d2015member 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. They agreed on the manner of payment (instalment, initial payment upon execution of contract, interest rate) o In 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 o 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. Maritime paid the monthly instalments but failed to pay the monthly instalment of March. o VP of Maritime wrote to Pres of Myers requesting for a moratorium on the monthly payment of the instalments because the company was undergoing financial problems. Myers refused. o For the months of March, April, and May, Maritime failed to pay and did not heed the demand of Myers. o Myers wrote Maritime cancelling the “Deed of Conditional Sale” Myers demanded return of possession of properties o Held Maritime liable for use and occupation amounting to P10k per month o In the meantime, Luzon Brokerage was leasing the property from Maritime. Myers demanded from Luzon the payment of monthly rentals of P10k o Myers also demanded surrender of property. o While actions and crossclaims between Myers and Maritime were happening, the contract between Maritime and Luzon was extended for 4 more years. Turns out, Maritime’s 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). FH Myers was a major stockholder of Luzon Brokerage. FH Myers promised to indemnify Schedler (who controlled Maritime) when o Shedler purchased Shedler purchased FH Myers’s stock in Luzon Brokerage company. (This indemnification is for the award of backwages by the CIR) Schedler claims that after FH Myers estates closed, he was notified that the indemnity on the Labor Union case will not be honored o anymore. And so, Schedler advised Myers corp that Maritime is withholding payments to Myers corp in order to offset the liability when Myers o 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. Maritime’s 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 t o sell in case of failure of the other party to c omplete payment, to extraj udicially 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.
