GR L 13012; (March, 1920) (Digest)
G.R. No. L-13012; March 10, 1920
THE TREASURER OF THE PHILIPPINE ISLANDS, plaintiff-appellee, vs. SIMPLICIO RODIS, defendant-appellant.
FACTS:
The defendant, Simplicio Rodis, was granted a franchise under Act No. 2034, as amended by Act No. 2328, to construct, maintain, and operate a street railway in Cebu. As required by the franchise, he deposited the sum of P10,000 with the Insular Treasurer as security for the performance of his obligations. Rodis began preparatory work in good faith, conducting surveys, preparing plans, and expending about P10,000. Funds were also deposited in a bank in Paris for materials. However, due to the outbreak of war in Europe, he was unable to complete the construction within the period prescribed by law. Consequently, the plaintiff filed an action to forfeit the full deposit. The lower court ruled in favor of the plaintiff, ordering Rodis to forfeit the entire P10,000. Rodis appealed.
ISSUE:
Whether the defendant should forfeit the entire security deposit of P10,000 for his failure to fully comply with the terms of the franchise, despite having partially performed in good faith and due to unforeseen circumstances (the outbreak of war).
RULING:
The Supreme Court modified the lower court’s decision. Applying Article 1154 of the Civil Code, which allows for the equitable mitigation of a penalty when the obligor has partially performed in good faith and the obligee has suffered no damage, the Court held that full forfeiture was unjust. The Court found that Rodis had undertaken substantial preparatory work in good faith and that the plaintiff suffered no proven damage. Considering the extraordinary circumstances of the war, which prevented completion, the Court reduced the forfeiture to P1,000. The balance of the deposit was ordered returned to Rodis. The decision was based on principles of equity and previous jurisprudence, including Government of the Philippine Islands vs. Punzalan.
Justice Malcolm dissented, arguing that the franchise terms were clear, Article 1154 of the Civil Code was inapplicable, and no benefit from partial performance was shown.