BAN KEE TRADING, INC., PLAINTIFF-APPELLEE, VS. DIVERSION FOODS, INC., DEFENDANT-APPELLANT.

Ban Kee Trading versus Diversion Foods

The Case

This is Ban Kee Trading, Incorporated versus Diversion Foods, Incorporated, a case on the perfection of a contract of sale. Ban Kee Trading sued Diversion Foods for specific performance, collection of a sum of money, and damages, asking the court to compel Diversion Foods to accept the last batch of Pokemon toys it had ordered and to pay the unpaid balance of the price. Diversion Foods had tried to cut its order in half after sales fell below its targets, and it refused the final delivery. The case matters because it fixes the moment a sale is perfected when the parties negotiate through offers, counter-offers, and a purchase order, and it reminds us that a buyer cannot walk away from a perfected sale simply because the bargain turned out to be unprofitable.

Procedural History

Ban Kee Trading filed its complaint for specific performance, collection of sum of money, and damages before the Regional Trial Court of Quezon City, Branch 100. Diversion Foods filed its answer, and the case was set for pre-trial conference. When neither the defendant's representative nor its counsel appeared at the pre-trial, the trial court granted the plaintiff's motion to present its evidence ex parte. The defendant moved twice for reconsideration, but the court denied both motions. After the ex parte hearing, the trial court rendered judgment for the plaintiff, ordering the defendant to accept delivery of the remaining twelve thousand five hundred pieces of Pokemon toys, to pay five hundred thousand pesos as the unpaid balance of the contract price with interest at six percent per annum from the twenty-fifth of June 2002 until full payment, and to pay sixty thousand pesos as attorney's fees. Diversion Foods appealed to the Supreme Court, assigning as errors the denial of its day in court and the trial court's finding that a perfected sale existed.

Facts

In a letter dated the second of February 2001, Ban Kee Trading offered to sell Pokemon toys to Diversion Foods, which owned the Carl's Jr. restaurant chain, as premium items for giveaways or merchandise. Efren Sevilla, the marketing manager of Diversion Foods, sent a counter-proposal: Diversion Foods would issue a purchase order for fifty thousand pieces at twenty pesos each, delivery would be staggered at a minimum of ten thousand pieces per delivery, payment would be made on actual delivery, cash on delivery within seven days, and the total quantity would be drawn within six months.

On the second of May 2001, Diversion Foods issued Purchase Order Number 1011 for fifty thousand pieces of assorted Pokemon toys at twenty pesos each, payable fifteen days after delivery. Ban Kee Trading made two deliveries of twelve thousand five hundred pieces each in June 2001, and Diversion Foods paid for both. After those deliveries, Sevilla wrote to ask that the order be reduced to fifty percent of the volume, because the sale of the toys as promotional merchandise remained below the defendant's targets. Ban Kee Trading refused, explaining that it had agreed to the lower price only because of the committed volume of fifty thousand pieces, and that the toys had been repacked to the defendant's specifications and could no longer be sold at retail.

Sometime in October 2001, Ban Kee Trading delivered the third batch of twelve thousand five hundred pieces. After that delivery, its marketing manager, Marvie Samala, spoke by telephone with Gigi Lucas, the purchasing officer of Carl's Jr., who said that Diversion Foods would not accept the fourth and final batch. The parties exchanged correspondence, with the defendant insisting on cancellation and the plaintiff refusing. On the twenty-fifth of June 2002, the plaintiff demanded through counsel the unpaid balance of five hundred thousand pesos plus interest, but the defendant did not comply, so the plaintiff engaged a law firm and incurred expenses.

Issues

• Whether or not the denial of the defendant's motions for reconsideration of the order allowing the plaintiff to present evidence ex parte deprived the defendant of its day in court and of due process.
• Whether or not the purchase order constituted a mere unaccepted offer, such that no contract of sale was perfected until complete delivery of all the items ordered.

Applicable Provisions

Article 1458 of the Civil Code defines the contract of sale:

By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. A contract of sale may be absolute or conditional.

This is the provision under which the Court characterized the transaction between the parties as a perfected sale of fifty thousand toys.

Article 1497 of the Civil Code fixes when the thing sold is deemed delivered:

The thing sold shall be understood as delivered, when it is placed in the control and possession of the vendee.

The Court used this to hold that title passed to the defendant upon each delivery, leaving only its obligation to pay the price.

Article 1582 of the Civil Code states the buyer's duty:

The buyer is bound to accept delivery and to pay the price of the thing sold at the time and at the place stipulated in the contract.

This is the basis for compelling the defendant to accept the final batch and to pay the balance.

Article 1583 of the Civil Code governs delivery by installments:

Unless otherwise agreed, the buyer of goods is not bound to accept delivery thereof by installments.

The Court noted that the parties agreed otherwise, since the purchase order itself provided for staggered deliveries.

Article 1595 of the Civil Code gives the seller his remedy:

Where the ownership of the goods has passed to the buyer and he wrongfully neglects or refuses to pay for the goods according to the terms of the contract of sale, the seller may maintain an action against him for the price of the goods.

This is the remedy the Court allowed, since ownership had already passed to the defendant upon delivery.

Ruling

On the first issue, the Court held that the appeal was devoid of merit. Due process gives every litigant an ample opportunity to adduce evidence, but the defendant's non-appearance at the pre-trial was caused by its own counsel's resignation ten days earlier, and the defendant never specified the facts constituting its claimed meritorious defenses, so the Court dismissed them as mere conclusions of fact. Indeed, the defendant's answer contained such material admissions that a judgment on the pleadings could have been rendered.

On the second issue, the Court held that the purchase order was not a mere offer. The plaintiff's offer, the defendant's counter-proposal, and the purchase order that amended the payment period from seven days to fifteen days formed a series of negotiations bearing the hallmarks of a perfected contract of sale. When the first delivery of twelve thousand five hundred pieces was made on the twenty-seventh of June 2001, the plaintiff in effect accepted the amended counter-offer, and at that point the contract of sale for fifty thousand pieces was perfected. The Court distinguished a sale from a contract to sell: in a sale, title passes to the vendee upon delivery, while in a contract to sell, ownership is reserved in the vendor until full payment. Here, no reservation of title was provided, so title passed to the defendant upon delivery, and only its obligation to pay remained under the fifteen-day credit term. The Court also held that a buyer may refuse delivery only for violation of the implied warranties against hidden faults or defects, not on the ground that no perfected sale exists. Since ownership had passed and the defendant wrongfully refused to pay, the seller could maintain an action for the price.

Doctrine

A contract of sale is perfected by mere consent, that is, from the moment there is a meeting of the minds upon the thing and the price. A purchase order issued in response to an offer, followed by actual partial delivery accepted by the buyer, signifies a closed deal and perfects the sale. Under Article 1458, the seller obligates himself to deliver and transfer ownership of a determinate thing, and the buyer to pay a price certain. Under Article 1497, the thing sold is delivered when placed in the control and possession of the vendee, and title passes upon delivery unless the contract reserves ownership in the vendor, as in a contract to sell. Under Article 1582, the buyer is bound to accept delivery and pay the price at the time and place stipulated, and under Article 1583, while a buyer is not bound to accept delivery by installments unless otherwise agreed, the parties may and here did agree to staggered deliveries. A buyer may refuse delivery only for breach of the implied warranties, not because the contract turned out to be unprofitable. Under Article 1595, where ownership has passed and the buyer wrongfully refuses to pay, the seller may sue for the price.

Disposition

The Supreme Court affirmed the decision of the trial court in full, ordering Diversion Foods to accept delivery of the remaining twelve thousand five hundred pieces of Pokemon toys and to pay the unpaid balance of five hundred thousand pesos with interest, plus sixty thousand pesos in attorney's fees.

Remember This

Memorize this line: a purchase order accepted by partial delivery perfects the sale, and the buyer's refusal to accept the balance is a breach, not a defense. Examiners use this case to test the distinction between a contract of sale and a contract to sell, and the rule that a buyer cannot escape a perfected sale merely because the bargain proved unprofitable.