Heirs of Asis vs. G.G. Sportswear Manufacturing Corporation

Actual damages must be proved with reasonable certainty by competent proof and cannot rest on speculation, but temperate damages may be awarded where pecuniary loss was suffered yet its amount cannot be proved with certainty, and exemplary damages and attorney's fees follow where breach is established. Rescission abrogates the contract from the beginning and requires mutual restitution, so pre-existing loan obligations cannot be charged as consequential damages after rescission.

Dominador S. Asis, Jr., Dominador R. Asis III, Andrea Asis Oledan, Maria Marta Asis Garcia, and Maria Ana Asis Angon, together with Luzon Steam Laundry, Inc., were stockholders of record of Filipinas Washing Company, Inc. G.G. Sportswear Manufacturing Corporation and Nari K. Gidwani signified interest in purchasing the company, leading after more than two months of negotiations to a Letter-Agreement for purchase through assumption of its bank obligations.

On April 2, 1996, G.G. Sportswear Manufacturing Corporation and Nari K. Gidwani signified intent to purchase Filipinas Washing Company, Inc. through a letter to its President, Dominador S. Asis, Jr. After more than two months of negotiations, the parties entered into the Letter-Agreement dated June 17, 1996, under which respondents undertook to purchase FWC under stated terms and conditions.

In accordance with the Letter-Agreement, respondents remitted P1,462,642.00 as partial payment of FWC obligations to Westmont Bank and issued a P10,000,000.00 check in favor of Dominador, also to be used as partial payment to said bank. For their part, petitioners made representations with Westmont Bank and Equitable Banking Corporation relative to restructuring of FWC loan obligations in preparation for assumption thereof by respondents, ceased FWC operations in preparation for turnover of facilities, and advised FWC employees about the sale while giving separation pay and other benefits.

Thereafter respondents failed to comply with the obligation to assume payment of FWC loans with Westmont Bank and Equitable Banking Corporation. Because no compliance followed, petitioners demanded full compliance through a letter dated August 14, 1996. In response, respondents wrote cancelling the Letter-Agreement for petitioners' alleged failure to deliver FWC shares of stock. On August 30, 1996, petitioners filed a Complaint for rescission of contract with damages.

The trial court found respondents in breach, holding that transfer of shares was not a condition to restructuring the loans and, the P63,500,000.00 consideration never having been fully paid, no transfer could occur to justify non-assumption. It found petitioners compelled to rehabilitate the FWC plant with consequential damages of P12,568,493.18 per Exhibits E to BB, offset by P11,462,000.00 partial payment. The Court of Appeals sustained breach and rescission but found only a self-serving summary of rehabilitation cost on record, without receipts or explanation of the figures, and deleted damages and attorney's fees.

• Actual Damages: Petitioner argued that Branch 268 had basis for the P12,568,493.18 award, i.e., Exhibits E to BB, and that the missing Exhibits E-series through S-series, comprising receipts, vouchers, requisition slips, invoices and purchase orders on rehabilitation cost and other pecuniary losses, were not transmitted to the CA and should have been ordered transmitted before resolving reconsideration.
• Nature of Claimed Losses: Petitioner maintained that amounts shelled out to update loan obligations with the banks, aside from rehabilitation and closure expenses, formed part of consequential damages because assumption thereof would have been respondents' obligation had the sale proceeded.
• Temperate Damages: Petitioner argued that, in the absence of competent proof on the exact amount of actual damages, temperate damages should be awarded for pecuniary loss suffered from respondents' non-performance.

• Actual Damages: Whether the CA erred in deleting the award for actual damages.
• Attorney's Fees: Whether the CA erred in deleting the award of attorney's fees.

• Actual Damages: No. Deletion was sustained for lack of competent proof of amount, the exhibits being missing, unexplained, and inclusive of non-recoverable pre-existing loans; in lieu thereof P500,000.00 temperate and P500,000.00 exemplary damages were awarded.
• Attorney's Fees: No, as to deletion for lack of stated factual and legal justification, but P100,000.00 attorney's fees was awarded as proper where exemplary damages were granted and litigation was compelled by breach under Article 2208(1).

• Actual Damages: Actual or compensatory damages cannot be presumed and must be proved with reasonable certainty by competent proof of fact and amount on the best evidence obtainable, without reliance on speculation. Here the RTC merely cited Exhibits E to BB without explaining computation, the vital exhibits presented before Branch 263 were never transmitted to Branch 268 and remain missing, the record showed only a lower self-serving summary, and transcript testimony showed claimed sums included petitioners' own pre-existing bank obligations. Since rescission abrogates the contract from the beginning and requires mutual restitution to pre-contract positions, those pre-existing obligations could not be charged to respondents. Temperate damages were proper because cessation of operations, termination of employees, and re-operation after failed turnover necessarily entailed expenses, fixed at reasonable P500,000.00, more than nominal but less than compensatory. Exemplary damages of P500,000.00 were proper as deterrent and vindication where breach was established and business owners reneged on freely entered obligations.
• Attorney's Fees: The factual and legal justification for attorney's fees must be expressly stated in the decision, with a grant in the dispositive portion alone being insufficient as leaving basis to speculation. The CA thus correctly deleted the RTC's unexplained P250,000.00 award. Nevertheless, attorney's fees of P100,000.00, equivalent to 10% of amounts adjudged, was proper in consonance with Article 2208(1) of the New Civil Code where exemplary damages were awarded and petitioners were constrained to litigate to protect interests due to breach. Mutual restitution was maintained by ordering return of P11,462,642.00, with 6% per annum interest on monetary awards from finality until satisfaction as forbearance of money.

• Actual or compensatory damages — Such damages cannot be presumed but must be proved with reasonable degree of certainty by competent proof that they were suffered and of the actual amount thereof on the basis of the best evidence obtainable, pointing to specific facts as gauge; courts cannot rely on speculations, conjectures or guesswork. Applied to delete the P12,568,493.18 award where computation was unexplained, supporting exhibits were missing, and only a self-serving summary appeared.
• Temperate or moderate damages — Recoverable when some pecuniary loss has been suffered but its amount cannot, from the nature of the case, be proved with certainty, the amount being left to judicial discretion but reasonable, more than nominal but less than compensatory. Applied to award P500,000.00 where closure, separation, and rehabilitation expenses necessarily followed breach but exact loss was unproven.
• Exemplary or corrective damages — Intended to serve as deterrent to serious wrongdoings and as vindication for undue suffering and wanton invasion of rights; business owners must be forthright and cannot renege on freely entered obligations. Applied to award P500,000.00 upon finding of breach of the Letter-Agreement.
• Attorney's fees — requirement of express justification — The factual and legal justification for the award must be expressly stated in the decision; grant in the dispositive portion alone is insufficient as basis is left to speculation and conjecture. Applied to sustain deletion of the RTC's unexplained award, with a new award sustained on the independent ground of exemplary damages under Article 2208(1).
• Rescission and mutual restitution — Rescission is not merely termination releasing parties from further obligations but abrogation from the beginning, restoring parties to relative positions as if no contract had been made, requiring mutual restitution. Applied to exclude petitioners' pre-existing bank loans from consequential damages and to retain return of respondents' P11,462,642.00 partial payment.
• Legal interest on monetary awards — Monetary awards in the nature of forbearance of money earn interest at 6% per annum from finality of judgment until full satisfaction. Applied to interest imposed on amounts adjudged to both parties.

• "actual or compensatory damages cannot be presumed but must be proved with reasonable degree of certainty." — States the controlling standard for actual damages and grounds the deletion for lack of competent proof of amount.
• "Temperate or moderate damages may be recovered when some pecuniary loss has been suffered but its amount cannot, from the nature of the case, be proved with certainty." — Defines the substitute remedy applied where breach-caused loss was certain but unquantified.
• "Rescission is not merely to terminate the contract and release the parties from further obligations to each other, but to abrogate it from the beginning and restore the parties to their relative positions as if no contract has been made." — Provides the canonical formulation excluding pre-existing loan obligations from damages and requiring return of partial payment.
• "Business owners must always be forthright in their dealings. They cannot be allowed to renege on their obligations, considering that these obligations were freely entered into by them." — Justifies exemplary damages as deterrent for breach of freely undertaken contractual duties.

• Mr. & Mrs. Tan vs. G.V.T. Engineering Services, 529 Phil. 751, 770 (2006) — Cited as authority that actual damages require competent proof and specific factual gauge, not speculation, supporting deletion.
• Unlad Resources Development Corporation vs. Dragon, 582 Phil. 61, 79, 80 (2008) — Cited for mutual restitution and abrogation-from-beginning effect of rescission, excluding pre-existing loans from damages.
• Engr. Dueñas vs. Guce-Africa, 618 Phil. 10, 22 (2009) — Cited for temperate damages where pecuniary loss exists but amount cannot be proved with certainty.
• Arco Pulp and Paper Co., Inc. vs. Lim, 737 Phil. 133, 153 (2014) — Cited for exemplary damages as deterrent where business owners renege on freely entered obligations.
• Abobon vs. Abobon, 692 Phil. 530, 545 (2012) — Cited for rule that attorney's fees require express factual and legal justification in the decision.
• Tan vs. OMC Carriers, Inc., 654 Phil. 443, 458 (2011) — Cited to support attorney's fees where exemplary damages are awarded.
• Nacar vs. Gallery Frames, 716 Phil. 267, 279 (2013) — Cited as latest jurisprudence for 6% per annum interest on forbearance of money from finality until satisfaction.

• Article 2208(1), New Civil Code — Provides attorney's fees cannot be recovered absent stipulation except when exemplary damages are awarded; applied to sustain P100,000.00 attorney's fees alongside exemplary damages and compelled litigation.
• Rule 45, Rules of Court — Governs petition for review on certiorari; applied as procedural vehicle assailing the CA Decision of September 12, 2013 and Resolutions of November 12, 2015 and June 2, 2016 insofar as damages and fees were deleted.

Carpio, Senior Associate Justice (Chairperson), Perlas-Bernabe, Caguioa and Lazaro-Javier, JJ., concur.