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Delta Motor Corporation vs.

Genuino
170 SCRA 29, Feb. 8, 1989 | Cortes, J. kam

SUBJECT MATTER: Conditions


SUMMARY: In 1972, Delta Motor Corporation (vendor) and the Genuinos (vendee) perfected two contracts of sale of
black iron pipes, subject to conditions (pre-installments by the vendee and execution of a promissory note). Vendee
made an initial down payment but refused to accept vendor’s offer to deliver (and vendee has not complied yet with the
other installment required before delivery plus promissory note requirement) because the construction of their ice
plant building where the pipes will be used was not yet finished. Vendee demanded delivery 3 years after (1975), but
vendor refused to deliver unless vendee pays for the increase in prices. Vendee filed an RTC complaint for specific
performance against vendor, but RTC sustained vendor’s motion to rescind the contracts based on Art. 1191 (reciprocal
obligations). CA reversed the RTC ruling and upheld the original contracts between the parties.
The SC held that while the contracts were subject to suspensive conditions upon the vendee, the vendor waived
these conditions when instead of rescinding their contracts outright upon demand for delivery of vendee, vendor
merely asked vendee to pay the higher prices. There can be no rescission because the conduct of vendor indicates that
the non-performance of the vendee was not a breach a contract to warrant a rescission.

DOCTRINES:
 Rescission will be ordered only where the breach complained of is substantial as to defeat the object of the
parties in entering into the agreement. It will not be granted where the breach is slight or casual. Further, the
question of whether a breach of a contract is substantial depends upon the attendant circumstances.
 Art. 1545. Where the obligation of either party to a contract of sale is subject to any condition which is not
performed, such party may refuse to proceed with the contract or he may waive performance of the condition
xxxx (In the non-happening of a condition, the party may choose to waive it, as what happened in this case.)

FACTS: Petition for review by certiorari (CA decision)


Petitioner Delta Motor Corporation
Respondents Eduarda Samson Genuino, Jacinto S. Genuino Jr., Victor S. Genuino, Hector S. Genuino, Evelyn
S. Genuino, and the Court of Appeals
 Private respondents (Genuinos) are the owners of España Extension Iceplant and Cold Storage, an iceplant and
cold storage located along E Rodriguez Sr. Ave., Quezon City.
The offer:
 July 1972 – Two letter-quotations were submitted by Delta to Hector Genuino, offering to sell black iron pipes.
1. July 3 – quote for 1,200 length of black iron pipes schedule 40, 2” x 20’, including delivery for 66k w/ the
following terms of payment:
a) 20% or 13,200 due and payable upon signing of the contract
b) 20% or 13,200 due and payable before commencement of delivery
c) 60% or 39,600 w/ 8% financing charge per annum (p.a.) will be covered by a Promissory Note bearing
a 14% p.a. interest & payable in 12 monthly installments
2. July 18 – 150 lengths of black iron pipes schedule 40, 1 ¼“ x 20’ including delivery for 5,400 w/ the
following terms of payment:
a) 50% or 2,700 payable upon signing of contract
b) 50% or 2,700 payable before commencement of delivery
Both letters also included the following stipulations as to delivery and price offer:
 Ex-stock subject to prior sales
 Price offer indicated herein shall remain firm within a period of thirty (30) days from the date
hereof. Any order placed after said period will be subject to our review and confirmation. (Price
offer stipulation – see letter C in RATIO)
The acceptance:
 Hector Genuino agreed to the offers and signed his name on both letter-quotations.
 The Genuinos made initial payments for both contracts – 13,200 & 2,700, total of Php 15,900.00
Delivery (or lack thereof) and subsequent demand by Genuinos:
 Sometime in July 1972, Delta offered to deliver the pipes but the Genuinos did not accept because the
construction of the ice plant building where the pipes will be be installed was not yet finished.
 April 15, 1975 (3 years after!!! WOAH) – Hector, in behalf of España Extension Iceplant and Cold Storage,
asked Delta to deliver the iron pipes within 30 days from its receipt of the request. The Genuinos also
manifested their willingness to pay the second installments on both contracts.
 Delta countered that the pipes cannot be delivered on the same prices as July 1972 and reminded the Genuinos
of the stipulation that the quoted prices were only good for 30 days from date of offer.
 New prices:
- Php 241,800.00 for the 1,200 lengths of black iron pipes (from 66k 3 years ago)
- Php 17,550.00 for the 150 lengths of black iron pipes (from 5,400 3 years ago)
 Genuinos rejected the new prices and instead filed a complaint for specific performance in the RTC.

RTC: Complaint for specific performance w/ damages seeking to compel Delta to deliver the pipes
 Delta prayed for the rescission pursuant to NCC Art. 11911.
 Ruled in favor of Delta, ordering Delta to return the 15,900 downpayment to the Genuinos and the Genuinos to
pay 10k attorney’s fee to Delta. RTC rescinded the contracts.

COURT OF APPEALS – Ruled in favor of the Genuinos.


 Reversed RTC ruling. Ordered the Genuinos to pay the remaining installments to Delta and to execute the
Promissory Note required in the contract and thereafter, for Delta to immediately deliver pipes.
 Reasoning of CA:
1. Delta was aware that the construction was ongoing and should have included in said contracts (Delta was
the one who prepared the contracts) a deadline of delivery, but it did not. Neither did Delta insist on
delivery when the Genuinos refused to accept its offer of delivery.
2. Delta’s refusal to make delivery in 1975 unless the Genuinos pay a higher price would mean an amendment
of the contracts. Delta already made us of the advance payments made by the Genuinos. That would be
unjust enrichment on the part of Delta at the expense of the Genuinos and is considered an abominable
business practice.
 MR by Delta denied. Thus, this petition.

ISSUE [HELD]: WON the contract of sale should be rescinded? [NO]

RATIO:

A. On rescission (Art. 1191 – see footnote #1)


Petitioner contends that respondents failed to pay for the installments payable before the commencement of the
delivery and failed to execute the promissory note required in the first contract. Its obligation to deliver the goods is
subject to these conditions required of respondents as vendees. There are suspensive conditions and only upon
their performance would Delta’s obligation to deliver the pipes arise. Thus, respondents’ refusal to accept their
offer to deliver and their demand to deliver after 3 years when great & sudden fluctuation in market prices have
occurred, entitles Delta to rescind the contracts.

The SC thinks otherwise. As stated before by the SC, “Rescission will be ordered only where the breach
complained of is substantial as to defeat the object of the parties in entering into the agreement. It will not be granted
where the breach is slight or casual.2 Further, the question of whether a breach of a contract is substantial depends
upon the attendant circumstances.3”

The conduct of Delta indicates that the Genuinos’ non-performance was not a substantial breach, let alone a
breach of contract as would warrant a rescission.
1. Delta did not do anything, as testified by its Technical Service department manager Crispin Villanueva, when
respondents refused their offer to deliver (di sila nagpumilit, hinayaan lang nila).
2. 3 years later, when respondents demanded delivery, Delta did not raise any argument but merely demanded
higher prices.

The power to rescind under Art. 1191 is not absolute. “The act of a party in treating a contract as cancelled or
resolved on account of infractions by the other contracting party must be made known to the other and is always

1 The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with Articles 1385 and 1388 and the
Mortgage Law.
2 Phil. Amusement Enterprises vs. Natividad
3
Universal Food Corporation vs. Court of Appeals
provisional, being ever subject to scrutiny and review by the proper court.4” Delta made no manifestation
whatsoever that it had opted to rescind its contracts with the respondents.

3. In fact, petitioner only raised rescission as a defense when it was sued by private respondents.

It would be highly inequitable for petitioner to rescind its contract with the Genuinos as (a) it have in its possession
and ownership the black iron pipes, and (b) the 15,900 down payment paid by respondents. If Delta claims the right
to rescission, it should have offered at the very least to return the 15,900 (!!!).

B. [RELATED TO TOPIC – IMPORTANT] On the suspensive conditions of the sale (NCC Art. 1545 5)
For the same reasons stated above, while it is true that the sale is subject to suspensive conditions, the Court
finds that Delta has, nevertheless, waived the performance of these conditions and opted to go on with the
contracts although at a much higher price. (See also emphasized part of footnote #5.)

C. On the price offer stipulation

Finally, Delta cannot ask for increased prices based on the price offer stipulation in the contracts and in the increase
in the cost of goods. Reliance by Delta on the price offer stipulation is misplaced. Said stipulation makes reference to
Delta’s price offer as remaining firm for thirty (30) days and thereafter will be subject to its review and confirmation.
The offers of Delta, however, were accepted by the private respondents within the thirty (30)-day period. And as
stipulated in the two (2) letter-quotations, acceptance of the offer gives rise to a contract between the parties:

“In the event that this proposal is acceptable to you, please indicate your conformity by signing the
space provided herein below which also serves as a contract of this proposal.”

Thus, the moment private respondents accepted the offer of Delta, the contract of sale between them was
perfected and neither party could change the terms thereof.

D. Fluctuation of market prices

Neither could petitioner Delta rely on the fluctuation in the market price of goods to support its claim for rescission.
As testified by Delta’s VP Marcelino Caja, the stipulation in the two (2) contracts as to delivery, ex-stock subject to prior
sales, means that “the goods have not been delivered and that there are no prior commitments other than the sale
covered by the contracts . . . once the offer is accepted, the company has no more option to change the price.”
Thus, petitioner cannot claim for higher prices for the black iron pipes due to the increase in the cost of goods.

The parties should comply with the original terms of their contracts.

DISPOSITIVE: CA decision AFFIRMED.

4University of the Philippines vs. De los Angeles.


5Where the obligation of either party to a contract of sale is subject to any condition which is not performed, such party may refuse to proceed with the
contract or he may waive performance of the condition. If the other party has promised that the condition should happen or be performed, such first
mentioned party may also treat the nonperformance of the condition as a breach of warranty. xxx [EMPHASIS SUPPLIED]