[G.R. No.

176868 : July 26, 2010]

SOLAR HARVEST, INC., PETITIONER, VS. DAVAO CORRUGATED CARTON CORPORATION,

RESPONDENT.

DECISION

NACHURA, J.:

Petitioner seeks a review of the Court of Appeals (CA) Decision[1] dated September 21, 2006 and
Resolution[2]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 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 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 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:

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:

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.
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 reimbursement 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
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]

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
therefore 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.

Endnotes:

[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 127.

[3] Records, p. 96.

[4] Rollo, p. 27.

[5] Id. at 33-36.

[6] Records, 31-32.

[7] TSN, July 10, 2003, p. 5.

[8] Id. at 7.

[9] Id. at 9-10.

[10] Id. at 18-22.

[11] TSN, October 16, 2003, p. 14.

[12] TSN, December 4, 2003, p. 13.

[13] Id. at 15.

[14] Rollo, p. 60.

[15] Supra note 1, at 113-114.

[16] Id. at 110-112.

[17] Rollo, pp. 115-121.

[18] Supra note 2.

[19] IV ARTURO M. TOLENTINO, Commentaries and Jurisprudence on the Civil Code of the
Philippines (1985 ed.), p. 10, citing 8 Manresa.

[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.

[23] Rollo, p. 137.

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

[25] Id. at 21.

[26] Id. at 25.

[27] Id. at 27.