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 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. 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 contr act 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 pr ovided. 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) 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 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. o Maritime 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 was undergoing financial problems. o Myers refused. o For 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 o Myers demanded
return of possession of properties o Held Maritime liable for use and occupation
amounting to P10k per month In the meantime, Luzon Brokerage was leasing the
property from Maritime. o Myers demanded from Luzon the payment of monthly rentals
of P10k o Myers 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). o
FH 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)
o Schedler claims that after FH Myers estates closed, he was notified that the
indemnity on the Labor Union case will not be honored anymore. o And 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: Held: Ratio:

Has there been a breach of contract? Can Myers extrajudicially terminate the
contract?

Yes. Yes.

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 assu
me 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 uncollec tible 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 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.