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LAW ON SALES (SPECIAL NOTES) foreclosure sale, the mortgagor may redeem the real

property sold within one year from the date of


Chapter 4 registration of the sale. In judicial foreclosure of real
OBLIGATIONS OF THE VENDOR estate mortgage, the general rule is that the mortgagor
cannot exercise his right of redemption after the sale is
ART. 1495. The vendor is bound to transfer the ownership of confirmed by the court. Therefore, the purchaser is
and deliver, as well as warrant the thing which is the object of entitled to recover the money paid by him where the
the sale. contract is set aside by reason of the mutual material
mistake of the parties as to the identity or quantity of
PRINCIPAL OBLIGATIONS OF THE VENDOR the land sold. And where the purchaser recovers the
purchase price from a vendor who fails or refuses to
The principal obligations of a vendor are:
deliver the title, he is entitled, as a general rule, to
1. To transfer the ownership of the determinate thing interest on the money paid from the time of payment.
sold; 4. Right of vendee to transfer of certificate of title. — In
2. To deliver the thing, with its accessions and accessories, a sale of registered land, the vendee has a right to
if any, in the condition in which they were upon the receive and the vendor the corresponding obligation to
perfection of the contract (Art. 1537.); transfer to him, not only the possession and
3. To warrant against eviction and against hidden defects employment of the land but also the certificate of title.
(Arts. 1495, 1547.); 5. Right of buyer to recover the price paid. — The right of
4. To take care of the thing, pending delivery, with proper a party to recover the amount given as a consideration
diligence (see Art. 1163.); and has been passed upon in a case where it was held that:
5. To pay for the expenses of the deed of sale, unless “Whenever money is paid upon the representation of
there is a stipulation to the contrary. (Art. 1487.) the receiver that he has either a certain title in property
transferred in consideration of the payment or a certain
OBLIGATION TO TRANSFER OWNERSHIP AND DELIVER authority to receive the money paid, when in fact he
has no such title or authority, then, although there be
1. Ownership by vendor at time of perfection of contract no fraud or intentional misrepresentation on his part,
not essential. — The vendor need not be the owner of yet there is no consideration for the payment. The
the thing at the time of perfection of the contract; it is money remains, in equity and good conscience, the
sufficient that he has “a right to transfer the ownership property of the payer and may be recovered by him.
thereof at the time it is delivered.” The obligation to
transfer ownership and to deliver is really implied in ART. 1496. The ownership of the thing sold is acquired by the
every contract of sale. One who sells something he vendee from the moment it is delivered to him in any of the
does not yet own is bound by the sale when he acquires ways specified in articles 1497 to 1501, or in any other manner
it later. When a property belonging to a person is signifying an agreement that the possession is transferred from
unlawfully taken by another, the former has the right of the vendor to the vendee.
action against the latter for the recovery of the
property. Such right may be transferred by the sale or 1. WAYS OF EFFECTING DELIVERY. The ownership of the thing
assignment of the property and the transferee can sold shall be transferred to the vendee upon the delivery thereof
maintain such action against the wrongdoer. (see Art. 1477.) which may be effected in any of the following
2. Transfer not essential to perfection of contract. — The ways or modes:
transfer of ownership and the delivery of the thing sold
1. By actual or real delivery (Art. 1497.);
are not essential to the perfection of the contract. But
2. By constructive or legal delivery (Arts. 1498-1501.); or
if the seller does not deliver at the time stipulated, the
3. By delivery in any other manner signifying an
buyer may ask for the rescission of the contract or
agreement that the possession is transferred to the
fulfillment with the right to damages in either case.
vendee. (Arts. 1496-1499.) In all the different modes of
3. No obligation to make delivery during period of
delivery, the critical factor which gives legal effect to
redemption. — The purchaser in execution sales,
the act is the actual intention of the vendor to deliver,
however, is not entitled to immediate possession of the
and its acceptance by the vendee. The act, without the
property sold. The effective conveyance of the land is
intention, is insufficient. There is no tradition.
accomplished by the deed which is issued only after the
period of redemption has expired. In other words, the 2. DELIVERY IS AN INDIPENSABLE REQUISITE. Although transfer
debtor is not obliged to make delivery during the of ownership is the primary purpose of sale, delivery remains an
period of redemption. In all cases of extra-judicial
indispensable requisite as our law does not admit the doctrine of  SELLER’S NON-OWNERSHIP OF THE OBJECT SHALL NOT
transfer of ownership of property by mere consent. BE A GROUND TO CHALLENGE THE VALIDITY OF THE
SALE ITSELF. In general, a perfected contract of sale
3. WAYS OF EFFECTING CONSTRUCTIVE DELIVERY. Constructive cannot be challenged on the ground of the seller’s non-
delivery is a general term comprehending all those acts which, ownership of the thing sold at the time of the
although not conferring physical possession of the thing, have perfection of the contract.
been held by construction of law equivalent to acts of real
delivery. It may be effected in the following ways: 3. ACTUAL DELIVERY OF THE THING SOLD.

a) By the execution of a public instrument (Art. 1498, par.  When deemed made. — There is actual delivery when
1.); the thing sold is placed in the control and possession of
b) By symbolical tradition or traditio symbolica (ibid. par. the vendee (Art. 1497.) or his agent. This involves the
2.) - As specie of constructive delivery, the execution of physical delivery of the thing and is usually done by the
a public document is also considered a form of symbolic passing of a movable thing from hand to hand.
delivery.  Not always essential to passing of title. — Actual or
c) By traditio longa manu (Art. 1499.); manual delivery of an article sold is not always essential
d) By traditio brevi manu (Ibid.); to the passing of title thereto (Art. 1475.) The parties to
e) By traditio constitutum possessorium (Art. 1500.); or the contract may agree when and on what conditions
f) By quasi-delivery or quasi-traditio. (Art. 1501.) the ownership in the subject of the contract shall pass
to the buyer. As for example, the parties may stipulate
4. CONTRARY MAY BE STIPULATED. The parties, however, may
that ownership in the thing sold shall pass to the
stipulate that ownership in the thing shall pass to the purchaser
vendee only after he has fully paid the price.
only after he has fully paid the price (Art. 1478.) or fulfilled
certain conditions. In a contract of absolute sale, ownership is ART. 1498. When the sale is made through a public instrument,
transferred simultaneously with the delivery of the thing sold. the execution thereof shall be equivalent to the delivery of the
thing which is the object of the contract, if from the deed the
SECTION 2 — Delivery of the Thing Sold
contrary does not appear or cannot clearly be inferred. With
regard to movable property, its delivery may also be made by
ART. 1497. The thing sold shall be understood as delivered,
the delivery of the keys of the place or depository where it is
when it is placed in the control and possession of the vendee.
stored or kept.
(1462a)
1. EXECUTION OF A PUBLIC INSTRUMENT OR DOCUMENT. The
1. CONCEPT OF TRADITION OR DELIVERY. Tradition is a
execution of a public instrument as a manner of delivery applies
derivative mode of acquiring ownership by virtue of which one
to movable as well as immovable property since the law does
who has the right and intention to alienate a corporeal thing,
not make any distinction and it can be clearly inferred by the
transmits it by virtue of a just title to one who accepts the same.
use of the word “also” in paragraph 2 of Article 1498. This
2. IMPORTANCE. Article 1496 emphasizes the necessity of manner of delivery is symbolic. The buyer may use the document
tradition for the transfer of ownership of the thing sold. Our law as proof of his ownership of the property sold, for purposes, for
does not admit the doctrine of transfer of property by mere example, of mortgaging the same.
consent.
2. DELIVERY PRESUMPTIVE ONLY. Article 1498, however, lays
 CONTRACTS ONLY CONSTITUTE TITLES OR RIGHTS. down the general rule. It confines itself to providing that “the
Contracts only constitute titles or rights to the transfer execution thereof shall be equivalent” to delivery, which means
or acquisition of ownership, while delivery or tradition that there is only a presumptive (not conclusive) delivery which
is the method of accomplishing the same, the title and can be rebutted by evidence to the contrary. Such presumption
the method of acquiring it being different in our law. is destroyed when the delivery is not effected because of a legal
 NO TRANSFER OF OWNERSHIP MERELY BY CONTRACT. impediment.
The ownership over it is not transferred by contract
INSTANCES THAT OVERTHROW PRESUMPTIVE DELIVERY
merely but by delivery, actual or constructive.
 ACTUAL INTENTION TO DELIVER IS CRUCIAL. The  NO INTENTION TO MAKE DELIVERY. If it appears from
critical factor in all the different modes of effecting the document or it can be inferred therefrom that it
delivery which gives legal effect to the act is the actual was not the intention of the parties to make delivery,
intention of the creditor to deliver, and its acceptance no tradition can be deemed to have taken place. Such
by the vendee. would be the case, for instance, where a certain date is
fixed when the purchaser should take possession of the virtue of another title as when the lessor sells the thing leased
thing, or where the vendor reserves the right to use to the lessee. Instead of turning over the thing to the vendor so
and enjoy the property until a certain period, or where that the latter may, in turn, deliver it, all these are considered
it is stipulated that until payment of the last installment done by action of law.
is made, the title to the property should not be deemed
to have been transmitted, or where the vendor has no ART. 1500. There may also be tradition constitutum
control over the thing sold at the moment of the sale, possessorium.
and, therefore, its material delivery could not have
1. TRADITIO CONSTITUTUM POSSESSORIUM. This mode of
been made.
delivery is the opposite of traditio brevi manu. It takes place
 VENDEE FAILED TO TAKE MATERIAL POSSESSION IN
when the vendor continues in possession of the property sold
THE CONCEPT OF PURCHASER-OWNER. Presumptive
not as owner but in some other capacity, as for example, when
delivery by execution of public instrument can also be
the vendor stays as a tenant of the vendee. In this case, instead
negated by failure of the vendee to take material
of the vendor delivering the thing to the vendee so that the
possession of the land subject of the sale in the concept
latter may, in turn, deliver it back to the vendor, the law
of purchaser-owner.
considers that all these have taken place by mere consent or
 CONTINUED POSSESSION BY VENDOR OR POSSESSION
agreement of the parties.
BY THIRD PERSON. The continued possession by the
vendor of the property sold may make dubious the ART. 1501. With respect to incorporeal property, the provisions
contract of sale between the parties or when by other of the first paragraph of article 1498 shall govern. In any other
means it is shown that such delivery was not effected case wherein said provisions are not applicable, the placing of
because a third person was actually in possession of the the titles of ownership in the possession of the vendee or the
thing. In the latter case, the sale cannot be considered use by the vendee of his rights, with the vendor’s consent, shall
consummated.’ be understood as a delivery.

3. SYMBOLIC TRADITION. Constructive delivery is symbolic when 1. QUASI-TRADITIO. Tradition can only be made with respect to
to effect the delivery, the parties make use of a token symbol to corporeal things. In the case of incorporeal things, delivery is
represent the thing delivered. effected:

Examples: The delivery of the key where the thing sold 1. By the execution of a public instrument; or
is stored or kept is equivalent to the delivery of the 2. When that mode of delivery is not applicable, by the
thing (par. 2.) because the key represents the thing. placing of the titles of ownership in the possession of
Similarly, there is symbolic delivery of goods to vendee the vendee; or
upon delivery to him of delivery orders (see Art. 3. By allowing the vendee to use his rights as new owner
1636[1].) which would authorize him to withdraw the with the consent of the vendor.
goods from a warehouse. Upon withdrawal, there is
actual delivery (supra.) which consummates the sale. This mode of delivery of incorporeal things or rights is
known as quasi-traditio.
ART. 1499. The delivery of movable property may likewise be
made by the mere consent or agreement of the contracting Thus, the delivery to a person of a negotiable document of title
parties, if the thing sold cannot be transferred to the possession in which it is stated that the goods referred to therein will be
of the vendee at the time of the sale, or if the latter already had delivered to the bearer amounts to delivery of the goods to such
it in his possession for any other reason. person.

1. TRADITIO LONGA MANU. The first part of Article 1499 refers ART. 1502. When goods are delivered to the buyer “on sale or
to traditio longa manu. This mode of delivery takes place by the return” to give the buyer an option to return the goods instead
mere consent or agreement of the contracting parties as when of paying the price, the ownership passes to the buyer on
the vendor merely points to the thing sold which shall thereafter delivery, but he may revest the ownership in the seller by
be at the control and disposal of the vendee. It should be noted returning or tendering the goods within the time fixed in the
that delivery “by the mere consent or agreement of the contract, or, if no time has been fixed, within a reasonable
contracting parties” is qualified by the phrase “if the thing sold time. (n)
cannot be transferred to the possession of the vendee at the
time of the sale.” When goods are delivered to the buyer on approval or on trial
or on satisfaction, or other similar terms, the ownership therein
2. TRADITIO BREVI MANU. This mode of legal delivery happens passes to the buyer.
when the vendee has already the possession of the thing sold by
(1) When he signifies his approval or acceptance to the seller or  UNDER SALE ON APPROVAL, THE PARTIES ASSUME
does any other act adopting the transaction; THE RELATIONSHIP OF BAILOR AND BAILEE IN
COMMODATUM. For the reason that the title to the
(2) If he does not signify his approval or acceptance to the goods does not pass and the relationship between the
seller, but retains the goods without giving notice of rejection, seller and the purchaser is that of bailor and bailee, the
then if a time has been fixed for the return of the goods, on the risk of loss or injury to the article pending the exercise
expiration of such time, and, if no time has been fixed, on the by the buyer of his option to purchase or return it, is
expiration of a reasonable time. What is a reasonable time is a upon the seller except as the buyer may be at fault in
question of fact. respect of the care and condition of the article, or may
have agreed to stand the loss.
1. IN GENERAL. — It is evidently possible for the parties to agree
 THE BUYER CANNOT ACCEPT THE GOODS SELECTIVELY.
that the buyer shall temporarily take the goods into his
The buyer cannot accept part and reject the rest of the
possession to see whether they are satisfactory to him and that
goods since this falls outside the normal intent of the
if they are not, he may refuse to become owner. It is clear also
parties.
that the same object may be attained by an agreement that the
property shall pass to the buyer on delivery but that he may “Sale or return” distinguished from sale on trial
return the goods if they are unsatisfactory. The question is one
of fact in every case whether the parties intend to make The distinctions are the following:
approval a condition, without which the ownership shall not
pass, or whether their intent is that the ownership shall pass at 1. “Sale or return” is a sale subject to a resolutory
once with the right to return the goods. condition, while sale on trial is subject to a suspensive
condition;
2. SALE OR RETURN. — It is a contract by which property is sold 2. “Sale or return” depends entirely on the will of the
but the buyer, who becomes the owner of the property on buyer, while sale on trial depends on the character or
delivery, has the option to return the same to the seller instead quality of the goods;
of paying the price. 3. In “sale or return,” the ownership of the goods passes
to the buyer on delivery and subsequent return of the
 Under this contract, the option to purchase or return goods reverts ownership in the seller, while in sale on
the goods rests entirely on the buyer without reference trial, the ownership remains in the seller until the buyer
to the quality of the goods. The buyer may revest the signifies his approval or acceptance to the seller; and
ownership in the seller by returning or tendering the 4. In “sale or return,” the risk of loss or injury rests upon
goods within the time fixed in the contract, or, if no the buyer, while in sale on trial, the risk still remains
time has been fixed, within a reasonable time (Art. with the seller.
1502, par. 1.); otherwise, the sale becomes absolute
and the buyer is liable for the price. ART. 1503. Where there is a contract of sale of specific goods,
 RES PERIT DOMINO. Since title passes to the buyer on the seller may, by the terms of the contract, reserve the right of
delivery, the loss or destruction of the property prior to possession or ownership in the goods until certain conditions
the exercise of the buyer’s option to return falls upon have been fulfilled. The right of possession or ownership may
him and renders him responsible to the seller for the be thus reserved notwithstanding the delivery of the goods to
purchase price or such part thereof as remains unpaid. the buyer or to a carrier or other bailee for the purpose of
transmission to the buyer.
3. SALE ON TRIAL OR APPROVAL. — It is a contract in the nature
of an option to purchase if the goods prove satisfactory, the Where goods are shipped, and by the bill of lading the
approval of the buyer being a condition precedent. goods are deliverable to the seller or his agent, or to the order
of the seller or of his agent, the seller thereby reserves the
 In this kind of contract, the title shall continue in the ownership in the goods. But if, except for the form of the bill of
seller until the sale has become absolute either by the lading, the ownership would have passed to the buyer on
buyer’s approval of the goods, or by his failing to shipment of the goods, the seller’s property in the goods shall
comply with the express or implied conditions of the be deemed to be only for the purpose of securing performance
contract as to giving notice of dissatisfaction or as to by the buyer of his obligations under the contract.
returning the goods (Ibid., 655; Art. 1502, Nos. 1 and
2.), or by his doing any other act adopting the Where goods are shipped, and by the bill of lading the
transaction such as mortgaging the property or selling it goods are deliverable to the order of the buyer or of his agent,
to a third person. but possession of the bill of lading is retained by the seller or
his agent, the seller thereby reserves a right to the possession 2. (2) Rights of seller. — The seller may not only retain the
of the goods as against the buyer. goods until the buyer performs his obligation under the
contract, but he may, even in violation of the contract,
Where the seller of goods draws on the buyer for the dispose of them to third persons. If the seller does this, of
price and transmits the bill of exchange and bill of lading course, he is liable for damages to the buyer but the
together to the buyer to secure acceptance or payment of the second purchaser from the seller acquires a better right.
bill of exchange, the buyer is bound to return the bill of lading if
Where seller’s title only for purpose of security
he does not honor the bill of exchange, and if he wrongfully
retains the bill of lading he acquires no added right thereby. If, 1. Form of bill of lading not conclusive. — The form in which
however, the bill of lading provides that the goods are the bill of lading is taken is not always conclusive. The
deliverable to the buyer or to the order of the buyer, or is specification in the bill of lading to the effect that the
indorsed in blank, or to the buyer by the consignee named goods are deliverable to the order of the seller or his agent
therein, on who purchases in good faith, for value, the bill of does not necessarily negate the passing of title to the
lading, or goods from the buyer will obtain the ownership in goods upon delivery to the carrier.
the goods, although the bill of exchange has not been honored, 2. Where ownership would have passed but for the form of
provided that such purchaser has received delivery of the bill of bill of lading. — The circumstances may be such that were
lading indorsed by the consignee named therein, or of the it not for the form of the bill of lading, the ownership
goods, without notice of the facts making the transfer would have passed to the buyer or shipment of the goods.
wrongful. This is true when the object of the seller in reserving
ownership is simply to secure himself in regard to the
1. WHEN OWNERSHIP NOT TRANSFERRED UPON DELIVERY. This performance by the buyer of the latter’s obligation. By
article relates to a sale of specific goods. As a general rule, the shipping the goods, the seller has definitely lost all use of
ownership in the goods sold passes to the buyer upon their delivery them to the buyer. If the shipper could be perfectly sure
to the carrier. There are, however, certain exceptions and they are: that the buyer would fulfill his obligation, it can hardly be
doubted that he would have made a straight consignment
(a) If a contrary intention appears by the terms of the to the latter.
contract
(b) In the cases provided in the second and third paragraphs Significance where title held merely as security
of Article 1523; and
(c) In the cases provided in the first, second, and third The importance of distinguishing between a title held merely for the
paragraphs of Article 1503. purpose of security and the ordinary case where the seller retains
ownership are two-fold:
2. TRANSFER OF OWNERSHIP WHERE GOODS SOLD DELIVERED TO
CARRIER. 1. Risk of loss on buyer. — In the first place, the beneficial
owner (buyer), not the one who holds for security (seller),
 GENERAL RULE. As stated above, the general rule is that will be subject to the risk of loss or deterioration from the
delivery, be it only constructive, passes title in the thing sold time the goods are delivered to the carrier even though
(see Art. 1496.); and delivery to the carrier is deemed to be a the legal title remains in the seller. That the risk should be
delivery to the buyer. borne by the buyer if the seller retains title merely to
 WHERE RIGHT OF POSSESSION OR OWNERSHIP OF SPECIFIC secure performance by the buyer of his obligations under
GOODS SOLD RESERVED. On the other hand, if the seller the contract is a consequence of the theory that such a
directs the carrier to redeliver the goods at their destination to bargain is, in effect, although not in form, a sale to the
the seller himself, or to his order, it indicates an intention that buyer and a mortgage back by him of the goods to secure
the carrier shall be the bailee for the seller and the ownership the price. The title does not pass to the buyer until he
will remain in the latter. The seller may, by the terms of the receives the order bill of lading properly indorsed.
contract, reserve the right of possession or ownership in the 2. Buyer’s right of action based on ownership. — In the
goods until certain conditions are fulfilled. second place, the buyer has more than a mere contract
right in regards to the goods. As beneficial owner, he may,
WHERE SELLER OR HIS AGENT IS CONSIGNEE as against anyone except an innocent purchaser for value
of the bill of lading from the consignee, bring an action
1. Carrier becomes bailee for seller. — Where goods are
based on ownership on making tender of the price.
shipped and by the bill of lading (see Art. 1507.), the goods
are deliver able to the seller or his agent or to the order of Where buyer or his agent is consignee but seller retains order bill
the seller or his agent, the seller thereby reserves the of lading
ownership in the goods (par. 2.) and the carrier is a bailee
for him and not the buyer. This principle is applicable even Where goods are shipped and by the bill of lading the goods are
though the goods are shipped on the buyer’s vessel. deliverable to the order of the buyer or of his agent, but possession
of the bill of lading is retained by the seller or his agent, the seller ownership in the goods has been retained by the seller merely to
thereby retains a right to the possession of the goods as against the secure performance by the buyer of his obligations under the
buyer. contract, the goods are at the buyer’s risk from the time of such
delivery;
Where a third person who retains the bill is consignee
(2) Where actual delivery has been delayed through the fault of
Two devices have already been considered by which the seller of either the buyer or seller the goods are at the risk of the party in
goods retains a hold upon them by means of the bill of lading after fault.
he has shipped them; first, by consigning the goods to himself,
either by an order bill or a straight bill and second, by consigning the RISK OF LOSS GENERALLY ATTENDS TITLE. As a general rule, if the
goods to the order of the buyer and retaining possession of the bill thing is lost by fortuitous event, the risk is borne by the owner of the
of lading. thing at the time of the loss under the principle of res perit domino

A third method also in common use is to consign the goods to a third 1. Where the seller reserves the ownership of the goods merely to
person (usually a banker) requesting the latter to retain the bill of secure the performance by the buyer of his obligations under
lading or goods until payment of the price. When the price is paid, the contract, the ownership is considered transferred to the
the consignee of the goods indorses the bill or delivers the goods to buyer who, therefore, assumes the risk from the time of
the buyer. delivery.
2. Where actual delivery had been delayed through the fault of
Where bill of lading sent forward with draft attached either the buyer or seller, the goods are at the risk of the party
at fault with respect to any loss which might not have occurred
Where the seller draws on the buyer for the price and transmits the
but for such fault. In this case, the law punishes the party at
bill of exchange and the bill of lading together to the buyer to secure
fault.
acceptance or payment of the bill of exchange (par. 4.), the title is
regarded as retained in the seller until the bill of exchange is paid. Risk of loss by fortuitous event after perfection but before delivery
The fact that the bill of lading and a bill of exchange are attached
together indicates that the seller intends to make the delivery of the  Conflict between Article 1480 and Article 1504. — Under
goods conditional upon the payment or acceptance of the draft. Article 1480, if the thing sold is lost after perfection of the
contract but before its delivery, that is, even before the
Distinctions in regard to the form of the bill of lading ownership is transferred to the buyer, the risk of loss by
fortuitous event without the seller’s fault is borne by the
They must here be observed:
buyer as an exception to the rule of res perit domino.
1. If the seller has named the buyer as consignee, the Consequently, the buyer’s obligation to pay the price
property has passed to the consignee or at least it seems subsists if he has not yet paid the same or if he had, he
to have been so to one who inspects the document; cannot recover it from the seller although the latter’s
2. If the bill of lading, though naming the seller as consignee, obligation to deliver the thing is extinguished by its loss.
is indorsed by him to the buyer or in blank, the possession
ART. 1505. Subject to the provisions of this Title, where goods are
of the document by the buyer gives him, if not the actual
sold by a person who is not the owner thereof, and who does not
title, at least an apparent ownership; and
sell them under authority or with the consent of the owner, the
3. If the bill of lading names the seller or a third person as
buyer acquires no better title to the goods than the seller had,
consignee and no indorsement of the document had been
unless the owner of the goods is by his conduct precluded from
made, possession by the buyer would not indicate that the
denying the seller’s authority to sell. Nothing in this title, however,
buyer had title. Where the document gives the buyer
shall affect:
apparent ownership and a third person purchases the
goods relying thereon, it seems clear on broad principles (1) The provisions of any factors’ acts, recording laws, or any other
of justice that since one of two innocent parties must provision of law enabling the apparent owner of goods to dispose
suffer, he should suffer whose act has brought about the of them as if he were the true owner thereof;
loss. Consequently, the seller ought not to be allowed to
recover the goods from the third person. (2) The validity of any contract of sale under statutory power of
sale or under the order of a court of competent jurisdiction;
ART. 1504. Unless otherwise agreed, the goods remain at the
seller’s risk until the ownership therein is transferred to the buyer, (3) Purchases made in a merchant’s store, or in fairs, or markets, in
but when the ownership therein is transferred to the buyer, the accordance with the Code of Commerce and special laws.
goods are at the buyer’s risk whether actual delivery has been
made or not, except that: 1. SALE BY A PERSON NOT THE OWNER. It is a fundamental doctrine
of law that no one can give what he has not or transfer a greater
(1) Where delivery of the goods has been made to the buyer or to a right to another than he himself has. Sale is a derivative mode of
bailee for the buyer, in pursuance of the contract and the
acquiring ownership and the buyer gets only such rights as the seller acquires a good title to the goods, provided he buys them in good
had. The exceptions to the rule are given below. faith, for value, and without notice of the seller’s defect of title.

1. Where the owner of the goods is, by his conduct, precluded 1. Requisites for acquisition of good title by buyer. — If the seller
from denying the seller’s authority to sell. — Thus, where a has only a voidable title to the goods, the buyer acquires a good title
parcel of land is sold by one not the owner or the agent of the to the goods provided he buys them:
owner, but the real owner thereof upon being questioned in a
criminal case instituted against the vendor states that he a) Before the title of the seller has been avoided;
authorized such sales so that the vendor was acquitted of the b) In good faith for value; and
charge against him, a purchaser in good faith acquires a valid c) Without notice of the seller’s defect of title.
title to the property as it is not lawful nor permissible for said
2. Basis of rule. — Article 1506 seems to be predicated on the
owner to deny or retract his former sworn statement that he
principle that where loss has happened which must fall on one of
had consented to said sale.
two innocent persons, it should be borne by him who is the occasion
2. Where the law enables the apparent owner to dispose of the
of the loss. It is similar to the rule in P.D. No. 1529 (Property
goods as if he were the true owner thereof. — The Philippines,
Registration Decree) referring to an innocent purchaser for value in
unlike other jurisdictions as England and several states of the
good faith (Sec. 51 thereof.) and to the rule in Act No. 2031
United States, has no such law as the Factors’ Act. The law
(Negotiable Instruments Law) referring to a holder in due course to
referred to here, therefore, must be found in the provisions of
whom a negotiable instrument is negotiated for value and in good
our Civil Code on agency (SPA).
faith.
3. Where the sale is sanctioned by statutory or judicial authority.
— According to Article 559 of the Civil Code, “the possession of
EXAMPLES OF VOIDABLE TITLE:
movable property acquired in good faith is equivalent to title.
Nevertheless, one who has lost any movable, or has been (1) S, a minor, sold his television set to B, a person of majority age.
unlawfully deprived therefor, may recover it from the person in Under the law (see Art. 1390, Civil Code.), the contract is voidable or
possession of the same. If the possessor of a movable lost or of annullable because a minor is incapable of giving consent to a
which the owner has unlawfully been deprived has acquired it contract. B, in turn, sold the television set to C who acted in good
in good faith at a public sale, the owner cannot obtain its return faith. In this case, C acquires a valid title to the television set after its
without reimbursing the price paid therefor.” delivery if the contract had not yet been annulled by a proper action
Different laws apply to different types of forced or involuntary in court.
sales under our jurisdiction, namely: (a) an ordinary execution
sale, which is governed by the pertinent provisions of Rule 39 (2) B bought in good faith for value a car which was stolen from C,
of the Rules of Court on Execution, Satisfaction and Effect of the lawful owner. As against B, C has a better right to the car. Article
Judgments; (b) judicial foreclosure sales, which are governed 1506 is clearly inapplicable where the seller had no title at all. C
by Rule 68 of the Rules of Court, captioned “Foreclosure of may recover the car without paying any indemnity, except when B
Mortgage’’; and (c) extra-judicial foreclosure sales of real acquired it in a public sale.
estate mortgages, which are governed by Act No. 3135, as
amended by Act No. 4118, otherwise known as “An Act to ART. 1507. A document of title in which it is stated that the goods
Regulate the Sale of Property Under Special Powers Inserted in referred to therein will be delivered to the bearer, or to the order
or Annexed to Real Estate Mortgages.’’ of any person named in such document is a negotiable document
4. Where the sale is made at merchant’s stores, fairs or markets. of title.
— No. 3 of Article 1505 is a case of an imperfect or void title
1. Definition of terms.
ripening into a valid one as a result of some intervening due
causes. The sale is necessary not only to facilitate commercial  Document of title to goods. — Includes any bill of lading,
sales on movables but also to give stability to business dock warrant, “quedan,” or warehouse receipt or order for
transactions especially in a country like the Philippines, where the delivery of goods, or any other document used in the
free enterprise prevails, for a buyer cannot be reasonably ordinary course of business in the sale or transfer of
expected to look behind the title of every article when he buys goods, as proof of the possession or control of the goods,
at a store. or authorizing or purporting to authorize the possessor of
5. Where the seller has a voidable title which has not been the document to transfer or receive, either by
avoided at the time of the sale. — See Article 1506. indorsement or by delivery, goods represented by such
6. Where seller subsequently acquires title. — When a person document. (Art. 1636[1].)
conveys property to another of which at the time he is not the  Goods. — Included all chattels personal but not things in
owner, his subsequent acquisition of title validates his previous action or money of legal tender in the Philippines. The
conveyance. term includes growing fruits or crops. (ibid.)
 Order. — Relating to documents of title means an order by
ART. 1506. Where the seller of goods has a voidable title thereto,
indorsement on the documents.
but his title has not been avoided at the time of the sale, the buyer
Nature and function of documents of title The provisions in the Civil Code on documents of title are
reproduced practically verbatim from the Uniform Sales Act which is
1. Receipts of, or orders upon, a bailee of goods represented. — in force in many states in the United States.
Documents of title refer to goods and not to money. They all
have this in common: that they are receipts of a bailee, or CLASSES OF DOCUMENTS OF TITLES. Documents of title may be
orders upon a bailee. A different name is given in popular either:
speech to the document when it is issued by a carrier and when
it is issued by a warehouseman, but in substance the nature of 1. Negotiable documents of title or those by the terms of
the document is the same in both cases. which the bailee undertakes to deliver the goods to the
2. Evidence of transfer of title and possession of the goods and bearer and those by the terms of which the bailee
contract between the parties. — A document of title is symbol undertakes to deliver the goods to the order of a specified
of the goods covered by it, serving as evidence of (a) transfer of person (Art. 1508.); or
title and (b) transfer of possession. It also serves as an evidence 2. Non-negotiable documents of title or those by the terms
of the (c) contract between the parties who are bound by its of which the goods covered are deliverable to a specified
terms. person. (Art. 1511.)

ART. 1508. A negotiable document of title may be negotiated by


So far as concerns the transfer of property between the parties,
delivery:
their intention would be effectual without the document, but
where third parties’ rights are involved, the form of the
(1) Where by the terms of the document the carrier,
document (i.e., negotiable or non-negotiable) becomes
warehouseman or other bailee issuing the same undertakes to
important.
deliver the goods to the bearer; or
Most common forms of documents of title
(2) Where by the terms of the document the carrier,
warehouseman or other bailee issuing the same undertakes to
There are three most common forms or documents of title, namely:
deliver the goods to the order of a specified person, and such
1. Bill of lading. — It is a contract and a receipt for the transport person or a subsequent indorsee of the document has indorsed it
of goods and their delivery to the person named therein, to in blank or to the bearer.
order, or to bearer. It usually involves three persons — the
Where by the terms of a negotiable document of title the goods
carrier, the shipper, and the consignee. The shipper and the
are deliverable to bearer or where a negotiable document of title
consignee may be one and the same person. Its acceptance
has been indorsed in blank or to bearer, any holder may indorse
generally constitutes the contract of carriage even though not
the same to himself or to any specified person, and in such case
signed. Such instrument may be called a shipping receipt, a
the document shall thereafter be negotiated only by the
forwarder’s receipt, or receipt for transportation. The
indorsement of such indorsee.
designation, however, is immaterial;
2. Dock warrant. — It is an instrument given by dock owners to an
Negotiation of negotiable document by delivery.
importer of goods warehoused on the dock as a recognition of
the importer’s title to the said goods, upon production of the A negotiable document of title is negotiable by delivery if the goods
bill of lading; and are deliverable to the bearer, or when it is indorsed in blank or to
3. Warehouse receipt. — A contract or receipt for goods the bearer by the person to whose order the goods are deliverable
deposited with a warehouseman containing the latter’s or by a subsequent indorsee. An indorsement is in blank when the
undertaking to hold and deliver the said goods to a specified holder merely signs his name at the back of the receipt without
person, to order, or to bearer. Quedan is a warehouse receipt specifying to whom the goods are to be delivered.
usually for sugar received by a warehouseman.
If the document is specially indorsed, it becomes an order document
Laws governing documents of title of title and negotiation can only be effected by the indorsement of
the indorsee. A special indorsement specifies the person to whom or
The following laws govern documents of title:
to whose order the goods are to be delivered.
1. The Civil Code (in Arts. 1507 to 1520, 1532 [2nd par.], 1535
Article 1508 is similar to Section 37 of the Warehouse Receipts Law
[2nd par.], and 1749.) primarily governs documents of title
(Act No. 2137.) except that the latter treats only of a negotiable
other than warehouse receipts;
receipt which may be issued by a warehouseman.
2. The Warehouse Receipts Law (Act No. 2137.) primarily
governs warehouse receipts; and ART. 1509. A negotiable document of title may be negotiated by
3. The Code of Commerce subsidiarily governs bills of lading the indorsement of the person to whose order the goods are by
issued by common carriers (in Arts. 350 to 354 for land the terms of the document deliverable. Such indorsement may be
carriers and in Arts. 706 to 718 for maritime carriers). in blank, to bearer or to a specified person. If indorsed to a
specified person, it may be again negotiated by the indorsement of
such person in blank, to bearer or to another specified person. Article 1511 is exactly the same as Section 39 of the Warehouse
Subsequent negotiations may be made in like manner. (n) Receipts Law.

1. NEGOTIATION OF NEGOTIABLE DOCUMENT BY INDORSEMENT. A ART. 1512. A negotiable document of title may be negotiated:
negotiable document of title by the terms of which the goods are
deliverable to a person specified therein may be negotiated only by (1) By the owner thereof; or
the indorsement of such person.
(2) By any person to whom the possession or custody of the
a) If indorsed in blank or to bearer, the document becomes document has been entrusted by the owner, if, by the terms of the
negotiable by delivery. document the bailee issuing the document undertakes to deliver
b) If indorsed to a specified person, it may be again the goods to the order of the person to whom the possession or
negotiated by the indorsement of such person in blank, to custody of the document has been entrusted, or if at the time of
bearer, or to another specified person. Delivery alone is such entrusting the document is in such form that it may be
not sufficient. A party is liable only as guarantor and not as negotiated by delivery.
indorser if his indorsement is made for the purpose of
1. PERSONS WHO MAY NEGOTIATE A DOCUMENT. It will be noticed
identification only. Article 1509 is similar to Section 38 of
that the provision does not give a power to negotiate documents of
the Warehouse Receipts Law.
title equal to that allowed under the Negotiable Instruments Law
ART. 1510. If a document of title which contains an undertaking by (Act No. 2031.) in the case of bills of exchange and promissory notes
a carrier, warehouseman or other bailee to deliver the goods to inasmuch as neither a thief nor a finder is within the terms of the
bearer, to a specified person or order of a specified person or article. (but see Art. 1518.) However, if the owner of the goods
which contains words of like import, has placed upon it the words permits another to have the possession or custody of negotiable
“not negotiable” “non-negotiable,” or the like, such document may receipts running to the order of the latter or to bearer, it is a
nevertheless be negotiated by the holder and is a negotiable representation of title upon which bona fide purchasers for virtue
document of title within the meaning of this Title. But nothing in are entitled to rely despite breaches of trust or violations of
this Title contained shall be construed as limiting or defining the agreement on the part of the apparent owner. As between two
effect upon the obligations of the carrier, warehouseman, or other innocent persons, the loss must fall upon him whose misplaced
bailee issuing a document of title or placing thereon the words confidence made the loss possible.
“not negotiable,” “nonnegotiable,” or the like. (n)
ART. 1513. A person to whom a negotiable document of title has
1. NEGOTIABLE DOCUMENTS OF TITLE MARKED “NON- been duly negotiated acquires thereby:
NEGOTIABLE.” Under Article 1510, the words “not negotiable,”
(1) Such title to the goods as the person negotiating the document
“non-negotiable” and the like when placed upon a document of title
to him had or had ability to convey to a purchaser in good faith for
in which the goods are to be delivered to “order” or to “bearer”
value and also such title to the goods as the person to whose order
have no effect and the document continues to be negotiable.
the goods were to be delivered by the terms of the document had
Under the Warehouse Receipts Law, any provision inserted in a or had ability to convey to a purchaser in good faith for value; and
negotiable receipt that it is non-negotiable is declared void.
(2) The direct obligation of the bailee issuing the document to hold
When the document of title is to order, the bailee is obliged to take possession of the goods for him according to the terms of the
it up before delivering the goods. Accordingly, he is liable to the document as fully as if such bailee had contracted directly with
holder of an order document if the goods are delivered to the him.
consignee without surrender of the document even though the
1. RIGHTS OF PERSON TO WHOM DOCUMENT HAS BEEN
latter was marked “not negotiable.”
NEGOTIATED. This article specifies the rights of a person to whom a
ART. 1511. A document of title which is not in such form that it can negotiable document of title has been duly negotiated, either by
be negotiated by delivery may be transferred by the holder by delivery, in the case of a document of title to bearer, or by
delivery to a purchaser or donee. A non-negotiable document indorsement and delivery, in the case of a document of title to
cannot be negotiated and the indorsement of such a document order. Such person acquires:
gives the transferee no additional right.
1. The title of the person negotiating the document, over the
1. TRANSFER OF NON-NEGOTIABLE DOCUMENTS. A non-negotiable goods covered by the document;
document of title cannot be negotiated. Nevertheless, it can be 2. The title of the person (depositor or owner) to whose
transferred or assigned by delivery. In such a case, the transferee or order by the terms of the document the goods were to be
assignee acquires only the rights stated in Article 1514. Even if the delivered, over such goods; and
document is indorsed, the transferee acquires no additional right. 3. The direct obligation of the bailee (warehouseman or
carrier) to hold possession of the goods for him, as if the
bailee had contracted directly with him.
One who purchases, therefore, a negotiable document of title issued ART. 1515. Where a negotiable document of title is transferred for
to a thief acquires no right over the goods as the thief has no right to value by delivery, and the indorsement of the transferor is
transfer, notwithstanding that such purchaser is innocent. But the essential for negotiation, the transferee acquires a right against the
purchaser acquires a good title where the owner, by his conduct, is transferor to compel him to indorse the document unless a
estopped from asserting his title. contrary intention appears. The negotiation shall take effect as of
the time when the indorsement is actually made.
ART. 1514. A person to whom a document of title has been
transferred, but not negotiated, acquires thereby, as against the 1. TRANSFER OF ORDER DOCUMENT WITHOUT INDORSEMENT. This
transferor, the title to the goods, subject to the terms of any article specifies the rights of a person to whom an order document
agreement with the transferor. of title, which may not properly be negotiated by mere delivery, has
been delivered, without indorsement. They are:
If the document is non-negotiable, such person also acquires the
right to notify the bailee who issued the document of the transfer a) The right to the goods as against the transferor (Art.
thereof, and thereby to acquire the direct obligation of such bailee 1514.); and
to hold possession of the goods for him according to the terms of b) The right to compel the transferor to indorse the
the document. indorsement.

Prior to the notification to such bailee by the transferor or If the intention of the parties is that the document should be merely
transferee of a non-negotiable document of title, the title of the transferred, the transferee has no right to require the transferor to
transferee to the goods and the right to acquire the obligation of indorse the document.
such bailee may be defeated by the levy of an attachment of
execution upon the goods by a creditor of the transferor, or by a 2. RULE WHERE DOCUMENT SUBSEQUENTLY INDORSED. For the
notification to such bailee by the transferor or a subsequent purpose of determining whether the transferee is a purchaser for
purchaser from the transferor of a subsequent sale of the goods by value in good faith without notice (see Arts. 1506, 1513.), the
the transferor. negotiation shall take effect as of the time when the indorsement is
actually made, not at the time the document is delivered. The
1. RIGHTS OF PERSON TO WHOM DOCUMENT HAS BEEN reason is that the negotiation becomes complete only at the time of
TRANSFERRED. This article refers to the rights of a person to whom indorsement. So, if by that time the purchaser already had notice
a negotiable document of title (not duly negotiated) has been that the title of the seller was defective, he cannot be considered a
transferred (par. 1.) or of the transferee of a non-negotiable purchaser in good faith though he had no such notice when he
document. Such person acquires: bought the document.

a) The title to the goods as against the transferor; ART. 1516. A person who for value negotiates or transfers a
b) The right to notify the bailee of the transfer thereof; and document of title by indorsement or delivery, including one who
c) The right, thereafter, to acquire the obligation of the assigns for value a claim secured by a document of title unless
bailee to hold the goods for him. contrary intention appears, warrants:

The right of the transferee is not absolute as it is subject to the (1) That the document is genuine;
terms of any agreement with the transferor. He merely steps into
the shoes of the transferor. (2) That he has a legal right to negotiate or transfer it;

2. ATTACHMENT OF GOODS COVERED BY DOCUMENT (3) That he has knowledge of no fact which would impair the
TRANSFERRED. validity or worth of the document; and

 The transfer of a non-negotiable document of title does not (4) That he has a right to transfer the title to the goods and that
effect the delivery of the goods covered by it. Accordingly, the goods are merchantable or fit for a particular purpose,
before notification, the bailee is not bound to the transferee whenever such warranties would have been implied if the contract
whose right may be defeated by a levy of an attachment or of the parties had been to transfer without a document of title the
execution upon the goods by the creditor of the transferor or goods represented thereby.
by a notification to such bailee of the subsequent sale of the
1. WARRANTIES ON SALE OF DOCUMENTS. This article treats of the
goods.
warranties or liabilities of a person negotiating or transferring a
 If the document is negotiable, the goods cannot be attached or
document. They are similar to those of a person negotiating an
be levied under an execution unless the document be first
instrument by delivery or by a qualified indorsement under the
surrendered to the bailee or its negotiation enjoined. (Art.
Negotiable Instruments Law.
1519.) Article 1514 is similar to Section 42 of the Warehouse
Receipts Law. The liability is limited only to a violation of the four 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 good faith for value would bind the owner and a negotiable
document was invalid for want of consideration, or that the goods document of title is issued for them they cannot thereafter, while
had been damaged. in possession of such bailee, be attached by garnishment or
otherwise or be levied under an execution unless the document be
One who assigns for value a claim secured by a document of title is first surrendered to the bailee or its negotiation enjoined. The
also liable for the violation of the four warranties enumerated unless bailee shall in no case be compelled to deliver up the actual
a contrary intention appears. It is the duty of every indorsee to know possession of the goods until the document is surrendered to him
that all previous indorsements are genuine; otherwise, he will not or impounded by the court.
acquire a valid title to the instrument. Under the Negotiable
Instruments Law, the last indorser warrants that all previous 1. ATTACHMENT OR LEVY UPON GOODS COVERED BY A
indorsements are genuine. NEGOTIABLE DOCUMENT. The bailee has the direct obligation to
hold possession of the goods for the original owner or to the person
ART. 1517. The indorsement of a document of title shall not make to whom the negotiable document of title has been duly negotiated.
the indorser liable for any failure on the part of the bailee who in the possession of such bailee, the goods cannot be attached or
issued the document or previous indorsers thereof to fulfill their levied under an execution unless the document be first surrendered,
respective obligations. or its negotiation prohibited by the court. The bailee cannot be
compelled to deliver up the possession of the goods until the
1. INDORSER NOT A GUARANTOR. The indorsement of a negotiable
document is surrendered to him or impounded by the court. This
instrument has a double effect. It is at the same time a conveyance
prohibition is for the protection of the bailee since he could be made
of the instrument and a contract of the indorser with the indorsee
liable to a subsequent purchaser for value in good faith.
that on certain conditions the indorser will pay the instrument if the
party primarily liable fails to do so. The indorsement of a document 2. WHERE DEPOSITOR NOT OWNER. The provisions of Article 1519
of title amounts merely to a conveyance by the indorser, not a do not apply if the person depositing is not the owner of the goods
contract of guaranty. Accordingly, an indorser of a document of title (like a thief) or one who has no right to convey title to the goods
shall not be liable to the holder if, for example, the bailee fails to binding upon the owner. Neither does it apply to actions for
deliver the goods because they were lost due to his fault or recovery or manual delivery of goods by the real owner nor to cases
negligence. where the attachment is made before the issuance of the negotiable
document of title. The rights acquired by attaching creditors cannot
ART. 1518. The validity of the negotiation of a negotiable
be defeated by the issuance of a negotiable document of title
document of title is not impaired by the fact that the negotiation
thereafter.
was a breach of duty on the part of the person making the
negotiation, or by the fact that the owner of the document was ART. 1520. A creditor whose debtor is the owner of a negotiable
deprived of the possession of the same by loss, theft, fraud, document of title shall be entitled to such aid from courts of
accident, mistake, duress, or conversion, if the person to whom the appropriate jurisdiction by injunction and otherwise in attaching
document was negotiated or a person to whom the document was such document or in satisfying the claim by means thereof as is
subsequently negotiated paid value therefor in good faith without allowed at law or in equity in regard to property which cannot
notice of the breach of duty, or loss, theft, fraud, accident, readily be attached or levied upon by ordinary legal process.
mistaken, duress or conversion.
1. CREDITOR’S REMEDIES TO REACH NEGOTIABLE DOCUMENTS.
1. WHEN NEGOTIATION NOT IMPAIRED BY FRAUD, MISTAKE, Inasmuch as the goods themselves cannot readily be attached or
DURESS, ETC. Under this article, a negotiable document may be levied upon by ordinary legal process, as limited by the preceding
negotiated by any person in possession of the same; however such article, this article expressly gives the court full power to aid by
possession may have been acquired. In other words, it may be injunction and otherwise a creditor seeking to get a negotiable
negotiated even by a thief or finder and the holder thereof would document covering such goods. However, if an injunction is issued
acquire a good title thereto if he paid value therefor in good faith but the negotiable document of title is negotiated to an innocent
without notice of the seller’s defect of title. It will be remembered person, the transfer is nevertheless effectual.
that under Article 1512, neither a thief nor a finder may negotiate a
negotiable document of title.

2. THIS ARTICLE ONLY INVALIDATES THE DOCUMENT, NOT THE


GOODS COVERED THEREOF. It should be noted that Article 1518
speaks of theft of the document and not of the goods covered by
such document. In the latter case, it needs no argument to show
that even a bona fide holder of a document issued over such stolen
goods cannot acquire title.

ART. 1519. If goods are delivered to a bailee by the owner or by a


person whose act in conveying the title to them to a purchaser in