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Visayan Saw Mill vs. CA and RJ Trading

The parties entered into a contract for the sale of scrap iron in May 1983. The contract required the opening of a letter of credit for $250,000, but the letter of credit was not opened until May 26th, 11 days after the agreed upon date. The defendant cancelled the contract on May 23rd, citing the plaintiff's failure to meet pre-conditions. The court ruled that the delay in opening the letter of credit was minor and did not justify cancelling the contract. However, the Court of Appeals overturned this ruling, finding that the failure to meet the conditions of opening the letter of credit on time prevented the obligation from becoming binding, allowing the defendant to validly cancel the contract.

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118 views1 page

Visayan Saw Mill vs. CA and RJ Trading

The parties entered into a contract for the sale of scrap iron in May 1983. The contract required the opening of a letter of credit for $250,000, but the letter of credit was not opened until May 26th, 11 days after the agreed upon date. The defendant cancelled the contract on May 23rd, citing the plaintiff's failure to meet pre-conditions. The court ruled that the delay in opening the letter of credit was minor and did not justify cancelling the contract. However, the Court of Appeals overturned this ruling, finding that the failure to meet the conditions of opening the letter of credit on time prevented the obligation from becoming binding, allowing the defendant to validly cancel the contract.

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VISAYAN SAWMILL COMPANY, INC., and ANG TAY vs.

THE HONORABLE COURT OF


APPEALS and RJH TRADING,
G.R. No. 83851. March 3, 1993

FACTS:
Plaintiff-appellee and defendants-appellants entered into a sale involving scrap iron on May 1,
1983. Both parties agreed to open a letter of credit in the amount of P250,000.00 in favor of the
seller. On May 17, 1983, the plaintiff started to dig and gather scrap iron at the stockyard of the
defendant. The sale was canceled on May 30 in view of an alleged case filed against the plaintiff
by a certain Alberto Pursuelo. The Bank of the Philippine Islands ordered the letter of Credit to be
opened on May 12, 1983 at the Bank of Philippine Islands main office in Ayala, but then it was
delayed. It was only on May 26, 1983 that the Bank sent a cable advising the defendants to open
the credit. The contract was cancelled on May 23, 1983 because the plaintiff failed to comply with
the conditions thereof.

On July 19, 1983, plaintiff-appellee sent a series of telegrams stating that the case filed against
him by Pursuelo had been dismissed. In reply, defendants-appellants' lawyer said the sale of scrap
iron was canceled due to plaintiff's "failure to comply with essential pre-conditions of the contract"
On July 29, 1984, plaintiff filed a petition for preliminary attachment, but the writ of attachment
was returned unserved.

ISSUE:
(1) Whether or not the contract was rescinded properly
(2) Whether or not the reasons or grounds for cancelling the contract valid and justified.

RULING:
In the case at bar, the trial court ruled that rescission is improper because the breach was very slight
and the delay in opening the letter of credit was only 11 days. Article 1191 is explicit. In reciprocal
obligations, either party has the right to rescind the contract upon failure of the other to perform
the obligation assumed thereunder. Of course, it must be understood that the right 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 provisional, being ever subject to scrutiny and
review by the proper court.'

Yes. The reasons or grounds for cancelling the contract are valid and justified. What obtains in the
case at bar is a mere contract to sell or promise to sell, and not a contract of sale. The injured party
may choose between the fulfillment and the rescission of the obligation, with the payment of
damages. 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. In this case, there was to be no actual sale
until the opening, making or indorsing of the irrevocable LOC, the court says. The failure to
comply with the positive suspensive condition cannot even be considered a breach casual or
serious, it says. It is simply an event that prevented the obligation of petitioner corporation to
convey title from acquiring binding force, it adds. The court finds that Article 1191 of the Civil
Code does not apply.

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