G.R. No. L-27482 September 10, 1981
Grace Park Engineering Co., Inc., plaintiff-appellee, vs. Mohamad Ali Dimaporo, defendant-appellant.

FACTS

On April 1, 1954, Grace Park Engineering Co., Inc. and Mohamad Ali Dimaporo entered into a contract for the sale and installation of cassava processing machinery for P52,000. The corporation guaranteed the machinery could process six tons per day. Dimaporo undertook to provide the building, laborers, foundation materials, and a water system. He made partial payments totaling P15,750. During installation, Dimaporo failed to furnish the necessary labor and materials as stipulated. Consequently, the corporation was compelled to advance expenses totaling P19,628.93 to complete the work, which took over a year instead of the agreed 70 days. The delivered machinery was also found to be basically defective and inadequate.
The corporation sued for rescission and reimbursement of its advances. Dimaporo counterclaimed, also seeking rescission, arguing the corporation breached the contract first by failing to install satisfactory machinery within the stipulated period and by delivering defective equipment. The trial court found both parties had committed breaches of their contractual obligations but could not determine which party was the first infractor.

ISSUE

The main issues were: (1) whether Dimaporo was liable to return the machinery and pay the corporation P19,628.93 with interest; and (2) whether he was entitled to an award of damages.

RULING

The Supreme Court affirmed the trial court’s decision with modification regarding interest. The legal logic applied is grounded in Article 1192 of the New Civil Code. The trial court’s factual finding that both parties committed breaches was upheld, as such findings are generally conclusive on appeal. Since it could not be determined who breached the contract first, Article 1192 mandates that the contract is deemed extinguished and each party bears its own damages.
Therefore, rescission with mutual restitution was proper. Dimaporo was ordered to return the machinery and pay the corporation P19,628.93, representing necessary advances for materials he was obligated to supply. However, imposing interest on this amount would constitute damages, which is contrary to the rule that each party bears its own losses when the first infractor cannot be identified. Consequently, the interest was deleted. Conversely, the corporation was ordered to return Dimaporo’s P15,750 partial payment without interest, based on the same principle. No damages were awarded to either party.