G.R. No. 19009, E.C. McCullough and Co. v. Berger, 43 Phil.

823 Republic of the Philippines SUPREME COURT Manila EN BANC September 26, 1922 G.R. No. 19009 E.C. MCCULLOUGH & CO., plaintiff-appelle, vs. S. M. BERGER, defendant-appellant. Fisher & DeWitt for appellant. Perkins & Kincaid for appellee. STATEMENT For cause of action it is alleged that in the month of February, 1918, plaintiff and defendant and defendant entered into an agreement by which the defendant was to deliver plaintiff 501 bales of tobacco of New York City in good condition. That delivery was made and the plaintiff paid the full purchase price. That upon an examination later the tobacco was found to be in must condition, and its value was $12,000 less than it would have been if the tobacco had been in the condition which defendant agreed that it should be, as a result of which plaintiff claims damages for P12,000, United States currency, or P24,000, Philippine currency. That when the condition of the tobacco was discovered, plaintiff promptly notified the defendant, who ignored the protest. Wherefore, the plaintiff prays judgment for the amount of P24,000, Philippine currency, for costs and general relief. For answer, the defendant denies all the material allegation of the complaint, and, as a further and separate defense, alleges that on August 15, 1918, he was advised by the plaintiff that the latter was dissatisfied with the quality of the tobacco, and he made him a formal written offer to repurchase the tobacco at the original selling price with accrued interest, and that plaintiff rejected the offer. That defendant has been ready and willing at all reasonable times to accept the return of the tobacco and to return the amount of the purchase price with legal interest, and has a repeatedly tendered to the plaintiff such purchase price in exchange for the return of the tobacco, and that plaintiff had refused to return it. That any damages which plaintiff may have suffered have been wholly due to his willful refusal to return and redeliver the tobacco. Upon such issues there was a stipulation of facts, and after trial the lower court rendered judgment against the defendant and in favor of the plaintiff for the sum of P11,867.98 or P23,735.96 with legal interest from January 6, 192, and costs, from which, after his motion for a new trial was overruled, the defendant appeals, claiming that the court erred: First, in finding that the tobacco was not in good condition when it arrived in New York; second, in holding that the plaintiff is entitled to maintain an action for breach of contract after having agreed with the defendant to rescind and to make restitution of the subject-matter and the price after a violation of the agreement; third in holding that the plaintiff, having elected to rescind and notified the defendant of such an election, may now refused it and affirm the same and recover from the alleged breach of warranty; fourth, in holding that this action should be maintained, no claim having been made for the alleged breach of warranty of quality within the statutory period; and, fifth, in overruling the defendant's motion for a new trial. JOHNS, J.: In February, 1918, the defendant met the plaintiff in the city of Manila and advised him that he had made a shipment of 501 bales of tobacco to new York City consigned to S. Lowenthal & Sons, who had refused to honor the draft which was drawn upon them. He asked the plaintiff whether he could use the tobacco provided it was "perfectly sound." At the plaintiff's request the defendant made and signed a writing as follows: Referring to the shipment of 501 bales of tobacco sold you consisting of 188 200-pound bales of scrap and 313 200-pound bales of booked tobacco, I beg to confirm my verbal conversation with you in stating that I guarantee the arrival of the tobacco in New York in good condition, subject, of course, to conditions arising after its departure from Manila, which contingencies are covered by adequate insurance. (Stipulation par. 1.)

Upon the strength of this the plaintiff cabled his New York office to honor the defendant's draft, which was ninety days' sight for $33,109, and was the same draft and amount which had been refused by S. Lowenthal & Sons. The draft was honored by his New York office at plaintiff's request. The shipment consisted of 188 bales of "scrap," invoiced at 28 cents, gold, per pound, and 313 bales of "striped" and "booked" at 36 cents, gold, per pound, and was made c.i.f. New York. Before its arrival in New York the plaintiff had found purchasers for a large portion of it with whom he had made contracts for sale subject to examination as to condition. The tobacco arrived in two shipments. The first of 213 bales on April 26, and the second of 288 bales on May 18, 1918, and it was at once placed in warehouses by plaintiff. With the exception of four or five bales, it appeared from an examination that the tobacco was well baled, and to all outward appearances was in good condition after the shipment. After it was placed in the warehouse, the tobacco itself was examined as to its condition and quality by the different buyers to whom the plaintiff had contracted to sell it, and after such physical inspection, they refused to accept it and complete their purchase because it was "musty." It appears that the plaintiff had sold 188 bales of the tobacco before its arrival in New York to a customer in Red Lion, Pennsylvania, to whom he shipped 75 bales of it after its arrival. This customer refused to receive any of the remaining bales which he had purchased, and the plaintiff was compelled to again reship it back to New York. Complying with his agreement, on May 21, 1918, the plaintiff paid the defendant's draft which he had previously accepted, thus completing his part of the contract with the defendant. On May 23, 1918, and as a result of physical inspection, the plaintiff cabled the defendant that the tobacco was unsatisfactory, and on June 13, he again cabled that there would likely be a loss. On June 28, 1918, the plaintiff wrote a letter to the defendant in which, among other things, he says: . . . The tobacco has a very strong ground smell and somewhat of a musty smell as though it had been mixed up with must tobacco. In other words, it appears like this tobacco assorted from bales which were mildewed and this is that part of the bale which was not mildewed. It does not seem possible that this odor, or musty smell, could have developed in transit as it seems perfectly clear that the tobacco was packed in that same condition. In all the bales which we have examined, which have been considerable, the tobacco seems to be perfectly dry. In view of that I can see nothing but every indication that the tobacco was originally a bad lot. In this letter he also advised the defendant that he was doing everything he could to sell the tobacco, and that he did not have any prospective buyer even at a loss of 25 per cent. August 9, 1918, the defendant acknowledge the receipt of the letter and cables, saying that he was "not in a position to lose between seventeen and twenty thousand pesos, and that he would consent to a reduction of four thousand pesos, if that was acceptable, and, if it was not, to have the bank pay back the amount of the draft with interest and take charge of the tobacco until the defendant would arrive in New York." The plaintiff did not receive this cable until August 21, when he cabled in reply that he would turn the tobacco over to the defendant, and that he "awaited telegraphic instruction in regard to it. That at least twenty dealers had passed on the tobacco." At that time the plaintiff had sold 66 bales of scattered samples from which, with the 75 bales sold to the Red Lion customer, he realized $9,031.71. September 5, 1918, the defendant wrote the New York Agency of the Philippine National Bank in which he said that the plaintiff had advised him that the tobacco on arrival was satisfactory, and that there would be a loss, and that the had assured its arrival at destination "in good condition." That he was taking it back. That the bank should pay plaintiff $33,109 plus interest upon delivery to it of the 501 bales. That "on no account should they agree to accept any shortage in the number of bales." October 18, 1918, without any knowledge of the defendant's instruction to the bank, the plaintiff wrote him that his proposition to take the tobacco back was satisfactory in which he said that he had not heard from the bank "at the time of writing with reference to taking back of the tobacco." October 30, 1918, the bank wrote the plaintiff that it would take back the identical 501 bales, and pay him the amount of the draft and interest. The plaintiff then wrote the bank a complete history of the transaction, and explained why the identical 501 bales could not be returned. That he had realized $9,031.71 from 141 bales of it which he had sold, for which he would account and return the balance of the tobacco which was then unsold and in the New York warehouse. The $9,031.71 was more than the actual agreed purchase price of the 141 bales. This offer was cabled to the defendant, who replied: The instructions given you in my letter dated September 5, 1918, will not be modified. The bank notified the plaintiff of the receipt of this cable, and in turn notified the plaintiff of the receipt of this cable, and in turn

notified the plaintiff of the receipt of this cable, and in turn notified the defendant that the plaintiff would sell the tobacco at public auction, and then sue him for the balance of the purchase price, and later the plaintiff did sell the remainder of the tobacco upon which there was a net actual loss to him of $11,867.98, over and above all actual charges and expenses. Although at the time of the making of the contract between them the plaintiff and defendant were in Manila, the tobacco involved was on the high seas in transit to New York. From necessity the plaintiff could not see or examine it and would not know anything about its grade or quality, and, for that reason, insisted that the defendant should make and sign the writing above quoted in which he says: I guarantee the arrival of the tobacco in New York in good condition, subject, of course to, to conditions arising after its departure from Manila, which contingencies are covered by adequate insurance. The trial court found and the testimony is conclusive that the tobacco did not arrive in New York "in good condition," and that , as a matter of fact, it was not "in good condition" when it left Manila. The plaintiff and defendant had known each other for about ten years, and had mutual confidence in each other, and were experienced business men. Defendant's draft of the tobacco had been dishonored. Plaintiff was willing to take the tobacco and honor the draft, with the proviso that the defendant would guarantee its arrival "in good condition." The evidence shows that in the whole transaction, the plaintiff acted in good faith and made an earnest effort to protect the defendant and minimized his loss. Defendant knew that in the very nature of things the plaintiff bought the tobacco for the purpose of resale, and that in the ordinary course of business, he would resell it. The record shows that he found purchasers for portions of it before its arrival in New York. The only reason why plaintiff's sales were not consummated was because the tobacco did not stand inspection and was not "in good condition" at the time of its arrival in New York. In other words, plaintiff bought and paid the defendant for tobacco which was not "in good condition," and bought it for the purpose of resale. In the very nature of things, the defendant knew that the plaintiff bought the tobacco for the purpose of resale, and he also knew that , if the tobacco was not "in good condition," it was not worth the amount of the purchase price which plaintiff paid. The defense cites and relies upon articles 336 and 342 of the Code of Commerce which are as follows: A purchaser who, at the time of receiving the merchandise, fully examines the vendor, alleging a defect in the quantity or quality of the merchandise. A purchaser shall have a right of action against a vendor for defects in the quantity or quality of merchandise receive in bales or packages, provided he brings his action within the four days following it receipt, and that the damage is not due to accident or to natural defect of the merchandise or to fraud. In such cases the purchaser may choose between the rescission of the contract or its fulfillment in accordance with what has been agreed upon, but always with the payment of the damages he may have suffered by reason of the defects or faults. The vendor may avoid this claim by demanding when making the delivery that the merchandise be examined by the purchaser for his satisfaction with regard to the quantity and quality thereof. Article 342: A purchaser who has not made any claim based on the inherent defects in the article sold, within the thirty days following its delivery, shall lose all rights of action against the vendor for such defects.

Whatever may be the rule as to sales which are completed within the jurisdiction of the Philippine Islands, those sections do not, and were never intended to, apply to a case founded upon the facts shown in the record. Although it is true that the contract between the plaintiff and the defendant was made in Manila, yet at the time it was made the tobacco was on the high seas, and under the contract, it was to be delivered "in good condition" in the City of New York, in consideration of which the plaintiff agreed to pay the draft. That is to say, the transaction was not complete until after the arrival of the tobacco in New York "in good condition," and the payment of the draft. It must be conceded that if, for any reason, the tobacco did not arrive in New York, the defendant could not recover upon the draft from the plaintiff. Hence, it must follow that the delivery of the tobacco at New York was a condition precedent which devolved upon the defendant to perform without which he would not have a cause of action against the plaintiff. It is true that the writing recites "the shipment of 501 bales of tobacco sold you." Yet, the fact remains that it was necessary to deliver the tobacco in New York to complete the sale. Contracts of this nature should be construed with reference to the surrounding conditions and the relative situation of the parties. At the time this contract was made both parties were in Manila, the tobacco was in transit to New York, and the defendant knew that the plaintiff entered into the contract for the purpose of a resale. Soon after the contract was made, the plaintiff left Manila and went to New York where, relying upon this contract with the defendant, he found purchasers for the tobacco on the assumption that it was "in good condition." Although the word "sold" is used in the written contract, the transaction shows that the sale was not complete until the arrival of the goods in New York. The case of Middleton vs. Ballingall (1 Cal., 446), is somewhat in point, in which the court says: I think that the fair construction to be put upon the contract is, that on the arrival of the ship containing the goods, the defendants should deliver them, and the plaintiffs should pay the contract price. And the authorities hold that the arrival of the goods, in such case, is a condition precedent, which must be shown to have taken place before either party can bring suit. In the instant case, the contract was at least executory as to the delivery of the tobacco in New York. Cyc., vol. 35, pp. 274, 275 and 276, says: In order to pass the title to goods as against the seller or those claiming under him there must be a valid existing and completed contract of sale. Under a complete contract of sale the property in the goods passes at once from the seller to the buyer, at the place where the contract becomes complete, and for this reason the agreement is frequently called an executed contract. The sale is, however, an executory contract, if the seller merely promises to transfer the property at some future day, or the agreement contemplates the performance of some act or condition necessary to complete the transfer. Under such a contract until the act is performed or the condition fulfilled which is necessary to convert the executory into an executed contract, no title passes to the buyer as against the seller or persons claiming under him. While certain terms and expressions standing alone import an executed or executory contract, they are by no means conclusive but must be construed with reference to other provisions of the contract and according to what appears to have been the real intention of the parties, and so a mere recital in the writing evidencing the contract that the article is "sold" or that the buyer has "purchased" it does not necessarily make the contract executed; while on the other hand a recital that the seller "agrees to sell" is not conclusive that the title was not intended to pass immediately. The trial court found and the evidence sustains the finding that that plaintiff acted in good faith. The contract was made in February, 1918 the draft was payable ninety days after date; the first shipment of 213 bales arrived on April 26, and the second of 288 bales on May 18, and the plaintiff the draft on May 21 1918, and the transaction between the parties then became complete. On May 23, he cabled the defendant that the tobacco was unsatisfactory. On June 13, he cabled that there would be a loss. On June 28, he wrote the letter above quoted. September 5, the defendant wrote the New York Agency of the Philippine National Bank that he would take the tobacco back on condition that there was not any shortage in the number of bales. During all of this time, the defendant had the use of plaintiff's money. It is true that the defendant offered to take the tobacco back and refund the money, but this offer was not actually made to the plaintiff until October , and was upon the condition that the full amount of the 501 bales should be returned, which was an impossible condition for the plaintiff to perform. But the plaintiff did offer to account to the defendant for the tobacco which he had

sold and to return all of the unsold tobacco which was then in his warehouse, and the defendant declined the offer. As a business man, he knew that the plaintiff has then purchased the tobacco for the purpose of a resale, and that the tobacco had arrived at New York about five months before the offer was made, and he also knew that the plaintiff was using every effort to sell it and convert it into money, and that he would sell the whole or any part of it if a purchaser could be found at a reasonable price. At the time the defendant's offer was communicated to the plaintiff by the bank the plaintiff in turn offered to account to the defendant for the entire proceeds of the 141 bales which he had already sold, and to deliver to him all of the unsold tobacco. This was all that the plaintiff could do under the existing conditions. The fact that the defendant did not accept this offer is strong evidence that he was seeking an undue advantage, and that his offer to plaintiff was not made in good faith. The second shipment arrived in New York on May 18, and the plaintiff could not be expected to take any final action until the las shipment arrived. On learning the true condition of the tobacco, the plaintiff cabled the defendant on May 23 that it was unsatisfactory, and again on June 13, that there would be a substantial loss, which was followed by the letter of June 28th above quoted. The defects in the tobacco were inherent and could not be ascertained without opening the bales and making a physical examination. When this was done, the plaintiff promptly cabled the defendant that the tobacco was not satisfactory. In the nature of things, the plaintiff could not then render the defendant a statement of the amount of this claim. By the terms of the contract, the defendant guaranteed the arrival of the tobacco in New York "in good condition." Plaintiff's first cable sent ten days after the arrival of the tobacco advised the defendant that it was unsatisfactory, and the second, twenty-six days after its arrival, advised him that there would be a loss. Appellant's attorneys have submitted a very able and adroit brief in which they severely criticize the evidence on the part of the plaintiff. Upon all of the material questions of fact, the trial court found for the plaintiff, and, in our opinion, the evidence sustains the findings. It must be remembered that during all these times there was about ten thousand miles of ocean between them. The plaintiff had parted with his money and honored the draft, expecting to sell the tobacco and get his money back with a profit. The testimony is conclusive that the plaintiff in good faith tried to sell the tobacco, and that he sold the 141 bales at the best obtainable price; that the only reason why he did not sell the remainder was because the tobacco was not "in good condition;" and that when he first knew that it was not "in good condition," he promptly cabled that defendant that it was unsatisfactory. As we construe the record, after the tobacco was inspected, the plaintiff promptly advised the defendant that it was unsatisfactory, and that he would have to sustain a loss, and in goo faith undertook to protect the defendant and to minimize the loss, and plaintiff's claim is not barred by the provisions of either article 336 or 342 of the Code of Commerce. The judgment is affirmed, with costs. So ordered. Araullo, C.J., Johnson, Malcolm, Avancea, Villamor, Ostrand and Romualdez, JJ., concur. Separate Opinions STREET, J., concurring: I concur in the conclusion reached in this case and in accord with most that is said in the opinion. But in the view I take of the case, it ought not to be said that the sale was not complete until the arrival of the tobacco in New York. In view of the express guaranty given by the defendant to the effect that the tobacco would arrive in good condition, barring certain

contingencies, and it having been clearly proved that the tobacco was not in good condition upon arrival there, a right of action accrued to the plaintiff to be indemnified to the extent allowed, and this independently of article 342 of the Code of Commerce. But, even supposing this provision to be applicable, claim was made within thirty days after complete delivery had been effected. The maneuvers of the defendant relative to taking back the tobacco on terms which he must have believed would be impossible of fulfillment were ruse to gain an advantage in the impending legal controversy; and the contention that there was a rescission, or accepted offer or rescission, is untenable. WELG OD IC H OS O ,ET AL . , plaintiffs-appellees, vs. L AU RA R OX AS ,ET AL . , defendants, C ELS OBOR JA an dNELIA ALA NGUI LA N , defendants-appellants. G.R. No. L-17441 July 31, 1962 D IZ ON , J.: Facts: 1. On December 13, 1954, LauraA. Roxas sold to Borja for the sum of P850.00 a parcel of unregistered coconut land with an area of 16,965 square meters and with 393 coconut trees, situated in Barrio San Diego, San Pablo, Laguna, subject to the condition that the vendor could repurchase it for the same amount within five years, but not earlier than three years, from the date of the sale , which was evidenced by a public document. 2. From November 26, 1955 to July 5, 1957, Roxas had received from Dichoso several sums of money amounting to P770.00, their agreement being that after December 13, 1957, Roxas would sell the same property, by absolute sale, to Dichoso for the total sum of P2,000.00, the aforesaid sum of P770.00 to be considered as initial or advance payment on the purchase price. 3. Out of the balance of P1,230.00, Dichoso would use the sum of P850.00 to repurchase the property from Roxas after December 13, 1954 but within the five years stipulated for the exercise of Roxas' right to repurchase. 4. On October 22, 1957, pursuant to Roxas' request made on July 23, 1957, Dichoso sent her a check for the sum of P320.00 "in full payment of the P2,000.00 consideration for the deed of absolute sale" and thereafter they informed Borja of their readiness to repurchase the property. 5. On November 29, 1957 Roxas sent them back the check just referred to with the request that they endorse the same to Borja when they made the repurchase, because it appeared that, aside from the P850.00 consideration of the pacto de retro sale, Roxas had received additional sums from Borja. 6. After December 13, 1957, Dichoso made representations to Borja that they were ready to make the repurchase, as well as to Roxas for the latter to be ready to execute the corresponding deed of absolute sale in their favor after they had made the repurchase; that notwithstanding these demand and representations, Roxas and Borja had deliberately failed to execute the corresponding deed of absolute sale and deed of resale already mentioned. 7. On January 8, 1958 Borja filed a motion to dismiss the complaint upon the ground that Dichoso had no cause of action against them because their contract was not them but with LauraA. Roxas. LC sustained the motion and dismissed the complaint because, according to the same, " there exists no written contract of assignment of rights executed by LauraA. Roxas in favor of the herein plaintiffs concerning property which said LauraA. Roxas sold to her co-defendants under a deed of pacto de retro sale, and that the purpose of the present action is precisely to compel LauraA. Roxas to execute the corresponding deed of assignment." Issue/Held/ Rationale: May Dichoso repurchase the coconut land which was sold to Borja by Laura Roxas? NO. It is obvious that, in deciding the case, the lower court failed to give due weight to the private document Exhibit 7 (deed of absolute sale) executed by Laura A. Roxas in favor of appellants on December 8, 1957 in effect superseding the pacto de retro sale mentioned heretofore for a total consideration of P1,684.00, of which the amount of P850.00 paid as consideration for the pacto de retro sale was considered as a part. There is no dispute at all as to the genuineness of this private deed of absolute sale nor as to its

execution on December 8, 1957. that is, five days prior to December 13, 1957, when. according to appellees themselves, they made the first attempt to repurchase the property in question, and on which occasion appellants refused to allow the repurchase "because Laura A. Roxas was not with them", according to the lower court. After December 8, 1957, appellants' rights were no longer based on the superseded pacto de retro sale but on the aforesaid deed of absolute sale which was a perfectly valid contract as between the parties. In plain words, after that date Laura A. Roxas no longer had any right to repurchase the property. Luzon Brokerage Co. v. Maritime Building Co. (1972) Plaintiff-appellee: Luzon Brokerage Co. Defendants: Maritime Building Co and Myers Building Co Ponente: Reyes, J.B.L., J. Doctrine: The distinction between contracts of sale and contract to sell with reserved title has been recognized by this Court in repeated decisions upholding the power of promisors under contracts to sell in case of failure of the other party to complete payment, to extrajudicially terminate the operation of the contract, refuse conveyance and retain the sums or installments already received, where such rights are expressly provided for, as in this case. Short version: Myers corp sold land to Maritime. In the agreement, they agreed on an installment plan and that if Maritime missed a payment, the contract will be annulled and the payments already made will be forfeited. Maritime failed to pay so Myers annulled the contract and did not return payments. SC says Myers can do this because under contracts to sell, promisors, in case of failure of the other party to complete payment, can extrajudicially terminate the contract, refuse conveyance, and retain installments already received, where such rights are provided. In Manila, Myers owned 3 parcels of land w/ improvements. Myers then entered into a contract called a Deed of Conditional Sale with Maritime Building. o Myers sold the land for P1million. o They agreed on the manner of payment (instalment, initial payment upon execution of contract, interest rate) oIn the contract it was stipulated that in case of failure of buyer to pay any of the instalments, the contract will be annulled at the option of the seller and all payments made by the buyer is forfeited. Later on, the stipulated instalment of P10k with 5%interest was amended to the P5k with 5.5% per annum. oMaritime paid the monthly instalments but failed to pay the monthly instalment of March. VP of Maritime wrote to Pres of Myers requesting for a moratorium on the monthly payment of the instalments because the company wasundergoing financial problems. oMyers refused. oFor the months of March, April, and May, Maritime failed to pay and did not heed the demand of Myers. Myers wrote Maritime cancelling the Deed of Conditional Sale oMyers demanded return of possession of properties oHeld Maritime liable for use and occupation amounting to P10k per month In the meantime, Luzon Brokerage was leasing the property from Maritime. oMyers demanded from Luzon the payment of monthly rentals of P10k oMyers also demanded surrender of property. While actions and crossclaims between Myers and Maritime were happening, the contract between Maritime and Luzon was extended for 4 more years. Turns out, Maritimes suspension of its payments to Myers corp arose from a previous event: An award of backwages made by the Court of Industrial Relations in favor of Luzon Labor Union (employees employed by Luzon). oFH Myers was a major stockholder of Luzon Brokerage. FH Myers promised to indemnify Schedler (who controlled Maritime) when

Shedler purchased FH Myerss stock in Luzon Brokerage company. (This indemnification is for the award of backwages by the CIR) oSchedler claims that after FH Myers estates closed, he was notified that the indemnity on the Labor Union case will not be honored anymore. oAnd so, Schedler advised Myers corp that Maritime is withholding payments to Myers corp in order to offset the liability when Myers heirs failed to honor the indemnity agreement. TC ruled Maritime in breach of contract. Issue: Has there been a breach of contract? Can Myers extrajudicially terminate the contract? Held: Yes. Yes. Ratio: Failure to pay monthly installments constitute a breach of contract. Default was not made in good faith. The letter to Myers corp means that the non-payment of installments was deliberately made to coerce Myers crp into answering for an alleged promise of the dead FH Myers. Whatever obligation FH Myers had assumed is not an obligation of Myers corp. No proof that board of Nyers corp agreed to assume responsibility to debts of FH Myers and heirs. Schaedler allowed the estate proceedings of FH Myers to close without providing liability. By the balance (of payment) in the Deed of Conditional Sale, Maritime wasattempting to burden the Myers corp with an uncollectible debt, since enforcement against FH Myers estate was already barred. Maritime acted in bad faith. Maritimes contract with Myers is not the ordinary sale contemplated in NCC 1592 (transferring ownership simultaneously with delivery). The distinction between contracts of sale and contract to sell with reserved title has been recognized by this Court in repeated decisions upholding the power of promisors under contracts to sell in case of failure of the other party to complete payment, to extrajudicially terminate the operation of the contract, refuse conveyance and retain the sums or installments already received, where such rights are expressly provided for, as in this case. Decision affirmed Portic vs. Cristobal FACTS: In 1968, spouses Portic acquired a parcel of land with a 3 door apartment from Sps. Alcantara even though theyre aware that the land was mortgaged to the SSS. Portic defaulted in paying SSS. The Portics then executed a contract with Cristobal and the latter agreed to buy the said property for P200k. Cristobals down payment was P45k and she also agreed to pay SSS. The contract between them states: That while the balance of P155,000.00 has not yet been fully paid the FIRST PARTY OWNERS shall retain the ownership of the above described parcel of land together with its improvements but the SECOND PARTY BUYER shall have the right to collect the monthly rentals due on the first door (13-A) of the said apartment; (payment is due 22 May 1985, if Cristobal will not be able to pay Portic will reimburse) A transfer certificate was executed in favor of Cristobal. Cristobal was not able to pay on the due date. A suit ensued to lift the cloud

on the title. ISSUE: Who is the rightful owner of the parcel of land? HELD: The Portics insofar as there was no contract of sale. What transpired between the parties was a contract to sell. The provision of the contract characterizes the agreement between the parties as a contract to sell, not a contract of sale. Ownership is retained by the vendors, the Portics; it will not be passed to the vendee, the Cristobals, until the full payment of the purchase price. Such payment is a positive suspensive condition, and failure to comply with it is not a breach of obligation; it is merely an event that prevents the effectivity of the obligation of the vendor to convey the title. In short, until the full price is paid, the vendor retains ownership. The mere issuance of the Certificate of Title in favor of Cristobal did not vest ownership in her. Neither did it validate the alleged absolute purchase of the lot. Registration does not vest, but merely serves as evidence of, title. Our land registration laws do not give the holders any better title than that which they actually have prior to registration. Under Article 1544 of the Civil Code, mere registration is not enough to acquire a new title. Good faith must concur. Clearly, Cristobal has not yet fully paid the purchase price. Hence, as long as it remains unpaid, she cannot feign good faith. She is also precluded from asserting ownership against the Portics. The CAs finding that she had a valid title to the property must be set aside. #27 Heirs of Jesus Mascunana v. CA FACTS: Masunana bought a parcel of land from the Wuthrich siblings. Part of which Mascunana, he later sold to Sumilhig. The contract price is 4,690 with 3,690 as down payment. Their agreement says: That the balance of ONE THOUSAND PESOS (P1,000.00) shall be paid by the VENDEE unto the VENDOR as soon as the above-portions of Lot 124 shall have been surveyed in the name of the VENDEE and all papers pertinent and necessary to the issuance of a separate Certificate of Title in the name of the VENDEE shall have been prepared. Sumilhig later sold the same lot to Layumas. Years after, Layumas wrote to the heirs of Mascunana (since Mascunana died already) offering to pay the 1,000 balance of the purchase price of the property. The addressee, however, refused to receive the mail matter. Heirs Mascunana then filed a complaint for recovery of possession against Barte ( an individual whom Layumas allowed to stay on the subject property). Issue: WON the contract of alienation of the subject lot in favor of Sumilhig was a contract to sell or a contract of sale Held: Sale Article 1458 of the New Civil Code provides: By the 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. A contract of sale may be absolute or conditional. Thus, there are three essential elements of sale, to wit: a) Consent or meeting of the minds, that is, consent to transfer ownership in exchange for the price; b) Determinate subject matter; and c) Price certain in money or its equivalent. In this case, there was a meeting of the minds between the vendor and the vendee, when the vendor undertook to deliver and transfer ownership over the property covered by the deed of absolute sale to the vendee for the price of P4,690.00 of which P3,690.00 was paid by the vendee to the vendor as down payment. The vendor undertook to have the property sold, surveyed and segregated and a separate title therefor issued in the name of the vendee, upon which the latter would be obliged to pay the balance of P1,000.00. There was no stipulation in the deed that the title to the property remained with the vendor, or that the right to unilaterally resolve the contract upon the buyers failure to pay within a fixed period was given to such vendor. Patently, the contract e xecuted by the parties is a deed of sale and not a contract to sell. As the Court ruled in a recent case: In Dignos v. Court of Appeals (158 SCRA 375), we have said that, although denominated a Deed of Conditional Sale, a sale is still absolute where the contract is de void of any proviso that title is reserved or the right to unilaterally rescind is stipulated, e.g., until or unless the price is paid. Ownership will then be transferred to the buyer upon actual or constructive delivery (e.g. by the execution of a public document) of the property sold. Where the condition is imposed upon the perfection of the contract itself, the failure of the condition would prevent such perfection. If the condition is imposed on the obligation of a party which is not fulfilled, the other party may either waive the condition or refuse to proceed with the sale. (Art. 1545, Civil Code). Thus, in one case, when the sellers declared in a Receipt of Down Payment t hat they received an amount as purchase price for a house and lot without any reservation of title until full payment of the entire purchase price, the implication was that they sold their property. In Peoples Industrial and Commercial Corporation v. Court of Appea ls, it was stated:. A deed of sale is considered absolute in nature where there is neither a stipulation in the deed that title to the property sold is reserved in the seller until full payment of the price, nor one giving the vendor the right to unilaterally resolve the contract the moment the buyer fails to pay within a fixed period. Applying these principles to this case, it cannot be gainsaid that the contract of sale between the parties is absolute, not conditional. There is no reservation of ownership nor a stipulation providing for a unilateral rescission by either party. In fact, the sale was consummated upon the delivery of the lot to respondent. Thus, Art. 1477 provides that the ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof. The condition in the deed that the balance of P1,000.00 shall be paid to the vendor by the vendee as soon as the property sold shall have been surveyed in the name of the vendee and all papers pertinent and necessary to the issuance of a separate certificate of title in the name of the vendee shall have been prepared is not a condition which prevented the efficacy of the contract of sale. It merely provides the manner by which the total purchase price of the property is to be paid. The condition did not prevent the contract from being in full force and effect: The stipulation that the payment of the full consideration based on a survey shall be due and payable in five (5) years from the execution

of a formal deed of sale is not a condition which affects the efficacy of the contract of sale. It mer ely provides the manner by which the full consideration is to be computed and the time within which the same is to be paid. But it does not affect in any manner the effectivity of the contract. ... In a contract to sell, ownership is retained by a seller and is not to be transferred to the vendee until full payment of the price. Such payment is a positive suspensive condition, the failure of which is not a breach of contract but simply an event that prevented the obligation from acquiring binding force. It bears stressing that 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 obligation created under the transaction. A seller cannot unilaterally and extrajudicially rescind a contract of sale unless there is an express stipulation authorizing it. In such case, the vendor may file an action for specific performance or judicial rescission. Article 1169 of the New Civil Code provides that in reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him; from the moment one of the parties fulfills his obligation, delay by the other begins. In this case, the vendor (Jesus Mascuana) failed to comply with his obligation of segregating Lot No. 124-B and the issuance of a Torrens title over the property in favor of the vendee, or the latters successors -in-interest, the respondents herein. Worse, petitioner Jose Mascuana was able to secure title over the property under the name of his deceased father.

URSAL vs. CA FACTS: In January 1985, Ursal and spouses Monesets entered into a Contract to Sell Lot & House. The amount agreed upon was P130,000.00. Ursal is to pay P50k as down payment and will continue to pay P3k monthly starting the next month until the balance is paid off. After 6 months, Ursal stopped paying the Monesets for the latter failed to give her the transfer of certificate title. In November 1985, the Monesets executed an absolute deed of sale w/ one Dr. Canora. In September 1986, the Monesets mortgaged the same property to the Rural Bank of Larena for P100k. The Monesets failed to pay the P100k hence the bank filed for foreclosure. Trial ensued and the RTC ruled in favor of Ursal. The trial court ruled that there was fraud on the part of the Monesets for executing multiple sales contracts. That the bank is not liable for fraud but preference to redeem should be given to Ursal. The Monesets are ordered to reimburse Ursal plus to pay damages and fees. Ursal was not satisfied as she believed that the bank was also at fault. ISSUE: Whether or not the Contract to Sell vested ownership in Ursal. HELD: No. There should be no special preference granted to Ursal in redeeming the property. What she had with the Monesets was contract to sell in which case ownership was not transferred to her due the suspensive condition of full payment. Further, the property was sold to other properties already. A contract to sell is a bilateral contract whereby the prospective seller, while expressly reserving the ownership of the subject property despite delivery thereof to the prospective buyer, binds himself to sell the said property exclusively to the prospective buyer upon fulfillment of the condition agreed upon, that is, full payment of the purchase price. In such contract, the prospective seller expressly reserves the transfer of title to the prospective buyer, until the happening of an event, which in this case is the full payment of the purchase price. What the seller agrees or obligates himself to do is to fulfill his promise to sell the subject property when the entire amount of the purchase price is delivered to him. Stated differently, the full payment of the purchase price partakes of a suspensive condition, the non-fulfillment of which prevents the obligation to sell from arising and thus, ownership is retained by the prospective seller without further remedies by the prospective buyer. Since the contract in this case is a contract to sell, the ownership of the property remained with the Monesets even after petitioner has paid the down payment and took possession of the property. CARRASCOSO vs. CA FACTS: In March 1972, El Dorado Plantation Inc, through board member Lauro Leviste, executed a Deed of Sale with Carrascoso. The subject of the sale was a 1825 hectare of land. It was agreed that Carrascoso is to pay P1.8M. P290K would be paid by Carrascoso to PNB to settle the mortgage placed on the said land. P210k would be paid directly to Leviste. The balance of P1.3M plus 10% interest would be paid over the next 3 years at P519k every 25th of March. Leviste also assured that there were no tenants hence the land does not fall under the Land Reform Code. Leviste allowed Carrascoso to mortgage the land which the latter did. Carrascoso obtained a total of P1.07M as mortgage and he used the same to pay the down payment agreed upon in the contract. Carrascoso defaulted from his obligation which was supposed to be settled on March 25, 1975. Leviste then sent him letters to make good his end of the contract otherwise he will be litigated. In 1977, Carrascoso executed a Buy and Sell Contract with PLDT. The subject of the sale was the same land sold to Carrascoso by Leviste but it was only the 1000 sq m portion thereof. The land is to be sold at P3M. Part of the terms and conditions agreed upon was that Carrascoso is to remove all tenants from the land within one year. He is also given a 6 month extension in case hell ne ed one. Thereafter, PLDT will notify Carrascoso if whether or not PLDt will finalize the sale. PLDT gained possession of the land. El Dorado filed a civil case against Carrascoso. PLDT intervened averring that it was a buyer in good faith. The RTC ruled in favor of Carrascoso. CA reversed the RTC ruling. ISSUE: What is the nature of each contract?

HELD: The contract executed between El Dorado and Carrascoso was a contract of sale. It was perfected by their meeting of the minds and was consummated by the delivery of the property to Carrascoso. However, El Dorado has the right to rescind the contract by reason of Carrascosos failure to perform his obligation. A contract of sale is a reciprocal obligation. The seller obligates itself to transfer the ownership of and deliver a determinate thing, and the buyer obligates itself to pay therefor a price certain in money or its equivalent. The non-payment of the price by the buyer is a resolutory condition which extinguishes the transaction that for a time existed, and discharges the obligations created thereunder. Such failure to pay the price in the manner prescribed by the contract of sale entitles the unpaid seller to sue for collection or to rescind the contract. The contract between Carrascoso and PLDT is a contract to sell. This is evidenced by the terms and conditions that they have agreed upon that after fulfillment of Carrascosos obligation PLDT has to no tify Carrascoso of its decision whether or not to finalize the sale. Carrascoso also averred that there was a breach on El Dorados part when it comes to warranty. Carrascoso claimed that there were tenants on the land and he spent about P2.9M relocating them. The SC ruled that Carrascoso merely had a bare claim without additional proof to support it. Requisites of Express warranty in a Contract of Sale (1) the express warranty must be an affirmation of fact or any promise by the seller relating to the subject matter of the sale; (2) the natural tendency of such affirmation or promise is to induce the buyer to purchase the thing; and (3) the buyer purchases the thing relying on such affirmation or promise thereon.

SACOBIA HILLS vs. TY Facts: Petitioner Sacobia Hills Development Corporation (Sacobia) is the developer of True North Golf and Country Club which boasts of amenities that include a golf course, clubhouse, sports complex and several vacation villas. Respondent Allan U. Ty wrote to Sacobia a letter expressing his intention to acquire one Class A share of True North and accordingly paid the reservation fee of P180,000.00 as evidenced by PCI Bank Check No. 0038053. Sacobia assured its prospective shareholders that the development of True North was proceeding on schedule; that the golf course would be playable by October 1999; that the Environmental Clearance Certificate (ECC) by the Department of Environment and Natural Resources (DENR) as well as the Permit to Sell from the Securities and Exchange Commission (SEC) should have been released by October 1997; and that their registration deposits remained intact in an escrow account. Sacobia then approved the purchase application and membership of Ty for P600,000.00, subject to certain terms and conditions. The notice of approval provided the following: Terms and Conditions 1. Approval of an application to purchase golf/country club shares is subjected to the full payment of the total purchase price. Should the buyer opt for the deferred payment scheme, approval is subject to our receipt of a down payment of at least 30% and the balance payable in installments over a maximum of eleven (11) months from the date of application, and covered by postdated cheques. 2. Your reserved share shall be considered withdrawn and may be deemed cancelled should you fail to settle your obligation within fifteen (15) days from due date, or failure to cover the value of the postdated cheques upon their maturity, or your failure to issue the required postdated cheques. In which case, we shall reserve the right to offer the said shares to other interested parties. This also means forfeiture of 50% of the total amount you have already paid. 3. We will undertake to execute the corresponding sales documents/ Deed of Absolute Sale covering the reserved shares upon full payment of the total purchase price. The Certificate of Membership shall be issued thereafter. However, on January 12, 1998, Ty notified Sacobia that he is rescinding the contract and sought refund of the payments already made due to the latters failure to complete the project on time as promised (supposedly October 1997). Sacobia wrote him a letter, stating that the DENR had issued the required ECC only on March 5, 1998, and that the golf course would be ready for use by end of 1998( in fact ahead of promised date which is October 1999). Sacobia again wrote the respondent advising him that the 18-hole golf course would be fully operational by summer of 1999. Sacobia also sought to collect from respondent the latters outstanding balance of P190,909.08 which was covered by five (5) post dated checks. However, Ty notified Sacobia that he had stopped payment on the five (5) post dated checks and reiterated his demand for the refund of his payments which amounted to P409,090.92. Sacobia denied his request thus Ty filed a complaint for rescission and damages. Issue: Whether or not respondent Ty can rescind the contract and demand for damages from Sacobia Hills for breach of contract Held: No, Ty cannot rescind the contract and demand for damages from Sacobia Hills for breach of contract because the contract to sell between them has not yet been perfected for failure by Ty to pay the full purchase price. The Supreme Court ruled as follows: 1. The terms of the agreement between Sacobia and Ty can be deduced, not on a formal document like a deed of sale, but from a series of correspondence and acts signifying the parties intention t o enter into a contract. The absence of a formal deed of conveyance is a strong indication that Sacobia did not intend to transfer title until respondent shall have completely complied with his correlative obligation of paying the contact price. 2. In a Contract to Sell, the payment of the purchase price is a positive suspensive condition, the failure of which is not a breach, casual or serious, but a situation that prevents the obligation of the vendor to convey title from acquiring an obligatory force. It is one where the happening of the event gives rise to an obligation. Thus, for its non-fulfillment there will be no contract to speak of, the obligor having failed to perform the suspensive condition which enforces a juridical relation. In fact with this circumstance, there can be no rescission of an obligation that is still non-existent, the suspensive condition not having

occurred as yet. Emphasis should be made that the breach contemplated in Article 1191 of the New Civil Code is the obligors failure to comply with an obligation already extant, not a failure of a condition to render binding that obligation. 3. Ty did not pay the full purchase price which is his obligation under the contract to sell, therefore, it cannot be said that Sacobia breached its obligation. No obligations arose on its part because respondents non-fulfillment of the suspensive condition rendered the contract to sell ineffective and unperfected. Indeed, there can be no rescission under Article 1191of the Civil Code because until the happening of the condition, i.e. full payment of the contract price, Sacobias obligation to deliver the title and object of the sale is not yet extant. A non-existent obligation cannot be subject of rescission. Article 1191 speaks of obligations already existing, which may be rescinded in case one of the obligors fails to comply with what is incumbent upon him. 4. In the present case, respondents failure to fulfill this su spensive condition prevented the perfection of the contract to sell. With an ineffective contract, Ty had not acquired the status of a shareholder but remained, at most, a prospective investor. In the absence of a juridical tie between the parties, Ty cannot claim the rights and privileges accorded to Sacobias full-fledged members and shareowners, including the full enjoyment of the amenities being offered. Unfortunately for Ty, he cannot avail of rescission as envisioned by Article 1191 of the Civil Code. However, he can withdraw his investment subject to the restrictions under the terms and conditions pertinent to a reneging investor. 5. Tys complaint for rescission of contract and damages in Civil Case No. 01-99696 is dismissed He is ordered to pay to Sacobia Hills Development Corporation the amount of Pesos: One Hundred Ninety Thousand Nine Hundred Nine and Eight Centavos (P190,909.08) without interest within thirty (30) days from finality of this decision; otherwise, fifty percent (50%) of his total payments shall be forfeited.

KEPPEL BANK vs. EDRADA FACTS: Project Movers Realty and Development Corporation (PMRDC) owe P200M to Keppel Banks. By way of dacion en pago, PMRDC transferred and conveyed to the bank 25 of its properties consisting of townhouses and condominiums. One of the units transferred was occupied by Adao. In Feb 2000, the Bank demanded Adao to vacate. Adao refused. An ejectment case was filed. Adao averred that he had a Contract to Sell with PMRDC. He presented an affidavit showing that he made full payment thereof. The MeTC, RTC and CA ruled in favor of Adao. The lower courts ordered Keppel to respect the contract to sell between Adao and PMRDC for when the properties were transferred by way of dacion en pago, the bank merely stepped on the shoes of PMRDC. ISSUE: Whether or not Keppel is bound by the contract to sell. HELD: No. Though Keppel is not a purchaser in good faith for not looking into the property (checking if it was infirm and free from other claims), the bank is not bound by it. The contract to sell does not by itself give Adao the right to possess the property. Unlike in a contract of sale, here in a contract to sell, there is yet no actual sale nor any transfer of title, until and unless, full payment is made. The payment of the purchase price is a positive suspensive condition, the failure of which is not a breach, casual or serious, but a situation that prevents the obligation of the vendor to convey title from acquiring an obligatory force. Adao must have fully paid the price to acquire title over the property and the right to retain possession thereof. In cases of non-payment, the unpaid seller can avail of the remedy of ejectment since he retains ownership of the property. Adao must also, aside from showing an affidavit, show other proof of full payment made to PMRDC. Considering that Adao failed to discharge the burden of proving payment, he cannot claim ownership of the property and his possession thereof was by mere tolerance. His continued possession became unlawful upon the owners demand to vacate the property.