DOCUMENTS OF TITLE
hold and deliver the said goods to a
Concepts and functions
➢ Definition - a document of title in which
is stated that the goods referred to therein
will be delivered to the bearer, or to order
of any person named in such document is
a negotiable instrument of title.
➢ Purpose - allows sellers to deal with
goods as if they had physically delivered
them to the buyer, while buyers can take
the document as if they had control over
the goods. The endorsement and delivery
of a negotiable quedan transfer
possession and ownership of the
property, divorcing it from the insolvent's
estate before filing a petition for
insolvency [Philippine Trust Co. v.
National Bank].
➢ Document is negotiable if:
1. goods are deliverable to bearer
2. goods are deliverable to the order of
a certain person
Common forms of documents of title
1. Bill of Landing - contract or receipt for
the transport of goods and their delivery
to the person named therein, to order or
bearer.
2. Dock Warrant - given by dock owners
to an importer of goods recognizing the
latter’s title of the said goods
3. Warehouse Receipt - contract or receipt
for goods deposited with warehouseman
containing the latter’s undertaking to
specified person, to order or bearer.
Classes of documents of title
➢ Negotiable Documents of Title - stated
that goods can be delivered to bearer, or
to the order of a person.
➢ Non-negotiable Instrument of Title -
stated that goods are to be delivered to a
specified person.
Negotiable Documents of Title (Arts. 1508-15)
➢ Negotiation of negotiable document of
title:
1. by delivery
2. by indorsement plus delivery
➢ Forms of Indorsement
a. Blank Indorsement - consist of
signature of the indorser without
specifying the name of the indorsee.
b. To bearer - where the indorsement
states that the goods are deliverable
to bearer.
c. Special Indorsement - name of
indorsee is specified.
➢ Negotiable Document of title marked
“Non-negotiable” - such mark will have
no effect on the instrument and remains
to be negotiable.
➢ Who may negotiate negotiable
document of title
 1. by the owner
2. by the person to whom
possession or custody of
document has been entrusted by the
owner.
➢ Rights of the Holder
1. title of the person negotiating the
document, over the goods covered by
the document;
2. title of the person to whose order by
the terms of the document the goods
were to be delivered, over such
goods for him, as if the bailee had
contracted to him directly.
o NOTE: Mere transfer foes
not acquire directly the
obligation of the bailee. To
acquire it, he must notify the
bailee.
➢ Transfer for Value by Delivery - if a
negotiable document of title
transferred for value by delivery, and
indorsement is essential for negotiation,
the right of the transferee are:
1. right to the goods as against the
transferor;
2. right to compel the transferor to
indorse
• negotiation shall take effect as to
the time when indorsement is
actually made.
Indorser not a guarantor (Art 1517)
the
Art. 1517 - The endorsement of a
the
document of title shall not make the endorser
liable for any failure on the part of the bailee who
issued the document or previous endorsers
thereof to fulfill their respective obligations.
Negotiation not impaired by fraud, mistake,
etc. (Art 1518)
Art. 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
is
value therefor in good faith without notice of the
breach of duty, or loss, theft, fraud, accident,
mistake, duress or conversion.
➢ negotiation not impaired
1. if the person who negotiated paid in
good faith without notice of breach
of duty
2. if the owner lose the document by
loss, theft, fraud, accident, mistake,
duress, or conversion
Rights of a person to whom document has
been transferred (Art. 1514)

➢ Rights of the Transferee - the rights of a

transferee, to whom a document is
transferred but not negotiated, are not
absolute as it is subjected to the terms of
the agreement.
1. title of the goods as against the
transferor;
2. right to notify the bailee of the
transfer thereof;
3. right, thereafter, to acquire the
obligation of the bailee to hold goods
for him.

Warranties of a person negotiating or

transferring document (Art. 1516)

➢ Warranties on sale of document

1. document is genuine
2. he has a legal right to negotiate or
transfer it
3. he has knowledge of no fact which
would impair the validity or worth of
the document
4. he has the right to transfer the title to
the goods and that goods are
merchantable or fit for a particular
purpose
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Article 1582. Primary Obligations of the Vendee: Purpose of Notice: To insulate the seller from belated claims of defects and to allow him to
a. To accept the delivery of the thing make urgent investigation on the validity of claims.
b. To pay the purchase price simultaneously upon the delivery of the thing unless a period
or term has been agreed upon. Article 1587. Effects of Justifiable refusal to accept delivery by the buyer
EXCEPTION TO SIMULTANEITY OF ACTS: if parties agreed, such as in sale by 1. Buyer has no duty to return the goods to the seller but must notify the seller of his refusal
instalments. to accept the goods. (Risk of Loss here is on the seller)
2. Buyer may voluntarily constitute himself as depositary of the goods, but he will be liable
Payment shall be made at the stipulated time and place of delivery. If there is no stipulation for damages if he does not fulfil the duties of a depositary as required by law. (Risk of loss is on the
at the time and place of delivery of the thing. buyer)

*** The failure of the vendee to pay the price after delivery if ownership had been transferred, does Article 1588. Effect of Unjustifiable Refusal to accept goods by the buyer: Title or ownership
not cause the ownership to revert back to the seller until and unless the bilateral contract of sale is passes to him from the time goods were placed at his disposal.
first rescinded. [Chua Hoi vs. Kapunan] Exceptions: a. If there is contrary agreement
b. If the seller reserves ownership as security for payment of the price [1503 & 1523]
Article 1583. Rules in case of Contract of Sale of goods to be delivered in stated instalments.
Two instances contemplated: Article 1589. When vendee is bound to pay interest (period b/w date of delivery and date of
a. Seller makes defective deliveries in one or more instalments—Buyer may reject the payment) after delivery:
defective portion and accept the good ones a. if the parties stipulated
b. Buyer refuses w/o just cause to take delivery or pay one or more instalments— b. if the thing sold and delivered produces fruits or income
determine whether breach is material to warrant refusal to proceed with the entire contract of sale. c. if the vendee is in default, from the time demand is made upon him either juidicially or
When the breach is severable the injured party can seek damages or compensation but not to extra-judicially.
rescind the whole contract.
Article 1590. When can the vendee suspend payment of the price (total or remaining)?
Article 1584. Buyer’s Right to examine goods. 1. If he is disturbed in his possession or ownership of the thing brought
a. Delivery w/o previous examination: The buyer is not deemed to have accepted the same unless 2. If he has a well-grounded fear that his possession or ownership would be disturbed by a
he had a reasonable opportunity of examining them for the purpose of finding out whether they vindicatory action or foreclosure of mortgage.
conform with the specifications agreed upon.
b. Tender of Delivery by the seller: If seller tenders delivery, he should give the buyer if the latter Length of suspension: While the danger or disturbance exists.
requested, the reasonable opportunity of examining the goods to determine whether they conform
with the contract. Situations where vendee cannot suspend payment despite presence of disturbance (SSS-TP)
1. When the vendor has given security for the return of the price
When right of examination not allowed? 2. When the parties have stipulated
a. If there is an express stipulation to the contrary 3. When the vendor has succeeded in eliminating the danger or disturbance
b. When the goods are deliveres “collect on delivery”, the buyer cannot examine the goods 4. If disturbance is mere act of trespass
unless he pays first the price. Exception: He need not pay the price if there is a contrary agreement 5. If vendee has fully paid the price
or the examination is permitted by usage of trade at the place of delivery.
**Other causes for suspension: non-compliance by vendor of certain conditions; warranty
Article 1585. Signs or Evidence of Acceptance by the buyer of Goods delivered to him. (CPR) of eviction
a. When he communicates with the seller expressly manifesting his acceptance thereof.
b. When he performs an act in relation to the goods inconsistent with the ownership of the Article 1591. Immediate rescission in sale of immovables, if the vendor has reasonable ground
seller. Examples: (a) continuous possession and use of goods (b) reselling the goods (c) mortgaging to fear the loss of the immovable.
the goods ** Vendor however has the alternative of compelling specific performance if the ground to
c. When after the lapse of a reasonable time following the delivery, he retains the goods fear loss does not exist.
w/o complaining to the seller or w/o intimating that he has rejected them.
Article 1592. Exception to the general rule on rescission in case of sale of immovables.
Article 1586. Acceptance of Goods. Mere Acceptance does not necessarily discharge the seller General Rule on Rescission: The court may fix the period of payment when there
from liability for the breach of any promise or warranty. However to make the seller liable the buyer is just cause. Exception: Court is not allowed to grant a new period. Once there is a judicial demand
must notify the seller w/in a reasonable time about the breach of promise or warranty. by notarial act received by the vendee, the court may not grant him a new term. The reason is that

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the vendee already enjoyed the advantage of paying beyond the time originally fixed in the contract,
during the time when no demand for rescission either judicially or extra-judicially has taken place.
*Art. 1592 Not applicable in:
1. Sales by instalments where parties have laid down the procedure to be followed in the
event the vendee failed to fulfill his obligation
2. A mere promise to sell where the title remains with the vendor until full payment of the
price.
Article 1593. Automatic Rescission of sale of movables. Conditions for applicability:
1. if the vendee upon the expiration of the period fixed for the delivery of the thing
purchased, refused to receive it w/o justifiable cause
2. if he failed to pay the price unless granted a longer period w/in w/c to pay.
Reason why judicial or notarial act not required: Personal things do not generally keep a stable price
in the market, any delay in their disposal may prejudice the vendor.
Actions for breach of contract of sale of goods
Article 1594. Actions available to vendor when there is breach of contract of sale on the part of
the vendee: (PDR)
1. Action for payment of the price of the goods [1595]
2. Action for damages due to wrongful neglect and refusal to accept and pay for the goods [1596]
3. Action for rescission if buyer has repudiated the contract or has manifested his inability to perform
his obligation [1597]
Actions available to the vendee, in case of breach by the vendor (SDR)
1. Action for specific performance in case of failure of the vendor to deliver the goods [1598]
2. Action for damages for breach of warranty but accepting the goods [1599]
3. Action for rescission for breach of warranty where the vendee may validly refuse acceptance of
the goods, or even if the goods had already been received, he may return them [1599 par. 4]
Article 1595. Action for collection of price, available in the following cases: (OPR)
1. When the ownership of the goods has passed to the buyer and he wrongfully neglects or refuses
to pay for the price according to the terms of the contract
2. When the price is payable irrespective of delivery or transfer of title, on a certain day and the
buyer wrongfully neglects or refuses to pay such price.
Defense of Buyer: He may establish the fact that the seller has at anytime before judgment,
manifested his inability not to comply with the contract
3. When the goods cannot readily be resold for a reasonable price and the buyer refuses to receive
the goods when offered for delivery except when 1596 par. 4 is applicable (there is notice of
stopping the contract), with notification that the seller is holding them as bailee for the buyer
Article 1596. Damages for non-acceptance of goods.
Measure of damages:
1. As a rule: estimated loss directly and naturally resulting in the ordinary course of events from the
buyer’s breach (no available market)
2. When there is available market: “difference” between contract price and market or current price at
the time when the goods ought to have been accepted or if not time has been fixed at the time of
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refusal (If there are special circumstances establishing proximate damages of a different amount
than the “difference” described then liability is based on the proximate damages) Proximate
Damages: refer to damages other than unrealized profits
* Repudiation of the contract or notice of stopping the contract, such as in the case of a sale
where goods are to be manufactured. Buyer here shall be liable for the cost of:
1. labor performed
2. expenses for materials used before receiving the notice of repudiation for stoppage
3. unrealized profits
Article 1597. When seller may rescind contract in case there is no delivery yet
1. When buyer repudiated the contract
2. When the buyer has manifested his inability to perform his obligations
3. When the buyer has committed a breach of the contract
* Notice must be given to the buyer to totally rescind the contract.
Article 1598. Remedy of buyer in Contract to deliver specific goods: Specific Performance w/o
giving the seller option to retain the goods on payment of damages.
Article 1599. Remedies of buyer when seller commits breach of warranty.
1. Recoupment—whereby the buyer accepts the goods but he sets up against the seller the
reduction or extinction of the purchase price.
2. Action for damages—whereby the buyer may (a) accept the goods but w/ damages or (b) refuse
to accept the goods for the breach of warranty but also with damages.
3. Rescission—whereby the buyer seeks the cancellation of the sale and as a consequence there
will be restoration on both sides.
**Situations when buyer cannot choose or elect rescission (KNR)
1. If he knows of the breach of warranty when he accepted the goods w/o protest
2. If he fails to notify the seller w/in a reasonable time of the election to rescind
3. If he fails to return or offer to return the goods to the seller in substantially the same condition as
they were at the time the ownership was transferred to him.
Extinguishment of Sales
Art. 1600- Causes for Extinguishing Sales
1. Ordinary Causes—causes which extinguish ordinary contracts such as:
a. Payment
b. Loss of the things
c. Novation
d. Merger of rights of creditor and debtor
e. Rescission
f. Fulfillment of resolutory condition
g. Prescription
2. Special Causes—refer to conventional redemption and legal redemption
Petitioner: Bricktown Development Respondent: Amor Tierra Development
Corporation Corporation
GR No. 112182 | December 12, 1994
FACTS: Bricktown Development Corporation signed two contracts to sell 96 residential lots in the
Multinational Village Subdivision in La Huerta, Paraaque, Metro Manila, to Tierra Corp. The
total price was P21,639,875.OO, with payments to be made in three installments. The remaining
P11,5OO,OOO.OO was to be paid by the private respondent, assuming the corporation's
mortgage liability to the Philippine Savings Bank or in cash. A new agreement was signed,
stating that the private respondent would pay the petitioner an extra P55,364.68 or 21 percent
interest on the balance of the downpayment for the period from March 31 to June 3, 1981, and
P39O,367.37, which was the amount of interest paid by the corporation to the Philippine Savings
Bank to update the bank loan from February 1 to March 31, 1981. The petitioner Corporation
sent the private respondent a notice of contract cancellation on October 12, 1981, due to not
paying the installment due on June 3, 1981, or the interest on the unpaid balance of the initial
payment. On September 26, 1983, a private respondent requested a refund of P2,445,497.71 it
had given to the petitioner. The petitioner failed to comply, leading to a court case. The lower
court ruled in favor of the respondent, and the appellate court agreed.
ISSUE: WON Petitioner was justified in canceling the contracts to sell.
RULING: Petitioner Corporation had the right to cancel the contracts to sell. In the end, we have to say
that petitioner corporation was still within its legal rights when it declared the contracts to sell
null and void. However, given the unusual circumstances found by the trial court and confirmed
by the Court of Appeals, it would be unfair to let petitioner corporation lose the payments made
to it by private respondent. In fact, the Court has said that good faith and fair dealing must always
be part of a contract's relationship between the parties. Based on what the lower court said,
petitioners did not meet that standard at all. The Court doesn't think it would be fair to make
petitioners pay interest on the amount to be refunded based on the judicial demand, because
private respondent shouldn't be able to get out of its own mistake.