18. Solar Harvest Inc., vs. Davao Corrugated Carton Corporation G.R. 176868 , July 26, 2010 (Art.

1169)

FACTS:

Solar Harvest, Inc. entered into an agreement with Davao Corrugated Carton Corporation for the
purchase of corrugated carton boxes, specifically designed for petitioner’s business of exporting fresh
bananas. The agreement was not reduced into writing but to get the production underway, petitioner
deposited in respondent’s US Dollar Savings Account full payment for the ordered boxes.

However, despite such payment, petitioner did not receive any boxes so they demanded
reimbursement. The respondent replied that they have already completed the production but the
petitioner failed to pick the boxes from the former’s warehouse 30 days from completion, as agreed
upon. Respondent further mentioned that the petitioner even placed additional order of 24,000 boxes
out of which, 14,000 had been manufactured without any advanced payment from petitioner. Hence,
the respondent demanded petitioner to remove the boxes from the factory, pay the balance for the
additional boxes and pay for the storage fee.

On August 17, 2001, petitioner filed a Complaint for sum of money and damages against respondent.
During trial, the petitioner maintained that despite follow-ups, respondent failed to deliver the boxes
and with this, petitioners had to cancel the order because it was already late for them to meet their
commitment to ship the bananas to China. They also denied ordering the additional boxes.

The RTC ruled that 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.

The CA then denied the appeal. It 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. The Court 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.
Hence, this petition.

ISSUE:

Whether the petitioner would have a cause of action for rescission against the respondent.

RULING:

No.

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 states that 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, as in a contract of sale, the general rule is that the fulfillment of the parties’
respective obligations should be simultaneous. 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. 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.

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. 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.

19. Sps Pajares vs. Remarkable Laundry and Dry Cleaning G.R. No. 212690 (Feb. 20, 2017) (Art. 1170)

FACTS:

Respondent Remarkable Laundry and Dry Cleaning entered into a Remarkable Dealer Outlet Contract
with petitioners, spouses Romeo and Ida Pajares whereby the latter, acting as a dealer outlet, shall
accept and receive items or materials for laundry which are then picked up and processed by the former
in its main plant or laundry outlet. The respondent alleged that the petitioners violated the contract
when they ceased dealer outlet operations on account of lack of personnel. The respondent demanded
from the petitioners payment of penalties imposed and provided for in the contract, but the latter failed
to pay.
The RTC dismissed the complaint for the recovery of damages for the alleged breach of contract due to
lack of jurisdiction. The CA on appeal set aside RTC’s decision and remanded the case to the court a quo
for further proceedings. Hence, this petition.

ISSUE:

Whether the CA erred in declaring that the RTC had jurisdiction over respondent's Complaint which,
although denominated as one for breach of contract, is essentially one for simple payment of damages.

RULING:

Yes.

Breach of contract may also be the cause of action in a complaint for damages filed pursuant to Article
1170 of the Civil Code. It provides: Art. 1170. Those who in the performance of their obligations are
guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof; are
liable for damages. In Pacmac, Inc. v. Intermediate Appellate Court, this SC held that the party who
unilaterally terminated the exclusive distributorship contract without any legal justification can be held
liable for damages by reason of the breach committed pursuant to Article 1170.

Here, after juxtaposing Article IV of the Remarkable Dealer Outlet Contract vis-a-vis the prayer sought in
respondent's Complaint, this Court is convinced that said Complaint is one for damages. True, breach of
contract may give rise to a complaint for specific performance or rescission of contract. In which case,
the subject matter is incapable of pecuniary estimation and, therefore, jurisdiction is lodged with the
RTC. However, breach of contract may also be the cause of action in a complaint for damages. Thus, it is
not correct to immediately conclude, as the CA erroneously did, that since the cause of action is breach
of contract, the case would only either be specific performance or rescission of contract because it may
happen, as in this case, that the complaint is one for damages. Since that’s the case, all claims for
damages should be considered in determining which court has jurisdiction over the subject matter of
the case. As mentioned earlier, the total amount claimed is 280,000 pesos which is below 300,000, or
the amount required in order for theRTC to have jurisdiction. Thus, RTC was correct in refusing to take
cognizance of the case.