In general, a perfected contract of sale cannot be challenged on the ground that seller had no ownership of the thing sold at the time of perfection.55
Although the seller must be the owner of the thing in order to transfer ownership to the buyer, he need not be the owner thereof at the time of perfection; it is suffi cient that he be the owner at the time of the delivery;56 otherwise, he may be
held liable for breach of warranty against eviction. In fact, the acquisition by the buyer of the subject matter of the sale may even depend upon contingency and this would not affect the validity of the sale.57
Article 1505 of the Civil Code provides that when goods are sold by a person who is not the owner thereof, and who does not sell them under authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller
54409 SCRA 438 (2003).
55Alcantara-Daus v. de Leon, 404 SCRA 74 (2003).
56Art. 1459, Civil Code; Heirs of Severina San Miguel v. Court of Appeals, 364 SCRA 523 (2001).
had, unless there is estoppel on the part of the owner;58 but this
pertains only to the consummation stage of the sale and does not affect the validity of the contract itself.
Hilltop v. Villacorta,59 held that a contract of sale cannot be
declared null and void for failure of the seller to reveal the fact that it was not the owner of the property sold.
Esguerra v. People,60 held that the sale of copra for future
delivery does not make the seller liable for estafa for failing to deliver because the contract is still valid and the obligation becomes civil and not criminal.
Mananzala v. Court of Appeals,61 recognized that the sale of
a lot by a seller who is yet to acquire full ownership thereof from a government agency was still a valid sale since it involved the sale of a future thing.
a. Confl icting Rulings
Lately, however, in Nool v. Court of Appeals,62 the Court held
that sale by one who is not the owner of the subject matter is void, and consequently, the right to repurchase attached to the sale would also be void. The Court held that although a situation (where the sellers were no longer owners) does not appear to be one of the void contracts enumerated in Article 1409 of the Civil Code, and under Article 1402 the Civil Code itself recognizes a sale where the goods are to be “acquired x x x by the seller after the perfection of the contract of sale” clearly implying that a sale is possible even if the seller was not the owner at the time of sale, provided he acquires title to the property later on, nevertheless it held —
In the present case however, it is likewise clear that the sellers can no longer deliver the object of the sale to the buyers, as the buyers themselves have already
58Art. 1505, Civil Code. 5913 CAR 113 (1968). 60108 Phil. 1078 (1960). 61286 SCRA 722 (1998). 62276 SCRA 149 (1997).
acquired title and delivery thereof from the rightful owner, the DBP. Thus, such contract may be deemed to be inoperative and may thus fall, by analogy, under item no. 5 of Article 1409 of the Civil Code: “Those which contemplate an impossible service.” Article 1459 of the Civil Code provides that “the vendor must have a right to transfer the ownership thereof [object of the sale] at the time it is delivered.” Here, delivery of ownership is no longer possible. It has become impossible.63
In order to achieve justice, it was important in Nool to hold the contract of sale void, in order to render the attached right to repurchase also void. The Court found it inequitable for the sellers to exercise the right to repurchase, when they had not complied with their obligation to transfer ownership over the subject matter of the sale, and that the buyer was the one that eventually bought the property from the foreclosing bank.
The problem with the doctrine proposed by Nool is that in order to hold the sale void by the holding that the sellers were not the owners of the subject matter thereof, it equated the primary obligation to transfer ownership and deliver possession as “service” and therefore constitutes them as personal obligations “to do.” That position is not correct since the obligations of the seller in a contract of sale are real obligations “to give” and which would make them enforceable by specifi c performance. Nool would still have achieved the same equitable end by sticking to the doctrine that in spite of the fact that the sellers were not the owners of the subject matter of the sale, the sale was at perfection still valid and remained valid even when the seller could no longer comply with their obligations to transfer ownership. The result would be that the sellers would be liable for breach of contract of a valid contract of sale, but since the obligations could be performed, the only remedy left was to rescind the sale, with damages. The rescission of the sale brings with it the rescission of all ancillary features, including the right to repurchase.
Another way to have dealt with the situation in Nool was to recognize that redemption rights are species of extinguishment
of a valid sale, and essentially only after full consummation of the obligation of the seller to deliver the subject matter of sale; that redemption rights do not arise, even when stipulated at perfection, unless there has been delivery of the subject matter to the buyer. Therefore, in the case of Nool, the seller not having complied with his obligation to delivery the subject matter, his conventional right of redemption or repurchase never arose.
In fact, the earlier decision in Noel v. Court of Appeals,64
invoked the principle that —
In a contract of sale, it is essential that the seller is the owner of the property he is selling. The principal obligation of a seller is “to transfer the ownership of” the property sold (Civil Code of the Philippines, Art. 1458). This law stems from the principle that nobody can dispose of that which does not belong to him ...65
NEMO DAT QUOD NON HABET.66
A close reading of Noel, which concerned primarily the resolution of the issue of prescription, tended to go into the act of transferring ownership, an aspect of consummation, rather than as a doctrine that pertains to the status of a sale upon perfection. Indeed, Noel did not say that the contract of sale is void if the seller is not the owner at the time of perfection; what it did say is that a seller cannot “dispose of that which does not belong to him,” which is consistent with the rule that a seller cannot transfer by delivery ownership of the thing which at the time of delivery did not belong to him. The doctrine is consistent with Article 1459 of the Civil Code which states that “the vendor must have a right to transfer the ownership thereof at the time it is delivered.”
These principles have been summarized in Quijada v. Court
of Appeals,67 thus —
64240 SCRA 78 (1995).
65Citing Azcona v. Reyes, 59 Phil. 446 (1934); Coronel v. Ona, 33 Phil. 456 (1916).
66240 SCRA 78, 88. 67299 SCRA 695 (1998).
Sale, being a consensual contract, is perfected by mere consent, which is manifested the moment there is a meeting of the minds as to the offer and acceptance thereof on three (3) elements: subject matter, price and terms of payment of the price. Ownership by the seller on the thing sold at the time of perfection of the contract of sale is not an element for its perfection. What the law requires is that the seller has the right to transfer ownership at the time the thing sold is delivered. Perfection per se does not transfer ownership which occurs upon the actual or constructive delivery of the thing sold. A perfected contract of sale cannot be challenged on the ground of non-ownership on the part of the seller at the time of its perfection; hence, the sale is still valid.68
b. Exception: When Seller Must Be Owner at Time of Sale
The exception to the rule that ownership by the seller is not essential at the time of perfection would be in the case of judicial sale.
Cavite Development Bank v. Spouses Cyrus Lim,69 held
that a foreclosure sale, though essentially a “forced sale,” is still a sale in accordance with Article 1458 of the Civil Code, under which the mortgagor in default, the forced seller, becomes obliged to transfer the ownership of the thing sold to the highest bidder who, in turn, is obliged to pay the bid price in money or its equivalent. Being a sale, the rule that the seller must be the owner of the thing sold also applies in a foreclosure sale. This is the reason why Article 2085 of the Civil Code, in providing for the essential requisites of the contract of mortgage, requires among other things, that the mortgagor or pledgor be the absolute owner of the thing mortgaged, in anticipation of a possible foreclosure sale should the mortgagor default in the payment of the loan.
68Ibid, at p. 696. 69324 SCRA 346 (2000).
c. Subsequent Acquisition of Title by Seller
Article 1434 of the Civil Code provides that when at the time of perfection, the seller sells a subject matter over which he is not the owner, the subsequent acquisition of title by a seller validates the sale and title passes to the buyer by operation of law, provided there has been previous delivery of the subject matter by the seller to the buyer. It should be noted that for the transfer of ownership ipso jure to happen under Article 1434, it is essential that there not only exist a valid sale, but that previous physical delivery of the subject matter must have been done.
Quijada v. Court of Appeals,70 recognized that the sale of
a land previously donated by the seller to a local government unit under a resolutory condition, was a valid sale even though at the time of sale, ownership in the property was still with the local government. However, when the resolutory condition did occur which effectively reverted ownership back to the seller, under Article 1434 the seller’s “title passes by operation of law to the buyer.” The Court expresslly recognized that the rule under Article 1434 applies not only to sale of goods, but also to other kinds of property, including real property.
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By defi nition under Article 1458, the ideal consideration for a contract of sale would be “price” as a “sum certain in money or its equivalent.” However, it is possible that a “sale” may still be valid when it has for its cause or consideration an item other than price. Consider the Supreme Court’s ruling in Torres v. Court
of Appeals,1 thus: “Consideration, more properly denominated as cause, can take different forms, such as the prestation or promise of a thing or service by another. Therefore, it would be valid for a sale of the subject matter to have as its consideration the expectation of profi ts from the subdivision project as part of the joint venture arrangement between the parties.”2
In other words, the usual or defi ned consideration for a sale is price, but that a contract of sale may still validly exist and thereby be governed by the Law on Sales, when it is supported by other valuable considerations. This is in line with the principal doctrine reiterated by the Court in Polytechnic University of the
Philippines v. Court of Appeals,3 that the concept of “contract of sale” under Article 1458 of the Civil Code is “in effect, a ‘catch- all’ provision which effectively brings within its grasp a whole gamut of transfers whereby ownership of a thing is ceded for a consideration.”
In essence, paraphrasing Commissioner of Internal Revenue
v. Court of Appeals,4 the existence of the “obligation to pay the
1320 SCRA 428 (1999). 2Ibid, at p. 428. 3368 SCRA 691 (2001). 4271 SCRA 605 (1997).
price” does not play a critical role in defi ning a sale, provided that valuable consideration is present, because the “obligation to transfer ownership and deliver possession” of the subject matter is the more defi ning element of sale, thus: “Transfer of title or an agreement to transfer it for a price paid or promised to be paid is the essence of sale.”5