Johannes Schuback & Sons Philippine Trading Corporation vs. Court of Appeals

A contract of sale is perfected upon the meeting of the minds as to the object and the price; quantity is immaterial to perfection, and the opening of a letter of credit is merely a mode of payment, not a suspensive condition.

Petitioner Johannes Schuback & Sons Philippine Trading Corporation dealt with Schuback Hamburg, its German trading partner, for the procurement of MAN bus spare parts. Private respondent Ramon San Jose, Jr., doing business as Philippine SJ Industrial Trading, sought to purchase such spare parts from Germany and initially established contact with petitioner through the Philippine Consulate General in Hamburg, West Germany. The governing statutory backdrop is the Civil Code's provisions on contracts and sale, particularly the requisites for perfection under Articles 1305, 1319, 1474, and 1475.

Sometime in 1981, Ramon San Jose, Jr., doing business as Philippine SJ Industrial Trading, established contact with Johannes Schuback & Sons Philippine Trading Corporation through the Philippine Consulate General in Hamburg, West Germany, because he wanted to purchase MAN bus spare parts from Germany. Petitioner communicated with its trading partner, Johannes Schuback and Sohne Handelsgesellschaft m.b.n. & Co. (Schuback Hamburg), regarding the spare parts San Jose wanted to order.

On October 16, 1981, San Jose submitted to petitioner a list of parts (Exhibit B) with specific part numbers and descriptions. Petitioner referred the list to Schuback Hamburg for quotations. Upon receipt of the quotations, petitioner sent San Jose a letter dated November 25, 1981 (Exhibit C) enclosing its offer on the items listed. On December 4, 1981, San Jose informed petitioner that he preferred genuine to replacement parts and requested 15% on all items (Exhibit D). On December 17, 1981, petitioner submitted its formal offer (Exhibit E) containing the item number, quantity, part number, description, unit price, and total to San Jose.

On December 24, 1981, San Jose informed petitioner of his desire to avail of the prices of the parts at that time and enclosed Purchase Order No. 0101 dated December 14, 1981 (Exhibits F to F-4). The purchase order contained the item number, part number, and description; San Jose promised to submit the quantity per unit he wanted to order on December 28 or 29 (Exhibit F). On December 29, 1981, San Jose personally submitted the quantities he wanted to Mr. Dieter Reichert, General Manager of petitioner, at the latter's residence. The quantities were written in ink by San Jose in the same purchase order previously submitted. At the bottom of the purchase order, San Jose wrote in ink above his signature: "NOTE: Above P.O. will include a 3% discount. The above will serve as our initial P.O." (Exhibits G to G-3-a).

Petitioner immediately ordered the items needed by San Jose from Schuback Hamburg to enable San Jose to avail of the old prices. Schuback Hamburg in turn ordered (Order No. 12204) the items from NDK, a supplier of MAN spare parts in West Germany. On January 4, 1982, Schuback Hamburg sent petitioner a proforma invoice (Exhibits N-1 to N-3) to be used by San Jose in applying for a letter of credit; the invoice required that the letter of credit be opened in favor of Schuback Hamburg. San Jose acknowledged receipt of the invoice. An order confirmation (Exhibits I, I-1) was later sent by Schuback Hamburg to petitioner and forwarded to and received by San Jose on February 3, 1981, as stated in the record.

On February 16, 1982, petitioner reminded San Jose to open the letter of credit to avoid delay in shipment and payment of interest (Exhibit J). San Jose replied, mentioning, among others, the difficulty he was encountering in securing the required dollar allocations and applying for the letter of credit, procuring a loan, looking for a partner-financier, and finding ways "to proceed with our orders" (Exhibit K). In the meantime, Schuback Hamburg received invoices from NDK for partial deliveries on Order No. 12204; Schuback Hamburg paid NDK, and NDK confirmed receipt of payments (Exhibit C-Deposition).

On October 18, 1982, petitioner again reminded San Jose of his order and advised that the case may be endorsed to its lawyers (Exhibit L). San Jose replied that he did not make any valid Purchase Order and that there was no definite contract between him and petitioner (Exhibit M). Petitioner sent a rejoinder explaining that there was a valid Purchase Order and suggesting that San Jose either proceed with the order and open a letter of credit, or cancel the order and pay a cancellation fee of 30% of F.O.B. value, or petitioner would endorse the case to its lawyers (Exhibit N). Schuback Hamburg issued a Statement of Account (Exhibit P) to petitioner enclosing a Debit Note (Exhibit O) charging petitioner a 30% cancellation fee, storage, and interest charges totaling DM 51,917.81; the amount was deducted from petitioner's account with Schuback Hamburg. Demand letters sent to San Jose by petitioner's counsel dated March 22, 1983 and June 9, 1983 were unavailing (Exhibits R and S). Consequently, petitioner filed a complaint for recovery of actual or compensatory damages, unearned profits, interest, attorney's fees, and costs against private respondent. The Court of Appeals found that there was no confirmed price on or about the last week of December 1981 and/or the first week of January 1982.

• Perfection of Contract: Petitioner questioned the Court of Appeals' reversal of the trial court's ruling that a contract of sale had been perfected between petitioner and private respondent over bus spare parts.
• Letter of Credit Not a Suspensive Condition: Petitioner argued that if perfection of the contract depended on the opening of a letter of credit, private respondent would have been unable to avail of the old prices, since perfection would arise only after the end of 1981 or when he finally opened the letter of credit.

• No Valid Purchase Order / No Definite Contract: Private respondent maintained that he did not make any valid Purchase Order and that there was no definite contract between him and petitioner.

• Perfection of Contract of Sale: Whether a contract of sale was perfected between petitioner and private respondent over the bus spare parts.
• Date of Perfection: Whether the contract of sale was perfected on December 24, 1981 or December 29, 1981.
• Letter of Credit as Suspensive Condition: Whether private respondent's failure to open a letter of credit prevented the perfection of the contract of sale.

• Perfection of Contract of Sale: Yes. A contract of sale was perfected when there was a meeting of minds upon the object and the price, as provided in Article 1475 of the Civil Code.
• Date of Perfection: December 24, 1981. The offer was made on December 17, 1981 and accepted on December 24, 1981; quantity is immaterial to perfection.
• Letter of Credit as Suspensive Condition: No. The opening of a letter of credit is only a mode of payment and is not among the essential requirements of a contract of sale under Articles 1305 and 1474 of the Civil Code.

• Perfection of Contract of Sale: Under Article 1475, a contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. Article 1319 provides that consent is manifested by the meeting of the offer and acceptance upon the thing and the cause, and that the offer must be certain and the acceptance absolute. Petitioner's offer was submitted on December 17, 1981, containing the item number, quantity, part number, description, unit price, and total. On December 24, 1981, private respondent informed petitioner of his desire to avail of the prices at that time and enclosed Purchase Order No. 0101 dated December 14, 1981. At that stage, the object—the spare parts—and the consideration—the price stated in petitioner's December 17, 1981 offer—had been agreed upon. The notation on the purchase order requesting a 3% discount indicated acceptance because it implicitly accepted the price first offered, and petitioner's concurrence was manifested when it immediately ordered the items from Schuback Hamburg, which in turn ordered from NDK at the old price. The Court of Appeals' finding that there was no confirmed price was therefore erroneous.
• Date of Perfection: Although the quantity to be ordered was made determinate only on December 29, 1981, quantity is immaterial in the perfection of a sales contract. What matters is the meeting of the minds as to the object and cause, which had already occurred as of December 24, 1981. Perfection therefore took place on December 24, 1981, not December 29, 1981.
• Letter of Credit as Suspensive Condition: Private respondent failed to open an irrevocable letter of credit without recourse in favor of Johannes Schuback of Hamburg, Germany. This omission did not prevent perfection because the opening of a letter of credit is not a suspensive condition. The facts do not show that petitioner reserved title to the goods until private respondent opened a letter of credit, and petitioner did not incorporate any provision declaring the contract ineffective until the letter of credit was opened. The opening of a letter of credit in favor of a vendor is only a mode of payment and is not among the essential requirements of a contract of sale under Articles 1305 and 1474. To hold otherwise would be untenable because private respondent would not be able to avail of the old prices, which were open only for a limited period.

• Perfection of Contract of Sale — A contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. Consent is manifested by the meeting of the offer and acceptance upon the thing and the cause; the offer must be certain and the acceptance absolute. The Court applied this rule to hold that the contract was perfected on December 24, 1981, when private respondent accepted petitioner's December 17, 1981 offer as to the spare parts and the stated price.
• Quantity Immaterial to Perfection — Quantity is not essential to the perfection of a contract of sale; what is essential is the meeting of the minds as to the object and the cause. The Court held that although the quantity was made determinate only on December 29, 1981, perfection had already occurred on December 24, 1981.
• Letter of Credit as Mode of Payment, Not Suspensive Condition — The opening of a letter of credit in favor of a vendor is only a mode of payment. It is not among the essential requirements of a contract of sale under Articles 1305 and 1474 of the Civil Code, and its absence does not prevent perfection unless the parties made it a suspensive condition. The Court found no provision reserving title to the goods until the letter of credit was opened, so private respondent's failure to open one did not prevent perfection.

• "contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. . . ." — States the controlling rule on perfection of sale, which the Court used to reverse the Court of Appeals.
• "Although the quantity to be ordered was made determinate only on December 29, 1981, quantity is immaterial in the perfection of a sales contract. What is of importance is the meeting of the minds as to the object and cause, which from the facts disclosed, show that as of December 24, 1981, these essential elements had already occurred." — Fixes the date of perfection and explains why the later specification of quantity did not affect it.
• "The opening of a etter of credit in favor of a vendor is only a mode of payment. It is not among the essential requirements of a contract of sale enumerated in Article 1305 and 1474 of the Civil Code, the absence of any of which will prevent the perfection of the contract from taking place." — Defines the legal character of a letter of credit and rejects the Court of Appeals' premise that perfection depended on it.
• "To adopt the Court of Appeals' ruling that the contract of sale was dependent on the opening of a letter of credit would be untenable from a pragmatic point of view because private respondent would not be able to avail of the old prices which were open to him only for a limited period of time." — Explains the practical rationale for holding that the letter of credit was not a suspensive condition.

• C & C Commercial Corp. vs. PNB, G.R. No. 92499, July 5, 1989, 175 SCRA — Cited in the footnote supporting the rule under Article 1475 that a contract of sale is perfected upon the meeting of the minds as to the object and the price.
• NGA vs. Intermediate Appellate Court, G.R. No. 79970, March 8, 1989, 171 SCRA 131 — Cited together with C & C Commercial Corp. vs. PNB in support of the same rule on perfection of a contract of sale.

• Article 1475, Civil Code — Provides that a contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. The Court applied this provision to hold that the sale was perfected on December 24, 1981.
• Article 1319, Civil Code — Provides that consent is manifested by the meeting of the offer and acceptance upon the thing and the cause, that the offer must be certain and the acceptance absolute, and that a qualified acceptance constitutes a counter-offer. The Court used this provision to analyze the December 17, 1981 offer and the December 24, 1981 acceptance.
• Article 1305, Civil Code — Cited by the Court as among the provisions enumerating the essential requirements of a contract of sale; the opening of a letter of credit is not one of them.
• Article 1474, Civil Code — Cited together with Article 1305 as enumerating the essential requirements of a contract of sale; the absence of a letter of credit does not prevent perfection.

Feliciano, Bidin, Melo, and Vitug, JJ., concur.