VISAYAN SAWMILL COMPANY, INC.

, and ANG TAY, proceeding with such endeavor until May 30 when
petitioners, vs. THE HONORABLE COURT OF defendants-appellants allegedly directed plaintiff-
APPEALS and RJH TRADING, represented by RAMON appellee's men to desist from pursuing the work in
J. HIBIONADA, proprietor, respondents.1993 Mar 3En view of an alleged case filed against plaintiff-
BancG.R. No. 83851D E C I S I O N appellee by a certain Alberto Pursuelo. This,
however, is denied by defendants-appellants who
DAVIDE, JR., J p: allege that on May 23, 1983, they sent a telegram to
plaintiff-appellee cancelling the contract of sale
By this petition for review under Rule 45 of the because of failure of the latter to comply with the
Rules of Court, petitioners urge this Court to set conditions thereof.
aside the decision of public respondent Court of
Appeals in C.A.-G.R. CV No. 08807, 1 promulgated On May 24, 1983, plaintiff-appellee informed
on 16 March 1988, which affirmed with modification, defendants-appellants by telegram that the letter of
in respect to the moral damages, the decision of the credit was opened May 12, 1983 at the Bank of the
Regional Trial Court (RTC) of Iloilo in Civil Case No. Philippine Islands main office in Ayala, but then (sic)
15128, an action for specific performance and the transmittal was delayed.
damages, filed by the herein private respondent
against the petitioners. The dispositive portion of On May 26, 1983, defendants-appellants received a
the trial court's decision reads as follows: letter advice from the Dumaguete City Branch of the
Bank of the Philippine Islands dated May 26, 1983,
"IN VIEW OF THE ABOVE FINDINGS, judgment is the content of which is quited (sic) as follows:
hereby rendered in favor of plaintiff and against the
defendants ordering the latter to pay jointly and 'Please be advised that we have received today
severally plaintiff, to wit: cable advise from our Head Office which reads as
follows:
1) The sum of Thirty-Four Thousand Five Hundred
Eighty Three and 16/100 (P34,583.16), as actual 'Open today our irrevocable Domestic Letter of
damages; Credit No. 01456-d fot (sic) P250,000.00 favor ANG
TAY c/o Visayan Sawmill Co., Inc. Dumaguete City,
2) The sum of One Hundred Thousand Negros Oriental Account of ARMACO-MARSTEEL
(P100,000.00) Pesos, as moral damages; ALLOY CORPORATION 2nd Floor Alpap 1 Bldg., 140
Alfaro stp (sic) Salcedo Village, Makati, Metro Manila
3) The sum of Ten Thousand (P10,000.00) Pesos, as Shipments of about 500 MT of assorted steel scrap
exemplary damages; marine/heavy equipment expiring on July 24, 1983
without recourse at sight draft drawn on Armaco
4) The sum of TWENTY Five Thousand (P25,000.00) Marsteel Alloy Corporation accompanied by the
Pesos, as attorney's fees; and following documents: Certificate of Acceptance by
Armaco-Marsteel Alloy Corporation shipment from
5) The sum of Five Thousand (P5,000.00) Pesos as Dumaguete City to buyer's warehouse partial
actual litis expenses." 2 shipment allowed/transhipment (sic) not allowed'.

The public respondent reduced the amount of moral For your information'.
damages to P25,000.00.
On July 19, 1983, plaintiff-appellee sent a series of
The antecedent facts, summarized by the public telegrams stating that the case filed against him by
respondent, are as follows: Pursuelo had been dismissed and demanding that
defendants-appellants comply with the deed of sale,
"On May 1, 1983, herein plaintiff-appellee and otherwise a case will be filed against them.
defendants-appellants entered into a sale involving
scrap iron located at the stockyard of defendant- In reply to those telegrams, defendants-appellants'
appellant corporation at Cawitan, Sta. Catalina, lawyer, on July 20, 1983 informed plaintiff-appellee's
Negros Oriental, subject to the condition that lawyer that defendant-appellant corporation is
plaintiff-appellee will open a letter of credit in the unwilling to continue with the sale due to plaintiff-
amount of P250,000.00 in favor of defendant- appellee's failure to comply with essential pre-
appellant corporation on or before May 15, 1983. conditions of the contract.
This is evidenced by a contract entitled `Purchase
and Sale of Scrap Iron' duly signed by both parties. On July 29, 1983, plaintiff-appellee filed the
complaint below with a petition for preliminary
On May 17, 1983, plaintiff-appellee through his man attachment. The writ of attachment was returned
(sic), started to dig and gather and (sic) scrap iron unserved because the defendant-appellant
at the defendant-appellant's (sic) premises, corporation was no longer in operation and also
because the scrap iron as well as other pieces of
machinery can no longer be found on the premises "On the first error assigned, defendants-appellants
of the corporation." 3 argue that there was no delivery because the
purchase document states that the seller agreed to
In his complaint, private respondent prayed for sell and the buyer agreed to buy 'an undetermined
judgment ordering the petitioner corporation to quantity of scrap iron and junk which the seller will
comply with the contract by delivering to him the identify and designate.' Thus, it is contended, since
scrap iron subject thereof; he further sought an no identification and designation was made, there
award of actual, moral and exemplary damages, could be no delivery. In addition, defendants-
attorney's fees and the costs of the suit. 4 appellants maintain that their obligation to deliver
cannot be completed until they furnish the cargo
In their Answer with Counterclaim, 5 petitioners trucks to haul the weighed materials to the wharf.
insisted that the cancellation of the contract was
justified because of private respondent's non- The arguments are untenable. Article 1497 of the
compliance with essential pre-conditions, among Civil Code states:
which is the opening of an irrevocable and
unconditional letter of credit not later than 15 May 'The thing sold shall be understood as delivered
1983. when it is placed in the control and possession of
the vendee.'
During the pre-trial of the case on 30 April 1984, the
parties defined the issues to be resolved; these In the case at bar, control and possession over the
issues were subsequently embodied in the pre-trial subject matter of the contract was given to plaintiff-
order, to wit: appellee, the buyer, when the defendants-
appellants as the sellers allowed the buyer and his
"1. Was the contract entitled Purchase and Sale of men to enter the corporation's premises and to dig-
Scrap Iron, dated May 1, 1983 executed by the up the scrap iron. The pieces of scrap iron then (sic)
parties cancelled and terminated before the placed at the disposal of the buyer. Delivery was
Complaint was filed by anyone of the parties; if so, therefore complete. The identification and
what are the grounds and reasons relied upon by designation by the seller does not complete
the cancelling parties; and were the reasons or delivery.
grounds for cancelling valid and justified?
On the second and third assignments of error,
2. Are the parties entitled to damages they defendants-appellants argue that under Articles
respectively claim under the pleadings?" 6 1593 and 1597 of the Civil Code, automatic
rescission may take place by a mere notice to the
On 29 November 1985, the trial court rendered its buyer if the latter committed a breach of the
judgment, the dispositive portion of which was contract of sale.
quoted earlier.
Even if one were to grant that there was a breach of
Petitioners appealed from said decision to the Court the contract by the buyer, automatic rescission
of Appeals which docketed the same as C.A.-G.R. CV cannot take place because, as already (sic) stated,
No. 08807. In their Brief, petitioners, by way of delivery had already been made. And, in cases
assigned errors, alleged that the trial court erred: where there has already been delivery, the
intervention of the court is necessary to annul the
"1. In finding that there was delivery of the scrap contract.
iron subject of the sale;
As the lower court aptly stated:
2. In not finding that plaintiff had not complied with
the conditions in the contract of sale; 'Respecting these allegations of the contending
parties, while it is true that Article 1593 of the New
3. In finding that defendants-appellants were not Civil Code provides that with respect to movable
justified in cancelling the sale; property, the rescission of the sale shall of right take
place in the interest of the vendor, if the vendee
4. In awarding damages to the plaintiff as against fails to tender the price at the time or period fixed
the defendants-appellants; or agreed, however, automatic rescission is not
allowed if the object sold has been delivered to the
5. In not awarding damages to defendants- buyer (Guevarra vs. Pascual, 13 Phil. 311; Escueta
appellants." 7 vs. Pando, 76 Phil 256), the action being one to
rescind judicially and where (sic) Article 1191,
Public respondent disposed of these assigned errors supra, thereby applies. There being already an
in this wise: implied delivery of the items, subject matter of the
contract between the parties in this case, the the case at bar is a mere contract to sell or promise
defendant having surrendered the premises where to sell, and not a contract of sale.
the scraps (sic) were found for plaintiff's men to dig
and gather, as in fact they had dug and gathered, The trial court assumed that the transaction is a
this Court finds the mere notice of resolution by the contract of sale and, influenced by its view that
defendants untenable and not conclusive on the there was an "implied delivery" of the object of the
rights of the plaintiff (Ocejo Perez vs. Int. Bank, 37 agreement, concluded that Article 1593 of the Civil
Phi. 631). Likewise, as early as in the case of Song Code was inapplicable; citing Guevarra vs. Pascual
Fo vs. Hawaiian Philippine Company, it has been 10 and Escueta vs. Pando, 11 it ruled that
ruled that rescission cannot be sanctioned for a rescission under Article 1191 of the Civil Code could
slight or casual breach (47 Phil. 821).' only be done judicially. The trial court further
classified the breach committed by the private
In the case of Angeles vs. Calasanz (135 (1935) respondent as slight or casual, foreclosing, thereby,
SCRA 323), the Supreme Court ruled: petitioners' right to rescind the agreement.

'Article 1191 is explicit. In reciprocal obligations, Article 1593 of the Civil Code provides:
either party has the right to rescind the contract
upon failure of the other to perform the obligation "ART. 1593. With respect to movable property, the
assumed thereunder. rescission of the sale shall of right take place in the
interest of the vendor, if the vendee, upon the
Of course, it must be understood that the right of a expiration of the period fixed for the delivery of the
party in treating a contract as cancelled or resolved thing, should not have appeared to receive it, or,
on account of infractions by the other contracting having appeared, he should not have tendered the
party must be made known to the other and is price at the same time, unless a longer period has
always provisional, being ever subject to scrutiny been stipulated for its payment."
and review by the proper court.'
Article 1191 provides:
Thus, rescission in cases falling under Article 1191
of the Civil Code is always subject to review by the "ART. 1191. The power to rescind obligations is
courts and cannot be considered final. implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent
In the case at bar, the trial court ruled that upon him.
rescission is improper because the breach was very
slight and the delay in opening the letter of credit The injured party may choose between the
was only 11 days. fulfillment and the rescission of the obligation, with
the payment of damages in either case. He may
'Where time is not of the essence of the agreement, also seek rescission, even after he has chosen
a slight delay by one party in the performance of his fulfillment, if the latter should become impossible.
obligation is not a sufficient ground for rescission of
the agreement. Equity and justice mandates (sic) The court shall decree the rescission claimed, unless
that the vendor be given additional (sic) period to there be just cause authorizing the fixing of a
complete payment of the purchase price.' (Taguda period."
vs. Vda. de Leon, 132 SCRA (1984), 722).'
xxx xxx xxx
There is no need to discuss the fourth and fifth
assigned errors since these are merely corollary to
the first three assigned errors." 8 Sustaining the trial court on the issue of delivery,
public respondent cites Article 1497 of the Civil
Their motion to reconsider the said decision having Code which provides:
been denied by public respondent in its Resolution
of 4 May 1988, 9 petitioners filed this petition "ART. 1497. The thing sold shall be understood as
reiterating the abovementioned assignment of delivered, when it is placed in the control and
errors. possession of the vendee."

There is merit in the instant petition. In the agreement in question, entitled PURCHASE
AND SALE OF SCRAP IRON, 12 the seller bound and
Both the trial court and the public respondent erred promised itself to sell the scrap iron upon the
in the appreciation of the nature of the transaction fulfillment by the private respondent of his
between the petitioner corporation and the private obligation to make or indorse an irrevocable and
respondent. To this Court's mind, what obtains in unconditional letter of credit in payment of the
purchase price. Its principal stipulation reads, to wit:
 more properly, resolving) the contract, but precisely
xxx xxx xxx enforcing it according to its express terms. In its suit
Myers was not seeking restitution to it of the
"Witnesseth: ownership of the thing sold (since it was never
disposed of), such restoration being the logical
That the SELLER agrees to sell, and the BUYER consequence of the fulfillment of a resolutory
agrees to buy, an undetermined quantity of scrap condition, express or implied (article 1190); neither
iron and junk which the SELLER will identify and was it seeking a declaration that its obligation to sell
designate now at Cawitan, Sta. Catalina, Negros was extinguished. What it sought was a judicial
Oriental, at the price of FIFTY CENTAVOS (P0.50) per declaration that because the suspensive condition
kilo on the following terms and conditions: (full and punctual payment) had not been fulfilled,
its obligation to sell to Maritime never arose or
1. Weighing shall be done in the premises of the never became effective and, therefore, it (Myers)
SELLER at Cawitan, Sta. Catalina, Neg. Oriental. was entitled to repossess the property object of the
contract, possession being a mere incident to its
2. To cover payment of the purchase price, BUYER right of ownership. It is elementary that, as stated
will open, make or indorse an irrevocable and by Castan, -
unconditional letter of credit not later than May 15,
1983 at the Consolidated Bank and Trust Company, 'b) Si la condicion suspensiva llega a faltar, la
Dumaguete City, Branch, in favor of the SELLER in obligacion se tiene por no existente, y el acreedor
the sum of TWO HUNDRED AND FIFTY THOUSAND pierde todo derecho, incluso el de utilizar las
PESOS (P250,000.00), Philippine Currency. medidas conservativas.' (3 Cast n, Derecho Civil, 7a
Ed., p. 107). (Also Puig Peña, Der. Civ., T. IV (1), p.
3. The SELLER will furnish the BUYER free of charge 113)'."
at least three (3) cargo trucks with drivers, to haul
the weighed materials from Cawitan to the TSMC In the instant case, not only did the private
wharf at Sta. Catalina for loading on BUYER's barge. respondent fail to open, make or indorse an
All expenses for labor, loading and unloading shall irrevocable and unconditional letter of credit on or
be for the account of the BUYER. before 15 May 1983 despite his earlier
representation in his 24 May 1983 telegram that he
4. SELLER shall be entitled to a deduction of three had opened one on 12 May 1983, the letter of
percent (3%) per ton as rust allowance." mphasis advice received by the petitioner corporation on 26
supplied). May 1983 from the Bank of the Philippine Islands
Dumaguete City branch explicitly makes reference
The petitioner corporation's obligation to sell is to the opening on that date of a letter of credit in
unequivocally subject to a positive suspensive favor of petitioner Ang Tay c/o Visayan Sawmill Co.
condition, i.e., the private respondent's opening, Inc., drawn without recourse on ARMACO-MARSTEEL
making or indorsing of an irrevocable and ALLOY CORPORATION and set to expire on 24 July
unconditional letter of credit. The former agreed to 1983, which is indisputably not in accordance with
deliver the scrap iron only upon payment of the the stipulation in the contract signed by the parties
purchase price by means of an irrevocable and on at least three (3) counts: (1) it was not opened,
unconditional letter of credit. Otherwise stated, the made or indorsed by the private respondent, but by
contract is not one of sale where the buyer acquired a corporation which is not a party to the contract;
ownership over the property subject to the (2) it was not opened with the bank agreed upon;
resolutory condition that the purchase price would and (3) it is not irrevocable and unconditional, for it
be paid after delivery. Thus, there was to be no is without recourse, it is set to expire on a specific
actual sale until the opening, making or indorsing of date and it stipulates certain conditions with respect
the irrevocable and unconditional letter of credit. to shipment. In all probability, private respondent
Since what obtains in the case at bar is a mere may have sold the subject scrap iron to ARMACO-
promise to sell, the failure of the private respondent MARSTEEL ALLOY CORPORATION, or otherwise
to comply with the positive suspensive condition assigned to it the contract with the petitioners.
cannot even be considered a breach - casual or Private respondent's complaint fails to disclose the
serious - but simply an event that prevented the sudden entry into the picture of this corporation.
obligation of petitioner corporation to convey title
from acquiring binding force. In Luzon Brokerage Consequently, the obligation of the petitioner
Co., Inc. vs. Maritime Building Co., Inc., 13 this corporation to sell did not arise; it therefore cannot
Court stated: be compelled by specific performance to comply
with its prestation. In short, Article 1191 of the Civil
" . . . The upshot of all these stipulations is that in Code does not apply; on the contrary, pursuant to
seeking the ouster of Maritime for failure to pay the Article 1597 of the Civil Code, the petitioner
price as agreed upon, Myers was not rescinding (or
corporation may totally rescind, as it did in this damages awarded by the trial court to the private
case, the contract. Said Article provides: respondent despite a clear absence of any legal and
factual basis therefor. In contracts, such as in the
"ART 1597. Where the goods have not been instant case, moral damages may be recovered if
delivered to the buyer, and the buyer has defendants acted fraudulently and in bad faith, 16
repudiated the contract of sale, or has manifested while exemplary damages may only be awarded if
his inability to perform his obligations, thereunder, defendants acted in a wanton, fraudulent, reckless,
or has committed a breach thereof, the seller may oppressive or malevolent manner. 17 In the instant
totally rescind the contract of sale by giving notice case, the refusal of the petitioners to deliver the
of his election so to do to the buyer." scrap iron was founded on the non-fulfillment by the
private respondent of a suspensive condition. It
The trial court ruled, however, and the public cannot, therefore, be said that the herein petitioners
respondent was in agreement, that there had been had acted fraudulently and in bad faith or in a
an implied delivery in this case of the subject scrap wanton, reckless, oppressive or malevolent manner.
iron because on 17 May 1983, private respondent's What this Court stated in Inhelder Corp. vs. Court of
men started digging up and gathering scrap iron Appeals 18 needs to be stressed anew:
within the petitioner's premises. The entry of these
men was upon the private respondent's request. "At this juncture, it may not be amiss to remind Trial
Paragraph 6 of the Complaint reads: Courts to guard against the award of exhorbitant
(sic) damages that are way out of proportion to the
"6. That on May 17, 1983 Plaintiff with the consent environmental circumstances of a case and which,
of defendant Ang Tay sent his men to the stockyard time and again, this Court has reduced or
of Visayan Sawmill Co., Inc. at Cawitan, Sta. eliminated. Judicial discretion granted to the Courts
Catalina, Negros Oriental to dig and gather the in the assessment of damages must always be
scrap iron and stock the same for weighing." 14 exercised with balanced restraint and measured
objectivity."
This permission or consent can, by no stretch of the
imagination, be construed as delivery of the scrap For, indeed, moral damages are emphatically not
iron in the sense that, as held by the public intended to enrich a complainant at the expense of
respondent, citing Article 1497 of the Civil Code, the defendant. They are awarded only to enable the
petitioners placed the private respondent in control injured party to obtain means, diversion or
and possession thereof. In the first place, said amusements that will serve to obviate the moral
Article 1497 falls under the Chapter 15 Obligations suffering he has undergone, by reason of the
of the Vendor, which is found in Title VI (Sales), defendant's culpable action. Its award is aimed at
Book IV of the Civil Code. As such, therefore, the the restoration, within the limits of the possible, of
obligation imposed therein is premised on an the spiritual status quo ante, and it must be
existing obligation to deliver the subject of the proportional to the suffering inflicted. 19
contract. In the instant case, in view of the private
respondent's failure to comply with the positive WHEREFORE, the instant petition is GRANTED. The
suspensive condition earlier discussed, such an decision of public respondent Court of Appeals in
obligation had not yet arisen. In the second place, it C.A.-G.R. CV No. 08807 is REVERSED and Civil Case
was a mere accommodation to expedite the No. 15128 of the Regional Trial Court of Iloilo is
weighing and hauling of the iron in the event that ordered DISMISSED.
the sale would materialize. The private respondent
was not thereby placed in possession of and control Costs against the private respondent.
over the scrap iron. Thirdly, We cannot even assume
the conversion of the initial contract or promise to SO ORDERED.
sell into a contract of sale by the petitioner
corporation's alleged implied delivery of the scrap Narvasa, (C.J.), Cruz, Feliciano, Padilla, Bidin and
iron because its action and conduct in the premises Bellosillo, JJ., concur.
do not support this conclusion. Indeed, petitioners
demanded the fulfillment of the suspensive Gutierrez, Jr., J., is on terminal leave.
condition and eventually cancelled the contract.
Griño-Aquino, Regalado, Nocon and Campos, Jr., JJ.,
All told, Civil Case No. 15128 filed before the trial join Justice Romero's dissent.
court was nothing more than the private
respondent's preemptive action to beat the Romero, J., Please see my dissenting opinion.
petitioners to the draw.
Melo and Quiason, J., took no part.
One last point. This Court notes the palpably
excessive and unconscionable moral and exemplary Quiason, J., No part.
Separate Opinions "RAMON HIBIONADA

ROMERO, J., dissenting: RJH TRADING

I vote to dismiss the petition. 286 QUEZON STREET

Petitioner corporation, Visayan Sawmill Co., Inc., ILOILO CITY

entered into a contract on May 1, 1983 with private
respondent RJH Trading Co. represented by private DUE YOUR FAILURE TO COMPLY WITH CONDITIONS
respondent Ramon J. Hibionada. The contract, BEFORE DEADLINE OUR CONTRACT FOR PURCHASE
entitled "PURCHASE AND SALE OF SCRAP IRON," SCRAP IRON CANCELLED.
stated:
VISAYAN SAWMILL CO., INC."
This contract for the Purchase and Sale of Scrap
Iron, made and executed at Dumaguete City, Phil., Hibionada wired back on May 24, 1983 the
this 1st day of May, 1983 by and between: following:

VISAYAN SAWMILL CO., INC., . . . hereinafter called "ANG TAY VISAYAN SAWMILL
the SELLER, and
DUMAGUETE CITY
RAMON J. HIBIONADA, . . . hereinafter called the
BUYER, LETTER OF CREDIT AMOUNTING P250,000.00
OPENED MAY 12, 1983 BANK OF PI MAIN OFFICE
witnesseth: AYALA AVENUE MAKATI METRO MANILA BUT
TRANSMITTAL IS DELAYED PLEASE CONSIDER
That the SELLER agrees to sell, and the BUYER REASON WILL PERSONALLY FOLLOW-UP IN MANILA
agrees to buy, an undetermined quantity of scrap THANKS REGARDS.
iron and junk which the SELLER will identify and
designate now at Cawitan, Sta. Catalina, Negros RAMON HIBIONADA"
Oriental, at the price of FIFTY CENTAVOS (P.50) per
kilo on the following terms and conditions: On May 26, 1983, petitioner company received the
following advice from the Dumaguete City Branch of
1. Weighing shall be done in the premises of the The Bank of Philippine Islands:
SELLER at Cawitan, Sta. Catalina, Negros Oriental.
"Opened today our Irrevocable Domestic Letter of
2. To cover payment of the purchase price BUYER Credit 2-01456-4 for P250,000.00 in favor ANG TAY
will open, make or indorse an irrevocable and c/o Visayan Sawmill Co., Inc. Dumaguete City
unconditional letter of credit not later than May 15, Negros Oriental Account of ARMACO-MARSTEEL
1983 at the Consolidated Bank and Trust Company, ALLOW (sic) CORPORATION 2nd Floor Alpap 1 Bldg.,
Dumaguete City Branch, in favor of the SELLER in 140 Alfaro st. Salcedo Village Makati Metro Manila
the sum of TWO HUNDRED AND FIFTY THOUSAND Shipments of about 500 MT of assorted steel scrap
PESOS (P250,000.00), Philippine currency. marine/heavy equipment expiring on July 23, 1983
without recourse at slight draft drawn on Armaco-
3. The SELLER will furnish the BUYER free of charge Marsteel Alloy Corporation accompanied by the
at least three (3) cargo trucks with drivers, to haul following documents: Certificate of acceptance by
the weighed materials from Cawitan to the TSMC Armaco-Marsteel Allow (sic) Corporation shipment
wharf at Sta. Catalina for loading on BUYER'S barge. from Dumaguete City to buyer's warehouse partial
All expenses for labor, loading and unloading shall shipment allowed/transhipment not allowed."
be for the account of the BUYER.
Subsequently, petitioners' counsel sent another
4. SELLER shall be entitled to a deduction of three telegram to private respondents stating that:
percent (3%) per ton as rust allowance.
"VISAYAN SAWMILL COMPANY UNWILLING TO
xxx xxx xxx CONTINUE SALE OF SCRAP IRON TO HIBIONADA DUE
TO NON COMPLIANCE WITH ESSENTIAL PRE
On May 17, 1983, the workers of private CONDITIONS"
respondents were allowed inside petitioner
company's premises in order to gather the scrap Consequently, private respondents filed a complaint
iron. However, on May 23, 1983, petitioner company for specific performance and damages with the
sent a telegram which stated: Regional Trial Court (RTC) of Iloilo (Branch XXXV)
which decided in favor of private respondents. The and possession of the vendee and delivery is
RTC decision having been affirmed by the Court of effected. For according to Article 1497, "The thing
Appeals, the present petition was filed. sold shall be understood as delivered when it is
placed in the control and possession of the vendee."
Finding the petition meritorious, the ponencia 3
reversed the decision of the Court of Appeals. Based
on its appreciation of the contract in question, it has Such action or real delivery (traditio) is the act that
arrived at the conclusion that herein contract is not transfers ownership. Under Article 1496 of the Civil
a contract of sale but a contract to sell which is Code, "The ownership of the thing sold is acquired
subject to a positive suspensive condition, i.e., the by the vendee from the moment it is delivered to
opening of a letter of credit by private respondents. him in any of the ways specified in Articles 1497 to
Since the condition was not fulfilled, the obligation 1501, or in any other manner signifying an
of petitioners to convey title did not arise. The agreement that the possession is transferred from
lengthy decision of Luzon Brokerage Co., Inc. v. the vendor to the vendee."
Maritime Co. Inc. 1 penned by Justice J.B.L. Reyes,
was cited as authority on the assumption that That payment of the price in any form was not yet
subject contract is indeed a contract to sell but effected is immaterial to the transfer of the right of
which will be shown herein as not quite accurate. ownership. In a contract of sale, the non-payment of
the price is a resolutory condition which
Evidently, the distinction between a contract to sell extinguishes the transaction that, for a time, existed
and a contract of sale is crucial in this case. Article and discharges the obligations created thereunder.
1458 of the Civil Code has this definition: "By a 4
contract of sale, one of the contracting parties
obligates himself to transfer the ownership of and to On the other hand, "the parties may stipulate that
deliver a determinate thing and the other to pay ownership in the thing shall not pass to the
therefor a price certain in money or its equivalent." purchaser until he has fully paid the price." 5 In such
a contract to sell, the full payment of the price is a
Article 1475 gives the significance of this mutual positive suspensive condition, such that in the event
undertaking of the parties, thus: "The contract of of non-payment, the obligation of the seller to
sale is perfected at the moment there is a meeting deliver and transfer ownership never arises. Stated
of minds upon the thing which is the object of the differently, in a contract to sell, ownership is not
contract and upon the price. From that moment, the transferred upon delivery of property but upon full
parties may reciprocally demand performance, payment of the purchase price. 6
subject to the provisions of the law governing the
form of contracts." Consequently, in a contract of sale, after delivery of
the object of the contract has been made, the seller
Thus, when the parties entered into the contract loses ownership and cannot recover the same
entitled "Purchase and Sale of Scrap Iron" on May 1, unless the contract is rescinded. But in the contract
1983, the contract reached the stage of perfection, to sell, the seller retains ownership and the buyer's
there being a meeting of the' minds upon the object failure to pay cannot even be considered a breach,
which is the subject matter of the contract and the whether casual or substantial, but an event that
price which is the consideration. Applying Article prevented the seller's duty to transfer title to the
1475 of the Civil Code, from that moment, the object of the contract.
parties may reciprocally demand performance of the
obligations incumbent upon them, i.e., delivery by At the outset, it must be borne in mind that a
the vendor and payment by the vendee. provision in the contract regarding the mode of
payment, like the requirement for the opening of
Petitioner, in its petition, admits that "[b]efore the the Letter of Credit in this case, is not among the
opening of the letter of credit, buyer Ramon essential requirements of a contract of sale
Hibionada went to Mr. Ang Tay and informed him enumerated in Articles 1305 7 and 1474, 8 the
that the letter of credit was forthcoming and if it absence of any of which will prevent the perfection
was possible for him (buyer) to start cutting and of the contract from happening. Likewise, it must be
digging the scrap iron before the letter of credit emphasized that not every provision regarding
arrives and the former (seller) manifested no payment should automatically be classified as a
objection, and he immediately sent 18 or 20 people suspensive condition. To do so would change the
to start the operation." 2 nature of most contracts of sale into contracts to
sell. For a provision in the contract regarding the
From the time the seller gave access to the buyer to payment of the price to be considered a suspensive
enter his premises, manifesting no objection thereto condition, the parties must have made this clear in
but even sending 18 or 20 people to start the certain and unambiguous terms, such as for
operation, he has placed the goods in the control instance, by reserving or withholding title to the
goods until full payment by the buyer. 9 This was a course of this litigation, petitioners referred to the
pivotal circumstance in the Luzon Brokerage case transaction as a contract of sale. 18
where the contract in question was replete with very
explicit provisions such as the following: "Title to the In light of the provisions of the contract,
properties subject of this contract remains with the contemporaneous and subsequent acts of the
Vendor and shall pass to, and be transferred in the parties and the other relevant circumstances
name of the Vendee only upon complete payment of surrounding the case, it is evident that the
the full price . . .;" 10 the Vendor (Myers) will stipulation for the buyer to open a Letter of Credit in
execute and deliver to the Vendee a definite and order to cover the payment of the purchase price
absolute Deed of Sale upon full payment of the does not bear the marks of a suspensive condition.
Vendee . . .; 11 and "should the Vendee fail to pay The agreement between the parties was a contract
any of the monthly installments, when due, or of sale and the "terms and conditions" embodied
otherwise fail to comply with any of the terms and therein which are standard form, are clearly
conditions herein stipulated, then this Deed of resolutory in nature, the breach of which may give
Conditional Sale shall automatically and without any either party the option to bring an action to rescind
further formality, become null and void." 12 and/or seek damages. Contrary to the conclusions
arrived at in the ponencia, the transaction is not a
It is apparent from a careful reading of Luzon contract to sell but a contract of sale.
Brokerage, as well as the cases which preceded it
13 and the subsequent ones applying its doctrines, However, the determination of the nature of the
14 that the mere insertion of the price and the contract does not settle the controversy. A breach of
mode of payment among the terms and conditions the contract was committed and the rights and
of the agreement will not necessarily make it a liabilities of the parties must be established. The
contract to sell. The phrase in the contract "on the ponencia, notwithstanding its conclusion that no
following terms and conditions" is standard form contract of sale existed, proceeded to state that
which is not to be construed as imposing a petitioner company may rescind the contract based
condition, whether suspensive or resolutory, in the on Article 1597 of the Civil Code which expressly
sense of the happening of a future and uncertain applies only to a contract of sale. It provides:
event upon which an obligation is made to depend.
There must be a manifest understanding that the "ART. 1597. Where the goods have not been
agreement is in what may be referred to as delivered to the buyer, and the buyer has
"suspended animation" pending compliance with repudiated the contract of sale, or has manifested
provisions regarding payment. The reservation of his inability to perform his obligations, thereunder,
title to the object of the contract in the seller is one or has committed a breach thereof, the seller may
such manifestation. Hence, it has been decided in totally rescind the contract of sale by giving notice
the case of Dignos v. Court of Appeals 15 that, of his election so to do to the buyer." nderscoring
absent a proviso in the contract that the title to the supplied).
property is reserved in the vendor until full payment
of the purchase price or a stipulation giving the The ponencia was then confronted with the issue of
vendor the right to unilaterally rescind the contract delivery since Article 1597 applies only "[w]here the
the moment the vendee fails to pay within the fixed goods have not yet been delivered." In this case, as
period, the transaction is an absolute contract of aforestated, the workers of private respondents
sale and not a contract to sell. 16 were actually allowed to enter the petitioners'
premises, thus, giving them control and possession
In the instant case, nowhere in the contract did it of the goods. At this juncture, it is even unnecessary
state that the petitioners reserve title to the goods to discuss the issue of delivery in relation to the
until private respondents have opened a letter of right of rescission nor to rely on Article 1597. In
credit. Nor is there any provision declaring the every contract which contains reciprocal obligations,
contract as without effect until after the fulfillment the right to rescind is always implied under Article
of the condition regarding the opening of the letter 1191 of the Civil Code in case one of the parties fails
of credit. to comply with his obligations. 19

Examining the contemporaneous and subsequent The right to rescind pursuant to Article 1191 is not
conduct of the parties, which may be relevant in the absolute. Rescission will not be permitted for slight
determination of the nature and meaning of the or casual breach of the contract. 20 Here,
contract, 17 it is significant that in the telegram petitioners claim that the breach is so substantial as
sent by petitioners to Hibionada on May 23, 1983, it to justify rescission, not only because the Letter of
stated that "DUE [TO] YOUR FAILURE TO COMPLY Credit was not opened on May 15, 1983 as
WITH CONDITIONS BEFORE DEADLINE OUR stipulated in the contract but also because of the
CONTRACT FOR PURCHASE SCRAP IRON following factors: (1) the Letter of Credit, although
CANCELLED." And in some of the pleadings in the opened in favor of petitioners was made against the
account of a certain Marsteel Alloy Corporation, the buyer accepting the offer but on condition that
instead of private respondent's account; (2) the the latter opens a Letter of Credit within 48 hours. It
Letter of Credit referred to "assorted steel scrap" was not until December 26, 1946, however, that the
instead of "scrap iron and junk" as provided in the Letter of Credit was opened. The Court, speaking
contract; (3) the Letter of Credit placed the quantity through Justice Bengzon, held that because of the
of the goods at "500 MT" while the contract delay in the opening of the Letter of Credit; the
mentioned "an undetermined quantity of scrap iron seller was not obliged to deliver the goods.
and junk"; (4) no amount from the Letter of Credit
will be released unless accompanied by a Certificate Two factors distinguish Sycip from the case at bar.
of Acceptance; and (5) the Letter of Credit had an First, while there has already been a perfected
expiry date. contract of sale in the instant case, the parties in
Sycip were still undergoing the negotiation process.
I am not convinced that the above circumstances The seller's qualified acceptance in Sycip served as
may be characterized as so substantial and a counter offer which prevented the contract from
fundamental as to defeat the object of the parties in being perfected. Only an absolute and unqualified
making the agreement. 21 None of the alleged acceptance of a definite offer manifests the consent
defects in the Letter of Credit would serve to defeat necessary to perfect a contract. 24 Second, the
the object of the parties. It is to be stressed that the Court found in Sycip that time was of the essence
purpose of the opening of a Letter of Credit is to for the seller who was anxious to sell to other
effect payment. The above-mentioned factors could buyers should the offeror fail to open the Letter of
not have prevented such payment. It is also Credit within the stipulated time. In contrast, there
significant to note that petitioners sent a telegram are no indicia in this case that can lead one to
to private respondents on May 23, 1983 cancelling conclude that time was of the essence for petitioner
the contract. This was before they had even as would make the eleven-day delay a fundamental
received on May 26, 1983 the notice from the bank breach of the contract.
about the opening of the Letter of Credit. How could
they have made a judgment on the materiality of In sum, to my mind, both the trial court and the
the provisions of the Letter of Credit for purposes of respondent Court of Appeals committed no
rescinding the contract even before setting eyes on reversible error in their appreciation of the
said document? agreement in question as a contract of sale and not
a contract to sell, as well as holding that the breach
To be sure, in the contract, the private respondents of the contract was not substantial and, therefore,
were supposed to open the Letter of Credit on May petitioners were not justified in law in rescinding the
15, 1983 but, it was not until May 26, 1983 or agreement.
eleven (11) days later that they did so. Is the
eleven-day delay a substantial breach of the PREMISES CONSIDERED, the Petition must be
contract as could justify the rescission of the DISMISSED and the decision of the Court of Appeals
contract? AFFIRMED.
Footnotes
In Song Fo and Co. v. Hawaiian-Philippine Co. 22 it
was held that a delay in payment for twenty (20) 1. Rollo, 18-25.
days was not a violation of an essential condition of
the contract which would warrant rescission for non- 2. Rollo, 60-61.
performance. In the instant case, the contract is
bereft of any suggestion that time was of the 3. Rollo, 61-62.
essence. On the contrary, it is noted that petitioners
allowed private respondents' men to dig and 4. Id., 34-40.
remove the scrap iron located in petitioners'
premises between May 17, 1983 until May 30, 1983 5. Id., 44-52.
or beyond the May 15, 1983 deadline for the
opening of the Letter of Credit. Hence, in the 6. Rollo, 8.
absence of any indication that the time was of the
essence, the eleven-day delay must be deemed a 7. Id., 62-63.
casual breach which cannot justify a rescission.
8. Rollo, 63-65.
Worthy of mention before concluding is Sycip v.
National Coconut Corporation, et al. 23 since, like 9. Id., 27.
this case, it involves a failure to open on time the
Letter of Credit required by the seller. In Sycip, after 10. 12 Phil. 311 [1908].
the buyer offered to buy 2,000 tons of copra, the
seller sent a telegram dated December 19, 1946 to 11. 76 Phil. 256 [1946].
 11. Id., at 387.
12. Annex "A" of Complaint; Rollo, 41.
12. Id., at 386.
13. 46 SCRA 381, 387 [1972].
13. Caridad Estates, Inc. v. Santero, supra, note 3;
14. Rollo, 35. Manuel v. Rodriguez, supra, note 3.

15. Chapter 4. 14. Lim v. Court of Appeals, G.R. No. 85733,

February 23, 1990, 182 SCRA 564; Alfonso v. Court
16. Article 2220, Civil Code; Zenith Insurance Corp. of Appeals, G.R. No. 63745, June 8, 1990, 186 SCRA
vs. Court of Appeals, 185 SCRA 398 [1990]. 400.

17. Article 2232, Id. 15. G.R. No. L-59266, February 29, 1988, 158 SCRA
375.
18. 122 SCRA 576, 585 [1983].
16. See also Taguba v. Vda., de Leon, G.R. No. L-
19. R&B Surety & Insurance Co., Inc. vs. 59980, October 23, 1984, 132 SCRA 722.
Intermediate Appellate Court, 129 SCRA 736 [1984]
citing Grand Union Supermarket, Inc. vs. Espina, Jr., 17. Javier v. Court of Appeals, G.R. No. 48194, March
94 SCRA 53 [1979], citing the concurring and 15, 1990, 183 SCRA 171; Universal Textile Mills, Inc.
dissenting opinion of Justice J.B.L. Reyes in v. NLRC, G.R. No. 87245, April 6, 1990, 184 SCRA
Pangasinan Transportation Company vs. Legaspi, 12 273.
SCRA 597 [1964]; Radio Communications of the
Phils., Inc. vs. Rodriguez, 182 SCRA 899 [1990]. 18. Petition, p. 4, Rollo, p. 7; Reply, p. 4, Rollo, p.
107.
ROMERO, J., dissenting:
19. University of the Philippines v. de los Angeles,
1. G.R. No. L-25885, August 18, 1972, 46 SCRA G.R. No. L-28602, September 29, 1970, 35 SCRA
381. Hereinafter referred to as Luzon Brokerage 102; Siy v. Court of Appeals, et al., G.R. No. L-
case. 39778, September 13, 1985, 138 SCRA 536; Lim v.
Court of Appeals, G.R. No. 85733, February 23,
2. Rollo, p. 10; nderscoring supplied). 1990, 182 SCRA 564.

3. Art. 1497, Civil Code. 20. Taguba v. de Leon, G.R. No. L-59980, October
23, 1984, 132 SCRA 722; Angeles v. Calasanz, G.R.
4. Hanlon v. Haussermann, 40 Phil. 796 (1920). No. L-42283, March 18, 1985, 135 SCRA 323; Tan v.
Court of Appeals, G.R. No. 80479, July 28, 1989, 175
5. Art. 1478, Civil Code. SCRA 656; Jimenez v. Court of Appeals. G.R. No.
92171, March 13, 1991, 195 SCRA 205.
6. Caridad Estates, Inc. v. Santero, 71 Phil. 114
(1940); Manuel v. Rodriguez, 109 Phil. 1 (1960). 21. Delta Motor Corporation v. Genuino, G.R. No.
55665, February 8, 1989, 170 SCRA 29; Ang v. Court
7. Article 1305 of the Civil Code provides: of Appeals, G.R. No. 80058, February 13, 1989, 170
SCRA 286.
"A contract is a meeting of minds between two
persons whereby one binds himself, with respect to 22. 47 Phil. 821 (1925).
the other, to give something or to render some
service." 23. G.R. No. L-6618, April 28, 1956 (Unreported).

8. Article 1475, paragraph 1 of the Civil Code 24. Article 1319, Civil Code; Weldon Construction
Provides: Corporation v. Court of Appeals, G.R. No. L-35721,
October 12, 1987, 154 SCRA 618.
"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.