CIVIL LAW: SPECIAL CONTRACTS – CONTRACT OF SALE: EFFECTS OF LOSS OF THE THING SOLD

Under Philippine law, the effects of the loss of the thing sold in a contract of sale are governed by Articles 1262, 1263, 1474, 1493, and 1496 of the Civil Code of the Philippines, among others. Below is a detailed and meticulous analysis:

1. Principle of Res Perit Domino (The Thing Perishes with the Owner)

The general rule is that the risk of loss is borne by the owner of the thing. In a contract of sale, ownership determines who bears the risk of loss. Ownership passes to the buyer only upon:

Delivery of the thing sold, if not otherwise agreed (Article 1496).
Any contrary stipulation between the parties.

Until the thing is delivered, the seller retains ownership and bears the risk of loss. Once delivered, the buyer bears the risk.

2. Loss of the Thing Before Perfection of the Contract

If the subject matter of the sale is lost before the perfection of the contract, the contract cannot be perfected. Perfection requires the concurrence of consent, object, and price, and if the object ceases to exist before perfection, the contract is null.

3. Loss of the Thing After Perfection but Before Delivery

A. Total Loss

Article 1262: If the object of the contract is totally lost after the contract is perfected but before delivery, the obligation of the seller is extinguished, and the buyer is no longer obligated to pay the price.
Article 1474: The seller cannot transfer ownership of a non-existent thing. Total loss renders the contract void.

B. Partial Loss

If the object suffers partial loss before delivery, the buyer may choose to:
1. Rescind the contract if the partial loss substantially affects the value or usability of the object.
2. Demand performance at a reduced price, commensurate with the diminished value of the thing.

4. Loss of the Thing After Delivery

Once the object of the sale is delivered, ownership transfers to the buyer, and the buyer bears the risk of loss. This is in line with the principle of res perit domino.

5. Contract of Sale Involving Fungible Goods

A. Generic Goods

When the subject of the sale is generic, the loss of specific goods does not extinguish the seller's obligation to deliver unless the goods are destroyed in such a way that the genus is extinguished (e.g., all goods of the same kind are destroyed).

B. Determinate Goods

In the case of determinate goods, loss or destruction extinguishes the obligation as no substitution is possible.

6. Risk Allocation in Specific Situations

A. Stipulation to the Contrary

The parties to a contract of sale may agree to allocate the risk of loss differently from the general rule. Such stipulations are enforceable unless contrary to law or public policy.

B. When the Buyer Delays Acceptance

If the buyer incurs delay (mora accipiendi) in accepting delivery, the risk of loss shifts to the buyer (Article 1169).

C. When the Seller Delays Delivery

If the seller incurs delay (mora solvendi) in delivering the thing, the seller retains the risk of loss until delivery is made.

7. Sale of Real Property (Immovable)

In the case of real property:

Loss Before Registration: If the property is destroyed after the sale but before registration and delivery, ownership has not transferred, and the seller bears the risk.
Loss After Registration: Once the sale is registered and ownership is transferred, the risk of loss lies with the buyer.

8. Sale with Reservation of Ownership

In cases where ownership is retained by the seller until full payment of the price (e.g., conditional sale or sale with a reservation of title):

The seller retains the risk of loss until ownership is transferred to the buyer.

9. Force Majeure

Loss due to fortuitous events or force majeure is generally not attributable to the fault of any party. However:

The risk is borne by the party who owns the thing at the time of loss.

Jurisprudence on Loss of the Thing Sold

Several Supreme Court rulings in the Philippines elucidate the rules on the loss of the thing sold:

Heirs of Delos Santos v. Vda. de Tizon (G.R. No. 152868):
- Emphasized the principle of res perit domino and the necessity of delivery for ownership and risk transfer.
Santos v. People (G.R. No. 206516):
- Clarified the rights of the buyer when loss occurs due to seller’s fault prior to delivery.
Castillo v. Reyes (G.R. No. 172202):
- Discussed the liability in cases of partial loss after perfection but before delivery.

Conclusion

The effects of the loss of the thing sold in a contract of sale depend on the timing of the loss (before or after delivery), the nature of the goods (generic or determinate), and the terms agreed upon by the parties. The Civil Code of the Philippines, particularly Articles 1262, 1263, 1474, 1493, and 1496, serve as the cornerstone in determining the allocation of risks. To avoid disputes, clear stipulations on the risk of loss in contracts are advised.