NOTES NI YURI

DUGANG SA KARAAN

PREPARED BY: JAMES ARCENO

• 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. (n)
 Art. 1503- When ownership not transferred upon delivery.
• This article relates to a sale of specific goods. (see Arts. 1494, 1636.) 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 (Arts. 1523, par. 1; 1503,
par. 1; see Art. 1478.);
• (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.
(Retention of ownership/reservation)
 Delivery Transfers Ownership
(General Rule)

• Transfer of ownership where goods sold delivered to carrier.

• (1) General rule. — As previously discussed, the general rule is
that delivery, be it only constructive, passes title in the thing sold
(see Art. 1496.); and delivery to the carrier is deemed to be a
delivery to the buyer. (Art. 1523, par. 1.)
 Rationale
• 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.
 Where right of possession or ownership of specific goods sold reserved.
• 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.
• Ownership is reserved (until fulfillment of certain conditions; (Art.
1505, par. 1.) )
 Where seller or his agent is the consignee.
• A bill of lading is a legal document issued by a carrier to a shipper (seller) that details the type,
quantity, and destination of the goods being carried. A bill of lading is a document of
title(evidence of ownership), a receipt for shipped goods, and a contract between a carrier and a
shipper.
• Bill of lading. — It is a contract and a receipt for the transport of goods and their delivery to the
person named therein, to order, or to bearer. It usually involves three persons — the carrier, the
shipper, and the consignee. The shipper and the consignee may be one and the same person. Its
acceptance generally constitutes the contract of carriage even though not signed.
• A bailee is an individual who temporarily gains possession, but not ownership, of a good or other
property. The bailee, who is also called a custodian, is entrusted with the possession of the good
or property by another individual known as the bailor.
 Where seller or his agent is the consignee.
• Carrier becomes bailee for seller.—Where goods are shipped and by the bill
of lading (see Art. 1507.), 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 (par. 2.) 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.
• Order. — Relating to documents of title means an order by indorsement on the
documents.
 Rights of the Seller
• (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. (Rule on Double Sale)
• See 1525 - rights of an unpaid seller
 Paragraph 3
the seller thereby reserves a right to the possession of the goods as against the buyer

• 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 (General Rule). 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.
• Bill of lading (evidence of title to the goods);
• Lien - a right to keep possession of property belonging to another person until a debt owed by
that person is discharged.
 Bill of lading
Document of title

• 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.
• 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.
 Retention of ownership (Two ways)
Even when goods are shipped
• 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.
 Third way
Ownership/possession reserved

• 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.
• (a) 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.
• (b) 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.
 Legal title vested in third person
• In the third way— 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.
 Res Perit Domino
Exception

• 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.
• Exception to the rule on “Owner bears the risk of loss”
 Paragraph 4
Where bill of lading sent forward with draft (Bill of exchange/Check) 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 (par. 4.), 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.
 RULES
INVOLVING DELIVERY TO THE CARRIER (THRU A 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 - (General Rule);
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 - (Evidence of title); 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.
(Reservation)
 • Third Person acquiring ownership/right from Buyer:
• 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 (Art. 1507.), or is indorsed in
blank (Art. 1508[2].), or is indorsed to the buyer by the consignee named therein (Art.
1509.), 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.
• Where the document gives the buyer apparent ownership and a third person purchases
the goods relying thereon, it seems clear on broad principles of justice that since one
of two innocent parties must suffer, he should suffer whose act has brought about the
loss. Consequently, the seller ought not to be allowed to recover the goods from the
third person.
 RISK OF LOSS
RES PERIT DOMINO
• 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,
• Owner bears the risk of loss; whether or not delivery has been made; based on Res
Perit Domino principle. (Conditional Sale/Contract to Sell)
• With certain exceptions (Next slides)
 Exception/s to Res Perit Domino
• (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. (Conditional Sale/Contract to Sell) (For purposes of determining who bears the risk);
• (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. - (Risk of loss by fortuitous
event after perfection but before delivery.)
 Risk of loss by fortuitous event after perfection but before delivery.
Conflict between Article 1480 and Article 1504

• Under Article 1480, if the thing sold is lost after perfection of the con- tract but before
its delivery, that is, even before the ownership is transferred to the buyer, the risk of
loss by fortuitous event without the seller’s fault is borne by the buyer as an exception
to the rule of res perit domino.
• Consequently, the buyer’s obligation to pay the price subsists if he has not yet paid the
same or if he had, he cannot recover it from the seller although the latter’s obligation
to deliver the thing is extinguished by its loss.
 Risk of loss by fortuitous event after perfection but before delivery.
Conflict between Article 1480 and Article 1504

• However, the first paragraph of Article 1504 which has been inserted in our Civil
Code presents a contrary rule. Taken from the American law on sales (Sec. 22 of the
Uniform Sales Act.), it provides that: “Unless otherwise agreed, the goods remain at
the seller’s risk until the ownership therein is transferred to the buyer.” By Article
1480, as already pointed out, the risk of loss of the thing after perfection is shifted
from the seller to the buyer even though the buyer has not yet acquired ownership
thereof.
 Solution suggested to avoid conflict.
• A solution has been suggested to avoid the conflict, to wit: Article 1504 should
be restricted in its application to sale of “goods” as this term is defined in
Article 1636, and Article 1480, to sales of “things” which cannot be called
“goods,” as for the example, to sales of real estate. This would make Article
1480 the general rule on risk of loss and Article 1504, the exception. By this
conclusion, it is claimed, the cardinal rule of statutory construction that all
provisions of a law should, as much as possible, be given effect is satisfied; for
to say that there is an irreconcilable conflict between Article 1480 and Article
1504 is to render either of them useless.
 Contrary View
More in line with Res Perit Domino

• A contrary view to that expressed above, is held by other writers on the

Spanish Civil Code, like Perez and Alguer, who say: This solution is not
absolutely certain and perhaps the contrary view is more in harmony with
equity and with the nature of reciprocal obligations.
• To our mind, the latter view is really more logical: the vendor in the case
given, should bear the loss and the vendee should not be bound to pay the
price.
 The following arguments may be advanced to support the “contrary” view
(Res Perit Domino; Equity/Unjust Enrichment;Reciprocity)

• It is fundamental in the Civil Code, expressed in Articles 1477 and 1496, that
ownership is transferred by delivery; hence, before delivery, the vendor owns the thing
and should suffer its loss: res perit domino. If he is allowed to recover the price, he
suffers no loss, which is imposed upon the vendee who has not yet acquired
ownership. (Equity);
• The obligations of vendor and vendee are reciprocal, and, therefore, one depends upon
the other. If the obligation of the vendor to deliver is extinguished, the correlative
obligation of the vendee to pay, which depends upon it, cannot remain subsisting
 The following arguments may be advanced to support the “contrary” view

• Article1480, paragraph3, is not an exception but is an expression of the general rule

that the risk is not imputed to the vendee until after delivery. That paragraph considers
the delivery completed only when the fungibles have been weighed, counted, or
measured because it is only then that the thing becomes determinate. Before such
completion of deliv- ery, the vendor bears the risk;
• Purchase and sale is an onerous contract, where the cause, with respect to the
vendee, is the thing. If he cannot have the thing, it is juridically illogical and unjust to
make him pay its price. (Reciprocality/Reciprocity)
 Legislation (law) necessary to avoid irreconcilable conflict.
Amend and clarify
• The contrary view is really “more in harmony with equity” considering that, while the vendee has a
mere contract right to the thing sold, the vendor has not only the ownership but also the possession
or control of it and even the power to dispose of it to the prejudice of the vendee; and having in
mind also the reciprocal character of the contract of sale, the vendor should, therefore, be the one to
shoulder the loss and not the vendee.
• But until the law-making body adopts the contrary view, the correct rule, it is
believed, is that contained in Article 1480 under which the vendee bears the
risk of loss, and he is bound to pay the price which rule has already been
shown, is sustained and confirmed by other provisions of the Civil Code.
 Nemo dat Quad non habet
• 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.
(Estoppel)
• 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. (see Arts. 1458-1459.) -
The spring cannot rise higher than its source.
 TRANSFER OF OWNERSHIP
Reckoning point

• 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.”
(Art. 1459.) 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.
 Exceptions
• Where the owner of the goods is, by his conduct, precluded from denying the seller’s
authority to sell. (Estoppel);
• Where the law enables the apparent owner to dispose of the goods as if he were the true
owner thereof. (Agency); Another Example: With respect to real property, it has been ruled
that a “fraudulent and forged document of sale may become the root of a valid title if the
certificate of title has already been transferred from the name of the true owner to the name
indicated by the forger.” Every person dealing in good faith and for valuable consideration
with registered land may safely rely upon what appears in the certificate of title and does not
have to inquire further.
• Execution Sale/Expropriation;
• Where the sale is made at merchant’s stores, fairs or markets.
 Seller’s Title not yet avoided
Art. 1506
• ART. 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.
• (OBLICON) VOIDABLE CONTRACTS; VALID UNTIL ANNULLED;
• Seller must have a title (although voidable/defective); unlike a thief who stole
and sold the thing. No valid transfer as the thief never had a title to the
property stolen
 Buyer acquires title to the goods from seller who has voidable title
Requisites

• If the seller has only a voidable title to the goods, the buyer acquires a good title to
the goods provided he buys them:
• (a) before the title of the seller has been avoided; (Valid until annulled)
• (b) in good faith for value; and
• (c) without notice of the seller’s defect of title.
 Rationale/Basis for the rule

• Basis of rule. — Article 1506 seems to be predicated on the principle that where loss
has happened which must fall on one of two innocent persons, it should be borne by
him who is the occasion of the loss.
• It is similar to the rule in P.D. No. 1529 (Property Registration Decree) referring to an
innocent purchaser for value in good faith (Sec. 51 thereof.) and to the rule in Act No.
2031 (Negotiable Instruments Law) referring to a holder in due course to whom a
negotiable instrument is negotiated for value and in good faith.
 Document of title
Art. 1507

• ART. 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.
• Document of title to goods. — Includes 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.
 Article 1507
Delivery to person named in the document

• Goods. — Included all chattels personal but not things in action or money of legal
tender in the Philippines. The term in- cludes growing fruits or crops.
• Nature and function of documents of title - Documents of title refer to goods and not
to money. They all have this in common: that they are receipts of a bailee, or orders
upon a bailee. A different name is given in popular speech to the document when it is
issued by a carrier and when it is issued by a warehouseman, but in substance the
nature of the document is the same in both cases.
• Order. — Relating to documents of title means an order by indorsement on the
documents.
 Evidence of transfer of title and possession of the goods and
contract between the parties.
• — A document of title is symbol of the goods covered by it, serving as evidence of
• (a) transfer of title and
• (b) transfer of possession.
• It also serves as an evidence of the (c) contract between the parties who are bound by
its terms.
• So far as concerns the transfer of property between the parties, their intention would be
effectual without the document, but where third parties’ rights are involved, the form of
the document (i.e., negotiable or non-negotiable) becomes important.
 Common kinds/examples of Documents
• 1) Bill of lading. — It is a contract and a receipt for the transport of goods and their delivery to the person
named therein, to order, or to bearer. It usually involves three persons — the carrier, the shipper (usually the
seller), and the consignee (usually the buyer);. The shipper and the consignee may be one and the same person.
Its acceptance generally consti- tutes the contract of carriage even though not signed. Such instrument may be
called a shipping receipt, a forward- er’s receipt, or receipt for transportation. The designation, how- ever, is
immaterial;
• Dock warrant.—It is an instrument given by dock owners to an importer of goods warehoused on the dock as a
recognition of the importer’s title to the said goods, upon production of the bill of lading;
• Warehouse receipt.—a contract or receipt for goods deposited with a warehouseman containing the latter’s
undertaking to hold and deliver the said goods to a specified person, to order, or to bearer. Quedan is a
warehouse receipt usually for sugar received by a warehouseman.
 Classes of documents of titles.
• Negotiable documents of title or those by the terms of which the
bailee undertakes to deliver the goods to the bearer and those by the
terms of which the bailee undertakes to deliver the goods to the order
of a specified person (Art. 1508.);
• Non-negotiable documents of title or those by the terms of which the
goods covered are deliverable to a specified person. (Art. 1511.)
straight
 Negotiable DOCUMENT OF TITLE
Negotiation: Indorsement; Delivery (BEARER INSTRUMENT)

• ART. 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 indorsee
of the document has indorsed it in blank or to the bearer. - (Originally an ORDER instrument- converted in
to a 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 indorsee. (n) - KILAB KILAB
 BEARER DOCUMENT
INDORSEMENT BY MERE DELIVERY OF DOCUMENT

• A negotiable document of title is negotiable by delivery if the goods are deliverable to

the bearer,
• or when it is indorsed in blank or to the bearer by the person to whose order the goods
are deliverable or by a subsequent indorsee.
• An indorsement is in blank when the holder merely signs his name at the back of the
receipt without specifying to whom the goods are to be delivered.
• Indorsement - a signature made on the document indicating negotiation
 ORDER DOCUMENT OF TITLE
ART. 1509
• ART. 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)
• Example: consignee/buyer indorses the document by signing the document
with an instruction to deliver the goods to the person specified or his order.
 ORDER DOCUMENT
Indorsement

• If the document is specially indorsed, it becomes an order document of

title and negotiation can only be effected by the indorsement of the
indorsee. A special indorsement specifies the person to whom or to whose
order the goods are to be delivered.
•
• Negotiation by indorsement. Delivery of the document alone may not be
honored. However, if converted into bearer, may now be negotiated thru
delivery of t he document alone. (Slide 40)
 ORDER DOCUMENT
INDORSEMENT; EXCEPT IF CONVERTED INTO BEARER

• A negotiable document of title by the terms of which the goods are deliverable to a
person specified therein may be negotiated only by the indorsement of such person.
• (1) If indorsed in blank or to bearer, the document becomes negotiable by delivery.
(Art. 1508.) BECOMES BEARER (Slide 40)
• (2) 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. Delivery alone is not
sufficient. (Slide 40 - kilabkilab)
 “NON-NEGOTIABLE” - marked in the document
Art. 1510

• ART. 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.
 “Non-Negotiable” or “Not Negotiable”
No effect if the document is contemplated by law as Negotiable

• Under Article 1510, the words “not negotiable,” “non-negotiable” and the like when
placed upon a document of title in which the goods are to be delivered to “order” or to
“bearer” have no effect and the document continues to be negotiable.
• Note: The first sentence of Article 1510 should read “to a specified person or order or
to the order of a specified person.” This is how Section 30 of the Uniform Sales Act,
from which Article 1510 was adopted, is worded.
• Follow the Law; It is not for the parties to determine the negotiability
 Transfer of non-negotiable documents.
• ART. 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.
• A non-negotiable document of title cannot be negotiated. Nevertheless, it can be
transferred or assigned by delivery. In such a case, the transferee or assignee acquires
only the rights stated in Article 1514. Even if the document is indorsed, the transferee
acquires no additional right.
 Who may negotiate the document of title?
• ART. 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 or- der 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)
• Same as that provided in NIL
 Rights
• ART. 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 sub- sequent purchaser from the
transferor of a subse- quent sale of the goods by the transferor.
 Rights of person to whom document has been negotiated
Art. 1513
• ART. 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.
 Rights of person to whom document has been negotiated
Art. 1513

• Such person acquires:

• (1) The title of the person negotiating the document, over the goods covered by the
document;
• (2) The title of the person (depositor or owner) to whose order by the terms of the
document the goods were to be delivered, over such goods; and
• (3) The direct obligation of the bailee (warehouseman or carrier) to hold possession of
the goods for him, as if the bailee had contracted directly with him.
 Rights of person to whom document has been transferred.
Art. 1514
• ART. 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.
 Art. 1515
Order instrument improperly transferred; without indorsement

• ART. 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
con- trary intention appears. The negotiation shall take ef- fect as of the time when the
indorsement is actually made
• Mere delivery without indorsement
 1515
Rights acquired by the transferee
• This article specifies the rights of a person to whom an order document of title, which
may not properly be negotiated by mere delivery, has been delivered, without
indorsement. They are:
• (1) The right to the goods as against the transferor(Art.1514.); and
• (2) The right to compel the transferor to indorse the indorse- ment. (see Art. 1357.)
• If the intention of the parties is that the document should be merely transferred, the
transferee has no right to require the transferor to indorse the document.
 Art. 1516
Warranties or liabilities of a person negotiating or transferring a document

• ART. 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 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.
 Art. 1516
Limited to 4 liabilities
• The liability is limited only to a violation of the four warranties set forth in Article
1516. (see Art. 1517.) Thus, the person negotiating or transferring a document could
be held liable as when, for example:
• the document was a forgery,
• or he had stolen it,
• or he had knowledge that the document was invalid for want of consideration,
• or that the goods had been damaged.
 Art. 1517 - does not warrant bailie’s compliance
Not included as one of the warranties in 1516

• ART. 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.
• The indorsement of a document of title amounts merely to a conveyance by the
indorser, not a contract of guaranty. (see 2 Williston, op. cit., pp. 627-628.)
Accordingly, an indorser of a document of title shall not be liable to the holder if, for
example, the bailee fails to deliver the goods because they were lost due to his fault or
negligence.
 Art. 1518
When negotiation not impaired by fraud, mistake, duress, etc.

• 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 value therefor in good faith without
notice of the breach of duty, or loss, theft, fraud, accident, mistaken, duress or
conversion.
 Stolen Document vs. Stolen Goods
• a negotiable document may be negotiated by any person in possession of the same,
however such possession may have been acquired. (see National Bank vs. Producers’
Warehouse Association, 42 Phil. 608 [1922]; Hill vs. Veloso, 31 Phil. 160 [1915].)
• In other words, it may be negotiated even by a thief or finder and the holder thereof
would acquire a good title thereto if he paid value therefor in good faith without notice
of the seller’s defect of title. (see Art. 1506.)
• Compared to Nemo dat quad non habet; It should be noted that Article 1518 speaks of
theft of the document and not of the goods covered by such document. In the latter
case, it needs no argument to show that even a bona fide holder of a document issued
over such stolen goods cannot acquire title.
 Art. 1519 - basaha
Goods may not be levied or attached while in the possession of the bailee

• ART. 1519. If goods are delivered to a bailee by the owner or by a person whose act in
conveying the title to them to a purchaser in 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.
 Art. 1519 Surrender the document to the bailee;
• The bailee cannot be compelled to deliver up the possession of the goods until the
document is surrendered to him or impounded by the court. This prohibition is for the
protection of the bailee since he could be made liable to a subsequent purchaser for
value in good faith.
• Exception: Art. 1519 does not apply if the goods were stolen and the shipper is the
thief. (Nemo dat quad non habet);
• The rights acquired by attaching creditors cannot be defeated by the issuance of a
negotiable document of title thereafter. Probation precedes the shipping or
negotiation;
 Art. 1520
Creditor’s remedies to reach negotiable documents

• ART. 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.
• Goods may not be levied nor attached pursuant to Art. 1519. However the
shipper’s/seller’s creditor may go after the negotiation. (Injuction)
 Art. 1521
Place of delivery of goods sold.

• The following are the rules:

• (1) Where there is an agreement, express or implied, theplace of delivery is that agreed upon;
• (2) Where there is no agreement, the place of delivery is that determined by usage of trade;
• (3) Where there is no agreement and there is also no prevalent usage, the place of delivery is the seller’s
place of business; (who is the active subject)
• (4) In any other case, the place of delivery is the seller’s residence; and
• (5) In case of specific goods, which to the knowledge of the parties at the time the contract was made were
in some other place, that place is the place of delivery, in the absence of any agreement or usage of trade to
the contrary.
 Art. 1522 - Rubia’s recit?
Rule on Payment (Oblicon); must be complete; quantum meruit/unjust enrichment; exc: waiver; estoppel

• ART. 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 deal- ing between the
parties. (n)