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Visayan Sawmill v.

CA (1993)
Petitioners: VISAYAN SAWMILL COMPANY, INC.
Respondents: CA and RJH TRADING, REPRESENTED BY RAMON J. HIBIONADA,
PROPRIETOR
Ponente: DAVIDE, JR.
Topic: Remedies for Breach
SUMMARY: (1-2 sentence summary of facts, issue, ratio and ruling)
FACTS:
1.) On May 1, 1983 RJH Trading and Visayan Sawmill Company (VSC) entered into a
Purchase and Sale of Scrap Iron located at VSCs stockyard at Negros Oriental,
subject to the condition that RJH will open a Letter of Credit (LOC) of P250,000 in
favor of VSC on or before May 15, 1983.
2.) On May 17, 1983, RJH through his men started to dig and gather and scrap iron at the
VSC's premises, proceeding until May 30 when VSC allegedly directed RJH's men to
desist from pursuing the work in view of an alleged case filed against RJH by Alberto
Pursuelo.
3.) VSC denies this, alleging that on May 23, 1983, they sent a telegram to RJH
canceling the contract of sale because of the failure of the latter to comply with
the conditions thereof.
4.) On May 24, 1983, RJH informed VSC that the LOC was opened May 12, 1983 at BPI
main office in Ayala, but the transmittal was delayed.
5.) On May 26, 1983, VSC received a letter advice from BPI Dumaguete stating that an
irrevocable domestic LOC P250,000 was opened in favor of Ang Tay c/o VSC on
account of Armaco-Armsteel Alloy Corporation.
6.) On July 19, 1983, RJH Trading sent a series of telegrams stating that the case filed
against him by Pursuelo had been dismissed and demanding that VSC comply with the
deed of sale, otherwise a case will be filed against them.
7.) On July 20, 1983, VSC informed RJH that they were unwilling to continue with the sale
due to RJH's failure to comply with essential pre-conditions of the contract.
8.) On July 29, 1983, RJH filed the complaint, praying for judgment ordering VSC to comply
with the contract by delivering to him the scrap iron subject thereof he further sought
actual, moral and exemplary damages, attorney's fees and the costs of the suit.
9.) VSC insisted that the cancellation of the contract was justified because of RJHs
noncompliance with essential pre-conditions, among which is the opening of an
irrevocable and unconditional LOC not later than 15 May 1983.
10.)
RTC ruled in RJHs favor, awarding the damages sought.
11.)
CA affirmed, holding:
- VSC argued that under Articles 1593 and 1597 of the Civil Code, automatic
rescission may take place by a mere notice to the buyer if the latter committed a
breach of the contract of sale. Even if one were to grant that there was a breach
of the contract by the buyer, automatic rescission cannot take place because

12.)

delivery had already been made. And, in cases where there has already been
delivery, the intervention of the court is necessary to annul the contract.
Rescission in cases falling under Article 1191 of the Civil Code is always subject
to review by the courts and cannot be considered final. In this, the trial court ruled
that rescission is improper because the breach was very slight and the delay in
opening the LOC was only 11 days.
Hence, the appeal to SC by VSC.

ISSUES:

WON VSC properly rescinded the contract


o YES. What obtains in this case is a mere contract to sell or promise to sell, and
not a contract of sale.
o The RTC assumed that the transaction is a contract of sale and, influenced by its
view that there was an "implied delivery" of the object of the agreement,
concluded that A1593, NCC was inapplicable. It ruled that rescission under
A1191, NCC could only be done judicially. It further classified the breach
committed by the private respondent as slight or casual, foreclosing, thereby,
VSCs right to rescind the agreement.
"ART. 1593. With respect to movable property, the rescission of the sale
shall of right take place in the interest of the vendor, if the vendee, upon
the expiration of the period fixed for the delivery of the thing, should not
have appeared to receive it, or, having appeared, he should not have
tendered the price at the same time, unless a longer period has been
stipulated for its payment."
o Sustaining RTC, CA cited A1497: The thing sold shall be understood as
delivered, when it is placed in the control and possession of the vendee."
o VSC's obligation to sell is unequivocally subject to a positive suspensive
condition, i.e., RJHs opening, making or indorsing of an irrevocable and
unconditional LOC. VSC agreed to deliver the scrap iron only upon payment of
the purchase price by means of an irrevocable and unconditional LOC.
Otherwise stated, the contract is not one of sale where the buyer acquired
ownership over the property subject to the resolutory condition that the
purchase price would be paid after delivery. Thus, there was to be no actual
sale until the opening, making or indorsing of the irrevocable and unconditional
LOC. Since what obtains here is a mere promise to sell, RJHs failure to
comply with the positive suspensive condition cannot even be considered
a breach casual or serious but simply an event that prevented the
obligation of petitioner corporation to convey title from acquiring binding
force.
o Not only did RJH fail to open, make or indorse an irrevocable and unconditional
LOC on or before 15 May 1983 despite his earlier representation in his 24 May
1983 telegram that he had opened one on 12 May 1983, the letter of advice VSC
received on 26 May 1983 from BPI Dumaguete City branch explicitly makes
reference to the opening on that date of a LOC in favor of petitioner Ang Tay c/o

Visayan Sawmill Co. Inc., drawn without recourse on ARMACOMARSTEEL


ALLOY CORPORATION and set to expire on 24 July 1983, which is indisputably
not in accordance with the stipulation in the contract signed by the parties on at
least three (3) counts: (1) it was not opened, made or indorsed by RJH, but
by a corporation which is not a party to the contract (2) it was not opened
with the bank agreed upon and (3) it is not irrevocable and unconditional,
for it is without recourse, it is set to expire on a specific date and it
stipulates certain conditions with respect to shipment. In all probability, RJH
may have sold the subject scrap iron to ARMACOMARSTEEL, or otherwise
assigned to it the contract with VSC. RJH 's complaint fails to disclose the
sudden entry into the picture of this corporation.
Consequently, the obligation of VSC to sell did not arise it therefore cannot
be compelled by specific performance to comply with its prestation. In
short, A1191 does not apply on the contrary, pursuant to A1597, VSC may totally
rescind, as it did in this case, the contract.
"ART. 1597. Where the goods have not been delivered to the buyer, and
the buyer has repudiated the contract of sale, or has manifested his
inability to perform his obligations, thereunder, or has committed a breach
thereof, the seller may totally rescind the contract of sale by giving notice
of his election so to do to the buyer."

NOTES:
ROMERO, dissenting: A provision in the contract regarding the mode of payment, like the
requirement for the opening of the LOC in this case, is not among the essential requirements of
a contract of sale enumerated in A1305 and 1474, the absence of any of which will prevent the
perfection of the contract from happening. Likewise, not every provision regarding payment
should automatically be classified as a suspensive condition. To do so would change the
nature of most contracts of sale into contracts to sell. For a provision in the contract
regarding the payment of the price to be considered a suspensive condition, the parties
must have made this clear in certain and unambiguous terms, such as for instance, by
reserving or withholding title to the goods until full payment by the buyer.
Nowhere in the contract did it state that the VSC reserve title to the goods until RJH has opened
a LOC. Nor is there any provision declaring the contract as without effect until after the
fulfillment of the condition regarding the opening of the LOC.
The agreement between the parties was a contract of sale and the "terms and conditions"
embodied therein which are standard form, are clearly resolutory in nature, the breach of which
may give either party the option to bring an action to rescind and/or seek damages. Contrary to
the conclusions arrived at in the ponencia, the transaction is not a contract to sell but a contract
of sale.
The ponencia, notwithstanding its conclusion that no contract of sale existed, proceeded to state
VSC may rescind the contract based on A1597 of the Civil Code which expressly applies only to
a contract of sale. The ponencia was then confronted with the issue of delivery since Article

1597 applies only "[w]here the goods have not yet been delivered." In this case, the workers of
RJH were actually allowed to VSCs premises, thus, giving them control and possession of the
goods. At this juncture, it is even unnecessary to discuss the issue of delivery in relation to the
right of rescission nor to rely on A1597. In every contract which contains reciprocal
obligations, the right to rescind is always implied under A1191 in case one of the parties
fails to comply with his obligations.
VSC claims that the breach is so substantial as to justify rescission, not only because the LOC
was not opened on May 15, 1983 as stipulated in the contract but also because of the following
factors: (1) the LOC, although opened in favor of VSC was made against the account of a
certain Marsteel Alloy Corporation, instead of private respondent's account (2) the LOC referred
to "assorted steel scrap" instead of "scrap iron and junk" as provided in the contract (3) the
LOC placed the quantity of the goods at "500 MT" while the contract mentioned "an
undetermined quantity of scrap iron and junk" (4) no amount from the LOC will be released
unless accompanied by a Certificate of Acceptance and (5) the LOC had an expiry date.
I am not convinced that the above circumstances may be characterized as so substantial and
fundamental as to defeat the object of the parties in making the agreement. None of the alleged
defects in the LOC would serve to defeat the object of the parties. It is to be stressed that the
purpose of the opening of a LOC is to effect payment. The abovementioned factors could not
have prevented such payment. It is also significant to note that VSC sent a telegram to RJH on
May 23, 1983 cancelling the contract. This was before they had even received on May 26, 1983
the notice from the bank about the opening of the LOC. How could they have made a judgment
on the materiality of the provisions of the LOC for purposes of rescinding the contract even
before setting eyes on said document?

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