Sandoval Shipyards, Inc., Petitioner, vs.

Philippine Merchant Marine Academy (PMMA), Respondent

GR No. 188633, April 10, 2013

Facts: The PMMA entered into Ship Building Contract with Sandoval Shipyards, Inc. with the latter
obliging itself to construct two units of lifeboats to be used by the students of PMMA for training. The
parties agreed on the specifications of the boats, the date of delivery and the amount of payment as stated
in the contract. However, upon inspection by the PMMA, it found that the construction being done by
the petitioner was not in conformity with the approved plan. Because of this, respondent’s dean
submitted a report and recommendation for ratification of the contract to its President. A meeting was
held in order to settle the issue. Sandoval asked for extension of the time of delivery of the lifeboats
which was granted by PMMA. However, Sandoval was not able to comply with the agreed specifications
for the boats and the agreed time of delivery despite repeated demands from PMMA. As a result, PMMA
filed a Complaint for Rescission of Contract with damages against the petitioners.

The RTC held that although the caption for the complaint filed by PMMA was for Rescission for
Contract, the allegations in the body were for breach of contract. Thus, the respondents were made jointly
and severally liable for actual damages plus attorney’s fees plus cost of suits. The petitioners appealed
the case to the CA where it found that indeed the petitioners committed a clear substantial breach of
contract which warranted its rescission. However, since rescission requires mutual restoration of benefits
received, the respondents cannot be compelled to return what it does not possess - the lifeboats which the
petitioners failed to deliver. A motion for reconsideration was filed by the petitioners but was denied by
the CA hence the petition for certiorari filed under rule 45.

Issue: Whether or not the case is for rescission and not for damages due to breach of contract.

Ruling: No, the case is for damages due to breach of contract. It held that the RTC was correct in
determining whether there was a breach of contract and if such breach would warrant rescission and or
damages. In this case, it found that the breach was found to be substantial and sufficient to warrant a
rescission of the contract. However, since rescission entails a mutual restitution of benefits received and
the factual circumstances rendered this mutual restitution impossible, an injured party who has chosen
rescission is also entitled to the payment of damages.