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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.

Provisions governing breach of contract of sale of goods. 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].) 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 can apply. However, provisions concerning the sale of immovable property have no application to the sale of goods. Actions available. In general, the 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.)
COMMENT: (1) Governing Law for Actions for Breach of the Contract of Sale of Goods Note that this chapter is not applicable to sale of real property. (2) Remedy of Buyer in a Contract of Sale by the NAMARCO NAMARCO, etc. v. Cloribel L-26585, Mar. 13, 1968 FACTS: German E. Villanueva, a Manila businessman trading under the name VILTRA Company bought from NAMARCO 10,000 metric tons of wire rods valued at over a million dollars. NAMARCO refused to comply with its commitments under the contract of sale. The VILTRA Company brought a special civil action for MANDAMUS to compel NAMARCO to comply with the terms of the sale. Issue: Is mandamus the proper remedy? HELD: Mandamus is not the proper remedy. It is a settled rule that mandamus never lies to enforce performance of contractual obligations. (City of Manila v. Posadas, 48 Phil.309; Florida Central, etc. v. State, etc., 20 LRA 419). In case of a breach of contract, the aggrieved partys remedy is an ordinary action in the proper court for SPECIFIC PERFORMANCE. This rule is applicable even in cases brought against municipal corporations to compel payment of the price agreed upon in a contract (Quiogue v. Romualdez, 46 Phil. 337 and Jacinto v. Director of Lands, 44 Phil. 853), the reason, being that a contractual obligation is not a duty specifically enjoined upon a party by law resulting from office, trust, or station. If it were such a duty, mandamus would be a proper remedy. 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. 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. 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

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buyer. Thereafter, the seller may treat the goods as the buyers and may maintain an action for the price. COMMENT:

Sellers right of action for the price. The above article provides the three cases when an action for the price of the goods under a contract of sale can be maintained by the seller: (1) when the ownership of the goods has 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.)
EXAMPLE: S sold to B a specific refrigerator for P8,000.00. S can maintain an action for the price in any of the following cases: (1) He has delivered the refrigerator to B and the latter wrongfully fails to pay; (2) He has not yet delivered the refrigerator but the period fixed for the payment has already arrived while the period fixed for delivery is yet to come; and (3) B has refused to accept delivery without just cause and S has notified B that he is holding the goods as bailee for B. Under No. (1), where the unpaid goods are subsequently sold or mortgaged to another who acted in good faith, the obligation to pay remains with the buyer mortgagor-seller. The failure of the buyer to pay the purchase price does not ipso facto revert ownership of the goods to the (first) seller unless the sale is first liquidated. The (first) seller has no cause of action against the purchaser or chattel mortgagee. (see Philippine National Bank vs. Court of Appeals, 367 SCRA 198 [2001].)

Where ownership in goods 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. From the above, it can be deduced that the seller cannot maintain an action for the price if the ownership in the goods has notpassed to the buyer, (1) unless the price is payable on a certain day or (2) unless the goods cannot readily be resold for a certain price and the provisions of Article 1596, 4th paragraph are not applicable. It must be noted that under Article 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. Recovery of price payable on a certain day. If different times are fixed for the payment of the price and the delivery of the goods, the general 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. (1) Buyer 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, the provisions of Article 1595, paragraph 2 are applicable. (3 Williston, op. cit., pp. 218-219.) (2) Defense to action for the price. Said paragraph 2 excuses, however, the buyer from his obligation to pay the price when, before the time of payment, the seller has manifested an inability to perform the contract of sale or an intention not to perform it. A contract of sale contemplates a double exchange. Accordingly, there is justice as well as good reason for

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excusing the buyer from prior performance when he will not get subsequent performance from the seller. In this case, prospective failure to receive the thing promised is as good as a defense as a failure which has actually occurred.
Rules if Buyer Refuses to Pay (a) Example of paragraph 1: Machines having been sold and delivered to the buyer, if the buyer refuses to pay therefor, the seller may sue for the price. (McCullough v. Lucena Elec. Light Co., 32 Phil. 141). (b) Example of paragraph 2: The seller and buyer agreed that payment would be made on Jul. 15, although the goods would be delivered only on Jul. 30. On Jul. 15, the seller may sue for the price. The buyer is allowed to refuse to pay if before the judgment in such action, he is able to prove that the seller has no intention anyway of delivering the goods on Jul. 30. In one case, our Supreme Court has held that the seller should, upon his election to enforce fulfillment against the buyer, indicate in his complaint his readiness to surrender the goods into the custody of the court and to request the court, if it should deem such course to be warranted, convenient, and advisable, to direct that the goods be delivered to its own officer or to a receiver to be appointed for the purpose (unless, of course, a later delivery date has been stipulated). In this way, the court would be placed in a position to act at once, if the situation should so require. Furthermore, in this case the adverse party is given a fair opportunity to protect his own interest. (Matute v. Cheong Boo, 37 Phil. 372). (c) Example of paragraph 3: Seller and buyer agreed that payment and delivery would be made on July 15. On said date, seller may offer to deliver the goods to the buyer, and if buyer refuses to receive the goods, the seller can tell the buyer, I am holding the goods, no longer as the seller, but as your depositary. You are now the owner of the goods. The seller can now maintain an action for the price. This can be done if: (1) The goods cannot readily be resold for a reasonable price, and (2) If the provisions of Art. 1596, par. 4 are not applicable. Art. 1601. Conventional redemption shall take place when the vendor reserves 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. COMMENT:

Conventional redemption defined. Conventional redemption is the right which the vendor reserves to himself, to reacquire the property sold provided he returns to the vendee the price of the sale, the expenses of the contract, any other legitimate payments made therefor and the necessary and useful expenses made on the thing sold (Art. 1616.), and fulfills other stipulations which may have been agreed upon. Subject matter of conventional redemption. Both real and personal property may be the subject matter of pacto de retro sales or sales with right to repurchase although there are certain articles (Arts. 1607, 1611, 1612, 1613, 1614, 1617, 1618.) which are applicable only to immovables. Nature of conventional redemption. (1) It is purely contractual because it is a right created, not by mandate of the law, but by virtue of an express contract. (Ordoez vs. Villaroman, 78 Phil. 116 [1947].) (2) It is an accidental stipulation and, therefore, its nullity cannot affect the sale itself since the latter might be entered into without said stipulation. (Alojado vs. Lim Siongco, 51 Phil. 339 [1927].) (3) It is a real right when registered, because it binds third persons. (Art. 1608; see Mortera vs. Martinez, 14 Phil. 541 [1909].) (4) It is potestative because it depends upon the will of the vendor. (see Art. 1182.) (5) It is a resolutory condition because when exercised, the right of ownership acquired by the vendee is extinguished. (see Art. 1179; see Aquino vs. Deal, 63 Phil. 582 [1936]; Heirs of

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Francisco Parco vs. Haw Pia, 45 SCRA 164 [1972].) In a pacto de retro sale, the title or ownership of the property sold is immediately vested in the vendee a retro, subject only to the resolutory condition of repurchase by the vendor a retro within the stipulated period. (Solid Homes, Inc. vs. Court of Appeals, 81 SCAD 546, 275 SCRA 267 [1997].) (6) It is not an obligation but a power or privilege that the vendor has reserved for himself. (Ocampo vs. Potenciano, [C.A.] 48 O.G. 2230.) (7) It is reserved at the moment of the perfection of the contract for if the right to repurchase is agreed upon afterwards, there is only a promise to sell which produces different rights and effects and is governed by Article 1479. (Diamante vs. Court of Appeals, 206 SCRA 52 [1992].) (8) The person entitled to exercise the right of redemption necessarily is the owner of the property sold and not any third party. (see Quimson vs. Phil. National Bank, 36 SCRA 26 [1970].) Unlike a debt which a third person may satisfy even against the debtors will (see Art. 1237.), the right of repurchase may be exercised only by the vendor in whom the right is recognized by contract or by any person in whom the right may have been transferred. (Gallar vs. Husain, 20 SCRA 186 [1967].) (9) It gives rise to reciprocal obligation that of returning the price of sale and other expenses, on the part of the vendor (Art. 1616.); and that of delivering the property and executing a deed of sale therefor, on the part of the vendee. The plea that the vendee made delivery of the property to a third person whom he believed was better entitled to possess it, cannot serve as an excuse for the failure to comply with said obligation. (Pandaquilla vs. Gaza, 12 Phil. 663 [1909].)
ILLUSTRATIVE CASE: When period for exercise of right of repurchase expired, constitutional prohibition against aliens owning lands was already in force. Facts: S, vendor a retro, sold to B, a Chinese, vendee a retro, a parcel of land. The sale was made in 1932, before the adoption of the old Constitution. No repurchase was made by S. At the expiration of the right of repurchase, the 1935 Constitution (Art. XIII, Sec. 5 thereof.) contains a prohibition against aliens owning lands save in cases of hereditary succession. Issue: Does the prohibition apply to B, an alien who acquired the land by sale with pacto de retro before the 1935 Constitution became effective? Held: No. The nature of a sale with right of repurchase is such that the ownership over the thing sold is transferred to the vendee upon the execution of the contract assuming the requirements as to delivery to be present, subject only to the resolutory condition that the vendor exercises his right of repurchase within the period agreed upon by the parties or prescribed by law. (Heirs of Francisco Parco vs. Haw Pia, 45 SCRA 164 [1972].)

Option to buy and right of repurchase distinguished. An option to buy is different and distinct from the right of repurchase which must be reserved by the vendor by stipulation to that effect in the contract of sale. This is clear from Article 1601. (1) The right of repurchase is not a right granted the vendor by the vendee in a subsequent instrument, but a right reserved by the vendor in the same instrument of sale as one of the stipulations of the contract. (2) Once the instrument of absolute sale is executed, the vendor no longer reserves the right to repurchase, and any right thereafter granted the vendor by the vendee in a separate instrument cannot be a right of repurchase, but some other right like the option to buy. (a) Accordingly, a deed of absolute sale and an option to buy together, cannot be considered as evidencing a contract of sale with pacto de retro. Such option does not evidence a right to repurchase, the extension of the period for the exercise of which (option) does not fall under No. 3 of Article 1602. (Villarica vs. Court of Appeals, 26 SCRA 189 [1968]; Vda. De Zulueta vs. Octaviano, 121 SCRA 314 [1983]; Vda. de Cruzo vs. Carriaga, Jr., 174 SCRA 330 [1989]; see Vasquez vs. Court of Appeals, 199 SCRA 102 [1991]; Torres vs. Court of Appeals, 216 SCRA 287 [1992].) (b) Similarly, in an early case, it has been held that an agreement to repurchase becomes a promise to sell when made after an absolute sale because where the sale is made without such

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an agreement, the purchaser acquires the thing sold absolutely, and if he afterwards grants the seller the right to repurchase, it is a new contract entered into by the purchaser, as absolute owner already of the object. (Ramos vs. Icasiano, 51 Phil. 343 [1927]; Vda. de Cruzo vs. Carriaga, Jr., supra; Diamante vs. Court of Appeals, 206 SCRA 52 [1992].) Right to redeem and right of repurchase distinguished. The right to redeem becomes functus officio on the date of its expiry, and its exercise after the period is not really one of redemption but a repurchase. Distinction must be made because redemption is by force of law; the purchaser at public auction is bound to accept redemption. Repurchase, however, of foreclosed property, after redemption period, imposes no such obligation. After expiry, the purchaser may or may not re-sell the property but no law will compel him to do so. And, he is not bound by the bid price; it is entirely within his discretion to set a higher price, for after all, the property already belongs to him as owner. (Vda. De Urbano vs. GSIS, 157 SCAD 133, 367 SCRA 672 [2001], citing Natino vs. Intermediate Appellate Court, 397 SCRA 323 [2001].)
(1) When Conventional Redemption Takes Place (a) Conventional redemption is also called the right to redeem. It occurs in sales with a pacto de retro, and takes place as stated in the Article. (b) There cannot be conventional redemption unless it has been stipulated upon in the contract of sale. (Ordonez v. Villaroman, 44 O.G. 2226). Consider, therefore, this right merely as an accidental element in the contract of sale. It cannot be considered either as a natural or as an essential element in the contract of sale. (c) If the terms of the pacto de retro sale are clear and the contract is not assailed as false nor its authenticity challenged, the literal sense of its terms shall be given effect. (Ordoez v. Villaroman, 44 O.G. 2226). Hulganza v. CA GR 56196, Jan. 7, 1987 ISSUE: Is it necessary that the formal offer to redeem the land be accompanied by a bona fide tender of the redemption price, or the repurchase price be consigned in Court, within the period of redemption even if the right is exercised through the fi ling of judicial action? HELD: The bona fide tender of the redemption price or its equivalent consignation of said price in court is not essential or necessary in an action to redeem a parcel of land under Sec. 119, Com. Act 141, since the filing of the action itself is equivalent to a formal offer to redeem. The formal offer to redeem, accompanied by a bona fide tender of the redemption price, within the period of redemption prescribed by law, is only essential to preserve the right of redemption for future enforcement beyond such period of redemption, and within the period prescribed for the action by the statute of limitations. Where the right to redeem is exercised thru the filing of judicial action within the period of redemption prescribed by law, the formal offer to redeem, accompanied by a bona fide tender of redemption price, might be proper, but this is not essential. The filing of the action itself, within the period of redemption, is equivalent to a formal offer to redeem. Any other construction, particularly with reference to redemption of homesteads conveyed to third parties, would work hardships on the poor homesteaders who cannot be expected to know the subtleties of the law and would defeat the evident purpose of the Public Land Law to give the homesteader or patentee every chance to preserve for himself and his family the land that the state granted him as a reward for his labor in cleaning and cultivating it. (2) Effect of Inadequacy of Price In a sale with pacto de retro, the inadequacy of the price cannot be considered a ground for rescinding the contract. Indeed, the practice is to fix a relatively reduced price (but not a grossly inadequate one) in order to afford the vendor a retro every facility to redeem the land, unlike in an absolute sale where the vendor, in permanently giving away his property, tries to get, as compensation, its real value. (Juan Claridad v. Isabel Novella, L-12666, May 22, 1965 and Vda. de Lacson, et al. v. Granada, et al., L-12035, Mar. 29, 1961).

SUAREZ, Sharmilah G.