Legaspi Oil Co., Inc. vs. Oseraos

A party who deliberately and intentionally evades the normal fulfillment of an obligation, distinguished from mere negligence by the presence of deliberate intent, is guilty of fraud under Article 1170 of the Civil Code and is liable for all damages which may be reasonably attributed to the non-performance of the obligation. The deliberate refusal to deliver the remaining balance of goods after the market price had more than doubled constituted fraud, entitling the injured party to recover the price differential paid when purchasing the undelivered balance at the open market.

The petitioner, Legaspi Oil Co., Inc., was engaged in the purchase of copra, while the private respondent, Bernard Oseraos, was a seller of copra acting through authorized agents. The parties had several prior transactions for the sale and delivery of copra, with prices varying according to the prevailing market price at the time each contract was entered into. The copra market was characterized by fluctuating prices, indicating its unsteady position in the market. The transactions were governed by the Civil Code provisions on obligations and contracts, particularly Article 1170 concerning liability for fraud, negligence, delay, or contravention of the tenor of an obligation.

Petitioner Legaspi Oil Co., Inc. and private respondent Bernard Oseraos, acting through his authorized agents, had several transactions for the sale of copra, with prices varying according to the prevailing market price at the time each contract was entered into. One of Oseraos' authorized agents, Jose Llover, had previous transactions with the petitioner, concluding a sale for 70 tons of copra at P95.00 per 100 kilos on May 27, 1975, and another sale for 30 tons at P102.00 per 100 kilos on September 23, 1975. On November 6, 1975, another designated agent signed a contract on behalf of Oseraos for the sale of 100 tons of copra at P79.00 per 100 kilos, with delivery terms of 25 days effective December 15, 1975. The price of copra had been fluctuating, indicating its unsteady position in the market.

On February 16, 1976, Oseraos' agent Jose Llover signed Contract No. 3804 for the sale of 100 tons of copra at P82.00 per 100 kilos, with delivery terms of 20 days effective March 8, 1976. The selling price in all these contracts had always been stated as "total price" rather than per 100 kilos, but the parties understood the same to be per 100 kilos in their previous transactions. After the delivery period lapsed, Oseraos sold only 46,334 kilos of copra, leaving a balance of 53,666 kilos as per the running account card. Demands were made upon Oseraos to deliver the balance, with a final warning embodied in a letter dated October 6, 1976, stating that failure to deliver would mean cancellation of the contract, with the balance to be purchased at open market and the price differential charged against him.

On October 22, 1976, since there was still no compliance, the petitioner exercised its option under the contract and purchased the undelivered balance from the open market at the prevailing price of P168.00 per 100 kilos, resulting in a price differential of P86.00 per 100 kilos and a net loss of P46,152.76 chargeable against Oseraos. The trial court found Oseraos liable for damages, but the Court of Appeals reversed, dismissing the complaint. The Supreme Court, adopting the findings of fact of the Court of Appeals, held that Oseraos was guilty of fraud in the performance of his obligation, as the price of copra had in the meantime more than doubled from P82.00 to P168.00 per 100 kilograms, clearly manifesting his deliberate fraudulent intent to evade his contractual obligation.

• Fraud in Performance: Petitioner argued that private respondent Oseraos was liable for damages arising from fraud or bad faith in deliberately breaching the contract of sale entered into by the parties.
• Price Differential as Damages: Petitioner maintained that it was compelled to purchase the undelivered balance of 53,666 kilograms of copra at the open market at the prevailing price of P168.00 per 100 kilograms, resulting in a price differential of P46,152.76 that should be chargeable against private respondent.

• Reversal Justification: The Court of Appeals, in reversing the trial court's decision and ordering the dismissal of the complaint, necessarily found that the private respondent was not liable for damages. The specific arguments advanced by the private respondent before the Court of Appeals are not recounted in the decision.

• Fraud in Performance: Whether private respondent Oseraos is liable for damages arising from fraud or bad faith in deliberately breaching the contract of sale entered into by the parties.

• Fraud in Performance: Yes. Private respondent was guilty of fraud in the performance of his obligation under the sales contract, and pursuant to Article 1170 of the Civil Code, he is liable for damages. The deliberate refusal to deliver the remaining balance of copra after the market price had more than doubled manifested fraudulent intent to evade his contractual obligation.

• Fraud in Performance: The Court defined fraud as the voluntary execution of a wrongful act, or a wilful omission, knowing and intending the effects which naturally and necessarily arise from such act or omission. The fraud referred to in Article 1170 of the Civil Code is the deliberate and intentional evasion of the normal fulfillment of obligation, distinguished from negligence by the presence of deliberate intent, which is lacking in the latter. The conduct of private respondent clearly manifested his deliberate fraudulent intent to evade his contractual obligation, as the price of copra had in the meantime more than doubled from P82.00 to P168.00 per 100 kilograms. Under Article 1170, those who in the performance of their obligation are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages. The Court further held that in case of fraud, bad faith, malice, or wanton attitude, the guilty party is liable for all damages which may be reasonably attributed to the non-performance of the obligation, citing Magat vs. Medialdea, 121 SCRA 418 (1983). The Court also relied on Acme Films, Inc. vs. Theaters Supply Corporation, 63 Phil. 657 (1936), which applied Article 1101 of the old Civil Code, later reproduced as Article 1170 of the present Civil Code, in holding a party liable for damages for failure to comply with a contractual obligation. The Court found that the petitioner was compelled to buy the balance of 53,666 kilos of copra in the open market at the prevailing price of P168.00 per 100 kilograms, thereby paying P46,152.76 more than it would have paid had private respondent completed delivery as agreed, and thus private respondent was liable for that amount as damages.

• Fraud under Article 1170 of the Civil Code — Fraud is the voluntary execution of a wrongful act, or a wilful omission, knowing and intending the effects which naturally and necessarily arise from such act or omission. It is the deliberate and intentional evasion of the normal fulfillment of obligation, distinguished from negligence by the presence of deliberate intent. The Court applied this doctrine in finding that the private respondent's deliberate refusal to deliver the remaining copra after the market price had more than doubled constituted fraud, making him liable for damages under Article 1170.
• Damages for Fraudulent Breach — In case of fraud, bad faith, malice, or wanton attitude, the guilty party is liable for all damages which may be reasonably attributed to the non-performance of the obligation. The Court applied this principle in awarding the petitioner the price differential of P46,152.76, representing the amount paid in excess when the petitioner purchased the undelivered balance at the open market.

• "In general, fraud may be defined as the voluntary execution of a wrongful act, or a wilfull omission, knowing and intending the effects which naturally and necessarily arise from such act or omission; the fraud referred to in Article 1170 of the Civil Code of the Philippines is the deliberate and intentional evasion of the normal fulfillment of obligation; it is distinguished from negligence by the presence of deliberate intent, which is lacking in the latter." — This passage defines the controlling doctrine of fraud under Article 1170, establishing the distinction between fraud and negligence that is central to the Court's reasoning.
• "The conduct of private respondent clearly manifests his deliberate fraudulent intent to evade his contractual obligation for the price of copra had in the meantime more than doubled from P82.00 to P168 per 100 kilograms." — This statement articulates the Court's application of the fraud doctrine to the facts, identifying the price increase as the motivating factor for the private respondent's deliberate breach.
• "In case of fraud, bad faith, malice, or wanton attitude, the guilty party is liable for all damages which may be reasonably attributed to the non performance of the obligation." — This passage states the measure of damages applicable in cases of fraudulent breach, which the Court applied in awarding the petitioner the price differential.

• Magat vs. Medialdea, 121 SCRA 418 (1983) — Cited as authority for the rule that in case of fraud, bad faith, malice, or wanton attitude, the guilty party is liable for all damages which may be reasonably attributed to the non-performance of the obligation.
• Acme Films, Inc. vs. Theaters Supply Corporation, 63 Phil. 657 (1936) — Cited as an old case applying Article 1101 of the old Civil Code, later reproduced as Article 1170 of the present Civil Code, holding a party liable to indemnify damages for failure to comply with a contractual obligation.

• Article 1170, Civil Code of the Philippines — Provides that those who in the performance of their obligation are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages. The Court applied this provision in holding the private respondent liable for damages arising from his fraudulent breach of the contract of sale.
• Article 1101, Old Civil Code — The predecessor provision to Article 1170 of the present Civil Code, which was the basis of the Court's decision in Acme Films, Inc. vs. Theaters Supply Corporation, cited as authority in the present case.

Justices Feliciano, Bidin, Davide, Jr., and Romero concurred with the decision penned by Justice Melo.

N/A — No dissenting opinions are noted in the case text.