Case Summary (G.R. No. 176868)
Petitioner’s Claim and Respondent’s Counterclaim
- Petitioner paid US$40,150 as full prepayment for 36,500 custom cartons at US$1.10 each and later demanded refund when delivery allegedly failed.
- Respondent asserted it manufactured the initial order by April 3, 1998 and an additional 14,000 of a second order without prepayment; it counterclaimed for unpaid balance and storage fees.
Key Dates
- March 31, 1998: Petitioner deposits US$40,150 in respondent’s account
- April 3, 1998: Respondent completes initial production, per its claim
- October 8, 1998 & February 20, 1999: Petitioner’s representative inspects cartons in respondent’s warehouse
- January 3, 2001: Petitioner’s demand letter for reimbursement
- August 17, 2001: Filing of complaint for sum of money and damages
- March 2, 2004: RTC decision dismissing both complaint and counterclaims
- September 21, 2006: CA affirms RTC decision; February 23, 2007: CA denies reconsideration
- July 26, 2010: Supreme Court decision
Applicable Law
- 1987 Philippine Constitution (governing framework)
- Civil Code of the Philippines (Articles 1169 and 1191 on rescission of reciprocal obligations)
Procedural History
- Regional Trial Court (RTC) dismisses petitioner’s complaint for reimbursement and respondent’s counterclaims.
- Court of Appeals (CA) affirms RTC, finding no breach or valid demand for performance.
- Petitioner elevates the case to the Supreme Court by petition for review under Rule 45.
Facts Established at Trial
- Petitioner’s sole witness, Que, testified to prepayment and follow-ups but denied seeing any completed cartons bearing petitioner’s logo.
- Respondent’s witnesses, Estanislao and Tan, confirmed carton completion by April 1998 and multiple inspections by petitioner’s representatives, who took samples.
- Both sides agreed that the ship for banana shipment failed to arrive, preventing removal of cartons from the warehouse.
- No written contract existed; terms were established by agreement and course of dealing.
Issue
Whether respondent’s alleged failure to deliver the cartons constituted a justifiable ground for rescission of contract and reimbursement of the US$40,150 prepayment.
Analysis on Rescission and Demand
- Rescission under Article 1191 requires default in the obligor’s duty and prior demand for performance (Article 1169).
- Petitioner’s “follow-up” efforts did not amount to an extrajudicial or judicial demand for delivery.
- Without a clear demand, respondent could not be in delay nor in breach, thus precluding rescission.
Burden of Proof and Factual Findings
- Petitioner bore the burden to prove both breach and the contractual term obliging respondent to deliver cartons to petitioner’s warehouse or to TADECO.
- The CA and RTC factual findings—supported by production reports, samples taken by Que, and respondent’s offer of ocular inspection—established that the cartons were manufactured and stored at respondent’s plant.
- Q
Case Syllabus (G.R. No. 176868)
Procedural History
- Petitioner Solar Harvest, Inc. filed a Complaint for sum of money and damages on August 17, 2001, alleging failure of respondent to manufacture and deliver corrugated boxes.
- Respondent Davao Corrugated Carton Corporation filed an Answer with Counterclaim demanding payment for additional boxes, storage fees, damages, attorney’s fees, and costs.
- On March 2, 2004, the Regional Trial Court (RTC) dismissed both the complaint and counterclaims for lack of breach by respondent.
- Petitioner appealed to the Court of Appeals (CA); on September 21, 2006, the CA denied the appeal for lack of merit and, on February 23, 2007, denied the motion for reconsideration.
- Petitioner sought review via petition under Rule 45 before the Supreme Court, insisting respondent did not complete manufacture and was obliged to deliver the boxes to the banana shipper (TADECO).
Factual Background
- In early 1998, parties entered an unwritten agreement for 36,500 corrugated boxes at US$1.10 each, customized for exporter Solar Harvest’s banana shipments.
- On March 31, 1998, Solar Harvest deposited US$40,150.00—full payment for the 36,500 boxes—into respondent’s US Dollar Savings Account.
- Petitioner never received the boxes and, on January 3, 2001, sent a demand letter for reimbursement.
- On February 19, 2001, respondent replied that the initial boxes were completed April 3, 1998; petitioner failed to pick them up within the 30-day pickup term.
- Respondent claimed an additional order of 24,000 boxes (14,000 of which were produced without advance payment), demanded removal of all boxes, US$15,400.00 balance, and P132,000.00 storage fees.
Parties’ Contentions
- Petitioner’s Complaint:
• The contract required delivery within 30 days from payment.
• Despite repeated follow-ups, respondent only showed samples and made promises.
• Petitioner cancelled the order, demanded refund of US$40,150.00, and respondent refused. - Respondent’s Answer and Counterclaim:
• Production of 36,500 boxes was completed April 3, 1998; petitioner failed to pick up.
• Petitioner placed a second order for 24,000 boxes, 14,000 produced without prepayment.
• Petitioner’s representatives inspected and took samples in October 1998 and February 1999.
• Petitioner advised selling rejects; storage fees accrued at P60.00/sq. m. per month.
• Counterclaim