Essential Guide to Sales and Lease Law

REVIEWER LAW ON SALES AND LEASE
CHAPTER 1
NATURE AND FORM OF CONTRACT
CHAPTER 2
CAPACITY TO BUY OR SELL
Rentoza, Michael Leandro F. 1

UA&P Law Law on Sales and Lease
Article 1489 proper action in court, but such may also be
All persons who are unauthorized in this ratified (Art. 1390). Note, however, that contracts
Code to obligate themselves, may enter into entered into by an insane person during lucid
a contract of sale, saving the modifications interval are valid.
contained in the following articles.
When the defect of the contract consists in the
Where necessaries are sold and delivered to incapacity of one of the parties, the incapacitated
a minor or other person without capacity to person is not obliged to make any restitution
act, he must pay a reasonable price therefor. except insofar as he has been benefitted by the
Necessaries are those referred to in Article thing or price received by him.
290.
With respect to necessaries sold and delivered to a
minor (without the intervention of the parent or
___________________________________________________ guardian), the minor must pay a reasonable price
therefor. The minor has the right to recover only
Necessaries are those things which are needed any excess above a reasonable value paid by him.
for sustenance, dwelling, clothing, medical
attendance, education, and transportation The courts have laid down the rule that the sale of
according to the financial capacity of the family of real estate effected by minors who have already
the incapacitated person. passed the ages of puberty and adolescence and
are now in the adult age, when they have
Emancipation a person becomes emancipated pretended to have already reached the age of
when he reaches the age of majority (i.e. 18 years majority, while in fact they have not, is valid, and
old). It terminates parental authority over the they cannot be permitted afterwards to excuse
person and property of the child who shall be then themselves from compliance with the obligations
qualified for all acts of civil life, save the assumed by them or to seek their annulment.
exceptions established by laws in special cases [Mercado vs. Espiritu, 37 Phil. 265 (1917)]
(Art. 236).
___________________________________________________ The parents of the minor will have capacity to give
consent to the sale of property owned by the
Generally, all persons, whether natural or juridical, minor. Under the Family Code, the father and the
who can bind themselves also have a legal mother jointly exercise parental authority over the
capacity to buy and sell. However, exceptions to property of their unemancipated common child
this rule are in those cases when the law without the necessity of a court appointment. In
determines that a party suffers from either case of disagreement, the fathers decision shall
absolute or relative incapacity. prevail, unless there is a judicial order to the
contrary.
Kinds of Incapacity
Absolute in the case of persons who
cannot bind themselves.
Relative exists only with reference to
certain persons or certain class of property.
Under Article 1327, the following cannot give

consent to a contract:
1. Unemancipated minors;
2. Insane or demented persons; and
3. Deaf-mutes who do not know how to write.
Since these persons are incapable of giving

consent to a contract, contracts entered into by
them are voidable, the contract is binding unless
annulled by a
Article 1490
The husband and the wife cannot sell
property to each other, except:
b. In a conjugal partnership of gains, both
1. When a separation of property was conjugal partnership property as well as
agreed upon in the marriage the exclusive property of each spouse.
settlements; or
2. When there has been a judicial NOTE:
separation of property under Article The husband and wife governed by the regime of
135 of the Family Code. separation of property are not covered by the rule
since in such regime, there may be properties that
are separate and there are owned in common.
RELATIVE INCAPACITY OF HUSBAND AND
WIFE Given the language of Article 1490, those
governed by the regime of separation of property
The husband and the wife are prohibited from (total or partial) are free to sell to each other both
selling property to each other. However, if separate property and property owned in
there has been a separation of property agreed common.
upon in the marriage settlements, or when
there has been a judicial separation of A sale between husband and wife in violation of
property decreed between them by the court, Article 1490 is inexistent and void from the
the sales between husband and wife are beginning because such contract is expressly
allowed. Therefore, they have capacity to buy prohibited by law.
or sell to each other.
___________________________________________________
The husband and the wife are also prohibited
from making donations to each other during PERSONS PERMITTED TO QUESTION SALE
the marriage except moderate gifts on the
occasion of family rejoicing (Art. 87 of the FC). 1. The heirs of either spouse;
Note that the prohibition against donation 2. The creditors at the time of the transfer, but
applies while they are husband and wife, and not those who became such only after the
notwithstanding that: transaction; and
3. The government since it is always interested in
a. There was a separation of property matters involving taxable transactions and to
agreed upon in the marriage block tax evasion.
settlements; or
b. There has been a judicial separation of
property.
The Supreme Court has applied the same

prohibition to common law relationships, ie.
Couple living together as husband and wife
without the benefit of marriage; if the same
rule is not applied, the condition of those who
incurred guilt would turn out to be better than
those in legal union.
___________________________________________________
PROPERTY COVERED
Under Article 1490, the following properties of the

husband and wife are covered by the prohibition
(as none of the exceptions apply):
a. In a system of absolute community, both
community property as well as property
belonging separately to each spouse;

The persons disqualified under Article 1491
Art. 1491. cannot purchase even at a judicial or public
The following persons cannot acquire by auction.
purchase, even at a public or judicial The prohibition to purchase covers a sale to
auction, either in person or through the the disqualified person as well as a sale done
mediation of another: through the mediation of another.
The sale of an agent of a property that she
1. The guardian, the property of the administers to a third person and subsequently
person or persons who may be under acquires the same property from that third
his guardianship; person may be valid, provided that there was
no collusion among the agent and the third
2. Agents, the property whose
party.
administration or sale may have been In Philippine Trust vs. Roldan [99 Phil. 393
entrusted to them, unless the (1956)], the guardian sold to her brother-in-law
consent of the principal has been the property of her ward, and after one week,
given; purchased the same property from her brother-
3. Executors and administrators, the in-law. In this case, the sale is void under
Article 1491 even if there is no actual collusion
property of the estate under
that was proven.
administration; ___________________________________________________
4. Public officers and employees, the PROHIBITION WITH RESPECT TO AGENTS
property of the State or of any
subdivision thereof, or of any The agents incapacity to buy his principals
property rests on the fact that the agent and the
government-owned or controlled
principal form one juridical person. Like the
corporation, or institution, the guardian, the agent stands in fiduciary relation
administration of which has been with his principal. However, such prohibition is not
entrusted to them; this provision absolute.
shall apply to judges and government
experts who, in any manner The exceptions to the rule are the following:
whatsoever, take part in the sale; 1. The agent can buy for himself the property
after the termination of the agency or other
5. Justices, judges, prosecuting properties different from those he has been
attorneys, clerks of superior and empowered to sell;
inferior courts, and other officers and 2. If the principal gives his consent thereto,
employees connected with the with full knowledge of every detail known
administration of justice, the to the agent which might affect the
property and rights in litigation or transaction;
levied upon an execution before the 3. Where the sale of the property in dispute
court within whose jurisdiction or was made under a special power inserted
in or attached to the real estate mortgage
territory they exercise their
pursuant to Section 5 of Act No. 3135, a
respective functions; this prohibition special law which governs extrajudicial
includes the act of acquiring by foreclosure of real estate mortgage.
assignment and shall apply to ___________________________________________________
lawyers, with respect to the property
PROHIBITION WITH RESPECT TO JUDGES,
and rights which may be the object of
LAWYERS ETC.
any litigation in which they may take
part by virtue of their profession. The prohibition applies only to the sale or
assignment of property which is the subject of
6. Any others specially disqualified by litigation to the persons disqualified therein. For
law. (1459a) the prohibition to operate, the sale or assignment
must take place during the pendency of the
litigation involving the property.
COVERAGE OF THE PROHIBITION A property is in litigation from the moment it
became subject to the judicial action, although not
necessarily to has been tried by the judge.
There is no violation of the prohibition where the
judge purchased the property in question after the
decision involving the property had already
become final because none of the parties therein
filed an appeal within the reglementary period;
hence, the same was no longer in litigation.
The prohibition does not include sale of the

property of the client effected before it became
involved in the action; not does it apply to an
assignment of the
amount of a judgment made by a person to his

attorney in payment of professional services in
other cases; nor the sale of a parcel of land, Art. 1492.
acquired by a client to satisfy a judgment in his The prohibitions in the two preceding
favor, to his attorney so long as the property was articles are applicable to sales in legal
not the subject of the litigation. redemption, compromises and
renunciations. (n)
___________________________________________________
OTHER PERSONS ESPECIALLY DISQUALIFIED
CONCEPTS:
1. Aliens who are disqualified to purchase private
agricultural lands; Compromise is a contract whereby the
2. An unpaid seller having a right of lien or having parties, by reciprocal concessions, avoid a
estopped the goods in transitu, who is litigation or put an end to one already
prohibited from buying the goods either commenced. It it is the amicable settlement of
directly or indirectly in the resale of the same a controversy.
at a public or private sale which he may make;
and Renunciation a creditor gratuitously
3. The officer conducting the execution sale or his abandons his right against a creditor. The other
deputies cannot become a purchaser, or be terms used in the law are condonation and
interested directly or indirectly in any purchase remission.
at an execution sale.
___________________________________________________
EFFECT OF SALE IN VIOLATION OF
PROHIBITION
With respect to Nos. 1 to 3, the sale shall only

be voidable because in such cases, only
private interests are affected. The defect can
be cured by the ratification of the seller by
means of and in the form of a new contract;
With respect to Nos. 4 to 6, the sale shall be
null and void, public interests being involved
therein.

existence is unknown or it cannot be recovered
(Article 1189 of the NCC).
The word perishes is sufficiently inclusive as to

cover a case where there has been material
deterioration or complete change in the nature of
the thing in such a manner that it loses its former
utility taking into consideration the time the
contract was entered into.
EFFECTS OF THE CONTRACT

WHEN THE THINGSOLD HAS BEEN
LOST
Art. 1493.
If at the time the contract of sale is
Art. 1494.
perfected, the thing which is the
Where the parties purport a sale of
object of the contract has been
specific goods, and the goods without
entirely lost, the contract shall be
the knowledge of the seller have
without any effect.
perished in part or have wholly or in a
material part so deteriorated in quality
But if the thing should have been lost
as to be substantially changed in
in part only, the vendee may choose
character, the buyer may at his option
between withdrawing from the
treat the sale:
contract and demanding the
remaining part, paying its price in
(1) As avoided; or
proportion to the total sum agreed
upon. (1460a)
(2) As valid in all of the existing goods
or in so much thereof as have not
deteriorated, and as binding the buyer
This article applies to a sale of a specific thing. to pay the agreed price for the goods in
The loss or injury referred to in this article is one which the ownership will pass, if the sale
which has taken place before or at the time of the was divisible. (n)
contract of sale is perfected.
If the thing is entirely lost at the time of This article applies to sales of goods, that is, the
perfection, the contract is inexistent and object of the sale consists of a mass of specific
void because there is no object. There goods which means goods identified and agreed
being no contract, there is no necessity to upon at the time a contract of sale is made.
bring an action for annulment.
If the thing is partially lost, the vendee may Both articles have actually the same essence
elect between withdrawing from the providing two alternative remedies to the buyer in
contract and demanding the remaining case of deterioration or partial loss of the object
part, paying its proportionate price prior to the sale, namely:
___________________________________________________ 1. To rescind or withdraw from the

contract; or
WHEN A THING CONSIDERED LOST
2. To give it legal effect, paying the
proportionate price of the remaining
The thing is lost when it perishes or goes out of
object.
commerce or disappears in such a way that its

The second option is available only if the sale The vendor need not be the owner of the thing
is divisible. at the time of the perfection of the contract; it
o A contract is divisible when its is sufficient that he has a right to transfer the
consideration is made up of several ownership thereof at the time it is delivered,
parts (Article 1420). (Article 1489). The obligation to transfer
o A contract is indivisible when the ownership and to deliver is implied in every
consideration is entire and single. contract of sale.
One who sells something he does not yet own
is bound by the sale when the acquires it later
[Bucton vs. Gabar, 55 SCRA 499 (1974)].
The debtor is not obliged to make delivery
during the period of redemption.
In all cases of extrajudicial foreclosure sale, the
mortgagor may redeem the real property sold
within one year from the date of the
registration of the sale. In judicial foreclosure
of real estate mortgage, the general rule is
OBLIGATIONS OF THE VENDOR that the mortgagor cannot exercise his right of
SECTION 1. - General Provisions redemption after the sale has been confirmed
by the court.
Art. 1495.
The vendor is bound to transfer the
ownership of and deliver, as well as Art. 1496.
warrant the thing which is the object of The ownership of the thing sold is
the sale. (1461a) acquired by the vendee from the
moment it is delivered to him in any of
PRINCIPAL OBLIGATIONS OF THE the ways specified in Articles 1497 to
VENDOR 1501, or in any other manner signifying
an agreement that the possession is
1. To transfer the ownership of the determinate transferred from the vendor to the
thing sold; vendee. (n)
2. To deliver the thing, with its accessions and
accessories, if any, in the condition in which
they were upon the perfection of the contract
WAYS OF EFFECTING DELIVERY
(Article 1537);
3. To warrant against eviction and against hidden The delivery may be effected by any of the
defects (Articles 1495, 1547); following ways or modes:
4. To take care of the thing, pending delivery,
with proper diligence (Article 1163); and a. By actual delivery (Art. 1497);
5. To pay for the expenses of the deed of sale, b. By constructive or legal delivery (Arts. 1498-
unless there is a stipulation to the contrary 1501); or
(Article 1487). c. By delivery in any other manner signifying
Note: agreement that the possession is transferred
to the vendee (Arts. 1496-1499).
When a property belonging to a person is
unlawfully taken by another, the former has
The delivery must be made to the vendee or his
the right of action against the latter for the
authorized representative. Where the vendee did
recovery of property. Such right may be
not name any person to whom the delivery shall
transferred by the sale or assignment of the
be made in his behalf, the vendor is bound to
property and the transferee can maintain such
deliver exclusively to him [Lagon vs. Hooven
action against the wrongdoer [Heirs of Q.
Comalco Industries, Inc., 349 SCRA 363 (2001)].
Seraspi vs. Court of Appeals, 331 SCRA 293
(2000)].
___________________________________________________

Constructive Delivery is a general term
___________________________________________________
comprehending all those acts which, although not
conferring physical possession of the thing, have IMPORTANCE OF TRADITION
been held by construction of law equivalent to
acts of real delivery. 1. Transfer of ownership
2. Enjoyment of the thing sold
It may be effected by any of the following ways: 3. Liability in case of loss
4. Right of the vendor to claim payment
a. By the execution of a public instrument (Art. 5. Delivery and non-payment of price
1498); 6. Consummation of contract
b. By a symbolical tradition or traditio symbolica;
___________________________________________________
c. By traditio longa manu (Art. 1499);
d. By traditio brevi manu (Art. 1499);
PROOF OF DELIVERY
e. By traditio constitutum possessorium (Art.
1500); or Delivery is generally evidenced by a written
f. By quasi-delivery or quasi-traditio (Art. 1501). acknowledgement of a person that he or she has
actually received the thing or the goods, as in
delivery receipts.
A bill of lading cannot substitute for a delivery

receipt, likewise, a factory consignment invoice is
not evidence of actual delivery of goods.
SECTION 2. - Delivery of the Thing Sold

Art. 1498.
Art. 1497. When the sale is made through a public
The thing sold shall be understood as instrument, the execution thereof shall
delivered, when it is placed in the be equivalent to the delivery of the
control and possession of the vendee. thing which is the object of the contract,
(1462a) if from the deed the contrary does not
appear or cannot clearly be inferred.
CONCEPT OF TRADITION OR DELIVERY With regard to movable property, its

Tradition is a derivative mode of acquiring delivery may also be made by the
ownership by virtue of which one who has the delivery of the keys of the place or
right and intention to alienate a corporeal thing, depository where it is stored or kept.
transmits it by virtue of a just title to one who (1463a)
accepts the same.
Delivery has been described as a composite act, SYMBOLIC TRADITION

a thing in which both parties must join and the
minds of both parties concur. It is an act by which Constructive delivery is symbolic when to effect
one party parts with title to and the possession of the deliver, the parties make use of a token
the property, and the other acquires the right to symbol to represent the thing delivered.
and possession of the same.
___________________________________________________
2 MODES OF ACQUIRING PROPERTY
Original Acquisition is one which applies to

things which had never been owned or to
things which had been abandoned, res nullius.
Derivative Acquisition arose when a person
entered into the right of property which had
pre-existed in another.
Art. 1499.
The delivery of movable property may Art. 1500.
likewise be made by the mere consent or There may also be tradition constitutum
agreement of the contracting parties, if possessorium.
the thing sold cannot be transferred to
the possession of the vendee at the time
of the sale, or if the latter already had it Traditio Constitutum Possessorium
in his possession for any other reason.
This mode of delivery is the opposite of traditio
(1463a) brevi manu.
This takes place when the vendor continues in

possession of the property sold not as owner but
The first part of Article 1499 refers to traditio in some other capacity, as for example, when the
longa manu (long hand delivery) vendor stays as a tenant of the vendee. In this
case, instead of the vendor delivering the thing to
Under the Roman Law, in traditio longa manu, the vendee so that the latter may, in turn, deliver
the vendor, from afar, points to the property sold, it back to the vendor, the law considers that all
manifesting to the vendee that he has transferred these have taken place by mere consent or
ownership of the same. agreement of the parties.
Tradition brevi manu (short hand delivery)

happens when the vendee has already the
possession of the thing sold by virtue of another
title as when the lessor sells the thing leased to
the lesse. Instead of turning over the thing to the
vendor so that the latter may, in turn, deliver it, all
these are considered done by action of law.
Article 1499 expressly applies to movable

property. This notwithstanding, traditio longa
manu and traditio brevi manu apply to immovable
property.

Art. 1501.
With respect to incorporeal property, the
provisions of the first paragraph of
article 1498 shall govern. In any other
case wherein said provisions are not
applicable, the placing of the titles of
ownership in the possession of the
vendee or the use by the vendee of his
rights, with the vendor's consent, shall
be understood as a delivery. (1464)
QUASI-TRADITIO
It is the mode of delivery of incorporeal rights or

things.
Tradition can only be made with respect to

corporeal things. In the case of incorporeal things,
delivery is effected:
1. By the execution of a public instrument; or

2. When that mode of delivery is not
applicable, by the placing of the titles of
ownership in the possession of the vendee;
or
3. By allowing the vendee to use his rights as
new owner with the consent of the vendor.

Where the seller of goods draws on the
buyer for the price and transmits the bill
of exchange and bill of lading together
to the buyer to secure acceptance or
payment of the bill of exchange, the
buyer is bound to return the bill of
lading if he does not honor the bill of
exchange, and if he wrongfully retains
the bill of lading he acquires no added
right thereby. If, however, the bill of
lading provides that the goods are
deliverable to the buyer or to the order
of the buyer, or is indorsed in blank, or
to the buyer by the consignee named
therein, one who purchases in good
faith, for value, the bill of lading, or
goods from the buyer will obtain the
Art. 1503. ownership in the goods, although the bill
When there is a contract of sale of of exchange has not been honored,
specific goods, the seller may, by the provided that such purchaser has
terms of the contract, reserve the right received delivery of the bill of lading
of possession or ownership in the goods indorsed by the consignee named
until certain conditions have been therein, or of the goods, without notice
fulfilled. The right of possession or of the facts making the transfer
ownership may be thus reserved wrongful. (n)
notwithstanding the delivery of the
goods to the buyer or to a carrier or
other bailee for the purpose of
This article relates to a sale of specific goods. As a
transmission to the buyer.
general rule, the ownership of the goods sold
Where goods are shipped, and by the bill passes to the buyer upon their delivery to the
of lading the goods are deliverable to carrier. However, there are certain exceptions:
the seller or his agent, or to the order of
the seller or of his agent, the seller 1. If a contrary intention appears by the terms of
the contract;
thereby reserves the ownership in the
2. In the cases provided in the second and third
goods. But, if except for the form of the paragraphs of Article 1523,
bill of lading, the ownership would have
passed to the buyer on shipment of the Unless otherwise authorized by the buyer,
goods, the seller's property in the goods the seller must make such contract with
the carrier on behalf of the buyer as may
shall be deemed to be only for the
be reasonable, having regard to the nature
purpose of securing performance by the of the goods and the other circumstances
buyer of his obligations under the of the case. If the seller omit so to do, and
contract. the goods are lost or damaged in course of
Where goods are shipped, and by the bill transit, the buyer may decline to treat the
delivery to the carrier as a delivery to
of lading the goods are deliverable to
himself, or may hold the seller responsible
order of the buyer or of his agent, but in damages.
possession of the bill of lading is
retained by the seller or his agent, the Unless otherwise agreed, where goods are
seller thereby reserves a right to the sent by the seller to the buyer under
possession of the goods as against the circumstances in which the seller knows or
buyer. 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, thereby reserves the ownership in the goods and
the goods shall be deemed to be at his risk the carrier is a bailee for him and not the buyer.
during such transit.
3. In the cases provided in the 1 st, 2nd, and 3rd This principle is applicable even though the goods
paragraphs of Article 1503. are shipped on the buyers vessel.
___________________________________________________
Right of Seller: The seller may not only retain the
goods until the buyer performs his obligation
TRANSFER OF OWNERSHIP WHERE GOODS
under the contract, but he may, even in violation
SOLD DELIVERED TO CARRIER
of the contract, dispose of them to third persons. If
the seller does this, he is liable for damages to the
General rule:
buyer but the second purchaser from the seller
Delivery, be it only constructive, passes title in the
acquires a better right.
thing sold (Art. 1496); and delivery to the carrier is
deemed to be a delivery to the buyer (Art. 1523, ___________________________________________________
par. 1). Therefore, the risk of loss as between the
WHERE SELLERS TITLE ONLY FOR PURPOSE
buyer and the seller, falls upon the buyer.
OF SECURITY
Article 1503 provides rules on reservation
The form of the bill of lading is strong evidence of
of the right of ownership or possession the intent of the seller to the transfer or retention
when goods are shipped. The form of the of ownership over the property. However, the form
bill of lading is considered as showing the in which the bill of lading is taken is not always
transfer or the retention of ownership in conclusive. Whatever the form of the bill of
the goods as between the buyer and the lading, the parties can prove their actual intent.
seller.
If a seller consigns goods to another The circumstances may be such that were it not
specified person it indicates an intention to for the form of the bill of lading, the ownership
deliver to the carrier as bailee for the would have passed to the buyer or shipment of
person named, goods. This is true when the object of the seller in
reserving ownership is simply to secure himself in
regard to the performance by the buyer of the
and, if such shipment was authorized by latters obligation.
the person as a buyer, the ownership vests
in him. Distinguishing Title held for purposes of
The same result follows it, after the goods Security and in the Ordinary case where the
have been shipped, without a named seller retains ownership:
consignee, the carrier, at the consignors
request, agrees to deliver to a specified Risk of Loss on Buyer
person. The beneficial owner (buyer), not the one who
holds security (seller), will be subject to the
Exception: risk or deterioration from the time the goods
On the other had, if the seller directs the carrier to are delivered to the carrier even though the
redeliver the goods at their destination to the legal title remains to the seller. The title does
seller himself, or to his order, it indicates an not pass to the buyer until he receives the
intention that the carrier shall be the bailee for the order bill of lading properly indorsed.
seller and the ownership will remain to the latter. Buyers Right of Action Based on Ownership
The seller may, by the terms of the contract, The buyer has more than a mere contract right
reserve the right of possession or ownership in the in regards to the goods. As beneficial owner,
goods until certain conditions are fulfilled. he may, against any one except an innocent
purchaser for value of the bill of lading from
___________________________________________________ the consignee, bring an action based on
ownership on making tender of the price.
1. WHERE SELLER OR HIS AGENT IS
CONSIGNEE ___________________________________________________
Where goods are shipped and by the bill of lading, 2. WHERE BUYER OR HIS AGENT IS
the goods are deliverable to the seller or his agent CONSIGNEE BUT SELLER RETAINS ORDER
or to the order of the seller or his agent, the seller BILL OF LADING

Where goods are shipped and by the bill of obtaining an order from the holder of the
lading the goods are deliverable to the order of bill of lading.
the buyer or his agent, ownership is generally By naming a third person as consignee of the bill
transferred to the buyer upon delivery of the of lading, the seller vests a legal title in the third
goods to the carrier. person. This title is held merely for the benefit of
However, where goods are shipped and by the the seller if the third person is the sellers agent
bill of lading the goods are deliverable to the only and has not advanced money of his own to
order of the buyer or his agent, but possession the seller.
of the bill of lading is retained by the seller or However, frequently, the third person is a banker
his agent, the seller thereby retains a right to and by discounting a draft drawn on the buyer by
the possession of the goods against the buyer. the shipper, or under an arrangement with the
buyer by paying or accepting, a draft drawn on
Although the ownership of the goods will himself, has acquired a personal interest in the
ordinarily pass to the buyer on delivery, the goods. The interest is simply to secure repayment
latter is unable to obtain the goods without the of money advanced or liabilities incurred.
bill. The effect of the retention of the bill of
lading, under such circumstances, controlling ___________________________________________________
as it does the possession of the goods is, BILL OF LADING SENT FORWARD WITH
therefore, closely analogous to the retention of DRAFT ATTACHED
a lien by the seller after the property has
passed to the buyer. Where the seller draws on the buyer for the
price and transmits the bill of exchange and
The last paragraph of Article 1503 applies to the bill of lading together to the buyer to
an order bill. secure acceptance or payment of the bill of
___________________________________________________ exchange, the title is regarded as retained in
the seller until the bill of exchange is paid or
Order Bill provides that the goods are accepted.
deliverable to the order of the consignee. The fact that the bill of lading and a bill of
exchange are attached together indicates that
Straight Bill it specifies a person as the seller intends to make the delivery of the
consignee without the use of the word order. goods conditional upon the payment or
acceptance of the draft.
3. WHERE A THIRD PERSON WHO RETAINS
THE GOODS IS CONSIGNEE The buyer is bound to return the bill of lading if
he does not honor the bill of exchange. If he
This method, consigning the goods to a third
wrongfully retains the bill of lading, he acquires
person (usually a banker), requesting the latter to
no additional right thereby.
retain the bill of lading or good until payment of
the price. When the price is paid, the consignee of It can happen that, even though the bill of
the goods indorses the bill or delivers the goods to lading with a draft attached is sent to a bank
the buyer. or third person, the buyer obtains possession
Here it is immaterial, so far as the protection of of the bill of lading without honoring the draft.
the seller is concerned, whether the bill is a The same situation arises if the bill of lading
straight bill or an order bill. and the draft are both sent directly to the
buyer without the intervention of a third
If it is an order bill, the carrier will not person.
deliver the goods until the bill is
In any litigation under these circumstances
surrendered and the buyer cannot get the
between the seller and the buyer, the seller
goods so as to make the necessary
will prevail. The intent of the seller is clearly
surrender except from the holder,
indicated by the attachment of the draft to the
consignee.
bill of lading, and the buyer knowing that
Even if it is not an order bill, the carrier,
intent, cannot take advantage of his
though it may not require the surrender of possession of the bill of lading to any greater
the bill of lading, will deliver only to the extent than the offer of the seller authorizes,
consignee. Accordingly, the buyer in either
event, is unable to get the goods except by However, if the buyer wrongfully sells the bill
of lading or obtains the goods and sells them,

a different question arises when the seller goods are at the buyer's risk from the
seeks to enforce his right against innocent time of such delivery;
third persons.
___________________________________________________ (2) Where actual delivery has been
delayed through the fault of either the
Form of Bill
The form of the bill of lading is material to the
buyer or seller the goods are at the risk
issue of whether the third person will obtain of the party in fault. (n)
ownership of the goods.
a. If the seller has named the buyer as
As a general rule, if the thing is lost by fortuitous
consignee, the property has passed to the
event, the risk is borne by the owner of the thing
consignee or at least it seems to have been
so to one who inspects the document;
at the time of the loss under the principle of of res
b. If the bill of lading, though the naming of the perit domino. However, Article 1504 provides for
seller as consignee, is indorsed by him to the its exceptions:
buyer in blank, the possession of the 1. Where the seller reserves the ownership of the
document by the buyer gives him, if not the goods merely to secure the performance of the
actual title, at least an apparent ownership; buyer on his obligations under the contract,
and the ownership is considered transferred to the
c. If the bill of lading names the seller or third
buyer who, therefore, assumes the risk from
person as consignee and no indorsement of
the time of the delivery.
the document had been made, possession by
the buyer would not indicate that the buyer 2. Where the actual delivery had been delayed
had title. through fault of either the buyer or the seller,
___________________________________________________ the goods are at the risk of the party at fault
with respect to any loss which might not have
Right of Innocent Third Persons occurred but for such fault. In this case, the
A purchaser in good faith for value of the bill of law punished the party at fault.
lading or goods from the buyer will obtain the ___________________________________________________
ownership in the goods although the bill of
exchange has not been honored. Thus, where the RISK OF LOSS BY FORTUITOUS EVENT AFTER
document gives the buyer apparent ownership PERFECTION BUT BEFORE DELIVERY
and a third person relying thereon, it is clear that Under Article 1480, if the thing sold is lost after
one of the two parties must suffer, he should the perfection of the contract but before its
suffer whose act brought about the loss. delivery, that is, even before the ownership is
Consequently, the seller ought not to be allowed transferred to the buyer, the risk of loss by
to recover the goods from the third person. fortuitous event without the sellers fault is borne
by the buyer as an exception to the the rule of res
perit domino. Consequently, the buyers obligation
Art. 1504. to pay the price subsists if he has not yet paid the
Unless otherwise agreed, the goods same or if he had, he cannot recover it from the
remain at the seller's risk until the seller although the latters obligation to deliver the
ownership therein is transferred to the thing is extinguished by its loss.
buyer, but when the ownership therein is However, the first paragraph of Article 1504
transferred to the buyer the goods are provides that, unless otherwise agreed, the goods
remain at the sellers risk until the ownership
at the buyer's risk whether actual
therein is transferred to the buyer.
delivery has been made or not, except
that: A solution has been suggested to avoid the
conflict to wit:
(1) Where delivery of the goods has
Article 1504 should be restricted in its application
been made to the buyer or to a bailee
to sale of goods as this term is defined in Article
for the buyer, in pursuance of the 1636,
contract and the ownership in the goods
has been retained by the seller merely And Article 1480 should be restricted in its
to secure performance by the buyer of application of the sale of things which cannot be
his obligations under the contract, the

called goods, as for example, the sale of real of law enabling the apparent owner of
estate. *also applicable to sale of fungible goods. goods to dispose of them as if he were
the true owner thereof;
This would make Article 1480 as the general rule 2. The validity of any contract of sale
on risk of loss and Article 1504 the exception. under statutory power of sale or
under the order of a court of
NOTE: competent jurisdiction;
3. Purchases made in a merchant's store,
Article 1480 follows the Roman Law rule that or in fairs, or markets, in accordance
risk of the thing sold passes to the buyer even with the Code of Commerce and
though the thing has not yet been delivered to special laws. (n)
the buyer.
In case of improvement, the rule is that it
should pertain to the buyer. This is a Sale by a Person not the Owner
counterpart of the risk which the buyer General Rule: It is a fundamental doctrine of law
assumes for the loss of the thing; furthermore, that no one can give what he has not or transfer a
under Article 1537, the fruits pertain to the greater right to another than he himself has.
vendee from the perfection of the contract. Therefore, a person can sell only what he owns or
is authorized to sell.
- Contrary View
It is fundamental in the Civil Code, expressed Sale is a derivative mode of acquiring ownership
in Articles 1477 and 1496, that ownership is and the buyer gets only such rights as the seller
transferred by delivery; hence, before delivery, had or could legally sell. A derivative right cannot
the vendor owns the thing and should suffer its exist higher than its source.
loss: res perit domino. If he is allowed to One who has no title at all can transfer none, and
recover the price, he suffers no loss, which is that a buyer pays him value in good faith without
imposed upon the vendee who has not yet notice makes no difference.
acquired ownership.
The obligations of vendor and vendee are Exceptions:
reciprocal, and therefore, one depends upon
1. Where the owner of the goods is, by his
the other. If the obligation of the vendor to
conduct, precluded from denying the sellers
deliver is extinguished, the correlative
authority to sell;
obligation of the vendee to pay, which
2. Where the law enables the apparent owner to
depends upon it, cannot remain subsisting.
dispose of the goods as if he were the true
owner thereof;
3. Where the sale is sanctioned by statutory or
judicial authority;
4. Where the sale is made at merchants stores,
fairs or markets;
5. Where the seller has a voidable title which has
not been avoided at the time of the sale; or
6. Where the seller subsequently acquires title.
Art. 1505.
Subject to the provisions of this Title, where
1. Where the Owner of the Goods is, By His
goods are sold by a person who is not the
Conduct, Precluded From Denying the Sellers
owner thereof, and who does not sell them
Authority to Sell
under authority or with the consent of the
owner, the buyer acquires no better title to This is an application of the doctrine of
the goods than the seller had, unless the estoppel.
owner of the goods is by his conduct In order to give rise to estoppel, it is
precluded from denying the seller's essential that the party estopped shall have
authority to sell. made a representation by words or acts and
Nothing in this Title, however, shall affect: that someone shall have acted on the faith of
this representation in such a way that he
1. The provisions of any factors' act,
recording laws, or any other provision
cannot without damage withdraw from the This doctrine is equally applicable to
transaction. conveyance of usufructs as well as to
transfer of full ownership.
2. Where The Law Enables the Apparent Owner to
Dispose of The Goods As If He Were the True
Owner Thereof
Possession of Movable Property
Factor Acts are designed to protect third
persons who (under specified conditions) According to Article 559 of the Civil Code,
deal with an agent believing him to be the the possession of movable property
owner of goods. acquired in good faith is equivalent to title.
In case, the car in question which was
Nevertheless, one who has lost any
acquired by the respondent by purchase
movable, or has been unlawfully deprived
from its registered owner for a valuable
therefor, may recover it from the person in
consideration under a notarial deed of
possession of the same.
absolute sale was seized and impounded
by land transportation agents as stolen If the possessor of a movable lost or of
property. It was held that the acquirer or which the owner has unlawfully been
purchaser in good faith of a chattel or deprived has acquired it in good faith at a
movable property is entitled to be public sale, the owner cannot obtain its
respected and protected in his possession return without reimbursing the price paid
as if he were the true owner thereof until a therefor.
competent court rules otherwise. In the
The owner of the lost movable may recover
meantime, he cannot be compelled to
it from the person in possession of the
surrender possession nor to be required to
property even if the latter acquired it in
institute an action for the recovery of the
good faith.
chattel, whether or not an indemnity bond
is issued in his favor.
Sale of an Immovable
3. Where The Sale is Sanctioned By Statutory Or
Judicial Authority Article 1505 applies to the sale of goods, not
immovable. However, the principle in Article 1505
The rule that the sale must be made by the
that a person can sell only what he owns or is
owner does not apply when the sale takes authorized to sell applies to the sale of
place by virtue of an order of a court of immovable.
competent jurisdiction.
The government, however, does not 1. Estoppel
warrant the title to properties sold by the The owner of land may be estopped from
sheriff at public auction or judicial sales. claiming that the sale of the land was not
authorized.
4. Where the Sale is Made at Merchants Stores,
Fairs or Markets 2. Sale of Land under Torrens System
Under the English Law, goods sold in With respect to the sale of real property, it has
market overt cannot be reclaimed from been ruled that a fraudulent and forged
the buyer even though the seller had no document of sale may become the root of a
title, provided the buyer acts in good valid title if the certificate of title has already
faith and without notice of any defect in been transferred from the name of the true
the title. owner to the name of the indicated forger.
Every person dealing in good faith and for
5. Where the Seller Subsequently Acquires Title valuable consideration with registered land
When a person conveys property to may safely rely upon what appears in the
certificate of title and does not have to inquire
another of which at the time he is not
further. If the rule were otherwise, the efficacy
the owner, his subsequent acquisition
and conclusiveness of Torrens Certificates of
of title validates his previous
Title would be futile and nugatory.
conveyance.
The remedy of the person prejudiced is
to bring an action for damages against
those who employed the fraud, within
four (4) years after the discovery of the SALE BY ONE HAVING A VOIDABLE TITLE
deception,
and if the latter is insolvent, an action Requisites for Acquisition of Good Title by
against the Treasurer of the Philippines Buyer
may be filed for recovery of damages If the seller has only a voidable title to the goods,
against the Assurance Fraud. the buyer acquires a good title to the goods
provided he buys them:
The issue of good faith or bad faith is
relevant only where the subject of the sale a. Before the title of the seller has been
is a registered land but not where the avoided;
property is an unregistered land. One who b. In good faith for value; and
purchases an unregistered land does so at c. Without notice of the sellers defect.
his peril.
The basis of Article 1506 seems to be predicated
3. Where the Sale is Sanctioned by Statutory or on the principle that where loss has happened
Judicial Authority which must fall on one of two (2) innocent
If the real property was sold under a statutory persons, it should be borne by him who is the
power of sale or pursuant to the order of a occasion of the loss.
court of competent jurisdiction, title can
transfer to the buyer in such sale.
Art. 1506
Where the seller of goods has a voidable Art. 1507
title thereto, but his title has not been A document of title in which it is stated that
avoided at the time of the sale, the buyer the goods referred to therein will be
acquires a good title to the goods, provided delivered to the bearer, or to the order of
he buys them in good faith, for value, and any person named in such document is a
without notice of the sellers defect of title. negotiable document of title.

Warehouse Receipt
Definition of Terms It is a contract or receipt for goods deposited
with a warehouseman containing the latters
Document of Title to Goods
undertaking to hold and deliver the said goods
Includes any bill of lading, dock warrant,
to a specified person, to order or to bearer.
quedan, warehouse receipt or order of the
Quedan is a warehouse receipt usually for sugar
delivery of goods, or any other document used
received by a warehouseman.
in the ordinary course of business in sale or
transfer of goods, as a proof of the possession
or control of the goods, authorizing or
Classes of Documents of Title
purporting to authorize that the possessor of
the document, to transfer or receive, goods 1. Negotiable Document of Title
represented by such document. those by terms of which the bailee undertakes
to deliver the goods to the bearer or to the
Goods order of a specified person.
Includes all chattels personal but not things in
action or money of legal tender in the 2. Non-negotiable Document of Title
Philippines. The term includes growing of fruits those by the terms of which the goods covered
or crops. are deliverable to a specified person.
Order
Relating to documents of title means an order
by indorsement on the documents.
Nature and Function of Document of Title

1. Receipt of, or orders upon, a bailee of goods
represented.
- Documents of title refer to goods and not
to money. They all have this in common:
that they are receipts of a bailee, or orders
upon a bailee.
2. Evidence of Transfer of Title and Possession of
the Goods and Contract Between the Parties
- A document of title is a symbol of the
goods covered by it, serving as evidence of
o Transfer of title;
o Transfer of possession; and also
o Serves as an evidence of the
contract between the parties who
are bound by its terms.
Common Forms of Documents of Title
Bill of Lading
It is a contract and a receipt for the transport
of goods and their delivery to the person
named therein, to order, or to bearer. It usually
involves three (3) persons the carrier, the
shipper, and the consignee. The shipper and
the consignee may be one of the same person.
Its acceptance generally constitutes contract Art. 1508.
of carriage. A negotiable document of title may be
negotiated by delivery:
Dock Warrant (1) Where by the terms of the document
It is an instrument given by dock owners to an the carrier, warehouseman or other
importer of goods warehoused on the dock as bailee issuing the same undertakes to
a recognition of the importers title to the said deliver the goods to the bearer; or
goods, upon production of the bill of lading.

(2) Where by the terms of the document transferred by the holder by delivery to a
the carrier, warehouseman or other purchaser or donee. A non-negotiable
bailee issuing the same undertakes to document cannot be negotiated and the
deliver the goods to the order of a endorsement of such a document gives the
specified person, and such person or a transferee no additional right. (n)
subsequent endorsee of the document
has indorsed it in blank or to the bearer.
Art. 1512.
Where by the terms of a negotiable
A negotiable document of title may be
document of title the goods are deliverable
negotiated:
to bearer or where a negotiable document of
title has been indorsed in blank or to bearer,
(1) By the owner therefor; or
any holder may indorse the same to himself
or to any specified person, and in such case
(2) By any person to whom the
the document shall thereafter be negotiated
possession or custody of the document
only by the endorsement of such endorsee.
has been entrusted by the owner, if, by
(n)
the terms of the document the bailee
issuing the document undertakes to
deliver the goods to the order of the
Art. 1509.
person to whom the possession or
A negotiable document of title may be
custody of the document has been
negotiated by the endorsement of the
entrusted, or if at the time of such
person to whose order the goods are by the
entrusting the document is in such form
terms of the document deliverable. Such
that it may be negotiated by delivery. (n)
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. (n)
Art. 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," "non-negotiable," or
the like. (n)
Art. 1511.
A document of title which is not in such form
Art. 1513.
that it can be negotiated by delivery may be

A person to whom a negotiable document of 2. The depositor of the goods has no title over
title has been duly negotiated acquires the the goods deposited;
thereby: 3. The goods deposited may have been
destroyed after the receipt by the bailee,
(1) Such title to the goods as the person but prior to the negotiation of the
negotiating the document to him had or document of title;
had ability to convey to a purchaser in 4. The goods may have been delivered by the
good faith for value and also such title to bailee to one who has the right to retain
the goods as the person to whose order them prior to the time of the negotiation of
the goods were to be delivered by the the document.
terms of the document had or had ability
to convey to a purchaser in good faith for I. Goods not received by the bailee
value; and If no goods have been received by the bailee
who issued a document of title, the purchaser
(2) The direct obligation of the bailee of the document acquires no property rights.
issuing the document to hold possession
of the goods for him according to the 2. Lack of title in depositor
terms of the document as fully as if such A bailor having no title to goods cannot, by
bailee had contracted directly with him. depositing them with a warehouseman or
(n) carrier, and receiving a document of title in
return, whatever its form, give good title to
RIGHTS OF A PERSON TO WHOM them to a purchaser of the document, however
DOCUMENT HAS BEEN NEGOTIATED / innocent they may be.
HOLDER
The only qualification to this principle is that if
The rights of a person to whom the negotiable the depositor of the goods, though he had no
document has been negotiated, either by delivery, title, had ability or capacity to transfer title to a
in the case of a document of title to bearer, or by purchase for value, either by virtue of actual
indorsement and delivery, in the case of a authority or because the owner has allowed a
document of title to order. Such person acquires: situation to arise which would estop him from
asserting his title to the goods.
1. The title over the goods covered by the
document; The buyer acquires no better title to the goods
2. The title for the delivery over such goods; that the seller had, unless the owner of the
and goods is by his conduct precluded from denying
3. The direct obligation of the bailee to hold the sellers authority to sell.
possession of the goods for him, as if the
3. Goods destroyed after receipt of the bailee but
bailee had contracted directly with him.
prior to negotiation
In such case, the person to whom the document
The person to whom the negotiable document of
is negotiated cannot acquire any goods by his
title has been duly registered acquires the title of
purchase. Unless the buyer of the document of
the person to whose order the goods were to be
title agreed to bear the risk of loss, the buyer,
delivered.
however, will not bear the risk but will be able
Thus, said buyer may acquire a better title over to recover any money paid by him for the bill of
the goods than the person who negotiated the lading.
documents to the buyer, as the buyer acquires the
4. Forged and altered documents of title
rights of not only his immediate predecessor but
A forged document cannot transfer title to the
also the rights of the original consignee of the
goods, as such document does not represent
goods.
goods. As in the case of forged documents, an
altered docent cannot bind anyone by its
altered terms, except when the person making
INSTANCES WHERE BUYER DOES NOT
the alteration are precluded from denying its
ACQUIRE TITLE
validity by reason of estoppel or of apparent
1. The bailee may have never received any authority to make the alteration.
goods and may have issued the document
fraudulently, with no expectation of
receiving the goods, or improvidently,
expecting later to receive the goods;
If the document is negotiable, the goods
Art. 1514. cannot be attached or be levied under an
A person to whom a document of title has execution unless the document be first
been transferred, but not negotiated, surrendered to the bailee or its negotiation
acquires thereby, as against the transferor, enjoined.
the title to the goods, subject to the terms
of any agreement with the transferor. Art. 1515.
If the document is non-negotiable, such Where a negotiable document of title is
person also acquires the right to notify the transferred for value by delivery, and the
bailee who issued the document of the endorsement of the transferor is essential
transfer thereof, and thereby to acquire the for negotiation, the transferee acquires a
direct obligation of such bailee to hold right against the transferor to compel him to
possession of the goods for him according to endorse the document unless a contrary
the terms of the document. intention appears. The negotiation shall take
effect as of the time when the endorsement
Prior to the notification to such bailee by the is actually made. (n)
transferor or transferee of a non-negotiable
document of title, the title of the transferee
to the goods and the right to acquire the Note:
obligation of such bailee may be defeated by
the levy of an attachment of execution upon If the intention of the parties is that the document
the goods by a creditor of the transferor, or should be merely transferred, the transferee has
by a notification to such bailee by the no right to require the transferor to indorse the
transferor or a subsequent purchaser from document.
the transfer of a subsequent sale of the
goods by the transferor. (n)
RIGHTS OF A PERSON TO WHOM DOCUMENT

HAS BEEN TRANSFERRED / TRANSFEREE
Such person acquires the title to the goods as

against the transferor.
The transferee of a non-negotiable document of
title also acquires:
1. The right to notify the bailee of the transfer
thereof;
2. The right, thereafter, to acquire the
obligation of the baliee to hold the goods
for him,
Rights of Assignee the 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.
NOTE:
The transfer of a non-negotiable document
does not effect the delivery of the goods
covered by it. Accordingly, before notification,
the 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 subsequent sale
of the goods.

As stated under the Negotiable Instruments
Law, the last indorser warrants that all
previous indorsements are genuine.
Art. 1516.
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 Art. 1517.
document of title unless a contrary intention The endorsement of a document of title shall
appears, warrants: not make the endorser liable for any failure
on the part of the bailee who issued the
(1) That the document is genuine; document or previous endorsers thereof to
fulfill their respective obligations. (n)
(2) That he has a legal right to negotiate
or transfer it;
INDORSER NOT A GUARANTOR
(3) That he has knowledge of no fact The indorsement of a negotiable instrument has a
which would impair the validity or worth double effect:
of the document; and
1. It is at the same time a conveyance of the
(4) That he has a right to transfer the title instrument and a contract of the indorser
to the goods and that the goods are with the indorsee that on certain conditions
merchantable or fit for a particular the indorser will pay the instrument if the
purpose, whenever such warranties would party primarily liable fails to do so.
have been implied if the contract of the 2. The indorsement of a document of title
parties had been to transfer without a amounts merely to a conveyance by the
document of title the goods represented indorser, not a contract of guaranty.
thereby. (n) Accordingly, an indorser of a document of
title shall not be liable to the holder if, for
example, the bailee fails to deliver the
WARRANTIES ON SALE OF DOCUMENTS goods because they were lost due to his
fault or negligence.
NOTE:
The liability is only limited to violation of
the four (4) warranties set forth in Article
1516. Thus, the person negotiating or
transferring a document could be held
liable as when, for example, the document
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.
One who assigns for value a claim secured
by a document of title is also liable for the
violation of the four (4) warranties
enumerated unless a contrary intention
appears.
It is the duty of every indorsee to know that

all previous indorsement are genuine,
otherwise, he will not acquire a valid title to
the instrument.

Art. 1518.
The validity of the negotiation of a Art. 1519.
negotiable document of title is not impaired If goods are delivered to a bailee by the
by the fact that the negotiation was a owner or by a person whose act in conveying
breach of duty on the part of the person the title to them to a purchaser in good faith
making the negotiation, or by the fact that for value would bind the owner and a
the owner of the document was deprived of negotiable document of title is issued for
the possession of the same by loss, theft, them they cannot thereafter, while in
fraud, accident, mistake, duress, or possession of such bailee, be attached by
conversion, if the person to whom the garnishment or otherwise or be levied under
document was negotiated or a person to an execution unless the document be first
whom the document was subsequently surrendered to the bailee or its negotiation
negotiated paid value therefor in good faith enjoined. The bailee shall in no case be
without notice of the breach of duty, or loss, compelled to deliver up the actual
theft, fraud, accident, mistake, duress or possession of the goods until the document
conversion. (n) is surrendered to him or impounded by the
court. (n)
NOTE:
Under this article, a negotiable document Rationale for the Rule
of title may be negotiated even by thief or Under the mercantile theory of documents of
finder and the holder thereof would acquire title, the negotiable document of title represents
a good title thereto if he paid value therefor the goods and a person may deal safely with the
in good faith and without notice of the document on that assumption.
sellers defect of title.
It should be noted that this article speaks Thus, a sale of goods while the document is
of theft of the document and not of the outstanding is invalid against a subsequent
goods covered by such document. purchaser who obtains the document. The bailee
In the latter case, it needs no argument to may not deliver the goods, even to the person
show that even a bona fide holder of a entitled to receive them, without the surrender of
document issued over such stolen goods the negotiable document of title.
cannot acquire title. Similarly, an attachment or levy upon the goods
is improper when the negotiable documents are
outstanding. If a document of title is a symbol of
the goods, it must follow that the symbol is the
exclusive means of dealing with the goods.
Scope of Rule
Article 1519 applies to negotiable document of
title.
In the case of non-negotiable document of title,
the transfer thereof does not prevent the bailors
creditors from causing the levy or attachment of
the goods.
A person to whom the document is negotiated
will prevail over a subsequent attachment or levy
by creditors of the indorser.
This provision does not apply if the person
depositing is not the owner of the goods or one

who has no right to convey title to the goods
binding upon the owner.
Neither does it apply to actions for recovery or
manual delivery of goods by the real owner nor to
cases where the attachment is made before the
issuance of the negotiable document of title.
The rights acquired by attaching creditors cannot
be defeated by the issuance of a negotiable
document of title thereafter.
Art. 1520. Art. 1521.

A creditor whose debtor is the owner of a Whether it is for the buyer to take
negotiable document of title shall be possession of the goods or of the seller to
entitled to such aid from courts of send them to the buyer is a question
appropriate jurisdiction by injunction and depending in each case on the contract,
otherwise in attaching such document or in express or implied, between the parties.
satisfying the claim by means thereof as is Apart from any such contract, express or
allowed at law or in equity in regard to implied, or usage of trade to the contrary,
property which cannot readily be attached the place of delivery is the seller's place of
or levied upon by ordinary legal process. (n) 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
CREDITORS REMEDIES TO REACH the parties when the contract or the sale
NEGOTIABLE DOCUMENTS was made were in some other place, then
that place is the place of delivery.
NOTE:
Where by a contract of sale the seller is
This article expressly gives the court full power to
bound to send the goods to the buyer, but
aid by injunction and otherwise a creditor seeking
no time for sending them is fixed, the seller
to get a negotiable document covering such
is bound to send them within a reasonable
goods.
time.
However, if an injunction is issued but the Where the goods at the time of sale are in
negotiable document of title is negotiated to an the possession of a third person, the seller
innocent person, the transfer is nevertheless has not fulfilled his obligation to deliver to
effectual. 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. (n)
PLACE OF DELIVERY OF GOODS SOLD

1. Where there is an agreement, express or
implied, the place of delivery is that agreed
upon;
2. No agreement, determined by usage of trade;
3. No agreement and no prevalent usage, the
place of delivery is sellers place of business;
4. In any other case, the sellers residence; and

5. 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.
TIME OF DELIVERY OF GOODS SOLD

1. If no time is fixed by the contract, then the
seller is bound to send the goods to the buyer
within a reasonable time.
Reasonable time is dependent upon the
circumstances attending the particular
transaction, such as the character of the
goods, the purpose for which they are
Art. 1522.
intended, the ability of the seller to
Where the seller delivers to the buyer a
produce the goods if they are to be
quantity of goods less than he contracted to
manufactured, the facilities available for
sell, the buyer may reject them, but if the
transportation and distance the goods
buyer accepts or retains the goods so
must be carried, and the usual course of
delivered, knowing that the seller is not
business in the particular trade.
going to perform the contract in full, he
Where the goods are at the time of the must pay for them at the contract rate. If,
bargain in a deliverable state and however, the buyer has used or disposed of
perishable in nature, a reasonable time for the goods delivered before he knows that
delivery would be a very short time. the seller is not going to perform his
contract in full, the buyer shall not be liable
2. If the contract provides a fixed time for for more than the fair value to him of the
performance, the question is whether the time goods so received.
is of the essence, and if so, whether correct
Where the seller delivers to the buyer a
performance was offered within that time;
quantity of goods larger than he contracted
otherwise, reasonable time.
to sell, the buyer may accept the goods
3. Where the contract does not specify the time included in the contract and reject the rest.
for delivery so that delivery is to be made If the buyer accepts the whole of the goods
within a reasonable time, time is not of the so delivered he must pay for them at the
essence. 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. (n)
Delivery of Less Quantity of Goods

Where the seller is under a contract to deliver
a specific quantity of goods and he delivers a
smaller quantity as full performance of his
obligation, the buyer may reject the goods so
delivered.
The buyer may, however, accept the goods in
which case he must
o Pay for their price at the contract rate if he
knew that no more were to be delivered, or
o The fair value to him of the goods, if he did
not know that the seller is going to be
guilty of a breach of contract.
Fair value to him shall be interpreted to
mean the benefit which the buyer may
have received from the goods.
Delivery of More Than Quantity of Goods

The buyer may accept the quantity contracted
and reject the excess.
If he accepts all the goods delivered, he is
liable for the price of all of them.
Art. 1523.
Where, in pursuance of a contract of sale,
Delivery of Goods Mixed with Others
the seller is authorized or required to send
The buyer may accept those which are in the goods to the buyer, delivery of the
accordance with the contract and reject the goods to a carrier, whether named by the
rest. buyer or not, for the purpose of
If he accepts all the goods delivered, he is liable transmission to the buyer is deemed to be a
for the price of all of them. delivery of the goods to the buyer, except in
the case provided for in Article 1503, first,
Effect of Indivisibility of Subject Matter second and third paragraphs, or unless a
contrary intent appears.
If the subject matter is indivisible, in case of
delivery of a larger quantity or of mixed goods, Unless otherwise authorized by the buyer,
the buyer may reject the whole of the goods. the seller must make such contract with the
carrier on behalf of the buyer as may be
reasonable, having regard to the nature of
NOTE: the goods and the other circumstances of
the case. If the seller omit so to do, and the
Usage of Trade is any practice or method of goods are lost or damaged in course of
dealing having such regularity of observance in a transit, the buyer may decline to treat the
place, vocation or trade as to justify an delivery to the carrier as a delivery to
expectation that it will be observed with respect to himself, or may hold the seller responsible
the transaction in question. The existence and in damages.
scope of such usage are to be proved as facts. Unless otherwise agreed, where goods are
sent by the seller to the buyer under
Course of Dealing is a sequence of previous circumstances in which the seller knows or
conduct between the parties to a particular ought to know that it is usual to insure, the
transaction which is fairly to be regarded as seller must give such notice to the buyer as
establishing a common basis of understanding for may enable him to insure them during their
interpreting their expressions and other conduct. transit, and, if the seller fails to do so, the
goods shall be deemed to be at his risk
during such transit. (n)
DELIVERY TO CARRIER ON BEHALF OF

BUYER
General Rule: Where the seller is authorized or
required to send the goods to the buyer, the
general rule is that the delivery of such goods to
the carrier constitutes delivery to the buyer,
whether the carrier is named by the buyer or not.

Exceptions: the point of destination. Title passes to the
They are those provided for in paragraphs 1, 2, buyer at the moment of delivery to the point
and 3 of Article 1503. especially named.
When a contrary intent appears, that is, the F.A.S. free alongside vessel. Under this term,
parties did not intend the delivery of the goods the seller pays all charges and bears the risk
to the buyer through the carrier. until the goods are placed alongside overseas
The seller is not responsible for the misdelivery vessels and within reach of its loading tackle.
by the carrier where the carrier was chosen
and authorized by the buyer to make the Ex Factory, Ex Warehouse, etc. under this
delivery. term, 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
NOTE: agreed place on the date within the period
If the goods which he sends are not of the fixed.
kind and quality ordered, ownership will not
pass. Ex Dock under this term, the seller quotes a
Similarly, ownership will not pass if the price including the cost of the goods on the
goods are too many or too few, or if they dock at the named port of importation.
are sent at a materially different time, or by
a different route or method of shipment, or
under a different kind of bill of lading, or
are misdirected.
SELLERS DUTY AFTER DELIVERY TO

CARRIER Art. 1524.
The vendor shall not be bound to deliver the
1. To enter on behalf of buyer into such contract thing sold, if the vendee has not paid him
reasonable under the circumstances. the price, or if no period for the payment has
2. To give notice to the buyer regarding necessity been fixed in the contract. (1466)
to insure goods; if he fails to do so, the risk will
be borne by him. But the seller who had failed
to give notice is not liable for the loss of goods, Art. 1525. The seller of goods is deemed to
if the buyer had all the information necessary be an unpaid seller within the meaning of
to insure. this Title:
Definition of Terms (1) When the whole of the price has not
been paid or tendered;
C.O.D. collect on delivery. In this case, the (2) When a bill of exchange or other
carrier acts as the seller in collecting the negotiable instrument has been received
purchase price. The buyer must pay for the as conditional payment, and the condition
goods before he can obtain possession. on which it was received has been broken
by reason of the dishonor of the
F.O.B. free on board. They mean that the
instrument, the insolvency of the buyer, or
goods are to be delivered free of expense to
otherwise.
the buyer to the point where they are F.O.B.
o the presumption that the place where the In Articles 1525 to 1535 the
goods are to be delivered FOB is the place term "seller" includes an agent of the seller
of delivery to the buyer is qualified by two to whom the bill of lading has been indorsed,
(2) possibilities: or a consignor or agent who has himself
the form of bill of lading; and paid, or is directly responsible for the price,
the other terms of the contract. or any other person who is in the position of
The rule that title passes at the moment of a seller. (n)
delivery to the carrier is subordinate to the
intention of the parties.
Unpaid Seller is one who has been paid or
C.I.F. cost, insurance and freight. They tendered the whole price or who has received a
signify that the price fixed covers not only the bill of exchange or other negotiable instrument as
cost of the goods, but the expense of freight conditional payment and the condition on which it
and insurance to be paid by the seller up to
was received has been broken by reason of the 1. A lien on the goods or right to retain them for
dishonor of the instrument. It includes: the price while in his possession;
An agent of the seller; 2. A right of stopping the good in transitu in case
A consignor or agent who has himself paid of insolvency of the buyer;
or is directly responsible for the price; or 3. A right of resale;
Any other person in the position of the 4. A right to rescind the sale.
seller.
If the unpaid seller still retains the 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.
NATURE OF UNPAID SELLERS POSSESSORY

LIEN
ON THE GOODS
Lien is a charge upon property for the payment or
discharge of a debt or duty. It is a right which the
law gives to have the debt satisfied out of a
particular thing.
The possessory lien entitles the seller to
retain the possession of the goods as
security of the purchase price.
Where the goods are in the possession of
the buyer, the seller has no more
possessory lien but his claim for the unpaid
price is a preferred lien or claim.
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: Art. 1527.
(1) A lien on the goods or right to retain Subject to the provisions of this Title, the
them for the price while he is in unpaid seller of goods who is in possession
possession of them; of them is entitled to retain possession of
(2) In case of the insolvency of the them until payment or tender of the price in
buyer, a right of stopping the goods in the following cases, namely:
transitu after he has parted with the (1) Where the goods have been sold
possession of them; without any stipulation as to credit;
(3) A right of resale as limited by this (2) Where the goods have been sold on
Title; credit, but the term of credit has expired;
(4) A right to rescind the sale as likewise (3) Where the buyer becomes insolvent.
limited by this Title. The seller may exercise his right of lien
Where the ownership in the goods has not notwithstanding that he is in possession
passed to the buyer, the unpaid seller has, in of the goods as agent or bailee for the
addition to his other remedies a right of buyer. (n)
withholding delivery similar to and
coextensive with his rights of lien and
stoppage in transitu where the ownership WHEN UNPAID SELLERS POSSESSORY LIEN
has passed to the buyer. (n) MAY BE EXERCISED
1. Sale without stipulation as to credit.
There is a period for payment of the price
Even if the ownership in the goods has already which has been fixed in the contract. Absence
passed to the buyer, the unpaid seller may of such, the seller is entitled for payment at
exercise the following rights: the time of the delivery of the goods.

2. Expiration of Term or Credit
Even where the parties agree upon a sale on
credit, the sellers right of lien may be Art. 1528.
exercised. Where an unpaid seller has made part
delivery of the goods, he may exercise his
3. Insolvency of the Buyer
right of lien on the remainder, unless such
It should be noticed that insolvency does not
part delivery has been made under such
dissolve the bargain; it merely revives the
circumstances as to show an intent to waive
sellers lien.
the lien or right of retention. (n)
The insolvency of the debtor is one of the
grounds for the loss of the right to make use of
the period fixed in an obligation. 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. (n)


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REVIEWER LAW ON SALES AND LEASE

Rentoza, Michael Leandro F. 1

Under Article 1327, the following cannot give

Since these persons are incapable of giving

The Supreme Court has applied the same

Under Article 1490, the following properties of the

Rentoza, Michael Leandro F. 3

The prohibition does not include sale of the

amount of a judgment made by a person to his

With respect to Nos. 1 to 3, the sale shall only

Rentoza, Michael Leandro F. 5

The word perishes is sufficiently inclusive as to

EFFECTS OF THE CONTRACT

___________________________________________________ 1. To rescind or withdraw from the

Rentoza, Michael Leandro F. 6

Rentoza, Michael Leandro F. 7

A bill of lading cannot substitute for a delivery

SECTION 2. - Delivery of the Thing Sold

CONCEPT OF TRADITION OR DELIVERY With regard to movable property, its

Delivery has been described as a composite act, SYMBOLIC TRADITION

Original Acquisition is one which applies to

This takes place when the vendor continues in

Tradition brevi manu (short hand delivery)

Article 1499 expressly applies to movable

Rentoza, Michael Leandro F. 9

It is the mode of delivery of incorporeal rights or

Tradition can only be made with respect to

1. By the execution of a public instrument; or

Rentoza, Michael Leandro F. 10

Rentoza, Michael Leandro F. 12

Rentoza, Michael Leandro F. 13

Rentoza, Michael Leandro F. 14

Rentoza, Michael Leandro F. 17

Nature and Function of Document of Title

Rentoza, Michael Leandro F. 18

Rentoza, Michael Leandro F. 19

RIGHTS OF A PERSON TO WHOM DOCUMENT

Such person acquires the title to the goods as

Rights of Assignee the right of the transferee is

Rentoza, Michael Leandro F. 21

It is the duty of every indorsee to know that

Rentoza, Michael Leandro F. 22

Rentoza, Michael Leandro F. 23

Art. 1520. Art. 1521.

PLACE OF DELIVERY OF GOODS SOLD

Rentoza, Michael Leandro F. 24

TIME OF DELIVERY OF GOODS SOLD

Delivery of Less Quantity of Goods

Delivery of More Than Quantity of Goods

DELIVERY TO CARRIER ON BEHALF OF

Rentoza, Michael Leandro F. 26

SELLERS DUTY AFTER DELIVERY TO

NATURE OF UNPAID SELLERS POSSESSORY

Rentoza, Michael Leandro F. 28

Rentoza, Michael Leandro F. 29

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