LEGAL MEMORANDUM

June 24, 2016

Questions Presented
1. Is demand necessary for the obligor to incur in delay?
2. Does the acceptance of goods belatedly delivered constitute a waiver of the delay?
3. What possible arguments can an individual use to escape liability for non-payment of goods
purchased?

Short Answer
Yes. Article 1169 makes it clear that demand, judicial or extra-judicial, is necessary in order for
the obligor to incur in delay. The only exceptions to this rule (i.e. demand is not necessary) are when (1)
the obligation or the law so provides; (2) when time is of the essence; and (3) when demand would be
useless.
Yes. In the case of Lorenzo Shipping v BJ Marthel, the Supreme Court held that by accepting the
cylinders when they were delivered to the warehouse, petitioner waived the claimed delay in the delivery
of said items.
An individual may state that the sale was in the form of a Sale or Return or Sale on
Acceptance. He may likewise say that the delivery made was invalid as the seller delivered the goods to
a third person not authorized to receive the same. He may also argue that the seller breached a warranty
from hidden defects since the goods delivered were unfit for use in his business/

Statement of Facts
A ordered boxes from B. These boxes were customized so as to fit As specification for use in his
business. Due to the customized character of these boxes, it cannot be sold to Bs other customers.
B failed to deliver the boxes on time. Despite the delay in the delivery of said boxes, A still
accepted the boxes and paid for them. Later on, however, A refused to accept further deliveries of B. As a
result, B is suing A for payment of the boxes the latter ordered. B contends that A must pay for the boxes
ordered as the same were customized in accordance to the latters specifications and could no longer be
sold to someone else.

Discussion
Contract of Sale
According to Art. 1458 of the Civil Code, by the contract of sale one of the contracting parties
obligates himself to transfer the ownership and to deliver a determinate thing, and the other to pay
therefor a price certain in money or its equivalent. According to Coronel v. CA,1the essential elements of a
valid contract of sale are (1) Consent or meeting of the minds to transfer ownership in exchange for the
price; (2) determinate subject matter; and (3) price certain in money or its equivalent. When all these three
elements are present, then a perfected contract of sale arises. In fact, Article 1475 provides that a contract
1 G.R. No. 103577, October 7, 1996

of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the
contract and upon the price. From that moment, the parties may reciprocally demand performance, subject
to the provisions of the law governing the form of contracts.
Delay and its Effects
Article 11692 provides the definition of delay. It states that delay is incurred from the time the obligee
judicially or extra-judicially demands from obligor the fulfillment of the obligation. It must be noted that
the word delay, as used in the law, is not to be understood according to its meaning in common parlance.
A distinction should be made between ordinary delay and legal delay (default or mora) in the performance
of an obligation. Ordinary delay is merely the failure to perform an obligation on time. On the other hand,
legal delay or default or mora is the failure to perform an obligation on time which failure, constitutes a
breach of the obligation.
According to General Milling Corporation v Sps. Librado Ramos and Remedios Ramos 3 there
are three requisites necessary for a finding of default. First, the obligation is demandable and liquidated;
second, the debtor delays performance; and third, the creditor judicially or extrajudicially requires the
debtors performance.
From the foregoing, we can see that default begins from the moment the creditor demands the
performance of the obligation. The demand may be in any form, provided that it can be proved. The proof
of demand will be incumbent upon the creditor. Without such demand, judicial or extra-judicial, the
effects of default cannot arise. A mere reminder cannot be considered a demand for performance, because
it must appear that the tolerance or benevolence of the creditor must have ended.
When the obligor incurs in delay, he shall be liable for the loss of the thing, if the contract has for
its object a determinate thing, even if the loss thereof be due to a fortuitous event. 4 He is also liable for
damages for the delay.5
2 Article 1169: Those obliged to deliver or to do something incur in delay from the time the
obligee judicially or extrajudicially demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order that delay may exist:
(1) When the obligation or the law expressly so declare; or
(2) When from the nature and the circumstances of the obligation it appears that the
designation of the time when the thing is to be delivered or the service is to be rendered
was a controlling motive for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond his power
to perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not
ready to comply in a proper manner with what is incumbent upon him. From the moment
one of the parties fulfills his obligation, delay by the other begins.

3 G.R. No. 193723, July 20, 2011

4 Article 1165, 3rd paragraph: If the obligor delays, or has promised to deliver the
same thing to two or more persons who do not have the same interest, he shall be
responsible for any fortuitous event until he has effected the delivery.

It has been ruled that the delay in the performance of the obligation under Article 1170 must be
either malicious or negligent. Thus, in RCBC v CA,6 the Supreme Court held that where the omission of
the buyer to sign a check, one of 24 post dated checks which were delivered to the seller who did not
bother to call the buyer to ask him to sign the check, was mere inadvertence on the part of the buyer,
the latter was held not liable for damages resulting from the delay in the payment of the value of the
unsigned check.
When Demand is Not Necessary
As discussed above, the general rule is that delay begins only from the moment the creditor demands,
judicially or extrajudicially, the fulfillment of the obligation. The demand for performance marks the time
when the obligor incurs mora or delay and is deemed to have violated his obligation. However, Article
1169 also provides the instances wherein demand is no longer necessary for delay to exist.
However, the demand by the creditor shall not be necessary in order that delay may
exist:
(1) When the obligation or the law expressly so declare; or
(2) When from the nature and the circumstances of the obligation it appears that the
designation of the time when the thing is to be delivered or the service is to be rendered
was a controlling motive for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond his
power to perform.
When the Obligation Expressly so Declare
The mere fixing of the period is not enough. The arrival of the period merely makes the
obligation demandable. Before its arrival, the creditor cannot demand performance. The obligation must
expressly so declare that demand is not necessary or must use words to that effect, as for instance, the
debtor will be in default or I will be liable for damages.
When the Law so Provides
An example of this would be Article 1786 of the Civil Code which provides that the partner is
liable for the fruits of the thing he may have promised to contribute to the partnership from the time they
should have been delivered without the need of any demand.
When Time is of the Essence
Examples of this include the delivery of balloons on a particular date when a childrens party will
be held; the making of a wedding dress where the wedding is scheduled at a certain time; payment of
money at a particular time so that the creditor could pay off certain debts due on the same date; the
delivery of a car to be used in a trip at a particular time; etc. In all the foregoing cases, the debtor is fully
5 Those who in the performance of their obligations are guilty of fraud, negligence,
or delay, and those who in any manner contravene the tenor thereof, are liable for
damages
6 G.R. No. 133107, March 25, 1999

aware that the performance of the obligation after the designated time would no longer benefit the
creditor.
In this case, it is not necessary for the contract to categorically state that time is of the essence;
intent is sufficient.7 However, when the time of delivery is not fixed or is stated in general and indefinite
terms, it is presumed that time is not of the essence. In such cases, the delivery must be made within a
reasonable time, in the absence of anything to show that an immediate delivery was intended. 8 Even
where time is of the essence, a breach of the contract in that respect by one of the parties may be waived
by the other partys subsequently treating the contract as still in force. 9
When Demand would be Useless
Demand is also unnecessary where it is apparent that it would be unavailing, as where the circumstances
has rendered it impossible for the obligor to comply with his obligations, or if there has been a prior
absolute refusal to comply or if there has been a showing of the intention not to comply with the
obligation.
Applicable Jurisprudence
In the case of Lorenzo Shipping Corp. vs. BJ Marthel International, Inc.,10 Lorenzo Shipping is
engaged in coastwise shipping and owns the cargo M/V Dadiangas Express while BJ Marthel is engaged
in trading, marketing and selling various industrial commodities. In 1989, Lorenzo Shipping asked BJ
Marthel for a quotation for various machine parts. Accordingly, BJ Marthel sent a quotation stating that
delivery will be within 2 months after receipt of the firm order and that 25% of the purchase price must
paid upon delivery. Afterwards, Lorenzo Shipping issued to BJ Marthel a Purchase Order. However,
Instead of paying the 25% down payment Lorenzo Shipping issued ten postdated checks. The checks
bounced so BJ Marthel sued for payment. Lorenzo Shipping, in his answer, alleged that time is of the
essence in the delivery of goods and the delivery of BJ Marthel of the items was late as the latter
committed to deliver said items within 2 months after receipt of the firm order. Consequently, Lorenzo
Shipping sought counterclaims for damages.
The issue presented to SC in this case is whether or not respondent incurred delay in performing its
obligation under the contract of sale. The Supreme Court held that by accepting the cylinders when they
were delivered to the warehouse, petitioner waived the claimed delay in the delivery of said items.
Supreme Court further said that time was not of the essence. And since there was no failure on the part of
BJ Marthel to perform its obligations, the power to rescind the contract is unavailing to the petitioner.
Other Possible Arguments so that A wont be Held Liable for Payment
On Sale or Return or Sale on Acceptance
7 Hanlon vs. Hauserman, 40 Phil. 766 [1919].
8 Smith bell & co. v matti; 1922.
9 Lorenzo Shipping Corp. vs. BJ Marthel International, Inc., 443 SCRA 163 [2004].
10 G.R. No. 145483, November 19, 2004

Article 1502 of the Civil Code provides:

ART. 1502: When goods are delivered to the buyer "on sale or return" to give the buyer
an option to return the goods instead of paying the price, the ownership passes to the
buyer of delivery, but he may revest the ownership in the seller by returning or tendering
the goods within the time fixed in the contract, or, if no time has been fixed, within a
reasonable time.
When goods are delivered to the buyer on approval or on trial or on satisfaction, or other
similar terms, the ownership therein passes to the buyer:
(1) When he signifies his approval or acceptance to the seller or does any other
act adopting the transaction;
(2) If he does not signify his approval or acceptance to the seller, but retains the
goods without giving notice of rejection, then if a time has been fixed for the
return of the goods, on the expiration of such time, and, if no time has been fixed,
on the expiration of a reasonable time. What is a reasonable time is a question of
fact.
However, to successfully invoke Article 1502 as a defense that no sale has been perfected, the
Supreme Court held in the case of Industrial Textile Manufacturing Co. v LPJ Enterprises 11that there must
be a clear agreement of such effect. It stated that such agreement making one of sale or return or sale
on approval must be in writing and cannot be proved by parole evidence.
The Boxes were Delivered and Received by a Person Not Named in the Contract
Article 1240 of the Civil Code provides that payment shall be made to the person in whose favor the
obligation has been constituted, or his successor in interest, or any person authorized to receive it.
In the case of Lagon v Hooven12 where the contract between the buyer and seller provides that
the sellers responsibility ends with delivery of the merchandise to carrier in good condition, to buyer, or
to buyers authorized "Receiver/Depository" named on the face of this proposal. The Supreme Court held
that the seller is under obligation to deliver to the buyer only and to no other person; otherwise, the
delivery would be invalid and the seller would not be discharged from liability.
However, in using this argument as a defense, it must be taken into consideration that Article
1241 of the Civil Code also provides that:
ART. 1241. xxx Payment made to a third person shall also be valid insofar as it has
redounded to the benefit of the creditor. Such benefit to the creditor need not be proved in
the following cases:
(1) If after the payment, the third person acquires the creditor's rights;
(2) If the creditor ratifies the payment to the third person;
11 G.R. No. 66140, January 21, 1993
12 G.R. No. 135657. January 17, 2001

(3) If by the creditor's conduct, the debtor has been led to believe that the third
person had authority to receive the payment.
Breach of Warranty from Hidden Defects
Article 1561 of the Civil Code provides that 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.