Actions and Remedies for Breach of Agreement

Question 1

What are the actions available to the seller?

Answer 1

The actions available to the seller are:

1. Action by the seller for the 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)

Question 2

What are the actions available to the buyer?

Answer 2

The actions available to the buyer are:

1. Action by the buyer for the specific performance (Art. 1598); and
2. Action by the buyer for rescission or damages for breach of warranty (Art. 1599).

Question 3

When may the seller demand the specific performance of payment of price by the buyer?

Answer 3

Payment of price:

1. When the ownership of the goods has passed to the buyer and he wrongfully neglects or refuses to pay for the price;
2. When the price is payable on a certain day and the buyer wrongfully neglects to pay such price, whether or not ownership has passed;
3. When the goods cannot readily be resold for a reasonable price, and the buyer wrongfully refuses to accept the goods, whether or not ownership has passed.

Question 4

What are the requisites for the seller to demand the payment of the price under Art. 1595 par. 3.?

Art. 1595. par. 3. 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, re 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.

Answer 4

Requisites – Art. 1595 contemplates a situation where the goods cannot be readily resold at a reasonable price. It applies if the following requisites are fulfilled:

1. There is no transfer of ownership to the buyer;
2. The goods have been manufactured;
3. The goods cannot be readily resold for a reasonable price;
4. The seller offers to deliver goods to buyer;
5. The buyer refuses to receive the goods; and
6. The seller notifies buyer that seller holds goods as bailee for the buyer.

Question 5

When may the seller seek damages from the buyer?

Answer 5

Seller may seek damages from the buyer when ownership has not yet passed and the buyer, without lawful cause, neglects or refuses to accept and pay for the goods. [Art. 1596]

Question 6

As a general rule, what is the measure of the damages that the seller may seek from the buyer who wrongfully refuses to accept and pay for the goods?

Answer 6

General rule: The measure of damages is the ESTIMATED LOSS directly and naturally resulting in the ordinary course of events from the buyer’s breach. [Art. 1596 par. 2]

Question 7

While the general rule is that the measure of damages is the ESTIMATED LOSS directly and naturally resulting in the ordinary course of events from the buyer’s breach, what are the exceptions provided under the law?

Answer 7

General rule: The measure of damages is the ESTIMATED LOSS directly and naturally resulting in the ordinary course of events from the buyer’s breach.

Exceptions:

1. When there is available market for the goods
   
   1. Difference between the contract price and the market price. The market price is fixed at the time the goods ought to have been accepted, or if no time was fixed, at the time of refusal to accept.
   2. Note: When there are special circumstances showing proximate damages of a greater amount than the difference between the contract price and market price, the seller is entitled to such higher amount when such damages may be reasonably attributed to the non-performance of the obligation.
2. Where labor or expense of material amount is necessary on the part of the seller to perform the contract.
   
   1. Cost of labor performed or expenses made before receiving notice of buyer’s repudiation, and unrealized profit.

Question 8

When may the seller be entitle to rescind the contract?

Answer 8

The seller may rescind the contract when the goods have not yet been delivered to the buyer, and the buyer repudiated the contract of sale, or manifested his inability to perform his obligations, or has committed a breach of the contract of sale. [Art. 1597]

Manner: by giving notice of his election so to do to the buyer

Question 9

When is the seller not allowed to rescind the contract despite buyer’s repudiation, or manifestation of inability to pay, or breach?

Answer 9

The unpaid seller’s right to rescind for non-performance is not absolute. Not allowed to rescind when:

1. There are 3rd persons possessing the objects of the contract to whom no bad faith is imputable (Ocejo Perez & Co. v. International Bank);
2. Breach is only slight or casual (Song Fo & Co. v. Hawaiian);
3. When there is a waiver of a right to rescind;

Question 10

When may the buyer demand specific performance by the seller?

Answer 10

The buyer may demand specific performance:

Art. 1598. Where the seller has broken a contract to deliver specific or ascertained goods.

Question 11

When may the buyer seek damages?`

Answer 11

The law provides that the buyer “refuse to accept the goods, and maintain an action against the seller for damages for the breach of warranty.” It is fundamental that the breach of an obligation gives rise to an action for damages.

Acceptance with knowledge of the breach of warranty does preclude rescission but it does not necessarily preclude a right to recoupment or damages.

Question 12

When is a seller deemed to be an unpaid seller?

Answer 12

Art. 1525, Seller is deemed to be unpaid seller:

1. When the whole of the price has not been paid or tendered;
2. When a bill of exchange or other negotiable instrument has been received as conditional payment, and the condition on which it was received has been broken by reason of the dishonor of the instrument, the insolvency of the buyer, or otherwise.

Unpaid seller includes agent, consignor, any other person who is in the position of a seller.

Question 12

When is a seller deemed to be an unpaid seller?

Answer 12

Art. 1525, Seller is deemed to be unpaid seller:

1. When the whole of the price has not been paid or tendered;
2. When a bill of exchange or other negotiable instrument has been received as conditional payment, and the condition on which it was received has been broken by reason of the dishonor of the instrument, the insolvency of the buyer, or otherwise.

Unpaid seller includes agent, consignor, any other person who is in the position of a seller.

Question 13

What are the remedies of the unpaid seller?

Answer 13

1. Lien on the goods - right to retain possession of goods until payment or tender of the whole price, or unless he agrees to sell on credit; [Arts. 1526-1529; 1503; 1535]
2. Right of stoppage of goods in transit - an extension of the lien for the price; entitles unpaid seller to resume possession of the goods while they are in transit;
3. Right of resale - available to unpaid seller who has a right of lien or who has stopped the goods in transitu;
4. Right of rescission - return of the title over the undelivered goods to the seller, and a right to recover damages for breach of contract [Art. 1534 CC]

Question 14

When may the seller retain a lien on the goods?

Answer 14

Lien is available when:

1. The seller is unpaid;
2. The unpaid seller has possession over the thing;
3. Ownership of the thing has passed to the buyer;
4. Any of the following: [Art. 1527]
   
   1. Goods are sold without stipulation as to credit;
   2. Goods are sold on credit but term of credit has expired;
   3. Buyer becomes insolvent;

Question 15

When does an unpaid seller lose his lien?

Answer 15

An unpaid seller loses his lien [Art. 1529]

1. Seller delivers goods to carrier or other bailee for transmission to the buyer without reserving ownership or right of possession (i.e. under a straight or non-negotiable bill of lading);
2. Buyer or his agent lawfully obtains possession of goods;
3. Seller waives the lien:
   
   1. But it is not lost with respect to the remainder of the goods when only partial delivery is made *unless such is symbolic delivery of the whole);
   2. It is not lost by the mere fact that seller obtained a judgment for the price

Question 16

When may lien be revived after delivery?

Answer 16

Lien may be revived after delivery:

1. If the buyer refuses to receive the goods after the same are delivered to the carrier or other bailee on his behalf, though the seller has parted with both ownership and possession. Here, the seller may reclaim the goods and revest the lien. [par. 1(2). Art. 1531, CC]
2. If the buyer returns the goods in wrongful repudiation of the sale, and the seller, in accepting the goods from the buyer, says he does not assent to the rescission.

Question 16

When may lien be revived after delivery?

Answer 16

Lien may be revived after delivery:

1. If the buyer refuses to receive the goods after the same are delivered to the carrier or other bailee on his behalf, though the seller has parted with both ownership and possession. Here, the seller may reclaim the goods and revest the lien. [par. 1(2). Art. 1531, CC]
2. If the buyer returns the goods in wrongful repudiation of the sale, and the seller, in accepting the goods from the buyer, says he does not assent to the rescission.

Question 17

What are the requisites in order for the seller to stop the goods in transit?

Answer 17

Requisites for the exercise of stoppage in transit:

1. The seller is unpaid;
2. The buyer is insolvent;
3. The goods are in transit;
4. The seller either takes actual possession, or gives notice of claim to the carrier or other person possessing the goods;
5. The seller must surrender the negotiable instrument or title, if any, issued by the carrier/bailee;
6. The seller must bear the expenses of the delivery of the goods after exercise of such right.

Question 18

When are the goods considered in transit?

Answer 18

When Goods Are In Transit [par.1, Art. 1531, CC]

1. From the time of delivery to the carrier or other bailee by the seller, for the purpose of transmission to the buyer, until the buyer or his agent takes such delivery from the carrier;
2. Even when goods have reached their ultimate destination, if buyer rejects them and carrier retains possession.

Question 19

When are goods no longer in transit?

Answer 19

Goods are no longer in transit [par. 2. Art. 1531.] when:

1. Buyer obtained delivery of the goods before they have reached their appointed destination;
2. Goods have arrived at the appointed destination, and the carrier/bailee acknowledges to hold the goods on behalf of the buyer;
3. Goods have arrived at the appointed destination, but carrier wrongfully refuses to deliver to buyer/his agent.

Question 20

What is the effect when the buyer has sold the goods? (see Art. 1535)

Answer 20

General rule: When the buyer has sold the goods, the seller’s right to stoppage in transitu is not affected even if buyer has sold or disposed of the goods unless the seller has given his assent thereto.

Exceptions: (a) When seller has given consent thereto; (b) When a negotiable document of title has been issued for the goods to a purchaser of value in good faith.

Question 21

When is the seller’s right of resale available?

Answer 21

Right of resale is available when the unpaid seller has either right of lien or has stopped the goods in transitu and under any of the following conditions:

1. The goods are perishable in nature;
2. The right to resell is expressly reserved in case the buyer should default;
3. The buyer delays in paying the price for an unreasonable time

The right to resell the goods is not mandatory, but permissive.

Question 22

When is the right of rescission of the unpaid seller available?

Answer 22

The unpaid seller has either a right of lien or has stopped the goods in transitu and under any of the following conditions:

1. Seller expressly reserved his right to rescind in case buyer defaults;
2. Buyer has been in default in payment for an unreasonable time