Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 171660 October 17, 2011

CONTINENTAL CEMENT CORPORATION Petitioner,

vs.
ASEA BROWN BOVERI, INC., BBC BROWN BOVERI, CORP., AND TORD B.
ERIKSON,** Respondents.

DECISION

DEL CASTILLO, J.:

"Except as provided by law or by stipulation, one is entitled to an adequate

compensation only for such pecuniary loss suffered by him as he has duly proved. Such
compensation is referred to as actual or compensatory damages." 1

This Petition for Review on Certiorari2 under Rule 45 of the Rules of Court assails the
Decision3 dated August 25, 2005 and the Resolution4 dated February 16, 2006 of the
Court of Appeals (CA) in CA-G.R. CV No. 58551.

Factual Antecedents

Sometime in July 1990, petitioner Continental Cement Corporation (CCC),

a corporation engaged in the business of producing cement,5 obtained the services of

respondents6 Asea Brown Boveri, Inc. (ABB) and BBC Brown Boveri, Corp. to repair its
160 KW Kiln DC Drive Motor (Kiln Drive Motor).7

On October 23, 1991, due to the repeated failure of respondents to repair the Kiln Drive
Motor, petitioner filed with Branch 101 of the Regional Trial Court (RTC) of Quezon City
a Complaint8 for sum of money and damages, docketed as Civil Case No. Q-91-10419,
against respondent corporations and respondent Tord B. Eriksson (Eriksson), Vice-
President of the Service Division of the respondent ABB.9 Petitioner alleged that:

4. On July 11, 1990, the plaintiff delivered the 160 KW Kiln DC Drive Motor to the
defendants to be repaired under PO No. 17136-17137, x x x

The defendant, Tord B. Eriksson, was personally directing the repair of the said
Kiln Drive Motor. He has direction and control of the business of the defendant
corporations. Apparently, the defendant Asea Brown Boveri, Inc. has no separate
personality because of the 4,000 shares of stock, 3996 shares were subscribed
by Honorio Poblador, Jr. The four other stockholders subscribed for one share of
stock each only.

5. After the first repair by the defendants, the 160 KW Kiln Drive Motor was
installed for testing on October 3, 1990. On October 4, 1990 the test failed. The
plaintiff removed the DC Drive Motor and replaced it with its old motor. It was
only on October 9, 1990 that the plaintiff resumed operation. The plaintiff lost
1,040 MTD per day from October 5 to October 9, 1990.

6. On November 14, 1990, after the defendants had undertaken the second
repair of the motor in question, it was installed in the kiln. The test failed again.
The plaintiff resumed operation with its old motor on November 19, 1990. The
plaintiff suffered production losses for five days at the rate of 1,040 MTD daily.

7. The defendants were given a third chance to repair the 160 KW Kiln DC Drive
Motor.1avvphi1 On March 13, 1991, the motor was installed and tested. Again,
the test failed. The plaintiff resumed operation on March 15, 1991. The plaintiff
sustained production losses at the rate of 1,040 MTD for two days.

8. As a consequence of the failure of the defendants to comply with their

contractual obligation to repair the 160 KW Kiln DC Drive Motor, the plaintiff
sustained the following losses:

(a) Production and opportunity losses - P10,600,000.00

This amount represents only about 25% of the production losses at the
rate of P72.00 per bag of cement.

(b) Labor Cost and Rental of Crane - 26,965.78

(c) Penalties (at P987.25 a day) for

failure to deliver the motor from
Aug. 29, 1990 to July 31, 1991. - 331,716.00

(d) Cost of money interest of the

P987.25 a day from July 18, 1990
to April 5, 1991 at 34% for 261 days - 24,335.59

Total Damages 10,983,017.42

9. The plaintiff has made several demands on the defendants for the payment of
the above-enumerated damages, but the latter refused to do so without valid
justification.
 10. The plaintiff was constrained to file this action and has undertaken to pay its
counsel Twenty Percentum (20%) of the amount sought to be recovered as
attorneys fees.10

Respondents, however, claimed that under Clause 7 of the General

Conditions,11 attached to the letter of offer12dated July 4, 1990 issued by respondent
ABB to petitioner, the liability of respondent ABB "does not extend to consequential
damages either direct or indirect."13 Moreover, as to respondent Eriksson, there is no
lawful and tenable reason for petitioner to sue him in his personal capacity because he
did not personally direct the repair of the Kiln Drive Motor.14

Ruling of the Regional Trial Court

On August 30, 1995, the RTC rendered a Decision15 in favor of petitioner. The RTC
rejected the defense of limited liability interposed by respondents since they failed to
prove that petitioner received a copy of the General Conditions.16 Consequently, the
RTC granted petitioners claims for production loss, labor cost and rental of crane, and
attorneys fees.17 Thus:

WHEREFORE, premises above considered, finding the complaint substantiated by

plaintiff, judgment is hereby rendered in favor of plaintiff and against defendants, hereby
ordering the latter to pay jointly and severally the former, the following sums:

P10,600,00.00 for loss of production;

P 26,965.78 labor cost and rental of crane;

P 100,000.00 attorneys fees and cost.

SO ORDERED.18

Ruling of the Court of Appeals

On appeal, the CA reversed the ruling of the RTC. The CA applied the exculpatory
clause in the General Conditions and ruled that there is no implied warranty on repair
work; thus, the repairman cannot be made to pay for loss of production as a result of the
unsuccessful repair.19 The fallo of the CA Decision20 reads:

WHEREFORE, premises considered, the assailed August 30, 1995 Decision of the
Regional Trial Court of Quezon City, Branch 101 is hereby REVERSED and SET
ASIDE. The October 23, 1991 Complaint is herebyDISMISSED.

SO ORDERED.21

Petitioner moved for reconsideration22 but the CA denied the same in its
Resolution23 dated February 16, 2006.
 Issues

Hence, the present recourse where petitioner interposes the following issues:

1. Whether x x x the [CA] gravely erred in applying the terms of the "General
Conditions" of Purchase Orders Nos. 17136 and 17137 to exculpate the
respondents x x x from liability in this case.

2. Whether x x x the [CA] seriously erred in applying the concepts of implied

warranty and warranty against hidden defects of the New Civil Code in order to
exculpate the respondents x x x from its contractual obligation.24

Petitioners Arguments

Petitioner reiterates that the General Conditions cannot exculpate respondents because
petitioner never agreed to be bound by it nor did petitioner receive a copy of
it.25 Petitioner also imputes error on the part of the CA in applying the concepts of
warranty against hidden defects and implied warranty.26 Petitioner contends that these
concepts are not applicable because the instant case does not involve a contract of
sale.27 What applies are Articles 1170 and 2201 of

the Civil Code.28

Respondents Arguments

Conversely, respondents insist that petitioner is bound by the General Conditions. 29 By

issuing Purchase Order Nos. 17136-37, petitioner in effect accepted the General
Conditions appended to respondent ABBs letter of offer.30 Respondents likewise
defend the ruling of the CA that there could be no implied warranty on the repair made
by respondent ABB as the warranty of the fitness of the equipment should be enforced
directly against the manufacturer of the Kiln Drive Motor.31 Respondents also deny
liability for damages claiming that they performed their obligation in good faith. 32

Our Ruling

The petition has merit.

Petitioner and respondent ABB entered into a contract for the repair of petitioners Kiln
Drive Motor, evidenced by Purchase Order Nos. 17136-37,33 with the following terms
and conditions:

a) Total Price: P197,450.00

b) Delivery Date: August 29, 1990 or six (6) weeks from receipt of order and
down payment34
 c) Penalty: One half of one percent of the total cost or Nine Hundred Eighty
Seven Pesos and Twenty five centavos (P987.25) per day of delay.

Respondent ABB, however, not only incurred delay in performing its obligation but
likewise failed to repair the Kiln Drive Motor; thus, prompting petitioner to sue for
damages.

Clause 7 of the General Conditions is not binding on petitioner

Respondents contend that under Clause 7 of the General Conditions their liability "does
not extend to consequential damages either direct or indirect." 35 This contention,
however, is unavailing because respondents failed to show that petitioner was duly
furnished with a copy of said General Conditions. Hence, it is not binding on petitioner.

Having breached the contract it entered with petitioner, respondent ABB is liable for
damages pursuant to Articles 1167, 1170, and 2201 of the Civil Code, which state:

Art. 1167. If a person obliged to do something fails to do it, the same shall be executed
at his cost.

This same rule shall be observed if he does it in contravention of the tenor of the
obligation. Furthermore, it may be decreed that what has been poorly done be undone.

Art. 1170. Those who in the performance of their obligations are guilty of fraud,
negligence, or delay, and those who in any manner contravene the tenor thereof, are
liable for damages.

Art. 2201. In contracts and quasi-contracts, the damages for which the obligor who
acted in good faith is liable shall be those that are the natural and probable
consequences of the breach of the obligation, and which the parties have foreseen or
could have reasonably foreseen at the time the obligation was constituted.

In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for
all damages which may be reasonably attributed to the non-performance of the
obligation.

Based on the foregoing, a repairman who fails to perform his obligation is liable to pay
for the cost of the execution of the obligation plus damages. Though entitled, petitioner
in this case is not claiming reimbursement for the repair allegedly done by Newton
Contractor,36 but is instead asking for damages for the delay caused by respondent
ABB.

Petitioner is entitled to penalties under Purchase Order Nos. 17136-37

As per Purchase Order Nos. 17136-37, petitioner is entitled to penalties in the amount
of P987.25 per day from the time of delay, August 30, 1990, up to the time the Kiln
Drive Motor was finally returned to petitioner. Records show that although the testing of
Kiln Drive Motor was done on March 13, 1991, the said motor was actually delivered to
petitioner as early as January 7, 1991.37 The installation and testing was done only on
March 13, 1991 upon the request of petitioner because the Kiln was under repair at the
time the motor was delivered; hence, the load testing had to be postponed. 38

Under Article 122639 of the Civil Code, the penalty clause takes the place of indemnity
for damages and the payment of interests in case of non-compliance with the obligation,
unless there is a stipulation to the contrary. In this case, since there is no stipulation to
the contrary, the penalty in the amount of P987.25 per day of delay covers all other
damages (i.e. production loss, labor cost, and rental of the crane) claimed by petitioner.

Petitioner is not entitled to recover production loss, labor cost and the rental of crane

Article 1226 of the Civil Code further provides that if the obligor refuses to pay the
penalty, such as in the instant case, 40 damages and interests may still be recovered on
top of the penalty. Damages claimed must be the natural and probable consequences
of the breach, which the parties have foreseen or could have reasonably foreseen at the
time the obligation was constituted.41

Thus, in addition to the penalties, petitioner seeks to recover as damages production

loss, labor cost and the rental of the crane.

Petitioner avers that every time the Kiln Drive Motor is tested, petitioner had to rent a
crane and pay for labor to install the motor.42 But except for the Summary of Claims for
Damages,43 no other evidence was presented by petitioner to show that it had indeed
rented a crane or that it incurred labor cost to install the motor.

Petitioner likewise claims that as a result of the delay in the repair of the Kiln Drive
Motor, its production from August 29, 1990 to March 15, 1991 decreased since it had to
use its old motor which was not able to produce cement as much as the one under
repair;44 and that every time the said motor was installed and tested, petitioner had to
stop its operations; thereby, incurring more production losses.45 To support its claim,
petitioner presented its monthly production reports46 for the months of April to June
1990 showing that on the average it was able to produce 1040 MT of cement per day.
However, the production reports for the months of August 1990 to March 1991 were not
presented. Without these production reports, it cannot be determined with reasonable
certainty whether petitioner indeed incurred production losses during the said period. It
may not be amiss to say that competent proof and a reasonable degree of certainty are
needed to justify a grant of actual or compensatory damages; speculations, conjectures,
assertions or guesswork are not sufficient.47

Besides, consequential damages, such as loss of profits on account of delay or failure

of delivery, may be recovered only if such damages were reasonably foreseen or have
been brought within the contemplation of the parties as the probable result of a breach
at the time of or prior to contracting.48 Considering the nature of the obligation in the
instant case, respondent ABB, at the time it agreed to repair petitioners Kiln Drive
Motor, could not have reasonably foreseen that it would be made liable for production
loss, labor cost and rental of the crane in case it fails to repair the motor or incurs delay
in delivering the same, especially since the motor under repair was a spare motor. 49

For the foregoing reasons, petitioner is not entitled to recover production loss, labor cost
and the rental of the crane.

Petitioner is not entitled to attorneys fees

Neither is petitioner entitled to the award of attorneys fees. Jurisprudence requires that
the factual basis for the award of attorneys fees must be set forth in the body of the
decision and not in the dispositive portion only.50 In this case, no explanation was given
by the RTC in awarding attorneys fees in favor of petitioner. In fact, the award of
attorneys fees was mentioned only in the dispositive portion of the decision.

Respondent Eriksson cannot be made jointly and severally liable for the penalties

Respondent Eriksson, however, cannot be made jointly and severally liable for the
penalties. There is no showing that respondent Eriksson directed or participated in the
repair of the Kiln Drive Motor or that he is guilty of bad faith or gross negligence in
directing the affairs of respondent ABB. It is a basic principle that a corporation has a
personality separate and distinct from the persons composing or representing it; hence,
personal liability attaches only in exceptional cases, such as when the director, trustee,
or officer is guilty of bad faith or gross negligence in directing the affairs of the
corporation.51

In sum, we find petitioner entitled to penalties in the amount of P987.25 per day from
August 30, 1990 up to January 7, 1991 (131 days) or a total amount of P129,329.75 for
the delay caused by respondent ABB. Finally, we impose interest at the rate of six
percent (6%) on the total amount due from the date of filing of the complaint until finality
of this Decision. However, from the finality of judgment until full payment of the total
award, the interest rate of twelve percent (12%) shall apply.52

WHEREFORE, the petition is hereby GRANTED. The assailed Decision dated August
25, 2005 and the Resolution dated February 16, 2006 of the Court of Appeals in CA-
G.R. CV No. 58551 are hereby REVERSED and SET ASIDE. Respondent ABB is
ORDERED to pay petitioner the amount of P129,329.75, with interest at 6% per annum
to be computed from the date of the filing of the complaint until finality of this Decision
and 12% per annum thereafter until full payment.

SO ORDERED.

MARIANO C. DEL CASTILLO

Associate Justice
WE CONCUR:

RENATO C. CORONA
Chief Justice
Chairperson

TERESITA J. LEONARDO-DE
DIOSDADO M. PERALTA*
CASTRO
Associate Justice
Associate Justice

MARTIN S. VILLARAMA, JR.

Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the
conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Courts Division.

RENATO C. CORONA
Chief Justice

Footnotes
*In lieu of Associate Justice Lucas P. Bersamin, per Special Order No. 1110
(Revised) dated September 30, 2011.
** Sometimes referred as Tord B. Eriksson in some parts of the records.
1 Civil Code, Article 2199.
2 Rollo, pp. 30-166 with Annexes "A" to "M" inclusive.
3Id. at 54-64; penned by Associate Justice Vicente Q. Roxas and concurred in
by Associate Justices Portia Alio-Hormachuelos and Juan Q. Enriquez, Jr.
4 Id. at 66-67.
5 Id. at 30.
6The two corporations merged on June 10, 1988, with Asea Brown Boveri, Inc.
as the surviving entity. (Id. at 88).
7 Id. at 55.
8 Id. at 79-81.
9 Id. at 90.
10 Id. at 79-81.
11 Id. at 95. Clause 7 provides:

Clause 7. GENERAL LIABILITY AND MAINTENANCE GUARANTEE

All machinery and apparatus for our manufacture is guaranteed to be of

high grade material and of good and careful workmanship and we
undertake to correct and make good any defect or defects which may
develop under normal and proper use within the guarantee period and
which are due solely to faulty design, material, or workmanship, provided
always that we are notified immediately after the defect is discovered and
that such defective parts are promptly returned. The repaired or new parts
will be delivered free or in the case of goods for exports f.o.b. Defective
parts thus replaced remain our property. Unless otherwise stated in the
tender or order confirmation the guarantee period is twelve months for all
ordinary machinery and apparatus operated under normal conditions. The
guarantee period is reckoned from the date delivery is made, or if delivery
cannot be made on account of delays caused by circumstances beyond
our control, from the date the goods are ready for dispatch at our
premises. All liability on our part ceases at the termination of the
guarantee period.

Our liability is in all cases limited as provided in these conditions and does
not extend to consequential loss either direct or indirect, nor to expenses
for repair or replacements or otherwise paid or incurred without our written
authority.
12 Id. at 93-94.
13 Id. at 95.
14 Id. at 90-91.
15 Id. at 97-107; penned by Judge Pedro T. Santiago.
16 Id. at 106.
17 Id.
18 Id.
19 Id. at 59-63.
20 Id. at 54-64
21 Id. at 63.
22 Id. at 68-78.
23 Id. at 66-67.
24 Id. at 276.
25 Id. at 277-279.
26 Id. at 279.
27 Id.
28 Id. at 280-282.
29 Id. at 248.
30 Id.
31 Id. at 255.
32 Id. at 259.
33 Id. at 82-83.
34Down payment was made on July 18, 1990; TSN dated July 27, 1994, Direct
Examination of Jessica Alonzo, p. 12.
35 Rollo, p. 89.
36 TSN dated June 15, 1994, Direct Examination of Engr. Juanito Fernando, p. 9.
37 Records, p. 391.
38 Id.
39Art. 1226. In obligations with a penal clause, the penalty shall substitute the
indemnity for damages and the payment of interests in case of noncompliance, if
there is no stipulation to the contrary. Nevertheless, damages shall be paid if the
obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the
obligation.

The penalty may be enforced only when it is demandable in accordance

with the provisions of this Code.
40 Rollo, pp. 81 and 88.
41 Civil Code, Article 1174.
42 TSN dated July 27, 1994, Direct Examination of Jessica Alonzo, p. 9.
43 Records, p. 343.
44 TSN dated July 27, 1994, Direct Examination of Jessica Alonzo, pp.4-11.
45 Id.
46 Records, pp. 340-342.
47 Citytrust Banking Corporation v. Villanueva, 413 Phil. 776, 787 (2001).

48 Mendoza v. Philippine Air Lines, Inc., 90 Phil. 836, 844 (1952), citing Chapman
v. Fargo, L.R.A. (1918 F) p. 1049.
49TSN dated June 15, 1994, Direct Examination of Engr. Juanito Fernando, pp.
4-5.
50
Mercury Drug Corporation v. Baking, G.R. No. 156037, May 25, 2007, 523
SCRA 184, 192.
51 Queensland-Tokyo Commodities, Inc. v. George, G.R. No. 172727, September
8, 2010, 630 SCRA 304, 315.
52Duarte v. Duran, G.R. No. 173038, September 14, 2011, citing Tropical
Homes, Inc. v. Court of Appeals, 338 Phil. 930, 943-943 (1997), and Eastern
Shipping Lines, Inc. v. Court of Appeals, G.R. No. 97412, July 12, 1994, 234
SCRA 78, 95-97.
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 96505 July 1, 1993

LEGASPI OIL CO., INC., petitioner,

vs.
THE COURT OF APPEALS and BERNARD OSERAOS, respondent.

Duran, Lanuzo & Associates for petitioner.

Leovigildo Mijares III for private respondent.

MELO, J.:

The petition for review on certiorari before us seeks to set aside the decision dated
March 23, 1990 of the Court of Appeals in CA-G.R. CV No. 05828, penned by the
Honorable Justice Abelardo Dayrit with whom Justices Javellana and Kalalo concurred,
which dismissed petitioner's complaint for damages (p. 48, Rollo).

Petitioner does not dispute the facts of the case, as found by respondent Court of
Appeals. The findings of the respondent Court are thus adopted, to wit:

From the evidence presented by the plaintiff-appellee [now petitioner

Legaspi Oil Company, Inc.], it appears that defendant-appellant [now
private respondent Bernard Oseraos] acting through his authorized
agents, had several transactions with appellee Legaspi Oil Co. for the sale
of copra to the latter. The price at which appellant sells the copra varies
from time to time, depending on the prevailing market price when the
contract is entered into. One of his authorized agents, Jose Llover, had
previous transactions with appellee for the sale and delivery of copra. The
records show that he concluded a sale for 70 tons of copra at P95.00 per
100 kilos on May 27, 1975 (Exhibit G-5) and another sale for 30 tons of
P102.00 per 100 kilos on September 23, 1975 (Exhibit G-3).
Subsequently, on November 6, 1975, another designated agent signed a
contract in behalf of appellant for the sale of 100 tons of copra at P79.00
per 100 kilos with the delivery terms of 25 days effective December 15,
1975 (Exhibit G-2). At this point, it must be noted that the price of copra
 had been fluctuating (going up and down), indicating its unsteady position
in the market.

On February 16, 1976, appellant's agent Jose Llover signed contract No.
3804 for the sale of 100 tons of copra at P82.00 per 100 kilos with delivery
terms of 20 days effective March 8, 1976 (Exhibit G, for the plaintiff). As
compared to appellant's transaction on November 6, 1975, the current
price agreed upon is slightly higher than the last contract. In all these
contracts though, the selling price had always been stated as "total price"
rather than per 100 kilos. However, the parties had understood the same
to be per 100 kilos in their previous transactions.

After the period to deliver had lapsed, appellant sold only 46,334 kilos of
copra thus leaving a balance of 53,666 kilos as per running account card
(Exhibit "F"). Accordingly, demands were made upon appellant to deliver
the balance with a final warning embodied in a letter dated October 6,
1976, that failure to deliver will mean cancellation of the contract, the
balance to be purchased at open market and the price differential to be
charged against appellant. On October 22, 1976, since there was still no
compliance, appellee exercised its option under the contract and
purchased the undelivered balance from the open market at the prevailing
price of P168.00 per 100 kilos, or a price differential of P86.00 per 100
kilos, a net loss of P46,152.76 chargeable against appellant.

(pp. 43-44, Rollo)

On November 3, 1976, petitioner filed a complaint against private respondent for breach
of a contract and for damages.

After trial, the then Court of First Instance (now Regional Trial Court) of Albay in Civil
Case No. 5529 rendered a decision holding herein private respondent (then defendant)
Oseraos liable for damages in the amount of P48,152.76, attorney's fees (P2,000), and
litigation costs.

Oseraos appealed to respondent Court which thereafter rendered a reversal decision on

March 23, 1990, ordering the dismissal of the complaint.

Hence, the instant petition for review on certiorari.

The sole issued posed by the petition is whether or not private respondent Oseraos is
liable for damages arising from fraud or bad faith in deliberately breaching the contract
of sale entered into by the parties.

After a review of the case, we believe and thus hold, that private respondent is guilty of
fraud in the performance of his obligation under the sales contract where under he
bound himself to deliver to petitioner 100 metric tons of copra within twenty (20) days
from March 8, 1976. However within the delivery period, Oseraos delivered only 46,334
kilograms of copra to petitioner, leaving an undelivered balance of 53,666 kilograms.
Petitioner made repeated demands upon private respondent to comply with his
contractual undertaking to deliver the balance of 53,666 kilograms but private
respondent elected to ignore the same. In a letter dated October 6, 1976, petitioner
made a final demand with a warning that, should private respondent fail to complete
delivery of the balance of 53,666 kilograms of copra, petitioner would purchase the
balance at the open market and charge the price differential to private respondent. Still
private respondent failed to fulfill his contractual obligation to deliver the remaining
53,666 kilograms of copra. On October 22, 1976, since there was still no compliance by
private respondent, petitioner exercised its right under the contract and purchased
53,666 kilograms of copra, the undelivered balance, at the open market at the then
prevailing price of P168.00 per 100 kilograms, a price differential of P86.00 per 100
kilograms or a total price differential of P46,152.76.

Under the foregoing undisputed circumstances, the actuality of private respondent's

fraud cannot be gainsaid. In general, fraud may be defined as the voluntary execution of
a wrongful act, or a wilfull omission, knowing and intending the effects which naturally
and necessarily arise from such act or omission; the fraud referred to in Article 1170 of
the Civil Code of the Philippines is the deliberate and intentional evasion of the normal
fulfillment of obligation; it is distinguished from negligence by the presence of deliberate
intent, which is lacking in the latter (Tolentino's Civil Code of the Philippines, Vol. IV, p.
110). The conduct of private respondent clearly manifests his deliberate fraudulent
intent to evade his contractual obligation for the price of copra had in the meantime
more than doubled from P82.00 to P168 per 100 kilograms. Under Article 1170 of the
Civil Code of the Philippines, those who in the performance of their obligation are guilty
of fraud, negligence, or delay, and those who in any manner contravene the tenor
thereof, are liable for damages. Pursuant to said article, private respondent is liable for
damages.

The next point of inquiry, therefore, is the amount of damages which private respondent
is liable to pay petitioner. As aforementioned, on account of private respondent's
deliberate breach of his contractual obligation, petitioner was compelled to buy the
balance of 53,666 kilos of copra in the open market at the then prevailing price of P168
per 100 kilograms thereby paying P46,152.76 more than he would have paid had
private respondent completed delivery of the copra as agreed upon. Thus, private
respondent is liable to pay respondent the amount of P46,152.76 as damages. In case
of fraud, bad faith, malice, or wanton attitude, the guilty party is liable for all damages
which may be reasonably attributed to the non performance of the obligation (Magat vs.
Medialdea, 121 SCRA 418 [1983]). Article 1101 of the old Civil Code, later to be
reproduced as Article 1170 of our present Civil Code, was the basis of our decision in
an old case, Acme Films, Inc. vs. Theaters Supply Corporation, (63 Phil, 657 [1936]),
wherein we held:

It is not denied that the plaintiff company failed to supply the defendant
with the cinematographic films which were the subject matter of the
 contracts entered into on March 20, 1934 (Exhibits 1 and 2), and two films
under the contract of March 24, 1934 (Exhibit 3), one of said films being a
serial entitled "Whispering Shadow". Guillermo Garcia Bosque testified
that because the plaintiff company had failed to supply said films, the
defendants had to resort to the Universal Pictures Corporation and ask for
films to replace those which said plaintiff had failed to supply under the
contract, having had to pay therefor five per cent more than for those films
contracted with said plaintiff Acme Films, Inc., and that the total cost
thereof, including the printing of programs, posters paraded through the
streets with bands of music to announce the showing of the films which
the plaintiff company failed to supply, amount to from P400 to P550. The
plaintiff company did not submit evidence to rebut the testimony of said
witness and the fact that the estimate of the expenses is approximate
does not make said estimate inadmissible. It was incumbent upon the
plaintiff company to submit evidence in rebuttal, or at least ascertain the
amount of the different items in cross-examination. There being no
evidence to the contrary, it is logical to admit that the defendant company
spent at least the sum of P400.

Inasmuch as the plaintiff company had failed to comply with a part of its
booking contract, and as the defendant company had suffered damages
as a result thereof, the former is liable to indemnify the damages caused
to the latter, in accordance with the provisions of Article 1101 of the Civil
Code.

(at page 663.)

WHEREFORE, the instant petition is hereby GRANTED. The decision of the respondent
Court of Appeals in CA-G.R. CV No. 05828 is ANNULLED and SET ASIDE and the
decision of the trial court in Civil Case No. 5529 REINSTATED, with costs against
private respondent.

SO ORDERED.

Feliciano, Bidin, Davide, Jr. and Romero, JJ., concur

 OTHER RULINGS TO BREACH OF CONTRACT

RADIO COMMUNICATIONS OF THE PHILIPPINES, INC. (RCPI) vs. Verchez, et al.

( G.R. No. 164349, January 31, 2006) enlightens:

In culpa contractual x x x the mere proof of the existence of the contract and the failure
of its compliance justify, prima facie, a corresponding right of relief. The law, recognizing
the obligatory force of contracts, will not permit a party to be set free from liability for any
kind of mis performance of the contractual undertaking or a contravention of the tenor
thereof. A breach upon the contract confers upon the injured party a valid cause for
recovering that which may have been lost or suffered. The remedy serves to preserve the
interests of the promissee that may include his expectation interest, which is his
interest in having the benefit of his bargain by being put in as good a position as he would
have been in had the contract been performed, or his reliance interest, which is his
interest in being reimbursed for loss caused by reliance on the contract by being put in as
good a position as he would have been in had the contract not been made; or
hisrestitution interest, which is his interest in having restored to him any benefit
that he has conferred on the other party. Indeed, agreements can accomplish little, either
for their makers or for society, unless they are made the basis for action. The effect of
every infraction is to create a new duty, that is, to make RECOMPENSE to the one who
has been injured by the failure of another to observe his contractual obligation unless he
can show extenuating circumstances, like proof of his exercise of due diligence x x
x or of theattendance of fortuitous event, to excuse him from his ensuing liability.
(emphasis and underscoring in the original; capitalization supplied)

Spouses Luigi Guanio and Anna Guanio v. Makati Shangri-la Hotel and Resort,
Inc.; (G.R. No. 190601. February 7, 2011)

Contract; damages arising from breach of contract. The Court finds that since petitioners complaint
arose from a contract, the doctrine of proximate cause, which is relevant only in actions for quasi-
delicts, finds no application to it. What applies in the present case is Article 1170 of the Civil Code
which reads: [T]hose who in the performance of their obligations are guilty of fraud, negligence or
delay, and those who in any manner contravene the tenor thereof, are liable for damages. Breach of
contract is defined as the failure without legal reason to comply with the terms of a contract. It is also
defined as the failure, without legal excuse, to perform any promise which forms the whole or part of
the contract. As for petitioners claim that respondent departed from its verbal agreement with
petitioners, the same fails, given that the written contract which the parties entered into the day before
the event, being the law between them
ARCO PULP AND PAPER CO., INC. AND CANDIDA A. SANTOS, vs. DAN T. LIM, DOING
BUSINESS UNDER THE NAME AND STYLE OF QUALITY PAPERS & PLASTIC PRODUCTS
ENTERPRISES (G.R. No. 206806, June 25, 2014)

When a party breaches a contract, he or she goes against Article 19 of the Civil Code, which
states:chanRoblesvirtualLawlibrary

Article 19. Every person must, in the exercise of his rights and in the performance of his
duties, act with justice, give everyone his due, and observe honesty and good faith.
Persons who have the right to enter into contractual relations must exercise that right with
honesty and good faith. Failure to do so results in an abuse of that right, which may become
the basis of an action for damages.
When parties act in bad faith and do not faithfully comply with their obligations under
contract, they run the risk of violating Article 1159 of the Civil
Code:chanRoblesvirtualLawlibrary

Article 1159. Obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith.

Motion to Declare Defendant in

Default Sec. 3, Rule 9 of the Rules
of Court

RULE 9
EFFECT OF FAILURE TO PLEAD

SEC. 3. Default; declaration of.If the defending party fails to answer within the time
allowed therefor, the court shall, upon motion of the claiming party with notice to the
defending party, and proof of such failure, declare the defending party in default.
Thereupon, the court shall proceed to render judgment granting the claimant such relief
as his pleading may warrant, unless the court in its discretion requires the claimant to
submit evidence. Such reception of evidence may be delegated to the clerk of court.
(1a, R18)
(a) Effect of order of default.A party in default shall be entitled to notice of subsequent
proceedings but not to take part in the trial. (2a, R18)
(b) Relief from order of default.A party declared in default may at any time after notice
thereof and before judgment file a motion under oath to set aside the order of default
upon proper showing that his failure to answer was due to fraud, accident, mistake or
excusable negligence and that he has a meritorious defense. In such case, the order of
default may be set aside on such terms and conditions as the judge may impose in the
interest of justice. (3a, R18)
(c) Effect of partial default.When a pleading asserting a claim states a common cause
of action against several defending parties, some of whom answer and the others fail to
do so, the court shall try the case against all upon the answers thus filed and render
judgment upon the evidence presented. (4a, R18)
(d) Extent of relief to be awarded.A judgment rendered against a party in default shall
not exceed the amount or be different in kind from that prayed for nor award
unliquidated damages. (5a, R18)
(e) Where no defaults allowed.If the defending party in an action for annulment or
declaration of nullity of marriage or for legal separation fails to answer, the court shall
order the prosecuting attorney to investigate whether or not a collusion between the
parties exists, and if there is no collusion, to intervene for the State in order to see to it
that the evidence submitted is not fabricated. (6a, R18)

RULE 65

Under Rule 65, a party may only avail himself of the special remedy
ofcertiorari under the following circumstances:

SECTION 1. Petition for Certiorari. When any tribunal, board or officer

exercising judicial or quasi-judicial functions has acted without or in excess of its or his
jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction,
and there is no appeal, nor any plain, speedy, and adequate remedy in the ordinary course
of law, a person aggrieved thereby may file a verified petition in the proper court, alleging
the facts with certainty and praying that judgment be rendered annulling or modifying
the proceedings of such tribunal, board or officer, and granting such incidental reliefs as
law and justice may require.
The writ of certiorari issues for the correction of errors of jurisdiction only or grave
abuse of discretion amounting to lack or excess of jurisdiction. It cannot be legally used
for any other purpose. Its function is only to keep the inferior court within the bounds of
its jurisdiction or to prevent it from committing such a grave abuse of discretion
amounting to lack or excess of jurisdiction. It may issue only when the following
requirements are alleged in the petition and established: (1) the writ is directed against a
tribunal, a board or any officer exercising judicial or quasi-judicial functions; (2) such
tribunal, board or officer has acted without or in excess of jurisdiction, or with grave abuse
of discretion amounting to lack or excess of jurisdiction; and (3) there is no appeal or any
plain, speedy and adequate remedy in the ordinary course of law. Excess of jurisdiction
as distinguished from absence of jurisdiction, means that an act, though within the
general power of a tribunal, a board or an officer is not authorized, and is invalid with
respect to the particular proceeding, because the conditions which alone authorize the
exercise of the general power in respect of it are wanting. Without jurisdiction means
lack or want of legal power, right or authority to hear and determine a cause or causes,
considered either in general or with reference to a particular matter. It means lack of
power to exercise authority. [Land Bank of the Philippines v. Court of Appeals, 456 Phil.
755, 784-785 (2003)]