FACTS:

The case involves a petition for review filed by the petitioners against the decision of the Court of Appeals. The decision being appealed affirmed with modification the decision of the Regional Trial Court (RTC) in an action for specific performance and damages filed by the private respondent against the petitioners. The trial court's decision ordered the petitioners to pay the private respondent various amounts for actual damages, moral damages, exemplary damages, attorney's fees, and litis expenses. The Court of Appeals reduced the amount of moral damages.

The antecedent facts show that the parties entered into a sale of scrap iron subject to certain conditions. The private respondent started working on gathering the scrap iron, but the petitioners allegedly directed him to stop due to a case filed against the private respondent. The petitioners claimed that they had already cancelled the contract due to the private respondent's failure to comply with the conditions. Communications between the parties and the bank were also mentioned.

The private respondent filed a complaint seeking compliance with the contract and various damages. The trial court rendered a decision in favor of the private respondent, and the petitioners appealed to the Court of Appeals.

In their appeal to the Court of Appeals, the petitioners raised several assigned errors relating to the trial court's findings on delivery, compliance with the contract, justification for cancelling the sale, awarding damages to the plaintiff, and not awarding damages to the petitioners.

The defendants argued that there was no delivery since no identification and designation of the scrap iron were made, and that their obligation to deliver was not completed without providing cargo trucks. However, the Court of Appeals rejected these arguments, citing Article 1497 of the Civil Code which states that the thing sold is considered delivered when it is placed under the control and possession of the buyer. The Court of Appeals held that control and possession were given to the plaintiff when the defendants allowed them to enter the premises and dig up the scrap iron.

The Court of Appeals also discussed articles 1593 and 1597 of the Civil Code regarding rescission and automatic rescission. The Court of Appeals concluded that automatic rescission was not applicable in this case since delivery had already been made, and that rescission in cases of delivered goods requires the intervention of the court. The Court of Appeals further cited Article 1191 of the Civil Code, which gives either party the right to rescind the contract in cases of non-performance, but stated that such rescission is provisional and subject to review by the court. The Court of Appeals agreed with the trial court's ruling that rescission was improper due to the slight breach and the minimal delay in opening the letter of credit.

ISSUES:

1. Whether the transaction between the petitioner corporation and the private respondent is a contract of sale or a mere contract to sell.

2. Whether Article 1191 or Article 1593 of the Civil Code is applicable in the case at bar.

3. Whether the breach committed by the private respondent is slight or casual.

4. Whether the failure of the private respondent to comply with the positive suspensive condition constitutes a breach of contract.

5. Whether the obligation of the petitioner corporation to sell the scrap iron arose.

6. Whether the petitioner corporation can be compelled to comply with its obligation through specific performance.

7. Whether the contract can be rescinded.

8. Whether or not the trial court's decision to award moral and exemplary damages to the private respondent is supported by legal and factual basis.

9. Whether or not the refusal of the petitioners to deliver the scrap iron was justified due to the non-fulfillment of a suspensive condition by the private respondent.

RULING:

1. The transaction between the petitioner corporation and the private respondent is a mere contract to sell and not a contract of sale.

2. Article 1593 of the Civil Code is applicable in the case at bar.

3. The breach committed by the private respondent is not considered slight or casual.

4. The failure of the private respondent to comply with the positive suspensive condition does not constitute a breach of contract. It merely prevented the obligation of the petitioner corporation to convey title from acquiring binding force.

5. The obligation of the petitioner corporation to sell the scrap iron did not arise due to the private respondent's failure to comply with the positive suspensive condition.

6. The petitioner corporation cannot be compelled to comply with its obligation through specific performance.

7. The petitioner corporation can totally rescind the contract.

8. The trial court's decision to award moral and exemplary damages to the private respondent is not supported by legal and factual basis. In contracts, moral damages may only be recovered if defendants acted fraudulently and in bad faith, while exemplary damages may only be awarded if defendants acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner. In this case, the petitioners' refusal to deliver the scrap iron was based on the non-fulfillment of a suspensive condition, and there was no evidence of fraud or bad faith. The excessive and unconscionable damages awarded by the trial court are not proportionate to the suffering inflicted on the private respondent, and judicial discretion in the assessment of damages must be exercised with restraint and objectivity.

9. The refusal of the petitioners to deliver the scrap iron was justified due to the non-fulfillment of a suspensive condition by the private respondent. Therefore, the petitioners did not act fraudulently, in bad faith, or in a wanton, reckless, oppressive, or malevolent manner.

PRINCIPLES:

• Article 1191 of the Civil Code provides that either party has the right to rescind a contract upon the failure of the other party to perform the obligation assumed under the contract. Rescission in cases falling under this article is subject to review by the courts and cannot be considered final.

• Article 1593 of the Civil Code provides that the rescission of a sale shall take place in the interest of the vendor if the vendee fails to appear to receive the thing sold upon the expiration of the period fixed for delivery or fails to tender the price at the same time.

• In cases where time is not of the essence of the agreement, a slight delay by one party in the performance of their obligation is not sufficient ground for rescission of the agreement. Equity and justice mandate that the party in default be given an additional period to fulfill their obligation.

• The failure to comply with a positive suspensive condition prevents the obligation from acquiring binding force. It does not constitute a breach of contract. - Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc.

• Non-compliance with the positive suspensive condition does not give rise to the obligation to sell. - Article 1190, Civil Code

• The seller may totally rescind the contract of sale if the buyer has repudiated the contract, manifested inability to perform obligations, committed a breach, or has not taken delivery of the goods. - Article 1597, Civil Code

• Mere possession and control of the subject matter does not constitute delivery in the context of a sale contract. - Article 1497, Civil Code

• Moral damages are awarded to the injured party to enable him/her to obtain means, diversion, or amusements that will serve to relieve the moral suffering he/she has undergone due to the defendant's culpable action. Its award aims to restore the spiritual status quo ante and must be proportional to the suffering inflicted.

• Exemplary damages may only be awarded if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner.

• Judicial discretion in the assessment of damages must be exercised with balanced restraint and measured objectivity.