SALES

Warranty Against Hidden Defects of or Encumbrances Upon the Thing Sold

GROUP 2 : Barroga | Bauzon | Dait | Fagyan | Kapawen | Mascenon | Tongdo

Article 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

Warranty against hidden defects ​- This refers to the implied warranty that the thing shall be
free from any hidden faults or defects, or any change or encumbrance not declared or known to
the buyer. ​(1547, par. 2)

★ Requisites for 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 ​(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 ​(1571) o ​ r within 40 days from the date of the
delivery in case of animals (​1577, par. 1) ;​ and
6. There must be no waiver of warranty on the part of the vendee ​(1548, par. 3)​.

★ 1. The defect must be important or serious.

○ The DEFECT is ​important ​if:
a. it renders the thing sold unfit for the use for which it is intended; or
b. 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.
■ 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. It must be serious.

★ 2. The defect must be hidden.

○ There is no warranty implied against defects of which the buyer has full knowledge or of which
he has knowledge sufficient to put him on notice.
○ No warranty is implied against defects disclosed by the seller to the buyer.
○ The defect is HIDDEN (or LATENT) if it was ​not known ​and could not have been known to the
vendee.
■ Hidden = hidden to the eyes and cannot be discovered by ordinarily careful inspection or
examination
○ If the vendee is an expert who, by reason of his trade or profession, should have known it, then
the vendor’s liability cannot be enforced although the defect is hidden.
○ The defect may be hidden with respect to one person, but not hidden with respect to another.
★ Limitation ​on any doctrine freeing the seller from liability for statements or promises in regard to obvious
defects: the seller is liable if he successfully uses art to conceal the defects.

★ There is no implied warranty against hidden defects in the sale of second-hand goods.
○ Exception: The seller shall be liable if he has been shown to have made a misrepresentation or
acted in bad faith.

★ The seller may bind himself against patent or obvious defects if the intent to do so is clearly evident.
The seller CANNOT allege as a defense that inspection would have disclosed the defect existed at the
time of the sale.
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 ★ 3. The defect must exist at the time of the sale.
○ The vendor cannot be held liable for defects suffered by the thing sold AFTER the perfection of
the sale.
○ The vendee who claims breach of warranty against hidden defects must prove that the defect
existed AT THE TIME of the sale.

Article 1562. In a sale of goods, there is an implied warranty or condition as to the quality or fitness
of the goods, as follows:

(1) Where the buyer, expressly or by implication, makes known to the seller the particular purpose
for which the goods are acquired, and it appears that the buyer relies on the seller's skill or judgment
(whether he be the grower or manufacturer or not), there is an implied warranty that the goods shall
be reasonably fit for such purpose;

(2) Where the goods are brought by description from a seller who deals in goods of that description
(whether he be the grower or manufacturer or not), there is an implied warranty that the goods shall
be of merchantable quality. (n)

★ Quality of goods ​includes their state or condition ​(1636).

★ Purpose of holding the seller on his implied warranties
○ Basis: “Honesty is the best policy”
1. To promote a high standard in business; and
2. To discourage sharp dealings.

★ Implied warranty of fitness

○ 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.
○ There is NO implied warranty as to the quality or fitness for any particular purpose of goods
under a contract of sale.
■ Exception: There is an implied warranty that the goods are reasonably fit for such
purpose where:
a. The buyer, expressly or impliedly, makes known to the seller the particular
purpose for which the goods are required; and
b. The buyer relies upon the skill or judgment of the seller ​(1562).​
○ Test o ​ f the existence of the implied warranty of fitness for a particular purpose:
■ Whether the buyer informed the seller of the circumstances and conditions which
necessitated his purchase of a certain character of article or material and left it to the
seller to select the particular kind and quality of article suitable for the buyer’s use.
○ To establish an implied warranty of fitness for a particular purpose, the buyer must have ​relied
on the skill or judgment of the seller.
■ The reliance on the seller need not be a total reliance. The buyer may rely on his own
judgment as to some matters and on the skill and judgment of the seller on other
matters.
■ If the buyer has superior knowledge, then he would not be relying on the skills and
judgment of the seller.
○ The buyer must particularize the specific purpose he has in view when an article is capable of
being applied to a variety of purposes.

★ Implied warranty of merchantable quality

○ Where goods are bought by description, the seller impliedly warrants that the goods are of
merchantable quality.

Article 1562 (Implied warranty of Article 1565 (Implied Warranty of

Merchantable Quality) Merchantability)

Applies to goods bought by description Applies to goods bought by sample

Merchantable Unmerchantable

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 ○ Merchantable quality = the goods comply with the description in the contract so that a buyer
buying goods of that description, the goods would be good tender; it does not mean that there
will be in fact persons ready to buy the goods.
■ Merchantable quality has been interpreted to mean that the good is of such quality and
in such condition that a reasonable man would after a full examination, accept it under
the circumstances of the case, in performance of his offer to buy the goods, whether he
buys it for his own use or to sell again.
■ The requirement of merchantable quality does not imply that the goods shall be saleable
in a particular market.
○ Goods may be ​unmerchantable ​because of circumstances rendering them unsaleable. They
may be dangerous or injurious in ways not to be expected from the goods of the kind.
○ The warranty that the goods are of merchantable quality applies to ALL GOODS bought from a
seller who deals in goods in that description.

Warranty of Merchantability Warranty of Fitness

Warranty that goods are reasonably fit for the Warranty that the goods are suitable for the
general purpose for which they are sold specific purpose of the buyer which will not
be satisfied with mere fitness for general
purposes

Article 1563. In the case of a 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)

★ There is no implied warranty of fitness for any particular purpose where the article is sold under its
patent or trade name.
○ Exception: When there is a stipulation to the contrary.
■ The warranty may exist where, although the article has a trade name, the purchase is
not made by or in reliance on the name, but is made for a particular purpose and
supplied for that purpose in reliance on the seller’s judgment.

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

★ A warranty as to the quality and fitness for a particular purpose may be attached by usage to a contract
containing no express provision in regard to warranty.
★ 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.
★ To bind both parties, the usage must be known to both of them.
○ If unknown to one, the other must be justified in assuming knowledge on the part of the person
with whom he is dealing.
○ Presumption: The parties are aware of the usage of trade.

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

★ When is Art. 1565 applicable?

1. in case of a contract of sale by sample (here, the goods must be substantially like the samples
as to kind, quality, and value, and must be free from defects to be merchantable); and
2. if the seller is a dealer in goods of that kind.

★ 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 to the merchantable goods of that kind and character.
○ In Article 1481, the contract may be rescinded where the bulk of goods do not correspond with
the sample.

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Article 1566. The vendor is responsible to the vendee for any hidden faults or defects in the thing
sold, even though he was not aware thereof.

This provision shall not apply if the contrary has been stipulated, and the vendor was not aware of
the hidden faults or defects in the thing sold. (1485)

★ General Rule:​ The ignorance of the vendor does NOT relieve him from liability to the vendee for any
hidden faults or defects in the thing sold. The vendor cannot avail of good faith as a defense.
○ Exception: ​ The parties may stipulate otherwise in their contract, ​provided t​ hat the vendor is
unaware of the existence of the hidden fault or defect (or the vendor is in good faith).

★ The vendee cannot complain if he is aware of the defect in the thing he buys or of the lack of title of the
vendor. He is deemed to have willfully and voluntarily assumed the risk attendant to the sale.

Caveat emptor (​ Let the buyer beware) Caveat venditor (​ Let the seller beware)

The vendee must be aware of the supposed The vendor is liable to the vendee for any
title of the vendor and the one who buys hidden faults or defects in the thing sold,
without checking the vendor’s title takes all even though he is not aware thereof.
the risks and losses consequent to such
failure. It is based on the principle that a sound
price warrants a sound article.
The vendee is obliged to investigate or
inspect the property sold to him when there
are circumstances that would put him on
guard.

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

★ The vendee has the option either:

1. To withdraw from the contract or rescission with the right to damages (​Accion redhibitoria/​ action
for rescission); or
2. To demand a proportionate reduction of the price with the right to damages ​(Accion quanti
minoris)​.
★ The remedies are ​alternative ​as they are incompatible with each other.
★ The vendee has the same right in the sale of animals with redhibitory defects ​(1580)​. He 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. 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)

★ Effects of Loss of Thing Sold on Account of Hidden Defects

○ If the vendor is aware of the hidden defects, he shall bear the loss because he acted in bad
faith. The vendee has the right to the following:
1. The price paid;
2. The expenses of the contract; and
3. Damages.
○ If the vendor is NOT aware of the hidden defects, he shall be obliged to return:
1. The price paid;
2. The interest thereon; and
3. The expenses of the contract if paid by the vendee.
■ The vendor is not made liable to damages because he is not in bad faith.

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Article 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 through a fortuitous event or through the fault of the vendee
○ If the Vendor ​is not aware​ of the defect, he shall be obliged to return the price paid less the
value of the thing at the time of the loss;
○ If the Vendor​ is aware​ of the defect, he shall be obliged:
1. To return the price paid less the value of the thing at the time of the loss; and
2. To pay damages
○ The vendee bears the loss
1. if there are no hidden defects; and
2. the thing is lost due to a fortuitous event or through his fault.

★ The difference between the price paid and the value of the thing at the time of its loss represents the
damage suffered by the VENDEE and at the same time the amount with which the VENDOR enriched
himself at the expense of the vendee.

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

★ Warranty in Judicial Sales

1. As to the judgment debtor
○ In a judicial sale, the judgment debtor is the one who sells, and because he is forced to sell,
there can be no liability for damages.
2. As to government
○ In judicial sales, the principle of ​caveat emptor a ​ pplies. The purchaser acquires by his purchase
NO higher or better title or right than that of the judgment debtor.
■ The purchaser acquires NONE if the judgment debtor has no right, interest, or lien in and
to said property sold.

★ Right of Purchaser in Judicial Sales

○ Right as an assignee only

■ This is because what is sold is the interest of the debtor in the property and not the
property advertised. If the debtor has none, then 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.

○ Right to reimbursement when judicial sale set aside

■ If without fault of the purchaser, he is entitled to the purchase money paid by him subject
to set-off for benefits enjoyed while he had possession of the property.
■ A judicial sale can only be set aside upon return to the buyer of the purchase price with
simple interest and other expenses incurred by him.

Article 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

○ The action for rescission or reduction of the purchase price prescribes in 6 months from the date
of delivery of the thing sold to the vendee.
■ The vendee should NOT be permitted to offer as a defense the hidden defects in the
thing sold 6 months after he received it.
​ r negligence.
○ The prescriptive period is 4 years if the action is for ​quasi-delict o
○ Article 1571 may be applied only in cases of implied warranty. The action for rescission, with
respect to express warranty, prescribes in 4 years.
■ Exception: when another period is specified in the express warranty.
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Article 1572. If two or more animals are sold together, whether for a lump sum or for a separate price
for each of them, the ​redhibitory defect ​of one shall only give rise to its redhibition​, 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)

★ Definition of Terms

1. Redhibition - 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 vice or defect ​- 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 necessarily a redhibitory defect. One thing is that the thing lacks certain
qualities and another thing is that it positively suffers from certain defects.
3. Redhibitory Action - 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.

★ Sale of two or more animals sold together

○ General Rule: ​When the redhibitory defect is in one or some of them but not in all, the
redhibition will not affect the other without it. Accordingly, the vendee may ask for:
1. The rescission of the sale of the defective animal ​(Accion Redhibitoria),​ or
2. Ask for proportionate reduction in its price ​(Accion Quanti Minoris).

■ Exception: when it can be shown by the vendee that he would not have purchased the
sound ones without those which are defective. Accordingly, the vendee may ask for
rescission of the whole contract.

Article 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 Article 1572 (Sale of two or more animals together) also apply to sale
of two or more things.
■ ONLY one or more of them but NOT all have hidden defects.

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

★ This article is a limitation to Article 1570.

★ Article 1574 (Sale of Animals at Fairs or at Public Auctions or as Condemned) is based on the
assumption that the ​defects​ must have been CLEARLY KNOWN to the buyer.
★ The public auction referred to in Article 1574 may be judicial or extrajudicial.
★ Article 1561 - 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.

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Article 1575. The sale of animals suffering from contagious diseases shall be void.

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

★ Class of Animals which CANNOT be the Object of a Contract of Sale:

1. animals suffering from contagious diseases

2. animals found unfit for the use or service as stated in the contract

They are void as against public interest. Thus, the contract cannot be subjected to rescission or
reduction of the price. Instead, it is governed by nullity of contracts.
The action or defense for the declaration of the inexistence of the contract does not prescribe.

Article 1576. If the hidden defect of animals, even in case a professional inspection has been made,
should be of such a nature that expert knowledge is not sufficient to discover it, the defect shall be
considered as redhibitory.

But if the veterinarian, through ignorance or bad faith should fail to discover or disclose it, he
shall be liable for damages. (1495)

★ Redhibitory Defect of Animals

○ What constitutes a redhibitory defect of animals are the following:
1. Article 1576 - the hidden defect of the animal is of such a nature that, even in case a
professional inspection has been made, it is of such a nature that expert knowledge is
not sufficient to discover it.
2. Article 1577 - fault and defects which are determined by law or by local customs as
redhibitory.

★ Articles 1561, 1574, 1576​ - to be considered redhibitory, the defect in the animal must be unknown to
or hidden from the seller.

★ The BUYER cannot pursue the redhibitory action if the BUYER knew the defect in the animal.

★ Exemption from Liability for Redhibitory Effects

○ The VENDOR may be exempt in the following cases:
1. The vendee has knowledge of redhibitory defects ​(1561).
2. The vendee is an expert who, by reason of his trade or profession, should have known
them ​(1561).
3. There is a stipulation that the vendor will not be liable and the vender was not aware of
the hidden defect​ (1566).
4. The animals were sold at fairs or at public auctions ​(1574)​.
5. The livestock was sold as condemned ​(1574).

★ [par. 2] The ​veterinarian ​who inspected the animal shall be liable for ​damages​ if, through negligence or
bad faith,
1. he fails to discover the redhibitory defect; or
2. he fails to disclose the redhibitory defect.

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Article 1577. The redhibitory action, based on the faults or defects of animals, must be brought
within forty days from the date of their delivery to the vendee.

This action can only be exercised with respect to faults and defects which are determined by law
or by local customs. (1496a)

★ Limitation of Action in Sale of Animals

○ The redhibitory action based on the animals’ faults or defects must be brought within 40 days
from the date of delivery to the vendee.
■ Redhibitory defects ​in the sale of animals ​considered ​under the Article:
1. those determined by law; or
2. those determined by local customs - those that veterinary professors have
determined as such in the locality.

★ If the defects are PATENT, then there is NO WARRANTY against such defects although there exists a
redhibitory vice.

Article 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 the time of the contract. (1497a)

★ Responsibility of the Vendor where Animal Dies

○ If the animal sold is suffering from a disease and then dies after the sale, the issues that may
arise are whether
■ (a) the death was due to disease; or
■ (b) the buyer did not take good care of the animal.

○ If the death was due to a disease, the Vendor shall be liable for the death of the animal sold, if
the following conditions are met:
1. The disease existed at the time of sale;
2. The animal dies within 3 days after its purchase;
3. The disease is the cause of the death of the animal..
■ Exception: The vendor is NOT liable if
1. the death occurs after 3 days; or
2. the defect is patent or visible.

○ Apply Article 1569

1. if the loss is caused by
a. a fortuitous event; or
b. The fault of the vendee; AND
2. the animal has vices.

Article 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 the redhibitory fault or defect. (1498)

★ Liability of Vendee in case Sale of Animal is Rescinded

○ The vendee must ​return ​the animal i​ n the condition in which it was sold and delivered​ if the
sale of the animal is rescinded.
○ The vendee shall be responsible for ​any injury​ caused due to his negligence but this would be
no obstacle to the rescission of the contract due to the redhibitory defect or fault of the animal.
○ The buyer may not ask for rescission where he has created new encumbrances upon the thing
sold ​(1556).

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Article 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 has been
fixed for the exercise of the redhibitory action. (1499)

★ Alternative ​remedies ​of vendee in the sale of animals:

1. Redhibitory Action
2. Action ​quanti minoris

★ The action must be brought within ​40 days​ from the date of the delivery of the animals to the vendee.

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

★ Governed by Act No. 4117 (Sale of Large Cattle)

○ Found in Sections 511 to 536 of the Revised Administrative Code (RAC), as amended
○ Provides for the registration, branding, conveyance, and slaughter of large cattle
○ Administrative Code of 1987 superseded RAC

★ Section 6 of PD No. 533 (Anti-Cattle Rustling Law of 1974)

○ No person, partnership, association, corporation or entity shall engage in the business of ​buy
and sell of large cattle without ​first securing a ​permit​ for the said purpose from
■ The Provincial Commander of the province where it shall conduct such business; and
■ The city/municipal treasurer of the place of residence of such person partnership,
association, corporation or entity.

○ The ​permit s​ hall only be valid in such province.

○ The sale must appear in a ​public document​.