WHAT WOULD HAPPEN IF THE THING SOLD IS LOST?

(ART. 1480, 1538,1493, 1494, 1504)

OBLIGATION TO PRESERVE THE OBJECT OF THE SALE

ARTICLE 1480.

There is no specific provision under the law on sales that explicitly imposes to the seller the obligation to
preserve the object of sale. However, this obligation can be derived from Article 1480 of the Civil Code.

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

Article 1163 of the same code, a provision which applies to obligations and contracts in general, states:

"Art. 1163. Every person obliged to give something is also obliged to take care of it with the proper
diligence of a good father of a family, unless the law or the stipulation of the parties another standart of
care"

In order not to be held liable for th einjury to the thing sold after the perfection of the contract of sale
and before its delivery to the buyer, the seller must take care of it with the proper diligence of a good
father of a family.

when the sale of FUNGIBLE things is made independently and for a single price, or without consideration
of their weight, number, or measure; the ownership of such fungible thing is transferred from the seller
to the buyer at the time of the delivery to the buyer.

However, when the sale involved fungible things that were sold for a price fixed according to weight,
number or measure; the ownership of such fungible things is transferred from the seller to the buyer
after they are weight, counted or measure and delivered to the buyer.

OBLIGATION TO DELIVER THE FRUITS AND ACCESSORIES OF THE THING SOLD

ART. 1538

The determination of who between the seller and the buyer shall bear the risk of loss of the thing sold
after the contract is perfected but before its delivery shall be in accordance with their stipulations. In the
absence of a stipulation, the determination shall be in accordance with Art. 1480 and 1538 of the civil
code.

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

This rule shall apply to the sale of fungible things, made independently and for a single price, or without
consideration of their weight, number, or measure.

Should fungible things be sold for a price fixed according to weight, number, or measure, the risk shall
not be imputed to the vendee until they have been weighed, counted, or measured and delivered, unless
the latter has incurred in delay

The first paragraph of Art. 1480 particularly provided for Art. 1262 as the law that shall govern
specifically to any injury to the thing sold after the perfection of the contract but before its delivery to
the buyer.

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

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

Notwithstanding the fact that ownership of the thing sold still pertains to the seller after the perfection
of the contract and dbefpre delivery - a perusal of Art. 1262 reveals that THE BUYER shall bear the risk of
loss of the thing sold BEFORE its delivery because the article EXTINGUISHES the obligation of the seller to
deliver the determinate thing when it is lost or destroyed without the seller's fault, while maintains the
obligation of the buyer to pay the price therefor.

clearly, this is not in accordance with the principle of res perit domino, but the latter principle cannot
contradict a positive law like Art, 1262, in relation to Art. 1480.

(RES PERIT DOMINO

The thing is lost to the owner. This phrase is used to express that when a thing is lost or destroyed, it is
lost to the person who was the owner of it at the time. For example, an article is sold; if the seller have
perfected the title of the buyer so that it is his, and it be destroyed, it is the buyer's loss; but if, on the
contrary, something remains to be done before the title becomes vested in the buyer, then the loss falls
on the seller.)

moreover, the 2nd and 3rd paragraphs of Art. 1480 bolster the idea that principle of res perit domino is
not the dominant criterion in determining the person who shall bear the risk of loss of the thing sold
after the perfection of the contract of sale and before its delivery.

The 2nd par. expresses that the same rule provided by Art. 1262 "shall apply to the sale of fungible
things, made independently and for a single price, or without consideration of their weight, number, or
measure."
Although the 3rd par. adheres to the principle of res perit domino when it stated that "the risk shall not
be imputed to the vendee (buyer) until they have been weighed, counted, or measured and delivered".
such paragraphs applies only as an exception to the 2nd paragprah. when the sale involved fungible
things that were sold for a price fixed according to weight, number, or measure; the ownership of such
fungible things is transferred from the seller to the buyer after fungible things are weighed, counted or
measured and delivered to the buyer.

> Article 1538 - loss, Deterioration or improvemet of the thing before its delivery.

Article 1538 of the civil code provides:

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

while Article 1189 of the civil code states:

Art. 1189. When the conditions have been imposed with the intention of suspending the efficacy of an
obligation to give, the following rules shall be observed in case of the improvement, loss or deterioration
of the thing during the pendency of the condition:

(LOSS)

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

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

(DETERIORATION)

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

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

(IMPROVEMENT)

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

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

All the fruits shall pertain to the vendee from the day on which the contract was perfected.

The existence of the right of the buyer to the improvement and fruits that materialized after the
perfection of the contract and before its delivery of the thing sold compensates the burden of the buyer
to bear the risk of loss of the thing sold before the delivery to him.

SUMMARY OF THE RULES AT THIS PARTICULAR STAGE OF SALE

If the loss or destruction of the thing occurs AFTER the perfection of the contract but BEFORE its delivery,
the determination of who shall bear the risk of loss shall be in accordance with the stipulation of the
parties. In the absence of any stipulation, then the party at fault shall be liable.

If the loss or destruction of the thing occurs AFTER the perfection of the contract but BEFORE delivery
and is due to FORTUITOUS EVENT,

the general rule is that the BUYER BEARS THE RISK OF LOSS.

the Exceptions to this rule are:

1. In case of fungiblle things be sold for a price fixed according to weight, number, or measure; and

2. in case of generic goods, where the seller bears the risk of loss.

EFFECTS OF THE CONTRACT WHEN THE THING SOLD HAS BEEN LOST

ARTICLE 1493 and 1494

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

But if the thing should have been lost in part only, the vendee may choose between withdrawing from
the contract and demanding the remaining part, paying its price in proportion to the total sum agreed
upon.

Art. 1494. Where the parties purport a sale of specific goods, and the goods without the knowledge of
the seller have perished in part or have wholly or in a material part so deteriorated in quality as to be
substantially changed in character, the buyer may at his option treat the sale:

(1) As avoided; or

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

A. LOSS

1. In General
*the thing is lost when it perishes, goes out of commerce, or disappears in such a way that its existence
is unknown or it cannot be recovered.

*risk of loss determine who is liable for the thing if it perishes; is lost, destroyed or stolen.

In general, the risk of loss in a contract of sale is transferred when the ownership of the determinate
thing is transferred through delivery. Thus, the transfer of ownership of the determinate thing is a pivotal
event in determining the rights and obligations of the parties in case of its loss.

a. Determinate thing

the object of a contract of sale is a determinate thing.

*General rule - if the determinate things perishes or is lost, destroyed or stolen, the risk is borne by the
owner of the thing at the time of the loss under the principle of res perit domino.

The principle of Res perit domino is a civil law concept, where ownership is the basis for consideration of
who bears the risk of loss. Based on this principle, the risk of loss of the determinate thing due to
fortuitous event is transferred from the seller to the buyer at the time of delivery.

An exception, when a law specifically provides for a separate rule in determining the person who shal
bear the risk of loss.

b. Generic Thing

"Art. 1263. In an obligation to deliver a generic thing, the loss or destruction of anything of the same
kind does not extinguish the obligation. "

Art.1263 points out that a generic obligation is not extinguished by the loss or destruction of a thing that
belongs to a particular genus or class.

if the obligation is to deliver a things in a generic sense, this obligation is not extinguished by its lost. This
is in accordance with the principle of Genus nunquan perit or a genus of thing can never perish.

"if the obligation is generic in the sense that the object thereof is designated merely by its class or genus
without any particular designation or physiccal segregation from all others of the same class, the loss or
destruction of anything of the same kind even without the debtor's fault and before he has incurred in
delay will not have the effect of extinguishing the obligation. This rule is based on the principle that the
genus of a thing can never perish. Genus nunquan perit. An obligation to pay money is generic;
therefore, it is not excused by fortuitous loss of any specific property of the debtor"

B. LOSS OF THE DETERMINATE THING IN THE DIFFERENT STAGES OF A SALE TRANSACTION

1. Before perfection of the contract of sale - since the seller still owns the determinate thing during
negotiation or before the perfection of the contract of sale, he bears the risk of loss during this stage of
the sale transaction under the principle of res perit domino.

2. At the time of perfection - shall be governed by Article 1493.

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

But if the thing should have been lost in part only, the vendee may choose between withdrawing from
the contract and demanding the remaining part, paying its price in proportion to the total sum agreed
upon."

The 1st paragraph speaks of the loss of the thing its entirety; while the 2nd paragraph speaks of partial
loss or loss of the thing in part. In the former, the contract is without effect; while in the latter, the buyer
may either:

a. withdraw from the contract or

b. demand the remaining part and pay a proportionate price therefor.

These two available options of the buyer in case of partial loss at the time of the perfection of the
contract are reiterated in article 1494 of the civil code, which particulary deals with the situation where,
at the time the contract is made, specific goods have perished without the knowledge of the seller.

Art. 1494. Where the parties purport a sale of specific goods, and the goods without the knowledge of
the seller have perished in part or have wholly or in a material part so deteriorated in quality as to be
substantially changed in character, the buyer may at his option treat the sale:

(1) As avoided; or

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

3. After perfection but before delivery

The determination of who between the seller and the buyer shall bear the risk of loss of the thing sold
after the contract is perfected but before its delivery shall be in accordance with their stipulations. In the
absence of a stipulation, the determination shall be in accordance with Art. 1480 and 1538 of the civil
code.

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

This rule shall apply to the sale of fungible things, made independently and for a single price, or without
consideration of their weight, number, or measure.

Should fungible things be sold for a price fixed according to weight, number, or measure, the risk shall
not be imputed to the vendee until they have been weighed, counted, or measured and delivered, unless
the latter has incurred in delay

The first paragraph of Art. 1480 particularly provided for Art. 1262 as the law that shall govern
specifically to any injury to the thing sold after the perfection of the contract but before its delivery to
the buyer.

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

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

Notwithstanding the fact that ownership of the thing sold still pertains to the seller after the perfection
of the contract and dbefpre delivery - a perusal of Art. 1262 reveals that THE BUYER shall bear the risk of
loss of the thing sold BEFORE its delivery because the article EXTINGUISHES the obligation of the seller to
deliver the determinate thing when it is lost or destroyed without the seller's fault, while maintains the
obligation of the buyer to pay the price therefor.

clearly, this is not in accordance with the principle of res perit domino, but the latter principle cannot
contradict a positive law like Art, 1262, in relation to Art. 1480.

moreover, the 2nd and 3rd paragraphs of Art. 1480 bolster the idea that principle of res perit domino is
not the dominant criterion in determining the person who shall bear the risk of loss of the thing sold
after the perfection of the contract of sale and before its delivery.

The 2nd par. expresses that the same rule provided by Art. 1262 "shall apply to the sale of fungible
things, made independently and for a single price, or without consideration of their weight, number, or
measure."

Although the 3rd par. adheres to the principle of res perit domino when it stated that "the risk shall not
be imputed to the vendee (buyer) until they have been weighed, counted, or measured and delivered".
such paragraphs applies only as an exception to the 2nd paragprah. when the sale involved fungible
things that were sold for a price fixed according to weight, number, or measure; the ownership of such
fungible things is transferred from the seller to the buyer after fungible things are weighed, counted or
measured and delivered to the buyer.

> Article 1538 - loss, Deterioration or improvemet of the thing before its delivery.

Article 1538 of the civil code provides:

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

while Article 1189 of the civil code states:

Art. 1189. When the conditions have been imposed with the intention of suspending the efficacy of an
obligation to give, the following rules shall be observed in case of the improvement, loss or deterioration
of the thing during the pendency of the condition:

(LOSS)

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

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

(DETERIORATION)

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

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

(IMPROVEMENT)

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

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

All the fruits shall pertain to the vendee from the day on which the contract was perfected.

The existence of the right of the buyer to the improvement and fruits that materialized after the
perfection of the contract and before its delivery of the thing sold compensates the burden of the buyer
to bear the risk of loss of the thing sold before the delivery to him.

SUMMARY OF THE RULES AT THIS PARTICULAR STAGE OF SALE

If the loss or destruction of the thing occurs AFTER the perfection of the contract but BEFORE its delivery,
the determination of who shall bear the risk of loss shall be in accordance with the stipulation of the
parties. In the absence of any stipulation, then the party at fault shall be liable.

If the loss or destruction of the thing occurs AFTER the perfection of the contract but BEFORE delivery
and is due to FORTUITOUS EVENT,

the general rule is that the BUYER BEARS THE RISK OF LOSS.

the Exceptions to this rule are:

1. In case of fungiblle things be sold for a price fixed according to weight, number, or measure; and
2. in case of generic goods, where the seller bears the risk of loss.

4. After the delivery of the determinate thing

a. The buyer, as the new owner, bears the risk of loss.

Once the determinate thing is delivered and its ownership is transferred from the seller to the buyer, the
risk of loss of the thing sold is likewise transferred from the seller to the buyer pursuant to the principle
of res perit domino. Art. 1504 of the civil code expressed this rule.

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:

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

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

b. The seller bears the risk of loss despite the transfer of ownerhsip to the buyer.

1. Actual and Physical delivery is DELAYED through the fault of the seller.

Again, Article 1504 states that when the ownership in the goods is transferred to the buyer the goods are
at the buyer's risk whether actual delivery has been made or not, EXCEPT that:

xxx

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

The exception contemplates a situation wherein the ownership of the goods is transferred to the buyer
through constructive delivery but the actual and physical possession thereof is not with the buyer yet
because the goods are still to be delivered. When, despite the constructive delivery of the goods to the
buyer and the transfer of the ownership therein, the actual and physical delivery of the goods to the
buyer has been delayed through the fault of the seller, the latter shall bear the risk of loss.

2. Loss of the thing sold with Hidden defaults or defects

a. Loss in consequences of hidden defaults

If the thing sold should be lost in consequence of the hidden faults, the vendor shall be liable. The extent
of his liability will depend on whether he is aware of the hidden fault or defect at the time of sale.

> Aware of the Hidden faults or defects

The vendor (seller) shall:

1. bear the loss

2. return the price

3. refund the expenses of the contract, and

4. pay damages.

> Not aware of the Hidden faults or defects

The vendor (seller) shall:

1. return the price and interest thereon, and

2. reimburse the expenses of the contract which the vendee might have paid.

b. Loss due to FORTUITOUS EVENT or through the fault of the vendee

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

WHO BEARS THE RISK OF LOSS AFTER THE DELIVERY OF THE DETERMINATE THING.

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:

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

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

a. The buyer, as the new owner, bears the risk of loss.

Once the determinate thing is delivered and its ownership is transferred from the seller to the buyer, the
risk of loss of the thing sold is likewise transferred from the seller to the buyer pursuant to the principle
of res perit domino.

In Guisano Cagayan, Inc. v Insurance Company of North America, the court held that stipulation in the
sales invoices that states "it is further agreed that merely for purpose of securing the payment of the
purchase price the above described merchandise remains the property of the vendor until the purchase
of the price thereof is fully paid," clearly falls under par. 1, Art. 1504 of the civil code.

Thus, when the seller retains ownership only to insure that the buyer will pay its debt, the risk of loss is
borne by the buyer. Accordingly, Gaisano Cagayan, Inc. bears the risk of loss of the goods delivered
despite the stipulation.

b. The seller bears the risk of loss despite the transfer of ownerhsip to the buyer.

Again, Article 1504 states that when the ownership in the goods is transferred to the buyer the goods are
at the buyer's risk whether actual delivery has been made or not, EXCEPT that:

xxx

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

The exception contemplates a situation wherein the ownership of the goods is transferred to the buyer
through constructive delivery but the actual and physical possession thereof is not with the buyer yet
because the goods are still to be delivered. When, despite the constructive delivery of the goods to the
buyer and the transfer of the ownership therein, the actual and physical delivery of the goods to the
buyer has been delayed through the fault of the seller, the latter shall bear the risk of loss.