Republic of the Philippines

SUPREME COURT
Manila
EN BANC
DECISION

September 29, 1967

G.R. No. L-21876
PHILIPPINE AMUSEMENT ENTERPRISES, INC., plaintiff-appellant,
vs.
SOLEDAD NATIVIDAD and MARIANO NATIVIDAD, defendants-appellees.
Disini and Arnobit for plaintiff-appellant.
Isidoro Crisostomo for defendants-appellees.
Castro, J.:
This is an appeal from the decision of the Court of First Instance of Davao
dated May 31, 1962, rescinding, in favor of the defendants, the lease
agreement entered into by the plaintiff Philippine Amusement Enterprises,
Inc. and the defendant Soledad Natividad relative to an automatic
phonograph, ordering the latter to restore the phonograph to the former,
denying the plaintiff's claim for liquidated and exemplary damages,
attorney's fees and costs of suit, and dismissing the defendants'
counterclaim. The plaintiff took the appeal to the Court of Appeals which,
however, certified it to this Court because the questions involved are of law.
On January 6, 1961 the plaintiff, a domestic corporation with main office in
Quezon City and a branch office in Davao City, entered into a contract with
the defendant Soledad Natividad, owner of the Irene's Refreshment Parlor in
Davao City, whereby the former leased to the latter an automatic
phonograph (Seeburg Selectomatic 100-R), more popularly known as
"jukebox". The pertinent provisions of the contract are as follows:
2. The OPERATOR1 agrees to supply and replace parts that may have been
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damaged as a result of ordinary wear and tear without any cost to the
PROPRIETOR;2
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5. The PROPRIETOR shall pay to the OPERATOR, by way of rental for the use
of the aforesaid automatic phonograph, an amount equal to 75% of the
Gross Receipts for the period of one week, but in no case shall the amount
be less than P50.00 a week;
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9. The PROPRIETOR agrees that during the term of this agreement, the
OPERATOR shall have the exclusive right to maintain an automatic
phonograph in the premises, and the PROPRIETOR shall not permit anyone to
install or maintain any phonograph or any other devices for the reproduction
or the transmission of music in any part of the premises;
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11. It is mutually agreed that the duration of this agreement shall be for the
period of three (3) years from the date hereof and shall renew itself
automatically for a like period under the same terms and conditions, unless
either of the parties hereto gives to the other written notice of his intention
to cancel this agreement by registered mail within thirty (30) days before the
expiration of this agreement or any renewal thereof.
12. In the event that the PROPRIETOR shall fail to comply with any of the
terms and conditions of this contract, the OPERATOR, at any time during the
existence of the agreement, shall be entitled as a matter of right to
immediately repossess, and the PROPRIETOR binds himself to voluntarily
surrender the said phonograph; and hereby expressly grants permission to
representatives of the OPERATOR any time for such purposes thereby
waiving any action for trespass or damages.
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15. In the event of a breach of this agreement by the PROPRIETOR, the
parties hereto agree that the OPERATOR shall be entitled to recover as
liquidated damages and not as a penalty or forfeiture, a sum equal to P50.00
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per week for each week remaining of the unexpired term of this agreement;
AND IN THE EVENT OF JUDICIAL PROCEEDINGS TO ENFORCE ANY OF THE
PROVISIONS OF THIS CONTRACT, the OPERATOR shall be entitled to
attorney's fees of not less than P200.00, costs of the action, premiums for
bonds, and other expenses and damages which OPERATOR may suffer or
incur by reason thereof, as well as to the immediate issuance of preliminary
writ of mandatory injunction.
On July 17, 1961, Mariano Natividad, husband of the defendant Soledad
Natividad, wrote the following letter to the plaintiff's branch office in Davao
City:
For two (2) weeks ago, I had advised your representative here in Davao to
get back your jukebox, but until today said representative did not mind us.
So upon receipt of this letter, you are hereby again advised to get the said
Jukebox and failure on your part to get it, we shall not be responsible
anymore for the said Jukebox AWr.
On July 27, 1961 Mariano Natividad wrote another letter to the plaintiff, this
time addressed to its main office in Quezon City, informing it of his letter of
July 17 and of the reasons for requesting the return of the jukebox to the
company. This letter reads as follows:
Please may you hear our revelations or relations prior to the advice we had
made to your company regarding our slight difference from your agent,
stationed here in Davao City.
1. We requested your agent that the said Jukebox should be inspected once
in a while there are times when the said Jukebox stock up and the coins
which will be dropped will just be confiscated due to the selected record
which will not give our selected music VtkVTImh1u.
2. About a year ago, we asked your agent here in Davao City if we could buy
your Jukebox. He replied, "yes" and he will inform the Manila office. From that
time, we made always an inquiry if said matter was already referred to. But
we were surprised why until last May we did not hear any word from your
agent. So we decided to order one from the United States.
3. On July 3rd, we advised personally your agent that the said Jukebox should
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be taken from our establishment. He answered us that he will report the

matter to your Central Office. From July 3rd until July 16th, we had not met
your agent. On the following day, July 17th, we met your agent because he
accounted the income of the said Jukebox and we again told him that the
Jukebox should be taken. He replied that he could not act because there is no
letter from us for the Manila office advising the return of the said Jukebox. So
we made a discussion why he did not tell us if our letter was necessary; so
we wrote a letter on July 17th. At that time when he received our letter, he
requested for an extension of one (1) week for he would forward our letter to
Manila. But according to my wife, your agent told her that he forwarded our
letter last July 22nd. On July 24th, we finally decided to return the said
Jukebox and even have ready laborers to help us load the Jukebox on your
pick-up. Your agent, Mr. Gonzales, remarked angrily that he would not accept
the said Jukebox but will just deposit it in our establishment until the Manila
office will act on it. According to him, your agent, Mr. Gonzales, we could not
remove the said Jukebox from the place because there was a contract. Later
on, Mr. Gonzales calmly requested us again to have an additional extension
of one (1) more week. In this situation we were very embarrassed because
there were many customers and other persons present during our
discussions. Right on that day, we transferred your Jukebox inside our
airconditioned room without any business because Mr. Gonzales told us that
the said Jukebox should be deposited only in our establishment. Your agent,
Mr. Gonzales, is a good agent on the other world but not in this world where
we are living. Beginning July 24th until the time you will get the Jukebox, we
are going to collect a monthly rental of Fifty Pesos (P50.00) for the space
occupying the Jukebox.
In its reply of August 4, 1961 the plaintiff stated that
the stocking up of coins is quite normal in any coin-operated phonograph, as
well as failure to get the desired selection. It has been the policy of our
company, however, to give top priority to the complaints of our customers. It
is not clear from your letter whether our Branch Manager for Davao City has
been remiss in his duties. We are willing to give the benefit of the doubt by
concluding that he might have failed to respond to your calls in time and I
assure you that immediate instructions will be issued from this office
directing him to give personal attention to any service that you might wish in
connection with the said Jukebox.
It as well denied knowledge of the defendants' desire to buy a jukebox and
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deplored the fact that the defendants ordered one from the United States
without first sending the request to buy directly to it since the plaintiff was
anyway willing to sell a jukebox to any interested person. Calling attention to
paragraph 9 of the lease contract which gave it the exclusive right to
maintain an automatic phonograph in the defendants' premises, the plaintiff
asked the defendants to re-install its jukebox and remove the other one
which the defendants had installed in their premises.
On August 4 and October 16, 1961, the plaintiff, through counsel, wrote the
defendant spouses, demanding anew compliance with the lease contract and
the payment of damages, and warning them that it would file the
corresponding action in court if they did not comply with its demand. As the
defendants refused the demand, the plaintiff brought action in the Court of
First Instance of Davao on November 21, 1961, praying for the return to it of
the automatic phonograph, subject of the contract of lease and the payment
of P5,850 as liquidated damages, P5,000 as exemplary damages, P500 as
attorney's fees and P400 as expenses of litigation.
Upon the parties' stipulation of facts, their pleadings and the documentary
evidence submitted by them as annexes to the stipulation of facts and
pleadings, the lower court rendered the decision hereinbefore adverted to.
The plaintiff imputes four errors to the lower court, the vital one being the
court's holding that the facts fully warrant a rescission of the contract of
lease in favor of the defendants by reason of the plaintiff's failure to perform
its obligation to render the automatic phonograph suitable for the purpose
for which it was intended.
It is our view that the decision of the lower court should be reversed on three
grounds.
First. 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. So
the Civil Code provides.3 But it is equally settled that, in the absence of a
stipulation to the contrary, this power must be invoked judicially; it cannot be
exercised solely on a party's own judgment that the other has committed a
breach of the obligation.4 Hence, as there is nothing in the contract of lease
empowering the defendants to rescind it without resort to the courts, the
defendants' action in unilaterally terminating the contract is unjustified. As
this Court said in Escueta v. Pando:5
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The defendant could not, by himself alone and without judicial intervention,
resolve or annul the agreement. Under article 1124 [now art. 1191] of the
Civil Code, the right to resolve reciprocal obligations, in case one of the
obligors shall fail to comply with that which is incumbent upon him, is
deemed to be implied. But that right must be invoked judicially for the same
article also provides: "The court shall decree the resolution demanded,
unless there should be grounds which justify the allowance of a term for the
performance of the obligation."
Second. Rescission will be ordered only where the breach complained of is
substantial as to defeat the object of the parties in entering into the
agreement. It will not be granted where the breach is slight or casual.6 The
defendants asked the plaintiff to retrieve its phonograph, claiming that there
were times when the coins dropped into the slot would get stuck, resulting in
its failure to play the desired music. But apart from this bare statement,
there is nothing in the evidence which shows the frequency with which the
jukebox failed to function properly. The expression "there are times"
connotes occasional failure of the phonograph to operate, not frequent
enough to render it unsuitable and unserviceable. As a matter of fact, there
is not even a claim that, as a result of unsatisfactory performance thereof,
the income therefrom dropped to such a level that the defendants could not
even pay the plaintiff its guaranteed share of P50 a week. On the contrary,
the evidence (Stipulation of Facts, Annexes J, K, L, M, N, and O) shows that,
during the period complained of, the operation of the jukebox was quite
profitable to both parties.7
Third. We believe that the defendants actually bought a jukebox only in 1961
after they had signed the lease contract in question, although they might
have expressed a desire to buy one the year before, for otherwise they would
not have entered into a three-year lease. But certainly their decision to buy a
jukebox and operate it themselves was made long before they ever
complained in July, 1961 of any defect in the rented jukebox. To be sure, it is
not shown when the rented phonograph supposedly developed trouble;
presumably it was early in July, 1961, since the defendants' first letter of
complaint was written on July 17. But if, as defendants admit, they began
operating their own jukebox "sometime in July, 1961" (presumably on July 24,
1961 when they removed the rented jukebox from where it was installed),
then the defendants' pretense that they decided to buy their own jukebox
only after the rented one had failed to function properly becomes highly
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improbable. The jukebox which they ordered from the United States could
not have arrived in so short a time as to enable them to operate it on July 24.
We are rather inclined to believe that the decision to buy a jukebox was
made because the defendants found it more profitable to operate one
themselves. Their letter of July 17, 1961, in which they demanded the
removal of the rented jukebox from their premises, with the warning that
they would not be "responsible anymore" for it, and their other letter of July
27 of like tenor, betray the haste with which they wanted to get out of their
contractual obligations to the plaintiff. We note that they did not even ask
the plaintiff to service the rented jukebox; they asked the plaintiff to remove
the jukebox or they would charge rental for the use of the space occupied by
it. The conviction cannot be avoided that the jukebox which the defendants
had ordered from the United States had arrived and the latter thereafter
conjured up a reason for operating it without being charged with violation of
the lease contract. The defendants' pretenses cannot excuse their culpable
violation of the lease contract; their conduct fully justifies the award of
liquidated damages to the plaintiff bp6fS.
ACCORDINGLY, the judgment a quo is reversed, and the contract of lease
between the plaintiff and the defendant Soledad Natividad is hereby
rescinded in favor of the plaintiff. The defendants are ordered to return to the
plaintiff the automatic phonograph subject of the contract, and to pay the
plaintiff liquidated damages in the total amount of P5,850, plus 6 per cent
interest from the date of the filing of the complaint until the amount shall
have been fully paid, and attorney's fees in the amount of P200. Costs
against the defendants 5sCSUu2.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Angeles
and Fernando, J.J., concur EpRnarB.
Bengzon, J.P., J., took no part.

Footnotes
1Philippine Amusement Enterprises, Inc.
2Soledad Natividad.
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3Civ. Code art. 1191; Abaya v. Standard-Vacuum Oil Co., G.R. L-9511, Aug.
30, 1957; Hodges v. Granada, 59 Phil. 429 (1934).
4Judicial permission to rescind an obligation is not necessary if there is a
special provision in the contract granting the power of cancellation to a party.
E.g., Froilan v. Pan Oriental Shipping Co., G.R. L-11897, Oct. 31, 1964; De la
Rama Steamship Co. v. Tan, G.R. L-8784, May 21, 1956, citing Hanlon v.
Hausermann, 40 Phil. 796 (1920); Taylor v. Uy Tiong Pao 43 Phil. 873 (1922).
576 Phil. 256 (1946).
6See, e.g., Song Fo & Co. v. Hawaiian-Philippine Co., 47 Phil. 821 (1925).
7See Record on Appeal, pp. 22, 57-61. .

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