Toyota Shaw, Inc. vs. Court of Appeals

A document that fails to specify the full purchase price and the definite manner of payment for a vehicle, and is signed only by a sales agent without proof of authority to sell, does not constitute a perfected contract of sale but is merely part of the negotiation stage.

In June 1989, private respondent Luna L. Sosa sought to purchase a Toyota Lite Ace vehicle from petitioner Toyota Shaw, Inc. due to an upcoming trip to his province. He was assisted by Popong Bernardo, a sales representative of the petitioner. On 14 June 1989, Bernardo signed a handwritten document (Exhibit "A") stating that a downpayment would be made on 15 June and the vehicle would be released on 17 June 1989. The next day, Sosa made a downpayment of P100,000.00 and his son signed a printed Vehicle Sales Proposal (VSP) which detailed a downpayment of P53,148.00 and a balance to be financed by B.A. Finance. The VSP contained conditions stating the sale was subject to the availability of the unit and the price was subject to change. On 17 June 1989, the petitioner failed to release the vehicle, citing the disapproval of Sosa's credit application by B.A. Finance. The downpayment was subsequently refunded.

• Nature of the Transaction: Sosa wanted to purchase a Toyota Lite Ace for a trip to his province on 18 June 1989. He dealt with Popong Bernardo, a sales representative of Toyota Shaw, Inc.
• The "Agreements" Document (Exhibit "A"): On 14 June 1989, Bernardo signed a document titled "AGREEMENTS BETWEEN MR. SOSA & POPONG BERNARDO OF TOYOTA SHAW, INC." It stated that a downpayment of P100,000.00 would be paid on 15 June and the vehicle would be released on 17 June 1989. Sosa did not sign this document.
• Execution of the VSP and Downpayment: On 15 June 1989, Sosa paid the P100,000.00 downpayment. His son signed a Vehicle Sales Proposal (VSP) which detailed a different downpayment amount (P53,148.00) and stated the balance would be financed by B.A. Finance. The VSP contained conditions that the sale was subject to unit availability and price changes.
• Failure to Deliver and Refund: On 17 June 1989, the petitioner failed to release the vehicle. The petitioner claimed this was due to the disapproval of Sosa's financing application by B.A. Finance. The downpayment was refunded to Sosa on the same day.
• Lower Court Proceedings: Sosa sued for damages, alleging breach of contract and bad faith. The RTC and CA found that Exhibit "A" was a perfected contract of sale and that Toyota acted in bad faith, awarding damages.

• Perfection of Contract: Petitioner argued that Exhibit "A" was not a perfected contract of sale because it lacked a definite agreement on the price and the manner of payment, which are essential elements.
• Authority of Agent: Petitioner maintained that Popong Bernardo, as a mere sales representative, had no authority to bind the company to a contract of sale. Sosa was put upon inquiry to ascertain the agent's authority.
• Nature of the VSP: Petitioner contended that the VSP was merely a proposal that did not ripen into a contract because it was subject to the availability of the unit and the approval of financing. The disapproval of Sosa's credit application prevented the meeting of minds.
• Absence of Bad Faith and Damages: Petitioner argued that it acted in good faith by offering Sosa the option to pay in cash and by promptly refunding the downpayment. Since there was no breach of contract, the award of moral and exemplary damages, attorney's fees, and costs had no legal basis.

• Perfected Contract: Respondent countered that Exhibit "A" was a valid and binding contract of sale that the petitioner breached by failing to deliver the vehicle.
• Apparent Authority of Agent: Respondent argued that the petitioner, by allowing Bernardo to conduct the transaction and accept the downpayment, clothed him with apparent authority to sell the vehicle, thereby binding the petitioner.
• Bad Faith: Respondent maintained that the petitioner acted in bad faith by selling the unit reserved for him to another buyer ("nasulot ang unit ng ibang malakas"), causing him humiliation, embarrassment, and sleepless nights, which justified the award of moral and exemplary damages.

• Perfection of Contract: Whether the document (Exhibit "A") constituted a perfected contract of sale binding upon the petitioner.
• Authority of Agent: Whether the sales representative, Popong Bernardo, had the authority to bind the petitioner to a contract of sale.
• Liability for Damages: Whether the petitioner's failure to deliver the vehicle entitled the private respondent to moral and exemplary damages, attorney's fees, and costs.

• Perfection of Contract: Exhibit "A" did not constitute a perfected contract of sale. A contract of sale requires a meeting of minds on the determinate thing and the price certain. Exhibit "A" failed to specify the full purchase price and the definite manner of payment. The subsequent VSP, which detailed these terms, was merely a proposal that did not mature into a contract due to the non-approval of the financing arrangement, indicating no meeting of minds on the mode of payment.
• Authority of Agent: Popong Bernardo, as a sales representative, had no authority to enter into a contract of sale on behalf of the petitioner. The document's title clearly indicated it was an agreement between Sosa and Bernardo personally. A person dealing with an agent is charged with the duty to ascertain the agent's authority, and Sosa failed to do so.
• Liability for Damages: Since there was no perfected contract of sale, the petitioner's non-delivery of the vehicle was not a breach that would give rise to liability for damages. The claim for moral damages was based on wounded pride, not a legally recognized injury. Exemplary damages require a base award of compensatory damages, which was absent. The award of attorney's fees was also improper as the trial court did not state the factual and legal reasons for it in the body of its decision.

• Stages of a Contract of Sale — A contract of sale is perfected only upon a meeting of the minds on the thing and the price. The process involves three stages: (1) negotiation, (2) perfection, and (3) consummation. The documents in this case were part of the negotiation stage and did not reach perfection.
• Essential Elements of a Sale — For a contract of sale to be binding, there must be a definite agreement on the manner of payment of the price. A disagreement on the manner of payment is tantamount to a failure to agree on the price itself.
• Agency and Authority — A person dealing with an agent is put upon inquiry and must discover at his own peril the extent of the agent's authority. An agent's apparent authority must be based on the principal's acts, not merely the agent's representations.

• "Neither logic nor recourse to one's imagination can lead to the conclusion that Exhibit 'A' is a perfected contract of sale." — This underscores the Court's strict application of the requirements for a perfected sale.
• "A definite agreement on the manner of payment of the price is an essential element in the formation of a binding and enforceable contract of sale." — This articulates the controlling legal principle for installment sales.
• "At the bottom of this claim is nothing but misplaced pride and ego. He should not have announced his plan to buy a Toyota Lite Ace knowing that he might not be able to pay the full purchase price." — This passage explains the Court's rejection of the claim for moral damages.

• Velasco vs. Court of Appeals, 51 SCRA 439 (1973) — Cited for the rule that a definite agreement on the manner of payment is essential to a binding contract of sale.
• International Harvester MacLeod, Inc. vs. Medina, 183 SCRA 485 (1990) — Cited to illustrate the three-party relationship in a sale financed by a financing company (buyer, seller, financing company).
• Cruz vs. Court of Appeals, 201 SCRA 495 (1991) and Pineda vs. Court of Appeals, 226 SCRA 754 (1993) — Cited for the principle that a person dealing with an agent must inquire into the agent's authority.
• Central Azucarera de Bais vs. Court of Appeals, 188 SCRA 328 (1990) — Cited for the rule that the legal reason for awarding attorney's fees must be stated in the body of the decision.

• Article 1458, Civil Code — Defines 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 and the price.
• Article 2229, Civil Code — States that exemplary damages are imposed in addition to moral, temperate, liquidated, or compensatory damages.

• Justice Florenz D. Regalado
• Justice Jose C. Vitug
• Justice Artemio V. Panganiban