SALES

Warranty Against Hidden Defects of or Encumbrances Upon the Thing Sold

GROUP 2 : Barroga | Bauzon | Dait | Fagyan | Kapawen | Mascenon | Tongdo

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)

 Definition

Warranty against hidden defects - This refers to the implied warranty that the
thing shall be free from any hidden faults or defects, or any change or
encumbrance not declared or known to the buyer. (1547, par. 2)

 Requisites for Warranty Against Hidden Defects

1. The defect must be important or serious;
2. It must be hidden;
3. It must exist at the time of the sale;
4. The vendee must give notice of the defect to the vendor within a reasonable time
(1586).
5. The action for rescission or reduction of the price must be brought within the proper
period -- 6 months from the delivery of the thing sold (1571) or within 40 days
from the date of the delivery in case of animals (1577, par. 1) ; and
6. There must be no waiver of warranty on the part of the vendee (1548, par. 3).

 1. The defect must be important or serious.

o The DEFECT is important if:
a. it renders the thing sold unfit for the use for which it is intended; or
b. it diminishes its fitness for such use to such an extent that the
vendee would not have acquired it had he been aware thereof or would
have given a lower price for it.
o The USE CONTEMPLATED must be that stipulated.
 In the absence of stipulation, that which is adopted to the nature of the thing
and to the business of the purchaser.
o An imperfection or defect of little consequence does not come within the category
of being redhibitory. It must be serious.

 2. The defect must be hidden.

o There is no warranty implied against defects of which the buyer has full knowledge
or of which he has knowledge sufficient to put him on notice.
o No warranty is implied against defects disclosed by the seller to the buyer.
 o The defect is HIDDEN (or LATENT) if it was not known and could not have been
known to the vendee.
 Hidden = hidden to the eyes and cannot be discovered by ordinarily careful
inspection or examination
o If the vendee is an expert who, by reason of his trade or profession, should have
known it, then the vendor’s liability cannot be enforced although the defect is
hidden.
o The defect may be hidden with respect to one person, but not hidden with respect
to another.
 Limitation on any doctrine freeing the seller from liability for statements or promises in
regard to obvious defects: the seller is liable if he successfully uses art to conceal the
defects.

 There is no implied warranty against hidden defects in the sale of second-hand goods.
o Exception: The seller shall be liable if he has been shown to have made a
misrepresentation or acted in bad faith.

 The seller may bind himself against patent or obvious defects if the intent to do so is clearly
evident. The seller CANNOT allege as a defense that inspection would have disclosed
the defect existed at the time of the sale.

 3. The defect must exist at the time of the sale.

o The vendor cannot be held liable for defects suffered by the thing sold AFTER the
perfection of the sale.
o The vendee who claims breach of warranty against hidden defects must prove that
the defect existed AT THE TIME of the sale.

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)

 Quality of goods includes their state or condition (1636).

 Purpose of holding the seller on his implied warranties
o Basis: “Honesty is the best policy”
1. To promote a high standard in business; and
2. To discourage sharp dealings.

 Implied warranty of fitness

o Warranty of Fitness is a warranty that the goods are suitable for the special
purpose of the buyer which will not be satisfied by mere fitness for general
purposes.
 o There is NO implied warranty as to the quality or fitness for any particular purpose
of goods under a contract of sale.
 Exception: There is an implied warranty that the goods are reasonably fit
for such purpose where:
a. The buyer, expressly or impliedly, makes known to the seller
the particular purpose for which the goods are required; and
b. The buyer relies upon the skill or judgment of the seller
(1562).
o Test of the existence of the implied warranty of fitness for a particular purpose:
 Whether the buyer informed the seller of the circumstances and conditions
which necessitated his purchase of a certain character of article or material
and left it to the seller to select the particular kind and quality of article
suitable for the buyer’s use.
o To establish an implied warranty of fitness for a particular purpose, the buyer must
have relied on the skill or judgment of the seller.
 The reliance on the seller need not be a total reliance. The buyer may rely
on his own judgment as to some matters and on the skill and judgment of
the seller on other matters.
 If the buyer has superior knowledge, then he would not be relying on the
skills and judgment of the seller.
o The buyer must particularize the specific purpose he has in view when an article
is capable of being applied to a variety of purposes.

 Implied warranty of merchantable quality

o Where goods are bought by description, the seller impliedly warrants that the
goods are of merchantable quality.

Article 1562 (Implied warranty of Merchantable Article 1565 (Implied Warranty of

Quality) Merchantability)

Applies to goods bought by description Applies to goods bought by sample

Merchantable Unmerchantable

o Merchantable quality = the goods comply with the description in the contract so
that a buyer buying goods of that description, the goods would be good tender; it
does not mean that there will be in fact persons ready to buy the goods.
 Merchantable quality has been interpreted to mean that the good is of such
quality and in such condition that a reasonable man would after a full
examination, accept it under the circumstances of the case, in performance
of his offer to buy the goods, whether he buys it for his own use or to sell
again.
 The requirement of merchantable quality does not imply that the goods
shall be saleable in a particular market.
o Goods may be unmerchantable because of circumstances rendering them
unsaleable. They may be dangerous or injurious in ways not to be expected from
the goods of the kind.
o The warranty that the goods are of merchantable quality applies to ALL GOODS
bought from a seller who deals in goods in that description.
 Warranty of Merchantability Warranty of Fitness

Warranty that goods are reasonably fit for Warranty that the goods are suitable for the specific purpose
the general purpose for which they are sold of the buyer which will not be satisfied with mere fitness for
general purposes

Article 1563. In the case of a 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)

 There is no implied warranty of fitness for any particular purpose where the article is sold
under its patent or trade name.
o Exception: When there is a stipulation to the contrary.
 The warranty may exist where, although the article has a trade name, the
purchase is not made by or in reliance on the name, but is made for a
particular purpose and supplied for that purpose in reliance on the seller’s
judgment.

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)

 A warranty as to the quality and fitness for a particular purpose may be attached by usage
to a contract containing no express provision in regard to warranty.
 In the absence of usage, no warranty would be implied.
 The usage is relied on for the purpose of showing the intention of the parties.
 To bind both parties, the usage must be known to both of them.
o If unknown to one, the other must be justified in assuming knowledge on the part
of the person with whom he is dealing.
o Presumption: The parties are aware of the usage of trade.

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)

 When is Art. 1565 applicable?

1. in case of a contract of sale by sample (here, the goods must be substantially like
the samples as to kind, quality, and value, and must be free from defects to be
merchantable); and
2. if the seller is a dealer in goods of that kind.

 If the sample is subject to a LATENT DEFECT and the buyer reasonably relies on the
seller’s skill or judgment, the buyer is entitled to the merchantable goods of that kind and
character.
 o In Article 1481, the contract may be rescinded where the bulk of goods do not
correspond with the sample.

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)

 General Rule: The ignorance of the vendor does NOT relieve him from liability to the
vendee for any hidden faults or defects in the thing sold. The vendor cannot avail of
good faith as a defense.
o Exception: The parties may stipulate otherwise in their contract, provided that
the vendor is unaware of the existence of the hidden fault or defect (or the
vendor is in good faith).

 The vendee cannot complain if he is aware of the defect in the thing he buys or of the
lack of title of the vendor. He is deemed to have willfully and voluntarily assumed the
risk attendant to the sale.

Caveat emptor (Let the buyer beware) Caveat venditor (Let the seller
beware)

The vendee must be aware of the supposed title of the The vendor is liable to the vendee
vendor and the one who buys without checking the for any hidden faults or defects in
vendor’s title takes all the risks and losses consequent the thing sold, even though he is not
to such failure. aware thereof.

The vendee is obliged to investigate or inspect the It is based on the principle that a
property sold to him when there are circumstances that sound price warrants a sound
would put him on guard. article.

Article 1567. In the cases of articles 1561, 1562, 1564, 1565 and 1566, the vendee may elect between
withdrawing from the contract or demanding a proportionate reduction of the price, with damages in
either case. (1486a)

 The vendee has the option either:

1. To withdraw from the contract or rescission with the right to damages (Accion
redhibitoria/action for rescission); or
2. To demand a proportionate reduction of the price with the right to damages
(Accion quanti minoris).
 The remedies are alternative as they are incompatible with each other.
 The vendee has the same right in the sale of animals with redhibitory defects (1580). He
must present PROOF that he suffered damage as a result of the breach of the vendor’s
warranty to be entitled to actual damages.
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)

 Effects of Loss of Thing Sold on Account of Hidden Defects

o If the vendor is aware of the hidden defects, he shall bear the loss because he
acted in bad faith. The vendee has the right to the following:
1. The price paid;
2. The expenses of the contract; and
3. Damages.
o If the vendor is NOT aware of the hidden defects, he shall be obliged to return:
1. The price paid;
2. The interest thereon; and
3. The expenses of the contract if paid by the vendee.
 The vendor is not made liable to damages because he is not in bad faith.

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)

 Effect of Loss through a fortuitous event or through the fault of the vendee
o If the Vendor is not aware of the defect, he shall be obliged to return the price
paid less the value of the thing at the time of the loss;
o If the Vendor is aware of the defect, he shall be obliged:
1. To return the price paid less the value of the thing at the time of the loss;
and
2. To pay damages
o The vendee bears the loss
1. if there are no hidden defects; and
2. the thing is lost due to a fortuitous event or through his fault.

 The difference between the price paid and the value of the thing at the time of its loss
represents the damage suffered by the VENDEE and at the same time the amount with
which the VENDOR enriched himself at the expense of the vendee.

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)

 Warranty in Judicial Sales

1. As to the judgment debtor
o In a judicial sale, the judgment debtor is the one who sells, and because he is
forced to sell, there can be no liability for damages.
 2. As to government
o In judicial sales, the principle of caveat emptor applies. The purchaser acquires
by his purchase NO higher or better title or right than that of the judgment debtor.
 The purchaser acquires NONE if the judgment debtor has no right, interest,
or lien in and to said property sold.

 Right of Purchaser in Judicial Sales

o Right as an assignee only

 This is because what is sold is the interest of the debtor in the property and
not the property advertised. If the debtor has none, then the purchaser is
still liable on his bid because he has offered so much for the debtor’s
interest in open market and it is for him to determine before he bids what
the debtor’s interest is worth.

o Right to reimbursement when judicial sale set aside

 If without fault of the purchaser, he is entitled to the purchase money paid
by him subject to set-off for benefits enjoyed while he had possession of
the property.
 A judicial sale can only be set aside upon return to the buyer of the
purchase price with simple interest and other expenses incurred by him.

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)

 Prescription of actions in cases of implied/express warranty

o The action for rescission or reduction of the purchase price prescribes in 6 months
from the date of delivery of the thing sold to the vendee.
 The vendee should NOT be permitted to offer as a defense the hidden
defects in the thing sold 6 months after he received it.
o The prescriptive period is 4 years if the action is for quasi-delict or negligence.
o Article 1571 may be applied only in cases of implied warranty. The action for
rescission, with respect to express warranty, prescribes in 4 years.
 Exception: when another period is specified in the express warranty.

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)

 Definition of Terms

1. Redhibition - avoidance of a sale on account of some vice or defect in the thing

sold, which renders its use impossible, or so inconvenient and imperfect that it
 must be supposed that the buyer would not have purchased it had he known of the
vice.
2. Redhibitory vice or defect - defect in the article sold against which defect the
seller is bound to warrant.
 The vice or defect must constitute an imperfection, a defect in its nature, of
certain importance; and a minor defect does not give rise to redhibition.
 The mere absence of a certain quality in the thing sold which the vendee
thought it to contain is not necessarily a redhibitory defect. One thing is
that the thing lacks certain qualities and another thing is that it positively
suffers from certain defects.
3. Redhibitory Action - an action instituted to avoid a sale on account of
some vice or defect in the thing sold which renders its use impossible, or so
inconvenient and imperfect that it must be supposed that the buyer would not have
purchased it had he known of the vice.

 Sale of two or more animals sold together

o General Rule: When the redhibitory defect is in one or some of them but not in all,
the redhibition will not affect the other without it. Accordingly, the vendee may ask
for:
1. The rescission of the sale of the defective animan (Accion Redhibitoria), or
2. Ask for proportionate reduction in its price (Accion Quanti Minoris).

 Exception: when it can be shown by the vendee that he would not have
purchased the sound ones without those which are defective. Accordingly,
the vendee may ask for rescission of the whole contract.

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)

 Sale of TWO or MORE things together

o The points considered in Article 1572 (Sale of two or more animals together) also
apply to sale of two or more things.
 ONLY one or more of them but NOT all have hidden defects.

Article 1574. There is no warranty against hidden defects of animals sold at fairs or at public
auctions, or of livestock sold as condemned. (1493a)

 This article is a limitation to Article 1570.

 Article 1574 (Sale of Animals at Fairs or at Public Auctions or as Condemned) is based
on the assumption that the defects must have been CLEARLY KNOWN to the buyer.
 The public auction referred to in Article 1574 may be judicial or extrajudicial.
 Article 1561 - Sale of animals as condemned precludes all idea of warranty against
hidden defects. Such animals are bought not because of their quality or capacity for
work.

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)

 Class of Animals which CANNOT be the Object of a Contract of Sale:

1. animals suffering from contagious diseases

2. animals found unfit for the use or service as stated in the contract

They are void as against public interest. Thus, the contract cannot be subjected to
rescission or reduction of the price. Instead, it is governed by nullity of contracts.
The action or defense for the declaration of the inexistence of the contract does not
prescribe.

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)

 Redhibitory Defect of Animals

o What constitutes a redhibitory defect of animals are the following:
1. Article 1576 - the hidden defect of the animal is of such a nature that, even
in case a professional inspection has been made, it is of such a nature that
expert knowledge is not sufficient to discover it.
2. Article 1577 - fault and defects which are determined by law or by local
customs as redhibitory.

 Articles 1561, 1574, 1576 - to be considered redhibitory, the defect in the animal must
be unknown to or hidden from the seller.

 The BUYER cannot pursue the redhibitory action if the BUYER knew the defect in the
animal.

 Exemption from Liability for Redhibitory Effects

o The VENDOR may be exempt in the following cases:
1. The vendee has knowledge of redhibitory defects (1561).
2. The vendee is an expert who, by reason of his trade or profession, should
have known them (1561).
3. There is a stipulation that the vendor will not be liable and the vender was
not aware of the hidden defect (1566).
4. The animals were sold at fairs or at public auctions (1574).
5. The livestock was sold as condemned (1574).

 [par. 2] The veterinarian who inspected the animal shall be liable for damages if, through
negligence or bad faith,
1. he fails to discover the redhibitory defect; or
2. he fails to disclose the redhibitory defect.
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)

 Limitation of Action in Sale of Animals

o The redhibitory action based on the animals’ faults or defects must be brought
within 40 days from the date of delivery to the vendee.
 Redhibitory defects in the sale of animals considered under the Article:
1. those determined by law; or
2. those determined by local customs - those that veterinary
professors have determined as such in the locality.

 If the defects are PATENT, then there is NO WARRANTY against such defects although
there exists a redhibitory vice.

Article 1578. If the animal should die within three days after its purchase, the vendor shall be liable if
the disease which caused the death existed at the time of the contract. (1497a)

 Responsibility of the Vendor where Animal Dies

o If the animal sold is suffering from a disease and then dies after the sale, the
issues that may arise are whether
 (a) the death was due to disease; or
 (b) the buyer did not take good care of the animal.

o If the death was due to a disease, the Vendor shall be liable for the death of the
animal sold, if the following conditions are met:
1. The disease existed at the time of sale;
2. The animal dies within 3 days after its purchase;
3. The disease is the cause of the death of the animal..
 Exception: The vendor is NOT liable if
1. the death occurs after 3 days; or
2. the defect is patent or visible.

o Apply Article 1569

1. if the loss is caused by
a. a fortuitous event; or
b. The fault of the vendee; AND
2. the animal has vices.
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)

 Liability of Vendee in case Sale of Animal is Rescinded

o The vendee must return the animal in the condition in which it was sold and
delivered if the sale of the animal is rescinded.
o The vendee shall be responsible for any injury caused due to his negligence but
this would be no obstacle to the rescission of the contract due to the redhibitory
defect or fault of the animal.
o The buyer may not ask for rescission where he has created new encumbrances
upon the thing sold (1556).

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)

 Alternative remedies of vendee in the sale of animals:

1. Redhibitory Action
2. Action quanti minoris

 The action must be brought within 40 days from the date of the delivery of the animals to
the vendee.

Article 1581. The form of sale of large cattle shall be governed by special laws. (n)

 Governed by Act No. 4117 (Sale of Large Cattle)

o Found in Sections 511 to 536 of the Revised Administrative Code (RAC), as

amended
o Provides for the registration, branding, conveyance, and slaughter of large cattle
o Administrative Code of 1987 superseded RAC

 Section 6 of PD No. 533 (Anti-Cattle Rustling Law of 1974)

o No person partnership, association, corporation or entity shall engage in the

business of buy and sell of large cattle without first securing a permit for the said
purpose from
 The Provincial Commander of the province where it shall conduct such
business; and
 The city/municipal treasurer of the place of residence of such person
partnership, association, corporation or entity.

o The permit shall only be valid in such province.

o The sale must appear in a public document.