Finals-Reviewer.pdf

7/27/2019 Finals-Reviewer.pdf

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SALES

Contract of Sale. By the contract of sale one of the contracting parties obligates himselfto transfer the ownership of and to deliver a determinate thing and the other to paytherefore a price certain in money or its equivalent.

Contract of Sale Contract to Sell

Title over the property passes to the buyer

upon delivery unless there is a contraryagreement

Ownership is retained by the seller whether or

not there is delivery. Ownership passes to thebuyer only upon full payment of the price

Non-payment of the purchase price is anegative resolutory condition, meaning the salebecomes ineffective upon the happening ofsuch condition

The payment in full is a positive suspensivecondition, meaning, if the purchase price is notpaid, the obligation to deliver and to transferownership on the part of the seller does notbecome effective

After delivery of the objective, the seller losesownership over it. Unless, the contract is setaside, he cannot recover the object

Whether there is delivery or not, the sellerretains the ownership of the object. If the seller,due to non-payment of the price is ousting thebuyer from the property, he (seller) is notrescinding the contract of sale but is preciselyenforcing it.

Pactum Reservatii Domini Contract to Sell

Conditional Sale there is already a contract ofsale

No contract to sale only, a preparatory contract

There is already delivery but ownership retainby seller

No delivery yet. No sale yet

Specific Performance/Rescission No specific performance/rescissionnocontract yet

Payment completes the transaction Payment will not complete transaction

Phases or Stages of A contract of Sale1. Preparation, conception or generationthe period of negotiation and bargaining, ending atthe moment of agreement of the parties

2. Perfection or Birth of the Contract3. Consummation or deathwhich is the fulfilment or performance of the terms agreed upon

Characteristics or Features of Contract of Sale (NBC-COP)1. NominateIt has a specific name given by law.2. Bilateralboth parties are obliged to fulfil reciprocal obligations to one another.3. ConsensualIt is perfected by mere consent4. CommutativeThe thing sold is equivalent of the price paid5. OnerousThe thing sold is conveyed in consideration of the purchase price and the purchaseprice is paid in consideration of the conveyance of the thing.6. PrincipalIts existence does not depend upon the existence and validity of another contract

Elements of Contract of Sale

1.Essential Elementsnecessary for the validty of the sale.a. Meeting of the minds of the seller and the buyerb. Object which is certain and determinatec. Price certain

2. Natural Elementsthose which are inherent in the contract and are deemed to exist in thecontract of sale in the absence of clear contrary agreement.

a. Warrant against evictionb. Warranty against hidden defects

3. Accidental ElementsMay or may not exist depending on the stipulations of the parties likeconditions, payment of interest, place and time of payment.

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Object Must be Licit or Lawful. There are two kinds of illicit things:a. Illicit per sewhen by its nature it is heinous, immoral or wrongfulb. Illicit per accidenswhen it is prohibited by law

When is a thing determinate?a.When it is particularly designated or physically segregated from all others of the same

class.b. The thing is capable of being made determinate, at the time the contract is entered into,

w/o the necessity of a new or further agreement between the parties.

Emptio rei sperataea sale of an expected thing subject to the condition that the thing will cometo existence. If the thing did not come into existence, the contract is not effective and the buyerhas no obligation to pay the price. Presumption is in favor of this kind of sale, because it is morein keeping with the commutative character of a sale.

Emptio speia sale of a hope or expectancy. The contracting parties intended that contract ofsale to exist at all events, whether or not the expected thing will come into existence such that thebuyer will have to pay the purchase price, such that the contract becomes aleatory in nature.

Emptio rei speratae vs. Emptio speiEmptio rei speratae Emptio spei

Sale of a thing having a potential existence Sale of a mere hope or expectancy

The uncertainty is with regard the quantity andquality but not with regard the existence of thething

The uncertainty is with regard the existence ofthe thing

The contract deals with a future thing The contract deals with a present thingthehope or expectancy

The sale is subject to the condition that thething should exist, so that if it does not, there isno contract for lack of an essential requisite

The sale produces effects eventhough the thingitself does not come into existence, since thesubject matter is the hope itself

Future Goods that may be subject of a contract of sale1. Goods to be manufactured yet2. Goods to be acquired by the seller after the perfection of contract of sale3. Goods that depends upon a contingency that may or may not happen

Purchase of an Undivided Share in Specific Mass of Fungible Goods. Rules:1. If the aliquot part purchased from the seller is more than the whole undetermined mass after ithad been weighed or measured, then the buyer becomes the owner of the entire mass.2. If the aliquot part purchased is less than the whole undetermined mass, the purchaser willbecome the co-owner of the whole mass in the proportion in which the number, weight ormeasure of what had been purchased bears to the number, weight or measure of the mass orstock.

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Sale vs. Agency

SALE AGENCY

The buyer pays for the price of thegoods/property purchased

The agent does not pay for the price. Hemerely accounts for the proceeds of the sale.

The buyer becomes the owner of thegoods/property purchased

The agent does not become the owner of thegoods/property delivered to him for sale.

Buyer cannot return the goods/property whenthe sale is defective The agent returns the goods/property if he wasnot able to sell the same

The seller warrants the goods/property sold The agent does not make any warranty as longas he acts within his authority and in the nameof the principal

The seller has full freedom to enter into anyterms or conditions on the contract of sale

The agent must follow the instructions of theprincipal

Contract for a Piece of WorkThe article sold is specially manufactured and upon the specialorder of the customer. Article is not sold in the ordinary course of business. (See. Concrete

Aggregates vs. CTA)

Contract for a piece of work Contract of Sale

The thing transferred is one not in existenceand w/c never would have existed but for theorder of the party desiring to acquire it

The thing transferred is one which would haveexisted and would have been the subject ofsale to some other person, even if the orderhad not been given

The services dominate the contract eventhoughthere is a sale of goods involved

The primary objective of the contract is a saleof the manufactured item; it is a sale of goodseventhough the item is manufactured by laborfurnished by the seller and upon previous orderof the customer

Not w/in the Statute of Frauds Governable by the Statute of Frauds

Rules if Consideration is partly Money and Partly Goods1. Determine the intention of the parties.

2. If intention could not be determined, consider the value of the thing given:a. If value of the thing more than value of the money, it is BARTERb. If value of the thing less than value of the money, it is SALEc. If both values are the same, SALE

Money Exchange.

If local currency is exchanged for foreign currencythere is purchase and sale. If the local currency is exchanged with other denominations of the local currency also,

there is barter (Same rule if Foreign Currency exchanged in the Philippines for anotherforeign currency)

PRICE- the sum stipulated as the equivalent of the thing sold and also every incident taken intoconsideration for the fixing of the price, which was agreed upon by both parties.

Rules if there is no specific amount stipulated as purchase price1. It is still certain if it is determinable by making reference to another thing which is itself certain2. It is still certain if determination is entrusted to the judgment of a specified person or persons3. By reference to certain fact or facts (such as in Art. 1472when the price is fixed is that whichthe thing sold would have on a definite day or a particular exchange)

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Effect if 3rd Person fixed the priceGeneral Rule: It is binding upon the partiesExceptions:1. When the 3rd person acts in bad faith2. When the 3rd person disregards the specific instructions or the procedure marked out by

the parties

Effect when the price is not fixed by the 3rd person designated1. If the 3rd person refuses or cannot fix the price, the contract shall become ineffective, unlessthe parties subsequently agree upon the price2. If the 3rd person is prevented from fixing the price by the fault of the seller or buyer, the partynot in fault may obtain redress against the party in fault.

Effect of Gross Inadequacy of Price. No effect.Exceptions: (meaning, sale is set aside)

1. If consent is vitiated, such as VIMFU (Violence, Intimidation, Mistake, Fraud, Undue influence)2. If the parties intended a donation or some other act or contract3. If the price is so low as to be shocking to the conscience

Effect of Simulated Price. Sale is void, unless it could be shown that the parties intended a

donation or some other act of liberality.Price Simulated- No price to support a contract of sale, such that neither party had any

intention that the amount will be paidvoidPrice is False-there is a real price not declaredcontract is valid, but the underlying deed

is subject to reformation to indicate the real price upon which the minds of the parties have met.

When Price Cannot be determined, effect: Sale is inefficacious. (1474)Is appropriation of the thing delivered in an inefficacious contract allowed? Yes, buyer must

pay a reasonable price to that part delivered. (Reasonable price is generally the market price atthe time and place fixed by the contract or by law for the delivery of the goods)

PERFECTION OF CONTRACT OF SALE. Meeting of the minds upon the thing and price.Effect: Parties may reciprocally demand performance

RULES ON AUCTION SALES1. Each lot is subject of a separate contract of sale2. Auction sale is perfected when the auctioneer announces its perfection by the fall of thehammer or in other customary manner.

* Pending announcement:

Any bidder may retract his bid Auctioneer may withdraw the goods, unless auction is w/o reserve

3. A right to bid may be reserved expressly by or on behalf of the seller, unless otherwiseprovided by law or stipulation4. Notice is essential for the seller or his representative to be able to bid.

By-bidders or puffers:persons employed by auctioneer who will bid w/o being bound butwhose bids will have a tendency to induce or provoke higher bids from interested buyers, thus

misleading the latter because of the inflated bid price.**It is the secrecy of the puffing and not the authorized bidding by the seller which makes it

fraudulent.

OPTION CONTRACT. A Privilege existing in one person, for which he had paid a consideration,which gives him the right to buy, certain merchandise or property from another person at anytimewithin the agreed period at a fixed price. In case of breach of promise to buy or to sell, injuredparty can only seek damages. (See Art. 1479)

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Test to Determine whether a Contract is A contract of Sale or An Option. Whether or not theagreement could be specifically enforced. If such stipulation could be independently enforcedfrom the contract, then such stipulation is an option.

EARNEST MONEY vs. OPTION MONEY

Earnest Money Option MoneyIt is part of the purchase price It is given as a distinct consideration for anoption contract which gives the buyer a specificperiod within which to purchase the thing

It is given only when there is already aperfected sale

It is given at a time when the sale had not yetbeen perfected. What had been perfected onlyis the option contract

When it is given, the buyer is bound to pay thebalance of the agreed purchase price

Even if option money is paid by the would-be-buyer he is not bound to buy the thing

If the sale does not materialize, the earnestmoney paid must be returned, unless acontrary agreement had been stipulated

If the buyer decides not to buy the thing, hecannot recover the option money he paid asconsideration for the contract of option

LOSS, DETERIORATION OF THING

BEFORE PERFECTION. No contract to talk about. Would-be-seller bears the loss.

AT THE TIME OF PERFECTION OF CONTRACT OF SALE1493*contract without any effect: it never came to existence. Tthere could be no contract of sale

without a thing to be sold. Would-be-seller bears the loss.

AFTER PERFECTION BEFORE DELIVERY.I. 1480 Applicability, correlate to: (Fungibles sold independently and for a single price

covered by the law)

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Art. 1163. Every person obliged to give something is also obliged to take careof it with the proper diligence of a good father of a family, unless the law or thestipulation of the parties requires another standard of care

Art. 1164. The creditor has a right to the fruits of the thing from the time theobligation to deliver it arises. However, he shall acquire no real right over ituntil the same has been delivered to him.

Art. 1165. When what is to be delivered is a determinate thing, the creditor, inaddition to the right granted him by Article 1170, may compel the debtor tomake the delivery.If the thing is indeterminate or generic, he may ask that the obligation becomplied with at the expense of the debtor.If the obligor delays, or has promised to deliver the same thing to two or more

persons who do not have the same interest, he shall be responsible for anyfortuitous event until he has effected the delivery

Art. 1262. An obligation which consists in the delivery of a determinate thingshall be extinguished if it should be lost or destroyed without the fault of thedebtor, and before he has incurred in delay.When by law or stipulation, the obligor is liable even for fortuitous events, theloss of the thing does not extinguish the obligation, and he shall be responsiblefor damages. The same rule applies when the nature of the obligation requiresthe assumption of risk.


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II. 1504 Applicability. Principle of Res Perit Domino. Vendor bears risk of loss until ownershipis transferred by delivery.

Exceptions: a) Where delivery of goods has been made but ownership is retained bythe seller merely to secure performance of buyers obligation

b) Where actual delivery is delayed through fault of the buyer.

Sale of Goods By Description- where a seller sells a thing as being of a certain kind verballydescribing them and the buyer simply relies on the sellers descriptions of the things, not knowingwhether the sellers representations are true or not.

Sale by Sample- Where the seller warrants that the bulk of goods being sold correspond with thesample or samples exhibited not only in kind but also in quality and character.

Sale by Description and Sample- Where the seller has to satisfy the requirements in sale bydescription and sample. There are two-fold warranty here: (a) the goods purchased matched withthe description and (b) the goods also matched in kind, quality and character with that of thesample or samples exhibited to the buyer or his representative

RECTO LAW (ART. 1484)

Applicability: Sales of Personal Property in Installments and Leases of Personal Property w/Option to BuyRemedies:(1) Exact fulfillment of the obligation, should the vendee fail to pay;(2) Cancel the sale, should the vendee's failure to pay cover two or more installments;(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should thevendee's failure to pay cover two or more installments. In this case, he shall have no furtheraction against the purchaser to recover any unpaid balance of the price. Any agreement to thecontrary shall be void.

The stipulation that the instalments or rents shall not be returned to the vendee orlessee shall be valid as long as it is not unconscionable. (1486)

ART. 1489.Two Kinds of Incapacity:1. Absolute Incapacity- Party cannot bind himself in any case.2. Relative Incapacity- Certain Persons under certain circumstances cannot buy certain

property.

** Minors in contract for necessaries must pay reasonable price.

Necessariesthose things which are needed for sustenance, dwelling, clothing and medicalattendance, in keeping with the financial capacity of the family of the incapacitated person.

ART. 1490. Prohibition against Husband and Wife. Exceptions.

Rationale: PIDa. To avoid Prejudice to 3rd Personsb. To prevent one spouse from unduly influencing the other.c. To avoid by indirection the violation of the prohibition against donations.

Who may assail illegality?a. Creditors prior to the saleb. Heirs of either spouse.

** Either spouse may not assail illegality because they are parties thereto.

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** A spouse designated as agent of the other spouse may sell the latters exclusive property.

ART. 1491. Persons Relatively Incapacitated to Buy. (PAGEJO)

1. Public Officers and employeesProperty Of State.2. AgentsProperty of Principal unless with consent.3. GuardianProperty of Ward.4. Executors and administratorsEstate5. Justices, Judges, Prosecuting Attorneys, Clerks and employees of courtProperty/Rightsunder litigation.6. Others disqualified by law. (Ex. *aliens who are disqualified to purchase private agriculturallands; *an unpaid seller having a right of lien or having stopped the goods in transitu, who is

prohibited from buying the goods either directly or indirectly in the resale of the same at a publicor private sale w/c he may make. Art. 1533, par.5)

Rationale: Fiduciary relationshipStatus of Sale: Voidable (1-3); Void (4-6)

ART. 1492. 1490 and 1491 Applicable to Legal Redemption, Compromises and

Renunciations.

ART. 1493. Loss of Object Before Sale. Complete and Partial Loss.Partial Loss Rules:1. Vendee may withdraw from the contract2. Demand the remaining part, paying its price in proportion to the total sum agreed upon

ART. 1494. Loss/Substantial Deterioration of Specific Goods without sellers knowledge.1. Buyer may avoid the sale or2. May treat sale as valid w/ respect to the existing goods

ART. 1495. Obligations of Vendor. (TDWP)1. Transfer Ownership (not waivable)

2. Deliver (not waivable)3. Warrant Object (waivable and may be modified)4. Preserve Thing from perfection to delivery (Art. 1163)5. Pay for the execution and registration of the sale unless there is a contrary agreement

**Execution sales do not require the delivery of thing since a one year period of redemption isavailable to seller.

ART. 1496. Delivery Transfers Ownership.ART. 1497. Control and Possession necessary in Delivery.

Exception:Art.1478. Stipulation as to full payment of price.

Delivery- a mode of acquiring ownership as a consequence of a contract of sale by virtue of

which actually or constructively the object is placed in the control and possession of the vendee.

KINDS OF DELIVERY1. Actual or Real. (1497)2. Legal or Constructive

a. Legal Formalities (1498); execution of public instrument.b. Symbolical Tradition (1498 par 2)- keys delivered.c. Traditio Longa Manu- by mere consent /agreement. If the movable sold cannot yet be

transferred to the possession of the buyer at the time of the sale. (1499)

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d. Traditio Brevi Manu- if the buyer had already the possession of the object even before thepurchase. (lessee becomes owner)

e. Traditio constitutum possessorium- possession as owner changed. (Owner becomeslessee)

3. Quasi-Tradition- Delivery of Rights, credits or incorporeal property made by:a. Execution of public instrumentb. Placing titles of ownership in the hands of a lawyer.c. Allowing the buyer to make use of the rights (1501)

ART. 1498. Constructive delivery.Requirements:1. Sellers Control.2. Sellers Control transferred to buyer.3. Intention to deliver for ownership.

ART. 1499. Traditio Longa and Brevi ManuART. 1500. Traditio Constitutum Possessorium.ART. 1501. Delivery of Incorporeal Property. (Constructive and Quasi-Tradition)

ART. 1502.Transaction on Sale or Return. Subject to Resolutory Condition.

Difference with Delivery with option to purchase- Ownership is transferred in Sale orReturn

Transaction on Approval or Trial/Satisfaction. Subject to Suspensive Condition.Rules:1. Risk of loss to seller until the sale becomes absolute. (Exceptions: Buyer in default; Buyer

agreed to bear the loss)2. Buyer must give goods a trial except when it is evident that it cannot perform the work

intended.3. Period of signifying acceptance commences to run only when all the parts essential for

operation has been delivered.

4. A provision that a 3rd

person must satisfy approval is valid but he must be in Good faith.5. Generally the Sale and Delivery to an expert buyer is not a sale on approval/trial.

Sale or Return vs. Sale on Approval

Basis Sale or Return Sale on Approval

Condition Subject to Resolutorycondition

Subject to suspensivecondition

Premise It depends upon the will of thebuyer

It depends upon the suitability,quality or character of thegoods

Transfer of ownership Ownership immediatelypasses to the buyer ondelivery

Ownership does notimmediately pass to the buyer.It passes only upon approval

or satisfaction of the buyerduly manifested after trial

Revesting of ownership in theowner

Ownership is revested in theseller if the buyer so decides

There is no revesting ofownership because it isretained by the seller until thesale becomes absolute

Risk of loss or deterioration The risk rests on the buyerbefore the revestment ofownership

The risk remains in the sellerwhile the goods are on trial

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Art. 1503- RESERVATION OF POSSESSION OR OWNERSHIP BY THE SELLER WHENSPECIFIC GOODS ARE SHIPPED.

1. When a contrary intention appears by the terms of the contract.2. When the goods are shipped, and by the bill of lading(BOL) the goods are deliverable to theselleror his agent, or to the order of the seller or of his agent.

Exception: Form of bill of lading not conclusive if for security purposes only.3. When the goods are shipped and by the BOL the goods are deliverable to the order of thebuyeror of his agent, but possession of the BOL is retained by the seller or his agent.4. Where bill of lading is sent forward to the buyer with bill of exchange attached and the buyerdid not pay the bill of exchange.

EFFECT OF BUYERS OBTAINING POSSESSION OF BILL OF LADING WITHOUTHONORING THE DRAFT.** If the BOL provides that the goods are deliverable to the buyer or to the order of the buyer or isindorsed in blank or is indorsed to the buyer by the consignee named therein, a purchaser inGF for value of the BOL or goods from the buyer will obtain the ownership in the goodsalthough the BOE has not been honored.

Kinds of Delivery to the Carrier1. C.I.F. (Cost, Insurance, Freight)signify that the price fixed covers not only the costs of thegoods, but the expense of the freight and the insurance to be paid by the seller2. F.O.B. (Free on Board)goods are to be delivered free of expense to the buyer to the pointwhere they are F.O.B. The point of F.O.B. (either at point of shipment or the point of destination)determines when the ownership passes.

*CIF and FOB merely make rules of presumption.3. C.O.D. (Collect on Delivery)the carrier acts for the seller in collecting the purchase price,which the buyer must pay to obtain possession of the goods.

ART. 1505. SALE BY A PERSON NOT THE OWNER/WITHOUT AUTHORITY OF OWNER.General Rule: Buyer acquires no better title to the goods than the seller had.Exceptions: SOLVAM

1. Where the sale is sanctioned by statutory or judicial authority. (See Art. 559)2. Where the owner of the goods is by his conduct, precluded from denying the sellers authorityto sell.3. Where the law enables the owner to dispose of the goods as if he were the true owner thereof.

*** Factors Acts (Agency); Recording Laws (PD 1529, RA 4136-Land Transportation andTraffic Code, Revised Administrative Code); NIL; Warehouse Receipts Law.

4. Where the seller has a voidable title which has not been avoided at the time of the sale.5. Where seller subsequently acquires title.6. Where the sale is sold at merchants stores, fairs or markets.

ART. 1506. SALE BY ONE HAVING A VOIDABLE TITLE-BUYER ACQUIRES GOOD TITLE.1. Bought before the title of seller has been avoided.

2. in GF for value3. without notice of the sellers defect of title.

ART. 1507. DOCUMENTS OF TITLE.

Document of Title of Goodsincludes any bill of lading, dock warrant, quedan, or warehousereceipt or order for the delivery of goods, or any other document used in the ordinary course ofbusiness in the sale or transfer of goods, or authorizing or purporting to authorize the possessorof the document to transfer or receive, either by indorsement or by delivery, goods representedby such document.

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Nature and function:1. Receipts of, or orders upon, a bailee of goods represented.2. Evidence of transfer of title and possession of goods and contract between the parties.

Some Forms of Documents of Title

1. Bill of Lading- It is a contract or receipt for the transport of goods and their delivery to theperson named therein, to order or to bearer. It usually involves three persons: the carrier, theshipper and the consignee.2. Dock Warrant- it is an instrument given by dock owners to an importer of goods warehousedon the dock as a recognition of the importers title to the said goods, upon production of the bill oflading.3. Quedan-a warehouse receipt for commodities or goods such as sugar, tobacco, rice or hemp4. Warehouse ReceiptA receipt wherein it is stated that certain goods were received by thebailee to be delivered to the bearer or to the order of any person named in such receipt or to aspecified person5. Letter of Creditit is nothing more than a commitment by the issuer that the party in whosefavor it is issued and who can collect upon it will have his credit against the applicant of the letter

duly paid in the amount therein specified.

Classes of Documents of Title:1. Negotiable- those by the terms of which the bailee undertakes to deliver the goods to thebearer and those by the terms of which the bailee undertakes to deliver the goods to the order ofa specified person.2. Non Negotiable- those by the terms of which the goods covered are deliverable to a specifiedperson.

ART. 1508. NEGOTIATION OF NEGOTIABLE DOCUMENT BY DELIVERY.1. Where by the terms the carrier, warehouseman or other bailee undertakes to deliver the goodsto the bearer.2. Where by the terms the carrier, warehouseman or other bailee undertakes to deliver the goods

to a specified person and such person or subsequent indorsee has indorsed it in blank or tobearer.

Where negotiable document of title the goods are deliverable to bearer or where anegotiable document of title has been indorsed in blank or to bearer, any holder may indorsethe same to himself or to any specified person, and in such case the document shall thereafterbe negotiated only by the indorsement of such indorsee.

ART. 1509. NEGOTIATION OF NEGOTIABLE DOCUMENT BY INDORSEMENT.Indorsement is made by the person to whose the goods are deliverable. It may be in blank, tobearer or to a specified person.

ART. 1510. NEGOTIABLE DOCUMENTS OF TITLE MARKED NON-NEGOTIABLE-No effect on negotiability. The obligations of carrier,warehouseman, or bailee not limited.

ART. 1511. TRANSFER OF NON-NEGOTIABLE DOCUMENT.-Though non-negotiable may be transferred but transferee acquires rights under 1514. Even ifdocument indorsed transferee has no additional rights.

ART. 1512. PERSONS WHO MAY NEGOTIATE A DOCUMENT.1. By the owner thereof2. By any person to whom possession or custody has been entrusted by the owner, if baileeundertakes to deliver the goods to the order of the possessor of the document OR document is insuch form that it may be negotiated by delivery at the time it is entrusted.

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ART. 1513. RIGHT OF PERSON TO WHOM DOCUMENT HAS BEEN NEGOTIATED.1. The title of the person negotiating the document over the goods covered by the document.2. The title of the person(depositor or owner) to whose order by the terms of the document thegoods were to be delivered.3. The direct obligation of the bailee (warehouseman or carrier) to hold possession of the goodsfor him, as if the bailee had contracted with him.

ART. 1514. RIGHTS OF PERSON TO WHOM DOCUMENT HAS BEEN TRANSFERRED.Applicability: (a) Transferee ofNegotiable document of title not duly negotiated (b)transferee of anon-negotiable document.

Rights acquired:1. Title to the goods as against the transferor.2. The right to notify the bailee of the transfer thereof.3. The right, thereafter to acquire the obligation of the bailee to hold the goods for him.

**Rights not absolute. They are subject to the terms of any agreement with the transferor.**Before Notification the bailee is not bound to the transferee whose right may be defeated by alevy of an attachment or execution upon the goods by the creditor of the transferor or by a

notification to such bailee of the subsequent sale of the goods.

ART. 1515. TRANSFER OF ORDER DOCUMENT WITHOUT INDORSEMENT.Rights of transferee:1. The right to the goods as against the transferor.2. The right to compel the transferor to indorse the indorsement.

**Ascertain the intention if contrary appears as to necessity of negotiation.

ART. 1516. WARRANTIES ON SALE OF DOCUMENTS BY THE TRANSFEROR.(indorsement /delivery) (GRIT)1. That the document is Genuine2. That he has legal Right to negotiate or transfer it.

3. The he has no knowledge of fact which would Impair the validity or worth of the document.4. That he has the right to transfer the Title to the goods and goods are merchantable or fit for aparticular purpose.

ART. 1517. INDORSER NOT GUARANTOR. THEREFORE NOT LIABLE FOR BAILEESFAILURE OR PREVIOUS INDORSERS.

ART. 1518. WHEN NEGOTIATION NOT IMPAIRED BY FRAUD, MISTAKE, DURESS, LOSS,THEFT, OR CONVERSION. OR THERE WAS BREACH OF DUTY OF TRANSFEROR.--If the transferee paid value, without notice of such factors, therefore in Good Faith

ART. 1519. ATTACHMENT OR LEVY UPON GOODS COVERED BY A NEGOTIABLEDOCUMENT NOT ALLOWED, WHILE IN POSSESSION OF BAILEE UNLESS DOCUMENT BE

FIRST SURRENDERED OR ITS NEGOTIATION PROHIBITED BY THE COURT.

ART. 1520. CREDITORS REMEDIES ON PROHIBITION ON ATTACHMENT/LEVY.- Injunctionor TRO.

ART. 1521.A. PLACE OF DELIVERY OF GOODS1. Agreement.2. Usage of trade.3. Sellers place of business

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4. Sellers residence.5. Specific Goods: Place where goods are at the time of contract known to parties.

B. TIME OF DELIVERY OF GOODS1. Agreement.2. No time fixed, within a reasonable time.

C. DELIVERY OF GOODS AT THE POSSESSION OF THIRD PERSONS. Seller is relieved if3rd person acknowledges to be the bailee of the buyer.

D. Demand or tender of delivery effective if made at a reasonable hour.E. Seller bears the expenses incidental to putting goods in deliverable state.

ART. 1522A. DELIVERY OF GOODS LESS THAN THE QUANTITY CONTRACTED.1. Buyer may reject.2. Buyer may accept by paying:

a. price at the contract rate if he knew that no more were to be deliveredb. fair value (reasonable market value) of the goods if he did not know that the seller is going

to be guilty of breach of contract.

B. DELIVERY OF GOODS MORE THAN QUANTITY CONTRACTED1. Accept and reject excess.2. Accept all- Liable for all of them.

C. DELIVERY OF GOODS MIXED WITH OTHERS1. Accept in accordance with the contract and reject the rest.2. Accept all.

** If goods are indivisible the buyer may reject the whole of the goods.** Rules may be controlled by usage or agreement.

ART. 1523. DELIVERY OF GOODS TO THE CARRIER is DELIVERY TO THE BUYER-

Exceptions: 1503 (1) (2) (3) and when Contrary intention appears.

Sellers duty after delivery to carrier.1. To enter on behalf of buyer into such contract reasonable under the circumstances. (If selleromits this buyer may decline to treat delivery to carrier, delivery to him, if goods werelost/damaged)2. To give notice to buyer regarding necessity to insure goods while in transit if undercircumstances it is usual to insure. (risk during transit is borne by him if he fails)

ART. 1524. NO DUTY TO DELIVER IF VENDEE HAS NOT PAID OR NO PERIOD FORPAYMENT FIXED IN THE CONTRACT.

ART. 1525. UNPAID SELLER.

1. When the whole of the price has not been paid or tendered.2. When a BOE or other Negotiable Instrument has been received as conditional payment butwas dishonored or the buyer became insolvent.

Seller- includes agent of the seller to whom the BOL has been indorsed; or a consignor or agentwho has himself paid or is directly responsible for the price.

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ART. 1526. REMEDIES OF AN UNPAID SELLER. [LS RRW]1. A lien on the goods or right to retain them for the price while he is in possession of them;2. Right ofstopping the goods in transitu after he has parted with the possession of them;3. Right ofResale4. Right to Rescind5. Right ofwithholding the delivery when ownership has not yet passed to buyer.

ART. 1527. WHEN UNPAID SELLERS POSSESSORY LIEN MAY BE EXERCISED. [SEI]1. Sales without stipulation as to credit.2. Expiration of term of credit.3. Insolvency of the buyer.

ART. 1528. LIEN ON THE REMAINDER WHEN THERES PART DELIVERY, UNLESS INTENTTO WAIVE THE LIEN OR RIGHT OF RETENTION.

ART. 1529. WHEN UNPAID SELLER LOSES POSSESSORY LIEN. [DPW]1. Delivery to agent or bailee of buyer.2. Possession by buyer or his agent.

3. Waiverof lien.

*** When unpaid seller becomes judgment creditor he does not lose his lien.

ART. 1530. REQUISITES FOR THE EXERCISE OF RIGHT OF STOPPAGE IN TRANSITU1. The seller must be unpaid (1525)2. The buyer must be insolvent3. The goods must be in transit (1531)4. The seller must either actually take possession of the goods sold or give notice of his claim tothe carrier. (1532.1)5. The seller must surrender the negotiable document of title, if any, issued by the carrier orbailee. (1532.2)6. The seller must bear the expenses of delivery of the goods after the exercise of the right.

ART. 1531. When Goods are in transit1. after the delivery to a carrier or other bailee and before the buyer or his agent takes delivery ofthem2. if the goods are rejected by the buyer, and the carrier or other bailee continues in possessionof them.

When Goods No longer in Transit (after delivery to buyer/agent)1. if the buyer or his agent obtains possession of the goods at a point before the destinationoriginally fixed.2. if the carrier or bailee acknowledges to hold the goods on behalf of the buyer3. if the carrier or bailee wrongfully refuses to deliver the goods to the buyer.

*** Goods delivered to a ship, freight, train, truck or airplane chartered by the buyercircumstantial whether they are in possession of the carrier or as agent of the buyer.

*** Part of Delivery made to buyer or agentremainder may be stopped in transitu, unless thereis showing an agreement with buyer to give up possession of the whole of goods.

ART. 1532. WAYS OF EXERCISING THE RIGHT TO STOP.1. Taking actual possession of the goods2. giving notice of his claim to the carrier or bailee.

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--Notice to be effectual must be given in such time and circumstance that the principal by theexercise of reasonable diligence may prevent a delivery to the buyer.

--Redelivery necessary according to directions of seller.--If goods are covered by negotiable document of title carrier or bailee has no obligation to

deliver to seller unless document is cancelled.

ART. 1533. WHEN RESALE IS ALLOWABLEWhere seller has either a right of lien or a right of stoppage in transitu and under the followingcases: PRD1. Where the goods are perishable in nature2. Where the right to resell is expressly reserved in case the buyer should make a default3. Where the buyerdelays in the payment of the price for an unreasonable time.

ART. 1534. WHEN THE SELLER MAY RESCIND1. Where the right to rescind is expressly reserved in case the buyer should make a default2. Where the buyer delays in the payment of the price for an unreasonable time.

ART. 1535. EFFECT OF SALE OF GOODS SUBJECT TO LIEN OR STOPPAGE INTRANSITU.

1. Where Goods not covered by negotiable document of title.Seller can give no larger right thanhe has. Also with a buyer who sold goods to another.2. Where Goods covered by negotiable document of titleSellers lien cannot prevail against therights of a purchaser for value in GF to whom the document is indorsed.

Article 1536Right to Withhold delivery of thing sold by the vendor in case the vendee lose theright to make use of the term, as provided in Art. 1198: (IFIVA)

1. When after the obligation has been contracted vendee becomes insolvent, unless hegives a guaranty or security for the price

2. When he does not furnish to the vendor the guaranties or securities which he haspromised

3. When by his own acts he has impaired said guaranties or securities after their

establishment, and when through fortuitous event they disappear, unless he immediately givesnew ones equally satisfactory

4. When the vendee violates any undertaking, in consideration of which the vendor agreedto the period

5. When the vendee attempts to abscond

Article 1537Vendor is bound to deliver the thing sold and its accessions and accessories in thecondition in which they were upon the perfection of the contract. All fruits pertain to vendee fromthe day on which the contract was perfected.

Article 1538Loss, Deterioration or Improvement of Object before its delivery governed byArticle 1189.

1. If the thing is lost w/o the fault of the seller, the obligation shall be extinguished

2. If the thing is lost through the fault of the seller, he shall be obliged to pay damages; it isunderstood that the thing is lost when it perishes, or goes out of commerce, or disappears in sucha way that its existence is unknown or it cannot be recovered.

3. When the thing deteriorates w/o the fault of the seller, the impairment is to be borne by thebuyer

4. If it deteriorates through the fault of the seller, the buyer may choose b/w rescission orfulfilment with indemnity in either case

5. If the thing is improved by its nature, or by time, the improvement shall inure to the benefitof the buyer

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6. If it is improved at the expense of the seller, he shall have no other right than that grantedto the usufructuary

Article 1539What delivery includes? It includes the placing in the control of the vendee all thatis stated in the contract in conformity with the following rules:

a. Sale OF REAL ESTATEby unit of measure or number: The vendor must deliver all thatmay have been stated in the contract. If it is not possible to deliver all, the vendee may choosebetween:

LACKING/SMALLER AREA OR NUMBER1. Proportional reduction of the price or2. Rescission of the contract provided the lack in area is at least1/10 of the area stated

in the contract

The above rules are applicable also in case there is no lack in area but the quality isnot the same as specified in the contract. Rescission shall take place only if inferiorvalue of the thing sold exceeds 1/10 of the price.

But if the vendee would not have bought the immovable had he known of its smallerarea or inferior quality he may rescind the sale.

GREATER AREA OR NUMBER (1540)

Vendee may accept the area stated in the contract and reject the excess OR

Vendee may accept the whole but must pay for the same at the contract rate

No Right of Rescission since the vendee is not prejudiced at all.

The Above Rules (Art. 1539 and 1540 shall be applicable to judicial sales)

b. Sale of REAL ESTATE by lump sum(1542): There should be no increase or decrease ofthe price, although there be a greater or lesser area or number than that stated in the contract.

Rule applicable to Sale of two or more immovables for a single price.

What if the area or number of the immovable is stated together with its boundaries?Then the vendor is bound to deliver all that is included w/in the BOUNDARIES,

although the same exceeds the area or number specified in the contract. TheBOUNDARIES prevail because it contains the real and true area of the land.

What if the vendor cannot deliver all that is included w/in the designatedboundaries? Vendee has the option to:

a. Reduce the price in proportion to the deficiency in the area ORb. Rescind the contract for breach of stipulations.

PRESCRIPTION OF ACTIONS for rescission or exaction of proportionate reduction of thepurchase price against the vendor under Art. 1539 and 1542: Six Months from the day ofdelivery. [1543]

DOUBLE SALE (1544)

General Rule: FIRST IN TIME, PRIORITY IN RIGHTApplicability of General Rule: Only when the requisites in Article 1544 are not present

Requisites for DOUBLE SALE to EXIST (VOCS)1. Two or more sales transactions must constitute valid sales2. Two or more sales transactions must pertain to the same object or subject matter3. Two or more buyers at odds over the rightful ownership of the subject matter must eachrepresent conflicting interests4. Two or more buyers must each have brought from the very same seller

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Rules of Preference of Ownership

Movable or Personal Property: Owner is the one who is in first possession in good faith.

Immovable1. First to register in good faith2. No inscription, first to possess in good faith3. No inscription and no possession in good faithPerson who presents oldest title in good

faith

What is REGISTRATION? It is any entry made in the books of the Registry, including bothregistration in its ordinary and strict sense, and cancellation, annotation, and even the marginalnotes. It is the entry which records solemnly and permanently the right of ownership and otherreal rights.

CASES WHERE ARTICLE 1544 CANNOT BE INVOKED1. When the earlier transaction is a pacto de retro sale of an unregistered land and thesubsequent conveyance is a donation of the land in favor of another by the vendor a retro. Thevendee a retro has the better right over the donee. The donor had nothing more to donate

because of failure to repurchase the property.2. Where one of the deeds of sale is a forgery.3. Where one sale is absolute and the other is a pacto de retro where the period to redeem hasnot yet expired.4. Where one of the sales is subject to a suspensive condition which condition was not compliedwith and the other is an absolute sale. Even if the conditional sale was made prior to theabsolute sale.5. Where one transaction is a sale and the other a mortgage6. Where one claim is based on prescription and the other is on sale7. Where the subject land is not registered under PD 15298. In a contract to sell, there being no previous sale of the property.

Article 1544 applicable to Double Donations as provided by Art. 744.

CONDITIONS AND WARRANTIES

Article 1545.What are the options of a party to a contract of sale subject to a condition, when such

condition was not fulfilled by the other party?a. Refuse to proceed with the contract ORb. Waive performance of the condition and proceed with the contract

What if the condition agreed upon is in the nature of a promise that it should happen? Thenthe non-fulfillment of such condition is considered a breach of warranty.

Article 1546.WARRANTY.--It is a collateral undertaking in a sale of either real or personal property, express or implied,that if the property sold does not possess certain incidents or qualities, the purchaser may eitherconsider the sale void or claim damages for breach of warranty.

Express Warrantyany affirmation of fact or any promise by the seller relating to the thing ifthe natural tendency of such affirmation or promise is to induce the buyer to purchase the sameand if the buyer purchases the thing relying thereon.

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Affirmation of the value of the thing or statement of the sellers opinion is not warranty,unless the seller made such affirmation or statement as an expert and it was relied uponby the buyer.

Implied WarrantyIt is inherent in a contract of sale and presumed to exist although nothinghas been mentioned about it.

Implied Warranties in Contracts of Sale (1547)1. Implied warranty as to the right of the seller to sell at the time when ownership has to pass.(Warranty against eviction)2. Implied warranty against hidden defects or faults or charge or encumbrances unknown to thebuyer3. Implied warranty as to fitness and merchantability4. Warranty against encumbrances or non-apparent servitudes (1560)

Cases where implied warranty is not applicable1. Sale made by a sheriff, auctioneer, mortgagee, pledge or other person professing to sell byvirtue of authority in fact or law (1547) (The judgment debtor is responsible here for eviction)2. Sale under as is and where isthis carries no warranty as to the quality or workablecondition of the goods and the buyer takes them as they are. However, such condition does not

include those that could not be discovered by a physical examination of the goods sold.3. Sale of second hand articles does not carry any warranty as to the condition, adaptation,fitness or suitability for purposes for which they have been purchased.4. Sale of property sold at public auction for tax delinquency. There is no warranty on the part ofthe State as to the title of the owner.

WARRANTY AGAINST EVICTIONThe seller guarantees that he has the right to sell the thingsold and to transfer ownership to the buyer who shall not be disturbed in his legal and peacefulpossession thereof.

EvictionA judicial process by virtue of which the vendee is deprived of the ownership of thewhole or part of the thing he purchased by final judgment or by an act imputable to the vendor.

Elements (DVJ-SW)1. Vendee is deprived in whole or in part of the thing purchased2. The deprivation is by virtue of a final judgment (1557)3. Thejudgment is based on a prior right to the sale or an act imputable to the vendor4. The vendor was summoned in the suit for eviction at the instance of the vendee (1558)5. No waiver of warranty by the vendee

Failure of the vendee to appeal does not relieve vendor from responsibility [1549]Effect of Prescription/Adverse Possession (1550)1. Prescription consummated before saleVendee can claim warranty against eviction(deprivation is based on right prior to sale)2. Prescription consummated after saleVendee cannot claim warranty against eviction

If Property is sold for non-payment of taxes due and not made known to the vendeebefore the sale, vendor is liable for eviction (1551)

Judgment debtor is responsible for eviction in judicial sales unless otherwise decreed injudgment (1552)

Any stipulation exempting vendor from responsibility for eviction is void if he acted inbad faith (1553)

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Kinds of Waiver in eviction (1554) Applicable to total eviction only.1. Conscientethe waiver is voluntarily made by the vendee w/o the knowledge and assumptionof the risks of eviction. (Vendor shall only be liable to pay the value w/c the thing sold had at thetime of the eviction)2. Intencionadathe waiver is made by the vendee w/ knowledge of the risk of eviction andassumption of its consequences. (Vendor here shall not be liable)

Rights of Vendee in case of eviction (1555)

To demand to the vendor the following (VICED)1. Value which the thing sold had at the time of eviction, be it greater or less than the price of

the sale.2. Income or fruits, if vendee was ordered to deliver them to the party who won the suit

against him3. Costs of the suit which caused the eviction, and those suit brought against the vendor for

warranty4. Expenses of the contract, if the vendee paid them5. Damages and interests and ornamental expenses, if the sale was made in bad faith.

* Rescission is not a remedy in case of Total eviction because rescission contemplates that theone demanding it is able to return whatever he has received under the contract. Since the vendeecan no longer restore the subject-matter of the sale to the vendor, rescission cannot be carriedout.

Rights of Action of Vendee in case of Partial Eviction (1556)1. Enforce the vendors liability for warranty against eviction OR2. Demand the rescission of the contract of sale w/ obligation to return the thing w/o otherencumbrances than those w/c it had when acquired

Applicability: A part of the thing sold of such importance was lost because of eviction,that the vendee would not have bought it w/o said part.

Same rules apply to a case where two or more things are jointly sold for a lump sum orfor separate price for each, when the vendee would not have bought one w/o the other.

Warranty against encumbrances or non-apparent servitudes (1560)

Requisites:1. Immovable sold is encumbered with non-apparent burden or servitude not mentioned in theagreement2. Nature of non-apparent servitude or burden is such that it must be presumed that the buyerwould not have acquired it had he been aware thereof.

Remedies of the vendee1. Rescission of the contract OR2. Indemnity

Warranty is not applicable if non-apparent servitude is recorded in the Registry ofProperty, unless there is an express warranty that the thing is free from all burdens andencumbrances.

Prescription of actions for rescission of damages: W/in 1 year from the execution ofcontract

If what was chosen was rescission but was not filed w/in 1 year, vendee may still sue fordamages w/in one year from the discovery of burden or servitude.

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WARRANTY AGAINST HIDDEN DEFECTS

Requisites: (HIPANN)1. Defect must be hidden. it cannot be discovered by an ordinary inspection orexamination.2. Defect must be important or grave. a) defect renders the thing sold unfit for the use forw/c it is intended; b) diminishes its fitness for the use intended, to such an extent that thevendee would not have acquired if he had been aware thereof or would have given a lowerprice for it.3. Defect must be present at the time of the execution of the sale.4. Action for rescission or reduction of price must be filed w/in the prescriptive period.5. No waiver of the warranty against hidden defects.6. Notice by the vendee to the vendor within a reasonable time.

REDHIBITORY DEFECTSan imperfection or defect of such nature as to engender acertain degree of importance

REDHIBITION--claim against the seller of a product in which the buyer demands a full

refund or a reduction of the purchase price due to a hidden defect that prevents the productfrom performing the task for which it was purchased.

Art. 1562Implied Warranty or Condition as to quality or fitness of goodsApplicability: Goodsall chattel personal but not things in action or money of legal

tender, this includes growing fruits or crops

1. IMPLIED WARRANTY OF FITNESS.General Rule: there is no implied warranty of fitnessExceptions: a) Buyer expressly makes known the particular purpose or by implication;b) Buyer relies upon the sellers skill or judgment

2. IMPLIED WARRANTY OF MERCHANTABILITY. Applies when goods are bought by

description.* Merchantabilityquality and condition of goods that a reasonable man would after a

full examination accept the same under the circumstances of the case, in the performanceof his offer to buy, whether for his own use or for resale.

--fitness for the general purpose for which they are sold.

There is no warranty as to fitness for particular purpose in a contract of sale of aspecified article under its patent or other trade name unless there is a contrarystipulation. (1563)

A warranty as to quality or fitness for a particular purpose may be attached to a contractby usage or trade in place of execution. (1564)

Merchantability of goods in sale by sample is implied. Defect should not be apparent onreasonable examination of the sample for the vendor to be liable (1565) Vendor is liable eventhough not aware of hidden defects, unless there is a contrarystipulation and he is in good faith (1566)

Caveat VenditorLet the Seller BewareVendor is liable eventhough not aware of hiddendefects

Caveat EmptorLet the Buyer Beware Requires the purchaser to be aware of thesupposed title of the vendor and one who buys without checking the vendors title takes all therisks and losses consequent to such failure.

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Remedies of Buyer (1567)1. Accion Redhibitoriaaction seeking withdrawal from the contract2. Accion quanti minores or estimatoriaaction for proportionate reduction in the price

Nature of Remedies: Alternative; both with damages

Loss of Thing Sold due to Hidden Defects (1568)

Vendor in Bad Faith Vendor in Good Faith

Bears the loss Does not bear the loss

Must return the price Must return the price with interest

Must refund expenses of the contract Must refund expenses of the contract

Pay damages Not obliged to pay damages

Loss of Thing Sold w/ Hidden defects through fortuitous event or vendees fault (1569)* Vendee may demand price paid less value of the thing at the time of loss plus damages ifvendor acted in bad faith.

Warranties against hidden defects, merchantability and fitness are applicable to judicialsales but judgment debtor is not liable for damages, because the latter is only forced tosell and therefore did not take part in the conduct of the sale and determination of pricewhich precludes possibility of bad faith (1570)

Prescription of Actions: 6 Months from delivery of thing (1571)Joint Sale of two or more animals (1572)

Where one suffers redhibitory defect this shall not affect others Exception: If the buyer would not have purchased the sound animals w/o the defectiveones. In such case, sale may be rescinded.

Presumption of Exception: If a team, yoke or pair or set is bought even if a separate pricehas been fixed for each

The following rules shall be applicable to joint sale of two or more things (1573)* There is no warranty against hidden defects of animals sold at fairs or at public auctions or oflivestock sold as condemned.(1574) Rationale: Animals are not bought because of their quality orcapacity for work; and in such circumstance defects are clearly known to buyer.

When is Sale of Animals Void? (1575)1. When suffering from contagious diseases2. If use or service for which they are acquired has been stated in the contract and they are foundto be unfit

Remedy: Declaration of Nullity of Contract

Redhibitory defect of Animalssuch defect that even in case of professional inspection it is ofsuch nature that even expert knowledge is not sufficient to discover it.(1576)

Prescription of Redhibitory Actions in defective animals40 days from delivery(1577) Vendor is liable if animal should die w/in 3 days after its purchase, if cause of death

existed at time of contract (1578)

Animal should be returned in the condition in which it was sold and delivered if sale wasrescinded. Vendee is answerable for any injury due to his negligence and not arisingfrom redhibitory defect (1579)

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Remedies of Buyer in Sale of Animals w/ Redhibitory defect (1580)1. Accion Redhibitoriaaction seeking withdrawal from the contract2. Accion quanti minores or estimatoriaaction for proportionate reduction in the price

Form of sale of large cattle shall be governed by special laws. (1581)Article 1582. Primary Obligations of the Vendee:

a. To accept the delivery of the thingb. To pay the purchase price simultaneously upon the delivery of the thing unless a period or

term has been agreed upon.EXCEPTION TO SIMULTANEITY OF ACTS: if parties agreed, such as in sale by

instalments.

Payment shall be made at the stipulated time and place of delivery. If there is no stipulationat the time and place of delivery of the thing.

*** The failure of the vendee to pay the price after delivery if ownership had been transferred,

does not cause the ownership to revert back to the seller until and unless the bilateral contract ofsale is first rescinded. [Chua Hoi vs. Kapunan]

Article 1583.Rules in case of Contract of Sale of goods to be delivered in stated instalments.

Two instances contemplated:a. Seller makes defective deliveries in one or more instalmentsBuyer may reject the

defective portion and accept the good onesb. Buyer refuses w/o just cause to take delivery or pay one or more instalmentsdetermine

whether breach is material to warrant refusal to proceed with the entire contract of sale. When thebreach is severable the injured party can seek damages or compensation but not to rescind thewhole contract.

Article 1584. Buyers Right to examine goods.a. Delivery w/o previous examination: The buyer is not deemed to have accepted the sameunless he had a reasonable opportunity of examining them for the purpose of finding out whetherthey conform with the specifications agreed upon.b. Tender of Delivery by the seller: If seller tenders delivery, he should give the buyer if the latterrequested, the reasonable opportunity of examining the goods to determine whether they conformwith the contract.

When right of examination not allowed?a. If there is an express stipulation to the contraryb. When the goods are deliveres collect on delivery, the buyer cannot examine the goods

unless he pays first the price. Exception: He need not pay the price if there is a contrary

agreement or the examination is permitted by usage of trade at the place of delivery.

Article 1585. Signs or Evidence of Acceptance by the buyer of Goods delivered to him.(CPR)

a. When he communicates with the seller expressly manifesting his acceptance thereof.b. When he performs an act in relation to the goods inconsistent with the ownership of the

seller. Examples: (a) continuous possession and use of goods (b) reselling the goods (c)mortgaging the goods

c. When after the lapse of a reasonable time following the delivery, he retains the goods w/ocomplaining to the seller or w/o intimating that he has rejected them.

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Article 1586. Acceptance of Goods.Mere Acceptance does not necessarily discharge the seller from liability for the breach of

any promise or warranty. However to make the seller liable the buyer must notify the seller w/in areasonable time about the breach of promise or warranty.

Purpose of Notice: To insulate the seller from belated claims of defects and to allow him tomake urgent investigation on the validity of claims.

Article 1587. Effects of Justifiable refusal to accept delivery by the buyer1. Buyer has no duty to return the goods to the seller but must notify the seller of his refusal

to accept the goods. (Risk of Loss here is on the seller)2. Buyer may voluntarily constitute himself as depositary of the goods, but he will be liable

for damages if he does not fulfil the duties of a depositary as required by law. (Risk of loss is onthe buyer)

Article 1588. Effect of Unjustifiable Refusal to accept goods by the buyer: Title or ownershippasses to him from the time goods were placed at his disposal.

Exceptions: a. If there is contrary agreementb. If the seller reserves ownership as security for payment of the price [1503 &

1523]

Article 1589. When vendee is bound to pay interest (period b/w date of delivery and date ofpayment) after delivery:

a. if the parties stipulatedb. if the thing sold and delivered produces fruits or incomec. if the vendee is in default, from the time demand is made upon him either juidicially or

extra-judicially.

Article 1590. When can the vendee suspend payment of the price (total or remaining)?1. If he is disturbed in his possession or ownership of the thing brought

2. If he has a well-grounded fear that his possession or ownership would be disturbed by avindicatory action or foreclosure of mortgage.

Length of suspension: While the danger or disturbance exists.

Situations where vendee cannot suspend payment despite presence of disturbance(SSS-TP)1. When the vendor has given security for the return of the price2. When the parties have stipulated3. When the vendor has succeeded in eliminating the danger or disturbance4. If disturbance is mere act oftrespass5. If vendee has fully paid the price

**Other causes for suspension: non-compliance by vendor of certain conditions; warranty ofeviction

Article 1591. Immediate rescission in sale of immovables, if the vendor has reasonableground to fear the loss of the immovable.

** Vendor however has the alternative of compelling specific performance if the ground tofear loss does not exist.

Article 1592. Exception to the general rule on rescission in case of sale of immovables.

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General Rule on Rescission: The court may fix the period of payment when there is justcause.

Exception: Court is not allowed to grant a new period. Once there is a judicial demand bynotarial act received by the vendee, the court may not grant him a new term. The reason is thatthe vendee already enjoyed the advantage of paying beyond the time originally fixed in thecontract, during the time when no demand for rescission either judicially or extra-judicially hastaken place.

*Art. 1592 Not applicable in:1. Sales by instalments where parties have laid down the procedure to be followed in the

event the vendee failed to fulfill his obligation2. A mere promise to sell where the title remains with the vendor until full payment of the

price.

Article 1593. Automatic Rescission of sale of movables. Conditions for applicability:1. if the vendee upon the expiration of the period fixed for the delivery of the thing

purchased, refused to receive it w/o justifiable cause2. if he failed to pay the price unless granted a longer period w/in w/c to pay.

Reason why judicial or notarial act not required: Personal things do not generally keep a stableprice in the market, any delay in their disposal may prejudice the vendor.

Actions for breach of contract of sale of goods

Article 1594. Actions available to vendorwhen there is breach of contract of sale on the part ofthe vendee: (PDR)1. Action for payment of the price of the goods [1595]2. Action for damages due to wrongful neglect and refusal to accept and pay for the goods[1596]3. Action for rescission if buyer has repudiated the contract or has manifested his inability toperform his obligation [1597]

Actions available to the vendee, in case of breach by the vendor(SDR)1. Action forspecific performance in case of failure of the vendor to deliver the goods [1598]2. Action fordamages for breach of warranty but accepting the goods [1599]3. Action forrescission for breach of warranty where the vendee may validly refuse acceptance ofthe goods, or even if the goods had already been received, he may return them [1599 par. 4]

Article 1595. Action for collection of price, available in the following cases: (OPR)1. When the ownership of the goods has passed to the buyer and he wrongfully neglects orrefuses to pay for the price according to the terms of the contract2. When the price is payable irrespective of delivery or transfer of title, on a certain day and thebuyer wrongfully neglects or refuses to pay such price.

Defense of Buyer: He may establish the fact that the seller has at anytime before judgment,

manifested his inability not to comply with the contract3. When the goods cannot readily be resold for a reasonable price and the buyer refuses toreceive the goods when offered for delivery except when 1596 par. 4 is applicable (there is noticeof stopping the contract), with notification that the seller is holding them as bailee for the buyer

Article 1596. Damages for non-acceptance of goods.

Measure of damages:1. As a rule: estimated loss directly and naturally resulting in the ordinary course of events fromthe buyers breach (no available market)

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2. When there is available market: difference between contract price and market or current priceat the time when the goods ought to have been accepted or if not time has been fixed at the timeof refusal (If there are special circumstances establishing proximate damages of a differentamount than the difference described then liability is based on the proximate damages)Proximate Damages: refer to damages other than unrealized profits

* Repudiation of the contract or notice of stopping the contract, such as in the case of asale where goods are to be manufactured. Buyer here shall be liable for the cost of:

1. labor performed2. expenses for materials used before receiving the notice of repudiation for stoppage3. unrealized profits

Article 1597. When seller may rescind contract in case there is no delivery yet1. When buyer repudiated the contract2. When the buyer has manifested his inability to perform his obligations3. When the buyer has committed a breach of the contract

* Notice must be given to the buyer to totally rescind the contract.

Article 1598. Remedy of buyer in Contract to deliver specific goods : Specific Performance

w/o giving the seller option to retain the goods on payment of damages.

Article 1599. Remedies of buyer when seller commits breach of warranty.1. Recoupmentwhereby the buyer accepts the goods but he sets up against the seller thereduction or extinction of the purchase price.2. Action for damageswhereby the buyer may (a) accept the goods but w/ damages or (b)refuse to accept the goods for the breach of warranty but also with damages.3. Rescissionwhereby the buyer seeks the cancellation of the sale and as a consequencethere will be restoration on both sides.

**Situations when buyer cannot choose or elect rescission (KNR)1. If he knows of the breach of warranty when he accepted the goods w/o protest2. If he fails to notify the seller w/in a reasonable time of the election to rescind

3. If he fails to return or offer to return the goods to the seller in substantially the same conditionas they were at the time the ownership was transferred to him.

Extinguishment of Sales

Art. 1600- Causes for Extinguishing Sales1. Ordinary Causescauses which extinguish ordinary contracts such as:

a. Paymentb. Loss of the thingsc. Novationd. Merger of rights of creditor and debtore. Rescission

f. Fulfillment of resolutory conditiong. Prescription

2. Special Causesrefer to conventional redemption and legal redemption

CONVENTIONAL REDEMPTION.

Art. 1601.Requisites REV-CRa. The vendorreserves the right to repurchase the thing sold

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b. He shall shoulder the expenses of the contract and other legitimate payments made bythe buyer.

c. He shall pay the value of the necessary and useful expenses made on the thing incurredby the buyer

d. He shall comply with other stipulations agreed upon.e. He shall return the price of the sale

Characteristics of Conventional Redemption [EAR RPR]a. It begins to exist at the time of the perfection of the contract. (It becomes a mere promise

to sell if stipulated upon after the sale had been consummated)b. It is an accidental stipulation because it is a right created by the partiesc. It is reciprocal when the right to redeem is exercised. (both vendor and vendee has

obligations with each other)d. It gives rise to a real right when properly registered because it affects third persons.e. It is potestative as its exercise depends upon the sole will of the vendor.f. It is a resolutory condition because when it is fulfilled, the ownership of the vendee over

the thing is extinguished

PACTO DE RETRO SALE vs. MORTGAGE

PACTO DE RETRO SALE MORTGAGE

Ownership is consolidated in the vendee ifvendor does not repurchase w/in time agreedupon

Failure of mortgagor to pay his obligations ontime does not deprive him of his interest in theproperty

No obligation on the part of the vendee toforeclose

Mortgagee must foreclose if he wants to securea perfect title

Vendor has no more right to redeem afterexpiration of period to redeem

Mortgagor may redeem before foreclosure andeven after, w/in one year from registration ofthe sale in extra-judicial foreclosure. In judicialforeclosure redemption may be made beforeconfirmation of the sale by the court.

Vendee may alienate property Mortgagee cannot alienate property

Vendee becomes automatically the owner incase of vendors failure to redeem

Mortgagee does not automatically becomeowner, there must be foreclosure sale first

Vendee is entitled to reimbursement fornecessary and useful expenses

Mortgagee is not entitled to reimbursement forimprovements he made

Art. 1602Presumption of Equitable Mortgage. (IPERTOD)1. When the price of a sale with right to repurchase is unusually inadequate2. When the vendor remains in possession as lessee or otherwise3. When upon or after the expiration of the right to repurchase another instrument extending

the period of redemption or granting a new period is executed.4. When the purchaserretains for himself a part of the purchase price5. When the vendor binds himself to pay the taxes on the thing sold.6. In any other case where it may be fairly inferred that the real intention of the parties is that

the transaction shall secure the payment of a debt or the performance of any other obligation.7. When there is doubt as to whether contract is Pacto de retro or an equitable mortgage

Equitable Mortgageone which lacks the proper formalities, form of words or other requisitesprescribed by law for a mortgage, but however shows the intention of the contracting parties tomake the property subject of the contract as security for a debt and contains nothing impossibleor contrary to law.

Consequences of Declaration of Pacto de Retro Sale as an Equitable Mortgage (PTFR)1. The repurchase price paid by the vendor is considered the principal of the loan.

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2. Title remains in the vendor or if the title has already been transferred to the vendee, the samemust be revested into the vendor by a deed of reconveyance.3. Any money fruits or other benefits received thereafter by the vendee are considered interestson the loan.4. If the vendor does not redeem on time the remedy of the vendee is to foreclose the mortgage.

Art. 1603In case of doubt, a contract purporting to be a sale with right to repurchase shall beconstrued as an equitable mortgage.

Rationale: Least transmission of rights.*Although in conflict with Art. 1378, where it provides that if the contract is onerous, the

doubt shall be settled in favor of the greatest reciprocity of interests, Art. 1603 is the exception.This is justified by the condemnation of pactum commissorium (which is a stipulation that creditorautomatically becomes owner of a property upon non-payment by the debtor)

Art. 1604Art. 1602 also applicable to contract purporting to be an absolute sale

Art. 1605Vendor may ask forreformation of instrument in cases referred to in 1602 & 1604

Art. 1606Time to redeem in conventional redemption1. If there is a period agreed upon then this shall be observed, but this should not exceed

10 years2. If there is no period agreed upon, the redemption shall be exercised within 4 years from

the date of contract.3. If an action was brought by the seller claiming that the contract was an equitable

mortgage but later on proven that it was Pacto de retro Sale, he is given 30 days from the timefinal judgment was rendered to repurchase.

Art. 1607Judicial Order is required for the registration of the consolidation of ownership of areal property in the vendee by failure of the vendor to redeem.

Rationale: To accord the vendor the maximum safeguards for the protection of his legalrights under the true agreement of the parties.

Art. 1608The vendor may exercise his right of redemption against every possessor

whose right is derived from the vendee, even if the second contract does not mention of the rightof redemption.

Art. 1609Vendee is subrogated to the vendors rights and actionsAs owner, vendee may:a. transfer his rights to a 3rd personb. mortgage the propertyc. enjoy the fruits thereofd. recover the property against every possessore. perform other acts of ownership

Art. 1610Creditors of the vendor must exhaust first all the other properties of vendorbefore they could exercise the right of redemption against the vendee.

Art. 1611Applicability.1. The vendee entered a Pacto de Retro Sale of a part of an undivided immovable.2. The vendee later acquired the whole of the property.3. The vendor in the Pacto de Retro Sale of a part wishes to exercise his right of redemptionover the part.If the abovementioned are present the vendee may compel the vendor in the Pacto de Retro Saleof a part to redeem the whole property.

Rationale: Co-ownership is not favored, because the co-owners are reluctant to makeimprovements on the property due to the state of instability in its ownership.

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Art. 1612Joint Pacto de Retro Sale by Co-Owners or Co-Heirs of an UndividedImmovable.

Each Co-Owner/Co-Heir can exercise right of redemption with respect to their share

Art. 1613In the case referred to in Art. 1612, vendee may demand that all the vendors or

co-heirs come to an agreement upon the repurchase of the whole thing, if they failed to do sovendee cannot be compelled to accept partial redemption.

Art. 1614Separate Sales of Shares of Co-owners of an undivided immovable.

Each vendor may exercise their right of redemption independently and the vendeecannot compel any of them to redeem the whole property

Art. 1615If the vendee dies and property is left to several heirs , the action for redemptioncan only be brought to each of them independently with respect to their share, whether or not theproperty is still undivided or already partitioned.

Art. 1616Obligations of the Vendor a Retro if he desires to redeema. Return to the vendee the price of the saleb. He shall shoulder the expenses of the contract and other legitimate payments made by

the buyer.c. He shall pay the value of the necessary and useful expenses made on the thing incurred

by the buyer

Art. 1617Rule in case there is no agreement on the sharing of the fruits of the property.1. If there are fruits at the time of the sale and the vendee paid them, he shall be reimbursed

by the vendor.2. Where there are no fruits at the time of the sale but there are existing at the time of

redemption, the vendee shall be entitled to the fruits gathered for one year reckoned from the lastanniversary of the date of the effectivity of the contract of sale.

Art. 1618The vendor who recovers the thing shall receive it free from all charges ormortgages constituted by the vendee, but shall respect the lease contract constituted on the

property in good faith and in accordance with the customs of the place.

LEGAL REDEMPTION (1619)--is the right to be subrogated upon the same terms and conditions stipulated in the contract, inthe place of one who acquires a thing by purchase or dation in payment, or by any othertransaction whereby ownership is transmitted by onerous title.

Art. 1620A co-owner of a thing may exercise the right of redemption when the shares of all theother co-owners or any of them are sold to a 3 rd person. If the price of alienation is grosslyexcessive, redemptioner shall pay only a reasonable price.

--If two or more co-owners desire to exercise right of redemption they may only do so inproportion to their share.

Art. 1621Redemption by adjacent owner of rural lands. Requisites: (RATSO)1. The adjacent lands involved must be rural land.2. The rural land alienated and to be redeemed must not exceed one hectare in area3. The alienation must be made in favor of a third person, not in favor of another adjacent owner4. The two lands involved must not be separated by brooks, drains, ravines, roads and otherservitudes for the benefit of other estates.5. The vendee or grantee must already be an owner of a rural land. If he does not own any,redemption is not allowed.

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If two or more adjoining owners desire to exercise the right of redemption at the same time, theone with a smaller area shall be preferred. If both have same area, the one who first requested.

Art. 1622Applicability: Piece of Urban Land which is so small and so situated that a majorportion cannot be used for any practical purpose w/in a reasonable time, having bought merelyfor speculation and is about to resold.

*Speculationmeans buying or selling with expectation of profiting by a rise and fall in price.

Rights recognized by Article 1622.1. Right of Pre-emptionthe right of an adjacent owner to purchase the property before it

is sold to a third person or before the projected sale to a 3rd person is consummated.2. Right of Redemptionthe right of an adjacent owner to redeem the property after the

sale had been perfected and consummated.

Pre-emption Redemption

Arises before sale Arises after sale

No Rescission because no sale as yet exists There can be rescission of the original sale

The action is directed against the prospectiveseller

Action is directed against the buyer

* Preference when two or more owners of adjoining lands wish to exercise the right ofredemption or pre-emption: To the owner whose intended use is best justified.

Art. 1623Period of Legal Pre-emption or Redemption.

Must be exercised within 30 days from the notice in writing by the prospectivevendor.

The deed of sale executed by the vendor is not registered if not accompanied by anaffidavit that he has given the required written notice.

The right of redemption of co-owners is superior to the right of adjoining owners.

Instances of Legal Redemption under the Civil Code (CHURC)1. Sale of a co-owner of his share to a stranger (1620)2. Sale of an heir of his hereditary rights to a stranger (1088)3. Sale of adjacent small urban lands bought merely for speculation (1622)4. Sale of adjacent rural land not exceeding one hectare (1621)5. When a credit or other incorporeal right in litigation is sold (1634)

Instances of Legal Redemption under special laws (THEJA)1. Redemption in tax sales2. Redemption ofhomesteads3. A right of redemption in cases ofextra-judicial foreclosures4. An equity of redemption in cases ofjudicial foreclosures5. Redemption by an agricultural tenant of land sold by the landowner

ASSIGNMENT OF CREDITS AND OTHER INCORPOREAL RIGHTS

Assignment of Creditan agreement whereby credits, rights or actions pertaining to a person(called assignor) are transferred by him to another (called assignee) either onerously orgratuitously who acquires the power to enforce the same against the debtors.

Nature of Assignment of Credits and other incorporeal rights: Has all the elements of a contractof sale: (1) consent (2) Object which is the credit, right , action assigned and (3) consideration

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which is the price paid for the assignment, or liberality of the assignor if the assignment isgratuitous.

Distinction between Contract of Sale and Assignment of Credits

Basis Contract of Sale Assignment of Credits

Object Property Credit, incorporeal rights or rights of action

Manner of Delivery of Object It need not be through publicinstrument

It must be through a publicinstrument (1625)

Subject obligated The whole world A definite third person

Ownership when transferred Transfer of ownership neednot be upon delivery of thething. The parties may agreethat ownership be transferredonly after full payment (1478)

Ownership is transferred upondelivery of the documentsevidencing the credit orincorporeal rights

Consideration It is always a requisite It is not always a requisite.Action may be maintained bythe assignee based on his titleeven if there is noconsideration.

Distinction between Dation in Payment and Assignment of Credits

Basis Dation in Payment Assignment of Credits

Nature It is an alienation of property of a debtor in satisfaction of adebt in money

The alienation of credits orrights, need not be insatisfaction of debtors debt

Object Determinate property Credits, incorporeal rights or rights of action

Effect Obligation is extinguished Obligation is not extinguished

Consent of debtor is not necessary for the assignment. He is therefore released fromthe obligation if he pays the creditor before having knowledge of the assignment (1626)

Scope of Assignment: All accessory rights, such as guaranty, mortgage, pledge orpreference (1627)

Art. 1628 What the Assignor of the Credit Warrants? (ELS)1. The existence of the credit at the time of the assignment2. The legality of the credit unless he sold the thing as doubtful, meaning, he is not sure of thevalidity of his acquisition of the thing sold which fact he has disclosed to the assignee3. The solvency of the debtor, if expressly stipulated or if the insolvency of the debtor was prior tothe sale and of common knowledge

Scope of Liability in case of breach of warranty1. In good faith: Assignor shall pay (a) consideration of price which he received from theassignee; (b) expenses of the contract (c) other legitimate expenses occasioned by theassignment2. In bad faith: Same liabilities as in above but with damages

Art. 1629 Duration of the Liability of the Assignor in Good Faith (in case there is noagreement)1. One year from the date of the assignment of the credit if the period of payment of the credit hasalready expired

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2. One year after maturity of the credit if the period of payment has not yet expired

Art. 1630 Sale of Inheritance (Hereditary Rights) without specification of things.--Seller shall only be answerable for his character as an heir. He warrants the fact of his heirshipin the estate of the decedent. If it turns out that he is not an heir, then he is liable for the breach ofwarranty.

Sale of Hereditary Rightspresumes the existence of a contract or deed of sale between thepartiesWaiver of Hereditary Rightsa mode of extinction of ownership, where there is intentionalrelinquishment of a known right with knowledge of its existence and intention to relinquish it infavor of other persons who are co-heirs in the succession

Lump-Sum Purchase of the whole of certain rights, rents or products (1631)

Vendor warrants the legitimacy of the whole of the rights, rents or products but not thevarious parts of which the whole is composed of.

Exception: If the vendee is evicted from the whole or the part of the greater value (morethan half) of the credits in which case warranty stays.

Art. 1632Ifvendor profited from the fruits or received anything from the inheritance sold hemust restore it by paying the vendee, unless there is a contrary stipulation.

Art. 1633Charges and debts on the estate paid by the vendormust be reimbursed by thevendee, unless there is a contrary stipulation.

Assignment of Credit or right in Litigation. (1634)

debtor is given the right to extinguish the obligation by reimbursing the assignee: (PIJ)a. The price paid for the credit or rightb. Interest on the said price from the time the day it was paidc. Judicial costs incurred by the assignee

When is credit or right in litigation? From the time the complaint concerning the same isanswered.

Prescriptive Period: 30 days from the date the assignee demands payment from debtor

Exceptions to the Right of Extinguishment by the debtor (1635)

Assignments or sales made to: (CCP)a. A co-heir or co-owner of the right assignedb. A creditor in payment of his creditc. The possessor of a tenement or piece of land which is subject to the right in litigation

assigned.

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