Edrada vs. Ramos

A written agreement acknowledging delivery of goods and stating a purchase price, but expressly providing that formal documents pertaining to the sale and agreement of payments are "to follow," is neither a perfected contract of sale nor a contract to sell, but merely a preliminary expression of intent to eventually contract, absent agreement on the manner of payment, which is essential to the element of a price certain.

Respondent spouses Eduardo and Carmencita Ramos owned two fishing vessels, the "Lady Lalaine" and the "Lady Theresa." Petitioner spouses Alfredo and Rosella Edrada were parties with whom respondents dealt in connection with the possible sale and management of these vessels. The dispute arose from a single untitled handwritten document executed on 1 April 1996, the interpretation of which determined whether a perfected contract of sale existed between the parties.

Respondent spouses Eduardo and Carmencita Ramos owned two fishing vessels, the "Lady Lalaine" and the "Lady Theresa." On 1 April 1996, respondents and petitioners executed an untitled handwritten document acknowledging that the two vessels, owned by Eduardo Ramos, were in the possession of petitioner Alfredo Edrada and received in good running and serviceable order, with the vessels becoming his responsibility. The document stated that "[d]ocuments pertaining to the sale and agreement of payments between me and the owner of the vessel to follow," and set the agreed price at ₱900,000. The document was signed by Eduardo Ramos as seller and Alfredo Edrada as purchaser, with conforme signatures from Carmencita Ramos and Rosie Endrada.

Upon signing, petitioners delivered to respondents four postdated Far East Bank and Trust Company checks payable to cash, drawn by petitioner Rosella Edrada, in various amounts totaling ₱140,000. The first three checks were honored upon presentment, while the fourth check for ₱100,000 was dishonored due to a "stop payment" order.

On 3 June 1996, respondents filed an action for specific performance with damages before the RTC of Antipolo City, praying that petitioners be obliged to execute the necessary deed of sale of the two vessels and to pay the balance of the purchase price. Respondents alleged that the document evinced a contract to buy, and that despite delivery and repeated oral demands, petitioners failed to pay the balance. Petitioners, in their Answer with Counterclaim, countered that the document merely embodied an agreement arising from loans they had extended to respondents. According to petitioners, respondents allowed them to manage the fishing vessels on the understanding that should they find the business profitable, the vessels would be sold to them for ₱900,000, but petitioners "decided to call it quits" after spending a hefty sum for the repair and maintenance of the vessels, which were already in dilapidated condition.

The RTC treated the action as one for collection of a sum of money and damages, considered the document a perfected contract of sale, and ordered petitioners to pay ₱860,000 with legal interest from June 30, 1996 until fully paid, ₱20,000 as attorney's fees, and costs. The Court of Appeals affirmed. During trial, respondent Carmencita Ramos claimed under cross-examination that the balance was to be paid on 30 June 1996, yet the complaint was filed on 3 June 1996 — before the alleged maturity date.

• Nature of the Document: Petitioners contended that there was no perfected contract of sale as distinguished from a contract to sell, arguing that the document did not evince the requisite consent to transfer ownership and pay a price certain.
• True Agreement Was a Loan: Petitioners alleged that the true agreement between the parties was that of a loan, and that the document merely embodied an arrangement brought about by the loans they had extended to respondents.
• Sub-Issues on Conduct: Petitioners raised as sub-issues the purpose for which the checks were issued, whether replacement of the crew constituted an act of ownership or administration, whether petitioners failed to protest the dilapidated condition of the vessels, and whether the instances when the vessels went out to sea proved that the vessels were not seaworthy.

• Perfected Contract of Sale: Respondents alleged that petitioners contracted to buy the two fishing vessels for ₱900,000, as evidenced by the handwritten document, which evinced a contract to buy.
• Breach of Obligation: Respondents maintained that despite delivery of the vessels and repeated oral demands, petitioners failed to pay the balance of the purchase price, warranting an action for specific performance with damages.

• Nature of the Document: Whether the handwritten document dated 1 April 1996 constituted a perfected contract of sale.
• Contract to Sell: Whether the document constituted a contract to sell.
• Prematurity of Action: Whether the complaint was prematurely filed given the absence of a stipulated period for payment.

• Nature of the Document: No. The document was not a perfected contract of sale because, while it acknowledged receipt of the vessels and stated a purchase price, it contained no agreement to transfer ownership; it merely committed that formal documents "pertaining to the sale and agreement of payments…[are] to follow."
• Contract to Sell: No. The document was not a contract to sell because there was no mutual promise to buy and sell, and the parties had not agreed on the terms of the contract, particularly the object and cause.
• Prematurity of Action: Yes, the action was premature. Absent a stipulated period for payment, the obligation was not yet due and demandable when the complaint was filed on 3 June 1996; even assuming the claimed 30 June 1996 maturity date, the filing preceded it.

• Nature of the Document: A contract of sale requires consent on the part of the seller to transfer and deliver, and on the part of the buyer to pay, a price certain in money or its equivalent (Articles 1458 and 1475, Civil Code). While the document confirmed receipt of the vessels and stated a total purchase price of ₱900,000, it contained no unequivocal agreement to transfer ownership. The proviso that "[d]ocuments pertaining to the sale and agreement of payments…[are] to follow" demonstrated that the formal documents which would contain the terms of payment and formalize the transfer had yet to be executed. The mere statement of a purchase price did not establish a perfected sale, because the manner of payment — integral to the element of a price certain — had not been agreed upon. A disagreement on the manner of payment is tantamount to a failure to agree on the price, pursuant to Swedish Match, AB vs. Court of Appeals and the cases cited therein. The parol evidence rule further forbade the addition of terms not found in the writing; whatever was not in the document was understood to have been waived and abandoned.

• Contract to Sell: A contract to sell is a bilateral contract whereby the prospective seller reserves ownership despite delivery and binds himself to sell exclusively to the prospective buyer upon fulfillment of a condition, typically full payment. A contract is perfected when there is concurrence of wills respecting the object and cause. Here, the agreement merely acknowledged that a purchase price had been agreed upon; there was no mutual promise to buy on the part of petitioners and to sell on the part of respondents. The proviso that documents pertaining to the sale and agreement of payments would follow manifested a lack of agreement on the terms of the contract to sell, particularly the object and cause. The document created no obligatory force for either the transfer of title or the rendition of payments; at most, it bared the parties' intention to enter into either a contract to sell or a contract of sale.

• Prematurity of Action: A requisite for judicial enforcement of an obligation is that it be due and demandable. The absence of a stipulated period for payment indicated that the obligation to pay was not yet due and demandable at the time the complaint was filed. Respondent Carmencita Ramos claimed during cross-examination that the balance was to be paid on 30 June 1996, yet the complaint was filed on 3 June 1996 — before the alleged maturity date. No cause of action had accrued because no breach had occurred on the date of filing. If the parties could not agree on a period, the courts could fix the duration under Article 1197 of the Civil Code, but respondents did not avail of such relief before filing. The action therefore failed owing to its prematurity. Since the document created no obligation but only an intention to eventually contract, no rights were breached or violated warranting any of the reliefs sought.

• Parol Evidence Rule — The parol evidence rule forbids any addition to or contradiction of the terms of a written agreement by testimony or other evidence purporting to show that different terms were agreed upon by the parties, varying the purport of the written contract. Whatever is not found in the writing is understood to have been waived and abandoned. The Court applied this rule to confine its analysis to the four corners of the handwritten document, refusing to consider the parties' extrinsic claims about loans or management arrangements.

• Manner of Payment as Essential to Price Certain — Before a valid and binding contract of sale can exist, the manner of payment of the purchase price must first be established, as it stands essential to the validity of the sale. Agreement on the terms of payment is integral to the element of a price certain, such that a disagreement on the manner of payment is tantamount to a failure to agree on the price. The Court applied this doctrine to hold that the document's silence on payment terms precluded a finding of perfected sale.

• Prematurity of Action Without a Stipulated Period — A requisite for the judicial enforcement of an obligation is that the same is due and demandable. Absent a stipulated period by which the purchase price should be paid, the obligation was not yet due and demandable at the time of filing, rendering the action premature. If the parties cannot agree on a period, the courts may fix the duration under Article 1197 of the Civil Code, but such relief must be sought before filing suit.

• "The agreement in question does not create any obligatory force either for the transfer of title of the vessels, or the rendition of payments as part of the purchase price. At most, this agreement bares only their intention to enter into either a contract to sell or a contract of sale." — This passage articulates the ratio decidendi: the document was merely a preliminary expression of intent, not a binding contract, because essential terms remained unagreed.

• "The fact that there is a stated total purchase price should not lead to the conclusion that a contract of sale had been perfected. … [B]efore a valid and binding contract of sale can exist, the manner of payment of the purchase price must first be established, as such stands as essential to the validity of the sale." — This defines the doctrine that the manner of payment is integral to the element of a price certain and is frequently cited in subsequent jurisprudence on contract perfection.

• "The parol evidence rule forbids any addition to or contradiction of the terms of a written agreement by testimony or other evidence purporting to show that different terms were agreed upon by the parties, varying the purport of the written contract. Whatever is not found in the writing is understood to have been waived and abandoned." — This is the canonical formulation of the parol evidence rule as applied in the case, confining interpretation to the document's text.

• Swedish Match, AB vs. Court of Appeals, G.R. No. 128120, Oct. 20, 2004, 441 SCRA 1 — Cited as the most recent authority holding that the manner of payment of the purchase price must be established before a valid and binding contract of sale can exist, as it is essential to the element of a price certain.
• Soriano vs. Compania General de Barbados de Filipinas, 125 Phil. 80 (1966) — Cited for the parol evidence rule, which forbids addition to or contradiction of the terms of a written agreement by extrinsic evidence.
• Coronel vs. Court of Appeals, 331 Phil. 294 (1996) — Cited for the definition of a contract to sell as a bilateral contract where the prospective seller reserves ownership and binds himself to sell upon fulfillment of a condition.
• Cole vs. Vda. de Gregorio, 202 Phil. 226 (1982) — Cited for the principle that no cause of action arises until there is a breach or violation of an obligation.

• Article 1458, Civil Code — Defines a contract of sale as an agreement whereby one party obligates himself to transfer ownership of and deliver a determinate thing, and the other to pay a price certain in money or its equivalent. Applied to determine whether the document evinced the requisite consent to transfer and pay.
• Article 1475, Civil Code — Provides that a contract of sale is perfected upon the concurrence of consent on the part of the seller to transfer and deliver and on the part of the buyer to pay. Applied to assess whether the document reflected such concurrence of wills.
• Article 1197, Civil Code — Provides that if the obligation does not fix a period, but from its nature and circumstances it can be inferred that a period was intended, the courts may fix the duration thereof. Cited as the remedy respondents should have availed of before filing suit, rather than filing a premature complaint.

Reynato S. Puno (Chairman), Ma. Alicia Austria-Martinez, Romeo J. Callejo, Sr., and Minita V. Chico-Nazario concurred. No separate concurring opinions were noted.