Daywalt vs. La Corporacion de los Padres Agustinos Recoletos

A third party who interferes with a contract cannot be held liable for damages greater than those for which the contracting party herself would be liable. The ordinary measure of damages for a vendor's failure to deliver land is the value of its use and occupation; special, consequential damages are only recoverable if they were reasonably foreseeable and within the contemplation of the parties at the time the contract was made.

Teodorica Endencia contracted to sell a large tract of land in Mindoro to Geo. W. Daywalt. After prolonged litigation, Daywalt obtained a final decree for specific performance. During the period of delay, the defendant religious corporation, through its local agent Father Sanz (who had influence over Endencia), pastured its cattle on the land with full knowledge of Daywalt's contract. Daywalt also claimed that the corporation's interference caused him to miss a major business opportunity.

• Filed in the Court of First Instance (CFI).
• The CFI awarded Daywalt P2,497 in damages for use and occupation but dismissed his claim for P500,000 in damages for wrongful interference with the contract.
• Daywalt appealed directly to the Supreme Court, seeking to increase the damages for use and occupation and to recover the lost profits.

• In 1902, Teodorica Endencia agreed to sell land to Geo. W. Daywalt. The agreement was formalized in a 1906 deed and a superseding 1908 contract.
• The defendant corporation, through Father Sanz, was aware of the contract. When the Torrens title was issued to Endencia in 1909, she delivered it for safekeeping to the corporation's procurador in Manila.
• From June 1, 1909, to May 1, 1914, the corporation pastured its cattle on the land with Endencia's permission, while Daywalt was litigating the specific performance case.
• In 1911, Daywalt had a contract (Exhibit C) with S.B. Wakefield to develop the land into a sugar enterprise, which failed because he could not get possession or the title in time.

• The damages for use and occupation should be higher (at least P24,000), calculated at 40 centavos per head of cattle per month.
• The defendant corporation, by advising Endencia to resist the contract and withholding the title, made itself a co-participant in the breach and is liable for the lost profits from the Wakefield sugar project (P500,000).

• It acted in good faith, believing the contract was unenforceable and that Endencia would be wronged by its performance.
• Any advice given was not motivated by malice or a desire to harm Daywalt.
• The damages claimed for the lost business opportunity are speculative and too remote.

• Procedural Issues: N/A
• Substantive Issues:
  1. Whether the damages awarded for use and occupation of the land should be increased.
  2. Whether a third party (the corporation) is liable for special, consequential damages for interfering with a contract, specifically the lost profits from the Wakefield project.

• Procedural: N/A
• Substantive:
  1. On Damages for Use and Occupation: The SC affirmed the lower court's award of P2,497. It found the rate of 50 centavos per hectare per annum reasonable and saw no reason to disturb the trial court's estimate of the period of use, despite a minor computational discrepancy.
  2. On Liability for Interference and Special Damages: The SC ruled against Daywalt. It held that even if the corporation's interference could create liability, "the stranger cannot become more extensively liable in damages for the nonperformance of the contract than the party in whose behalf he intermeddles." Since Endencia herself would not be liable for the lost profits (as they were special damages not within the contemplation of the parties when the 1908 contract was made), the corporation cannot be liable for them either. The ordinary measure of damages for failure to deliver land is the value of use and occupation.

• Hadley v. Baxendale Rule on Damages for Breach of Contract — This rule distinguishes between ordinary and special damages. Ordinary damages flow naturally from the breach and are always recoverable. Special (or consequential) damages are only recoverable if they were reasonably foreseeable and within the contemplation of both parties at the time of contracting. The SC applied this to bar Daywalt's claim for lost profits, as the Wakefield deal was unknown to Endencia when the contract was made.
• Liability for Wrongful Interference with Contract (Lumley v. Gye Doctrine) — The SC acknowledged the doctrine that a stranger to a contract may be liable for inducing its breach if done without legal justification. However, it limited the potential liability of such a stranger to no more than what the contracting party (the vendor) would owe. The SC also noted the defendant acted in good faith, negating the "malice" element.

• "The most that can be said with reference to the conduct of Teodorica Endencia is that she refused to carry out a contract for the sale of certain land and resisted to the last an action for specific performance in court. The result was that the plaintiff was prevented during a period of several years from exerting that control over the property which he was entitled to exert and was meanwhile unable to dispose of the property advantageously. Now, what is the measure of damages for the wrongful detention of real property by the vendor after the time has come for him to place the purchaser in possession? The damages ordinarily and normally recoverable... is the value of the use and occupation of the land for the time during which it is wrongfully withheld."
• "Whatever may be the character of the liability which a stranger to a contract may incur by advising or assisting one of the parties to evade performance, there is one proposition upon which all must agree. This is, that the stranger cannot become more extensively liable in damages for the nonperformance of the contract than the party in whose behalf he intermeddles."

• Hadley v. Baxendale (1854) — Cited as the foundational authority for the rule limiting recovery of special damages to those within the contemplation of the parties at the time of contracting.
• Lumley v. Gye (1853) — Cited as the leading English case establishing liability for malicious interference with contractual relations. The SC discussed it but ultimately limited its application.
• Gilchrist v. Cuddy (29 Phil. 542) — Cited by the plaintiff. The SC distinguished it, noting it primarily supported injunctive relief against a party with notice of a prior contract, not an expansive rule for recovering special damages from a third-party interferer.

• Article 1902 of the Spanish Civil Code (1889) — The general provision on extra-contractual liability (torts/quasi-delicts) for acts causing damage through fault or negligence. The SC referenced it as encompassing the general principle of civil liability.
• Article 1124 of the Spanish Civil Code (1889) — States that the right to rescind obligations is implied in reciprocal ones, and that indemnification for damages is a right inseparably annexed to every action for fulfillment. The SC used this to note that Daywalt's claim for damages against Endencia should have been raised in the prior specific performance suit.