Sales - Chapter 4

TITLE VI – SALES Chapter 3 Effects of the Contract When the Thing Sold has been Lost Article 1493 This refers to a case of loss of the object even BEFORE the perfection of the contract There would be no cause or consideration, hence the contract is void Seller will have to bear the loss Q: What are the remedies of the buyer when the object has been PARTLY or PARTIALLY LOST? A: choose between (1) withdrawal or rescission (2) specific performance as to remainder by payment of proportional price Article 1494 Speaks of loss of specific goods Remedies of buyer: o Cancellation (avoidance) o Or specific performance as to the remaining existing goods (if the sale was divisible)

Chapter 4 Obligations of the Vendor Article 1495 Obligations of the vendor: o To transfer ownership (cannot be waived) o To deliver (cannot be waived) o To warrant the object sold (this can be waived or modified since warranty is not an essential element of a contract of sale) o To preserve the thing from perfection to delivery, otherwise he can be held liable for damages Q: what happens when seller fails to deliver at a stipulated period, and such period is of the essence of the contract? A: He has no right to demand payment of the price. Q: what is the effect of non delivery? A: buyer may ask for the RESOLUTION or RESCISSION of the contract Duty to Deliver at Execution Sale Judgment debtor is NOT required to deliver the property sold right away. The reason is, he has a period of ONE YEAR within which to REDEEM the property. In the mean time, the buyer should not take actual physical possession of the property. Note that the period of redemption commences to run not from the date of the auction or tax sale but form the day the sale was registered in the office of the Register of Deeds. Article 1496 Ownership is acquired from the moment of delivery or in any other manner signifying an agreement that possession is transferred. Note: Owner of the money used in purchasing an object is immaterial. What is material is the name of the purchaser who appears in the deed of sale. Section 2 DELIVERY OF THE THING SOLD Article 1497 Speaks for real or actual delivery DELIVERY – when an object is placed in the CONTROL and POSSESSION of the vendee Q: What instance is ownership NOT transferred despite delivery? A: Ownership is not transferred, although there has been perfection and delivery, if it was intended that no such transfer of ownership will take place until full payment of the price. Such stipulation may be made expressly or impliedly. Note: Purchases made at a MARKET are valid even if the seller was not yet the owner, and delivery of the same would transfer ownership because of the doctrine of OSTENSIBLE OWNERHIP. --- the market seller appears to be the owner, and if he is not, the true owner is NEGLIGENT for having allowed him to appear as the owner

Kinds of Delivery or Tradition 1. Actual or Real 2. Legal or Constructive a. Legal formalities b. Symbolical tradition and tradition simbolica – ex. Delivery of the key c. Traditio longa manu – pointing; by mere consent or agreement if the movable sold cannot b transferred at the time of the sale d. Traditio brevi manu- buyer already had the possession of the object even before the purchase; tenant of a car buys the car e. Tradition constitutum possessorium – possession as owner changed; possession as a lessee 3. Quasi-tradition – delivery of rights, credits, or incorporeal property, made by: a. Placing title of ownership in the hands of a lawyer b. Or allowing the buyer to make use of the rights Article 1498 Deals with two kinds of Constructive Delivery: o Thru legal formalities – applies to real and personal proerty o Thru tradition Simbolica Constructive delivery requires THREE THINGS before ownership may be transmitted: 1. Seller must have control over the thing 2. Buyer must be put under control 3. There must be the intention to deliver the thing for purposes of ownership (not merely to allow inspection) Note: When the sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract. However, in order that this delivery may have the effect of tradition, it is essential that the vendor shall have had such CONTROL over the thing sold, that is, it could have been possible that at the moment of the sale its MATERIAL delivery could have been made. Note that the key word is CONTROL, not POSSESSION of the land. Rules on Constructive Delivery 1. If a seller has no actual possession, he cannot transfer ownership by constructive delivery 2. There can be no constructive delivery by means of a public instrument if there is a stipulation to that effect 3. The Civil Code does not provide that the execution of the deed is a conclusive presumption of the delivery of possession. What it says is that the execution thereof shall be equivalent to delivery – there is only a DISPUTABLE PRESUMPTION (execution of a the contract is only PRESUMPTIVE DELIVERY) Article 1499 Deals with tradition longa manu and tradition brevi manu This article speaks of MOVABLE property Article 1500 Speaks of tradition constitutum possessorium The basis here is consent Where a seller continues to occupy the land as tenant, the possession , by fiction of law, is deemed to be constituted in the buyer Article 1501 Deals with the delivery of INCORPOREAL PROPERTY: o By constructive tradition – execution of public instrument o By quasi-tradition – placing of titles of ownership in the possession of the buyer, or the use by the buyer of his rights, with the seller’s consent Article 1502 First paragraph refers to a transaction ON SALE OR RETURN: o this is a sale that depends on the DISCRETION of the BUYER o it is a sale with a RESOLUTORY CONDITION o ownership passes to the buyer on delivery, but he may revest the ownership in the seller by returning or tendering the goods within the time fixed in the contract Note: In this case, the buyer has no right to return if he has materially abused the condition of the thing. The sale in this case becomes absolute. But if the objects deteriorate without the fault of the buyer, the buyer can still return, provided that the reasonable period of returning has not yet elapsed

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Q: What is the difference between a contract “on sale or return” and a delivery of property with option to purchase? A: In the first, ownership is transferred at once; in the second, there is no transfer of ownership till the owner agrees to buy. (Read page 125 of Paras for Bar question) -

Second paragraph refers to a transaction ON APPROVAL or ON TRIAL or SATISFACTION o Buyer may IN TIME become the owner under the conditions specified in the law; otherwise, the seller is still the owner o This is a sale really dependent on the QUALITY of the goods o It is a sale with SUSPENSIVE CONDITION o When ownership passes to the buyer:  When buyer signifies his approval or acceptance (expressed or implied)  Does not signify approval or acceptance but buyer retains the goods without giving notice of rejection

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Therefore, even if a person be a bonafide purchaser, he succeeds only to the rights of the vendor. (if the seller is not the owner, the sale is null and void) EXCEPTIONS: o When the owner of the goods by his conduct precluded from denying the seller’s authority o Second paragraph nos. 1,2 and 3 (refer to codals)  Provisions of any factors’ acts, recording laws, etc.  Validity of any contract of sale under statutory power of sale or under order of court  Purchases made in a merchant’s store or in fairs or markets

Q: What is a store? A: it is any place where goods are kept and sold by one engaged in buying and selling. It is an element that there must also be goods or wares stored therein or on display and that the firm or person maintaining said office is actually engaged in the business of buying and selling.

Some Rules on Sale on Approval or Trial or Substitution: 1. Risk of loss remains with the seller if the sale has not yet become absolute. Except: a. If the buyer is at fault b. If buyer had expressly agreed to bear loss 2. Buyer must give goods a trial except when it is evident that it cannot perform the work intended 3. Period for buyer to signify acceptance commences to run only when all the parts essential for the operation of the object have been delivered 4. If it is stipulated that a THIRD PERSON must satisfy approval or satisfaction, the provision is valid, but the third person must be in good faith. If refusal to accept is not justified, seller may still sue 5. Generally, the sale and delivery to a buyer who is an expert on the object purchased is NOT obviously a sale on approval, trial or satisfaction

Some Recording Acts: 1. Sale of large cattle- sale should be registered, and a certificate of transfer obtained 2. Land registration law 3. Sale of vessels – record at each principal port of entry

Article 1503 Deals with instances where reservation of ownership is made despite delivery The most controlling element is the INTENTION This article applies only to the sale of SPECIFIC GOODS

Purchase from a Thief: The true owner can get back the object without reimbursement But if buyer acquired object at a public auction, even if he in good faith, the owner can still get it from him, but his time he would be entitled to reimbursement However, when no crime is committed, and only a civil liability arises, the seller cannot recover from the third person the goods, for here there was neither a “losing” nor an “unlawful deprivation”

Instances when seller is still owner despite delivery: 1. Express stipulation 2. If under the bill of lading, the goods are deliverable to seller or agent or their order. (Reason --- the buyer cannot get the object) Note: this is not conclusive. There can be an agreement in the contract that the buyer should receive and dispose of the goods. 3. If bill of lading, although stating that the goods are to be delivered to buyer or his agent, is KEPT by the seller or his agent. (Reason --the buyer also cannot get the object) 4. When the buyer although the goods are deliverable to order of buyer, and although the bill of lading is given to him, DOES NOT HONOR the BILL OF EXCHANGE sent along with it. But innocent third parties should not be adversely affected. Article 1504 Provides for the rules with regards to the risk of loss: GR: the risk of loss of SPECIFIC GOODS IS borne by the SELLER until ownership is transferred Once ownership is transferred, buyer bears the risk whether actual delivery has been made or not, except that: o Where the delivery of the goods has been made to the buyer or to a bailee for the buyer, but ownership in the goods has been retained by the seller merely to secure performance by the buyer of his obligations under the contract, the goods are at the buyer’s risk from the time of such delivery o Where actual delivery has been delayed through the fault of either the buyer or seller the goods are at the risk of the party in fault

Article 1506 Effect if Seller has only a voidable title: the buyer acquires a good title to the goods, provided he buys them in god faith, for value, and without notice of the seller’s defect of title Q: What is the reason behind this law? A: 1. Before a voidable contract is annulled, it is considered valid 2. Where one of two innocent parties must suffer, he who placed the offender in a position to do wrong must suffer

Article 1507 NEGOTIOABLE DOCUMENT OF TITLE: o a document of title in which it is stated that the goods referred to therein will be delivered to the bearer, o or to the order of any person named in such document What Document Title Includes a. Bill of lading b. Dock warrant c. Quedan d. Warehouse receipt or order e. Any other document used as proof of possession or as authority to transfer the goods represented by the document Note: Mere typographical or grammatical error DOES NOT destroy the negotiability of a document, for what should be considered is the INTENT. Moreover, a mere incorrectness in the description of the goods when there can be no doubt of the goods referred to will not destroy the negotiability of the document. Article 1508 This article provides for 2 ways of negotiating a negotiable document of title by delivery: o By mere delivery – sufficient if the document is deliverable to the bearer

Note: Under American law, there is no need for delivery to transfer ownership insofar as specific goods are concerned if the contract is one of sale, and not a contract to sell.

However, even though the document is deliverable to the order of a specified person, if the latter has indorsed it in blank by simply signing his name without specifying any person to whom the goods are to be delivered or indorsed it to bearer, the document may now be negotiated by mere delivery.

Generally, whoever has the beneficial interest should bear the risk. Article 1505 Stresses the GENERAL RULE that no one can give what he does not have

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By indorsement coupled with delivery

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Note: if the document was indorsed to a specified person, negotiation can be effected only by the indorsement of the indorsee (SPECIAL INDORSEMENT). Distinction between Special Indorsement and Indorsement in Blank a. Special indorsement is one which specifies the person to whom, or to whose order, the instrument is to be payable, and the indorsement of such indorsee is necessary to the further negotiation of the instrument b. Indorsement in blank is one in which specifies no indorsee, and an instrument so indorsed is payable to vearer, and may be negotiated by delivery Article 1509 This article refers to negotiation by INDORSEMENT and DELIVERY Example: The document says “deliver to the order of Mr. X” To negotiate it, Mr. X must sign his name at the back and then deliver. Mere delivery without signing is not sufficient. When he signs he may: 1. Just sign his name (blank indrosement) 2. Or say “deliver to Mr. Y” 3. Or say “deliver to bearer”

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Provides for the Rule if Indorsement is needed for negotiation. If one merely delivers without indorsement, there will be no negotiation. Nevertheless one may compel the other to indorse such provided that: o He pays the value for the document o No contrary intention appears

Article 1516 Provides for the warranties in negotiation or transfer: o That the document is genuine o That he has a legal right to negotiate or transfer o That he has knowledge of no fact which would impair the validity or worth of the document o That he has a right to transfer the title to the goods and that the goods are merchantable In summary, the warranties are: o About the document o About the right to the document o About the goods represented by the document

Note: Mr. Y can in turn indorse it in blank, to bearer, or to another specified person Q: what is the effect of undated indorsement? A: nothing. It is NOT NECESSARY to date an indorsement because no additional protection is given thereby to businessmen.

Q: who provides for these warranties? A: the warranties are made by: 1. A person who negotiates 2. A person who assigns or transfers for value Article 1517 Failure of the BAILEE or the PREVIOUS INDORSERS to comply with their obligation DOES NOT make the present indorsers liable

Q: what is the effect of indorsement and delivery? A: it ipso facto transfer possession and ownership of the property referred therein.

Q: Why is this so? A: Because the indorser warrants only the things mentioned in the preceding article.

Article 1510 If the words “non-negotiable” or “not negotiable” or words of similar import are placed upon a document of title which is actually a negotiable document, such words will not affect the said document.

Article 1518 Validity of the negotiation of a negotiable document of title is NOT impaired by the fact that the negotiation: o Was a breach of duty on the part of the person making the negotiation o Or by the fact that the owner of the document was deprived of the possession of the same by LOSS, THEFT, FRAUD, ACCIDENT, MISTAKE, DURESS, or CONVERSION Provided that the person whom the document was subsequently negotiated was a BUYER IN GOOD FAITH

Article 1511 A non-negotiable document may still be given or assigned to another but this does not have the effect of a negotiation. It is a mere transfer or assignment A non-negotiable document cannot be negotiated and the endorsement of such a document gives the transferee no additional right Article 1512 Provides for who may negotiate a negotiable document of title: o Owner thereof o Any person to whom the possession or custody of the document has been entrusted by the owner Q: who bears the loss in case of unauthorized negotiation? A: if trustee betrays the trust and negotiates the document to another in good faith, the real owner cannot impugn the validity of the negotiation. As between two innocent persons, he who made the loss possible should bear the loss, without prejudice to his right to recover from the wrongdoer. Article 1513 Provides for the rights of person to whom negotiable document is negotiated: o Acquires such title to the goods (refer to codal provision) o Acquires the direct obligation of the bailee issuing the document to hold possession of the goods for him according to the terms of the document as fully as if such bailee had contracted directed with him Article 1514 Speaks of the RIGHTS OF A MERE TRANSFEREE, not the rights of a person to whom the document was negotiated Note that the transferee DOES NOT ACQUIRE DIRECTLY the obligation of the bailee to hold for him. To acquire the DIRECT OBLIGATION of the bailee, the transferee or transferor must notify the bailee Q: Who can defeat the rights of a transferee? A: prior to the notification to such bailee by the transferor or transferee, the title of transfer may be defeated by the (1) LEVY OF AN ATTACHMENT OF EXECUTION upon the goods by a creditor of the transferor, or (2) BY NOTIFICATION TO SUCH BAILEE BY THE TRANSFEROR, or a (3) SUBSEQUENT PURCHASER FORM THE TRANSFEROR.

Article 1519 Article speaks of two important things if the document is negotiable: 1. Generally, no attachment or levy, except: a. If the document is SURRENDERED to the bailee b. Or the NEGOTIATION of the document ENJOINED 2. The bailee (or depositary or carrier) CANNOT BE COMPELLED to surrender the goods except: a. If the document is SURRENDERED TO HIM b. Or the document is IMPOUNDED BY THE COURT Article 1520 Creditors are protected when the document concerned is negotiable Q: How is protection made? A: Attachment is not easily made. They are entitled to such aid from courts by injunction and otherwise in attaching such document. Article 1521 This article provides for: 1. Place of delivery (this depends on the …) a. Agreement (express or implied) b. If no agreement – get the USAGE of trade c. If no usage – the BUYER must get them at the SELLER’S BUSINESS PLACE OR RESIDENCE Exception: Contract of sale of specific goods – in the place where the specific goods are found Note: There is sufficient delivery when a fortuitous event prevents delivery at the actual place agreed upon, forcing a delivery at a place near the original one. Further, there is also sufficient delivery when the original place is changed, but the buyer accepted the goods at a different place without complaint so long as the seller was in good faith. 2.

Time of delivery a. Delivery (if to be made by seller) must be within a REASONALBE TIME (if no express agreement)

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Circumstances to consider to conclude what reasonable time is: i. Character of the goods ii. Purpose intended iii. Ability of seller to produce the goods iv. Transportation facilities v. Distance thru which the goods must be carried vi. Usual course of business in that particular trade If a delivery is to be made “at once”, “promptly”, or “as soon as possible”, a reasonable time must necessarily be given PREMATURE delivery generally is NOT ALLOWED because a term is for the benefit of both parties

Manner of Delivery when Goods are in the Hands of a Third Person a. Third person should acknowledge that he holds the goods on behalf of the buyer, otherwise, the seller shall not yet be complied with his duty to deliver Note: the rule does not apply in case a (1) NEGOTIABLE DOCUMENT of title has been issued and (2) when the goods are still to be manufactured.

Q: Who pays expenses for putting the goods in a deliverable state? A: The seller, unless otherwise agreed Q: when must demand or tender of delivery be made? A: In the absence of agreement, at a reasonable hour. Article 1522 Provides for the rules when the quantity is less or more than what was agreed Rule when the Quantity is LESS than that Agreed Upon a. Buyer may REJECT b. Or buyer may ACCEPT what have been delivered, at the CONTRACT rate Q: When estoppels does not apply: A: when the buyer has used or disposed of the goods delivered before he knows that the seller is not going to perform his contract in full, the buyer shall not be liable for more than the FAIR VALUE to him of the goods so received. Rule when the Quantity is MORE than the Agreement a. Buyer may REJECT ALL b. Buyer may ACCEPT the goods agreed upon and reject the rest c. If he gets all, he must pay for them at the CONTRACT RATE

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F.O.B. alongside the vessel – from the moment the goods are brought alongside the vessel, the buyer must pay for the freight or expenses F.O.B. at the place of destination - the seller must pay the freight

GR (in free on board or free alongside sales): property PASSES as soon as the goods are delivered aboard the carrier or alongside the vessel, and that the buyer as the owner of the goods is to bear all expenses after they are so delivered. Note however: F.O.B. or F.A.S. may be used only in connection with the fixing of the price, and in such a case, they will NOT be construed as fixing the place of delivery Article 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 Q: What is the effect if period is fixed for payment? A: if a period has been fixed for the payment the seller must deliver the thing sold even if said period has not yet arrived. He will then have to wait for the end of the period before he can demand the price, except if the buyer has lost the benefit of the term. Article 1525 provides for the meaning of an UNPAID SELLER: o If only part of the price has been paid or tendered o When there is mere delivery of a negotiable instrument (why? Because this may be dishonored) Q: Who are considered a seller? A: it includes (1) an agent of the seller to whom the bill of lading has been indorsed, (2) consignor or agent who has himself paid, or is directly responsible for the price, (3) or any other person who is in the position of a seller. Article 1526 Rights of an unpaid seller: o Possessory Lien - It is the right to retain the goods for the price while seller is in possession of them - This is lost after the seller loses possession but his lien as an unpaid seller remains - He is still a preferred creditor with respect to the price of the specific goods sold - His preference can only be defeated by the government’s claim to the specific tax on the goods themselves - This is the vendors lien on the PRICE

Note: For this rule to apply, the quantity must have been fixed by prior agreement

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Right of Stoppage in Transitu Available if seller has parted with the possession

Q: When is there IMPLIED ACCEPTANCE? A: When the buyer exercises acts of ownership over the excess goods

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Right of Resale

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Right to Rescind the sale

Rule when the QUALITY is DIFFERENT Where the seller delivers to the buyer the goods agreed upon MIXED with goods of a different description, the buyer may: 1. Accept the goods which are in accordance with the contract and 2. Reject the rest Note: if the sale is indivisible, the buyer may reject the whole of the goods. Article 1523 The articled deals with “delivery to a carrier on behalf of the buyer” GR: delivery to carrier is delivery to buyer, if it is the duty of the seller to send the goods to the buyer Kinds of Deliver to Carrier 1. C.I.F. (Cost, insurance freight) – since the selling price includes insurance and freight, it is understood that said insurance and freight should now be paid by the seller; all charges up to the place of destination must be paid by the seller If the goods then are not delivered at the stipulated place of destination, seller should be held liable. 2.

F.O.B. (Free on Board) – there are 3 types: a. F.O.B. at the place of shipment – the buyer must pay the freight

Article 1527 When seller has possessory lien (retain possession of them until payment or tender of the price in the following cases): o Where the goods have been sold without any stipulation as to credit o Where the goods have been sold on credit, but the term of credit has expired o Where the buyer becomes insolvent Article 1528 Refers to a possessory lien even after a PARTIAL DELIVERY The lien however may be waived expressly or impliedly Waiver of the lien or the right of retention

Article 1529 This article refers to the instances when the lien is lost: o When he delivers the goods to a carrier or other bailee for the purpose of transmission to the buyer without reserving the ownership in the goods or the right to the possession thereof o When the buyer or his agent lawfully obtains possession of the goods o By waiver thereof

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The lien lost is only the POSSESSORY LIEN and not the vendor’s lien on the PRICE

Note: A negotiable warehouse receipt automatically transfers both title and right of possession to the goods in the buyer Article 1530 Right of stoppage in transit is available to the unpaid seller: o if he has parted with the possession of the goods o and if the buyer is or becomes insolvent (the seller’s right exists even though the buyer was already insolvent at the time of the sale) Note: the insolvency referred to need NOT be judicially declared. It is enough that the obligations exceed a man’s assts. Article 1531 Goods are considered in transit when: o From the time when they are delivered to a carrier, or other bailee for the purpose of transmission to the buyer, until the buyer, or his agent in that behalf, takes delivery of them from such carrier or other bailee o If the goods are rejected by the buyer, and the carrier or other bailee continues in possession of them, even if the seller has refused to receive them back Goods are NO LONGER in transit when: o If the buyer, or his agent, obtains delivery of the goods before their arrival at the appointed destination o If, after the arrival of the goods at the appointed destination, the carrier or other bailee acknowledges to the buyer or his agent that he holds the goods on his behalf and continues in possession of them as bailee for the buyer or his agent o If the carrier or other bailee wrongfully refuses to deliver the goods to the buyer or his agent Note: the right to get back the goods exists only when the goods are still in transitu. Taking of the property in transit by an unauthorized agent of the buyer does not extinguish the right of stoppage in transitu.

Article 1532 Provides for how the right of stoppage in transitu may be exercised: o Obtaining actual possession of the goods o Giving notice of his claim to the carrier or other bailee in whose possession the goods are Note: there must be intent to repossess the goods Q: to whom should the notice be given? A: Either (1) to the person in actual possession of the goods, or (2) to his principal Effects of the Exercise of the Right 1. The goods are no longer in transitu 2. The contract of carriage ends; instead, the carrier now becomes a mere bailee, and will be liable as such 3. The carrier should not deliver anymore to the buyer or the latter’s agent; otherwise, he will clearly be liable for damages 4. The carrier must redeliver to, or according to the direction of, the seller Article 1533 Rights of resale exists: o Perishable goods – goods that deteriorate rapidly o Express stipulation o Unreasonable default Note: the article confers on the seller a right to resell (to enforce his lien after title has passed) but does not impose upon him the duty to resell -

Seller shall not thereafter be liable to the original buyer upon the contract of sale or for any profit made by such resale, but may recover from the buyer damages for any loss occasioned by the breach of the contract

Article 1534 This article refers to the right to RESCIND THE TRANSFER OF TITLE and to RESUME THE OWNERSHIP IN THE GOODS This applies in case there has been: o Express stipulation or reservation

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o Unreasonable default Note: damages may be recovered for the breach of contract

Q: what should be done in order to rescind the transfer of title? A: There must be notice to the buyer or there must be an overt act showing an intention to rescind. (ex. Replevin suit is an implied rescission of the sale of the goods sought t be recovered.) Article 1535 Effect if buyer has already sold the goods: o Generally, the unpaid seller’s right of LIEN or STOPPAGE IN TRANSITU remains even if the buyer has sold otherwise disposed of the goods o Exceptions:  When the seller has given his consent thereto  When the purchaser or the buyer is a purchaser for value in good faith of a negotiable document of title Article 1536 The debtor shall lose every right to make use of the period (Art.1198): o When after the obligation has been contracted, he becomes insolvent, unless he gives a guaranty or security for the debts o when he does not furnish to the creditor the guaranties which he promised o when by his own acts he has impaired said guaranties or securities after their establishment, and when through a fortuitous event they disappear, unless he immediately gives new ones equally satisfactory o when debtor violates any undertaking o when debtor attempts to abscond Article 1537 Vendor is bound to deliver the thing sold and its accession and accessories All the fruits shall pertain to the vendee from the day on when the contract was perfected. However, a contrary stipulation may be agreed upon, or a later date may be set Article 1538 Provides for the effect of loss, deterioration or improvements before delivery (Article 1189): o If lost without fault of vendor: obligation shall be extinguished o If lost (perishes, goes out of commerce, disappears in such a way that its existence is unknown or it cannot be recovered) through fault of vendor: obliged to pay damages o When the thing deteriorates without fault of vendor: impairment is to be borne by buyer o Deteriorates through fault of vendor: buyer may choose between the rescission of the obligation and its fulfillment, with indemnity for damages in either case o if the thing is improved by nature or by time, the improvement shall inure to the benefit of the buyer o if it is improved at the expense of the debtor, he shall have no other right than that granted to the usufructuary Article 1539 refers to sale of real estate BY THE UNIT (UNIT PRICE CONTRACT) in this case, payment will be made only on the basis of contractual items actually performed, in accordance with the given plans and specifications If what can be delivered is less than what was in the contract the vendee may choose between: o A proportional reduction of the price o Rescission of the contract (the lack in area be not less than 1/10 of that state; or vendee would not have bought had he known of its smaller or inferior quality) Provision shall apply if any part of the immovable ins not of the quality specified in the contract Rescission shall only take place at the will of the vendee Article 1540 If area is actually greater than what was stipulated, vendee may: o Accept the area included in the contract and reject the rest o Or if he accepts the whole area, he must pay for the same at the contract rate Article 1541 The provisions of the two preceding articles shall apply to judicial sales 5

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a later date, the unrecorded sale is preferred for the reason that if the original owner has parted with his ownership and free disposal of that things so as to be able to mortgage would, in such case, be of no moment.

Article 1542 In a LUMP SUM CONTRACT: there shall be no increase or decrease of the price, although there be a greater or less area or number than that stated in the contract With regards to conflict between boundaries and area, boundaries will prevail Q: what happens if vendor does not deliver what is included in the boundaries? A: buyer can either rescind the contract for the seller’s failure to deliver what has been stipulated or he may pay a reduced proportional price. Q: what happens if the land included in the boundaries happens to be less than what was stipulated? A: Buyer cannot rescind the contract and he is not entitled to pay a reduced price for the civil code presumes that purchaser has ascertained its area and quality before the perfection of the contract. Q: what is the meaning of “more or less”? A this can be considered as covering INCONSIDERABLE or SMALL differences one way or the other. the use of such phrases in designating the quantity covers only a reasonable excess or deficiency Aritlce 1543 The actins arising from article 1639 and 1642 shall prescribe in six months, counted from he hay of delivery Article 1544 Provides for the rules of preference in case of double sale o Personal property – possessor in good faith o Real Property  Registrant in good faith  Possessor in good faith  Persons with the oldest title in good faith Note:  In all the rules, there must be GOOD FAITH; otherwise, the order of preference does not apply  REGISTRATION here requires actual recording; If the land is registered under the Land Registration Act, and it is sold but the subsequent sale is registered not under the Land Registration Act but under Act 3344, as amended, such sale is not considered registered  The registration of a forged deed of sale cannot grant the preference adverted to in this Article inasmuch as among other things, there was no good faith  Possession here is either actual or constructive (ex. Symbolic or constructive possession can be acquired by the execution of a public document)  Title in this article means title because of the sale, and not any other title or mode of acquiring property  This article applies to a double donation and to sales made by a principal and his agent of the same property (but does not apply when property was first donated, then sold) Instances when Article 1544 DOES NOT apply: 1. This does not apply to subsequent judicial attachments or executions which should not prevail over prior unregistered sales where possession had already been conveyed by the execution of a public instrument Note however: when the property sold on execution is registered under the Torrens system, registration is the operative act that gives validity to the transfer or creates a lien on the land, and a purchaser on execution sale, is not required to o behind the registry to determine the conditions of the property. Exception to his is where the purchaser had knowledge, prior to or at the time of the levy, of such previous lien or encumbrance. 2. 3. 4.

Instances where double sale was not made by the same person or his authorized agent Where one sale was an absolute one but the other was a pacto de retro transaction where the period to redeem has not yet expired Where one of the sales was one subject to suspensive condition which condition was not complied with

Remember:  With respect to the principle “actual knowledge is equivalent to registration of the sale about which knowledge has been obtained” --- the knowledge may be that of either the FIRST or the SECOND buyer.  Between an unrecorded sale of prior date of real property by virtue of a public instrument and a recorded mortgage thereof at

Section 3 CONDITIONS AND WARRANTIES Article 1545 Applies only to CONDITIONAL sales Article speaks f presence of conditions and warranties: o Conditions may be waived o Conditions may be considered warranties If condition is not performed, party may refuse to proceed with the contract or he may waive performance of the condition Article 1546 EXPRESS WARRANTY: Any affirmation of fact or any promise by the seller relating to the thing is an express warranty 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 Q: When is there a warranty? A: a good test: a. If buyer is ignorant, there is a warranty b. If the buyer is expected to have an opinion and the seller has no special opinion, there is no warranty Note: Dealer’s talk (“excellent”) cannot be considered as an express warranty. A little exaggeration is apparently allowed by the law as a concession to human nature. Article 1547 In a contract of sale, unless a contrary intention appears , there is what is called implied warranties against EVICTION and against HIDDEN DEFECT In general, the actions based on the implied warranties prescribe in 10 years since these obligations are imposed by law Subsection 1 WARRANTY IN CASE OF EVICTION Article 1548 Q: when does eviction take place? A: it takes place whenever by a final judgment based on a right prior to the sale, or an act imputable to the vendor, the vendee is deprived of the whole or of a part of the thing purchased. -

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Warranty in case of eviction is a natural element of a contract, hence, vendor answers for the eviction Vendor’s liability for warranty against eviction is GENERALLY WAIVABLE and may be renounced by the vendee Since the government cannot be held liable the owner of the property sold under execution at the instance of the judgment creditor is liable for eviction, unless otherwise decreed in the judgment. The buyer is allowed to enforce the warranty against the seller or against the seller of his own immediate seller Even if buyer does not appeal judgment of eviction, seller remains liable for eviction (For as long as the buyer is defeated in any case, the seller would be liable)

Note: What is important is the imputability or fault of the seller, hence, seller is still liable even if the act be made after the sale. (ex. Double sale) Responsibility of the Seller Responsible for: 1. his own act, and 2. Those of his predecessors-in-interest He is not responsible for dispossession due to: 1. Acts imputable to the buyer himself 2. Fortuitous events Essential Elements for Eviction 1. There is a final judgment 2. Purchaser has been deprived in whole or in part of the thing sold 3. The deprivation was by virtue of a right prior to the sale effected by the seller 4. The vendor has been previously notified of the complaint for eviction at the instance of the purchaser Plaintiff in Suit 6

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In general, it is only the buyer in good faith who may sue for the breach of warranty against eviction Defendant in Suit Suit for breach can be directed only against the IMMEDIATE seller, not sellers of the seller unless such sellers had promised to warrant in favor of the later buyers or unless the immediate seller has expressly assigned to the buyer his own right to sue his own seller. Article 1549 The vendee need not appeal from the decision in order that the vendor may become liable for eviction. However, the decision of the court must be FINAL Article 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 Q: Why is this so? A: This is because, the title arising out of the adverse possession is not yet perfected, in which case, the vendee through the use of diligence could efficiently interrupt the running of the prescriptive period Article 1551 If the property is sold for non-payment of taxes due and not made know to the vendee before the sale, the vendor is liable for eviction Note that the prior absence of knowledge is important Article 1552 Judgment debtor is also responsible for eviction in judicial sales, unless it is otherwise decreed in the judgment. A purchaser in good faith at a judicial sale is entitled to recover the purchase money from the officer if the funds are still in his hands or from the judgment debtor Article 1553 Provides for the effect of stipulation waiving liability for eviction: o If seller was in GOOD FAITH – the exemption is VALID, but without prejudice to Art. 1554 o If seller was in BAD FAITH – stipulation is VOID Article 1554 Waiver by the buyer may have been made: o WITHOUT knowledge of risk of eviction (waiver consciente): PRESUMPTION o WITH knowledge of risk of evictions (waiver intencionada): MUST BE CLEARLY PROVED Effects of Waiver 1. In the first case, VALUE AT THE TIME OF EVICTION should be returned (why? Solution indebiti) 2. In the second case, nothing need be returned. PROVIDED that said stipulation is understood by the parties merely pro forma, and PROVIDED FURTHER that it is proved that the vendor never intended to be bound by said warranty Article 1555 In case of eviction, the vendee shall have the right to demand of the vendor: o Return the VALUE which the thing sold had at the time of the eviction o INCOME or FRUITS (should be declared or ordered to) o COST OF SUIT which caused the eviction (does not include transportation and other incidental expeses) o EXPENSES of the contract, if vendee has paid them o DAMAGES and INTERESTS and ornamental expenses, if the sale was made in bad faith Q: Why is rescission not a remedy in case of TOTAL eviction? A: This is because vendee can no longer restore the subject matter of the sale to the vendor. Note that there should be mutual restitution in case of rescission. Article 1556 This article deals with a case of PARTIAL EVICTION Remedy here is EITHER: o Rescission - if one chooses rescission, there should be no new encumbrances, like a mortgage o Enforcement of warranty

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if the circumstances set forth in paragraph 1 are not present (as when there are encumbrances), the only remedy is to enforce the warranty

Article 1557 Finality of judgment is necessary before one can enforce warranty A judgment becomes final if on appeal, the decision decreeing the eviction is affirmed; or if within the period within which to appeal, no appeal was made Article 1558 The vendor shall not be obliged to make good the proper warranty, unless he is summoned in the suit for eviction at the instance of the vendee This is the preparation for the suit – a condition sine qua non Note: the notice must be the notice for the suit for eviction, NOT the notice in the suit for the breach of the warranty Q: What is it necessary to serve the summons? A: Objective of summon is to give the vendor the opportunity to show that the action against the buyer is unjust. Article 1559 The defendant vendee shall ask that the vendor be made a codefendant In an eviction suit, it is permissible for the buyer to file a crossclaim against the seller for the enforcement of the warranty should the buyer lose. In this case, if the buyer wins, there is no necessity for the enforcement of the warranty since there has been no breach thereof. This article applies only when the buyer is the DEFENDANT Article 1560 Provides for the rules in case of NON-APPARENT SERVITUDES (hidden defect – but remedy is the similar to that provided in the case of eviction): Remedies: if made within a year o Rescission o Damages If after one year o Damages only Q: what is the effect if the burden or easement is registered? A: NO remedy is available if the burden is registered, EXCEPT if there is an express warranty that the thing is free from all burdens and encumbrances -

Article is applicable whether the sale is: o In a public instrument o In private instrument o Made orally

Note: there is no need of first compelling the seller to execute a public instrument before the action is brought. Subsection2 WARRANTY AGAINST HIDDEN DEFECTS OF OR ENCUMBRANCES UPON THE THING SOLD Article 1561 Vendor shall be responsible for warranty against the hidden defects Requisites to Recover Because of Hidden Defects 1. The defect must be hidden (not know and could not have been known) Note: the defect need not be hidden If vendee is an expert who, by reason of his trade or profession, should have know the defect. Further note that difference in grade or quality does not necessarily mean that the defect is hidden. 2. 3. 4.

The defect must exist at the time the sale was made The defect ordinarily have been excluded from the contract The defect must be important (renders thing UNFIT or considerable DECREASES FITNESS) Note: the use must have been stated in the contract itself, or can be inferred from the nature of the object or from the trade or occupation of the buyer

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The action must be instituted within the statute of limitations

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Article 1562 Implied warranty or condition as to the quality or fitness of the goods in the following circumstances: (refer to provision) o Buyer makes known to the seller the particular purpose for which the goods are acquired and buyer relies on the seller’s skill or judgment, there is an implied warranty that the goods shall be reasonably fit for such purpose o Good are bought by description from a seller who deals in goods of that description, there is an implied warranty that the goods shall be of MARCHANTABLE quality Q: What does merchantable quality means? A: It means fit for the GENERAL PURPOSE of a thing, and not necessarily the particular purpose for which it has been acquired. Note: where the agreement involved is the QUANTITY of goods alone, the obligation is absolute and does not depend upon the quality of the goods delivered. Article 1563 In the case contract of sale f a specified article under its PATENT or other TRANE NAME, there is NO WARRANTY as to its fitness for any particular purpose, unless there is a stipulation to the contrary Article 1564 An implied warranty or condition as to the quality or fitness for a particular purpose may be annexed by the usage of trade Article 1565 There is an implied warranty of merchantability in case of a contract of SALE BY SAMPLE Article 1566 Vendor is responsible to the vendee for any hidden faults or defects in the thing sold, even though he was not aware thereof Q: Why is the seller responsible even if he is in good faith? A: Because he has to repair the damage done. The object of the law is reparation, not punishment. Good faith – consists in an honest intention to abstain from taking any unconscientious advantage of another. Article 1567 Remedies in case of Hidden Defects: o Withdrawal or rescission (accion redhibitoria) plus damages o Proportionate reduction (acion quanti minors or estimatoria) – reduction in the price, plus damages This warranty in sales is applicable to LEASE Article 1568 Provides for the effect of loss of the thing because of the hidden defects: o If vendor was aware of defect: return the price, refund the expenses of the contract, plus damages o If vendor was not aware: return the price and interest and reimburse the expense of contract (no damages)

Article 1572 Provides for the rule with regards to sale of two or more animals together: o Generally, a defect in one should not affect eh sale of the others o This is true whether the price was a lump sum, or separate for each animal o Exception: if it appears that vendee would not have purchased the sound animal without the defective one. This is presumed when a team, yoke, pair or set is bought. Article 1573 Provision of article 1572 is applicable to the sale of other things Article 1574 There is no warranty against hidden defects of animals sold at fairs or at public auctions, or of livestock sold as condemned Article 1575 Speaks of two kinds of void sales with respect to animals: o Sale of animals suffering from contagious diseases o If the use or service for which they are acquired has been stated in the contract, and they are found to be unfit thereof Article 1576 REDHIBITORY DEFECT: hidden defect of animals, even in case a professional inspection has been made, should be of such nature that expert knowledge is not sufficient to discover Article 1577 Prescriptive period of redhibitory defect based on the faults or defects of animals: 40 DAYS FROM THE DATE OF DELIVERY TO THE VENDEE This action can only be exercised with respect to faults and defects which are determined by law or by local customs Article 1578 If the animal should die within three days after its purchase, the vendor shall be liable if the disease which cause the death existed at the time of the contract Article 1579 if the sale be rescinded, the animal shall be returned in the CONDITION IN WHICH IT WAS SOLD AND DELIVERED (must generally be the same), the vendee being answerable for any injury due to his negligence, and not arising from the redhibitory fault or defect Article 1580 Remedies of buyer of animals with redhibitory defects: o Withdrawal or rescission (plus damages) o Proportionate reduction in price (plus damages) Prescriptive period for either remedy is 40 days from date of delivery to the buyer Article 1581 The form of sale of large cattle shall be governed by special laws

Article 1569 Speaks of a situation where there is a hidden defect known to the vendor but the loss was due to fortuitous even or thru the fault of the buyer Q: What can the seller obtain from the buyer in such situation? A: He can obtain the DIFFERENCE (price minus value at loss) represents generally the DECREASE IN VALUE due to the HIDDEN DEFECT. Hence, he can obtain the amount by which the seller was enriched at the buyer’s expense. Note however that the decrease in value due to wear and tear should not be compensated. Article 1570 The preceding articles apply to judicial sales, however, no liability for damages will be assessed against the judgment debtor in view of the compulsory nature of the sales. Article 1571 Provides for the prescriptive period: 6 MONTHS FROM DELIVERY Mere notification will not stop the running of prescription One should notify then sue

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