R EQUISITES OF V ALID S UBJECT M ATTER
3. Subject Matter Must Be Determinate or at Least Determinable
a. Determinate Subject Matter
A thing is determinate or specifi c when it is particularly designated or physically segregated from all others of the same class.36
When the subject matter of a sale is determinate, the basis upon which to enforce seller’s obligation to deliver, as well as
33Ibid.
34406 SCRA 55 (2003).
35Siacor v. Gigantana, 380 SCRA 306 (2002). 36Art. 1460, Civil Code.
the basis upon which to demonstrate breach, are certain and unequivocable. It is also when the subject matter is determinate or specifi c that the defense of force majeure is applicable to legally relieve the seller from the consequences of failure to deliver the subject matter of the sale.
b. Determinable Subject Matter
On the other hand, a thing is determinable only when two (2) requisites are present:
(a) If at perfection of the sale, the subject matter is capable of being made determinate (the “capacity to segregate” test); and
(b) Without the necessity of a new or further agreement between the parties (the “no
further agreement” test).37
By its very defi nition, a determinable subject matter is a generic object, because it has neither been physically segregated nor particularly designated at the point of perfection from the rest of its kind.
In Melliza v. City of Iloilo,38 Melliza sold under a deed several
tracts of land to the then Municipality of Iloilo, including lots 1214- C and 1214-D. The instrument of sale did not mention lot 1214-B, although it was contiguous to the other two lots, but stipulated that the area being sold shall include the area “needed for the construction of the city hall site, avenues and parks according to the Arellano plan.” The Arellano plan had long been in existence before the execution of the deed.
The Court held that the requirement that a sale must have for its object a determinate thing is fulfi lled as long as, at the time the contract is entered into, the object of the sale is capable of being made determinate without the necessity of a new or further agreement between the parties. The requirement in
Melliza was deemed fulfi lled under the contract of sale because
37Art. 1460, Civil Code. 3823 SCRA 477 (1968).
it specifi cally referred to such other portions of the lots required by the “Arellano plan,” which had long been in existence and it specifi cally provided for the land areas needed for the city hall site. Therefore, at the time of the perfection of the contract, the exact area of the land needed, which was the subject matter of the sale, could be determined by simply referring to the Arellano plan, without the parties needing to draw-up a new contract, nor even to clarify matters or explain their intentions.
In San Andres v. Rodriguez,39 it was held that where the lot is
described to be adjoining the “previously paid lot” on three sides thereof, the sold lot was deemed capable of being determined without the need of a new contract and the fact that the exact area of the adjoining residential lot is subject to the result of a survey does not detract from the fact that it is determinate or determinable.
In David v. Tiongson,40 the Court ruled that when the
receipt issued by the seller acknowledging partial payment of the purchase price describes the subject matter as “this lot is the portion formerly earmarked for Mrs. Rosita Venture-Muslan where she already paid the sum of 51,500.00,” the object is deemed to be “determinable” and suffi cient to support a valid contract of sale; and that any mistake in the designation of the lot by its tax declaration does not vitiate the consent of the parties or affect the validity and binding effect of the sale.
In essence, the requisite of being “determinable” is met when at perfection, the agreement between the parties included a formula which can be used by the courts to establish the subject matter upon which the obligation to deliver can be enforced, without needing to get back to any one or both the parties of the object of their intention. When the formula requires the court to have to go back to the parties to determine their confi rmation, then it would undermine the very enforceability and demandability of the underlying obligation to deliver; it would actually render the sale void under Article 1409(6) because the original contractual intention of the parties cannot be determined, and would run
39332 SCRA 769 (2000). 40313 SCRA 63 (1999).
counter to the principle of mutuality or obligatory force of every valid contract.
c. Test of Determinability Is the Meeting of Minds of Parties and Not the Covering Deed
In Atilano v. Atilano,41 Eulogio, who had subdivided his land
into fi ve parts, executed a deed of sale in favor of his brother supposedly covering lot 535-E. His brother thereupon obtained a transfer of certifi cate in his name. But even prior to the execution of the sale, the brother had been in possession of the subject property and had built his house thereon. Years later, when the heirs of the brother had his lots resurveyed for subdivision, it was discovered that the land they were occupying on the strength of the deed of sale was not lot 535-E, but actually lot 535-A. On the other hand, the lot which Eulogio was occupying as residence was actually 535-E. The brother’s heirs fi led an action in court seeking possession of the real lot 535-E, which had a bigger lot area.
The Court held that the object of the sale was actually lot 535-A, although the deed of sale referred to lot 535-E, because there was only a mistake in designating the particular lot to be sold in the instrument, which mistake was deemed pro forma and did not vitiate the consent of the parties or affect the validity and binding effect of the sale. The Court reasoned that when one seeks to sell or buy a real property, one sells or buys the property as he sees it in its actual setting and by its physical metes and bounds, and not by the mere lot number assigned to it in the certifi cate of title. It was clear that when the brothers entered into a contract, they were referring to lot 535-A because even before that, the purchasing brother had been occupying said lot as his residence.
Atilano emphasizes the point that the true “contract of sale”
is intangible or properly a legal concept. The deed of sale is merely an evidence of the contract. And when the deed fails to cover the real contract or the true meeting of the minds of the parties, then the deed must give way to the real contract of the
parties. The defect in the fi nal deed would not work to invalidate the contract where all the essential elements for its validity are present and can be proven.
The doctrine that “one sell or buys real property as he sees it, in its actual setting and by its physical metes and bounds, and not by the mere lot number assigned to it in the certifi cate of title,” has been reiterated in Londres v. Court of Appeals,42 and presents
a clear contemporary exception to the almost sacrosanct doctrine under the Torrens system that the public can deal with registered land exclusively on the basis of the title thereto.
d. When Quantity of Subject Matter Not Essential for Perfection
The meeting of the minds on the identity, the nature and quality, of the subject matter is essential for the purpose of perfection of sale; it is what makes the subject matter determinate or at least determinable. This is borne by the fact that when the nature and quantity of the subject matter is agreed upon, the subject matter, although essentially generic or fungible, has complied with the characteristic of being determinable, since the parties know more or less the exact nature of the object or objects which will become the subject of performance “without need of further agreement.” Such characteristic prevents the seller from delivering something not within the contemplation of the buyer and perhaps much inferior than the price agreed upon; and at the same time, it prevents the buyer from demanding the delivery of an object not contemplated by the seller, and perhaps superior compared to the price agreed upon.
Logically, the actual quantity of goods as subject matter of sale would also be essential in the meeting of the minds, since quantity constitutes an essential ingredient to achieve the requisite of the goods being determinate or determinable. If it were otherwise, the ability to enforce the obligation of the seller to deliver would be totally lacking. Without agreement as to quantity, how much or how many of the described goods could be the object
of an action for specifi c performance? Even granting arguendo that an action for specifi c performance is available against such a seller, then at what price can enforcement be demanded when no quantity of the goods is present? The meeting of minds on the quantity of the goods as subject matter is necessary for the validity of the sale, because such aspect go into the very core of such contract embodying the essential characteristic of mutuality or obligatory force.
This position is supported by Article 1349 of the Civil Code which provides that “every contract must be determinate as to its kind. The fact that the quantity is not determinate shall not be an obstacle to the existence of the contract, provided it is possible to determine the same, without the need of a new contract between
the parties.” Notice that the essential phrase of “without the need
of a new contract between the parties” in Article 1349 is the same formula used in defi ning a determinable subject matter in Article 1460.
In National Grains Authority v. Intermediate Appellate
Court,43 where the parties had agreed on specifi ed types of
rice which was to be harvested from the seller’s farmland at specifi ed prices per cavan, and although the exact quantity had not been agreed upon, it was provided in the agreement that the seller was allowed to deliver within a specifi ed quota of 2,640 cavans. The Court held that there was at the point of agreement already a perfected and binding contract of sale, and to which NFA was obliged to comply and pay the purchase price for the grains actually delivered by the seller-farmer Soriano, thus —
In the case at bar, Soriano initially offered to sell palay grains produced in his farmland to NFA. When the latter accepted the offer by noting in Soriano’s Farmer’s Information Sheet a quota of 2,640 cavans, there was already a meeting of the minds between the parties. The object of the contract, being the palay grains produced in Soriano’s farmland and the NFA was to pay the same depending upon its quality. The
fact that the exact number of cavans of palay to be delivered has not been determined does not affect the perfection of the contract. Article 1349 of the New Civil Code provides: “... The fact that the quantity is not determinate shall not be an obstacle to the existence of the contract, provided it is possible to determine the same, without the need of a new contract between the parties.” In this case, there was no need for NFA and Soriano to enter into a new contract to determine the exact number of cavans of palay to be sold. Soriano can deliver so much of his produce as long as it does not exceed 2,640 cavans.44
The controlling doctrine in National Grains Authority is that specifi c quantity of the subject matter is not important when it is still possible to determine the quantity “without the need of a new contract between the parties,” and therefore complies with the requisite of being determinable.
In Johannes Schuback & Sons Phil. Trading Corp. v. Court
of Appeals,45 the seller had made a formal offer on the following
matters pertaining to engine parts: item number, quantity, part number, description, unit price. On 24 December 1981, the buyer confi rmed to purchase on the indicated prices and in fact issued a purchase order which, however, did not contain the quantities per unit but the buyer merely bound itself to submit the quantities about a week thereafter, as in fact the quantities were confi rmed latter on 29 December 1981. The Court held that a binding contract of sale existed between parties upon issuance of the purchase order, and not upon the confi rmation of the buyer of the quantities covered by the order, thus —
While we agree with the trial court’s conclusion that indeed a perfection of the contract was reached between the parties, we differ as to the exact date when it occurred, for perfection took place, not on December 29, 1981, but rather on December 24, 1981. Although the quantity to be ordered was made determinate only on December 29, 1981, quantity is immaterial in the
44Ibid, at p. 136. 45227 SCRA 719 (1993).
perfection of sales contract. What is of importance is the meeting of the minds as to the object and
cause, which from the facts disclosed, show that as
of December 24, 1981, these essential elements had already concurred.46
However, nothing in the facts indicated that as of 24 December 1981 the quantity of the objects ordered could be determined outside of a subsequent agreement by the parties. The ruling in Johannes Schuback relied upon National Grains
Authority, and yet in the latter case at the time of perfection
of the contract, there was in fact a maximum quantity agreed upon.
The foregoing rulings in effect support the doctrine that certain generic objects may be the proper object of a contract of sale, provided that they fulfi ll the characteristic of being “determinable” at the point of perfection. Thus, even when the exact quantity of the subject matter of the contract of sale has not been agreed upon, but the parties have in fact come into an agreement as to the quality thereof and the price, and terms of payment, there is already a valid and binding contract. However, the author disagrees with the rulings of the Supreme Court, that the resulting contract is always a contract of sale, but rather what is perfected is a preparatory contract to enter into a contract of sale, or what is called in commercial parlance a “supply agreement.”
A supply agreement, much like a contract of sale, would have at the perfection thereof goods whose quality and unit price would have been agreed upon by the parties, but unlike a contract of sale, the underlying obligation of the “seller” and the “buyer” is to enter into one or series of contracts of sale based thereon when they come to agree upon the quantity. In other words, at the moment of meeting upon the description, quality and unit price of the goods, there is indeed a perfected and valid contract, but it is an agreement to enter into a contract of sale, which essentially involves obligations “to do” (i.e., to
enter into actual contracts of sale), rather than real obligations to deliver and to pay. Such an agreement, like all other valid contracts, have the characteristic of consensuality, relativity and obligatory force, and non-compliance would constitute a breach of contract; however, the remedy of specifi c performance would not be available to the non-defaulting parties because the underlying obligation of the obligor is a personal obligation; at most the breach of such contract would allow the recovery of damages.
e. Generic Non-Determinable Objects
Since “determinable” objects may be the valid subject matter of a sale, then even generic things that fall within said defi nition can validly support a contract of sale. Although the sale of determinable generic thing is valid, the obligation to deliver the subject matter can only be complied with when the subject matter has been made determinate, either by physical segregation or particular designation; before such time, even the risk of loss over the subject matter does not arise, since by defi nition generic object are never lost.
In Yu Tek & Co. v. Gonzales,47 the parties entered into a
written contract whereby Gonzales bound himself to sell and deliver 600 piculs of fi rst class sugar (given quality) to Yu Tek & Company, without designating any particular lot of sugar or the particular source thereof. Gonzales, who received payment, delivered no part of the sugar promised, and when a suit was brought against him to recover the amount paid and stipulated damages for breach of contract, he interposed the defense of
force majeure because he was not able to harvest any sugar in
his plantation due to a storm.
The Court held Gonzales liable for breach of contract (which meant there was a valid underlying sale) although it held that the defense of force majeure was unavailing since the contract was not perfected as to the particular subject matter for determining loss, until the quantity agreed upon has been selected and is
capable of being physically designated or appropriated. The Court ruled that the buyer does not assume the risk of loss of a generic subject matter under a valid sale until the object is made determinate, either by physical segregation or particular designation.
Article 1246 of the Civil Code provides that “[w]hen the obligation consists in the delivery of an indeterminate or generic thing, whose quality and circumstances have not been stated, the creditor [buyer] cannot demand a thing of superior quality. Neither can the debtor [seller] deliver a thing of inferior quality. The purpose of the obligation and other circumstances shall be taken into consideration.” The courts therefore have power to set the appropriate quality of the subject matter of a sale when the same is determinable generic. The article cannot be taken to mean that even when the subject matter is not determinable, any generic subject matter would validly support a contract of sale. Under Article 1409(6) of the Civil Code, a contract is inexistent and void from the beginning “where the intention of the parties relative to the principal object of the contract cannot be ascertained.” As one author has held, Article 1246 covers only “quality” of a generic subject matter, so that when it is the “kind” and “quantity” that cannot be determined without need of a new agreement of the parties, the contract is void.48
f. Status of Sale Not Complying with Third Requisite
When the minds of the parties have met upon a subject matter which is neither determinate or determinable, the resulting contract would be void. Again, the impetus of the law declaring sales covering subject matters which are neither determinate or determinable is based on the fact that the “enforceability” or