G.R. No. 83851 – VISAYAN SAWMILL COMPANY, INC., and ANG TAY, petitioners, vs. THE HONORABLE COURT OF APPEALS and RJH TRADING, represented by RAMON J. HIBIONADA, proprietor, respondents.
DAVIDE, JR., J.
Rule Synopsis
Non-fulfillment of a condition imposed on the perfection of the contract prevents the obligation to have a binding effect. Rescission will lie. Delivery without accompanying intent is ineffectual.
Facts
Visayan and RJH entered into a contract for the sale of scrap iron located at Visayan’s stockyard. This is subject to the condition that RJH “will open, make or indorse an irrevocable and unconditional letter of credit (LC) not later than May 15, 1983 at the Consolidated Bank and Trust Company, Dumaguete City Branch” for P250,000. On May 17, RJH, through its man and with Visayan’s consent, started to dig and gather scrap iron at Visayan’s premises until the latter ordered its stoppage on account of, among others, RJH’s failure to open the said LC. On May 26, via a letter, BPI advised Visayan of the opening of a LC in its favor. The LC is on the account of Amarco Steel Corporation, expiring on July 24, 1983 and provided conditions for the shipment. RJH then demanded that Visayan comply with their contract by delivering to him the scrap iron subject thereof but the latter refused.
Thus, the buyer filed a complaint for performance and damages
As defense, Visayan said that the cancellation of the contract was justified on ground of RJH’s non-compliance with essential pre-conditions of the contract, among which is the opening of an irrevocable and unconditional letter of credit not later than May 15.
The RTC ruled in favor of RJH ordering Visayan to pay it damages. The CA affirmed with modifications as to the award of damages. The Supreme Court reversed.
Issues
- What was the nature of the transaction entered into by the parties?
- May Visayan Sawmill rescind the contract?
Ruling and Discussion
- The transaction entered into by the parties is in the nature of a Contract to Sell or Promise to Sell, not a contract of sale.
In the agreement in question, the seller bound and promised itself to sell the scrap iron upon the fulfillment by RJH of his obligation to make or indorse an irrevocable and unconditional letter of credit in payment of the purchase price.
Visayan’s obligation to sell is unequivocally subject to a positive suspensive condition. The seller agreed to deliver the scrap iron only upon payment of the purchase price by means of the said LC. There was to be no actual sale until the opening, making or indorsing of the LC. Since the agreement was a mere promise to sell, the failure of the RJH 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.
The opening of LC with BPI did not comply with the conditions as: 1) it is not opened by RJH, but by Amarco, a corporation not party to the contract; 2) it was not opened with the bank agreed upon, and 3) it is not irrevocable and unconditional. - Yes. Visayan Sawmill may rescind the contract.
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 (Art. 1597).
In this case, there was no implied delivery of the scrap metals when Visayan consented to the digging and gathering of scrap iron in its premises, as contended by RJH and found by the CA.
The permission cannot be construed as delivery. Art. 1497 cited by CA to support its finding is premised on an existing obligation to deliver the subject of the contract. There is no such obligation in this case for RJH’s failure to comply with the condition as afore stated.
Secondly, the permission was given merely as accommodation to expedite the weighing and hauling of the iron, in case the sale should materialize. It did not give RJH control and possession over the scrap irons.
Lastly, Visayan did not waive the condition, rather, it demanded its fulfillment and eventually cancelled the contract upon RJH’s failure to do so.
Dispositive
Petition granted.