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Integrated Packaging Corp vs CA and Fil-Anchor Paper Co. Inc.

(1311 Relativity of Contracts)


8 June 2000
GR No 115117

FACTS:

In may 1978, petitioner and respondent entered into and order agreement. Petitioner bound itself to deliver to petitioner 3,450 reams of printing paper
worth P1,040,060.00, to be gradually delivered under different schedules.

In May and June of 1978, they were to deliver 450 reams at P290/ream and in August and September of the same year, they were to deliver 700 reams
at P290/ream.

In January, March, July and October 1979, they were to deliver 575 reams at 307.2/ream.

Meanwhile, in June 1978, petitioner entered into a contract with Philippine Appliance Corporation or Philacor, to print a minimum of 300,000 copies of
three volumes of Philacor Cultural Books priced at P10.00 each, to be delivered in November 1978, November 1979, and November 1980.

As of July 19879, private respondent has delivered to petitioner 1,097 reams of printing paper out of the total 3,450 reams. Petitioner alleged that it
wrote private respondent to immediately deliver the remaining reams, because further delay would greatly prejudice the petitioner.

In June 1980, until July 1981, private respondent delivered again to petitioner various quantities of printing paper amounting to P766/101.70. Petitioner
was not able to pay the amount. Private respondent made a formal demand to settle the outstanding account. On July 1981, and August 1981, petitioner
made partial payments amounting to P97,200 which was applied to their back accounts.

Meanwhile, petitioner entered into an additional printing contract with Philacor for the printing of four additional volumes of the book. Petitioner again
failed to comply with its contract. Philacor demanded compensation from petitioner for the delay and damage that it suffered.

In August 1981, private respondent filed with the Caloocan City RTC a collection suit against petitioner for the sum of P766,010.70, for the unpaid
purchase price of the paper delivered.

In its answer, petitioner denied the allegations and in their counterclaim, petitioner said that private respondent was able to deliver on 1,097 reams of
paper, short of 2,875 reams which is proof that private respondent disregarded the agreement. Petitioner also alleged that because private respondent
did not deliver the remaining paper despite the demand, petitioner suffered actual damages and failed to realise expected profits and that the complaint
was prematurely filed.

In turn, private respondent said that petitioner made additional purchases of printing paper amounting to P94,200. They also added that petitioner
refused to pay its outstanding obligation, save for the partial payment of P97,200.00 which was applied to their back accounts.

In 1990, the RTC rendered a decision holding petitioner liable to pay P 763,101.70 for the unpaid delivered paper. However, it also held private
respondent liable to pay petitioner P790,324.30 as compensatory damages as well as the award of moral damages and attorneys fees, The RTC said
that due to private respondents inability to delivery the remaining reams of printing paper, petitioner was not able to sell the books to Philacor.

On appeal, the CA reversed the decision of the trial court. The CA ordered the petitioner to pay private respondents P763,101.70 for the delivered
printing paper, with legal interest. It deleted the award of compensatory damages, moral damages and attorneys fees for lack of factual and legal basis.

ISSUE?

Whether or not the private respondent is liable for petitioners breach of contract with Philacor?

HELD:

No.

Private respondent has the right to stop making further deliveries; it did not violate the order agreement. In fact, it was the petitioner which breached the
agreement as it failed to pay on time the materials delivered by private respondent.

Similarly, private respondent cannot be held liable under the contracts entered into by petitioner with Philacor because it is not a party to said
agreements. It is also not a contract pour autrui. Such contracts could not affect third persons like private respondent because of the basic civil law
principle of relativity of contracts which provides that contracts can only bind the parties who entered into it and it cannot favor or prejudice a
third person even if he is aware of such contract and has acted with knowledge thereof.

The agreement entered into by petitioner and private respondent did not show any direct bearing on the contracts of petitioner with Philacor. Even the
paper specified in the agreement between petitioner and private respondents are different from the paper used in the books involved in the contracts of
petitioner with Philacor. Also, the demand made by Philacor is dated February 1984 which is clearly made long after private respondent had filed its
complaint in August 1981. Philacors demand relates to the contracts dated April and May 1983, which was entered into by petitioner after private
respondent has already filed the instant case.

Private respondent did not violate its order agreement with petitioner. Likewise, private respondent cannot be held liable for petitioners contract with
Philacor.

The instant petition is DENIED.

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