UP Law F2021 050 Sun Brothers & Co. v.

Velasco
Sales Article 1505 1958 Angeles

SUMMARY
The case stems from a dispute concerning the ownership of a refrigerator which was originally delivered,
by virtue of a conditional sale agreement from SBC to Francisco Lopez. Lopez, in bad faith and violation of
the stipulations in his agreement with SBC, sold the refrigerator to Jose Velasco who in turn sold it to Co
Kang Chiu. The clash of interests, in this case, is between SBC and Chiu who has current possession of the
refrigerator.
FACTS
 Sun Brothers & Company (“SBC”) delivered to Francisco Lopez (“Lopez”) a refrigerator, complete
with transformer; the stipulated price was one thousand seven hundred pesos (₱1,700.00) but only
the down payment of five hundred pesos (₱500.00). The contract between SBC and Lopez, which is
actually a “Conditional Sale Agreement” stipulated that:
o Lopez shall not remove the refrigerator nor part possession with the same without the the
express written consent of SBC; and
o In the event of violation of the agreement, SBC may rescind the contract of sale and recover
possession of the refrigerator. In addition, any amount previously paid shall be forfeited as
liquidated damages, and the refrigerator remains as SBC’s absolute property until Lopez is
able to pay the full purchase price.
 Without the knowledge of SBC, Lopez, misrepresenting himself as Jose Lim, sold the refrigerator to
J.V. Trading, which was owned by Jose Velasco (“Velasco”) for eight hundred fifty pesos (₱850.00)
and Lopez executed a document which stated that he, Lopez under the name of Lim, was the absolute
owner of the refrigerator.
 The day after the sale to Velasco, without the knowledge of SBC, Velasco sold the refrigerator to Co
Kang Chiu (“Chiu”) in the sum of nine hundred eighty-five pesos (₱985.00) which Chiu paid in cash.
The refrigerator was then delivered to the residence and business address of Chiu.
 SBC thus filed in the Municipal Court of Manila an action for replevin against Lopez and Chiu seeking
the recovery of the possession of the refrigerator. The lower court, relying on Article 1505 (1),
adjudged SBC to be the absolute owner of the refrigerator and ordered Chiu to return the object of
the dispute immediately to SBC.
 It is urged by Chiu that Article 1505 (3) should have been applied instead because he bought the
refrigerator in good faith and for value at a merchant’s store.
RATIO

W/N the lower court committed error when it applied the provisions of Article 1505 (1)
Yes.

While it is true that Lopez, a conditional vendee, never had any title to the refrigerator in question, because
the stipulation between him and SBC, the conditional vendor, is that the title shall vest in Lopez upon
payment in full of the purchase price and the facts admit that Lopez had not fully paid the contract price, the
clash of interest is between SBC and Chiu, an innocent purchaser for value. There can be no question that
Velasco’s store from which Chiu purchased the refrigerator was a merchant store, as merchant stores are
defined in the Code of Commerce. It follows that Article 1505 (3) should be applied, under which Chiu
should be declared to have acquired a valid title to the refrigerator, although his predecessors-in-
interest did not have any right of ownership over it. This is a case of an imperfect or void title ripening
into a valid one, as a result of intervening causes. The SC stands firm in the policy of the law which states
that where the rights and interest of a vendor comes into clash with that of an innocent buyer for value, the
latter must be protected.

The rule embodied in Article 1505 (3) protecting innocent third parties who have made purchases at
merchants’ stores in good faith and for value is necessary not only to facilitate commercial sales on
movables but to give stability to business transactions. This rule is necessary where free enterprises
prevail, for buyers cannot be reasonably expected to look behind the title of every article when he buys at a
store.
W/N the remedy granted by Article 559 is available to SBC
No.

Article 559 provides remedy to the owner of a movable to obtain the return of the object provided he
reimburses the one in possession thereof is unavailing to SBC because neither did it lose the refrigerator
nor was it unlawfully deprived thereof. It cannot be said that SBC’s delivery of possession of the refrigerator
to Lopez should be construed as unlawful deprivation of the owner thereof. Furthermore, the Court takes
note of the provisions of Justice J.B.L. Reyes’ Outline of Philippine Civil Law, Book II concerning Article 1505
of the Civil Code which provides:

“The owner of property lost or illegally taken cannot recover it:

1) If acquired in markets;
2) If acquired in fairs (Article 1505, Civil Code; Code of Commerce, Article 86);
3) If acquired from stores of –
i) Legally registered merchants; or
ii) Non-registered merchants whose stores are advertised or open to the public for eight (8)
consecutive days (Code of Commerce, Articles 85 and 86)”

The recourse available to SBC is a claim for indemnity against Lopez.

FALLO

WHEREFORE, finding that the lower court has committed error in declaring plaintiff (“SBC”) to be the
absolute owner of the (refrigerator) object of this suit, the judgment appealed from is hereby MODIFIED.
Appellant (“Chiu””) is hereby declared to be the absolute owner and is entitled to the possession of the
refrigerator in question. Defendant (“Lopez”) is hereby ordered to pay plaintiff (“SBC”) the full purchase
price of the refrigerator in the sum of one thousand seven hundred pesos (₱1,700.00) with 6% annual
interest thereon from the date of the filing of the complaint in the Municipal Court until fully paid. The claim
of Chiu for damages and attorney’s fees is hereby dismissed. No special pronouncement as to costs.