Law on Sales II PDF

BM1808 LAW ON SALES II Obligations of the Vendor General Provisions 1. To transfer the ownership of the thing sold The ownership is transferred to the vendee/buyer from the moment the thing is delivered to him (Articles 1458...

BM1808 LAW ON SALES II Obligations of the Vendor General Provisions 1. To transfer the ownership of the thing sold The ownership is transferred to the vendee/buyer from the moment the thing is delivered to him (Articles 1458 & 1495). 2. To deliver The vendor/seller is obliged to deliver the thing sold including its accession and accessories in the condition in which they were upon the perfection of the contract (Articles 1495 & 1537). 3. To warrant the thing sold The vendor is liable for breach of warranty against eviction and warranty against hidden defects or encumbrances (Article 1495). 4. To preserve the thing from perfection to delivery, otherwise he can be held liable for damages The vendor is obliged to take care of the thing sold with the diligence of a good father of a family unless the law or the stipulation of the parties requires another standard of care (Article 1163). Delivery of the Thing Sold Delivery or Tradition Delivery is a mode of acquiring ownership whereby the object of a contract is placed under the control and possession of the vendee, either actually or constructively (Soriano, 2016). Kinds of Delivery (Soriano, 2016) 1. Actual or real delivery – This is kind of delivery is done by physically placing the thing sold in the hands of the vendee (in case of movables), or physically placing it in his possession or control (in case of immovables) (Article 1497). 2. Legal or Constructive delivery – This delivery is represented by other signs or acts indicative thereof (Article 1496). a. Legal formalities (Article 1498) When the sale is made through a public instrument, the execution of such instrument is equivalent to the delivery of the thing sold. This is understood that the intention of the party executing it is to transfer ownership. Note: A public document/instrument is an instrument that has been acknowledged before a notary public or a competent public official with the formalities required by law. b. Traditio simbolica “symbolic delivery” (Article 1498) Such as delivering the keys of the place or depository where the movable is stored or kept. This is also known as traditio clavium which means “delivery of keys.” c. Traditio longa manu “delivery by the long hand” (Article 1499) Delivery of a movable by mere consent or agreement of the parties if the thing cannot be transferred to the possession of the vendee at the time of sale. This is usually made by mere pointing at the object. 02 Handout 1 *Property of STI  [email protected] Page 1 of 8  BM1808 d. Traditio brevi manu “delivery by the short hand” (Article 1499) In this kind, there is no need to deliver the thing sold because the vendee is already in possession of the object even before the sale and thereafter continues in possession thereof in the concept of an owner. This applies to movables only. e. Constitutum possessorium “delivery by agreement of possessors” (Article 1500) Delivery that takes place when the vendor continues to be in possession of the thing sold after the sale but in another capacity such as that of a lessee or depositary. This applies to both movables and immovables. f. Quasi-traditio “delivery of incorporeal property” (Article 1501) Delivery of rights, credits or incorporeal properties, made by: i. Constructive tradition – Delivery of incorporeal property by the execution of a public document/instrument; ii. Placing the titles of ownership in the possession of the vendee, such as delivering the stock certificate covering the shares of stock sold; or iii. Using vendee’s rights, with the consent of the vendor, such as when the buyer of a book copyright prints the book on the authority of the seller. Transaction “On Sale or Return” vs. “On Approval or on Trial or Satisfaction” 1. Transaction ‘On Sale or Return’ (Article 1502) The ownership of the goods is transferred to the buyer on delivery, but the buyer has the option to return the goods to the seller within the time fixed in the contract, of if no time has been fixed, within a reasonable time. This is a sale that depends on the discretion of the buyer; it is a sale with a resolutory condition. 2. Transaction ‘On Sale on Approval or on Trial or Satisfaction’ (Article 1502) The ownership of the goods remains with the seller despite delivery but shall be transferred to the buyer in the following cases (Soriano, 2016): a. When he signifies his approval or acceptance of the goods; b. When he does an act adopting the transaction; or c. When he does not signify his approval or acceptance of the goods but retains the goods without giving notice of rejection within the time the time fixed in the contract, or within a reasonable time, and such time has expired. In this transaction, the buyer may, in time, become the owner under the conditions specified in the law; otherwise, seller is still the owner. This is a sale dependent on the quality of the goods; it is a sale with suspensive condition. Sale or Return Sale on Approval or on Trial/Satisfaction Ownership to the goods passes to the buyer Ownership passes to the buyer upon his upon delivery. acceptance of the goods or the expiration of the time given to him to signify his acceptance. The risk of loss is on the buyer. The risk of loss is on the seller. The buyer may return the goods even if he is The buyer has no right to return the goods if he satisfied of its quality. is satisfied of its quality. 02 Handout 1 *Property of STI  [email protected] Page 2 of 8  BM1808 Transfer of Ownership General Rule: The ownership of the thing sold is acquired only upon its delivery, actual or constructive, to the buyer. Exception: Reservation of Ownership Despite Delivery 1. Parties may agree that the ownership shall remain with seller until the full payment of the purchase price (Article 1478). 2. Contract to sell 3. Sale on acceptance, trial, approval, or satisfaction 4. Implied reservation of ownership (Article 1503) a. Where goods are shipped, and by the bill of lading, the goods are deliverable to the seller, or his agent, or to the order of the seller or agent – seller reserves ownership in the goods. b. Where goods are shipped, and by the bill of lading the goods are deliverable to the order of the buyer or his agent, but the possession of the bill of lading is retained by the seller or his agent – seller reserves a right to the possession of goods. c. Where the seller of the goods draws on the buyer for the price and transmits the bill of lading and bill of exchange to the buyer to secure acceptance or payment of the bill of exchange and the buyer does not honor the bill of exchange. Hence, the seller is the drawer, and the buyer is the drawee. If the buyer, as drawee, does not honor the bill of exchange, he shall return the bill of lading. If he wrongfully retains the same, he acquires no added right thereby. Delivery through Carrier Where the seller is authorized or required to send the goods to the buyer, delivery to the carrier constitutes delivery to the buyer. An exception to the rule is when a contrary intention appears (when the parties did not intend the delivery of the goods through the carrier) or when there is implied reservation of ownership (Article 1523). Kinds of Delivery to Carrier 1. FAS (Free Alongside Vessel) The seller pays all charges and bears the risk until the goods are placed alongside the vessel. 2. FOB (Free on Board) Goods are to be delivered free of expense to the buyer to the point where they are FOB. The point of FOB determines where ownership passes. a. FOB Shipping Point – The delivery of the goods to the carrier is equivalent to delivery to the buyer, and at that point, the risk of loss pertains to the buyer. b. FOB Destination – Only when the vessel has arrived at the point of destination would there be delivery to the buyer and prior to that point in time, the risk of loss will be borne by the seller. 3. CIF (Cost, Insurance, Freight) It signifies that the price fixed covers the costs of the goods, the expenses of the freight and the insurance all of which are to be paid by the seller to the point of destination. 4. COD (Collect on Delivery) The carrier acts for the seller in collecting purchase price, which the buyer must pay to obtain possession of the goods. 02 Handout 1 *Property of STI  [email protected] Page 3 of 8  BM1808 Ownership of the Thing Sold As a rule, no one can dispose a thing that does not belong to him, and that the buyer acquires no better title than the seller had, except in the following cases: 1. When the seller is authorized by the owner to sell the thing; 2. When the owner is precluded from denying the seller’s authority to sell; 3. When sale is made under recording law or any other provision of law enabling the apparent owner of goods to dispose of the goods as if he were the true owner thereof; 4. When sale is made under the statutory power of sale, such as sale by guardian; 5. When sale is made by order of the court; or 6. When sale is made in a merchant’s store, or in fairs or markets. Effect When the Seller’s Title is Voidable If the seller’s title is voidable, but the same has not been avoided at the time of sale, the buyer acquires a good title to the goods, provided he buys them in good faith, for value and without notice of the seller’s defect of title. Time and Place of Delivery of Thing Sold (Soriano, 2016) 1. Place of Delivery a. Place stipulated b. If there is no stipulation, place fixed by usage or trade c. In the absence of both, the seller’s place of business if he has one; if none, the seller’s place of residence. However, in the case of sale of specific goods, which to the knowledge of the parties when the contract was made were in some other place, that place shall be the place of delivery. 2. Time of Delivery a. Time stipulated b. If there is no stipulation, delivery must be made within a reasonable time from the execution of the contract. 3. When the possession of the goods is on a third person, the seller has not fulfilled his obligation to deliver the goods unless such third person acknowledges to the buyer that he holds the goods on the buyer’s behalf. 4. Demand must be made at a reasonable hour to be effectual. 5. In the absence of stipulation to the contrary, the seller bears the expenses of and incidental to putting the goods into a deliverable state, unless otherwise stipulated. When Vendor is Not Bound to Deliver the Thing Sold As a rule, the seller shall deliver the thing sold upon the perfection of the contract of sale. However, the vendor is not bound to deliver the thing sold in the following cases (Soriano, 2016): 1. If the vendee has not paid him the price; 2. If no period for the payment of the price has been fixed in the contract; or 3. If a period has been fixed for the payment of the price, the vendor is bound to deliver the thing sold. However, he is not bound to deliver if the vendee loses the right to make use of the period. a. When the vendee becomes insolvent, unless he gives a guaranty or security for the payment of the price b. When the vendee fails to furnish the guaranties or securities that he has promised 02 Handout 1 *Property of STI  [email protected] Page 4 of 8  BM1808 c. When the guarantees or securities have been impaired through his own acts or when through a fortuitous event they disappear, unless a new one that is equally satisfactory has been given immediately d. When the vendee violates any undertaking in consideration of which the vendor agreed to the period e. When the vendee attempts to abscond Completeness of Delivery of Movables 1. Rules when the quantity is more than what was contracted to sell The buyer may: a. Accept the goods agreed upon and reject the rest; b. Accept the whole and pay for them at the contract rate; or c. Reject the whole if indivisible. 2. Rules when the quantity is less than agreed upon The buyer may: a. Reject all; or b. Accept all. i. When the acceptance is with knowledge that the seller is not going to perform the contract, the buyer shall pay at contract rate. ii. When knowledge is after the acceptance and consummation or disposal of the goods, the buyer is not liable for more than the fair value to him of the goods delivered. (Fair value to him refers to the benefit that the buyer may have received from the goods, which is not necessarily the market value.) 3. Rules when goods delivered are mixed with goods of different description When the seller delivers the goods agreed upon but are mixed with goods of different description, the buyer may: a. Accept the goods agreed upon and reject the rest; or b. If indivisible, reject the goods entirely or accept them entirely. Rights of an Unpaid Seller The seller is deemed an unpaid seller if: 1. Whole of the price has not been paid or tendered; or 2. A negotiable instrument (e.g., bill of exchange, check) has been received as a conditional payment, and the condition on which it was received has been broken by dishonor of the instrument. Rights of an Unpaid Seller (Articles 1525-1535) 1. Possessory lien or the right to retain the goods while he is in possession of them Lien means the right to hold the property, i.e., the seller must have the control over the goods. a. Requisites This is available to the seller when he is unpaid, and the goods are in his possession notwithstanding that he may be an agent or bailee for the buyer. The following are the instances where the seller has the right to retain the goods: i. Goods are sold without any stipulation as to credit; 02 Handout 1 *Property of STI  [email protected] Page 5 of 8  BM1808 ii. Goods have been sold but the credit term has expired; and iii. The buyer becomes insolvent. b. When possessory lien is lost i. When the goods have been delivered to a carrier for transmission to the buyer without reserving the ownership or possession of the goods ii. When the buyer or his agent lawfully obtains possession of the goods iii. By waiver thereof 2. Right of stoppage in transitu This is the right of an unpaid seller to resume possession of the goods sold while in transit, and he will then become entitled to the same rights with the goods as he would have had if he had never parted with the possession (Article 1530). a. Requisites i. Seller is unpaid. ii. Seller parted possession of the goods. iii. The goods are still in transit. iv. The buyer is or becomes insolvent. b. Goods are in transit: i. From the time when they are delivered to a carrier by land, water, or air, or other bailee for the purpose of transmission to the buyer, until the buyer, or his agent in that behalf, takes delivery of them from such carrier or other bailee; or ii. If the goods are rejected by the buyer, and the carrier or other bailee continues in possession of them, even if the seller has refused to receive them back. c. Goods are no longer in transit within the meaning of the preceding article: i. If the buyer, or his agent in that behalf, obtains delivery of the goods before their arrival at the appointed destination; ii. If, after the arrival of the goods at the appointed destination, the carrier or other bailee acknowledges to the buyer or his agent that he holds the goods on his behalf and continues in possession of them as bailee for the buyer or his agent; and it is immaterial that further destination for the goods may have been indicated by the buyer; or iii. If the carrier or another bailee wrongfully refuses to deliver the goods to the buyer or his agent in that behalf. d. How is this exercised? i. By obtaining actual possession of the thing ii. By giving notice to the seller’s claim The notice is given to the person in actual possession of the goods, or to his principal. e. Effects if exercised i. The goods are no longer in transit. 02 Handout 1 *Property of STI  [email protected] Page 6 of 8  BM1808 ii. The contract of carriage ends; the carrier now becomes a depositary or a bailee, i.e., he is bound to redeliver the goods according to the instruction of the seller; otherwise, he will pay damages. iii. If the carrier has issued a negotiable document of title, he will not be bound to deliver the goods according to the instructions of the seller unless such document is first surrendered to him for cancellation. 3. Right of resale a. Requisites (Soriano, 2016) This right is available to the seller when the following requisites are present: i. The buyer has defaulted in the payment of the price; ii. The seller has the right of lien or right of stoppage in transit; iii. Title to the goods has passed on to the buyer; and iv. The grounds must be any of the following: 1) The goods are perishable in nature. Goods are perishable if they are of a nature that they deteriorate rapidly; 2) The seller reserves the right of resale in case the buyer should make default; or 3) The buyer has been in default for an unreasonable time. b. How resale is made The seller may resell the goods either in a public or private sale. He is bound to exercise reasonable care and judgment in making the resale. He cannot, however, directly or indirectly buy the goods. c. Effects of resale i. The seller shall not be liable to the original buyer upon the contract of sale or for any profit made by such resale. ii. He may recover damages from the buyer for any loss occasioned by the breach of contract of sale. iii. The new buyer acquires a good title as against the original buyer. d. Notice to the original buyer It is not essential to the validity of resale that notice of an intention to resell the goods be given by the seller to the original buyer. But where the right to resell is not based on the perishable nature of the goods or upon an express provision of the contract of sale, the giving or failure to give such notice shall be relevant in any issue involving the question whether the buyer had been in default for an unreasonable time before the resale was made. It is not essential to the validity of a resale that the seller should give notice of the time and place of such resale to the original buyer. 4. Right of rescission a. Requisites (Soriano, 2016) This right is available to the seller when the following requisites are present: i. The buyer has defaulted in the payment of the price; ii. The seller has the right of lien or right of stoppage in transit; iii. Title to the goods has passed on to the buyer; and iv. The grounds must be any of the following: 02 Handout 1 *Property of STI  [email protected] Page 7 of 8  BM1808 1) The seller reserves the right of rescission in case the buyer should make default; or 2) The buyer has been in default in the payment of the price for an unreasonable time. b. How rescission is made i. By giving notice to the buyer of the intention to rescind ii. By doing an overt act manifesting the intention to rescind It is not necessary that such overt act should be communicated to the buyer, but the giving or failure to give notice to the buyer of the intention to rescind shall be relevant in any issue involving the question whether the buyer had been in default for an unreasonable time before the right of rescission was asserted (Article 1534). c. Effects of rescission i. The seller shall not be liable to the buyer upon the contract of sale. ii. He may recover from the buyer damages for any loss occasioned by the breach of contract of sale. iii. The seller resumes ownership of the goods. References De Leon, H. S. (2016). The law on sales, agency and credit transactions. Manila: Rex Book Store. Philippines. (1949). Republic Act No. 386: An Act to Ordain and Institute the Civil Code of the Philippines. Retrieved on December 5, 2018, from https://www.officialgazette.gov.ph/1949/06/18/republic-act- no-386 Soriano, F. R. (2016). Notes in business law. Manila: GIC Enterprises & Co., Inc. 02 Handout 1 *Property of STI  [email protected] Page 8 of 8