Case Summary (G.R. No. 133803)
Key Dates
- December 22, 1989: Contract executed for supply and installation of 60,973 sq. ft. of narra wood parquet at ₱1,158,487.00
- May 1990: Agreed date for full delivery and installation
- October 2, 1991: Complaint for rescission and damages filed in RTC
- June 2, 1994: RTC renders judgment upholding rescission and awarding damages
- January 21, 1997: Court of Appeals affirms with reduction of damages
- May 20, 1998: Court of Appeals denies reconsideration and affirms trial court in toto
- September 16, 2005: Supreme Court decision under Rule 45
Applicable Law
- 1987 Philippine Constitution
- Rule 45 of the 1997 Rules of Court (certiorari)
- Civil Code Articles 1191 (rescission), 2199–2200 (actual and compensatory damages)
- Relevant jurisprudence on contractual breach, rescission, and damages
Contract Formation and Respondent’s Allegations
On December 22, 1989, respondent and petitioner entered a reciprocal contract: petitioner to supply and install kiln-dried narra parquet covering 60,973 sq. ft. by May 1990 for ₱1,158,487.00; respondent to pay in stages. Respondent advanced 40% (₱463,394.50). Petitioner delivered only 26,727.02 sq. ft., then delayed further performance, misrepresented qualifications and financial capacity, and refused compliance. Respondent alleged damages of ₱912,452.39, and paid a replacement contractor ₱1,198,609.30 to complete the work. It prayed for rescission, actual, moral damages, attorney’s fees, and litigation costs.
Petitioner’s Defense and Counterclaims
Petitioner admitted the contract’s execution and payment of downpayment but asserted modifications of delivery schedule due to respondent’s failure to prepare the premises. He delivered 29,209.82 sq. ft., blamed respondent for suspension orders, sought unpaid billings of ₱105,425.68, and pleaded qualifications and nine years’ experience. He raised special defenses—prematurity, waiver, respondent’s breach, and unjust extrajudicial rescission—and counterclaimed for judicial rescission with damages totaling over ₱1,300,000, plus interest, moral damages, attorney’s fees, and costs.
Trial Court Findings and Judgment
The RTC concluded that petitioner breached the stipulated May 1990 delivery deadline, noting inadequate mobilization and insufficient manpower despite respondent’s demands. It credited respondent’s delivery figures, held the breach substantial under Civil Code Article 1191, validated the rescission, and awarded respondent ₱2,111,061.69 as actual and compensatory damages and ₱50,000.00 as attorney’s fees.
Court of Appeals’ Decision and Modification
The Court of Appeals affirmed the RTC’s finding of breach and right to rescind but reduced damages to ₱1,662,003.80 with legal interest from finality of judgment. On respondent’s motion for partial reconsideration, it later reinstated the full RTC award and imposed costs against petitioner.
Petitioner’s Contentions Before the Supreme Court
Petitioner submitted that the rescission was contrary to Article 1191; that the award of ₱1,662,003.80 lacked reasonable certainty; and that the CA acted with grave abuse of discretion, contravening facts, evidence, jurisprudence, and law.
Standard of Review on Factual Findings
The Supreme Court reaffirmed that CA factual findings affirming the trial court are binding unless unsupported by evidence or based on misconstruction of facts—neither of which obtains here. Only questions of law are reviewable under Rule 45; the Court will not re-evaluate credibility or evidence.
Right to Rescind under Civil Code Article 1191
Article 1191 grants an injured party in reciprocal obligations the choice to fulfill or rescind upon the other’s non-performance. This right is implied even absent an express contractual clause, provided the breach is substantial and defeats the contract’s object.
Breach Characterized as Substantial and Fundamental
Petitioner’s failure to deliver nearly half the
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Facts of the Contract
- On December 22, 1989, Octagon Realty Development Corporation (“respondent”) and Bienvenido M. Casiao, Jr. (“petitioner”) executed a contract for the supply and installation of kiln-dried narra wood parquet for the Manila Luxury Condominium Project.
- Contract covered 60,973 sq. ft. at a total price of ₱1,158,487.00, with full delivery by May 1990.
- Respondent paid a 40% downpayment of ₱463,394.50 upon contract execution.
- Petitioner delivered only 26,727.02 sq. ft. (respondent’s figure) or 29,209.82 sq. ft. (petitioner’s figure) and thereafter failed to complete the remaining 34,245.98 sq. ft.
- Respondent alleged that petitioner misrepresented his qualifications and lacked funds, being dependent on respondent’s advances.
- To minimize losses, respondent engaged Hilvano Quality Parquet and Sanding Services to finish the work at a cost of ₱1,198,609.30.
- Respondent claimed actual damages of ₱912,452.39 (loss on new price, unliquidated damages, cost of money), moral damages of ₱200,000.00, attorney’s fees of ₱50,000.00 plus appearance fees, and reimbursement of completion cost.
Petitioner’s Contentions and Counterclaims
- Admitted contract terms, price and downpayment, but alleged modifications to payment schedule and delivery deadlines.
- Asserted respondent’s failure to prepare and secure the premises hindered delivery and installation.
- Claimed delivery of 29,209.82 sq. ft. and nonpayment of second and third billings totaling ₱105,425.68.
- Alleged respondent’s extrajudicial rescission void for lack of breach on his part and raised defenses of prematurity, waiver, estoppel, and reciprocal breach.
- Counterclaimed for judicial rescission and payment of