University of Mindanao
ACC 312 – Regulatory Framework for Business Laws
Class Notes
Art .1536
Read in conjunction with ARTICLE 1524. The vendor shall not be bound
to deliver the thing sold, if the vendee has not paid him the price, or if
no period for the payment has been fixed in the contract.
Example: If the contract says “pay in 30 days”, the seller is bound to
deliver now.
However, the seller will not be bound to deliver when vendee loses
the right to make use of the terms under:
ARTICLE 1198. The debtor shall lose every right to make use of the
period:
(1) When after the obligation has been contracted, he becomes
insolvent, unless he gives a guaranty or security for the debt;
(2) When he does not furnish to the creditor the guaranties or
securities which he has promised;
(3) When by his own acts he has impaired said guaranties or securities
after their establishment, and when through a fortuitous event they
disappear, unless he immediately gives new ones equally satisfactory;
(4) When the debtor violates any undertaking, in consideration of
which the creditor agreed to the period;
(5) When the debtor attempts to abscond.
Art. 1537-1543
Completeness of Delivery.
These articles deal with the condition and quantity of the object at the
time of delivery.
●​
Art. 1537: The vendor must deliver the thing in the condition it
was in when the contract was perfected. All fruits (natural,
industrial, or civil) belong to the buyer from the day the
contract was perfected.
Accessions are the fruits of a thing; or additions to, or improvements
upon, a thing such as the young of animals, house or trees on a land,
etc.
Accessories are anything attached to a principal thing for its
completion, ornament, or better use such as picture frame, key of a
house, etc.
When vendee entitled. — The vendee has a right to the fruits of the
thing sold from the time the obligation to deliver it arises. (Art. 1164.)
The obligation to deliver arises upon the perfection of the contract of
sale. (see Art. 1475.)
●​
Art. 1538: If the thing is lost or deteriorated before delivery,
the rules in Article 1189 apply (determining who is at fault).
VENDOR = DEBTOR
ARTICLE 1189. When the conditions have been imposed with
the intention of suspending the efficacy of an obligation to
give, the following rules shall be observed in case of the
improvement, loss or deterioration of the thing during the
pendency of the condition:
(1) If the thing is lost without the fault of the debtor, the
obligation shall be extinguished;
(2) If the thing is lost through the fault of the debtor, he shall
be obliged to pay damages; it is understood that the thing is
lost when it perishes, or goes out of commerce, or disappears
in such a way that its existence is unknown or it cannot be
recovered;
(3) When the thing deteriorates without the fault of the debtor,
the impairment is to be borne by the creditor;
(4) If it deteriorates through the fault of the debtor, the
creditor may choose between the rescission of the obligation
and its fulfillment, with indemnity for damages in either case;
(5) If the thing is improved by its nature, or by time, the
improvement shall inure to the benefit of the creditor;
(6) If it is improved at the expense of the debtor, he shall have
no other right than that granted to the usufructuary.
●​
●​
Art. 1539–1542 (Land Area Discrepancies):
Unit Price Sale:
(1) Entire area stated in contract must be delivered. — If the sale of
real estate should be made with a statement of its area, at the rate of
a certain price per unit of measure or number, the cause of the
contract with respect to the vendee is the number of such units or, if
you wish, the thing purchased as determined by the stipulated
number of units. The vendor must deliver the entire property agreed
upon.
(2) Where entire area could not be delivered. — If all that is included
within the stipulated boundaries is not delivered, then the object of
the contract, its cause as far as the vendee is concerned, is not
delivered. Hence, he is entitled to rescind it. He may, however, enforce
the contract with the corresponding decrease in price.
When vendee is entitled to rescission of sale.
Under the above article, the right of rescission is available to the
vendee in the following cases:
(1) If the lack in area is at least 1/10th than that stated or stipulated.
(par. 2.) The 1/10th mentioned must be based on the area stipulated
in the contract, and not on the real area which the thing may actually
have;
(2) If the deficiency in the quality specified in the contract exceeds
1/10th of the price agreed upon; and
(3) If the vendee would not have brought the immovable had he
known of its smaller area or inferior quality irrespective of the extent
of the lack in area or quality.
Where immovable of a greater area or number.
If the area or number in the immovable is greater than that stipulated
in the contract, the vendee may accept the area included in the
contract and reject the rest. If he accepts the whole, he makes himself
liable for the price of the same at the contract rate. The vendee may
not withdraw from the contract.
●​
Lump Sum Sale (A Cuerpo Cierto):
Where area or number stated together with boundaries. — If the
vendor cannot deliver to the vendee all that is included within the
boundaries mentioned in the contract, the latter has the option to
reduce the price in proportion to the deficiency or to set aside the
contract.
EXAMPLE:
S sold to B a parcel of land for the lump sum (or a cuerpo cierto) of
P300,000.00. The contract states that the area is 500 square meters.
Subsequently, it was ascertained that the area included within the
boundaries is really 600 square meters.
In this case, S is bound to deliver all the 600 square meters which are
included within said boundaries without increase in price. If S does not
deliver also the extra 100 square meters, B has the right to rescind the
contract or pay a proportionately reduced price, namely: 5/6 of the
original price or P250,000.00
●​
Art. 1544
Art. 1543: Actions arising from these area discrepancies
prescribe in 6 months from the day of delivery.
Rules as to preference of ownership in case of a double sale.
If the same property is sold by the same vendor to different vendees,
the conflicting rights of said vendees shall be resolved in accordance
with the following rules:
(1) If the property sold is movable, the ownership shall be acquired by
the vendee who first takes possession in good faith
(2) If the property sold is immovable, the ownership shall belong, in
the order hereunder stated, to:
(a) The vendee who first registers the sale in good faith in the Registry
of Property (Registry of Deeds) has a preferred right over another
vendee who has not registered his title even if the latter is in actual
possession of the immovable property. More credit is given to
registration than to actual possession.
(b) In the absence of registration, the vendee who first takes
possession in good faith; and
(c) In the absence of both registration and possession, the vendee
who presents the oldest title (who first bought the property) in good
faith.
Note: Possession of the property sold may be in any of the ways
provided in Articles 1497 to 1501.
Sales made in bad faith.
Article 1544 does not declare void a deed of sale registered in bad
faith. It does not mean, however, that said contract is not void. Article
1544 specifically provides who shall be the owner in case of a double
sale of an immovable property. To give full effect to this provision, the
status of the two contracts must be determined and clarified. One
contract must be declared valid so that one vendee may exercise all
the rights of an owner, while the other contract must be declared void
to cut off all rights which may arise from said contract.
Accordingly, where the second purchaser had knowledge of the other
sale, prior to or at the time of the sale to him, his knowledge taints his
purchase with bad faith. The applicable rule in this case would be that
the ownership shall pertain to the person who, in good faith, first
entered into possession of the property or in the absence of
possession, to the person who presents the oldest title, provided there
is good faith.
Requirement of Good Faith
Good faith is an essential requisite of registration to acquire new title
because “public records cannot be converted into instruments of fraud
and oppression by one who secures an inscription thereon in bad
faith.”
Art. 1545-Art.1547
The mere fact that the second contract of sale was perfected in good
faith is not sufficient if, before title passes, the second vendee acquires
knowledge of the first transaction. The good faith or innocence of the
posterior vendee needs to continue until his contract ripens into
ownership by tradition or registration.
Conditions and Warranties.
Art. 1545: If a condition is not fulfilled, the other party may refuse to
proceed or waive the condition. If the condition is also a warranty, a
breach allows for damages.
Art. 1546 (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.
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 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 (Implied Warranties):
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.
The term implied warranty is reserved for cases where the law
attaches an obligation to the seller which is not expressed in any
words.
(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.
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.
Art. 1548-1560
Warranty Against Eviction (Art. 1548 - 1559)
Eviction occurs when a buyer is deprived of the whole or part of the
thing purchased by a final judgment based on a right that existed prior
to the sale.
●​ Art. 1548: The seller is liable for eviction even if the contract is
silent. It requires: (1) Final judgment, (2) Buyer is deprived of
the thing, (3) Based on a right prior to the sale, and (4) The
seller was summoned in the suit.
●​
Art. 1550: If the buyer loses the property via prescription
(adverse possession) that was completed before the sale, the
vendor is liable. If the prescription was completed after the
sale, the buyer bears the loss.
Article 1550 states that if the property is lost to a third party because
of prescription, the seller is not liable for eviction, provided that the
prescription was completed after the sale.
1. What is Prescription in this context?
This usually refers to "Acquisitive Prescription." If someone stays on a
piece of land long enough (e.g., 10 or 30 years depending on the
circumstances), the law eventually recognizes them as the legal owner,
even if they didn't start with a deed.
2. The "Before vs. After" Divide
To determine if the seller is liable, we look at when the clock finished
ticking:
●​ Prescription Completed BEFORE the Sale: The seller is LIABLE.
If the neighbor had already gained ownership of the backyard
by staying there for 30 years before you bought it, the seller
sold you something they no longer owned. They breached the
warranty.
●​ Prescription Completed AFTER the Sale: The seller is NOT
LIABLE. If the neighbor was only on year 25 of a 30-year
requirement when you bought the house, and you let them
stay there for 5 more years until they became the owner, that’s
your fault. You had the chance to kick them out after you
bought the property, but you didn't.
●​
Art. 1551: If the property is sold for non-payment of taxes and
the seller didn't disclose this, the seller is liable for eviction.
The law states that if the property is sold for non-payment of taxes
(usually through a public auction or tax foreclosure), the seller is liable
for eviction, provided that:
1.​ The taxes were due before the sale.
2.​ The buyer was not aware that the taxes were unpaid.
Why the Seller is Liable
Under the general principles of a sale, the seller is obligated to deliver
the property "free from all liens and encumbrances" unless otherwise
agreed.
●​ Taxes are a lien: The government has a "first priority" claim on
the land for unpaid taxes.
●​ Hidden Debt: If the seller doesn't disclose this debt, they are
selling a property that is effectively "at risk" of being taken by
the state.
●​
Art. 1552: In a judicial sale (auction by court), the judgment
debtor is responsible for eviction unless otherwise decreed.
●​
Art. 1553: Any stipulation exempting the vendor from the
obligation to answer for eviction is void if the vendor acted in
bad faith.
The law generally allows people to make their own contracts (Freedom
of Contract). If a buyer wants to take a risk on a "shaky" title and waive
the warranty, they can (as we saw in Art. 1554).
However, public policy dictates that the law should not protect a
dishonest seller. A waiver is only valid if the buyer is making an
informed choice, not if they are being defrauded.
●​
Art. 1554 (Kinds of Waiver):
o​ Consciente: Buyer waives the warranty without
knowing the risk of eviction. Seller only returns the
value of the thing at the time of eviction.
o​ Intencionada: Buyer waives the warranty knowing the
risk and accepting the consequences. Seller has no
liability.
What can the Buyer recover? (Art. 1555)
If eviction occurs, the buyer can demand:
1.​ Value of the thing at the time of eviction.
2.​ Income or fruits of the thing.
3.​ Costs of the suit.
4.​ Expenses of the contract.
5.​ Damages and interests (if the seller was in bad faith).
2. Partial Eviction (Art. 1556)
If the buyer loses a part of the thing so important that they would not
have bought it without said part, they may demand the rescission of
the contract, but they must return the thing without any more
encumbrances than those it had when acquired.
3. Essential Procedural Step (Art. 1558 - 1559)
The vendor cannot be held liable for the warranty unless they were
summoned (notified) in the suit for eviction at the instance of the
vendee. This gives the seller a chance to defend the title they sold.
4. Non-Apparent Servitudes (Art. 1560)
Under Art. 1560, if an immovable property (land or building) is sold
and it turns out to be encumbered with a non-apparent burden (one
that isn't visible or obvious), the buyer has specific rights if:
●​ The burden was not mentioned in the agreement.
●​ The burden is of such a nature that the buyer would not have
bought the property had they known about it.
The law places limits on when the buyer can exercise these rights. You
cannot claim these remedies if:
●​ The burden is recorded in the Registry of Property (unless the
seller gave an express warranty that the land was free from all
burdens).
●​ The burden is apparent (e.g., a clearly visible road or drainage
pipe passing through the yard).
●​ The buyer already had actual knowledge of the burden, even if
it wasn't registered.
●​
Remedies:
1.​ Within one year from the execution of the deed: The
buyer may ask for rescission or indemnity.
2.​ After one year: The buyer can only ask for indemnity
within a period of one year from the date they
discovered the burden.
Art. 1561- 1571
Under Art. 1561, the seller is responsible for hidden defects that the
thing sold.
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 (Art. 1586.);
(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; 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.
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. 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.)
Example:
S sold to B a house. After the sale, B discovered that the main posts of
the house and other interior parts had been destroyed by “anay” and
“bukbok” and as a result, many parts of the house were in danger of
collapsing. The defects of the house were hidden and concealed and
were unknown to B until a closer inspection was made by him.
Under the circumstances, S is liable for the defects even though he
was not aware thereof (Art. 1566.) and B may elect between the
rescission of the contract and a proportionate reduction of the price,
with damages in either case. (Art. 1567.)
Art. 1562: Implied warranties of quality.
(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.
Example: B went to Western Motors, Inc. to buy a car. After he was
shown cars of different models and makes, he chose a Cougar car
model 1982. B intended to enter the car in a race but this fact was not
made known to the seller.
If the car should not run as fast as B had expected, Western Motors,
Inc. is not liable because in buying the Cougar car, B relied upon his
own judgment. But if the seller was informed of the purpose of B and
B was assured that the car had a maximum speed of, say, 150
kilometers per hour, there is an express warranty for a particular
purpose and Western Motors is liable if the car should not be fit for
such purpose.
(2) Implied warranty of merchantability. — Where goods are bought
by description, the seller impliedly warrants that the goods are of
merchantable quality.
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.
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.
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.
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.
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.
Article 1564. 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.
Article 1565. 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.
Article 1566. 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.
(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.
Article 1567. 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 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.
Article 1568. Effect of loss of thing sold on account 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.
If 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.
Article 1569. 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.
Who bears the risk of loss? LESSER with partial refund.
Example: You buy a boat for Php 2,000,000. Unknown to you, the
engine has a hidden crack that makes the boat worth only Php
1,500,000. That night, a massive unprecedented hurricane hits the
harbor and sinks your boat. The boat is a totally lost.
Under Art. 1569, you can go to the seller and say: "I paid you Php
2,000,000 for a boat that was actually only worth Php 1,500,000
because of a hidden defect. You owe me the Php 500,000 difference."
You can't ask for the full refund because the seller didn't cause the
hurricane. But you can recover the "overpayment" caused by the
defect.
Article 1570. Warranty in judicial sales.
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. (see Art. 1574.) 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.
Article 1571. Prescription of actions in cases of implied/express
warranty.
(1) The action for rescission of the contract or reduction of the
purchase price (Art. 1567.) 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.
(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.