Republic of the Philippines price (P1,200.00) for the size that was initially served to them.
The parties
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 190601 February 7, 2011
SPOUSES LUIGI M. GUANIO and ANNA HERNANDEZ-GUANIO,
Petitioners,
vs.
MAKATI SHANGRI-LA HOTEL and RESORT, INC., also doing
business under the name of SHANGRI-LA HOTEL MANILA,
Respondent.
DECISION
CARPIO MORALES, J.:
For their wedding reception on July 28, 2001, spouses Luigi M. Guanio and
Anna Hernandez-Guanio (petitioners) booked at the Shangri-la Hotel Makati
(the hotel).
Prior to the event, Makati Shangri-La Hotel & Resort, Inc. (respondent)
scheduled an initial food tasting. Petitioners claim that they requested the
hotel to prepare for seven persons the two of them, their respective parents,
and the wedding coordinator. At the scheduled food tasting, however,
respondent prepared for only six.
Petitioners initially chose a set menu which included black cod, king prawns
and angel hair pasta with wild mushroom sauce for the main course which
cost P1,000.00 per person. They were, however, given an option in which
salmon, instead of king prawns, would be in the menu at P950.00 per person.
They in fact partook of the salmon.
Three days before the event, a final food tasting took place. Petitioners aver
that the salmon served was half the size of what they were served during the
initial food tasting; and when queried about it, the hotel quoted a much higher
eventually agreed on a final price P1,150 per person.
A day before the event or on July 27, 2001, the parties finalized and forged
their contract.1
Petitioners claim that during the reception, respondents representatives,
Catering Director Bea Marquez and Sales Manager Tessa Alvarez, did not
show up despite their assurance that they would; their guests complained of
the delay in the service of the dinner; certain items listed in the published
menu were unavailable; the hotels waiters were rude and unapologetic when
confronted about the delay; and despite Alvarezs promise that there would
be no charge for the extension of the reception beyond 12:00 midnight, they
were billed and paid P8,000 per hour for the three-hour extension of the event
up to 4:00 A.M. the next day.
Petitioners further claim that they brought wine and liquor in accordance with
their open bar arrangement, but these were not served to the guests who were
forced to pay for their drinks.
Petitioners thus sent a letter-complaint to the Makati Shangri-la Hotel and
Resort, Inc. (respondent) and received an apologetic reply from Krister
Svensson, the hotels Executive Assistant Manager in charge of Food and
Beverage. They nevertheless filed a complaint for breach of contract and
damages before the Regional Trial Court (RTC) of Makati City.
In its Answer, respondent claimed that petitioners requested a combination
of king prawns and salmon, hence, the price was increased to P1,200.00 per
person, but discounted at P1,150.00; that contrary to petitioners claim,
Marquez and Alvarez were present during the event, albeit they were not
permanently stationed thereat as there were three other hotel functions; that
while there was a delay in the service of the meals, the same was occasioned
by the sudden increase of guests to 470 from the guaranteed expected
minimum number of guests of 350 to a maximum of 380, as stated in the
Banquet Event Order (BEO);2 and that Isaac Albacea, Banquet Service
Director, in fact relayed the delay in the service of the meals to petitioner
Luigis father, Gil Guanio.
Respecting the belated service of meals to some guests, respondent attributed
it to the insistence of petitioners wedding coordinator that certain guests be
served first.
On Svenssons letter, respondent, denying it as an admission of liability,
claimed that it was meant to maintain goodwill to its customers.
By Decision of August 17, 2006, Branch 148 of the Makati RTC rendered
judgment in favor of petitioners, disposing as follows:
WHEREFORE, premises considered, judgment is hereby rendered in favor
of the plaintiffs and against the defendant ordering the defendants to pay the
plaintiff the following:
1) The amount of P350,000.00 by way of actual damages;
2) The amount of P250,000.00 for and as moral damages;
3) The amount of P100,000.00 as exemplary damages;
4) The amount of P100,000.00 for and as attorneys fees.
With costs against the defendant.
SO ORDERED.3
In finding for petitioners, the trial court relied heavily on the letter of
Svensson which is partly quoted below:
Upon receiving your comments on our service rendered during your reception
here with us, we are in fact, very distressed. Right from minor issues
pappadums served in the soup instead of the creutons, lack of valet parkers,
hard rolls being too hard till a major one slow service, rude and arrogant
waiters, we have disappointed you in all means.
Indeed, we feel as strongly as you do that the services you received were
unacceptable and definitely not up to our standards. We understand that it is
our job to provide excellent service and in this instance, we have fallen short
of your expectations. We ask you please to accept our profound apologies for
causing such discomfort and annoyance. 4 (underscoring supplied)
The trial court observed that from "the tenor of the letter . . . the defendant[-
herein respondent] admits that the services the plaintiff[-herein petitioners]
received were unacceptable and definitely not up to their standards."5
On appeal, the Court of Appeals, by Decision of July 27, 2009, 6 reversed the
trial courts decision, it holding that the proximate cause of petitioners injury
was an unexpected increase in their guests:
x x x Hence, the alleged damage or injury brought about by the confusion,
inconvenience and disarray during the wedding reception may not be
attributed to defendant-appellant Shangri-la.
We find that the said proximate cause, which is entirely attributable to
plaintiffs-appellants, set the chain of events which resulted in the alleged
inconveniences, to the plaintiffs-appellants. Given the circumstances that
obtained, only the Sps. Guanio may bear whatever consequential damages
that they may have allegedly suffered.7 (underscoring supplied)
Petitioners motion for reconsideration having been denied by Resolution of
November 19, 2009, the present petition for review was filed.
The Court finds that since petitioners complaint arose from a contract, the
doctrine of proximate cause finds no application to it:
The doctrine of proximate cause is applicable only in actions for quasi-
delicts, not in actions involving breach of contract. x x x The doctrine is a
device for imputing liability to a person where there is no relation between
him and another party. In such a case, the obligation is created by law itself.
But, where there is a pre-existing contractual relation between the parties, it
is the parties themselves who create the obligation, and the function of the
law is merely to regulate the relation thus created.8 (emphasis and
underscoring supplied)
What applies in the present case is Article 1170 of the Civil Code which
reads:
Art. 1170. Those who in the performance of their obligations are guilty of
fraud, negligence or delay, and those who in any manner contravene the tenor
thereof, are liable for damages.
RCPI v. Verchez, et al. 9 enlightens:
In culpa contractual x x x the mere proof of the existence of the contract and
the failure of its compliance justify, prima facie, a corresponding right of
relief. The law, recognizing the obligatory force of contracts, will not permit
a party to be set free from liability for any kind of misperformance of the
contractual undertaking or a contravention of the tenor thereof. A breach
upon the contract confers upon the injured party a valid cause for recovering
that which may have been lost or suffered. The remedy serves to preserve the
interests of the promissee that may include his "expectation interest," which
is his interest in having the benefit of his bargain by being put in as good a
position as he would have been in had the contract been performed, or his
"reliance interest," which is his interest in being reimbursed for loss caused
by reliance on the contract by being put in as good a position as he would
have been in had the contract not been made; or his "restitution interest,"
which is his interest in having restored to him any benefit that he has
conferred on the other party. Indeed, agreements can accomplish little, either
for their makers or for society, unless they are made the basis for action. The
effect of every infraction is to create a new duty, that is, to make
RECOMPENSE to the one who has been injured by the failure of another to
observe his contractual obligation unless he can show extenuating
circumstances, like proof of his exercise of due diligence x x x or of the
attendance of fortuitous event, to excuse him from his ensuing liability.
(emphasis and underscoring in the original; capitalization supplied)
The pertinent provisions of the Banquet and Meeting Services Contract
between the parties read:
4.3 The ENGAGER shall be billed in accordance with the prescribed rate for
the minimum guaranteed number of persons contracted for, regardless of
under attendance or non-appearance of the expected number of guests, except
where the ENGAGER cancels the Function in accordance with its Letter of
Confirmation with the HOTEL. Should the attendance exceed the minimum
guaranteed attendance, the ENGAGER shall also be billed at the actual rate
per cover in excess of the minimum guaranteed attendance.
xxxx
4.5. The ENGAGER must inform the HOTEL at least forty eight (48) hours
before the scheduled date and time of the Function of any change in the
minimum guaranteed covers. In the absence of such notice, paragraph 4.3
shall apply in the event of under attendance. In case the actual number of
attendees exceed the minimum guaranteed number
by ten percent (10%), the HOTEL shall not in any way be held liable for
any damage or inconvenience which may be caused thereby. The
ENGAGER shall also undertake to advise the guests of the situation and
take positive steps to remedy the same.10 (emphasis, italics and
underscoring supplied)
Breach of contract is defined as the failure without legal reason to comply
with the terms of a contract. It is also defined as the [f]ailure, without legal
excuse, to perform any promise which forms the whole or part of the
contract.11
The appellate court, and even the trial court, observed that petitioners were
remiss in their obligation to inform respondent of the change in the expected
number of guests. The observation is reflected in the records of the case.
Petitioners failure to discharge such obligation thus excused, as the above-
quoted paragraph 4.5 of the parties contract provide, respondent from
liability for "any damage or inconvenience" occasioned thereby.
As for petitioners claim that respondent departed from its verbal agreement
with petitioners, the same fails, given that the written contract which the
parties entered into the day before the event, being the law between them.
Respecting the letter of Svensson on which the trial court heavily relied as
admission of respondents liability but which the appellate court brushed
aside, the Court finds the appellate courts stance in order. It is not uncommon
in the hotel industry to receive comments, criticisms or feedback on the
service it delivers. It is also customary for hotel management to try to smooth
ruffled feathers to preserve goodwill among its clientele.
Kalalo v. Luz holds:12
Statements which are not estoppels nor judicial admissions have no quality
of conclusiveness, and an opponent whose admissions have been offered
against him may offer any evidence which serves as an explanation for his
former assertion of what he now denies as a fact.
Respondents Catering Director, Bea Marquez, explained the hotels
procedure on receiving and processing complaints, viz:
ATTY. CALMA:
Q You mentioned that the letter indicates an acknowledgement of
the concern and that there was-the first letter there was an
acknowledgment of the concern and an apology, not necessarily
indicating that such or admitting fault?
A Yes.
Q Is this the letter that you are referring to?
If I may, Your Honor, that was the letter dated August 4, 2001,
previously marked as plaintiffs exhibits, Your Honor. What is the
procedure of the hotel with respect to customer concern?
A Upon receipt of the concern from the guest or client, we
acknowledge receipt of such concern, and as part of procedure in
service industry particularly Makati Shangri-la we apologize for
whatever inconvenience but at the same time saying, that of course,
we would go through certain investigation and get back to them for
the feedback with whatever concern they may have.
Q Your Honor, I just like at this point mark the exhibits, Your
Honor, the letter dated August 4, 2001 identified by the witness,
Your Honor, to be marked as Exhibit 14 and the signature of Mr.
Krister Svensson be marked as Exhibit 14-A.13
xxxx
Q In your opinion, you just mentioned that there is a procedure that
the hotel follows with respect to the complaint, in your opinion was
this procedure followed in this particular concern?
A Yes, maam.
Q What makes you say that this procedure was followed?
A As I mentioned earlier, we proved that we did acknowledge the
concern of the client in this case and we did emphatize from the
client and apologized, and at the same time got back to them in
whatever investigation we have.
Q You said that you apologized, what did you apologize for?
A Well, first of all it is a standard that we apologize, right? Being in the
service industry, it is a practice that we apologize if there is any
inconvenience, so the purpose for apologizing is mainly to show empathy and
to ensure the client that we are hearing them out and that we will do a better
investigation and it is not in any way that we are admitting any fault.14
(underscoring supplied)
To the Court, the foregoing explanation of the hotels Banquet Director
overcomes any presumption of admission of breach which Svenssons letter
might have conveyed.
The exculpatory clause notwithstanding, the Court notes that respondent
could have managed the "situation" better, it being held in high esteem in the
hotel and service industry. Given respondents vast experience, it is safe to
presume that this is not its first encounter with booked events exceeding the
guaranteed cover. It is not audacious to expect that certain measures have
been placed in case this predicament crops up. That regardless of these
measures, respondent still received complaints as in the present case, does
not amuse.1avvphil
Respondent admitted that three hotel functions coincided with petitioners
reception. To the Court, the delay in service might have been avoided or
minimized if respondent exercised prescience in scheduling events. No less
than quality service should be delivered especially in events which possibility
of repetition is close to nil. Petitioners are not expected to get married twice
in their lifetimes.

In the present petition, under considerations of equity, the Court deems it just
to award the amount of P50,000.00 by way of nominal damages to
petitioners, for the discomfiture that they were subjected to during to the
event.15 The Court recognizes that every person is entitled to respect of his
dignity, personality, privacy and peace of mind.16 Respondents lack of
prudence is an affront to this right.

WHEREFORE, the Court of Appeals Decision dated July 28, 2009 is

PARTIALLY REVERSED. Respondent is, in light of the foregoing
discussion, ORDERED to pay the amount of P50,000.00 to petitioners by
way of nominal damages.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 23769 September 16, 1925
SONG FO & COMPANY, plaintiff-appellee,
vs.
HAWAIIAN PHILIPPINE CO., defendant-appellant.
Hilado and Hilado, Ross, Lawrence and Selph and Antonio T. Carrascoso,
Jr., for appellant.
Arroyo, Gurrea and Muller for appellee.
MALCOLM, J.:
In the court of First Instance of Iloilo, Song Fo & Company, plaintiff,
presented a complaint with two causes of action for breach of contract against
the Hawaiian-Philippine Co., defendant, in which judgment was asked for
P70,369.50, with legal interest, and costs. In an amended answer and cross-
complaint, the defendant set up the special defense that since the plaintiff had
defaulted in the payment for the molasses delivered to it by the defendant
under the contract between the parties, the latter was compelled to cancel and
rescind the said contract. The case was submitted for decision on a stipulation
of facts and the exhibits therein mentioned. The judgment of the trial court
condemned the defendant to pay to the plaintiff a total of P35,317.93, with
legal interest from the date of the presentation of the complaint, and with
costs.
From the judgment of the Court of First Instance the defendant only has
appealed. In this court it has made the following assignment of errors: "I. The
lower court erred in finding that appellant had agreed to sell to the appellee
400,000, and not only 300,000, gallons of molasses. II. The lower court erred
in finding that the appellant rescinded without sufficient cause the contract
for the sale of molasses executed by it and the appellee. III. The lower court
erred in rendering judgment in favor of the appellee and not in favor of the
appellant in accordance with the prayer of its answer and cross-complaint.
IV. The lower court erred in denying appellant's motion for a new trial." The
specified errors raise three questions which we will consider in the order
suggested by the appellant.
1. Did the defendant agree to sell to the plaintiff 400,000 gallons of
molasses or 300,000 gallons of molasses? The trial court found the
former amount to be correct. The appellant contends that the smaller
amount was the basis of the agreement.
The contract of the parties is in writing. It is found principally in the
documents, Exhibits F and G. The First mentioned exhibit is a letter
addressed by the administrator of the Hawaiian-Philippine Co. to
Song Fo & Company on December 13, 1922. It reads:
SILAY, OCC. NEGROS, P.I.
December 13, 1922
Messrs. SONG FO AND CO.
Iloilo, Iloilo.
DEAR SIRS: Confirming our conversation we had today with your
Mr. Song Fo, who visited this Central, we wish to state as follows:
He agreed to the delivery of 300,000 gallons of molasses at the same
price as last year under the same condition, and the same to start
after the completion of our grinding season. He requested if possible
to let you have molasses during January, February and March or in
other words, while we are grinding, and we agreed with him that we
would to the best of our ability, altho we are somewhat handicapped.
But we believe we can let you have 25,000 gallons during each of
the milling months, altho it interfere with the shipping of our own
and planters sugars to Iloilo. Mr. Song Fo also asked if we could
supply him with another 100,000 gallons of molasses, and we stated
we believe that this is possible and will do our best to let you have
these extra 100,000 gallons during the next year the same to be taken
by you before November 1st, 1923, along with the 300,000, making
400,000 gallons in all.
 Regarding the payment for our molasses, Mr. Song Fo gave us to
understand that you would pay us at the end of each month for
molasses delivered to you.
Hoping that this is satisfactory and awaiting your answer regarding
this matter, we remain.
(b) All handling charges and expenses at the central and at the dock
at Mambaguid for our account.
(c) For services of one locomotive and flat cars necessary for our six
tanks at the rate of P48 for the round trip dock to central and central
to dock. This service to be restricted to one trip for the six tanks.

Yours very truly, Yours very truly,

HAWAIIAN-PHILIPPINE COMPANY SONG FO & COMPANY

BY R. C. PITCAIRN By __________________________
Administrator. Manager.

Exhibit G is the answer of the manager of Song Fo & Company to the
Hawaiian-Philippine Co. on December 16, 1922. This letter reads:
December 16th, 1922.
Messrs. HAWAIIAN-PHILIPPINE CO.,
Silay, Neg. Occ., P.I.
DEAR SIRS: We are in receipt of your favours dated the 9th and the
13th inst. and understood all their contents.
In connection to yours of the 13th inst. we regret to hear that you
mentioned Mr. Song Fo the one who visited your Central, but it was
not for he was Mr. Song Heng, the representative and the manager
of Messrs. Song Fo & Co.
With reference to the contents of your letter dated the 13th inst. we
confirm all the arrangements you have stated and in order to make
the contract clear, we hereby quote below our old contract as
amended, as per our new arrangements.
We agree with appellant that the above quoted correspondence is susceptible
of but one interpretation. The Hawaiian-Philippine Co. agreed to deliver to
Song Fo & Company 300,000 gallons of molasses. The Hawaiian-Philippine
Co. also believed it possible to accommodate Song Fo & Company by
supplying the latter company with an extra 100,000 gallons. But the language
used with reference to the additional 100,000 gallons was not a definite
promise. Still less did it constitute an obligation.
If Exhibit T relied upon by the trial court shows anything, it is simply that the
defendant did not consider itself obliged to deliver to the plaintiff molasses
in any amount. On the other hand, Exhibit A, a letter written by the manager
of Song Fo & Company on October 17, 1922, expressly mentions an
understanding between the parties of a contract for P300,000 gallons of
molasses.
We sustain appellant's point of view on the first question and rule that the
contract between the parties provided for the delivery by the Hawaiian-
Philippine Co. to song Fo & Company of 300,000 gallons of molasses.
2. Had the Hawaiian-Philippine Co. the right to rescind the contract of sale
made with Song Fo & Company? The trial judge answers No, the appellant
Yes.

(a) Price, at 2 cents per gallon delivered at the central. Turning to Exhibit F, we note this sentence: "Regarding the payment for our
molasses, Mr. Song Fo (Mr. Song Heng) gave us to understand that you
would pay us at the end of each month for molasses delivered to you." In March 28, 1923, from Warner, Barnes & Co., Ltd., the agent of the Hawaiian-
Exhibit G, we find Song Fo & Company stating that they understand the Philippine Co. to Song Fo & Company, mentions "payment on presentation
contents of Exhibit F, and that they confirm all the arrangements you have of bills for each delivery." Exhibit O, another letter from Warner, Barnes &
stated, and in order to make the contract clear, we hereby quote below our Co., Ltd. to Song Fo & Company dated April 2, 1923, is of a similar tenor.
old contract as amended, as per our new arrangements. (a) Price, at 2 cents Exhibit P, a communication sent direct by the Hawaiian-Philippine Co. to
per gallon delivered at the central." In connection with the portion of the Song Fo & Company on April 2, 1923, by which the Hawaiian-Philippine
contract having reference to the payment for the molasses, the parties have Co. gave notice of the termination of the contract, gave as the reason for the
agree on a table showing the date of delivery of the molasses, the amount and rescission, the breach by Song Fo & Company of this condition: "You will
date thereof, the date of receipt of account by plaintiff, and date of payment. recall that under the arrangements made for taking our molasses, you were to
The table mentioned is as follows: meet our accounts upon presentation and at each delivery." Not far removed
from this statement, is the allegation of plaintiff in its complaint that "plaintiff
agreed to pay defendant, at the end of each month upon presentation
Date of receipt accounts."
Date of
Date of delivery Account and date thereof of account by
payment
plaintiff
Resolving such ambiguity as exists and having in mind ordinary business
1922 1923 practice,
1923 a reasonable deduction is that Song Fo & Company was to pay the
Hawaiian-Philippine Co. upon presentation of accounts at the end of each
Dec. 18 P206.16 Dec. 26/22 Jan. 5 month.
Feb. 20Under this hypothesis, Song Fo & Company should have paid for the
molasses delivered in December, 1922, and for which accounts were received
Dec. 29 206.16 Jan. 3/23 do by
Do it on January 5, 1923, not later than January 31 of that year. Instead,
payment was not made until February 20, 1923. All the rest of the molasses
1923 was paid for either on time or ahead of time.

Jan. 5 206.16 Jan. 9/23 Mar. 7 or 8 Mar.terms

The 31 of payment fixed by the parties are controlling. The time of
payment stipulated for in the contract should be treated as of the essence of
Feb. 12 206.16 Mar. 12/23 do Do contract. Theoretically, agreeable to certain conditions which could easily
the
be imagined, the Hawaiian-Philippine Co. would have had the right to rescind
Feb. 27 206.16 do do Do contract because of the breach of Song Fo & Company. But actually, there
the
is here present no outstanding fact which would legally sanction the
Mar. 5 206.16 do do Do
rescission of the contract by the Hawaiian-Philippine Co.
Mar. 16 206.16 Mar. 20/23 Apr. 2/23 Apr. 19
The general rule is that rescission will not be permitted for a slight or casual
Mar. 24 206.16 Mar. 31/23 do breach
Do of the contract, but only for such breaches as are so substantial and
fundamental as to defeat the object of the parties in making the agreement. A
Mar. 29 206.16 do do delay
Do in payment for a small quantity of molasses for some twenty days is
not such a violation of an essential condition of the contract was warrants
rescission for non-performance. Not only this, but the Hawaiian-Philippine
Some doubt has risen as to when Song Fo & Company was expected to make Co. waived this condition when it arose by accepting payment of the overdue
payments for the molasses delivered. Exhibit F speaks of payments "at the accounts and continuing with the contract. Thereafter, Song Fo & Company
end of each month." Exhibit G is silent on the point. Exhibit M, a letter of was not in default in payment so that the Hawaiian-Philippine co. had in
reality no excuse for writing its letter of April 2, 1923, cancelling the contract.
(Warner, Barnes & Co. vs. Inza [1922], 43 Phil., 505.)
We rule that the appellant had no legal right to rescind the contract of sale
because of the failure of Song Fo & Company to pay for the molasses within
the time agreed upon by the parties. We sustain the finding of the trial judge
in this respect.
3. On the basis first, of a contract for 300,000 gallons of molasses, and
second, of a contract imprudently breached by the Hawaiian-Philippine Co.,
what is the measure of damages? We again turn to the facts as agreed upon
by the parties.
The first cause of action of the plaintiff is based on the greater expense to
which it was put in being compelled to secure molasses from other sources.
Three hundred thousand gallons of molasses was the total of the agreement,
as we have seen. As conceded by the plaintiff, 55,006 gallons of molasses
were delivered by the defendant to the plaintiff before the breach. This leaves
244,994 gallons of molasses undelivered which the plaintiff had to purchase
in the open market. As expressly conceded by the plaintiff at page 25 of its
brief, 100,000 gallons of molasses were secured from the Central North
Negros Sugar Co., Inc., at two centavos a gallon. As this is the same price
specified in the contract between the plaintiff and the defendant, the plaintiff
accordingly suffered no material loss in having to make this purchase. So
244,994 gallons minus the 100,000 gallons just mentioned leaves as a result
144,994 gallons. As to this amount, the plaintiff admits that it could have
secured it and more from the Central Victorias Milling Company, at three and
one-half centavos per gallon. In other words, the plaintiff had to pay the
Central Victorias Milling company one and one-half centavos a gallon more
for the molasses than it would have had to pay the Hawaiian-Philippine Co.
Translated into pesos and centavos, this meant a loss to the plaintiff of
approximately P2,174.91. As the conditions existing at the central of the
Hawaiian-Philippine Co. may have been different than those found at the
Central North Negros Sugar Co., Inc., and the Central Victorias Milling
Company, and as not alone through the delay but through expenses of
transportation and incidental expenses, the plaintiff may have been put to
greater cost in making the purchase of the molasses in the open market, we
would concede under the first cause of action in round figures P3,000.
The second cause of action relates to lost profits on account of the breach of
the contract. The only evidence in the record on this question is the stipulation
of counsel to the effect that had Mr. Song Heng, the manager of Song Fo &
Company, been called as a witness, he would have testified that the plaintiff
would have realized a profit of P14,948.43, if the contract of December 13,
1922, had been fulfilled by the defendant. Indisputably, this statement falls
far short of presenting proof on which to make a finding as to damages.
In the first place, the testimony which Mr. Song Heng would have given
undoubtedly would follow the same line of thought as found in the decision
of the trial court, which we have found to be unsustainable. In the second
place, had Mr. Song Heng taken the witness-stand and made the statement
attributed to him, it would have been insufficient proof of the allegations of
the complaint, and the fact that it is a part of the stipulation by counsel does
not change this result. And lastly, the testimony of the witness Song Heng, it
we may dignify it as such, is a mere conclusion, not a proven fact. As to what
items up the more than P14,000 of alleged lost profits, whether loss of sales
or loss of customers, or what not, we have no means of knowing.
We rule that the plaintiff is entitled to recover damages from the defendant
for breach of contract on the first cause of action in the amount of P3,000 and
on the second cause of action in no amount. Appellant's assignments of error
are accordingly found to be well taken in part and not well taken in part.
Agreeable to the foregoing, the judgment appealed from shall be modified
and the plaintiff shall have and recover from the defendant the sum of P3,000,
with legal interest form October 2, 1923, until payment. Without special
finding as to costs in either instance, it is so ordered.
 Republic of the Philippines The factual antecedents of the case, as found by the CA, are as follows:
SUPREME COURT
Manila "x x x. David Raymundo [herein private respondent] is the absolute
and registered owner of a parcel of land, together with the house and
THIRD DIVISION other improvements thereon, located at 1918 Kamias St.,
Dasmarias Village, Makati and covered by TCT No. 142177.
G.R. No. 108346 July 11, 2001 Defendant George Raymundo [herein private petitioners] is David's
father who negotiated with plaintiffs Avelina and Mariano Velarde
[herein petitioners] for the sale of said property, which was,
Spouses MARIANO Z. VELARDE and AVELINA D. VELARDE,
however, under lease (Exh. '6', p. 232, Record of Civil Case No.
petitioners,
15952).
vs.
COURT OF APPEALS, DAVID A. RAYMUNDO and GEORGE
RAYMUNDO, respondents. "On August 8, 1986, a Deed of Sale with Assumption of Mortgage
(Exh. 'A'; Exh. '1', pp. 11-12, Record) was executed by defendant
David Raymundo, as vendor, in favor of plaintiff Avelina Velarde,
PANGANIBAN, J.:
as vendee, with the following terms and conditions:
A substantial breach of a reciprocal obligation, like failure to pay the price in
the manner prescribed by the contract, entitled the injured party to rescind the 'x x x xxx xxx
obligation. Rescission abrogates the contract from its inception and requires
a mutual restitution of benefits received. 'That for and in consideration of the amount of EIGHT
HUNDRED THOUSAND PESOS (P800,000.00),
Philippine currency, receipt of which in full is hereby
The Case
acknowledged by the VENDOR from the VENDEE, to his
entire and complete satisfaction, by these presents the
Before us is a Petition for Review on Certiorari1 questioning the Decision2 of VENDOR hereby SELLS, CEDES, TRANSFERS,
the Court of Appeals (CA) in CA-GR CV No. 32991 dated October 9, 1992, CONVEYS AND DELIVERS, freely and voluntarily, with
as well as its Resolution3 dated December 29, 1992 denying petitioner's full warranty of a legal and valid title as provided by law,
motion for reconsideration.4 unto the VENDEE, her heirs, successors and assigns, the
parcel of land mentioned and described above, together
The dispositive portion of the assailed Decision reads: with the house and other improvements thereon.

"WHEREFORES the Order dated May 15, 1991 is hereby
ANNULLED and SET ASIDE and the Decision dated November
14, 1990 dismissing the [C]omplaint is RESINSTATED. The bonds
posted by plaintiffs-appellees and defendants-appellants are hereby
RELEASED."5
The Facts
'That the aforesaid parcel of land, together with the house
and other improvements thereon, were mortgaged by the
VENDOR to the BANK OF THE PHILIPPINE ISLANDS,
Makati, Metro Manila to secure the payment of a loan of
ONE MILLION EIGHT HUNDRED THOUSAND
PESOS (P1,800,000.00), Philippine currency, as
evidenced by a Real Estate Mortgage signed and executed
by the VENDOR in favor of the said Bank of the Philippine
 Islands, on _____ and which Real Estate Mortgage was
ratified before Notary Public for Makati, _____, as Doc.
No. ______, Page No. _____, Book No. ___, Series of
1986 of his Notarial Register.
'That as part of the consideration of this sale, the VENDEE
hereby assumes to pay the mortgage obligations on the
property herein sold in the amount of ONE MILLION
EIGHT HUNDRED THOUSAND PESOS
(P1,800,000.00), Philippine currency, in favor of Bank of
Philippine Islands, in the name of the VENDOR, and
further agrees to strictly and faithfully comply with all the
terms and conditions appearing in the Real Estate
Mortgage signed and executed by the VENDOR in favor
of BPI, including interests and other charges for late
payment levied by the Bank, as if the same were originally
signed and executed by the VENDEE.
'It is further agreed and understood by the parties herein
that the capital gains tax and documentary stamps on the
sale shall be for the account of the VENDOR; whereas, the
registration fees and transfer tax thereon shall be the
account of the VENDEE.' (Exh. 'A', pp. 11-12, Record).'
"On the same date, and as part of the above-document, plaintiff
Avelina Velarde, with the consent of her husband, Mariano,
executed an Undertaking (Exh. 'C', pp. 13-14, Record).'
'x x x xxx xxx
'Whereas, as per deed of Sale with Assumption of
Mortgage, I paid Mr. David A. Raymundo the sum of
EIGHT HUNDRED THOUSAND PESOS (P800,000.00),
Philippine currency, and assume the mortgage obligations
on the property with the Bank of the Philippine Islands in
the amount of ONE MILLION EIGHT HUNDRED
THOUSAND PESOS (P1,800,000.00), Philippine
currency, in accordance with the terms and conditions of
the Deed of Real Estate Mortgage dated _____, signed and
executed by Mr. David A. Raymundo with the said Bank,
acknowledged before Notary Public for Makati, _____, as
Doc. No. _____, Page No. _____, Book No. _____, Series
of 1986 of his Notarial Register.
'WHEREAS, while my application for the assumption of
the mortgage obligations on the property is not yet
approved by the mortgagee Bank, I have agreed to pay the
mortgage obligations on the property with the Bank in the
name of Mr. David A. Raymundo, in accordance with the
terms and conditions of the said Deed of Real Estate
Mortgage, including all interests and other charges for late
payment.
'WHEREAS, this undertaking is being executed in favor of
Mr. David A. Raymundo, for purposes of attesting and
confirming our private understanding concerning the said
mortgage obligations to be assumed.
'NOW, THEREFORE, for and in consideration of the
foregoing premises, and the assumption of the mortgage
obligations of ONE MILLION EIGHT HUNDRED
THOUSAND PESOS (P1,800,000.00), Philippine
currency, with the bank of the Philippine Islands, I, Mrs,
Avelina D, Velarde with the consent of my husband,
Mariano Z. Velardo, do hereby bind and obligate myself,
my heirs, successors and assigns, to strictly and faithfully
comply with the following terms and conditions:
'1. That until such time as my assumption of the mortgage
obligations on the property purchased is approved by the
mortgagee bank, the Bank of the Philippine Islands, I shall
continue to pay the said loan in accordance with the terms
and conditions of the Deed of Real Estate Mortgage in the
name of Mr. David A. Raymundo, the original Mortgagor.
'2. That, in the event I violate any of the terms and
conditions of the said Deed of Real Estate Mortgage, I
hereby agree that my downpayment of P800,000.00, plus
 all payments made with the Bank of the Philippine Islands
on the mortgage loan, shall be forfeited in favor of Mr.
David A. Raymundo, as and by way of liquidated damages,
without necessity of notice or any judicial declaration to
that effect, and Mr. David A. Raymundo shall resume total
and complete ownership and possession of the property
sold by way of Deed of Sale with Assumption of Mortgage,
and the same shall be deemed automatically cancelled and
be of no further force or effect, in the same manner as it
(the) same had never been executed or entered into.
'3. That I am executing the Undertaking for purposes of
binding myself, my heirs, successors and assigns, to strictly
and faithfully comply with the terms and conditions of the
mortgage obligations with the Bank of the Philippine
Islands, and the covenants, stipulations and provisions of
this Undertaking.
"In a Letter dated January 7, 1987, plaintiffs, thru counsel, responded, as
follows:
'That, David A. Raymundo, the vendor of the property
mentioned and identified above, [does] hereby confirm and
agree to the undertakings of the Vendee pertinent to the
assumption of the mortgage obligations by the Vendee with
the Bank of the Philippine Islands. (Exh. 'C', pp. 13-14,
Record).'
"This undertaking was signed by Avelina and Mariano Velarde and
David Raymundo.
"It appears that the negotiated terms for the payment of the balance
of P1.8 million was from the proceeds of a loan that plaintiffs were
to secure from a bank with defendant's help. Defendants had a
standing approved credit line with the Bank of the Philippine Islands
(BPI). The parties agreed to avail of this, subject to BPI's approval
of an application for assumption of mortgage by plaintiffs. Pending
BPI's approval o[f] the application, plaintiffs were to continue
paying the monthly interests of the loan secured by a real estate
mortgage.
Consequently, petitioners filed on February 9, 1987 a Complaint against
private respondents for specific performance, nullity of cancellation, writ of
possession and damages. This was docketed as Civil Case No. 15952 at the
"Pursuant to said agreements, plaintiffs paid BPI the monthly
interest on the loan secured by the aforementioned mortgage for
three (3) months as follows: September 19, 1986 at P27,225.00;
October 20, 1986 at P23,000.00; and November 19, 1986 at
P23,925.00 (Exh. 'E', 'H' & 'J', pp. 15, 17and 18, Record).
"On December 15, 1986, plaintiffs were advised that the Application
for Assumption of Mortgage with BPI, was not approved (Exh. 'J',
p. 133, Record). This prompted plaintiffs not to make any further
payment.
"On January 5, 1987, defendants, thru counsel, wrote plaintiffs
informing the latter that their non-payment to the mortgage bank
constitute[d] non-performance of their obligation (Exh. '3', p. 220,
Record).
'This is to advise you, therefore, that our client is willing to
pay the balance in cash not later than January 21, 1987
provided: (a) you deliver actual possession of the property
to her not later than January 15, 1987 for her immediate
occupancy; (b) you cause the re- lease of title and mortgage
from the Bank of P.I. and make the title available and free
from any liens and encumbrances; and (c) you execute an
absolute deed of sale in her favor free from any liens or
encumbrances not later than January 21, 1987.' (Exhs. 'k',
'4', p. 223, Record).
"On January 8, 1987 defendants sent plaintiffs a notarial notice of
cancellation/rescission of the intended sale of the subject property
allegedly due to the latter's failure to comply with the terms and
conditions of the Deed of Sale with Assumption of Mortgage and
the Undertaking (Exh. '5', pp. 225-226, Record)."6
Regional Trial Court of Makati, Branch 149. The case was tried and heard by
then Judge Consuelo Ynares-Santiago (now an associate justice of this
Court), who dismissed the Complaint in a Decision dated November 14,
1990.7 Thereafter, petitioners filed a Motion for Reconsideration.8
Meanwhile, then Judge Ynares-Santiago was promoted to the Court of
Appeals and Judge Salvador S. A. Abad Santos was assigned to the sala she
vacated. In an Order dated May 15, 1991,9 Judge Abad Santos granted
petitioner's Motion for Reconsideration and directed the parties to proceed
with the sale. He instructed petitioners to pay the balance of P1.8 million to
private respondents who, in turn, were ordered to execute a deed of absolute
sale and to surrender possession of the disputed property to petitioners.
Private respondents appealed to the CA.
Ruling of the Court of Appeal
The CA set aside the Order of Judge Abad Santos and reinstated then Judge
Ynares-Santiago's earlier Decision dismissing petitioners' Complaint.
Upholding the validity of the rescission made by private respondents, the CA
explained its ruling in this wise:
"In the Deed of Sale with Assumption of Mortgage, it was stipulated
that 'as part of the consideration of this sale, the VENDEE (Velarde)'
would assume to pay the mortgage obligation on the subject
property in the amount of P 1.8 million in favor of BPI in the name
of the Vendor (Raymundo). Since the price to be paid by the Vendee
Velarde includes the downpayment of P800,000.00 and the balance
of Pl.8 million, and the balance of Pl.8 million cannot be paid in
cash, Vendee Velarde, as part of the consideration of the sale, had
to assume the mortgage obligation on the subject property. In other
words, the assumption of the mortgage obligation is part of the
obligation of Velarde, as vendee, under the contract. Velarde further
agreed 'to strictly and faithfully comply with all the terms and
conditions appearing in the Real Estate Mortgage signed and
executed by the VENDOR in favor of BPI x x x as if the same were
originally signed and executed by the Vendee. (p. 2, thereof, p. 12,
Record). This was reiterated by Velarde in the document entitled
'Undertaking' wherein the latter agreed to continue paying said loan
in accordance with the terms and conditions of the Deed of Real
Estate Mortgage in the name of Raymundo. Moreover, it was
stipulated that in the event of violation by Velarde of any terms and
conditions of said deed of real estate mortgage, the downpayment of
P800,000.00 plus all payments made with BPI or the mortgage loan
would be forfeited and the [D]eed of [S]ale with [A]ssumption of
[M]ortgage would thereby be Cancelled automatically and of no
force and effect (pars. 2 & 3, thereof, pp 13-14, Record).
"From these 2 documents, it is therefore clear that part of the
consideration of the sale was the assumption by Velarde of the
mortgage obligation of Raymundo in the amount of Pl.8 million.
This would mean that Velarde had to make payments to BPI under
the [D]eed of [R]eal [E]state [M]ortgage the name of Raymundo.
The application with BPI for the approval of the assumption of
mortgage would mean that, in case of approval, payment of the
mortgage obligation will now be in the name of Velarde. And in the
event said application is disapproved, Velarde had to pay in full.
This is alleged and admitted in Paragraph 5 of the Complaint.
Mariano Velarde likewise admitted this fact during the hearing on
September 15, 1997 (p. 47, t.s.n., September 15, 1987; see also pp.
16-26, t.s.n., October 8, 1989). This being the case, the non-payment
of the mortgage obligation would result in a violation of the contract.
And, upon Velarde's failure to pay the agreed price, the[n]
Raymundo may choose either of two (2) actions - (1) demand
fulfillment of the contract, or (2) demand its rescission (Article
1191, Civil Code).
"The disapproval by BPI of the application for assumption of
mortgage cannot be used as an excuse for Velarde's non-payment of
the balance of the purchase price. As borne out by the evidence,
Velarde had to pay in full in case of BPI's disapproval of the
application for assumption of mortgage. What Velarde should have
done was to pay the balance of P1.8 million. Instead, Velarde sent
Raymundo a letter dated January 7, 1987 (Exh. 'K', '4') which was
strongly given weight by the lower court in reversing the decision
rendered by then Judge Ynares-Santiago. In said letter, Velarde
registered their willingness to pay the balance in cash but
enumerated 3 new conditions which, to the mind of this Court,
would constitute a new undertaking or new agreement which is
 subject to the consent or approval of Raymundo. These 3 conditions Petitioners, in their Memorandum,12 interpose the following assignment of
were not among those previously agreed upon by Velarde and errors:
Raymundo. These are mere offers or, at most, an attempt to novate.
But then again, there can be no novation because there was no "I.
agreement of all the parties to the new contract (Garcia, Jr. vs. Court
of Appeals, 191 SCRA 493).
The Court of Appeals erred in holding that the non-payment of the
mortgage obligation resulted in a breach of the contract.
"It was likewise agreed that in case of violation of the mortgage
obligation, the Deed of Sale with Assumption of Mortgage would
"II
be deemed 'automatically cancelled and of no further force and
effect, as if the same had never been executed or entered into.' While
it is true that even if the contract expressly provided for automatic The Court of Appeals erred in holding that the rescission
rescission upon failure to pay the price, the vendee may still pay, he (resolution) of the contract by private respondents was justified.
may do so only for as long as no demand for rescission of the
contract has been made upon him either judicially or by a notarial "III
act (Article 1592, Civil Code). In the case at bar, Raymundo sent
Velarde notarial notice dated January 8, 1987 of The Court of Appeals erred in holding that petitioners' January 7,
cancellation/rescission of the contract due to the latter's failure to 1987 letter gave three 'new conditions' constituting mere offers or
comply with their obligation. The rescission was justified in view of an attempt to novate necessitating a new agreement between the
Velarde's failure to pay the price (balance) which is substantial and parties."
fundamental as to defeat the object of the parties in making the
agreement. As adverted to above, the agreement of the parties The Court's Ruling
involved a reciprocal obligation wherein the obligation of one is a
resolutory condition of the obligation of the other, the non-
The Petition is partially meritorious.
fulfillment of which entitles the other party to rescind the contract
(Songcuan vs. IAC, 191 SCRA 28). Thus, the non-payment of the
mortgage obligation by appellees Velarde would create a right to First Issue:
demand payment or to rescind the contract, or to criminal
prosecution (Edca Publishing & Distribution Corporation vs. Breach of Contract
Santos, 184 SCRA 614). Upon appellee's failure, therefore, to pay
the balance, the contract was properly rescinded (Ruiz vs. IAC, 184 Petitioner aver that their nonpayment of private respondents' mortgage
SCRA 720). Consequently, appellees Velarde having violated the obligation did not constitute a breach of contract, considering that their
contract, they have lost their right to its enforcement and hence, request to assume the obligation had been disapproved by the mortgagee
cannot avail of the action for specific performance (Voysaw vs. bank. Accordingly, payment of the monthly amortizations ceased to be their
Interphil Promotions, Inc., 148 SCRA 635)." 10 obligation and, instead, it devolved upon private respondents again.

Hence, this appeal. 11 However, petitioners did not merely stop paying the mortgage obligations;
they also failed to pay the balance of the purchase price. As admitted by both
The Issues parties, their agreement mandated that petitioners should pay the purchase
price balance of P1.8 million to private respondents in case the request to
assume the mortgage would be disapproved. Thus, on December 15, 1986,
when petitioners received notice of the bank's disapproval of their application
to assume respondents' mortgage, they should have paid the balance of the
P1.8 million loan.
Instead of doing so, petitioners sent a letter to private respondents offering to
make such payment only upon the fulfillment of certain conditions not
originally agreed upon in the contract of sale. Such conditional offer to pay
cannot take the place of actual payment as would discharge the obligation of
a buyer under a contract of sale.
In a contract of sale, the seller obligates itself to transfer the ownership of and
deliver a determinate things, and the buyer to pay therefor a price certain in
money or its equivalent.13
Private respondents had already performed their obligation through the
execution of the Deed of Sale, which effectively transferred ownership of the
property to petitioner through constructive delivery. Prior physical delivery
or possession is not legally required, and the execution of the Deed of Sale is
deemed equivalent to delivery.14
Petitioners, on the other hand, did not perform their correlative obligation of
paying the contract price in the manner agreed upon. Worse, they wanted
private respondents to perform obligations beyond those stipulated in the
contract before fulfilling their own obligation to pay the full purchase price.
Second Issue
Validity of the Rescission
Petitioners likewise claim that the rescission of the contract by private
respondents was not justified, inasmuch as the former had signified their
willingness to pay the balance of the purchase price only a little over a month
from the time they were notified of the disapproval of their application for
assumption of mortgage. Petitioners also aver that the breach of the contract
was not substantial as would warrant a rescission. They cite several cases 15
in which this Court declared that rescission of a contract would not be
permitted for a slight or casual breach. Finally, they argue that they have
substantially performed their obligation in good faith, considering that they
have already made the initial payment of P800,000 and three (3) monthly
mortgage payments.
As pointed out earlier, the breach committed by petitioners was not so much
their nonpayment of the mortgage obligations, as their nonperformance of
their reciprocal obligation to pay the purchase price under the contract of sale.
Private respondents' right to rescind the contract finds basis in Article 1191
of the Civil Code, which explicitly provides as follows:
"Art. 1191. -- The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not comply with
what is 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 impossible."
The right of rescission of a party to an obligation under Article 1191 of the
Civil Code is predicated on a breach of faith by the other party who violates
the reciprocity between them.16 The breach contemplated in the said
provision is the obligor's failure to comply with an existing obligation. 17
When the obligor cannot comply with what is incumbent upon it, the obligee
may seek rescission and, in the absence of any just cause for the court to
determine the period of compliance, the court shall decree the rescission. 18
In the present case, private respondents validly exercised their right to rescind
the contract, because of the failure of petitioners to comply with their
obligation to pay the balance of the purchase price. Indubitably, the latter
violated the very essence of reciprocity in the contract of sale, a violation that
consequently gave rise to private respondent's right to rescind the same in
accordance with law.
True, petitioners expressed their willingness to pay the balance of the
purchase price one month after it became due; however, this was not
equivalent to actual payment as would constitute a faithful compliance of
their reciprocal obligation. Moreover, the offer to pay was conditioned on the
performance by private respondents of additional burdens that had not been
agreed upon in the original contract. Thus, it cannot be said that the breach
committed by petitioners was merely slight or casual as would preclude the
exercise of the right to rescind.
Misplaced is petitioners' reliance on the cases19 they cited, because the factual
circumstances in those cases are not analogous to those in the present one. In
Song Fo there was, on the part of the buyer, only a delay of twenty (20) days
to pay for the goods delivered. Moreover, the buyer's offer to pay was
unconditional and was accepted by the seller.
In Zepeda, the breach involved a mere one-week delay in paying the balance
of 1,000 which was actually paid.
In Tan, the alleged breach was private respondent's delay of only a few days,
which was for the purpose of clearing the title to the property; there was no
reference whatsoever to the nonpayment of the contract price.
In the instant case, the breach committed did not merely consist of a slight
delay in payment or an irregularity; such breach would not normally defeat
the intention of the parties to the contract. Here, petitioners not only failed to
pay the P1.8 million balance, but they also imposed upon private respondents
new obligations as preconditions to the performance of their own obligation.
In effect, the qualified offer to pay was a repudiation of an existing obligation,
which was legally due and demandable under the contract of sale. Hence,
private respondents were left with the legal option of seeking rescission to
protect their own interest.
Mutual Restitution
Required in Rescission
As discussed earlier, the breach committed by petitioners was the
nonperformance of a reciprocal obligation, not a violation of the terms and
conditions of the mortgage contract. Therefore, the automatic rescission and
forfeiture of payment clauses stipulated in the contract does not apply.
Instead, Civil Code provisions shall govern and regulate the resolution of this
controversy.
Considering that the rescission of the contract is based on Article 1191 of the
Civil Code, mutual restitution is required to bring back the parties to their
original situation prior to the inception of the contract. Accordingly, the
initial payment of P800,000 and the corresponding mortgage payments in the
amounts of P27,225, P23,000 and P23,925 (totaling P874,150.00) advanced
by petitioners should be returned by private respondents, lest the latter
unjustly enrich themselves at the expense of the former.
Rescission creates the obligation to return the object of the contract. It can be
carried out only when the one who demands rescission can return whatever
he may be obliged to restore.20 To rescind is to declare a contract void at its
inception and to put an end to it as though it never was. It is not merely to
terminate it and release the parties from further obligations to each other, but
to abrogate it from the beginning and restore the parties to their relative
positions as if no contract has been made.21
Third Issue
Attempt to Novate
In view of the foregoing discussion, the Court finds it no longer necessary to
discuss the third issue raised by petitioners. Suffice it to say that the three
conditions appearing on the January 7, 1987 letter of petitioners to private
respondents were not part of the original contract. By that time, it was already
incumbent upon the former to pay the balance of the sale price. They had no
right to demand preconditions to the fulfillment of their obligation, which had
become due.
WHEREFORE, the assailed Decision is hereby AFFIRMED with the
MODIFICATION that private respondents are ordered to return to
petitioners the amount of P874,150, which the latter paid as a consequence
of the rescinded contract, with legal interest thereon from January 8, 1987,
the date of rescission. No pronouncement as to costs.
SO ORDERED