Civil Law Reviewer: Law On Sales 4a1s33

SALES REVIEWER

1|INTRODUCTION

SALES REVIEWER

INTRODUCTION I.

Definition. [1458] a. one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing; and b. the other to pay therefor a price certain in money or its equivalent

Comment [vsf1]: By the 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.

II. Elements a. Essential elements— those without which, there can be no valid sale (consent, object, price) b. Natural elements— inherent and are deemed to exist even in the absence of contrary provision, save those in the contrary (warranties against eviction and hidden defects) c. Accidental elements —dependent on the parties’ stipulation (e.g. conditions, interest, penalty, time or place of payment) III. Stages a. Negotiation—covers the period from the time the prospective parties indicate interest in the contract until it is perfected b. Perfection—meeting of the minds as to the object of contract and upon the price c. Consummation—object is delivered and the price is paid IV. Characteristics [CBOC NP] a. Consensual—it is perfected at the moment there is a meeting of the minds upon the thing, which is the object of the contract and the upon the price. xxx [1475] b. Bilateral — i. one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing and the other to pay therefor a price certain in money or its equivalent [1458]. ii. as a consequence: 1. power rescind is implied in case one of the obligors should not comply with what is incumbent upon him [1191] 2. neither party incurs in delay if the other does not comply or is not ready to comply in proper manner what is incumbent upon him [1169] c. Onerous—valuable consideration is necessary for the contract to be valid (price)

2|INTRODUCTION

Comment [vsf2]: The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts.

SALES REVIEWER

d. Commutative—what is done, given, or promised by one party is considered as equivalent to or in consideration of what is done, given or promised by the other e. Nominate—the civil code refers to it by special designation or name f. Principal—for the contract of sale to exist, there is no necessity for it to depend upon the existence of another valid contract V. Distinguished from other contracts a. Sale v Donation i. the contract of sale is an onerous contract; a donation is a gratuitous contract, the consideration being liberality [725]. ii. Hence, a sale where the price is simulated is void. But it may be shown to have been a donation [1471] b. Sale v Barter i. in a sale, one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing and the other to pay therefor a price certain in money or its equivalent [1458]. ii. in a barter, one of the parties binds himself to give one thing in consideration of the other’s promise to give another things NOTE: If the consideration is partly in money and partly in another thing, the nature of the contract will depend on [1468]: 1. the manifest intention of the parties 2. if the intent is not clear, apply the ff rules: a. if the thing is more valuable than money— barter b. if the money and the thing are of equal value—sale c. if the thing is less valuable than money—sale c. Sale v Piece of Work [1467] i. vendor, in the ordinary course of his business, manufactures or procures the thing sold for the general market, whether the same is on hand at the time or not —sale ii. goods are to be manufactured specially for the customer and upon his special order and not for the general market—piece of work iii. Tests under jurisprudence 1. Habituality test: WON the job requires the use of extraordinary or additional equipment, or involves services not generally performed [Celestino v. CIR] 1. WON the thing is one which would have never existed but for the order of the party desiring to acquire it, or one 3|INTRODUCTION

Comment [vsf3]: Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another, who accepts it. Comment [vsf4]: If the price is simulated, the sale is void, but the act may be shown to have been in reality a donation, or some other act or contract.

Comment [vsf5]: If the consideration of the contract consists partly in money, and partly in another thing, the transaction shall be characterized by the manifest intention of the parties. If such intention does not clearly appear, it shall be considered a barter if the value of the thing given as a part of the consideration exceeds the amount of the money or its equivalent; otherwise, it is a sale

Comment [vsf6]: A contract for the delivery at a certain price of an article which the vendor in the ordinary course of his business manufactures or procures for the general market, whether the same is on hand at the time or not, is a contract of sale, but if the goods are to be manufactured specially for the customer and upon his special order, and not for the general market, it is a contract for a piece of work.

SALES REVIEWER

which would have existed and have been the subject of sale to some other person even f the order had not been given [CIR v. Eng.&Supply]

d. Sale v Agency to Sell [Quiroga v Parsons] Sale 1. Buyer receives the goods as owner 2.

Buyer pays the price

3.

Buyer, as a general rule, cannot return the object sold

4.

Seller warrants the thing sold

5.

Buyer can deal with the thing sold as he pleases

Agency to sell 1. Agent receives the goods as goods of the principal who retains ownership over them 2. Agent delivers the price which in turn he got from his buyer 3. Agent can return the goods in case he is unable to sell the same to a third person 4. Agent makes no warranty, for which he assumes personal liability as long as he acts within his authority and in the name of the seller 5. Agent in dealing with the thing received, must act according to the instructions of the principal

e. Sale v Dacion en Pago Sale 1. No pre-existing credit 2. Obligations are created 3.

Consideration on the part of the seller is the price; on the part of the buyer is the acquisition of the object

4.

Greater freedom in determining the price Buyer still has to pay the price

5.

Dacion en Pago 1. Pre-existing credit 2. Agent delivers the price which in turn he got from his buyer 3. The debtor’s consideration is the extinguishment of the debt; the creditor’s consideration is the acquisition of the object offered in lieu of the original credit 4. Less freedom in determining the price 5. The payment is received by the debtor before the contract is perfected

NOTE: i. CivCode Definition. property is alienated to the creditor in satisfaction of a debt in money [1245] ii. is governed by the law on sales [1245] 4|INTRODUCTION

Comment [vsf7]: Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in money, shall be governed by the law of sales.

SALES REVIEWER

iii. there is a novation of the contract of one of loan into one of sale [Baviera] f.

Sale v Contract to Sell Sale 1. Title es to the buyer upon delivery of the thing

2.

Non-payment of the price is a negative resolutory condition. The remedies of the seller are specific performance and rescission

3.

Vendor loses and cannot recover ownership of the thing sold once delivered

Contract to Sell 1. Ownership is reserved in the seller and will only to the buyer upon full payment of the price 2. Full payment is a positive suspensive condition, the failure of which is not a breach but prevents the obligation of the vendor to convey title from having binding force 3. Title remains in the vendor if the vendee does not comply with the condition precedent of making payment at the time specified in the contract

NOTE: i. Absent a proviso in the contract that the title to the property is reserved in the vendor until full payment of the purchase price or a stipulation giving the vendor the right to unilaterally rescind the contract the moment the vendee fails to pay within the fixed period, the transaction is an absolute contract of sale not a contract to sell. [Dignos v CA] ii. Other cases of contract to sell 1. where subject matter is indeterminate 2. sale of future goods 3. stipulation that deed of sale and corresponding certificate of sale would be issued only after full payment

5|INTRODUCTION

SALES REVIEWER

OBJECTS OF SALE 1. Requisites [licit; not impossible; determinate or determinable; existing, future, contingent] a. Licit [1459] i. it is licit if not 1. contrary to law, morals, good customs, public order, or public policy 2. outside of the commerce of man ii. sale is inexistent and void if the object is illicit [1409 (1,4)] NOTE: The following are inexistent and void from the beginning: 1. those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy 4. those whose object is outside the commerce of man b. Not impossible [1348] NOTE: Impossible things or services cannot be the objects of contracts c. Determinate or determinable i. a thing is determinate when it is: [1460] 1. particularly designated or 2. physically segregated from the all others of the same class ii. it is determinable if at the time the contract is entered into 1. the thing is capable of being made determinate 2. without the necessity of a new or further agreement between the parties iii. contracts where the intention of the parties relative to the principal object cannot be ascertained are void [1409 (6)] d. Existing, future, or contingent i. existing goods—goods owned or possessed by the seller at the time of perfection ii. future 1. things having a potential existence. goods, which though not yet actually in existence, are certain to come into existence as the natural increment or usual incident of something already in existence (may be the object of a sale) [1461] 2. future goods. goods to be manufactured, raised or acquired by the seller after the perfection of the contract (may be the object of a sale) [1462] 6|OBJECT OF SALE

Comment [vsf8]: The thing must be licit and the vendor must have a right to transfer the ownership thereof at the time it is delivered.

SALES REVIEWER

NOTE: 1. Future inheritance, except in cases expressly authorized provided by law, cannot be the object of a sale [1347] 2. Sale of a vain hope is void [1461] 3. Emptio rei speratae v Emptio spei: if the the expected thing in the first does not materialize, the sale is not effective. In the second, it does not matter whether the thing materialized or not; what is important is that the hope validly existed. iii. contingent —existence of the thing is dependent on the happening of condition 2. Particular kinds a. Generic things i. so long as intent of parties clear, it is valid. (it is sufficient that it is particularly designated) ii. rule under the civil code that it has to be physically segregated is no longer followed. (Hence, Yu Tek v Gonzalez no longer sound doctrine) b. Undivided interest i. The sole owner of a thing may sell an undivided interest therein [1463] ii. The sale of an undivided share in specific mass of fungible goods results in making the buyer co-owner of the entire mass in proportion to the amount bought by him, and if the mass contains less than the amount bought, the seller is bound to make good the deficiency from goods of the same kind and quality, unless a contrary intent appears. [1464] c. Things in litigation i. Contracts which refer to thins under litigation, if they have been entered into by the defendant without the knowledge and approval of the litigants OR of competent judicial authority, are rescissible [1381(4)] ii. The property is said to be in litigation after the defendant has received the service of summons d. Things subject to a resolutory condition may be the object of a sale [1465]

7|OBJECT OF SALE

Comment [vsf9]: All things which are not outside the commerce of men, including future things, may be the object of a contract. All rights which are not intransmissible may also be the object of contracts. No contract may be entered into upon future inheritance except in cases expressly authorized by law. All services which are not contrary to law, morals, good customs, public order or public policy may likewise be the object of a contract.

SALES REVIEWER

PRICE I.

Definition. The sum stipulated as the equivalent of the thing sold and also every incident taken into consideration for the fixing of the price, put to the debit of the vendee and agreed to by him.

II. Requisites [certain at time of perfection; in money or its equivalent; real; true] a. Certain The price is certain when it is i. fixed by the agreement of the parties NOTE: The fixing of price cannot be left to the discretion of one of the contracting parties. However, if the price fixed by one of the parties is accepted by the other, the sale is perfected [1473] ii. certain with reference to another thing certain[1469] iii. to be fixed by a third person [1469] 1. Effect when the price is fixed by the 3rd person designated a. General Rule: It is binding upon the parties b. Exceptions: i. when the 3rd person acts in bad faith or by mistake; in which case the courts may fix the price ii. when the third person disregards the specific instructions or the procedure marked out by the parties 2. Effect when the price is not fixed by the 3rd person a. if the 3rd person refuses or cannot fix the price, the contract shall become ineffective, unless the parties subsequently agree upon the price b. 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 (rescission or fulfillment of damages in either case) iv. pegged at the price which the thing sold would have on definite day, or a particular exchange or market, or a certain amount above or below such price [1472] NOTE: If the price cannot be determined, the sale is inefficacious; but if the thing or part thereof has been delivered to and appropriated by the buyer, he must pay a reasonable price therefore [1474]

8|PRICE

Comment [vsf10]: In order that the price may be considered certain, it shall be sufficient that it be so with reference to another thing certain, or that the determination thereof be left to the judgment of a special person or persons. Should such person or persons be unable or unwilling to fix it, the contract shall be inefficacious, unless the parties subsequently agree upon the price. If the third person or persons acted in bad faith or by mistake, the courts may fix the price. Where such third person or persons are prevented from fixing the price or by fault of the seller or the buyer, the party not in fault may have such remedies against the party in fault as are allowed the seller or the buyer, as the case may be

SALES REVIEWER

b. In money or its equivalent [1458] NOTE: i. The Government argues that “Price is always paid in of money and the supposed payment being in kind, is no payment at all,” citing article 1458 of the new Civil Code. However, the same article provides that the purchaser may pay “a price certain in money or its equivalent,” which means that payment of the price need not be in money. [Republic v Phil Resources] ii. According to Prof. Jardaleza, Republic v Phil Resources is a wrong interpretation of 1458 NCC . c. Real and not simulated i. The price is real when there is an intention on the part of the buyer to pay and an expectation on the part of the seller to receive it ii. If the price is simulated, the sale is void; but it may be shown that it was really a donation [1471] d. True i. The price is false when the real consideration is not the same as that stated in the contract [Mapalo v Mapalo] ii. If the price is false, the sale is void unless proved to be founded on another true and lawful price [1353] NOTE: Gross inadequacy of price does not affect a contract of sale, except that: 1. it may indicate a defect in the consent such as fraud, mistake or undue influence [1470 & 1355] 2. it may indicate that the parties intended a donation [1470] 3. the sale is rescissible if: a. the sale is entered into by the guardian or by a representative of an absentee b. the ward of absentee represented suffers lesion by more than ¼ of the value of the thing sold, and c. the sale is not approved by the court [1381 (1&2) & 1386] 4. In an ordinary sale, a transaction may be invalidated on the ground of inadequacy of price; BUT such does not follow when the law gives the owner the right to redeem as when a sale is made at public auction, upon the theory that the lesser the price, the easier it is for the owner to effect redemption. [Hulst v. PR Builders, Inc.] 9|PRICE

Comment [vsf11]: Gross inadequacy of price does not affect a contract of sale, except as it may indicate a defect in the consent, or that the parties really intended a donation or some other act or contract Comment [vsf12]: Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a contract, unless there has been fraud, mistake or undue influence Comment [vsf13]: The following contracts are rescissible: (1) Those which are entered into by guardians whenever the wards whom they represent suffer lesion by more than one-fourth of the value of the things which are the object thereof; (2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the preceding number; Comment [vsf14]: Rescission referred to in Nos. 1 and 2 of Article 1381 shall not take place with respect to contracts approved by the courts

SALES REVIEWER

FORMATION OF CONTRACT OF SALE I.

Preparatory a. Option to buy or sell [accepted unilateral promise to buy or sell] i. It is a contract granting a privilege in one person, for which he has paid a consideration , which gives him the right o buy certain merchandise at anytime within the agreed period at a fixed price. ii. Rules re: consideration of option contracts [Sanchez v Rigos; 1324 & 1479(2)] 1. if the option is ed by consideration distinct from the price, it is both a binding option contract and an offer of a contract of sale 2. if the option is not ed by consideration distinct from the price, it is not binding , but is a mere offer of a contract of sale NOTE: if, however, the offer is accepted [i.e. option is exercised] before withdrawal, a contract of sale is perfected iii. Remedies in case of breach

Option with distinct consideration Option without distinct consideration

Withdrawal of offer before acceptance Damages for breach of option contract

Withdrawal of offer after acceptance Specific performance of contract of sale

ONLY IF there is an abuse of right under Art. 19, CC (no damages for breach of option contract)

Specific performance of contract of sale

b. Right of first refusal i. It is a right of first priority all things and conditions being equal; identity of the and conditions offered to the optionee and other prospective buyers, with optionee to enjoy the right of first refusal ii. The basis of the right of first refusal must be the current offer to sell of the seller or offer to purchase by the buyer. Only after the optionee fails to exercise its right of first priority under the same and within the period contemplated could the owner validly offer to sell the property to a third person again, under the same as offered to the optionee [Paranaque Kings v CA]

10 | F O R M A T I O N O F C O N T R A C T O F S A L E

Comment [vsf15]: When the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn at any time before acceptance by communicating such withdrawal, except when the option is founded upon a consideration, as something paid or promised. Comment [vsf16]: An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is ed by a consideration distinct from the price.

SALES REVIEWER

iii. Remedies in case of breach i. Prevailing doctrine—A sale made in violation of a right of first refusal is valid but rescissible under Art 1381(3),CC, and may be the subject of an action for specific performance. However, before the sale to the 3rd person could be rescinded, the 3rd person must be, actually or constructively aware at the time he bought it, of the right of first refusal. Rosencor Devt Corp v Inquing] ii. Ang Yu v CA—Specific performance cannot lie because it is not yet a perfected contract under 1458 CC. Neither can the right of first refusal, understood in its normal concept, per se be brought within the purview of an option under 1479 (2) or possibly an offer under 1319. An option would require, among other things, a clear certainty on both the object and the cause or consideration of the envisioned contract. In a right of first refusal, while the object might be made determinate , the exercise of the right would be dependent not only on the grantor’s eventual intention to enter into a binding juridical relation with another but also on , including the price, that obviously are yet to be firmed up. c. Bilateral promise to buy and sell [1479 (1)] i. one party accepts the other’s promise to buy and the latter, the former’s promise to sell a determinate thing for a certain price. ii. it is reciprocally demandable i. the promise to buy is the consideration for the promise to sell and vice versa ii. no title of dominion is transferred as yet, the parties being given only the right to demand fulfillment or damages. II. Perfection a. The contract of sale is a consensual contract i. General Rule: it is perfected at the moment there is a meeting of the minds upon the thing, which is the object of the contract and the upon the price [1475] NOTE: A definite agreement on the manner of payment of the price is also an essential element in the perfection of the sale. The agreement as to the manner of payment goes into the price such that a disagreement on the manner of payment is tantamount to a failure to agree on the price [Toyota Shaw v CA] ii. Exception: When the sale is subject to a suspensive condition by virtue of law or stipulation b. Rule re: perfection i. When parties are face to face [1319]—meeting of the offer and the acceptance upon the thing and the cause; offer must be certain and acceptance absolute 11 | F O R M A T I O N O F C O N T R A C T O F S A L E

SALES REVIEWER

NOTE: A qualified acceptance is a counter-offer ii. When the contract is thru correspondence or thru telegram [1319] —when the offeror receives or has knowledge of the acceptance by the offerree NOTE: 1. If the buyer has already accepted but the seller does not know yet of such, the seller may still withdraw 2. If the sale is negotiated thru phone, it is as if it is negotiated face to face iii. Auction sales [1476] 1. Sales of separate lots by auction are separate contracts of sale 2. Sale is perfected by the fall of the hammer 3. Seller has the right to bid in the auction, provided: a. Such right was reserved b. Notice was given that the sale was subject to a right to bid on behalf of the seller c. Right is not prohibited by law iv. ments 1. Unless it appears otherwise, business ments of things for sale are not definite offers, but mere invitations to make an offer [1325] 2. ments for bidders are simply invitations to make proposals, and the r is not bound to accept the highest or lowest bidder, unless the contrary appears [1326] NOTE: Earnest Money 1. part of the purchase price 2. proof of perfection of the contract [1482] 3. Earnest Money v Option Money Earnest Money 1. Title es to the buyer upon delivery of the thing sold 2. Part of the purchase price 3. When given, buyer bound to pay balance 4. There is already a sale

Option Money 1. Ownership is reserved to the seller and is not to until full payment 2. Money given as consideration for option 3. The would-be buyer is not required to buy 4. Applies to a sale not yet perfected

12 | F O R M A T I O N O F C O N T R A C T O F S A L E

SALES REVIEWER

CAPACITY OF THE PARTIES I.

General Rule [1489] a. only persons who can validly consent may enter into contracts of sale b. hence, the ff cannot validly enter into contracts of sale: minors, demented, imbeciles, deaf & dumb, prodigal,civil interdictees

NOTE: a. where necessaries are sold and delivered to a minor or other person without capacity to act, he must pay a reasonable price therefor b. necessaries are those which are indispensable for his , according to the social position of the family II. Exceptions a. husband & wife i. they cannot sell to each other [1490] NOTE: 1. exceptions a. when a separation of property was agreed upon in the marriage settlement b. when there has been a judicial separation of property 2. rule also applies to common law spouses 3. prohibition can only be taken advantage by persons who bear a relationship to the spouses or to the property that such transfer interferes with their rights 4. the government is always an interested party to all matters involving taxable transactions ii. alienation or encumbrance of community or conjugal property [96, 124 FC] 1. authority of the court or written consent of the other spouse is required; otherwise the sale is void 2. the transaction, however, shall be construed as a continuing offer on the part of the consenting spouse and the 3rd person, and may be perfected as a binding a contract upon the acceptance by the other spouse or authorization by the court before the offer is withdrawn by either or both offerors b. 1491: the following persons cannot acquire by purchase, even at a public or judicial auction, either in person or thru the mediation of another: i. guardian with respect to the property of his ward 13 | C A P A C I T Y O F T H E P A R T I E S

Comment [vsf17]: All persons who are authorized in this Code to obligate themselves, may enter into a contract of sale, saving the modifications contained in the following articles. Where necessaries are those sold and delivered to a minor or other person without capacity to act, he must pay a reasonable price therefor. Necessaries are those referred to in Article 290

Comment [vsf18]: The istration and enjoyment of the community property shall belong to both spouses tly. In case of disagreement, the husband's decision shall prevail, subject to recourse to the court by the wife for proper remedy, which must be availed of within five years from the date of the contract implementing such decision. In the event that one spouse is incapacitated or otherwise unable to participate in the istration of the common properties, the other spouse may assume sole powers of istration. These powers do not include disposition or encumbrance without authority of the court or the written consent of the other spouse. In the absence of such authority or consent, the disposition or encumbrance shall be void. However, the transaction shall be construed as a continuing offer on the part of the consenting spouse and the third person, and may be perfected as a binding contract upon the acceptance by the other spouse or authorization by the court before the offer is withdrawn by either or both offerors.

SALES REVIEWER

ii. executors or s, with respect to the property of the estate under istration NOTE: executors do not ister the hereditary rights of the heirs of the estate under their istration iii. agent, with respect to the property whose istration or sale may have been entrusted to them, unless the consent of the principal has been given NOTE: a broker does not come within the prohibition because a broker is a mere go-between iv. public officers and employees with respect to the property of the government, its political subdivisions, GOCCs, that are entrusted to them v. judges, justice, prosecuting attorneys, clerks of court, and other officers connected with the istration of justice, with respect to property or rights in litigation or execution before the court within whose jurisdiction or territory they exercise their respective functions NOTE: this prohibition includes the act of acquiring by assignment and shall apply to lawyers, with respect to property and rights which may be the object of any litigation in which they may take part by virtue of their profession NOTE: i.

rule when property is purchased thru intermediary 1. actual collusion need not be proved when such can be deduced from the very short time between the two sales and the relationship between them [PhilTrust v Roldan] 2. however, where the interval between the 2 sales is sufficiently long as to dispel a natural suspicion, it is essential to prove actual collusion ii. contracts of sale in violation of 1491 are void for being against public policy c. persons specially disqualified by law i. aliens who are disqualified to purchase agricultural lands 14 | C A P A C I T Y O F T H E P A R T I E S

SALES REVIEWER

ii. an unpaid seller having a right of lien or having stopped the goods in transit, who is prohibited from buying the goods directly or indirectly

15 | C A P A C I T Y O F T H E P A R T I E S

SALES REVIEWER

FORMALITIES OF THE CONTRACT General Rule a. the contract of sale is a consensual contract; no form is required for its validity b. it can be [1483]: i. in writing ii. by word of mouth iii. partly in writing and partly by word of mouth iv. inferred from the conduct of the parties II. Exceptions a. statute of frauds—the ff must be in writing to be enforceable[1403(2)] i. sale of real property or of an interest therein ii. sale of personal property at a price not less than 500 iii. sale of property not to be performed within a year from the date thereof I.

NOTE: i. a sufficient memorandum containing all the essential of the contract will take the contract out of the scope of the statute of frauds ii. the statute of frauds applies only to executor contracts, not to contracts either totally or partially performed iii. failure to object to the presentation of oral evidence to prove the agreement or acceptance of benefits under the agreement shall render the agreement enforceable iv. the statute of frauds does not apply where the verbal contract of sale is adduced not for the purpose of enforcing the performance thereof [Almirol v Monserrat] b. sale of real property or any interest therein i. it must appear in a public instrument [1358] ii. this requirement is only for convenience and not for validity or enforceability; it is not a requirement for validity [Dalion v CA] iii. while a sale of a piece of land appearing in a private document is binding between the parties, it cannot be considered binding on 3rd persons, if it Is not embodied in a public instrument and recorded in the Registry of Property [Secuya v Vda de Selma] c. sale of realty by an agent—the authority of the agent must be in writing; otherwise the sale shall be void [1874] 16 | F O R M A L I T I E S O F T H E C O N T R A C T

SALES REVIEWER

d. sale under the E-Commerce Act i. electronic documents shall have the legal effect, validity, enforceability as any other document or legal writing ii. provided the e-document: 1. maintains its integrity and reliability 2. capable of being displayed to the person whom it is presented 3. contains the electronic signature of the person sending it

17 | F O R M A L I T I E S O F T H E C O N T R A C T

SALES REVIEWER

TRANSFER OF OWNERSHIP I.

In general a. ownership of the thing sold is transferred to the vendee upon actual or constructive delivery thereof [1477], or in any manner signifying agreement that possession is transferred from the vendor to the vendee [1496] b. a sale without delivery gives the purchaser no rights in said property, except those of the creditor

II. Exceptions to general rule that ownership is transferred upon delivery a. no valid sale b. express reservation of ownership [1503(1), 1478] i. The parties may stipulate that ownership in the thing shall not to the purchaser until he has fully paid the price. [1478] ii. When there is a contract of sale of specific goods, the seller may, by the of the contract, reserve the right of possession or ownership in the goods until certain conditions have been fulfilled. [1503(1)] c. sale on approval, trial, or satisfaction [1502(2)]—ownership is transferred only: i. when he signifies his approval or acceptance to the seller or does any other act adopting the transaction ii. 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. d. implied in the form of the bill of lading [1503] i. under the bill of lading, goods are deliverable to the seller or his agent or to the order of the seller or his agent ii. under the bill of lading , goods are deliverable to the order of the buyer or his agent, but the seller reserves possession of the bill iii. buyer does not honor the bill of exchange e. seller is not the owner —the buyer acquires no better title to the goods than the seller had

18 |T R A N S F E R O F O W N E R S H I P

Comment [vsf19]: The ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof. Comment [vsf20]: The ownership of the thing sold is acquired by the vendee from the moment it is delivered to him in any of the ways specified in Articles 1497 to 1501, or in any other manner signifying an agreement that the possession is transferred from the vendor to the vendee.

SALES REVIEWER

NOTE: a. Exceptions to rule that buyer acquires no better title to the goods than the seller had i. the owner is precluded by his conduct from denying the seller’s authority to sell ii. apparent owner, even if not true owner, enabled by any factors’ act, recording laws, or any other provision of law iii. contract of sale under statutory power of sale or under the order of a competent court of competent jurisdiction NOTE: It does not follow, however, that if the goods sold did not belong to the judgment debtor or pledgor or mortgagor, as the case may be, that the innocent purchaser at such sale acquired a better title, foe he steps merely into the shows of the judgment debtor, pledgor or mortgagor [Banzon v Cruz] iv. purchases made in a merchant’s store, or in markets, in accordance with the Code of Commerce and special laws b. cf. vendor‘s title merely voidable i. if title has not been avoided at the time of the sale, vendor can transfer a valid title to an innocent purchaser for value [1506] ii. nevertheless, one who has lost any movable or has been unlawfully deprived thereof may recover it from the person in possession of the same; provided he reimburse the purchaser of the price paid thereof if the latter purchased it in good faith at a public sale. [559] III. Kinds of delivery a. actual or real delivery—the thing shall be understood as delivered when it is placed in the control and possession of the vendee [1497] b. legal or constructive delivery—delivery is represented by signs or acts indicative thereof i. delivery by public instrument— execution of the public instrument is equivalent to the delivery of the thing, if from the deed, the contrary does not appear or cannot be clearly inferred [1498] NOTE: gives only to a prima facie presumption of delivery

19 |T R A N S F E R O F O W N E R S H I P

SALES REVIEWER

1. presumption may be rebutted by clear and convincing evidence 2. legal fiction yields to reality in case notwithstanding the execution of the instrument the purchaser cannot have the enjoyment and material possession of the thing ii. delivery of keys—with regard to movable property, its delivery may be made by the delivery of the keys of the place or depository where it is stored or kept [1498] iii. traditio longa manu iv. tradition brevi manu—vendee already had the thing in possession before the sale took place v. tradition consitutum possessorium [1500]—vendor remains in possession of the property sold c. delivery to carrier i. General Rule: when the seller is authorized or required to send the goods to the buyer, delivery to the carrier is delivery of the buyer [1523] ii. Exceptions 1. contrary intent appears [1523] 2. seller expressly reserves ownership [1503] 3. under the bill of lading, goods are deliverable to the seller or his agent or to the order of the seller or his agent[1503] 4. under the bill of lading , goods are deliverable to the order of the buyer or his agent, but the seller reserves possession of the bill [1503] 5. buyer does not honor the bill of exchange [1503] NOTE: i. Kinds of delivery to carrier 1. C.I.F— signifies that the price fixed covers not only the cost of the goods, but the expense of the freight and the insurance to be paid by the seller 2. F.O.B. — goods are to be delivered free of expense to the buyer to the point where they are F.O.B. The point of F.O.B. determines when the ownership es NOTE: The C.I.F. and F.O.B merely makes rule sof presumption 20 |T R A N S F E R O F O W N E R S H I P

Comment [vsf21]: here, in pursuance of a contract of sale, the seller is authorized or required to send the goods to the buyer, delivery of the goods to a carrier, whether named by the buyer or not, for the purpose of transmission to the buyer is deemed to be a delivery of the goods to the buyer, except in the case provided for in Article 1503, first, second and third paragraphs, or unless a contrary intent appears. Unless otherwise authorized by the buyer, the seller must make such contract with the carrier on behalf of the buyer as may be reasonable, having regard to the nature of the goods and the other circumstances of the case. If the seller omit so to do, and the goods are lost or damaged in course of transit, the buyer may decline to treat the delivery to the carrier as a delivery to himself, or may hold the seller responsible in damages. Unless otherwise agreed, where goods are sent by the seller to the buyer under circumstances in which the seller knows or ought to know that it is usual to insure, the seller must give such notice to the buyer as may enable him to insure them during their transit, and, if the seller fails to do so, the goods shall be deemed to be at his risk during such transit. Comment [vsf22]: When there is a contract of sale of specific goods, the seller may, by the of the contract, reserve the right of possession or ownership in the goods until certain conditions have been fulfilled. 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. Where goods are shipped, and by the bill of lading the goods are deliverable to the seller or his agent, or to the order of the seller or of his agent, the seller thereby reserves the ownership in the goods. But, if except for the form of the bill of lading, the ownership would have ed to the buyer on shipment of the goods, the seller's property in the goods shall be deemed to be only for the purpose of securing performance by the buyer of his obligations under the contract. Where goods are shipped, and by the bill of lading the goods are deliverable to order of the buyer or of his agent, but possession of the bill of lading is retained by the seller or his agent, the seller thereby reserves a right to the possession of the goods as against the buyer. Where the seller of goods draws on the buyer for the price and transmits the bill of exchange ... [1]

SALES REVIEWER

3. C.O.D. —the carrier acts for the seller in collecting the purchase price, which the buyer must pay to obtain possession of the goods

21 |T R A N S F E R O F O W N E R S H I P

SALES REVIEWER

DOUBLE SALE I.

Requisites [Cheng v Genato] a. 2 or more sales in issue must pertain to exactly the same subject matter, and must be valid sale transactions b. 2 or more buyers at odds over the rightful ownership of the subject matter must each represent conflicting interests c. Buyers must each have bought from the same owner

II. Rules of Preference [1544] a. Personal property —first possessor in good faith b. Real property i. first registrant in good faith ii. first possessor in good faith iii. person with the oldest title NOTE: a. 1544 is not applicable to execution sales because the purchaser of such sales is substituted to or acquires only whatever rights, titles or interests the judgment debtor may have over the property, as of the time of the levy b. Possession may either be actual or constructive c. When the object of the sale is uned land, rule is that registration is without prejudice to a third party with a better right.

22 |D O U B L E S A L E

SALES REVIEWER

RISK OF LOSS Loss occurs at the time of perfection of contract [1493] a. if entire thing is lost—contract shall be without effect b. if only lost in part— i. vendee may withdraw from the contract ii. vendee may demand the remaining part and pay its price in proportion to the total sum agreed upon II. Loss occurs after perfection [1504] a. General Rule— i. goods remain at the seller's risk until the ownership therein is transferred to the buyer ii. when the ownership therein is transferred to the buyer the goods are at the buyer's risk whether actual delivery has been made or not b. Exceptions i. when otherwise agreed upon ii. where delivery of the goods has been made but 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 iii. 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. c. Other rules to be followed [1189] i. If the thing is lost without the fault of the seller, the obligation shall be extinguished; ii. 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; iii. When the thing deteriorates without the fault of the seller, the impairment is to be borne by the creditor; iv. If it deteriorates through the fault of the seller, the buyer may choose between the rescission of the obligation and its fulfillment, with indemnity for damages in either case; v. If the thing is improved by its nature, or by time, the improvement shall inure to the benefit of the buyer; vi. If it is improved at the expense of the seller, he shall have no other right than that granted to the usufructuary.

I.

23 |R I S K O F L O S S

SALES REVIEWER

DOCUMENTS OF TITLE I.

Negotiable documents of title a. Definition. Document authorizing or purporting to authorize the possessor of the document to transfer or receive goods represented by such document [1636(1)] b. Purpose. Through a document of title, seller is allowed by fiction of law to deal with the goods described therein as though he had physically delivered them to the buyer; and buyer may take the document of title as though he had actually taken possession and control over the goods described therein. The endorsement and delivery of a negotiable quedan operates as the transfer of possession and ownership of the property referred to therein, and had the effect of divorcing the property covered therein from the estate of the insolvent prior to the filing of the petition for insolvency [Philippine Trust Co. v. National Bank] c. How negotiable document of title is negotiated i. by mere delivery [1508] 1. if deliverable to the bearer [bearer bill] 2. if deliverable to the order of a certain person and that person has indorsed it in blank or indorsed it to the bearer ii. by indorsement and delivery (order bill) [1509] d. Who may negotiate negotiable document of title [1512] i. owner thereof ii. any person to whom the possession or custody of the document has been entrusted by the owner if: 1. by the of the document the bailee issuing the document undertakes to deliver the goods to the order of the person to whom the possession or custody of the document has been entrusted; or 2. at the time of such entrusting the document is in such form that it may be negotiated by delivery e. Unauthorized negotiation i. The validity of the negotiation of a negotiable document of title is not impaired by the fact that the negotiation was a breach of duty on the part of the person making the negotiation, or by the fact that that the owner of the document was deprived of the 24 |D O C U M E N T S O F T I T L E

SALES REVIEWER

II.

possession of the same by loss, theft, fraud, accident, mistake, duress, or conversion, if the person to whom the document was negotiated or a person to whom the document was subsequently negotiated paid value therefor in good faith without notice of the breach of duty, or loss, theft, fraud, accident, mistake, duress or conversion [1518] ii. If the owner of a negotiable document of title deliverable to the bearer entrusts the document to a friend for deposit, but the friends betrays the trust and negotiates the document by delivering it to another who is in good faith, the said owner cannot impugn the validity of the negotiation. As between two innocent persons, he who made the loss possible should bear the loss, without prejudice to his right to recover from the wrongdoer. [Sy Cong Bien v HSBC] Non-negotiable documents of title [1514] 1514: A person to whom a document of title has been transferred, but not negotiated, acquires thereby, as against the transferor, the title to the goods, subject to the of any agreement with the transferor. If the document is non-negotiable, such person also acquires the right to notify the bailee who issued the document of the transfer thereof, and thereby to acquire the direct obligation of such bailee to hold possession of the goods for him according to the of the document. Prior to the notification to such bailee by the transferor or transferee of a nonnegotiable document of title, the title of the transferee to the goods and the right to acquire the obligation of such bailee may be defeated by the levy of an attachment of execution upon the goods by a creditor of the transferor, or by a notification to such bailee by the transferor or a subsequent purchaser from the transfer of a subsequent sale of the goods by the transferor.

III.

IV.

Implied warranties of indorser or transferor (unless a contrary intention appears) [1516] a. genuineness of document b. legal right to negotiate or transfer c. no knowledge of fact which would impair the validity or worth of the document d. right to transfer the title to the goods and merchantability or fitness for a particular purpose, whenever such warranties would have been implied had the contract been transfer the goods without a document Garnishment of goods a. If the document is negotiable [1519] 25 |D O C U M E N T S O F T I T L E

SALES REVIEWER

i. generally no attachment or levy, except 1. if the document is surrendered to the bailee 2. or the negotiation of the document is ened ii. the bailee cannot be compelled to surrender the goods except 1. if the document is surrendered to him 2. or the document is impounded by the court b. If the document is non-negotiable, prior to the notification to the bailee by the transferor or transferee of a non-negotiable document of title, the title of the transferee to the goods and the right to acquire the obligation of such bailee may be defeated by the levy of an attachment of execution upon the goods by a creditor of the transferor, or by a notification to such bailee by the transferor or a subsequent purchaser from the transfer of a subsequent sale of the goods by the transferor. [1514] c. A creditor whose debtor is the owner of a negotiable document of title shall be entitled to such aid from courts of appropriate jurisdiction by injunction and otherwise in attaching such document or in satisfying the claim by means thereof as is allowed at law or in equity in regard to property which cannot readily be attached or levied upon by ordinary legal process [1520]

26 |D O C U M E N T S O F T I T L E

SALES REVIEWER

REMEDIES OF UNPAID SELLER I.

II.

Who is an unpaid seller a. whole of the price of his goods has not been paid or tendered; or b. bill of exchange or other negotiable instrument has been received as conditional payment of his goods, and the condition on which it was received has been broken by reason of i. dishonor ii. insolvency of the buyer iii. or otherwise c. he is either i. the seller ii. agent of the seller to whom the bill of lading has been indorsed iii. consignee or agent who has himself paid or is directly responsible for the price iv. any other person in the position of the seller Possessory lien. an unpaid seller has a lien on the goods or right to retain them for the price while he is in possession of them [1526 (1)] a. When unpaid seller who is possession of the goods entitled to retain them until he has been paid [1527] i. goods have been sold without any stipulation as to credit ii. goods have been sold on credit but the term of credit has expired iii. buyer becomes insolvent b. Rule in case of partial delivery. When partial delivery has been made, the unpaid seller may exercise his right of lien on the remainder, unless such partial delivery has been made under circumstances as to show intent to waive the lien or right of retention [1528] c. Loss of right of lien [1529] i. when he delivers to the goods to a carrier or other bailee for the purpose of transmission to the buyer without reserving the ownership in the goods or the right of possession thereof. ii. when the buyer or his agent lawfully obtains possession f the goods iii. when he waives such right iv. exception: when he has obtained judgment or decree for the price of goods 27 |R E M E D I E S O F U N P A I D S E L L E R

Comment [vsf23]: Seller may exercise his right of lien notwithstanding that he is in possession of the goods or bailee of the buyer [1527]

SALES REVIEWER

III.

Stoppage of goods. an unpaid seller has the right to stop goods in transit after he has parted with the possession of them, in case of the insolvency of the buyer [1526 (1)] a. When are goods in transit [1531] i. When are goods in transit 1. from the time when they are delivered to a carrier by land, water, or air, or other bailee for the purpose of transmission to the buyer, until the buyer, or his agent in that behalf, takes delivery of them from such carrier or other bailee; 2. if the goods are rejected by the buyer, and the carrier or other bailee continues in possession of them, even if the seller has refused to receive them back ii. When are goods no longer in transit 1. if the buyer, or his agent in that behalf, obtains delivery of the goods before their arrival at the appointed destination; 2. if, after the arrival of the goods at the appointed destination, the carrier or other bailee acknowledges to the buyer or his agent that he holds the goods on his behalf and continues in possession of them as bailee for the buyer or his agent; and it is immaterial that further destination for the goods may have been indicated by the buyer; 3. if the carrier or other bailee wrongfully refuses to deliver the goods to the buyer or his agent in that behalf. iii. Delivery to ship, freight train, truck or plane chartered by the buyer. is a question depending on the circumstances of the particular case, whether they are in the possession of the carrier as such or as agent of the buyer [1531] iv. Rule in case of partial delivery. If part delivery of the goods has been made to the buyer, or his agent in that behalf, the remainder of the goods may be stopped in transitu, unless such part delivery has been under such circumstances as to show an agreement with the buyer to give up possession of the whole of the goods. b. Exercise of right of stoppage [1532] i. How right is exercised 1. obtaining actual possession 2. giving notice of the claim ii. To whom notice is given 1. to the person in actual possession if the goods 28 |R E M E D I E S O F U N P A I D S E L L E R

SALES REVIEWER

IV.

V.

2. or to his principal iii. Effect of the exercise of the right 1. carrier must redeliver the goods to, or according to the directions of the seller 2. expenses of such deliver must be borne by the seller 3. exception: if a negotiable document of title has been issued by the carrier or other bailee, he shall not be obliged to deliver or justified in delivering the goods to the seller unless such document is first surrendered for cancellation Resale. an unpaid seller has the right of resale [1526 (3); 1533] a. When the right of resale exists i. perishable goods. goods are of perishable nature ii. express stipulation. seller expressly reserves the right of resale in case the buyer should make default iii. unreasonable default. buyer has been in default in the payment of the price for an unreasonable time b. Liability of seller/buyer in case of resale i. seller shall not be liable to the original buyer upon the contract of sale or for any profit made by such resale ii. seller may recover from the buyer damages for ay loss occasioned by the breach of the contract of sale c. New buyer acquires a good title as against the original buyer d. Notice requirement i. it is not essential to the validity of the resale that notice of intention to resell the goods be given by the seller to the original buyer ii. the giving or failure to give such notice shall be relevant in any issue involving the question whether the buyer had been default for an unreasonable time before the sale was made e. How sale should be made i. seller is bound to exercise reasonable care and judgment in making the resale ii. resale may either be by public or private sale iii. seller cannot directly or indirectly buy the goods Rescind. an unpaid seller has the right to rescind the transfer of title and to resume the ownership in the goods. [1526(1); 1534] a. When the right to rescind exists i. express reservation. where the seller expressly reserved the right to do so in case the buyer should make default 29 |R E M E D I E S O F U N P A I D S E L L E R

Comment [vsf24]: To be effectual, notice must be given at such time and under such circumstances that the principal, by the exercise of reasonable diligence, may prevent delivery.

Comment [vsf25]: Unpaid seller should have a right of lien; or he should have stopped the goods in transit for him to be able to resell the goods.

Comment [vsf26]: Unpaid seller should have a right of lien; or he should have stopped the goods in transit for him to be able to able to rescind the contract

SALES REVIEWER

VI.

ii. unreasonable default. where the buyer has been in default in the payment of the price for an unreasonable time b. Liability of buyer/seller i. seller shall not be liable to the buyer upon the contract of sale ii. seller may recover from the buyer damages for any loss occasioned by the breach of the contract c. What should be done in order to rescind the transfer of title i. notice to the buyer; or ii. any overt act showing an intention to rescind. Effect if buyer has already sold the goods [1535] a. Generally, the unpaid seller’s right of lien or stoppage in transitu remains even if the buyer has sold or otherwise disposed of the goods b. Exceptions i. when the seller has given his consent thereto ii. when the purchaser or the buyer is a purchaser for value in good faith of a negotiable document of title

30 |R E M E D I E S O F U N P A I D S E L L E R

Comment [vsf27]: It is not necessary that the overt act be communicated to the buyer; but the the giving or failure to give such notice shall be relevant in any issue involving the question whether the buyer had been default for an unreasonable time before the right of rescission was asserted

SALES REVIEWER

DELIVERY OF THING SOLD I.

Place, time and manner of delivery [1521] a. Place of delivery i. Whether it is for the buyer to take possession of the goods or for the seller to send them depends on the contract between the parties. ii. as a general rule, the buyer must get the goods at the seller’s business place or residence, except in the ff cases 1. there is an agreement to the contrary (express or implied) 2. usage of the trade states dictates otherwise 3. sale of specific goods which parties knew to be in some other place at the time of sale that place is the place of delivery b. Time of delivery i. Where the seller is bound to send the goods but no time for sending is fixed, he must send them w/in a reasonable time [1521] ii. The vendor shall not be bound to deliver the thing sold, if the vendee has not paid him the price, or if no period for the payment has been fixed in the contract [1524] c. Manner of delivery when goods are in the hands of a 3rd person. i. Where the goods at the time of sale are in the possession of a third person, the seller has not fulfilled his obligation to deliver to the buyer unless and until such third person acknowledges to the buyer that he holds the goods on the buyer's behalf. [1521] ii. Expenses for the delivery are to be shouldered by the seller unless otherwise agreed upon [1521] iii. When demand of delivery must be made. In the absence of agreement, demand must be made at a reasonable hour [1521] iv. When parties incur in delay [1169] 1169: Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation. However, the demand by the creditor shall not be necessary in order that delay may exist: 1. When the obligation or the law expressly so declare; or 2. When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered 31 |D E L I V E R Y O F T H E T H I N G S O L D

Comment [vsf28]: Whether it is for the buyer to take possession of the goods or of the seller to send them to the buyer is a question depending in each case on the contract, express or implied, between the parties. Apart from any such contract, express or implied, or usage of trade to the contrary, the place of delivery is the seller's place of business if he has one, and if not his residence; but in case of a contract of sale of specific goods, which to the knowledge of the parties when the contract or the sale was made were in some other place, then that place is the place of delivery. Where by a contract of sale the seller is bound to send the goods to the buyer, but no time for sending them is fixed, the seller is bound to send them within a reasonable time. Where the goods at the time of sale are in the possession of a third person, the seller has not fulfilled his obligation to deliver to the buyer unless and until such third person acknowledges to the buyer that he holds the goods on the buyer's behalf. Demand or tender of delivery may be treated as ineffectual unless made at a reasonable hour. What is a reasonable hour is a question of fact. Unless otherwise agreed, the expenses of and incidental to putting the goods into a deliverable state must be borne by the seller Comment [vsf29]: Smith Bell & Co., Ltd. V. Matti, 1922: What constitutes a reasonable time is determined by the circumstances of the particular transaction, such as: the character of the goods, - the purpose for which they are intended, - the ability of the seller to produce the goods if they are manufactured, - the facilities available for transportation and the distance the goods must be carried, and - the usual course of business in the particular trade

SALES REVIEWER

was a controlling motive for the establishment of the contract; or 3. When demand would be useless, as when the obligor has rendered it beyond his power to perform. In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins. II. Effects of delivery a. ownership of the thing sold is transferred to the vendee upon actual or constructive delivery thereof [1477], or in any manner signifying agreement that possession is transferred from the vendor to the vendee [1496] b. in the ff instances, ownership is not transferred despite delivery i. when the sale is not valid ii. express reservation [1503(1),1478] iii. sale on approval [1502] iv. implied in the bill of lading[1503] v. seller not the owner [1505] c. when seller not bound to deliver i. vendee has not paid him the price or if not period for payment has been fixed in the contract [1524] ii. in case the vendee shall lose to make use of the term as provided in 1198 [1536] iii. under 1198, the debtor shall lose every right to make use of the period 1. When after the obligation has been contracted, he becomes insolvent, unless he gives a guaranty or security for the debt; 2. When he does not furnish to the creditor the guaranties or securities which he has promised; 3. When by his own acts he has impaired said guaranties or securities after their establishment, and when through a fortuitous event they disappear, unless he immediately gives new ones equally satisfactory; 4. When the debtor violates any undertaking, in consideration of which the creditor agreed to the period; III. Sale of movables [1522] a. rules when the quantity delivered is less than that agreed upon i. buyer may reject ii. or buyer may accept what has been delivered, at the contract rate b. rules when quantity is more than the agreement 32 |D E L I V E R Y O F T H E T H I N G S O L D

SALES REVIEWER

i. buyer may reject all; he must not be burdened with the duty of segregation, if he does not so desire ii. buyer may accept the goods agreed upon and reject the rest iii. if he gets all, he must pay for them at the contract rate c. delivery by installments [1583] 1583: Unless otherwise agreed, the buyer of goods is not bound to accept delivery thereof by installments. Where there is a contract of sale of goods to be delivered by stated installments, which are to be separately paid for, and the seller makes defective deliveries in respect of one or more installments, or the buyer neglects or refuses without just cause to take delivery of or pay for one more installments, it depends in each case on the 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. IV.

Sale of immovables a. if sale is made with a statement of its area, at the rate of a certain price for a unit i. vendor shall be obliged to deliver to the vendee, if the latter should demand it, all that may have been stated in the contract [1539] ii. should this not be possible or should any part of the immovable be not of the quality specified in the contract, the vendee may choose between [1539] 1. a proportional reduction of the price and 2. the rescission of the contract iii. should there be a greater area or number in the immovable than that stated in the contract [1540] a. vendee may accept the area included in the contract and reject the rest b. he may accept the whole area, but he must pay for the same at the contract rate iv. 1539 and 1540 apply to judicial sales b. If sale is made for a lump [1541] i. there shall be no increase or decrease of the price, although there greater or less area or number than that stated in the contract ii. same rule applies when 2 or more immovable are sold for a

single price

33 |D E L I V E R Y O F T H E T H I N G S O L D

Comment [vsf30]: in the case of lack in the area, rescission shall only take place if the lack is not less than one tenth of that stated; in case of misrepresentation as to quality, rescission shall only take place at the will of the vendee and when the inferior value of the thing sold exceeds one tenth of the price agree d upon. Nevertheless, if the vendee would not have bought the immovable had he known of its smaller area or inferior quality, he may rescind the sale. Comment [vsf31]: but if, besides mentioning the boundaries, which is indispensable in every conveyance of real estate, its area or number should be designated in the contract, the vendor shall be bound to deliver all that is included within said boundaries, even when it exceeds the area or number specified in the contract; and, should he not be able to do so, he shall suffer a reduction in the price, in proportion to what is lacking in the area or number, unless the contract is rescinded because the vendee does not accede to the failure to deliver what has been stipulated.

SALES REVIEWER

V. Inspection and Acceptance a. Right to inspect i. unless otherwise agreed, the seller is bound, on 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 [1584(2)] ii. no right to inspect when the sale is on COD in the absence of an agreement or usage of trade to the contrary [1583(3)] b. Manifestation of acceptance— the buyer is deemed to have accepted the goods when [1585]: i. he intimates to the seller that he has accepted them; or ii. when 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; or iii. when, after the lapse of time, he retains the goods without intimating to the seller that he has rejected them c. Refusal to accept—Unless otherwise agreed, where the goods are delivered to the buyer and he has a right to refuse to accept them, he need not return them. It is sufficient that he notifies the seller that he refuses to accept them, and the buyer becomes the depository of the goods [1587] d. Acceptance not condition to delivery— Since delivery of the subject matter of the sale is an obligation on the part of the seller, the acceptance thereof by the buyer is not a condition for the completeness of delivery [La Fuerza v CA]

34 |D E L I V E R Y O F T H E T H I N G S O L D

SALES REVIEWER

PAYMENT OF PRICE I.

when & where payment should be made [1582] a. The vendee is bound to accept delivery and to pay the price of the thing sold at the time and place stipulated in contract b. If the time and place should not have been stipulated, payment must be made at the time and place of delivery of the thing sold

II. liability for interest on the price [1589] —vendee is liable for interest if a. there is a stipulation requiring interests b. if there is none, but i. the thing delivered produces fruits or income; or ii. the buyer incurs in default from the time of judicial or extrajudicial demand for payment III. suspension of payment [1590] —vendee may suspend payment of a. he is disturbed in the possession or ownership of the thing bought b. he has a well-grounded fear that his possession or ownership would be disturbed by a vindicatory action or foreclosure of mortgage IV.

when vendee cannot suspend payment [1590] a. vendor gives security for the return of the price is a proper case b. vendor has caused the disturbance or danger to cease c. disturbance is a mere act of tres d. it has been stipulated that notwithstanding any such contingency, the vendee must make payment

35 |P A Y M E N T O F P R I C E

SALES REVIEWER

WARRANTIES I.

Definition a. It is a statement of representation made by the seller contemporaneously and as part of the contract of sale, having reference to the character, quality, or title of the goods, and by which he promises or undertakes to insure that certain facts are or shall be as he then represents b. May express or implied i. Express— any affirmation of fact or any promise by the seller relating to the thing which induces the buyer to purchase the same ii. Implied— that which the law derives from the nature of the transaction or the relative situation or circumstances of the parties, irrespective of any intention of the seller to create it c. Distinguished from condition i. a condition is an uncertain event or contingency fixed by the parties, the existence or happening of which, is necessary to the efficacy of the contract ii. where a condition is not performed 1. the other party may either [1545] a. refuse to proceed with the contract b. proceed with the contract, waiving the performance of the contract 2. if the condition is in the nature of a promise that it should happen, the non-performance of such condition may be treated by the other party as a breach of warranty iii. warranty v condition Warranty Goes into the performance of such obligation and in fact may constitute an obligation in itself May form part of the obligation or contract by provision of the law without the parties having agreed thereto Whether express or implied relates to the subject matter itself or to the obligations of the seller as to the subject matter of the sale

36 |W A R R A N T I E S

Condition Goes into the root of the existence of the obligation Must be stipulated by the parties in order to form part of an obligation May attach itself either to the obligation of the seller to deliver possession and transfer ownership over the subject matter of the sale

SALES REVIEWER

d. Distinguished from opinion, dealer’s talk [1546] i. An affirmation of the value of the thing or any statement of the seller’s opinion not a warranty ii. Exception— 1. seller made such affirmation as an expert; and 2. it was relied upon the buyer II.

III.

Breach of warranty a. Remedies of vendee [1599] i. Recoupment —accept the goods and set up the seller’s breach to reduce or extinguish the price ii. Accept the goods and maintain an action for damages for breach of warranty iii. Refuse to accept the goods and maintain an action for damages for breach of warranty iv. Rescind the contract by returning or offering the return of the goods, and recover the price or any part thereof b. When rescission not allowed[1599] i. If the buyer accepted the goods without protest, knowing the breach of warranty ii. If the buyer fails to notify the seller within a reasonable time of his election to rescind iii. If he fails to return or offer to return the goods in substantially as good condition as they were in at the time of the transfer of ownership to him; except if the deterioration is due to the breach of warranty c. Rights and obligations of buyer in case of rescission [1599] i. Buyer shall cease to be liable for the price, his only obligation being to return the goods ii. If he has paid the price or any part thereof, he may recover it from the seller iii. He has the right to hold the goods as bailee for the seller should the latter refuse the return of the goods; AND iv. He has a right to have a lien on the goods for any portion of the price already paid which lien he may enforce as if he were an unpaid seller Implied Warranties a. Implied Warranty of Title i. Unless a contrary intention appears, there is an implied warranty on the part of seller [1547] 1. that he has a right to sell the thing; and 2. that the buyer shall, from that time, have and enjoy the legal and peaceful possession of the thing ii. There is a violation of this warranty when [1548] 37 |W A R R A N T I E S

SALES REVIEWER

1. the vendee is deprived, in whole or in part, of the thing purchased 2. the deprivation is by virtue of a final judgment [1557] 3. the judgment is based on a prior right to the sale or an act imputable to the vendor 4. the vendor was summoned in the suit for eviction at the instance of the vendee [1558]; AND 5. no waiver of the warranty by the vendee NOTE: 1. the vendee need not appeal from the decision in order in order that the vendor may be liable for eviction [1549] 2. there is likewise a violation of the warranty when the property is sold for nonpayment of taxes due and not made known to the vendee before the sale [1551] 3. The judgment debtor is also responsible for eviction in judicial sales, unless it is otherwise decreed in the judgment [1552] 4. When adverse possession had been commenced before the sale but the prescriptive period is completed after the transfer, the vendor shall not be liable for eviction. [1550] ii. Liability of vendor 1. Total eviction [1555]—VICED a. Value of the thing at the time of the eviction b. Income or fruits if he has been ordered to deliver them to the party who won the suit c. Costs if the suit d. Expenses of the contract; AND e. Damages and interests if the sale was in bad faith 2. Partial eviction [1556] a. VICED; OR b. Rescission if vendee would not have bought the thing without said part; but with the obligation to return the thing without other encumbrances than those which it had at the time he acquired it iii. Warranty may be renounced, limited 1. The contracting parties may increase, diminish, or suppress this legal obligation of the vendor [1548] 2. Any stipulation exempting the vendor from the obligation to answer for eviction shall be void, if he acted in bad faith [1553] 3. Consequence of waiver, renunciation [1554] a. should take place, the vendor shall only pay the value which the thing sold had at the time of the eviction 38 |W A R R A N T I E S

SALES REVIEWER

b. if the vendee made the waiver with knowledge of the risks of eviction and assumed its consequences, the vendor shall not be liable. b. Implied Warranty Against Non-apparent Encumbrances i. Unless a contrary intention appears, there is an implied warranty that the thing shall be free from any charge or encumbrance not declared or known to the buyer [1547] ii. When there is a breach of this warranty, such that it may be presumed that vendee would not have bought its, vendee may [1560] 1. if within 1 year from the execution of the deed a. ask for rescission of the contract within 1 year from the execution of the deed; or b. sue for damages within the same period 2. if period has elapsed, sue for damages within 1 year from the discovery of the burden of servitude iii. When there is no breach [1560] 1. if the non-apparent burden or servitude is ed in the Registry of Deeds, unless there was an express warranty 2. if the vendee had knowledge of the encumbrance c. Implied Warranty Against Hidden Defects 1. Unless a contrary intention appears, there is an implied warranty that the thing shall be free from any hidden faults or defects[1547] 2. When there is a breach of this warranty [1561] 1. Hidden defect would render the thing unfit for the use intended ; or 2. would diminish its fitness for such use to an extent that had the vendee been aware thereof, he would not have acquired it or would have given a lower price for it NOTE: 1. Vendor shall be answerable even if he was unaware of such defects [1566] 2. This implied warranty applies to judicial sales, except that the judgment debtor shall not be liable for damages [1570] 3. When two or more things are sold together, the hidden defect of one shall not affect the validity of the other things sold, unless the vendee would not have bought them without the defective one [1573] 4. This warranty may be validly waived, unless the vendor acted in bad faith [1566] 3. There is no implied warranty for [1561] 1. patent defects; and 39 |W A R R A N T I E S

SALES REVIEWER

2. those hidden, but would have been known to the vendee if the latter is an expert who, by reason of his trade or profession, should have known such defects 4. Remedies of vendee – vendee may either [1567] 1. Withdraw from the contract and ask for damages 2. Demand for a proportionate reduction of the price and ask for damages 5. Effect when the thing is lost [1568, 1569] 1. Loss of thing on of hidden defect a. if the vendor was aware of hidden defects, he shall bear the loss and the vendee shall have the right t recover (PED) i. price paid ii. interest thereon iii. damages b. if the vendor was not aware, he shall be obliged to return (PIE) i. price paid ii. interest thereon iii. expenses of the contract if paid by the vendee 2. Loss of the thing not due to hidden defect (but nevertheless has hidden defect) a. if due to fortuitous event or thru the fault of the vendor, the vendee may demand from the vendor the price which he paid less the value of the thing at the time of the loss b. if the vendor acted in bad faith, the vendor shall pay damages to the vendee. d. Implied Warranty of Merchantability i. when the goods are brought by description from a seller who deals in goods of that description, whether he is the grower, manufacturer or not, there is an implied warranty that the goods correspond with the description and that they shall be of merchantable quality [1481,1561(2)] ii. There is no implied warranty of merchantability where the goods are in the presence of the parties at the time of the sale, and adequate examination was made. e. Implied Warranty of Quality [1562 (1)] i. When there is an implied warranty of quality 1. Where the buyer, expressly or impliedly, made known to the seller the particular purpose for which the goods are acquired, 40 |W A R R A N T I E S

Comment [vsf32]: The goods are reasonably fit for the general purpose for which they are sold.

SALES REVIEWER

2. and the buyer relied on the seller’s skill or judgment, whether the latter is a grower or manufacturer of the goods or not, there is an implied warranty that the goods shall be fit for such purpose NOTE: Such warranty may be annexed by the usage of the trade [1564] ii.

In a sale of a specified article under its patent or trade name, there is no warranty as to its fitness for any particular purpose, unless there is a stipulation to the contrary [1563]

41 |W A R R A N T I E S

SALES REVIEWER

REMEDIES IN CASE OF BREACH I.

In General a. Remedies of the seller i. Action for payment of the price [1595] ii. Action for damages for non-acceptance of the goods [1596] iii. Action for rescission [1597] b. Remedies of the buyer i. Action for specific performance [1598] ii. Action for rescission, or damages for breach of warranty

Art. 1595. Where, under a contract of sale, the ownership of the goods has ed to the buyer and he wrongfully neglects or refuses to pay for the goods according to the of the contract of sale, the seller may maintain an action against him for the price of the goods. Where, under a contract of sale, 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 in the goods has not ed. 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 contract of sale on his part or an intention not to perform it. Although the ownership in the goods has not ed, 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. (n) Art. 1596. Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may maintain an action against him for damages for nonacceptance. 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. Where 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 42 |R E M E D I E S I N C A S E O F B R E A C H

SALES REVIEWER

been accepted, or, if no time was fixed for acceptance, then at the time of the refusal to accept. 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 contract of sale, 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. (n) Art. 1597. Where the goods have not been delivered to the buyer, and the buyer has repudiated the contract of sale, or has manifested his inability to perform his obligations thereunder, or has committed a breach thereof, the seller may totally rescind the contract of sale by giving notice of his election so to do to the buyer. (n) Art. 1598. Where the seller has broken a contract to deliver specific or ascertained goods, a court may, on the application of the buyer, direct that the contract shall be performed specifically, without giving the seller the option of retaining the goods on payment of damages. The judgment or decree may be unconditional, or upon such and conditions as to damages, payment of the price and otherwise, as the court may deem just. (n) Art. 1599. Where there is a breach of warranty by the seller, 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; (2) Accept or keep the goods and maintain an action against the seller for damages for the breach of warranty; (3) Refuse to accept the goods, and maintain an action against the seller for damages for the breach of warranty; (4) Rescind the contract of sale 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. 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.

43 |R E M E D I E S I N C A S E O F B R E A C H

SALES REVIEWER

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 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. (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. (n)

II. Sale of Goods a. Remedies of the seller i. Action for the price [1595] — only when 1. Ownership of the goods has ed to the buyer 2. Price is payable before delivery of the goods; although in this case the buyer could set up the defense that the seller could not or did not intend to deliver the goods; OR 3. The seller was notified by the buyer of the latter’s repudiation of the contract after the seller has completed the manufacture of the goods or had procured the goods to be delivered, and the goods could not readily be resold for a reasonable price

44 |R E M E D I E S I N C A S E O F B R E A C H

SALES REVIEWER

ii. Action for damages [1596] 1. Where the buyer wrongfully neglects or refuses to accept and pay for the goods—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 2. Where the goods have already been manufactured or procured by the seller before he learns of the repudiation of the contract by the buyer, and there is an available market for the goods—the measure for damages, in the absence of special circumstance showing proximate damage of a different amount, is the difference between the contract price and the market or current price at the time when the goods ought to have been accepted or, if no time was fixed for acceptance, then at the time of refusal to accept 3. Where labor or expense of material amount is necessary in the part of the seller to enable him to fulfill his obligation under the contract, and the buyer notified the seller not to proceed further therewith—the measure for damages shall be the cost of labor and expenses incurred before receiving the countermand or repudiation, and the profit the seller would have made if the contract had been fully performed iii. Action for rescission [1597] 1. When seller may rescind by giving notice of election a. Where the good have not been delivered b. The buyer either i. Has repudiated the contract ii. Has manifested his inability to perform his obligation thereunder iii. Has committed a breach thereof 2. Different from 1534— rescission under this article would bar an action on the contract because it means cancellation of all contractual obligations; unlike in 1534 where the unpaid seller may still recover damages after resuming ownership over the goods

45 |R E M E D I E S I N C A S E O F B R E A C H

Comment [vsf33]: An unpaid seller having the right of lien or having stopped the goods in transitu, may rescind the transfer of title and resume the ownership in the goods, where he expressly reserved the right to do so in case the buyer should make default, or where the buyer has been in default in the payment of the price for an unreasonable time. The seller shall not thereafter be liable to the buyer upon the contract of sale, but may recover from the buyer damages for any loss occasioned by the breach of the contract. The transfer of title shall not be held to have been rescinded by an unpaid seller until he has manifested by notice to the buyer or by some other overt act an intention to rescind. It is not necessary that such overt act should be communicated to the buyer, but the giving or failure to give notice to the buyer of the intention to rescind shall be relevant in any issue involving the question whether the buyer had been in default for an unreasonable time before the right of rescission was asserted.

SALES REVIEWER

b. Remedies of the buyer i. Specific Performance 1. Where the seller has broken a contract to deliver specific or ascertained goods, a court may, on the application of the buyer, direct that the contract shall be performed specifically, without giving the seller the option of retaining the goods on payment of damages. The judgment or decree may be unconditional, or upon such and conditions as to damages, payment of the price and otherwise, as the court may deem just. [1598] 2. courts will refuse to decree specific performance with respect to chattels because damages is a sufficient remedy, unless: a. the buyer is entitled to the specific thing which to him has some special value and which he cannot readily obtain in the market; or b. in cases where it is apparent that compensation in damages would not furnish a complete and adequate remedy ii. Action for rescission, or damages for breach of warranty 1. Remedies of vendee [1599] a. Recoupment —accept the goods and set up the seller’s breach to reduce or extinguish the price b. Accept the goods and maintain an action for damages for breach of warranty c. Refuse to accept the goods and maintain an action for damages for breach of warranty d. Rescind the contract by returning or offering the return of the goods, and recover the price or any part thereof 2. When rescission not allowed[1599] a. If the buyer accepted the goods without protest, knowing the breach of warranty b. If the buyer fails to notify the seller within a reasonable time of his election to rescind c. If he fails to return or offer to return the goods in substantially as good condition as they were in at the time of the transfer of ownership to him; except if the deterioration is due to the breach of warranty 3. Rights and obligations of buyer in case of rescission [1599] a. Buyer shall cease to be liable for the price, his only obligation being to return the goods 46 |R E M E D I E S I N C A S E O F B R E A C H

SALES REVIEWER

b. If he has paid the price or any part thereof, he may recover it from the seller c. He has the right to hold the goods as bailee for the seller should the latter refuse the return of the goods; AND d. He has a right to have a lien on the goods for any portion of the price already paid which lien he may enforce as if he were an unpaid seller

47 |R E M E D I E S I N C A S E O F B R E A C H

Page 20: [1] Comment [vsf22]

victor samuel fontanill

10/12/2008 2:56:00 PM

When there is a contract of sale of specific goods, the seller may, by the of the contract, reserve the right of possession or ownership in the goods until certain conditions have been fulfilled. 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. Where goods are shipped, and by the bill of lading the goods are deliverable to the seller or his agent, or to the order of the seller or of his agent, the seller thereby reserves the ownership in the goods. But, if except for the form of the bill of lading, the ownership would have ed to the buyer on shipment of the goods, the seller's property in the goods shall be deemed to be only for the purpose of securing performance by the buyer of his obligations under the contract. Where goods are shipped, and by the bill of lading the goods are deliverable to order of the buyer or of his agent, but possession of the bill of lading is retained by the seller or his agent, the seller thereby reserves a right to the possession of the goods as against the buyer. Where the seller of goods 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, the buyer is bound to return the bill of lading if he does not honor the bill of exchange, and if he wrongfully retains the bill of lading he acquires no added right thereby. 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, provided that 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.