REDEMPTION IN SALES CONTRACTS
ETRIII CIVIL LAW REVIEW Lecture Series
REDEMPTION AS MODE
OF
EXTINGUISHMENT OF
SALES CONTRACTS
By: Atty. Eduardo
T. Reyes, III
I. Art. 1600. Sales are extinguished by the same
causes as all other obligations, by those stated in the preceding articles of
this Title, and by conventional or legal redemption.
II. Conventional Redemption –
Article 1601. Conventional redemption shall take place
when the vendor reserves the right to repurchase the thing sold, with the
obligation to comply with the provisions of Article 1616and other
stipulations which may have been agreed upon.
In turn, Article 1616 circumscribes the period to redeem/
repurchase, in this manner:
“Art. 1606. The right referred to in Article 1601, in the
absence of an express agreement, shall last four years from the date of the
contract.
Should there be an agreement, the period cannot exceed ten
years.
However, the vendor may still exercise the right to
repurchase within thirty days from the time final judgment was rendered in a
civil action on the basis that the contract was a true sale with right to
repurchase.” (Emphasis supplied)
Thus, the law is clear that the time-frames are only: 4-years if
not expressly agreed upon in the contract and 10-years if subject to a period.
Curiously, what if instead of a period, the right of redemption
is conditioned upon the happening of an event and the fulfillment of the
condition far exceeds 10 years, what do we make of the such?
1.1.Latest case law Cebu State College of
Science and Technology (CSCST) etc. v Luis & Misterio, G.R. No. 179025,
June 17, 2015.
“In cases of
conventional redemption when the vendor a retro reserves the right to
repurchase the property sold,27 the parties to the sale must observe the
parameters set forth by Article 1606 of the New Civil Code, which states:
Art. 1606. The right
referred to in Article 1601, in the absence of an express agreement, shall last
four years from the date of the contract.
Should there be an
agreement, the period cannot exceed ten years.
However, the vendor
may still exercise the right to repurchase within thirty days from the time
final judgment was rendered in a civil action on the basis that the contract
was a true sale with right to repurchase. (Emphasis supplied)
Thus, depending on
whether the parties have agreed upon a specific period within which the vendor
a retro may exercise his right to repurchase, the property subject of the sale
may be redeemed only within the limits prescribed by the aforequoted provision.
In the Decision dated June 23, 2005, this Court ruled that since petitioner and
respondents in this case did not agree on any period for the exercise of the
right to repurchase the property herein, respondents may use said right within
four (4) years from the happening of the allocated conditions contained in
their Deed of Sale: (a) the cessation of the existence of the SAHS, or (b) the
transfer of the school to other site.28 However, due to respondents’ failure to
exercise their right to redeem the property within the required four (4) years
from the time when SAHS had ceased to exist, or 26 Rollo, p. 90. 27 Article
1601 of the New Civil Code provides: Art. 1601. Conventional redemption shall
take place when the vendor reserves the right to repurchase the thing sold,
with the obligation to comply with the provisions of Article 1616 and other
stipulations which may have been agreed upon. 28 Misterio v. Cebu State College
of Science and Technology (CSCST), duly represented by its President, Dr. Jose
Sal Tan, supra note 4, at 745. Decision - 10 - G.R. No. 179025 from June 10,
1983, the date of effectivity of BP Blg. 412, this Court held that respondents
are barred by prescription. Despite this, respondents nevertheless insist on
the redemption of the subject property pursuant to the second suspensive
condition, namely, petitioner’s transfer of its school site. Applicable law and
jurisprudence, however, runs contrary to respondents’ stance. As early as 1913,
this Court had already enunciated an unfavourable notion against a prolonged
uncertainty with respect to the ownership and tenure of real property, to wit:
Under the Partidas, as
under the Roman Law, no attempt was made to limit the duration of contracts
with pacto de retro. Unless limited by the contract of the parties, it was
generally held that the right to repurchase was perpetual. By its decision of
May 12, 1875, the supreme court of Spain first attempted to place a restriction
upon the length of such contracts by holding that they gave rise to a personal
action of prescription in accordance with the law on prescription of actions.
(23 Scaevola. 767.) In the recent times, however, practically all those
countries where such sales are recognized have found it advisable to limit the
time within which the right of redemption can be exercised. (4 Bonel's Com. on
the Civil Code, 519.) As stated in Yadao vs. Yadao (20 Phil. Rep., 260):
"A pacto de retro is, in a certain aspect, the suspension of the title to
the land involved. We are of the opinion that it was the intention of the
legislature to limit the continuance of such a condition, with the purpose that
the title to the real estate in question should be definitely placed, it being,
in the opinion of the legislature, against public policy to permit such an
uncertain condition relative to the title to real estate to continue for more
than ten years."29
Consistent with such
view, this Court frowned upon agreements indicating indefinite stipulations for
the exercise of the right to repurchase and restricted the redemption period to
ten (10) years from the date of the contract of sale, in consonance with the
provisions of the Civil Code. Accordingly, when vendors a retro were granted
the right to repurchase properties sold “at any time they have the money,” “in
the month of March of any year,” or “at any time after the first year,” this Court
had not hesitated in imposing the ten (10)-year period, the expiration of which
effectively bars redemption of the subject properties.30 Similarly, there have
been numerous occasions31 wherein We invalidated stipulations permitting the
repurchase of property only after the lapse of at least ten (10) years from the
date of the execution of the contract for being in contravention of the
limitation mandated by the Civil Code provision. Waivers of such period were
likewise held to be void for being against public policy.32 Furthermore, this
Court deemed it necessary to keep within the ten (10)-year period those
instances where parties agree to suspend the right until the occurrence of a
certain time, event, or condition, insofar as the application of the four
(4)-year period in the first paragraph of Article 1606 Civil Code would prolong
the exercise of the right beyond ten (10) years. Thus, in Rosales v. Reyes,33
We held that in cases where the four (4)-year period would extend the life of
the contract beyond ten (10) years, the vendor a retro will only have the
remainder of the said ten (10)-year period to redeem the property, in line with
the manifest spirit of the law.34 When, for instance, the contract provides
that the right may only be exercised after seven (7), eight (8), or nine (9)
years after the execution of the sale, the vendor a retro may only redeem the
property before the expiration of the ten (10)-year period from the date of the
sale. In line with this, Umale v. Fernandez, et. al.35 pronounces that the
period of redemption agreed upon by the parties may be extended after the four
(4)-year period so long as the total period does not exceed ten (10) years from
the date of the contract. As elucidated in Badayos v. Court of Appeals: 36 While
the counting of this four-year period shall begin from the execution of the
contract, where the right is suspended by agreement until after a certain time,
event or condition, the period shall be counted from the time such right could
be exercised, but not exceeding ten (10) years from the execution of the
contract. Applying the provision to the instant case, the period to repurchase
the property must be deemed to be four (4) years from 9 March 1975 or until 9
March 1979.37 In the instant case, while the four (4)-year period was counted
from the time the right to repurchase could be exercised or when the SAHS
ceased to exist, even beyond ten (10) years from the execution of the deed of
sale, one must not nevertheless lose sight of the fundamental spirit and intent
of the law which have been upheld in jurisprudence, time and time again, viz.:
The question of the period within which the repurchase may be made is
unanimously considered as a question of public interest. It is not a good thing
that the title to property should be left for a long period of time subject to
indefinite conditions of this nature. For this reason, the intention of the law
is restrictive and limitative. (10 Manresa) A long term for redemption renders
the tenure of property uncertain and redounds to its detriment, for neither
does the precarious holder cultivate the ground with the same interest as the
owner, nor does he properly attend to the preservation of the building, and
owing to the fact that his enjoyment of the property is temporary, he
endeavours above all to derive the greatest benefit therefrom, economizing to
that end even the most essential expenses.38 Hence, while the occurrence of the
second suspensive condition may give rise to a separate cause of action, the
same must always be taken in conjunction with the periods prescribed by law
insofar as they frown upon the uncertainty of titles to real property.
Otherwise, vendors may simply impose several resolutory conditions, the
happening of each will practically extend the life of the contract beyond the
parameters set forth by the Civil Code. This is certainly not in line with the
spirit and intent of the law. To permit respondents to exercise their right to
repurchase upon the happening of the second resolutory condition, when they
utterly failed to timely exercise the same upon the happening of the first,
would effectively result in a circumvention of the periods expressly mandated
by law. To repeat, Article 1606 expressly provides that in the absence of an
agreement as to the period within which the vendor a retro may exercise his
right to repurchase, the same must be done within four (4) years from the
execution of the contract. In the event the contract specifies a period, the
same cannot exceed ten (10) years. Thus, whether it be for a period of four (4)
or ten (10) years, this Court consistently implements the law and limits the
period within which the right to repurchase may be exercised, adamantly
striking down as illicit stipulations providing for an unlimited right to
repurchase. Indubitably, it would be rather absurd to permit respondents to
repurchase the subject property upon the occurrence of the second suspensive
condition, particularly, the relocation of SAHS on October 3, 1997, the time
when petitioner ceded the property to the Province of Cebu, which is nearly
forty-one (41) years after the execution of the Deed of Sale on December 31,
1956. This Court must, therefore, place it upon itself to suppress these kinds
of attempts in keeping with the fundamentally accepted principles of law.
Indeed, the freedom to contract is not absolute. The contracting parties may
establish such stipulations, clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law, morals, good 38 Hector S. De
Leon and Hector M. De Leon, Jr., Comments and Cases on Sales and Lease, (2014),
Eighth Edition, p. 257. (Emphasis ours) Decision - 13 - G.R. No. 179025
customs, public order, or public policy. 39 When the conditions in a contract
manifest an effective circumvention of existing law and jurisprudence, it is
incumbent upon the courts to construe the same in accordance with its ultimate
spirit and intent.”
1.2. Distinctions between DEBT and RIGHT OF REDEMPTION
a. Debt is an obligation; Right of Redemption is a right
b. “Unlike a debt which a third party may satisfy even
against the debtor’s will, the right of repurchase may be exercised only by the
seller in whom the right is recognized by a contract, or by any person to whom
the right may have been transferred”[1].
c. Corollarily,
unjustified refusal of the obligee in a debt would call for tender of payment
and consignation; but in the exercise of a right of redemption, mere tender
during the redemption period is sufficient[2].
1.3. If a contract of
sale embodies the terms and conditions of the sale but fails to state the right
of redemption, can the party who alleges its existence prove the same by parol
evidence?
Right
of Repurchase and the
Statute
of Frauds
A.“Since a right to repurchase is a part of the contract of sale, it is
governed also by the Statute of Frauds. However, when the contract of sale has
been reduced in writing, parol evidence may be adduced to prove the agreement
allowing the right of repurchase the property sold, since the deed of
sale and the verbal agreement allowing the right of repurchase should be
considered as an integral whole, then the deed of sale relied upon by the
seller “is in itself the note or memorandum evidencing the contract” which
would take the case outside the provisions of the Statute of Frauds”[3].
B. Waiver; Estoppel
1.4. Basically, in Nool v. CA,[4] the doctrine
was laid down that a right of repurchase must be part and parcel of a contract
of sale and cannot be embodied in a separate contract.
1.5. Right of Redemption v. Option to Purchase
a. Right to Redemption is not a separate contract
b. In Right to Redemption, separate consideration is not required
c. Art. 1606 limits the period of redemption to 4 or 10 years
d. Right of redemption – tender of payment is required; Option to Purchase-
Mere notice of exercise of option is enough
1.6. Consolidation if No Redemption is Made;
v Automatic upon Mere Lapse of
Redemption Period?
v Would mere MOTION be sufficient?
-“ Article 1607
of the Civil Code is intended to minimize the evils which the pacto de retro
sale has caused in the hands of usurers. A judicial order is necessary
in order to determine the true nature of the transaction and to prevent the
interposition of buyers in good faith while the determination is being made.[5]”
-“The proceeding for consolidation of title under Article 1607 of the Civil
Code is not a mere motion incident to a main action or special proceeding, but
is an ordinary civil action where a complaint or petition must be filed with
the buyer a retro being made a party to the complaint and summons being served
upon him”[6].
1.7. 3rd Para of Article 1606; 30-Day Redemption
Period in case of Litigation refers to Equitable Mortgage
1.7.1. Equitable Mortgage v. Pacto de retro sale
v If the litigation takes more than 10
years, would this not contravene the spirit of the law prohibiting a prolonged
period of uncertainty of ownership as enunciated in the ruling in Cebu
State College of Science and Technology (CSCST) etc. v Luis & Misterio,
G.R. No. 179025, June 17, 2015?
“The rationale for the grant of the 30-day period of redemption under Article
1606 is quite clear: although a period of redemption is stated in the purported
sale a retro, nevertheless, the purported seller has placed no importance
thereto since he considers the transaction to be an equitable mortgage; being
an equitable mortgage then, the purported seller has every right to extinguish
the equitable mortgage by paying-up the loan at anytime before
the purported buyer has foreclosed on the mortgage. Allowing the expiration of
the stipulated redemption period is not negligence or fault on the part of the
part of the purported seller, and is in fact consistent with his position that
the sale is not one a retro but actually an equitable mortgage. Therefore,
should a judgment be finally rendered upholding the transaction to beone of
sale a retro, then it is but fair to grant to the seller a final 30-day period
within which to redeem from the time he is bound by the judgment finding the
contract to be one not of equitable mortgage.
On the other hand, if the issue before the court is one whether the contract at
issue was one of absolute sale or a sale a retro, a judgment finding the
contract to be a sale a retro should not authorize the application of the
30-day redemption period under Article 1606 in favor of the seller who had
previously allowed the period of redemption to expire. In such a case, the
seller a retro was negligent or at fault for not having exercised his right to
redeem during the redemption period, and should not be granted a new period.
-In Adorable
v. Inacala[8], it was ruled that where the evidence established that there
could be no honest doubt as to the parties’ intention that the transaction was
clearly and definitely a sale with pacto de retro, the seller a retro would
not be entitled to the benefit of Article 1606.”
1.8. Equitable Mortgage
Article 1602.
a. When the price of a sale with right to repurchase is
unusually inadequate
b. When the seller remains in possession as lessee or
otherwise;
c. When upon or after the expiration of the right to
repurchase another instrument extending the period of redemption or granting a
new period is executed;
d. When the buyer retains for himself a part of the
purchase price;
e. When the seller binds himself to pay the taxes on the
thing sold;
f. In any other case where it may be fairly inferred that
the real intention of the parties is that the transaction shall secure the
payment of a debt or the performance of any other obligation.
-“under the wise, just and equitable presumption in
Article 1602, a document which appears on its face to be a sale- absolute or
with pacto de retro- may be proven by the vendor or vendor-a –retro to be one
of a loan with mortgage. In this case, parol evidence becomes competent
and admissible to prove that the instrument was in truth and in fact given
merely as a security for the payment of a loan. And upon proof of the truth of
such allegations, the court will enforce the agreement or understanding in
consonance with the true intent of the parties at the time of the execution of
the contract”[9].
III. LEGAL REDEMPTION
3.1. Art. 1619. “Legal redemption is the right to be
subrogated upon the same terms and conditions stipulated in the contract in the
place of one who acquires a thing by purchase or dation in payment, or by any
other transaction whereby ownership is transmitted by onerous title.”
a) Articles 1088
& 1620- Co-Heirs; Co-owners
Article 1088- “Should any of the heirs sell his hereditary
rights to a stranger before the partition, any or all of the co-heirs may be
subrogated to the rights of the purchaser by reimbursing him for the price of
the sale, provided they do so within the period of one month from the
time they were notified in writing of the sale by the vendor.”
Article 1620- “A co-owner of a thing may exercise the
right of redemption in case the shares of all the other co-owners or any of
them, are sold to a third person. If the price of the alienation is
grossly excessive, the redemptioner shall pay only a reasonable one.
Should two or more co-owners desire to exercise the right
of redemption, they may only do so in proportion to the share they may
respectively have in the thing owned in common.
Ø Does not apply when buyer is one of
the co-owners
Ø Redemption by co-owner of the
property owned in common, even when he uses his own fund, within the period
prescribed by law inures to the benefit of all the other co-owners[10]. On the other
hand, under Article 1088 of the Civil Code, an heir may validly redeem for
himself alone the hereditary rights sold by another co-heir.
b) Adjoining Owners;
Rural Land; Urban Land
c) Sale of Credit in
Litigation; Article 1634, New Civil Code
d) Legal Redemption
Period Commences to Run
- “For the 30-day
redemption period to begin to run, notice must be given by the seller; and that
notice given by the buyer or even by the Register of Deeds is not sufficient.”
- Exception: In Alonzo
v. Intermediate Appellate Court[11]. Actual knowledge by
heirs of the sale and their inaction for 13 long years after actual knowledge
was treated as estoppels and prescription.
-“Article 1623 stresses the need for notice in writing in
three (3) other species of legal redemption namely: 1. Redemption in case where
the share of all the other co-owners or any of them are sold to a third person;
2. Redemption by owners of adjoining lands when a piece of rural land not
exceeding one hectare in area is alienated; and 3. Redemption by owners of
adjoining lands in the sale of a piece of an urban land so small and so
situated that the portion thereof cannot be used for any practical purpose
within a reasonable time, having been bought merely for speculation. The Court
held: “In all these cases, the interpretation thereof always tilts in favor
of the redemptioner and against the vendee. The purpose is to reduce the number
of participants until the community is terminated, being a hindrance to the
development and better administration of the property. It is always in favor of
the redemptioner since he can compel the vendee to sell to him but he cannot be
compelled by the vendee to buy the alienated property”[12].
e. Other instances of Legal Redemption
a) Homesteads- Section
119 of Public Land Act- 5 years from date of conveyance; applies even in the
absence of stipulation. Law is specific.
b) Section 214 NIRC-
One year redemption period of delinquent tax payer
c) Sections 27 &
28, Rule 39, Rules of Court
d) Section 6, Act 3135
in Extra-Judicial Foreclosure
e) Rule 68, Rules of
Court; Redemption in Judicial Foreclosure of Mortgage;Equity of Redemption
f) General Banking Law
of 2000- Redemption period is 1- year for natural person debtor; Juridical
persons have the right to redeem the property in accordance with Act
3135, but not after, the registration of the certificate of foreclosure sale
with the applicable register of deeds which in no case shall be more than three
(3) months after foreclosure, whichever is earlier”.
g) Rep. Act No. 720-
Rural Banks- 2 years
h) Section 12, RA No.
38444, Agrarian Reform Code. When landholding is sold to a third person without
the knowledge of the agricultural lessee, the latter is granted 180 days from
notice in writing and at a reasonable price and consideration.
[1] Ordoñez v. Villaroman, 78 Phil 117; Gallar v. Husain, 20
SCRA 186
[2] See Legaspi v. Court of Appeals, 142 SCRA 82
[3] Mactan Cebu International Airport Authority v. Court of
Appeals, 263 SCRA 736 (1996)
[4] 276 SCRA 287
[5] Cruz v. Leis, G.R. No. 125233, 9 March 200
[6] Ongoco v. Judge, the CFI of Bataan, 15 SCRA 30; Crisologo
v. Centeno, 26 SCRA 48; Heirs of Jose A. Arches v. Vda. De Diaz, 50 SCRA 440
[7] See p. 576, Law on Sales by Villanueva, 2004
[8] 103 Phil. 481
[9] Matanguihan v. Court of Appeals, 275 SCRA 280
[10] Annie Tan v. Court of Appeals, 172 SCRA 660
[11] 150 SCRA 259
[12] Villanueva, pp. 601 to 602, Ibid. citing
Hermoso v. Court of Appeals, 66 SCRA 575
WARRANTIES
in Sales Contracts
ETRIII Civil Law Review Lecture Series
OUTLINE/
LECTURE ON
WARRANTIES
AND REMEDIES
IN CASE
OF BREACH
IN
SALES CONTRACTS
By:
Atty. Eduardo T. Reyes, III
I. WARRANTIES. Warranties
may be express or implied. Implied warranties are natural elements of a
contract of sale.
1.1. General Rule: Express Warranties of seller. An
express warranty is any affirmation of fact or any promise by the seller
relating to the thing 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.[1]
Exception: 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.
Exception to exception: When
the seller made such affirmation or statement as an expert and it was relied
upon by the buyer.
1.2. Implied Warranties of Seller. Unless a
contrary intention appears, the following are deemed included in a contract of
sale even without an express stipulation:
a) Warranty
against eviction. That the seller has the
right to sell the thing at the time when the ownership is to pass and the buyer
shall from that time have and enjoy the legal and peaceful possession of the
thing.[2]
b) Warranty
against Hidden Defects. 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[3].
c) In sale
of Goods, Warranty of Quality or Fitness.
c.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[4].
c.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[5].
1.3. Warranty in Case of Eviction. This
warranty is a natural element of a contract of sale. The warranty may be
eliminated by stipulation so long as the stipulation was agreed upon in good
faith. Any stipulation exempting the vendor from the obligation to answer for
eviction shall be void, if he acted in bad faith[6].
1.3.1. Requisites for enforcement of warranty in case of eviction.[7]
See Arts. 1548 & 1558.
a. Vendee is deprived of the whole or of part of the thing purchased;
b. Eviction was by virtue of final judgment
c. Based on ground on a right prior to the sale or an act imputable to the
vendor
d. The vendor must be summoned in the suit for eviction at the instance of the
vendee.
1.3.2. Waiver of warranty in case of eviction. May be Conciente or Intentionada.
- Conciente- when
the vendee made the waiver WITHOUT knowledge of the risks of eviction – the
vendor shall only PAY THE VALUE which the thing sold had AT THE TIME OF
EVICTION
- Intentionada- when
the vendee made the waiver WITH KNOWLEDGE of the risks of eviction and assumed
its consequences – Vendor is NOT LIABLE.
1.3.3. Liabilities of Vendor in case of Breach.
a) RETURN
the value which the thing sold had at the time of the eviction, be it greater
or less than the price of the sale.
b) The
income or fruits, if he has been ordered to deliver them to the party who won
the suit against him.
c) 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.
d) The
expenses of the contract, if the vendee has paid them.
e) The
damages and interests, and ornamental expenses, if the sale was made in bad
faith.
Alternative Remedy. 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:
(1) Within 1 year, to be computed from the execution of the
deed, (i) bring an action for rescission, or, (ii) sue for damages. In case of
rescission, there is an obligation to return the thing without other
encumbrances than those which it had when he acquired it.[8]
(2) After 1 year, - The vendee may only bring an action for
damages within an equal period, to be counted from the date on which he
discovered the burden or servitude.
1.3.4. Warranty against HIDDEN DEFECTS of or Encumbrance Upon the Things Sold.
(Article 1561, New Civil Code). The vendor shall be responsible for warranty
against 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.
ü The vendor shall not be
answerable for PATENT DEFECTS or those which may be VISIBLE, or those which are
not visible if the vendee is an expert who, by reason of his trade or
profession, should have known them.
ü There is no warranty as
to the thing’s FITNESS for any PARTICULAR PURPOSE, unless there is a
stipulation to the contrary.
ü Merchantability- 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[9].
ü Unless the contrary is
stipulated, knowledge of the vendor is not essential for the enforcement of
this warranty[10].
1.3.5. Remedies in case of Breach of Warranty against HIDDEN
DEFECTS, within the PRESCRIPTIVE PERIOD of SIX (6) MONTHS from delivery of the
thing, the vendee :
ü ACCION REDHIBITORIA-
withdrawing from the contract with damages
ü RECOUPMENT- Demanding
PROPORTIONATE REDUCTION with damages.
ü Article 1599, NCC. “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 fo 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 apart thereof which has been paid.
X x x”
1.3.6. REDHIBITORY DEFECT OF ANIMALS- 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[11].
ü Sale of animals suffering
from contagious disease shall be void.
ü Also void if the use or
service for which they are acquired has been stated in the contract and they
are found UNFIT therefor.
ü If a VETERINARIAN,
through ignorance or bad faith should fail to discover or disclose it, the
veterinarian shall be liable for damages.
-Prescriptive period- 40 days from date of delivery to vendee.
II. REMEDIES IN CASE OF BREACH OF OBLIGATIONS.
a. Specific Performance; b. Rescission; c. Damages.
A. Specific Performance. Action
to recover the price by the seller of goods is available to the seller. This
action is available to the seller under three different scenarios, viz:
A.1. The ownership of the goods has passed to the buyer
and he wrongfully neglects or refuses to pay for the goods according to the
terms of the contract of sale; or
A.2. The price is payable on a certain day, irrespective of delivery or
transfer of title and the buyer wrongfully neglects or refuses to pay such
price
A.3. When the buyer refused to receive the goods upon the seller’s offer to
deliver (where the goods cannot readily be resold for a reasonable price); the
seller may notify the buyer that the goods thereafter held by the seller as
bailee for the buyer and thereafter treat the goods as the buyer’s and may
maintain an action for the price.
B. DAMAGES. Apart
from the 3 scenarios above mentioned, the remedy is an action for damages where
the buyer wrongfully neglects or refuses to accept and pay for the goods. The
measure of damages is the estimated loss directly and naturally resulting in
the ordinary course of events from the buyer’s breach of contract.[12]
C. RESCISSION BY SELLER. (Article
1597, NCC). The seller can give notice of rescission where the goods have not
been delivered to the buyer, and the buyer has:
1) Repudiated
the contract of sale;
2) Manifested
his inability to perform his obligations
3) Has
committed a breach thereof, the seller may totally rescind the contract of sale
C.1. RECTO LAW. (Article 1484, NCC). In a
contract of sale of personal property on installment basis, the vendor may
exercise any of the following ALTERNATIVE REMEDIES:
a) Exact
fulfillment of the obligation, should the vendee fail to pay
b) Cancel
the sale, should the vendee’s failure to pay cover two or more installments;
or,
c) Foreclose
the mortgage.
c.1.1. Applicable only to sale of personal property on
installment. Not to a straight sale (one-time payment) or a sale that is partly
cash and partly term meaning there will be an initial payment with the
balance all payable once in the future.[13]
c.1.2. Alternative Remedies v. Alternative
Obligations. In Borbon II v. Servicewide Specialists, Inc.[14], it was ruled that:
“The remedies under Article 1484 of the Civil Code are not cumulative but
alternative and exclusive. In an ordinary alternative obligation, a mere choicecategorically
and unequivocally made and then communicated by the person entitled to
exercise the option concludes the parties. The creditor may not thereafter
exercise any other option, unless the chosen alternative proves to be
ineffectual or unavailing due to no fault on his part. This rule, in
essence, is the difference between alternative obligations, on the one hand,
and alternative remedies, upon the other hand, where in the latter case, the
choice generally becomes conclusive upon the exercise of the remedy. For
instance, in one of the remedies expressed in Article 1484 of the Civil Code,
it is only when there has been a foreclosure of the chattel mortgage that
the vendee-mortgagor would be permitted to escape from a deficiency liability.
Thus, if the case is one for specific performance, even when this action
selected after the vendee has refused to surrender the mortgaged property to
permit an extrajudicial foreclosure sale, the property may still be levied on
execution and an alias writ may be issued if the proceeds thereof are
insufficient to satisfy the judgment credit. So, also, a mere demand to
surrender the object which is not heeded by the mortgagor will not amount to a
foreclosure, but the repossession thereof by the vendor-mortgagee would have
the effect of foreclsore”.
C.1.3. Foreclosure of mortgage. Unpaid
Balance. “In this cae, he shall have no further action against the
purchase to recover any unpaid balance of the price. Any agreement to the
contrary shall be void”.
Hypotheticals:
a. In a sale of personal property on installments, a promissory
note was executed and secured by a chattel mortgage. When the note matured but
remained unpaid, the creditor chose to collect on the note and prayed for a
preliminary attachment. When judgment was rendered, the same became final and
executory and levy on execution was made on the very property previously
attached via preliminary attachment. It is also the very same property subject
of chattel mortgage. If it turns out that the value of the property is
insufficient to cover the entire “unpaid balance”, can the creditor recover the
difference through a “deficiency judgment”?
a.1. If allowed, would this not allow indirectly the evil sought
to be prevented by the Recto Law?
b. If seller avails of rescission, generally, “unpaid balance”
is recoverable. Is there an exception? – Read Delta Motor Sales Corp.,
v. Niu Kim Duan[17] on effect of recovery of
chattel as a result of mutual rescission.
-“Rescission” is deemed availed of when: possession of chattel
is retaken, filing of judicial rescission, and mere sending of notice of
rescission.
c. Scope of “Unpaid Balance” which cannot be recovered. – Macondray
& Co., Inc. v. Eustaquio[18]- “deficiency judgment to which the
mortgagee may be entitled where, after the mortgaged chattel is sold at public
auction, the proceeds obtained therefrom are insufficient to cover the full
amount of the secured obligation which in the case at bar as shown by the note
and by the mortgaged deed, include interest on the principal,
attorney’s fees, expenses of collection, and the costs”.
-Exception.
Read- Filipinas Investment & Finance Corp. v. Ridad[19], “Where
the mortgagor plainly refuses to deliver the chattel subject of the mortgage
upon his failure to pay two or more installments, or if he conceals the chattel
to place it beyond the reach of the mortgagee, what then is the mortgagee
expected to do? It is past of conventional wisdom and the rule of law that no
man can take the law into his own hands; so it is not supposed that the
Legislature intended that the mortgagee should wrest or seize the chattel
forcibly from the control and possession of the mortgagor, even to the extent
of using violence which is unwarranted in law. Since the mortgagee would
enforce his rights through the means and within the limits delineated by law,
the next step in such situations being the filing of an action for replevin to
the end that he may recover immediate possession of the chattel and thereafter,
enforce his rights in accordance with the contractual relationship between him
and the mortgagor as embodied in their agreement, then it logically follows as
a matter of common sense, that the necessary expenses incurred in the
prosecution by the mortgagee of the action for replevin so that he can regain
possession of the chattel, should be borne by the mortgagor. Recoverable
expenses would, in our view, include expenses properly incurred in effecting
seizure of the chattel and reasonable attorney’s fees in prosecuting the action
for replevin x x x”.
d. Other Securities apart from Chattel Mortgage
- Chattel
mortgage must be on the very thing subject of the sale on installments in order
for Recto Law to apply
- In Cruz
v. Filipinas Investment & Finance Corp.[20] , it was held that
allowing the foreclosure on the real estate mortgage, after
the chattel mortgage was foreclosed, in order to recover deficiency, is
to “overlook the fact that if the guarantor should be compelled to pay the
balance of the purchase price, the guarantor will in turn be entitled to
recover what she has paid from the debtor vendee (Article 2066, Civil Code); so
that ultimately, it will be the buyer who will be made to bear the payment of
the balance of the price, despite the earlier foreclosure of the chattel
mortgage given to him. Thus, the protection given by Art. 1484 would be
indirectly subverted, and public policy overturned”.
- What
if, the seller (creditor/ mortgagee) instead of running after the chattel
mortgage, decides to foreclose on the real estate mortgage first and
then when there is a deficiency, it is only then that he decides to foreclose
the chattel mortgage?
Read Borbon
II v. Servicewide Specialists, Inc.[21]- “in the event the seller-mortgagee
first seeks the enforcement of the additional mortgages, guarantees or other
security arrangement, he must then be held to have lost by waiver or
non-choice his lien on the chattel mortgage of the personal property sold byt
and mortgaged back to him, although, similar to an action for specific
performance, he may still levy on it”.
No comments:
Post a Comment