Manila
EN BANC
G.R. No. 83851. March 3, 1993
VISAYAN SAWMILL COMPANY, INC., and ANG TAY, petitioners,
vs.
THE HONORABLE COURT OF APPEALS and RJH TRADING, represented by RAMON J. HIBIONADA, proprietor, respondents.
Saleto J. Erames and Edilberto V. Logronio for petitioners.
Eugenio O. Original for private respondent.
Separate Opinion
ROMERO, J., dissenting:
I vote to dismiss the petition.
Petitioner corporation, Visayan Sawmill Co., Inc., entered into a contract on May 1, 1983 with private respondent RJH Trading Co. represented by private respondent Ramon J. Hibionada. The contract, entitled "PURCHASE AND SALE OF SCRAP IRON," stated:
This contract for the Purchase and Sale of Scrap Iron, made and executed at Dumaguete City, Phil., this 1st day of May, 1983 by and between:
VISAYAN SAWMILL CO., INC., . . . hereinafter called the SELLER, and
RAMON J. HIBIONADA, . . . hereinafter called the BUYER,
witnesseth:
That the SELLER agrees to sell, and the BUYER agrees to buy, an undetermined quantity of scrap iron and junk which the SELLER will identify and designate now at Cawitan, Sta. Catalina, Negros Oriental, at the price of FIFTY CENTAVOS (P.50) per kilo on the following terms and conditions:
1. Weighing shall be done in the premises of the SELLER at Cawitan, Sta. Catalina, Negros Oriental.
2. To cover payment of the purchase price BUYER will open, make or indorse an irrevocable and unconditional letter of credit not later than May 15, 1983 at the Consolidated Bank and Trust Company, Dumaguete City Branch, in favor of the SELLER in the sum of TWO HUNDRED AND FIFTY THOUSAND PESOS (P250,000.00), Philippine currency.
3. The SELLER will furnish the BUYER free of charge at least three (3) cargo trucks with drivers, to haul the weighed materials from Cawitan to the TSMC wharf at Sta. Catalina for loading on BUYER'S barge. All expenses for labor, loading and unloading shall be for the account of the BUYER.
4. SELLER shall be entitled to a deduction of three percent (3%) per ton as rust allowance.
x x x x x x x x x
On May 17, 1983, the workers of private respondents were allowed inside petitioner company's premises in order to gather the scrap iron. However, on May 23, 1983, petitioner company sent a telegram which stated:
"RAMON HIBIONADA
RJH TRADING
286 QUEZON STREET
ILOILO CITY
DUE YOUR FAILURE TO COMPLY WITH CONDITIONS BEFORE DEADLINE OUR CONTRACT FOR PURCHASE SCRAP IRON CANCELLED
VISAYAN SAWMILL CO., INC."
Hibionada wired back on May 24, 1983 the following:
"ANG TAY VISAYAN SAWMILL
DUMAGUETE CITY
LETTER OF CREDIT AMOUNTING P250,000.00 OPENED MAY 12, 1983 BANK OF PI MAIN OFFICE AYALA AVENUE MAKATI METRO MANILA BUT TRANSMITTAL IS DELAYED PLEASE CONSIDER REASON WILL PERSONALLY FOLLOW-UP IN MANILA THANKS REGARDS.
RAMON HIBIONADA"
On May 26, 1983, petitioner company received the following advice from the Dumaguete City Branch of The Bank of Philippine Islands: cdll
"Opened today our Irrevocable Domestic Letter of Credit 2-01456-4 for P250,000.00 in favor ANG TAY c/o Visayan Sawmill Co., Inc. Dumaguete City Negros Oriental Account of ARMACO-MARSTEEL ALLOW (sic) CORPORATION 2nd Floor Alpap 1 Bldg., 140 Alfaro st. Salcedo Village Makati Metro Manila Shipments of about 500 MT of assorted steel scrap marine/heavy equipment expiring on July 23, 1983 without recourse at slight draft drawn on Armaco-Marsteel Alloy Corporation accompanied by the following documents: Certificate of acceptance by Armaco-Marsteel Allow (sic) Corporation shipment from Dumaguete City to buyer's warehouse partial shipment allowed/transhipment not allowed."
Subsequently, petitioners' counsel sent another telegram to private respondents stating that:
"VISAYAN SAWMILL COMPANY UNWILLING TO CONTINUE SALE OF SCRAP IRON TO HIBIONADA DUE TO NON COMPLIANCE WITH ESSENTIAL PRE CONDITIONS"
Consequently, private respondents filed a complaint for specific performance and damages with the Regional Trial Court (RTC) of Iloilo (Branch XXXV) which decided in favor of private respondents. The RTC decision having been affirmed by the Court of Appeals, the present petition was filed.
Finding the petition meritorious, the ponencia reversed the decision of the Court of Appeals. Based on its appreciation of the contract in question, it has arrived at the conclusion that herein contract is not a contract of sale but a contract to sell which is subject to a positive suspensive condition, i.e., the opening of a letter of credit by private respondents. Since the condition was not fulfilled, the obligation of petitioners to convey title did not arise. The lengthy decision of Luzon Brokerage Co., Inc. v. Maritime Co. Inc.1 penned by Justice J.B.L. Reyes, was cited as authority on the assumption that subject contract is indeed a contract to sell but which will be shown herein as not quite accurate.
Evidently, the distinction between a contract to sell and a contract of sale is crucial in this case. Article 1458 of the Civil Code has this definition: "By a 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."
Article 1475 gives the significance of this mutual undertaking of the parties, thus: "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."
Thus, when the parties entered into the contract entitled "Purchase and Sale of Scrap Iron" on May 1, 1983, the contract reached the stage of perfection, there being a meeting of the' minds upon the object which is the subject matter of the contract and the price which is the consideration. Applying Article 1475 of the Civil Code, from that moment, the parties may reciprocally demand performance of the obligations incumbent upon them, i.e., delivery by the vendor and payment by the vendee.
Petitioner, in its petition, admits that "[b]efore the opening of the letter of credit, buyer Ramon Hibionada went to Mr. Ang Tay and informed him that the letter of credit was forthcoming and if it was possible for him (buyer) to start cutting and digging the scrap iron before the letter of credit arrives and the former (seller) manifested no objection, and he immediately sent 18 or 20 people to start the operation."2
From the time the seller gave access to the buyer to enter his premises, manifesting no objection thereto but even sending 18 or 20 people to start the operation, he has placed the goods in the control and possession of the vendee and delivery is effected. For according to Article 1497, "The thing sold shall be understood as delivered when it is placed in the control and possession of the vendee."3
Such action or real delivery (traditio) is the act that transfers ownership. Under Article 1496 of the Civil Code, "The ownership of the thing sold is acquired by the vendee from the moment it is delivered to him in any of the ways specified in Articles 1497 to 1501, or in any other manner signifying an agreement that the possession is transferred from the vendor to the vendee."
That payment of the price in any form was not yet effected is immaterial to the transfer of the right of ownership. In a contract of sale, the non-payment of the price is a resolutory condition which extinguishes the transaction that, for a time, existed and discharges the obligations created thereunder.4
On the other hand, "the parties may stipulate that ownership in the thing shall not pass to the purchaser until he has fully paid the price."5 In such a contract to sell, the full payment of the price is a positive suspensive condition, such that in the event of non-payment, the obligation of the seller to deliver and transfer ownership never arises. Stated differently, in a contract to sell, ownership is not transferred upon delivery of property but upon full payment of the purchase price.6
Consequently, in a contract of sale, after delivery of the object of the contract has been made, the seller loses ownership and cannot recover the same unless the contract is rescinded. But in the contract to sell, the seller retains ownership and the buyer's failure to pay cannot even be considered a breach, whether casual or substantial, but an event that prevented the seller's duty to transfer title to the object of the contract.
At the outset, it must be borne in mind that a provision in the contract regarding the mode of payment, like the requirement for the opening of the Letter of Credit in this case, is not among the essential requirements of a contract of sale enumerated in Articles 13057 and 1474,8 the absence of any of which will prevent the perfection of the contract from happening. Likewise, it must be emphasized that not every provision regarding payment should automatically be classified as a suspensive condition. To do so would change the nature of most contracts of sale into contracts to sell. For a provision in the contract regarding the payment of the price to be considered a suspensive condition, the parties must have made this clear in certain and unambiguous terms, such as for instance, by reserving or withholding title to the goods until full payment by the buyer.9 This was a pivotal circumstance in the Luzon Brokerage case where the contract in question was replete with very explicit provisions such as the following: "Title to the properties subject of this contract remains with the Vendor and shall pass to, and be transferred in the name of the Vendee only upon complete payment of the full price . . .;"10 the Vendor (Myers) will execute and deliver to the Vendee a definite and absolute Deed of Sale upon full payment of the Vendee . . .;11 and "should the Vendee fail to pay any of the monthly installments, when due, or otherwise fail to comply with any of the terms and conditions herein stipulated, then this Deed of Conditional Sale shall automatically and without any further formality, become null and void."12
It is apparent from a careful reading of Luzon Brokerage, as well as the cases which preceded it13 and the subsequent ones applying its doctrines,14 that the mere insertion of the price and the mode of payment among the terms and conditions of the agreement will not necessarily make it a contract to sell. The phrase in the contract "on the following terms and conditions" is standard form which is not to be construed as imposing a condition, whether suspensive or resolutory, in the sense of the happening of a future and uncertain event upon which an obligation is made to depend. There must be a manifest understanding that the agreement is in what may be referred to as "suspended animation" pending compliance with provisions regarding payment. The reservation of title to the object of the contract in the seller is one such manifestation. Hence, it has been decided in the case of Dignos v. Court of Appeals15 that, absent a proviso in the contract that the title to the property is reserved in the vendor until full payment of the purchase price or a stipulation giving the vendor the right to unilaterally rescind the contract the moment the vendee fails to pay within the fixed period, the transaction is an absolute contract of sale and not a contract to sell.16
In the instant case, nowhere in the contract did it state that the petitioners reserve title to the goods until private respondents have opened a letter of credit. Nor is there any provision declaring the contract as without effect until after the fulfillment of the condition regarding the opening of the letter of credit.
Examining the contemporaneous and subsequent conduct of the parties, which may be relevant in the determination of the nature and meaning of the contract,17 it is significant that in the telegram sent by petitioners to Hibionada on May 23, 1983, it stated that "DUE [TO] YOUR FAILURE TO COMPLY WITH CONDITIONS BEFORE DEADLINE OUR CONTRACT FOR PURCHASE SCRAP IRON CANCELLED." And in some of the pleadings in the course of this litigation, petitioners referred to the transaction as a contract of sale.18
In light of the provisions of the contract, contemporaneous and subsequent acts of the parties and the other relevant circumstances surrounding the case, it is evident that the stipulation for the buyer to open a Letter of Credit in order to cover the payment of the purchase price does not bear the marks of a suspensive condition. The agreement between the parties was a contract of sale and the "terms and conditions" embodied therein which are standard form, are clearly resolutory in nature, the breach of which may give either party the option to bring an action to rescind and/or seek damages. Contrary to the conclusions arrived at in the ponencia, the transaction is not a contract to sell but a contract of sale.
However, the determination of the nature of the contract does not settle the controversy. A breach of the contract was committed and the rights and liabilities of the parties must be established.ℒαwρhi৷ The ponencia, notwithstanding its conclusion that no contract of sale existed, proceeded to state that petitioner company may rescind the contract based on Article 1597 of the Civil Code which expressly applies only to a contract of sale. It provides:
"ARTICLE 1597. Where the goods have not been delivered to the buyer, and the buyer has repudiated the contract of sale, or has manifested his inability to perform his obligations, thereunder, or has committed a breach thereof, the seller may totally rescind the contract of sale by giving notice of his election so to do to the buyer." (Emhasis supplied).
The ponencia was then confronted with the issue of delivery since Article 1597 applies only "[w]here the goods have not yet been delivered." In this case, as aforestated, the workers of private respondents were actually allowed to enter the petitioners' premises, thus, giving them control and possession of the goods. At this juncture, it is even unnecessary to discuss the issue of delivery in relation to the right of rescission nor to rely on Article 1597. In every contract which contains reciprocal obligations, the right to rescind is always implied under Article 1191 of the Civil Code in case one of the parties fails to comply with his obligations.19
The right to rescind pursuant to Article 1191 is not absolute. Rescission will not be permitted for slight or casual breach of the contract.20 Here, petitioners claim that the breach is so substantial as to justify rescission, not only because the Letter of Credit was not opened on May 15, 1983 as stipulated in the contract but also because of the following factors: (1) the Letter of Credit, although opened in favor of petitioners was made against the account of a certain Marsteel Alloy Corporation, instead of private respondent's account; (2) the Letter of Credit referred to "assorted steel scrap" instead of "scrap iron and junk" as provided in the contract; (3) the Letter of Credit placed the quantity of the goods at "500 MT" while the contract mentioned "an undetermined quantity of scrap iron and junk"; (4) no amount from the Letter of Credit will be released unless accompanied by a Certificate of Acceptance; and (5) the Letter of Credit had an expiry date.
I am not convinced that the above circumstances may be characterized as so substantial and fundamental as to defeat the object of the parties in making the agreement.21 None of the alleged defects in the Letter of Credit would serve to defeat the object of the parties. It is to be stressed that the purpose of the opening of a Letter of Credit is to effect payment. The above-mentioned factors could not have prevented such payment. It is also significant to note that petitioners sent a telegram to private respondents on May 23, 1983 cancelling the contract. This was before they had even received on May 26, 1983 the notice from the bank about the opening of the Letter of Credit. How could they have made a judgment on the materiality of the provisions of the Letter of Credit for purposes of rescinding the contract even before setting eyes on said document?
To be sure, in the contract, the private respondents were supposed to open the Letter of Credit on May 15, 1983 but, it was not until May 26, 1983 or eleven (11) days later that they did so. Is the eleven-day delay a substantial breach of the contract as could justify the rescission of the contract?
In Song Fo and Co. v. Hawaiian-Philippine Co.22 it was held that a delay in payment for twenty (20) days was not a violation of an essential condition of the contract which would warrant rescission for non-performance. In the instant case, the contract is bereft of any suggestion that time was of the essence. On the contrary, it is noted that petitioners allowed private respondents' men to dig and remove the scrap iron located in petitioners' premises between May 17, 1983 until May 30, 1983 or beyond the May 15, 1983 deadline for the opening of the Letter of Credit. Hence, in the absence of any indication that the time was of the essence, the eleven-day delay must be deemed a casual breach which cannot justify a rescission.
Worthy of mention before concluding is Sycip v. National Coconut Corporation, et al.23 since, like this case, it involves a failure to open on time the Letter of Credit required by the seller. In Sycip, after the buyer offered to buy 2,000 tons of copra, the seller sent a telegram dated December 19, 1946 to the buyer accepting the offer but on condition that the latter opens a Letter of Credit within 48 hours. It was not until December 26, 1946, however, that the Letter of Credit was opened. The Court, speaking through Justice Bengzon, held that because of the delay in the opening of the Letter of Credit; the seller was not obliged to deliver the goods.
Two factors distinguish Sycip from the case at bar. First, while there has already been a perfected contract of sale in the instant case, the parties in Sycip were still undergoing the negotiation process. The seller's qualified acceptance in Sycip served as a counter offer which prevented the contract from being perfected. Only an absolute and unqualified acceptance of a definite offer manifests the consent necessary to perfect a contract.24 Second, the Court found in Sycip that time was of the essence for the seller who was anxious to sell to other buyers should the offeror fail to open the Letter of Credit within the stipulated time. In contrast, there are no indicia in this case that can lead one to conclude that time was of the essence for petitioner as would make the eleven-day delay a fundamental breach of the contract.
In sum, to my mind, both the trial court and the respondent Court of Appeals committed no reversible error in their appreciation of the agreement in question as a contract of sale and not a contract to sell, as well as holding that the breach of the contract was not substantial and, therefore, petitioners were not justified in law in rescinding the agreement.
PREMISES CONSIDERED, the Petition must be DISMISSED and the decision of the Court of Appeals AFFIRMED.
Griño-Aquino, Regalado, Nocon and Campos, Jr., JJ ., join Justice Romero's dissent.
Footnotes
1 G.R. No. L-25885, August 18, 1972, 46 SCRA 381. Hereinafter referred to as Luzon Brokerage case.
2 Rollo, p. 10; (Underscoring supplied).
3 Art. 1497, Civil Code.
4 Hanlon v. Haussermann, 40 Phil. 796 (1920).
5 Art. 1478, Civil Code.
6 Caridad Estates, Inc. v. Santero, 71 Phil. 114 (1940); Manuel v. Rodriguez, 109 Phil. 1 (1960).
7 Article 1305 of the Civil Code provides:
"A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service."
8 Article 1475, paragraph 1 of the Civil Code Provides:
"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."
9 Lim v. Court of Appeals, G.R. No. 85733, February 23, 1990, 182 SCRA 564.
10 Supra, note 1 at 386.
11 Id., at 387.
12 Id., at 386.
13 Caridad Estates, Inc. v. Santero, supra, note 3; Manuel v. Rodriguez, supra, note 3.
14 Lim v. Court of Appeals, G.R. No. 85733, February 23, 1990, 182 SCRA 564; Alfonso v. Court of Appeals, G.R. No. 63745, June 8, 1990, 186 SCRA 400.
15 G.R. No. L-59266, February 29, 1988, 158 SCRA 375.
16 See also Taguba v. Vda., de Leon, G.R. No. L-59980, October 23, 1984, 132 SCRA 722.
17 Javier v. Court of Appeals, G.R. No. 48194, March 15, 1990, 183 SCRA 171; Universal Textile Mills, Inc. v. NLRC, G.R. No. 87245, April 6, 1990, 184 SCRA 273.
18 Petition, p. 4, Rollo, p. 7; Reply, p. 4, Rollo, p. 107.
19 University of the Philippines v. de los Angeles, G.R. No. L-28602, September 29, 1970, 35 SCRA 102; Siy v. Court of Appeals, et al., G.R. No. L-39778, September 13, 1985, 138 SCRA 536; Lim v. Court of Appeals, G.R. No. 85733, February 23, 1990, 182 SCRA 564.
20 Taguba v. de Leon, G.R. No. L-59980, October 23, 1984, 132 SCRA 722; Angeles v. Calasanz, G.R. No. L-42283, March 18, 1985, 135 SCRA 323; Tan v. Court of Appeals, G.R. No. 80479, July 28, 1989, 175 SCRA 656; Jimenez v. Court of Appeals. G.R. No. 92171, March 13, 1991, 195 SCRA 205.
21 Delta Motor Corporation v. Genuino, G.R. No. 55665, February 8, 1989, 170 SCRA 29; Ang v. Court of Appeals, G.R. No. 80058, February 13, 1989, 170 SCRA 286.
22 47 Phil. 821 (1925).
23 G.R. No. L-6618, April 28, 1956 (Unreported).
24 Article 1319, Civil Code; Weldon Construction Corporation v. Court of Appeals, G.R. No. L-35721, October 12, 1987, 154 SCRA 618.
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