RFBT 3
Topic 5 RIGHTS OF THE UNPAID SELLER
Arts. 1525-1535
I.
Definition of unpaid seller (1525)
A.
What the term “seller” includes (1525)
Art. 1525. The seller of goods is deemed to be an unpaid seller within the
meaning of this Title:
(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.
In Articles 1525 to 1535 the term "seller" includes an agent of the seller to
whom the bill of lading has been indorsed, or a consignor or agent who has
himself paid, or is directly responsible for the price, or any other person who
is in the position of a seller.
Unpaid seller: one who has not been paid or tendered the whole price or who has received
a bill of exchange or other negotiable instrument as conditional payment and the condition
on which it was received has been broken by reason of the dishonor of the instrument.
Tender destroys the seller’s lien.
Payment of part of price does not destroy a seller’s lien.
Payment by negotiable instrument shall produce the effect of payment only when
they have been cashed or when through the fault of the creditor they have been
impaired.
II.Rights of an unpaid seller (1526)
Lien: right to retain possession of the goods belonging to another pending payment of debt of the
latter.
If the unpaid seller still retains ownership in the goods, he cannot be said to have a lien on his goods.
But he does have, in addition to his other remedies, right of withholding delivery.
Basis of rights of unpaid seller is the inherent injustice of depriving him of goods with which he has
not finally parted where it is evident that he has not been or will not be paid the price for them when
it is due.
A.
Lien on the goods (1526, par. 1)
Art. 1526. Subject to the provisions of this Title, notwithstanding that the
ownership in the goods may have passed to the buyer, the unpaid seller of
goods, as such, has:
(1) A lien on the goods or right to retain them for the price while he is in
possession of them;
(2) In case of the insolvency of the buyer, a right of stopping the goods in
transitu after he has parted with the possession of them;
(3) A right of resale as limited by this Title;
(4) A right to rescind the sale as likewise limited by this Title.
Where the ownership in the goods has not passed to the buyer, the unpaid
seller has, in addition to his other remedies a right of withholding delivery
similar to and coextensive with his rights of lien and stoppage in transitu
where the ownership has passed to the buyer.
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a.
When the lien exists (1527, 1528)
Art. 1527. Subject to the provisions of this Title, the unpaid seller of goods
who is in possession of them is entitled to retain possession of them until
payment or tender of the price in the following cases, namely:
(1) Where the goods have been sold without any stipulation as to credit;
(2) Where the goods have been sold on credit, but the term of credit has
expired;
(3) Where the buyer becomes insolvent.
The seller may exercise his right of lien notwithstanding that he is in
possession of the goods as agent or bailee for the buyer.
Art. 1528. Where an unpaid seller has made part delivery of the goods, he
may exercise his right of lien on the remainder, unless such part delivery has
been made under such circumstances as to show an intent to waive the
lien or right of retention.
When unpaid seller’s possessory lien may be exercised:
1. Sales without agreement as to credit
Where there is stipulation as to credit, the seller is entitled to the payment of the price at the
same time that he transfers the possession of the goods. Accordingly, the seller has always a
lien upon the goods which he sells until payment or tender of the entire price.
2. Expiration of term of credit – even where the parties agree upon a sale on credit, the seller’s
right of lien may be exercised. By the nature of a credit sale, the buyer is entitled to possession
of the goods without paying the price, but if he fails to exercise his right until the term of credit
has expired and the price becomes due, he loses the right which he theretofore had.
3. Insolvency of the buyer – this doctrine is only an application of a general principle in the law of
contracts that when one party to a bilateral contract is incapacitated from performing his part of
the agreement, the other party is also excused from performing his part.
b.
When the lien is lost (1529)
Art. 1529. The unpaid seller of goods loses his lien thereon:
(1) When he delivers the goods to a carrier or other bailee for the purpose
of transmission to the buyer without reserving the ownership in the goods
or the right to the possession thereof;
(2) When the buyer or his agent lawfully obtains possession of the goods;
(3) By waiver thereof.
The unpaid seller of goods, having a lien thereon, does not lose his lien by reason
only that he has obtained judgment or decree for the price of the goods.
When unpaid seller losses possessory lien:
1. delivery to agent or bailee of buyer: while seller may stop the goods while on their way to the
buyer after delivery to a bailee for the buyer but it cannot be said that the seller has still any
lien upon them.
2. Possession of buyer or his agent
Exc: if buyer acquires possession illegally or without consent of the seller
3. Waiver of the lien: where the buyer was allowed to alter the character of the goods and make
them much more valuable, the seller could not longer assert a lien.
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B.
1.
2.
3.
4.
5.
6.
Right of stoppage in transitu (1526, No. 2)
a.
Requisites for the exercise of the right (1526, 1530)
Seller must be unpaid
Buyer must be insolvent
Goods must be in transit
Seller must either actually take possession of the goods sold or give notice of his claim to the carrier or
other person in possession
Seller must surrender the negotiable document of title, if any, issued by the carrier or bailee
Seller must bear the expenses of delivery of the goods after the exercise of the right.
Basis: injustice of allowing the buyer to acquire ownership and possession of the goods when
he has not paid and, owing to this insolvency, cannot pay the price which was to be given in
return for the goods.
Art. 1530. Subject to the provisions of this Title, when the buyer of goods is or becomes
insolvent, the unpaid seller who has parted with the possession of the goods has the
right of stopping them in transitu, that is to say, he may resume possession of the goods
at any time while they are in transit, and he will then become entitled to the same
rights in regard to the goods as he would have had if he had never parted with the
possession.
1)
When good are no longer in transit (1531)
Art. 1531. Goods are in transit within the meaning of the preceding article:
(1) From the time when they are delivered to a carrier by land, water, or air, or other
bailee for the purpose of transmission to the buyer, until the buyer, or his agent in that
behalf, takes delivery of them from such carrier or other bailee;
(2) If the goods are rejected by the buyer, and the carrier or other bailee continues in
possession of them, even if the seller has refused to receive them back. [attornment by
the bailee]
Goods are no longer in transit within the meaning of the preceding article:
(1) If the buyer, or his agent in that behalf, obtains delivery of the goods before their
arrival at the appointed destination;
(2) If, after the arrival of the goods at the appointed destination, the carrier or other
bailee acknowledges to the buyer or his agent that he holds the goods on his behalf
and continues in possession of them as bailee for the buyer or his agent; and it is
immaterial that further destination for the goods may have been indicated by the
buyer;
(3) If the carrier or other bailee wrongfully refuses to deliver the goods to the buyer or
his agent in that behalf.
If the goods are delivered to a ship, freight train, truck, or airplane chartered by the
buyer, it is a question depending on the circumstances of the particular case, whether
they are in the possession of the carrier as such or as agent of the buyer.
If part delivery of the goods has been made to the buyer, or his agent in that behalf,
the remainder of the goods may be stopped in transitu, unless such part delivery has
been under such circumstances as to show an agreement with the buyer to give up
possession of the whole of the goods.
When goods are in transit:
1. After delivery to a carrier or other bailee and before the buyer or his agent takes delivery of them
2. If the goods are rejected by the buyer, and the carrier or other bailee continues in possession of
them
When goods considered no longer in transit:
1. if the buyer or his agent obtains possession of the goods at a point before the destination originally
fixed
2. if the carrier or bailee acknowledges to hold the goods on behalf of the buyer
3. if the carrier or bailee wrongfully refuses to deliver the goods to the buyer
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Effect of refusal of carrier to attorn or deliver the goods: carrier is not allowed to enlarge the
seller’s right by wrongfully refusing to deliver or attorn as the buyer’s agent. But a rightful refusal
by the carrier, based for instance, on the refusal of the buyer or his agent to pay the freight, will not
terminate the right to stop.
Delivery to a shop chartered or owned by buyer:
(1) chartered by the buyer: does not necessarily mean delivery to the buyer, depending on the
circumstance
(2) owned by the buyer: delivery to agent is delivery to buyer
b.
c.
Effect of partial delivery (1531, par. 4)
How right is exercised (1532)
Ways of exercising the right to stop:
1.
taking actual possession of the goods
2.
giving notice of his claim to the carrier or bailee (a person or party to whom goods are delivered
for a purpose, such as custody or repair, without transfer of ownership.)
Art. 1532. The unpaid seller may exercise his right of stoppage in transitu
either by obtaining actual possession of the goods or by giving notice of his
claim to the carrier or other bailee in whose possession the goods are. Such
notice may be given either to the person in actual possession of the goods
or to his principal. In the latter case the notice, to be effectual, must be given
at such time and under such circumstances that the principal, by the
exercise of reasonable diligence, may prevent a delivery to the buyer.
When notice of stoppage in transitu is given by the seller to the carrier, or
other bailee in possession of the goods, he must redeliver the goods to, or
according to the directions of, the seller. The expenses of such delivery must
be borne by the seller. If, however, a negotiable document of title
representing the goods has been issued by the carrier or other bailee, he
shall not obliged to deliver or justified in delivering the goods to the seller
unless such document is first surrendered for cancellation.
B.
Right of resale (1533)
Art. 1533. Where the goods are of perishable nature, or where the seller
expressly reserves the right of resale in case the buyer should make default,
or where the buyer has been in default in the payment of the price for an
unreasonable time, an unpaid seller having a right of lien or having stopped
the goods in transitu may resell the goods. He shall not thereafter be liable
to the original buyer upon the contract of sale or for any profit made by such
resale, but may recover from the buyer damages for any loss occasioned
by the breach of the contract of sale.
Where a resale is made, as authorized in this article, the buyer acquires a
good title as against the original buyer.
It is not essential to the validity of resale that notice of an intention to resell
the goods be given by the seller to the original buyer. But where the right to
resell is not based on the perishable nature of the goods or upon an express
provision of the contract of sale, the giving or failure to give such notice shall
be relevant in any issue involving the question whether the buyer had been
in default for an unreasonable time before the resale was made.
It is not essential to the validity of a resale that notice of the time and place
of such resale should be given by the seller to the original buyer.
The seller is bound to exercise reasonable care and judgment in making a
resale, and subject to this requirement may make a resale either by public
or private sale. He cannot, however, directly or indirectly buy the goods.
When sale is allowable:
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1. goods are perishable in nature
2. where the right to resell is expressly reserved in case the buyer should make a default
3. where the buyer delays in the payment of the price for an unreasonable time
Effect of resale: sellers is not liable for any profit made by such resale; but if he sells for less
than the price, he has a right to sue for the balance. As against the original buyer, the new
buyer acquires a good title to the goods.
a.
b.
c.
a.
b.
c.
Requisites for the exercise of the right
Notice of resale to the buyer
1)
General rule
2)
Exception
Manner of resale
D.
Right to rescind the sale (1526, No. 4; 1534)
Requisites
1. Where the right to rescind is expressly reserved in case the buyer should make a
default; or
2. Where the buyer delays in the payment of the price for an unreasonable time.
How seller may rescind: Notice of intention to rescind or by some over act
Effect of rescission: seller resumes ownership of the goods. While the seller shall not be liable to
the buyer upon the contract, the latter, however, may be made liable to the seller for damages for
any loss occasioned by the breach of contract.
Art. 1534. An unpaid seller having the right of lien or having stopped the goods
in transitu, may rescind the transfer of title and resume the ownership in the
goods, where he expressly reserved the right to do so in case the buyer should
make default, or where the buyer has been in default in the payment of the
price for an unreasonable time. The seller shall not thereafter be liable to the
buyer upon the contract of sale, but may recover from the buyer damages for
any loss occasioned by the breach of the contract.
The transfer of title shall not be held to have been rescinded by an unpaid seller
until he has manifested by notice to the buyer or by some other overt act an
intention to rescind. It is not necessary that such overt act should be
communicated to the buyer, but the giving or failure to give notice to the buyer
of the intention to rescind shall be relevant in any issue involving the question
whether the buyer had been in default for an unreasonable time before the
right of rescission was asserted.
III.
Effect of sale or other disposition of the goods
A.
General rule (1523, par. 1)
Right of seller
Art. 1523. Where, in pursuance of a contract of sale, the seller is authorized or
required to send the goods to the buyer, delivery of the goods to a carrier,
whether named by the buyer or not, for the purpose of transmission to the buyer
is deemed to be a delivery of the goods to the buyer, except in the case
provided for in Article 1503, first, second and third paragraphs, or
unless a
contrary intent appears.
The delivery of goods to a carrier is consider as delivery to the buyer, except
stated in 1503.
Unless otherwise authorized by the buyer, the seller must make such contract
with the carrier on behalf of the buyer as may be reasonable, having regard to
the nature of the goods and the other circumstances of the case. If the seller
omit so to do, and the goods are lost or damaged in course of transit, the buyer
may decline to treat the delivery to the carrier as a delivery to himself, or may
hold the seller responsible in damages.
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Unless otherwise agreed, where goods are sent by the seller to the buyer under
circumstances in which the seller knows or ought to know that it is usual to insure,
the seller must give such notice to the buyer as may enable him to insure them
during their transit, and, if the seller fails to do so, the goods shall be deemed to
be at his risk during such transit.
B.
Exception (1535, pars. 1 & 2)
Art. 1535. Subject to the provisions of this Title, the unpaid seller's right of lien or
stoppage in transitu is not affected by any sale, or other disposition of the goods
which the buyer may have made, unless the seller has assented thereto.
If, however, a negotiable document of title has been issued for goods, no seller's
lien or right of stoppage in transitu shall defeat the right of any purchaser for
value in good faith to whom such document has been negotiated, whether
such negotiation be prior or subsequent to the notification to the carrier, or other
bailee who issued such document, of the seller's claim to a lien or right of
stoppage in transitu.
Art. 1524. The vendor shall not be bound to deliver the thing sold, if the vendee
has not paid him the
price, or if no period for the payment has been fixed in the contract
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