EFFECT ON A PERFECTED CONTRACT OF SALE & LOSS OF THE THINGSOLD

G.R. No. 117187 July 20, 2001 UNION MOTOR CORPORATION,petitioner-appellant,vs.THE COURT OF APPEALS, JARDINE-MANILA FINANCE, INC., SPOUSESALBIATO BERNAL andMILAGROS BERNAL,respondents-appelles.

Ponente: De Leon Jr.

Facts: Bernal spouses purchased from (petitioner) Union Motor Corporation one CimarronJeepney to be paid in installments and executed a promissory note and a deed of chattelmortgage in favor of the petitioner, and entered into a contract of assignment of the promissory note and chattel mortgage with Jardine-Manila Finance, Inc through ManuelSosmeña, an agent of the petitioner, although the respondent spouses have not yet physically possessed the vehicle, Sosmeña required them to sign the receipt as acondition for the delivery of the vehicle Spouses continued paying the installments even if the subject motor vehicle remainedundelivered inasmuch as Jardine-Manila Finance, Inc. promised to deliver the subject jeepney. The respondent spouses have paid a total of worth of installments before theydiscontinued paying on account of non-delivery of the subject motor vehicle, the reasonwhy the vehicle was not delivered was due to the fact that Sosmeña allegedly took thesubject motor vehicle in his personal capacity.Jardine-Manila Finance, Inc., filed a complaint for a sum of money, against therespondent Bernal spouses before the then Court of First Instance of Manila.Thecomplaint was amended and transferred to the Regional Trial Court of Makati to include petitioner Union Motor Corporation as alternative defendant, after the petitioner filed itsanswer, the respondent spouses filed their amended answer with cross-claim against theformer and counterclaim against Jardine-Manila Finance, Inc. The respondent spouses presented witnesses in support of their defense and counterclaim against the plaintiff andcross-claim against the petitioner.The trial court deemed the presentation of the saidwitness as having been waived by the petitioner.Trial court rendered a decision ordering petitioner to pay the spouses. Not satisfied the petitioner interposed an appeal before the Court of Appeals while the respondent spousesappealed to hold the petitioner solidarily liable with Jardine-Manila Finance, Inc.Theappellate court denied both appeals and affirmed the trial court’s decision. Hence this petition

Issue1: Whether there has been a delivery, physical or constructive, of the subject motor vehicle.Issue 2: Whether spouses must bear the risk of the loss of the thing sold.Held 1: NO to both. The respondent Bernal spouses should bear the loss thereof in accordancewith Article 1504 that when the ownership of goods is transferred to the buyer, the goodsare at the buyer’s risk. But Bernal spouses never came into possession of the subjectmotor vehicle. It is but appropriate that they be reimbursed by the petitioner of the initial payment which they made. The court ruled in favor of the respondent Bernal spouses.Undisputed is the fact that the respondent Bernal spouses did not come into possession of the subject Cimarron jeepney that was supposed to be delivered to them by the petitioner.The registration certificate, receipt and sales invoice that the respondent Bernal spousessigned were signed as a part of the processing and for the approval of their application to buy the subject motor vehicle. Without such signed documents, no sale, much lessdelivery, of the subject jeepney could be made. The documents

were not therefore anacknowledgment by respondent spouses of the physical acquisition of the subject motor vehicle but merely a requirement of delivery.

Issuance of a sales invoice does not provetransfer of ownership of the thing sold to the buyer; an invoice is nothing more thana detailed statement of the nature, quantity and cost of the thing sold and has beenconsidered not a bill of sale.

The thing is considered to be delivered when it is placed in the hands and possession of the vendee. (Civil Code, Art. 1462). It is true that the same article declares that theexecution of a public instrument is equivalent to the delivery of the thing which is theobject of the contract, but,

in order that this symbolic delivery may produce the effect, it is necessary that the vendor shall have had control over the thing sold that, at themoment of the sale, its material delivery could have been made. It is not enough to confer upon the purchaser the ownership and the right of possession. The thing sold must be placed in his control.

When there is no impediment whatever to prevent the thing sold passing into the tenancy of the purchaser by the sole will of the vendor, symbolicdelivery through the execution of a public instrument is sufficient

. But if,notwithstanding the execution of the instrument, the purchaser cannot have theenjoyment and material tenancy of the thing and make use of it himself or throughanother in his name, because such tenancy and enjoyment are opposed by theinterposition of another will, then the delivery has not been effected

.Held 2:Inasmuch as there was neither physical nor constructive delivery of a determinate thing,(in this case, the subject motor vehicle) the thing sold remained at the sellers risk.The petitioner should therefore bear the loss of the subject motor vehicle after Sosmeaallegedly stole the same.

Decision AFFIRMED.

Norkis Distributors Inc. vs. Court of Appeals, and Nepales

193 SCRA 694

February 1991

FACTS:

On September 20, 1979, private respondent Alberto Nepales bought from the Norkis Distributors, Inc. (Norkis) in its Bacolod branch a brand new Yamaha Wonderbike motorcycle Model YL2DX with Engine No.L2-329401K Frame No.NL2-0329401, color maroon, which was then on display in the Norkis showroom. The Branch Manager Avelino Labajo agreed to accept the P7,500.00 price payable by means

of a Letter of Guaranty from the Development Bank of the Philippines (DBP), Kabankalan. Hence, credit was extended to Nepales, and as security for the loan, he executed a chattel mortgage on the motorcycle in favor of DBP. Labajo issued the Norkis Sales Invoice No. 0120 perfecting the contract of sale, and Nepales signed the same to conform to the terms of the sale, while the unit remained in Norkis' possession. On November 6, 1979, it was registered under Alberto Nepales’ name in the Land Transportation Commission.

On January 22, 1980, the motorcycle was delivered to a certain Julian Nepales who was allegedly the agent of Alberto Nepales but the latter denies it. The record shows, however, that Alberto and Julian Nepales presented the unit to DBP's Appraiser-Investigator Ernesto Arriesta at the DBP offices in Kabankalan, Negros Occidental Branch. On February 3, 1980, the motorcycle met an accident at Binalbagan, Negros Occidental while being driven by a certain Zacarias Payba. The unit was a total wreck, was returned, and stored inside Norkis' warehouse.

On March 20, 1980, DBP released the proceeds of private respondent's motorcycle loan to Norkis in the total sum of P7,500. As the price of the motorcycle later increased to P7,828 in March, 1980, Nepales paid the difference of P328 and demanded the delivery of the motorcycle. Norkis failed to deliver the unit, and Nepales filed an action for specific performance with damages in the RTC of Himamaylan, Negros Occidental. Norkis answered that the motorcycle had already been delivered to private respondent before the accident, hence, he should bear the risk of loss or damage as owner of the unit. The lower court ruled in favor of Nepales, and the Court of Appeals affirmed the decision but deleted the award of damages "in the amount of P50.00 a day from February 3, 1980 until payment of the present value of the damaged vehicle." Norkis concedes that there was no "actual" delivery of the vehicle, but insists that there was constructive delivery of the unit upon the issuance of the sales invoice, upon the registration of the unit in Nepales’ name, and upon the issuance of the official receipt.

ISSUE:

Who should bear the risk of loss?

COURT RULING:

Affirming the decision of the Court of Appeals, the Supreme Court reiterated that Article 1496 of the Civil Code which provides that "in the absence of an express assumption of risk by the buyer, the things sold remain at seller's risk until the ownership thereof is transferred to the buyer," is applicable in the case at bar for there was neither an actual nor constructive delivery of the thing sold.

The Court of Appeals correctly ruled that the purpose of the execution of the sales invoice dated September 20, 1979 and the registration of the vehicle in the name of Alberto Nepales with the Land

Registration Commission was not to transfer the ownership and dominion over the motorcycle to him, but only to comply with the requirements of the DBP for processing private respondent's motorcycle loan. The circumstances in the case itself more than amply rebut the disputable presumption of delivery upon which Norkis anchors its defense to Nepales' action.

Chrysler Philippines Corp. v. Court of Appeals

Facts:

Petitioner is a domestic corporation engaged in the assembling and sale of motor vehicles and other automotive products. Respondent Sambok Motors Co., a general partnership, during the period relevant to these proceedings, was its dealer for automotive products with offices at Bacolod (Sambok, Bacolod) and Iloilo (Sambok, Iloilo).

On October 2, 1970, Sambok, Bacolod, ordered from petitioner various automotive products worth P30,909.61, payable in 45 days; that on November 25, 1970, petitioner delivered said products to its forwarding agent, Allied Brokerage Corporation, for shipment; that Allied Brokerage loaded the goods on board the M/S Doña Florentina, a vessel owned and operated by Negros Navigation Company, for delivery to Sambok, Bacolod; that when petitioner tried to collect from the latter the amount of P31,037.56, representing the price of the spare parts plus handling charges, Sambok, Bacolod, refused to pay claiming that it had not received the merchandise; that petitioner also demanded the return of the merchandise or their value from Allied Brokerage and Negros Navigation, but both denied any liability.In its Answer, Sambok, Bacolod, denied having received from petitioner or from any of its co-defendants, the automotive products referred to in the Complaint, and professed no knowledge of having ordered from petitioner said articles.

Issue:

WON Sambok Bacolod bears the loss of the cargo for which it is liable in damages to Chrysler.

Held:

No, Sambok Bacolod cannot be faulted for not accepting or refusing to accept the shipment from Negros Navigation four years after shipment.

It was found out that upon receipt of the Bill of Lading, Sambok Bacolod initiated, but did not pursue stepts to take delivery as they were advised by Negros Navigation that because some party were

missing, they would just be informed as soon as the missing parts were located. It was only four years later that the said parts were found in their off-shore bodega but were already deteriorated and valueless.The evidence is clear that Negros Navigation could not produce the merchandise nor ascertain its whereabouts at the time Sambok, Bacolod, was ready to take delivery. Where the seller delivers to the buyer a quantity of goods less than he contracted to sell, the buyer may reject them.

From the evidentiary record, Negros Navigation was the party negligent in failing to deliver the complete shipment either to Sambok, Bacolod, or to Sambok, Iloilo, but as the Trial Court found, petitioner failed to comply with the conditions precedent to the filing of a judicial action. Thus, in the last analysis, it is petitioner that must shoulder the resulting loss. The general rule that before, delivery, the risk of loss is home by the seller who is still the owner, under the principle of "res petit domino", is applicable in petitioner's case.

In sum, the judgment of respondent Appellate Court, will have to be sustained not on the basis of misdelivery but on non-delivery since the merchandise was never placed in the control and possession of Sambok, Bacolod, the vendee.

Roman vs. Grimalt

6 Phil 96

April 1906

FACTS:

In between the 13th to the 23d of June, 1904, petitioner Pedro Roman, the owner, and respondent Andres Grimalt, the purchaser, verbally agreed upon the sale of the schooner Santa Marina. In his letter on June 23, Grimalt agreed to buy the vessel and offered to pay in three installments of P500 each on July 15, September 15, and November 15, provided the title papers to the vessel were in proper form. The title of the vessel, however, was in the name of one Paulina Giron and not in the name of Roman as the alleged owner. Roman promised to perfect his title to the vessel, but failed so the papers he presented did not show that he was the owner of the vessel. On June 25, 1904, the vessel sank in the Manila harbor during a severe storm, even before Roman was able to produce for Grimalt the proper papers showing that the former was in fact the owner of the vessel in question and not Paulina Giron. As a result, Grimalt refused to pay the purchase price when Roman made a demand on June 30, 1904.

On July 2, 1904, Roman filed this complaint in the CFI of Manila, which found that the parties had not arrived at a definite understanding, and later dismissed said complaint.

ISSUE:

Who should bear the risk of loss?

COURT RULING:

The Supreme Court affirmed the decision of the lower court and declared Roman as the one who should bear the risk of lost because there was no actual contract of sale. If no contract of sale was actually executed by the parties, the loss of the vessel must be borne by its owner and not by a party who only intended to purchase it and who was unable to do so on account of failure on the part of the owner to show proper title to the vessel and thus enable them to draw up the contract of sale. Grimalt was under no obligation to pay the price of the vessel, the purchase of which had not been concluded. The conversations between the parties and the letter Grimalt had written to Roman did not establish a contract sufficient in itself to create reciprocal rights between the parties.

SANCHEZ v RIGOS

FACTS: Sanchez and Rigos executed an Option to Purchase where Rigos agreed, promised, and committed to sell to Sanchez a parcel of land in Nueva Ecija for P1,510. In spite of the repeated tenders made by Sanchez, Rigos refused to sell the same. Thus, Sanchez consigned the amounts and filed a case for specific performance. Rigos alleged that the contract between them was a unilateral promise to sell, which is not supported by any consideration, hence, it is not binding. ISSUE: W/N there was a valid option contract HELD: NO. The promisee (Sanchez) cannot compel the promissor (Rigos) to comply with the promise unless the former can establish that the promise was for a consideration. The burden of proof to establish the existence of the consideration lies with Sanchez. Therefore, there was no valid option contract in this case. However, an option without consideration is a mere offer, which is not binding until accepted. But from the moment it is accepted before it is withdrawn

ANTONIO | HIPOLITO | IMPERIAL | ZARAGOSA 11

a valid contract of sale arises. In this case, even though there was no option contract, there was nevertheless an offer and acceptance enough to constitute a valid contract of sale.

Southern Motors vs Moscoso

2 SCRA 168, G.R. No. L-14475

May 30, 1961

FACTS:

Plaintiff Southern Motors, Inc. sold to defendant Angel Moscoso one Chevrolet truck on installment basis, for P6,445.00. Upon making a down payment, the defendant executed a promissory note for the sum of P4,915.00, representing the unpaid balance of the purchase price to secure the payment of which, a chattel mortgage was constituted on the truck in favor of the plaintiff. Of said account, the defendant had paid a total of P550.00, of which P110.00 was applied to the interest and P400.00 to the principal, thus leaving an unpaid balance of P4,475.00. The defendant failed to pay 3 installments on the balance of the purchase price.

Plaintiff filed a complaint against the defendant, to recover the unpaid balance of the promissory note. Upon plaintiff’s petition, a writ of attachment was issued by the lower court on the properties of the defendant. Pursuant thereto, the said Chevrolet truck, and a house and lot belonging to defendant, were attached by the Sheriff and said truck was brought to the plaintiff’s compound for safe keeping. After attachment and before the trial of the case on the merits, acting upon the plaintiff’s motion for the immediate sale of the mortgaged truck, the Provincial Sheriff of Iloilo sold the truck at public auction in which plaintiff itself was the only bidder for P1,OOO.OO. The trial court condemned the defendant to pay the plaintiff the amount of P4,475.00 with interest at the rate of 12% per annum from August 16, 1957, until fully paid, plus 10% thereof as attorneys fees and costs. Hence, this appeal by the defendant.

ISSUE:

Whether or not the attachment caused to be levied on the truck and its immediate sale at public auction, was tantamount to the foreclosure of the chattel mortgage on said truck.

HELD:

No.Article 1484 of the Civil Code provides that in a contract of sale of personal property the price of which is payable in installments, the vendor may exercise any of the following remedies: (I) Exact fulfillment of the obligation, should the vendee fail to pay; (2) Cancel the sale, should the vendee’s failure to pay cover two or more installments; and (3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee’s failure to pay cover two or more installments. In this case, he shall have no further action against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be void.

The plaintiff had chosen the first remedy. The complaint is an ordinary civil action for recovery of the remaining unpaid balance due on the promissory note. The plaintiff had not adopted the procedure or methods outlined by Sec. 14 of the Chattel Mortgage Law but those prescribed for ordinary civil actions, under the Rules of Court. Had the plaintiff elected the foreclosure, it would not have instituted this case in court; it would not have caused the chattel to be attached under Rule 59, and had it sold at public auction, in the manner prescribed by Rule 39. That the plaintiff did not intend to foreclose the mortgage truck, is further evinced by the fact that it had also attached the house and lot of the appellant at San Jose, Antique.

We perceive nothing unlawful or irregular in plaintiff’s act of attaching the mortgaged truck itself. Since the plaintiff has chosen to exact the fulfillment of the appellant’s obligation, it may enforce execution of the judgment that may be favorably rendered hereon, on all personal and real properties of the latter not exempt from execution sufficient to satisfy such judgment. It should be noted that a house and lot at San Jose, Antique were also attached. No one can successfully contest that the attachment was merely an incident to an ordinary civil action. The mortgage creditor may recover judgment on the mortgage debt and cause an execution on the mortgaged property and may cause an attachment to be issued and levied on such property, upon beginning his civil action.

PCI LEASING AND FINANCE INC v GIRAFFE-X

CREATIVE IMAGING INC

FACTS: PCI Leasing and Giraffe entered into a Lease

Agreement whereby PCI Leasing leased several

machineries for a rent of P116, 878. 21/month for 36

months and P181, 362/month for 36 months for a total

of P10, 736, 647.56. Giraffe paid the amount of P3, 120,

000 as guaranty deposit. However, after 1 year, Giraffe

defaulted in its monthly-rental payment obligations.

After a 3-month default, PCI demanded a formal pay-orsurrender-equipment type but the demand went

unheeded thus PCI instituted the instant case and

prayed for the issuance for the writ of replevin. The

trial court issued a writ of replevin. Giraffe filed a

motion to dismiss arguing that PCI was barred from

pursuing any other claim since the seizure of the 2

leased equipments because the contract was in reality a

lease with option to buy. The RTC granted the motion to

dismiss ruling that it was akin to a contract covered by

art. 1485 hence can no longer pursue its claim. Hence

the case at bar.

ISSUE: W/N the contract was covered by Art. 1485 and

1484 hence barred PCI from recovering

HELD: YES

A financial lease is one where a financing company

would, in effect, initially purchase a mobile equipmentand turn around to lease it to a client who gets, in

addition, an option to purchase the property at the

expiry of the lease period.

In the case at bar, PCI acquired the office equipments

for their subsequent lease to Giraffe, with the latter

undertaking to pay a monthly fixed rental for the whole

36 months. Giraffe made a guaranty deposit. Their

agreement was that in case Giraffe fails to pay any

rental due, PCI will have cumulative remedies, such as,

to recover all rentals for the remaining term of the

lease and recover all amounts advanced for Giraffe’s

account.

When PCI demanded for payment of the balance, it

made a demand for either of the choices. Either to pay

the balance hence Giraffe can keep the equipment or

surrender them if he cannot. The so-called monthly

rentals were in fact monthly amortizations of the price

of the leased office equipment.

The imperatives of equity, the contractual stipulations

and the actuations of the parties, the SC has treated a

purported financial lease as actually a sale of movable

property on installments and prevented recovery. The

Lease Agreement is in reality a lease with an option to

purchase the equipment. This has been made manifest

by the actions of PCI itself.

In choosing replevin, PCI waived its right to bring an

action to recover unpaid rentals.

Facts:

-On December 4, 1996, petitioner PCI LEASING and respondent GIRAFFE entered into a Lease Agreement, whereby the former leased out to the latter one (1) set of Silicon High Impact Graphics and accessories worth P3,900,00.00 and one (1) unit of Oxberry Cinescan 6400-10 worth P6,500,000.00.

- A year into the life of the Lease Agreement, GIRAFFE defaulted in its monthly rental-payment obligations. And following a three-month default, PCI LEASING addressed a formal pay-or-surrender-equipment type of demand letter dated February 24, 1998 to GIRAFFE.

- The demand went unheeded.

- PCI Leasing instituted a case against GIRAFFE. PCI prayed for the issuance of a writ of replevin for the recovery of the leased property

- Upon PCI LEASING’s posting of a replevin bond, the trial court issued a writ of replevin, paving the way for PCI LEASING to secure the seizure and delivery of the equipment covered by the basic lease agreement.

- Instead of an answer, GIRAFFE filed a Motion to Dismiss,arguing that the seizure of the two (2) leased equipment stripped PCI LEASING of its cause of action.

-GIRAFFE argues that, pursuant to Article 1484 of the Civil Code on installment sales of personal property, PCI LEASING is barred from further pursuing any claim arising from the lease agreement and the companion contract documents, adding that the agreement between the parties is in reality a lease of movables with option to buy.

-GIRAFFE asserts in its Motion to Dismiss that the civil complaint filed by PCI LEASING is proscribed by the application to the case of Articles 1484 and 1485, supra, of the Civil Code.

- PCI Leasing on the other hand maintains that its contract with GIRAFFE is a straight lease without an option to buy.

- petitioner contends that the financial leasing arrangement it concluded with the respondent represents a straight lease covered by R.A. No. 5980, the Financing Company Act, as last amended by R.A. No. 8556, otherwise known as Financing Company Act of 1998, and is outside the application and coverage of the Recto Law. To the petitioner, R.A. No. 5980 defines and authorizes its existence and business.

-the trial court granted GIRAFFE’s motion to dismiss

- motion for reconsideration was denied, hence this petition for review.

Issue:

Whether the agreement between PCI Leasing and GIRAFFE is governed by Articles 1484 and 1485 of the Civil Code?

Held:

Petition denied. Trial Court’s decision affirmed

Ratio:

-The PCI LEASING- GIRAFFE lease agreement is in reality a lease with an option to purchase the equipment. This has been made manifest by the actions of the petitioner itself, foremost of which is the declarations made in its demand letter to the respondent. There could be no other explanation than that if the respondent paid the balance, then it could keep the equipment for its own; if not, then it should return them. This is clearly an option to purchase given to the respondent. Being so, Article 1485 of the Civil Code should apply.

- The present case reflects a situation where the financing company can withhold and conceal - up to the last moment - its intention to sell the property subject of the finance lease, in order that the provisions of the Recto Law may be circumvented. It may be, as petitioner pointed out, that the basic “lease agreement” does not contain a “purchase option” clause. The absence, however, does not necessarily argue against the idea that what the parties are into is not a straight lease, but a lease with option to purchase. This Court has, to be sure, long been aware of the practice of vendors of personal property of denominating a contract of sale on installment as one of lease to prevent the ownership of the object of the sale from passing to the vendee until and unless the price is fully paid.

-Being leases of personal property with option to purchase as contemplated in the above article, the contracts in question are subject to the provision that when the lessor in such case “has chosen to deprive the lessee of the enjoyment of such personal property,” “he shall have no further action” against the lessee “for the recovery of any unpaid balance” owing by the latter, “agreement to the contrary being null and void.”

-In choosing, through replevin, to deprive the respondent of possession of the leased equipment, the petitioner waived its right to bring an action to recover unpaid rentals on the said leased items. Paragraph (3), Article 1484 in relation to Article 1485 of the Civil Code, which we are hereunder re-reproducing, cannot be any clearer.