Key Takeaway: A Contract of Sale Requires Mutual Agreement on Price and Consent

G.R. No. 173881, December 01, 2010

Imagine a hospital elevator breaks down. The elevator maintenance company makes the repairs, but the hospital refuses to pay, claiming they never approved the cost. This scenario highlights a critical aspect of contract law: a perfected contract of sale requires mutual agreement on the price and consent from both parties. Without these elements, a party may not be obligated to pay, even if they benefited from the service. The Supreme Court case of Hyatt Elevators and Escalators Corporation v. Cathedral Heights Building Complex Association, Inc. delves into this very issue, clarifying the requirements for a perfected contract of sale in the context of elevator maintenance and repairs.

Understanding Contract of Sale: Essential Elements

A contract of sale, as defined by Article 1458 of the New Civil Code, is a legally binding agreement where one party (the seller) obligates themselves to transfer ownership and deliver a determinate thing, and the other party (the buyer) agrees to pay a price certain in money or its equivalent. The essential elements are:

• Consent or meeting of the minds: Both parties must agree on the terms of the contract.
• Determinate subject matter: The item being sold must be clearly identified.
• Price certain in money or its equivalent: The agreed-upon price must be definite or ascertainable.

The absence of any of these elements negates the existence of a perfected contract of sale. For example, if you offer to sell your car to someone but don’t agree on a price, there’s no contract. Similarly, if you agree on a price but the other party never consents to buy the car, there’s no contract. The Supreme Court has consistently held that the fixing of the price cannot be left to the sole discretion of one party. It must be mutually agreed upon.

In the case of Boston Bank of the Philippines v. Manalo, the Supreme Court emphasized that “a definite agreement as to the price is an essential element of a binding agreement to sell personal or real property because it seriously affects the rights and obligations of the parties.”

The Hyatt Elevators Case: A Detailed Breakdown

Hyatt Elevators and Escalators Corporation had a service agreement with Cathedral Heights Building Complex Association, Inc. to maintain four passenger elevators in the latter’s building. The agreement stipulated that the building association would pay for additional charges incurred in connection with the repair and supply of parts. Hyatt claimed that from April 1997 to July 1998, it incurred expenses of over one million pesos for maintenance and repair. When the building association refused to pay, Hyatt filed a complaint for sum of money with the Regional Trial Court (RTC).

The RTC ruled in favor of Hyatt, stating that the sales invoices presented proved a contract of sale existed, and the building association was obligated to pay for the services rendered. However, the Court of Appeals (CA) reversed the RTC’s decision, finding that the building association never consented to the purchase of the spare parts and that there was no agreement on the price. The CA emphasized that the service agreement did not give Hyatt the authority to purchase and install any spare parts and then demand payment based on its own dictated price.

The Supreme Court, in reviewing the case, noted the conflicting findings of the RTC and CA, making it an exception to the rule that the Court only reviews errors of law. The key issue was whether a perfected contract of sale existed regarding the spare parts delivered and installed.

The Supreme Court highlighted the building association’s Standard Operating Procedure (SOP) for elevator breakdowns, which involved:

• Notification of Hyatt’s technician.
• Evaluation of the problem and repair if manageable.
• Presentation of defective parts and a quotation to the building administrator.
• Endorsement of the quotation to the Finance Department.
• Preparation of a purchase order and submission to the Board of Directors for approval.

Hyatt failed to secure purchase orders prior to the repairs. The Supreme Court noted that Hyatt’s claim of a verbal agreement to bypass the SOP was insufficiently proven. The Court quoted from the testimony of Hyatt’s finance manager:

“There was an agreement between the building engineer and our service manager that the elevator should be running in good condition at all times, breakdown should be at least one day only.”

However, the Court found this testimony, without corroborating evidence from the service manager or building engineer, insufficient to prove the existence of the verbal agreement.

Despite finding no perfected contract of sale, the Supreme Court ruled that denying Hyatt’s claim entirely would unjustly enrich the building association, stating, “Under Article 2142 of the Civil Code, such acts ‘give rise to the juridical relation of quasi-contract to the end that no one shall be unjustly enriched or benefited at the expense of another.’”

Practical Implications for Businesses

This case underscores the importance of obtaining clear consent and agreement on price before providing goods or services, even under an existing service agreement. Businesses should ensure that their contracts clearly outline the procedures for additional charges and that they adhere to those procedures diligently. Failure to do so may result in difficulty in recovering costs, even if the other party benefited from the goods or services.

Key Lessons

• Always obtain written consent and agreement on price before providing goods or services outside the scope of an existing agreement.
• Document all communications and approvals related to additional charges.
• Adhere to established Standard Operating Procedures (SOPs) or contractual procedures.
• Ensure contracts clearly define the process for approving and paying for additional services.

Hypothetical Example: A homeowner hires a contractor for a kitchen renovation. The contract specifies the materials and labor costs. During the renovation, the homeowner requests a more expensive tile. Without a written change order specifying the increased cost, the contractor may have difficulty recovering the additional expense, even if the homeowner loves the new tile.

Frequently Asked Questions (FAQs)

Q: What is a perfected contract of sale?

A: A perfected contract of sale is an agreement where both parties have agreed on the item being sold and the price, with the intention to transfer ownership.

Q: What happens if there is no agreement on the price in a contract of sale?

A: If there is no agreement on the price, there is no perfected contract of sale. The buyer is not obligated to pay the seller’s unilaterally determined price.

Q: Does a service agreement automatically authorize a service provider to incur additional charges?

A: Not necessarily. The service agreement should clearly outline the procedures for incurring and approving additional charges. Without such procedures and adherence to them, the service provider may not be able to recover the costs.

Q: What is unjust enrichment?

A: Unjust enrichment occurs when one party benefits at the expense of another without any legal justification. In such cases, the law may impose a quasi-contractual obligation to prevent the unjust enrichment.

Q: What evidence is needed to prove a verbal agreement?

A: Proving a verbal agreement requires credible and convincing evidence, such as witness testimony or corroborating documents. The burden of proof lies on the party alleging the existence of the verbal agreement.

Q: What should businesses do to avoid disputes over additional charges?

A: Businesses should implement clear procedures for approving additional charges, obtain written consent from clients, and document all communications related to the charges.

Q: How does this case apply to other service industries?

A: The principles of consent and price agreement apply to all service industries. Whether it’s construction, IT services, or consulting, obtaining clear agreement on the scope and cost of services is crucial to avoid disputes.

ASG Law specializes in contract law and dispute resolution. Contact us or email hello@asglawpartners.com to schedule a consultation.