CONTRACT OF SALE, CONCEPTS | Agency to Sell

FACTS:

A contract was entered into between Andres Quiroga and J. Parsons, who were both merchants, which granted the
exclusive right to sell his beds in the Visayan Islands to Parsons under the following conditions: 1) There be a discount of
2.5% as commission for the sale; 2) Parsons shall order the beds by the dozen, whether of the same or of different
styles; 3) Expenses for transportation and shipment shall be borne by Quiroga; 4) Parsons is bound to pay Quiroga for
the beds received within 60 days from the date of their shipment; 5) If Quiroga should request payment before the
invoice falls due, it shall be considered as prompt payment with 2% deduction; 6) 15-day notice must at least be given by
Quiroga before any alteration in price of beds; and 7) Parsons binds himself to only sell Quiroga beds. Quiroga alleged
that Parsons breached its contract by selling the beds at a higher price, not having an open establishment in Iloilo, not
maintaining a public exhibition, and for not ordering the beds by the dozen. Only the last imputation was provided for by
the contract, the others were not stipulated. Quiroga argued that since there was a contract of agency between them,
such obligations were necessarily implied.

ISSUE:

Is the contract between them one of agency, not of sale?

HELD:

No. The agreement between Quiroga and Parsons was that of a simple purchase and sale — not an agency. Quiroga
supplied the beds, while Parsons had the obligation to pay their purchase price. These features exclude the legal
conception of an agency or order to sell whereby the mandatory or agent received the thing to sell it, and does not pay
its price, but delivers to the principal the price he obtains from the sale of the thing to a third person, and if he does not
succeed in selling it, he returns it. By virtue of the contract between the plaintiff and the defendant, the latter, on
receiving the beds, was necessarily obliged to pay their price within the term fixed, without any other consideration and
regardless as to whether he had or had not sold the beds. There was mutual tolerance in the performance of the
contract in disregard of its terms; and it gives no right to have the contract considered, not as the parties stipulated it,
but as they performed it. Only the acts of the contracting parties, subsequent to, and in connection with, the execution
of the contract, must be considered for the purpose of interpreting the contract, when such interpretation is necessary.
Requirements of Valid Cancellation
Under Section 3, when the buyer has paid at least 2 years of installments, for the cancellation to be valid, the following
requirements must be satisfied:

1. The seller must serve on the buyer a duly notarized notice of cancellation; and
2. The seller must refund to the buyer the cash surrender value of payments made.

When the buyer has paid less than two years of installments, he is entitled only to notice; he is not entitled to cash
surrender value.

Non-compliance with any of these requisites renders the cancellation void and ineffective. The contract remains valid
and subsisting. The seller may be compelled to accept payment once tendered by the buyer.

However, the subject property may have been sold to a third person in the time being. In such a case, what remedies
may the buyer avail of?

The case:

ACTIVE REALTY & DEVELOPMENT CORPORATION versus NECITA G. DAROYA (G.R. No. 141205 – May 9, 2002)
ACTIVE REALTY & DEVELOPMENT CORPORATION (DEVELOPER) is the owner and developer of Town & Country Hills
Executive Village in Antipolo, Rizal. On January 2, 1985, it entered into a Contract to Sell with NECITA DAROYA (BUYER), a
contract worker in the Middle East.

Under the contract to sell, BUYER was to pay ₱53,766.00, as down payment, upon the execution of the contract. The
balance was to be paid in 60 equal monthly installments of ₱4,893.35.

By August 8, 1989, BUYER had been in default in the payment of 3 amortizations.

DEVELOPER sent to BUYER a notice of cancellation of the contract to sell. The notice was not notarized.

BUYER sued DEVELOPER for specific performance and damages before the Arbitration Branch of the Housing and Land
Use Regulatory Board (HLURB)
Decision of HLURB Arbiter:
⇒ the cancellation of the contract to sell was void as the developer failed to pay the cash surrender value to the buyer
as mandated by law
⇒ as the subject lot was already sold to a third party and the buyer had agreed to a full refund of her installment
payments, the developer was ordered to refund to the buyer all her payments, with 12% interest per annum from the
date of the filing of the complaint until fully paid and to pay P10,000.00 as attorney’s fees.

Decision of HLURB Board of Commissioners:

The Board did not apply the remedies provided under the Maceda Law since both parties were at fault based on these
findings:

⇒ the buyer incurred delay in her installment payments

⇒ the developer failed to send a notarized notice of cancellation

Instead, the Board formulated an ‘equitable solution’, which was allegedly akin to the remedies provided under the
Maceda Law:

⇒ the developer was ordered to refund to the buyer one-half of the total amount she had paid

Decision of the Office of the President:

⇛ the cancellation of the contract was not valid since the developer did not comply with the legal requisites
⇛ the contract to sell between the parties subsisted
⇛ the buyer was entitled to the lot after payment of her outstanding balance
⇛ considering that the lot was already sold to another person, the developer was ordered to refund to the buyer the
amount equivalent to the price when the lot was resold (the true and actual value of the lot) OR to deliver a substitute
lot, at the choice of the buyer

Decision of the Supreme Court:

The Supreme Court sustained the Office of the President.

⇛ the cancellation of the contract by the developer was void and ineffective for failure to comply with the mandatory
twin requirements:

a. service of notarized notice of cancellation

b. refund of cash surrender value

⇛ the contract to sell remained valid and subsisting

⇛ the buyer had the right to pay for the balance of the purchase price, without interest;

HOWEVER, the lot having been resold, the buyer had 2 mutually exclusive options:

a. to demand the ‘actual value’ (price on resale) of the lot, plus interest from date of filing of complaint until the price
would be fully delivered to the buyer, OR
b. to demand delivery of a substitute lot

The Supreme Court further discoursed:

On the decision of the HLURB Board of Commissioners

“On a final note, it would not be amiss to stress that the HLURB Board Decision ordering petitioner to refund to
respondent one half of her total payments is not an equitable solution as it punished the respondent for her delinquent
payments but totally disregarded petitioner’s failure to comply with the mandatory requisites for a valid cancellation of
the contract to sell. The Board failed to consider that the Maceda law was enacted to remedy the plight of low and
middle-income lot buyers, save them from the exacting default clauses in real estate sales and assure them of a home
they can call their own. “

On the decision of the HLURB Arbiter

“Neither would the Decision of the HLURB Arbiter ordering a full refund of the installment payments of respondent in
the amount of P314,816.70 be justified as, under the law, respondent is entitled to the lot she purchased after payment
of her outstanding balance which she was ready and willing to do. Thus, to penalize the petitioner for failing in its
obligation to deliver the subject lot and to give the respondent what is rightly hers, the petitioner was correctly ordered
to refund to the respondent the actual value of the land (P875,000.00) she lost to another buyer, plus interest at the
rate of 12% per annum from August 26, 1991 until fully paid or to deliver a substitute lot at the choice of the
respondent.”

In fine, the gist of the Decision may be stated, thus:

The consequences of failure by the seller to comply with the requisites provided by Republic Act No. 6552 for
cancellation of contract are as follows:

1. The cancellation is invalid;

2. The contract remains valid and subsisting;
3. The buyer may compel the seller to accept payment;
4. The buyer is entitled to the subject property;
5. If the property has been sold to a buyer in good faith, the buyer may either:

a. demand the price paid by the third-party buyer, plus legal interest; or
b. demand delivery of substitute property

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.