CONDITIONS AND WARRANTIES

ARTICLES

PERSONAL ANALYSISCASES

Art. 1545

Where the obligation of either party to a contract of sale is subject to any condition which is not performed, such party may refuse to proceed with the contract or he may waive performance of the condition. If the other party has promised that the condition should happen or be performed, such first mentioned party may also treat the non-performance of the condition as a breach of warranty.Where the ownership in the thing has not passed, the buyer may treat the fulfillment by the seller of his obligation to deliver the same as described and as warranted expressly or by implication in the contract of sale as a condition of the obligation of the buyer to perform his promise to accept and pay for the thing. (n)

A Condition is a future and uncertain event which may or may not happen. There are two general classifications of condition namely: (a) suspensive condition and (b) resolutory condition. The fulfilment of a suspensive condition gives rise to the birth of an obligation while the fulfilment of a resolutory condition extinguishes a subsisting obligation.

Article 1545 provides that if the condition imposed upon a party is not fulfilled, the other has two options. He can either (a) refuse to proceed with the contract; or (b) waive the performance of the condition and proceed with the contract.

If the condition agreed upon partakes of the nature of a promise that it should happen; non-fulfillment of such condition is considered to be a breach of warranty.

Soler vs ChelseyG.R. No. L 17150 June 20,1922

Facts:

Soler entered into an agreement with Wm. H. Anderson Co., for the purchase of machinery. Later on, he sold all his rights and interests in the contract of sale to Soler. The machinery was however incomplete. The important parts were not yet transferred to Chelsey as they were still for delivery to the Philippines. Chelsey rescinded the contract. He believed that the machineries said to be on the way were in fact shipped several days after.

Issue:

Whether or not the rescission was proper.

Held:

Yes. Chelsey entered into the contract believing that the machineries are about to be delivered. He is expecting to receive them within a short period of time. This was the promise given by Soler, a condition agreed upon by Chelsey. In the case at bar, the time of arrival of the machinery is an essential part of the contract. The promise that the machinery are on their way and are to reach manila in a short period of time is a condition. The breach of which will entitle the buyer to rescind the contract. Hence the rescission is in place and valid.

Delevopment Bank of the Philippines vs. Medrando and Privatization Management OfficeG.R. No. 167004 February 7, 2011

Facts: Respondent was president and general manager of Paragon Paper Industries, Inc. (Paragon). He owned 37,681 total of shares. DBP offered him a commission if Medrano would convince the minority stockholders to sell their shares to DBP. Medrano started to persuade the minority stockholders to sell their stocks to DBP and almost all of them agreed. The minority stockholders presented proposals as regards the sale of their stocks. The proposals were approved by DBP on 3 conditions. The contract also states that if one of the conditions is not complied with, the contract of sale will be cancelled. Medrano also sold his shares to DBP who accepted the sale. When Medrano tried to collect his commission, DBP denied to give it to him. This prompted Medrano to file a case for specific performance with damages. The RTC and the CA ruled in favor of Medrano ruling that there was a perfected contract of sale. According to the CA, although DBP had the right not to proceed with the sale under Article 1545, this right has been waived when it retained the stocks it bought from Medrano instead of returning it to him. If indeed DBP intended to rescind from the contract, it should have returned the stocks to Medrano.

Issue: Whether or not the application of Article 1545 of the Civil Code to the case is correct

Held: No. The Article 1545 of the Civil Code does not apply to this case. The said article presupposes the existence of a perfected contract between the parties and that one of them fails to perform his obligation. In the case at hand, there is no perfected contract. The failure of Medrano to comply with the conditions set forth by DBP effectively prevented the perfection of the contract

Art. 1546

Any affirmation of fact or any promise by the seller relating to the thing is an express warranty if the natural tendency of such affirmation or promise is to induce the buyer to purchase the same, and if the buyer purchase the thing relying thereon. No affirmation of the value of the thing, nor any statement purporting to be a statement of the seller's opinion only, shall be construed as a warranty, unless the seller made such affirmation or statement as an expert and it was relied upon by the buyer. (n)

A Warranty is a collateral undertaking in a sale, express or implied, that if the property sold does not possess certain qualities or incidents, the purchaser may either consider the sale void or claim damages for breach of warranty. It is a promise that a particular fact about the object of sale is true.

Article 1546 speaks about an Express warranty. As the term itself implies, it is any expressed affirmation of fact concerning the condition, quality, or character of the object sold.

Songco vs SellnerG.R. No. L 11513 December 4, 1917

Facts:

Sellner was the owner of a farm which was contiguous to the farm owned by Songco. Both farms were sugar cane plantations. Sellner bought Songcos canes and as a consideration thereof, he executed three promissory notes covering the collective amount of 12,000 pesos. Two of the promissory notes were paid however the third remained unpaid, hence the action for recovery was brought by Songco. Sellner for his part claims that Songco is guilty of misrepresentation when he promised that there are 3,000 piculs of cane in the field where in reality there were only 2,011 piculs.

Issue:

Whether or not there was a breach of warranty.

Held:

No. While Article 1546 speaks of an expert opinion relied upon by the buyer, the fact that Songco was an experienced farmer does not put this case in the ambit of the contemplated expert opinion. The statement was a mere matter of opinion. It is not a sufficient ground for avoiding the contract. Assertions concerning a property in regard to its qualities and characteristics are usual and ordinary means of a seller to obtain a high price. They are always understood as to afford the buyer to make inquiries. A man who relies upon such affirmation made by a person whose interest might so readily prompt him to exaggerate the value of his property does so at his own peril.

Guinhawa vs. People486 SCRA 278 (2005)

Facts:

Jaime Guinhawa is engaged in the business of selling brand new vehicle, and had a showroom displaying his products. Guinhawa purchased a brand new Mitsubishi L-300 from Manila. Guinhawas driver, Leopoldo Olayan, drove the van from Manila to Naga. However, Olayan suffered a heart attack during the trip causing damage to the under chassis since the left front tire had to be replaced. This was repaired and the van was put on display in Guinhawas showroom. This same van was later sold to Spouses Silo who are engaged in the business of buying garments in Manila and selling them in Naga. They saw the wav in Guinhawas shoeroom and inspected its interior but not the under chassis. They also did not conduct a test drive, and so bought the van without any knowledge of the damage it had previously incurred. Azotea, the sales manager, was the one who transacted with the Spouses Silo and furnished the couple with a Service Manual containing the warrant terms and conditions. The day after the van was bought by the Spouses, Josephine Silo went to Manila with Glenda Pingol and the latters Husband. On the way back, the heard a squeaking sound and later discover that it was caused by parts underneath the vehicle that were welded together. Guinhawa insisted that the defect were mere factory defects. As the defects persisted, the Spouses requested that Guinhawa replace the van with 2 Charade-Daihatsu vehicles within a week or two, with the additional cost to be taken from their downpayment. However, the Spouses later asked for the rescission of the contract upon discovering that the van was not really brand new.

Issue:

Whether or not there were fraudulent representations by Guinhawa.

Held:

Yes. The Supreme Court ruled that Jaime Guinhawa is guilty of other deceits. The Court pointed out that the crime could be commited by omission. If, in a contract of sale, the vendor knowingly allowed the vendee to be deceived as to the thing sold in a material matter by failing to disclose an intrinsic circumstance that is vital to the contact, knowing that the vendee is acting upon the presumption that no such fact exists, deceit is accomplished by the suppression of the truth. Azotea knew that the van had figured in an accident, was damaged and had to be repaired. Nevertheless, the van was placed in the showroom, thus making it appear to the public that it was a brand new unit. The petitioner was mandated to reveal the foregoing to the private complainant.

Art. 1547

In a contract of sale, unless a contrary intention appears, there is:

(1) An implied warranty on the part of the seller that he has a right to sell the thing at the time when the ownership is to pass, and that the buyer shall from that time have and enjoy the legal and peaceful possession of the thing;

(2) An implied warranty that the thing shall be free from any hidden faults or defects, or any charge or encumbrance not declared or known to the buyer.

This Article shall not, however, be held to render liable a sheriff, auctioneer, mortgagee, pledgee, or other person professing to sell by virtue of authority in fact or law, for the sale of a thing in which a third person has a legal or equitable interest. (n)

Article 1547 on the other hand speaks of the second kind of warranty which is Implied warranty. There is an implied warranty where no formal, express, explicit warranty or affirmation of fact is made or stipulated between the parties. The provision provides two instances where there is an implied warranty.

There is deemed to be an implied warranty (a) as to the right of the seller to sell at the time when ownership has to pass (warranty against eviction); and there is also an implied (b) warranty against hidden defects, or faults, or charge, or encumbrances unknown to the buyer (warranty against hidden defects).

The requisites of a breach of warranty are: (a) purchaser has been deprived of whole or part of the thing sold; (b) by final judgment; (c) based on a right prior to the sale made by the vendor; (d) the vendor has been summoned and made co-defendant in the suit for eviction.

The last paragraph of the provision states an exception to the general rule. There implied warranties above stated does not apply when the sale is made by a sheriff, auctioneer, mortgagee, pledge, or other person profession to sell by virtue of authority conferred by law.

Ang vs. Court of Appeals567 SCRA 53 (2008)

Facts:

Under a"carswapping scheme, Bruno Soledad sold his Mitsubishi GSR sedan 1982 model to Jaime Ang. For his part, Ang conveyed to Soledad his Mitsubishi Lancer model 1988. Ang, a buyer and seller of used vehicles, later offered the Mitsubishi GSR for sale through Far Eastern Motors, a second-hand auto display center. The vehicle was eventually sold to Paul Bugash. Before the deed could be registered in Bugashs name, however, the vehicle was seized by virtue of a writ of replevin on account of the alleged failure of Ronaldo Panes, the owner of the vehicle prior to Soledad, to pay the mortgage debt constituted thereon.

To secure the release of the vehicle, Ang paid BA Finance. Soledad refused to reimburse, despite repeated demands, drawing Ang to charge him for Estafa with abuse of confidence. By Resolution, the City Prosecutors Office dismissed the complaint for insufficiency of evidence, drawing Ang to file for consecutive complaints for damages against Soledad before the Regional Trial Court (RTC) of Cebu City. Subsequently, the RTC rendered judgment in favor of Ang "for the sake of justice and equity, and in consonance with the salutary principle of non-enrichment at anothers expense. The RTC then ordered Soledad to pay Ang the amount the latter paid to BA Finance.

Soledad then appealed to the Appellate Court, which reverses the decision of the RTC. The Court of Appeals dismissed Angs petition on the ground that the filing of said complaint seeking the awarding of damage for breach of warranty has already prescribed.

Issue:

Whether or not Angs cause of action had not yet prescribed when he filed the complaint.

Held:

Yes. In declaring that he owned and had clean title to the vehicle at the time the Deed of Absolute Sale was forged, Soledad gave an implied warranty of title. In pledging that he "will defend the same from all claims or any claim whatsoever and will save the vendee from any suit by the government of the Republic of the Philippines," Soledad gave a warranty against eviction.

Given Angs business of buying and selling used vehicles, he could not have merely relied on Soledads affirmation that the car was free from liens and encumbrances. He was expected to have thoroughly verified the cars registration and related documents.

Since what Soledad, as seller, gave was an implied warranty, the prescriptive period to file a breach thereof is six months after the delivery of the vehicle, following Article 1571. But even if the date of filing of the action is reckoned from the date petitioner instituted his first complaint for damages on November 9, 1993, and not on July 15, 1996 when he filed the complaint subject of the present petition, the action just the same had prescribed, it having been filed 16 months after July 28, 1992, the date of delivery of the vehicle.

SUBSECTION ONE: WARRANTY IN CASE OF EVICTION

Art. 1548

Eviction shall take place whenever by a final judgment based on a right prior to the sale or an act imputable to the vendor, the vendee is deprived of the whole or of a part of the thing purchased.

The vendor shall answer for the eviction even though nothing has been said in the contract on the subject.

The contracting parties, however, may increase, diminish, or suppress this legal obligation of the vendor. (1475a)

Eviction is a judicial process by virtue of which the buyer is deprived of the ownership of the whole or part of the thing purchased by final judgment or by any act imputable to the vendor.

The final judgment contemplated by Article 1548 refers to a final and executor judgment.

A warranty is necessarily included in the contract even though it is not stated or contained in the contract. It automatically attaches in a contract of sale.

However, warranty against eviction and the liability attached therewith is waivable. The parties may agree to increase, diminish, or totally suppress the legal obligation of the vendor from his liability due to the eviction of the vendee.

Tiana vs. TorrejonGR NO. 6638 December 28, 1911

Facts:

Jose Maria Torrejon was sold a parcel of land with the improvements therein to appellees. In the contract of sale, defendant warranted that he has title to the land. Pending the sale transaction and unknown to plaintiffs, Jose Maria Torrejon filed an application for registration of the exact land being sold by him to the plaintiffs. When the deed of sale was executed, Torrejon still proceeded with the application for registration. However, the registration was not effected due to the failure of Torrejon to produce evidence that he is the owner of the property. The property was therefore pronounced as government property. The military took possession of the property and the plaintiffs were evicted therefrom, prompting them to file a suit for breach of warranty against eviction. Torrejon claims that he cannot be liable for eviction as one of the elements of eviction are not present, i.e., notice.

Issue:

Whether or not there was eviction.

Held:

Yes. The essential requisites of eviction are present in the instant case, namely: (a) final judgment; (2) that the vendee be deprived of the whole or a part of the thing sold; (c) a right prior to the sale: and (d) that the vendor be given notice of the suit at the instance of the vendee. Torrejon cannot claim that he was not notified of the suit because he is the applicant in the said action.

Art. 1549

The vendee need not appeal from the decision in order that the vendor may become liable for eviction. (n)

When eviction is enforced by a final and executor judgment, and the losing vendee failed to appeal the case, the vendor remains liable just the same because it is his responsibility to make good the warranty.

Tiana vs. TorrejonGR NO. 6638 December 28, 1911

Facts:

Jose Maria Torrejon was sold a parcel of land with the improvements therein to appellees. In the contract of sale, defendant warranted that he has title to the land. Pending the sale transaction and unknown to plaintiffs, Jose Maria Torrejon filed an application for registration of the exact land being sold by him to the plaintiffs. When the deed of sale was executed, Torrejon still proceeded with the application for registration. However, the registration was not effected due to the failure of Torrejon to produce evidence that he is the owner of the property. The property was therefore pronounced as government property. The military took possession of the property and the plaintiffs were evicted therefrom, prompting them to file a suit for breach of warranty against eviction. Torrejon claims that he cannot be liable for eviction as one of the elements of eviction are not present, i.e., notice.

Issue:

Whether or not there was eviction.

Held:

Yes. The essential requisites of eviction are present in the instant case, namely: (a) final judgment; (2) that the vendee be deprived of the whole or a part of the thing sold; (c) a right prior to the sale: and (d) that the vendor be given notice of the suit at the instance of the vendee. Torrejon cannot claim that he was not notified of the suit because he is the applicant in the said action.

Art. 1550

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. (n)

The provision contemplates an event where occupation of the property by the vendee started while the property is still owned by the vendor; and later on the ownership was transferred to the vendee whilst maintaining occupation. In this situation, the vendor is exempted from liability.

Art. 1551

If the property is sold for non-payment of taxes due and not made known to the vendee before the sale, the vendor is liable for eviction. (n)

If the property is judicially sold due to the fact of (a) non-payment of taxes and (b) such fact is not made known to the vendee before the sale, the vendor is not excused from liability arising from breach of warranty.

Art. 1552 The judgment debtor is also responsible for eviction in judicial sales, unless it is otherwise decreed in the judgment. (n)

The judgment debtor is also not exempted from liability except otherwise decreed by the court who rendered judgment.Bonzon vs. Standard OilG.R. No. 8851 March 16, 1914

Facts:

The plaintiff purchased certain real estate at an execution sale, paying therefor the sum of P2,170 to the defendant sheriff who turned over the purchase price to the defendant company, the execution creditor, at whose instance the sale was had. Thereafter, the plaintiff having taken possession of the land was evicted in the judicial proceedings. The court found that the land in question was a property belonging to a third party, and that neither the judgment debtor nor the purchases at the execution sale had any title thereto. The prayer of the complaint is to recover the price paid at the execution sale against the sheriff and the judgment debtor.

Issue:

Whether or not plaintiff has an action against the judgment creditor.

Held:

Yes. Under the principle of unjust enrichment, the judgment creditor cannot retain the purchase price of a land sold as a property of the judgment debtor after showing that even he had no title to the property. The plaintiffs right to recover is based on a warranty that the property sold is indeed owned by the creditor.Santiago Land Development Corporation vs.CA and the heirs of Norberto QuisumbingG.R. No. 106194 January 28, 1997

Facts:

Quisumbing brought an action against Philippine National Bank (PNB) for the enforcement of an alleged right to redeem certain real properties foreclosed. Santiago Land Development Corporation (SLDC) bought from PNB one of the properties subject of the abovestated litigation. SLDC intervened in the case of Quisumbing versus PNB. Quisumbing opposed the intervention arguing that SLDCs interest in the property is based on mere expectancy but such opposition was denied. SLDC served interrogatories upon private respondents because they wanted to know if the respondents had any documents to support their claim that they are the owners of the land. Private respondents for their part filed a motion to quash interrogatories but the same was denied. Interrogatories were issued to the private parties. But they recoursed to the CA which reversed and set aside the decision made by the trial court.

Issue:

Whether or not SLDC as transferee pendent lite of the property in litigation has a right to intervene.

Held:

No. There was already a transfer of interest by PNB to SLDC effectively making SLDC a party to the suit. SLDC subrogated the rights of PNB in the suit however he may not intervene based on an entirely different ground originally raised by PNB. While SLDC may have interests on the subject matter, the interest of a transferee pendent lite are different from the interests of an intervenor. As SLDCs personality partakes the nature of a transferee pendent lite, he is barred from presenting a new or different claim. However although SLDC is only a transferee pendent lite, it is still bound by judgments handed down against his transferor of PNB.

Art. 1553

Any stipulation exempting the vendor from the obligation to answer for eviction shall be void, if he acted in bad faith. (1476)

Generally, a stipulation exempting the vendor from liability is valid. However, when he acts in bad faith, such stipulation becomes void.

Angelo vs. PachecoG.R. No. 32984 September 8, 1931

Facts:

The plaintiff executed a deed of sale in favour of the defendant. The defendant for his part offered a down payment and promised to pay the balance later on. The deed of sale contained a provision whereby the defendant waived his rights to warranty against eviction. The defendant wanted to dispose of the property but was unable to do so because of some provision in the contract prohibiting him to alienate the property. At the defendants instance, a second contract was formed eliminating the prohibition to dispose of the property however, the waiver of the right to warrant against eviction was still retained and carried on to the second contract. The land became the subject of a pending suit. One Lucia Cruz brought an action and obtained a favourable action against defendant Pacheco. The land was awarded to Lucia Cruz.

Issue:

Whether or not the warranty against eviction still applies.

Held:

No. The waiver of the right to warranty against eviction stands, there being no bad faith on the part of defendant. Bad faith consists of knowledge beforehand at the time of the sale of the presence of a fact giving rise to eviction and its possible consequences. There was no bad faith because at the time the contract was executed, the defendant was the registered owner. Furtheremore, the plaintiff made a formal and express waiver of warranty; and in the absence of bad faith on the part of the vendor, the waiver is valid.

Art. 1554

If the vendee has renounced the right to warranty in case of eviction, and eviction should take place, the vendor shall only pay the value which the thing sold had at the time of the eviction. Should the vendee have made the waiver with knowledge of the risks of eviction and assumed its consequences, the vendor shall not be liable.(1477)

Article 1554 speaks about the liability of the vendor in total eviction and in case it is waived. If the vendee has renounced his right against eviction and eviction is later on effected, the vendor is still liable for total eviction to the extent of the actual value of the thing sold Andaya, et al. vs. ManansalaG.R. No. L-14714 April 30, 1960

Facts:

The land in question was sold by one Isidro Fenis to Eustaquia Llanes on June 13, 1934 and Maria Viloria on January 12, 1944. On August 21, 1914 Maria Viloria sold the said property together with another parcel of land to Melencio Manansala and to Ciriaco Casio, Fidela Valdez and spouses Ariston Andaya and Micaela Cabrito. On October 18, 1947, Eustaquia Llanes instituted a civil case to quiet title and to recover possession of said parcel from Ciriaco Casino. On June 9, 1949, Melencio Manansala sold the property in question to the spouses Ciriaco Casino and Fidela Valdez warranting that it was free from all kinds of liens and encumbrances and in case of eviction. Thereafter, a judgement was rendered in favor of the case filed by Eustaquia Llanes. On March 23, 1956, herein Plaintiffs filed a case against Melencio Manansala to recover damages suffered by them by reason of the latters breach of his warranty. The defendant denied the liability and alleged that it was the plaintiffs who pleaded with him to sell the land to them at a low price. The court ruled in favor of the plaintiffs and applied those obligations applicable to a vendor in cases of rescission of a contract. Thus, ordering the defendant to return the sum of the purchase price with interest.

Issue:

Whether or not the lower court erred in holding him liable as in rescission of sale and ordering him to return to plaintiffs the price of the land in question with interests.

Held:

No. When the vendee has waived the right to warranty in case of eviction, and eviction shall occur, the vendor shall only pay the price which the thing sold had at the time of the eviction, unless the vendee has made the waiver with knowledge of the danger of eviction and assumed its consequences. Appellees knew of the danger of eviction at the time they purchased the land in question from appellant, and assumed its consequences, therefore, the vendor is not obliged to restore to the purchaser the price of the land at the time of eviction, but is completely exempt from liability whatsoever.

Art. 1555

When the warranty has been agreed upon or nothing has been stipulated on this point, in case eviction occurs, the vendee shall have the right to demand of the vendor:

(1) The return of the value which the thing sold had at the time of the eviction, be it greater or less than the price of the sale;

(2) The income or fruits, if he has been ordered to deliver them to the party who won the suit against him;

(3) The costs of the suit which caused the eviction, and, in a proper case, those of the suit brought against the vendor for the warranty;

(4) The expenses of the contract, if the vendee has paid them;

(5) The damages and interests, and ornamental expenses, if the sale was made in bad faith.(1478)

If the vendee is evicted from a property purchased by final judgment or by an act imputable to the vendor, the vendee may demand from the vendor (a) the value of the thing purchased, (b) income or fruits of the thing purchased, (c) costs, (d) expenses of the contract, and (e) damages, interests, and ornamental expenses.Sta. Romana vs. Imperio15 SCRA 625 (1965)

Facts:

Silvio R. Viola executed a special power of attorney appointing Dr. Jose R. Viola as his agent to take chage of manage and administer seven parcel of land. On June 18, 1946, Jose Viola executed, in favor of Pablo Ignacio, a deed in which he undertook to sell on installments six lots covered by TCT No. 19556, with an aggregate area of 3,804 square meters. Four months later Silvio Viola sold a land of about thirty hectares, including Lot No. 622, to appellant herein. A week later, or on October 25, 1946, the latter, in turn, conveyed said land to the appellee, by virtue of the deed, which was filed with the office of the register of deeds on November 4, 1946. Thereupon, TCT No. 19556 was cancelled and, in lieu thereof, TCT No. 28946 was issued in appellee's name. On December 14, 1946, appellee sold portions of said lot No. 622 to the following persons, hereinafter referred to as occupants, who had been and were holding, as lessees thereof, the portions respectively purchased by them, to wit: (a) 665 sq. m. to Domingo Manabat, Patricia Lopez and Calixta Bautista (to whom TCT No. T-1635 was issued); (b) 600 sq. m. to Conrado Manabat and Eladio Sioson (to whom TCT No. T-1634 was issued); (c) Lot No. 14 of Block 13 of the subdivision to Reynaldo Salvador and Graciano Garcia (to whom TCT No. T-1633 was issued); and (d) 682 sq. m. to Hilario de Jesus, Apolonio Pablo and Ismaela Jimenez (to whom TCT No. T-1632 was issued).

Having failed to take possession of the land, Pablo Ignacio commenced this action in the Court of First Instance of Bulacan, against said occupants, as well as against appellee, appellant, and the Principal, to annul the sales made by the latter to appellant, by appellant to appellee and by appellee to said occupants, as well as for the possession of the land in question and damages.

The lower court rendered judgment in favor of Ignacio.

Hence this petition.

Issue:

Whether or not reimbursement is proper.

Held:

Yes. it is an elementary principle of law, as well as of justice and equity that, unless a contrary intention appears, the vendor warrants his title to the thing sold, and that, in the event of eviction, the vendee shall be entitled to the return of the value which the thing sold has at the time of the eviction, be it greater or less than the price of the sale. In the case at bar, it has been established that the land in dispute was, at the time of the eviction, worth at least the sum of P8,463, which is the aggregate amount charged by the appellee from said occupants.

Art. 1556

Should the vendee lose, by reason of the eviction, a part of the thing sold of such importance, in relation to the whole, that he would not have bought it without said part, he may demand the rescission of the contract; but with the obligation to return the thing without other encumbrances that those which it had when he acquired it.

He may exercise this right of action, instead of enforcing the vendor's liability for eviction.

The same rule shall be observed when two or more things have been jointly sold for a lump sum, or for a separate price for each of them, if it should clearly appear that the vendee would not have purchased one without the other.(1479a)

Rules in Cases of Partial Eviction:

a. RescissionThe vendee may demand rescission, in cases when he lose a part of the thing sold that without such part he would not bought the thing, with the obligation to return the thing without other encumbrances than those which it had when he acquired it.

b. Enforcement of WarrantyIf the encumbrances set in paragraph 1 are not present, the only remedy is to enforce warranty. (Paras 2013)Andaya, et al. vs. ManansalaG.R. No. L-14714 April 30, 1960

Facts:

The land in question was sold by one Isidro Fenis to Eustaquia Llanes on June 13, 1934 and Maria Viloria on January 12, 1944. On August 21, 1914 Maria Viloria sold the said property together with another parcel of land to Melencio Manansala and to Ciriaco Casio, Fidela Valdez and spouses Ariston Andaya and Micaela Cabrito. On October 18, 1947, Eustaquia Llanes instituted a civil case to quiet title and to recover possession of said parcel from Ciriaco Casino. On June 9, 1949, Melencio Manansala sold the property in question to the spouses Ciriaco Casino and Fidela Valdez warranting that it was free from all kinds of liens and encumbrances and in case of eviction. Thereafter, a judgement was rendered in favor of the case filed by Eustaquia Llanes. On March 23, 1956, herein Plaintiffs filed a case against Melencio Manansala to recover damages suffered by them by reason of the latters breach of his warranty. The defendant denied the liability and alleged that it was the plaintiffs who pleaded with him to sell the land to them at a low price. The court ruled in favor of the plaintiffs and applied those obligations applicable to a vendor in cases of rescission of a contract. Thus, ordering the defendant to return the sum of the purchase price with interest.

Issue:

Whether or not the lower court erred in holding him liable as in rescission of sale and ordering him to return to plaintiffs the price of the land in question with interests.

Held:

No. The remedy of rescission contemplates that the one demanding it is able to return whatever he has received under the contract, and when it cannot be done rescission cannot be carried out. Furthermore, during the time of the purchase of the land in question by the plaintiffs, danger or eviction was present. Thus, the defendant is not obliged to restore the price of the land at the time of eviction and completely exempted from liability.

Art. 1557

The warranty cannot be enforced until a final judgment has been rendered, whereby the vendee loses the thing acquired or a part thereof. (1480)

Final judgment is necessary before warranty can be enforced.

Art. 1558

The vendor shall not be obliged to make good the proper warranty, unless he is summoned in the suit for eviction at the instance of the vendee.(1481a)

A formal summon to the seller in suit for the eviction of the buyer is necessary.Jovellano vs. Lualhati, et al.G.R. No. L-22488 February 2, 1925

Facts:

On November 6, 1911, Dionisia Solmirano, Lucio Solmirano, and Macario Solmirano sold a parcel of land, together with a deed of sale contained the usual covenant against eviction to Enrique Jovellano. On March 4, 1913, one Maxima Dorado filed an action against Jovellano to recover the possession of the land and won over the case. Thereafter, Jovellano filed a new complaint to determine the ownership of the land and the court ruled in favor of Dorado. Sometime after, Jovellano filed an action to recover from Solmirano, Solmirano, and Lualhati the price paid for the land, together will all the expenses incurred in improving it and in maintaining the two suites.

Issue:

Whether or not Solmirano, Solmirano, and Lualhati is liable to pay the price of the land, together will all the expenses incurred in improving it and in maintaining the two suites.

Held:

No. Formal notice to the vendor in case of suit for eviction must be given by the vendee in order to make the vendor liable. As ruled by the Supreme Court, warranty is lost in the absence of notification to the vendor, provided that the vendor can prove that he had good grounds of defense which he had lost in consequence of the vendees failure to call him.

Art. 1559

The defendant vendee shall ask, within the time fixed in the Rules of Court for answering the complaint, that the vendor be made a co-defendant. (1482a)

The defendant vendee threatened with eviction who wishes to preserve his right of warranty, should call in the vendor to defend the action which has been instituted against him. (De Leon 2010)

Jovellano vs. Lualhati, et al.G.R. No. L-22488 February 2, 1925

Facts:

On November 6, 1911, Dionisia Solmirano, Lucio Solmirano, and Macario Solmirano sold a parcel of land, together with a deed of sale contained the usual covenant against eviction to Enrique Jovellano. On March 4, 1913, one Maxima Dorado filed an action against Jovellano to recover the possession of the land and won over the case. Thereafter, Jovellano filed a new complaint to determine the ownership of the land and the court ruled in favor of Dorado. Sometime after, Jovellano filed an action to recover from Solmirano, Solmirano, and Lualhati the price paid for the land, together will all the expenses incurred in improving it and in maintaining the two suites.

Issue:

Whether or not Solmirano, Solmirano, and Lualhati is liable to pay the price of the land, together will all the expenses incurred in improving it and in maintaining the two suites.

Held:

No. The purchaser threatened with eviction, who wishes to preserve his right of warranty against his vendor, should call in the vendor to defend the action which has been instituted against the purchaser.

Art. 1560

If the immovable sold should be encumbered with any non-apparent burden or servitude, not mentioned in the agreement, of such a nature that it must be presumed that the vendee would not have acquired it had he been aware thereof, he may ask for the rescission of the contract, unless he should prefer the appropriate indemnity. Neither right can be exercised if the non-apparent burden or servitude is recorded in the Registry of Property, unless there is an express warranty that the thing is free from all burdens and encumbrances.

Within one year, to be computed from the execution of the deed, the vendee may bring the action for rescission, or sue for damages.

One year having elapsed, he may only bring an action for damages within an equal period, to be counted from the date on which he discovered the burden or servitude. (1483a)

When in cases of Non-apparent servitudes, the vendee may ask for the rescission of the contract of for the appropriate indemnity, within one year to be computed from the execution of the deed. When one year elapsed, only action for damages may bring, within one year to be computed from the date on which he discovered the burden or servitudes.

No remedy can be exercised in the burden is registered unless there is an express warranty that the thing is free from all burden and encumbrances.

SUBSECTION 2: WARRATY AGAINST HIDDEN DEFECTS OF OR ENCUMBRANCES UPON THE THING SOLD

Art. 1561

The vendor shall be responsible for warranty against the hidden defects which the thing sold may have, should they render it unfit for the use for which it is intended, or should they diminish its fitness for such use to such an extent that, had the vendee been aware thereof, he would not have acquired it or would have given a lower price for it; but said vendor shall not be answerable for patent defects or those which may be visible, or for those which are not visible if the vendee is an expert who, by reason of his trade or profession, should have known them. (1484a)

Generally, vendor is responsible for warranty against the hidden defects which the thing sold may have. However, he is not answerable for patent defects on those which may be visible, or for those which are not visible if the vendee is an expert who should have known them by reason of his trade and profession.

The requisites for warranty against hidden defects are: (a) the defect must be important and serious; (b) it must be hidden; (c) it must exist at the time of the sale; (d) the vendee must give notice of the defect to the vendor within a reasonable time; and (e) the action for rescission or reduction of the price must be brought within the proper period.

E.C. Mccullough vs. R. Aenlle & Co.G.R. No. 1300 February 3, 1904

Facts:

R. Aenlle & Co. sold to E. C. Mccullough the tabbacco cigarette factory known as "La Maria Cristina," together with all that belongs to it with the execution of three contracts. Sometime after plaintiff sold all the tobacco bought by him from the defendant. The buyer, rejected the two lands of tobacco claiming that tobacco in such land is worthless. Plaintiff filed for the recovery of his payment.

Issue:

Whether or not the plaintiff can recover.

Held:

No. Where the agreement between the parties is that the buyer is to take all the tobacco in a certain building and to pay therefor the price named, the obligation resulting is absolute, and in 110 wise depends upon the quality of the tobacco or its value and statements in an inventory subsequently drawn as to the quality of the tobacco do not affect the rights and obligations of the parties. The warranty against hidden defect cannot apply in the case because the consideration on the party of the plaintiff is to buy the building and the only way to do so is to buy the whole tobacco company.

Nutrimix Feeds Corporation vs. Court of Appeals441 SCRA 357

Facts:

Evangelista spouses purchased feeds from Nutrimix. They refused to pay the unsettled debt claiming that thousands of livestock were poisoned by the Nutrimix feeds. Nutrimix sued them for collection of money. The spouses countered with a suit for that time, they may have already been contaminated.

Issues:

Whether or not Nutrimix is guilty of breach of warranty due to hidden defects.

Held:

No. In alleging that there was a violation of warranty against hidden defects, the spouses assumed the burden of proof. However, this they failed to overcome. Under the law the defect must exist at the time that the sale was made and at the time the product left the hands of the seller, which the spouses failed to prove. The feeds were belatedly tested 3 months after the death of the broilers and hogs. This means that that time, they may have already been contaminated. They failed to prove that the feeds delivered to be tested were the same feeds that allegedly poisoned the animals.

Art. 1562

In a sale of goods, there is an implied warranty or condition as to the quality or fitness of the goods, as follows:

(1) Where the buyer, expressly or by implication, makes known to the seller the particular purpose for which the goods are acquired, and it appears that the buyer relies on the seller's skill or judgment (whether he be the grower or manufacturer or not), there is an implied warranty that the goods shall be reasonably fit for such purpose;

(2) Where the goods are brought by description from a seller who deals in goods of that description (whether he be the grower or manufacturer or not), there is an implied warranty that the goods shall be of merchantable quality. (n)

Implied warrant or condition as to the quality or fitness of the goods is present (a) where the buyer made known to the seller the particular purpose for which the goods are acquired and the buyer relies on the sellers skill or judgment; or (b) where the goods are brought by description from a seller who deals in goods of that description.Pacific Commercial Company vs. Ermita Market & Cold Stores, Inc.G.R. No. L-34727 March 9, 1932

Facts:

Plaintiff contracted to sell to defendants an automatic refrigerating machine as per description stated in the sales contract. The machine was delivered and by mutual agreement the vendor installed the machine. The machine did not give the results expected from it and the defendant refused to pay the balance of its purchase price and the cost of the installation of the machine. Plaintiff brought this action to recover the balance of the price and the cost of installation.

Issue:

Whether or not the defendant is liable.

Held:

Yes. The fact that the defendant could not use the machine satisfactorily in the three cold stored divisions cannot be attributed to plaintiffs fault; the machine was strictly in accordance with the written contract between the parties, and the defendant can hardly honestly say that there was any deception by the plaintiff.

Art. 1563

In the case of contract of sale of a specified article under its patent or other trade name, there is no warranty as to its fitness for any particular purpose, unless there is a stipulation to the contrary.(n)

No warranty of fitness for particular purpose in cases of contact of sale of a specified article under its patent or other trade names, otherwise there is a contrary stipulation.

Art. 1564

An implied warranty or condition as to the quality or fitness for a particular purpose may be annexed by the usage of trade. (n)

Usage of trade may appropriate an implied warranty or condition of the quality or fitness for a particular purpose.

Art. 1565

In the case of a contract of sale by sample, if the seller is a dealer in goods of that kind, there is an implied warranty that the goods shall be free from any defect rendering them unmerchantable which would not be apparent on reasonable examination of the sample. (n)

Implied warranty of merchantability is present in cases of a contract of sale by sample.

Chang Yong Tek vs. Generosa SantosG.R. No. L-4386 February 24, 1909

Facts:

Plaintiff sold to the defendant a certain quantity of tobacco, without specification as to quality, at a fixed price. Defendant examined the tobacco at the time of the sale, makes no allegation of fraud, and admits the quantity and the price. He made a partial payment and after a lapse of three years, refuses to pay the balance, alleging as a defense that the tobacco was not of good quality.

Issue:

Whether or not the defendant is liable.

Held:

Yes. In the absence of an express warranty, the vendor only impliedly warrants the legal and peaceful possession of the thing sold and that there are no hidden defect and the defendant is therefore liable for the balance of the purchase price.

Art. 1566

The vendor is responsible to the vendee for any hidden faults or defects in the thing sold, even though he was not aware thereof.

This provision shall not apply if the contrary has been stipulated, and the vendor was not aware of the hidden faults or defects in the thing sold. (1485)

Generally, the vendor is responsible to the vendee for any hidden faults or defect in the thing sold except:a. if there is stipulation that if the vendor acted in good faith, he is relieved; orb. if the vendee is aware of the defect , he cannot complain.

According to Manresa, the seller remains responsible for the purpose of reparation of the error under which the vendee contracted, but not as a punishment of bad faith

Caveat venditor: let the seller bewareCaveat emptor: let the buyer beware

Bryan vs. Hankins44 Phil 87 (1922)

Facts:

Plaintiff purchase the vessel for his own personal use, and it involved an investment of P55,000. At the time of its inspection, it was seaworthy and it had but little, if any, commercial value. The defects of its construction were hidden and concealed and were unknown to the plaintiff until the official inspection was made, when he promptly brought this action.

Issue:

Whether or not the seller is guilty of breach of warranty due to hidden defects

Held:

Yes. The Court found that the proof was conclusive that such hidden defects rendered the vessel unfit for the use for which it was intended, and that the plaintiff did not have any knowledge of such defects; and that no sane man would have purchased it, with such knowledge.

The Court applying the provisions of Article 1485 of the Spanish Civil Code held that the seller was liable to the buyer for any latent faults or defect of the thing sold, even if they were unknown to him.

Nutrimix Feeds Corporation vs. Court of Appeals441 SCRA 357

Facts:

Evangelista spouses purchased feeds from Nutrimix. They refused to pay their unsettled debt claiming thousands of their livestock were poisoned by the Nutrimix Feeds. Nutrimix sued them for collection of money. The spouses countered with a suit , they may have already been contaminated.

Issue:

Whether or not Nutrimix is guilty of breach of warranty due to hidden defects.

Held:

No. A manufactured or seller of a product cannot, however, be held liable for any damage allegedly caused by the product in the absence of any proof that the product in question was defective. The defect must be present upon delivery or manufacture of the product, or when the product left the sellers or manufacturers control; or when the product left the sellers or manufacturers control; or when the product was sold to a purchaser; or the product must have reached the user or consumer without substantial change in the condition it was sold.

Art. 1567

In the cases of Articles 1561, 1562, 1564, 1565 and 1566, the vendee may elect between withdrawing from the contract and demanding a proportionate reduction of the price, with damages in either case. (1486a)

The vendee may elect between:

1. Withdrawing from the contract (accionredhibitoria);

2. Demanding a proportionate reduction of the price (accionquantiminoris)

La Fuerza Inc. vs. Court of AppealsG.R. No. 24069, 23 SCRA 1217 (1968)

Facts:

La Fuerza, a winemaker engaged Associated Engineering to manufacture and install a flat belt conveyor system for La Fuerza wine bottles.La Fuerza discovered that the conveyor system, when operated caused several bottles to collide with each other. When Associated Engineering billed La Fuerza for thebalance of the contract price, La Fuerza refused to payas the conveyor system installed did not serve the purpose for which it was manufactured and installed.Associated Engineering filed a court action to collect thebalance.

Issue:

Whether or not Associated Engineering is liable.

Held:

No . The Court, while finding that the seller failed to live up its representations, found that the action to rescind the contract was barred by the Statute of Limitations under Article 1571. The Court laid down a policy in this wise:

Indeed, in contract of the latter type, especially when goods, merchandise, machinery or parts or equipments thereof are involved, it is obviously wise to require the parties to define their position in relation thereto, within the short probable time. Public policy demands that the status relations between the vendor and the vendee be not left to a condition of uncertainty for an unreasonable time, which would be the case, if the lifetime of the vendees right to rescission were four years.

Art. 1568

If the thing sold should be lost in consequence of the hidden faults, and the vendor was aware of them, he shall bear the loss, and shall be obliged to return the price and refund the expenses of the contract, with damages. If he was not aware of them, he shall only return the price and interest thereon, and reimburse the expenses of the contract which the vendee might have paid. (1487a)

The vendor bears the loss of the thing sold if loss is caused by reason of its hidden defects and the seller was aware of its defects

(1) The seller shall be obliged to:(a) Return the price;(b) Refund the expenses; and(c) Pay damagesIf he does not know the hidden defects, his liability is limited to: (a) return the price and its interest;(b) reimbursement of the expenses of the contract

Art. 1569

If the thing sold had any hidden fault at the time of the sale, and should thereafter be lost by a fortuitous event or through the fault of the vendee, the latter may demand of the vendor the price which he paid, less the value which the thing had when it was lost.

If the vendor acted in bad faith, he shall pay damages to the vendee.(1488a)

Where the thing sold with a hidden defect, at the time of sale, is lost through a fortuitous event or the fault of the vendee, the sellers obligation is to reimburse the price paid by the buyer less the value of the thing sold at the time of its loss.

Art. 1570

The preceding articles of this Subsection shall be applicable to judicial sales, except that the judgment debtor shall not be liable for damages.(1489a)

Although, there may be hidden defects, the debtor may not have been in bad faith especially if the property was not his own but the guarantors. As such, the judgment-debtor cannot be held liable for the damages for the hidden defects.

There are warranties but no damages on judicial sale

Reyes vs. Intermediate Appellate Court135 SCRA 214 (1985)

Facts:

A land was sold at a public auction for unpaid realty taxes

Issue:

Whether or not there is a valid sale.

Held:

The sale by the buyer of the land to a purchaser in good faith for value was valid even if there was no compliance with all the requirements of the law concerning tax sale of delinquent property.

Art. 1571

Actions arising from the provisions of the preceding ten articles shall be barred after six months, from the delivery of the thing sold. (1490)

Prescription period: 6 monthsMoles vs IAC169 SCRA 777 (1989)

Facts:

Petitioner Moles bought from Mariano Diolosa a second hand linotype printing machine. Moles promised Diolosa that he will pay the full amount after the loan from the Development Bank of the Philippines worth P50,000 will be released. Private respondent on return issued a certification wherein he warranted that the machine was in A-1 condition, together with the other express warranties. After the release of the money from the bank, petitioner Moles required respondent to accomplish some of the requirements. On November 29,1977, petitioner wrote Diolosa that the machine was not functioning properly. Moles found out that the said machine was not in good condition and it was worth lesser than the purchase price.

Issue:

Whether or not the action for rescission is barred by prescriotion

Held:

No. While it is true that Article 1571 of the Civil Code provides for a prescriptive period of six months for a redhibitoryaction a cursory reading of the ten preceding articles to which it refers will reveal that said rule may be applied only in case of implied warranties. The present case involves one with and express warranty. Consequently, the general rule on rescission of contract, which is four years shall apply.

Goodyear Phils, Inc. vs. SyG.R. No, 154554, 2005

Facts:

An Isuzu motor vehicle originally owned by Goodyear Phils, Inc. was sold to Anthony Sy on September 12, 1996. Sy, in turn, sold it to Jose Lee on January 29, 1997. Lee, on December 4,1997, filed an action for rescission of contract with damages against Sy because he could not register the vehicle in his name due to the certification from the PNP. PNP impounded the vehicle. A third party complaint was filed by Sy on January 9,1998 impleading Goodyear as the third part defendant,

Issue:

Whether or not there is breach of warranty

Held:

No. Petitioner did not breach the implied warranty against hidden encumbrances. The subject vehicle that had earlier been stolen by a third party was subsequently recovered by the authorities and restored to petitioner, its rightful owner. Whether Sy had knowledge of the loss and subsequent recovery, the fact remained that the vehicle continued to be owned by the petitioner, free from any charge or encumbrance whatsoever.Furthermore, an action for damages for breach of implied warranties must be brought within six months from the delivery of the thing sold. The vehicle was understood to have been delivered to Sy when I was placed in his control or possession. Whether the period should be reckoned from the actual or from the constructive delivery through a public instrument, more than six months had lapsed before the filing fo the Third- Party Complaint.

Art. 1572

If two or more animals are sold together, whether for a lump sum or for a separate price for each of them, the redhibitory defect of one shall only give rise to its redhibition, and not that of the others; unless it should appear that the vendee would not have purchased the sound animal or animals without the defective one.

The latter case shall be presumed when a team, yoke pair, or set is bought, even if a separate price has been fixed for each one of the animals composing the same.(1491)

It provides for the sellers liability for redhibitory defects when two or more animals are sold whether for a lump sum or for a separate price.

Generally, when the animals are bought by a team, yoke, pair, or set and when it is shown that only one of the animals sold had a redhibitory defect, the liability of the seller shall extend only to the one which had the defect unless the buyer would not have purchased the animals without the defective one. However, the animals that are bought in fairs or public auction or if sold as condemned, Article 1572 will not apply.

Art. 1573

The provisions of the preceding article with respect to the sale of animals shall in like manner be applicable to the sale of other things. (1492)

Article 1572 will be also be applicable to the sale of other things.

The hidden defect of the merchandise does not affect the other merchandise of good quality unless it be shown that the purchases would not have bought the one without the other.

Art. 1574

There is no warranty against hidden defects of animals sold at fairs or at public auctions, or of live stock sold as condemned.(1493a)

Sale of animals as condemned precludes all idea of warranty against hidden defects.

Such animals are bought not because of their quality or capacity for work.

Art. 1575

The sale of animals suffering from contagious diseases shall be void.

A contract of sale of animals shall also be void if the use or service for which they are acquired has been stated in the contract, and they are found to be unfit therefor. (1494a)

Sale of Animals are considered void in the following instances:1. when animals suffer from contagious diseases2. when animals are unfit for use OR service stated

Art. 1576

If the hidden defect of animals, even in case a professional inspection has been made, should be of such a nature that expert knowledge is not sufficient to discover it, the defect shall be considered as redhibitory.

But if the veterinarian, through ignorance or bad faith should fail to discover or disclose it, he shall be liable for damages. (1495)

Generally, where a professional opinion has been sought before the purchase of the animals, a recourse against the seller for warranty against redhibitory defect will not prosper. The exception is when the defect in the animals, which by reason of its nature, a professional or expert inspection will not be sufficient to discover then the seller remain answerable for his warranty.

Art. 1577

The redhibitory action, based on the faults or defects of animals, must be brought within forty days from the date of their delivery to the vendee.

This action can only be exercised with respect to faults and defects which are determined by law or by local customs. (1496a)

The redhibitory action must be brought within forty days from the date of their delivery to the vendee. Such action can only be exercised with respect to faults and defects which are determined by law or local customs.

Art. 1578

If the animal should die within three days after its purchase, the vendor shall be liable if the disease which cause the death existed at the time of the contract. (1497a)

The vendor is liable if the animal sold is suffering from any disease at the time of the sale, should it die with said disease within three days from the date of the sale

Art. 1579

If the sale be rescinded, the animal shall be returned in the condition in which it was sold and delivered, the vendee being answerable for any injury due to his negligence, and not arising from the redhibitory fault or defect. (1498)

If the vendee chooses to rescind the contract, the vendee must return the animal in the condition in which it was sold and delivered

Art. 1580

In the sale of animals with redhibitory defects, the vendee shall also enjoy the right mentioned in article 1567; but he must make use thereof within the same period which has been fixed for the exercise of the redhibitory action. (1499)

The vendee has the same right to bring at his option, either a redhibitory action or an action quantiminoris.

It must be brought within forty days from the date of the delivery of the animals to the vendee.

Art. 1581

The form of sale of large cattle shall be governed by special laws. (n)

It will be governed by Sections 511 to 536 of the Revised Administrative Code

The sale must be in a public instrument.

ACTIONS FOR BREACH OF CONTRACT OF SALE OF GOODS

Art. 1594

Actions for breach of the contract of sale of goods shall be governed particularly by the provisions of this Chapter, and as to matters not specifically provided for herein, by other applicable provisions of this Title. (n)

Actions available for breach of the contract of sale of goods are the following:

(1) Action by seller for payment of the price;

(2) Action by the seller for damages for non-acceptance of the goods;

(3) Action by the seller for rescission of the contract for breach thereof;

(4) Action by the buyer for specific performance; and

(5) Action by the buyer for rescission or damages for breach of warranty

Art. 1595

Where, under a contract of sale, the ownership of the goods has passed to the buyer and he wrongfully neglects or refuses to pay for the goods according to the terms of the 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 passed. 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 passed, if they cannot readily be resold for a reasonable price, and if the provisions of article 1596, fourth paragraph, are not applicable, the seller may offer to deliver the goods to the buyer, and, if the buyer refuses to receive them, may notify the buyer that the goods are thereafter held by the seller as bailee for the buyer. Thereafter the seller may treat the goods as the buyer's and may maintain an action for the price. (n)

An action for the price of the goods under a contract of sale can be maintained by the seller:

(1) When the ownership of the goods has passed to the buyer and he wrongfully neglects or refuses to pay for the price;

(2) When the price is payable on a certain day and the buyer wrongfully neglects or refuses to pay such price, irrespective of delivery or of transfer of the title; and

(3) When the goods cannot readily be sold for a reasonable price and the buyer wrongfully refuses to accept them even before the ownership in the goods has passed, if the provisions of Article 1596, 4th paragraphMcCullough vs Lucena Electric Light, Ice And Water CompanyG.R. No. L-10157November 4, 1915

Facts:

The case involved two cause of actions. First, plaintiff alleged that the defendant was indebted to it in the sum of P13,692.50 as the balance due and unpaid on account of an electric light plant sold and delivered to the defendant. Second, the plaintiff claimed that the defendant was indebted to it in the sum of P8,947.15 as the balance due and unpaid for merchandise sold and delivered to the defendant.

Issue:

Whether or not the defendant is indebted to the appellee.

Held:

Yes. a preponderance of the evidence shows that the defendant is indebted to the plaintiff in the sum of P12,692.50, as the balance due on the contract for the purchase of machinery, together with interest thereon at 8 per cent from the 15th of February, 1913, until paid, and in the further sum of P8,947.15 for merchandise sold by the plaintiff to the defendant, together with interest at 8 per cent thereon from the 19th of August, 1913, until paid, and costs.

The defendant had been running the machinery for a period of eight months. It made no effort to show that its engineer in charge of the machinery was a competent man, in fact the record shows that he was an incompetent man. The record also shows that the defendant had not used proper fuel for the running of the machinery.lawph!1.netThe plaintiff had not guaranteed that the machines would run with a certain capacity or would develop certain power under all conditions, and at all times unless the defendant should manage the machines by competent engineers and use proper fuel. The plaintiff simply guaranteed that the machines were free from defects; that they would produce certain power, if properly managed by competent men, when they were properly supplied with the right kind of fuel.

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 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)

Instances When Sellers Right of Action for Damages May be Maintained:

1. when the buyer, WITHOUT lawful cause, neglects OR refuses to accept AND pay for the goods he agreed to buy

2. in an executory contract, where the ownership has NOT passed AND the seller CANNOT maintain an action for the price

3. when the goods are NOT yet identified at the time of the contract OR subsequently

If there is NO available market in which the goods can be sold at the time, the seller is entitled to the full amount of damage.

Proximate damages of greater amount are allowed when the same may be reasonably attributed to the non-performance of the obligation.

In case of repudiation by the buyer, the measure of damages to which the seller is entitled shall include: (a) the labor performed AND expenses incurred for materials before receiving notice of the buyers repudiation, AND (b) profit he would have realized if the sale had been fully performed.

Siuliong& Co. &Nanyo Shoji Kenshia42 Phil 722 (1922)

Facts:

Siuliong, is a domestic corporation. Kaisha is a foreign corporation duly licensed to do business in the Philippine Islands Chua Chin and JaoPi are partners doing business at Manila at 260 Tetuan Street. April 7, 1920, Kaisha entered into a written contract with Jao Pi in and by which the corporation agreed to buy and the firm agreed to sell 3,000 piculs of "IlocosSurtido" sugar at the agreed price of P21.50 per picul, delivery to be made on April 19, if the ships can then be approached, otherwise the sugar will be placed in "cascos" at the expense of the company. April 17, 1920, Kaisha entered into a written contract with Siuliong to sell and deliver that company the same sugar in the month of April 1920, at the agreed price of P25 per picul, or a profit of P3.50 per picul. For failure of jao Pi to deliver the sugar under the contract, Kaisha commenced an action against that firm, in which it alleged that the contract and the failure to deliver the sugar, the making of the with Siuliong and its corresponding failure to deliver the sugar

Issue:

Whether or not Jao Pi and Kenshia liable for damages.

Held:

Yes. Jao Pi and Kenshia are liable to Siuliong for their failure to deliver the sugar. . If Jao Pi ad delivered the sugar according to their contract, ten Kaisha could have performed its contract, and neither party would be liable for any damages. Under the facts shown here, the failure of Jao Pi to deliver the sugar under their contract resulted in the failure of Kaisha to perform its contract with Siuliong. Of course, if Jao Pi had performed their contract with Kaisha and Kaisha had then failed to fulfill its contract with Siuliong, Jao Pi would not then be liable for the amount of any damages whichSiuliong sustained through a breach of its contract by Kaisha. But that is not this case.. Here, the breach of the contract by Jao Pi was not direct and proximate cause of the breach of the contract by Kaisha, and it was the direct and proximate cause of damages whichSiuliong sustained by reason of the breach.

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)

Instances When Sellers Right of Rescission Before Delivery May be Maintained:

1. when the buyer has repudiated the contract of sale

2. when the buyer has manifested his inability to perform his obligations thereunder

3. when he buyer has committed a breach of the contract of sale

Legarda Hermanos vs Saldana 55 SCRA 324 (1974)

Facts:

Private respondent as plaintiff had entered into two written contracts with petitioner Legarda Hermanos as defendant subdivision owner, whereby the latter agreed to sell to him Lots Nos. 7 and 8 of block No. 5N of the subdivision with an area of 150 square meters each, for the sum of P1,500.00 per lot, payable over the span of ten years divided into 120 equal monthly installments of P19.83 with 10% interest per annum, to commence on May 26, 1948, date of execution of the contracts. Subsequently, Legarda Hermanos partitioned the subdivision among the brothers and sisters, and the two lots were among those allotted to co-petitioner Jose Legarda who was then included as co-defendant in the action.

Issue:

Whether or not Legarda Hermanos has the right to rescind the contract.

Held:

No. Legarda hermanos was not allowed to totally rescind the contract, it appearing that the installments paid by Saldana were more than the value of one lot. The conveyance to the buyer of one of the two lots was ordered.______________________________________________

Song Fo & Co. vs. Hawaiian- Phil. Co.47 Phil 821 (1925)

Facts:

In the court of First Instance of Iloilo, Song Fo & Company presented a complaint with two causes of action for breach of contract against the Hawaiian-Philippine Co., in which judgment was asked for P70,369.50, with legal interest, and costs.

In an amended answer and cross-complaint, the defendant set up the special defense that since the plaintiff had defaulted in the payment for the molasses delivered to it by the defendant under the contract between the parties, the latter was compelled to cancel and rescind the said contract.

Issue:

Whether or not rescission of contract will be permitted for a slight or causal breach.

Held:

No. The general rule is that rescission of a contract will not be permitted for a slight or casual breach but only for such substantial breach as would defeat the very object of the parties in making the agreement. A delay in payment for a small quantity of molasses for some twenty days is not such a violation of an essential condition of the contract was warrants rescission for non-performance. Not only this, but the Hawaiian-Philippine Co. waived this condition when it arose by accepting payment of the overdue accounts and continuing with the contract. ______________________________________________

Ayala Corp vs Rosa- Diana Realty & Devt Corp 346 SCRA 663 (2000)

Facts:

Petitioner Ayala Corporation was the registered owner of a parcel of land located in Alfaro Street, Salcedo Village, Makati City with an area of 840 square meters, more or less and covered by Transfer Certificate of Title (TCT) No. 233435 of the Register of Deeds of Rizal. On April 20, 1976, Ayala sold the lot to Manuel Sy married to Vilma Po andSyKa Kieng married to Rosa Chan.The Deed of Sale executed between Ayala and the buyers contained Special Conditions of Sale and Deed Restrictions.The Deed Restrictions.

Issue:

Whether or not Ayala has the right to rescind the sale.

Held:

No. The Supreme Court held that where a vendor agreed to the resale of the property by the original vendee to another person despite the failure of said vendee to comply with his obligation under its original sale, the vendor is deemed to have effectively waived its right to rescind the sale.

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 terms and conditions as to damages, payment of the price and otherwise, as the court may deem just. (n)

It applies only where the goods to be delivered are specific or ascertained.

This article grants the buyer, as a matter of right, the remedy of specific performance in case the seller should violate his obligation to make delivery.

The seller cannot retain the goods on payment of damages because damages are imposed by law to insure fulfillment of contract and not to substitute for it.

In granting specific performance, the court may impose such terms and conditions as to damages, payment of the price and otherwise, as it may deem just.

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.

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)

Remedies of the Buyer for Breach of Warranty by Seller:

1. accept the goods AND set up the sellers breach to reduce OR extinguish the price

2. accept the goods AND maintain an action for damages for the breach of the warranty

3. refuse to accept the goods AND maintain an action for damages for the breach of the warranty

4. rescind the contract of sale by returning or offering the return of the goods AND recover the price

Rights and Obligations of the Buyer in Case of Rescission:

1. in case of rescission, the buyer shall cease to be liable for the price, his only obligation being to return the goods

2. if he has paid the price OR any part thereof, he may recover it from the seller

3. he also has the right to hold the goods as bailee for the seller should the latter refuse the return of the goods AND to have a lien thereon for any portion of the price already paid which lien he may enforce as if he were an unpaid seller

Embee Transportation Corp vs Camacho 80 SCRA 477 (1977)

Facts:

Plaintiff-appellant Embee Transportation Corporation was the holder of a certificate of public convenience to operate 30 units of taxicabs within the City of Manila. In September 1969 it sold 15 of these units to the defendants-appellees Hospicio Camacho, Jaime de la Fuente and Herminio Reyes. At the time of the sale, plaintiff-appellant showed to them its certificate of public convenience to operate the 30 units of taxicabs within the City of Manila. Upon the execution of the deed of sale over the 15 units, the defendants appellees paid to plaintiff-appellant the amount of P41,250.00 and agreed to pay the balance upon approval of the sale and transfer of the corresponding certificate of public convenience to operate the 15 units to them by the Public Service Commission.

Issue:

Whether or not the defendants-appellees are still bound to pay the plaintiff-appellant the unpaid balance of the purchase price of the certificate of public convenience to operate the fifteen units of taxicabs sold to them by plaintiff-appellant

Held:

Yes. It appears in the contract that the payment of the balance of P41,250.00 is subject to the condition that the contract of sale is finally approved by the Public Service Commission. In refusing to pay the balance of P41,250.00 defendants-appellees claim that they are not bound to pay the amount because the deed of sale in question has not been approved yet by the Public Service CommissionTheir refusal to pay the remaining balance of the agreed consideration (P41,250.00) on the alleged ground of vice or defect in the subject matter in the contract while at the same time possessing and enjoying the same is untenable both on the grounds of law and equity. From all indications it would appear to Us, that defendants-appellees made use of this Court's injunction in Civil Case No. L-3114547 as a lame excuse either to escape liability or to delay the enforcement of a lawful and valid obligation of paying the balance to plaintiff-appellant. This can be deduced from the fact that they continued enjoying the use of the aforementioned certificate of public convenience without paying the balance of the agreed consideration. The taint of bad faith on defendants-appellee's acts cannot just be disregarded.