The seller kept ownership only as security until I finish paying, but the goods have already been delivered to me — if they're destroyed now, who bears the loss?

The general rule: risk follows ownership

Article 1504 states the general rule first: 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. Under this general rule, risk of loss is tied to ownership, not to physical possession — so ordinarily, whoever owns the goods bears the loss if something happens to them, whether or not delivery has actually taken place.

The exception for delivered goods held as security

But the article then carves out an exception for exactly your situation. It provides that where delivery of the goods has been made to the buyer or to a bailee for the buyer, in pursuance of the contract and the ownership in the goods has been retained by the seller merely to secure performance by the buyer of his obligations under the contract, the goods are at the buyer's risk from the time of such delivery. So once delivery happens, the buyer bears the risk from that moment, even though legal ownership technically has not passed yet because the seller is holding it only as security.

Why this is treated as an exception rather than the general rule

This exception makes sense because the seller's retained ownership in this scenario is not a genuine, functioning ownership in the usual sense — it exists purely as a security device to make sure the buyer completes payment. Since the buyer already has physical possession and use of the goods once delivered, the article shifts risk to the buyer at delivery, rather than letting risk stay tied to a title the seller is holding only as leverage rather than as a real, exercised ownership interest.

The separate rule for delayed delivery caused by fault

The article also addresses a related but different situation: where actual delivery has been delayed through the fault of either the buyer or seller the goods are at the risk of the party in fault. This is a separate rule from the security-retention exception, aimed at situations where delivery has not yet happened at all, and it places the risk on whichever party's fault caused that delay, rather than on ownership or delivery status.

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