Article 1171

Article 1171.

Responsibility arising from fraud is demandable in all obligations. Any waiver of an action for the future fraud is void.

The fraud in this article refers to the fraud in the performance of the obligation and not to the fraud in the execution of the contract. It is the intentional evasion of the normal fulfillment of the obligation.

Any deliberate deviation from the normal way of fulfilling the obligation may be a proper basis for claim for damages against the guilty party. But the contract itself will remain intact and valid. The problem lies only in the implementation and not in the execution.

Any waiver of any action for future fraud is void. To allow such waiver:

a.    will render the obligatory force of contracts illusory;

b.    parties can simply disregard their commitments without fear and reprisals;

c.    contracting parties will stop being serious with the performance of their prestations.

However, the law does not prohibit waiver of an action for damages based on fraud already committed. After a party has been defrauded, and he wants to forgive the other party, that is his own concern. The law will not stop him.

                                      

G.R. No. L-26339 December 14, 1979

MARIANO C. PAMINTUAN, petitioner-appellant, 
vs.
COURT OF APPEALS and YU PING KUN CO., INC., respondent-appellees.

THE CASE:

This case is about the recovery compensatory, damages for breach of a contract of sale in addition to liquidated damages.

Mariano C. Pamintuan appealed from the judgment of the Court of Appeals wherein he was ordered to deliver to Yu Ping Kun Co., Inc. certain plastic sheetings and, if he could not do so, to pay the latter P100,559.28 as damages with six percent interest from the date of the filing of the complaint.

FACTS:

In 1960, Pamintuan was the holder of a barter license wherein he was authorized to export to Japan one thousand metric tons of white flint corn valued at forty-seven thousand United States dollars in exchange for a collateral importation of plastic sheetings of an equivalent value.

By virtue of that license, he entered into an agreement to ship his corn to Tokyo Menka Kaisha, Ltd. of Osaka, Japan in exchange for plastic sheetings and contracted to sell to Yu Ping Kun Co., Inc. for two hundred sixty-five thousand five hundred fifty pesos.

On September 27 and 30 and October 4, 1960, the Japanese suppliers shipped to Pamintuan, through Toyo Menka Kaisha, Ltd., the plastic sheetings in four shipments for a total of 339,440 yards with an aggregate value of $47,000.

Pamintuan withheld delivery of 115, 290 yards and while the plastic sheetings were arriving in Manila, he informed the president of Yu Ping Kun Co., Inc. that he was in dire need of cash with which to pay his obligations to the Philippine National Bank. Inasmuch as the computation of the prices of each delivery would allegedly be a long process, Pamintuan requested that he be paid immediately.

Consequently, Pamintuan and the president of the company, Benito Y.C. Espiritu, agreed to fix the price of the plastic sheetings at P0.782 a yard, regardless of the kind, quality or actual invoice value thereof. The parties arrived at that figure by dividing the total price of P265,550 by 339,440 yards, the aggregate quantity of the shipments.

After Pamintuan had delivered 224,150 yards of sheetings of interior quality valued at P163,.047.87, he refused to deliver the remainder of the shipments with a total value of P102,502.13, As justification for his refusal, he said that the company failed to comply with the conditions of the contract and that it was novated with respect to the price.

On December 2, 1960, the company filed its amended complaint for damages against Pamintuan. After trial, the lower court rendered the judgment and ordered Pamintuan to pay YU PING KUN CO., INC. P67,174.17 as unrealized profits and P12,282.26 as overpayment, the trial court added (a) P10,000 as stipulated liquidated damages, (b) P10,000 as moral damages, (c) Pl,102.85 as premium paid by the company on the bond of P102,502.13 for the issuance of the writ of preliminary attachment and (d) P10,000 as attorney's fees, or total damages of P110,559.28.

Pamintuan contended that the buyer, Yu Ping Kun Co., Inc., is entitled to recover only liquidated damages based on the stipulation on the contract "that any violation of the provisions of this contract (of sale) shall entitle the aggrieved party to collect from the offending party liquidated damages in the sum of P10,000 ".

Pamintuan relies on the rule that a penalty and liquidated damages are the same; that "in obligations with a penal clause, the penalty shall substitute the indemnity for damages and the payment of interests in case of non-compliance, if there is no stipulation to the contrary " (1st sentence of Art. 1226, Civil Code) and, it is argued, there is no such stipulation to the contrary in this case and that "liquidated damages are those agreed upon by the parties to a contract, to be paid in case of breach thereof" (Art. 2226, Civil Code).

ISSUE:

Whether or not Yu Ping Co., Inc. is entitled to recover damages from Pamintuan.

Whether or not Pamintuan committed fraud in the performance of his obligation.

HELD:

Pamintuan's contention cannot be sustained because the second sentence of article 1226 itself provides that “nevertheless, damages shall be paid if the obligor ... is guilty of fraud in the fulfillment of the obligation". "Responsibility arising from fraud is demandable in all obligations" (Art. 1171). "In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for an damages which may be reasonably attributed to the non-performance of the obligation" (Art. 2201).

The Supreme court further hold that justice would be adequately done in this case by allowing Yu Ping Kun Co., Inc. to recover only the actual damages proven and not to award to it the stipulated liquidated damages of ten thousand pesos for any breach of the contract. This view finds support in the opinion of Manresa that in case of fraud the difference between the proven damages and the stipulated penalty may be recovered.

The Court also found that Pamintuan was guilty of fraud because (1) he was able to make the company agree to change the manner of paying the price by falsely alleging that there was a delay in obtaining confirmation of the suppliers' acceptance of the offer to buy; (2) he caused the plastic sheetings to be deposited in the bonded warehouse of his brother and control the disposal of the goods; (3) he overpriced the plastic sheetings which he delivered to the company.