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CHARLES F. WOODHOUSE vs. FORTUNATO F. HALILI

EN BANC
[G.R. No. L-4811. July 31, 1953.]
CHARLES F. WOODHOUSE, plaintiff-appellant, vs. FORTUNATO F. HALILI,
defendant-appellant.
Taada, Pelaez & Teehankee for defendant and appellant.
Gibbs, Gibbs, Chuidian & Quasha for plaintiff and appellant.
SYLLABUS
1. EVIDENCE; PAROL EVIDENCE RULE; INTEGRATION OF JURAL ACTS.
Plaintiff entered into a written agreement with the defendant to the effect that they shall organize
a partnership for the bottling and distribution of soft drinks, plaintiff to act as industrial partner or
manager, and the defendant a capitalist furnishing the capital necessary therefor. The defendant
claims that his consent to the agreement was secured by the representation of plaintiff that he was
the owner, or was about to become owner, of an exclusive bottling franchise, which
representation was false. The fraud and false representation is sought to be proven by means,
among others, of the drafts of the agreement prior to the final one, which drafts are presumed to
have already been integrated into the final agreement. Are those prior drafts excluded from the
prohibition of the parol evidence rule? Held: The purpose of considering the drafts is not to vary,
alter, or modify the agreement, but to discover the intent of the parties thereto and the
circumstances surrounding the execution of the contract. The issue of fact is, did plaintiff
represent to defendant that he had an exclusive franchise? Certainly, his acts or statements prior
to the agreement are essential and relevant to the determination of said issue. The act or statement
of the plaintiff was not sought to be introduced to change or alter the terms of the agreement, but
to prove how he induced the defendant to enter into it - to prove the representations or
inducements, or fraud, with which or by which he secured the other party's consent thereto. These
are expressly excluded from the parol evidence rule. (Bough and Bough vs. Cantiveros and
Hanopol, 40 Phil., 209; Port Banga Lumber Co., vs. Export & Import Lumber Co., 26 Phil., 602;
3 Moran 221, 1952 rev. ed.) Fraud and false representation are an incident to the creation of a
jural act, not to its integration, and are not governed by the rules on integration. Where parties
prohibited from proving said representations or inducements, on the ground that the agreement
had already been entered into, it would be impossible to prove misrepresentation or fraud. The
parol evidence rule expressly allows the evidence to be introduced when the validity of an
instrument is put in issue by the pleadings (sec. 22-a of Rule 123).
2. ID.; INTERPRETATION OF DOCUMENTS. AS plaintiff knew what defendant
believed about his (plaintiff's exclusive franchise, as he induced him to that belief, plaintiff may

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not be allowed to deny that defendant was induced by that belief (sec. 63 of Rule 123).
3. FRAUD; FALSE REPRESENTATION; DOLO CAUSANTE AND DOLO
INCIDENTE; IT IS THE FORMER THAT VITIATES CONSENT. Fraud is manifested in
illimitable number of degrees or gradations from the innocent praises of a salesman about the
excellence of his wares to those malicious machinations and representations that the law punishes
as a crime. In consequence, article 1270 of the Spanish Civil Code distinguishes two kinds of
(civil) fraud, the causal fraud which may be a ground for the annulment of a contract, and the
incidental deceit which only renders the party who employs it liable for damages. In order that
fraud may vitiate consent, it must be the causal (dolo causante), not merely the incidental (dolo
incidente), inducement to the making of the contract (art. 1270, Span. Civ. Code; Hill vs. Veloso,
31 Phil., 160). In the case at bar, inasmuch as the principal consideration, the main cause that
induced defendant to enter into the partnership agreement with plaintiff, was the ability of
plaintiff to get the exclusive franchise to bottle and distribute for the defendant or for the
partnership, the false representation made by the plaintiff was not the casual consideration, or the
principal inducement, that led the defendant to enter into the partnership agreement.
4. ID.; ID.; ID.; DAMAGES FOR DOLO INCIDENTE; PARTNERSHIP. While the
representation that plaintiff had the exclusive franchise did not vitiate defendant' consent to the
contract, it was used by plaintiff to get from defendant a share of 30 per cent of the net profits; in
other words, by pretending that he had the exclusive franchise and promising to transfer it to
defendant, he obtained the consent of the latter to give him (plaintiff) a big slice in the net profits.
This is the dolo incidente defined in article 1270 of the Spanish Civil Code, because it was used
to get the other party's consent to a big share in the profits, an incidental matter in the agreement.
(8 Manresa, 602.)
5. CONTRACTS AND OBLIGATIONS; CONSENT, NOT VITIATED BY DOLO
INCIDENTE; PARTNERSHIP; AGREEMENT TO FORM PARTNERSHIP, CANNOT BE
ENFORCED. Having arrived at the conclusion that the agreement to organize a partnership
may not be declared null and void, may the agreement be carried out or executed? Held: Under
the Spanish Civil Code, the defendant has an obligation to do, not to give. The law recognizes the
individual's freedom or liberty to do an act he has promised to do, or not to do it, as he pleases.
This is a very personal act (acto personalisimo) of which courts may not compel compliance, as it
is considered as an act of violence to do so. (29 as it is considered as an act of violence to do so.
(19 Scaevolla, 428, 431-432.)
6. FALSE REPRESENTATION; DAMAGES FOR DOLO INCIDENTE. Plaintiff is
entitled under the terms of the agreement to 30 per cent of the net profits of the business. Against
this amount of damages, the damage the defendant suffered by plaintiff's misrepresentation that
he had the exclusive franchise, must be set off. (Art. 1101, Span. Civ. Code.) When the defendant
learned, in Los Angeles, California, that plaintiff did not have the exclusive franchise which he
pretended he had and which he had agreed to transfer to the partnership, his spontaneous reaction
was to reduce the plaintiff's share from 30 per cent to 15 per cent only, to which reduction
plaintiff appears to have readily given his assent. Held: By the misrepresentation of the plaintiff,
he obtained a very high percentage (30%) of share in the profits. Upon learning of the
misrepresentation, defendant reduced plaintiff's share to 15 per cent, to which defendant assented.
The court can do no better than follow such appraisal of the damages as the parties themselves

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had adopted.

DECISION

LABRADOR, J :
p

On November 29, 1947, the plaintiff entered into a written agreement, Exhibit A, with the
defendant, the most important provisions of which are (1) that they shall organize a partnership
for the bottling and distribution of Mission soft drinks, plaintiff to act as industrial partner or
manager, and the defendant as a capitalist, furnishing the capital necessary therefor; (2) that the
defendant was to decide matters of general policy regarding the business, while the plaintiff was
to attend to the operation and development of the bottling plant; (3) that the plaintiff was to
secure the Mission Soft Drinks franchise for and in behalf of the proposed partnership; and (4)
that the plaintiff was to receive 30 per cent of the net profits of the business. The above
agreement was arrived at after various conferences and consultations by and between them, with
the assistance of their respective attorneys. Prior to entering into this agreement, plaintiff had
informed the Mission Dry Corporation of Los Angeles, California, U. S. A., manufacturers of the
bases and ingredients of the beverages bearing its name, that he had interested a prominent
financier (defendant herein) in the business, who was willing to invest half a million dollars in the
bottling and distribution of the said beverages, and requested, in order that he may close the deal
with him, that the right to bottle and distribute be granted him for a limited time under the
condition that it will finally be transferred to the corporation (Exhibit H). Pursuant to this request,
plaintiff was given "a thirty days' option on exclusive bottling and distribution rights for the
Philippines" (Exhibit H). Formal negotiations between plaintiff and defendant began at a meeting
on November 27, 1947, at the Manila Hotel, with their lawyers attending. Before this meeting
plaintiff's lawyer had prepared a draft of the agreement, Exhibit II or OO, but this was not
satisfactory because a partnership, instead of a corporation, was desired. Defendant's lawyer
prepared after the meeting his own draft, Exhibit HH. This last draft appears to be the main basis
of the agreement, Exhibit A.
The contract was finally signed by plaintiff on December 3, 1947. Plaintiff did not like to
go to the United States without the agreement being first signed. On that day plaintiff and
defendant went to the United States, and on December 10, 1947, a franchise agreement (Exhibit
V) was entered into between the Mission Dry Corporation and Fortunato F. Halili and/or Charles
F. Woodhouse, granting defendant the exclusive right, license, and authority to produce, bottle,
distribute, and sell Mission beverages in the Philippines. The plaintiff and the defendant
thereafter returned to the Philippines. Plaintiff reported for duty in January, 1948, but operations
were not begun until the first week of February, 1948. In January plaintiff was given as advance,
on account of profits, the sum of P2,000, besides the use of a car; in February, 1948, also P2,000,
and in March only P1,000. The car was withdrawn from plaintiff on March 9, 1948.
When the bottling plant was already in operation, plaintiff demanded of defendant that the
partnership papers be executed. At first defendant excused himself, saying there was no hurry.
Then he promised to do so after the sales of the products had been increased to P50,000. As

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nothing definite was forthcoming, after this condition was attained, and as defendant refused to
give further allowances to plaintiff, the latter caused his attorneys to take up the matter with
defendant with a view to a possible settlement. As none could be arrived at, the present action
was instituted.
In his complaint plaintiff asks for the execution of the contract of partnership, an
accounting of the profits, and a share thereof of 30 per cent, as well as damages in the amount of
P200,000. In his answer defendant alleges by way of defense (1) that defendant's consent to the
agreement, Exhibit A, was secured by the representation of plaintiff that he was the owner, or was
about to become owner of an exclusive bottling franchise, which representation was false, and
that plaintiff did not secure the franchise, but was given to defendant himself; (2) that defendant
did not fail to carry out his undertakings, bus that it was plaintiff who failed; (3) that plaintiff
agreed to contribute the exclusive franchise to the partnership, but plaintiff failed to do so. He
also presented a counterclaim for P200,000 as damages. On these issues the parties went to trial,
and thereafter the Court of First Instance rendered judgment ordering defendant to render an
accounting of the profits of the bottling and distribution business, subject of the action, and to pay
plaintiff 15 per cent thereof. It held that the execution of the contract of partnership could not be
enforced upon the parties, but it also held that the defense of fraud was not proved. Against this
judgment both parties have appealed.
The most important question of fact to be determined is whether defendant had falsely
represented that he had an exclusive franchise to bottle Mission beverages, and whether this false
representation or fraud, if it existed, annuls the agreement to form the partnership. The trial court
found that it is improbable that defendant was never shown the letter, Exhibit J, granting plaintiff
the option; that defendant would not have gone to the United States without knowing what
authority plaintiff had; that the drafts of the contract prior to the final one can not be considered
for the purpose of determining the issue, as they are presumed to have been already integrated
into the final agreement; that fraud is never presumed and must be proved; that the parties were
represented by attorneys, and that if any party thereto got the worse part of the bargain, this fact
alone would not invalidate the agreement. On this appeal the defendant, as appellant, insists that
plaintiff did represent to the defendant that he had an exclusive franchise, when as a matter of
fact, at the time of its execution, he no longer had it as the same had expired, and that, therefore,
the consent of the defendant to the contract was vitiated by fraud and it is, consequently, null and
void.
Our study of the record and a consideration of all the surrounding circumstances lead us to
believe that defendant's contention is not without merit. Plaintiff's attorney, Mr. Laurea, testified
that Woodhouse presented himself as being the exclusive grantee of a franchise, thus:
"A. I don't recall any discussion about that matter. I took along with me the file of the
office with regards to this matter. I notice from the first draft of the document which I
prepared which calls for the organization of a corporation, that the manager, that is, Mr.
Woodhouse, is represented as being the exclusive grantee of a franchise from the Mission
Dry Corporation. . . . "(t.s.n., p. 518)

As a matter of fact, the first draft that Mr. Laurea prepared, which was made before the
Manila Hotel conference on November 27th, expressly states that plaintiff had the exclusive

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franchise. Thus, the first paragraph states:

'Whereas, the manager is the exclusive grantee of a franchise from the Mission Dry
Corporation San Francisco, California, for the bottling of Mission products and their sale to
the public throughout the Philippines;
xxx xxx xxx
"3. That the manager, upon the organization of the said corporation, shall forthwith
transfer to the said corporation his exclusive right to bottle Mission products and to sell
them throughout the Philippines."
xxx xxx xxx
(Exhibit II; emphasis ours)

The trial court did not consider this draft on the principle of integration of jural acts. We
find that the principle invoked is inapplicable, since the purpose of considering the prior draft is
not to vary, alter, or modify the agreement, but to discover the intent of the parties thereto and the
circumstances surrounding the execution of the contract. The issue of fact is: Did plaintiff
represent to defendant that he had an exclusive franchise? Certainly, his acts or statements prior
to the agreement are essential and relevant to the determination of said issue. The act or statement
of the plaintiff was not sought to be introduced to change or alter the terms of the agreement, but
to prove how he induced the defendant to enter into it to prove the representations or
inducements, or fraud, with which or by which he secured the other party's consent thereto. These
are expressly excluded from the parol evidence rule. (Bough and Bough vs. Cantiveros and
Hanopol, 40 Phil., 209; Port Banga Lumber Co. vs. Export & Import Lumber Co., 26 Phil., 602;
III Moran 221, 1952 rev. ed.) Fraud and false representation are an incident to the creation of a
jural act, not to its integration, and are not governed by the rules on integration. Were parties
prohibited from proving said representations or inducements, on the ground that the agreement
had already been entered into, it would be impossible to prove misrepresentation or fraud.
Furthermore, the parol evidence rule expressly allows the evidence to be introduced when the
validity of an instrument is put in issue by the pleadings (section 22, par. (a), Rule 123, Rules of
Court), as in this case.
That plaintiff did make the representation can also be easily gleaned from his own letters
and his own testimony. In his letter to Mission Dry Corporation, Exhibit H, he said:
". . . He told me to come back to him when I was able to speak with authority so that
we could come to terms as far as he and I were concerned. That is the reason why the cable
was sent. Without this authority, I am in a poor bargaining position. . . .
"I would propose that you grant me the exclusive bottling and distributing rights for a
limited period of time, during which I may consummate my plans. . . .. "

By virtue of this letter the option on exclusive bottling was given to the plaintiff on October 14,
1947. (See Exhibit J.) If this option for an exclusive franchise was intended by plaintiff as an
instrument with which to bargain with defendant and close the deal with him, he must have used
his said option for the above-indicated purpose, especially as it appears that he was able to secure,
through its use, what he wanted.
Plaintiff's own version of the preliminary conversation he had with defendant is to the
effect that when plaintiff called on the latter, the latter answered, "Well, come back to me when

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you have the authority to operate. I am definitely interested in the bottling business." (t.s.n., pp.
60-61). When after the elections of 1949 plaintiff went to see the defendant (and at the time he
had already the option), he must have exultantly told defendant that he had the authority already.
It is improbable and incredible for him to have disclosed the fact that he had only an option to the
exclusive franchise, which was to last thirty days only, and still more improbable for him to have
disclosed that, at the time of the signing of the formal agreement, his option had already expired.
Had he done so, he would have destroyed all his bargaining power and authority, and in all
probability lost the deal itself.
The trial court reasoned, and the plaintiff on this appeal argues, that plaintiff only
undertook in the agreement "to secure the Mission Dry franchise for and in behalf of the
proposed partnership." The existence of this provision in the final agreement does not militate
against plaintiff having represented that he had the exclusive franchise; it rather strengthens belief
that he did actually make the representation. How could plaintiff assure defendant that he would
get the franchise for the latter if he had not actually obtained it for himself? Defendant would not
have gone into the business unless the franchise was raised in his name, or at least in the name of
the partnership. Plaintiff assured defendant he could get the franchise. Thus, in the draft prepared
by defendant's attorney, Exhibit HH, the above provision is inserted, with the difference that
instead of securing the franchise for the defendant, plaintiff was to secure it for the partnership.
To show that the insertion of the above provision does not eliminate the probability of plaintiff
representing himself as the exclusive grantee of the franchise, the final agreement contains in its
third paragraph the following:
". . . and the manager is ready and willing to allow the capitalists to use the exclusive
franchise . . . .

and in paragraph 11 it also expressly states:

"1. In the event of dissolution or termination of the partnership, . . . the franchise
from Mission Dry Corporation shall be reassigned to the manager."

These statements confirm the conclusion that defendant believed, or was made to believe, the
plaintiff was the grantee of an exclusive franchise. Thus it is that it was also agreed upon that the
franchise was to be transferred to the name of the partnership, and that, upon its dissolution or
termination, the same shall be reassigned to the plaintiff.
Again, the immediate reaction of defendant, when in California he learned that plaintiff
did not have the exclusive franchise, was to reduce, as he himself testified, plaintiff's participation
in the net profits to one half of that agreed upon. He could not have had such a feeling had not
plaintiff actually made him believe that he (plaintiff) was the exclusive grantee of the franchise.
The learned trial judge reasons in his decision that the assistance of counsel in the making
of the contract made fraud improbable. Not necessarily, because the alleged representation took
place before the conferences were had; in other words, plaintiff had already represented to
defendant, and the latter had already believed in, the existence of plaintiff's exclusive franchise
before the formal negotiations, and they were assisted by their lawyers only when said formal
negotiations actually took place. Furthermore, plaintiff's attorney testified that plaintiff had said
that he had the exclusive franchise; and defendant's lawyer testified that plaintiff explained to
him, upon being asked for the franchise, that he had left the papers evidencing it. (t. s. n., p. 266.)

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We conclude from all the foregoing that plaintiff did actually represent to defendant that he
was the holder of the exclusive franchise. The defendant was made to believe, and he actually
believed, that plaintiff had the exclusive franchise. Defendant would not perhaps have gone to
California and incurred expenses for the trip, unless he believed that plaintiff did have that
exclusive privilege, and that the latter would be able to get the same from the Mission Dry
Corporation itself. Plaintiff knew what defendant believed about his (plaintiff's) exclusive
franchise, as he induced him to that belief, and he may not be allowed to deny that defendant was
induced by that belief. (IX Wigmore, sec. 2423; Sec. 65, Rule 123, Rules of Court.)
We now come to the legal aspect of the false representation. Does it amount to a fraud that
would vitiate the contract? It must be noted that fraud is manifested in illimitable number of
degrees or gradations, from the innocent praises of a salesman about the excellence of his wares
to those malicious machinations and representations that the law punishes as a crime. In
consequence, article 1270 of the Spanish Civil Code distinguishes two kinds of (civil) fraud, the
causal fraud, which may be a ground for the annulment of a contract, and the incidental deceit,
which only renders the party who employs it liable for damages. This Court has held that in order
that fraud may vitiate consent, it must be the causal (dolo causante), not merely the incidental
(dolo incidente), inducement to the making of the contract. (Article 1270, Spanish Civil Code;
Hill vs. Veloso, 31 Phil. 160.) The record abounds with circumstances indicative of the fact that
the principal consideration, the main cause that induced defendant to enter into the partnership
agreement with plaintiff, was the ability of plaintiff to get the exclusive franchise to bottle and
distribute for the defendant or for the partnership. The original draft prepared by defendant's
counsel was to the effect that plaintiff obligated himself to secure a franchise for the defendant.
Correction appears in this same original draft, but the change is made not as to the said obligation
but as to the grantee. In the corrected draft the word "capitalist" (grantee) is changed to
"partnership." The contract in its final form retains the substituted term "partnership." The
defendant was, therefore, led to the belief that plaintiff had the exclusive franchise, but that the
same was to be secured for or transferred to the partnership. The plaintiff no longer had the
exclusive franchise, or the option thereto, at the time the contract was perfected. But while he had
already lost his option thereto (when the contract was entered into), the principal obligation that
he assumed or undertook was to secure said franchise for the partnership, as the bottler and
distributor for the Mission Dry Corporation. We declare, therefore, that if he was guilty of a false
representation, this was not the causal consideration, or the principal inducement, that led
plaintiff to enter into the partnership agreement.
But, on the other hand, this supposed ownership of an exclusive franchise was actually the
consideration or price plaintiff gave in exchange for the share of 30 per cent granted him in the
net profits of the partnership business. Defendant agreed to give plaintiff 30 per cent share in the
net profits because he was transferring his exclusive franchise to the partnership. Thus, in the
draft prepared by plaintiff's lawyer, Exhibit II, the following provision exists:
"3. That the MANAGER, upon the organization of the said corporation, shall
forthwith transfer to the said corporation his exclusive right to bottle Mission products and
to sell them throughout the Philippines. As a consideration for such transfer, the
CAPITALIST shall transfer to the Manager full paid non-assessable shares of the said
corporation . . . twenty-five per centum of the capital stock of the said corporation." (Par. 3,
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Exhibit II; emphasis ours.)

Plaintiff had never been a bottler or a chemist; he never had experience in the production or
distribution of beverages. As a matter of fact, when the bottling plant was being built, all that he
suggested was about the toilet facilities for the laborers.
We conclude from the above that while the representation that plaintiff had the exclusive
franchise did not vitiate defendant's consent to the contract, it was used by plaintiff to get from
defendant a share of 30 per cent of the net profits; in other words, by pretending that he had the
exclusive franchise and promising to transfer it to defendant, he obtained the consent of the latter
to give him (plaintiff) a big slice in the net profits. This is the dolo incidente defined in article
1270 of the Spanish Civil Code, because it was used to get the other party's consent to a big share
in the profits, an incidental matter in the agreement.
"El dolo incidental no es el que puede producirse en el cumplimiento del contrato
sino que significa aqui, el que concurriendo en el consentimiento, o precediendolo, no
influyo para arrancar por si solo el consentimiento ni en la totalidad de la obligacion, sino en
algun extremo o accidente de esta, dando lugar tan solo a una accion para reclamar
indemnizacion de perjuicios." (8 Manresa 602.)

Having arrived at the conclusion that the agreement may not be declared null and void, the
question that next comes before us is, May the agreement be carried out or executed? We find no
merit in the claim of plaintiff that the partnership was already a fiat accompli from the time of the
operation of the plant, as it is evident from the very language of the agreement that the parties
intended that the execution of the agreement to form a partnership was to be carried out at a later
date. They expressly agreed that they shall form a partnership. (Par. No. 1, Exhibit A.) As a
matter of fact, from the time that the franchise from the Mission Dry Corporation was obtained in
California, plaintiff himself had been demanding that defendant comply with the agreement. And
plaintiff's present action seeks the enforcement of this agreement. Plaintiff's claim, therefore, is
both inconsistent with their intention and incompatible with his own conduct and suit.
As the trial court correctly concluded, the defendant may not be compelled against his will
to carry out the agreement nor execute the partnership papers. Under the Spanish Civil Code, the
defendant has an obligation to do, not to give. The law recognizes the individual's freedom or
liberty to do an act he has promised to do, or not to do it, as he pleases. It falls within what
Spanish commentators call a very personal act (acto personalisimo), of which courts may not
compel compliance, as it is considered an act of violence to do so.
"Efectos de las obligaciones consistentes en hechos personalisimo. Tratamos de la
ejecucion de las obligaciones de hacer en el solo caso de su incumplimiento por parte del
deudor, y sean los hechos personalisimos, ya se hallen en la facultad de un tercero; porque el
complimiento espontaneo de las mismas esta regido por los preceptos relativos al pago, y en
nada les afectan las disposiciones del art. 1.098.
"Esto supuesto, la primera dificultad del asunto consiste en resolver si el deudor
puede ser precisado a realizar el hecho y por que medios.
"Se tiene por corriente entre los autores, y se traslada generalmente sin observacion
el pricipio romano nemo potest precise cogi ad factum. Los que perciben la posibilidad de la
destruccion de este principio, aaden que, aun cuando se pudiera obligar al deudor, no
deberia hacerse, porque esto constituiria una violencia, y no es la violencia modo propio de

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cumplir las obligaciones (Bigot, Rolland, etc.). El maestro Antonio Gomez opinaba lo
mismo cuando decia que obligar por la violencia seria infringir la libertad e imponer una
especie de esclavitud."
xxx xxx xxx
"En efecto; las obligaciones contractuales no se acomodan bien con el empleo de la
fuerza fisica, no ya precisamente porque se constituya de este modo una especie de
esclavitud, segun el dicho de Antonio Gomez, sino porque se supone que el acreedor tuvo en
cuenta el caracter personalisimo del hecho ofrecido, y calculo sobre la posibilidad de que por
alguna razon no se realizase. Repugna, ademas, a la conciencia social el empleo de la fuerza
publica, mediante coaccion sobre las pesonas, en las relaciones puramente particulares;
porque la evolucion de las ideas ha ido poniendo mas de relieve cada dia el respeto a la
personalidad humana, y no se admite bien la violencia sobre el indivicuo la cual tiene
caracter visiblemente penal, sino por motivos que interesen a la colectividad de ciudadanos.
Es, pues, posible y licita esta violencia cuando se trata de las obligaciones que hemos
llamado ex lege, que afectan al orden social y a la entidad de Estado, y aparecen impuestas
sin consideracion a las conveniencias particulares, y sin que por este motivo puedan
tampoco ser modificadas; pero no debe serlo cuando la obligacion reviste un interes
puramente particular, como sucede en las contractuales, y cuando, por consecuencia,
pareceria salirse el Estado de su esfera propia, entrado a dirimir, con apoyo de la fuerza
colectiva, las diferencias producidas entre los ciudadanos. (19 Scaevola 428, 431- 432.)"

The last question for us to decide is that of damages, damages that plaintiff is entitled to
receive because of defendant's refusal to form the partnership, and damages that defendant is also
entitled to collect because of the falsity of plaintiff's representation. (Article 1101, Spanish Civil
Code.) Under article 1106 of the Spanish Civil Code the measure of damages is the actual loss
suffered and the profits reasonably expected to be received, embraced in the terms dao
emergente and lucro cesante. Plaintiff is entitled under the terms of the agreement to 30 per cent
of the net profits of the business. Against this amount of damages, we must set off the damage
defendant suffered by plaintiff's misrepresentation that he had the exclusive franchise, by which
misrepresentation he obtained a very high percentage of share in the profits. We can do no better
than follow the appraisal that the parties themselves had adopted.
When defendant learned in Los Angeles that plaintiff did not have the exclusive franchise
which he pretended he had and which he had agreed to transfer to the partnership, his
spontaneous reaction was to reduce plaintiff's share from 30 per cent to 15 per cent only, to which
reduction defendant appears to have readily given his assent. It was under this understanding,
which amounts to a virtual modification of the contract, that the bottling plant was established
and plaintiff worked as Manager for the first three months. If the contract may not be considered
modified as to plaintiff's share in the profits, by the decision of defendant to reduce the same to
one-half and the assent thereto of plaintiff, then we may consider the said amount as a fair
estimate of the damages plaintiff is entitled to under the principle enunciated in the case of
Varadero de Manila vs. Insular Lumber Co., 46 Phil. 176. Defendant's decision to reduce
plaintiff's share and plaintiff's consent thereto amount to an admission on the part of each of the
reasonableness of this amount as plaintiff's share. This same amount was fixed by the trial court.
The agreement contains the stipulation that upon the termination of the partnership, defendant

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was to convey the franchise back to plaintiff (Par. 11, Exhibit A). The judgment of the trial court
does not fix the period within which these damages shall be paid to plaintiff. In view of paragraph
11 of Exhibit A, we declare that plaintiff's share of 15 per cent of the net profits shall continue to
be paid while defendant uses the franchise from the Mission Dry Corporation.
With the modification above indicated, the judgment appealed from is hereby affirmed.
Without costs.
Paras, C.J., Pablo, Bengzon, Tuason, Montemayor, Reyes, Jugo and Bautista Angelo, JJ.,
concur.

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