CHAPTER 6

• What is Article 1494?

  ART. 1594. Actions for breach of the contract of sale of goods shall be governed particularly by the provisions of this Chapter, and as to matters not specifically provided for herein, by other applicable provisions of this Title. (n)
• What are the provisions governing breach of contract of sale of goods?

  Actions for breach of the contract of sale of goods are governed primarily by the provisions of Chapter 6 (Arts. 1595-1599.) and secondarily, by the other provisions of the Title on sales so far as said provisions apply. Provisions concerning the sale of immovable property have no application to the sale of goods.
• What do "goods" include?

  "Goods" include all chattels personal but not things in action or money of legal tender in the Philippines. The term includes growing fruits or crops. (Art. 1636[1].)
• What are the actions available for breach of the contract of sale of goods?

  In general, actions available for breach of the contract of sale of goods are the following:

  
  

  (1) action by the seller for payment of the price (Art. 1595.);

  (2) action by the seller for damages for non-acceptance of the goods (Art. 1596.);

  (3) action by the seller for rescission of the contract for breach thereof (Art. 1597.);

  (4) action by the buyer for specific performance (Art. 1598.); and

  (5) action by the buyer for rescission or damages for breach of warranty. (Art. 1599.)
• What are the instances when the seller can maintain an action for the price of the goods as provided under Article 1595?

  (1) when the ownership of the goods passed to the buyer and he wrongfully neglects or refuses to pay for the price (par. 1.);

  (2) when the price is payable on a certain day and the buyer wrongfully neglects or refuses to pay such price, irrespective of delivery or of transfer of the title (par. 2.); and

  (3) when the goods cannot readily be resold for a reasonable price and the buyer wrongfully refuses to accept them even before the ownership in the goods has passed, if the provisions of Article 1596, 4th paragraph (infra.) are not applicable. (par. 3.)

  
  

  The seller's right of action for the price assumes that there is a breach of contract by the buyer. (3 Williston on Sales 196 [1948].)
• What are the requisites under Article 1595, par. 1?

  Requisites.-Article 1595, paragraph 1 contemplates a wrongful neglect or refusal to pay by the buyer. It applies if these requisites are fulfilled:

  
  

  (a) ownership of the goods has passed to the buyer; and

  (b) the buyer wrongfully refuses or neglects to pay according to terms of contract
• What is the presumption when the ownership has not passed?

  - Unless the contrary appears, the presumption is that the payment of the price and the delivery of the goods were intended to be concurrent acts and the obligation of each party to perform will be dependent upon the simultaneous performance by the other party. (3 Williston 218-219 [1948].)
• What are the exceptions to the rule that the seller cannot maintain an action for the price if ownership has not passed?

  (a) unless the price is payable on a certain day or

  (b) unless the goods cannot readily be resold for a certain price and the provisions of Article 1596, 4th paragraph are not applicable.
• What is provided under Art 1588 when it comes to the goods passes to the buyer the moment they are placed?

  Under 1588, the title to the goods passes to the buyer from the moment they are placed at his disposal when his refusal to accept them is without just cause. The seller may, therefore, bring an action for the price upon wrongful refusal of the buyer to accept.
• What are the requisites of Art. 1595, par. 2?

  Requisites. Article 1595, paragraph 2 contemplates failure by the buyer to pay on the agreed date. It applies if the following requisites are fulfilled:

  
  

  (a) price is payable on a certain day (irrespective of delivery or transfer of title);

  (b) buyer wrongfully refuses or neglects to pay on the agreed date.
• Under Art. 1595, par. 2, what if different times are fixed for the payment?

  If different times are fixed for the payment of the price and the delivery of the goods, the rule is that the act which is to be performed first is absolutely due on that day, while the performance which is to take place on a later day is not due unless, as a condition precedent, the prior performance has been rendered.
• What if the buyer is given credit for the price?

  It is common for sellers to give credit for the price. But it is not common for buyers to give credit for the goods. It may, however, happen that the buyer promises to pay the price before acquiring the ownership or even the possession of the goods. In such a case, Article 1595, paragraph 2 is applicable. (3 Williston, op. cit., pp. 218-219.)
• What are the requisites under Art. 1595, par. 3?

  Requisites.-Article 1595, paragraph 3 contemplates a situation where the goods cannot be readily resold at a reasonable price. It applies if the following requisites are fulfilled:

  
  

  (a) there is no transfer of ownership to buyer;

  (b) the goods have been manufactured;

  (c) the goods cannot be readily resold for a reasonable price;

  (d) the seller offers to deliver goods to buyer;

  (e) the buyer refuses to recieve the goods; and

  (f) the sellee notifies buyer that seller holds goods as bailee for buyer
• What is the effect if the requisites under Art. 1595, par. 3 are fulfilled?

  The seller may treat the good as the buyer's and may maintain an action for the price.
• What are the seller's right of action for damages? (Art. 1596)

  (1) If the buyer without lawful cause neglects or refuses to accept and pay for the goods he agreed to buy, the seller may maintain an action against him for damages for nonacceptance. (par. 1.)

  (2) In an executory contract, where the ownership in the goods has not passed, and the seller cannot maintain an action to recover the price (see Art. 1595.), the seller's remedy will be also an action for damages.

  (3) If the goods are not yet identified at the time of the contract or subsequently, the seller's right is necessarily confined to an action for damages.
• What is the situation contemplated under par. 1 of Art. 1596?

  Paragraph 1 contemplates a situation where the buyer wrongfully neglects or refuses to accept and pay for goods (which means that there is no delivery yet to the buyer).
• Difference between contract price and market price.

  -The measure of damage is the estimated loss directly and naturally resulting from the buyer's breach of contract. It is conveniently expressed by the formula - the difference between the contract price, that is, the amount of the obligation which the buyer failed to fulfill, and the market or current price, that is, the value of the goods which the seller has left upon his hands. (see Siuliong & Co. vs. Nanyo Shoji Kaisha, 42 Phil. 722 [1922]; Warner Barnes & Co. vs. Inza, 43 Phil. 505 [1922].) This follows the rule that damages comprehend not only the actual loss suffered but also unrealized profit. (Art. 2200.)
• What if the market price varies with time and place? (Art. 1596)

  As the market price varies with time and place, the market price is fixed at the time when and the place where the goods ought to have been accepted or, if no time was fixed, at the time of refusal to accept.
• To whom does the burden to show that he has incurred damage? (Art. 1596)

  As the burden is upon the seller to show what damage, if any, he has suffered, it is incumbent upon him, in order to make out a case for recovery of more than nominal damages, to show that the market value of the goods is less than the contract price.
• What is the full amount of damage the seller is entitled under Art. 1596?

  If there is no available market in which the goods can be sold at the time, the seller is "entitled to the full amount of damage which he has really sustained by a breach of the contract." (3 Williston 240-246; par. 2.)
• What is proximate damage under par. 3, Art. 1596?

  Article 1596 (par. 3.) allows the seller under "special circumstances" proximate damages of a greater amount than the difference between the contract price and market price when such damages "may be reasonably attributed to the non-performance of the obligation." (see Art. 2201, par. 2.)
• What is repudiation or countermand?

  Article 1596, paragraph 4 contemplates this situation:

  
  

  (1) The contract is not yet fully performed by the seller since goods not yet finished/manufactured;

  (2) Labor or expense of a material amount is necessary on the part of seller to enable him to fulfill his obligations;

  (3) The buyer repudiates the contract or notifies seller to proceed not further with it.
• What is the measure of damages for repudiation or countermand?

  If the buyer repudiates the contract or notifies the seller to proceed no further therewith, and labor or expense of a material amount is necessary on the part of the seller to enable him to fulfill his obligations under the contract of sale, the measure of damages to which the seller is entitled would include:

  
  

  (1) The labor performed and expenses incurred for materials before receiving notice of the buyer's repudiation; and

  (2) The profit he would have realized if the sale had been fully performed. (Art. 1596, par. 4.)
• What is Art. 1597?

  ART. 1597. Where the goods have not been delivered to the buyer, and the buyer has repudiated the contract of sale, or has manifested his inability to perform his obligations thereunder, or has committed a breach thereof, the seller may totally rescind the contract of sale by giving notice of his election so to do to the buyer. (n)
• When may the seller rescind before delivery?

  Article 1597 specifies the cases when the seller may rescind a contract of sale of goods which have not yet been delivered to the buyer. These are:

  
  

  (1) The buyer has repudiated the contract of sale;

  (2) The buyer has manifested his inability to perform his obligations thereunder; and

  (3) The buyer has committed a breach of the contract of sale.
• What if the goods have been delivered?

  If the goods have been delivered, the seller may recover the value of what he has given. (Art. 1595.)
• Is the giving of notice required?

  The right granted to the seller follows the rule in reciprocal obligations that a party to a contract injured by non-fulfillment, may rescind the contract and at the same time ask for damages. (Art. 1191.)

  
  

  It should be noted that the seller is required to give notice of his election to seek rescission. The way in which election must be manifested may vary in different cases. Formal notice is certainly not a requisite, and bringing an action promptly for restitution is sufficient.
• Discuss the reciprocal obligations rescissible for non-performance.

  Article 1191 establishes the principle that all reciprocal obligations are rescissible in the event that one of the parties bound should fail toperform that which is incumbent upon him. In the contract of sale the obligation to pay the price is correlative to the obligation to deliver the thing sold.

  
  

  Non-performance by one of the parties authorizes the other to exercise the right conferred upon him by the law, to elect to demand the performance of the obligation or its rescission, together with damages in either event.
• What does rescission abrogate?

  Rescission abrogates the contract from its inception and requires a mutual restitution of benefits received.
• Is the sellers' right to rescind absolute?

  The right of the seller to rescind the sale for non-performance by the buyer is not absolute.
• Is the seller's right more important than right of third person legally in possession of the object of the contract?

  The law subordinates the seller's right to the rights of third persons who are legally in the possession of the object of the contract and to whom bad faith is not imputable. (Ocejo Perez & Co. vs. International Bank, 37 Phil. 631 [1918]; see Art. 1385.)
• May rescission be granted for a slight casual breach?

  The rule is that rescission of a contract will not be permitted for a slight or casual breach but only for such substantial breach as would defeat the very object of the parties in making the agreement. The question of whether a breach of a contract is substantial depends upon the attendant circumstances.
• Can the seller unilaterally and extrajudicially rescind the contract?

  Except as provided in Article 1597, and in the absence of express stipulation authorizing the seller to extrajudicially rescind a contract of sale, the seller cannot unilaterally and extrajudicially rescind the contract. It has been held that where a vendor agreed to the resale of the property by the original vendee to another person despite the failure of said vendee to comply with his obligation under the original sale, the vendor is deemed to have effectively waived its right to rescind the sale. (Ayala Corporation vs. Rosa- Diana Realty and Development Corporation, 346 SCRA 663 [2000].
• Goods


  All chattels personal but not things in action or money of legal tender in the Philippines.

  
  

  Ex. Growing fruits or crops
• Actions available for breach of contract of sale of goods

  Seller:

  1. Payment of the price

  2. Damages for non-acceptance of the goods

  3. Recission of the contract

  
  

  Buyer:

  1. Specific performance

  2. Recission or damages for breach of warranty
• Seller's right of action for the price

  1. The ownership of the goods has passed to the buyer and he wrongfully neglects or refuses to pay for the price.

  2. The price is payable on a certain day and the buyer wrongfully neglects or refuses to pay such price, irrespective of the delivery, or of transfer of title.

  3. The goods cannot be readily be resold for a reasonable price and the buyer wrongfully refuses to accept them even before the ownership in the goods has passed, if the provision of article 1596, 4th paragraph are not applicable.
• Seller cannot maintain an action for the price

  1. The ownership in the goods has not passed to the buyer, unless the price is payable on a certain day or the goods cannot be readily be resold for a certain price, and the provision of article 1596, 4th paragraph are not applicable.
• Seller's right of action for damages

  1. The buyer without lawful cause neglects or refuses to accept and pay for the goods he agreed to buy.

  2. In an executory contract, the ownership in the goods has not passed and the seller cannot maintain the action to the price.

  3. The goods are not yet identified at the time of the contract or subsequently.
• Measure of Damages for non-acceptance of the goods

  The estimated loss directly and naturally resulting from the buyer's breach of contract or the actual loss suffered and the unrealized profit.

  
  

  Formula:

  Contract price - Market or current price
• Contract price

  The amount of the obligation which the buyer failed to fulfill.