G.R. No. 167004 ; February 7, 2011
DEVELOPMENT BANK OF THE PHILIPPINES, Petitioner, vs. BEN P. MEDRANO and PRIVATIZATION MANAGEMENT OFFICE [PMO], Respondents.

FACTS

Respondent Ben Medrano was the President and General Manager of Paragon Paper Industries, Inc. (Paragon), owning 37,681 shares. In 1980, petitioner Development Bank of the Philippines (DBP), seeking to consolidate its ownership in Paragon, instructed Medrano to convince minority stockholders to sell their shares to DBP at ₱65.00 per share. Medrano contacted the stockholders, and all, including himself, agreed to sell. The DBP Board approved the sale under Resolution No. 4270, subject to three conditions: (1) prior surrender of 57,596 shares to DBP; (2) written conformity from all parties; and (3) implementation within 45 days from approval (December 24, 1980), otherwise the transaction would be deemed canceled. Medrano indorsed and delivered his 37,681 shares (valued at ₱2,449,265.00) to DBP, which accepted them and took over Paragon. DBP also offered Medrano a commission if he could persuade all other minority stockholders to sell; he convinced only two, reducing his commission to ₱155,455.00.
When DBP did not pay for his shares or his commission, Medrano filed a complaint for specific performance and damages on September 2, 1981. DBP argued there was no perfected contract of sale because the conditions in Resolution No. 4270 were not fulfilled, as certain minority stockholders (owning 17,635 shares) refused to sell, leading DBP to cancel the sale. During the case, DBP conveyed the shares to the Asset Privatization Trust (APT, later substituted by the Privatization Management Office or PMO) via a Deed of Transfer. The Regional Trial Court (RTC) ruled in favor of Medrano, ordering DBP to pay the value of his shares plus legal interest, attorney’s fees, and costs, and dismissed DBP’s cross-claim against APT/PMO. The Court of Appeals (CA) affirmed the RTC decision in toto but refused to grant Medrano’s prayer for commission payment as he did not appeal the RTC decision.

ISSUE

Whether the Court of Appeals erred in applying Article 1545 of the Civil Code to justify ordering DBP to pay the value of Medrano’s shares, despite findings that there was no perfected contract of sale, and in awarding attorney’s fees to Medrano.

RULING

The Supreme Court denied the petition and affirmed the CA decision. The Court held that a contract of sale between DBP and Medrano was perfected upon their agreement on the object (shares) and price (₱65.00 per share), pursuant to Article 1475 of the Civil Code. The conditions in DBP Resolution No. 4270 were not conditions for the perfection of the contract but were imposed on the performance of the obligation. Under Article 1545 of the Civil Code, when a sale is subject to a condition, the buyer may waive performance of the condition. DBP, by retaining Medrano’s shares and later transferring them to APT/PMO without returning them, waived the condition requiring surrender of all 57,596 shares and written conformity from all parties. This waiver converted the conditional sale into an absolute one, obligating DBP to pay the purchase price. The Court also upheld the award of attorney’s fees, as DBP’s unjustified refusal to pay compelled Medrano to litigate. The cross-claim against PMO was correctly dismissed, as DBP’s liability arose from its own acts.