CHAPTER 9

LOSS AND DETERIORATION, C.2. DETERIORATION [ART 1189]

FRUITS AND OTHER BENEFITS - Impairment is borne by the buyer if the thing deteriorates
without the fault of the seller.
General rule: [ARTS. 1263, 1189] - If it deteriorates through the fault of the debtor, the creditor may choose
Res perit domino: Owner bears risk of loss between rescission of obligation and fulfillment, either case with indemnity for
damages.
Basis: Ownership is not transferred until delivery.

D. AFTER DELIVERY
A. BEFORE TO PERFECTION OF CONTRACT
Buyer bears risk of loss and deterioration.
Seller bears risk of loss and deterioration.
XPN: [Art 1504 (1) and (2)]
(1)Where delivery has been made either to the buyer or to the bailee for the
B. AT TIME OF PERFECTION
buyer, but ownership in the goods has been retained by the seller merely to secure
[ARTS. 1493 AND 1494] performance by the buyer of his obligations under the contract; and
Seller bears risk of loss and deterioration. (2) Where actual delivery has been delayed through the fault of either the
Total Loss Partial Loss (Or loss which buyer or seller, the goods are at the risk of the party in fault.
results in substantial
change in character)
CHAPTER 10
Contract is ineffective Buyer may withdraw from
REMEDIES OF PARTIES
because the object did not the contract
exist at the time of the OR
transaction. Caveat emptor = “Let the buyer beware”
Buy the remainder at a
proportionate price
REMEDES IN CASES OF MOVABLES
A. ORDINARY REMEDIES OF SELLER
C. AFTER PERFECTION BUT BEFORE DELIVERY
i. Movables in Geneeral
C.1.LOSS In case the buyer upon the expiration of period fixed for the
GR: Stipulations in the contract will govern. delivery of the thing, should not have appeared to receive it, or, not paid, the
In the absence of stipulation, there are two conflicting views: seller may maintain an action to rescind the sale.
(1) Res perit creditori or the buyer bears the risk of loss. This is an ii. Sales of Goods
exception to the rule of res perit domino. a. Non-payment of price by buyer
Basis: Art 1504 only covers goods.  Ownership transferred to buyer ( S may maintain action against B for the
Pursuant to Article 1262, if the thing is destroyed without the price of the goods [action for specific performance])
fault of the debtor/seller, the obligation to pay shall subsist.  No transfer of ownership to buyer
 When price payabe on certain day
b. When buyer wrongfully neglects/ refuses to accept goods
(2) Res perit domino or the seller bears the risk of loss. S may maintain an action against B for damages for non-acceptance
Basis: The rule on loss is different from the rule on deterioration for the loss accordance w/ the ff rules:
would be for the account of the seller, while the deterioration would be for the  Damages shall cover the estimated loss directly and naturally ( in
account of the buyer. ordinary)
- In reciprocal obligations, the extinguishment of the obligation due to loss  Proximate price at the time of refusal
of the thing extinguishes the entire juridical relation.  B shall pay the expenses incurred prior to b’s repudiation.
B. SPECIAL REMEDIES OF “UNPAID SELLER” OF GOODS (2) If the buyer returns the goods in wrongful repudiation of the sale,
Unpaid Seller (Art1525) – (1) When the whole of the price has not then the lien is revived.
been paid or tendered; or
(2) When a bill of exchange or other negotiable instrument has Possessory lien is lost after the seller loses possession but
been received as conditional payment, and the condition on which it was his lien as an unpaid seller remains. His preference can only be defeated
received has been broken by reason of the dishonor of the instrument, the by the government’s claim to the specific tax on the goods. [Arts 2241,
insolvency of the buyer, or otherwise. 2247]
In Articles 1525 to 1535 the term "seller" includes an agent of the seller to whom
the bill of lading has been indorsed, or a consignor or agent who has himself paid, 2. STOPPAGE IN TRANSITU
or is directly responsible for the price, or any other person who is in the position
An extension of the lien for the price; entitles unpaid seller to
of a seller. (n) resume possession of the goods while they are in transit before the
Rights of unpaid seller goods come in possession of the vendee [Arts. 1530-1532, 1535,
1. POSSESORY LIEN 1636[2]]
Right to retain possession of goods until payment or tender of the Requisites for the exercise of stoppage in transitu
whole price, or unless he agrees to sell on credit [Arts. 1526-1529, 1503, (1) The seller is unpaid
1535] (2) The buyer is insolvent
(3) The goods are in transit
When available [Art 1527]
(4) The seller either takes actual possession, or gives notice of claim to
(1) Goods are sold without stipulation as to credit
the carrier or other person possessing the goods
(2) Goods are sold on credit, but term of credit has expired
(5) The seller must surrender the negotiable instrument or title, if any,
(3) Buyer becomes insolvent issued by the carrier/bailee
The seller may exercise his right of lien notwithstanding that he is
(6) The seller must bear the expenses of the delivery of the goods after
in possession of the goods as agent or bailee for the buyer [Art 1527,
exercise of such right.
par. 2]
When Goods Are In Transit [Art 1531, par. 1]
When Unpaid Seller Loses His Lien [Art 1529]
(1) From the time of delivery to the carrier or other bailee by the seller,
(1) Seller delivers goods to carrier or other bailee for transmission to
for the purpose of transmission to the buyer, until the buyer or his agent
the buyer without reserving ownership or right of possession (i.e. under
takes such delivery from the carrier.
a straight or non-negotiable bill of lading)
(2) Even when goods have reached their ultimate destination, if buyer
(2) Buyer or his agent lawfully obtains possession of goods
rejects them and carrier retains possession
(3) Seller waives the lien - To terminate transit by delivery to a middleman, delivery must be
(a) But it is not lost with respect to the remainder of the goods to keep, not to transport.
when only partial delivery is made (unless such is symbolic delivery of - In case of misdelivery, the goods are still considered in transit,
the whole) hence, the seller may still exercise his right pursuant to Article 1523.
(b) It is not lost by the mere fact that seller obtained a judgment for
the price When Goods Are No Longer In Transit [Art 1531, par. 2]
(1) Buyer obtained delivery of the goods before they have reached their
When Lien May Be Revived After Delivery appointed destination
(1) If the buyer refuses to receive the goods after the same are delivered (2) Goods have arrived at the appointed destination, and the
to the carrier or other bailee on his behalf, though the seller has parted carrier/bailee acknowledges to hold the goods on behalf of the buyer
with both ownership and possession. Here, the seller may reclaim the
(3) Goods have arrived at the appointed destination, but carrier
goods and revest the lien.[Art 1531, par.1(2)]
wrongfully refuses to deliver to buyer/his agent
 How Right Is Exercised [Art 1532] (2) Buyer at resale acquires good title as against the original owner
(1) By obtaining actual possession of the goods (3) In case resale is at a loss, seller is entitled to recover the difference from the
(2) By giving notice of his claim to the carrier/other bailee who has original buyer
possession of the goods (4) Seller may recover damages from original buyer for breach of contract
(a) Carrier must redeliver goods to seller, or according to his instructions
(b) Carrier not obliged to redeliver until the negotiable document of 4. SPECIAL RIGHT TO RESCIND
title, if any, has been surrendered for cancellation - Return of the title over the undelivered goods to the seller, and right to
recover damages for breach of contract [Art. 1534]
Effect When Buyer Has Sold the Goods [Art 1535]
When available
General Rule: Seller’s right to stoppage in transitu is not affected even
if buyer has sold or disposed of the goods unless the seller has given his When the unpaid seller has either a right of lien or has stopped the goods in
assent thereto. transitu and under any of the following conditions:
Exceptions: (1) Seller expressly reserved his right to rescind in case buyer
(1) When seller has given consent thereto defaults
(2) When a negotiable document of title has been issued for the goods (2) Buyer has been in default in payment for an unreasonable
to a purchaser for value in good faith time

3. SPECIAL RIGHT OF RESALE - Transfer of title shall not be held to have been rescinded by the unpaid
- Available to unpaid seller who has a right of lien or who has stopped the seller until he manifests by notice to the buyer or some other overt act an intention
goods in transitu [Art. 1533] to rescind.
When available - Communication to buyer of rescission is not always necessary (it can be an
- When the unpaid seller has either a right of lien or has stopped the goods overt act). But giving/failure to give notice is relevant in determining reasonableness
in transitu and under any of the following conditions: of time given to the buyer to make good his obligation under contract. [De Leon]
(1) The goods are perishable in nature - Whole Price not Paid
(2) The right to resell is expressly reserved in case the buyer should default When the whole of the price has notbeen paid or tendered;
(3) The buyer delays in paying the price for an unreasonable time Dishonor of Bill of Exchange or Negotiable Instrument
When a bill of exchange or other negotiable instrument has been received as
The right to resell the goods is not mandatory, but permissive. conditional payment and the condition on which it was received has been broken by
How exercised reason of the dishonor of the instrument, the insolvency of the buyer, or otherwise.
(1) He must do so within a reasonable time and in such manner as to obtain the best
price possible. C. REMEDIES OF BUYER
Art. 1599. Where there is a breach of warranty by the seller, the buyer may, at his
(2) Resale is deemed to be a fair sale if it is undertaken in accordance with established
election:
business practices, with no attempt to take advantage of the original buyer.
(1) Accept or keep the goods and set up against the seller, the breach of
(3) Resale may be in a private or public sale, but seller cannot buy directly or
warranty by way of recoupment in diminution or extinction of the price;
indirectly.
(2) Accept or keep the goods and maintain an action against the seller for
(4) For resale to be valid, buyer need not be notified of an intention to resell or the
damages for the breach of warranty;
time and place of the resale.
(3) Refuse to accept the goods, and maintain an action against the seller for
damages for the breach of warranty;
Effects of Resale
(1) Seller is no longer liable to the original buyer upon the contract of sale or for any
profit made by the resale
 (4) Rescind the contract of sale and refuse to receive the goods or if the goods a. Non-payment of price by buyer
have already been received, return them or offer to return them to the seller Ownership transferred to buyer – the seller may maintain an
and recover the price or any part thereof which has been paid. action against him for the price of the goods.
- Without prejudice to the buyer’s right to rescind, even if No transfer of ownership to buyer – the seller may treat the goods
previously he has chosen specific perfomance when fulfillment has become as the buyer’s and may maintain an action for the price.
impossible. When price payable on certain day – the seller may maintain an
action for the price although the ownership in the goods has not
passed.
D. RECTO LAW: SALES OF MOVABLES ON INSTALLMENTS
b. When buyer wrongfully/neglects or refuses to accept goods – the
Art. 1484. In a contract of sale of personal property the price of which is payable in
seller may maintain an action against him for damages for non-
installments, the vendor may exercise any of the following remedies:
acceptance.
(1) Exact fulfillment of the obligation, should the vendee fail to pay; B. Special remedies of “unpaid seller” of goods
(2) Cancel the sale, should the vendee's failure to pay cover two or more Unpaid seller – a) the whole of the price has not been paid; b) negotiable
installments; instrument was dishonored or buyer insolvent
(3) Foreclose the chattel mortgage on the thing sold, if one has been Possessory lien
constituted, should the vendee's failure to pay cover two or more installments. Possessory lien exercisable when:
In this case, he shall have no further action against the purchaser to recover a. The goods have been sold without any stipulation as to credit;
any unpaid balance of the price. Any agreement to the contrary shall be void. b. The goods have been sold on credit, but the term of credit has expired;
c. The buyer becomes insolvent.
Requisite: (SPIF)
Instances when possessory lien lost:
1. contract of Sale
2. Personal property a. Seller delivers the goods to a carrier without reserving the ownership in
3.Payable in Installment the goods or the right to the possession thereof;
4. in case of 2 and 3 remedies, there has been Failure to pay 2 or more b. The buyer or his agent lawfully obtains possession of the goods;
installments. c. By waiver thereof.

NOT applicable to: Stoppage in transit

1. straight payments
When goods deemed in transit:
2. sale or mortgage of real prop
3. action of replevin a. Delivered to a carrier;
4. Contract to sell on movable b. Goods are rejected by the buyer, and the carrier continues in possession
of them.
CHAPTER 10:
When goods deemed no longer in transit:
REMEDIES OF PARTIES
a. Delivery of the goods before their arrival at the appointed destination;
Caveat emptor – let the buyer beware b. After the arrival of the goods at the appointed destination, the carrier
acknowledges that he holds the goods on behalf of the buyer;
Remedies in cases of movables c. The carrier refuses to deliver the goods.
A. Ordinary remedies of seller Special right to resell goods
1. Movables in general
Non-payment/non-delivery – the seller may maintain an action to When right exercisable:
rescind the sale.
a. The goods are of perishable nature;
2. Sale of goods
 b. Express reservation of the seller in case of default by the buyer; Art. 1484. In a contract of sale of personal property the price of which is
c. Buyer in default for an unreasonable time. payable in installments, the vendor may exercise any of the following
remedies:
Special right to rescind
(1) Exact fulfillment of the obligation, should the vendee fail to pay;
When right may be exercised:
(2) Cancel the sale, should the vendee's failure to pay cover two or more
a. Express reservation of the seller in case of default by the buyer; installments;
b. Buyer in default for an unreasonable time.
C. Remedies of buyer (3) Foreclose the chattel mortgage on the thing sold, if one has been
1. Failure of seller to deliver – the buyer may seek action for specific constituted, should the vendee's failure to pay cover two or more
performance. installments. In this case, he shall have no further action against the
2. Breach of seller’s warranty purchaser to recover any unpaid balance of the price. Any agreement to the
Art. 1599. Where there is a breach of warranty by the seller, the buyer contrary shall be void. (1454-A-a)
may, at his election:
(1) Accept or keep the goods and set up against the seller, the breach E. Lease with option to purchase
of warranty by way of recoupment in diminution or extinction of the Art. 1485. The preceding article shall be applied to contracts purporting to
price; be leases of personal property with option to buy, when the lessor has
(2) Accept or keep the goods and maintain an action against the seller deprived the lessee of the possession or enjoyment of the thing. (1454-A-a)
for damages for the breach of warranty;
(3) Refuse to accept the goods, and maintain an action against the Art. 1486. In the case referred to in two preceding articles, a stipulation that
seller for damages for the breach of warranty; the installments or rents paid shall not be returned to the vendee or lessee
(4) Rescind the contract of sale and refuse to receive the goods or if the shall be valid insofar as the same may not be unconscionable under the
goods have already been received, return them or offer to return them circumstances. (n)
to the seller and recover the price or any part thereof which has been Remedies in cases of immovable
paid.
3. Suspension of payments in anticipation of breach A. Remedies of seller
Art. 1590. Should the vendee be disturbed in the possession or 1. Anticipatory breach
ownership of the thing acquired, or should he have reasonable grounds Art. 1591. Should the vendor have reasonable grounds to fear the loss
to fear such disturbance, by a vindicatory action or a foreclosure of of immovable property sold and its price, he may immediately sue for
mortgage, he may suspend the payment of the price until the vendor the rescission of the sale.
has caused the disturbance or danger to cease, unless the latter gives
security for the return of the price in a proper case, or it has been Should such ground not exist, the provisions of Article 1191 shall be
stipulated that, notwithstanding any such contingency, the vendee shall observed. (1503)
be bound to make the payment. A mere act of trespass shall not
authorize the suspension of the payment of the price. (1502a) Art. 1191. The power to rescind obligations is implied in reciprocal ones,
D. Recto law: Sales of movables on installments in case one of the obligors should not comply with what is incumbent
Requisites: upon him.
a. Contract of sale;
b. Personal property; The injured party may choose between the fulfillment and the
c. Installment rescission of the obligation, with the payment of damages in either
d. Failure to pay two or more installments. case. He may also seek rescission, even after he has chosen fulfillment,
if the latter should become impossible.
 The court shall decree the rescission claimed, unless there be just cause The court shall decree the rescission claimed, unless there be just cause authorizing
authorizing the fixing of a period. the fixing of a period.

This is understood to be without prejudice to the rights of third persons This is understood to be without prejudice to the rights of third persons who have
who have acquired the thing, in accordance with Articles 1385 and 1388 acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law.
and the Mortgage Law. (1124) (1124)
2. Failure of buyer to pay price Art. 1381. The following contracts are rescissible:
Art. 1592. In the sale of immovable property, even though it may have
been stipulated that upon failure to pay the price at the time agreed (1) Those which are entered into by guardians whenever the wards whom they
upon the rescission of the contract shall of right take place, the vendee represent suffer lesion by more than one-fourth of the value of the things which are
may pay, even after the expiration of the period, as long as no demand the object thereof;
for rescission of the contract has been made upon him either judicially
or by a notarial act. After the demand, the court may not grant him a (2) Those agreed upon in representation of absentees, if the latter suffer the lesion
new term. (1504a) stated in the preceding number;
B. Remedies of buyer (3) Those undertaken in fraud of creditors when the latter cannot in any other
1. Suspension of payment – Article 1590 manner collect the claims due them;
2. In case of subdivision or condominium projects – P.D. 957
C. Maceda law: Sales of real estate on installments (4) Those which refer to things under litigation if they have been entered into by the
- Excludes industrial lots, commercial buildings defendant without the knowledge and approval of the litigants or of competent
1. At least two years installment paid judicial authority;
Rights of buyer in case he defaults:
(5) All other contracts specially declared by law to be subject to rescission. (1291a)
a. To pay the unpaid installments due (one month grace period for
every one year of installment payments); Art. 1385. Rescission creates the obligation to return the things which were the
b. If the contract is cancelled, refund 50% of the total payment made object of the contract, together with their fruits, and the price with its interest;
and, after five years of installments, an additional 5% every year consequently, it can be carried out only when he who demands rescission can return
but not to exceed 90% of the total payments made. whatever he may be obliged to restore.
2. Less than two years installment paid
a. Buyer entitled to a grace period of 60 days from the date the Neither shall rescission take place when the things which are the object of the
installment became due; contract are legally in the possession of third persons who did not act in bad faith.
b. Buyer fails to pay, seller may cancel the contract after 30 days from
In this case, indemnity for damages may be demanded from the person causing the
receipt by the buyer of the notice of cancellation or the demand for
loss. (1295)
rescission of the contract by a notarial act.
Contract of sale vs. Contract to sell
CHAPTER 11:
REMEDIES IN SALES OF IMMOVABLES Contract of sale Contract to sell
DURING CONSUMMATION STAGE
Remedy of rescission Legal effect of delivery The title to the property Ownership is reserved in
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one made passes to the buyer upon the seller and is not pass to
of the obligors should not comply with what is incumbent upon him. the delivery of the thing the buyer until full
sold payment of the purchase
The injured party may choose between the fulfillment and the rescission of the price
obligation, with the payment of damages in either case. He may also seek rescission,
even after he has chosen fulfillment, if the latter should become impossible.
 Legal effect of full Full payment constitutes Goes into the root of the existence of Goes into the performance of such
payment of price the happening of the the obligation obligation
condition which would Must be stipulated May form art of the obligation or
convert it into an contract by provision of law, without
executory contract of sale the parties having expressly agreed
Legal effect of non- Breach of contract Not really a breach but an thereto
payment of price event that prevents the May attach itself either to the Relates to the subject matter itself or to
vendor to convey title obligations of the seller or of the buyer the obligations of the seller as to the
REMEDIES AVAILABLE subject matter of the sale
When condition of price If subject matter is Action for recovery of
payment not fulfilled delivered without possession in case buyer
Express warranties requisites:
reserving title, ownership refuses to voluntarily
is transferred to the buyer deliver a. It must be an affirmation of fact or any promise by the seller relating to the
and seller cannot recover subject matter of the sale;
ownership b. The natural tendency of such affirmation or promise is to induce the buyer
The non-happening of the The non-happening of the to purchase the thing;
condition may be waived condition prevents the c. The buyer purchases the thing relying on such affirmation or promise
by the oblige who may still contract from coming into thereon.
seek specific performance existence (breach is
(based on substantial completely irrelevant) Implied warranties
breach) - Implied warranties are those which by law constitute part of every
Rescission may be pursued It becomes imperative that contract of sale, whether or not the parties were aware of them, and
with forfeiture of the the amounts paid must be whether or not the parties intended them.
amounts paid when that returned and there would 1. Warranty that seller has right to sell
has been expressly be no basis upon which a 2. Warranty against eviction
provided for claim of damage may be - The vendor shall answer for the eviction even though nothing has been
interposed said in the contract on the subject. (Art. 1548)
Laws applicable Articles 1191 and 1592 Articles 1184 and 1545 When there is breach of warranty against eviction:
a. Purchaser has been deprived of, or evicted from, the whole or part
of the thing sold;
CHAPTER 12
b. Eviction is by a final judgment;
CONDITIONS AND WARRANTIES c. Basis thereof is by virtue of a right prior to the sale made by the
seller;
Conditions d. Seller has been summoned and made co-defendant in the sui for
eviction at the instance of the buyer.
2 alternative remedies to non-performance of condition in a contract of sale (Article
1545): Amounts for which the seller is liable in case of eviction:
1. Refuse to proceed with the contract; Art. 1555. When the warranty has been agreed upon or nothing has
2. Waive performance of the condition. been stipulated on this point, in case eviction occurs, the vendee shall
have the right to demand of the vendor:
Conditions Warranties
Non-happening does not amount to a Non-fulfillment constitutes a breach of (1) The return of the value which the thing sold had at the time of the
breach of the contract of sale contract eviction, be it greater or less than the price of the sale;
 (2) The income or fruits, if he has been ordered to deliver them to the a. If the vendor was aware of them, he shall bear the loss, and shall be
party who won the suit against him; obliged to return the price and refund the expenses of the contract,
with damages.
(3) The costs of the suit which caused the eviction, and, in a proper b. If he was not aware of them, he shall only return the price and interest
case, those of the suit brought against the vendor for the warranty; thereon, and reimburse the expenses of the contract which the vendee
(4) The expenses of the contract, if the vendee has paid them; might have paid. (Art. 1568)

(5) The damages and interests, and ornamental expenses, if the sale It the thing is lost through lost by a fortuitous event or through the fault
was made in bad faith. (1478) of the buyer:

3. Warranty against non-apparent servitudes a. It the seller was not aware of the hidden defects, the buyer may
The warranty shall apply only when the following conditions are present: demand of the vendor the price which he paid, less the value which the
a. The immovable sold should be encumbered with any non-apparent thing had when it was lost.
burden or servitude, not mentioned in the agreement; b. If the vendor acted in bad faith, he shall pay damages to the buyer. (Art.
b. The nature of such non-apparent burden or servitude is such that it 1568)
must be presumed that the vendee would not have acquired it had he Art. 1566. The vendor is responsible to the vendee for any hidden faults or
been aware thereof. (Art. 1560) defects in the thing sold, even though he was not aware thereof.
When warranty not applicable This provision shall not apply if the contrary has been stipulated, and the
a. If the servitude is mentioned in the agreement; vendor was not aware of the hidden faults or defects in the thing sold.
b. If the non-apparent burden or servitude is recorded in the Registry of (1485)
Deeds, unless there is an express warranty that the thing is free from 5. Redhibitory defects on animals
encumberances. (Art. 1560) Art. 1572. If two or more animals are sold together, whether for a lump sum
4. Warranty against hidden defects or for a separate price for each of them, the redhibitory defect of one shall
Hidden defects: only give rise to its redhibition, and not that of the others; unless it should
a. Render it unfit for the use for which it is intended; appear that the vendee would not have purchased the sound animal or
b. Should they diminish its fitness for such use to such an extent that, had animals without the defective one.
the vendee been aware thereof, he would not have acquired it or would The latter case shall be presumed when a team, yoke pair, or set is bought,
have given a lower price for it. (Art. 1561) even if a separate price has been fixed for each one of the animals
- Vendor shall not be answerable for patent defects or those which may composing the same. (1491)
be visible, or for those which are not visible if the vendee is an expert Art. 1574. There is no warranty against hidden defects of animals sold at
who, by reason of his trade or profession, should have known them. fairs or at public auctions, or of live stock sold as condemned. (1493a)
(Art. 1561) Art. 1575. The sale of animals suffering from contagious diseases shall be
- The vendor is responsible to the vendee for any hidden faults or defects void.
in the thing sold, even though he was not aware thereof. (Art. 1566) A contract of sale of animals shall also be void if the use or service for which
Requisites: they are acquired has been stated in the contract, and they are found to be
unfit therefor. (1494a)
a. Defect must be hidden;
b. Defect must exist at the time the sale was made; Implied warranties in sale of goods
c. Defect must ordinarily have been excluded from the contract 1. Warranty as to fitness or quality
d. Defect must be important; - Implied warranty that the goods shall be reasonably fit for the particular
e. Action must be instituted within the statute of limitations. purpose;
If the thing sold should be lost in consequence of the hidden faults: - Implied warranty that the goods shall be of merchantable quality.
 Requisites for breach of warranty to apply: 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
a. That the buyer sustained injury because of the product; shall thereafter be deemed to hold the goods as bailee for the seller, but
b. That the injury occurred because the product was defective or subject to a lien to secure payment of any portion of the price which has
unreasonably unsafe; been paid, and with the remedies for the enforcement of such lien allowed
c. The defect existed when the product left the hands of the seller. to an unpaid seller by Article 1526. (Art. 1599)
2. Sale of goods by sample and/or by description
- Implied warranty that they are be free from any defect, and that the CHAPTER 13
goods will conform to the description. EXTINGUISHMENT OF SALE
3. Buyer’s option in case of breach of warranty
Generally, extinguished by the same causes as all other obligations [Arts.1600, 1231]
Art. 1599. Where there is a breach of warranty by the seller, the buyer may,
(P-PLAN-C3-R3)
at his election:
(1) Payment/performance
(1) Accept or keep the goods and set up against the seller, the breach of (2) Prescription
warranty by way of recoupment in diminution or extinction of the price; (3) Loss of thing due
(4) Annulment
(2) Accept or keep the goods and maintain an action against the seller for (5) Novation
damages for the breach of warranty; (6) Condonation/remission
(7) Confusion/merger
(3) Refuse to accept the goods, and maintain an action against the seller for
(8) Compensation
damages for the breach of warranty;
(9) Rescission
(4) Rescind the contract of sale and refuse to receive the goods or if the (10) Resolutory condition fulfilled
goods have already been received, return them or offer to return them to (11) Redemption (Conventional or Legal)
the seller and recover the price or any part thereof which has been paid.
4. Waiver of remedies by buyer CONVENTIONAL REDEMPTION
Where the goods have been delivered to the buyer, he cannot rescind the [ART. 1601]
sale if he knew of the breach of warranty when he accepted the goods DEFINITION
without protest, or if he fails to notify the seller within a reasonable time of
Shall take place when the seller reserved for himself the right to repurchase the thing
the election to rescind, or if he fails to return or to offer to return the goods sold, with the obligation to:
to the seller in substantially as good condition as they were in at the time (a) return the price of the sale;
the ownership was transferred to the buyer. But if deterioration or injury of
(b) the expenses
the goods is due to the breach or warranty, such deterioration or injury shall (c) any other legitimate payments made by reason of sale
not prevent the buyer from returning or offering to return the goods to the (d) necessary and useful expenses.
seller and rescinding the sale. (Art. 1599)
5. Obligation of buyer on the price
RIGHT TO REDEEM VS. OPTION TO PURCHASE
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 Right to Redeem Option to Purchase
goods. If the price or any part thereof has already been paid, the seller shall Nature
be liable to repay so much thereof as has been paid, concurrently with the Not a separate contract but part of a Generally a principal contract and
return of the goods, or immediately after an offer to return the goods in main contract of sale, and cannot may be created independent of
exchange for repayment of the price. (Art. 1599) exist unless reserved at the time of another contract
6. Refusal of seller to accept return of goods the perfection of the main contract of
sale
 consideration XPN:
Does not need its separate Must have a consideration separate 1. Vendee a retro refuses to accept the redemption
consideration to be valid and effective and distinct from the purchase price 2. Judicial action already been filed.
to be valid and effective [Arts. 1324
and 1479] Not applicable to:
The maximum period for the exercise of the right to repurchase 1. Absolute sale
2. Sale known and admitted by vendor as pacto de retro
cannot exceed 10 years may be beyond the 10-year period
3. When party abandoned his position that the transaction was equitable mortgage
after judicial declaration of transaction as pacto de retro sale
How exercise
Requires in addition a tender of May be exercised by notice of its Equitable Mortgage [ARTS. 1602-1604]
payment of the amount required by exercise to the offeror - An equitable mortgage is defined as one which, although lacking in some
law, including consignment thereof if formality, or form or words, or other requisites demanded by a statute, nevertheless
tender of payment cannot be made reveals the intention of the parties to charge real property as security for a debt, and
effectively on the buyer contains nothing impossible or contrary to law. [Molina v. CA, 2003]
Pacto de retro sale – the title and ownership of property sold are immediately vested
Period Of Redemption in the buyer a retro, subject only to the resolutory condition or repurchase by seller
When NO period agreed upon a retro within the period stipulated.
- It shall last for 4 yrs from the date of the contract
Pactum commissorium - is a stipulation enabling the mortgagee to acquire
When perion is AGREED upon ownership of the mortgaged properties without need of foreclosure proceedings
- Period cannot exceed 10 yrs, if exceeds valid only for first 10. which is a nullity being contrary to the provisions of Article 2088 of the Civil Code.
When “indefinite” The inclusion of such stipulation in the deed shows the intention to mortgage rather
- within 10 yrs from execution of contract than to sell. [Legaspi v. Spouses Ong, 2005]

Date from whichperiod reckoned A pactum commissorium is contrary to the nature of a true pacto de retro sale since
- at the date of the contract and it must referred from the time which the contract ownership of the property sold is immediately transferred to the vendee a retro upon
produces its effect. execution of the sale, subject only to the repurchase of a vendor a retro within the
stipulated period.
When redemption not made
- buyer a retro automatically acquires full ownership Requisites For Presumption Of An Equitable Mortgage
[Molina v. CA, 2003]
* the vendor may still still exercise the right to repurchase within 30 days frim final (1) That the parties entered into a contract denominated as a contract of sale, and
judgement was rendered in civil action on the basis that the contract was true sale (2) That their intention was to secure an existing debt by way of a mortgage.
with right to repurchase* In case of doubt, a contract purporting to be a sale with right to repurchase shall be
construed as an equitable mortgage
Tender of payment is enough (consignation is not necessary), if made on time, as a
basis for action against the buyer to compel him to resell. But that tender does not Presumption That A Contract Is An Equitable Mortgage (5p-R)
in itself relieve the buyer from his obligation to pay the price when redemption is [Art. 1602]
allowed by the court. [Paez v. Magno, 1949] (1) Price unusually inadequate;
(2) Possession retained by the seller as lessee or otherwise;
Consignation (3) Period of redemption extended (or granted anew) upon or after the expiration of
GR: it is not legal requisite for a vendor to make consignation or jucial deposit of the the right to repurchase;
price if the offer or render is refused (4) Part of the purchase price retained by the seller;
(5) Payment of taxes on the thing sold borne by the seller; Debtor-mortgagor, 1 year from the date of the sale
(6) Any other case where it may be fairly inferred that the Real intention of the parties successors-in- interest,
is for the transaction to secure a debt or other obligation. judicial/judgment creditor,
any person having a lien on
LEGAL REDEMPTION the property, in case of
DEFINITION extrajudicial foreclosure of
(1) Right to be subrogated: (a) upon the same terms and conditions stipulated in the mortgage [Act No. 3135.
contract, (b) in the place of one who acquires a thing by: (i) purchase or (ii) dation in Sec. 6.]
payment, or (iii) by any other transaction whereby ownership is transmitted by Agricultural lessee w/o 2 years from the registration of the
onerous title [Art 1619, CC] knowledge of sale of sale
(2) Applies to transfers of ownership by onerous title where subrogation is possible. landholding [Agrarian Land
Hence, it cannot apply to barter or to transfer by gratuitous title or hereditary Reform Code, Sec.12]
succession.
(3) Applies to sales with pacto de retro [Baviera citing MANRESA] Debtor-mortgagor in case 90 days from finality of judgment
of judicial foreclosure of
PERIOD TO REDEEM real estate mortgage IF the
To whom granted Period mortgagee is a bank or a
Co-owner [Art 1620] 30 days from notice banking institution. [The
(a) In writing General Banking Law of
Adjoining owner of Rural (b) By the seller 2000]
Land [Art 1621] (c) Of the actual execution and delivery
of the deed of sale The notice required in Art. 1623 must be given by the seller, because the seller is in
Adjoining owner of urban Actual knowledge of the sale is a better position to identify who his co-owners are. Said provision is clear.[Francisco
land [Art. 1622] immaterial, absent any showing that v. Boiser, 2000
the co-owner has been shown a copy
of the deed of sale through a written Right of Pre-emption Right of Redemption
communication. [Doromal v. CA, 1975] Owner of any adjoining land has If the resale has been perfected,
The law did not provide for a particular a right of pre-emption at a the owner of the adjoining land
mode of written notice, thus any reasonable price when: shall have a right of redemption,
compliance with “written notice” (a) Urban land is so small and so also at a reasonable price
should suffice, including the giving of a situated that a major portion of it Priority if 2 or more adjoining
copy of the deed of sale. [[Cronejero v. cannot be used for any practical owners want to redeem: owner
CA, 1966]] purpose w/in a reasonable time; whose intended use of the land
Debtor in case a credit or 30 days from the date the assignee (b) Was bought merely for appears to be best justified
incorporeal right in demands payment from debtor speculation;
litigation is sold [Art.1634] (c) Was resold
Taxpayer in case of tax sale 1 year from date of forfeiture Arises before sale Arises after sale
[Sec. 215, NIRC] No rescission because no sale There can be rescission of the
Judgment debtor, 1 year from the date of registration of exists yet original sale
successor–in- interest, or the certificate of sale The action is directed against Action is directed against buyer
creditor with subsequent prospective seller
lien, in case of execution
sale [Rule 39, Sec.27, ROC]
Instances Of Legal Redemption Conventional Legal
Redemption by Co-owners As to consti
[Art. 1621] By express reservation in a Does not have to be expressly
A co-owner of a thing may exercise the right of redemption in case the shares of all contract of sale at time of sale at reserved and covers sales and
the co-owners or any of them are sold to a third person time of perfection. other “onerous transfer of title”
(a) “Third person” refers to all persons who are not heirs of the vendor, by will or
intestate succession
(b) The right is available not only to original co-owners, but to those who had later
acquired the share of the co-owner
(c) But the right of redemption may be exercised by a co-owner only when part of
the community property is sold to a stranger. When the portion is sold to another co-
owner, the right does not arise because a new participant is not added to the co- As to who may exercise the right
ownership [Fernandez v. Tarun, 2002]
In favor of the seller Given to a third party to the sale
As to the effect of its exercise
If the price of the alienation is grossly excessive, the redemptioner shall pay only a
Extinguishes the underlying Actually constitutes a new sale in
reasonable one.
contract of sale as though there substitute of original sale
Should two or more co-owners desire to exercise the right, they may also do so in
was never any contract at all
proportion to the share they may respectively have in the thing owned in common.
Rationale: Public Policy, since co-ownership is a hindrance to the development and
administration of the property. [Baviera] CHAPTER 14

Redemption by Adjoining Land-owners of rural land [Art. 1621] ASSIGNMENT

The ff. Requisites must concur:
- Under Article1624, assignment is in fact the sale of credits and other
(a) A piece of rural land is alienated
incorporeal right.
(b) Area does not exceed one hectare - Like the genus sale, an assignment is a nominate, consensual,
reciprocal, onerous, and commutative contract.
When not applicable: 1. Validity and binding effect
(a) The grantee does not own any rural land Art. 1624. An assignment of creditors and other incorporeal rights shall be
(b) Adjacent lands are separated by brooks, drains, roads and other apparent perfected in accordance with the provisions of Article 1475. (n)
servitudes for the benefit of other estates Art. 1475. 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
Order of preference if two or more wishes to exercise the right: price.
(a) Owner with smaller land area 2. Binding effect as to third parties
(b) If same land area, then the one who first requested the redemption - The binding effect of an assignment as to third persons is not present
unless it appears in a public instrument, or the instrument is recorded
What constitutes “rural” or “urban” is to be determined from the character of the in the Registry of Property in as the assignment involves real rights.
community or vicinity in which it is found, and NOT from the nature of the land itself - Without the public instrument, the assignment would still be valid, but
nor the purpose to which it is devoted. [Ortega v. Orcine, 1971] it is enforceable only as between the assignor and the assignee, and
Redemption by adjoining land-owners of urban land (applies only to small portions their successor-in-interest.
of urban land) [Art. 1621] 3. Effect of assignment of credit on debtor
- The meeting of the minds in assignment contemplates that between
the assignor of the credit and his assignee, there being no necessity for
the consent of the debtor.
 - The assignment of credit, although constituting novation, does not CHAPTER 16
result in extinguishing the debtor’s liability, even when the assignment
is effected without his consent. RETAIL TRADE LIBERALIZATION ACT
4. Transfer of ownership - R.A. No. 8762, the “Retail Trade Liberalization Act of 2000”
- The transfer of title or ownership over the subject matter of assignment
should be effected by constructive delivery. Retail trade – any act, occupation or calling of habitually selling direct to the general
a. Accessories and accessions public merchandise, commodities or goods for consumption.
Art. 1627. The assignment of a credit includes all the accessory rights,
such as a guaranty, mortgage, pledge or preference. (1528) Elements:
b. Warranties a. Habitual act or business of selling;
- The assignor shall be responsible for the existence and legality of the b. To the general public;
credit at the time of sale c. Of merchandise, commodities or goods for consumption.
- Assignment does not make the assignor warrant the solvency of the
debtor to the credit, unless: (a) there is a stipulation to that effect; or Grandfather rule – a process of characterizing the citizenship of shares in one
(b) the insolvency of the debtor was prior to the assignment and of corporation held by another corporation by attributing the controlling interest of
common knowledge. (Art. 1628) individual stockholders on the second layer of corporate ownership.
- If the assignor in good faith is liable for a warranty, he is liable only for
Foreign retailer – an individual who is not a Filipino citizen, or a corporation,
the expenses of the contract, and any other legitimate payments made
partnership, association or entity that is no wholly-owned by Filipinos, engaged in
by reason of the assignment.
retail trade.
- An assignor in bad faith who breaches such warranties, shall in addition
be liable to pay for the necessary and useful expenses, plus damages. Anti-Dummy Law – penalizes Filipino who permit aliens to use them as nominees or
dummies to enjoy privileges reserved for Filipinos or Filipino corporations.
CHAPTER 15

THE BULK SALES LAW

- Act No. 3952, as amended by R.A. No. 111 (“Bulk Sales Law”)

The 3 types of transactions which are treated as bulk, as any sale, transfer,
mortgage, or assignment of:

a. Extraordinary sales of goods;

b. Extraordinary sales of fixtures and equipment;
c. Sale of business enterprise.

Bulk sale does not apply in the following cases:

a. Written waiver;
b. Transaction effected by executors, administrators, receivers, assignees in
insolvency, or public officers, acting under legal process.

Obligation of seller/encumbrancer in a bulk sale:

a. To deliver a sworn statement of listing of creditors;

b. Pro-rata application of proceeds;
c. Written advance disclosure to creditors;
d. Bulk transfers for nominal value.