CASE DIGEST: Ace Foods vs. Micro Pacific

G.R. No. 200602 : December 11, 2013 | ACE FOODS, INC., Petitioner, v. MICRO PACIFIC TECHNOLOGIES CO., LTD, Respondent. PERLAS-BERNABE, J.:

FACTS: 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 MTCLs proposal and accordingly issued Purchase Order No. 100023(Purchase Order) for the subject products amounting to ₱646,464.00. Thereafter, or on March 4, 2002, 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' premises. MTCLs demands against ACE Foods to pay the purchase price, however, remained unheeded. Instead of paying the purchase price, ACE Foods sent MTCL a Letter dated September 19, 2002, 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, or on October 16, 2002, 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, particularly, to: (a) install and configure the subject products; (b) submit a cost benefit study to justify the purchase of the subject products; and (c) train ACE Foodss technicians on how to use and maintain the subject products. ACE Foods likewise claimed that the subject products MTCL delivered are defective and not working.

For its part, MTCL, in its Answer with Counterclaim, 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 Foodss premises. Thereafter, MTCL even conducted a training course for ACE Foods' representatives/employees; MTCL, however, alleged that there was actually no agreement as to the purported after delivery services. Further, MTCL posited that ACE Foods refused and failed to pay the purchase price for the subject products despite the latter's use of the same for a period of nine (9) months. As such, MTCL prayed that ACE Foods be compelled to pay the purchase price, as well as damages related to the transaction.

On February 28, 2007, the RTC rendered a Decision, directing MTCL to remove the subject products from ACE Foods' premises and pay actual damages and attorney fees in the amounts of ₱200,000.00 and ₱100,000.00,respectively.

The RTC claimed that the agreement between ACE Foods and MTCL is in the nature of a contract to sell. Its conclusion was based on the fine print of the Invoice Receipt which expressly indicated 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, noting further that in a contract to sell, the prospective seller explicitly reserves the transfer of title to the prospective buyer, and said transfer is conditioned upon the full payment of the purchase price. Thus, notwithstanding the execution of the Purchase Order and the delivery and installation of the subject products at the offices of ACE Foods, by express stipulation stated in the Invoice Receipt issued by MTCL and signed by ACE Foods, i.e., the title reservation stipulation, it is still the former who holds title to the products until full payment of the purchase price therefor. In this relation, it noted that the full payment of the price is a positive suspensive condition, the non-payment of which prevents the obligation to sell on the part of the seller/vendor from materializing at all. Since title remained with MTCL, the RTC therefore directed it to withdraw the subject products from ACE Foodss premises. Also, in view of the foregoing, the RTC found it unnecessary to delve into the allegations of breach since the non-happening of the aforesaid suspensive condition ipso jure prevented the obligation to sell from arising.

Dissatisfied, MTCL elevated the matter on appeal.

In a Decision dated October 21, 2011, the CA reversed and set aside the RTCs ruling, ordering ACE Foods to pay MTCL the amount of ₱646,464.00, plus legal interest at the rate of 6% per annum to be computed from April 4, 2002, and attorneys fees amounting to ₱50,000.00.

It found that the agreement between the parties is in the nature of a contract of sale, observing that the said contract had been perfected from the time ACE Foods sent the Purchase Order to MTCL which, in turn, delivered the subject products covered by the Invoice Receipt and subsequently installed and configured them in ACE Foods' premises. Thus, considering that MTCL had already complied with its obligation, ACE Foods' corresponding obligation arose and was then duty bound to pay the agreed purchase price within thirty (30) days from March 5, 2002. In this light, the CA concluded that it was erroneous for ACE Foods not to pay the purchase price therefor, despite its receipt of the subject products, because its refusal to pay disregards the very essence of reciprocity in a contract of sale. The CA also dismissed ACE Foods' claim regarding MTCLs failure to perform its after delivery services obligations since the letter-proposal, Purchase Order and Invoice Receipt do not reflect any agreement to that effect.

Aggrieved, ACE Foods moved for reconsideration which was, however, denied in a Resolution dated February 8, 2012, hence, this petition.

ISSUE: Whether or not ACE Foods should pay MTCL the purchase price for the subject products?

HELD: Court of Appeals decision is affirmed.

CIVIL LAW: distinction among contract of sale, contract to sell, and conditional contract of sale

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.This may be gleaned from Article 1458 of the Civil Code which defines a contract of sale as an arrangement where one of the contracting parties obligates himself to transfer the ownership and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. A contract of sale may be absolute or conditional.

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.

In this case, the Court concurs with the CA that the parties have agreed to a contract of sale and not to a contract to sell as adjudged by the RTC. Bearing in mind its consensual nature, 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.

CIVIL LAW: novation of contracts

At this juncture, the Court must dispel the notion that the stipulation anent MTCLs reservation of ownership of the subject products as reflected in the Invoice Receipt, i.e., the title reservation stipulation, changed the complexion of the transaction from a contract of sale into a contract to sell. Records are bereft of any showing that the said stipulation novated the contract of sale between the parties which, to repeat, already existed at the precise moment ACE Foods accepted MTCLs proposal. To be sure, novation, in its broad concept, may either be extinctive or modificatory. It is extinctive when an old obligation is terminated by the creation of a new obligation that takes the place of the former; it is merely modificatory when the old obligation subsists to the extent it remains compatible with the amendatory agreement. In either case, however, novation is never presumed, and the animus novandi, whether totally or partially, must appear by express agreement of the parties, or by their acts that are too clear and unequivocal to be mistaken.

In the present case, it has not been shown that the title reservation stipulation appearing in the Invoice Receipt had been included or had subsequently modified or superseded the original agreement of the parties. The fact that the Invoice Receipt was signed by a representative of ACE Foods does not, by and of itself, prove animus novandi since: (a) it was not shown that the signatory was authorized by ACE Foods (the actual party to the transaction) to novate the original agreement; (b) the signature only proves that the Invoice Receipt was received by a representative of ACE Foods to show the fact of delivery; and (c) as matter of judicial notice, invoices are generally issued at the consummation stage of the contract and not its perfection, and have been even treated as documents which are not actionable per se, although they may prove sufficient delivery. Thus, absent any clear indication that the title reservation stipulation was actually agreed upon, the Court must deem the same to be a mere unilateral imposition on the part of MTCL which has no effect on the nature of the parties original agreement as a contract of sale. Perforce, the obligations arising thereto, among others, ACE Foodss obligation to pay the purchase price as well as to accept the delivery of the goods, remain enforceable and subsisting.

CIVIL LAW: breach of contract

As a final point, it may not be amiss to state that the return of the subject products pursuant to a rescissory action is neither warranted by ACE Foods' claims of breach either with respect to MTCLs breach of its purported "after delivery services" obligations or the defective condition of the products - since such claims were not adequately proven in this case. The rule is clear: each party must prove his own affirmative allegation; one who asserts the affirmative of the issue has the burden of presenting at the trial such amount of evidence required by law to obtain a favorable judgment, which in civil cases, is by preponderance of evidence. This, however, ACE Foods failed to observe as regards its allegations of breach. Hence, the same cannot be sustained.