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Also, the matters contained in the following were written in accordance with the law, rules, and jurisprudence prevailing at the time of writing and posting, and do not include any future developments on the subject matter under discussion.
AT A GLANCE:
A contract to sell may not be considered as a conditional contract of sale where the seller may likewise reserve title to the property subject of the sale until the fulfillment of a suspensive condition, because in a conditional contract of sale, the first element of consent is present, although it is conditioned upon the happening of a contingent event which may or may not occur. (Ace Foods, Inc., v. Micro Pacific Technologies Co. LTD, G.R. No. 200602, December 11, 2013)
In the case of Ace Foods, Inc. v. Micro Pacific Technologies Co. LTD. (G.R. No. 2000602, December 11, 2013), the Supreme Court reiterated the established rule that a contract to sell may not be considered as a conditional contract of sale.
ACE Foods is a domestic corporation engaged in the trading and distribution of consumer goods in wholesale and retail bases, while MTCL is one engaged in the supply of computer hardware and equipment.
On September 26, 2001, MTCL sent a letter-proposal for the delivery and sale of the subject products to be installed at various offices of ACE Foods.
On October 29, 2001, ACE Foods accepted MTCL’s proposal and accordingly issued Purchase Order No. 100023 for the subject products amounting to ₱646,464.00. Thereafter, MTCL delivered the said products to ACE Foods as reflected in Invoice No. 7733. The fine print of the invoice states, inter alia, that “title to sold property is reserved in MICROPACIFIC TECHNOLOGIES CO., LTD. until full compliance of the terms and conditions of above and payment of the price.”
After delivery, the subject products were then installed and configured in ACE Foods’s premises. MTCL’s demands against ACE Foods to pay the purchase price, however, remained unheeded. Instead of paying the purchase price, ACE Foods sent MTCL a Letter, stating that it “has been returning the subject products to MTCL thru its sales representative Mr. Mark Anteola who has agreed to pull out the said products but had failed to do so up to now.”
Eventually, ACE Foods lodged a Complaint against MTCL before the RTC, praying that the latter pull out from its premises the subject products since MTCL breached its “after delivery services” obligations to it. In its answer, MTCL maintained that it had duly complied with its obligations to ACE Foods and that the subject products were in good working condition when they were delivered, installed and configured in ACE Foods’s premises.
In resolving the case, the Supreme Court found that the parties have agreed to a contract of sale and not a contract to sell.
A contract is what the law defines it to be, taking into consideration its essential elements, and not what the contracting parties call it. The real nature of a contract may be determined from the express terms of the written agreement and from the contemporaneous and subsequent acts of the contracting parties. However, in the construction or interpretation of an instrument, the intention of the parties is primordial and is to be pursued. The denomination or title given by the parties in their contract is not conclusive of the nature of its contents.
The very essence of a contract of sale is the transfer of ownership in exchange for a price paid or promised.
Corollary thereto, a contract of sale is classified as a consensual contract, which means that the sale is perfected by mere consent. No particular form is required for its validity. Upon perfection of the contract, the parties may reciprocally demand performance, i.e., the vendee may compel transfer of ownership of the object of the sale, and the vendor may require the vendee to pay the thing sold.
In contrast, a contract to sell is defined as a bilateral contract whereby the prospective seller, while expressly reserving the ownership of the property despite delivery thereof to the prospective buyer, binds himself to sell the property exclusively to the prospective buyer upon fulfillment of the condition agreed upon, i.e., the full payment of the purchase price.
A contract to sell may not even be considered as a conditional contract of sale where the seller may likewise reserve title to the property subject of the sale until the fulfillment of a suspensive condition, because in a conditional contract of sale, the first element of consent is present, although it is conditioned upon the happening of a contingent event which may or may not occur.
Bearing in mind its consensual nature, the Supreme Court held that a contract of sale had been perfected at the precise moment ACE Foods, as evinced by its act of sending MTCL the Purchase Order, accepted the latter’s proposal to sell the subject products in consideration of the purchase price of ₱646,464.00. From that point in time, the reciprocal obligations of the parties – i.e., on the one hand, of MTCL to deliver the said products to ACE Foods, and, on the other hand, of ACE Foods to pay the purchase price therefor within thirty (30) days from delivery – already arose and consequently may be demanded.
RELATED ARTICLES:
- The Supreme Court decides: The distinction between a contract of sale and contract to sell is well-established in the decisions of the Court.
- Distinguishing Contract of Sale from Contract to Sell
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