International Hotel Corp. v Joaquin; GR 158361; April 10, 2013; Bersamin

FACTS:

Francisico Joaquin Jr submitted a proposal to the Board of Directors of International Hotel Corporation for technical assistance in securing a foreign loan for the constructed of a hotel. Joaquin asked for his payment of service amounting to 500, 000 pesos. IHC offered to pay in share of stocks instead of cash. Joaquin presented foreign financials to which he recommended Material Handling Corporation based on the beneficial terms. Negotiations with Materials Handling Corporation and, later on, with its principal, Barnes International (Barnes), ensued. Barnes failed to deliver the loan, IHC informed DBP that Weston International Corporation will submit for DBP’s consideration. But the agreement with Wesotn did not pursue for failure to comply with the conditions. The shares of stocked issued to Joaquin and Suarez were cancelled because Joaquin failed to secure the needed loan. Joaquin and Suarez filed an action for specific performance, annulment, damages and injunction alleging that the cancellation was illegal and that Barnes was recommended by IHC President and not by Joaquin and that they failed to meet the obligation because of the said president and his son intervening.

ISSUE:

Whether or not petitioner is liable to give payment on a non-fulfillment of the obligation under Article 1234 of the Civil Code

RULING:

No.

Article 1186 and Article 1234 of the Civil Code cannot be the source of IHC's obligation to pay respondents. It is well to note that Article 1234 applies only when an obligor admits breaching the contract after honestly and faithfully performing all the material elements thereof except for some technical aspects that cause no serious harm to the oblige. Tolentino explains that in order to have substantial performance there must be an attempt in good faith to perform, without any willful or intentional departure there from. The deviation from the obligation must be slight, and the omission or defect must be technical and unimportant, and must not pervade the whole or be so material that the object which the parties intended to accomplish in a particular manner is not attained. The non-performance of a material part of a contract will prevent the performance from amounting to a substantial compliance. The party claiming performance must prove performance in good faith and may be allowed indemnity and deduction from the contract price.

The principle of substantial performance is inappropriate when the incomplete performance constitutes a material breach of the contract. A contractual breach is material if it will adversely affect the nature of the obligation that the obligor promised to deliver, the benefits that the obligee expects to receive after full compliance, and the extent that the non-performance defeated the purposes of the contract. Needless to say, finding the foreign financier that DBP would guarantee was the essence of the parties' contract, so that the failure to completely satisfy such obligation could not be characterized as slight and unimportant as to have resulted in Joaquin and Suarez's substantial performance that consequentially benefitted IHC. However, IHC is nonetheless liable to pay under the rule on constructive fulfillment of a mixed conditional obligation because on the nature of the obligation. Considering that the agreement between the parties was not circumscribed by a definite period, its termination was subject to a condition — the happening of a future and uncertain event. The prevailing rule in conditional obligations is that the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event that constitutes the condition.