Visayan Sawmill Company, Inc. vs. The Honorable Court of Appeals and RJH Trading

G.R. No. 83851 (March 3, 1993)

FACTS:

On May 1, 1983, RJH Trading and Visayan Sawmill Company (VSC) entered into a sale involving scrap iron located at VSC’s stockyard at Negros Oriental, subject to the condition that RJH will open a Letter of Credit (LOC) of P250,000 in favor of VSC on or before May 15, 1983. This is evidenced by a contract entitled `Purchase and Sale of Scrap Iron’ duly signed by both parties. On May 17, 1983, RJH through his men started to dig and gather and scrap iron at the VSC’s premises, proceeding until May 30 when VSC allegedly directed RJH’s men to desist from pursuing the work in view of an alleged case filed against RJH by Alberto Pursuelo. VSC denied this, alleging that on May 23, 1983, they sent a telegram to RJH cancelling the contract of sale because of the failure of the latter to comply with the conditions thereof. On May 24, 1983, RJH informed VSC that the LOC was opened May 12, 1983 at BPI main office in Ayala, but then the transmittal was delayed.

On May 26, 1983, VSC received a letter advice from BPI Dumaguete stating that an irrevocable domestic LOC P250,000 was opened in favor of Ang Tay c/o VSC on account of Armaco-Armsteel Alloy Corporation. On July 19, 1983, RJH Trading sent a series of telegrams stating that the case filed against him by Pursuelo had been dismissed and demanding that VSC comply with the deed of sale, otherwise a case will be filed against them. On July 20, 1983, VSC informed RJH that they were unwilling to continue with the sale due to RJH’s failure to comply with essential pre-conditions of the contract. On July 29, 1983, RJH filed the complaint, praying for judgment ordering VSC to comply with the contract by delivering to him the scrap iron subject thereof. VSC insisted that the cancellation of the contract was justified because of RJH’s noncompliance with essential pre-conditions. The RTC ruled in RJH’s favor. The CA affirmed. Hence, this appeal.

ISSUE:

Whether or not the reasons or grounds for cancelling the contract valid and justified.

RULING:

Yes. The reasons or grounds for cancelling the contract are valid and justified. Both the trial court and the public respondent erred in the appreciation of the nature of the transaction between the petitioner corporation and the private respondent. To this Court’s mind, what obtains in the case at bar is a mere contract to sell or promise to sell, and not a contract of sale.

The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. The Civil Code provides:

Article 1593. With respect to movable property, the rescission of the sale shall of right take place in the interest of the vendor, if the vendee, upon the expiration of the period fixed for the delivery of the thing, should not have appeared to receive it, or, having appeared, he should not have tendered the price at the same time, unless a longer period has been stipulated for its payment.

Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him.

In this case, there was to be no actual sale until the opening, making or indorsing of the irrevocable and unconditional LOC. Since what obtains here is a mere promise to sell, RJH’s failure to comply with the positive suspensive condition cannot even be considered a breach casual or serious but simply an event that prevented the obligation of petitioner corporation to convey title from acquiring binding force. Consequently, the obligation of the petitioner corporation to sell did not arise; it therefore cannot be compelled by specific performance to comply with its prestation. In short, Article 1191 of the Civil Code does not apply; on the contrary, pursuant to Article 1597 of the Civil Code, the petitioner corporation may totally rescind, as it did in this case, the contract.

 * Case digest by Vera Nataa, LLB-1, Andres Bonifacio Law School, SY 2017-2018

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