MAGAT V MEDIALDEA

ESCOLIN; April 20, 1983

NATURE

Petition for review on certiorari to determine the sufficiency of the avermentscontained in the
complaint for alleged breach of contract filed by petitioner Victorino D. Magat against
respondent Santiago A. Guerrero of the CFI of Rizal,presided by respondent Judge Leo D. Medialdea,
now Deputy Judicial Administrator,which complaint was dismissed for failure to state a cause of action.

FACTS

- Defendant entered into a contract with the U.S. Navy Exchange, Subic Bay,Philippines, for the
operation of a fleet of taxicabs, each taxicab to be provided withthe necessary taximeter and a radio
transceiver for receiving and sending of massage from mobile taxicab to fixed base stations within the
Naval Base- Because of the experience of the plaintiff in connection with his various contractswith the
U.S. Navy and his goodwill already established with the Naval personnel,Isidro Q. Aligada, acting as
agent of the defendant approached the plaintiff andproposed to import from Japan thru the plaintiff or
thru plaintiff's Japanese businessassociates, all taximeters and radio transceivers needed by the
defendant- Defendant and his agent were able to import from Japan with the assistance of theplaintiff
and his Japanese business associates the necessary taximeters fordefendant's taxicabs in partial
fulfillment of defendant's commitments with the [Link] Exchange, the plaintiff's assistance in this
matter having been given to thedefendant gratis et amore- Isidro Q. Aligada, acting as agent of the
defendant, made representations with theplaintiff that defendant desired to procure from Japan thru
the plaintiff the neededradio transceivers and to this end, Isidro Q. Aligada secured a firm offer in
writingdated September 25, 1972, wherein the plaintiff quoted in his offer a total price of $77,620.59
FOB Yokohama, the goods or articles offered for sale by the plaintiff tothe defendant to be delivered
sixty to ninety days after receipt of advice from thedefendant of the radio frequency assigned to the
defendant by the properauthorities- Plaintiff received notice of the fact that the defendant accepted
plaintiff's offer tosell to the defendant the items as well as the terms and conditions of said
offer, asshown by the signed conformity of the defendant which was duly delivered by thedefendant's
agent to the plaintiff, whereupon all that the plaintiff had to do was toawait advice from the defendant
as, to the radio frequency to be assigned by theproper authorities to the defendant- In his letter dated
October 6, 1972, the defendant advised his agent that the [Link] provided him with the radio
frequency of 34.2 MHZ [Megaherzt] andrequested his said agent to proceed with his order placed with
the plaintiff, whichfact was duly communicated to the plaintiff - By his letter dated October 7, 1972
addressed to the plaintiff by the defendant'sagent, defendant's agent qualified defendant's instructions
that plaintiff shouldproceed to fulfill defendant's order only upon receipt by the plaintiff of
thedefendant's letter of credit- Plaintiff awaited the opening of such a letter of credit by the defendant

- Defendant and his agent have repeatedly assured plaintiff of the defendant'sfinancial capabilities to
pay for the goods and in fact he accomplished the necessaryapplication for a letter of credit with
his banker, but he subsequently instructed hisbanker not to give due course to his application for a
letter of credit and that forreasons only known to the defendant, he fails and refuses to open the
necessaryletter of credit to cover payment of the goods- It came to the knowledge of the plaintiff that
the defendant has been operating histaxicabs without the required radio transceivers and when the
U.S. Navy Authoritiesof Subic Bay, Philippines, were pressing defendant for compliance with
hiscommitments with respect to the installations of radio transceivers on his taxicabshe impliedly laid
the blame for the delay upon the plaintiff thus destroying thereputation of the plaintiff with the mid
Naval Authorities with whom plaintiff transacts business- On March 27, 1973, plaintiff wrote a letter thru
his counsel to ascertain from thedefendant as to whether it is his intention to fulfill his pan of the
agreement with theplaintiff or whether he desired to have the contract between them
definitelycancelled, but defendant did not even have the courtesy to answer plaintiff'sdemand

Petitioner’s Claims

The defendant entered into a contract with the plaintiff without the least intention of faithfully
complying with his obligations, but he did soonly in order to obtain the concession from the U.S. Navy
Exchange. of operating afleet of taxicabs inside the U.S. Naval Base to his financial benefit and
at theexpense and prejudice of third parties such as the plaintiff. That in view of thedefendant's failure
to fulfill his contractual obligations with the plaintiff, the plaintiff will suffer several damages

Respondent’s Arguments

Respondent Guerrero filed a motion to dismisscomplaint for lack of cause of action. He alleged that
plaintiff was merelyanticipating his loss or damage, which might result from the alleged failure
of defendant to comply with the terms of the alleged contract. Plaintiff's right of recovery under his
cause of action is premised not on any loss or damage actuallysuffered by him but on a non-existing loss
or damage which he is expecting to incurin the near future. Plaintiff's right therefore under his cause of
action is not yet fixedor vested. - The respondent judge, over petitioner's opposition, issued a
minuteorderdismissing the complaint

ISSUE

WON there is sufficient cause of action

HELD

YES.

Ratio

The essential elements of a cause of action are: [1] the existence of a legalright of the plaintiff; [2]
a correlative duty of the defendant and [3] an act oromission of the defendant in violation of the
plaintiff's right, with consequent injuryor damage to the latter for which he may maintain an action for
recovery of damages or other appropriate relief.

- Article 1170 Of the Civil Code provides:"Those who in the performance of their obligation are guilty
of fraud. negligence, ordelay, and those who in any manner contravene the tenor thereof are liable
fordamages."The phrase "in any manner contravene the tenor" of the obligation includes anyillicit act or
omission which impairs the strict and faithful fulfillment of the obligationand every kind of defective
performance.- The damages which the obligor is liable for includes not only the value of the losssuffered
by the obligee [daño emergense] but also the profits which the latter failedto obtain [lucro cesante]. If
the obligor acted in good faith, he shall be liable forthose damages that are the natural and probable
consequences of the breach of the obligation and which the parties have foreseen or could have
reasonablyforeseen at the time the obligation was constituted; and in case of fraud, bad faith,malice or
wanton attitude, he shall be liable for all damages which may bereasonably attributed to the
nonperformance of the obligation. The same is truewith respect to moral and exemplary damages. The
applicable legal provisions onthe matter, Articles 2220 and 2232 of the Civil Code, allow the award of
suchdamages in breaches of contract where the defendant acted in bad faith.

Reasoning

The complaint recites the circumstances that led to the perfection of the contract entered into by the
parties. It further avers that while petitioner hadfulfilled his part of the bargain, private respondent
failed to comply with hiscorrelative obligation by refusing to open a letter of credit to cover payment of
thegoods ordered by him, and that consequently, petitioner suffered not only loss of his expected
profits, but moral and exemplary damages as well. From theseallegations, the essential elements of a
cause of action are present.- Indisputably, the parties, both businessmen, entered into the aforesaid
contractwith the evident intention of deriving some profits therefrom. Upon breach of thecontract by
either of them, the other would necessarily suffer loss of his expectedprofits. Since the loss comes into
being at the very moment of breach, such loss isreal, "fixed and vested" and, therefore, recoverable
under the law. The complaintsufficiently alleges bad faith on the part of the defendant.

Disposition

The questioned order of dismissal was set aside and the case wasordered remanded to the court of
origin for further proceedings. No costs.