ARTICLE NO. ANNOTATION NOTES

FORM & INTERPRETATION

1544. If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have 1st taken possession thereof in GF, if it should be movable prop. Should it be immovable prop, the ownership shall belong to the person acquiring it who in GF 1st recorded it in the Registry of Prop. Should there be no inscription, the ownership shall pertain to the person, who in GF was 1st in the possession; &, in the absence thereof, to the person who presents the oldest title, provided there is GF.

*Rule on double/multiple sales. Applies only to purchasers in GF, disqualifies anybody in BF. Movable 1st in possession in GF Immovable 1st who registers in GF; if no registration, 1st in possession in GF; if neither possession nor registration, older title in GF - Taking of possession may be symbolic. - Registration any entry made in the books of the Registry of Prop w/c records solemnly & permanently the right of ownership & other real rights. - Requirement of law is 2-fold: acquisition in GF & registration in GF. - What is registered is NOT the land, what is registered is the DEED OF SALE. - If the seller DOES NOT have the capacity to transfer the prop, the buyer cannot be considered to be in GF. - Sale of real estate becomes legally effective against 3rd persons only from date of its registration - A title procured by fraud or misrepresentation can still be source of a completely good legal & valid title if the same is in the hands of an innocent purchaser for value.

1544 CASE DOCTRINES CARBONELL v CA, GF must characterize the act of anterior registration. If there is inscription, prior registration in GF is a precondition to superior title. Example of exception to mirror doctrine, when the buyer knows of facts & circumstances that would compel one to make an inquiry. DTC v MACAM, the court ruled that in double sales wherein the 1st sale was made prior to land registration & the 2nd sale was made after said registration, the 1st sale is favored (provided there is GF of course). What happened was, the land was sold during the pendency of land registration proceedings. 1st sale was executed before land could be registered. 2nd sale was executed after the land had been registered. 2nd buyer was first to register the sale (execution sale). Court ruled that 1st buyer has superior title b/c at the time of the 2nd sale, the seller had nothing to convey. DAVID v BANDIN, The defense of having purchase the prop in GF may be availed of only where registered land is involved & the buyer had relied in GF on the clear title of the registered owner. One who purchases an unregistered land does so at his peril. His claim of having bought the land in GF, would not protect him it turns out that the seller does not actually own the prop. OLIVARES v GONZALES, example of 2nd buyer being first to register. CARAM v LAURETA, The rule of caveat emptor requires the purchaser to be aware of the supposed title of the vendor & one who buys w/o checking the vendors title takes all the risks & losses consequent to such failure. - A possessor in GF is one who is not aware that there exists in his title or mode of acquisition any flaw w/c invalidates it. - 1544 does not declare void a deed of sale registered in BF. It does not mean however, than said contract is not void. To give full effect to 1544, the status of the 2 contracts must be determined & clarified. One contract must be declared valid so that one vendee may exercise all the rights of an owner, while the other contract must be declared void to cut off all rights w/c may arise from said contract. CRUZ v CABANA, Knowledge gained by the 1st buyer of the 2nd sale cannot defeat the 1st buyers right except only as provided by the CC & that is where the 2nd buyer 1st registers in GF the 2nd sale ahead of the 1st. Such knowledge of the 1st buyer does not bar her from availing of her rights under the law, among them, to register 1st her purchase as against the 2nd buyer. But in converse, knowledge gained by the 2nd buyer of the 1st sale defeats his rights even if he 1st to register the 2nd sale, since such knowledge taints his prior registration w/ BF. Before the 2nd buyer can obtain priority over the 1st, he must show that he acted in GF throughout from the time of acquisition until the title is transferred to him by registration or, failing registration, by delivery of possession. The 2nd buyer must show continuing GF & innocence or lack of knowledge of the 1st sale until his contract ripens into full ownership thru prior registration as provided by law. VALDEZ v CA, example of 2nd buyer in BF. RADIOWEALTH FINANCE v PALILEO, double sale of unregistered land, 2nd buyer 1st to register. Under Act no. 3344, registration of instruments affecting unregistered lands is w/o prejudice to a 3rd party w/ a better right. The mere registration of sale in ones favor does not give him any right over the land if the vendor was not anymore the owner of the land having previously sold the same to somebody else even if the earlier sale was unrecorded. Art 1544 has no application to land not registered. TAREDO v CA, One who registered the sale in his favor has a preferred right over the other who has not registered his title, even if the latter is in actual possession of the immovable prop. OCCEA v ESPONILLA, The defense of indefeasibility of a Torrens title does not extend to a transferee who takes the certificate of title in BF, w/ notice of a flaw. - A purchaser in GF & for value is one who buys prop w/o notice that some other person has a right or interest in such prop & pays its fair price before he has notice of the adverse claims & interest of another person in the same prop. The settled rule is that a buyer of real prop in the possession of persons other than the seller must be wary & should investigate the rights of those in possession. W/o such inquiry, the buyer can hardly be regarded as a buyer in GF & cannot have any right over the prop. A purchaser cannot simply close his eyes to facts w/c should put a reasonable man on his guard & then claim that he acted in GF under the belief that there was no defect in the title of his vendor. His mere refusal to believe that such defect exists or his willful closing of his eyes to the possibility of the existence of a defect in his vendors title will not make him an innocent purchaser for value if later develops that the title was in fact defective, & it appears he would have notice of the defect had he acted w/ that measure of precaution w/c may reasonably be required of a prudent man in a similar situation. - Indeed, the genl rule is that one who deals w/ prop registered under the Torrens system need not go beyond the same, but only has to rely on the title. He is charged w/ notice only of such burdens & claims as are annotated on the title. However, this principle does not apply when the party has actual knowledge of facts & circumstances that would impel a reasonably cautious man to make such inquiry or when the purchaser has knowledge of a defect or the lack of title in his vendor or of sufficient facts to induce a reasonably prudent man to inquire into the status of the title of the prop in litigation. 1545. Where the obligation of either party to a contract of sale is subject CONDITION: An uncertain event or contingency on the happening of w/c the (CATUNGAL vs. RODRIGUEZ) The option to rescind the contract is not

to any condition w/c is not performed, such party may refuse to proceed w/ 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 nonperformance of the condition as a breach of warranty.

obligation (or right) of the contract depends. The obligation does not attach until the condition is performed. (1) If the obligation of either party is subject to any condition & such condition is not fulfilled, such party may either: (a) REFUSE to proceed w/ the contract; or (2) PROCEED w/ the contract, WAIVING the performance of the condition. (2) If the condition is in the nature of a promise that it should happen the non-performance of such condition may be treated by the other party as a breach of warranty. EFFECT OF NON-FULFILLMENT OF CONDITION 1. The other party may: - Refuse or Proceed w/ the contract; OR - Proceed w/ the contract, Waiving the performance of the condition. 2. If the condition is in the nature of a promise that it should happen, the non-performance of such condition may be treated by the other party as Breach of Warranty.

purely potestative but rather also subject to the same mixed condition as his obligation to pay the balance of the purchase price i.e., the negotiation of a road right of way. In the event the condition is fulfilled (or the negotiation is successful), Rodriguez must pay the balance of the purchase price. In the event the condition is not fulfilled (or the negotiation fails), Rodriguez has the choice either (a) to not proceed w/ the sale & demand return of his downpayment or (b) considering that the condition was imposed for his benefit, to waive the condition & still pay the purchase price despite the lack of road access. This is the most just interpretation of the parties' contract that gives effect to all its provisions. If the period when the condition should be fulfilled (negotiation of right of way) is not stipulated, the party imposing the condition cannot extrajudicially rescind the contract. Such party must come to court to seek that a period or date be fixed when the condition must be fulfilled. A distinction must be made b/w a condition imposed on the perfection of a contract & a condition imposed on the performance of an obligation. The failure to comply w/ the first condition prevents the judicial relation itself from coming into existence. Failure to comply w/ the second merely gives the option either to refuse or proceed w/ the sale or waive performance.

WARRANTY CONDITION

Obligation of the parties

Goes into the performance of such obligation. May constitute an obligation itself.

Goes into the root of the existence of the obligation.

Existence of contract

May form part of the obligation by provision of law w/o the parties having agreed thereto.

Must be stipulated by the parties in order to form part of an obligation.

Subject matter of the Contract

Whether express or implied relates to the subject matter itself or to the obligations of the seller w/ regard to the subject matter of the sale.

May attach itself either to the obligation of the seller to deliver possession & transfer ownership.

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, & if the buyer purchases the thing relying thereon. No affirmation of the value of the thing, nor any statement purporting to be a statement of the sellers opinion only, shall be construed as a warranty, unless the seller made such affirmation or statement as an expert & it was relied upon by the buyer.

WARRANTY: is a statement or representation made by the seller of goods contemporaneously & as a part of the contract of sale, having reference to the character, quality, or title of the goods, & by w/c he promises or undertakes to insure that certain facts are or shall be as he then represents them. EXPRESS WARRANTY: is any affirmation or promise by the seller relating to the thing, the natural tendency of w/c is to induce the buyer to purchase the thing & the buyer thus induced, does purchase the same. The intent of the seller is not necessary to make him liable for the warranty. The profession of the seller is important whether his opinion would make constitute as a warrant. The term warrant or warranty is not necessary to be used by the seller to constitute a warranty.

NOTE: Although the definition pertains only to the seller, the buyer may make warranties as well, as when he warrants that he will pay or when he makes an affirmation or promise to induce the seller to enter into the contract of sale.

Mere express of opinion does not import a warranty UNLESS the seller is an expert & his opinion was relied upon by the buyer (Art. 1341).

The usual exaggerations in trade, when the other party had an opportunity to know the facts, are in themselves fraudulent (Art. 1340).

Misrepresentation made in good faith is not fraudulent but may constitute error (Art. 1343).

(SONNY LO vs. KJS ECO-FRAMEWORK) In assignment of credit, w/c is in the nature of a sale of personal property, produced the effects of a dation in payment w/c may extinguish the obligation. A vendor or assignor, is bound to warrant the existence & legality of the credit at the time of the sale or assignment. (ENGINEERING & MACHINERY Co. vs. CA) The remedy against violations of the warranty against hidden defects is either to withdraw from the contract (redhibitory action) or to demand a proportionate reduction of the price

(accion quanti minoris), w/ damages in either case.

1547. In a contract of a 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, & that the buyer shall from that time have & enjoy the legal & 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, pledge, or other person professing to sell by virtue of authority in fact or law, for the sale of a thing in w/c a third person has a legal or equitable interest.

IMPLIED WARRANTY: that w/c the law derives from the nature of the transaction or the relative situation or circumstances of the parties, irrespective of any intention of the seller to create it. An implied warranty may be waived or modified by express stipulation & is deemed incorporated in the contract. KINDS OF IMPLIED WARRANTIES: 1) Warranty that the seller has the right to sell. 2) Warranty against eviction. 3) Warranty against non-apparent servitude. 4) Warranty against hidden defects. 5) Warranty against redhibitory defects on animals. 6) Warranties in sale of goods / quality. 7) Warranties for consumer goods (Consumer Act of the Philippines) INSTANCES WHEN IMPLIED WARRANTY IS NOT APPLICABLE: 1) As is & where is sale 2) Sale of second-hand articles 3) Sale by virtue of authority of fact or law (sale by the sheriff, auctioneer, mortgagee, or pledge)

(MOLES vs. IAC) As a general rule there is no implied warranty in the sale of secondhand articles. EXCEPT where the buyer (expressly or by implication) makes known to the seller the particular purpose for w/c the goods are acquired & that the buyer relies on the sellers skill or judgment. There is an implied warranty that the goods shall be reasonably fit for such purpose.

1548. EVICTION shall take place whenever by final judgment based on right prior to the sale or an act imputable to the vendor, the vendee is deprived of the whole or 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.

EVICTION: the judicial process, whereby the vendee is deprived of the whole or part of the thing purchased by virtue of a final judgment based on a right prior to the sale or an act imputable to the vendor. ELEMENTS OF WARRANTY AGAINST EVICTION: (N.O. F.A.D.S.) 1) The vendee is Deprived in whole or in part of the thing purchased; 2) He is so deprived by virtue of a Final judgment; 3) The judgment is based on A right prior to the sale or an act imputable to the vendor; 4) The vendor was Summoned in the suit for eviction & made a co-defendant at the instance of the vendee; & 5) There is NO waiver on the part of the vendee. VENDORS LIABILITY CONSISTS OF (TOTAL EVICTION): (Art. 1555) 1) Value of the thing at the time of eviction; 2) Income or fruits if he has been ordered to deliver them to the party who won the suit; 3) Cost of suit; 4) Expenses of the contract; 5) Damages & interests if the sale was done in bad faith. VENDORS LIABILITY CONSISTS OF (PARTIAL EVICTION): (Art. 1556) 1) Enforce VICED; or 2) Demand rescission.

Trespass contemplated in this article: the trespass must be that w/c where the trespasser claims title over the property in question. ART. 1553. Any stipulation exempting the vendor from the obligation to answer for eviction shall be void if he acted in bad faith.

1549. The vendee need not appeal from the decision in order that the vendor may become liable for eviction.

Appeal is not needed & the buyer need not resist eviction for the right against the vendor to accrue. It is enough that the requisites (NO FADS) are complied w/.

1550. When the 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.

PRESCRIPTION: One acquires ownership & other real rights thru the lapse of time in the manner & under the conditions prescribed by law. (1) When prescription has been commenced to run against the vendor & was already complete before the sale, the vendee can enforce the warranty against eviction. (2) Even if the prescription has started before the sale but reached the limit prescribed by law after the sale, the vendor is not liable for eviction.

If the property sold is a registered land, Article 1550 does not apply b/c it ownership of land is not subject to prescription.

1551. If the property is sold for nonpayment of taxes due & not made known to the vendee before the sale, the vendor is liable for eviction.

1552. The judgment debtor is also responsible for eviction in judicial GENERAL RULE: If the judgment debtor has no right over the property Keep in mind that the judgment debtor had no right over the property. Since

sales, unless it is o/w decreed in the judgment. subject to attachment, he will be liable for the eviction of one who bought the property in a judicial sale. EXCEPTION: unless the court decreed o/w REMEDY OF PERSON EVICTED: Recover the price paid w/ interest. Inapplicability of Rescission: Rescission contemplates that the one demanding it is able to return whatever he has received under the contract. Since the vendee can no longer return the subject-matter, rescission cannot be carried out.

the judgment creditor acquired no better right than the judgment debtor. The purchaser for value & in good faith was evicted by the REAL owner, the payments he made cannot be retained by the creditor (kasi wala rin siyang right). Kailangan ibalik ni judgment creditot yung pera na pinagbentahan. B/c there is no bad faith on the part of the creditor, no interest will accrue nor damages in favor of the purchaser. REMEDY OF PERSON EVICTED: Return of payment. REMEDY OF JUDGMENT CREDITOR: File a case again?

1553. Any stipulation exempting the vendor from the obligation to answer for eviction shall be void, if he acted in bad faith.

How to determine if the vendor acted in bad faith: - If the vendor had knowledge before the sale that fact that would

give rise to eviction. How to determine if the vendee acted in bad faith:

- If he knew of the defect of title before the sale or had knowledge of the facts that he should inquire about the property.

Vendee will NOT BE ENTITLED to the warranty against eviction nor recover damages.

REMEDY AGAINST VENDOR IN BAD FAITH: Recovery of what was paid plus damages.

1554. If the vendee has renounced the right to warranty in case of eviction, & eviction should take place, the vendor shall only pay the value w/c the thing sold had at the time of the eviction. Should the vendee have made the waiver w/ knowledge of the risks of eviction & assumed its consequences, the vendor shall not be liable.

KINDS OF WAIVER OF EVICTION: PRESUMPTION: Consciente CONSCIENTE the waiver is voluntarily made by the vendee w/o the knowledge & assumption of its consequences. INTENCIONADA the waiver is made by the vendee w/ knowledge of the risks of eviction & assumption of its consequences. REMEDY for consciente vendor shall pay only the value of the thing sold at the time of eviction (Solutio Indebiti). Value when sold Depreciation value = Value at the time of eviction REMEDY for intencionada vendor is not liable to answer for the eviction.

NOTE: Every waiver is presumed to be consciente. To consider Intnecionada, it must be accompanied by some circumstance w/c reveals the vendors knowledge of the risks of eviction & his intention to submit to such consequences.

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 from the vendor: (1) The RETURN OF THE VALUE w/c the thing sold had at the time of the eviction, be it be 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 COST OF THE SUIT w/c caused the eviction &, 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 & INTERESTS, & ornamental expenses, if the sale was made in bad faith.

For (1), the law speaks nothing of interests. The rationale behind this is that the vendee has received fruits from the thing sold w/c would set off the interest possible earned. For (4), traditionally, the cost to execute the contract is borne by the buyer. If it was stipulated that the buyer bears the expenses to execute the contract, he may recover what he has spent for such. For (5), for obvious reasons & w/c we should know by now, kapag may bad faith, may damages. RIGHTS OF SECOND PURCHASER: GENERAL RULE: A contract is binding only b/w the parties, their assigns & heirs. EXCEPTION: When during the first sale, the vendor expressed in the contract a warranty against eviction. Then the vendee sold the same property to another & likewise expressed a warranty against eviction, the purchaser or second vendee acquires the right of action against the original vendor for the breach of warranty.

1556. PARTIAL EVICTION - 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 w/o said part, he may demad the rescission of the contract; but w/ the obligation to return the thing w/o other encumbrances than those w/c it had when he acquired it. He may exercise this right of action, instead of enforcing the vendors liability for eviction. The same rule shall be observed when two or more thing have been jointly sold for lump sum, or for a separate price for each of them if it should clearly appear that the vendee would have not purchased one w/o the other.

REMEDIES OF BUYER or VENDEE: (The alternative remedies enunciated in Art. 1555 also applies) 1) Enforce vendors liability for eviction; 2) Damages for Breach of Warranty; or 3) Demand rescission This article applies to either, a sale of two or more things or a divisible thing. Kapag indivisible, go to Art 1554 kasi since indivisible, whole eviction ang mag-aaply na provision. There are two instances to w/c the article pertains to: 1) Deprived of a part of the thing sold, where that part if so important that the buyer would have not bought it w/o said part. Ex. Binili mo yung Boracay property ni erap (yung may pool na may imported Bora white sand at may wave generator pa), kaso lang binenta ni vendor yung part ng bahay nay un sa iba. Hassle diba? Kasi kaya mo binili yung bahay dahil sa malupet na pool na yun. Gawin mo, demanda mo! Pwede rin na tangina mo, iyo na yang bahay na yan, lamunin mo!

2) When two or more things are jointly sold whether for a lump sum or for a separate price for each, & the vendee would have not purchased one w/o the other. Ex. Collector si John ng Power Rangers. Bumili ka nung isang set ng Power Rangers action figure. Pero si Pink Ranger sira. Eh naman, si pink ranger yun! Its either i-demanda mo dahil na-deprive ka ng paglaro kay pink ranger. O kaya, ibalik mo na lang yung apat.

1557. The warranty cannot be enforced until a final judgment has been rendered, whereby the vendee loses the thing acquired or a part thereof.

ELEMENTS FOR THE ENFORCEMENT OF WARRANTY IN CASE OF EVICTION: 1) Deprivation of the whole or part of the thing sold; & 2) Existence of a final judgment. Indispensible, it is, that the court that eviction is declared by a court. Look at this 3 provisions as a whole. The court has the authority to declare that there is eviction. Obviously, to enforce your right for the breach of warranty against eviction, you need to file a case in court (Art. 1557). Siyempre, youll be enforcing a right. Sino ba nagbigay ng warranty? Diba yung vendor? So, you must implead the vendor in order to enforce that right. Pag hindi, eh di wapakels siya kung na-evict ka (Art. 1558). Sa Art. 1559 naman, yung nagpapa-evict sayo ang nagdemanda. Tanga ka kung aakuin mo yung kaso mag-isa. Maghanap ng kadamay. File ka ng motion to include the vendor as co-defendant o kaya mag-file ka ng third party complaint. Articles 1557 & 1558, ikaw yung nag-eenforce ng right at ikaw yung nag-file ng kaso. Sa Article 1559, ikaw yung nademanda. Pinapasa mo lang yung hassle sa ungas na nagbenta sayo na sablay yung warranty.

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.

1559. The defendant vendee shall ask, within the time fixed by the Rules of Court answering the complaint that the vendor be made a co-defendant.

1560. If the immovable sold should be encumbered w/ 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 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 & encumbrances. Within one year, to be computed from the execution of the deed, the vendee may bring 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 w/c he discovered the burden or servitude.

REMEDIES: 1) Rescission 2) Damages The lack of knowledge on the part of the vendor is not a valid defense. However, the contract may still be invalidated on the ground of mistake (Art. 1331) In the ff cases, the vendee cannot exercise such right: (A.R.K.) 1) Apparent burden or servitude; 2) Registered non-apparent burden or servitude; & 3) Vendee had Knowledge of the encumbrance. PRESCRIPTION:

- ONE (1) YEAR from the execution of the deed of sale, ACTION FOR RESCISSION.

Beyond that period, ACTION FOR DAMAGES, ONE (1) YEAR from the date of discovery of the non-apparent burden or servitude.

When warranty is not applicable: 1) Apparent Servitude 2) Non-apparent servitude is Recorded in the Registry of Property 3) Agreement that there will exist a servitude 4) Knowledge of the vendee of a servitude.

SUBSECTION 2. Warranty Against Hidden Defects of or Encumbrances Upon the Thing Sold

Article 1561. The vendor shall be responsible for warranty against the hidden defects w/c the thing sold may have, should they render it unfit for the use for w/c 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 w/c may be visible, or for those w/c are not visible if the vendee is an expert who, by reason of his trade or profession, should have known them.

Redhibition the avoidance of a sale on account of some vice or defect in the thing sold, w/c renders its use impossible, or so inconvenient & imperfect that it must be supposed that the buyer would not have purchased it had he known of the vice. Redhibitory Action an action instituted to avoid a sale on account of some vice or defect in the thing sold, w/c renders its use impossible, or so inconvenient & imperfect that it must be supposed that the buyer would not have purchased it had he known of the vice. Redhibitory Vice or Defect is a defect in the article sold against w/c defect the seller is bound to warrant.

Defect must constitute an imperfection, of certain importance A minor defect does NOT give rise to redhibition Mere absence of a certain quality in the thing sold w/c the vendee

thought it to contain is NOT necessarily a redhibitory defect REQUISITES for WARRANTY AGAINST HIDDEN DEFECTS

a. Defect is important or Serious i. The thing sold is unfit for the use w/c it is intended ii. Diminishes its fitness for such use or to such an extent that the

buyer would not have acquired it had he been aware thereof

Moles vs. IAC The SC defined redhibitory defect contemplated in Article 1561 of the Civil Code w/c must be an imperfection or defect of such nature as to engender a certain degree of importance. An imperfection OR defect of little consequence does not come w/in the category of being redhibitory. Note: Seller does not warrant patent defect; Caveat emptor (buyer beware) Q: When is a vendor responsible for hidden defects? A: If the hidden defects w/c the thing sold may have:

1) Render it unfit for the use for w/c it is intended, or 2) 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.

Q: When is the seller not answerable for the defects of the thing sold? A:

1) For patent defects or those w/c are visible, or 2) Even for those w/c are not visible if the buyer is an expert who, by

reason of his trade or profession, should have known them (Art. 1561), or

3) If the contrary has been stipulated, & the vendor was not aware of the hidden faults or defects in the thing sold. (Art. 1566)

b. Defect is Hidden - it was not known & could not have known c. Defect Exists at the time of the sale d. Buyer gives Notice of the defect to the seller within reasonable time e. Action for rescission or reduction of the price is brought within the

proper period i. 6 months from delivery of the thing sold ii. Within 40 days from the delivery in case of animals

f. There must be No waiver of warranty on the part of the buyer. WHERE DEFECT PATENT or MADE KNOWN

1) A warranty does not cover defects w/c the buyer must have observed 2) Same rule is applicable if the seller tells the buyer. But if the seller

successfully uses art to conceal the defects, the seller is liable. 3) GEN RULE: There is NO implied warranty against hidden defects in

the sale of second hand goods. XPTN: If seller made misrepresentation or is in BF

4) When the seller binds himself against patent or obvious defects he cannot allege as a defense that inspection would have disclosed the defect or that the buyer relied on his own judgement.

Q: Is there a waiver of warranty against hidden defects when the lessee inspected the premises & pushed thru w/ the contract? A: Yes. Under Arts. 1561 & 1653 of the Civil Code, the lessor is responsible for warranty against hidden defects, but he is not answerable for patent

defects or those, w/c are visible. When plaintiff admitted on crossexamination that he inspected the premises three or four times before signing the lease contract. During his inspection, he noticed the rotten plywood on the ceiling, w/c in his opinion was caused by leaking water or termites. Yet, he decided to go thru w/ the lease agreement. Hence, respondents cannot be held liable for the alleged warranty against hidden defects.

Article 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 w/c the goods are acquired, & 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.

The specific implied warranties in sale of goods: 1) Warranty of fitness

GR: No implied warranty XPTN: a. Buyer manifests to the seller the particular purpose for w/c the

goods are required; & b. Buyer relies upon the sellers skill or judgment

2) Warranty of merchantability That goods are reasonably fit for the general purpose for w/c they are sold.

Moles v. IAC The SC discussed...as a general rule there is no implied warranty in the sale of secondhand articles. Said general rule, however, is not w/o exceptions. Article 1562 of our Civil Code, w/c was taken from the Uniform Sales Act, provides: "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 w/c the goods are acquired, & 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;"

Article 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

There is still an implied warranty of fitness for particular purpose when the buyer relied upon the sellers judgement rather than the patent or trade name. Particular Purpose means usage different from the ordinary uses the article was made to meet.

For example R went to Autohub Inc. to buy a car. After he was shown cars of different models & makes he chose to get a BMW M3 GT. R intended to enter the car in a race but this fact was not made known to the seller. If the car should not run as fast as R had expected, Autohub Inc is not liabale b/c in buying the M3 GT he relied upon his own judgement. BUT if the seller was inform of his purpose & R was assured that the car would run a maximum of 240 kilometers per hour THERES AN EXPRESS WARRANTY FOR A PARTICULAR PURPOSE & Autohub Inc. would be liable if the car should not fit for such purpose..

Article 1564. An implied warranty or condition as to the quality or fitness for a particular purpose may be annexed by the usage of trade.

Article 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 w/c would not be apparent on reasonable examination of the sample.

Article 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, & the vendor was not aware of the hidden faults or defects in the thing sold. Article 1568. If the thing sold should be lost in consequence of the hidden faults, & the vendor was aware of them, he shall bear the loss, & shall be obliged to return the price & refund the expenses of the contract, w/ damages. If he was not aware of them, he shall only return the price & interest thereon, & reimburse the expenses of the contract w/c the vendee might have paid

OBLIGATION of the SELLER in case of breach of warranty against hidden defects? A: If NO WAIVER of warranty & the thing was lost due to hidden defects 1. If the thing should be lost in consequence of the hidden faults, & seller was aware of them he shall:

a. bear the loss, b. return the price & c. refund the expenses of the contract d. pay damages

2. If the thing is lost & seller was not aware of the hidden faults he shall: a. return the price & interest b. reimburse the expenses of the contract w/c the buyer might have paid, but not for damages.

Article 1569. If the thing sold had any hidden fault at the time of the sale, & should thereafter be lost by a fortuitous event or thru the fault of the vendee, the latter may demand of the vendor the price w/c he paid, less the value w/c the thing had when it was lost. If the vendor acted in bad faith, he shall pay damages to the vendee.

B: If there was waiver of warranty 1. when the seller is aware of the hidden defects Waiver is in BAD FAITH: seller is still liable 2. When the seller is not aware of the hidden defects: seller is NOT liable C: If the defective thing is lost thru fortuitous event or fault of buyer 1. Buyer may demand of the seller the price paid less the value of the thing at the time of the loss

The difference b/w the price paid & the value of the thing at the time of loss represents the damage suffered by the buyer & the amount w/c the seller enriched himself at the buyers expense

The thing sold must be defective at the time of sale.

Article 1567. In the cases of articles 1561, 1562, 1564, 1565 & 1566, the vendee may elect b/w withdrawing from the contract & demanding a proportionate reduction of the price, w/ damages in either case.

REMEDY OF BUYER 1. Accion Redhibitoria (withdrawing from the contract), OR 2. Accion Quanti Minoris (proportionate reduction of price)

Q: What are the remedies of the buyer in case of sale of things w/ hidden defects? A: The vendee may elect b/w:

1. Withdrawing from the contract, or 2. Demanding a proportionate reduction of the price, w/ damages in either

case.

Article 1570. The preceding articles of this Subsection shall be applicable to judicial sales, except that the judgment debtor shall not be liable for damages.

The warranty is applicable to judicial sales. However, the judgement debtor is not liable for damages for the reason that he merely IS COMPELLED to sell his property

Article 1571. Actions arising from the provisions of the preceding ten articles (1561-1570) shall be barred after six months, from the delivery of the thing sold. Article 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.

Action for rescission or reduction of the price is brought within the proper period 1) 6 months from delivery of the thing sold 2) Within 40 days from the delivery in case of animals

MOLES v. IAC Article 1571 of the Civil Code provides for a prescriptive period of six months for a redhibitory action, a cursory reading of the ten preceding articles to w/c it refers will reveal that said rule may be applied only in case of implied warranties. The present case involves one w/ an express warranty. Consequently, the general rule on rescission of contract, w/c is four years shall apply. A certification to the effect that the linotype machine bought by petitioner was in A-1 condition was issued by private respondent in favor of the former. This certification was a condition sine qua non for the release of petitioner's loan w/c was to be used as payment for the purchase price of the machine. The SC ruled that private respondent is indeed bound by the express warranty he executed in favour of the petitioner.

Article 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, & not that of the others; unless it should appear that the vendee would not have purchased the sound animal or animals w/o 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. Article 1573. The provisions of the preceding article w/ respect to the sale of animals shall in like manner be applicable to the sale of other things.

Sale of animals on teams (2 or more)

Gen rule: when only one is defective, only one is redhibited & not the others

exception: when it appears buyer would not have purchased the team w/o the defective one

apply to sale of other things

Article 1574. There is no warranty against hidden defects of animals sold at fairs or at public auctions, or of live stock sold as condemned

sale of animals at fair or public auction ---- no warranty against hidden defects

Article 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 w/c they are acquired has been stated in the contract, & they are found to be unfit therefor.

Q: When is the sale of animal void? A: The sale is void if animal is: 1. Suffering from contagious diseases;

Unfit for the use or service for w/c they were purchased as indicated in the contract

Article 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, thru ignorance or bad faith should fail to discover or disclose it, he shall be liable for damages. Article 1578. If the animal should die within three days after its purchase, the vendor shall be liable if the disease w/c cause the death existed at the time of the contract Article 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 w/ respect to faults & defects w/c are determined by law or by local customs.

INSTANCES WHERE THERE IS REDHIBITORY DEFECTS ON ANIMALS 1) even in the case of professional inspection, hidden defect is of such nature that expert knowledge is not

sufficient to discover it 2) if vet failed to discover thru ignorance or bad faith (he is liable for damages) 3) The animal dies w/in 3 days after its purchase & the disease w/c caused the death existed at the time of the

contract sale of unfit animals

prescription of action: 40 days from date of delivery to buyer

if sale is rescinded, animals to be returned in same condition when they were acquired; buyer shall answer for injury / loss due to his fault

Article 1579. If the sale be rescinded, the animal shall be returned in the condition in w/c it was sold & delivered, the vendee being answerable for any injury due to his negligence, & not arising from the redhibitory fault or defect

buyer may elect b/w withdrawing from sale & demanding proportionate reduction of price w/ damages in either case

Article 1580. In the sale of animals w/ redhibitory defects, the vendee shall also enjoy the right mentioned in article 1567; but he must make use thereof within the same period w/c has been fixed for the exercise of the redhibitory action.

REMEDY OF BUYER 1. Accion Redhibitoria (withdrawing from the contract), OR 2. Accion Quanti Minoris (proportionate reduction of price)

Article 1581. The form of sale of large cattle shall be governed by special laws.

OBLIGATIONS of the VENDEE

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

Principal Obligations of the vendee: 1. ACCEPT delivery of the thing sold 2. PAY the price of the thing sold at the time & place stipulated 3. bear the EXPENSES of the contract & putting the goods in a DELIVERABLE state* *No.3 applies only if the parties stipulated such. Absent such stipulation, such obli belongs to the vendor -Vendor is not bound to deliver until full payment of the purchase price & the vendee is not bound to pay until delivery. Meaning, the default nature of a contract of sale is RECIPROCAL. Kaliwaan dapat. Rules WHERE & WHEN to accept delivery & make payment: - if both are stipulated, parties are bound to comply w/ the stipulations (e.g. accept at location 1/date 1, pay at location 2/date 2) -If there is no stipulation, vendee bound to accept delivery & pay @ the time & place of delivery -No stipulation as to WHERE, acceptance & payment made wherever the thing might be @ the moment the contract was perfected -If only time for DELIVERY was stipulated, vendee must pay before delivery -If only time for PAYMENT was stipulated, vendee is entitled to delivery before he pays

1583. Unless o/w agreed, the buyer of goods is not bound to accept delivery thereof by installments. Where there is a contract of sale of goods to be delivered by stated installments, w/c are to be separately paid for, & the seller makes defective deliveries in respect of one or more installments, or the buyer neglects or refuses w/o just cause to take delivery of or pay for one or more installments, it depends in each case on the terms of the contract & the circumstances of the case, whether the breach of contract is so material as to justify the injured party in refusing to proceed further & suing for damages for breach of the entire contract, or whether the breach is severable, giving rise to a claim for compensation but not to a right to treat the whole contract as broken.

Buyer neither bound to receive delivery nor privileged to pay in installments EXCEPT if stipulated upon. - Breach in installment: Material or severable? *Material if breach of installment prevents further performance of the contract - If material, injured party has choice: A) Refuse to proceed w/ contract; B) Damages for breach of entire contract - If severable, injured party entitled to compensation but contract is still effective.

1584. Where goods are delivered to the buyer, w/c he has not previously examined, he is not deemed to have accepted them unless & until he has had a reasonable opportunity of examining them for the purpose of ascertaining whether they are in conformity w/ the contract if there is no stipulation to the contrary. Unless o/w agreed, when the seller tenders delivery of goods to the buyer, he is bound, on request, to afford the buyer a reasonable opportunity of examining the goods for the purpose of ascertaining whether they are in conformity w/ the contract.

Where goods are delivered to a carrier by the seller, in accordance w/ an order from or agreement w/ the buyer, upon the terms that the goods shall not be delivered by the carrier to the buyer until he has paid the price, whether such terms are indicated by marking the goods w/ the words "collect on delivery," or o/w, the buyer is not entitled to examine the goods before the payment of the price, in the absence of agreement or usage of trade permitting such examination.

Acceptance assent to become owner of the specific goods when delivery of them is offered Ownership is transferred only upon actual delivery subject to a reasonable opportunity of examining them. This right is thus a condition precedent to the transfer of ownership. Limitations on right to examine: 1. Seller is bound to afford buyer a reasonable opportunity of examining the goods only ON REQUEST. 2. Must be availed of w/in a reasonable time 3. May be waived

*If the goods are sent to a carrier, the buyer still has the right to examine the goods before paying UNLESS C.O.D. (in such a case, buyer will be allowed to examine the goods only if it has been agreed upon or permitted by usage).

1585. The buyer is deemed to have accepted the goods when he intimates to the seller that he has accepted them, or when the goods have been delivered to him, & he does any act in relation to them w/c is inconsistent w/ the ownership of the seller, or when, after the lapse of a reasonable time, he retains the goods w/o intimating to the seller that he has rejected them.

Modes of manifesting acceptance: 1. Express 2. Implied a. buyer performs an act of ownership b. after lapse of reasonable time, buyer retains the goods w/o intimating rejection

*Acceptance & delivery separate - Acceptance = obli of the vendee, Delivery = obli of the vendor - Generally, there must be delivery before acceptance can be made. Hence, delivery must be made even if w/o acceptance. In certain instances though, acceptance may be had even before delivery.

1586. In the absence of express or implied agreement of the parties, acceptance of the goods by the buyer shall not discharge the seller from liability in damages or other legal remedy for breach of any promise or warranty in the contract of sale. But, if, after acceptance of the goods, the buyer fails to give notice to the seller of the breach in any promise of warranty within a reasonable time after the buyer knows, or ought to know of such breach, the seller shall not be liable therefor.

1587. Unless o/w agreed, where goods are delivered to the buyer, & he refuses to accept them, having the right so to do, he is not bound to return them to the seller, but it is sufficient if he notifies the seller that he refuses to accept them. If he voluntarily constitutes himself a depositary thereof, he shall

-If the buyer justly refuses the goods, he becomes a bailee & has the obli to take care of the thing. He is not bound though to return the goods. -After notice of refusal, it is the seller who must take the goods from the buyer -Goods are still @ sellers risk even if buyer refuses to return unless buyer has agreed to become a depositary. -Buyer may resell goods if after notice of refusal seller fails to take them (read 1533, buyer becomes unpaid seller)

be liable as such.

1588. If there is no stipulation as specified in the first paragraph of article 1523, when the buyer's refusal to accept the goods is w/o just cause, the title thereto passes to him from the moment they are placed at his disposal.

*Therefore, risks shall be borne by him.

1589. The vendee shall owe interest for the period b/w the delivery of the thing & the payment of the price, in the ff three cases: (1) Should it have been so stipulated; (2) Should the thing sold & delivered produce fruits or income; (3) Should he be in default, from the time of judicial or extrajudicial demand for the payment of the price.

-Generally, interest rate will accrue from date of delivery until payment. Exceptions: when date from w/c interest rate is to run is stipulated & no. 3 -If it was stipulated that an interest will accrue, but there is no rate stipulated, legal rate. -For no. 2, there must be 2 conditions: a) thing has been delivered; 2) it must produce fruits/income

1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of the obli. However, demand by the creditor shall not be necessary in order that delay may exist: 1. When the obli or the law expressly so declares; 2. When from the nature & the circumstances of the obli it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract; 3. When demand would be useless, as when the obligor has rendered it beyond his power to perform. In reciprocal oblis, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner w/ what is incumbent upon him. From the moment one of the parties fulfills his obli, delay by the other begins.

1590. Should the vendee be disturbed in the possession or ownership of the thing acquired, or should he have reasonable grounds to fear such disturbance, by a vindicatory action or a foreclosure of mortgage, he may suspend the payment of the price until the vendor has caused the disturbance or danger to cease, unless the latter gives security for the return of the price in a proper case, or it has been stipulated that, notwithstanding any such contingency, the vendee shall be bound to make the payment. A mere act of trespass shall not authorize the suspension of the payment of the price.

Vendee may suspend payment in the ff cases: 1. If he is disturbed in the possession or ownership of the thing bought; or 2. If he has a well-grounded fear that his possession or ownership would be disturbed by vindicatory action/mortgage foreclosure. *If there has been partial payment, vendee may only suspend that w/c is yet to be paid. He cannot recover what has been already paid. *In no.2, it is not necessary that an action be instituted against the vendee. If an action is instituted, the remedy is not automatically 1548. In 1548, the vendee must be deprived of possession, in whole or in part. Nag-institute pa lang naman ng action, relax. It appears that his remedy is filing a 3rd party complaint against the vendor. *If the disturbance is caused by a non-apparent servitude, remedy is 1560. When vendee cannot exercise right: 1. Vendor gives SECURITY for the return of the price 2. If it has been STIPULATED that vendee must make payment notwithstanding any contingency 3. Vendor has caused the disturbance or danger to CEASE 4. Disturbance is a mere act of TRESPASS 5. Vendee has FULLY paid the price

1591. Should the vendor have reasonable grounds to fear the loss of immovable property sold & its price, he may immediately sue for the rescission of the sale. Should such ground not exist, the provisions of Article 1191 shall be observed.

*Contemplates a situation wherein there has been delivery of the immovable but the price is yet to be paid *If there is no ground to fear the loss of the immovable or the price, 1191 applies, why? B/c vendee is yet to comply w/ his obli giving the vendor the option to choose b/w fulfillment (for vendee to pay) or rescission of the contract + damages in either

1592. In the sale of immovable property, even though it may have been stipulated that upon failure to pay the price at the time agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after the expiration of the period, as long as no demand for rescission of the contract has been made upon him either judicially or by a notarial act. After the demand, the court may not grant him a new term.

Mandates the necessity of demand before rescission. *Teka kala ko ba 1191, pwede mamili b/w fulfillment or rescission? Failure to comply w/ obligation is not the contracts resc ission. It merely gives the right for the vendor to choose b/w the 2 remedies aforestated. As a matter of fact, even if there is a stipulation allowing for automatic rescission, demand is still necessary before rescission could take place. The demand must be judicial or notarized else, its useless. Also, 1191 tells us that when there is just cause, instead of decreeing rescission, the court may extend the period for payment. However, 1592 specifically provides that the court may no longer grant a new term when a judicial/notarized demand has been made. 1592 does not apply:

1. Sale on installment of real estate 6552 applies 2. Contracts to sell/conditional sale of real estate since payment is the suspensive condition that will give rise to vendors obli to convey title, non-

payment will not justify rescission, it merely suspends vendors obli 1593. W/ respect to movable property, the rescission of the sale shall of right take place in the interest of the vendor, if the vendee, upon the expiration of the period fixed for the delivery of the thing, should not have appeared to receive it, or, having appeared, he should not have tendered the price at the same time, unless a longer period has been stipulated for its payment.

When the object of the sale is MOVABLE, rescission of the vendor takes place: 1. Vendee w/o valid cause does not accept delivery 2. Vendee w/o valid cause does not pay the price UNLESS credit period has been given to him

*Similar to the requirement of demand in 1592, the vendor should take some affirmative action indicating intention to rescind.

ACTION for BREACH of CONTRACT of SALE of GOODS

1594. Actions for breach of the contract of sale of goods shall be governed Actions available for breach of contract:

particularly by the provisions of this Chapter, & as to matters not specifically provided for herein, by other applicable provisions of this Title.

Seller: 1. Payment of the price 2. Damages for non-acceptance 3. Rescission for breach of contract

Buyer: 1. Specific performance 2. Rescission/damages for breach of warranty

1595. Where, under a contract of sale, the ownership of the goods has passed to the buyer & 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 & 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, & if the provisions of article 1596, fourth paragraph, are not applicable, the seller may offer to deliver the goods to the buyer, &, 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 & may maintain an action for the price.

When available: 1. Ownership of goods has passed to buyer + buyer wrongfully refuses to

pay 2. Price is payable on certain day + buyer wrongfully neglects/refuses to

pay 3. Goods cannot readily be resold for a reasonable price + buyer

wrongfully refuses the accept + 1596, 4th par does not apply *In 2 & 3, it is immaterial w/n title is yet to pass *Defense available to buyer in 2: Seller has manifested inability to perform or intention not to perform at all

1596. Where the buyer wrongfully neglects or refuses to accept & 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 & 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 b/w the contract price & 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.

When the seller has a right of action for damages: 1. If the buyer w/o lawful cause neglects or refuses to accept & pay for the goods he agreed to buy 2. Executory contract, ownership in the goods yet to pass, & seller cannot maintain an action to recover price 3. Goods are not yet identified at the time of the contract or subsequently

Measure of damages: General formula: Loss = X Y Where: X = contract price or the remaining if partly paid; Y = market price at time goods ought to have been accepted or time of refusal Formula 2 (buyer repudiates the contract or notifies seller to proceed no further) Loss = (X-Y) + Z + A Where: Z = labor performed & expenses incurred for materials before receipt of such notice; A = profit seller would have realized If there are special circumstances (such as BF), additional damages If no available market, seller entitled to full amount of damage

1597. Where the goods have not been delivered to the buyer, & 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.

Cases when seller may rescind a contract of sale of goods w/c are yet to be delivered:

1. Buyer repudiates contract of sale; 2. Buyer has manifested inability to perform oblis thereunder; 3. Buyer has committed a breach of contract

*Seller required to give notice of rescission. Need not be formal. Bringing of action can be considered as notice. *Read 1385, CC for limitations on right of seller to rescind. *Breach must be substantial to justify rescission *Seller cannot unilaterally & extrajudicially rescind EXCEPT 1597 or express stipulation.

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, w/o giving the seller the option of retaining the goods on payment of damages. The judgment or decree may be unconditional, or upon such terms & conditions as to damages, payment of the price & o/w, as the court may deem just.

Applies only where the goods to be delivered are specific or ascertained. Damages (that mentioned in this article) do not substitute performance, therefore, seller cannot retain goods. They are imposed to insure performance.

1599. Where there is a breach of warranty by the seller, the buyer may, at his election: (1) Accept or keep the goods & 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 & maintain an action against the seller for damages for the breach of warranty; (3) Refuse to accept the goods, & maintain an action against the seller for damages for the breach of warranty; (4) Rescind the contract of sale & refuse to receive the goods or if the goods have already been received, return them or offer to return them to the seller & recover the price or any part thereof w/c has been paid. When the buyer has claimed & been granted a remedy in anyone of these ways, no other remedy can thereafter be granted, w/o 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 w/o 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 & rescinding the sale. Where the buyer is entitled to rescind the sale & 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 w/ the return of the goods, or

Remedies of buyer when seller breaches promise/warranty: 1. ACCEPT goods + REDUCE/EXTINGUISH PRICE 2. ACCEPT goods + DAMAGES 3. REFUSE goods + DAMAGES 4. RESCIND contract (wherein he will be allowed to recover whatever he

has paid as rescission brings the parties to where they were before. Reset button kumbaga)

Remedies alternative. Once alternative is GRANTED (read: not elected), no other remedy can be exercised. EXCEPT: 1191, buyer chooses fulfillment, fulfillment not possible, he may then choose to rescind. Rescission not allowed when:

immediately after an offer to return the goods in exchange for repayment of the price. Where the buyer is entitled to rescind the sale & 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 w/c has been paid, & w/ 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 b/w the value of the goods at the time of delivery to the buyer & the value they would have had if they had answered to the warranty.

1. Buyer accepts + knows breach + no protest 2. Buyer does not notify seller w/in reasonable time of choice to rescind 3. Fails to return or offer to return the goods in substantially as good

condition as they were HOWEVER if the deterioration of the goods was caused by the very breach itself, then rescission is allowed

*1586 = acceptance of the buyer will not discharge seller from liability due to breach of warranties Rights & oblis of buyer in case of rescission:

1. Buyer ceases to be liable for the price, his obli now is to return the goods

2. Recover whatever he has paid 3. Right to hold the goods as bailee if seller refuses the return 4. Right to have a lien n the goods for any price he has paid, w/c lien he

may enforce as if he were an unpaid seller

EXTINGUISHMENT of SALE

1600. Sales are extinguished by the same causes as all other obligations, by those stated in the preceding articles of this Title, & by conventional or legal redemption.

Classification of mode of extinguishment of a contract of sale: 1. COMMON (1231) 2. SPECIAL (1484, 1532, 1539, 1540, 1542, 1556, 1560, 1567, 1591) 3. EXTRA SPECIAL (Conventional & Legal Redemption)

1231. Obligations are extinguished: 1. By payment or performance; 2. By loss of the thing due; 3. By condonation or remission of the debt; 4. By confusion or merger of the rights of creditor & debtor; 5. By compensation 6. By novation

Section 1 Conventional Redemption 1601. Conventional redemption shall take place when the vendor reserves the right to repurchase the thing sold, w/ the obligation to comply w/ the provisions of Article 1616 & other stipulations w/c may have been agreed upon.

Conventional redemption the right w/c the vendor reserves to himself, to reacquire the prop sold provided he returns to the vendee the price of the sale, the expenses of the contract, any other legit payments he made therefor & the necessary & the useful expenses made on the thing sold & fulfills other stipulations w/c may have been agreed upon Nature of conventional redemption: (CAR4P2O)

1. Contractual created by virtue of an express contract 2. Accidental nullity does not annul contract 3. Real right binds 3rd persons 4. Resolutory condition vendees right of ownership is extinguished

when exercised 5. Reserved @ moment of perfection b/c if agreed upon afterwards, it

is not conventional redemption but rather a promise to sell 6. Reciprocal vendor returns price, vendee returns object of sale 7. Potestative depends upon will of the vendor 8. Power or privilege vendor may or may not exercise 9. Owner is necessarily the one who is entitled to exercise

Right of Repurchase Option to Buy

Reserved as a stipulation in the contract

Given in another instrument

Granted at moment of perfection Granted after execution of absolute sale

Evidences pacto de retro when extension is granted

Does not evidence pacto de retro when taken together w/ the contract of sale. Extension would not fall under 1602 (3)

1602. The contract shall be presumed to be an equitable mortgage, in any of the ff cases: (1) When the price of a sale w/ right to repurchase is unusually inadequate; (2) When the vendor remains in possession as lessee or o/w; (3) 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 purchaser retains for himself a part of the purchase price; (5) 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. In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or o/w shall be considered as interest w/c shall be subject to the usury laws.

Equitable mortgage one w/c lacks proper formalities, form or words, or other requisites prescribed by law for a mortgage, but shows the intention of the parties to make the prop subject of the contract denominated as a contract of sale, as security for a debt, & contains nothing impossible or contrary to law.

Pacto de Retro Mortgage

Ownership is immediately transferred

Ownership is not transferred but prop is merely made subject to a charge or lien as security

Seller loses all interest if he does not repurchase

Mortgagor does not lose interest in prop if he fails to pay debt, merely subjects it to foreclosure/execution

No obli on part of buyer to foreclose

Mortgagee must foreclose

Ramos v CA, example of #2, #5 and #6 (purchase price were advanced by way of loans) -To create the presumption enunciated by 1602, the existence of one circumstance is enough. Existence of any of the circumstances enumerated therein, not a concurrence nor an overwhelming number of such circumstances, suffices to give rise to the presumption that the contract w/ the right of repurchase is an equitable mortgage. - Parol evidence admissible since contract does not express the true intent & agreement of the parties. (Read Rule 130, 9 (b), Rules of Court) -It must be admitted that there are some cases where the parties really intend a sale w/ right of repurchase Although such cases are rare, still the freedom of contract must be maintained & respected. Therefore, the contract under consideration is preserved. De Leon v Salvador, While in ordinary sales for reasons of equity a transaction may be invalidated on the ground of inadequacy of price, or when

No right to redeem Right to redeem

*Inadequacy mere disproportion cannot alone justify the conclusion that the transaction is a pure & simple loan. It must be gross or purely shocking to the conscience or is such that the mind revolts at it & such that a reasonable man would neither directly or indirectly be likely to consent to it *Vendor remains in possession mere tolerated possession of vendor by the vendee not enough to prove equitable mortgage

such inadequacy shocks ones conscience as to justify the courts to interfere, such does not follow when the law gives the owner the right to redeem, as when a sale is made at public auction, upon the theory that the lesser the price the easier it is for the owner to effect the redemption, When there is right to redeem, inadequacy of price should not be material, b/c the judgment debtor may reacquire the prop or also sell his right to redeem & thus recover the loss he claims to have suffered by reason of the price obtained at the auction sale. Flores v So, In a sale w/ the right of redemption, the ownership over the thing sold is transferred to the vendee upon execution of the contract, subject only to the resolutory condition that the vendor exercise his right of repurchase w/in the period agreed upon. Lao v CA, example of #2, #3, #6 (Lao was in dire need of money. Necessitous men are not, truly speaking, free men, but to answer a present emergency, will submit to any terms that the crafty may impose upon them.) Lanuza v de Leon, example of #1, #2, #6 (delay in filing petition for consolidation). Capulong v CA, example of #2, #6 (delay in taking possession of the thing sold. The court said the vendees should have taken possession after execution of the sale not upon expiration of redemption period.)

1603. In case of doubt, a contract purporting to be a sale w/ right to repurchase shall be construed as an equitable mortgage. 1604. The provisions of Article 1602 shall also apply to a contract purporting to be an absolute sale.

Presumption not conclusive. Parol evidence admissible in proving real intention of parties.

1605. In the cases referred to in Articles 1602 & 1604, the apparent vendor may ask for the reformation of the instrument.

Reformation remedy granted by law by means of w/c a written instrument is made or construed so as to express or conform to the real intention of the parties when such intention is not expressed in the instrument

1359. When, there having a been a meeting of the minds of the parties to a contract, their true intention is not expressed in the instrument purporting to embody the agreement, by reason of mistake, fraud, inequitable conduct or accident, one of the parties may ask for the reformation of the instrument to the end that such true intention may be expressed. If mistake, fraud, inequitable conduct, or accident has prevented a meeting of the minds of the parties, the proper remedy is not reformation of the instrument but annulment of the contract.

1606. The right referred to in Article 1601, in the absence of an express agreement, shall last four years from the date of the contract. Should there be an agreement, the period cannot exceed ten years. However, the vendor may still exercise the right to repurchase within thirty days from the time final judgment was rendered in a civil action on the basis that the contract was a true sale w/ right to repurchase.

Does not apply where the contract is not one of sale w/ right of repurchase. (Therefore, learn to distinguish b/w sale w/ right of repurchase vs option to buy)

1607. In case of real property, the consolidation of ownership in the vendee by virtue of the failure of the vendor to comply w/ the provisions of article 1616 shall not be recorded in the Registry of Property w/o a judicial order, after the vendor has been duly heard.

Acquisition by the vendee a retro is automatic. Once vendor fails to 1616, absolute title or ownership of the prop sold becomes vested or consolidated by operation of law on the vendee. What 1607 prevents is the REGISTRATION of such consolidation. Actions to consolidate ownership:

1. Ordinary civil action 2. Registration proceedings Where land is sold under pacto de retro,

vendor a retro may file originally. IF during pendency of such proceedings, the period of redemption expires & ownership is consolidated in the vendee, he will be substituted in place of the vendor a retro.

Ramos v CA, 1607 contemplates a contentious proceeding wherein the vendor a retro must be named respondent in the caption & title of the petition for consolidation of ownership & duly summoned & heard. An order granting the vendees petition for consolidation of ownership, w/o the vendor a retro being named as respondent, summoned & heard, is a patent nullity want for want of jurisdiction of the court over the person of the latter.

1608. The vendor may bring his action against every possessor whose right is derived from the vendee, even if in the second contract no mention should have been made of the right to repurchase, w/o prejudice to the provisions of the Mortgage Law & the Land Registration Law w/ respect to third persons.

Consignation not required to preserve right to redeem. But to actually redeem, there must be consignation (in case vendee a retro unjustly refuses payment from vendor a retro) An INNOCENT PURCHASER FOR VALUE & IN GF may defeat the right of the vendor a retro IF he does not properly register/annotate his right of redemption.

1609. The vendee is subrogated to the vendor's rights & actions. Vendee may exercise acts of ownership over the prop (sell, mortgage, enjoy fruits, fishfry) B/C he becomes the owner nga e diba. Subject to a resolutory

condition lang naman ang title niya. So he can do whatever the fuck he wants to the property. In any case, 1608 gives the vendor the right to redeem from a person the vendee has disposed the prop to.

1610. The creditors of the vendor cannot make use of the right of redemption against the vendee, until after they have exhausted the property of the vendor.

Exception to this is where the prop was sold under an already existing mortgage or antichresis (pledge). The mortgagee or pledgee in such an instance need not exhaust the prop of the vendor.

1611. In a sale w/ a right to repurchase, the vendee of a part of an undivided immovable who acquires the whole thereof in the case of article 498, may compel the vendor to redeem the whole property, if the latter wishes to make use of the right of redemption.

A, B, C co-owns undivided parcel of land. A sold his share to X w/ right of repurchase. During the interim (period b/w sale & expiration of right of redemption), X was able to acquire the whole prop after indemnifying B & C. If A wants to exercise his right of repurchase, X may CHOOSE to either sell the original share or compel A to buy the whole prop.

498. Whenever the thing is essentially indivisible & the co-owners cannot agree that it be allotted to one of them who shall indemnify the others, it shall be sold & its proceeds distributed.

1612. If several persons, jointly & in the same contract, should sell an undivided immovable w/ a right of repurchase, none of them may exercise this right for more than his respective share. The same rule shall apply if the person who sold an immovable alone has left several heirs, in w/c case each of the latter may only redeem the part w/c he may have acquired. 1613. In the case of the preceding article, the vendee may demand of all the vendors or co-heirs that they come to an agreement upon the purchase of the whole thing sold; & should they fail to do so, the vendee cannot be compelled to consent to a partial redemption. 1614. Each one of the co-owners of an undivided immovable who may have sold his share separately, may independently exercise the right of repurchase as regards his own share, & the vendee cannot compel him to redeem the whole property.

A, B, C co-owns undivided parcel of land. They JOINTLY sell such land to X w/ right of repurchase in the SAME contract. Suppose they had co-equal shares. A chooses to exercise his right of redemption, A, B & C can only redeem 1/3 of the prop individually. BUT! X can require all of them redeem the whole prop or that they agree to its redemption by any one of them. (If one of them redeems whole prop, redemptioner does not acquire whole prop, the co-ownership is revived & he has the right to be reimbursed) The same rule applies when the vendor a retro leaves several heirs. HOWEVER if the sale was made INDIVIDUALLY and SEPARATELY, the vendee a retro (X in the above example) cannot require the vendors a retro (A, B & C). 1611 v 1614 Supposing, A, B & C were co-owners of a piece of land. On the same day, but under different transactions, they all, separately but coincidentally, sold their respective shares to X, each w/ right of repurchase. After 2 years, B elects to exercise his right of repurchase. Can X compel B to redeem the whole property? X raises 1611 as basis for his contention, while B raises 1614. The acquisition of the whole in 1611 is by way of 498, a mode of terminating co-ownership. Meaning, the parties agree to terminate the co-ownership by allotting the whole to one of them, and did not merely intend individually to sell their respective share, coincidentally, to the same person. Art 494, CC provides, that a co-owner may demand at any time the partition of the thing owned in common. HOWEVER, the co-owners may agree to keep the thing UNDIVIDED FOR A CERTAIN PERIOD OF TIME, not exceeding 10 years. Donor may prohibit partition for a max of 20 years. Now, if they cannot agree on the partition, & the period to keep the thing undivided expires, 498 comes into play. In 498, it is either: a) The co-owners have come to an agreement to terminate the co-ownership & who among them will own & indemnify the others; or b) they are forced to sell the thing owned in common to a stranger to the co-ownership. THEREFORE, 1611 applies only when the acquisition of the whole by the vendee a retro was effected because they (vendee & co-owners) could not agree on the partition of the thing owned in common BUT they did agree on having it allotted to one of them, in 1611s case, that co-owner is the vendee a retro. It is only through this situation that the vendee a retro can compel the vendor a retro to buy the whole prop b/c, he was practically compelled to buy the whole property as well when the co-ownership was subsisting.

1615. If the vendee should leave several heirs, the action for redemption cannot be brought against each of them except for his own share, whether the thing be undivided, or it has been partitioned among them. But if the inheritance has been divided, & the thing sold has been awarded to one of the heirs, the action for redemption may be instituted against him for the whole.

In this case, it is the vendee a retro who leaves several heirs. In such a case, redemption for the WHOLE must be brought against ALL of them else, the vendor a retro can only redeem that which have been inherited by the heir he brings the action to. BUT! If the whole prop was inherited by a single heir only, then redemption of the whole may be brought against him. NATURAL. 1608 people, 1608.

1616. The vendor cannot avail himself of the right of repurchase w/o returning to the vendee the price of the sale, & in addition: (1) The expenses of the contract, & any other legitimate payments made by reason of the sale; (2) The necessary & useful expenses made on the thing sold.

To avail of right of repurchase, the vendor a retro must pay: 1. Price of the sale (Read: not value of the thing) 2. Expenses by the vendee a retro (such as registration) 3. Necessary & useful expenses incurred by vendee a retro (such as

those made to prevent waste, deterioration or loss of the thing or improvements)

*2 & 3 need not be paid at the time the right is exercised for they may not be readily & conveniently liquidated at such time. *Ordinary & simple expenses borne by the vendee (e.g. sweldo ng pahinante) *Vendor a retro cannot compel vendee a retro to remove improvements made on the land save for some exceptions (e.g. Land is subject to homestead read de Leon, p. 452) Offer to redeem must be simultaneous w/ tender of payment. IF vendee a retro unjustly refuses vendors payment for redemption, vendor may consign such payment to the courts (vendee is not required to consign though, it would be the diligent thing to do lang)

SOLID HOMES v CA, this is a case wherein the court stressed that the vendor a retros obli, in exercising the right of redemption, is not 1616 only. 1601 adds that the vendor a retro should also comply w/ other stipulations agreed upon, such as, in this case, the payment of additional 30% interest for the expenses of the contract.

1617. If at the time of the execution of the sale there should be on the land, *Parties may arrange for a sharing arrangement

visible or growing fruits, there shall be no reimbursement for or prorating of those existing at the time of redemption, if no indemnity was paid by the purchaser when the sale was executed. Should there have been no fruits at the time of the sale & some exist at the time of redemption, they shall be prorated b/w the redemptioner & the vendee, giving the latter the part corresponding to the time he possessed the land in the last year, counted from the anniversary of the date of the sale.

*Fruits referred to are natural & industrial. Civil fruits belong to vendee. If vendee paid for the fruits at the time of the sale, vendor must reimburse such payment at time of redemption. If there were no fruits at time of sale & at time of redemption, malamang walang irereimburse. BUT! If there were no fruits at time of sale, & some existed at time of redemption, then it will be apportioned proportionately b/w redemptioner & vendee. The vendees share is in proportion to the time he possessed the prop during the last year counted from the anniversary of the date of the sale.

1618. The vendor who recovers the thing sold shall receive it free from all charges or mortgages constituted by the vendee, but he shall respect the leases w/c the latter may have executed in good faith, & in accordance w/ the custom of the place where the land is situated.

1609 gives the vendee a retro the right to perform acts of ownership over the prop, but as his ownership is revocable, such acts are also revocable. However, 1618 provides an exception, i.e., leases the vendee executed in GF & in accordance w/ the custom of the place where land is situated.

Section 2 Legal Redemption 1619. Legal redemption is the right to be subrogated, upon the same terms & conditions stipulated in the contract, in the place of one who acquires a thing by purchase or dation in payment, or by any other transaction whereby ownership is transmitted by onerous title.

*Serves as definition for legal redemption *Nature of legal redemption is same w/ conventional redemption EXCEPT it is not contractual as the source of legal redemption is not created by virtue of a contract, but rather by law. *Legal redemption may be converted into conventional redemption.

Conventional Redemption Legal Redemption

Derived from contracts Derived from Law

Exercised necessarily by the owner Actual ownership is not a condition precedent

Subrogation transfer of right of another to the person subrogated Dacion en pago happens when debtor offers another thing to creditor who accepts such substitute as payment for an outstanding debt

1620. A co-owner of a thing may exercise the right of redemption in case the shares of all the other co-owners or of any of them, are s