CASUAL CONDITION
(1) Cruz v. Gasilian (Impossible Conditions)
(1) (Song Fo & Co. v. Hawaiian Phil. Co., G.R. No. 23769, September 16, 1925)
(4) (Filoil Refinery Corp. v. Mendoza, G.R. No. L-55526, June 15, 1987)
(5) (Hermanos v. Saldaa, G.R. No. L-26578, January 28, 1974)
(7) (Solar Harvest, Inc. v. Davao Corrugated Carton Corp., G.R. No. 176868, July 26, 2010)
Cruz v. Gasilian (Impossible Conditions)
-------not found------------
(Song Fo & Co. v. Hawaiian Phil. Co., G.R. No. 23769,
September 16, 1925)
FIRST DIVISION
[G.R. No. 23769. September 16, 1925.]
SONG FO & COMPANY, plaintiff-appellee, vs.
HAWAIIAN PHILIPPINE CO., defendant-appellant.
Hilado & Hilado, Ross, Lawrence & Selph and
Antonio T. Carrascoso, Jr., for appellant.
Arroyo, Gurrea & Muller for appellee.
SYLLABUS
1. CONTRACTS; SALES; INSTANT CASE. The written
contract examined and found to provide for the
delivery by the Hawaiian-Philippine Co. to Song Fo
& Company of 300,000 gallons of molasses.
2. ID.; ID,.; ID.; PAYMENT. The terms of payment
fixed by the parties are controlling. The time of
payment stipulated for in the contract should be
treated as of the essence of the contract.
3. ID.; ID.; ID.; ID.; RESCISSION. The general rule is
that 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 as
to defeat the object of the parties in making the
agreement.
4. ID.; ID.; ID.; ID.; ID. A delay in payment for a
small quantity of molasses for some twenty days is
not such a violation of an essential condition of the
contract as warrants rescission for non-
performance.
5. ID.; ID.; ID.; MEASURE OF DAMAGES FOR BREACH
OF CONTRACT. The facts examined and Song Fo
& Company allowed P3,000 on account of the
greater expense to which it was put in being
compelled to secure molasses in the open market.
6. ID.; ID.; ID. The facts examined and Song Fo &
Company allowed nothing for lost profits on
account of the breach of the contract, because of
failure of proof.
DECISION
MALCOLM, J p:
In the Court of First Instance of Iloilo, Song Fo &
Company, plaintiff, presented a complaint with two
causes of action for breach of contract against the
Hawaiian-Philippine Co., defendant, in which
1|OBLICON_Chapter 3_CASUAL CONDITION
judgment was asked for P70,369.50, with legal
interest, and costs. In an amended answer and
cross-complaint, the defendant set up the special
defense that since the plaintiff had defaulted in the
payment for the molasses delivered to it by the
defendant under the contract between the parties,
the latter was compelled to cancel and rescind the
said contract. The case was submitted for decision
on a stipulation of facts and the exhibits therein
mentioned. The judgment of the trial court
condemned the defendant to pay for the plaintiff a
total of P35,317.93, with legal interest from the date
of the presentation of the complaint, and with
costs.
From the judgment of the Court of First Instance the
defendant only has appealed. In this court it has
made the following assignment of errors: "I. The
lower court erred in finding that the appellant had
agreed to sell to the appellee 400,000, and not only
300,000, gallons of molasses. II. The lower court
erred in finding that the appellant rescinded
without sufficient cause the contract for the sale of
molasses executed by it and the appellee. III. The
lower court erred in rendering judgment in favor of
the appellee and not in favor of the appellant in
accordance with the prayer of its answer and
cross-complaint. IV. The lower court erred in
denying appellant's motion for a new trial." The
specified errors raise three questions which we will
consider in the order suggested by the appellant.
1. Did the defendant agree to sell to the plaintiff
400,000 gallons of molasses or 300,000 gallons of
molasses? The trial court found the former amount
to be correct. The appellant contends that the
smaller amount was the basis of the agreement.
The contract of the parties is in writing. It is found
principally in the documents, Exhibits F and G. The
first mentioned exhibit is a letter addressed by the
administrator of the Hawaiian-Philippine Co. to
Song Fo & Company on December 13, 1922. It
reads:
"SILAY, OCC. NEGROS, P. I.
"December 13, 1922.
"MESSRS. SONG FO AND CO.
"Iloilo, Iloilo.
"DEAR SIRS: Confirming our conversation we had
today with your Mr. Song Fo, who visited this
Central, we wish to state as follows:
"He agreed to the delivery of 300,000 gallons of
molasses at the same price as last year under the
same condition, and the same to start after the
completion of our grinding season. He requested if
possible to let you have molasses during January,
February and March or in other words, while we are
grinding, and we agreed with him that we would to
the best of our ability, altho we are somewhat
handicapped. But we believe we can let you have
25,000 gallons during each of the milling months,
altho it interfere with the shipping of our own and
planters sugars to Iloilo. Mr. Song Fo also asked if we
could supply him with another 100,000 gallons of
molasses, and we stated we believe that this is
possible and will do our best to let you have these
extra 100,000 gallons during the next year the same
to be taken by you before November 1st, 1923,
along with the 300,000, making 400,000 gallons in
all.
"Regarding the payment for our molasses, Mr. Song
Fo gave us to understand that you would pay us at
the end of each month for molasses delivered to
you.
"Hoping that this is satisfactorily and awaiting your
answer regarding this matter, we remain.
"Yours very truly,
"HAWAIIAN-PHILIPPINE COMPANY
"By: R.C. PITCAIRN
"Administrator."
Exhibit G is the answer of the manager of Song Fo &
Company to the Hawaiian-Philippine Co. on
December 16, 1922. This letter reads:
"December 16th, 1922.
"MESSRS. HAWAIIAN-PHILIPPINE CO.,
"Silay, Neg. Occ., P. I.
"DEAR SIRS: We are in receipt of your favors dated
the 9th and the 13th inst. and understood all their
contents.
"In connection to yours of the 13th inst, we regret to
hear that you mentioned Mr. Song Fo the one who
visited your Central, but it was not for he was Mr.
Song Heng, the representative and the manager of
Messrs. Song Fo & Co.
"With reference to the contents of your letter dated
the 13th inst. we confirm all the arrangements you
have stated and in order to make the contract
clear, we hereby quote below our old contract as
amended, as per our new arrangements.
"(a) Price, at 2 cents per gallon delivered at the
central.
"(b) All handling charges and expenses at the
central and at the dock at Mambaguid for our
account.
"(c) For services of one locomotive and flat cars
necessary for our six tanks at the rate of P48 for the
round trip dock to central and central to dock. This
service to be restricted to one trip for the six tanks.
"Yours very truly,
"SONG FO & COMPANY
"By__________________
"Manager."
We agree with appellant that the above quoted
correspondence is susceptible of but one
interpretation. The Hawaiian-Philippine Co. agreed
to deliver to Song Fo & Company 300,000 gallons of
molasses. The Hawaiian-Philippine Co. also believed
it possible to accommodate Song Fo & Company
by supplying the latter company with an extra
100,000 gallons. But the language used with
reference to the additional 100,000 gallons was not
a definite promise. Still less did it constitute an
obligation.
If Exhibit T relied upon by the trial court shows
anything, it is simply that the defendant did not
consider itself obliged to deliver to the plaintiff
molasses in any amount. On the other hand, Exhibit
A, a letter written by the manager of Song Fo &
2|OBLICON_Chapter 3_CASUAL CONDITION
Company on October 17, 1922, expressly mentions
an understanding between the parties of a
contract for 300,000 gallons of molasses.
We sustain appellant's point of view on the first
question and rule that the contract between the
parties provided for the delivery by the Hawaiian-
Philippine Co. to Song Fo & Company of 300,000
gallons of molasses.
2. Had the Hawaiian-Philippine Co. the right to
rescind the contract of sale made with Song Fo &
Company? The trial judge answers No, the
appellant Yes.
Turning to Exhibit F, we note this sentence:
"Regarding the payment for our molasses, Mr. Song
Fo (Mr. Song Heng) gave us to understand that you
would pay us at the end of each month for
molasses delivered to you." In Exhibit G, we find
Song Fo & Company stating that they understand
the contents of Exhibit F, and that they "confirm all
the arrangements you have stated, and in order to
make the contract clear, we hereby quote below
our old contract as amended, as per our new
arrangements. (a) Price, at 2 cents per gallon
delivered at the central." In connection with the
portion of the contract having reference to the
payment for the molasses, the parties have agreed
on a table showing the date of delivery of the
molasses, the account and date thereof, the date
of receipt of account by plaintiff, and date of
payment. The table mentioned is as follows:
Date of receipt
Date of delivery Account and date of account by
Date of payment
thereof plaintiff
1922 1923 1923
Dec. 18 P206.16 Dec. 26/22 Jan. 5 Feb. 20
Dec. 29 206.16 Jan. 3/23 do Do.
1923
Jan. 5 206.16 Jan. 9/23 Mar. 7 or 8 Mar. 31
Feb. 12 206.16 Mar. 12/23 do Do.
Feb. 27 206.16 do do Do.
Mar. 5 206.16 do do Do.
Mar. 16 206.16 Mar. 20/23 Apr. 2/23 Apr. 19
Mar. 24 206.16 Mar. 31/23 do Do.
Mar. 29 206.16 do do Do.
Some doubt has risen as to when Song Fo &
Company was expected to make payments for the
molasses delivered. Exhibit F speaks of payments "at
the end of each month." Exhibit G is silent on the
point. Exhibit M, a letter of March 28, 1923, from
Warner, Barnes & Co., Ltd., the agent of the
Hawaiian-Philippine Co. to Song Fo & Company,
mentions "payment on presentation of bills for each
delivery." Exhibit O, another letter from Warner,
Barnes & Co., Ltd. to Song Fo & Company dated
April 2, 1923, is of a similar tenor. Exhibit P, a
communication sent direct by the Hawaiian-
Philippine Co. to Song Fo & Company on April 2,
1923, by which the Hawaiian-Philippine Co. gave
notice of the termination of the contract, gave as
the reason for the rescission, the breach of Song Fo
& Company of this condition: "You will recall that
under the arrangements made for taking our
molasses, you were to meet our accounts upon
presentation and at each delivery." Not far
removed from this statement, is the allegation of
plaintiff in its complaint that "plaintiff agreed to pay
defendant, at the end of each month upon
presentation of accounts."
Resolving such ambiguity as exists and having in
mind ordinary business practice, a reasonable
deduction is that Song Fo & Company was to pay
the Hawaiian-Philippine Co. upon presentation of
accounts at the end of each month. Under this
hypothesis, Song Fo & Company should have paid
for the molasses delivered in December, 1922, and
for which accounts were received by it on January
5, 1923, not later than January 31 of that year.
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.
The terms of payment fixed by the parties are
controlling. The time of payment stipulated for in
the contract should be treated as of the essence of
the contract. Theoretically, agreeable to certain
conditions which could easily be imagined, the
Hawaiian-Philippine Co. would have had the right
to rescind the contract because of the breach of
Song Fo & Company. But actually, there is her
present no outstanding fact which would legally
sanction the rescission of the contract by the
Hawaiian-Philippine Co.
The general rule is that 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 as to defeat the
object of the parties in making the agreement. A
delay in payment for a small quantity of molasses
for some twenty days is not such a violation of an
essential condition of the contract as warrants
rescission for non-performance. Not only this, but
the Hawaiian-Philippine Co. waived this condition
when it arose by accepting payment of the
overdue accounts and continuing with the
contract. Thereafter, Song Fo & Company was not
in default in payment so that the Hawaiian-
Philippine Co. had in reality no excuse for writing its
letter of April 2, 1923, cancelling the contract.
(Warner, Barnes & Co. vs. Inza [1922], 43 Phil., 505.)
We rule that the appellant had no legal right to
rescind the contract of sale because of the failure
of Song Fo & Company to pay for the molasses
within the time agreed upon by the parties. We
sustain the finding of the trial judge in this respect.
3. On the basis first, of a contract for 300,000 gallons
of molasses, and second, of a contract imprudently
breached by the Hawaiian-Philippine Co., what is
the measure of damages? We again turn to the
facts as agreed upon by the parties.
The first cause of action of the plaintiff is based on
the greater expense to which it was put in being
compelled to secure molasses from other sources.
Three hundred thousand gallons of molasses was
the total of the agreement, as we have seen. As
conceded by the plaintiff 55,006 gallons of
molasses were delivered by the defendant to the
plaintiff before the breach. This leaves 244,994
gallons of molasses undelivered which the plaintiff
3|OBLICON_Chapter 3_CASUAL CONDITION
had to purchase in the open market. As expressly
conceded by the plaintiff at page 25 of its brief
100,000 gallons of molasses were secured from the
Central North Negros Sugar Co., Inc., at two
centavos a gallon. As this is the same price
specified in the contract between the plaintiff and
the defendant, the plaintiff accordingly suffered no
material loss in having to make this purchase. So
244,994 gallons minus the 100,000 gallons just
mentioned leaves as a result 144,994 gallons. As to
this amount, the plaintiff admits that it could have
secured it and more than the Central Victorias
Milling Company one and one-half centavos per
gallon. In other words, the plaintiff had to pay the
Central Victorias Milling Company one and one-
half centavos a gallon more for the molasses than it
would have had to pay the Hawaiian-Philippine Co.
Translated into pesos and centavos, this meant a
loss to the plaintiff of approximately P2,174.91. As
the conditions existing at the central of the
Hawaiian-Philippine Co. may have been different
than those found at the Central North Negros Sugar
Co., Inc., and the Central Victorias Milling
Company, and as not alone through the delay but
through expenses of transportation and incidental
expenses, the plaintiff may have been put to
greater cost in making the purchase of the
molasses in the open market, we would concede
under the first cause of action in round figures
P3,000.
The second cause of action relates to lost profits on
account of the breach of the contract. The only
evidence in the record on this question is the
stipulation of counsel to the effect that had Mr.
Song Heng, the manager of Song Fo & Company,
been called as a witness, he would have testified
that the plaintiff would have realized a profit of
P14,948.43, if the contract of December 13, 1922,
had been fulfilled by the defendant. Indisputably,
this statement falls far short of presenting proof on
which to make a finding as to damages.
In the first place, the testimony which Mr. Song
Heng would have given undoubtedly would follow
the same line of thought as found in the decision of
the trial court, which we have found to be
unsustainable. In the second place, had Mr. Song
Heng taken the witness-stand and made the
statement attributed to him, it would have been
insufficient proof of the allegations of the
complaint, and the fact that it is a part of the
stipulation by counsel does not change this result.
And lastly, the testimony of the witness Song Heng,
if we may dignify it as such, is a mere conclusion,
not a proven fact. As to what items make up the
more than P14,000 of alleged lost profits, whether
loss of sales or loss of customers, or what not, we
have no means of knowing.
We rule that the plaintiff is entitled to recover
damages from the defendant for breach of
contract on the first cause of action in the amount
of P3,000 and on the second cause of action in no
amount. Appellant's assignments of error are
accordingly found to be well in taken in part and
not well taken in part.
Agreeable to the foregoing, the judgment
appealed from shall be modified and the plaintiff
shall have and recover from the defendant the sum
of P3,000, with legal interest from October 2, 1923,
until payment. Without special finding as to costs in
either instance, it is ordered.
Avancea, C.J., Johnson, Street, Villamor, Ostrand,
Johns, Romualdez, and Villa-Real, JJ., concur.
(Filoil Refinery Corp. v. Mendoza, G.R. No. L-55526,
June 15, 1987)
SECOND DIVISION
[G.R. No. L-55526. June 15, 1987.]
FILOIL REFINERY CORPORATION, PETROPHIL
CORPORATION and FILOIL MARKETING
CORPORATION, petitioner, vs. HON. RAFAEL T.
MENDOZA and HON. MARIANO A. ZOSA, in the
capacity as Judge, Branch V, Court of First Instance
of Cebu, JESUS P. GARCIA and SEVERINA B.
GARCIA, respondents.
Jesus P. Garcia for respondents.
DECISION
PARAS, J p:
This is a petition for the issuance of the writs of 1)
CERTIORARI to annul and set aside: (a) the order
issued on September 24, 1979, by the Court of First
Instance of Cebu in Civil Case No. R-14164, entitled
"Jesus P. Garcia, et al. vs. Filoil Refinery Corporation,
et al.", dismissing petitioners' appeal from the
decision rendered in the same case on May 14,
1976; and (b) the order issued on October 20, 1980,
in the same case denying petitioners' motion for
reconsideration of the dismissal of their appeal and
2) MANDAMUS to compel respondent Honorable
Rafael T. Mendoza, as Presiding Judge of Branch V,
Court of First Instance of Cebu, to give due course
to petitioners' appeal.
In a complaint filed by herein private respondents,
the lower court rendered on May 14, 1976, a
decision rescinding the contract of lease over a 750
square meters lot situated in Cebu City covered by
TCT No. 30712 entered into between Filoil Refinery
Corporation and private respondents Jesus P.
Garcia and Severina B. Garcia and ordering the
petitioner herein to vacate the leased premises. It
appears that the herein petitioners violated the
terms and conditions of the lease agreement in the
sense that the signatory Filoil Refinery Corporation
subleased it to Filoil Marketing and subsequently to
petitioner Petrophil Corporation and that herein
petitioners were delayed several times in the
payment of the monthly rentals.
On June 11, 1976, private respondents filed their
Motion for execution of the aforementioned
decision pending appeal. Petitioners opposed said
motion and on July 15, 1976 petitioners filed their
notice of appeal. On July 30, 1976 they filed their
Record on Appeal.
4|OBLICON_Chapter 3_CASUAL CONDITION
On November 10, 1976, the private respondents
filed a Motion for Execution pending appeal which
was opposed by petitioners in their Motion for
Reconsideration. Said Motion for Reconsideration
was denied by the lower court prompting
petitioners to file a Petition for Certiorari and Review
with the Court of Appeals docketed as CA-G.R. No.
06145-SP. On September 29, 1980, the Court of
Appeals rendered its decision denying the petition
for certiorari and review to annul and set aside the
order of the lower court granting the Motion for
Execution pending appeal. prcd
Meanwhile herein private respondents filed a
motion to dismiss the appeal of petitioners in the
original complaint on the ground of alleged
abandonment thereof by reason of the failure of
the petitioners to amend their record on appeal so
as to include in their Record on Appeal two
important orders of the lower court dated July 30,
1975 and February 4, 1376, the "Motion for
Execution Pending Appeal," and the "Order" of the
lower court granting said "Motion for Execution
Pending Appeal."
The lower court issued an order dismissing the
appeal on September 24, 1979 stating as follows:
"Let it be remembered that the Order of this Court
of July 30, 1975, authorized the plaintiffs to implead
the Filoil Marketing Corporation as one of the
defendants in this case; the Order dated February
4, 1976, contained the agreement of the parties to
submit this case for summary judgment and listed
the exhibits presented by both parties which were
admitted in evidence. There is no gainsaying that
the inclusion of these orders in defendants' record
on appeal is necessary for a proper understanding
of the issues involved in the appeal. Without them, it
is believed the Court of Appeals will not be in a
position to know why the case was decided on
summary judgment, what exhibits have been
admitted in evidence and why Filoil Marketing
Corporation had been ordered impleaded." (Rollo,
pp. 69-70)
Petitioners filed their Motion for Reconsideration of
the said Order which was denied by the lower court
in its Order dated October 20, 1980. Hence, the
present petition for certiorari and mandamus.
Petitioners' contentions merit Our consideration.
The records reveal that the lower court dismissed
petitioners' appeal because of their failure to
amend or to complete their record on appeal.
Such alleged failure was brought to the attention of
the lower court by private respondents in their
opposition to the approval of the Record on
Appeal on the ground that petitioners failed to
include in the Record of Appeal the Motion for
Execution pending appeal dated July 30, 1975 and
the Order granting the motion for execution
pending appeal dated February 4, 1976. However it
is a fact that petitioners filed their record on appeal
well within the reglementary period and that the
lower court never issued an order declaring the
Record on Appeal incomplete or defective nor an
order ordering petitioners to complete or correct
the same. The lower court did not act on the record
on appeal filed by petitioners despite the
opposition of the private respondents to the
approval of the same. Obviously as there was no
order by a competent court requiring them to
complete their record on appeal, the petitioners
were under no obligation to amend the same,
petitioners having the impression that their record
on appeal was then adequate and regular.
Petitioners were also under the belief that the failure
of the lower court in not acting immediately on their
record on appeal was because at the time the
record on appeal was awaiting approval by the
lower court, the petition for certiorari filed with the
Court of Appeals to question the execution of the
decision pending appeal was still unresolved by the
Court of Appeals; and that had the lower court
approved outright the record on appeal, or had it
required petitioners to amend the same and
petitioners complied, constraining it to give its
approval thereto, it would have lost its jurisdiction to
order execution of the decision pending appeal.
Petitioners cited the ruling handed by Us in the case
of De Leon vs. De Los Santos 1 to invoke the rule
that once an appeal has been perfected, the trial
court loses jurisdiction over the case and cannot
generally act anymore on any matter raised
therein. It was more for these reasons that
petitioners felt there was no need to follow up or to
inquire about the approval of their record on
appeal rather than an act of abandonment of their
appeal as theorized by private respondents. prcd
Anent petitioners' grounds for appealing, petitioners
aver that they have good and valid grounds. In
rescinding the contract of lease between petitioner
Filoil Refinery Corporation and private respondents,
the lower court found that petitioners illegally
subleased the lot to petitioner Filoil Marketing
Corporation and that the latter, in turn, assigned its
sublease to petitioner Petrophil Corporation.
However an examination of the lease contract
reveals that there is no express prohibition against
the assignment of the leasehold right. Under the
law, when there is no express prohibition, the lessee
may sublet the thing leased 2 and all rights
acquired by virtue of an obligation are
transmissible, if there has been no stipulation to the
contrary 3
Petitioners admit that on a few occasions, they
were late in paying the rentals which were due
within the first 15 days of each month but their
delay was only for a few days. The delayed rentals
for the months of May, July, August and September,
1974 were remitted to private respondents on May
21, July 19, August 19 and September 16, 1974,
respectively. Such breaches were not so substantial
and fundamental as to defeat the object of the
parties in making the agreement because the law is
not concerned with such trifles.
5|OBLICON_Chapter 3_CASUAL CONDITION
All these arguments however have become moot
and academic considering that the contract of
lease sought to be rescinded expired or terminated
last September 16, 1987 or almost 5 years ago by its
own terms as provided for in the Lease Contract.
Petitioners have won the case without the necessity
of an order by this Court to reverse the judgment of
the respondent court and/or to grant the petition
as prayed for.
WHEREFORE premises considered the petition is
hereby DISMISSED, with the petitioners ordered to
VACATE the premises.
SO ORDERED.
Fernan (Chairman), Gutierrez, Jr., Padilla, Bidin and
Cortes, JJ., concur.
(Hermanos v. Saldaa, G.R. No. L-26578, January
28, 1974)
FIRST DIVISION
[G.R. No. L-26578. January 28, 1974.]
LEGARDA HERMANOS and JOSE LEGARDA,
petitioners, vs. FELIPE SALDAA and COURT OF
APPEALS (FIFTH DIVISION), ** respondents.
Manuel Y . Macias for petitioners.
Mario E. Ongkiko for private respondent.
DECISION
TEEHANKEE, J p:
The Court, in affirming the decision under review of
the Court of Appeals, which holds that the
respondent buyer of two small residential lots on
installment contracts on a ten-year basis who has
faithfully paid for eight continuous years on the
principal alone already more than the value of one
lot, besides the larger stipulated interests on both
lots, is entitled to the conveyance of one fully paid
lot of his choice, rules that the judgment is fair and
just and in accordance with law and equity.
The action originated as a complaint for delivery of
two parcels of land in Sampaloc, Manila and for
execution of the corresponding deed of
conveyance after payment of the balance still due
on their purchase price. Private respondent as
plaintiff had entered into two written contracts with
petitioner Legarda Hermanos as defendant
subdivision owner, whereby the latter agreed to sell
to him Lots Nos. 7 and 8 of block No. 5N of the
subdivision with an area of 150 square meters each,
for the sum of P1,500.00 per lot, payable over the
span of ten years divided into 120 equal monthly
installments of P19.83 with 10% interest per annum,
to commence on May 26, 1948, date of execution
of the contracts. Subsequently, Legarda Hermanos
partitioned the subdivision among the brothers and
sisters, and the two lots were among those allotted
to co-petitioner Jose Legarda who was then
included as co-defendant in the action.
It is undisputed that respondent faithfully paid for
eight continuous years about 95 (of the stipulated
120) monthly installments totalling P3,582.06 up to
the month of February, 1956, which as per
petitioners' own statement of account, Exhibit "1",
was applied to respondent's account (without
distinguishing the two lots), as follows:
"To interests P1,889.78
"To principal P1,682.28
Total P3,582.06" 1
It is equally undisputed that after February, 1956 up
to the filing of respondent's complaint in the Manila
court of first instance in 1961, respondent did not
make further payments. The account thus shows
that he owed petitioners the sum of P1,311.72 on
account of the balance of the purchase price
(principal) of the two lots (in the total sum of
P3,000.00), although he had paid more than the
stipulated purchase price of P1,500.00 for one lot.
Almost five years later, on February 2, 1961 just
before the filing of the action, respondent wrote
petitioners stating that his desire to build a house on
the lots was prevented by their failure to introduce
improvements on the subdivision as "there is still no
road to these lots," and requesting information of
the amount owing to update his account as "I
intend to continue paying the balance due on said
lots."
Petitioners replied in their letter of February 11, 1961
that as respondent had failed to complete total
payment of the 120 installments by May, 1958 as
stipulated in the contracts to sell, "pursuant to the
provisions of both contracts all the amounts paid in
accordance with the agreement together with the
improvements on the premises have been
considered as rents paid and as payment for
damages suffered by your failure," 2 and "Said
cancellation being in order, is hereby confirmed."
From the adverse decision of July 17, 1963 of the
trial court sustaining petitioners' cancellation of the
contracts and dismissing respondent's complaint,
respondent appellate court on appeal rendered its
judgment of July 27, 1966 reversing the lower court's
judgment and ordering petitioners "to deliver to the
plaintiff possession of one of the two lots, at the
choice of defendants, and to execute the
corresponding deed of conveyance to the plaintiff
for the said lot," 3 ruling as follows:
"During the hearing, plaintiff testified that he
suspended payments because the lots were not
actually delivered to him, or could not be, due to
the fact that they were completely under water;
and also because the defendants-owners failed to
make improvements on the premises, such as
roads, filling of the submerged areas, etc., despite
repeated promises of their representative, the said
Mr. Cenon. As regards the supposed cancellation
6|OBLICON_Chapter 3_CASUAL CONDITION
of the contracts, plaintiff averred that no demand
has been made upon him regarding the unpaid
installments, and for this reason he could not be
declared in default so as to entitle the defendants
to cancel the said contracts.
"The issue, therefore, is: Under the above facts, may
defendants be compelled, or not, to allow plaintiff
to complete payment of the purchase price of the
two lots in dispute and thereafter to execute the
final deeds of conveyance thereof in his favor?
"xxx xxx xxx
"Whether or not plaintiff's explanation for his failure
to pay the remaining installments is true,
considering the circumstances obtaining in this
case, we elect to apply the broad principles of
equity and justice. In the case at bar, we find that
the plaintiff has paid the total sum of P3,582.06
including interests, which is even more than the
value of the two lots. And even if the sum applied
to the principal alone were to be considered,
which was of the total of P1,682.28, the same was
already more than the value of one lot, which is
P1,500.00. The only balance due on both lots was
P1,317.72, which was even less than the value of
one lot. We will consider as fully paid by the plaintiff
at least one of the two lots, at the choice of the
defendants. This is more in line with good
conscience than a total denial to the plaintiff of a
little token of what he has paid the defendant
Legarda Hermanos." 4
Hence, the present petition for review, wherein
petitioners insist on their right of cancellation under
the "plainly valid written agreements which
constitute the law between the parties" as against
"the broad principles of equity and justice" applied
by the appellate court. Respondent on the other
hand while adhering to the validity of the doctrine
of the Caridad Estates cases 5 which recognizes the
right of a vendor of land under a contract to sell to
cancel the contract upon default, with forfeiture of
the installments paid as rentals, disputes its
applicability herein contending that here
petitioners-sellers were equally in default as the lots
were "completely under water" and "there is neither
evidence nor a finding that the petitioners in fact
cancelled the contracts previous to receipt of
respondent's letter." 6
The Court finds that the appellate court's judgment
finding that of the total sum of P3,582.06 (including
interests of P1,889.78) already paid by respondent
(which was more than the value of two lots), the
sum applied by petitioners to the principal alone in
the amount of P1,682.28 was already more than the
value of one lot of P1,500.00 and hence one of the
two lots as chosen by respondent would be
considered as fully paid, is fair and just and in
accordance with law and equity.
As already stated, the monthly payments for eight
years made by respondent were applied to his
account without specifying or distinguishing
between the two lots subject of the two
agreements under petitioners' own statement of
account, Exhibit "1". 7 Even considering respondent
as having defaulted after February 1956, when he
suspended payments after the 95th installment, he
had as of the already paid by way of principal
(P1,682.28) more than the full value of one lot
(P1,500.00). The judgment recognizing this fact and
ordering the conveyance to him of one lot of his
choice while also recognizing petitioners' right to
retain the interests of P1,889.78 paid by him for eight
years on both lots, besides the cancellation of the
contract for one lot which thus reverts to petitioners,
cannot be deemed to deny substantial justice to
petitioners nor to defeat their rights under the letter
and spirit of the contracts in question.
The Court's doctrine in the analogous case of J.M.
Tuason & Co. Inc. vs. Javier 8 is fully applicable to
the present case, with the respondent at bar being
granted lesser benefits, since no rescission of
contract was therein permitted. There, where the
therein buyer-appellee identically situated as herein
respondent buyer had likewise defaulted in
completing the payments after having religiously
paid the stipulated monthly installments for almost
eight years and notwithstanding that the seller-
appellant had duly notified the buyer of the
rescission of the contract to sell, the Court upheld
the lower court's judgment denying judicial
confirmation of the rescission and instead granting
the buyer an additional grace period of sixty days
from notice of judgment to pay all the installment
payments in arrears together with the stipulated
10% interest per annum from the date of default,
apart from reasonable attorney's fees and costs,
which payments, the Court observed, would have
the plaintiff-seller "recover everything due thereto,
pursuant to its contract with the defendant,
including such damages as the former may have
suffered in consequence of the latter's default."
In affirming, the Court held that "Regardless,
however. of the propriety of applying said Art. 1592
thereto, We find that plaintiff herein has not been
denied substantial justice, for, according to Art.
1234 of said Code: 'If the obligation has been
substantially performed in good faith, the obligor
may recover as though there had been a strict and
complete fulfillment, less damages suffered by the
obligee,'" and "that in the interest of justice and
equity, the decision appealed from may be upheld
upon the authority of Article 1234 of the Civil Code."
9 and deliver the boxes within such time. It further
ACCORDINGLY, the appealed judgment of the
appellate court is hereby affirmed. Without
pronouncement as to costs.
Makalintal, C .J ., Castro, Makasiar, Esguerra and
Muoz Palma, JJ ., concur.
(Solar Harvest, Inc. v. Davao Corrugated Carton
Corp., G.R. No. 176868, July 26, 2010)
SECOND DIVISION
7|OBLICON_Chapter 3_CASUAL CONDITION
[G.R. No. 176868. July 26, 2010.]
SOLAR HARVEST, INC., petitioner, vs. DAVAO
CORRUGATED CARTON CORPORATION,
respondent.
DECISION
NACHURA, J p:
Petitioner seeks a review of the Court of Appeals
(CA) Decision 1 dated September 21, 2006 and
Resolution 2 dated February 23, 2007, which denied
petitioner's motion for reconsideration. The assailed
Decision denied petitioner's claim for
reimbursement for the amount it paid to
respondent for the manufacture of corrugated
carton boxes.
The case arose from the following antecedents:
In the first quarter of 1998, petitioner, Solar Harvest,
Inc., entered into an agreement with respondent,
Davao Corrugated Carton Corporation, for the
purchase of corrugated carton boxes, specifically
designed for petitioner's business of exporting fresh
bananas, at US$1.10 each. The agreement was not
reduced into writing. To get the production
underway, petitioner deposited, on March 31, 1998,
US$40,150.00 in respondent's US Dollar Savings
Account with Westmont Bank, as full payment for
the ordered boxes.
Despite such payment, petitioner did not receive
any boxes from respondent. On January 3, 2001,
petitioner wrote a demand letter for reimbursement
of the amount paid. 3 On February 19, 2001,
respondent replied that the boxes had been
completed as early as April 3, 1998 and that
petitioner failed to pick them up from the former's
warehouse 30 days from completion, as agreed
upon. Respondent mentioned that petitioner even
placed an additional order of 24,000 boxes, out of
which, 14,000 had been manufactured without any
advanced payment from petitioner. Respondent
then demanded petitioner to remove the boxes
from the factory and to pay the balance of
US$15,400.00 for the additional boxes and
P132,000.00 as storage fee.
On August 17, 2001, petitioner filed a Complaint for
sum of money and damages against respondent.
The Complaint averred that the parties agreed that
the boxes will be delivered within 30 days from
payment but respondent failed to manufacture
alleged: AEScHa
6. That repeated follow-up was made by the
plaintiff for the immediate production of the
ordered boxes, but every time, defendant [would]
only show samples of boxes and ma[k]e repeated
promises to deliver the said ordered boxes.
7. That because of the failure of the defendant to
deliver the ordered boxes, plaintiff ha[d] to cancel
the same and demand payment and/or refund
from the defendant but the latter refused to pay
and/or refund the US$40,150.00 payment made by
the former for the ordered boxes. 4
In its Answer with Counterclaim, 5 respondent
insisted that, as early as April 3, 1998, it had already
completed production of the 36,500 boxes,
contrary to petitioner's allegation. According to
respondent, petitioner, in fact, made an additional
order of 24,000 boxes, out of which, 14,000 had
been completed without waiting for petitioner's
payment. Respondent stated that petitioner was to
pick up the boxes at the factory as agreed upon,
but petitioner failed to do so. Respondent averred
that, on October 8, 1998, petitioner's representative,
Bobby Que (Que), went to the factory and saw
that the boxes were ready for pick up. On February
20, 1999, Que visited the factory again and
supposedly advised respondent to sell the boxes as
rejects to recoup the cost of the unpaid 14,000
boxes, because petitioner's transaction to ship
bananas to China did not materialize. Respondent
claimed that the boxes were occupying warehouse
space and that petitioner should be made to pay
storage fee at P60.00 per square meter for every
month from April 1998. As counterclaim, respondent
prayed that judgment be rendered ordering
petitioner to pay $15,400.00, plus interest, moral and
exemplary damages, attorney's fees, and costs of
the suit.
In reply, petitioner denied that it made a second
order of 24,000 boxes and that respondent already
completed the initial order of 36,500 boxes and
14,000 boxes out of the second order. It maintained
that respondent only manufactured a sample of
the ordered boxes and that respondent could not
have produced 14,000 boxes without the required
pre-payments. 6
During trial, petitioner presented Que as its sole
witness. Que testified that he ordered the boxes
from respondent and deposited the money in
respondent's account. 7 He specifically stated that,
when he visited respondent's factory, he saw that
the boxes had no print of petitioner's logo. 8 A few
months later, he followed-up the order and was
told that the company had full production, and
thus, was promised that production of the order
would be rushed. He told respondent that it should
indeed rush production because the need for the
boxes was urgent. Thereafter, he asked his partner,
Alfred Ong, to cancel the order because it was
already late for them to meet their commitment to
ship the bananas to China. 9 On cross-examination,
Que further testified that China Zero Food, the
Chinese company that ordered the bananas, was
sending a ship to Davao to get the bananas, but
since there were no cartons, the ship could not
proceed. He said that, at that time, bananas from
Tagum Agricultural Development Corporation
(TADECO) were already there. He denied that
petitioner made an additional order of 24,000
boxes. He explained that it took three years to refer
the matter to counsel because respondent
promised to pay. 10 HIaAED
8|OBLICON_Chapter 3_CASUAL CONDITION
For respondent, Bienvenido Estanislao (Estanislao)
testified that he met Que in Davao in October 1998
to inspect the boxes and that the latter got samples
of them. In February 2000, they inspected the boxes
again and Que got more samples. Estanislao said
that petitioner did not pick up the boxes because
the ship did not arrive. 11 Jaime Tan (Tan), president
of respondent, also testified that his company
finished production of the 36,500 boxes on April 3,
1998 and that petitioner made a second order of
24,000 boxes. He said that the agreement was for
respondent to produce the boxes and for petitioner
to pick them up from the warehouse. 12 He also
said that the reason why petitioner did not pick up
the boxes was that the ship that was to carry the
bananas did not arrive. 13 According to him, during
the last visit of Que and Estanislao, he asked them
to withdraw the boxes immediately because they
were occupying a big space in his plant, but they,
instead, told him to sell the cartons as rejects. He
was able to sell 5,000 boxes at P20.00 each for a
total of P100,000.00. They then told him to apply the
said amount to the unpaid balance.
In its March 2, 2004 Decision, the Regional Trial
Court (RTC) ruled that respondent did not commit
any breach of faith that would justify rescission of
the contract and the consequent reimbursement of
the amount paid by petitioner. The RTC said that
respondent was able to produce the ordered
boxes but petitioner failed to obtain possession
thereof because its ship did not arrive. It thus
dismissed the complaint and respondent's
counterclaims, disposing as follows:
WHEREFORE, premises considered, judgment is
hereby rendered in favor of defendant and against
the plaintiff and, accordingly, plaintiff's complaint is
hereby ordered DISMISSED without pronouncement
as to cost. Defendant's counterclaims are similarly
dismissed for lack of merit.
SO ORDERED. 14
Petitioner filed a notice of appeal with the CA.
On September 21, 2006, the CA denied the appeal
for lack of merit. 15 The appellate court held that
petitioner failed to discharge its burden of proving
what it claimed to be the parties' agreement with
respect to the delivery of the boxes. According to
the CA, it was unthinkable that, over a period of
more than two years, petitioner did not even
demand for the delivery of the boxes. The CA
added that even assuming that the agreement
was for respondent to deliver the boxes,
respondent would not be liable for breach of
contract as petitioner had not yet demanded from
it the delivery of the boxes. 16
Petitioner moved for reconsideration, 17 but the
motion was denied by the CA in its Resolution of
February 23, 2007. 18
In this petition, petitioner insists that respondent did
not completely manufacture the boxes and that it
was respondent which was obliged to deliver the
boxes to TADECO. cCTESa
We find no reversible error in the assailed Decision
that would justify the grant of this petition.
Petitioner's claim for reimbursement is actually one
for rescission (or resolution) of contract under Article
1191 of the Civil Code, which reads:
Art. 1191. 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.
The injured party may choose between the
fulfillment and the rescission of the obligation, with
the payment of damages in either case. He may
also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless
there be just cause authorizing the fixing of a
period.
This is understood to be without prejudice to the
rights of third persons who have acquired the thing,
in accordance with Articles 1385 and 1388 and the
Mortgage Law.
The right to rescind a contract arises once the other
party defaults in the performance of his obligation.
In determining when default occurs, Art. 1191
should be taken in conjunction with Art. 1169 of the
same law, which provides:
Art. 1169. Those obliged to deliver or to do
something incur in delay from the time the obligee
judicially or extrajudicially demands from them the
fulfillment of their obligation.
However, the demand by the creditor shall not be
necessary in order that delay may exist:
(1) When the obligation or the law expressly so
declares; or
(2) When from the nature and the circumstances of
the obligation it appears that the designation of the
time when the thing is to be delivered or the service
is to be rendered was a controlling motive for the
establishment of the contract; or
(3) When demand would be useless, as when the
obligor has rendered it beyond his power to
perform.
In reciprocal obligations, neither party incurs in
delay if the other does not comply or is not ready to
comply in a proper manner with what is incumbent
upon him. From the moment one of the parties
fulfills his obligation, delay by the other begins.
In reciprocal obligations, as in a contract of sale,
the general rule is that the fulfillment of the parties'
respective obligations should be simultaneous.
9|OBLICON_Chapter 3_CASUAL CONDITION
Hence, no demand is generally necessary
because, once a party fulfills his obligation and the
other party does not fulfill his, the latter
automatically incurs in delay. But when different
dates for performance of the obligations are fixed,
the default for each obligation must be determined
by the rules given in the first paragraph of the
present article, 19 that is, the other party would
incur in delay only from the moment the other party
demands fulfillment of the former's obligation. Thus,
even in reciprocal obligations, if the period for the
fulfillment of the obligation is fixed, demand upon
the obligee is still necessary before the obligor can
be considered in default and before a cause of
action for rescission will accrue. cEDaTS
Evident from the records and even from the
allegations in the complaint was the lack of
demand by petitioner upon respondent to fulfill its
obligation to manufacture and deliver the boxes.
The Complaint only alleged that petitioner made a
"follow-up" upon respondent, which, however,
would not qualify as a demand for the fulfillment of
the obligation. Petitioner's witness also testified that
they made a follow-up of the boxes, but not a
demand. Note is taken of the fact that, with
respect to their claim for reimbursement, the
Complaint alleged and the witness testified that a
demand letter was sent to respondent. Without a
previous demand for the fulfillment of the
obligation, petitioner would not have a cause of
action for rescission against respondent as the latter
would not yet be considered in breach of its
contractual obligation.
Even assuming that a demand had been previously
made before filing the present case, petitioner's
claim for reimbursement would still fail, as the
circumstances would show that respondent was
not guilty of breach of contract.
The existence of a breach of contract is a factual
matter not usually reviewed in a petition for review
under Rule 45. 20 The Court, in petitions for review,
limits its inquiry only to questions of law. After all, it is
not a trier of facts, and findings of fact made by the
trial court, especially when reiterated by the CA,
must be given great respect if not considered as
final. 21 In dealing with this petition, we will not veer
away from this doctrine and will thus sustain the
factual findings of the CA, which we find to be
adequately supported by the evidence on record.
As correctly observed by the CA, aside from the
pictures of the finished boxes and the production
report thereof, there is ample showing that the
boxes had already been manufactured by
respondent. There is the testimony of Estanislao who
accompanied Que to the factory, attesting that,
during their first visit to the company, they saw the
pile of petitioner's boxes and Que took samples
thereof. Que, petitioner's witness, himself confirmed
this incident. He testified that Tan pointed the boxes
to him and that he got a sample and saw that it
was blank. Que's absolute assertion that the boxes
were not manufactured is, therefore, implausible
and suspicious.
In fact, we note that respondent's counsel
manifested in court, during trial, that his client was
willing to shoulder expenses for a representative of
the court to visit the plant and see the boxes. 22
Had it been true that the boxes were not yet
completed, respondent would not have been so
bold as to challenge the court to conduct an
ocular inspection of their warehouse. Even in its
Comment to this petition, respondent prays that
petitioner be ordered to remove the boxes from its
factory site, 23 which could only mean that the
boxes are, up to the present, still in respondent's
premises.
We also believe that the agreement between the
parties was for petitioner to pick up the boxes from
respondent's warehouse, contrary to petitioner's
allegation. Thus, it was due to petitioner's fault that
the boxes were not delivered to TADECO. HCacTI
Petitioner had the burden to prove that the
agreement was, in fact, for respondent to deliver
the boxes within 30 days from payment, as alleged
in the Complaint. Its sole witness, Que, was not
even competent to testify on the terms of the
agreement and, therefore, we cannot give much
credence to his testimony. It appeared from the
testimony of Que that he did not personally place
the order with Tan, thus:
Q. No, my question is, you went to Davao City and
placed your order there?
A. I made a phone call.
Q. You made a phone call to Mr. Tan?
A. The first time, the first call to Mr. Alf[re]d Ong.
Alfred Ong has a contact with Mr. Tan.
Q. So, your first statement that you were the one
who placed the order is not true?
A. That's true. The Solar Harvest made a contact
with Mr. Tan and I deposited the money in the
bank.
Q. You said a while ago [t]hat you were the one
who called Mr. Tan and placed the order for 36,500
boxes, isn't it?
A. First time it was Mr. Alfred Ong.
Q. It was Mr. Ong who placed the order[,] not you?
A. Yes, sir. 24
Q. Is it not a fact that the cartons were ordered
through Mr. Bienvenido Estanislao?
A. Yes, sir. 25
10 | O B L I C O N _ C h a p t e r 3 _ C A S U A L C O N D I T I O N
Moreover, assuming that respondent was obliged
to deliver the boxes, it could not have complied
with such obligation. Que, insisting that the boxes
had not been manufactured, admitted that he did
not give respondent the authority to deliver the
boxes to TADECO:
Q. Did you give authority to Mr. Tan to deliver these
boxes to TADECO?
A. No, sir. As I have said, before the delivery, we
must have to check the carton, the quantity and
quality. But I have not seen a single carton.
Q. Are you trying to impress upon the [c]ourt that it
is only after the boxes are completed, will you give
authority to Mr. Tan to deliver the boxes to
TADECO[?] DAEcIS
A. Sir, because when I checked the plant, I have
not seen any carton. I asked Mr. Tan to rush the
carton but not. . . 26
Q. Did you give any authority for Mr. Tan to deliver
these boxes to TADECO?
A. Because I have not seen any of my carton.
Q. You don't have any authority yet given to Mr.
Tan?
A. None, your Honor. 27
Surely, without such authority, TADECO would not
have allowed respondent to deposit the boxes
within its premises.
In sum, the Court finds that petitioner failed to
establish a cause of action for rescission, the
evidence having shown that respondent did not
commit any breach of its contractual obligation. As
previously stated, the subject boxes are still within
respondent's premises. To put a rest to this dispute,
we therefore relieve respondent from the burden of
having to keep the boxes within its premises and,
consequently, give it the right to dispose of them,
after petitioner is given a period of time within
which to remove them from the premises.
WHEREFORE, premises considered, the petition is
DENIED. The Court of Appeals Decision dated
September 21, 2006 and Resolution dated February
23, 2007 are AFFIRMED. In addition, petitioner is
given a period of 30 days from notice within which
to cause the removal of the 36,500 boxes from
respondent's warehouse. After the lapse of said
period and petitioner fails to effect such removal,
respondent shall have the right to dispose of the
boxes in any manner it may deem fit.
SO ORDERED.
Carpio, Peralta, Abad and Mendoza, JJ., concur.