LAW ON SALES

ARTICLE 1508

 NEGOTIATION OF NEGOTIABLE DOCUMENT BY DELIVERY

(1) When the holder signs his name at the back of the document of title without specifying to whom or issuing a
receipt like warehouse receipt that is deliverable to the bearer. Since it is deliverable to the bearer, he/she may
also negotiate it by delivery.

For example:

D deposits his goods in the warehouse of W. W issues a warehouse receipt which provides that the goods
are “deliverable to bearer”. D may negotiate the warehouse receipt to another by delivery also.

Effect of special indorsement of a document of title which states that the goods are deliverable to bearer.

Bearer Document of Title- becomes an order document of title if specially indorsed and negotiation can only be
affected by the indorsement and delivery of the indorsee. Since it became order document of title, it must contain
the person to whom goods are to be delivered.

 Negotiable Document of Title – this is the case.

 Negotiable Instrument Payable to Bearer – remains a bearer instrument even if specially indorsed.
(2) If the document of title provides that it is deliverable to order and when the subsequent indorsee indorses the
document of title in blank and writes deliverable to bearer, the bearer or indorsee may negotiate it by delivery.

For example:
D deposits his goods in the warehouse of W. W issues a warehouse receipt which provides that the goods
are “deliverable to order of D”. If D indorses the warehouse receipt in blank or writes “deliverable to bearer”, and
delivers the warehouse receipt to A, A may negotiate the instrument by mere delivery

ARTICLE 1509

 NEGOTIATION OF NEGOTIABLE DOCUMENT BY INDORSEMENT

By indorsement plus delivery

If the goods are to be deliverable to order or to a specified person, the document of title is negotiated by him only
through indorsement plus delivery. But when there is a subsequent indorsement:

a. When indorsed in blank or to bearer – negotiated by delivery

b. When indorsed in special or to order – may be negotiated again either to the bearer or to the order of a specified
person.
 Blank indorsement- delivery
 To bearer – delivery
 Specified person – indorsement plus delivery

ARTICLE 1510

 NEGOTIABLE DOCUMENT OF TITLE MARKED “NON-NEGOTIABLE

When the document of title like warehouse receipt undertakes the bailee that it is deliverable to bearer or to order even
if marked with the word “non-negotiable”, it has no effect and still remains to be negotiable.
ARTICLE 1511

 TRANSFER OF NON-NEGOTIABLE DOCUMENTS

It is stated in Art 1507 that negotiation applies only to a negotiable documents of title while non-negotiable document
of title can only be transferred but not negotiated.

Even if the document of title is indorsed , the transferee acquires no additional rights because the delivery of a
document of title does not constitute negotiation. It can only be delivered to the purchaser or donee by a mere
assignment.

ARTICLE 1512

 PERSONS WHO MAY NEGOTIATE A DOCUMENT

(1) By the owner thereof.
Like in Art. 1459 that the goods must be own by the owner before it is sold, it is the same also in case of
negotiating document of title. The person who may negotiate a document must be the owner thereof.

For example:

D deposited 50 sacks of rice in the warehouse of W. W issues to him a warehouse receipt which states
that it is “deliverable to order of D”. D, as the owner of the warehouse receipt, may negotiate it to another.

(2) By the person to whom the possession or custody of the document has been entrusted by the owner
a. 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.

For example

D deposited 50 sacks of rice in the warehouse of W. W issues to him a warehouse receipt which states
that the goods are to be delivered to the order of D or to the person to whom the document has been entrusted
by D. D entrusted the document to T. T may negotiate the document to another person.

b. If, at the time of such entrusting the document, it is in such form that it may be negotiated by delivery.

For example:

D deposited 50 sacks of rice in the warehouse of W. W issues to him a warehouse receipt which states
that the goods are to be delivered to bearer. D entrusted the document to T. T may negotiate the document to
another person.

ARTICLE 1513

 RIGHTS OF PERSON TO WHOM DOCUMENT HAS BEEN NEGOTIATED

(1) The title of the person negotiating the document, over the goods covered by the document.
(2) The title of the depositor or shipper over the goods covered by the document.
(3) The direct obligation of the bailee to hold possession of the goods for him, as if the bailee had contracted directly
with him.

ARTICLE 1514

 RIGHTS OF PERSON TO WHOM DOCUMENT HAS BEEN TRANSFERRED

(1) Title to goods as against the transferor—the title of the goods subject to the terms of any agreement with the
transferor.
(2) The right to notify the bailee (warehouseman or carrier) of the transfer to him of the document of title
a. Notification – the transferee acquired the direct obligation of the bailee to hold possession of the goods
for him according to the terms of the document.
 b. Lack of notification – paragraph 3 of the article applies
i. The levy of an attachment or execution upon the goods by the creditor of the transferor
ii. A notification to such bailee by the transferor or a subsequent purchaser from the transferor of a
subsequent sale of the goods by the transferor

ARTICLE 1515

 TRANSFER OF ORDER DOCUMENT WITHOUT INDORSEMENT

This article showed the rights of the transferee if the transferor transferred the negotiable document of title by
delivery, without indorsement.

The transferee has the:

(1) Right to the goods as against the transferor

(2) Right to compel the transferor to indorse the document.

Effect of indorsement

 The negotiation takes effect upon the indorsement.

 Upon indorsement, the transferee acquires direct obligation of the bailee to hold possession of the goods.

ARTICLE 1516

 WARRANTIES ON SALE DOCUMENTS

The liability of the person held as liable is limited only to a violation of the four warranties on sale documents. The
person is held liable when he/she committed forgery, stolen the document, he had the knowledge that the document
was invalid for want of consideration, and goods had been damaged.

Four warranties:

(1) That the document is genuine.

The person transferring or negotiating the document can be held liable if the transferee cannot obtain the
goods from bailee or carrier because the document of title is forged.
(2) That he has a legal right to negotiate or transfer it.
For example:
D deposited goods with W who issued to D a warehouse receipt stating that the goods are deliverable to
bearer. D entrusted the warehouse receipt to A for safekeeping. However, A negotiated the warehouse receipt to
H. Later, W refused to deliver to H on the ground that his title is defective. H can hold A liable because he
warranted that he had a legal right to negotiate the warehouse receipt.
(3) That he has knowledge of no fact which would impair the validity or worth of the document.

When the transferor at the time of he transferred the document of title, he had no knowledge that the
goods represented by it had been lost or the document was already worthless, he/she is not liable.

But when it is proven that the transferor had knowledge or knows the fact that the goods represented by
the document had been lost, he/she is liable at the time he transferred the document to transferee.

(4) This paragraph applies and refers to warranty against eviction and warranty against hidden defects.
Implied warranties – deemed include all contracts of sale whether parties are actually aware or not aware.
a. Warranty against eviction – when ownership is transferred, buyer shall enjoy the legal and peaceful
possession of the thing.
b. Warranty against hidden defects
ARTICLE 1517

 EFFECT OF FAILURE OF BAILEE OR PREVIOUS INDORSES TO FUFLFILL THEIR OBLIGATIONS

The indorser shall not be liable if the bailee fails to deliver the goods due to negligence.

For example:

D, depositor; W, warehouseman. An order negotiable warehouse receipt was issued for the goods.
Thereafter, D indorsed the receipt to A, A to B, and B to H, holder. When H presented the receipt to W, W failed
to deliver the goods to him because they were lost through his negligence.

- Failure of W, warehouseman to deliver the goods will not make D, A, B liable to H, the holder
because it is the fault of the bailee and not the indorsers.

ARTICLE 1518

 WHEN NEGOTIATION NOT IMPAIRED BY FRAUD, MISTAKE, DURESS, ETC.

Negotiable document of title may be negotiated by an person in possession but such possession may have
been acquired.
The negotiation is not impaired even if:
(1) The negotiation was made In breach of duty of the person negotiating.
(2) The owner of the document was deprived of the possession due of loss, theft, fraud, accident, mistake, duress or
conversion.
Even though the person negotiating the document is a thief, it is a valid negotiation and not impaired, as
long as the holder or purchaser who acquired paid for value in good faith and without notice.

ARTICLE 1519

 ATTACHMENT OR LEVY OR SURRENDED OF GOODS COVERED BY A NEGOTIABLE DOCUMENT

(1) Negotiable document of title
 General rule: A negotiable document of title that covered goods cannot be attached or levied
Exceptions:
a. When the document is first surrendered to the bailee; or
b. When negotiation of document is prohibited by the court
 The bailee cannot be compelled to surrender the goods
Exceptions
a. When the document is surrender to the bailee
b. The document is impounded by the court

(2)Non-negotiable document of title

If the document of title is non-negotiable, the goods covered may be attached or levied even though the
document is not surrendered to the bailee.

ARTICLE 1520

 CREDITOR’S REMEDIES TO REACH NEGOTIABLE DOCUMENTS

In this article, since the court has the full power to aid by injunction (a restraining order), the creditor can
ask the court for an order attaching the document of title and in seeking to get a negotiable document covering
goods. The court may also prohibit the delivery of the goods to the debtor-owner.

But, if the negotiable document it negotiated to a person who is innocent and has no knowledge, the
transfer Is valid even though an injunction or a restraining order is already issued.
ARTICLE 1521

 PLACE OF DELIVERY OF GOODS SOLD

(1) Place stipulated or place of delivery agreed upon
(2) Place fixed by usage or trade if there is no agreement
(3) Seller’s place of business if there is no stipulation and place is not determined by usage
(4) Seller’s residence as the place of delivery
(5) In case of specific goods, contract was made were in some other place, that place is the place of delivery

 TIME FOR DELIVERY OF GOODS

(1) Time stipulated
(2) By usage or trade if there is no agreement
(3) If no time is fixed by the contract – must be made within reasonable time
(4) If time is fixed by the contract
a. Time is of the essence – performance must be offered within that time
b. Time is not of the essence – reasonable time

 DELIVERY OF GOODS IN POSSESSION OF A THIRD PERSON

The third person must acknowledge to the buyer that he is the bailee or that he holds the goods for the buyer,
otherwise the seller will not fulfill his obligations. This is necessary to affect and protect the buyer against third
persons.

 HOUR OF DELIVERY OF GOODS SOLD

It must be made at a reasonable hour to be effectual otherwise demand or tender of delivery may be treated
ineffectual

However, for goods which are bulky, an hour for delivery of good sold is unreasonable .

 EXPENSES OF DELIVERY
General Rule: The seller bears the expenses to place the thing in deliverable state.
Exception: There is a stipulation by both parties

ARTICLE 1522

 DELIVERY OF GOODS LESS THAN QUANTITY CONTRACTED

(1) The delivered goods may be reject by the buyer.
This is based on the rule the creditor cannot be compelled to accept partial payment.
(2) The buyer may accept the goods but if:
a. He knew that the seller is not going to fulfill his obligations stated in the contract, he must pay for their
price at the contract rate.
b. He did not know that the seller is not going to perform what is in the contract, he must pay for the fair
value/reasonable market value of the goods delivered. The buyer is liable only for the fair value of the
goods at the time of delivery even though it should be less than the rate agreed upon. He has to pay which
amount may be lower but not greater than the contract price.
 DELIVERY OF GOODS MORE THAN QUANTITY CONTRACTED
(1) The buyer may accept the quantity of goods agreed upon and reject the excess
(2) The buyer accepts all the goods even if it is more than what is contracted. Therefore, he is liable for the price of
all of them.
 If the seller delivered 200 cavans of rice instead of 100 cavans that cost 1,000 each, the buyer may reject
the excess which is 100 cavans and pay 100,000 pesos or he may accepts all the goods and pay for a price of
200,000 pesos.

 DELIVERY OF GOODS MIXED WITH OTHERS

(1) The buyer may reject the rest and accepts only what is in the contract or agreed upon. This is the case if sale
is divisible.
B ordered 10 sacks of rice from S. S delivered 10 sacks of rice and 2 sacks of corn. B may reject the 2 sacks of
corns and accept the 10 sacks of rice.
(2) The buyer may accept all the goods if he desires.
 EFFECT OF INDIVISIBILITY OF SUBJECT MATTER
In case the subject matter is indivisible:
(1) The buyer may reject the whole of the goods delivered

For example:

S sold to B a live carabao with a weight between 100 kilos to 120 kilos, but, at the time of the delivery S
delivered a 130 kilo carabao. In that case, B may reject the carabao.

 RULES MAY BE CONTROLLED BY USAGE OF TRADE, ETC.

Where such method of business prevails, it would be a natural consequence that a tender of a right in the
mass would be a good delivery.

ARTICLE 1523

 DELIVERY TO CARRIER ON BEHALF OF BUYER

General Rule: The delivery of goods to the carrier constitutes delivery to the buyer, whether the carrier is name
by the buyer or not.
Exceptions: article 1503, p 1,2, and 3
 SELLER’S DUTY AFTER DELIVERY TO CARRIER
(1) To enter on behalf of the buyer into such contract reasonable under the circumstances.
If he omits to do so:
a. The buyer may decline to treat the delivery to the carrier as a delivery to himself in case the goods
are lost or damaged in course of transit. The transfer of ownership will be deemed not to have taken
place.
b. The buyer may hold the seller responsible in damages
(2) To give notice to buyer regarding necessity to insure goods.
a. If the seller fails to do so, the risk will be borne by him
b. If the buyer had all the information necessary to insure, the seller failed to give notice is not liable for
loss of goods.
 TRADE TERMS
(1) COD (Collect on Delivery) – the carrier acts for the seller in collecting the purchase price. The buyer must pay
for the goods before he can obtain possession. Ex. Shopee or lazada
(2) FOB (Free on Board) – the goods are to be delivered free of expense to the buyer
(3) CIF (Cost Insurance and Freight) – price fixed covers not only the cost of goods, but the expenses of freight
and insurance to be paid by the seller
(4) FAS (Free Alongside Vessel) – port of shipment; the seller pays all charges and bear the risk until the goods
are placed alongside overseas vessel and within reach of its loading tackle.
(5) EX FACTORY, EX WAREHOUSE, ETC. – point of origin; price quote 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.
 (6) EX DOCK – port of importation; the seller quotes a price including the cost of the goods on the dock

ARTICLE 1524

 DELIVERY SIMULTANEOUS WITH PAYMENT OF PRICE

It is stated in Article 1458 that one of the characteristics of a contract of sale is its being bilateral. It means
that the seller is bound to deliver the thing sold in exchange for a price paid by the buyer. This obligation is
reciprocal since both parties must fulfill their obligations from the moment the contract is perfected.
The cause or consideration which the price certain in money must be present since it constitutes as one
of the essential requisites of a contract of sale. If the buyer fails to do so, the contract will not come into existence
since one of the requisites is missing.

General Rule: the obligation to deliver the thing which is the subject matter arises at the time the contract is
perfected and from the time obligation may be enforced.

 WHEN THE VENDOR IS NOT BOUND TO DELIVER THE THING SOLD

(1) If the vendee has not paid him the price.
(2) If no period of payment has been fixed by the contract
 WHEN DELIVERY MUST BE MADE BEFORE PAYMENT OF PRICE
General Rule: the thing shall not be delivered unless price be paid
Exception: the thing must be delivered though the price has not been paid first, if a time for such payment has
been fixed in the contract

For example:
S sold to B the refrigerator for 5,000. No date is fixed by parties for performance of their respective
obligations.
(1) S is not bound to deliver the refrigerator if B did not pay the price.
(2) S is obliged to deliver the thing sold although the buyer does not pay the price if a time for payment has been
fixed in the contract, like within 3 months.

ARTICLE 1525

 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. The condition received has been broken by reason of dishonor of the
instrument. It also included when the buyer is insolvent or otherwise.

 WHERE WHOLE OF THE PRICE HAS NOT BEEN PAID

(1) Tender of payment of buyer – can bring action subsequently for the price, which he has refused, yet tender
destroys the seller’s lien.
Lien –
(2) Payment of part of price – the seller remain an unpaid seller even if title has passed to the buyer. This does
not destroy a seller’s lien.
(3) Payment by negotiable instrument – it will come into effect when they have been cashed because a seller will
remain an unpaid seller if the buyer issued a check but when presented to the bank it is bounced.
ARTICLE 1526

 SPECIAL REMEDIES OF AN UNPAID SELLER

The rights of the unpaid seller is based on the inherent injustice of depriving him of goods with which he has
not been paid the price by the buyer when it is due.
(1) A lien on the goods or right to retain them for the price he is in possession of them
- The unpaid seller having a lien on the goods does not lose his lien by reason only that he has
obtained judgment or decree for the price of the goods.
(2) Right of stoppage in transitu
- The unpaid seller may resume possession of the goods any time while they are in transit, and
he will then become entitled to the goods as he would have had if he had never parted with the
possession
(3) Right of resale
- The seller may resell the goods in a public or private sale. He is bound to exercise reasonable
care and judgment in making the resale. He cannot, directly or indirectly buy the goods.
- The unpaid seller has right of resale when the grounds must be any of the following:
A. The goods are of a perishable nature
B. The seller has expressly reserved the right to resell the goods in case the buyer should
make default
C. The buyer has been in default for an unreasonable time.

(4)Right to rescind the sale

- this is made by giving notice to the buyer of the intention to rescind. The seller may recover
from the buyer damages for any loss occasioned by the breach of contract of sale.

ARTICLE 1527

 WHEN UNPAID SELLER’S POSSESSORY LIEN MAY BE EXERCISED

This right is available to the seller and he may be in possession of the goods as agent or bailee for the buyer in the
following:

(1) Sales without stipulation as to credit

- The seller is entitled to the payment of the price at the same time that he transfers the
possession of the goods.
(2) Expiration of term of credit

General Rule: the buyer is entitled to possession of the goods even without paying the price by the nature of
a credit sale.

Exception: If the buyer fails to exercise his right until the term of credit has expired and the price becomes
due, he loses the right that he had.

(3) Insolvency of the buyer – the lien of the seller in possession is revived and recovered even though the time
for payment of the price has not yet received because of the insolvency of the buyer.

ARTICLE 1528

 LIEN NOT GENERALLY LOST BY PART DELIVERY

 - The unpaid seller has a lien upon the remainder for the proportion of the price which is due on
account of the goods is retained.
- If part of the delivered goods is intended as symbolical delivery of the whole, a waiver of any
right of retention as to the remainder, the lien is lost

ARTICLE 1529

 WHEN UNPAID SELLER LOSSES POSSESSORY LIEN

(1) Delivery to agent or bailee of buyer – the seller losses possessory lien even though he stop the goods while
on their way to the buyer after delivery to a bailee for the buyer.
(2) Possession by buyer or his agent – if the seller has no possession necessary for a lien, the seller has no lien
when the ownership is transferred to the buyer.
(3) By Waiver thereof – the seller may lose it upon the agreement to surrender it.

ARTICLE 1530

 RIGHT OF SELLER TO STOP GOODS IN TRANSITU

The right to stop of goods in transit arises because of the injustice of allowing the buyer to acquire
ownership and possession of goods when in fact he does not paid yet.
- 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.
- When the buyer is insolvent, the seller may resume possession of the goods while in transit
 REQUISITES FOR THE EXERCISE OF RIGHT OF STOPPAGE IN TRANSITU
(1) The seller must be unpaid
(2) The buyer must be insolvent
(3) The goods must be in transit
(4) The seller must either: Article 1532
(5) The seller must surrendered the negotiable document of title issued by the carrier or bailee
(6) The seller must bear the expenses of delivery of the goods after the exercise of the right

ARTICLE 1531

 WHEN GOODS IN TRANSIT

(1) After the delivery of goods to the bailee and before the buyer receives the delivery
(2) The carrier continues in possession of the goods if it is rejected by the buyer
 WHEN GOODS CONSIDERED NO LONGER IN TRANSIT
(3) If at the point before the destination originally fixed, the buyer of his agent obtain the possession of the goods.
(4) If the carrier wrongfully refuses to deliver the goods to the buyer
(5) After the delivery to the buyer or his agent
(6) If the carrier or bailee acknowledges to hold the goods on behalf of the buyer
- The carrier must enter into a new relation, to hold the goods for the buyer as hi agent, for the
purpose of custody on the buyer’s account. If the carrier refuse to attorn or deliver the goods,
it will not terminate the right to stop.
 DELIVERY TO CHARTERED OR OWNED BY THE BUYER
(1) Chartered by the buyer – whether delivery to a carrier chartered by the buyer means possession by the carrier
as agent of the buyer, in which case the goods are no longer in transit.
(2) Owned by the buyer – delivery to the buyer’s agent who is under a general duty to obey his principal’s order
is necessarily a delivery to the buyer.
 EFFECT OF PARTIAL DELIVERY
 - The seller may still exercise his right of lien on the remainder after part of the goods had been
delivered.

ARTICLE 1532