Chapter 3

Effects of the Contract When the Thing Sold has been Lost
 
 
Arts. 1493-1494
A. Effect of loss of the thing sold
 
a. At the time of perfection
i. Total loss (Art. 1493)
ii. Partial loss (Art. 1494)
iii. Deterioration (Art. 1494)
 
Lawyers Cooperative Publishing Co. vs. Tabora, G.R. No. L-21263, 30 Apr 1965
(nasunog libro)
Facts:
Perfecto A. Tabora(buyer) bought from the Lawyers Cooperative Publishing Company(seller) one complete set of
American Jurisprudence consisting of 48 volumes with 1954 pocket parts, plus one set of American Jurisprudence, General
Index, consisting of 4 volumes, for a total price of P1,675.50 which, in addition to the cost of freight of P6.90, makes a total of
P1,682.40. Tabora made a partial payment of P300.00, leaving a balance of P1,382.40. The books were duly delivered and
receipted for by Tabora on May 15, 1955 in his law office in Naga City.
However, a big fire broke out in that locality which destroyed and burned all the buildings standing on one whole block
including at the law office and library of Tabora. As a result, the books bought from the company as above stated, together with
Tabora's important documents and papers, were burned during the conflagration.
This unfortunate event was immediately reported by Tabora to the company in a letter he sent on May 20, 1955. On
May 23, the company replied and as a token of goodwill it sent to Tabora free of charge volumes 75, 76, 77 and 78 of the
Philippine Reports. As Tabora failed to pay he monthly installments agreed upon on the balance of the purchase price
notwithstanding the long time that had elapsed, the company demanded payment of the installments due, and having
failed, to pay the same, it commenced the present action before the CFI of Manila for the recovery of the balance of the
obligation.
Defendant, in his answer, pleaded  force majeure as a defense. He alleged that the books bought from the plaintiff were
burned during the fire that broke out in Naga City on May 15, 1955, and since the loss was due to force majeure he cannot be
held responsible for the loss. CFI rendered judgment for the plaintiff.
It ordered Tabora to pay the sum of P1,382.40, with legal interest thereon from the filing of the complaint, plus a sum
equivalent to 25% of the total amount due as liquidated damages, and the cost of action.
Tabora appealed to the CA, but the case was forwarded to the SC by virtue of a certification issued by the CA that the
case involves only questions of law.
Issue:
Whether or not respondent Tabora should bear the loss and pay the unpaid purchase price.
Held:
YES. It was provided in the contract that "title to and ownership of the books shall remain with the seller until the
purchase price shall have been fully paid. Loss or damage to the books after delivery to the buyer shall be borne by
the buyer."
 General Rule: the loss of the object of the contract of sale is borne by the owner, or in case of   force majeure the one
under obligation to deliver the object is exempt from liability. BUT, this rule does not apply in this case because the
parties clearly agreed to the abovementioned contrary stipulation.

Although the seller agreed that the ownership of the books shall remain with it until the purchase price shall have been fully
paid, such stipulation cannot make the seller liable in case of loss not only because such was agreed merely to secure
the performance by the buyer of his obligation but in the very contract it was expressly agreed that the "loss or
damage to the books after delivery to the buyer shall be borne by the buyer."

Any such stipulation is sanctioned by Article 1504 of our Civil Code, which in part provides:
 (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

Force majeure will not exempt Tabora from his liability. This is because this only holds true when the obligation consists in
the delivery of a determinate thing and there is no stipulation holding him liable even in case of fortuitous event. Here
these qualifications are not present. The obligation does not refer to a determinate thing, but is pecuniary in nature (money),
and the obligor bound himself to assume the loss after the delivery of the goods to him. Obligor (Tabora) agreed to
assume any risk concerning the goods from the time of their delivery.

WHEREFORE, the decision appealed from is modified by eliminating that portion which refers to liquidated damages. No costs.

Lizardi vs. Yaptico, G.R. No. 9954, 22 Mar 1915

Facts:
This case happened on June 5, 1913, counsel for Carlos de Lizardi, administrator of the property of the deceased Lim Jocsing, appointed in
the proceedings for the settlement of his estate filed a complaint in writing in the Court of First Instance of Cebu.
On October 13, 1912 said Lim Jocsing then living placed on board the steamer Bais lying at Malitbog, Leyte a certain quantity of abaca
valued at 15,000 pesos consigned to the defendant F.M. Yaptico to be sold in Cebu, Lim Jocsing insuring said abaca for the sum of 15,000
pesos with an insurance company whose agent in Cebu was the defendant himself and paying the premium on the insurance policy, that
on or about October 15, 1912 by reason of the wrecking of the said steamer Bais in its voyage to Cebu, Lim Jocsing perished in the sea and
at the same time all the abaca he had on board was lost that the defendant Yaptico collected the insurance amounting to 15,000 and
appropriated this sum to his own use refusing to return it to the plaintiff.
In his answer the defendant F.M. Yaptico admitted as a fact that Lim Jocsing had delivered for him and loaded on board the steamer Bais a
certain quantity of abaca valued at 10,320 and under an express contract made between him and Lim Jocsing the abaca later delivered on
board the Bais became the property of Yaptico, he also admitted that said shipment of abaca had been insured in his own name by the
defendant who paid the corresponding premium that this abaca was lost as a consequence of the wrecking of the said steamer.
Issue:
Whether or not the judgment will be reserved as to its loss?
Held:
Yes, the judgment appealed must be reversed and absolve the defendant Yaptico from the complaint.
As owner of the abaca the defendant Yaptico was interested in its preservation and had the right to insure it against any risk or accident
prejudicial to his interests and since the loss of the abaca would have injured Yaptico as the owner of both the fiber and the money with
which it was acquired.
 Sun Brothers Appliances, Inc. vs. Perez, G.R. No. L-17527, 30 Apr 1963

 Roman vs. Grimalt, G.R. No. 2412, 11 Apr 1906

FACTS: Roman and Grimalt, both parties, through one Fernando Agustin Pastor, verbally agreed upon the sale of the said schooner. That
Roman, had notied the defendant through Agustin Pastor that he accepted the plan of payment suggested by him and that from that
date the vessel was at his disposal, and offered to deliver the same at once to defendant if he so desired; that the contract having been
closed and the vessel being ready for delivery to the purchaser, it was sunk in the harbor of Manila and is a total loss, as a result of a
severe storm. Demand was made upon the defendant for the payment of the purchase price of the vessel in the manner stipulated and
defendant failed to pay. Plaintiff nally prayed that judgment be rendered in accordance with the prayer of his previous complaint.
Defendant alleged that plaintiff personally proposed to the defendant the sale of the said vessel, the plaintiff stating that the vessel
belonged to him and that it was then in a sea worthy condition. Defendant accepted the offer of sale on condition that the title papers
were found to be satisfactory, also that the vessel was in a seaworthy condition. The plaintiff promised to perfect his title and called on
defendant to close the sale. The defendant believing that plaintiff had perfected his title, wrote to him and set for the execution of the
contract, but, upon being informed that plaintiff had done nothing to perfect his title, he insisted that he would buy the vessel only when
the title papers were perfected and the vessel duly inspected.
ISSUE: Whether or not the sale has been perfected that the buyer should bear the loss.
RULING: NO, The court found that the parties had not arrived at a definite understanding. The sale of the schooner was not
perfected and the purchaser did not consent to the execution of the deed of transfer for the reason that the title of the vessel was in
the name of one Paulina Giron and not in the name of Pedro Roman, the alleged owner. Roman promised, however, to perfect his
title to the vessel, but he failed to do so. The papers presented by him did not show that he was the owner of the vessel. A sale shall
be considered perfected and binding as between vendor and vendee when they have agreed as to the thing which is the object of
the contract and as to the price, even though neither has been actually delivered. (Art. 1450 of the Civil Code.) When the sale is
made by means of a public instrument the execution thereof shall be equivalent to the delivery of the thing which is the object of
the contract. (Art. 1462 of the Civil Code.)
 
b. After perfection and before delivery
i. By the fault of one party (Arts. 1480, 1538)
ii. By fortuitous event (Arts. 1480, 1504, 1538)
 
B. Art. 1504[para. 1] applied
Gaisano Cagayan, Inc. vs. Insurance Company of North America, G.R. No. 147839, 08 Jun 2006
Facts: Petitioner is a customer and dealer of the products of IMC and LSPI. The latter being the maker of Wrangler Blue Jeans and
the local distributor of products owned by Levi Strauss & Co, respectively. IMC and LSPI separately obtained from respondent fire
insurance policies with book debt endorsements. The insurance policies provide for coverage on "book debts in connection with
ready-made clothing materials which have been sold or delivered to various customers and dealers of the Insured anywhere in the
Philippines." The policies defined book debts as the "unpaid account still appearing in the Book of Account of the Insured 45 days
after the time of the loss covered under this Policy. On February 25, 1991, the Gaisano Superstore Complex in Cagayan de Oro City,
owned by petitioner, was consumed by fire. Included in the items lost or destroyed in the fire were stocks of ready-made clothing
materials sold and delivered by IMC and LSPI. Petitioner argues that IMC bears the risk of loss because it expressly reserved
ownership of the goods by stipulating in the sales invoices that "[i]t 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 price
thereof is fully paid."
Issue: Whether or not IMC bears the risk of loss because it expressly reserved ownership of the goods.
Ruling: No. it is not IMC who bears the risk of loss. The present case clearly falls under paragraph (1), Article 1504 of the Civil Code:
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; 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, petitioner bears the
risk of loss of the goods delivered. IMC and LSPI did not lose complete interest over the goods. They have an insurable interest until
 full payment of the value of the delivered goods. Unlike the civil law concept of res perit domino, where ownership is the basis for
consideration of who bears the risk of loss, in property insurance, one's interest is not determined by concept of title, but whether
insured has substantial economic interest in the property.

Chapter 4
Obligations of the Vendor
Arts. 1495-1506
A. General provisions
- Cuizon vs. Remoto, G.R. No. 143027, 11 Oct 2005
 
a. To preserve the thing
i. Deterioration, loss or improvement
 
b. To deliver the thing sold (Art. 1537)
 
 Kuenzle & Streiff vs. Macke & Chandler, G.R. No. 5295, 16 Dec 1909
 Addison vs. Felix, G.R. No. 12342, 03 Aug 1918
Danguilan vs. Intermediate Appellate Court, G.R. No. 69970, 28 Nov 1988
 Pasagui vs. Villablanca, G.R. No. L-21998, 10 Nov 1975
 Dy, Jr. vs. Court of Appeals, G.R. No. 92989, 08 Jul 1991
Power Commercial and Industrial Corp. vs. Court of Appeals, G.R. No. 119745, 20 Jun 1997
 Florendo vs. Foz, G.R. No. 6565, 24 Oct 1911
Philippine Suburban Development Corp. vs. Auditor General, G.R. No. L-19545, 18 Apr 1975

 Board of Liquidators vs. Floro, G.R. No. L-15155, 29 Dec 1960

Principle: Art. 1499 - The delivery of movable property may likewise be made by the mere consent or agreement of the contracting parties,
if the thing sold cannot be transferred to the possession of the vendee at the time of the sale.

Facts: Melecio Malabanan entered into an agreement with the Board for the salvage of surplus properties sunk in territorial waters off the
provinces of Mindoro, La Union, and Batangas. Malabanan was to commence operations within 30 days from execution of said contract,
which was to be effective for a period of one year from the start of operations, extendible for a total period of not more than six months.
Four months previously, Malabanan had entered into an agreement with Exequiel Floro. It was agreed that Floro would advance to
Malabanan certain sums of money, not to exceed P25,000.00, thereof being secured by quantities of steel mattings which Malabanan
would consign to Floro; that said advances were to paid within a certain period, and upon default at the expiration, Floro was, authorized
to sell whatever steel mattings were in his possession under said contract, in amount sufficient to satisfy the advances. Pursuant thereto,
Floro claims to have made total advances to the sum of P24,224.50.

Malabanan was not able to repay Floro's advances. Malabanan filed in the Court of First Instance of Manila a petition for voluntary
insolvency. Attached in the petition was an Inventory of Properties, listing certain items of personal property allegedly aggregating
P33,707.00 in value. In this list were included 11,167 pieces of steel mattings with an alleged estimated value of P33,501.00.

The Board, claiming to be the owner of the listed steel matting, filed a petition to exclude them from the inventory; and to make the
insolvent account for a further 1,940 pieces of steel matting. Exequiel Floro opposed the Board's petition and claimed that the steel
matting listed had become the property of Eulalio Legaspi by virtue of a deed of sale in his favor, executed by Floro.

The lower court denied the Board's petition, declaring that Malabanan had acquired ownership over the steel mattings under his contract
with the Board

Issue: Whether or not there is delivery of the object of contract.

Ruling: Yes, there is delivery in the present case.

Art. 1499 of the New Civil Code provides that the delivery of movable property may likewise be made by the mere consent or agreement of
the contracting parties, if the thing sold cannot be transferred to the possession of the vendee at the time of the sale.

In the case, even if there is no physical delivery of the object, there is still delivery by means of tradition longa manu. In the public
instrument they executed, there is nothing in the terms of such instrument which an intent to withhold delivery or transfer of title.

Hence, there is delivery in the case by agreement of the parties.

 
i.Form / manner of delivery
1. Physical or real (Art. 1497)
2. Constructive
3. De Constituto (constituton possessorium)
ii. Kinds of delivery
San Lorenzo Development Corp. vs. Court of Appeals, G . R. No. 124242, 21 Jan 2005
Facts:
On 20 August 1986, the Spouses Lu purportedly sold the two parcels of land to respondent Pablo Babasanta. The latter made a down
payment of fifty thousand pesos (P50,000.00) as evidenced by a memorandum receipt issued by Pacita Lu of the same date. Several other
payments totaling two hundred thousand pesos (P200,000.00) were made by Babasanta.
He demanded the execution of a Final Deed of Sale in his favor so that he may effect full payment of the purchase price; however, the
spouses declined to push through with the sale. They claimed that when he requested for a discount and they refused, he rescinded the
agreement. Thus, Babasanta filed a case for Specific Performance.
On the other hand, San Lorenzo Development Corporation (SLDC) alleged that on 3 May 1989, the two parcels of land involved, namely
Lot 1764-A and 1764-B, had been sold to it in a Deed of Absolute Sale with Mortgage.
It alleged that it was a buyer in good faith and for value and therefore it had a better right over the property in litigation.

Issue: Whether or not there was a contract of sale,

Held:
The agreement between Babasanta and the Spouses Lu is a contract to sell and not a contract of sale.
The receipt signed by Pacita Lu merely states that she accepted the sum of fifty thousand pesos (P50,000.00) from Babasanta as partial
payment of 3.6 hectares of farm lot.
While there is no stipulation that the seller reserves the ownership of the property until full payment of the price which is a distinguishing
feature of a contract to sell, the subsequent acts of the parties convince us that the Spouses Lu never intended to transfer ownership to
Babasanta except upon full payment of the purchase price. Babasanta’s letter dated 22 May 1989 was quite telling. He stated therein that
despite his repeated requests for the execution of the final deed of sale in his favor so that he could effect full payment of the price, Pacita Lu
allegedly refused to do so. In effect, Babasanta himself recognized that ownership of the property would not be transferred to him until such
time as he shall have effected full payment of the price. Doubtlessly, the receipt signed by Pacita Lu should legally be considered as a
perfected contract to sell.
The law provides that ownership of the thing sold is acquired by the vendee from the moment it is delivered to him.
There was no delivery to Babasanta, whether actual or constructive, which is essential to transfer ownership of the property.
Babasanta did not acquire ownership by the mere execution of the receipt by Pacita Lu acknowledging receipt of partial payment
for the property. For one, the agreement between Babasanta and the Spouses Lu, though valid, was not embodied in a public
instrument. Hence, no constructive delivery of the lands could have been effected. For another, Babasanta had not taken possession
of the property at any time after the perfection of the sale in his favor or exercised acts of dominion over it despite his assertions that
he was the rightful owner of the lands. Simply stated, there was no delivery to Babasanta, whether actual or constructive, which is
essential to transfer ownership of the property.
There was no double sale in this case because the contract in favor of Babasanta was a mere contract to sell; hence, Art. 1544 is not
applicable. There was neither actual nor constructive delivery as his title is based on a mere receipt. Based on this alone, the right of SLDC
must be preferred.
Asset Privatization Trust vs. T.J. Enterprises, G.R. No. 167195, 08 May 2009
When execution of public document not equivalent to delivery
Asset Privatization Trust vs. T.J. Enterprises

 Petitioner Asset Privatization Trust (APT) was a government entity created for the purpose to conserve, to provisionally manage
and to dispose assets of government institutions.
 APT had acquired from the Development Bank of the Philippines (DBP) assets consisting of machinery andrefrigeration
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.
 APT and TJ entered into an absolute sale over certain machinery and refrigeration equipment. TJ paid the full amount and
demanded the delivery of the machinery it had purchased. APT in turn issued a gate pass.
 TJ was able to pull out from the compound the properties. During the hauling of Lot No.2 consisting of 16 items, only 9 items were
pulled out by TJ. This prompted the it to file a complaint for specific performance and damages against petitioner and Creative
Lines.
 During the pendency of the case, TJ was able to pull out the remaining machinery and equipment. 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.

Supreme Court Ruling

 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.
 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.
 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.

 Heirs of Mascuñana vs. Court of Appeals, supra.

Rule in sale of registered land
Heirs of Mascuñana v. CA
 • 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 Mascuñana. 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 Mascuñana a portion of his
property abutting that of Sumilhig on the southeast
• In the said deed, Mascuñana sold an undivided 469- square-meter portion of the property for P4,690.00, with P3,690.00 as
downpayment. 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.
• Mascuñana 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 Mascuñana.
• The heirs of Mascuñana filed a Complaint for recovery of possession 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 Mascuñana, 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.

Supreme Court Ruling

• While it is true that Jesus Mascuñana 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 co-
owners of Lot No. 124, Diosdado Sumilhig and the respondents nevertheless acquired ownership over the property.
• The deed of sale executed by Jesus Mascuñana in favor of Diosdado Sumilhig on August 12, 1961 was a perfected contract of sale
over the property. A

the property to the vendee.

• 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. 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.
• Art. 1458 of the NCC provides: By the contract of sale, one of the contracting parties obligates himself to transfer the ownership of
and to deliver a determinate thing, and the other to pay a price certain in money or its equivalent. In this case, there was a meeting
of the minds between the vendor and the vendee, when the vendor undertook to deliver and transfer ownership over the property
covered by the deed of absolute sale to the vendee for the price of P4,690.00 of which P3,690.00 was paid by the vendee to the
vendor as down payment. The vendor undertook to have the property sold, surveyed and segregated and a separate title issued in
the name of the vendee, upon which the latter would be obliged to pay the balance of P1,000.00. There was no stipulation in the
deed that the title to the property remained with the vendor, or that the right to unilaterally resolve the contract upon the buyer's
failure to pay within a fixed period was given to such vendor. Patently, the contract executed by the parties is a deed of sale and not
a contract to sell.
• Applying these principles to this case, the contract of sale between the parties is absolute, not conditional. There is no reservation
of ownership nor a stipulation providing for a unilateral rescission by either party. In fact, the sale was consummated upon the
delivery of the lot to respondent. Art. 1477 provides that the ownership of the thing sold shall be transferred to the vendee upon
the actual or constructive delivery thereof.
• The condition in the deed that the balance of P1,000.00 shall be paid to the vendor by the vendee as soon as the property sold
shall have been 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 is not a condition which prevented the efficacy of the contract of sale. It
merely provides the manner by which the total purchase price of the property is to be paid. The condition did not prevent the
contract from being in full force and effect.
• The stipulation that the "payment of the full consideration based on a survey shall be due and payable in five (5) years from the
execution of a formal deed of sale" is not a condition which affects the efficacy of the contract of sale.

• It merely provides the manner by which the full consideration is to be computed and the time within which the same is to be paid.
But it does not affect in any manner the effectivity of the contract.
 
c. Transfer of ownership to the buyer
i. General rule
- Ilao-Quianay vs. Mapile, G.R. No. 154087, 25 Oct 2005
Principle: 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
FACTS: Subject of this case is a parcel of land situated in Sta. Cruz, Manila and covered by Transfer Certificate of Title No. 48529 (TCT
No. 48529) in the name of the deceased Simplicio Ilao (Ilao). In the course of the judicial settlement of Ilao’s estate, his heirs found out that
the title of the subject property had an annotation of adverse claim filed by a certain Juanito Ibarra (Ibarra). Respondent herein, Atty.
Rodolfo Mapile (respondent), filed a motion to exclude the property from the inventory on the ground that the same no longer formed part of
Ilao’s estate having been disposed of during the latter’s lifetime in favor of Ibarra. Acting upon respondent’s allegation, the heirs of Ilao,
through petitioners herein, promptly filed on December 8, 1976 a civil case for Quieting of Title and Damages, docketed as Civil Case No.
105865 of the Regional Trial Court (RTC) of Manila, Branch 37. On October 3, 1983, respondent filed Civil Case No. 83-20520 for Specific
Performance and Declaration of Nullity of Contract, claiming that the subject property had been sold by Ilao to Ibarra pursuant to a Deed of
Absolute Sale (deed of sale) dated February 7, 1972, and that Ibarra, in turn, sold the property to him. Civil Case No. 105865 and Civil Case
No. 83-20520 were consolidated. After trial, the court rendered judgment in favor of respondent, finding that the deed of sale was genuine
and ordering, among others, that petitioners herein surrender the owner’s duplicate copy of TCT No. 48529 and all documents appurtenant
thereto in their possession. The decision was primarily anchored on the trial court’s finding that the conflicting testimonies of the
handwriting experts presented by both parties left it no choice but to favor the notarized deed of sale and to rule that the same is genuine.
Petitioners filed a motion for reconsideration, which respondent countered with an omnibus motion to strike out the motion for
reconsideration for being pro forma and to seek the issuance of a writ of execution. The trial court denied petitioners’ motion for
reconsideration, granted respondent’s omnibus motion, and ordered the issuance of a writ of execution. The decision was appealed to the
Court of Appeals and was denied because the trial court had already ordered the elevation of the records of the case to the appellate court,
and in view of respondent’s manifestation that he would not move for execution pending appeal. Hence this action.
ISSUE: Whether or not Ibara exercise ownership over the subject property as neither the property nor the certificate of title covering it were
delivered to Ibarra.
RULING: It has been held that ownership of the thing sold is acquired only from the delivery thereof, either actual or constructive. Article
1498 of the Civil Code provides that when the sale is made through a public instrument, as in this case, 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. The execution of the public instrument, even without actual delivery of the thing, transfers the ownership from the vendor to the
vendee, who may thereafter exercise the rights of an owner over the same. In this case, a public instrument was executed through which
constructive delivery of the subject property was made transferring ownership thereof to Ibarra. As the new owner, Ibarra acted perfectly
within his rights when he sold the property to respondent. IN VIEW OF THE FOREGOING, the petition is hereby DENIED. Costs against
petitioners. SO ORDERED
ii. Exception:
 Vallarta vs. Court of Appeals, G.R. No. L-40195, 29 May 1987
Facts:
The petitioner seeks a reversal of the CA decision that affirmed the Trial Court’s judgment of her estafa.
Rosalinda Cruz (Private offended party) and Victoria Vallarta (accused) are long time friends and business acquaintances. On November
20, 1968, Cruz entrusted to Vallarta seven pieces of jewelry. In December 1968, Vallarta decided to buy some items, exchanged one item
with another and issued a post-dated checks in a amount of P5,000. Cruz then deposited the said checks to the bank however, upon
presentment, the check was dishonored and Cruz was informed that Vallarta’s account had been closed. Cruz apprised Vallarta of the
dishonor and promised to give another check. Later, Vallarta pleaded for more time. Still later, she started avoiding Cruz. Hence this
criminal action was instituted

Issue:
Whether or not the transaction between Vallarta and Crus was a “sale or return”.
Ruling:
The court ruled that the transaction entered into Cruz and Vallarta was not a “sale or return” but rather a “sale on approval (also
called “sale on acceptance,” “sale on trial,” or “sale on satisfaction). In a “sale or return”, the ownership passes to the buyer on delivery.
Delivery, or tradition, as a mode of acquiring ownership must be in consequence of a contract.
If there was no meeting of the minds on November 20, 1968, then, as of that date, there was yet no contract of sale which could be the
basis of delivery or tradition. Thus, the delivery made on November 20, 1968 was not a delivery for purposes of transferring ownership
the prestation incumbent on the vendor. If ownership over the jewelry was not transmitted on that date, then it could have been
transmitted only in December 1968, the date when the check was issued. In which case, it was a "sale on approval" since ownership
passed to the buyer, Vallarta, only when she signified her approval or acceptance to the seller, Cruz, and the price was agreed upon.
There can be no doubt that the "postdating or issuing of a check in payment of an obligation when the offender had no funds in the
bank, or his funds deposited therein were not sufficient to cover the amount of the check," is a false pretense or a fraudulent act. It is so
characterized by Art. 315 (2) (d), Revised Penal Code. Republic Act No. 4885 does nothing more than limit the period within which the
drawer/issuer must pay the creditor.
 Butuan Sawmill, Inc. vs. Court of Tax Appeals, G.R. No. L-20601, 28 Feb 1966
Topic Chapter 4: Obligations of the Vendor A. General Provisions c. Transfer of ownership to
Principle "Where goods are shipped, and by the bill of lading the goods are deliverable to the seller or his agent, or to the order of the
seller or of his agent the seller thereby reserves the ownership in the goods.”
Facts Petitioner herein insists that findings of the Court considering as determinative of the place of transfer of ownership of the logs
sold, for purposes of taxation, are not in themselves evidentiary indications to show that the parties intended the title of the logs to pass
to the Japanese buyers in Japan. Thus, it points out that the "FOB" feature of the sales contract was made only to (1) fix its price and not
to fix the place of delivery; (2) that the requirement of certification of quality, quantity and measurement specifications of the logs by
local authorities was done to comply with local laws, rules, and regulations and was not a part of the sales arrangement; (3) that the
payment of freight by the Japanese buyers is not an uncommon feature of "FOB" shipments; and that the payment of prices by means of
irrevocable letters of credit is but a common established business practice to secure payment of the price to the seller. It also insists that
even assuming that the "FOB" feature of the disputed sales determines the situs of transfer of ownership, the same is merely a prima
facie presumption which yields to contrary proof such as that the logs were made deliverable to the order of the shipper" and the logs
were shipped at the risk of the shipper, which would negate the above implications. Issue Whether or not there is transfer of ownership
Ruling The above contentions of petitioner were devoid of merit In a decided case with practically identical set of facts obtaining in the
case at bar, this Court declared: ". . . it is admitted that the agreed price was 'F.O.B. Agusan', thus indicating, although prima facie, that
the parties intended the title to pass to the buyer upon delivery of the log in Agusan, on board the vessels that took the goods to Japan.
Moreover, said prima facie proof was bolstered up by the following circumstances, namely: ---x x x--- 5. The petitioner collected the
purchase price of every shipment of logs by surrendering the covering letter of credit, bill of lading, which was endorsed in blank, tally
sheet, invoice and export entry, to the corresponding bank in Manila of the Japanese agent bank with whom the Japanese buyers opened
letters of credit. ---x x x--- That the specification in the bill of lading to the effect that the 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 second part of
paragraph 2 of Article 1503 of the Civil Code of the Philippines: "Where goods are shipped, and by the bill of lading the goods are
deliverable to the seller or his agent, or to the order of the seller or of his agent the seller thereby reserves the ownership in the goods.”
But, if except for the form of the bill of lading, the ownership would have passed to the buyer on shipment of the goods, the sellers'
property in the goods shall be deemed to be only for the purpose of securing performance by the buyer of his obligation under the
contract."
 
 
Arts. 1507-1520
B. Defined (Art. 1636[para. 1])
 
C. Kinds
 
a. Negotiable
i. Defined
ii. Effect of worlds “not negotiable or non-negotiable”
iii. Negotiation
1. Defined
2. Ways
a. By delivery (Art. 1508[para 1])
b. By indorsement (Art. 1508[para 1])
 
3. Validity of negotiation (Art. 1518)
4. Who may negotiate (Art. 1512)
5. Warranties of the person negotiating (Art. 1516)
 
b. Non-negotiable
 
D. Rights acquired by transferee of a document of title
 
a. Under a negotiable document of title
i. Which has been duly negotiated (Art. 1513)
ii. Which has been “transferred” (not duly negotiated) (Art. 1514)
 
b. Under a non-negotiable document
i. Right of the transferee (Art. 1514[para. 2])
ii. Effect of indorsement
 
E. Levy, or garnishment of goods covered by a document of title
 
a. When covered by a negotiable document
i. General rule
1. The goods cannot be attached; Remedy of the creditor of a holder (Art. 1520)
ii. Exception
 
b. When covered by a non-negotiable document of title
i. Goods may be levied upon (Art. 1514[para 3]); Requisites
 
 
Arts. 1521-1524
F. Time and place of delivery
 
a. Time
 Smith, Bell & Co., Ltd. vs. Matti, G.R. No. L-16570, 09 Mar 1922
FACTS: On August 1918, plaintiff corporation and defendant entered into contracts. The former obligated to sell and the latter to
purchase the following: • Two (2) "Steel Tanks" (P 21,000 each) from New York to Manila, "To be delivered within 3 or 4 months" •
Two (2) "Expellers" (P 25,000 each) from San Francisco in the month of September 1918 "Approximate delivery within ninety days".
• Two (2) "Electric Motors" (P 2,000 each) Furthermore, all the contracts have the following final clause: "The sellers are not
responsible for delays caused by fires, riots on land or on the sea, strikes or other cause known as ‘Force Majeure’ entirely beyond
the control of the sellers or their representatives." Consequently, plaintiff corporation successfully delivered the obligations on the
following dates: • Tanks (April 27, 1919) • Expellers (October 26, 1918) • Motors (February 27, 1919) Plaintiff corporation notified
 the defendant. However, the Defendant refused to receive and pay for any of them, alleging that it arrived incomplete and long
after the stipulated date.

ISSUE: Whether the plaintiff has fulfilled its obligation to bring the goods in question to Manila in due time.
HELD: Yes. Considering these contracts in the light of the civil law, we cannot but conclude that the term which the parties
attempted to fix is so uncertain that one cannot tell just whether, as a matter of fact, those articles could be brought to Manila or
not. If that is the case, as we think it is, the obligations must be regarded as conditional. The export of the machinery in question
was, as stated in the contract, contingent upon the sellers obtaining certificate of priority and permission of the United States
Government, subject to the rules and regulations, as well as to railroad embargoes, then the delivery was subject to a condition the
fulfillment of which depended not only upon the effort of the herein plaintiff, but upon the will of third persons who could in no way
be compelled to fulfill the condition. In cases like this, which are not expressly provided for, but impliedly covered, by the Civil Code,
the 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. "In such cases, the decisions prior to the Civil Code have held that the obligee having
done all that was in his power, was entitled to enforce performance of the obligation. This performance, which is fictitious — not
real — is not expressly authorized by the Code, which limits itself only to declare valid those conditions and the obligation thereby
affected; but it is neither disallowed, and the Code being thus silent, the old view can be maintained as a doctrine." (Manresa’s
commentaries on the Civil Code [1907], vol. 8, page 132.) Whether or not the delivery of the machinery in litigation was offered to
the defendant within a reasonable time, is a question to be determined by the court. It is sufficiently proven in the record that the
plaintiff has made all the efforts it could possibly by expected to make under the circumstances, to bring the goods in question to
Manila, as soon as possible. And, as a matter of fact, through such efforts, it succeeded in importing them and placing them at the
disposal of the defendant, Mr. Sotelo, in April, 1919. Under the doctrine just cited, which, as we have seen is of the same juridical
origin as our Civil Code, it is obvious that the plaintiff has complied with its obligation. Therefore, the plaintiff has not been guilty of
any delay in the fulfillment of its obligation, and, consequently, it could not have incurred any of the liabilities mentioned by the
intervenor in its counterclaim or set-off. Mr. Vicente Sotelo Matti is sentenced to accept and receive from the plaintiff the tanks, the
expellers and the motors, and pay for the same.
Lorenzo Shipping Corp. vs. BJ Marthel International, Inc., G.R. No. 145483, 19 Nov 2004

Facts: Petitioner Lorenzo Shipping Corporation is a domestic corporation engaged in coastwise shipping. It used to own the cargo vessel
M/V Dadiangas Express. Upon the other hand, respondent BJ Marthel International, Inc. is a business entity engaged in trading, marketing,
and selling of various industrial commodities. It is also an importer and distributor of different brands of engines and spare parts. From
1987 onwards, respondent supplied petitioner with spare parts for the latter's marine engines. Sometime in 1989, petitioner asked
respondent for a quotation for various machine parts. Acceding to this request, respondent furnished petitioner with a formal quotation. It
was stipulated in the contract that DELIVERY is within 2 months after receipt of firm order. The TERMS is 25% upon delivery, balance
payable in 5 bi-monthly equal and Installment[s] not to exceed 90 days. Petitioner thereafter issued to respondent Purchase Order. For the
procurement of one set of cylinder liner, valued at P477,000, to be used for M/V Dadiangas Express. Instead of paying the 25% down
payment for the first cylinder liner, petitioner issued in favor of respondent ten postdated checks to be drawn against the former's account
with Allied Banking Corporation. The checks were supposed to represent the full payment of the aforementioned cylinder liner.
Subsequently, petitioner issued Purchase Order dated 15 January 1990, for yet another unit of cylinder liner. This purchase order stated
the term of payment to be "25% upon delivery, balance payable in 5 bimonthly equal installment[s]. On 26 January 1990, respondent
deposited petitioner's check that was postdated 18 January 1990, however, the same was dishonored by the drawee bank due to
insufficiency of funds. The remaining nine postdated checks were eventually returned by respondent to petitioner. However, the parties
presented disparate accounts of what happened to the check which was previously dishonored. Petitioner claimed that it replaced said
check with a good one, the proceeds of which were applied to its other obligation to respondent. For its part, respondent insisted that it
returned said postdated check to petitioner. On 20 April 1990, Pajarillo delivered the two cylinder liners at petitioner's warehouse in North
Harbor, Manila. The sales invoices evidencing the delivery of the cylinder liners both contain the notation "subject to verification" under
which the signature of Eric Go, petitioner's warehouseman, appeared. Due to the failure of the parties to settle the matter, respondent
filed an action for sum of money and damages before the Regional Trial Court (RTC) of Makati City. In its complaint, respondent (plaintiff
below) alleged that despite its repeated oral and written demands, petitioner obstinately refused to settle its obligations. Respondent
prayed that petitioner be ordered to pay for the value of the cylinder liners plus accrued interest of P111,300 as of May 1991 and
additional interest of 14% per annum to be reckoned from June 1991 until the full payment of the principal; attorney's fees; costs of suits;
exemplary damages; actual damages; and compensatory damages. In an Order dated 25 July 1991, the court a quo granted respondent's
prayer for the issuance of a preliminary attachment. On 09 August 1991, petitioner filed an Urgent Ex-Parte Motion to Discharge Writ of
Attachment attaching thereto a counter-bond as required by the Rules of Court. On even date, the trial court issued an Order lifting the
levy on petitioner's properties and the garnishment of its bank accounts. Petitioner afterwards filed its Answer alleging therein that time
was of the essence in the delivery of the cylinder liners and that the delivery on 20 April 1990 of said items was late as respondent
committed to deliver said items "within two (2) months after receipt of firm order" from petitioner. Petitioner likewise sought
counterclaims for moral damages, exemplary damages, attorney's fees plus appearance fees, and expenses of litigation. Subsequently,
respondent filed a Second Amended Complaint with Preliminary Attachment dated 25 October 1991. The amendment introduced dealt
solely with the number of postdated checks issued by petitioner as full payment for the first cylinder liner it ordered from respondent.
Whereas in the first amended complaint, only nine postdated checks were involved.

Issue: W/N significant the period of time which lapsed in the contract causing the delay in the delivery of the cylinder liners is essential in
the decision of the case at bar?

Held: After trial, the court a quo dismissed the action, the decretal portion of the Decision stating: WHEREFORE, the complaint is hereby
dismissed, with costs against the plaintiff, which is ordered to pay P50,000.00 to the defendant as and by way of attorney's fees. The trial
court held respondent bound to the quotation it submitted to petitioner particularly with respect to the terms of payment and delivery of
the cylinder liners. It also declared that respondent had agreed to the cancellation of the contract of sale when it returned the postdated
checks issued by petitioner. Respondent's counterclaims for moral, exemplary, and compensatory damages were dismissed for
insufficiency of evidence. Respondent moved for the reconsideration of the trial court's Decision but the motion was denied for lack of
merit. The respondent filed an appeal with the Court of Appeals which reversed and set aside the Decision of the court. The appellate court
brushed aside petitioner's claim that time was of the essence in the contract of sale between the parties herein considering the fact that a
significant period of time had lapsed between respondent's offer and the issuance by petitioner of its purchase orders. The dispositive
portion of the Decision of the appellate court states: WHEREFORE, the decision of the lower court is REVERSED and SET ASIDE. The
appellee is hereby ORDERED to pay the appellant the amount of P954,000.00, and accrued interest computed at 14% per annum reckoned
from May, 1991. The Court of Appeals also held that respondent could not have incurred delay in the delivery of cylinder liners as no
demand, judicial or extrajudicial, was made by respondent upon petitioner in contravention of the express provision of Article 1169 of
the Civil Code which provides: Those obliged to deliver or to do something incur in delay from the time the obligee judicially or
extrajudicially demands from them the fulfillment of their obligation. On 22 May 2000, petitioner filed a motion for reconsideration of
the Decision of the Court of Appeals but this was denied through the resolution of 06 October 2000. WHEREFORE, premises considered,
the instant Petition for Review on Certiorari is DENIED. The Decision of the Court of Appeals, dated 28 April 2000, and its Resolution, dated
06 October 2000, are hereby AFFIRMED. No costs. SO ORDERED.
 Visayan Distributors, Inc. vs. Flores, G.R. No. L-3751, 25 Oct 1952
One-Liner: The vendee’s insolvency that will excuse the vendor from his obligation to deliver referred to by the law may be before or
after the sale, provided it is discovered after the perfection of the contract, such as a judicially declared insolvency, or one inferred
from such acts as petitioning for suspension of payments, or as a result of all his properties having been attached in a civil or criminal
proceeding.

FACTS: Defendants-appellants, Flores(dba Rizal Investment Corporation) and Abeto (dba Phil. Investment Co Ltd) entered a contract
to bound themselves to deliver on Nov. 18, 1946, to Visayan Distributor (Plaintiff Appellee) at the port of Romblon , 2,000 tons of
copra @ P103.50 per ton FOB appellee’s vessel at Romblon. With due notice to Defendants, the SS Panaman was sent by the
Appellee and arrived at the port of Romblon on November 17, 1946 and advised the defendants that the steamer (SS Panaman)
would be ready to load the copra on November 18, 1946. Unfortunately, the defendants were unable to deliver any amount of
copra on said steamer and left Romblon without cargo. The Appellee instituted in the CFI of Manila on December 14, 1946, an action
for breach of contract and sought to recover damages, the trial court of first instance favored the Appellee Appealed, Defendants
Abeto and Flores, contend that they were excused from delivering copra on November 18, 1946, because Visayan (plaintiff-appellee)
was insolvent.
ISSUE: Whether or not delivery is affected by the insolvency of the buyer.

RULING: NO, the contention is untenable. Abeto and Flores should have still delivered the goods because, there was no conclusive
proof that would suggest that Visayan was already insolvent. There is no showing that in definite terms the former (Abeto and
Flores) had warned the appellee that they would not delivery the copra called for until they were sure paid in accordance with said
contract. Moreover, even assuming that the Visayan, still owed Abeto and Flores, on the copras delivered before November 18,
1946 is not a positive evidence of insolvency. The insolvency that will excuse the vendor from his obligation to deliver the thing by
law may be before or after the sale, provided it is discovered after the perfection of the contract such as, (1) Judicially declared
insolvency; or (2) One inferred from such acts as petitioning for suspension of payments; or (3) As a result of all his properties having
been attached in a civil or criminal proceeding. (see footnotes of the full case) Wherefore, the appealed judgement is affirmed.
 Republic vs. Litton, G.R. No. L-5018, 28 Nov 1953
Facts: Two contracts contained “Important conditions” re: delivery in par2: The stipulated delivery period shall not be exceeded. However,
should there be delay in delivery, Purchasing Agent may grant a reasonable time for extension. Deliveries made within the extended
period, shall not be subjected to any of the following penalties.

The two contracts also contained in par.4: In case of Contractor’s (Litton) failure to deliver, will authorize Purchasing Agent (Republic), in
his discretion, to impose: Penalty, deduct from each day of delay in delivery, a liquidated damage 1/10 of 1% per day of total value of
contract OR To make open market purchases, and charge the contractor the excess in price. Either case, Republic reserves the right to
rescind the contract.

Re: Contract 1-Padlocks.

Litton failed to deliver on said date. It however delivered on April8 34,200 padlocks. These were fully paid. Republic was compelled to
make open market purchases, incurring loss of P176,243.13

Re: Contract 2- (Office Supplies)

Litton also failed to deliver. After elections they however delivered 2K boxes of clips costing P180. Republic was compelled to make open
market purchases, incurring loss of P20,164.17 Republic is now claiming a total of P259,366.41 as losses from open market purchases.

Litton’s DEFENSE:

The contracts did not express the true contract. The real agreement was that Litton would deliver provided the Rep. should obtain shipping
priority and the necessary export license from the US. Rep failed to secure them. Hence delay of delivery was due to Rep. fault and to
circumstances beyond Litton’s control. Open market purchases were made at exorbitant prices.

Counterclaim: Litton delivered after elections, an additional 9K padlocks. Republic has refused to pay these despite demands.

RTC: Granted claims of government BUT also granted the counterclaim of Litton allowing a deduction of 25K. Litton was still the one with
the sole obligation to obtain the necessary export license and shipping space. Acts done by the republic to ease the shipping of good were
merely in the nature of a friendly assistance.

Issue: WON Litton unconditionally bound himself to deliver the supplies.

Ruling: YES. Litton undertook to deliver NOT LATER than March 1, 1946. This was UNCONDITIONAL. Hence delay due to the non-
acquisition of the licenses was not due to Republic’s acts, and CAN be subject to penalties in par.4

It was expressly stated that the supplies were for election purposes, and the bidder was therefore required to state the shortest time of
delivery. It would be preposterous to suppose that delivery after the elections would ever be contemplated or accepted.

Litton in his letter to the purchasing agent said that, “it is understood that your Office (Republic) will give us a letter certifying that the
padlocks are urgently needed. So that the export license can be secured without delay…” The foregoing shows that Litton merely expected
Rep. to give a certification.

The execution of the sureties negates the contention that the delivery was subject to any contingency. Moreover, Litton also sent another
letter, foreseeing his inability to deliver on time, asked for an extension. True the Gov’t exerted efforts, and that the licenses were issued in
the name of the Rep., but these do not prove that it was Rep.’s obligation to secure the same. They were merely done in furtherance of the
letter asking for certification.

RE: Delay in delivery.

The vessels carrying the supplies arrived in Manila on or before April 1,1946 At the time Rep purchased supplies in the open market, the
vessels carrying the shipment of supplies were already inside the breakwater waiting for unloading. However due to lack of berthing space,
their cargo was unloaded and delivered only after the elections. On purely equitable reasons the SC reduced the damages awarded by 90K,
the difference between the stated contract price and open market price for the padlocks delivered after the elections. At any rate Litton
failed to protect itself or minimize damages by buying in the open market himself at lower prices than that acquired by the government
(allegedly at black market prices).

b. Place
 Behn, Meyer & Co. (Ltd.) vs. Yangco, G.R. No. 13203, 18 Sep 1918
At what point the articles were considered delivered to the buyer
Behn, Meyer & Co. v. Yangco
• A memorandum of agreement was executed between Yangco and Behn, Meyer & Co. The contract provided that the vendor
Behn, Meyer & Co will deliver to Yangco "80

drums Caustic Soda 76 per cent "Carabao" brand al precio de Dollar Gold Nine and 75/100 1-lbs." The contract provided for "c.i.f.
Manila, pagadero against delivery of documents." The contract provided for: "Embarque: March 1916." The merchandise was in fact
shipped from New York on the Steamship Chinese Prince on April 12, 1916.
• The steamship was detained by the British authorities at Penang, and part of the cargo, including seventy-one drums of caustic
soda, was removed. Yangco refused to accept delivery of the remaining nine drums of soda on the ground that the goods were in
bad order. Yangco also refused the optional offer of the Behn, Meyer & Co, of waiting for the remainder of the shipment until its
arrival, or of accepting the substitution of seventy-one drums of caustic soda of similar grade from plaintiff's stock.
• The plaintiff thereupon sold, for the account of the defendant, eighty drums of caustic soda from which there was realized the
sum of P6,352.89. Deducting this sum from the selling price of P10,063.86, we have the amount claimed as damages for alleged
breach of the contract.

Supreme Court Ruling

• Yangco is not liable for breach. The specific merchandise was never tendered. The soda which the plaintiff offered to defendant
was not of the "Carabao" brand, and the offer of drums of soda of another kind was not made within the time that a March
shipment, according to another provision the contract, would normally have been available.
• Determination of the place of delivery resolves itself into a question of act. 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. 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.
• The Court believes that the word Manila in conjunction with the letters "c.i.f." must mean that the contract price, covering costs,
insurance, and freight, signifies that delivery was to be made at Manila. If the plaintiff company has seriously thought that the place
of delivery was New York and Not Manila, it would not have gone to the trouble of making fruitless attempts to substitute goods for
the merchandise named in the contract, but would have permitted the entire loss of the shipment to fall upon the defendant. Under
plaintiff’s hypothesis, the defendant would have been the absolute owner of the specific soda confiscated at Penang and would have
been indebted for the contract price.
 • This view is corroborated by the facts. The goods were not shipped nor consigned from New York to plaintiff. The bill of lading was
for goods received from Neuss Hesslein & Co. the documents evidencing said shipment and symbolizing the property were sent by
Neuss Hesslein & Co. to the Bank of the Philippine Islands with a draft upon Behn, Meyer & Co. and with instructions to deliver the
same, and thus transfer the property to Behn, Meyer & Co. when and if Behn, Meyer & Co. should pay the draft.
• The place of delivery was Manila and plaintiff has not legally excused default in delivery of the specified merchandise at that place.
• The plaintiff has not proved the performance on its part of the conditions precedent in the contract. The warranty — the material
promise — of the seller to the buyer has not

been complied with. The buyer may therefore rescind the contract of sale because of a breach in substantial particulars going to the
essence of the contract.
• As contemplated by article 1451 of the Civil Code, the vendee can demand fulfillment of the contract, and this being shown to be
impossible, is relieved of his obligation. There thus being sufficient ground for rescission, the defendant is not liable.

Bislig Bay Lumber Co. Inc. vs. Collector of Internal Revenue, G.R. No.L-13186, 28 Jan 1961
 
G. Delivery to the carrier
 
a. Rule: At what point the articles were considered delivered to the buyer
 
- Behn, Meyer & Co. (Ltd.) vs. Yangco, supra.
 
H. Expenses of delivery are borne by the seller (Arts. 1247, 1547[last para])
 
 
Arts. 1525-1535
I. Rights of the unpaid seller
 
a. Definition of unpaid seller (Art. 1525[para. 1])
 
b. What the term seller includes
 
J. Rights of an unpaid seller (Art. 1526)
 
a. A lien on the goods or goods to retain them (Art. 1526[para. 1])
i. When the lien exists
ii. When the lien is lost
 
b. Right to stop in transit (stoppage in transitu) (Art. 1526[2])
i. Requisites for the exercise
1. The buyer is or becomes insolvent (Arts. 1526[2], 1530)
2. The goods are in transit (Art. 1530)
ii. Effect of partial delivery
iii. How stoppage in transit is exercise
1. By obtaining actual possession of the goods (Art. 1532[para 1])
2. By giving notice of the claim (Art. 1532[para 1])
 
c. Right of resale (Art. 1533)
i. Requisites for the exercise of the right
1. The unpaid seller has a right of lien or has stopped the goods in transit (Art. 1532[para. 1])
2. Instances when resale may be made
ii. Notice of resale to the buyer
iii. Manner of resale
iv. Right to recover deficiency
 
d. Rights to rescind the sale (Art. 1526[4])
i. Requisites
ii. Rules on notice of intention to rescind
iii. Effect of rescission
 
K. Effect of sale or other disposition of the goods by the original buyer on the right of the unpaid seller
 
a. General rule
b. Exception
 
 
Arts. 1536-1543
L. Completeness of delivery
 
 a. General considerations
 
b.
Real estates
i. Where it is sold per unit or number
- Cebu Winland Development Corp. vs. Ong Siao Hua, G.R. No. 173215, 21 May 2009
 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 petitioner’s
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.
Issues:
1. Whether or not there has been complete delivery
2. Whether or not Ong Sia Hua’s action has already prescribed
3. Whether the sale is sold per unit or lump sum

On the issue of delivery

 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

 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.

Comments:
  In the case Cebu Winland Development Corp v Ong Siao Hua [GR No. 173215], the deficiency was around 45sqm. Although the
buyer in this case was entitled to rescind the contract, he opted for reduction of the price.
The period of prescription is reckoned from the time of transfer of ownership. In the case, ownership has not yet been transferred since
the deeds of absolute sale have not yet been executed by the parties. Thus, the action filed by Hua has not prescribed

Where it is sold for a lump sum or a single price (Art. 1542)

 Rudolf Lietz, Inc. vs. Court of Appeals, G.R. No. 122463, 19 Dec 2005

Distinction between unit price contract and lump sum contract

(Discrepancy is 1 hectare – reasonable discrepancy)
Respondent Agapito Buriol previously owned a parcel of unregistered land situated at Capsalay Island, Port Barton, San Vicente, Palawan.
On August 15, 1986, Buriol entered into a lease agreement with Flavia Turatello and respondents Turatello and Sani, all Italian citizens,
involving 1 hectare of Buriol’s property.
 The lease agreement was for a period of 25 years, renewable for another 25 years. The lessees took possession of the land after
paying respondent Buriol a down payment of P10,000.00. The lease agreement, however, was reduced into writing only in January
1987.
On November 17, 1986, respondent Buriol sold to petitioner Rudolf Lietz, Inc. the same parcel of land for the amount of P30,000.00. The
Deed of Absolute Sale embodying the agreement described the land as comprising 5 hectares.
Petitioner later discovered that respondent Buriol owned only 4 hectares, and with one more hectare covered by lease, only three (3)
hectares were actually delivered to petitioner.
Petitioner instituted a complaint for Annulment of Lease with Recovery of Possession with Injunction and Damages against respondents and
Flavia Turatello before the RTC.
The complaint alleged that with evident bad faith and malice, Buriol sold to petitioner five (5) hectares of land when Buriol knew for a fact
that he owned only four (4) hectares and managed to lease one more hectare to respondents.
Issue: Whether petitioner is entitled to the delivery of the entire 5 hectares or its equivalent.

Supreme Court Ruling

The sale between Lietz Inc and Buriol is one made for a lump sum, therefore Lietz is not entitled to the delivery of the entire five ha or its
equivalent.
Lietz Inc contends that it is entitled to the corresponding reduction of the purchase price because the agreement was for the sale of five (5)
hectares although Buriol owned only four (4) hectares. Petitioner anchors its argument on the second paragraph of Article 1539 of the Civil
Code, which provides that the obligation to deliver the thing sold includes that of placing in the control of the vendee all that is mentioned in
the contract, in conformity with the following rules: If the sale of real estate should be made with a statement of its area, at the rate of a
certain price for a unit of measure or number, the vendor shall be obliged to deliver to the vendee, if the latter should demand it, all that may
have been stated in the contract; but, should this be not possible, the vendee may choose between a proportional reduction of the price and
the rescission of the contract, provided that, in the latter case, the lack in the area be not less than one-tenth of that stated.
The Court of Appeals Decision declared as inapplicable the above-quoted provision and instead ruled that petitioner is no longer entitled to a
reduction in price based on the provisions of Article 1542 of the Civil Code, which read: Sale of real estate made for a lump sum (Art 1542)
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.
 The same rule shall be applied when two or more immovables are sold for a single price; but if, besides mentioning the boundaries,
which is indispensable in every conveyance of real estate, its area or number should be designated in the contract, the 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.
 Sale of a real estate per unit area (Art 1539). Article 1539 governs a sale of immovable by the unit, that is, at a stated rate per unit
area. 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. 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. 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.
 According 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. 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.
 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.
 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.
 The sale between Lietz Inc and Buriol involving the latter’s property is one made for a lump sum. The Deed of Absolute Sale shows
that the parties agreed on the purchase price on a predetermined area of five hectares within the specified boundaries and not
based on a particular rate per area.
 In accordance with Article 1542, there shall be no reduction in the purchase price even if the area delivered to petitioner is less than
that stated in the contract. In the instant case, the area within the boundaries as stated in the contract shall control over the area
agreed upon in the contract.
 The Court rejects petitioner’s contention that the property’s boundaries as stated in the Deed of Absolute Sale are superficial and
unintelligible and, therefore, cannot prevail over the area stated in the contract.
 At an ocular inspection prior to the perfection of the contract of sale, Buriol pointed to petitioner the boundaries of the property.
Hence, petitioner gained a fair estimate of the area of the property sold to him.
 Petitioner cannot now assail the contents of the Deed of Absolute Sale, particularly the description of the boundaries of the property,
because petitioner’s subscription to the Deed of Absolute Sale indicates his assent to the correct description of the boundaries of the
property.
Petitioner also asserts that respondent Buriol is guilty of misleading petitioner into believing that the latter was buying five hectares
when he knew prior to the sale that he owned only four hectares. The review of the circumstances of the alleged misrepresentation is
factual and, therefore, beyond the province of the Court. Besides, this issue had already been raised before and passed upon by the
trial court and the Court of Appeals. The factual finding of the courts below that no sufficient evidence supports petitioner’s allegation
of misrepresentation is binding on the Court.
purchased from Fidela Roble an unregistered
 Roble vs. Arbasa, G.R. No. 130707, 31 Jul 2001 parcel of land located at Poblacion, Isabel, Leyte.
Roble v. Arbasa  As reflected on the deed of sale, the property
had a total land area of 240 square meters. Due
(Discrepancy is almost twice as much as the area indicated - to the diligent efforts of respondents in
unreasonable discrepancy) reclaiming a portion of the sea, using
stones, sand and gravel, the original size of
 On January 2, 1976, respondent spouses
the 240 square meters increased to 884
Dominador Arbasa and Adelaida Roble Arbasa
 square meters.  The action prescribes 6 months from the
 After Fidela's death on June 15, 1989, delivery of the real property. Delivery
petitioners Veronica and Lilibeth Roble contemplated in this provision is one where
claimed ownership of the house and the there is a transfer not only of ownership
southern portion of the land with an area of but also possession.
644 square meters. Spouses Arbasa filed with  You start counting the moment the
the Regional Trial Court, Branch 12, Ormoc ownership is transferred.
City an action for quieting of title with
damages. When can the buyer sue?
 The trial court rendered a decision in favor of
petitioners finding that the January 2, 1976  6 months from delivery (transfer of ownership)
deed of absolute sale executed by Fidela
Roble covered only a total area of 240 square Cebu Winland Devt Corp v. Ong Siao Hua
meters and not the entire 884 square meters  No delivery yet because there was no transfer
claimed by respondents. The trial court held of ownership. Hence, the case was filed on
that pursuant to Rule 130, Section 9 of the time and the action has not yet prescribed.
Revised Rules on Evidence, the deed of sale
was the best evidence of the contents of the SUMMARY:
agreement.
 On appeal, the Court of Appeals set aside the 1.Mistake in area stated in contract immaterial
decision of the trial court and ruled in favor of  The law presumes that the purchaser had in
herein private respondents declaring them as mind a determinate price for the real estate
lawful owners and entitled to the possession and that he ascertained its area and quality
of the entire parcel of land containing an area before the contract was perfected.
of 884 square meters, which is covered by  Its greater or lesser area cannot influence the
Tax Declaration No. 67 in the name of increase or decrease of the price agreed upon,
Adelaida Roble Arbasa. Hence, the present whether the object be single realty or whether
appeal by certiorari. they are two or more immovables.
 TAKE NOTE: The boundaries of the land stated
Supreme Court Ruling in the contract determine the effects and scope
 The Supreme Court set aside the ruling of the of the sale, not the area thereof.
Court of Appeals. The sale that transpired on  The vendor is obligated to deliver all the
January 2, 1976 between vendor Fidela and land included within the boundaries,
vendee Adelaida was one of cuerpo cierto regardless of whether the real area
or a sale for lump sum pursuant to should be greater or smaller than that
Article 1542, Civil Code of the recited in the deed inasmuch as it is the
Philippines, thus, the obligation of the entirety thereof that distinguishes the
vendor is to deliver everything within the determinate object.
boundaries, inasmuch as it is the  Possibility of error is a hazard which the
entirety thereof that distinguishes the parties must be presumed to have assumed.
determinate object.  In Rudolf Lietz, Inc. v CA [GR No. 122463],
 The Court, however, stressed that the said 5 hectares were sold but only 4 hectares were
rule admits of an exception. A vendee of land, delivered. The deficiency was not sizable. A 1-
when sold in gross or with the description hectare deficiency out of the supposed 5
"more or less" with reference to its area, does hectares is still reasonable. Thus, there
not thereby ipso facto take all risk of quantity shall be no decrease of the price.
in the land. The use of "more or less" or
similar words in designating quantity covers 2. Where area or number stated together
only a reasonable excess or deficiency. with boundaries.
 In the case at bar, the parties to the  If the vendor cannot deliver to the vendee all
agreement described the land subject of that is included within the boundaries
the sale as "having an approximate area mentioned in the contract, the latter has the
of 240 square meters more or less, with option to REDUCE the price in PROPORTION to
all improvements thereon" the deficiency or to RESCIND the contract.
 HOWEVER, if there is GROSS MISTAKE:
 The Court did not consider the area of
 GR: No rescission or reduction or increase
"644 square meters more" as reasonable
whether the area is greater or lesser
excess or deficiency, to be deemed
 XPN: Gross Mistake – deficiency is very
included in the deed of sale of January 2,
great, equitable relief may be granted to
1976.
the purchaser.
 The Court also ruled that the Parol Evidence
 Example: In Roble v Arbasa [GR No.
Rule under the Rules of Court is applicable in
130707], the parties agreed on the subject of
the case at bar. The rule forbids any addition
sale as a parcel of residential land, having an
to or contradiction of the terms of a written
approximate area of 240 sqm. However, what
instrument by testimony or other evidence
was delivered was more than 800 sqm. The
purporting to show that, at or before the
644 sqm excess is no longer reasonable to
execution of the
be deemed included in the deed of sale.
parties' written agreement, other or different
terms were agreed upon by the parties, varying
the purport of the written contract. i. Prescription of the action (Art. 1543)
- Cebu Winland
c. Prescription of the action (Art. 1543) Development Corp. vs.
 Ong Siao Hua,  
supra. a. Rules as to immovables
  - Gabriel vs. Sps. Mabanta, G.R.
c.
Movables (Art. 1522) No. 142403, 26 Mar 2003
i. Rules on delivery of goods - Taredo vs. Court of Appeals,
ii. Where there is deficiency in the quantity or supra.
quality  Sanchez vs. Ramos, G.R. No. L-13442, 20 Dec 1919
 Rudolf Lietz Inc.  Sps. Mahusay vs. B.E. San Diego, Inc., G.R. No. 179675, 08
vs. Court of Jun 2011
Appeals, G.R. No.
 Ocampo vs. Court of Appeals, G.R. No. 97442, 30 Jun 1994
122463, 19 Dec
2005  J. M. Tuason & Co., Inc. vs. Javier, G.R. No. L-28569, 27
Feb 1970
 Sta. Ana, Jr. vs. Hernandez, G.R. No. L-16394, 17 Dec
1966  Hermanos vs. Saldaña, G.R. No. L-26578, 28 Jan 1974
 
 Asiain vs. Jalandoni, G.R. No. 20435, 23 Oct 1923
b. Rules as to movables (Art. 1544)
 Azarraga vs. Gay, G.R. No. 29449, 29 Dec 1928  
i. Where there is an excess c. Good faith in the buyer
i. Where goods are mixed with others - Yee vs. Frank L. Strong
ii. When goods are held by third party Machinery Co., G.R. No. L-11658,
  15 Feb 1918
d. Delivery in installments Leung Yee v. Strong Machinery
   The “Compañia Agricola Filipina” bought rice-cleaning
e. Delivery is to include fruits machinery from the machinery company and executed a
  chattel mortgage thereon to secure payment of the purchase
M. When the seller is excused from delivering (Art. 1527) price.
   It included in the mortgage deed the building of strong
a. In cash sales (Art. 1524) materials in which the machinery was installed, without any
  reference to the land on which it stood.
b. In sales on credit (Art. 1536)  The mortgage was foreclosed, and the machinery company
  was the highest bidder.
   Compania issued a deed of sale on land where the building
stood to the machinery company.
Art. 1544  At the same time that the machinery was mortgaged,
N. Sales of two different persons (Art. 1544) Compania also mortgaged the building to Leung Yee, separate
 Cuizon vs. Remoto, supra. and apart from the land on which it stood, to secure payment
  of the balance of its indebtedness to Leung Yee under a
contract for the construction of the building. Leung Yee had
 Sigaya vs. Mayuga, G.R. No. 143254, 18 Aug 2005 knowledge of the first mortgage.
 Sps. Ulep vs. Court of Appeals, G.R. No. 125254, 11  Again, the mortgage was foreclosed.
Oct 2005  Leung Yee and the machinery company are now fighting over
 Bautista vs. De la Cruz, G.R. No. 13125, 11 Feb 1919 the ownership to the building.
 Lichauco vs. Berenguer, G.R. No. 11907, 27 Feb 1919
Supreme Court Ruling
 Paylago vs. Jarabe, G.R. No. L-20046, 27 Mar 1968  Leung Yee is not a purchaser in good faith as contemplated in
 Quimson vs. Rosete, G.R. No. L-2397, 09 Aug 1950 Art. 1544 of the Civil Code.
 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.
 A purchaser cannot close his eyes to facts which should put a reasonable man upon his guard, and then claim that he acted in good
faith under the belief that there was no defect in the title of the vendor.
 His mere refusal to believe that such defect exists, or his willful closing of his eyes to the possibility of the existence of a defect in his
vendor's title, will not make him an innocent purchaser for value, if afterwards develops that the title was in fact defective, and it
appears that he had such notice of the defects as would have led to its discovery had he acted with that measure of precaution
which may reasonably be acquired of a prudent man in a like situation.
 The agreed statement of facts clearly discloses that the plaintiff, when he bought the building at the sheriff's sale and inscribed his title
in the land registry, was duly notified that the machinery company had bought the building from plaintiff's judgment debtor; that it had
gone into possession long prior to the sheriff's sale; and that it was in possession at the time when the sheriff executed his levy.
 The execution of an indemnity bond by the plaintiff in favor of the sheriff, after the machinery company had filed its sworn claim of
ownership, leaves no room for doubt in this regard.
 Having bought in the building at the sheriff's sale with full knowledge that at the time of the levy and sale the building had already
been sold to the machinery company by the judgment debtor, the plaintiff cannot be said to have been a purchaser in good faith; and
of course, the subsequent inscription of the sheriff's certificate of title must be held to have been tainted with the same defect.

d. When rules do not apply

 Consolidated Rural Bank (Cagayan Valley), Inc. vs. Court of Appeals,
G.R. No. 132161, 17 Jan 2005
 Carumba vs. Court of Appeals, G.R. No. L-27587, 18 Feb 1970
 Hanopol vs. Pilapil, G.R. No. L-19248, 28 Feb 1963
 Vda. de Jomoc vs. Court of Appeals, supra.
 
 
Section 3 - Conditions and Warranties
 
 
Arts. 1545-1547
O. Conditions
 
a. Concept
 
b. Consequence of non-fulfillment of suspensive condition (Art. 1545)
 
c. Effect if condition is in the nature of a promise that is should happen
 
P. Warranties
 
a. Concept
i. Conditions vs. warranties
cv 
 Power Commercial and Industrial Corp. vs. Court of Appeals,
supra.
 Guinhawa vs. People, G.R. No. 162822, 25 Aug 2005
 Bautista vs. Lasam, G.R. No. 47501, 27 Jun 1941
 Mendoza vs. Caparros, G.R. No. L-5937, 30 Jan 1954
 
b. Kinds
i. Express (Art. 1546)
 Carrascos, Jr. vs. Court of Appeals, supra.
 Philippine Manufacturing Co. vs. Go Jocco, G.R. No. 24256, 21
Jan 1926
 
ii. Implied (Art. 1547)
 Schmid & Oberly, Inc. vs. RJL Martinez Fishing Corp., G.R. No.
75198, 18 Oct 1988
 Power Commercial and Industrial Corp. vs. Court of Appeals,
supra.
 Jovellano vs. Solmirano, G.R. No. 22488, 02 Feb 1925
 Escaler vs. Court of Appeals, G.R. No. L-42636, 01 Aug 1985
 J.M. Tuason & Co., Inc. vs. Court of Appeals, G.R. No. L-41233,
21 Nov 1979
 Investment & Development, Inc. vs. Court of Appeals, G.R. No.
51377, 27 Jun 1988
 Nutrimix Feeds Corp. vs. Court of Appeals, G.R. No. 152219, 25
Oct 2004
 Filinvest Credit Corp. vs. Court of Appeals, G.R. No. 82508, 29
Sep 1989
 National Development Company vs. Madrigal Wan Hai Lines
Corp., G.R. No. 148332, 30 Sep 2003
 Dino vs. Court of Appeals, supra.
 This involves a sale where delivery was to be made through installment.
 In determining the prescriptive period, compute delivery from the last installment, provided that the last
installment was the defective one.
 If defective installment is the first, count 6 months from there.

 Mendoza vs. David, G.R. No. 147575, 22 Oct 2004

 
c. Statement of seller’s option (Arts. 1546, 1341)
 Harrison Motors Corp. vs. Navarro, G.R. No. 132269, 27 Apr 2000
 Investment & Development, Inc. vs. Court of Appeals, supra.
 Soler vs. Chesley, G.R. No. L-17150, 20 Jun 1922
Effect of non-fulfillment of express representation
Soler v. Chesley
• Andres Soler agreed with H. Anderson and Co. for the purchase of a coconut oil machinery. It is stated in
their agreement that “we can therefore make no guarantee as to prices and delivery, it being understood
that prices charged will be those shown on the invoices of the manufacturers, and shipment will be made
 by first possible opportunity.”
• Subsequently, Soler (petitioner) sold to Edward Chesley (defendant) all his rights and interest in the
contract (dated November 1918) entered into between Soler and Anderson.
• In the contract between the parties herein, it was stipulated that “a part of the aforesaid machinery is at
this time on the way, the other part being already in this city of Manila, the price of which has not yet
been paid by Mr. Soler to Wm. H. Anderson and Co.”
• Since Chesley is interested in acquiring the said machinery, parties herein further agreed that Chesley will
assume the obligation to pay Anderson and Co. for the amount unpaid in the invoices. The purchase price
of the machinery was P100,000.
• Of the parts of the machinery covered by these contracts, only the "filter press," the "cooker" and the
"chains" were in Manila on November 1918 but the most important parts, such as the "oil expellers" and
the "grinding mills" were not then yet in the city.
• The important parts arrived only on August 1919. These effects were received and paid for by the
defendant under protest, on account of the fact that they were not delivered within the period stipulated in
the contract.
• Sometime in April 1919, Mr. Chesley sent a letter to Mr. Soler asking that their contract be rescinded, and
repayment of the sums advanced to Anderson & Co.
• Soler brought an action before the Court asking the defendant to pay him the remaining balance of the
purchase price of the said machinery.
• As a defense, Mr. Chesley claimed that he entered into the contract based on the representation of the
plaintiff that the other parts of the machinery were on the way while in fact the machinery did not arrive
but long thereafter. Otherwise, he would not have signed the contract.

Supreme Court Ruling

• Mr. Chesley is discharged from all the obligations contracted by him with Anderson and Co., relative to the
payment of the price of the machinery.
• Mr. Soler has failed to carry out his obligation and, therefore, has no right to compel the
defendant to comply with his obligation to pay the plaintiff the sum claimed in the complaint.
• With regard to the counterclaim set up by the defendant, it appears from the record that he sold the
aforesaid machinery to a third person, the Philippine Refining Co. In cases like this, the rescission of the
contract does not lie (art. 1295, Civil Code).
• It appears sufficiently established in the record that if Mr. Chesley gave his consent to this contract,
it was because he expected that said machinery would arrive within a short time, — the time
reasonably necessary for such machinery to reach Manila from America, — as Mr. Soler
asserted in the document itself that said machinery was then on the way.
• The act of the defendant in insisting that this guaranty as to the arrival of the machinery be stated in the
contract, his repeated complaints and protests when he afterwards made payments as the parts arrived,
and his letter of April 1919, leave no room for doubt that the arrival of said machinery within a
reasonably short time was one of the determining elements of his consent.
• These acts of the defendant disclose the fact that he intended the arrival of the machinery to be an
essential element of the contract (art. 1282, Civil Code).
• We hold that in the case at bar that the arrival of the machinery within a reasonable time was an essential
element of the contract, such time to be determined by taking into account the fact that is was then on
the way to Manila.
• The fact that the plaintiff had no control of the prompt transportation of the said machinery to
Manila, does not relieve the plaintiff from making good the guaranty inserted in the contract
that said machinery was already on the way to Manila.
• The plaintiff elected to bind himself in that way, although he knew, as he ought to have known that, had
his rights not been transferred to the defendant, he could not have charged Messrs. Anderson and Co. so
much, who in their
 contract did not guarantee the delivery nor the amount of the price.
• The plaintiff having bound himself in favor of the defendant for more than what Anderson and Co. had
bound themselves for in his favor, we entertain no doubt that he acted in good faith, encouraged by
the information of Anderson and Co., but it was he, not Anderson and Co., who contracted the
obligation, and, therefore, he is the only one to be responsible for the obligation arising
from the contract.
• He who contracts and assumes an obligation is presumed to know the circumstances under which said
obligation can be complied with.

Prescriptive period
• 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).
 The period specified in the contract
 In the absence of a stipulation, four years from the time the cause of action accrues.

d. Prescriptive period
 
 
Subsection 1 - Warranty in Case of Eviction
 
 
Arts. 1548-1559
Q. Conditions
 
a. Requisites of the warranty
- Power Commercial and Industrial Corp. vs. Court of Appeals, supra
 
b. Kinds of deprivation or trespass
i. Deprivation in law
ii. Deprivation in fact
 
c. Effect of warranty (Art. 1555)
i. On the seller in good faith
ii. On the seller in bad faith
iii. Loss of an important part (partial eviction) (Art. 1556)
- De La Riva vs. Ah Kee, G.R. No. L-40279, 14 Nov 1934
iv. Warranty in auction sale
 
d.Waiver of warranty against eviction by the buyer/vendee
i. Must be express
ii. Kinds of waiver
1. Consciente
2. Intencionada; Intentional waiver
 Andaya vs. Mananasala, G.R. No. L-14714, 30 Apr 1960
Cases of intentional waiver of warranty by the buyer
Andaya vs. Manansala

• Isidro Fenis sold the land in question to Eustaquia Llanes, with right of repurchase within a period of five
years.
• After the expiry of said period, and without repurchasing the said property, Isidro Fenis sold it again to
Maria Viloria.
• Maria Viloria sold by way of sale with right to repurchase within a period of one year, the said property
together with another parcel of land to the herein defendant Melencio Manansala.
• Upon the expiry of the said period, Manansala registered with the Register of Deeds an affidavit
consolidating his title on the property.
• Thereafter, Maria Viloria sold by way of absolute sale the same property to Ciriaco Casiño, Fidela
Valdez, and the plaintiff spouses Ariston Andaya and Micaela Cabrito.
• Because of subsequent sales, Eustaquia Llanes instituted a civil case to quiet title and to recover
possession of said parcel from Ciriaco Casiño.
• Defendant Melencio Manansala sold by way of absolute sale, the property in question to the spouses
Ciriaco Casiño and Fidela Valdez, and the plaintiffs for P1,500.00. The deed contained the stipulation,
“that from and after this date, the vendee herein named are the lawful owners of the land herein sold
which I warrant to be free from all kinds of liens and encumbrances whatever and in case of eviction, I
promise, agree and covenant to answer to and for the vendee in the form and manner provided by
law.”
• In the meantime, Eustaquia Llanes included as co- defendants Melencio Manansala, Fidela Valdez and
the spouses Andaya and Micaela Cabrito.
• The civil case filed by Llanes ruled in favor of her. The judgment became final and a writ of execution
was issued against Casino, Valdez, Andaya and Cabrito.
• Aggrieved, spouses Andaya and Cabrito filed a case against Manansala to recover damages suffered by
reason of the latter’s breach of warranty of title or against eviction embodied in his sale of the land in
question to plaintiffs.
• Defendant Manansala denied liability for the damages claimed, and alleged that it was plaintiffs and
their co- purchasers who pleaded with him to sell said land to them at a low price after they had been
sued by Eustaquia Llanes, considering that Manansala had registered the land in his name with the
office of the Register of Deeds.

Supreme Court Ruling

• On the issue of waiver of warranty of eviction. SC ruled that spouses Andaya and Cabrito had
waived the warranty against eviction. At the time that they purchased the land in question, they
knew of the danger of eviction.
• The vendor's liability for warranty against eviction in a contract of sale is waivable and may be
renounced by the vendee (last par., Art. 1475, Old Code; last par., Art. 1548, New). The contract of
sale between Manansala and spouses Andaya and Cabrito included a stipulation as to the
warranty. The lower court found that the parties understood that such stipulation was
merely pro forma and that the Manasala was not to be bound thereby, in view of the fact that
the same land had been previously bought by petitioners from Maria Viloria and that their only purpose
in buying the same again from Manansala was to enable them to register their prior deed of sale; and
the further fact that when the sale between the parties, 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.
As the buyers knew of the danger of eviction at the time they purchased the land in question from the seller and assumed all its
consequences, the seller is not even obliged to restore to them the price of the land at the eviction but is completely exempt from
liability whatsoever
 Angelo vs. Pacheco, G.R. No. 32984, 08 Sep 1931
 On July 14, 1920, Angelo executed a deed of sale to Pacheco conveying a parcel of land consisting of
some 659 hectares in area situated in the municipality of Paniqui, Tarlac, and five carabaos, for
P13,500, of which the defendant paid P5,500 and promised to pay the balance of P8,000 on or before
the month of March, 1921. By that deed of sale, Pacheco waived his right to warranty in case of
eviction.
  In 1924, wishing to dispose freely on the land but prohibited from doing so be a certain clause in the
deed, Pacheco asked Angelo to sign another deed eliminating that prohibition. The second deed of sale
also provided for the waiver of warranty in case of eviction.
 On the same date the defendant executed the promissory note for P8,000 payable in three years from the
date thereof, and secured the payment of that amount with a real estate mortgage.
 But the land which the plaintiff sold to the defendant through the deeds was at that time the subject of
litigation as follows: On July 2, 1920, or about twelve days before the sale of the realty, Angelo had
instituted proceedings for the registration of said land.
 Pacheco was aware of this action when the sale took place on the 14th of the month that year, and he had
even been told by Attorney Natividad who the probable opponents would be. From that time on, the
defendant was in charge of the registration proceeding the plaintiff taking no part therein, and he
succeeded in obtaining judgment on September 1923, decreeing the registration of the land in the name
of Leocadia Angelo, whose name had been retained as that of the party applicant.
 On July 1924, the proper decree was issued in the name of Angelo. A month had already elapsed when
the deed of sale and the promissory note, as well as the mortgage, had been executed.
 On October 1924, a motion for the review of the decree was filed by the Director of Lands and by two
large groups of private opponents. On May 25, 1925, when the defendant Cipriano Pacheco already
appeared as the owner of the property, with a certificate of title, he filed his answers to the petitions for
review, and after a hearing thereon, the court set aside on June 23, 1925, the decree issued to Leocadia
Angelo, the plaintiff herein, and the transfer certificate of title in the name of the defendant Cipriano
Pacheco.
 From that decision an appeal was taken both by the latter and by Lucia F. de Valle Cruz to whom the
property had been sold by Cipriano Pacheco, the Supreme Court on December 31, 1926, affirmed the
order setting aside the decree and the transfer certificate of title, but "declaring that the appellant Lucia
F. de Valle Cruz, or her successors in interest, shall have a lien upon the land" for the sum of P15,000
with interest at the rate of 12 per cent per annum from July 23, 1924, and with the right to foreclose the
mortgage, in default of payment, as provided in sections 254-259 of the Code of Civil Procedure, except
that in the sale under such foreclosure, the portions of the land occupied by the petitioners for review
should not be sold until the portions not so occupied have been sold and the proceeds of the sale found
insufficient for the satisfaction of the lien. In all other respects, the appealed order was affirmed.
 Later on, Lucia F. de Valle Cruz brought an action against Cipriano Pacheco and obtained judgment in the
Court of First Instance of Tarlac in civil case No. 2459 on January 31, 1928, for the same mortgage
credit of P15,000 with the interest mentioned above.

Supreme Court Ruling

 Issue: Does the warranty obligation still bind Angelo as the vendor of that land?
 Pacheco’s formal and express waiver of warranty in case of eviction under the authority of the last
paragraph of article 1475 (now 1548) in the Civil Code, answers this question in the negative.
 The evidence in this case shows that Leocadia Angelo took no part in the proceedings of the
reopening of the decree; that it was Cipriano Pacheco himself, the defendant herein, who did
so, and who is therefore to blame for not entering the denial for lack of which this court
assumed that allegation to be true.
 In the second place, even assuming for a moment that the deliberate misrepresentation to which this
court referred were chargeable to Leocadia Angelo, such a falsehood in connection with the registration
proceeding has nothing to do with the eviction or its antecedents and consequences.
 The bad faith which annuls the waiver according to article 1476 (now 1553), invoked by
appellant's counsel, must bear some relation to the fact or facts giving rise to eviction.
 Not only did the defendant make a formal and express waiver of warranty for eviction, but — perhaps
because he was convinced that he had waived that right entirely — he failed to notify the vendor,
Angelo, or to have her summoned for the reopening of the decree, when she
 should have done so because he was in danger of losing the property, as he indeed did.
 For failure of that notice, the plaintiff is not bound to warranty, according to article 1481 (now 1558) of
the Civil Code.

Comments:
 Here, the buyer even participated, actively in the registration proceeding, so he was aware that there
was another claimant, unfortunately the land was awarded to that claimant.
 The Court said there was an express waiver.
 If the buyer waives the right, but the seller acted in bad faith because he withheld information from
the buyer that there really exist a risk of eviction, that waiver is void, meaning the BUYER CAN STILL
HOLD THE SELLER LIABLE if seller ACTED IN BAD FAITH.

e. Obligation of the buyer in case of eviction

 
 
Art. 1560
R. Warranty against hidden encumbrances
 
a. Requisites
 
b. Effects: Buyer’s action
 
 
Subsection 2 - Warranty Against Hidden Defects of or Encumbrance Upon the Thing Sold
 
 
Arts. 1561-1571
S. Warranty against redhibitory (hidden, physical) vices of movables
 
a.Requisite
i. Applicability of warranty to sale of second-hand article
- Moles vs. Intermediate Appellate Court, G.R. No. 73913, 31 Jan
1989
Applicability of warranty to sale of second-hand article
Moles v. IAC

• Petitioner bought from private respondent Mariano linotype printing machine for his printing business.
• He was informed that the machine was second-hand but functional. The machine was delivered to
petitioner’s publishing house.
• Mariano issued a certification wherein he warranted that the machine sold was in A-1 condition, together
with other express warranties.
• After 3 months, petitioner wrote Mariano that the machine was not functioning properly as it needed a
new distributor bar.
• Unheeded, petitioner filed a complaint for rescission of the contract.

Supreme Court Ruling

• As a general rule, there is NO implied warranty in the sale of second-hand articles. Said general
rule, however, is not without exceptions.
• Article 1562 of our Civil Code provides: 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.
• Private respondent is indeed bound by the express warranty he executed in favor of petitioner
that the machine sold was in A-1 condition.
• It must be remembered that the certification was a condition sine qua non for the release of petitioner's
loan which was to be used as payment for the purchase price of the machine. Private respondent failed to
refute this material fact
• An express warranty can be made by and also binding on the seller even in the sale of a second-hand
article.
• While it is true that 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. Consequently, the general rule on rescission of
contract, which is four years shall apply.
• Considering that the original case for rescission was filed only one year after the delivery of the subject
machine, the same is well within the prescriptive period.

 
 b. Knowledge of the vendor (Art. 1566)
 
 
 
c. Effect of warranty against defect or vices
i. Choice of the vendee (Art. 1567)
- Supercars Management & Development Corp. vs. Flores, G.R. No.
148173, 10 Dec 2004
Effect of sale of car with hidden defects
Supercars Management Corp Devt v. Flores

• In the second week of December 1988, Filemon Flores, purchased from Supercars Management and
Development Corporation, an Isuzu Carter Crew Cab for P212,000.00 payable monthly with a down
payment equivalent to 30% of the price or P63,600.00. The sale was coursed through Pablito Marquez,
petitioner's salesman.
• Upon delivery of the vehicle, respondent paid petitioner the 30% down payment, plus premium for the
vehicle's comprehensive insurance policy amounting to P7,374.80.
• The Rizal Commercial Banking Corporation (RCBC) financed the balance of the purchase price. Its
payment was secured by a chattel mortgage of the same vehicle.
• A day after the vehicle was delivered, respondent used it for his family's trip to La Union. The vehicle
malfunctioned on the trip. Upon their return to Manila in the first week of January 1989, respondent
complained to petitioner about the defects of the vehicle.
• Marquez then had the vehicle repaired and returned it to respondent that same day, assuring the latter
that it was already in good condition.
• But after driving the vehicle for a few days, the same defects resurfaced, prompting
respondent to send petitioner a letter dated January 30, 1989 rescinding the contract
of sale and returning the vehicle due to breach of warranty against hidden defects. A
copy of the letter was furnished RCBC.
• In response to the letter, petitioner directed Marquez to have the vehicle fixed.
Thereafter, he returned the vehicle to respondent with the assurance that it has no
more defects. However, when respondent drove it for a few days, the vehicle was still
defective.
• Hence, on February 1989, respondent sent petitioner another letter restating that he
is rescinding the contract of sale, a copy of which was furnished RCBC. He then
returned the vehicle to petitioner.
• On March 1989, respondent sent petitioner a letter demanding the refund of his down
payment, plus the premium he paid for the vehicle's insurance. Petitioner failed to
comply with the demand.
• Consequently, respondent stopped paying the monthly amortization for the vehicle.
Subsequently, RCBC sent respondent a letter demanding that he settle his past
overdue accounts for February 15 and March 15, 1989.
• In reply, respondent, through a letter dated March 31, 1989, informed RCBC that he
had rescinded the contract of sale and had returned the vehicle to petitioner.
• This prompted RCBC to file with the Office of the Clerk of Court and Ex-Officio Sheriff,
Regional Trial Court, Quezon City, a Petition for Extra-judicial Foreclosure of Chattel
Mortgage.
• A Notice of Sheriff's Sale of the vehicle was set and subsequently the auction sale
proceeded as scheduled. RCBC, being the highest bidder, purchased the vehicle.
• Subsequently, RCBC sold the vehicle to a third party. On November 1989, Flores filed
with the Regional Trial Court in Makati City a complaint for rescission of contract with
damages against petitioner, Marquez, Catley and RCBC.

Supreme Court Ruling

• Flores has the right to rescind the contract of sale. Respondent's complaint filed with
the RTC seeks to recover from petitioner the money he paid for the vehicle due to the
latter's breach of his warranty against hidden defects under Articles 1547, 1561, and
1566 of the Civil Code.
• 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.
• 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:
(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.
• Petitioner's contention that under Article 1191 of the Civil Code, rescission can no
longer be availed of as the vehicle was already in the hands of an innocent purchaser
for value lacks merit. Rescission is proper if one of the parties to a contract commits a
substantial breach of its provisions. It creates an obligation to return the object of the
 contract.
• It can be carried out only when the one who demands rescission can return whatever
he may be obliged to restore. Rescission abrogates the contract from its inception and
requires a mutual restitution of the benefits received. Petitioner is thus mandated by
law to give back to respondent the purchase price upon his return of the vehicle.
• Records show that at the time respondent opted to rescind the contract, the
vehicle was still in his possession. He returned it to petitioner who, without
objection, accepted it. Accordingly, the 30% down payment equivalent to
P63,600.00, plus the premium for the comprehensive insurance amounting to
P7,374.80 paid by respondent should be returned by petitioner.
 ii. If the thin is lost due to hidden vice (Art. 1568)
iii. If the thing is lost by fortuitous event or by the fault of the buyer
 
d. Period to bring action for breach of warranty
- De Guzman vs. Toyota Cubao, Inc., G.R. No. 141480, 29 Nov 2006
Effect of action to recover purchase price filed after 6 months
De Guzman v. Toyota Cubao

• On November 27, 1997, petitioner purchased from respondent a brand new

Toyota Hi-Lux. The vehicle was delivered to petitioner two days later.
• On October 18, 1998, petitioner demanded the replacement of the engine of the
vehicle because it developed a crack after traversing Marcos Highway during a
heavy rain.
• On April 20, 1999, petitioner filed a complaint for damages. Petitioner asserted
that respondent should replace the engine with a new one based on an implied
warranty.
• Respondent countered that the alleged damage on the engine was not covered by
a warranty.
• The RTC dismissed the complaint on the ground that the cause of action had
already presc
• ribed based on Article 1571 of the Civil Code.
• De Guzman contended that the applicable prescriptive period should be based on
Article 169 of R.A. No. 7394, otherwise known as “The Consumer Act of the
Philippines” and not Article 1571.
• The (CA) affirmed the RTC decision.

Supreme Court Ruling

• The applicable prescriptive period is Article 1571 of the Civil Code which provides
that Actions arising from the provisions of preceding ten articles shall be barred
after six months from the delivery of the thing sold.
• Under Article 1599 of the Civil Code, once an express warranty is breached, the
buyer can accept or keep the goods and maintain an action against the seller for
damages.
• In the absence of an existing express warranty on the part of the
respondent, as in this case, the allegations in petitioner’s 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. Since petitioner filed the complaint on
April 20, 1999, or more than nineteen months counted from November 29, 1997 (the
date of the delivery of the motor vehicle), his cause of action had become time-
barred.

Arts. 1572-1581
T. Warranty against hidden vices of animals (redhibitory vices)
 
a. When no warranty exists (Arts. 1574-1577)
 
 b. Presumption of redhibitory vice (Art. 1578)
 
c. Effects of warranty (buyer’s options) (Arts. 1579-1580)
 
d. Prescription of action (Art. 1577)
 
 
Chapter 5
Obligations of the Vendee
 
 
Arts. 1582-1593
A. To accept delivery
 
a. Requirement of previous examination by the buyer (Arts. 1584[paras. 1, 2])
- Fule vs. Court of Appeals, G.R. No. 112212, 02 Mar 1998
Sale of jewelry where buyer had opportunity to examine the items
Fule vs CA

 Gregorio Fule, a banker by profession and a jeweler at the same time, acquired a 10-
hectare property in Tanay, Rizal.
 He asked Remelia Dichoso and Oliva Mendoza to look for a buyer who might be
interested in the Tanay property.
 The two found one in the person of herein private respondent Dr. Ninevetch Cruz.
 It so happened that at the time, petitioner had shown interest in buying a pair of
emerald-cut diamond earrings owned by Dr. Cruz which he had seen in January of the
same year when his mother examined and appraised them as genuine.
 After several negotiations petitioner and Dr. Cruz finally agreed to exchange the pair
of emerald-cut diamond earrings for the Tanay property.
 However, just shortly after the sale was made, Fule complained that the jewelry given
to him was fake. He then used a tester to prove the alleged fakery.
 Thereafter, petitioner filed a complaint against private respondents praying, among
other things, that the contract of sale over the Tanay property be declared null and
void on the ground of fraud and deceit.

Supreme Court Ruling

 The facts as proven do not support the allegation of fraud or that petitioner himself
could be excused the "mistake."
 On account of his work as a banker-jeweler, it can be rightfully assumed that
he was an expert on matters regarding gems. He had the intellectual capacity
and the business acumen as a banker to take precautionary measures to avert such a
mistake, considering the value of both the jewelry and his land.
 The fact that he had seen the jewelry before October 24, 1984 should not
have precluded him from having its genuineness tested in the presence of Dr.
Cruz.
 Had he done so, he could have avoided the present situation that he himself brought
about. Indeed, the finger of suspicion of switching the genuine jewelry for a fake
inevitably points to him. Such a mistake caused by manifest negligence cannot
invalidate a juridical act.
 As the Civil Code provides, "(t)here is no mistake if the party alleging it knew the
doubt, contingency or risk affecting the object of the contract."
 Furthermore, he was afforded the reasonable opportunity required in Article
 1584 of the Civil Code within which to examine the jewelry as he in fact
accepted them when asked by Dr. Cruz if he was satisfied with the same.
 By taking the jewelry outside the bank, he executed an act which was more consistent
with his exercise of ownership over it. This gains credence when it is borne in mind
that he himself had earlier delivered the Tanay property to Dr. Cruz by affixing his
signature to the contract of sale.
 That after two hours he later claimed that the jewelry was not the one he intended in
exchange for his Tanay property, could not sever the juridical tie that now bound him
and Dr. Cruz.
 The nature and value of the thing he had taken preclude its return after that
supervening period within which anything could have happened, not
excluding the alteration of the jewelry or its being switched with an inferior
kind.

i. Exception (Art. 1584[3])

ii. Effect of acceptance by the buyer (for seller’s liability)
1. Exception
- De Guzman vs. Triangle Ace Group, G.R. No. 149153, 12
Sep 2001

De Guzman vs. Triangle Ace Corp.

 De Guzman purchased large quantities of steel bars form Triangle Ace Corp.
 Triangle Ace sued de Guzman for recovery of the unpaid price of P124,277.00.
 De Guzman answered that his liability was only P79,510.00; and by way of
counterclaim, he said that he suffered damages as a result of the cancellation of
his contract with another corporation because the steel bars delivered to him
measured only 8mm x 20ft instead of 9mm by 20ft as agreed.

Supreme Court Ruling

 Art. 1595 provides that if ownership of the goods has passed to the buyer
and he wrongfully refuses to pay for such, the seller may maintain an
action for the price of the goods.
 A buyer is deemed to have accepted the goods when he does an act inconsistent
with the ownership of the seller, or when after the lapse of a reasonable time, he
retains the goods without intimating to the seller that he has rejected them (Art.
1585).
 In the case at bar, there is no dispute that the steel bars purchased by
petitioner were received by him.
 It is also not disputed that petitioner made partial payments for the goods
and that some of the steel bars were in fact used by him to manufacture
reinforced concrete pipes although they were allegedly rejected on the ground
that the steel bars were undersized.
 The retention and use of the steel bars by the petitioner clearly show that he
accepted the goods and for this reason he should pay the price of the same.

Comments:
 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.
 b. Rule for unjustified refusal of the buyer to accept (Art. 1588)
 
c. Rule if the buyer justifiably refused to accept (Art. 1587)
 
B. Payment of price and interest
 
a. Time and place
 
 
 
b.Suspension of payment by the buyer after delivery
i. Grounds
- Arra Realty Corp. vs. Guarantee Development Corporation and
Insurance Agency, G.R. No. 142310, 20 Sep 2004
Suspension of payment for refusal to issue title
Arra Realty Corp v. Guarantee Dev’t Corp 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.
 Without Peñaloza’s knowledge, Arra Realty mortgaged the property to ChinaBank.
 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, Penalosa 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.
 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,

Comments:
 Under Article 1590 of the New Civil Code, a vendee may suspend the payment of
the price of the property sold. Peñaloza was impelled to cause the annotation of an
adverse claim at the dorsal portion of certificate of title.
 Especially that the mortgagee has a prior right over the property. You would be
justified to suspend the payment of the price

Supreme Court Ruling on Other Issues

 The court implicitly held that the agreement had been annulled for the fraud on
the part of Arra for mortgaging the property without Peñaloza’s knowledge.
 But because the property had passed to a buyer in good faith, the only remedy
she had was a refund of the amount paid to Arra.

c. Payment of interest on the price

i. Before default
ii. After default (moratory interest)
- Crismina Garments, Inc. vs. Court of Appeals, G.R. No. 128721,
09 Mar 1999
 
d. Legal guaranties for payment of the price
i. Suspension of delivery by the seller
ii. Seller’s lien on the goods in his possession
iii. Stoppage in transitu, if the buyer is insolvent and the price is unpaid
iv. Resale of goods
v. Rescission of Transfer of Title
1. In case of goods (corporeal movables)
2. In case of real property (Art. 1592)
a. General rule
 b. Exception
2. Action for the price and damages
 
 
Chapter 6
Actions for Breach of Contract of Sale of Goods
 
 
Arts. 1594-1599
A. Action for the price of personal property (Art. 1595)
 
a. Grounds
- De Guzman vs. Triangle Ace Group, supra.
 
B. Action for damages for non-acceptance of the goods (Art. 1596)
 
a. Grounds
 
b. Measure of damages
i. When there is an available market
ii. When repudiation is made or notified before the seller completes preparations for fulfillment.
 
C. Action for total recission by the seller against the buyer (Art. 1597)
 
 
 
a. Requisites
 
D. Buyer’s action for seller’s specific performance (Art. 1598)
 
E. Buyer’s action for breach of (express or implied) warranty (Art. 1599)
 Katigbak vs. Court of Appeals, G.R. No. L-16480, 31 Jan 1962
 Song Fo & Co. vs. Hawaiian Philippine Co., G.R. No. 23769, 16 Sep 1925
 
a. Buyer’s choices
- Harrison Motors Corp. vs. Navarro, supra.
Express representation of payment of taxes and customs duties
Harrison Motors Corp. v. Navarro

• On June 1987 Harrison Motors Corporation through its president, Renato Claros, sold
two (2) Isuzu Elf trucks to private respondent Rachel Navarro, owner of RN Freight
Lines. Petitioner, a known importer, assembler and manufacturer, assembled the two
(2) trucks using imported component parts.
• Prior to the sale, Renato Claros represented to private respondent that all the BIR
taxes and customs duties for the parts used on the two (2) trucks had been paid for.
• In December of 1988 government agents seized and detained the two (2) Elf trucks of
respondent after discovering that there were still unpaid BIR taxes and customs
duties thereon.
• The BIR and the BOC ordered private respondent to pay the proper assessments or
her trucks would be impounded.
• Private respondent went to Claros to ask for the receipts evidencing payment of BIR
taxes and customs duties; however, Claros refused to comply.
• Private respondent then demanded from Claros that he pay the assessed taxes and
warned him that he would have to reimburse her should she be forced to pay for the
assessments herself. Her demands were again ignored.
• When petitioner still ignored her letter, she filed a complaint for a sum of money on
24 September 1990 with the Regional Trial Court of Makati.
• On March 5, 1992 the trial court rendered a decision ordering petitioner to reimburse
private respondent in the amount of P32,943.00 for the customs duties and internal
revenue taxes the latter had to pay to discharge her two
(2) Elf trucks from government custody. Petitioner was also required to pay P7,500.00
for attorney's fees plus the costs.
• The Court of Appeals subsequently sustained the lower court, hence this recourse of
petitioner.

Supreme Court Ruling

• Although private respondent is the one required by the administrative
regulations to secure the Certificate of Payment for the purpose of
registration, petitioner as the importer and the assembler/manufacturer of
the two (2) Elf trucks is still the one liable for payment of revenue taxes and
customs duties.
• Petitioner's obligation to pay does not arise from the administrative regulations but
from the tax laws existing at the time of importation.
• Hence, even if private respondent already owned the two
(2) trucks when the Memorandum Orders and Memoranda of Agreement took
effect, the fact remains that petitioner was still the one duty-bound to pay for the BIR
taxes and customs duties.
• IMPORTANT ISSUE: As regards whether or not there was an express
representation of payment of taxes and custom duties, it is true that the
ownership of the trucks shifted to private respondent after the sale. But
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. Presumably, therefore,
private respondent would not have purchased the two (2) Elf trucks were it
not for petitioner's assertion and assurance that all taxes on its imported
parts were already settled.
• This express warranty was breached the moment petitioner refused to furnish private
respondent with the corresponding receipts since such documents were the best
evidence she could present to the government to prove that all BIR taxes and
customs duties on the imported component parts were fully paid. Without evidence of
payment, she was powerless to prevent the trucks from being impounded.
• Under Art. 1599 of the Civil Code, once an express warranty is breached the
buyer can accept or keep the goods and maintain an action against the seller
for damages. This was what private respondent did. She opted to keep the two (2)
trucks which she apparently
 needed for her business and filed a complaint for damages, particularly seeking
the reimbursement of the amount she paid to secure the release of her vehicles.

Comments:
• The court said that the statement by the representative of the company that all
taxes and custom duties have already been paid was what induced this Navarro to
purchase the trucks.
• When the trucks were in her possession, it was seized and detained by the
government for non-payment of taxes.
• The express warranty was breached the moment petitioner refused to furnish
private respondent with the corresponding receipts since such documents were the
best evidence she could present to the government to prove that all BIR taxes and
customs duties on the imported component parts were fully paid.
• Without evidence of payment, she was powerless to prevent the trucks from being
impounded.

b. Nature of the options

- Supercars Management & Development Corp. vs. Flores, supra.
 Respondent Flores purchased a vehicle from Supercars.
 The vehicle, after it was delivered to respondent, malfunctioned. Flores
complained about the defects. It was repaired and returned, assuring that it was
already in good condition.
 After few days, the same defects resurfaced, prompting respondent to send
petitioner a letter rescinding the contract of sale and returning the vehicle due to
breach of warranty against hidden defects.
 Petitioner contend that the vehicle had only “minor and inconsequential defects”
which “were promptly and satisfactorily repaired pursuant to its warranty as the
seller.
 Because his payments were not refunded, the respondent stopped paying the
monthly amortization for the vehicle.
 A Notice of Sheriff's Sale of the vehicle was set and subsequently the auction sale
proceeded as scheduled. RCBC, being the highest bidder, purchased the vehicle.
 Subsequently, RCBC sold the vehicle to a third party.
 On November 1989, Flores filed with the Regional Trial Court in Makati City a
complaint for rescission of contract with damages against petitioner, Marquez,
Catley and RCBC.

Supreme Court Ruling

 The evidence clearly shows that Flores 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.
 Article 1599. Where there is a breach of warranty by the seller, the buyer may, at
his election: (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.
 Petitioner's contention that under Article 1191 of the Civil Code,
rescission can no longer be availed of as the vehicle was already in the
hands of an innocent purchaser for value lacks merit.
 Rescission is proper if one of the parties to a contract commits a substantial
 breach of its provisions. It creates an obligation to return the object of the
contract. It can be carried out only when the one who demands rescission can
return whatever he may be obliged to restore.
 Rescission abrogates the contract from its inception and requires a mutual
restitution of the benefits received. Petitioner is thus mandated by law to give
back to respondent the purchase price upon his return of the vehicle.

c. When buyer can not rescind

 
d. Effect of buyer’s election to rescind (Art. 1599[4])
 
e. Liability in case of breach of warranty of quality (Art. 1599[5])