SPOUSES NONATO V. IAC & INVESTOR'S FINANCE CORP 140 SCRA 255 (1985)

FACTS: In 1976, Spouses Restituto Nonato and Ester Nonato purchased a volkswagen from the People’s Car Inc on installment basis.

1.      To secure their complete payment, Nonato executed a promissory note and a chattel mortgage in favor of People’s Car Inc.

2.      Subsequently, People’s Car Inc assigned its rights and interest over the note and mortagge in favor of Investor’s Finance Corp (IFC).

3.      For failure of the spouses to pay two or more installments, despite demands, the car was repossessed by IFC.

4.      Despite repossession, IFC still demanded from Nonato that they pay the balance of the price of the car. IFC, then, filed a complaint for the payment of the price of the car with damages

5.      Nonato, in their defense, argued that when the company repossessed the car, IFC had, by that act, effectively cancelled the sale of the vehicle. As such, it was barred from exacting the recovery of the unpaid balance of the purchase price as mandated by Art 1484.

6.      The trial court rendered in favor of IFC and ordered the spouses  Nonato pay the balance of the purchase price of the car with interest. CA affirmed the same.

ISSUE: WON a vendor or his assignee, who had cancelled the sale of a motor vehicle for failure of the buyer to pay two or more of the stipulated installments, may also demand payment of the balance of the purchase price

HELD: No. The applicable law in the case at bar is Art 1484 which 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:

(1)   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;

(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.

This provision means that should the vendee or the purchaser of a personal property default in the payment of two or more of the agreed installments, the vendor or the seller has the option to avail any of these 3 remedies—either to exact fulfillment by the purchaser of the obligation, or to cancel the sale, or to foreclose the mortgage on the purchased personal property, if one was constituted. These remedies have been recognized as an alternative, not cumulative, that the exercise of one should bar the exercise of the others.

In the present case, it is not disputed that IFC had taken possession of the car purchased by the Nonatos after the spouses defaulted in their payments. The defense of IFC that it the repossession of the vehicle was only for the purpose of appraising its value and for storage and safekeeping pending full payment of the spouses is untenable. The receipt issued by IFC to the spouses when it took possession of the vehicle that the vehicle could be redeemed within 15 days. This could only mean that should the spouses fail to redeem the car within the period provided, IFC would retain permanent possession of the vehicle. IFC even notified the spouses Nonato that the value of the car was not sufficient to cover the balance of the purchase price and there was no attempt at all on the part of the company to return the car.

The acts performed by IFC are consistent with the conclusion that it had opted to cancel the sale of the vehicle. Therefore, it is barred from exacting payment from the petitioners of the balance of the price of the vehicle which it had already repossessed (it cannot have its cake and eat it too)

HEIRS OF ESCANLAR V. CA 281 SCRA 176 (1997)

FACTS: Spouses Guillermo Nombre and Victoriana Cari-an died without issue in 1924 and 1938, respectively. Nombre’s heirs include his nephews and grandnephews. Victoriana was succeeded by her late brother’s son, Gregorio Cari-an.

1.      After Gregorio’s death in 1971, his wife, Generosa Martinez and children (Rodolfo, Carmen, Leonardo and Fredisminda) were adjudged as heirs by representation to Victoriana’s estate. Leonardo passed away, leaving his widow, Nelly Chua vda. de Cari-an and minor Leonell as his heirs

2.      2 parcels of land, denominated by Lot 1616 and 1617, formed part of the estate of Guillermo Nombre and Victoriana Cari-an.

3.      In 1978, Gregorio’s heirs executed a deed of sale of rights, interests and participation in favor of Pedro Escanlar and Francisco Holgado over the ½ undivided share of Victoriana for P275,000  to be paid to the heirs, except the share of the minor Leonell Cari-an which shall be deposited to the Municipal Treasurer. Said contract of sale will be effective only upon approval of CFI

4.      Escanlar and Holgado, the vendees, were concurrently the lessees of the subject property. In a deed of agreement executed by both parties confirming and affirming the contract of sale, they stipulated the following:

a.       That the balance of the purchase price (P225,000) shall be paid on or before May 1979

b.      Pending complete payment thereof, the vendees shall not assign, sell, lease or mortgage the rights, interests and participation thereof

c.       In the event of nonpayment of the balance of said purchase price, the sum of P50,000 (down payment) shall be deemed as damages

5.      Escanlar and Holgado were unable to pay the individual shares of the Cari-an heirs, amounting to P55,000 each, on the due date. However, said heirs received at least 12 installment payments from Escanlar and Holgado after May 1979. Rodolfo was fully paid by June 1979, Generosa Martinez, Carmen and Fredisminda were likewise fully compensated for their individual shares. The minor’s share was deposited with the RTC in September 1982.

6.      Being former lessees, Escanlar and Holgado continued in possession of Lots 1616 and Lots 1617. Interestingly, they continued to pay rent based on their lease contract.

7.      Subsequently, Escanlar and Holgado sought to intervene in the probate proceedings of Guillermo and Victoriana as buyers of Victoriana’s share. In 1982, the probate court approved the motion filed by the heirs of Guillermo and Victoriana to sell their respective shares in the estate. Thereafter, the Cari-ans, sold their shares in 8 parcels of land including lots 1616 and 1617 to spouses Chua for P1.85 million.

8.      The Cari-ans instituted a case for cancellation of sale against Escanlar and Holgado alleging the latter’s failure to pay the  balance of the purchase price on the stipulated date and that they only received a total of P132,551 in cash and goods.

9.      Escanlar and Holgado averred that the Cari-ans, having been paid, had no right to resell the subject lots and that the spouses Chua were purchasers in bad faith.

10.  The trial court held in favor of the heirs of Cari-an citing that the sale between the Cari-ans and Escanlar is void as it was not approved by the probate court which was required in the deed of sale.

11.  CA affirmed the same and cited that the questioned deed of sale of rights is a contract to sell because it shall become effective only upon approval by the probate court and upon full payment of the purchase price.

ISSUE: WON the non-happening of a condition affects the validity of the contract itself

HELD: No, the non-happening of a condition only affects the effectivity and not the validity of the contract.

Under Art 1318 Civil Code, the essential requisites of a contract are:  consent of the contracting parties; object certain which is the subject matter of the contract and cause of the obligation which is established.  Absent one of the above, no contract can arise.  Conversely, where all are present, the result is a valid contract. However, some parties introduce various kinds of restrictions or modalities, the lack of which will not, however, affect the validity of the contract.

In the instant case, the Deed of Sale, complying as it does with the essential requisites, is a valid one.  However, it did not bear the stamp of approval of the court.  The contract’s validity was not affected for in the words of the stipulation, “ …this Contract of Sale of rights, interests and participations shall become effective only upon the approval by the Honorable Court…”  In other words, only the effectivity and not the validity of the contract is affected.

CONTRACT TO SELL VS. CONTRACT OF SALE

In contracts to sell, ownership is retained by the seller and is not to pass until the full payment of the price. Such payment is a positive suspensive condition, the failure of which is not a breach of contract but simply an event that prevented the obligation of the vendor to convey title from acquiring binding force. To illustrate, although a deed of conditional sale is denominated as such, absent a proviso that title to the property sold is reserved in the vendor until full payment of the purchase price nor a stipulation giving the vendor the right to unilaterally rescind the contract the moment the vendee fails to pay within a fixed period, by its nature, it shall be declared a deed of absolute sale.

In a contract of sale, the non-payment of the price is a resolutory condition which extinguishes the transaction that, for a time, existed and discharges the obligations created thereunder. The remedy of an unpaid seller in a contract of sale is to seek either specific performance or rescission.

In the case at bar, the sale of rights, interests and participation as to ½ portion pro indiviso of the 2 subject lots is a contract of sale for the reasons that (1) the sellers did not reserve unto  themselves the ownership of the property until full payment of the unpaid balance of P225,000.00; (2) there is no stipulation giving the sellers the right to unilaterally rescind the contract the moment the buyer fails to pay within the fixed period.

Need of probate court’s approval exists where specific properties of the estate are sold and not when ideal and indivisible shares of an heir are disposed of

The need for approval by the probate court exists only where specific properties of the estate are sold and not when only ideal and indivisible shares of an heir are disposed of. In Dillena v. Court of Appeals, the Court declared that it is within the jurisdiction of the probate court to approve the sale of properties of a deceased person by his prospective heirs before final adjudication. The probate court’s approval is necessary for the validity of any disposition of the decedent’s estate. However, reference to judicial approval cannot adversely affect the substantive rights of the heirs to dispose of their ideal share in the co-heirship and/or co-ownership among the heirs. It must be recalled that during the period of indivision of a decedent’s estate, each heir, being a co-owner, has full ownership of his part and may therefore alienate it. But the effect of the alienation with respect to the co-owners shall be limited to the portion which may be allotted to him in the division upon the termination of the co-ownership.

Contractual stipulations considered law between parties; Exception: contemporaneous acts of parties

As a general rule, the pertinent contractual stipulation (requiring court approval) should be considered as the law between the parties. However, the presence of two factors militate against this conclusion: (1) the evident intention of the parties appears to be contrary to the mandatory character of said stipulation. Whoever crafted the document of conveyance, must have been of the belief that the controversial stipulation was a legal requirement for the validity of the sale. But the contemporaneous and subsequent acts of the parties reveal that the original objective of the parties was to give effect to the deed of sale even without court approval.

Receipt and acceptance of the numerous installments on the balance of the purchase price by the Cari-ans, although the period to pay the balance of the purchase price expired in May 1979, and leaving Escanlar and Holgado in possession of Lots 1616 and 1617 reveal their intention to effect the mutual transmission of rights and obligations. The Cari-ans did not seek judicial relief until late 1982 or three years later; (2) the requisite approval was virtually rendered impossible by the Cari-ans because they opposed the motion for approval of the sale filed by Escanlar and Holgado, and sued the latter for the cancellation of that sale. Having provided the obstacle and the justification for the stipulated approval not to be granted, the Cari-ans should not be allowed to cancel their first transaction with Escanlar and Holgado because of lack of approval by the probate court, which lack is of their own making.

NUTRIMIX FEEDS CORP V. CA 441 SCRA 357 (2004)

FACTS: In 1993, private respondent spouses Evangelista procured various animal feeds from petitioner Nutrimix Feeds Corp. the petitioner gave the respondents a credit period of 30-45 days to postdate checks to be issued as payment for the feeds. The accommodation was made apparently because the company’s president was a close friend of Evangelista. The various animal feeds were paid and covered by checks with due dates from July 1993-September 1993.

1.    Initially, the spouses were good paying customers. However, there were instances when they failed to issue checks despite the delivery of goods. Consequently, the respondents incurred an aggregate unsettled account with Nutrimix amounting to P766,151

2.    When the checks were deposited by the petitioner, the same were dishonored (closed account). Despite several demands from the petitioner, the spouses refused to pay the remaining balance

3.    Thereafter, Nutrimix filed a complaint against Evangelista for collection of money with damages.

4.   The respondents admitted their unpaid obligation but impugned their liability. The nine checks issued were made to guarantee the payment of the purchases, which was previously determined to be procured from the expected proceeds in the sale of their broilers and hogs.  They contended that inasmuch as the sudden and massive death of their animals was caused by the contaminated products of the petitioner, the nonpayment of their obligation was based on a just and legal ground.

5.      The respondents also lodged a complaint for damages against the petitioner, for the untimely and unforeseen death of their animals supposedly effected by the adulterated animal feeds the petitioner sold to them.

6.      Nutrimix alleged that the death of the respondents’ animals was due to the widespread pestilence in their farm.  The petitioner, likewise, maintained that it received information that the respondents were in an unstable financial condition and even sold their animals to settle their obligations from other enraged and insistent creditors.  It, moreover, theorized that it was the respondents who mixed poison to its feeds to make it appear that the feeds were contaminated.

7.   The trial court held in favor of petitioner on the ground that it cannot be held liable under Articles 1561 and 1566 of the Civil Code governing “hidden defects” of commodities sold. The trial court  is predisposed to believe that the subject feeds were contaminated sometime between their storage at the bodega of the Evangelistas and their consumption by the poultry and hogs fed therewith, and that the contamination was perpetrated by unidentified or unidentifiable ill-meaning mischief-maker(s) over whom Nutrimix had no control in whichever way.

8.      CA modified the decision of the trial court, citing that respondents were not obligated to pay their outstanding obligation to the petitioner in view of its breach of warranty against hidden defects.  The CA gave much credence to the testimony of Dr. Rodrigo Diaz, who attested that the sample feeds distributed to the various governmental agencies for laboratory examination were taken from a sealed sack bearing the brand name Nutrimix

ISSUE: WON Nutrimix is guilty of breach of warranty due to hidden defects

HELD: NO.

The provisions on warranty against hidden defects are found in Articles 1561 and 1566 of the New Civil Code of the Philippines. A hidden defect is one which is unknown or could not have been known to the vendee. Under the law, the requisites to recover on account of hidden defects are as follows:

a)      the defect must be hidden;

b)      the defect must exist at the time the sale was made;

c)      the defect must ordinarily have been excluded from the contract;

d)     the defect, must be important (renders thing UNFIT or considerably decreases FITNESS);

e)      the action must be instituted within the statute of limitations

In the sale of animal feeds, there is an implied warranty that it is reasonably fit and suitable to be used for the purpose which both parties contemplated. To be able to prove liability on the basis of breach of implied warranty, three things must be established by the respondents.  The first is that they sustained injury because of the product; the second is that the injury occurred because the product was defective or unreasonably unsafe; and finally, the defect existed when the product left the hands of the petitioner. A manufacturer or seller of a product cannot be held liable for any damage allegedly caused by the product in the absence of any proof that the product in question was defective. The defect must be present upon the delivery or manufacture of the product; or when the product left the seller’s or manufacturer’s control; or when the product was sold to the purchaser; or the product must have reached the user or consumer without substantial change in the condition it was sold.  Tracing the defect to the petitioner requires some evidence that there was no tampering with, or changing of the animal feeds.  The nature of the animal feeds makes it necessarily difficult for the respondents to prove that the defect was existing when the product left the premises of the petitioner.

A review of the facts of the case would reveal that the petitioner delivered the animal feeds, allegedly containing rat poison, on July 26, 1993; but it is astonishing that the respondents had the animal feeds examined only on October 20, 1993, or barely three months after their broilers and hogs had died. A difference of approximately three months enfeebles the respondents’ theory that the petitioner is guilty of breach of warranty by virtue of hidden defects.  In a span of three months, the feeds could have already been contaminated by outside factors and subjected to many conditions unquestionably beyond the control of the petitioner. 

Even more surprising is the fact that during the meeting with Nutrimix President Mr. Bartolome, the respondents claimed that their animals were plagued by disease, and that they needed more time to settle their obligations with the petitioner.  It was only after a few months that the respondents changed their justification for not paying their unsettled accounts, claiming anew that their animals were poisoned with the animal feeds supplied by the petitioner.