If goods are destroyed while in transit, does the seller or the buyer shoulder the loss?

Risk follows ownership, not possession

The instinct that whoever is holding the goods carries the loss is wrong. Article 1504 provides that 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. So a buyer to whom ownership has passed bears the loss of a shipment he has never seen, and a seller who has parted with the crates still bears it if he has not parted with ownership. The real question in every transit dispute is therefore when ownership moved.

Retention of title merely to secure payment

The first exception stops sellers using a title-retention clause as free insurance. Where delivery has been made to the buyer, or to a bailee for the buyer, in pursuance of the contract, and the seller kept ownership only to secure the buyer's performance of his obligations, the goods are at the buyer's risk from the time of that delivery. The clause protects the seller's claim to payment; it does not keep the risk with him. Read the reservation clause carefully, because a reservation for security is treated differently from one that genuinely postpones the sale itself.

Delay through somebody's fault

The second exception is fault-based: where actual delivery has been delayed through the fault of either the buyer or the seller, the goods are at the risk of the party in fault. A seller who dispatched three weeks late, or a buyer who would not nominate a discharge point or take collection, cannot then rely on the ownership rule to push the loss across. This is the exception most often available in practice, because transit losses tend to happen to consignments that were already running behind, and the correspondence about the delay usually shows whose fault it was.

What you agreed usually decides it first

Note the opening words. The whole scheme applies unless otherwise agreed, so an express risk clause, an incoterm written into the purchase order or a settled course of dealing between you displaces the default. Article 1503 also lets the seller reserve the right of possession or ownership by the terms of the contract, including where goods are shipped under a bill of lading. The documents to gather are the contract or purchase order, the bill of lading or airway bill, the insurance certificate and whatever shows the date the carrier took the goods.

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.

• Spouses Noel John M. Kaw And Josephine Caseres-Kaw vs. Heirs of Marilyn Nodalo, et al, G.R. No. 263047, November 27, 2024 — read the decision on LawPhil →
• Aerospace Chemical Industries vs. Court of Appeals, et al, G.R. No. 108129, September 23, 1999 — read the decision on LawPhil →
• Asset Privitazation Trust vs. T.J. Enterprises, G.R. No. 167195, May 8, 2009 — read the decision on LawPhil →
• Gaisano Cagayan, Inc. vs. Insurance Co. of North America, G.R. No. 147839, June 8, 2006 — read the decision on LawPhil →

Related provisions

• Civil Code, Article 1504 — Risk of Loss Follows Ownership
• Civil Code, Article 1503 — Reservation of Ownership on Shipment
• Civil Code, Article 1496 — How Ownership Is Acquired by the Vendee