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CHAPTER 3

EFFECTS OF THE CONTRACT WHEN THE THING SOLD HAS BEEN


LOST
Distinction of different principles
Under ROMAN LAW principle,
o From the moment of perfection of the contract of sale the risk is borne by the
buyer but ownership is transferred to the buyer upon delivery. (RISK
transferred upon PERFECTION, but OWNERSHIP upon DELIVERY)
Under COMMON LAW,
o Res perit domino, the owner bears the risk of loss, so who ever is the owner
bears the loss, but ownership is transferred upon perfection of the contract.
Under CIVIL CODE,
o We follow res perit domino owner bears the risk of loss (COMMON), BUT
ownership is transferred from the moment of delivery (ROMAN).
Effect of Loss of the Thing Sold
Before Perfection
Seller bears the loss (RES PERIT DOMINO)
At the time of perfection
Total Loss (1493)
o the contract is inoperative at the time of the perfection of the contract, void
because no subject matter
Partial Loss (1494)
o option is with the buyer whether to proceed with the contract
Deterioration (1494)
o Equivalent to LOSS, TOTAL LOSS.
After perfection and before delivery
By the fault of one party (1480, 1538)
o If the obligation consist of the delivery of a determinate thing the SELLER
shall bear the loss if he was in:
Delay
assumes the loss
promises the same thing to two or more persons
By fortuitous event (1480, 1504, 1538)
o there are two theories:
o as per 1262 which states the obligation which consist in the delivery of a
determinate thing shall be extinguished if it should be lost or destroyed
without the fault of the debtor(seller) and before he has incurred in delay
Which would mean THE BUYER BEARS the risk of loss. So in case
of loss due to Fortuitous event the sellers obligation to deliver is
extinguished but the buyer is still obliged to pay the price.
Interpretation of PARAS and PADILLA. Consistent with OBLICON.

BUT as per Judges interpretation, this situation will create a unilateral


contract which would be unfair to the buyer. Paying the money without ever
acquiring ownership over the property.
TOLENTINO says that if it is due to fortuitous event, obligation of the
seller is extinguished likewise the obligation too of the buyer should
be extinguished since sale is a bilateral contract (if the seller cannot
perform then it is unjust to require the buyer to perform). This is
more equitable and Res Perit Domino applies
But there are instances that property is already transferred to the
buyer although ownership is retained by the seller ONLY FOR THE
PURPOSE of insuring the payment of the purchase price. But the
property is already delivered to the buyer.
Again the purpose of RESERVING OWNERSHIP is to secure
payment of the purchase price. Now if the thing is lost, the court has
ruled that the loss is borne by the buyer. (GAISANO CASE)

Case:
1504 par. 1 Applied (Gaisano v. Insurance Company)
The Gaisano Superstore Complex in Cagayan de Oro City was consumed by fire,
including stocks of ready-made clothing materials sold and delivered by Intercapitol
Marketing Corp. (IMC) and Levi Strauss (Phils), Inc. (LSPI).
IMC and LSPI filed claims under their respective fire insurance policies, and made
several demands for payment for the clothing materials.
GCI contends that it cannot be held liable because the property covered by the
insurance policies were destroyed due to fortuitous event, and despite delivery, IMC
and LSPI assumed the risk of loss when they cured fire insurance policies over the
goods
o the sales invoices state that "it is further agreed that merely for purpose of
securing the payment of purchase price, the above-described merchandise
remains the property of the vendor until the purchase price is fully paid", IMC
and LSPI retained ownership of the delivered goods and must bear the loss
HELD: What were insured against were the accounts of IMC and LSPI with GCI
which remained unpaid 45 days after the loss through the fire, and not the loss or
destruction of the goods delivered.
ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk until the
ownership therein is transferred to the buyer, but 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, except that:
o (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

After delivery
Buyer bears the loss (Res perit domino)
CHAPTER 4

OBLIGATIONS OF THE VENDOR


GENERAL OBLIGATION

To PRESERVE the thing


to take care of the thing sold with the diligence of a good father of a family unless the
law or the stipulation requires another standard of care. (Art. 1163).
In case of loss, deterioration or improvement of the thing BEFORE delivery, the rules
under Art. 1189 shall be observed, the vendor being considered the debtor. (Art.
1538)
To DELIVER the thing sold
The vendor 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. All the fruits shall
pertain to the vendee from the day on which the contract is PERFECTED. (Art. 1537)
As a RULE, the creditor has the right to the fruits of the thing from the time the
obligation to deliver arises (Art. 1164),
o But in a contract of sale, the fruits shall pertain to the buyer from the day
the contract was perfected. (Art. 1537) The parties may, however, stipulate
that the fruits of the thing sold shall pertain to the buyer at some future time
such as when the obligation is one with a period.

Form (Manner) of Delivery


o Physical or Real or Actual (Art. 1497)
The thing sold shall be understood as delivered, when it is placed in
the control and possession of the vendee. This involves the physical
delivery of the thing and is usually done by the passing of a movable
thing from hand to hand
Note: Delivery without the intention to transfer ownership on the part
of the seller will not transfer ownership. i.e. The parties may stipulate
that ownership in the thing shall not pass to the purchase until he
has fully paid the price (Art. 1478)
o

Constructive or Legal Delivery


By traditio symbolica (Art. 1498)
Symbolic delivery by the execution of a public instrument is
equivalent to actual delivery only when the thing is subject to
the control of the vendor. Hence, the vendor who executes
said public instrument fails in his obligation to deliver it if the
vendee cannot enjoy its possession because of the

opposition or resistance of a third person (eg, squatter) who


is in actual possession (Addison vs Felix Tioco 38 Phil 404)
The parties make use of a token symbol to represent the
thing delivered, i.e. with regard to movable property the
delivery of the key where the thing sold is stored or kept is
equivalent to the delivery of the thing.

By traditio longa manu(Art. 1499)


Traditio longa manu takes place by the mere consent or
agreement of the contracting parties as when the vendor
merely points to the thing sold which shall thereafter be at
the control and disposal of the vendee. It should be noted
that delivery by mere consent or agreement of the
contracting parties is qualified by the phrase if the thing
sold cannot be transferred to the possession of the vendee
at the time of the sale.

traditio brevi manu


Happens when the vendor has already the possession of the
thing sold by virtue of another title (which is not ownership)
and continues to hold the possession thereof under a title of
ownership, i.e. as when the lessor sells the thing leased to
the lessee. Instead of the vendee turning over the thing to
the vendor so that the latter may, in turn, deliver it back to
him, all these are considered done by fiction of law.

By quasi-traditio or quasi-delivery (Art. 1501)


delivery of incorporeal things or rights

Traditional/delivery
can only be made with respect to corporeal things.
In the case of incorporeal things, delivery is effected:
o by the execution of a public instrument
o when that mode of delivery is not applicable, by
placing of the titles of ownership in the possession of
the vendee
o by allowing the vendee to use his rights as new
owner with the consent of the vendor

De constituto (constitutum possessorium) (Art. 1500)


This mode of delivery is the opposite of traditio brevi manu. It
takes place when the vendor continues in possession of the
property sold not as owner but in some other capacity, as for
example, when the vendor stays as a tenant on the vendee.

In this case, instead of the vendor delivering the thing to the


vendee so that the latter may, in turn, deliver it back to the
vendor, the law considers that all these have taken place
through the constitutum possessorium agreement.

Cases
When Execution of public document not equivalent to delivery (Asset Privatization
Trust v. TJ Enterprises)
Petitioner Asset Privitization Trust (APT) had acquired from the Development Bank of the
Philippines (DBP) assets consisting of machinery and refrigeration equipment which were
then stored at Golden City compound, Pasay City
The compound was then leased to and in the physical possession of Creative Lines, Inc.
These assets were being sold on an as-is-where-is basis.
Petitioner and respondent entered into an absolute sale over certain machinery and
refrigeration equipment.
Respondent paid the full amount and demanded the delivery of the machinery it had
purchased.
o During the hauling of Lot No.2 consisting of 16 items, only 9 items were pulled out
by respondent.
This prompted the respondent to file a complaint for specific performance and damages
against petitioner and Creative Lines.
During the pendency of the case, respondent was able to pull out the remaining
machinery and equipment.
o However, upon inspection it was discovered that the machinery and equipment were
damaged and had missing parts.
APT argued that there has already been constructive delivery by virtue of the deed of
sale executed and being a sale of as-is-where-is basis, it was the duty of TJ Enterprises
to take care of the property.
RTC ruled that there was no constructive delivery at the time of the sale, APT did not
have control over the machinery and equipment. Thus, it could not transfer ownership.
CA affirmed the decision of the trial court.
Issue: Whether or not the presence of the disclaimer or warranty in the deed of
absolute sale absolves it from all warranties
Ruling:
APTs contention is without merit
As a general rule, 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.
And 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

In order for the execution of a public instrument to effect tradition, the


purchaser must be placed in control of the thing sold.
However, the execution of a public instrument only gives rise to a prima facie
presumption of delivery. Such presumption is destroyed when the delivery is not
effected because of a legal impediment.
o It is necessary that the vendor shall have control over the thing sold that, at
the moment of sale, its material delivery could have been made.
Thus, a person who does not have actual possession of the thing sold cannot
transfer constructive possession by the execution and delivery of a public instrument.
In this case, there was no constructive delivery of the machinery and equipment upon
the execution of the deed of absolute sale or upon the issuance of the gate pass
since it was not petitioner but Creative Lines which had actual possession of the
property.
o The presumption of constructive delivery is not applicable as it has to yield to
the reality that the purchaser was not placed in possession and control of the
property.
o

Rule in Sale of Registered Land, Sec. 51. PD 1529 (Heirs of Mascunana v. CA)*
Facts:
Gertrudis Wuthrich and her 6 siblings were the co-owners of a parcel of land and
Gertrudis and two other co-owners sold each of their one-seventh (1/7) shares to
Jesus Mascuana.
The latter then sold a portion of his 140-square-meter undivided share of the property
to Diosdado Sumilhig and later sold an additional 160-square-meter portion to
Sumilhig.
However, the parties agreed to revoke the said deed of sale and, in lieu, executed a
Deed of Absolute Sale, in which Estabillo deeded to Mascuana a portion of his
property abutting that of Sumilhig on the southeast
In the said deed, Mascuana sold an undivided 469-square-meter portion of the
property for P4,690.00, with P3,690.00 as downpayment.
o That the balance P1,000.00 shall be paid as soon as they are surveyed in
the name of the VENDEE and all papers pertinent and necessary to the
issuance of a separate Certificate of Title in the name of the VENDEE shall
have been prepared
Mascuana and Estabillo executed a Deed of Exchange and Absolute Sale of Real
Estate.
Sumilhig executed a Deed of Sale of Real Property in favor of Corazon Layumas.
The spouses Layumas then had the property subdivided into two and took
possession of the property and allowed a chapel to be constructed.
Spouses Layumas allowed Aquilino Barte to stay on a portion of the property to ward
off squatters.
Unknown to the spouses Layumas, a title was issued in the name of Jesus
Mascuana.

The heirs of Mascuana filed a Complaint for recovery of possession B and


damages with a writ of preliminary injunction, alleging that they owned the
subject lot by virtue of successional rights from their deceased father.
Barte raised the following special defenses: (a) the petitioners were estopped from
asserting ownership over the lot in question because they did not object when he
occupied the said portion of the lot; (b) neither did the petitioners protest when a
church was built on the property, or when residential houses were constructed
thereon; (c) the petitioners still asked Barte and the other occupants whether they
had notified Rodolfo Layumas of the constructions on the property; and (d) the heirs
of Mascuana, through the lawyer of Mrs. Renee M. Tedrew, even wrote a letter
expressing her willingness to buy the subject property. The trial court and the CA
rendered judgment in favor of Barte and the spouses Layumas. Petitioners filed the
instant petition for review on certiorari with this Court.
o

Issue: Was the Sale Made by Mascunana in favor of Diosdado sumilhig a contract to sell or
contract of sale?
Ruling:
While it is true that Jesus Mascuana executed the deed of absolute sale over the
property on August 12, 1961 in favor of Diosdado Sumilhig for P4,690.00, and that it
was only on July 6, 1962 that TCT No. 967 was issued in his name as one of the coowners of Lot No. 124, Diosdado Sumilhig and the respondents nevertheless
acquired ownership over the property.
The deed of sale executed by Jesus Mascuana in favor of Diosdado Sumilhig on
August 12, 1961 was a perfected contract of sale over the property. A perfected
contract of sale cannot be challenged on the ground of the non-transfer of ownership
of the property sold at that time of the perfection of the contract, since it is
consummated upon delivery of the property to the vendee.
o It is through tradition or delivery that the buyer acquires ownership of the
property sold.
As provided in Article 1458 of the New Civil Code, when the sale is made through a
public instrument, the execution thereof is equivalent to the delivery of the thing
which is the object of the contract, unless the contrary appears or can be inferred.
The record of the sale with the Register of Deeds and the issuance of the certificate
of title in the name of the buyer over the property merely bind third parties to the sale.
o As between the seller and the buyer, the transfer of ownership takes effect
upon the execution of a public instrument covering the real property.

Long before the petitioners secured a Torrens title over the property, the respondents
had been in actual possession of the property and had designated Barte as their
overseer.
To TRANSFER OWNERSHIP

GENERAL RULE: The ownership of the thing sold is acquired by the vendee from the
moment the thing is delivered to him. (Art. 1496)
EXCEPTIONS: WHEN DELIVERY DOES NOT TRANSFER TITLE
a. Delivery on approval, trial or satisfaction
Sale on approval or on trial or satisfaction ownership of the goods remains
with the seller despite delivery but shall be transferred to the buyer in the
following cases:
o When he signifies his approval or acceptance
o When he does an act adopting the transaction
o When he retains the goods without giving notice of rejection within the
time fixed or within a reasonable time, and such time has expired. (Art.
1502)
b. In case of express reservation of the title in the seller
Paragraph 1 of Article 1503 provides:
o Where 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.
c. Implied reservation of the title (1503 par 2,3,4)
a. If under the bill of lading the goods are deliverable to the seller or agent or
their order. (Reason, the buyer cannot get the goods.)
o 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.
b. If bill of lading, although stating that the goods are to be delivered to buyer or
his agent, is KEPT by the seller or his agent. (the buyer also cannot get the
goods)
c. 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. But of course innocent
third parties (innocent holders and purchasers for value) should not be
adversely affected.
o 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.
Example: S sold B a laptop. The laptop was shipped on board a carrier. The
bill of lading stated that the laptop is deliverable to the order of B. The bill of
lading was sent to B, accompanied by a bill of exchange which B was
supposed to honor. If B does not honor the bill of exchange, but wrongfully
retains the bill of lading, ownership remains with the seller. If B sells the bill of
lading to X, X can obtain ownership of the goods if he is an innocent
purchaser.
Note: Bill of lading A document evidencing a contract for the carriage and
delivery of the listed goods.
Bill of exchange A written instrument providing proof of an obligation to
pay money.

Case
Determination of place of consummation of contract for purposes of imposing sales
tax (Butuan Sawmill v. CTA)
During the period of January 31, 1951 to June 8, 1953, Butuan Sawmill Inc. sold logs
to Japanese firms at prices FOB Vessel Magallanes, Agusan.
The FOB prices included costs of loading, wharfage stevedoring and other costs in
the Philippines.
The freight was paid by the Japanese buyers and the payments of the logs were
effected by means of letters of credit in favor of petitioner and payable through the
Philippine National Bank or any other bank named by it.
Upon investigation by the Bureau of Internal Revenue, it was ascertained that no
sales tax was filed by petitioner and neither did it pay the corresponding tax on sales.
Petitioner contends that the disputed sales were consummated in Japan, and,
therefore, not subject to the taxing jurisdiction of our Government.
The lower court upheld the legality and correctness of the amended assessment of
the sales tax and surcharge, ruling that the sales in question were domestic or local
sales, and therefore subject to sales tax under the provisions of the Tax Code.
ISSUE: Who shall bear the expenses of delivery?

d. Sale to two different persons by the same seller (1544)


Art. 1544. If the same thing should have been sold to different vendees, the
ownership shall be transferred to the person who may have first taken
possession thereof in good faith, if it should be movable property.
Should it be immovable property, the ownership shall belong to the person
acquiring it who in good faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who
in good faith was first in the possession; and, in the absence thereof, to the
person who presents the oldest title, provided there is good faith.
e. When the seller is not the owner (1505)
When goods are sold by a person who is not the owner thereof, the buyer
acquires no better title than the seller had, except in the following cases:
o Made under the authority or with the consent of the owner
o Owner is precluded by his conduct from denying the sellers authority
to sell
o Made under the provisions of any factors acts, recording laws or any
other provisions of law enabling the apparent owner to dispose of the
goods as if he were the true owner thereof. (1505)
o Made under statutory power of sale or under the order of court
(1505)
o Made in a merchants store, or in fairs, or markets. (1505)

RULING:
SC ruled that the export sales have been consummated in the Philippines and were,
accordingly, subject to sales tax therein.
o Expenses of and incidental to putting the goods into a deliverable state must
be borne by the seller unless otherwise agreed by the parties.
That the specification in the bill of lading to the effect that goods are deliverable to the
order of the seller or his agent does not necessarily negate the passing of title to the
goods upon delivery to the carrier is clear from the 2nd paragraph of Article 1503 of
the Civil Code.
REVESTING OF TITLE THAT HAS PASSED TO THE BUYER
1. Stoppage in transitu
This right involves the right of the unpaid seller to resume possession of the goods at
any time while they are in transit, and he will then become entitled to the goods as he
would have had if he had never parted with the possession. (Art. 1530)
2. Delivery to the buyer on sale or return
Sales or return the ownership of the goods is transferred to the buyer on delivery,
but the buyer has the option to revest their ownership on the seller by returning them
within the time fixed in the contract, or if no time has been fixed, within a reasonable
time. (Art. 1502)
3. In case of danger of loss of the thing and the price

DOCUMENTS OF TITLE TO THE GOODS


DEFINITION (Art 1636)
o "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.
KINDS (Negotiable and Non-negotiable)
Negotiable
Definition
o A negotiable document of title is one in which it is stated that the goods will be
delivered to bearer, or to the order of any person named in such document. (1507)
Negotiation
Ways

By Delivery (1508 par. 1)


o If by the terms of the document the carrier, warehouseman or other bailee
issuing the same undertakes to deliver the goods to the bearer.(deliverable
to bearer)
o Effect of special indorsement of a document of title which states that the
goods are deliverable to bearer:
The document of title becomes an order document of title.
Consequently, it may be further negotiated by the indorsee only by
indorsement completed by delivery.
o If by the terms of the document of title, the carrier, warehouseman, or other
bailee issuing it undertakes to deliver the goods to the order of a specified
person and such person or a subsequent indorsee of the document has
indorsed it in blank or to bearer
By Indorsement plus delivery (1508 par 2)
o If 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 speci ed

person and such person or a subsequent indorsee of the document has


indorsed it in blank or to the bearer. (deliverable to the order of a certain
person)
Such indorsement may take any of the following forms:
Blank indoresment It does not specify the name of the indorsee
and can be negotiated further by mere delivery.
To bearer where the indorsement states that the goods are
deliverable to bearer. It can be further negotiated by delivery.
Special indorsement where the name of the indorsee is specified. It
can only be negotiated further by indorsement and delivery.

Validity of negotiation (1518)


The validity of the negotiation, if the person to whom the document is negotiated or a
person to whom the document is subsequently negotiated was a purchaser for value
in good faith and without notice, is not impaired by the following:
o That the negotiation was made in breach of duty of the person negotiating
o That the owner of the document was deprived of the possession of the same
by loss, theft, fraud, accident, mistake, duress or conversion.
Who may negotiate (1512)
By the owner thereof
By the person to whom the possession or custody of the document has been
entrusted by the owner in the following cases:
o If by the terms of the document, the bailee issuing the document, undertakes
to deliver the goods to the person to whom the possession or custody of the
document has been entrusted.
o If, at the time of such entrusting the document, it is in such form that it may
be negotiated by delivery.
Warranties of the person negotiating (1516)
A person who for value negotiates or transfers a document of title by indorsement or
delivery, inlcuding one who assigns for value a claim secured by a document of title
unless a contrary intention appears warrants the following:
o The the document is genuine
o That he has the legal right to negotiate or transfer it
o That he has knowledge of no fact which would impair the validity or worth of
the document
o 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 impaired if the contract of the parties had been to transfer without
a document of title the goods represented thereby. ( These refer to the
warranty against eviction and warranty against hidden defects )

Non negotiable
A non negotiable document of title is one in which its is stated that the goods are to
be delivered to a specified person. (e.g. Deliver the goods to EDUARD)

GENERAL RULE: The goods covered by a negotiable document of title cannot be


attached or levied upon except:
o When the document is surrendered to the bailee; or
o The negotiation of the document is enjoined.

Remedy of the creditor of a debtor-owner of goods


The creditor can ask the courts for an order attaching the document of title or
enjoining the delivery of the goods to the debtor owner. (1520)
Rights of the transferee of a document of title
Under a non negotiable document of title
Right of the transferre
o The title to the goods as against the transferror, subject to the terms of any
agreement with the transferor.
o The right to notify the bailee (warehouseman or carrier) of the transfer to him
of the document of title 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
Effect of lack of notification
o The title of the transferee to the goods and right to acquire the obligation of
the bailee may be defeated by the following:
The levy of an attachment or execution upon the goods by the
creditor of the transferor
A notification to such bailee by the transferor or a subsequent
purchaser from the transferor of a subsequent sale of the goods by
the transferor
Under a negotiable document of title
A person to whom a negotiable document of title has been duly negotiated acquires
thereby:
o 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;
o 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.
o The right to compel the transferor to indorse the document unless a contrary
intention appears (1515)
Levy, or garnishment of goods covered by a document of title
When covered by a negotiable document of title

Rights of the Baillee


The bailee cannot be compelled to surrender the goods, except:
o When the document is surrendered to him; or
o The document is impounded by the court
When covered by a non-negotiable document of title (The goods may be levied upon)
The goods covered by a non-negotiable document of title may be attached or levied
upon in execution although the document is not surrendered to the bailee before prior
notification of the transferee to the baillee
TIME AND PLACE OF DELIVERY
TIME
Time stipulated
Cases
Timeliness of delivery in light of the stipulations in the contract (Smith, Bell and Co v.
Sotelo Matti)
Smith Bell and Matti entered into a contract where Smith Bell would deliver the steel
tanks from New York to Manila within 90 days, but the tanks arrived later than
expected. Matti refused to accept due to delay
ISSUE: WON Smith Bell was able to comply with its obligation in due time
Ruling:
It cannot be said that a definite date was fixed for the delivery of the goods. The
period was subject to contingencies, and there were the phrases as soon as
possible and this is not guaranteed
Contracts were entered into during the world war. The term which the parties
attempted to fix is so uncertain that one cannot tell just whether those articles could
be brought to Manila or not. The obligation must be regarded as conditional. The
delivery was subject to a condition the fulfillment of which depended not only upon

the effort of herein plaintiff, but also upon the will of 3rd persons (the US
Government)
In cases like this, obligor will be deemed to have sufficiently performed his part of the
obligation, if he has done all that was in his power, even if the condition has not been
fulfilled in reality.
When the time of delivery is not fixed in the contract, time is regarded unessential.
o In such case, delivery must be made within a reasonable time
Here, it is shown that plaintiff did all within its power to have the machinery arrive at
Manila as soon as possible, and immediately upon its arrival, notified the purchaser
of the fact and offered to deliver it to him. We hold that said machinery was brought
within a reasonable time
If there is no stipulation, delivery must be made within a reasonable time from the
execution of the contract. (1521)
Delivery; when time is of the essence (Lorenzo Shipping Corp v. BJ Marthel
International)
In determining whether time is of the essence in a contract, the ultimate criterion is
the actual or apparent intention of the parties and before time may be so regarded by
a court, there must be a sufficient manifestation, either in the contract itself or the
surrounding circumstances of that intention. The law implies, however, that if no time
is fixed, delivery shall be made within a reasonable time, in the absence of anything
to show that an immediate delivery intended.
PLACE
Place stipulated
If there is no stipulation, place fixed by usage or trade
In the absence of both, the sellers place of business if he has one; if non, the sellers
place of residence. However, in the case of sale of specific goods, which to the
knowledge of the parties when the contract was made were in some other place, that
place shall be the place of delivery. (1521)
DELIVERY TO THE CARRIER
Rule
Case:
At what point the articles were considered delivered to the buyer (Behn, Meyer and Co
v. Yangco)
Determination of the place of delivery resolves itself into a question of fact.
If the contract be silent as to the person or mode by which the goods are to be sent,
delivery by the vendor to a common carrier, in the usual and ordinary course of
business, transfers the property to the vendee.
A specification in a contact relative to the payment of freight can be taken to indicate
the intention of the parties in regard to the place of delivery.
If the buyer is to pay the freight, it is reasonable to suppose that he does so because
the goods become his at the point of shipment.

On the other hand, if the seller is to pay the freight, the inference is equally so strong
that the duty of the seller is to have the goods transported to their ultimate destination
and that title to property does not pass until the goods have reached their destination.
The letters "c.i.f." found in British contracts stand for cost, insurance, and freight.
o They signify that the price fixed covers not only the cost of the goods, but the
expense of freight and insurance to be paid by the seller.
The contract, in addition to the letters "c.i.f.," has the word following, "Manila."
Under such a contract, an Australian case is authority for the proposition that no
inference is permissible that a seller was bound to deliver at the point of destination.
In mercantile contracts of American origin the letters "F.O.B." standing for the words
"Free on Board," are frequently used. The meaning is that the seller shall bear all
expenses until the goods are delivered where they are to be "F.O.B." According as to
whether the goods are to be delivered "F.O.B." at the point of shipment or at the point
of destination determines the time when property passes.

EXPENSES OF DELIVERY ARE BORNE BY THE SELLER (1247) (1521 last par.)
Unless it is otherwise stipulated, the extrajudicial expenses required by the payment
shall be for the account of the debtor. With regard to judicial costs, the Rules of Court
shall govern (1247)
The seller bears the expenses of and incidental to putting the goods into a
deliverable state, unless otherwise stipulated. (1521)

RIGHTS OF THE UNPAID SELLER


DEFINITION
An unpaid seller is one who has not been paid or tendered the whole of the price has
received a bill of exchange or other negotiable instrument as conditionla payment
and the condition under which it was received has been broken by reason of the
dishonor of the instrument, the insolvency of the buyer, or otherwise. (1525)
RIGHTS OF THE UNPAID SELLER
Possessory lien, or lien on the goods or right to retain them while he is in
possessionof the (1526)
When Lien exists
This right is available to the seller and notwithstanding the he may be in possession
of the goods as agent or bailee for the buyer in the following instances: (Requisites)
o When the goods have been sold without any stipulation as to credit
o Where the goods have been sold on credit, but the credit term has expired
o Where the buyer is insolvent (1527)
Lien where there is partial delivery he may exercise his right of lien on the
remainder, unless such part delivery has been made under such circumstances as to
show and intent to waive or right of retention. (1528)

When lien is lost


The unpaid seller losses his lien on the goods in the following cases:
o 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.
o When the buyer or his agent lawfully obtains possession of the goods
o By waiver thereof (1529)
The unpaid seller having lien on the goods does not lose his lien by reason only
that he has obtained judgment or decree for the price of the goods. (1529)
Right of stoppage in transitu
When available (Requisites)
The buyer is insolvent (1526 par 2 and 1530)
The goods are in transit (1530)
Unpaid seller has parted with the possession of the goods
Effect of partial delivery (1528)
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
The partial delivery may have been made under such circumstances as to show an
intent to waive:
o (a) the lien;
o (b) or right of retention
How Stoppage in transit is exercised (1532)
By obtaining actual possession OR
By giving notice of his claim to the carrier or other bailee in whose possession the
goods are
o The notice maybe given either to the person in actual possesion of the goods
or to his principal.

If given to the principal, 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 delivery to the buyer.
o When notice of stoppage in transit is given to the carrier or other bailee for
the buyer, he must redeliver the goods to, or according to the instructions of
the seller, with the seller bearing the expenses of the delivery. However, if a
negotiable document of title representing the goods has been issued, the
carrier or other bailee shall not be obliged or justified in delivering the goods
to the seller unless such document is first surrendered to him. (1532)
Effects of the exercise of this right
The goods are no longer in transit

Carrier shall be liable as depositary or other bailee


Carrier must deliver the goods to, or according to the instructions of the seller
Right of RESALE
When available (Requisites)
An unpaid seller having a right of lien or having stopped the goods in transitu may
resell the goods on the ground of any of the following:
o Goods are of a perishable nature
o Seller has expressly reserved the right to resell in case of default
o The buyer has been in default for an unreasonable time (1533)
Notice of resale to the buyer
Notice need not be given to the original buyer of the intention to resell the goods for
the validity of the resale. However, if the basis of the resale is not the perishable
nature of the goods or upon an express provision in a contract of sale, the giving or
failure to give notice shall be relevant in any issue involving the question whether
the buyer has been in default for an unreasonable time before the resale was made.
It is not likewise essential to the validity of the resale that notice of the time and
place of such resale should be given by the seller to the original buyer. (1533)
Notice of the ground is relevant for the seller to recover loss
How resale is made
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.
He cannot, however, directly or indirectly buy the goods. (n) (1533)
Effects of resale
The seller shall not thereafter be liable to the original buyer upon the contract of sale
or for any profit made by such resale
Seller may recover from the buyer damages for any loss occasioned by the breach
of the contract of sale.
Where a resale is made, the buyer acquires a good title as against the original
buyer.
Right to rescind the sale (1526)
How rescission is made (Rule on Notice of intention to rescind)
By giving notice to the buyer of the intention to rescind
By doing an overt act manifesting the intention to rescind
o Importance of notice when rescission is made by doing an overt act
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. (1534)
Effects of rescission
The seller shall not thereafter be liable to the buyer upon the contract of sale may
recover from the buyer damages for any loss occasioned by the breach of the
contract.
The seller resumes the ownership of the goods
Effect of sale or other disposition of the goods by the original buyer on the right of the
unpaid seller
General rule
The sellers possessory lien or right of stoppage in transitu is not affected by any sale
or disposition of the goods made by the buyer.
Exceptions
When the seller has assented to the sale of the buyer
When a negotiable document of title representing the goods has been negotiated to
a purchaser for value in good faith (1535)
ARTICLE 1536 1543 Completeness of Delivery
A. Real estate
Where it is sold per unit or number
The vendor shall deliver those that are mentioned in the contract of sale. However, if
the actual area is more or less than the area specified in the contract, or if a part of
the immovable is not of the quality specified therein, the following rules shall be
observed
If the actual area is less than the stated in the contract. (1539) The buyer may:
o Ask for the reduction of the price if the lack in area is less than 1/10 of that
stated in the contract, unless the vendee would have not bought the thing
had he known of its smaller area, in which case, he may opt to rescind the
sale
o Rescind the sale if the lack in the area is not less than 1/10 of that stated
If the actual area is more than that stated in the contract (1540) The buyer may:
o Accept the area stated in the contract and reject the rest
o Accept the whole area and pay for them at the contract rate
If the areas is the same but a part of the immovable is not of the quality specified in
the contract (1539)
o Ask for the reduction of the price if the lack in area is less than 1/10 of that
stated in the contract, unless the vendee would have not bought the thing
had he known of its inferior quality, in which case, he may opt to rescind the
sale
o Rescind the sale if the inferior value of the thing exceeds 1/10 of the price
agreed

Case:
Cebu Winland Development Corp v. Ong Siao Hua
FACTS:
Cebu Winland Development Corporation is the owner and developer of a
condominium project called the Cebu Winland Tower Condominium. Ong Siao Hua is
a buyer of two condominium units and four parking slots from petitioner.
Respondent bought two condominium units as well as four parking slots. The area
per condominium unit as indicated in petitioners price list is 155 square meters and
the price per square meter is P22,378.95. The price for the parking lot is P240,000
each. Respondent, therefore, paid P2,298,655.08 as down payment and issued 24
postdated checks in the amount of P223,430.70 per check for the balance of the
purchase price in the total amount of P5,362,385.
On October 10, 1996, possession of the subject properties was turned over to
respondent. The deeds of absolute sale have yet to be signed by Ong Siao Hua.
In the deed of absolute sale of Units, respondent was distressed to find that the
stated floor area is only 127 square meters contrary to the area indicated in the price
list which was 155 square meters. Respondent caused a verification survey of the
said condominium units and discovered that the actual area is only 110 square
meters per unit. Respondent demanded from petitioner to refund the amount of
P2,014,105.50 representing excess payments for the difference in the area.
However, petitioner refused to refund the said amount to respondent. On August 7,
1998, respondent filed a complaint before House and Land Regulatory Board
(HLURB) to refund the amount representing excess payments for the difference in
the area.
HLURB Arbiter dismissed the complaint. It ruled that Cebu Winland is not guilty of
misrepresentation and the action of Ong Siao Hua has already prescribed pursuant
to Art. 1543 of the Civil Code. The subject properties have been delivered on October
10, 1996 and respondent filed his complaint only on August 7, 1998.
Aggrieved, Ong Siao Hua appealed to the Board of HLURB. It affirmed the decision
of the Arbiter with modifications. It ruled that the contract is subject to rescission
based on Arts. 1330 and 1331 of the Civil Code. It said that there was a mistake in
the object of sale.

Not satisfied with the decision of the Board, petitioner appealed to the Office of the
President. It rendered a decision that the action of the respondent has already
prescribed.
Ong Siao Hua appealed before the Court of Appeals. It rendered a decision that the
action of respondent has not prescribed.
Hence, Cebu Winland Corporation made an appeal before the Supreme Court.

ISSUE:
1.

Whether or not there has been complete delivery;

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2.
3.
4.

Whether or not Ong Sia Huas action has already prescribed;


Whether the sale is sold per unit or lump sum.
Applicable rules in the sale sold per unit or lump sum.

RULING:
On the issue of delivery
SC ruled that there has been no complete delivery yet.
Delivery as used in the Law on sales refers to the concurrent transfer of 2 things:
possession and ownership. This is the rationale behind the jurisprudential doctrine that
presumptive delivery via execution of a public instrument is negated by the reality that the
vendee actually failed to obtain material possession of the land subject of the sale. In the
same vein, if the vendee is placed in actual possession of the property, but by agreement of
the parties ownership of the same is retained by the vendor until the vendee has fully paid the
price, the mere transfer of the possession of the property subject of the sale is not the
delivery contemplated in the Law on Sales or as used in Article 1543 of the Civil Code.
In the case at bar, it appears that respondent was already placed in possession of the subject
properties. However, it is crystal clear that the deeds of absolute sale were still to be
executed by the parties upon payment of the last installment. This fact shows that ownership
of the said properties was withheld by petitioner. Following case law, it is evident that the
parties did not intend to immediately transfer ownership of the subject properties until full
payment and the execution of the deeds of absolute sale. Consequently, there is no
delivery to speak of in this case since what was transferred was possession only and not
ownership of the subject properties.
On the issue of prescription
SC ruled that the action of the respondent has not yet prescribed.
Under Article 1543, the actions arising from Articles 1539 and 1542 shall prescribe in
six months, counted from the date of delivery.

In the case at bar, it has already been ruled that there has been no delivery yet.
There has been no transfer of ownership of the subject properties since the deeds of
absolute sale have not yet been executed by the parties. What has been transferred
was possession only and not of the subject properties.

Is the sale sold per unit or lump sum?


The sale entered into is a sale sold per unit.
In the case at bar, it is undisputed by the parties that the purchase price of the subject
properties was computed based on the price list prepared by petitioner, or P22,378.95 per
square meter. Clearly, the parties agreed on a sale at a rate of a certain price per unit of
measure and not one for a lump sum. Hence, it is Article 1539 and not Article 1542 which is
the applicable law. Accordingly, respondent is entitled to the relief afforded to him under
Article 1539, that is, either a proportional reduction of the price or the rescission of the
contract, at his option. Respondent chose the former remedy since he prayed in his

Complaint for the refund of the amount of P2,014,105.50 representing the proportional
reduction of the price paid to petitioner.
Rules applicable in sale sold per unit or number and lump sum.
Sold per unit
vendor shall be obliged to deliver to the vendee all that may been stated in contract.
IF NOT POSSIBLE, the vendee has two options:
proportional reduction of the price or
rescission of the contract.
Lump sum
no increase or decrease of the price, although there be a greater or lesser area or
number than that stated in the contract.
Where it is sold for a lump sum or a single price (1542)
Area to be delivered. The vendor is bound to deliver all that it is included within the
boundaries stated in the contract although there be greater or less area or number
than that stated in the contract.
The price to be paid by vendee. He shall pay the lump sum stipulated with no
increase or decrease in the price although there be greater or less area or number
than that stated in the contract.
Buyers remedies if the vendor does not deliver the area within the boundaries stated
in the contract
o Proportionate reduction in price OR
o Rescind the contract
Cases
Distinction between 1539 (unit price contract) and 1542 (lump sum contract) (Rudolf
Lietz Inc v CA)
Art. 1542. 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 lesser area or number than that stated in
the contract.
o The same rule shall be applied when two or more immovables are sold for a
single price;
o 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 vendor 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 vendee does not accede to the failure to
deliver what has been stipulated.
Article 1539 governs a sale of immovable by the unit, that is, at a stated rate per unit
area.

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In a unit price contract, the statement of area of immovable is not conclusive


and the price may be reduced or increased depending on the area actually
delivered.
o If the vendor delivers less than the area agreed upon, the vendee may oblige
the vendor to deliver all that may be stated in the contract or demand for the
proportionate reduction of the purchase price if delivery is not possible.
o If the vendor delivers more than the area stated in the contract, the vendee
has the option to accept only the amount agreed upon or to accept the whole
area, provided he pays for the additional area at the contract rate.
In some instances, a sale of an immovable may be made for a lump sum and not at a
rate per unit. The parties agree on a stated purchase price for an immovable the area
of which may be declared based on an estimate or where both the area and
boundaries are stated.
In the case where the area of the immovable is stated in the contract based on an
estimate, the actual area delivered may not measure up exactly with the area stated
in the contract. A
ccording to Article 1542 of the Civil Code, 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 lesser area or
number than that stated in the contract.
However, the discrepancy must not be substantial.
o A vendee of land, when sold in gross or with the description more or less
with reference to its area, does not thereby ipso facto take all risk of quantity
in the land. The use of more or less or similar words in designating quantity
covers only a reasonable excess or deficiency
Where both the area and the boundaries of the immovable are declared, the area
covered within the boundaries of the immovable prevails over the stated area.
In cases of conflict between areas and boundaries, it is the latter which should
prevail.
What really defines a piece of ground is not the area, calculated with more or less
certainty, mentioned in its description, but the boundaries therein laid down, as
enclosing the land and indicating its limits.
o In a contract of sale of land in a mass, it is well established that the specific
boundaries stated in the contract must control over any statement with
respect to the area contained within its boundaries.
o It is not of vital consequence that a deed or contract of sale of land should
disclose the area with mathematical accuracy. It is sufficient if its extent is
objectively indicated with sufficient precision to enable one to identify it. An
error as to the superficial area is immaterial.
Thus, the obligation of the vendor is to deliver everything within the boundaries,
inasmuch as it is the entirety thereof that distinguishes the determinate object.
o

Sale Indicated by boundaries (Roble v. Arbasa)

Pursuant to Article 1542, Civil Code of the Philippines, 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 lesser area or number than that stated in the contract. Thus, the obligation
of the vendor is to deliver everything within the boundaries, inasmuch as it is the
entirety thereof that distinguishes the determinate object. However, this rule admits of
an exception. A vendee of land, when sold in gross or with the description "more or
less" with reference to its area, does not thereby ipso facto take all risk of quantity in
the land. The use of "more or less" or similar words in designating quantity covers
only a reasonable excess or deficiency

Prescription of Action (1543) (Cebu Windland Development Corp. vs Ong Siano Hua)
The actions arising from Articles 1539 and 1542 shall prescribe in six months,
counted from the day of delivery. (1472a)
Movables (Rules on delivery of Goods) 1522
Where there is defeciency in quantity or quality
Reject the goods
Accept the goods
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. 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.
Where there is an excess
Accept the goods agreed upon and reject the rest
Accept the whole of the goods delivered and pay for them at the contract rate
Reject the whole of the goods if they are indivisible
Where goods are mixed in others
Accept the goods agreed upon and reject the rest if the sale is divisible
Reject the whole of the goods, if the sale is indivisible
Delivery in installments
Cant compel delivery unless the delivery is agreed to be by installments
Delivery is to include fruits
Unless otherwise stipulated
When seller is excused from delivering (1527)

12

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:
o Where the goods have been sold without any stipulation as to credit;
o Where the goods have been sold on credit, but the term of credit has
expired;
o Where the buyer becomes insolvent.
The seller may exercise his right of lien notwithstanding that he is in possession of
the goods as agent or bailee for the buyer

In cash sales (1524)


The vendor shall not be bound to deliver the thing sold, if the vendee has not paid
him the price, or if no period for the payment has been fixed in the contract.

In sales on credit (1536)


The vendor is not bound to deliver the thing sold in case the vendee should lose the
right to make use of the terms as provided in Article 1198. (1198 is when one loses
the right to make use of the period, recall OBLICON) just remember IFIDVAS
o I insolvency
o F fails to furnish the guaranties or securities
o I Impairs the guarantees or securities by his own acts or
o D Disappears through event furtuitous event
o V Violates the undertaking in consideration of which the creditor agreed to
the period
o A ATTEMPTS to abscond
o S Stipulation

ARTICLE 1544 DOUBLE SALE


If the same thing should have been sold to different vendees, the ownership shall be
transferred to the person who may have first taken possession thereof in good faith, if
it should be movable property.
Should it be immovable property, the ownership shall belong to the person acquiring
it who in good faith first recorded it in the Registry of Property.

Should there be no inscription, the ownership shall pertain to the person who in good
faith was first in the possession; and, in the absence thereof, to the person who
presents the oldest title, provided there is good faith. (1473)

Sales to two different persons


Rules as to Immovables
the ownership shall belong to the person who is: (successive)
o registrant in good faith
o possessor in good faith
o person with the oldest title in good faith
Cases:
Ownership of immovable subject of a double sale (Gabriel v. Mabanta)
The requirement under the law is two-fold: acquisition in good faith and registration in
good faith.
The prior registration of the disputed property by the second buyer does not by itself
confer ownership or a better right over the property.
Article 1544 requires that such registration must be coupled with good faith.
Jurisprudence teaches us that the governing principle is primus tempore, potior jure
(first in time, stronger in right).
Knowledge gained by the first buyer of the second sale cannot defeat the first buyers
right except where the second buyer registers in good faith the second sale ahead of
the first, as provided by the Civil Code.
Such knowledge of the first buyer does not bar her from availing of her rights under
the law, among them, to register first her purchase as against the second buyer. But
in converso, knowledge gained by the second buyer of the first sale defeats his right
even if he is first to register the second sale, since such knowledge taints his prior
registration with bad faith.
This is the price exacted by Article 1544 of the Civil Code for the second buyer being
able to displace the first buyer, that before the second buyer can obtain priority over
the first, he must show that he acted in good faith throughout (i.e. in ignorance of the
first sale and of the first buyers right) from the time of acquisition until the title is
transferred to him by registration or failing registration, by delivery of possession.
To the one who registers the sale in good faith (Tanedo v. CA)
Art. 1544. If the same thing should have been sold to different vendees, the
ownership shall be transferred to the person who may have first taken possession
thereof in good faith, if it should be movable property.
Should it be immovable property, the ownership shall belong to the person acquiring
it who in good faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in good
faith was first in the possession; and, in the absence thereof, to the person who
presents the oldest title, provided there is good faith.

13

The property in question is land, an immovable, and following the above-quoted law,
ownership shall belong to the buyer who in good faith registers it first in the registry of
property. Thus, although the deed of sale in favor of private respondents was later
than the one in favor of petitioners, ownership would vest in the former because of
the undisputed fact of registration. On the other hand, petitioners have not registered
the sale to them at all.

To the first in possession in good faith (Sanchez v. Ramos)


Art. 1544. If the same thing should have been sold to different vendees, the
ownership shall be transferred to the person who may have first taken possession
thereof in good faith, if it should be movable property.
Should it be immovable property, the ownership shall belong to the person acquiring
it who in good faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in good
faith was first in the possession; and, in the absence thereof, to the person who
presents the oldest title, provided there is good faith.
Possession is acquired by the material occupancy of the thing or right possessed, or
by the fact that the latter is subjected to the action of our will, or by the appropriate
acts and legal formalities established for acquiring possession (art. 438, Civil Code.).
By a simple reasoning, it appears that, because the law does not mention to which of
these kinds of possession the article refers, it must be understood that it refers to all
of these kinds, material possession or symbolic possession.
The execution of a public instrument is equivalent to the delivery of the realty sold
(art. 1462, Civil Code) and its possession by the vendee (art. 438).
Under these conditions the sale is considered consummated and completely
transfers to the vendee all of the vendor's rights of ownership including his real right
over the thing.
The vendee by virtue of this sale has acquired everything and nothing, absolutely
nothing, is left to the vendor.
From this moment the vendor is a stranger to the thing sold like any other who has
never been its owner.
As the thing is considered delivered, the vendor has no longer the obligation of even
delivering it.
If he continues taking material possession of it, it is simply on account of vendee's
tolerance and, in this sense, his possession is vendor's possession.
And if the latter should have to ask him for the delivery of this material possession; it
would not be by virtue of the sale, because this has been already consummated and
has produced all its effects, but by virtue of the vendee's ownership, in the same way
as said vendee could require of another person although same were not the vendor.

This means that after the sale of a realty by means of a public instrument, the
vendor, who resells it to another, does not transmit anything to the second vendee
and if the latter, by virtue of this second sale, takes material possession of the thing,
he does it as mere detainer, and it would be unjust to protect this detention against
the rights to the thing lawfully acquired by the first vendee.

In the absence of both registration and possession, ownership shall belong to the one
who presents the oldest title, if in good faith (Cruz v. CA)

As the Court stated in Carbonell vs. Court of Appeals "it is essential that the buyer of
realty must act in good faith in registering his deed of sale to merit the protection of
the second paragraph of Article 1544."

"(T)he governing principle here is prius tempore, potior jure (first in time, stronger in
right).

Knowledge gained by the first buyer of the second sale cannot defeat the first buyer's
rights except only as provided by the Civil Code and that is where the second buyer
first registers in good faith the second sale ahead of the first.

Such knowledge of the first buyer does not bar her from availing of her rights under
the law, among them, to register first her purchase as against the second buyer.

But in converso knowledge gained by the second buyer of the first sale defeats his
rights even if he is first to register the second sale, since such knowledge taints his
prior registration with bad faith.

This is the price exacted by Article 1544 of the Civil Code for the second buyer being
able to displace the first buyer; that before the second buyer can obtain priority over
the first, he must show that he acted in good faith throughout (i.e. in ignorance of the
first sale and of the first buyer's rights) from the time of acquisition until the title is
transferred to him by registration or failing registration, by delivery of possession.

The second buyer must show continuing good faith and innocence or lack of
knowledge of the first sale until his contract ripens into full ownership through prior
registration as provided by law."

Rule as to movables (1544)


Ownership shall be transferred to the person who first took possession of the
property in good faith. The possession referred to here may either be actual or
constructive.

14


GOOD FAITH in the buyer
What GF consists
Cui v, Henson
A purchaser in good faith is one who buys property of another, without notice that
some other person has a right to, or interest in, such property and pays a full and fair
price for the same, at the time of such purchase, or before he has notice of the claim
or interest of some other person in the property. Good faith consists in an honest
intention to abstain from taking any unconscientious advantage of another. Good faith
is an opposite of fraud and of bad faith, and its non existence must be established by
competent proof.
Leung Yee v. Frank Strong Mach
It is "the honesty of intention," "the honest lawful intent," which constitutes good faith
implies a "freedom from knowledge and circumstances which ought to put a person
on inquiry," and so it is that proof of such knowledge overcomes the presumption of
good faith in which the courts always indulge in the absence of proof to the contrary.
"Good faith, or the want of it, is not a visible, tangible fact that can be seen or
touched, but rather a state or condition of mind which can only be judged of by actual
or fancied tokens or signs."
One who purchases real estate with knowledge of a defect or lack of title in his
vendor cannot claim that he has acquired title thereto in good faith as against the true
owner of the land or of an interest therein; and the same rule must be applied to one
who has knowledge of facts which should have put him upon such inquiry and
investigation as might be necessary to acquaint him with the defects in the title of his
vendor.

When rules do not apply (Consolidated Rural Bank v. CA)


The provision is not applicable in the present case.
It contemplates a case of double or multiple sales by a single vendor.
More specically, it covers a situation where a single vendor sold one and the same
immovable property to two or more buyers.
According to a noted civil law author, it is necessary that the conveyance must have
been made by a party who has an existing right in the thing and the power to dispose
of it.

It cannot be invoked where the two dierent contracts of sale are made by two
dierent persons, one of them not being the owner of the property sold.
And even if the sale was made by the same person, if the second sale was made
when such person was no longer the owner of the property, because it had been
acquired by the rst purchaser in full dominion, the second purchaser cannot acquire
any right.

Section 3 CONDITIONS and WARRANTIES


Article 1545:
Where the obligation of either party to a contract of sale is subject to any condition
which is not performed, such party may refuse to proceed with the contract or he may
waive performance of the condition. If the other party has promised that the condition
should happen or be performed, such first mentioned party may also treat the
nonperformance of the condition as a breach of warranty.
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. (n)
Conditions (precedent). (See 1179 et seq.)
Where the obligation of either party to a contract of sale is subject to any condition
which is not performed, such party may
o refuse to proceed with the contract OR
o If the other party has promised that the condition should happen or be
performed, such first mentioned party may also treat the nonperformance of
the condition as a breach of warranty.
he may waive performance of the condition.

Warranties:
Concept
A warranty is a statement or representation made by the seller of goods,
contemporaneously and as part of the contract of sale, having reference to the
character, quality or title of the goods, and by which he promises or undertakes to
insure that certain facts are or shall be as he then represents them.

15

Warranties by the seller may be express or implied. Art. 1546 of the Civil Code
defines express warranty as follows:
o "Art. 1546. 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. No affirmation of the
value of the thing, nor any statement purporting to be a statement of the
sellers 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.
o On the other hand, 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 sellers title (Art. 1548), against hidden defects and
encumbrances (Art. 1561), as to fitness or merchantability (Art. 1562), and
against eviction (Art. 1548).
"The prescriptive period for instituting actions based on a breach of express
warranty is that specified in the contract, and in the absence of such period, the
general rule on rescission of contract, which is four years (Article 1389, Civil
Code)."

Kinds

Express Warranties (1546)


o 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 purchase the
thing relying thereon. 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.

Implied Warranties (1547)


o In a contract of sale, unless a contrary intention appears, there is:
o 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; (Warranty against eviction)

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.
(Warranty against hidden defects)

Statement of Sellers Opinion (1546 and 1341)


This shall not be construed as a warranty, unless the seller made such affirmation or
statement as an expert and it was relied upon by the buyer.
Cases
Express representation of payment of taxes and customs duties (Harrison Motors Corp
v. Navarro)
petitioner must remember that prior to its consummation it expressly intimated to her
that it had already paid the taxes and customs duties.
Such representation shall be considered as a seller's express warranty under Art.
1546 of the Civil Code which covers any affirmation of fact or any promise by the
seller which induces the buyer to purchase the thing and actually purchases it relying
on such affirmation or promise.
It includes all warranties which are derived from express language, whether the
language is in the form of a promise or representation.
Interpretation of warranty that the land is free from all liens and encumbrances
(Investment and Devt v. CA)
"The warranty made by Gatpayat in favor of the IDI as contained in the 'Deed of
Absolute Sale' duly executed states that the property was 'free from all liens and
encumbrances.'
In Civil law and as used and understood in ordinary legal parlance, a lien and/or
encumbrance is synonymous to 'gravamen, 'carga,' 'hypoteca' or 'privilegium' and
does not cover tenancy.
In other words, unless so specically stated, tenancy cannot be considered a lien or
encumbrance. In the absence of such a showing, and inasmuch as Gatpayat did not
warrant the existence of tenancy, he cannot be held liable for violation of his warranty.
the petitioner cannot claim reimbursement from its seller, respondent Gatpayat, on
the basis of an implied warranty against hidden faults or defects under Article 1547,
subparagraph (2) inasmuch as the term "hidden faults or defects" pertains only to
those that make the object of the sale unt for the use for which it was intended at the
time of the sale.
In the case at bar, since the object of the sale by Gatpayat to the petitioner is an
agricultural land, the existing tenancy relationship with respect to the land cannot be
a "hidden fault or defect."
It is not a lien or encumbrance that the vendor warranted did not exist at the time of
the sale.
It is a relationship which any buyer of agricultural land should reasonably expect to
be present and which it is its duty to specically look into and provide for.

16

Effect of non-fulfillment of express representation (Soler v. Chelsey)


no right to compel the defendant to comply with his obligation to pay the plaintiff the
sum claimed
He who contracts and assumes an obligation is presumed to know the circumstances
under which said obligation can be complied with
Prescriptive Period (Villostas v. CA)
Article 1571 of the Civil Code provides for a prescriptive period of six months for a
redhibitory action, a cursory reading of the ten preceding articles to which it refers will
reveal that said rule may be applied only in case of implied warranties.
The present case involves one with an express warranty, the general rule on
rescission of contract, which is four years shall apply
Subsection I Warranty in case of Eviction
Concept
Eviction is the deprivation of the vendee of the whole or a part of the thing sold by
virtue of a final judgment based on a right prior to the sale of an act imputable to the
vendor.
Requisites
There must be a final judgment depriving the vendee of the whole or part of the thing
sold. (1548)
The vendee need not appeal from the decision in order that the vendor may become
liable for eviction. (1549)
The deprivation is based on a right to the sale or an act to the vendor (1548)
Vendor must have been notified of the suit for eviction at the instance of the vendee
(1558)

Kinds of deprivation or trespass

Deprivation in law

Deprivation in fact

Effect of warranty/Vendors Liability in case of eviction/Waiver of warranty


There is stipulation exempting the vendor from the obligation to answer for eviction
Vendor/seller acted in BF

the waiver shall be void (1553) and vendor shall be liable for the following:
o 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;
o The income or fruits, if he has been ordered to deliver them to the party who
won the suit against him;
o The costs of the suit which caused the eviction, and, in a proper case, those
of the suit brought against the vendor for the warranty;
o The expenses of the contract, if the vendee has paid them;
o The damages and interests, and ornamental expenses, if the sale was made
in bad faith. (1555)

Vendor/seller acted in good faith


If vendee made the waiver without knowledge of the risks of eviction (waiver
consciente), he shall pay only the value of the thing sold at the time of eviction
If vendee made the waiver, with knowledge of the risks of eviction and assumed the
consequences (waiver intencionada), the vendor shall not be liable.
Where no warranty has been agreed upon or there was no stipulation
Vendor acted in bad faith vendors liability will be the same as enumerated above
Vendor acted in good faith vendors liability will be only as to nos. 1 to 4
Partial eviction to Loss of an important part (1556)
Should the vendee 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:
o 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; or
o Enforcement of the vendor's liability for eviction.
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 vendee would not have purchased one without the other.
Case
Effect of sale of property excluded from the chattel mortgage (de la Riva v. Ah Kee)
That a mortgage creditor, who purchases real properties at an extrajudicial
foreclosure sale thereof by virtue of a chattel mortgage constituted in his favor, which
mortgage has been declared null and void with respect to said properties, acquires
no right thereto by virtue of said purchase;
neither does the subsequent purchaser of said properties acquire any right to the real
properties which were excluded from the chattel mortgage, and upon being evicted
therefrom by virtue of a judgment declaring that the vendor had no right the
properties which had been excluded from the chattel mortgage constituted in the
latter's favor and which said vendor purchased in the foreclosure sale thereof, said
subsequent purchaser is entitled to be indemnified for the value thereof at the time of
the eviction.

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Warranty in auction sale


The judgment debtor is also responsible for eviction in judicial sales, unless it is
otherwise decreed in the judgment
It has been held universally that in case of failure of title, a purchaser in good faith at
a judicial sale is entitled to recover the purchase money from the ofcer if the funds
are still in his hands or from the judgment debtor
Waiver of Warranty against eviction by the buyer (vendee)
If seller was in good faith the exemption is valid, but without prejudice to Art. 1554.
If seller was in good faith the stipulation is VOID
Must be express
Kinds of Waiver
Consciente
Waiver made without knowledge of risk of eviction
Intencionada
Waiver made with knowledge of risk of eviction
Cases of Intentional Waiver
Andaya v. Manansal
spouses Andaya and Cabrito had waived the warranty against eviction because at
the time that they purchased the land in question, they knew of the danger of
eviction.
the property was already the subject of a pending litigation between petitioners and
one Eustaquia Llanes, who claimed its title and possession by virtue of an earlier sale
from the original owner.
It was by final judgment in this litigation that petitioners were evicted from the land.
Not having appealed from the decision of the court below, petitioners are bound by
these findings, the implication of which is that they not only renounced or waived the
warranty against eviction, but that they knew of the danger of eviction and assumed
its consequences.

What Seller must give in case of eviction (VICED)


Value - 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;
Income - The income or fruits, if he has been ordered to deliver them to the party who
won the suit against him;
Costs - The costs of the suit which caused the eviction, and, in a proper case, those
of the suit brought against the vendor for the warranty;
Expenses - The expenses of the contract, if the vendee has paid them;
Damages - The damages and interests, and ornamental expenses, if the sale was
made in bad faith.

Article
1560
Warranty
against
hidden
encumbrance
for
immovables
(easement/servitude)
Warranty Against Hidden encumbrances (1560)
If the immovable sold should be encumbered with any non-apparent burden or
servitude, not mentioned in the agreement, of such nature that it must be presumed
that the vendee 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.
o 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.
Requisities for vendors liability
The easement must be non apparent
It must not have been mentioned in the agreement
It must be of such nature that it must be presumed that the vendee would not have
acquired the immovable had he been aware thereof.
Vendees remedies should it be encumbered with any non apparent easement or
servitude
Within one year from the execution of the deed of sale, the vendee may ask for:
o Rescission, OR
o Damages
After one year
o Damages, within a period of one year from the discovery fo the easement or
servitude.
When not liable
Easement is apparent

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Non apparent encumbrance is recorded in the Registry of Property unless there is


an express warranty that the thing is free from all burdens and encumbrances
Vendee had knowledge at the time of the sale of the existence of the easement or
servitude, though it was non apparent, such as when it was mentioned in the
agreement.
Subsection 2 - WARRANTY AGAINST HIDDEN DEFECTS
OF OR ENCUMBRANCE UPON THE THING SOLD

Article 1561 1571


Warranty against Redhibitory (hidden, physical) vices (of movables)
The vendor shall be responsible for warranty against the hidden defects which the
thing sold may have, should they render it unt for the use for which it is intended, or
should they diminish its tness for such use to such an extent that, had the vendee
been aware thereof, he would not have acquired it or would have given a lower price
for it;
o but said vendor shall not be answerable for patent defects or those which
may be visible, or for those which are not visible if the vendee is an expert
who, by reason of his trade or profession, should have known them.
Requisites
the defect must exist at the time of sale (1561)
the defect must be hidden (1561)
the vendor, however, shall not be liable for defects that are not visible if the vendee is
an expert who, by reason for his trade or profession, should have known them (1561)
the defect must render the thing unfit for the use for which it is intended or diminishes
its fitness for such use to such an extent, that had the vendee been aware thereof, he
would not have aacquired it or would have given a lower price for it (1561)
the action to enforce it must be made within the period provided by law
CASE: Applicability of warranty sale to sale of second hand article (Moles v. IAC)
As a general rule, there is NO implied warranty in the sale of secondhand articles.
Said general rule, however, is not without exceptions.
Article 1562 of our Civil Code provides:
o Art. 1562. 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
Knowledge of the vendor
GENERAL RULE: The vendor shall be liable to the vendee for any hidden defects in
the thing sold, even though he was not aware thereof.

EXCEPTION: The vendor shall not be liable if there is a stipulation exempting him
from such defects and he was not aware thereof. (1566)

Effects of warranty against defects or vices:


Choices of the vendee (1567)
Remedies of the vendee in case of breach (under 1561, 1562, 1564, 1565, 1566)
Withdrawing from the contract or recission (accion redhibitoria)
Demanding a proportionate reduction in the price (accion quanti minoris)
CASE:
Effect of sale of car with hidden defects (Supercars Mgmt and Devt Corp v. Flores)
The vehicle, after it was delivered to respondent, malfunctioned despite repeated
repairs by petitioner. Obviously, the vehicle has hidden defects. A hidden defect is
one which is unknown or could not have been known to the vendee.
The findings of both the RTC and Court of Appeals that petitioner committed a breach
of warranty against hidden defects are fully supported by the records. The Appellate
Court correctly ruled:
"The evidence clearly shows that Flores [now respondent] was justified in opting to
rescind the sale given the hidden defects of the vehicle, allowance for the repair of
which he patiently extended, but which repair did not turn out to be satisfactory.
For when by three letters, Flores declared his rescission of the sale, which rescission
was not impugned or opposed by appellants as in fact they accepted the return of the
vehicle on February 9, 1989, such extra-judicial rescission produced legal effect.
It is well within respondent's right to recover damages from petitioner who committed
a breach of warranty against hidden defects. Article 1599 of the Civil Code partly
provides:
"Article 1599. Where there is a breach of warranty by the seller, the buyer may, at his
election:
o (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
If the thing is lost due to hidden defects (1568)
The vendor was aware of the defect, he shall be obliged:
o To return the price
o To refund the expenses of the contract; and
o To pay damages

If the vendor was not aware of the defect, he shall be obliged:


o To return the price

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o
o

To pay the interest thereon; and


To refund the expenses of the contract

If the thing is lost by fortuitous event or by the fault of the buyer


The vendor was aware of the defect, he shall be obliged:
o To return the price paid less the value of the thing at the time of the loss; and
o To pay damages (1569)

The vendor was not aware of the defect


o To return the price paid less the value of the thing at the time of the loss
(1569)

Period to bring action for breach of warranty


The action to withdraw from the contract (accion redhibitoria) or reduction of the price
with damages (accion quanti minoris) (1561 to 1567), and all other actions to enforce
the sellers liability for hidden defects when the thing is lost (1568 and 1569) and in
judicial sales (1570), is six (6) months from the delivery of the thing sold. (1571)
Case:
Effect of action to recover purchase price filed after 6 months (Guzman v. Toyota
Cubao)
Under Art. 1571. Actions arising from the provisions of the preceding ten articles shall
be barred after six months from the delivery of the thing sold.
In the absence of an existing express warranty on the part of the respondent, as in
this case, the allegations in petitioners complaint for damages were clearly anchored
on the enforcement of an implied warranty against hidden defects, i.e., that the
engine of the vehicle which respondent had sold to him was not defective.
By filing this case, petitioner wants to hold respondent responsible for breach of
implied warranty for having sold a vehicle with defective engine. Such being the case,
petitioner should have exercised this right within six months from the delivery of the
thing sold (his cause of action had become time-barred)
Article 1572 1581
Warranty against hidden vices of animals (redhibitory vices)
When no warranty exists (1574, 1575, 1576,)
There is no warranty against hidden defects of animals sold at fairs or at public
auctions, or of livestock sold as condemned (1574)
The sale of animals suffering from contagious diseases shall be void. A contract of
sale of animals shall also be void if the use or service for which they are acquired has
been stated in the contract, and they are found to be unt therefor (1575)
If the hidden defect of animals, even in case a professional inspection has been
made, should be of such a nature that expert knowledge is not suf cient to discover
it, the defect shall be considered as redhibitory. But if the veterinarian, through

ignorance or bad faith should fail to discover or disclose it, he shall be liable for
damages. (1576)
Presumption of Redhibitory Vice (1578)
If the animal should die within three days after its purchase, the vendor shall be liable
if the disease which cause the death existed at the time of the contract
Remedies of vendee in case of sale of animal with redhibitory defects (effects of
Warranty)
GENERAL RULE: If two or more animals are sold together, whether for lump sum or for a
separate price for each of them, the redhibitory defect of one shall only give rise to its
redhibition. Accordinly, the vendee may only ask for:
The rescission of the sale of the defective animal (accion redhibitoria) OR
Ask for proportionate reduction (accion quanti minoris) (1562, 1567, 1580)
EXCEPTION: The redhibitory defect of one shall give rise to the redhibition of all the animals
sold, including the sound ones, if the vendee would not have bought the sound animals
without the defective one. This intention by the vendee is presumed when a team, yoke, pair,
or set is bought, even if a separate price has been fixed for each one of the animals
composing the same. (1572) Accordingly, the vendee may ask for the rescissionof the whole
contract.
NOTE: The above rule and exception apply in like manner to the sale of other things. (1573)
When must redhibitory action be filed
Art. 1577. The redhibitory action, based on the faults or defects of animals, must be
brought within forty days from the date of their delivery to the vendee.
This action can only be exercised with respect to faults and defects which are
determined by law or by local customs. (1496a)
When sale of animals is VOID
The animals are suffering from contagious diseases
The animals are found to be until for the use or service for which they were acquired
as stated in the contract (1575)
Vendors liability in case the animal sold dies of diseases
The vendor shall be liable for the death of the animal sold, whether the defect is
redhibitory or not, if the following requirements are present:
o It existed at the time of sale
o Is the cause of death of the animal, AND
o The animal dies within three (3) days from the time of purchase (1578)

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Sale without warranty against hidden defects of animals


There is no warranty against hidden defects of animals sold at fairs or at public
auctions, or of livestock sold as condemned. (1574)

Chapter 5- OBLIGATIONS OF THE VENDEE:


2 GENERAL OBLIGATION OF A VENDEE:
1. To accept delivery
2. To pay the price
To Accept Delivery
Requirement of previous examination by the buyer (1584 par. 1 and 2)
Where goods are delivered to the buyer, which he has not previously examined,
o he is not deemed to have accepted them unless and until he has had a
reasonable opportunity of examining them for the purpose of ascertaining
whether they are in conformity with the contract if there is no stipulation to
the contrary.
Unless otherwise agreed, when the seller tenders delivery of goods to the buyer, he
is bound, on request, to afford the buyer a reasonable opportunity of examining the
goods for the purpose of ascertaining whether they are in conformity with the
contract.
Case:
Sale of jewelry where buyer had opportunity to examine the items (Fule v. CA)
In relation to his obligation to accept deliver the buyer is not immediately expected to
accept delivery the thing or the goods delivered to him by the seller. He must be
afforded reasonable time to examine the goods and to be satisfied that the
goods are of the same quality and or quantity that was stipulated in the
contract. If the buyer has already been afforded reasonable opportunity to
examine the goods then he cannot later on claim that he was defrauded by the
seller. That the seller has delivered to him the fake set of a genuine thing. This is
the case of FULE vs. CA.
GENERAL RULE: The Buyer is afforded reasonable opportunity to inspect before he is
expected to accept
EXCEPTION:
1. That the buyer must pay first before it can inspect; cases when it is COD- Collect on
Delivery
2. If the goods are shipped and delivered to the carrier with instruction by the seller that
good shall not be delivered to the buyer unless he pays first

Effect of Acceptance by the buyer (for sellers liability)


But if the buyer was already afforded reasonable opportunity to examine and
after being satisfied of the quality of the goods, is he precluded from suing the
seller for breach of warranty (whether express or implied)?
o No, because the period for breach of warranty is a certain period after
delivery the presumption is that delivery was effected. Especially warranty
against hidden defects, warranty against eviction- you can't be evicted until
you have accepted. So again, acceptance by the buyer after he has had
reasonable opportunity to examine does not preclude him from being
a suit against the seller for breach
Exception
If the buyer should file a case against the seller for breach of contract, he must do so
within the period stipulated. And before he can even bring the action of breach-- he
must first notify the seller for the fact of breach.
Case
De Guzman v. Triangle Ace Corp
De Guzman purchased steel bars from triangle ace. What he ordered was 9mm but
what was delivered was 8mm.
De Guzman used this in his business; it was only when he was sued for payment of
the items when he raised the defense of breach of contract that what was delivered
to him was different from what was stated and he claimed damages as part of his
counterclaim.
of course here the court did not allow recovery by de Guzman because the court said
that you're bringing this up beyond the period provided by law for you to suit for
breach of contract and you did not notify in fact you accepted the goods without
complaining about the breach of contract. You cannot now claim that there was
breach so that you can avoid paying the price.
Rule for unjustified refusal of the buyer to accept (1588)
Generally, the buyer becomes the owner.
Exception when there is a contrary stipulation or when the seller reserves the
ownership as a sort of security for the payment of the price.
If the goods should be lost, deteriorate
o
Buyer shall bear the lost, because the ownership has already been
transferred to him even if he refuses to accept because such is not justifiable.
Rule if the buyer justifiably refused to accept (1587) (immediately upon the delivery of
goods, he complained),
buyer has no duty to return the goods to the seller

21

mere noti cation to seller of refusal will suf ce


but buyer may make himself a voluntary depositary in which case he must safely
take care of them in the mean time
To Pay the Price
Place of Delivery:
Place and at the time stipulated
o If not stipulated, shall be in the usual usage of the business
Place of business or residence
Place where the thing was at the time of the contract
Payment of Price:
1. Stipulated by the parties
2. If none, at the time and place of delivery.
Based on the principle of SIMULTANIETY- Simultaneous performance by the buyer and
seller
Suspension of payment by the buyer after delivery
Payment may be suspended if there is actual disturbance of his possession or
ownership or even if there is no actual disturbance as long as there is reasonable
ground to fear a disturbance of his possession or ownership because of a
reinvidicatory action or foreclosure of his ownership.
He is being sued now by a third person claiming to be the owner of the property.
Therefore, there is a chance that he may be evicted or deprived of ownership of the
property. This is a justified circumstance.
Grounds
Case
Suspension of payment for refusal to issue title (Arra Realty Corp v. Guarantee Devt
Copr and Insurance Agency)
Arra Realty and the Auguelles Spouses were constructing a building somewhere in
Makati and they engaged the services of Engineer Penalosa. Then, they offered to
her to share in the building (you can choose which floor you want. We will execute
the deed of sale).
So Penalosa started paying the price although she need not pay according to their
agreement but nevertheless the payments were received.
While she was paying she already pestered the Arguelles to execute the deed of sale
to her favor because when the building was finished she chose the second floor and
she was allowed to do so. Every time she would demand for the deed of sale or the
title, she was told that it was being processed.
Until she learned that the property was mortgaged to china bank.

So she went to Chinabank and offered to pay the portion of the loan corresponding to
the area she was occupying (PD 957- Condominium Act) but her offer was rejected
by Chinabank. Arguelles defaulted in the payment of the loan, since her contract with
the Arguelles was not annotated or registered on the title of the property thus the title
of the property was clean.
Thus, Chinabank was allowed to foreclose but she has already paid 1.4m, but before
the foreclosure when she learned that the property was mortgaged to Chinabank she
wrote to Arguelles that she was suspending payment because of the mortgage

Was she justified for suspending payment?


- Yes, but of course since the property was already sold after foreclosure to
Guaranteed Development Corporation the court did not allow the execution of the
deed of sale on her favor anymore but she was allowed to recover the amount she
paid
What is fear of dispossession or disturbance by virtue of a foreclosure of mortgage?
If he property sold to the buyer is subject of a mortgage.
o There is fear of foreclosure especially if the seller who is the mortgagor has
defaulted in the performance of the obligation secured by the mortgage.
The lender is now forced to foreclose the mortgage,
o Especially that the mortgagee has a prior right over the property. You
would be justified to suspend the payment of the price
When do you execute a mortgage contract?
Mortgage is an accessory contract constituted to secure a principal obligation
(contract of loan).
When there is no right to suspend or Even if there is disturbance of possession or
ownership or reasonable ground to fear disturbance because of reinvidicatory actions
of mortgage, the buyer is not justified in suspending payment if?
1. There is waiver, meaning it is stipulated that even if there is disturbance he or she
must still pay the price.
2. If the seller has caused the discrepancies
3. If the seller has put up a security for the return of the price in case of disturbance
4. The disturbance is a mere act of trespass
Payment of Interest on the Price
Is the buyer obliged to pay interest if payment is supposed to be made at a later time?
GENERAL RULE: NO
EXCEPTION:
1. Stipulated
2. If the thing also delivered bears fruits or income

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3. Buyer is in default (Rate of Interest 6 percent because it is not forbearance of money)

Case
Rate of interest if payable as indemnity for delay in the performance of an obligation
Cristina Garments v. CA
RULE: Christina Garments Inc vs. CA- rate of interest for delay for the performance of an
obligation legal rate is 6 percent
FACTS:
February 1979 - April 1979: Crismina Garments, Inc. contracted the services
of D'Wilmar Garments, for the sewing of 20,762 pieces of assorted girls denims
for P76,410
At first, the Crismina was told that the sewing of some of the pants were defective so
it offered to take them back but then she was told it was good already and asked her
to return for her check.
Crismina failed to pay and told her that 6,164 pairs were defective and asked for
actual damages of P49,925.51

RTC: favored D'Wilmar P76,140 at 12% per annum, P5,000 attorney's fees and cost
of suit
CA: affirmed but delete the attorney's fees
ISSUE: W/N they should impose 12% interest for an obligation which is not a loan in
the absence of stipulation
HELD: NO. Appealed Decision is MODIFIED. The rate of interest shall be 6%/annum,
computed from the time of the filing of the Complaint in the trial court until the finality of the
judgment. If the adjudged principal and the interest (or any part thereof) remain unpaid
thereafter, the interest rate shall be 12% per annum computed from the time the judgment
becomes final and executory until it is fully satisfied.
Article 1589 on the Civil Code
o [t]he vendee [herein petitioner] shall owe interest for the period between the
delivery of the thing and the payment of the price . . . should he be in default
from the time of judicial or extrajudicial demand for the payment of the price.
Article 2209 of the Civil Code
o If the obligation consists in the payment of money and the debtor incurs in
delay, the indemnity for damages, there being no stipulation to the contrary,
shall be the payment of the interest agreed upon, and in the absence of
stipulation, the legal interest, which is 6%/annum
Usury Law
o rate of interest for the loan or forbearance of any money, goods or credits
and the rate allowed in judgments, in the absence of express contract as to
such rate of interest, shall be twelve per cent (12%) per annum

award of interest in the concept of actual and compensatory damages, the rate of
interest, as well as the accrual thereof
o When the obligation is breached, and it consists in the payment of a sum of
money, i.e., a loan or forbearance of money, the interest due should be that
which may have been stipulated in writing
interest due shall itself earn legal interest from the time it is judicially
demanded
In the absence of stipulation, the rate of interest shall be 12% per
annum to be computed from default, i.e., from judicial or extrajudicial
demand under and subject to the provisions of Article 1169 of the
Civil Code
o When an obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded may be imposed
at the discretion of the court at the rate of 6% per annum.
No interest, however, shall be adjudged on unliquidated claims or
damages except when or until the demand can be established with
reasonable certainty
where the demand is established with reasonable certainty, the
interest shall begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code) but when such certainty cannot
be so reasonably established at the time the demand is made, the
interest shall begin to run only from the date the judgment of the
court is made (at which time the quantification of damages may be
deemed to have been reasonably ascertained).
The actual base for the computation of legal interest shall, in any
case, be . . . the amount finally adjudged.
o When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1
or paragraph 2, above, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to
forbearance of credit
amount due in this case arose from a contract for a piece of work, not from a loan or
forbearance of money, the legal interest of six percent (6%) per annum should be
applied.
o Furthermore, since the amount of the demand could be established with
certainty when the Complaint was filed, the six percent (6%) interest should
be computed from the filing of the said Complaint.
o But after the judgment becomes final and exuecutory until the obligation is
satisfied, the interest should be reckoned at twelve percent (%12) per year

Legal Guaranties for Payment of the Price

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If the buyer has the obligation to pay the price, what are the legal guarantees available
to the seller for the payment of the price or suspend delivery?
If cash sale- if payment if not rendered by the buyer at the time of delivery
Credit (buyer will pay the price at a later date, even after delivery)- if there is no delivery
yet and the buyer loses the right to make use of the period then seller can withhold delivery

In case of sale of goods, if the buyer fails to accept delivery at the stipulated time
without just cause or fails to tender the price if no period was stipulated at the contract
of sale?
- The law states that the contract shall of right be rescinded or the rescission shall take
place

Article 1198: The debtor shall lose the right to make use of the period in the following
instances:
1. Become insolvent
2. He absconds
3. Fails to furnish a security
4. The security is lost and he doesnt furnish another security

If the contract is embodied in the document and there is a stipulation that if the buyer
fails to pay the price at stipulated date the contract shall be automatically rescinded
and when that date arrives the buyer fails to pay the price despite demands from the
seller, is the contract automatically rescinded?

Consequence is that the obligation of the debtor becomes demandable. Transpose


this to a contract of sale, the buyer is also a debtor as so far as the payment of the
price is concerned. If he becomes insolvent, absconds then the seller is justified in
suspending delivery unless he tenders payment of the price.

As an Unpaid Seller:
1. Exercise Possessory Lien
2. Stoppage in Transitu
3. Right to Resell
4. Right to Rescind

Yes, because it is provided by law and also stipulated by the parties

But, what if the contract is for sale of real properties and there is a stipulation that if
the buyer does not pay the price a stipulated date the contract shall be automatically
rescinded?

No, there is no automatic rescission in contract of real property. In fact, under the law
the buyer is still allowed to pay the price in spite that stipulation unless there is a
judicial demand for rescission of the contract or notarial demand for the rescission of
the contract. This is actually similar to your Maceda Law, but this law only refers to
property in installment (RECTO- older law; found in the CC; personal property)

Judicial demand for rescission - Try the case in court for rescission of the contract

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