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Breach of a Contract of Sale

What are the remedies of the seller for breach of contract of sale according to the law?

When the seller is prejudiced due to the breach of contract by the buyer, the following provisions of the law shall govern:

  1. Action for payment of the price

Art. 1595. Where, under a contract of sale, 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, the seller may maintain an action against him for the price of the goods.

*The seller may maintain an action for payment of the price when the ownership of the goods sold already passed to the buyer and he fails to pay in a wrongful manner attributable to him.

Where, under a contract of sale, the price is payable on a certain day, irrespective of delivery or of transfer of title and the buyer wrongfully neglects or refuses to pay such price, the seller may maintain an action for the price although the ownership in the goods has not passed. But it shall be a defense to such an action that the seller at any time before the judgment in such action has manifested an inability to perform the contract of sale on his part or an intention not to perform it.

*The seller may also demand payment when he likewise fails to pay and neglects wrongfully the date certain for its payments, irrespective of delivery and the transfer of title to the buyer.

Although the ownership in the goods has not passed, if they cannot readily be resold for a reasonable price, and if the provisions of article 1596, fourth paragraph, are not applicable, the seller may offer to deliver the goods to the buyer, and, if the buyer refuses to receive them, may notify the buyer that the goods are thereafter held by the seller as bailee for the buyer. Thereafter the seller may treat the goods as the buyer’s and may maintain an action for the price. (n)

*The seller may ask for payment of the price if the goods cannot be resold for a reasonable price and the buyer refuses to accept them even before the ownership to goods has passed.

  1. Action for damages for non-acceptance of the goods

Art. 1596. Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may maintain an action against him for damages for nonacceptance.

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.

Where there is an available market for the goods in question, the measure of damages is, in the absence of special circumstances showing proximate damage of a different amount, the difference between the contract price and the market or current price at the time or times when the goods ought to have been accepted, or, if no time was fixed for acceptance, then at the time of the refusal to accept.

If, while labor or expense of material amount is necessary on the part of the seller to enable him to fulfill his obligations under the contract of sale, the buyer repudiates the contract or notifies the seller to proceed no further therewith, the buyer shall be liable to the seller for labor performed or expenses made before receiving notice of the buyer’s repudiation or countermand. The profit the seller would have made if the contract or the sale had been fully performed shall be considered in awarding the damages. (n)

*The seller may demand for damages when the buyer fails to accept the goods without lawful case and fails to pay the price agreed upon. He may also demand damages when the ownership has not yet passed and the seller cannot recover the price of the goods. He also has an action for damages when the goods are not yet identified at the time of the contract. The damages may be measured by the labor performed and expenses incurred for the materials or the profit that would have been realized have it not for the non-acceptance of the buyer.

  1. Action for rescission

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)

*The remedy afforded by this provision is applicable in the sale of goods which have not yet been delivered to the buyer and the buyer repudiated the contract of sale, manifested his inability to perform his obligations or there is mere breach of the provisions of the contract of sale. The notice of rescission must be given by the seller. The breach must not be slight or casual but must be substantial enough to defeat the very essence of the contract.

What are the remedies of the buyer for breach of contract of sale according to the law?

When the buyer is prejudiced due to the breach of contract by the seller, the following provisions of the law shall govern:

  1. Action for specific performance

Art. 1598. Where the seller has broken a contract to deliver specific or ascertained goods, a court may, on the application of the buyer, direct that the contract shall be performed specifically, without giving the seller the option of retaining the goods on payment of damages. The judgment or decree may be unconditional, or upon such terms and conditions as to damages, payment of the price and otherwise, as the court may deem just. (n)

* The buyer may, without giving the seller the option to retain the goods on payment of damages, may ask for specific performance. However there may be instances in a court decision the judgment maybe unconditional, or upon such terms and conditions as to the payment of damages, payment of the price and otherwise, the court may order whatever it may deem just.

  1. Action for rescission or damages for breach of warranty

Art. 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)

* In case of recoupment, the buyer may accept the goods and set up the seller’s breach to reduce or extinguish the price. He may accept or not the goods and in both cases, maintain an action for damages for breach of warranty. In rescission, he may do such if there is refusal to receive the goods; or if goods have already been received, return them and recover what was paid or any part of it concurrently with return or immediately after it.

These remedies are alternative, without prejudice to paragraph 2 of Art. 1191 (that a party may still seek rescission after choosing specific performance if the latter is impossible). Buyer cannot rescind if he is knowledgeable of the breach and still accepted the goods without protest, or fails within reasonable time to notify the seller of his election to rescind, or fails to return or offer to return the goods in substantially as good condition as it was. If seller refuses to accept an offer to return the goods and the buyer elected rescission, buyer shall be deemed to hold the goods as bailee for the seller subject to lien to secure payment of any portion of the price which has been paid. There is loss, in case of breach of warranty of quality, when there was a difference between value of the goods at the time of delivery and value they would have had if they had answered to the warranty.

What are the remedies of the seller in case of default in payment of price?

  1. Anticipatory breach- The seller has reasonable grounds to believe that the property sold will be lost so he may rescind the sale
  2. Failure of the buyer to pay the purchase price-In the sale of immovable property even though it may have been stipulated that rescission will only take place upon failure to pay the price, he may still demand payment until the judicial or extrajudicial rescission of the contract.

What are the remedies of the buyer in case of disturbance in the property and in condominium projects?

  1. Suspension of payment-If the buyer gets disturbed in the possession and ownership or has a reasonable grounds to fear such disturbance of the property, by a vindicatory action or a foreclosure of mortgage, the buyer may suspend payment until the disturbance is removed by the seller or seller gives security for the return of the price in proper case unless otherwise stipulated.
  2. Subdivision and condominium projects-PD 957 provides that when the owner or developer of the condominium project fails to develop it according to the approved plan and within the time limit for complying with the same, the buyer who pays in installment may desist from paying further provided he gives due notice to the seller. The law also allows the buyer to be reimbursed of all the amount paid.

What is Equitable Mortgage?

Pacto de retro is presumed to be Equitable Mortgage when:

Art. 1602: The contract shall be presumed to be an equitable mortgage, in any of the following cases:

(1) When the price of a sale with right to repurchase is unusually inadequate;

(2) When the vendor remains in possession as lessee or otherwise;

(3) 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;

(4) When the purchaser retains for himself a part of the purchase price;

(5) When the vendor binds himself to pay the taxes on the thing sold;

(6) 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.

What are the effects when the thing sold is lost?

  1. Loss before perfection of the contract- Contract is void
  2. Loss at the time of perfection of contract of sale-Contract is Void
  3. If thing is partially lost-the vendee may choose between withdrawing from the contract and demanding the remaining part, paying its price in proportion to the total sum agreed upon
  4. Loss after perfection of the contract of sale
  • After delivery to buyer- buyer bears the loss
  • Before delivery to the buyer

-Non fungible/ fungible thing without consideration as to its weight, number or measure- buyer bears the loss

-fungible thing for a price fixed in accordance with its weight, number or measure-seller bears the loss

 

References

De Leon, H. (2010). Comments and Cases on Sales. Quezon City: Rex Printing Company, Inc.

New Civil Code of the Philippines

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