Luzon Brokerage Co. v. Maritime Building Co.
REITERATIONFacts
The Antecedents: Myers Building Co., Inc. (Myers) entered into a Deed of Conditional Sale with Bary Building Co., Inc., later Maritime Building Co., Inc. (Maritime), for the sale of land and improvements for P1,000,000.00. P50,000.00 was paid upon execution, with the balance of P950,000.00 payable in monthly installments. The contract stipulated that failure to pay installments would result in the annulment of the contract at the vendor's option, forfeiture of payments, and the vendor's right to re-enter the property. The monthly installment was later reduced to P5,000.00 with increased interest. Maritime regularly paid until February 1961 but failed to pay the March 1961 installment. Maritime requested a moratorium, which Myers denied, stating payments were due to Myers Building Co., Inc. and the Board refused the request. Maritime subsequently failed to pay for March, April, and May 1961. Myers demanded payment, which was returned unclaimed. Myers then cancelled the Deed of Conditional Sale, demanded possession, and held Maritime liable for use and occupation at P10,000.00 monthly. Luzon Brokerage Co., Inc. (Luzon), the lessee of the property from Maritime, found itself in a predicament when Myers also demanded rentals from it. Luzon filed an action for interpleader. Procedural History: The Court of First Instance of Manila rendered a decision declaring Myers entitled to the rentals paid by Luzon, ordering Maritime to pay commission fees and attorney's fees to Luzon, and ordering Maritime to pay Myers P10,000.00 in damages and P30,000.00 for rentals wrongfully collected from March to May 1961, plus costs. Maritime appealed. The Petition: Maritime contended that Myers could not extrajudicially cancel the contract and that it had not failed to pay the monthly installments.
Issue(s)
Whether Maritime's failure to pay monthly installments constituted a breach of the Deed of Conditional Sale. Whether Myers Building Co., Inc. could extrajudicially rescind the Deed of Conditional Sale without prior judicial action. Whether Article 1592 of the Civil Code is applicable to the contract. Whether Luzon Brokerage Co., Inc. was justified in filing an action for interpleader.
Ruling
The Supreme Court affirmed the decision of the Court of First Instance, ordering Maritime Building Co., Inc. and Luzon Brokerage Co., Inc. to surrender the premises to Myers Building Co., Inc. Costs were against appellant Maritime.
Ratio Decidendi
On Maritime's failure to pay installments constituting a breach: The Court held that Maritime's failure to pay the P5,000 monthly installments for March, April, and May 1961 constituted a clear breach of the Deed of Conditional Sale. The contract expressly stipulated that failure to pay any installment when due would cause the whole unpaid balance to become immediately due and payable. The Court found that Maritime's non-payment was not made in good faith but was a deliberate course of action to coerce Myers into answering for an alleged promise of the late F. H. Myers. This constituted a breach tainted with bad faith or dolo, as distinguished from mere negligence (culpa). Therefore, Maritime was not entitled to further time to make payment, and the lower court committed no error in refusing to extend the periods for payment. On Myers' right to extrajudicial rescission: The Court ruled that Myers was entitled to extrajudicially rescind the contract. Paragraph (d) of the Deed of Conditional Sale expressly provided that failure to pay installments would automatically and without further formality render the deed null and void. While paragraph (e) contemplated a suit for judicial declaration of rescission, this was only in the event the vendee refused to peacefully deliver possession after rescission. The automatic termination stipulated in paragraph (d) was not incompatible with the provision for a judicial action in paragraph (e). The Court reiterated the established rule that a judicial action for rescission is not necessary where the contract provides for its revocation and cancellation for violation of its terms. The party deeming the contract violated may consider it resolved without prior court action, but does so at its own risk, subject to final judicial review. On the applicability of Article 1592 of the Civil Code: The Court found Article 1592 inapplicable. Even assuming its applicability, the cross-claim filed by Myers against Maritime in the court below constituted a judicial demand for rescission, satisfying the article's requirement. More importantly, the Court distinguished the contract as a "contract to sell" where the vendor retains ownership, not an ordinary sale under Article 1592 where ownership transfers upon delivery. In this case, Myers was not seeking rescission to restore the parties to their status quo ante, but was enforcing the contract's provisions due to Maritime's failure to comply with the suspensive condition of payment, thus retaining ownership and the right to repossess. On Luzon's justification for interpleader: The Court found Luzon's action for interpleader justified. When Myers cancelled the conditional sale to Maritime, it also notified Luzon, Maritime's lessee, demanding payment of rentals. This created reasonable doubt for Luzon as to who was entitled to the rentals, as the termination of Maritime's right of possession necessarily affected its right to collect rentals. Luzon's doubts were grounded in law and jurisprudence. The Court also noted that Maritime's subsequent renewal of Luzon's lease and authorization to continue depositing rentals in court mooted the procedural objection.
Main Doctrine
In a contract to sell immovable property where ownership is retained by the seller until full payment, failure to pay installments constitutes a breach that allows the seller to automatically terminate the contract, retain payments as rentals, and repossess the property, without the need for a prior judicial rescission, especially when the contract expressly stipulates such automatic nullity and the vendee acted in bad faith.