Extinguishment of Sale: How to Terminate a Sales Contract

Extinguishment of sale in general

In general, a sales contract may be extinguished by the same causes as all other obligations and by conventional or legal redemption.[1]

Conventional redemption

Conventional redemption happens “when the vendor reserves the right to repurchase the thing sold, with the obligations to comply with the provisions of Article 1616[2] and other stipulations which may have been agreed upon.”[3] The right to repurchase lasts only for four years from date of the contract unless otherwise stipulated.[4] If there is an express agreement to extend the right to repurchase, it cannot exceed 10 years.[5]

Equitable mortgage

A contract, including one purporting to be a deed of absolute sale,[6] is presumed to be an equitable mortgage in any of the following instances:[7]

  1. If the price of a sale with right to repurchase is unusually inadequate;[8]
  2. If the vendor remains in possession as lessee or otherwise;[9]
  3. If upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new period is executed;[10]
  4. If the purchaser retains for himself a part of the purchase price;[11]
  5. If the vendor binds himself to pay the taxes on the thing sold;[12]
  6. In any other case where it may be fairly inferred that the real intention of the parties is that the transaction is to secure the payment of a debt or the performance of any other obligation.[13]

Money, fruit, benefit considered interest

In any of the above instances considered an equitable mortgage, the money, fruits, or other benefit to be received by the buyer as rent or otherwise is considered an interest.[14]

Right to repurchase; Requirements

Before the seller can avail of the right to repurchase, the seller is required first: (a) to return to the buyer the price of the sale; (b) to pay for the expenses of the contract, and any other legitimate payments made by virtue of the sale; and (c) to pay for the necessary and useful expenses made on the thing sold.[15] If the sale involves a real property, a judicial order, after the seller has been duly heard, is required for the registration and consolidation of the ownership in the buyer.[16]

Action against every possessor

To enforce his rights, the seller may initiate an action against every possessor whose right is derived from the buyer.[17] The seller may do so even if the contract between the buyer and the possessor does not mention the seller’s right to repurchase, without prejudice to the Mortgage Law and the Land Registration Law in relation to third persons.[18]

Subrogation by buyer

The buyer is subrogated to the seller’s rights and actions despite existence of right of repurchase.[19]

Creditors to exhaust property of seller

The seller’s creditors are required to exhaust the property of the seller before they can make use of the right of redemption against the buyer.[20]

Undivided immovable property sold jointly

If several persons jointly sell an undivided immovable in the same contract and it provides for a right of repurchase, each one may exercise his right to the extent of his respective share only.[21] The same rule applies if a seller has several heirs.[22] However, the buyer may demand of all the sellers or co-heirs that they come to an agreement upon the repurchase of the whole thing sold.[23] If the sellers or heirs fail to do so, the buyer cannot be compelled to consent to a partial redemption.[24]

Co-owner may repurchase respective share only

A co-owner who may have sold his share separately may independently exercise the right of repurchase as regards his own share.[25] The buyer cannot require said co-owner to redeem the entire property.[26]

Buyer’s heirs subject to redemption to proportionate share only

The buyer’s heirs may be the subject of the seller’s right of redemption to their proportionate share only regardless of whether the property is undivided or it has already been partitioned.[27] However, if the inheritance has already been divided, and the thing sold has already been awarded to an heir, he may be the subject of an action for redemption for the whole property.[28]

No reimbursement or prorating for fruits

If there were visible and growing fruits at the time of the execution of the sale, a reimbursement or prorating of existing fruits is not required unless the buyer paid indemnity when the sale was executed.[29] Conversely, if no fruits were existing at the time of the sale but later on exist at the time of redemption, the fruits will be prorated between the redemptioner and the buyer.[30] The buyer’s share is to correspond to the time he possessed the land in the last year, counted from the anniversary of the date of the sale.[31]

Redemptioner to receive property free from charges or mortgages

The redemptioner will receive the property free form all charges or mortgages which may have been constituted by the buyer.[32] However, the redemptioner is to respect the leases which the latter may have executed in good faith, and in accordance with customs of the place where the land is situated.[33]

Legal Redemption

Legal redemption is “the right to be subrogated, upon the same terms and conditions stipulated in the contract, in the place of one who acquires a thing by purchase or dation in payment, or by any other transaction whereby ownership is transmitted by onerous title.”[34]

Co-owner’s right of redemption

A co-owner may exercise the right of redemption in case the shares of all the co-owners or of any of them, are sold to a third person.[35] The redemption is required only to pay a reasonable one if the price of the alienation is grossly excessive.[36] If there are two or more co-owners desiring to exercise the right of redemption, they may only do so in proportion to the share they may respectively have in the thing owned in common.[37]

Adjoining lot owner’s right of redemption

For rural land that does not exceed one  hectare, the owners or adjoining lands may exercise the right of redemption unless the grantee/buyer does not have any rural land.[38] The owner of the adjoining land of smaller area is preferred should there be several prospective buyers.[39] If the lands have the same area, the first who requested the redemption is preferred.[40] This right cannot be exercised on adjacent lands which are separated by brooks, drains, ravines, roads, and other apparent servitudes for the benefit of other estates.[41]

Right of pre-emption of adjoining land owner

If a piece of urban land bought for speculation is so small and so situated that a major portion thereof cannot be used for any practical purpose within a reasonable time is about to be re-sold, the adjoining land owner has a right of pre-emption at a reasonable price.[42] If the same has already been sold, the adjoining landowner has the right of redemption for a reasonable price.[43] If there are two or more who desires to exercise the right of pre-emption or redemption, the owner whose intended use of the land in question appears to best justified is preferred.[44]

Right of pre-emption or redemption when exercised

The redemption may only exercise the right of legal pre-emption or redemption within 30 days from the notice in writing by the prospective seller, or by the seller, as the case may be.[45] The said seller is required to accompany the deed of sale with an affidavit stating therein that he has given written notice thereof to all possible redemptioners; otherwise, the Registry of Deeds will not record the deed of sale.[46]

Right of redemption of co-owners excludes adjoining land owners

Should there be a conflict between a co-owner and adjoining land owners, the right of redemption of co-owners prevails and will exclude the adjoining land owners.[47]

 

– – –

[1] CIVIL CODE. Article 1600.

[2] “The vendor cannot avail himself of the right of repurchase without returning to the vendee the price of the sale, and in addition: … (1) The expenses of the contract, and any other legitimate payments made by reason of the sale; … (2) The necessary and useful expenses made on the thing sold” (Article 1616, Civil Code).

[3] Ibid. Article 1601.

[4] Ibid. Paragraph 1, Article 1606.

[5] Ibid. Paragraph 2, Article 1606. “However, the vendor may still exercise the right to repurchase within thirty days from the time the final  judgment was rendered in a civil action on the basis that the contract was a true sale with right to repurchase” (Paragraph 3, Article 1606, Civil Code).

[6] Ibid. Article 1604.

[7] Ibid. Article 1602. The remedy of the apparent seller is for the reformation of instrument (Article 1605, Civil Code).

[8] Ibid. Article 1602 (1).

[9] Ibid. Article 1602 (2).

[10] Ibid. Article 1602 (3).

[11] Ibid. Article 1602 (4).

[12] Ibid. Article 1602 (5).

[13] Ibid. Article 1602 (6).

[14] Ibid. Paragraph 2, Article 1602.

[15] Ibid. Article 1616.

[16] Ibid. Article 1607.

[17] Ibid. Article 1608.

[18] Ibid.

[19] CIVIL CODE. Article 1609.

[20] Ibid. Article 1610.

[21] Ibid. Paragraph 1, Article 1612. “The same rule shall apply if the person who sold an immovable alone has left several heirs, in which case each of the latter may only redeem the part which he may have acquired (Paragraph 2, Ibid.).

[22] Ibid.

[23] CIVIL CODE. Article 1613.

[24] Ibid. Article 1613.

[25] Ibid. Article 1614.

[26] Ibid.

[27] CIVIL CODE. Paragraph 1, Article 1615.

[28] Ibid. Paragraph 2, Article 1615.

[29] Ibid. Paragraph 1, Article 1617.

[30] Ibid. Paragraph 2, Article 1617.

[31] Id at 189.

[32] CIVIL CODE. Article 1618.

[33] Ibid. Paragraph 1, Article 1617.

[34] Ibid. Article 1619.

[35] Ibid. Paragraph 1, Article 1620.

[36] Ibid.

[37] CIVIL CODE. Paragraph 2, Article 1620.

[38] Ibid. Paragraph 1, Article 1621.

[39] Ibid. Paragraph 3, Article 1621.

[40] Ibid.

[41] CIVIL CODE. Paragraph 2, Article 1621.

[42] Ibid. Paragraph 1, Article 1622.

[43] Ibid. Paragraph 2, Article 1622.

[44] Ibid. Paragraph 3, Article 1622.

[45] Ibid. Paragraph 1, Article 1623.

[46] Ibid. Paragraph 1, Article 1623.

[47] Ibid. Paragraph 2, Article 1623.

Actions for breach of sales contract of goods

Actions for price of goods by seller

In case of breach of sales contract of goods, the seller may have the following actions against the buyer for the price of goods if:

  1. The ownership of the goods has passed to the buyer and he wrongfully neglects or refuses to pay for the goods according to the terms of the sales contract;[1] or
  2. The price is payable on a certain day, irrespective of delivery or of transfer of title and the buyer wrongfully neglects or refuses to pay such price, the seller may maintain an action for the price although the ownership[2] in the goods has not passed.[3]

Action for damages by seller due to non-acceptance by the buyer

The seller may initiate an action against the buyer for damages[4] arising from non-acceptance of the goods if the buyer wrongfully neglects or refuses to accept and pay for the goods.[5]

Rescission by seller

The seller may totally rescind the sales contract after due notice thereof to the buyer if the goods have not been delivered to the buyer, and the buyer has repudiated the sales contract, or has manifested his inability to perform his obligations thereunder, or has committed a breach thereof.”[6]

Specific performance by buyer

If the seller has breached the contract to deliver specific or ascertained goods, the buyer may initiate an action for specific performance with a competent court[7] for the purpose of obtaining an order which would direct that the contract is to be performed specifically, without giving the seller the option of retaining the goods on payment of damages.[8]

For breach of warranty by seller, buyer may initiate various actions

If the seller is guilty of breach of warranty, the buyer may, at his election:

  1. Accept or keep the goods and set up against the seller, the breach of warranty by way of recoupment in diminution or extinction of the price;[9]
  2. Accept or keep the goods and maintain an action against the seller for damages for the breach of warranty;[10]
  3. Refuse to accept the goods, and maintain an action against the seller for damages for the breach of warranty;[11]
  4. Rescind the sales contract and refuse to receive the goods or if the goods have already been received, return them or offer to return them to the seller and recover the price or any part thereof which has been paid;[12]
  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.[13]

 

References

[1] CIVIL CODE. Paragraph 1, Article 1595.

[2] Although the ownership in the goods has not passed, if they cannot readily be resold for a reasonable price, and if the provisions of article 1596, fourth paragraph, are not applicable, the seller may offer to deliver the goods to the buyer, and, if the buyer refuses to receive them, may notify the buyer that the goods are thereafter held by the seller as bailee for the buyer. Thereafter the seller may treat the goods as the buyer’s and may maintain an action for the price (Paragraph 3, Article 1596, Civil Code).

[3] CIVIL CODE. Paragraph 2, Article 1595. “But it shall be a defense to such an action that the seller at any time before the judgment in such action has manifested an inability to perform the sales contract on his part or an intention not to perform it.” (Ibid.)

[4] “The measure of damages is the estimated loss directly and naturally resulting in the ordinary course of events from the buyer’s breach of contract” (Paragraph 2, Article 1596, Civil Code). On the other hand, if “there is an available market for the goods in question, the measure of damages is, in the absence of special circumstances showing proximate damage of a different amount, the difference between the contract price and the market or current price at the time or times when the goods ought to have been accepted, or, if no time was fixed for acceptance, then at the time of the refusal to accept” (Paragraph 3, Article 1596, Civil Code). In addition, “If, while labor or expense of material amount is necessary on the part of the seller to enable him to fulfill his obligations under the sales contract, the buyer repudiates the contract or notifies the seller to proceed no further therewith, the buyer shall be liable to the seller for labor performed or expenses made before receiving notice of the buyer’s repudiation or countermand. The profit the seller would have made if the contract or the sale had been fully performed shall be considered in awarding the damages“(Paragraph 4, Article 1596, Civil Code).

[5] CIVIL CODE. Paragraph 1, Article 1596.

[6] Ibid. Article 1597.

[7] “The judgment or decree may be unconditional, or upon such terms and conditions as to damages, payment of the price and otherwise, as the court may deem just” (Article 1598, Civil Code).

[8] Ibid. Article 1598.

[9] Ibid. Article 1591 (1).

[10] Ibid. Article 1591 (2).

[11] Ibid. Article 1591 (3).

[12] Ibid. Article 1591 (4). “When the buyer has claimed and been granted a remedy in anyone of these ways, no other remedy can thereafter be granted, without prejudice to the provisions of the second paragraph of article 1191… Where the goods have been delivered to the buyer, he cannot rescind the sale if he knew of the breach of warranty when he accepted the goods without protest, or if he fails to notify the seller within a reasonable time of the election to rescind, or if he fails to return or to offer to return the goods to the seller in substantially as good condition as they were in at the time the ownership was transferred to the buyer. But if deterioration or injury of the goods is due to the breach or warranty, such deterioration or injury shall not prevent the buyer from returning or offering to return the goods to the seller and rescinding the sale… Where the buyer is entitled to rescind the sale and elects to do so, he shall cease to be liable for the price upon returning or offering to return the goods. If the price or any part thereof has already been paid, the seller shall be liable to repay so much thereof as has been paid, concurrently with the return of the goods, or immediately after an offer to return the goods in exchange for repayment of the price… Where the buyer is entitled to rescind the sale and elects to do so, if the seller refuses to accept an offer of the buyer to return the goods, the buyer shall thereafter be deemed to hold the goods as bailee for the seller, but subject to a lien to secure the payment of any portion of the price which has been paid, and with the remedies for the enforcement of such lien allowed to an unpaid seller by article 1526.” (Ibid.)

[13] Ibid. Article 1591 (5).

Rights and Obligations of the Buyer in Sales Transactions

Acceptance of delivery and payment of purchase price

The buyer is obligated to accept delivery and to pay the price of the thing sold at the time and place[1] stipulated in the contract.”[2] Except as otherwise agreed upon, the buyer is not required to accept delivery by installments.[3]

Reasonable opportunity to examine

If the buyer has not yet previously examined goods delivered to him, he is deemed not to have accepted them unless and until he has had a reasonable opportunity of examining them for the purpose of ascertaining whether they are in conformity with the contract if there is no stipulation to the contrary.[4] If the seller physically tenders delivery of the goods to the buyer, the seller is required, upon request of the buyer, to afford the buyer a reasonable opportunity of examining the goods for the purpose of ascertaining whether they are in conformity with the contract.[5]

Goods delivered to a carrier

If the seller delivers the goods to a carrier pursuant to an agreement or order from the buyer, upon the terms that the goods are not to be delivered by the carrier to the buyer until he has paid the price, whether such terms are indicated by marking the goods with the words “collect on delivery,” or otherwise, the buyer is not entitled to examine the goods before the payment of the price, in the absence of agreement or usage of trade permitting such examination.[6]

Implied acceptance

The buyer is deemed to have accepted the goods in any of the following situations:

  1. If he intimates to the seller that he has accepted them; [7]
  2. If the goods have been delivered to him, and he does any act in relation to them which is inconsistent with the ownership of the seller; [8] or
  3. If, after the lapse of a reasonable time, he retains the goods without intimating to the seller that he has rejected them.[9]

Non-discharge of seller from liability

Unless otherwise stipulated or by implied agreement, the buyers’ acceptance of the goods does not discharge the seller from liability in damages or other legal remedy for breach of any promise or warranty in the sales contract.[10] However, the buyer is required to give notice to the seller of the breach in any of the warranty within a reasonable period of time after the buyer knows or ought to know of such breach; otherwise, the seller will not be held be liable for such breach.[11]

Buyer not obligated to return goods despite refusal to accept

Except as otherwise agreed upon, if goods are delivered to the buyer, and he refuses to accept them, having the right so to do, he is not bound to return them to the seller, but it is sufficient if he notifies the seller that he refuses to accept them.[12] Ife he voluntarily constitutes himself a depositary thereof, he will be liable as such.[13]

Buyer owes interest from delivery to payment

The buyer is required to pay interest for the period between the delivery of the thing and the payment of the price, in the following three cases: (a) should it have been so stipulated; (b) should the thing sold and delivered produce fruits or income; or (c) should he be in default, from the time of judicial or extrajudicial demand for the payment of the price.[14]

Right to suspend payment

The buyer may suspend payment of the price until the seller has caused to stop the disturbance or danger in cases where the buyer is disturbed in the possession or ownership of the thing acquired, or if he has reasonable grounds to fear such disturbance, by a vindicatory action or a foreclosure of mortgage.[15] Such right of suspension will not apply if the seller has given security for the return of the price in a proper case, or it has been stipulated that, notwithstanding any such contingency, the vendee is bound to make the payment.[16] The right of suspension does not cover a mere act of trespass.[17]

Rescission of sale for fear of loss of immovable property sold and price

The seller may initiate an action for rescission of the sale if he has reasonable grounds to fear the loss of immovable property sold and its price.[18]

Payment after expiration of period in a sale of immovable property

In a sale of immovable property with a stipulation that failure to pay the price at the agreed time rescission will take place by right, the buyer may still pay, even after the expiration of the period, as long as no demand for rescission of the contract has been made upon him either judicially or by a notarial act.[19]

Rescission of sale of movable in favor of seller

The rescission of the sale will take place by right in the interest of the seller in case the buyer upon the expiration of the period fixed for the delivery of the thing, should not have appeared to receive it, or, having appeared, he should not have tendered the price at the same time, unless a longer period has been stipulated for its payment.[20]

 

– – –

[1] “If the time and place should not have been stipulated, the payment must be made at the time and place of the delivery of the thing sold” (Paragraph 2, Article 1582, Civil Code).

[2] CIVIL CODE. Paragraph 1, Article 1582.

[3] Ibid. Paragraph 1, Article 1583. “Where there is a sales contract of goods to be delivered by stated instalments, which are to be separately paid for, and the seller makes defective deliveries in respect of one or more instalments, or the buyer neglects or refuses without just cause to take delivery of or pay for one or more instalments, it depends in each case on the terms of the contract and the circumstances of the case, whether the breach of contract is so material as to justify the injured party in refusing to proceed further and suing for damages for breach of the entire contract, or whether the breach is severable, giving rise to a claim for compensation but not to a right to treat the whole contract as broken” (Paragraph 2, Article 1583, Civil Code).

[4] Ibid. Paragraph 1, Article 1584.

[5] Ibid. Paragraph 2, Article 1584.

[6] Ibid. Paragraph 3, Article 1584.

[7] Ibid. Article 1585.

[8] Ibid.

[9] Ibid.

[10] CIVIL CODE. Article 1586.

[11] Ibid.

[12] CIVIL CODE. Article 1587.

[13] Ibid.

[14] CIVIL CODE. Article 1589.

[15] Ibid. Article 1590.

[16] Ibid.

[17] Ibid.

[18] CIVIL CODE. Paragraph 1, Article 1591. Should such ground not exist, the provisions of article 1191 shall be observed (Paragraph 2, Article 1591, Civil Code).

[19] Ibid. Article 1592. “After the demand, the court may not grant him a new term” (Ibid.).

[20] Ibid. Article 1593.

Warranty against hidden defects or encumbrance in sales transactions

Hidden defects

The seller is responsible for warranty against the hidden defects which the thing sold may have, if they render it unfit for the use for which it is intended, or if they diminish its fitness for such use to such an extent that, had the vendee been aware thereof, he would not have acquired it or would have given a lower price for it.[1] The said vendor is not answerable for patent defects or those which may be visible, or for those which are not visible if the vendee is an expert who, by reason of his trade or profession, should have known them.[2]

Implied warranty

There is an implied warranty or condition as to the quality or fineness in the sale of goods:[3]

  1. If the buyer, expressly or by implication, makes known to the seller the particular purpose for which the goods are acquired, and it appears that the buyer relies on the seller’s skill or judgment (whether he be the grower or manufacturer or not), there is an implied warranty that the goods is to be reasonably fit for such purpose;[4] or
  2. Where the goods are brought by description from a seller who deals in goods of that description (whether he be the grower or manufacturer or not), there is an implied warranty that the goods are of merchantable quality.[5]

Sale under patent or other trade name

There is no warranty as to the fitness for any particular purpose in the sale of a specified article under its patent or other trade name, except as otherwise stipulated.[6] However, the implied warranty or condition as to the quality or fineness for a particular purpose may be annexed by the usage of trade.[7]

Sale by sample of seller who is dealer in goods of that kind

If a seller is a dealer in goods sold by sample, there is an implied warranty that the goods are free from any defect rendering them unmerchantable which would not be apparent on reasonable examination of the sample.[8]

Hidden faults or defects in thing sold where seller is aware

The seller is liable to the buyer for any hidden faults or defects in the thing sold even though he was not aware thereof.[9] The latter rule is not applicable if there is a contrary stipulation and the seller was not aware of the hidden faults or defects in the thing sold.[10]

Where seller is unaware

If the seller was aware of the hidden faults of a thing and the same was lost as a consequence of the said defects, he will bear the loss and he will be obliged to return the price and refund the expenses of the contract, with damages.[11] On the other hand, the seller who is unaware of the hidden faults will only be required to return the price and interest thereon, and reimburse the expenses of the contract which the vendee might have paid.[12]

When buyer may demand reimbursement for purchase price

The buyer may demand from the seller the purchase price less the value of the thing with hidden fault at the time of the sale and the same was subsequently lost by a fortuitous even or through the fault of the seller.[13] If the seller is in bad faith, he may also be required to pay damages to the buyer.[14]

Sale of animals, rule on redhibition

In a sale of two or more animals together regardless of whether it was for a lump sum or for a separate price for each one, the redhibitory defect of one only gives rise to its redhibition, and not that of the others; unless it should appear that the vendee would not have purchased the sound animal or animals without the defective one.[15] The rule on redhibition is also applicable to the sale of other things.[16]

Presumption

There is a presumption for the latter situation mentioned above when a team, yoke pair, or set is bought, even if a separate price has been fixed for each one of the animals composing the same.[17]

40-day prescription

The redhibitory action based on either faults or defects of animals must be brought within 40 days from date of delivery by the seller.[18] The buyer may choose between withdrawing from the contract and demanding a proportionate reduction of the price, with damages in either case.[19] The said action may only be exercised with respect to faults and defects which are determined by law or by local customs.[20]

When professional inspection made

Even if a professional inspection has been made such that the nature of the hidden defect of the animal is of such a nature that expert knowledge is not sufficient to discover it, the defect is considered redhibitory.[21] However, the veterinarian is liable for damages if through ignorance or bad faith he fails to discover or disclose it.[22]

When animals sold at fairs or public auctions, or live stock sold as condemned

The sale of animals at fairs or public auctions, as well as live stock sold as condemned, does not come with warranty against hidden defects.

Sale of animals with contagious diseases and unfit for purpose they were acquired

A contract for the sale of animals suffering from contagious diseases is void.[23] A sales contract of animals is likewise void if the use or service for which they are acquired has been stated in the contract, and they are found to be unfit therefor.[24]

Seller liable if animal dies within 3 days from purchase

The seller is liable if the animal sold dies within three days from the purchase thereof by the buyer if the disease which caused the death existed at the time of the contract.[25]

Consequences when rescission made

If the sales contract is rescinded, the buyer is required to return the animal in the condition that it was sold and delivered.[26] The buyer is only responsible for any injury due to his negligence, and not arising from the redhibitory fault or defect.”[27]

 

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[1] CIVIL CODE. Article 1561. Warranty for hidden defects is applicable to judicial sales, “except that the judgment debtor shall not be liable for damages (Article 1570, Civil Code). There is a 6-months prescription for actions arising from Articles 1561 to 1570 of the Civil Code (Article 1571, Ibid.). For Articles 1561, 1562, 1564, 1565 and 1566, the seller may choose between withdrawing from the contract and demanding a proportionate reduction of the price, with damages in either case (Article 1567, Ibid.).

[2] CIVIL CODE. Article 1561. Warranty for hidden defects is applicable to judicial sales, “except that the judgment debtor shall not be liable for damages (Article 1570, Civil Code). There is a 6-months prescription for actions arising from Articles 1561 to 1570 of the Civil Code (Article 1571, Ibid.). For Articles 1561, 1562, 1564, 1565 and 1566, the seller may choose between withdrawing from the contract and demanding a proportionate reduction of the price, with damages in either case (Article 1567, Ibid.).

[3] Ibid. Article 1562.

[4] Ibid. Article 1562(1).

[5] Ibid. Article 1562(2).

[6] Ibid. Article 1563.

[7] Ibid. Article 1564.

[8] Ibid. Article 1565.

[9] Ibid. Paragraph 1, Article 1566.

[10] Ibid. Paragraph 2, Article 1566.

[11] Ibid. Article 1568.

[12] Ibid.

[13] Ibid. Paragraph 1, Article 1569.

[14] Ibid. Paragraph 2, Article 1569.

[15] Ibid. Paragraph 1, Article 1572. “The form of sale of large cattle shall be governed by special laws” (Article 1581, Civil Code).

[16] Ibid. Article 1573.

[17] Ibid. Paragraph 2, Article 1572.

[18] Ibid. Paragraph 1, Article 1577.

[19] Ibid. Article 1580 cf. 1567.

[20] Ibid. Paragraph 2, Article 1577.

[21] Ibid. Paragraph 1, Article 1576.

[22] Ibid. Paragraph 2, Article 1576.

[23] Ibid. Paragraph 1, Article 1575.

[24] Ibid. Paragraph 2, Article 1575.

[25] Ibid. Article 1578.

[26] Ibid. Article 1579.

[27] Ibid.

Seller’s warranty in case of eviction

The seller is liable for the eviction of the buyer even if there is no stipulation on the matter in their contract.[1] Notwithstanding, the seller and the buyer may increase, diminish, or suppress this legal obligation of the vendor.[2]

The seller is liable for eviction if the property is sold for nonpayment of taxes due and it is not made known to the buyer before the sale.[3]

The seller (as judgment debtor) is liable for eviction in judicial sales, except if otherwise decreed in the judgment.[4]

When adverse possession began before sale

The seller is not liable for eviction if the adverse possession began before the sale but the prescriptive period is completed after the transfer, the vendor is not be liable for eviction.[5]

Void stipulation exempting seller if he acted in bad faith

Any stipulation that would exempt the seller from the liability for eviction is void if he acted in bad faith.[6]

If the buyer renounced the right to warranty in case of eviction and the same took place, the seller will only pay for the value which the thing sold had at the time of the eviction.[7] In case the buyer made the waiver with knowledge of the risks of eviction and assumed its consequences, then the seller is not liable.[8]

Buyer’s rights in case of eviction

In case the parties have not agreed upon or nothing has been stipulated in case of eviction, the buyer has the right to demand from the seller the following:[9]

  1. The return of the value which the thing sold had at the time of the eviction, be it greater or less than the price of the sale;[10]
  2. The income or fruits, if he has been ordered to deliver them to the party who won the suit against him;[11]
  3. The costs of the suit which caused the eviction, and, in a proper case, those of the suit brought against the vendor for the warranty;[12]
  4. The expenses of the contract, if the vendee has paid them;[13] and
  5. The damages and interests, and ornamental expenses, if the sale was made in bad faith.[14]

When buyer may ask for rescission

The buyer may ask for rescission if by eviction he loses a part of thing sold of such importance, in relation to the whole, that he would not have bought it without said part, he may demand the rescission of the contract, with the obligation to return the thing without other encumbrances that those which it had when he acquired it.[15]

Sale of immovable encumbered with unspecified non-apparent burden or servitude

In case of a sale of immovable and it is encumbered with any non-apparent burden or servitude, not mentioned in the agreement, of such a nature that it must be presumed that the vendee would not have acquired it had he been aware thereof, he may ask for the rescission of the contract, unless he should prefer the appropriate indemnity.[16] The latter mentioned rights cannot be exercised if the non-apparent burden or servitude is recorded in the Registry of Deeds, unless there is an express warranty that the thing is free from all burdens and encumbrances.”[17] Within one year to be computed from the execution of the deed, the buyer may seek rescission or sue for damages.[18]

 

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[1] Ibid. Article 1548. “Eviction shall take 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” (Article 1548, Civil Code). “The vendee need not appeal from the decision in order that the vendor may become liable for eviction” (Article 1549, Civil Code). It should be noted that the seller’s warrant “cannot be enforced until a final judgment has been rendered, whereby the vendee loses the thing acquired or a part thereof” (Article 1557, Civil Code). Thus, the seller is not “obliged to make good the proper warranty, unless he is summoned in the suit for eviction at the instance of the vendee” (Article 1668, Civil Code). Hence, the defendant buyer “shall ask, within the time fixed in the Rules of Court for answering the complaint, that the vendor be made a co-defendant” (Article 1559, Civil Code).

[2] Ibid. Article 1548.

[3] Ibid. Article 1551.

[4] Ibid. Article 1552.

[5] Ibid. Article 1550.

[6] Ibid. Article 1553.

[7] Ibid. Article 1554.

[8] Ibid.

[9] CIVIL CODE. Article 1555.

[10] Ibid. Article 1555 (1).

[11] Ibid. Article 1555 (2).

[12] Ibid. Article 1555 (3).

[13] Ibid. Article 1555 (4).

[14] Ibid. Article 1555 (5).

[15] CIVIL CODE. Paragraph 1, Article 1556. The seller may “exercise this right of action, instead of enforcing the vendor’s liability for eviction.” “The same rule shall be observed when two or more things have been jointly sold for a lump sum, or for a separate price for each of them, if it should clearly appear that the vendee would not have purchased one without the other” (Paragraph 2 and 3, Article 1556, Civil Code).

[16] Ibid. Paragraph 1, Article 1560.

[17] Ibid. Parragph 1, Article 1560.

[18] Ibid. “One year having elapsed, he may only bring an action for damages within an equal period, to be counted from the date on which he discovered the burden or servitude” (Paragraph 3, Article 1560, Civil Code).

Conditions and warranties in sale on seller

Sales contract with suspensive condition

If the sales contract is under a suspensive condition which is not met, the innocent party may refuse to proceed with the contract or he may waive performance of the condition.[1]

Breach of warranty

In addition to the above rule, the innocent party may also consider the non-performance of the condition as a breach of warranty if the other party has promised that the condition should happen or be performed.[2]

Continue reading here.

Seller’s obligation to deliver

The seller is obligated to transfer the ownership of and deliver the object of the sale, as well as answer for its warranty.[1]

The buyer acquires ownership of the thing sold from the moment it is delivered to him: (a) through the various modes of delivery, or (b) in any other manner signifying an agreement that the possession is transferred from the vendor to the vendee.[2] Not mere agreements but tradition or delivery transfers the ownership of things (Non nudis pactis sed traditione dominia rerum transferentur).[3]

A.W. Bean v. The B.W. Cadwallader Company
G.R. No. L-4175, 26 March 1908

The parties entered into a contract whereby Bean would supply timber in consideration for sum to Cadwaller. Unfortunately, the timber wasn’t picked up in the shores of Basilan per contract. Cadwaller claims that no delivery was made.

HELD: A.W. Bean made delivery. Actual/manual delivery of an article sold is not essential to the passing of the title thereto unless made so by the terms of the contract or by an understanding of the parties. “A mere contract for the sale of goods, where nothing remains to be done by the seller before making delivery, transfers the right of the property, although the price has not been paid, nor the thing sold actually delivered to the purchaser.”

Actual manual delivery of an article sold is not essential to the passing of the title thereto… unless made so by the terms of the contract or by an understanding of the parties. The parties to the contract may agree when and on what conditions the property in the subject of the contract was passed to the prospective owner… In the present case the parties agreed that the delivery of the logs should be made alongside a vessel of the defendant. That was done by the plaintiff. The vessel of the defendant was sent to the point of delivery and the said defendant attempted to load on said vessel the logs delivered along its side by the plaintiff. It is a rule well established that a mere contract for the sale of goods, where nothing remains to be done by the seller before making delivery, transfers the right of property, although the price has not been paid, nor the thing sold actually delivered to the purchaser…”

Ocejo, Perez, & Co. v. The International Banking Corporation
G.R. No. L-10658, 14 February 1918

As security for a loan, Chua Teng Chong pledged his stocks of sugar in a warehouse A in favor of International Bank. Meanwhile, Chong bought sugar from Ocejo, Perez, & Co. and the same was delivered to warehouse B. Chua did not pay the company. When International Bank learned that the sugar mortgaged were insufficient, Chua informed them that the rest was in warehouse B. Hence, the bank secured both warehouses. Subsequently, Chua was declared insolvent and an assignee was appointed. Meanwhile, Chong died. The company wants to recover the sugar from the bank on the ground that the same was not yet paid. Intervening in the case, the assignee claimed that the said sugar properly belonged to the estate of Chong.

HELD: The assignee was entitled to the proceeds of the sugar in warehouse B as delivery had already been made; hence, the sugar became the property of the estate of Chua. “Tradition is a true mode of acquiring ownership which effects the passage of tile and the birth of the right in rem… Ownership of things is not transferred by contract merely but by delivery. Contracts only constitute title or rights to the transfer or acquisition of ownership, while delivery or tradition is the method of accomplishing the same.”

Delivery of the Things Sold

There is delivery of the thing sold “when it is placed in the control and possession of the vendee.”[4] If there is no applicable rule as stated hereunder, the placing of the titles of ownership in the possession of the vendee or the use by the vendee of his rights, with the vendor’s consent, is understood as a delivery.”[5] Thus, delivery may be actual or constructive.[6]

Vda. De Sarmiento v. Lesaca
G.R. No. L-15385, 30 June 1960

Alejandra Bugarin Vda. De Sarmiento bought a parcel of land from Josefa R. Lesaca. When Sarmiento failed to take possession after being barred by a certain Martin Deloso who claimed to be the owner, Sarmiento filed this case for rescission of the sales contract with Lesaca.

HELD: There was no delivery; hence, rescission was proper. Rescission was proper since a contract of sale is a reciprocal obligation. “Undoubtedly in a contract of purchase and sale the obligation of the parties is reciprocal, and, as provided by the law, in case one of the parties fails to comply with what is incumbent upon him to do, the person prejudiced may either exact the fulfillment of the obligation or rescind the sale.”

The vendor did not comply with the express requirement of the law. “As provided in Article 1462, the thing sold shall be deemed delivered when the vendee is placed in the control and possession thereof, which situation does not here obtain because from the execution of the sale up to the present the vendee was never able to take possession of the lands due to the insistent refusal of Martin Deloso to surrender them claiming ownership thereof. And although it is postulated in the same article that the execution of a public document is equivalent to delivery, this legal fiction only holds true when there is no impediment that may prevent the passing of the property from the hands of the vendor into those of the vendee.”

Execution of public document

The execution of a public document is equivalent to the delivery of the thing which is the object of the contract if the sale is made through the execution thereof.[7] This rule is applicable only if from the deed the contrary does not appear or cannot clearly be inferred.[8] The delivery of incorporeal property follows this method.[9]

Movable property

As for movable property, delivery thereof may be made through the delivery of the keys of the place or depository where it is stored or kept.[10] Delivery may also be made by the mere consent or agreement of the contracting parties, if the thing sold cannot be transferred to the possession of the vendee at the time of the sale, or if the latter already had it in his possession for any other reason.[11] Delivery through tradition constitutum possessorium is also allowed.[12]

On sale or return

If the things sold are delivered to the buyer on sale or return for the purpose of giving the buyer an option to return the goods instead of paying or the price, the ownership transfers to the buyer upon delivery.[13]

Revesting ownership with seller

In the sale mentioned above, the buyer may revest the ownership in the seller if the former returns or tenders the goods within the time fixed in the contract, or, if no contract has been fixed, within a reasonable time.[14]

Best Legal Practices:

Stipulate on ownership – Considering that the owner bears the loss of a thing, the parties should agree on the terms and conditions involving ownership of the item being sold.

On approval, trial, satisfaction

If the goods are delivered to the buyer on approval, trial, satisfaction, or other similar terms, the ownership thereof transfers to the buyer:[15]

  1. When he signifies his approval or acceptance to the seller or does any other act adopting the transaction;[16] or
  2. If he does not signify his approval or acceptance to the seller, but retains the goods without giving notice of rejection, then if a time has been fixed for the return of the goods, on the expiration of such time, and, if no time has been fixed, on the expiration of a reasonable time.[17]

Ownership in sale of specific goods

In sale of specific goods, the seller may reserve the right of possession or ownership in the goods through the contract until certain conditions have been fulfilled even if the goods have been delivered to the buyer, carrier, or other bailee.[18]

Shipment of goods where buyer reserves ownership

For goods that are shipped and the bill of lading provides that they are deliverable to the seller (his agent, order of the seller or of his agent), the seller reserves the ownership in the goods.[19]

When for security only

If the ownership would have passed to the buyer on shipment of the goods if not for the form of the bill of lading, the seller’s property in the goods is deemed to be only for the purpose of securing performance by the buyer of his obligations under the contract.[20] On the other hand, in case the bill of lading provides that the goods are deliverable to order of the buyer or his agent but the seller or his agent retains possession of the bill, the seller thereby reserves a right to the possession of the goods as against the buyer.[21]

Buyer to return bill of lading

The buyer is required to return the bill of lading if he does not honor the bill of exchange after the seller draws on the buyer for the price and transmits the bill of exchange and bill of lading together to the buyer to secure acceptance or payment of the bill of exchange.[22] If the buyer wrongfully retains the bill of lading, he will not acquire any added right.[23]

Buyer in good faith and for value

If, however, the bill of lading provides that the goods are deliverable to the buyer or to the order of the buyer, or is indorsed in blank, or to the buyer by the consignee named therein, one who purchases in good faith, for value, the bill of lading, or goods from the buyer will obtain the ownership in the goods, although the bill of exchange has not been honored, so long as such purchaser has received delivery of the bill of lading indorsed by the consignee named therein, or of the goods, without notice of the facts making the transfer wrongful.[24]

Risk of loss is with seller by default

Except if otherwise stipulated, the seller bears the risk of what might happen to the goods until the ownership therein is transferred to the buyer.[25] This is the doctrine of res perit domino (the owner bears the loss).[26] However, when the ownership of the goods has been transferred to the buyer, the latter bears the risk regardless of whether actual delivery has been made or not, except for the following situations:[27]

  1. Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in pursuance of the contract and the 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; [28] or
  2. 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.[29]

Sun Brothers Appliance, Inc. v. Perez
G.R. No. L-17527, 30 April 1963

Sun Brothers Appliance executed a conditional sale of an Admiral air-conditioning unit and later installed in the office of Damaso Perez. In their contract, it stipulated that ownership transfers to the buyer only after full payment; that the buyer is liable “for any cause” which might damage the item; that ownership remains with Sun Bros. The aircon was burned due to a fire that razed the building.

HELD: Perez was liable. The aircon was delivered to Perez. Pursuant to their contract, Perez bears the burden of loss “for any cause” as stated in their contract. The agreement making the buyer responsible for any loss whatsoever, fortuitous  or otherwise, even if the title remains with the seller, is neither contrary to law, nor to morals or public policy.”

Lawyer’s Cooperative Publishing Company v. Tabora
G.R. No. L-21263, 30 April 1965

The Lawyers Cooperative Publishing Company executed a conditional sale of American jurisprudence, etc., in favor of Perfecto Tabora. In their contract, it was stipulated that ownership is with the seller until fully paid and that the risk was with buyer. The books were burned in a fire.

HELD: Tabora was liable. While as a rule the loss of the object of the contract of sale is borne by the owner or in case of force majeure, the one under obligation to deliver the object is exempt from liability.” Such rule cannot be applied in this case since the law on the contract entered into on the matter argues against it. It finds support in Art. 1504 (1), wherein it states that the risk is to the buyer if ownership is withheld by seller only to receive payment.”

Best Legal Practices:

Withhold transfer of ownership when necessary – To secure the interest over the thing sold, the seller should expressly withhold his rights to the property until full and complete payment is made.

 

– – –

[1] Ibid. Article 1495.

[2] Ibid. Article 1496.

[3] Equatorial Realty Development, Inc. v. Mayfair Theater, Inc., G.R. No. 133879, 21 November 2001; The Heirs of Pedro Escanlar, et al., v. The Hon. Court of Appeals, et al., G.R. Nos. 119777 and 120690 dated 23 October 1997; Heirs of Quirico Seraspi, et al., v. Court of Appeals, et al., G.R. No. 135602, 28 April 2000.

[4] CIVIL CODE. Article 1497.

[5] Ibid. Article 1501.

[6] Ibid. Article 1477.

[7] CIVIL CODE. Paragraph 1, Article 1498.

[8] Ibid.

[9] CIVIL CODE. Article 1501.

[10] Ibid. Paragraph 2, Article 1498.

[11] Ibid. Article 1499.

[12] Ibid. Article 1500.

[13] Ibid. Paragraph 1, Article 1502.

[14] Ibid.

[15] Ibid.

[16] CIVIL CODE. Paragraph 2, Article 1502 (1).

[17] Ibid. Paragraph 2, Article 1502 (2). The issue on what constitutes “a reasonable time” is a question of fact (Ibid.).

[18] CIVIL CODE. Paragraph 1, Article 1503. “The right of possession or ownership may be thus reserved notwithstanding the delivery of the goods to the buyer or to a carrier or other bailee for the purpose of transmission to the buyer” (Ibid.).

[19] Ibid. Paragraph 2, Article 1503.

[20] Ibid.

[21] CIVIL CODE. Paragraph 3, Article 1503.

[22] Ibid. Paragraph 4, Article 1503.

[23] Ibid.

[24] CIVIL CODE. Paragraph 4, Article 1503.

[25] Ibid. Article 1504.

[26] Rosario Textile Mills Corporation v. Home Bankers Savings and Trust Company, G.R. No. 137232, 29 June 2005.

[27] CIVIL CODE. Article 1504.

[28] Ibid. Article 1504 (1).

[29] Ibid. Article 1504 (2).