C. Respuesta Correcta

Article 1474 of the Civil Code provides: “Where the price cannot be determined in accordance with the preceding articles, or in any other manner, the contract is ineffi cacious. However, if the

thing or any part thereof has been delivered to and appropriated by the buyer, he must pay a reasonable price therefore. What is reasonable price is a question of fact dependent on the circumstances of each particular case.” Note that in such a case,

the courts have authority to fi x the reasonable price for the subject matter appropriated by the buyer.88 _{Article 1474 seems to present} the only exception where there would still be a valid sale even when there has been no meeting of the minds as to the price or any other consideration.

Therefore, the author has looked critically at that portion of the decision in Raet v. Court of Appeals,89 _{where the Court refused} to make effective the contracts of sale in spite of the fact that the buyers were already in possession of the housing units, delivered by the seller itself, on the ground that the evidence “shows that the price was merely an estimate.” Under the authority in Article 1474, the Court could then have directed the trial court to fi x the reasonable prices for the housing units already appropriated by the buyers.

The same ruling was reached in National Housing Authority

v. Grace Baptist Church,90 _{involving the sale of parcels of land by} the NHA, where possession had been turned over to the buyer which had introduced improvements thereon, when it was still clear that the fi nal price had yet to be agreed upon.

88_{Art. 1474, Civil Code.} 89_{295 SCRA 677 (1998).} 90_{424 SCRA 147 (2004).}

a. What Does Article 1474 Mean by “Preceding Articles”?

When Article 1474 states that where the price cannot be determined “in accordance with the preceding articles,” or in any other manner, the contract is ineffi cacious, to which does the phrase “preceding articles” refer to? It is posited that the phrase “preceding articles” should start with Article 1469 which provides ascertainable of price with reference to another thing certain, or a specifi ed formula, etc., up to Article 1473, which prohibits the fi xing of the price by any of the parties.

Notice that within the coverage of the “preceding articles” is Article 1471 which covers the situation when the price is completely simulated and therefore gives rise to a void contract of sale, although it may still be saved as a donation where the consideration is shown to be pure liberility. It also covers Article 1473 where the formula for the fi xing of the price is left to the discretion of a party, which makes the contract entirely void. Under such scenario, the proposition of ejusdem generis to qualify Article 1474 only to situations where the price is certain or ascertainable would be totally inapplicable.

To posit that the phrase “preceding articles” in Article 1474 can be interpreted to cover only Article 1469 (price is fi xed in reference to another thing certain or left to a third-party’s determination) and Article 1472 (price of securities, grain, liquids based on a trading price), which is the basis to apply the principle of ejusdem generis, would have no logical or legal basis, especially when: (a) Articles 1469 and 1472 are not even consecutive articles and the non-joinder of the articles in-between is wholly arbitrary; and (b) The position does not seem to be supported by the immediately subsequent term “or in any other manner” by which price cannot be ascertained, which clearly implies the non-exclusivity of the provision only to sales of contract which are valid but rendered ineffi cacious.

In other words, the phrase “preceding articles” in Article 1474 should be construed to refer to all articles preceding, namely Articles 1469 to 1473.

b. What Does Article 1474 Mean by “Ineffi cacious”?

Article 1474 uses the word “ineffi cacious” rather than “void,” because within the coverage of “preceding articles” are Articles 1469 and 1472, which provide for sales which are not void because the price, though not certain, is ascertainable.

The standard dictionary defi nition of “ineffi cacious” means “the inability to produce the effect wanted; inability to get things done.” The use of the word “ineffi cacious” does not exclude void sale contracts when the price is neither certain or ascertainable. In other words, the use of the term “ineffi cacious” was not meant to exclude void sales, but more to be able to include valid conditional contracts of sale (which have become ineffi cacious) in the same group as void contracts, from the focal point of price.

c. Concept of “Appropriation”; Summation

The proper way to evaluate Article 1474 is to determine its rationale or underlying policy. Obviously, Article 1474 is not an old provision of the Spanish Civil Code by the use of the term “(n)” at the end thereof, and its essence is truly Philippine development, but with common law origin.

The case-law basis91 _{of Article 1474 is attributed to Robles}

v. Lizarraga Hermanos,92 _{which established the appropriation} doctrine under Article 1474 founded on the principles of unjust enrichment and estoppel, thus:

... As the defendant partially frustrated the appraisal, it violated a term of the contract and made itself liable for the true value of the things contracted about, as such value may be established in the usual course of proof. Furthermore, it must occur to any one, as the trial judge pointed out, that an unjust enrichment of the defendant [buyer] would result from allowing it to appropriate the movables without compensating the plaintiff therefor.93

91_B

AVIERA, SALES, published by U.P. Law Center (1981 ed.), at p. 50.

92_{50 Phil. 387 (1927).} 93_{Ibid, at pp. 397-398.}

The ponente of Robles was Justice Street, and the doctrine enunciated is common-law in nature. Thus, Tolentino has the following discussions on Article 1474, citing American case-law:

If the terms of a sale are complete except for an agreement with reference to the price, the law implies a price equivalent to the reasonable value of the goods in cases where the buyer has appropriated the things sold. And where the buyer accepts delivery knowing the price claimed by the seller, he cannot thereafter refuse to pay for it at that price, even if there is no agreement as to price. Hence, where goods used by the buyer who knows the seller’s price for such goods, he is liable for that price, and not for the reasonable value of the goods.94

There are two important points that can be drawn from the foregoing, thus:

(a) The doctrine is based on the principle of unjust enrichment directed against the buyer who is not allowed to retain the subject matter of the sale without being liable to pay the price even when no such agreement on the price was previously made; and

(b) The doctrine applies even when there

is a “no contract” situation because of no meeting of the minds as to the price, although there was a meeting of the minds as to the subject matter, and may also apply

to void sale contract situation where the defect is as to the price.

The other important conclusion to be drawn from the background material on Article 1474 is that it is actually meant to cover all sale contract situations where there must have been at least a meeting of the minds or an agreement to buy and sell the

94_T

OLENTINO, CIVIL CODEOFTHE PHILIPPINE (1959 ed.) Vol. V, at pp. 13-14, citing Standard

Coal Co. v. Stewart, 269 Pac. 1014; Caskey v. William, 227 Ky. 73, 11 S.W. (2nd) 991; Ross-Meehan Foundaries v. Nashville Bridge Co., 149 Tenn. 693, 261 S.W. 674.

subject matter, which is coupled with tradition; and that it is meant to be a remedy clause in favor of the seller who has delivered the subject matter in accordance with an agreement (though it may not be a full contract yet) with the buyer who has received it and appropriated it.

But supposing the seller does not wish to take advantage of the remedy, and seeks to recover the subject matter? That seems not possible if the subject matter has already been appropriated, especially when the buyer had already incurred expenses, and also because it would violate the essential characteristic of “binding effect” of every contract, including a contract of sale.

When Article 1474 uses the twin concepts of “delivery” and “appropriation” it seems to say that it would not apply to a situation where there has only been delivery but no appropriation, because the undoing of the contract and the return of the subject matter to the seller would not present unjust enrichment to either party. Does “appropriation” mean to partly consume or transform the subject matter in such a manner that it cannot be returned in its original manner to the seller, and requiring its return would therefore be unfair to the seller?

If one looks at the dictionary defi nition of “appropriate” (“to set apart for some special use; to take for oneself; take possession of; use as one’s own”) it seems that the use of such word under Article 1474 is meant to cover the situation of “acceptance” by the buyer as the counterpart of delivery on the part of the seller, and having treated thereafter the subject matter as his own, even when it does not involve transformation. At that point a valid contract of sale is deemed to have come into being, and consequently, the “binding effect” of the contract is deemed to have kicked-in; and even if the subject matter has remained the same, the return is not “legally possible,” as it would amount to unilateral withdrawal from the binding effect of the contract. (Of course, if both buyer and seller agree to the return, that would be valid since it would constitute “mutual withdrawal” which is one of the modes of extinguishing a valid contract.)

The gravamen of Article 1474 would mean that in spite of the lack of an agreement as to price or defect in the agreement as to

price, there would nevertheless be a valid contract of sale upon which an action for specifi c performance would prosper for the recovery of the price when the following elements are present:

(a) There was a meeting of the minds of the parties of sale and purchase as to the subject matter;

(b) There was an agreement that price would be paid which fails to meet the criteria of being certain or ascertainable; and

(c) There was delivery by the seller and appropriation by the buyer, of the subject matter of the sale.

Taking our cue from the rulings of the Supreme Court in Raet and NHA discussed above, the concept of “appropriation” under Article 1474 is not applicable to real estate and that the rights of the parties to a purported sale would be under the principles applicable to builders in good faith. It may also be an indication that “appropriation” under Article 1474, even when applied only to movables, would necessarily entail a “transformation” of the subject matter of sale such that it can no longer be returned to its original state, as to warrant the fi xing of reasonable price to prevent unjust enrichment.