Case Summary (G.R. No. 55665)
Factual Background
Delta, a corporation organized under Philippine laws, submitted two written price proposals to Hector Genuino in July 1972 for black iron pipes to be used in the Espana Extension Iceplant and Cold Storage owned by the Genuinos. The first proposal dated July 3, 1972 concerned 1,200 lengths of schedule 40, 2" x 20" pipes at P66,000.00 and contained a payment scheme including a P13,200.00 down payment and a promissory note covering the balance. The second proposal dated July 18, 1972 concerned 150 lengths of schedule 40, 1 1/4" x 20" pipes at P5,400.00 with a fifty percent down payment of P2,700.00. Both proposals stated that the price offer would remain firm for thirty (30) days and that delivery was "ex-stock subject to prior sales."
Formation and Initial Performance
Hector Genuino manifested acceptance by signing the two proposals on July 17 and July 24, 1972, respectively. The private respondents made the initial down payments aggregating P15,900.00 on July 28, 1972. Delta did not deliver the pipes within that month. Evidence showed that Delta offered delivery shortly thereafter but the Genuinos declined because the cold storage plant under construction lacked space to receive the pipes.
Subsequent Events and Price Requotation
Delta made no immediate insistence upon delivery after the Genuinos declined delivery in 1972. Nearly three years later, on April 15, 1975, the Genuinos requested delivery within thirty days and indicated readiness to pay the second installments upon notice of Delta's readiness to deliver. Delta replied that it could not deliver at the 1972 prices because its offers had been firm for thirty (30) days only, and it submitted new price quotations based on current prices: P241,800.00 for the first lot and P17,550.00 for the second. The Genuinos rejected the re-quoted prices and filed suit for specific performance with damages to compel delivery.
Trial Court Proceedings and Judgment
The case proceeded as Civil Case No. Q-20120 before the Court of First Instance of Rizal, Branch XVIII, Quezon City. Delta answered and counterclaimed for rescission under Art. 1191. The trial court found Delta had knowledge that the pipes would be used in an unfinished cold storage plant and that Delta had accepted the Genuinos' refusal of early delivery without acting to rescind or fix a delivery period. The CFI concluded that acceptance of the proposals within the thirty-day period perfected contracts and that Delta could not unilaterally increase the price. The trial court rescinded the contracts, ordered Delta to refund the P15,900.00 down payments, and awarded attorney’s fees and costs.
Court of Appeals Reversal
On appeal the Court of Appeals reversed the trial court. The appellate court ordered the Genuinos to perform the payment terms specified in the contracts, to execute the promissory note required by the first contract, and ordered Delta to commence immediate delivery at the contractual prices. The Court of Appeals based its reversal principally on two grounds: Delta prepared the proposals and knew the pipes were for a plant under construction, yet it failed to include a delivery deadline and did not insist on delivery when the Genuinos declined; and Delta’s demand for higher prices in 1975 amounted to an impermissible amendment of the contracts that would unjustly enrich Delta at the expense of the Genuinos.
Issues Presented to the Supreme Court
The principal issue presented was whether Delta was entitled to rescind the contracts under Art. 1191 by reason of the Genuinos’ failure to comply with payment conditions and failure to accept delivery within an indefinite period. Subsidiary issues included whether the down payments and the passage of time justified Delta’s re-quotation of prices, whether Delta waived the suspensive conditions, and whether specific performance remained available to the Genuinos.
Parties’ Contentions
Delta contended that its obligation to deliver was subject to suspensive conditions, namely the down payments and execution of a promissory note, and that the Genuinos’ failure to perform these conditions and their three-year delay entitled Delta to rescind under Art. 1191. Delta argued that market fluctuations and the thirty-day price-fixation clause authorized it to revise prices when the Genuinos eventually demanded delivery. The private respondents argued that acceptance within the thirty-day period perfected the contracts under Art. 1319 and Art. 1475, that Delta waived any right to rescind by failing to act when early delivery was refused, and that Delta could not exact higher prices after having retained the down payments and the pipes.
Legal Principles Applied by the Court
The Court recited the rule that rescission under Art. 1191 is not automatic and will be ordered only where the breach is substantial and defeats the object of the parties, citing Phil. Amusement Enterprises, Inc. v. Natividad, G.R. No. L-21876, and Universal Food Corporation v. Court of Appeals, G.R. No. L-29155. The Court emphasized that the power to rescind is provisional when asserted and must be made known to the other party, citing University of the Phils. v. De los Angeles, G.R. No. L-28602. The Court also relied on Art. 1545 to note that a party whose obligation is subject to a condition may refuse performance or may waive the condition.
Supreme Court Reasoning
The Court found that Delta’s conduct demonstrated it did no
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Parties and Procedural Posture
- Petitioner was Delta Motor Corporation, a corporation organized under Philippine laws that sold black iron pipes.
- Private respondents were Eduarda Samson Genuino, Jacinto S. Genuino, Jr., Victor S. Genuino, Hector S. Genuino, Evelyn S. Genuino, owners and operators of an ice plant and cold storage doing business as Espana Extension Iceplant and Cold Storage.
- The dispute originated in Civil Case No. Q-20120 before the Court of First Instance of Rizal, Branch XVIII, Quezon City, where private respondents sued for specific performance with damages.
- The Court of First Instance rendered judgment rescinding the contracts and ordering a refund to private respondents, prompting Delta to appeal to the Court of Appeals.
- The Court of Appeals reversed the trial court and directed private respondents to perform and Delta to deliver, after which Delta filed this petition for review by certiorari to the Supreme Court.
Key Factual Allegations
- In July 1972 Delta issued two letter-quotations offering to sell black iron pipes, which private respondents accepted by signing on July 17 and July 24, 1972 respectively.
- Private respondents paid initial down payments totaling P15,900.00 on July 28, 1972 corresponding to the two contracts.
- Delta did not deliver the pipes and private respondents did not pay subsequent installments nor execute the promissory note called for by the first contract.
- Delta offered delivery in July 1972, but private respondents refused delivery on the ground that their ice plant construction was not yet finished.
- On April 15, 1975 private respondents requested delivery within thirty days and offered to pay the second installments upon notice of readiness to deliver, whereupon Delta declined to deliver at the original prices and sent substantially higher re-quoted proposals.
- Private respondents rejected the new prices and maintained their suit for specific performance, while Delta asserted rescission under Art. 1191 of the Civil Code as a defense and counterclaim.
Contracts and Terms
- The first quotation dated July 3, 1972 covered 1,200 lengths of black iron pipes, schedule 40, 2" x 20", at P66,000.00 with payment terms of 20% upon signing (P13,200.00), 20% before commencement of delivery (P13,200.00), and 60% balance to be covered by a promissory note with specified financing and interest terms.
- The second quotation dated July 18, 1972 covered 150 lengths of black iron pipes, schedule 40, 1 1/4" x 20", at P5,400.00 with payment terms of 50% upon signing (P2,700.00) and 50% before commencement of delivery (P2,700.00).
- Both quotations contained the stipulation "DELIVERY Ex-stock subject to prior sales" and a price-offer clause limiting the quoted price to thirty days from date of the offer and subjecting orders placed thereafter to review and confirmation.
- The contracts provided that signing in the space provided served as acceptance and constituted a contract under the quoted proposals.
Trial Court Ruling
- The Court of First Instance declared the contracts rescinded and ordered Delta to refund P15,900.00 to private respondents.
- The trial court awarded P10,000.00 as attorney's fees against private respondents and imposed the costs of suit.
- The trial court relied on testimony and documentary evidence that Delta had treated the contracts as cancellable and that