ORIENT FREIGHT INTERNATIONAL INC. VS.

KEIHIN-EVERETT
FORWARDING COMPANY INC.
G.R. No. 191937, August 9, 2017

FACTS:
On October 16, 2001, Keihin-Everett entered into a Trucking Service
Agreement with Matsushita. Under the said agreement, Keihin-Everett would
provide services for Matsushita's trucking requirements. These services were
subcontracted by Keihin-Everett to Orient Freight, through their own
Trucking Service Agreement executed on the same day.
In April 2002, Matsushita knew through a tabloid newspaper that there was
an interception by the Caloocan City police of a stolen truck filled with
shipment of video monitors and CCTV systems owned by Matsushita. He
then called Keihin-Everett about this news and Keihin-Everett answered,
after inquiry to Orient Freight, that the incident simply involved the
breakdown and towing of the truck.
Keihin-Everett, however, conducted its independent investigation in which it
obtained a police report stating that on April 17, 2002, the truck had gone
missing and that when the police intercepted the same, the driver escaped
and became a manhunt. The truck was released and did not miss the closing
time of the vessel intended for shipment.
Matsushita terminated its In-House Brokerage Service Agreement with
Keihin-Everett, effective July 1, 2002 citing the loss of confidence on Keihin-
Everett's way of handling the incident and that its nondisclosure of this
incident's relevant facts amounted to fraud and signified an utter disregard
of the rule of law. Thereafter, Keihin-Everett sent a letter to Orient Freight,
demanding P2,500,000.00 as indemnity for lost income. It argued that
Orient Freight's mishandling of the situation caused the termination of
Keihin-Everett's contract with Matsushita. The refusal to pay on the part of
the Orient Freight led to the filing of a complaint for damages, in which
Keihin-Everett alleged that Orient’s Freight’s misrepresentation, malice,
negligence and fraud caused the termination of the agreement with
Matsushita.
The RTC rendered a Decision in favor of Keihin-Everett, holding that Orient
Freight was negligent in failing to investigate properly the incident and make
a factual report to Keihin Everett and Matsushita. Orient Freight filed Petition
for Review on Certiorari reiterating that the pre-existing contractual relation
between the parties should bar the application of the principles of quasi-
delict.

ISSUE:
Is quasi-delict on negligence under Article 2176 of the Civil Code applicable
in this case?

RULING:
No. The Supreme Court ultimately made a distinction between quasi-delict
and breach of contract in this case.

Negligence may either result in culpa aquiliana or culpa contractual. Culpa

aquiliana is “the wrongful or negligent act or omission which creates
vinculum juris and gives rise to an obligation between two persons not
formally bound by any other obligation,” and is governed by Article 2176 of
the Civil Code.

Negligence in culpa contractual, on the other hand, is “the fault or

negligence incident in the performance of an obligation which already
existed, and which increases the liability from such already existing
obligation.” This is governed by Articles 1170 to 1174 of the Civil Code.

Actions based on contractual negligence and actions based on quasi- delicts

differ in terms of conditions, defenses, and proof. They generally cannot
coexist. Once a breach of contract is proved, the defendant is presumed
negligent and must prove not being at fault. In a quasi-delict, however, the
complaining party has the burden of proving the other party’s negligence.
Citing the case of Huang v. Phil. Hoteliers, Inc., the Court finds it significant
to take note of the following differences between quasi-delict (culpa
aquiliana) and breach of contract (culpa contractual).
In quasi-delict, negligence is direct, substantive and independent, while in
breach of contract, negligence is merely incidental to the performance of the
contractual obligation; there is a preexisting contract or obligation. In quasi-
delict, the defense of “good father of a family” is a complete and proper
defense insofar as parents, guardians and employers are concerned, while in
breach of contract, such is not a complete and proper defense in the
selection and supervision of employees. In quasi-delict, there is no
presumption of negligence and it is incumbent upon the injured party to
prove the negligence of the defendant, otherwise, the former ’s complaint
will be dismissed, while in breach of contract, negligence is presumed so
long as it can be proved that there was breach of the contract and the
burden is on the defendant to prove that there was no negligence in the
carrying out of the terms of the contract; the rule of respondeat superior is
followed.
In this case, Orient Freight’s negligence did not create the vinculum juris or
legal relationship with Keihin-Everett, which would have otherwise given rise
to a quasi-delict. Orient freight’s duty to the latter existed prior to its
negligent act. When Keihin-Everett contacted Orient Freight regarding the
news report and asked it to investigate the incident, Orient Freight’s
obligation was created. Thus, the doctrine “the act that breaks the contract
may also be a tort,” on which the lower courts relied, is inapplicable here.
Orient freight’s negligence, arising as it does from its performance of its
obligation to Keihin-Everett, is dependent on this obligation.
Therefore, Articles 1170, 1172, and 1173 of the Civil Code on negligence in
the performance of an obligation should apply here, and not Article 2176 of
the Civil Code.