Magat vs.

Medialdea

G.R. No. L-37120, 20 April 1983

FACTS:

Respondent entered into a contract with the U.S. Navy Exchange, Subic
Bay, Philippines, for the operation of a fleet of taxicabs, each taxicab to be
provided with the necessary taximeter and a radio transceiver. Isidro Q.
Aligada, acting as an agent, approached the petitioner in behalf of the
respondent and proposed to import from Japan thru the plaintiff herein or
thru plaintiff’s Japanese business associates, all taximeters and radio
transceivers needed by the defendant.

Petitioner was able to import the same and a firm offer, in written form, was
made by Aligada. Petitioner received notice of the fact that the defendant
accepted plaintiff’s offer to sell to the defendant the items specified as well
as the terms and conditions of said offer. After petitioner received advice
from the defendant as to the radio frequency to be assigned by the proper
authorities to the defendant, petitioner requested a letter of credit from the
defendant, a normal business practice in case of foreign importation.
Petitioner was repeatedly assured by Aligada and respondent of the latter’s
financial capabilities to pay and refused to open a letter of credit. Thereafter,
petitioner found out that defendant had already been operating his taxicabs
without the required radio transceivers. And when pressed by the U.S. Navy
to comply, defendant blamed petitioner, claiming the latter was in delay.
Petitioner sent a letter to the defendant ascertaining his intention to fulfill his
end of the bargain but he did not reply. In view of defendant’s failure to
fulfill his contractual obligations with the petitioner, the petitioner filed a
case against the defendant for breach of contract and damages.

Respondent filed a motion to dismiss alleging a lack of cause of action. He

contended that plaintiff was merely anticipating his loss or damage which
might result from the alleged failure of defendant to comply with the terms
of the alleged contract. Plaintiff’s right therefore under his cause of action is
not yet fixed or vested. Respondent Judge in this case dismissed the
complaint.

ISSUE:

Whether or not the respondent is guilty for breach of contract.

RULING:
Yes.

The Court ruled that the parties, both businessmen, entered into the
aforesaid contract with the evident intention of deriving some profits
therefrom. Upon breach of the contract by either of them, the other would
necessarily suffer loss of his expected profits. Since the loss comes into
being at the very moment of breach, such loss is real, “fixed and vested”
and, therefore, recoverable under the law.

Article 1170 of the Civil Code provides:

Those who in the performance of their obligation are guilty of fraud,

negligence, or delay, and those who in any manner contravene the tenor
thereof are liable for damages.

The phrase “in any manner contravene the tenor” of the obligation
includes any illicit act or omission which impairs the strict and faithful
fulfillment of the obligation and every kind of defective performance. The
damages which the obligor is liable for includes not only the value of the loss
suffered by the obligee [daño emergente] but also the profits which the
latter failed to obtain [lucro cesante]. If the obligor acted in good faith, he
shall be liable for those damages that are the natural and probable
consequences of the breach of the obligation and which the parties have
foreseen or could have reasonably foreseen at the time the obligation was
constituted; and in case of fraud, bad faith, malice or wanton attitude, he
shall be liable for all damages which may be reasonably attributed to the
non-performance of the obligation.