Song Fo v. Hawaiian Phils.
(okay)
Velarde v. CA
SUMMARY OF DOCTRINE:
 Failure to pay the price in the manner prescribed by the contract constitutes a
substantial breach of contract
 A substantial breach of contract entitles injured party to rescind the obligation.
 Rescission abrogates the contract from its inception and requires mutual
restitution of benefits.
FACTS:
 David Raymundo is the owner of a parcel of land together with the house and other
improvements erected upon it.
 The property was mortgaged to the Bank of the Philippine Islands (BPI) for P1.8M
through a Deed of Real Estate Mortgage (DREM).
 George Raymundo, David’s father, negotiated the sale of the property to spouses
Avelina and Mariano Velarde.
 The parties executed a Deed of Sale with Assumption of Mortgage (DSAM)
where the Velardes agreed, inter alia, to:
1. Pay Raymundo P800,000.00
2. Assume the obligation to repay the mortgage worth P1.8M
3. Strictly and faithfully comply with all terms and conditions of the mortgage
agreement with BPI
4. Pay interests and other charges for late payment levied by the Bank
(all in all, to treat the mortgage as if it were originally signed and executed by them)
 Avelina Velarde also executed an Undertaking further stating, inter alia, that:
1. While her application for assumption of mortgage obligations on the property
was still being processed, she will still pay the mortgage obligations in the name
of the owner Raymundo
2. should she violate any of the terms and conditions of the DREM, she agrees to
(1) forfeit in favor of David Raymundo the P800T plus all payments made to BPI
as liquidated damages without necessity of judicial declaration; (2) Raymundo’s
resumption of total ownership of the property; and (3) automatic cancellation of
the DSAM
 However, Velarde’s application for assumption of mortgage obligations was not
approved.
 From then on, the Velardes stopped payment of the mortgage loan
 In response, Raymundo wrote to the Velardes stating that their nonpayment of the
mortgage constituted nonperformance of their obligation.
 Velardes replied through a letter stating their willingness to pay the balance
provided that Raymundo:
1. deliver actual possession of the property for Velardes’ immediate occupancy;
2. cause the release of the title and mortgage from BPI and make the title
available free from any liens and encumbrances; and
3. execute an absolute deed of sale in Avelina Velarde’s favor
 Raymundo then sent the Velardes a Notice of Cancellation/Rescission of the
Intended Sale on the grounds of failure to comply with the terms and conditions of
the DSAM and Undertaking
 The Velardes filed a Complaint for:
1. Specific performance (enforcement of the DSAM);
2. Nullity of Cancellation;
3. Issuance of a writ of possession; and
4. Damages
 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
promoted to the CA
 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
of the property
 Raymundo appealed to the CA, which ruled in favor of him, finding that:
1. the nonpayment of the mortgage resulted in a breach of contract
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
new agreement between the parties.
ISSUES:
I. W/N there was a Breach of Contract.
HELD: YES. Velardes’ failure to perform their correlative obligation (payment of the
balance of P1.8M) resulted in a breach.
 Petitioners allege that disapproval of their application to assume obligation of
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
balance of the purchase price amounting to P1.8M, as agreed upon in the event
the application is disapproved.
 Thus, when the application was disapproved, they should have proceeded to
pay Raymundo the balance of P1.8M
 The breach was not the nonpayment of the mortgage, but the
nonperformance of their reciprocal obligation to pay the price under the
contract of sale
 Their conditional offer to pay cannot take the place of actual payment that
would discharge a buyer’s obligation under a contract of sale
 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
money or its equivalent
 When Raymundo executed the DSAM, his obligation has already been
performed through constructive delivery, where prior physical delivery is not
legally required. Deed of Sale is deemed equivalent to delivery
 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.
II. W/N the breach was substantial enough to justify the rescission of the contract.
HELD: YES. The Velardes, in failing to pay the purchase price under the contract of
sale, violated the very essence of reciprocity in the contract of sale.
LEGAL BASIS: Article 1191 of the Civil Code:
 The power to rescind obligations is implied in reciprocal
ones in case one of the obligors should not comply with
what in incumbent upon him.
The injured party may choose between 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 possible
 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
 While it is true that they expressed their willingness to pay the price one month
after it became due, this does not constitute faithful compliance of their
reciprocal obligation, especially considering the “offer” was made conditional.
 Petitioners tried to invoke the cases of Song Fo , Zepeda v. CA and Tan v. CA
 The court held that the facts of this case are distinguishable from the other
cases because those involved only delays of a few days and the buyers’ offers to
pay were unconditional and accepted by the seller
III. W/N the payments were forfeited
HELD: NO. Rescission requires mutual restitution.
 Since the breach consisted of the nonperformance of reciprocal obligation, and
not a breach of the mortgage contract, what applies are the Civil Code
provisions and not the automatic rescission and forfeiture clause of the
Undertaking.
 Rescission under the Civil Code required mutual restitution to bring back the
parties to their original situations prior to the inception of the contract
 The payments of P800T and monthly amortizations must be returned, lest one
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
it as if it never was, and not merely to terminate it and release the
parties from further obligations to each other.
Woodhouse v. Halili
Ponente: J. Labrador
Facts:
♦ November 29, 1947 – Woodhouse entered into a written agreement with Halili.
The important provisions of the agreement are:
o Organize a partnership for the bottling and distribution of Mission soft
drinks
o Halili was to decide matters of general policy regarding the business
while Woodhouse was to attend to the operation and development of
the plant.
o Woodhouse was to secure the Mission Soft Drinks Franchise
o Woodhouse was to receive 30% of the net profits.
♦ Prior to the agreement Woodhouse was able to obtain a thirty day option on
exclusive bottling and distribution rights for the Philippines.
♦ December 3, 1947 – Woodhouse signed the contract
♦ December 10, 1947 – a franchise agreement was entered into between Mission
Dry Corporation granting the defendant the exclusive right, license, and
authority to produce, bottle, distribute and sell Mission beverages in the
Philippines.
♦ Operations started during the first week of February. When the bottling plant
was already in operation, plaintiff demanded that the partnership papers be
executed. Halili failed to comply with the demand of Woodhouse and such this
complaint was instituted. In his complaint Woodhouse was asking for the
execution of the contract of partnership, an accounting of the profits, and his
share of 30% and damages.
♦ COFI ordered Halili to render an accounting of the profits and to pay Woodhouse
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
proved.
Issues:
1. WON the defendant had falsely represented that he had an exclusive franchise
to bottle Mission beverages. YES
♦ Fraud is never presumed and must be proved. The fact that the parties were
represented by attorneys would not invalidate the agreement.
♦ Halili insist that Woodhouse did represent that he had an exclusive franchise,
when as a matter of fact, at the time of its execution, he no longer had it as the
same had expired, and that, therefore, consent of Halili was vitiated by fraud
and consequently null and void.
♦ The first draft that the counsel of Woodhouse prepared expressly states that
Woodhouse had the exclusive franchise.
♦ In the acts or statements prior to the agreement are essential and relevant to
the determination of WON the Woodhouse represent that he had an exclusive
franchise.
♦ From the statements “ …and the manager is ready and willing to allow the
capitalist to use the exclusive franchise” and “…In the event of the dissolution
of the partnership… the Franchise from Mission Dry Corporation shall be
reassigned to the Manager…” it can be seen that the conclusion that Halili
believed or was made to believe that Woodhouse was the grantee of an
exclusive franchise.
2. WON the false representation or fraud would annul the agreement to form the
partnership. NO
♦ Two types of fraud:
o Dolo Casante – ground for the annulment of a contract
o Dolo Incidente – only liable for damages
♦ The principal consideration for Halili in entering the partnership agreement was
the ability of Woodhouse to get the exclusive franchise to bottle and distribute
for the partnership.
♦ Halili was led to believe that Woodhouse had the exclusive franchise but the
same was to be secured for or transferred to the partnership.
♦ The principal obligation of Woodhouse was to secure the franchise for the
partnership, as the bottler and distributor for the Mission Dry Corporation. If he
was guilty of false representation, this was not the causal consideration, or the
principal inducement, that led to the partnership agreement.
♦ Supposed ownership of an exclusive franchise was the actual consideration for
the 30% stake in the net profits. (See quoted draft page 538) Woodhouse was
able to obtain a bigger share in the net profit by his representation that he had
an exclusive franchise.
♦ Agreement cannot be considered as null and void.
3. WON the court can compel Halili to execute the agreement. No
♦ Woodhouse contends that the partnership was already a fait accompli from the
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
COMPANY, defendant & appellant [1920]
Facts:
Sept. 4, 1915, 8 p.m.
 de Guia, a physician & resident of Caloocan boarded a street-car (parang train ata
‘to…) in Caloocan. He boarded a car at the end of the line.
 30 meters from the starting point: car entered a switch, de Guia remained at the
back of the platform holding the handle of the right hand door
 Upon coming out of the switch, small wheels of rear truck left the track eventually
shattering a concrete post at the left of the track. Defendant company claims it was
caused by a stone somewhat larger than a goose egg lodged accidentally between
the rails.
 As the car stopped, de Guia was thrown against the door w/some violence w/c
resulted to some bruises and probably some internal injuries.
 De Guia claims that he became unconscious due to the impact & he was taken to his
house. Different physicians who checked on him had different testimonies. One
claimed that de Guia was walking while one said that he spit up blood due to the
bruises on his side. Signs of physical & nervous derangement were also observed.
However, defendant presented some experts who testified that de Guia’s injuries
were trivial & simulated.
De Guia filed a suit for damages wanting to claim the following:
1. compensation for money lost due to his inability to properly attend to his
professional labors for 3 mos & his practice was suspended during that time
2. P3,900.00 w/c he should have earned P3,900.00 as a district health officer in
Occidental Negros where he was supposed to serve for 2 years earning P1,600.00
per annum. He even added P350.00 as earnings from possible outside practice.
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
have numerous diseases.
*Breakdown for P10k medical expenses: P350 to Dr. Montes (doctor who first saw de
Guia) plus payment to 3 other physicians.
considered as a debtor in good faith due to its exercise of due diligence (CC Art.
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
injuries.
3. WON lower court erred in admitting as primary evidence the written
statements of 4 physicians who examined de Guia. – YES.
Physicians merely identified their signatures. These cannot be classified as primary
evidence since they’re of a hearsay nature. Physicians should have been asked to testify
in court. Their statements cannot be used considering that there had been no
failure/exhaustion of memory.
4. Damages claimed by de Guia:
 P900.00 award for loss of professional earnings sustained.
 P3,900.00 (health officer’s salary) denied since it’s way too speculative.
 Damages for supposed incapacitation denied. Court has reason to believe that de
Guia wants to profit from the situation thus his promotion of the litigation. He made
use of his medical knowledge coupled w/the help of his professional associates to
make it appear that he has a strong case.
 Medical expenses: Limited to expenditures as were reasonably suited to the case.
Defendant is only liable for the expenses incurred during the first check-up w/c
amounts to P350. However, only P200 was paid by plaintiff thus, that is the only
amount w/c the defendant company is obliged to pay. Obligation WRT other
physicians cannot be subj to recovery since:
a. there’s no proof that these physicians charged for those services. They seem to
be gratuitous services. Physician’s testimonies re their rates do not mean that
de Guia did actually pay them.
b. Court believes that de Guia employed many physicians to make sure of his
success in this litigation rather than to actually cure him.
Holding: Modified. de Guia entitled to P1,100.00 w/legal interest from Nov. 8, 1916.
US v Barias (okay)

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.
1258).
 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