Conditions and warranties in sale on seller

Sales contract with suspensive condition

If the sales contract is under a suspensive condition which is not met, the innocent party may refuse to proceed with the contract or he may waive performance of the condition.[1]

Breach of warranty

In addition to the above rule, the innocent party may also consider the non-performance of the condition as a breach of warranty if the other party has promised that the condition should happen or be performed.[2]

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Actual damages

Actual or compensatory damages is award to aperson who is entitled “to an adequate compensation only for such pecuniary loss suffered by him as he has duly proved” except as otherwise provided by law or by stipulation.[1] Actual or compensatory damages include the value of the loss suffered and the profits which the injured party failed to obtain.[2]

Tan v. OMC Carriers, Inc.
G.R. No. 190521, 12 January 2011

Petitioners Leticia Tan filed a Complaint for damages against Respondent OMC Carriers. Previously, a truck owned by OMC lost its brakes resulting in its driver and his companion to jump out. The driverless truck rammed into the hosue and tailoring shop owned by Petitioner Leticia Tan resulting in the instant death of her husband who happened to be standing at the doorway at the time of the incident. In their defense, OMC claimed that everything was due to a fortuitous event as the truck skidded due to the slippery condition of the road caused by spilled motor vehicle.

HELD: OMC was liable. However, no actual damages were awarded. It is a basic rule that “to recover damages there must be pleading and proof of actual damages suffered.” This is so as courts “cannot simply rely on speculation, conjecture or guesswork in determining the fact and amount of damages. 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.”

Here, petitioners did not submit any receipt to support their claim for actual damages “to prove the monetary value of the damage caused to the house and tailoring shop when the truck rammed into them.”  Thus, there is no basis for awarding actual damages on petitioner’s house and tailoring shop.

Similarly, there is no basis for actual damages arising from loss of earning capacity. It is a rule that “documentary evidence should be presented to substantiate the claim for loss of earning capacity. By way of exception, damages for loss of earning capacity may be awarded despite the absence of documentary evidence when: (1) the deceased is self-employed and earning less than the minimum wage under current labor laws, in which case, judicial notice may be taken of the fact that in the deceased’s line of work, no documentary evidence is available; or (2) the deceased is employed as a daily wage worker earning less than the minimum wage under current labor laws.” Petitioners claimed that the deceased was self-employed and earning around 3.5 times (P13,000.00/month or P156,000.00/year) the prevailing minimum wage then (P3,770.00/month).

The above exemption was not applied as the deceased was not a daily minimum wage earner. “Even if [the Court takes] judicial notice of the fact that a small tailoring shop normally does not issue receipts to its customers, and would probably not have any documentary evidence of the income it earns, [the deceased’s] alleged monthly income of P13,000.00 greatly exceeded the prevailing monthly minimum wage; thus, the exception set forth above does not apply.”

Attorney’s fees in order

As exemplary damages are proper and thus awarded, it is also proper “to award the petitioners attorney’s fees.” The Court awarded attorney’s fees, equivalent to 10% of the total amount adjudged the petitioners, which is just and reasonable under the circumstances.

Nevertheless, the following were awarded: temperate and exemplary damages, attorney’s fees, and interest (See additional discussion under respective topic.):

“(1) P50,000.00 as indemnity for the death of Celedonio Tan;

“(2) P72,295.00 as actual damages for funeral expenses;

“(3) P200,000.00 as temperate damages for the damage done to petitioner Leticia’s house, tailoring shop, household appliances and shop equipment;

“(4) P300,000.00 as damages for the loss of Celedonio Tan’s earning capacity;

“(5) P500,000.00 as moral damages;

“(6) P200,000.00 as exemplary damages; and

“(7) 10% of the total amount as attorney’s fees; and costs of suit.

“In addition, the total amount adjudged shall earn interest at the rate of 6% per annum from May 14, 2003, and at the rate of 12% per annum, from the finality of this Resolution on the balance and interest due, until fully paid.”

Best Legal Practices:

Keep records of actual payments made – As actual damages depend on proof, the injured party should keep records of actual payments made. Without such pieces of evidence, actual damages cannot be awarded.

In Contact or quasi-contracts

In the case of contracts and quasi-contracts, the defendant who acted in good faith is liable only for damages which are the “natural and probable consequences of the breach of the obligation” and “which the parties have foreseen or could have reasonably foreseen at the time the obligation was constituted.”[3] If there is fraud, bad faith, malice or wanton attitude, the defendant is responsible for “all damages which may be reasonably attributed to the non-performance of the obligation.”[4]

Crimes or quasi-delicts

In the case of crimes and quasi-delicts, the defendant is liable for all damages which are the “natural and probable consequences of the act or omission complained of” by the plaintiff.[5] Here, it is not necessary that the damages have been or could have reasonably been foreseen by the defendant.[6] In addition, the defendant is liable for the “loss of the earning capacity of the deceased”, which shall be paid to the latter’s heirs, if he had any.[7] The defendant is likewise liable to give support to the heirs for a period of not exceeding five years if the decedent was obliged to give it.[8] Meanwhile, damages resulting from a crime may be increased or decreased depending on the existence of aggravating or mitigating circumstances.[9]

Diligence of a good father of a family to minimize damages

In any circumstance, the injured party is required to exercise the “diligence of a good father of family” with the aim “to minimize the damages resulting from the act or omission in question.”[10]

What may also be recovered

Damages may likewise be recovered in these situations: (a) loss/impairment of earning capacity for temporary or permanent personal injury; and (b) injury to complainant’s business standing or commercial credit.[11]


Should the defendant’s insurance do not fully cover the injury or loss, the complainant is entitled to recover the deficiency from the complainant and not from the insurance company.[12]

Attorney’s fees

As a general rule, and absent any stipulation to the contrary, attorney’s fees and expenses of litigation, other than judicial costs, cannot be recovered.[13] These are the exceptions:

  1. When exemplary damages are awarded;
  2. When the defendant’s act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest;
  3. In criminal cases of malicious prosecution against the plaintiff;
  4. In case of a clearly unfounded civil action or proceeding against the plaintiff;
  5. Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff’s plainly valid, just and demandable claim;
  6. In actions for legal support;
  7. In actions for the recovery of wages of household helpers, laborers and skilled workers;
  8. In actions for indemnity under workmen’s compensation and employer’s liability laws;
  9. In a separate civil action to recover civil liability arising from a crime;
  10. When at least double judicial costs are awarded; and
  11. In any other case where the court deems it just and equitable that attorney’s fees and expenses of litigation should be recovered.[14]

Lopez v. Pan American World Airways

Plaintiffs were entitled to attorney’s fees. “Now, as to attorney’s fees, the record shows a written contract of services executed on June 1, 1960… whereunder plaintiffs-appellants engaged the services of their counsel — Atty. Vicente J. Francisco — and agreed to pay the sum of P25,000.00 as attorney’s fees upon the termination of the case in the Court of First Instance, and an additional sum of P25,000.00 in the event the case is appealed to the Supreme Court… A consideration of the subject matter of the present controversy, of the professional standing of the attorney for plaintiffs-appellants, and of the extent of the service rendered by him, shows that said amount provided for in the written agreement is reasonable. Said lawyer — whose prominence in the legal profession is well known — studied the case, prepared and filed the complaint, conferred with witnesses, analyzed documentary evidence, personally appeared at the trial of the case in twenty-two days, during a period of three years, prepared four sets of cross-interrogatories for deposition taking, prepared several memoranda and the motion for reconsideration, filed a joint record on appeal with defendant, filed a brief for plaintiffs as appellants consisting of 45 printed pages and a brief for plaintiffs as appellees consisting of 265 printed pages. And we are further convinced of its reasonableness because defendant’s counsel likewise valued at P50,000.00 the proper compensation for his services rendered to defendant in the trial court and on appeal.”

Best Legal Practices:

Stipulate attorney’s fees – It is a good and sound practice to agree on attorney’s fees that will be paid by the defaulting party in a case a litigation is resorted to by the injured party.

When interest is imposed

As a general rule, interest is imposed as indemnity for damages incurred when the defendant incurred delay in an obligation consisting of the payment of a sum of money and there was no stipulation thereof to the contrary.[15] If there was no stipulation, the legal interest of six percent (6%) will be imposed as indemnity.[16]

Tan v. OMC Carriers, Inc.
G.R. No. 190521, 12 January 2011

Interests due – Finally, legal interest is due based on the prevailing rule:

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on “Damages” of the Civil Code govern in determining the measure of recoverable damages.

II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:

“1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.

“2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged.

“3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.

“Accordingly, legal interest at the rate of 6% per annum on the amounts awarded starts to run from May 14, 2003, when the trial court rendered judgment. From the time this judgment becomes final and executory, the interest rate shall be 12% per annum on the judgment amount and the interest earned up to that date, until the judgment is wholly satisfied.” (Citations omitted)

Court may award different and separate interest

A different and separate interest, in the discretion of the court, may be imposed upon the damages awarded for a breach of contract. [17] The same may also be observed in crimes and quasi-delicts where interest is part of the damages.[18]

When interest is due

Any interest due earns interest from the time it is judicially demanded even if the obligation did not specify such.[19] Interest cannot be recovered upon unliquidated claims or damages, except when the demand can be established with reasonably certainty.[20]

When liability is mitigated

The courts may mitigate the liability for damages arising from contracts, quasi-contracts, and quasi-delict in the following instances:[21]

  1. That the plaintiff himself has contravened the terms of the contract;
  2. That the plaintiff has derived some benefit as a result of the contract;
  3. In cases where exemplary damages are to be awarded, that the defendant acted upon the advice of counsel;
  4. That the loss would have resulted in any event; or
  5. That since the filing of the action, the defendant has done his best to lessen the plaintiff’s loss or injury.

Contributory negligence mitigates liability

Meanwhile, in quasi-delicts, the damages may be reduced upon finding of contributory negligence on the part of the complainant.[22]


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[1] Ibid. Article 2199.

[2] Ibid. Article 2200.

[3] Ibid. Paragraph 1, Article 2201.

[4] Ibid. Paragraph 2, Article 2201.

[5] Ibid. Article 2202.

[6] Ibid.

[7] CIVIL CODE. Paragraph 1, Article 2206.

[8] Ibid. Paragraph 2, Article 2206.

[9] Ibid. Article 2204.

[10] Ibid. Article 2203.

[11] Ibid. Article 2205.

[12] Ibid. Article 2207.

[13] Ibid. Article 2208.

[14] Ibid. Article 2208. Should attorney’s fees and expenses of litigation be awarded, they must be reasonable.

[15] Ibid. Article 2209.

[16] Ibid.

[17] Ibid. Article 2210.

[18] Ibid. Article 2211.

[19] Ibid. Article 2212.

[20] Ibid. Article 2213.

[21] Ibid. Article 2215.

[22] Ibid. Article 2214.

Agency presumed for compensation

An agency is presumed to be for a compensation, unless otherwise agreed and upon and there is such a proof.[1]

Tongko v. The Manufacturers Life Insurance Co. (Phils.), Inc.
G.R. No. 167622, 29 June 2010 (En Banc)

Complainant Gregorio V. Tongko filed a labor complaint against defendant The Manufacturers Life Insurance Co. (Phils.), Inc. (Manulife) for illegal dismissal. Prior thereto, the parties entered into a contractual relationship which had two basic phases: (a) 1st Phase (started on 01 July 1977)  was under a Career Agent’s Agreement (the “Agreement”) which expressly provided, among others, that “the Agent is an independent contractor and nothing contained herein shall be construed or interpreted as creating an employer-employee relationship between the Company and the Agent”; (b) 2nd Phase (started in 1983) was when complainant was named Unit Manager in Manulife’s Sales Agency Organization, and subsequently he became Branch Manager in 1990, and afterwards Regional Sales Manager in 1996. Complainant’s gross earnings consisted of commissions, persistency income, and management overrides. Whenever complainant submitted his tax returns which are under oath, he declared that himself as self-employed from the beginning applying deductions for business expenses to arrive at his taxable business income. Hence, Manulife withheld 10% tax on complainant’s earnings.

Sometime in 2001, defendant Manulife commenced manpower development programs at the regional sales management level.  Through written notice, defendant informed complainant of the poor performance of their region bringing into question his leadership skills. A month later, defendant ended the services of complainant by sending a notice of termination of agency. Hence, complainant instituted a labor complaint against defendant. As a defense, defendant challenged the jurisdiction of the labor tribunals on the ground that no employer-employee relationship existed as the parties entered into a contract of agency.

The labor arbiter dismissed the complaint finding no employer-employee relationship. The National Labor Relations Commission (NLRC) reversed the labor and found defendant liable for illegal dismissal. The Court of Appeals (CA) overturned the NLRC and reinstated the labor arbiter’s decision. Before the Supreme Court, the high tribunal initially found the insurance company liable and ordered it to pay Tongko backwages and separation pay for illegal dismissal. The insurance company elevated the case to the en banc.

HELD: Manulife was not liable. Considering the factual antecedents were set in the insurance industry, the Insurance Code primarily governs with the Labor Code and Civil Code applying suppletorily. “The Labor Code concept of ‘control’ has to be compared and distinguished with the ‘control’ that must necessarily exist in a principal-agent relationship.  The principal cannot but also have his or her say in directing the course of the principal-agent relationship, especially in cases where the company-representative relationship in the insurance industry is an agency.”

An insurance agency contract is required to be expressly agreed upon. “Under the general law on agency as applied to insurance, an agency must be express in light of the need for a license and for the designation by the insurance company.  In the present case, the Agreement fully serves as grant of authority to Tongko as Manulife’s insurance agent. This agreement is supplemented by the company’s agency practices and usages, duly accepted by the agent in carrying out the agency. By authority of the Insurance Code, an insurance agency is for compensation, a matter the Civil Code Rules on Agency presumes in the absence of proof to the contrary.”

The rule requiring the agent to act in accordance with the instructions of the principal is pertinent “for purposes of the necessary control that the principal exercises over the agent in undertaking the assigned task, and is an area where the instructions can intrude into the labor law concept of control so that minute consideration of the facts is necessary.”

Here, it must be pointed out that “the only contract or document extant and submitted as evidence in the present case is the Agreement – a pure agency agreement in the Civil Code” and by the express terms of the Agreement the parties agreed to a contract of agency. Thus, “while Tongko was later on designated unit manager in 1983, Branch Manager in 1990, and Regional Sales Manager in 1996, no formal contract regarding these undertakings appears in the records of the case.”

While not conclusive, the parties’ legal characterization of their intent is critical. The Supreme Court took judicial notice “that as a matter of Insurance Code-based business practice, an agency relationship prevails in the insurance industry for the purpose of selling insurance.  The Agreement, by its express terms, is in accordance with the Insurance Code model when it provided for a principal-agent relationship, and thus cannot lightly be set aside nor simply be considered as an agreement that does not reflect the parties’ true intent. This intent, incidentally, is reinforced by the system of compensation the Agreement provides, which likewise is in accordance with the production-based sales commissions the Insurance Code provides.” (Emphasis supplied.)

Moreover, Tongko did not adduce evidence that would establish the fact that Manulife exercised “means-and-manner control” over him as he climbed the sales ladder. “In 1983, Tongko was appointed unit manager.  Inexplicably, Tongko never bothered to present any evidence at all on what this designation meant.  This also holds true for Tongko’s appointment as branch manager in 1990, and as Regional Sales Manager in 1996. The best evidence of control – the agreement or directive relating to Tongko’s duties and responsibilities – was never introduced as part of the records of the case. The reality is, prior to de Dios’ letter, Manulife had practically left Tongko alone not only in doing the business of selling insurance, but also in guiding the agents under his wing.  As discussed below, the alleged directives covered by de Dios’ letter, heretofore quoted in full, were policy directions and targeted results that the company wanted Tongko and the other sales groups to realign with in their own selling activities.”

It must be noted that the general law on agency “expressly allows the principal an element of control over the agent in a manner consistent with an agency relationship.  In this sense, these control measures cannot be read as indicative of labor law control.” The principal may issue directives to achieve the assigned tasks insofar as “they do not involve the means and manner of undertaking these tasks.”


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[1] Ibid. Article 1875.

Express or implied agency

An agency may be expressly agreed upon or implied.[1] It may be oral unless otherwise required by law to be in a specific form.[2] Conversely, it is implied from: (a) the acts of the principal, or (b) his silence or his failure to repudiate the agency, in both cases the principal knows that another person is acting on his behalf without his authority.[3]

An agent may accept the agency expressly or impliedly.[4] Acceptance is implied from: (a) agent’s acts which carry out the agency, or (b) his silence or inaction according to the circumstances.[5]

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What is a contract of agency?

In a contract of agency, “a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter.”[1]

The essential elements of an agency are: (1) that there is consent, whether express or implied, of the parties to establish a relationship of agency; (2) that the object is the execution of a juridical act in relation to a third person; (3) that the agent acts as a representative and not for himself; and (4) that the agent acts within the scope of his authority.[2]

Sps. Viloria v. Continental Airlines, Inc.
G.R. No. 188288, 16 January 2012

Complainant Spouses Fernando and Lourdes Viloria initiated a complaint for sum of money with damages against defendant Continental Airlines, Inc. Prior thereto, Sps. Viloria purchased 2 roundtrip airline tickets from San Diego, California to Newark, New Jersey on board Continental Airlines. The tickets were bought at USD 400.00 each from a travel agency called “Holiday Travel”, with a certain Margaret Mager was representative. The spouses alleged that they bought the tickets after Mager informed them that there were no available seats at Amtrak, an intercity passenger train service provided in the U.S. Afterwards, the spouses asked to be rescheduled to an earlier date which could not be processed as Mager informed them of full bookings at Continental Airlines. After Mager presented another option of purchasing a more expensive ticket from another airline, the spouses opted to demand refund of their tickets. Refund was denied. Mr. Viloria went to an Amtrak station and made inquiries of trips which he later learned that several seats were available any time and day chosen by the spouses supposedly in direct contradiction to what Mager told them. The spouses purchased the tickets at Amtrak. After the spouses filed their complaint, defendant CAI claimed that they had no contract of agency with Holiday Travel.

HELD: Defendant CAI was not liable. It was never established that defendant CAI was the principal of Holiday Travel as all of the elements of agency are present in their contractual relations. “The first and second elements are present as CAI does not deny that it concluded an agreement with Holiday Travel, whereby Holiday Travel would enter into contracts of carriage with third persons on CAI’s behalf. The third element is also present as it is undisputed that Holiday Travel merely acted in a representative capacity and it is CAI and not Holiday Travel who is bound by the contracts of carriage entered into by Holiday Travel on its behalf. The fourth element is also present considering that CAI has not made any allegation that Holiday Travel exceeded the authority that was granted to it. In fact, CAI consistently maintains the validity of the contracts of carriage that Holiday Travel executed with Spouses Viloria and that Mager was not guilty of any fraudulent misrepresentation. That CAI admits the authority of Holiday Travel to enter into contracts of carriage on its behalf is easily discernible from its February 24, 1998 and March 24, 1998 letters, where it impliedly recognized the validity of the contracts entered into by Holiday Travel with Spouses Viloria. When Fernando informed CAI that it was Holiday Travel who issued to them the subject tickets, CAI did not deny that Holiday Travel is its authorized agent.” Thus, estoppel bars CAI from denying the contract of agency with Holiday Travel.

However, in terms of liability, the spouses’ cause of action is anchored “on the basis of Mager’s alleged fraudulent misrepresentation is clearly one of tort or quasi-delict, there being no pre-existing contractual relationship between them. Therefore, it was incumbent upon Spouses Viloria to prove that CAI was equally at fault.” No evidence was presented to establish CAI’s alleged liability. ” Apart from their claim that CAI must be held liable for Mager’s supposed fraud because Holiday Travel is CAI’s agent, Spouses Viloria did not present evidence that CAI was a party or had contributed to Mager’s complained act either by instructing or authorizing Holiday Travel and Mager to issue the said misrepresentation.”

It may appear unjust that CAI’s consider Sps. Viloria bound by the contract (despite the fraud by Mager) and at the same time CAI disavow liability from Mager’s supposed misrepresentation. “However, a person’s vicarious liability is anchored on his possession of control, whether absolute or limited, on the tortfeasor. Without such control, there is nothing which could justify extending the liability to a person other than the one who committed the tort.”

A contract of agency is personal, representative, and derivative.[3] “The authority of the agent to act emanates from the powers granted to him by his principal; his act is the act of the principal if done within the scope of the authority.”[4]


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[1] CIVIL CODE. Article 1868. Unauthorized contracts are governed by Article 1317 and the principles of agency in the Civil Code (Article 1404, Civil Code).

[2] Rallos v. Felix Go Chan & Sons Realty Corporation, G.R. No. L-24332, 31 January 1978. Qui facit per alium facit se. He who acts through another acts himself.

[3] Ibid.

[4] Ibid.

Due Process Termination

In line with the management prerogative, the employer is allowed to terminate the services of the employee provided that substantive and procedure due process are observed.[1]

Substantive due process is complied with once the grounds are established to justify a disciplinary action. On the other hand, procedural due process is complied with once the required processes under the law are observed.

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Employee Resignation

The employee has the right to resign from his employment resulting in its termination.[1] Resignation is “the voluntary act of an employee who is in a position where he believes that personal reasons cannot be sacrificed in favor of the exigency of the service, and he has no other choice but to disassociate himself from employment.”[2]

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