EDCA PUBLISHING & DISTRIBUTING CORP., PETITIONER, VS. THE SPOUSES LEONOR AND GERARDO SANTOS, DOING BUSINESS UNDER THE NAME AND STYLE OF “SANTOS BOOKSTORE,” AND THE COURT OF APPE…

EDCA Publishing and Distributing Corporation versus Santos

The Case

This is a petition for review brought by EDCA Publishing and Distributing Corporation against the spouses Leonor and Gerardo Santos, who do business under the name and style of Santos Bookstore. The petitioner sold books to an impostor, who paid with a personal check that was later dishonored, and who then resold part of the books to the private respondents. The petitioner forcibly seized the books back from the private respondents and now asks the Supreme Court to declare that it was unlawfully deprived of them within the meaning of Article 559 of the Civil Code. The case matters because it fixes the meaning of the phrase unlawfully deprived as applied to movable property, and it teaches when ownership passes to a buyer who has not yet paid the price.

Procedural History

The private respondents sued in the Municipal Trial Court for recovery of the books after the petitioner rejected their demand for their return. The Municipal Trial Court recognized ownership in the private respondents. The Regional Trial Court sustained the Municipal Trial Court. The Court of Appeals sustained the Regional Trial Court. The petitioner then came to the Supreme Court, asking that all three courts be reversed.

Facts

On October 5, 1981, a person identifying himself as Professor Jose Cruz placed a telephone order with the petitioner for 406 books, payable on delivery. The petitioner prepared the corresponding invoice and delivered the books, and Cruz issued a personal check for the purchase price of 8,995 pesos and 65 centavos. The invoice, by its printed terms, indicated that the books had been paid for on delivery.

On October 7, 1981, Cruz sold 120 of the books to the private respondent Leonor Santos. She first verified the seller's ownership from the invoice he showed her, and then paid him 1,700 pesos. Meanwhile, the petitioner had become suspicious over a second order placed by Cruz even before his first check was cleared. It inquired with De la Salle College, where he claimed to be a dean, and was told that no such person was employed there. It also learned that Cruz had no account or deposit with the Philippine Amanah Bank against which he had drawn his check. The petitioner went to the police, which set a trap and arrested Cruz on October 7, 1981. Investigation disclosed his real name as Tomas de la Peña, and also disclosed his sale of the 120 books to the private respondents.

On the night of the same date, the petitioner sought the assistance of the police, who forced their way into the store of the private respondents and threatened Leonor Santos with prosecution for buying stolen property. They seized the 120 books without a warrant, loaded them into a van belonging to the petitioner, and turned them over to the petitioner. The private respondents protested this action and sued for recovery of the books after their demand was rejected. A writ of preliminary attachment was issued, and the petitioner, after initially refusing, finally surrendered the books to the private respondents.

Issues

• Whether or not the private respondents acquired the books in good faith.
• Whether or not the petitioner was unlawfully deprived of the books because the check issued by the impostor in payment was dishonored.
• Whether or not ownership of the books passed to Cruz upon delivery even though he had not paid the purchase price, such that he could validly transfer ownership to the private respondents.

Applicable Provisions

Article 559 of the Civil Code provides:

Article 559. The possession of movable property acquired in good faith is equivalent to a title. Nevertheless, one who has lost any movable or has been unlawfully deprived thereof, may recover it from the person in possession of the same. If the possessor of a movable lost or of which the owner has been unlawfully deprived has acquired it in good faith at a public sale, the owner cannot obtain its return without reimbursing the price paid therefor.

This is the provision the entire case turns on, because the petitioner's right to recover the books depends on whether it was unlawfully deprived of them.

Article 1475 of the Civil Code provides:

Article 1475. The 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. From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts.

This establishes that the sale to Cruz was perfected upon agreement on the thing and the price, regardless of payment.

Article 1477 of the Civil Code provides:

Article 1477. The ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof.

This is the rule that transferred ownership to Cruz upon delivery of the books.

Article 1478 of the Civil Code provides:

Article 1478. The parties may stipulate that ownership in the thing shall not pass to the purchaser until he has fully paid the price.

This is the exception, and it applies only where the parties have so stipulated, which was not the case here.

Ruling

On the first issue, the Court held that the private respondents acquired the books in good faith. Leonor Santos first ascertained the ownership of the books from the invoice showing that they had been sold to Cruz, who said he was selling them at a discount because he was in financial need. The private respondents are in the business of buying and selling books and often deal with hard-up sellers. It is hardly bad faith for anyone in that business to buy at a discount and resell for a profit. The Court also rejected the argument that the private respondents failed to prove ownership for want of a receipt, because the first sentence of Article 559 provides that the possession of movable property acquired in good faith is equivalent to a title, thus dispensing with further proof.

On the second issue, the Court held that the petitioner had not been unlawfully deprived of the books. The petitioner argued that it was, because the impostor acquired no title he could transfer, since the bounced check meant a failure of consideration that nullified the sale. The Court disagreed. The contract of sale is consensual and is perfected once agreement is reached on the subject matter and the consideration. Ownership passes to the vendee upon actual or constructive delivery, and the parties may stipulate that ownership shall not pass until full payment only if there is such a stipulation. Absent that stipulation, delivery effectively transfers ownership to the buyer, who can in turn transfer it to another. Non-payment only creates a right to demand payment, or to rescind the contract, or to criminal prosecution in the case of bouncing checks.

On the third issue, the Court held that actual delivery of the books having been made, Cruz acquired ownership over them and could validly transfer that ownership to the private respondents. The fact that he had not yet paid the petitioner was a matter between him and the petitioner and did not impair the title acquired by the private respondents. The Court warned of the adverse consequences of the petitioner's interpretation: a buyer relying on the seller's title would have to surrender the thing to a person claiming to be the original owner who had not yet been paid, and would be left holding the bag without even the right to reimbursement. The Court also noted that the petitioner was less than cautious, having delivered the books on a telephone order from a stranger, accepted his personal check, failed to verify his identity, failed to wait for the check to clear, and even indicated on the invoice that the books had been paid for on delivery, thereby vesting ownership in the buyer. The petitioner's remedy lies not against the private respondents but against Tomas de la Peña.

Doctrine

Possession of movable property acquired in good faith is equivalent to a title, and the buyer need not present further proof of ownership. A sale is consensual and is perfected upon a meeting of minds on the thing and the price. Ownership of the thing sold passes to the vendee upon actual or constructive delivery, even if the price has not been paid, unless the parties stipulate that ownership shall not pass until full payment. Non-payment of the price does not render the sale illegal or void, and does not amount to unlawful deprivation under Article 559. The unpaid seller's remedy is to demand payment, to rescind the contract, or to prosecute in the case of bouncing checks, not to recover the thing from a good faith buyer.

Disposition

The challenged decision was affirmed and the petition was denied, with costs against the petitioner.

Remember This

Memorize this line: non-payment of the purchase price does not make the seller unlawfully deprived under Article 559, because ownership passes to the buyer upon delivery absent a stipulation that it shall not pass until full payment. Examiners use this case to test the meaning of unlawfully deprived in Article 559 and the passing of ownership in a contract of sale under Articles 1477 and 1478.