University of the Cordilleras

College of Accountancy

RFBT 3 (Law on Sales, Credit Transactions, Negotiable Instruments and Other Business
Transactions)

LESSON no. 2

OBLIGATIONS OF THE VENDOR

1. Delivery – the principal obligation of the vendor is to transfer the ownership of and
deliver.

a. Delivery – the principal purpose of delivery is to transfer ownership of the

object from the seller to the buyer. The buyer will only become the owner
of the thing sold after delivery.

What if the Seller is not the Owner of the object of the contract of sale?

The General Rule is that ownership will not be transferred to the Buyer even after
delivery if the Seller is not the owner of the object or is not selling them under the
authority or consent of the owner. (Art. 1505, New Civil Code) For example, A’s
neighbor has been missing for 5 years and has not been seen since, he sold his
neighbor’s house and lot to B. B is now living in the house and lot. We cannot
consider B as the owner of the house even if he has control and possession of it
because A is not the owner of the house and lot.

Exceptions to the General Rule (ownership is transferred to the buyer even if the
Seller is not the owner of the object or is not authorized by the owner to sell the
same):

a. Estoppel by deed – the owner of the goods by his acts and conduct is
now precluded from denying the Seller’s authority to sell (Ibid.);

b. When the law, existing or future, states that the ownership has passed
(Ibid.);

c. The sale is declared to be a valid by a judicial decision (Ibid.); and

d. Purchases made in a merchant's store, or in fairs, or markets,

e. in accordance with the Code of Commerce and special laws. (Ibid.)

KINDS OF DELIVERY

I. Actual Delivery – by placing the thing in the control and possession of the
buyer or his/her agent. (Art. 1497, New Civil Code)
II. Constructive (Legal) Delivery – the thing is not actually placed in in the control
and possession of the buyer or his/her agent but the law treats it as delivered.
(Art. 1498-1500, New Civil Code)

Kinds of Constructive Delivery

i. Execution of a public instrument – the delivery of a thing sold may

be made by executing a document to evidence its delivery
especially if there is impossibility of actual delivery. For example, in
selling a house, the parties execute a Deed of sale in order to
represent the transfer of ownership and delivery since the house
cannot be physically delivered or brought to the buyer.(San
Lorenzo Dev. Co. v. Court of Appeals et. al., G.R. No. 124242,
January 21, 2005; Art. 1498, New Civil Code)

ii. Symbolical tradition (traditio symbolica) - what is delivered to the

buyer is a thing that symbolizes the object for the sale. For example;
instead of delivering a car you deliver the keys to the car. (Ibid.;
Art. 1498, New Civil Code)

iii. Mere consent of parties (traditio longa manu) - This refers to the
delivery by mere consent or agreement of the parties where the
seller points out to the buyer the object of the sale without actually
delivering it, or by pointing out where the object is located. (Ibid.;
Art. 1499, New Civil Code)

iv. Previous possession not in the concept of owner (traditio brevi

manu) - This occurs when the would be buyer already had the
possession of the object of the contract of sale even before the
parties had a contract of sale by virtue of a title other than
ownership. (Ibid.; Art. 1499, New Civil Code) For example, a tenant
already has possession of the house by virtue of a title (lease
contract) but later on acquires ownership of the house through a
contract of sale.

v. Retains possession in different concept (traditio constitutum

possessorium) - This is the manner of delivery where the seller still
has the possession of goods but is not the owner of it anymore. The
seller retains possession of the object of the sale but in another title
such as a tenant or lessee. (Ibid.; Art. 1500, New Civil Code) For
example, if a seller sells his house to a buyer but he still remains in
the house as the Buyer’s tenant, then this is Constitutum
Possesorium.
What should be delivered?

i. Object of the Sale – in the sale of a car the car is the object of the
contract, thus the car should be delivered. (Art. 1497, New Civil
Code)

In the Delivery of Goods (Personal Property)

In the sale of goods by description or by sample, the bulk of the

order must be the same as the description or the sample, otherwise
the buyer can withdraw from the sale. If the sale is by description
and sample, the bulk of the goods must be the same as the
description and the sample, otherwise the buyer can withdraw
from the sale. (Art. 1481, New Civil Code)

Where the seller delivers to the buyer a quantity of goods less than
what was agreed, 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 the full
price. 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 of what he had actually received. (Art. 1522, Par. 1, New Civil
Code)

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, if divisible. (Art. 1522, Par. 2, New Civil Code) If
indivisible, the buyer may withdraw from the contract. (Art 1522,
Par. 4, New Civil Code)

Where the seller delivers to the buyer the goods he contracted to

sell mixed with goods of a different description or quality not
included in the contract, the buyer may accept the goods which
are in accordance with the contract and reject the rest if divisible.
(Art. 1522, Par. 3, New Civil Code) If indivisible, the buyer may
withdraw from the contract. (Art 1522, Par. 4, New Civil Code)

In the Delivery of Real Property

In the sale of real property in units, e.g.; per square meter, square
foot, hectare, and etc., when the seller delivers a lower amount or
quality as agreed the price is reduced according to the
deficiency, but if more is delivered the buyer can reject the excess
and accept only the agreed portion. (Art. 1539, New Civil Code)
 In the sale of real property in lump sum, the buyer should accept
what is delivered regardless of size and quality. For example; A will
sell to B all of his real property because A will migrate to Canada, B
should accept delivery of all of A’s property regardless of quality
and quantity. (Art. 1542, New Civil Code)

ii. Accessions and Accessories of the Object (Art. 1537, New Civil
Code)

Accessions are the fruits of, or additions to, or improvements upon,

a thing (the principal). (Art. 440, New Civil Code)

Accessories are things joined to, or included with; the principal

thing for the latter’s embellishment, better use, or completion.
(Black’s Law Dictionary, p. 14 ,1990)

In a personal computer, the monitor, keyboard, and mouse are

accessories because they are necessary for the complete use of
the object, while a webcam, lighting, and mic are accessions
because they are not necessary for the complete use of the
object.

iii. Fruits

All fruits derived from the contract of sale when it is perfected up to

the time of delivery should also be delivered along with the object
of the sale. (Art. 1537, New Civil Code)

For example; a lot was sold and is to be delivered only 6 months

after the sale was perfected, during those six months vines bushes
grew on the lot, those should also be delivered to the buyer even if
it was not stated in their agreement.

To Whom Should the Seller Deliver?

i. The BUYER; (Art. 1497, New Civil Code)

ii. The Agent/Authorized Representative of the Buyer; or (Art. 1240,

New Civil Code)

iii. The CARRIER in goods delivered in/by transit/shipping (Art. 1523,

New Civil Code)

The General rule is that delivery to the Carrier is delivery to the

Buyer, thus, ownership is transferred to the buyer upon delivery to
the carrier. For example, A sold goods to B to be shipped by ABS
Express Courier Service, once A delivers the goods to the Carrier, B
is now the owner of the goods and bears the risk of loss. (Art. 1523,
New Civil Code)

Exceptions to the General Rule:

a. The Seller makes a reservation as to the ownership of the

goods. This is when the Seller makes a declaration that
he/she will maintain ownership of the goods even after
delivery to the Carrier. (Art. 1503, Par. 1, New Civil Code)

b. The Seller makes a reservation as to the possession of the

goods. This is when the Seller makes a declaration that
he/she will maintain possession of the goods even after
delivery to the Carrier, here delivery to the carrier will not
transfer ownership of the goods to the Buyer. (Art. 1503,
Par. 2, New Civil Code)

c. Where the agreement of the parties including the bill of

lading contains provisions that indicates that the goods
are still at the sellers risk. (Art. 1503, Par. 3, New Civil
Code)

A Bill of Lading defines the rights and liabilities of parties in

contracts of carriage (Shipping, freight, or passenger
vehicles); it is a written document that proves the receipt
of goods for the transport and delivery to the one named
therein. (De Leon, 2016)

a. F.O.B. (Free on Board):

i. F.O.B. point of destination – when the bill of

lading states that the Seller assumes the risk
until the point of destination of the goods
as ownership transfers to the Buyer only at
that point. (Behn, Meyer & Co., Ltd. v.
Yanco, G.R. No. 13203, September 18, 1918)
For example; A is in Manila and shipped
goods bought by B who is in Baguio, the bill
of lading says F.O.B. Point of Destination, A
will assume the risk of loss until the goods
have reached Baguio.

ii. F.O.B. point of shipment – when the bill of

lading states that Buyer will assume the risk
of loss as ownership is transferred at the
point where the goods have been shipped.
(Ibid.)
 b. F.A.S. (Free Alongside) – falls under F.O.B point of
shipment and is only used when the goods are
shipped by water. The Seller loses the risk of loss
once the goods are placed on the vessel.
(Aquino, 2014)

c. C.I.F. (Cost, Insurance, Freight) – this indicates that

the price said by the seller includes the Cost of
insurance and freight, thus the buyer assumes all
the risk of loss while the goods are being shipped.
(Ibid.)

Rules on Loss of the Thing Sold

If it is a generic thing there is no effect because a generic thing can

always be replaced (genus nunquam perit). (Art. 1263, New Civil Code)

If it as a determinate/specific thing the following rules shall apply:

i. 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 (Art. 1538, New Civil Code),

ii. If the loss is after the perfection of the contract of sale but before
delivery the seller bears the risk of loss following the rules above
stated (Article 1504, Par. 1, New Civil Code);

iii. If the loss is after the perfection of the contract of sale but after
delivery the buyer bears the risk of loss (Article 1504, Par. 2, New
Civil Code);

iv. If at the time the contract of sale is perfected, the thing which is
the object of the contract has been entirely lost, the contract shall
be without any effect (Art. 1493, Par. 1, New Civil Code)

v. If the thing should have been lost in part only, the buyer may
choose between withdrawing from the contract and demanding
the remaining part, paying its price in proportion to the total sum
agreed upon (Art. 1493, Par. 2, New Civil Code). The buyer will
alternatively choose to:

a. Withdraw from the contract if indivisible; or

b. Treat the remaining part as valid paying the proportionate

price thereof if divisible.

vi. In the sale of fungible things sold at a fixed rate according to

weight, number, or any measurement, the risk of loss remains with
 the seller until the thing has been weighed or measured, unless
there is delay on the part of the buyer. (Article 1481, New Civil
Code)
References:

Republic Act 386, An Act to Ordain and Institute the Civil Code of the Philippines

De Leon, H. (2016), The Law on Negotiable Instruments (With Documents of Title).

Manila, Philippines: Rex Book Store

Aquino, T. (2014), Reviewer on Civil Law. Manila, Philippines: Rex Book Store

San Lorenzo Development Corporation v. Court of Appeals, Pablo S. Babasanta, Sps.

Miguel Lu and Pacita Zavalla Lu, G.R. No. 124242, January 21, 2005

Behn, Meyer, & Co. (Ltd.) v. Teodoro R. Yanco, G.R. No. 13203, September 8, 1918

Disclaimer

The information provided in RFBT 3 in this module is for educational purposes only. All
information found herein is provided in good faith and we make no representation or
warranty, express or implied, as regards to the accuracy, adequacy, validity, reliability,
availability, or completeness of thereof.

We do not assume ownership of any of the information provided herein.