LAW ON SALES

MIDTERMS COVERAGE

LEGAL BASIS

Article 559 – Possession of movable property acquired in good faith is equivalent to a title.

Article 1144 (1) – actions upon written contract must be brought within ten (10) years and
thereafter the right of option would prescribe.

Article 1163 – Every person obliged to give a determinate thing is also obliged to take care
of it with the proper diligence of a god father of a family, unless the law or the stipulation of
the parties requires another standard of care

Article 1319 – Consent or meeting of minds is manifested by the meeting of the offer and
the acceptance upon the thing and the cause which are to constitute the contract.

➢ This stresses that the offer must be certain and the acceptance absolute

Article 1320 – Acceptance may be express or implied

Article 1321 – The person making the offer may fix the time, manner and place of
acceptance all of which must be complied with. (Subject to the complete will of the offeror).
Hence the offeror has the right to attach to an offer any term or condition he desires.

Article 1324 – The offer may be withdrawn anytime before acceptance by communicating
such withdrawal, except when the option is founded upon a consideration, as something
paid or promised.

➢ Consideration is anything of value; either paid or promised

Article 1325 – Advertisements and Invitations

➢ Unless it appears otherwise, “business advertisements of things for sale are of
definite offers, but “mere invitations to make an offer”

Article 1354 – Although the cause is not stated in the contract, it is presumed that it exists
and is lawful, unless the debtor proves the contrary

➢ Presumption that consideration exists in every contract does not apply to option
contract; 1479 is the governing law

Article 1358 – acts and contracts which have for their object the creation, transmission,
modification, or extinguishment of real rights over immovable property must appear in a
public document; however it specifically provides that sales of real property or interest
therein are governed by Articles 1403 (2) and 1405.

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Article 1380 – 1381 (3) – A contract otherwise valid may nonetheless be subsequently
rescinded by reason of injury to third persons like creditors Lessees may be accorded with
the status of creditors since they have substantial interest that may be prejudiced by a sale
without recognizing their right of first priority.

Article 1385 – Rescission creates the obligation to return the things which were the object
of the contract together with their fruits and interest

Article 1458 – What is Sale

Article 1473 – fixing of the price cannot be left to the discretion of one party.

Article 1475 – The sale is perfected at the moment there is a meeting of minds upon the
thing which is the object and the price

Article 1479 – An accepted unilateral promise to buy or to sell a determinate thing for a
price certain is binding upon the promisor if the promise is supported by a consideration
distinct from the price. (Governs option contracts)

✓ Requires separate consideration for an option to be valid

Article 1482 – Whenever earnest money is given in a sale, it shall be considered as part of
the price and as proof of the perfection of the contract

Article 1483 – Provides that subject to the provisions of the Statute of Frauds, “a contract of
sale may be made in writing, or by word of mouth, or partly in writing and partly by word of
mouth, or may be inferred from the conduct of the parties

Article 1495 – The seller is bound to:

a. Transfer the ownership of and

b. Deliver the thing as well as
c. To warrant the thing which is the object of the sale

Article 1496 – The ownership of the thing sold is acquired by the vendee from the moment
it is delivered to him in any of the ways specified in Articles 1497 – 1501 or in any other
manner signifying an agreement that the possession is transferred from the vendor to the
vendee.

Article 1497 – The thing sold shall be understood as delivered when it is placed in the
control and possession of the vendee.

Article 1498 – When the sale is made through a public instrument, the execution thereof
shall be equivalent to the delivery of the subject matter of sale if from the deed the contrary
does not appear or cannot be clearly inferred.

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Article 1874 – When a sale of a piece of land or any interest therein is through an agent, the
authority of the latter shall be in writing, otherwise, the sale shall be void

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Jurisprudence
Equatorial Realty Development Inc. v. Mayfair Theater (DEFINITION OF OPTION
CONTRACT)

✓ An option is a contract granting a privilege to buy or sell within an agreed time and
at a determined price;
✓ It is a separate and distinct contract from that which the parties may enter upon the
consummation of the the option;
✓ It must be supported by a separate consideration in order to be valid (option clause
in the contract.

Option contract

➢ An onerous contract like sale

➢ Consideration is anything of value (in sale it should be price certain in money or its
equivalent)
➢ A consensual contract because it requires meeting of the minds as to the subject
matter, and the price even when the separate consideration has not been paid.
o Under Article 1324, consideration is either paid or promised.
➢ Essentially a unilateral contract (unlike Sale)
➢ Valid even when no separate consideration is paid as in the case when the option is
included within another valid contract such as a lease or mortgage.
➢ An unaccepted offer which becomes valid and binding when the offeree
communicates his acceptance to the offerer within the agreed period and time for a
consideration.
➢ Villamor v. CA
o When the option contract does not specify a period, Article 1144 (1) rules
▪ Actions upon written contract must be brought within ten (10) years
and thereafter, the right of option prescribes.
➢ Sanchez v. Rigos
o Without a separate consideration, an option contract would be void but
would still be a valid offer
o Doctrine: An accepted promise to sell although not binding as a contract for
lack of separate consideration has the capacity to generate a bilateral
contract of sale upon acceptance.
o Offeree has the the burden of proving that the option is supported by a
separate consideration
o Sanchez doctrine only applies if the option has been accepted and such
acceptance is communicated to the offeror.
➢ Dizon v. CA
o Even when the option is exercised within the option period, the action for
specific performance to enforce the option to purchase must be filed within
10 years (Art. 1144, CC)
➢ Nietes v. CA

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 o Notice of the exercise of the option need not be coupled with actual payment
of the price, so long as this is delivered to the owner of the property upon
performance of his part of the obligation
➢ Carceller v. CA
o The exercise of the option within a reasonable period after the end of the
lease should be considered a valid exercise of the option
o The reasonable delay is neither substantial nor fundamental that would
defeat the intention of the parties when the executed the lease contract with
option to purchase.
➢ Heirs of Luis Bacus v. Court of Appeals
o Once an option is exercised, the obligations under an option to buy are
reciprocal obligations. The performance of obligation is conditional on the
simultaneous fulfillment of the other obligation
o Thus when x opted to buy the property, his obligation is to advise Y of his
decision and readiness to pay. Actual payment is not required, only upon Y’s
actual execution and delivery of the deed of sale.
➢ Ang Yu Asuncion
o The optionee has the right, but not the obligation, to buy. Once the option is
exercised timely and the offer is accepted before a breach of the option, a
bilateral promise to sell and to buy ensures and both parties are then
reciprocally bound to comply with their respective undertakings.

Option Sale
Onerous and Unilateral Contract Onerous and Bilateral Contract
Consideration is anything of value; paid or Price certain in money or its equivalent
promised
Right or Privilege to buy or sell is what is Property is sold
sold
Subject matter is not the subject matter of Subject matter is what is sought in the sale
sale but the accepted promise to sell or buy
Maybe withdrawn at any time prior to Leaves no choice to either party whether to
acceptance; If acceptance is not made withdraw or to proceed with the contract;
within the agreed period, the owner is no offer and acceptance are concurrent
longer bound by his offer and the option is
at an end.
Remedy is specific performance

Counter Offer

✓ Rejection of the original offer

✓ Replaces and repeals the original offer
✓ Extinguishes the original offer
✓ Conditional acceptance or qualified acceptance

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Lease contract
• The obligation or promise of each party is the consideration for that of the other
(Vda. De Quirino v. Palarca)
• Option to purchase attached in the contract of lease when not exercised within the
original period is extinguished and cannot be deemed to have been included in the
implied renewal of the lease even under the principle of tacita reconduccion
• Has a 30-day exclusive option to purchase the leased property
• Ang Yu Asuncion
o Right of first refusal is not governed by Article 1324 (withdrawal of offer) or
Article 1479 (promise to buy or sell)

Real Estate Mortgage (Soriano v. Bautista)

✓ The mortgagor’s promise to sell is supported by the same consideration as that of
the mortgage itself which is distinct from that which would support the sale.
✓ As a general rule, REM is an accessory contract that does not have its own
consideration

RIGHT OF FIRST REFUSAL

A right of first refusal cannot have the effect of a contract because by its very essence,
certain basic terms would have yet to be determined and fixed.

Guerrero v. Ynigo
➢ A promise on the the part of the owner that if he decides to sell the property in the
future, he would first negotiate its sale to the promisee
➢ Under a right of first refusal situation, the court will not allow an action for specific
performance or a recission of the sale to a third party which constitute the breach,
even when the third party buyer was in bad faith.
➢ The only remedy afforded to the promisee was an action to recover damages

Ang Yu Asuncion
➢ Right of First Refusal merely pertains to a specific property without containing an
agreement as to the price and terms of payment.
➢ Not a perfected sale under Article 1458; not a an option contract under Article 1319
and 1479

Equatorial Realty Dev., Inc., v. Mayfair

➢ There need not be a separate consideration in a right of first refusal since such
stipulation is part and parcel of the entire contract of lease to which it may be
attached; the consideration for the lease includes the consideration for the right of
first refusal
➢ On its own, a right of first refusal cannot be the subject of an action for specific
performance because of lack of an agreement on the price.
➢ Ruling applies only to rights of first refusal attached to a valid principal contract like a
contract of lease; it has no application to rights of first refusal constituted in
separate contracts (Ang Yu Asuncion)

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Sen Po Ek Marketing Corp. v. Martinez
➢ Right of first refusal may be provided for in a lease contract; however, when such
right is not stipulated in the lease contract it cannot be exercised
➢ Verbal grants of such right is not enforceable since the right of first refusal must be
clearly embodied in a written contract.

Paranaque Kings Enterprises, Inc. v. CA

➢ Only if the person with such right of first option fails to exercise his right of first
priority could the seller thereafter lawfully sell the subject property to others; and
➢ Only under the same terms and conditions previously offered to the party with the
right of first refusal regardless if such requirement is stipulated in the agreement.
➢ Third party buyer cannot claim that he is not a proper party in the action for
rescission and that he is a stranger to the agreement between the lessee and lessor
who violated the right of first refusal since he actually steps into the shoes of the
owner by virtue of his purchase

Riviera Filipina, Inc. v. CA

➢ Identity of the terms and conditions to be offered to the lessee and all other
prospective buyers with the lessee to enjoy the right of first priority
➢ Sale entered into in violation of a right of first refusal of another person found in a
valid principal contract is rescissible.
➢ Only after the lessee grantee fails to exercise its rights under the same terms and
within the period contemplated can the owner validly offer to sell the property to a
third person under the same terms and conditions.

RULES ON RIGHT OF FIRST REFUSAL

✓ Rentals are deemed to be consideration to the support right

o The consideration for the lease includes the consideration for the grant of the
right of first refusal
✓ Sublessee may not take advantage of the right of first refusal of the sublessor
o Sublessee is a stranger to the lessor who is bound to respect the right of first
refusal in favor of the lessee only
o Except if the contract of lease granted the lessee to assign the lease, then the
assignee would be entitled to exercise such right as he steps into the shoes of
the assignor-lessee.
✓ Right does not extend with the extension of the lease
o The right to exercise the option to purchase expired with the termination of
the original contract of lease
o Right is not deemed incorporated in the impliedly renewed contract because
it is alien to the possession of the lessee

DOCTRINES ON OPTION CONTRACTS vis-à-vis RIGHTS OF FIRST REFUSAL

✓ Alternative Doctrine of Enforceability of Rights of First Refusal

o Ang Yu Asuncion

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 ▪ A right of first refusal cannot have the effect of a contract because by
its very essence, certain basic terms would have to be determined and
fixed yet
▪ The obligation is not to enter into a sale but rather to negotiate in
good faith for the possibility of entering
✓ Enforceability of option rights should be at par with, if not at a higher level than
rights of first refusal
o Vazquez v. Ayala Corporation
▪ An option is a preparatory contract is a preparatory contract in which
one party grants to another for a fixed period and at a determined
price, the privilege to buy or sell, or to decide whether or not to enter
into a principal contract
▪ In a right of first refusal, while the object may be made determinate,
the exercise of the right would be dependent not only on the
grantor’s eventual intention to enter into a binding juridical relation
with another but also on terms including the price that are yet to be
firmed up
o Ang Yu Asuncion
▪ The best scheme for a prospective buyer to take if he is interested in a
specific property but wants to maintain an option to be able to get
out of it later on would be the earnest money scheme, whereby the
sale is perfected upon the granting of the earnest money, with clear
option on the part of buyer to withdraw from the contract by
forfeiting the earnest money.

MUTUAL PROMISES TO BUY OR SELL

Contract to Sell
✓ Embodies the main obligation of the seller to enter into a contract of sale upon full
compliance with the condition of the buyer fully paying the purchase price
✓ Main obligation is an personal obligation “to do”
✓ Are within the policitation stage for they do not represent a species of a sale defined
under Article 1458 of the Civil Code
✓ Merely constitutes a personal obligation to enter into a sale and breach of which
does not authorize an action for specific performance but recovery of damages.
✓ Upon fulfillment of the suspensive condition (full payment), ownership will not
automatically transfer to the buyer although the property may have been previously
delivered to him; the seller still has to convey title by entering into a contract of
absolute sale.

PERFECTION STAGE

➢ Sale is perfected when a person obligates himself for a price certain to deliver and
transfer ownership of a specified thing or right to another over which the latter
agrees
➢ Consent may be vitiated by
o Violence

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 o Intimidation
o Undue influence
o Fraud
➢ Until perfected, a sale cannot be an independent source of obligation nor serve as a
binding juridical relation
➢ Offer is certain
o When the subject matter is possible, licit, determinate or determinable
o When the price is real, money or its equivalent, certain or ascertainable
o Absent any of the requisites of subject matter and price, the OFFER is NOT
CERTAIN and therefore cannot give rise to a valid sale even if absolutely
accepted.

ACCEPTANCE

➢ Acceptance is absolute when:

o Unequivocal and unconditional
o Promises are accepted in the exact terms in which they are made (Beaumont
v. Prieto)
➢ It is either express or implied
o Evidenced by some act or conduct communicated to the offeror, either in
formal or informal manner, that clearly manifest the intention to accept the
offer to buy or sell
o If made by letter or telegram, offeror will be bound once it came to his
knowledge; so even if acceptance has been mailed but has not reached the
offeror yet then he can still withdraw the offer
➢ No perfected sale if subject to a suspensive condition
➢ Acceptance in Auction Sale
o Perfected when the auctioneer announces its perfection by the fall of the
hammer or in other customary manner. Until such announcement is made,
the bidder may retract his bid and the auctioneer may withdraw the goods
from the sale, unless the auction is announced to be without reserve
o Right to bid may be reserved expressly by the seller or on behalf of the seller
▪ If no reservation, it shall be unlawful for the seller to bid himself or
induce another to bid on his behalf

EARNEST MONEY (Article 1482, Civil Code)

Article 1482 – Whenever earnest money is given in a sale, it shall be considered as part of
the price and as proof of the perfection of the contract

✓ The rule is “no more than a disputable presumption” and prevails only “in the
absence of contrary or rebuttal evidence.”
✓ Presumption is founded upon the fact that there must first be a valid sale
o San Miguel Properties Philippines v. Huang
▪ It is not the giving of earnest money, but the proof of the concurrence
of the essential elements of the sale which establishes the existence
of a perfected sale

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 o Serrano v. Caguiat
▪ Presumption under Article 1482 does not apply when earnest money
is given in a contract to sell
✓ The concept of earnest money given under Article 1482 is the preferred concept
under the law but nothing prevents the parties to the sale to treat earnest money
diffierently

Earnest Money Option Money

Part of the purchase price
Given only when there is already sale
Buyer is bound to pay the balance
Distinct consideration form the price
Applies to a sale not yet perfected
Not required to buy and may even be
forfeited depending on the terms of the
option

✓ Effect of Rescission on Earnest Money Received

o Goldenrod, Inc. v. CA
▪ In the absence of a specific stipulation, the seller of real estate cannot
keep the earnest money received to answer for the damages
sustained in the event the sale fails due to the fault of the prospective
buyer
▪ Amounts received as part of the downpayment and to be credited to
the payment of the total purchase price could not be forfeited when
the buyer should fail to pay the balance price, especially in the
absence of a clear and express agreement thereon

o When the seller seeks to rescind the sale under Article 1385 of the Civil Code,
such rescission creates the obligation to return the things which were the
object of the contract together with their fruits and interest
o The abilities of the party to perform the contract (after perfection) does not
affect the perfection of the contract. Hence non-payment of the purchase
price does render void nor reverse the effects of the perfection of a contract
of sale (Balatbat v. CA).
o Non-payment of the price demand the fulfillment of the obligation or
rescission of the contract

IMPORTANT: Article 1402 and 1459 of the Civil Code recognize that a sale is
valid even the subject matter is not owned by the seller at the time of
perfection of the sale, provided that the seller has a right to transfer ownership
at the time of delivery.

FORM OF SALES

✓ Form is not generally important for validity of Sale

o Article 1483 provides that subject to the provisions of the Statute of Frauds,
“a contract of sale may be made in writing, or by word of mouth, or partly in

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 writing and partly by word of mouth, or may be inferred from the conduct of
the parties

o Since sale is a consensual contract, no form is required for its validity; it is

binding between the parties even if it is not registered (Universal Robina
Sugar Milling Corp. v. Heirs of Angel Teves

o Article 1358 – acts and contracts which have for their object the creation,
transmission, modification, or extinguishment of real rights over immovable
property must appear in a public document; however it specifically provides
that sales of real property or interest therein are governed by Articles 1403
(2) and 1405.

o A sale of a piece of land appearing in a private deed cannot be considered

binding on third persons if it is not embodied in a public instrument and
recorded in the Registry of Deeds

✓ Function of Deed of Sale

o Operates as a formal or symbolic delivery of the property sold and authorizes
the buyer to use the document as proof of ownership
o Must be properly subscribed and acknowledge before a notary public
o Enjoys the presumption of regularity and due execution

✓ When Form of Sale Affects Validity

o As a general rule, the form of sale does not affect validity except
▪ The power to sell a piece of land or interest therein must be in
writing, otherwise the sale thereof by the agent (even when the sale
is in writing) is void. – Article 1874, Civil Code
• Does not mean however, that the actual sale would be exempt
from the statute of fraud requirements
• When signed by the co-owner themselves, they are acting in
their own right, hence, written authority is no longer required.
▪ Sale of large cattle must be writing
▪ Sale of land by a non-muslim hill tribe if not approved by the NCIP

STATUTE OF FRAUDS

The purpose of the Statute is to prevent fraud and perjury in the enforcement of obligations
depending for their evidence upon the unassisted memory of witnesses.

✓ The application of the statute presupposes the existence of a perfected contract

✓ Applies only to executory and not to completed, executed or partially executed
contracts
✓ Ratified by the acceptance of benefits under the contract, such a the acceptance of
the purchase price.
✓ Formal requirements are for the benefit of third parties

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Sales coverage in Statute of Frauds

1) A sale agreement which by its terms is not to be performed within a year from the
making thereof
2) An agreement for the sale of goods, chattels, or things in action at a price not less
than 500
3) A sale of real property or of an interest therein

Exceptions in the Coverage

1) When there is a note or memorandum thereof in writing, and subscribed by the

party charged or his agent
2) When there has been partial consummation or execution
3) When there has been a failure to object to the presentation of evidence aliunde as
to the existence of a contract
4) When the sales are effected through electronic commerce

Effect of Partial Execution on Third Parties

✓ Doctrine of Partial Execution does not affect third parties who are granted legal
remedies against the contract

PERFECTION OR CONSUMMATION OF SALE

Obligations of the Seller

a) To preserve the subject matter (Art. 1163)

b) To deliver the subject matter (Art. 1458 and 1495)
c) To deliver the fruits and accessories (Art. 1164)
d) To warrant the subject matter (Art. 1495)

Tradition as a consequence of a valid sale

✓ Equatorial Realty Dev., Inc. vs. Mayfair

o Ownership is a real right which the buyer acquires only upon delivery of the
thing to him in any of the ways specified in Articles 1497 – 1501

Types of Delivery

➢ Actual or Physical (Art. 1495)

o There is actual or physical delivery when the thing sold is placed in the
control and possession of the buyer
o Control can take other forms other than the actual physical possession
o Keyword is control, not possession in determining the legal effect of tradition

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 ➢ Constructive (Art. 1496)
o Takes several form
o Any manner signifying an agreement that the possession is transferred from
the vendor to the vendee

Types of Constructive Delivery

a) Execution of Public Document

➢ GENERAL RULE: Execution of a public document has the same legal effects
as actual or physical delivery. It is a prima facie presumption of delivery
➢ EXCEPTION: Presumption is destroyed when the delivery is not effected
because of legal impediment.

b) Symbolic Delivery
c) Constitutum Possessorium
d) Traditio Brevi Manu
e) Traditio Longa Manu
f) Delivery of Incorporeal Object

DOUBLE SALE
Article 1544 of the Civil Code provides that if the same thing should have been sold to
different buyers, the ownership shall be given to the buyer:

Personal Property

✓ who may have first taken possession thereof in good faith

Real Property

✓ Who in good faith first recorded the sale in the Registry of Property
✓ Should there be no inscription, to the person who in good faith was first in the
possession of the subject matter
✓ In the absence thereof, to the person who presents the oldest title provided there is
good faith

P.D. 1529 (previously Act. 496)

➢ Governs the registration of land under the Torrens System

➢ Section 51 provides that registration in good faith shall be the operative act to
convey or affect the land in so far as third persons are concerned; deed, mortgage or
other voluntary instrument except a will purporting to convey the registered land
shall take effect as a conveyance but shall operate as a CONTRACT between the
parties.

Act No. 3344

➢ Governs the annotation or registration of transactions over unregistered land
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Registration under Art. 1544

✓ Intends to cover the annotation or inscription of a contract, transaction or legal

process in the Register of Deeds covering a property which may or may not be
registered land.
✓ Legal effect of Art. 1544 pertains only to double sales while the effects of registration
under Section 51 of PD 1529 covers all forms of annotated voluntary contracts
✓ Article 1544 does not overcome the priority rules under PD 1529
✓ Does not apply if the other sale transaction is void for having forged the signature of
the seller because Article 1544 applies on rules of delivery at consummation stage
✓ Rules on double sales does not apply in contract to sell or adverse claims
✓ Rules on double sales apply to conditional contract of sale
✓ Possession under Article 1544 is both material and symbolic

GENERAL RULES:

➢ Person dealing with a Torrens Certificate of Title need not go beyond what appears
on it face except when he has actual knowledge of facts and circumstances that
would impel a reasonably cautious man to make further inquiry
➢ Knowledge gained by the first buyer of the second sale cannot defeat the first
buyer’s rights except when the 2nd buyer first registers the property in good faith
➢ Knowledge gained by the 2nd buyer of the 1st sale defeats his rights even if he is first
to register since such knowledge taints his registration with bad faith
➢ 2nd buyer must have continuing good faith from the time of acquisition until the title
is transferred to him by registration
➢ A purchaser cannot close his eyes to the facts which should put a reasonable man on
guard and then claim later on that he acted in good faith under the belief that there
was no defect in the title of the vendor
➢ Possessors in good faith are those who are not aware of any flaw in their title or
mode of acquisition

Registration under Act. 3344

➢ Provides that registration is without prejudice to a third party with a better right
➢ Implements the primary doctrine, PRIUS TEMPORE, POTIOR JURE (first in time,
stronger in right)
➢ Rules on double sales under Art. 1544 are applicable to unregistered lands, only
insofar as they do not undermine specific rules and legislations that have a higher
hierarchical enforcement value, such as the “without prejudice t a better right”
provision
➢ Third party with a better right is
o the first buyer under the concept of oldest title in good faith
o The first buyer in double sales involving unregistered land

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CONDITIONS AND WARRANTIES

Condition
Goes into the root of the existence of the
obligation
Must be stipulated by the parties in order to
form part of the obligation
May attach either to the obligation of the
seller or of the buyer
Warranty
Goes into the performance of such
obligation and in fact may constitute an
obligation in itself
Forms part of the obligation by provision of
law, without the parties having expressly
agreed thereto
Express or implied, relates to the subject
matter itself and to the obligations of the
seller as to the subject matter

What is WARRANTY?

➢ An affirmation of fact or any promise made by a seller in relation to the thing sold,
and that the decisive test is whether the seller assumes to assert a fact of which the
buyer is ignorant of. (Goodyear Philippines, Inc. v. Sy)
➢ A seller’s opinion shall not be construed as warranty unless he made such
affirmation as an expert and it was relied upon by the buyer. In which case, Article
1341 applies (A mere opinion does not constitute fraud, unless made by an expert
and the party relied upon his special knowledge)

EXPRESS WARRANTY (REQUISITES) (Article 1546)

1) It must be an affirmation of facts or any promise by the seller relating to the subject
matter of the sale
2) The natural tendency of such affirmation or promise is to induce the buyer to
purchase the thing
3) The buyer purchases the thing relying on such affirmation

IMPLIED WARRANTY (REQUISITES) (Article 1547)

Are those which by law constitute part of every contract of sale whether or not the parties
were aware of them and whether or not the parties intended them

✓ There is 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
✓ There is an implied warranty that the thing shall be free from hidden defects or
faults or any charge or encumbrance not declared or known to the buyer
✓ Implied warranty is not applicable to a sheriff, auctioneer, mortgagee, pledgee or
other person professing to sell by virtue of authority in fact or law

LAW ON SALES BOTD OF ATTY. RAYMUND ONG ABRANTES GRETCHEN CANEDO

WARRANTY AGAINST EVICTION (Article 1548)

1. Purchaser has been deprived of or evicted from the whole or part of the thing sold
2. Eviction is by a final judgment (Art. 1557)
3. Basis thereof is by virtue of a right prior to the sale made by the seller
4. Seller has been summoned and made co-defendant in the suit for eviction at the
instance of the buyer (Mere copy of the opposition does not bind the seller)
a. Notice required in Article 1558 and 1559 is to make the seller a party in the
case at the instance of petitioners-vendees.

WAIVER OF WARRANTY

Article 1548 – parties may increase, diminish or suppress the implied warranty against
eviction

Article 1553 – if the seller acted in bad faith then any waiver exempting him from obligation
to answer for eviction shall be void

Article 1554 – renouncing warranty on general terms without knowledge of a particular risk,
makes the seller only liable to the value of the thing sold at the time of eviction. If the
vendee has knowledge of the risks and assumed its consequences then the vendor shall not
be liable

✓ If the waiver is specific, warranty for that specific risk is wiped out but does not apply
to other reasons not specified in the waiver

AMOUNTS IN WHICH THE SELLER IS LIABLE IN CASE OF EVICTION (Article 1555)

✓ The return of the value which the thing sold had at the time of eviction, be it greater
or lesser than the price of the sale
✓ Income or fruits, if buyer has been ordered to deliver them to the party who won the
suit against him
✓ Costs of the suit which caused the eviction and in a proper case those of the suit
brought against the seller for the warranty
✓ Expenses of the contract if the buyer has paid them
✓ Damages and interests and ornamental expenses if the sale was made in bad faith

EVICTION IN PART (Article 1556)

Should the buyer lose by reason of eviction a part of the thing sold which he would not have
bought the whole without said part, he may demand rescission of the contract, instead of
enforcing the vendor’s liability against eviction.

LAW ON SALES BOTD OF ATTY. RAYMUND ONG ABRANTES GRETCHEN CANEDO

WARRANTY AGAINST NON-APPARENT SERVITUDES (Article 1560)

1. The immovable sold is encumbered with any non-apparent burden or servitude not
mentioned in the agreement
2. The nature of such non-apparent burden is such that it must be presumed that the
buyer would not have acquired it had he been aware of it.

Not applicable if:

✓ Servitude is mentioned in the agreement

✓ Servitude is recorded in the registry of deeds unless there is express warranty that
the thing is free from encumbrances

Prescriptive Period
➢ Action for rescission or damages may be brought within one year from the execution
of the deed
➢ If one year has lapsed, action may only be brought within an equal period counted
from the date of discovery of burden or servitude

WARRANTY AGAINST HIDDEN DEFECTS (Article 1561)

1) The nature of the defect should render the subject matter unfit for the use for which
it is intended for
2) Should diminish its fitness for such use to such extent that had the buyer been aware
thereof, he would not have acquired it or would have given it a lower price.

NOTE:

✓ The seller is not liable for patent defects or those which are visible or even if not
visible if the buyer is an expert by reason of his trade or profession would have
known them
✓ The seller is responsible to the buyer for any hidden faults or defects in the thing
sold even though he was not aware thereof.
✓ Warranty applies to both movable and immovable

Breach of Warranty Requisites

1) Defect must be hidden
2) Defect must exist at the time of the sale
3) Defect must ordinarily have been excluded from the contract
4) Defect must be important (renders the thing unfit or decrease in fitness)
5) Action must be instituted within the statute of limitation

REMEDIES OF BUYER AND OBLIGATION OF SELLER IN CASE OF BREACH (1561, 1562 1564,
1565 and 1566)

➢ Rescission + damages
➢ Proportionate reduction of the price + damages

LAW ON SALES BOTD OF ATTY. RAYMUND ONG ABRANTES GRETCHEN CANEDO

WAIVER OF WARRANTY

✓ If the seller was not aware of the hidden defect, the loss of the thing by virtue of
such defect will not make the seller liable at all
✓ But if seller is aware, then he is in bad faith, therefore he would still be liable for
warranty

Prescriptive Period
➢ Six (6) months from the delivery of the thing sold, unless otherwise provided by law

IMPLIED WARRANTY IN SALE OF GOODS. (Article 1562)

1. When the buyer makes known to the seller his purpose and the buyer relies on the
seller’s judgment, there is an implied warranty that the goods sold are fit for the
purpose
2. When the buyer relies on the description provided by the seller in buying the goods,
then there is implied warranty that the goods are of merchantable quality

NOTE: Does not apply to other trade name

REQUISITES FOR BREACH OF WARRANTY

1. The buyer sustained injury because of the product

2. That the injury occurred because the product was defective or unreasonably unsafe
3. The defect existed when the product left the hands of the seller

LAW ON SALES BOTD OF ATTY. RAYMUND ONG ABRANTES GRETCHEN CANEDO