G.R. No. L-13757; August 31, 1961
SEBASTIAN COSCOLLUELA, plaintiff-appellee, vs. TRANQUILINO H. VALDERRAMA, defendant-appellant.

FACTS

Sebastian Coscolluela, owner of the Escos Lumber Mill and a related forest concession, entered into a contract with Tranquilino Valderrama on October 11, 1952. The contract, entitled “Cession and Assignment of Concession Rights and other Properties,” ceded 70% of Coscolluela’s rights in the mill and concession to Valderrama for P5,000. Key conditions included Valderrama taking possession and operating the entire business, with Coscolluela entitled to 30% of net profits. Valderrama was granted exclusive management and control, including the authority to secure the renewal of the forest concession license. After taking over, Valderrama operated the business as Valco Lumber Company, employing Coscolluela as Superintendent. However, in January 1953, Valderrama secured the renewal of the Escos concession license exclusively in his own name, dismissed Coscolluela, and later repudiated Coscolluela’s right to any participation in the profits or assets.
Coscolluela filed an action for damages and specific performance, alleging that the written contract was merely a provisional agreement and that the true understanding was to form a corporation (Valco Lumber Co., Inc.) where Coscolluela would hold a 30% share. He sought accounting, payment of the mill’s debts, incorporation, and damages, alternatively praying for rescission. Valderrama contended the written contract was the sole agreement and argued it was invalid because Coscolluela’s concession rights had expired. The trial court ruled in favor of Coscolluela, ordering rescission, restitution, and awarding damages.

ISSUE

Whether the Court of Appeals correctly modified the trial court’s award of damages in favor of Coscolluela upon finding Valderrama acted in bad faith.

RULING

The Supreme Court affirmed the finding of Valderrama’s bad faith but modified the damages awarded. The Court held that Valderrama committed a breach of contract and acted in bad faith by unilaterally securing the concession license in his own name, dismissing Coscolluela, and repudiating their agreement, which included an understanding to incorporate the business. However, the Court found the trial court’s valuation of damages erroneous. The value of the conveyed machinery and equipment was reduced to 25% of the listed value in the inventory due to a lack of concrete evidence on their actual condition. The P350,000 valuation for the concession rights was disallowed, as a forest concession is state property; its value lies only in potential profits, for which no concrete evidence was presented. The award of moral damages was reduced from P100,000 to P20,000, deemed sufficient under the circumstances. Exemplary damages of P20,000 were also awarded. The judgment was modified accordingly, with Valderrama ordered to return the properties or their adjusted value and pay the modified damages.