U.P. v.

De Los Angeles (1970)

Petitioners: UNIVERSITY OF THE PHILIPPINES
Respondents: WALFREDO DE LOS ANGELES, IN HIS CAPACITY AS JUDGE OF THE
COURT OF FIRST INSTANCE IN QUEZON CITY, AND ASSOCIATED LUMBER
MANUFACTURING COMPANY, INC. (ALUMCO)
Ponente: REYES, J.B.L.
Topic: Remedies for Breach
SUMMARY: (1-2 sentence summary of facts, issue, ratio and ruling)
FACTS:
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UP and ALUMCO entered into a logging agreement under which ALUMCO was
granted exclusive authority from the date of agreement (Nov. 2, 1960) to Dec. 31, 1965
(extendible by 5 years by mutual agreement), to cut, collect and remove timber from the
Land Grant (situated at the Lubayat areas in Laguna and Quezon), in consideration of
payment to UP of royalties and forest fees, etc.
As of Dec. 8 1964, ALUMCO incurred an unpaid account of P219,362.94 which it had
failed to pay despite repeated demands.
After UP sent a notice of rescission or termination of the logging agreement, ALUMCO
executed an instrument entitled Acknowledgement of Debt and Proposed Manner of
Payments dated Dec. 9, 1964 which was approved by the UP president. The
instrument stipulated the following:
o 5. In the event that the DEBTOR fails to comply with any of its promises or
undertakings in this document, the DEBTOR agrees without reservation that
the CREDITOR shall have the right and the power to consider the Logging
Agreement dated December 2, 1960 as rescinded without the necessity of
any judicial suit, and the CREDITOR shall be entitled as a matter of right to Fifty
Thousand Pesos (P50,000.00) by way of and for liquidated damages;
After ALUMCO again incurred an additional unpaid account amounting to P61 133.74,
UP informed ALUMCO on Jul 19, 1965 that UP considered the logging agreement as
rescinded and of no further legal effect.
UP filed a complaint for the collection of money in accordance to the stipulations in
the instrument.
UP also began looking for another concessionaire to take over the logging operation by
advertising an invitation to bid.
ALUMCO filed a petition to enjoin UP from conducting the bidding which was
granted by the CFI.
When UP had received the order, it had already concluded its contract with Sta. Clara
Lumber Company, Inc. and the latter had started logging operations.
On motion by ALUMCO, the court declared UP in contempt of court and prohibited Sta.
Clara from continuing logging operations in the concession (pending before CA).

Before the SC, ALUMCO repeated its defenses in the court below, including: UP's
unilateral rescission of the logging contract, without a court order, was invalid. The CFI
agreed with ALUMCO on this point

ISSUES:

WoN UP can treat its contract with ALUMCO rescinded and disregard the same before
any judicial pronouncement to that effect
o YES. The stipulation between UP and ALUMCOs instrument gave UP the right
and power to render the logging agreement as rescinded without the necessity of
a judicial suit.
o This stipulation is in connection with Art. 1191 of the Civil Code and the SCs
ruling in Froilan v. Pan Oriental Shipping Co.: There is nothing in the law that
prohibits the parties from entering into agreement that violation of the terms of
the contract would cause cancellation thereof, even without court intervention. In
other words, it is not always necessary for the injured party to resort to court for
rescission of the contract.
o However, if one party treats a contract as cancelled by virtue of infractions of the
other, it must be made known to the latter. It is also provisional and can be
subject to scrutiny 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.
o In other words, the party who deems the contract violated may 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.
o But the law definitely does not require that the contracting party who believes
itself injured must first file suit and wait for a judgment before taking extrajudicial
steps to protect its interest. Otherwise, the party injured by the other's breach will
have to passively sit and watch its damages accumulate during the pendency of
the suit until the final judgment of rescission is rendered when the law itself
requires that he should exercise due diligence to minimize its own damages (Art.
2203).
o (a) In the light of the foregoing principles, and considering that the complaint of
UP made out a prima facie case of breach of contract and defaults in payment by
ALUMCO, to the extent that the court below issued a writ of preliminary injunction
stopping ALUMCO's logging operations, and repeatedly denied its motions to lift
the injunction; (b) that it is not denied that ALUMCO had profited from its
operations previous to the agreement of 5 December 1964 ("Acknowledgment of
Debt and Proposed Manner of Payment"); (c) that the excuses offered in the
second amended answer, such as the misconduct of its former manager Cesar
Guy, and the rotten condition of the logs in ALUMCOs pond, which ALUMCO
was in a better position to know when it executed the acknowledgment of
indebtedness, do not constitute on their face sufficient excuse for non-payment;

(d) and considering that whatever prejudice may be suffered by ALUMCO is

susceptibility of compensation in damages, the acts of the court below in
enjoining UPs measures to protect its interest without first receiving
evidence on the issues tendered by the parties, and in subsequently
refusing to dissolve the injunction, were in grave abuse of discretion,
correctible by certiorari.
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