1'.

epublic of tbe ~bilippines

~upreme QCourt
;Wlanila

SECOND DIVISION

SPOUSES ALEXANDER AND G.R. No. 167615

JULIE LAM, Doing Business Under
the Name and Style "COLORKWIK Present:
LABORATORIES" AND
"COLORKWIK PHOTO SUPPLY", CARPIO, J, Chairperson,
Petitioners, BRION,
DEL CASTILLO,
l\1ENDOZA, and
LEONEN,JJ

-versus-

KODAK PHILIPPINES, LTD.,

Respondent.
)(-------------------------------------------------------------------

DECISION

LEONEN,J.:

This is a Petition for Review on Certiorari filed on April 20, 2005

assailing the March 30, 2005 Decision 1 and September 9, 2005 Amended
Decision2 of the Court of Appeals, which modified the February 26, 1999
Decision3 of the Regional Trial Court by reducing the amount of damages
awarded to petitioners Spouses Alexander and Julie Lam (Lam Spouses). 4

Rollo, pp. 58-75. The case, docketed as CA-G.R. No. CV-64158, was entitled Kodak Philippines, Ltd
v. Spouses Alexander and Julie Lam.
f
2
Id. at 423.
Id. at 76-79. The Decision was penned by Judge Salvador S. Abad Santos of Branch 65 of the
Regional Trial Court, Makati City.
4
Id. at 74-75.
Decision 2 G.R. No. 167615

The Lam Spouses argue that respondent Kodak Philippines, Ltd.s breach of
their contract of sale entitles them to damages more than the amount
awarded by the Court of Appeals.5

On January 8, 1992, the Lam Spouses and Kodak Philippines, Ltd.

entered into an agreement (Letter Agreement) for the sale of three (3) units
of the Kodak Minilab System 22XL6 (Minilab Equipment) in the amount of
1,796,000.00 per unit,7 with the following terms:

This confirms our verbal agreement for Kodak Phils., Ltd. to

provide Colorkwik Laboratories, Inc. with three (3) units Kodak
Minilab System 22XL . . . for your proposed outlets in Rizal
Avenue (Manila), Tagum (Davao del Norte), and your existing
Multicolor photo counter in Cotabato City under the following
terms and conditions:

1. Said Minilab Equipment packages will avail a total of 19%

multiple order discount based on prevailing equipment price
provided said equipment packages will be purchased not later than
June 30, 1992.

2. 19% Multiple Order Discount shall be applied in the form of

merchandise and delivered in advance immediately after signing of
the contract.
* Also includes start-up packages worth P61,000.00.

3. NO DOWNPAYMENT.

4. Minilab Equipment Package shall be payable in 48 monthly

installments at THIRTY FIVE THOUSAND PESOS (P35,000.00)
inclusive of 24% interest rate for the first 12 months; the balance
shall be re-amortized for the remaining 36 months and the
prevailing interest shall be applied.

5. Prevailing price of Kodak Minilab System 22XL as of January

8, 1992 is at ONE MILLION SEVEN HUNDRED NINETY SIX
THOUSAND PESOS.

6. Price is subject to change without prior notice.

*Secured with PDCs; 1st monthly amortization due 45 days after
installation[.]8

On January 15, 1992, Kodak Philippines, Ltd. delivered one (1) unit

5
Id. at 462, 468, 469, and 472473.
6
Id. at 76. The Kodak Minilab System 22XL is a Noritsu QSS 1501 with 430-2 Film Processor (non
plumbed) with standard accessories.
7
Id. at 76.
8
Id. at 94.
Decision 3 G.R. No. 167615

of the Minilab Equipment in Tagum, Davao Province.9 The delivered unit

was installed by Noritsu representatives on March 9, 1992.10 The Lam
Spouses issued postdated checks amounting to 35,000.00 each for 12
months as payment for the first delivered unit, with the first check due on
March 31, 1992.11

The Lam Spouses requested that Kodak Philippines, Ltd. not negotiate
the check dated March 31, 1992 allegedly due to insufficiency of funds.12
The same request was made for the check due on April 30, 1992. However,
both checks were negotiated by Kodak Philippines, Ltd. and were honored
by the depository bank.13 The 10 other checks were subsequently
dishonored after the Lam Spouses ordered the depository bank to stop
payment.14

Kodak Philippines, Ltd. canceled the sale and demanded that the Lam
Spouses return the unit it delivered together with its accessories.15 The Lam
Spouses ignored the demand but also rescinded the contract through the
letter dated November 18, 1992 on account of Kodak Philippines, Ltd.s
failure to deliver the two (2) remaining Minilab Equipment units.16

On November 25, 1992, Kodak Philippines, Ltd. filed a Complaint for

replevin and/or recovery of sum of money. The case was raffled to Branch
61 of the Regional Trial Court, Makati City.17 The Summons and a copy of
Kodak Philippines, Ltd.s Complaint was personally served on the Lam
Spouses.18

The Lam Spouses failed to appear during the pre-trial conference and
submit their pre-trial brief despite being given extensions.19 Thus, on July
30, 1993, they were declared in default.20 Kodak Philippines, Ltd. presented
evidence ex-parte.21 The trial court issued the Decision in favor of Kodak
Philippines, Ltd. ordering the seizure of the Minilab Equipment, which

9
Id. at 76.
10
Id.
11
Id.
12
Id.
13
Id.
14
Id.
15
Id. at 106. In the letter dated October 14, 2002, Kodak Philippines, Ltd., through counsel, demanded
from the Lam Spouses the surrender of possession of the delivered unit of the Minilab Equipment and
its accessories. The letter stated that failure to comply will prompt Kodak Philippines, Ltd. to file a
case for recovery of possession.
16
Id. at 68.
17
Id. In the Lam Spouses Petition for Review, the checks were issued in favor of Kodak Philippines,
Ltd. on March 9, 1992, the same day the first unit was delivered, in accordance with the Letter
Agreement which provided that the first check would be due 45 days after the installation of the
system (Id. at 13).
18
Id. at 1920.
19
Id. at 76.
20
Id.
21
Id.
Decision 4 G.R. No. 167615

included the lone delivered unit, its standard accessories, and a separate
generator set.22 Based on this Decision, Kodak Philippines, Ltd. was able to
obtain a writ of seizure on December 16, 1992 for the Minilab Equipment
installed at the Lam Spouses outlet in Tagum, Davao Province.23 The writ
was enforced on December 21, 1992, and Kodak Philippines, Ltd. gained
possession of the Minilab Equipment unit, accessories, and the generator
set.24

The Lam Spouses then filed before the Court of Appeals a Petition to
Set Aside the Orders issued by the trial court dated July 30, 1993 and August
13, 1993. These Orders were subsequently set aside by the Court of Appeals
Ninth Division, and the case was remanded to the trial court for pre-trial.25

On September 12, 1995, an Urgent Motion for Inhibition was filed

against Judge Fernando V. Gorospe, Jr.,26 who had issued the writ of
seizure.27 The ground for the motion for inhibition was not provided.
Nevertheless, Judge Fernando V. Gorospe Jr. inhibited himself, and the case
was reassigned to Branch 65 of the Regional Trial Court, Makati City on
October 3, 1995.28

In the Decision dated February 26, 1999, the Regional Trial Court
found that Kodak Philippines, Ltd. defaulted in the performance of its
obligation under its Letter Agreement with the Lam Spouses.29 It held that
Kodak Philippines, Ltd.s failure to deliver two (2) out of the three (3) units
of the Minilab Equipment caused the Lam Spouses to stop paying for the
rest of the installments.30 The trial court noted that while the Letter
Agreement did not specify a period within which the delivery of all units
was to be made, the Civil Code provides reasonable time as the standard
period for compliance:

The second paragraph of Article 1521 of the Civil Code provides:

Where by a contract of sale the seller is

bound to send the goods to the buyer, but no time
for sending them is fixed, the seller is bound to send
them within a reasonable time.

What constitutes reasonable time is dependent on the

circumstances availing both on the part of the seller and the buyer.
In this case, delivery of the first unit was made five (5) days after
the date of the agreement. Delivery of the other two (2) units,
22
Id.
23
Id. at 439.
24
Id. at 76
25
Id.
26
Id. at 77.
27
Id. at 113.
28
Id. at 77.
29
Id.
30
Id.
Decision 5 G.R. No. 167615

however, was never made despite the lapse of at least three (3)
months.31

Kodak Philippines, Ltd. failed to give a sufficient explanation for its

failure to deliver all three (3) purchased units within a reasonable time.32

The trial court found:

Kodak would have the court believe that it did not deliver the other
two (2) units due to the failure of defendants to make good the
installments subsequent to the second. The court is not convinced. First
of all, there should have been simultaneous delivery on account of the
circumstances surrounding the transaction. . . . Even after the first delivery
. . . no delivery was made despite repeated demands from the defendants
and despite the fact no installments were due. Then in March and in April
(three and four months respectively from the date of the agreement and the
first delivery) when the installments due were both honored, still no
delivery was made.

Second, although it might be said that Kodak was testing the

waters with just one delivery - determining first defendants capacity to
pay - it was not at liberty to do so. It is implicit in the letter agreement
that delivery within a reasonable time was of the essence and failure to so
deliver within a reasonable time and despite demand would render the
vendor in default.

....

Third, at least two (2) checks were honored. If indeed Kodak

refused delivery on account of defendants inability to pay, non-delivery
during the two (2) months that payments were honored is unjustified.33

Nevertheless, the trial court also ruled that when the Lam Spouses
accepted delivery of the first unit, they became liable for the fair value of the
goods received:

On the other hand, defendants accepted delivery of one (1) unit.

Under Article 1522 of the Civil Code, in the event the buyer accepts
incomplete delivery and uses the goods so delivered, not then knowing
that there would not be any further delivery by the seller, the buyer shall
be liable only for the fair value to him of the goods received. In other
words, the buyer is still liable for the value of the property received.
Defendants were under obligation to pay the amount of the unit. Failure
of delivery of the other units did not thereby give unto them the right to
suspend payment on the unit delivered. Indeed, in incomplete deliveries,
the buyer has the remedy of refusing payment unless delivery is first
made. In this case though, payment for the two undelivered units have not
even commenced; the installments made were for only one (1) unit.

31
Id.
32
Id. at 7778.
33
Id.
Decision 6 G.R. No. 167615

Hence, Kodak is right to retrieve the unit delivered.34

The Lam Spouses were under obligation to pay for the amount of one
unit, and the failure to deliver the remaining units did not give them the right
to suspend payment for the unit already delivered.35 However, the trial court
held that since Kodak Philippines, Ltd. had elected to cancel the sale and
retrieve the delivered unit, it could no longer seek payment for any
deterioration that the unit may have suffered while under the custody of the
Lam Spouses.36

As to the generator set, the trial court ruled that Kodak Philippines,
Ltd. attempted to mislead the court by claiming that it had delivered the
generator set with its accessories to the Lam Spouses, when the evidence
showed that the Lam Spouses had purchased it from Davao Ken Trading, not
from Kodak Philippines, Ltd.37 Thus, the generator set that Kodak
Philippines, Ltd. wrongfully took from the Lam Spouses should be
replaced.38

The dispositive portion of the Regional Trial Court Decision reads:

PREMISES CONSIDERED, the case is hereby dismissed. Plaintiff

is ordered to pay the following:

1) PHP 130,000.00 representing the amount of the generator set,

plus legal interest at 12% per annum from December 1992 until fully paid;
and

2) PHP 1,300,000.00 as actual expenses in the renovation of the

Tagum, Davao and Rizal Ave., Manila outlets.

SO ORDERED.39

34
Id. at 78. CIVIL CODE, art. 1522: Where the seller delivers to the buyer a quantity of goods less than
he contracted to sell, the buyer may reject them, but if the buyer accepts or retains the goods so
delivered, knowing that the seller is not going to perform the contract in full, he must pay for them at
the contract rate. If, however, the buyer has used or disposed of the goods delivered before he knows
that the seller is not going to perform his contract in full, the buyer shall not be liable for more than the
fair value to him of the goods so received.
Where the seller delivers to the buyer a quantity of goods larger than he contracted to sell, the buyer
may accept the goods included in the contract and reject the rest. If the buyer accepts the whole of the
goods so delivered he must pay for them at the contract rate.
Where the seller delivers to the buyer the goods he contracted to sell mixed with goods of a different
description not included in the contract, the buyer may accept the goods which are in accordance with
the contract and reject the rest.
In the preceding two paragraphs, if the subject matter is indivisible, the buyer may reject the whole of
the goods.
The provisions of this article are subject to any usage of trade, special agreement, or course of dealing
between the parties. (n)
35
Id.
36
Id
37
Id. at 80.
38
Id.
39
Id.
Decision 7 G.R. No. 167615

On March 31, 1999, the Lam Spouses filed their Notice of Partial
Appeal, raising as an issue the Regional Trial Courts failure to order Kodak
Philippines, Ltd. to pay: (1) 2,040,000 in actual damages; (2) 50,000,000
in moral damages; (3) 20,000,000 in exemplary damages; (4) 353,000 in
attorneys fees; and (5) 300,000 as litigation expenses.40 The Lam Spouses
did not appeal the Regional Trial Courts award for the generator set and the
renovation expenses.41

Kodak Philippines, Ltd. also filed an appeal. However, the Court of

Appeals42 dismissed it on December 16, 2002 for Kodak Philippines, Ltd.s
failure to file its appellants brief, without prejudice to the continuation of
the Lam Spouses appeal.43 The Court of Appeals December 16, 2002
Resolution denying Kodak Philippines, Ltd.s appeal became final and
executory on January 4, 2003.44

In the Decision45 dated March 30, 2005, the Court of Appeals Special
Fourteenth Division modified the February 26, 1999 Decision of the
Regional Trial Court:

WHEREFORE, PREMISES CONSIDERED, the Assailed

Decision dated 26 February 1999 of the Regional Trial Court, Branch 65
in Civil Case No. 92-3442 is hereby MODIFIED. Plaintiff-appellant is
ordered to pay the following:

1. P130,000.00 representing the amount of the generator set,

plus legal interest at 12% per annum from December 1992
until fully paid; and

2. P440,000.00 as actual damages;

3. P25,000.00 as moral damages; and

4. P50,000.00 as exemplary damages.

SO ORDERED.46 (Emphasis supplied)

The Court of Appeals agreed with the trial courts Decision, but
extensively discussed the basis for the modification of the dispositive
portion.

40
Id. at 23.
41
Id.
42
Id. at 129. The Resolution was penned by Associate Justice Oswaldo D. Agcaoili and concurred in by
Associate Justices Eliezer R. De Los Santos and Regalado E. Maambong of the Thirteenth Division,
Court of Appeals Manila.
43
Id.
44
Id. at 130. A Partial Entry of Judgment was issued by the Court of Appeals on January 4, 2003.
45
Id. at 5875. The Decision was penned by Associate Justice Andres B. Reyes, Jr. and concurred in by
Associate Justices Lucas P. Bersamin (now an Associate Justice of this court) and Rosalinda Asuncion-
Vicente of the Special Fourteenth Division, Court of Appeals Manila.
46
Id. at 7475.
Decision 8 G.R. No. 167615

The Court of Appeals ruled that the Letter Agreement executed by the
parties showed that their obligations were susceptible of partial performance.
Under Article 1225 of the New Civil Code, their obligations are divisible:

In determining the divisibility of an obligation, the following

factors may be considered, to wit: (1) the will or intention of the
parties, which may be expressed or presumed; (2) the objective or
purpose of the stipulated prestation; (3) the nature of the thing; and
(4) provisions of law affecting the prestation.

Applying the foregoing factors to this case, We found that

the intention of the parties is to be bound separately for each
Minilab Equipment to be delivered as shown by the separate
purchase price for each of the item, by the acceptance of Sps. Lam
of separate deliveries for the first Minilab Equipment and for those
of the remaining two and the separate payment arrangements for
each of the equipment. Under this premise, Sps. Lam shall be
liable for the entire amount of the purchase price of the Minilab
Equipment delivered considering that Kodak had already
completely fulfilled its obligation to deliver the same. . . .

Third, it is also evident that the contract is one that is

severable in character as demonstrated by the separate purchase
price for each of the minilab equipment. If the part to be
performed by one party consists in several distinct and separate
items and the price is apportioned to each of them, the contract will
generally be held to be severable. In such case, each distinct
stipulation relating to a separate subject matter will be treated as a
separate contract. Considering this, Kodak's breach of its
obligation to deliver the other two (2) equipment cannot bar its
recovery for the full payment of the equipment already delivered.
As far as Kodak is concerned, it had already fully complied with its
separable obligation to deliver the first unit of Minilab
Equipment.47 (Emphasis supplied)

The Court of Appeals held that the issuance of a writ of replevin is

proper insofar as the delivered Minilab Equipment unit and its standard
accessories are concerned, since Kodak Philippines, Ltd. had the right to
possess it:48

The purchase price of said equipment is P1,796,000.00 which,

under the agreement is payable with forty eight (48) monthly amortization.
It is undisputed that Sps. Lam made payments which amounted to Two
Hundred Seventy Thousand Pesos (P270,000.00) through the following
checks: Metrobank Check Nos. 00892620 and 00892621 dated 31 March
1992 and 30 April 1992 respectively in the amount of Thirty Five
Thousand Pesos (P35,000.00) each, and BPI Family Check dated 31 July

47
Id. at 6667, citing 4 ARTURO TOLENTINO, COMMENTARIES AND JURISPRUDENCE ON THE CIVIL CODE
OF THE PHILIPPINES, 255257 (1995 ed.).
48
Id. at 64.
Decision 9 G.R. No. 167615

1992 amounting to Two Hundred Thousand Pesos (P200,000.00). This

being the case, Sps. Lam are still liable to Kodak in the amount of One
Million Five Hundred Twenty Six Thousand Pesos (P1,526,000.00), which
is payable in several monthly amortization, pursuant to the Letter
Agreement. However, Sps. Lam admitted that sometime in May 1992, they
had already ordered their drawee bank to stop the payment on all the
other checks they had issued to Kodak as payment for the Minilab
Equipment delivered to them. Clearly then, Kodak ha[d] the right to
repossess the said equipment, through this replevin suit. Sps. Lam cannot
excuse themselves from paying in full the purchase price of the equipment
delivered to them on account of Kodaks breach of the contract to deliver
the other two (2) Minilab Equipment, as contemplated in the Letter
Agreement.49 (Emphasis supplied)

Echoing the ruling of the trial court, the Court of Appeals held that the
liability of the Lam Spouses to pay the remaining balance for the first
delivered unit is based on the second sentence of Article 1592 of the New
Civil Code.50 The Lam Spouses receipt and use of the Minilab Equipment
before they knew that Kodak Philippines, Ltd. would not deliver the two (2)
remaining units has made them liable for the unpaid portion of the purchase
price.51

The Court of Appeals noted that Kodak Philippines, Ltd. sought the
rescission of its contract with the Lam Spouses in the letter dated October
14, 1992.52 The rescission was based on Article 1191 of the New Civil
Code, which provides: The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not comply with what is
incumbent upon him.53 In its letter, Kodak Philippines, Ltd. demanded that
the Lam Spouses surrender the lone delivered unit of Minilab Equipment
along with its standard accessories.54

The Court of Appeals likewise noted that the Lam Spouses rescinded
the contract through its letter dated November 18, 1992 on account of Kodak
Philippines, Inc.s breach of the parties agreement to deliver the two (2)
remaining units.55

As a result of this rescission under Article 1191, the Court of Appeals

ruled that both parties must be restored to their original situation, as far as
practicable, as if the contract was never entered into.56 The Court of
Appeals ratiocinated that Article 1191 had the effect of extinguishing the

49
Id. at 6465.
50
Id. at 65.
51
Id. at 6566.
52
Id. at 68.
53
Id.
54
Id.
55
Id.
56
Id. at 69.
Decision 10 G.R. No. 167615

obligatory relation as if one was never created:57

To rescind is to declare a contract void in its inception and to put an

end to it as though it never were. It is not merely to terminate it
and to release parties from further obligations to each other but
abrogate it from the beginning and restore parties to relative
positions which they would have occupied had no contract been
made.58

The Lam Spouses were ordered to relinquish possession of the

Minilab Equipment unit and its standard accessories, while Kodak
Philippines, Ltd. was ordered to return the amount of 270,000.00, tendered
by the Lam Spouses as partial payment.59

As to the actual damages sought by the parties, the Court of Appeals

found that the Lam Spouses were able to substantiate the following:

Incentive fee paid to Mr. Ruales in the amount of P100,000.00; the

rider to the contract of lease which made the Sps. Lam liable, by
way of advance payment, in the amount of P40,000.00, the same
being intended for the repair of the flooring of the leased premises;
and lastly, the payment of P300,000.00, as compromise agreement
for the pre-termination of the contract of lease with Ruales.60

The total amount is 440,000.00. The Court of Appeals found that all
other claims made by the Lam Spouses were not supported by evidence,
either through official receipts or check payments.61

As regards the generator set improperly seized from Kodak

Philippines, Ltd. on the basis of the writ of replevin, the Court of Appeals
found that there was no basis for the Lam Spouses claim for reasonable
rental of 5,000.00. It held that the trial courts award of 12% interest, in
addition to the cost of the generator set in the amount of 130,000.00, is
sufficient compensation for whatever damage the Lam Spouses suffered on
account of its improper seizure.62

The Court of Appeals also ruled on the Lam Spouses entitlement to

moral and exemplary damages, as well as attorneys fees and litigation
expenses:

In seeking recovery of the Minilab Equipment, Kodak cannot be

57
Id. at 68.
58
Id. at 69.
59
Id.
60
Id. at 71.
61
Id. at 7172.
62
Id. at 73.
Decision 11 G.R. No. 167615

considered to have manifested bad faith and malevolence because as

earlier ruled upon, it was well within its right to do the same. However,
with respect to the seizure of the generator set, where Kodak
misrepresented to the court a quo its alleged right over the said item,
Kodaks bad faith and abuse of judicial processes become self-evident.
Considering the off-setting circumstances attendant, the amount of
P25,000.00 by way of moral damages is considered sufficient.

In addition, so as to serve as an example to the public that an

application for replevin should not be accompanied by any false claims
and misrepresentation, the amount of P50,000.00 by way of exemplary
damages should be pegged against Kodak.

With respect to the attorneys fees and litigation expenses, We find

that there is no basis to award Sps. Lam the amount sought for.63

Kodak Philippines, Ltd. moved for reconsideration of the Court of

Appeals Decision, but it was denied for lack of merit.64 However, the Court
of Appeals noted that the Lam Spouses Opposition correctly pointed out
that the additional award of 270,000.00 made by the trial court was not
mentioned in the decretal portion of the March 30, 2005 Decision:

Going over the Decision, specifically page 12 thereof, the Court

noted that, in addition to the amount of Two Hundred Seventy Thousand
(P270,000.00) which plaintiff-appellant should return to the defendants-
appellants, the Court also ruled that defendants-appellants should, in turn,
relinquish possession of the Minilab Equipment and the standard
accessories to plaintiff-appellant. Inadvertently, these material items were
not mentioned in the decretal portion of the Decision. Hence, the proper
correction should herein be made.65

The Lam Spouses filed this Petition for Review on April 14, 2005. On
the other hand, Kodak Philippines, Ltd. filed its Motion for
Reconsideration66 before the Court of Appeals on April 22, 2005.

While the Petition for Review on Certiorari filed by the Lam Spouses
was pending before this court, the Court of Appeals Special Fourteenth
Division, acting on Kodak Philippines, Ltd.s Motion for Reconsideration,
issued the Amended Decision67 dated September 9, 2005. The dispositive
portion of the Decision reads:

WHEREFORE, premises considered, this Court resolved that:

63
Id. at 7374.
64
Id. at 368371.
65
Id. at 369.
66
Id. at 385.
67
Id. at 367. The Amended Decision was penned by Associate Justice Andres B. Reyes, Jr. and
concurred in by Associate Justices Lucas P. Bersamin (now an Associate Justice of this court) and
Rosalinda Asuncion-Vicente of the Special Fourteenth Division, Court of Appeals Manila.
Decision 12 G.R. No. 167615

A. Plaintiff-appellants Motion for Reconsideration is hereby

DENIED for lack of merit.

B. The decretal portion of the 30 March 2005 Decision should now

read as follows:

WHEREFORE, PREMISES CONSIDERED, the

Assailed Decision dated 26 February 1999 of the Regional
Trial Court, Branch 65 in Civil Cases No. 92-3442 is
hereby MODIFIED. Plaintiff-appellant is ordered to pay
the following:

a. P270,000.00 representing the

partial payment made on the Minilab
equipment.

b. P130,000.00 representing the

amount of the generator set, plus legal
interest at 12% per annum from December
1992 until fully paid;

c. P440,000.00 as actual damages;

d. P25,000.00 as moral damages;

and

e. P50,000.00 as exemplary
damages.

Upon the other hand, defendants-appellants are

hereby ordered to return to plaintiff-appellant the Minilab
equipment and the standard accessories delivered by
plaintiff-appellant.

SO ORDERED.

SO ORDERED.68 (Emphasis in the original)

Upon receiving the Amended Decision of the Court of Appeals,

Kodak Philippines, Ltd. filed a Motion for Extension of Time to File an
Appeal by Certiorari under Rule 45 of the 1997 Rules of Civil Procedure
before this court.69

This was docketed as G.R. No. 169639. In the Motion for

Consolidation dated November 2, 2005, the Lam Spouses moved that G.R.
No. 167615 and G.R. No. 169639 be consolidated since both involved the
same parties, issues, transactions, and essential facts and circumstances.70

In the Resolution dated November 16, 2005, this court noted the Lam
68
Id. at 370371.
69
Id. at 393.
70
Id. at 384388.
Decision 13 G.R. No. 167615

Spouses September 23 and September 30, 2005 Manifestations praying that

the Court of Appeals September 9, 2005 Amended Decision be considered
in the resolution of the Petition for Review on Certiorari.71 It also granted
the Lam Spouses Motion for Consolidation.72

In the Resolution73 dated September 20, 2006, this court

deconsolidated G.R No. 167615 from G.R. No. 169639 and declared G.R.
No. 169639 closed and terminated since Kodak Philippines, Ltd. failed to
file its Petition for Review.

II

We resolve the following issues:

First, whether the contract between petitioners Spouses Alexander and

Julie Lam and respondent Kodak Philippines, Ltd. pertained to obligations
that are severable, divisible, and susceptible of partial performance under
Article 1225 of the New Civil Code; and

Second, upon rescission of the contract, what the parties are entitled to
under Article 1190 and Article 1522 of the New Civil Code.

Petitioners argue that the Letter Agreement it executed with

respondent for three (3) Minilab Equipment units was not severable,
divisible, and susceptible of partial performance. Respondents recovery of
the delivered unit was unjustified.74

Petitioners assert that the obligations of the parties were not

susceptible of partial performance since the Letter Agreement was for a
package deal consisting of three (3) units.75 For the delivery of these units,
petitioners were obliged to pay 48 monthly payments, the total of which
constituted one debt.76 Having relied on respondents assurance that the
three units would be delivered at the same time, petitioners simultaneously
rented and renovated three stores in anticipation of simultaneous
operations.77 Petitioners argue that the divisibility of the object does not
necessarily determine the divisibility of the obligation since the latter is
tested against its susceptibility to a partial performance.78 They argue that
even if the object is susceptible of separate deliveries, the transaction is
71
Id. at 383A.
72
Id. at 383B.
73
Id. at 504.
74
Id. at 446456.
75
Id. at 449.
76
Id.
77
Id. at 450.
78
Id. at 450453.
Decision 14 G.R. No. 167615

indivisible if the parties intended the realization of all parts of the agreed
obligation.79

Petitioners support the claim that it was the parties intention to have
an indivisible agreement by asserting that the payments they made to
respondent were intended to be applied to the whole package of three units.80
The postdated checks were also intended as initial payment for the whole
package.81 The separate purchase price for each item was merely intended
to particularize the unit prices, not to negate the indivisible nature of their
transaction.82 As to the issue of delivery, petitioners claim that their
acceptance of separate deliveries of the units was solely due to the
constraints faced by respondent, who had sole control over delivery
matters.83

With the obligation being indivisible, petitioners argue that

respondents failure to comply with its obligation to deliver the two (2)
remaining Minilab Equipment units amounted to a breach. Petitioners claim
that the breach entitled them to the remedy of rescission and damages under
Article 1191 of the New Civil Code.84

Petitioners also argue that they are entitled to moral damages more
than the 50,000.00 awarded by the Court of Appeals since respondents
wrongful act of accusing them of non-payment of their obligations caused
them sleepless nights, mental anguish, and wounded feelings.85 They further
claim that, to serve as an example for the public good, they are entitled to
exemplary damages as respondent, in making false allegations, acted in
evident bad faith and in a wanton, oppressive, capricious, and malevolent
manner.86

Petitioners also assert that they are entitled to attorneys fees and
litigation expenses under Article 2208 of the New Civil Code since
respondents act of bringing a suit against them was baseless and malicious.
This prompted them to engage the services of a lawyer.87

Respondent argues that the parties Letter Agreement contained

divisible obligations susceptible of partial performance as defined by Article
1225 of the New Civil Code.88 In respondents view, it was the intention of

79
Id. at 3031 and 453.
80
Id. at 455.
81
Id. at 456.
82
Id. at 455456.
83
Id. at 456.
84
Id. at 460.
85
Id. at 462.
86
Id. at 468469.
87
Id. at 472473.
88
Id. at 548.
Decision 15 G.R. No. 167615

the parties to be bound separately for each individually priced Minilab

Equipment unit to be delivered to different outlets:89

The three (3) Minilab Equipment are intended by petitioners LAM

for install[a]tion at their Tagum, Davao del Norte, Sta. Cruz, Manila and
Cotabato City outlets. Each of these units [is] independent from one
another, as many of them may perform its own job without the other.
Clearly the objective or purpose of the prestation, the obligation is
divisible.

The nature of each unit of the three (3) Minilab Equipment is such
that one can perform its own functions, without awaiting for the other
units to perform and complete its job. So much so, the nature of the object
of the Letter Agreement is susceptible of partial performance, thus the
obligation is divisible.90

With the contract being severable in character, respondent argues that

it performed its obligation when it delivered one unit of the Minilab
Equipment.91 Since each unit could perform on its own, there was no need
to await the delivery of the other units to complete its job.92 Respondent
then is of the view that when petitioners ordered the depository bank to stop
payment of the issued checks covering the first delivered unit, they violated
their obligations under the Letter Agreement since respondent was already
entitled to full payment.93

Respondent also argues that petitioners benefited from the use of the
Minilab Equipment for 10 monthsfrom March to December 1992
despite having paid only two (2) monthly installments.94 Respondent avers
that the two monthly installments amounting to 70,000.00 should be the
subject of an offset against the amount the Court of Appeals awarded to
petitioners.95

Respondent further avers that petitioners have no basis for claiming

damages since the seizure and recovery of the Minilab Equipment was not in
bad faith and respondent was well within its right.96

III

The Letter Agreement contained an indivisible obligation.

89
Id. at 548549.
90
Id. at 549.
91
Id.
92
Id.
93
Id. at 550.
94
Id at 551.
95
Id. at 552.
96
Id. at 554.
Decision 16 G.R. No. 167615

Both parties rely on the Letter Agreement97 as basis of their respective

obligations. Written by respondents Jeffrey T. Go and Antonio V. Mines
and addressed to petitioner Alexander Lam, the Letter Agreement
contemplated a package deal involving three (3) units of the Kodak
Minilab System 22XL, with the following terms and conditions:

This confirms our verbal agreement for Kodak Phils., Ltd. to

provide Colorkwik Laboratories, Inc. with three (3) units Kodak
Minilab System 22XL . . . for your proposed outlets in Rizal
Avenue (Manila), Tagum (Davao del Norte), and your existing
Multicolor photo counter in Cotabato City under the following
terms and conditions:

1. Said Minilab Equipment packages will avail a total of 19%

multiple order discount based on prevailing equipment price
provided said equipment packages will be purchased not later than
June 30, 1992.

2. 19% Multiple Order Discount shall be applied in the form of

merchandise and delivered in advance immediately after signing of
the contract.
* Also includes start-up packages worth P61,000.00.

3. NO DOWNPAYMENT.

4. Minilab Equipment Package shall be payable in 48 monthly

installments at THIRTY FIVE THOUSAND PESOS (P35,000.00)
inclusive of 24% interest rate for the first 12 months; the balance
shall be re-amortized for the remaining 36 months and the
prevailing interest shall be applied.

5. Prevailing price of Kodak Minilab System 22XL as of January

8, 1992 is at ONE MILLION SEVEN HUNDRED NINETY SIX
THOUSAND PESOS.

6. Price is subject to change without prior notice.

*Secured with PDCs; 1st monthly amortization due 45 days after
installation[.]98

Based on the foregoing, the intention of the parties is for there to be a

single transaction covering all three (3) units of the Minilab Equipment.
Respondents obligation was to deliver all products purchased under a
package, and, in turn, petitioners obligation was to pay for the total
purchase price, payable in installments.

The intention of the parties to bind themselves to an indivisible

obligation can be further discerned through their direct acts in relation to the
package deal. There was only one agreement covering all three (3) units of
the Minilab Equipment and their accessories. The Letter Agreement
97
Id. at 94.
98
Id. at 94.
Decision 17 G.R. No. 167615

specified only one purpose for the buyer, which was to obtain these units for
three different outlets. If the intention of the parties were to have a divisible
contract, then separate agreements could have been made for each Minilab
Equipment unit instead of covering all three in one package deal.
Furthermore, the 19% multiple order discount as contained in the Letter
Agreement was applied to all three acquired units.99 The no downpayment
term contained in the Letter Agreement was also applicable to all the
Minilab Equipment units. Lastly, the fourth clause of the Letter Agreement
clearly referred to the object of the contract as Minilab Equipment
Package.

In ruling that the contract between the parties intended to cover

divisible obligations, the Court of Appeals highlighted: (a) the separate
purchase price of each item; (b) petitioners acceptance of separate deliveries
of the units; and (c) the separate payment arrangements for each unit.100
However, through the specified terms and conditions, the tenor of the Letter
Agreement indicated an intention for a single transaction. This intent must
prevail even though the articles involved are physically separable and
capable of being paid for and delivered individually, consistent with the New
Civil Code:

Article 1225. For the purposes of the preceding articles,

obligations to give definite things and those which are not
susceptible of partial performance shall be deemed to be
indivisible.

When the obligation has for its object the execution of a certain
number of days of work, the accomplishment of work by metrical
units, or analogous things which by their nature are susceptible of
partial performance, it shall be divisible.

However, even though the object or service may be physically

divisible, an obligation is indivisible if so provided by law or
intended by the parties. (Emphasis supplied)

In Nazareno v. Court of Appeals,101 the indivisibility of an obligation

is tested against whether it can be the subject of partial performance:

An obligation is indivisible when it cannot be validly performed in

parts, whatever may be the nature of the thing which is the object thereof.
The indivisibility refers to the prestation and not to the object thereof. In
the present case, the Deed of Sale of January 29, 1970 supposedly
conveyed the six lots to Natividad. The obligation is clearly indivisible
because the performance of the contract cannot be done in parts, otherwise
the value of what is transferred is diminished. Petitioners are therefore

99
Id. at 356. Aside from the Letter Agreement, the 19% Multiple Order Discount was also contained in
the Sample Computation supplied by respondent to petitioner.
100
Id. at 66.
101
397 Phil. 707 (2000) [Per J. Mendoza, Second Division].
Decision 18 G.R. No. 167615

mistaken in basing the indivisibility of a contract on the number of

obligors.102 (Emphasis supplied, citation omitted)

There is no indication in the Letter Agreement that the units

petitioners ordered were covered by three (3) separate transactions. The
factors considered by the Court of Appeals are mere incidents of the
execution of the obligation, which is to deliver three units of the Minilab
Equipment on the part of respondent and payment for all three on the part of
petitioners. The intention to create an indivisible contract is apparent from
the benefits that the Letter Agreement afforded to both parties. Petitioners
were given the 19% discount on account of a multiple order, with the
discount being equally applicable to all units that they sought to acquire.
The provision on no downpayment was also applicable to all units.
Respondent, in turn, was entitled to payment of all three Minilab Equipment
units, payable by installments.

IV

With both parties opting for rescission of the contract under Article
1191, the Court of Appeals correctly ordered for restitution.

The contract between the parties is one of sale, where one party
obligates himself or herself to transfer the ownership and deliver a
determinate thing, while the other pays a certain price in money or its
equivalent.103 A contract of sale is perfected upon the meeting of minds as to
the object and the price, and the parties may reciprocally demand the
performance of their respective obligations from that point on.104

The Court of Appeals correctly noted that respondent had rescinded

the parties Letter Agreement through the letter dated October 14, 1992.105 It
likewise noted petitioners rescission through the letter dated November 18,
1992.106 This rescission from both parties is founded on Article 1191 of the
New Civil Code:

The power to rescind obligations is implied in reciprocal ones, in

case one of the obligors should not comply with what is incumbent
upon him.

The injured party may choose between the fulfilment and the
rescission of the obligation, with the payment of damages in either

102
Id. at 729.
103
CIVIL CODE, art. 1458 - By the contract of sale, one of the contracting parties obligates himself to
transfer the ownership of and to deliver the determinate thing, and the other to pay therefore a price
certain in money or its equivalent.
104
Province of Cebu v. Heirs of Morales, 569 Phil. 641 (2008) [Per J. Ynares-Santiago, Third Division].
105
Rollo, p. 68.
106
Id.
Decision 19 G.R. No. 167615

case. He may also seek rescission, even after he has chosen

fulfilment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just
cause authorizing the fixing of a period.

Rescission under Article 1191 has the effect of mutual restitution.107

In Velarde v. Court of Appeals:108

Rescission abrogates the contract from its inception and requires a

mutual restitution of benefits received.

....

Rescission creates the obligation to return the object of the

contract. It can be carried out only when the one who demands
rescission can return whatever he may be obliged to restore. To
rescind is to declare a contract void at its inception and to put an
end to it as though it never was. It is not merely to terminate it 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.109 (Emphasis
supplied, citations omitted)

The Court of Appeals correctly ruled that both parties must be restored
to their original situation as far as practicable, as if the contract was never
entered into. Petitioners must relinquish possession of the delivered Minilab
Equipment unit and accessories, while respondent must return the amount
tendered by petitioners as partial payment for the unit received. Further,
respondent cannot claim that the two (2) monthly installments should be
offset against the amount awarded by the Court of Appeals to petitioners
because the effect of rescission under Article 1191 is to bring the parties
back to their original positions before the contract was entered into. Also in
Velarde:

As discussed earlier, the breach committed by petitioners was the

nonperformance of a reciprocal obligation, not a violation of the terms and
conditions of the mortgage contract. Therefore, the automatic rescission
and forfeiture of payment clauses stipulated in the contract does not apply.
Instead, Civil Code provisions shall govern and regulate the resolution of
this controversy.

Considering that the rescission of the contract is based on Article

1191 of the Civil Code, mutual restitution is required to bring back the
parties to their original situation prior to the inception of the contract.
Accordingly, the initial payment of 800,000 and the corresponding
mortgage payments in the amounts of 27,225, 23,000 and 23,925
(totaling 874,150.00) advanced by petitioners should be returned by
107
Laperal v. Southridge, 499 Phil. 367 (2005) [Per J. Garcia, Third Division].
108
413 Phil. 360 (2001) [Per J. Panganiban, Third Division].
109
Id. at 363375.
Decision 20 G.R. No. 167615

private respondents, lest the latter unjustly enrich themselves at the

expense of the former.110 (Emphasis supplied)

When rescission is sought under Article 1191 of the Civil Code, it

need not be judicially invoked because the power to resolve is implied in
reciprocal obligations.111 The right to resolve allows an injured party to
minimize the damages he or she may suffer on account of the other partys
failure to perform what is incumbent upon him or her.112 When a party fails
to comply with his or her obligation, the other partys right to resolve the
contract is triggered.113 The resolution immediately produces legal effects if
the non-performing party does not question the resolution.114 Court
intervention only becomes necessary when the party who allegedly failed to
comply with his or her obligation disputes the resolution of the contract.115
Since both parties in this case have exercised their right to resolve under
Article 1191, there is no need for a judicial decree before the resolution
produces effects.

The issue of damages is a factual one. A petition for review on

certiorari under Rule 45 shall only pertain to questions of law.116 It is not the
duty of this court to re-evaluate the evidence adduced before the lower
courts.117 Furthermore, unless the petition clearly shows that there is grave
abuse of discretion, the findings of fact of the trial court as affirmed by the
Court of Appeals are conclusive upon this court.118 In Lorzano v. Tabayag,
Jr.:119

For a question to be one of law, the same must not involve an

examination of the probative value of the evidence presented by
the litigants or any of them. The resolution of the issue must rest
solely on what the law provides on the given set of circumstances.
Once it is clear that the issue invites a review of the evidence
presented, the question posed is one of fact.

....

For the same reason, we would ordinarily disregard the

petitioners allegation as to the propriety of the award of moral

110
Id. at 375.
111
J. Leonen, Concurring Opinion in EDS Manufacturing, Inc. v. Healthcheck International, Inc., G.R.
No. 162802, October 9, 2013, 707 SCRA 133 [Per J. Peralta, Third Division].
112
Id. See also University of the Philippines v. De Los Angeles, 146 Phil. 108 (1970) [Per J. J. B. L.
Reyes, Second Division].
113
Id.
114
Id.
115
Id.
116
RULES OF COURT, Rule 45, sec. 1.
117
Frondarina v.Malazarte, 539 Phil. 279 (2006) [Per J. Velasco Jr., Third Division].
118
Muaje-Tuazon v. Wenphil Corporation, 540 Phil. 503 (2006) [Per J. Quisumbing, Third Division].
119
Lorzano v. Tabayag, Jr., 681 Phil. 39 (2012) [Per J. Reyes, Second Division].
Decision 21 G.R. No. 167615

damages and attorneys fees in favor of the respondent as it is a

question of fact. Thus, questions on whether or not there was a
preponderance of evidence to justify the award of damages or
whether or not there was a causal connection between the given
set of facts and the damage suffered by the private complainant or
whether or not the act from which civil liability might arise exists
are questions of fact.

Essentially, the petitioner is questioning the award of

moral damages and attorneys fees in favor of the respondent as
the same is supposedly not fully supported by evidence. However,
in the final analysis, the question of whether the said award is fully
supported by evidence is a factual question as it would necessitate
whether the evidence adduced in support of the same has any
probative value. For a question to be one of law, it must involve
no examination of the probative value of the evidence presented by
the litigants or any of them.120 (Emphasis supplied, citations
omitted)

The damages awarded by the Court of Appeals were supported by

documentary evidence.121 Petitioners failed to show any reason why the
factual determination of the Court of Appeals must be reviewed, especially
in light of their failure to produce receipts or check payments to support their
other claim for actual damages.122

Furthermore, the actual damages amounting to 2,040,000.00 being

sought by petitioners123 must be tempered on account of their own failure to
pay the rest of the installments for the delivered unit. This failure on their
part is a breach of their obligation, for which the liability of respondent, for
its failure to deliver the remaining units, shall be equitably tempered on
account of Article 1192 of the New Civil Code.124 In Central Bank of the
Philippines v. Court of Appeals:125

Since both parties were in default in the performance of their

respective reciprocal obligations, that is, Island Savings Bank failed to
comply with its obligation to furnish the entire loan and Sulpicio M.
Tolentino failed to comply with his obligation to pay his 17,000.00 debt
within 3 years as stipulated, they are both liable for damages.

Article 1192 of the Civil Code provides that in case both parties
have committed a breach of their reciprocal obligations, the liability of the
first infractor shall be equitably tempered by the courts. WE rule that the
liability of Island Savings Bank for damages in not furnishing the entire

120
Id. at 4850.
121
Rollo, pp. 7073.
122
Id. at 71.
123
Id. at 52.
124
Article 1192. In case both parties have committed a breach of the obligation, the liability of the first
infractor shall be equitably tempered by the courts. If it cannot be determined which of the parties first
violated the contract, the same shall be deemed extinguished, and each shall bear his won damages.
125
223 Phil. 266 (1985) [Per C.J. Makasiar, Second Division].
Decision 22 G.R. No. 167615

loan is offset by the liability of Sulpicio M. Tolentino for damages, in the

form of penalties and surcharges, for not paying his overdue 17,000.00
debt. The liability of Sulpicio M. Tolentino for interest on his 17,000.00
debt shall not be included in offsetting the liabilities of both parties. Since
Sulpicio M. Tolentino derived some benefit for his use of the 17,000.00,
it is just that he should account for the interest thereon.126 (Emphasis
supplied)

The award for moral and exemplary damages also appears to be

sufficient. Moral damages are granted to alleviate the moral suffering
suffered by a party due to an act of another, but it is not intended to enrich
the victim at the defendants expense.127 It is not meant to punish the
culpable party and, therefore, must always be reasonable vis-a-vis the injury
caused.128 Exemplary damages, on the other hand, are awarded when the
injurious act is attended by bad faith.129 In this case, respondent was found
to have misrepresented its right over the generator set that was seized. As
such, it is properly liable for exemplary damages as an example to the
public.130

However, the dispositive portion of the Court of Appeals Amended

Decision dated September 9, 2005 must be modified to include the recovery
of attorneys fees and costs of suit in favor of petitioners. In Sunbanun v.
Go:131

Furthermore, we affirm the award of exemplary damages and

attorneys fees. Exemplary damages may be awarded when a wrongful act
is accompanied by bad faith or when the defendant acted in a wanton,
fraudulent, reckless, oppressive, or malevolent manner which would
justify an award of exemplary damages under Article 2232 of the Civil
Code. Since the award of exemplary damages is proper in this case,
attorneys fees and cost of the suit may also be recovered as provided
under Article 2208 of the Civil Code.132 (Emphasis supplied, citation
omitted)

Based on the amount awarded for moral and exemplary damages, it is

reasonable to award petitioners 20,000.00 as attorneys fees.

WHEREFORE, the Petition is DENIED. The Amended Decision

dated September 9, 2005 is AFFIRMED with MODIFICATION.
Respondent Kodak Philippines, Ltd. is ordered to pay petitioners Alexander
and Julie Lam:

126
Id. at 276277.
127
Lorzano v. Tabayag, Jr., 681 Phil. 39 (2012) [Per J. Reyes, Second Division].
128
Id.
129
Sunbanun v. Go, 625 Phil. 159 (2010) [Per J. Carpio, Second Division].
130
Rollo, p. 74.
131
625 Phil. 159 (2010) [Per J. Carpio, Second Division].
132
Id. at 166167.
Decision 23 G.R. No. 167615

(a) P270,000.00, representing the partial payment made on

the Minilab Equipment;

(b) P130,000.00, representing the amount of the generator

set, plus legal interest at 12% .per annum from December
1992 until fully paid;

(c) P440,000.00 as actual damages;

(d) P25,000.00 as moral damages;

(e) P50,000.00 as exemplary damages; and

(f) P20,000.00 as attorney's fees.

Petitioners are ordered to return the Kodak Minilab System 22XL unit and
its standard accessories to respondent.

SO ORDERED.

Associate Justice

WE CONCUR:

Associate Justice
Chairperson

@~~ Associate Justice

. - ~6~~
MARIANO C. DEL CASTILLO
Associate Justice
Decision 24 G.R. No. 167615

ATTESTATION

I attest that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the
Court's Division.

z-J
Associate Justice
Chairperson, Second Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division
Chairperson's Attestation, I certify that the conclusions in the above Decision .
had been reached in consultation before the case was assigned to the writer
of the opinion of the Court's Division.

MARIA LOURDES P.A. SERENO

Chief Justice