G.R. No. 23769 – September 16, 1925

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.

ISSUES:

1. Whether or not SFC is entitled to damages
2. Whether or not HPC has a right to rescind the contract?

RULING:

As to the first question, yes, SFC is entitled to damages. Article 1170 of the Civil Code provides “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”

The failure of HPC to deliver the rest of the molasses constitutes a breach of contract by contravention of tenor and is thus liable for damages. The bases for damages is the cost in excess of the agreed price in the contract when SFC was made to acquire the needed molasses from another supplier and the expenses related to the transportation of the same. Loss of profits would have been included as part of damages had SFC been able to substantiate such a claim.

As to the second question, 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.

 * Case digest by Ariel Acopiado, LLB-1, Andres Bonifacio Law School, SY 2017-2018