Warranties and Formalities in a Contract of Sale

What are the warranties in a contract of sale?

  1. Express Warranty- 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 purchases the thing relying thereon.
  2. The vital question is express warranty is: whether or not a statement or affirmation accompanying as sale is a warranty depends upon whether the conditions were such that the buyer had a right to understand and did not understand that was said by the seller was meant as a warranty.
  3. Implied warranty-arises from the mere fact that a contract of sale is perfected. It does not apply to one who sells by virtue of an authority in fact or in law (sheriff sale). There are two kinds of implied warranty:
  • Warranty against eviction- An implied warranty on the part of the seller that he has a right to sell at the time when ownership is to pass and that the buyer shall from that time have and enjoy the legal and peaceful possession of the thing
  • Warranty against hidden defects-An implied warranty that the thing shall be free from any hidden defects or any change or encumbrances not declared or known to the buyer

-Hidden defects are those which are not visible to vendee who is not an expert and to a vendee who is an expert but even with the use of his trade or profession could not detect such defect.

-Requisites of hidden defects: The defect must exist at the time of the sale, must be important or serious, notice was given to the vendor within a reasonable time and within prescriptive period and no waiver was made

  1. Warranty against eviction- Eviction is the judicial process whereby the vendee by virtue of a final judgment based on a right prior to the sale or an act imputable to the vendor, is deprived of the whole or a part of the thing purchased.

In order for the vendor to be liable for his warranty, the vendor must be summoned in the suit for eviction at the instance of the vendee and there is no waiver on the part of the vendee.

 

What are the formalities of a contract of sale?

As a general rule, the form of a contract is manner of how it would be executed or manifested. A contract of sale may take any general form of a simple contract.

What does the law say about the forms of a contract of sale?

The New Civil Code has recognized the need for a certain form for a contract of sale for its validity and enforceability in this provision:

Art. 1356. Contracts shall be obligatory, in whatever form they may have been entered into, provided all the essential requisites for their validity are present. However, when the law requires that a contract be in some form in order that it may be valid or enforceable, or that a contract be proved in a certain way, that requirement is absolute and indispensable. In such cases, the right of the parties stated in the following article cannot be exercised. (1278a)

Art. 1357. If the law requires a document or other special form, as in the acts and contracts enumerated in the following article, the contracting parties may compel each other to observe that form, once the contract has been perfected. This right may be exercised simultaneously with the action upon the contract. (1279a)

*The requisites of validity referred in this provision refer to essential to perfect a simple contract as already discussed in this post (insert link for the post about what is a contract of sale).

However, the contract may be required by law to follow a certain form depending on its subject and manner of execution. The law has required that the following should be in a public instrument:

 

Art. 1358. The following must appear in a public document:

(1) Acts and contracts which have for their object the creation, transmission, modification or extinguishment of real rights over immovable property; sales of real property or of an interest therein a governed by Articles 1403, No. 2, and 1405;

(2) The cession, repudiation or renunciation of hereditary rights or of those of the conjugal partnership of gains;

(3) The power to administer property, or any other power which has for its object an act appearing or which should appear in a public document, or should prejudice a third person;

(4) The cession of actions or rights proceeding from an act appearing in a public document.

All other contracts where the amount involved exceeds five hundred pesos must appear in writing, even a private one. But sales of goods, chattels or things in action are governed by Articles, 1403, No. 2 and 1405. (1280a)

Likewise, the contracts of sale are also governed by the Statute of Frauds which may prohibit its enforceability and bar its ratification if not complied with. The Statue of Frauds, however only apply to executory contracts or where there are no performance yet and not to those already consummated even if partially. These rules aim to avoid injustice to the party who has not yet performed his obligation so as not to enable him to keep the benefits he received without doing his obligation. (omitted provisions done purposely for sake of discussion).

Art. 1403. The following contracts are unenforceable, unless they are ratified:

x xx

(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases an agreement hereafter made shall be unenforceable by action, unless the same, or some note or memorandum, thereof, be in writing, and subscribed by the party charged, or by his agent; evidence, therefore, of the agreement cannot be received without the writing, or a secondary evidence of its contents:

(a) An agreement that by its terms is not to be performed within a year from the making thereof;

x xx

(d) An agreement for the sale of goods, chattels or things in action, at a price not less than five hundred pesos, unless the buyer accept and receive part of such goods and chattels, or the evidences, or some of them, of such things in action or pay at the time some part of the purchase money; but when a sale is made by auction and entry is made by the auctioneer in his sales book, at the time of the sale, of the amount and kind of property sold, terms of sale, price, names of the purchasers and person on whose account the sale is made, it is a sufficient memorandum;

(e) An agreement of the leasing for a longer period than one year, or for the sale of real property or of an interest therein;

x xx

*In summary the following must be in writing to be enforceable: sale of personal property at a price not less than P500.00, sale of real property or an interest therein, sale of property not to be performed within a year from the date thereof and “Applicable statute” requires that the contract of sale be in a certain form.

 

What is reformation of instrument?

Reformation of instrument means that there having a meeting of the minds of the parties to a contract, however, their true intention thereof is not expressed in the instruments purporting to embody the agreement by reason of fraud, accident, mistake, and inequitable conduct. This is done to reveal the true intentions of the party and only applicable to written contracts.

References

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

The New Civil Code of the Philippines

 

 

 

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