Sales Chapter 4 1 - Lecture notes 1 PDF

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THE LAW ON SALES(Ref. Arts. 1458 -1637, Civil Code of the Phil.; The Law on Sales, Agency and Credit Transactions by: Hector S. De Leon)CHAPTER 4OBLIGATIONS OF THE VENDORSECTION 1. - General ProvisionsART. 1495. PRINCIPAL OBLIGATIONS OF THE VENDOR:i. To transfer the ownership of the thing sold ( Ar...

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THE LAW ON SALES (Ref. Arts. 1458 -1637, Civil Code of the Phil.; The Law on Sales, Agency and Credit Transactions by: Hector S. De Leon) CHAPTER 4

OBLIGATIONS OF THE VENDOR SECTION 1. - General Provisions ART. 1495.  PRINCIPAL OBLIGATIONS OF THE VENDOR: i.

To transfer the ownership of the thing sold (Art. 1495);

ii.

To deliver the thing (Art. 1495);

iii.

To warrant against eviction and hidden defects (Arts. 1495, 1547);

iv.

To take care of the thing, pending delivery, w/ proper diligence (Art. 1163); and

v.

To pay for the expenses for the execution & registration of the deed of sale, unless there is a stipulation to the contrary (Art. 1487).

ART. 1496. WAYS OF EFFECTING DELIVERY:  The ownership of the thing sold is acquired by the vendee from THE MOMENT IT IS DELIVERED TO HIM to him in any of the following ways:

SECTION 2. - Delivery of the Thing Sold 1) by actual or real delivery;  Art. 1497. The thing is considered delivered when it is placed in the

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control and possession of the vendee; physical delivery. 2) by constructive delivery i. by the execution of a public instrument.  Art. 1498, par. 2. When the sale is made through public instrument, the execution thereof shall be equivalent to the delivery (par. 1); ii.

by symbolical tradition/traditio symbolica  Art. 1498, par. 2. The delivery of the key where the thing sold is stored or kept is equivalent to the delivery of the thing (because the key represents the thing).

iii.

by traditio longa manu  Art. 1499. The delivery of movable property may be made by the mere consent or agreement of the contracting parties. i.e., the vendor merely points to the thing sold w/c shall thereafter be at the control and disposal of the vendee.

iv.

by traditio brevi manu;  Art. 1499. The delivery of movable property when the vendee is already in possession of the thing sold by virtue of another title. i.e., the lessor sells the thing leased to the lessee.

v.

by traditio constitutum possessorium  Art. 1500. The delivery when the vendor continues in possession of the property sold not as owner but in some other capacity. i.e., the vendor stays as a tenant of the vendee.

vi.

by quasi-delivery or quasi-traditio.  Art. 1501. In the case of incorporeal (intangible) thing, delivery is effected: 1. by the execution of a public instrument;

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2. by placing the titles of ownership in the possession of the vendee, when the mode of delivery is not applicable; 3. by allowing the vendee to use his rights as a new owner w/ the consent of the vendor.

ART. 1502. CONTRACT OF SALE or RETURN  When goods are delivered to the buyer “on sale or return” to give the buyer an option to return the goods instead of paying the price, the ownership passes to the buyer on delivery, but he may revest the ownership in the seller by returning or tendering the goods w/in the time fixed in the contract, or, if no time has been fixed, w/in a reasonable time.

CONTRACT OF SALE ON TRIAL, or APPROVAL, or ON SATISFACTION.  When goods are delivered to the buyer on approval or on trial or on satisfaction, or other similar terms, the ownership thereon passes to the buyer: 1. When he signifies his approval or acceptance to the seller or does any other act adopting the transaction; 2. When he does not signify his approval or acceptance but he retains the goods w/o giving notice or rejection; - If time has been fixed for the return of the goods – on the expiration of such time; - If no time has been fixed - on the expiration of a reasonable time.

 SALE OR RETURN vs. SALE ON TRIAL: 1. SOR – is a sale subject to a resolutory condition. SOT – subject to a suspensive condition. 3

2. SOR – depends entirely on the will of the buyer. SOT – depends on the character or quality of the goods. 3. SOR – the ownership of the goods passes to the buyer on delivery and subsequent return of the goods reverts ownership in the seller. SOT – the ownership remains in the seller until the buyer signifies his approval or acceptance to the seller; 4. SOR – the risk of loss or injury rests upon the buyer. SOT – the risk still remains w/ the seller. ART. 1503. DELIVERY OF SPECIFIC GOODS SOLD GENERALLY PASSES TITLE.  GENERAL RULE: Delivery [actual or constructive] passes title in the thing sold (Art. 1496) AND Delivery to the CARRIER is deemed delivery to the buyer (Art. 1523). Therefore, the ownership in the goods sold passes to the buyer upon their delivery to the carrier.  EXEPTIONS: 1. If a contrary intention appears by the terms of the contract (Art. 1523) *where the seller reserve the right of possession or ownership in the goods until certain conditions have been fulfilled (Art. 1503, par. 1); 2. Where seller or his agent is the consignee; * where goods are shipped and by the bill of lading (BOL), the goods are deliverable to the seller or his agent (the seller thereby reserves the ownership in the goods) (Art. 1503, par. 2); BUT if, o except for the form of the bill of lading, the ownership would have passed to the buyer 4

on shipment of the goods, the seller’s property in the goods shall be deemed to be only for the purpose of securing performance by the buyer of his obligation under the contract. o Where title to the goods is held merely for the purpose of security, the beneficial owner buyer), not the one who holds for security (seller), bears the risk of loss or deterioration. o BILL OF LADING –(BOL) – a contract or receipt for the transport of goods and their delivery to the person named therein, to order, or to bearer. 3. Where buyer or his agent is consignee but the seller retains the bill of lading. *where goods are shipped and by the bill of lading, the goods are deliverable to the order of the buyer seller or his agent but possession of the bill of lading is retained by the seller or his agent (the seller thereby reserves a right to the possession of the goods as against the buyer) (Art. 1503, par. 3);

4. Where bill of lading is sent forward w/ draft attached. *where the seller draws on the buyer for the price and transmits the Bill of Exchange (BOE) and the bill of lading (BOL) together to the buyer to secure acceptance or payment of the BOE, (the title is regarded as retained in the seller until the BOE is paid) (Art. 1503, par. 4])  When buyer wrongfully retains the BOL- he acquires no additional right thereby. BUT, The purchaser in good faith for value of the BOL or goods from the buyer will obtain the ownership in the goods although the BOE has not been honored as long as:– 5

1. the BOE provides that the goods are deliverable to the buyer or to the order of the buyer; 2. the BOE is indorsed in blank; 3. the BOE is indosed to the buyer by the consignee named therein. ART. 1504. RES PERIT DOMINO  GENERAL RULE: If the thing is lost by fortuitous event, the risk is borne by the owner of the thing at the time of the loss.  EXEPTIONS: 1. where the seller reserves the ownership of the goods merely to secure the performance by the buyer - ownership is considered transferred to the buyer who assumes the risk from the time of delivery (ART. 1504 [1]). 2. where actual delivery has been delayed through the fault of either the buyer or seller - the goods are at the risk of the party at fault. ART. 1505. SALE BY A PERSON NOT THE OWNER.  GENERAL RULE: Sale by a person not the owner is INVALID. EXCEPTIONS: 1. When the owner of the goods is, by his conduct, precluded from denying the seller’s authority to sell [Art. 1505, par. 1]; 2. Where the law enable the apparent owner to dispose of the goods as if he were the true owner thereof (Art. 1505, par. 2 [1]); ie., Negotiable instruments laws; Warehouse Receipts Law; 3. Where the sale is sanctioned by statutory or judicial authority (Art. 1505, par. 2 [2]);–

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4. Where the sale is made at merchant’s stores, fairs or markets (Art. 1505, par. 2 [3]); 5. Where the seller of goods has a voidable title w/c has not been avoided at the time of the sale (Art. 1506); Art. 1390. Voidable contracts: a) One of the parties is incapable of giving consent to a contract, i.e., sale made by a minor; b) Where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud. ART. 1506.  Where the seller of goods has only a voidable title to the goods, the buyer acquires a good title thereto provided: he buys them: a) before the title of the seller has been avoided; b) in good faith for value; and c) w/o notice of the seller’s defect of title. 6. Where seller subsequently acquires title. ART. 1507. NATURE & FUNCTION OF DOCUMENTS OF TITLE. 

A document of title in which it is stated that the goods referred to therein will be delivered to: i.

to the bearer; OR ii. to the order of any person named in such document is a NEGOTIABLE DOCUMENT OF TITLE (DOT). o DOT – symbol of the goods covered by it; evidence of transfer of title; transfer of possession; contract by the parties. i.e, bill of lading, warehouse receipt, quedan 7

 CLASSES DOCUMENTS OF TITLES: 1. Negotiable documents of title; 2. Non-negotiable documents of title.

ART. 1508. NEGOTIATION OF NEGOTIABLE DOCUMENT BY DELIVERY.  A negotiable document of title may be negotiated by delivery: i. if the goods are deliverable to the bearer; OR ii. when it is indorsed in blank or to the bearer to whose order the goods are deliverable or by a subsequent indorsee. ART. 1509. NEGOTIATION OF NEGOTIABLE DOCUMENT BY INDORSEMENT.  A negotiable document of title may be negotiated by the indorsement of the person to whose order the goods are by the terms of the documents deliverable i.

if indorsed in blank or to bearer, the document becomes negotiable by delivery (Art. 1508)

ii.

if indorsed to a specified person, it may be negotiated by the endorsement of such person in blank, to bearer, or to another specified person. Delivery alone is not sufficient.

ART. 1510. NEGOTIABLE DOCUMENTS OF TITLE MARKED “non-negotiable”. Negotiable document of title marked: “non-negotiable” or “not negotiable”. NO EFFECT; the document continuous to be negotiable.

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ART. 1511. TRANSFER OF NON-NEGOTIABLE DOCUMENTS.  A non-negotiable document of title CANNOT BE NEGOTIATED.

 It may be transferred or assigned but the transferee acquires only the rights stated in Art. 1514 . o A person to whom a non-negotiable document of title has been transferred (par. 2, Art. 1514), ACQUIRES 1. the title to the goods as against the transferor; 2. the right to notify the bailee of the transfer thereof; 3. the right, thereafter, to acquire the obligation of the bailee to hold the goods for him. ART. 1512. PERSONS WHO MAY NEGOTIATE A DOCUMENT.  A negotiable documents of title may be negotiated 1. By the owner thereof; 2. By any person to whom the possession or custody of the document has been entrusted by the owner. o Neither a thief nor a finder may negotiate a negotiable documents of title. (Refer to Art. 1518) ART. 1513. RIGHTS OF PERSON TO WHOM DOCUMENTS HAS BEEN NEGOTIATED.  A person to whom a negotiable document of title has been duly negotiated ACQUIRES thereby: 1. Such title to the goods as the person negotiating the document; and such title to 9

the goods as the person to whose order the goods were to be delivered;

 THUS, one who buys a negotiable document of title to a thief (of the goods and not of document [Art. 1518]) acquires no right over the goods as the thief has no right to transfer notwithstanding that such purchaser is innocent. BUT the purchaser acquires a good title where the owner, by his conduct, is estopped from asserting his title. AND 2. The direct obligation of the bailee (warehouseman or carrier) issuing the document to hold possession of the goods for him, as if the bailee had contracted directly w/ him. ART. 1514. RIGHTS OF PERSON TO WHOM DOCUMENT HAS BEEN TRANSFERRED.  A person to whom a (negotiable) document of title has been transferred but not negotiated (par. 1, Art. 1514), ACQUIRES thereby, as against the transferor, the title to the good, subject to the terms of any agreement w/ the transferor.  A person to whom a non-negotiable document of title has been transferred (par. 2, Art. 1514), ACQUIRES 1. the title to the goods as against the transferor; 2. the right to notify the bailee of the transfer thereof; 3. the right, thereafter, to acquire the obligation of the bailee to hold the goods for him. RIGHTS OF THIRD PERSON TO GOODS WHERE DOCUMENT HAS BEEN TRANSFERRED. 10

 Prior to the notification to such bailee by the transferor or the transferee of a non-negotiable document of title, the title of the transferee to the goods and the right to acquire the obligation of such bailee MAY BE DEFEATED – i. by the levy of an attachment of execution upon the goods by a creditor of the transferor, OR ii. by a notification to such bailee by the transferor of a subsequent purchase from the transferor of a subsequent sale of the goods by the transferor. THUS, Before notification, the bailee is not bound to the transferee, whose right may be defeated by a levy of an attachment or execution upon the goods by the creditor of the transferor or by a notification to such bailee of the subsequent sale of the goods. o If the document is negotiable, the goods cannot be attached or levied under an execution UNLESS the document be first surrendered to the bailee or its negotiation enjoined.

ART. 1515. TRANSFER OF ORDER DOCUMENT WITHOUT INDORSEMENT.  Where a negotiable document of title is (1)transferred for value (2)by delivery and the indorsement of the transferor is essential for negotiation, the transferee ACQUIRES – i. The right to the goods as against the transferor AND ii. The right to compel the transferor to indorse the indorsement. UNLESS a contrary intention appears.

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The negotiation shall take effect as of the time when the indorsement is actually made. THUS, if at the time of the negotiation, the buyer already had notice that the title of the seller is defective, he cannot be considered a purchaser in good faith.

ART. 1516. WARRANTIES ON SALE OF DOCUMENTS.  A person who for value – i. negotiates or transfers a document of title by indorsement or delivery, OR ii. who assigns for value a claim secured by a document of title [unless a contrary intention appears] WARRANTS : 1. That the document is genuine; (i.e. not forgery, not stolen; not invalid for want of consideration) 2. That he has legal right to negotiate or transfer it; 3. That he has no knowledge of any fact which would impair the validity or worth of the document; and 4. That he has a right to transfer the title to the goods and that the goods are merchantable or fit for a particular purpose; (i.e. the goods are not damaged)

ART. 1517. INDORSER NOT A GUARANTOR.  The indorsement of a document of title SHALL NOT MAKE the indorser LIABLE – i. for any failure on the part of the bailee who issued the document OR ii. of the previous indorsers thereof TO FULFILL THEIR RESPECTIVE OBLIGATIONS. 12

o The indorsement of a document of title amounts merely to a conveyance by the indorser, not a contract of guarantee. THUS, An indorser of a document of title shall not be liable to the holder if the bailee fails to deliver the goods because they were lost due to his fault or negligence. ART. 1518. NEGOTIATION NOT IMPAIRED BY FRAUD, MISTAKE, DURESS, ETC. -Theft of document (Art. 1518) and not of the goods (Art. 1513)  The validity of the negotiation of a negotiable document of title is NOT IMPAIRED – i. by the fact that the negotiation was a breach of duty on the part of the person making the negotiation, OR ii. by the fact that the owner of the document was deprived of the possession of the same by loss, theft, fraud, accident, mistake, duress, or conversion, IF THE PERSON TO WHOM THE DOCUMENT WAS NEGOTIATED or a PERSON TO WHOM THE DOCUMENT WAS SUBSEQUENTLY NEGOTIATED – 1. paid value therefor; AND 2. in good faith w/o notice of the breach of duty, or loss, theft, fraud, accident, mistake, duress or conversion.  Art. 1518 refers to theft of document and not of theft of goods covered by such document. THUS, even a bona fide holder of a document issued over such stolen goods cannot acquire title under (Art. 1513). 13

ART. 1519. ATTACHMENT OR LEVY UPON GOODS COVERED BY A NEGOTIABLE DOCUMENT.  If goods are DELIVERED TO A BAILEE by the owner OR by a person whose act of conveying the title to them to a purchaser in good faith for value would bind the owner and a negotiable document of title is issued for them THEY CANNOT THEREAFTER, while in possession of such bailee, be attached by garnishment or otherwise or be levied under execution UNLESS 1. the document be first surrendered to the bailee or 2.its negotiation enjoined. The bailee shall in no case be compelled to deliver up the actual possession of the goods until the document is surrendered to him or impounded by the court.

ART. 1520. CREDITORS REMEDIED TO REACH NEGOTIABLE DOCUMENTS.  A creditor whose debtor is the owner of a negotiable document of title shall be ENTITLED to such aid from courts of appropriate jurisdiction by injunction and otherwise in attaching such document OR in satisfying the claim by means thereof as is allowed at law or in equity in regard to property w/c cannot be readily be attached or levied upon by ordinary legal process.

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 The Court has the power to aid by injunction (restraining order) a creditor seeking to get a negotiable document covering such goods.  If an injunction is issued but the negotiable document of title is negotiated to an innocent person, the transfer is effectual.

ART. 1521.  PLACE OF DELIVERY OF THE GOODS SOLD (par 1, Art. 1521) Rules: 1. The place of delivery agreed upon by the parties; 2. That determined by the usage of trade; 3. The seller’s place of business; 4. The seller’s residence; 5. In case of specific goods, which to the knowledge of the parties at the time the contract was made were in some other place, that place is the place of delivery.  TIME OF DELIVERY OF GOODS SOLD. (par 2, Art. 1521) Rules: 1. The time agreed upon by the parties; 2. That determined by the usage of trade; 3. If seller is bound to send the goods but no time is fixed by the contract – w/in reasonable time;  DELIVERY OF GOODS IN POSSESSION OF A THIRD PERSON (par 3, Art. 1521): Where the goods at the time of sale are in the possession of a third person – the seller has not fulfilled his obligation to deliver to the buyer UNLESS and UNTILL

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such third person ACKNOWLEDGES to the buyer that he holds the goods on the buyer’s behalf.  HOUR OF DELIVERY OF GOODS SOLD (par 4, Art. 1521): Demand or tender of delivery may be treated as ineffectual UNLESS made at a reasonable hour.  DUTY OF SELLER TO PUT GOODS IN DELIVERABLE CONDITION (par 5, Art. 1521): Unless otherwise agreed, the expenses of and incidental to putting the goods into a deliverable state must be borne by the seller. ART. 1522.  DELIVERY OF THE GOODS LESS THAN QUANTITY CONTRACTED. (par 1, Art. 1522) Remedies of the Buyer: 1. Reject the goods so delivered; or 2. Accept the goods AND pay for their price at the contract rate, if he knew that the seller is not going to perform the contract in full; 3. Accept the goods, and if he disposed of the goods delivered before he knows that the seller is not going to perform his contract, he must pay for the fair value of the goods at the time of delivery,

 DELIVERY OF THE GOODS MORE THAN QUANTITY CONTRACTED. (par 2, Art. 1522) Remedies of the Buyer: 1. Accept the quantity contracted and reject the excess; or 2. Accept all the goods delivered and pay for them at the contract rate.

 DELIVERY OF GOODS MIXED W/ GOODS OF DIFFERENT DESCRIPTION. (par 3, Art. 1522) Remedies of the Bu...