Song Fo v. Hawaiian Philippine Co.

Plaintiff-Appellee: Song Fo & Company Defendant-Appellant:

Hawaiian Philippine Co. Ponente: Malcolm
Date: September 16, 1925
Facts:
Hawaiian Philippine Co. agreed to deliver a certain amount of molasses to Song Fo.
Song Fo claimed in trial court that Hawaiian Phil. Co. breached the contract and claimed damages
for greater expense, and lost profits incurred by the breach.
HPC contended Song Fo defaulted in payment and thus HPC was forced to rescind the contract.
CFI ruled in favor of Song Fo, awarding 35000 pesos in damages.
HPC appealed, saying that the agreed amount was only 300,000 gallons and not 400,000 gallons,
and that HPC had a right to rescind the contract because Song Fo had paid later than agreed
upon.
Pertinent laws/provisions:
Nothing. Casual v. Substantial breach of contract.
Issues:
1. Whether the agreed amount of molasses was really 400,000.
2. Whether HPC had a right to rescind the contract because of Song Fos late payment.
3. Whether the damages awarded to Song Fo is correct.
Ruling:
1. No. It was only 300,000.
2. No. HPC did not have a right to rescind the contract.
3. No. The amount of damages was incorrect.
Ratio Decidendi:
1. The contract was in writing. The exchange of letters constituting the agreement was only for 300,000
gallons only. The language used in reference to the 300,000 gallons was clear and constituted a
definite promise. On the other hand, the language used for the extra 100,000 was

not a definite promise and did not constitute an obligation.

2. From the evidence presented, it is clear that Song Fo & Company was to pay the Hawaiian-Philippine
Co. upon presentation of accounts at the end of each month. Song Fo should have paid on January
1922 based on the timetable, but instead did so only in Feb. However, this is merely a casual breach,
not a substantial one. 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. Not only this, but the Hawaiian-Philippine Co. waived this
condition when it arose by accepting payment of the overdue accounts and continuing with the
contract. Thereafter, Song Fo & Company was not in default in payment so that the HawaiianPhilippine co. had in reality no excuse for writing its letter of April 2, 1923, cancelling the contract.
HPC had no legal right to rescind the contract.
3. Essentially, Song Fo was forced to buy from two other companies (aside from HPC) because of HPCs
breach of contract, and thus Song Fo is claiming damages for this. Buying from Central North Negros
Sugar Co., Song Fo bought molasses at the same rate as HPCs, so no damages there. Buying from
Central Victorias Milling, they bought the remaining molasses at 1.5 cents more than HPCs rate, so
Song Fo can claim 3000 pesos in damages.
The second action for damages relates to lost profits. There is no conclusive evidence as to this claim. Only
evidence is based on out-of-court testimony by the manager of Song Fo (Mr. Song Heng) that the breach had
resulted in loss of 14000 pesos in profit. Why? Because a) testimony would follow same reasoning as the trial court,
which the SC has overruled; b) testimony was not made in court, only as counsels stipulation; and c) testimony is a
mere conclusion, not a fact.

Dispostion: Plaintiff is entitled to recover damages from the defendant for breach of contract on the first cause of
action in the amount of P3,000 and on the second cause of action in no amount. Appellant's assignments of error
are accordingly found to be well taken in part and not well taken in part.
Principles: Rescission of contract/obligation is warranted only in substantial breach of the contract.

Velarde, et al v. CA 361 SCRA 56 (2001)

a.
b.

a.

iii.

Petition: Appeal by certiorari

Petitioner: Spouses Mariano Velarde and Avelina Velarde
Respondent: Court of Appeals, David Raymundo and George Raymundo
Ponencia: J. Panganiban
DOCTRINE:
A substantial breach of a reciprocal obligation, like failure to pay the price in the manner prescribed
by the contract, entitles the injured party to rescind the obligation. Rescission abrogates the contract
from its inception and requires a mutual restitution of benefits received.
FACTS:
1. David Raymundo owner of land (together with the house and improvements on it)
2. George Raymundo (father of David) negotiated and sold Davids property (which is under
lease) to Avelina & Mariano Velarde
3. Deed of Sale with Assumption of Mortgage executed
August 8, 1986
Vendor David Raymundo; Vendee Avelina Velarde
4. Terms and Conditions of the Deed of Sale with Assumption of Mortgage
a. Acknowledged Php 800,000 payment of Velarde spouses to Raymundo (vendor)
b. Vendor sells, cedes, transfers, conveys and delivers freely and voluntarily the
parcel of land
c. Parcel of land is mortgaged by the vendor (Raymundo) to Bank of the Philippine
Islands (BPI)
i. To secure the payment of a loan of Php 1, 800, 000.00
1. Approved by the Real Estate Mortgage
ii. Vendee (Velarde) assumes to pay the mortgage obligations (1.8M) in
favor of BPI
1. Vendee to pay mortgage in the name of the Vendor
d. While vendee s application for the assumption of the mortgage obligations on the
property is pending, vendee will pay the mortgage obligations on the property in
the name of Mr.
Raymundo
e. Vendee agrees that in the event that they violate any of the terms:
i. Php 800,000.00 downpayment shall be forfeited in favor of Mr. Raymundo
ii. Mr. Raymundo shall resume ownership and possession of the property
5. Velardes were able to pay BPI for three months (September November 1986)
6. Application for Assumption of Mortgage with BPI denied prompted the Velardes not to
pay mortgage of the next months
December 15, 1986
7. Raymundo sent a letter to the Velardes informing that their non-payment constituted nonperformance of their obligation
a. Response of the Velardes they are willing to pay the balance upon fulfillment of
the following conditions (note that these are additional conditions, not provided in
the original contract)
i. Delivery of the actual possession of the property to the Vendees
ii. If vendors will cause the release of title and mortgage from BPI and make
the title available and free from liens and encumbrances
Execute an absolute deed of sale in favor of the vendees

8. Vendors sent the Velardes a notarial notice of cancellation/recission of the intended sale
of the property
a. Due to failure to comply with the terms and conditions of the deed of sale
b. January 8, 1987

9. RTC Complaint by the Velardes against the vendors

a. For specific performance, nullity of cancellation, writ of possession and
damages
b. Dismissed
c. Motion for Reconsideration granted
i. Directed the parties to proceed with the sale
d. CA appeal by the vendors
i. Upheld the validity of the recission
Issues
1. WON the CA erred in holding that the non-payment of the mortgage obligation resulted in a
breach of the contract.
2. WON the CA erred in holding that the rescission of the contract by private respondents was
justified.
3. WON the CA erred in holding that petitioners January 7, 1987 letter gave three new
conditions constituting mere offers or an attempt to novate necessitating a new agreement
between the parties.
Provision: Article 1191, Civil Code
The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should
not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with the
payment of damages in either case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a
period.
This is understood to be without prejudice to the rights of third persons who have acquired the thing,
in accordance with articles 1385 and 1388 and the Mortgage Law.

Ruling + Ratio
1. NO, CA did not err in holding that the non-payment of the mortgage obligation resulted
in a breach of contract. Non-payment of the mortgage obligations, as well as failure to
pay the balance of the purchase price constitutes breach of the contract.
Petitioners argument
o Not a breach of contract considering that their request to assume the
obligation had been disapproved by the mortgage bank obligation to pay
monthly amortization ceased to be their obligation
SC Ruling
o In their Agreement, both parties admitted and mandated that the Velardes
should pay the balance in case the request to assume the mortgage would be
disapproved
When the Velardes received the notice, they should have immediately

paid the balance to the vendors

Instead of doing so (payment of balance), Velardes sent a letter to
the vendors that they will only pay upon the fulfillment of certain
conditions NOT ORIGINALLY AGREED UPON in the contract of sale
This conditional offer cannot take the place of actual
payment
Contract of Sale
Vendor obliged to transfer the ownership and deliver the object to
the buyer
Raymundos already fulfilled their duty through the
execution of Deed of Sale
Prior physical delivery or possession not legally required

Buyer obliged to pay

Velardes did not pay in the manner agreed upon
They even wanted vendors to perform obligations beyond
those previously agreed upon before they fulfill their
obligation
2. NO, CA is correct in holding that the rescission is justified.
Petitioners argument
o Rescission is invalid because they signified their willingness of pay the
balance
SC Ruling
o Vendors right to rescind basis in Art. 1191 Civil Code
o Right of rescission predicated on a breach of faith by the other party who
violates the reciprocity between them
o Breach failure to comply with an existing obligation
o Willingness to pay not equivalent to actual payment that will fulfill the
reciprocal obligation
o Offer to pay was a repudiation of an existing obligation
o Rescission to protect vendors interest
To declare a contract void at its inception and to put an end to it
as though it never was
Release parties from further obligation
o Mutual restitution required in restitution
In order to bring back the parties to their original situation prior
to the inception of the contract
Payments made by the vendee should be returned
3. The Supreme Court finds that this issue is no longer necessary to discuss.
Vendees had no right to provide three additional conditions

DISPOSITION
Assailed decisions affirmed with the modification that private respondents are ordered to
return to petitioners the amount of Php 874,150.00

Angeles vs. Calasanz

Petition: Appeal from the decision of the CFI Rizal
Plaintiffs-Appellees: BUENAVENTURA ANGELES, ET AL.
Defendants-Appellants: URSULA TORRES CALASANZ, ET AL.
Ponente: J. Gutierrez Jr.
Date: March 18, 1985
Doctrine: (Rescission) There is nothing in the law that prohibits the parties from entering into an
agreement that violation of the terms of the contract would cause its cancellation even without court
intervention. However, the rescission by the other party via the infraction of the other contracting
party is always provisional and is subject to scrutiny and review by the proper court. (If the other
party denies that rescission is justified) Only final judgment of the court will conclusively and
finally settle whether the action taken was or not correct in law.
Facts:
December 19, 1957, defendants-appellants Ursula Torres Calasanz and Tomas Calasanz and
plaintiffs-appellees Buenaventura Angeles and Teofila Juani entered into a contract to sell a
piece of land located in Cainta, Rizal for the amount of P3,920.00 plus 7% interest per
annum.
The plaintiffs-appellees made a downpayment of P392.00 upon the execution of the contract.
They promised to pay the balance in monthly installments of P 41.20 until fully paid, the
installments being due and payable on the 19th day of each month. The plaintiffs-appellees
paid the monthly installments until July 1966, when their aggregate payment already
amounted to P4,533.38.
On numerous occasions, the defendants-appellants accepted and received delayed
installment payments from the plaintiffs-appellees.
December 7, 1966, the defendants-appellants wrote the plaintiffs- appellees a letter
requesting the remittance of past due accounts.
January 28, 1967, the defendants-appellants cancelled the said contract because the
plaintiffs-appellees failed to meet subsequent payments. The plaintiffs' letter with their plea
for reconsideration of the said cancellation was denied by the defendants-appellants.
The defendants-appellants alleged in their answer that the complaint states no cause of
action and that the plaintiffs-appellees violated paragraph six (6) of the contract to sell
when they failed and refused to pay and/or offer to pay the monthly installments
corresponding to the month of August, 1966 for more than five (5) months, thereby
constraining the defendants-appellants to cancel the said contract.

Issues:

WON the contract to sell has been automatically and validly cancelled by the
defendants-appellants
Pertinent laws/provisions:
Paragraph 6 of their contract : SIXTH. it is understood further, that should a
period of 90 days elapse, to begin from the expiration of the month of grace herein
mentioned, and the party of SECOND PART has not paid all the amounts he should

have paid with the corresponding interest up to that date, the party of the FIRST
PART has the right to declare this contract cancelled and of no effect, and as
consequence thereof, the party of the FIRST PART may dispose of the parcel of land
covered by this contract in favor of other persons, as if this contract had never
been entered into
Paragraph 12 of their contract: TWELFTH.That once the payment of the sum of
P3,920.00, the total price of the sale is completed, the party to the FIRST PART will
execute in favor of the party of the SECOND PART, the necessary deed or deeds to
transfer to the latter the title of the parcel of land sold, free from all hens and
encumbrances other than those expressly provided in this contract; it is understood,
however, that au the expenses which may be incurred in the said transfer of title shall be
paid by the party of the SECOND PART, as above stated.
Art 1234 of the CC: If the obligation has been substantially performed in good faith, the
obligor may recover as though there had been a strict and complete fulfillment, less
damages suffered by the obligee.
Ruling+Ratio:
In Universal Food Corp v. CA the Court said The general rule is that rescission of a
contract will not be permitted for a slight or casual breach, but only for such substantial
and fundamental breach as would defeat the very object of the parties in making the
agreement. (Song Fo & Co. v. Hawaiian-Philippine Co., 47 Phil. 821, 827) The question of
whether a breach of a contract is substantial depends upon the attendant circumstances.
(Corpus v. Hon. Alikpala, et al., L-23707 & L-23720, Jan. 17, 1968).
The right to rescind the contract for non-performance of one of its stipulations,
therefore, is not absolute.
The breach of the contract adverted to by the defendants-appellants is so slight and
casual when we consider that apart from the initial downpayment of P392.00 the
plaintiffs-appellees had already paid the monthly installments for a period of almost
nine (9) years. In other words, in only a short time, the entire obligation would have been
paid.

Although the principal obligation was only P 3,920.00 excluding the 7 percent interests, the
plaintiffs- appellees had already paid an aggregate amount of P 4,533.38. To sanction the
rescission made by the defendants-appellants will work injustice to the plaintiffs- appellees.
(Unjustly enrich the defendants-appellants.)
The contract to sell, being a contract of adhesion (so imbalanced in favor of one party),
must be construed against the party causing it. (The defendants-appellants drafted and
prepared the contract. The plaintiffs-appellees, eager to acquire a lot upon which they could
build a home, affixed their signatures and assented to the terms and conditions of the
contract. They had no opportunity to question nor change any of the terms of the agreement.
It was offered to them on a "take it or leave it" basis.)
Since the principal obligation under the contract is only P3,920.00 and the plaintiffsappellees have already paid an aggregate amount of P4,533.38, the courts should only
order the payment of the few remaining installments but not uphold the cancellation of
the contract. Upon payment of the balance of P671.67 without any interest thereon,
the defendants-appellants must immediately execute the final deed of sale in favor of
the plaintiffs-appellees and execute the necessary transfer documents as provided in
paragraph 12 of the contract.

Dispositive: WHEREFORE, the instant petition is DENIED for lack of merit. The decision appealed
from is AFFIRMED with the modification that the plaintiffs- appellees should pay the balance of SIX
HUNDRED SEVENTY ONE PESOS AND SIXTY-SEVEN CENTAVOS (P671.67) without any interests. Costs
against the defendants-appellants.

Delta Motor Corporation vs Genuino & CA (1989) Petition: Petition for

review by certiorari
Petitioner: Delta Motor Corporation Respondent: Eduardo Samson
Genuino, et al. Ponencia: Cortes
DOCTRINE: (Distinction between substantial and casual/slight breach)
Rescission will be ordered only where the breach complained of is substantial as to defeat the
object of the parties in entering into the agreement. It will not be granted where the breach is slight
or casual. The question of whether a breach of a contract is substantial depends upon the attendant
circumstances.
In this case, the conduct of Delta indicates that the Genuinos' non- performance of its obligations
was not a substantial breach, let alone a breach of contract, as would warrant rescission.
FACTS:
1. In July 1972, 2 letter-quotations were submitted by Delta to Hector Genuino (owner of
Espaa Extension Ice Plant and Cold Storage) offering to sell black iron pipes. These
quotations involved the selling price of the pipes as well as the ff stipulations as to delivery
and price offers:
Our price offer indicated herein shall remain firm within a period of 30 days
from the date hereof. Any order placed after said period will be subject to our
review and confirmation.
2. Genuino agreed with the offers and made initial payments on both contracts.
However, when Delta offered to deliver the iron pipes, the Genuinos did not
accept because the construction of the ice plant building where the pipes were to
be installed was not yet finished.
3. Almost 3 yrs later, on April 15, 1975, Hector Genuino asked Delta to deliver the iron pipes
nd
within 30 days from its receipt of the request and manifested preparedness to pay the 2
installment.
Delta countered that the black iron pipes cannot be delivered on the prices quoted
as of July 1972. They mentioned the stipulation in their 2 contracts that the quoted
prices were good only within 30 days from date of offer.
4. The Genuinos rejected the new quoted prices and instead filed a complaint compel Delta
to deliver the pipes. Delta prayed for rescission of the contracts pursuant to Art. 1191 CC.
5. CFI ruled in favor of Delta:
Declared the contracts, Annexes "A" and "C" of the complaint rescinded;
P15.9k refund delivered by the latter as downpayments on the aforesaid
contracts;
P10k attorneys fees

 To pay the costs of suit.

6. CA reversed the ruling and cited 2 reasons:
1. Delta knew the black iron pipes would be used in the Genuinos cold storage plant
w/c was undergoing construction and would require sometime before requiring
delivery.
2. Delta's refusal to make delivery in 1975 unless the Genuinos pay a higher price
would mean an amendment of the contracts; unfair for the plaintiffs and unjust
enrichment at their expense.

7. Petitioners argument: Delta is entitled to rescind the two (2) contracts

When private respondents did not perform their obligations;

When they refused to accept petitioner's offer to deliver the goods; and,
When it took them 3 long years before they demanded delivery of the iron pipes that in the
meantime, great and sudden fluctuation in market prices have occurred.
ISSUES:

When private respondents did not perform their obligations;

When they refused to accept petitioner's offer to deliver the goods; and,
When it took them 3 long years before they demanded delivery of the iron pipes that in the
meantime, great and sudden fluctuation in market prices have occurred. did not have the space to
accommodate the pipes they ordered". Given this answer, Delta did not do anything.
- Delta did not raise any argument 3 years later
o 3 years later when the Genuinos offered to make payment Delta did not raise any argument but
merely demanded that the quoted prices be increased.
- Delta made no manifestation that it had opted to rescind its contracts
2. WoN the contracts can be rescinded.
PROVISION:
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation,
with the payment of damages in either case. He may also seek rescission, even after he has
chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the
fixing of a period.
This is understood to be without prejudice to the rights of third persons who have
acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law.
o Art. 1545. Where the obligation of either party to a contract of sale is subject to any
condition which is not performed, such party may refuse to proceed with the contract or he
may waive performance of the condition.
o Art. 1319. Consent is manifested by the meeting of the offer and the acceptance upon
the thing and the cause which are to constitute the contract.
o Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds
upon thing which is the object of the contract and upon the price.
RULING + RATIO:
3. NO. The conduct of Delta indicates that the Genuinos' non- performance of its obligations
was not a substantial breach, let alone a breach of contract, as would warrant rescission.

Delta didnt do anything after its offer was rejected

o A month after the execution of the 2 contracts, Delta's offer to deliver the pipes
was rejected by the Genuinos who were "not ready to accept delivery because the
cold storage rooms have not been constructed yet. They were short-funded, and
did not have the space to accommodate the pipes they ordered". Given this
answer, Delta did not do anything.
Delta did not raise any argument 3 years later
o 3 years later when the Genuinos offered to make payment Delta did not raise any
argument but merely demanded that the quoted prices be increased.
Delta made no manifestation that it had opted to rescind its contracts
o The power to rescind under Art. 1191 is not
absolute. "[T]he act of a party in treating a contract as cancelled or resolved on account
of infractions by the other contracting party must be made known to the other and is
always provisional, being ever subject to scrutiny and review by the proper court."
o Delta made no manifestation whatsoever that it had opted to rescind its contracts with
the Genuinos. It only raised rescission as a defense when it was sued for specific
performance by private respondents.
Highly inequitable for Delta to rescind the 2 contracts
It has in its possession and ownership the black iron pipes, plus the P15,900.00 down
payments private respondents have paid. If petitioner Delta claims the right to
rescission, it should have offered to return the P15,900.00 down payments.
While there is merit in Delta's claim that the sale is subject to suspensive conditions, the
Court finds that it has waived performance of these conditions and opted to go on with
the contracts although at a much higher price. See Art. 1545 of the CC.
Delta cannot ask for increased prices based on the price offer stipulation in the
contracts and in the increase in the cost of goods
o Reliance by Delta on the price offer stipulation is misplaced; this stipulation makes
reference to Delta's price offer as remaining firm for 30 days and thereafter, will be
subject to its review and confirmation. The offers of Delta, however, were accepted by
the private respondents within the 30-day period. And as stipulated in the 2 letterquotations, acceptance of the offer gives rise to a contract between the parties.
o The moment private respondents accepted the offer of Delta, the contract of sale
between them was perfected and neither party could change the terms thereof.
o As provided by Art. 1319 and 1475.
-

Delta cannot rely on the fluctuation in the market price of goods to support its claim
for rescission.
o As testified to by petitioner's Marketing VP, the stipulation in the 2 contracts as to
delivery, ex-stock subject to prior sales, means that "the goods have not been
delivered and that there are no prior commitments other than the sale covered
by the contracts...once the offer is accepted, the company has no more option to
change the price."

DISPOSITION: The decision of the Court of Appeals is hereby affirmed.

- Private respondents make the payments specified in "Terms of Payment (b)" of
the contracts; and
- Execute the promissory note required in the first contract; and
- Should immediately commence delivery of the black iron pipes