KENG HUA PAPER PRODUCTS CO. INC. v.
COURT OF APPEALS
(Remedies for Breach – Performance – To deliver all its accessions)
February 12, 1998
Ponente: J. Panganiban
FACTS:
- Characters:
a) Keng Hua Paper Products – consignee, receiver of shipment
b) Sea-Land Service Inc. – shipping company, transporter of waste paper
c) Ho Kee Waste Paper – shipper
- Definitions:
a) Bill of lading - document issued by a carrier to a shipper,
acknowledging that specified goods have been received on board as cargo
for conveyance to a named place for delivery to the consignee who is usually
identified.
b) Demurrage – an allowance or compensation for the delay or detention
of a ship/vessel; has reference to the ship’s expenses, wear and tear, and
common employment.
- Keng Hua purchased from Ho Kee fifty tons of waste paper, with partial
shipment permitted.
- On June 29, 1982, Sea-Land received at its Hong Kong terminal a sealed
container containing 67 bales of unsorted waste paper for shipment to Keng Hua
in Manila. A bill of lading to cover the shipment was issued by Sea-Land.
- However, the June 29 shipment was 10 tons more than the remaining
balance of the purchase/order, as manifested under the letter of credit. (Keng
Hua ordered 50 tons. 10 tons na lang dapat yung kulang/balance. Pero yung June
29 shipment, 20 tons of waste paper.)
- On July 9, 1982, the shipment was discharged at the Manila International
Container Port. Notices of arrival were transmitted to Keng Hua but it failed to
discharge the shipment from the container during the “free time” or grace period.
The waste paper remained inside Sea-Land’s container from the expiration of the
free time period (July 29) until the shipment was unloaded on November 22,
1983 (481 days).
- During the 481-day period, demurrage charges accrued. Numerous demands
for Keng Hua to pay but it refused to settle its obligation.
PROCEDURAL HISTORY:
- Sea-Land sued Keng Hua for collection and damages.
- The Regional Trial Court of Manila rendered judgment in favor of Sea-Land, and
ordered Keng Hua to pay P67,340 as demurrage charges with interest at the legal
rate from the date of the extrajudicial demand. Also, Keng Hua must pay 10% of
the total amount due as attorney’s fees/litigation expenses.
- Court of Appeals affirmed in toto the RTC.
ISSUES:
1) WoN Keng Hua accepted the bill of lading.
2) WoN the award of P67,340 to Sea-Land was proper
3) WoN Keng Hua was correct in not accepting the overshipment
4) WoN the award of legal interest from the date of Sea-Land’s extrajudicial
demand was proper
PETITIONER’S ARGUMENTS:
- If Keng Hua accepted the shipment, it would be violating Central Bank rules and
regulations and custom and tariff laws. It would be tantamount to smuggling. It
would make Keng Hua vulnerable to legal sanctions.
- Sea-Land has no cause of action against Keng Hua because Keng Hua did not
hire Sea-Land. The cause of action should be against the shipper, Ho Kee. The
demurrage was a consequence of the shipper’s mistake of shipping more than
wahat was bought.
- Keng Hua duly notified Sea-Land about the wrong shipment through a letter
dated January 24, 1983.
- Keng Hua is not bound by the bill of lading because it never gave its consent. It
admits “physical acceptance” of the bill of lading, but argues that its subsequent
actions belie the finding that it accepted the terms.
- Notice of Refused or On Hand Freight: proof that Keng Hua declined to accept
the shipment.
RESPONDENT’S ARGUMENTS:
- None really, just that Keng Hua should pay demurrage charges since it delayed
Sea-Land’s vessel by failing to unload the shipment during the free time period.
RATIO:
1) YES, Keng Hua accepted and is thus bound by the bill of lading.
- A bill of lading has two functions:
a) receipt for the goods shipped,
b) a contract by which three parties (shipper, carrier, and consignee)
undertake specific responsibilities and assume stipulated obligations.
- A bill of lading delivered and accepted constitutes the contract of carriage even
though not signed because the acceptance of a paper containing the terms of a
proposed contract generally constitutes an acceptance of the contract and of all its
terms and conditions of which the acceptor has actual or constructive notice.
- Acceptance = perfect and binding contract
- The bill of lading between Ho Kee, Keng Hua, and Sea-Land was a valid and
PERFECTED contract. Section 17 of the bill of lading provides that the shipper
and consignee were liable for demurrage charges for the failure to discharge the
shipment within the grace period.
- SC not persuaded by Keng Hua’s arguments. Keng Hua did not immediately
object to or dissent from any term or stipulated in the bill of lading. It waited for
SIX MONTHS to send a letter to Sea-Land saying that it would not accept the
shipment.
- The inaction for such a long period conveys the clear inference that it
accepted the terms and conditions of the bill of lading.
- Re: Notice of Refused or On Hand Freight: said notice was not written by Keng
Hua; it was sent by Sea-Land to Keng Hua four months after it received the bill of
lading. Its only significance is to highlight Keng Hua’s prolonged failure to object
to the bill of lading.
- Issue of WoN Keng Hua accepted the bill of lading is raised for the first time in
the SC (not raised in the lower courts). Hence, it is barred by estoppel.
- Prolonged failure to receive and discharge cargo -> violation of terms of bill of
lading -> liability for demurrage
2) YES, it is proper
- Keng Hua argued that Sea-Land made no demand for the sum of P67,340. Also,
Sea-Land’s loss and prevention manager (P50,260) and its counsel (P37,800)
asked for different amounts.
- The amount fo P67,340 was a factual conclusion of the trial court, affirmed by
the Court of Appeals, and is therefore binding on the SC. Such finding is supported
by extant evidence.
- Re: discrepancy in amounts demanded: result of the variance of dates when the
demands were made. The longer the cargo remained unclaimed, the higher the
demurrage. Thus when counsel demanded on April 24, 1983 P37,800, it already
ballooned to P67,340 by November 22.
3) NO.
- Re: violation of laws: mere apprehension of violating said laws, without a clear
demonstration that taking delivery of the shipment has become legally impossible,
cannot defeat Keng Hua’s obligations under the bill of lading.
4) NO.
- Based on NCC 2209: interest rate is six percent per annum.
- Bill of lading did not specify the amount of demurrage; this was only established
during the trial court decision. Hence, the rate is 6% to be computed from the trial
court decision (Sept. 28, 1990), plus 12% on the total then outstanding from the
time judgment becomes final and executory until its satisfaction.
* In a letter of credit, there are three distinct and independent contracts:
a) contract of sale between buyer and seller
b) contract of buyer with issuing bank
c) letter of credit proper where bank promises to pay seller
- These three are to be maintained in perpetual separation.
- The contract of carriage in the bill of lading must be TREATED INDEPENDENTLY
of the contract of sale and contract with issuing bank. Any discrepancy between
the contract of sale and letter of credit will NOT AFFECT the validity of the contract
of carriage in the bill of lading.
- The carrier cannot be expected to go beyond the representation of the shipper in
the bill of lading and to verify their accuracy vis-à-vis the contract of sale and the
letter of credit.
- Carrier had no knowledge of the contents of the container.
DISPOSITIVE:
- CA decision is AFFIRMED, legal interest MODIFIED to 6% to be computed from
the trial court decision (Sept. 28, 1990), plus 12% on the total then outstanding
from the time judgment becomes final and executory until its satisfaction
G.R. No. L-27454 April 30, 1970
Rosendo O. Chavez, plaintiff-appellant vs. Fructuoso Gonzales, defendant-appellee
REYES, J.B.L., J.:
Facts: On July 1963, Rosendo Chavez brought his typewriter to Fructuoso
Gonzales a typewriter repairman for the cleaning and servicing of the said
typewriter but the latter was not able to finish the job. During October 1963, the
plaintiff gave the amount of P6.00 to the defendant which the latter asked from
the plaintiff for the purchase of spare parts, because of the delay of the repair the
plaintiff decided to recover the typewriter to the defendant which he wrapped it
like a package. When the plaintiff reached their home he opened it and examined
that some parts and screws was lost. That on October 29, 1963 the plaintiff sent a
letter to the defendant for the return of the missing parts, the interior cover and
the sum of P6.00 (Exhibit D). The following day, the defendant returned to the
plaintiff some of the missing parts, the interior cover and the P6.00. The plaintiff
brought his typewriter to Freixas Business Machines and the repair cost the
amount of P89.85. He commenced this action on August 23, 1965 in the City
Court of Manila, demanding from the defendant the payment of P90.00 as actual
and compensatory damages, P100.00 for temperate damages, P500.00 for moral
damages, and P500.00 as attorney’s fees. The defendant made no denials of the
facts narrated above, except the claim of the plaintiff that the cost of the repair
made by Freixas Business Machines be fully chargeable against him.
Issue: Whether or not the defendant is liable for the total cost of the repair made
by Freixas Business Machines with the plaintiff typewriter?
Ruling: No, he is not liable for the total cost of the repair made by Freixas
Business Machines instead he is only liable for the cost of the missing parts and
screws. The defendant contravened the tenor of his obligation in repairing the
typewriter of the plaintiff that he fails to repair it and returned it with the missing
parts, he is liable under “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 he
undone.”
TANGUILIG vs. CA
FACTS: Herce contracted Tanguilig to construct a windmill system for him, for
consideration of 60,000.00. Pursuant to the agreement Herce paid the
downpayment of 30,000.00 and installment of 15,000.00 leaving a 15,000.00
balance.
Herce refused to pay the balance because he had already paid this amount to
SPGMI which constructed a deep well to which the windmill system was to be
connected since the deepwell, and assuming that he owed the 15,000.00 this
should be offset by the defects in the windmill system which caused the structure
to collapse after strong winds hit their place. According to Tanguilig, the
60,000.00 consideration is only for the construction of the windmill and the
construction of the deepwell was not part of it. The collapse of the windmill cannot
be attributed to him as well, since he delivered it in good and working condition
and Herce accepted it without protest. Herce contested that the collapse is
attributable to a typhoon, a force majeure that relieved him of liability.
The RTC ruled in favor of Tanguilig, but this decision was overturned by the Court
of Appeals which ruled in favor of Herce
ISSUES OF THE CASE: Can the collapse of the windmill be attributed to force
majeure? Thus, extinguishing the liability of Tanguilig?
- Yes, in order for a party to claim exemption from liability by reason of fortuitous
event under Art 1174 of the Civil Code the event should be the sole and proximate
cause of the loss or destruction of the object of the contract.
- In Nakpil vs. Court of Appeals, the S.C. held that 4 requisites must concur that
there must be a (a) the cause of the breach of the obligation must be independent
of the will of debtor (b) the event must be either unforeseeable or unavoidable;
(c) the event be such to render it impossible for the debtor to fulfill his obligation
in a normal manner; and (d) the debtor must be free from any participation in or
aggravation of the injury to the creditor.
- Tanguilig merely stated that there was a strong wind, and a strong wind in this
case is not fortuitous, it was not unforeseeable nor unavoidable, places with
strong winds are the perfect locations to put up a windmill, since it needs strong
winds for it to work.
HELD: WHEREFORE, the appealed decision is MODIFIED. Respondent VICENTE
HERCE JR. is directed to pay petitioner JACINTO M. TANGUILIG the balance of
P15,000.00 with interest at the legal rate from the date of the filing of the
complaint. In return, petitioner is ordered to "reconstruct subject defective
windmill system, in accordance with the one-year guaranty" and to complete the
same within three (3) months from the finality of this decision.
Obligations and Contracts Terms:
Fortuitous Events- Refers to an occurrence or happening which could not be
foreseen, or even if foreseen, is inevitable. It is necessary that the obligor is free
from negligence. Fortuitous events may be produced by two (2) general causes:
(1) by Nature, such as but not limited to, earthquakes, storms, floods, epidemics,
fires, and (2) by the act of man, such as but not limited to, armed invasion, attack
by bandits, governmental prohibitions, robbery, provided that they have the force
of an imposition which the contractor or supplier could not have resisted.
Song Fo and Co v Hawaiian Philippine Co.
Facts:
 Hawaiian-Philippine Co (HPC) entered into a contract with Song Fo and
Co where it would deliver molasses to the latter.
 A letter addressed by the administrator of the HPC to SFC on December
13, 1922 contains their contract in writing. It states the ff:
o Mr. Song Fo agreed to the delivery of 300,000 gallons of
molasses
o Mr. Song Fo also asked if HPC could supply him with another
100,000 gallons of molasses to which the latter replied that they
believe it is possible and that they will do their best to let Mr.
Song Fo have the extra 100,000 gallons during the next year.
 HPC was able to deliver 55,006 gallons of molasses before the breach of
contract.
 SFC filed a complaint with two causes of action for breach of contract
against the HPC and asked for P70,369.50
 HPC answered that there was a delay in the payment from SFC and that
HPC has the right to rescind the contract due to that and claims it as a
special defense.
 The judgment of the trial court condemned HPC to pay SFC a total of
P35,317.93, with legal interest from the date of the presentation of the
complaint, and with costs.
Issues and Ruling:
Did HPC agree to sell 400,000 gallons of molasses or 300,000 gallons of
molasses?
 Only 300,000 gallons of molasses was agreed to by HPC as seen in the
documents presented in court. HPC also believed it possible to
accommodate SFC by supplying the latter company with an extra
100,000 gallons. However, the language used with reference to the
additional 100,000 gallons was not a definite promise. Still less did it
constitute an obligation
Had HPC the right to rescind the contract of sale made with SFC?
  With reference to the second question, doubt has risen as to when SFC
was supposed to make the payments for the delivery of molasses as
shown in the documents presented by the parties. It was ultimately
settled that payment had to be made upon presentation of accounts at
the end of each month
 FACT: SFC should have paid for the molasses delivered in December
1922, not later than January 31 1923. Instead payment was not made
until February 20, 1923. All the rest of the molasses was paid for either
on time or ahead of time.
 HPC does not have the right to rescind the contract. It should be noted
that the time of payment stipulated for in the contract should be treated
as of the essence of the contract.
 There was only a slight breach of contract when the payment was
delayed for 20 days after which HPC accepted the payment of the
overdue accounts and continued with the contract, waiving its
right to rescind the contract. The delay in the payment of SFC was not
such a violation for the contract.
 GENERAL RULE: rescission will not be permitted for a slight or casual
breach of the contract, but only for such breaches as are so substantial
and fundamental.
On the basis first, of a contract for 300,000 gallons of molasses, and second, of a
contract imprudently breached by HPC, what is the measure of damages?
 The first cause of action of SFC is based on the greater expense to which
it was put in being compelled to secure molasses from other sources to
which Supreme Court ruled that P3,000 should be paid by HPC with legal
interest from October 2, 1923 until payment.
o 55,006 gallons were delivered before the breach. (This leaves
244,994 gallon)
o 100,000 gallons of molasses were secured from the Central
North Negros Sugar Co., Inc at 2 cents a gallon, so plaintiff
suffered no material loss in having to make this purchase. (this
leaves as a result 144,994 gallons)
o 100,000 gallons were secured from Central Victorias Milling at
3.5 cents per gallon. This meant a loss of approximately
P2,174.91
 The second cause of action was based on the lost profits on account of
the breach of contract. Supreme Court said that SFC is not entitled to
recover anything under the second cause of action because
the testimony of Mr. Song Heng will follow the same line of thought as
that of the trial court which in unsustainable and there was no means for
the court to find out what items make up the P14,000 of alleged lost
profits.
REMEDIES IN RECIPROCAL OBLIGATIONS – Whether or not Defendants are
liable for breach of contract to Plaintiff
FACTS:
-
a) Plaintiff-Appellant’s Arguments (Boysaw and Yulo – Lost)
- Filed a case against Defendants for breach of contract
-Argued that Plaintiff and Defendant entered into a contract to engage Gabriel
"Flash" Elorde in a boxing contest against Boysaw. However, Defendant, refused
to honor their commitments under the boxing contract
-Appealed to SC the decision of CA
b) Defendant-Appellee’s Arguments (Interphil Promotions Inc., et al. –
Win)
-Argued that they need to postpone the boxing fight under the contract due to the
injuries suffered by Gabriel "Flash" Elorde in his previous fight
- Trial court rendered a decision in their favor
ISSUE:
- Whether or not Defendants are liable for breach of contract to Plaintiff
RULING:
Conclusion:
- Defendants are not liable. The appeal is dismissed.
Rule:
- The power to rescind obligations is implied, in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him. [Part 1, Art. 1191,
Civil Code].
-"Reciprocal obligations are those which arise from the same cause, and in which
each party is a debtor and a creditor of the other, such that the obligation of one
is dependent upon the obligation of the other. They are to be performed
simultaneously, so that the performance of one is conditioned upon the
simultaneous fulfillment of the other"
- The power to rescind is given to the injured party. "Where the plaintiff is the
party who did not perform the undertaking which he was bound by the terms of
the agreement to perform 4 he is not entitled to insist upon the performance of
the contract by the defendant, or recover damages by reason of his own breach "
Application:
- In this case, the evidence established that the contract was violated by appellant
Boysaw himself when, without the approval or consent of Interphil, he fought
Louis Avila on June 19, 1961 in Las Vegas Nevada. Appellant Yulo admitted this
fact during the trial.
- Another violation of the contract in question was the assignment and transfer,
first to J. Amado Araneta, and subsequently, to appellant Yulo, Jr., of the
managerial rights over Boysaw without the knowledge or consent of Interphil.
Conclusion:
- Thus, Defendants are not liable. The appeal is dismissed.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-22590 March 20, 1987
SOLOMON BOYSAW and ALFREDO M. YULO, JR., plaintiffs-appellants,
vs.
INTERPHIL PROMOTIONS, INC., LOPE SARREAL, SR., and MANUEL NIETO,
JR., defendants-appellees.
Felipe Torres and Associates for plaintiffs-appellants.
V.E. Del Rosario & Associates for defendant-appellee M. Nieto, Jr.
A.R. Naravasa & Pol Tiglao, Jr. for defendant-appellee Interphil Promotions, Inc.
RESOLUTION
FERNAN, J.:
This is an appeal interposed by Solomon Boysaw and Alfredo Yulo, Jr., from the
decision dated July 25, 1963 and other rulings and orders of the then Court of
First Instance [CFI] of Rizal, Quezon City, Branch V in Civil Case No. Q-5063,
entitled "Solomon Boysaw and Alfredo M. Yulo, Jr., Plaintiffs versus Interphil
Promotions, Inc., Lope Sarreal, Sr. and Manuel Nieto, Jr., Defendants," which,
among others, ordered them to jointly and severally pay defendant-appellee
Manuel Nieto, Jr., the total sum of P25,000.00, broken down into P20,000.00 as
moral damages and P5,000.00 as attorney's fees; the defendants-appellees
Interphil Promotions, Inc. and Lope Sarreal, Sr., P250,000.00 as unrealized
profits, P33,369.72 as actual damages and P5,000.00 as attorney's fees; and
defendant-appellee Lope Sarreal, Sr., the additional amount of P20,000.00 as
moral damages aside from costs.
The antecedent facts of the case are as follows:
On May 1, 1961, Solomon Boysaw and his then Manager, Willie Ketchum, signed
with Interphil Promotions, Inc. represented by Lope Sarreal, Sr., a contract to
engage Gabriel "Flash" Elorde in a boxing contest for the junior lightweight
championship of the world.
It was stipulated that the bout would be held at the Rizal Memorial Stadium in
Manila on September 30, 1961 or not later than thirty [30] days thereafter should
a postponement be mutually agreed upon, and that Boysaw would not, prior to
the date of the boxing contest, engage in any other such contest without the
written consent of Interphil Promotions, Inc.
On May 3, 1961, a supplemental agreement on certain details not covered by the
principal contract was entered into by Ketchum and Interphil. Thereafter, Interphil
signed Gabriel "Flash" Elorde to a similar agreement, that is, to engage Boysaw in
a title fight at the Rizal Memorial Stadium on September 30, 1961.
On June 19, 1961, Boysaw fought and defeated Louis Avila in a ten-round non-
title bout held in Las Vegas, Nevada, U.S.A. [pp. 26-27, t.s.n., session of March
14, 1963].
On July 2, 1961, Ketchum on his own behalf and on behalf of his associate Frank
Ruskay, assigned to J. Amado Araneta the managerial rights over Solomon
Boysaw.
Presumably in preparation for his engagement with Interphil, Solomon Boysaw
arrived in the Philippines on July 31, 1961.
On September 1, 1961, J. Amado Araneta assigned to Alfredo J. Yulo, Jr. the
managerial rights over Boysaw that he earlier acquired from Ketchum and Ruskay.
The next day, September 2, 1961, Boysaw wrote Lope Sarreal, Sr. informing him
of his arrival and presence in the Philippines.
On September 5, 1961, Alfredo Yulo, Jr. wrote to Sarreal informing him of his
acquisition of the managerial rights over Boysaw and indicating his and Boysaw's
readiness to comply with the boxing contract of May 1, 1961. On the same date,
on behalf of Interphil Sarreal wrote a letter to the Games and Amusement Board
[GAB] expressing concern over reports that there had been a switch of managers
in the case of Boysaw, of which he had not been formally notified, and requesting
that Boysaw be called to an inquiry to clarify the situation.
The GAB called a series of conferences of the parties concerned culminating in the
issuance of its decision to schedule the Elorde-Boysaw fight for November 4,
1961. The USA National Boxing Association which has supervisory control of all
world title fights approved the date set by the GAB
Yulo, Jr. refused to accept the change in the fight date, maintaining his refusal
even after Sarreal on September 26, 1961, offered to advance the fight date to
October 28, 1961 which was within the 30-day period of allowable postponements
provided in the principal boxing contract of May 1, 1961.
Early in October 1961, Yulo, Jr. exchanged communications with one Mamerto
Besa, a local boxing promoter, for a possible promotion of the projected Elorde-
Boysaw title bout. In one of such communications dated October 6, 1961, Yulo
informed Besa that he was willing to approve the fight date of November 4,1961
provided the same was promoted by Besa.
While an Elorde-Boysaw fight was eventually staged, the fight contemplated in the
May 1, 1961 boxing contract never materialized.
As a result of the foregoing occurrences, on October 12, 1961, Boysaw and Yulo,
Jr. sued Interphil, Sarreal, Sr. and Manuel Nieto, Jr. in the CFI of Rizal [Quezon
City Branch] for damages allegedly occasioned by the refusal of Interphil and
Sarreal, aided and abetted by Nieto, Jr., then GAB Chairman, to honor their
commitments under the boxing contract of May 1,1961.
On the first scheduled date of trial, plaintiff moved to disqualify Solicitor Jorge
Coquia of the Solicitor General's Office and Atty. Romeo Edu of the GAB Legal
Department from appearing for defendant Nieto, Jr. on the ground that the latter
had been sued in his personal capacity and, therefore, was not entitled to be
represented by government counsel. The motion was denied insofar as Solicitor
General Coquia was concerned, but was granted as regards the disqualification of
Atty. Edu.
The case dragged into 1963 when sometime in the early part of said year, plaintiff
Boysaw left the country without informing the court and, as alleged, his counsel.
He was still abroad when, on May 13, 1963, he was scheduled to take the witness
stand. Thus, the lower court reset the trial for June 20, 1963. Since Boysaw was
still abroad on the later date, another postponement was granted by the lower
court for July 23, 1963 upon assurance of Boysaw's counsel that should Boysaw
fail to appear on said date, plaintiff's case would be deemed submitted on the
evidence thus far presented.
On or about July 16, 1963, plaintiffs represented by a new counsel, filed an urgent
motion for postponement of the July 23, 1963 trial, pleading anew Boysaw's
inability to return to the country on time. The motion was denied; so was the
motion for reconsideration filed by plaintiffs on July 22, 1963.
The trial proceeded as scheduled on July 23, 1963 with plaintiff's case being
deemed submitted after the plaintiffs declined to submit documentary evidence
when they had no other witnesses to present. When defendant's counsel was
about to present their case, plaintiff's counsel after asking the court's permission,
took no further part in the proceedings.
After the lower court rendered its judgment dismissing the plaintiffs' complaint,
the plaintiffs moved for a new trial. The motion was denied, hence, this appeal
taken directly to this Court by reason of the amount involved.
From the errors assigned by the plaintiffs, as having been committed by the lower
court, the following principal issues can be deduced:
1. Whether or not there was a violation of the fight contract of
May 1, 1961; and if there was, who was guilty of such violation.
2. Whether or not there was legal ground for the postponement
of the fight date from September 1, 1961, as stipulated in the
May 1, 1961 boxing contract, to November 4,1961,
3. Whether or not the lower court erred in the refusing a
postponement of the July 23, 1963 trial.
4. Whether or not the lower court erred in denying the
appellant's motion for a new trial.
5. Whether or not the lower court, on the basis of the evidence
adduced, erred in awarding the appellees damages of the
character and amount stated in the decision.
RULING
On the issue pertaining to the violation of the May 1, 1961 fight contract, the
evidence established that the contract was violated by appellant Boysaw himself
when, without the approval or consent of Interphil, he fought Louis Avila on June
19, 1961 in Las Vegas Nevada. Appellant Yulo admitted this fact during the trial.
[pp. 26-27, t.s.n., March 14, 1963].
While the contract imposed no penalty for such violation, this does not grant any
of the parties the unbridled liberty to breach it with impunity. Our law on contracts
recognizes the principle that actionable injury inheres in every contractual breach.
Thus:
Those who in the performance of their obligations are guilty of
fraud, negligence or delay, and those who in any manner
contravene the terms thereof, are liable for damages. [Art.
1170, Civil Code].
Also:
The power to rescind obligations is implied, in reciprocal ones, in
case one of the obligors should not comply with what is
incumbent upon him. [Part 1, Art. 1191, Civil Code].
There is no doubt that the contract in question gave rise to reciprocal obligations.
"Reciprocal obligations are those which arise from the same cause, and in which
each party is a debtor and a creditor of the other, such that the obligation of one
is dependent upon the obligation of the other. They are to be performed
simultaneously, so that the performance of one is conditioned upon the
simultaneous fulfillment of the other" [Tolentino, Civil Code of the Philippines, Vol.
IV, p. 175.1
The power to rescind is given to the injured party. "Where the plaintiff is the party
who did not perform the undertaking which he was bound by the terms of the
agreement to perform 4 he is not entitled to insist upon the performance of the
contract by the defendant, or recover damages by reason of his own breach "
[Seva vs. Alfredo Berwin 48 Phil. 581, Emphasis supplied].
Another violation of the contract in question was the assignment and transfer, first
to J. Amado Araneta, and subsequently, to appellant Yulo, Jr., of the managerial
rights over Boysaw without the knowledge or consent of Interphil.
The assignments, from Ketchum to Araneta, and from Araneta to Yulo, were in
fact novations of the original contract which, to be valid, should have been
consented to by Interphil.
Novation which consists in substituting a new debtor in the place
of the original one, may be made even without the knowledge or
against the will of the latter, but not without the consent of the
creditor. [Art. 1293, Civil Code, emphasis supplied].
That appellant Yulo, Jr., through a letter, advised Interphil on September 5, 1961
of his acquisition of the managerial rights over Boysaw cannot change the fact
that such acquisition, and the prior acquisition of such rights by Araneta were
done without the consent of Interphil. There is no showing that Interphil, upon
receipt of Yulo's letter, acceded to the "substitution" by Yulo of the original
principal obligor, who is Ketchum. The logical presumption can only be that, with
Interphil's letter to the GAB expressing concern over reported managerial changes
and requesting for clarification on the matter, the appellees were not reliably
informed of the changes of managers. Not being reliably informed, appellees
cannot be deemed to have consented to such changes.
Under the law when a contract is unlawfully novated by an applicable and
unilateral substitution of the obligor by another, the aggrieved creditor is not
bound to deal with the substitute.
The consent of the creditor to the change of debtors, whether in
expromision or delegacion is an, indispensable requirement . . .
Substitution of one debtor for another may delay or prevent the
fulfillment of the obligation by reason of the inability or
insolvency of the new debtor, hence, the creditor should agree
to accept the substitution in order that it may be binding on him.
Thus, in a contract where x is the creditor and y is the debtor, if
y enters into a contract with z, under which he transfers to z all
his rights under the first contract, together with the obligations
thereunder, but such transfer is not consented to or approved by
x, there is no novation. X can still bring his action against y for
performance of their contract or damages in case of breach.
[Tolentino, Civil Code of the Philippines, Vol. IV, p. 3611.
From the evidence, it is clear that the appellees, instead of availing themselves of
the options given to them by law of rescission or refusal to recognize the
substitute obligor Yulo, really wanted to postpone the fight date owing to an injury
that Elorde sustained in a recent bout. That the appellees had the justification to
renegotiate the original contract, particularly the fight date is undeniable from the
facts aforestated. Under the circumstances, the appellees' desire to postpone the
fight date could neither be unlawful nor unreasonable.
We uphold the appellees' contention that since all the rights on the matter rested
with the appellees, and appellants' claims, if any, to the enforcement of the
contract hung entirely upon the former's pleasure and sufferance, the GAB did not
act arbitrarily in acceding to the appellee's request to reset the fight date to
November 4, 1961. It must be noted that appellant Yulo had earlier agreed to
abide by the GAB ruling.
In a show of accommodation, the appellees offered to advance the November 4,
1961 fight to October 28, 1961 just to place it within the 30- day limit of allowable
postponements stipulated in the original boxing contract.
The refusal of appellants to accept a postponement without any other reason but
the implementation of the terms of the original boxing contract entirely overlooks
the fact that by virtue of the violations they have committed of the terms thereof,
they have forfeited any right to its enforcement.
On the validity of the fight postponement, the violations of the terms of the
original contract by appellants vested the appellees with the right to rescind and
repudiate such contract altogether. That they sought to seek an adjustment of one
particular covenant of the contract, is under the circumstances, within the
appellee's rights.
While the appellants concede to the GAB's authority to regulate boxing contests,
including the setting of dates thereof, [pp. 44-49, t.s.n., Jan. 17, 1963], it is their
contention that only Manuel Nieto, Jr. made the decision for postponement,
thereby arrogating to himself the prerogatives of the whole GAB Board.
The records do not support appellants' contention. Appellant Yulo himself admitted
that it was the GAB Board that set the questioned fight date. [pp. 32-42, t.s.n.,
Jan. 17, 1963]. Also, it must be stated that one of the strongest presumptions of
law is that official duty has been regularly performed. In this case, the absence of
evidence to the contrary, warrants the full application of said presumption that the
decision to set the Elorde-Boysaw fight on November 4, 1961 was a GAB Board
decision and not of Manuel Nieto, Jr. alone.
Anent the lower court's refusal to postpone the July 23, 1963 trial, suffice it to say
that the same issue had been raised before Us by appellants in a petition for
certiorari and prohibition docketed as G.R. No. L-21506. The dismissal by the
Court of said petition had laid this issue to rest, and appellants cannot now hope
to resurrect the said issue in this appeal.
On the issue pertaining to the award of excessive damages, it must be noted that
because the appellants wilfully refused to participate in the final hearing and
refused to present documentary evidence after they no longer had witnesses to
present, they, by their own acts prevented themselves from objecting to or
presenting proof contrary to those adduced for the appellees.

On the denial of appellant's motion for a new trial, we find that the lower court did On the actual damages awarded to appellees, the appellants contend that a
not commit any reversible error. conclusion or finding based upon the uncorroborated testimony of a lone witness
cannot be sufficient. We hold that in civil cases, there is no rule requiring more
than one witness or declaring that the testimony of a single witness will not suffice
The alleged newly discovered evidence, upon which the motion for new trial was
to establish facts, especially where such testimony has not been contradicted or
made to rest, consists merely of clearances which Boysaw secured from the clerk
rebutted. Thus, we find no reason to disturb the award of P250,000.00 as and for
of court prior to his departure for abroad. Such evidence cannot alter the result of
unrealized profits to the appellees.
the case even if admitted for they can only prove that Boysaw did not leave the
country without notice to the court or his counsel.
On the award of actual damages to Interphil and Sarreal, the records bear
sufficient evidence presented by appellees of actual damages which were neither
The argument of appellants is that if the clearances were admitted to support the
objected to nor rebutted by appellants, again because they adamantly refused to
motion for a new trial, the lower court would have allowed the postponement of
participate in the court proceedings.
the trial, it being convinced that Boysaw did not leave without notice to the court
or to his counsel. Boysaw's testimony upon his return would, then, have altered
the results of the case. The award of attorney's fees in the amount of P5,000.00 in favor of defendant-
appellee Manuel Nieto, Jr. and another P5,000.00 in favor of defendants-appellees
Interphil Promotions, Inc. and Lope Sarreal, Sr., jointly, cannot also be regarded
We find the argument without merit because it confuses the evidence of the
as excessive considering the extent and nature of defensecounsels' services which
clearances and the testimony of Boysaw. We uphold the lower court's ruling that:
involved legal work for sixteen [16] months.

The said documents [clearances] are not evidence to offset the

However, in the matter of moral damages, we are inclined to uphold the
evidence adduced during the hearing of the defendants. In fact,
appellant's contention that the award is not sanctioned by law and well- settled
the clearances are not even material to the issues raised. It is
authorities. Art. 2219 of the Civil Code provides:
the opinion of the Court that the 'newly discovered evidence'
contemplated in Rule 37 of the Rules of Court, is such kind of
evidence which has reference to the merits of the case, of such Art. 2219. Moral damages may be recovered in the following
a nature and kind, that if it were presented, it would alter the analogous cases:
result of the judgment. As admitted by the counsel in their
pleadings, such clearances might have impelled the Court to
1) A criminal offense resulting in physical injuries;
grant the postponement prayed for by them had they been
presented on time. The question of the denial of the
postponement sought for by counsel for plaintiffs is a moot issue 2) Quasi-delict causing physical injuries;
. . . The denial of the petition for certiorari and prohibition filed
by them, had he effect of sustaining such ruling of the court . . . 3) Seduction, abduction, rape or other lascivious acts;
[pp. 296-297, Record on Appeal].

4) Adultery or concubinage;
The testimony of Boysaw cannot be considered newly discovered evidence for as
appellees rightly contend, such evidence has been in existence waiting only to be
elicited from him by questioning. 5) Illegal or arbitrary detention or arrest;

We cite with approval appellee's contention that "the two qualities that ought to 6) Illegal search;
concur or dwell on each and every of evidence that is invoked as a ground for new
trial in order to warrant the reopening . . . inhered separately on two unrelated 7) Libel, slander or any other form of defamation;
species of proof" which "creates a legal monstrosity that deserves no recognition."
8) Malicious prosecution;
 9) Acts mentioned in Art. 309.
10) Acts and actions referred to in Arts., 21, 26, 27, 28, 29, 30,
32, 34 and 35.
The award of moral damages in the instant case is not based on any of the cases
enumerated in Art. 2219 of the Civil Code. The action herein brought by plaintiffs-
appellants is based on a perceived breach committed by the defendants-appellees
of the contract of May 1, 1961, and cannot, as such, be arbitrarily considered as a
case of malicious prosecution.
Moral damages cannot be imposed on a party litigant although such litigant
exercises it erroneously because if the action has been erroneously filed, such
litigant may be penalized for costs.
The grant of moral damages is not subject to the whims and
caprices of judges or courts. The court's discretion in granting or
refusing it is governed by reason and justice. In order that a
person may be made liable to the payment of moral damages,
the law requires that his act be wrongful. The adverse result of
an action does not per se make the act wrongful and subject the
actor to the payment of moral damages. The law could not have
meant to impose a penalty on the right to litigate; such right is
so precious that moral damages may not be charged on those
who may exercise it erroneously. For these the law taxes costs.
[Barreto vs. Arevalo, et. al. No. L-7748, Aug. 27, 1956, 52 O.G.,
No. 13, p. 5818.]
WHEREFORE, except for the award of moral damages which is herein deleted, the
decision of the lower court is hereby affirmed.
SO ORDERED.
UNIVERSITY OF THE PHILIPPINES VS. DE LOS
ANGELES
35 SCRA 102
FACTS:
On November 2, 1960, UP and ALUMCO entered
into a logging agreement whereby the latter was granted
exclusive authority to cut, collect and remove timber from
the Land Grant for a period starting from the date of
agreement to December 31, 1965, extendible for a period of
5 years by mutual agreement.
On December 8, 1964, ALUMCO incurred an
unpaid account of P219,362.94. Despite repeated
demands, ALUMCO still failed to pay, so UP sent a notice
to rescind the logging agreement. On the other hand,
ALUMCO executed an instrument entitled
“Acknowledgment of Debt and Proposed Manner of
Payments. It was approved by the president of UP, which
stipulated the following:
3. In the event that the payments called for are not
sufficient to liquidate the foregoing indebtedness,
the balance outstanding after the said payments
have been applied shall be paid by the debtor in
full no later than June 30, 1965.
5. In the event that the debtor fails to comply with
any of its promises, the Debtor agrees without
reservation that Creditor shall have the right to
consider the Logging Agreement rescinded,
without the necessity of any judicial suit…
ALUMCO continued its logging operations, but
again incurred an unpaid account. On July 19,1965, UP
informed ALUMCO that it had, as of that date, considered
rescinded and of no further legal effect the logging
agreement, and that UP had already taken steps to have
another concessionaire take over the logging operation.
ALUMCO filed a petition to enjoin UP from conducting the
bidding. The lower court ruled in favor of ALUMCO,
hence, this appeal.
ISSUE:
Can petitioner UP treat its contract with ALUMCO
rescinded, and may disregard the same before any judicial
pronouncement to that effect?
RULING:
Yes. In the first place, UP and ALUMCO had
expressly stipulated that upon default by the debtor, UP
has the right and the power to consider the Logging
Agreement of December 2, 1960 as rescinded without the necessity of any judicial
suit. As to such special stipulation
and in connection with Article 1191 of the Civil Code, the
Supreme Court, stated in Froilan vs. Pan Oriental Shipping
Co:
“There is nothing in the law that prohibits the
parties from entering into agreement that violation
of the terms of the contract would cause
cancellation thereof, even without court
intervention. In other words, it is not always
necessary for the injured party to resort to court
for rescission of the contract.”
ANGELES VS. CALASANZ
135 SCRA 323
FACTS:
On December 19, 1957, defendants-appellants
Ursula Torres Calasanz and plaintiffs-appellees
Buenaventura Angeles and Teofila Juani entered into a
contract to sell a piece of land located in Cainta, Rizal for
the amount of P3,920.00 plus 7% interest per annum. The
plaintiffs-appellees made a downpayment of P392.00 upon
the execution of the contract. They promised to pay the
balance in monthly installments of P41.20 until fully paid,
the installment being due and payable on the 19th day of
each month. The plaintiffs-appellees paid the monthly
installments until July 1966, when their aggregate
payment already amounted to P4,533.38.
On December 7, 1966, the defendants-appellants
wrote the plantiffs-appellees a letter requesting the
remittance of past due accounts. On January 28, 1967, the
defendants-appellants cancelled the said contract because
the plaintiffs failed to meet subsequent payments. The
plaintiffs’ letter with their plea for reconsideration of the
said cancellation was denied by the defendants.
The plaintiffs-appellees filed a case before the
Court of First Instance to compel the defendant to execute
in their favor the final deed of sale alleging inter alia that
after computing all subsequent payments for the land in
question, they found out that they have already paid the
total amount including interests, realty taxes and
incidental expenses. The defendants alleged in their
answer that the plaintiffs violated par. 6 of the contract to
sell when they failed and refused to pay and/or offer to pay
monthly installments corresponding to the month of
August, 1966 for more than 5 months, thereby
constraining the defendants to cancel the said contract.
The Court of First Instance rendered judgment in
favor of the plaintiffs, hence this appeal.
ISSUE:
Has the Contract to Sell been automatically and
validly cancelled by the defendants-appellants?
RULING:
No. While it is true that par.2 of the contract
obligated the plaintiffs-appellees to pay the defendants the
sum of P3,920 plus 7% interest per annum, it is likewise
true that under par 12 the seller is obligated to transfer the
title to the buyer upon payment of the said price.
The contract to sell, being a contract of adhesion,
must be construed against the party causing it. The
Supreme Court agree with the observation of the plaintiffsappellees
to the effect that the terms of a contract must be
interpreted against the party who drafted the same,
especially where such interpretation will help effect justice
to buyers who, after having invested a big amount of
money, are now sought to be deprived of the same thru the
prayed application of a contract clever in its phraseology,
condemnable in its lopsidedness and injurious in its effect
which, in essence, and its entirety is most unfair to the
buyers.
Thus, since the principal obligation under the
contract is only P3,920.00 and the plaintiffs-appellees
have already paid an aggregate amount of P4,533.38, the
courts should only order the payment of the few remaining
installments but not uphold the cancellation of the
contract. Upon payment of the balance of P671.67 without
any interest thereon, the defendant must immediately
execute the final deed of sale in favor of the plaintiffs and
execute the necessary transfer of documents, as provided
in par.12 of the contract.
REMEDIES IN RECIPROCAL OBLIGATIONS – Whether or not the decision of CA,
insofar as it requires payment by Petitioner to Respondent plus interest without
first awaiting Respondent’s accounting of the fruits thereof, is valid
FACTS:
-
a) Petitioner’s Arguments (De Erquiaga, et al. – Win)
- Filed a case against Respondent to rescind their contract to sell with Respondent
of the 3 100 shares of Petitioner in the Erquiaga Development Corporation
-Argued that Respondent failed to pay the balance of P561,321.70 as provided in
the promissory notes he delivered to Erquiaga pursuant to paragraph 3,
subparagraph (c) of the contract to sell
-Argued that the decision of the CA, insofar as it requires payment plus interest
without first awaiting Respondent’s accounting of the fruits thereof, violates the
law of the case and Article 1385 of the Civil Code and is iniquitous
-Appealed to SC the decision of CA
b) Respondent’s Arguments (CA, Reynoso, et al. – Lost)
-CA promulgated a decision requiring Petitioner to return to the Respondents the
sum of P410,000, as already paid by Respondent to Petitioner, plus interest,
without first awaiting Respondent’s accounting of the fruits thereof
ISSUE:
- Whether or not the decision of CA, insofar as it requires payment by Petitioner to
Respondent plus interest without first awaiting Respondent’s accounting of the
fruits thereof, is valid
RULING:
Conclusion:
- The decision of CA is invalid. The payment of said interest by Petitioner should
await Respondent’s accounting of the fruits received by him from the Hacienda
San Jose. The appeal is granted
Rule:
- ART. 1385. Rescission creates the obligation to return the things which were the
object of the contract, together with their fruits, and the price with its interest;
consequently, it can be carried out only when he who demands rescission can
return whatever he may be obliged to restore.
Neither shall rescission take place when the things which are the object of the
contract are legally in the possession of third persons who did not act in bad faith.
In this case, indemnity for damages may be demanded from the person causing
the loss.
Application:
- In this case, the Hacienda San Jose and 1,500 shares of stock have already been
returned to Erquiaga. Therefore, upon the conveyance to him of the remaining
1,600 shares, Erquiaga (or his heirs) should return to Reynoso the price of
P410,000 which the latter paid for those shares. Pursuant to the rescission
decreed in the final judgment, there should be simultaneous mutual restitution of
the principal object of the contract to sell (3,100 shares) and of the consideration
paid (P410,000). This should not await the mutual restitution of the fruits,
namely: the legal interest earned by Reynoso's P410,000 while in the possession
of Erquiaga and its counterpart: the fruits of Hacienda San Jose which Reynoso
received from the time the hacienda was delivered to him on November 4,1968
until it was placed under receivership by the court on March 3, 1975.
-However, since Reynoso has not yet given an accounting of those fruits, it is only
fair that Erquiaga's obligation to deliver to Reynoso the legal interest earned by
his money, should await the rendition and approval of his accounting. To this
extent, the decision of the Court of Appeals should be modified. For it would be
inequitable and oppressive to require Erquiaga to pay the legal interest earned by
Reynoso's P410,000 since 1968 or for the past 20 years (amounting to over
P400,000 by this time) without first requiring Reynoso to account for the fruits of
Erquiaga's hacienda which he allegedly squandered while it was in his possession
from November 1968 up to March 3, 1975.
Conclusion:
- Thus, the decision of CA is invalid. The payment of said interest by Petitioner
should await Respondent’s accounting of the fruits received by him from the
Hacienda San Jose. The appeal is granted
Ong v. CA (1999)
Petitioners: JAIME G. ONG
Respondents: CA, MIGUEL K. ROBLES AND ALEJANDRO M. ROBLES
Ponente: YNARES-SANTIAGO
Topic: Remedies for Breach
SUMMARY: (1-2 sentence summary of facts, issue, ratio and ruling)
FACTS:
- May 10, 1983: Ong and the Robleses executed an "Agreement of Purchase and
Sale" respecting two parcels of land situated at Barrio Puri, San Antonio, Quezon
with the agreed purchase price of P2 million.
- May 15, 1983: Ong took possession of the parcels of land together with the
piggery, building, ricemill, residential house and other improvements thereon.
- Ong paid Robleses of P103, 499.91 by depositing it with the United Coconut
Planters Bank. He also deposited sums of money with the Bank of Philippine
Islands (BPI) to pay the Robleses’ loan as stipulated in their contract.
- To answer for his balance of P1.4M, Ong issued 4 post-dated checks payable to
Robleses (P350k each). However, the checks were dishonored due to insufficient
funds.
- In addition, out of the P496,500.00 loan of Robleses with BPI, Ong only
managed to dole out P393,679.60.
- When the bank threatened to foreclose the mortgage, they sold 3 transformers
of the rice mill worth P51, 411.00 to pay off their outstanding obligation, with
Ong’s knowledge and conformity.
- Robleses through counsel, sent Ong a demand letter asking for the return of the
properties.
- Since their demand was left unheeded, Robleses filed a complaint for rescission
of the contract and recovery of properties with damages with the Lucena City RTC.
- The RTC rescinded the contract. CA affirmed, noting that Ong’s failure to
completely pay the purchase price is a substantial breach of his obligation which
Robleses to rescind their contract under A1191.
- Ong contends that Article 1191 of the New Civil Code is not applicable since he
has already paid Robleses a considerable sum and has therefore substantially
complied with his obligation. He cites A1383 instead, to the effect that where
specific performance is available as a remedy, rescission may not be resorted to.
ISSUES:
• WON the contract entered into by the parties may be validly rescinded
o YES, but not by using A1191. Rescission, as contemplated in A1380, et
seq. is a remedy granted by law to the contracting parties and even to third
persons, to secure the reparation of damages caused to them by a contract, even
if this should be valid, by restoration of things to their condition at the moment
prior to the celebration of the contract. It implies a contract, which even if initially
valid, produces a lesion or a pecuniary damage to someone.
o A1191 refers to rescission applicable to reciprocal obligations. Reciprocal
obligations are those which arise from the same cause, and in which each party is
a debtor and a creditor of the other, such that the obligation of one is dependent
upon the obligation of the other. They are to be performed simultaneously such
that the performance of one is conditioned upon the simultaneous fulfillment of
the other.
o While A1191 uses the term "rescission," the original term which was used
in the old CC was "resolution." Resolution is a principal action which is based on
breach of a party, while rescission under A1383 is a subsidiary action limited to
cases of rescission for lesion under A1381 (see list in Deiparine digest).
o Obviously, the contract entered into by the parties does not fall under
any of those mentioned by A1381. Consequently, A1383 is inapplicable.
o A careful reading of the parties' "Agreement of Purchase and Sale" shows
that it is in the nature of a contract to sell, as distinguished from a contract of
sale. In a contract of sale, the title to the property passes to the vendee upon the
delivery of the thing sold; while in a contract to sell, ownership is, by agreement,
reserved in the vendor and is not to pass to the vendee until full payment of the
purchase price. In a contract to sell, the payment of the purchase price is a
positive suspensive condition, the failure of which is not a breach, casual or
serious, but a situation that prevents the obligation of the vendor to convey title
from acquiring an obligatory force.
o Robleses bound themselves to deliver a deed of absolute sale and clean
title covering the two parcels of land upon full payment by the buyer of the
purchase price of P2,000,000.00. This promise to sell was subject to the
fulfillment of the suspensive condition of full payment of the purchase price by
Ong. However, Ong failed to complete payment of the purchase price. The
nonfulfillment of the condition of full payment rendered the contract to sell
ineffective and without force and effect.
o The breach contemplated in A1191 is the obligor's failure to comply with
an obligation already extant, not a failure of a condition to render binding that
obligation. Failure to pay, in this instance, is not even a breach but merely an
event which prevents the vendor's obligation to convey title from acquiring binding
force. Hence, the agreement of the parties in the case at bench may be set aside,
but not because of a breach on the part of Ong for failure to complete payment of
the purchase price. Rather, his failure to do so brought about a situation which
prevented the obligation of Robleses to convey title from acquiring an obligatory
force.
Visayan Sawmill v. CA (1993)
Petitioners: VISAYAN SAWMILL COMPANY, INC.
Respondents: CA and RJH TRADING, REPRESENTED BY RAMON J. HIBIONADA,
PROPRIETOR
Ponente: DAVIDE, JR.
Topic: Remedies for Breach
SUMMARY: (1-2 sentence summary of facts, issue, ratio and ruling)
FACTS:
1.) On May 1, 1983 – RJH Trading and Visayan Sawmill Company (VSC)
entered into a Purchase and Sale of Scrap Iron located at VSC’s stockyard at
Negros Oriental, subject to the condition that RJH will open a Letter of Credit
(LOC) of P250,000 in favor of VSC on or before May 15, 1983.
2.) On May 17, 1983, RJH through his men started to dig and gather and
scrap iron at the VSC's premises, proceeding until May 30 when VSC allegedly
directed RJH's men to desist from pursuing the work in view of an alleged case
filed against RJH by Alberto Pursuelo.
3.) VSC denies this, alleging that on May 23, 1983, they sent a telegram to
RJH canceling the contract of sale because of the failure of the latter to comply
with the conditions thereof.
4.) On May 24, 1983, RJH informed VSC that the LOC was opened May 12,
1983 at BPI main office in Ayala, but the transmittal was delayed.
5.) On May 26, 1983, VSC received a letter advice from BPI Dumaguete
stating that an irrevocable domestic LOC P250,000 was opened in favor of Ang
Tay c/o VSC on account of Armaco-Armsteel Alloy Corporation.
6.) On July 19, 1983, RJH Trading sent a series of telegrams stating that the
case filed against him by Pursuelo had been dismissed and demanding that VSC
comply with the deed of sale, otherwise a case will be filed against them.
7.) On July 20, 1983, VSC informed RJH that they were unwilling to continue
with the sale due to RJH's failure to comply with essential pre-conditions of the
contract.
8.) On July 29, 1983, RJH filed the complaint, praying for judgment ordering
VSC to comply with the contract by delivering to him the scrap iron subject
thereof; he further sought actual, moral and exemplary damages, attorney's fees
and the costs of the suit.
9.) VSC insisted that the cancellation of the contract was justified because of
RJH’s noncompliance with essential pre-conditions, among which is the opening of
an irrevocable and unconditional LOC not later than 15 May 1983.
10.) RTC ruled in RJH’s favor, awarding the damages sought.
11.) CA affirmed, holding:
- VSC argued that under Articles 1593 and 1597 of the Civil Code,
automatic rescission may take place by a mere notice to the buyer if the latter
committed a breach of the contract of sale. Even if one were to grant that there
was a breach of the contract by the buyer, automatic rescission cannot take place
because delivery had already been made. And, in cases where there has already
been delivery, the intervention of the court is necessary to annul the contract.
- Rescission in cases falling under Article 1191 of the Civil Code is always
subject to review by the courts and cannot be considered final. In this, the trial
court ruled that rescission is improper because the breach was very slight and the
delay in opening the LOC was only 11 days.
12.) Hence, the appeal to SC by VSC.
ISSUES:
• WON VSC properly rescinded the contract
o YES. What obtains in this case is a mere contract to sell or promise to
sell, and not a contract of sale.
o The RTC assumed that the transaction is a contract of sale and,
influenced by its view that there was an "implied delivery" of the object of the
agreement, concluded that A1593, NCC was inapplicable. It ruled that rescission
under A1191, NCC could only be done judicially. It further classified the breach
committed by the private respondent as slight or casual, foreclosing, thereby,
VSC’s right to rescind the agreement.
 "ART. 1593. With respect to movable property, the rescission of the sale
shall of right take place in the interest of the vendor, if the vendee, upon the
expiration of the period fixed for the delivery of the thing, should not have
appeared to receive it, or, having appeared, he should not have tendered the price
at the same time, unless a longer period has been stipulated for its payment."
o Sustaining RTC, CA cited A1497: “The thing sold shall be understood as
delivered, when it is placed in the control and possession of the vendee."
o VSC's obligation to sell is unequivocally subject to a positive suspensive
condition, i.e., RJH’s opening, making or indorsing of an irrevocable and
unconditional LOC. VSC agreed to deliver the scrap iron only upon payment of the
purchase price by means of an irrevocable and unconditional LOC. Otherwise
stated, the contract is not one of sale where the buyer acquired ownership over
the property subject to the resolutory condition that the purchase price would be
paid after delivery. Thus, there was to be no actual sale until the opening, making
or indorsing of the irrevocable and unconditional LOC. Since what obtains here is a
mere promise to sell, RJH’s failure to comply with the positive suspensive
condition cannot even be considered a breach casual or serious but simply an
event that prevented the obligation of petitioner corporation to convey title from
acquiring binding force.
o Not only did RJH fail to open, make or indorse an irrevocable and
unconditional LOC on or before 15 May 1983 despite his earlier representation in
his 24 May 1983 telegram that he had opened one on 12 May 1983, the letter of
advice VSC received on 26 May 1983 from BPI Dumaguete City branch explicitly
makes reference to the opening on that date of a LOC in favor of petitioner Ang
Tay c/o Visayan Sawmill Co. Inc., drawn without recourse on ARMACOMARSTEEL
ALLOY CORPORATION and set to expire on 24 July 1983, which is indisputably not
in accordance with the stipulation in the contract signed by the parties on at least
three (3) counts: (1) it was not opened, made or indorsed by RJH, but by a
corporation which is not a party to the contract; (2) it was not opened with the
bank agreed upon; and (3) it is not irrevocable and unconditional, for it is without
recourse, it is set to expire on a specific date and it stipulates certain conditions
with respect to shipment. In all probability, RJH may have sold the subject scrap
iron to ARMACOMARSTEEL, or otherwise assigned to it the contract with VSC. RJH
's complaint fails to disclose the sudden entry into the picture of this corporation.
o Consequently, the obligation of VSC to sell did not arise; it therefore
cannot be compelled by specific performance to comply with its prestation. In
short, A1191 does not apply; on the contrary, pursuant to A1597, VSC may totally
rescind, as it did in this case, the contract.
 "ART. 1597. Where the goods have not been delivered to the buyer, and
the buyer has repudiated the contract of sale, or has manifested his inability to
perform his obligations, thereunder, or has committed a breach thereof, the seller
may totally rescind the contract of sale by giving notice of his election so to do to
the buyer."
NOTES:
ROMERO, dissenting: A provision in the contract regarding the mode of payment,
like the requirement for the opening of the LOC in this case, is not among the
essential requirements of a contract of sale enumerated in A1305 and 1474, the
absence of any of which will prevent the perfection of the contract from
happening. Likewise, not every provision regarding payment should automatically
be classified as a suspensive condition. To do so would change the nature of most
contracts of sale into contracts to sell. For a provision in the contract regarding
the payment of the price to be considered a suspensive condition, the parties
must have made this clear in certain and unambiguous terms, such as for
instance, by reserving or withholding title to the goods until full payment by the
buyer.
Nowhere in the contract did it state that the VSC reserve title to the goods until
RJH has opened a LOC. Nor is there any provision declaring the contract as
without effect until after the fulfillment of the condition regarding the opening of
the LOC.
The agreement between the parties was a contract of sale and the "terms and
conditions" embodied therein which are standard form, are clearly resolutory in
nature, the breach of which may give either party the option to bring an action to
rescind and/or seek damages. Contrary to the conclusions arrived at in the
ponencia, the transaction is not a contract to sell but a contract of sale.
The ponencia, notwithstanding its conclusion that no contract of sale existed,
proceeded to state VSC may rescind the contract based on A1597 of the Civil Code
which expressly applies only to a contract of sale. The ponencia was then
confronted with the issue of delivery since Article 1597 applies only "[w]here the
goods have not yet been delivered." In this case, the workers of RJH were actually
allowed to VSC’s premises, thus, giving them control and possession of the goods.
At this juncture, it is even unnecessary to discuss the issue of delivery in relation
to the right of rescission nor to rely on A1597. In every contract which contains
reciprocal obligations, the right to rescind is always implied under A1191 in case
one of the parties fails to comply with his obligations.
VSC claims that the breach is so substantial as to justify rescission, not only
because the LOC was not opened on May 15, 1983 as stipulated in the contract
but also because of the following factors: (1) the LOC, although opened in favor of
VSC was made against the account of a certain Marsteel Alloy Corporation, instead
of private respondent's account; (2) the LOC referred to "assorted steel scrap"
instead of "scrap iron and junk" as provided in the contract; (3) the LOC placed
the quantity of the goods at "500 MT" while the contract mentioned "an
undetermined quantity of scrap iron and junk"; (4) no amount from the LOC will
be released unless accompanied by a Certificate of Acceptance; and (5) the LOC
had an expiry date.
I am not convinced that the above circumstances may be characterized as so
substantial and fundamental as to defeat the object of the parties in making the
agreement. None of the alleged defects in the LOC would serve to defeat the
object of the parties. It is to be stressed that the purpose of the opening of a LOC
is to effect payment. The abovementioned factors could not have prevented such
payment. It is also significant to note that VSC sent a telegram to RJH on May 23,
1983 cancelling the contract. This was before they had even received on May 26,
1983 the notice from the bank about the opening of the LOC. How could they have
made a judgment on the materiality of the provisions of the LOC for purposes of
rescinding the contract even before setting eyes on said document?
DEIPARINE, JR vs CA
GR ## GR No. 96643
Petitioner: Ernesto Deiparine, Jr
Respondents: Hon. Courts of Appeals, Cesario Carungay and Engr. Nicanor
Trinidad
Date April 23, 1993
Cruz, J.
DOCTRINE There can be rescission is the injured party is left without other
recourse but to rescind the contract.
(SHORT VERSION)
Respondent Carungay entered to a construction contract with the Petitioner
Deiparine, who is a contractor. However, it came to the knowledge of Carungay,
through Trinidad (his engineer in charge for the construction), that Deiparine is
not following the specifications they agreed on for the building and the structure
lacks strength and not safe for its future occupants. Carungay moved to rescind
the contract. CA ruled in favor of Carungay. SC affirmed.
FACTS
Respondent Carungay entered to a construction contract with Petitioner Deiparine
(a contractor) for the construction of a three-storey dormitory in Cebu City.
Carungay agreed to pay P970,000 inclusive of contractor’s fee, and Deiparine
bound himself to erect the said building “in strict accordance to plans and
specifications.” The Plan specified that the building must have 3,000 psi (pounds
per square inch) as the acceptable minimum compressive strength.
Through Engr. Trinidad, it came to the knowledge of the respondents that
Deiparine is not following the plans and that the “construction works are faulty
and haphazardly” in order to maximize his personal profit. Carungay sent
memorandums to Deiparine complaining about the work done by the latter, but
the same were ignored.
Carungay asked for a core testing to examine the compressive strength of the
building. Deiparine eventually agreed to undertake such test. The result was
against Deiparine, the building failed to bear the minimum 3,000 psi compressive
strength. Carungay move to rescind the contract. RTC ruled in the favor of the
respondents. CA affirmed. Hence this case. The petitioners are claiming that the
specification of 3,000 psi is not included in their contract thus not a valid ground
for rescission.
ISSUES/HELD
(1) WoN Carungay is entitled to rescission - YES
RATIO
(1) The contention of the petitioner that the specification was not included in their
contract is untenable. It is true that there was no real specification included in the
contract but the same was intended to be followed after the signing and before
the commencement of the construction. Also, the petitioner’s own project
manager admitted that Deiparine was actually instructing them (the construction
people) to ignore the specific orders or instructions of Carungay and Trinidad. In
addition, the Deiparine Construction Firm is not a very able firm since none of
them is a engineer except one who only visited the construction site two months
after the commencement of the construction.
There are two sets of specifications in the contract: (1) list of the materials to be
used; (2) the required structural compressive strength of 3,000 psi. Deiparine
eventually recognized that there really are specifications but contested that the
minimum compressive strength of 3,000 psi is unnecessary for buildings since
3,000 psi is only required for roads. According to him, 2,500 psi is enough for
buildings.
The explicit deviance to the specifications, in his intial refusal to undergo core
testing, and his preference to his personal profit than that of the proper execution
of the contract, shows bad faith. The court sees no reason to disturb the ruling of
CA that Deiparine did not deal with the Carungays in good faith. His breach if this
duty constituted a substantial violation of the contract correctible by judicial
rescission. When the structure failed under this test, the respondents were left
with no other recourse than to rescind their contract.
Iringan vs CA 366 SCRA 41 (2001)
FACTS
1. On March 22, 1985 private respondent Antonio Palao sold to petitioner
Alfonso Iringan an undivided portion of Lot No. 992 of the Tuguegarao Cadastre,
located in Poblacion of Tuguegarao.
2. Parties executed a Deed of Sale on same date with the purchase price of
P295K, payable as follows:
a) P10K upon execution of this instrument, and vendor acknowledges
having received the amount;
b) P140K on or before April 30, 1985;
c) P145K on or before December 31, 1985.
3. When second payment was due, Iringan paid only P40K. On July 18,
1985, Palao sent a letter to Iringan stating that he would not accept any further
payment considering that Iringan failed to comply with his obligation to pay full
amount of second installment.
4. On August 20, 1985, Iringan replied that they were not opposing the
revocation of the Deed of Sale, but asked for the reimbursement of the ff:
a) P50K –cash received;
b) P3,200—geodetic engineer’s fee;
c) P500—attorney’s fee;
d) Interest on P53,700
5. Palao declared he was not amenable to the reimbursements claimed by
Iringan. Iringan then proposed that the P50K which he had paid Palao be
reimbursed, or Palao could sell to Iringin an equivalent portion of the land.
6. Palao replied that Iringan’s standing obligation had reached P61,600
representing payment of arrears for rentals from October 1985 to March 1989.
Spouses Iringan alleged that the contract of sale was a consummated contract,
hence the remedy for Palao was for collection of the balance of the purchase price
and not rescission. In addition they declared that they had always been ready and
willing to comply with their obligations to Palao.
7. RTC ruled in favor of Palao and affirmed the rescission of the contract.
8. Petitioner’s Claim: That no rescission was effected simply by virtue of the
letter sent by respondent stating that he considered the contract of sale rescinded.
That a judicial or notarial act is necessary before one party can unilaterally effect
a rescission.
9. Respondent’s Comment: The right to rescind is vested by law on the
obligee and since petitioner did not oppose the intent to rescind the contract,
Iringan in effect agreed to it and had the legal effect of a mutually agreed
rescission.
ISSUES
1. WON the contract of sale was validly rescinded;
2. WON the award of moral and exemplary damages is proper.
HELD
1. The contract of sale between the parties as far as the prescriptive period
applies, can still be, validly rescinded.
Ratio: Art 1592 requires the rescinding party to serve judicial or notarial notice of
his intent to resolve the contract. A judicial and notarial act is necessary before a
valid rescission can take place, whether or not automatic rescission has been
stipulated. The phrase “even though” emphasizes that when no stipulation is
found on automatic rescission, the judicial or notarial requirement still applies.
The right to resolve reciprocal obligations (Art 1191) is deemed implied in case
one of the obligors shall fail to comply with what is incumbent upon him. But the
right must be invoked judicially. Even if the right to rescind is made available to
the injured party, the obligation is not ipso facto erased by the failure of the other
party to comply with what is incumbent upon him. The party entitled to rescind
should apply to the court for a decree of rescission. The operative act is the
decree of the court.
2 .The award of moral and exemplary damages is proper.
Ratio: Petitioner claimed he was ready to pay but never actually paid respondent,
even when he knew that the reason for selling the lot was for Palao to needed to
raise money to pay his SSS loan.
1) Iringan knew Palao’s reason for selling the property, and still he did not
pay Palao.
2) Petitioner refused to formally execute an instrument showing their
mutual agreement to rescind the contract of sale, even when it was Iringan who
breached the terms of their contract, leaving Palao desperate to find other sources
of funds to pay off the loan.
3) Petitioner did not substantiate by clear and convincing proof that he was
ready and willing to pay respondent. It was more of an afterthought to evade the
consequence of the breach.
Vda. De Mistica vs. Naguiat
418 SCRA 73
Art. 1182. Potestative Condition
Issue/Scope
Potestative Condition under Art. 1182 in relation to Art. 1191 of Civil Code
Facts
Predecessor-in-interest of Petitioner and herein Defendants entered into a contract
to sell in which the latter prayed the initial payment and undertake to pay the
remaining by installment within 10 years subject to 12% interest per annum
Petitioner filed a complaint for rescission alleging failure and refusal of Defendants
to pay the balance constitutes a violation of the contract which entitles her to
rescind the same
Petitioner argues that period for performance of obligation cannot be extended to
10 years because to do so would convert the obligation to purely potestative
Held
Under Art. 1191 of Civil Code, the right to rescind an obligation is predicated on
violation between parties brought about by breach of faith by one of them.
Rescission, however, is allowed only when the breach is substantial and
fundamental to the fulfillment of the obligation
In this case, no substantial breach – in the Kasulatan, it was stipulated that
payment could be made even after 10 years from execution of contract, provided
they will pay the 12% interest
Civil Code prohibits purely potestative, suspensive, conditional obligation that
depend on the whims of the debtor. Nowhere in the deed that payment of
purchase price is dependent whether respondents want to pay it or not, the fact
that they already made partial payment shows that parties intended to be bound
by the Kasulatan.
Vda. de Mistica v. Sps. Naguiat (2003)
Petitioners: FIDELA DEL CASTILLO VDA. DE MISTICA
Respondents: SPOUSES BERNARDINO NAGUIAT AND MARIA PAULINA GERONA-
NAGUIAT
Ponente: PANGANIBAN
Topic: Remedies for Breach
SUMMARY: (1-2 sentence summary of facts, issue, ratio and ruling)
FACTS:
- Eulalio Mistica, Fidela’s predecessor-in-interest, is the owner of a parcel of land
in Malhacan, Meycauayan, Bulacan. A portion thereof was leased to Bernardino
Naguiat (Naguiat) sometime in 1970.
- On 5 April 1979, Eulalio entered into a contract to sell with Naguiat over a
portion of the aforementioned lot containing an area of 200 m2. This agreement
was reduced to writing in a document entitled Kasulatan sa Pagbibilihan.
`Na ang natitirang halagang LABING WALONG LIBONG PISO (P18,000.00)
Kualtang Pilipino, ay babayaran ng BUM[I]BILI sa loob ng Sampung (10) taon, na
magsisimula sa araw din ng lagdaan ang kasulatang ito.
`Sakaling hindi makakabayad ang Bumibili sa loob ng panahon pinagkasunduan,
an[g] BUMIBILI ay magbabayad ng pakinabang o interes ng 12% isang taon, sa
taon nilakaran hanggang sa ito'y mabayaran tuluyan ng Bumibili
- Naguiat gave a downpayment of P2,000.00. He made another partial payment of
P1,000.00 on 7 February 1980. He failed to make any payments thereafter.
- Eulalio Mistica died sometime in October 1986.
- On 4 December 1991, Fidela filed a complaint for rescission alleging: that
Naguiats’ failure and refusal to pay the balance of the purchase price constitutes a
violation of the contract which entitles her to rescind the same.
- Naguiats contended that the contract cannot be rescinded on the ground that it
clearly stipulates that in case of failure to pay the balance as stipulated, a yearly
interest of 12% is to be paid. Naguiat likewise alleged that sometime in October
1986, during Eualalio’s wake, he offered to pay the remaining balance to Fidela
but the latter refused and hence, there is no breach or violation committed by
them and no damages could yet be incurred by the late Eulalio, his heirs or
assigns pursuant to the said document.
- RTC disallowed rescission. CA affirmed. It held that the conclusion of the ten-
year period was not a resolutory term, because the Contract had stipulated that
payment with interest of 12% could still be made if Naguiats failed to pay within
the period. Fidela did not disprove the allegation of Naguiats that they had
tendered payment of the balance of the purchase price during her husband's
funeral, which was well within the ten-year period. Moreover, rescission would be
unjust to Naguiats, because they had already transferred the land title to their
names. The proper recourse, the CA held, was to order them to pay the balance of
the purchase price, with 12% interest.
- Before SC, Fidela claimed that she is entitled to rescind the Contract under
A1191, because Naguiats committed a substantial breach when they did not pay
the balance of the purchase price within the 10-year period.
ISSUES:
• WON there is a breach of obligation that warrants rescission under A1191
o NO. The transaction between Eulalio and Naguiats, as evidenced by the
Kasulatan, was clearly a Contract of Sale. A deed of sale is considered absolute in
nature when there is neither a stipulation in the deed that title to the property
sold is reserved to the seller until the full payment of the price; nor a stipulation
giving the vendor the right to unilaterally resolve the contract the moment the
buyer fails to pay within a fixed period.
o In a contract of sale, the remedy of an unpaid seller is either specific
performance or rescission. Under A1191, the right to rescind an obligation is
predicated on the violation of the reciprocity between parties, brought about by a
breach of faith by one of them. Rescission, however, is allowed only where the
breach is substantial and fundamental to the fulfillment of the obligation.
o Naguiats’ failure to pay the balance of the purchase price within 10 years
from the execution of the Deed did not amount to a substantial breach. In the
Kasulatan, it was stipulated that payment could be made even after ten years
from the execution of the Contract, provided the vendee paid 12 percent interest.
The stipulations of the contract constitute the law between the parties; thus,
courts have no alternative but to enforce them as agreed upon and written.
o Moreover, it is undisputed that during the ten-year period, Fidela and her
deceased husband never made any demand for the balance of the purchase price.
Fidela even refused the payment tendered by Naguiats during her husband's
funeral, thus showing that she was not exactly blameless for the lapse of the ten-
year period. Had she accepted the tender, payment would have been made well
within the agreed period.
NOTES: The issuance of a certificate of title in favor of Naguiats does not
determine whether Fidela is entitled to rescission.