G.R. No. L-8987; February 12, 1915
A. M. BARRETTO, plaintiff-appellant, vs. E. J. LANE, defendant-appellee.

FACTS:
On April 12, 1911, Antonio M. Barretto sold and conveyed to E. J. Lane an option to purchase all the property of the Tayabas Sawmill and Lumber Company for P315,000. The purchase price for the option was P85,000, payable on or before December 31, 1913, with interest. A critical provision (Paragraph VII) of their agreement stipulated that if Lane should transfer or mortgage the property acquired by virtue of the option before fully paying Barretto, he must require the transferee or mortgagee to assume the payment of the P85,000. Failure to impose this condition would make the entire sum immediately due and demandable.

Lane subsequently entered into a contract with the Tayabas Sawmill and Lumber Company for the conveyance of its property. This contract, however, was conditional: title would pass, but possession and full ownership were contingent upon Lane paying a first installment of P30,000 by August 19, 1911. If he failed to pay, the company could treat the contract as rescinded. Lane did not pay the P30,000 installment.

Barretto filed an action on August 6, 1912, to recover the P85,000, arguing that Lane’s failure to pay the installment resulted in a “retransfer” or reversion of the property to the sawmill company. Barretto contended this constituted a “transfer” under Paragraph VII of their agreement, which, because Lane did not require the company to assume the debt, triggered the acceleration clause making the P85,000 immediately payable.

ISSUE:
Was the action for the recovery of the P85,000 prematurely filed? Specifically, did the conditional conveyance from the sawmill company to Lane and its subsequent rescission due to non-payment constitute an acquisition and subsequent transfer of the property by Lane, thereby activating the acceleration clause in his contract with Barretto?

RULING:
No, the action was prematurely brought. The Supreme Court affirmed the dismissal of the complaint.

The Court held that for the acceleration clause in Paragraph VII to operate, two events must occur: (1) Lane must have acquired the property of the Tayabas Sawmill and Lumber Company by virtue of the option, and (2) he must thereafter transfer or mortgage it without requiring the assumption of Barretto’s debt.

The Court found that the first condition was not met. The contract between Lane and the sawmill company was not an absolute sale but a conditional one. While a public instrument was executed, it explicitly withheld delivery of possession and made the transfer of title contingent upon the payment of the P30,000 installment. Citing Articles 1461 and 1462 of the Civil Code and the precedent in Gonzales vs. Rojas, the Court ruled that the execution of a public instrument is equivalent to delivery only if the contrary does not appear. Here, the contract clearly postponed full conveyance until payment. Since Lane failed to pay, the property never left the mass of the sawmill company’s assets; he never became the owner in a manner contemplated by his agreement with Barretto.

Consequently, there could be no subsequent “transfer” by Lane that would trigger the acceleration clause. The reversion of the property to the company upon his default was not the type of voluntary transfer envisioned by the parties. The purpose of Paragraph VII was to protect Barretto’s credit if Lane, as owner, disposed of the asset. It would be absurd to require Lane, who never gained ownership or possession, to compel the original vendor (the sawmill company) to assume a debt for property it never really parted with.

Therefore, since the contingent event making the debt immediately payable never occurred, the obligation remained payable only on December 31, 1913. The action filed in 1912 was premature. The Court noted that while Lane may have failed in other contractual duties, those failures were irrelevant to the specific issue of prematurity presented in this case.