G.R. No. 118357. May 6, 1997.
PHILIPPINE NATIONAL BANK, petitioner, vs. COURT OF APPEALS and INDUSTRIAL ENTERPRISES, INC., respondents.

FACTS

Industrial Enterprises, Inc. (IEI), through its President Jesus Cabarrus, held a coal operating contract for the Giporlos Coal Project. The Bureau of Energy Development, under Minister Geronimo Velasco, denied IEI’s application for additional coal blocks and for conversion of its contract to development, favoring instead Marinduque Mining and Industrial Corporation (MMIC), where Cabarrus was also President. Under pressure from the government, IEI and MMIC, represented by Cabarrus and MMIC Chairman Cesar Zalamea, executed a Memorandum of Agreement (MOA) whereby IEI assigned its rights to MMIC. The MOA stipulated that MMIC would reimburse IEI for its expenses and pay additional consideration based on a future SGV audit. MMIC later refused to pay, claiming the MOA was merely an unenforceable “contract to sell.” IEI sued for rescission and damages. The Philippine National Bank (PNB), as a creditor of MMIC which had foreclosed on the project assets, was impleaded. The trial court ruled for IEI, declaring the foreclosure void and holding MMIC and PNB jointly and severally liable for damages. The Court of Appeals affirmed.

ISSUE

The core issue is whether the Memorandum of Agreement between IEI and MMIC constituted a perfected contract of sale or merely an unenforceable contract to sell.

RULING

The Supreme Court ruled that the MOA was a perfected contract of sale, not a mere contract to sell. The legal logic hinges on the distinction between these contracts. A contract of sale is perfected at the moment there is a meeting of the minds upon the thing which is the object of the contract and upon the price. Here, the MOA contained all the essential elements: consent (agreement to assign IEI’s rights), object (the coal operating contract rights), and cause or price (reimbursement of IEI’s expenses plus additional consideration based on a future audit formula). The fact that the exact monetary amount was subject to an SGV audit did not negate perfection; the parties had agreed on a determinate method for computing the price, which made the price ascertainable and the obligation to pay absolute. The Court emphasized that a contract to sell is one where the prospective seller explicitly reserves the transfer of title until the fulfillment of a condition, typically full payment. The MOA contained no such reservation. MMIC’s subsequent refusal to pay and its characterization of the agreement were merely attempts to evade its obligations. Consequently, IEI was entitled to rescind the contract due to MMIC’s breach and recover damages. The Court, however, modified the awarded damages, deleting the award for unrealized profits as being too speculative, but upheld the awards for reimbursement, indemnity, and attorney’s fees. PNB’s liability was based on its participation in the wrongful foreclosure of assets that were, under the rescinded contract, to be returned to IEI.