Case No.

SPOUSES ALEXANDER AND JULIE LAM VS. KODAK PHILIPPINES, LTD.

JANUARY 11, 2016
778 SCRA 96
Petitioner: Spouses Alexander and Julie Lam, doing business under the name and style “Colorkwik Laboratories”
Respondent: Kodak Philippines, Ltd.
Ponente: J. Leonen

FACTS:

a. On January 8, 1992, the Lam Spouses and Kodak Philippines, Ltd. entered into an agreement for the sale of
three units of the Kodak Minilab System 22XL (Minilab Equipment) in the amount of P1,796,000.00 per unit. The
said units will be for the proposed outlets in Rizal Avenue, Tagum, and the Multicolor photo counter in Cotabato.
b. On January 15, Kodak delivered one unit of the equipment in Tagum and the Lam Spouses issued postdated
checks amounting to Php 35,000.00 each for 12 months as payment, with the first check due on March 31, 1992.
c. The Sps. Lam requested that Kodak not negotiate the check dated March 31, 1992 allegedly due to insufficiency
of funds. However, Kodak still negotiated both checks along with the check due on April 30, and were honored by
the depository bank.
d. Sps. Lam ordered the depository bank to stop payment causing the 10 other checks to be dishonored.
e. Kodak canceled the sale and demanded Sps. Lam to return the unit it delivered together with its accessories.
f. Sps. Lam ignored the demand but also rescinded the contract for Kodak’s failure to deliver the two remaining
units of Minilab Equipment.
g. On November 25, 1992, Kodak filed a complaint for replevin (seized goods may be restored to owner) and/or
recovery of sum of money with Regional Trial Court (RTC).
h. When Sps. Lam failed to appear during the pre-trial conference, they were declared in default and the trial court
ruled in favor of Kodak ordering the seizure of the Minilab Equipment at the outlet of Sps. Lam in Tagum.
i. The writ of seizure was enforced on December 21, 1992 and Kodak gained possession of the equipment,
accessories, and the generator set that was later on proven not purchased from Kodak.
j. Sps. Lam then filed a petition with the Court of Appeals to set aside the orders issued by the trial court; granted.
k. In the decision dated February 26, 1999, the RTC found that Kodak defaulted in the performance of its obligation
under its Letter Agreement with Sps. Lam. Citing Art. 1521, where by a contract of sale the seller is bound to send
the goods to the buyer, but no time for delivery is fixed, the seller is bound to send them within a reasonable time.
l. While Kodak failed to give a sufficient explanation for this, the trial court stated that if the refusal of Kodak to
deliver was on account of the Sps. Lam’s inability to pay, then the non-delivery during the two months that
payments were honored is unjustified.
m. However, the trial court also ruled that when Sps. Lam accepted the delivery of the first unit, they also became
liable for the fair value of the goods received. Hence, Kodak is right to retrieve the unit delivered.

ISSUES:

● Upon rescission of the contract, what the parties are entitled to under Article 1191 and 1522 of the New Civil Code

HELD:

● Under Article 1522, the Lam spouses are initially liable for the fair value of the goods received, that is the single
unit delivered by Kodak. Failure of delivery of the other units did not give them the right to suspend payment of the
unit delivered and being used by them. Without payment, Kodak is right to retrieve the unit delivered.
● But upon rescission of the contract under Article 1191, the Lam spouses are ordered to return the Kodak Minilab
System 22XL unit and its standard accessories to Kodak Philippines, Ltd. while Kodak Philippines, Ltd. is ordered
to return to Lam spouses the partial payment the latter made on the single unit delivered along with payment of
other damages as if no contract was entered into.

SC denied the petition of Lam spouses to grant them damages more than the amount awarded by the Court of
Appeals.