the purchase price, however, remained unheeded. Instead of paying the purchase price, C Inc. sent M Corp. a letter, stating that it \"has been returning the products to M Corp. thru its sales representative who has agreed to pull out the said products but had failed to do so up to now.\" On October 16, 2002, C Inc. lodged a Complaint against M Corp. praying that the latter pull out from its premises the subject products since M Corp. breached its \"after delivery services\" obligations to it. For its part, M Corp., in its Answer, maintained that it had duly complied with its obligations to C Inc. and that the subject products were in good working condition when they were delivered, installed and configured in C Inc.\'s premises. Thereafter, M Corp. even conducted a training course for C Inc.\'s employees; M Corp., however, alleged that there was actually no agreement as to the purported \"after delivery services.\" Further, M Corp. posited that C Inc. refused and failed to pay the purchase price for the subject products despite the latter\'s use of the same for a period of 9 months. Q: Shall C Inc. pay M Corp. the purchase price for the subject products? Art.1583. Unless otherwise agreed, the buyer of goods is not bound to accept delivery thereof by installments. Where there is a contract of sale of goods to be delivered by stated instalments, which are to be separately paid for, and the seller makes defective deliveries in respect of one or more instalments, or the buyer neglects or refuses without just cause to take delivery of or pay for one or more instalments, it depends in each case on the terms of the contract and the circumstances of the case, whether the breach of contract is so material as to justify the injured party in refusing to proceed further and suing for damages for breach of the entire contract, or whether the breach is severable, giving rise to a claim for compensation but not to a right to treat the whole contract as broken. General Rule: The buyer is not bound to receive delivery of goods in installments. Exception: Stipulation or agreement Art. 1584. Where goods are delivered to the buyer, which he has not previously examined, he is not deemed to have accepted them unless and until he has had a reasonable opportunity of examining them for the purpose of ascertaining whether they are in conformity with the contract if there is no stipulation to the contrary. Unless otherwise agreed, when the seller tenders delivery of goods to the buyer, he is bound, on request, to afford the buyer a reasonable opportunity of examining the goods for the purpose of ascertaining whether they are in conformity with the contract. Where goods are delivered to a carrier by the seller, in accordance with an order from or agreement with the buyer, upon the terms that the goods shall not be delivered by the carrier to the buyer until he has paid the price, whether such terms are indicated by marking the goods with the words \"collect on delivery,\" or otherwise, the buyer is not entitled to examine the goods before the payment of the price, in the absence of agreement or usage of trade permitting such examination. General Rule: The buyer has a reasonable opportunity to examine the goods upon delivery to ascertain whether they are in conformity with the contract before accepting the same. Exceptions: 1. 2. Art. 1585. The buyer is deemed to have accepted the goods when he intimates to the seller that he has accepted them, or when the goods have been delivered to him, and he does any act in relation to them which is inconsistent with the ownership of the seller, or when, after the lapse of a reasonable time, he retains the goods without intimating to the seller that he has rejected them. Modes of manifesting acceptance: 1. 2. Delivery and acceptance, separate acts a\. acceptance, not a condition to complete delivery -- The seller must comply with his obligation to deliver although there is no acceptance yet by the buyer b\. Acceptance and actual receipt do not imply the other -- Acceptance of the buyer may precede actual delivery. There may be an actual receipt w/o any acceptance and there may be acceptance w/o any receipt. Delivery VS. Acceptance Art. 1586. In the absence of express or implied agreement of the parties, acceptance of the goods by the buyer shall not discharge the seller from liability in damages or other legal remedy for breach of any promise or warranty in the contract of sale. But, if, after acceptance of the goods, the buyer fails to give notice to the seller of the breach in any promise of warranty within a reasonable time after the buyer knows, or ought to know of such breach, the seller shall not be liable therefor. General Rule: Acceptance of the goods by the buyer does not discharge the seller from liability in damages or other legal remedy for breach of any promise or warranty in the contract of sale. Exception: But if, after acceptance of the goods, the buyer fails to give notice to the seller of the breach in any promise of warranty within a reasonable time after the buyer knows, or ought to know of such breach, the seller shall not be liable therefor. What is the reasonable time? The time needed to do what a contract requires to be done, based on subjective circumstances. Art. 1587. Unless otherwise agreed, where goods are delivered to the buyer, and he refuses to accept them, having 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 to accept them. If he voluntarily constitutes himself a depositary thereof, he shall be liable as such. Effect of buyer's JUSTIFIABLE refusal to accept delivery 1. 2. 3. Art. 1588. If there is no stipulation as specified in the first paragraph of article 1523, when the buyer\'s refusal to accept the goods is without just cause, the title thereto passes to him from the moment they are placed at his disposal. Note: Under this article, the buyer's refusal to accept the goods is w/o a just cause while under Art 1587, the refusal is with a right to do so. Art. 1589. The vendee shall owe interest for the period between the delivery of the thing and the payment of the price, in the following three cases. \(1) Should it have been so stipulated; \(2) Should the thing sold and delivered produce fruits or income; \(3) Should he be in default, from the time of judicial or extrajudicial demand for the payment of the price. Note: This article presupposes that the delivery of the thing sold and the payment of the price were not made simultaneously but the thing sold was delivered first followed by the payment of the price after the lapse of a certain period of time. Vendee owes interest between the delivery and payment 1. 2. 3. Art.1590. Should the vendee be disturbed in the possession or ownership of the thing acquired, or should he have reasonable grounds to fear such disturbance, by a vindicatory action or a foreclosure of mortgage, he may suspend the payment of the price until the vendor has caused the disturbance or danger to cease, unless the latter gives security for the return of the price in a proper case, or it has been stipulated that, notwithstanding any such contingency, the vendee shall be bound to make the payment. A mere act of trespass shall not authorize the suspension of the payment of the price. When vendee can suspend payment of the price: 1\) If he is disturbed in the possession or ownership of the thing bought 2\) If he has a well-grounded fear that his possession or ownership would be disturbed by a vindicatory action or foreclosure of mortgage When vendee cannot suspend payment of the price: 1\) If the vendor gives security for the return of the price in a proper case; 2\) If it has been stipulated that notwithstanding any such contingency the vendee must make payment 3\) If the vendor has caused the disturbance or danger to cease 4\) If the disturbance is a mere act of trespass 5\) If the vendee has fully paid the price Note: There is a mere act of trespass when the third person claims no right whatever. The vendor is not liable therefor. The vendee has a direct action against intruder. Art. 1591. Should the vendor have reasonable grounds to fear the loss of immovable property sold and its price, he may immediately sue for the rescission of the sale. Should such ground not exist, the provisions of article 1191 shall be observed. Note: This article refers only to a sale of real property where vendor has good reasons to fear the loss of the property and its price. - - Art 1592. In the sale of immovable property, even though it may have been stipulated that upon failure to pay the price at the time agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after the expiration of the period, as long as no demand for rescission of the contract has been made upon him either judicially or by a notarial act. After the demand, the court may not grant him a new term. Note: The demand is not for the payment of the price but for the rescission of the contract. Art. 1593. With respect to movable property, the rescission of the sale shall of right take place in the interest of the vendor, if the vendee, upon the expiration of the period fixed for the delivery of the thing, should not have appeared to receive it, or, having appeared, he should not have tendered the price at the same time, unless a longer period has been stipulated for its payment. Note: In the case of personal property (which has not yet been delivered to the vendee), the vendor can rescind the contract, as a matter of right, if the vendee, without any valid cause, does not: a\. accept delivery; or b\. pay the price unless credit period for its payment is stipulated. The mere failure of the vendee to comply with the terms of the contract, however, does not rescind the same. It is necessary that the vendor should take some affirmative action indicating his intention to rescind. Reason for the difference is that personal properties are not capable of maintaining a stable price in the market. Their prices are so changeable that any delay in their disposal cause the vendor great prejudice In the case of real property which has more or less stable price in the market and the delay that might result from the requirement imposed on the vendor to demand rescission before being entitled to rescind the contract will not in any way prove detrimental to the interest of the vendor. **Lesson 5: PHILIPPINE DATA PRIVACY ACT** ========================================= Actions for Breach of Contract of Sale of Goods *Art. 1594. Actions for breach of the contract of the sale of goods shall be governed particularly by the provisions of this Chapter, and as to matters not specifically provided for herein, by other applicable provisions of this Title.* Note: This chapter is not applicable to sale of immovable property. INTERPRETATION \(a) \"action\" includes counterclaim and set-off; \(b) \"buyer\" means a person who buys or agrees to buy goods; \(c) \"contract of sale\" includes an agreement to sell as well as a sale; \(d) \"delivery\" means voluntary transfer of possession from one person to another; \(e) \"document of title to goods\" has the same meaning as in the *Factors Act*; \(f) \"fault\" means wrongful act or default; \(g) \"future goods\" means goods to be manufactured or acquired by the seller after the making of the contract of sale; \"goods\" includes all chattels personal other than things in action and money and includes emblements, industrial growing crops and things attached to or forming part of the land that are agreed to be severed before sale or under the contract of sale; \(i) \"plaintiff\" includes a defendant counterclaiming; \(j) \"property\" means the general property in goods, and not merely a special property; \(k) \"quality of goods\" includes their state or condition; \(l) \"sale\" includes a bargain and sale as well as a sale and delivery; \(m) \"seller\" means a person who sells or agrees to sell goods; \"specific goods\" means goods identified and agreed upon at the time a contract of sale is made; FORMATION OF THE CONTRACT OF SALE \(1) A contract of sale of goods is a contract whereby the seller transfers, or agrees to transfer, the property in goods to the buyer for a money consideration, called the \"price\", and there may be a contract of sale between one part owner and another. \(2) A contract of sale may be absolute or conditional. \(3) Where, under a contract of sale, the property in the goods is transferred from the seller to the buyer, the contract is called a \"sale\", but where the transfer of the property in the goods is to take place at a future time, or subject to some condition thereafter to be fulfilled, the contract is called an \"agreement to sell\". \(4) An agreement to sell becomes a sale when the time elapses, or the conditions are fulfilled subject to which the property in the goods is to be transferred. Existing or future goods \(1) The goods that form the subject of a contract of sale may be either existing goods, owned or possessed by the seller, or goods to be manufactured or acquired by the seller after the making of the contract of sale, in this Act called \"future goods\". \(2) There may be a contract for the sale of goods the acquisition of which by the seller depends upon a contingency which may or may not happen. \(3) Where, by a contract of sale, the seller purports to effect a present sale of future goods, the contract operates as an agreement to sell the goods. Specific goods perished at time of contract Where there is a contract for the sale of specific goods, and the goods without the knowledge of the seller have perished at the time when the contract is made, the contract is void. Specific goods perished before risk passes Where there is an agreement to sell specific goods, and subsequently the goods without any fault on the part of the seller or buyer perish before the risk passes to the buyer, the agreement is thereby avoided. THE PRICE \(1) The price in a contract of sale may be fixed by the contract, may be left to be fixed in manner thereby agreed or may be determined by the course of dealing between the parties. \(2) Where the price is not determined in accordance with the foregoing provisions the buyer must pay a reasonable price and what is a reasonable price is a question of fact dependent on the circumstances of each particular case. Valuation \(1) Where there is an agreement to sell goods on the terms that the price is to be fixed by the valuation of a third party, and such third party cannot or does not make such valuation, the agreement is avoided, provided that, if the goods or any part thereof have been delivered to and appropriated by the buyer, the buyer must pay a reasonable price therefor. \(2) Where such third party is prevented from making the valuation by the fault of the seller or buyer, the party not in fault may maintain an action for damages against the party in fault. CONDITIONS AND WARRANTIES Time as essence of contract \(1) Unless a different intention appears from the terms of the contract, stipulations as to time of payment are not deemed to be of the essence of a contract of sale, and whether any other stipulation as to time is of the essence of the contract, or not, depends on the terms of the contract. \(2) In a contract of sale, \"month\" means *prima facie* a calendar month. Treatment by buyer of breach of condition by seller \(1) Where a contract of sale is subject to any condition to be fulfilled by the seller, the buyer may waive the condition or may elect to treat the breach of such condition as a breach of warranty and not as a ground for treating the contract as repudiated. \(2) Whether a stipulation in a contract of sale is a condition, the breach of which may give rise to a right to treat the contract as repudiated, or a warranty, the breach of which may give rise to a claim for damages, but not to a right to reject the goods and treat the contract as repudiated, depends in each case on the construction of the contract and a stipulation may be a condition, though called a warranty in the contract. \(3) Where a contract of sale is not severable, and the buyer has accepted the goods, or part thereof, or where the contract is for specific goods the property in which has passed to the buyer, the breach of any condition to be fulfilled by the seller can only be treated as a breach of warranty, and not as ground for rejecting the goods and treating the contract as repudiated unless there be a term of the contract, express or implied, to that effect. \(4) Nothing in this Section shall affect the case of any condition or warranty, fulfilment of which is excused by law by reason of impossibility or otherwise. Implied condition and warranties In a contract of sale, unless the circumstances of the contract are such as to show a different intention, there is \(a) an implied condition on the part of the seller that, in the case of a sale, the seller has a right to sell the goods, and that, in the case of an agreement to sell, the seller will have a right to sell the goods at the time when the property is to pass; \(b) an implied warranty that the buyer shall have and enjoy quiet possession of the goods; \(c) an implied warranty that the goods shall be free from any charge or encumbrance in favour of any third party, not declared or known to the buyer before or at the time when the contract is made. Goods correspond with description Where there is a contract for the sale of goods by description, there is an implied condition that the goods shall correspond with the description and if the sale be by sample as well as by description, it is not sufficient that the bulk of the goods corresponds with the sample if the goods do not also correspond with the description. Quality or fitness for particular purpose Subject to this Act and any statute in that behalf, there is no implied warranty or condition as to the quality or fitness, for any particular purpose, of goods supplied under a contract of sale, except as follows: \(a) where the buyer, expressly or by implication, makes known to the seller the particular purpose for which the goods are required, so as to show that the buyer relies on the sellers skill or judgement and the goods are of a description that it is in the course of the sellers business to supply, whether he be the manufacturer or not, there is an implied condition that the goods shall be reasonably fit for such purpose, provided that, in the case of a contract for the sale of a specified article under its patent or other trade-name, there is no implied condition as to its fitness for any particular purpose; \(b) where goods are bought by description from a seller who deals in goods of that description, whether he be the manufacturer or not, there is an implied condition that the goods shall be of merchantable quality, provided that, if the buyer has examined the goods, there shall be no implied condition as regards defects which such examination ought to have revealed; \(c) an implied warranty or condition as to quality or fitness for a particular purpose may be annexed by the usage of trade; \(d) an express warranty or condition does not negative a warranty or condition implied by this Act, unless inconsistent therewith. *Art. 1597. Where the goods have not been delivered to the buyer, and the buyer has repudiated the contract of sale, or has manifested his inability to perform his obligations thereunder, or has committed a breach thereof, the seller may totally rescind the contract of sale by giving notice of his election so to do to the buyer.* The seller may totally rescind the contract of sale 1\. The buyer has repudiated the contract of sale; 2\. The buyer has manifested his inability to perform his obligations thereunder; or 3\. The buyer has committed a breach of the contract of sale. What is specific performance? The rendering, as nearly as practicable, of a promised performance through a judgment or decree; specifically, a court-ordered remedy that requires precise fulfillment of a legal or contractual obligation when monetary damages are inappropriate or inadequate, as when the sale of real estate or a rare article is involved. Note: The seller committed a breach of contract by not delivering the specific goods to the buyer. Note: The buyer applies with the court for specific performance to compel the seller to deliver the specific goods. Note: There must be an order from the court for the specific performance. *Art. 1599. Where there is a breach of warranty by the seller, the buyer may, at his election:* 1\. Accept or keep the goods and set up against the seller, the breach of the warranty by way of recoupment in diminution or extinction of the price. 2\. Accept for damages or keep for the goods breach and of maintain an action against the seller for damages for the breach of warranty; 3\. Refuse to accept the goods, and maintain the action against the seller for damages for the breach of warranty; 4\. Rescind the contract of the sale and refuse to receive the goods or if the goods have already been received, return them or offer to return to the seller and recover the price or any part thereof which has been paid. Remedies of the buyer in case of breach of warranty by the seller 1\. Accept or keep the goods and set up against the seller, the breach of warranty by way of recoupment in diminution or extinction of the price; 2\. Accept or keep the goods and maintain an action against the seller for damages for the breach of warranty; 3\. Refuse to accept the goods, and maintain an action against the seller for damages for the breach of warranty; and 4\. Rescind the contract of the sale and refuse to receive the goods or if the goods have already been received, return them or offer to return them to the seller and recover the price or any part thereof which has been paid. **Lesson 6: Extinguishment of Sale** ==================================== **1.** **Same causes as all other obligations;** a\. Payment or performance of obligation; b\. Loss of the thing due; d\. Confusion or merger of rights; e\. Compensation; g\. Others **2.** **Conventional redemption;** **3.** **Legal Redemption.** Conventional redemption (Right to redeem or Pacto de retro sale) Note: 4\. When the purchaser retains for himself a part of the purchase price; Equitable mortgage Note: What is reformation? Note: ***Art. 1606.** The right referred to in Article 1601, in the absence of an express agreement, shall last four years from the date of the contract.* Period of redemption **2.** **If there is an agreement as to period of redemption** Example: Indefinite agreement as to time Right to repurchase within thirty (30) days Example: Rationale: Note: Example: Subrogation meaning Examples of rights transferred to the vendee: 1\. Right to mortgage the property 2\. Right to receive fruits. Note: ***Art. 1610.** The creditors of the vendor cannot make use of the right of redemption against the vendee, until after they have exhausted the property of the vendor.* Example: Example: Note: Exception: SECTION2.-Legal Redemption Legal redemption Note: Note: Rural, meaning Rationale: Note: Example: Note: \"Urban\" does not refer to the land itself nor to the purpose to which it is devoted, but to the character of the community or region where it is found. \" Pre-emption, meaning Right of pre-emption Redemption, meaning Right of redemption Note: In all in the above-cited provisions of law, the interpretation thereof always tilts in favor of the terminated redemptioner and against the vendee. The purpose is to reduce the number of participants until the community is terminated, being a hindrance to the development and better administration of the property. **Lesson 7: Assignment of Credits and Other Incorporeal Rights** ================================================================ Assignment of Credits and Other Incorporeal Rights ASSIGNMENT OF CREDIT Incorporated rights, meaning Requirement to produce effect as against third person **1.** **If personal property is involved** **2.** **If real property is involved** Note: Example: Note: Note: Warranties of the Assignor of Credit Liabilities for violation of warranties 1\. Payment of the price; 2\. All the expenses; and 3\. Damages Duration of warranty as to debtor\'s solvency 1\. Period stipulated 2\. If there is no stipulation: Example: Note: INHERITANCE Note: General Rule: Exception: General Rule: Exception: Example: Pendente lite, meaning Requisites: a\. there must be a credit or other incorporeal right; b\. the credit or other incorporeal right must be in litigation; d\. the assignee must have demanded payment from the debtor; **3.** **Assignments or sales made to the possessor of a tenement or piece of land which is subject to the right in litigation assigned.** Lesson 8: **Agency** ==================== NATURE, FORM AND KINDS OF AGENCY Characteristics of a contract of agency Note: Elements of a contract of agency 1\. Consent, express or implied, of the parties to establish the relationship; The elements of the contract of agency are: 1\. consent, express or implied, of the parties to establish the relationships; 2\. the object is the execution of a juridical act in relation to the third person; 3\. the agent acts as a representative and not for himself; and 4\. the agent acts within the scope of his authority. Intent to appoint and intent to accept Note: Parties to the Contract of Agency Note: Who is an agent? Note: What are the acts which may be delegated to an agent? General Rule: 1\. Acts not allowed by law 2\. Personal acts Purpose of agency Nature of Agency Third person assumes the risk Sale vs. Agency Kinds of agency as to the manner of its creation **1.** **Express** **2.** **Implied** a\. Acts of the principal; b\. Principal\'s silence; d\. Principal\'s failure to repudiate the agency AGENCY BY ESTOPPEL -- -- -- -- Kinds of acceptance a\. Acts of the agent which carry out the agency; b\. Agent\'s silence; or What is a power of attorney? Between persons who are present (\"face to face\") 1\. Principal delivers his power of attorney to the agent, and General Rule: Exceptions: Two ways of informing third persons **1.** **Special Information** Manner of rescission Purpose of the law General Rule: Exceptions: -- -- -- -- GENERAL POWER OF ATTORNEY ADMINISTRATION Kinds of Agency as to authority of power PAYMENT OF AN ORDINARY OBLIGATION Problem: WHAT IS NOVATION 1\. A new obligation between the same parties; 2\. A new debtor: or 3\. A new creditor WHAT IS COMPROMISE WHAT IS ARBITRATION WHAT IS APPEAL WHAT IS JUDGMENT WHAT IS WAIVER WHAT IS VENUE WHAT IS PRESCRIPTION WHAT IS GRATUITOUS SALE OF A PIECE OF LAND OR ANY INTEREST THEREIN THROUGH AN AGENT TO LOAN OR BORROW MONEY LEASE OF REAL PROPERTY FOR MORE THAN ONE YEAR Note: WHAT IS CONTRACT OF PARTNERSHIP TO OBLIGATE THE PRINCIPAL AS A GUARANTOR OR SURETY **Lesson 9: Obligation of the Agent** ===================================== OBLIGATIONS OF THE AGENT ***Article 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.* The provision is clear that an agent is bound to carry out the agency. The relationship existing between principal and agent is a fiduciary one, demanding conditions of trust and confidence. It is the duty of the agent to act in good faith for the advancement of the interests of the principal. An agent who carries out the orders and instructions of the principal without being guilty of negligence, deceit or fraud, cannot be held responsible for the failure of the principal to accomplish the object of the agency. This can be gleaned from the following provisions of the New Civil Code on the obligations of the agent: *Article 1885. In case a person declines an agency, he is bound to observe the diligence of a good father of a family in the custody and preservation of the goods forwarded to him by the owner until the latter show appoint an agent or take charge of the goods.* Rule if a person declines an agency He is bound to observe the diligence of a good father of a family in the custody and preservation of the goods forwarded to him by the owner. Obligation of the owner 1. 2. *Article 1886. Should there be a stipulation that the agent shall advance the necessary funds, he shall be bound to do so except when the principal is insolvent.* Example: P (Principal) and A (Agent) agreed to enter into a contract of agency. One of their stipulation, among others, is for A to advance the necessary funds for the payment of office supplies, inventories, electricity, water, and telephone expenses. In this case, A must advance the necessary funds. It is understandable, however, that P will reimburse it. However, A need not advance the necessary funds when P becomes insolvent meaning, when P has greater liabilities than his assets, because it is logical that P cannot reimburse him. *Article 1887. In the execution of the agency, the agent shall act in accordance with the instructions of the principal.* *In default thereof, he shall do all that a good father of a family would do, as required by the nature of the business.* Note: The agent shall act in accordance with the instructions of the principal so that he will not be liable to the principal for damages in case of failure to accomplish the purpose of the agency. In the absence of instructions, the agent shall observe the diligence of a good father of a family. *Article 1888. An agent shall not carry out an agency if its execution would manifestly result in loss or damage to the principal.* Example: P appointed A to manage his strawberry farm for the current year. Further, P planned to plant strawberries on June 1, 2017. However, it was forecasted by the proper authority (e.g. PAGASA) on May 28, 2017 that a strong typhoon is coming within a week. As a consequence, A did not plant strawberries on June 1, 2017. Is A liable for damages? No, because what he did is for the protection of the principal. Otherwise, it would have resulted in loss or damage to the principal. *Article 1889. The agent shall be liable for damages if, there being a conflict between his interests and those of the principal, he should prefer his own.* Example: P and A are owners of adjoining lands. P appointed A as his agent to sell the former\'s land. Thereafter, X, a stranger, expresses to A his desire of buying either the land of P or his land. In this case, A can only sell the land of P to X. A cannot sell his land to X because of conflict of interest; otherwise, he will be liable for damages. *Article 1890. If the agent has been empowered to borrow money, he may himself be the lender at the current rate of interest. If he has been authorized to lend money at interest, he cannot borrow it without the consent of the principal.* Example: P appointed A as his agent to borrow money. Can A lend his own money? Yes provided that it must be at the current rate of interest. What if P appointed A to lend money at interest, Can A borrow? As a rule, no, unless the principal consents. *Article 1891. Every agent is bound to render an account of his transactions and to deliver to the principal whatever he may have received by virtue of the agency, even though it may not be owing to the principal.* *Every stipulation exempting the agent from the obligation to render an account shall be void.* *Article 1892. The agent may appoint a substitute if the principal has not prohibited him from doing so; but he shall be responsible for the acts of the substitute:* 1. 2. *All acts of the substitute appointed against the prohibition of the principal shall be void.* *Article 1893. In the cases mentioned in Nos. 1 and 2 of the preceding article, the principal may furthermore bring an action against the substitute with respect to the obligations which the latter has contracted under the substitution.* SUBSTITUTE OR SUB-AGENT A person to whom an agent has delegated the performance of an act for the principal; a person designated by an agent to perform some duty relating to the agency. It must be pointed out that the law on agency in our jurisdiction allows the appointment by an agent of a substitute or sub-agent in the absence of an express agreement to the contrary between the agent and the principal. *Article 1894. The responsibility of two or more agents, even though they have been appointed simultaneously, is not solidary, if solidarity has not been expressly stipulated.* Note: The responsibility of two or more agents is joint. The liability in this article is the liability of the agents as regards the principal. Example: P appointed X and Y as his agents. Later, Z, a third person suffered damages due to the negligence of X. The damages awarded by the court is P50,000. Are both X and Y liable? No, only X is liable for the P50,000 because he is the only person who is negligent. What if both X and Y are negligent? In this case, both X and Y are liable for the damages equally or P25,000 each because their liability is joint. JOINT OBLIGATION VS. SOLIDARY OBLIGATION A solidary obligation is one in which each of the debtors is liable for the entire obligation, and each of the creditors is entitled to demand the satisfaction of the whole obligation from any or all of the debtors. On the other hand, a joint obligation is one in which each debtor is liable only for a proportionate part of the debt, and the creditor is entitled to demand only a proportionate part of the credit from each debtor. The well-entrenched rule is that solidary obligations cannot be inferred lightly. They must be positively and clearly expressed. A liability is solidary \"only when the obligation expressly so states, when the law so provides or when the nature of the obligation so requires.\" *Article 1895. If solidarity has been agreed upon, each of the agents is responsible for the non-fulfillment of agency, and for the fault or negligence of his fellow agents, except in the latter case when the fellow agents acted beyond the scope of their authority.* Note: The liability in this article is the liability of the agents as regards the principal. *Article 1896. The agent owes interest on the sums he has applied to his own use from the day on which he did so, and on those which he still owes after the extinguishment of the agency.* Example: P appointed A as his agent and thereafter P gave A P20,000 as petty cash fund for the operation of P\'s business. In this case, if A applied a portion of the said sum of money to his own use (like repair of his personal car), then he is liable for interest. *Article 1897. The agent who acts as such is not personally liable to the party with whom he contracts, unless he expressly binds himself or exceeds the limits of his authority without giving such party sufficient notice of his powers.* Note: The act of the agent is the act of the principal, by operation of law. However, if the agent binds himself or exceeds the limits of his authority without giving the third person with whom he contracts sufficient notice of his powers, the principal is not liable,. *Article 1898. If the agent contracts in the name of the principal, exceeding the scope of his authority, and the principal does not ratify the contract, it shall be void if the party with whom the agent contracted is aware of the limits of the powers granted by the principal. In this case, however, the agent is liable if he undertook to secure the principal's ratification.* *Example:* P appointed A as his agent. A is authorized to sell the land of P for 500,000 on cash basis only. However, A sold the said land to X for P520,000 on credit. X knows the limits of the powers granted by P. Thus, the contract of sale entered into between X and A as agent of P is void. What if X bought the land on credit because A undertook to secure P\'s ratification but P did not ratify their contract? Then, A is liable. Conversely, if P ratified the contract, then only P is liable because the contract now is perfectly valid. *Article 1899. If a duly authorized agent acts in accordance with the orders of the principal, the latter cannot set up the ignorance of the agent as to circumstances whereof he himself was, or ought to have been, aware.* Note: Only the principal is liable if he appointed an ignorant agent. *Article 1900. So far as third persons are concerned, an act is deemed to have been performed within the scope of the agent\'s authority, if such act is within the terms of the power of attorney, as written, even if the agent has in fact exceeded the limits of his authority according to an understanding between the principal and the agent.* Note: The article requires a written authority. *Article 1901. A third person cannot set up the fact that the agent has exceeded his powers, if the principal has ratified, or has signified his willingness to ratify the agent's acts.* Note: As a rule, if the agent exceeds his powers, the contract is defective because it is unenforceable against the principal. However, if the principal ratifies the contract then it becomes enforceable and the third person cannot set up the fact that the agent has exceeded his powers. *Article 1902. A third person with whom the agent wishes to contract on behalf of the principal may require the presentation of the power of attorney, or the instructions as regards the agency. Private or secret orders and instructions of the principal do not prejudice third persons who have relied upon the power of attorney or instructions shown them.* General Rule: A third person may require the presentation of the power of attorney or the instructions as regards the agency. Exception: Private or secret orders and instructions of the principal do not prejudice third persons who have relied upon the power of attorney or instructions shown them. Example: P appointed A as his agent to sell the former\'s house and lot. Thereafter, A offered the said lot to X. In this case, X may require from A the presentation of the power of attorney or the authority as regards the agency. What if the authority of A is to sell the said house and lot for P1,000,000 on cash basis only? Further, what if P verbally told A that his secret instruction is that he cannot give a discount as the selling price is low compared to adjoining properties? Subsequently, A offered it to X who is asking for a discount of 10%. A verbally told X that he can give the discount of P100,000 (P1,000,000 ? 10%). In this case, the discount is binding to P because secret instructions of the principal do not prejudice third persons. *Article 1903. The commission agent shall be responsible for the goods received by him in the terms and conditions and as described in the consignment, unless upon receiving them he should make a written statement of the damage and deterioration suffered by the same.* DOCTRINE OF PROCURING CAUSE In order for an agent to be entitled to a commission, he must be the procuring cause of the sale, which simply means that the measures employed by him and the efforts he exerted must result in the sale. However, for the purpose of equity, an agent who is not the efficient procuring cause is nonetheless entitled to his commission, where he, notwithstanding the expiration of his commission, took diligent steps to bring back together the parties such that a sale was consummated. Commission Agent vs. Broker Note: The brokers are the entitled to their property commission because they were instrumental in the sale of the property. They were the procuring cause. In the absence of an express contract between the broker and his principal, the implication generally is that broker becomes entitled to the usual commissions. General Rule: If the commission agent received goods consigned to him, he is responsible for any damage or deterioration suffered by the same in the terms and conditions and as described in the consignment. Exception: Upon receiving them, he should make a written statement of the damage and deterioration suffered by the same. *Article 1904. The commission agent who handles goods of the same kind and mark, which belong to different owners, shall distinguish them by countermarks, and designate the merchandise respectively belonging to each principal.* *Article 1905. The commission agent cannot, without the express or implied consent of the principal, sell on credit. Should he do so, the principal may demand from him payment in cash, but the commission agent shall be entitled to any interest or benefit, which may result from such sale.* What if P ratified the contract of sale of his only car for P900,000? Then, A is no longer entitled to the excess of P200,000. But it must be noted that P will take the risk of doubtful accounts or the non-payment in case of insolvency of X. Note: An agent who sells the goods on credit without the consent of the principal is liable for the price of the goods. However, the agent shall get the extra benefits derived from selling goods on credit. *Article 1906. Should the commission agent, with authority of the principal, sell on credit, he shall so inform the principal, with a statement of the names of the buyers. Should he fail to do so, the sale shall be deemed to have been made for cash insofar as the principal is concerned*. Example: P authorized A as his commission agent to sell the former\'s goods on credit. The value of the goods is P50,000. In this case, it is the obligation of A to inform P with a statement of the names of the buyers. Should A fail to do so, the sale shall be deemed to have been made for cash. What if A sold the goods on credit to X, Y and Z for a selling price of P75,000 without informing P with a statement of the names of the buyers? Then A is liable for P50,000 cash. *Article 1907. Should the commission agent receive on a sale, in addition to the ordinary commission, another called a guarantee commission, he shall bear the risk of collection and shall pay the principal the proceeds of the sale on the same terms agreed upon with the purchaser.* COMMISSION AGENT An agent whose remuneration is based at least in part on commissions, or percentages of actual sales. Commission agent typically work as middlemen between sellers and buyers. DEL CREDERE AGENT An agent who guarantees the solvency of the third party with whom the agent makes a contract for the principal. A del credere agent receives possession of the principal\'s goods for purposes of sale and guarantees that anyone to whom the agent sells the goods on credit will pay promptly for them. For this guaranty, the agent receives a higher commission for sales. Note: Ordinary commission is given to the agent as compensation for his effort in the sale of the goods while the guarantee commission is given to the agent for assuming the risk of collection of the selling price. Note: Either the principal or the guarantee commission agent (del credere agent) may sue the buyer who failed to pay. *Article 1908. The commission agent who does not collect the credits of his principal at the time when they become due and demandable shall be liable for damages, unless he proves that he exercised due diligence for that purpose.* General Rule: The commission agent who does not collect the credits of his principal at the time when they become due and demandable shall be liable for damages. Exception: If the commission agent proves that he exercised due diligence for that purpose. *Article 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.* **Lesson 10: Principal\'s Primary Duties to His/Her Agent** =========================================================== OBLIGATIONS OF THE PRINCIPAL Duties of a Principal to an Agent? The terms of an agency may be laid out in the agency agreement. Generally, a principal owes the following duties to the agent: 1. 2. 3. Article 1910 - The have principal must comply with all the contracted obligations which the agent may have contracted within the scope of his authority. Any obligation wherein the agent has exceeded his power, the principal is not bound except when he at ratifies it expressly or tacitly. The general rule is that the principal is responsible for the acts of its agent done within the scope of its authority, and should bear the damage caused to third persons. When the agent exceeds his authority, the agent becomes personally liable for the damage. But even when the agent except his authority, the principal is still solidarily liable together with the agent if the principal allowed the agent to act as though the agent had full powers. In other words, the acts of an agent beyond the scope of his authority do not bind the principal, unless the principal ratifies them, expressly or impliedly. Ratification in agency is the adoption or confirmation by one person of an act performed on his behalf by another without authority. Innocent third persons should not be prejudiced if the principal failed to adopt the needed measures to prevent misrepresentation, much more so if the principal ratified his agent\'s acts beyond the latter\'s authority. The act of the agent is considered that of the principal itself. Qui per alium facit per seipsum facere videtur. \"He who does a thing by an agent is considered as doing it himself.\" Article 1911 - Even when the agent has exceeded his authority, the principal is solidarily liable with the agent if the former allowed the latter to act as though he had full powers. ESTOPPEL A bar that prevents one from asserting a claim or right that contradicts what one has said or done before or what has been legally established as true.  AGENCY BY ESTOPPEL Article 1911 is based on the principle of estoppel, which is necessary for the protection of third persons. It states that the principal is solidarily liable with the agent even when the latter has exceeded his authority, if the principal allowed him to act as though he had full powers. However, for an agency by estoppel to exist, the following must be established: 1. 2. 3. In Litonjua, Jr. v. Eternit Corp., this Court said that \"an agency by estoppel, which is similar to the doctrine of apparent authority, requires proof of reliance upon the representations, and that, in turn, needs proof that the representations predated the action taken in reliance.\" Agency by estoppel means that a defendant will be liable to a plaintiff because the defendant\'s negligence caused the plaintiff to reasonably rely on there being an agency relationship between the defendant and someone who purported to act on behalf of the defendant. Article 1912. The principal must advance to the agent, should the latter so request, the sums necessary for the execution of the agency. Should the agent have advanced them, the principal must reimburse him therefor, even if the business or undertaking was not successful, provided the agent is free from all fault. The reimbursement shall include interest on the sums advanced, from the day on which the advance was made. Article 1913. The principal must also indemnify the agent for all damages which the execution of the agency may have caused the latter without fault or negligence on his part.  Example: P appointed A as his agent to deliver his goods to his clients in various locations in Region 1 to 5. One day, A was sideswiped by a car while delivering goods without negligence on his part. The owner of the car was apprehended. In this case, the principal must indemnify the agent for all damages which have caused A. Article 1914 -  The agent may retain in pledge the things which are the object of the agency until the principal effects the reimbursement and pays the indemnity set forth in the two preceding articles.  Note: The above article speaks of a kind of legal pledge or pledge by operation of laws as the parties did not have a meeting of the minds with regards to pledge. Article 1915 -  If two or more persons have appointed an agent for a common transaction or undertaking, they shall be solidarily liable to the agent for all the consequences of the agency.  Requisites of Solidary Liability:  1. 2. 3. Example: P and Q appointed A to sell the car of P for a selling price of P1,000,000 and the house of Q for a selling price of P1,500,000 for a commission of 10% of the selling price of each. In this case, the liability of P and Q is joint because the agent is not appointed for a common transaction or undertaking. Article 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.  Example: P authorized A to enter into a contract of lease of his house for one year. Afterwards, A entered into a contract of lease with X. After three days from the contract of lease between A and X, P also entered into a contract of lease with Y as P has no knowledge about the contract of A and X. In this case, the contract between A and X shall be preferred as it is of prior date. Article 1917 - In the case referred to in the preceding article, if the agent has acted in good faith, the principal shall be liable in damages to the third person whose contract must be rejected. If the agent acted in bad faith, he alone shall be responsible. Example: P authorized A to enter into a contract of lease of his house for one year. Afterwards, P entered into a contract of lease with X. After three days from the contract of lease between P and X, A also entered into a contract of lease with Y. In this case, the contract between P and X shall be preferred as it is of prior date. In this case, If A acted in good faith, P shall be liable for damages to y whose contract must be rejected. If A acted in bad faith, he alone shall be responsible for damages. Article 1918 - The principal is not liable for the expenses incurred by the agent in the following cases: 1. 2. 3. 4. How is agency terminated? An agency may be terminated by agreement such as by the accomplishment of the object or purpose of the agency. \[Article 1919 (5) (6), Civil Code\] Furthermore, it may be terminated by subsequent acts of the parties which may either be by the act of both parties or by mutual consent or by the unilateral act of one of them such as by its revocation or withdrawal of the agent. \[Article 1919 (1) (2), Civil Code\] In addition, the agency may likewise be terminated or extinguished by operation of law, such as death, civil interdiction, insanity or insolvency of the principal or agent or the dissolution of the principal corporation \[Article 1919 (3) (4), Civil Code\] **Lesson 11: Pledge, Mortgage and Antichresis** =============================================== *1.* *That they be constituted to secure the fulfillment of a principal obligation;* *2.* *That the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged;* *3.* *That the persons constituting the pledge or mortgage have the free disposal of their property, and in the absence thereof, that they be legally authorized for the purpose.* Note: PLEDGE MORTGAGE Kinds of Real Mortgage 1\. Voluntary or Conventional- It is created by agreement between the parties 2\. Legal Mortgage- It is required by law 3\. Equitable Mortgage- One which reveals an intent to make the property a security, even if the contract lacks the proper formalities of real estate mortgage. REAL ESTATE MORTGAGE +-----------------------------------+-----------------------------------+ | 1. | 1. | +-----------------------------------+-----------------------------------+ | 2. | | +-----------------------------------+-----------------------------------+ | 3. | 3\. Must be registered to take | | | effect against of the pledge to | | | bind third persons. | +-----------------------------------+-----------------------------------+ | 4. | 4\. Deficiency can be recovered. | +-----------------------------------+-----------------------------------+ | 5. | 5\. Excess of the proceeds of | | | sale belongs to the mortgagor | | | even if there is no stipulation | | | to that effect. | +-----------------------------------+-----------------------------------+ | 6. | 6\. Mortgagee cannot appropriate | | | the thing mortgaged. | +-----------------------------------+-----------------------------------+ ANTICHRESIS LAW AND LEGAL DEFINITION CHARACTERISTICS: 1\. That it be constituted to secure the fulfillment of a principal obligation; 2\. That the debtor be the absolute owner of the immovable property (a third person, not a party to the principal obligation, may be the owner of the immovable given as security); 3\. That the debtor must have the free disposal of such immovable property, and in the absence thereof, that he be duly authorized for the purpose; TWO CONTRACTUAL MODES BY WHICH PERSONAL PROPERTY CAN BE USED TO SECURE A PRINCIPAL OBLIGATION Debtor retains BENEFICIAL INTEREST in mortgage -------------------------------------------------------------------------- -- 1\. Thing is delivered to the creditor or a third person by common agreement. 2\. Must be in a public instrument showing a description of the thing pledge and the date of the pledge to bind third persons. 3\. Deficiency cannot be recovered even if there is a stipulation. 4\. Excess of the proceeds of the sale is retained by the pledgee unless there is a stipulation giving it to the pledgor and in case of legal pledge. 5\. Pledgee may appropriate the thing pledge if the same is not sold in two public mortgaged. auctions. -------------------------------------------------------------------------- -- Lesson 12: **INTELLECTUAL PROPERTY OFFICE** =========================================== Sec. 4. Definitions. - 4.1. The term \"intellectual property rights\" consists of: 4.2. The term \"technology transfer arrangements\" refers to contracts or agreements involving the transfer of systematic knowledge for the manufacture of a product, the application of a process, or rendering of a service including management contracts; and the transfer, assignment or licensing of all forms of intellectual property rights, including licensing of computer software except computer software developed for mass market. Sec. 5. Functions of the Intellectual Property Office (IPO). - 5.1. To administer and implement the State policies declared in this Act, there is hereby created the Intellectual Property Office (IPO) which shall have the following functions: e\. Publish regularly in its own publication the patents, marks, utility models and industrial designs, issued and approved, and the technology transfer arrangements registered; ![](media/image1.png) Sec.6.The Organizational Director General Structure of the IPO. 6.1. The Office shall be headed by a Director General who shall be assisted by two (2) Deputies Director General. 6.2. The Office shall be divided into seven (7) Bureaus, each of which shall be headed by a Director and assisted by an Assistant Director. These Bureaus are: \[a\] Manage and direct all functions and activities of the Office, including the promulgation of rules and regulations to implement the objectives, policies, plans, programs and projects of the Office: Provided, that in the exercise of the authority to propose policies and standards in relation to the following: \(2) coordination with other agencies of government in relation to the enforcement of intellectual property rights; \(4) the establishment of fees for the filing and processing of an application for a patent, utility model or industrial design or mark or a collective mark, geographic indication and other marks of ownerships, and for all other services performed and materials furnished by the Office, the Director General shall be subject to the supervision of the Secretary of Trade and Industry. **7.2.** **Qualifications. -** The Director General and the Deputies Director General must be natural born citizens of the Philippines, at least thirty-five (35) years of age on the day of their appointment, holders of a college degree, and of proven competence, integrity, probity and independence: Provided, That the Director General and at least one (1) Deputy Director General shall be members of the Philippine Bar who have engaged in the practice of law for at least ten **7.3.** **Term of Office. -** The Director General and the Deputies Director General shall be appointed by the President for a term of five (5) years and shall be eligible for reappointment only once: Provided, that the first Director General shall have a first term of seven (7) years. Appointment to any vacancy shall be only for the unexpired term of the predecessor. **7.4.** **The Office of the Director General,** - The Office of the Director General shall consist of the Director General and the Deputies Director General, their immediate staff and Offices and Services that the Director General will set up to support directly the Office of the Director General. 9.1 Search and examination of the applications for registration of marks geographic indications and other marks of ownership and the issuance of the certificates of registration; and 10.1. Hear and decide opposition to the application for registration of marks; cancellation of trademarks; subject to the provisions of Section 64, cancellation of patents, utility models, and industrial designs; and petitions for compulsory licensing of patents; a\. Maintain and upkeep classification systems whether they be national or international such as the International Patent Classification (IPC) system; 11.3. Educate the public and build awareness on intellectual property through the conduct of seminars and lectures and other similar activities; 11.6 Promote the use of patent information as an effective tool to facilitate the development of technology in the country; 11.7 Provide technical, advisory, and other services relating to the licensing and promotion of technology, and carry out an efficient and effective program for technology transfer; and 11.8 Register technology transfer arrangement, and settle disputes involving technology transfer payments. Sec. 13.The Administrative, Financial and Human Resource Development Service Bureau. - \(a) Provide services relative to procurement and allocation of supplies and equipment, transportation, messengerial work, cashiering, payment of salaries and other Office\'s obligations, office maintenance, proper safety and security, and other utility services; and comply with government regulatory requirements in the areas of performance appraisal, compensation and benefits, employment records and reports; \(c) Publish patent applications and grants, trademark applications, and registration of marks, industrial designs, utility models, geographic indication, and lay-out designs of integrated circuits registrations. 13.2. The Patent and Trademark Administration Services shall perform the following functions among others: \(a) Maintain registers of assignments, mergings, licenses, and bibliographic on patents and trademarks; \(b) Collect maintenance fees, issues certified copies of documents in its custody and perform similar other activities; and 13.3. The Financial Service shall formulate and manage a financial program to ensure availability and proper utilization of funds; provide for an effective monitoring system of the financial operations of the Office; and 13.4. The Human Resource Development Service shall design and implement human resource development plans and programs for the personnel of the Office; provide for present and future manpower needs of the organization; maintain high morale and favorable employee attitudes towards the organization through the continuing design and implementation of employee development programs. Section 14. Use of Intellectual Property Rights Fees by the IPO. -- 14.1. For a more effective and expeditious implementation of this Act, the Director General shall be authorized to retain, without need of a separate approval from any government agency, and subject only to the existing accounting and auditing rules and regulations, all the fees, fines, royalties and other charges, collected by the Office under this Act and the other laws that the Office will be mandated to administer, for use in its operations, like upgrading of its facilities, equipment outlay, human resource development, and the acquisition of the appropriate office space, among others, to improve the delivery of its services to the public. This amount, which shall be in addition to the Office\'s annual budget, shall be deposited and maintained in a separate account or fund, which may be used or disbursed directly by the Director General. **LESSON 13: PATENTS LAW** ========================== THE LAW ON PATENTS A Patent is a monopoly granted only for specific purposes and objectives. Thus, its procedures must be complied with to attain its social objective. Any request for leniency in its procedures should be taken in this context. CHAPTER I GENERAL PROVISIONS Section 20. Definition of Terms Used in Part II, The Law on Patents. - As used in Part II, the following terms shall have the following meanings: 20.1. \"Bureau\" means the Bureau of Patents, 20.2. \"Director\" means the Director of Patents; 20.3. \"Regulations\" means the Rules of Practice in Patent Cases formulated by the Director of Patents and promulgated by the Director General; 20.4. \"Examiner\" means the patent examiner; 20.5. \"Patent application\" or \"application\" means an application for a patent for an invention except in Chapters XII and XIII, where \"application\" means an application for a utility model and an industrial design, respectively; and 20.6. \"Priority date\" means the date of filing of the foreign application for the same invention referred to in Section 31 of this Act. CHAPTER II PATENTABILITY Section 21. Patentable Inventions. - Any technical solution of a problem in any field of human activity which is new, involves an inventive step and is industrially applicable shall be Patentable. It may be, or may relate to, a product, or process, or an improvement of any of the foregoing. (Sec. 7, R.A. No. 165a) Section 22. Non-Patentable Inventions. - The following shall be excluded from patent protection: 22.1. Discoveries, scientific theories and mathematical methods; 22.2. Schemes, rules and methods of performing mental acts, playing games or doing business, and programs for computers; 22.3. Methods for treatment of the human or animal body by surgery or therapy and diagnostic methods practiced on the human or animal body. This provision shall not apply to products and composition for use in any of these methods; 22.4. Plant varieties or animal breeds or essentially biological process for the production of plants or animals. This provision shall not apply to micro-organisms and non-biological and microbiological processes. Provisions under this subsection shall not preclude Congress to consider the enactment of a law providing sui generis protection of plant varieties and animal breeds and a system of community intellectual rights protection: 22.5. Aesthetic creations; and 22.6. Anything which is contrary to public order or morality. (Sec. 8, R.A. No. 165a) Section 23. Novelty.. - An invention shall not be considered new if it forms part of a prior art. (Sec. 9, R.A. No. 165a) The Element of Novelty The element of novelty is an essential requisite of the patentability of an invention or discovery. If a device or process has been known or used by others prior to its invention or discovery by the applicant, an application for a patent therefor should be denied; and if the application has been granted, the court, in a judicial proceeding in which the validity of the patent is drawn in question, will hold it void and ineffective. Section 24. Prior Art. - Prior art shall consist of: 24.1. Everything which has been made available to the public anywhere in the world, before the filing date or the priority date of the application claiming the invention; and 24.2. The whole contents of an application for a patent, utility model, or industrial design registration, published in accordance with this Act, filed or effective in the Philippines, with a filing or priority date that is earlier than the filing or priority date of the application: Provided, That the application which has validly claimed the filing date of an earlier application under Section 31 of this Act, shall be prior art with effect as of the filing date of such earlier application: Provided further, That the applicant or the inventor identified in both applications are not one and the same. (Sec. 9, R.A. No. 165a) Section 25. Non-Prejudicial Disclosure.. -- 25.1. The disclosure of information contained in the application during the twelve (12) months preceding the filing date or the priority date of the application shall not prejudice the applicant on the ground of lack of novelty if such disclosure was made by: \(a) The inventor; \(b) A patent office and the information was contained (a) in another application filed by the inventor and should not have been disclosed by the office, or (b) in an application filed without the knowledge or consent of the inventor by a third party which obtained the information directly or indirectly from the inventor; or \(c) A third party which obtained the information directly or indirectly from the inventor. 25.2. For the purposes of Subsection 25.1, \"inventor\" also means any person who, at the filing date of application, had the right to the patent. Section 26. Inventive Step. - An invention involves an inventive step if, having regard to prior art, it is not obvious to a person skilled in the art at the time of the filing date or priority date of the application claiming the invention. Section 27. Industrial Applicability. - An invention that can be produced and used in any industry shall be industrially applicable. CH

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