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A. Sales

1. General provisions

a. CONCEPT

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. (Article 1458, Civil Code)

1) Absolute or conditional

A contract of sale may be absolute or conditional. (Paragraph 2, Article 1458, Ibid.)

2) Determinate thing

a) Particularly designated or physically segregated

A thing is determinate when it is particularly designated or physically segregated from all other of the same class.(Article 1460, Ibid.)

b) Capable of being made determinate at time of contract

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. (Paragraph 2, Article 1460, Ibid.)

c) Must be licit

The thing must be licit and the seller must have a right to transfer the ownership thereof at the time it is delivered. (Article 1459, Ibid.)

d) Have potential existence

Things having a potential existence may be the object of the contract of sale. (Article 1461, Ibid.)

(1) Mere hope or expectancy

The efficacy of the sale of a mere hope or expectancy is deemed subject to the condition that the thing will come into existence. (Paragraph 2, Article 1461, Ibid.)

(2) Vain hope or expectancy

The sale of a vain hope or expectancy is void. (Paragraph 3, Article 1461, Ibid.)

3) Price certain

In order that the price may be considered certain, it shall be sufficient that it be so with reference to another thing certain, or that the determination thereof be left to the judgment of a special person or persons. (Article 1469, Ibid.)

a) When inefficacious

Should such person or persons be unable or unwilling to fix the price, the contract shall be inefficacious, unless the parties subsequently agree upon the price. (Paragraph 2, Ibid.)

b) Bad faith or mistake

If the third person or persons acted in bad faith or by mistake, the courts may fix the price. (Paragraph 3, Ibid.)

c) Remedies of party not in fault

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 may be. (Paragraph 4, Ibid.)

d) Gross in adequacy

Gross inadequacy of price does not affect a contract of sale, except as it may indicate a defect in the consent, or that the parties really intended a donation or some other act or contract. (Article 1470, Ibid.)

e) Simulated price

If the price is simulated, the sale is void, but the act may be shown to have been in reality a donation, or some other act or contract. (Article 1471, Ibid.)

f) Securities, grain, liquids, etc.

The price of securities, grain, liquids, and other things shall also be considered certain, when the price fixed is that which the thing sold would have on a definite day, or in a particular exchange or market, or when an amount is fixed above or below the price on such day, or in such exchange or market, provided said amount be certain. (Article 1472, Ibid.)

g) Fixing of price

The fixing of the price can never be left to the discretion of one of the contracting parties. However, if the price fixed by one of the parties is accepted by the other, the sale is perfected. (Article 1473, Ibid.)

h) When delivery has been made; reasonable price

Where the price cannot be determined in accordance with the preceding articles, or in any other manner, the contract is inefficacious. However, if the thing or any part thereof has been delivered to and appropriated by the buyer he must pay a reasonable price therefor. What is a reasonable price is a question of fact dependent on the circumstances of each particular case. (Article 1474, Ibid.)

i) Reciprocally demandable: promise to buy and sell a determinate thing for a price certain

A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. (Article 1479, Ibid.)

An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price. (Paragraph 2, Article 1479, Ibid.)

In order that said unilateral promise may be binding upon the promisor, Article 1479 requires the concurrence of a condition, namely, that the promise be “supported by a consideration distinct from the price. Accordingly, the promisee can not compel the promisor to comply with the promise, unless the former establishes the existence of said distinct consideration. In other words, the promisee has the burden of proving such consideration. (Sanchez v. Rigos, En Banc, G.R. No. L-25494, 14 June 1972)

There is no question that under article 1479 of the new Civil Code “an option to sell,” or “a promise to buy or to sell,” as used in said article, to be valid must be “supported by a consideration distinct from the price.” This is clearly inferred from the context of said article that a unilateral promise to buy or to sell, even if accepted, is only binding if supported by consideration. In other words, “an accepted unilateral promise can only have a binding effect if supported by a consideration” which means that the option can still be withdrawn, even if accepted, if the same is not supported by any consideration. It is not disputed that the option is without consideration. It can therefore be withdrawn notwithstanding the acceptance of it by appellee. (Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., En Banc, G.R. No. L-7382, 29 June 1955)

4) Subject to resolutory condition

Things subject to a resolutory condition may be the object of the contract of sale. (Article 1465, Ibid.)

b. PERFECTION OF CONTRACT OF SALE

The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. (Article 1475, Ibid.)

1) Reciprocal demand

From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts. (Paragraph 2, Article 1475, Ibid.)

2) Consensual, formal, combination

Subject to the provisions of the Statute of Frauds and of any other applicable statute, a contract of sale may be made in writing, or by word of mouth, or partly in writing and partly by word of mouth, or may be inferred from the conduct of the parties. (Article 1483, Ibid.)

c. STATUS OF GOODS

1) Existing goods

2) Future goods

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, which herein are called “future goods.” (Article 1462, Ibid.)

There may be a contract of sale of goods, whose acquisition by the seller depends upon a contingency which may or may not happen. (Paragraph 2, Article 1462, Ibid.)

d. UNDIVIDED INTEREST

The sole owner of a thing may sell an undivided interest therein. (Article 1453, Ibid.)

1) Fungible goods

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. (Article 1464, , Ibid.)

a) Owner in common

 By such a sale the buyer becomes owner in common of such a share of the mass as the number, weight or measure bought bears to the number, weight or measure of the mass. If the mass contains less than the number, weight or measure bought, the buyer becomes the owner of the whole mass and the seller is bound to make good the deficiency from goods of the same kind and quality, unless a contrary intent appears. (Article 1464, , Ibid.)

e. AS COMPARED TO OTHER SPECIAL CONTRACTS

1) Sale v. Agency

In construing a contract containing provisions characteristic of both the contract of sale and of the contract of agency to sell, the essential clauses of the whole instrument shall be considered. (Article 1466, Ibid.)

2) Sale v. Piece of work

A contract for the delivery at a certain price of an article which the seller 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. (Article 1467, Ibid.)

3) Sale v. Barter

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 intention 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. (Article 1468, Ibid.)

f. SALE BY AUCTION

In the case of a sale by auction:

1) Where goods are put up for sale by auction in lots, each lot is the subject of a separate contract of sale.

2) A sale by auction is perfected when the auctioneer announces its perfection by the fall of the hammer, or in other customary manner. Until such announcement is made, any bidder may retract his bid; and the auctioneer may withdraw the goods from the sale unless the auction has been announced to be without reserve.

3) A right to bid may be reserved expressly by or on behalf of the seller, unless otherwise provided by law or by stipulation.

4) Where notice has not been given that a sale by auction is subject to a right to bid on behalf of the seller, it shall not be lawful for the seller to bid himself or to employ or induce any person to bid at such sale on his behalf or for the auctioneer, to employ or induce any person to bid at such sale on behalf of the seller or knowingly to take any bid from the seller or any person employed by him. Any sale contravening this rule may be treated as fraudulent by the buyer. (Article 1476, Ibid.)

g. INJURY OR BENEFIT

Any injury to or benefit from the thing sold, after the contract has been perfected, from the moment of the perfection of the contract to the time of delivery, shall be governed by Articles 1163 to 1165, and 1262. (Article 1480, Ibid.)

Cross-referenced article/s

Every person obliged to give something is also obliged to take care of it with the proper diligence of a good father of a family, unless the law or the stipulation of the parties requires another standard of care. (Article 1163, Ibid.)

The creditor has a right to the fruits of the thing from the time the obligation to deliver it arises. However, he shall acquire no real right over it until the same has been delivered to him. (Article 1164, Ibid.)

When what is to be delivered is a determinate thing, the creditor, in addition to the right granted him by Article 1170, may compel the debtor to make the delivery. (Article 1165, Ibid.)

If the thing is indeterminate or generic, he may ask that the obligation be complied with at the expense of the debtor. (Paragraph 2, Article 1165, Ibid.)

If the obligor delays, or has promised to deliver the same thing to two or more persons who do not have the same interest, he shall be responsible for any fortuitous event until he has effected the delivery. (Paragraph 3, Article 1165, Ibid.)

An obligation which consists in the delivery of a determinate thing shall be extinguished if it should be lost or destroyed without the fault of the debtor, and before he has incurred in delay. (Article 1262, Ibid.)

When by law or stipulation, the obligor is liable even for fortuitous events, the loss of the thing does not extinguish the obligation, and he shall be responsible for damages. The same rule applies when the nature of the obligation requires the assumption of risk. (Paragraph 2, Article 1262, Ibid.))

1) Applies to Fungible things

The above rules shall apply to the sale of fungible things, made independently and for a single price, or without consideration of their weight, number, or measure. (Paragraph 2, Article 1480, Ibid.)

a) When risk is imputed to buyer

Should fungible things be sold for a price fixed according to weight, number, or measure, the risk shall not be imputed to the buyer until they have been weighed, counted, or measured and delivered, unless the latter has incurred in delay. (Paragraph 3, Article 1480, Ibid.)

h. SALE OF GOODS BY DESCRIPION OR SAMPLE

In the contract of sale of goods by description or by sample, the contract may be rescinded if the bulk of the goods delivered do not correspond with the description or the sample, and if the contract be by sample as well as description, it is not sufficient that the bulk of goods correspond with the sample if they do not also correspond with the description. (Article 1481, Ibid.)

1) Reasonable opportunity to compare

The buyer shall have a reasonable opportunity of comparing the bulk with the description or the sample. (Paragraph 2, Article 1481, Ibid.)

i. EARNEST MONEY

1) Part of price, proof of perfection

Whenever earnest money is given in a contract of sale, it shall be considered as part of the price and as proof of the perfection of the contract. (Article 1482, Ibid.)

j. SALE OF PERSONAL PROPERTY BY INSTALLMENTS

1) Rights of seller

In a contract of sale of personal property the price of which is payable in installments, the seller may exercise any of the following remedies:

1) Exact fulfillment of the obligation, should the buyer fail to pay;

2) Cancel the sale, should the buyer’s failure to pay cover two or more installments;

3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the buyer’s failure to pay cover two or more installments. In this case, he shall have no further action against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be void. (Article 1484, Ibid.)

2) When applicable to leases of personal property

Art. 1485. The preceding article shall be applied to contracts purporting to be leases of personal property with option to buy, when the lessor has deprived the lessee of the possession or enjoyment of the thing. (Article 1485, Ibid.)

3) Stipulation on forfeiture

In the case referred to in two preceding articles, a stipulation that the installments or rents paid shall not be returned to the buyer or lessee shall be valid insofar as the same may not be unconscionable under the circumstances. (Article 1486, Ibid.)

k. EXPENSE FOR EXECUTION AND REGISTRATION OF SALE

The expenses for the execution and registration of the sale shall be borne by the seller, unless there is a stipulation to the contrary. (Article 1487, Ibid.)

2. Parties

a. PARTIES TO A CONTRACT OF SALE

In general, the parties to a contract of sale are: (a) the seller, and (b) the buyer.

b. CAPACITY TO BUY OR SELL

All persons who are authorized in the Civil Code to obligate themselves, may enter into a contract of sale, saving the modifications contained in the following articles. (Article 1489, Ibid.)

1) Minors or incapacitated persons

Where necessaries are those sold and delivered to a minor or other person without capacity to act, he must pay a reasonable price therefor. Necessaries are those referred to in Article 290. (Paragraph 2, Article 1489, Ibid.)

Cross-referenced article/s

Support is everything that is indispensable for sustenance, dwelling, clothing and medical attendance, according to the social position of the family. (Article 290, Ibid.)

Support also includes the education of the person entitled to be supported until he completes his education or training for some profession, trade or vocation, even beyond the age of majority. (Paragraph 2, Article 290, Ibid.)

2) Husband and wife

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 or property under Article 191. (Article 1490, Ibid.)

a) Applies to sales in legal redemption, compromises, renunciation

The above prohibition is applicable to sales in legal redemption, compromises and renunciations. (Article 1492, Ibid.)

3) Disqualifed persons (or persons with conflict of interest)

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 intrusted 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. (Article 1491, Ibid.)

a) Applies to sales in legal redemption, compromises, renunciation

The above prohibition is applicable to sales in legal redemption, compromises and renunciations. (Article 1492, Ibid.)

3. Obligations of the seller

a. OBLIGATIONS OF THE SELLER

1) To transfer ownership and deliver thing sold

The seller is bound to transfer the ownership of and deliver the object of the sale. (Article 1495, Ibid.)

2) To warrant object of sale

The seller is bound to warrant the thing which is the object of the sale. (Ibid.)

b. TRANSFER OF OWNERSHIP AND DELIVERY OF THE THING SOLD

1) Concept

The thing sold shall be understood as delivered, when it is placed in the control and possession of the buyer. (Article 1497, Ibid.)

a) Delivery transfers ownership

The ownership of the thing sold is acquired by the buyer 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 seller to the buyer. (Article 1496, Ibid.)

NB: For additional discussions, see: Part IX – Special Contracts > A. Sales > 5. Transfer of Ownership

c. CONDITIONS AND WARRANTIES

1) Conditions

a) Non-performance of condition

Where the obligation of either party to a contract of sale is subject to any condition which is not performed, such party may may:

1) Refuse to proceed with the contract; or

2) Waive performance of the condition. (Article 1545, Ibid.)

(1) If only one party promised the condition

If the other party has promised that the condition should happen or be performed, the first party may also treat the non-performance of the condition as a breach of warranty. (Article 1545, Ibid.)

b) When seller’s obligation to deliver treated as a condition on the buyer’s obligation

Where the ownership in the thing has not passed, the buyer may treat the fulfillment by the seller of his obligation to deliver the same as described and as warranted expressly or by implication in the contract of sale as a condition of the obligation of the buyer to perform his promise to accept and pay for the thing. (Paragraph 2, Article 1545, Ibid.)

2) Warranties

A warranty is a statement or representation made by the seller of goods – contemporaneously and as part of the contract of sale – that has reference to the character, quality or title of the goods; and is issued to promise or undertake to insure that ce1iain facts are or shall be as the seller represents them. (Philippine Steel Coating Corp. v. Quinones, G.R. No. 194533, 19 April 2017)

A warranty is not necessarily written. It may be oral as long as it is not given as a mere opinion or judgment. Rather, it is a positive affirmation of a fact that buyers rely upon, and that influences or induces  them to purchase the product. (Ibid.)

NB: For additional discussions, see: Part IX – Special Contracts > A. Sales > 8. Warranties

d. RIGHTS OF THE SELLER (SELLER)

1) To sue for rescission

Should the seller have reasonable grounds to fear the loss of immovable property sold and its price, he may immediately sue for the rescission of the sale. (Article 1591, Ibid.)

Should such ground not exist, the provisions of Article 1191 shall be observed. (Paragraph 2, Article 1591, Ibid.)

Cross-reference article/s

The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.

This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law. (Article 1191, Ibid.)

a) Movable

With respect to movable property, the rescission of the sale shall of right take place in the interest of the seller, if the buyer, 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. (Article 1593, Ibid.)

4. Obligations of the buyer

a. TO PAY PRICE OF THE THING SOLD

The buyer is bound to pay the price of the thing sold at the time and place stipulated in the contract. (Article 1582, Ibid.)

b. TO ACCEPT DELIVERY

1) At time and place stipulated

The buyer is bound to accept delivery at the time and place stipulated in the contract.(Article 1582, Ibid.)

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. (Paragraph 2, Article 1582, Ibid.)

2) No delivery by installments

GENERAL RULE: The buyer of goods is not bound to accept delivery thereof by installments. (Article 1583, Ibid.)

EXCEPTION: Unless otherwise agreed… (Ibid.)

a) If delivery by installments is stipulated

Where there is a contract of sale of goods to be delivered by stated installments, 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 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. (Paragraph 2, Article 1583, Ibid.)

3) Reasonable opportunity to examine

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. (Article 1584, Ibid.)

a) Reasonable opportunity to examine

GENERAL RULE: … 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. (Paragraph 2, Article 1584, Ibid.)

EXCEPTION: Unless otherwise agreed… (Ibid.)

4) Collect upon delivery (a.k.a. payment upon delivery)

GENERAL RULE: 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. (Paragraph 3, Article 1584, Ibid.)

EXCEPTION: … in the absence of agreement or usage of trade permitting such examination. (Ibid.)

5) When buyer is deemed to have accepted the goods

1) Express acceptance

2) Tacit acceptance

3) Lapse of reasonable time

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. (Article 1585, Ibid.)

6) Acceptance by buyer has no effect on seller’s promise or warranty

GENERAL RULE: … 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.

EXCEPTIONS:

1) In the absence of express or implied agreement of the parties,

2) 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. (Article 1586, Ibid.)

7) When buyer has right to refuse acceptance

GENERAL RULE: …. 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. (Article 1587, Ibid.)

EXCEPTION: Unless otherwise agreed… (Ibid.)

8) When buyer’s refusal is unjustified

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.(Article 1588, Ibid.)

Cross-referenced article/s

Art. 1523. Where, in pursuance of a contract of sale, the seller is authorized or required to send the goods to the buyer, delivery of the goods to a carrier, whether named by the buyer or not, for the purpose of transmission to the buyer is deemed to be a delivery of the goods to the buyer, except in the case provided for in Article 1503, first, second and third paragraphs, or unless a contrary intent appears.(Article 1523, Ibid.)

When there is a contract of sale of specific goods, the seller may, by the terms of the contract, reserve the right of possession or ownership in the goods until certain conditions have been fulfilled. The right of possession or ownership may be thus reserved notwithstanding the delivery of the goods to the buyer or to a carrier or other bailee for the purpose of transmission to the buyer.(Article 1503, Ibid.)

Where goods are shipped, and by the bill of lading the goods are deliverable to the seller or his agent, or to the order of the seller or of his agent, the seller thereby reserves the ownership in the goods. But, if except for the form of the bill of lading, the ownership would have passed to the buyer on shipment of the goods, the seller’s property in the goods shall be deemed to be only for the purpose of securing performance by the buyer of his obligations under the contract. (Paragraph 2, Article 1503, Ibid.)

Where goods are shipped, and by the bill of lading the goods are deliverable to order of the buyer or of his agent, but possession of the bill of lading is retained by the seller or his agent, the seller thereby reserves a right to the possession of the goods as against the buyer. (Paragraph 3, Article 1503, Ibid.)

c. TO PAY INTEREST

The buyer 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. (Article 1589, Ibid.)

d. RIGHTS OF THE BUYER

1) To suspend payment

Should the buyer 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 seller 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 buyer shall be bound to make the payment. (Article 1590, Ibid.)

A mere act of trespass shall not authorize the suspension of the payment of the price.(Ibid.)

2) To pay for immovable even after expiration

GENERAL RULE: 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 buyer may pay, even after the expiration of the period. (Article 1592, Ibid.)

EXCEPTION: … 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. (Article 1592, Ibid.)

5. Transfer of ownership

a. DELIVERY TRANSFERS OWNERSHIP

The ownership of the thing sold shall be transferred to the buyer upon the actual or constructive delivery thereof. (Article 1477, Ibid.)

1) Condition to pay full price

The parties may stipulate that ownership in the thing shall not pass to the purchaser until he has fully paid the price. (Article 1478, Ibid.)

2) When seller has no obligation to deliver the goods

The seller shall not be bound to deliver the thing sold, if:

1) The buyer has not paid him the price (Article 1524, Ibid.);

2) If no period for the payment has been fixed in the contract. (Ibid.); or

3) In case the buyer should lose the right to make use of the terms as provided in Article 1198. (Article 1536, Ibid.)

Cross-referenced article/s

The debtor shall lose every right to make use of the period:

1) When after the obligation has been contracted, he becomes insolvent, unless he gives a guaranty or security for the debt;

2) When he does not furnish to the creditor the guaranties or securities which he has promised;

3) When by his own acts he has impaired said guaranties or securities after their establishment, and when through a fortuitous event they disappear, unless he immediately gives new ones equally satisfactory;

4) When the debtor violates any undertaking, in consideration of which the creditor agreed to the period;

5) When the debtor attempts to abscond. (Art. 1198, Ibid.)

3) When seller is obligated to deliver the goods

The seller is bound to deliver the thing sold and its accessions and accessories in the condition in which they were upon the perfection of the contract. (Article 1537, Ibid.)

All the fruits shall pertain to the buyer from the day on which the contract was perfected. (Paragraph 2, Article 1537, Ibid.)

a) Obligation to deliver

The obligation to deliver the thing sold includes that of placing in the control of the buyer all that is mentioned in the contract, in conformity with the following rules:

If the sale of real estate should be made with a statement of its area, at the rate of a certain price for a unit of measure or number, the seller shall be obliged to deliver to the buyer, if the latter should demand it, all that may have been stated in the contract; but, should this be not possible, the buyer may choose between a proportional reduction of the price and the rescission of the contract, provided that, in the latter case, the lack in the area be not less than one-tenth of that stated. (Paragraph 2, Article 1539, Ibid.)

The same shall be done, even when the area is the same, if any part of the immovable is not of the quality specified in the contract. (Paragraph 3, Article 1539, Ibid.)

The rescission, in this case, shall only take place at the will of the buyer, when the inferior value of the thing sold exceeds one-tenth (1/10) of the price agreed upon. (Paragraph 4, Article 1539, Ibid.)

Nevertheless, if the buyer would not have bought the immovable had he known of its smaller area of inferior quality, he may rescind the sale. (Paragraph 5, Article 1539, Ibid.)

The actions arising from Article 1539 prescribe in six months, counted from the day of delivery. (Article 1543, Ibid.)

(1) If there is a greater area/number in the immovable stated in the contract

If, in the case of the preceding article, there is a greater area or number in the immovable than that stated in the contract, the buyer may accept the area included in the contract and reject the rest. If he accepts the whole area, he must pay for the same at the contract rate. (Article 1540, Ibid.)

(a) For sale of real estate made for a lump sum

In the sale of real estate, made for a lump sum and not at the rate of a certain sum for a unit of measure or number, there shall be no increase or decrease of the price, although there be a greater or less area or number than that stated in the contract. (Article 1542, Ibid.)

(b) For sale of two or more immovables sold for a single price

The same rule shall be applied when two or more immovables are sold for a single price; but if, besides mentioning the boundaries, which is indispensable in every conveyance of real estate, its area or number should be designated in the contract, the seller shall be bound to deliver all that is included within said boundaries, even when it exceeds the area or number specified in the contract; and, should he not be able to do so, he shall suffer a reduction in the price, in proportion to what is lacking in the area or number, unless the contract is rescinded because the buyer does not accede to the failure to deliver what has been stipulated. (Paragraph 2, Article 1542, Ibid.)

The actions arising from Article 1542 shall prescribe in six months, counted from the day of delivery. (Article 1543, Ibid.)

b. MODES OF DELIVERY

1) Legal or constructive delivery

Legal or constructive delivery may be had through any of the following ways:

1) The execution of a public instrument evidencing the sale;

2) Symbolical tradition such as the delivery of the keys of the place where the movable sold is being kept

3) Traditio longa manu or by mere consent or agreement if the movable sold cannot yet be transferred to the possession of the buyer at the time of the sale;

4) Traditio brevi manu if the buyer already had possession of the object even before the sale; and

5) Traditio constitutum possessorium, where the seller remains in possession of the property in a different capacity. (San Lorenzo Development Corporation v. CA, G.R. No. 124242, 21 January 2005)

a) Execution of a public instrument evidencing the sale

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. (Article 1498, Ibid.)

(1) Incorporeal property

With respect to incorporeal property, the provisions of the first paragraph of article 1498 shall govern. In any other case wherein said provisions are not applicable, the placing of the titles of ownership in the possession of the buyer or the use by the buyer of his rights, with the seller’s consent, shall be understood as a delivery. (Articl 1501, Ibid.)

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. (Ibid.)

b) Symbolical tradition

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. (Paragraph 2, Article 1498, Ibid.)

c) Traditio longa manu

The delivery of movable property may likewise be made by the mere consent or agreement of the contracting parties, if the thing sold cannot be transferred to the possession of the buyer at the time of the sale, or if the latter already had it in his possession for any other reason.(Article 1499, Ibid.)

d) Traditio brevi manu

In this form of delivery, the buyer is already in possession of the thing sold due to some other cause such as lease, and the buyer merely remains in possession after the sale is effected, but now in concept of owner. (See Footnote 25 in The Heirs of Escanlar v. CA, G.R. No. 119777, 23 October 1997)

e) Traditio constitutum possessorium

There may also be tradition constitutum possessorium. (Article 1500, Ibid.)

2) Actual delivery

Actual delivery consists in placing the thing sold in the control and possession of the buyer. (San Lorenzo Development Corporation v. CA, G.R. No. 124242, 21 January 2005)

When there is a contract of sale of specific goods, the seller may, by the terms of the contract, reserve the right of possession or ownership in the goods until certain conditions have been fulfilled. The right of possession or ownership may be thus reserved notwithstanding the delivery of the goods to the buyer or to a carrier or other bailee for the purpose of transmission to the buyer. (Article 1503, Ibid.)

a)On sale or return

When goods are delivered to the buyer “on sale or return” to give the buyer an option to return the goods instead of paying the price, the ownership passes to the buyer on delivery, but he may revest the ownership in the seller by returning or tendering the goods within the time fixed in the contract, or, if no time has been fixed, within a reasonable time. (Article 1502, Ibid.)

b)On approval, trial, satisfaction, etc.

When goods are delivered to the buyer on approval or on trial or on satisfaction, or other similar terms, the ownership therein passes to the buyer:

1) When he signifies his approval or acceptance to the seller or does any other act adopting the transaction;

2) If he does not signify his approval or acceptance to the seller, but retains the goods without giving notice of rejection, then if a time has been fixed for the return of the goods, on the expiration of such time, and, if no time has been fixed, on the expiration of a reasonable time. (Paragraph 2, Article 1502, Ibid.)

c)When goods are shipped under a bill of lading

(1) When seller reserves ownership

GENERAL RULE: Where goods are shipped, and by the bill of lading the goods are deliverable to the seller or his agent, or to the order of the seller or of his agent, the seller thereby reserves the ownership in the goods. (Paragraph 2, Article 1503, Ibid.)

EXCEPTION: But, if except for the form of the bill of lading, the ownership would have passed to the buyer on shipment of the goods, the seller’s property in the goods shall be deemed to be only for the purpose of securing performance by the buyer of his obligations under the contract. (Ibid.)

(2) When seller reserves right to possession of the goods

Where goods are shipped, and by the bill of lading the goods are deliverable to order of the buyer or of his agent, but possession of the bill of lading is retained by the seller or his agent, the seller thereby reserves a right to the possession of the goods as against the buyer. (Pargarph 3, Article 1503, Ibid.)

(3) When buyer is bound to return the bill of lading

Where the seller of goods draws on the buyer for the price and transmits the bill of exchange and bill of lading together to the buyer to secure acceptance or payment of the bill of exchange, the buyer is bound to return the bill of lading if he does not honor the bill of exchange, and if he wrongfully retains the bill of lading he acquires no added right thereby. (Paragraph 4, Article 1503, Ibid.)

(4) When buyer obtains ownership in the goods

If, however, the bill of lading provides that the goods are deliverable to the buyer or to the order of the buyer, or is indorsed in blank, or to the buyer by the consignee named therein, one who purchases in good faith, for value, the bill of lading, or goods from the buyer will obtain the ownership in the goods, although the bill of exchange has not been honored, provided that such purchaser has received delivery of the bill of lading indorsed by the consignee named therein, or of the goods, without notice of the facts making the transfer wrongful. (Ibid.

c. RISK OF LOSS OR DAMAGE

1) Where ownership is with the seller

GENERAL RULE: … the goods remain at the seller’s risk until the ownership therein is transferred to the buyer. (Article 1504, Ibid.)

EXCEPTION: Unless otherwise agreed… (Ibid.)

2) Where ownership is with the buyer

GENERAL RULE: … when the ownership therein is transferred to the buyer the goods are at the buyer’s risk whether actual delivery has been made or not. (Ibid.)

EXCEPTIONS: … except that:

1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in pursuance of the contract and the ownership in the goods has been retained by the seller merely to secure performance by the buyer of his obligations under the contract, the goods are at the buyer’s risk from the time of such delivery;

2) Where actual delivery has been delayed through the fault of either the buyer or seller the goods are at the risk of the party in fault. (Ibid.)

3) In case of loss, deterioration, or improvement before delivery

In case of loss, deterioration or improvement of the thing before its delivery, the rules in Article 1189 shall be observed, the seller being considered the debtor. (Article 1538, Ibid.)

Cross-referenced article/s

When the conditions have been imposed with the intention of suspending the efficacy of an obligation to give, the following rules shall be observed in case of the improvement, loss or deterioration of the thing during the pendency of the condition:

1) If the thing is lost without the fault of the debtor, the obligation shall be extinguished;

2) If the thing is lost through the fault of the debtor, he shall be obliged to pay damages; it is understood that the thing is lost when it perishes, or goes out of commerce, or disappears in such a way that its existence is unknown or it cannot be recovered;

3) When the thing deteriorates without the fault of the debtor, the impairment is to be borne by the creditor;

4) If it deteriorates through the fault of the debtor, the creditor may choose between the rescission of the obligation and its fulfillment, with indemnity for damages in either case;

5) If the thing is improved by its nature, or by time, the improvement shall inure to the benefit of the creditor;

6) If it is improved at the expense of the debtor, he shall have no other right than that granted to the usufructuary. (Art. 1189, Ibid.)

d. SELLER’S TITLE IS DEFECTIVE

1) Where seller is not the owner

GENERAL RULE: Where goods are sold by a person who is not the owner thereof, and who does not sell them under authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had,. (Article 1505, Ibid.)

EXCEPTION: … unless the owner of the goods is by his conduct precluded from denying the seller’s authority to sell. (Article 1505, Ibid.)

2) Where seller’s title is voidable

Where the seller of goods has a voidable title thereto, but his title has not been avoided at the time of the sale, the buyer acquires a good title to the goods, provided he buys them in good faith, for value, and without notice of the seller’s defect of title. (Articl 1506, Ibid.

3) Double sale

If the same thing should have been sold to different buyers, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property. (Article 1544, Ibid.)

Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property. (Paragraph 2, Article 1544, Ibid.)

Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good faith. (Paragraph 3, Article 1544, Ibid.)

5-A. ASSIGNMENT OF CREDITS AND OTHER INCORPOREAL RIGHTS Added

a. CONCEPT

1) Perfection of assignment

An assignment of credits and other incorporeal rights shall be perfected in accordance with the provisions of Article 1475. (Article 1624, Ibid.)

Cross-referenced article/s

The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. (Art. 1475, Ibid.)

From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts. (Paragraph 2, Art. 1475, Ibid.)

a) Accessory rights included

The assignment of a credit includes all the accessory rights, such as a guaranty, mortgage, pledge or preference. (Article 1627, Ibid.)

2) To bind third parties

a) Public instrument for non-real properties

b) Recorded in Registry for real properties

An assignment of a credit, right or action shall produce no effect as against third person, unless it appears in a public instrument, or the instrument is recorded in the Registry of Property in case the assignment involves real property. (Article 1625, Ibid.)

b. DEBTOR IN GOOD FAITH

The debtor who, before having knowledge of the assignment, pays his creditor shall be released from the obligation. (Article 1626, Ibid.)

c. SELLER

1) Im good faith

The seller in good faith shall be responsible for the existence and legality of the credit at the time of the sale, unless it should have been sold as doubtful; but not for the solvency of the debtor, unless it has been so expressly stipulated or unless the insolvency was prior to the sale and of common knowledge. (Article 1628, Ibid.)

Even in these cases he shall only be liable for the price received and for the expenses specified in No. 1 of Article 1616. (Paragraph 2, Article 1628, Ibid.)

1) In bad faith

The seller in bad faith shall always be answerable for the payment of all expenses, and for damages. (Paragraph 3, Article 1628, Ibid.)

d. ASSIGNOR IN GOOD FAITH

In case the assignor in good faith should have made himself responsible for the solvency of the debtor, and the contracting parties should not have agreed upon the duration of the liability, it shall last for one year only, from the time of the assignment if the period had already expired. (Article 1629, Ibid.)

If the credit should be payable within a term or period which has not yet expired, the liability shall cease one year after the maturity. (Paragraph 2, Article 1629, Ibid.)

e. HEIR WHO SELLS INHERITANCE

One who sells an inheritance without enumerating the things of which it is composed, shall only be answerable for his character as an heir. (Article 1630, Ibid.)

Should the seller have profited by some of the fruits or received anything from the inheritance sold, he shall pay the buyer thereof, if the contrary has not been stipulated. (Article 1632, Ibid.)

The buyer shall, on his part, reimburse the seller for all that the latter may have paid for the debts of and charges on the estate and satisfy the credits he may have against the same, unless there is an agreement to the contrary. (Article 1633, Ibid.)

f. SELLER OF A LUMP SUM

One who sells for a lump sum the whole of certain rights, rents, or products, shall comply by answering for the legitimacy of the whole in general; but he shall not be obliged to warrant each of the various parts of which it may be composed, except in the case of eviction from the whole or the part of greater value. (Article 1631, Ibid.)

g. CREDIT OR OTHER INCORPOREAL RIGHT UNDER LITIGATION

When a credit or other incorporeal right in litigation is sold, the debtor shall have a right to extinguish it by reimbursing the assignee for the price the latter paid therefor, the judicial costs incurred by him, and the interest on the price from the day on which the same was paid. (Article 1634, Ibid.)

A credit or other incorporeal right shall be considered in litigation from the time the complaint concerning the same is answered. (Paragraph 2, Article 1634, Ibid.)

The debtor may exercise his right within thirty days from the date the assignee demands payment from him. (Paragraph 3, Article 1634, Ibid.)

EXCEPTIONS: From the provisions of the preceding article shall be excepted the assignments or sales made:

1) To a co-heir or co-owner of the right assigned;

2) To a creditor in payment of his credit;

3) To the possessor of a tenement or piece of land which is subject to the right in litigation assigned. (Article 1635, Ibid.)

6. Risk of loss

a. EFFECTS OF THE CONTRACT WHEN THING SOLD HAS BEEN LOST

1) Entirely lost

If at the time the contract of sale is perfected, the thing which is the object of the contract has been entirely lost, the contract shall be without any effect. (Article 1493, Ibid.)

2) Partially lost

But if the thing should have been lost in part only, the buyer may choose between withdrawing from the contract and demanding the remaining part, paying its price in proportion to the total sum agreed upon. (Paragraph 2, Article 1493, Ibid.)

b. FOR SALE OF SPECIFIC GOODS WHICH HAVE BEEN LOST

Where the parties purport a sale of specific goods, and the goods without the knowledge of the seller have perished in part or have wholly or in a material part so deteriorated in quality as to be substantially changed in character, the buyer may at his option treat the sale:

1) As avoided; or

2) As valid in all of the existing goods or in so much thereof as have not deteriorated, and as binding the buyer to pay the agreed price for the goods in which the ownership will pass, if the sale was divisible. (Article 1494, Ibid.)

7. Documents of title

a. CONCEPTS

Document of title to goods – includes any bill of lading, dock warrant, “quedan,” or warehouse receipt or order for the delivery of goods, or any other document used in the ordinary course of business in the sale or transfer of goods, as proof of the possession or control of the goods, or authorizing or purporting to authorize the possessor of the document to transfer or receive, either by endorsement or by delivery, goods represented by such document. (Paragraph 2, Art. 1636[1], Ibid.)

Goods – includes all chattels personal but not things in action or money of legal tender in the Philippines. The term includes growing fruits or crops. (Paragraph 3, Art. 1636[1], Ibid.)

Order – relating to documents of title means an order by endorsement on the documents. (Paragraph 4 Art. 1636[1], Ibid.)

Quality of goods – includes their state or condition. (Paragraph 5, Art. 1636[1], Ibid.)

Specific goods –  means goods identified and agreed upon at the time a contract of sale is made. (Paragraph 6, Art. 1636[1], Ibid.)

Value: An antecedent or pre-existing claim, whether for money or not, constitutes “value” where goods or documents of title are taken either in satisfaction thereof or as security therefor. (Paragraph 7, Art. 1636[1], Ibid.)

Insolvent: Under the law on sale, a person is insolvent who either has ceased to pay his debts in the ordinary course of business or cannot pay his debts as they become due, whether insolvency proceedings have been commenced or not. (Art. 1636[2], Ibid.)

Deliverable state: Under the law on sale, goods are in a “deliverable state” when they are in such a state that the buyer would, under the contract, be bound to take delivery of them. (Article 1636, Ibid.)

b. NEGOTIABLE DOCUMENT OF TITLE

1) Negotiable document of title

A document of title in which it is stated that the goods referred to therein will be delivered to the bearer, or to the order of any person named in such document is a negotiable document of title. (Article 1507, Ibid.)

a) Negotiated by delivery

A negotiable document of title may be negotiated by delivery:

1) Where by the terms of the document the carrier, warehouseman or other bailee issuing the same undertakes to deliver the goods to the bearer; or

2) Where by the terms of the document the carrier, warehouseman or other bailee issuing the same undertakes to deliver the goods to the order of a specified person, and such person or a subsequent endorsee of the document has indorsed it in blank or to the bearer. (Article 1508, Ibid.)

(1) When negotiated by endorsement

Where by the terms of a negotiable document of title the goods are deliverable to bearer or where a negotiable document of title has been indorsed in blank or to bearer, any holder may indorse the same to himself or to any specified person, and in such case the document shall thereafter be negotiated only by the endorsement of such endorsee. (Paragraph 2, Article 1508, Ibid.)

(2) How endorsement is made

A negotiable document of title may be negotiated by the endorsement of the person to whose order the goods are by the terms of the document deliverable. Such endorsement may be in blank, to bearer or to a specified person. (Article 1509, Ibid.)

If indorsed to a specified person, it may be again negotiated by the endorsement of such person in blank, to bearer or to another specified person. Subsequent negotiations may be made in like manner. (Ibid.)

(3) With undertaking by a carrier, warehouseman, or other bailee

If a document of title which contains an undertaking by a carrier, warehouseman or other bailee to deliver the goods to bearer, to a specified person or order of a specified person or which contains words of like import, has placed upon it the words “not negotiable,” “non-negotiable” or the like, such document may nevertheless be negotiated by the holder and is a negotiable document of title under the law on sale. (Article 1510, Ibid.)

But nothing shall be construed as limiting or defining the effect upon the obligations of the carrier, warehouseman, or other bailee issuing a document of title or placing thereon the words “not negotiable,”  “non-negotiable,” or the like. (Ibid.)

b) Negotiated

A negotiable document of title may be negotiated:

1) By the owner therefor; or

2) By any person to whom the possession or custody of the document has been entrusted by the owner, if, by the terms of the document the bailee issuing the document undertakes to deliver the goods to the order of the person to whom the possession or custody of the document has been entrusted, or if at the time of such entrusting the document is in such form that it may be negotiated by delivery. (Article 1512, Ibid.)

(1) What are acquired

A person to whom a negotiable document of title has been duly negotiated acquires thereby:

1) Such title to the goods as the person negotiating the document to him had or had ability to convey to a purchaser in good faith for value and also such title to the goods as the person to whose order the goods were to be delivered by the terms of the document had or had ability to convey to a purchaser in good faith for value; and

2) The direct obligation of the bailee issuing the document to hold possession of the goods for him according to the terms of the document as fully as if such bailee had contracted directly with him. (Article 1513, Ibid.)

c) Transferred for value by delivery

Where a negotiable document of title is transferred for value by delivery, and the endorsement of the transferor is essential for negotiation, the transferee acquires a right against the transferor to compel him to endorse the document unless a contrary intention appears. The negotiation shall take effect as of the time when the endorsement is actually made. (Article 1515, Ibid.)

d) Non-impairment in validity of negotiation when there is payment for value in good faith

The validity of the negotiation of a negotiable document of title is not impaired:

1) By the fact that the negotiation was a breach of duty on the part of the person making the negotiation, or

2) By the fact that the owner of the document was deprived of the possession of the same by loss, theft, fraud, accident, mistake, duress, or conversion,

… if the person to whom the document was negotiated or a person to whom the document was subsequently negotiated paid value therefor in good faith without notice of the breach of duty, or loss, theft, fraud, accident, mistake, duress or conversion. (Article 1518, Ibid.)

e) When goods are delivered to a bailee

If goods are delivered to a bailee by the owner or by a person whose act in conveying the title to them to a purchaser in good faith for value would bind the owner and a negotiable document of title is issued for them they cannot thereafter, while in possession of such bailee, be attached by garnishment or otherwise or be levied under an execution unless the document be first surrendered to the bailee or its negotiation enjoined. (Article 1519, Ibid.)

The bailee shall in no case be compelled to deliver up the actual possession of the goods until the document is surrendered to him or impounded by the court. (Ibid.)

f) Protection of creditors of a debtor who is the owner of a negotiable document of title

A creditor whose debtor is the owner of a negotiable document of title shall be entitled to such aid from courts of appropriate jurisdiction by injunction and otherwise in attaching such document or in satisfying the claim by means thereof as is allowed at law or in equity in regard to property which cannot readily be attached or levied upon by ordinary legal process. (Article 1520, Ibid.)

3) Document of title

a) When transferred, but not negotiated

A person to whom a document of title has been transferred, but not negotiated, acquires thereby, as against the transferor, the title to the goods, subject to the terms of any agreement with the transferor. (Article 1514, Ibid.)

A document of title which is not in such form that it can be negotiated by delivery may be transferred by the holder by delivery to a purchaser or donee. (Article 1511, Ibid.)

(1) Not subject to negotiation

A non-negotiable document cannot be negotiated and the endorsement of such a document gives the transferee no additional right. (Ibid.)

(2) What are acquired

If the document is non-negotiable, such person also acquires the right to notify the bailee who issued the document of the transfer thereof, and thereby to acquire the direct obligation of such bailee to hold possession of the goods for him according to the terms of the document. (Paragraph 2, Article 1514, Ibid.)

Prior to the notification to such bailee by the transferor or transferee of a non-negotiable document of title, the title of the transferee to the goods and the right to acquire the obligation of such bailee may be defeated by the levy of an attachment of execution upon the goods by a creditor of the transferor, or by a notification to such bailee by the transferor or a subsequent purchaser from the transfer of a subsequent sale of the goods by the transferor. (Paragraph 3, Article 1514, Ibid.)

b) Negotiates or transfer by endorsement or delivery

A person who for value negotiates or transfers a document of title by endorsement or delivery, including one who assigns for value a claim secured by a document of title unless a contrary intention appears, warrants:

1) That the document is genuine;

2) That he has a legal right to negotiate or transfer it;

3) That he has knowledge of no fact which would impair the validity or worth of the document; and

4) That he has a right to transfer the title to the goods and that the goods are merchantable or fit for a particular purpose, whenever such warranties would have been implied if the contract of the parties had been to transfer without a document of title the goods represented thereby. (Article 1516, Ibid.)

(1) Effects of endorsement

The endorsement of a document of title shall not make the endorser liable for any failure on the part of the bailee who issued the document or previous endorsers thereof to fulfill their respective obligations. (Article 1517, Ibid.)

c) Possession or delivery of the goods

Whether it is for the buyer to take possession of the goods or of the seller to send them to the buyer is a question depending in each case on the contract, express or implied, between the parties. (Article 1521, Ibid.)

Apart from any such contract, express or implied, or usage of trade to the contrary, the place of delivery is the seller’s place of business if he has one, and if not his residence; but 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. (Ibid.)

(1) No time is fixed

Where by a contract of sale the seller is bound to send the goods to the buyer, but no time for sending them is fixed, the seller is bound to send them within a reasonable time. (Paragraph 2, Article 1521, Ibid.)

Demand or tender of delivery may be treated as ineffectual unless made at a reasonable hour. What is a reasonable hour is a question of fact. (Paragraph 4, Article 1521, Ibid.)

(2) Goods in possession of a third person

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. (Paragraph 3, Article 1521, Ibid.)

(3) Expenses of and incidental to putting the goods into a deliverable state

Unless otherwise agreed, the expenses of and incidental to putting the goods into a deliverable state must be borne by the seller. (Paragraph 5, Article 1521, Ibid.)

(4) Issues on delivery

(a) Delivery is of a quantity of goods less than the contracted to sell

Where the seller delivers to the buyer a quantity of goods less than he contracted to sell, the buyer may reject them, but if the buyer accepts or retains the goods so delivered, knowing that the seller is not going to perform the contract in full, he must pay for them at the contract rate. (Article 1522, Ibid.)

If, however, 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. (Ibid.)

(b) Delivery is of a quantity of goods larger than the contracted to sell

Where the seller delivers to the buyer a quantity of goods larger than he contracted to sell, the buyer may accept the goods included in the contract and reject the rest. (Paragraph 2, Article 1522, Ibid.)

If the buyer accepts the whole of the goods so delivered he must pay for them at the contract rate. (Ibid.)

If the subject matter is indivisible, the buyer may reject the whole of the goods. (Paragraph 4, Article 1522, Ibid.)

(c) Delivery of goods mixed with goods not included in contract

Where the seller delivers to the buyer the goods he contracted to sell mixed with goods of a different description not included in the contract, the buyer may accept the goods which are in accordance with the contract and reject the rest. (Paragraph 3, Article 1522, Ibid.)

If the subject matter is indivisible, the buyer may reject the whole of the goods. (Paragraph 4, Article 1522, Ibid.)

(5) Delivery of goods to a carrier

GENERAL RULE: Where, in pursuance of a contract of sale, the seller is authorized or required to send the goods to the buyer, delivery of the goods to a carrier, whether named by the buyer or not, for the purpose of transmission to the buyer is deemed to be a delivery of the goods to the buyer. (Article 1523, Ibid.)

EXCEPTIONS:

1) Except in the case provided for in Article 1503, first, second and third paragraphs;

Cross-referenced article/s

When there is a contract of sale of specific goods, the seller may, by the terms of the contract, reserve the right of possession or ownership in the goods until certain conditions have been fulfilled. The right of possession or ownership may be thus reserved notwithstanding the delivery of the goods to the buyer or to a carrier or other bailee for the purpose of transmission to the buyer. (Paragraph 1, Art. 1503, Ibid.)

Where goods are shipped, and by the bill of lading the goods are deliverable to the seller or his agent, or to the order of the seller or of his agent, the seller thereby reserves the ownership in the goods. But, if except for the form of the bill of lading, the ownership would have passed to the buyer on shipment of the goods, the seller’s property in the goods shall be deemed to be only for the purpose of securing performance by the buyer of his obligations under the contract. (Paragraph 2, Art. 1503, Ibid.)

Where goods are shipped, and by the bill of lading the goods are deliverable to order of the buyer or of his agent, but possession of the bill of lading is retained by the seller or his agent, the seller thereby reserves a right to the possession of the goods as against the buyer. (Paragraph 3, Art. 1503, Ibid.)

2) Unless a contrary intent appears. (Ibid.)

If there is no contrary stipulation, 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. (Article 1568, Ibid.)

(a) Seller to contract with carrier on behalf of the buyer

Unless otherwise authorized by the buyer, the seller must make such contract with the carrier on behalf of the buyer as may be reasonable, having regard to the nature of the goods and the other circumstances of the case. (Paragraph 2, Article 1523, Ibid.)

If the seller omit so to do, and the goods are lost or damaged in course of transit, the buyer may decline to treat the delivery to the carrier as a delivery to himself, or may hold the seller responsible in damages. (Ibid.)

(b) Insurance on the goods

Unless otherwise agreed, where goods are sent by the seller to the buyer under circumstances in which the seller knows or ought to know that it is usual to insure, the seller must give such notice to the buyer as may enable him to insure them during their transit, and, if the seller fails to do so, the goods shall be deemed to be at his risk during such transit. (Paragraph 3, Article 1523, Ibid.)

8. Warranties

a. EXPRESS WARRANTY

1) Concept

Any affirmation of fact or any promise by the seller relating to the thing is an express warranty if the natural tendency of such affirmation or promise is to induce the buyer to purchase the same, and if the buyer purchases the thing relying thereon. (Article 1546, Ibid.)

No affirmation of the value of the thing, nor any statement purporting to be a statement of the seller’s opinion only, shall be construed as a warranty, unless the seller made such affirmation or statement as an expert and it was relied upon by the buyer. (Ibid.)

Requisites of an express warranty in a contract of sale:

1) the express warranty must be an affirmation of fact or any promise by the seller relating to the subject matter of the sale;

2) the natural effect of the affirmation or promise is to induce the buyer to purchase the thing; and

3) the buyer purchases the thing relying on that affirmation or promise. (Philippine Steel Coating Corp. v. Quinones, G.R. No. 194533, 19 April 2017)

a) Distinguished from dealer’s talk / sales talk

The usual exaggerations in trade, when the other party had an opportunity to know the facts, are not in themselves fraudulent. (Art. 1340, Ibid.)

The law allows considerable latitude to seller’s statements, or dealer’s talk; and experience teaches that it is exceedingly risky to accept it at its face value. (Tankeh v. DBP, G.R. No. 171428, 11 November 2013)

Ordinarily, what does not appear on the face of the written instrument should be regarded as dealer’s or trader’s talk; conversely, what is specifically represented as true in said document, as in the instant case, cannot be considered as mere dealer’s talk. (Moles  v. IAC, G.R. No. 73913, 31 January 1989)

Philippine Steel Coating Corp. v. Quinones (2017)

Contrary to the assertions of petitioner [the Company], the former, through Angbengco, did not simply make vague oral statements on purported warranties. Petitioner expressly represented to respondent that the primer-coated G .I. sheets were compatible with the acrylic paint process used by the latter on his bus units. This representation was made in the face of respondent’s express concerns regarding incompatibility. Petitioner also claimed that the use of their product by Quinones would cut costs. Angbengco was so certain of the compatibility that he suggested to respondent to assemble a bus using the primer-coated sheet and have it painted with the acrylic paint used in Amianan Motors.

At the outset, Quinones had reservations about the compatibility of his acrylic paint primer with the primer-coated G.I. sheets of PhilSteel. But he later surrendered his doubts about the product after 4 to 5 meetings with Angbengco, together with the latter’s subordinate Lopez. Only after several meetings was Quinones persuaded to buy their G.I. sheets. On 15 April 1994, he placed an initial order for petitioner’s product and, following Angbengco’s instructions, had a bus painted with acrylic paint. The results of the painting test turned out to be successful. Satisfied with the initial success of that test, respondent made subsequent orders of the primer-coated product and used it in Amianan Motors’ mass production of bus bodies.

Thus, it was not accurate for petitioner to state that they had made no warranties. It insisted that at best, they only gave “assurances” of possible savings Quinones might have if he relied on PhilSteel’s primer-coated G.I. sheets and eliminated the need to apply an additional primer.

All in all, these “vague oral statements” were express affirmations not only of the costs that could be saved if the buyer used PhilSteel’s G.I. sheets, but also of the compatibility of those sheets with the acrylic painting process customarily used in Amianan Motors. Angbengco did not aimlessly utter those “vague oral statements” for nothing, but with a clear goal of persuading Quinones to buy PhilSteel’s product.

Taken together, the oral statements of Angbengco created an express warranty. They were positive affirmations of fact that the buyer relied on, and that induced him to buy petitioner’s primer-coated G .I. sheets.

Despite its claims to the contrary, petitioner was an expert in the eyes of the buyer Quinones. The latter had asked if the primer-coated G.I. sheets were compatible with Amianan Motors’ acrylic painting process. Petitioner’s former employee, Lopez, testified that he had to refer Quinones to the former’s immediate supervisor, Angbengco, to answer that question. As the sales manager of PhilSteel, Angbengco made repeated assurances and affirmations and even invoked laboratory tests that showed compatibility. In the eyes of the buyer Quinones, PhilSteel – through its representative, Angbengco – was an expert whose word could be relied upon.

This Court cannot subscribe to petitioner’s stand that what they told Quinones was mere dealer’s talk or an exaggeration in trade that would exempt them from liability for breach of warranty.

…the so-called dealer’s or trader’s talk cannot be treated as mere exaggeration in trade as defined in Article 1340 of the Civil Code. Quinones did not talk to an ordinary sales clerk such as can be found in a department store or even a sari-sari store. If Lopez, a sales agent, had made the assertions of Angbengco without true knowledge about the compatibility or the authority to warrant it, then his would be considered dealer’s talk. But sensing that a person of greater competence and knowledge of the product had to answer Quinones’ concerns, Lopez wisely deferred to his boss, Angbengco.

Angbengco undisputedly assured Quinones that laboratory tests had been undertaken, and that those tests showed that the acrylic paint used by Quinones was compatible with the primer-coated G.I. sheets of Philsteel. Thus, Angbengco was no longer giving a mere seller’s opinion or making an exaggeration in trade. Rather, he was making it appear to Quinones that Phil Steel had already subjected the latter’s primed G.I. sheets to product testing. PhilSteel, through its representative, was in effect inducing in the mind of the buyer the belief that the former was an expert on the primed G.I. sheets in question; and that the statements made by petitioner’s representatives, particularly Angbengco (its sales manager), could be relied on. Thus, petitioner did induce the buyer to purchase the former’s G.I. sheets. /end

b. IMPLIED WARRANTY

In a contract of sale, unless a contrary intention appears, there is:

1) An implied warranty on the part of the seller that he has a right to sell the thing at the time when the ownership is to pass, and that the buyer shall from that time have and enjoy the legal and peaceful possession of the thing;

2) An implied warranty that the thing shall be free from any hidden faults or defects, or any charge or encumbrance not declared or known to the buyer. (Article 1547, Ibid.

An implied warranty is that which the law derives by application or inference from the nature of the transaction or the relative situation or circumstances of the parties, irrespective of any intention of the seller to create it. Among the implied warranty provisions of the Civil Code are: as to the seller’s title (Art. 1548), against hidden defects and encumbrances (Art. 1561), as to fitness or merchantability (Art. 1562), and against eviction (Art. 1548). (Ang v. CA, G.R. No. 177874, 29 September 2008)

1) Warranty in case of eviction

Eviction shall take place whenever by a final judgment based on a right prior to the sale or an act imputable to the seller, the buyer is deprived of the whole or of a part of the thing purchased. (Article 1548, Ibid.)

a) Seller’s obligation despite not stipulated

The seller shall answer for the eviction even though nothing has been said in the contract on the subject. (Paragraph 2, Article 1548, Ibid.)

The contracting parties, however, may increase, diminish, or suppress this legal obligation of the seller. (Paragraph 3, Article 1548, Ibid.)

The judgment debtor is also responsible for eviction in judicial sales, unless it is otherwise decreed in the judgment. (Article 1552, Ibid.)

b) No obligation on the buyer to appeal

The buyer need not appeal from the decision in order that the seller may become liable for eviction. (Article 1549, Ibid.)

c) Stipulation exempting seller from warranty against eviction, void

Any stipulation exempting the seller from the obligation to answer for eviction shall be void, if he acted in bad faith. (Article 1553, Ibid.)

d) When seller is not liable for eviction

(1) Adverse possession before sale but prescriptive period is completed after the transfer

When adverse possession had been commenced before the sale but the prescriptive period is completed after the transfer, the seller shall not be liable for eviction. (Article 1550, Ibid.)

(2) Properrty is sold for non-payment of taxes and not made known to the buyer before the sale

If the property is sold for nonpayment of taxes due and not made known to the buyer before the sale, the seller is liable for eviction. (Article 1551, Ibid.)

(3) Where buyer renounced right to warranty in case of eviction

If the buyer has renounced the right to warranty in case of eviction, and eviction should take place, the seller shall only pay the value which the thing sold had at the time of the eviction. (Article 1554, Ibid.)

Should the buyer have made the waiver with knowledge of the risks of eviction and assumed its consequences, the seller shall not be liable. (Ibid.)

e) Whether agreed upon or not

When the warranty has been agreed upon or nothing has been stipulated on this point, in case eviction occurs, the buyer shall have the right to demand of the seller:

1) The return of the value which the thing sold had at the time of the eviction, be it greater or less than the price of the sale;

2) The income or fruits, if he has been ordered to deliver them to the party who won the suit against him;

3) The costs of the suit which caused the eviction, and, in a proper case, those of the suit brought against the seller for the warranty;

4) The expenses of the contract, if the buyer has paid them;

5) The damages and interests, and ornamental expenses, if the sale was made in bad faith. (Article 1555, Ibid.)

f) When buyer loses a part of the thing sold of such importance, in relation to the whole, that he would not have bought it without said part

Should the buyer lose, by reason of the eviction, a part of the thing sold of such importance, in relation to the whole, that he would not have bought it without said part, he may demand the rescission of the contract; but with the obligation to return the thing without other encumbrances that those which it had when he acquired it. (Article 1556, Ibid.)

He may exercise this right of action, instead of enforcing the seller’s liability for eviction. (Paragraph 2, Article 1556, Ibid.)

The same rule shall be observed when two or more things have been jointly sold for a lump sum, or for a separate price for each of them, if it should clearly appear that the buyer would not have purchased one without the other. (Paragraph 3, Article 1556, Ibid.)

g) Final judgment required to enforce warranty

The warranty cannot be enforced until a final judgment has been rendered, whereby the buyer loses the thing acquired or a part thereof. (Article 1557, Ibid.)

The seller shall not be obliged to make good the proper warranty, unless he is summoned in the suit for eviction at the instance of the buyer. (Article 1558, Ibid.)

h) Immovable encumbered with non-apparent burden or servitude

If the immovable sold should be encumbered with any non-apparent burden or servitude, not mentioned in the agreement, of such a nature that it must be presumed that the buyer would not have acquired it had he been aware thereof, he may ask for the rescission of the contract, unless he should prefer the appropriate indemnity. (Article 1560, Ibid.)

Neither right can be exercised if the non-apparent burden or servitude is recorded in the Registry of Property, unless there is an express warranty that the thing is free from all burdens and encumbrances. (Ibid.)

i) Prescription: 1 year

Within one year, to be computed from the execution of the deed, the buyer may bring the action for rescission, or sue for damages. (Paragraph 2, Article 1560, Ibid.)

One year having elapsed, he may only bring an action for damages within an equal period, to be counted from the date on which he discovered the burden or servitude. (Paragraph 3, Article 1550, Ibid.)

2) Warranty against hidden defects of or encumbrances upon the thing sold

The seller shall be responsible for warranty against the hidden defects which the thing sold may have, should they render it unfit for the use for which it is intended, or should they diminish its fitness for such use to such an extent that, had the buyer been aware thereof, he would not have acquired it or would have given a lower price for it; but said seller shall not be answerable for patent defects or those which may be visible, or for those which are not visible if the buyer is an expert who, by reason of his trade or profession, should have known them. (Article 1561, Ibid.)

In the immediately preceding paragraph, the buyer may elect between withdrawing from the contract and demanding a proportionate reduction of the price, with damages in either case. (Article 1567, Ibid.)

a) Sale of goods

In a sale of goods, there is an implied warranty or condition as to the quality or fitness of the goods, as follows:

1) Where the buyer, expressly or by implication, makes known to the seller the particular purpose for which the goods are acquired, and it appears that the buyer relies on the seller’s skill or judgment (whether he be the grower or manufacturer or not), there is an implied warranty that the goods shall be reasonably fit for such purpose;

2) Where the goods are brought by description from a seller who deals in goods of that description (whether he be the grower or manufacturer or not), there is an implied warranty that the goods shall be of merchantable quality. (Article 1562, Ibid.)

In the immediately preceding paragraph, the buyer may elect between withdrawing from the contract and demanding a proportionate reduction of the price, with damages in either case. (Article 1562, Ibid.)

b) Sale of specified article under its patent or trade name

In the case of contract of sale of a specified article under its patent or other trade name, there is no warranty as to its fitness for any particular purpose, unless there is a stipulation to the contrary. (Article 1563, Ibid.)

c) Sale by sample

In the case of a contract of sale by sample, if the seller is a dealer in goods of that kind, there is an implied warranty that the goods shall be free from any defect rendering them unmerchantable which would not be apparent on reasonable examination of the sample. (Article 1565, Ibid.)

In the immediately preceding paragraph, the buyer may elect between withdrawing from the contract and demanding a proportionate reduction of the price, with damages in either case. (Article 1567, Ibid.)

d) Implied warranty/condition as to the quality/fitness for a particular purpose

An implied warranty or condition as to the quality or fitness for a particular purpose may be annexed by the usage of trade. (Article 1564, Ibid.)

In the immediately preceding paragraph, the buyer may elect between withdrawing from the contract and demanding a proportionate reduction of the price, with damages in either case. (Article 1567, Ibid.)

e) Whether seller was aware is irrelevant

GENERAL RULE: The seller is responsible to the buyer for any hidden faults or defects in the thing sold, even though he was not aware thereof. (Article 1566, Ibid.)

EXCEPTION: … if the contrary has been stipulated, and the seller was not aware of the hidden faults or defects in the thing sold. (Paragraph 2, Article 1566, Ibid.)

In the immediately preceding paragraph, the buyer may elect between withdrawing from the contract and demanding a proportionate reduction of the price, with damages in either case. (Article 1567, Ibid.)

f) Hidden faults results in loss of the thing sold

If the thing sold should be lost in consequence of the hidden faults, and the seller was aware of them, he shall bear the loss, and shall be obliged to return the price and refund the expenses of the contract, with damages. (Article 1568, Ibid.)

If he was not aware of them, he shall only return the price and interest thereon, and reimburse the expenses of the contract which the buyer might have paid. (Ibid.)

g) Fortuitous event or fault of the buyer results in loss of the thing sold

If the thing sold had any hidden fault at the time of the sale, and should thereafter be lost by a fortuitous event or through the fault of the buyer, the latter may demand of the seller the price which he paid, less the value which the thing had when it was lost. (Article 1569, Ibid.)

If the seller acted in bad faith, he shall pay damages to the buyer. (Paragraph 2, Article 1569, Ibid.)

h) Applicable in judicial sales

The preceding articles of this Subsection shall be applicable to judicial sales, except that the judgment debtor shall not be liable for damages. (Article 1570, Ibid.)

i) Prescription: 6 months

Actions arising from the provisions of the preceding ten articles shall be barred after six months, from the delivery of the thing sold. (Article 1571, Ibid.)

NB: Articles 1572 to 1580 involving sale of animals, redhibitory defect, etc., have been excluded as these are remotely asked in the bar exam. Nonetheless, it is recommended that you read them at least once to give you a general idea.

9. Breach of contract

a. SELLER’S REMEDY

1) Action for the price of goods

a) If ownership has passed to the buyer

Where, under a contract of sale, the ownership of the goods has passed to the buyer and he wrongfully neglects or refuses to pay for the goods according to the terms of the contract of sale, the seller may maintain an action against him for the price of the goods. (Article 1595, Ibid.)

b) If ownership has not passed

Where, under a contract of sale, the price is payable on a certain day, irrespective of delivery or of transfer of title and the buyer wrongfully neglects or refuses to pay such price, the seller may maintain an action for the price although the ownership in the goods has not passed. But it shall be a defense to such an action that the seller at any time before the judgment in such action has manifested an inability to perform the contract of sale on his part or an intention not to perform it. (Paragraph 2, Article 1595, Ibid.)

c) If goods cannot readily be sold for a reasonable price – even if ownership has passed

Although the ownership in the goods has not passed, if they cannot readily be resold for a reasonable price, and if the provisions of Article 1596, fourth paragraph, are not applicable, the seller may offer to deliver the goods to the buyer, and, if the buyer refuses to receive them, may notify the buyer that the goods are thereafter held by the seller as bailee for the buyer. Thereafter the seller may treat the goods as the buyer’s and may maintain an action for the price. (Paragraph 3, Article 1595, Ibid.)

Cross-referenced article/s

If, while labor or expense of material amount is necessary on the part of the seller to enable him to fulfill his obligations under the contract of sale, the buyer repudiates the contract or notifies the seller to proceed no further therewith, the buyer shall be liable to the seller for labor performed or expenses made before receiving notice of the buyer’s repudiation or countermand. The profit the seller would have made if the contract or the sale had been fully performed shall be considered in awarding the damages. (Paragraph 4, Article 1596)

2) Action for damages

a) Where buyer wrongfully neglects or refuses to accept and pay

Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may maintain an action against him for damages for nonacceptance. (Article 1596, Ibid.)

(1) Measure of damages

The measure of damages is the estimated loss directly and naturally resulting in the ordinary course of events from the buyer’s breach of contract. (Paragraph 2, Article 1596, Ibid.)

Where there is an available market for the goods in question, the measure of damages is, in the absence of special circumstances showing proximate damage of a different amount, the difference between the contract price and the market or current price at the time or times when the goods ought to have been accepted, or, if no time was fixed for acceptance, then at the time of the refusal to accept. (Paragraph 3, Article 1596, Ibid.)

(2) Labor and/or materials

If, while labor or expense of material amount is necessary on the part of the seller to enable him to fulfill his obligations under the contract of sale, the buyer repudiates the contract or notifies the seller to proceed no further therewith, the buyer shall be liable to the seller for labor performed or expenses made before receiving notice of the buyer’s repudiation or countermand. The profit the seller would have made if the contract or the sale had been fully performed shall be considered in awarding the damages. (Paragraph 4, Article 1596, Ibid.)

3) Action for rescission

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. (Article 1597, Ibid.)

B. REMEDIES OF UNPAID SELLER

The seller of goods is deemed to be an unpaid seller:

1) When the whole of the price has not been paid or tendered;

2) When a bill of exchange or other negotiable instrument has been received as conditional payment, and the condition on which it was received has been broken by reason of the dishonor of the instrument, the insolvency of the buyer, or otherwise. (Article 1525, Ibid.)

In Articles 1525 to 1535 the term “seller” includes an agent of the seller to whom the bill of lading has been indorsed, or a consignor or agent who has himself paid, or is directly responsible for the price, or any other person who is in the position of a seller. (Paragraph 2, Article 1525, Ibid.)

1) Rights of unpaid seller

a) If ownership passed to the buyer

Notwithstanding that the ownership in the goods may have passed to the buyer, the unpaid seller of goods, as such, has:

1) A lien on the goods or right to retain them for the price while he is in possession of them;

2) In case of the insolvency of the buyer, a right of stopping the goods in transitu after he has parted with the possession of them;

3) A right of resale;

4) A right to rescind the sale. (Article 1526, Ibid.)

b) If ownership has not passed to the buyer

Where the ownership in the goods has not passed to the buyer, the unpaid seller has, in addition to his other remedies a right of withholding delivery similar to and coextensive with his rights of lien and stoppage in transitu where the ownership has passed to the buyer. (Paragraph 2, Article 1526, Ibid.)

c) If seller is in possession of the goods

The unpaid seller of goods who is in possession of them is entitled to retain possession of them until payment or tender of the price in the following cases, namely:

1) Where the goods have been sold without any stipulation as to credit;

2) Where the goods have been sold on credit, but the term of credit has expired;

3) Where the buyer becomes insolvent. (Article 1527, Ibid.)

2) Right of lien of unpaid seller

The seller may exercise his right of lien notwithstanding that he is in possession of the goods as agent or bailee for the buyer. (Paragraph 2, Article 1527, Ibid.)

a) If seller made part delivery

Where an unpaid seller has made part delivery of the goods, he may exercise his right of lien on the remainder, unless such part delivery has been made under such circumstances as to show an intent to waive the lien or right of retention. (Article 1528, Ibid.)

b) When unpaid seller loses his lien

The unpaid seller of goods loses his lien thereon:

1) When he delivers the goods to a carrier or other bailee for the purpose of transmission to the buyer without reserving the ownership in the goods or the right to the possession thereof;

2) When the buyer or his agent lawfully obtains possession of the goods;

3) By waiver thereof. (Article 1529, Ibid.)

The unpaid seller of goods, having a lien thereon, does not lose his lien by reason only that he has obtained judgment or decree for the price of the goods. (Paragraph 2, Article 1529, Ibid.)

3) Right of stoppage in transitu of unpaid seller

When the buyer of goods is or becomes insolvent, the unpaid seller who has parted with the possession of the goods has the right of stopping them in transitu, that is to say, he may resume possession of the goods at any time while they are in transit, and he will then become entitled to the same rights in regard to the goods as he would have had if he had never parted with the possession. (Article 1530, Ibid.)

a) When are goods considered in transit

Goods are in transit:

1) From the time when they are delivered to a carrier by land, water, or air, or other bailee for the purpose of transmission to the buyer, until the buyer, or his agent in that behalf, takes delivery of them from such carrier or other bailee;

2) If the goods are rejected by the buyer, and the carrier or other bailee continues in possession of them, even if the seller has refused to receive them back. (Article 1531, Ibid.)

b) When are goods no longer considered in transit

Goods are no longer in transit:

1) If the buyer, or his agent in that behalf, obtains delivery of the goods before their arrival at the appointed destination;

2) If, after the arrival of the goods at the appointed destination, the carrier or other bailee acknowledges to the buyer or his agent that he holds the goods on his behalf and continues in possession of them as bailee for the buyer or his agent; and it is immaterial that further destination for the goods may have been indicated by the buyer;

3) If the carrier or other bailee wrongfully refuses to deliver the goods to the buyer or his agent in that behalf. (Paragraph 2, Article 1531, Ibid.)

If the goods are delivered to a ship, freight train, truck, or airplane chartered by the buyer, it is a question depending on the circumstances of the particular case, whether they are in the possession of the carrier as such or as agent of the buyer. (Paragraph 3, Article 1531, Ibid.)

c) If part delivery has been made

GENERAL RULE: If part delivery of the goods has been made to the buyer, or his agent in that behalf, the remainder of the goods may be stopped in transit.

EXCEPTION: … unless such part delivery has been under such circumstances as to show an agreement with the buyer to give up possession of the whole of the goods. (Paragraph 4, Article 1531, Ibid.)

d) How right of stoppage in transitu is exercised

The unpaid seller may exercise his right of stoppage in transitu either:

1) by obtaining actual possession of the goods; or

2) By giving notice of his claim to the carrier or other bailee in whose possession the goods are. (Article 1532, Ibid.)

Such notice may be given either to the person in actual possession of the goods or to his principal. In the latter case the notice, to be effectual, must be given at such time and under such circumstances that the principal, by the exercise of reasonable diligence, may prevent a delivery to the buyer. (Ibid.)

(1) Effects of notice of stoppage in transitu

When notice of stoppage in transitu is given by the seller to the carrier, or other bailee in possession of the goods, he must redeliver the goods to, or according to the directions of, the seller. The expenses of such delivery must be borne by the seller. (Paragraph 2, Article 1532, Ibid.

If, however, a negotiable document of title representing the goods has been issued by the carrier or other bailee, he shall not obliged to deliver or justified in delivering the goods to the seller unless such document is first surrendered for cancellation. (Ibid.)

4) Right of resale of unpaid seller

a) For perishable goods

Where the goods are of perishable nature, or where the seller expressly reserves the right of resale in case the buyer should make default, or where the buyer has been in default in the payment of the price for an unreasonable time, an unpaid seller having a right of lien or having stopped the goods in transitu may resell the goods.

(1) No liability on seller to original buyer

(2) Seller may recover damages

He shall not thereafter be liable to the original buyer upon the contract of sale or for any profit made by such resale, but may recover from the buyer damages for any loss occasioned by the breach of the contract of sale. (Article 1533, Ibid.)

(3) Buyer has good title against original buyer

Where a resale is made, the buyer acquires a good title as against the original buyer. (Paragraph 2, Article 1533, Ibid.)

b) Notice to resell

GENERAL RULE: It is not essential to the validity of resale that notice of an intention to resell the goods be given by the seller to the original buyer. (Paragraph 3, Article 1533, Ibid.)

EXCEPTION: But where the right to resell is not based on the perishable nature of the goods or upon an express provision of the contract of sale, the giving or failure to give such notice shall be relevant in any issue involving the question whether the buyer had been in default for an unreasonable time before the resale was made. (Ibid.)

(1) Time and place of resale

It is not essential to the validity of a resale that notice of the time and place of such resale should be given by the seller to the original buyer. (Paragraph 4, Article 1533, Ibid.)

c) Reasonable care and judgment

The seller is bound to exercise reasonable care and judgment in making a resale, and subject to this requirement may make a resale either by public or private sale.

c) Seller is prohibited from buying the goods

He cannot, however, directly or indirectly buy the goods. (Paragraph 5, Article 1533, Ibid.)

5) Right of rescission of unpaid seller

An unpaid seller having the right of lien or having stopped the goods in transitu, may rescind the transfer of title and resume the ownership in the goods, where he expressly reserved the right to do so in case the buyer should make default, or where the buyer has been in default in the payment of the price for an unreasonable time. (Article 1534, Ibid.)

a) No liability on seller to original buyer

b) Seller may recover damages

The seller shall not thereafter be liable to the buyer upon the contract of sale, but may recover from the buyer damages for any loss occasioned by the breach of the contract. (Ibid.)

c) Notice of rescission

The transfer of title shall not be held to have been rescinded by an unpaid seller until he has manifested by notice to the buyer or by some other overt act an intention to rescind. (Paragraph 2, Article 1534, Ibid.)

It is not necessary that such overt act should be communicated to the buyer, but the giving or failure to give notice to the buyer of the intention to rescind shall be relevant in any issue involving the question whether the buyer had been in default for an unreasonable time before the right of rescission was asserted. (Ibid.)

6) Buyer’s subsequent sale has no effect on unpaid seller’s right of lien or stoppage in transitu

GENERAL RULE: The unpaid seller’s right of lien or stoppage in transitu is not affected by any sale, or other disposition of the goods which the buyer may have made, unless the seller has assented thereto. (Article 1535, Ibid.)

EXCEPTION: If, however, a negotiable document of title has been issued for goods, no seller’s lien or right of stoppage in transitu shall defeat the right of any purchaser for value in good faith to whom such document has been negotiated, whether such negotiation be prior or subsequent to the notification to the carrier, or other bailee who issued such document, of the seller’s claim to a lien or right of stoppage in transitu. (Paragraph 2, Article 1535, Ibid.)

c. BUYER’S REMEDY

1) Action for specific performance

Where the seller has broken a contract to deliver specific or ascertained goods, a court may, on the application of the buyer, direct that the contract shall be performed specifically, without giving the seller the option of retaining the goods on payment of damages. The judgment or decree may be unconditional, or upon such terms and conditions as to damages, payment of the price and otherwise, as the court may deem just. (Article 1598, Ibid.)

2) Action for breach of warranty

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 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;

4) Rescind the contract of 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.

When the buyer has claimed and been granted a remedy in anyone of these ways, no other remedy can thereafter be granted, without prejudice to the provisions of the second paragraph of Article 1191.

Where the goods have been delivered to the buyer, he cannot rescind the sale if he knew of the breach of warranty when he accepted the goods without protest, or if he fails to notify the seller within a reasonable time of the election to rescind, or if he fails to return or to offer to return the goods to the seller in substantially as good condition as they were in at the time the ownership was transferred to the buyer. But if deterioration or injury of the goods is due to the breach or warranty, such deterioration or injury shall not prevent the buyer from returning or offering to return the goods to the seller and rescinding the sale.

Where the buyer is entitled to rescind the sale and elects to do so, he shall cease to be liable for the price upon returning or offering to return the goods. If the price or any part thereof has already been paid, the seller shall be liable to repay so much thereof as has been paid, concurrently with the return of the goods, or immediately after an offer to return the goods in exchange for repayment of the price.

Where the buyer is entitled to rescind the sale and elects to do so, if the seller refuses to accept an offer of the buyer to return the goods, the buyer shall thereafter be deemed to hold the goods as bailee for the seller, but subject to a lien to secure payment of any portion of the price which has been paid, and with the remedies for the enforcement of such lien allowed to an unpaid seller by Article 1526.

(5) In the case of breach of warranty of quality, such loss, in the absence of special circumstances showing proximate damage of a greater amount, is the difference between the value of the goods at the time of delivery to the buyer and the value they would have had if they had answered to the warranty. (Article 1599, Ibid.)

10. Performance of contract

a. CONSUMMATION STAGE

As with ordinary contracts, once a contract of sale is perfected, the non-performance of the obligations during the consummation stage does not invalidate the contract. Rather, a praty is granted remedies for the other party’s breach of contract.

Among others, the seller is entitled to an action for the price of goods against the buyer to compel the buyer to perform his obligation to pay.

On the other hand, and among others, the buyer is entitled to an action for specific performance against the seller to compel the seller to perform his obligation to deliver.

NB: For more discussions, See No. 9 – Breach of Contract.

11. Extinguishment

a. CONCEPT

1) Same causes with extinguishment of all other obligations

2) Those causes under Title VI-Sales

3) Conventional redemption

4) Legal redemption

Sales are extinguished by the same causes as all other obligations, by those stated in the preceding articles of this Title, and by conventional or legal redemption. (Article 1600, Ibid.)

b. CONVENTIONAL REDEMPTION

1) Concept

Conventional redemption shall take place when the seller reserves the right to repurchase the thing sold, with the obligation to comply with the provisions of Article 1616 and other stipulations which may have been agreed upon. (Article 1601, Ibid.)

Cross-referenced article/s

The seller cannot avail himself of the right of repurchase without returning to the buyer the price of the sale, and in addition:

1) The expenses of the contract, and any other legitimate payments made by reason of the sale;

2) The necessary and useful expenses made on the thing sold. (Article 1616, Ibid.)

2) Limitation of right to repurchase

a) By default: 4 years

The right referred to in Article 1601, in the absence of an express agreement, shall last four years from the date of the contract. (Article 1606, Ibid.)

b) If stipulated: 10-year limit

Should there be an agreement, the period cannot exceed ten years. (Paragraph 2, Article 1606, Ibid.)

However, the seller may still exercise the right to repurchase within thirty days from the time final judgment was rendered in a civil action on the basis that the contract was a true sale with right to repurchase. (Paragraph 3, Article 1606, Ibid.)

3) Equitable mortgage

a) Cases of equitable mortgage

The contract shall be presumed to be an equitable mortgage, in any of the following cases:

1) When the price of a sale with right to repurchase is unusually inadequate;

2) When the seller remains in possession as lessee or otherwise;

3) When upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new period is executed;

4) When the purchaser retains for himself a part of the purchase price;

5) When the seller binds himself to pay the taxes on the thing sold;

6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation. (Article 1602, Ibid.)

In any of the foregoing cases, any money, fruits, or other benefit to be received by the buyer as rent or otherwise shall be considered as interest which shall be subject to the usury laws. (Paragraph 2, Article 1602, Ibid.)

b) Contract purporting to be an absolute sale

The provisions of Article 1602 shall also apply to a contract purporting to be an absolute sale. (Article 1604, Ibid.)

c) Sale with right to repurchase

In case of doubt, a contract purporting to be a sale with right to repurchase shall be construed as an equitable mortgage. (Article 1603, Ibid.)

4) Reformation of instrument

In the cases referred to in Articles 1602 and 1604, the apparent seller may ask for the reformation of the instrument. (Article 1605, Ibid.)

5) For real property

a) When judicial order is required

In case of real property, the consolidation of ownership in the buyer by virtue of the failure of the seller to comply with the provisions of article 1616 shall not be recorded in the Registry of Property without a judicial order, after the seller has been duly heard.(Article 1607, Ibid.)

Cross-referenced article/s

The seller cannot avail himself of the right of repurchase without returning to the buyer the price of the sale, and in addition:

1) The expenses of the contract, and any other legitimate payments made by reason of the sale;

2) The necessary and useful expenses made on the thing sold.(Article 1616, Ibid.)

6) Seller’s right to bring action against possessor

The seller may bring his action against every possessor whose right is derived from the buyer, even if in the second contract no mention should have been made of the right to repurchase, without prejudice to the provisions of the Mortgage Law and the Land Registration Law with respect to third persons. (Article 1608, Ibid.)

7) Buyer is subrogated to the seller

The buyer is subrogated to the seller’s rights and actions. (Article 1609, Ibid.)

8) Creditors of the seller should exhaust seller’s property first

The creditors of the seller cannot make use of the right of redemption against the buyer, until after they have exhausted the property of the seller. (Article 1610, Ibid.)

9) Buyer of an undivided immovable

In a sale with a right to repurchase, the buyer of a part of an undivided immovable who acquires the whole thereof in the case of Article 498, may compel the seller to redeem the whole property, if the latter wishes to make use of the right of redemption. (Article 1611, Ibid.)

Cross-referenced article/s

Whenever the thing is essentially indivisible and the co-owners cannot agree that it be allotted to one of them who shall indemnify the others, it shall be sold and its proceeds distributed. (Article 498, Ibid.)

10) Several persons jointly selling undivided immovable in same contract

If several persons, jointly and in the same contract, should sell an undivided immovable with a right of repurchase, none of them may exercise this right for more than his respective share. (Article 1612, Ibid.)

The same rule shall apply if the person who sold an immovable alone has left several heirs, in which case each of the latter may only redeem the part which he may have acquired. (Paragraph 2, Article 1612, Ibid.)

a) Buyer’s right against co-sellers/co-heirs

Art. 1613. In the case of the preceding article, the buyer may demand of all the sellers or co-heirs that they come to an agreement upon the purchase of the whole thing sold; and should they fail to do so, the buyer cannot be compelled to consent to a partial redemption. (Article 1613, Ibid.)

b) Co-owner’s independent right of repurchase

Each one of the co-owners of an undivided immovable who may have sold his share separately, may independently exercise the right of repurchase as regards his own share, and the buyer cannot compel him to redeem the whole property. (Article 1614, Ibid.)

c) Right of redemption against heirs of buyer limited to their respective shares

GENERAL RULE: If the buyer should leave several heirs, the action for redemption cannot be brought against each of them except for his own share, whether the thing be undivided, or it has been partitioned among them. (Article 1615, Ibid.)

EXCEPTION: But if the inheritance has been divided, and the thing sold has been awarded to one of the heirs, the action for redemption may be instituted against him for the whole. (Paragraph 2, Article 1615, Ibid.)

11) Conditions for right of redemption against seller

The seller cannot avail himself of the right of repurchase without returning to the buyer the price of the sale, and in addition:

1) The expenses of the contract, and any other legitimate payments made by reason of the sale;

2) The necessary and useful expenses made on the thing sold. (Article 1616, Ibid.)

12) Fruits

a) Visible or growing fruits at time of sale

GENERAL RULE: If at the time of the execution of the sale there should be on the land, visible or growing fruits, there shall be no reimbursement for or prorating of those existing at the time of redemption. (Article 1617, Ibid.)

EXCEPTION: …  if no indemnity was paid by the purchaser when the sale was executed. (Ibid.)

b) No fruits at time of sale, but exist at time of redemption

Should there have been no fruits at the time of the sale and some exist at the time of redemption, they shall be prorated between the redemptioner and the buyer, giving the latter the part corresponding to the time he possessed the land in the last year, counted from the anniversary of the date of the sale. (Paragraph 2, Article 1617, Ibid.)

13) Recovered property free from all charges/mortgages constituted by buyer

GENERAL RULE: The seller who recovers the thing sold shall receive it free from all charges or mortgages constituted by the buyer. (Article 1618, Ibid.)

EXCEPTION: … but he shall respect the leases which the latter may have executed in good faith, and in accordance with the custom of the place where the land is situated. (Ibid.)

c. LEGAL REDEMPTION

1) Concept

Legal redemption is the right to be subrogated, upon the same terms and conditions stipulated in the contract, in the place of one who acquires a thing by purchase or dation in payment, or by any other transaction whereby ownership is transmitted by onerous title. (Article 1619, Ibid.)

a) When exercised

The right of legal pre-emption or redemption shall not be exercised except within thirty (30) days from the notice in writing by the prospective seller, or by the seller, as the case may be. (Article 1623, Ibid.)

The right of redemption of co-owners excludes that of adjoining owners. (Paragraph 2, Article 1623, Ibid.)

b) Recording in Registry of Property

The deed of sale shall not be recorded in the Registry of Property, unless accompanied by an affidavit of the seller that he has given written notice thereof to all possible redemptioners. (Article 1623, Ibid.)

c) Co-owner’s right of redemption excludes adjoining owners

The right of redemption of co-owners excludes that of adjoining owners. (Paragraph 2, Article 1623, Ibid.)

2) Right of redemption by co-owners in general

a) To pay reasonable price only

A co-owner of a thing may exercise the right of redemption in case the shares of all the other co-owners or of any of them, are sold to a third person. If the price of the alienation is grossly excessive, the redemptioner shall pay only a reasonable one. (Article 1620, Ibid.)

b) Pro rata redemption

Should two or more co-owners desire to exercise the right of redemption, they may only do so in proportion to the share they may respectively have in the thing owned in common. (Paragraph 2, Article 1620, Ibid.)

3) Right of redemption by co-owners of adjoining lands

a) Rural land

(1) Up to 1 hectare

GENERAL RULE: The owners of adjoining lands shall also have the right of redemption when a piece of rural land, the area of which does not exceed one hectare, is alienated. (Article 1621, Ibid.)

EXCEPTIONS:

1) Grantee does not own any rural land

The owners of adjoining lands shall also have the right of redemption unless the grantee does not own any rural land. (Ibid.)

2) Adjacent lands separated by apparent servitudes

This right is not applicable to adjacent lands which are separated by brooks, drains, ravines, roads and other apparent servitudes for the benefit of other estates. (Paragraph 2, Article 1621, Ibid.)

(2) Order of preference

If two or more adjoining owners desire to exercise the right of redemption at the same time, the owner of the adjoining land of smaller area shall be preferred; and should both lands have the same area, the one who first requested the redemption. (Paragraph 3, Article 1621, Ibid.)

b) Urban land

(1) Bought merely for speculation

(a) If for re-sale

Whenever a piece of urban land which is so small and so situated that a major portion thereof cannot be used for any practical purpose within a reasonable time, having been bought merely for speculation, is about to be re-sold, the owner of any adjoining land has a right of pre-emption at a reasonable price. (Article 1622, Ibid.)

(b) If re-sold already

If the re-sale has been perfected, the owner of the adjoining land shall have a right of redemption, also at a reasonable price. (Paragraph 2, Article 1622, Ibid.)

(2) Order of preference

When two or more owners of adjoining lands wish to exercise the right of pre-emption or redemption, the owner whose intended use of the land in question appears best justified shall be preferred. (Paragraph 3, Article 1622, Ibid.)

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