RANDOM Q&As ON

REGULATORY
FRAMEWORK ON
BUSINESS TRANSACTIONS
(PART 3)
based on lectures by
Atty. Dante de la Cruz, CPA (CPAR; 2016)

Q: IF THE TERMS OF THE

CONTRACT ARE VAGUE, HOW
CAN THE INTENTIONS OF THE
PARTIES BE DISCERNED?
A: As a general rule, the manifest
intentions and their subsequent acts
following the creation of the
contract must be referred to. If not
apparent, refer to the written
provisions. If still vague, see the
printed ones. Particularly in
negotiable instruments, words must
be referred first over figures
As to gratuitous contracts (those
involving no exchange such as
donations), misinterpretation of
contracts favor those transmitting
the least rights. Thus, if vague as to
being a commodatum or donation,
the contract will be treated as if
commodatum since commodatum
transmits rights the least.
Commodatum is merely the loan of
the use of the thing, while donation
confers ownership over the thing
As to onerous contracts (those
involving an exchange such as sale
or loan), misinterpretation favor
contracts providing more benefit to
the parties involved. Thus, if the
contract is unclear as to the rate
and term of interest, the larger rate
and the longer term shall be
considered the terms of the
contract

of mutuum the loan of money and

other fungible goods for their
consumption, such as food
Food can be the subject matter of
commodatum as long as it is not
consumed and it is returned to the
bailor, such as when it is merely for
display

Q: IS AN ORALLY-CONSTITUTED
PARTNERSHIP STILL VALID EVEN
IF REAL PROPERTY WAS
CONTRIBUTED?
A: Generally, partnerships can be
made orally, the contract being
perfected on the consent of the
parties alone. If the parties
contribute real property regardless
of value, the partnership must be
turned into writing, otherwise void
The partnership is void as to third
persons, which means it cannot
validly make transactions with
them. But the partnership remains
valid between the partners

Q: DIFFERENTIATE REAL ESTATE

MORTGAGE AND CHATTEL
MORTGAGE
Q: CAN FOOD BE THE SUBJECT
MATTER OF COMMODATUM?
A: As mentioned, commodatum is
the loan of the use of something,
where the debtor/bailee promises
to return the thing with the same
quality as it was given to him.
Normally, food is the subject matter

A: Both are credit transactions

involving real and personal
property, respectively, as security
to a loan. Also, both doesnt require
actual delivery of the subject matter
otherwise, the transaction would
become a pledge. Pactum de non
aliendo is void in both mortgages

However, real estate mortgage is

merely consensual it doesnt
require documents to be valid. To
bind third persons to the contract,
the mortgage must be registered.
On the other hand, chattel
mortgages are formal contracts,
requiring registration in the Registry
and in an Affidavit of Good Faith

Q: CAN A THIRD PERSON

MORTGAGE HIS PROPERTY IN
FAVOR OF A DEBTOR?
A: This is validly allowed under
credit transaction laws. In case the
debtor fails to pay, the creditor can
even foreclose (sell) the third
persons property. However, if the
proceeds from the sale is
insufficient to cover the loan, the
creditor cannot claim from the third
person since he is not his debtor
As a general rule under mortgages,
deficiencies in the proceeds can be
recovered unless stipulated/even if
not stipulated

of kind, the partnership will always

be dissolved
If the contribution was lost after
delivery, only those contributed in
usufruct will cause dissolution i.e.
those whose use is contributed in
the partnership, not ownership

Q: CAN CORPORATIONS EXTEND

THEIR TERMS INDEFINITELY?

A: Corporations, through a 2/3

favorable vote of voting
shareholders and majority of Board
members, can indefinitely extend
their 50-year lives. However, this
can only be done within 5 years
before the term expiration
Term shortening, though, can be
done anytime

Q: IF AN AGENT SELLS A THING

BELONGING TO HIS PRINCIPAL
WITHOUT THE LATTERS
CONSENT, IS THE PRINCIPAL
BOUND?
A: Generally, principals are bound
for every act of their agents within
their authority. However, especially
in a sale, agents must disclose their
principal so as not to be liable to
the transaction themselves

Q: WHEN WILL LOSS OF

PROPERTY CAUSE THE
DISSOLUTION OF PARTNERSHIP?

A: Loss of partner contribution into

the common fund can cause the
dissolution of the partnership
depending on when the loss
occurred and the kind of
contribution. When the loss
occurred before delivery, regardless

There is one exception. If the agent

sells something that belongs to the
principal, despite lack of disclosure
of the principals existence, the
principal is bound to the sale