Oblicon Case Digests - Topic - Kinds of Non-Performance

Legaspi Oil Co., Inc. v Court of Appeals, GR No. 96505, 01 July 1993 Facts: Petitioner Legaspi Oil Company had several transactions with Oseraos through the agents of the latter. The transactions involve the sale of copras (coconut husk) by private respondent to the petitioner. The selling price of Oseraos for every 100 kilos of copras depends on the prevailing market price at the time the contract was entered into. In one transaction, Oseraos committed to sell 100 tons of copra to Legaspi Oil for the price of P82 per 100 kilos with delivery terms of 20 days effective 8 March 1975. After the period to deliver had lapsed, Oseraos was only able to sell 46,334 kilos of copra thus leaving a balance of 53,666 kilos as per running account. Accordingly, demands were made upon Oseraos to deliver the balance with a final warning embodied in a letter dated 6 October 1976 that failure to deliver will mean cancellation of the contract, the balance to be purchased at open market and the price deferential to be charged against Oseraos. Since there was still no compliance, Legaspi Oil purchased the undelivered balance from the open market at the prevailing price of P168.00 per 100 kilos, or a price differential of P86.00 per 100 kilos, a net loss of P46,152.76 chargeable against private respondent. Issue: WoN Oseraos is liable for damages arising from fraud or bad faith in deliberately breaching the contract of sale entered into by the parties. Held: Despite repeated demands by petitioner, private respondent failed to fulfill his contractual obligation to deliver the remaining 53,666 kilograms of copra. Based on the foregoing facts, the actuality of private respondent’s fraud cannot be gainsaid. In general fraud may be defined as the voluntary execution of a wrongful act, or a willful omission, knowing and intending the effects which naturally and necessarily arise from such act or omission. The conduct of the private respondent clearly manifests his deliberate faudulent intent to evade his contractual obligation for the price of copra had in the meantime more than doubled from P82.00 to P168.00 per 100 kilograms. Under Art. 1170 of the Civil Code, those who in the performance of their obligation are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages. Pursuant to said article, private respondent is liable for damages. Woodhouse v Halili, GR No L-4811 31 July 1953 Facts: The Plaintiff entered into an agreement with the defendant for the establishment of a partnership for bottling and distribution of Mission soft drinks. Before the partnership was actually established the defendant required the plaintiff to secure an exclusive franchise for the said venture. In behalf of the said partnership and upon obtaining the said exclusive franchise the defendant stipulated to pay the plaintiff 30% of the profits. The plaintiff sought to obtain the said exclusive franchise but was only given a temporary one, subject only to 30 days. The parties then proceeded with the signing of the agreement. The partnership was still not initiated, only the agreement to work with each other, with the plaintiff as manager and the defendant as financer, was established. Together the two parties went to the US to formally sign the contract of franchise with Mission Dry Corporation. The defendant then found out about the temporary franchise right given to the plaintiff, different from the exclusive franchise rights they stipulated in their contract.

When the operations of the business began he was paid P 2,000 and was allowed the use of a car. But in the next month, the pay was decreased to P 1,000 and the car was withdrawn from him. The plaintiff demanded the execution of the partnership, but the defendant excused himself, saying that there was no hurry to do so. The Court of First Instance ordered the defendant to render an accounting of the profits and to pay the plaintiff 15% of such amount. It also held that execution of the contract of partnership cannot be enforced upon the defendant and that fraud as alleged by the defendant was also not proved. Hence the present action. Issues: (1) WoN plaintiff falsely represented that he had an exclusive franchise to bottle Mission beverages (2) WoN the representation of the plaintiff in saying that he had exclusive franchise rights rather than the actual temporary right he possessed invalidated the contract 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. Geraldez v CA 230 108253, 23 February 1994 Facts: Petitioner booked the Volare 3 tour with private respondent, Kenstar. The tour covered a 22-day tour of Europe for $2,990.00 which she paid the total equivalent amount of P190, 000.00 charged by private respondent for her and her sister, Dolores. At the tour, petitioner claimed that what was alleged in the brochure was not what they experienced. There was no European tour manager as stated in the brochure, the hotels where they stayed in which were advertised as first class were not (the hotels lacked basic amenities and were of considerable distance from the city center), the UGC leather factory which was specifically included as a highlight of the tour was not visited and The Filipino tour guide provided by Kenstar was a first timer thus inexperienced. The Quezon City RTC rendered a decision ordering respondent Kenstar to pay moral, nominal, and exemplary damages totaling P1, 000,000 and P50, 000 attorney’s fees. On appeal, respondent Court of Appeals deleted the award for moral and exemplary damages and reduced the nominal damages and attorney’s fees to P30,000 and P10,000 respectively. Issue: WoN Kenstar acted with fraud or in bad faith or with gross negligence in discharging its obligations in the contract Held: The 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. The first, or causal fraud referred to in Article 1338, 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 which is referred to in Article 1344, 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. Kenstar’s choice of the tour guide is a manifest disregard of its specific assurances to the tour group, and which deliberate omission is contrary to the rules of good faith and fair play. Providing the Volare 3 group with an inexperienced first timer as a tour guide, Kenstar manifested indifference to the satisfaction, convenience and peace of mind to its clients. The election of the tour guide was a deliberate and conscious choice on the part of Kenstar in order to afford her on-the job-training making the tour group her unknowing guinea pigs, furthermore the inability to visit the UGC leather factory is reflective of the ineptness and neglect of the tour guide. The failure of Kenstar to provide a European Tour Manager although it specifically advertised and promised to do so is also a contractual breach. Kenstar expressly stated in its advertisement that a European Tour Manager would be present.

Kenstar’s contention that the European Tour Manager does not refer to a natural person but a juridical personality does not hold because a corporate entity could not possibly accompany the tour group. Lastly Kenstar committed grave misrepresentation when it assured in its tour package that the hotels provided would provide complete amenities and would be conveniently located along the way for the daily itineraries. The testimonies by petitioner and private respondent show that the hotels were unsanitary and sometimes did not even provide towels and soap. Further testimonies claim that the hotels were also located in locations far from the city making it difficult to go to. The fact that Kenstar could only book them in such hotels because of budget constraints is not the fault of the tour group. Kenstar should not have promised such accommodations if they couldn’t afford it. Kenstar should have increased the price to ensure accommodations. Petitioners therefore should be awarded moral damages because of breach of contract because the obligor acted fraudulently or in bad faith. International Corporate Bank v Gueco, GR No 141968, 12 February 2001

Facts: Respondent Gueco spouses obtained a loan from petitioner International Corporate Bank (now Union Bank of Philippines) to purchase a car – Nissan Sentra 1989 model. In consideration, spouses executed promissory note which were payable in monthly installment & chattel mortgage over the car.

The spouses defaulted payment. In the ensuing events Dr. Gueco had a meeting with petitioner to negotiate for the payment of the unpaid installment of P184,000 (balance of the loan). The load was eventually reduced to P150,000. However, the car was detained by the bank pending its payment. When Dr. Gueco delivered the manager’s check amounting to P150,000, the car was not released because of his refusal to sign the Joint Motion to Dismiss.The bank insisted that the Joint Motion to Dismiss is a standard operating procedure to effect a compromise & to preclude future filing of claims or suits for damages. The Gueco spouses, on the other hand, maintain that no such requirement was agreed upon during the negotiation for the payment of the loan. As a result, Gueco filed an action against the bank for fraud, failing to inform them regarding Joint Motion to Dismiss requiment during the meeting & for failing to release the car despite payment of the P150,000 obligation. Issues: WoN the bank was guilty of fraud?

Held: No. Fraud has been defined as the deliberate intention to cause damage or prejudice. It is the voluntary execution of a wrongful act, or a willful omission, knowing and intending the effects which naturally and necessarily arise from such act or omission. the fraud referred to in Article 1170 of the Civil Code is the deliberate and intentional evasion of the normal fulfillment of obligation.

Petitioner’s act of requiring respondents to sign the Joint Motion to Dismiss can not be said to be a deliberate attempt on the part of petitioner to renege on the compromise agreement of the parties. The motion to dismiss was in fact also for the benefit of Dr. Gueco, as the case filed by petitioner against it before the lower court would be dismissed with prejudice. The whole point of the parties entering into the compromise agreement was in order that Dr. Gueco would pay his outstanding account and in return petitioner would return the car and drop the case for money and replevin before the Metropolitan Trial Court. The joint motion to dismiss was but a natural consequence of the compromise agreement and simply stated that Dr. Gueco had fully settled his obligation, hence, the dismissal of the case. Petitioner’s act of requiring Dr. Gueco to sign the joint motion to dismiss cannot be said to be a deliberate attempt on the part of petitioner to renege on the compromise agreement of the parties.

The law presumes good faith. Dr. Gueco failed to present an iota of evidence to overcome this presumption. In fact, the act of petitioner bank in lowering the debt of Dr. Gueco from P184,000.00 to P150,000.00 is indicative of its good faith and sincere desire to settle the case. If respondent did suffer any damage, as a result of the withholding of his car by petitioner, he has only himself to blame. Necessarily, the claim for exemplary damages must fail. In no way, may the conduct of petitioner be characterized as “wanton, fraudulent, reckless, oppressive or malevolent.”