CHAPTER 1

NATURE AND FORM OF THE CONTRACT

 CONTRACT OF SALE – is a contract whereby one of the party undertakes to deliver/transfer ownership of a
determinant thing and the other, to pay a price certain in money or its equivalent.

CHARACTERISTICS of a CONTRACT OF SALE

1. Consensual – perfected by mere consent or meeting of minds of both parties (all contracts are consensual in
nature without stipulation of the parties as to form)
2. Bilateral – more than 1 contracting parties undertaking to fulfill their obligations
3. Onerous – both parties must give something equivalent to what the other party has given
4. Commutative – what is given is equivalent to the other
5. Nominate – has name by law
6. Principal – doesn’t depend on other contracts for its existence

Essential Elements
1. Consent
2. Object – must be determinate, useful, legal and possible
3. Cause/ Consideration – refers to price certain in money or its equivalent

 Natural Elements – deemed to exist without any stipulation

Example: warranties
 Accidental Elements – stipulated by parties
Example: interest

“A contract may be absolute (not subject to any condition) or conditional (subject to condition.)”

 Contract to Sell – if the sale is subject to a condition such as the full payment of price

OBJECT OF A CONTRACT OF SALE

1. Sale of Vain Hope or Expectancy – void

2. Things having potential Existence – valid
3. Mere hope or expectancy – valid
4. Sale of future inheritance – void

EFFECT IF THE OWNER OF A FUNGIBLE GOODS SELLS AN UNDIVIDED SHARE

 The buyer becomes co-owner in proportion to his share

 If later on it was discovered that the mass contains less than what was sold, the buyer becomes the owner of the
whole mass

“things subject to a resolutely condition may be the object of a contract of sale.”

Ex: Pact De Retro Sale – sale with a right to repurchase

 Contract of Agency – a person binds himself to render some service or to do something in representation or on
behalf of another with the consent or authority of the latter
 Contract for a piece of work – the contractor binds himself to execute a piece of work for the employer. The
contractor may either employ his labor or skill or also furnish the material.
 Contract of Barter/ Exchange – one of the parties binds himself to give one thing in consideration of the other’s
promise to give another thing.

RULES GOVERNING PRICE

INSTANCES WHERE PRICE IS CONSIDERED CERTAIN

a) The parties have fixed or agreed upon a definite amount

b) With reference to another thing certain
c) Upon a 3rd person’s judgment
 Gross inadequacy of price – contract is valid except:

1. The consent is vitiated

2. The parties really intended a donation

When Price simulated – void

The fixing of the price cannot be left to the discretion of one of the contracting parties.

Effect if price not determined

a. No effect, if yet to be executed (delivered)
b. The buyer must pay a reasonable price thereof, (if delivery has been made)

STAGES OF A CONTRACT OF SALE

1. Negotiation - contracting parties indicate interest

2. Perfection – meeting of the minds of the parties upon the object and upon the price
3. Consummation – parties perform their respective undertakings

OWNERSHIP - ownership of things is transferred through delivery.

Statute of Frauds
- The law enumerates certain transaction to be stated in writhing in order to prevent fraudulent
cases, disputes/ issue
1. Sale that is to be performed more than 1 year
2. Sale of personal (movable) property not less than php500.
3. Sale of real property/interest

 OPTION MONEY – reservation fee, what you paid is the time or the option to buy, not compelled to
buy
 EARNEST MONEY – down payment, part of the purchase price

RISK OF LOSS OF THE OBJECT/SUBJECT MATTER

 Res perit domino – the thing perishes with the owner

1. Before perfection – seller
2. At the time of perfection – contract is void and inexistent because it lacks an essential element
(object)
3. After perfection, before delivery – buyer
4. After delivery – buyer

REMEDIES OF VENDOR IN SALE OF PERSONAL PROPERTY PAYABLE IN INSTALLMENTS

1. Exact fulfilment
2. Rescission
3. Foreclosure of chattel mortgage
“ Alternative, not cumulative”
 in sale of personal property – chattel mortagage
 In real property- real- estate mortage
“ the installment and rents paid cab be forfeited, if stipulated.”
RIGHT OF FIRST REFUSAL
 After the expiration of the lease term, you have the option to sell the property leased
before offering it to 3rd persons
 Actually, the instrument has defects, the real intention of the parties os a contract of sale,
thus the law on sales will govern
 Indicator: “ lease of personal property with lease to buy.”
 Chapter 2
Capacity to Buy or Sell
Kinds of Incapacity
1. Absolute Incapacity- Party cannot bind himself in any case.
2. Relative Incapacity- Certain Persons under certain circumstances cannot buy certain property.

Necessaries—those things which are needed for sustenance, dwelling, clothing and medical attendance,
in keeping with the financial capacity of the family of the incapacitated person.
** Minors in contract for necessaries must pay reasonable price.

Prohibition against Husband and Wife

a. To avoid Prejudice to 3rd Persons
b. To prevent one spouse from unduly influencing the other.
c. To avoid by indirection the violation of the prohibition against donations.

Who may assail illegality?

a. Creditors prior to the sale
b. Heirs of either spouse.

** Either spouse may not assail illegality because they are parties thereto.
** A spouse designated as agent of the other spouse may sell the latter’s exclusive property.

Persons Relatively Incapacitated to Buy. (PAGEJO)

1. Public Officers and employees—Property Of State.
2. Agents—Property of Principal unless with consent.
3. Guardian—Property of Ward.
4. Executors and administrators—Estate
5. Justices, Judges, Prosecuting Attorneys, Clerks and employees of court—Property/Rights under
litigation.
6. Others disqualified by law. (Ex. *aliens who are disqualified to purchase private agricultural lands; *an
unpaid seller having a right of lien or having stopped the goods in transitu, who is prohibited from buying
the goods either directly or indirectly in the resale of the same at a public or private sale w/c he may make.
Art. 1533, par.5)
Rationale: Fiduciary relationship
Status of Sale: Voidable (1-3); Void (4-6)
ART. 1492. 1490 and 1491 Applicable to Legal Redemption, Compromises and Renunciations.
 Chapter 3
Effects of the Contract when the Thing Sold has been Lost
Partial Loss Rules:
1. Vendee may withdraw from the contract
2. Demand the remaining part, paying its price in proportion to the total sum agreed upon
Loss/Substantial Deterioration of Specific Goods without seller’s knowledge.
1. Buyer may avoid the sale or
2. May treat sale as valid w/ respect to the existing goods

Chapter 4
Section 1 – General Provision

Principal Obligation of Vendor

1. To transfer ownership of a determinate thing 4. To take care of the thing with proper diligence

2. To deliver the thing 5. To pay for the expenses

3. To warrant against eviction and hidden defects

Ways of effecting delivery

1. By actual or real delivery

2. Constructive or legal delivery

3. By delivery in any other manner signifying an agreement that the possession is transferred to the vendee

 Delivery is an indispensable requisite to transfer ownership and must be made with intention of delivering the
thing sold.
 The delivery must be made to the vendee or his authorized representative.

Ways effecting constructive delivery

1. by the execution of a public instrument

2. By symbolical tradition or “tradition symbolica”

3. by traditio longa manu

4. by tradition brevi manu

5. by tradition constitutium possessorim

6. by quasi-delivery or quasi-traditio
 Section 2 – Delivery of the Thing Sold

 Tradition – is a derivative mode of acquiring ownership by virtue which one who has the right
and intention to alienate a corporeal thing, transmits it by virtue of a just title to one who
accepts them.

Importance: To enable the vendee to enjoy and make use of the property purchased.

Actual Delivery

1. There is an actual delivery when the thing sold Is placed in the control and possession of the vendee

2. Actual or manual delivery of an article sold is not always essential to passing of title thereto.

3. Delivery is generally evidenced by a written acknowledgement of the buyer.

Symbolic Tradition – to effect delivery, the parties make use of a token symbol to represent the thing
delivered.

 Public Instrument – It is one which is acknowledged before a notary public or any authorized to
administer oath, by the person who executed the same.

Rule: The execution of such applies to, movable as well as immovable property.

Exception: If it appears from the document or it can be inferred therefrom that it was not the intention
of the parties to make delivery, no tradition can be deemed to have taken place.

 Traditio Longa Manu – takes place by mere consent or agreement of the contracting parties as
when the vendor merely points to the thing sold which shall be at the control and disposal of
the vendee.
 Traditio Brevi Manu – happens when the vendee has already the possession of the thing sold by
virtue of another title as when the lessor sells the thing leases to the lessee.
 Traditio constitutum possessorium – takes place when the vendor continues in possession of
the property sold not as owner but in some other capacity.
 Quasi-traditio – when delivery is in case of incorporeal things.
1. By execution of public instrument
2. If no delivery, by placing of the titles of ownership in the possession of the vendee
3. Allowing the vendee to use his rights as new owner w/ consent of vendor.

Sale or return Sale on trial or approval

The property is sold but the buyer has the option A contract in the nature of an option to purchase,
to return the same to the seller instead of paying if the goods prove satisfactory, the approval of
the price. the buyer being a condition precedent.
Subject to resolutory condition Subject to suspensive conditions
Depends entirely on the will of the buyer Depends on the character or quality of the goods
Ownership of goods passes to the buyer on Ownership remains on the seller until the buyer
delivery and subsequent return reverts signifies his approval or acceptance to the seller
ownership to seller
Risk of loss or injury rest upon the buyer Risk still remains with the seller

Delivery of specific goods

 Delivery, be it only constructive, passes title in the thing sold.

 Delivery to a carrier is deemed to be a delivery to the buyer.

Exception

1. If the contrary intention appears by the terms of the contract

2. In the cases provided in the 2nd and 3rd paragraph of article 1523
3. In cases provided in the 2nd, 3rd and last paragraph of article 1503.

Where seller’s title only for purpose of security

1. Form of bill of lading not conclusive

2. Where ownership would have passes but for the form of the bill of lading

 Where goods are shipped and bill of lading is deliverable, but possession of the bill of lading is
retained by seller/agent, the possession of goods remains on the seller.
 The effect of such is controlling, as it does the possession of the goods and the later cannot
obtain the goods without the bill.

Where bill of lading is sent w/ draft

1. Delivery conditional

2. Duty of buyer if draft not honored

3. Right innocent third person

Risk of loss

Res perit domino – if the thing is lost by fortuitous event, the risk id borne by the owner opf the thing at
the time of the loss.

Exception:

1. Where seller reserves the ownership of the goods to secure the performance of the buyer of his
obligations, buyer assumes the risk of loss.

2. Where actual delivery has been delayed through the fault of either, risk is at the party at fault.

Sale by person not the owner

1. Where the owner of goods is, by his conduct, precluded from denying the seller’s authority to sell

2. Where the law enables the apparent owner to dispose of the goods as if he were the true owner

3. Where the sale is sanctioned by statutory or judicial authority

4. Where the sale is made at merchant’s stores, fairs or markets

5. Where the seller has a voidable title which has not been avoided at the time of the sale

6. Where seller subsequently acquires title.

In sale by one having voidable title, buyer can acquire such if:

1. Before the title of the seller has been avoided

2. In good faith for value

3. Without notice of the seller’s defect of title.

Document of title – Includes any bill of lading, dock warrant, “quedan”, or warehouse receipt or any
other document used in the ordinary course of business as proof of the possession or control of the
goods.

Nature and Function

1. Refers to goods and not to money. They are receipts of bailee, or orders upon bailee
2. Evidence of transfer of title and possession of goods and contract between the parties
Form of Document of Title

1. Bill of Lading – Receipt for the transport of goods.

2. Dock Warrant – Instrument given by dock owners to an importer of goods warehoused.
3. Warehouse Receipt – receipt for goods deposited w/ a warehouseman.

Classes

1. Negotiable documents of titles

2. Non-negotiable document of titles

Negotiation of negotiable document

1. If the goods are deliverable to the bearer

2. When it is endorsed in blank or to the bearer.

Who may negotiate?

1. By the owner
2. By the person whom the possession or custody is entrusted by the owner

Person being negotiated acquires:

1. Title of the person negotiating the document over the goods covered
2. Title of the person to whose order were to be delivered over such goods
3. Direct obligation of the bailee to hold possession of the goods

Rights of person document been transferred

1. Right to notify the bailee of the transfer

2. Right to acquire the obligation of the bailee to hold the goods for him

If transfer is w/out indorsement, one has the right:

1. To the goods as against the transferor

2. To compel the transferor to indorse the indorsement

A person warrants

1. That the document is genuine

2. That he has the legal right to negotiate or transfer it
3. That he has knowledge of no fact which would impair the validity or worth of the document
4. That he has a right to transfer the title and goods are merchantable or fit for a particular
purpose.

Effect of negotiable instrument

1. The indorser will pay the instrument if the party primarily liable fails to do so.
2. The indorsement of a document of title amounts merely to a conveyance by the indorser, not a
contract of guaranty.

Validity of the negotiation is not impaired

1. Breach of duty on the part of the person making the negotiation

2. When owner is deprived of possession by loss, theft, fraud, accident, mistake, duress or
conversion.

When attachment of levy available

1. While in the possession of the bailee, it cannot be attached or levied, unless

Exceptions:
a) the document be first surrendered
b) its negotiation is prohibited by court
 2. The bailee cannot be compelled to deliver the possession of goods until the document is
surrendered to him or impounded by the court.

Remedy: Aid from courts of appropriate jurisdiction by adjunction (restraining order)

Place of delivery

1) Where there is agreement, express or implied, the place of delivery is that agreed upon
2) If no agreement, determined by usage of trade
3) If no agreement and prevalent usage, the seller’s place of business
4) In any other case, the seller’s residence
5) In case of specific goods, which knowledge of both is to some other place, that is the place.

Time of delivery

1) No time fixed, seller is bound to send the goods to buyer within a reasonable time
2) Provides time, time is essence and correct performance was offered
3) If contract does not specify and delivery is made within reasonable time, time is not of the
essence.

Hour of delivery

1) Reasonable hour is a question of fact largely dependent upon the circumstances

2) Incase of bulky or needs special care of goods, hour might be reasonable.

Delivery of seller

1) When he delivers quantity of goods less than contracted, the buyer may reject. But when he
accepts with knowledge of seller not going to perform in full, he must pay for them at the
contracted rate.
2) When he delivers quantity of goods larger than contracted, the buyer may accept the goods and
rejects the rest. If he accepts the whole, he must pay for them at the contracted rate.
3) When he delivers goods mixed with goods of a different description, the buyer may accept and
reject the rest.
4) If the subject matter is indivisible, the buyer may reject the whole

 Delivery to a carrier constitutes delivery to the buyer.

 Exceptions: provided in paragraph 1, 2, and 3 or Article 1503.

Seller’s duty after delivery to carrier

1) To enter on behalf of buyer into such contract reasonable under the circumstances
2) To hive notice to buyer regarding necessity to insure goods.

Definition of Terms

1) COD (Collect on Delivery) – carrier acts for the seller in collecting the purchase price
2) FOB (Free on Board) – Goods to be delivered free of expense
3) CIF (Cost Insurance and Freight) – Price fixed not only cost of goods but also freight and
insurance
4) FAS (Free Alongside Vessel) – Seller pays all the charges and bears risk until goods are placed
alongside overseas vessel and w/in reach of its loading tackle.
5) Ex-Factory, Ex-warehouse – price quoted applies only at the point of origin
6) Ex Dock – seller quotes price including cost of goods on the dock.

Unpaid seller – one who has not been paid or tendered the whole price or who has received a bill of
exchange or other negotiable instrument as conditional payment and the condition on which it was
received has been broken by reason of the dishonor of the instrument.
Deemed to be unpaid seller

1) When whole price has not been paid or tendered

2) has received a bill of exchange or other negotiable instrument as conditional payment and the
condition on which it was received has been broken by reason of the dishonor of the
instrument.

Where whole of the price has not been paid

1) tender of payment of buyer

2) Payment of part of price
3) Payment by negotiable instrument

Remedy of unpaid seller

1) Lien on the goods

2) Stopping the goods in transit
3) Right of resale
4) Right to rescind the sale

Right of unpaid seller as to retention of possession until tender of price

1) Goods have been sold w/out any stipulation as to credit

2) Goods have been sold on credit, but term has expired
3) Buyer becomes insolvent

When unpaid seller losses possessory lien

1) Delivers goods to agent or bailee of buyer

2) Possession is in the buyer or his agent
3) Waiver

Requisite to exercise right of stoppage in transit

1) The seller must be unpaid

2) The buyer must be insolvent
3) The goods must be in transit
4) The seller must take possession
5) The seller must surrender the negotiable document
6) The seller must bear the expenses of delivery

Goods considered in transit

1) After delivery to a carrier or other bailee and before the buyer takes delivery of them
2) If the goods are rejected by the buyer, and carrier continues in possession

Goods considered in transit

1) After delivery to the buyer or his agent

2) If the buyer or agent obtains possession of the goods
3) If the carrier/bailee acknowledges to hold goods on behalf of the buyer
4) If the carrier/bailee wrongfully refuses to deliver the goods to the buyer.

Ways of exercising the right to stop

1) By taking actual possession of goods

2) By giving notice to his claim to the carrier/bailee

When resale is allowable

1) Where goods are perishable in nature

 2) Right to resell is expressly reserved, in case buyer in in default
3) Buyer delays in the payment of price

Seller may rescind

1) It is expressly reserved in case of buyers’ default

2) Buyer delays in the payment of price

Sale of goods subject to lien or stoppage in transit

1) Goods not covered by negotiable document of title – goods are subject to legal lien
2) Goods covered by negotiable document of title – lien cannot prevail

Vendee lose right to make use of the period

1) After obligation has contracted, he becomes insolvent, unless he gives guaranty or security for
debt
2) He does not furnish to the creditor the guaranties or securities which he has promised
3) He has impaired such guaranties and securities after establishment, and through fortuitous
event they disappear, unless he immediately gives new ones equally satisfactory.
4) When vendee violates any undertaking in consideration of the agreement
5) Vendee attempts to abscond

In case of loss, deterioration or improvement of thing before delivery

1) If the thing is lost w/out fault of debtor, the obligations shall be extinguished.
2) If thing lost through vendors fault, he shall pay damages
3) When thing deteriorates w/out fault of debtor, impairment is borne by creditor.
4) When thing deteriorates in fault of debtor, the creditor may choose between rescission of
obligation and its fulfillment, with indemnity for damages
5) If thing is improved by its nature or by time, it shall inure to the benefit of the creditor
6) If thing is improved at the expense of debtor, he has no right

Sale of real area by unit of measure/number

1) Entire area stated in contract must be delivered

2) Where entire area could not be delivered, he is entitled to rescind it.

When vendee is entitles to rescind

1) If the lack in area is at least 1/10 than that stated or stipulated

2) If the deficiency in the quality specified exceeds 1/10 of the price agreed upon
3) If vendee would have not brought the immovable had he known of its smaller area or inferior
quality

Sale of real estate on lump sum

1) Mistake in the area stated in contract immaterial

2) Where area or number stated together w/ boundaries
 Actions for rescission must be made 6 months from the day of delivery

Rules in cases of double sale

1) If property is movable, ownership shall be acquired by who first take possession in good faith
2) If property is immovable:
a) Vendee who first register the sale to the Registry of Property
b) In absence of registration, vendee who first takes possession in good faith
c) In absence of both, one who presents the oldest title in good faith.
 Section 3 – Conditions and Warranty

CONDITIONS AND WARRANTIES

Article 1545.

What are the options of a party to a contract of sale subject to a condition, when such condition
was not fulfilled by the other party?

a. Refuse to proceed with the contract OR

b. Waive performance of the condition and proceed with the contract

What if the condition agreed upon is in the nature of a promise that it should happen?

 Then the non-fulfillment of such condition is considered a breach of warranty.

Article 1546. WARRANTY.

--It is a collateral undertaking in a sale of either real or personal property, express or implied, that if the
property sold does not possess certain incidents or qualities, the purchaser may either consider the sale
void or claim damages for breach of warranty.

Express Warranty—any affirmation of fact or any promise by the seller relating to the thing if the
natural tendency of such affirmation or promise is to induce the buyer to purchase the same and if the
buyer purchases the thing relying thereon.

 Affirmation of the value of the thing or statement of the seller’s opinion is not warranty,
unless the seller made such affirmation or statement as an expert and it was relied upon by the
buyer.

Implied Warranty—It is inherent in a contract of sale and presumed to exist although nothing has
been mentioned about it.

Implied Warranties in Contracts of Sale (1547)

1. Implied warranty as to the right of the seller to sell at the time when ownership has to pass.
(Warranty against eviction)

2. Implied warranty against hidden defects or faults or charge or encumbrances unknown to the
buyer

3. Implied warranty as to fitness and merchantability

4. Warranty against encumbrances or non-apparent servitudes (1560)

Cases where implied warranty is not applicable

1. Sale made by a sheriff, auctioneer, mortgagee, pledge or other person professing to sell by virtue
of authority in fact or law (1547) (The judgment debtor is responsible here for eviction)

2. Sale under “as is and where is”—this carries no warranty as to the quality or workable
condition of the goods and the buyer takes them as they are. However, such condition does not
include those that could not be discovered by a physical examination of the goods sold.

3. Sale of second hand articles does not carry any warranty as to the condition, adaptation, fitness
or suitability for purposes for which they have been purchased.

4. Sale of property sold at public auction for tax delinquency. There is no warranty on the part of the
State as to the title of the owner.

WARRANTY AGAINST EVICTION—The seller guarantees that he has the right to sell the thing sold and
to transfer ownership to the buyer who shall not be disturbed in his legal and peaceful possession
thereof.
Eviction—A judicial process by virtue of which the vendee is deprived of the ownership of the whole
or part of the thing he purchased by final judgment or by an act imputable to the vendor.

Elements (DVJ-SW)

1. Vendee is deprived in whole or in part of the thing purchased

2. The deprivation is by virtue of a final judgment (1557)

3. The judgment is based on a prior right to the sale or an act imputable to the vendor

4. The vendor was summoned in the suit for eviction at the instance of the vendee (1558)

5. No waiver of warranty by the vendee

 Failure of the vendee to appeal does not relieve vendor from responsibility [1549]

Effect of Prescription/Adverse Possession (1550)

1. Prescription consummated before sale—Vendee can claim warranty against eviction

(deprivation is based on right prior to sale)

2. Prescription consummated after sale—Vendee cannot claim warranty against eviction

 If Property is sold for non-payment of taxes due and not made known to the vendee
before the sale, vendor is liable for eviction (1551)
 Judgment debtor is responsible for eviction in judicial sales unless otherwise decreed in
judgment (1552)
 Any stipulation exempting vendor from responsibility for eviction is void if he acted in bad
faith (1553)

Kinds of Waiver in eviction (1554) –Applicable to total eviction only.

1. Consciente—the waiver is voluntarily made by the vendee w/o the knowledge and assumption of the
risks of eviction. (Vendor shall only be liable to pay the value w/c the thing sold had at the time of the
eviction)

2. Intencionada—the waiver is made by the vendee w/ knowledge of the risk of eviction and
assumption of its consequences. (Vendor here shall not be liable)

Rights of Vendee in case of eviction (1555)

To demand to the vendor the following (VICED)

1. Value which the thing sold had at the time of eviction, be it greater or less than the price of the sale.

2. Income or fruits, if vendee was ordered to deliver them to the party who won the suit against
him

3. Costs of the suit which caused the eviction, and those suit brought against the vendor for warranty

4. Expenses of the contract, if the vendee paid them

5. Damages and interests and ornamental expenses, if the sale was made in bad faith.

* Rescission is not a remedy in case of Total eviction because rescission contemplates that the one
demanding it is able to return whatever he has received under the contract. Since the vendee can no
longer restore the subject-matter of the sale to the vendor, rescission cannot be carried out.

Rights of Action of Vendee in case of Partial Eviction (1556)

1. Enforce the vendor’s liability for warranty against eviction OR

2. Demand the rescission of the contract of sale w/ obligation to return the thing w/o other
encumbrances than those w/c it had when acquired
Applicability: A part of the thing sold of such importance was lost because of eviction, that the
vendee would not have bought it w/o said part.

 Same rules apply to a case where two or more things are jointly sold for a lump sum or for
separate price for each, when the vendee would not have bought one w/o the other.

Warranty against encumbrances or non-apparent servitudes (1560)

Requisites:

1. Immovable sold is encumbered with non-apparent burden or servitude not mentioned in the
agreement

2. Nature of non-apparent servitude or burden is such that it must be presumed that the buyer
would not have acquired it had he been aware thereof.

Remedies of the vendee

1. Rescission of the contract OR

2. Indemnity

 Warranty is not applicable if non-apparent servitude is recorded in the Registry of

Property, unless there is an express warranty that the thing is free from all burdens and
encumbrances.

Prescription of actions for rescission of damages: W/in 1 year from the execution of contract

 If what was chosen was rescission but was not filed w/in 1 year, vendee may still sue for
damages w/in one year from the discovery of burden or servitude.

WARRANTY AGAINST HIDDEN DEFECTS

Requisites: (HIPANN)

1. Defect must be hidden. –it cannot be discovered by an ordinary inspection or

examination.

2. Defect must be important or grave. –

a) defect renders the thing sold unfit for the use for w/c it is intended;

b) diminishes its fitness for the use intended, to such an extent that the vendee would not
have acquired if he had been aware thereof or would have given a lower price for it.

3. Defect must be present at the time of the execution of the sale.

4. Action for rescission or reduction of price must be filed w/in the prescriptive period.

5. No waiver of the warranty against hidden defects.

6. Notice by the vendee to the vendor within a reasonable time.

REDHIBITORY DEFECTS—an imperfection or defect of such nature as to engender a certain degree

of importance

REDHIBITION--claim against the seller of a product in which the buyer demands a full refund or a
reduction of the purchase price due to a hidden defect that prevents the product from performing the
task for which it was purchased.

Art. 1562—Implied Warranty or Condition as to quality or fitness of goods

Applicability: Goods—all chattel personal but not things in action or money of legal tender, this
includes growing fruits or crops

1. IMPLIED WARRANTY OF FITNESS.

General Rule: there is no implied warranty of fitness

Exceptions: a) Buyer expressly makes known the particular purpose or by implication;

b) Buyer relies upon the seller’s skill or judgment

2. IMPLIED WARRANTY OF MERCHANTABILITY. Applies when goods are bought by description.

* Merchantability—quality and condition of goods that a reasonable man would after a full
examination accept the same under the circumstances of the case, in the performance of his offer to
buy, whether for his own use or for resale.

 --fitness for the general purpose for which they are sold.
 There is no warranty as to fitness for particular purpose in a contract of sale of a
specified article under its patent or other trade name unless there is a contrary
stipulation. (1563)
 A warranty as to quality or fitness for a particular purpose may be attached to a contract by
usage or trade in place of execution. (1564)
 Merchantability of goods in sale by sample is implied. Defect should not be apparent on
reasonable examination of the sample for the vendor to be liable (1565)
 Vendor is liable eventhough not aware of hidden defects, unless there is a contrary
stipulation and he is in good faith (1566)

Caveat Venditor—“Let the Seller Beware” Vendor is liable eventhough not aware of hidden defects

Caveat Emptor—“Let the Buyer Beware” Requires the purchaser to be aware of the supposed
title of the vendor and one who buys without checking the vendor’s title takes all the risks and losses
consequent to such failure.

Remedies of Buyer (1567)

1. Accion Redhibitoria—action seeking withdrawal from the contract

2. Accion quanti minores or estimatoria—action for proportionate reduction in the price

Nature of Remedies: Alternative; both with damages

Loss of Thing Sold due to Hidden Defects (1568)

Vendor in Bad Faith - Bears the loss

Vendor in Good Faith

 Does not bear the loss

 Must return the price
 Must refund expenses of the contract
 Pay damages
 Must return the price with interest
 Must refund expenses of the contract
 Not obliged to pay damage
Loss of Thing Sold w/ Hidden defects through fortuitous event or vendee’s fault (1569)

* Vendee may demand price paid less value of the thing at the time of loss plus damages if
vendor acted in bad faith.

 Warranties against hidden defects, merchantability and fitness are applicable to judicial sales
but judgment debtor is not liable for damages, because the latter is only forced to sell and
therefore did not take part in the conduct of the sale and determination of price which
precludes possibility of bad faith (1570)
 Prescription of Actions: 6 Months from delivery of thing (1571)

Joint Sale of two or more animals (1572)

Where one suffers redhibitory defect this shall not affect others

Exception: If the buyer would not have purchased the sound animals w/o the defective ones. In such
case, sale may be rescinded.

Presumption of Exception: If a team, yoke or pair or set is bought even if a separate price has been fixed
for each

The following rules shall be applicable to joint sale of two or more things (1573)

* There is no warranty against hidden defects of animals sold at fairs or at public auctions or of
livestock sold as condemned.(1574) Rationale: Animals are not bought because of their quality or
capacity for work; and in such circumstance defects are clearly known to buyer.

When is Sale of Animals Void? (1575)

1. When suffering from contagious diseases

2. If use or service for which they are acquired has been stated in the contract and they are found to be
unfit

Remedy: Declaration of Nullity of Contract

Redhibitory defect of Animals—such defect that even in case of professional inspection it is of

such nature that even expert knowledge is not sufficient to discover it.(1576)

 Prescription of Redhibitory Actions in defective animals—40 days from delivery(1577)

 Vendor is liable if animal should die w/in 3 days after its purchase, if cause of death
 existed at time of contract (1578)
 Animal should be returned in the condition in which it was sold and delivered if sale was
 Rescinded. Vendee is answerable for any injury due to his negligence and not arising
 from redhibitory defect (1579)

Remedies of Buyer in Sale of Animals w/ Redhibitory defect (1580)

1. Accion Redhibitoria—action seeking withdrawal from the contract

2. Accion quanti minores or estimatoria—action for proportionate reduction in the price

 Form of sale of large cattle shall be governed by special laws. (1581)

 CHAPTER 5
OBLIGATIONS OF THE VENDEE

PRINCIPAL OBLIGATIONS OF VENDEE

1. To accept delivery
2. To pay the price of the thing sold
3. To bear the expenses for the execution and registration of the sale and putting the goods in a
deliverable state

ACCEPTANCE – an assent to become owner of the specific goods

2 modes of acceptance

1. Expressed – when the buyer expressly intimates to the seller that he has accepted the goods
2. Implied – either
` a. when the buyer does any act inconsistent with the sellers ownership such as
when the buyer uses the goods
b.when the buyer after a lapse of time retains the goods without intimating his
rejection.

RIGHT OF INSPECTION:

G/R: “ the buyer is entitled to a fair opportunity to inspect or examine the articles tenderes
to determine whether it conforms with to the contract.

a. If sent C.O.D (like lazada)

 The buyer is not entitled to such right before payment exceptions:
1. Is stipulated
2. Permitted by usage of trade
3. If paid already
b. If the buyer haven’t yet examined the goods, he is not deemed to have accepted
them

DIFFERENCE BETWEEN DELIVERY AND ACCEPTANCE

 Delivery – an act/obligation of the vendor

 Acceptance – act of the vendee

RULES GOVERNING DELIVERY ON INSTALLMENTS

G/R: “ the buyer is not bound to receive delivery of the goods in installments except if stipulated or
agreed by the parties.”

LIABILITY OF THE SELLER

G/R: “ The seller is not discharge from liability in damages or other legal remedy for breach of any
promise or warranty except:

 Within a reasonable time, the buyer did not give notice to the seller of the breach
EX: when you bought mobile phones , you cannot return it after the allowed time to return
it

WHEN BUYERS REFUSAL IS JUSTIFIED

1. Buyer is not obliged to return the goods

2. Risk of loss belongs to the seller
 3. Seller has the obligation to take delivery of the goods
4. Buyer has the right to resell the goods
5. Buyer is not liable as a depositary except when he voluntarily constitutes himself as such

WHEN BUYERS REFUSAL IS WRONGFUL

1. Title passes to the buyer

2. Risk of loss is borne by buyer

 Justifiable acceptance
- Where the goods are not of the kinds and quality agreed upon
WHEN IS BUYER LIABLE FOR INTEREST

- Starts from the time of delivery until the payment of price

1. If stipulated
2. If the thing sold produces income or fruits
3. If buyer default

WHEN CAN VENDEE SUSPEND PAYMENT OF PRICE

1. If he is disturbed in the possession or ownership of the thing

2. If he has a well-grounded fear that his possession will be disturbed

WHEN VENDEE CAN SUSPEND PAYMENT

1. Vendor gives security fir the return of the price

2. If it has been stipulated
3. The vendor has caused the disturbance or danger it cease
4. Mere act of trespass
5. If vendee has fully paid the price

WHEN VENDOR CAN RESCIND SALE

a. Immovable
1. If he has good reasons to fear the loss of the property and its price
b. Movable
1. If the buyer without lawful cause, refuses to accept the delivery and pay the
price

WHEN VENDEE MAY STILL PAY EVEN THOUGH SALE IS RESCINDED BY SELLER

 If the seller has stipulated that he shall rescind the sale ,upon failure of price but he haven’t
given his demand for rescission
 CHAPTER 6
ACTIONS FOR BREACH OF CONTRACT OF SALE OF GOODS
 In cases where the buyer or seller commits breach of the contract, the
injured party is given remedies or actions
 This provision does not apply to sale of immovable property. It is
governed by the Maceda Law
ACTIONS AVAILABLE TO SELLER
1. Action for the payment of price (art. 1595)
 When the ownership of the goods has passed to the buyer and he wrongfully
neglects or refuses to pay for the price
 When the price is payable on a certain day and the buyer wrongfully neglects or
refuses to pay such price, irrespective if delivery or transfer of title
 When the gods cannot be readily be resold for a reasonable price
 Where ownership of goods has not passed to the buyer, seller
cannot maintain an action for the price
2. Action for damages (art.1596)
 Buyer without lawful cause neglects or refuses or refuses to accept and pay for
the price of the goods
 Where ownership has not passed and the seller cannot maintain action for the
price
 DAMAGES – money given to the injured party in compensation for the injury done
-there is damage when there is injury
Measure of damages : difference between the contract price and the market price
Measure of damages for cancelled by buyer :
(a) The labor performed an expenses incurred for materials before receiving
notice
(b) Profit he would have realized if the sale had been fully performed

3. Rescission of Contract by the seller before delivery (art. 1597)

 When the buyer has repudiated the contract of sale
 When the buyer
ACTIONS AVAILABLE TO BUYER
1. Specific performance (art. 1598)
 When the seller should violate his obligation to make delivery
2. Rescission or damages for breach of warranty (art. 1599)
a. Remedies of buyer for breach of warranty by seller
1. Accept the goods and set up the seller’s breach to reduce or extinguish the price
2. Accept the goods and maintain an action for damages
3. Refuse to accept the goods and maintain an action for the damages
4. Rescind the contract of sale recover the price
b. When rescission not allowed
1. Buyer accepted the goods knowing of the breach of warranty without protest
2. If he fails to notify the seller within a reasonable time of his election to rescind
3. If he fails to return or offer to return the goods in substantially as good condition as
they were at the time of transfer of ownership to him.
c. Rights and obligations of buyer in case of rescission
1. To return the goods
2. To recover the price
3. Right to hold the goods as bailee if the seller refuses the return of the goods
4. Right to lien on the goods for any portion of the price already paid

CHAPTER 7 EXTINGUSHMENT OF SALE

CAUSES FOR EXTINGUSIMENT OF SALE
1. COMMON – those causes which are also the means of extinguishing all other obligations
2. SPECIAL – causes which are recognized by law on sales
3. EXTRA SPECIAL – conventional and legal redemption

SEC. 1 CONVENTIONAL REDEMPTION

 Definition: the right which the vendor reserves to himself to re acquire the property sold provided
he reimburses the vendee the price, expenses of the contract, any other legitimate payments, and
the necessary and useful expenses.
 It applies to sale of both real and personal property

“Equitable Mortgage” Art. 1602

 Definition: is one although it lacks formalities of a mortgage, shows the intention of the
parties to make the property subject of the contract as a security for the fulfillment of the
obligation.
 The object serves as a security
 The ownership does not pass to the buyer

INSTANCES WHERE EQUITABLE MORTGAGE IS PRESUMED

(1) When the price of a sale with right to repurchase is unusually inadequate
(2) When the vendor remains in possession as lessee or otherwise
(3) When another instrument is executed extending the period of redemption with
(4) When the purchaser retains for himself a part of the purchase price
(5) When the vendor binds himself to pay the taxes on the thing sold
(6) In any other case where it may be fairly inferred that the real intention of the parties is
that the transaction shall secure the payment of a debt or the performance of any other
obligation

 PACTO DE RETRO SALE - sale with a right to repurchase

 In case of doubt, it shall be construed as an equitable mortgage (art. 1603)
 The vendor may ask for reformation of the contract (art. 1605)
*reformation – remedy by which the written instrument is made or construed so as to
express or conform to the real intention of the parties when such intention is not
expressed in the instrument.

PERIOD FOR REDEMPTION (art. 1606)

a. No agreement as to redemption, then it is an absolute sale
b. 4 years – in the absence of an agreement as to the time
c. Shall not exceed 10 years
d. 30 days, after a final judgement

RIGHT OF VENDEE (art. 1609)

G/R “the vendee may transfer or alienate his right to a third person, mortgage the property, enjoy the
fruits thereof, recover the property against every possessor and perform all other acts of ownership.

OBLIGATIONS OF VENDOR IN CASE OF REDEMPTION (art. 1616)

1. Return the price
2. Reimburse the vendee for the expenses of the contract and any other legitimate payments made
by reason of the sale
3. Reimbursement for the useful and necessary expenses
 SECTION 2: LEGAL REDEMPTION

 DEFINITION: is the right to be subrogated upon the same terms and conditions stipulated in the
contract, in the place of one who acquires a thing by purchase or dation in payment or by any
other transaction whereby ownership is transmitted by onerous title
 Conventional redemption, bases on stipulation of the parties, while legal redemption, based on
law
LEGAL REDEMPTION OF CO- OWNERS (art. 1620)
(1) There must be a co- ownership
(2) There must be alienation of all or of any of the shares of the other co-owners
(3) Sale must be to a third person
(4) Sale must be before partition
(5) The right must be exercised within the period provided
(6) The vendee must be reimburses for the price of the sale
LEGAL REDEMPTION OF ADJACENT OWNERS (RURAL LANDS) (art.1621)
 Applicable only to rural lands
(1)
Both the land must be rural
(2)
Lands are adjacent
(3)
There must be land must be an alienation
(4)
The piece of rural land alienated must not exceed 1 HECTARE
(5)
The vendee must already must own some rural land
(6)
The rural land sold must not be separated by brooks, drains, ravines roads and other apparent
servitudes
 The owner with smaller area is preferred but if both lands have the same area, to the one who first
requested the redemption.

LEGAL REDEMPTION AND PRE EMPTION OF ADJACENT OWNERS (URBAN LANDS)

(art. 1622)

 Pre- emption – act or right of purchasing before others

 Redemption – exercised after the sale against the vendee

 The land is urban

 The one exercising the right must be an adjacent owner
 The piece of land sold must be so small and so situated that a major portion
thereof cannot be used for any practical purpose within a reasonable time
 Such urban land was bought by its owner merely for speculation
 About to resold, or that its resale has been perfected
 The law prefers whose intended use of the lands appears best justified.

PERIOD TO EXERCISE THE RIGHT OF PRE-EMPTION/REDEMPTION (art.1623)

 Within 30 days from the notice in writing by the prospective
vendor or vendor.
 The deed of sale shall not be recorded in the registry of property unles accompanied by an
affidavit of the vendor that he has given written notice thereof to all possible redemptioners.