Chapter 12. Conditions and Warranties

SALES REVIEWER (2013-‐2014) ATTY. RAY PAOLO SANTIAGO

NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED: MAY 21, 2014)

CHAPTER 12: CONDITIONS AND WARRANTIES

I. Conditions (Article 1545) Article 1545. Where the obligation of either party to a contract of sale is subject to any condition which is not performed, such party may refuse to proceed with the contract or he may waive performance of the condition. If the other party has promised that the condition should happen or be performed, such first mentioned party may also treat the nonperformance of the condition as a breach of warranty. Where the ownership in the thing has not passed, the buyer may treat the fulfillment by the seller of his obligation to deliver the same as described and as warranted expressly or by implication in the contract of sale as a condition of the obligation of the buyer to perform his promise to accept and pay for the thing. (n)

• Two alternative remedies where obligation of the other party to a contract of sale is subject to a condition, and such is not performed.

1. Refusal to proceed with contract. 2. Waive performance of the condition.

• Distinction between condition imposed on perfection and imposed on performance. Romero v. Court of Appeals 250 SCRA 223 (1995).

• Failure to comply with condition imposed upon perfection of the contract results in failure of a contract, while the failure to comply with a condition imposed on the performance of an obligation only gives the other party the option either to refuse to proceed with sale or waive the condition. Laforteza v. Machuca, 333 SCRA 643 (2000).1

Condition imposed on perfection Condition imposed on

performance Failure to comply results in failure

of contract Failure to comply results in the two remedies being available to

the other party.

Laforteza v. Machuca Facts: In the exercise of the authority of Special Power Of Attorney, on January 20, 1989, the heirs of the late Francisco Q. Laforteza represented by Roberto Z. Laforteza and Gonzalo Z. Laforteza, Jr. entered into a Memorandum of Agreement (Contract to Sell) with the plaintiff over the subject property for the sum of 630,000 payable as follows:

• 30,000 –earnest money, to be forfeited in favor of Lafortezas if the sale is not effected due to the fault of Machuca

• 600,000 – upon issuance of the new certificate of title in the name of late Francisco Laforteza and upon execution of an extra judicial settlement of the decedent’s estate with sale in favor of

1 Romero v. Court of Appeals, 250 SCRA 223 (1995); Adalin v. CA, 280 SCRA 536 (1997); Republic v. Florendo, 549 SCRA 527 (2008).



Machuca Paragraph 4 of the Memorandum contained a provision that: upon issuance of the new title, the Machuca shall be notified in writing and he shall have 30 days to produce the balance of 600k which shall be paid to Laforteza upon execution of the extrajudicial settlement. Machuca paid earnest money of 30k plus rentals for subject property. Upon failure of Machuca to comply with the payment of the balance, Lafortezas informed the formed that they were canceling the contract. Machuca requested that he intends to tender payment of the balance which was refused by the Lafortezas who insisted for the rescission of the memorandum. Machuca filed an action for specific performance Issue: Whether the contract executed by the parties is a contract of sale or a contract to sell Held: CONTRACT OF SALE AND LEASE. The Memorandum of Agreement shows that the transaction between the petitioners and respondent was one of sale and lease. A contract of sale is a consensual contract and is perfected at the moment there is a meeting of the minds upon the thing which is the object of the contract and upon the price. From that moment the parties may reciprocally demand performance subject to the provisions of the law governing the form of contracts. In this case, there was a perfected agreement between the petitioners and respondent whereby Lafortezas obligated themselves to transfer the ownership of and deliver the house and lot and Machuca to pay the price amounting to 630k. All the elements of a contract of sale were thus present. However, the balance of the purchase price was to be paid only upon the issuance of the new certificate of title in lieu of the one in

the name of the late Francisco Laforteza and upon the execution of an extrajudicial settlement of his estate. Prior to the issuance of the “reconstituted” title, Machuca was already placed in possession of the house and lot as lessee thereof for 6 months at a monthly rate of 3,500k. It was stipulated that should the issuance of the new title and execution of the extrajudicial settlement be completed prior to expiration of 6month period, Machuca would be liable only for the rentals pertaining to the period commencing from the date of the execution of the agreement up to the executon of the extrajudicial settlement. In this case, the 6-‐month period merely delayed the demandability of the contract of sale and did not determine perfection for after the expiration of the 6 month period, there was a absolute obligation on the part of Lafortezas and Machuca to comply with the terms of the sale. The fact that after the expiration of the 6-‐month period, Machuca would retain possession of the house and lot without need of paying rentals for the use therefore, clearly indicated that the parties contemplated that ownership over the property would already be transferred by that time. What further indicated that this was a contract of sale was the payment of earnest money. Earnest money is something of value to show that buyer was really in earnest, and given to the seller to bind the bargain. Whenever earnest money is given in a contract of sale, it is considered as part of the purchase price and proof of the perfection of the contract. Doctrine:



• In a “Sale with Assumption of Mortgage,” the assumption of

mortgage is a condition to the seller’s consent so that without approval by the mortgagee, no sale is perfected. In such case, the seller remains the owner and mortgagor of the property and retains the right to redeem the foreclosed property. xRamos v. CA, 279 SCRA 118 (1997). 1 But such condition is deemed fulfilled when the seller takes any action to prevent its happening. De Leon v. Ong, 611 SCRA 381 (2010).

o Contract of sale to become effective upon happening of the condition. Heirs of Escanlar v. Court of Appeals, 281 SCRA 176 (1997). Non-‐happening did not affect validity of the contract only the effectivity.

• There has arisen here a confusion in the concepts of validity and the efficacy of a contract. Under Article 1318 of Civil Code, the essential requisites of a contract are: consent of the contracting parties; object certain which is the subject matter of the contract and cause of the obligation which is established. Absent one of the above, no contract can arise. Conversely, where all are present, the result is a valid contract. However, some parties introduce various kinds of restrictions or modalities, the lack of which will not, however, affect the validity of the contract. Thus, a provision “this Contract of Sale of rights, interests and participations shall become effective only upon the approval by the Honorable Court,” in the event of non-‐approval by the courts, affect only the effectivity and not

1 Biñan Steel Corp. v. Court of Appeals, 391 SCRA 90 (2002).

the validity of the contract of sale. Heirs of Pedro Escanlar v. Court of Appeals, 281 SCRA 176 (1997).

Heirs of Pedro Escanlar v. Court of Appeals

Facts: The Heirs of Cari-‐an executed a Deed of Sale of Rights, Interests, and Participation over a parcel of undivided land in favor of the Heirs of Escanlar. It was stipulated that “the contract shall become effective only upon approval of the CFI of Negros Occidental.” The Heirs of Escanlar failed to pay the balance of the purchase price, but the Heirs of Cari-‐an never demanded payment and continued to accept belated payments. They later on sold their interests over the same land to the Chuas and assailed the validity of the Deed of Sale they executed with the Heirs of Escanlar. The lower courts annulled the contract for not having the approval of the court as stipulated. Issue: Whether or not the Deed of Sale to the Heirs of Escanlar is valid Held: YES. There is a distinction between the validity and effectivity. Only the effectivity was made subject to the condition. So long as all the requisites (consent, subject matter, and price) are present, as in this case, the contract is already perfected. Nonetheless, the intent of the parties clearly manifests their intention to give efficacy to the contract. In fact, the vendors continued to accept payments. That being the case, the sale in favor of the Heirs of Escanlar must be preferred as it is a valid and subsisting one. Doctrine:



• The phrase “as is, where is” in sale pertains solely to the physical condition of the thing sold, not to its legal situation. Assets Privatization Trust v. T.J. Enterprises, 587 SCRA 481 (2009).

• The vendor is bound to transfer the ownership of and deliver, as well as warrant the thing which is the object of the sale. Assets Privatization Trust v. T.J. Enterprises, 587 SCRA 481 (2009).

II. Conditions versus Warranties.

• When ownership has not passed, buyer may treat the fulfillment of the seller of his obligation under the contract as a condition for his obligation to accept and pay.

• If the party promised that a condition would be performed or would happen, other party may treat non-‐performance of such as a breach of warranty.

o Such stipulation elevates the condition to a warranty o And entitle the other party to damages

Condition Warranty

Non-‐happening of condition does not amount to a breach

Non-‐fulfillment of warranty constitutes a breach

Goes into root of existence of the obligation

Goes into performance May constitute an obligation in itself

Must be stipulated by the parties

May form part of the obligation by provision of law, even without

stipulation. May attach to the seller or to

the buyer Relates to subject matter itself, or obligations of the seller as to the

subject matter.

• Power Commercial and Industrial Corp. v. Court of Appeals, 274 SCRA 597 (1997).

Power Commercial and Industrial Corp. v. Court of Appeals

Facts: Power Commercial Corp entered into a contract of sale with the Quiambao spouses. It agreed to assume the mortgages thereon. A Deed of Absolute Sale with Assumption of Mortgage was executed. Power Commercial Corp failed to settle the mortgage debt contracted by the spouses, thus it could not undertake the proper action to evict the lessees on the lot. Power Commercial Corp thereafter sought to rescind the contract of sale alleging that it failed to take actual and physical possession of the lot. Issue: Whether or not there was a breach of warranty on the part of the spouses that it would evict the lessees Held: NO. First, such condition that the Quiambao spouses would have to evict the lessees was not stipulated in the contract. Thus, it cannot be considered a condition imposed upon its perfection. In fact, Power Commercial Corp. was well aware of the presence of the tenants therein. It was also given control over the said lot and it endeavored to terminate the occupation of its actual tenants. Also, since it was Power Commercial that knowingly undertook the risk of evicting the lessees, it cannot now claim that there was a breach of warranty on the part of the vendor.



III. Express Warranties (Article 1546) Article 1546. Any affirmation of fact or any promise by the seller relating to the thing is an express warranty if the natural tendency of such affirmation or promise is to induce the buyer to purchase the same, and if the buyer purchase the thing relying thereon. No affirmation of the value of the thing, nor any statement purporting to be a statement of the seller's opinion only, shall be construed as a warranty, unless the seller made such affirmation or statement as an expert and it was relied upon by the buyer. (n) A. Definition

• A warranty is a statement or representation made by the seller of goods, contemporaneously and as part of the contract of sale, having reference to the character, quality or title of the goods, and by which he promises or undertakes to insure that certain facts are or shall be as he then represents them Ang v. Court of Appeals, 567 SCRA 53 (2008).

• A warranty is an affirmation of fact or any promise made by a vendor in relation to the thing sold. The decisive test is whether the vendor assumes to assert a fact of which the vendee is ignorant. xGoodyear Philippines, Inc. v. Sy, 474 SCRA 427 (2005).

B. Requisites and Liability for Express Warrant

• Breach of an express warranty makes the seller liable for damages. The following requisites must be established in order that there be an express warranty in sale: (1) the express

warranty must be an affirmation of fact or any promise by the seller relating to the subject matter of the sale; (2) the natural tendency of such affirmation or promise is to induce the buyer to purchase the thing; and (3) the buyer purchases the thing relying on such affirmation or promise thereon. xCarrascoso, Jr. v. CA, 477 SCRA 666 (2005).

• The principle of caveat emptor only requires the purchaser to exercise care and attention ordinarily exercised by prudent men in like business affairs, and only applies to defects which are open and patent to the service of one exercising such care. It can only be applied where it is shown or conceded that the parties to the contract stand on equal footing and have equal knowledge or equal means of knowledge and there is no relation of trust or confidence between them. It does not apply to a representation that amounts to a warranty by the seller and the situation requires the buyer to rely upon such promise or affirmation. Guinhawa v. People, 468 SCRA 278 (2005).1

Guinhawa v. People

Facts: Jaime Guinhawa is engaged in the business of selling brand new vehicles, and had a showroom displaying his products. Guinhawa purchased a brand new Mitsubishi L-‐300 from Manila. Guinhawa’s driver, Leopoldo Olayan, drove the van from Manila to Naga. However, Olayan suffered a heart attack during the trip causing the damage to the under chassis since the left front tire had to be replaced. This was repaired and the van was put on display in Guinhawa’s showroom. This

1 Oro Land Realty Dev. Corp. v. Claunan, 516 SCRA 681 (2007)



same van was later sold to Spouses Silo who are engaged in the business of buying garments in Manila and selling them in Naga. They saw the van in Guinhawa’s showroom and inspected its interior but not the under chassis. They also did not conduct a test drive, and so bought the van without any knowledge of the damage it had previously incurred. Azotea, the sales manager, was the one who transacted with the Spouses Silo and furnished the couple with a Service Manual containing the warranty terms and conditions. The day after the van was bought by the spouses, Josephine Silo (wife) went to Manila with Glenda Pingol and the latter’s husband (driver). On the way back, they heard a squeaking sound and later discovered that it was caused by parts underneath the vehicle that were welded together. Guinhawa insisted that the defects were mere factory defects. As the defects persisted, the spouses requested that Guinhawa replace the van with 2 Charade-‐Daihatsu vehicles within a week or two, with the additional costs to be taken from their downpayment. However, the spouses later asked for the rescission of the contract upon discovering that the van was really not brand new. Issue: Whether or not there were fraudulent representations by Guinhawa. Held: YES. The Supreme Court ruled that Jaime Guinhawa is guilty of other deceits. The Court pointed out that the crime could be committed by omission. If, in a contract of sale, the vendor knowingly allowed the vendee to be deceived as to the thing sold in a material matter by failing to disclose an intrinsic circumstance that is vital to the contract, knowing that the vendee is acting upon the presumption that no such fact exists, deceit is accomplished by the suppression of the truth.

Azotea knew that the van had figured in an accident, was damaged and had to be repaired. Nevertheless, the van was placed in the showroom, thus making it appear to the public that it was a brand new unit. �The petitioner was mandated to reveal the foregoing facts to the private complainant. Doctrine:

• Affirmation of value or statement of seller’s opinion is not a warranty (Article 1341). Unless seller made such statement as an expert, and was relied upon by the buyer.

o “The law allows considerable latitude to seller’s statements, or dealer’s talk; and experience teaches that it is exceedingly risky to accept it at its face value. Assertions concerning the property which is the subject of a contract of sale, or in regard to its qualities and characteristics, are the usual and ordinary means used by sellers to obtain a high price and are always understood as affording to buyers no ground for omitting to make inquiries. A man who relies upon such an affirmation made by a person whose interest might so readily prompt him to exaggerate the value of his property does so as his peril, and must take the consequences of his own imprudence.” xSongco v. Sellner, 37 Phil. 254 (1917).

• Assertions concerning the property’s characteristics are the usual and ordinary means of sellers to get a high price. A man who relies upon such affirmation...does so at his own peril. Azarraga v. Gay, 52 Phil. 599 (1928)



IV. Implied Warranties (Article 1547) Article 1547. In a contract of sale, unless a contrary intention appears, there is: (1) An implied warranty on the part of the seller that he has a right to sell the thing at the time when the ownership is to pass, and that the buyer shall from that time have and enjoy the legal and peaceful possession of the thing; (2) An implied warranty that the thing shall be free from any hidden faults or defects, or any charge or encumbrance not declared or known to the buyer. This Article shall not, however, be held to render liable a sheriff, auctioneer, mortgagee, pledgee, or other person professing to sell by virtue of authority in fact or law, for the sale of a thing in which a third person has a legal or equitable interest. (n) A. Definition

• Implied Warranties (definition) ! those which by law constitute part of every contract of sale, whether or not the parties were aware of or intended them.

• Who is liable? General Rule: Only a seller is bound by the implied warranties.

o Exception: Express stipulation in contract may make the agent of the seller bound by these.

B. Warranty That Seller Has Right to Sell • The implied warranty that seller has the right to sell the thing at

the time the ownership is to pass refers only to the transfer of ownership at the point of consummation, NOT any representation as to ownership at the point of perfection.

• It shall not be applicable to render liable a sheriff, auctioneer, mortgagee, pledgee or any other person professing to sell by virtue of authority in fact or law.

o For the sale of a thing in which a third person has a legal/equitable interest

• There can be no legal waiver of this warranty without changing basic nature of the relationship

o Unless it amounts to clear assumption of risk on the part of the buyer

C. Warranty Against Eviction (Articles 1548-‐1560) Article 1548. Eviction shall take place whenever by a final judgment based on a right prior to the sale or an act imputable to the vendor, the vendee is deprived of the whole or of a part of the thing purchased. The vendor shall answer for the eviction even though nothing has been said in the contract on the subject. The contracting parties, however, may increase, diminish, or suppress this legal obligation of the vendor. (1475a) Article 1549.



The vendee need not appeal from the decision in order that the vendor may become liable for eviction. (n) Article 1550. When adverse possession had been commenced before the sale but the prescriptive period is completed after the transfer, the vendor shall not be liable for eviction. (n) Article 1551. If the property is sold for nonpayment of taxes due and not made known to the vendee before the sale, the vendor is liable for eviction. (n) Article 1552. The judgment debtor is also responsible for eviction in judicial sales, unless it is otherwise decreed in the judgment. (n) Article 1553. Any stipulation exempting the vendor from the obligation to answer for eviction shall be void, if he acted in bad faith. (1476) Article 1554. If the vendee has renounced the right to warranty in case of eviction, and eviction should take place, the vendor shall only pay the value which the thing sold had at the time of the eviction. Should the vendee have made the waiver with knowledge of the risks of eviction and assumed its consequences, the vendor shall not be liable. (1477) Article 1555.

When the warranty has been agreed upon or nothing has been stipulated on this point, in case eviction occurs, the vendee shall have the right to demand of the vendor: (1) The return of the value which the thing sold had at the time of the eviction, be it greater or less than the price of the sale; (2) The income or fruits, if he has been ordered to deliver them to the party who won the suit against him; (3) The costs of the suit which caused the eviction, and, in a proper case, those of the suit brought against the vendor for the warranty; (4) The expenses of the contract, if the vendee has paid them; (5) The damages and interests, and ornamental expenses, if the sale was made in bad faith. (1478) Article 1556. Should the vendee lose, by reason of the eviction, a part of the thing sold of such importance, in relation to the whole, that he would not have bought it without said part, he may demand the rescission of the contract; but with the obligation to return the thing without other encumbrances that those which it had when he acquired it. He may exercise this right of action, instead of enforcing the vendor's liability for eviction. The same rule shall be observed when two or more things have been



jointly sold for a lump sum, or for a separate price for each of them, if it should clearly appear that the vendee would not have purchased one without the other. (1479a) Article 1557. The warranty cannot be enforced until a final judgment has been rendered, whereby the vendee loses the thing acquired or a part thereof. (1480) Article 1558. The vendor shall not be obliged to make good the proper warranty, unless he is summoned in the suit for eviction at the instance of the vendee. (1481a) Article 1559. The defendant vendee shall ask, within the time fixed in the Rules of Court for answering the complaint, that the vendor be made a co-‐defendant. (1482a) Article 1560. If the immovable sold should be encumbered with any non-‐apparent burden or servitude, not mentioned in the agreement, of such a nature that it must be presumed that the vendee would not have acquired it had he been aware thereof, he may ask for the rescission of the contract, unless he should prefer the appropriate indemnity. Neither right can be exercised if the non-‐apparent burden or servitude is recorded in the Registry of Property, unless there is an express warranty that the thing is free from all burdens and encumbrances.

Within one year, to be computed from the execution of the deed, the vendee may bring the action for rescission, or sue for damages.

• Warranty against eviction is an implied warranty that when ownership will pass, buyer shall have legal and peaceful possession.

• Vendor shall answer for the eviction even if there is no stipulation regarding eviction

• The seller, in declaring that he owned and had clean title to the vehicle, gave an implied warranty of title, and in pledging that he “will defend the same from all claims or any claim whatsoever [and] will save the vendee from any suit by the government of the Republic of the Philippines,” he gave a warranty against eviction, and the prescriptive period to file a breach thereof is six months after the delivery of the vehicle. Ang v. Court of Appeals, 567 SCRA 53 (2008).

Ang v. Court of Appeals

Facts: Under a "car-‐swapping" scheme, Bruno Soledad sold his Mitsubishi GSR sedan 1982 model to Jaime Ang. For his part, Ang conveyed to Soledad his Mitsubishi Lancer model 1988. Ang, a buyer and seller of used vehicles, later offered the Mitsubishi GSR for sale through Far Eastern Motors, a second-‐hand auto display center. The vehicle was eventually sold to Paul Bugash. Before the deed could be registered in Bugash‘s name, however, the vehicle was seized by virtue of a writ of replevin on account of the alleged failure of Ronaldo Panes, the owner of the vehicle prior to Soledad, to pay the mortgage debt constituted thereon.



To secure the release of the vehicle, Ang paid BA Finance. Soledad refused to reimburse, despite repeated demands, drawing Ang to charge him for Estafa with abuse of confidence. By Resolution, the City Prosecutor‘s Office dismissed the complaint for insufficiency of evidence, drawing Ang to file for consecutive complaints for damages against Soledad before the Regional Trial Court (RTC) of Cebu City. Subsequently, the RTC rendered judgment in favor of Ang "for the sake of justice and equity, and in consonance with the salutary principle of non-‐enrichment at another‘s expense. The RTC then ordered Soledad to pay Ang the amount the latter paid to BA Finance. Soledad then appealed to the Appellate Court, which reverses the decision of the RTC. The Court of Appeals dismissed Ang‘s petition on the ground that the filing of said complaint seeking the awarding of damages for breach of warranty has already prescribed. Issue: Whether or not Ang‘s cause of action had not yet prescribed when he filed the complaint Held: YES. In declaring that he owned and had clean title to the vehicle at the time the Deed of Absolute Sale was forged, Soledad gave an implied warranty of title. In pledging that he "will defend the same from all claims or any claim whatsoever and will save the vendee from any suit by the government of the Republic of the Philippines," Soledad gave a warranty against eviction. Given Ang‘s business of buying and selling used vehicles, he could not have merely relied on Soledad‘s affirmation that the car was free from

liens and encumbrances. He was expected to have thoroughly verified the car‘s registration and related documents. Since what Soledad, as seller, gave was an implied warranty, the prescriptive period to file a breach thereof is six months after the delivery of the vehicle, following Article 1571. But even if the date of filing of the action is reckoned from the date petitioner instituted his first complaint for damages on November 9, 1993, and not on July 15, 1996 when he filed the complaint subject of the present petition, the action just the same had prescribed, it having been filed 16 months after July 28, 1992, the date of delivery of the vehicle Doctrine:

1. When There Is Breach Of This Warranty a. Purchaser has been deprived of/evicted from the whole

or part of the thing sold " The buyer need not resist the eviction.

b. Eviction is by final judgment " The warranty cannot be enforced until a final

judgment has been rendered whereby the buyer loses the thing acquired or a part thereof.

" The buyer need not appeal from the decision in order that the seller may become liable for eviction.

c. Basis thereof is a right prior to the sale made by the seller

d. Seller has been summoned and made co-‐defendant in the suit for eviction at the instance of the buyer



" In order to constitute notice of eviction to the seller, the seller must have been made a party to the case.

• Warranty cannot be enforced against seller when buyer merely mailed seller a copy of the opposition of buyer to the eviction suit. Seller must be summoned in the suit for eviction at the instance of the buyer (Article 1558), and be made a co-‐defendant (Article 1559); or made a third-‐party defendant. Escaler v. Court of Appeals, 138 SCRA 1 (1985).1

" This is the only condition that is required to be complied with by the vendee. Once this is proven, the buyer’s right to the warranty is perfect, and the seller cannot set up anything against it. Jovellano v. Lualhati, 47 Phil. 371 (1925)

• No action for breach of this warranty when buyer was well aware of the presence of tenants, and even undertook the job of ejecting these squatters. Power Commercial v. CA, 274 SCRA 597 (1997)

2. Eviction In Part (Article 1556)

3. Particular Causes Given By Law (Article 1550 – 1551)

1 Canizares Tiana v. Torrejos, 21 Phil. 127 (1911); J.M. Tuazon v. CA, 94 SCRA 413 (1979).

4. Applicability to Judicial Sales (Article 1552) • BUT in the following cases:

o Santiago Land Dev. Corp. v. Court of Appeals, 276 SCRA 674 (1997), the Court ruled that a buyer at execution sales takes property subject to superior right of other parties. Therefore, the judgment debtor-‐seller is not liable for eviction.

o Caveat emptor applies in execution sales, and the sheriff does not warrant the title to the property sold by him. It is not incumbent upon him to place purchaser in possession. Allure Manufacturing, Inc. v. Court of Appeals, 199 SCRA 285 (1991)

• No Warranty Against Eviction When Execution Sale – In voluntary sales, vendor can be expected to defend his title because of his warranty to the vendees but no such obligation is owed by the owner whose land is sold at execution sale. xSantiago Land Dev. Corp. v. CA, 276 SCRA 674 (1997).

o BUT SEE: Article 1552 • Atty. Santiago: In judicial sales, sometimes what is being sold is

not the property of the judicial debtor, but that of the guarantor. The owner in this case cannot be held liable for warranty of eviction, but rather it is judgment-‐debtor who should be held liable for eviction.

5. Amounts For Which Seller Is Liable In Case Of Eviction (Article

1555)

6. Waiver Of Warranty And Effects (Article 1553) • Effect of waiver depends on nature of such waiver. Whether:



o It is a general or specific waiver; and o Done in good faith or bad faith on seller’s part

• If seller acted in bad faith, then any stipulation exempting seller from answering eviction shall be void. Article 1553.

• If buyer merely renounces the warranty in general terms, and without knowledge of a particular risk, and eviction takes place, the seller shall only pay the value of thing at time of eviction.

o General waiver limits liability of seller. • If buyer waived with knowledge of risks (specific waiver) seller

shall not be liable. o Even when there is no specific waiver, buyer cannot

hold seller liable when he is aware of a third party claim (BUYER MUST BE IN GOOD FAITH). JM Tuazon v. CA, 94 SCRA 413 (1970)

D. Warranty Against Non-‐Apparent Servitudes (Articles 1560)

1. Requisites for Warranty Against Non-‐Apparent Servitude a. Immovable sold is encumbered by non-‐apparent

burden/servitude, not mentioned in the agreement. b. Nature of such makes it so that the buyer would not

have acquired the immovable had be been aware of it.

2. This warranty does not apply a. When servitude is mentioned in the agreement b. If the non-‐apparent burden is recorded in the Registry

of Deeds o Unless there is an express warranty that the thing is free

from all burdens and encumbrances.

3. Remedies and Prescriptive Period • Buyer may bring action for rescission or sue for damages within

one (1) year from execution of the deed. • If this has elapsed, he may only bring an action for damages

within one year from when he discovered the servitude. E. Warranty Against Hidden Defects (Articles 1561-‐1580) Article 1561. The vendor shall be responsible for warranty against the hidden defects which the thing sold may have, should they render it unfit for the use for which it is intended, or should they diminish its fitness for such use to such an extent that, had the vendee been aware thereof, he would not have acquired it or would have given a lower price for it; but said vendor shall not be answerable for patent defects or those which may be visible, or for those which are not visible if the vendee is an expert who, by reason of his trade or profession, should have known them. (1484a) Article 1562. In a sale of goods, there is an implied warranty or condition as to the quality or fitness of the goods, as follows: (1) Where the buyer, expressly or by implication, makes known to the seller the particular purpose for which the goods are acquired, and it appears that the buyer relies on the seller's skill or judgment (whether he be the grower or manufacturer or not), there is an implied warranty that the goods shall be reasonably fit for such purpose;



(2) Where the goods are brought by description from a seller who deals in goods of that description (whether he be the grower or manufacturer or not), there is an implied warranty that the goods shall be of merchantable quality. (n) Article 1563. In the case of contract of sale of a specified article under its patent or other trade name, there is no warranty as to its fitness for any particular purpose, unless there is a stipulation to the contrary. (n) Article 1564. An implied warranty or condition as to the quality or fitness for a particular purpose may be annexed by the usage of trade. (n) Article 1565. In the case of a contract of sale by sample, if the seller is a dealer in goods of that kind, there is an implied warranty that the goods shall be free from any defect rendering them unmerchantable which would not be apparent on reasonable examination of the sample. (n) Article 1566. The vendor is responsible to the vendee for any hidden faults or defects in the thing sold, even though he was not aware thereof. This provision shall not apply if the contrary has been stipulated, and the vendor was not aware of the hidden faults or defects in the thing sold. (1485) Article 1567.

In the cases of articles 1561, 1562, 1564, 1565 and 1566, the vendee may elect between withdrawing from the contract and demanding a proportionate reduction of the price, with damages in either case. (1486a) Article 1568. If the thing sold should be lost in consequence of the hidden faults, and the vendor was aware of them, he shall bear the loss, and shall be obliged to return the price and refund the expenses of the contract, with damages. If he was not aware of them, he shall only return the price and interest thereon, and reimburse the expenses of the contract which the vendee might have paid. (1487a) Article 1569. If the thing sold had any hidden fault at the time of the sale, and should thereafter be lost by a fortuitous event or through the fault of the vendee, the latter may demand of the vendor the price which he paid, less the value which the thing had when it was lost. If the vendor acted in bad faith, he shall pay damages to the vendee. (1488a) Article 1570. The preceding articles of this Subsection shall be applicable to judicial sales, except that the judgment debtor shall not be liable for damages. (1489a) Article 1571. Actions arising from the provisions of the preceding ten articles shall



be barred after six months, from the delivery of the thing sold. (1490) Article 1572. If two or more animals are sold together, whether for a lump sum or for a separate price for each of them, the redhibitory defect of one shall only give rise to its redhibition, and not that of the others; unless it should appear that the vendee would not have purchased the sound animal or animals without the defective one. The latter case shall be presumed when a team, yoke pair, or set is bought, even if a separate price has been fixed for each one of the animals composing the same. (1491) Article 1573. The provisions of the preceding article with respect to the sale of animals shall in like manner be applicable to the sale of other things. (1492) Article 1574. There is no warranty against hidden defects of animals sold at fairs or at public auctions, or of live stock sold as condemned. (1493a) Article 1575. The sale of animals suffering from contagious diseases shall be void. A contract of sale of animals shall also be void if the use or service for which they are acquired has been stated in the contract, and they are found to be unfit therefor. (1494a)

Article 1576. If the hidden defect of animals, even in case a professional inspection has been made, should be of such a nature that expert knowledge is not sufficient to discover it, the defect shall be considered as redhibitory. But if the veterinarian, through ignorance or bad faith should fail to discover or disclose it, he shall be liable for damages. (1495) Article 1577. The redhibitory action, based on the faults or defects of animals, must be brought within forty days from the date of their delivery to the vendee. This action can only be exercised with respect to faults and defects which are determined by law or by local customs. (1496a) Article 1578. If the animal should die within three days after its purchase, the vendor shall be liable if the disease which cause the death existed at the time of the contract. (1497a) Article 1579. If the sale be rescinded, the animal shall be returned in the condition in which it was sold and delivered, the vendee being answerable for any injury due to his negligence, and not arising from the redhibitory fault or defect. (1498) Article 1580. In the sale of animals with redhibitory defects, the vendee shall also



enjoy the right mentioned in article 1567; but he must make use thereof within the same period which has been fixed for the exercise of the redhibitory action. (1499)

1. Liability for Hidden Defects • Seller shall be responsible when...

a. Nature of hidden defect is such that it would render the subject manner unfit for the use for which it was intended.

b. Diminish its fitness to such an extent that buyer would not have bought it or he would have paid a lower price for it.

Note: Seller responsible even if he was not aware of these hidden defects. Article 1566(1)

• Seller not answerable for patent defects, or those which are visible.

o Even for those which are invisible, if the buyer should know about them by reason of his trade/profession

• The warranty applies to both movable and immovable • Seller’s agent can by agreement be liable for the warranty

against hidden defects. xSchmid and Oberly, Inc. v. RJL Martinez, 166 SCRA 493 (1988).

2. Requisites for Breach • A hidden defect is one which is unknown or could not have been

known to the buyer. Under the law, the requisites to recover on account of hidden defects are as follows: (a) The defect must be hidden; (b) The defect must exist at the time the sale was made; (c) The defect must ordinarily have been excluded from the

contract; (d) The defect, must be important (render the thing unfit or considerably decreases fitness); (e) The action must be instituted within the statute of limitations. Nutrimix Feeds Corp. v. Court of Appeals, 441 SCRA 357 (2004).1

Nutrimix Feeds Corp. v. Court of Appeals

Facts: Evangelista spouses purchased feeds from Nutrimix. They refused to pay their unsettled debt claiming that thousands of their livestock were poisoned by the Nutrimix feeds. Nutrimix sued them for collection of money. The spouses countered with a suit for that time, they may have already been contaminated. Issue: Whether or not Nutrimix is guilty of breach of warranty due to hidden defects Held: NO. In the sale of animal feeds, there is an implied warranty that it is reasonably fit and suitable to be used for the purpose which both parties contemplated. To be able to prove liability on the basis of breach of implied warranty, three things must be established by the respondents.

• First is that they sustained injury because of the product; the • Second is that the injury occurred because the product was

defective or unreasonably unsafe; and • Finally, the defect existed when the product left the hands of

the petitioner.

1 Investments & Development, Inc. v. CA, 162 SCRA 636 [1988]).



A manufacturer or seller of a product cannot be held liable for any damage allegedly caused by the product in the absence of any proof that the product in question was defective. The defect must be present upon the delivery or manufacture of the product; or when the product left the seller’s or manufacturer’s control; or when the product was sold to the purchaser; or the product must have reached the user or consumer without substantial change in the condition it was sold. In alleging that there was a violation of warranty against hidden defects, the spouses assumed the burden of proof. However, this they failed to overcome. Under the law, the defect must exist at the time the sale was made and at the time the product left the hands of the seller, which the spouses failed to prove. The feeds were belatedly tested—3 months after the death of the broilers and hogs. This means that that time, they may have already been contaminated. They failed to prove that the feeds delivered to be tested were the same feeds that allegedly poisoned the animals. Doctrine:

3. Remedies for the Buyer (Article 1567) • The buyer may either:

o Withdraw (accion redhibitoria); or o Demand a reduction of the price (action quanti minoris)

• Damages in either case. • The choice of remedies is available only when the thing has not

been lost.

4. Obligation of the Seller (Article 1568)

• If it has been lost, obligations of seller depend on cause of loss, knowledge of hidden defect by seller, and whether there was a waiver of the warranty.

o Lost through hidden faults " If seller was aware ! he shall bear the loss, and

return the price and expenses of the contract, with damages.

" If seller was not aware ! only obliged only to return the price and interest thereon, and reimburse the expenses of contract, but no damages.

o If lost through fortuitous event or through fault of buyer " If seller was not aware i.e. in good faith !

buyer may demand the price he paid, less value of the thing when it was lost.

" If seller in bad faith ! he shall pay damages to the buyer,

5. When There is Waiver of Warranty (Article 1566) • If seller not aware ! loss will not make seller liable • If seller was in bad faith ! seller still liable on the warranty • The stipulation in a lease with option to purchase (treated as a

sale of movable on installments) that the buyer-‐lessee “absolutely releases the lessor from any liability whatsoever as to any and all matters in relation to warranty in accordance with the provisions hereinafter stipulated,” was held as an express waiver of warranty against hidden defect in favor of the seller-‐lessor which “absolved the [seller-‐lessor] from any liability arising from any defect or deficiency of the machinery they



bought.” xFilinvest Credit Corp. v. Court of Appeals, 178 SCRA 188 (1989).

6. Applicability to Judicial Sales (Article 1570) • Although there may be hidden defects, the debtor may not have

been in bad faith especially if the property was not his own but the guarantor’s. As such, the judgment-‐debtor cannot be held liable for damages for the hidden defects.

F. Redhibitory Defects of Animals (Article 1576)

1. Sale of Team (Article 1572 – 1573)

2. Other Rules on Sale of Animals (Article 1574 – 1575, 1577 – 1578)

3. Obligation Of Buyer To Return (Article 1679)

4. Remedies of the Buyer (Article 1580) G. Warranty as to Fitness or Quality of Goods (Article 1562)

1. Requisites for Breach of Warranty to Apply • In order to enforce the implied warranty that the goods are

reasonably fit and suitable to be used for the purpose which both parties contemplated, the following must be established: (a) that the buyer sustained injury because of the product; (b) that the injury occurred because the product was defective or unreasonably unsafe; and finally (c) the defect existed when the product left the hands of the petitioner. Nutrimix Feeds Corp. v. Court of Appeals, 441 SCRA 357 (2004).

• A manufacturer or seller of a product cannot be held liable for any damage allegedly caused by the product in the absence of any proof that the product in question is defective, which was present upon the delivery or manufacture of the product; or when the product left the seller’s or manufacturer’s control; or when the product was sold to the purchaser; or the product must have reached the user or consumer without substantial change in the condition it was sold. Nutrimix Feeds Corp. v. Court of Appeals, 441 SCRA 357 (2004).

2. Measures of Damage In Case of Breach of Warranty On Quality • Difference between value of goods at the time of delivery and

the value they would have had if the warranty was complied with. (Article 1599)

o Applies in absence of special circumstances showing damage of a greater amount

H. Sale of Goods by Sample (Article 1565)

• A seller’s description of the goods which is made part of the basis of the transaction creates a warranty that the goods will conform to that description. xMendoza v. David, 441 SCRA 172 (2004).

• There is a sale by sample when a small quantity is exhibited by the seller as a fair specimen of the bulk, which is not present and there is no opportunity to inspect or examine the same. To constitute a sale by sample, it must appear that the parties treated the sample as the standard of quality and that they contracted with reference to the sample with the understanding that the product to be delivered would correspondent with the



sample. In a contract of sale by sample, there is an implied warranty that the goods shall be free from any defect which is not apparent on reasonable examination of the sample and which would render the goods unmerchantable. xMendoza v. David, 441 SCRA 172 (2004).

V. Additional Warranties for Consumer Products (Articles 68, Consumer Act, R.A. 7394). REPUBLIC ACT NO. 7394 Article 68. Additional Provisions on Warranties. In addition to the Civil Code provisions on sale with warranties, the following provisions shall govern the sale of consumer products with warranty:

a) Terms of express warranty. – Any seller or manufacturer who gives an express warranty shall:

1) set forth the terms of warranty in clear and readily understandable language and clearly identify himself as the warrantor;

2) identify the party to whom the warranty is extended; 3) state the products or parts covered; 4) state what the warrantor will do in the event of a

defect, malfunction of failure to conform to the written warranty and at whose expense;

5) state what the consumer must do to avail of the rights which accrue to the warranty; and

6) stipulate the period within which, after notice of defect, malfunction or failure to conform to the

warranty, the warrantor will perform any obligation under the warranty.

b) Express warranty – operative from moment of sale. – All written warranties or guarantees issued by a manufacturer, producer, or importer shall be operative from the moment of sale.

1) Sales Report. – All sales made by distributors of products covered by this Article shall be reported to the manufacturer, producer, or importer of the product sold within thirty (30) days from date of purchase, unless otherwise agreed upon. The report shall contain, among others, the date of purchase, model of the product bought, its serial number, name and address of the buyer. The report made in accordance with this provision shall be equivalent to a warranty registration with the manufacturer, producer, or importer. Such registration is sufficient to hold the manufacturer, producer, or importer liable, in appropriate cases, under its warranty.

2) Failure to make or send report. – Failure of the distributor to make the report or send them the form required by the manufacturer, producer, or importer shall relieve the latter of its liability under the warranty: Provided, however, That the distributor who failed to comply with its obligation to send the sales reports shall be personally liable under the warranty. For this purpose, the manufacturer shall be obligated to make good the warranty at the expense of the distributor.



3) Retail. – The retailer shall be subsidiarily liable under the warranty in case of failure of both the manufacturer and distributor to honor the warranty. In such case, the retailer shall shoulder the expenses and costs necessary to honor the warranty. Nothing therein shall prevent the retailer from proceeding against the distributor or manufacturer.

4) Enforcement of warranty or guarantee. – The warranty rights can be enforced by presentment of a claim. To this end, the purchaser needs only to present to the immediate seller either the warranty card of the official receipt along with the product to be serviced or returned to the immediate seller. No other documentary requirement shall be demanded from the purchaser. If the immediate seller is the manufacturer's factory or showroom, the warranty shall immediately be honored. If the product was purchased from a distributor, the distributor shall likewise immediately honor the warranty. In the case of a retailer other than the distributor, the former shall take responsibility without cost to the buyer of presenting the warranty claim to the distributor in the consumer's behalf.

5) Record of purchases. – Distributors and retailers covered by this Article shall keep a record of all purchases covered by a warranty or guarantee for such period of time corresponding to the lifetime of the product's respective warranties or guarantees.

6) Contrary stipulations – null and void. – All covenants,

stipulations or agreements contrary to the provisions of this Article shall be without legal effect.

c) Designation of warranties. – A written warranty shall clearly and conspicuously designate such warranty as:

1) "Full warranty" if the written warranty meets the minimum requirements set forth in paragraph (d); or

2) "Limited warranty" if the written warranty does not meet such minimum requirements.

d) Minimum standards for warranties. – For the warrantor of a consumer product to meet the minimum standards for warranty, he shall:

1) remedy such consumer product within a reasonable time and without charge in case of a defect, malfunction or failure to conform to such written warranty;

2) permit the consumer to elect whether to ask for a refund or replacement without charge of such product or part, as the case may be, where after reasonable number of attempts to remedy the defect or malfunction, the product continues to have the defect or to malfunction. The warrantor will not be required to perform the above duties if he can show that the defect, malfunction or failure to conform to a written warranty was caused by damage due to unreasonable use thereof.

e) Duration of warranty. – The seller and the consumer may stipulate the period within which the express warranty shall be enforceable. If the implied warranty on merchantability



accompanies an express warranty, both will be of equal duration. Any other implied warranty shall endure not less than sixty (60) days nor more than one (1) year following the sale of new consumer products.

f) Breach of warranties. – 1) In case of breach of express warranty, the consumer

may elect to have the goods repaired or its purchase price refunded by the warrantor. In case the repair of the product in whole or in part is elected, the warranty work must be made to conform to the express warranty within thirty (30) days by either the warrantor or his representative. The thirty-‐day period, however, may be extended by conditions which are beyond the control of the warrantor or his representative. In case the refund of the purchase price is elected, the amount directly attributable to the use of the consumer prior to the discovery of the non-‐conformity shall be deducted.

2) In case of breach of implied warranty, the consumer may retain in the goods and recover damages, or reject the goods, cancel and contract and recover from the seller so much of the purchase price as has been paid, including damages.

• Republic Act No. 7394 ! Consumer Act of the Philippines • Consumer Products, Article 4(q) ! cover goods which are

o Primarily for personal, family, household, or agricultural purposes

o Which shall include but not limited to food, drugs, cosmetics, and devices.

• (Article 68) Terms of express warranty -‐ Any seller or manufacturer who gives an express warranty shall:

1. Set forth the terms of warranty in clear and readily understandable language and clearly identify himself as warrantor;

2. Identify the party to whom the warranty is extended; 3. State the products or parts covered; 4. State what the warrantor will do in the event of a defect,

malfunction of failure to conform to the written warranty and at whose expense;

5. State what the consumer must do to avail of the rights which accrue to the warranty; and

6. Stipulate the period within which, after notice of defect, malfunction or failure to conform to the warranty, the warrantor will perform any obligation under the warranty.

A. Subsidiary Liability Of Retailer ! Article 68(b)(3)

• The retailer shall be subsidiarily liable under the warranty in case of failure of both the manufacturer and distributor to honor the warranty.

o In such case, the retailer shall shoulder the expenses and costs necessary to honor the warranty.

• Nothing therein shall prevent the retailer from proceeding against the distributor or manufacturer.

B. Enforcement Of Warranty ! Article 68(b)(4)



• Warranty rights may be enforced by presentment to the immediate seller either the warranty card or the official receipt along with the product to be serviced or returned to the immediate seller.

• No other documentary requirement shall be demanded from the purchaser.

C. Duration Of Warranty ! Article 68(e) and (f)

• A period may be stipulated for when the warranty may be enforced.

• But if the implied warranty on merchantability accompanies an express warranty, both will be of equal duration.

• Any other implied warranty shall endure not less than 60 days nor more than 1 year following the sale of new consumer products.

D. Breach Of Warranties ! Article 68(g) 1. In Case Of Breach Of Express Warranty • The consumer may elect to have the goods repaired or its

purchase price refunded. • In case of repair ! the warranty work must be made to

conform to the express warranty within 30 days. o The 30-‐day period may be extended by conditions

which are beyond the control of the warrantor. • In case of refund ! the amount directly attributable to the use

of the consumer prior to the discovery of the non-‐conformity shall be deducted.

2. In Case Of Breach Of Implied Warranty

• The consumer may: o Retain the goods and recover damages OR o Reject the goods, cancel the contract and recover from

the seller so much of the purchase prices as has been paid, included damages.

E. Contrary Stipulations

• All contrary stipulations are void. VI. Effects and Prescription of Warranties (Article 1571)

• A breach in the warranties of the seller entitles the buyer to a proportionate reduction of the purchase price. PNB v. Mega Prime Realty and Holding Corp., 567 SCRA 633 (2008).

• The prescriptive period for instituting actions based on a breach of express warranty is that specified in the contract, and in the absence of such period, the general rule on rescission of contract, which is four years, while for actions based on breach of implied warranty, the prescriptive period is six months from the date of the delivery of the thing sold. Ang v. Court of Appeals, 567 SCRA 53 (2008).

VII. Effects of Waivers



• The phrase “as is, where is” basis pertains solely to the physical condition of the thing sold, not to its legal situation. In the case at bar, the US tax liabilities constitute a potential lien which applies to the subject’s matter’s legal situation, not to its physical aspect. Thus, the buyer has no obligation to shoulder the same. xNDC v. Madrigal Wan Hui Lines Corp., 412 SCRA 375 (2003).

VIII. Buyer’s Options in Case of Breach of Warranty (Article 1599) Article 1599. Where there is a breach of warranty by the seller, the buyer may, at his election: (1) Accept or keep the goods and set up against the seller, the breach of warranty by way of recoupment in diminution or extinction of the price; (2) Accept or keep the goods and maintain an action against the seller for damages for the breach of warranty; (3) Refuse to accept the goods, and maintain an action against the seller for damages for the breach of warranty; (4) Rescind the contract of sale and refuse to receive the goods or if the goods have already been received, return them or offer to return them to the seller and recover the price or any part thereof which has been paid.

When the buyer has claimed and been granted a remedy in anyone of these ways, no other remedy can thereafter be granted, without prejudice to the provisions of the second paragraph of Article 1191. Where the goods have been delivered to the buyer, he cannot rescind the sale if he knew of the breach of warranty when he accepted the goods without protest, or if he fails to notify the seller within a reasonable time of the election to rescind, or if he fails to return or to offer to return the goods to the seller in substantially as good condition as they were in at the time the ownership was transferred to the buyer. But if deterioration or injury of the goods is due to the breach or warranty, such deterioration or injury shall not prevent the buyer from returning or offering to return the goods to the seller and rescinding the sale. Where the buyer is entitled to rescind the sale and elects to do so, he shall cease to be liable for the price upon returning or offering to return the goods. If the price or any part thereof has already been paid, the seller shall be liable to repay so much thereof as has been paid, concurrently with the return of the goods, or immediately after an offer to return the goods in exchange for repayment of the price. Where the buyer is entitled to rescind the sale and elects to do so, if the seller refuses to accept an offer of the buyer to return the goods, the buyer shall thereafter be deemed to hold the goods as bailee for the seller, but subject to a lien to secure payment of any portion of the price which has been paid, and with the remedies for the enforcement of such lien allowed to an unpaid seller by Article 1526.(5)



In the case of breach of warranty of quality, such loss, in the absence of special circumstances showing proximate damage of a greater amount, is the difference between the value of the goods at the time of delivery to the buyer and the value they would have had if they had answered to the warranty. (n)

• The buyer may elect either of the remedies in Article 1599(1) o These remedies are alternative. Article 1599(2)

• The remedy against violation of warranty against hidden defects is either to withdraw from the contract (accion redhibitoria) or to demand a proportionate reduction of the price (accion quanti minoris), with damages in either case. Nutrimix Feeds Corp. v. Court of Appeals, 441 SCRA 357 (2004).

Chapter 12. Conditions and Warranties

Documents

Transcript of Chapter 12. Conditions and Warranties