University of the Cordilleras

College of Accountancy

RFBT 3 (Law on Sales, Credit Transactions, Negotiable Instruments and Other Business
Transactions)

LESSON no. 5
Module 5

WARRANTIES

A warranty is a statement or representation made by the seller of the goods with

regards to the character, quality, or title of the goods, and by which he promises or
undertakes to insure that such representations are true as how he had represented
them. The warranty given by the seller is made simultaneous and a part of the contract
of sale.(De Leon, 2005)

For example: Jose sold a car to Brian. He told Brian that the car “had no defects”. His
statement in saying that the car has no defects is called a warranty.

Kinds of Warranties

1. Express Warranty - any affirmation of fact or any promise by the seller relating to the
thing where the natural tendency of such affirmation or promise is to induce the buyer
to purchase the object.(Art. 1546, New Civil Code). An express warranty is a statement
or promise about character, quality, or title of the object made by the seller which the
buyer had relied upon in buying the object. It is express because it is either made orally
or in writing. For example: Jose sold a car to Brian. He told Brian that the car “had no
defects”. His statement in saying that the car has no defects is an express warranty
because it is a promise or statement about the quality of the car.

A warranty being a part of the contract of sale, it is immaterial whether the seller did
not know that it was true or false. The intention of the seller in his warranty is not
important. It is the natural consequences of what the seller says and the reliance
thereon by the buyer that alone are important. If the buyer relied on what the seller
had promised then the seller is automatically liable. (De Leon 2010)

A mere expression of an opinion is not in itself a warranty. It only becomes a warranty if

the seller is considered an expert and that his opinion was relied upon by the buyer.
Example: “Smoking will give you a good high”, “ This soap will make you lighter”. these
are mere expression of opinions and will not be considered as a warranty. However if
the person who made this “opinion” is an “expert” then it will be considered as a
warranty.

A condition is considered as an express warranty when it should be performed and that

there is failure to do so. Where the condition is to be performed prior to delivery and
delivery has already been made, the buyer may treat delivery as fulfillment of the
condition. (Art. 1545, New Civil Code) For example: Jose is selling a car to Brian. Jose
and Brian agreed that Brian will buy it if Jose will register the car for Brian. This promise of
registering the car is a condition. If Jose fails to register the car, it will be deemed as if he
failed to comply with a warranty.

Requisites to Establish an Express Warranty

a. The express warranty must be an affirmation of fact or any promise by the

seller relating to the subject matter of the sale;

b. The natural effect of the affirmation or promise is to induce the buyer to

purchase the thing; and

c. The buyer purchases the thing relying on that affirmation or promise.

(Carrascoso v. Court of Appeals, G.R. No. 123672, December 14, 2005)

2. Implied Warranty – forms part of every contract of sale, except if there is an

agreement stating otherwise. The following warranties are implied warranties as
provided by the law:

a. Warranty Against Eviction

b. Warranty Against Hidden Defects (Art. 1547, New Civil Code)

c. In sales of goods, Warranty of fitness or quality (Art. 1562, New Civil Code)

These warranties are considered as required by law to be automatically included in a

contract of sale even though not expressed by the seller or not expressly agreed upon
by the seller and the buyer. Thus, even though there was no agreement that these
warranties will be included in the contract of sale, it is already considered as
automatically included.

A. WARRANTY AGAINST EVICTION

The seller in every sale shall warrant that he has a right to sell the thing at the time when
he delivers the object, and that the buyer from that time shall enjoy the legal and
peaceful possession of the thing without the fear of being dispossessed of the object.
(Art. 1547, Sub Par. 1, New Civil Code)

There is Eviction whenever by a final judgment the buyer is deprived of the whole or of
a part of the thing purchased. The final judgment by the court which deprived the
buyer of the object may have been caused by 2 things, either there is another person
who has a better right to the object or that the seller does an act which will cause the
buyer to be dispossessed of the object.

Here the seller guarantees that he has a 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.(De Leon 2010)

Requisites for Breach of Warranty Against Eviction

1. The buyer has been deprived of the whole or part of the thing sold;

2. This eviction is by a final judgment of the court;

3. The basis thereof is by virtue of a right prior to the sale made by the seller; and

4. The seller has been summoned and made co-defendant in the suit for eviction at
the instance of the vendee. (Ang v. Court of Appeals, G.R. No. 177874,
September 29, 2008; Art. 1557, 1558, and 1559, New Civil Code)

EXAMPLES:
S sells a parcel of land to B. Subsequently, C files an action in court for the
recovery of possession of the parcel of land, claiming that he is the owner of the
land. At the instance of B, S was summoned to defend his title.The court renders
final judgment, declaring that C has a better right. Accordingly, B is evicted from
the land. In this case, S is liable to B for failure to comply with his warranty against
eviction. Here, the judgment is based on a right of a third person prior to the sale.
(De Leon 2010)

Note:

Rules in Determining Liability in case of Breach of Warranty Against

Eviction

1. If another person had adversely possessed the property prior to the transfer of
ownership of the property and one year has passed thereafter, the seller is no
longer liable for eviction (Art. 1550, New Civil Code);

2. In case that the buyer is evicted due to non-payment of taxes and he is unaware
of such fact, the seller is liable for eviction. (Art. 1551, New Civil Code);

3. In cases where the property is already possessed adversely by a third person

before the sale and one year had lapsed after the sale and the third person still
possesses the property, the seller will not be liable. (Art. 1550, New Civil Code);

4. The Buyer can renounce the warranty against eviction, and the buyer is later
evicted, the seller is only liable for the value of the thing at the time of eviction,
but if the buyer is aware of any encumbrance or burden on the thing when he
renounced the warranty the seller will not be liable. (Art. 1554, New Civil Code)
 5. An agreement exempting the seller from liability in case of eviction is void if the
seller acted in bad faith. (Art. 1553, New Civil Code)

Rights of the Buyer in Case of Eviction

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

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

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

4. The expenses of the contract, if the vendee has paid them;

5. The damages and interests, and ornamental expenses, if the sale was made in
bad faith. (Art. 1555, New Civil Code)

Partial Eviction

If the buyer is evicted to only part of the thing which is not substantial,
then the rights as stated above shall apply.

If the buyer is evicted to a part of the thing with such importance with
relation to the whole thing, that without which he would not have bought it; or
when two or more things are sold jointly or for separate prices and the buyer
would not have bought it if not for the other, an additional right to rescind the
contract is available to him, with the corresponding obligation to return the thing
at the state in which he acquired it.(Art. 1556, New Civil Code)

B. WARRANTY AGAINST HIDDEN DEFECTS

The seller shall be responsible for warranty against the hidden defects which the thing
sold may have, if it renders it unfit for the use for which it is intended, or if the defect will
diminish its fitness for such, and if the buyer/vendee had been aware of such defect, he
would not have acquired it or would have given a lower price for it.

The seller/ vendor shall not be answerable for patent defects or those which may be
visible, or in case the defect is not visible if the buyer/ vendee is an expert who, by
reason of his trade or profession, should have known them. (Art. 1561, New Civil Code)

Requisites to Recover from Breach of Warranty of Hidden Defects

 a. The defect must be hidden;

b. The defect must exist at the time the sale was made;

c. The defect must ordinarily have been excluded from the contract;

d. The defect, must decrease fitness or render the thing unfit; and

e. The action must be instituted within the statute of limitations. (Nutrimix Feeds
Corporation v. Court of Appeals, G.R. No. 152219, October 25, 2004)

C. Implied Warranties as to Fitness and Quality in Sale of Goods

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

1. When the buyer informs the seller, whether expressly or impliedly, his purpose of
buying the goods and he relies on the seller’s skill or judgment (regardless if he is not
the seller/manufacturer) there is an implied warranty that the goods are reasonably
fit for that purpose (Art. 1562, Sub Par. 1, New Civil Code);

Here, the buyer bought the items for a specific purpose or reason. As such, the
warranty from the seller is that the object he is selling will be fit for the specific purpose
for which the buyer had bought the object.

2. When the buyer buys goods based on description by a seller who sells by description
of such goods, there is an implied warranty that the goods are of merchantable
quality (Art. 1562, Sub Par. 2, New Civil Code);

Here, the warranty of the seller is that the goods are merchantable or fit for the
general purpose for which it is sold.

Warranty of merchantability distinguished from warranty of fitness.

A warranty of merchantability is a warranty that goods are reasonably fit for the
general purpose for which they are sold. On the other hand, a warranty of fitness is a
warranty that the goods are suitable for the special purpose of the buyer which will not
be satisfied by mere fitness for general purposes. (Dunfor Bros. Co. vs. Consolidated Iron-
Steel Mfg. Co., C.C.A. Comm. 1928, 23 F. 2nd 461.)

For example: A hair blower is used for hair drying has the general purpose of hair drying.
Thus, if a buyer buys a hair blower, there is a warranty merchantability that the hair
blower can indeed dry hair. If it does not dry hair then it is not merchantable. The seller
may be sued for breach of warranty of merchantability.
If the buyer wants to by a hair blower to clean the insides of his computer and the seller
assures him that he can indeed use the hair blower to clean the insides of the computer,
then there is a warranty of fitness because the object was bought for a specific purpose
and NOT for its general purpose.

Requisites to Prove Breach of Implied Warranty of Fitness and Quality

a. That they sustained injury because of the product;

b. That the injury occurred because the product was defective or unreasonably
unsafe; and

c. That the defect existed when the product left the hands of the petitioner.
(Nutrimix Feeds Corporation v. Court of Appeals, G.R. No. 152219, October 25,
2004)

3. An implied warranty can be established depending on how a thing is traditionally

used in trade or business (Art. 1564, New Civil Code);

4. There is an implied warranty that goods are free from any defect that would render
them unmerchantable if the seller is a dealer of those goods when the contract of
sale is by sample (Art. 1565, New Civil Code);

5. If the seller is not aware of the hidden fault or defect, he is still liable, unless there is an
agreement stating otherwise (Art. 1566, New Civil Code).

In case of breach of these implied warranties the buyer can choose to withdraw from
the contract of sale or demand a reduction of the price, both with damages. (Art. 1567,
New Civil Code)

Other Rules on Implied Warranties

1. If the thing is lost due to the hidden faults or defects the seller shall return the price
and expenses of the contract. If the seller was aware of the hidden faults or defects,
he will also be liable for damages (Art. 1568, New Civil Code);

2. If the thing has hidden faults or defects and is lost due to fortuitous events, the seller is
liable to refund the price less the value of the thing at the time of loss. If the seller was
in bad faith in this instance, he is also liable for damages (Art. 1569, New Civil Code);

3. In the sale of two or more goods sold in lump sum or for separate prices, the hidden
fault or defect of one which would render the thing useless or diminish its fitness will
lead to the rescission of the contract or a reduction in the price for the defective
goods only and not for the others, unless there is an agreement stating otherwise (Art.
1573, New Civil Code);
4. Goods sold by virtue of patents or trade names will not give rise to any implied
warranties. (Art. 1563, New Civil Code)

Redhibitory Defects in Sale of Animals

Redhibitory Defect - An imperfection or defect of such nature which would render the
thing useless or diminish its fitness (Moles v. Intermediate Appellate Court, G.R. 73913,
January 31, 1989). Here are some rules regarding the sale of animals which have
redhibitory defects.

1. Sale of animals with contagious diseases are void (Art. 1575, New Civil Code);

2. Sale of animals where they are unfit for the purpose of which they were bought is
void (Ibid.);

3. If when professional inspection of the animal has been made and the hidden defect
is still not discovered due to the expert knowledge being insufficient, the defect
would be redhibitory. The veterinarian would be liable if he was negligent or acted in
bad faith (Art. 1576, New Civil Code);

4. Condemned animals sold at fairs or public auctions will not give rise to any warranty
against hidden defects (Art. 1574, New Civil Code);

5. The seller would be liable to the buyer if an animal dies within three days from sale if
the animal suffered from a disease which was existing at the time of the sale (Art.
1578, New Civil Code);

6. The buyer of an animal with a redhibitory defect has the right to withdraw from the
contract or ask for a reduction of the price within forty days from the date of delivery
(Art. 1580, New Civil Code)

WARRANTIES UNDER THE CONSUMER ACT

The Consumer Act of the Philippines added stricter rules for the enforcement of
warranties to protect the welfare of consumers.

Additional Provisions for Express Warranties

Any seller who gives an express warranty shall:

1. Set the terms of warranty in a clear and understandable language to the buyer;

2. Identify the party to whom the warranty is given;

3. State the product and parts that are covered by the warranty;
4. State what steps the warrantor has to do to enforce the warranty in case of defect,
malfunction or failure to conform to the written warranty and who shall bear the
expenses;

5. Stipulate the period after notice of the defect, malfunction or failure to conform to
the warranty, that the warrantor will perform their obligations under the warranty.
(Art. 68, The Consumer Act of the Philippines)

Liabilities of the Parties Issuing Warranties

1. Express warranties made by manufacturers, producers, or importers are effective

from the moment of sale;

2. Distributors must make a sales report to the producer, manufacturer or importer

within 30 of the sale of their products to hold them liable for their warranties over the
products;

3. Retailers are subsidiarily liable in case of failure of the producer, manufacturer or

importer to honor their warranty. In that instance the retailer shall be liable for any
expenses to enforce the warranty. The Retailer can go after the producer,
manufacturer or importer for expenses incurred;

4. The buyer need only present the official receipt or warranty card to enforce warranty
over the product;

5. If the direct seller is also the producer, manufacturer, importer or distributor the
warranty should immediately be honored;

6. If the direct seller is a retailer other than the distributor, he shall be responsible to
claim the warranty from the distributor without any cost to the buyer;

7. Any agreement contrary to warranties provided by the Consumer Act of the

Philippines is void (Ibid.).

8. Service firms shall guarantee workmanship and replacement of spare parts for a
period not less than ninety (90) days which shall be indicated in the pertinent
invoices. (Art. 71, The Consumer Act of the Philippines)

Minimum Standards of Warranties

A warranty is either a “Full Warranty” or a “Limited Warranty”.

A warranty is a Full Warranty if it meets the following minimum standards:

1. Remedy such consumer product within a reasonable time and without charge in
case of a defect, malfunction or failure to conform to such written warranty;

2. Permit the consumer to elect whether to ask for a refund or replacement without
charge of such product or part, as the case may be, where after reasonable number
of attempts to remedy the defect or malfunction, the product continues to have the
defect or to malfunction. (Ibid.)

Duration of Warranty

1. Express warranties shall last for as long as they have been agreed or stipulated;

2. If an Implied warranty is accompanied by an express warranty, the implied warranty

will last as long as the express warranty;

3. Other implied warranties shall last for not less than 60 days but not more than one
year from the date of sale (Ibid.).

Rights of Buyer in case of Breach of Warranty

1. Breach of express warranty – the buyer may choose to refund the price or to have
the product repaired. If repair is chosen the work thereon must be done within thirty
(30) days, which may be extended due to factors outside the control of the
warrantor;
2. Breach of implied warranty – the retain the goods and recover damages, or reject
the goods, or cancel the contract and recover the purchase price with damages
(ibid.)

Warranties in Supply of Services

1. If the seller is in the course of a business, services provided by the seller is with an
implied warranty that it shall be done with due care and skill and that any material
that is supplied by virtue of the service shall be fit for its purpose;

2. If the buyer makes known to the seller in the course of a business the purpose for
which the services are needed, there is an implied warranty that the services
provided and any material supplied thereto shall be reasonable fit and has a nature
and quality that would achieve the purpose stated. Unless the buyer did not rely on
the seller’s judgment. (Art. 69, The Consumer Act of the Philippines)

Warranties in Professional Services

The warranties found in The Consumer Act of the Philippines do not apply to any
professional service. (doctors, engineers, architects, etc.)

Prohibited Acts
The following acts are prohibited:

1. Refusal without any valid legal cause by the total manufacturer or any person
obligated under the warranty or guarantee to honor a warranty or guarantee
issued;

2. Unreasonable delay by the local manufacturer or any person obligated under the
warranty or guarantee in honoring the warranty;

3. Removal by any person of a product's warranty card for the purpose of evading
said warranty obligation;

4. Any false representation in an advertisement as to the existence of a warranty or

guarantee. (Art. 72, The Consumer Act of the Philippines)

REFERENCES

Republic Act 386, An Act to Ordain and Institute the Civil Code of the Philippine

Jaime D. Ang v. Court of Appeals and Bruno Soledad, G.R. No. 177874, September 29,
2008
Fernando Carrascoso, Jr. v. The Honorable Court of Appeals, Lauro Leviste, , as Director
and Minority Stockholder and On Behalf of Other Stockholders of El Dorado Plantation,
Inc. and EL DORADO PLANTATION, INC., represented by one of its minority stockholders,
Lauro P. Leviste, G.R. No. 123672, December 14, 2005

Nutrimix Feeds Corporation V. Court of Appeals and Spouses Efren and Maura
Evangelista, G.R. No.152219, October 25, 2004

Jerry T. Moles v. Intermediate Appellate Court and Mariano M. Diolosa, G.R. No. 73913,
January 31, 1989

Republic Act No. 7394, The Consumer Act of the Philippines

Disclaimer

The information provided in RFBT 3 in this module is for educational purposes only. All
information found herein is provided in good faith and we make no representation or
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availability, or completeness of thereof. We do not assume ownership of any of the
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