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Law on Sales - Reviewer
The Law On Sales, Agency And Other Business Transactions
University of the Philippines System
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Contract of Sale. By the contract of sale one of the contracting parties obligates himself
to transfer the ownership of and to deliver a determinate thing and the other to pay
therefore a price certain in money or its equivalent.
Contract of Sale Contract to Sell Title over the property passes to the buyer upon delivery unless there is a contrary agreement
Ownership is retained by the seller whether or not there is delivery. Ownership passes to the buyer only upon full payment of the price Non-payment of the purchase price is a negative resolutory condition, meaning the sale becomes ineffective upon the happening of such condition
The payment in full is a positive suspensive condition, meaning, if the purchase price is not paid, the obligation to deliver and to transfer ownership on the part of the seller does not become effective After delivery of the objective, the seller loses ownership over it. Unless, the contract is set aside, he cannot recover the object
Whether there is delivery or not, the seller retains the ownership of the object. If the seller, due to non-payment of the price is ousting the buyer from the property, he (seller) is not rescinding the contract of sale but is precisely enforcing it.
Pactum Reservatii Domini Contract to Sell Conditional Sale there is already a contract of sale
No contract to sale only, a preparatory contract
There is already delivery but ownership retain by seller
No delivery yet. No sale yet
Specific Performance/Rescission No specific performance/rescission—no contract yet Payment completes the transaction Payment will not complete transaction
Phases or Stages of A contract of Sale
- Preparation, conception or generation —the period of negotiation and bargaining, ending at the moment of agreement of the parties
- Perfection or Birth of the Contract
- Consummation or death —which is the fulfilment or performance of the terms agreed upon
Characteristics or Features of Contract of Sale (NBC-COP)
- Nominate—It has a specific name given by law.
- Bilateral—both parties are obliged to fulfil reciprocal obligations to one another.
- Consensual—It is perfected by mere consent
- Commutative—The thing sold is equivalent of the price paid
- Onerous—The thing sold is conveyed in consideration of the purchase price and the purchase price is paid in consideration of the conveyance of the thing.
- Principal—Its existence does not depend upon the existence and validity of another contract
Elements of Contract of Sale 1 Elements—necessary for the validty of the sale. a. Meeting of the minds of the seller and the buyer b. Object which is certain and determinate c. Price certain 2. Natural Elements—those which are inherent in the contract and are deemed to exist in the contract of sale in the absence of clear contrary agreement. a. Warrant against eviction b. Warranty against hidden defects 3. Accidental Elements—May or may not exist depending on the stipulations of the parties like conditions, payment of interest, place and time of payment.
Object Must be Licit or Lawful. There are two kinds of illicit things: a. Illicit per se—when by its nature it is heinous, immoral or wrongful b. Illicit per accidens—when it is prohibited by law
When is a thing determinate? a. When it is particularly designated or physically segregated from all others of the same class. b. The thing is capable of being made determinate, at the time the contract is entered into, w/o the necessity of a new or further agreement between the parties.
Emptio rei speratae— a sale of an expected thing subject to the condition that the thing will come to existence. If the thing did not come into existence, the contract is not effective and the buyer has no obligation to pay the price. Presumption is in favor of this kind of sale, because it is more in keeping with the commutative character of a sale.
Emptio spei— a sale of a hope or expectancy. The contracting parties intended that contract of sale to exist at all events, whether or not the expected thing will come into existence such that the buyer will have to pay the purchase price, such that the contract becomes aleatory in nature.
Emptio rei speratae vs. Emptio spei Emptio rei speratae Emptio spei Sale of a thing having a potential existence Sale of a mere hope or expectancy The uncertainty is with regard the quantity and quality but not with regard the existence of the thing
The uncertainty is with regard the existence of the thing
The contract deals with a future thing The contract deals with a present thing—the hope or expectancy The sale is subject to the condition that the thing should exist, so that if it does not, there is no contract for lack of an essential requisite
The sale produces effects eventhough the thing itself does not come into existence, since the subject matter is the hope itself
Future Goods that may be subject of a contract of sale
- Goods to be manufactured yet
- Goods to be acquired by the seller after the perfection of contract of sale
- Goods that depends upon a contingency that may or may not happen
Purchase of an Undivided Share in Specific Mass of Fungible Goods. Rules:
- If the aliquot part purchased from the seller is more than the whole undetermined mass after it had been weighed or measured, then the buyer becomes the owner of the entire mass.
- If the aliquot part purchased is less than the whole undetermined mass, the purchaser will become the co-owner of the whole mass in the proportion in which the number, weight or measure of what had been purchased bears to the number, weight or measure of the mass or stock.
Effect if 3rd Person fixed the price General Rule: It is binding upon the parties Exceptions:
- When the 3rd person acts in bad faith
- When the 3rd person disregards the specific instructions or the procedure marked out by the parties
Effect when the price is not fixed by the 3rd person designated
- If the 3rd person refuses or cannot fix the price, the contract shall become ineffective, unless the parties subsequently agree upon the price
- If the 3rd person is prevented from fixing the price by the fault of the seller or buyer, the party not in fault may obtain redress against the party in fault.
Effect of Gross Inadequacy of Price. No effect. Exceptions: (meaning, sale is set aside)
- If consent is vitiated, such as VIMFU (Violence, Intimidation, Mistake, Fraud, Undue influence)
- If the parties intended a donation or some other act or contract
- If the price is so low as to be shocking to the conscience
Effect of Simulated Price. Sale is void, unless it could be shown that the parties intended a donation or some other act of liberality. Price Simulated- No price to support a contract of sale, such that neither party had any intention that the amount will be paid—void Price is False- there is a real price not declared—contract is valid, but the underlying deed is subject to reformation to indicate the real price upon which the minds of the parties have met.
When Price Cannot be determined, effect: Sale is inefficacious. (1474) Is appropriation of the thing delivered in an inefficacious contract allowed? Yes, buyer must pay a reasonable price to that part delivered. (Reasonable price is generally the market price at the time and place fixed by the contract or by law for the delivery of the goods)
PERFECTION OF CONTRACT OF SALE. Meeting of the minds upon the thing and price. Effect: Parties may reciprocally demand performance
RULES ON AUCTION SALES
- Each lot is subject of a separate contract of sale
- Auction sale is perfected when the auctioneer announces its perfection by the fall of the hammer or in other customary manner.
- Pending announcement: ✓ Any bidder may retract his bid ✓ Auctioneer may withdraw the goods, unless auction is w/o reserve
- A right to bid may be reserved expressly by or on behalf of the seller, unless otherwise provided by law or stipulation
- Notice is essential for the seller or his representative to be able to bid. By-bidders or puffers: persons employed by auctioneer who will bid w/o being bound but whose bids will have a tendency to induce or provoke higher bids from interested buyers, thus misleading the latter because of the inflated bid price. **It is the secrecy of the puffing and not the authorized bidding by the seller which makes it fraudulent.
OPTION CONTRACT. A Privilege existing in one person, for which he had paid a consideration, which gives him the right to buy, certain merchandise or property from another person at anytime within the agreed period at a fixed price. In case of breach of promise to buy or to sell, injured party can only seek damages. (See Art. 1479)
Test to Determine whether a Contract is A contract of Sale or An Option. Whether or not the agreement could be specifically enforced. If such stipulation could be independently enforced from the contract, then such stipulation is an option.
EARNEST MONEY vs. OPTION MONEY Earnest Money Option Money It is part of the purchase price It is given as a distinct consideration for an option contract which gives the buyer a specific period within which to purchase the thing It is given only when there is already a perfected sale
It is given at a time when the sale had not yet been perfected. What had been perfected only is the option contract When it is given, the buyer is bound to pay the balance of the agreed purchase price
Even if option money is paid by the would-be- buyer he is not bound to buy the thing If the sale does not materialize, the earnest money paid must be returned, unless a contrary agreement had been stipulated
If the buyer decides not to buy the thing, he cannot recover the option money he paid as consideration for the contract of option
LOSS, DETERIORATION OF THING
BEFORE PERFECTION. No contract to talk about. Would-be-seller bears the loss.
AT THE TIME OF PERFECTION OF CONTRACT OF SALE— 1493 *contract without any effect: it never came to existence. Tthere could be no contract of sale without a thing to be sold. Would-be-seller bears the loss.
AFTER PERFECTION BEFORE DELIVERY. I. 1480 Applicability, correlate to: (Fungibles sold independently and for a single price covered by the law)
Art. 1163. Every person obliged to give something is also obliged to take care of it with the proper diligence of a good father of a family, unless the law or the stipulation of the parties requires another standard of care Art. 1164. The creditor has a right to the fruits of the thing from the time the obligation to deliver it arises. However, he shall acquire no real right over it until the same has been delivered to him. Art. 1165. When what is to be delivered is a determinate thing, the creditor, in addition to the right granted him by Article 1170, may compel the debtor to make the delivery. If the thing is indeterminate or generic, he may ask that the obligation be complied with at the expense of the debtor. If the obligor delays, or has promised to deliver the same thing to two or more persons who do not have the same interest, he shall be responsible for any fortuitous event until he has effected the delivery Art. 1262. An obligation which consists in the delivery of a determinate thing shall be extinguished if it should be lost or destroyed without the fault of the debtor, and before he has incurred in delay. When by law or stipulation, the obligor is liable even for fortuitous events, the loss of the thing does not extinguish the obligation, and he shall be responsible for damages. The same rule applies when the nature of the obligation requires the assumption of risk.
** A spouse designated as agent of the other spouse may sell the latter’s exclusive property.
ART. 1491. Persons Relatively Incapacitated to Buy. (PAGEJO)
- P ublic Officers and employees—Property Of State.
- A gents—Property of Principal unless with consent.
- G uardian—Property of Ward.
- E xecutors and administrators—Estate
- J ustices, Judges, Prosecuting Attorneys, Clerks and employees of court—Property/Rights under litigation.
- O thers disqualified by law. ( Ex. *aliens who are disqualified to purchase private agricultural lands; *an unpaid seller having a right of lien or having stopped the goods in transitu, who is prohibited from buying the goods either directly or indirectly in the resale of the same at a public or private sale w/c he may make. Art. 1533, par)
Rationale: Fiduciary relationship Status of Sale: Voidable (1-3); Void (4-6)
ART. 1492. 1490 and 1491 Applicable to Legal Redemption, Compromises and Renunciations.
ART. 1493. Loss of Object Before Sale. Complete and Partial Loss. Partial Loss Rules:
- Vendee may withdraw from the contract
- Demand the remaining part, paying its price in proportion to the total sum agreed upon
ART. 1494. Loss/Substantial Deterioration of Specific Goods without seller’s knowledge.
- Buyer may avoid the sale or
- May treat sale as valid w/ respect to the existing goods
ART. 1495. Obligations of Vendor. (TDWP)
- T ransfer Ownership (not waivable)
- D eliver (not waivable)
- W arrant Object (waivable and may be modified)
- P reserve Thing from perfection to delivery (Art. 1163)
- P ay for the execution and registration of the sale unless there is a contrary agreement
**Execution sales do not require the delivery of thing since a one year period of redemption is available to seller.
ART. 1496. Delivery Transfers Ownership. ART. 1497. Control and Possession necessary in Delivery. Exception: Art. 1478. Stipulation as to full payment of price.
Delivery- a mode of acquiring ownership as a consequence of a contract of sale by virtue of which actually or constructively the object is placed in the control and possession of the vendee.
KINDS OF DELIVERY
- Actual or Real. (1497)
- Legal or Constructive a. Legal Formalities (1498); execution of public instrument. b. Symbolical Tradition (1498 par 2)- keys delivered. c. Traditio Longa Manu- by mere consent /agreement. If the movable sold cannot yet be transferred to the possession of the buyer at the time of the sale. (1499)
d. Traditio Brevi Manu- if the buyer had already the possession of the object even before the purchase. (lessee becomes owner) e. Traditio constitutum possessorium- possession as owner changed. (Owner becomes lessee)
- Quasi-Tradition- Delivery of Rights, credits or incorporeal property made by: a. Execution of public instrument b. Placing titles of ownership in the hands of a lawyer. c. Allowing the buyer to make use of the rights (1501)
ART. 1498. Constructive delivery. Requirements:
- Seller’s Control.
- Seller’s Control transferred to buyer.
- Intention to deliver for ownership.
ART. 1499. Traditio Longa and Brevi Manu ART. 1500. Traditio Constitutum Possessorium. ART. 1501. Delivery of Incorporeal Property. (Constructive and Quasi-Tradition)
ART. 1502. Transaction on Sale or Return. Subject to Resolutory Condition. Difference with “Delivery with option to purchase”- Ownership is transferred in Sale or Return
Transaction on Approval or Trial/Satisfaction. Subject to Suspensive Condition. Rules:
- Risk of loss to seller until the sale becomes absolute. (Exceptions: Buyer in default; Buyer agreed to bear the loss)
- Buyer must give goods a trial except when it is evident that it cannot perform the work intended.
- Period of signifying acceptance commences to run only when all the parts essential for operation has been delivered.
- A provision that a 3rd person must satisfy approval is valid but he must be in Good faith.
- Generally the Sale and Delivery to an expert buyer is not a sale on approval/trial.
Sale or Return vs. Sale on Approval Basis Sale or Return Sale on Approval Condition Subject to Resolutory condition
Subject to suspensive condition Premise It depends upon the will of the buyer
It depends upon the suitability, quality or character of the goods Transfer of ownership Ownership immediately passes to the buyer on delivery
Ownership does not immediately pass to the buyer. It passes only upon approval or satisfaction of the buyer duly manifested after trial Revesting of ownership in the owner
Ownership is revested in the seller if the buyer so decides
There is no revesting of ownership because it is retained by the seller until the sale becomes absolute Risk of loss or deterioration The risk rests on the buyer before the revestment of ownership
The risk remains in the seller while the goods are on trial
Nature and function:
- Receipts of, or orders upon, a bailee of goods represented.
- Evidence of transfer of title and possession of goods and contract between the parties.
Some Forms of Documents of Title
1. Bill of Lading - It is a contract or 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. 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 importers title to the said goods, upon production of the bill of lading. 3. Quedan- a warehouse receipt for commodities or goods such as sugar, tobacco, rice or hemp 4. Warehouse Receipt— A receipt wherein it is stated that certain goods were received by the bailee to be delivered to the bearer or to the order of any person named in such receipt or to a specified person 5. Letter of Credit— it is nothing more than a commitment by the issuer that the party in whose favor it is issued and who can collect upon it will have his credit against the applicant of the letter duly paid in the amount therein specified.
Classes of Documents of Title:
- Negotiable- 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.
- Non Negotiable- those by the terms of which the goods covered are deliverable to a specified person.
ART. 1508. NEGOTIATION OF NEGOTIABLE DOCUMENT BY DELIVERY.
- Where by the terms the carrier, warehouseman or other bailee undertakes to deliver the goods to the bearer.
- Where by the terms the carrier, warehouseman or other bailee undertakes to deliver the goods to a specified person and such person or subsequent indorsee has indorsed it in blank or to bearer. ✓ Where negotiable document of title the goods are deliverable to bearer or where a negotiable document of title has been indorsed in blank or to bearer, any holder may indorse the same to himself or to any specified person, and in such case the document shall thereafter be negotiated only by the indorsement of such indorsee.
ART. 1509. NEGOTIATION OF NEGOTIABLE DOCUMENT BY INDORSEMENT. Indorsement is made by the person to whose the goods are deliverable. It may be in blank, to bearer or to a specified person.
ART. 1510. NEGOTIABLE DOCUMENTS OF TITLE MARKED “NON-NEGOTIABLE” -No effect on negotiability. The obligations of carrier,warehouseman, or bailee not limited.
ART. 1511. TRANSFER OF NON-NEGOTIABLE DOCUMENT. -Though non-negotiable may be transferred but transferee acquires rights under 1514. Even if document indorsed transferee has no additional rights.
ART. 1512. PERSONS WHO MAY NEGOTIATE A DOCUMENT.
- By the owner thereof
- By any person to whom possession or custody has been entrusted by the owner, if bailee undertakes to deliver the goods to the order of the possessor of the document OR document is in such form that it may be negotiated by delivery at the time it is entrusted.
ART. 1513. RIGHT OF PERSON TO WHOM DOCUMENT HAS BEEN NEGOTIATED.
- The title of the person negotiating the document over the goods covered by the document.
- The title of the person(depositor or owner) to whose order by the terms of the document the goods were to be delivered.
- The direct obligation of the bailee (warehouseman or carrier) to hold possession of the goods for him, as if the bailee had contracted with him.
ART. 1514. RIGHTS OF PERSON TO WHOM DOCUMENT HAS BEEN TRANSFERRED. Applicability: (a) Transferee of Negotiable document of title not duly negotiated (b)transferee of a non-negotiable document.
Rights acquired:
- Title to the goods as against the transferor.
- The right to notify the bailee of the transfer thereof.
- The right, thereafter to acquire the obligation of the bailee to hold the goods for him.
**Rights not absolute. They are subject to the terms of any agreement with the transferor. **Before Notification the bailee is not bound to the transferee whose right may be defeated by a levy of an attachment or execution upon the goods by the creditor of the transferor or by a notification to such bailee of the subsequent sale of the goods.
ART. 1515. TRANSFER OF ORDER DOCUMENT WITHOUT INDORSEMENT. Rights of transferee:
- The right to the goods as against the transferor.
- The right to compel the transferor to indorse the indorsement.
**Ascertain the intention if contrary appears as to necessity of negotiation.
ART. 1516. WARRANTIES ON SALE OF DOCUMENTS BY THE TRANSFEROR. (indorsement /delivery) (GRIT)
- That the document is G enuine
- That he has legal R ight to negotiate or transfer it.
- The he has no knowledge of fact which would I mpair the validity or worth of the document.
- That he has the right to transfer the T itle to the goods and goods are merchantable or fit for a particular purpose.
ART. 1517. INDORSER NOT GUARANTOR. THEREFORE NOT LIABLE FOR BAILEE’S FAILURE OR PREVIOUS INDORSERS.
ART. 1518. WHEN NEGOTIATION NOT IMPAIRED BY FRAUD, MISTAKE, DURESS, LOSS, THEFT, OR CONVERSION. OR THERE WAS BREACH OF DUTY OF TRANSFEROR. --If the transferee paid value, without notice of such factors, therefore in Good Faith
ART. 1519. ATTACHMENT OR LEVY UPON GOODS COVERED BY A NEGOTIABLE DOCUMENT NOT ALLOWED, WHILE IN POSSESSION OF BAILEE UNLESS DOCUMENT BE FIRST SURRENDERED OR ITS NEGOTIATION PROHIBITED BY THE COURT.
ART. 1520. CREDITOR’S REMEDIES ON PROHIBITION ON ATTACHMENT/LEVY.- Injunction or TRO.
ART. 1521. A. PLACE OF DELIVERY OF GOODS
- Agreement.
- Usage of trade.
- Seller’s place of business
ART. 1526. REMEDIES OF AN UNPAID SELLER. [LS RRW]
- A lien on the goods or right to retain them for the price while he is in possession of them;
- Right of stopping the goods in transitu after he has parted with the possession of them;
- Right of Resale
- Right to Rescind
- Right of withholding the delivery when ownership has not yet passed to buyer.
ART. 1527. WHEN UNPAID SELLER’S POSSESSORY LIEN MAY BE EXERCISED. [SEI]
- Sales without stipulation as to credit.
- Expiration of term of credit.
- Insolvency of the buyer.
ART. 1528. LIEN ON THE REMAINDER WHEN THERE’S PART DELIVERY, UNLESS INTENT TO WAIVE THE LIEN OR RIGHT OF RETENTION.
ART. 1529. WHEN UNPAID SELLER LOSES POSSESSORY LIEN. [DPW]
- Delivery to agent or bailee of buyer.
- Possession by buyer or his agent.
- Waiver of lien.
******* When unpaid seller becomes judgment creditor he does not lose his lien.
ART. 1530. REQUISITES FOR THE EXERCISE OF RIGHT OF STOPPAGE IN TRANSITU
- The seller must be unpaid (1525)
- The buyer must be insolvent
- The goods must be in transit (1531)
- The seller must either actually take possession of the goods sold or give notice of his claim to the carrier. (1532)
- The seller must surrender the negotiable document of title, if any, issued by the carrier or bailee. (1532)
- The seller must bear the expenses of delivery of the goods after the exercise of the right.
ART. 1531. When Goods are in transit
- after the delivery to a carrier or other bailee and before the buyer or his agent takes delivery of them
- if the goods are rejected by the buyer, and the carrier or other bailee continues in possession of them.
When Goods No longer in Transit (after delivery to buyer/agent)
- if the buyer or his agent obtains possession of the goods at a point before the destination originally fixed.
- if the carrier or bailee acknowledges to hold the goods on behalf of the buyer
- if the carrier or bailee wrongfully refuses to deliver the goods to the buyer.
*** Goods delivered to a ship, freight, train, truck or airplane chartered by the buyer— circumstantial whether they are in possession of the carrier or as agent of the buyer.
*** Part of Delivery made to buyer or agent—remainder may be stopped in transitu, unless there is showing an agreement with buyer to give up possession of the whole of goods.
ART. 1532. WAYS OF EXERCISING THE RIGHT TO STOP.
- Taking actual possession of the goods
- giving notice of his claim to the carrier or bailee.
--Notice to be effectual must be given in such time and circumstance that the principal by the exercise of reasonable diligence may prevent a delivery to the buyer. --Redelivery necessary according to directions of seller. --If goods are covered by negotiable document of title carrier or bailee has no obligation to deliver to seller unless document is cancelled.
ART. 1533. WHEN RESALE IS ALLOWABLE Where seller has either a right of lien or a right of stoppage in transitu and under the following cases: PRD
- Where the goods are perishable in nature
- Where the right to resell is expressly reserved in case the buyer should make a default
- Where the buyer delays in the payment of the price for an unreasonable time.
ART. 1534. WHEN THE SELLER MAY RESCIND
- Where the right to rescind is expressly reserved in case the buyer should make a default
- Where the buyer delays in the payment of the price for an unreasonable time.
ART. 1535. EFFECT OF SALE OF GOODS SUBJECT TO LIEN OR STOPPAGE IN TRANSITU.
1. Where Goods not covered by negotiable document of title. —Seller can give no larger right than he has. Also with a buyer who sold goods to another. 2. Where Goods covered by negotiable document of title —Seller’s lien cannot prevail against the rights of a purchaser for value in GF to whom the document is indorsed.
Article 1536 —Right to Withhold delivery of thing sold by the vendor in case the vendee lose the right to make use of the term, as provided in Art. 1198: (IFIVA)
- When after the obligation has been contracted vendee becomes i nsolvent, unless he gives a guaranty or security for the price
- When he does not f urnish to the vendor the guaranties or securities which he has promised
- When by his own acts he has i mpaired said guaranties or securities after their establishment, and when through fortuitous event they disappear, unless he immediately gives new ones equally satisfactory
- When the vendee v iolates any undertaking, in consideration of which the vendor agreed to the period
- When the vendee a ttempts to abscond
Article 1537 —Vendor is bound to deliver the thing sold and its accessions and accessories in the condition in which they were upon the perfection of the contract. All fruits pertain to vendee from the day on which the contract was perfected.
Article 1538 —Loss, Deterioration or Improvement of Object before its delivery governed by Article 1189.
- If the thing is lost w/o the fault of the seller, the obligation shall be extinguished
- If the thing is lost through the fault of the seller, he shall be obliged to pay damages; it is understood that 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.
- When the thing deteriorates w/o the fault of the seller, the impairment is to be borne by the buyer
- If it deteriorates through the fault of the seller, the buyer may choose b/w rescission or fulfilment with indemnity in either case
- If the thing is improved by its nature, or by time, the improvement shall inure to the benefit of the buyer
Rules of Preference of Ownership
Movable or Personal Property : Owner is the one who is in first possession in good faith.
Immovable
- First to register in good faith
- No inscription, first to possess in good faith
- No inscription and no possession in good faith—Person who presents oldest title in good faith
What is REGISTRATION? It is any entry made in the books of the Registry, including both registration in its ordinary and strict sense, and cancellation, annotation, and even the marginal notes. It is the entry which records solemnly and permanently the right of ownership and other real rights.
CASES WHERE ARTICLE 1544 CANNOT BE INVOKED
- When the earlier transaction is a pacto de retro sale of an unregistered land and the subsequent conveyance is a donation of the land in favor of another by the vendor a retro. The vendee a retro has the better right over the donee. The donor had nothing more to donate because of failure to repurchase the property.
- Where one of the deeds of sale is a forgery.
- Where one sale is absolute and the other is a pacto de retro where the period to redeem has not yet expired.
- Where one of the sales is subject to a suspensive condition which condition was not complied with and the other is an absolute sale. Even if the conditional sale was made prior to the absolute sale.
- Where one transaction is a sale and the other a mortgage
- Where one claim is based on prescription and the other is on sale
- Where the subject land is not registered under PD 1529
- In a contract to sell, there being no previous sale of the property.
✓ Article 1544 applicable to Double Donations as provided by Art. 744.
CONDITIONS AND WARRANTIES
Article 1545. What are the options of a party to a contract of sale subject to a condition, when such condition was not fulfilled by the other party? a. Refuse to proceed with the contract OR b. Waive performance of the condition and proceed with the contract
What if the condition agreed upon is in the nature of a promise that it should happen? Then the non-fulfillment of such condition is considered a breach of warranty.
Article 1546. WARRANTY. --It is a collateral undertaking in a sale of either real or personal property, express or implied, that if the property sold does not possess certain incidents or qualities, the purchaser may either consider the sale void or claim damages for breach of warranty.
Express Warranty —any affirmation of fact or any promise by the seller relating to the thing if the natural tendency of such affirmation or promise is to induce the buyer to purchase the same and if the buyer purchases the thing relying thereon.
✓ Affirmation of the value of the thing or statement of the seller’s opinion is not warranty, unless the seller made such affirmation or statement as an expert and it was relied upon by the buyer.
Implied Warranty —It is inherent in a contract of sale and presumed to exist although nothing has been mentioned about it.
Implied Warranties in Contracts of Sale (1547)
- Implied warranty as to the right of the seller to sell at the time when ownership has to pass. (Warranty against eviction)
- Implied warranty against hidden defects or faults or charge or encumbrances unknown to the buyer
- Implied warranty as to fitness and merchantability
- Warranty against encumbrances or non-apparent servitudes (1560)
Cases where implied warranty is not applicable
- Sale made by a sheriff, auctioneer, mortgagee, pledge or other person professing to sell by virtue of authority in fact or law (1547) (The judgment debtor is responsible here for eviction)
- Sale under “as is and where is”—this carries no warranty as to the quality or workable condition of the goods and the buyer takes them as they are. However, such condition does not include those that could not be discovered by a physical examination of the goods sold.
- Sale of second hand articles does not carry any warranty as to the condition, adaptation, fitness or suitability for purposes for which they have been purchased.
- Sale of property sold at public auction for tax delinquency. There is no warranty on the part of the State as to the title of the owner.
WARRANTY AGAINST EVICTION —The seller guarantees that he has the right to sell the thing sold and to transfer ownership to the buyer who shall not be disturbed in his legal and peaceful possession thereof.
Eviction— A judicial process by virtue of which the vendee is deprived of the ownership of the whole or part of the thing he purchased by final judgment or by an act imputable to the vendor.
Elements (DVJ-SW)
- Vendee is d eprived in whole or in part of the thing purchased
- The deprivation is by v irtue of a final judgment (1557)
- The j udgment is based on a prior right to the sale or an act imputable to the vendor
- The vendor was s ummoned in the suit for eviction at the instance of the vendee (1558)
- No w aiver of warranty by the vendee
✓ Failure of the vendee to appeal does not relieve vendor from responsibility [1549]
Effect of Prescription/Adverse Possession (1550)
- Prescription consummated before sale—Vendee can claim warranty against eviction (deprivation is based on right prior to sale)
- Prescription consummated after sale—Vendee cannot claim warranty against eviction
✓ If Property is sold for non-payment of taxes due and not made known to the vendee before the sale, vendor is liable for eviction (1551) ✓ Judgment debtor is responsible for eviction in judicial sales unless otherwise decreed in judgment (1552) ✓ Any stipulation exempting vendor from responsibility for eviction is void if he acted in bad faith (1553)
WARRANTY AGAINST HIDDEN DEFECTS
Requisites: (HIPANN)
- Defect must be h idden. –it cannot be discovered by an ordinary inspection or examination.
- Defect must be i mportant or grave. –a) defect renders the thing sold unfit for the use for w/c it is intended; b) diminishes its fitness for the use intended, to such an extent that the vendee would not have acquired if he had been aware thereof or would have given a lower price for it.
- Defect must be p resent at the time of the execution of the sale.
- A ction for rescission or reduction of price must be filed w/in the prescriptive period.
- N o waiver of the warranty against hidden defects.
- N otice by the vendee to the vendor within a reasonable time.
REDHIBITORY DEFECTS —an imperfection or defect of such nature as to engender a certain degree of importance
REDHIBITION --claim against the seller of a product in which the buyer demands a full refund or a reduction of the purchase price due to a hidden defect that prevents the product from performing the task for which it was purchased.
Art. 1562 —Implied Warranty or Condition as to quality or fitness of goods Applicability: Goods—all chattel personal but not things in action or money of legal tender, this includes growing fruits or crops
1. IMPLIED WARRANTY OF FITNESS. General Rule: there is no implied warranty of fitness Exceptions: a) Buyer expressly makes known the particular purpose or by implication; b) Buyer relies upon the seller’s skill or judgment
2. IMPLIED WARRANTY OF MERCHANTABILITY. Applies when goods are bought by description.
- Merchantability—quality and condition of goods that a reasonable man would after a full examination accept the same under the circumstances of the case, in the performance of his offer to buy, whether for his own use or for resale. --fitness for the general purpose for which they are sold.
✓ There is no warranty as to fitness for particular purpose in a contract of sale of a specified article under its patent or other trade name unless there is a contrary stipulation. (1563) ✓ A warranty as to quality or fitness for a particular purpose may be attached to a contract by usage or trade in place of execution. (1564) ✓ Merchantability of goods in sale by sample is implied. Defect should not be apparent on reasonable examination of the sample for the vendor to be liable (1565) ✓ Vendor is liable eventhough not aware of hidden defects, unless there is a contrary stipulation and he is in good faith (1566)
Caveat Venditor —“Let the Seller Beware” Vendor is liable eventhough not aware of hidden defects Caveat Emptor— “Let the Buyer Beware” Requires the purchaser to be aware of the supposed title of the vendor and one who buys without checking the vendor’s title takes all the risks and losses consequent to such failure.
Remedies of Buyer (1567)
- Accion Redhibitoria—action seeking withdrawal from the contract
- Accion quanti minores or estimatoria—action for proportionate reduction in the price
Nature of Remedies: Alternative; both with damages
Loss of Thing Sold due to Hidden Defects (1568)
Vendor in Bad Faith Vendor in Good Faith Bears the loss Does not bear the loss Must return the price Must return the price with interest Must refund expenses of the contract Must refund expenses of the contract Pay damages Not obliged to pay damages
Loss of Thing Sold w/ Hidden defects through fortuitous event or vendee’s fault (1569)
- Vendee may demand price paid less value of the thing at the time of loss plus damages if vendor acted in bad faith.
✓ Warranties against hidden defects, merchantability and fitness are applicable to judicial sales but judgment debtor is not liable for damages, because the latter is only forced to sell and therefore did not take part in the conduct of the sale and determination of price which precludes possibility of bad faith (1570) ✓ Prescription of Actions: 6 Months from delivery of thing (1571)
Joint Sale of two or more animals (1572) ❖ Where one suffers redhibitory defect this shall not affect others ❖ Exception: If the buyer would not have purchased the sound animals w/o the defective ones. In such case, sale may be rescinded. ❖ Presumption of Exception: If a team, yoke or pair or set is bought even if a separate price has been fixed for each ❖ The following rules shall be applicable to joint sale of two or more things (1573)
- There is no warranty against hidden defects of animals sold at fairs or at public auctions or of livestock sold as condemned.(1574) Rationale: Animals are not bought because of their quality or capacity for work; and in such circumstance defects are clearly known to buyer.
When is Sale of Animals Void? (1575)
- When suffering from contagious diseases
- If use or service for which they are acquired has been stated in the contract and they are found to be unfit Remedy: Declaration of Nullity of Contract
Redhibitory defect of Animals— such defect that even in case of professional inspection it is of such nature that even expert knowledge is not sufficient to discover it.(1576)
✓ Prescription of Redhibitory Actions in defective animals—40 days from delivery(1577) ✓ Vendor is liable if animal should die w/in 3 days after its purchase, if cause of death existed at time of contract (1578) ✓ Animal should be returned in the condition in which it was sold and delivered if sale was rescinded. Vendee is answerable for any injury due to his negligence and not arising from redhibitory defect (1579)
Law on Sales - Reviewer
Course: The Law On Sales, Agency And Other Business Transactions
University: University of the Philippines System
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