Chapter 3 Effects of the Contract when the thing sold has been lost

Arts. 1493-1494 Risk of Loss:

Under the Roman Law Principle: which was adopted by the Spanish Civil Code and is also adopted by our own Civil Code, upon perfection of the sale, the risk of loss is transferred or borne by the buyer even if the buyer is not yet the owner since there is still no delivery.

Under Common Law Principle: upon the perfection of the contract of sale, ownership is transferred to the buyer even if there is still no delivery. And the risk is borne by whoever is the owner of the thing when the thing is lost under the Principle of Res Perit Domino.

o Note: Ownership is transferred upon delivery

Because of these two principles, there are conflicting rules regarding loss of the thing sold.

A. Effect of Loss of the Thing sold

a. Prior to the perfection of the sale: If the object of the contract is lost, there is no perfected contract of sale because of the absence of one essential element which is object.

b. At the time of the perfection of the contract: o Total Loss (1493): the contract has no effect because there is nothing to deliver o Partial Loss (1494): There are two options available to the buyer:

1. Withdraw from the Contract 2. Proceed to the Contract and pay the price based on the total sum in relation to what remains of the thing

c. After Perfection but before delivery (Risk of Loss)

o If the thing is lost by the fault of one party: whoever is at fault shall be liable for the loss of the thing o If it is lost by fortuitous event: Two schools of thought:

1. Paras and Padilla: the buyer should bear the risk of loss- the sellers obligation to deliver is extinguished because there is nothing to deliver but the buyers obligation to pay remains.

2. Tolentino and Jurado: the seller should bear the risk of loss because it is consistent with the principle of Res Perit Domino and it is consistent with ownership transferred to the buyer only upon delivery- the sellers obligation to deliver is extinguished as well as the buyers obligation to pay. Another reason is that sale is a bilateral contract and an onerous contract- one party performs and the other party performs also and if one party cannot perform, then it is equitable to demand the other party to the performance of the obligation if the other party does not receive something in return. It is contrary to the onerous nature of sale if the seller is allowed to receive the corresponding price without the corresponding obligation to deliver. This will reconcile the conflict under Art. 1480 and Art. 1504

Atty. Advientos side: the buyer should not be liable to pay the price of the thing lost

B. Deterioration, Improvements and Fruits of the Thing

After the perfection but before delivery i. Deterioration: shall be borne by the buyer

ii. Improvements and Fruits of the thing: should be for the benefit of the buyer- consistent with obligations and contracts, which provides that the creditor is entitled to the fruit from the time the contract is perfected but he shall not have a real right over it until delivery unless there is contrary agreement.

as far as the thing is concerned, the creditor is the buyer. All the fruits from the moment of perfection up to the time of delivery pertains to the buyer unless there is contrary agreement between the parties. He cannot demand for the delivery until the period arrives for the delivery, what he has is only personal right over the thing.

However, in a contract to sell, even though there is delivery, ownership is retained by the seller.

In a Sale of Specific Goods: there can be instances when the seller can retain ownership even if delivery is already effected because delivery as a mode of transferring ownership is only the general rule but the parties can still stipulate that the seller will retain ownership after delivery. If this is the agreement, the seller will bears the risk of loss under the principle of res perit domino. But the law says that if the reason why the seller retains ownership of the goods is only to secure performance by the buyer of his obligation to pay the purchase price under the contract, then the buyer bears the risk of loss.

Gaisano Cagayan, Inc. vs. Insurance Company of North America: - In this case, Gaisano refused to pay Insurance Company the insurance. Gaisano contends that they should not be liable to pay because they are not the owners of the Denim products lost during the fire. Gaisano based this contention in their written contract. There was a provision that says: Merely for purposes of securing payment of the purchase price, the above described merchandise remains the property of the vendor until the purchase price thereof is fulfilled.. In this case, the seller retained ownership of the goods to secure the performance of the obligation of the buyer under the contract then the buyer bears the risk of loss. Therefore, Gaisano should be liable. Gaisano should bear the risk of loss. Moreover, if the Insurance Company is taken out of the picture, Gaisano would still be liable to the two suppliers. The two suppliers were already previously paid by the Insurance Company thus; the Insurance Company is subrogated to the rights of the two suppliers. Therefore, the obligation of Gaisano in favor of the two suppliers was transferred to the Insurance Company. Thats why the Court said Gaisano should be liable even if it is not the owner of the merchandise. This is because of the stipulation in the contract.

Chapter 4 Obligations of the Vendor

Arts. 1495-1506 I. General Obligations:

A. To preserve the thing prior to the delivery

Degree of diligence required from the seller: diligence of a good father of a family

B. To deliver the thing sold (1537) a. Physical or Real- placing the buyer in control and possession of the thing

Not delivery for the purpose of safekeeping

b. Legal or Constructive 1. Execution of a public document- if the thing cannot be deliver to the buyer, then this kind of mode will suffice to perfect delivery to the buyer

Not all executions of public document will constitute delivery if by the execution of the document there is no intention on the parties to effect delivery or if delivery cannot be effected even by the execution of the public document because the vendor cannot place the vendee in actual possession of the property.

Unassigned case: There was a sale of a parcel of land which was occupied by tenants/squatters/occupants. In the public document executed by the parties, there was an undertaking on the part of the seller that he will cause the removal of the occupants from the property. The buyer cannot be placed under possession of the property because there are other parties who are in possession of the subject property.

Question: Was the execution of the public document equivalent to delivery? o Ans: The Court said no. Because the parties could not have contemplated the scenario where delivery is effected

by mere execution of the public document because the seller even undertook to clear the property of informal settlers and therefore place the buyers in possession of the property.

Asset Privatization Trust vs. TJ Enterprises: - APT sold certain machinery and equipments to TJ Enterprises and executed the corresponding public document. Unfortunately, TJ Enterprises cannot take physical possession and control over some of the machinery and equipment because this was being claimed by Creative Lands. In fact, some machinery and equipments were stored in the premises of Creative Lands. Ruling: The Court held that the execution of the public document is not equivalent to delivery because there was a legal impediment to effect physical delivery.

Rule: Execution of a public document is equivalent to delivery if there is no legal impediment to effect physical delivery. There must be no other claimants over the property. The seller must be in a position to place the buyer in physical control and possession of the property even though there is no actual delivery to the buyer.

In cases involving registered lands: execution of a public document is equivalent to delivery for as long as no third party is prejudiced. Binding only between the buyer and seller. Under PD 1529, the registration is the operative act that binds the property only insofar as third persons are concerned.

Valdevieso vs. Damalerio: - There was a prior attachment of the property and then the property was levied on execution. The attachment was previously registered. Prior to the attachment, the property was sold. However, the sale was not registered. It was registered only after the levy.

Question: Who has a better right? The attaching creditor or the buyer? o Ans: The Court said the attaching creditor. Because the registration of the attachment happened first prior to the

registration sale. Follow-up Question: Does that mean the sale between the buyer and the seller which came after the attachment was

invalid? o Ans: No. Because when you attach property of the seller, the seller is not deprived of ownership as yet because

he is only deprived of ownership upon a public sale. Even after sale, he still has 1 year to redeem the property sold.

So, attachment per se does not deprive the seller of ownership over the property. So he can still sell the property.

Heirs of Mascuana vs. CA: - The Court said that as between the seller and the buyer, the transfer of ownership takes effect upon the execution of a public document covering real property.

In cases involving the execution of a public document over personal property: execution of a public document is allowed to effect delivery of a personal property because there is no such provision in the law that provides that execution of public document to effect delivery applies only to sales involving real properties or incorporeal properties or intangible assets.

2. Symbolical delivery:

Delivery of keys to the place where the movable is deposited or stored Ex. When the seller sells 100 boxes of canned goods to the buyer and the goods are stored in a warehouse, the delivery by the seller to the buyer of the keys to the warehouse constitutes symbolical delivery.

3. Traditio longa manu- there is no actual or physical delivery to the buyer; they just agreed that delivery is effected.

4. Traditio brevi manu- if a property is already in the possession of the buyer prior to the sale and the parties agreed that the buyer is the owner of the property. There is no actual delivery of the seller to the buyer because there is already possession on the part of the buyer.

5. De Constituto (tradition constitutom possessorium)- the seller remains in possession of the property not as a seller, but in a different

capacity maybe as a bailee, lessee (loan for use with compensation or for any consideration) or under commodatum (loan for use without compensation).

o Sale of shares of stock- to effect delivery:

by execution of a public document

by delivering the titles of ownership like the stock certificate which represents only the shares

C. Transfer of Ownership to the buyer

General Rule: ownership is transferred by delivery.

It must however be accepted by the buyer. Because if the buyer has justifiable reasons for not accepting delivery, then there is no transfer of ownership. The risk is borne by the seller.

The parties may also agree on what point ownership will be transferred. With regards to risks, apply res perit domino. Exception: when there is no delivery and no acceptance from the buyer but ownership is still transferred to the buyer.

if the buyer unjustly refuses to accept delivery, and if it is a sale by sample, the bulk corresponds to the sample. If it is a sale by description and the thing corresponds to the description. In these instances, if the buyer refuses to accept delivery without justifiable reasons, nevertheless ownership is transferred to the buyer and he bears the risk of loss.

o Delivery to the Carrier

General Rule: Delivery to the carrier is delivery to the buyer even if there is no delivery yet. Thus, the buyer bears the risk of loss of the thing the moment

it is delivered to the carrier. Delivery may be actual/real, constructive/legal, or in any manner signifying an agreement that the possession is transferred to the buyer.

Exceptions: a. The parties can agree on the F.O.B. destination. For example FOB Calbayog. Therefore, delivery to the carrier is not delivery to the buyer

because delivery to the buyer happens only in Calbayog.

Butuan Sawmill vs. CTA: - Butuan Sawmill sold log to a Japanese firm and in their agreement it was stipulated that the good are sold in F.O.B. Agusan. Butuan Sawmill refused sales tax because bill of lading states that the goods are deliverable to the buyer. Once the buyer takes physical possession of the goods, that is when the goods are deemed delivered to the buyer and that happens only in Japan. Ruling: There is a stipulation that the goods are sold. F.O.B Agusan. This means that from the moment the logs are loaded in Agusan, the buyer becomes the owner of the logs or the lumber. If the buyer becomes the owner of the logs or lumber at the moment the logs are delivered in Agusan, it means that the sale was consummated in the Philippines. Therefore, the Japanese firm is liable for sales tax because the buyer bears the risk of loss. The buyer is still covered by the laws on taxation because the sale was consummated within the Philippines not in Japan.

o When delivery does not transfer title- there is already delivery but ownership is retained by the seller 1. Sale on approval, trial or satisfaction involving movables such as specific goods

Ex. An advertisement stating a free 30-day trial. The buyer can pay now but he can return the goods within 30 days can with money back guaranty.

In this case, ownership is transferred to the buyer immediately upon delivery of the goods.

Sale where delivery is effected for approval or satisfaction or for trial, upon delivery, the buyer does not become the owner, he becomes owner only if manifests his acceptance of the thing or his satisfaction or approval of the things delivered to him.

If he does not manifest his approval and at the same time does not return the goods delivered to him. If there is a period within which to return and he does not return within that period- he is deemed to have accepted or approved

the sale. Therefore, he becomes the owner of the goods. If there is no period within which to return the goods- after the lapse of a reasonable time, then he is deemed the owner of the

goods.

Determination of Reasonable Time is a question of fact

If the buyer did not convey or manifest his approval over the goods but he sold the goods to another person- this is an act signifying his approval or satisfaction of the goods delivered to him.

2. In case of express reservation of title in the seller

If there is an express agreement that the seller retains ownership even after delivery, and the buyer will acquire ownership over the thing only upon payment of the full purchase price.

Question: Must be the stipulation expressly retaining ownership be in writing? Ans: No, it need not be in writing.

Reyes vs. Salvador:

- The Court said that while Art. 1478, the law recognizes the right of the parties to agree that the ownership of the thing shall not pass to the purchaser until he has fully paid the purchase price and same statutory provision does not require that such be stipulated in the contract. They can agree and they need not stipulate it in the contract.

3. Implied reservation of title (Art. 1503)

Ex. While the seller delivers the goods to the carrier but the goods are deliverable to the seller. As a general rule, when the goods are delivered to the carrier, there is transfer of ownership but in this case there is no transfer of ownership because it is deliverable to the seller. The goods are delivered to the carrier for transmission to the buyer but the bill of lading indicates that it is deliverable to the seller. There is implied reservation of title in this case.

Bill of Lading- a document evidencing a contract for the carriage and delivery of the listed goods o When the seller delivers goods to a carrier, you are given a bill of lading. The bill of lading indicates to whom the goods are deliverable which is

usually the buyer. The person indicated in the bill of lading is called the Consignee.

If the Consignee is the seller or the bill of lading indicates that it is deliverable to the seller- this means that the seller has reserved for himself the possession and ownership over the goods.

This is an ordinary document of title

If the goods are deliverable to the order of the seller- there is also implied reservation to the title

This is a negotiable document of title. Negotiation transfers ownership over the goods

If, except for the form of bill of lading, ownership would be transferred to the buyer- the buyer is deemed to be the owner of the goods from the moment of delivery to the carrier.

If the purpose is only of delivering the goods to the seller to secure performance of the buyer of his obligation under the contract meaning the goods are deliverable to the seller or the goods are deliverable to the order of the seller- the bill of lading is considered a negotiable document of title not a negotiable instrument because a negotiable instrument is an unconditional promise to order to pay a sum certain in money. Here, there is an obligation to deliver goods.

If the goods are sold F.O.B. shipping point meaning the goods are in a certain place (Cebu) to be shipped a certain area (Calbayog) and its F.O.B. Cebu City- ownership is transferred to the buyer here. But, the bill of lading states that it is deliverable to the buyer.

o There is the presumption that the seller retains ownership only for purposes of securing fulfillment of the buyer of his obligation. Here, the buyer bears the risk of loss because the title is transferred to the buyer.

If the bill of lading states that the goods are deliverable to the order of the buyer but the seller retains possession of the bill of lading- there is a negotiable document of title but the buyer cannot negotiate the document because it is retained by the seller- there is implied reservation of the seller to retain ownership and possession over the goods.

Note (par. 3 of Art. 1503): The bill of lading is a document of title and the draft is the instrument which is equivalent the bill of exchange. So, goods are

shipped to the buyer and the bill of lading states that it is deliverable to the buyer but attached to the bill of lading is a draft or the bill of exchange. It is an order addressed to the buyer directing him to pay the purchase price. It must be accepted by the buyer. If he does not accept the draft, he must return the draft as well as the bill of lading.

Bill of Exchange/draft- a written instrument providing proof of an obligation to pay money o an order by one person called the drawer addressed to somebody or the drawee commanding him to pay another person or the payee. In a bill

of exchange, the person signing the draft is called the drawer. He does not promise to pay but commands another person to pay called drawee to pay the payee. The payee can be the drawer because the law does not prohibit it. The drawee must accept the bill of exchange. If he does not accept the draft, he does not become liable on the draft because a bill of exchange should be presented for acceptance although not all not bills of exchange are required to be presented.

Example: X (seller) draws a bill of exchange addressed to the Y (buyer) commanding him to pay. If the Y refuses to accept the draft, he must return the bill of lading. GR: Therefore, no delivery is effected to him and no ownership is transferred to him. But if the goods are deliverable a Z (consignee), then Z endorses the bill of lading in blank by just signing it. If it lands in the hands of Y, even if he dishonor the draft and he sells the goods or he sells the bill of lading, he can transfer a valid title to the subsequent party. Then If the Z, a lawful holder of the bill of lading, endorses Y. If Z (subsequent buyer) does not have any notice or knowledge or information of the defect of the title of the Y, then Z acquires a better title as against X even if does not acquire any title because on the face of the bill of lading, it is deliverable to him. Apparently he has a right over the goods. Y can transfer a valid title to Z.

o Question: Is the X prejudiced? o Ans: No, because he can collect payment from Z and also from Y. If he cannot collect from Y, he can be

subrogated to the rights of Y to collect payment from Z. o If the bill of lading states that the goods are deliverable to the order of Y, and he endorses the bill to Z.

Question: Does Z acquire a better title than Y? Ans: Yes, he acquires title as against Y (seller).

o If goods are deliverable to the order of the consignee and the consignee endorses it in blank or endorses it to Y and Y sells the goods and further negotiates the document, the transferee or the subsequent buyer acquires title over the goods as against the seller even if the draft was previously dishonored.

Unlike a promissory note, there are only two parties: the maker and the payee. The maker promises to pay the payee.

Must be accepted by the buyer. If he does not accept the

4. Sale to two different persons by the same seller (1544) A. Rules on immovable or real properties:

a. The buyer who first registered is good faith b. If no registration, the buyer who first took possession of the property in good faith c. If both have taken possession together, the buyer who presents the oldest title in good faith

This presupposes a situation where both buyers executed a sale of real property in a private document

B. Rules on movable properties a. Whoever takes possession of the property the first

5. When the seller is not the owner (1505) General Rule: If the seller is not the owner even if there is delivery of the goods to the buyer, the buyer does not acquire ownership over the goods

because the seller cannot give what he does not have. Exception:

i. If the owner is estopped from questioning the sellers right to sell. If the owner makes the buyer believe that the seller is authorized to sell. If the owner through his action makes the buyer believe

that the seller can validly transfer title, then the owner is estopped from denying the sellers right.

If a sale is made in a merchants store or in fairs or in bazaars Even if the seller is not the owner, title is transferred to the buyer.

Sale by virtue of a Court order

In an Auction sale- the seller in this case is the sheriff, he is not the owner. But he can validly transfer title to the highest bidder.

In a Foreclouse sale- the owner is the mortgagor but he is not the one who conducts the sale, its either the sheriff or the notary public. Whoever conducts the sale can validly transfer title to the buyer.

Sale by Factors acts, recording laws or any other provisions of law

Documents of title Negotiable instrument- a sheet of paper which contains an unconditional promise or an unconditional order to pay a sum certain in money . By itself has intrinsic value. Refers to payment of sum of money. Documents of tile- is one which is issued as a receipt for deposit of goods. By itself it has no intrinsic value because it represents either deposit, or carriage or ownership of goods. It represents goods As a general rule delivery to the carrier is delivery to the buyer. The carrier issues a bill of lading (document of title). A bill of lading is not usually negotiated but the a warehouse receipt is.

Example: If a person deposited goods in a warehouse, the warehouse man issues a receipt for the goods deposited. As far as the warehouseman is concern the receipt issued is a proof that he has received the goods and as far as the depositor is concern, the receipt is proof of that he has paid the fee and that he has deposited the goods. The receipt issued is also called a document of title. It can be a negotiable document if the warehouseman deliver the good to bearer then the warehouse receipt becomes a negotiable document of title. If the warehouseman is to deliver the goods to a certain person or order or an order to deliver to a specified person, it is a negotiable warehouse receipt. When it is NWR? it implies that there is transfer of title over the goods by merely negotiating the receipt without physically transferring the goods from the owner to the buyer and then to another buyer. It remains in the same location. Example1: -Goods deposited into a warehouse. Warehouseman issues a receipt .GOODS DELIVERABLE TO SPECIFIC PERSON -Goods deliverable to the order of a specific person( the depositor) -The depositor wants to sell the goods to a another(goods are not physically with him) he will just negotiate the document of title. -Depositor sold the goods to buyer 2, endorses the document to buyer 2 (has to be signed by the depositor because the order of the warehouseman is to deliver the goods to the his order only. And It is not enough that he endorses. He has to deliver it. - buyer 2 sold to buyer 3. B2 endorses the document in blank, signs it and delivers it to B3. (B2 still has to endorse and sign the document because it is an order document. And you cant negotiate it by mere delivery) -B3 is now the holder of a bearer document (meaning because it is endorse in blank), he can now negotiate the document by mere delivery. -B3 sold the goods to B4. He negotiated the document by delivering it to B4 without the need to sign The document. Note: but it doesnt mean though you only must deliver it to properly negotiat. You may also endorse the document but it is not required for it to have proper negotiation. -B4 again wants to negotiate the document to B5 (B4 may negotiate the document by delivering it or by endorsement coupled with delivery) B4 choses to endorse the document and deliver it to B5. -The title of the goods were negotiated without even informing the warehouseman. And the warehouse man is obligated to deliver the goods to the holder of the document. Q: how will you negotiate a document?

1. You endorse it to a specific person 2. or endorse it in blank 3. or endorse it to bearer

note: endorsement in blank and endorsement to bearer has the same effect because it converts the document to a bearer document. Negotiation- transfer of document from one person to another. 2 kinds of negotiation Endorsement coupled with delivery Only delivery Example 2: -warehouseman issued a WR GOODS DELIVERABLE TO BEARER to the depositor -depositor is the bearer of the document, and he wants to negotiate the document to B1. D can negotiate it by mere delivering the document to B1 because it is a bearer document or he can endorse and deliver it. Note: SHOULD BE SIGNED - D choses to endorse the document to B1. The document is now converted to an Order Document because it is endorsed specifically to B1, therefore if B1 can no longer negotiate it by mere delivery. -if B1 endorses the document in blank then the document is now converted again into an bearer document. Note: if you have an Order document or an Bearer document and there is a stamp of NON-NEGOTIABLE across the document or on the face of the of the document, the negotiability of the document is not affected. The document is still negotiable provided that all the requirements of negotiability is present. In negotiable document of title if it once a bearer document it is not always a bearer document because it can be converted into an order document. Thru endorsement. Q: if the document is negotiated in breach of trust or it is lost or obtained by fraud, does the negotiability of the instrument affected? A: no, the law says that the negotiability is not affected. Q: can somebody else negotiate the document aside from the owner? A: (art 1512) Yes, it is deliverable to the person whom the owner entrusted the document for as long as at the time the document is entrusted it is already negotiable. Meaning it is already a bearer or an order docu capacity to contract ment. Q: what are the warranties of the person negotiating the document to the transferee. Art. 1516 A: 1. That the document is genuine. 2. that he has the legal right to negotiate or transfer it. 3. that he has no knowledge of fact which would impair the validity or worth of the document. 4. he has the right to transfer the title to the goods and that the goods are merchantable or fit for a particular purpose, whenever such warranties would been to have been implied if the contract of the parties had been to transfer witout a document of title the goods represented thereby. (because as we said earlier the instrument itself has no intrinsic value unlike a promissory note or a cheque which has intrinsic value.) it is actually a contract of sale. Q: when do you transfer goods? Or where is there a warranty of fitness or merchantability? A: Contract of sale Note: Under this warranties it does not warrant that the bailee or the warehouseman will deliver the goods. It does not warrant that the prior parties has to (facilitate?) the contact unlike in NIL where the warranty of a general endorser is that all prior parties has the capacity to contract. Another undertaking of a general endorser in negotiable instrument is that if the instrument is honoured and due process of dishonour is undertaken then he will pay as a party secondarily liable or if the bailee or the warehouseman failed to deliver the goods he will be liable for damages (in which it is a personal obligation and liability of the warehouseman) which is not a warranty of a person negotiating a document of title. Non-negotiable document of title- in which the warehouseman will deliver the goods to specific person. Not in the order of Frank but TO FRANK.

Example3: Now if you issue a warehouse receipt where you undertake to deliver the goods To Frank Dinsay -Mr. FD has negotiated the non-negotiable instrument to Mr. Kho > An endorsement of a non-negotiable document does not make it a negotiable document. It is not a negotiation even if the document is endorsed to him especially. It is only a transfer of document. It cant be converted. The transferee does not acquire the rights of the person to whom the document of title is properly negotiated. Even if you write NEGOTIABLE on the face of the document does convert it to a negotiable document same with a negotiable document with a stamp that says non-negotiable the document is still negotiable. Q: What are the rights of acquired by a holder of a negotiable document of title properly negotiated? A: 1. You acquire the rights whatever title the transferor has over the document or goods.

The person holding the document shall acquire the rights of his transferor as well as the rights of the one whos order the goods are to be delivered on the document of title. So if the transferor of the document does not have any right then the holder of the document shall have no right over the goods as well. Unlike in NIL even if he acquired no right but because he is a transferor in due course.

2. You acquire the direct obligation of the bailee issuing the document to hold the possession of the goods for you as fully as if the bailee had contracted with you directly. > you dont have to notify the warehouse that you are the owner of the goods. By just negotiating the document you have acquired the direct obligation of the warehouse man to deliver the goods to you. In fact the warehouseman cannot be compelled to deliver the goods to any the person except to you. It cannot be a subject of writ of attachment issued to the goods by the creditor of your transferor. Q: What if the document is merely transferred to you, it was not properly negotiated because its a non-negotiable document? Or it is a negotiable instrument but merely transferred? What are the rights you acquire? A: if it is merely transferred to you because it is not a negotiable instrument, you also acquire the rights of the person who transferred the documents to you and the rights of the person who deposited the goods. BUT YOU DONT ACQUIRE the direct obligation of the warehouseman to deliver the goods to you. you have to notify the warehouseman that you are now the owner of the goods. Or the transferor may notify the warehouseman that you are now the owner of the goods. Once the bailee is notified that is when you acquire the bailee or the warehousemans direct obligation to hold the goods to you. A: If it is a negotiable document, an order document of title which is transferred but not negotiated because it not endorsed but merely delivered, you also acquire the rights whatever your transferor has but because it is not properly negotiated to you, you also have the right to compel your transferor to endorse the document to you. and negotiation takes effect at the time of endorsement and not at the time of transfer and does not retroact.

LEVY

If your holding a negotiable instrument of title. (remember that if the document was properly negotiated to you, u acquire the direct obligation of the bailee to hold he goods for you)therefore while the goods are in the possession of the warehouseman it cannot be attach by the creditor of your transferor however it can be attached by your OWN creditor. The warehouseman can validly refuse to yield the goods to the sheriff or to the creditor of your transferor. If the warehouseman should surrender the goods considering that he has no authority to do so, he can be charged for misdelivery.

Q: What is the remedy of the creditor in a negotiable document? A: 1. Enjoin further negotiation 2. attach the document itself and surrender the document itself to the warehouseman because the warehouseman cannot be compelled to surrender the goods unless the document is surrendered to him and then now he can be complled to deliver the goods. Q: if it is a NON-NEGOTIABLE DOCUMENT? A: if you dont notify the warehouseman then you rights can be defeated by a subsequent claim of another person(may it be another buyer or your transferor claiming to have sold the goods to another buyer.) even if you are the holder of the document. So it is important that you notify the warehouseman. Example: The document was delivered to you Jan. 1 by Dinsay and you notify the warehouseman Feb 15. Jan. 31 Dinsay purchased the goods from Rama and Dinsay didnt pay for the goods so Rama is an unpaid seller. Dinsay deposited the goods in a warehouse and a warehouse receipt was issued deliverable to him. Subsequently Dinsay sold the goods to you and transferred the document to you. You have not notified the the warehouseman that ou are now the new owner of the goods. Because Rama was an unpaid seller he now files a case and obtains a writ of attachment. Sheriff went to the warehouseman on Jan.31 and presented the writ. As far as the warehouseman is concerned the goods are still deliverable to Dinsay because you have not informed him of you rights. Your rights over the goods are defeated by the writ of attachment because you failed to notify the warehouseman. By the time you have notified the warehouseman the goods are already in custodia legis. Note: as far as the warehouseman is concerned if he issues a negotiable instrument he is not obliged to deliver the goods unless the document is delivered to him. TIME AND PALCE OF DELIVERY Q: When must delivery be made? A: 1. As stipulated in the contract (unless its contrary to law, morals, customs, public order and public policy) 2. if there is no stipulation, at a reasonable time and hour. > what is reasonable time? - its a question of fact.

SMITH, BELL & CO., LTD. v. VICENTE SOTELO MATTI Facts: In August 1918, the parties entered into contracts whereby the company obligated itself to sell two steel tanks to be shipped from New York and delivered at Manila "within three or four months;" two expellers to be shipped from San Francisco in the month of September, 1918, or as soon as possible; and two electric motors, as to the delivery of which stipulation was made, couched in these words: "Approximate delivery within ninety days. This is not guaranteed." The tanks arrived at Manila on the 27th of April, 1919: the expellers on the 26th of October, 1918; and the motors on the 27th of February, 1919. The plaintiff corporation notified the defendant, Mr. Sotelo, of the arrival of these goods, but Mr. Sotelo refused to receive them and to pay the prices stipulated. In the contract agreed by the parties there were reservations made by the seller that the delivery is not guaranteed and subject to government regulations and subject to confirmation of the manufacturers.

Issue: Whether or not the plaintiff has fulfilled, in due time, its obligation to bring the goods in question to Manila. Held: The plaintiff is not guilty of delay. To solve this question, it is necessary to determine what period was fixed for the delivery of the goods. Under these stipulations, it cannot be said that any definite date was fixed for the delivery of the goods. The term which the parties attempted to fix is so uncertain that one cannot tell just whether those articles could be brought to Manila or not. The obligations must be regarded as conditional. Obligations for the performance of which a day certain has been fixed shall be demandable only when the day arrives.

A day certain is understood to be one which must necessarily arrive, even though its date be unknown. If the uncertainty should consist in the arrival or non-arrival of the day, the obligation is conditional and shall be governed by the rules of the next preceding section. (referring to pure and conditional obligations). (Art. 1125, Civ. Code.) And as the export of the machinery was, as stated in the contract, contingent upon the sellers obtaining certificate of priority and permission of the United States Government, subject to the rules and regulations, as well as to railroad embargoes, then the delivery was subject to a condition the fulfillment of which depended not only upon the effort of the herein plaintiff, but upon the will of third persons who could in no way be compelled to fulfill the condition. The obligor will be deemed to have sufficiently performed his part of the obligation, if he has done all that was in his power, even if the condition has not been fulfilled in reality. Note: that this case is decided in 1920. 80 years later in the case (below)

Delivery: when time is of the essence

LORENZO SHIPPING CORP. v. BJ MARTHEL INTERNATIONAL, INC. Facts: From 1987 up to the institution of this case, respondent supplied petitioner with spare parts for the latter's marine engines. Sometime in 1989, petitioner asked respondent for a quotation for various machine parts. Petitioner thereafter issued to respondent Purchase Order dated 02 November 1989, for the procurement of one set of cylinder liner to be used for M/V Dadiangas Express. Respondent placed the order for the two cylinder liners with its principal in Japan, Daiei Sangyo Co. Ltd., by opening a letter of credit on 23 February 1990 under its own name with the First Interstate Bank of Tokyo. On 20 April 1990, Pajarillo delivered the two cylinder liners at petitioner's warehouse in North Harbor, Manila. Respondent sent a Statement of Account dated 15 November 1990 to petitioner. While the other items listed in said statement of account were fully paid by petitioner, the two cylinder liners delivered to petitioner on 20 April 1990 remained unsettled. Respondent's vice-president sent a demand letter dated 02 January 1991 to petitioner requiring the latter to pay the value of the cylinder liners subjects of this case. Instead of heeding the demand of respondent for the full payment of the value of the cylinder liners, petitioner sent the former a letter dated 12 March 1991offering to pay only P150,000 for the cylinder liners. In said letter, petitioner claimed that as the cylinder liners were delivered late and due to the scrapping of the M/V Dadiangas Express, it (petitioner) would have to sell the cylinder liners in Singapore and pay the balance from the proceeds of said sale. Issue: Was there late delivery of the subjects of the contract of sale to justify petitioner to disregard the terms of the contract considering that time was of the essence thereof? Held: Time is not of the essence. There was no late delivery. That a contract of sale was entered into by the parties is not disputed. While the quotation provided by respondent evidently stated that the cylinder liners were supposed to be delivered within two months from receipt of the firm order of petitioner and that the 25% down payment was due upon the cylinder liners' delivery, the purchase orders prepared by petitioner clearly omitted these significant items. The Purchase Order made no mention at all of the due dates of delivery. We find the case of Smith, Bell & Co., Ltd. v. Matti, instructive. There, we held that When the time of delivery is not fixed or is stated in general and indefinite terms, time is not of the essence of the contract. . . . In such cases, the delivery must be made within a reasonable time. The law implies, however, that if no time is fixed, delivery shall be made within a reasonable time, in the absence of anything to show that an immediate delivery intended. . . . We also find significant the fact that while petitioner alleges that the cylinder liners were to be used for dry dock repair and maintenance of its M/V Dadiangas Express between the later part of December 1989 to early January 1990, the record is bereft of any indication that respondent was aware of such fact. The failure of petitioner to notify respondent of said date is fatal to its claim that time was of the essence in the object contracts of sale. Even where time is of the essence, a breach of the contract in that respect by one of the parties may be waived by the other party's subsequently treating the contract as still in force." Petitioner's receipt of the cylinder liners when they were delivered to its warehouse on 20 April 1990 clearly indicates that it considered the contract of sale to be still subsisting up to that time. Indeed, had the contract of sale been cancelled already as claimed by petitioner, it no longer had any business receiving the cylinder liners even if said receipt was "subject to verification." By accepting the cylinder liners when these were delivered to its warehouse, petitioner indisputably waived the claimed delay in the delivery of said items. Therefore, time was not of the essence. The delivery of the cylinder liners on 20 April 1990 was made within a reasonable period of time considering that respondent had to place the order for the cylinder liners with its principal in Japan and that the latter was, at that time, beset by heavy volume of work. There is no showing that petitioner notified respondent of its intention to rescind the contract of sale between them. Quite the contrary, respondent's act of proceeding with the opening of an irrevocable letter of credit on 23 February 1990 belies petitioner's claim that it notified respondent of the cancellation of the contract of sale.

Q: Where is delivery to be made? A: 1. As stipulated or established by usage 2. In the absence of stipulation or usage: a. At the place of business or residence of the seller (DR) b. if the Thing (specific) was elsewhere, then delivery shall be made in the place where the thing is at the time and place of the obligation was perfected. 3. the possessor (if a third person) must acknowledge holding the goods for the buyer otherwise it would not be constructive delivery. But take note that constructive delivery is only valid to transfer ownership of the buyer, if the buyer can be placed in actual possession. If the goods are in possession of a third person and the third person refuses to acknowledge that he is holding the thing for the buyer then there is no transfer of ownwership. >if the parties agreed that the seller must ship the thing to the buyer, then the seller must make reasonable arrangement to transfer the goods to the buyer Q: What is reasonable arrangement? A: (e.i) if the goods are to be transported from cebu to ormoc then the seller does not need to charter the goods, if sending the goods by a fast craft is available then it is considered to be the reasonable arrangement. >If it is the custom to ensure the goods and the seller has not agreed to pay the insurance exapence then the seller must notify the buyer to pay the insurance. It is part of the due diligence of the seller. >But if the goods are C.I.F destination (cost insurance freight) means that in the payment of the buyer of the goods it already includes the basic price, insurance and freight. The delivery is effected in ormoc and not in cebu. It is an exception to the delivery to the carrier is delivery to the buyer rule. Q: Who bears expenses? A: the law says that the seller shall bear the expenses.

If there is a stipulation, the party stipulated shall bear the expense otherwise it is the seller who bears the expense. But it is prudent for the lawyer to stipulate that the seller will bear the expenses to avoid conflict.

Unpaid seller - A person who has not been paid the purchase price - Also a person who has been paid a negotiable instrument but that negotiable instrument delivered to him is dishonored

Now going back to oblicon, we learned that if a negotiable instrument is delivered as payment for an obligation, it produces the effects of payment meaning it extinguishes an obligation only upon encashment of that instrument; not of the check because you have 2 kinds of negotiable instruments:

1. Promissory note; and 2. Bill of exchange

a. Check a special kind of bill of exchange because it is always payable on demand; it does not have to be presented for acceptance Negotiable instrument is not limited to checks, it can be a promissory note, a bill of exchange, or a check. Now an unpaid seller, one who has not been paid the purchase price,

- is one who may still have possession of the goods AND ownership over the goods - he can be one who has possession of the goods BUT has parted with ownership over the goods; in what capacity is he holding the goods? He is no longer

the owner so he is not holding the goods as owner anymore but as bailee for the buyer. What do you mean as bailee for the buyer? He may be holding the goods as depository for the buyer or as agent for the buyer

- one who has parted with possession of the goods BUT retains ownership over the goods; exceptions to the general rule that delivery to the carrier is delivery to the buyer: even if there is delivery to the carrier, the seller reserves ownership either expressly or impliedly

- seller has parted both with possession AND ownership of the goods Now, article 1525 contemplates of a situation where the seller has parted with the OWNERSHIP over the goods BUT the goods are NOT YET DELIVERED to the buyer, so what are THE RIGHTS of the UNPAID SELLER? Article 1526 Rights of an Unpaid Seller:

1. Taking Possessory Lien 2. Stoppage in Transitu 3. Right of Resale OR Right to Resell; although sometimes we can use Right TO Resale but only in few instances when you can correctly use right to

resale otherwise its RIGHT OF RESALE or RIGHT TO RESELL 4. Right to rescind the sale

FIRST RIGHT of an UNPAID SELLER: Possessory Lien Question: When can the unpaid seller exercise Possessory Lien or the right to retain possession over the goods? (He still has possession over the goods but he is no longer the owner of the goods) Answer: He can withhold delivery to the buyer: (Article 1527)

1. If there is no stipulation as to credit (there is no stipulation as to credit or they did not decide on when to pay the credit/purchase price, and since the seller has not yet been paid, then he can rightfully withhold delivery to the buyer)

2. Or even if there is stipulation as to credit but the period has expired meaning the buyer is in default (is it possible that the parties agree that before delivery, buyer has to pay first? Yes it is possible; in the same manner that it is possible to deliver and yet withhold or reserve ownership)

3. When the buyer becomes insolvent (does it need to be judicially declared that the buyer is insolvent before the seller can exercise possessory lien?

According to Tolentino: there must be judicial pronouncement; But according to article 1636: insolvency does not need judicial pronouncement so between an opinion of a highly respected authority on civil law and the provision of law itself, we have to stick with that provision of law

Now if there has been partial delivery to the buyer; if what is ordered or what is purchased by the buyer is for example 100 kilos of durian 40 kilos of which has been delivered to the buyer and the seller still has in his possession 60 kilos of the durian, and he is an unpaid seller, can he still exercise possessory lien over that remainder? YES, unless by the act of partial delivery, he WAIVES his right to exercise possessory lien over the remainder (if he partial delivery is intended to be A SYMBOLICAL DELIVERY of the WHOLE OF THE GOODS, thereby manifesting a waiver of the lien, then the seller cannot anymore exercise his right over the remainder although the same remains in his possession. Now when cant the seller exercise possessory lien? (meaning when is the right to possessory lien lost; he can no longer exercise possessory lien over the GOODS were talking here of GOODS and NOT REAL PROPERTY) Answer: (article 1529)

1. When the seller delivers the goods to the buyer or agent of the buyer, then of course, he loses possession over the goods, the lien is lost. ESPECIALLY if he does not reserve ownership over the goods.

2. When the buyer or agent of the buyer LAWFULLY took possession of the goods or took the delivery of the goods 3. when there is a waiver on the part of the seller

Now if the seller is an unpaid seller, and because he is an unpaid seller, he obtains judgment in his favor, but he still has in his possession the goods, can he exercise possessory lien over the goods considering he is now a judgment creditor also? Example buyer buys 100 boxes of argentina corned beef, and because the seller is an unpaid seller, he files an action for the price; files a case for specific performance against the buyer, in the meantime he exercises possessory lien over the corned beef (he does not deliver since he has not yet been paid); and then the unpaid seller obtains a favorable judgment, does he lose the right of possessory lien over the corned beef because he is now the winning party in the case for specific performance? The law says NO, he can still withhold delivery until he is paid; UNTIL the judgment is satisfied NOTE: PINEDA Unpaid Seller has a Superior Right of Preference over an Attachment Lien a lien based on a writ of attachment is inferior to that of the unpaid sellers right of preference under article 2241 By the way if possessory lien is lost, does it mean to say that the seller can no longer collect from the buyer (does it mean to say that he has no remedy against the buyer)? Answer: No, of course he still has a remedy since he still is an unpaid seller, only he no longer has a security as against the buyer; so he runs the RISK of not collecting from the buyer if he delivers without exercising possessory lien, and the buyer becomes insolvent, it will be hard for him to collect from the buyer; because exercising possessory lien is only to secure payment from the buyer OR to avoid incurring loss from his part should the buyer become insolvent.

Insolvency here does not mean total insolvency or complete insolvency such that there are no more assets of the buyer; this can refer also according to our NEW LAW ON INSOLVENCY (enacted 2 years ago) just failure of the debtor to satisfy his obligations can be considered insolvency SECOND RIGHT of an UNPAID SELLER: Stoppage of goods in transitu Requisites for the exercise of the right:

1. sale of goods must be on credit 2. the goods left the possession of the seller and are on their way for delivery to the buyer 3. seller is an unpaid seller 4. buyer is found to be insolvent (only ground)

NOTE: if the seller knew, beforehand, of the insolvency of the buyer, he cannot exercise the right of stoppage in transit because he is under estoppels. He is assumed the risk. However, the right is not impaired even if the insolvency of the buyer has been existing at the time of the perfection of the sale as long as the seller was not aware of it. Here the seller has parted possession over the goods and thats why he can no longer exercise possessory lien because the goods are in transit. What is right of stoppage in transitu? Stop the goods in transit already being shipped by the carrier which is still in transit example the goods are being transported from cebu to tawi-tawi and the carrier is still in the middle of the sea ~ stoppage in transitu means you notify the person in actual possession of the goods to stop delivery to the buyer and to redirect the goods back to the seller or to whoever the consignee is as designated by the seller. Consignor person who delivers the goods to the consignee for sale Consignee person to whom the goods are to be delivered; he is the one who sells the goods Sale by consignment or on consignment When do you consider the goods to be in transit? Answer: When they are delivered to the carrier or to a bailee for transmission to the buyer. Example when the goods are delivered to Gothong Shipping here in cebu (so they are no longer in the possession and control of the buyer); so they are now considered in transit Now when the goods arrive in tawi-tawi and the buyer rejects delivery, the goods are still considered to be in transit because the buyer has not yet taken possession. When do you no longer consider the goods to be in transit?

1. The goods are no longer considered in transit when the buyer takes possession over the goods even prior to arrival in the place of destination. Example, the carrier is still in Zamboanga and the buyer or an agent for the buyer has already taken possession of the goods, the goods are no longer considered in transit and the seller can no longer stop the goods in transit. Useless because the buyer has already taken possession over the goods.

2. When upon arrival at the place of destination, the bailee or carrier acknowledges that it is now holding the goods for the buyer, so the goods are no longer considered in transit and therefore the seller cannot exercise stoppage in transit.

3. When the bailee or the carrier unjustifiably withholds delivery to the buyer; again in this instance, the seller can no longer stop the goods in transit

How does the seller stop the goods in transit? Answer:

a. By actually taking possession over the goods

b. Now if the seller cannot actually take possession of the goods because the shipping carrier had already sailed, the seller must notify the person actually in possession of the goods to redirect the goods or return the goods to the seller. If it is not possible to notify the person in actual possession of the goods because he cannot be contacted in the middle of the voyage, you notify the principal ~ but if you should notify the principal, the law requires that you must notify and allow reasonable time for the principal to notify his agent who is in actual possession of the goods. Now if you have delivered the goods to Gothong Lines, and the ship has sailed, since you cannot contact the ship captain, you notify the principal who is the shipping company in cebu, the law requires that you must allow reasonable time for the principal to notify the captain of the vessel.

Why do you think there is reasonable time required to notify? Because, the ship captain is in the middle of the voyage and it is hard to communicate with him. Now this requirement was applicable before, 60 years ago, when this law was enacted, because at that time, we did not have internet or cell phones. We did not communicate in real time. A telegraph machine is still required (or morse code) but now we can communicate in real time. SO MAYBE of giving reasonable time for the notification is no longer applicable due to technological advancements. Does the carrier have the discretion to disobey the directive or the order of the seller to stop the delivery of the goods to the buyer? General Rule: No. Carrier must obey the directive of the seller and so the carrier must redeliver the goods either to the seller himself or to the consignee designated by the seller. Of course, the expenses for the redelivery of the goods shall be borne by the seller. Exception: If the seller delivered the goods to the carrier and the carrier issued a negotiable bill of lading stating therein that the goods are deliverable TO THE ORDER of the buyer and the seller did not retain possession of the bill of lading since such has already been sent to the buyer (because if seller retains possession over the bill of lading, that is an implied reservation of title or ownership over the goods), and then the buyer becomes insolvent (the only ground to exercise the right of stoppage in transit, when the buyer becomes insolvent), and so seller notifies the carrier to stop or withhold delivery to the buyer because the buyer has become insolvent, but what the carrier has issued was a negotiable bill of lading. Can the carrier refuse the orders of the seller? Yes, unless the seller can surrender the bill of lading to the carrier. WHY? What is the undertaking of the carrier? The undertaking of the carrier is TO DELIVER THE GOODS TO THE ORDER OF THE BUYER. And it is not the order of the buyer to redirect the goods to the seller. So if the goods are covered by a negotiable document of title or as in this case, a negotiable bill of lading, and the buyer becomes insolvent, and the seller decides to exercise stoppage in transitu, the carrier

can VALIDLY REFUSE to obey the orders of the seller UNLESS the seller can surrender such negotiable bill of lading. So again the general rule is the carrier has no discretion to disobey the orders or stoppage in transitu, unless the goods are covered by a negotiable document of title. THIRD RIGHT of an UNPAID SELLER: Right to Resell Seller can exercise the right of resale or right to resell the goods ONLY if he has either exercised either possessory lien or stoppage in transitu; in both instances, the seller has in his possession the goods. Possessory Lien: Seller withholds delivery so he has possession over the goods Stoppage in Transitu: Goods are redelivered to seller so seller has possession over the goods Why do we say that he has the right to resell the goods? Why not right to sell the goods? Answer: Because ownership has passed to the buyer even if actual possession has not yet been transferred. Thats why sellers right is to resell the goods and NOT to sell because there was already a prior valid contract of sale. When can seller exercise, what are the instances where seller can exercise the right to resell the goods? Answer:

1. If the goods are perishable 2. Or even if the goods are not perishable, if the seller expressly reserves the right to resell the goods in case of default 3. Or even if there is no express reservation of the right, if the buyer has become or has incurred default or was in default or is in default for an

unreasonable period of time. An unreasonable period of time is a question of fact. Now if the seller decides to exercise the right of resale, must he notify the buyer of his intention to resell the goods? Is it a legal requirement for the validity of the resale to notify the buyer? No it is not required. It is not essential for the validity of the sale that he must notify the buyer of the intention. It is not also a requirement for the validity of resale that the seller must notify the buyer of the time and place of the resale. BUT if the ground for the exercise of the right is the default of the buyer for an unreasonable period of time, it is advisable to notify the buyer; not for the validity of the resale but in order to establish the fact of default. Because the buyer might think that he is not in default for an unreasonable period of time, so it is advisable to notify the buyer if only to establish the fact of default (to establish the reckoning point of default) What kind of sale must it be? Must it be a PRIVATE sale or a PUBLIC sale? Either a private sale or public sale; But the seller must exercise reasonable judgment meaning if for example the 50 boxes of argentina corned beef is worth P20,000.00, it is not an exercise of reasonable judgment if the seller resells it for P5,000.00 only; so reasonable care and judgment in the resale of the goods requires that the seller must also try to obtain the best price. Now can the seller himself purchase the goods? (Remember seller is not the owner, thats why he is RESELLING the goods) No, seller is prohibited from purchasing. What is the risk if seller is allowed to purchase the goods? If this provision of law prohibiting him from purchasing is not provided, he can buy the goods for P1.00 and recover the deficiency from the buyer. Thats why he is not allowed to purchase. Because if the contract between him and the buyer is for P20,000.00 and the proceeds from the resale of the goods is only P15,000.00, he can recover the deficiency from the buyer and of course other consequential damages by virtue of that resale. But if he resells the goods for P25,000.00, of course seller is not obligated to return the excess to the buyer. Abnum absque injuriam damage without injury FOURTH RIGHT of an UNPAID SELLER: Right to Rescind the Sale Again, he must first exercise either possessory lien or stoppage in transitu. When can seller exercise the right? (Under what circumstances) If the goods are perishable, can he exercise the right to rescind? 1. It is not because the goods are perishable, BUT because the seller has expressly reserved the right to rescind if there should be default on the part of the buyer 2. Or even if there is such no express reservation, if the buyer has been in default for an unreasonable period of time. How does the seller exercise the right to rescind?

1. Seller notifies the buyer of his intention to rescind; or 2. Commits an overt act manifesting an intention to rescind

Now for overt acts, you dont need to notify; you dont have to communicate to the buyer your intention. What is an example of an overt act manifesting an intention to rescind? Advertisement the sale of the goods overt act manifesting the intention to rescind the sale because you want to resell the goods Replevin suit not an overt act since the goods are already in the sellers possession through possessory lien or stoppage in transit Resale of goods not an overt act since now you are exercising right to resell and not right to rescind While you need to notify the buyer of the intention (since it is a mere intention), the overt act need not be of course communicated to the buyer. But again, just like in the right to resell the goods, if the ground for the rescission or the intention to rescind is the fact that the buyer has been in default for an unreasonable period of time, it is advisable to notify the buyer if only to establish the fact of default. (So the buyer will not file a counter-claim for damages buyer might claim that there was no actual breach committed on his part) Now, the seller has exercised the right to rescind the sale. Remember that in this case, the buyer is the owner of the goods because ownership has been transferred to the buyer even if possession has been retained by the seller because of possessory lien or stoppage in transit. Now because the buyer is already the owner, can he enter into a valid contract of sale with another person?

Our premise was that all these rights are available to the seller, despite the fact that the seller has been deprived of the ownership because ownership has been transferred to the buyer. Unpaid Seller has exercised either possessory lien or stoppage in transit and decides to rescind the sale because he does not want to wait anymore for the buyer to pay seller just wants to cancel the sale instead. But because ownership has already been transferred to the buyer, the buyer enters into another contract for the sale of the same goods to buyer2. Can buyer do that? Do you have a valid subject matter here? (Remember that buyer does not have the possession over the goods, but can he sell the same?) Yes, because the object can be future things. At the time of the perfection of the contract, the seller does not need to be in the possession of the goods. What is required is that at the time of delivery, he must be the owner of the goods, in possession of the goods, and able to transfer and deliver the goods to the buyer. But remember the unpaid seller retained possession over the goods. In the meantime, the buyer has entered into another contract for the sake of the same goods. Between buyer2 and the unpaid seller, who has a better right? Unpaid Seller has a better. WHY? Because delivery by buyer to buyer2 is impossible since it is the unpaid seller who has possession over the goods, unless the unpaid seller consents to the sale to buyer2 and then waives whatever rights that may be accorded to him (unpaid seller) under the law. What if buyer executes a public document in favor of buyer2? (Is it not equivalent to constructive delivery?) No because buyer is not in the position to physically deliver the goods to buyer2. This is because constructive delivery is effective only to transfer ownership or to have the effect of delivery to transfer ownership if the buyer can place buyer2 in actual possession of the goods. Here the buyer cannot place the buyer2 in actual possession since buyer does not have possession over the goods it is the unpaid seller who has possession over the goods. What if the goods are covered by a negotiable bill of lading? The unpaid seller decides to stop the goods in transit. In the meantime the buyer has negotiated the bill of lading to buyer2. Between unpaid seller and buyer2, who has a better right? Buyer2, because the unpaid seller cannot even take possession again over the goods because the carrier is not obliged to redeliver the goods to him because the negotiable bill of lading is with the buyer. Does it mean to say that he will remain an unpaid seller forever? No, he is still an unpaid seller and he can still sue the buyer for specific performance. Only he has lost the security in the form of the goods. Unpaid seller cant even attach the goods unless what he attaches is the bill of lading itself. Completeness of Delivery Remember when we discussed payment or performance in oblicon, the creditor cannot be compelled to accept partial performance because payment must be full performance of an obligation. Is delivery of the subject matter of the sale payment? Yes, because payment is not only delivery of money but performance in any manner of an obligation. So as far as the buyer is concerned, payment with respect to his obligation is the delivery of the full purchase price. As far as the seller is concerned, because he is also a debtor of the buyer, payment as to him is the delivery of the entire subject matter. And if we follow the rule in oblicon, even the buyer is not obliged to accept partial performance. But we have a different rule with respect to SALE of REAL PROPERTY. When you sell real property or when real property is sold, the price can be based on a UNIT of MEASURE (usually price per square meter in the Philippines) or the price can be for a LUMP SUM regardless of what the area is. So what is the rule in case of sale of real property per unit of measure? If the sale is for 100 sqm of real property, it is the obligation of the seller to deliver 100 sqm. If it is P1,000.00 per sqm, the total price is P100,000.00. Zonal valuation is sometimes even lower than the actual market value. Zonal valuation is for the purposes of computing the tax. BIR set a threshold for the minimum value of a land which is the zonal valuation so even if people undervalue their land to save on tax, there is a minimum threshold which is the zonal valuation. So the sale is for 100 sqm but what is actually delivered is only 95 sqm. Now the buyer can insist on the delivery of the 100 sqm. If the seller cannot deliver the 100 sqm, can the buyer refuse to accept delivery? (Because under oblicon, the creditor can refuse to accept delivery if it is less than the agreed quantity) No, buyer cannot refuse to accept delivery. The rule is in case of a sale of real property based on a Unit of Measure, if the deficiency of the area is LESS THAN 10%, he cannot rescind the contract. Buyers remedy is only for proportionate reduction in the price. So if it is 95 sqm, the value of 95 sqm should be paid which is P95,000.00 and not P100,000.00. But if the deficiency is at least 10% (this is the threshold) of the area which is 10 sqm in this case; so if what is delivered to him is only 90 sqm, buyer can opt for the rescission of the contract or the proportionate reduction of the price if the seller cannot anymore deliver the remaining 10 sqm because the seller actually has only 90 sqm, no more no less. So general rule:

1. If less than 10% deficiency in the area, only remedy is for the proportional reduction of the price 2. If at least 10% deficiency in the area, buyer may opt for rescission OR proportional reduction of the price

Exception: - Even if deficiency is less than 10% of the area, the buyer can still opt for the rescission of the contract if he would not have purchased the property had he

known that the area is less than that agreed but buyer still has to prove this; that he would not have purchased the property had he known that the actual area is lesser; if he cannot prove this, then his only remedy is proportionate reduction

What if what is being delivered to the buyer is 110 sqm instead of 100 sqm, can the buyer refuse to accept the whole by claiming that the area is in excess of what was agreed upon? No, buyer must accept the 100 sqm. He can refuse the excess of 10 sqm but he must accept the area stipulated. Now if he accepts the entire area being delivered to him including the excess, then he has to pay a price for the excess. How much should he pay for the excess? Price for the excess should be at the contract rate. So if the rate is P1,000.00 per sqm and the excess is 10 sqm, buyer has to pay an additional P10,000.00. Now forget about area, lets talk about quality which is very subjective but that is provided by law. (This is for academic purposes only no rule yet on how to measure quality)

If the deficiency in the quality is more than 10% of that contemplated by the parties, then the buyer is entitled to the rescission of the contract. Otherwise, he is entitled only to the reduction of the price. do not know how to determine that. Again, apply the exception that even if the deficiency in the quality is less than 10%, he is still entitled to rescission to the contract if buyer would not have purchased such property had he known of such deficiency in the quality. No case as of yet regarding the deficiency in quality. NOTE: In area to be able to opt for rescission, deficiency must be at least 10% In quality to be able to opt for rescission, deficiency must be more than 10% An example where there is a deficiency in the area and the buyer opted for the reduction of the price is: Cebu Winland Development Corp. vs. Ong Siao Hua Facts: Ong purchased 2 condo units but Ong has not seen the units yet because the condos were still under construction. He was told that each condo unit was about 155 sqm. and the price was a little more than P22,000.00 per sqm. Ong purchased 2 condo units and 4 parking slots. Because he was able to pay 30% down payment, he was given a discount of 3% so the total price was like P7,000,000.00 which he had to pay over a period of 2 years. But after more than a year, from the time that he started payment, he was allowed to take possession over the condo units because the construction was finished. And then several months after, he fully paid the price. Now Ong, demanded for the execution for the deed of absolute sale in his favor. When the deed was sent to him for his signature (Atty. Adviento: I did not know why he had to sign na deed of absolute sale man unta. When it is a deed of absolute sale, the buyer need not sign, only the seller signs. But if it is a contract of sale, then both the buyer and seller must sign), Ong noticed that the actual area of the condo unit was only 127 sqm when in fact, Ong paid for 155 sqm and for 2 condo units. So Ong requested for a verification survey of the interior of the 2 condo units where he found out that one was actually only 109 sqm and the other was only 110 sqm. (Difference of 44 and 45 sqm which, when combined, is actually one condo unit) So Ong demanded for a reduction of the price but Winland Condos said that Ongs right for the reduction of the price has already expired since the period to sue for reduction of price is 6 months from delivery. It was already more than 1 year from the time that he took possession of condo units before he filed the case for the reduction of the price. In fact, when Ong filed with the HLURB, the HLURB dismissed the case and the HLURB Arbiter said that the 6 month period had expired already. Ong took possession in 1996 and filed the case in 1998. So the 6 month prescriptive period has lapsed already. Issue: When do you consider the property to be delivered to the buyer in order to start counting the 6 month prescriptive period? Ruling: Delivery contemplated here in this article is not delivery of possession only. It must be delivery not only of possession but of ownership. When Ong took possession of the 2 condo units, he was not yet the owner of such because he had not yet paid the full purchase price (Deed of absolute sale was not yet executed in his favor) therefore, legally there was no delivery of the condo unit to him as yet. He might have taken possession of the condo unit but there was no delivery in the sense that there was no transfer of ownership and therefore, the 6 month period has not even begun to run. So he was able to recover more than P2,000,000.00 (of the P7,000,000.00) that he paid equivalent to about 91 sqm deficiency in the area which was more than 10% deficiency in the area. But of course even if he was allowed or he had the option to have the contract rescinded, he didnt opt to have the contract rescinded because he continued possession of the property but he opted for the reduction of the price. So we see here another important matter: you do not need to have fully paid and have the property delivered to you before you can sue for the reduction of the price or rescission of the contract. Even if the 6 month period has not started to run yet, you can already invoke your right, either for rescission of the contract or for the proportionate reduction of the price. Now what if the sale is for Lump Sum? The rule is everything within the boundaries must be delivered regardless of the area. So if I sell to you this parcel of land and I tell you that this is about 100 sqm and Ill sell this to you for P100,000.00 and it turns out that the area is only about 75 sqm, and in our contract, the boundaries are stated, and everything within the boundaries was delivered to you but only 75 sqm of 100 sqm. Can you ask for the reduction of the price? No. Now what if it is the reverse? The area is actually 150 sqm within the boundaries. Can I (seller) withhold the 50 sqm and deliver only the 100 sqm? No. Buyer can insist the delivery of everything within the boundaries stated. If seller refuses to deliver everything, then buyer can also demand for a reduction of the price because the total price includes everything within the boundary. Of course if seller refuses to delivery everything to buyer, and seller also does not want reduction of the price, then buyer can sue for the rescission of the contract because it is as if there is NO meeting of the minds there. But the rule is everything within the boundaries must be delivered to the buyer. THE ONLY EXCEPTION IS if the discrepancy is so glaring or when the discrepancy is not anymore reasonable. Now what if in the contract, the area is stipulated and the boundaries are also stated. So the area is 100 sqm and boundaries are stated when in fact the area is actually 150 sqm. Is the seller still obliged to deliver the 150 sqm considering that the area stated in the contract is only 100 sqm? Yes, because if it is sale for lump sum, what prevails is the boundaries stipulated by the parties and not the area. In a sale of property which is more or less 5 hectares but the actual area is only 4 hectares. Is the 1 hectare (10,000 sqm) difference an unreasonable discrepancy in the area? (it is actually just 20% deficiency of the area, its just big because it is 1 hectare) Is the buyer entitled to either reduction of the price or rescission of the contract? The court said no. Rudolf Lietz, Inc. vs. Court of Appeals Lietz purchased property which they agreed to be 5 hectares. Lietz had opportunity to inspect the property. In fact, it was pointed out to Lietz the boundaries of the subject land. And then, it was found out that the property was only 4 hectares instead of 5. Court said Lietz is not entitled to either reduction of price or rescission of contract. WHY? Because it was a sale for Lump Sum. So any discrepancy either deficiency or excess in area will not affect the price. It will not entitle the buyer for a reduction in the price nor entitle the seller for an increase in the price OR to entitle the seller to withhold the delivery of the excess of the areas stated in the contract because everything in the boundaries must be delivered to the buyer. Unless of course if the deficiency is so gross Roble vs. Arbasa A sister Fidela Roble sold a piece of property to her sister Adelaida Roble and brother-in-law Dominador Arbasa. In this case, the property was not covered by the Torrens system; there was no title over this property; so the only evidence of ownership on the part of the seller was the tax declaration which indicated that the area was 240 sqm. Sale was made sometime in the 1970s. But in the 1960s, the father of the buyer and the seller and a brother of the sisters started adding stones, gravel trying to reclaim the foreshore so the area was increased to 884 sqm from 240 sqm. Veronica and Lilibeth Roble (heirs of Fidela) claimed the excess of the

land which is about 644 sqm. saying that what was sold only by their aunt Fidela Roble was only 240 sqm. The Arbasa spouses said No we purchased the entire property, invoking this rule: if it is sale for lump sum, everything must be delivered to the buyer. Court said: No, thats too much. In fact, in the tax declaration, there it is stated that it is only 240 sqm. Now the increase in the area was actually upon the industry of their father and a brother of the complainants. The court said it is too much. The court ruled that the buyers (Arbasa spouses) are only entitled to the 240 sqm because the difference in the area is so gross (644 sqm). So only the 240 sqm was given to the buyers and the remaining 644 sqm was given to the claimants. This is an example of a gross discrepancy of the area so gross that the seller could not have contemplated selling the whole 884 sqm especially considering that the excess was not originally part of the original said area. Roble vs. Arbasa Digest (G.R. No. 130707 July 31, 2001) Was the subject matter determinate as to its metes and bounds? YES, it was determinate upon the sale of the property (described as 240sq.m. more or less) but since it had acquired area due to reclamation, there is a need to remand the case to the RTC to determine whether the land is a foreshore land or not. The sale that transpired on January 2, 1976 between vendor Fidela and vendee Adelaida was one of cuerpo cierto or a sale for lump sum. Pursuant to Article 1542, Civil Code of the Philippines, in the sale of real estate, made for a lump sum and not at the rate of a certain sum for a unit of measure or number, there shall be no increase or decrease of the price although there be a greater or lesser area or number than that stated in the contract. Thus, the obligation of the vendor is to deliver everything within the boundaries, inasmuch as it is the entirety thereof that distinguishes the determinate object. However, this rule admits of an exception. A vendee of land, when sold in gross or with the description more or less with reference to its area, does not thereby ipso facto take all risk of quantity in the land. The use of more or less or similar words in designating quantity covers only a reasonable excess or deficiency. An area of 644 square meters more is not reasonable excess or deficiency, to be deemed included in the deed of sale of January 2, 1976. There is a need, therefore, to determine whether the lands subject of the action for quieting of title are foreshore lands. The classification of public lands is a function of the executive branch of government, specifically the director of lands (now the director of the Lands Management Bureau). Due to the dearth of evidence on this particular issue, we cannot arrive at a conclusive classification of the land involved. The instant case has to be remanded to the trial court for that determination. Again, Prescription of Action: 6 months Now what is the rule with respect to movables? With respect to movables, the general rules in oblicon apply. The creditor in oblicon is not obliged to accept partial performance. In fact if the debtor delivers less than the quantity stipulated in the contract, the creditor is bound to pay only a FAIR VALUE or at the CONTRACT RATE depending on the circumstances of the acceptance of partial performance. Same rules in oblicon apply here in sales with respect to movables. If there is a deficiency in the quantity 50 boxes of corned beef; if what is actually delivered is only 40 boxes of corned beef, that fact alone, is the buyer justified in refusing to accept performance? (that fact alone without any agreement on the time of delivery and no installment mode of delivery) If there is no agreement on the time of delivery or no agreement on an installment mode of delivery, we do not assume unless the problem says so: Buyer can reject delivery outright. Can buyer accept? Yes How much must the buyer pay? It depends. If buyer accepts delivery, knowing that the seller cannot complete the delivery, buyer must pay at the CONTRACT RATE (in proportion to the quantity delivered) But if buyer accepts delivery, not knowing that the seller can no longer complete the delivery (example: the warehouse containing the goods of corned beef was burned down so seller has no way of completing delivery), buyer must pay at the FAIR VALUE (not at the contract rate) Contract Rate vs Fair Value Contract rate matter of computation as stipulated in the contract But how do you determine the fair value and what is fair value as to the buyer? Fair Value is the value of the goods to the buyer considering the damages he would suffer because of the incomplete delivery (example: if buyer has contracted to sell the goods to another person X of course with a profit and this other person X refuses to accept delivery because only 40 boxes will be delivered so buyer cannot complete delivery to X therefore, opportunity loss on the part of the buyer this can be considered in determining how much is the value to the buyer of the goods taking into consideration the damages buyer would suffer because of the incomplete performance. Buyer accepts the partial delivery of the seller in good faith because he expects the seller to complete the delivery but seller fails So FAIR VALUE then is almost always lower than the contract rate because it would be unfair to the buyer if fair value is higher. Again determining the fair value is a very subject test unlike determining price at the contract rate mere proportional reduction of the price. Now what if delivery is by installments? Is it possible? Yes, just like payment by installment, delivery can also be made by installment. What happens if the seller defaults in the delivery of one installment? If the 50 boxes are to be delivered in 5 installments (10 boxes every week) and the seller delivered only 5 boxes in the second week; on the third week he delivered 10 boxes; Can the buyer refuse to accept delivery of the 10 boxes on the 3

rd and demand that 15 boxes be delivered to recover the deficiency of 5 boxes in the 2

nd week otherwise he will not accept delivery?

In oblicon the RULE on obligations to be performed on installment: Each installment is a separate and distinct obligation. So if there is default in one installment, default only lies in that installment; it will not affect performance of the other installments. If seller defaulted in the 2

nd week of installments, buyer can only sue for the

2nd

week of installments. So if the seller is able to deliver 10 boxes for the 3

rd installment, then it must be accepted by the buyer. If there is default here, or partial performance here, there is

only a breach of this particular installment. It will not affect subsequent performance.

EXCEPTION: There is a stipulation called acceleration clause Must the seller, in order to complete delivery, deliver also the fruits, accessories, accessions of the thing? Yes From when? From the perfection of the contract (same rule as in oblicon the creditor shall have a right over the fruits of the thing from the time of the obligation but he shall acquire no real right over them until delivery same rule applies in sales) The fruits must be delivered to the buyer because from the moment of the contract (meaning from the time of perfection of the contract up to the time of delivery), the fruits pertain to the buyer. EXCEPTION: if it is expressly excluded in the agreement Does it hold true in actual practice? Example: Pig Buyer buys a pig not knowing that the pig is pregnant. The pig is to be delivered within a certain period of time. Before delivery was made, the pig gave birth (natural fruits). Under the law, the piglets pertain to the buyer. But this is not being practiced. But legally, the buyer can insist, because under the law, the fruits pertain to the buyer from the time of the perfection of the contract. When is the seller excused from delivering the goods? In cash sales, if the buyer is not prepared to pay, then the seller is not obliged to deliver the goods because in cash sales (meaning there is no stipulation as to credit) there should be simultaneous performance on the part of the buyer and the seller. If it is a sale on credit, and the right to make use of the period agreed upon is lost: Sale on credit means payment of the price is to be made at a later time So what kind of obligation is this? Is a sale on credit a conditional obligation or an obligation with a period? Obligation with a period since the period is fixed The period is for the benefit of both parties. So that the period is for the benefit of the buyer, in so far as the price is concerned, is the debtor but the buyer loses the benefit of the period if: Instances when the buyer loses the benefit of the period (Article 1198)

1. If he (buyer) becomes insolvent 2. If he attempts to abscond 3. If he violates an agreed condition 4. If he fails to give security 5. if the security is lost by his own acts or thru a fortuitous event

If any of the circumstances is present, then what becomes of the obli