Document of title to goods — includes any bill of lading, dock
warrant, “quedan,” or warehouse receipt or order for the
delivery of goods, or any other document used in the ordinary
course of business in the sale or transfer of goods, as proof of
the possession or control of the goods, or authorizing or
purporting to authorize the possessor of the document to
transfer or receive, either by indorsement or by delivery, goods
represented by such document.
Definition of Terms
Goods — includes all chattels personal but not things in action
or money of legal tender in the Philippines; term includes
growing fruits or crops.
Order — relating to documents of title, means an order by
indorsement on the documents.
Article 1507
A document of title in which it is stated that the goods referred
to therein will be delivered to the bearer, or to the order of any
person named in such document is a negotiable document of
title.
Nature and Function of
Documents of Title
(1) Receipts of, or orders upon, a bailee of goods represented
Documents of title refer to goods and not to money;
(2) Evidence of transfer of title and possession of goods and
contract between parties
a. transfer of title;
b. transfer of possession; and
c. contract between the parties.
3 Most Common Forms of Documents of Title
(1) Bill of lading — a contract or receipt for the transport of goods
and their delivery to person name therein, to order or to bearer;
Usually involves three (3) persons: the carrier, the shipper, and the
consignee;
Shipper and consignee may be one and the same person;
(2) Dock warrant — It is an instrument given by dock owners to an
importer of goods warehoused on the dock recognizing the
importer’s title to the said goods; and
(3) Warehouse receipt — contract or receipt for goods deposited
with a warehouseman containing the latter’s undertaking to hold
and deliver said goods to specified person to order, or to bearer.
Quedan is a warehouse receipt usually for sugar received by a
warehouseman.
Classes of Documents of Titles
(1) Negotiable documents of title or those by the terms of
which the bailee undertakes to deliver the goods to the
bearer and those by the terms of which the bailee undertakes
to deliver the goods to the order of a specified person or
(2) Non-negotiable documents of title or those by the terms
of which goods covered are deliverable to a specified person.
Article 1508
A negotiable document of title may be negotiated by delivery:
(1) Where by the terms of the document the carrier,
warehouseman or other bailee issuing the same undertakes to
deliver the goods to the bearer; or
(2) Where by the terms of the document the carrier,
warehouseman or other bailee issuing the same undertakes to
deliver the goods to the order of a specified person, and such
person or a subsequent endorsee of the document has indorsed
it in blank or to the bearer.
Where by the terms of a negotiable document of title the goods are
deliverable to bearer or where a negotiable document of title has
been indorsed in blank or to bearer, any holder may indorse the same
to himself or to any specified person, and in such case the document
shall thereafter be negotiated only by the endorsement of such
indorsee.
Article 1509
A negotiable document of title may be negotiated by the
endorsement of the person to whose order the goods are by
the terms of the document deliverable. Such endorsement may
be in blank, to bearer or to a specified person. If indorsed to a
specified person, it may be again negotiated by the
endorsement of such person in blank, to bearer or to another
specified person. Subsequent negotiations may be made in like
manner.
(1) Delivery – where by the terms of the document, the one issuing the same
undertakes to deliver the goods to the bearer;
Two Kinds of Negotiation
(2) By indorsement and delivery – the indorsement may be in blank, to bearer, or to
a specified person.
An indorsement is in blank when the holder merely signs his name at the back of the
receipt without specifying to whom the goods are to be delivered.
A special indorsement specifies the person to whom or to whose order, the goods
are to be delivered.
If the document is specially indorsed, it becomes an order document of title and
negotiation can only be effected by the indorsement of the indorsee. Delivery alone
is not sufficient.
Article 1510
If a document of title which contains an undertaking by a
carrier, warehouseman or other bailee to deliver the goods to
bearer, to a specified person or order of a specified person or
which contains words of like import, has placed upon it the
words “not negotiable,” “non-negotiable” or the like, such
document may nevertheless be negotiated by the holder and is
a negotiable document of title within the meaning of this
Title. But nothing in this Title contained shall be construed as
limiting or defining the effect upon the obligations of the
carrier, warehouseman, or other bailee issuing a document of
title or placing thereon the words “not negotiable,” “nonnegotiable,” or the like.
Negotiable documents of title marked “non-negotiable
Under Art. 1510, the words “not negotiable,” “non-negotiable,” and
the like when placed upon a document of title in which the goods are
to be delivered to “order” or to “bearer” have no effect and the
document continues to be negotiable.
Article 1511
A document of title which is not in such form that it can be
negotiated by delivery may be transferred by the holder by
delivery to a purchaser or donee. A non-negotiable document
cannot be negotiated and the endorsement of such a document
gives the transferee no additional right.
Transfer of non-negotiable documents
A non-negotiable document of title cannot be negotiated;
But it can be transferred or assigned by delivery;
Here, the transferee or assignee acquires only the rights stated in Article 1514.
Even if the document is indorsed, the transferee acquires no additional right.
Article 1512
A negotiable document of title may be negotiated:
Persons who may Negotiate
(1) By the owner therefor; or
(2) By any person to whom the possession or custody of the
document has been entrusted by the owner, if, by the terms of
the document the bailee issuing the document undertakes to
deliver the goods to the order of the person to whom the
possession or custody of the document has been entrusted, or if
at the time of such entrusting the document is in such form that it
may be negotiated by delivery.
A person to whom a negotiable document of title has been duly
negotiated acquires thereby:
Article 1513
(1) Such title to the goods as the person negotiating the document
to him had or had ability to convey to a purchaser in good faith
for value and also such title to the goods as the person to whose
order the goods were to be delivered by the terms of the
document had or had ability to convey to a purchaser in good faith
for value; and
(2) The direct obligation of the bailee issuing the document to
hold possession of the goods for him according to the terms of the
document as fully as if such bailee had contracted directly with
him.
Rights of person to whom document has been negotiated:
(1) Title of the person negotiating the document over the goods covered by the
document;
(2) Title of the person (depositor or owner) to whose order by the terms of the
document the goods were to be delivered, over such good;
(3) The direct obligation of the bailee (warehouseman or carrier) to hold possession
of the goods for him, as if the bailee had contracted directly with him.
Thus, one who purchases a negotiable document of title issued to a thief acquires no
right over the goods as the thief has no right to transfer notwithstanding that such
purchaser is innocent;
Article 1514
A person to whom a document of title has been transferred, but
not negotiated, acquires thereby, as against the transferor, the
title to the goods, subject to the terms of any agreement with the
transferor.
If the document is non-negotiable, such person also acquires the
right to notify the bailee who issued the document of the transfer
thereof, and thereby to acquire the direct obligation of such bailee
to hold possession of the goods for him according to the terms of
the document.
Prior to the notification to such bailee by the transferor or transferee of a nonnegotiable document of title, the title of the transferee to the goods and the right to
acquire the obligation of such bailee may be defeated by the levy of an attachment
of execution upon the goods by a creditor of the transferor, or by a notification to
such bailee by the transferor or a subsequent purchaser from the transfer of a
subsequent sale of the goods by the transferor.
Rights of person (Transferee) to whom document has been transferred.
Effects of Transfer (Not Negotiation):
(1) Title to goods as against transferor – subject to any agreement with the
transferor);
(2) In addition –
(a) Right to notify the bailee of the transfer; and
(b) Right to acquire bailee’s obligation to hold the goods for him.
Right of the transferee is not absolute as it is subject to the terms of any agreement
with the transferor; he merely steps into the shoes of the transferor.
Rights of third person to goods where document has been transferred.
Before negotiation, bailee is not bound to the transferee whose right may be
defeated by a levy of an attachment or execution upon the goods by the creditor of
the transferor, or by a notification to such bailee of the subsequent sale of the goods.
If document is negotiable, the goods cannot be attached or be levied under an
execution unless the document be first surrendered to the bailee or its negotiation
enjoined. (Art. 1519)
Article 1515
Where a negotiable document of title is transferred for value by
delivery, and the endorsement of the transferor is essential for
negotiation, the transferee acquires a right against the transferor
to compel him to endorse the document unless a contrary
intention appears. The negotiation shall take effect as of the time
when the endorsement is actually made.
Transfer of order document without indorsement
Rights of a person to whom an order document of title, which may not properly be
negotiated by mere delivery, has been delivered, without indorsement:
(1) Right to the goods against the transferor; and
(2) Right to compel transferor to indorse the document.
But if the intention of the parties is that the document should be merely transferred,
the transferee has no right to acquire the transferor to indorse the document.
Subsequent indorsement of negotiable document transferred
To determine whether the transferee is a purchaser for value in good faith without
notice, the negotiation shall take effect as of the time when the indorsement is
actually made, not at the time the document is delivered.
Reason: Negotiation becomes complete only at the time of indorsement;
So, if that time (negotiation) the purchaser already had notice that title of the seller
was defective, he cannot be considered a purchaser in good faith though he had no
such notice when he bought the document.
Article 1516
Warranties or Liabilities of a Person
Negotiating or Transferring a
Document
A person who for value negotiates or transfers a document of title
by endorsement or delivery, including one who assigns for value a
claim secured by a document of title unless a contrary intention
appears, warrants:
(1) That the document is genuine;
(2) That he has a legal right to negotiate or transfer it;
(3) That he has knowledge of no fact which would impair the
validity or worth of the document; and
(4) That he has a right to transfer the title to the goods and that
the goods are merchantable or fit for a particular purpose,
whenever such warranties would have been implied if the
contract of the parties had been to transfer without a document
of title the goods represented thereby.
Negotiation
The transfer of possession of an instrument, whether voluntary or involuntary,
by a person other than the issuer to a person who thereby becomes its holder.
Assignment
The transfer of rights or property.
Examples of Liability:
Person negotiating or transferring a document which was a forgery;
Or, he had stolen it;
Or, he had knowledge that the document was invalid for want of
consideration;
Or, that the goods had been damaged.
Article 1517
Present Endorser Not Liable; He is
Not a Guarantor
The endorsement of a document of title shall not make the
endorser liable for any failure on the part of the bailee who issued
the document or previous endorsers thereof to fulfill their
respective obligations.
Indorsement of a document of title amounts merely to a
conveyance by the indorser, not a contract of guaranty;
Thus, an indorser of a document of title shall not be liable to the
holder in case the bailee failed to deliver the goods because they
were lost due to his fault or negligence.
Article 1518
The validity of the negotiation of a negotiable document of title is
not impaired by the fact that the negotiation was a breach of duty
on the part of the person making the negotiation, or by the fact
that the owner of the document was deprived of the possession
of the same by loss, theft, fraud, accident, mistake, duress, or
conversion, if the person to whom the document was negotiated
or a person to whom the document was subsequently negotiated
paid value therefor in good faith without notice of the breach of
duty, or loss, theft, fraud, accident, mistake, duress or conversion.
Article 1519
If goods are delivered to a bailee by the owner or by a person
whose act in conveying the title to them to a purchaser in good
faith for value would bind the owner and a negotiable document
of title is issued for them they cannot thereafter, while in
possession of such bailee, be attached by garnishment or
otherwise or be levied under an execution unless the document
be first surrendered to the bailee or its negotiation enjoined. The
bailee shall in no case be compelled to deliver up the actual
possession of the goods until the document is surrendered to him
or impounded by the court.
This provision is for the protection of the bailee since he could be made
liable to a subsequent purchaser for value in good faith.
Bailee has the direct obligation to hold possession of the goods for the
original owner or to the person to whom the negotiable document of
title has been duly negotiated.
Non-application of Article
Do not apply if the person depositing is not the owner of the goods (like
a thief) or one who has no right to convey title to the goods binding
upon the owner.
Article 1520
A creditor whose debtor is the owner of a negotiable document
of title shall be entitled to such aid from courts of appropriate
jurisdiction by injunction and otherwise in attaching such
document or in satisfying the claim by means thereof as is allowed
at law or in equity in regard to property which cannot readily be
attached or levied upon by ordinary legal process.
Injunction (a restraining order) – a court order commanding or
preventing an action.
If an injunction is issued but the negotiable document of title is
negotiated to an innocent person, the transfer is effectual.
Attachment – the seizing of a person’s property to secure a
judgment or to be sold in satisfaction of a judgment.
Article 1521
Whether it is for the buyer to take possession of the goods or of
the seller to send them to the buyer is a question depending in
each case on the contract, express or implied, between the
parties. Apart from any such contract, express or implied, or usage
of trade to the contrary, the place of delivery is the seller's place
of business if he has one, and if not his residence; but in case of a
contract of sale of specific goods, which to the knowledge of the
parties when the contract or the sale was made were in some
other place, then that place is the place of delivery.
Where by a contract of sale the seller is bound to send the goods to the
buyer, but no time for sending them is fixed, the seller is bound to send
them within a reasonable time.
Where the goods at the time of sale are in the possession of a third
person, the seller has not fulfilled his obligation to deliver to the buyer
unless and until such third person acknowledges to the buyer that he
holds the goods on the buyer's behalf.
Demand or tender of delivery may be treated as ineffectual unless
made at a reasonable hour. What is a reasonable hour is a question
of fact.
Unless otherwise agreed, the expenses of and incidental to putting
the goods into a deliverable state must be borne by the seller.
Rules on Place of delivery of goods sold:
(1) There is an agreement (express or implied), the place of delivery is that agreed
upon;
(2) There is no agreement, the place of delivery is that determined by usage of trade;
(3)There is no agreement and there is also no prevalent usage, the place of delivery is
the seller’s place of business;
(4) In any other case, the place of delivery is the seller’s residence;
In case of specific goods, which to the knowledge of the parties at the time the
contract was made were in some other place, that place is the place of delivery, in the
absence of any agreement or usage of trade to the contrary.
Presumption – Buyer must take the goods from seller’s place of business or residence
rather than seller to deliver them to buyer.
Rules on Time of delivery of goods sold:
(1) Stipulated time;
(2) If no agreement, within reasonable time (a question of fact).
Question of fact – to depend upon the circumstances attending the particular
transaction: character of goods; purpose for which they are intended; ability of seller
to produce the goods if they are to be manufactured; transportation and distance.
Delivery of goods in possession of a third person.
The seller can hardly be discharge from his obligation where the goods are in the
possession of a third person;
That third person holding the goods must acknowledge being the bailee for the buyer.
Hour of delivery of goods sold:
Demand or tender of delivery must be made at reasonable hour (also a question of
fact) of the day.
Example of reasonable hour:
In case goods are bulky or needed special care, an hour might be unreasonable which
would not be so in an ordinary payment of a small amount of money.
Duty of seller to put goods in deliverable condition:
Unless otherwise agreed, seller bears the expenses to place the thing in a deliverable
state – that is in a state where the buyer would, under the contract, be bound to take
delivery of them.
Article 1522
Where the seller delivers to the buyer a quantity of goods less
than he contracted to sell, the buyer may reject them, but if the
buyer accepts or retains the goods so delivered, knowing that the
seller is not going to perform the contract in full, he must pay for
them at the contract rate. If, however, the buyer has used or
disposed of the goods delivered before he knows that the seller is
not going to perform his contract in full, the buyer shall not be
liable for more than the fair value to him of the goods so received.
Where the seller delivers to the buyer a quantity of goods larger than he
contracted to sell, the buyer may accept the goods included in the contract
and reject the rest. If the buyer accepts the whole of the goods so delivered
he must pay for them at the contract rate.
Where the seller delivers to the buyer the goods he contracted to sell mixed
with goods of a different description not included in the contract, the buyer
may accept the goods which are in accordance with the contract and reject
the rest.
In the preceding two paragraphs, if the subject matter is indivisible, the
buyer may reject the whole of the goods.
The provisions of this article are subject to any usage of trade, special
agreement, or course of dealing between the parties.
Quantity of goods delivered is LESS:
(1) Buyer may reject the goods;
(2) Buyer may accept:
If the acceptance is with knowledge that the seller is not going to perform the
contract, the buyer shall pay the contract rate;
If the buyer has used or disposed of the goods delivered before he knows that the
seller is not going to perform his contract in full, the buyer shall not be liable for
more than the fair market value to him of the goods so received.
Fair market value – an estimate of a good, service, or asset’s potential price based on
a rational and unbiased assessment of the amount at which it could currently be
bought and sold between willing parties.
Quantity of goods delivered is MORE:
(1) Buyer may accept the goods included in the contract and reject the rest; or
(2) Buyer may accept the whole of the goods and pay for them at the contract rate;
(3) If indivisible, the buyer may reject the whole of the goods.
Mixed with Goods of Different Description:
(1) Buyer may accept the goods which are in accordance with the contract and
reject the rest; or
(2) If indivisible, the buyer may reject the whole of the goods.
Article 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.
General rule: Delivery of goods to carrier constitutes delivery to
the buyer, whether the carrier is named by buyer or not.
Exceptions: Pars. 1, 2 and 3 of Art. 1503, and when contrary
intention appears;
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 omits 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.
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.
C.O.D. — “Collect on delivery”
If the goods are marked C.O.D., the carrier acts for the seller
in collecting the purchase price;
Buyer must pay for the goods before he can obtain
possession;
Definition of Trade Terms
F.O.B. — “Free on board”
Goods are to be delivered free of expense to the buyer to the
point where they are F.O.B.;
In general, the point of F.O.B. (either “point of shipment” or
“point of destination”) determines when the ownership
passes;
C.I.F. — “Cost insurance and freight”
Signify that the price fixed covers not only the cost of goods,
but the expenses of freight and insurance to be paid by the
seller up to the point especially named.
F.A.S. — “Free alongside vessel” (named port of shipment)
Seller pays all charges and bear the risk until the goods are
placed alongside overseas vessel and within reach of its
loading tackle.
Definition of Trade Terms
Ex factory, Ex Warehouse, etc. (named point of origin) —
The price quoted applies only at the point of origin, and the
seller agrees to place the goods at the disposal of the buyer at
the agreed place on the date within the period fixed.
Ex Dock (named port of importation) —
Seller quotes a price including the cost of the goods on the
dock at the named port of immigration;
The terms merely make rules of presumption which yield to
proof of contrary intention.
Article 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.
Delivery simultaneous with payment of price
General rule: The thing shall not be delivered unless the price be paid.
If vendor is bound to deliver the thing sold, vendee must pay the price;
These obligations are reciprocal.
When delivery must be made before payment of price
Exception: The thing must be delivered though the price be not first
paid, if a time for such payment has been fixed in the contract.
If the period for payment was fixed, the vendor is obliged to deliver the
thing sold despite – notwithstanding that such period has not
terminated, nor that he has not collected the price,.
S sold to B the former’s horse for P 30,000. No date is fixed by the
parties for performance of their respective obligations.
In this case, S is not bound to deliver the horse, if B himself does not
pay the price.
But if a time for payment has been fixed in the contract, say, within,
two (2) months, then S is obliged to deliver the horse where the
term of credit has not expired although B has not paid the price.
The seller of goods is deemed to be an unpaid seller within
the meaning of this Title:
Article 1525
(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 – is 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.
Bill of lading and Bill of exchange – (already discussed)
Definition of Terms
Agent – (already discussed); an authorized representative.
Negotiable instrument – written instrument signed by the
maker or the drawer, which includes an unconditional
promise or order to pay a specified sum of money,
payable, on demand or at a definite time, to the order or
bearer.
Indorse – to sign (a negotiable instrument), usually at the
back, either to accept responsibility for paying an
obligation memorialized by the instrument or to make the
instrument payable to someone other than the payee.
Definition of Terms
Dishonor – refusal to accept or pay a negotiable
instrument when presented.
Insolvency – the condition of being unable to pay debts as
they fall due, or, in the usual course of business, the
inability to pay debts as they mature.
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;
Article 1526
(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;
Lien – legal right or interest that a creditor has in another’s
property, lasting usually until a debt or duty that is secures is
satisfied.
(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.
(1) Possessory lien;
(2) Right of stopping the goods in transit;
(3) Right of resale; and
(4) Right to rescind.
These remedies do not cover an action for the purchase
price;
Special Remedies of an Unpaid Seller
Even if ownership in the goods has already passed to the
buyer, the unpaid seller may exercise these rights;
If unpaid seller still retains ownership in the goods, he
cannot be said to have a lien (on his goods); but has the right
of withholding delivery.
Possessory lien – a lien allowing the creditor to keep
possession of the encumbrered property until the debt is
satisfied.
Basis of rights unpaid seller
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.
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:
Article 1527
(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.
When unpaid Seller's possessory lien may be exercised:
(1) Sales without stipulation as to credit
Here, seller binds himself to give the goods over to the
buyer without receiving at that time payment for
them.
(2) Expiration of term of credit
While buyer is entitled to possession of the goods
without paying the price, 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 thereto had.
Here, the seller’s right of lien may be exercised.
(3) Insolvency of the buyer
Here, the seller’s right of lien may be exercised even
though the time for payment of the price has not yet
arrived.
Article 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.
Lien not generally lost by part delivery.
Seller has a lien upon the remainder for the proportion of the
price which is due on account of the goods so retained.;
But if the part delivery of the goods is intended as symbolical
delivery of the whole (sign of waiver of right of retention of
the remainder), the lien is lost.
The unpaid seller of goods loses his lien thereon:
Article 1529
(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) Unconditional Delivery to agent or bailee of buyer —
While the unpaid seller may stop the goods while on their way to the buyer after delivery to the bailee
for the buyer but, it cannot be said that the seller has still any lien upon them.
(2) Lawful possession by buyer or his agent at the time of bargain —
The wrongful taking of the goods by the buyer without the seller’s consent does not destroy the lien.
(3) Waiver of the lien —
The seller may lose his lien by express agreement to surrender it.
Thus, where the buyer was allowed by the seller to alter the character of the goods and make them
much more valuable, the seller could no longer assert a lien.
Article 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.
The buyer’s insolvency need not be judicially declared;
The right is exercised either by obtaining actual possession of
the goods or by giving notice of his claim to the carrier or
other bailee in possession;
Requisites for the exercise of right of stoppage in transitu:
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;
and
Seller must bear the expenses of delivery of goods after the exercise of the right.
Basis of right of stoppage in transitu
The injustice of allowing buyer to acquire ownership and possession of the goods when he has
not paid and, owing to his insolvency, he cannot pay the price
Goods are in transit within the meaning of the preceding
article:
Article 1531
(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.
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 in transit:
Goods are not yet in transit until they are delivered to a carrier or other bailee for the
purpose of transmission to the buyer.
The goods are in transit:
(1) After delivery to a carrier or other bailee and before the buyer or his agent takes
delivery of them; and
(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) After delivery to the buyer or his agent in that behalf;
(2) If the buyer or his agent obtains possession of the goods at a point before the
destination originally fixed;
(3) If the carrier or bailee acknowledges to hold the goods on behalf of the buyer;
and
(4) If the carrier or bailee wrongfully refuses to deliver the goods to buyer.
Article 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 be obliged to deliver or justified in
delivering the goods to the seller unless such document is
first surrendered for cancellation.
Ways of exercising the right to stoppage in transitu:
(1) By taking actual possession of the goods; or
(2) By giving notice of his claim to the carrier or bailee.
NOTICE – to be effective, must be given at such time, and under such circumstances
that the principal, by the exercise of reasonable diligence, may communicate it to his
agent to prevent the delivery to the buyer.
No particular form of notice; but goods be sufficiently described for identification.
Effect of outstanding bill of lading
If the goods are covered by a negotiable document of title, the carrier or bailee has
no obligation to deliver the goods to the seller unless such document is first
surrendered for cancellation.
Article 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 resale is allowable:
Unpaid seller can exercise right to resell only when he has either
right of lien or right to stop the goods in transitu – under any of
the following:
(1) Goods are perishable in nature;
(2) Right to resell is expressly reserved, in case buyer defaults; and
(3) Buyer delays in the payment of the price for an unreasonable
time.
Effect of resale
Seller is not liable to the original buyer for any profit made by such
resale; but if he sells for less than the price, he has a right to sue
him for the balance and damages – breach of contract of sale.
Notice of resale to original buyer is not essential
Except if right to resale is based on perishable goods or not
reserved (express provision of the contract of sale);
Failure to give notice shall be relevant to determine whether the
buyer has been in default for an unreasonable time.
Article 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.
When the seller may rescind:
Unpaid seller can exercise right to rescind the sale only when he has either
right of lien or right to stop the goods in transitu – under any of the following:
(1) Right to rescind is expressly reserved if buyer should make a default; or
(2)The buyer delays in the payment of price for an unreasonable time.
Effect of rescission
Seller resumes ownership of the goods;
Seller shall not be liable to the buyer upon the contract of sale; buyer may be
made liable to the seller for damages for any loss occasioned by the breach of
contract.
How the seller may rescind
Seller to (a) manifest by notice to the buyer; or (b) by some overt act showing
an intention to rescind;
Communication of such election to the buyer is not necessary.
Article 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.
Effect of sale of goods subject to lien or stoppage in transitu:
(1) Where goods not covered by negotiable document of title
When goods are subject to a legal lien (when an unpaid seller is in possession
of them), a purchaser from the original buyer can acquire only such right as
that buyer then had.
(2) Where goods covered by negotiable document of title
The seller’s lien cannot prevail against the rights of a purchaser value in good
faith to whom the document has been indorsed.
Reason: By the nature of a negotiable document of title, which in legal fiction
operates as delivery of the goods described therein when indorsed.
The vendor is not bound to deliver the thing sold in
case the vendee should lose the right to make use of
the terms as provided in Article 1198.
Article 1536
Right of vendor to withhold delivery in sale on credit
The vendor is not bound to make delivery if the
vendee has not paid him the price;
But if a period has been fixed for payment, the
vendor must deliver the thing sold though the price
be not first paid.
S sold to B a car on credit. S has a right to withhold delivery in any of
the following situations:
(1) B becomes insolvent, unless B gives sufficient guaranty or security;
(2) B promised to mortgage his house to secure the purchase price
and he failed to furnish said security as promised;
(3) If the payment of the purchase price is secured by a mortgage on
the house of B, but the house was partially burned because of B’s
fault, or was totally destroyed without B’s fault, unless B gives a new
security, equally satisfactory;
(4) Where in consideration of the ale on credit, B obliged himself to
repair the piano of S, and B failed to comply with such undertaking; or
(5) Where B shows an intent not to pay the price after the car is
delivered to him.
Article 1537
The vendor is bound to deliver the thing sold
and its accessions and accessories in the
condition in which they were upon the perfection
of the contract.
All the fruits shall pertain to the vendee from the
day on which the contract was perfected.
Vendor is obliged to preserve the thing pending delivery because
the thing sold and its accessions and the accessories must be in the
condition in which they were upon the perfection of the contract;
Condition of Thing to be Delivered
While a sale of a determinate thing (land) includes all its accessions
(house) and accessories even though they may not have been
mentioned, a sale of the latter is not sufficient to convey title or
right to the former;
Accessions are the fruits of a thing; or additions to or
improvements upon a thing such as the young of animals, house or
trees on a land, etc.;
Accessories are anything attached to a principal thing for its
completion, ornament, or better use such as picture frame, key of
a house, etc.
Right of vendee to the fruits
Vendee has a right to the fruits of the thing sold from the time the obligation to
deliver it arise. The obligation to deliver arise upon the perfection of the
contract of sale. But this rule may be modified by agreement of the parties.
S sold his horse to B for P80,000. No date or condition was stipulated for the
delivery of the horse. While still in the possession of S, the horse gave birth to a
colt. Who has a right to the colt?
B is entitled to the colt which was born after the perfection of contract. This
holds true even if the delivery is subject to a suspensive period (next month) or
a suspensive condition (upon demand) if B has paid the purchase price.
But S has a right to the colt if it was born before his obligation to deliver the
horse has arise and B has not yet paid the purchase price.
Here, upon fulfillment of the condition or arrival of the period, S does not have
to give the colt and B is not obliged to pay legal interests since the colt and the
interests are deemed to have been mutually compensated.
In case of loss, deterioration or improvement of the thing
before its delivery, the rules in Article 1189 shall be observed,
the vendor being considered the debtor.
Article 1538
Rules in case of loss, deterioration, or improvement of thing
before delivery.
Article 1189 – “When the conditions have been imposed with
the intention of suspending the efficacy of an obligation to
give, the following rules shall be observed in case of the
improvement, loss or deterioration of the thing during the
pendency of the condition:
(1) If the thing is lost without the fault of the debtor, the
obligation shall be extinguished.
(2) If the thing is lost through the fault of the debtor, he shall
be obliged to pay damages; it is understood that the thing is
lost when it perishes, or goes out of commerce, or disappears
in such a way that its existence is unknown or it cannot be
recovered.
(3) When the thing deteriorates without the fault of the
debtor, the impairment is to be borne by the creditor;
Article 1538
(4) If, it deteriorates through the fault of the debtor, the
creditor may choose between the rescission of the obligation
and its fulfillment, with indemnity for damages in either case;
(5) If the thing is improved by its nature, or by the time, the
improvement shall inure to the benefit of the creditor;
(6) If is improved at the expense of the debtor, he shall have
no other right than that granted to the usufructuary.”
Usufructuary – a person who has the right to enjoy the
property of another temporarily, including both right to use
and right to the fruits or income thereof.
S sold to B his car. If before delivery —
Car is lost or destroyed without fault of S (assuming S is not guilty of delay and
there is no contrary stipulation that S shall be liable), the obligation to deliver
is extinguished and B shall be obliged to pay the price if he has not paid it;
If the loss is through S’s fault, he shall be liable to pay damages to B;
If car suffers damages without fault of S, B shall have to suffer the impairment;
If the damage was due to S’s fault, B may choose, between the rescission
(cancellation) of contract with damages or delivery of car also with damages;
If the market value of the car increased, the increase shall inure to the benefit
of B since he suffers the deterioration in case of a fortuitous event;
If S had the car painted and its seat cover changed at his expense, he shall
have the rights of a usufructuary with respect to the improvements;
The obligation to deliver the thing sold includes that of
placing in the control of the vendee all that is mentioned in
the contract, in conformity with the following rules:
Article 1539
If the sale of real estate should be made with a statement of
its area, at the rate of a certain price for a unit of measure or
number, the vendor shall be obliged to deliver to the
vendee, if the latter should demand it, all that may have been
stated in the contract; but, should this be not possible, the
vendee may choose between a proportional reduction of the
price and the rescission of the contract, provided that, in the
latter case, the lack in the area be not less than one-tenth of
that stated.
The same shall be done, even when the area is the same, if any
part of the immovable is not of the quality specified in the
contract.
The rescission, in this case, shall only take place at the will of the
vendee, when the inferior value of the thing sold exceeds onetenth of the price agreed upon.
Nevertheless, if the vendee would not have bought the
immovable had he known of its smaller area of inferior quality, he
may rescind the sale.
(1) Entire area stated in contract must be
delivered
Vendor must deliver the entire property agreed
upon;
Sale of Real Property by Unit of
Measure or Number
Thus, if the parcel of land is stated in the contract
as having an area of 500 square meters and is sold
at P1,000 per square meter, the vendor must
deliver the entire area as stated. Also, the
immovable must be of the quality specified in the
contract.
(2) Where the entire area could not be delivered
Vendee is entitled to rescind it;
But vendee may enforce the contract with the
corresponding decrease in price. Thus, if the area
of the land is only 450 square meters, the buyer is
liable to pay only P450,000.
When vendee entitled to rescind sale of realty:
(1) If the lack in area is at least 1/10 than that stated or stipulated;
(2) If the deficiency in the quality specified in the contract exceeds
1/10 of the price agreed upon; and
(3) If the vendee would not have bought the immovable, had he
known of its smaller area or inferior quality irrespective of the
extent of the lack in area or quality.
In case of fulfillment, the vendee is entitled only to a
proportionate reduction of the price where there is a deficiency in
area or number.
This rule is different where there is a violation of the warranty
against hidden defects, where vendor is also liable for damages.
Article 1540
If, in the case of the preceding article, there is a greater area
or number in the immovable than that stated in the contract,
the vendee may accept the area included in the contract and
reject the rest. If he accepts the whole area, he must pay for
the same at the contract rate.
Where immovable of greater area or number
Note: The vendee here may not withdraw from the contract.
The provisions of the two preceding articles shall apply to judicial sales.
Rules in Articles 1539 and 1540 are applicable to judicial sales
Article 1541
Judicial sale – a sale conducted under the authority of a judgment or
court order, such as an execution sale.
The article refers to both private and judicial sales when immovable sold
is lacking in area or is of inferior quality or is greater than that stated in
the contract;
But the said rules may be modified or even suppressed by agreement of
the contracting parties.
Article 1542
In the sale of real estate, made for a lump sum and not at the rate of a
certain sum for a unit of measure or number, there shall be no increase
or decrease of the price, although there be a greater or less area or
number than that stated in the contract.
The same rule shall be applied when two or more immovables are sold for a single price; but
if, besides mentioning the boundaries, which is indispensable in every conveyance of real
estate, its area or number should be designated in the contract, the vendor shall be bound to
deliver all that is included within said boundaries, even when it exceeds the area or number
specified in the contract; and, should he not be able to do so, he shall suffer a reduction in the
price, in proportion to what is lacking in the area or number, unless the contract is rescinded
because the vendee does not accede to the failure to deliver what has been stipulated.
Sale of real estate made for a lump sum
(1) Mistake in area stated in contract immaterial
A sale is for a lump sum when the thing is sold irrespective of its number or measure.
Here, the law presumes that the purchaser had in mind a determinate price for the real estate
and that he ascertained its area and quality before the contract was perfected.
(2) Where area or number stated together with boundaries
If the vendor cannot deliver to the vendee all that is included within the boundaries
mentioned in the contract, the latter has option to reduce the price in proportion to the
deficiency or to set aside the contract.
The phrase “should he not be able to do so” refers to a situation when the vendor, either
because a part or parcel of the real estate does not belong to him, cannot deliver all that is
included within the boundaries.
S sold to B a parcel of land for the lump sum (or a cuerpo cierto) of P
300,000. The contract states that the area is 500 square meters.
Subsequently, it was ascertained that the area included within the
boundaries is really 600 square meters.
Here, S is bound to deliver all the 600 square meters which are included
within aid boundaries without increase in price.
If S does not deliver also the extra 100 square meters, B has the right to
rescind the contract or pay a proportionately reduced price, namely: 5/6
of the original price or P250,000.
Article 1543
The actions arising from Articles 1539 and 1542 shall prescribe in six months,
counted from the day of delivery.
Prescription of actions
Actions based on Articles 1539 and 1542 for either rescission of the contract or
proportionate reduction of the price must be brought within six (6) months
counted from the day of delivery.
Article 1544
If the same thing should have been sold to different vendees, the
ownership shall be transferred to the person who may have first
taken possession thereof in good faith, if it should be movable
property.
Should it be immovable property, the ownership shall belong to the
person acquiring it who in good faith first recorded it in the Registry
of Property.
Should there be no inscription, the ownership shall pertain to the
person who in good faith was first in the possession; and, in the
absence thereof, to the person who presents the oldest title,
provided there is good faith.
When Article 1544 applicable (Requisites of Double Sale):
(1) Two (or more) valid contract of sale;
(2) Two (or more) sales transactions must pertain to exactly the
same subject matter;
(3) Two (or more) buyers at odds over the rightful ownership of the
subject matter must each represent conflicting interests; and
(4) The two (or more) buyers at odds over the rightful ownership of
the subject matter must each have bought from the very same
seller.
Article 1544 cannot be invoked where two (2) different contracts of
sale are made by two (2) different persons, one of them not being
the owner of the property sold.
Rules
as
to
preference
of
ownership
in
case
of
a
double
sale:
If the property sold is movable, the ownership shall be acquired by the vendee who
first takes possession in good faith;
If the property sold immovable, the ownership shall belong to:
(a) The vendee who first registers the sale in good faith in the Registry of Property
(Registry of Deeds);
(b) In the absence of registration, the vendee who first takes possession in good faith;
(c) In the absence of both registration and possession, the vendee who presents the
oldest title (who first bought the property) in good faith.
(1) S sold to B a cash register, but it was allowed to remain in the hands
of S. Later, S sold the same register to C who bought it in good faith and
took possession thereof. Here, C should be considered as owner of the
property sold.
(2) S sold a parcel of land to B. Later, S sold the same land to C who, in
good faith, first registered the deed of sale.
The ownership belongs to C. The remedy of B is to sue S for breach of
warranty against eviction. In the case of double registration, the title
should remain in the name of the person first securing registration in
good faith.
The ownership belongs to C even if B is in actual possession of the land.
If C had knowledge of the previous unregistered sale to B, such
knowledge is equivalent to registration. C is not a buyer in good faith. C
is a purchaser in bad faith for he has knowledge of facts which should
put him upon inquiry and investigation as to possible defects of title of S
and he fails to make such inquiry and investigation.
If neither sale was registered and C took possession of the land, in good
faith, the ownership shall also belong to him.
In the absence of registration and possession by B and C, the ownership
shall pertain to B, his title being older than that of C.
(3) Suppose in the same example, S sold the parcel of land to B and then
to C, who both acted in good faith. After acquiring knowledge of the
second sale to C, B registered the sale.
In this case, B, as the first vendee, has still a better right. His good faith
when he purchased the land subsisted and continued to exist when he
registered the sale.
(4) Assume now that it is C who registered the sale to him, but after he
has acquired knowledge of the previous sale to B. As a second vendee,
good faith at the time of purchase is not sufficient. He must have also
acted in good faith in recording his sale. Here, the rule of caveat emptor
applies. (see Art. 1566.) Hence, the registration by C is considered
registration in bad faith and will not confer upon him any right.