BARREDO V GARCIA

FACTS: A head-on collision took place on the road between Malabon and Navotas between a taxi driven
by Pedro Fontanilla and a caratella guided by Pedro Dimapalis. As a result, the caratella overturned and
caused injuries to one of its passenger, Faustino Garcia, which eventually caused his death. A criminal
action was filed by the Defendants Severino and Timotea Garcia, parents of Faustino, against Pedro
Fontanilla, which was convicted and imprisoned thereafter but was not sued for civil action.

Eventually, Defendants filed an action against Petitioner Fausto Barredo as the sole proprietor of the
taxicab and employer of Fontanilla. Petitioner raised the defense that he cannot be sued for damages
because his responsibility is merely subsidiary to that of Fontanilla because the latter’s negligence was
punishable by Penal Code. If at all, Fontanilla was not sued for civil action and his property was not
exhausted.

The Court of First Instance ruled in favor of the Defendants, while the Court of Appeals also ruled in
their favor with modifications.

ISSUE: Whether or not the Petitioner can be sued for damages under Article 1903.

RULING: YES. The Court ruled in favor of the Defendants.

There is a distinct and separate individuality between civil action arising from criminal negligence
under the Revised Penal Code and responsibility for fault or negligence under Articles 1901 to 1910 of the
Civil Code. The same negligent act may produce either civil liability under Art. 365 of the Revised Penal
Code or a separate responsibility under the Civil Code. Nevertheless, it is concrete that the Petitioner is
primarily responsible for damages under Art. 1903 of the Civil Code.

If the Court allowed the Petitioner to be subsidiary responsible in the present case, the Petitioner can
simply guise himself from damages caused by his employees due to the literal wording of the law (not
punishable by law). It would be tantamount to make it cumbersome for the Defendants to sue Fontanilla
for damages before going after the Petitioner. Workmen and employees should be carefully chosen and
supervised in order to avoid injury to the public. It is the masters or employers who principally reap the
profits resulting from the services of these servants and employees. It is but right that they should
guarantee the latter’s careful conduct for the personnel and patrimonial safety of others.

PSBA v CA
 G.R. No. 84698, Jan. 4, 1992

o School's responsibility in loco parentis over its own students: the harm or negligent act must be committed
by its students against another student, not by an outsider
o General rule on the application of quasi-delict: no pre-existing contract between the parties

FACTS:

Carlitos Bautista, a third-year commerce student of PSBA, was stabbed to death while on the second-floor premises
of the school. The assailants were not members of the schools’ academic community but were elements from outside
the school. The parents of Carlitos filed a civil action against the school authorities, alleging them negligent,
reckless and with failure to take security precautions, means and methods before, during and after the attack on the
victim. The appellate court found in their favor, primarily anchoring its decision on the law of quasi-delicts.

Hence, the petition.

ISSUE:

o Whether or not the appellate court was correct in deciding the case based on Article 2180 (in loco
parentis)
o Whether or not the application of the law on quasi-delict is proper when there is a pre-existing
contract

HELD:

The SC did not agree with the premises of the CA’s ruling. Article 2180, in conjunction with Article 2176 of the
Civil Code, establishes the rule in in loco parentis. It had been stressed that the law (Article 2180) plainly provides
that the damage should have been caused or inflicted by pupils or students of the educational institution sought to be
held liable for the acts of its pupils or students while in its custody. However, this material situation does not exist in
the present case for, as earlier indicated, the assailants of Carlitos were not students of PSBA, for whose acts the
school could have been made liable.

IS PSBA EXCULPATED FROM LIABILITY?

It does not necessarily follow. When an academic institution accepts students for enrollment, there is established a
contract between them, resulting in bilateral obligations which both parties are bound to comply with. Moreover,
there is that “built-in” obligation to provide students with an atmosphere that promotes or assists in attaining its
primary undertaking of imparting knowledge. The school must ensure that adequate steps are taken to maintain
peace and order within the campus premises and to prevent the breakdown thereof.

Because the circumstances of the present case evince a contractual relation between PSBA and Carlitos, the rules on
quasi-delict do not really govern. However, the mere fact that a person is bound to another by contract does not
relieve him from extra-contractual liability to such person. When such a contractual relation exists the obligor may
break the contract under such conditions that the same act which constitutes a breach of the contract would have
constituted the source of an extra-contractual obligation had no contract existed between the parties. Art. 21 of the
Civil Code comes to mind, so that should the act which breaches a contract be done in bad faith and violative of Art.
21, then there is a cause to view the act as constituting a quasi-delict.
In the present case, there is no finding that the contract between the school and Carlitos had been breached thru the
former’s negligence in providing proper security measures.

AMADORA v CA (CASE DIGEST)

G.R. No. L-47745, April 15, 1988

FACTS:

Amadora was shot and killed by his classmate Pablito Daffon. Daffon was convicted of homicide thru reckless
imprudence. Additionally, petitioners filed a civil action for damages against the Colegio de San Jose-Recoletos, its
rector, the high school principal, the dean of boys, and the physics teacher, together with Daffon and two other
students, through their respective parents. The complaint against the students was later dropped. After trial, the CFI
held the remaining defendants liable to the plaintiffs in the sum of P294,984.00. On appeal, the CA reversed the
decision, and all the defendants were completely absolved.

Petitioners contend that their son was in the the custody of the private respondents. The private respondents submit
that Amadora was no longer in their custody because the semester had already ended.

ISSUES:

I. Whether or not Article 2180 covers even establishments which are technically not schools of arts and trades.

II. Whether or not the offending student is supposed to be “in its custody.”

RULING:

I. The provision in question should apply to all schools, academic as well as non-academic. Where the school is
academic rather than technical or vocational in nature, responsibility for the tort committed by the student will attach
to the teacher in charge of such student, following the first part of the provision. This is the general rule. In the case
of establishments of arts and trades, it is the head thereof, and only he, who shall be held liable as an exception to
the general rule. In other words, teachers in general shall be liable for the acts of their students except where the
school is technical in nature, in which case it is the head thereof who shall be answerable. Following the canon
of reddendo singula singulis, “teachers” should apply to the words “pupils and students” and “heads of
establishments of arts and trades” to the word “apprentices.”

The Court thus conforms to the dissenting opinion expressed by Justice J.B.L Reyes in Exconde: the phrase
‘teachers or heads of establishments of arts and trades’ used in Art. 1903 of the old Civil Code, the words ‘arts and
trades’ does not qualify ‘teachers’ but only ‘heads of establishments.’ The phrase is only an updated version of the
equivalent terms ‘preceptores y artesanos‘ used in the Italian and French Civil Codes.
There is really no substantial distinction between the academic and the non-academic schools insofar as torts
committed by their, students are concerned. The same vigilance is expected from the teacher over the students under
his control and supervision, whatever the nature of the school where he is teaching.

Art 2180 must be interpreted by the Court according to its clear and original mandate until the legislature, taking
into account the changes in the situation subject to be regulated, sees fit to enact the necessary amendment.

II. While the custody requirement does not mean that the student must be boarding with the school authorities, it
does signify that the student should be within the control and under the influence of the school authorities at the time
of the occurrence of the injury. This does not necessarily mean that such custody be co-terminous with the semester,
beginning with the start of classes and ending upon the close thereof, and excluding the time before or after such
period, such as the period of registration, and in the case of graduating students, the period before the
commencement exercises. The student is in the custody of the school authorities as long as he is under the control
and influence of the school and within its premises, whether the semester has not yet begun or has already ended.

As long as it can be shown that the student is in the school premises in pursuance of a legitimate student objective
the responsibility of the school authorities over the student continues.

It is obviously the teacher-in-charge who must answer for his students’ torts, in practically the same way that the
parents are responsible for the child when he is in their custody. For the injuries caused by the student, the teacher
and not the parent shall be held responsible if the tort was committed within the premises of the school at any time
when its authority could be validly exercised over him.

Applying the foregoing considerations, the Court has arrived at the following conclusions:

1. At the time Alfredo Amadora was fatally shot, he was still in the custody of the authorities of Colegio de
San Jose-Recoletos.
2. The rector, the high school principal and the dean of boys cannot be held liable because none of them was
the teacher-in-charge as previously defined. Each of them was exercising only a general authority over the
student body.
3. At any rate there is no showing that Dicon (the Physics teacher) was negligent in enforcing discipline upon
Daffon. His absence when the tragedy happened cannot be considered against him because he was not
supposed or required to report to school on that day. The private respondents have proved that they had
exercised due diligence, through the enforcement of the school regulations, in maintaining that discipline.
4. It is probably the dean of boys who should be held liable, especially in view of the unrefuted evidence that
he had earlier confiscated an unlicensed gun and returned the same later to him without taking disciplinary
action or reporting the matter. However, it does not necessarily link him to the shooting of Amador as it has
not been shown that the confiscated and returned pistol was the gun that killed the petitioners’ son.
5. Finally, as previously observed, the Colegio de San Jose-Recoletos cannot be held directly liable under the
article because only the teacher or the head of the school of arts and trades is made responsible for the
damage caused by the student or apprentice. Neither can it be held to answer for the tort committed by any
of the other private respondents for none of them has been found to have been charged with the custody of
the offending student or has been remiss in the discharge of his duties in connection with such custody.

None of the respondents is liable for the injury inflicted by Daffon on Amadora.

The petition is DENIED.

CASE SUMMARY IN THE CASE OF AIR FRANCE VS. CARRASCOSO
AIR FRANCE, petitioner, vs. RAFAEL CARRASCOSO and the HONORABLE COURT OF APPEALS, respondents
G.R. No. L-21438. September 28, 1966
Case Title: AIR FRANCE, petitioner, vs. RAFAEL CARRASCOSO and the HONORABLE COURT OF
APPEALS, respondents
Ponente: Sanchez, J.
Topic: Quasi-Delict vs. Breach of Contract
Doctrine:
Although the relation of passenger and carrier is "contractual both in origin and nature" nevertheless "the act that
breaks the contract may be also a tort".
The contract of air carriage, therefore, generates a relation attended with a public duty. Neglect or malfeasance of
the carrier's employees, naturally, could give ground for an action for damages.
Facts of the case:
The defendant in this case, Air France, through its agent, Philippine Airlines, issued a first class plane ticket to the
plaintiff in this case, Rafael Carrascoso. This first class ticket is a round trip ticket from Manila to Rome. Hence,
from manila to Bangkok, the plaintiff traveled first class. However, at Bangkok, the manager of Air France forced
the plaintiff to vacate his first class seat. According to the witness, the plaintiff was already sitting in his seat, but
then, the manager forced him to vacate his seat against his will, because the manager alleged that there’s a white
man who had a better right to that seat. So a commotion arose, then later on, the plaintiff gave his first class seat and
was transferred to the tourist class. The lower court ruled in favor of plaintiff and sentenced the petitioner to pay
Carrascoso moral damages and exemplary damages. As well as to refund the difference of the plane ticket between
first class and tourist class. The court of appeals affirmed the decision of the lower except that it modified the refund
amount of the plane ticket. Hence, Air France filed a petition for review on certiorari to the Supreme Court.
Issue of the case:

Whether Rafael Carrascoso is entitled to damages arising from tort.

Ruling of the Supreme Court:

The Supreme Court ruled in the affirmative explaining that although the relation of the passenger and the carrier is
“contractual both in origin and nature” nevertheless, “the act that breaks the contract may also be a tort”. Moreover,
the Supreme Court explained that, a contract of carriage generates a relation attended with public duty. So the
neglect or malfeasance of the carrier’s employees can give ground for an action for damages. And in this case, Air
France’s contract with Carrascoso is attended with public duty. The cause of action of Carrascoso is based on his
wrongful expulsion from his first class seat. There being a violation of public duty of the petitioner, there is a quasi-
delict. Therefore, the damages awarded are proper.

[CASE DIGEST] Spouse Velarde, vs. Court of Appeals [G.R. No. 108346, July 11, 2001]
FACTS:

David Raymund executed a Deed of Sale with Assumption of Mortgage in favor if Avelina Velarde for a parcel of
land under TCT 142177. The land together with the house and improvements thereon were mortgaged by David
Raymundo to BPI to secure a loan of 1.8M. As part of the consideration of the sale, the Avelina Velarde assumes to
pay the mortgage obligations on the property. The Application for Assumption of Mortgage with BPI was not
approved. This prompted plaintiffs not to make any further payment.

David and George Raymundo, thru counsel, wrote Sps. Velarde informing the latter that their non-payment to the
mortgage bank constitute[d] non-performance of their obligation

Sps. Velarde, thru counsel, responded, as follows:

“This is to advise you, therefore, that our client is willing to pay the balance in cash not later than January 21, 1987
provided:

(a) you deliver actual possession of the property to her not later than January 15, 1987 for her immediate occupancy;

(b) you cause the re- lease of title and mortgage from the Bank of P.I. and make the title available and free from any
liens and encumbrances; and

(c) you execute an absolute deed of sale in her favor free from any liens or encumbrances not later than January”

David and George Raymundo sent Sps. Velarde a notarial notice of cancellation/rescission of the intended sale of
the subject property allegedly due to the latter’s failure to comply with the terms and conditions of the Deed of Sale
with Assumption of Mortgage and the Undertaking.

Issues:

1. Whether there was a breach of contract.

2. Whether the defendant has the right to rescind the contract.

Ruling:

First Issue:

Yes. In a contract of sale, the seller obligates itself to transfer the ownership of and deliver a determinate things, and
the buyer to pay therefor a price certain in money or its equivalent.

Private respondents had already performed their obligation through the execution of the Deed of Sale, which
effectively transferred ownership of the property to petitioner through constructive delivery. Prior physical delivery
or possession is not legally required, and the execution of the Deed of Sale is deemed equivalent to delivery.
Petitioners, on the other hand, did not perform their correlative obligation of paying the contract price in the manner
agreed upon. Worse, they wanted private respondents to perform obligations beyond those stipulated in the contract
before fulfilling their own obligation to pay the full purchase price.

Second Issue:

Yes. Private respondents validly exercised their right to rescind the contract, because of the failure of petitioners to
comply with their obligation to pay the balance of the purchase price. Indubitably, the latter violated the very
essence of reciprocity in the contract of sale, a violation that consequently gave rise to private respondent’s right to
rescind the same in accordance with law.

True, petitioners expressed their willingness to pay the balance of the purchase price one month after it became due;
however, this was not equivalent to actual payment as would constitute a faithful compliance of their reciprocal
obligation. Moreover, the offer to pay was conditioned on the performance by private respondents of additional
burdens that had not been agreed upon in the original contract. Thus, it cannot be said that the breach committed by
petitioners was merely slight or casual as would preclude the exercise of the right to rescind.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-42283 March 18, 1985

BUENAVENTURA ANGELES, ET AL., plaintiffs-appellees,

vs.
URSULA TORRES CALASANZ, ET AL., defendants-appellants.

GUTIERREZ, JR., J.:

This is an appeal from the decision of the Court of First Instance of Rizal, Seventh Judicial District,
Branch X, declaring the contract to sell as not having been validly cancelled and ordering the
defendants-appellants to execute a final deed of sale in favor of the plaintiffs-appellees, to pay
P500.00 attorney's fees and costs.

The facts being undisputed, the Court of Appeals certified the case to us since only pure questions
of law have been raised for appellate review.

On December 19, 1957, defendants-appellants Ursula Torres Calasanz and Tomas Calasanz and
plaintiffs-appellees Buenaventura Angeles and Teofila Juani entered into a contract to sell a piece of
land located in Cainta, Rizal for the amount of P3,920.00 plus 7% interest per annum.

The plaintiffs-appellees made a downpayment of P392.00 upon the execution of the contract. They
promised to pay the balance in monthly installments of P 41.20 until fully paid, the installments being
due and payable on the 19th day of each month. The plaintiffs-appellees paid the monthly
installments until July 1966, when their aggregate payment already amounted to P4,533.38. On
numerous occasions, the defendants-appellants accepted and received delayed installment
payments from the plaintiffs-appellees.

On December 7, 1966, the defendants-appellants wrote the plaintiffs-appellees a letter requesting

the remittance of past due accounts.

On January 28, 1967, the defendants-appellants cancelled the said contract because the plaintiffs-
appellees failed to meet subsequent payments. The plaintiffs' letter with their plea for reconsideration
of the said cancellation was denied by the defendants-appellants.

The plaintiffs-appellees filed Civil Case No. 8943 with the Court of First Instance of Rizal, Seventh
Judicial District, Branch X to compel the defendants-appellants to execute in their favor the final
deed of sale alleging inter alia that after computing all subsequent payments for the land in question,
they found out that they have already paid the total amount of P4,533.38 including interests, realty
taxes and incidental expenses for the registration and transfer of the land.

The defendants-appellants alleged in their answer that the complaint states no cause of action and
that the plaintiffs-appellees violated paragraph six (6) of the contract to sell when they failed and
refused to pay and/or offer to pay the monthly installments corresponding to the month of August,
1966 for more than five (5) months, thereby constraining the defendants-appellants to cancel the
said contract.

The lower court rendered judgment in favor of the plaintiffs-appellees. The dispositive portion of the
decision reads:

WHEREFORE, based on the foregoing considerations, the Court hereby renders

judgment in favor of the plaintiffs and against the defendants declaring that the
contract subject matter of the instant case was NOT VALIDLY cancelled by the
defendants. Consequently, the defendants are ordered to execute a final Deed of
Sale in favor of the plaintiffs and to pay the sum of P500.00 by way of attorney's
fees. Costs against the defendants.

A motion for reconsideration filed by the defendants-appellants was denied.

As earlier stated, the then Court of Appeals certified the case to us considering that the appeal
involves pure questions of law.

The defendants-appellants assigned the following alleged errors of the lower court:

First Assignment of Error

THE LOWER COURT ERRED IN NOT HOLDING THE CONTRACT TO SELL

(ANNEX "A" OF COMPLIANCE) AS HAVING BEEN LEGALLY AND VALIDLY
CANCELLED.

Second Assignment of Error

EVEN ASSUMING ARGUENDO THAT THE SAID CONTRACT TO SELL HAS NOT
BEEN LEGALLY AND VALIDLY CANCELLED, THE LOWER COURT ERRED IN
ORDERING DEFENDANTS TO EXECUTE A FINAL DEED OF SALE IN FAVOR OF
THE PLAINTIFF.
 Third Assignment of Error

THE LOWER COURT ERRED IN ORDERING DEFENDANTS TO PAY PLAINTIFFS

THE SUM OF P500.00 AS ATTORNEY'S FEES.

The main issue to be resolved is whether or not the contract to sell has been automatically and
validly cancelled by the defendants-appellants.

The defendants-appellants submit that the contract was validly cancelled pursuant to paragraph six
of the contract which provides:

xxx xxx xxx

SIXTH.—In case the party of the SECOND PART fails to satisfy any monthly
installments, or any other payments herein agreed upon, he is granted a month of
grace within which to make the retarded payment, together with the one
corresponding to the said month of grace; it is understood, however, that should the
month of grace herein granted to the party of the SECOND PART expired; without
the payments corresponding to both months having been satisfied, an interest of
10% per annum will be charged on the amounts he should have paid; it is
understood further, that should a period of 90 days elapse, to begin from the
expiration of the month of grace herein mentioned, and the party of SECOND PART
has not paid all the amounts he should have paid with the corresponding interest up
to that date, the party of the FIRST PART has the right to declare this contract
cancelled and of no effect, and as consequence thereof, the party of the FIRST
PART may dispose of the parcel of land covered by this contract in favor of other
persons, as if this contract had never been entered into. In case of such cancellation
of the contract, all the amounts paid in accordance with this agreement together with
all the improvements made on the premises, shall be considered as rents paid for the
use and occupation of the above mentioned premises, and as payment for the
damages suffered by failure of the party of the SECOND PART to fulfill his part of the
agreement; and the party of the SECOND PART hereby renounces all his right to
demand or reclaim the return of the same and obliges himself to peacefully vacate
the premises and deliver the same to the party of the FIRST PART. (Emphasis
supplied by appellant)

xxx xxx xxx

The defendants-appellants argue that the plaintiffs-appellees failed to pay the August, 1966
installment despite demands for more than four (4) months. The defendants-appellants point
to Jocson v. Capitol Subdivision (G.R. No. L-6573, February 28, 1955) where this Court upheld the
right of the subdivision owner to automatically cancel a contract to sell on the strength of a provision
or stipulation similar to paragraph 6 of the contract in this case. The defendants-appellants also
argue that even in the absence of the aforequoted provision, they had the right to cancel the contract
to sell under Article 1191 of the Civil Code of the Philippines.

The plaintiffs-appellees on the other hand contend that the Jocson ruling does not apply. They state
that paragraph 6 of the contract to sell is contrary to law insofar as it provides that in case of
specified breaches of its terms, the sellers have the right to declare the contract cancelled and of no
effect, because it granted the sellers an absolute and automatic right of rescission.

Article 1191 of the Civil Code on the rescission of reciprocal obligations provides:
 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.

xxx xxx xxx

Article 1191 is explicit. In reciprocal obligations, either party the right to rescind the contract upon the
failure of the other to perform the obligation assumed thereunder. Moreover, there is nothing in the
law that prohibits the parties from entering into an agreement that violation of the terms of the
contract would cause its cancellation even without court intervention (Froilan v. Pan Oriental
Shipping, Co., et al., 12 SCRA 276)—

Well settled is, however, the rule that a judicial action for the rescission of a contract
is not necessary where the contract provides that it may be revoked and cancelled
for violation of any of its terms and conditions' (Lopez v. Commissioner of Customs,
37 SCRA 327, and cases cited therein)

Resort to judicial action for rescission is obviously not contemplated . . . The validity
of the stipulation can not be seriously disputed. It is in the nature of a facultative
resolutory condition which in many cases has been upheld by this Court. (Ponce
Enrile v. Court of Appeals, 29 SCRA 504).

The rule that it is not always necessary for the injured party to resort to court for rescission of the
contract when the contract itself provides that it may be rescinded for violation of its terms and
conditions, was qualified by this Court in University of the Philippines v. De los Angeles, (35 SCRA
102) where we explained that:

Of course, it must be understood that the act of a party in treating a contract as

cancelled or resolved on account of infractions by the other contracting party must be
made known to the other and is always provisional, being ever subject to scrutiny
and review by the proper court. If the other party denies that rescission is justified, it
is free to resort to judicial action in its own behalf, and bring the matter to court.
Then, should the court, after due hearing, decide that the resolution of the contract
was not warranted, the responsible party will be sentenced to damages; in the
contrary case, the resolution will be affirmed, and the consequent indemnity awarded
to the party prejudiced.

In other words, the party who deems the contract violated many consider it resolved
or rescinded, and act accordingly, without previous court action, but it proceeds at its
own risk. For it is only the final judgment of the corresponding court that will
conclusively and finally settle whether the action taken was or was not correct in
law. ... .

We see no conflict between this ruling and the previous jurisprudence of this Court
invoked by respondent declaring that judicial action is necessary for the resolution of
a reciprocal obligation; (Ocejo, Perez & Co. v. International Banking Corp., 37 Phil.
631; Republic v. Hospital de San Juan de Dios, et al., 84 Phil. 820) since in every
case where the extrajudicial resolution is contested only the final award of the court
of competent jurisdiction can conclusively settle whether the resolution was proper or
 not. It is in this sense that judicial action will be necessary, as without it, the
extrajudicial resolution will remain contestable and subject to judicial invalidation,
unless attack thereon should become barred by acquiescence, estoppel or
prescription.

The right to rescind the contract for non-performance of one of its stipulations, therefore, is not
absolute. In Universal Food Corp. v. Court of Appeals (33 SCRA 1) the Court stated that—

The general rule is that rescission of a contract will not be permitted for a slight or
casual breach, but only for such substantial and fundamental breach as would defeat
the very object of the parties in making the agreement. (Song Fo & Co. v. Hawaiian-
Philippine Co., 47 Phil. 821, 827) The question of whether a breach of a contract is
substantial depends upon the attendant circumstances. (Corpus v. Hon. Alikpala, et
al., L-23707 & L-23720, Jan. 17, 1968). ... .

The defendants-appellants state that the plaintiffs-appellees violated Section two of the contract to
sell which provides:

SECOND.—That in consideration of the agreement of sale of the above described

property, the party of the SECOND PART obligates himself to pay to the party of the
FIRST PART the Sum of THREE THOUSAND NINE HUNDRED TWENTY ONLY
(P3,920.00), Philippine Currency, plus interest at the rate of 7% per annum, as
follows:

(a) The amount of THREE HUNDRED NINETY TWO only (P392.00) when this
contract is signed; and

(b) The sum of FORTY ONE AND 20/100 ONLY (P4l.20) on or before the 19th day of
each month, from this date until the total payment of the price above stipulated,
including interest.

because they failed to pay the August installment, despite demand, for more than four (4) months.

The breach of the contract adverted to by the defendants-appellants is so slight and casual when we
consider that apart from the initial downpayment of P392.00 the plaintiffs-appellees had already paid
the monthly installments for a period of almost nine (9) years. In other words, in only a short time,
the entire obligation would have been paid. Furthermore, although the principal obligation was only P
3,920.00 excluding the 7 percent interests, the plaintiffs- appellees had already paid an aggregate
amount of P 4,533.38. To sanction the rescission made by the defendants-appellants will work
injustice to the plaintiffs- appellees. (See J.M. Tuazon and Co., Inc. v. Javier, 31 SCRA 829) It would
unjustly enrich the defendants-appellants.

Article 1234 of the Civil Code which provides that:

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.

also militates against the unilateral act of the defendants-appellants in cancelling the contract.

We agree with the observation of the lower court to the effect that:
 Although the primary object of selling subdivided lots is business, yet, it cannot be
denied that this subdivision is likewise purposely done to afford those landless, low
income group people of realizing their dream of a little parcel of land which they can
really call their own.

The defendants-appellants cannot rely on paragraph 9 of the contract which provides:

NINTH.-That whatever consideration of the party of the FIRST PART may concede
to the party of the SECOND PART, as not exacting a strict compliance with the
conditions of paragraph 6 of this contract, as well as any other condonation that the
party of the FIRST PART may give to the party of the SECOND PART with regards
to the obligations of the latter, should not be interpreted as a renunciation on the part
of the party of the FIRST PART of any right granted it by this contract, in case of
default or non-compliance by the party of the SECOND PART.

The defendants-appellants argue that paragraph nine clearly allows the seller to waive the
observance of paragraph 6 not merely once, but for as many times as he wishes.

The defendants-appellants' contention is without merit. We agree with the plaintiffs-appellees that
when the defendants-appellants, instead of availing of their alleged right to rescind, have accepted
and received delayed payments of installments, though the plaintiffs-appellees have been in arrears
beyond the grace period mentioned in paragraph 6 of the contract, the defendants-appellants have
waived and are now estopped from exercising their alleged right of rescission. In De Guzman v.
Guieb (48 SCRA 68), we held that:

xxx xxx xxx

But defendants do not deny that in spite of the long arrearages, neither they nor their
predecessor, Teodoro de Guzman, even took steps to cancel the option or to eject
the appellees from the home-lot in question. On the contrary, it is admitted that the
delayed payments were received without protest or qualification. ... Under these
circumstances, We cannot but agree with the lower court that at the time appellees
exercised their option, appellants had already forfeited their right to invoke the
above-quoted provision regarding the nullifying effect of the non-payment of six
months rentals by appellees by their having accepted without qualification on July 21,
1964 the full payment by appellees of all their arrearages.

The defendants-appellants contend in the second assignment of error that the ledger of payments
show a balance of P671,67 due from the plaintiffs-appellees. They submit that while it is true that the
total monthly installments paid by the plaintiffs-appellees may have exceeded P3,920.00, a
substantial portion of the said payments were applied to the interests since the contract specifically
provides for a 7% interest per annum on the remaining balance. The defendants-appellants rely on
paragraph 2 of the contract which provides:

SECOND.—That in consideration of the agreement of sale of the above described

property, the party of the SECOND PART obligates himself to pay to the party of the
FIRST PART the Sum of THREE THOUSAND NINE HUNDRED TWENTY ONLY (P
3,920.00), Philippine Currency, plus interest at the rate of 7% per annum ... .
(Emphasis supplied)
The plaintiffs-appellees on the other hand are firm in their submission that since they have already
paid the defendants-appellants a total sum of P4,533.38, the defendants-appellants must now be
compelled to execute the final deed of sale pursuant to paragraph 12 of the contract which provides:

TWELFTH.—That once the payment of the sum of P3,920.00, the total price of the
sale is completed, the party to the FIRST PART will execute in favor of the party of
the SECOND PART, the necessary deed or deeds to transfer to the latter the title of
the parcel of land sold, free from all hens and encumbrances other than those
expressly provided in this contract; it is understood, however, that au the expenses
which may be incurred in the said transfer of title shall be paid by the party of the
SECOND PART, as above stated.

Closely related to the second assignment of error is the submission of the plaintiffs-appellees that
the contract herein is a contract of adhesion.

We agree with the plaintiffs-appellees. The contract to sell entered into by the parties has some
characteristics of a contract of adhesion. The defendants-appellants drafted and prepared the
contract. The plaintiffs-appellees, eager to acquire a lot upon which they could build a home, affixed
their signatures and assented to the terms and conditions of the contract. They had no opportunity to
question nor change any of the terms of the agreement. It was offered to them on a "take it or leave
it" basis. In Sweet Lines, Inc. v. Teves (83 SCRA 36 1), we held that:

xxx xxx xxx

... (W)hile generally, stipulations in a contract come about after deliberate drafting by
the parties thereto. . . . there are certain contracts almost all the provisions of which
have been drafted only by one party, usually a corporation. Such contracts are called
contracts of adhesion, because the only participation of the party is the signing of his
signature or his "adhesion" thereto. Insurance contracts, bills of lading, contracts of
sale of lots on the installment plan fall into this category. (Paras, Civil Code of the
Philippines, Seventh ed., Vol. 1, p. 80.) (Emphasis supplied)

While it is true that paragraph 2 of the contract obligated the plaintiffs-appellees to pay the
defendants-appellants the sum of P3,920.00 plus 7% interest per annum, it is likewise true that
under paragraph 12 the seller is obligated to transfer the title to the buyer upon payment of the
P3,920.00 price sale.

The contract to sell, being a contract of adhesion, must be construed against the party causing it.
We agree with the observation of the plaintiffs-appellees to the effect that "the terms of a contract
must be interpreted against the party who drafted the same, especially where such interpretation will
help effect justice to buyers who, after having invested a big amount of money, are now sought to be
deprived of the same thru the prayed application of a contract clever in its phraseology,
condemnable in its lopsidedness and injurious in its effect which, in essence, and in its entirety is
most unfair to the buyers."

Thus, since the principal obligation under the contract is only P3,920.00 and the plaintiffs-appellees
have already paid an aggregate amount of P4,533.38, the courts should only order the payment of
the few remaining installments but not uphold the cancellation of the contract. Upon payment of the
balance of P671.67 without any interest thereon, the defendants-appellants must immediately
execute the final deed of sale in favor of the plaintiffs-appellees and execute the necessary transfer
documents as provided in paragraph 12 of the contract. The attorney's fees are justified.
WHEREFORE, the instant petition is DENIED for lack of merit. The decision appealed from is
AFFIRMED with the modification that the plaintiffs-appellees should pay the balance of SIX
HUNDRED SEVENTY ONE PESOS AND SIXTY-SEVEN CENTAVOS (P671.67) without any
interests. Costs against the defendants-appellants.

SO ORDERED.

Melencio-Herrera, Plana, Relova, De la Fuente and Alampay, JJ., concur.

Teehankee (Chairman), J., took no part.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. L-55665 February 8, 1989

DELTA MOTOR CORPORATION, petitioner,

vs.
EDUARDA SAMSON GENUINO, JACINTO S. GENUINO, Jr., VICTOR S. GENUINO, HECTOR S.
GENUINO, EVELYN S. GENUINO, and The COURT OF APPEALS, respondents.

Alcasid, Villanueva & Associates for petitioner.

Luna, Puruganan, Sison & Ongkiko for respondents.

CORTES, J.:

Petitioner, through this petition for review by certiorari, appeals from the decision of respondent
appellate court in CA-G.R. No. 59848-R entitled "Eduarda Samson Genuino, et al. v. Delta Motor
Corporation" promulgated on October 27, 1980.

The facts are as follows:

Petitioner Delta Motor Corporation (hereinafter referred to as Delta) is a corporation duly organized
and existing under Philippine laws.

On the other hand, private respondents are the owners of an iceplant and cold storage located at
1879 E. Rodriguez Sr. Avenue, Quezon City doing business under the name "España Extension
Iceplant and Cold Storage."
In July 1972, two letter-quotations were submitted by Delta to Hector Genuino offering to sell black
iron pipes. T

The letter dated July 3, 1972 quoted Delta's selling price for 1,200 length of black iron pipes
schedule 40, 2" x 20' including delivery at P66,000.00 with the following terms of payment:

a. 20% of the net contract price or P13,200.00 will be due and payable upon signing
of the contract papers.

b. 20% of the net contract price or P13,200.00 will be due and payable before
commencement of delivery.

c. The balance of 60% of the net contract price or P39,600.00 with 8% financing
charge per annum will be covered by a Promissory Note bearing interest at the rate
of 14% per annum and payable in TWELVE (12) equal monthly installment (sic), the
first of which will become due thirty (30) days after the completion of delivery.
Additional 14% will be charged for all delayed payments. [Exh. "A"; Exh. 1.]

The second letter-quotation dated July 18, 1972 provides for the selling price of 150 lengths of black
iron pipes schedule 40, 1 1/4" x 20' including delivery at P5,400.00 with the following terms of
payment:

a. 50% of the net contract price or P 2,700.00 will be due and payable upon signing
of the contract papers.

b. 50% of the net contract price or P 2,700.00 will be due and payable before
commencement of delivery. [Exh. "C"; Exh. "2".]

Both letter-quotations also contain the following stipulations as to delivery and price offer:

DELIVERY

Ex-stock subject to prior sales.

xxx xxx xxx

Our price offer indicated herein shall remain firm within a period of thirty (30) days
from the date hereof. Any order placed after said period will be subject to our review
and confirmation. [Exh. "A" and "C"; Exhs. "l" and "2".]

Hector Genuino was agreeable to the offers of Delta hence, he manifested his conformity thereto by
signing his name in the space provided on July 17, 1972 and July 24, 1972 for the first and second
letter-quotations, respectively.

It is undisputed that private respondents made initial payments on both contracts — for the first
contract, P13,200.00 and, for the second, P2,700.00 — for a total sum of P15,900.00 on July 28,
1972 (Exhs. "B" and "D"].

Likewise unquestionable are the following. the non-delivery of the iron pipes by Delta; the non-
payment of the subsequent installments by the Genuinos; and the non-execution by the Genuinos of
the promissory note called for by the first contract.
The evidence presented in the trial court also showed that sometime in July 1972 Delta offered to
deliver the iron pipes but the Genuinos did not accept the offer because the construction of the ice
plant building where the pipes were to be installed was not yet finished.

Almost three years later, on April 15, 1975, Hector Genuino, in behalf of España Extension Ice Plant
and Cold Storage, asked Delta to deliver the iron pipes within thirty (30) days from its receipt of the
request. At the same time private respondents manifested their preparedness to pay the second
installment on both contracts upon notice of Delta's readiness to deliver.

Delta countered that the black iron pipes cannot be delivered on the prices quoted as of July 1972.
The company called the attention of the Genuinos to the stipulation in their two (2) contracts that the
quoted prices were good only within thirty (30) days from date of offer. Whereupon Delta sent new
price quotations to the Genuinos based on its current price of black iron pipes, as follows:

P241,800.00 for 1,200 lengths of black iron pjpes schedule 40, 2" x 20' [Exh. "G-1".]

P17,550.00 for 150 lengths of black iron pipes schedule 40, 1 1/4" x 20' [Exh. "G-2".]

The Genuinos rejected the new quoted prices and instead filed a complaint for specific performance
with damages seeking to compel Delta to deliver the pipes. Delta, in its answer prayed for rescission
of the contracts pursuant to Art. 1191 of the New Civil Code. The case was docketed as Civil Case
No. Q-20120 of the then Court of First Instance of Rizal, Branch XVIII, Quezon City.

After trial the Court of First Instance ruled in favor of Delta,the dispositive portion of its decision
reading as follows:

WHEREFORE, premises considered, judgment is rendered:

1. Declaring the contracts, Annexes "A" and "C" of the complaint rescinded;

2. Ordering defendant to refund to plaintiffs the sum of P15,900.00 delivered by the

latter as downpayments on the aforesaid contracts;

3. Ordering plaintiffs to pay defendant the sum of P10,000.00 as attorney's fees; and,

4. To pay the costs of suit. [CFI Decision, pp. 13-14; Rollo, pp. 53-54.]

On appeal, the Court of Appeals reversed and ordered private respondents to make the payments
specified in "Terms of Payment — (b)" of the contracts and to execute the promissory note required
in the first contract and thereafter, Delta should immediately commence delivery of the black iron
pipes.* [CA Decision, p. 20; Rollo, p. 75.]

The Court of Appeals cited two main reasons why it reversed the trial court, namely:

1. As Delta was the one who prepared the contracts and admittedly, it had
knowledge of the fact that the black iron pipes would be used by the Genuinos in
their cold storage plant which was then undergoing construction and therefore, would
require sometime before the Genuinos would require delivery, Delta should have
included in said contracts a deadline for delivery but it did not. As a matter of fact
neither did it insist on delivery when the Genuinos refused to accept its offer of
delivery. [CA Decision, pp. 16-17; Rollo, pp. 71-72.]
 2. Delta's refusal to make delivery in 1975 unless the Genuinos pay a price very
much higher than the prices it previously quoted would mean an amendment of the
contracts. It would be too unfair for the plaintiffs if they will be made to bear the
increase in prices of the black iron pipes when they had already paid quite an
amount for said items and defendant had made use of the advance payments. That
would be unjust enrichment on the part of the defendant at the expense of the
plaintiffs and is considered an abominable business practice. [CA Decision, pp. 18-
19; Rollo, pp. 73-74.]

Respondent court denied Delta's motion for reconsideration hence this petition for review praying for
the reversal of the Court of Appeals decision and affirmance of that of the trial court.

Petitioner argues that its obligation to deliver the goods under both contracts is subject to conditions
required of private respondents as vendees. These conditions are: payment of 20% of the net
contract price or P13,200.00 and execution of a promissory note called for by the first contract; and
payment of 50% of the net contract price or P2,700.00 under the second contract. These, Delta
posits, are suspensive conditions and only upon their performance or compliance would its
obligation to deliver the pipes arise [Petition, pp. 9-12; Rollo, pp. 1720.] Thus, when private
respondents did not perform their obligations; when they refused to accept petitioner's offer to deliver
the goods; and, when it took them three (3) long years before they demanded delivery of the iron
pipes that in the meantime, great and sudden fluctuation in market prices have occurred; Delta is
entitled to rescind the two (2) contracts.

Delta relies on the following provision of law on rescission:

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.

In construing Art. 1191, the Supreme Court has stated that, "[r]escission will be ordered only where
the breach complained of is substantial as to defeat the object of the parties in entering into the
agreement. It will not be granted where the breach is slight or casual." [Phil. Amusement
Enterprises, Inc. v. Natividad, G.R. No. L-21876, September 29, 1967, 21 SCRA 284, 290.] Further,
"[t]he question of whether a breach of a contract is substantial depends upon the attendant
circumstances." [Universal Food Corporation v. Court of Appeals, G. R. No. L-29155, May
13,1970,33 SCRA 1, 18].

In the case at bar, the conduct of Delta indicates that the Genuinos' non-performance of its
obligations was not a substantial breach, let alone a breach of contract, as would warrant rescission.

Firstly, it is undisputed that a month after the execution of the two (2) contracts, Delta's offer to
deliver the black iron pipes was rejected by the Genuinos who were "not ready to accept delivery
because the cold storage rooms have not been constructed yet. Plaintiffs (private respondents
herein) were short-funded, and did not have the space to accommodate the pipes they ordered" [CFI
Decision, p. 9; Rollo, p. 49].

Given this answer to its offer, Delta did not do anything. As testified by Crispin Villanueva, manager
of the Technical Service department of petitioner:

Q You stated that you sent a certain Evangelista to the España

Extension and Cold Storage to offer the delivery subject matter of the
contract and then you said that Mr. Evangelista reported (sic) to you
that plaintiff would not accept delivery, is that correct, as a summary
of your statement?

A A Yes, sir.

Q Now, what did you do in the premises (sic)?

A Yes, well, we take the word of Mr. Evangelista. We could not

deliver the said black iron pipes, because as per information the Ice
Plant is not yet finished.

Q Did you not report that fact to ... any other defendant-officials of the
Delta Motor Corporation?

A No.

Q And you did not do anything after that?

A Because taking the word of my Engineer we did not do anything.

[TSN, December 8, 1975, pp. 18-19.]

xxx xxx xxx

And secondly, three (3) years later when the Genuinos offered to make payment Delta did not raise
any argument but merely demanded that the quoted prices be increased. Thus, in its answer to
private respondents' request for delivery of the pipes, Delta countered:

Thank you for your letter dated April 15, 1975, requesting for delivery of Black Iron
pipes;.

We regret to say, however, that we cannot base our price on our proposals dated
July 3 and July 18, 1972 as per the following paragraph quoted on said proposal:

Our price offer indicated herein shall remain firm within a period of
thirty (30) days from the date hereof. Any order placed after said
period will be subject to our review and confirmation.

We are, therefore, enclosing our re-quoted proposal based on our current price.
[Exh. "G".]
Moreover, the power to rescind under Art. 1191 is not absolute. "[T]he act of a party in treating a
contract as cancelled or resolved on account of infractions by the other contracting party must be
made known to the other and is always provisional, being ever subject to scrutiny and review by the
proper court." [University of the Phils. v. De los Angeles, G. R. No. L-28602, September 29, 1970, 35
SCRA 102, 107; Emphasis supplied.]

In the instant case, Delta made no manifestation whatsoever that it had opted to rescind its contracts
with f-he Genuinos. It only raised rescission as a defense when it was sued for specific performance
by private respondents.

Further, it would be highly inequitable for petitioner Delta to rescind the two (2) contracts considering
the fact that not only does it have in its possession and ownership the black iron pipes, but also the
P15,900.00 down payments private respondents have paid. And if petitioner Delta claims the right to
rescission, at the very least, it should have offered to return the P15,900.00 down payments [See
Art. 1385, Civil Code and Hodges v. Granada, 59 Phil. 429 (1934)].

It is for these same reasons that while there is merit in Delta's claim that the sale is subject to
suspensive conditions, the Court finds that it has, nevertheless, waived performance of these
conditions and opted to go on with the contracts although at a much higher price. Art. 1545 of the
Civil Code provides:

Art. 1545. Where the obligation of either party to a contract of sale is subject to any
condition which is not performed, such party may refuse to proceed with the contract
or he may waived performance of the condition. . . . [Emphasis supplied.]

Finally, Delta cannot ask for increased prices based on the price offer stipulation in the contracts and
in the increase in the cost of goods. Reliance by Delta on the price offer stipulation is misplaced.
Said stipulation makes reference to Delta's price offer as remaining firm for thirty (30) days and
thereafter, will be subject to its review and confirmation. The offers of Delta, however, were accepted
by the private respondents within the thirty (30)-day period. And as stipulated in the two (2) letter-
quotations, acceptance of the offer gives rise to a contract between the parties:

In the event that this proposal is acceptable to you, please indicate your conformity
by signing the space provided herein below which also serves as a contract of this
proposal. [Exhs. "A" and "C"; Exhs. "1" and "2".]

And as further provided by the Civil Code:

Art. 1319. Consent is manifested by the meeting of the offer and the acceptance
upon the thing and the cause which are to constitute the contract.

Art. 1475. The contract of sale is perfected at the moment there is a meeting of
minds upon thing which is the object of the contract and upon the price.

Thus, the moment private respondents accepted the offer of Delta, the contract of sale between
them was perfected and neither party could change the terms thereof.

Neither could petitioner Delta rely on the fluctuation in the market price of goods to support its claim
for rescission. As testified to by petitioner's Vice-President of Marketing for the Electronics,
Airconditioning and Refrigeration division, Marcelino Caja, the stipulation in the two (2) contracts as
to delivery, ex-stock subject to prior sales, means that "the goods have not been delivered and
that there are no prior commitments other than the sale covered by the contracts.. . once the offer is
accepted, the company has no more option to change the price." [CFI Decision, p. 5; Rollo, p. 45;
Emphasis supplied.] Thus, petitioner cannot claim for higher prices for the black iron pipes due to the
increase in the cost of goods. Based on the foregoing, petitioner Delta and private respondents
Genuinos should comply with the original terms of their contracts.

WHEREFORE, the decision of the Court of Appeals is hereby AFFIRMED.

SO ORDERED.

Fernan, C.J., Gutierrez, Jr., Feliciano and Bidin, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 101762 July 6, 1993

VERMEN REALTY DEVELOPMENT CORPORATION, petitioner,

vs.
THE COURT OF APPEALS and SENECA HARDWARE CO., INC., respondents.

Ramon P. Gutierrez for petitioner.

Adriano Velasco for private respondent.

BIDIN, J.:

Petitioner seeks a review of the decision of the Court of Appeals in CA-G.R. CV No. 15730, which
set aside the decision of the Regional Trial Court of Quezon City, Branch 92 in Civil Case No. Q-
45232. The dispositive portion of the assailed decision reads as follows:

WHEREFORE, the decision a quo is set aside. As prayed for by plaintiff-appellant,

the "Offsetting Agreement" (Exhibit "E" or "2") is hereby rescinded. Room 601 of
Phase I of the Vermen Pines Condominium should be returned by plaintiff-appellant
to defendant-appellee upon payment by the latter of the sum of P330,855.25 to the
former, plus damages in the sum of P5,000.00 and P50.00 for the furnishings of
Phase I of Condo (sic) Units Nos. 601 and 602, and three (3) day rental of Room 402
during the Holy Week of 1982, respectively. In addition, defendant-appellee is hereby
ordered to pay plaintiff-appellant, who was compelled to litigate and hire the services
of counsel to protect its interests against defendant-appellee's violation of their
 Offsetting Agreement, the sum of P10,000.00 as an award for attorney's fee (sic) and
other expenses of litigation. The claim for unrealized profits in a sum equivalent to
10% to 20% percent or P522,000.00 not having been duly proved, is therefore
DENIED. No costs. (Rollo, p. 31)

On March 2, 1981, petitioner Vermen Realty and Development Corporation, as First Party, and
private respondent Seneca Hardware Co., Inc., as Second Party, entered into a contract
denominated as "Offsetting Agreement". The said agreement contained the following stipulations:

1. That the FIRST PARTY is the owner/developer of VERMEN PINES

CONDOMINIUM located at Bakakeng Road, Baguio City;

2. That the SECOND PARTY is in business of construction materials and other

hardware items;

3. That the SECOND PARTY desires to buy from the FIRST PARTY two (2)
residential condominium units, studio type, with a total floor area of 76.22 square
meter (sic) more or less worth TWO HUNDRED SEVENTY SIX THOUSAND
(P276,000.00) PESOS only;

4. That the FIRST PARTY desires to but from the SECOND PARTY construction
materials mostly steel bars, electrical materials and other related items worth FIVE
HUNDRED FIFTY TWO THOUSAND (P552,000.00) PESOS only;

5. That the FIRST PARTY shall pay the SECOND PARTY TWO HUNDRED
SEVENTY SIX THOUSAND (P276,000.00) PESOS in cash upon delivery of said
construction materials and the other TWO HUNDRED SEVENTY SIX THOUSAND
(P276,000.00) PESOS shall be paid in the form of two (2) residential condominium
units, studio type, with a total floor area of 76.22 square meter (sic) more or less also
worth P276,000.00;

6. That, for every staggered delivery of construction materials, fifty percent (50%)
shall be paid by the FIRST PARTY to the SECOND PARTY C.O.D. and, fifty percent
(50%) shall be credited to the said condominium unit in favor of the SECOND
PARTY;

7. That the SECOND PARTY shall deliver to the FIRST PARTY said construction
materials under the agreed price and conditions stated in the price quotation
approved by both parties and made an integral part of this document;

8. That the SECOND PARTY is obliged to start delivering to the FIRST PARTY all
items in the purchase order seven (7) days from receipt of said purchase order until
such time that the whole amount of P552,000.00 is settled;

9. That the place of delivery shall be Vermen Pines Condominium at Bakakeng

Road, Baguio City;

10. That the freight cost of said materials shall be borne fifty percent (50%) by the
FIRST PARTY and fifty percent (50%) by the SECOND PARTY;
 11. That the FIRST PARTY pending completion of the VERMEN PINES
CONDOMINIUM PHASE II which is the subject of this contract, shall deliver to the
SECOND PARTY the possession of residential condominium, Phase I, Unit Nos. 601
and 602, studio type with a total area of 76.22 square meters or less, worth
P276,000.00;

12. That after the completion of Vermen Pines Condominium Phase II, the SECOND
PARTY shall be given by the FIRST PARTY the first option to transfer from Phase I
to Phase II under the same price, terms and conditions. (Rollo, pp. 26-28).

As found by the appellate court and admitted by both parties, private respondent had paid petitioner
the amount of P110,151.75, and at the same time delivered construction materials worth
P219,727.00. Pending completion of Phase II of the Vermen Pines Condominiums, petitioner
delivered to private respondent units 601 and 602 at Phase I of the Vermen Pines Condominiums
(Rollo, p. 28). In 1982, the petitioner repossessed unit 602. As a consequence of the repossession,
the officers of the private respondent corporation had to rent another unit for their use when they
went to Baguio on April 8, 1982. On May 10, 1982, the officers of the private respondent corporation
requested for a clarification of the petitioner's action of preventing them and their families from
occupying condominium unit 602.

In its reply dated May 24, 1982, the petitioner corporation averred that Room 602 was leased to
another tenant because private respondent corporation had not paid anything for purchase of the
condominium unit. Petitioner corporation demanded payment of P27,848.25 representing the
balance of the purchase price of Room 601.

In 1983, the loan application for the construction of the Vermen Pines Condominium Phase II was
denied. Consequently, construction of the condominium project stopped and has not been resumed
since then.

On June 21, 1985, private respondent filed a complaint with the Regional Trial Court of Quezon City
(Branch 92) for rescission of the Offsetting Agreement with damages. In said complaint, private
respondent alleged that petitioner Vermen Realty Corporation had stopped issuing purchase orders
of construction materials after April, 1982, without valid reason, thus resulting in the stoppage of
deliveries of construction materials on its (Seneca Hardware) part, in violation of the Offsetting
Agreement.

In its Answer filed on August 15, 1985, petitioner alleged that the fault lay with private respondent
(plaintiff therein): although petitioner issued purchase orders, it was private respondent who could
not deliver the supplies ordered, alleging that they were out of stock. (However, during a hearing on
January 28, 1987, the Treasurer of petitioner corporation, when asked where the purchase orders
were, alleged that she was going to produce the same in court, but the same was never produced
(Rollo, p. 30). Moreover, private respondent quoted higher prices for the construction materials
which were available. Thus, petitioner had to resort to its other suppliers. Anent the query as to why
Unit 602 was leased to another tenant, petitioner averred that this was done because private
respondent had not paid anything for it.

As of December 16, 1986, private respondent had paid petitioner P110,151.75 in cash, made
deliveries of construction materials worth P219,727.00, leaving a balance of P27,848.25
representing the purchase price of unit 601 (Rollo, p. 28). The price of one condominium unit was
P138,000.00.
After conducting hearings, the trial court rendered a decision dismissing the complaint and ordering
the plaintiff (private respondent in this petition) to pay defendant (petitioner in this petition) on its
counterclaim in the amount of P27,848.25 representing the balance due on the purchase price of
condominium unit 601.

On appeal, respondent court reversed the trial court's decision as adverted to above.

Petitioner now comes before us with the following assignment of errors:

THE RESPONDENT COURT OF APPEALS ERRED, AND ITS ERROR IS

REVIEWABLE BY THIS HONORABLE COURT, WHEN IT SUPPLANTED
CONTRARY TO THE EVIDENCE ON RECORD, THE TRIAL COURT'S
CONCLUSIONS THAT PETITIONER DID NOT VIOLATE THE "OFFSETTING
AGREEMENT" IT ENTERED INTO WITH THE SENECA HARDWARE CO., INC.
WITH ITS TOTALLY BASELESS "PERCEPTION" THAT IT WAS PETITIONER
WHICH DISCONTINUED TO ISSUE PURCHASE ORDERS DUE TO THE
STOPPAGE OF THE CONSTRUCTION OF PHASE II OF THE CONDOMINIUM
PROJECT WHEN THE LOAN ON THE SAID PROJECT WAS STOPPED.

II

THE RESPONDENT COURT OF APPEALS ERRED, AND ITS ERROR IS

REVIEWABLE BY THIS HONORABLE COURT, WHEN IT CONCLUDED THAT IT
WAS PETITIONER WHICH BREACHED THE "OFFSETTING AGREEMENT"
BECAUSE IT DID NOT SEND PURCHASE ORDERS TO PRIVATE RESPONDENT
AND DISCONTINUED THE CONSTRUCTION OF THE CONDOMINIUM PROJECT
DESPITE THE FACT THAT THE EXHIBITS ATTESTING TO THIS FACT WAS
FORMALLY OFFERED IN EVIDENCE IN COURT AND MENTIONED BY IT IN ITS
DECISION.

III

THE RESPONDENT COURT OF APPEALS ERRED, AND ITS ERROR IS

REVIEWABLE BY THIS HONORABLE COURT, WHEN IT CONCLUDED THAT IT
WAS PETITIONER WHICH BREACHED THE "OFFSETTING AGREEMENT"
DESPITE THE ADMISSION MADE BY PRIVATE RESPONDENT'S OWN WITNESS
THAT PETITIONER HAD THE DISCRETION TO ORDER OR NOT TO ORDER THE
CONSTRUCTION MATERIAL (SIC) FROM THE FORMER. (Rollo, p. )

The issue presented before the Court is whether or not the circumstances of the case warrant
rescission of the Offsetting Agreement as prayed for by Private Respondent when he instituted the
case before the trial court.

We rule in favor of private respondent. There is no controversy that the provisions of the Offsetting
Agreement are reciprocal in nature. Reciprocal obligations are those created or established at the
same time, out of the same cause, and which results in a mutual relationship of creditor and debtor
between parties. In reciprocal obligations, the performance of one is conditioned on the
simultaneous fulfillment of the other obligation (Abaya vs. Standard Vacuum Oil Co., 101 Phil. 1262
[1957]). Under the agreement, private respondent shall deliver to petitioner construction materials
worth P552,000.00 under the conditions set forth in the Offsetting Agreement. Petitioner's obligation
under the agreement is three-fold: he shall pay private respondent P276,000.00 in cash; he shall
deliver possession of units 601 and 602, Phase I, Vermen Pines Condominiums (with total value of
P276,000.00) to private respondent; upon completion of Vermen Pines Condominiums Phase II,
private respondent shall be given option to transfer to similar units therein.

Article 1191 of the Civil Code provides the remedy of rescission in (more appropriately, the term is
"resolution") in case of reciprocal obligations, where one of the obligors fails to comply with that is
incumbent upon him.

The general rule is that rescission of a contract will not be permitted for a slight or causal breach, but
only for such substantial and fundamental breach as would defeat the very object of the parties in
executing the agreement. The question of whether a breach of contract is substantial depends upon
the attendant circumstances (Universal Food Corp. vs. Court of Appeals, 33 SCRA 1, [1970]).

In the case at bar, petitioner argues that it was private respondent who failed to perform its obligation
in the Offsetting Agreement. It averred that contrary to the appellate court's ruling, the mere
stoppage of the loan for the construction of Phase II of the Vermen Pines Condominiums should not
have had any effect on the fulfillment of the obligations set forth in the Offsetting Agreement.
Petitioner moreover stresses that contrary to private respondent's averments, purchase orders were
sent, but there was failure to deliver the materials ordered because they were allegedly out of stock.
Petitioner points out that, as admitted by private respondent's witness, petitioner had the discretion
to order or not to order constructions materials, and that it was only after petitioner approved the
price, after making a canvass from other suppliers, that the latter would issue a purchase order.
Petitioner argues that this was the agreement, and therefore the law between the parties, hence,
when no purchase orders were issued, no provision of the agreement was violated.

Private respondent, on the other hand, points out that the subject of the Offsetting Agreement is
Phase II of the Vermen Pines Condominiums. It alleges that since construction of Phase II of the
Vermen Pines Condominiums has failed to begin (Rollo, p. 104), it has reason to move for rescission
of the Offsetting Agreement, as it cannot forever wait for the delivery of the condominium units to it.

It is evident from the facts of the case that private respondent did not fail to fulfill its obligation in the
Offsetting Agreement. The discontinuance of delivery of construction materials to petitioner stemmed
from the failure of petitioner to send purchase orders to private respondent. The allegation that
petitioner had been sending purchase orders to private respondent, which the latter could not fill,
cannot be given credence. Perhaps in the beginning, it would send purchase orders to private
respondent (as evidenced by the purchase orders presented in court), and the latter would deliver
the construction materials ordered. However, according to private respondent, after April, 1982,
petitioner stopped sending purchase orders. Petitioner failed to refute this allegation. When
petitioner's witness, Treasurer of the petitioner corporation, was asked to produce the purchase
orders in court, the latter promised to do so, but this was never complied with.

On the other hand, petitioner would never able to fulfill its obligation in allowing private respondent to
exercise the option to transfer from Phase I to Phase II, as the construction of Phase II has ceased
and the subject condominium units will never be available.

The impossibility of fulfillment of the obligation on the part of petitioner necessitates resolution of the
contract for indeed, the non-fulfillment of the obligation aforementioned constitutes substantial
breach of the Offsetting Agreement. The possibility of exercising the option of whether or not to
transfer to condominium units in Phase II was one of the factors which were considered by private
respondent when it entered into the agreement. Since the construction of the Vermen Pines
Condominium Phase II has stopped, petitioner would be in no position to perform its obligation to
give private respondent the option to transfer to Phase II. It would be the height of injustice to make
private respondent wait for something that may never come.

WHEREFORE, the petition is DENIED for lack of merit. Costs against petitioner.

SO ORDERED.

Feliciano, Davide, Jr., Romero and Melo, JJ., concur.

CHARLES F. WOODHOUSE, plaintiff-appellant, vs.

FORTUNATO F. HALILI, defendant-appellant.
G.R. No. L-4811 July 31, 1953
Subject: BusOrg 1 (PAT)
Doctrine: Fraud
FACTS
On November 29, 1947, plaintiff Woodhouse entered into a written agreement with defendant
Halili stating among others that: 1) that they shall organize a partnership for the bottling and
distribution of Missionsoft drinks, plaintiff to act as industrial partner or manager, and the
defendant as a capitalist, furnishing the capital necessary therefore; 2) that plaintiff was to secure
the Mission Soft Drinks franchise for and in behalf of the proposed partnership and 3) that the
plaintiff was to receive 30 per cent of the net profits of the business.
Prior to entering into this agreement, plaintiff had informed the Mission Dry Corporation of Los
Angeles, California, that he had interested a prominent financier (defendant herein) in the
business, who was willing to invest half a milliondollars in the bottling and distribution of the
said beverages, and requested, in order that he may close the deal with him, that the right to
bottle and distribute be granted him for a limited time under the condition that it will finally be
transferred to the corporation. Pursuant to this request, plaintiff was given “a thirty days’ option
on exclusive bottling and distribution rights for the Philippines”. The contract was finally signed
by plaintiff on December 3, 1947.
When the bottling plant was already in operation, plaintiff demanded of defendant that the
partnership papers be executed. Defendant Halili gave excuses and would not execute said
agreement, thus the complaint by the plaintiff.
Plaintiff prays for the : 1.execution of the contract of partnership; 2) accounting of profits and
3)share thereof of 30 percent with 4) damages in the amount of P200,000. The Defendant on the
other hand claims that: 1) the defendant’s consent to the agreement, was secured by the
representation of plaintiff that he was the owner, or was about to become owner of an exclusive
bottling franchise, which representation was false, and that plaintiff did not secure the franchise
but was given to defendant himself 2) that defendant did not fail to carry out his undertakings,
but that it was plaintiff who failed and 3)that plaintiff agreed to contribute to the exclusive
franchise to the partnership, but plaintiff failed to do so with a 4) counterclaim for P200,00 as
damages.
The CFI ruling: 1) accounting of profits and to pay plaintiff 15 % of the profits and that the 2)
execution of contract cannot be enforced upon parties. Lastly, the 3) fraud wasn’t proved
ISSUES

1. WON plaintiff falsely represented that he had an exclusive franchise to bottle Mission
beverages
2. WON false representation, if it existed, annuls the agreement to form the partnership
HELD

1. Yes. Plaintiff did make false representations and this can be seen through his letters to Mission
Dry Corporation asking for the latter to grant him temporary franchise so that he could settle the
agreement with defendant. The trial court reasoned, and the plaintiff on this appeal argues, that
plaintiff only undertook in the agreement “to secure the Mission Dry franchise for and in behalf
of the proposed partnership.” The existence of this provision in the final agreement does not
militate against plaintiff having represented that he had the exclusive franchise; it rather
strengthens belief that he did actually make the representation. The defendant believed, or was
made to believe, that plaintiff was the grantee of an exclusive franchise. Thus it is that it was also
agreed upon that the franchise was to be transferred to the name of the partnership, and that,
upon its dissolution or termination, the same shall be reassigned to the plaintiff.
Again, the immediate reaction of defendant, when in California he learned that plaintiff did not
have the exclusive franchise, was to reduce, as he himself testified, plaintiff’s participation in the
net profits to one half of that agreed upon. He could not have had such a feeling had not plaintiff
actually made him believe that he(plaintiff) was the exclusive grantee of the franchise.
2. No. In consequence, article 1270 of the Spanish Civil Code distinguishes two kinds of (civil)
fraud, the causal fraud, which may be ground for the annulment of a contract, and the incidental
deceit, which only renders the party who employs it liable for damages only. The Supreme Court
has held that in order that fraud may vitiate consent, it must be the causal (dolo causante), not
merely the incidental (dolo incidente) inducement to the making of the contract.
The record abounds with circumstances indicative of the fact that the principal consideration, the
main cause that induced defendant to enter into the partnership agreement with plaintiff, was the
ability of plaintiff to get the exclusive franchise to bottle and distribute for the defendant or for
the partnership. The original draft prepared by defendant’s counsel was to the effect that plaintiff
obligated himself to secure a franchise for the defendant. But if plaintiff was guilty of a false
representation, this was not the causal consideration, or the principal inducement, that led
plaintiff to enter into the partnership agreement. On the other hand, this supposed ownership of
an exclusive franchise was actually the consideration or price plaintiff gave in exchange for the
share of 30 per cent granted him in the net profits of the partnership business. Defendant agreed
to give plaintiff 30 per cent share in the net profits because he was transferring his exclusive
franchise to the partnership.
Having arrived at the conclusion that the contract cannot be declared null and void, may the
agreement be carried out or executed? The SC finds no merit in the claim of plaintiff that the
partnership was already a fait accompli from the time of the operation of the plant, as it is
evident from the very language of the agreement that the parties intended that the execution of
the agreement to form a partnership was to be carried out at a later date. , The defendant may not
be compelled against his will to carry out the agreement nor execute the partnership papers. The
law recognizes the individual’s freedom or liberty to do an act he has promised to do, or not to
do it, as he pleases.

Dispostive Postion: With modification above indicated, the judgment appealed from is hereby
affirmed.

GERALDEZ V COURT OF APPEALS (Regalado, 1994)

Art. 1171 - Responsibility arising from fraud is demandable in all obligations. Any waiver of an action for
future fraud is void. (1102a) Tolentino: The fraud referred to here is that mentioned in Article 1170,
which is the malice or bad faith in the performance of an existing obligation, and not the fraud or deceit
used to procure a contract. FACTS:

- petitioner Lydia Geraldez availed of respondent Kenstar Travel Corporation’s tour package for Europe

- Petitioner complains of the substandard service of Kenstar which then constitute the fraud:

- they employed an inexperienced tour guide (they originally promised an experienced European tour
guide)

- they weren’t able to tour the leather factory, which was among the highlights of the package

- the substandard hotels they stayed in were far from the city, had poor sanitation and facilities, and
weren’t first class (as was promised in the package);

- they thus asked for damages. RTC granted the petitioner petitioner P500.000.00 as moral damages,
P200,000.00 as nominal damages, P300,000.00 as exemplary damages, P50,000.00 as and for attorney's
fees, and the costs of the suit.

- However, respondent CA deleted the award for moral and exemplary damages, and reduced the awards
for nominal damages and attorney's fees to P30,000.00 and P10,000.00, respectively.

- Hence this petition for the damages deleted.

ISSUE: W/N there was fraud employed by Kenstart Travel Corp so as to grant Gerald the prayed for
damages — YES

HELD: Respondent court erred in deleting the award for moral and exemplary damages. Moral damages
may be awarded in breaches of contract where the obligor acted fraudulently or in bad faith. Private
respondent can be faulted with fraud in the inducement, which is employed by a party to a contract in
securing the consent of the other. This fraud or dolo which is present or employed at the time of birth or
perfection of a contract may either be dolo causante or dolo incidente. Dolo causante are those deceptions
or misrepresentations of a serious character employed by one party and without which the other party
would not have entered into the contract. Dolo incidente, or incidental fraud are those which are not
serious in character and without which the other party would still have entered into the contract. Dolo
causante determines or is the essential cause of the consent, while dolo incidente refers only to some
particular or accident of the obligations. The effects of dolo causante are the nullity of the contract and the
indemnification of damages, and dolo incidente also obliges the person employing it to pay damages In
either case, whether private respondent has committed dolo causante or dolo incidente by making
misrepresentations in its contracts with petitioner and other members of the tour group, which deceptions
became patent in the light of afterevents when, contrary to its representations, it employed an
inexperienced tour guide, housed the tourist group in substandard hotels, and reneged on its promise of a
European tour manager and the visit to the leather factory, it is indubitably liable for damages to
petitioner. When moral damages are awarded, especially for fraudulent conduct, exemplary damages may
also be decreed. Exemplary damages are imposed by way of example or correction for the public good, in
addition to moral, temperate, liquidated or compensatory damages. According to the code Commission,
exemplary damages are required by public policy, for wanton acts must be suppressed.

PETITION GRANTED. Petitioner also awarded moral and exemplary damages. CA DECISION SET
ASIDE.

VASQUEZ v BORJA

G.R. No. L-48931 – 74 Phil. 560 – Civil Law – Torts and Damages – Distinction
of Liability of Employers Under Article 2180 and Their Liability for Breach of
Contract

In January 1932, Francisco De Borja entered into a contract of sale with the
NVSD (Natividad-Vasquez Sabani Development Co., Inc.). The subject of
the sale was 4,000 cavans of rice valued at Php2.10 per cavan. On behalf
of the company, the contract was executed by Antonio Vasquez as the
company’s acting president. NVSD only delivered 2,488 cavans and failed
and refused, despite demand, to deliver the rest hence De Borja incurred
damages (apparently, NVSD was insolvent). He then sue Vasquez for
payment of damages.

ISSUE: Whether or not Vasquez is liable for damages.

HELD: No. Vasquez is not party to the contract as it was NVSD which De
Borja contracted with. It is well known that a corporation is an artificial
being invested by law with a personality of its own, separate and distinct
from that of its stockholders and from that of its officers who manage and
run its affairs. The mere fact that its personality is owing to a legal fiction
and that it necessarily has to act thru its agents, does not make the latter
personally liable on a contract duly entered into, or for an act lawfully
performed, by them for an in its behalf.

The fact that the corporation, acting thru Vazquez as its manager, was
guilty of negligence in the fulfillment of the contract did not make Vazquez
principally or even subsidiarily liable for such negligence. Since it was the
corporation’s contract, its non fulfillment, whether due to negligence or
fault or to any other cause, made the corporation and not its agent liable.

JUSTICE PARAS Dissenting :

Vasquez as president of NVSD is liable for damages. Vasquez, as acting

president and manager of NVSD, and with full knowledge of the then
insolvent status of his company, agreed to sell to De Borja 4,000 cavans of
palay. Further, NVSD was soon thereafter dissolved.

[G.R. No. 141258. April 9, 2003]

TOMASA SARMIENTO, petitioner, vs. SPS. LUIS & ROSE SUN-CABRIDO and MARIA LOURDES SUN, respondents.

FACTS:
Petitioner, Tomasa Sarmiento, states that sometime in April 1994, a friend, Dra. Virginia Lao, requested her to find somebody to
reset a pair of diamond earrings into two gold rings. Accordingly, petitioner sent a certain Tita Payag with the pair of earrings to
Dingding’s Jewelry Shop, owned and managed by respondent spouses Luis and Rose Cabrido, which accepted the job order for
P400.
Petitioner provided 12 grams of gold to be used in crafting the pair of ring settings. After 3 days, Tita Payag delivered to the
jewelry shop one of Dra. Lao’s diamond earrings which was earlier appraised as worth .33 carat and almost perfect in cut and
clarity. Respondent Ma. Lourdes (Marilou) Sun went on to dismount the diamond from its original setting. Unsuccessful, she
asked their goldsmith, Zenon Santos, to do it. Santos removed the diamond by twisting the setting with a pair of pliers, breaking
the gem in the process.
Petitioner required the respondents to replace the diamond with the same size and quality. When they refused, the petitioner was
forced to buy a replacement in the amount of P30,000.
Petitioner filed a complaint for damages on June 28, 1994.
private respondents vigorously denied any transaction between Dingdings’ Jewelry Shop and the petitioner, through Tita Payag.

DECISION OF LOWER COURTS:

1. MTC: declared respondents liable.
2. RTC: absolving the respondents of any responsibility arising from breach of contract. while ostensibly admitting the existence
of the said agreement, private respondents, nonetheless denied assuming any obligation to dismount the diamonds from their
original settings.
3. CA: declared the private respondents not liable for damages.

ARGUMENTS OF THE PARTIES:

Respondents
- dismounting of the diamond from its original setting was part of the obligation assumed by the private respondents under the
contract of service.
Petitioners
- agreement was for crafting two gold rings mounted with diamonds only and did not include the dismounting of the said
diamonds from their original setting.

ISSUE:
Whether respondents are liable

RULING:
Yes.
it is beyond doubt that Santos acted negligently in dismounting the diamond from its original setting. It appears to be the practice
of the trade to use a miniature wire saw in dismounting precious gems, such as diamonds, from their original settings. However,
Santos employed a pair of pliers in clipping the original setting, thus resulting in breakage of the diamond. The jewelry shop
failed to perform its obligation with the ordinary diligence required by the circumstances. It should be pointed out that Marilou
examined the diamond before dismounting it from the original setting and found the same to be in order. Its subsequent breakage
in the hands of Santos could only have been caused by his negligence in using the wrong equipment. Res ipsa loquitur. (the thing
speaks for itself)
Obligations arising from contracts have the force of law between the contracting parties. Corollarily, 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.23[23] The fault or negligence of the obligor consists in the omission of that diligence which is
required by the nature of the obligation and corresponds with the circumstances of the persons, of the time and of the place.
Marilou and Zenon Santos were employed at Dingding’s Jewelry Shop in order to perform activities which were usually
necessary or desirable in its business.
Private respondents Luis Cabrido and Rose Sun-Cabrido are hereby ordered to pay, jointly and severally, the amount of P30,000
as actual damages and P10,000 as moral damages in favor of the petitioner

CASE DIGEST Aerospace Chemical Industries v. Court of Appeals Obligations and Contracts

Court Citation Date Petitioner Respondents Ponente Relevant topic Prepared by

Supreme Court G.R. No. 108129 September 23, 1999 Aerospace Chemical Industries, Inc. Court
of Appeals, Philippine Phosphate Fertilizer, Corp. Quisumbing, J. Modes of breach – delay or
mora (mora solvendi) Czarina Duka

FACTS: ●

June 27, 1986 - Aerospace Chemical Industries (Aerospace) purchased 500 metric tons of
sulfuric acid from Philippine Phosphate Fertilizer (Philphos) to be paid at least 5 days prior to
shipment date. Aerospace would also provide the means of transport to pick-up the purchases
from the loadports.

August 6, 1986 – Private respondent advised Aerospace to withdraw the sulfuric acid from the
Basay port because Philphos has been incurring incremental expense for each day of delay of
shipment.

October 3 - Petitioner paid P553,280 for 500 MT of sulfuric acid and then chartered M/T Sultan
Kayumanggi on November 19 to pick it up but it only withdrew 70.009 MT as the vessel was not
in mint condition.

December 12 – Philphos asked Aerospace to retrieve remaining sulfuric acid so the tanks could
be emptied by December 15 and will charge them if they fail to comply. December 18, M/T
Sultan Kayumanggi docked at Sangi, Cebu but withdrew only 157.51 mt. Kayumanggi
eventually sank with a total of 227.51 mt sulfuric acid on board.
●

Aerospace chartered another vessel, M/T Don Victor, with a capacity of approximately 500 MT.
Petitioner then asked Philphos for additional orders of sulfuric acid to replace its sunken
purchases. Respondent instructed Aerospace to lift the remaining 30 mt from the Basay port or
pay maintenance and storage expenses starting August 1, 1986. IN OTHER WORDS,
AEROSPACE FAILED TO PICK-UP ALL ITS PURCHASES. THIS CONSTITUTED TO
BREACH OF CONTRACT. PICKING UP PURCHASES WAS PAKRT OF THE CONTRACT.

On July 1988, petitioner insisted on picking up their purchase + additional order as they have
already paid the chartered vessel for the full 500 mt capacity. Otherwise, they would commence
legal action.

Finally, on 1989, petitioner filed a complaint for specific performance and/or damages. Private
respondent filed a counterclaim stating that it was petitioner who was remiss in the performance
of its obligation in arranging the shipment requirements and as a consequence, should pay the
damages.

RTC ruled in petitioner’s favor. The Court of Appeals reversed the lower court’s decision.

ISSUE – HELD – RATIO: ISSUE #1 WON there was a breach of contract on the part of the
petitioner

HELD YES

RATIO: As the buyer, petitioner was obligated under the contract to undertake the shipping
requirements of the cargo from assigned loadports. They chartered M/T Kayumanggi, which
turned out to be unstable and unseaworthy. Considering such, it was incumbent upon Aerospace
to immediately replace the vessel with another which complies with the necessary loading
conditions of sulfuric acid. However, despite repeated demands of Philphos, petitioner failed to
comply.

Page 1 of 2

CASE DIGEST Aerospace Chemical Industries v. Court of Appeals Obligations and Contracts

Inspite of the reminders of Philpos regarding the incurring of expenses for the delay, petitioner
did not send M/T Don Victor because Philphos cannot sell additional sulfuric acid to petitioner.
ISSUE #2 WON damages should be paid for by the petitioner

HELD YES

RATIO: Where there has been a breach of contract by the buyer, the seller has a right of action
for damages. A cause of action of the seller for damages may arise where the buyer refuses to
remove the goods, such that buyer has to remove them. Article 1170 of the Civil Code provides:
"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." Further, Art.
1169 states: 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. This article
provides that the following requisites must be present: (1) that the obligation be demandable and
already liquidated; (2) that the debtor delays performance; and (3) that the creditor requires the
performance judicially or extrajudicially. Private respondent required petitioner to ship out or lift
the sulfuric acid as agreed, otherwise petitioner would be charged for the consequential damages
owing to any delay. As stated in private respondent’s letter to petitioner, dated December 12,
1986. The delay started on December 15, 1986 until August 31, 1987, during the period of the
extended lease solely for petitioner’s sulfuric acid. Certainly, the petitioner was guilty of
negligence and delay in the performance of its obligation to lift the sulfuric acid on August 15,
1986 and had contravened the tenor of its letter-contract with the defendant." As pointed out
earlier, petitioner is guilty of delay, after private respondent made the necessary extrajudicial
demand by requiring petitioner to lift the cargo at its designated loadports. When petitioner failed
to comply with its obligations under the contract it became liable for its shortcomings. Petitioner
is indubitably liable for proven damages.

RULING:

WHEREFORE, the petition is hereby DENIED. The assailed decision of the Court of Appeals is
AFFIRMED, with MODIFICATION that the amount of damages awarded in favor of private
respondent is REDUCED to Two hundred seventy two thousand pesos (P272,000.00). It is also
ORDERED that said amount of damages be OFFSET against petitioner’s advance payment of
Three hundred three thousand four hundred eighty three pesos and thirty-seven centavos
(P303,483.37) representing the price of the 272.481 MT of sulfuric acid not lifted. Lastly, it is
ORDERED that the excess amount of thirty one thousand, four hundred eighty three pesos and
thirty seven centavos (P31,483.37) be RETURNED soonest by private respondent to herein
petitioner. Costs against the petitioner.