Magat vs.

Medialdea (20 April 1983) Page 1 of

Magat vs. Medialdea

G.R. No. L-37120, 20 April 1983

FACTS: Sometime in September 1972, private respondent

Guerrero entered into a contract with the U.S. Navy Exchange
in Subic Bay, Philippines, for the operation of a fleet of
taxicabs. Each taxicab was required to be provided with the
necessary taximeter and a radio transceiver as a precondition
for its operation. Guerrero then contracted petitioner Magat,
who had already established goodwill with the U.S. Naval
personnel of Subic Bay with respect to supplying them
materials or goods on time. In a contract to sell agreed upon,
Magat obliged himself to import the necessary gadgets from
Japan using his connections, and to deliver them to Guerrero.
Guerrero, however, refused to open a letter of credit in favor of
the foreign supplier to cover payment of the goods ordered by
him. Moreover, Magat came to know later that Guerrero had
been operating his taxicabs without the required radio
transceivers, and attributed the delay upon Magat, thus
destroying his reputation with the Naval Authorities with whom
he regularly transacted business.

Since Guerrero refused to comply with his

undertaking despite demand, Magat filed an action for
damages. The trial court dismissed the complaint for lack of
cause of action. It ratiocinated that Magat’s right of recovery
under his cause of action is premised not on any loss or
damage actually suffered by him but on a non-existing loss or
damage which he is expecting to incur in the near future.

ISSUE: Whether the lower court’s dismissal of Magat’s

complaint for lack of cause of action is proper.

HELD: The Court, in granting the petition, found compliance

with the essential elements of a cause of action, to wit: (1) the
existence of a legal right to the plaintiff; (2) a correlative duty of
the defendant, and (3) an act or omission of the defendant in
Magat vs. Medialdea (20 April 1983) Page 2 of

violation of the plaintiff’s right, with consequent injury or

damage to the latter for which he may maintain an action for
recovery of damages or other appropriate relief.

Indisputably, the parties, both businessmen, entered

into the aforesaid contract with the evident intention of deriving
some profits therefrom. Upon breach of the contract by either
of them, the other would necessarily suffer loss of his expected
profits. Since the loss comes into being at the very moment of
breach, such loss is real, “fixed and vested” and, therefore,
recoverable under the law.

The damage which the obligor is liable for under

Article 1170 includes not only the value of the loss suffered by
the obligee (daño emergente), but also the profits which the
latter failed to obtain (lucro cesante). If the obligor acted in
good faith, he shall be liable for those damages that 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;
and in case of fraud, bad faith, malice or wanton attitude, he
shall be liable for all damages which may be reasonably
attributed to the non-performance of the obligation.

The same is true with respect to moral and exemplary

damages which the law allows to be awarded in breaches of
contract where the defendant acted in bad faith.