Snow Mountain Dairy Corporation v. GMA Veterans Force, Inc.

Actual damages are not presumed. The claimant must prove the actual amount of loss with a reasonable degree of certainty premised upon competent proof and on the best evidence obtainable.

G.R. No. 192446, 19 November 2014

Complainant GMA Veterans Force, Inc. filed a Complaint for Damages against defendant Snow Mountain Dairy Corporation. Previously, complainant and defendant entered into a security service agreement whereby. Just after a month, defendant informed complainant that all of the latter’s security personnel would be replaced and all monies due in the contract will be settled. Complainant responded reminding defendant that the contract is good for a year which could only be terminated for a just cause and a 30-day prior notice. Further, even if complainant waived the requirements for pre-termination, defendant would be liable to pay the remaining period of 8 1/2 months equivalent to P952,833.00.

HELD: Complainant was awarded P200,000.00 for temperate damages in lieu of actual damages. It is a well settled rule that “actual or compensatory damages are those awarded in satisfaction of, or in recompense for, loss or injury sustained. They proceed from a sense of natural justice and are designed to repair the wrong that has been done, to compensate for the injury inflicted and not to impose a penalty. The burden is to establish one’s case by a preponderance of evidence which means that the evidence, as a whole, adduced by one side, is superior to that of the other. Actual damages are not presumed. The claimant must prove the actual amount of loss with a reasonable degree of certainty premised upon competent proof and on the best evidence obtainable. Specific facts that could afford a basis for measuring whatever compensatory or actual damages are borne must be pointed out. The award of actual damages cannot be simply based on the mere allegation of a witness without any tangible claim, such as receipts or other documentary proofs to support such claim.”

The lower courts awarded P952,833.50 actual or compensatory damages representing the remaining or unserved portion of the contract. The computation was based on the P16,014,00 per guard per month multiplied by 7 security guards and multiplied by the unserved portion. “However, the contracted amount of P16,014,00 per guard would not totally pertain to [complainant] as the same would cover the wage of the security guard and only the remaining portion of the contracted amount, i.e., after deducting the guard’s salary, would go to [complainant]. In this case, [complainant] had not shown that the security guards were not assigned to another employer, and that it was compelled to pay the guards despite the pre-termination of the security agreement to be entitled to the amount of P16,014.00 per month. Indeed, no evidence was presented by [complainant] establishing the actual amount of loss suffered by reason of the pre-termination. It is elementary that to recover damages, there must be pleading and proof of actual damages suffered.”

Notwithstanding, it is undeniable that complainant suffered pecuniary loss because of the pre-termination of its services without valid cause. As there was no proof, temperate or moderate damages would be proper. “Temperate damages may be allowed in cases where from the nature of the case, definite proof of pecuniary loss cannot be adduced, although the court is convinced that the aggrieved party suffered some pecuniary loss. We also take into consideration that [complainant] certainly spent for the security guard’s training, firearms with ammunitions, uniforms and other necessary things before their deployment to [defendant].”

Owen Prosper A. Mackay v. Sps. Dana Caswell

If the work of a contractor has defects which destroy or lessen its value or fitness for its ordinary or stipulated use, he may be required to remove the defect or execute another work. If he fails to do so, he shall be liable for the expenses by the employer for the correction of the work.

G.R. No. 183872, 17 November 2014

Complainant Owen Prosper A. Mackay initiated a Complaint for Collection of Sum of Money with Damages against defendants Sps. Dana Caswell and Cerelina Caswell. Previously, defendants engaged the services of complainant and his group who obligated themselves to provide electrical installation service for P250,000.00 in the new home of the spouses. Nearing completion, defendants had already paid P227,000.00 to complainant. However, when the local distributor of electricity conducted its inspection of the installation work, it refused to provide electricity as there were several defects.

As a result, defendants searched for complainant to remedy the problems. As complainant was nowhere to be found, defendants were constrained to contract the services of the local distributor. Thereafter, defendants filed a case against complainant and his group for estafa but which case was dismissed to reasonable doubt. In response, complainant initiated this case to recover the remaining P23,000.00 from defendants.

HELD: The complaint was dismissed. Complainant was ordered to pay the liabilities incurred by the spouses in rectifying his work. “Suffice it to say that Owen’s job was not only to finish the electrical installation work. It was likewise his obligation to do quality work and to provide quality materials to ensure that electricity would flow in the Caswell home. For the Caswells to avail of this utility, it is definitely expected that the electrical materials used should meet the technical requirements for a service entrance as imposed by the only distributor of the electricity in the area, Zameco II, so that the latter can supply residential electric service efficiently and safely to the Caswells. However, as shown above, Owen failed to execute his work in such a manner that it has no defects which destroy or lessen its value or fitness for its ordinary or stipulated use.”

The law specifically provides the liability of a contractor in such a case as this. “Under Article 1715 of the Civil Code, if the work of a contractor has defects which destroy or lessen its value or fitness for its ordinary or stipulated use, he may be required to remove the defect or execute another work. If he fails to do so, he shall be liable for the expenses by the employer for the correction of the work. The demand required of the employer under the subject provision need not be in a particular form. In the case at bar, we agree with the CA that Owen was given the opportunity to rectify his work. Subsequent to Zameco II’s disapproval to supply the Caswells electricity for several reasons, the Court gives credence to the latter’s claim that they looked for Owen to demand a rectification of the work, but Owen and his group were nowhere to be found. Had Owen really been readily available to the Caswells to correct any deficiency in the work, the latter would not have entertained the thought that they were deceived and would not have been constrained to undergo the rigors of filing a criminal complaint and testifying therein. Without doubt, the Caswells exercised due diligence when they demanded from Owen the proper rectification of his work. As correctly held by the CA, the Caswells substantially complied with the requirement of Article 1715 of the Civil Code…”

As to the filing of a complaint for specific performance, “to require the Caswells to file an action for specific performance, as opined by the RTC, not only deprives them of hiring someone else to rectify the work, but also defeats the very purpose of the contracted work, i.e., to immediately have electricity in their home. In this situation, time is of the essence.”

Due to the substandard work, “the Caswells necessarily incurred expenses by purchasing materials to finally get a supply of electricity in their home.”

It is a well established rule that one is entitled to adequate compensation “only for such pecuniary loss suffered by him as he has duly proved. ‘To justify an award of actual damages, there must be competent proof of the actual amount of loss, credence can be given only to claims which are duly supported by receipts.’ The claimant must prove the actual amount of loss with a reasonable degree of certainty premised upon competent proof and on the best evidence obtainable. In the case at bar, we give credence to the documents relied upon by the CA and the MTC in arriving at the rectification cost, i.e., a) Engr. Pulangco’s handwritten receipt of P15,400.00, to which he had testified before the court that he had indeed received such amount and b) the Sales Invoice No. 2029 issued by Peter A. Eduria Enterprises reflecting the total cost of P53,805.00.00.”

As for the Sales Invoice which failed to indicate the unit prices, such failure “does not defeat the claim of the Caswells for reimbursement. In most cases in the ordinary course of business, sellers issue handwritten receipts that are perfunctorily filled out without completely stating all the details of the purchase. This ‘flaw’ should not be taken against the Caswells. Besides, if the unit price per item is an issue, a perusal of Dana’s separate list will show the unit prices of the items in the sales invoice.”

As for the alleged non-existence of Peter A. Eduria Enterprises, “the negative certifications presented however only highlight the probable liability of the store with the government for non-compliance with business registration. Regardless of whether the latter had registered itself as a business entity with the proper authorities, the documents Owen relies upon fail to overcome the point of the receipt: that a sale of electrical items for installation had transpired between the Caswells and the seller. With the relevant facts established that Zameco II rejected the quality of Owen’s work and that rectifications were made by installing the necessary materials to meet the electric distributor’s specifications, the said invoice cannot be considered as bereft of evidentiary value.”

Lastly, legal compensation was proper as to the Owen’s claim for P23,000.00 unpaid fees. Here, “Cerelina herself admitted that the contract price agreed upon was the lump sum of P250,000.00, and that she only paid Owen P227,000.00, while the dispositive portion of the MTC Decision stated that Owen’s claims are dismissed, the lower court implies that the P23,000.00 unpaid compensation he sought to recover from the Caswells shall not be given directly to him, offsetting the said amount from the rectification cost that the Caswells had prayed for. In effect, under the circumstances, we deem this fair and just to measure the actual damages due the Caswells by reducing the cost they shouldered to repair the defects with the unpaid amount of the contract price due Owen.”

S.V. More Pharma Corporation v. Drugmakers Laboratories, Inc.

The amount of loss warranting the grant of actual or compensatory damages must be proved with a reasonable degree of certainty, based on competent proof and the best evidence obtainable by the injured party.

G.R. Nos. 200408 and 200416, 12 November 2014

“Eliezer, Evangeline C. Del Mundo, and Atty. Quirico T. Carag (Atty. Carag) (Del Mundo Group) are the registered owners of fifty percent (50%) (i.e., 250,000 shares of stock) of E.A. Northam Pharma Corporation (E.A. Northam), a domestic corporation which exclusively distributes and markets 28 various pharmaceutical products that are exclusively manufactured by Drugmakers, a domestic corporation under the control of Eliezer. The remaining fifty percent (50%) in E.A. Northam are owned by Alberto and Nilo S. Valente (Santillana Group). In an Agreement dated May 31, 1993, the Del Mundo Group agreed to cede all their rights and interests in E.A. Northam in favor of the Santillana Group for a consideration of 4,200,000.00. However, it was agreed therein that: (a) the said pharmaceutical products shall remain jointly owned by Eliezer/Drugmakers and Alberto; (b) the products shall be exclusively manufactured by Drugmakers as long as Eliezer maintains majority ownership and control of the said company; and (c) the products will be sold, conveyed, and transferred to S.V. More, provided that Alberto remains its chief executive officer with majority ownership and control thereof.

“On even date, E.A. Northam entered into a Deed of Sale/Assignment with S.V. More, whereby E.A. Northam agreed to convey, transfer, and assign all its rights over 28 pharmaceutical products in favor of S.V. More which shall then have the right to have them sold, distributed, and marketed in the latter’s name, subject to the condition that such pharmaceutical products will be exclusively manufactured by Drugmakers based on their existing Contract Manufacturing Agreement (CMA) set to expire in October 1993.

“In September 1993, or a month prior to the expiration of the CMA, Drugmakers proposed a new manufacturing agreement which S.V. More found unacceptable. In a letter dated October 20, 1993, S.V. More, for the purpose of renewing its License to Operate with the Bureau of Food and Drug (BFAD), requested a copy of the existing CMA from Drugmakers, but to no avail.16 Hence, on October 23, 1993, S.V. More entered into a Contract to Manufacture Pharmaceutical Products (CMPP) with Hizon Laboratories, Inc. (Hizon Laboratories), and, thereafter, caused the latter to manufacture some of the pharmaceutical products covered by the Deed of Sale/Assignment.19 Meanwhile, the BFAD issued the corresponding Certificates of Product Registration (CPR) therefor, with S.V. More as distributor, and Hizon Laboratories as manufacturer. On February 23, 1995, and after their protest on the new registration went unheeded, Drugmakers and Eliezer (respondents) filed a Complaint for Breach of Contract, Damages, and Injunction with Prayer for the Issuance of a Writ of Preliminary Injunction and/or Temporary Restraining Order against S.V. More and Alberto (petitioners), and Hizon Laboratories, and its President, Rafael H. Hizon, Jr. (Rafael)…”

HELD: Defendants were held liable. “The existence of contractual breach in this case revolves around the exclusive status of Drugmakers as the manufacturer of the subject pharmaceutical products which was stipulated and, hence, recognized under the following contracts: (a) the CMA dated October 30, 1992 between Drugmakers, as manufacturer, and S.V. More, as the holder of the CPR covering the pharmaceutical products; (b) the Agreement dated May 31, 1993 covering the change in ownership in E.A. Northam, or the distributor of the pharmaceutical products manufactured by Drugmakers and covered by S.V. More’s CPR; and (c) the Deed of Sale/Assignment of even date between E.A. Northam and S.V. More, whereby the former’s distributorship rights were transferred to the latter.

“In particular, the CMA states that Drugmakers, being the exclusive manufacturer of the subject pharmaceutical products, had to first give its written consent before S.V. More could contract the services of another manufacturer… In the May 31, 1993 Agreement, the new ownership of E.A. Northam, or the initial distributor of the same pharmaceutical products, equally recognized Drugmakers’s status as exclusive manufacturer… The same was echoed in the Deed of Sale/Assignment, wherein S.V. More, being the transferee of E.A. Northam’s distributorship rights.

“These provisions notwithstanding, records disclose that petitioner S.V More, through the CMPP and absent the prior written consent of respondent Drugmakers, as represented by its President, respondent Eliezer, contracted the services of Hizon Laboratories to manufacture some of the pharmaceutical products covered by the said contracts. Thus, since the CMPP with Hizon Laboratories was executed on October 23, 1993,54 or seven (7) days prior to the expiration of the CMA on October 30, 1993, it is clear that S.V. More, as well as its President, petitioner Alberto, who authorized the foregoing, breached the obligation to recognize Drugmakers as exclusive manufacturer, thereby causing prejudice to the latter.”

Nonetheless, the appellate court’s award of P6,000,000,000.00 based on supposed loss of profits was erroneous. “Records reveal that in their attempt to prove their claim for loss of profits corresponding to the aforesaid amount, respondents based their computation thereof on a Sales Projection Form for the period November 1993 to February 1995. However, it is readily observable that the breach occurred only for a period of seven (7) days, or from October 23, 1993 until October 30, 1993 – that is, the date when the CMA expired. Notably, the CMA – from which stems S.V. More’s obligation to recognize Drugmakers’s status as the exclusive manufacturer of the subject pharmaceutical products and which was only carried over in the other two (2) above-discussed contracts – was never renewed by the parties, nor contained an automatic renewal clause, rendering the breach and its concomitant effect, i.e., loss of profits on the part of Drugmakers, only extant for the limited period of, as mentioned, seven (7) days.” Further, “it is also evident that only six (6) of the 28 pharmaceutical products were caused by petitioners to be manufactured by Hizon Laboratories.”

As required by law, “the amount of loss warranting the grant of actual or compensatory damages must be proved with a reasonable degree of certainty, based on competent proof and the best evidence obtainable by the injured party.”

“Nevertheless, considering that respondents palpably suffered some form of pecuniary loss resulting from petitioners’ breach of contract, the Court deems it proper to, instead, award in their favor the sum of 100,000.00 in the form of temperate damages. This course of action is hinged on Article 2224 of the Civil Code which states that ‘temperate or moderate damages, which are more than nominal but less than compensatory damages, may be recovered when the court finds that some pecuniary loss has been suffered but its amount cannot, from the nature of the case, be proved with certainty,’ as in this case.”

Metro Manila Shopping Mecca Corp. v. Ms. Liberty M. Toledo

In an ongoing case, parties may enter into a compromise agreement which when approved by the court becomes a determination of a controversy and has the force and effect of a judgment.

G.R. No. 190818, 10 November 2014

Petitioners Metro Manila Shopping Mecca Corp., Shoemart, Inc., SM Prime Holdings, Inc., Star Appliances Center, Super Value, Inc., Ace Hardware Philippines, Inc., Health and Beauty, Inc., Jollimart Phils. Corp., and Surplus Marketing Corporation, sought “the approval of the terms and conditions of the parties’ Universal Compromise Agreement dated 1 June 2012 (the “UCA”) in lieu of the Court’s Decision dated 05 June 2013 denying the petitioners claim for tax refund/credit of their local business taxes paid to respondent City of Manila.”

On the other hand, “respondent City of Manila and Liberty Toledo, in her capacity as Treasurer of the City of Manila (respondents), confirmed the authenticity and due execution of the UCA. They, however, submitted that the UCA had no effect on the subject Decision since the taxes paid subject of the instant case was not included in the agreement.”

HELD: The Universal Compromise Agreement was approved and adopted. A compromise agreement is a contract whereby the parties, by making reciprocal concessions, avoid a litigation or put an end to one already commenced. It contemplates mutual concessions and mutual gains to avoid the expenses of litigation; or when litigation has already begun, to end it because of the uncertainty of the result. Its validity is dependent upon the fulfillment of the requisites and principles of contracts dictated by law; and its terms and conditions must not be contrary to law, morals, good customs, public policy, and public order. When given judicial approval, a compromise agreement becomes more than a contract binding upon the parties. Having been sanctioned by the court, it is entered as a determination of a controversy and has the force and effect of a judgment. It is immediately executory and not appealable, except for vices of consent or forgery. The nonfulfillment of its terms and conditions justifies the issuance of a writ of execution; in such an instance, execution becomes a ministerial duty of the court.”

“A review of the whereas clauses of the UCA reveals the various court cases filed by petitioners, including this case, for the refund and/or issuance of tax credit covering the local business taxes payments they paid to respondent City of Manila pursuant to Section 21 of the latter’s Revenue Code. Thus, contrary to the submission of respondents, the local business taxes subject of the instant case is clearly covered by the UCA since they were also paid in accordance with the same provision of the Revenue Code of Manila.

“In this relation, it is observed that the present case would have been rendered moot and academic had the parties informed the Court of the UCA’s supervening execution. Be that as it may, and considering that: (a) the UCA appears to have been executed in accordance with the requirements of a valid compromise agreement; (b) the UCA was executed more than a year prior to the promulgation of the subject Decision; and (c) the result of both the UCA and the subject Decision are practically identical, i.e., that petitioners are not entitled to any tax refund/credit, the Court herein resolves to approve and adopt the pertinent terms and conditions of the UCA insofar as they govern the settlement of the present dispute.”

MCMP Construction Corp. v. Monark Equipment Corp.

Excessive and unconscionable interests are void for being contrary to morals, if not against the law.

G.R. No. 201001, 10 November 2014

Plaintiff Monark Equipment Corp. initiated a Complaint for a Sum of Money against Defendant MCMP Construction Corp. after the latter failed to pay rental fees for the use of five (5) pieces of heavy equipment as stated in their Rental Equipment Contract. In the agreement, interest and penalties were stated as follows:

“Credit sales are payable within 30 days from the date of invoice. Customer agrees to pay interest at 24% p.a. on all amounts. In addition, customer agrees to pay a collection fee of 1% compounded monthly and 2% per month penalty charge for late payment on amounts overdue. Customer agrees to pay a sum equal to 25% of any amount due as attorney’s fees in case of suit, and expressly submit to the jurisdiction of the courts of Quezon City, Makati, Pasig or Manila, Metro Manila, for any legal action arising from, this transactions.”

The trial court ruled in favor of plaintiff.

HELD: The trial court’s decision was affirmed with modifications as to the granting of the “24% per annum interest on the rental fees as well as a collection fee of 1% per month compounded monthly and a 2% per month penalty charge. In all then, the effective interest rate foisted upon MCMP is 60% per annum.”

Citing Macalinao v. Bank of the Philippine Islands, a 36% interest imposed by a bank was reduced for being excessive and unconscionable. That being the case, the interest is void for being contrary to morals, if not against the law. “Since the stipulation on the interest rate is void, it is as if there was no express contract thereon. Hence, courts may reduce the interest rate as reason and equity demand.”

In Chuam v. Timam, it was held “[w]hile C.B. Circular No. 905-82, which took effect on January 1, 1983, effectively removed the ceiling on interest rates for both secured and unsecured loans, regardless of maturity, nothing in the said circular could possibly be read as granting carte blanche authority to lenders to raise interest rates to levels which would either enslave their borrowers or lead to a hemorrhaging of their assets.”

For penalties, the Macalinao case also struck down the 3% penalty charge per month imposed by a bank in the Terms and Conditions Governing the Issuance and Use of the BPI Credit Card. As stated in Article 1229 of the Civil Code, “[t]he judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable.

In view thereof, “the interest and penalty charges imposed upon MCMP must also be considered as iniquitous, unconscionable and, therefore, void. As such, the rates may validly be reduced. Thus, the interest rate of 24% per annum is hereby reduced to 12% per annum. Moreover, the interest shall start to accrue thirty (30) days after receipt of the second set of invoices on January 21, 2001, or March 1, 2001 in accordance with the provisions in the invoices themselves.” Likewise, “the penalty and collection charge of 3% per month, or 36% per annum, is also reduced to 6% per annum. And the amount of attorney’s fees is reduced from 25% of the total amount due to 5%.”

Status of Contracts

Depending on their status, there are five types of contracts, namely: (a) valid contracts, (b) rescissible contracts, (c) void contracts, (D) voidable contracts, and (e) unenforceable contracts.

Valid Contract – A valid contract is one that complies with the requisites for a perfected contract required by law. As contracts are generally consensual, most agreements are valid so long as there is consent, object, and consideration. Further, if a certain contract is required by law to be in writing (e.g. sale of real property) and it is followed, then such an agreement is valid. A valid contract is enforceable as it grants rights and creates obligations on the parties.

Rescissible Contract – A rescissible contract is one wherein a party is allowed to rescind or terminate the contract due to the other party’s failure to comply with the obligations set forth in their agreement.

To be clear, a rescissible contract is a valid contract. However, due to a party’s failure to comply with the contractual obligations, the injured party is entitled to terminate the contract. Thus, while a contract is valid, it may be rescinded in cases provided for by law. If not terminated, a rescissible contract remains valid and enforceable.

Voidable Contract – A voidable contract is one where consent was given through mistake, violence, intimidation, undue influence, or fraud. Similar to a rescissible contract, a voidable contract remains valid and binding. Unlike a rescissible contract, a voidable contract may only be annulled by a proper action in court.

Unenforceable Contract – An unenforceable contract is one where there is an absence of authority on the part of one or both of the contracting parties, including those falling in the Statute of Frauds.

Void Contract – A void contract is one where an essential requisite to constitute an agreement is lacking. In general, these are the requisites of a contract: consent, object, and consideration. By way of added requisite, a written agreement is required by law for formal contracts. Should any of the requisites be missing, the contract is void producing no legal effect. As a void contract did not produce rights and obligations, it cannot be enforced.

10 Rules of Contract Interpretation

These are the 10 rules of contract interpretation:

1. A clearly written contract does not need interpretation. Hence, if the terms are clear and does not leave any doubt as to the intention of the contract parties, the literal meaning of the stipulations prevails and controls.

2. If there is a conflict with the words and the evident intention of the parties, it is the latter that will prevail. The intention of the parties is principally determined and considered based on their contemporaneous and subsequent acts. That is to say, the actions of the parties at the time of preparing the contract and their subsequent acts will determine their true intentions.

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