Sales, Agency, Labor and Commercial Laws

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Sales (Part 3)

Module 003: Sales (Part 3)

Course Learning Outcomes:

1. State the obligations of the vendor as to conditions and warranties.
2. State the obligations of the vendee.
3. Explain the provisions of Articles 1545-1599 of the Civil Code of the
Philippines.

OBLIGATIONS OF THE VENDOR

SECTION 3. — Conditions and Warranties

ART. 1545. Where the obligation of either party to a contract of sale is subject to any
condition which is not performed, such party may refuse to proceed with the
contract or he may waive performance of the condition. If the other party has
promised that the condition should happen or be performed, such first mentioned
party may also treat the non-performance of the condition as a breach of warranty.
Where the ownership in the thing has not passed, the buyer may treat the fulfillment
by the seller of his obligation to deliver the same as described and as warranted
expressly or by implication in the contract of sale as a condition of the obligation of
the buyer to perform his promise to accept and pay for the thing. (n)

Meaning of condition.
A condition, as used in Article 1545, means an uncertain event or contingency on the
happening of which the obligation (or right) of the contract depends. In such a case, the
obligation of the contract does not attach until the condition is performed.
(1) The term, in the context of a perfected contract of sale, pertains, in reality, to the
compliance by one party of an undertaking, the fulfillment of which would beckon, in turn,
the demandability of the reciprocal prestation of the other party.
(2) The term is not used in the sense of a “promise” with the possible exception of the
buyer’s promise to accept and pay for the thing sold which is conditioned on the seller’s
performance of his promise to deliver the thing as described and warranted.

Effect of non-fulfillment of condition.

A contract of sale may be absolute or conditional.

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(1) If the obligation of either party is subject to any condition and such condition is not
fulfilled, such party may either:
(a) refuse to proceed with the contract; or
(b) proceed with 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.

ART. 1546. Any affirmation of fact or any promise by the seller relating to the thing is
an express warranty if the natural tendency of such affirmation or promise is to
induce the buyer to purchase the same, and if the buyer purchases the thing relying
thereon. No affirmation of the value of the thing, nor any statement purporting to be
a statement of the seller’s opinion only, shall be construed as a warranty, unless the
seller made such affirmation or statement as an expert and it was relied upon by the
buyer. (n)

Meaning of warranty.
A warranty is a statement or representation made by the seller of goods,
contemporaneously and as a part of the contract of sale, having reference to the character,
quality, or title of the goods, and by which he promises or undertakes to insure that certain
facts are or shall be as he then represents them.

Terminology used by parties not controlling.

It is not necessary that the word “warranty” or “warrant” be used by the seller to constitute
a warranty. Any word is sufficient to show the intention of the parties to consider the
representation or promise as an express warranty; and the fact that a stipulation in the
contract of sale is specially called a “warranty” does not of itself establish that the
agreement thus referred to is a warranty.

Kinds of warranty.
Warranties by the seller may be express, as in the above article, or implied, as in Article
1547.
The seller is liable for his express warranties and for the implied warranties of title,
absence of hidden defects, fitness or merchantability, description, and sample.

Meaning of express warranty.

An express warranty is any affirmation of fact or any promise by the seller relating to the
thing, the natural tendency of which is to induce the buyer to purchase the thing and the
buyer thus induced, does purchase the same.

Effect of express warranty.

Under the definition, statements not only relating to quality or title of the thing but relating
to other incidents to it may be warranties.
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A warranty being a part of the contract of sale, it is immaterial whether the seller did not
know that it was true or false. No intent is necessary to make the seller liable for his
warranty. It is the natural consequences of what the seller says and the reliance thereon by
the buyer that alone are important. Accordingly, where the seller (importer-assembler)
expressly intimated to the buyer that the taxes and customs duties on two (2) assembled
trucks were already paid, such representation shall be considered, as a seller’s warranty
under Article 1546 which covers any affirmation of fact or any promise by the seller which
induces the buyer to purchase the object of sale and actually purchases it relying on the
affirmation or promise.
It has been held that where there is no dispute that the defendant (seller), in bad faith and
with gross negligence, infringed the express warranty made by it to the general public with
respect to its products sold to and installed in the house of the plaintiff (buyer), who relied
on the warranty, the identity of the individual who actually dealt with the defendant and
asked the latter to make the delivery and installation by its workers is pointless.

Effect of expression of opinion.

A mere expression of opinion, no matter how positively asserted, does not import a
warranty unless the seller is an expert and his opinion was relied upon by the buyer. Thus,
assertions that things are fine or valuable or better than products of rival manufacturers
are in their nature so dependent on individual opinion that no matter how positive the
seller’s assertion may be, they are not held to create a warranty.
The tendency of the courts, however, is in the direction of greater strictness against the
seller’s untruthful puffing of his wares.
The following provisions of law are pertinent:
“The usual exaggerations in trade, when the other party had an opportunity to know
the facts, are not in themselves fraudulent.” (Art. 1340.)
“A mere expression of an opinion does not signify fraud unless made by an expert
and the other party has relied on the former’s special knowledge.” (Art. 1341.)
“Misrepresentation made in good faith is not fraudulent but may constitute error.”
(Art. 1343.)

ART. 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, and that the buyer shall from that time
have and enjoy the legal and peaceful possession of the thing;
(2) An implied warranty that the thing shall be free from any hidden faults or
defects, or any charge or encumbrance not declared or known to the buyer.
This article shall not, however, be held to render liable a sheriff, auctioneer,
mortgagee, pledgee, or other person professing to sell by virtue of authority in fact

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or law, for the sale of a thing in which a third person has a legal or equitable interest.
(n)

Meaning of implied warranty.

An implied warranty is that which the law derives by implication or inference 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.

Implied warranties in sale.

The term implied warranty is reserved for cases where the law attaches an obligation to the
seller which is not expressed in any words. Implied warranties under Articles 1547 and
1562 are:
(1) Implied warranty as to seller’s title. — that the seller guarantees that he has a right to
sell the thing sold and to transfer ownership to the buyer who shall not be disturbed in his
legal and peaceful possession thereof;
(2) Implied warranty against hidden defects or unknown encumbrance. — that the seller
guarantees that the thing sold is free from any hidden faults or defects or any charge or
encumbrance not declared or known to the buyer; and
(3) Implied warranty as to fitness or merchantability. — that the seller guarantees that the
thing sold is reasonably fit for the known particular purpose for which it was acquired by
the buyer or, where it was bought by description, that it is of merchantable quality.
The right of the seller to sell the thing need not reside in him at the time the contract is
perfected. It is sufficient that the vendor has a right “at the time when the ownership is to
pass.” This complements Article 1459 that “the vendor must have a right to transfer the
ownership thereof at the time it is delivered” and Article 1562 which allows the sale of
“future goods” or of goods the acquisition of which depends upon a contingency.

Nature of implied warranty.

An implied warranty is a natural, not an essential, element of a contract, because it is
presumed to exist even though nothing has been said in the contract on the subject. It is,
therefore, deemed as incorporated in the contract of sale.
An implied warranty may, however, be waived or modified by express stipulation.

When implied warranty not applicable.

(1) “As is and where is” sale. — The phrase “as is and where is” (which has been adopted
from dispositions of army surplus property) means nothing more than that the vendor
makes no warranty as to the quality or workable condition of the goods, and that the
vendee takes them in the conditions in which that they are found and from the place where
they are located. It does not extend to liens or encumbrances unknown to the vendee and
could not be disclosed by a physical examination of the goods sold.
The term “as is” in public auction of (imported) goods refers to the physical condition of the
merchandise and not to the legal situation in which it was at the time of the sale. It has no
bearing at all on the obligation of the seller (Bureau of Customs) under Article 1495 “to
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transfer the ownership and deliver, as well as warrant the thing which is the object of sale.”
This warranty is as to the right to sell and capacity to deliver.
(2) Sale of second-hand articles. — There is no implied warranty as to the condition,
adaptation, fitness or suitability for the purpose for which made, or the quality of an article
sold as and for a second-hand article. But such articles might be sold under such
circumstances as to raise an implied warranty. A certification issued by the vendor that a
second-hand machine was in A-1 condition is an express warranty binding on the vendor.
(3) Sale by virtue of authority in fact or law. — No warranty of title is implied in a sale by
one not professing to be the owner. Accordingly, the rule on implied warranty does not
apply to a sheriff, auctioneer, mortgagee, pledgee or other person who sells by virtue of
authority in fact or law. In other words, they are not liable to a person with a legal or
equitable interest in the thing sold. They do not warrant the title of the person who is
supposed to own the thing sold.
The risk of defective title here is on the purchaser, the circumstances surrounding such
sales being sufficient to put him on notice as to interests of third persons in the thing sold.
The persons enumerated are, however, liable for actual representations, fraud or
negligence in the exercise of their duties.
(a) The purchaser of a property sold at public auction for tax delinquency takes all
the chances. There is no warranty on the part of the state. The purchaser of real
estate at a tax sale obtains only such title as that held by the taxpayer.
(b) The rule of caveat emptor (buyer beware) applies to execution sales. The sheriff
does not guarantee the title to real property sold by him as sheriff and it is not
incumbent upon him to place the purchaser in possession of such property. It is
elementary that a purchaser at a sheriff’s sale acquires no better title or greater
right than the judgment debtor has.

SUBSECTION 1. — Warranty in Case of Eviction

ART. 1548. Eviction shall take place whenever by a final judgment based on a right
prior to the sale or an act imputable to the vendor, the vendee is deprived of the
whole or of a part of the thing purchased.
The vendor shall answer for the eviction even though nothing has been said in the
contract on the subject.
The contracting parties, however, may increase, diminish, or suppress this legal
obligation of the vendor. (1475a)

Meaning of eviction.
Eviction may be defined as 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.
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Essential elements of warranty against eviction.
The essential elements are:
(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 at the instance of the vendee; and
(5) There is no waiver on the part of the vendee.

Trespass contemplated by warranty against eviction.

Mere trespass in fact does not give rise to the application of the doctrine of eviction. In such
case, the vendee has a direct action against the trespasser in the same way as the lessee has
such right.
The disturbance referred to in the case of eviction is a disturbance in law which requires
that a person go to the courts of justice claiming the thing sold, or part thereof, and
invoking reasons. If final judgment is rendered depriving the vendee of the thing sold or
any part thereof, the doctrine of eviction becomes applicable.

Vendor’s liability is waivable.

Warranty is not an essential element of a contract of sale and may, therefore, be increased,
diminished, or suppressed by agreement of the parties.
Any stipulation, however, exempting the vendor from the obligation to answer for eviction
shall be void if he acted in bad faith.

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

Vendee has no duty to appeal from judgment.

The vendee’s right against the vendor is not lost because he, the vendee, did not appeal.
With a judgment becoming final whatever be the cause of finality, the requirement of the
law is deemed satisfied.
Furthermore, the vendor, having been notified of the action, could have very well followed
up the case and made use of all possible remedies. If he did not do that, he should suffer for
his omission. In reality, he does not have the right to demand of the vendee such diligence
that he himself did not have and which he was more obliged to observe, especially if the
cause of eviction was anterior to the sale.

ART. 1550. When adverse possession had been commenced before the sale but the
prescriptive period is completed after the transfer, the vendor shall not be liable for
eviction. (n)
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Effect of prescription.
By prescription, one acquires ownership and other real rights through the lapse of time in
the manner and under the conditions prescribed by law. In the same way, rights and
actions are lost by prescription.
(1) Completed before sale. — The vendee may lose the thing purchased to a third person
who has acquired title thereto by prescription. When prescription has commenced to run
against the vendor and was already complete before the sale, the vendee can enforce the
warranty against eviction. In this case, the deprivation is based on a right prior to the sale
and an act imputable to the vendor.
(2) Completed after sale. — Even if prescription has started before the sale but has reached
the limit prescribed by law after the sale, the vendor is not liable for eviction. The reason is
that the vendee could easily interrupt the running of the prescriptive period by bringing
the necessary action.
If the property sold, however, is land registered under the Torrens system, Article 1550
will have no application. Under the Torrens system, ownership of land is not subject to
prescription.

ART. 1551. If the property is sold for nonpayment of taxes due and not made known
to the vendee before the sale, the vendor is liable for eviction. (n)

Deprivation for nonpayment of taxes.

If the vendee is deprived of the ownership of the property because it is sold at public for
nonpayment of taxes due from the vendor, the latter is liable for eviction for an act
imputable to him. It is required, however, that at the time of the sale, the non-payment of
taxes was not known to the vendee.

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

Liability of judgment debtor.

While the rule on implied warranty does not apply to a sheriff who sells by virtue of
authority in law, the judgment debtor is responsible for eviction and hidden defects even in
judicial sales, unless otherwise decreed in the judgment.
Article 1552 is based on the general principle that a person may not enrich himself at the
expense of another. Thus, if the purchaser of real property sold on execution be evicted
therefrom because the judgment debtor had no right to the property sold, the purchaser is
entitled to recover the price paid with interest from the judgment debtor. If the sale was

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effected by the judgment creditor, the latter should not be permitted to retain the proceeds
of the sale, at the expense of the purchaser.

ART. 1553. Any stipulation exempting the vendor from the obligation to answer for
eviction shall be void, if he acted in bad faith. (1476)

Stipulation waiving warranty.

(1) Effect of vendor’s bad faith. — The vendor’s bad faith under Article 1553 consists in his
knowing beforehand at the time of the sale, of the presence of the fact giving rise to
eviction, and its possible consequence. Thus, if the vendor after selling his property to
another, sold it again to another purchaser, he cannot even by stipulation, be exempt from
warranty against eviction, because he acted in bad faith.
(2) Effect of vendee’s bad faith. — It is a requisite, however, that the vendee is not himself
guilty of bad faith in the execution of the sale. If he knew the defect of title at the time of
sale, or had knowledge of the facts which should have put him upon inquiry and
investigation as might be necessary to acquaint him with the defects of the title of the
vendor, he cannot claim that the vendor has warranted his legal and peaceful possession of
the property sold on the theory that he proceeded with the sale with the assumption of the
danger of eviction. He is not, therefore, entitled to the warranty against eviction, nor is he
entitled to recover damages.

ART. 1554. If the vendee has renounced the right to warranty in case of eviction, and
eviction should take place, the vendor shall only pay the value which the thing sold
had at the time of the eviction. Should the vendee have made the waiver with
knowledge of the risks of eviction and assumed its consequences, the vendor shall
not be liable. (1477)

Kinds of waiver of eviction.

Article 1554 treats of two kinds of waiver, namely:
(1) Consciente, that is, the waiver is voluntarily made by the vendee without the knowledge
and assumption of the risks of eviction; and
(2) Intencionada, that is, the waiver is made by the vendee with knowledge of the risks of
eviction and assumption of its consequences.

Effect of waiver by vendee.

(1) If the waiver was only conscious, the vendor shall pay only the value which the thing
sold had at the time of eviction. This is a case of solutio indebiti. The sole effect of a waiver
unaccompanied by the knowledge and assumption of the danger of eviction is to deprive
the purchaser of the benefits mentioned in Nos. 2, 3, 4, and 5 of Article 1555.
(2) In the second kind of waiver, the vendor is exempted from the obligation to answer for
eviction, provided he did not act in bad faith.

Presumption as to kind of waiver.

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From the terms of Article 1554, every waiver is presumed to be consciente while the
contrary is not proven, but to consider it intencionada, it is necessary besides the act of
waiver that it be accompanied by some circumstance which reveals the vendee’s
knowledge of the risks of eviction and his intention to submit to its consequences.

ART. 1555. When the warranty has been agreed upon or nothing has been stipulated
on this point, in case eviction occurs, the vendee shall have the right to demand of
the vendor:
(1) The return of the value which the thing sold had at the time of the eviction, be it
greater or less than the price of the sale;
(2) The income or fruits, if he has been ordered to deliver them to the party who won
the suit against him;
(3) The costs of the suit which caused the eviction and, in a proper case, those of the
suit brought against the vendor for the warranty;
(4) The expenses of the contract, if the vendee has paid them;
(5) The damages and interests and ornamental expenses, if the sale was made in bad
faith. (1478)

Rights and liabilities in case eviction occurs.

The provisions of the above article specify in detail the rights and liabilities of the vendor
and the vendee in the event eviction takes place “when the warranty has been agreed upon
or nothing has been stipulated on this point,” that is, in the absence of waiver of eviction by
the vendee.
(1) Return of value of thing. — If at the time of the eviction the value of the property is
really more or less than its value at the time of the sale, by reason of improvements or
deterioration, it is but just that the vendor should pay the excess or not suffer the damage.
All kinds of improvements whether useful or necessary or even recreational expense
voluntarily incurred by the vendee or caused by nature or time insofar as they may affect
the value of property, are taken into account in determining the increase in value. Note that
the law does not speak of interest. Undoubtedly, the law had intended that the interest on
the price shall be set off against the fruits received by the vendee from the thing while in
his possession.
(2) Income or fruits of thing. — The vendee is liable to the party who won the suit against
him for the income or fruits received only if so decreed by the court. The obvious inference
from this provision is that to the vendee belongs the use, free of any liability, of the subject
matter of the sale. And this benefit is not by any means gratuitous. It is offset by the use
without interest of the money of the vendee by the vendor.
(3) Costs of the suit. — The vendee is also entitled to recover the expense of litigation
resulting in eviction, including the costs of the action brought against the vendor to enforce
his warranty. “Costs of the suit” mentioned in No. (3) does not include travelling expenses

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incurred by the vendee in defending himself in the action. He is not entitled to recover
damages unless the sale was made by the vendor in bad faith.
(4) Expenses of the contract. — In the absence of any stipulation to the contrary, the
expenses in the execution and registration of the sale are borne by the vendor. However, if
the vendee should have paid for such expenses, he shall have the right to demand the same
from the vendor.
(5) Damages and interests. — The right of the vendee to demand “damages and interests
and ornamental expenses” is qualified by the condition that the sale was made in bad faith.
If good faith is presumed, the vendee is not entitled to recover damages unless bad faith on
the part of the vendor is shown in making the sale. The word “interests” does not cover
interest on the purchase price as in lieu thereof the vendee is entitled to the fruits of the
thing, and in cases he has been ordered by a court to deliver the fruits to the successful
party, the vendor must indemnify him.

Right of second purchaser to whom warranty assigned.

Where a warranty against eviction was expressly agreed upon in a contract of sale and the
vendee sold the same land to another expressly assigning to him the right to warranty, the
second purchaser has a right of action against the first vendor to make good the warranty
against eviction.
The rule that a contract binds only the parties, their assigns and heirs is not applicable to
this case. The basis of the second purchaser’s action is the first vendee’s transfer to him of
the right to the warranty, a right which the latter had against the seller and which the
former exercises by virtue of the transfer.

ART. 1556. Should the vendee lose, by reason of the eviction, a part of thing sold of
such importance, in relation to the whole, that he would not have bought it without
said part, he may demand the rescission of the contract; but with the obligation to
return the thing without other encumbrances than those which it had when he
acquired it.
He may exercise this right of action, instead of enforcing the vendor’s liability for
eviction.
The same rule shall be observed when two or more things have been jointly sold for
a lump sum, or for a separate price for each of them, if it should clearly appear that
the vendee would not have purchased one without the other. (1479a)

Alternative rights of vendee in case of partial eviction.

This article contemplates of partial eviction, while Article 1554 treats of total eviction. It
states the rule that if there is partial eviction, the vendee has the option either to enforce
the vendor’s liability for eviction or to demand rescission of the contract.
The above rule is applicable —
(1) When the vendee is deprived of a part of the thing sold if such part is of such
importance to the whole that he would not have bought the thing without said part; or
(2) When two or more things are jointly sold whether for a lump sum or for a separate
price for each, and the vendee would not have purchased one without the other.
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Remedy of rescission not available in case of total eviction.

In case the vendee is totally evicted from the thing sold, he cannot avail of the remedy of
rescission, because this remedy contemplates that the one demanding it is able to return
whatever he has received under the contract. This is not so when the vendee loses only a
part of the thing sold because there still remains a portion of the thing.
In case of rescission, the vendee can return the thing but it must not be subject to “other
encumbrances than those which it had when he acquired it.”

ART. 1557. The warranty cannot be enforced until a final judgment has been
rendered, whereby the vendee loses the thing acquired or a part thereof. (1480)

Final judgment of eviction essential.

The above article merely reiterates two of the essential elements for the enforcement of
warranty in case of eviction, namely: (1) deprivation of the whole or of a part of the thing
sold; and (2) existence of a final judgment.
Eviction may take place by virtue of a final judgment of an administrative office or board,
and it is not indispensable that it be rendered by a court, provided it was rendered by
competent authority and in conformity with the procedure prescribed by law.

ART. 1558. The vendor shall not be obliged to make good the proper warranty,
unless he is summoned in the suit for eviction at the instance of the vendee. (1481a)

Formal summons to vendor essential.

Another essential requisite before a vendor may be legally liable for eviction is that, he
should be summoned in the suit for eviction at the instance of the vendee.
(1) Vendor to be made party in suit for eviction. — The phrase “unless he is summoned in
the suit for eviction” means that the vendor should be made a party to the suit either by
way of asking that the former be made a co-defendant or by the filing of a third-party
complaint against said vendor.
(a) Furnishing the vendor by registered mail with a copy of the opposition the
vendee filed in the eviction suit is not the kind of notice prescribed by Articles 1558
and 1559.
(b) It is evident that the notification must be given in the action brought by the third
party against the vendee, because it is there that the vendor must defend the
vendee’s peaceful and legal possession, for which he is responsible, and not in the
action to enforce the warranty itself which already supposes the eviction.

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(2) Object of the law. — The object is to give the vendor an opportunity to intervene and
defend the title that he has transferred, for, after all, he alone would know the
circumstances or reasons behind the claim of the plaintiff and be in a position to defend the
validity of his title. In the absence of such opportunity, the vendor is not bound to his
warranty.

ART. 1559. The defendant vendee shall ask, within the time fixed in the Rules of
Court for answering the complaint, that the vendor be made a co-defendant. (1482a)

Vendor to be made co-defendant.

As previously stated, the notification required by Article 1559 refers to a case where the
vendee is the defendant in a suit instituted to deprive him of the thing purchased.
The defendant vendee threatened with eviction who wishes to preserve his right of
warranty, should call in the vendor to defend the action which has been instituted against
him. He should ask the court within the time allowed him to answer, that the vendor be
made a co-defendant to answer the complaint of the plaintiff who seeks to deprive him (the
vendee) of the property purchased.

ART. 1560. If the immovable sold should be encumbered with any non-apparent
burden or servitude, not mentioned in the agreement, of such a nature that it must
be presumed that the vendee would not have acquired it had he been aware thereof,
he may ask for the rescission of the contract, unless he should prefer the appropriate
indemnity. Neither right can be exercised if the non-apparent burden or servitude is
recorded in the Registry of Property, unless there is an express warranty that the
thing is free from all burdens and encumbrances.
Within one year, to be computed from the execution of the deed, the vendee may
bring the action for rescission, or sue for damages.
One year having elapsed, he may only bring an action for damages within an equal
period, to be counted from the date on which he discovered the burden or servitude.
(1483a)

Where immovable sold encumbered with non-apparent burden.

(1) Right of vendee. — Although the vendee is not deprived of the thing sold, totally or
partially, the vendee may still rescind the contract or ask for indemnity, if the thing sold
should be encumbered with any non-apparent burden or servitude, not mentioned in the
agreement of such a nature that the vendee would not have acquired it had he been aware
thereof.
The lack of knowledge on the part of the vendor is not a defense. The contract can still be
invalidated on the ground of mistake.
Note: A servitude (or easement) is an encumbrance imposed upon an immovable for the
benefit of another immovable belonging to a different owner. An example of an apparent
servitude is a right of way establishing a permanent passage, which is continually kept in
view by external sign. An example of a non-apparent easement is a party wall which has no
exterior sign.
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(2) When right cannot be exercised. — The alternative rights granted by Article 1560 cannot
be exercised in the following cases:
(a) If the burden or servitude is apparent, that is, “made known and is continually
kept in view by external signs that reveal the use and enjoyment of the same’’;
(b) If the non-apparent burden or servitude is registered; and
(c) If the vendee had knowledge of the encumbrance, whether it is registered or not.
The registration of the non-apparent burden or servitude in the Registry of Property
operates as a constructive notice to the vendee. Hence, the vendor is relieved from liability
unless there is an express warranty that the immovable is free from any such burden or
encumbrance. If the burden is known to the vendee, there is no warranty.
(3) When action must be brought. — The action for rescission or damages must be brought
within one year from the execution of the deed of sale. If the period has already elapsed, the
vendee may only bring an action for damages within one year from the date of the
discovery of the non-apparent burden or servitude.

SUBSECTION 2. — Warranty Against Hidden Defects of, or Encumbrances Upon, the

Thing Sold

ART. 1561. The vendor shall be responsible for warranty against the hidden defects
which the thing sold may have, should they render it unfit for the use for which it is
intended, or should they diminish its fitness for such use to such an extent that, had
the vendee been aware thereof, he would not have acquired it or would have given a
lower price for it; but said vendor shall not be answerable for patent defects or those
which may be visible, or for those which are not visible if the vendee is an expert
who, by reason of his trade or profession, should have known them. (1484a)

Definition of terms.
(1) Redhibition is the avoidance of a sale on account of some vice or defect in the thing sold,
which renders its use impossible, or so inconvenient and imperfect that it must be
supposed that the buyer would not have purchased it had he known of the vice.
(2) Redhibitory action is an action instituted to avoid a sale on account of some vice or
defect in the thing sold which renders its use impossible, or so inconvenient and imperfect
that it must be supposed that the buyer would not have purchased it had he known of the
vice. The object is the rescission of the contract. If the object is to procure the return of a
part of the purchase price paid by the vendee, the remedy is known as accion quanti
minoris or estimatoris.
(3) Redhibitory vice or defect is a defect in the article sold against which defect the seller is
bound to warrant. The vice or defect must constitute an imperfection, a defect in its nature,
of certain importance; and a minor defect does not give rise to redhibition. The mere
absence of a certain quality in the thing sold which the vendee thought it to contain is not
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necessarily a redhibitory defect. One thing is that the thing lacks certain qualities and
another thing is that it positively suffers from certain defects.

Requisites for warranty against hidden defects.

The following requisites must concur for the existence of the warranty against hidden
defects:
(1) The defect must be important or serious;
(2) It must be hidden;
(3) It must exist at the time of the sale;
(4) The vendee must give notice of the defect to the vendor within a reasonable time;
(5) The action for rescission or reduction of the price must be brought within the proper
period — 6 months from the delivery of the thing sold or within 40 days from the date of
the delivery in case of animals; and
(6) There must be no waiver of warranty on the part of the vendee.

When defect important.

The defect is important if: (1) it renders the thing sold unfit for the use for which it is
intended; or (2) if it diminishes its fitness for such use to such an extent that the vendee
would not have acquired it had he been aware thereof or would have given a lower price
for it.
The use contemplated must be that stipulated, and in the absence of stipulation, that which
is adopted to the nature of the thing and to the business of the purchaser.
An imperfection or defect of little consequence does not come within the category of being
redhibitory. But where an expert witness categorically established that a printing machine
sold is in A-1 condition, required major repairs before it could be used, plus the fact that
the buyer never made appropriate use of the machine from the time of purchase until an
action was filed, attest to the major defects in said machine justifying rescission of the
contract.

When defect hidden.

The defect is hidden (or latent) if it was not known and could not have been known to the
vendee. It is one which is hidden to the eyes and cannot be discovered by ordinarily careful
inspection or examination. Hence, there is no warranty if the defect is patent or visible. For
the same reason, the vendor’s liability for warranty cannot be enforced although the defect
is hidden if the vendee is an expert who, by reason of his trade or profession, should have
known it.
The same defect, therefore, may be hidden with respect to one person, but not hidden with
respect to another.

Where defect patent or made known.

(1) A warranty, in general terms, does not cover defects which the buyer must have
observed. Thus, if the seller of a horse which is obviously blind and which both parties
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know to be blind, says it is sound, the meaning of “sound” as used in that connection must
be sound except as to its eyes.
(2) The same rule is applicable to a defect which is not obvious but of which the seller tells
the buyer, or which the buyer knows or should have known. A well-recognized limitation
on any doctrine freeing the seller from liability for statements or promises in regard to
obvious defects is that, if the seller successfully uses art to conceal the defects, the seller is
liable.
(3) As a general rule, there is no implied warranty against hidden defects in the sale of
second-hand goods. Again, as an exception, the seller shall be liable if he has been shown to
have made misrepresentation or acted in bad faith.
(4) The seller may bind himself against patent or obvious defects (manifest upon casual
inspection) if the intent to do so is clearly evident. In such a case, the seller cannot allege as
a defense that inspection (which the buyer failed to make) would have disclosed the defect
or that the buyer relied on his own judgment.

ART. 1562. In a sale of goods, there is an implied warranty or condition as to the

quality or fitness of the goods, as follows:
(1) Where the buyer, expressly or by implication, makes known to the seller the
particular purpose for which the goods are acquired, and it appears that the buyer
relies on the seller’s skill of 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 bought by description from a seller who deals in goods of
that description (whether he be the grower or manufacturer or not), there is an
implied warranty that the goods shall be of merchantable quality. (n)

Implied warranties of quality.

Quality of goods includes their state or condition. The purpose of holding the seller on his
implied warranties is to promote high standard in business and to discourage sharp
dealings. They are based on the principle that “honesty is the best policy.”
(1) Implied warranty of fitness. — There is no implied warranty as to the quality or fitness
for any particular purpose of goods under a contract of sale, except as follows: where: (a)
the buyer, expressly or by implication, manifests to the seller the particular purpose for
which the goods are required, and (b) the buyer relies upon the seller’s skill or judgment.
Then, whether he be the grower or manufacturer or not — there is an implied warranty
that the goods are reasonably fit for such purpose.
(a) Particular purpose of goods. — It is not some purpose necessarily distinct from a
general purpose. For example, the general purpose for which all food is bought is to
be eaten, and this would also be the particular purpose in a specific instance. It is, in
fact, the purpose expressly or impliedly communicated to the seller for which the
buyer buys the goods; and it may appear from the very description of the article as,
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 for example, “coatings” or a “hot water bottle.” But where an article is capable of
being applied to a variety of purpose, the buyer must particularize the specific
purpose he has in view.
(b) Test. — It is whether the buyer justifiably relied upon the seller’s judgment that
the goods furnished would fulfill the desired purpose, or whether relying on his own
judgment, the buyer ordered or bought what is frequently called “a known,
described, and definite article.” The occupation of the seller is important evidence of
the justifiableness of the buyer’s reliance. And where the buyer has had no
opportunity for previous inspection, he is entitled to rely, and will naturally be
presumed to have relied, upon the seller’s skill and judgment.
(2) Implied warranty of merchantability. — Where goods are bought by description, the
seller impliedly warrants that the goods are of merchantable quality.
(a) Merchantability. — It is not a warranty of quality in the sense of requiring a
particular grade, but it does require identity between what is described in the
contract and what is tendered, in the sense that the latter is of such quality to have
some value. Judicial synonyms for “merchantability” include “salable’’ (or
“saleable,”) “standard,” or “average quality” of goods sold under a particular
description.
(b) Causes of unmerchantability. — Goods may be unmerchantable not because of
any defect in their physical condition but because of some other circumstances, e.g.,
their infringement of trademarks of others renders them unsalable. Other goods
than food may be unmerchantable because the use of them is dangerous or injurious
in ways not to be expected from the goods of the kind. Thus, if an ingredient of a face
powder is such as to cause irritation of the skin, the goods are not merchantable.
Cases of this sort may often involve the question whether the difficulty is due to
peculiar sensitiveness of the buyer and if so, whether there is ground for a right of
action when goods would not be injurious to most persons.
(c) Saleability in a particular market. — The requirement of merchantable quality
carries with it no implication that the goods shall be saleable in a particular market.
(d) Applicability to goods in that description. — It must be made clear that the
warranty that the goods are of merchantable quality applies to all goods bought
from a seller who deals in goods in that description, whether they are sold under a
patent or trade name or otherwise.

Warranty of merchantability distinguished from warranty of fitness.

A warranty of merchantability is a warranty that goods are reasonably fit for the general
purpose for which they are sold. On the other hand, a warranty of fitness is a warranty that
the goods are suitable for the special purpose of the buyer which will not be satisfied by
mere fitness for general purposes.

Fitness for a particular purpose and merchantability.

It should be noticed that fitness for a particular purpose may be merely the equivalent of
merchantability. Thus, the particular purpose for which a reaping machine is generally
designed is reaping. If it will not fulfill this purpose, it is not merchantable.
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The particular purpose, however, may be narrower. Thus, a machine may be desired for
operation on rough ground and though it may be a good reaping machine, it may yet be
impossible to make it work satisfactorily in the place where the buyer wishes to use it.
Note: The word “of” before “judgment” in Article 1562(1) should read “or.”

ART. 1563. In the case of contract of sale of a specified article under its patent or
other trade name, there is no warranty as to its fitness for any particular purpose,
unless there is a stipulation to the contrary. (n)

Sale under a patent or trade name.

Under Article 1562(1), the buyer makes known to the seller the particular purpose for
which the goods are desired. Article 1563 is naturally a provision limiting the application of
Article 1562.
(1) By exactly defining what he wants, the buyer has exercised his own judgment instead of
relying upon that of the seller. This definition may be given by means of a trade name or in
any other way. The description must be the buyer’s choice, or the goods must not only be
described and definite but known, in order to preclude warranty of fitness.
(2) Article 1563 provides an exception in case of “a stipulation to the contrary.” Thus, there
is still an implied warranty of fitness for particular purpose where the buyer relied upon
the seller’s judgment rather than the patent or trade name. “Particular purpose,” as used in
Article 1563, means a usage different from the ordinary uses the article was made to meet.
(3) The provision does not preclude an implied warranty of merchantability or fitness for a
purpose for which such specified article is ordinarily or generally sold. Thus, if the seller is
a dealer in food, and the buyer is buying for immediate consumption and relies on the
seller’s skill or judgment, there is an implied warranty that the article sold is fit for human
consumption.

ART. 1564. An implied warranty or condition as to the quality or fitness for a

particular purpose may be annexed by the usage of trade. (n)

Effect of usage of trade.

A warranty as to the quality or fitness for a particular purpose may be attached by usage to
a contract containing no express provision in regard to warranty, though in the absence of
usage no warranty would be implied. The usage is relied on for the purpose of showing the
intention of the parties. If there is no usage, the parties would naturally express their
intention.
A usage in order to bind both parties must be known to both or, if unknown to one, the
other must be justified in assuming knowledge on the part of the person with whom he is
dealing. The presumption is that the parties are aware of the usage of trade.

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ART. 1565. In the case of a contract of sale by sample, if the seller is a dealer in goods
of that kind, there is an implied warranty that the goods shall be free from any defect
rendering them unmerchantable which would not be apparent on reasonable
examination of the sample. (n)

Merchantability of goods sold by sample.

(1) Where sample not merchantable. — As a general rule, all the buyer is entitled to, in case
of a sale or contract to sell by sample, is that the goods be like the sample, so he has no right
to have the goods merchantable if the sample which he has inspected is not.
The reason upon which this rule is based is identical with that which generally denies an
implied warranty to a buyer who has inspected the goods which he buys.
(2) Where sample subject to latent defect. — Where the defect in the goods is of such a
character that inspection will not reveal it, so in the case of a sale by sample, if the sample is
subject to a latent defect, and the buyer reasonably relies on the seller’s skill or judgment,
the buyer is entitled not simply to goods like the sample, but to goods like those which the
sample seems to represent, that is, merchantable goods of that kind and character.
Under Article 1481, the contract may be rescinded where the bulk of the goods delivered
do not correspond with the sample.

ART. 1566. The vendor is responsible to the vendee for any hidden faults or defects
in the thing sold, even though he was not aware thereof.
This provision shall not apply if the contrary has been stipulated, and the vendor
was not aware of the hidden faults or defects in the thing sold. (1485)

Responsibility of vendor for hidden defects.

(1) Effect of ignorance of vendor. — The ignorance of the vendor does not relieve him from
liability to the vendee for any hidden faults or defects in the thing sold. In other words,
good faith cannot be availed of as a defense by the vendor.
(2) Exception. — The parties, however, may provide otherwise in their contract provided
the vendor acted in good faith, that is, he was unaware of the existence of the hidden fault
or defect.
(3) Where vendee aware of the defect. — If the vendee is aware of the defect in the thing he
buys or lack of title in the vendor, he cannot later complain thereof. He is deemed to have
willfully and voluntarily assumed the risk attendant to the sale.

Doctrines of “caveat venditor” and “caveat emptor.”

At early common law, the implied warranty of quality was not recognized and the rule was
then caveat emptor (let the buyer beware). The seller’s liability for defects of the goods sold
was then confined to cases of express promise to warrant the quality of such goods and to
those in which the seller had knowledge of the hidden defects and the sale was made
without the seller revealing them, but in the latter cases, the basis of the seller’s liability
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was for fraud. The Roman Law, like the English law, started with the doctrine of caveat
emptor.
(1) The old Civil Code, following the Roman Law, rejected the maxim caveat emptor. The
doctrine of caveat venditor (let the seller beware) was adopted in accordance with which
“the vendor is liable to the vendee for any hidden faults or defects in the thing sold, even
though he was not aware thereof.” (Art. 1585, now Art. 1566 of our new Civil Code.) The
doctrine is based on the principle that a sound price warrants a sound article.
A manufacturer or seller of a product cannot be held liable for any damage allegedly caused
by the product in the absence of any proof that the product in question was defective. The
defect must be present upon delivery or manufacture of the product, or when the product
left the seller’s or manufacturer’s control; or when the product was sold to the purchaser;
or the product must have reached the user or consumer without substantial change in the
condition it was sold. Tracing the defect to the seller or manufacturer requires some
evidence that there was no tampering with, or changing of the product.
(2) The maxim caveat emptor is still applicable, however, in sheriff’s sales, sales of animals
under Article 1574, and tax sales for there is no warranty of title or quality on the part of
the seller in such sales. It also applies in double sales of property where the issue is who
between two vendees has a better right to the property.
The rule of caveat emptor requires the purchaser to be aware of the supposed title of the
vendor and one who buys without checking the vendor’s title takes all the risks and losses
consequent to such failure. But a person dealing with registered land is merely charged
with notice of the burdens on the property which are noted on the face of the register or
the certificate of title.

ART. 1567. In the cases of articles 1561, 1562, 1564, 1565, and 1566, the vendee may
elect between withdrawing from the contract and demanding a proportionate
reduction of the price, with damages in either case. (1486a)

Alternative remedies of the buyer to enforce warranty.

Under this article, the vendee has the option either: (1) to withdraw from the contract, or
(2) demand a proportionate reduction of the price, with a right to damages in either case.
This first is known as accion redhibitoria (action for rescission), while the second is known
as accion quanti minoris. The remedies are alternative as they are incompatible with each
other.
The same right is given to the vendee in the sale of animals with redhibitory defects.
The vendee must present proof that he suffered damage as a result of the breach of the
vendor’s warranty to be entitled to actual damages.
Note: The word “and” before “demanding” in Article 1567 should read “or.”

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ART. 1568. If the thing sold should be lost in consequence of the hidden faults, and
the vendor was aware of them, he shall bear the loss, and shall be obliged to return
the price and refund the expenses of the contract, with damages. If he was not aware
of them, he shall only return the price and interest thereon, and reimburse the
expenses of the contract which the vendee might have paid. (1487a)

Effect of loss of thing sold on account of hidden defects.

(1) Vendor aware of hidden defects. — If the vendor was aware of the hidden defects in
consequence of which the thing sold was lost, he shall bear the loss because he acted in bad
faith. In such case, the vendee has the right to recover:
(a) the price paid;
(b) the expenses of the contract; and
(c) damages.
(2) Vendor not aware of hidden defects. — If the vendor was not aware of them, he shall be
obliged only to return:
(a) the price paid;
(b) interest thereon; and
(c) expenses of the contract if paid by the vendee. He is not made liable for damages
because he is not guilty of bad faith.

ART. 1569. If the thing sold had any hidden fault at the time of the sale, and should
thereafter be lost by a fortuitous event or through the fault of the vendee, the latter
may demand of the vendor the price which he paid, less the value which the thing
had when it was lost.
If the vendor acted in bad faith, he shall pay damages to the vendee. (1488a)

Effect of loss of defective thing sold.

If the thing sold had no hidden defects, its loss through a fortuitous event or through the
fault of the vendee is, of course, to be borne by the vendee. However, the vendor is obliged
to return the price paid less the value of the thing at the time of its loss in case where
hidden defects existed. In other words, under Article 1569, the vendor is still made liable
on his warranty.
The difference between the price paid for the thing and the value at the time of the loss,
represents the damage suffered by the vendee and is at the same time the amount with
which the vendor enriched himself at the expense of the vendee. If the vendor acted in bad
faith, he shall also be liable for damages.

ART. 1570. The preceding articles of this Subsection shall be applicable to judicial
sales, except that the judgment debtor shall not be liable for damages. (1489a)

Warranty in judicial sales.

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(1) As to judgment debtor. — In a judicial sale, it is not really the sheriff who sells but the
judgment debtor. Hence, the provisions regarding warranty are also applicable to judicial
sales. The buyer can avail either of the alternative remedies to enforce the warranty and
the provisions of Articles 1568 and 1569. However, since the judgment debtor is forced to
sell, there can be no liability for damages. The publicity surrounding a judicial sale and the
fact that the seller does not take an active part in the sale and in the determination of the
price precludes the existence of bad faith on his part. While in voluntary sales or
transactions the vendor or transferor can be expected to defend his title because of his
warranty to the vendee, no such obligation is owed by the owner whose land is sold at
execution sale.
In a case, a land was sold at public auction for unpaid realty taxes. It was held that the sale
by the buyer of the land to a purchaser in good faith for value was valid even if there was
no compliance with all the requirements of the law concerning tax sale of delinquent
property. But an auction sale conducted to satisfy a judgment which is null and void,
necessarily is also null and void.
(2) As to government. — In judicial sales, the principle of caveat emptor applies, according
to which the purchaser acquires by his purchase no higher or better title or right than that
of the judgment debtor. If the latter has no right, interest, or lien in and to the property
sold, the purchaser acquires none. The rule of caveat emptor which governs sheriff’s sales
puts the purchaser upon inquiry as to the debtor’s title, there being no warranty of title,
such sales being involuntary as distinguished from voluntary transactions, and if he buys,
he must do so at his own peril, and it is not incumbent on the sheriff to place the purchaser
in possession of the property.

Right of purchaser in judicial sales.

(1) The purchaser of property on sale under execution and levy takes as assignee only.
Indeed, at a sheriff’s sale what is sold is not the property advertised, but simply the interest
of the debtor in the property; if it afterwards develops that he has none, the purchaser is
still liable on his bid because he has offered so much for the debtor’s interest in open
market and it is for him to determine before he bids what the debtor’s interest is worth.
(2) Where a judicial sale is voided or set aside without fault of the purchaser, the latter is
entitled to reimbursement of the purchase money paid by him subject to set-off for benefits
enjoyed while he had possession of the property. As a general rule, a judicial sale can only
be set aside upon the return to the buyer of the purchase price with simple interest and
other expenses incurred by him. He is ordinarily entitled to a lien on the property until he
is repaid whatever may be due him.

ART. 1571. Actions arising from the provisions of the preceding ten articles shall be
barred after six months, from the delivery of the thing sold. (1490)

Prescription of actions in cases of implied/express warranty.

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(1) The action for rescission of the contract or reduction of the purchase price prescribes
six months from the date of delivery of the thing sold. Outside this period the action is
barred. It follows that a vendee should not be permitted to offer as a defense, hidden
defects in the thing sold six months after he had received it. If the action is not for breach of
warranty but quasi-delict or negligence, the prescriptive period is four (4) years.
The ten preceding articles referred to define the vendor’s liability for the defects in the
thing sold. A cursory reading of said articles reveals that Article 1571 may be applied only
in cases of implied warranty.
(2) With respect to an express warranty, in accordance with the general rule on rescission
of contract, the prescriptive period which is four (4) years, shall apply unless another
period is specified in the express warranty.

ART. 1572. If two or more animals are sold together, whether for a lump sum or for a
separate price for each of them, the redhibitory defect of one shall only give rise to
its redhibition, and not that of the others; unless it should appear that the vendee
would not have purchased the sound animal or animals without the defective one.
The latter case shall be presumed when a team, yoke, pair, or set is bought, even if a
separate price has been fixed for each one of the animals composing the same.
(1491)

Sale of two or more animals together.

When two or more animals have been sold at the same time and the redhibitory defect is in
one, or some of them but not in all, the general rule is that the redhibition will not affect the
others without it. It is immaterial whether the price has been fixed for a lump sum for all
the animals or for a separate price for each.
The exception is when it can be shown by the vendee that he would not have purchased the
sound ones without those which are defective. Such intention need not be established by
the vendee but shall be presumed when a team, yoke, pair or set is bought unless the
vendor proves the contrary.
Although Article 1572 provides only for redhibitory actions, it does not bar the right of the
vendee to bring an action quanti minoris.

ART. 1573. The provisions of the preceding article with respect to the sale of animals
shall in like manner be applicable to the sale of other things. (1492)

Sale of two or more things together.

The points considered in the preceding article apply also to sale of two or more things
where only one or more of them but not all have hidden defects.

ART. 1574. There is no warranty against hidden defects of animals sold at fairs or at
public auctions, or of livestock sold as condemned. (1493a)

Sale of animals at fairs or at public auctions or as condemned.

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This article is a limitation to the provisions of Article 1570. It is based on the assumption
that the defects must have been clearly known to the buyer.
Since the law does not make any distinction, the public auctions referred to may be judicial
or extrajudicial. Sale of animals as condemned precludes all idea of warranty against
hidden defects. Such animals are bought not because of their quality or capacity for work.

ART. 1575. The sale of animals suffering from contagious diseases shall be void.
A contract of sale of animals shall also be void if the use or service for which they are
acquired has been stated in the contract, and they are found to be unfit therefor.
(1494a)

When sale of animals void.

The article declares the class of animals which cannot be the object of commerce —
animals suffering from contagious diseases and those found unfit for the use or service
stated. The sale of such animals is void as against public interest and not merely subject to
rescission or reduction of the price. It is to be governed by the rules relating to nullity of
contracts.
Even if the animals are found fit for the use or service stated in the contract, the vendee
may still rescind the contract under Article 1561. This article contemplates a sale that has
been perfected and consummated.

ART. 1576. If the hidden defect of animals, even in case a professional inspection has
been made, should be of such a nature that expert knowledge is not sufficient to
discover it, the defect shall be considered as redhibitory.
But if the veterinarian, through ignorance or bad faith, should fail to discover or
disclose it, he shall be liable for damages. (1495)

What constitutes redhibitory defect of animals?

Article 1576 is another rule especially applicable to animals.
To be considered redhibitory, the defect must not only be hidden. It must be of such a
nature that expert knowledge is not sufficient to discover it. However, if the veterinarian
failed to discover it through his ignorance, or failed to disclose it to the vendee through bad
faith, he shall be liable for damages. The responsibility is his and not the vendor’s.

ART. 1577. The redhibitory action, based on the faults or defects of animals, must be
brought within forty days from the date of their delivery to the vendee.
This action can only be exercised with respect to faults and defects which are
determined by law or by local customs. (1496a)

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Limitation of action in sale of animals.
The redhibitory action based on the faults of animals shall be barred unless brought within
forty days from the date of their delivery to the vendee.
According to the second paragraph, what should be considered redhibitory defects in the
sale of animals are only those determined by law or by local customs. If the defects are
patent, there is no warranty against such defects although there exists a redhibitory vice.

ART. 1578. If the animal should die within three days after its purchase, the vendor
shall be liable if the disease which caused the death existed at time of the contract.
(1497a)

Responsibility of vendor where animal dies.

If the animal sold is suffering from any disease at the time of the sale, the vendor is liable
should it die of said disease within three days from the date of the sale (not date of
delivery). This claim of the vendee must be based on a finding of an expert that the disease
causing the death existed at the time of the contract.
If the death occurs after three days or the defect is patent or visible, he is not liable. If the
loss is caused by a fortuitous event or by the fault of the vendee, and the animal has vices,
Article 1569 should be applied.

ART. 1579. If the sale be rescinded, the animal shall be returned in the condition in
which it was sold and delivered, the vendee being answerable for any injury due to
his negligence, and not arising from redhibitory fault or defect. (1498)

Liability of buyer in case sale of animal is rescinded.

If the vendee avails himself of the remedies granted by Article 1567, the vendee must
return the animal in the condition in which it was sold and delivered. In case of injury due
to his negligence, the vendee shall be responsible but this would be no obstacle to the
rescission of the contract due to the redhibitory defect or fault of the animal.
Under Article 1556, the buyer may not ask for rescission where he has created new
encumbrances upon the thing sold.

ART. 1580. In the sale of animals with redhibitory defects, the vendee shall also
enjoy the right mentioned in article 1567; but he must make use thereof within the
same period which he has been fixed for the exercise of the redhibitory action.
(1499)

Alternative remedies of vendee in sale of animals.

The vendee has the same right to bring at his option, either a redhibitory action or an
action quanti minoris. The action must be brought within forty days from the date of the
delivery of the animals to the vendee.
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ART. 1581. The form of sale of large cattle shall be governed by special laws. (n)

Form of sale of large cattle.

The special law governing the sale of large cattle is Act No. 4117, now found in Sections 511
to 536 of the Revised Administrative Code, as amended, providing for the registration,
branding, conveyance, and slaughter of large cattle.
The sale must appear in a public document.

OBLIGATIONS OF THE VENDEE

ART. 1582. The vendee is bound to accept delivery and to pay the price of the thing
sold at the time and place stipulated in the contract.
If the time and place should not have been stipulated, the payment must be made at
the time and place of the delivery of the thing sold. (1500a)

Principal obligations of vendee.

The principal obligations of the vendee are:
(1) to accept delivery; of the thing sold; and
(2) to pay the price of the thing sold at the time and place stipulated in the contract; and
(3) to bear the expenses for the execution and registration of the sale and putting the goods
in a deliverable state, if such is the stipulation.
A grace period granted the vendee in case of failure to pay the amount/s due is a right, not
an obligation. When unconditionally conferred, it is effective without further need of
demand either calling for the payment of the obligation or for honoring the right. The grace
period must not be likened to an obligation, the non-payment of which, under Article 1169
of the Civil Code, would generally still require judicial or extrajudicial demand before
“default” can be said to arise.
The general rule is that an agreement to extend the time of payment in order to be valid,
must be for a definite time. Although no precise date is fixed, it is sufficient that the time
can readily be determined. The fact that the seller did not act on the request for what
amounts to an indefinite extension may be construed just as logically as a denial thereof.

Pertinent rules.
In connection with the above obligations, the following rules must be borne in mind:
(1) In a contract of sale, the vendor is not required to deliver the thing sold until the price is
paid nor the vendee to pay the price before the thing is delivered in the absence of an
agreement to the contrary;

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(2) If stipulated, then the vendee is bound to accept delivery and to pay the price at the
time and place designated;
(3) If there is no stipulation as to the time and place of payment and delivery, the vendee is
bound to pay at the time and place of delivery;
(4) In the absence also of stipulation, as to the place of delivery, it shall be made wherever
the thing might be at the moment the contract was perfected; and
(5) If only the time for delivery of the thing sold has been fixed in the contract, the vendee
is required to pay even before the thing is delivered to him; if only the time for payment of
the price has been fixed, the vendee is entitled to delivery even before the price is paid by
him.

Liability of vendee for obligations of company bought out.

(1) Obligation not of considerable amount or value. — In some cases, when one company
buys out another and continues the business of the latter company, the buyer may be said
to assume the obligations of the company bought out when said obligations are not of
considerable amount or value, especially when incurred in the ordinary course of trade and
when the business of the latter company is continued.
(2) Obligation of considerable amount or value. — When said obligations are of
extraordinary value and the company was brought out not to continue its business but to
stop its operation in order to eliminate competition, it cannot be said that the vendee
assumed all the obligations of the rival company.

ART. 1583. Unless otherwise agreed, the buyer of goods is not bound to accept
delivery thereof by installments.
Where there is a contract of sale of goods to be delivered by stated installments,
which are to be separately paid for, and the seller makes defective deliveries in
respect of one or more installments, or the buyer neglects or refuses without just
cause to take delivery of or pay for one or more installments, it depends in each case
on the terms of the contract and the circumstances of the case, whether the breach of
contract is so material as to justify the injured party in refusing to proceed further
and suing for damages for breach of the entire contract, or whether the breach is
severable, giving rise to a claim for compensation but not a right to treat the whole
contract as broken. (n)

Rules governing delivery in installments.

(1) General rule. — In an ordinary contract for the sale of goods, the buyer is not bound to
receive delivery of the goods in installments. He is entitled to delivery of all the goods at the
same time and, it may be added, is bound to receive delivery of all at the same time.
Similarly, a buyer has no right to pay the price in installments. Neither can he be required
to make partial payments. By agreement, however, the goods may be deliverable by
installments or the price payable in installments.
(2) Where separate price has been fixed for each installment. — Where the contract provides
for the delivery of goods by installments and a separate price has been agreed upon for
each installment, it depends in each case on the terms of the contract and the
circumstances of the case whether the breach thereof is severable or not.
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(a) Where breach affects whole contract. — If the seller makes defective, partial or
incomplete deliveries or the buyer wrongfully neglects or refuses to accept delivery
or fails to pay any installment, the injured party may sue for damages for breach of
the entire contract if the breach is so material (e.g., breach of one installment
prevents the further performance of the contract) as to affect the contract as a
whole.
(b) Where breach severable. — Where the breach is severable, it will merely give
rise to a claim for compensation for the particular breach but not a right to treat the
whole contract as broken.

ART. 1584. Where goods are delivered to the buyer which he has not previously
examined, he is not deemed to have accepted them unless and until he has had a
reasonable opportunity of examining them for the purpose of ascertaining whether
they are in conformity with the contract, if there is no stipulation to the contrary.
Unless otherwise 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 with the
contract.
Where goods are delivered to a carrier by the seller, in accordance with an order
from or agreement with 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 with the words “collect on delivery,” or
otherwise, 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.
(n)

Buyer’s right to examine the goods.

Acceptance, as used in Article 1584, is assent to become owner of the specific goods when
delivery of them is offered to the buyer.
(1) Actual delivery contemplated. — The delivery referred to in said article, as can be
gathered from its context, is actual delivery. In other words, the ownership of the goods
shall be transferred only upon actual delivery subject to a reasonable opportunity of
examining them to determine if they are in conformity with the contract.
The right of examination or inspection under paragraph 1 is thus a condition precedent to
the transfer of ownership unless there is a stipulation to the contrary.
(2) Goods delivered C.O.D./not C.O.D. — Where, in pursuance of a contract of sale, the seller
is authorized or required to send the goods to the buyer, delivery of the goods to a carrier
for the purpose of transmission to the buyer is deemed to be delivery to the buyer.
(a) Although title passes to the buyer by the mere delivery to the carrier, the buyer
unless the goods are sent C.O.D. which is the normal procedure in importations, has

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 the right to examine the goods before paying. In this case, the right to examine the
goods is a condition precedent to paying the price after ownership has passed.
(b) It should be noted that even in a C.O.D. sale, the buyer is allowed to examine the
goods before payment of the price should it have been so agreed upon or if it is
permitted by usage.
(3) Right of examination not absolute. — The buyer does not have an absolute right of
examination since the seller is bound to afford the buyer a reasonable opportunity of
examining the goods only “on request.” If the seller refused to allow opportunity for the
inspection, the buyer may rescind the contract and recover the price or any part of it that
he has paid.
(4) Right to be exercised within reasonable time. — While Article 1584 accords the buyer
the right to a reasonable opportunity to examine the goods to ascertain whether they are in
conformity with the contract, such opportunity to examine should be availed of within a
reasonable time in order that the seller may not suffer undue delay or prejudice.
(5) Waiver of right to examine before payment. — The right of inspection may, of course, be
given up by the buyer by stipulation. The waiver, however, need not be in express terms.
An illustration of a bargain inconsistent with examination of the goods before payment is a
contract by which goods are to be sent to the buyer C.O.D. But the buyer is still entitled to
examine the goods after their delivery and payment of the price. Here, the right of
examination is a condition subsequent after transfer of ownership and payment of the price.

ART. 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, and
he does any act in relation to them which is inconsistent with the ownership of the
seller, or when, after the lapse of a reasonable time, he retains the goods without
intimating to the seller that he has rejected them. (n)

Modes of manifesting acceptance.

Article 1585 expresses a definition of acceptance. It may be manifested either expressly or
impliedly.
(1) Express acceptance takes place when the buyer, after delivery of the goods, intimates to
the seller, verbally or in writing, that he has accepted them.
(2) Implied acceptance takes place:
(a) when the buyer, after delivery of goods, does any act inconsistent with the
seller’s ownership, as when he sells or attempts to sell the goods, or he uses or
makes alteration in them in a manner proper only for an owner; or
(b) when the buyer, after the lapse of a reasonable time, retains the goods without
intimating his rejection. Thus, the failure of the buyer to interpose any objection to
the invoices issued to it, to evidence delivery of the materials ordered as per
agreement with the seller and which contained the conditions in question, should be
deemed as an implied acceptance by the buyer of the said conditions.
The retention of the goods is a strong evidence that the buyer has accepted
ownership of the goods. While retention may be considered an act inconsistent with
the ownership of the seller, it is stated as a separate mode of manifesting acceptance
as it is merely a negative indication which may be due merely to carelessness.
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Delivery and acceptance, separate acts.

Delivery and acceptance are two distinct and separate acts of different parties.
(1) Acceptance, not a condition to complete delivery. — Delivery is an act of the vendor.
Thus, one of the obligations of the vendor is the delivery of the thing sold. The vendee has
nothing to do with the act of delivery by the vendor.
On the other hand, acceptance is an obligation on the part of the vendee. Consequently,
acceptance cannot be regarded as a condition to complete delivery. In other words, the
seller must comply with his obligation to deliver although there is no acceptance yet by the
buyer.
(2) Acceptance and actual receipt do not imply the other. — Acceptance of the buyer may
precede actual delivery. There may be an actual receipt without any acceptance and there
may be acceptance without any receipt.

ART. 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. (n)

Acceptance, not a bar to action for damages.

Acceptance, as used in this article, has the meaning explained previously — assent to
receive delivery as transferring possession and ownership in the goods; but it does not
carry with it the additional agreement that the property in the goods shall be taken in full
satisfaction of all obligations.
Therefore, unless otherwise agreed, acceptance of the goods by the buyer does not
discharge the seller from liability in damages or other legal remedy (like rescission) for
breach of any promise or warranty in the contract of sale.

Notice to seller of breach of promise or warranty.

(1) Necessity. — Article 1586 requires the buyer, in order to hold the seller liable for breach
of promise or warranty, to give notice to the seller of any such breach within a reasonable
time. Time is counted not simply from the moment the buyer knows of the defect, but from
the time when he ought to have known it. Prompt exercise of opportunity for discovering
defects is, therefore, essential.
(2) Purpose. — The purpose is to protect the seller against belated claims which prevent
him from making prompt investigation to determine the cause and extent of his liability
and also to enable him to take any other immediate steps that his interest may require.

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Note: The word “of’’ before “warranty” in Article 1586 should read “or.”

ART. 1587. Unless otherwise agreed, where goods are delivered to the buyer, and 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 be liable as such. (n)

Where buyer’s refusal to accept justified.

(1) Duty of buyer to take care of goods without obligation to return. — If the goods have
been sent to the buyer and he rightfully refuses to accept them, as in the case where the
goods are of not the kind and quality agreed upon, he is in the position of a bailee who has
had goods thrust upon him without his assent. Doubtless, he has the obligation to take
reasonable care of the goods, but nothing more can be demanded of him. Accordingly, he is
under no obligation to return the goods to the seller.
(2) Duty of seller to take delivery of goods. — After notice that the goods have not been and
will not be accepted, the seller must have the burden of taking delivery of said goods.
(3) Seller’s risk of loss of goods. — While the goods remain in the buyer’s possession under
these circumstances, they are, of course, at the seller’s risk. But the buyer is not deemed
and is not liable as a depositary, unless he voluntarily constitutes himself as such.
(4) Right of buyer to resell goods. — Should the seller, when notified to take delivery of the
goods fails to do so, the buyer may resell the goods. The provisions governing resale by the
seller when the buyer is in default, it seems, will generally apply.

ART. 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 without just cause, the title
thereto passes to him from the moment they are placed at his disposal. (n)

Where buyer’s refusal to accept wrongful.

Under this article, the buyer’s refusal to accept the goods is without just cause while under
Article 1587, the refusal is with a right to do so.
As a general rule, the delivery of the goods to a carrier is deemed to be a delivery of the
goods to the buyer. This is true even if the buyer refuses to accept the goods in case his
refusal is without just cause. The title passes to the buyer and, therefore, the risk of loss is
borne by him from the moment they are placed at his disposal. In those cases where the
right of the buyer to inspect goods at the time of delivery is a condition precedent to
transfer of ownership, the ownership passes by operation of law after such inspection.

ART. 1589. The vendee shall owe interest for the period between the delivery of the
thing and the payment of the price, in the following three cases:
(1) Should it have been so stipulated;
(2) Should the thing sold and 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. (1501a)
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Liability of vendee for interest where payment is made after delivery.

This article presupposes that the delivery of the thing sold and the payment of the price
were not made simultaneously but the thing sold was delivered, first followed by the
payment of the price after the lapse of a certain period of time. The vendee is liable to pay
interest from the delivery of the thing until the payment of the price.
(1) Interest expressly stipulated. — In such case, the rate stipulated governs. The stipulation
of the parties to pay interest may be oral. Article 1956 of the Civil Code which provides that
“no interest shall be due unless it has been expressly stipulated in writing” should be
construed as applicable only to contracts of loan.
If the parties failed to fix the rate, then the legal rate of interest shall be due.
(2) Fruits or income received by vendee from thing sold. — Under No. 2, two conditions must
exist: (a) that the thing sold has been delivered, and (b) that it produces fruits or income. If
the vendee would not be bound to pay interest for the use of the money, which he should
have paid, the principle of bilaterality which characterizes a contract of sale would no
longer exist.
Since the law makes no distinction, the vendee is still bound to pay interest even if a term
has been fixed for the payment of the price.
(3) Vendee guilty of default. — If the vendee incurs delay in the payment of the agreed price,
the interest is due from the time of judicial or extrajudicial demand by the vendor for the
payment of the price. This demand by the vendor is the starting point for the
commencement of default or delay on the part of the vendee. Under Nos. 1 and 2 of Article
1589, no demand is necessary.

ART. 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. (1502a)

Right of vendee to suspend payment of price.

(1) When vendee has right. — The vendee, under this article, may suspend the payment of
the price in two cases only:
(a) if he is disturbed in the possession or ownership of the thing bought; or
(b) if he has a well-grounded fear that his possession or ownership would be
disturbed by a vindicatory action or foreclosure of mortgage.

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Under the circumstances provided for by Article 1590, the vendee is only entitled to retain
the price that has not been paid to the vendor. He is not entitled to recover what has
already been paid. Under the second case, it is not necessary that an action be brought
against the vendee.
It has been held that a buyer of a condominium unit is justified in suspending payment of
his monthly amortizations where the seller fails to give him a copy of the contract to sell
despite repeated demands therefor. A buyer is entitled to a copy of the contract to sell;
otherwise, he would not be informed of his rights and obligations under the contract.
(2) When vendee has no right. — In the following cases, the vendee cannot suspend the
payment of the price even if there is disturbance in his possession or ownership of the
thing sold:
(a) if the vendor gives security for the return of the price in a proper case;
(b) if it has been stipulated that notwithstanding any such contingency, the vendee
must make payment;
(c) if the vendor has caused the disturbance or danger to cease;
(d) if the disturbance is a mere act of trespass; and
(e) if the vendee has fully paid the price.
If the thing sold is in the possession of the vendee and the price is already in the hands of
the vendor, the sale is a consummated contract and Article 1590 is no longer applicable.
Article 1590 presupposes that the price or any part thereof has not yet been paid and the
contract has not yet been consummated.

Right of vendee to demand rescission.

Under the provisions of Article 1590, the vendee has no cause of action for rescission
before final judgment the reason being that otherwise, the vendor might become the victim
of machinations between the vendee and the third person. It must be noted that the
disturbance must be in the possession or ownership of the thing acquired.
The remedy of the buyer is rescission, not suspension of payment where the disturbance is
caused by the existence of a nonapparent servitude.

ART. 1591. Should the vendor have reasonable grounds to fear the loss of immovable
property sold and 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.
(1503)

Right of vendor to rescind sale of immovable property.

This article refers only to a sale of immovable or real property where the vendor has good
reasons to fear the loss of the property and its price. It contemplates a situation where
there has been a delivery of the immovable property but the vendee has not yet paid the
price.
“Suppose the vendee has not yet paid the price, but he destroys the building sold,
pulls out the plants on the land, cuts down the forest, or places himself on the brink
of insolvency. In other words, the subject matter of the sale is going to perish. To
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think of demanding payment from the vendee is something useless, because the
vendee has shown signs of irresponsibility. The only remedy that can guarantee the
vendor against such damage is the rescission of the contract.”
Article 1591 is applicable to both cash sales and to sales in installments as it does not
distinguish between one and the other.
Pursuant to Article 1191 of the Civil Code, the vendor may sue for either fulfillment or
rescission with damages in either case upon the vendee’s failure to comply with his
obligation to pay the agreed price. Rescission, however, is allowed only where the breach is
substantial and fundamental to the fulfillment of the obligation.

ART. 1592. In the sale of immovable property, even though it may have been
stipulated that upon failure to pay the price at the time agreed 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. (1504a)

Rule where automatic rescission of sale of immovable property stipulated.

As a general rule, the vendor may sue for rescission of the contract should the vendee fail to
pay the agreed price. The sale of real property, however, is subject to the stipulations
agreed upon by the parties and to the provisions of Article 1592 which speaks of non-
payment of the purchase price as a resolutory condition. Article 1191 is subordinated to
the provisions of Article 1592 when applied to sales of immovable property.
Before a demand for rescission of the contract (for non-payment of the price) has been
made by the vendor, either judicially or by a notarial act, the vendee may still pay the price
even after the expiration of the stipulated period for payment and notwithstanding a
stipulation that failure to pay the price on the stipulated date ipso facto resolves the sale. A
judicial or notarial act is necessary before a valid rescission can take place, whether or not
automatic rescission has been stipulated. It is to be noted that the law uses the phrase
“even though,’’ emphasizing that when no stipulation is found on automatic rescission, the
judicial or notarial requirement still applies. A letter informing the buyer of the automatic
rescission of a contract of sale of a real property of sale does not amount to a demand for
rescission if it is not notarized. The offer to pay prior to the demand for rescission is
sufficient to defeat the vendor’s right under Article 1592.
There is no existing provision in our laws authorizing the automatic rescission of contracts
of sale of real property for nonpayment of the purchase price except as provided in Article
1592. A complaint by the vendor seeking the cancellation of the vendee’s adverse claim on
the vendor’s original certificate of title and for the refund of the payments made, cannot be
considered a judicial demand under Article 1592 because it does not pray for the rescission
of the contract of sale. In other words, seeking discharge from contractual obligations and
an offer for restitution is not the same as abrogation of the contract. To rescind is “to
declare a contract void in its inception and to put an end to it as though it never were.”
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Note: In Articles 1191 and 1592, the rescission is a principal action which seeks the
resolution or cancellation of the contract, while in Article 1381, the action is a subsidiary
one limited to cases of rescission for lesion as enumerated in said article. The prescriptive
period applicable for rescission under Articles 1191 and 1592 is found in Article 1144
which provides that the action upon a written contract should be brought within 10 years
from the time the right of action accrues.

Right of seller to rescind not absolute.

In a contract of sale, the remedy of the unpaid seller is either specific performance or
rescission with the right to claim damages in either case.
A seller, however, cannot unilaterally and extrajudicially rescind a contract of sale of
immovable property where there is no express stipulation authorizing him to
extrajudicially rescind except as provided in Article 1592. Judicial action for rescission of a
contract is not necessary where the contract provides for automatic rescission in case of
breach.
(1) Court may grant vendee a new term. — The right to rescind is not absolute and the court
may extend the period for payment. Once a demand for rescission by suit or notarial act is
made, however, under Article 1592, the court may not grant the vendee a new term.
Nevertheless, in the interest of justice and equity, the court may grant the vendee a new
term where he has substantially performed in good faith.
(2) Vendor may waive his right. — The right of “automatic rescission” (subject to Article
1592 when applicable) stipulated in a contract of sale is subject to waiver. In a case, the
right was held waived by the vendor who granted many extensions to the vendee, in all of
which, the vendor never called attention to the proviso on “automatic rescission.” The
unqualified acceptance by the vendor of payments after the six-month period expired was
held to constitute waiver of the period and hence, of the ground to rescind under Article
1592.
(3) Written notice of cancellation must be given. — While judicial action for the rescission of
contract is not necessary where the contract provides that it may be cancelled for violation
of its terms and conditions, there must be at least a written notice sent to the defaulter
informing him of the rescission. The indispensability of notice of cancellation to the buyer
of real estate is underscored in Section 3(b) of R.A. No. 6552 which specifically provides
that the notice of cancellation or the demand for rescission of the contract must be by a
notarial act.
A notarial act presupposes signing before a notary public and two competent witnesses. A
letter to the vendee rescinding a contract of sale which is not notarized is defective. More
importantly, the notarized demand must be proven to have been received by the vendee.
Similarly, a letter in the form of a “Formal Notice’’ ordering the buyer to vacate the
premises in question for the reason that the occupancy of the lot is presumed to be illegal
as the lot is still registered in the name of the seller does not amount to a demand for
rescission where there is no reference to the sale much less a declaration that the sale is
being rescinded or abrogated from the beginning. Neither will a letter written by the
vendor declaring his intention to rescind to operate to validly rescind the sale. But an
action for judicial confirmation of rescission and damages has been held to comply with the
requirement of the law for judicial decree of rescission. Even a crossclaim found in the
answer can constitute a judicial demand for rescission that satisfies the requirement of the
law.
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(4) Breach must be substantial. — The general rule is that rescission of a contract will not
be permitted for a slight or causal breach but only for such substantial and fundamental
breach as would defeat the very object of the parties. This is especially true where the
slight breach by the vendee is outweighed by the bad faith of the vendor in reneging in his
own prestation. The question of whether a breach of a contract is substantial depends, of
course, upon the attendant circumstances. Where it was stipulated in the deed of sale that
payment could be made even after 10 years from the execution of the contract provided the
vendee paid 12% interest, the failure of the vendee to pay the balance of the purchase price
within 10 years from the execution of the deed would not amount to a substantial breach.

When Article 1592 not applicable.

(1) Sale on installment of real estate. — Article 1592 which requires rescission either by
judicial action or notarial act contemplates an absolute sale. It does not apply to sales on
installment of real property in which the parties have laid down the procedure to be
followed in the event the vendee failed to fulfill his obligation.
(2) Contract to sell/conditional sale of real estate. — Neither is Article 1592 applicable to a
mere promise to sell (executory contract to sell) where the title remains with the vendor
until fulfillment of a positive condition, such as full payment of the price. Such payment is a
positive suspensive condition the failure of which is not a breach, casual or serious, but
simply an event that prevents the obligation of the vendor to convey title from acquiring
binding force. In an absolute sale, non-payment is a resolutory condition.
(3) Cases covered by R.A. No. 6552. — R.A. No. 6552 recognizes in conditional sales of all
kinds of real estate the non-applicability of Article 1592 to such contracts to sell on
installments and the right of the seller to cancel the contract upon non-payment, “which is
simply an event that prevents the obligation of the vendor to convey title from acquiring
binding force.” The Act in modifying the terms and application of Article 1592 recognizes
the vendor’s right to cancel unqualifiedly in case of “industrial lots, commercial buildings,
and sales to tenants” and requires a grace period in other cases, particularly residential
lots, with a refund of certain percentages of payments made on account of the cancelled
contract.
In other words, the vendee, in Nos. (1) and (2) above, may no longer pay the price after the
expiration of the time agreed upon although no demand has yet been made upon him by
suit or notarial act, except that in the case of sale on installment payments of residential
properties, while the vendor’s right to cancel the contract to sell upon breach by non-
payment of the stipulated installments is recognized by R.A. No. 6552, a grace period is
required, with the vendee entitled to refund of certain percentages of payments in the
event that the contract is cancelled. But the rule upholding the validity of automatic
rescission clauses contained in contracts to sell industrial and commercial real estates on
installments upon failure to pay stipulated installments, and allowing the retention or
forfeiture as rentals of the installments previously paid, is not applicable to a contract to
sell real estate on installments which is not essentially such a contract but is more of a
contract for the redemption of mortgaged property foreclosed by the mortgagee.

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 R.A. No. 6552 makes no distinction between “option” and “sale” which, under Section 2(b)
of P.D. No. 957, virtually includes all transactions concerning land and housing acquisition
including reservation agreements. This law, which normally applies to all transactions or
contracts, involving the sale or financing of real estate on installments payments, including
residential condominium apartments, excludes industrial lots, commercial buildings, and
sales to tenants under R.A. No. 3844, the Code of the Agrarian Reforms. (Superseded by R.A.
No. 6657, otherwise known as the Comprehensive Agrarian Reform Law of 1988.) It has
been held that a decision in an ejectment case can operate as notice of cancellation
required by Section 3(b) of R.A. No. 6552.

ART. 1593. With 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 expira tion 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. (1505)

Rule where automatic rescission of sale of movable property stipulated.

In the sale of real property, the vendor must make a demand for rescission before he can
have the right to rescind the contract. In the case of personal property (which has not yet
been delivered to the vendee), the vendor can rescind the contract, as a matter of right, if
the vendee, without any valid cause, does not (1) accept delivery or (2) pay the price unless
a credit period for its payment has been stipulated.
The mere failure of the vendee to comply with the terms of the contract does not rescind
the same. It is necessary that the vendor should take some affirmative action indicating his
intention to rescind. The parties, however, may validly enter into an agreement that
violation of the terms of the contract would cause cancellation thereof even without judicial
intervention or permission.

Reason for the rule with respect to movable property.

The reason for the difference is that personal properties are not capable of maintaining a
stable price in the market. Their prices are so changeable that any delay in their disposal
might cause the vendor a great prejudice.
This is not true in the case of real property which has more or less stable price in the
market and the delay that might result from the requirement imposed on the vendor to
demand rescission before being entitled to rescind the contract will not in any way prove
detrimental to the interest of the vendor.

ACTIONS FOR BREACH OF CONTRACT OF SALE OF GOODS

ART. 1594. Actions for breach of the contract of sale of goods shall be governed
particularly by the provisions of this Chapter, and as to matters not specifically
provided for herein, by other applicable provisions of this Title. (n)

Provisions governing breach of contract of sale of goods.

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“Goods” include all chattels personal but not things in action or money of legal tender in the
Philippines. The term includes growing fruits or crops.
Actions for breach of the contract of sale of goods are governed primarily by the provisions
of Arts. 1595-1599 and secondarily, by the other provisions of the Title on sales so far as
said provisions can apply. However, provisions concerning the sale of immovable property
have no application to the sale of goods.

Actions available.
In general, the actions available for breach of the contract of sale of goods are the following:
(1) action by the seller for payment of the price;
(2) action by the seller for damages for non-acceptance of the goods;
(3) action by the seller for rescission of the contract for breach thereof;
(4) action by the buyer for specific performance; and
(5) action by the buyer for rescission or damages for breach of warranty.

ART. 1595. Where, under a contract of sale, the ownership of the goods has passed to
the buyer, and he wrongfully neglects or refuses to pay for the goods according to the
terms of the contract of sale, the seller may maintain an action against him for the
price of the goods.
Where, under a contract of sale, the price is payable on a certain day, irrespective of
delivery or of transfer of title, and the buyer wrongfully neglects or refuses to pay
such price, the seller may maintain an action for the price, although the ownership in
the goods has not passed. But it shall be a defense to such an action that the seller at
any time before the judgment in such action has manifested an inability to perform
the contract of sale on his part or an intention not to perform it.
Although the ownership in the goods has not passed, if they cannot readily be resold
for a reasonable price, and if the provisions of Article 1596, fourth paragraph, are
not applicable, the seller may offer to deliver the goods to the buyer, and, if the buyer
refuses to receive them, may notify the buyer that the goods are thereafter held by
the seller as bailee for the buyer. Thereafter the seller may treat the goods as the
buyer’s and may maintain an action for the price. (n)

Seller’s right of action for the price.

The above article provides the three cases when an action for the price of the goods under
a contract of sale can be maintained by the seller:
(1) when the ownership of the goods has passed to the buyer and he wrongfully neglects or
refuses to pay for the price;

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(2) when the price is payable on a certain day and the buyer wrongfully neglects or refuses
to pay such price, irrespective of delivery or of transfer of the title; and
(3) when the goods cannot readily be resold for a reasonable price and the buyer
wrongfully refuses to accept them even before the ownership in the goods has passed, if
the provisions of Article 1596, 4th paragraph are not applicable.

Where ownership in goods has not passed.

Unless the contrary appears, the presumption is that the payment of the price and the
delivery of the goods were intended to be concurrent acts and the obligation of each party
to perform will be dependent upon the simultaneous performance by the other party.
From the above, it can be deduced that the seller cannot maintain an action for the price if
the ownership in the goods has not passed to the buyer, (1) unless the price is payable on a
certain day or (2) unless the goods cannot readily be resold for a certain price and the
provisions of Article 1596, 4th paragraph are not applicable.
It must be noted that under Article 1588, the title to the goods passes to the buyer from the
moment they are placed at his disposal when his refusal to accept them is without just
cause. The seller may, therefore, bring an action for the price upon wrongful refusal of the
buyer to accept.

Recovery of price payable on a certain day.

If different times are fixed for the payment of the price and the delivery of the goods, the
general rule is that the act which is to be performed first is absolutely due on that day,
while the performance which is to take place on a later day is not due unless, as a condition
precedent, the prior performance has been rendered.
(1) Buyer given credit for the price. — It is common for sellers to give credit for the price.
But it is not common for buyers to give credit for the goods. It may, however, happen that
the buyer promises to pay the price before acquiring the ownership or even the possession
of the goods. In such a case, the provisions of Article 1595, paragraph 2 are applicable.
(2) Defense to action for the price. — Said paragraph 2 excuses, however, the buyer from his
obligation to pay the price when, before the time of payment, the seller has manifested an
inability to perform the contract of sale or an intention not to perform it. A contract of sale
contemplates a double exchange. Accordingly, there is justice as well as good reason for
excusing the buyer from prior performance when he will not get subsequent performance
from the seller. In this case, prospective failure to receive the thing promised is as good as a
defense as a failure which has actually occurred.

ART. 1596. Where the buyer wrongfully neglects or refuses to accept and pay for the
goods, the seller may maintain an action against him for damages for non-
acceptance.
The measure of damages is the estimated loss directly and naturally resulting in the
ordinary course of events, from the buyer’s breach of contract.
Where there is an available market for the goods in question, the measure of
damages is, in the absence of special circumstances showing proximate damage of a
different amount, the difference between the contract price and the market or
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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 time of the refusal to accept.
If, while labor or expense of material amount is necessary on the part of the seller to
enable him to fulfill his obligations under the contract of sale, the buyer repudiates
the contract or notifies the seller to proceed no further therewith, the buyer shall be
liable to the seller for labor performed or expenses made before receiving notice of
the buyer’s repudiation or countermand. The profit the seller would have made if the
contract or the sale had been fully performed shall be considered in awarding the
damages. (n)

Seller’s right of action for damages.

(1) If the buyer without lawful cause neglects or refuses to accept and pay for the goods he
agreed to buy, the seller may maintain an action against him for damages for non-
acceptance.
(2) In an executory contract, where the ownership in the goods has not passed, and the
seller cannot maintain an action to recover the price, the seller’s remedy will be also an
action for damages.
(3) If the goods are not yet identified at the time of the contract or subsequently, the
seller’s right is necessarily confined to an action for damages.

Measure of damages for non-acceptance.

(1) Difference between contract price and market price. — The measure of damage is the
estimated loss directly and naturally resulting from the buyer’s breach of contract. It is
conveniently expressed by the formula — the difference between the contract price, that is,
the amount of the obligation which the buyer failed to fulfill, and the market or current
price, that is, the value of the goods which the seller has left upon his hands. This follows
the general rule that damages comprehend not only the actual loss suffered but also
unrealized profit.
(a) As the market price varies with time and place, the market price is fixed at the
time when and the place where the goods ought to have been accepted or, if no time
was fixed, at the time of refusal to accept.
(b) As the burden is upon the seller to show what damage, if any, he has suffered, it
is incumbent upon him, in order to make out a case for recovery of more than
nominal damages, to show that the market value of the goods is less than the
contract price.
(2) Full amount of damage. — If there is no available market in which the goods can be sold
at the time, the seller is “entitled to the full amount of damage which he has really
sustained by a breach of the contract.”
(3) Proximate damages. — Article 1596 (par. 3.) allows the seller under “special
circumstances” proximate damages of a greater amount than the difference between the

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contract price and market price when such damages “may be reasonably attributed to the
non-performance of the obligation.”

Measure of damages for repudiation or countermand.

In case the buyer repudiates the contract or notifies the seller to proceed no further
therewith, the measure of damages to which the seller is entitled would include:
(1) the labor performed and expenses incurred for materials before receiving notice of the
buyer’s repudiation; and
(2) the profit he would have realized if the sale had been fully performed.

ART. 1597. Where the goods have not been delivered to the buyer, and the buyer has
repudiated the contract of sale, or has manifested his inability to perform his
obligations thereunder, or has committed a breach thereof, the seller may totally
rescind the contract of sale by giving notice of his election so to do to the buyer. (n)

Seller’s right of rescission before delivery.

The above article specifies the cases when the seller may rescind a contract of sale of goods
which have not yet been delivered to the buyer. They are:
(1) when the buyer has repudiated the contract of sale;
(2) when the buyer has manifested his inability to perform his obligations thereunder; and
(3) when the buyer has committed a breach of the contract of sale.
Article 1481 provides for a special cause for rescission of the contract of sale of goods.
Article 1534 (2nd par.) speaks of the rescission of title.
In a case, the seller was not allowed to totally rescind a contract to sell two lots, it
appearing that the installments paid by the buyer were more than the value of one lot. The
conveyance to the buyer of one of the two lots was ordered.
If the goods have been delivered, the seller may recover the value of what he has given.

Giving of notice required.

The right granted to the seller follows the general rule in reciprocal obligations that a party
to a contract injured by nonfulfillment, may rescind the contract and at the same time ask
for damages.
It should be noted that the seller is required to give notice of his election to seek rescission.
The way in which election must be manifested may vary in different cases. Formal notice is
certainly not a requisite, and bringing an action promptly for restitution is sufficient.

Seller’s right of rescission for breach of contract.

Article 1191 (Civil Code) establishes the principle that all reciprocal obligations are
rescindable in the event that one of the parties bound should fail to perform that which is
incumbent upon him. In the contract of sale, the obligation to pay the price is correlative to
the obligation to deliver the thing sold. Non-performance by one of the parties authorizes
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the other to exercise the right conferred upon him by the law, to elect to demand the
performance of the obligation or its rescission, together with damages in either event.
Rescission abrogates the contract from its inception and requires a mutual restitution of
benefits received.
The right of the seller to rescind the sale for non-performance on the part of the buyer is
not absolute.
(1) The law subordinates it to the rights of third persons who are legally in the possession
of the object of the contract and to whom bad faith is not imputable.
(2) Moreover, the general rule is that rescission of a contract will not be permitted for a
slight or casual breach but only for such substantial breach as would defeat the very object
of the parties in making the agreement. The question of whether a breach of a contract is
substantial depends upon the attendant circumstances.
(3) Except as provided in Article 1597, and in the absence of express stipulation
authorizing the seller to extrajudicially rescind a contract of sale, the seller cannot
unilaterally and extrajudicially rescind the contract. It has been held that where a vendor
agreed to the resale of the property by the original vendee to another person despite the
failure of said vendee to comply with his obligation under the original sale, the vendor is
deemed to have effectively waived its right to rescind the sale.

ART. 1598. Where the seller has broken a contract to deliver specific or ascertained
goods, a court may, on the application of the buyer, direct that the contract shall be
performed specifically, without giving the seller the option of retaining the goods on
payment of damages. The judgment or decree may be unconditional, or upon such
terms and conditions as to damages, payment of the price and otherwise, as the court
may deem just. (n)

Buyer’s right to specific performance.

The article applies only where the goods to be delivered are specific or ascertained.
In reciprocal obligations, it is the injured party who has a right to choose between
fulfillment and rescission, with the payment of damages in either case. Consequently, the
right of the injured party to demand specific performance cannot be defeated by the guilty
party’s choice to rescind the contract.
This is also the rule in Article 1598 which grants to the buyer, as a matter of right, the
remedy of specific performance in case the seller should violate his obligation to make
delivery. The seller cannot retain the goods on payment of damages because damages are
imposed by law to insure fulfillment of contract and not to substitute for it. In granting
specific performance, the court may impose such terms and conditions as to damages,
payment of the price and otherwise, as it may deem just.

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ART. 1599. Where there is a breach of warranty by the seller, the buyer may, at his
election:
(1) Accept or keep the goods and set up against the seller, the breach of warranty by
way of recoupment in diminution or extinction of the price;
(2) Accept or keep the goods and maintain an action against the seller for damages
for the breach of warranty;
(3) Refuse to accept the goods, and maintain an action against the seller for damages
for the breach of warranty;
(4) Rescind the contract of sale and refuse to receive the goods or if the goods have
already been received, return them or offer to return them to the seller and recover
the price or any part thereof which has been paid.
When the buyer has claimed and been granted a remedy in any one of these ways, no
other remedy can thereafter be granted, without prejudice to the provisions of the
second paragraph of article 1191.
Where the goods have been delivered to the buyer, he cannot rescind the sale if he
knew of the breach of warranty when he accepted the goods without protest, or if he
fails to notify the seller within a reasonable time of the election to rescind, or if he
fails to return or to offer to return the goods to the seller in substantially as good
condition as they were in at the time the ownership was transferred to the buyer. But
if deterioration or injury of the goods is due to the breach of warranty, such
deterioration or injury shall not prevent the buyer from returning or offering to
return the goods to the seller and rescinding the sale.
Where the buyer is entitled to rescind the sale and elects to do so, he shall cease to
be liable for the price upon returning or offering to return the goods. If the price or
any part thereof has already been paid, the seller shall be liable to repay so much
thereof as has been paid, concurrently with the return of the goods, or immediately
after an offer to return the goods in exchange for repayment of the price.
Where the buyer is entitled to rescind the sale and elects to do so, if the seller refuses
to accept an offer of the buyer to return the goods, the buyer shall thereafter be
deemed to hold the goods as bailee for the seller, but subject to a lien to secure the
payment of any portion of the price which has been paid, and with the remedies for
the enforcement of such lien allowed to an unpaid seller by Article 1526.
(5) In the case of breach of warranty of quality, such loss, in the absence of special
circumstances showing proximate damage of a greater amount, is the difference
between the value of the goods at the time of delivery to the buyer and the value they
would have had if they had answered to the warranty. (n)

Remedies of buyer for breach of warranty by seller.

This article applies both to implied warranties and to express warranties, whether of
quality or of title.
The remedies allowed to the buyer when the seller has been guilty of a breach of promise
or warranty are:
(1) accept the goods and set up the seller’s breach to reduce or extinguish the price;
(2) accept the goods and maintain an action for damages for the breach of the warranty;
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(3) refuse to accept the goods and maintain an action for damages for the breach of the
warranty; and
(4) rescind the contract of sale by returning or offering the return of the goods, and recover
the price or any part thereof which has been paid.
The remedies open to the buyer under the article may be grouped into three, to wit: (a)
recoupment (No. 1.); (b) action (No. 3.) or counterclaim for damages (No. 2.); and (c)
rescission. (No. 4.)
Nos. (1) and (2) should be read in connection with Article 1586.
The general measure of damage in case of breach of warranty of quality is provided in No.
(5) of Article 1599. It is similar to the measure of damages under Article 1596, par. 2.

Remedies alternative.
The above remedies are alternative. Once a remedy has been granted to the buyer, no other
remedy can thereafter be exercised or granted.
The only exception is when after the buyer has chosen fulfillment, it should become
impossible, in which case he may also sue for rescission.

Recoupment in diminution of the price.

The theory of recoupment is that the seller’s damages are cut down to an amount which will
compensate him for the value of what he has given.
In view of the breach of warranty by the seller, the buyer is not bound to perform the
contract on his part, but the buyer has received something of value for which he ought to
pay. By means of recoupment, the buyer is allowed to avoid the contract and substitute in
its stead a quasi-contractual obligation for the value of what he has received. The word is
nearly though not quite synonymous with discount, reduction or deduction.

Action or counterclaim for damages.

The law provides that the buyer may “refuse to accept the goods, and maintain an action
against the seller for damages for the breach of warranty.” It is fundamental that the breach
of an obligation gives rise to an action for damages. It is, therefore, unnecessary to discuss
so plain a point.
Acceptance with knowledge of the breach of warranty does preclude rescission but it does
not necessarily preclude a right to recoupment or damages.

Recoupment and counterclaim, distinguished.

The right of recoupment is to be distinguished from set-off or counterclaim.

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By means of counterclaim, both sides of the contract are enforced in the same litigation.
The defendant (buyer) does not seek to avoid his obligation under the contract but seeks to
enforce the plaintiff’s (seller’s) obligation and to deduct it from his liability for the price for
breach of the warranty.

When rescission by the buyer not allowed.

The remedy of rescission is allowed on broad principles of justice. The basis of the remedy
is that the buyer has not received what he has bargained for.
It cannot be availed of, however, in the following cases:
(1) if the buyer accepted the goods knowing of the breach of warranty without protest;
(2) if he fails to notify the seller within a reasonable time of his election to rescind; and
(3) if he fails to return or offer to return the goods in substantially as good condition as
they were in at the time of the transfer of ownership to him. But where the injury to the
goods was caused by the very defect against which the seller warranted, the buyer may still
rescind the sale.

Rights and obligations of buyer in case of rescission.

They are as follows:
(1) In case of rescission, the buyer shall cease to be liable for the price, his only obligation
being to return the goods;
(2) If he has paid the price or any part thereof, he may recover it from the seller;
(3) He has the right to hold the goods as bailee for the seller should the latter refuse the
return of the goods; and
(4) He has the right to have a lien on the goods for any portion of the price already paid
which lien he may enforce as if he were an unpaid seller.
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References and Supplementary Materials

Books and Journals
1. Hector S. De Leon; Hector M. De Leon, Jr.; 2016; The Law on Sales, Agency and Credit
Transactions; 856 Nicanor Reyes, Sr. St. 1977 C.M. Recto Avenue, Manila Philippines;
REX Book Store

Online Supplementary Reading Materials

1. https://realestatelawyer.com.ph/category/real-estate/law-on-sales/
2. https://kupdf.net/download/philippine-law-on-sales-reviewer-1458-
1543_59954867dc0d60487f300d1a_pdf
3. http://www.chanrobles.com/civilcodeofthephilippinesbook4.htm
4. https://www.slideshare.net/annepatricia5682/sales-san-beda-college-of-law
5. https://philippinelawonsalesreview.blogspot.com/2012/11/article-1458-definition-
of-contract-of.html
6. https://www.studocu.com/en/document/southwestern-university-
phinma/bachelor-of-science-major-in-business-administration/summaries/law-
summary-the-law-on-sales-agency-and-credit-transactions/5598616/view

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