OBLIGATIONS OF THE VENDOR

Section 1: General Provisions of Ownership

Art. 1495- The vendor is bound to transfer the ownership of and deliver, as well as warrant the thing
which is the object of the sale.

Principal obligations of the Vendor:

(1) to transfer the ownership of the determinate thing sold;

(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 (Art. 1537.);

(3) to warrant against eviction and against hidden defects (Arts. 1495, 1547.);

(4) to take care of the thing, pending delivery, with proper diligence (see Art. 1163.); and

(5) to pay for the expenses of the deed of sale, unless there is a stipulation to the contrary. (Art. 1487.)

Obligation to transfer ownership and deliver.

(1) Ownership by vendor at time of perfection of contract not essential.

The vendor need not be the owner of the thing at the time of perfection of the contract; it is
sufficient that he has “a right to transfer the ownership thereof at the time it is delivered.” The
obligation to transfer ownership and to deliver is really implied in every contract of sale. One who sells
something he does not yet own is bound by the sale when he acquires it later.

When a property belonging to a person is unlawfully taken by another, the former has the right
of action against the latter for the recovery of the property. Such right may be transferred by the sale or
assignment of the property and the transferee can maintain such action against the wrongdoer.

(2) Transfer not essential to perfection of contract.

The transfer of ownership and the delivery of the thing sold are not essential to the perfection of the
contract. But if the seller does not deliver at the time stipulated, the buyer may ask for the rescission of
the contract or fulfillment with the right to damages in either case.

(3) No obligation to make delivery during period of redemption.

The purchaser in execution sales however, is not entitled to immediate possession of the
property sold. The effective conveyance of the land is accomplished by the deed which is issued only
after the period of redemption has expired.

In other words, the debtor is not obliged to make delivery during the period of redemption. In
all cases of extra-judicial foreclosure sale, the mortgagor may redeem the real property sold within one
year from the date of registration of the sale. that the mortgagor cannot exercise his right of redemption
after the sale is confirmed by the court.
(4) Right of vendee to transfer of certificate of title.

In a sale of registered land, the vendee has a right to receive and the vendor the corresponding
obligation to transfer to him, not only the possession and employment of the land but also the
certificate of title.

(5) Right of buyer to recover the price paid.

The right of a party to recover the amount given as a consideration has been passed upon in a
case where it was held that: “Whenever money is paid upon the representation of the receiver that he
has either a certain title in property transferred in consideration of the payment or a certain authority to
receive the money paid, when in fact he has no such title or authority, then, although there be no fraud
or intentional misrepresentation on his part, yet there is no consideration for the payment. The money
remains, in equity and good conscience, the property of the payer and may be recovered by him.

Therefore, the purchaser is entitled to recover the money paid by him where the contract is set
aside by reason of the mutual material mistake of the parties as to the identity or quantity of the land
sold. And where the purchaser recovers the purchase price from a vendor who fails or refuses to deliver
the title, he is entitled, as a general rule, to interest on the money paid from the time of payment.

ART. 1496. The ownership of the thing sold is acquired by the vendee from the moment it is delivered to
him in any of the ways specified in articles 1497 to 1501, or in any other manner signifying an agreement
that the possession is transferred from the vendor to the vendee.

Ways of effecting delivery.

The ownership of the thing sold shall be transferred to the vendee upon the delivery thereof
which may be effected in any of the following ways or modes:

(1) by actual or real delivery (Art. 1497.);

(2) by constructive or legal delivery (Arts. 1498-1501.); or

(3) by delivery in any other manner signifying an agreement that the possession is transferred to the
vendee.

In all the different modes of delivery, the critical factor which gives legal effect to the act is the
actual intention of the vendor to deliver, and its acceptance by the vendee. The act, without the
intention, is insufficient. There is no tradition. Although transfer of ownership is the primary purpose of
sale, delivery remains an indispensable requisite as our law does not admit the doctrine of transfer of
ownership of property by mere consent. The delivery must be made to the vendee or his authorized
representative. Where the vendee did not name any person to whom the delivery shall be made in his
behalf, the vendor is bound to deliver exclusively to him.

Ways of effecting constructive delivery.

Equivalent to actual delivery- Constructive delivery is a general term comprehending all those acts
which, although not conferring physical possession of the thing, have been held by construction of law
equivalent to acts of real delivery. may be effected in any of the following ways:

(a) by the execution of a public instrument

 (b) by symbolical tradition or traditio symbolica
(c) by traditio longa manu
(d) by traditio brevi manu
(e) by traditio constitutum possessorium
(f) by quasi-delivery or quasi-traditio.

As a specie of constructive delivery, the execution of a public document is also considered a form of
symbolic delivery.

Contrary may be stipulated. — The parties, however, may stipulate that ownership in the thing shall
pass to the purchaser only after he has fully paid the price or fulfilled certain conditions. In a contract of
absolute sale, ownership is transferred simultaneously with the delivery of the thing sold.

Section 2: Delivery of the Thing Sold

ART. 1497. The thing sold shall be understood as delivered, when it is placed in the control and
possession of the vendee.

Concept of tradition or delivery.

Tradition is a derivative mode of acquiring ownership by virtue of which one who has the right and
intention to alienate a corporeal thing, transmits it by virtue of a just title to one who accepts the same.

Importance of tradition.

(1) Transfer of ownership-Article 1496 emphasizes the necessity of tradition for the transfer of
ownership of the thing sold. Our law does not admit the doctrine of transfer of property by
mere consent.
(a) The ownership over it is not transferred by contract merely but by delivery, actual or
constructive. The critical factor in all the different modes of effecting delivery which gives legal
effect to the act, is the actual intention of the creditor to deliver, and its acceptance by the
vendee.
(b) Contracts only constitute titles or rights to the transfer or acquisition of ownership, while
delivery or tradition is the method of accomplishing the same, the title and the method of
acquiring it being different in our law. But there is no delivery as to transfer ownership where
the vendee takes possession of the personal property subject matter of the contract of sale by
stealing the same while in the custody of the vendor or his agent.
(c) It is during the delivery that the law requires the seller to have the right to transfer ownership of
the thing sold. In general, a perfected contract of sale cannot be challenged on the ground of
the seller’s non-ownership of the thing sold at the time of the perfection of the contract.
(2) Liability in case of loss-When the thing subject of the sale is placed in the control and
possession of the vendee or his agent, the delivery is complete and the vendee cannot avoid
liability in case the thing is subsequently lost without the fault of the vendor.
(3) Right of vendor to claim payment- Delivery produces its natural effects in law, the principal and
most important of which being the transfer of ownership without prejudice to the right of the
vendor to claim payment of the price. Where the buyer has not become the owner for lack of
delivery, his action is not accion reinvidicatoria but one against the vendor for specific
performance or rescission, with damages in either case.
 (4) Consummation of contract- Delivery of the thing together with the payment of the price, marks
the consummation of the contract of sale. Perfection of the contract, on the other hand, relates
to the moment when the meeting of minds between the parties takes place.
(5) Enjoyment of thing sold-Delivery is also necessary to enable the vendee to enjoy and make use
of the property purchased.

Actual delivery of the thing sold

(1) When deemed made- There is actual delivery when the thing sold is placed in the control and
possession of the vendee or his agent. This involves the physical delivery of the thing and is
usually done by the passing of a movable thing from hand to hand.
(2) Not always essential to passing of title-Actual or manual delivery of an article sold is not always
essential to the passing of title thereto. The parties to the contract may agree when and on what
conditions the ownership in the subject of the contract shall pass to the buyer. As for example,
the parties may stipulate that ownership in the thing sold shall pass to the vendee only after he
has fully paid the price.

Kinds of Constructive Delivery/ Quasi-Tradition

ART. 1498. When the sale is made through a public instrument, the execution thereof shall be
equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary
does not appear or cannot clearly be inferred. With regard to movable property, its delivery may also be
made by the delivery of the keys of the place or depository where it is stored or kept.

Execution of a Public Instrument or Document

1) Possession transferred to buyer by notarized deed of conveyance

The execution of a public instrument as a manner of delivery applies to movable as well as

immovable property since the law does not make any distinction and it can be clearly inferred by the use
of the word “also” in paragraph 2 of Article 1498. This manner of delivery is symbolic. The buyer may
use the document as proof of his ownership of the property sold for purposes, for example, of
mortgaging the same. Under Article 1498, possession is transferred to the vendee (or lessee) by virtue of
the notarized deed of conveyance including the incorporeal rights appurtenant thereto, e.g., right to
eject tenants or squatters from the property. Since the execution of the deed of conveyance is deemed
equivalent to delivery, prior physical delivery or possession is not legally required. Thus, notwithstanding
the presence of illegal occupants on the subject property, transfer of ownership by symbolic delivery
under Article 1498 can still be effected through the execution of the deed of conveyance. The key word
is “control,’’ not possession, of the property.

2.) Delivery presumptive only- Under Article 1498, the mere execution of the deed of sale in a public
document is equivalent to the delivery of the property “if from the deed the contrary does not appear or
cannot clearly be inferred.” Therefore, prior physical delivery or possession is not required. Article 1498,
however, lays down the general rule. It confines itself to providing that “the execution thereof shall be
equivalent” to delivery, which means that there is only a presumptive (not conclusive) delivery which
can be rebutted by evidence to the contrary. Such presumption is destroyed when the delivery is not
effected because of a legal impediment. Nowhere in the Civil Code is it provided that the execution of a
deed of sale is a conclusive presumption of delivery of the object of the sale.
(a) If it appears from the document or it can be inferred therefrom that it was not the intention of the
parties to make delivery, no tradition can be deemed to have taken place. Such would be the case, for
instance, where a certain date is fixed when the purchaser should take possession of the thing, or where
the vendor reserves the right to use and enjoy the property until a certain period, or where it is
stipulated that until payment of the last installment is made, the title to the property should not be
deemed to have been transmitted, or where the vendor has no control over the thing sold at the
moment of the sale, and, therefore, its material delivery could not have been made.

(b) Presumptive delivery by execution of public instrument can also be negated by failure of the vendee
to take material possession of the land subject of the sale in the concept of purchaser-owner. The
continued possession by the vendor of the property sold may make dubious the contract of sale
between the parties.

(3) Sale of thing not subject to control of vendor-Symbolic delivery by the execution of a public
instrument is equivalent to actual delivery only where the thing is subject to the control of the vendor
and there is no impediment that may prevent the passing of the property from the hands of the vendor
into those of the vendee. Hence, the vendor who executes said public instrument fails in his obligation
to deliver it, if the vendee cannot enjoy its material possession because of the opposition or resistance
of a third person (e.g., squatter) who is in actual possession. It is not enough to confer upon the
purchaser the ownership and the right of possession. The thing sold must be placed in his control in
order that it can be said that delivery has been effected. If the sale had been made under the express
agreement of imposing upon the vendee the obligation to take the necessary steps to obtain the
material possession of the thing sold and if it were proven that he knew that the thing was in the
possession of a third person claiming to have property rights thereon, such agreement would be
perfectly valid.

(4) Sale of registered land-The provisions of Article 1498 regarding passing of title upon delivery by
execution of a public instrument must be deemed modified by the provisions of the Property
Registration Decree (Pres. Decree No. 1529.) insofar as registered land is concerned. Section 51 of the
decree is very clear that no deed purporting to convey or affect registered land, shall take effect as a
conveyance or bind the land (as against third persons) until its registration. In accordance with this
section, no act of the parties can transfer the ownership of real estate under the Torrens System. That is
done by the act of registration of the conveyance which the parties have made.

(5) Possession of a part as constructive possession of whole- Where apart from the delivery de jure of a
land sold by symbolic tradition resulting from the execution of a public instrument of sale, the evidence
shows that the purchaser took actual possession of the considerable portion of the land sold by the
exercise of possessory acts of clearing the area of trees and of cultivating the same through tenants,
such possession and cultivation of a part is logically and legally constructive possession of the whole.

ART. 1499. The delivery of movable property may likewise be made by the mere consent or agreement
of the contracting parties, if 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 in his possession for any other reason.
Traditio longa manu

The first part of Article 1499 refers to traditio longa manu. This mode of delivery takes place by
the mere consent or agreement of the contracting parties as when the vendor merely points to the thing
sold which shall thereafter be at the control and disposal of the vendee. It should be noted that delivery
“by the mere consent or agreement of the contracting parties” is qualified by the phrase “if the thing
sold cannot be transferred to the possession of the vendee at the time of the sale.”

Traditio brevi manu

This mode of legal 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 lessee. 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.

ART. 1500. There may also be tradition constitutum possessorium.

-This mode of delivery is the opposite of traditio brevi manu. It takes place when the vendor continues
in possession of the property sold not as owner but in some other capacity, as for example, when the
vendor stays as a tenant of the vendee. In this case, instead of the vendor delivering the thing to the
vendee so that the latter may, in turn, deliver it back to the vendor, the law considers that all these have
taken place by mere consent or agreement of the parties.

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.

Quasi-traditio

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. This mode of
delivery of incorporeal things or rights is known as quasi-traditio. Thus, the delivery to a person of a
negotiable document of title in which it is stated that the goods referred to therein will be delivered to
the bearer amounts to delivery of the goods to such person.

Intention to deliver and to accept a transfer of possession

(1) In all the forms of delivery, it is necessary that the act be coupled with the intention of
delivering the thing. For instance, there is no constructive delivery, where the keys to the place
where the thing is deposited are delivered to the vendee in order only that he may examine it or
the titles of ownership of property are placed in the possession of the vendee for his study or
inspection but not with the intention of making the delivery. The act, without the intention to
 deliver, is insufficient. Similarly, the issuance of a sales invoice does not prove transfer of
ownership of the thing sold to the buyer. An invoice is nothing more than a detailed statement
of the nature, quality and cost of the thing sold and has been considered not a bill of sale.
(2) For the same reason, any act, although not provided for in the preceding articles, but
accompanied by the evident intention of the vendor to deliver or of the vendee to receive the
thing sold, will be considered as constituting tradition. It is the intention which is essential. It is a
well-established rule that a mere contract for the sale of goods, where nothing remains to be
made by the vendor, as when the parties agreed that the delivery of the logs should be made
alongside a vessel of the vendee and that was done by the vendor, transfers the right of
property although the price has not been paid, nor the thing sold actually delivered to the
vendee whose employees attempted to load them in the vessel but failed to do so for want of
the proper loading equipment. In other words, in all the different modes of effecting delivery, it
is the real intention of the parties, to deliver on the part of the vendor, and to accept on the part
of the vendee, which gives legal effect to the act. Without such intention, there is no tradition.

ART. 1502 When goods are delivered to the buyer “on sale or return” to give the buyer an option to
return the goods instead of paying the price, the ownership passes to the buyer on delivery, but he may
revest the ownership in the seller by returning or tendering the goods within the time fixed in the
contract, or, if no time has been fixed, within a reasonable time.

When goods are delivered to the buyer on approval or on trial or on satisfaction, or other similar
terms, the ownership therein passes to the buyer.

(1) When he signifies his approval or acceptance to the seller or does any other act adopting the
transaction;
(2) If he does not signify his approval or acceptance to the seller, but retains the goods without
giving notice of rejection, then if a time has been fixed for the return of the goods, on the
expiration of such time, and, if no time has been fixed, on the expiration of a reasonable time.
What is a reasonable time is a question of fact.

Sale or Return

Under this contract, the option to purchase or return the goods rests entirely on the buyer
without reference to the quality of the goods. The buyer may revest the ownership in the seller by
returning or tendering the goods within the time fixed in the contract, or, if no time has been fixed,
within a reasonable time; otherwise, the sale becomes absolute and the buyer is liable for the price. The
seller cannot, in this type of sale, prevent the revesting of title by refusing to accept the return of the
property. Since title passes to the buyer on delivery, the loss or destruction of the property prior to the
exercise of the buyer’s option to return falls upon him and renders him responsible to the seller for the
purchase price or such part thereof as remains unpaid. The word “return” itself implies a previous
transfer of title.

Sale on trial or approval

In this kind of contract, the title shall continue in the seller until the sale has become absolute
either by the buyer’s approval of the goods, or by his failing to comply with the express or implied
conditions of the contract as to giving notice of dissatisfaction or as to returning the goods or by his
doing any other act adopting the transaction such as mortgaging the property or selling it to a third
person. For the reason that the title to the goods does not pass and the relationship between the seller
and the purchaser is that of bailor and bailee, the risk of loss or injury to the article pending the exercise
by the buyer of his option to purchase or return it, is upon the seller except as the buyer may be at fault
in respect of the care and condition of the article, or may have agreed to stand the loss. The buyer
cannot accept part and reject the rest of the goods since this falls outside the normal intent of the
parties.

Sale or Return vs. Sale on Trial or Approval

The distinctions are the following:

(1) Sale or return is a sale subject to a resolutory condition, while sale on trial is subject to a suspensive
condition;

(2) Sale or return depends entirely on the will of the buyer, while sale on trial depends on the character
or quality of the goods;

(3) In sale or return, the ownership of the goods passes to the buyer on delivery and subsequent return
of the goods reverts ownership in the seller, while in sale on trial, the ownership remains in the seller
until the buyer signifies his approval or acceptance to the seller; and

(4) In sale or return, the risk of loss or injury rests upon the buyer, while in sale on trial, the risk still
remains with the seller.

ART. 1503. Where there is a contract of sale of specific goods, the seller may, by the terms of the
contract, reserve the right of possession or ownership in the goods until certain conditions have been
fulfilled. The right of possession or ownership may be thus reserved notwithstanding the delivery of the
goods to the buyer or to a carrier or other bailee for the purpose of transmission to the buyer.

Where goods are shipped, and by the bill of lading the 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 ownership in the
goods. But if, except for the form of the bill of lading, the ownership would have passed to the buyer on
shipment of the goods, the seller’s property in the goods shall be deemed to be only for the purpose of
securing performance by the buyer of his obligations under the contract.

Where goods are shipped, and by the bill of lading the goods are 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
thereby reserves a right to the possession of the goods as against the buyer.

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, on who purchases in good faith, for value, the bill of lading, or
goods from the buyer will obtain the ownership in the goods, although the bill of exchange has not been
honored, provided that such purchaser has received delivery of the bill of lading indorsed by the
consignee named therein, or of the goods, without notice of the facts making the transfer wrongful.
When ownership not transferred upon delivery

This article relates to a sale of specific goods. As a general rule, the ownership in the goods sold passes
to the buyer upon their delivery to the carrier. There are, however, certain exceptions and they are:

(1) if a contrary intention appears by the terms of the contract

(2) in the cases provided in the second and third paragraphs of Article 1523; and
(3) in the cases provided in the first, second, and third paragraphs of Article 1503.

Transfer of ownership where goods sold delivered to carrier

The general rule is that delivery, be it only constructive, passes title in the thing sold and delivery to the
carrier is deemed to be a delivery to the buyer. The risk of loss, therefore, as between the buyer and the
seller, falls upon the buyer. If a seller consigns goods to another specified person it indicates an
intention to deliver to the carrier as bailee for the person named, and, if such shipment was authorized
by that person as a buyer, the ownership vests in him. The same result follows it, after the goods have
been shipped without a named consignee, the carrier at the consignor’s request, agrees to deliver to a
specified person.

On the other hand, if the seller directs the carrier to redeliver the goods at their destination to the seller
himself, or to his order, it indicates an intention that the carrier shall be the bailee for the seller and the
ownership will remain in the latter. The seller may, by the terms of the contract, reserve the right of
possession or ownership in the goods until certain conditions are fulfilled.

Where seller or his agent is consignee

(1) Carrier becomes bailee for seller-Where goods are shipped and by the bill of lading, the goods
are deliverable to the seller or his agent or to the order of the seller or his agent, the seller
thereby reserves the ownership in the goods and the carrier is a bailee for him and not the
buyer. This principle is applicable even though the goods are shipped on the buyer’s vessel.
(2) Rights of seller-The seller may not only retain the goods until the buyer performs his obligation
under the contract, but he may, even in violation of the contract, dispose of them to third
persons. If the seller does this, of course, he is liable for damages to the buyer but the second
purchaser from the seller acquires a better right.

Where seller’s title only for purpose of security

(1) Form of bill of lading not conclusive- The form in which the bill of lading is taken is not always
conclusive. The specification in the bill of lading to the effect that the goods are deliverable to the order
of the seller or his agent does not necessarily negate the passing of title to the goods upon delivery to
the carrier.

(2) Where ownership would have passed but for the form of bill of lading- The circumstances may be
such that were it not for the form of the bill of lading, the ownership would have passed to the buyer or
shipment of the goods.

Significance where title held merely as security

(1) Risk of loss on buyer- In the first place, the beneficial owner (buyer), not the one who holds for
security (seller), will be subject to the risk of loss or deterioration from the time the goods are
 delivered to the carrier even though the legal title remains in the seller. That the risk should be
borne by the buyer if the seller retains title merely to secure performance by the buyer of his
obligations under the contract is a consequence of the theory that such a bargain is, in effect,
although not in form, a sale to the buyer and a mortgage back by him of the goods to secure the
price. The title does not pass to the buyer until he receives the order bill of lading properly
indorsed.
(2) Buyer’s right of action based on ownership-In the second place, the buyer has more than a
mere contract right in regards to the goods. As beneficial owner, he may, as against anyone
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.

Where buyer or his agent is consignee but seller retains order bill of lading

Where goods are shipped and by the bill of lading the goods are 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 thereby
retains a right to the possession of the goods as against the buyer.

(1) Effect of retention- Although the property in the goods will ordinarily pass to the buyer on
delivery, the latter is unable to obtain the goods without the bill. The effect of the retention of
the bill of lading, under such circumstances, controlling as it does the possession of the goods,
is, therefore, closely analogous to the retention of a lien by the seller after the property has
passed to the buyer.
(2) Surrender of order bill necessary-The carrier cannot be compelled to surrender possession of
the goods until the order bill (properly indorsed) has been surrendered. In an order bill, it
cannot with certainty be determined who is the person named to whose order the goods are
deliverable unless the bill of lading itself is presented.
(3) Identification of consignee sufficient in case of straight bill- On the other hand, the shipper who
issues a straight bill of lading (goods are by its terms deliverable not to the order of the
consignee but to the consignee only) ordinarily does not require the surrender of the bill by the
consignee in order for the latter to get the goods. The consignee need only to identify himself.
Hence, where the buyer is the consignee, the seller must use an order bill of lading.

Where a third person who retains the bill is consignee

Two devices have already been considered by which the seller of goods retains a hold upon them by
means of the bill of lading after 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 goods to the order of the buyer and
retaining possession of the bill of lading. A third method also in common use is to consign the goods to a
third person (usually a banker) requesting the latter to retain the bill of lading or goods until payment of
the price. When the price is paid, the consignee of the goods indorses the bill or delivers the goods to
the buyer.

(1) Immaterial whether bill an order or straight bill- For the success of this third device, it is
immaterial, so far as the protection of the seller is concerned, whether the bill is a straight bill or
an order bill.
If it is an order bill, the carrier will not deliver the goods until the bill is surrendered and the buyer
cannot get it so as to make the necessary surrender except from the holder, the consignee.

Even if it is not an order bill, the carrier, though it may not require the surrender of the bill of lading,
will deliver only to the consignee. Accordingly, the buyer in either event, is unable to get them
except by obtaining an order from the holder of the bill of lading.

(2) Legal title vested in third person- By naming a third person as consignee of the bill of lading, the
seller vests a legal title in the third person. This title is held merely for the benefit of the seller if the
third person is the seller’s agent only and has not advanced money of his own to the seller.
Frequently, however, the third person is a banker and by discounting a draft drawn on the buyer by
the shipper, or under an arrangement with the buyer by paying or accepting a draft drawn on
himself, has acquired a personal interest in the goods.

(3) Risk of loss on buyer- The buyer as is true where the seller consigns the goods to himself, or his
agent, or to a third person, bears the risk of loss.

Where bill of lading sent forward with draft attached

Where the seller draws on the buyer for the price and transmits the bill of exchange and the bill of
lading together to the buyer to 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. 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
goods conditional upon the payment or acceptance of the draft.

(1) Duty of buyer if draft not paid-The buyer is bound to return the bill of lading if he does not
honor the bill of exchange. If he wrongfully retains the bill of lading, he acquires no additional right
thereby. In carrying out the device in question, it is customary to send the bill of lading with the
draft attached thereto to some person other than the buyer, for if the bill of lading and the draft are
sent directly to the buyer, the latter may obtain the goods without paying the draft and the seller,
even if he has a good right of action against the buyer on this account, is compelled to enter upon
litigation in order to enforce his rights, whereas if the bill of lading and draft are sent through the
third person, ordinarily a bank, the buyer is unable to obtain the goods without paying the price.

(2) Effect of buyer obtaining possession of bill of lading without honoring draft- As regard third
persons, however, if 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 is indorsed to the buyer by the consignee named
therein, a purchaser in good faith for value of the bill of lading or goods from the buyer will obtain
the ownership in the goods although the bill of exchange has not been honored.

Distinctions in regard to the form of the bill of lading:

(1) If the seller has named the buyer as consignee, the property has passed to the consignee or at
least it seems to have been so to one who inspects the document;
(2) If the bill of lading, though naming the seller as consignee, is indorsed by him to the buyer or in
blank, the possession of the document by the buyer gives him, if not the actual title, at least an
apparent ownership; and
(3) If the bill of lading names the seller or a third person as consignee and no indorsement of the
document had been made, possession by the buyer would not indicate that the buyer had title.
 Virgilio S. David vs. Misamis Occidental II Electric Cooperative, Inc.

G.R. No. 194785, 676 SCRA 367

July 11, 2012

Facts:

Petitioner David was the owner or proprietor of VSD Electric Sales, a company engaged in the business
of supplying electrical hardware including transformers for rural electric cooperatives like respondent
Misamis Occidental II Electric Cooperative, Inc. (MOELCI), with principal office located in Ozamis City.

To solve its problem of power shortage affecting some areas within its coverage, MOELCI expressed its
intention to purchase a 10 MVA power transformer from David. For this reason, its General Manager,
Engr. Reynaldo Rada, went to meet David in the latter's office in Quezon City. David agreed to supply the
power transformer provided that MOELCI would secure a board resolution because the item would still
have to be imported.

On June 8, 1992, Engr. Rada and Director Jose Jimenez (Jimenez), who was in-charge of procurement,
returned to Manila and presented to David the requested board resolution which authorized the
purchase of one 10 MVA power transformer. In turn, David presented his proposal for the acquisition of
said transformer. This proposal was the same proposal that he would usually give to his clients.

After the reading of the proposal and the discussion of terms, David instructed his then secretary and
bookkeeper, Ellen M. Wong, to type the names of Engr. Rada and Jimenez at the end of the proposal.
Both signed the document under the word "conforme." The board resolution was thereafter attached to
the proposal. As stated in the proposal, the subject transformer, together with the basic accessories,
was valued at P5,200,000.00. It was also stipulated therein that 50% of the purchase price should be
paid as down payment and the remaining balance to be paid upon delivery. Freight handling, insurance,
customs duties, and incidental expenses were for the account of the buyer.

The Board Resolution, on the other hand, stated that the purchase of the said transformer was to be
financed through a loan from the National Electrification Administration (NEA). As there was no
immediate action on the loan application, Engr. Rada returned to Manila in early December 1992 and
requested David to deliver the transformer to them even without the required down payment. David
granted the request provided that MOELCI would pay interest at 24% per annum. Engr. Rada acquiesced
to the condition.

On December 17, 1992, the goods were shipped to Ozamiz City via William Lines. In the Bill of Lading, a
sales invoice was included which stated the agreed interest rate of 24% per annum. When no payment
was made after several months, Medina was constrained to send a demand letter, dated September 15,
1993, which MOELCI duly received.

Subsequently, demand letters were sent to MOELCI demanding the payment of the whole amount plus
the balance of previous purchases of other electrical hardware.

On February 17, 1994, David filed a complaint for specific performance with damages with the RTC.

Issues:
 a.) WHETHER OR NOT THERE WAS A PERFECTED CONTRACT OF SALE.
b.) WHETHER OR NOT THERE WAS A DELIVERY THAT CONSUMMATED THE CONTRACT.

Ruling:

The CA was of the position that Exhibit A was at best a contract to sell. A perusal of the records
persuades the Court to hold otherwise.

An examination of the alleged contract to sell, "Exhibit A," despite its unconventional form,
would show that said document, with all the stipulations therein and with the attendant circumstances
surrounding it, was actually a Contract of Sale.

First, there was meeting of minds as to the transfer of ownership of the subject matter. The letter
though appearing to be a mere price quotation/proposal, was not what it seemed. It contained terms
and conditions, so that, by the fact that Jimenez, Chairman of the Committee on Management, and Engr.
Rada, General Manager of MOELCI, had signed their names under the word "CONFORME," they, in
effect, agreed with the terms and conditions with respect to the purchase of the subject 10 MVA Power
Transformer.

Second, the document specified a determinate subject matter which was one (1) Unit of 10 MVA Power
Transformer with corresponding KV Line Accessories and the document stated categorically the price
certain in money which was P5,200,000.00. In sum, since there was a meeting of the minds, there was
consent on the part of David to transfer ownership of the power transformer to MOELCI in exchange for
the price, thereby complying with the first element.

Thus, the said document cannot just be considered a contract to sell but rather a perfected contract of
sale.

Now, the next question is, was there a delivery?

MOELCI, in denying that the power transformer was delivered to it, argued that the Bill of Lading which
David was relying upon was not conclusive. It argued that although the bill of lading was stamped
"Released," there was nothing in it that indicated that said power transformer was indeed released to it
or delivered to its possession. For this reason, it is its position that it is not liable to pay the purchase
price of the 10 MVA power transformer.

This Court is unable to agree with the CA that there was no delivery of the items. On the contrary, there
was delivery and release. To begin with, among the terms and conditions of the proposal to which
MOELCI agreed stated: C&F Manila, freight, handling, insurance, custom duties and incidental expenses
shall be for the account of MOELCI II.

On this score, it is clear that MOELCI agreed that the power transformer would be delivered and that the
freight, handling, insurance, custom duties, and incidental expenses shall be shouldered by it.

Thus, the delivery made by David to William Lines, Inc., as evidenced by the Bill of Lading, was deemed
to be a delivery to MOELCI. David was authorized to send the power transformer to the buyer pursuant
to their agreement. When David sent the item through the carrier, it amounted to a delivery to MOELCI.

Furthermore, in the case of Behn, Meyer & Co. (Ltd.) v. Yangco, it was pointed out that a specification in
a contract relative to the payment of freight can be taken to indicate the intention of the parties with
regard to the place of delivery. So that, if the buyer is to pay the freight, as in this case, it is reasonable
to suppose that the subject of the sale is transferred to the buyer at the point of shipment. In other
words, the title to the goods transfers to the buyer upon shipment or delivery to the carrier.

Article 1523 provides a mere presumption and in order to overcome said presumption, MOELCI should
have presented evidence to the contrary. The burden of proof was shifted to MOELCI, who had to show
that the rule under Article 1523 was not applicable. In this regard, however, MOELCI failed.

Obligation to Deliver the Fruits and Accessories of the Thing Sold

ART. 1537 The vendor is bound to deliver the thing sold and its accessions and accessories in the
condition in which they were upon the perfection of the contract.

All the fruits shall pertain to the vendee from the day on which the contract was perfected.

Note:

In entering into a contract of sale, the parties take into consideration not only the particular
thing which is the subject matter of the contract, but also its condition at the time such contract was
perfected. The vendor is, therefore, obliged to preserve the thing pending delivery because the thing
sold and its accessions and the accessories must be in the condition in which they were upon the
perfection of the contract.

It is the seller’s duty to deliver the thing sold in a condition suitable for its enjoyment by the
buyer for the purposes contemplated. Thus, a subdivision lot seller should not shift to the buyer the
burden of providing access to and from the subdivision. It is seller’s duty to construct the necessary
roads in the subdivision that could serve as outlets. Proper access to the residence is essential to its
enjoyment.

While a sale of a determinate thing (e.g., land) includes all its accessions (e.g., house) and
accessories even though they may not have been mentioned, a sale of the latter is not sufficient to
convey title or right to the former.

Accessions are the fruits of a thing; or additions to, or improvements upon, a thing such as the
young of animals, house or trees on a land, etc.

Accessories are anything attached to a principal thing for its completion, ornament, or better
use such as picture frame, key of a house, etc.

Right of vendee to the fruits

(1) When vendee entitled- The vendee has a right to the fruits of the thing sold from the time the
obligation to deliver it arises. The obligation to deliver arises upon the perfection of the contract
of sale.
(2) When vendee not entitled- In the following cases, the vendee is not entitled to the fruits:
(a) When the rule provided in Article 1537 par. 2 is modified by agreement of the parties, their
agreement shall, of course, govern;
(b) If the vendee rescinds the contract of sale instead of exacting the fulfillment thereof, he is
entitled only to damages like interest, attorney’s fees and costs but he may not also claim the
fruits of the thing sold; and
 (c) In a contract of promise to sell, the vendee is not entitled to the fruits. The only right of the
contracting parties is to reciprocally demand the fulfillment of the contract. Prior to the sale and
conveyance of the subject matter of the contract, the promisee or would-be vendee acquires no
right to the fruits thereof.

Who Bears the Risk of Loss after the Delivery of the Determinate Thing?

ART. 1504 Unless otherwise agreed, the goods remain at the seller’s risk until the ownership therein is
transferred to the buyer, but when the ownership therein is transferred to the buyer, the goods are at
the buyer’s risk whether actual delivery has been made or not, except that:

(1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in pursuance of
the contract and the ownership in the goods has been retained by the seller merely to secure
performance by the buyer of his obligations under the contract, the goods are at the buyer’s risk from
the time of such delivery;

(2) Where actual delivery has been delayed through the fault of either the buyer or seller the goods are
at the risk of the party in fault.

Risk of loss generally attends title

As a general rule, if the thing is lost by fortuitous event, the risk is borne by the owner of the thing at the
time of the loss under the principle of res perit domino. Article 1504 above states the exceptions.

(1) Where the seller reserves the ownership of the goods merely to secure the performance by the
buyer of his obligations under the contract, the ownership is considered transferred to the
buyer who, therefore, assumes the risk from the time of delivery.
(2) Where actual delivery had been delayed through the fault of 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
but for such fault. In this case, the law punishes the party at fault.

Loss, Deterioration or Improvement of the Thing after Perfection but before its Delivery

Art. 1538- In case of loss, deterioration or improvement of the thing before its delivery, the rules in
article 1189 shall be observed, the vendor being considered the debtor.

Rules in case of loss, deterioration, or improvement of thing before delivery

Article 1189 of the Civil Code states:

“When the conditions have been imposed with the intention of suspending the efficacy of an obligation
to give, the following rules shall be observed in case of the improvement, loss or deterioration of the
thing during the pendency of the condition:

(1) If the thing is lost without the fault of the debtor, the obligation shall be extinguished;

(2) If the thing is lost through the fault of the debtor, he shall be obliged to pay damages; it is
understood that the thing is lost when it perishes, or goes out of commerce, or disappears in such a way
that its existence is unknown or it cannot be recovered;
(3) When the thing deteriorates without the fault of the debtor, the impairment is to be borne by the
creditor;

(4) If it deteriorates through the fault of the debtor, the creditor may choose between the rescission of
the obligation and its fulfillment, with indemnity for damages in either case;

(5) If the thing is improved by its nature, or by time, the improvement shall inure to the benefit of the
creditor;

(6) If it is improved at the expense of the debtor, he shall have no other right than that granted to the
usufructuary.”

***Art. 1480 Recap: Any injury to or benefit from the thing sold, after the contract has been perfected,
from the moment of the perfection of the contract to the time of delivery, shall be governed by articles
1163 to 1165, and 1262.

This rule shall apply to the sale of fungible things, made independently and for a single price, or without
consideration of their weight, number, or measure.

Should fungible things be sold for a price fixed according to weight, number, or measure, the risk shall
not be imputed to the vendee until they have been weighed, counted, or measured, and delivered,
unless the latter has incurred in delay.

Four rules may be given regarding risk of loss:

(1) If the thing is lost before perfection, the seller and not the one who intends to purchase it bears the
loss in accordance with the principle that the thing perishes with the owner (res perit domino);

(2) If the thing is lost at the time of perfection, the contract is void or inexistent. The legal effect is the
same as when the object is lost before the perfection of the contract of sale;

(3) If the thing is lost after perfection but before its delivery, that is, even before the ownership is
transferred to the buyer, the risk of loss is shifted to the buyer as an exception to the rule of res perit
domino; and

(4) If the thing is lost after delivery, the buyer bears the risk of loss following the general rule of res perit
domino.

Sale of Goods by a Non-Owner

Art. 1505- Subject to the provisions of this Title, where goods are sold by a person who is not the owner
thereof, and who does not sell them under authority or with the consent of the owner, the buyer
acquires no better title to the goods than the seller had, unless the owner of the goods is by his conduct
precluded from denying the seller’s authority to sell.

Nothing in this title, however, shall affect:

(1) The provisions of any factors’ acts, recording laws, or any other provision of law enabling the
apparent owner of goods to dispose of them as if he were the true owner thereof;
(2) The validity of any contract of sale under statutory power of sale or under the order of a court of
competent jurisdiction;

(3) Purchases made in a merchant’s store, or in fairs, or markets, in accordance with the Code of
Commerce and special laws.

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
right to another than he himself has. Sale is a derivative mode of acquiring ownership and the buyer
gets only such rights as the seller had. A derivative right cannot exist higher than its source. The
exceptions to the rule are:

(1) Where the owner of the goods is, by his conduct, precluded from denying the seller’s
authority to sell- Thus, where a parcel of land is sold by one not the owner or the agent of the
owner, but the real owner thereof upon being questioned in a criminal case instituted against
the vendor states that he authorized such sales so that the vendor was acquitted of the charge
against him, a purchaser in good faith acquires a valid title to the property as it is not lawful nor
permissible for said owner to deny or retract his former sworn statement that he had consented
to said sale.
(2) Where the law enables the apparent owner to dispose of the goods as if he were the true
owner thereof- The Philippines, unlike other jurisdictions as England and several states of the
United States, has no such law as the Factors’ Act. The law referred to here, therefore, must be
found in the provisions of our Civil Code on agency.

Factors Acts are designed to protect third persons who (under specified conditions) deal with an agent
(e.g., a person to whom the owner delivered goods for sale or as security, or entrusted documentary
evidence of title thereto) believing him to be the owner of goods.

3) Where the sale is sanctioned by statutory or judicial authority- According to Article 559 of the Civil
Code, “the possession of movable property acquired in good faith is equivalent to title. Nevertheless,
one who has lost any movable, or has been unlawfully deprived therefor, may recover it from the
person in possession of the same. If the possessor of a movable lost or of which the owner has
unlawfully been deprived has acquired it in good faith at a public sale, the owner cannot obtain its
return without reimbursing the price paid therefor.”

4) Where the sale is made at merchant’s stores, fairs or markets- No. 3 of Article 1505 is a case of an
imperfect or void title ripening into a valid one as a result of some intervening due causes. The sale is
necessary not only to facilitate commercial sales on movables but also to give stability to business
transactions especially in a country like the Philippines, where free enterprise prevails, for a buyer
cannot be reasonably expected to look behind the title of every article when he buys at a store.

(5) Where the seller has a voidable title which has not been avoided at the time of the sale- See Article
1506.
(6) Where seller subsequently acquires title- When a person conveys property to another of which at
the time, he is not the owner, his subsequent acquisition of title validates his previous conveyance. This
doctrine is equally applicable to conveyance of usufructs as well as to transfers of full ownership.

SALE OF GOODS BY A PERSON HAVING A VOIDABLE TITLE

Article 1506. Where the seller of goods has a voidable title thereto, but his title has not been avoided at
the time of the sale, the buyer acquires a good title to the goods, provided he buys them in good faith,
for value, and without notice of the seller's defect of title. (n)

The above-mentioned provision contemplates a situation wherein the seller has voidable title to the
goods but his title thereto has not yet been annulled at the time of the sale, and the subsequent buyer
of the goods was in good faith. In this situation, the sale to the subsequent buyer is valid and he acquires
good title to the goods. This is in accordance with the rule that a voidable contract is valid until annulled;
and the common law principle that were one of two innocent persons must suffer by fraud perpetrated
by another, the law imposes the loss upon the party who, by misplaced confidence, has enabled the
fraud to be committed.

REMEDY OF AN OWNER WHO IS UNLAWFULLY DEPRIVED OF HIS MOVABLE PROPERTY

Article 559. The possession of movable property acquired in good faith is equivalent to a title.
Nevertheless, one who has lost any movable or has been unlawfully deprived thereof, may recover it
from the person in possession of the same.

If the possessor of a movable lost or which the owner has been unlawfully deprived, has acquired it in
good faith at a public sale, the owner cannot obtain its return without reimbursing the price paid
therefor. (464a)

Under the above-quoted provision, one who has lost any movable or who has been unduly
deprived thereof can recover the movable even from a possessor in good faith. The only exception that
the law allows is when the possessor had acquired the movable in good faith at a public sale. In such
case, the owner cannot obtain its return without reimbursing the price paid therefor.

Article 559 is not applicable when the seller of the goods has a voidable title thereto; in which
case, the applicable provision is Article 1506.

DOCUMENTS OF TITLE

Article 1507. A document of title in which it is stated that the goods referred to therein will be delivered
to the bearer, or to the order of any person named in such document is a negotiable document of title.
(n)

Article 1508. A negotiable document of title may be negotiated by delivery:

(1) Where by the terms of the document the carrier, warehouseman or other bailee issuing the same
undertakes to deliver the goods to the bearer; or
(2) Where by the terms of the document the carrier, warehouseman or other bailee issuing the same
undertakes to deliver the goods to the order of a specified person, and such person or a subsequent
endorsee of the document has indorsed it in blank or to the bearer.

Where by the terms of a negotiable document of title the goods are deliverable to bearer or where a
negotiable document of title has been indorsed in blank or to bearer, any holder may indorse the same
to himself or to any specified person, and in such case the document shall thereafter be negotiated only
by the indorsement of such endorsee. (n)

Article 1509. A negotiable document of title may be negotiated by the indorsement of the person to
whose order the goods are by the terms of the document deliverable. Such indorsement may be 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. Subsequent
negotiations may be made in like manner. (n)

Article 1510. If a document of title which contains an undertaking by a carrier, warehouseman or other
bailee to deliver the goods to bearer, to a specified person or order of a specified person or which
contains words of like import, has placed upon it the words "not negotiable," "non-negotiable" or the
like, such document may nevertheless be negotiated by the holder and is a negotiable document of title
within the meaning of this Title. But nothing in this Title contained shall be construed as limiting or
defining the effect upon the obligations of the carrier, warehouseman, or other bailee issuing a
document of title or placing thereon the words "not negotiable," "non-negotiable," or the like. (n)

Article 1511. A document of title which is not in such form that it can be negotiated by delivery may be
transferred by the holder by delivery to a purchaser or donee. A non-negotiable document cannot be
negotiated and the indorsement of such a document gives the transferee no additional right. (n)

Article 1512. A negotiable document of title may be negotiated:

(1) By the owner thereof; or

(2) By any person to whom the possession or custody of the document has been entrusted by the
owner, if, by the terms of the document the bailee issuing the document undertakes to deliver the
goods to the order of the person to whom the possession or custody of the document has been
entrusted, or if at the time of such entrusting the document is in such form that it may be negotiated by
delivery. (n)

Article 1513. A person to whom a negotiable document of title has been duly negotiated acquires
thereby:

(1) Such title to the goods as the person negotiating the document to him had or had ability to convey to
a purchaser in good faith for value and also such title to the goods as the person to whose order the
goods were to be delivered by the terms of the document had or had ability to convey to a purchaser in
good faith for value; and

(2) The direct obligation of the bailee issuing the document to hold possession of the goods for him
according to the terms of the document as fully as if such bailee had contracted directly with him. (n)
Article 1514. A person to whom a document of title has been transferred, but not negotiated, acquires
thereby, as against the transferor, the title to the goods, subject to the terms of any agreement with the
transferor.

If the document is non-negotiable, such person also acquires the right to notify the bailee who issued
the document of the transfer thereof, and thereby to acquire the direct obligation of such bailee to hold
possession of the goods for him according to the terms of the document.

Prior to the notification to such bailee by the transferor or transferee of a non-negotiable document of
title, the title of the transferee to the goods and the right to acquire the obligation of such bailee may be
defeated by the levy of an attachment of execution upon the goods by a creditor of the transferor, or by
a notification to such bailee by the transferor or a subsequent purchaser from the transferor of a
subsequent sale of the goods by the transferor. (n)

Article 1515. Where a negotiable document of title is transferred for value by delivery, and the
indorsement of the transferor is essential for negotiation, the transferee acquires a right against the
transferor to compel him to indorse the document unless a contrary intention appears. The negotiation
shall take effect as of the time when the indorsement is actually made. (n)

Article 1516. A person who for value negotiates or transfers a document of title by indorsement or
delivery, including one who assigns for value a claim secured by a document of title unless a contrary
intention appears, warrants:

(1) That the document is genuine;

(2) That he has a legal right to negotiate or transfer it;

(3) That he has knowledge of no fact which would impair the validity or worth of the document; and

(4) That he has a right to transfer the title to the goods and that the goods are merchantable or fit for a
particular purpose, whenever such warranties would have been implied if the contract of the parties had
been to transfer without a document of title the goods represented thereby. (n)

Article 1517. The indorsement of a document of title shall not make the indorser liable for any failure on
the part of the bailee who issued the document or previous indorsers thereof to fulfill their respective
obligations. (n)

Article 1518. The validity of the negotiation of a negotiable document of title is not impaired by the fact
that the negotiation was a breach of duty on the part of the person making the negotiation, or by the
fact that the owner of the document was deprived of the possession of the same by loss, theft, fraud,
accident, mistake, duress, or conversion, if the person to whom the document was negotiated or a
person to whom the document was subsequently negotiated paid value therefor in good faith without
notice of the breach of duty, or loss, theft, fraud, accident, mistake, duress or conversion. (n)

Article 1519. If goods are delivered to a bailee by the owner or by a person whose act in conveying the
title to them to a purchaser in good faith for value would bind the owner and a negotiable document of
title is issued for them they cannot thereafter, while in possession of such bailee, be attached by
garnishment or otherwise or be levied under an execution unless the document be first surrendered to
the bailee or its negotiation enjoined. The bailee shall in no case be compelled to deliver up the actual
possession of the goods until the document is surrendered to him or impounded by the court. (n)

Article 1520. A creditor whose debtor is the owner of a negotiable document of title shall be entitled to
such aid from courts of appropriate jurisdiction by injunction and otherwise in attaching such document
or in satisfying the claim by means thereof as is allowed at law or in equity in regard to property which
cannot readily be attached or levied upon by ordinary legal process. (n)

DEFINITION

Article 1636 of the Civil Code defines a “document title to goods” as “any bill of lading, dock
warrant, "quedan," or warehouse receipt or order for the delivery of goods, or any other document
used in the ordinary course of business in the sale or transfer of goods, as proof of the possession or
control of the goods, or authorizing or purporting to authorize the possessor of the document to
transfer or receive, either by indorsement or by delivery, goods represented by such document.

A document of title is a formal document which is issued by or addressed to a carrier,

warehouseman or other bailee; covers the goods referred to therein; and confers and proves title to the
goods.

PURPOSE

A document of title represents the goods referred to therein; serves as a proof of the possession
or control of the goods; and manifests that the person named therein, the person to whom it is
negotiated, or the person in possession thereof acquires title to the goods, and the direct obligation of
the carrier, warehouseman or other bailee to hold the goods for and on his behalf. Additionally, a
document title authorizes the person in possession thereof to receive, hold, transfer or dispose of such
document and/or the goods referred to therein.

KINDS OF TITLE

Bill of Lading- A bill of lading is a form of an acknowledgement receipt of the goods stated
therein by a transportation company or a carrier; or a contract between the shipper and the
transportation company or a carrier for delivering the goods referred to therein to the person named
therein, or to the person who has a right to receive them. So, a bill of lading serves as a receipt for the
goods stated therein; and a contract by which three parties, namely: the shipper, the carrier and the
consignee, undertake specific responsibilities and assume obligations stipulated therein.

Dock Warrants or Receipts- A document or receipt issued by a wharf, dock or port authority that
certifies title of any person named therein to the shipment that is stored in its warehouse or storage
facility.

Warehouse Receipt- A warehouse receipt is a document that evidences ownership of the goods
that are stored in a warehouse for safekeeping, and is issued by a warehouseman who is a person
lawfully engaged in the business of storing goods for profit. It confirms the existence and availability of
the goods in the specified warehouse. It does not need to be in any particular form but every receipt
must embody within its written or printed terms the essential terms enumerated in Section 2 of Act No.
2137.

A warehouseman, in the absence of some lawful excuse provided by the Warehouse Receipts
Law, is bound to deliver the goods upon a demand made either by the holder of a receipt for the goods
or by the depositor.

Quedan- Quedan is a type of warehouse receipt issued for sugar. However, in Ocampo v. Land
Bank, the term “quedans” was used to refer to several grains warehouse receipts which cover cavan of
palays.

NEGOTIABLE AND NON- NEGOTIABLE DOCUMENT OF TITLE

(a) A document of title is negotiable if by its terms the goods referred therein will be delivered
to the bearer, or to the order of any person named therein.
(b) A document title other than the one described in letter a is non-negotiable. So, a document
of title is non-negotiable if by its terms the good referred therein will be delivered to a
specific person only.

WHO MAY NEGOTIATE DOCUMENTS OF TITLE?

A negotiable document of title may be negotiated:

(1) By the owner thereof; or

(2) By any person to whom the possession or custody of the document has been entrusted by
the owner, if, by the terms of the document the bailee issuing the document undertakes to
deliver the document the goods to the order of the person to whom the possession or
custody of the document has been entrusted, or if at the time of such entrusting the
document is in such form that it may be negotiated by delivery.

NEGOTIATION OF NEGOTIABLE DOCUMENTS OF TITLE

(A) BY DELIVERY

A negotiable document of title may be negotiated by delivery:

(1) Where by the terms of the document the carrier, warehouseman or other bailee issuing
the same undertakes to deliver the goods to the bearer;
(2) Where by the terms of the document the carrier, warehouseman or other bailee issuing
the same undertakes to deliver the goods to other bailee issuing the same undertakes to
deliver the goods to the order of a specified person, and such person or a subsequent
endorsee of the document has endorsed it in blank or to the bearer; or
(3) Where by the terms of a negotiable document of title the goods are deliverable to
bearer or where a negotiable document of title has been endorsed in blank or to bearer,
any holder may endorse the same to himself or to any specified person, and in such case
(4) the document shall thereafter be negotiated only by the endorsement of such endorsee.

(B) BY ENDORSEMENT AND DELIVERY

 A negotiable document of title may be negotiated by the endorsement of the person to
whose order the goods are by the terms of the document deliverable. Such endorsement
may be in blank, to bearer or to a specified person. If endorsed 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.

Where a negotiable document of title is transferred for value by delivery, and the
endorsement of the transferor is essential for negotiation, the transferee acquires a right
against the transferor to compel him to endorse the document unless a contrary intention
appears. The negotiation shall take effect as of the time when the endorsement is actually
made.

WARRANTIES OF THE PERSON WHO NEGOTIATES OR TRANSFERS A DOCUMENT OF TITLE

A person who for value negotiates or transfers a document of title by endorsement or delivery,
including one who assigns for value a claim secured by a document of title unless a contrary intention
appears, warrants:

(1) That the document is genuine;

(2) That he has a legal right to negotiate or transfer it;
(3) That he has knowledge of no fact which would impair the validity or worth of the document;
and
(4) That he has a right to transfer the title to the goods and that the goods are merchantable or
fit for a particular purpose, whenever such warranties would have been implied if the
contract of the parties had been to transfer without a document of title the goods
represented thereby.

EFFECTS OF A VALID NEGOTIATION

A person to whom a negotiable document of title has been duly negotiated acquires thereby:

(1) Such title to the goods as the person negotiating the document to him had or had ability to
convey to a purchaser in good faith for value also such title to the goods as the person to
whose order the goods were to be delivered by the terms of the document had or had
ability to convey to a purchaser in good faith for value; and
(2) The direct obligation of the bailee issuing the document to hold possession of the goods for
him according to the terms of the document as fully as is if such had contracted directly with
him.

The validity of the negotiation of a negotiable document of title is not impaired by the fact
that the negotiation was a breach of duty on the part of the person making the negotiation,
or by the fact that the owner of the document was deprived of the possession of the same
by loss, theft, fraud, accident, mistake, duress, or conversion, if the person to whom the
 document was subsequently negotiated paid value therefor in good faith without notice of
the breach of duty, or loss, theft, fraud, accident, mistake, duress or conversion.

EFFECTS OF A MERE TRANSFER OF A DOCUMENT OF TITLE

A person, to whom a document of title has been transferred, but not negotiated, acquires
thereby, as against the transferor, the title to the goods, subject to the terms of any agreement with the
transferor.

If the document is non-negotiable, such person also acquires the right to notify the bailee who
issued the document of the transfer thereof, and thereby to acquire the direct obligation of such bailee
to hold possession of the goods for him according to the terms of the document.

RULES ON LEVY OR GARNISHMENT OF GOODS THAT ARE COVERED BY A DOCUMENT OF TITLE

Prior to the notification to the bailee by the transferor or transferee of a non-negotiable

document of title, the title of the transferee to the goods and the right to acquire the obligation of such
bailee may be defeated by the levy of an attachment of execution upon the goods by a creditor of the
transferor or a subsequent purchaser from the transfer of a subsequent sale of the goods by the
transferor.

If goods are delivered to a bailee by the owner or by a person whose act in conveying the title to
them to a purchaser in good faith for value would bind the owner and a negotiable document of title is
issued for them they cannot thereafter, while in possession of such bailee, be attached by garnishment
or otherwise or be levied under an execution unless the document be first surrendered to the bailee or
its negotiation enjoined. The bailee shall in no case be compelled to deliver up the actual possession of
the goods until the document is surrendered to him or impounded by the court.

A creditor whose debtor is the owner of a negotiable document of tile shall be entitled to such
aid from courts of appropriate jurisdiction by injunction and otherwise in attaching such document or in
satisfying the claim by means thereof is allowed at law or in equity in regard to property which cannot
readily be attached or levied upon by ordinary legal process.

TRUST RECEIPTS

Trust receipts transactions are governed by the Trust Receipts Law. Section 4 of the said decree
explains the constitution of a trust receipt transaction, to wit:

Section 4. What constitutes a trust receipt transaction.  A trust receipt transaction, within the
meaning of this Decree, is any transaction by and between a person referred to in this Decree as the
entruster, and another person referred to in this Decree as entrustee, whereby the entruster, who owns
or holds absolute title or security interests over certain specified goods, documents or instruments,
releases the same to the possession of the entrustee upon the latter’s execution and delivery to the
entruster of a signed document called a “trust receipt” wherein the entrustee binds himself to hold the
designated goods, documents or instruments in trust for the entruster and to sell or otherwise dispose
of the goods, documents or instruments with the obligation to turn over to the entruster the proceeds
thereof to the extent of the amount owing to the entruster or as appears in the trust receipt or the
goods, documents or instruments themselves if they are unsold or not otherwise disposed of, in
accordance with the terms and conditions specified in the trust receipt, or for other purposes
substantially equivalent to any of the following:

1. In the case of goods or documents, (a) to sell the goods or procure their sale; or (b) to manufacture or
process the goods with the purpose of ultimate sale: Provided, That, in the case of goods delivered
under trust receipt for the purpose of manufacturing or processing before its ultimate sale, the
entruster shall retain its title over the goods whether in its original or processed form until the entrustee
has complied fully with his obligation under the trust receipt; or (c) to load, unload, ship or tranship or
otherwise deal with them in a manner preliminary or necessary to their sale; or

2. In the case of instruments,

a) to sell or procure their sale or exchange; or

b) to deliver them to a principal; or

c) to effect the consummation of some transactions involving delivery to a depository or register; or

d) to effect their presentation, collection or renewal

The sale of goods, documents or instruments by a person in the business of selling goods, documents or
instruments for profit who, at the outset of the transaction, has, as against the buyer, general property
rights in such goods, documents or instruments, or who sells the same to the buyer on credit, retaining
title or other interest as security for the payment of the purchase price, does not constitute a trust
receipt transaction and is outside the purview and coverage of this Decree.
 PNB v. NOAH’S ARK SUGAR REFINERY

G.R No. 107243 (Sept. 1, 1993)

FACTS:

 In accordance with the Warehouse Receipts Law, Noah's Ark Sugar Refinery (Noah) issued on
several dates warehouse receipts (quedans) to Rosa Sy, RNS Merchandising (Rosa Ng Sy) and St.
Therese Merchandising

 RNS and St Therese Merchandising negotiated and indorsed its quedans to Luis T. Ramos and
Cresencia Zoleta

 Zoleta and Ramos then used the quedans as security for loans obtained by them from PNB in
the amounts of P23.5 million and P15.6 million, respectively. These quedans they indorsed to
the bank.

 Both Zoleta and Ramos failed to pay their loans upon maturity

 PNB wrote to Noah demanding delivery of the sugar covered by the quedans

 Noah's Ark refused to comply with the demand

 PNB filed with the RTC a verified complaint for "Specific Performance with Damages and
Application for Writ of Attachment" against Noah's Ark, Alberto T. Looyuko, Jimmy T. Go, and
Wilson T. Go, the last three being identified as "the Sole Proprietor, Managing Partner and
Executive Vice President of Noah, respectively."

 RTC denied the application for preliminary attachment

 Noah and its co-defendants claimed that they are still the legal owners of the quedans and the
sugar represented thereon because:

— the P63M check issued by Rosa Ng Sy of RNS and Teresita Ng of St. Therese
Merchandising for the quedans were dishonoured by reason of "payment stopped" and
"drawn against insufficient funds

— Since the vendees and first indorsers of quedans did not acquire ownership, the
subsequent indorsers and PNB did not acquire a better right of ownership than the
original vendees/first indorsers.

— That quedans are not negotiable instruments within the purview of the Warehouse
Receipts Law but simply an internal guarantee of defendants in the sale of their stocks
of sugar.

 Noah also asked that the quedans be delivered or returned to them

 Rosa Ng Sy and Teresita Ng claims that the transaction between them and Noah was "bogus and
simulated complex banking schemes and financial maneuvers and that it was to avoid payment
of taxes considering that Noah is under sequestration by the PCGG
  PNB filed a "Motion for Summary Judgment and prayed for the delivery of the sugar stocks
covered by the Warehouse Receipts/Quedans which are now in the PNB’s possession as holder
for value and in due course; or alternatively, for payment of actual damages of P39.1M to pay
plaintiff attorney's fees, litigation expenses and judicial costs estimated at no less than P1M and
such other reliefs just and equitable under the premises.

 RTC denied the motion for summary judgment on the ground:

— that there exists conflicting claims among the parties relative to the ownership of the
sugar quedans as to whether or not the quedans falls within the coverage of the
Warehouse Receipt Law and whether or not the transaction between PNB and third
party defendants (Sy ans Ng) is governed by contract of pledge that would require PNB’s
compliance with Art. 2112, Civil Code as regards the disposition of the quedans

 PNB filed a petition for certiorari with the CA

 CA nullified RTC order and ordered that "summary judgment be rendered in favor of the PNB

 CA ruled that "questions of law should be resolved after and not before, the questions of fact.

 Noah moved for reconsideration, but their motion was denied by the CA

 RTC rendered judgment, but not in accordance with the decision of the CA since it dismissed
PNB’s complaint for lack of cause of action

Issue:

1. Whether the non-payment of the purchase price for the quedans by the original vendees
rendered invalid the negotiation by vendees/first indorsers to indorsers and the subsequent
negotiation of Ramos and Zoleta to PNB.

2. Whether or not PNB as indorsee/ pledgee of quedans was entitled to delivery of sugar
stocks from the warehouseman, Noah's Ark."

Ruling:

1. The non-payment of the purchase price does not render the subsequent negotiation invalid.
The validity of the negotiation in favour of PNB cannot be impaired even if the negotiation
between Noah and its first vendees was in breach of faith on the part of the vendees or by the
fact that Noah was deprived of the possession of the same by fraud, mistake or conversion if
PNB paid value in good faith without notice of such breach of duty, fraud, mistake or
conversion. (Article 1518, New Civil Code).

2. PNB is entitled to the delivery of the sugar covered by the quedans. PNB whose debtor was the
owner of the quedan shall be entitled to such aid from the court of appropriate jurisdiction
 attaching such document or in satisfying the claim by means as is allowed by law or in equity in
regard to property which cannot be readily attached or levied upon by ordinary process. (See
Art. 1520, New Civil Code). If the quedans were negotiable in form and duly indorsed to PNB
(the creditor), the delivery of the quedans to PNB makes the PNB the owner of the property
covered by said quedans and on deposit with Noah, the warehouseman. PNB's right to enforce
the obligation of Noah as a warehouseman, to deliver the sugar stock to PNB as holder of the
quedans, does not depend on the outcome of the third-party complaint because the validity of
the negotiation transferring title to the goods to PNB as holder of the quedans is not affected by
an act of RNS Merchandising and St. Therese Merchandising, in breach of trust, fraud or
conversion against Noah's Ark.

SC also held that the quedans were negotiable documents and had been duly negotiated to the PNB
which acquired the rights set out in Article 1513 of the Civil Code:

1. Such title to the goods as the person negotiating the documents to him had or had ability to
convey to a purchaser in good faith for value and also such title to the goods as the person to
whose order the goods were to be delivered by the terms of the document had or had ability to
convey to a purchaser in good faith for value; and

2. The direct obligation of the bailee issuing the document to hold possession of the goods for him
according to the terms of the document as fully as if such bailee had contracted directly with
him.
PLACE AND TIME OF DELIVERY

Article 1521. Whether it is for the buyer to take possession of the goods or of the seller to send them to
the buyer is a question depending in each case on the contract, express or implied, between the parties.
Apart from any such contract, express or implied, or usage of trade to the contrary, the place of delivery
is the seller's place of business if he has one, and if not his residence; but in case of a contract of sale of
specific goods, which to the knowledge of the parties when the contract or the sale was made were in
some other place, then that place is the place of delivery.

Where by a contract of sale the seller is bound to send the goods to the buyer, but no time for sending
them is fixed, the seller is bound to send them within a reasonable time.

Where the goods at the time of sale are in the possession of a third person, the seller has not fulfilled his
obligation to deliver to the buyer unless and until such third person acknowledges to the buyer that he
holds the goods on the buyer's behalf.

Demand or tender of delivery may be treated as ineffectual unless made at a reasonable hour. What is a
reasonable hour is a question of fact.

Unless otherwise agreed, the expenses of and incidental to putting the goods into a deliverable state
must be borne by the seller. (n)

PLACE OF DELIVERY

Whether it is for the buyer to take possession of the goods or of the seller to send them to the
buyer is a question depending in each case. The place of delivery is determined in the following order of
priority:

(1) Th place stipulated by the parties. The place of delivery may be express or implied in the
contract. The parties may agree that the place of delivery shall be any of the places
mentioned hereunder.
(2) The place dictated by usage of trade. In the absence of any agreement, the place of delivery
is determined by usage of trade- provided by a positive law or established by custom or
tradition through continuous observance or practice.
(3) The place of business of the seller. This place of delivery presupposes that the parties have
no agreement as regards the place of delivery, there is no existing usage of trade, and the
seller has specific place where he conducts his business.
(4) The place where the seller resides. In the absence of numbers 1,2 and 3, the place of
delivery is the seller’s residence.
(5) The place where the specific goods are. In case of contract of sale of specific goods, which to
the knowledge of the parties when the contract or the sale was made were in some other
place, then that place is the place of delivery; unless there is an agreement or usage of trade
to the contrary.

TIME OF DELIVERY

(1) Agreed time. The parties may stipulate the time of delivery, and this agreed time of delivery
may either be express or implied in the contract of sale.
 (2) Reasonable time. Where by a contract of sale the seller is bound to send the goods to the
buyer, but no time for sending them is fixed, the seller is bound to send them within a
reasonable time.

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. What constitutes reasonable time is dependent
on the circumstances availing both on the part of the seller and the buyer.

(3) Fixed time. If parties contemplated that the obligation to deliver is with a period but it has
not been fixed- the parties should fix that period or the Court should fix it for them in case
they fail to fix it. The time that is fixed by the parties or by the court shall be the time of
delivery. This is more particularly applicable if the object of the sale will not be delivered at
one time.

Article 1197 of the Civil Code provides:

Article 1197. If the obligation does not fix a period, but from its nature and the
circumstances it can be inferred that a period was intended, the courts may fix the duration
thereof.
The courts shall also fix the duration of the period when it depends upon the will of the
debtor.
In every case, the courts shall determine such period as may under the circumstances have
been probably contemplated by the parties. Once fixed by the courts, the period cannot be
changed by them. (1128a)

The above-mentioned provision involves a two-step process. The court must first determine
that the obligation does not fix a period (or that the period is made to depend upon the
debtor’s will) but from the nature and the circumstances it can be inferred that a period was
intended. The second step is to determine the period probably contemplated by the parties.
However, the court cannot fix a period merely because in its opinion it is or should be
reasonable, but must set the time that the parties are shown to have intended.

WHEN GOODS ARE IN THE POSSESSION OF A THIRD PERSON

Where the goods at the time of sale are in the possession of a third person, the seller has not
fulfilled his obligation to deliver to the buyer unless and until such third person acknowledges to the
buyer that he holds the goods on the buyer’s behalf.

WHO BEARS THE EXPENSES OF PUTTING GOODS INTO A DELIVERABLE STATE

General Rule: The seller bears the expense of and incidental to putting the goods into a deliverable
state.

Exception: Unless otherwise agreed.

COMPLETENESS OF DELIVERY

Seller’s Fulfillment of his Obligation to Deliver

The seller has fulfilled his obligation to deliver to the buyer, or the thing sold shall be
understood as delivered, when it is actually or constructively placed in the control and possession of the
vendee, regardless of whether it is accepted or refused by the buyer.

Where the goods at the time of sale are in the possession of a third person, the seller has
fulfilled his obligation to deliver to the buyer when such third person acknowledges to the buyer that he
holds the goods on the buyer’s behalf.

INCOMPLETE DELIVERY

Article 1522. Where the seller delivers to the buyer a quantity of goods less than he contracted to sell,
the buyer may reject them, but if the buyer accepts or retains the goods so delivered, knowing that the
seller is not going to perform the contract in full, he must pay for them at the contract rate. If, however,
the buyer has used or disposed of the goods delivered before he knows that the seller is not going to
perform his contract in full, the buyer shall not be liable for more than the fair value to him of the goods
so received.

Where the seller delivers to the buyer a quantity of goods larger than he contracted to sell, the buyer
may accept the goods included in the contract and reject the rest. If the buyer accepts the whole of the
goods so delivered he must pay for them at the contract rate.

Where the seller delivers to the buyer the goods he contracted to sell mixed with goods of a different
description not included in the contract, the buyer may accept the goods which are in accordance with
the contract and reject the rest.

In the preceding two paragraphs, if the subject matter is indivisible, the buyer may reject the whole of
the goods.

The provisions of this article are subject to any usage of trade, special agreement, or course of dealing
between the parties. (n)

DELIVERY OF WRONG QUALITY

THE QUANTITY OF GOODS IS LESS THAN EXPECTED

Where the seller delivers a quantity of goods less than he contracted to sell, the buyer may
choose any of the following:

(1) To reject the goods; or

(2) To accept or retain the goods so delivered and pay for them either:
(a) At their contract rate, if he has knowledge that the seller is not going to perform the
contract in full; or
(b) At their fair value, if he has used or disposed of t hem before he knew that the seller is
not going to perform his contract in full.

The right of the buyer to reject the goods under this situation is absolute regardless of the
extent of the shortfall. The law does not distinguish between a slight or substantial shortfall. This
 is in accordance with the Latin maxim ubi lex non distinguit nec nos distinguere debenus which
means “where the law does not distinguish, neither should the Court.” The present rule may
appear to be insensible and disproportionate, but that is the law.

THE QUANTITY OF GOOD IS LARGER THAN EXPECTED

Where the seller delivers a quantity of goods larger than he contracted to sell, the buyer may
choose any of the following:

(1) To accept the goods included in the contract and reject the rest; or
(2) To accept the whole of the goods so delivered and to pay for them at the contract
rate.

THE GOODS DELIVERED IS MIXED WITH GOODS OF DIFFERENT DESCRIPTION

Where the seller delivers the goods he contracted to sell but mixed with goods of a different
description, the buyer may choose any of the following:

(1) To accept the goods which are in accordance with the contract and reject the rest;
or
(2) To accept or reject the whole goods, if the subject matter is indivisible.

THE SUBJECT MATTER IS INDIVISIBLE

Where the seller delivers a quantity of goods larger than he contracted to sell or delivers the
goods contracted to sell but mixed with goods of a different description, the buyer may reject
the whole goods, if the subject matter is indivisible.

Ordinarily, the subject matter is indivisible if the goods cannot be divided without materially
impairing their value or character like a multi-volume set of books. However, the indivisibility of
the subject matter may depend on the intention of the parties.
 SPOUSES LAM v. KODAK PHILIPPINES

G.R No. 167615 (January 11, 2016)

Facts:

On January 8, 1992, the Lam Spouses and Kodak Philippines, Ltd. entered into an
agreement (Letter Agreement) for the sale of three (3) units of the Kodak Minilab System 22XL6
(Minilab Equipment) in the amount of ₱1,796,000.00 per unit, with the following terms:

“This confirms our verbal agreement for Kodak Phils., Ltd. To provide Colorkwik Laboratories,
Inc. with three (3) units Kodak Minilab System 22XL . . . for your proposed outlets in Rizal
Avenue (Manila), Tagum (Davao del Norte), and your existing Multicolor photo counter in
Cotabato City under the following terms and conditions:

1. Said Minilab Equipment packages will avail a total of 19% multiple order discount based on
prevailing equipment price provided said equipment packages will be purchased not later than
June 30, 1992.

2. 19% Multiple Order Discount shall be applied in the form of merchandise and delivered in
advance immediately after signing of the contract. * Also includes start-up packages worth
P61,000.00.

3. NO DOWNPAYMENT.

4. Minilab Equipment Package shall be payable in 48 monthly installments at THIRTY FIVE

THOUSAND PESOS (P35,000.00) inclusive of 24% interest rate for the first 12 months; the
balance shall be re-amortized for the remaining 36 months and the prevailing interest shall be
applied.

5. Prevailing price of Kodak Minilab System 22XL as of January 8, 1992 is at ONE MILLION SEVEN
HUNDRED NINETY-SIX THOUSAND PESOS.

6. Price is subject to change without prior notice. *Secured with PDCs; 1st monthly amortization
due 45 days after installation.”

• Kodak Philippines, Ltd. delivered one (1) unit of the Minilab Equipment in Tagum, Davao
Province. The delivered unit was installed by Noritsu representatives. The Lam Spouses issued
postdated checks amounting to ₱35,000.00 each for 12 months as payment for the first
delivered unit, with the first check due on March 31, 1992.

• The Lam Spouses requested that Kodak Philippines, Ltd. not negotiate the check dated March
31, 1992 allegedly due to insufficiency of funds. The same request was made for the check due
on April 30, 1992. However, both checks were negotiated by Kodak Philippines, Ltd. and were
honored by the depository bank. The 10 other checks were subsequently dishonored after the
Lam Spouses ordered the depository bank to stop payment.

• Kodak Philippines, Ltd. canceled the sale and demanded that the Lam Spouses return the unit.
The Lam Spouses ignored the demand but also rescinded the contract through the letter dated
November 18, 1992 on account of Kodak Philippines, Ltd.’s failure to deliver the two (2)
remaining Minilab Equipment units.

• Kodak Philippines, Ltd. filed a Complaint for replevin and/or recovery of sum of money. The
Lam Spouses failed to appear during the pre-trial conference. Thus, they were declared in
default.

• Kodak Philippines, Ltd. presented evidence ex-parte. The trial court issued the Decision in
favor of Kodak Philippines, Ltd. ordering the seizure of the Minilab Equipment. Based on this
Decision, Kodak Philippines, Ltd. was able to obtain a writ of seizure for the Minilab Equipment
installed at the Lam Spouses’ outlet in Tagum, Davao Province. The writ was enforced and Kodak
Philippines, Ltd. gained possession of the Minilab Equipment unit, accessories, and the
generator set.

• The Lam Spouses then filed before the CA a Petition to Set Aside the Orders issued by the trial
court. These Orders were subsequently set aside by the CA, and the case was remanded to the
trial court for pre-trial.

• In its Decision, the RTC dismissed the case and ordered the plaintiff to pay Lam Spouses

• Lam Spouses filed their Notice of Partial Appeal. Kodak Philippines, Ltd. also filed an appeal.
However, the CA dismissed it for Kodak Philippines, Ltd.’s failure to file its appellant’s brief,
without prejudice to the continuation of the Lam Spouses’ appeal. The Resolution became final
and executory.

• CA modified the decision of the RTC.

Issues:

(1) Whether the contract between petitioners Spouses Alexander and Julie Lam and respondent
Kodak Philippines, Ltd. pertained to obligations that are severable, divisible, and susceptible of
partial performance under Article 1225 of the New Civil Code; and

(2) Upon rescission of the contract, what the parties are entitled to under Article 1190 and
Article 1522 of the New Civil Code.

Held:

(1) The Letter Agreement contained an indivisible obligation.

The intention of the parties is for there to be a single transaction covering all three (3) units of
the Minilab Equipment. Respondent’s obligation was to deliver all products purchased under a
"package," and, in turn, petitioners’ obligation was to pay for the total purchase price, payable
in installments.

The intention of the parties to bind themselves to an indivisible obligation can be further
discerned through their direct acts in relation to the package deal. There was only one
agreement covering all three (3) units of the Minilab Equipment and their accessories. The
Letter Agreement specified only one purpose for the buyer, which was to obtain these units for
three different outlets. If the intention of the parties were to have a divisible contract, then
separate agreements could have been made for each Minilab Equipment unit instead of
covering all three in one package deal. Furthermore, the 19% multiple order discount as
contained in the Letter Agreement was applied to all three acquired units. The "no
downpayment" term contained in the Letter Agreement was also applicable to all the Minilab
Equipment units. Lastly, the fourth clause of the Letter Agreement clearly referred to the object
of the contract as "Minilab Equipment Package."

In ruling that the contract between the parties intended to cover divisible obligations, the Court
of Appeals highlighted: (a) the separate purchase price of each item; (b) petitioners’ acceptance
of separate deliveries of the units; and (c) the separate payment arrangements for each unit.
However, through the specified terms and conditions, the tenor of the Letter Agreement
indicated an intention for a single transaction. This intent must prevail even though the articles
involved are physically separable and capable of being paid for and delivered individually,
consistent with the New Civil Code: Article 1225. For the purposes of the preceding articles,
obligations to give definite things and those which are not susceptible of partial performance
shall be deemed to be indivisible. When the obligation has for its object the execution of a
certain number of days of work, the accomplishment of work by metrical units, or analogous
things which by their nature are susceptible of partial performance, it shall be divisible.
However, even though the object or service may be physically divisible, an obligation is
indivisible if so provided by law or intended by the parties.

In Nazareno v. Court of Appeals, the indivisibility of an obligation is tested against whether it can
be the subject of partial performance: An obligation is indivisible when it cannot be validly
performed in parts, whatever may be the nature of the thing which is the object thereof. The
indivisibility refers to the prestation and not to the object thereof. In the present case, the Deed
of Sale of January 29, 1970 supposedly conveyed the six lots to Natividad. The obligation is
clearly indivisible because the performance of the contract cannot be done in parts, otherwise
the value of what is transferred is diminished. Petitioners are therefore mistaken in basing the
indivisibility of a contract on the number of obligors.

There is no indication in the Letter Agreement that the units petitioners ordered were covered
by three (3) separate transactions. The factors considered by the Court of Appeals are mere
incidents of the execution of the obligation, which is to deliver three units of the Minilab
Equipment on the part of respondent and payment for all three on the part of petitioners. The
intention to create an indivisible contract is apparent from the benefits that the Letter
Agreement afforded to both parties. Petitioners were given the 19% discount on account of a
multiple order, with the discount being equally applicable to all units that they sought to
acquire. The provision on "no down payment" was also applicable to all units. Respondent, in
turn, was entitled to payment of all three Minilab Equipment units, payable by installments.

(2) The power to rescind obligations is implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him.

The injured party may choose between the fulfilment and the rescission of the obligation, with
the payment of damages in either case. He may also seek rescission, even after he has chosen
fulfilment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of
a period.

Rescission under Article 1191 has the effect of mutual restitution. In Velarde v. Court of Appeals:
Rescission abrogates the contract from its inception and requires a mutual restitution of
benefits received.

The Court of Appeals correctly ruled that both parties must be restored to their original
situation as far as practicable, as if the contract was never entered into. Petitioners must
relinquish possession of the delivered Minilab Equipment unit and accessories, while
respondent must return the amount tendered by petitioners as partial payment for the unit
received. Further, respondent cannot claim that the two (2) monthly installments should be
offset against the amount awarded by the Court of Appeals to petitioners because the effect of
rescission under Article 1191 is to bring the parties back to their original positions before the
contract was entered into.

When rescission is sought under Article 1191 of the Civil Code, it need not be judicially invoked
because the power to resolve is implied in reciprocal obligations. The right to resolve allows an
injured party to minimize the damages he or she may suffer on account of the other party’s
failure to perform what is incumbent upon him or her. When a party fails to comply with his or
her obligation, the other party’s right to resolve the contract is triggered. The resolution
immediately produces legal effects if the non-performing party does not question the
resolution. Court intervention only becomes necessary when the party who allegedly failed to
comply with his or her obligation disputes the resolution of the contract. Since both parties in
this case have exercised their right to resolve under Article 1191, there is no need for a judicial
decree before the resolution produces effects.

WHEREFORE, the Petition is DENIED.

DELIVERY OF THE GOODS TO A CARRIER OR COURIER

Article 1523. Where, in pursuance of a contract of sale, the seller is authorized or required to send the
goods to the buyer, delivery of the goods to a carrier, whether named by the buyer or not, for the
purpose of transmission to the buyer is deemed to be a delivery of the goods to the buyer, except in the
cases provided for in article 1503, first, second and third paragraphs, or unless a contrary intent appears.

Unless otherwise authorized by the buyer, the seller must make such contract with the carrier on behalf
of the buyer as may be reasonable, having regard to the nature of the goods and the other
circumstances of the case. If the seller omit so to do, and the goods are lost or damaged in course of
transit, the buyer may decline to treat the delivery to the carrier as a delivery to himself, or may hold
the seller responsible in damages.

Unless otherwise agreed, where goods are sent by the seller to the buyer under circumstances in which
the seller knows or ought to know that it is usual to insure, the seller must give such notice to the buyer
as may enable him to insure them during their transit, and, if the seller fails to do so, the goods shall be
deemed to be at his risk during such transit. (n)

Article 1523 should be read and understood in relation to Article 1503. The former provides for
the rule that delivery of goods to a carrier is deemed to be a delivery of the goods to the buyer; while
the latter provides for its exceptions.

OBLIGATIONS OF THE SELLER IN RELATION TO THE DELIVERY OF THE GOODS TO A CARRIER

(1) To enter into a contract with the carrier on behalf of the buyer for the delivery of the goods.

General Rule: The seller must make such contract with the carrier on behalf of the buyer as may
be reasonable, having regard to the nature of the goods and the other circumstances of the
case.

Exception: Unless otherwise authorized by the buyer.

Effect of Failure to perform this obligation: If the seller omits to do so, and the goods are lost or
damaged in course of transit, the buyer may decline to treat the delivery to the carrier as a delivery to
himself, or may hold the seller responsible in damages.

(2) To notify the buyer of the importance of insuring the goods if it is usual to ensure them under
the circumstances

General Rule: The seller must give notice to the buyer that it is usual to ensure the goods under
the circumstances.
Purpose: To enable the buyer to ensure the goods during their transit.

Effect of the Failure to Notify: If the seller fails to do so, the goods shall be deemed to be at his
risk during such transit.
Exception: Unless otherwise agreed.
When the Vendor is not bound to Delivery (1524 and 1536)

Article 1524. The vendor shall not be bound to deliver the thing sold, if the vendee has not paid him the
price, or if no period for the payment has been fixed in the contract.

Article 1536. The vendor is not bound to deliver the thing sold in case the vendee should lose the right
to make use of the terms as provided in article 1198.

The vendor shall not be bound to deliver the thing sold, if the vendee has not paid him the price, or if 
noperiod for payment has been fixed in the contract.

As a rule, the obligation to deliver the thing subject matter of a contract arises from the moment of its p
erfectionand from the time the obligation may be enforced.  But a contract of sale is bilateral and so the 
obligation todeliver the thing is accompanied the obligation by the payment of the price.  These obligati
ons are reciprocal.

Exception: If the time for such payment has been fixed in the contract, the thing must be delivered
though the price has not been paid yet.

Possessory Lien – Seller not bound to deliver if buyer has not paid him the price. It is exercisable only in
following circumstances:

     a. goods sold without stipulation as to credit

     b. goods sold on credit but term of credit has expired

     c. buyer becomes insolvent Note: When part of goods delivered, may still exercise right on goods
undelivered

Unpaid Seller (1525-1535)

Article 1525. The seller of goods is deemed to be an unpaid seller within the meaning of this Title:

(1) When the whole of the price has not been paid or tendered;

(2) When a bill of exchange or other negotiable instrument has been received as conditional payment,
and the condition on which it was received has been broken by reason of the dishonor of the
instrument, the insolvency of the buyer, or otherwise.
In articles 1525 to 1535 the term "seller" includes an agent of the seller to whom the bill of lading has
been indorsed, or a consignor or agent who has himself paid, or is directly responsible for the price, or
any other person who is in the position of a seller.

Article 1526. Subject to the provisions of this Title, notwithstanding that the ownership in the goods
may have passed to the buyer, the unpaid seller of goods, as such, has:

(1) A lien on the goods or right to retain them for the price while he is in possession of them;

(2) In case of the insolvency of the buyer, a right of stopping the goods in transitu after he has parted
with the possession of them;

(3) A right of resale as limited by this Title;

(4) A right to rescind the sale as likewise limited by this Title.

Where the ownership in the goods has not passed to the buyer, the unpaid seller has, in addition to his
other remedies a right of withholding delivery similar to and coextensive with his rights of lien and
stoppage in transitu where the ownership has passed to the buyer.

Article 1527. Subject to the provisions of this Title, the unpaid seller of goods who is in possession of
them is entitled to retain possession of them until payment or tender of the price in the following cases,
namely:

(1) Where the goods have been sold without any stipulation as to credit;

(2) Where the goods have been sold on credit, but the term of credit has expired;

(3) Where the buyer becomes insolvent.

The seller may exercise his right of lien notwithstanding that he is in possession of the goods as agent or
bailee for the buyer.

Article 1528. Where an unpaid seller has made part delivery of the goods, he may exercise his right of
lien on the remainder, unless such part delivery has been made under such circumstances as to show an
intent to waive the lien or right of retention.

Article 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.

Article 1530. Subject to the provisions of this Title, when the buyer of goods is or becomes insolvent, the
unpaid seller who has parted with the possession of the goods has the right of stopping them in transitu,
that is to say, he may resume possession of the goods at any time while they are in transit, and he will
then become entitled to the same rights in regard to the goods as he would have had if he had never
parted with the possession.

Article 1531. Goods are in transit within the meaning of the preceding article:

(1) From the time when they are delivered to a carrier by land, water, or air, or other bailee for the
purpose of transmission to the buyer, until the buyer, or his agent in that behalf, takes delivery of them
from such carrier or other bailee;

(2) If the goods are rejected by the buyer, and the carrier or other bailee continues in possession of
them, even if the seller has refused to receive them back.

Goods are no longer in transit within the meaning of the preceding article:

(1) If the buyer, or his agent in that behalf, obtains delivery of the goods before their arrival at the
appointed destination;

(2) If, after the arrival of the goods at the appointed destination, the carrier or other bailee
acknowledges to the buyer or his agent that he holds the goods on his behalf and continues in
possession of them as bailee for the buyer or his agent; and it is immaterial that further destination for
the goods may have been indicated by the buyer;

(3) If the carrier or other bailee wrongfully refuses to deliver the goods to the buyer or his agent in that
behalf.

If the goods are delivered to a ship, freight train, truck, or airplane chartered by the buyer, it is a
question depending on the circumstances of the particular case, whether they are in the possession of
the carrier as such or as agent of the buyer.

If part delivery of the goods has been made to the buyer, or his agent in that behalf, the remainder of
the goods may be stopped in transitu, unless such part delivery has been under such circumstances as to
show an agreement with the buyer to give up possession of the whole of the goods.
Article 1532. The unpaid seller may exercise his right of stoppage in transitu either by obtaining actual
possession of the goods or by giving notice of his claim to the carrier or other bailee in whose possession
the goods are. Such notice may be given either to the person in actual possession of the goods or to his
principal. In the latter case the notice, to be effectual, must be given at such time and under such
circumstances that the principal, by the exercise of reasonable diligence, may prevent a delivery to the
buyer.

When notice of stoppage in transitu is given by the seller to the carrier, or other bailee in possession of
the goods, he must redeliver the goods to, or according to the directions of, the seller. The expenses of
such delivery must be borne by the seller. If, however, a negotiable document of title representing the
goods has been issued by the carrier or other bailee, he shall not be obliged to deliver or justified in
delivering the goods to the seller unless such document is first surrendered for cancellation.

Article 1533. Where the goods are of perishable nature, or where the seller expressly reserves the right
of resale in case the buyer should make default, or where the buyer has been in default in the payment
of the price for an unreasonable time, an unpaid seller having a right of lien or having stopped the goods
in transitu may resell the goods. He shall not thereafter be liable to the original buyer upon the contract
of sale or for any profit made by such resale, but may recover from the buyer damages for any loss
occasioned by the breach of the contract of sale.

Where a resale is made, as authorized in this article, the buyer acquires a good title as against the
original buyer.

It is not essential to the validity of resale that notice of an intention to resell the goods be given by the
seller to the original buyer. But where the right to resell is not based on the perishable nature of the
goods or upon an express provision of the contract of sale, the giving or failure to give such notice shall
be relevant in any issue involving the question whether the buyer had been in default for an
unreasonable time before the resale was made.

It is not essential to the validity of a resale that notice of the time and place of such resale should be
given by the seller to the original buyer.

The seller is bound to exercise reasonable care and judgment in making a resale, and subject to this
requirement may make a resale either by public or private sale. He cannot, however, directly or
indirectly buy the goods.
Article 1534. An unpaid seller having the right of lien or having stopped the goods in transitu, may
rescind the transfer of title and resume the ownership in the goods, where he expressly reserved the
right to do so in case the buyer should make default, or where the buyer has been in default in the
payment of the price for an unreasonable time. The seller shall not thereafter be liable to the buyer
upon the contract of sale, but may recover from the buyer damages for any loss occasioned by the
breach of the contract.

The transfer of title shall not be held to have been rescinded by an unpaid seller until he has manifested
by notice to the buyer or by some other overt act an intention to rescind. It is not necessary that such
overt act should be communicated to the buyer, but the giving or failure to give notice to the buyer of
the intention to rescind shall be relevant in any issue involving the question whether the buyer had been
in default for an unreasonable time before the right of rescission was asserted.

Article 1535. Subject to the provisions of this Title, the unpaid seller's right of lien or stoppage in transitu
is not affected by any sale, or other disposition of the goods which the buyer may have made, unless the
seller has assented thereto.

If, however, a negotiable document of title has been issued for goods, no seller's lien or right of
stoppage in transitu shall defeat the right of any purchaser for value in good faith to whom such
document has been negotiated, whether such negotiation be prior or subsequent to the notification to
the carrier, or other bailee who issued such document, of the seller's claim to a lien or right of stoppage
in transitu.

BASIS: Sales of Goods Act (SOGA)

SECTION 45. “Unpaid seller” defined.—

(1) The seller of goods is deemed to be an “unpaid seller” within the meaning of this Act—

(a) when the whole of the price has not been paid or tendered;

(b) when a bill of exchange or other negotiable instrument has been received as conditional payment,
and the condition on which it was received has not been fulfilled by reason of the dishonour of the
instrument or otherwise.

(2) In this Chapter, the term “seller” includes any person who is in the position of a seller, as, for
instance, an agent of the seller to whom the bill of lading has been endorsed, or a consignor or agent
who has himself paid, or is directly responsible for, the price.
- In the case of negotiable instruments, the mere fact that it has been tendered by the buyer doesn’t
mean that seller is not anymore an unpaid seller. He becomes an unpaid seller when even after
tendering it, it is rejected by the bank or as the case may be. Section also provides that any person who
is in the position of a seller e.g. his agent is also considered seller for the purposes of SOGA.

- Although ownership of the goods is passed to the buyer after the sale of goods but an unpaid seller has
certain rights.

An UNPAID SELLER has two-fold rights which are as follows:

(1) Rights of unpaid seller against the goods.

(2) Rights of unpaid seller against the buyer personally.

RIGHTS OF AN UNPAID SELLER AGAINST THE GOODS SOLD: Under the SOGA, these rights are:

(1) a possessory lien (particular, not general);

(2) a right of stoppage in transitu; and

(3) a right of resale.

- These rights have been provided in the provisions of Section 46 of the SOGA which provides:

Unpaid seller’s rights.—

(1) Subject to the provisions of this Act and of any law for the time being in force, notwithstanding
that the property in the goods may have passed to the buyer, the unpaid seller of goods, as such, has
by implication of law—

(a) a lien on the goods for the price while he is in possession of them;

(b) in case of the insolvency of the buyer a right of stopping the goods in transit after he has parted
with the possession of them;

(c) a right of re-sale as limited by this Act.

(2) Where the property in goods has not passed to the buyer, the unpaid seller has, in addition to his
other remedies, a right of withholding delivery similar to and co-extensive with his rights of lien and
stoppage in transit where the property has passed to the buyer.
RIGHT OF LIEN:

- For the recovery of price, an unpaid seller has a right to keep the goods in his own possession.

- Right of Lien means seller can withhold the delivery of goods to the seller till his payment is being
made.

- In other words, ‘Lien’ is the right to retain possession of goods and refuse to deliver them to the buyer
until the price due in respect of them is paid or tendered. 

- Section 47 of SOGA deals with the right to Lien.

- The SOGA provides for the conditions under which an unpaid seller will be able to exercise his right of
lien i.e. where the goods are not sold on credit or if they were sold on credit and the term of the credit
has expired or where the buyer becomes bankrupt.

- In the case of buyer becomes bankrupt, the lien exists even though the goods were sold on credit and
the period of credit has not yet expired.

- In cases where the goods have been sold on credit the presumption is that the buyer will pay the price.

- If, therefore, before payment the buyer becomes bankrupt, the seller is entitled to exercise his lien
over the goods as security for the price.

- The SOGA also provides that the seller can exercise this right notwithstanding that he is an agent,
bailee or custodian for the buyer.

- This right of lien can be exercised only for the non-payment of the price and not for any other charges,
i.e., maintenance or  custody charges, which the seller may have to incur for storing  the goods etc. 

- Also, the right of lien extends to the whole of the goods in his possession even though part payment
for those goods has already been made.

- In other words, the buyer is not entitled to claim delivery of a portion of the goods on payment of a
proportionate price.

- However, in those situations where goods have been partially delivered by the seller then he may
exercise his right of lien on the remaining part unless there is an agreement in which he waives this
right. This has been provided in Section 48 of the SOGA.

TERMINATION OF LIEN

- An unpaid seller loses his right of lien in the following cases:

1.By Waiver: If an unpaid seller himself waives his right of lien then it will be terminated.

2. Goods delivered to Buyer: When a buyer or his agent or his any representative obtains the lawful
possession of goods, unpaid seller’s right of lien automatically ends.

3. No Right of Disposal: When an unpaid seller delivers the goods to the carrier/bailee without reserving
the right to disposal with himself then his right of lien ends.

- Section 49 of SOGA provides for the above-mentioned situations in which the seller loses his right of
lien.

- It further provides that the right of Lien can still be exercised even though the seller has got a decree
from a Court of Law for the payment of price.

Right of Stopping the Goods in Transit:

- The right of stoppage in transit means the right of stopping the goods while they are in transit, to
regain possession and to retain them till the full price is paid. 

- In other words, if buyer has become insolvent, an unpaid seller has a right of stopping the goods in
transit and can resume the same on the payment of price.

- This right has been provided in Section 50 of SOGA.

- This right is limited to the transit only, the moment the goods are delivered to the buyer, seller cannot
exercise this right. “the moment the goods are delivered by vendor to a carrier to be carried to the
purchaser the transitus begins. When the goods have arrived at their destination and have been
delivered to the purchaser or when the carrier holds them as warehouse for the purchaser or his agent
and no longer as carrier, the transitus is at end.”

- Moreover, Section 51 of SOGA provides that in case of goods are being delivered to carrier by land or
water then till the time buyer or his agent takes the possession of goods from such carrier on land or on
water, seller can exercise this right. If the buyer takes the possession that means transit has come to an
end and hence, seller cannot exercise this right.

- When the notice of stoppage in transitu is communicated to the carrier/bailee having possession of
goods then such person must re-deliver the goods only as per the seller’s instructions and in such case,
the cost of re-delivering the goods will be borne by the seller.

- This has been provided by Section 52(2) of SOGA.

DIFFERENCE BETWEEN RIGHT OF LIEN AND STOPPAGE IN TRANSIT

- The seller can exercise his right of lien when the buyer is in default irrespective of his solvency whereas
right of stoppage in transit arises only when the buyer has become insolvent.

- Right of Lien can be exercised by the seller only when the goods are in actual/physical possession of
the seller whereas right of stoppage in transit becomes available when the seller has parted with
possession and the goods are in the custody of an independent carrier/bailee.

- The right of lien comes to an end once the seller hands over the possession of the goods to the carrier
for the purpose of transmission to the buyer whereas right of stoppage in transit becomes available
when the seller has parted with possession and the goods are in the custody of an independent
carrier/bailee.

- The right of lien implies retaining the possession of the goods while the right of stoppage implies
regaining possession of the goods.

RIGHT OF RESALE:

- An unpaid seller is considered the owner of the goods until he is not paid by the buyer. So he has a
right to sell his goods subject to a few conditions.

- The right of resale is very important right of an unpaid seller. In the absence of this right, the unpaid
seller’s other right against the goods, namely, ‘lien’ and ‘stoppage in transit,’ is just futile because these
rights only entitle the unpaid seller to retain the goods until paid by the buyer. If the buyer continues to
remain in default, then what else the seller is expected to do with the goods, especially when the goods
are perishable?

- Hence, Section 54 of SOGA, therefore, gives to the unpaid seller a limited right to resell the goods in
the following cases:

(a)         Where the goods are of a perishable nature; or

(b)   Where such a right is expressly reserved in the contract in case the buyer should make a default.

- Where the goods are perishable in nature and the unpaid seller notifies the buyer of his intention to
resell them, if the buyer doesn’t pay within a reasonable time, the seller can resell the goods.

- Seller can also recover from the original buyer any damages incurred due to his breach of the contract
under Section 54 (2) of SOGA.

- According to the provision of Section 53 of SOGA, the unpaid seller’s right of lien or stoppage in
transitu is not defeated by any resale done by the buyer to a third party without the seller’s consent.

- In case of transfer of goods by buyer, the unpaid seller’s right of lien or stoppage in transit can be
exercised subject to rights of transferee.
- When pledgee sells goods, the unpaid seller is entitled to receive the surplus sale proceeds.

RIGHTS OF UNPAID SELLER AGAINST THE BUYER PERSONALLY

The unpaid seller can take following actions against the buyer personally:

Sue for Price:

- The unpaid seller has also a right to claim the price from the buyer for the goods. It has been provided
under Section 55 of SOGA. 

- It provides that where the property in the goods have already been delivered to buyer and seller
remains unpaid owing to the negligence or deliberate refusal of the buyer then seller may sue the buyer
for the price of the goods.

Damages for Non- Acceptance:

- According to Section 56 of SOGA if Buyer refuses to accept the goods and pay the price of the goods
then seller can sue him for damages for non-acceptance.

- The damages are calculated in accordance with the rules contained in Section 73 of the Indian Contract
Act, that is, the measure of damages is the estimated loss arising directly and naturally from the buyer’s
breach of contract.

Suit for specific performance:

- According to Section 58 of SOGA subject to Specific Relief Act, seller may also sue buyer for specific
performance of contract in case of a breach of contract and the decree passed can be unconditional
without giving the defendant the option of retaining the goods on payment of damages.

Suit for Interest & Special Damages:

- According to Section 61 of SOGA, the unpaid seller can recover the reasonable interest on the unpaid
price goods sold. The seller can also sue the buyer for special damages where both the parties are aware
of such loss at the time of contract.

Sale of immovable at a rate per unit (1539-1541)

Article 1539. The obligation to deliver the thing sold includes that of placing in the control of the vendee
all that is mentioned in the contract, in conformity with the following rules:
If the sale of real estate should be made with a statement of its area, at the rate of a certain price for a
unit of measure or number, the vendor shall be obliged to deliver to the vendee, if the latter should
demand it, all that may have been stated in the contract; but, should this be not possible, the vendee
may choose between a proportional reduction of the price and the rescission of the contract, provided
that, in the latter case, the lack in the area be not less than one-tenth of that stated.

The same shall be done, even when the area is the same, if any part of the immovable is not of the
quality specified in the contract.

The rescission, in this case, shall only take place at the will of the vendee, when the inferior value of the
thing sold exceeds one-tenth of the price agreed upon.

Nevertheless, if the vendee would not have bought the immovable had he known of its smaller area of
inferior quality, he may rescind the sale.

Article 1540. If, in the case of the preceding article, there is a greater area or number in the immovable
than that stated in the contract, the vendee may accept the area included in the contract and reject the
rest. If he accepts the whole area, he must pay for the same at the contract rate.

Article 1541. The provisions of the two preceding articles shall apply to judicial sales.

- UNDER ARTICLE 1539 OF THE CIVIL CODE, “If the sale of real estate should be made with a statement
of its area, at the rate of a certain price for a unit of measure or number,” then the obligations of the
seller are as follows:

- The seller is obliged to deliver to the buyer, if the latter should demand it, all that may have been
stated in the contract;

- If that should not be possible, buyer may choose between a propoertionla reduction of the price, or
recession of the sale when in the latter case, lack of area be not less than one-tenth (1/10) of that
stated;
- The rule applies, even when the ares is the same, if any part of the immovable is not of the quality
specified in the contract; but rescission may take place when the inferior value of the thing sold exceeds
one-tenth (1/10) of the price agreed upon;

- Even when the smaller area or inferiority of quality does not conform to the minimum amount or value
provided by law to allow rescission on the part of the buyer, nevertheless, if the buyer would not have
bought the immovable had he known of its smaller area or inferior quality, he may rescind the sale.

- Under Article 1540, if there is a greater area or number in the immovable than that stated in the
contract, the buyer may accept the area included in the contract and reject the rest; if he accepts the
whole area, he must pay for the same at the contract rate.

- The foregoing rules also apply to judicial sales.

Sale of an immovable made for a Lump Sum (1542)

Article 1542. In the sale of real estate, made for a lump sum and not at the rate of a certain sum for a
unit of measure or number, there shall be no increase or decrease of the price, although there be a
greater or less area or number than that stated in the contract.

The same rule shall be applied when two or more immovables as sold for a single price; but if, besides
mentioning the boundaries, which is indispensable in every conveyance of real estate, its area or
number should be designated in the contract, the vendor shall be bound to deliver all that is included
within said boundaries, even when it exceeds the area or number specified in the contract; and, should
he not be able to do so, he shall suffer a reduction in the price, in proportion to what is lacking in the
area or number, unless the contract is rescinded because the vendee does not accede to the failure to
deliver what has been stipulated.

Article 1542 of the Civil Code, provides for the following rules for the sale of real estate made for a lump
sum, thus:

- There shall be no increase or decrease of the price, although there be a greater or lesser area or
number than that stated in the contract, especially with the use of qualifying words or “more or less” in
describing the area.
- The same rule applies when two or more immovables are sold for a single price.

But if, besides mentioning the boundaries which is indispensable in every conveyance of real estate, its
area or number should be designated in the contract, the vendor shall be bound to deliver all that is
included within said boundaries, even when it exceeds the area or number specified in the contract.

- Should the seller not be able to do so, he shall suffer a reduction in the price, in proportion to what is
lacking in the area or number, unless the contract is rescinded because the buyer does not acede to the
failure to deliver what has been stipulated. 

Double Sales (1544)

Article 1544. If the same thing should have been sold to different vendees, the ownership shall be
transferred to the person who may have first taken possession thereof in good faith, if it should be
movable property.

Should it be immovable property, the ownership shall belong to the person acquiring it who in good
faith first recorded it in the Registry of Property.

Should there be no inscription, the ownership shall pertain to the person who in good faith was first in
the possession; and, in the absence thereof, to the person who presents the oldest title, provided there
is good faith. 

WHAT IS A DOUBLE SALE?

- A double sale is the selling of the same property by the same seller to different buyers with conflicting
rights.

- The following instances must be concurring: (1) there are two or more transactions must constitute
valid sales, (2) they must pertain exactly to the same object or subject matter, (3) they must be bought
from the same or immediate seller and two or more buyers who are at odds over the rightful ownership
of the subject matter must represent conflicting interests.

WHAT IS THE REMEDY TO A DOUBLE SALE ACCORDING TO LAW?

- The New Civil Code has provided for the instance which will constitute a double sale and the manner
on how it would be resolved:
Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be
transferred to the person who may have first taken possession thereof in good faith, if it should be
movable property.

Should it be immovable property, the ownership shall belong to the person acquiring it who in good
faith first recorded it in the Registry of Property.

Should there be no inscription, the ownership shall pertain to the person who in good faith was first in
the possession; and, in the absence thereof, to the person who presents the oldest title, provided there
is good faith.

- This provision lays down the rules of preference to who shall be given priority in a double sale. When it
involves a personal property, the first possessor in good faith shall be preferred. If it involves a real
property, the first registrant in good faith and if there is nothing to show this fact then the first
possessor in good faith shall follow and if still cannot be determined then the person with oldest title in
good faith shall be given precedence.
 Suntay vs. Keyser Mercantille, Inc., GR 208462

G.R. No. 208462               December 10, 2014

SPOUSES CARLOS J. SUNTAY and ROSARIO R. SUNTAY, Petitioners, vs.

KEYSER MERCANTILE, INC., Respondent.

FACTS: On October 20, 1989, Eugenia Gocolay, chairperson and president of respondent Keyser
Mercantile, Inc., entered into a contract to sell with Bayfront Development Corporation for the purchase
on installment basis of a condominium unit in Bayfront Tower Condominium located at A. Mabini Street,
Malate, Manila. The subject of the sale was Unit G of the said condominium project consisting of 163.59
square meters with the privilege to use two parking slots of the same property. This Contract to Sell was
not registered with the Register of Deeds of Manila. Thus, the subject unit remained in the name of
Bayfront with a clean title.

On July 7, 1990, petitioner Spouses Suntay also purchased several condominium units on the 4th floor of
Bayfront Tower Condominium through another contract to sell. Despite payment of the full purchase
price, however, Bayfront failed to deliver the condominium units. When Bayfront failed to reimburse the
full purchase price, Spouses Suntay filed an action against it before the Housing and Land Use Regulatory
Board for violation of P.D. No. 957 and P.D. No. 1344, rescission of contract, sum of money, and
damages.

In its decision, the HLURB rescinded the Contract to Sell between Bayfront and Spouses Suntay and
ordered Bayfront to pay Spouses Suntay the total amount of P2,752,068.60 as purchase price with
interest. Consequently, on November 16, 1994, the HLURB issued a writ of execution.

Upon the application of Spouses Suntay, the Sheriffs of the RTC of Manila levied Bayfront’s titled
properties, including the subject condominium Unit G and the two parking slots. Considering that CCT
No. 15802 was still registered under Bayfront with a clean title, the sheriffs deemed it proper to be
levied. The levy on execution in favor of Spouses Suntay was duly recorded in the Register of Deeds of
Manila on January 18, 1995.

The auction sale was conducted on February 23, 1995, and Spouses Suntay were the highest bidder.
Consequently, on March 1, 1995, the Certificate of Sale in favor of Spouses Suntay was issued. The latter
allegedly paid the full purchase price sometime in 1991. When Keyser was about to register the said
deed of absolute sale in February 1996, it discovered the Notice of Levy and the Certificate of Sale
annotated at the back of CCT No. 15802 in favor of Spouses Suntay. Nevertheless, on March 12, 1996,
the Register of Deeds cancelled the title of Bayfront and issued CCT No. 26474 in the name of Keyser but
carried over the annotation of the Suntays.

ISSUE: Whether the sale of the subject property to the spouses Suntay was valid.

RULING: No, the sale to petitioner spouses Suntay was not valid.

In the present case, the contract to sell between Keyser and Bayfront was executed on October 20,
1989, but the deed of absolute sale was only made on November 9, 1995 and registered on March 12,
1996. The Notice of Levy in favor of Spouses Suntay was registered on January 18, 1995, while the
Certificate of Sale on April 7, 1995, both dates clearly ahead of Keyser’s registration of its Deed of
Absolute Sale. Evidently, applying the doctrine of primus tempore, potior jure (first in time, stronger in
right), Spouses Suntay have a better right than Keyser.

In the case of Uy v. Spouses Medina which dealt with essentially the same issues, the Court wrote that:
“Considering that the sale was not registered earlier, the right of petitioner over the land became
subordinate and subject to the preference created over the earlier annotated levy in favor of Swift. The
levy of execution registered and annotated on September 1, 1998 takes precedence over the sale of the
land to petitioner on February 16, 1997, despite the subsequent registration on September 14, 1998 of
the prior sale. Such preference in favor of the levy on execution retracts to the date of levy for to hold
otherwise will render the preference nugatory and meaningless.”

The settled rule is that levy on attachment, duly registered, takes preference over a prior unregistered
sale. This result is a necessary consequence of the fact that the property involved was duly covered by
the Torrens system which works under the fundamental principle that registration is the operative act
which gives validity to the transfer or creates a lien upon the land. The preference created by the levy on
attachment is not diminished even by the subsequent registration of the prior sale. This is so
because an attachment is a proceeding in rem. It is against the particular property, enforceable against
the whole world. The attaching creditor acquires a specific lien on the attached property which nothing
can subsequently destroy except the very dissolution of the attachment or levy itself. Such a proceeding,
in effect, means that the property attached is an indebted thing and a virtual condemnation of it to pay
the owner’s debt. The lien continues until the debt is paid, or sale is had under execution issued on the
judgment, or until the judgment is satisfied, or the attachment discharged or vacated in some manner
provided by law.
 Peralta vs. Heirs of Bernardina Abalon GR 184338 and GR 183464

G.R. No. 183448               June 30, 2014

SPOUSES DOMINADOR PERALTA AND OFELIA PERALTA, Petitioners, vs.

HEIRS OF BERNARDINA ABALON, represented by MANSUETO ABALON, Respondents.

FACTS: The present case involves a parcel of land before the RTC of Legazpi City, described as Lot 1679
consisting of 8, 571 square meters and registered under the name of Bernardina Abalon. It was
fraudulently transferred to Restituto Rellama by executing a Deed of Sale and who, in turn, subdivided
the subject property and sold it separately to the other parties, namely Spouses Peralta and the Andals.

Thereafter, Sposes Peralta and the Andals individually registered the respectiv portions of the land they
had bought under their names. The heirs of Bernardina were claiming back the land, alleging that since
it was sold under fraudulent circumstances, no valid title passed to the buyers. On the other hand, the
buyers, who were now title holders of the subject parcel of land, averred that they were buyers in good
faith and sought the protection accorded to them by the law.

ISSUE: Whether the Transfers of title of the subject property was valid.

RULING: Yes. The established rule is that a forged deed is generally null and cannot convey title, the
exception thereto, pursuant to Section 55 of the LRA, denotes the registration of titles from the forger
to the innocent purchaser for value. Thus, the qualifying point in the present case is that there must be a
chain of registered titles.

All the transfers starting from the original rightful owner to the innocent holder for value of the subject
property must be duly registered, ant that the title must be properly issued to the transferee. In the case
of Fule, the original owner relinquished physical possession of her title and thus enabled the perpetrator
to commit the fraud, which resulted in the cancellation of her title and the issuance of a new one. The
forged instrument eventually became the root of a valid title in the hands of an innocent purchaser for
value. The new title under the name of the forger was registered and relied upon by the innocent
purchaser for value. Hence, it was clear that there was a complete chain of registered titles.

In the present case, there is no evidence that the chain of registered titles was broken in the case of the
Andals. Neither were they proven to have knowledge of anything that would make them suspicious of
the nature of Rellama’s ownership over the subject parcel of land. Hence, the court sustained the ruling
of the Court of Appeals that the Andals were buyers in good faith. Consequently, the validity of their
title to the parcel of land bought from Rellama must be upheld.
 Peblia Altaro and the heirs of Prosperous Alfara GR 186622

G.R. NO. 186622 JANUARY 22, 2014

PEBLIA ALFARO and the heirs of Prosperous Alfaro VS. SPOUSES EDITHO AND HERA DUMALAGAN,
Spouses Crispin and Edtha Dalogdog, et. al.

FACTS: Sps. Prosperous and Peblia Alfaro bought a lot from Sps. Bagano through a Deed of absolute
Sale on June 1995. The subject property was presently occupied by Sps. Dumalagan. Due to such
circumstance and to allegedly protect their right, the Sps. Alfaro filed a petition.

Spouses Dumalagan presented the notarized Deed of Absolute Sale dated December 6, 1993 and
certificate, they are the real owner of a portion of the subject property, based on a notarized Deed of
Absolute Sale dated December 6, 1993 and certificate of completion and a certificate of occupancy, both
dated August 10,1993. Sps. Bagano filed a complaint for Declaration of nullity of Sale with Damages and
Preliminary injunction against petitioners. In said case, the trial court sustained the validity of the Deed
of Absolute Sale between petitioners and Sps. Bagano, which the appellate court reversed and set aside.
According to the Appellate court, petitioners cannot claim good faith by referring to the annotations
written at the back of Bagano’s title. It stated that regardless if the petitioners name was not stated in
the annotated adverse claims it still have the effect of constructive notice of the defect in the seller’s
title that made them as subsequent buyers.

Such fact can be considered as an evidence that Sps. Alfaro had prior notice that the property they
bought had prior owners.

ISSUE: Whether the petitioners are considered as buyers in good faith.

RULING: No, a purchaser in good faith is one who buys the property of another without notice that
some other person has a right to, or an interest in such property, and pays a full and fair price for the
same at the time of such purchase, or before he has notice of some other person’s claim or interest in
the property.

The petitioners are not such purchaser. Petitioners , based on evidence presented, had admitted that
they have prior knowledge of the previous sales by installment of portions of the property to several
purchasers based on the annotation in the title. Moreover, petitioners had prior knowledge of
respondents’ possession over the subject property.

Article 1544 clearly states that the rule on double or multiple sales applies only when all the purchasers
are in good faith. In detail Art. 1544 requires that before the second buyer can obtain priority over the
first, he must show that he acted in good faith throughout, i.e., in ignorance of the first sale and of the
first buyer’s rights, from the time of acquisition until the title is transferred to him by registration or
failing registration, by delivery of possession.
Hence, the rule on double sale is inapplicable in the case at bar. As correctly held by the appellate court.
Petitioner’s prior registration with prior knowledge of respondents’ claim of ownership and possession,
cannot confer ownership or better right over the subject property.