Short answer. Yes. In a sale of specific goods the seller may reserve ownership or possession until agreed conditions are met, and that reservation survives delivery to the buyer or to a carrier. How the bill of lading is made out largely decides who holds ownership while the goods are in transit.
What the law says
When 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.
Civil Code, Article 1503 — Reservation of Ownership on Shipment. Read the full provision →
Delivery does not automatically hand over ownership
The instinct that ownership passes the moment the goods leave the warehouse is wrong where the contract says otherwise. For specific goods — identified items, not a generic quantity — the parties may agree that ownership or the right of possession stays with the seller until conditions are fulfilled, typically payment. The Code is explicit that this reservation holds even though the goods have been handed to the buyer or to a carrier for transmission to him. The practical effect is that the buyer may be in physical possession of goods he does not yet own, which is exactly what a seller extending shipment without prepayment wants.
The bill of lading does the work
In shipping, the form of the bill of lading is the operative act. If the goods are made deliverable to the seller or his agent, or to the order of either, the seller reserves ownership by that very fact. If instead the goods are deliverable to the order of the buyer but the seller keeps the bill of lading in hand, the seller reserves the right to possession as against the buyer — a weaker but still useful hold. There is an important qualification. Where ownership would have passed to the buyer on shipment except for the form of the bill of lading, the seller's ownership is treated as existing only to secure the buyer's performance. It is security, not full dominion.
Drafts, documents, and the buyer who does not honour them
Where the seller draws on the buyer for the price and sends the bill of exchange together with the bill of lading so the buyer can accept or pay, the buyer is bound to return the bill of lading if he does not honor the bill of exchange. A buyer who keeps the document while refusing to pay gains nothing by it — the Code says he acquires no added right. This is the mechanism behind ordinary documentary collection: the buyer gets the paper that lets him claim the cargo only when he has accepted or paid the draft. Keeping the document without honouring the draft is simply a wrongful retention.
Where the seller's protection ends
The reservation does not defeat everyone. If the bill of lading makes the goods deliverable to the buyer or to his order, or is indorsed in blank, or indorsed to the buyer by the named consignee, a person who buys the bill of lading or the goods from the buyer in good faith and for value obtains ownership, even though the bill of exchange was never honoured — provided he received the properly indorsed document or the goods without notice of the facts making the transfer wrongful. That is the cost of issuing negotiable-form documents.
Cases citing this provision
These Supreme Court decisions cite the provision above. We list them so you can read them yourself; the summaries of what each decided are not ours to give.
- Designer Basktets, Inc. vs. Air Sea Transport, Inc., et al, G.R. No. 184513, March 9, 2016 — read the decision on LawPhil →
- National Power Corporation vs. Province of Quezon and Municipalilty of Pagbilao, G.R. No. 171586, January 25, 2010 — read the decision on LawPhil →