Solar Harvest V Davao Corrugated

1/20/2018 SUPREME COURT REPORTS ANNOTATED VOLUME 625
charged with grave or less grave offenses shall be referred to the

Supreme Court for appropriate action. (Diamante vs. Alambra, 365
SCRA 531 [2001])
——o0o——
G.R. No. 176868. July 26, 2010.*
SOLAR HARVEST, INC., petitioner, vs. DAVAO CORRUGATED

CARTON CORPORATION, respondent.
Civil Law; Contracts; Rescission; The right to rescind a contract arises

once the other party defaults in the performance of his obligation.—The
right to rescind a contract arises once the other party defaults in the
performance of his obligation. In determining when default occurs, Art.
1191 should be taken in conjunction with Art. 1169 of the same law.
Same; Same; Same; In reciprocal obligation, as in a contract of sale,
the general rule is that the fulfillment of the parties’ respective obligations,
if the period for the fulfillment of the obligation is fixed, demand upon the
obligee is still necessary before the obligor can be considered in default and
before a cause of action will accrue.—In reciprocal obligations, as in a
contract of sale, the general rule is that the fulfillment of the parties’
respective obligations should be simultaneous. Hence, no demand is
generally necessary because, once a party fulfills his obligation and the
other party does not fulfill his, the latter automatically incurs in delay. But
when different dates for performance of the obligations are fixed, the default
for each obligation must be determined by the rules given in the first
paragraph of the present article, that is, the other party would incur in delay
only from the moment the other party demands fulfillment of the former’s
obligation. Thus, even in reciprocal obligations, if the period for the
fulfillment of the obligation is fixed, demand upon the obligee is still
necessary before the obligor can be considered in default and before a cause
of action for rescission will accrue.
_______________
* SECOND DIVISION.
http://www.central.com.ph/sfsreader/session/0000016113929b7595d1744b003600fb002c009e/t/?o=False 1/12
449
VOL. 625, JULY 26, 2010 449
Solar Harvest, Inc. vs. Davao Corrugated Carton Corporation
Same; Same; Same; Without a previous demand for the fulfilment of the
obligation, petitioners would not have a cause of action for rescission
against respondent as the latter would not yet be considered in breach of its
contractual obligation.—Evident from the records and even from the
allegations in the complaint was the lack of demand by petitioner upon
respondent to fulfill its obligation to manufacture and deliver the boxes. The
Complaint only alleged that petitioner made a “follow-up” upon respondent,
which, however, would not qualify as a demand for the fulfillment of the
obligation. Petitioner’s witness also testified that they made a follow-up of
the boxes, but not a demand. Note is taken of the fact that, with respect to
their claim for reimbursement, the Complaint alleged and the witness
testified that a demand letter was sent to respondent. Without a previous
demand for the fulfillment of the obligation, petitioner would not have a
cause of action for rescission against respondent as the latter would not yet
be considered in breach of its contractual obligation.
Remedial Law; Appeals; The existence of a breach of contract is a
factual matter not usually reviewed in a petition for review under Rule 45.—
The existence of a breach of contract is a factual matter not usually
reviewed in a petition for review under Rule 45. The Court, in petitions for
review, limits its inquiry only to questions of law. After all, it is not a trier of
facts, and findings of fact made by the trial court, especially when reiterated
by the CA, must be given great respect if not considered as final. In dealing
with this petition, we will not veer away from this doctrine and will thus
sustain the factual findings of the CA, which we find to be adequately
supported by the evidence on record.
PETITION for review on certiorari of the decision and resolution of

the Court of Appeals.
The facts are stated in the opinion of the Court.
Rosenberg G. Palabasan for petitioner.
Valeriano Pasquil for respondent.
450
450 SUPREME COURT REPORTS ANNOTATED

NACHURA, J.:
Petitioner seeks a review of the Court of Appeals (CA) Decision1
dated September 21, 2006 and Resolution2 dated February 23, 2007,
which denied petitioner’s motion for reconsideration. The assailed

Decision denied petitioner’s claim for reimbursement for the amount
it paid to respondent for the manufacture of corrugated carton boxes.
The case arose from the following antecedents:
In the first quarter of 1998, petitioner, Solar Harvest, Inc., entered
into an agreement with respondent, Davao Corrugated Carton
Corporation, for the purchase of corrugated carton boxes,
specifically designed for petitioner’s business of exporting fresh
bananas, at US$1.10 each. The agreement was not reduced into
writing. To get the production underway, petitioner deposited, on
March 31, 1998, US$40,150.00 in respondent’s US Dollar Savings
Account with Westmont Bank, as full payment for the ordered
boxes.
Despite such payment, petitioner did not receive any boxes from
respondent. On January 3, 2001, petitioner wrote a demand letter for
reimbursement of the amount paid.3 On February 19, 2001,
respondent replied that the boxes had been completed as early as
April 3, 1998 and that petitioner failed to pick them up from the
former’s warehouse 30 days from completion, as agreed upon.
Respondent mentioned that petitioner even placed an additional
order of 24,000 boxes, out of which, 14,000 had been manufactured
without any advanced payment from petitioner. Respondent then
demanded petitioner to remove the boxes from the factory and to
pay the
_______________
1 Penned by Associate Justice Rebecca de Guia-Salvador, with Associate Justices

Magdangal M. de Leon and Ramon R. Garcia, concurring; Rollo, pp. 103-114.
2 Id., at p. 127.
3 Records, p. 96.
451
VOL. 625, JULY 26, 2010 451

balance of US$15,400.00 for the additional boxes and P132,000.00

as storage fee.
On August 17, 2001, petitioner filed a Complaint for sum of
money and damages against respondent. The Complaint averred that
the parties agreed that the boxes will be delivered within 30 days
from payment but respondent failed to manufacture and deliver the
boxes within such time. It further alleged
“6. That repeated follow-up was made by the plaintiff for the

immediate production of the ordered boxes, but every time, defendant
[would] only show samples of boxes and ma[k]e repeated promises to

deliver the said ordered boxes.
7. That because of the failure of the defendant to deliver the ordered
boxes, plaintiff ha[d] to cancel the same and demand payment and/or refund
from the defendant but the latter refused to pay and/or refund the
US$40,150.00 payment made by the former for the ordered boxes.”4
In its Answer with Counterclaim,5 respondent insisted that, as

early as April 3, 1998, it had already completed production of the
36,500 boxes, contrary to petitioner’s allegation. According to
respondent, petitioner, in fact, made an additional order of 24,000
boxes, out of which, 14,000 had been completed without waiting for
petitioner’s payment. Respondent stated that petitioner was to pick
up the boxes at the factory as agreed upon, but petitioner failed to do
so. Respondent averred that, on October 8, 1998, petitioner’s
representative, Bobby Que (Que), went to the factory and saw that
the boxes were ready for pick up. On February 20, 1999, Que visited
the factory again and supposedly advised respondent to sell the
boxes as rejects to recoup the cost of the unpaid 14,000 boxes,
because petitioner’s transaction to ship bananas to China did not
materialize. Respondent claimed that the
_______________
4 Rollo, p. 27.
5 Id., at pp. 33-36.
452

boxes were occupying warehouse space and that petitioner should be

made to pay storage fee at P60.00 per square meter for every month
from April 1998. As counterclaim, respondent prayed that judgment
be rendered ordering petitioner to pay $15,400.00, plus interest,
moral and exemplary damages, attorney’s fees, and costs of the suit.
In reply, petitioner denied that it made a second order of 24,000
boxes and that respondent already completed the initial order of
36,500 boxes and 14,000 boxes out of the second order. It
maintained that respondent only manufactured a sample of the
ordered boxes and that respondent could not have produced 14,000
boxes without the required pre-payments.6
During trial, petitioner presented Que as its sole witness. Que
testified that he ordered the boxes from respondent and deposited the
money in respondent’s account.7 He specifically stated that, when he
visited respondent’s factory, he saw that the boxes had no print of
petitioner’s logo.8 A few months later, he followed-up the order and
was told that the company had full production, and thus, was
promised that production of the order would be rushed. He told
respondent that it should indeed rush production because the need
for the boxes was urgent. Thereafter, he asked his partner, Alfred
Ong, to cancel the order because it was already late for them to meet
their commitment to ship the bananas to China.9 On cross-
examination, Que further testified that China Zero Food, the Chinese
company that ordered the bananas, was sending a ship to Davao to
get the bananas, but since there were no cartons, the ship could not
proceed. He said that, at that time, bananas from Tagum Agricultural
Development Corporation (TADECO) were already there. He denied
that petitioner
_______________
6 Records, 31-32.
7 TSN, July 10, 2003, p. 5.
8 Id., at p. 7.
9 Id., at pp. 9-10.
453
VOL. 625, JULY 26, 2010 453

made an additional order of 24,000 boxes. He explained that it took

three years to refer the matter to counsel because respondent
promised to pay.10
For respondent, Bienvenido Estanislao (Estanislao) testified that
he met Que in Davao in October 1998 to inspect the boxes and that
the latter got samples of them. In February 2000, they inspected the
boxes again and Que got more samples. Estanislao said that
petitioner did not pick up the boxes because the ship did not arrive.11
Jaime Tan (Tan), president of respondent, also testified that his
company finished production of the 36,500 boxes on April 3, 1998
and that petitioner made a second order of 24,000 boxes. He said
that the agreement was for respondent to produce the boxes and for
petitioner to pick them up from the warehouse.12 He also said that
the reason why petitioner did not pick up the boxes was that the ship
that was to carry the bananas did not arrive.13 According to him,
during the last visit of Que and Estanislao, he asked them to
withdraw the boxes immediately because they were occupying a big
space in his plant, but they, instead, told him to sell the cartons as
rejects. He was able to sell 5,000 boxes at P20.00 each for a total of
P100,000.00. They then told him to apply the said amount to the
unpaid balance.
In its March 2, 2004 Decision, the Regional Trial Court (RTC)
ruled that respondent did not commit any breach of faith that would
justify rescission of the contract and the consequent reimbursement

of the amount paid by petitioner. The RTC said that respondent was
able to produce the ordered boxes but petitioner failed to obtain
possession thereof because its ship did not arrive. It thus dismissed
the complaint and respondent’s counterclaims, disposing as follows:
_______________
10 Id., at pp. 18-22.

11 TSN, October 16, 2003, p. 14.
12 TSN, December 4, 2003, p. 13.
13 Id., at pp. 15.
454

“WHEREFORE, premises considered, judgment is hereby rendered in

favor of defendant and against the plaintiff and, accordingly, plaintiff’s
complaint is hereby ordered DISMISSED without pronouncement as to
cost. Defendant’s counterclaims are similarly dismissed for lack of merit.
SO ORDERED.”14
Petitioner filed a notice of appeal with the CA.

On September 21, 2006, the CA denied the appeal for lack of
merit.15 The appellate court held that petitioner failed to discharge
its burden of proving what it claimed to be the parties’ agreement
with respect to the delivery of the boxes. According to the CA, it
was unthinkable that, over a period of more than two years,
petitioner did not even demand for the delivery of the boxes. The
CA added that even assuming that the agreement was for respondent
to deliver the boxes, respondent would not be liable for breach of
contract as petitioner had not yet demanded from it the delivery of
the boxes.16
Petitioner moved for reconsideration,17 but the motion was
denied by the CA in its Resolution of February 23, 2007.18
In this petition, petitioner insists that respondent did not
completely manufacture the boxes and that it was respondent which
was obliged to deliver the boxes to TADECO.
We find no reversible error in the assailed Decision that would
justify the grant of this petition.
Petitioner’s claim for reimbursement is actually one for
rescission (or resolution) of contract under Article 1191 of the Civil
Code, which reads:
_______________
14 Rollo, p. 60.
15 Supra note 1, at 113-114.
16 Id., at pp. 110-112.
17 Rollo, pp. 115-121.
18 Supra note 2.
455
VOL. 625, JULY 26, 2010 455

“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.”
The right to rescind a contract arises once the other party defaults
in the performance of his obligation. In determining when default
occurs, Art. 1191 should be taken in conjunction with Art. 1169 of
the same law, which provides:
“Art. 1169. Those obliged to deliver or to do something incur in delay from

the time the obligee judicially or extrajudicially demands from them the fulfillment
of their obligation.
However, the demand by the creditor shall not be necessary in order that delay
may exist:
(1) When the obligation or the law expressly so declares; or
(2) When from the nature and the circumstances of the obligation it
appears that the designation of the time when the thing is to be
delivered or the service is to be rendered was a controlling motive for
the establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered
it beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not
comply or is not ready to comply in a proper manner with what is incumbent upon
him. From the moment one of the parties fulfills his obligation, delay by the other
begins.”
456

In reciprocal obligations, as in a contract of sale, the general rule

is that the fulfillment of the parties’ respective obligations should be
simultaneous. Hence, no demand is generally necessary because,
once a party fulfills his obligation and the other party does not fulfill
his, the latter automatically incurs in delay. But when different dates
for performance of the obligations are fixed, the default for each
obligation must be determined by the rules given in the first
paragraph of the present article,19 that is, the other party would incur
in delay only from the moment the other party demands fulfillment
of the former’s obligation. Thus, even in reciprocal obligations, if
the period for the fulfillment of the obligation is fixed, demand upon
the obligee is still necessary before the obligor can be considered in
default and before a cause of action for rescission will accrue.
Evident from the records and even from the allegations in the
complaint was the lack of demand by petitioner upon respondent to
fulfill its obligation to manufacture and deliver the boxes. The
Complaint only alleged that petitioner made a “follow-up” upon
respondent, which, however, would not qualify as a demand for the
fulfillment of the obligation. Petitioner’s witness also testified that
they made a follow-up of the boxes, but not a demand. Note is taken
of the fact that, with respect to their claim for reimbursement, the
Complaint alleged and the witness testified that a demand letter was
sent to respondent. Without a previous demand for the fulfillment of
the obligation, petitioner would not have a cause of action for
rescission against respondent as the latter would not yet be
considered in breach of its contractual obligation.
Even assuming that a demand had been previously made before
filing the present case, petitioner’s claim for reim-
_______________
19 IV ARTURO M. TOLENTINO, Commentaries and Jurisprudence on the Civil Code

of the Philippines (1985 ed.), p. 10, citing 8 Manresa.
457
VOL. 625, JULY 26, 2010 457

bursement would still fail, as the circumstances would show that

respondent was not guilty of breach of contract.
The existence of a breach of contract is a factual matter not
usually reviewed in a petition for review under Rule 45.20 The
Court, in petitions for review, limits its inquiry only to questions of
law. After all, it is not a trier of facts, and findings of fact made by
the trial court, especially when reiterated by the CA, must be given
great respect if not considered as final.21 In dealing with this
petition, we will not veer away from this doctrine and will thus
sustain the factual findings of the CA, which we find to be
adequately supported by the evidence on record.
As correctly observed by the CA, aside from the pictures of the
finished boxes and the production report thereof, there is ample
showing that the boxes had already been manufactured by
respondent. There is the testimony of Estanislao who accompanied
Que to the factory, attesting that, during their first visit to the
company, they saw the pile of petitioner’s boxes and Que took
samples thereof. Que, petitioner’s witness, himself confirmed this
incident. He testified that Tan pointed the boxes to him and that he
got a sample and saw that it was blank. Que’s absolute assertion that
the boxes were not manufactured is, therefore, implausible and
suspicious.
In fact, we note that respondent’s counsel manifested in court,
during trial, that his client was willing to shoulder expenses for a
representative of the court to visit the plant and see the boxes.22 Had
it been true that the boxes were not yet completed, respondent would
not have been so bold as to
_______________
20 Omengan v. Philippine National Bank, G.R. No. 161319, January 23, 2007, 512
SCRA 305, 309.
21 Filipinas (Pre-Fab Bldg.) Systems, Inc. v. MRT Development Corporation,
G.R. Nos. 167829-30, November 13, 2007, 537 SCRA 609, 638-639.
22 TSN, December 4, 2003, p. 26.
458

challenge the court to conduct an ocular inspection of their

warehouse. Even in its Comment to this petition, respondent prays
that petitioner be ordered to remove the boxes from its factory site,23
which could only mean that the boxes are, up to the present, still in
respondent’s premises.
We also believe that the agreement between the parties was for
petitioner to pick up the boxes from respondent’s warehouse,
contrary to petitioner’s allegation. Thus, it was due to petitioner’s
fault that the boxes were not delivered to TADECO.
Petitioner had the burden to prove that the agreement was, in
fact, for respondent to deliver the boxes within 30 days from
payment, as alleged in the Complaint. Its sole witness, Que, was not
even competent to testify on the terms of the agreement and,

therefore, we cannot give much credence to his testimony. It
appeared from the testimony of Que that he did not personally place
the order with Tan, thus:
Q. No, my question is, you went to Davao City and placed your order there?
A. I made a phone call.
Q. You made a phone call to Mr. Tan?
A. The first time, the first call to Mr. Alf[re]d Ong. Alfred Ong has a contact with
Mr. Tan.
Q. So, your first statement that you were the one who placed the order is not true?
A. That’s true. The Solar Harvest made a contact with Mr. Tan and I deposited
the money in the bank.
Q. You said a while ago [t]hat you were the one who called Mr. Tan and placed
the order for 36,500 boxes, isn’t it?
A. First time it was Mr. Alfred Ong.
Q. It was Mr. Ong who placed the order[,] not you?
A. Yes, sir.24
_______________
23 Rollo, p. 137.
24 TSN, July 10, 2003, p. 15.
459
VOL. 625, JULY 26, 2010 459

Q. Is it not a fact that the cartons were ordered through Mr. Bienvenido
Estanislao?
A. Yes, sir.25
Moreover, assuming that respondent was obliged to deliver the

boxes, it could not have complied with such obligation. Que,
insisting that the boxes had not been manufactured, admitted that he
did not give respondent the authority to deliver the boxes to
TADECO:
Q. Did you give authority to Mr. Tan to deliver these boxes to TADECO?
A. No, sir. As I have said, before the delivery, we must have to check the carton,
the quantity and quality. But I have not seen a single carton.
Q. Are you trying to impress upon the [c]ourt that it is only after the boxes are
completed, will you give authority to Mr. Tan to deliver the boxes to
TADECO[?]
A. Sir, because when I checked the plant, I have not seen any carton. I asked Mr.
Tan to rush the carton but not…26
Q. Did you give any authority for Mr. Tan to deliver these boxes to TADECO?
A. Because I have not seen any of my carton.
Q. You don’t have any authority yet given to Mr. Tan?
A. None, your Honor.27
Surely, without such authority, TADECO would not have allowed

respondent to deposit the boxes within its premises.
In sum, the Court finds that petitioner failed to establish a cause
of action for rescission, the evidence having shown that respondent
did not commit any breach of its contractual obligation. As
previously stated, the subject boxes are still within respondent’s
premises. To put a rest to this dispute, we there-
_______________
25 Id., at p. 21.
26 Id., at p. 25.
27 Id., at p. 27.
460

fore relieve respondent from the burden of having to keep the boxes
within its premises and, consequently, give it the right to dispose of
them, after petitioner is given a period of time within which to
remove them from the premises.
WHEREFORE, premises considered, the petition is DENIED.
The Court of Appeals Decision dated September 21, 2006 and
Resolution dated February 23, 2007 are AFFIRMED. In addition,
petitioner is given a period of 30 days from notice within which to
cause the removal of the 36,500 boxes from respondent’s
warehouse. After the lapse of said period and petitioner fails to
effect such removal, respondent shall have the right to dispose of the
boxes in any manner it may deem fit.
SO ORDERED.
Carpio (Chairperson), Peralta, Abad and Mendoza, JJ., concur.
Petition denied, judgment and resolution affirmed.
Note.—Rescission has the effect of abrogating the contract in all

parts. (Unlad Resources Development Corporation vs. Dragon, 560
SCRA 63 [2008])
——o0o——
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1/20/2018 SUPREME COURT REPORTS ANNOTATED VOLUME 625

charged with grave or less grave offenses shall be referred to the

G.R. No. 176868. July 26, 2010.*

SOLAR HARVEST, INC., petitioner, vs. DAVAO CORRUGATED

Civil Law; Contracts; Rescission; The right to rescind a contract arises

VOL. 625, JULY 26, 2010 449

Solar Harvest, Inc. vs. Davao Corrugated Carton Corporation

PETITION for review on certiorari of the decision and resolution of

450 SUPREME COURT REPORTS ANNOTATED

which denied petitioner’s motion for reconsideration. The assailed

1 Penned by Associate Justice Rebecca de Guia-Salvador, with Associate Justices

VOL. 625, JULY 26, 2010 451

balance of US$15,400.00 for the additional boxes and P132,000.00

“6. That repeated follow-up was made by the plaintiff for the

[would] only show samples of boxes and ma[k]e repeated promises to

In its Answer with Counterclaim,5 respondent insisted that, as

452 SUPREME COURT REPORTS ANNOTATED

boxes were occupying warehouse space and that petitioner should be

VOL. 625, JULY 26, 2010 453

made an additional order of 24,000 boxes. He explained that it took

justify rescission of the contract and the consequent reimbursement

10 Id., at pp. 18-22.

454 SUPREME COURT REPORTS ANNOTATED

“WHEREFORE, premises considered, judgment is hereby rendered in

Petitioner ﬁled a notice of appeal with the CA.

VOL. 625, JULY 26, 2010 455

“Art. 1191. The power to rescind obligations is implied in reciprocal

“Art. 1169. Those obliged to deliver or to do something incur in delay from

456 SUPREME COURT REPORTS ANNOTATED

In reciprocal obligations, as in a contract of sale, the general rule

19 IV ARTURO M. TOLENTINO, Commentaries and Jurisprudence on the Civil Code

VOL. 625, JULY 26, 2010 457

bursement would still fail, as the circumstances would show that

458 SUPREME COURT REPORTS ANNOTATED

challenge the court to conduct an ocular inspection of their

even competent to testify on the terms of the agreement and,

24 TSN, July 10, 2003, p. 15.

VOL. 625, JULY 26, 2010 459

Moreover, assuming that respondent was obliged to deliver the

A. None, your Honor.27

Surely, without such authority, TADECO would not have allowed

460 SUPREME COURT REPORTS ANNOTATED

Carpio (Chairperson), Peralta, Abad and Mendoza, JJ., concur.

Petition denied, judgment and resolution afﬁrmed.

Note.—Rescission has the effect of abrogating the contract in all

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