TOPIC 2: CAPACITY TO BUY OR SELL

(ENGAGE)

In your own understanding, can any person buy or sell anything? Explain your answer.

(EXPLORE AND EXPLAIN)

Person who may enter into a contract of sale.

As a general rule, all persons, whether natural or juridical, who can bind themselves
have also legal capacity to buy and sell. There are exceptions to this rule in those cases when
the law determines that a party suffers from either absolute or relative incapacity.

Kinds of incapacity.
Such incapacity is absolute in the case of persons who cannot bind themselves; and
relative where it exists only with reference to certain persons or a certain class of property.

Where necessaries are sold and delivered to a minor or other person without capacity
to act, he must pay a reasonable price therefor.

Necessaries are those things which are needed for sustenance, dwelling, clothing,
medical attendance, education and transportation according to the financial capacity of the
family of the incapacitated person.

Incapacities of husband and wife:

The husband and the wife cannot sell property to each other, except:
(1) When a separation of property was agreed upon in the marriage settlements; or
(2) When there has been a judicial separation of property.

Marriage settlement (also called “ante-nuptial contract”) is an agreement entered into

by persons who are about to be united in marriage, and in consideration thereof, for the
purpose of fixing the property relations that would be followed by them for the duration of
the marriage.

Reason for incapacities of husband and wife:

For the protection of third persons who, relying upon supposed property of either
spouse, enters into a contract with either of them only to find out that the property relied upon
was transferred to the other spouse.

Incapacity by reason of relation to property.

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 ART. 1491. The following persons cannot acquire by purchase, even at a public or
judicial auction, either in person or through the mediation of another:
(1) The guardian, the property of the person or persons who may be under his
guardianship;
(2) Agents, the property whose administration or sale may have been entrusted to
them, unless the consent of the principal has been given;
(3) Executors and administrators, the property of the estate under administration;
(4) Public officers and employees, the property of the State or of any subdivision
thereof, or of any government owned or controlled corporation, or institution, the
administration of which has been entrusted to them; this provision shall apply to judges and
government experts who, in any manner whatsoever, take part in the sale;
(5) Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and
other officers and employees connected with the administration of justice, the property and
rights in litigation or levied upon an execution before the court within whose jurisdiction or
territory they exercise their respective functions; this prohibition includes the act of acquiring
by assignment and shall apply to lawyers, with respect to the property and rights which may
be the object of any litigation in which they may take part by virtue of their profession;
(6) Any others specially disqualified by law.

Reason for prohibition in Art. 1491:

The prohibition is grounded on public policy considerations which disallow the
transactions entered into by them, whether directly or indirectly, in view of the fiduciary
relationship involved or the peculiar control exercised by these individuals over the properties
or rights covered.
The prohibitions seek to prevent frauds on the part of such persons and minimize
temptations to the exertion of undue and improper influence.

(ELABORATE AND EVALUATE)

Activity 2:

Enumerate the persons and their incapacities who are prohibited to acquire or
purchase a certain property from a specific person.

Assessment:

What is the reason for the prohibition in Article 1491? Explain.

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TOPIC 3: EFFECTS OF THE CONTRACT WHEN THE THING SOLD HAS BEEN LOST

(ENGAGE)

In your own words, when is a thing considered lost?

(EXPLORE AND EXPLAIN)

ART. 1493. If at the time the contract of sale is perfected, the thing which is the
object of the contract has been entirely lost, the contract shall be without any effect.
But if the thing should have been lost in part only, the vendee may choose between
withdrawing from the contract and demanding the remaining part, paying its price in
proportion to the total sum agreed upon.

Effect of loss of thing at the time of sale.

(1) Thing entirely lost. — Where the thing is entirely lost at the time of perfection, the
contract is inexistent and void because there is no object. There being no contract, there is no
necessity to bring an action for annulment.
(2) Thing only partially lost. — If the subject matter is only partially lost, the vendee
may elect between withdrawing from the contract and demanding the remaining part, paying
its proportionate price.

When a thing considered lost.

The thing is lost when it perishes or goes out of commerce or disappears in such a way
that its existence is unknown or it cannot be recovered.

Effect of loss in case of specific goods.

“Specific goods” means “goods identified and agreed upon at the time a contract of
sale is made.”

Two alternative remedies to the buyer in case of deterioration or partial loss of the
object prior to the sale, namely: to rescind or withdraw from the contract or to give it legal
effect, paying the proportionate price of the remaining object.
(1) Sale divisible. — The second option is available only if the sale is divisible. A
contract is divisible when its consideration is made up of several parts. When the
consideration is entire and single, the contract is indivisible.
(2) Sale indivisible. — Suppose the sale is not divisible, what price is the buyer to pay
for the remaining goods if he elects to continue with the sale? It is believed that the buyer
should be made to pay only the proportionate price of the remaining goods as provided for in

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paragraph 2 of the preceding article. If the sale is indivisible, the object thereof may be
considered as a specific thing.

(ELABORATE AND EVALUATE)

Activity 2:

Explain the two effects in the contract of sale if the thing is lost at the time of sale.

Assessment:

When is sale divisible and when it is indivisible?

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TOPIC 4: OBLIGATIONS OF THE VENDOR

(ENGAGE)

If you are the seller, what is your obligation in a contract of sale?

(EXPLORE AND EXPLAIN)

Principal obligations of the vendor.

The principal obligations of a vendor are:
(1) to transfer the ownership of the determinate thing sold;
(2) to deliver the thing, with its accessions and accessories, if any, in the condition in
which they were upon the perfection of the contract;
(3) to warrant against eviction and against hidden defects;
(4) to take care of the thing, pending delivery, with proper diligence; and
(5) to pay for the expenses of the deed of sale, unless there is a stipulation to the
contrary.

Ways of effecting delivery.

The ownership of the thing sold shall be transferred to the vendee upon the delivery
thereof (see Art. 1477.) which may be effected in any of the following ways or modes:
(1) by actual or real delivery (Art. 1497.);
(2) by constructive or legal delivery (Arts. 1498-1501.); or
(3) by delivery in any other manner signifying an agreement that the possession is
transferred to the vendee.

Ways of effecting constructive delivery.

(1) Equivalent to actual delivery. — Constructive delivery is a general term
comprehending all those acts which, although not conferring physical possession of the thing,
have been held by construction of law equivalent to acts of real delivery. It may be effected in
any of the following ways:
(a) by the execution of a public instrument
(b) by symbolical tradition or traditio symbolica
(c) by traditio longa manu
(d) by traditio brevi manu
(e) by traditio constitutum possessorium; or
(f) by quasi-delivery or quasi-traditio.

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 As a specie of constructive delivery, the execution of a public document is also
considered a form of symbolic delivery.
(2) Contrary may be stipulated. — The parties, however, may stipulate that ownership
in the thing shall pass to the purchaser only after he has fully paid the price (Art. 1478.) or
fulfilled certain conditions. In a contract of absolute sale, ownership is transferred
simultaneously with the delivery of the thing sold.

ART. 1497. The thing sold shall be understood as delivered, when it is placed in
the control and possession of the vendee.

Concept of tradition or delivery.

Tradition is a derivative mode of acquiring ownership by virtue of 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 the same.

Importance of tradition.
(1) Transfer of ownership. - The ownership over it is not transferred by contract merely
but by delivery, actual or constructive.
(2) Liability in case of loss. — When the thing subject of the sale is placed in the
control and possession of the vendee or his agent, the delivery is complete and the vendee
cannot avoid liability in case the thing is subsequently lost without the fault of the vendor.
(3) Right of vendor to claim payment. — Delivery produces its natural effects in law,
the principal and most important of which being the transfer of ownership without prejudice
to the right of the vendor to claim payment of the price.
(4) Consummation of contract. — Delivery of the thing together with the payment of
the price, marks the consummation of the contract of sale.
(5) Enjoyment of thing sold. — Delivery is also necessary to enable the vendee to enjoy
and make use of the property purchased.

Execution of a public instrument or document.

(1) Possession transferred to buyer by notarized deed of conveyance. — The execution
of a public instrument (i.e., an instrument or document attested and certified by a public
officer authorized to administer oath, such as a notary public) as a manner of delivery applies
to movable as well as immovable property. This manner of delivery is symbolic.
(2) Delivery presumptive only. — Under Article 1498, the mere execution of the deed
of sale in a public document is equivalent to the delivery of the property “if from the deed the
contrary does not appear or cannot clearly be inferred.” Therefore, prior physical delivery or
possession is not required.

Symbolic tradition.
Constructive delivery is symbolic when to effect the delivery, the parties make use of
a token symbol to represent the thing delivered.

1. Traditio longa manu.

This mode of delivery takes place by the mere consent or agreement of the
contracting parties as when the vendor merely points to the thing sold which shall
thereafter be at the control and disposal of the vendee.

2. Traditio brevi manu.

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 This mode of legal delivery happens when the vendee has already the
possession of the thing sold by virtue of another title as when the lessor sells the thing
leased to the lessee. Instead of turning over the thing to the vendor so that the latter
may, in turn, deliver it, all these are considered done by action of law.

3. Traditio constitutum possessorium.

This mode of delivery is the opposite of traditio brevi manu. It takes place when
the vendor continues in possession of the property sold not as owner but in some other
capacity, as for example, when the vendor stays as a tenant of the vendee. In this case,
instead of the vendor delivering the thing to the vendee so that the latter may, in turn,
deliver it back to the vendor, the law considers that all these have taken place by mere
consent or agreement of the parties.

Quasi-traditio.
Tradition can only be made with respect to corporeal things. In the case of incorporeal
things, delivery is effected:
(1) by the execution of a public instrument; or (2) when that mode of delivery is not
applicable, by the placing of the titles of ownership in the possession of the vendee; or
(3) by allowing the vendee to use his rights as new owner with the consent of the
vendor.
This mode of delivery of incorporeal things or rights is known as quasi-traditio.

Documents of title used in the delivery of goods:

1. Document of title to goods. — Includes any bill of lading, dock warrant, “quedan,”
or warehouse receipt or order for the delivery of goods, or any other document used in the
ordinary course of business in the sale or transfer of goods, as proof of the possession or
control of the goods, or authorizing or purporting to authorize the possessor of the document
to transfer or receive, either by indorsement or by delivery, goods represented by such
document.
(2) Goods. — Included all chattels personal but not things in action or money of legal
tender in the Philippines. The term includes growing fruits or crops.

Nature and function of documents of title.

(1) Receipts of, or orders upon, a bailee of goods represented. — Documents of title
refer to goods and not to money. They all have this in common: that they are receipts of a
bailee, or orders upon a bailee. A different name is given in popular speech to the document
when it is issued by a carrier and when it is issued by a warehouseman, but in substance the
nature of the document is the same in both cases.
(2) Evidence of transfer of title and possession of the goods and contract between the
parties. — A document of title is symbol of the goods covered by it, serving as evidence of (a)
transfer of title and (b) transfer of possession. It also serves as an evidence of the (c) contract
between the parties who are bound by its terms.

Most common forms of documents of title.

There are three most common forms or documents of title, namely:
(1) Bill of lading. — It is a contract and a receipt for the transport of goods and their
delivery to the person named therein, to order, or to bearer. It usually involves three persons
— the carrier, the shipper, and the consignee. The shipper and the consignee may be one and

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the same person. Its acceptance generally constitutes the contract of carriage even though not
signed.
Such instrument may be called a shipping receipt, a forwarder’s receipt, or receipt for
transportation. The designation, however, is immaterial.
(2) Dock warrant. — It is an instrument given by dock owners to an importer of goods
warehoused on the dock as a recognition of the importer’s title to the said goods, upon
production of the bill of lading; and
(3) Warehouse receipt. — a contract or receipt for goods deposited with a warehouseman
containing the latter’s undertaking to hold and deliver the said goods to a specified person, to
order, or to bearer. Quedan is a warehouse receipt usually for sugar received by a
warehouseman.

Classes of documents of titles.

Documents of title may be either:
(1) Negotiable documents of title or those by the terms of which the bailee undertakes
to deliver the goods to the bearer and those by the terms of which the bailee undertakes to
deliver the goods to the order of a specified person; or
(2) Non-negotiable documents of title or those by the terms of which the goods covered
are deliverable to a specified person.

Definition of shipping terms.

Three commonly used terms are, namely:
(1) C.O.D. — The initials stand for the words, “collect on delivery.” If the goods are
marked C.O.D., the carrier acts for the seller in collecting the purchase price. The buyer must
pay for the goods before he can obtain possession. C.O.D. terms do not prevent title from
passing to the buyer on delivery to the carrier where they are solely intended as security for
the purchase price
(2) F.O.B. — The initials stand for the words, “free on board”. They mean that the
goods are to be delivered free of expense to the buyer to the point where they are F.O.B.
(3) C.I.F. — The initials stand for the words, “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 (ibid.) up to the point of destination. Title passes to the buyer
at the moment of delivery to the point especially named.

ART. 1524. The vendor shall not be bound to deliver the thing sold, if the vendee
has not paid him the price, or if no period for the payment has been fixed in the contract.

Delivery, simultaneous with payment of price.

As a general rule, the obligation to deliver the thing subject matter of a contract arises
from the moment of its perfection and from that time the obligation may be enforced. But the
contract of purchase and sale is bilateral and from it arises not only the obligation to deliver
the thing but also that of paying the price. The obligations are reciprocal.

Meaning of unpaid seller.

An unpaid seller is 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.

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Who is an unpaid seller?
(1) When the whole of the price has not been paid or tendered;
(2) When a bill of exchange or other negotiable instrument has been received as
conditional payment, and the condition on which it was received has been broken by reason
of the dishonor of the instrument, the insolvency of the buyer, or otherwise.

Special remedies of an unpaid seller of goods.

Even if the ownership in the goods has already passed to the buyer, the unpaid seller
may exercise the following rights:
(1) A lien on the goods or right to retain them for the price while in his possession
(Arts. 1527-1529.);
(2) A right of stopping the goods in transitu in case of insolvency
of the buyer (Art. 1530.);
(3) A right of resale (Art. 1533.); and
(4) A right to rescind the sale. (Art. 1534.)

Right of seller to stop goods in transitu.

If the unpaid seller has already parted with the possession of the goods, he may still
exercise the second right of stoppage in transitu (Art. 1520[2].), that is, he may resume
possession of the goods while they are in transit, when the buyer is or becomes insolvent. The
right is exercised either by obtaining actual possession of the goods or by giving notice of his
claim to the carrier or other bailee in possession. (Art. 1532.) The unpaid seller exercising his
right of stoppage in transitu becomes entitled to the same rights to the goods as if he had never
parted with the possession thereof.

Requisites for the exercise of right of stoppage in transitu.

The following are the requisites for the existence of the right:
(1) The seller must be unpaid;
(2) The buyer must be insolvent;
(3) The goods must be in transit;
4) The seller must either actually take possession of the goods sold or give notice of his
claim to the carrier or other person in possession;
(5) The seller must surrender the negotiable document of title, if any, issued by the
carrier or bailee; and
(6) The seller must bear the expenses of delivery of the goods after the exercise of the
right.

When goods are in transit.

(1) after delivery to a carrier or other bailee and before the buyer or his agent takes
delivery of them; and
(2) if the goods are rejected by the buyer, and the carrier or other bailee continues in
possession of them.

When goods considered no longer in transit.

The right of stoppage in transitu arises solely when an unpaid seller has shipped goods
to an insolvent buyer. The right to retake continues only while the goods are in transit. The
goods are no longer in transit in the following cases:

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 (1) After delivery to the buyer or his agent in that behalf;
(2) If the buyer or his agent obtains possession of the goods at a point before the
destination originally fixed;
(3) If the carrier or bailee acknowledges to hold the goods on behalf of the buyer; and
(4) If the carrier or bailee wrongfully refuses to deliver the goods to the buyer.

Ways of exercising the right to stop.

The seller may exercise the right of stoppage in transitu either:
(1) by taking actual possession of the goods. — The seller’s power to stop in transitu
includes not only the power to counter delivery to the buyer but to order redelivery to himself.
(2) by giving notice of his claim to the carrier or bailee. — To make a notice effective
as a stoppage in transitu, it must be given at such time, and under such circumstances that the
principal, by the exercise of reasonable diligence, may communicate it to his agent to prevent
the delivery to the buyer.

Unpaid seller’s right of resale.

(1) When resale allowable. — The third right of an unpaid seller is the right of resale.
An unpaid seller can exercise the right to resell only when he has either a right of lien or a
right to stop the goods in transitu and under any of the three following cases:
(a) where the goods are perishable in nature;
(b) where the right to resell is expressly reserved in case the buyer should make a
default; and
(c) where the buyer delays in the payment of the price for an unreasonable time.
(2) Effect of resale. — In case of resale, the seller is not liable for any profit made by
such resale; but if he sells for less than the price, he has a right to sue for the balance. As
against the original buyer, the new buyer acquires a good title to the goods.

Unpaid seller’s right of rescission.

(1) When seller may rescind. — The fourth right of an unpaid seller is the right to
rescind the sale. An unpaid seller has a right to rescind only if he has either a right of lien or
a right to stop the goods in transitu and under either of two situations:
(a) where the right to rescind is expressly reserved in case the buyer should make a
default; or
(b) where the buyer delays in the payment of the price for an unreasonable time.
(2) Effect of rescission. — In the case of rescission, the seller resumes ownership in the
goods. While the seller shall not be liable to the buyer upon the contract of sale, the latter,
however, may be made liable to the seller for damages for any loss occasioned by the breach
of contract.
(3) Manner of rescission. — An election by the seller to rescind may be manifested by
notice to the buyer or by some other overt act showing an intention to rescind.
Communication of such election to the buyer is not necessary.

Rules as to preference of ownership in case of a double sale.

If the same property is sold by the same vendor to different vendees, the conflicting
rights of said vendees shall be resolved in accordance with the following rules:
(1) If the property sold is movable, the ownership shall be acquired by the vendee who
first takes possession in good faith.

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 (2) If the property sold is immovable, the ownership shall belong, in the order
hereunder stated, to:
(a) The vendee who first registers the sale in good faith in the Registry of
Property (Registry of Deeds). Basis - prius tempore, patior jure (first in time, stronger in
right).
(b) In the absence of registration, the vendee who first takes possession in good
faith; and
(c) In the absence of both registration and possession, the vendee who presents
the oldest title (who first bought the property) in good faith.

Conditions and Warranties in a Contract of Sale.

Meaning of condition.
A condition, as used in Article 1545, means an uncertain event or contingency on the
happening of which the obligation (or right) of the contract depends. In such a case, the
obligation of the contract does not attach until the condition is performed.

Effect of non-fulfillment of condition.

(1) If the obligation of either party is subject to any condition and such condition is
not fulfilled, such party may either:
(a) refuse to proceed with the contract; or
b) proceed with the contract, waiving the performance of the condition.
(2) If the condition is in the nature of a promise that it should happen, the non-
performance of such condition may be treated by the other party as a breach of warranty.

EXAMPLE:
S promised to sell his parcel of land to B, should S win a case pending in the Supreme
Court. S lost the case. S may either refuse to sell the parcel of land or he may waive the
performance of the condition and sell the parcel of land.

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

Kinds of warranty:
1. Express
2. Implied
3. Absence of hidden defects
4. Fitness or merchantability
5. Description
6. Sample

Meaning of express warranty.

An express warranty is any affirmation of fact or any promise by the seller relating to
the thing, the natural tendency of which is to induce the buyer to purchase the thing and the
buyer thus induced, does purchase the same.

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EXAMPLE:
S sells to B an automobile for P90,000.00, telling the latter that it is a 1977 model and
that it is worth about P100,000.00. B sees the automobile and after a test run, expresses
satisfaction over its condition. The automobile is really of 1976 vintage and is only worth
about P80,000.00.
In this case, B has no right of action for breach of warranty because the inducing cause
of the purchase is not the erroneous statement as to its model and value, but B’s reliance on
its appearance and demonstrated condition. But the statement that the automobile is in
excellent running condition constitutes a violation of warranty if such is not the fact.

Meaning of implied warranty.

An implied warranty is that which the law derives by implication or inference from
the nature of the transaction or the relative situation or circumstances of the parties
irrespective of any intention of the seller to create it.

Nature of implied warranty.

An implied warranty is a natural, not an essential, element of a contract, because it is
presumed to exist even though nothing has been said in the contract on the subject. It is,
therefore, deemed as incorporated in the contract of sale.

When implied warranty not applicable.

(1) “As is and where is” sale. — The phrase “as is and where is” (which has been
adopted from dispositions of army surplus property) means nothing more than that the vendor
makes no warranty as to the quality or workable condition of the goods, and that the vendee
takes them in the conditions in which that they are found and from the place where they are
located.
(2) Sale of second-hand articles. — There is no implied warranty as to the condition,
adaptation, fitness or suitability for the purpose for which made, or the quality of an article
sold as and for a second-hand article.
(3) Sale by virtue of authority in fact or law. — No warranty of title is implied in a sale
by one not professing to be the owner. Accordingly, the rule on implied warranty does not
apply to a sheriff, auctioneer, mortgagee, pledgee or other person who sells by virtue of
authority in fact or law.

Warranty in Case of Eviction

Meaning of eviction.
Eviction may be defined as the judicial process, whereby the vendee is deprived of the
whole or part of the thing purchased by virtue of a final judgment based on a right prior to the
sale or an act imputable to the vendor.

Essential elements of warranty against eviction.

(1) The vendee is deprived in whole or in part of the thing purchased;
(2) He is so deprived by virtue of a final judgment;
(3) The judgment is based on a right prior 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;
and
(5) There is no waiver on the part of the vendee.

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EXAMPLE:
S sells a parcel of land to B. Subsequently, C files an action for the recovery of
possession, 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.
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.

ART. 1550. When adverse possession had been commenced before the sale but the
prescriptive period is completed after the transfer, the vendor shall not be liable for
eviction.

Effect of prescription.
By prescription, one acquires ownership and other real rights through the lapse of time
in the manner and under the conditions prescribed by law. In the same way, rights and actions
are lost by prescription.
(1) Completed before sale. — The vendee may lose the thing purchased to a third
person who has acquired title thereto by prescription. When prescription has commenced to
run against the vendor and was already complete before the sale, the vendee can enforce the
warranty against eviction. In this case, the deprivation is based on a right prior to the sale and
an act imputable to the vendor.
(2) Completed after sale. — Even if prescription has started before the sale but has
reached the limit prescribed by law after the sale, the vendor is not liable for eviction. The
reason is that the vendee could easily interrupt the running of the prescriptive period by
bringing the necessary action.

EXAMPLES:
1. S sold to B a parcel of land which is claimed by C, who has been in possession of
the property in the concept of owner publicly and continuously for 30 years. Under the law,
C is deemed to have acquired ownership over the land by prescription without need of title or
of good faith.
In this case, S shall be liable to B in case of eviction.

(2) If, in the same example, C was in adverse possession of the land for only 25 years
at the time of the sale, and the prescriptive period is completed after the sale, S shall not be
liable to B in case of eviction as B could have brought action against C during the remaining
five-year period to recover the property.

ART. 1553. Any stipulation exempting the vendor from the obligation to answer
for eviction shall be void, if he acted in bad faith.

Kinds of waiver of eviction.

(1) Consciente, that is, the waiver is voluntarily made by the vendee without the
knowledge and assumption of the risks of eviction; and
(2) Intencionada, that is, the waiver is made by the vendee with knowledge of the risks
of eviction and assumption of its consequences.

Warranty Against Hidden Defects of, or Encumbrances Upon, the Thing Sold

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Definition of terms.
(1) Redhibition is the avoidance of a sale on account of some vice or defect in the thing
sold, which renders its use impossible, or so inconvenient and imperfect that it must be
supposed that the buyer would not have purchased it had he known of the vice.
(2) Redhibitory action is an action instituted to avoid a sale on account of some vice
or defect in the thing sold which renders its use impossible, or so inconvenient and imperfect
that it must be supposed that the buyer would not have purchased it had he known of the vice.
The object is the rescission of the contract. If the object is to procure the return of a part of the
purchase price paid by the vendee, the remedy is known as accion quanti minoris or
estimatoris.
(3) Redhibitory vice or defect is a defect in the article sold against which defect the
seller is bound to warrant.
The vice or defect must constitute an imperfection, a defect in its nature, of certain
importance; and a minor defect does not give rise to redhibition. The mere absence of a certain
quality in the thing sold which the vendee thought it to contain is not necessarily a redhibitory
defect.

Requisites for warranty against hidden defects.

(1) The defect must be important or serious;
(2) It must be hidden;
(3) It must exist at the time of the sale;
(4) The vendee must give notice of the defect to the vendor within a reasonable time;
(5) The action for rescission or reduction of the price must be brought within the proper
period — 6 months from the delivery of the thing sold (Art. 1571.) or within 40 days from the
date of the delivery in case of animals (Art. 1577, par. 1.); and
(6) There must be no waiver of warranty on the part of the vendee.

When defect important.

The defect is important if: (1) it renders the thing sold unfit for the use for which it is
intended; or (2) if it diminishes its fitness for such use to such an extent that the vendee would
not have acquired it had he been aware thereof or would have given a lower price for it.

When defect hidden.

The defect is hidden (or latent) if it was not known and could not have been known to
the vendee.

Implied warranties of quality.

Quality of goods includes their state or condition. The purpose of holding the seller on
his implied warranties is to promote high standard in business and to discourage sharp
dealings. They are based on the principle that “honesty is the best policy.”

(1) Implied warranty of fitness. — There is no implied warranty as to the quality or

fitness for any particular purpose of goods under a contract of sale, except as follows: where:
(a) the buyer, expressly or by implication, manifests to the seller the particular purpose for
which the goods are required, and (b) the buyer relies upon the seller’s skill or judgment.

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 (2) Implied warranty of merchantability. — Where goods are bought by description,
the seller impliedly warrants that the goods are of merchantable quality.
(a) Merchantability. — It is not a warranty of quality in the sense of requiring
a particular grade, but it does require identity between what is described in the contract
and what is tendered, in the sense that the latter is of such quality to have some value.
Judicial synonyms for “merchantability” include “salable’’ (or “saleable,”)
“standard,” or “average quality” of goods sold under a particular description.

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.

Doctrines of “caveat venditor” and “caveat emptor.”

The doctrine of caveat venditor (let the seller beware) was adopted in accordance with
which “the vendor is liable to the vendee for any hidden faults or defects in the thing sold,
even though he was not aware thereof.”
The rule of caveat emptor 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.

Alternative remedies of the buyer to enforce warranty.

In case of violation of warranty, the vendee has the option either: (1) to withdraw from
the contract, or (2) demand a proportionate reduction of the price, with a right to damages in
either case. This first is known as accion redhibitoria (action for rescission), while the second
is known as accion quanti minoris.
The remedies are alternative as they are incompatible with each other.

IMPLIED WARRANTY AGAINST REDHIBITORY DEFECT IN THE SALE OF

ANIMALS
Redhibitory defect- a hidden defect of animals of such nature that expert knowledge is
not sufficient to discover it, even in a case where a professional inspection has been made

No warranty in case of:

(a) Animals sold at fairs or public auctions
(b) Livestock sold as condemned

The following sales are void:

(a) Sale of animals suffering from contagious diseases
(b) Sale of animals unfit for the purpose for which they are acquired as stated in the
contract.

Veterinarian liable if he fails to discover or disclose the hidden defect through

ignorance or bad faith.
Seller liable if animal dies within 3 days after its purchase due to a disease that existed
at the time of sale.

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(ELABORATE AND EVALUATE)
Activity 2:

Enumerate and explain briefly the obligations of a vendor.

Assessment:

Ten-item Quiz.

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TOPIC 5: OBLIGATIONS OF THE VENDEE

(ENGAGE)

What are your responsibilities as a buyer of anything?

(EXPLORE AND EXPLAIN)

Principal obligations of vendee.

(1) to accept delivery of the thing sold; and
(2) to pay the price of the thing sold at the time and place stipulated in the contract;
and
(3) to bear the expenses for the execution and registration of the sale and putting the
goods in a deliverable state, if such is the stipulation.

Buyer’s right to examine the goods.

Acceptance is assent to become owner of the specific goods when delivery of them is
offered to the buyer.
(1) Actual delivery contemplated. - The right of examination or inspection under is a
condition precedent to the transfer of ownership unless there is a stipulation to the contrary.
(2) Goods delivered C.O.D./not C.O.D. — Where, in pursuance of a contract of sale,
the seller is authorized or required to send the goods to the buyer, delivery of the goods to a
carrier for the purpose of transmission to the buyer is deemed to be delivery to the buyer.
(a) Although title passes to the buyer by the mere delivery to the carrier, the
buyer unless the goods are sent C.O.D. which is the normal procedure in importations,
has the right to examine the goods before paying. In this case, the right to examine the
goods is a condition precedent to paying the price after ownership has passed.
(b) It should be noted that even in a C.O.D. sale, the buyer is allowed to
examine the goods before payment of the price should it have been so agreed upon or
if it is permitted by usage.
(3) Right of examination not absolute. — The buyer does not have an absolute right
of examination since the seller is bound to afford the buyer a reasonable opportunity of
examining the goods only “on request.” If the seller refused to allow opportunity for the
inspection, the buyer may rescind the contract and recover the price or any part of it that he
has paid.
(4) Right to be exercised within reasonable time. — While Article 1584 accords the
buyer the right to a reasonable opportunity to examine the goods to ascertain whether they
are in conformity with the contract, such opportunity to examine should be availed of within
a reasonable time in order that the seller may not suffer undue delay or prejudice.

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 (5) Waiver of right to examine before payment. — The right of inspection may, of
course, be given up by the buyer by stipulation.

Modes of manifesting acceptance.

(1) Express acceptance takes place when the buyer, after delivery of the goods,
intimates to the seller, verbally or in writing, that he has accepted them.
(2) Implied acceptance takes place:
(a) when the buyer, after delivery of goods, does any act inconsistent with the
seller’s ownership, as when he sells or attempts to sell the goods, or he uses or makes
alteration in them in a manner proper only for an owner; or
(b) when the buyer, after the lapse of a reasonable time, retains the goods
without intimating his rejection.

Where buyer’s refusal to accept justified.

(1) Duty of buyer to take care of goods without obligation to return. — If the goods
have been sent to the buyer and he rightfully refuses to accept them, as in the case where the
goods are of not the kind and quality agreed upon, he is in the position of a bailee who has
had goods thrust upon him without his assent.
(2) Duty of seller to take delivery of goods. — After notice that the goods have not
been and will not be accepted, the seller must have the burden of taking delivery of said goods.
(3) Seller’s risk of loss of goods. — While the goods remain in the buyer’s possession
under these circumstances, they are, of course, at the seller’s risk. But the buyer is not deemed
and is not liable as a depositary, unless he voluntarily constitutes himself as such.
(4) Right of buyer to resell goods. — Should the seller, when notified to take delivery
of the goods fails to do so, the buyer may resell the goods.

Liability of vendee for interest where payment is made after delivery.

(1) Interest expressly stipulated.
(2) Fruits or income received by vendee from thing sold.

Right of vendee to suspend payment of price.

(1) When vendee has right. — The vendee, under this article, may suspend the
payment of the price in two cases only:
(a) if he is disturbed in the possession or ownership of the thing bought; or
(b) if he has a well-grounded fear that his possession or ownership would be
disturbed by a vindicatory action or foreclosure of mortgage.
(2) When vendee has no right. — In the following cases, the vendee cannot suspend
the payment of the price even if there is disturbance in his possession or ownership of the
thing sold:
(a) if the vendor gives security for the return of the price in a proper case;
(b) if it has been stipulated that notwithstanding any such contingency, the
vendee must make payment.
(c) if the vendor has caused the disturbance or danger to cease.

ART. 1591. Should the vendor have reasonable grounds to fear the loss of
immovable property sold and its price, he may immediately sue for the rescission of the
sale.
Should such ground not exist, the provisions of article 1191 shall be observed.

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Right of vendor to rescind sale of immovable property.
This article refers only to a sale of immovable or real property where the vendor has
good reasons to fear the loss of the property and its price. It contemplates a situation where
there has been a delivery of the immovable property but the vendee has not yet paid the price.

Rule where automatic rescission of sale of immovable property stipulated.

As a general rule, the vendor may sue for rescission of the contract should the vendee
fail to pay the agreed price. Before a demand for rescission of the contract (for non-payment
of the price) has been made by the vendor, either judicially or by a notarial act, the vendee
may still pay the price even after the expiration of the stipulated period for payment and
notwithstanding a stipulation that failure to pay the price on the stipulated date ipso facto
resolves the sale. A judicial or notarial act is necessary before a valid rescission can take place,
whether or not automatic rescission has been stipulated.

Rule where automatic rescission of sale of movable property stipulated.

In the case of personal property (which has not yet been delivered to the vendee), the
vendor can rescind the contract, as a matter of right, if the vendee, without any valid cause,
does not (1) accept delivery or (2) pay the price unless a credit period for its payment has been
stipulated.

EXAMPLE:
S sold his piano to B for P30,000.00; said piano is to be delivered on October 18. If on
October 18, B does not accept delivery or pay the price without lawful cause, then S may elect
to enforce compliance or to rescind the contract with the right to damages in either case.

Reason for the rule with respect to movable property.

The reason for the difference is that personal properties are not capable of maintaining
a stable price in the market. Their prices are so changeable that any delay in their disposal
might cause the vendor a great prejudice.

(ELABORATE AND EVALUATE)

Activity 2:

Enumerate and explain briefly the obligations of a vendee.

Assessment:

Explain the two modes of acceptance.

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TOPIC 6: ACTIONS FOR BREACH OF CONTRACT OF SALE OF GOODS

(ENGAGE)

What do you think is the remedy of a seller and a buyer in case of failure of a contract
of sale?

(EXPLORE AND EXPLAIN)

Actions available for breach of the contract of sale of goods.

In general, the actions available for breach of the contract of sale of goods are the
following:
(1) action by the seller for payment of the price;
(2) action by the seller for damages for non-acceptance of the goods;
(3) action by the seller for rescission of the contract for breach thereof;
(4) action by the buyer for specific performance; and
(5) action by the buyer for rescission or damages for breach of warranty.

Seller’s right of action for the price.

(1) when the ownership of the goods has passed to the buyer and he wrongfully
neglects or refuses to pay for the price;
(2) when the price is payable on a certain day and the buyer wrongfully neglects or
refuses to pay such price, irrespective of delivery or of transfer of the title; and
(3) when the goods cannot readily be resold for a reasonable price and the buyer
wrongfully refuses to accept them even before the ownership in the goods has passed.

EXAMPLE:
S sold to B a specific refrigerator for P8,000.00. S can maintain an action for the price
in any of the following cases:
(1) He has delivered the refrigerator to B and the latter wrongfully fails to pay;
(2) He has not yet delivered the refrigerator but the period fixed for the payment has
already arrived while the period fixed for delivery is yet to come; and
(3) B has refused to accept delivery without just cause and S has notified B that he is
holding the goods as bailee for B.
Under No. (1), where the unpaid goods are subsequently sold or mortgaged to another
who acted in good faith, the obligation to pay remains with the buyer mortgagor-seller. The
failure of the buyer to pay the purchase price does not ipso facto revert ownership of the goods
to the (first) seller unless the sale is first liquidated. The (first) seller has no cause of action
against the purchaser or chattel mortgagee.

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Seller’s right of action for damages.
1) If the buyer without lawful cause neglects or refuses to accept and pay for the goods
he agreed to buy, the seller may maintain an action against him for damages for non-
acceptance.
(2) In an executory contract, where the ownership in the goods has not passed, and
the seller cannot maintain an action to recover the price (see Art. 1595.), the seller’s remedy
will be also an action for damages.
(3) If the goods are not yet identified at the time of the contract or subsequently, the
seller’s right is necessarily confined to an action for damages.

Measure of damages for non-acceptance.

(1) Difference between contract price and market price. — The measure of damage is
the estimated loss directly and naturally resulting from the buyer’s breach of contract. It is
conveniently expressed by the formula — the difference between the contract price, that is,
the amount of the obligation which the buyer failed to fulfill, and the market or current price,
that is, the value of the goods which the seller has left upon his hands.
(2) Full amount of damage. — If there is no available market in which the goods can
be sold at the time, the seller is “entitled to the full amount of damage which he has really
sustained by a breach of the contract.”
(3) Proximate damages. — Article 1596 (par. 3.) allows the seller under “special
circumstances” proximate damages of a greater amount than the difference between the
contract price and market price when such damages “may be reasonably attributed to the non-
performance of the obligation.”

EXAMPLE:
S agreed to sell and deliver to B on a certain date 100 bags of sugar of a certain quality
for P50,000.00. On the date designated, B wrongfully refused to accept delivery. If the market
value of the sugar at the time is P40,000.00, the damage which S ought to receive is the
amount of P10,000.00, the profit he failed to realize. However, if the market value equals or
exceeds the contract price of P50,000.00, S has suffered no damage and, though entitled to
judgment, can recover only nominal damages.
If B acted in bad faith (this may be considered as an example of “special
circumstances” mentioned in par. 3.), he is liable for all the consequential damages incurred
by S which clearly originated from the breach of the contract. Thus, if the refusal of B to
accept delivery so angered S that the latter suffered a heart attack for which he was
hospitalized, hospitalization expenses may also be recovered from B as they may be
reasonably attributed to the non-performance of his obligation.

Measure of damages for repudiation or countermand.

In case the buyer repudiates the contract or notifies the seller to proceed no further
therewith, the measure of damages to which the seller is entitled would include:
(1) the labor performed and expenses incurred for materials before receiving notice of
the buyer’s repudiation; and
(2) the profit he would have realized if the sale had been fully performed.

Seller’s right of rescission before delivery.

The above article specifies the cases when the seller may rescind a contract of sale of
goods which have not yet been delivered to the buyer. They are:
(1) when the buyer has repudiated the contract of sale;

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 (2) when the buyer has manifested his inability to perform his obligations thereunder;
and
(3) when the buyer has committed a breach of the contract of sale.

Buyer’s right to specific performance.

Article 1598 grants to the buyer, as a matter of right, the remedy of specific
performance in case the seller should violate his obligation to make delivery. The seller cannot
retain the goods on payment of damages because damages are imposed by law to insure
fulfillment of contract and not to substitute for it. In granting specific performance, the court
may impose such terms and conditions as to damages, payment of the price and otherwise,
as it may deem just.

Remedies of buyer for breach of warranty by seller.

The remedies allowed to the buyer when the seller has been guilty of a breach of
promise or warranty are:
(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 for the breach of the
warranty;
(3) refuse to accept the goods and maintain an action for damages for the breach of the
warranty; and
4) rescind the contract of sale by returning or offering the return of the goods, and
recover the price or any part thereof which has been paid. (Nos. 1-4.)
The remedies open to the buyer under the article may be grouped into three, to wit: (a)
recoupment (No. 1.); (b) action (No. 3.) or counterclaim for damages (No. 2.); and (c)
rescission. (No. 4.)
Nos. (1) and (2) should be read in connection with Article 1586.
The general measure of damage in case of breach of warranty of quality is provided in
No. (5) of Article 1599. It is similar to the measure of damages under Article 1596, par. 2.
(5) In the case of breach of warranty of quality, such loss, in the absence of special
circumstances showing proximate damage of a greater amount, is the difference between the
value of the goods at the time of delivery to the buyer and the value they would have had if
they had answered to the warranty.

Recoupment in diminution of the price.

The theory of recoupment is that the seller’s damages are cut down to an amount
which will compensate him for the value of what he has given.

Action or counterclaim for damages.

The law provides that the buyer may “refuse to accept the goods, and maintain an
action against the seller for damages for the breach of warranty.” (No. 3.) It is fundamental
that the breach of an obligation gives rise to an action for damages.

When rescission by the buyer not allowed.

The remedy of rescission is allowed on broad principles of justice. The basis of the
remedy is that the buyer has not received what he has bargained for.
It cannot be availed of, however, in the following cases:
(1) if the 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; and

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 (3) if he fails to return or offer to return the goods in substantially as good condition as
they were in at the time of the transfer of ownership to him. But where the injury to the goods
was caused by the very defect against which the seller warranted, the buyer may still rescind
the sale. (par. 3.)

Rights and obligations of buyer in case of rescission.

They are as follows:
(1) In case of rescission, the buyer shall cease to be liable for the price, his only
obligation being to return the goods;
(2) If he has paid the price or any part thereof, he may recover it from the seller.
(3) He has the right to hold the goods as bailee for the seller should the latter refuse the
return of the goods; and
(4) He has the right to have a lien on the goods for any portion of the price already
paid which lien he may enforce as if he were an unpaid seller. (par. 5.)

Remedies alternative.
The above remedies are alternative. Once a remedy has been granted to the buyer, no
other remedy can thereafter be exercised or granted.
The only exception is when after the buyer has chosen fulfillment, it should become
impossible, in which case he may also sue for rescission.

(ELABORATE AND EVALUATE)

Activity 2:

Illustrate the three measure of damages for non-acceptance.

Assessment:

Enumerate the remedies of buyer for breach of warranty by seller.

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