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.

 

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[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).

Concept of Sale

In a contract of sale, “one of the contracting parties obligates himself to transfer the ownership and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent.”[1] A sales contract may either be absolute or conditional.[2]

Perfection of sales contract

The perfection of the sales contract happens when there is a meeting of minds upon the thing which is the object of the contract and upon the price.[3] The parties may reciprocally demand performance reckoned from such moment subject to the provisions of the law governing the form of contracts.[4]

Continue reading here.

Exemplary Damages

In order to set an example for the public good, exemplary or corrective damages are awarded in addition to moral, temperate, liquidated or compensatory damages.[1]

Lopez v. Pan American World Airways
G.R. No. L-22415, 30 March 1966

Plaintiffs were entitled to exemplary damages. “The rationale behind exemplary or corrective damages is, as the name implies, to provide an example or correction for public good. Defendant having breached its contracts in bad faith, the court, as stated earlier, may award exemplary damages in addition to moral damages (Articles 2229, 2232, New Civil Code).

“In view of its nature, it should be imposed in such an amount as to sufficiently and effectively deter similar breach of contracts in the future by defendant or other airlines. In this light, we find it just to award P75,000.00 as exemplary or corrective damages.”

Criminal cases and civil liability

In criminal cases, exemplary damages may be included in the civil liability when there is a finding of one or more aggravating circumstances.[2] These damages are “separate and distinct” from fines to be paid to the offended party. [3]

Quasi-delict

In quasi-delicts, exemplary damages are awarded whenever the defendant acted with “gross negligence.”[4] Meanwhile, in contracts and quasi-contracts, exemplary damages are awarded whenever the defendant acted in a “wanton, fraudulent, reckless, oppressive, or malevolent manner.”[5]

Tan v. OMC Carriers, Inc.
G.R. No. 190521, 12 January 2011

Reduction of exemplary damages proper – Exemplary or corrective damages are imposed “by way of example or correction for the public good, in addition to moral, temperate, liquidated or compensatory damages. In quasi-delicts, exemplary damages may be granted if the defendant acted with gross negligence.” The death of the deceased and the destruction of petitioner’s home and tailoring shop “were unquestionably caused by the respondents’ gross negligence. The law allows the grant of exemplary damages in cases such as this to serve as a warning to the pubic and as a deterrent against the repetition of this kind of deleterious actions. The grant, however, should be tempered, as it is not intended to enrich one party or to impoverish another. From this perspective, [the Court finds] the CA’s reduction of the exemplary damages awarded to the petitioners from P500,000.00 to P200,000.00 to be proper.”

Not as a matter of right – A complainant is not entitled to exemplary damages as a matter of right; it is the court that will decide whether the same is proper.[6] In fact, a complainant needs first to prove that he is entitled to moral, temperate or compensatory damages – even in the existence of stipulation for liquidated damages – before the court may consider the question of granting exemplary damages, and, if applicable, on top of liquidated damages.[7] Parties cannot agree to renounce in advance any claim to exemplary damages[8] as the same is imposed for the public good.[9]

 

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[1] Ibid. Article 2229.

[2] Ibid. Article 2230.

[3] Ibid.

[4] CIVIL CODE. Article 2231.

[5] Ibid. Article 2232.

[6] Ibid. Article 2233.

[7] Ibid. Article 2234.

[8] Ibid. Article 2235.

[9] Ibid. Article 2229.

Liquidated Damages

In a contract, parties may agree to liquidated damages as indemnity or penalty for non-performance of any or all of the obligations in their agreement.[1]

Best Legal Practices:

Stipulate liquidated damages – The party who has interest to protect in a transaction should ask for liquidated damages to be stipulated in the contract. The amount for the penalty depends on the value of transaction involved to the said party.

Equitable reduction

Stipulated liquidated damages may be “equitably reduced” once they are found to be “iniquitous or unconscionable.”[2] However, if the breach is not one stipulated or contemplated by the parties, it shall be the applicable law which shall determine the measure of damages and not the stipulated damages.[3]

 

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[1] Ibid. Article 2226.

[2] Ibid. Article 2227.

[3] Ibid. Article 2228.

Temperate Damages

Temperate or moderate damages are awarded when there is a finding of pecuniary loss but the amount cannot be determined with certainty due to the nature of the circumstances.[1] Temperate damages are more than nominal but less than compensatory damages.[2]Despite the fact that the amount cannot be determined, the courts are required to impose reasonable amounts as may be derived from the circumstances of the case.[3]

Tan v. OMC Carriers, Inc.
G.R. No. 190521, 12 January 2011

Temperate damages in lieu of actual damages – Despite the failure to submit proof of actual damages, “a party still has the option of claiming temperate damages, which may be allowed in cases where, from the nature of the case, definite proof of pecuniary loss cannot be adduced although the court is convinced that the aggrieved party suffered some pecuniary loss.” In this case, the petitioners submitted photographs as evidence to show “the extent of damage done to the house, the tailoring shop and the petitioners’ appliances and equipment.” The loss thereof or damage to petitioner is directly attributed to the truck ramming her house and tailoring shop, as well as the gross negligence of the driver in handling the truck. However, the photographs alone is not sufficient to establish the amount with certainty. The Supreme Court found the award of P200,000.00 as a fair and sufficient award by way of temperate damages based on “the attendant circumstances and given the property destroyed.”

Temperate damages in lieu of loss of earning capacity – For loss of earning capacity, temperate damages may be awarded in lieu of actual damages “where earning capacity is plainly established but no evidence was presented to support the allegation of the injured party’s actual income.” Here, the deceased income-earning capacity was never disputed. His five minor children “all relied mainly on the income earned by their father from his tailoring activities for their sustenance and support. Under these facts and taking into account the unrebutted annual earnings of the deceased, [the Court holds] that the petitioners are entitled to temperate damages in the amount of P300,000.00 [or roughly, the gross income for two (2) years] to compensate for damages for loss of the earning capacity of the deceased.”

 

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[1] Ibid. Article 2224.

[2] Ibid.

[3] CIVIL CODE. Article 2225.