IV. RIGHTS OF THE UNPAID SELLER (Arts.

1525-1535)
I. Definition of unpaid seller (1525)
A. What the term “seller” includes (1525)
ART. 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 and 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.

Meaning of unpaid seller

An unpaid seller is one who has not been paid or tendered the whole price or who has received
a bill of exchange or other negotiable instrument as conditional payment and the condition on which it
was received has been broken by reason of the dishonor of the instrument.

The term “unpaid seller” within the scope of Articles 1525 up to 1535 includes: (1) an agent of
the seller; (2) a consignor or agent who has himself paid or is directly responsible for the price; or (3) any
other person in the position of the seller. A seller is unpaid within the definition whether title has or has
not passed.

II. Rights of an unpaid seller (1526)

1. A lien on the goods or right to retain them for the price while in his possession (Arts. 1527-
1529.);
2. A right of stopping the goods in transitu in case of insolvency of the buyer (Art. 1530.);
3. A right of resale (Art. 1533.); and
4. A right to rescind the sale. (Art. 1534.)

If the unpaid seller still retains ownership in the goods, he cannot be said to have a lien (on his
goods). But he does have, in addition to his other remedies, right of withholding delivery.

A. Lien on the goods (1526, par. 1)

a. When the lien exists (1527, 1528)

1. Where the goods have been sold without any stipulation as to credit – In a credit sale, the
seller binds himself to give the goods over to the buyer without receiving at that time
payment for them. Where there is a “stipulation as to credit”, a period for payment of the
price has been fixed in the contract. (see Art. 1193.)
In the absence of any stipulation as to the credit, the seller is entitled to the payment of
the price at the same time that he transfers the possession of the goods. Accordingly, the
 seller has always a lien upon the goods which he sells until payment or tender of the entire
price.
2. Where the goods have been sold on credit, but the term of credit has expired – Even
where the parties agree upon a sale on credit, the seller’s right of lien may be exercised. By
the nature of a credit sale, the buyer is entitled to possession of the goods without paying
the price; but if he fails to exercise his right until the term of credit has expired and the price
becomes due, he loses the right which he theretofore had. In this case, the obligation of the
buyer to pay will also be governed by Article 1524.
3. Where the buyer becomes insolvent – This doctrine is only an application of a general
principle in the law of contracts that when one party to a bilateral contract is incapacitated
from performing his part of the agreement, the other party also is excused from performing.
It should be noticed that insolvency does not dissolve the bargain; it merely revives the
seller’s lien.
The insolvency of the debtor is one of the grounds for the loss of the right to make use
of the period fixed in an obligation. A person is “insolvent” who either has ceased to pay his
debts in the ordinary course of business or cannot pay his debts as they become due,
whether insolvency proceedings have been commenced or not.

b. When the lien is lost (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 – An unconditional delivery to an agent or bailee for the buyer is, so far as the
seller’s lien is concerned, the same as delivery to the buyer himself. It is true that the seller
may stop the goods while on their way to the buyer after delivery to a bailee for the buyer
but it cannot be said that the seller has still any lien upon them.
2. When the buyer or his agent lawfully obtains possession of the goods – If the goods are
already in the possession of the buyer at the time of the bargain, it is plain that when the
ownership is transferred, the seller has no lien simply because he has no possession
necessary for a lien. The wrongful taking, however, of the goods by the buyer without the
seller’s consent does not destroy the lien. Thus, if the goods are put into the possession of
the buyer merely for the purpose of allowing the latter to examine them, this would not
amount to an assent to a surrender of the lien.
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 – The
seller may lose his lien either by express agreement to surrender it. Thus, it has been held
that where the buyer was allowed to alter the character of the goods and make them much
more valuable, the seller could no longer assert a lien.
B. Right of stoppage in transitu (1526, No. 2)
ART. 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.

a. Requisites for the exercise of the right (1526, 1530)

 The seller must be unpaid (Art. 1525.);
 The buyer must be insolvent;
 The goods must be in transit (Art. 1531.);
 The seller must either actually take possession of the goods sold or give notice of his claim
to the carrier or other person in possession (Art. 1532, par. 1.);
 The seller must surrender the negotiable document of title, if any, issued by the carrier or
bailee (Ibid., par. 2.); and
 The seller must bear the expenses of delivery of the goods after the exercise of the right.
(Ibid.)

1) When good are no longer in transit (1531)

 After delivery to the buyer or his agent in that behalf;

 If the buyer or his agent obtains possession of the goods at a point before the
destination originally fixed;
 If the carrier or bailee acknowledges to hold the goods on behalf of the buyer; and
 If the carrier or bailee wrongfully refuses to deliver the goods to the buyer.

b. Effect of partial delivery (1531, par. 4)

 The mere fact that part of the goods has been delivered does not deprive the seller of
the right to stop with respect to the remainder (par. 4.) just as the seller may still
exercise his right of lien on the remainder after part of the goods had been delivered.
(Art. 1528.) However, it may be shown that the seller has an agreement with the buyer
to give up possession of the whole of the goods.

c. How right is exercised (1532)

1. by taking actual possession of the goods – The seller’s power to stop in transitu
includes not only the power to counter delivery to the buyer but to order redelivery
to himself. The duty imposed on the carrier by the exercise of the power is,
however, qualified by the existence of a lien of the carrier on the goods for charges
due for their carriage. The seller has the obligation to pay the freight on them and
other necessary expenses of the delivery
2. by giving notice of his claim to the carrier or bailee – To make a notice effective as
a stoppage in transitu, it must be given at such time, and under such circumstances
that the principal, by the exercise of reasonable diligence, may communicate it to
his agent to prevent the delivery to the buyer. There is no form of notice which is
 essential; it is only necessary that the goods be sufficiently described for
identification.

C. Right of resale (1533)

a. Requisites for the exercise of the right
An unpaid seller can exercise the right to resell only when he has either a right of lien or
a right to stop the goods in transitu and under any of the three following cases:
1. where the goods are perishable in nature;
2. where the right to resell is expressly reserved in case the buyer should make a default;
and
3. where the buyer delays in the payment of the price for an unreasonable time.
b. Notice of resale to the buyer
1. General rule

The third right of an unpaid seller is the right of resale. (Art. 1526[3].) An unpaid
seller can exercise the right to resell only when he has either a right of lien or a right to
stop the goods in transitu and under any of the three following cases:

i. where the goods are perishable in nature;

ii. where the right to resell is expressly reserved in case the buyer
should make a default; and
iii. where the buyer delays in the payment of the price for an
unreasonable time.

Article 1533 provides that the seller having the right “may resell the goods.” The
language is permissive in nature rather than mandatory

2. Exception
c. Manner of resale
i. Any absolute rule requiring the formality of an auction sale might bear harshly on the
seller in case where the goods are of small value and the buyer is financially
irresponsible. The law “is satisfied with a fair sale made in good faith according to the
established business methods with no attempt to take advantage of the vendee.” The
seller is only required to exercise reasonable care and judgment in making a resale. He
cannot, however, directly or indirectly, buy the goods.

D. Right to rescind the sale (1526, No. 4)

a. Requisites
i. Seller has the right to lien or stoppage in transit
ii. Under either of the 2 situations:
1. where the right to rescind is expressly reserved in case the buyer should make a
default; or
2. where the buyer delays in the payment of the price for an unreasonable time.
b. Notice of intention to rescind

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
re scission was asserted.

c. Effect of rescission

In the case of rescission, the seller resumes ownership in the goods. While the seller
shall not be liable to the buyer upon the contract of sale, the latter, however, may be made
liable to the seller for damages for any loss occasioned by the breach of contract.