MAGAT vs MEDIALDEA (20 APRIL 1993) 1

Magat vs Medialdea
G.R. No. L-37120 | 20 April 1993

Facts:
That sometime in September 1972, the defendant entered into a contract with the U.S
Navy Exchange, Subic, Bay, Philippines, for the operation of a fleet of taxicabs, each taxicab to
be provided with the necessary taxi meter and a radio transceiver for receiving and sending of
messages from mobile taxicab to fixed base stations within the Naval Base at Subic Bay,
Philippines. Respondent Guerrero then entered into a contract with petitioner Magat, who by that
time, had already established goodwill with the U.S. Naval personnel of Subic Bay with respect
to supplying them materials or goods on time. Magat obliged himself to import the necessary
gadgets from Japan using his connections and to deliver said gadgets to Guerrero. Guerrero,
however, refused to open a letter of credit in favor of the foreign supplier to cover payment of
the goods ordered by him. Thereafter, it has came to Magat’s knowledge that Guerrero had been
began operating his taxicabs without the required radio transceivers and even put the blame
regarding the delay upon Magat which in turn destroyed his reputation to the Naval Authorities
with whom he regularly transacted business.

Due to Guerrero’s noncompliance of his obligation, Magat filed a complaint for damages.
Respondent Guerrero then filed a motion to dismiss said complaint of alleged breach of contract
for lack of cause of action with a contention that plaintiff was merely anticipating such loss or
damage which will arise from alleged failure of defendant to comply with the terms of the
contract. Hence, plaintiff’s right therefore under his cause of action is not yet fixed or vested.

Issue:
Whether or not the ‘Motion to Dismiss’ for lack of cause of action granted by the lower
court is proper.

Held:
When a motion to dismiss is based on the ground of lack of cause of action, the
sufficiency of the cause of action can only be determined on the basis of the facts alleged in the
complaint. The Supreme Court, after a thorough examination of the complaint, found a test of
legal sufficiency of the cause of action adequately satisfied. The Supreme Court avers that while
petitioner had fulfilled his part of the bargain [paragraph 8 of the complaint]1 and that

1
8. That believing that the defendant would faithfully fulfill his contract with the plaintiff herein, considering his signed
conformity appearing in Annex ‘A’ hereof as well as the letter dated October 4. 1972, of his agent and marked as Annex
‘B’ and made an integral part of this complaint, and in order that plaintiff’s promised delivery would not delayed, the
plaintiff herein took steps to advise the Japanese entity entrusted with the manufacture of the items listed in Annex ‘A’ to
the effect that the contract between the defendant herein and the plaintiff has been perfected and that advice with regards
to raid frequency would follow as soon as same is received by the plaintiff from the defendant;
MAGAT vs MEDIALDEA (20 APRIL 1993) 2

consequently, petitioner suffered not only loss of his expected profits, but moral and exemplary
damages as well. The Supreme Court further showed affirmation on the plaintiff’s side as they
discussed the essential elements of a cause of action which were complied with: [1] the existence
of a legal right to the plaintiff; [2] a correlative duty of the defendant and [3] an act or omission
of the defendant in violation of the plaintiff’s right, with consequent injury or damage to the
latter for which he may maintain an action for recovery of damages or other appropriate relief.

The Supreme court also contended that due to the nature of the parties relation, both
being businessmen who have an evident intention to derive profits from aforesaid contract,
breach by either of them would result to one party suffering loss of his expected profits. Since
such loss comes into being at the very moment of the breach, such loss is real, “fixed and vested”
and, therefore, recoverable under the law. In result, the obligor was liable for damages suffered
by the obligee under Article 1170 of the Civil Code2: dano emergente, the value of the loss
suffered and lucro cesante, the profits which the latter failed to obtain. If the obligor acted in
good faith, he shall be liable for those damages that are the natural and probable consequences of
the breach of the obligation and which the parties have foreseen or could have reasonably
foreseen at the time the obligation was constituted and if he acted in bad faith, fraud, malice or
wanton attitude, he shall be liable for all damages which may be reasonably attributed to the
nonperformance of the obligation. In the case, the Supreme Court ruled that the defendant acted
in bad faith, allowing the award for moral and exemplary damages.

Hence, the Supreme Court ruled in favor of the plaintiff by setting aside the questioned
order of dismissal and ordering the case to be remanded to the court of its origin for proceedings.

2
Article 1170:
“Those who in the performance of their obligation are guilty of fraud, negligence, or delay, and those who in any manner
contravene the tenor thereof are liable for damages.”