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INTERPRETATION OF CONTRACTSJacinto Tanguilig vs. Court of Appeals and Vicente Herce Jr G. No. 117190, January 2, 1997Belosillo, J. :DOCTRINE: It is cardinal rule in the interpretation of contracts that the intention of the parties shall be accorded primordial consideration and, in case of doubt, the...

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INTERPRETATION OF CONTRACTS Jacinto Tanguilig vs. Court of Appeals and Vicente Herce Jr G.R. No. 117190, January 2, 1997 Belosillo, J.: DOCTRINE: It is cardinal rule in the interpretation of contracts that the intention of the parties shall be accorded primordial consideration and, in case of doubt, their contemporaneous and subsequent acts shall be principally considered FACTS: Doing business under the name and styleJ.M.T. Engineering and General Merchandising, Jacinto Tanguilig, the petitioner proposed to respondent to construct a windmill system for him (respondent). They agreed on the construction of the windmill for a consideration of P60,000.00 with a one-year guaranty from the date of completion and acceptance by respondent of the project. Pursuant to the agreement, respondent paid petitioner a down payment of P30,000.00 and an installment payment of P15,000.00, leaving a balance of P15,000.00. Due to the refusal of respondent to pay the balance, the petitioner filed a complaint. In his answer, the respondent denied the claim saying that he had already paid this amount to the San Pedro General Merchandising Inc. (SPGMI) which constructed the deep well to which the windmill system was to be connected. According to respondent, since the deep-well formed part of the system, the payment he tendered to SPGMI should be credited to his account by petitioner. Moreover, assuming that he owed petitioner a balance of P15,000.00, this should be offset by the defects in the windmill system which caused the structure to collapse after a strong wind hit their place. Petitioner denied that the construction of a deep-well was included in the agreement to build the windmill system, for the contract price of P60,000.00 was solely for the windmill assembly and its installation. He also disowned any obligation to repair the system and insisted that he delivered it in good condition to respondent who accepted the same without protest. Besides, its collapse was attributable to a typhoon, a force majeure, which relieved him of any liability. In finding for plaintiff, the trial court held that the construction of the deep well was not part of the windmill project and that “there is no clear and

convincing proof that the windmill system fell down due to the defect of the construction. “ The Court of Appeals reversed the trial court. It ruled that the construction of the deep well was included in the agreement of the parties because the term “deep well” was mentioned in both proposals. It also rejected petitioner’s claim of force majeure and ordered the latter to reconstruct the windmill in accordance with the stipulated one-year guaranty. The petitioner filed for motion for consideration which was denied. Hence the instant petition.

ISSUE: Whether or not the agreement to construct the windmill system included the installation of a deep well.

RULING: No, the installation of a deep well was not included in the proposals of petitioner to construct a windmill system for respondent. Nowhere in either proposal is the installation of a deep well mentioned, even remotely. Neither is there an itemization or description of the materials to be used in constructing the deep well. There is absolutely no mention in the two (2) documents that a deep well pump is a component of the proposed windmill system. The contract prices fixed in both proposals cover only the features specifically described therein and no other. While the words “deep well” and “deep well pump” are mentioned in both, these do not indicate that a deep well is part of the windmill system. They merely describe the type of deep well pump for which the proposed windmill would be suitable. Since the terms of the instruments are clear and leave no doubt as to their meaning, they should not be disturbed. Moreover, it is a cardinal rule in the interpretation of contracts that the intention of the parties shall be accorded primordial consideration and, in case of doubt, their contemporaneous and subsequent acts shall be principally considered. An examination of such contemporaneous and subsequent acts of respondent as well as the attendant circumstances did not persuade the SC to uphold him. Thus, the agreement to construct the windmill system was not included the installation of a deep well.

RECISSION OF CONTRACTS Song Fo & Company vs. Hawaiian Philippine Co. G.R. No. 23769, September 16, 1925 Malcolm, J.:

DOCTRINE: Recission will not be permitted for a slight or casual breach 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

FACTS: Hawaiian-Philippine Co (HPC) entered into a contract with Song Fo and Co (SFC) where it would deliver molasses to the latter evidenced by a letter containing their contract. The same states that Mr. Song Fo agreed to the delivery of 300,000 gallons of molasses and the same requested for an additional 100,000 molasses which the HPC promised that it will do its best to comply with the additional shipment. However, the HPC was only able to deliver 55,006 gallons. SFC thereafter filed a complaint with two causes of action for breach of contract against the HPC and asked for P70,369.50. HPC answered that there was a delay in the payment from SFC and that HPC has the right to rescind the contract because of the same· The trial court condemned HPC to pay SFC a total of P35,317.93, with legal interest.

ISSUE: Does HPC have a right to rescind the contract?

RULING: No, HPC has no right to rescind the contract. The court provided that the general rule is that rescission will not be permitted for a slight or casual breach 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. It should be noted that the time of payment stipulated for in the contract should be treated as of the essence of the contract. There was only a slight breach of contract when the payment was delayed for 20 days and does not violate essential condition of the contract which warrants rescission for non-performance. Furthermore, HPC accepted the payment of the overdue accounts and continued with the contract, waiving its right to rescind the same. Petition of partly granted, and the judgment appealed is

modified. Plaintiff shall have and recover from the defendant the sum of P3,000, with legal interest from date of judgment, no special costs. Thus, HPC has no right to rescind the contract.

RECISSION AND NOVATION Solomon Boysaw and Alfredo M. Yulo, Jr. Vs. Interphil Promotions, Inc., Lope Sarreal, Sr. G.R. No. L-22590, March 20, 1987 Fernan, J.: DOCTRINE: Article 1170 of the Civil Code provides that those who in the performance of their obligations are guilty of fraud, negligence or delay, and those who in any manner contravene the terms thereof, are liable for damages. FACTS: Solomon Boysaw and his then Manager, Willie Ketchum, signed with Interphil Promotions, Inc. represented by Lope Sarreal, Sr., a contract to engage Gabriel "Flash" Elorde in a boxing contest for the junior lightweight championship of the world. It was stipulated that the bout would be held at the Rizal Memorial Stadium in Manila on September 30, 1961 or not later than 30 days thereafter should a postponement be mutually agreed upon, and that Boysaw would not, prior to the date of the boxing contest, engage in any other such contest without the written consent of Interphil Promotions, Inc. However, before September 30, 1961, Boysaw entered into a non-title bout on June 19, 1961 and without consent from Interphil, Ketchum assigned to Amado Araneta the managerial rights over Boysaw. Amado Araneta in turn transferred the earlier acquired managerial rights to Alfredo again without the consent from Interphil. Yulo thereafter informed Interphil Boysaw’s readiness to comply with the boxing contract of May 1, 1961. The Games and Amusement Board after a series of conferences of both parties scheduled the Elorde-Boysaw fight on November 4, 1961. Yulo refused to accept the charge in the fight date even after Sarreal offered to advance the fight date to October 28, 1961. However, he changed his mind and decided to accept the fight date on November 4, 1961. While an Elorde-Boysaw fight was eventually staged, the fight contemplated in the May 1, 1961 boxing contract never materialized. As a result, Yulo and Boysaw sued Interphil for damages allegedly due to the latter’s refusal to honor their commitments under the boxing contract of May 1, 1961.

ISSUES: 1. Whether or not there was a violation of the fight contract of May 1, 1961; and if there was, who was guilty of such violation. 2. Whether or not there was legal ground for the postponement of the fight date?

RULING: 1. Yes. The evidence established that the contract was violated by appellant Boysaw himself when, without the approval or consent of Interphil, he fought Louis Avila on June 19, 1961 in Las Vegas Nevada. Appellant Yulo admitted this fact during the trial. While the contract imposed no penalty for such violation, this does not grant any of the parties the unbridled liberty to breach it with impunity. Our law on contracts recognizes the principle that actionable injury inheres in every contractual breach. Thus: Those who in the performance of their obligations are guilty of fraud, negligence or delay, and those who in any manner contravene the terms thereof, are liable for damages. 2. No. There is no doubt that the contract in question gave rise to reciprocal obligations. "Reciprocal obligations are those which arise from the same cause, and in which each party is a debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of the other. They are to be performed simultaneously, so that the performance of one is conditioned upon the simultaneous fulfillment of the other. Another violation of the contract in question was the assignment and transfer, first to J. Amado Araneta, and subsequently, to appellant Yulo, Jr., of the managerial rights over Boysaw without the knowledge or consent of Interphil. Under the law when a contract is unlawfully novated by an applicable and unilateral substitution of the obligor by another, the aggrieved creditor is not bound to deal with the substitute.

EXTRAJUDICIAL RECISSION OF CONTRACTS University of the Philippines v. De Los Angeles G.R. No. L-28602 September 29, 1970 Reyes, J.B.L., J.: DOCTRINE: Article 1191 of the Civil Code provides that 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 the 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. FACTS: November 2, 1960, UP and ALUMCO entered into a logging agreement under which the latter was granted exclusive authority, for a period starting from the date of the agreement to 31 December 1965, extendible for a further period of five (5) years by mutual agreement, to cut, collect and remove timber from the Land Grant, in consideration of payment to UP of royalties, forest fees, etc.; That ALUMCO cut and removed timber therefrom but, as of 8 December 1964, it had incurred an unpaid account of P219,362.94, which, despite repeated demands, it had failed to pay; That after it had received notice that UP would rescind or terminate the logging agreement, ALUMCO executed an instrument, entitled "Acknowledgment of Debt and Proposed Manner of Payments," dated 9 December 1964, which was approved by the president of UP, which expressly states that, upon default by the debtor ALUMCO, the creditor (UP) has “the right and the power to consider the Logging Agreement as rescinded without the necessity of any judicial suit.” ALUMCO continued its logging operations, but again incurred an unpaid account. On July 19, 1965, petitioner UP informed respondent ALUMCO that it had, as of that date, considered as rescinded and of no further legal effect the logging agreement that they had entered in 1960. UP filed a complaint against ALUMCO for the collection or payment of the herein before stated

sums of money and it prayed for and obtained an order for preliminary attachment and preliminary injunction restraining ALUMCO from continuing its logging operations in the Land Grant. Respondent ALUMCO contended that it is only after a final court decree declaring the contract rescinded for violation of its terms that U.P. could disregard ALUMCO's rights under the contract and treat the agreement as breached and of no force or effect.

ISSUE: Whether or not petitioner U.P. can treat its contract with ALUMCO rescinded and may disregard the same before any judicial pronouncement to that effect.

RULING: Yes. U.P. can treat its contract with ALUMCO rescinded and may disregard the same before any judicial pronouncement to that effect. As the Court previously held in Froilan v. Pan Oriental Shipping Company, “there is nothing in the law that prohibits the parties from entering into an 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.” UP and ALUMCO had expressly stipulated in the "Acknowledgment of Debt and Proposed Manner of Payments" that, upon default by the debtor ALUMCO, the creditor (UP) has "the right and the power to consider, the Logging Agreement as rescinded without the necessity of any judicial suit." It must be understood that the act of party in treating a contract as cancelled or resolved on account of infractions by the other contracting party must be made known to the other and is always provisional, being ever subject to scrutiny and review 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. Then, should the court, after due hearing, decide that the resolution of the contract was not warranted, the responsible party will be sentenced to damages; in the contrary case, the resolution will be affirmed, and the consequent indemnity awarded to the party prejudiced.

Thus, U.P. can treat its contract with ALUMCO rescinded and may disregard the same before any judicial pronouncement to that effect.

FORTUITOUS EVENTS Juan F. Nakpil & Sons and Juan F. Nakpil vs. The Court of Appeals G.R. No. L-47851 October 3, 1986 Paras, J.:

DOCTRINE: One who negligently creates a dangerous condition cannot escape liability for the natural and probable consequences thereof, although the act of a third person, or an act of God for which he is not responsible, intervenes to precipitate the loss.

FACTS: Private respondents – Philippine Bar Association (PBA) – a nonprofit organization formed under the corporation law decided to put up a building in Intramuros, Manila. Hired to plan the specifications of the building were Juan Nakpil & Sons, while United Construction was hired to construct it. The proposal was approved by the Board of Directors and signed by the President, Ramon Ozaeta. The building was completed in 1966. In 1968, there was an unusually strong earthquake which caused the building heavy damage, which led the building to tilt forward, leading the tenants to vacate the premises. United Construction took remedial measures to sustain the building. PBA filed a suit for damages against United Construction, but United Construction subsequently filed a suit against Nakpil and Sons, alleging defects in the plans and specifications.Technical Issues in the case were referred to Mr. Hizon, as a court appointed Commissioner. PBA moved for the demolition of the building, but was opposed. PBA eventually paid for the demolition after the building suffered more damages in 1970 due to previous earthquakes. The Commissioner found that there were deviations in the specifications and plans, as well as defects in the construction of the building.

ISSUE: Whether or not an act of God (fortuitous event) exempts from liability parties who would otherwise be due to negligence?

RULING: No. An act of God (fortuitous event) does not exempt from liability parties who would otherwise be due to negligence. Art. 1174 of the New Civil Code states that no person shall be responsible for events, which could not be foreseen. But to be exempt from liability due to an act of God, the following must occur: 1. Cause of breach must be independent of the will of the debtor; 2. Event must be unforeseeable or unavoidable; 3. Event must be such that it would render it impossible for the debtor to fulfill the obligation; 4. Debtor must be free from any participation or aggravation of the industry to the creditor. Although the general rule for fortuitous events stated in Article 1174 of the Civil Code exempts liability when there is an Act of God, thus if in the concurrence of such event there be fraud, negligence, delay in the performance of the obligation, the obligor cannot escape liability therefore there can be an action for recovery of damages. The negligence of the defendant was shown when and proved that there was an alteration of the plans and specification that had been so stipulated among them. Hence, there should be no question that NAKPIL and UNITED are liable for damages because of the collapse of the building. One who negligently creates a dangerous condition cannot escape liability for the natural and probable consequences thereof, although the act of a third person, or an act of God for which he is not responsible, intervenes to precipitate the loss.

FORTIUTOUS EVENTS Republic of The Philippines Vs. Luzon Stevedoring Corporation G.R. No. L-21749, September 29, 1967 Reyes, J.B.L., J.:

DOCTRINE: Fortuito or force majeure, which in law are identical in so far as they exempt an obligor from liability, by definition, are extraordinary events not forseeable or avoidable or events that could not be foreseen, or which, though foreseen, were inevitable.

FACTS: Barge L-1892 owned by Luzon was being towed down the Pasig river by two tugboats "Bangus" and "Barbero” (also owned by Luzon). The barge rammed against one of the wooden piles of Nagtahan bailey bridge, smashing the posts and causing the bridge to list. At the time, the river’s current was swift and the water was high due to heavy rains in Manila. The Republic sued the company for the actual and consequential damages caused (P200,000). Luzon disclaimed liability, on the grounds that it had exercised due diligence in the selection and supervision of its employees; that the damages to the bridge were caused by force majeure; that plaintiff has no capacity to sue; and that the Nagtahan bailey bridge is an obstruction to navigation. CFI held Luzon liable for the damage caused by its employee and ordered it to pay the actual cost of the repair of the Nagtahan bailey bridge (P192,561.72), with legal interest thereon from the date of the filing of the complaint. Luzon appealed directly to SC, raising questions both of fact and of law.

ISSUE: Whether or not the collision of Luzon’s barge with the supports or piers of the Nagtahan bridge was, in law, caused by fortuitous event or force majeure.

RULING: No. The collision of Luzon’s barge with the supports or piers of the Nagtahan bridge was not cause by fortuitous event or force majeure. Considering that the Nagtahan bridge was an immovable and stationary object and provided with adequate openings for the passage of water craft, including barges, it is undeniable that the unusual event that the barge, exclusively controlled by appellant, rammed the bridge supports raises a presumption of negligence on Luzon’s part or its employees manning the barge or the tugs that towed it. For in the ordinary course of events, such a thing does not happen if proper care is used. In Anglo American Jurisprudence, the i...