G.R. No. 174286, June 5, 2009
TRADERS ROYAL BANK, Petitioner, vs. CUISON LUMBER CO., INC., and JOSEFA JERODIAS VDA. DE CUISON, Respondents.

FACTS

Respondent Cuison Lumber Co., Inc. (CLCI) obtained loans from petitioner Traders Royal Bank secured by a real estate mortgage. Due to non-payment, the bank extrajudicially foreclosed the property and was the highest bidder at the auction. CLCI, through Josefa Vda. de Cuison, manifested its intention to repurchase the property. On July 31, 1986, Mrs. Cuison sent a letter outlining proposed repurchase terms, including an initial payment, a 20% down payment, and a five-year amortization plan. CLCI made payments totaling ₱135,000, which the bank treated as “earnest money.” On October 20, 1986, the bank sent a letter to CLCI outlining the board-approved terms and conditions for repurchase (the TRB Repurchase Agreement), which included a 30-day acceptance period and a provision for automatic cancellation upon default of two successive quarterly installments, with payments made treated as rentals or liquidated damages. CLCI failed to sign the conforme or fully comply with the terms despite extensions but made additional payments. The bank later informed CLCI it would resell the property. CLCI filed a complaint for breach of contract, specific performance, and damages. The Regional Trial Court ruled in favor of respondents, ordering the bank to execute a Contract to Sell reflecting the payments as earnest money and awarding damages. The Court of Appeals affirmed the existence of a perfected contract but deleted the awards for attorney’s fees and damages.

ISSUE

Whether a perfected contract of repurchase existed between the parties.

RULING

Yes, a perfected contract of repurchase existed. The Supreme Court held that the bank’s October 20, 1986 letter was a valid acceptance of CLCI’s July 31, 1986 offer, creating a perfected contract of sale. The conditions in the bank’s letter pertained to the performance of obligations, not the perfection of the contract. CLCI’s subsequent payments, including the ₱135,000, constituted an implied acceptance of the bank’s terms, notwithstanding its failure to sign the conforme. The Court further ruled that the bank could not unilaterally cancel the agreement and treat the payments as rentals or liquidated damages under paragraph 11 of the repurchase terms, as CLCI had not yet defaulted on two successive quarterly installments at the time of the purported cancellation. The bank’s act of granting extensions and considering CLCI’s subsequent proposals indicated it had not strictly enforced the original timeline, thus waiving its right to cancel on that ground. The Supreme Court modified the appellate decision by ordering the bank to execute a Contract to Sell upon CLCI’s payment of the balance of the repurchase price, with legal interest on the amounts due from judicial demand, and deleted the awards for moral and exemplary damages for lack of basis.