Luzon Brokerage Company Inc. v. Maritime Bldg. Co.

Plaintiff-appellee: LUZON BROKERAGE CO., INC

Defendant-appellant: MARITIME BUILDING CO., INC., and MYERS BUILDING CO., INC., defendants,
MARITIME BUILDING CO., INC

Case: Direct appeal from the dispositive portion of the decision of the CFI Manila

FACTS:

1. Myers Building Co entered into a “Deed of Conditional Sale” contract in favor of Maritime Building
Co. over 3 parcels of land with improvements for 1M. Maritime paid 50,000 upon execution. The
balance was to be paid in monthly installments of 10,000 @ 5% p.a. (later lowered to 50,000 @
5.5% p.a.). The parties agreed that:
a. If Maritime defaults, the contract will be annulled at Myer’s option
b. All payments already made shall be forfeited
c. Myers shall have the right to reenter the property and take possession

2. Maritime Building failed to pay the installment for March 1961 for which their president
requested for a moratorium on payments.
a. Maritime’s suspension of payments arose from an award of backwages in a Labor Case in
favor of members of the Luzon Labor Union. Schedler claims he is being sued for the
backwages for which F.H. Myers allegedly promised to indemnify him when Schedler
bought F.H. Myer’s stock.
b. Parsons, the President of Myers Building, replied that the payments are addressed to the
company, not the estate of F.H. Myers.

3. The request was denied but the former still failed to pay monthly installments on the succeeding
months.

4. Myers Building sent a demand letter but was unfortunately unclaimed by Maritime Building. The
former wrote another letter advising it of the cancellation of their contract and demanded the
return of the property.

5. In the meantime, Myers Building demanded upon Luzon Brokerage (Maritime Building lessee) the
payment of monthly rentals and the surrender of the same to it.

6. Luzon Brokerage filed this action for interpleader to avoid paying to the wrong party. The former
filed a cross-claim against Maritime Building praying for the confirmation of its right to cancel said
contract.

7. CFI Manila ruled that Maritime committed breach of contract for failure to pay monthly
installment and that Myers is entitled to cancel the contract, forfeit the payments made,
repossess the property, and collect the rentals thereof. Hence this direct appeal by Maritime with
the SC.
ISSUES:

1. Whether or not Maritime was guilty of breach in bad faith.

2. Whether or not Myers is entitled to extrajudicially rescind the Deed of Conditional Sale

HELD

1. The non-payment of the installments was designed to coerce Myers Bldg Co. into answering for
an alleged promise of the late F. H. Myers. Maritime cannot ignore the fact that whatever
obligation F. H. Myers his estate had assumed was not, and could not have been, an obligation of
the corporation, Myers Bldg Co. Hence, the breach was tainted with dolo or a "conscious and
intentional design to evade the normal fulfillment of existing obligations" (Capistrano Vol. 3).
Having acted in bad faith, Maritime is not entitled to ask the court to grant further time to make
payment.

From another point of view, it is irrelevant whether appellant Maritime's infringement of its
contract was casual or serious, for as pointed out by this Court in Manuel vs. Rodriguez, in
contracts to sell, the failure to pay in full is not a breach but simply an event that prevented the
obligation of the vendor to convey title from acquiring binding force

2. SC repeatedly held in Lopez v. Commissioner of Customs that a judicial action for the rescission of
a contract is not necessary where the contract provides that it may be revoked and cancelled for
violation of any of its terms. As further explained in UP v. de Los Angeles, the party who deems
the contract violated may consider it resolved or rescinded without previous court action, but it
proceeds at its own risk. For it is only the final judgment of the corresponding court that will
conclusively and finally settle whether the action taken was or was not correct in law. But the law
definitely does not require that the contracting party who believes itself injured must first file suit
and wait for a judgment before taking extrajudicial steps to protect its interest.

RATIO:

The case upholds the principle of stare decisis by citing the governing principle of precedents “which has
given consistency and stability to the law” by which lawyers and litigants may know the law in concrete
controverted cases. Once a question of law has been examined and decided, it should be deemed settled
and closed to further argument. The Supreme Court is described as having the last word on what the law
is, as it is the final arbiter of any justiciable controversy. As such, the lower courts are enjoined to follow
the decisions of the Supreme Court.