The Court of Appeals’ Sixth division affirmed a Sept. 26, 2003 decision of the Malabon regional trial court declaring as void a clause in the agreement between De la Cruz — Ma. Lourdes Egger de la Cruz in real life — and BMG Records Pilipinas Inc. for violation of the principle of mutuality of contract.
BMG was ordered to pay royalties to De la Cruz and release her from her contract, but the CA rejected her demand for the payment of P1.5 million in damages.
"We affirm the order of the trial court for appellant (BMG records) to pay royalties due to appellee (De la Cruz) pursuant to clause 4.8 of the artist agreement aforequoted," read the CA decision.
"On the other hand, we find untenable the award of P1.5 million as actual/compensatory damages not being supported by any evidence."
In a 16-page decision written by Associate Justice Portia Alino-Hormachuelos, the CA said a contract containing a condition which makes its fulfillment dependent exclusively upon the uncontrolled will of one party is void.
"A careful scrutiny of the foregoing clause shows that the artist-appellee (De la Cruz) is indefinitely bound by the artist agreement until she has finished the recording of three albums without regard to the lapse of the initial and option periods," read the CA decision.
The CA said under the agreement, De la Cruz cannot record the required number of albums if BMG does not provide her the materials for it.
The agreement provides that the recordings shall be done at the studio selected or approved by BMG and with personnel that it may designate, and that the material shall likewise be selected and approved by BMG, the CA added.
The CA said there is no proof that actual damages were sustained by De la Cruz as a result of BMG’s actions.
"(We) cannot rely on speculations, conjectures or guess work as to the fact and amount of damages which must depend upon competent proof that they have been suffered by the injured party and on the best obtainable evidence of the actual amount thereof," read the CA decision.
"Likewise untenable is the award of P200,000 as moral damages. A breach of contract may give rise to an award of moral damages only if the party guilty of the breach acted fraudulently or in bad faith."
The CA said a breach of contract may give rise to exemplary damages only if the guilty party acted in "wanton, fraudulent, reckless, oppressive or malevolent manner."
"Again, the record is bereft of any proof that appellant behaved in such a manner and to such a degree as to warrant the grant of P200,000 as exemplary damages," read the CA decision.
The CA modified the Malabon court’s decision awarding De la Cruz P1.5 million in actual damages, P200,000 in moral damages, another P200,000 in exemplary damages, as well as P50,000 in attorney’s fees.
"Moreover, since both parties have legitimate claims against each other and none of the ground under Article 2208 of the Civil Code was proven to exist, the award of P50,000 as attorney’s fees is not warranted."
Court records showed that on March 17, 1995, De la Cruz signed an artist agreement with the BMG Records which required her to record at least two albums during the initial period of three years.
However, De la Cruz recorded only one album during the initial period prompting BMG Records to exercise its option under the agreement and extend its term for another two years during which De la Cruz was required to record one album.
Despite the expiration of the option period, BMG on May 8, 2000 informed De la Cruz that she still has to record one album under the option period.
From June 1, 2000 to Sept. 7, 2000, De la Cruz wrote BMG Records through her counsel that it was the company that did not comply with the guaranteed minimum number of recordings under the initial period.
De la Cruz said because of this BMG is liable to pay her the corresponding advanced royalties due on the unfulfilled number of songs.
On June 5, 2001, De la Cruz filed before the Malabon regional trial court a petition for declaratory relief with prayer for damages.
She claimed that after recording one album, BMG Records never gave her any proposal for a second one, and that despite the lapse of the option period, the company refused to release her on the ground that she still has to record one album.
The Malabon court found merit in De la Cruz’s petition, awarding her P1.5 million in damages and the payment of royalties for the unfulfilled number of songs required under the agreement, prompting BMG to elevate the case to the CA.