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Song Fo v. Hawaiian Phils.

 Raymundo then sent the Velardes a Notice of Cancellation/Rescission of the
Velarde v. CA Intended Sale on the grounds of failure to comply with the terms and conditions of
SUMMARY OF DOCTRINE: the DSAM and Undertaking
 Failure to pay the price in the manner prescribed by the contract constitutes a
substantial breach of contract  The Velardes filed a Complaint for:
 A substantial breach of contract entitles injured party to rescind the obligation. 1. Specific performance (enforcement of the DSAM);
 Rescission abrogates the contract from its inception and requires mutual 2. Nullity of Cancellation;
restitution of benefits. 3. Issuance of a writ of possession; and
4. Damages
FACTS:  Judge Ynares-Santiago of the RTC of Makati dismissed the complaint, but a new
judge granted the Motion for Reconsideration after Justice Ynares-Santiago was
 David Raymundo is the owner of a parcel of land together with the house and other promoted to the CA
improvements erected upon it.  The new judge ruled in favor of the Velardes, ordering them to pay the P1.8M and
ordering Raymundo to execute a deed of absolute sale and to surrender possession
 The property was mortgaged to the Bank of the Philippine Islands (BPI) for P1.8M of the property
through a Deed of Real Estate Mortgage (DREM).  Raymundo appealed to the CA, which ruled in favor of him, finding that:
 George Raymundo, David’s father, negotiated the sale of the property to spouses 1. the nonpayment of the mortgage resulted in a breach of contract
Avelina and Mariano Velarde.
2. that the rescission of the contract was, therefore, justified
3. that the letter giving new conditions was an attempt to novate, which requires a
 The parties executed a Deed of Sale with Assumption of Mortgage (DSAM) new agreement between the parties.
where the Velardes agreed, inter alia, to:
1. Pay Raymundo P800,000.00 ISSUES:
2. Assume the obligation to repay the mortgage worth P1.8M I. W/N there was a Breach of Contract.
3. Strictly and faithfully comply with all terms and conditions of the mortgage HELD: YES. Velardes’ failure to perform their correlative obligation (payment of the
agreement with BPI balance of P1.8M) resulted in a breach.
4. Pay interests and other charges for late payment levied by the Bank  Petitioners allege that disapproval of their application to assume obligation of
(all in all, to treat the mortgage as if it were originally signed and executed by them) the mortgage extinguished their obligation to pay the monthly amortizations,
which then devolved upon Raymundo again.
 Failure to pay the mortgage would not have been a problem if they paid the
 Avelina Velarde also executed an Undertaking further stating, inter alia, that:
balance of the purchase price amounting to P1.8M, as agreed upon in the event
1. While her application for assumption of mortgage obligations on the property the application is disapproved.
was still being processed, she will still pay the mortgage obligations in the name  Thus, when the application was disapproved, they should have proceeded to
of the owner Raymundo pay Raymundo the balance of P1.8M
 The breach was not the nonpayment of the mortgage, but the
2. should she violate any of the terms and conditions of the DREM, she agrees to nonperformance of their reciprocal obligation to pay the price under the
(1) forfeit in favor of David Raymundo the P800T plus all payments made to BPI contract of sale
as liquidated damages without necessity of judicial declaration; (2) Raymundo’s  Their conditional offer to pay cannot take the place of actual payment that
resumption of total ownership of the property; and (3) automatic cancellation of would discharge a buyer’s obligation under a contract of sale
the DSAM
 In a contract of sale, seller obligates itself to transfer ownership and deliver a
determinate thing, and the buyer obligates itself to pay a price certain in
 However, Velarde’s application for assumption of mortgage obligations was not money or its equivalent
 From then on, the Velardes stopped payment of the mortgage loan  When Raymundo executed the DSAM, his obligation has already been
performed through constructive delivery, where prior physical delivery is not
 In response, Raymundo wrote to the Velardes stating that their nonpayment of the legally required. Deed of Sale is deemed equivalent to delivery
mortgage constituted nonperformance of their obligation.  Petitioners did not only fail to perform their correlative obligation, they also
tried to compel Raymundo to perform obligations beyond those stipulated in the
contract before fulfilling their own.
 Velardes replied through a letter stating their willingness to pay the balance
provided that Raymundo:
II. W/N the breach was substantial enough to justify the rescission of the contract.
1. deliver actual possession of the property for Velardes’ immediate occupancy;
HELD: YES. The Velardes, in failing to pay the purchase price under the contract of
2. cause the release of the title and mortgage from BPI and make the title
sale, violated the very essence of reciprocity in the contract of sale.
available free from any liens and encumbrances; and
3. execute an absolute deed of sale in Avelina Velarde’s favor
LEGAL BASIS: Article 1191 of the Civil Code:
The power to rescind obligations is implied in reciprocal ♦ Operations started during the first week of February. When the bottling plant
ones in case one of the obligors should not comply with was already in operation, plaintiff demanded that the partnership papers be
what in incumbent upon him. executed. Halili failed to comply with the demand of Woodhouse and such this
complaint was instituted. In his complaint Woodhouse was asking for the
The injured party may choose between fulfillment and the execution of the contract of partnership, an accounting of the profits, and his
rescission of the obligation, with the payment of damages share of 30% and damages.
in either case. He may also seek rescission even after he ♦ COFI ordered Halili to render an accounting of the profits and to pay Woodhouse
has chosen fulfillment, if the latter should become possible 15% thereof. It held that the execution of the contract of partnership could not
be enforce upon the parties, but it also held that the defense of fraud was not
 Since it is established that the Velardes violated the reciprocity of the contract
of sale, the right of rescission under Article 1191 was validly exercised
 This right is predicated on a breach of faith Issues:
 While it is true that they expressed their willingness to pay the price one month 1. WON the defendant had falsely represented that he had an exclusive franchise
after it became due, this does not constitute faithful compliance of their to bottle Mission beverages. YES
reciprocal obligation, especially considering the “offer” was made conditional. ♦ Fraud is never presumed and must be proved. The fact that the parties were
 Petitioners tried to invoke the cases of Song Fo , Zepeda v. CA and Tan v. CA represented by attorneys would not invalidate the agreement.
 The court held that the facts of this case are distinguishable from the other ♦ Halili insist that Woodhouse did represent that he had an exclusive franchise,
cases because those involved only delays of a few days and the buyers’ offers to when as a matter of fact, at the time of its execution, he no longer had it as the
pay were unconditional and accepted by the seller same had expired, and that, therefore, consent of Halili was vitiated by fraud
and consequently null and void.
III. W/N the payments were forfeited ♦ The first draft that the counsel of Woodhouse prepared expressly states that
HELD: NO. Rescission requires mutual restitution. Woodhouse had the exclusive franchise.
♦ In the acts or statements prior to the agreement are essential and relevant to
 Since the breach consisted of the nonperformance of reciprocal obligation, and the determination of WON the Woodhouse represent that he had an exclusive
not a breach of the mortgage contract, what applies are the Civil Code franchise.
provisions and not the automatic rescission and forfeiture clause of the ♦ From the statements “ …and the manager is ready and willing to allow the
Undertaking. capitalist to use the exclusive franchise” and “…In the event of the dissolution
 Rescission under the Civil Code required mutual restitution to bring back the of the partnership… the Franchise from Mission Dry Corporation shall be
reassigned to the Manager…” it can be seen that the conclusion that Halili
parties to their original situations prior to the inception of the contract
believed or was made to believe that Woodhouse was the grantee of an
 The payments of P800T and monthly amortizations must be returned, lest one
exclusive franchise.
party enrich itself in the expense of the other (Principle of Unjust Enrichment)
 This is because to rescind is to declare the contract void, to put an end to 2. WON the false representation or fraud would annul the agreement to form the
it as if it never was, and not merely to terminate it and release the partnership. NO
parties from further obligations to each other. ♦ Two types of fraud:
o Dolo Casante – ground for the annulment of a contract
Woodhouse v. Halili o Dolo Incidente – only liable for damages
Ponente: J. Labrador ♦ The principal consideration for Halili in entering the partnership agreement was
the ability of Woodhouse to get the exclusive franchise to bottle and distribute
Facts: for the partnership.
♦ November 29, 1947 – Woodhouse entered into a written agreement with Halili. ♦ Halili was led to believe that Woodhouse had the exclusive franchise but the
The important provisions of the agreement are: same was to be secured for or transferred to the partnership.
o Organize a partnership for the bottling and distribution of Mission soft ♦ The principal obligation of Woodhouse was to secure the franchise for the
drinks partnership, as the bottler and distributor for the Mission Dry Corporation. If he
o Halili was to decide matters of general policy regarding the business was guilty of false representation, this was not the causal consideration, or the
while Woodhouse was to attend to the operation and development of principal inducement, that led to the partnership agreement.
the plant. ♦ Supposed ownership of an exclusive franchise was the actual consideration for
o Woodhouse was to secure the Mission Soft Drinks Franchise the 30% stake in the net profits. (See quoted draft page 538) Woodhouse was
o Woodhouse was to receive 30% of the net profits. able to obtain a bigger share in the net profit by his representation that he had
♦ Prior to the agreement Woodhouse was able to obtain a thirty day option on an exclusive franchise.
exclusive bottling and distribution rights for the Philippines. ♦ Agreement cannot be considered as null and void.
♦ December 3, 1947 – Woodhouse signed the contract
♦ December 10, 1947 – a franchise agreement was entered into between Mission 3. WON the court can compel Halili to execute the agreement. No
Dry Corporation granting the defendant the exclusive right, license, and
authority to produce, bottle, distribute and sell Mission beverages in the
♦ Woodhouse contends that the partnership was already a fait accompli from the
Philippines. time of the operation of the plant.  no merit
♦ Language of the agreement that the parties intended that the execution of the
agreement to form a partnership was to be carried out a later date.
♦ Claim of Woodhouse is inconsistent with their intention and incompatible with
his own conduct.
♦ Halili 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.

4. WON Woodhouse is entitled to receive damages.

♦ Measure of damages is the actual loss suffered and the profits reasonably
expected to be received.
♦ Must set off the damage the defendant suffered by the plaintiff’s
misrepresentation that he had an exclusive franchise, by which representation
he obtained a very high percentage of share in the profits
♦ Agreement to reduce the share from 30 to 15% constitutes virtual modification
of the contract.
♦ Halili’s decision to reduce the share of Woodhouse amount to an admission on
the part of each of the reasonableness of this amount as the share.

Gutierrez v. Gutierrez

Vasquez v. de Borja (okay)

MANUEL DE GUIA, plaintiff vs. THE MANILA ELECTRIC RAILROAD & LIGHT considered as a debtor in good faith due to its exercise of due diligence (CC Art.
COMPANY, defendant & appellant [1920] 1107). Thus, defendant’s liability is limited to damages that might be directly caused
by the physical injuries inflicted & w/c were in fact a necessary result of those
Facts: injuries.
Sept. 4, 1915, 8 p.m. 3. WON lower court erred in admitting as primary evidence the written
 de Guia, a physician & resident of Caloocan boarded a street-car (parang train ata statements of 4 physicians who examined de Guia. – YES.
‘to…) in Caloocan. He boarded a car at the end of the line. Physicians merely identified their signatures. These cannot be classified as primary
 30 meters from the starting point: car entered a switch, de Guia remained at the evidence since they’re of a hearsay nature. Physicians should have been asked to testify
back of the platform holding the handle of the right hand door in court. Their statements cannot be used considering that there had been no
 Upon coming out of the switch, small wheels of rear truck left the track eventually failure/exhaustion of memory.
shattering a concrete post at the left of the track. Defendant company claims it was 4. Damages claimed by de Guia:
caused by a stone somewhat larger than a goose egg lodged accidentally between  P900.00 award for loss of professional earnings sustained.
the rails.  P3,900.00 (health officer’s salary) denied since it’s way too speculative.
 As the car stopped, de Guia was thrown against the door w/some violence w/c  Damages for supposed incapacitation denied. Court has reason to believe that de
resulted to some bruises and probably some internal injuries. Guia wants to profit from the situation thus his promotion of the litigation. He made
 De Guia claims that he became unconscious due to the impact & he was taken to his use of his medical knowledge coupled w/the help of his professional associates to
house. Different physicians who checked on him had different testimonies. One make it appear that he has a strong case.
claimed that de Guia was walking while one said that he spit up blood due to the  Medical expenses: Limited to expenditures as were reasonably suited to the case.
bruises on his side. Signs of physical & nervous derangement were also observed. Defendant is only liable for the expenses incurred during the first check-up w/c
However, defendant presented some experts who testified that de Guia’s injuries amounts to P350. However, only P200 was paid by plaintiff thus, that is the only
were trivial & simulated. amount w/c the defendant company is obliged to pay. Obligation WRT other
physicians cannot be subj to recovery since:
De Guia filed a suit for damages wanting to claim the following: a. there’s no proof that these physicians charged for those services. They seem to
1. compensation for money lost due to his inability to properly attend to his be gratuitous services. Physician’s testimonies re their rates do not mean that
professional labors for 3 mos & his practice was suspended during that time de Guia did actually pay them.
2. P3,900.00 w/c he should have earned P3,900.00 as a district health officer in b. Court believes that de Guia employed many physicians to make sure of his
Occidental Negros where he was supposed to serve for 2 years earning P1,600.00 success in this litigation rather than to actually cure him.
per annum. He even added P350.00 as earnings from possible outside practice. Holding: Modified. de Guia entitled to P1,100.00 w/legal interest from Nov. 8, 1916.
3. P40,000.00 - P10k for his medical treatment and P30k for injuries w/c he claim
would incapacitate him for exercise of medical profession in the future. He claimed to US v Barias (okay)
have numerous diseases.
*Breakdown for P10k medical expenses: P350 to Dr. Montes (doctor who first saw de
Guia) plus payment to 3 other physicians.

RTC: motorman negligent in maintaining a very rapid speed. P900.00 for loss of
professional earnings. P3,900.00 for supposed salary as a district health officer in
Occidental Negros. Total award amounts to P6,100.00

Issues & Ratio:

1. WON the motorman/car operator was negligent - YES
 Derailment is actually a fortuitous event as determined by cause. But operator’s
negligence cannot be denied. He was moving at point four speed (about 5-6 miles
per hour) but some witnesses observed that the train was moving at a higher rate
since the car was behind schedule. Another consideration would be the fact that the
car was practically empty.
 Main basis for imputing negligence: not so much because of the excessive speed but
the fact that the car was allowed to run a relatively long distance considering that
the front wheels of the rear truck were derailed. An experienced & attentive
motorman should have discovered that something was wrong & would have stopped.
2. WON the defendant company is liable - YES
 Liable for the damage resulting to de Guia due to the negligence. There was a
contractual relationship bet him & the company. Company was bound to convey &
deliver him safely & securely w/the degree of care required by law & custom (CC Art.
 Defense of exercise of due care in selection & instruction of operator (CC Art. 1903)
is immaterial because such is only applicable in negligence w/o contractual relation.
 However, the Court can moderate the company’s liability according to the
circumstances of the case (CC Art. 1103) especially since the company can be