G.R. No.
180144               September 24, 2014 security, and executed and/or renewed the promissory note
LEONARDO BOGNOT, Petitioner,
vs.
RRI LENDING CORPORATION, represented by its General Manager,
DARIO J. BERNARDEZ, Respondent.
DECISION
BRION, J.:
Before the Court is the petition for review on certiorari1 filed by
Leonardo Bognot (petitioner) assailing the March 28, 2007
decision2 and the October 15, 2007 resolution3 of the Court of
Appeals (CA) in CA-G.R. CV No. 66915.
Background Facts
RRI Lending Corporation (respondent) is an entity engaged in the
business of lending money to its borrowers within Metro Manila. It
is duly represented by its General Manager, Mr. Dario J. Bernardez
(Bernardez).
Sometime in September 1996, the petitioner and his younger
brother, Rolando A. Bognot (collectively referred to as the "Bognot
siblings"), applied for and obtained a loan of Five Hundred
Thousand Pesos (₱500,000.00) from the respondent, payable on
November 30, 1996.4 The loan was evidenced by a promissory note
and was secured by a post dated check5 dated November 30, 1996.
Evidence on record shows that the petitioner renewed the loan
several times on a monthly basis. He paid a renewal fee of
₱54,600.00 for each renewal, issued a new post-dated checkas
previouslyissued. The respondent on the other hand, cancelled and
returned to the petitioner the post-dated checks issued prior to
their renewal.
Sometime in March 1997, the petitioner applied for another loan
renewal. He again executed as principal and signed Promissory Note
No. 97-0356 payable on April 1, 1997; his co-maker was again
Rolando. As security for the loan, the petitioner also issued BPI
Check No. 0595236,7 post dated to April 1, 1997.8
Subsequently, the loan was again renewed on a monthly basis (until
June 30, 1997), as shown by the Official Receipt No. 7979 dated May
5, 1997, and the Disclosure Statement dated May 30, 1997 duly
signed by Bernardez. The petitioner purportedly paid the renewal
fees and issued a post-dated check dated June 30, 1997 as security.
As had been done in the past, the respondent superimposed the
date "June 30, 1997" on the upper right portion of Promissory Note
No. 97-035 to make it appear that it would mature on the said date.
Several days before the loan’s maturity, Rolando’s wife, Julieta
Bognot (Mrs. Bognot), went to the respondent’s office and applied
for another renewal of the loan. She issued in favor of the
respondent Promissory Note No. 97-051, and International Bank
Exchange (IBE) Check No. 00012522, dated July 30, 1997, in the
amount of ₱54,600.00 as renewal fee.
On the excuse that she needs to bring home the loan documents for
the Bognot siblings’ signatures and replacement, Mrs. Bognot asked
the respondent’s clerk to release to her the promissory note, the
disclosure statement, and the check dated July 30, 1997. Mrs.
Bognot, however, never returned these documents nor issued a
new post-dated check. Consequently, the respondent sent the
petitioner follow-up letters demanding payment of the loan, plus
interest and penalty charges. These demands went unheeded.
On November 27, 1997, the respondent, through Bernardez, filed a
complaint for sum of money before the Regional Trial Court (RTC)
against the Bognot siblings. The respondent mainly alleged that the
loan renewal payable on June 30, 1997 which the Bognot siblings
applied for remained unpaid; that before June30, 1997, Mrs. Bognot
applied for another loan extension and issued IBE Check No.
00012522 as payment for the renewal fee; that Mrs. Bognot
convinced the respondent’s clerk to release to her the promissory
note and the other loan documents; that since Mrs. Bognot never
issued any replacement check, no loanextension took place and the
loan, originally payable on June 30, 1997, became due on this date;
and despite repeated demands, the Bognot siblings failed to pay
their joint and solidary obligation.
Summons were served on the Bognotsiblings. However, only the
petitioner filed his answer.
In his Answer,10 the petitioner claimed that the complaint states no
cause of action because the respondent’s claim had been paid,
waived, abandoned or otherwise extinguished. He denied being a
party to any loan application and/or renewal in May 1997. He also
denied having issued the BPI check post-dated to June 30, 1997, as
well as the promissory note dated June 30, 1997, claiming that this
note had been tampered. He claimed that the one (1) month loan
contracted by Rolando and his wife in November 1996 which was
lastly renewed in March 1997 had already been fully paid and
extinguished in April 1997.11
Trial on the merits thereafter ensued.
The Regional Trial Court Ruling
In a decision12 dated January 17, 2000,the RTC ruled in the
respondent’s favor and ordered the Bognot siblings to pay the
amount of the loan, plus interest and penalty charges. It considered
the wordings of the promissory note and found that the loan they
contracted was joint and solidary. It also noted that the petitioner
signed the promissory note as a principal (and not merely as a
guarantor), while Rolando was the co-maker. It brushed the
petitioner’s defense of full payment aside, ruling that the
respondent had successfully proven, by preponderance of evidence,
the nonpayment of the loan. The trial court said:
Records likewise reveal that while he claims that the obligation had
been fully paid in his Answer, he did not, in order to protect his right
filed (sic) a cross-claim against his co-defendant Rolando Bognot
despite the fact that the latter did not file any responsive pleading.
In fine, defendants are liable solidarily to plaintiff and must pay the
loan of ₱500,000.00 plus 5% interest monthly as well as 10%
monthly penalty charges from the filing of the complaint on
December 3, 1997 until fully paid. As plaintiff was constrained to
engage the services of counsel in order to protect his
right,defendants are directed to pay the former jointly and severally
the amount of ₱50,000.00 as and by way of attorney’s fee.
The petitioner appealed the decision to the Court of Appeals.
The Court of Appeals Ruling
In its decision dated March 28, 2007, the CA affirmed the RTC’s
findings. It found the petitioner’s defense of payment untenable
and unsupported by clear and convincing evidence. It observed that
the petitioner did not present any evidence showing that the check
dated June 30, 1997 had, in fact, been encashed by the respondent
and the proceeds applied to the loan, or any official receipt
evidencing the payment of the loan. It further stated that the only
document relied uponby the petitioner to substantiate his defense
was the April 1, 1997 checkhe issued which was cancelled and
returned to him by the respondent.
The CA, however, noted the respondent’s established policy of
cancelling and returning the post-dated checks previously issued, as
well as the subsequent loan renewals applied for by the petitioner,
as manifested by the official receipts under his name. The CA thus
ruled that the petitioner failed to discharge the burden of proving
payment.
The petitioner moved for the reconsideration of the decision, but
the CA denied his motion in its resolution of October 15, 2007,
hence, the present recourse to us pursuant toRule 45 of the Rules of
Court.
The Petition
The petitioner submits that the CA erred in holding him solidarily
liable with Rolando and his wife. Heclaimed that based on the legal
presumption provided by Article 1271 of the Civil Code,13 his
obligation had been discharged by virtue of his possession of the
post-dated check (stamped "CANCELLED") that evidenced his
indebtedness. He argued that it was Mrs. Bognot who subsequently
assumed the obligation by renewing the loan, paying the fees and
charges, and issuing a check. Thus, there is an entirely new
obligation whose payment is her sole responsibility.
The petitioner also argued that as a result of the alteration of the
promissory note without his consent (e.g., the superimposition of
the date "June 30, 1997" on the upper right portion of Promissory
Note No. 97-035 to make it appear that it would mature on this
date), the respondent can no longer collect on the tampered note,
let alone, hold him solidarily liable with Rolando for the payment of
the loan. He maintained that even without the proof of payment,
the material alteration of the promissory note is sufficient to
extinguish his liability.
Lastly, he claimed that he had been released from his indebtedness
by novation when Mrs. Bognot renewed the loan and assumed the
indebtedness.
The Case for the Respondents
The respondent submits that the issues the petitioner raised hinge
on the appreciation of the adduced evidence and of the factual
lower courts’ findings that, as a rule, are notreviewable by this
Court.
The Issues
The case presents to us the following issues:
1. Whether the CA committed a reversible error in holding the
petitioner solidarily liable with Rolando;
2. Whether the petitioner is relieved from liability by reason of the
material alteration in the promissory note; and
3. Whether the parties’ obligation was extinguished by: (i) payment;
and (ii) novation by substitution of debtors.
Our Ruling
We find the petition partly meritorious.
As a rule, the Court’s jurisdiction in a Rule 45 petition is limited to
the review of pure questions of law.14 Appreciation of evidence and
inquiry on the correctness of the appellate court's factual findings
are not the functions of this Court; we are not a trier of facts.15
A question of law exists when the doubt or dispute relates to the
application of the law on given facts. On the other hand, a question
of fact exists when the doubt or dispute relates to the truth or
falsity of the parties’ factual allegations.16
As the respondent correctly pointedout, the petitioner’s allegations
are factual issuesthat are not proper for the petition he filed. In the
absence of compelling reasons, the Court cannot re-examine,
review or re-evaluate the evidence and the lower courts’ factual
conclusions. This is especially true when the CA affirmed the lower
court’s findings, as in this case. Since the CA’s findings of facts
affirmed those of the trial court, they are binding on this Court,
rendering any further factual review unnecessary.
If only to lay the issues raised - both factual and legal – to rest, we
shall proceed to discuss their merits and demerits.
No Evidence Was Presented to Establish the Fact of Payment
Jurisprudence tells us that one who pleads payment has the burden
of proving it;17 the burden rests on the defendant to prove payment,
rather than on the plaintiff to prove non-payment.18 Indeed, once
the existence of an indebtedness is duly established by evidence,
the burden of showing with legal certainty that the obligation has
been discharged by payment rests on the debtor.19
In the present case, the petitioner failed to satisfactorily prove that
his obligation had already been extinguished by payment. As the CA
correctly noted, the petitioner failed to present any evidence that
the respondent had in fact encashed his check and applied the
proceeds to the payment of the loan. Neither did he present official
receipts evidencing payment, nor any proof that the check had been
dishonored.
We note that the petitioner merely relied on the respondent’s
cancellation and return to him of the check dated April 1, 1997. The
evidence shows that this check was issued to secure the
indebtedness. The acts imputed on the respondent, standing alone,
do not constitute sufficient evidence of payment.
Article 1249, paragraph 2 of the Civil Code provides:
xxxx
The delivery of promissory notes payable to order, or bills of
exchange or other mercantile documents shall produce the effect of
payment only when they have been cashed, or when through the
fault of the creditor they have been impaired. (Emphasis supplied)
Also, we held in Bank of the Philippine Islands v. Spouses Royeca:20
Settled is the rule that payment must be made in legal tender. A
check is not legal tender and, therefore, cannot constitute a valid
tender of payment. Since a negotiable instrument is only a
substitute for money and not money, the delivery of such an
instrument does not, by itself, operate as payment. Mere delivery of
checks does not discharge the obligation under a judgment. The
obligation is not extinguished and remains suspended until the
payment by commercial document is actually realized.(Emphasis
supplied)
Although Article 1271 of the Civil Code provides for a legal
presumption of renunciation of action (in cases where a private
document evidencing a credit was voluntarily returned by the
creditor to the debtor), this presumption is merely prima facieand is
not conclusive; the presumption loses efficacy when faced with
evidence to the contrary.
Moreover, the cited provision merely raises a presumption, not of
payment, but of the renunciation of the credit where more
convincing evidence would be required than what normally would
be called for to prove payment.21 Thus, reliance by the petitioner on
the legal presumption to prove payment is misplaced.
To reiterate, no cash payment was proven by the petitioner. The
cancellation and return of the check dated April 1, 1997, simply
established his renewal of the loan – not the fact of payment.
Furthermore, it has been established during trial, through repeated
acts, that the respondent cancelled and surrendered the post-dated
check previously issued whenever the loan is renewed. We trace
whatwould amount to a practice under the facts of this case, to the
following testimonial exchanges:
Civil Case No. 97-0572
TSN December 14, 1998, Page 13.
Atty. Almeda:
Q: In the case of the renewal of the loan you admitted that a
renewal fee is charged to the debtor which he or she must pay
before a renewal is allowed. I show you Exhibit "3" official receipt of
plaintiff dated July 3, 1997, would this be your official receipt which
you issued to your client which they make renewal of the loan?
A: Yes, sir.
x x x           x x x          x x x
Q: And naturally when a loan has been renewed, the old one which
is replaced by the renewal has already been cancelled, is that
correct?
A: Yes, sir.
Q: It is also true to say that all promissory notes and all postdated
checks covered by the old loan which have been the subject of the
renewal are deemed cancelled and replaced is that correct?
A: Yes, sir. xxx22
Civil Case No. 97-0572
TSN November 27, 1998, Page 27.
Q: What happened to the check that Mr. Bognot issued?
Court: There are two Bognots. Who in particular?
Q: Leonardo Bognot, Your Honor.
A: Every month, they were renewed, he issued a new check, sir.
Q: Do you have a copy of the checks?
A: We returned the check upon renewing the loan.23
In light of these exchanges, wefind that the petitioner failed to
discharge his burden ofproving payment.
The Alteration of the Promissory Note
Did Not Relieve the Petitioner From Liability
We now come to the issue of material alteration. The petitioner
raised as defense the alleged material alteration of Promissory Note
No. 97-035 as basis to claim release from his loan. He alleged that
the respondent’s superimposition of the due date "June 30, 1997"
on the promissory note without his consent effectively relieved him
of liability.
We find this defense untenable.
Although the respondent did not dispute the fact of alteration, he
nevertheless denied that the alteration was done without the
petitioner’s consent. The parties’ Pre-Trial Order dated November 3,
199824 states that:
xxx There being no possibility of a possible compromise agreement,
stipulations, admissions, and denials were made, to wit:
FOR DEFENDANT LEONARDO BOGNOT
13. That the promissory note subject of this case marked as Annex
"A" of the complaint was originally dated April 1, 1997 with a
superimposed rubber stamp mark "June 30, 1997" to which the
plaintiff admitted the superimposition.
14. The superimposition was done without the knowledge, consent
or prior consultation with Leonardo Bognot which was denied by
plaintiff."25 (Emphasis supplied)
Significantly, the respondent also admitted in the Pre-Trial Order
that part of its company practice is to rubber stamp, or make a
superimposition through a rubber stamp, the old promissory note
which has been renewed to make it appear that there is a new loan
obligation. The petitioner did not rebut this statement. To our mind,
the failure to rebut is tantamount to an admission of the
respondent’s allegations:
"22. That it is the practice of plaintiff to just rubber stamp or make
superimposition through a rubber stamp on old promissory note
which has been renewed to make it appear that there is a new loan
obligation to which the plaintiff admitted." (Emphasis Supplied).26
Even assuming that the note had indeed been tampered without
the petitioner’s consent, the latter cannot totally avoid payment of
his obligation to the respondent based on the contract of loan.
Based on the records, the Bognot Siblings had applied for and were
granted a loan of ₱500,000.00 by the respondent. The loan was
evidenced by a promissory note and secured by a post-dated
check27 dated November 30, 1996. In fact, the petitioner himself
admitted his loan application was evidenced by the Promissory Note
dated April 1, 1997.28 This loan was renewed several times by the
petitioner, after paying the renewal fees, as shown by the Official
Receipt Nos. 79729 and 58730 dated May 5 and July 3, 1997,
respectively. These official receipts were issued in the name of the
petitioner. Although the petitioner had insisted that the loan had
been extinguished, no other evidence was presented to prove
payment other than the cancelled and returnedpost-dated check.
Under this evidentiary situation, the petitioner cannot validly deny
his obligation and liability to the respondent solely on the ground
that the Promissory Note in question was tampered. Notably, the
existence of the obligation, as well as its subsequent renewals, have
been duly established by: first, the petitioner’s application for the
loan; second, his admission that the loan had been obtained from
the respondent; third, the post-dated checks issued by the
petitioner to secure the loan; fourth, the testimony of Mr.
Bernardez on the grant, renewal and non-payment of the loan; fifth,
proof of non-payment of the loan; sixth, the loan renewals; and
seventh, the approval and receipt of the loan renewals.
In Guinsatao v. Court of Appeals,31 this Court pointed out that while
a promissory note is evidence of an indebtedness, it is not the only
evidence, for the existence of the obligation can be proven by other
documentary evidence such as a written memorandum signed by
the parties. In Pacheco v. Court of Appeals,32 this Court likewise
expressly recognized that a check constitutes anevidence of
indebtedness and is a veritable proof of an obligation. It canbe used
in lieu of and for the same purpose as a promissory note and can
therefore be presented to establish the existence of indebtedness.33
In the present petition, we find that the totality of the evidence on
record sufficiently established the existence of the petitioner’s
indebtedness (and liability) based on the contract ofloan. Even with
the tampered promissory note, we hold that the petitioner can still
be held liable for the unpaid loan.
The Petitioner’s BelatedClaim of Novation by Substitution May no
Longer be Entertained
It has not escaped the Court’s attention that the petitioner raised
the argument that the obligation had been extinguished by
novation. The petitioner never raised this issue before the lower
courts.
It is a settled principle of law thatno issue may be raised on appeal
unless it has been brought before the lower tribunal for its
consideration.34 Matters neither alleged in the pleadingsnor raised
during the proceedings below cannot be ventilated for the first time
on appeal before the Supreme Court.35
In any event, we find no merit in the defense of novation as we
discuss at length below. Novation cannot be presumed and must be
clearly and unequivocably proven.
Novation is a mode of extinguishing an obligation by changing its
objects or principal obligations, by substituting a new debtor in
place of the old one, or by subrogating a third person to the rights
of the creditor.36
Article 1293 of the Civil Code defines novation as follows:
"Art. 1293. Novation which consists insubstituting a new debtor in
the place of the originalone, may be made even without the
knowledge or against the will of the latter, but not without the
consent of the creditor. Payment by the new debtor gives him rights
mentioned in Articles 1236 and 1237."
To give novation legal effect, the original debtor must be expressly
released from the obligation, and the new debtor must assume the
original debtor’s place in the contractual relationship. Depending on
who took the initiative, novation by substitution of debtor has two
forms – substitution by expromision and substitution by delegacion.
The difference between these two was explained in Garcia v.
Llamas:37
"In expromision, the initiative for the change does not come from --
and may even be made without the knowledge of -- the debtor,
since it consists of a third person’s assumption of the obligation. As
such, it logically requires the consent of the third person and the
creditor. In delegacion, the debtor offers, and the creditor accepts, a
third person who consents to the substitution and assumes the
obligation; thus, the consent of these three persons are necessary."
In both cases, the original debtor must be released from the
obligation; otherwise, there can be no valid
novation.38 Furthermore, novation by substitution of debtor must
alwaysbe made with the consent of the creditor.39
The petitioner contends thatnovation took place through a
substitution of debtors when Mrs. Bognot renewed the loan and
assumed the debt. He alleged that Mrs. Bognot assumed the
obligation by paying the renewal fees and charges, and by executing
a new promissory note. He further claimed that she issued her own
check40 to cover the renewal fees, which fact, according to the
petitioner, was done with the respondent’s consent.
Contrary to the petitioner’s contention, Mrs. Bognot did not
substitute the petitioner as debtor. She merely attempted to renew
the original loan by executing a new promissory note41 and check.
The purported one month renewal of the loan, however, did not
push through, as Mrs. Bognot did not return the documents or issue
a new post dated check. Since the loan was not renewed for
another month, the originaldue date, June 30,1997, continued to
stand.
More importantly, the respondent never agreed to release the
petitioner from his obligation. That the respondent initially allowed
Mrs. Bognot to bring home the promissory note, disclosure
statement and the petitioner’s previous check dated June 30, 1997,
does not ipso factoresult in novation. Neither will this acquiescence
constitute an implied acceptance of the substitution of the debtor.
In order to give novation legal effect, the creditor should consent to
the substitution of a new debtor. Novation must be clearly and
unequivocally shown, and cannot be presumed.
Since the petitioner failed to show thatthe respondent assented to
the substitution, no valid novation took place with the effect of
releasing the petitioner from his obligation to the respondent.
Moreover, in the absence of showing that Mrs. Bognot and the
respondent had agreed to release the petitioner, the respondent
can still enforce the payment of the obligation against the original
debtor. Mere acquiescence to the renewal of the loan, when there
is clearly no agreement to release the petitioner from his
responsibility, does not constitute novation.
The Nature of the Petitioner’s Liability
On the nature of the petitioner’s liability, we rule however, that the
CA erred in holding the petitioner solidarily liable with Rolando.
A solidary obligation is one in which each of the debtors is liable for
the entire obligation, and each of the creditors is entitled to
demand the satisfaction of the whole obligation from any or all of
the debtors.42 There is solidary liability when the obligation
expressly so states, when the law so provides, or when the nature
of the obligation so requires.43 Thus, when the obligor undertakes to
be "jointly and severally" liable, the obligation is solidary,
In this case, both the RTC and the CA found the petitioner solidarily
liable with Rolando based on Promissory Note No. 97-035 dated
June 30, 1997. Under the promissory note, the Bognot Siblings
defined the parameters of their obligation as follows:
"FOR VALUE RECEIVED, I/WE, jointly and severally, promise to pay
to READY RESOURCES INVESTORS RRI LENDING CORPO. or Order, its
office at Paranaque, M.M. the principal sum of Five Hundred
Thousand PESOS (₱500,000.00), PhilippineCurrency, with interest
thereon at the rate of Five percent (5%) per month/annum, payable
in One Installment (01) equal daily/weekly/semi-monthly/monthly
of PESOS Five Hundred Thousand Pesos (₱500,000.00), first
installment to become due on June 30, 1997. xxx"44 (Emphasis
Ours).
Although the phrase "jointly and severally" in the promissory note
clearly and unmistakably provided for the solidary liability of the
parties, we note and stress that the promissory note is merely a
photocopyof the original, which was never produced.
Under the best evidence rule, whenthe subject of inquiry is the
contents of a document, no evidence isadmissible other than the
original document itself except in the instances mentioned in
Section 3, Rule 130 of the Revised Rules of Court.45
The records show that the respondenthad the custody of the
original promissory note dated April 1, 1997, with a superimposed
rubber stamp mark "June 30, 1997", and that it had been given
every opportunity to present it. The respondent even admitted
during pre-trial that it could not present the original promissory
note because it is in the custody of its cashier who is stranded in
Bicol.46 Since the respondent never produced the original of the
promissory note, much less offered to produce it, the photocopy of
the promissory note cannot be admitted as evidence. Other than
the promissory note in question, the respondent has not presented
any other evidence to support a finding of solidary liability. As we
earlier noted, both lower courts completely relied on the note when
they found the Bognot siblingssolidarily liable.
The well-entrenched rule is that solidary obligation cannot be
inferred lightly. It must be positively and clearly expressed and
cannot be presumed.47
In view of the inadmissibility of the promissory note, and in the
absence of evidence showing that the petitioner had bound himself
solidarily with Rolando for the payment of the loan, we cannot but
conclude that the obligation to pay is only joint.48
The 5% Monthly Interest Stipulated in the Promissory Note is
Unconscionable and Should be Equitably Reduced
Finally, on the issue of interest, while we agree with the CA that the
petitioner is liable to the respondentfor the unpaid loan, we find the
imposition of the 5% monthly interest to be excessive, iniquitous,
unconscionable and exorbitant, and hence, contrary to morals and
jurisprudence. Although parties to a loan agreement have wide
latitude to stipulate on the applicable interest rate under Central
Bank Circular No. 905 s. 1982 (which suspended the Usury Law
ceiling on interest effective January 1, 1983), we stress that
unconscionable interest rates may still be declared illegal.49
In several cases, we haveruled that stipulations authorizing
iniquitous or unconscionable interests are contrary to morals and
are illegal. In Medel v. Court of Appeals,50 we annulled a stipulated
5.5% per month or 66% per annum interest on a ₱500,000.00 loan,
and a 6% per month or 72% per annum interest on a ₱60,000.00
loan, respectively, for being excessive, iniquitous,
unconscionableand exorbitant.1âwphi1
We reiterated this ruling in Chua v. Timan,51 where we held that the
stipulated interest rates of 3% per month and higher are excessive,
iniquitous, unconscionable and exorbitant, and must therefore be
reduced to 12% per annum.
Applying these cited rulings, we now accordingly hold that the
stipulated interest rate of 5% per month, (or 60% per annum) in the
promissory note is excessive, unconscionable, contrary to morals
and is thus illegal. It is void ab initiofor violating Article 130652 of the
Civil Code.1âwphi1 We accordingly find it equitable to reduce the
interest rate from 5% per month to 1% per month or 12% per
annum in line with the prevailing jurisprudence.
WHEREFORE, premises considered, the Decision dated March 28,
2007 of the Court of Appeals in CA-G.R. CV No. 66915 is hereby
AFFIRMED with MODIFICATION, as follows:
1. The petitioner Leonardo A. Bognotand his brother, Rolando A.
Bognot are JOINTLY LIABLE to pay the sum of ₱500,000.00 plus 12%
interest per annum from December 3, 1997 until fully paid.
2. The rest of the Court of Appeals' dispositions are hereby
AFFIRMED.
Costs against petitioner Leonardo A. Bognot.
SO ORDERED.
ARTURO D. BRION
Associate Justice
G.R. No. 135149             July 25, 2006
MANUEL C. ACOL, substituted by MANUEL RAYMOND
ACOL, petitioner,
vs.
PHILIPPINE COMMERCIAL CREDIT CARD
INCORPORATED, respondent.
DECISION
CORONA, J.:
In this petition for review on certiorari from a decision1 and a
resolution2 of the Court of Appeals, petitioner assails as contrary to
public policy a particular stipulation contained in the terms and
conditions governing the use of his Bankard credit card.
The facts of the case follow.3
On August 20, 1982, petitioner Manuel Acol applied with
respondent for a Bankard credit card and extension.4 Both were
issued to him shortly thereafter. For several years, he regularly used
this card, purchasing from respondent's accredited establishments
and paying the corresponding charges for such purchases.
Late in the evening of April 18, 1987, petitioner discovered the loss
of his credit card. After exhausting all efforts to find it, the first hour
of the following day, April 19, 1987, a Sunday, he called up
respondent's office and reported the loss. The representative he
spoke to told him that his card would be immediately included in
the circular of lost cards.
Again, on April 20, 1987, petitioner called up respondent to
reiterate his report on the loss of his card. He inquired if there were
other requirements he needed to comply with in connection with
the loss. Respondent's representative advised him to put into
writing the notice of loss and to submit it, together with the
extension cards of his wife and daughter. Petitioner promptly wrote
a letter dated April 20, 1987 confirming the loss and sent it to
respondent which received it on April 22, 1987.
On April 21, 1987, a day before receiving the written notice,
respondent issued a special cancellation bulletin informing its
accredited establishments of the loss of the cards of the
enumerated holders, including petitioner's.
Unfortunately, it turned out that somebody used petitioner's card
on April 19 and 20, 1987 to buy commodities worth P76,067.28. The
accredited establishments reported the invoices for such purchases
to respondent which then billed petitioner for that amount.
Petitioner informed respondent he would not pay for the purchases
made after April 19, 1987, the day he notified respondent of the
loss. Immediately after receiving his statement of account for the
period ending April 30, 1987, petitioner confirmed his exceptions to
the billing in writing.
At first, respondent agreed to reverse the disputed billings, pending
the result of an investigation of petitioner's account. After the
investigation and review, the respondent, through its Executive
Vice-President and General Manager, Atty. Serapio S. Gabriel,
confirmed that it was not the petitioner who used his Bankard on
April 19 and 20, 1987.
Nonetheless, respondent reversed its earlier position to delete the
disputed billings and insisted on collecting within 15 days from
notice. It alleged that it was the most "practicable procedure and
policy of the company." It cited provision no. 1 of the "Terms and
Conditions Governing The Issuance and Use of the Bankard" found
at the back of the application form:
xxx Holder's responsibility for all charges made through the use of
the card shall continue until the expiration or its return to the Card
Issuer or until a reasonable time after receipt by the Card Issuer of
written notice of loss of the Card and its actual inclusion in the
Cancellation Bulletin. xxx
Petitioner, through his lawyer, wrote respondent to deny liability for
the disputed charges. In short order, however, respondent filed suit
in the Regional Trial Court (RTC) of Manila5 against petitioner for the
collection of P76,067.28, plus interest and penalty charges.6
After considering the evidence, the trial court dismissed the case
and ordered the respondent-plaintiff to pay petitioner attorney's
fees of P10,000 and the costs of the suit.7 The RTC denied
respondent's motion for reconsideration.8
Respondent appealed to the Court of Appeals, which, while not
disputing factual findings, reversed the RTC ruling and held
petitioner liable for the P76,067.28. The Court of Appeals denied
petitioner's motion for reconsideration. Thus, this petition.
The basic issue in this case is whether or not the contested
provision in the contract (provision no. 1 of the Terms and
Conditions) was valid and binding on the petitioner, given that the
contract was one of adhesion.
The petition has merit.
The facts of this case are virtually identical with those of Ermitaño v.
Court of Appeals.9 In that case, petitioner-extension cardholder
Manuelita Ermitaño lost her card on the night of August 29, 1989
when her bag was snatched in Makati. That very same evening, she
reported the loss and immediately thereafter sent written notice to
the respondent credit card company, BPI Express Card Corp. (BECC).
The verbal and written notices notwithstanding, respondent insisted
on billing petitioner Luis Ermitaño, Manuelita's husband and the
principal cardholder, for purchases made after the date of the loss
totalling P3,197.70. To justify the billing, respondent BECC cited the
following stipulation in their contract:
In the event the card is lost or stolen, the cardholder agrees to
immediately report its loss or theft in writing to BECC…purchases
made/incurred arising from the use of the lost/stolen card shall be
for the exclusive account of the cardholder and the cardholder
continues to be liable for the purchases made through the use of
the lost/stolen BPI Express Card until after such notice has been
given to BECC and the latter has communicated such loss/theft to
its member establishments. (emphasis ours)
It is worth noting that, just like the assailed provision in this case,
the stipulation devised by respondent BECC required two conditions
before the cardholder could be relieved of responsibility from
unauthorized charges: (1) the receipt by the card issuer of a written
notice from the cardholder regarding the loss and (2) the
notification to the issuer's accredited establishments regarding such
loss.
We struck down this stipulation as contrary to public policy and
granted the Ermitaños' petition:
Prompt notice by the cardholder to the credit card company of the
loss or theft of his card should be enough to relieve the former of
any liability occasioned by the unauthorized use of his lost or
stolen card. The questioned stipulation in this case, which still
requires the cardholder to wait until the credit card company has
notified all its member-establishments, puts the cardholder at the
mercy of the credit card company which may delay indefinitely the
notification of its members to minimize if not to eliminate the
possibility of incurring any loss from unauthorized purchases. Or, as
in this case, the credit card company may for some reason fail to
promptly notify its members through absolutely no fault of the
cardholder. To require the cardholder to still pay for the
unauthorized purchases after he has given prompt notice of the
loss or theft of his card to the credit card company would simply
be unfair and unjust. The Court cannot give its assent to such a
stipulation which could clearly run against public policy. (emphasis
ours)
In this case, the stipulation in question is just as repugnant to public
policy as that in Ermitaño. As petitioner points out, the effectivity of
the cancellation of the lost card rests on an act entirely beyond the
control of the cardholder. Worse, the phrase "after a reasonable
time" gives the issuer the opportunity to actually profit from
unauthorized charges despite receipt of immediate written notice
from the cardholder.
Under such a stipulation, petitioner could have theoretically done
everything in his power to give respondent the required written
notice. But if respondent took a "reasonable" time (which could be
indefinite) to include the card in its cancellation bulletin, it could still
hold the cardholder liable for whatever unauthorized charges were
incurred within that span of time. This would have been truly
iniquitous, considering the amount respondent wanted to hold
petitioner liable for.
Article 1306 of the Civil Code10 prohibits contracting parties from
establishing stipulations contrary to public policy. The assailed
provision was just such a stipulation. It is without any hesitation
therefore that we strike it down.
WHEREFORE, the petition is hereby GRANTED. The assailed decision
of the Court of Appeals in CA-G.R. CV No. 39590 is reversed. The
decision of the Regional Trial Court of Manila on September 30,
1991 in Civil Case No. 88-44115 is REINSTATED and the complaint
filed by Philippine Commercial Credit Card Incorporated against
petitioner is dismissed.
SO ORDERED.
G.R. No. 204869
TECHNICAL EDUCATION AND SKILLS DEVELOPMENT AUTHORITY
(TESDA), Petitioner,
vs.
THE COMMISSION ON AUDIT, CHAIRPERSON MA. GRACIA M.
PULIDO TAN, COMMISSIONER JUANITO G. ESPINO, JR., and
COMMISSIONER HEIDI L. MENDOZA, Respondents.
DECISION
CARPIO, J.:
The Case
This is a petition for certiorari1 with prayer for issuance of
temporary restraining order or writ of preliminary injunction to
annul Decision No. 2012-2102 of the Commission on Audit (COA).
The COA disallowed payments of Extraordinary and Miscellaneous
Expenses (EME) by the Technical Education and Skills Development
Authority (TESDA) to its officials.
The Facts
Upon post audit, the TESDA audit team leader discovered that for
the calendar years 2004-2007, TESDA paid EME twice each year to
its officials from two sources: (1) the General Fund for locally-
funded projects, and (2) the Technical Education and Skills
Development Project (TESDP) Fund for the foreign-assisted projects.
The payment of EME was authorized under the General Provisions
of the General Appropriations Acts of 2004, 2005,3 2006 and 2007
(2004-2007 GAAs), subject to certain conditions:
x x x Extraordinary and Miscellaneous Expenses.– Appropriations
authorized herein may be used for extraordinary expenses of the
following officials and those of equivalent rank as may be
authorized by the DBM, not exceeding:
(a)P180,000 for each Department Secretary;
(b)P65,000 for each Department Undersecretary;
(c)P35,000 for each Department Assistant Secretary;
(d)P30,000 for each head of bureau or organization of equal rank to
a bureau and for each Department Regional Director;
(e)P18,000 for each Bureau Regional Director; and
(f)P13,000 for each Municipal Trial Court Judge, Municipal Circuit
Trial Court Judge, and Shari’a Circuit Court Judge.
In addition, miscellaneous expenses not exceeding Fifty Thousand
Pesos (P50,000) for each of the offices under the above named
officials are authorized.4 (Emphasis supplied)
On 15 May 2008, the audit team issued Notice of Disallowance No.
08-002-101 (04-06)5 disallowing the payment of EME amounting to
P5,498,706.60 for being in excess of the amount allowed in the
2004-2007 GAAs. In addition, the EME were disbursed to TESDA
officials whose positions were not of equivalent ranks as authorized
by the Department of Budget and Management (DBM), contrary to
the provisions of the 2004-2007 GAAs. Notice of Disallowance No.
08-002-101 (04-06) indicated the persons liable for the excessive
payment of EME: the approving officers, payees and the
accountants.6
On 4 July 2008, TESDA, through its then Director-General Augusto
Boboy Syjuco, Jr., filed an Appeal Memorandum7 arguing that the
2004-2007 GAAs and the Government Accounting and Auditing
Manual allowed the grant of EME from both the General Fund and
the TESDP Fund provided the legal ceiling was not exceeded for
each fund. According to TESDA, the General Fund and the TESDP
Fund are distinct from each other, and TESDA officials who were
designated as project officers concurrently with their regular
functions were entitled to separate EME from both funds.
The Ruling of the Commission on Audit
In a Decision dated 5 September 2008,8 the COA Cluster Director,
Cluster VII, National Government Sector, denied the appeal for lack
of merit. The COA Cluster Director ruled that:
On the first issue, the GAA provision on EME is very clear to the
effect that payment of EME may be taken from any authorized
appropriation but shall not exceed the ceiling stated therein. It had
been consistently held that when the language of the law is clear
and unequivocal it should be given its common and ordinary
meaning. If the legislative intent is to grant officials EME of
unlimited amount, no limit or ceiling should have been included in
the GAA. On the other hand, the Audit Team Leader stated that the
inclusion in TESDA budget for EME in TESDP Fund, which was
actually found only in the GAA for FY 2005 could not serve as basis
for the grant of EME, should not be treated distinctly and separately
from EME provision under the General Provisions of the GAA as the
officials who were paid the EME from [TESDP Fund] are the same
TESDA officials who were already paid EME out [of the General
Fund]. It should be emphasized that the designation of TESDA
officials as Project Managers in concurrent capacities to offices
under TESDP, forms part only of their additional functions without
another appointment. The EME is covered by the compensation
attached to his principal office and not for every project handled. x x
x.
On the second issue whether officials who are not of equivalent rank
as authorized by the DBM, the Audit Team Leader informed that the
officials were designated for [positions] which are not included in
the Personnel Service Itemization (PSI) and the creation of said
positions [was] not supported with authority or approval from the
DBM. Neither was there a DBM document identifying the equivalent
ranks of these positions as basis for ascertaining the amount of EME
to be paid.
On the third issue whether the Regional Directors who were not
performing as head of the Bureau or a regional office or
organization unit of equal rank, because of their reassignment to
the Office of the Director[-]General, the same were not entitled to
receive EME since the Director[- ]General and its office are already
claiming the said amount. There could be no two officials entitled to
receive EME although they are listed in the GAA as entitled to
receive the same.9
On 4 December 2008, TESDA, through its Director-General, filed a
petition for review with COA.
In a Decision dated 15 November 2012,10 COA denied TESDA’s
petition for lack of merit. The COA adopted the findings of both the
TESDA audit team and the COA Cluster Director that the grant of
EME exceeded the allowable limit in the 2004-2007 GAAs. The COA
emphasized that the provision in the 2004-2007 GAAs that granted
EME clearly provided a ceiling for its grant. Accordingly, the COA
ruled that the failure of the TESDA officials to adhere to the 2004-
2007 GAAs negated their claim of good faith. Thus, the COA ordered
them to refund the excess EME they received.
In a Resolution dated 12 March 2013,11 the Court En Banc resolved
to excuse the Office of the Solicitor General from representing the
COA due to conflict of interest considering that both COA and
TESDA are government agencies being represented by it.
The Issues
In this petition, TESDAseeks a reversal and raises the following
issues for resolution:
A. THE [COA] GRAVELY ERRED IN DISALLOWING THE PAYMENTS
MADE BY TESDA TO ITS OFFICIALS OF THEIR [EME] FROM BOTH
[GENERAL FUND] AND [TESDP FUND];
B.THE [COA] LIKEWISE GRAVELY ERRED IN HOLDING THE OFFICERS
OF TESDA INDIVIDUALLY LIABLE FOR THE TOTAL DISALLOWANCE IN
THE AMOUNT OF P5,498,706.60 EVEN IF THEY MAY BE RIGHTFULLY
CONSIDERED AS DE FACTO OFFICERS IN GOOD FAITH WHO ARE
ENTITLED TO EME FOR ACTUAL SERVICES RENDERED;
C.THE [COA] LIKEWISE GRAVELY ERRED IN HOLDING THAT
CONSIDERING THE CEILING SET FORTH BY SECTIONS 23[, 25] AND 26
OF THE GENERAL PROVISIONS OF THE [2004-2007 GAAS], THE
CONCERNED TESDA OFFICIALS’CLAIMS FOR EME ARE
UNAUTHORIZED AND EXCESSIVE;
D.FINALLY, THE [COA] GRAVELY ERRED IN HOLDING THAT THE
CONCERNED TESDA OFFICIALS CANNOT BE CONSIDERED AS DE
FACTO OFFICERS IN GOOD FAITH AND IN DISREGARDING THE
RELEVANT RULING OF THE SUPREME COURT IN THE CASE OF
CA[N]TILLO VS. ARRIETA.12
The Ruling of the Court
The petition is partly meritorious.
The Constitution vests COA, as guardian of public funds, with
enough latitude to determine, prevent and disallow irregular,
unnecessary, excessive, extravagant or unconscionable
expenditures of government funds.13 The COA is generally accorded
complete discretion in the exercise of its constitutional duty and the
Court generally sustains its decisions in recognition of its expertise
in the laws it is entrusted to enforce.14
Only when COAacts without or in excess of jurisdiction, or with
grave abuse of discretion amounting to lack or excess of jurisdiction,
may the Court grant a petition assailing COA’s actions. There is
grave abuse of discretion when there is an evasion of a positive duty
or a virtual refusal to perform a duty enjoined by law or to act in
contemplation of law as when the judgment rendered is not based
on law and evidence but on caprice, whim and despotism.15
We do not find any grave abuse of discretion when COA disallowed
the disbursement of EME to TESDA officials for being excessive and
unauthorized by law, specifically the 2004-2007 GAAs, to wit:
x x x Extraordinary and Miscellaneous Expenses.– Appropriations
authorized herein may be used for extraordinary expenses of the
following officials and those of equivalent rank as may be
authorized by the DBM, not exceeding:
(a)P180,000 for each Department Secretary;
(b)P65,000 for each Department Undersecretary;
(c)P35,000 for each Department Assistant Secretary;
(d)P30,000 for each head of bureau or organization of equal rank to
a bureau and for each Department Regional Director;
(e)P18,000 for each Bureau Regional Director; and
(f)P13,000 for each Municipal Trial Court Judge, Municipal Circuit
Trial Court Judge, and Shari’a Circuit Court Judge.
In addition, miscellaneous expenses not exceeding Fifty Thousand
Pesos (P50,000) for each of the offices under the above named
officials are authorized.16 (Boldfacing and italicization supplied)
The GAA provisions are clear that the EME shall not exceed the
amounts fixed in the GAA. The GAA provisions are also clear that
only the officials named in the GAA, the officers of equivalent rank
as may be authorized by the DBM, and the offices under them are
entitled to claim EME not exceeding the amount provided in the
GAA.
The COA faithfully implemented the GAA provisions. COA Circular
No. 2012-00117 states that the amount fixed under the GAA for the
National Government offices and officials shall be the ceiling in the
disbursement of EME. COA Circular No. 89-300,18 prescribing the
guidelines in the disbursement of EME, likewise states that the
amount fixed by the GAA shall be the basis for the control in the
disbursement of these funds.
The COA merely complied with its mandate when it disallowed the
EME that were reimbursed to officers who were not entitled to the
EME, or who received EME in excess of the allowable amount.
When the law is clear, plain and free from ambiguity, there should
be no room for interpretation but only its application.
However, TESDA insists on its interpretation justifying its payment
of EME out of the TESDP Fund. It argues that the 2004-2007 GAAs
did not prohibit its officials from receiving additional EME
chargeable against an authorized funding, the TESDP Fund in this
case, for another office to which they have been designated.
We do not find merit in TESDA’s argument.
The TESDA is an instrumentality of the government established
under Republic Act No. 7796 or the TESDA Act of
1994.1âwphi1 Under Section 33 of the TESDAAct, the TESDAbudget
for the implementation of the Act is included in the annual GAA;
hence, the TESDPFund, being sourced from the Treasury, are funds
belonging to the government, or any of its departments, in the
hands of public officials.19 The Constitution provides, "No money
shall be paid out of the Treasury except in pursuance of an
appropriation made by law."20 The State Audit Code, which
prescribes the guidelines in disbursing public funds, reiterates this
important Constitutional provision that there should be an
appropriation law or other statutes specifically authorizing payment
out of any public funds.21In this case, TESDA failed to point out the
law specifically authorizing it to grant additional reimbursement for
EME from the TESDP Fund, contrary to the explicit requirement in
the Constitution and the law. In Yap v. Commission on Audit,22 we
upheld COA’s disallowance of medical expenses and other benefits
such as car maintenance, gasoline allowance and driver’s subsidy
due to petitioner’s failure to point out the law specifically
authorizing the same. There is nothing in the 2004-2007 GAAs which
allows TESDA to grant its officials another set of EME from another
source of fund like the TESDP Fund. COA aptly pointed out that not
even TESDA’s inclusion of EME from both the General Fund and the
TESDP Fund in the 2005 GAA justified its payment of excessive EME
from 2004 up to 2007.23 The 2005 GAA provided for a ceiling on
EME that TESDA still had to comply despite the grant of EME in the
2005 GAA for foreign-assisted projects.
The position of project officer is not among those listed or
authorized to be entitled to EME, namely, the officials named in the
GAA, the officers of equivalent rank as may be authorized by the
DBM, and the offices under them. The underlying principle behind
the EME is to enable those occupying key positions in the
government to meet various financial demands.24 As pointed out by
COA, the position of project officer is not even included in the
Personnel Service Itemization or created with authority from the
DBM.25 Thus, the TESDA officials were, in fact, merely designated
with additional duties, which designation did not entitle them to
additional EME. In Dimaandal v. COA,26 we held that designation is a
mere imposition of additional duties, which does not entail payment
of additional benefits. Since the TESDA officials were merely
designated with additional duties, the ruling in Cantillo v.
Arrieta27 on de facto officers need not be discussed.
Having settled that COA properly disallowed the payment of
excessive EME by TESDA, we proceed to determine whether the
TESDA officials should refund the excess EME granted to them.
In Blaquera v. Alcala,28 the Court no longer required the officials and
employees of different government departments and agencies to
refund the productivity incentive bonus they received because
there was no indicia of bad faith and the disbursement was made in
the honest belief that the recipients deserved the amounts. We,
however, qualified this Blaquera ruling in Casal v. COA,29 where we
held the approving officials liable for the refund of the incentive
award due to their patent disregard of the issuances of the
President and the directives of COA. In Casal, we ruled that the
officials’ failure to observe the issuances amounted to gross
negligence, which is inconsistent with the presumption of good
faith. We applied the Casal ruling in Velasco v. COA,30 to wit:
x x x the blatant failure of the petitioners-approving officers to
abide with the provisions of AO 103 and AO 161 overcame the
presumption of good faith. The deliberate disregard of these
issuances is equivalent to gross negligence amounting to bad faith.
Therefore, the petitioners-approving officers are accountable for
the refund of the subject incentives which they received.
However, with regard to the employees who had no participation in
the approval of the subject incentives, they were neither in bad
faith nor were they grossly negligent for having received the
benefits under the circumstances. The approving officers’ allowance
of the said awards certainly tended to give it a color of legality from
the perspective of these employees. Being in good faith, they are
therefore under no obligation to refund the subject benefits which
they received.31 (Emphasis supplied)
Applying by analogy the Blaquera, Casal and Velasco rulings, as well
as Section 16 of the 2009 Rules and Regulations on Settlement of
Accounts,32 we hold the approving officers of TESDA liable for the
excess EME received by them.
The TESDA Act provides that the TESDA Secretariat, headed by the
Director-General, shall propose the specific allocation of resources
for the programs and projects it shall undertake pursuant to
approved national technical education and skills development
plan.33 As chief executive officer of the TESDA Secretariat, the
Director-General shall likewise exercise general supervision and
control over its technical and administrative personnel.34
In the petition filed before the Court, TESDA alleged that the various
memoranda issued by the Director-General authorized the TESDA
officials designated as TESDP project officers to claim EME under the
TESDP Fund.35 TESDA did not cite a specific provision of law
authorizing such EME, but claimed that its grant had been an
"institutional practice,"36 showing the lack of statutory authority to
pay such EME. Despite this lack of authority for granting additional
EME, the then Director-General still permitted EME in excess of the
allowable amount and extended EME to officials not entitled to it,
patently contrary to the 2004-2007 GAAs. The then Director-
General himself received EME from the TESDP Fund amounting to
P809,691.11,37 contrary to his claim that only executive directors,
regional directors or officials holding equivalent positions assigned
by him as project officers were entitled to EME from the TESDP
Fund.38 The then Director-General likewise insisted on his own
interpretation of the 2004-2007 GAAs disregarding the basic
principle of statutory construction that when the law is clear, there
should be no room for interpretation but only its application. If
there was any ambiguity in the law, the then Director-General
should have sought clarification from DBM and should not have
simply relied on his own interpretation, which was self-serving.
Accordingly, the Director-General's blatant violation of the clear
provisions of the Constitution, the 2004-2007 GAAs and the COA
circulars is equivalent to gross negligence amounting to bad faith.
He is required to refund the EME he received from the TESDP Fund
for himself. As for the TESDA officials who had no participation in
the approval of the excessive EME, they acted in good faith since
they had no hand in the approval of the unauthorized EME. They
also honestly believed that the additional EME were reimbursement
for their designation as project officers by the Director-General.
Being in good faith, they need not refund the excess EME they
received.
WHEREFORE, we AFFIRM the Commission on Audit Decision No.
2012-210 dated 15 November 2012 with MODIFICATION. Only the
Director-Generals39 of the Technical Education and Skills
Development Authority who approved the excess or unauthorized
extraordinary and miscellaneous expenses are ordered to refund
the excess extraordinary and miscellaneous expenses which they
received for themselves.
SO ORDERED.
G.R. No. 179382               January 14, 2013
SPOUSES BENJAMIN C. MAMARIL AND SONIA P.
MAMARIL, Petitioners,
vs.
THE BOY SCOUT OF THE PHILIPPINES, AIB SECURITY AGENCY, INC.,
CESARIO PEÑA,* AND VICENTE GADDI, Respondents.
DECISION
PERLAS-BERNABE, J.:
This is a Petition for Review on Certiorari assailing the May 31, 2007
Decision1 and August 16, 2007 Resolution2 of the Court of Appeals
(CA) in CA-G.R. CV No. 75978. The dispositive portion of the said
Decision reads:
WHEREFORE, the Decision dated November 28, 2001 and the Order
dated June 11, 2002 rendered by the Regional Trial Court of Manila,
Branch 39 is hereby MODIFIED to the effect that only defendants
AIB Security Agency, Inc., Cesario Peña and Vicente Gaddi are held
jointly and severally liable to pay plaintiffs-appellees Spouses
Benjamin C. Mamaril and Sonia P. Mamaril the amount of Two
Hundred Thousand Pesos (₱200,000.00) representing the cost of
the lost vehicle, and to pay the cost of suit. The other monetary
awards are DELETED for lack of merit and/or basis.
Defendant-Appellant Boy Scout of the Philippines is absolved from
any liability.
SO ORDERED.3
The Antecedent Facts
Spouses Benjamin C. Mamaril and Sonia P. Mamaril (Sps. Mamaril)
are jeepney operators since 1971. They would park their six (6)
passenger jeepneys every night at the Boy Scout of the Philippines'
(BSP) compound located at 181 Concepcion Street, Malate, Manila
for a fee of ₱300.00 per month for each unit. On May 26, 1995 at 8
o'clock in the evening, all these vehicles were parked inside the BSP
compound. The following morning, however, one of the vehicles
with Plate No. DCG 392 was missing and was never
recovered.4 According to the security guards Cesario Peña (Peña)
and Vicente Gaddi (Gaddi) of AIB Security Agency, Inc. (AIB) with
whom BSP had contracted5 for its security and protection, a male
person who looked familiar to them took the subject vehicle out of
the compound.
On November 20, 1996, Sps. Mamaril filed a complaint6 for damages
before the Regional Trial Court (RTC) of Manila, Branch 39, against
BSP, AIB, Peña and Gaddi. In support thereof, Sps. Mamaril averred
that the loss of the subject vehicle was due to the gross negligence
of the above-named security guards on-duty who allowed the
subject vehicle to be driven out by a stranger despite their
agreement that only authorized drivers duly endorsed by the
owners could do so. Peña and Gaddi even admitted their negligence
during the ensuing investigation. Notwithstanding, BSP and AIB did
not heed Sps. Mamaril's demands for a conference to settle the
matter. They therefore prayed that Peña and Gaddi, together with
AIB and BSP, be held liable for: (a) the value of the subject vehicle
and its accessories in the aggregate amount of ₱300,000.00; (b)
₱275.00 representing daily loss of income/boundary reckoned from
the day the vehicle was lost; (c) exemplary damages; (d) moral
damages; (e) attorney's fees; and (f) cost of suit.
In its Answer,7 BSP denied any liability contending that not only did
Sps. Mamaril directly deal with AIB with respect to the manner by
which the parked vehicles would be handled, but the parking
ticket8 itself expressly stated that the "Management shall not be
responsible for loss of vehicle or any of its accessories or article left
therein." It also claimed that Sps. Mamaril erroneously relied on the
Guard Service Contract. Apart from not being parties thereto, its
provisions cover only the protection of BSP's properties, its officers,
and employees.
In addition to the foregoing defenses, AIB alleged that it has
observed due diligence in the selection, training and supervision of
its security guards while Peña and Gaddi claimed that the person
who drove out the lost vehicle from the BSP compound represented
himself as the owners' authorized driver and had with him a key to
the subject vehicle. Thus, they contended that Sps. Mamaril have no
cause of action against them.
The RTC Ruling
After due proceedings, the RTC rendered a Decision9 dated
November 28, 2001 in favor of Sps. Mamaril. The dispositive portion
of the RTC decision reads:
WHEREFORE, judgment is hereby rendered ordering the defendants
Boy Scout of the Philippines and AIB Security Agency, with security
guards Cesario Pena and Vicente Gaddi: -
1. To pay the plaintiffs jointly and severally the cost of the vehicle
which is ₱250,000.00 plus accessories of ₱50,000.00;
2. To pay jointly and severally to the plaintiffs the daily loss of the
income/boundary of the said jeepney to be reckoned fromits loss up
to the final adjudication of the case, which is ₱275.00 a day;
3. To pay jointly and severally to the plaintiffs moral damages in the
amount of ₱50,000.00;
4. To pay jointly and severally to the plaintiffs exemplary damages in
the amount of ₱50,000.00;
5. To pay jointly and severally the attorney's fees of ₱50,000.00 and
appearances in court the amount of ₱1,500.00 per appearance; and
6. To pay cost.
10
SO ORDERED.
The RTC found that the act of Peña and Gaddi in allowing the entry
of an unidentified person and letting him drive out the subject
vehicle in violation of their internal agreement with Sps. Mamaril
constituted gross negligence, rendering AIB and its security guards
liable for the former's loss. BSP was also adjudged liable because
the Guard Service Contract it entered into with AIB offered
protection to all properties inside the BSP premises, which
necessarily included Sps. Mamaril's vehicles. Moreover, the said
contract stipulated AIB's obligation to indemnify BSP for all losses or
damages that may be caused by any act or negligence of its security
guards. Accordingly, the BSP, AIB, and security guards Peña and
Gaddi were held jointly and severally liable for the loss suffered by
Sps. Mamaril.
On June 11, 2002, the RTC modified its decision reducing the cost of
the stolen vehicle from ₱250,000.00 to ₱200,000.00.11
Only BSP appealed the foregoing disquisition before the CA.
The CA Ruling
In its assailed Decision,12 the CA affirmed the finding of negligence
on the part of security guards Peña and Gaddi. However, it absolved
BSP from any liability, holding that the Guard Service Contract is
purely between BSP and AIB and that there was nothing therein
that would indicate any obligation and/or liability on the part of BSP
in favor of third persons, such as Sps. Mamaril. Nor was there
evidence sufficient to establish that BSP was negligent.
It further ruled that the agreement between Sps. Mamaril and BSP
was substantially a contract of lease whereby the former paid
parking fees to the latter for the lease of parking slots. As such, the
lessor, BSP, was not an insurer nor bound to take care and/or
protect the lessees' vehicles.
On the matter of damages, the CA deleted the award of ₱50,000.00
representing the value of the accessories inside the lost vehicle and
the ₱275.00 a day for loss of income in the absence of proof to
support them. It also deleted the award of moral and exemplary
damages and attorney's fees for lack of factual and legal bases.
Sps. Mamaril's motion for reconsideration thereof was denied in the
August 16, 2007 Resolution.13
Issues Before the Court
Hence, the instant petition based on the following assignment of
errors, to wit:
I.
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN
ABSOLVING RESPONDENT BOY SCOUT OF THE PHILIPPINES FROM
ANY LIABILITY.
II.
THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS
MISTAKE WHEN IT RULED THAT THE GUARD SERVICE CONTRACT IS
PURELY BETWEEN BOY SCOUT OF THE
PHILIPPINES AND AIB SECURITY AGENCY, INC., AND IN HOLDING
THAT THERE IS ABSOLUTELY NOTHING IN THE SAID CONTRACT THAT
WOULD INDICATE ANY OBLIGATION AND/OR LIABILITY ON THE
PART OF THE PARTIES THEREIN IN FAVOR OF THIRD PERSONS, SUCH
AS PETITIONERS HEREIN.
III.
THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS ERROR
IN THE INTERPRETATION OF LAW WHEN IT CONSIDERED THE
AGREEMENT BETWEEN BOY SCOUT OF THE PHILIPPINES AND
PETITIONERS A CONTRACT OF LEASE, WHEREBY THE BOY SCOUT IS
NOT DUTY BOUND TO PROTECT OR TAKE CARE OF PETITIONERS'
VEHICLES.
IV.
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED WHEN IT
RULED THAT PETITIONERS ARE NOT ENTITLED TO DAMAGES AND
ATTORNEY'S FEES.14
In fine, Sps. Mamaril maintain that: (1) BSP should be held liable for
the loss of their vehicle based on the Guard Service Contract and
the parking ticket it issued; and (2) the CA erred in deleting the RTC
awards of damages and attorney's fees.
The Court's Ruling
The petition lacks merit.
Article 20 of the Civil Code provides that every person, who,
contrary to law, willfully or negligently causes damage to another,
shall indemnify the latter for the same. Similarly, Article 2176 of the
Civil Code states:
Art. 2176. Whoever by act or omission causes damage to another,
there being fault or negligence, is obliged to pay for the damage
done. Such fault or negligence, if there is no preexisting contractual
relation between the parties, is called a quasi-delict and is governed
by the provisions of this Chapter.
In this case, it is undisputed that the proximate cause of the loss of
Sps. Mamaril's vehicle was the negligent act of security guards Peña
and Gaddi in allowing an unidentified person to drive out the
subject vehicle. Proximate cause has been defined as that cause,
which, in natural and continuous sequence, unbroken by any
efficient intervening cause, produces the injury or loss, and without
which the result would not have occurred.15
Moreover, Peña and Gaddi failed to refute Sps. Mamaril's
contention16 that they readily admitted being at fault during the
investigation that ensued.
On the other hand, the records are bereft of any finding of
negligence on the part of BSP. Hence, no reversible error was
committed by the CA in absolving it from any liability for the loss of
the subject vehicle based on fault or negligence.
Neither will the vicarious liability of an employer under Article
218017 of the Civil Code apply in this case. It is uncontested that
Peña and Gaddi were assigned as security guards by AIB to BSP
pursuant to the Guard Service Contract. Clearly, therefore, no
employer-employee relationship existed between BSP and the
security guards assigned in its premises. Consequently, the latter's
negligence cannot be imputed against BSP but should be attributed
to AIB, the true employer of Peña and Gaddi.18
In the case of Soliman, Jr. v. Tuazon,19 the Court enunciated thus:
It is settled that where the security agency, as here, recruits, hires
and assigns the work of its watchmen or security guards, the agency
is the employer of such guards and watchmen. Liability for illegal or
harmful acts committed by the security guards attaches to the
employer agency, and not to the clients or customers of such
agency. As a general rule, a client or customer of a security agency
has no hand in selecting who among the pool of security guards or
watchmen employed by the agency shall be assigned to it; the duty
to observe the diligence of a good father of a family in the selection
of the guards cannot, in the ordinary course of events, be
demanded from the client whose premises or property are
protected by the security guards. The fact that a client company
may give instructions or directions to the security guards assigned
to it, does not, by itself, render the client responsible as an
employer of the security guards concerned and liable for their
wrongful acts or omissions. Those instructions or directions are
ordinarily no more than requests commonly envisaged in the
contract for services entered into with the security agency.20
Nor can it be said that a principal-agent relationship existed
between BSP and the security guards Peña and Gaddi as to make
the former liable for the latter's complained act. Article 1868 of the
Civil Code states that "by the contract of agency, a person binds
himself to render some service or to do something in representation
or on behalf of another, with the consent or authority of the latter."
The basis for agency therefore is representation,21 which element is
absent in the instant case. Records show that BSP merely hired the
services of AIB, which, in turn, assigned security guards, solely for
the protection of its properties and premises. Nowhere can it be
inferred in the Guard Service Contract that AIB was appointed as an
agent of BSP. Instead, what the parties intended was a pure
principal-client relationship whereby for a consideration, AIB
rendered its security services to BSP.
Notwithstanding, however, Sps. Mamaril insist that BSP should be
held liable for their loss on the basis of the Guard Service Contract
that the latter entered into with AIB and their parking agreement
with BSP.
Such contention cannot be sustained.
Article 1311 of the Civil Code states:
Art. 1311. Contracts take effect only between the parties, their
assigns and heirs, except in case where the rights and obligations
arising from the contract are not transmissible by their nature, or by
stipulation or by provision of law. The heir is not liable beyond the
value of the property he received from the decedent.
If a contract should contain some stipulation in favor of a third
person, he may demand its fulfillment provided he communicated
his acceptance to the obligor before its revocation. A mere
incidental benefit or interest of a person is not sufficient. The
contracting parties must have clearly and deliberately conferred a
favor upon a third person.
Thus, in order that a third person benefited by the second
paragraph of Article 1311, referred to as a stipulation pour autrui,
may demand its fulfillment, the following requisites must concur: (1)
There is a stipulation in favor of a third person; (2) The stipulation is
a part, not the whole, of the contract; (3) The contracting parties
clearly and deliberately conferred a favor to the third person - the
favor is not merely incidental; (4) The favor is unconditional and
uncompensated; (5) The third person communicated his or her
acceptance of the favor before its revocation; and (6) The
contracting parties do not represent, or are not authorized, by the
third party.22 However, none of the foregoing elements obtains in
this case.
It is undisputed that Sps. Mamaril are not parties to the Guard
Service Contract.1âwphi1 Neither did the subject agreement
contain any stipulation pour autrui. And even if there was, Sps.
Mamaril did not convey any acceptance thereof. Thus, under the
principle of relativity of contracts, they cannot validly claim any
rights or favor under the said agreement.23 As correctly found by the
CA:
First, the Guard Service Contract between defendant-appellant BSP
and defendant AIB Security Agency is purely between the parties
therein. It may be observed that although the whereas clause of the
said agreement provides that defendant-appellant desires security
and protection for its compound and all properties therein, as well
as for its officers and employees, while inside the premises, the
same should be correlated with paragraph 3(a) thereof which
provides that the security agency shall indemnify defendant-
appellant for all losses and damages suffered by it attributable to
any act or negligence of the former's guards.
Otherwise stated, defendant-appellant sought the services of
defendant AIB Security Agency for the purpose of the security and
protection of its properties, as well as that of its officers and
employees, so much so that in case of loss of [sic] damage suffered
by it as a result of any act or negligence of the guards, the security
agency would then be held responsible therefor. There is absolutely
nothing in the said contract that would indicate any obligation
and/or liability on the part of the parties therein in favor of third
persons such as herein plaintiffs-appellees.24
Moreover, the Court concurs with the finding of the CA that the
contract between the parties herein was one of lease25 as defined
under Article 164326 of the Civil Code. It has been held that the act
of parking a vehicle in a garage, upon payment of a fixed amount, is
a lease.27 Even in a majority of American cases, it has been ruled
that where a customer simply pays a fee, parks his car in any
available space in the lot, locks the car and takes the key with him,
the possession and control of the car, necessary elements in
bailment, do not pass to the parking lot operator, hence, the
contractual relationship between the parties is one of lease.28
In the instant case, the owners parked their six (6) passenger
jeepneys inside the BSP compound for a monthly fee of ₱300.00 for
each unit and took the keys home with them. Hence, a lessor-lessee
relationship indubitably existed between them and BSP. On this
score, Article 1654 of the Civil Code provides that "the lessor (BSP) is
obliged: (1) to deliver the thing which is the object of the contract in
such a condition as to render it fit for the use intended; (2) to make
on the same during the lease all the necessary repairs in order to
keep it suitable for the use to which it has been devoted, unless
there is a stipulation to the contrary; and (3) to maintain the lessee
in the peaceful and adequate enjoyment of the lease for the entire
duration of the contract." In relation thereto, Article 1664 of the
same Code states that "the lessor is not obliged to answer for a
mere act of trespass which a third person may cause on the use of
the thing leased; but the lessee shall have a direct action against the
intruder." Here, BSP was not remiss in its obligation to provide Sps.
Mamaril a suitable parking space for their jeepneys as it even hired
security guards to secure the premises; hence, it should not be held
liable for the loss suffered by Sps. Mamaril.
It bears to reiterate that the subject loss was caused by the
negligence of the security guards in allowing a stranger to drive out
plaintiffs-appellants' vehicle despite the latter's instructions that
only their authorized drivers may do so. Moreover, the agreement
with respect to the ingress and egress of Sps. Mamaril's vehicles
were coordinated only with AIB and its security guards,29 without
the knowledge and consent of BSP. Accordingly, the mishandling of
the parked vehicles that resulted in herein complained loss should
be recovered only from the tort feasors (Peña and Gaddi) and their
employer, AIB; and not against the lessor, BSP.30
Anent Sps. Mamaril's claim that the exculpatory clause:
"Management shall not be responsible for loss of vehicle or any of
its accessories or article left therein"31 contained in the BSP issued
parking ticket was void for being a contract of adhesion and against
public policy, suffice it to state that contracts of adhesion are not
void per se. It is binding as any other ordinary contract and a party
who enters into it is free to reject the stipulations in its entirety. If
the terms thereof are accepted without objection, as in this case,
where plaintiffs-appellants have been leasing BSP's parking space
for more or less 20 years,32 then the contract serves as the law
between them.33 Besides, the parking fee of ₱300.00 per month or
₱10.00 a day for each unit is too minimal an amount to even create
an inference that BSP undertook to be an insurer of the safety of
plaintiffs-appellants' vehicles.
On the matter of damages, the Court noted that while Sonia P.
Mamaril testified that the subject vehicle had accessories worth
around !J50,000.00, she failed to present any receipt to substantiate
her claim.34 Neither did she submit any record or journal that would
have established the purported ₱275.0035 daily earnings of their
jeepney. It is axiomatic that actual damages must be proved with
reasonable degree of certainty and a party is entitled only to such
compensation for the pecuniary loss that was duly proven. Thus,
absent any competent proof of the amount of damages sustained,
the CA properly deleted the said awards.36
Similarly, the awards of moral and exemplary damages and
attorney's fees were properly disallowed by the CA for lack of
factual and legal bases. While the RTC granted these awards in the
dispositive portion of its November 28, 2001 decision, it failed to
provide sufficient justification therefor.37
WHEREFORE premises considered, the instant petition is DENIED.
The May 31, 2007 Decision and August 16, 2007 Resolution of the
Court of Appeals in CA-G.R. CV No. 75978 are AFFIRMFED.
SO ORDERED.
TANAY RECREATION CENTER AND DEVELOPMENT
CORP., Petitioners, v. CATALINA MATIENZO FAUSTO* and
ANUNCIACION FAUSTO PACUNAYEN, Respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
Petitioner Tanay Recreation Center and Development Corp. (TRCDC)
is the lessee of a 3,090-square meter property located in Sitio
Gayas, Tanay, Rizal, owned by Catalina Matienzo Fausto,1 under a
Contract of Lease executed on August 1, 1971. On this property
stands the Tanay Coliseum Cockpit operated by petitioner. The
lease contract provided for a 20-year term, subject to renewal
within sixty days prior to its expiration. The contract also provided
that should Fausto decide to sell the property, petitioner shall have
the "priority right" to purchase the same.2
On June 17, 1991, petitioner wrote Fausto informing her of its
intention to renew the lease.3 However, it was Fausto's daughter,
respondent Anunciacion F. Pacunayen, who replied, asking that
petitioner remove the improvements built thereon, as she is now
the absolute owner of the property.4 It appears that Fausto had
earlier sold the property to Pacunayen on August 8, 1990, for the
sum of P10,000.00 under a "Kasulatan ng Bilihan Patuluyan ng
Lupa,"5 and title has already been transferred in her name under
Transfer Certificate of Title (TCT) No. M-35468.6
Despite efforts, the matter was not resolved. Hence, on September
4, 1991, petitioner filed an Amended Complaint for Annulment of
Deed of Sale, Specific Performance with Damages, and Injunction,
docketed as Civil Case No. 372-M.7
In her Answer, respondent claimed that petitioner is estopped from
assailing the validity of the deed of sale as the latter acknowledged
her ownership when it merely asked for a renewal of the lease.
According to respondent, when they met to discuss the matter,
petitioner did not demand for the exercise of its option to purchase
the property, and it even asked for grace period to vacate the
premises.8
After trial on the merits, the Regional Trial Court of Morong, Rizal
(Branch 78), rendered judgment extending the period of the lease
for another seven years from August 1, 1991 at a monthly rental
of P10,000.00, and dismissed petitioner's claim for damages.9
On appeal, docketed as CA-G.R. CV No. 43770, the Court of Appeals
(CA) affirmed with modifications the trial court's judgment per its
Decision dated June 14, 1999.10 The dispositive portion of the
decision reads:
WHEREFORE, the appealed decision is AFFIRMED AND
ACCORDINGLY MODIFIED AS DISCUSSED.
Furthermore, we resolved:
1.0. That TRCDC VACATE the leased premises immediately;
2.0. To GRANT the motion of Pacunayen to allow her to withdraw
the amount of P320,000.00, deposited according to records, with
this court.
3.0. To order TRCDC to MAKE THE NECESSARY ACCOUNTING
regarding the amounts it had already deposited (for unpaid rentals
for the extended period of seven [7] years of the contract of lease).
In case it had not yet completed its deposit, to immediately pay the
remaining balance to Pacunayen.
4.0. To order TRCDC to PAY the amount of P10,000.00 as monthly
rental, with regard to its continued stay in the leased premises even
after the expiration of the extended period of seven (7) years,
computed from August 1, 1998, until it finally vacates therefrom.
SO ORDERED.11
In arriving at the assailed decision, the CA acknowledged the priority
right of TRCDC to purchase the property in question. However, the
CA interpreted such right to mean that it shall be applicable only in
case the property is sold to strangers and not to Fausto's relative.
The CA stated that "(T)o interpret it otherwise as to comprehend all
sales including those made to relatives and to the compulsory heirs
of the seller at that would be an absurdity," and "her (Fausto's) only
motive for such transfer was precisely one of preserving the
property within her bloodline and that someone administer the
property."12 The CA also ruled that petitioner already acknowledged
the transfer of ownership and is deemed to have waived its right to
purchase the property.13 The CA even further went on to rule that
even if the sale is annulled, petitioner could not achieve anything
because the property will be eventually transferred to Pacunayen
after Fausto's death.14
Petitioner filed a motion for reconsideration but it was denied per
Resolution dated September 14, 1999.15
Dissatisfied, petitioner elevated the case to this Court on Petition
for Review on Certiorari, raising the following grounds:
THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS
REVERSIBLE ERROR IN HOLDING THAT THE CONTRACTUAL
STIPULATION GIVING PETITIONER THE PRIORITY RIGHT TO
PURCHASE THE LEASED PREMISES SHALL ONLY APPLY IF THE LESSOR
DECIDES TO SELL THE SAME TO STRANGERS;
THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS
REVERSIBLE ERROR IN HOLDING THAT PETITIONER'S PRIORITY
RIGHT TO PURCHASE THE LEASED PREMISES IS INCONSEQUENTIAL.16
The principal bone of contention in this case refers to petitioner's
priority right to purchase, also referred to as the right of first
refusal.
Petitioner's right of first refusal in this case is expressly provided for
in the notarized "Contract of Lease" dated August 1, 1971, between
Fausto and petitioner, to wit:
7. That should the LESSOR decide to sell the leased premises, the
LESSEE shall have the priority right to purchase the same;17
When a lease contract contains a right of first refusal, the lessor is
under a legal duty to the lessee not to sell to anybody at any price
until after he has made an offer to sell to the latter at a certain price
and the lessee has failed to accept it. The lessee has a right that the
lessor's first offer shall be in his favor.18 Petitioner's right of first
refusal is an integral and indivisible part of the contract of lease and
is inseparable from the whole contract. The consideration for the
lease includes the consideration for the right of first refusal19 and is
built into the reciprocal obligations of the parties.
It was erroneous for the CA to rule that the right of first refusal does
not apply when the property is sold to Fausto's relative.20 When the
terms of an agreement have been reduced to writing, it is
considered as containing all the terms agreed upon. As such, there
can be, between the parties and their successors in interest, no
evidence of such terms other than the contents of the written
agreement, except when it fails to express the true intent and
agreement of the parties.21 In this case, the wording of the
stipulation giving petitioner the right of first refusal is plain and
unambiguous, and leaves no room for interpretation. It simply
means that should Fausto decide to sell the leased property during
the term of the lease, such sale should first be offered to petitioner.
The stipulation does not provide for the qualification that such right
may be exercised only when the sale is made to strangers or
persons other than Fausto's kin. Thus, under the terms of
petitioner's right of first refusal, Fausto has the legal duty to
petitioner not to sell the property to anybody, even her relatives, at
any price until after she has made an offer to sell to petitioner at a
certain price and said offer was rejected by petitioner. Pursuant to
their contract, it was essential that Fausto should have first offered
the property to petitioner before she sold it to respondent. It was
only after petitioner failed to exercise its right of first priority could
Fausto then lawfully sell the property to respondent.
The rule is that a sale made in violation of a right of first refusal is
valid. However, it may be rescinded, or, as in this case, may be the
subject of an action for specific performance.22 In Riviera Filipina,
Inc. v. Court of Appeals,23 the Court discussed the concept and
interpretation of the right of first refusal and the consequences of a
breach thereof, to wit:
. . . It all started in 1992 with Guzman, Bocaling & Co. v.
Bonnevie where the Court held that a lease with a proviso granting
the lessee the right of first priority "all things and conditions being
equal" meant that there should be identity of the terms and
conditions to be offered to the lessee and all other prospective
buyers, with the lessee to enjoy the right of first priority. A deed of
sale executed in favor of a third party who cannot be deemed a
purchaser in good faith, and which is in violation of a right of first
refusal granted to the lessee is not voidable under the Statute of
Frauds but rescissible under Articles 1380 to 1381 (3) of the New
Civil Code.
Subsequently in 1994, in the case of Ang Yu Asuncion v. Court of
Appeals, the Court en banc departed from the doctrine laid down
in Guzman, Bocaling & Co. v. Bonnevie and refused to rescind a
contract of sale which violated the right of first refusal. The Court
held that the so-called "right of first refusal" cannot be deemed a
perfected contract of sale under Article 1458 of the New Civil Code
and, as such, a breach thereof decreed under a final judgment does
not entitle the aggrieved party to a writ of execution of the
judgment but to an action for damages in a proper forum for the
purpose.
In the 1996 case of Equatorial Realty Development, Inc. v. Mayfair
Theater, Inc., the Court en banc reverted back to the doctrine
in Guzman Bocaling & Co. v. Bonnevie stating that rescission is a
relief allowed for the protection of one of the contracting parties
and even third persons from all injury and damage the contract may
cause or to protect some incompatible and preferred right by the
contract.
Thereafter in 1997, in Parañaque Kings Enterprises, Inc. v. Court of
Appeals, the Court affirmed the nature of and the concomitant
rights and obligations of parties under a right of first refusal. The
Court, summarizing the rulings in Guzman, Bocaling & Co. v.
Bonnevie and Equatorial Realty Development, Inc. v. Mayfair
Theater, Inc., held that in order to have full compliance with the
contractual right granting petitioner the first option to purchase, the
sale of the properties for the price for which they were finally sold to
a third person should have likewise been first offered to the former.
Further, there should be identity of terms and conditions to be
offered to the buyer holding a right of first refusal if such right is not
to be rendered illusory. Lastly, the basis of the right of first refusal
must be the current offer to sell of the seller or offer to purchase of
any prospective buyer.
The prevailing doctrine therefore, is that a right of first refusal
means identity of terms and conditions to be offered to the lessee
and all other prospective buyers and a contract of sale entered into
in violation of a right of first refusal of another person, while valid, is
rescissible.24
It was also incorrect for the CA to rule that it would be useless to
annul the sale between Fausto and respondent because the
property would still remain with respondent after the death of her
mother by virtue of succession, as in fact, Fausto died in March
1996, and the property now belongs to respondent, being Fausto's
heir.25
For one, Fausto was bound by the terms and conditions of the lease
contract. Under the right of first refusal clause, she was obligated to
offer the property first to petitioner before selling it to anybody
else. When she sold the property to respondent without offering it
to petitioner, the sale while valid is rescissible so that petitioner
may exercise its option under the contract.
With the death of Fausto, whatever rights and obligations she had
over the property, including her obligation under the lease contract,
were transmitted to her heirs by way of succession, a mode of
acquiring the property, rights and obligation of the decedent to the
extent of the value of the inheritance of the heirs. Article 1311 of
the Civil Code provides:
ART. 1311. Contracts take effect only between the parties, their
assigns and heirs, except in case where the rights and obligations
arising from the contract are not transmissible by their nature, or by
stipulation or by provision of law. The heir is not liable beyond the
value of the property he received from the decedent.
A lease contract is not essentially personal in character.26 Thus, the
rights and obligations therein are transmissible to the heirs. The
general rule is that heirs are bound by contracts entered into by
their predecessors-in-interest except when the rights and
obligations arising therefrom are not transmissible by (1) their
nature, (2) stipulation or (3) provision of law.27
In this case, the nature of the rights and obligations are, by their
nature, transmissible. There is also neither contractual stipulation
nor provision of law that makes the rights and obligations under the
lease contract intransmissible. The lease contract between
petitioner and Fausto is a property right, which is a right that passed
on to respondent and the other heirs, if any, upon the death of
Fausto.
In DKC Holdings Corporation v. Court of Appeals,28 the Court held
that the Contract of Lease with Option to Buy entered into by the
late Encarnacion Bartolome with DKC Holdings Corporation was
binding upon her sole heir, Victor, even after her demise and it
subsists even after her death. The Court ruled that:
. . . Indeed, being an heir of Encarnacion, there is privity of interest
between him and his deceased mother. He only succeeds to what
rights his mother had and what is valid and binding against her is
also valid and binding as against him. This is clear from Parañaque
Kings Enterprises v. Court of Appeals, where this Court rejected a
similar defense -
With respect to the contention of respondent Raymundo that he is
not privy to the lease contract, not being the lessor nor the lessee
referred to therein, he could thus not have violated its provisions,
but he is nevertheless a proper party. Clearly, he stepped into the
shoes of the owner-lessor of the land as, by virtue of his purchase,
he assumed all the obligations of the lessor under the lease
contract. Moreover, he received benefits in the form of rental
payments. Furthermore, the complaint, as well as the petition,
prayed for the annulment of the sale of the properties to him. Both
pleadings also alleged collusion between him and respondent
Santos which defeated the exercise by petitioner of its right of first
refusal.
In order then to accord complete relief to petitioner, respondent
Raymundo was a necessary, if not indispensable, party to the case.
A favorable judgment for the petitioner will necessarily affect the
rights of respondent Raymundo as the buyer of the property over
which petitioner would like to assert its right of first option to
buy.29 (Emphasis supplied)ςrαlαωlιbrαrÿ
Likewise in this case, the contract of lease, with all its concomitant
provisions, continues even after Fausto's death and her heirs merely
stepped into her shoes.30 Respondent, as an heir of Fausto, is
therefore bound to fulfill all its terms and conditions.
There is no personal act required from Fausto such that respondent
cannot perform it. Fausto's obligation to deliver possession of the
property to petitioner upon the exercise by the latter of its right of
first refusal may be performed by respondent and the other heirs, if
any. Similarly, nonperformance is not excused by the death of the
party when the other party has a property interest in the subject
matter of the contract.31
The CA likewise found that petitioner acknowledged the legitimacy
of the sale to respondent and it is now barred from exercising its
right of first refusal. According to the appellate court:
Second, when TRCDC, in a letter to Fausto, signified its intention to
renew the lease contract, it was Pacunayen who answered the
letter on June 19, 1991. In that letter Pacunayen demanded that
TRCDC vacate the leased premises within sixty (60) days and
informed it of her ownership of the leased premises. The pertinent
portion of the letter reads:
Furtherly, please be advised that the land is no longer under the
absolute ownership of my mother and the undersigned is now the
real and absolute owner of the land.
Instead of raising a howl over the contents of the letter, as would be
its expected and natural reaction under the circumstances, TRCDC
surprisingly kept silent about the whole thing. As we mentioned in
the factual antecedents of this case, it even invited Pacunayen to its
special board meeting particularly to discuss with her the renewal of
the lease contract. Again, during that meeting, TRCDC did not
mention anything that could be construed as challenging
Pacunayen's ownership of the leased premises. Neither did TRCDC
assert its priority right to purchase the same against Pacunayen.32
The essential elements of estoppel are: (1) conduct of a party
amounting to false representation or concealment of material facts
or at least calculated to convey the impression that the facts are
otherwise than, and inconsistent with, those which the party
subsequently attempts to assert; (2) intent, or at least expectation,
that this conduct shall be acted upon by, or at least influence, the
other party; and (3) knowledge, actual or constructive, of the real
facts.33
The records are bereft of any proposition that petitioner waived its
right of first refusal under the contract such that it is now estopped
from exercising the same. In a letter dated June 17, 1991, petitioner
wrote to Fausto asking for a renewal of the term of
lease.34 Petitioner cannot be faulted for merely seeking a renewal of
the lease contract because obviously, it was working on the
assumption that title to the property is still in Fausto's name and the
latter has the sole authority to decide on the fate of the property.
Instead, it was respondent who replied, advising petitioner to
remove all the improvements on the property, as the lease is to
expire on the 1st of August 1991. Respondent also informed
petitioner that her mother has already sold the property to her.35 In
order to resolve the matter, a meeting was called among
petitioner's stockholders, including respondent, on July 27, 1991,
where petitioner, again, proposed that the lease be renewed.
Respondent, however, declined. While petitioner may have sought
the renewal of the lease, it cannot be construed as a relinquishment
of its right of first refusal. Estoppel must be intentional and
unequivocal.36
Also, in the excerpts from the minutes of the special meeting, it was
further stated that the possibility of a sale was likewise
considered.37 But respondent also refused to sell the land, while the
improvements, "if for sale shall be subject for appraisal."38 After
respondent refused to sell the land, it was then that petitioner filed
the complaint for annulment of sale, specific performance and
damages.39 Petitioner's acts of seeking all possible avenues for the
amenable resolution of the conflict do not amount to an intentional
and unequivocal abandonment of its right of first refusal.
Respondent was well aware of petitioner's right to priority of sale,
and that the sale made to her by her mother was merely for her to
be able to take charge of the latter's affairs. As admitted by
respondent in her Appellee's Brief filed before the CA, viz.:
After June 19, 1991, TRCDC invited Pacunayen to meeting with the
officers of the corporation. . . . In the same meeting, Pacunayen's
attention was called to the provision of the Contract of Lease had
by her mother with TRCDC, particularly paragraph 7 thereof, which
states:
7. That should the lessor decide to sell the leased premises, the
LESSEE shall have the priority right to purchase the same.
Of course, in the meeting she had with the officers of TRCDC,
Pacunayen explained that the sale made in her favor by her mother
was just a formality so that she may have the proper representation
with TRCDC in the absence of her parents, more so that her father
had already passed away, and there was no malice in her mine (sic)
and that of her mother, or any intention on their part to deceive
TRCDC. All these notwithstanding, and for her to show their good
faith in dealing with TRCDC, Pacunayen started the ground work to
reconvey ownership over the whole land, now covered by Transfer
Certificare (sic) of Title No. M-259, to and in the name of her mother
(Fausto), but the latter was becoming sickly, old and weak, and they
found no time to do it as early as they wanted to.40 (Emphasis
supplied)ςrαlαωlιbrαrÿ
Given the foregoing, the "Kasulatan ng Bilihan Patuluyan ng Lupa"
dated August 8, 1990 between Fausto and respondent must be
rescinded. Considering, however, that Fausto already died on
March 16, 1996, during the pendency of this case with the CA, her
heirs should have been substituted as respondents in this case.
Considering further that the Court cannot declare respondent
Pacunayen as the sole heir, as it is not the proper forum for that
purpose, the right of petitioner may only be enforced against the
heirs of the deceased Catalina Matienzo Fausto, represented by
respondent Pacunayen.
In Parañaque Kings Enterprises, Inc. v. Court of Appeals,41 it was
ruled that the basis of the right of the first refusal must be the
current offer to sell of the seller or offer to purchase of any
prospective buyer. It is only after the grantee fails to exercise its
right of first priority under the same terms and within the period
contemplated, could the owner validly offer to sell the property to a
third person, again, under the same terms as offered to the grantee.
The circumstances of this case, however, dictate the application of a
different ruling. An offer of the property to petitioner under
identical terms and conditions of the offer previously given to
respondent Pacunayen would be inequitable. The subject property
was sold in 1990 to respondent Pacunayen for a measly sum
of P10,000.00. Obviously, the value is in a small amount because the
sale was between a mother and daughter. As admitted by said
respondent, "the sale made in her favor by her mother was just a
formality so that she may have the proper representation with
TRCDC in the absence of her parents'"42 Consequently, the offer to
be made to petitioner in this case should be under reasonable terms
and conditions, taking into account the fair market value of the
property at the time it was sold to respondent.
In its complaint, petitioner prayed for the cancellation of TCT No. M-
35468 in the name of respondent Pacunayen,43 which was issued by
the Register of Deeds of Morong on February 7, 1991.44 Under
ordinary circumstances, this would be the logical effect of the
rescission of the "Kasulatan ng Bilihan Patuluyan ng Lupa" between
the deceased Fausto and respondent Pacunayen. However, the
circumstances in this case are not ordinary. The buyer of the subject
property is the seller's own daughter. If and when the title (TCT No.
M-35468) in respondent Pacunayen's name is cancelled and
reinstated in Fausto's name, and thereafter negotiations between
petitioner and respondent Pacunayen for the purchase of the
subject property break down, then the subject property will again
revert to respondent Pacunayen as she appears to be one of
Fausto's heirs. This would certainly be a winding route to traverse.
Sound reason therefore dictates that title should remain in the
name of respondent Pacunayen, for and in behalf of the other heirs,
if any, to be cancelled only when petitioner successfully exercises its
right of first refusal and purchases the subject property.
Petitioner further seeks the award of the following damages in its
favor: (1) P100,000.00 as actual damages; (2) P1,100,000.00 as
compensation for lost goodwill or reputation; (3) P100,000.00 as
moral damages; (4) P100,000.00 as exemplary damages;
(5) P50,000.00 as attorney's fees; (6) P1,000.00 appearance fee per
hearing; and (7) the costs of suit.45
According to petitioner, respondent's act in fencing the property led
to the closure of the Tanay Coliseum Cockpit and petitioner was
unable to conduct cockfights and generate income of not less
than P100,000.00 until the end of September 1991, aside from the
expected rentals from the cockpit space lessees in the amount
of P11,000.00.46
Under Article 2199 of the Civil Code, it is provided that:
Except as provided by law or by stipulation, one is entitled to an
adequate compensation only for such pecuniary loss suffered by
him as he has duly proved. Such compensation is referred to as
actual or compensatory damages. (Emphasis supplied)ςrαlαωlιbrαrÿ
The rule is that actual or compensatory damages cannot be
presumed, but must be proved with reasonable degree of certainty.
A court cannot rely on speculations, conjectures, or guesswork as to
the fact and amount of damages, but 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. It must
point out specific facts, which could afford a basis for measuring
whatever compensatory or actual damages are borne.47
In the present case, there is no question that the Tanay Coliseum
Cockpit was closed for two months and TRCDC did not gain any
income during said period. But there is nothing on record to
substantiate petitioner's claim that it was bound to lose
some P111,000.00 from such closure. TRCDC's president, Ambrosio
Sacramento, testified that they suffered income losses with the
closure of the cockpit from August 2, 1991 until it re-opened on
October 20, 1991.48 Mr. Sacramento, however, cannot state with
certainty the amount of such unrealized income.49 Meanwhile,
TRCDC's accountant, Merle Cruz, stated that based on the
corporation's financial statement for the years 1990 and
1991,50 they derived the amount of P120,000.00 as annual income
from rent.51 From said financial statement, it is safe to presume that
TRCDC generated a monthly income of P10,000.00 a month
(P120,000.00 annual income divided by 12 months). At best
therefore, whatever actual damages that petitioner suffered from
the cockpit's closure for a period of two months can be reasonably
summed up only to P20,000.00.
Such award of damages shall earn interest at the legal rate of six
percent (6%) per annum, which shall be computed from the time of
the filing of the Complaint on August 22, 1991, until the finality of
this decision. After the present decision becomes final and
executory, the rate of interest shall increase to twelve percent
(12%) per annum from such finality until its satisfaction, this interim
period being deemed to be equivalent to a forbearance of
credit.52 This is in accord with the guidelines laid down by the Court
in Eastern Shipping Lines, Inc. v. Court of Appeals,53 regarding the
manner of computing legal interest, viz.:
II. With regard particularly to an award of interest in the concept of
actual and compensatory damages, the rate of interest, as well as
the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment
of a sum of money, i.e., a loan or forbearance of money, the interest
due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from
the time it is judicially demanded. In the absence of stipulation, the
rate of interest shall be 12% per annum to be computed from
default, i.e., from judicial or extrajudicial demand under and subject
to the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of
money, is breached, an interest on the amount of damages awarded
may be imposed at the discretion of the court at the rate of 6% per
annum. No interest, however, shall be adjudged on unliquidated
claims or damages except when or until the demand can be
established with reasonable certainty. Accordingly, where the
demand is established with reasonable certainty, the interest shall
begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code) but when such certainty cannot
be so reasonably established at the time the demand is made, the
interest shall begin to run only from the date the judgment of the
court is made (at which time quantification of damages may be
deemed to have been reasonably ascertained). The actual base for
the computation of legal interest shall, in any case, be on the
amount finally adjudged.
3. When the judgment of the court awarding a sum of money
becomes final and executory, the rate of legal interest, whether the
case falls under paragraph 1 or paragraph 2, above, shall be
12% per annum from such finality until its satisfaction, this interim
period being deemed to be by then an equivalent to a forbearance
of credit.54
Petitioner also claims the amount of P1,100,000.00 as
compensation for lost goodwill or reputation. It alleged that "with
the unjust and wrongful conduct of the defendants as above-
described, plaintiff stands to lose its goodwill and reputation
established for the past 20 years."55
An award of damages for loss of goodwill or reputation falls under
actual or compensatory damages as provided in Article 2205 of the
Civil Code, to wit:
Art. 2205. Damages may be recovered:
(1) For loss or impairment of earning capacity in cases of temporary
or permanent personal injury;
(2) For injury to the plaintiff's business standing or commercial
credit.
Even if it is not recoverable as compensatory damages, it may still
be awarded in the concept of temperate or moderate damages.56 In
arriving at a reasonable level of temperate damages to be awarded,
trial courts are guided by the ruling that:
. . . There are cases where from the nature of the case, definite
proof of pecuniary loss cannot be offered, although the court is
convinced that there has been such loss. For instance, injury to
one's commercial credit or to the goodwill of a business firm is often
hard to show certainty in terms of money. Should damages be
denied for that reason? The judge should be empowered to
calculate moderate damages in such cases, rather than that the
plaintiff should suffer, without redress from the defendant's
wrongful act. (Araneta v. Bank of America, 40 SCRA 144, 145)57
In this case, aside from the nebulous allegation of petitioner in its
amended complaint, there is no evidence on record, whether
testimonial or documentary, to adequately support such claim.
Hence, it must be denied.
Petitioner's claim for moral damages must likewise be denied. The
award of moral damages cannot be granted in favor of a
corporation because, being an artificial person and having existence
only in legal contemplation, it has no feelings, no emotions, no
senses. It cannot, therefore, experience physical suffering and
mental anguish, which can be experienced only by one having a
nervous system.58 Petitioner being a corporation,59 the claim for
moral damages must be denied.
With regard to the claim for exemplary damages, it is a requisite in
the grant thereof that the act of the offender must be accompanied
by bad faith or done in wanton, fraudulent or malevolent
manner.60 Moreover, where a party is not entitled to actual or moral
damages, an award of exemplary damages is likewise baseless.61 In
this case, petitioner failed to show that respondent acted in bad
faith, or in wanton, fraudulent or malevolent manner.
Petitioner likewise claims the amount of P50,000.00 as attorney's
fees, the sum of P1,000.00 for every appearance of its counsel, plus
costs of suit. It is well settled that no premium should be placed on
the right to litigate and not every winning party is entitled to an
automatic grant of attorney's fees. The party must show that he falls
under one of the instances enumerated in Article 2208 of the Civil
Code. In this case, since petitioner was compelled to engage the
services of a lawyer and incurred expenses to protect its interest
and right over the subject property, the award of attorney's fees is
proper. However there are certain standards in fixing attorney's
fees, to wit: (1) the amount and the character of the services
rendered; (2) labor, time and trouble involved; (3) the nature and
importance of the litigation and business in which the services were
rendered; (4) the responsibility imposed; (5) the amount of money
and the value of the property affected by the controversy or
involved in the employment; (6) the skill and the experience called
for in the performance of the services; (7) the professional
character and the social standing of the attorney; and (8) the results
secured, it being a recognized rule that an attorney may properly
charge a much larger fee when it is contingent than when it is
not.62 Considering the foregoing, the award of P10,000.00 as
attorney's fees, including the costs of suit, is reasonable under the
circumstances.
WHEREFORE, the instant Petition for Review is PARTIALLY
GRANTED. The Court of Appeals' Decision dated June 14, 1999 in
CA-G.R. CV No. 43770 is MODIFIED as follows:
(1) the "Kasulatan ng Bilihan Patuluyan ng Lupa" dated August 8,
1990 between Catalina Matienzo Fausto and respondent
Anunciacion Fausto Pacunayen is hereby deemed rescinded;
(2) The Heirs of the deceased Catalina Matienzo Fausto who are
hereby deemed substituted as respondents, represented by
respondent Anunciacion Fausto Pacunayen, are ORDERED to
recognize the obligation of Catalina Matienzo Fausto under the
Contract of Lease with respect to the priority right of petitioner
Tanay Recreation Center and Development Corp. to purchase the
subject property under reasonable terms and conditions;
(3) Transfer Certificate of Title No. M-35468 shall remain in the
name of respondent Anunciacion Fausto Pacunayen, which shall be
cancelled in the event petitioner successfully purchases the subject
property;
(4) Respondent is ORDERED to pay petitioner Tanay Recreation
Center and Development Corporation the amount of Twenty
Thousand Pesos (P20,000.00) as actual damages, plus interest
thereon at the legal rate of six percent (6%) per annum from the
filing of the Complaint until the finality of this Decision. After this
Decision becomes final and executory, the applicable rate shall be
twelve percent (12%) per annum until its satisfaction; and,
(5) Respondent is ORDERED to pay petitioner the amount of Ten
Thousand Pesos (P10,000.00) as attorney's fees, and to pay the
costs of suit.
(6) Let the case be remanded to the Regional Trial Court, Morong,
Rizal (Branch 78) for further proceedings on the determination of
the "reasonable terms and conditions" of the offer to sell by
respondents to petitioner, without prejudice to possible mediation
between the parties.
The rest of the unaffected dispositive portion of the Court of
Appeals' Decision is AFFIRMED.
SO ORDERED.
G.R. No. L-9356             February 18, 1915
C. S. GILCHRIST, plaintiff-appellee,
vs.
E. A. CUDDY, ET AL., defendants.
JOSE FERNANDEZ ESPEJO and MARIANO
ZALDARRIAGA, appellants.
C. Lozano for appellants.
Bruce, Lawrence, Ross and Block for appellee.
TRENT, J.:
An appeal by the defendants, Jose Fernandez Espejo and Mariano
Zaldarriaga, from a judgment of the Court of First Instance of Iloilo,
dismissing their cross-complaint upon the merits for damages
against the plaintiff for the alleged wrongful issuance of a
mandatory and a preliminary injunction.
Upon the application of the appellee an ex parte mandatory
injunction was issued on the 22d of May, 1913, directing the
defendant, E. A. Cuddy, to send to the appellee a certain
cinematograph film called "Zigomar" in compliance with an alleged
contract which had been entered into between these two parties,
and at the time an ex parte preliminary injunction was issued
restraining the appellants from receiving and exhibiting in their
theater the Zigomar until further orders of the court. On the 26th of
that month the appellants appeared and moved the court to
dissolve the preliminary injunction. When the case was called for
trial on August 6, the appellee moved for the dismissal of the
complaint "for the reason that there is no further necessity for the
maintenance of the injunction." The motion was granted without
objection as to Cuddy and denied as to the appellants in order to
give them an opportunity to prove that the injunction were
wrongfully issued and the amount of damages suffered by reason
thereof.
The pertinent part of the trial court's findings of fact in this case is
as follows:
It appears in this case that Cuddy was the owner of the film Zigomar
and that on the 24th of April he rented it to C. S. Gilchrist for a week
for P125, and it was to be delivered on the 26th of May, the week
beginning that day. A few days prior to this Cuddy sent the money
back to Gilchrist, which he had forwarded to him in Manila, saying
that he had made other arrangements with his film. The other
arrangements was the rental to these defendants Espejo and his
partner for P350 for the week and the injunction was asked by
Gilchrist against these parties from showing it for the week
beginning the 26th of May.
It appears from the testimony in this case, conclusively, that Cuddy
willfully violated his contract, he being the owner of the picture,
with Gilchrist because the defendants had offered him more for the
same period. Mr. Espejo at the trial on the permanent injunction on
the 26th of May admitted that he knew that Cuddy was the owner
of the film. He was trying to get it through his agents Pathe Brothers
in Manila. He is the agent of the same concern in Iloilo. There is in
evidence in this case on the trial today as well as on the 26th of
May, letters showing that the Pathe Brothers in Manila advised this
man on two different occasions not to contend for this film Zigomar
because the rental price was prohibitive and assured him also that
he could not get the film for about six weeks. The last of these
letters was written on the 26th of April, which showed conclusively
that he knew they had to get this film from Cuddy and from this
letter that the agent in Manila could not get it, but he made Cuddy
an offer himself and Cuddy accepted it because he was paying about
three times as much as he had contracted with Gilchrist for.
Therefore, in the opinion of this court, the defendants failed signally
to show the injunction against the defendant was wrongfully
procured.
The appellants duly excepted to the order of the court denying their
motion for new trial on the ground that the evidence was
insufficient to justify the decision rendered. There is lacking from
the record before us the deposition of the defendant Cuddy, which
apparently throws light upon a contract entered into between him
and the plaintiff Gilchrist. The contents of this deposition are
discussed at length in the brief of the appellants and an endeavor is
made to show that no such contract was entered into. The trial
court, which had this deposition before it, found that there was a
contract between Cuddy and Gilchrist. Not having the deposition in
question before us, it is impossible to say how strongly it militates
against this findings of fact. By a series of decisions we have
construed section 143 and 497 (2) of the Code of Civil Procedure to
require the production of all  the evidence in this court. This is the
duty of the appellant and, upon his failure to perform it, we decline
to proceed with a review of the evidence. In such cases we rely
entirely upon the pleadings and the findings of fact of the trial court
and examine only such assigned errors as raise questions of law.
(Ferrer vs. Neri Abejuela, 9 Phil. Rep., 324; Valle vs. Galera, 10 Phil.
Rep., 619; Salvacion vs. Salvacion, 13 Phil. Rep., 366; Breta vs. Smith,
Bell & Co., 15 Phil. Rep., 446; Arroyo vs. Yulo, 18 Phil. Rep., 236;
Olsen & Co. vs. Matson, Lord & Belser Co., 19 Phil. Rep., 102;
Blum vs. Barretto, 19 Phil. Rep., 161; Cuyugan vs. Aguas, 19 Phil.
Rep., 379; Mapa vs. Chaves, 20 Phil. Rep., 147; Mans vs. Garry, 20
Phil. Rep., 134.) It is true that some of the more recent of these
cases make exceptions to the general rule. Thus, in Olsen &
Co. vs. Matson, Lord & Belser Co., (19 Phil. Rep., 102), that portion
of the evidence before us tended to show that grave injustice might
result from a strict reliance upon the findings of fact contained in
the judgment appealed from. We, therefore, gave the appellant an
opportunity to explain the omission. But we required that such
explanation must show a satisfactory reason for the omission, and
that the missing portion of the evidence must be submitted within
sixty days or cause shown for failing to do so. The other cases
making exceptions to the rule are based upon peculiar
circumstances which will seldom arise in practice and need not here
be set forth, for the reason that they are wholly inapplicable to the
present case. The appellants would be entitled to indulgence only
under the doctrine of the Olsen case. But from that portion of the
record before us, we are not inclined to believe that the missing
deposition would be sufficient to justify us in reversing the findings
of fact of the trial court that the contract in question had been
made. There is in the record not only the positive and detailed
testimony of Gilchrist to this effect, but there is also a letter of
apology from Cuddy to Gilchrist in which the former enters into a
lengthy explanation of his reasons for leasing the film to another
party. The latter could only have been called forth by a broken
contract with Gilchrist to lease the film to him. We, therefore, fail to
find any reason for overlooking the omission of the defendants to
bring up the missing portion of the evidence and, adhering to the
general rule above referred to, proceed to examine the questions of
law raised by the appellants.
From the above-quoted findings of fact it is clear that Cuddy, a
resident of Manila, was the owner of the "Zigomar;" that Gilchrist
was the owner of a cinematograph theater in Iloilo; that in
accordance with the terms of the contract entered into between
Cuddy and Gilchrist the former leased to the latter the "Zigomar" for
exhibition in his (Gilchrist's) theater for the week beginning May 26,
1913; and that Cuddy willfully violate his contract in order that he
might accept the appellant's offer of P350 for the film for the same
period. Did the appellants know that they were inducing Cuddy to
violate his contract with a third party when they induced him to
accept the P350? Espejo admitted that he knew that Cuddy was the
owner of the film. He received a letter from his agents in Manila
dated April 26, assuring him that he could not get the film for about
six weeks. The arrangement between Cuddy and the appellants for
the exhibition of the film by the latter on the 26th of May were
perfected after April 26, so that the six weeks would include and
extend beyond May 26. The appellants must necessarily have
known at the time they made their offer to Cuddy that the latter
had booked or contracted the film for six weeks from April 26.
Therefore, the inevitable conclusion is that the appellants knowingly
induced Cuddy to violate his contract with another person. But
there is no specific finding that the appellants knew the identity of
the other party. So we must assume that they did not know that
Gilchrist was the person who had contracted for the film.
The appellants take the position that if the preliminary injunction
had not been issued against them they could have exhibited the film
in their theater for a number of days beginning May 26, and could
have also subleased it to other theater owners in the nearby towns
and, by so doing, could have cleared, during the life of their contract
with Cuddy, the amount claimed as damages. Taking this view of the
case, it will be unnecessary for us to inquire whether the mandatory
injunction against Cuddy was properly issued or not. No question is
raised with reference to the issuance of that injunction.
The right on the part of Gilchrist to enter into a contract with Cuddy
for the lease of the film must be fully recognized and admitted by
all. That Cuddy was liable in an action for damages for the breach of
that contract, there can be no doubt. Were the appellants likewise
liable for interfering with the contract between Gilchrist and Cuddy,
they not knowing at the time the identity of one of the contracting
parties? The appellants claim that they had a right to do what they
did. The ground upon which the appellants base this contention is,
that there was no valid and binding contract between Cuddy and
Gilchrist and that, therefore, they had a right to compete with
Gilchrist for the lease of the film, the right to compete being a
justification for their acts. If there had been no contract between
Cuddy and Gilchrist this defense would be tenable, but the mere
right to compete could not justify the appellants in intentionally
inducing Cuddy to take away the appellee's contractual rights.
Chief Justice Wells in Walker vs. Cronin (107 Mass., 555), said:
"Everyone has a right to enjoy the fruits and advantages of his own
enterprise, industry, skill and credit. He has no right to be free from
malicious and wanton interference, disturbance or annoyance. If
disturbance or loss come as a result of competition, or the exercise
of like rights by others, it is damnum absque injuria, unless some
superior right by contract or otherwise is interfered with."
In Read vs. Friendly Society of Operative Stonemasons ([1902] 2 K.
B., 88), Darling, J., said: "I think the plaintiff has a cause of action
against the defendants, unless the court is satisfied that, when they
interfered with the contractual rights of plaintiff, the defendants
had a sufficient justification for their interference; . . . for it is not a
justification that `they acted bona fide  in the best interests of the
society of masons,' i. e., in their own interests. Nor is it enough that
`they were not actuated by improper motives.' I think their
sufficient justification for interference with plaintiff's right must be
an equal or superior right in themselves, and that no one can legally
excuse himself to a man, of whose contract he has procured the
breach, on the ground that he acted on a wrong understanding of
his own rights, or without malice, or bona fide, or in the best
interests of himself, or even that he acted as an altruist, seeking
only good of another and careless of his own advantage." (Quoted
with approval in Beekman vs. Marsters, 195 Mass., 205.)
It is said that the ground on which the liability of a third party for
interfering with a contract between others rests, is that the
interference was malicious. The contrary view, however, is taken by
the Supreme Court of the United States in the case of
Angle vs. Railway Co. (151 U. S., 1). The only motive for interference
by the third party in that case was the desire to make a profit to the
injury of one of the parties of the contract. There was no malice in
the case beyond the desire to make an unlawful gain to the
detriment of one of the contracting parties.
In the case at bar the only motive for the interference with the
Gilchrist — Cuddy contract on the part of the appellants was a
desire to make a profit by exhibiting the film in their theater. There
was no malice beyond this desire; but this fact does not relieve
them of the legal liability for interfering with that contract and
causing its breach. It is, therefore, clear, under the above
authorities, that they were liable to Gilchrist for the damages
caused by their acts, unless they are relieved from such liability by
reason of the fact that they did not know at the time the identity of
the original lessee (Gilchrist) of the film.
The liability of the appellants arises from unlawful acts and not from
contractual obligations, as they were under no such obligations to
induce Cuddy to violate his contract with Gilchrist. So that if the
action of Gilchrist had been one for damages, it would be governed
by chapter 2, title 16, book 4 of the Civil Code. Article 1902 of that
code provides that a person who, by act or omission, causes
damages to another when there is fault or negligence, shall be
obliged to repair the damage do done. There is nothing in this
article which requires as a condition precedent to the liability of a
tort-feasor that he must know the identity of a person to whom he
causes damages. In fact, the chapter wherein this article is found
clearly shows that no such knowledge is required in order that the
injured party may recover for the damage suffered.
But the fact that the appellants' interference with the Gilchrist
contract was actionable did not of itself entitle Gilchrist to sue out
an injunction against them. The allowance of this remedy must be
justified under section 164 of the Code of Civil Procedure, which
specifies the circumstance under which an injunction may issue.
Upon the general doctrine of injunction we said in Devesa vs. Arbes
(13 Phil. Rep., 273):
An injunction is a "special remedy" adopted in that code (Act No.
190) from American practice, and originally borrowed from English
legal procedure, which was there issued by the authority and under
the seal of a court of equity, and limited, as in order cases where
equitable relief is sought, to cases where there is no "plain,
adequate, and complete remedy at law," which "will not be granted
while the rights between the parties are undetermined, except in
extraordinary cases where material and irreparable injury will be
done," which cannot be compensated in damages, and where there
will be no adequate remedy, and which will not, as a rule, be
granted, to take property out of the possession of one party and put
it into that of another  whose title has not been established by law.
We subsequently affirmed the doctrine of the Devesa case in
Palafox vs. Madamba (19 Phil., Rep., 444), and we take this occasion
of again affirming it, believing, as we do, that the indiscriminate use
of injunctions should be discouraged.
Does the fact that the appellants did not know at the time the
identity of the original lessee of the film militate against Gilchrist's
right to a preliminary injunction, although the appellant's incurred
civil liability for damages for such interference? In the examination
of the adjudicated cases, where in injunctions have been issued to
restrain wrongful interference with contracts by strangers to such
contracts, we have been unable to find any case where this precise
question was involved, as in all of those cases which we have
examined, the identity of both of the contracting parties was known
to the tort-feasors. We might say, however, that this fact does not
seem to have a controlling feature in those cases. There is nothing
in section 164 of the Code of Civil Procedure which indicates, even
remotely, that before an injunction may issue restraining the
wrongful interference with contrast by strangers, the strangers
must know the identity of both parties. It would seem that this is
not essential, as injunctions frequently issue against municipal
corporations, public service corporations, public officers, and others
to restrain the commission of acts which would tend to injuriously
affect the rights of person whose identity the respondents could not
possibly have known beforehand. This court has held that in a
proper case injunction will issue at the instance of a private citizen
to restrain ultra vires  acts of public officials. (Severino vs. Governor-
General, 16 Phil. Rep., 366.) So we proceed to the determination of
the main question of whether or not the preliminary injunction
ought to have been issued in this case.
As a rule, injunctions are denied to those who have an adequate
remedy at law. Where the choice is between the ordinary and the
extraordinary processes of law, and the former are sufficient, the
rule will not permit the use of the latter. (In re  Debs, 158 U. S., 564.)
If the injury is irreparable, the ordinary process is inadequate. In
Wahle vs. Reinbach (76 Ill., 322), the supreme court of Illinois
approved a definition of the term "irreparable injury" in the
following language: "By `irreparable injury' is not meant such injury
as is beyond the possibility of repair, or beyond possible
compensation in damages, nor necessarily great injury or great
damage, but that species of injury, whether great or small, that
ought not to be submitted to on the one hand or inflicted on the
other; and, because it is so large on the one hand, or so small on the
other, is of such constant and frequent recurrence that no fair or
reasonable redress can be had therefor in a court of law." (Quoted
with approval in Nashville R. R. Co. vs. McConnell, 82 Fed., 65.)
The case at bar is somewhat novel, as the only contract which was
broken was that between Cuddy and Gilchrist, and the profits of the
appellee depended upon the patronage of the public, for which it is
conceded the appellants were at liberty to complete by all fair does
not deter the application of remarked in the case of the "ticket
scalpers" (82 Fed., 65), the novelty of the facts does not deter the
application of equitable principles. This court takes judicial notice of
the general character of a cinematograph or motion-picture
theater. It is a quite modern form of the play house, wherein, by
means of an apparatus known as a cinematograph or
cinematograph, a series of views representing closely successive
phases of a moving object, are exhibited in rapid sequence, giving a
picture which, owing to the persistence of vision, appears to the
observer to be in continuous motion. (The Encyclopedia Britanica,
vol. 6, p. 374.) The subjects which have lent themselves to the art of
the photographer in this manner have increased enormously in
recent years, as well as have the places where such exhibition are
given. The attendance, and, consequently, the receipts, at one of
these cinematograph or motion-picture theaters depends in no
small degree upon the excellence of the photographs, and it is quite
common for the proprietor of the theater to secure an especially
attractive exhibit as his "feature film" and advertise it as such in
order to attract the public. This feature film is depended upon to
secure a larger attendance that if its place on the program were
filled by other films of mediocre quality. It is evident that the failure
to exhibit the feature film will reduce the receipts of the theater.
Hence, Gilchrist was facing the immediate prospect of diminished
profits by reason of the fact that the appellants had induced Cuddy
to rent to them the film Gilchrist had counted upon as his feature
film. It is quite apparent that to estimate with any decree of
accuracy the damages which Gilchrist would likely suffer from such
an event would be quite difficult if not impossible. If he allowed the
appellants to exhibit the film in Iloilo, it would be useless for him to
exhibit it again, as the desire of the public to witness the production
would have been already satisfied. In this extremity, the appellee
applied for and was granted, as we have indicated, a mandatory
injunction against Cuddy requiring him to deliver the Zigomar to
Gilchrist, and a preliminary injunction against the appellants
restraining them from exhibiting that film in their theater during the
weeks he (Gilchrist) had a right to exhibit it. These injunction saved
the plaintiff harmless from damages due to the unwarranted
interference of the defendants, as well as the difficult task which
would have been set for the court of estimating them in case the
appellants had been allowed to carry out their illegal plans. As to
whether or not the mandatory injunction should have been issued,
we are not, as we have said, called upon to determine. So far as the
preliminary injunction issued against the appellants is concerned,
which prohibited them from exhibiting the Zigomar during the week
which Gilchrist desired to exhibit it, we are of the opinion that the
circumstances justified the issuance of that injunction in the
discretion of the court.
We are not lacking in authority to support our conclusion that the
court was justified in issuing the preliminary injunction against the
appellants. Upon the precise question as to whether injunction will
issue to restrain wrongful interference with contracts by strangers
to such contracts, it may be said that courts in the United States
have usually granted such relief where the profits of the injured
person are derived from his contractual relations with a large and
indefinite number of individuals, thus reducing him to the necessity
of proving in an action against the tort-feasor that the latter was
responsible in each case for the broken contract, or else obliging
him to institute individual suits against each contracting party and
so exposing him to a multiplicity of suits. Sperry & Hutchinson
Co. vs. Mechanics' Clothing Co. (128 Fed., 800); Sperry & Hutchinson
Co. vs. Louis Weber & Co. (161 Fed., 219); Sperry & Hutchinson
Co. vs. Pommer (199 Fed., 309); were all cases wherein the
respondents were inducing retail merchants to break their contracts
with the company for the sale of the latters' trading stamps.
Injunction issued in each case restraining the respondents from
interfering with such contracts.
In the case of the Nashville R. R. Co. vs. McConnell (82 Fed., 65), the
court, among other things, said: "One who wrongfully interferes in a
contract between others, and, for the purpose of gain to himself
induces one of the parties to break it, is liable to the party injured
thereby; and his continued interference may be ground for an
injunction where the injuries resulting will be irreparable."
In Hamby & Toomer vs. Georgia Iron & Coal Co. (127 Ga., 792), it
appears that the respondents were interfering in a contract for
prison labor, and the result would be, if they were successful, the
shutting down of the petitioner's plant for an indefinite time. The
court held that although there was no contention that the
respondents were insolvent, the trial court did not abuse its
discretion in granting a preliminary injunction against the
respondents.
In Beekman vs. Marsters (195 Mass., 205), the plaintiff had obtained
from the Jamestown Hotel Corporation, conducting a hotel within
the grounds of the Jamestown Exposition, a contract whereby he
was made their exclusive agent for the New England States to solicit
patronage for the hotel. The defendant induced the hotel
corporation to break their contract with the plaintiff in order to
allow him to act also as their agent in the New England States. The
court held that an action for damages would not have afforded the
plaintiff adequate relief, and that an injunction was proper
compelling the defendant to desist from further interference with
the plaintiff's exclusive contract with the hotel company.
In Citizens' Light, Heat & Power Co. vs. Montgomery Light & Water
Power Co. (171 Fed., 553), the court, while admitting that there are
some authorities to the contrary, held that the current authority in
the United States and England is that:
The violation of a legal right committed knowingly is a cause of
action, and that it is a violation of a legal right to interfere with
contractual relations recognized by law, if there be no sufficient
justification for the interference. (Quinn vs. Leatham, supra, 510;
Angle vs. Chicago, etc., Ry. Co., 151 U. S., 1; 14 Sup. Ct., 240; 38 L.
Ed., 55; Martens vs. Reilly, 109 Wis., 464, 84 N. W., 840;
Rice vs. Manley, 66 N. Y., 82; 23 Am. Rep., 30; Bitterman vs. L. & N.
R. R. Co., 207 U. S., 205; 28 Sup. Ct., 91; 52 L. Ed., 171;
Beekman vs. Marsters, 195 Mass., 205; 80 N. E., 817; 11 L. R. A. [N.
S.] 201; 122 Am. St. Rep., 232; South Wales Miners'
Fed. vs. Glamorgan Coal Co., Appeal Cases, 1905, p. 239.)
See also Nims on Unfair Business Competition, pp. 351- 371.
In 3 Elliot on Contracts, section 2511, it is said: "Injunction is the
proper remedy to prevent a wrongful interference with contract by
strangers to such contracts where the legal remedy is insufficient
and the resulting injury is irreparable. And where there is a
malicious interference with lawful and valid contracts a permanent
injunction will ordinarily issue without proof of express malice. So,
an injunction may be issued where the complainant to break their
contracts with him by agreeing to indemnify who breaks his
contracts of employment may be adjoined from including other
employees to break their contracts and enter into new contracts
with a new employer of the servant who first broke his contract. But
the remedy by injunction cannot be used to restrain a legitimate
competition, though such competition would involve the violation
of a contract. Nor will equity ordinarily enjoin employees who have
quit the service of their employer from attempting by proper
argument to persuade others from taking their places so long as
they do not resort to force or intimidations on obstruct the public
thoroughfares."
Beekman vs. Marster, supra, is practically on all fours with the case
at bar in that there was only one contract in question and the
profits of the injured person depended upon the patronage of the
public. Hamby & Toomer vs. Georgia Iron & Coal Co., supra, is also
similar to the case at bar in that there was only one contract, the
interference of which was stopped by injunction.
For the foregoing reasons the judgment is affirmed, with costs,
against the appellants.
Arellano, C.J., Torres, Carson and Araullo, JJ., concur.
RIDO MONTECILLO, Petitioner, vs. IGNACIA REYNES and SPOUSES
REDEMPTOR and ELISA ABUCAY, Respondents.
DECISION
CARPIO, J.:
The Case
On March 24, 1993, the Regional Trial Court of Cebu City, Branch 18,
rendered a Decision[1 declaring the deed of sale of a parcel of land
in favor of petitioner null and void ab initio. The Court of Appeals,
[2 in its July 16, 1998 Decision[3 as well as its February 11, 1999
Order[4 denying petitioners Motion for Reconsideration, affirmed
the trial courts decision in toto. Before this Court now is a Petition
for Review on Certiorari[5 assailing the Court of Appeals decision
and order.
The Facts
Respondents Ignacia Reynes (Reynes for brevity) and Spouses
Abucay (Abucay Spouses for brevity) filed on June 20, 1984 a
complaint for Declaration of Nullity and Quieting of Title against
petitioner Rido Montecillo (Montecillo for brevity). Reynes asserted
that she is the owner of a lot situated in Mabolo, Cebu City, covered
by Transfer Certificate of Title No. 74196 and containing an area of
448 square meters (Mabolo Lot for brevity). In 1981, Reynes sold
185 square meters of the Mabolo Lot to the Abucay Spouses who
built a residential house on the lot they bought.
Reynes alleged further that on March 1, 1984 she signed a Deed of
Sale of the Mabolo Lot in favor of Montecillo (Montecillos Deed of
Sale for brevity). Reynes, being illiterate,[6 signed by affixing her
thumb-mark[7 on the document. Montecillo promised to pay the
agreed P47,000.00 purchase price within one month from the
signing of the Deed of Sale. Montecillos Deed of Sale states as
follows:
That I, IGNACIA T. REYNES, of legal age, Filipino, widow, with
residence and postal address at Mabolo, Cebu City, Philippines, for
and in consideration of FORTY SEVEN THOUSAND (P47,000.00)
PESOS, Philippine Currency, to me in hand paid by RIDO
MONTECILLO, of legal age, Filipino, married, with residence and
postal address at Mabolo, Cebu City, Philippines, the receipt hereof
is hereby acknowledged, have sold, transferred, and conveyed,
unto RIDO MONTECILLO, his heirs, executors, administrators, and
assigns, forever, a parcel of land together with the improvements
thereon, situated at Mabolo, Cebu City, Philippines, free from all
liens and encumbrances, and more particularly described as follows:
A parcel of land (Lot 203-B-2-B of the subdivision plan Psd-07-01-00
2370, being a portion of Lot 203-B-2, described on plan (LRC) Psd-
76821, L.R.C. (GLRO) Record No. 5988), situated in the Barrio of
Mabolo, City of Cebu. Bounded on the SE., along line 1-2 by Lot 206;
on the SW., along line 2-3, by Lot 202, both of Banilad Estate; on the
NW., along line 4-5, by Lot 203-B-2-A of the subdivision of Four
Hundred Forty Eight (448) square meters, more or less.
of which I am the absolute owner in accordance with the provisions
of the Land Registration Act, my title being evidenced by Transfer
Certificate of Title No. 74196 of the Registry of Deeds of the City of
Cebu, Philippines. That This Land Is Not Tenanted and Does Not Fall
Under the Purview of P.D. 27.[8 (Emphasis supplied)
Reynes further alleged that Montecillo failed to pay the purchase
price after the lapse of the one-month period, prompting Reynes to
demand from Montecillo the return of the Deed of Sale. Since
Montecillo refused to return the Deed of Sale,[9 Reynes executed a
document unilaterally revoking the sale and gave a copy of the
document to Montecillo.
Subsequently, on May 23, 1984 Reynes signed a Deed of Sale
transferring to the Abucay Spouses the entire Mabolo Lot, at the
same time confirming the previous sale in 1981 of a 185-square
meter portion of the lot. This Deed of Sale states:
I, IGNACIA T. REYNES, of legal age, Filipino, widow and resident of
Mabolo, Cebu City, do hereby confirm the sale of a portion of Lot
No. 74196 to an extent of 185 square meters to Spouses Redemptor
Abucay and Elisa Abucay covered by Deed per Doc. No. 47, Page No.
9, Book No. V, Series of 1981 of notarial register of Benedicto Alo, of
which spouses is now in occupation;
That for and in consideration of the total sum of FIFTY THOUSAND
(P50,000) PESOS, Philippine Currency, received in full and receipt
whereof is herein acknowledged from SPOUSES REDEMPTOR
ABUCAY and ELISA ABUCAY, do hereby in these presents, SELL,
TRANSFER and CONVEY absolutely unto said Spouses Redemptor
Abucay and Elisa Abucay, their heirs, assigns and successors-in-
interest the whole parcel of land together with improvements
thereon and more particularly described as follows:
TCT No. 74196
A parcel of land (Lot 203-B-2-B of the subdivision plan psd-07-01-
002370, being a portion of Lot 203-B-2, described on plan (LRC) Psd
76821, LRC (GLRO) Record No. 5988) situated in Mabolo, Cebu City,
along Arcilla Street, containing an area of total FOUR HUNDRED
FORTY EIGHT (448) Square meters.
of which I am the absolute owner thereof free from all liens and
encumbrances and warrant the same against claim of third persons
and other deeds affecting said parcel of land other than that to the
said spouses and inconsistent hereto is declared without any effect.
In witness whereof, I hereunto signed this 23rd day of May, 1984 in
Cebu City, Philippines. [10
Reynes and the Abucay Spouses alleged that on June 18, 1984 they
received information that the Register of Deeds of Cebu City issued
Certificate of Title No. 90805 in the name of Montecillo for the
Mabolo Lot.
Reynes and the Abucay Spouses argued that for lack of
consideration there (was) no meeting of the minds[11 between
Reynes and Montecillo. Thus, the trial court should declare null and
void ab initio Montecillos Deed of Sale, and order the cancellation of
Certificate of Title No. 90805 in the name of Montecillo.
In his Answer, Montecillo, a bank executive with a B.S. Commerce
degree,[12 claimed he was a buyer in good faith and had actually
paid the P47,000.00 consideration stated in his Deed of Sale.
Montecillo, however, admitted he still owed Reynes a balance
of P10,000.00. He also alleged that he paid P50,000.00 for the
release of the chattel mortgage which he argued constituted a lien
on the Mabolo Lot. He further alleged that he paid for the real
property tax as well as the capital gains tax on the sale of the
Mabolo Lot.
In their Reply, Reynes and the Abucay Spouses contended that
Montecillo did not have authority to discharge the chattel
mortgage, especially after Reynes revoked Montecillos Deed of Sale
and gave the mortgagee a copy of the document of revocation.
Reynes and the Abucay Spouses claimed that Montecillo secured
the release of the chattel mortgage through machination. They
further asserted that Montecillo took advantage of the real
property taxes paid by the Abucay Spouses and surreptitiously
caused the transfer of the title to the Mabolo Lot in his name.
During pre-trial, Montecillo claimed that the consideration for the
sale of the Mabolo Lot was the amount he paid to Cebu Ice and Cold
Storage Corporation (Cebu Ice Storage for brevity) for the mortgage
debt of Bienvenido Jayag (Jayag for brevity). Montecillo argued that
the release of the mortgage was necessary since the mortgage
constituted a lien on the Mabolo Lot.
Reynes, however, stated that she had nothing to do with Jayags
mortgage debt except that the house mortgaged by Jayag stood on
a portion of the Mabolo Lot. Reynes further stated that the
payment by Montecillo to release the mortgage on Jayags house is a
matter between Montecillo and Jayag. The mortgage on the house,
being a chattel mortgage, could not be interpreted in any way as an
encumbrance on the Mabolo Lot. Reynes further claimed that the
mortgage debt had long prescribed since the P47,000.00 mortgage
debt was due for payment on January 30, 1967.
The trial court rendered a decision on March 24, 1993 declaring the
Deed of Sale to Montecillo null and void. The trial court ordered the
cancellation of Montecillos Transfer Certificate of Title No. 90805
and the issuance of a new certificate of title in favor of the Abucay
Spouses. The trial court found that Montecillos Deed of Sale had no
cause or consideration because Montecillo never paid Reynes
the P47,000.00 purchase price, contrary to what is stated in the
Deed of Sale that Reynes received the purchase price. The trial court
ruled that Montecillos Deed of Sale produced no effect whatsoever
for want of consideration. The dispositive portion of the trial courts
decision reads as follows:
WHEREFORE, in view of the foregoing consideration, judgment is
hereby rendered declaring the deed of sale in favor of defendant
null and void and of no force and effect thereby ordering the
cancellation of Transfer Certificate of Title No. 90805 of the Register
of Deeds of Cebu City and to declare plaintiff Spouses Redemptor
and Elisa Abucay as rightful vendees and Transfer Certificate of Title
to the property subject matter of the suit issued in their names. The
defendants are further directed to pay moral damages in the sum
of P20,000.00 and attorneys fees in the sum of P2,000.00 plus cost
of the suit.
xxx
Not satisfied with the trial courts Decision, Montecillo appealed the
same to the Court of Appeals.
Ruling of the Court of Appeals
The appellate court affirmed the Decision of the trial court in
toto and dismissed the appeal[13 on the ground that Montecillos
Deed of Sale is void for lack of consideration. The appellate court
also denied Montecillos Motion for Reconsideration[14 on the
ground that it raised no new arguments.
Still dissatisfied, Montecillo filed the present petition for review on
certiorari.
The Issues
Montecillo raises the following issues:
1. Was there an agreement between Reynes and Montecillo that
the stated consideration of P47,000.00 in the Deed of Sale be paid
to Cebu Ice and Cold Storage to secure the release of the Transfer
Certificate of Title?
2. If there was none, is the Deed of Sale void from the beginning or
simply rescissible?[15
The Ruling of the Court
The petition is devoid of merit.
First issue: manner of payment of the  P47,000.00 purchase price.
Montecillos Deed of Sale does not state that the P47,000.00
purchase price should be paid by Montecillo to Cebu Ice Storage.
Montecillo failed to adduce any evidence before the trial court
showing that Reynes had agreed, verbally or in writing, that
the P47,000.00 purchase price should be paid to Cebu Ice Storage.
Absent any evidence showing that Reynes had agreed to the
payment of the purchase price to any other party, the payment to
be effective must be made to Reynes, the vendor in the sale. Article
1240 of the Civil Code provides as follows:
Payment shall be made to the person in whose favor the obligation
has been constituted, or his successor in interest, or any person
authorized to receive it.
Thus, Montecillos payment to Cebu Ice Storage is not the payment
that would extinguish[16 Montecillos obligation to Reynes under
the Deed of Sale.
It militates against common sense for Reynes to sell her Mabolo Lot
for P47,000.00 if this entire amount would only go to Cebu Ice
Storage, leaving not a single centavo to her for giving up ownership
of a valuable property. This incredible allegation of Montecillo
becomes even more absurd when one considers that Reynes did not
benefit, directly or indirectly, from the payment of the P47,000.00
to Cebu Ice Storage.
The trial court found that Reynes had nothing to do with Jayags
mortgage debt with Cebu Ice Storage. The trial court made the
following findings of fact:
x x x. Plaintiff Ignacia Reynes was not a party to nor privy of the
obligation in favor of the Cebu Ice and Cold Storage Corporation,
the obligation being exclusively of Bienvenido Jayag and wife who
mortgaged their residential house constructed on the land subject
matter of the complaint. The payment by the defendant to release
the residential house from the mortgage is a matter between him
and Jayag and cannot by implication or deception be made to
appear as an encumbrance upon the land.[17
Thus, Montecillos payment to Jayags creditor could not possibly
redound to the benefit[18 of Reynes. We find no reason to disturb
the factual findings of the trial court. In petitions for review on
certiorari as a mode of appeal under Rule 45, as in the instant case,
a petitioner can raise only questions of law.[19 This Court is not the
proper venue to consider a factual issue as it is not a trier of facts.
Second issue: whether the Deed of Sale is void ab initio or only
rescissible.
Under Article 1318 of the Civil Code, [T]here is no contract unless
the following requisites concur: (1) Consent of the contracting
parties; (2) Object certain which is the subject matter of the
contract; (3) Cause of the obligation which is established. Article
1352 of the Civil Code also provides that [C]ontracts without cause x
x x produce no effect whatsoever.
Montecillo argues that his Deed of Sale has all the requisites of a
valid contract. Montecillo points out that he agreed to purchase,
and Reynes agreed to sell, the Mabolo Lot at the price
of P47,000.00. Thus, the three requisites for a valid contract concur:
consent, object certain and consideration. Montecillo asserts there
is no lack of consideration that would prevent the existence of a
valid contract. Rather, there is only non-payment of the
consideration within the period agreed upon for payment.
Montecillo argues there is only a breach of his obligation to pay the
full purchase price on time. Such breach merely gives Reynes a right
to ask for specific performance, or for annulment of the obligation
to sell the Mabolo Lot. Montecillo maintains that in reciprocal
obligations, the injured party can choose between fulfillment and
rescission,[20 or more properly cancellation, of the obligation under
Article 1191[21 of the Civil Code. This Article also provides that the
court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of the period. Montecillo claims that because
Reynes failed to make a demand for payment, and instead
unilaterally revoked Montecillos Deed of Sale, the court has a just
cause to fix the period for payment of the balance of the purchase
price.
These arguments are not persuasive.
Montecillos Deed of Sale states that Montecillo paid, and Reynes
received, the P47,000.00 purchase price on March 1, 1984, the date
of signing of the Deed of Sale. This is clear from the following
provision of the Deed of Sale:
That I, IGNACIA T. REYNES, x x x for and in consideration of FORTY
SEVEN THOUSAND (P47,000.00) PESOS, Philippine Currency, to me
in hand paid by RIDO MONTECILLO xxx, receipt of which is hereby
acknowledged,  have sold, transferred, and conveyed, unto RIDO
MONTECILLO, x x x a parcel of land x x x.
On its face, Montecillos Deed of Absolute Sale[22 appears
supported by a valuable consideration. However, based on the
evidence presented by both Reynes and Montecillo, the trial court
found that Montecillo never paid to Reynes, and Reynes never
received from Montecillo, the P47,000.00 purchase price. There was
indisputably a total absence of consideration contrary to what is
stated in Montecillos Deed of Sale. As pointed out by the trial court
From the allegations in the pleadings of both parties and the oral
and documentary evidence adduced during the trial, the court is
convinced that the Deed of Sale (Exhibits 1 and 1-A) executed by
plaintiff Ignacia Reynes acknowledged before Notary Public
Ponciano Alvinio is devoid of any consideration. Plaintiff Ignacia
Reynes through the representation of Baudillo Baladjay had
executed a Deed of Sale in favor of defendant on the promise that
the consideration should be paid within one (1) month from the
execution of the Deed of Sale. However, after the lapse of said
period, defendant failed to pay even a single centavo of the
consideration. The answer of the defendant did not allege clearly
why no consideration was paid by him except for the allegation that
he had a balance of only P10,000.00. It turned out during the pre-
trial that what the defendant considered as the consideration was
the amount which he paid for the obligation of Bienvenido Jayag
with the Cebu Ice and Cold Storage Corporation over which plaintiff
Ignacia Reynes did not have a part except that the subject of the
mortgage was constructed on the parcel of land in question. Plaintiff
Ignacia Reynes was not a party to nor privy of the obligation in favor
of the Cebu Ice and Cold Storage Corporation, the obligation being
exclusively of Bienvenido Jayag and wife who mortgaged their
residential house constructed on the land subject matter of the
complaint. The payment by the defendant to release the residential
house from the mortgage is a matter between him and Jayag and
cannot by implication or deception be made to appear as an
encumbrance upon the land. [23
Factual findings of the trial court are binding on us, especially if the
Court of Appeals affirms such findings.[24 We do not disturb such
findings unless the evidence on record clearly does not support such
findings or such findings are based on a patent misunderstanding of
facts,[25 which is not the case here. Thus, we find no reason to
deviate from the findings of both the trial and appellate courts that
no valid consideration supported Montecillos Deed of Sale.
This is not merely a case of failure to pay the purchase price, as
Montecillo claims, which can only amount to a breach of obligation
with rescission as the proper remedy. What we have here is a
purported contract that lacks a cause - one of the three essential
requisites of a valid contract. Failure to pay the consideration is
different from lack of consideration. The former results in a right to
demand the fulfillment or cancellation of the obligation under an
existing valid contract[26 while the latter prevents the existence of a
valid contract
Where the deed of sale states that the purchase price has been paid
but in fact has never been paid, the deed of sale is null and void ab
initio for lack of consideration. This has been the well-settled rule as
early as Ocejo Perez & Co. v. Flores,[27 a 1920 case. As subsequently
explained in Mapalo v. Mapalo[28
In our view, therefore, the ruling of this Court in Ocejo Perez & Co.
vs. Flores, 40 Phil. 921, is squarely applicable herein. In that case we
ruled that a contract of purchase and sale is null and void and
produces no effect whatsoever where the same is without cause or
consideration in that the purchase price which appears thereon as
paid has in fact never been paid by the purchaser to the vendor.
The Court reiterated this rule in Vda. De Catindig v. Heirs of
Catalina Roque,[29 to wit
The Appellate Courts finding that the price was not paid or that the
statement in the supposed contracts of sale (Exh. 6 to 26) as to the
payment of the price was simulated fortifies the view that the
alleged sales were void. If the price is simulated, the sale is void . . .
(Art. 1471, Civil Code)
A contract of sale is void and produces no effect whatsoever where
the price, which appears thereon as paid, has in fact never been
paid by the purchaser to the vendor (Ocejo, Perez & Co. vs. Flores
and Bas, 40 Phil. 921; Mapalo vs. Mapalo, L-21489, May 19, 1966,
64 O.G. 331, 17 SCRA 114, 122). Such a sale is non-existent
(Borromeo vs. Borromeo, 98 Phil. 432) or cannot be considered
consummated (Cruzado vs. Bustos and Escaler, 34 Phil. 17;
Garanciang vs. Garanciang, L-22351, May 21, 1969, 28 SCRA 229).
Applying this well-entrenched doctrine to the instant case, we rule
that Montecillos Deed of Sale is null and void ab initio for lack of
consideration.
Montecillo asserts that the only issue in controversy is the mode
and/or manner of payment and/or whether or not payment has
been made.[30 Montecillo implies that the mode or manner of
payment is separate from the consideration and does not affect the
validity of the contract. In the recent case of San Miguel Properties
Philippines, Inc. v. Huang,[31 we ruled that
In Navarro v. Sugar Producers Cooperative Marketing Association,
Inc.  (1 SCRA 1181 [1961]), we laid down the rule that the manner of
payment of the purchase price is an essential element before a
valid and binding contract of sale can exist. Although the Civil Code
does not expressly state that the minds of the parties must also
meet on the terms or manner of payment of the price, the same is
needed, otherwise there is no sale. As held in Toyota Shaw, Inc. v.
Court of Appeals (244 SCRA 320 [1995]), agreement on the manner
of payment goes into the price such that a disagreement on the
manner of payment is tantamount to a failure to agree on the
price. (Emphasis supplied)
One of the three essential requisites of a valid contract is consent of
the parties on the object and cause of the contract. In a contract of
sale, the parties must agree not only on the price, but also on the
manner of payment of the price. An agreement on the price but a
disagreement on the manner of its payment will not result in
consent, thus preventing the existence of a valid contract for lack of
consent. This lack of consent is separate and distinct from lack of
consideration where the contract states that the price has been
paid when in fact it has never been paid.
Reynes expected Montecillo to pay him directly the P47,000.00
purchase price within one month after the signing of the Deed of
Sale. On the other hand, Montecillo thought that his agreement
with Reynes required him to pay the P47,000.00 purchase price to
Cebu Ice Storage to settle Jayags mortgage debt. Montecillo also
acknowledged a balance of P10,000.00 in favor of Reynes although
this amount is not stated in Montecillos Deed of Sale. Thus, there
was no consent, or meeting of the minds, between Reynes and
Montecillo on the manner of payment. This prevented the existence
of a valid contract because of lack of consent.
In summary, Montecillos Deed of Sale is null and void ab initio not
only for lack of consideration, but also for lack of consent. The
cancellation of TCT No. 90805 in the name of Montecillo is in order
as there was no valid contract transferring ownership of the Mabolo
Lot from Reynes to Montecillo.
WHEREFORE, the petition is DENIED and the assailed Decision dated
July 16, 1998 of the Court of Appeals in CA-G.R. CV No. 41349 is
AFFIRMED. Costs against petitioner.
SO ORDERED.
G.R. No. 114870 May 26, 1995
MIGUELA R. VILLANUEVA, RICHARD R. VILLANUEVA, and
MERCEDITA VILLANUEVA-TIRADOS, petitioners,
vs.
COURT OF APPEALS, CENTRAL BANK OF THE PHILIPPINES,
ILDEFONSO C. ONG, and PHILIPPINE VETERANS
BANK, respondents.
DAVIDE, JR., J.:
Do petitioners have a better right than private respondent Ildefonso
Ong to purchase from the Philippine Veterans Bank (PVB) the two
parcels of land described as Lot No. 210-D-1 and Lot No. 210-D-2
situated at Muntinglupa, Metro Manila, containing an area of 529
and 300 square meters, respectively? This is the principal legal issue
raised in this petition.
In its decision of 27 January 1994 in CA-G.R. CV No. 35890,1 the
Court of Appeals held for Ong, while the trial court, Branch 39 of the
Regional Trial Court (RTC) of Manila, ruled for the petitioners in its
joint decision of 31 October 1991 in Civil Case No. 87-425502 and Sp.
Proc. No. 85-32311.3
The operative antecedent facts are set forth in the challenged
decision as follows:
The disputed lots were originally owned by the spouses Celestino
Villanueva and Miguela Villanueva, acquired by the latter during her
husband's sojourn in the United States since 1968. Sometime in
1975, Miguela Villanueva sought the help of one Jose Viudez, the
then Officer-in-Charge of the PVB branch in Makati if she could
obtain a loan from said bank. Jose Viudez told Miguela Villanueva to
surrender the titles of said lots as collaterals. And to further
facilitate a bigger loan, Viudez, in connivance with one Andres
Sebastian, swayed Miguela Villanueva to execute a deed of sale
covering the two (2) disputed lots, which she did but without the
signature of her husband Celestino. Miguela Villanueva, however,
never got the loan she was expecting. Subsequent attempts to
contact Jose Viudez proved futile, until Miguela Villanueva
thereafter found out that new titles over the two (2) lots were
already issued in the name of the PVB. It appeared upon inquiry
from the Registry of Deeds that the original titles of these lots were
canceled and new ones were issued to Jose Viudez, which in turn
were again canceled and new titles issued in favor of Andres
Sebastian, until finally new titles were issued in the name of PNB
[should be PVB] after the lots were foreclosed for failure to pay the
loan granted in the name of Andres Sebastian.
Miguela Villanueva sought to repurchase the lots from the PVB after
being informed that the lots were about to be sold at auction. The
PVB told her that she can redeem the lots for the price of
P110,416.00. Negotiations for the repurchase of the lots
nevertheless were stalled by the filing of liquidation proceedings
against the PVB on August of 1985.
Plaintiff-appellant [Ong] on the other hand expounds on his claim
over the disputed lots in this manner:
In October 1984, plaintiff-appellant offered to purchase two pieces
of Land that had been acquired by PVB through foreclosure. To
back-up plaintiff-appellant's offer he deposited the sum of
P10,000.00.
In 23 November 1984, while appellant was still abroad, PVB
approved his subject offer under Board Resolution No. 10901-84.
Among the conditions imposed by PVB is that: "The purchase price
shall be P110,000.00 (Less deposit of P10,000.00) payable in cash
within fifteen (15) days from receipt of approval of the offer."
In mid-April 1985, appellant returned to the country. He
immediately verified the status of his offer with the PVB, now under
the control of CB, where he was informed that the same had
already been approved. On 16 April 1985, appellant formally
informed CB of his desire to pay the subject balance provided the
bank should execute in his favor the corresponding deed of
conveyance. The letter was not answered.
Plaintiff-appellant sent follow-up Letters that went unheeded, the
last of which was on 21 May 1987. On 26 May 1987, appellant's
payment for the balance of the subject properties were accepted by
CB under Official Receipt #0816.
On 17 September 1987, plaintiff-appellant through his counsel, sent
a letter to CB demanding for the latter to execute the corresponding
deed of conveyance in favor of appellant. CB did not bother to
answer the same. Hence, the instant case.
While appellant's action for specific performance against CB was
pending, Miguela Villanueva and her children filed their claims with
the Liquidation court. (Appellant's Brief, pp. 3-4).4
From the pleadings, the following additional or amplificatory facts
are established:
The efforts of Miguela Villanueva to reacquire the property began
on 8 June 1983 when she offered to purchase the lots for
P60,000.00 with a 20%
downpayment and the balance payable in five years on a quarterly
amortization basis.5
Her offer not having been accepted,6 Miguela Villanueva increased
her bid to P70,000.00. It was only at this time that she disclosed to
the bank her private transactions with Jose Viudez.7
After this and her subsequent offers were rejected,8 Miguela sent
her sealed bid of P110,417.00 pursuant to the written advice of the
vice president of the PVB.9
The PVB was placed under receivership pursuant to Monetary Board
(MB) Resolution No. 334 dated 3 April 1985 and later, under
liquidation pursuant to MB Resolution No. 612 dated 7 June 1985.
Afterwards, a petition for liquidation was filed with the RTC of
Manila, which was docketed as Sp. Proc. No. 85-32311 and assigned
to Branch 39 of the said court.
On 26 May 1987, Ong tendered the sum of P100,000.00
representing the balance of the purchase price of the litigated
lots. 10 An employee of the PVB received the amount conditioned
upon approval by the Central Bank
liquidator. 11 Ong's demand for a deed of conveyance having gone
unheeded, he filed on 23 October 1987 with the RTC of Manila an
action for specific performance against the Central Bank.12 It was
raffled to Branch 47 thereof. Upon learning that the PVB had been
placed under liquidation, the presiding judge of Branch 47 ordered
the transfer of the case to Branch 39, the liquidation court.13
On 15 June 1989, then Presiding Judge Enrique B. Inting issued an
order allowing the purchase of the two lots at the price of
P150,000.00. 14 The Central Bank liquidator of the PVB moved for
the reconsideration of the order asserting that it is contrary to law
as the disposal of the lots should be made through public auction. 15
On 26 July 1989, Miguela Villanueva filed her claim with the
liquidation court. She averred, among others, that she is the lawful
and registered owner of the subject lots which were mortgaged in
favor of the PVB thru the falsification committed by Jose Viudez, the
manager of the PVB Makati Branch, in collusion with Andres
Sebastian; that upon discovering this fraudulent transaction, she
offered to purchase the property from the bank; and that she
reported the matter to the PC/INP Criminal Investigation Service
Command, Camp Crame, and after investigation, the CIS officer
recommended the filing of a complaint for estafa through
falsification of public documents against Jose Viudez and Andres
Sebastian. She then asked that the lots be excluded from the assets
of the PVB and be conveyed back to her. 16 Later, in view of the
death of her husband, she amended her claim to include her
children, herein petitioners Mercedita Villanueva-Tirados and
Richard Villanueva. 17
On 31 October 1991, the trial court rendered judgment 18 holding
that while the board resolution approving Ong's offer may have
created in his favor a vested right which may be enforced against
the PVB at the time or against the liquidator after the bank was
placed under liquidation proceedings, the said right was no longer
enforceable, as he failed to exercise it within the prescribed 15-day
period. As to Miguela's claim, the court ruled that the principle of
estoppel bars her from questioning the transaction with Viudez and
the subsequent transactions because she was a co-participant
thereto, though only with respect to her undivided one-half (1/2)
conjugal share in the disputed lots and her one-third (1/3)
hereditary share in the estate of her husband.
Nevertheless, the trial court allowed her to purchase the lots if only
to restore their status as conjugal properties. It further held that by
reason of estoppel, the transactions having been perpetrated by a
responsible officer of the PVB, and for reasons of equity, the PVB
should not be allowed to charge interest on the price of the lots;
hence, the purchase price should be the PVB's claim as of 29 August
1984 when it considered the sealed bids, i.e., P110,416.20, which
should be borne by Miguela Villanueva alone.
The dispositive portion of the decision of the trial court reads as
follows:
WHEREFORE, judgment is hereby rendered as follows:
1. Setting aside the order of this court issued on June 15, 1989
under the caption Civil Case No. 87-42550 entitled "Ildefonso Ong
vs. Central Bank of the Phils., et al.;
2. Dismissing the claim of Ildefonso Ong over the two parcels of land
originally covered by TCT No. 438073 and 366364 in the names of
Miguela Villanueva and Celestino Villanueva, respectively which are
now covered by TCT No. 115631 and 115632 in the name of the
PVB;
3. Declaring the Deed of Absolute Sale bearing the signature of
Miguela Villanueva and the falsified signature of Celestino [sic]
Viudez under date May 6, 1975 and all transactions and related
documents executed thereafter referring to the two lots covered by
the above stated titles as null and void;
4. Ordering the Register of Deeds of Makati which has jurisdiction
over the two parcels of land in question to re-instate in his land
records, TCT No. 438073 in the name of Miguela Villanueva and TCT
No. 366364 in the name of Celestino Villanueva who were the
registered owners thereof, and to cancel all subsequent titles
emanating therefrom; and
5. Ordering the Liquidator to reconvey the two lots described in TCT
No. 115631 and 115632 and executing the corresponding deed of
conveyance of the said lots upon the payment of One Hundred Ten
Thousand Four Hundred Sixteen and 20/100 (P110,416.20) Pesos
without interest and less the amount deposited by the claimant,
Miguela Villanueva in connection with the bidding where she had
participated and conducted by the PVB on August 29, 1984.
Cost against Ildefonso Ong and the PVB.
SO ORDERED. 19
Only Ong appealed the decision to the Court of Appeals. The appeal
was docketed as CA-G.R. CV No. 35890. In its decision of 27 January
1994, the Court of Appeals reversed the decision of the trial court
and ruled as follows:
WHEREFORE, premises considered, the assailed decision is hereby
REVERSED and SET ASIDE, and a new one entered ordering the
disputed-lots be awarded in favor of plaintiff-appellant Ildefonso
Ong upon defendant-appellee Central Bank's execution of the
corresponding deed of sale in his favor. 20
In support thereof, the Court of Appeals declared that Ong's failure
to pay the balance within the prescribed period was excusable
because the PVB neither notified him of the approval of his bid nor
answered his letters manifesting his readiness to pay the balance,
for which reason he could not have known when to reckon the 15-
day period prescribed under its resolution. It went further to
suggest that the Central Bank was in estoppel because it accepted
Ong's late-payment of the balance. As to the petitioners' claim, the
Court of Appeals stated:
The conclusion reached by the lower court favorable to Miguela
Villanueva is, as aptly pointed out by plaintiff-appellant, indeed
confusing. While the lower court's decision declared Miguela
Villanueva as estopped from recovering her proportionate share
and interest in the two (2) disputed lots for being a "co-participant"
in the fraudulent scheme perpetrated by Jose Viudez and Andres
Sebastian — a factual finding which We conform to and which
Miguela Villanueva does not controvert in this appeal by not filing
her appellee's brief, yet it ordered the reconveyance of the disputed
lots to Miguela Villanueva as the victorious party upon her payment
of P110,416.20. Would not estoppel defeat the claim of the party
estopped? If so, which in fact must be so, would it not then be
absurd or even defiant for the lower court to finally entitle Miguela
Villanueva to the disputed lots after having been precluded from
assailing their subsequent conveyance in favor of Jose Viudez by
reason of her own negligence and/or complicity therein? The
intended punitive effect of estoppel would merely be a dud if this
Court leaves the lower court's conclusion unrectified. 21
Their motion for reconsideration 22 having been denied, 23 the
petitioners filed this petition for review on certiorari. 24
Subsequently, the respondent Central Bank apprised this Court that
the PVB was no longer under receivership or liquidation and that
the PVB has been back in operation since 3 August 1992. It then
prayed that it be dropped from this case or at least be substituted
by the PVB, which is the real party in interest. 25
In its Manifestation and Entry of Appearance, the PVB declared that
it submits to the jurisdiction of this Court and that it has no
objection to its inclusion as a party respondent in this case in lieu of
the Central Bank. 26 The petitioners did not object to the
substitution. 27
Later, in its Comment dated 10 October 1994, the PVB stated that it
"submits to and shall abide by whatever judgment this Honorable
Supreme Tribunal may announce as to whom said lands may be
awarded without any touch of preference in favor of one or the
other party litigant in the instant
case." 28
In support of their contention that the Court of Appeals gravely
erred in holding that Ong is better entitled to purchase the disputed
lots, the petitioners maintain that Ong is a disqualified bidder, his
bid of P110,000.00 being lower than the starting price of
P110,417.00 and his deposit of P10,000.00 being less than the
required 10% of the bid price; that Ong failed to pay the balance of
the price within the 15-day period from notice of the approval of his
bid; and that his offer of payment is ineffective since it was
conditioned on PVB's execution of the deed of absolute sale in his
favor.
On the other hand, Ong submits that his offer, though lower than
Miguela ViIlanueva's bid by P417.00, is much better, as the same is
payable in cash, while Villanueva's bid is payable in installment; that
his payment could not be said to have been made after the
expiration of the 15-day period because this period has not even
started to run, there being no notice yet of the approval of his offer;
and that he has a legal right to compel the PVB or its liquidator to
execute the corresponding deed of conveyance.
There is no doubt that the approval of Ong's offer constitutes an
acceptance, the effect of which is to perfect the contract of sale
upon notice thereof to Ong. 29 The peculiar circumstances in this
case, however, pose a legal obstacle to his claim of a better right
and deny support to the conclusion of the Court of Appeals.
Ong did not receive any notice of the approval of his offer. It was
only sometime in mid-April 1985 when he returned from the United
States and inquired about the status of his bid that he came to know
of the approval.
It must be recalled that the PVB was placed under receivership
pursuant to the MB Resolution of 3 April 1985 after a finding that it
was insolvent, illiquid, and could not operate profitably, and that its
continuance in business would involve probable loss to its
depositors and creditors. The PVB was then prohibited from doing
business in the Philippines, and the receiver appointed was directed
to "immediately take charge of its assets and liabilities, as
expeditiously as possible collect and gather all the assets and
administer the same for the benefit of its creditors, exercising all
the powers necessary for these purposes."
Under Article 1323 of the Civil Code, an offer becomes ineffective
upon the death, civil interdiction, insanity, or insolvency of either
party before acceptance is conveyed. The reason for this is that:
[T]he contract is not perfected except by the concurrence of two
wills which exist and continue until the moment that they occur.
The contract is not yet perfected at any time before acceptance is
conveyed; hence, the disappearance of either party or his loss of
capacity before perfection prevents the contractual tie from being
formed. 30
It has been said that where upon the insolvency of a bank a receiver
therefor is appointed, the assets of the bank pass beyond its control
into the possession and control of the receiver whose duty it is to
administer the assets for the benefit of the creditors of the
bank.31 Thus, the appointment of a receiver operates to suspend the
authority of the bank and of its directors and officers over its
property and effects, such authority being reposed in the receiver,
and in this respect, the receivership is equivalent to an injunction to
restrain the bank officers from intermeddling with the property of
the bank in any way. 32
Section 29 of the Central Bank Act, as amended, provides thus:
Sec. 29. Proceedings upon insolvency. — Whenever, upon
examination by the head of the appropriate supervising or
examining department or his examiners or agents into the condition
of any bank or non-bank financial intermediary performing quasi-
banking functions, it shall be disclosed that the condition of the
same is one of insolvency, or that its continuance in business would
involve probable loss to its depositors or creditors, shall be the duty
of the department head concerned forthwith, in writing, to inform
the Monetary Board of the facts. The Board may, upon finding the
statements of the department head to be true, forbid the institution
to do business in the Philippines and designate an official of the
Central Bank or a person of recognized competence in banking or
finance as receiver to immediately take charge of its assets and
liabilities, as expeditiously as possible collect and gather all the
assets and administer the same for the benefit of its creditors . . .
exercising all the powers necessary for these purposes. . . .
xxx xxx xxx
The assets of an institution under receivership or liquidation shall be
deemed in custodia legis  in the hands of the receiver or liquidator
and shall, from the moment of such receivership or liquidation, be
exemp from any order of garnishment, levy, attachment, or
execution.
In a nutshell, the insolvency of a bank and the consequent
appointment of a receiver restrict the bank's capacity to act,
especially in relation to its property, Applying Article 1323 of the
Civil Code, Ong's offer to purchase the subject lots became
ineffective because the PVB became insolvent before the bank's
acceptance of the offer came to his knowledge. Hence, the
purported contract of sale between them did not reach the stage of
perfection. Corollarily, he cannot invoke the resolution of the bank
approving his bid as basis for his alleged right to buy the disputed
properties.
Nor may the acceptance by an employee of the PVB of Ong's
payment of P100,000.00 benefit him since the receipt of the
payment was made subject to the approval by the Central Bank
liquidator of the PVB thus:
Payment for the purchase price of the former property of Andres
Sebastian per approved BR No. 10902-84 dated 11/13/84, subject to
the approval of CB liquidator. 33
This payment was disapproved on the ground that the subject
property was already in custodia legis, and hence, disposable only
by public auction and subject to the approval of the liquidation
court. 34
The Court of Appeals therefore erred when it held that Ong had a
better right than the petitioners to the purchase of the disputed
lots.
Considering then that only Ong appealed the decision of the trial
court, the PVB and the Central Bank, as well as the petitioners, are
deemed to have fully and unqualifiedly accepted the judgment,
which thus became final as to them for their failure to appeal.
WHEREFORE, the instant petition is GRANTED and the challenged
decision of the Court of Appeals of 27 January 1994 in CA-G.R. CV
No. 35890 is hereby SET ASIDE. The decision of Branch 39 of the
Regional Trial Court of Manila of 31 October 1991 in Civil Case No.
87-42550 and Sp. Proc. No. 85-32311 is hereby REINSTATED.
Respondent Philippine Veterans Bank is further directed to return to
private respondent Ildefonso C. Ong the amount of P100,000.00.
No pronouncement as to costs.
SO ORDERED.
G.R. No. 103338 January 4, 1994
FEDERICO SERRA, petitioner,
vs.
THE HON. COURT OF APPEALS AND RIZAL COMMERCIAL BANKING
CORPORATION, respondents.
Andres R. Amante, Jr. for petitioner.
R.C. Domingo, Jr. & Associates for private respondent.
NOCON, J.:
A promise to buy and sell a determinate thing for a price certain is
reciprocally demandable. An accepted unilateral promise to buy and
sell a determinate thing for a price certain is binding upon the
promisor if the promise is supported by a consideration distinct
from the price. (Article 1479, New Civil Code) The first is the mutual
promise and each has the right to demand from the other the
fulfillment of the obligation. While the second is merely an offer of
one to another, which if accepted, would create an obligation to the
offeror to make good his promise, provided the acceptance is
supported by a consideration distinct from the price.
Disputed in the present case is the efficacy of a "Contract of Lease
with Option to Buy", entered into between petitioner Federico Serra
and private respondent Rizal Commercial Banking Corporation.
(RCBC).
Petitioner is the owner of a 374 square meter parcel of land located
at Quezon St., Masbate, Masbate. Sometime in 1975, respondent
bank, in its desire to put up a branch in Masbate, Masbate,
negotiated with petitioner for the purchase of the then unregistered
property. On May 20, 1975, a contract of LEASE WITH OPTION TO
BUY was instead forged by the parties, the pertinent portion of
which reads:
1. The LESSOR leases unto the LESSEE, an the LESSEE hereby accepts
in lease, the parcel of land described in the first WHEREAS clause, to
have and to hold the same for a period of twenty-five (25) years
commencing from June 1, 1975 to June 1, 2000. The LESSEE,
however, shall have the option to purchase said parcel of land
within a period of ten (10) years from the date of the signing of this
Contract at a price not greater than TWO HUNDRED TEN PESOS
(P210.00) per square meter. For this purpose, the LESSOR
undertakes, within such ten-year period, to register said parcel of
land under the TORRENS SYSTEM and all expenses appurtenant
thereto shall be for his sole account.
If, for any reason, said parcel of land is not registered under the
TORRENS SYSTEM within the aforementioned ten-year period, the
LESSEE shall have the right, upon termination of the lease to be paid
by the LESSOR the market value of the building and improvements
constructed on said parcel of land.
The LESSEE is hereby appointed attorney-in-fact for the LESSOR to
register said parcel of land under the TORRENS SYSTEM in case the
LESSOR, for any reason, fails to comply with his obligation to effect
said registration within reasonable time after the signing of this
Agreement, and all expenses appurtenant to such registration shall
be charged by the LESSEE against the rentals due to the LESSOR.
2. During the period of the lease, the LESSEE covenants to pay the
LESSOR, at the latter's residence, a monthly rental of SEVEN
HUNDRED PESOS (P700.00), Philippine Currency, payable in advance
on or before the fifth (5th) day of every calendar month, provided
that the rentals for the first four (4) months shall be paid by the
LESSEE in advance upon the signing of this Contract.
3. The LESSEE is hereby authorized to construct as its sole expense a
building and such other improvements on said parcel of land, which
it may need in pursuance of its business and/or operations;
provided, that if for any reason the LESSEE shall fail to exercise its
option mentioned in paragraph (1) above in case the parcel of land
is registered under the TORRENS SYSTEM within the ten-year period
mentioned therein, said building and/or improvements, shall
become the property of the LESSOR after the expiration of the 25-
year lease period without the right of reimbursement on the part of
the LESSEE. The authority herein granted does not, however, extend
to the making or allowing any unlawful, improper or offensive used
of the leased premises, or any use thereof, other than banking and
office purposes. The maintenance and upkeep of such building,
structure and improvements shall likewise be for the sole account
of the LESSEE. 1
The foregoing agreement was subscribed before Notary Public
Romeo F. Natividad.
Pursuant to said contract, a building and other improvements were
constructed on the land which housed the branch office of RCBC in
Masbate, Masbate. Within three years from the signing of the
contract, petitioner complied with his part of the agreement by
having the property registered and
placed under the TORRENS SYSTEM, for which Original Certificate of
Title No. 0-232 was issued by the Register of Deeds of the Province
of Masbate.
Petitioner alleges that as soon as he had the property registered, he
kept on pursuing the manager of the branch to effect the sale of the
lot as per their agreement. It was not until September 4, 1984,
however, when the respondent bank decided to exercise its option
and informed petitioner, through a letter, 2 of its intention to buy
the property at the agreed price of not greater than P210.00 per
square meter or a total of P78,430.00. But much to the surprise of
the respondent, petitioner replied that he is no longer selling the
property.3
Hence, on March 14, 1985, a complaint for specific performance
and damages were filed by respondent against petitioner. In the
complaint, respondent alleged that during the negotiations it made
clear to petitioner that it intends to stay permanently on property
once its branch office is opened unless the exigencies of the
business requires otherwise. Aside from its prayer for specific
performance, it likewise asked for an award of P50,000.00 for
attorney's fees P100,000.00 as exemplary damages and the cost of
the suit.4
A special and affirmative defenses, petitioner contended:
1. That the contract having been prepared and drawn by RCBC, it
took undue advantage on him when it set in lopsided terms.
2. That the option was not supported by any consideration distinct
from the price and hence not binding upon him.
3. That as a condition for the validity and/or efficacy of the option, it
should have been exercised within the reasonable time after the
registration of the land under the Torrens System; that its delayed
action on the option have forfeited whatever its claim to the same.
4. That extraordinary inflation supervened resulting in the unusual
decrease in the purchasing power of the currency that could not
reasonably be forseen or was manifestly beyond the contemplation
of the parties at the time of the establishment of the obligation,
thus, rendering the terms of the contract unenforceable,
inequitable and to the undue enrichment of RCBC. 5
and as counterclaim petitioner alleged that:
1. The rental of P700.00 has become unrealistic and unreasonable,
that justice and equity will require its adjustment.
2. By the institution of the complaint he suffered moral damages
which may be assessed at P100,000.00 and award of attorney's fee
of P25,000.00 and exemplary damages at P100,000.00.6
Initially, after trial on the merits, the court dismissed the complaint.
Although it found the contract to be valid, the court nonetheless
ruled that the option to buy in unenforceable because it lacked a
consideration distinct from the price and RCBC did not exercise its
option within reasonable time. The prayer for readjustment of
rental was denied, as well as that for moral and exemplary
damages.7
Nevertheless, upon motion for reconsideration of respondent, the
court in the order of January 9, 1989, reversed itself, the dispositive
portion reads:
WHEREFORE, the Court reconsiders its decision dated June 6, 1988,
and hereby renders judgment as follows:
1. The defendant is hereby ordered to execute and deliver the
proper deed of sale in favor of plaintiff selling, transferring and
conveying the property covered by and described in the Original
Certificate of Title 0-232 of the Registry of Deeds of Masbate for the
sum of Seventy Eight Thousand Five Hundred Forty Pesos
(P78,540,00), Philippine Currency;
2. Defendant is ordered to pay plaintiff the sum of Five Thousand
(P5,000.00) Pesos as attorney's fees;
3. The counter claim of defendant is hereby dismissed; and
4. Defendants shall pay the costs of suit.8
In a decision promulgated on September 19, 1991,9 the Court of
Appeals affirmed the findings of the trial court that:
1. The contract is valid and that the parties perfectly understood the
contents thereof;
2. The option is supported by a distinct and separate consideration
as embodied in the agreement;
3. There is no basis in granting an adjustment in rental.
Assailing the judgment of the appellate court, petitioner would like
us to consider mainly the following:
1. The disputed contract is a contract of adhesion.
2. There was no consideration to support the option, distinct from
the price, hence the option cannot be exercised.
3. Respondent court gravely abused its discretion in not granting
currency adjustment on the already eroded value of the stipulated
rentals for twenty-five years.
The petition is devoid of merit.
There is no dispute that the contract is valid and existing between
the parties, as found by both the trial court and the appellate court.
Neither do we find the terms of the contract unfairly lopsided to
have it ignored.
A contract of adhesion is one wherein a party, usually a corporation,
prepares the stipulations in the contract, while the other party
merely affixes his signature or his "adhesion" thereto. These types
of contracts are as binding as ordinary contracts. Because in reality,
the party who adheres to the contract is free to reject it entirely.
Although, this Court will not hesitate to rule out blind adherence to
terms where facts and circumstances will show that it is basically
one-sided. 10
We do not find the situation in the present case to be inequitable.
Petitioner is a highly educated man, who, at the time of the trial was
already a CPA-Lawyer, and when he entered into the contract, was
already a CPA, holding a respectable position with the Metropolitan
Manila Commission. It is evident that a man of his stature should
have been more cautious in transactions he enters into, particularly
where it concerns valuable properties. He is amply equipped to
drive a hard bargain if he would be so minded to.
Petitioner contends that the doctrines laid down in the cases of
Atkins Kroll v.  Cua Hian Tek, 11 Sanchez v.  Rigos, 12 and Vda.  de
Quirino v.  Palarca  13 were misapplied in the present case, because
1) the option given to the respondent bank was not supported by a
consideration distinct from the price; and 2) that the stipulated
price of "not greater than P210.00 per square meter" is not certain
or definite.
Article 1324 of the Civil Code provides that when an offeror has
allowed the offeree a certain period to accept, the offer maybe
withdrawn at anytime before acceptance by communicating such
withdrawal, except when the option is founded upon consideration,
as something paid or promised. On the other hand, Article 1479 of
the Code provides that an accepted unilateral promise to buy and
sell a determinate thing  for a price certain  is binding upon the
promisor if the promise is supported by a consideration distinct
from the price.
In a unilateral promise to sell, where the debtor fails to withdraw
the promise before the acceptance by the creditor, the transaction
becomes a bilateral contract to sell and to buy, because upon
acceptance by the creditor of the offer to sell by the debtor, there is
already a meeting of the minds of the parties as to the thing which
is determinate and the price which is certain. 14 In which case, the
parties may then reciprocally demand performance.
Jurisprudence has taught us that an optional contract is a privilege
existing only in one party — the buyer. For a separate consideration
paid, he is given the right to decide to purchase or not, a certain
merchandise or property, at any time within the agreed period, at a
fixed price. This being his prerogative, he may not be compelled to
exercise the option to buy before the time
expires. 15
On the other hand, what may be regarded as a consideration
separate from the price is discussed in the case of Vda.  de Quirino
v.  Palarca  16 wherein the facts are almost on all fours with the case
at bar. The said case also involved a lease contract with option to
buy where we had occasion to say that "the consideration for the
lessor's obligation to sell the leased premises to the lessee, should
he choose to exercise his option to purchase the same, is the
obligation of the lessee to sell to the lessor the building and/or
improvements constructed and/or made by the former, if he fails to
exercise his option to buy leased premises." 17
In the present case, the consideration is even more onerous on the
part of the lessee since it entails transferring of the building and/or
improvements on the property to petitioner, should respondent
bank fail to exercise its option within the period stipulated. 18
The bugging question then is whether the price "not greater than
TWO HUNDRED PESOS" is certain or definite. A price is considered
certain if it is so with reference to another thing certain or when the
determination thereof is left to the judgment of a specified person
or persons. 19 And generally, gross inadequacy of price does not
affect a contract of sale. 20
Contracts are to be construed according to the sense and meaning
of the terms which the parties themselves have used. In the present
dispute, there is evidence to show that the intention of the parties
is to peg the price at P210 per square meter. This was confirmed by
petitioner himself in his testimony, as follows:
Q. Will you please tell this Court what was the offer?
A. It was an offer to buy the property that I have in Quezon City
(sic).
Q. And did they give you a specific amount?
x x x           x x x          x x x
A. Well, there was an offer to buy the property at P210 per square
meters (sic).
Q. And that was in what year?
A . 1975, sir.
Q. And did you accept the offer?
A. Yes, sir. 21
Moreover, by his subsequent acts of having the land titled under
the Torrens System, and in pursuing the bank manager to effect the
sale immediately, means that he understood perfectly the terms of
the contract. He even had the same property mortgaged to the
respondent bank sometime in 1979, without the slightest hint of
wanting to abandon his offer to sell the property at the agreed price
of P210 per square meter. 22
Finally, we agree with the courts a quo  that there is no basis, legal
or factual, in adjusting the amount of the rent. The contract is the
law between the parties and if there is indeed reason to adjust the
rent, the parties could by themselves negotiate for the amendment
of the contract. Neither could we consider the decline of the
purchasing power of the Philippine peso from 1983 to the time of
the commencement of the present case in 1985, to be so great as to
result in an extraordinary inflation. Extraordinary inflation exists
when there in an unimaginable increase or decrease of the
purchasing power of the Philippine currency, or fluctuation in the
value of pesos manifestly beyond the contemplation of the parties
at the time of the establishment of the obligation. 23
Premises considered, we find that the contract of "LEASE WITH
OPTION TO BUY" between petitioner and respondent bank is valid,
effective and enforceable, the price being certain and that there
was consideration distinct from the price to support the option
given to the lessee.
WHEREFORE, this petition is hereby DISMISSED, and the decision of
the appellate court is hereby AFFIRMED.
SO ORDERED.
G.R. No. 125761             April 30, 2003
SALVADOR P. MALBAROSA, petitioner,
vs.
HON. COURT OF APPEALS and S.E.A. DEVELOPMENT
CORP., respondents.
CALLEJO, SR., J.:
Philtectic Corporation and Commonwealth Insurance Co., Inc. were
only two of the group of companies wholly-owned and controlled
by respondent S.E.A. Development Corporation (SEADC). The
petitioner Salvador P. Malbarosa was the president and general
manager of Philtectic Corporation, and an officer of other
corporations belonging to the SEADC group of companies. The
respondent assigned to the petitioner one of its vehicles covered by
Certificate of Registration No. 042758651 described as a 1982 model
Mitsubishi Gallant Super Saloon, with plate number PCA 180 for his
use. He was also issued membership certificates in the Architectural
Center, Inc. Louis Da Costa was the president of the respondent and
Commonwealth Insurance Co., Inc., while Senen Valero was the
Vice-Chairman of the Board of Directors of the respondent and Vice-
Chairman of the Board of Directors of Philtectic Corporation.
Sometime in the first week of January 1990, the petitioner
intimated to Senen Valero his desire to retire from the SEADC group
of companies and requested that his 1989 incentive compensation
as president of Philtectic Corporation be paid to him. On January 8,
1990, the petitioner sent a letter to Senen Valero tendering his
resignation, effective February 28, 1990 from all his positions in the
SEADC group of companies, and reiterating therein his request for
the payment of his incentive compensation for 1989.2
Louis Da Costa met with the petitioner on two occasions, one of
which was on February 5, 1990 to discuss the amount of the 1989
incentive compensation petitioner was entitled to, and the mode of
payment thereof. Da Costa ventured that the petitioner would be
entitled to an incentive compensation in the amount of P395,000.
On March 14, 1990, the respondent, through Senen Valero, signed a
letter-offer addressed to the petitioner3 stating therein that
petitioner's resignation from all the positions in the SEADC group of
companies had been accepted by the respondent, and that he was
entitled to an incentive compensation in the amount of
P251,057.67, and proposing that the amount be satisfied, thus:
- The 1982 Mitsubishi Super saloon car assigned to you by the
company shall be transferred to you at a value of P220,000.00.
(Although you have indicated a value of P180,000.00, our survey in
the market indicates that P220,000.00 is a reasonable reflection of
the value of the car.)
- The membership share of our subsidiary, Tradestar International,
Inc. in the Architectural Center, Inc. will be transferred to you.
(Although we do not as yet have full information as to the value of
these shares, we have been informed that the shares have traded
recently in the vicinity of P60,000.00.)4
The respondent required that if the petitioner agreed to the offer,
he had to affix his conformity on the space provided therefor and
the date thereof on the right bottom portion of the letter, thus:
Agreed:
SALVADOR P. MALBAROSA
5
Date: _____________________
On March 16, 1990, Da Costa met with the petitioner and handed to
him the original copy of the March 14, 1990 Letter-offer for his
consideration and conformity. The petitioner was dismayed when
he read the letter and learned that he was being offered an
incentive compensation of only P251,057.67. He told Da Costa that
he was entitled to no less than P395,000 as incentive compensation.
The petitioner refused to sign the letter-offer on the space provided
therefor. He received the original of the letter and wrote on the
duplicate copy of the letter-offer retained by Da Costa, the words:
"Rec'd original for review purposes."6 Despite the lapse of more
than two weeks, the respondent had not received the original of the
March 14, 1990 Letter-offer of the respondent with the conformity
of the petitioner on the space provided therefor. The respondent
decided to withdraw its March 14, 1990 Offer. On April 3, 1996, the
Board of Directors of the respondent approved a resolution
authorizing the Philtectic Corporation and/or Senen Valero to
demand from the petitioner for the return of the car and to take
such action against the petitioner, including the institution of an
action in court against the petitioner for the recovery of the motor
vehicle.7
On April 4, 1990, Philtectic Corporation, through its counsel, wrote
the petitioner withdrawing the March 14, 1990 Letter-offer of the
respondent and demanding that the petitioner return the car and
his membership certificate in the Architectural Center, Inc. within 24
hours from his receipt thereof.8 The petitioner received the original
copy of the letter on the same day.
On April 7, 1990, the petitioner wrote the counsel of Philtectic
Corporation informing the latter that he cannot comply with said
demand as he already accepted the March 14, 1990 Letter-offer of
the respondent when he affixed on March 28, 1990 his signature on
the original copy of the letter-offer.9 The petitioner enclosed a xerox
copy of the original copy of the March 14, 1990 Letter-offer of the
respondent, bearing his signature on the space provided therefore
dated March 28, 1990.10
With the refusal of the petitioner to return the vehicle, the
respondent, as plaintiff, filed a complaint against the petitioner, as
defendant, for recovery of personal property with replevin with
damages and attorney's fees, thus:
WHEREFORE, PREMISES CONSIDERED, it is respectfully prayed
before this Honorable Court that:
1. Before hearing and upon approval of plaintiff's bond, a writ be
issued immediately for the seizure of the vehicle described in
paragraph 3 hereof, wherever it may be found, and for its delivery
to plaintiff;
2. After trial of the issues, judgment be rendered adjudging that
plaintiff has the right to the possession of the said motor vehicle,
and, in the alternative, that defendant must deliver such motor
vehicle to plaintiff or pay to plaintiff the value thereof in case
delivery cannot be made;
3. After trial, hold the defendant liable to plaintiff for the use of the
motor vehicle in the amount of P1,000.00 per day from date of
demand until the motor vehicle is returned to plaintiff.
4. After trial, hold the defendant liable to plaintiff for attorney's fees
and costs of litigation in the amount of P100,000.00.
Plaintiffs likewise prays for such other reliefs as are just and
equitable under the circumstances.11
On April 30, 1990, the trial court issued an order for the issuance of
a writ of replevin.12 Correspondingly, the writ of replevin was issued
on May 8, 1990.13
On May 11, 1990, the Sheriff served the writ on the petitioner and
was able to take possession of the vehicle in question. On May 15,
1990, the petitioner was able to recover the possession of the
vehicle upon his filing of the counter-bond.14
In his Answer to the complaint, the petitioner, as defendant therein,
alleged that he had already agreed on March 28, 1990 to the March
14, 1990 Letter-offer of the respondent, the plaintiff therein, and
had notified the said plaintiff of his acceptance; hence, he had the
right to the possession of the car. Philtectic Corporation had no
right to withdraw the offer of the respondent SEADC. The petitioner
testified that after conferring with his counsel, he had decided to
accept the offer of the respondent, and had affixed his signature on
the space below the word "Agree" in the March 14, 1990 Letter-
offer, thus:
Agreed:
(Sgd.)
SALVADOR P. MALBAROSA
Date:      3-28-90   15
The petitioner adduced evidence that on March 9, 1990, he had
written Senen Valero that he was agreeable to an incentive
compensation of P218,000 to be settled by the respondent by
transferring the car to the petitioner valued at P180,000 and
P38,000 worth of shares of the Architectural Center, Inc. on the
claim of Da Costa that respondent was almost bankrupt. However,
the petitioner learned that the respondent was financially sound;
hence, he had decided to receive his incentive compensation of
P395,000 in cash.16 On March 29, 1990, the petitioner called up the
office of Louis Da Costa to inform the latter of his acceptance of the
letter-offer of the respondent. However, the petitioner was told by
Liwayway Dinglasan, the telephone receptionist of Commonwealth
Insurance Co., that Da Costa was out of the office. The petitioner
asked Liwayway to inform Da Costa that he had called him up and
that he had already accepted the letter-offer. Liwayway promised to
relay the message to Da Costa. Liwayway testified that she had
relayed the petitioner's message to Da Costa and that the latter
merely nodded his head.
17
After trial, the court a quo rendered its Decision  on July 28, 1992,
the dispositive portion of which reads as follows:
WHEREFORE, in view of all the foregoing, judgment is rendered
ordering the defendant:
1. To deliver the motor vehicle prescribed [sic] in the complaint to
plaintiff SEADC, or pay its value of P220,000 in case delivery cannot
be made;
2. pay plaintiff SEADC P50,000 as and for attorney's fees; and
3. Cost of litigation.
SO ORDERED.18
The trial court stated that there existed no perfected contract
between the petitioner and the respondent on the latter's March
14, 1990 Letter-offer for failure of the petitioner to effectively notify
the respondent of his acceptance of said letter-offer before the
respondent withdrew the same. The respondent filed a motion for
the amendment of the decision of the trial court, praying that the
petitioner should be ordered to pay to the respondent reasonable
rentals for the car. On October 10, 1992, the court a quo issued an
order, granting plaintiff's motion and amending the dispositive
portion of its July 28, 1992 Decision:
1. Ordering defendant to pay to plaintiff lease rentals for the use of
the motor vehicle at the rate of P1,000.00 per Day from May 8,
1990 up to the date of actual delivery to the plaintiff of the motor
vehicle; and
2. Ordering First Integrated Bonding & Insurance Co. to make good
on its obligations to plaintiff under the Counterbond issued
pursuant to this case.
SO ORDERED.19
The petitioner appealed from the decision and the order of the
court a quo to the Court of Appeals.
On February 8, 1996, the Court of Appeals rendered its
Decision,20 affirming the decision of the trial court. The dispositive
portion of the decision reads:
WHEREFORE, the Decision dated July 28, 1992 and the Order dated
October 10, 1992 of the Regional Trial Court of Pasig (Branch 158)
are hereby AFFIRMED with the MODIFICATION that the period of
payment of rentals at the rate of P1,000.00 per day shall be from
the time this decision becomes final until actual delivery of the
motor vehicle to plaintiff-appellee is made.
Costs against the defendant-appellant.
SO ORDERED.21
The Court of Appeals stated that the petitioner had not accepted
the respondent's March 14, 1990 Letter-offer before the
respondent withdrew said offer on April 4, 1990.
The petitioner filed a petition for review on certiorari of the decision
of the Court of Appeals.
The petitioner raises two issues, namely: (a) whether or not there
was a valid acceptance on his part of the March 14, 1990 Letter-
offer of the respondent;22 and (b) whether or not there was an
effective withdrawal by the respondent of said letter-offer.
The petition is dismissed.
Anent the first issue, the petitioner posits that the respondent had
given him a reasonable time from March 14, 1990 within which to
accept or reject its March 14, 1990 Letter-offer. He had already
accepted the offer of the respondent when he affixed his
conformity thereto on the space provided therefor on March 28,
199023 and had sent to the respondent corporation on April 7, 1990
a copy of said March 14, 1990 Letter-offer bearing his conformity to
the offer of the respondent; hence, the respondent can no longer
demand the return of the vehicle in question. He further avers that
he had already impliedly accepted the offer when after said
respondent's offer, he retained possession of the car.
For its part, the respondent contends that the issues raised by the
petitioner are factual. The jurisdiction of the Court under Rule 45 of
the Rules of Court, as amended, is limited to revising and correcting
errors of law of the CA. As concluded by the Court of Appeals, there
had been no acceptance by the petitioner of its March 14, 1990
Letter-offer. The receipt by the petitioner of the original of the
March 14, 1990 Letter-offer for review purposes amounted merely
to a counter-offer of the petitioner. The findings of the Court of
Appeals are binding on the petitioner. The petitioner adduced no
proof that the respondent had granted him a period within which to
accept its offer. The latter deemed its offer as not accepted by the
petitioner in light of petitioner's ambivalence and indecision on
March 16, 1990 when he received the letter-offer of respondent.
We do not agree with the petitioner.
Under Article 1318 of the Civil Code, the essential requisites of a
contract are as follows:
Art. 1318. There is no contract unless the following requisites
concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.
Under Article 1319 of the New Civil Code, the consent by a party is
manifested by the meeting of the offer and the acceptance upon
the thing and the cause which are to constitute the contract. An
offer may be reached at any time until it is accepted. An offer that is
not accepted does not give rise to a consent. The contract does not
come into existence.24 To produce a contract, there must be
acceptance of the offer which may be express or implied25 but must
not qualify the terms of the offer. The acceptance must be absolute,
unconditional and without variance of any sort from the offer.26
The acceptance of an offer must be made known to the
offeror.27 Unless the offeror knows of the acceptance, there is no
meeting of the minds of the parties, no real concurrence of offer
and acceptance.28 The offeror may withdraw its offer and revoke the
same before acceptance thereof by the offeree. The contract is
perfected only from the time an acceptance of an offer is made
known to the offeror. If an offeror prescribes the exclusive manner
in which acceptance of his offer shall be indicated by the offeree, an
acceptance of the offer in the manner prescribed will bind the
offeror. On the other hand, an attempt on the part of the offeree to
accept the offer in a different manner does not bind the offeror as
the absence of the meeting of the minds on the altered type of
acceptance.29 An offer made inter praesentes must be accepted
immediately. If the parties intended that there should be an express
acceptance, the contract will be perfected only upon knowledge by
the offeror of the express acceptance by the offeree of the offer. An
acceptance which is not made in the manner prescribed by the
offeror is not effective but constitutes a counter-offer which the
offeror may accept or reject.30 The contract is not perfected if the
offeror revokes or withdraws its offer and the revocation or
withdrawal of the offeror is the first to reach the offeree.31 The
acceptance by the offeree of the offer after knowledge of the
revocation or withdrawal of the offer is inefficacious. The
termination of the contract when the negotiations of the parties
terminate and the offer and acceptance concur, is largely a question
of fact to be determined by the trial court.32
In this case, the respondent made its offer through its Vice-
Chairman of the Board of Directors, Senen Valero. On March 16,
1990, Da Costa handed over the original of the March 14, 1990
Letter-offer of the respondent to the petitioner. The respondent
required the petitioner to accept the offer by affixing his signature
on the space provided in said letter-offer and writing the date of
said acceptance, thus foreclosing an implied acceptance or any
other mode of acceptance by the petitioner. However, when the
letter-offer of the respondent was delivered to the petitioner on
March 16, 1990, he did not accept or reject the same for the reason
that he needed time to decide whether to reject or accept the
same.33 There was no contract perfected between the petitioner
and the respondent corporation.34 Although the petitioner claims
that he had affixed his conformity to the letter-offer on March 28,
1990, the petitioner failed to transmit the said copy to the
respondent. It was only on April 7, 1990 when the petitioner
appended to his letter to the respondent a copy of the said March
14, 1990 Letter-offer bearing his conformity that he notified the
respondent of his acceptance to said offer. But then, the
respondent, through Philtectic Corporation, had already withdrawn
its offer and had already notified the petitioner of said withdrawal
via respondent's letter dated April 4, 1990 which was delivered to
the petitioner on the same day. Indubitably, there was no contract
perfected by the parties on the March 14, 1990 Letter-offer of the
respondent.
The petitioner's plaint that he was not accorded by the respondent
reasonable time to accept or reject its offer does not persuade. It
must be underscored that there was no time frame fixed by the
respondent for the petitioner to accept or reject its offer. When the
offeror has not fixed a period for the offeree to accept the offer, and
the offer is made to a person present, the acceptance must be made
immediately.35 In this case, the respondent made its offer to the
petitioner when Da Costa handed over on March 16, 1990 to the
petitioner its March 14, 1990 Letter-offer but that the petitioner did
not accept the offer. The respondent, thus, had the option to
withdraw or revoke the offer, which the respondent did on April 4,
1990.
Even if it is assumed that the petitioner was given a reasonable
period to accept or reject the offer of the respondent, the evidence
on record shows that from March 16, 1990 to April 3, 1990, the
petitioner had more than two weeks which was more than sufficient
for the petitioner to accept the offer of the respondent. Although
the petitioner avers that he had accepted the offer of the
respondent on March 28, 1990, however, he failed to transmit to
the respondent the copy of the March 14, 1990 Letter-offer bearing
his conformity thereto. Unless and until the respondent received
said copy of the letter-offer, it cannot be argued that a contract had
already been perfected between the petitioner and the respondent.
On the second issue, the petitioner avers that Philtectic
Corporation, although a wholly-owned and controlled subsidiary of
the respondent, had no authority to withdraw the offer of the
respondent. The resolution of the respondent authorizing Philtectic
Corporation to take such action against the petitioner including the
institution of an action against him for the recovery of the subject
car does not authorize Philtectic Corporation to withdraw the
March 14, 1990 Letter-offer of the respondent. The withdrawal by
Philtectic Corporation on April 4, 1990 of the offer of the
respondent was ineffective insofar as the petitioner was concerned.
The respondent, for its part, asserts that the petitioner had failed to
put in issue the matter of lack of authority of Philtectic Corporation
to withdraw for and in behalf of the respondent its March 14, 1990
Letter-offer. It contends that the authority of Philtectic Corporation
to take such action including the institution of an action against the
petitioner for the recovery of the car necessarily included the
authority to withdraw the respondent's offer. Even then, there was
no need for the respondent to withdraw its offer because the
petitioner had already rejected the respondent's offer on March 16,
1990 when the petitioner received the original of the March 14,
1990 Letter-offer of the respondent without the petitioner affixing
his signature on the space therefor.
We do not agree with the petitioner. Implicit in the authority given
to Philtectic Corporation to demand for and recover from the
petitioner the subject car and to institute the appropriate action
against him to recover possession of the car is the authority to
withdraw the respondent's March 14, 1990 Letter-offer. It cannot
be argued that respondent authorized Philtectic Corporation to
demand and sue for the recovery of the car and yet did not
authorize it to withdraw its March 14, 1990 Letter-offer to the
petitioner. Besides, when he testified, Senen Valero stated that the
April 4, 1990 letter of Philtectic Corporation to the petitioner was
upon his instruction and conformably with the aforesaid resolution
of the Board of Directors of the respondent:
Q         Mr. Valero, after the Board passed this resolution. (sic) What
action did you take, if any?
A         After that resolution was passed. (sic) I instructed our lawyers
to proceed with the demand letter for the recovery of the vehicle.
Q         Do you know if that demand letter was every (sic) made by
your lawyer?
A         Yes. I know that because I was the one who gave the
instruction and before it was finally served on Malbarosa, I was
shown about the demand letter.
C/Pltf.   Your honor, or rather . . .
Mr. Valero, if I show you a copy of that letter, will you be able to relation, if any, does this second paragraph with the letter-offer that
identify the same? you previously stated.

A         Yes, sir. C/Def.   Objection, your honor. This witness is incompetent . . .

Q         I am now showing to you a copy of the letter dated April 4,
1990, addressed to Mr. Salvador P. Malbarosa and signed by
Romulo, Mabanta, Buenaventura, Sayoc and Delos Angeles by
________. What relation, if any, does that demand letter have with
the demand letter that you are talking about?
A         It's the same one I am referring to.
C/Pltf.   Your honor, we manifest that the letter has been previously
marked as our exh. "D".
Q         Mr. Valero, on the first paragraph of this demand letter, you
stated that the letter is written in behalf of Philtectic Corporation.
Do you have any knowledge why it was written this way?
C/Pltf.   But he was the one who instructed, your honor.
Court   LET the witness answer.
Witness   (Stenographer reads back the previous question asked by
counsel for him to answer, and . . ..)
A         It is the same.36
IN LIGHT OF ALL THE FOREGOING, the petition is dismissed. The
Decision of the Court of Appeals is AFFIRMED.
SO ORDERED.
G.R. No. 187543

A         Yes. Because Philtectic, being the agent used here by S.E.A. WERR CORPORATION INTERNATIONAL, Petitioner
Development Corporation for the one using the car, it was only vs.
deemed proper that Philtectic will be the one to send the demand HIGHLANDS PRIME INC., Respondent
letter.
x-----------------------x
Q         In the second paragraph of that letter, Mr. Valero, you stated
G.R. No. 187580
that there was an allusion made to the offer made on March 14,
1990. That the 1982 Mitsubishi Galant Super Saloon car with plate# HIGHLANDS PRIME, INC., Petitioner,
M-PCA-189 assigned to you by the company, and the membership vs.
share in the Architectural Center Inc., be transferred to you in WERR CORPORATION INTERNATIONAL, Respondent.
settlement. You previously stated about this March 14 letter. What
DECISION
JARDELEZA, J.:
These are consolidated petitions1 seeking to nullify the Court of
Appeals' (CA) February 9, 2009 Decision2 and April 16, 2009
Resolution3 in CA-G.R. SP No. 105013. The CA modified the August
11, 2008 Decision4 of the Construction Industry Arbitration
Commission (CIAC) in CIAC Case No. 09-2008, viz.:
WHEREFORE, premises considered, the instant petition for review
is PARTLY GRANTED. The assailed Decision dated August 11, 2008
of the Construction Industry Arbitration Commission in CIAC Case
No. 09-2008 is hereby MODIFIED as follows:
1) Respondent Werr Corporation International shall pay petitioner
Highlands Prime, Inc. liquidated damages in the amount of
₱8,969,330.70;
2) Petitioner Highlands Prime, Inc. shall return to respondent Werr
Corporation International the balance of its retention money in the
amount of ₱10,955,899.80 with the right to offset the award for
liquidated damages in the aforesaid amount of ₱8,969,330.70; and
3) The cost of arbitration shall be shared equally by the parties.
The rest of the decision stands.
SO ORDERED.5
Facts
Highlands Prime, Inc. (HPI) and Werr Corporation International
(Werr) are domestic corporations engaged in property development
and construction, respectively. For the construction of 54 residential
units contained in three clusters of five-storey condominium
structures, known as "The Horizon-Westridge Project," in Tagaytay
Midlands Complex, Talisay, Batangas, the project owner, HPI, issued
a Notice of Award/Notice to Proceed6 to its chosen contractor,
Werr, on July 22, 2005. Thereafter, the parties executed a General
Building Agreement7 (Agreement) on November 17, 2005.8
Under the Agreement, Werr had the obligation to complete the
project within 210 calendar days from receipt of the Notice of
Award/Notice to Proceed on July 22, 2005, or until February 19,
2006.9 For the completion of the project, HPI undertook to pay Werr
a lump sum contract price of ₱271,797,900.00 inclusive of
applicable taxes, supply and transportation of materials, and
labor.10 It was agreed that this contract price shall be subject to the
following payment scheme: (1) HPI shall pay 20% of the contract
price upon the execution of the agreement and the presentation of
the necessary bonds and insurance required under the contract,
and shall pay the balance on installments progress billing subject to
recoupment of downpayment and retention money;11 (2) HPI shall
retain 10% of the contract price in the form of retention bond
provided by Werr;12 (3) HPI may deduct or set off any sum against
monies due Werr, including expenses for the rectification of defects
in the construction project;13 and (4) HPI has the right to liquidated
damages in the event of delay in the construction of the project
equivalent to 1/10 of 1% of the contract price for every day of
delay.14
Upon HPI's payment of the stipulated 20% downpayment in the
amount of ₱54,359,580.00, Werr commenced with the construction
of the project. The contract price was paid and the retention money
was deducted, both in the progress billings. The project, however,
was not completed on the initial completion date of February 19,
2006, which led HPI to grant several extensions and a final
extension until October 15, 2006. On May 8, 2006, W err sought the
assistance of HPI to pay its obligations with its suppliers under a
"Direct Payment Scheme" totaling ₱24,503,500.08, which the latter
approved only up to the amount of ₱18,762,541.67. The amount is
to be charged against the accumulated retention money. As of the
last billing on October 25, 2006, HPI had already paid the amount of
₱232,940,265.85 corresponding to 93.18% accomplishment rate of
the project and retained the amount of ₱25,738,258.01 as retention
bond.15
The project was not completed on the last extension given. Thus,
HPI terminated its contract with Werr on November 28, 2006, which
the latter accepted on November 30, 2006.16 No progress billing was
adduced for the period October 28, 2006 until the termination of
the contract.17
On October 3, 2007, Werr demanded from HPI payment of the
balance of the contract price as reflected in its financial status
report which showed a conditional net payable amount of
₱36,078,652.90.18 On January 24, 2007, HPI informed Werr that
based on their records, the amount due to the latter as of
December 31, 2006 is ₱14,834,926.71.19 This amount was confirmed
by Werr.20 Not having received any payment, Werr filed a
Complaint21 for arbitration against HPI before the CIAC to recover
the ₱14,834,926.71 representing the balance of its retention
money.
In its Answer,22 HPI countered that it does not owe Werr because
the balance of the retention money answered for the payments
made to suppliers and for the additional costs and expenses
incurred after termination of the contract. From the retention
money of ₱25,738,258.0l, it deducted (1) ₱18,762,541.67 as
payment to the suppliers under the Direct Payment Scheme, and (2)
₱7,548,729.15 as additional costs and expenses further broken
down as follows: (a) ₱3,336,526.91 representing the unrecouped
portion of the 20% downpayment; (b) ₱542,500.00 representing the
remainder of Werr's unpaid advances; (c) ₱629,702.24 for the
waterproofing works done by Dubbel Philippines; and (d)
₱3,040,000.00 for the rectification works performed by A.A.
Manahan Construction after the termination of the contract.
Deducting the foregoing from the accumulated retention money
resulted in a deficiency of ₱573,012.81 in its favor.23 By way of
counterclaim, HPI prayed for the payment of liquidated damages in
the amount of ₱11,959,107.60 for the 44-day delay in the
completion of the project reckoned from October 15, 2006 up to
the termination of the Agreement on November 28, 2006; for actual
damages in the sum of ₱573,012.81; and for attorney's fees of
₱500,000.00 and litigation expenses of ₱100,000.00.24
CIAC's Ruling
After due proceedings, the CIAC rendered its Decision25 on August
11, 2008 where it granted Werr's claim for the balance of the
retention money in the amount of ₱10,955,899.79 and arbitration
costs. It also granted HPI's claim for liquidated damages in the
amount of ₱2,535,059.0l equivalent to 9.327 days of delay,26 but
denied its counterclaim for damages, attorney's fees, and litigation
expenses.
From the claims of HPI, the CIAC only deducted the amounts of (1)
₱10,903,331.30 representing the direct payments made from
September 26, 2006 until December 31, 2006,27 (2) ₱3,336,526.91
representing the unrecouped retention money, and (3) P542,500.00
representing the unpaid cash advances from the ₱25,738,258.0l
retention money. It disallowed the direct payments charged by HPI
in 2007 and 2008 for having been supplied after the termination of
the project, for not corresponding to the list of suppliers submitted,
and for HPI failing to show that Werr requested it to continue
payments even after termination of the Agreement. It also
disallowed the amount of ₱629,702.24 for the waterproofing works
done by Dubbel Philippines for being works done after the
termination of the contract. The ₱3,040,000.00 for the rectification
works performed after the termination of the contract was also
disallowed because while HPI presented its contract with A.A.
Manahan Construction for rectification and completion works, it
failed to present proof of how much was specifically paid for
rectification works only, as well as the proof of its payment.
Moreover, prior notice of such defective works was not shown to
have been given to Werr as required under the Agreement, and
even noted that HPI's project manager approved of the quality of
the works up to almost 94%.28
The CIAC further ruled that Werr incurred only 9.327 days of delay.
Citing Article 137629 of the Civil Code and considering the failure of
the Agreement to state otherwise, it applied the industry practice in
the construction industry that liquidated damages do not accrue
after achieving substantial compliance. It held that delay should be
counted from October 27, 2006 until the projected date of
substantial completion. Since the last admitted accomplishment is
93.18% on October 27, 2006, the period it will take Werr to perform
the remaining 1.82% is the period of delay. Based on the past
billings, since it took Werr 5 .128 days30 to achieve 1%
accomplishment, it will therefore take it 9.327 days to achieve
substantial completion. Thus, the CIAC concluded that the period of
delay until substantial completion of the project is 9.327 days. The
liquidated damages under the Agreement being 1/10 of 1% of the
₱271,797,900.00 or ₱271,797.90 per day of delay, Werr is liable for
liquidated damages in the amount of ₱2,535,048.95.31
Since the liquidated damages did not exhaust the balance of the
retention money, the CIAC likewise denied the claim for actual
damages.32
Thereafter, HPI filed its petition for review33 under Rule 43 with the
CA on August 28, 2008.1âwphi1
CA's Ruling
The CA rendered the assailed decision, affirming the CIAC's findings
on the allowable charges against the retention money, and on the
attorney's fees and litigation expenses. It, however, disagreed with
the CIAC decision as to the amount of liquidated damages and
arbitration costs. According to the CA, delay should be computed
from October 27, 2006 until termination of the contract on
November 28, 2006, or 33 days, since the contract prevails over the
industry practice. Thus, the total liquidated damages is
₱8,969,330.70. As to the arbitration costs, it ruled that it is more
equitable that it be borne equally by the parties since the claims of
both were considered and partially granted. 34
Hence, these consolidated petitions.
Arguments
Werr argues that the CA erred in modifying the CIAC decision on the
amount of liquidated damages and arbitration costs. It insists that
the appellate court disregarded Articles 1234, 1235, and 1376 of the
Civil Code and the industry practice (as evidenced by Clause 52.1 of
the Construction Industry Authority of the Philippines [CIAP]
Document No. 101 or the "General Conditions of Contract for
Government Construction" and Article 20.11 of CIAP Document No.
102 or the "Uniform General Conditions of Contract for Private
Construction") when it did not apply the construction industry
practice in computing liquidated damages only until substantial
completion of the project, and not until the termination of the
contract.35 Werr further emphasizes that the CIAC, being an
administrative agency, has expertise on the subject matter, and
thus, its findings prevail over the appellate court's findings.36
On the other hand, HPI argues that Werr was unjustly enriched
when the CA disallowed HPI' s recovery of the amounts it paid to
suppliers. HPI claims that: (1) payments made to suppliers identified
in the Direct Payment Scheme even after the termination of the
contract should be charged against the balance of the retention
money, the same having been made pursuant to Werr's express
instructions; (2) the payments to Dubbel Philippines and the cost of
the contract with A.A. Manahan Construction are chargeable to the
retention money, pursuant to the terms of the Agreement; and (3)
the expenses incurred in excess of the retention money should be
paid by Werr as actual damages. These payments, while made after
the termination of the contract, were for prior incurred
obligations.37 HPI also argues that it is not liable for arbitration costs,
and reiterates its claims for actual damages, and payment of
attorney's fees and litigation expenses.38
Issues
I. Whether the payments made to suppliers and contractors after
the termination of the contract are chargeable against the retention
money.
II. Whether the industry practice of computing liquidated damages
only up to substantial completion of the project applies in the
computation of liquidated damages. Consequently, whether delay
should be computed until termination of the contract or until
substantial completion of the project.
III. Whether the cost of arbitration should be shouldered by both
parties.
IV. Whether HPI is entitled to attorney's fees and litigation
expenses.
Our Ruling
We deny the consolidated petitions.
I. Charges against the Retention Money
Anent the first issue, we emphasize that what is before us is a
petition for review under Rule 45 where only questions of law may
be raised.39 Factual issues, which involve a review of the probative
value of the evidence presented, such as the credibility of
witnesses, or the existence or relevance of surrounding
circumstances and their relation to each other, may not be raised
unless it is shown that the case falls under recognized exceptions.40
In cases of arbitral awards rendered by the CIAC, adherence to this
rule is all the more compelling.41 Executive Order No. 1008,42 which
vests upon the CIAC original and exclusive jurisdiction over disputes
arising from, or connected with, contracts entered into by parties
involved in construction in the Philippines, clearly provides that the
arbitral award shall be binding upon the parties and that it shall be
final and inappealable except on questions of law which shall be
appealable to the Supreme Court.43 This rule on the finality of an
arbitral award is anchored on the premise that an impartial body,
freely chosen by the parties and to which they have confidence, has
settled the dispute after due proceedings:
Voluntary arbitration involves the reference of a dispute to an
impartial body, the members of which are chosen by the parties
themselves, which parties freely consent in advance to abide by the
arbitral award issued after proceedings where both parties had the
opportunity to be heard. The basic objective is to provide a speedy
and inexpensive method of settling disputes by allowing the parties
to avoid the formalities, delay, expense and aggravation which
commonly accompany ordinary litigation, especially litigation which
goes through the entire hierarchy of courts. Executive Order No.
1008 created an arbitration facility to which the construction
industry in the Philippines can have recourse. The Executive Order
was enacted to encourage the early and expeditious settlement of
disputes in the construction industry, a public policy the
implementation of which is necessary and important for the
realization of national development goals.
Aware of the objective of voluntary arbitration in the labor field, in
the construction industry, and in any other area for that matter, the
Court will not assist one or the other or even both parties in any
effort to subvert or defeat that objective for their private purposes.
The Court will not review the factual findings of an arbitral tribunal
upon the artful allegation that such body had "misapprehended the
facts" and will not pass upon issues which are, at bottom, issues of
fact, no matter how cleverly disguised they might be as "legal
questions." The parties here had recourse to arbitration and chose
the arbitrators themselves; they must have had confidence in such
arbitrators. The Court will not, therefore, permit the parties to
relitigate before it the issues of facts previously presented and
argued before the Arbitral Tribunal, save only where a very clear
showing is made that, in reaching its factual conclusions, the
Arbitral Tribunal committed an error so egregious and hurtful to one
party as to constitute a grave abuse of discretion resulting in lack or
loss of jurisdiction. Prototypical examples would be factual
conclusions of the Tribunal which resulted in deprivation of one or
the other party of a fair opportunity to present its position before
the Arbitral Tribunal, and an award obtained through fraud or the
corruption of arbitrators. Any other, more relaxed, rule would result
in setting at naught the basic objective of a voluntary arbitration
and would reduce arbitration to a largely inutile institution.44
In this case, the issues of whether HPI was able to prove that
payments made to suppliers and to third party contractors are prior
incurred obligations that should be charged against the retention
money, and whether HPI incurred expenses above the retention
money that warrants actual damages, are issues of facts beyond the
review of the Court under Rule 45.
Moreover, even if we consider such factual issues, we are bound by
the findings of fact of the CIAC especially when affirmed by the
CA.45 Factual findings by a quasi-judicial body like the CIAC, which
has acquired expertise because its jurisdiction is confined to specific
matters, are accorded not only with respect but even finality if they
are supported by substantial evidence.46 We recognize that certain
cases require the expertise, specialized skills, and knowledge of the
proper administrative bodies because technical matters or intricate
questions of facts are involved.47
We nevertheless note that factual findings of the construction
arbitrators are not beyond review, such as when the petitioner
affirmatively proves the following: (1) the award was procured by
corruption, fraud, or other undue means; (2) there was evident
partiality or corruption of the arbitrators or any of them; (3) the
arbitrators were guilty of misconduct in refusing to hear evidence
pertinent and material to the controversy; (4) one or more of the
arbitrators were disqualified to act as such under Section 1048 of
Republic Act No. 87649 and willfully refrained from disclosing such
disqualifications or of any other misbehavior by which the rights of
any party have been materially prejudiced; (5) the arbitrators
exceeded their powers, or so imperfectly executed them, that a
mutual, final, and definite award upon the subject matter submitted
to them was not made; (6) when there is a very clear showing of
grave abuse of discretion resulting in lack or loss of jurisdiction as
when a party was deprived of a fair opportunity to present its
position before the arbitral tribunal or when an award is obtained
through fraud or the corruption of arbitrators; (7) when the findings
of the CA are contrary to those of the CIAC; or (8) when a party is
deprived of administrative due process.50 However, we do not find
that HPI was able to show any of the exceptions that should warrant
a review and reversal of the findings made by the CIAC and the CA.
Thus, we affirm the CIAC and CA's findings that direct payments
charged by HPI in 2007 and 2008 were for materials supplied after
the termination of the project and did not correspond to the list of
suppliers submitted; that the waterproofing works done by Dubbel
Philippines in the amount of ₱629,702.24 were for works done after
the termination of the contract that were for the account of the
new contractor; and that the rectification works performed after
the termination of the contract worth ₱3,040,000.00 were not
proven to have been paid, that it was for rectification works only,
and that prior notice of such defective works as required under the
Agreement was not proven. Accordingly, we affirm that the balance
of the retention money is ₱10,955,899.79.
II. Delay in computing Liquidated Damages
On the other hand, the question on how liquidated damages should
be computed based on the Agreement and prevailing jurisprudence
is a question of law that we may review.
The pertinent provision on liquidated damages is found in clause
41.5 of the Agreement, viz.:
41.5. Considering the importance of the timely completion of the
WORKS on the OWNER'S commitments to its clients,
the CONTRACTOR agrees to pay the OWNER liquidated damages in
the amount of 1/10th of 1% of the amount of the Contract price for
every day of delay (inclusive of Sundays and holidays).51
Werr, as contractor, urges us to apply the construction industry
practice that liquidated damages do not accrue after the date of
substantial completion of the project, as evidenced in CIAP
Document No. 102, which provides that:
20.11 SUBSTANTIAL COMPLETION AND ITS EFFECT:
A. [a] There is substantial completion when the Contractor
completes 95% of the Work, provided that the remaining work and
the performance of the work necessary to complete the Work shall
not prevent the normal use of the completed portion.
xxx
D. [a] No liquidated damages for delay beyond the Completion Time
shall accrue after the date of substantial completion of the Work.
We reject this claim of Werr and find that while this industry
practice may supplement the Agreement, Werr cannot benefit from
it.
At the outset, we do not agree with the CA that industry practice be
rejected because liquidated damages is provided in the Agreement,
autonomy of contracts prevails, and industry practice is completely
set aside. Contracting parties are free to stipulate as to the terms
and conditions of the contract for as long as they are not contrary to
law, morals, good customs, public order or public policy.52 Corollary
to this rule is that laws are deemed written in every contract.53
Deemed incorporated into every contract are the general provisions
on obligations and interpretation of contracts found in the Civil
Code. The Civil Code provides:
Art. 1234. If the obligation has been substantially performed in good
faith, the obligor may recover as though there had been a strict and
complete fulfillment, less damages suffered by the obligee.
Art. 1376. The usage or custom of the place shall be borne in mind
in the interpretation of the ambiguities of a contract, and shall fill
the omission of stipulations which are ordinarily established.
In previous cases, we applied these provisions in construction
agreements to determine whether the project owner is entitled to
liquidated damages. We held that substantial completion of the
project equates to achievement of 95% project completion which
excuses the contractor from the payment of liquidated damages.
In Diesel Construction Co., Inc. v. UPSI Property Holdings, Inc., 54 we
applied Article 1234 of the Civil Code. In determining what is
considered substantial compliance, we used the CIAP Document No.
102 as evidence of the construction industry practice that
substantial compliance is equivalent to 95% accomplishment rate. In
that case, the construction agreement requires the contractor "to
pay the owner liquidated damages in the amount equivalent to one-
fifth (1/5) of one (1) percent of the total Project cost for each
calendar day of delay."55 We declared that the contractor cannot be
liable for liquidated damages because it already accomplished
97.56% of the project.56 We reiterated this in Transcept
Construction and Management Professionals, Inc. v. Aguilar 57 where
we ruled that since the contractor accomplished 98.16% of the
project, the project owner is not entitled to the 10% liquidated
damages.58
Considering the foregoing, it: was error for the CA to immediately
dismiss the application of industry practice on the sole ground that
there is an existing agreement as to liquidated damages. As
expressly stated under Articles 1234 and 1376, and in jurisprudence,
the construction industry's prevailing practice may supplement any
ambiguities or omissions in the stipulations of the contract.
Notably, CIAP Document N0. 102, by itself, was intended to have
suppletory effect on private construction contracts.1âwphi1 This is
evident in CIAP Board Resolution No. 1-98,59 which states:
Sec. 9. Policy-Making Body,  - The [CIAP], through the CIAP Executive
Office and its various Implementing Agencies, shall continuously
monitor and study the operations of the construction industry, both
domestic and overseas operations, to identify its needs, problems
and opportunities, in order to provide for the pertinent policies
and/or executive action and/or legislative agenda necessary to
implement plans, programs and measures required to support the
sustainable development of the construction industry, such as but
not limited to the following:
xxx
9.05 The promulgation and adoption of Standard Conditions of
Contract for the public construction and private construction sector
which shall have suppletory effect in cases where there is a conflict
in the internal documents of a construction contract or in the
absence of the general conditions of a construction agreement[.]
As the standard conditions for contract for private construction
adopted and promulgated by the CIAP, CIAP Document No. 102
applies suppletorily to private construction contracts to remedy the
conflict in the internal documents of, or to fill in the omissions in,
the construction agreement.
In this case, clause 41.5 of the Agreement is undoubtedly a valid
stipulation. However, while clause 41.5 requires payment of
liquidated damages if there is delay, it is silent as to the period until
when liquidated damages shall run. The Agreement does not state
that liquidated damages is due until termination of the project;
neither does it completely reject that it is only due until substantial
completion of the project. This omission in the Agreement may be
supplemented by the provisions of the Civil Code, industry practice,
and the CIAP Document No. 102. Hence, the industry practice that
substantial compliance excuses the contractor from payment of
liquidated damages applies to the Agreement.
Nonetheless, we find that Werr cannot benefit from the effects of
substantial compliance.
Paragraph A.[a.], Article 20.11 of CIAP Document No. 102 requires
that the contractor completes  95% of the work for there to be
substantial completion of the project. Also, in those cases where we
applied the industry practice to supplement the contracts and
excused payment from liquidated damages under Article 1234, the
contractors there actually achieved 95% completion of the project.
Neither the CIAC nor the courts assumed as to when substantial
compliance will be achieved by the contractor, but the contractors
offered substantial evidence that they actually achieved at least
95% completion of the project. Thus, the effects of substantial
completion only operate to relieve the contractor from the burden
of paying liquidated damages when it has, in reality, achieved
substantial completion of the project.
While the case before us presents a different scenario, as the
contractor here does not demand total release from payment of
liquidated damages, we find that in order to benefit from the effects
of the substantial completion of a project, the condition precedent
must first be met-the contractor must successfully prove by
substantial evidence that it actually  achieved 95% completion rate
of the project. As such, it is incumbent upon Werr to show that it
had achieved an accomplishment rate of 95% before or at the time
of the termination of the contract.
Here, there is no dispute that Werr failed to prove that it completed
95% of the project before or at the time of the termination of the
contract. As found by CIAC, it failed to present evidence as to what
accomplishment it achieved from the time of the last billing until
the termination of the contract.60 What was admitted as
accomplishment at the last billing is 93.18%. For this reason, even if
we adopt the rule that no liquidated damages shall run after the
date of substantial completion of the project, Werr cannot claim
benefit for it failed to meet the condition precedent, i.e.,  the
contractor has successfully proven that it actually achieved 95%
completion rate.
More importantly, Werr failed to show that it is the construction
industry's practice to project the date of substantial completion of a
project, and to compute the period of delay based on the rate in
past progress billings just as what the CIAC has done. Consequently,
the CIAC erred when it assumed that Werr continued to perform
works, and if it did, that it performed them at the rate of
accomplishment of the previous works in the absence of evidence.
That the effects of substantial completion will only apply
when actual  substantial completion is reached is apparent when we
consider the reason behind the rules on substantial completion of
the project found in Section 20.1l[E] of the CIAP Document No. 102,
viz.:
E. The purpose of this Article [ART. 20, WORK; 20.11: SUBSTANTIAL
COMPLETION AND ITS EFFECT] is to ensure that the Contractor is
paid for Work completed and for the Owner to retain such portion
of the Contract Price which, together with the Performance Bond, is
sufficient to complete the Work without additional cost to the
Owner.
The rules are intended to balance the allocation and burden of costs
between the contractor and the project owner so that the
contractor still achieves a return for its completed work, and the
project owner will not incur further costs. To compute the period of
delay when substantial compliance is not yet achieved but merely
on the assumption that it will eventually be achieved would result in
an iniquitous situation where the project owner will bear the risks
and additional costs for the period excused from liquidated
damages.
From the foregoing, we affirm the CA' s conclusion that the period
of delay in computing liquidated damages should be reckoned from
October 27, 2006 until the termination of the contract or for 33
days, and not only until the projected substantial completion date.
Consistent with the CA's ruling that liquidated damages did not
exceed the retention money, we therefore affirm that HPI did not
suffer actual damages in the amount of ₱573,012.81.
III. Arbitration Costs, Attorney's Fees, and Litigation Costs
Courts are allowed to adjudge which party may bear the cost of the
suit depending on the circumstances of the case.61 Considering the
CA's findings that both parties were able to recover their claims, and
neither was guilty of bad faith, we do not find that the CA erred in
dividing the arbitration costs between the parties.
We also do not find the need to disturb the findings as to attorney's
fees and expenses of litigation, both the CIAC and the CA having
found that there is no basis for the award of attorney's fees and
litigation expenses.62
WHEREFORE, the petitions are DENIED. The Court of Appeals'
February 9, 2009 Decision and April 16, 2009 Resolution
are AFFIRMED. The net award in favor of Werr Corporation
International shall earn interest at the rate of 6% per annum  from
date of demand on October 3, 2007 until finality of this Decision.
Thereafter, the total amount shall earn interest from finality of this
Decision until fully paid.
SO ORDERED.
G.R. No. 86150 March 2, 1992
GUZMAN, BOCALING & CO., petitioner,
vs.
RAOUL S. V. BONNEVIE, respondent.
E. Voltaire Garcia for petitioner.
Guinto Law Office for private respondent.
CRUZ, J.:
The subject of the controversy is a parcel of land measuring six
hundred (600) square meters, more or less, with two buildings
constructed thereon, belonging to the Intestate Estate of Jose L.
Reynoso.
This property was leased to Raoul S. Bonnevie and Christopher
Bonnevie by the administratrix, Africa Valdez de Reynoso, for a
period of one year beginning August 8, 1976, at a monthly rental of
P4,000.00.
The Contract of lease contained the following stipulation:
20. — In case the LESSOR desire or decides to sell the lease
property, the LESSEES shall be given a first priority to purchase the
same, all things and considerations being equal.
On November 3, 1976 according to Reynoso, she notified the
private respondents by registered mail that she was selling the
leased premises for P600.000.00 less a mortgage loan of
P100,000.00, and was giving them 30 days from receipt of the letter
within which to exercise their right of first priority to purchase the
subject property. She said that in the event that they did not
exercise the said right, she would expect them to vacate the
property not later then March, 1977.
On January 20, 1977, Reynoso sent another letter to private
respondents advising them that in view of their failure to exercise
their right of first priority, she had already sold the property.
Upon receipt of this letter, the private respondents wrote Reynoso
informing her that neither of them had received her letter dated
November 3, 1976; that they had advised her agent to inform them
officially should she decide to sell the property so negotiations could
be initiated; and that they were "constrained to refuse (her) request
for the termination of the lease.
On March 7, 1977, the leased premises were formally sold to
petitioner Guzman, Bocaling & Co. The Contract of Sale provided for
immediate payment of P137,500.00 on the purchase price, the
balance of P262,500.00 to be paid only when the premises were
vacated.
On April 12, 1977, Reynoso wrote a letter to the private
respondents demanding that they vacate the premises within 15
days for their failure to pay the rentals for four months. When they
refuse, Reynoso filed a complaint for ejectment against them which
was docketed as Civil Case No. 043851-CV in the then City Court of
Manila.
On September 25, 1979, the parties submitted a Compromise
Agreement, which provided inter alia  that "the defendant Raoul
S.V. Bonnevie shall vacate the premises subject of the Lease
Contract, Voluntarily and Peacefully not later than October 31,
1979."
This agreement was approved by the City Court and became the
basis of its decision. However, as the private respondents failed to
comply with the above-qouted stipulation, Reynoso filed a motion
for execution of the judgment by compromise, which was granted
on November 8, 1979.
On November 12, 1979, private respondent Raoul S. Bonnevie filed
a motion to set aside the decision of the City Court as well as the
Compromise Agreement on the sole ground that Reynoso had not
delivered to him the "records of payments and receipts of all rentals
by or for the account of defendant ..." The motion was denied and
the case was elevated to the then Court of First Instance. That Court
remanded the case to the City Court of Manila for trial on the merits
after both parties had agreed to set aside the Compromise
Agreement.
On April 29, 1980, while the ejectment case was pending in the City
Court, the private respondents filed an action for annulment of the
sale between Reynoso and herein petitioner Guzman, Bocaling &
Co. and cancellation of the transfer certificate of title in the name of
the latter. They also asked that Reynoso be required to sell the
property to them under the same terms ands conditions agreed
upon in the Contract of Sale in favor of the petitioner This complaint
was docketed as Civil Case No. 131461 in the then Court of First
Instance of Manila.
On May 5, 1980, the City Court decided the ejectment case,
disposing as follows:
WHEREFORE, judgment is hereby rendered ordering defendants and
all persons holding under them to vacate the premises at No. 658
Gen. Malvar Street, Malate, Manila, subject of this action, and
deliver possession thereof to the plaintiff, and to pay to the latter;
(1) The sum of P4,000.00 a month from April 1, 1977 to August 8,
1977; (2) The sum of P7,000.00 a month, as reasonable
compensation for the continued unlawful use and occupation of
said premises, from August 9, 1977 and every month thereafter
until defendants actually vacate and deliver possession thereof to
the plaintiff; (3) The sum of P1,000.00 as and for attorney's fees;
and (4) The costs of suit.
The decision was appealed to the then Court of First Instance of
Manila, docketed as Civil Case No. 132634 and consolidated with
Civil Case No. 131461. In due time, Judge Tomas P. Maddela, Jr.,
decided the two cases as follows:
WHEREFORE, premises considered, this Court in Civil Case No.
132634 hereby modifies the decision of the lower court as follows:
1 Ordering defendants Raoul S.V. Bonnevie and Christopher
Bonnevie and all persons holding under them to vacate the
premises at No. 658 Gen. Malvar St., Malate, Manila subject of this
action and deliver possessions thereof to the plaintiff; and
2 To pay the latter the sum of P4,000.00 a month from April 1, 1977
up to September 21, 1980 (when possession of the premises was
turned over to the Sheriff) after deducting whatever payments were
made and accepted by Mrs. Africa Valdez Vda. de Reynoso during
said period, without pronouncement as to costs.
As to Civil Case No. 131461, the Court hereby renders judgment in
favor of the plaintiff Raoul Bonnevie as against the defendants
Africa Valdez Vda. de Reynoso and Guzman and Bocaling & Co.
declaring the deed of sale with mortgage executed by defendant
Africa Valdez Vda. de Reynoso in favor of defendant Guzman and
Bocaling null and void; cancelling the Certificate of Title No. 125914
issued by the Register of Deeds of Manila in the name of Guzman
and Bocaling & Co.,; the name of Guzman and Bocaling & Co.,;
ordering the defendant Africa Valdez Vda. de Reynoso to execute
favor of the plaintiff Raoul Bonnevie a deed of sale with mortgage
over the property leased by him in the amount of P400,000.00
under the same terms and conditions should there be any other
occupants or tenants in the premises; ordering the defendants
jointly and severally to pay the plaintiff Raoul Bonnevie the amount
of P50,000.00 as temperate damages; to pay the plaintiff jointly and
severally the of P2,000.00 per month from the time the property
was sold to defendant Guzman and Bocaling by defendant Africa
Valdez Vda de Reynoso on March 7, 1977, up to the execution of a
deed of sale of the property by defendant Africa Valdez Vda. de
Reynoso in favor of plaintiff Bonnevie; to pay jointly and severally
the plaintiff Bonnevie the amount of P20,000.00 as exemplary
damages, for attorney's fees in the amount of P10,000.00, and to
pay the cost of suit.
Both Reynoso and the petitioner company filed with the Court of
Appeals a petition for review of this decision. The appeal was
eventually resolved against them in a decision promulgated on
March 16, 1988, where the respondent court substantially affirmed
the conclusions of the lower court but reduced the award of
damages. 1
Its motion for reconsideration having been denied on December 14,
1986, the petitioner has come to this Court asserting inter alia  that
the respondent court erred in ruling that the grant of first priority to
purchase the subject properties by the judicial administratrix
needed no authority from the probate court; holding that the
Contract of Sale was not voidable but rescissible; considering the
petitioner as a buyer in bad faith ordering Reynoso to execute the
deed of sale in favor of the Bonnevie; and not passing upon the
counterclaim. Reynoso has not appealed.
The Court has examined the petitioner's contentions and finds them
to be untenable.
Reynoso claimed to have sent the November 3, 1976 letter by
registered mail, but the registry return card was not offered in
evidence. What she presented instead was a copy of the said letter
with a photocopy of only the face of a registry return card claimed
to refer to the said letter. A copy of the other side of the card
showing the signature of the person who received the letter and the
data of the receipt was not submitted. There is thus no satisfactory
proof that the letter was received by the Bonnevies.
Even if the letter had indeed been sent to and received by the
private respondent and they did not exercise their right of first
priority, Reynoso would still be guilty of violating Paragraph 20 of
the Contract of Lease which specifically stated that the private
respondents could exercise the right of first priority, "all things and
conditions being equal." The Court reads this mean that there
should be identity of the terms and conditions to be offered to the
Bonnevies and all other prospective buyers, with the Bonnevies to
enjoy the right of first priority.
The selling price qouted to the Bonnevies was P600,000.00, to be
fully paid in cash less only the mortgage lien of P100,000.00. 2 On
the other hand, the selling price offered to and accepted by the
petitioner was only P400,000.00 and only P137,500.00 was paid in
cash while the balance of P272,500.00 was to be paid "when the
property (was) cleared of tenants or occupants. 3
The fact that the Bonnevies had financial problems at that time was
no justification for denying them the first option to buy the subject
property. Even if the Bonnevies could not buy it at the price qouted,
Reynoso could not sell it to another for a lower price and under
more favorable terms and conditions. Only if the Bonnevies failed to
exercise their right of first priority could Reynoso lawfully sell the
subject property to others, and at that only under the same terms
and conditions offered to the Bonnevies.
The Court agrees with the respondent court that it was not
necessary to secure the approval by the probate court of the
Contract of Lease because it did not involve an alienation of real
property of the estate nor did the term of the lease exceed one year
so as top make it fall under Article 1878(8) of the Civil Code. Only if
Paragraph 20 of the Contract of Lease was activated and the said
property was intended to be sold would it be required of the
administratrix to secure the approval of the probate court pursuant
to Rule 89 of the Rules of Court.
As a strict legal proposition, no judgment of the probate court was
reviewed and eventually annuled collaterally by the respondent
court as contended by the petitioner. The order authorizing the sale
in its favor was duly issued by the probate court, which thereafter
approved the Contract of Sale resulting in the eventual issuance if
title in favor of the petitioner. That order was valid insofar as it
recognized the existence of all the essential elements of a valid
contract of sale, but without regard to the special provision in the
Contract of Lease giving another party the right of first priority.
Even if the order of the probate court was valid, the private
respondents still had a right to rescind the Contract of Sale because
of the failure of Reynoso to comply with her duty to give them the
first opportunity to purchase the subject property.
The petitioner argues that assuming the Contract of Sale to be
voidable, only the parties thereto could bring an action to annul it
pursuant to Article 1397 of the Civil Code. It is stressed that private
respondents are strangers to the agreement and therefore have no
personality to seek its annulment.
The respondent court correctly held that the Contract of Sale was
not voidable rescissible. Under Article 1380 to 1381 (3) of the Civil
Code, a contract otherwise valid may nonetheless be subsequently
rescinded by reason of injury to third persons, like creditors. The
status of creditors could be validly accorded the Bonnevies for they
had substantial interests that were prejudiced by the sale of the
subject property to the petitioner without recognizing their right of
first priority under the Contract of Lease.
According to Tolentino, rescission is a remedy granted by law to the
contracting parties and even to third persons, to secure reparation
for damages caused to them by a contract, even if this should be
valid, by means of the restoration of things to their condition at the
moment prior to the celebration of said contract. 4 It is a relief
allowed for the protection of one of the contracting parties and
even third persons from all injury and damage the contract may
cause, or to protect some incompatible and preferent right created
by the contract. 5 Recission implies a contract which, even if initially
valid, produces a lesion or pecuniary damage to someone that
justifies its invalidation for reasons of equity. 6
It is true that the acquisition by a third person of the property
subject of the contract is an obstacle to the action for its rescission
where it is shown that such third person is in lawful possession of
the subject of the contract and that he did not act in bad
faith. 7 However, this rule is not applicable in the case before us
because the petitioner is not considered a third party in relation to
the Contract of Sale nor may its possession of the subject property
be regarded as acquired lawfully and in good faith.
Indeed, Guzman, Bocaling and Co. was the vendee in the Contract of
Sale. Moreover, the petitioner cannot be deemed a purchaser in
good faith for the record shows that its categorically admitted it was
aware of the lease in favor of the Bonnevies, who were actually
occupying the subject property at the time it was sold to it.
Although the Contract of Lease was not annotated on the transfer
certificate of title in the name of the late Jose Reynoso and Africa
Reynoso, the petitioner cannot deny actual knowledge of such lease
which was equivalent to and indeed more binding than presumed
notice by registration.
A purchaser in good faith and for value is one who buys the
property of another without notice that some other person has a
right to or interest in such property and pays a full and fair price for
the same at the time of such purchase or before he has notice of
the claim or interest of some other person in the property.8 Good
faith connotes an honest intention to abstain from taking
unconscientious advantage of another. 9 Tested by these principles,
the petitioner cannot tenably claim to be a buyer in good faith as it
had notice of the lease of the property by the Bonnevies and such
knowledge should have cautioned it to look deeper into the
agreement to determine if it involved stipulations that would
prejudice its own interests.
The petitioner insists that it was not aware of the right of first
priority granted by the Contract of Lease, Assuming this to be true,
we nevertherless agree with the observation of the respondent
court that:
If Guzman-Bocaling failed to inquire about the terms of the Lease
Contract, which includes Par. 20 on priority right given to the
Bonnevies, it had only itself to blame. Having known that the
property it was buying was under lease, it behooved it as a prudent
person to have required Reynoso or the broker to show to it the
Contract of Lease in which Par. 20 is contained.
Finally, the petitioner also cannot invoke the Compromise
Agreement which it says canceled the right of first priority granted
to the Bonnevies by the Contract of Lease. This agreement was set
side by the parties thereto, resulting in the restoration of the
original rights of the private respondents under the Contract of
Lease. The Joint Motion to Remand filed by Reynoso and the private
respondents clearly declared inter alia:
That without going into the merits of instant petition, the parties
have agreed to SET ASIDE the compromise agreement, dated
September 24, 1979 and remand Civil Case No. 043851 of the City
Court of Manila to Branch IX thereof for trial on the merits. 10
We find, in sum, that the respondent court did not commit the
errors imputed to it by the petitioner. On the contrary, its decision
is conformable to the established facts and the applicable law and
jurisprudence and so must be sustained.
WHEREFORE, the petition in DENIED, with costs against the
petitioner. The challeged decision is AFFIRMED in toto.  It is so
ordered.
G.R. No. 106063 November 21, 1996
EQUATORIAL REALTY DEVELOPMENT, INC. & CARMELO &
BAUERMANN, INC., petitioners,
vs.
MAYFAIR THEATER, INC., respondent.
 
HERMOSISIMA, JR., J.:
Before us is a petition for review of the decision1 of the Court of
Appeals2 involving questions in the resolution of which the
respondent appellate court analyzed and interpreted particular
provisions of our laws on contracts and sales. In its assailed
decision, the respondent court reversed the trial court3 which, in
dismissing the complaint for specific performance with damages
and annulment of contract,4 found the option clause in the lease
contracts entered into by private respondent Mayfair Theater, Inc.
(hereafter, Mayfair) and petitioner Carmelo & Bauermann, Inc.
(hereafter, Carmelo) to be impossible of performance and
unsupported by a consideration and the subsequent sale of the
subject property to petitioner Equatorial Realty Development, Inc.
(hereafter, Equatorial) to have been made without any breach of or
prejudice to, the said lease contracts.5
We reproduce below the facts as narrated by the respondent court,
which narration, we note, is almost verbatim the basis of the
statement of facts as rendered by the petitioners in their pleadings:
Carmelo owned a parcel of land, together with two 2-storey
buildings constructed thereon located at Claro M Recto Avenue,
Manila, and covered by TCT No. 18529 issued in its name by the
Register of Deeds of Manila.
On June 1, 1967 Carmelo entered into a contract of lease with
Mayfair for the latter's lease of a portion of Carmelo's property
particularly described, to wit:
A PORTION OF THE SECOND FLOOR of the two-storey building,
situated at C.M. Recto Avenue, Manila, with a floor area of 1,610
square meters.
THE SECOND FLOOR AND MEZZANINE of the two-storey building,
situated at C.M. Recto Avenue, Manila, with a floor area of 150
square meters.
for use by Mayfair as a motion picture theater and for a term of
twenty (20) years. Mayfair thereafter constructed on the leased
property a movie house known as "Maxim Theatre."
Two years later, on March 31, 1969, Mayfair entered into a second
contract of lease with Carmelo for the lease of another portion of
Carmelo's property, to wit:
A PORTION OF THE SECOND FLOOR of the two-storey building,
situated at C.M. Recto Avenue, Manila, with a floor area of 1,064
square meters.
THE TWO (2) STORE SPACES AT THE GROUND FLOOR and
MEZZANINE of the two-storey building situated at C.M. Recto
Avenue, Manila, with a floor area of 300 square meters and bearing
street numbers 1871 and 1875,
for similar use as a movie theater and for a similar term of twenty
(20) years. Mayfair put up another movie house known as "Miramar
Theatre" on this leased property.
Both contracts of lease provides (sic) identically worded paragraph
8, which reads:
That if the LESSOR should desire to sell the leased premises, the
LESSEE shall be given 30-days exclusive option to purchase the
same.
In the event, however, that the leased premises is sold to someone
other than the LESSEE, the LESSOR is bound and obligated, as it
hereby binds and obligates itself, to stipulate in the Deed of Sale
hereof that the purchaser shall recognize this lease and be bound by
all the terms and conditions thereof.
Sometime in August 1974, Mr. Henry Pascal of Carmelo informed
Mr. Henry Yang, President of Mayfair, through a telephone
conversation that Carmelo was desirous of selling the entire Claro
M. Recto property. Mr. Pascal told Mr. Yang that a certain Jose
Araneta was offering to buy the whole property for US Dollars
1,200,000, and Mr. Pascal asked Mr. Yang if the latter was willing to
buy the property for Six to Seven Million Pesos.
Mr. Yang replied that he would let Mr. Pascal know of his decision.
On August 23, 1974, Mayfair replied through a letter stating as
follows:
It appears that on August 19, 1974 your Mr. Henry Pascal informed
our client's Mr. Henry Yang through the telephone that your
company desires to sell your above-mentioned C.M. Recto Avenue
property.
Under your company's two lease contracts with our client, it is
uniformly provided:
8. That if the LESSOR should desire to sell the leased premises the
LESSEE shall be given 30-days exclusive option to purchase the
same. In the event, however, that the leased premises is sold to
someone other than the LESSEE, the LESSOR is bound and obligated,
as it is (sic) herebinds (sic) and obligates itself, to stipulate in the
Deed of Sale thereof that the purchaser shall recognize this lease
and be bound by all the terms and conditions hereof (sic).
Carmelo did not reply to this letter.
On September 18, 1974, Mayfair sent another letter to Carmelo
purporting to express interest in acquiring not only the leased
premises but "the entire building and other improvements if the
price is reasonable. However, both Carmelo and Equatorial
questioned the authenticity of the second letter.
Four years later, on July 30, 1978, Carmelo sold its entire C.M. Recto
Avenue land and building, which included the leased premises
housing the "Maxim" and "Miramar" theatres, to Equatorial by
virtue of a Deed of Absolute Sale, for the total sum of
P11,300,000.00.
In September 1978, Mayfair instituted the action a quo for specific
performance and annulment of the sale of the leased premises to
Equatorial. In its Answer, Carmelo alleged as special and affirmative
defense (a) that it had informed Mayfair of its desire to sell the
entire C.M. Recto Avenue property and offered the same to
Mayfair, but the latter answered that it was interested only in
buying the areas under lease, which was impossible since the
property was not a condominium; and (b) that the option to
purchase invoked by Mayfair is null and void for lack of
consideration. Equatorial, in its Answer, pleaded as special and
affirmative defense that the option is void for lack of consideration
(sic) and is unenforceable by reason of its impossibility of
performance because the leased premises could not be sold
separately from the other portions of the land and building. It
counterclaimed for cancellation of the contracts of lease, and for
increase of rentals in view of alleged supervening extraordinary
devaluation of the currency. Equatorial likewise cross-claimed
against co-defendant Carmelo for indemnification in respect of
Mayfair's claims.
During the pre-trial conference held on January 23, 1979, the
parties stipulated on the following:
1. That there was a deed of sale of the contested premises by the
defendant Carmelo . . . in favor of defendant Equatorial . . .;
2. That in both contracts of lease there appear (sic) the stipulation
granting the plaintiff exclusive option to purchase the leased
premises should the lessor desire to sell the same (admitted subject
to the contention that the stipulation is null and void);
3. That the two buildings erected on this land are not of the
condominium plan;
4. That the amounts stipulated and mentioned in paragraphs 3 (a)
and (b) of the contracts of lease constitute the consideration for the
plaintiff's occupancy of the leased premises, subject of the same
contracts of lease, Exhibits A and B;
xxx xxx xxx
6. That there was no consideration specified in the option to buy
embodied in the contract;
7. That Carmelo & Bauermann owned the land and the two
buildings erected thereon;
8. That the leased premises constitute only the portions actually
occupied by the theaters; and
9. That what was sold by Carmelo & Bauermann to defendant
Equatorial Realty is the land and the two buildings erected thereon.
xxx xxx xxx
After assessing the evidence, the court a quo rendered the appealed
decision, the decretal portion of which reads as follows:
WHEREFORE, judgment is hereby rendered:
(1) Dismissing the complaint with costs against the plaintiff;
(2) Ordering plaintiff to pay defendant Carmelo & Bauermann
P40,000.00 by way of attorney's fees on its counterclaim;
(3) Ordering plaintiff to pay defendant Equatorial Realty P35,000.00
per month as reasonable compensation for the use of areas not
covered by the contract (sic) of lease from July 31, 1979 until
plaintiff vacates said area (sic) plus legal interest from July 31, 1978;
P70,000 00 per month as reasonable compensation for the use of
the premises covered by the contracts (sic) of lease dated (June 1,
1967 from June 1, 1987 until plaintiff vacates the premises plus legal
interest from June 1, 1987; P55,000.00 per month as reasonable
compensation for the use of the premises covered by the contract
of lease dated March 31, 1969 from March 30, 1989 until plaintiff
vacates the premises plus legal interest from March 30, 1989; and
P40,000.00 as attorney's fees;
(4) Dismissing defendant Equatorial's crossclaim against defendant
Carmelo & Bauermann.
The contracts of lease dated June 1, 1967 and March 31, 1969 are
declared expired and all persons claiming rights under these
contracts are directed to vacate the premises.6
The trial court adjudged the identically worded paragraph 8 found
in both aforecited lease contracts to be an option clause which
however cannot be deemed to be binding on Carmelo because of
lack of distinct consideration therefor.
The court a quo  ratiocinated:
Significantly, during the pre-trial, it was admitted by the parties that
the option in the contract of lease is not supported by a separate
consideration. Without a consideration, the option is therefore not
binding on defendant Carmelo & Bauermann to sell the C.M. Recto
property to the former. The option invoked by the plaintiff appears
in the contracts of lease . . . in effect there is no option, on the
ground that there is no consideration. Article 1352 of the Civil Code,
provides:
Contracts without cause or with unlawful cause, produce no effect
whatever. The cause is unlawful if it is contrary to law, morals, good
custom, public order or public policy.
Contracts therefore without consideration produce no effect
whatsoever. Article 1324 provides:
When the offeror has allowed the offeree a certain period to accept,
the offer may be withdrawn at any time before acceptance by
communicating such withdrawal, except when the option is
founded upon consideration, as something paid or promised.
in relation with Article 1479 of the same Code:
A promise to buy and sell a determine thing for a price certain is
reciprocally demandable.
An accepted unilateral promise to buy or to sell a determine thing
for a price certain is binding upon the promissor if the promise is
supported by a consideration distinct from the price.
The plaintiff cannot compel defendant Carmelo to comply with the
promise unless the former establishes the existence of a distinct
consideration. In other words, the promisee has the burden of
proving the consideration. The consideration cannot be presumed
as in Article 1354:
Although the cause is not stated in the contract, it is presumed that
it exists and is lawful unless the debtor proves the contrary.
where consideration is legally presumed to exists. Article 1354
applies to contracts in general, whereas when it comes to an option
it is governed particularly and more specifically by Article 1479
whereby the promisee has the burden of proving the existence of
consideration distinct from the price. Thus, in the case of Sanchez
vs. Rigor, 45 SCRA 368, 372-373, the Court said:
(1) Article 1354 applies to contracts in general, whereas the second
paragraph of Article 1479 refers to sales in particular, and, more
specifically, to an accepted unilateral promise to buy or to sell. In
other words, Article 1479 is controlling in the case at bar.
(2) In order that said unilateral promise may be binding upon the
promissor, Article 1479 requires the concurrence of a condition,
namely, that the promise be supported by a consideration distinct
from the price.
Accordingly, the promisee cannot compel the promissor to comply
with the promise, unless the former establishes the existence of
said distinct consideration. In other words, the promisee has the
burden of proving such consideration. Plaintiff herein has not even
alleged the existence thereof in his complaint. 7
It follows that plaintiff cannot compel defendant Carmelo &
Bauermann to sell the C.M. Recto property to the former.
Mayfair taking exception to the decision of the trial court, the
battleground shifted to the respondent Court of Appeals.
Respondent appellate court reversed the court a quo  and rendered
judgment:
1. Reversing and setting aside the appealed Decision;
2. Directing the plaintiff-appellant Mayfair Theater Inc. to pay and
return to Equatorial the amount of P11,300,000.00 within fifteen
(15) days from notice of this Decision, and ordering Equatorial
Realty Development, Inc. to accept such payment;
3. Upon payment of the sum of P11,300,000, directing Equatorial
Realty Development, Inc. to execute the deeds and documents
necessary for the issuance and transfer of ownership to Mayfair of
the lot registered under TCT Nos. 17350, 118612, 60936, and 52571;
and
4. Should plaintiff-appellant Mayfair Theater, Inc. be unable to pay
the amount as adjudged, declaring the Deed of Absolute Sale
between the defendants-appellants Carmelo & Bauermann, Inc. and
Equatorial Realty Development, Inc. as valid and binding upon all
the parties.8
Rereading the law on the matter of sales and option contracts,
respondent Court of Appeals differentiated between Article 1324
and Article 1479 of the Civil Code, analyzed their application to the
facts of this case, and concluded that since paragraph 8 of the two
lease contracts does not state a fixed price for the purchase of the
leased premises, which is an essential element for a contract of sale
to be perfected, what paragraph 8 is, must be a right of first refusal
and not an option contract. It explicated:
Firstly, the court a quo  misapplied the provisions of Articles 1324
and 1479, second paragraph, of the Civil Code.
Article 1324 speaks of an "offer" made by an offeror which the
offeree may or may not accept within a certain period. Under this
article, the offer may be withdrawn by the offeror before the
expiration of the period and while the offeree has not yet accepted
the offer. However, the offer cannot be withdrawn by the offeror
within the period if a consideration has been promised or given by
the offeree in exchange for the privilege of being given that period
within which to accept the offer. The consideration is distinct from
the price which is part of the offer. The contract that arises is known
as option. In the case of Beaumont vs. Prieto, 41 Phil. 670, the
Supreme court, citing Bouvier, defined an option as follows: "A
contract by virtue of which A, in consideration of the payment of a
certain sum to B, acquires the privilege of buying from or selling to
B, certain securities or properties within a limited time at a specified
price," (pp. 686-7).
Article 1479, second paragraph, on the other hand, contemplates of
an "accepted unilateral promise to buy or to sell a determinate
thing for a price within (which) is binding upon the promisee if the
promise is supported by a consideration distinct from the price."
That "unilateral promise to buy or to sell a determinate thing for a
price certain" is called an offer. An "offer", in laws, is a proposal to
enter into a contract (Rosenstock vs. Burke, 46 Phil. 217). To
constitute a legal offer, the proposal must be certain as to the
object, the price and other essential terms of the contract (Art.
1319, Civil Code).
Based on the foregoing discussion, it is evident that the provision
granting Mayfair "30-days exclusive option to purchase" the leased
premises is NOT AN OPTION in the context of Arts. 1324 and 1479,
second paragraph, of the Civil Code. Although the provision is
certain as to the object (the sale of the leased premises) the price
for which the object is to be sold is not stated in the provision
Otherwise stated, the questioned stipulation is not by itself, an
"option" or the "offer to sell" because the clause does not specify
the price for the subject property.
Although the provision giving Mayfair "30-days exclusive option to
purchase" cannot be legally categorized as an option, it is,
nevertheless, a valid and binding stipulation. What the trial court
failed to appreciate was the intention of the parties behind the
questioned proviso.
xxx xxx xxx
The provision in question is not of the pro-forma type customarily
found in a contract of lease. Even appellees have recognized that
the stipulation was incorporated in the two Contracts of Lease at
the initiative and behest of Mayfair. Evidently, the stipulation was
intended to benefit and protect Mayfair in its rights as lessee in case
Carmelo should decide, during the term of the lease, to sell the
leased property. This intention of the parties is achieved in two
ways in accordance with the stipulation. The first is by giving
Mayfair "30-days exclusive option to purchase" the leased property.
The second is, in case Mayfair would opt not to purchase the leased
property, "that the purchaser (the new owner of the leased
property) shall recognize the lease and be bound by all the terms
and conditions thereof."
In other words, paragraph 8 of the two Contracts of lease,
particularly the stipulation giving Mayfair "30-days exclusive option
to purchase the (leased premises)," was meant to provide Mayfair
the opportunity to purchase and acquire the leased property in the
event that Carmelo should decide to dispose of the property. In
order to realize this intention, the implicit obligation of Carmelo
once it had decided to sell the leased property, was not only to
notify Mayfair of such decision to sell the property, but, more
importantly, to make an offer to sell the leased premises to Mayfair,
giving the latter a fair and reasonable opportunity to accept or
reject the offer, before offering to sell or selling the leased property
to third parties. The right vested in Mayfair is analogous to the right
of first refusal, which means that Carmelo should have offered the
sale of the leased premises to Mayfair before offering it to other
parties, or, if Carmelo should receive any offer from third parties to
purchase the leased premises, then Carmelo must first give Mayfair
the opportunity to match that offer.
In fact, Mr. Pascal understood the provision as giving Mayfair a right
of first refusal when he made the telephone call to Mr. Yang in
1974. Mr. Pascal thus testified:
Q Can you tell this Honorable Court how you made the offer to Mr.
Henry Yang by telephone?
A I have an offer from another party to buy the property and having
the offer we decided to make an offer to Henry Yang on a first-
refusal basis. (TSN November 8, 1983, p. 12.).
and on cross-examination:
Q When you called Mr. Yang on August 1974 can you remember
exactly what you have told him in connection with that matter, Mr.
Pascal?
A More or less, I told him that I received an offer from another party
to buy the property and I was offering him first choice of the enter
property. (TSN, November 29, 1983, p. 18).
We rule, therefore, that the foregoing interpretation best renders
effectual the intention of the parties.9
Besides the ruling that paragraph 8 vests in Mayfair the right of first
refusal as to which the requirement of distinct consideration
indispensable in an option contract, has no application, respondent
appellate court also addressed the claim of Carmelo and Equatorial
that assuming arguendo  that the option is valid and effective, it is
impossible of performance because it covered only the leased
premises and not the entire Claro M. Recto property, while
Carmelo's offer to sell pertained to the entire property in question.
The Court of Appeals ruled as to this issue in this wise:
We are not persuaded by the contentions of the defendants-
appellees. It is to be noted that the Deed of Absolute Sale between
Carmelo and Equatorial covering the whole Claro M. Recto
property, made reference to four titles: TCT Nos. 17350, 118612,
60936 and 52571. Based on the information submitted by Mayfair in
its appellant's Brief (pp. 5 and 46) which has not been controverted
by the appellees, and which We, therefore, take judicial notice of
the two theaters stand on the parcels of land covered by TCT No.
17350 with an area of 622.10 sq. m and TCT No. 118612 with an
area of 2,100.10 sq. m. The existence of four separate parcels of
land covering the whole Recto property demonstrates the legal and
physical possibility that each parcel of land, together with the
buildings and improvements thereof, could have been sold
independently of the other parcels.
At the time both parties executed the contracts, they were aware of
the physical and structural conditions of the buildings on which the
theaters were to be constructed in relation to the remainder of the
whole Recto property. The peculiar language of the stipulation
would tend to limit Mayfair's right under paragraph 8 of the
Contract of Lease to the acquisition of the leased areas only. Indeed,
what is being contemplated by the questioned stipulation is a
departure from the customary situation wherein the buildings and
improvements are included in and form part of the sale of the
subjacent land. Although this situation is not common, especially
considering the non-condominium nature of the buildings, the sale
would be valid and capable of being performed. A sale limited to the
leased premises only, if hypothetically assumed, would have
brought into operation the provisions of co-ownership under which
Mayfair would have become the exclusive owner of the leased
premises and at the same time a co-owner with Carmelo of the
subjacent land in proportion to Mayfair's interest over the premises
sold to it.10
Carmelo and Equatorial now comes before us questioning the
correctness and legal basis for the decision of respondent Court of
Appeals on the basis of the following assigned errors:
I
THE COURT OF APPEALS GRAVELY ERRED IN CONCLUDING THAT
THE OPTION CLAUSE IN THE CONTRACTS OF LEASE IS ACTUALLY A
RIGHT OF FIRST REFUSAL PROVISO. IN DOING SO THE COURT OF
APPEALS DISREGARDED THE CONTRACTS OF LEASE WHICH CLEARLY
AND UNEQUIVOCALLY PROVIDE FOR AN OPTION, AND THE
ADMISSION OF THE PARTIES OF SUCH OPTION IN THEIR
STIPULATION OF FACTS.
II
WHETHER AN OPTION OR RIGHT OF FIRST REFUSAL, THE COURT OF
APPEALS ERRED IN DIRECTING EQUATORIAL TO EXECUTE A DEED OF
SALE EIGHTEEN (18) YEARS AFTER MAYFAIR FAILED TO EXERCISE ITS
OPTION (OR, EVEN ITS RIGHT OF FIRST REFUSAL ASSUMING IT WAS
ONE) WHEN THE CONTRACTS LIMITED THE EXERCISE OF SUCH
OPTION TO 30 DAYS FROM NOTICE.
III
THE COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT DIRECTED
IMPLEMENTATION OF ITS DECISION EVEN BEFORE ITS FINALITY,
AND WHEN IT GRANTED MAYFAIR A RELIEF THAT WAS NOT EVEN
PRAYED FOR IN THE COMPLAINT.
IV
THE COURT OF APPEALS VIOLATED ITS OWN INTERNAL RULES IN
THE ASSIGNMENT OF APPEALED CASES WHEN IT ALLOWED THE
SAME DIVISION XII, PARTICULARLY JUSTICE MANUEL HERRERA, TO
RESOLVE ALL THE MOTIONS IN THE "COMPLETION PROCESS" AND
TO STILL RESOLVE THE MERITS OF THE CASE IN THE "DECISION
STAGE".11
We shall first dispose of the fourth assigned error respecting alleged
irregularities in the raffle of this case in the Court of Appeals. Suffice
it to say that in our Resolution,12 dated December 9, 1992, we
already took note of this matter and set out the proper applicable
procedure to be the following:
On September 20, 1992, counsel for petitioner Equatorial Realty
Development, Inc. wrote a letter-complaint to this Court alleging
certain irregularities and infractions committed by certain lawyers,
and Justices of the Court of Appeals and of this Court in connection
with case CA-G.R. CV No. 32918 (now G.R. No. 106063). This
partakes of the nature of an administrative complaint for
misconduct against members of the judiciary. While the letter-
complaint arose as an incident in case CA-G.R. CV No. 32918 (now
G.R. No. 106063), the disposition thereof should be separate and
independent from Case G.R. No. 106063. However, for purposes of
receiving the requisite pleadings necessary in disposing of the
administrative complaint, this Division shall continue to have
control of the case. Upon completion thereof, the same shall be
referred to the Court En Banc for proper disposition.13
This court having ruled the procedural irregularities raised in the
fourth assigned error of Carmelo and Equatorial, to be an
independent and separate subject for an administrative complaint
based on misconduct by the lawyers and justices implicated therein,
it is the correct, prudent and consistent course of action not to pre-
empt the administrative proceedings to be undertaken respecting
the said irregularities. Certainly, a discussion thereupon by us in this
case would entail a finding on the merits as to the real nature of the
questioned procedures and the true intentions and motives of the
players therein.
In essence, our task is two-fold: (1) to define the true nature, scope
and efficacy of paragraph 8 stipulated in the two contracts of lease
between Carmelo and Mayfair in the face of conflicting findings by
the trial court and the Court of Appeals; and (2) to determine the
rights and obligations of Carmelo and Mayfair, as well as Equatorial,
in the aftermath of the sale by Carmelo of the entire Claro M. Recto
property to Equatorial.
Both contracts of lease in question provide the identically worded
paragraph 8, which reads:
That if the LESSOR should desire to sell the leased premises, the
LESSEE shall be given 30-days exclusive option to purchase the
same.
In the event, however, that the leased premises is sold to someone
other than the LESSEE, the LESSOR is bound and obligated, as it
hereby binds and obligates itself, to stipulate in the Deed of Sale
thereof that the purchaser shall recognize this lease and be bound
by all the terms and conditions thereof.14
We agree with the respondent Court of Appeals that the aforecited
contractual stipulation provides for a right of first refusal in favor of
Mayfair. It is not an option clause or an option contract. It is a
contract of a right of first refusal.
As early as 1916, in the case of Beaumont vs. Prieto,15 unequivocal
was our characterization of an option contract as one necessarily
involving the choice granted to another for a distinct and separate
consideration as to whether or not to purchase a determinate thing
at a predetermined fixed price.
It is unquestionable that, by means of the document Exhibit E, to
wit, the letter of December 4, 1911, quoted at the beginning of this
decision, the defendant Valdes granted to the plaintiff Borck the
right to purchase the Nagtajan Hacienda belonging to Benito
Legarda, during the period of three months and for its assessed
valuation, a grant which necessarily implied the offer or obligation
on the part of the defendant Valdes to sell to Borck the said
hacienda during the period and for the price mentioned . . . There
was, therefore, a meeting of minds on the part of the one and the
other, with regard to the stipulations made in the said document.
But it is not shown that there was any cause or consideration for
that agreement, and this omission is a bar which precludes our
holding that the stipulations contained in Exhibit E is a contract of
option, for, . . . there can be no contract without the requisite,
among others, of the cause for the obligation to be established.
In his Law Dictionary, edition of 1897, Bouvier defines an option as a
contract, in the following language:
A contract by virtue of which A, in consideration of the payment of
a certain sum to B, acquires the privilege of buying from, or selling
to B, certain securities or properties within a limited time at a
specified price. (Story vs. Salamon, 71 N.Y., 420.)
From vol. 6, page 5001, of the work "Words and Phrases," citing the
case of Ide vs. Leiser (24 Pac., 695; 10 Mont., 5; 24 Am. St. Rep., 17)
the following quotation has been taken:
An agreement in writing to give a person the option to purchase
lands within a given time at a named price is neither a sale nor an
agreement to sell. It is simply a contract by which the owner of
property agrees with another person that he shall have the right to
buy his property at a fixed price within a certain time. He does not
sell his land; he does not then agree to sell it; but he does sell
something; that is, the right or privilege to buy at the election or
option of the other party. The second party gets in praesenti, not
lands, nor an agreement that he shall have lands, but he does get
something of value; that is, the right to call for and receive lands if
he elects. The owner parts with his right to sell his lands, except to
the second party, for a limited period. The second party receives
this right, or, rather, from his point of view, he receives the right to
elect to buy.
But the two definitions above cited refer to the contract of option,
or, what amounts to the same thing, to the case where there was
cause or consideration for the obligation, the subject of the
agreement made by the parties; while in the case at bar there was
no such cause or consideration. 16 (Emphasis ours.)
The rule so early established in this jurisdiction is that the deed of
option or the option clause in a contract, in order to be valid and
enforceable, must, among other things, indicate the definite price at
which the person granting the option, is willing to sell.
Notably, in one case we held that the lessee loses his right to buy
the leased property for a named price per square meter upon
failure to make the purchase within the time specified;17 in one
other case we freed the landowner from her promise to sell her
land if the prospective buyer could raise P4,500.00 in three weeks
because such option was not supported by a distinct
consideration;18 in the same vein in yet one other case, we also
invalidated an instrument entitled, "Option to Purchase" a parcel of
land for the sum of P1,510.00 because of lack of
consideration;19 and as an exception to the doctrine enumerated in
the two preceding cases, in another case, we ruled that the option
to buy the leased premises for P12,000.00 as stipulated in the lease
contract, is not without consideration for in reciprocal contracts,
like lease, the obligation or promise of each party is the
consideration for that of the other. 20 In all these cases, the selling
price of the object thereof is always predetermined and specified in
the option clause in the contract or in the separate deed of option.
We elucidated, thus, in the very recent case of Ang Yu Asuncion
vs. Court of Appeals21 that:
. . . In sales, particularly, to which the topic for discussion about the
case at bench belongs, the contract is perfected when a person,
called the seller, obligates himself, for a price certain, to deliver and
to transfer ownership of a thing or right to another, called the
buyer, over which the latter agrees. Article 1458 of the Civil Code
provides:
Art. 1458. By the contract of sale one of the contracting parties
obligates himself to transfer the ownership of and to deliver a
determinate thing, and the other to pay therefor a price certain in
money or its equivalent.
A contract of sale may be absolute or conditional.
When the sale is not absolute but conditional, such as in a "Contract
to Sell" where invariably the ownership of the thing sold in retained
until the fulfillment of a positive suspensive condition (normally, the
full payment of the purchase price), the breach of the condition will
prevent the obligation to convey title from acquiring an obligatory
force. . . .
An unconditional mutual promise to buy and sell, as long as the
object is made determinate and the price is fixed, can be obligatory
on the parties, and compliance therewith may accordingly be
exacted.
An accepted unilateral promise which specifies the thing to be sold
and the price to be paid, when coupled with a valuable
consideration distinct and separate from the price, is what may
properly be termed a perfected contract of option. This contract is
legally binding, and in sales, it conforms with the second paragraph
of Article 1479 of the Civil Code, viz:
Art. 1479. . . .
An accepted unilateral promise to buy or to sell a determinate thing
for a price certain is binding upon the promisor if the promise is
supported by a consideration distinct from the price. (1451a).
Observe, however, that the option is not the contract of sale itself.
The optionee has the right, but not the obligation, to buy. Once the
option is exercised timely, i.e., the offer is accepted before a breach
of the option, a bilateral promise to sell and to buy ensues and both
parties are then reciprocally bound to comply with their respective
undertakings.
Let us elucidate a little. A negotiation is formally initiated by an
offer. An imperfect promise (policitacion) is merely an offer. Public
advertisements or solicitations and the like are ordinarily construed
as mere invitations to make offers or only as proposals. These
relations, until a contract is perfected, are not considered binding
commitments. Thus, at any time prior to the perfection of the
contract, either negotiating party may stop the negotiation. The
offer, at this stage, may be withdrawn; the withdrawal is effective
immediately after its manifestation, such as by its mailing and not
necessarily when the offeree learns of the withdrawal (Laudico vs.
Arias, 43 Phil. 270). Where a period is given to the offeree within
which to accept the offer, the following rules generally govern:
(1) If the period is not itself founded upon or supported by a
consideration, the offeror is still free and has the right to withdraw
the offer before its acceptance, or if an acceptance has been made,
before the offeror's coming to know of such fact, by communicating
that withdrawal to the offeree (see Art. 1324, Civil Code; see also
Atkins, Kroll & Co. vs. Cua, 102 Phil. 948, holding that this rule is
applicable to a unilateral promise to sell under Art. 1479, modifying
the previous decision in South Western Sugar vs. Atlantic Gulf, 97
Phil. 249; see also Art. 1319, Civil Code; Rural Bank of Parañaque,
Inc. vs. Remolado, 135 SCRA 409; Sanchez vs. Rigos, 45 SCRA 368).
The right to withdraw, however, must not be exercised whimsically
or arbitrarily; otherwise, it could give rise to a damage claim under
Article 19 of the Civil Code which ordains that "every person must,
in the exercise of his rights and in the performance of his duties, act
with justice, give everyone his due, and observe honesty and good
faith."
(2) If the period has a separate consideration, a contract of "option"
deemed perfected, and it would be a breach of that contract to
withdraw the offer during the agreed period. The option, however,
is an independent contract by itself; and it is to be distinguished
from the projected main agreement (subject matter of the option)
which is obviously yet to be concluded. If, in fact, the optioner-
offeror withdraws the offer before its acceptance (exercise of the
option) by the optionee-offeree, the latter may not sue for specific
performance on the proposed contract ("object" of the option)
since it has failed to reach its own stage of perfection. The optioner-
offeror, however, renders himself liable for damages for breach of
the opinion. . .
In the light of the foregoing disquisition and in view of the wording
of the questioned provision in the two lease contracts involved in
the instant case, we so hold that no option to purchase in
contemplation of the second paragraph of Article 1479 of the Civil
Code, has been granted to Mayfair under the said lease contracts.
Respondent Court of Appeals correctly ruled that the said paragraph
8 grants the right of first refusal to Mayfair and is not an option
contract. It also correctly reasoned that as such, the requirement of
a separate consideration for the option, has no applicability in the
instant case.
There is nothing in the identical Paragraphs "8" of the June 1, 1967
and March 31, 1969 contracts which would bring them into the
ambit of the usual offer or option requiring an independent
consideration.
An option is a contract granting a privilege to buy or sell within an
agreed time and at a determined price. It is a separate and distinct
contract from that which the parties may enter into upon the
consummation of the option. It must be supported by
consideration.22 In the instant case, the right of first refusal is an
integral part of the contracts of lease. The consideration is built into
the reciprocal obligations of the parties.
To rule that a contractual stipulation such as that found in
paragraph 8 of the contracts is governed by Article 1324 on
withdrawal of the offer or Article 1479 on promise to buy and sell
would render in effectual or "inutile" the provisions on right of first
refusal so commonly inserted in leases of real estate nowadays. The
Court of Appeals is correct in stating that Paragraph 8 was
incorporated into the contracts of lease for the benefit of Mayfair
which wanted to be assured that it shall be given the first crack or
the first option to buy the property at the price which Carmelo is
willing to accept. It is not also correct to say that there is no
consideration in an agreement of right of first refusal. The
stipulation is part and parcel of the entire contract of lease. The
consideration for the lease includes the consideration for the right
of first refusal. Thus, Mayfair is in effect stating that it consents to
lease the premises and to pay the price agreed upon provided the
lessor also consents that, should it sell the leased property, then,
Mayfair shall be given the right to match the offered purchase price
and to buy the property at that price. As stated in Vda.  De Quirino
vs.  Palarca,23 in reciprocal contract, the obligation or promise of
each party is the consideration for that of the other.
The respondent Court of Appeals was correct in ascertaining the
true nature of the aforecited paragraph 8 to be that of a contractual
grant of the right of first refusal to Mayfair.
We shall now determine the consequential rights, obligations and
liabilities of Carmelo, Mayfair and Equatorial.
The different facts and circumstances in this case call for an
amplification of the precedent in Ang Yu Asuncion vs. Court of
Appeals.24
First and foremost is that the petitioners acted in bad faith to
render Paragraph 8 "inutile".
What Carmelo and Mayfair agreed to, by executing the two lease
contracts, was that Mayfair will have the right of first refusal in the
event Carmelo sells the leased premises. It is undisputed that
Carmelo did recognize this right of Mayfair, for it informed the latter
of its intention to sell the said property in 1974. There was an
exchange of letters evidencing the offer and counter-offers made by
both parties. Carmelo, however, did not pursue the exercise to its
logical end. While it initially recognized Mayfair's right of first
refusal, Carmelo violated such right when without affording its
negotiations with Mayfair the full process to ripen to at least an
interface of a definite offer and a possible corresponding
acceptance within the "30-day exclusive option" time granted
Mayfair, Carmelo abandoned negotiations, kept a low profile for
some time, and then sold, without prior notice to Mayfair, the
entire Claro M Recto property to Equatorial.
Since Equatorial is a buyer in bad faith, this finding renders the sale
to it of the property in question rescissible. We agree with
respondent Appellate Court that the records bear out the fact that
Equatorial was aware of the lease contracts because its lawyers had,
prior to the sale, studied the said contracts. As such, Equatorial
cannot tenably claim to be a purchaser in good faith, and, therefore,
rescission lies.
. . . Contract of Sale was not voidable but rescissible. Under Article
1380 to 1381(3) of the Civil Code, a contract otherwise valid may
nonetheless be subsequently rescinded by reason of injury to third
persons, like creditors. The status of creditors could be validly
accorded the Bonnevies for they had substantial interests that were
prejudiced by the sale of the subject property to the petitioner
without recognizing their right of first priority under the Contract of
Lease.
According to Tolentino, rescission is a remedy granted by law to the
contracting parties and even to third persons, to secure reparation
for damages caused to them by a contract, even if this should be
valid, by means of the restoration of things to their condition at the
moment prior to the celebration of said contract. It is a relief
allowed for the protection of one of the contracting parties and
even third persons from all injury and damage the contract may
cause, or to protect some incompatible and preferent right created
by the contract. Rescission implies a contract which, even if initially
valid, produces a lesion or pecuniary damage to someone that
justifies its invalidation for reasons of equity.
It is true that the acquisition by a third person of the property
subject of the contract is an obstacle to the action for its rescission
where it is shown that such third person is in lawful possession of
the subject of the contract and that he did not act in bad faith.
However, this rule is not applicable in the case before us because
the petitioner is not considered a third party in relation to the
Contract of Sale nor may its possession of the subject property be
regarded as acquired lawfully and in good faith.
Indeed, Guzman, Bocaling and Co. was the vendee in the Contract
of Sale. Moreover, the petitioner cannot be deemed a purchaser in
good faith for the record shows that it categorically admitted it was
aware of the lease in favor of the Bonnevies, who were actually
occupying the subject property at the time it was sold to it.
Although the Contract of Lease was not annotated on the transfer
certificate of title in the name of the late Jose Reynoso and Africa
Reynoso, the petitioner cannot deny actual knowledge of such lease
which was equivalent to and indeed more binding than presumed
notice by registration.
A purchaser in good faith and for value is one who buys the
property of another without notice that some other person has a
right to or interest in such property and pays a full and fair price for
the same at the time of such purchase or before he has notice of
the claim or interest of some other person in the property. Good
faith connotes an honest intention to abstain from taking
unconscientious advantage of another. Tested by these principles,
the petitioner cannot tenably claim to be a buyer in good faith as it
had notice of the lease of the property by the Bonnevies and such
knowledge should have cautioned it to look deeper into the
agreement to determine if it involved stipulations that would
prejudice its own interests.
The petitioner insists that it was not aware of the right of first
priority granted by the Contract of Lease. Assuming this to be true,
we nevertheless agree with the observation of the respondent court
that:
If Guzman-Bocaling failed to inquire about the terms of the Lease
Contract, which includes Par. 20 on priority right given to the
Bonnevies, it had only itself to blame. Having known that the
property it was buying was under lease, it behooved it as a prudent
person to have required Reynoso or the broker to show to it the
Contract of Lease in which Par. 20 is contained.25
Petitioners assert the alleged impossibility of performance because
the entire property is indivisible property. It was petitioner Carmelo
which fixed the limits of the property it was leasing out. Common
sense and fairness dictate that instead of nullifying the agreement
on that basis, the stipulation should be given effect by including the
indivisible appurtenances in the sale of the dominant portion under
the right of first refusal. A valid and legal contract where the
ascendant or the more important of the two parties is the
landowner should be given effect, if possible, instead of being
nullified on a selfish pretext posited by the owner. Following the
arguments of petitioners and the participation of the owner in the
attempt to strip Mayfair of its rights, the right of first refusal should
include not only the property specified in the contracts of lease but
also the appurtenant portions sold to Equatorial which are claimed
by petitioners to be indivisible. Carmelo acted in bad faith when it
sold the entire property to Equatorial without informing Mayfair, a
clear violation of Mayfair's rights. While there was a series of
exchanges of letters evidencing the offer and counter-offers
between the parties, Carmelo abandoned the negotiations without
giving Mayfair full opportunity to negotiate within the 30-day
period.
Accordingly, even as it recognizes the right of first refusal, this Court
should also order that Mayfair be authorized to exercise its right of
first refusal under the contract to include the entirety of the
indivisible property. The boundaries of the property sold should be
the boundaries of the offer under the right of first refusal. As to the
remedy to enforce Mayfair's right, the Court disagrees to a certain
extent with the concluding part of the dissenting opinion of Justice
Vitug. The doctrine enunciated in Ang Yu Asuncion vs.  Court of
Appeals should be modified, if not amplified under the peculiar
facts of this case.
As also earlier emphasized, the contract of sale between Equatorial
and Carmelo is characterized by bad faith, since it was knowingly
entered into in violation of the rights of and to the prejudice of
Mayfair. In fact, as correctly observed by the Court of Appeals,
Equatorial admitted that its lawyers had studied the contract of
lease prior to the sale. Equatorial's knowledge of the stipulations
therein should have cautioned it to look further into the agreement
to determine if it involved stipulations that would prejudice its own
interests.
Since Mayfair has a right of first refusal, it can exercise the right only
if the fraudulent sale is first set aside or rescinded. All of these
matters are now before us and so there should be no piecemeal
determination of this case and leave festering sores to deteriorate
into endless litigation. The facts of the case and considerations of
justice and equity require that we order rescission here and now.
Rescission is a relief allowed for the protection of one of the
contracting parties and even third persons from all injury and
damage the contract may cause or to protect some incompatible
and preferred right by the contract.26 The sale of the subject real
property by Carmelo to Equatorial should now be rescinded
considering that Mayfair, which had substantial interest over the
subject property, was prejudiced by the sale of the subject property
to Equatorial without Carmelo conferring to Mayfair every
opportunity to negotiate within the 30-day stipulated period.27
This Court has always been against multiplicity of suits where all
remedies according to the facts and the law can be included. Since
Carmelo sold the property for P11,300,000.00 to Equatorial, the
price at which Mayfair could have purchased the property is,
therefore, fixed. It can neither be more nor less. There is no dispute
over it. The damages which Mayfair suffered are in terms of actual
injury and lost opportunities. The fairest solution would be to allow
Mayfair to exercise its right of first refusal at the price which it was
entitled to accept or reject which is P11,300,000.00. This is clear
from the records.
To follow an alternative solution that Carmelo and Mayfair may
resume negotiations for the sale to the latter of the disputed
property would be unjust and unkind to Mayfair because it is once
more compelled to litigate to enforce its right. It is not proper to
give it an empty or vacuous victory in this case. From the viewpoint
of Carmelo, it is like asking a fish if it would accept the choice of
being thrown back into the river. Why should Carmelo be rewarded
for and allowed to profit from, its wrongdoing? Prices of real estate
have skyrocketed. After having sold the property for
P11,300,000.00, why should it be given another chance to sell it at
an increased price?
Under the Ang Yu Asuncion vs.  Court of Appeals  decision, the Court
stated that there was nothing to execute because a contract over
the right of first refusal belongs to a class of preparatory juridical
relations governed not by the law on contracts but by the codal
provisions on human relations. This may apply here if the contract is
limited to the buying and selling of the real property. However, the
obligation of Carmelo to first offer the property to Mayfair is
embodied in a contract. It is Paragraph 8 on the right of first refusal
which created the obligation. It should be enforced according to the
law on contracts instead of the panoramic and indefinite rule on
human relations. The latter remedy encourages multiplicity of suits.
There is something to execute and that is for Carmelo to comply
with its obligation to the property under the right of the first refusal
according to the terms at which they should have been offered then
to Mayfair, at the price when that offer should have been made.
Also, Mayfair has to accept the offer. This juridical relation is not
amorphous nor is it merely preparatory. Paragraphs 8 of the two DENIED. The Deed of Absolute Sale between petitioners Equatorial
leases can be executed according to their terms. Realty Development, Inc. and Carmelo & Bauermann, Inc. is hereby
deemed rescinded; petitioner Carmelo & Bauermann is ordered to
On the question of interest payments on the principal amount of return to petitioner Equatorial Realty Development the purchase
P11,300,000.00, it must be borne in mind that both Carmelo and price. The latter is directed to execute the deeds and documents
Equatorial acted in bad faith. Carmelo knowingly and deliberately necessary to return ownership to Carmelo and Bauermann of the
broke a contract entered into with Mayfair. It sold the property to disputed lots. Carmelo & Bauermann is ordered to allow Mayfair
Equatorial with purpose and intend to withhold any notice or Theater, Inc. to buy the aforesaid lots for P11,300,000.00.
knowledge of the sale coming to the attention of Mayfair. All the
circumstances point to a calculated and contrived plan of non- SO ORDERED.
compliance with the agreement of first refusal.
G.R. No. 155634             August 16, 2004
On the part of Equatorial, it cannot be a buyer in good faith because
REPUBLIC OF THE PHILIPPINES, Represented by the SOCIAL
it bought the property with notice and full knowledge that Mayfair
had a right to or interest in the property superior to its own. SECURITY SYSTEM, petitioner,
vs.
Carmelo and Equatorial took unconscientious advantage of Mayfair.
JERRY V. DAVID, respondent.
Neither may Carmelo and Equatorial avail of considerations based
on equity which might warrant the grant of interests. The vendor
received as payment from the vendee what, at the time, was a full
and fair price for the property. It has used the P11,300,000.00 all DECISION
these years earning income or interest from the amount. Equatorial,
on the other hand, has received rents and otherwise profited from
the use of the property turned over to it by Carmelo. In fact, during
all the years that this controversy was being litigated, Mayfair paid
PANGANIBAN, J.:
rentals regularly to the buyer who had an inferior right to purchase
the property. Mayfair is under no obligation to pay any interests Under the terms of the subject Contract, "actual possession" cannot
arising from this judgment to either Carmelo or Equatorial. be equated with "actual occupancy." Inasmuch as the housing unit
was physically occupied by parties other than those intended to be
WHEREFORE, the petition for review of the decision of the Court of
benefited by the housing program of the Social Security System,
Appeals, dated June 23, 1992, in CA-G.R. CV No. 32918, is HEREBY
there was a clear violation of the Contract. Since respondent did not
comply with his obligations, rescission is proper.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of
Court, assailing the October 9, 2002 Decision2 of the Court of
Appeals (CA) in CA-GR CV No. 61374. The appellate court disposed
as follows:
"WHEREFORE, the instant appeal is DENIED for lack of merit. The
decision of the Regional Trial Court, Quezon City, Branch 105, in Civil
Case No. Q-96-27031 is hereby AFFIRMED."3
The Facts
The CA narrated the facts thus:
"x x x [Respondent] Jerry V. David is an employee of the SSS,
formerly assigned at its Membership (Backroom) Department.
Pursuant to its Employees' Housing Loan Program, SSS awarded
David a house and lot located at North Fairview, Quezon City. A
Deed of Conditional Sale over the subject property was thereafter
executed between the parties.
"On reports that numerous violations have been committed by
some of the housing awardees in connection with the conditions
governing their sales, SSS conducted an investigation on the matter.
The investigation revealed that in the case of [Respondent] David,
he committed two (2) violations of his deed of conditional sale, to
wit: (1) neither the [respondent] nor his immediate family resided
and/or occupied the said housing unit, and (2) he allowed a certain
Buenaventura Penus to possess and occupy the property.
"As a consequence of these violations, SSS sent a letter to David
formally revoking, terminating and/or rescinding the deed of
conditional sale. However, the latter refused to vacate and
surrender possession of the subject property, prompting SSS to
institute a complaint with the Quezon City RTC on March 28, 1996
revoking the deed of conditional sale and likewise praying for the
issuance of a writ of possession in its favor.
"During the pre-trial of the case, the court observed that while the
complaint was captioned 'Petition for Recovery of Possession with
[P]rayer for Issuance of a Writ of Possession,' an examination of its
body shows that the prayer was actually for the rescission of the
deed of conditional sale. For this reason, the court ordered the
amendment of the complaint and in compliance thereto,
[petitioner] submitted its amended complaint on March 19, 1997.
"[Respondent] David denied the alleged violations of the deed of
conditional sale, stating that Buenaventura Penus, alluded to by the
[petitioner] as possessor-occupant of the subject property, was in
fact a caretaker until and after the necessary renovations and
modifications on the house were made.
"In a [D]ecision dated July 1, 1998, the court a quo dismissed the
complaint and adjudged the [petitioner] liable for costs. The
dispositive portion of the trial court's decision reads:
'WHEREFORE, in the light of the foregoing, the Amended Complaint
is dismissed, with costs against the plaintiff.
'SO ORDERED.'
"In dismissing the complaint, the court ruled that the [petitioner]
failed to prove that the [respondent] purchased the subject
property for the use and benefit of another undisclosed party and
not for his exclusive use, or that the defendant sold, assigned,
encumbered, mortgaged, leased, subleased or in any manner
altered or disposed of the subject property or his rights thereto at
any other time. In arriving at its [D]ecision, the lower court
considered the testimony of the [respondent] that when the subject
property was delivered to him on October 23, 1992, the unit was
not habitable so he had to make a few constructions thereon. He
secured the services of his cousin, Buenaventura Penus, to be the
caretaker while construction on the house was going on. With this,
the court concluded that possession, as a condition of the deed of
sale between the parties, was sufficiently satisfied.
"Aggrieved, [Petitioner] SSS brought [an] appeal [to the CA], arguing
that the court a quo erred in holding that [respondent] did not
violate the terms and conditions of the Deed of Conditional Sale and
in consequently dismissing the case."4
Ruling of the Court of Appeals
Affirming the trial court, the CA ruled that while other persons had
been found occupying the subject property, no proof was adduced
by petitioner to prove that they had taken possession of it on their
own behalf and not merely as respondent's caretakers. The
appellate court added that because of the squalid condition of the
property when it was delivered, respondent had to make
improvements thereon as well as ask Penus, and later on Oden
Domingo, to stay there as caretakers.
Through his caretakers, respondent was deemed to have occupied
and possessed the property as required by the Deed of Sale
between him and petitioner. The CA concluded that the property
had clearly been subject to respondent's will, a fact equivalent to
possession under Article 5315 of the Civil Code.
Hence, this Petition.6
Issues
In its Memorandum, petitioner raises this sole issue: "whether the
Court of Appeals committed reversible error in affirming the
Decision of the trial court holding that respondent did not violate
the terms and conditions of the Deed of Conditional Sale."7
The Court's Ruling
The Petition is meritorious.
Sole Issue:
Violation of the Terms and Conditions
of the Deed of Conditional Sale
Petitioner avers that respondent violated the terms and conditions
of the Deed of Conditional Sale, when he failed to "actually occupy
and possess the property at all times"8 and allowed other persons to
do so.9
It argues that contrary to the rulings of the trial and the appellate
courts, the Deed of Conditional Sale required "actual physical
possession at all times," not just simple possession. It contends that
the material occupation of the property by other persons ran
counter to the objective of the Social Security System (SSS) housing
program to restrict the use and enjoyment of the housing units to
SSS employees and their immediate families only.
Petitioner likewise submits that the appellate court erred in
believing the claim of respondent that the house was uninhabitable
when it was delivered to him in 1992. His claim was belied by his
acceptance of the property without protest, as well as by the fact
that his alleged caretakers had lived there from 1992 to 1996.
Petitioner adds that he should have used his available money to
improve the property, if the unit was indeed unlivable, instead of
fully settling in advance in December 1992 the unpaid balance of its
purchase price.
Propriety of Review
At the outset, the Court stresses that a question of law has arisen
from petitioner's contention that simple possession under Article
531 of the Civil Code is not the same as "actual occupancy and
possession at all times," as required of respondent under the Deed.
Such question -- of what law, rule or principle is to govern a given
state of facts -- is decidedly one of law.10 It may be raised in this
appeal by certiorari under Rule 45 of the Rules of Court.
Rules of Contract Interpretation
Certain rules of contract interpretation come to mind at this
point. First, in construing a contract, it is a fundamental task to
ascertain the intention of the contracting parties.11 As a rule, such
intention is determined by looking at the words used -- at all the
words rather than at a particular word or two; and at words in
context rather than just words standing alone.12
Indeed, under Article 1374 of the Civil Code, "the various
stipulations of a contract shall be interpreted together, attributing
to the doubtful ones that sense which may result from all of them
taken jointly." Second, the ascertained intention of the parties is
deemed an integral part of the contract, as though it has been
originally expressed in unequivocal terms.13 And third, the
reasonableness of the result obtained, after analysis and
construction of a contract, must also be carefully considered.14
The conditions that were allegedly violated by respondent are
contained in paragraph 10 of the Deed of Conditional Sale, as
follows:
"10. The Contract shall further [provide] the following terms and
conditions:
(a) The VENDEE is making this purchase for his/her own exclusive
use and benefit and not for the use and benefit of another
undisclosed party/parties;
(b) The purpose of the sale shall be to aid the VENDEE in acquiring a
house and lot for himself/herself and/or his/her immediate family,
and not to provide him/her with a means for speculation or profit
by a future assignment of his/her right herein acquired or the resale
of the PROPERTY subject of this Contract. Therefore, the VENDEE,
within the first FIVE (5) years of the existence of this contract agrees
not to sell, assign, encumber, mortgage, lease, sub-let or in any
manner alter or dispose of the property subject hereof, or his rights
thereto, at any time, in whole or in part. After the FIVE (5) year
period, VENDEE shall have the right to the full disposal of the
property, provided that, VENDEE has been able to fully pay all of
his/her obligations herein. However, the foregoing notwithstanding,
the VENDEE may x x x at any time with prior consent of the VENDOR
transfer his right to the PROPERTY to any eligible employee of the
VENDOR, subject, however, to the right of first refusal by the
VENDOR who may refund to the VENDEE all of his/her installment
payments and the value of substantial improvements introduced by
him/her if any, as appraised by the VENDOR;
(c)  The VENDEE, and his heirs and/or successors, shall actually
occupy and be in possession of the PROPERTY at all times;
(d) The VENDEE shall not obstruct or interfere in any manner
whatsoever with the right of the VENDOR or any of its duly
authorized representatives to inspect, survey, repair, lay water
pipes, gas, electric and telephone lines or other works of similar
purposes;
(e) The VENDEE shall abide by and comply with the Vendor's
Occupancy Rules and Regulations the terms and conditions of which
are made an integral part hereof by reference, as well as that issued
by any other governmental authority which may, from time to time,
be promulgated in regard to the use and preservation of the house
and lot;
(f) The VENDEE warrants in full the truth of the representation
made in his/her Application For EMPLOYEE HOUSING LOAN, the
terms of which are likewise made an integral part hereof by
reference.
"The violation of any of the conditions herein stipulated shall be
considered as a breach of this Contract, and shall subject the
VENDEE to the penalties provided for in paragraphs (11) and (12)
hereof, including administrative sanctions, when warranted, in the
event x x x the VENDEE has been found to have committed a
misrepresentation/falsification in his/her application for an
Employee Housing Loan."15
Actual Occupancy and
Possession at All Times
Plainly, the primary intention behind the above-quoted stipulations
is to restrict the sale, the use and the benefit of the housing units to
SSS employees and their immediate families only. This objective is in
line with that of the SSS housing loan program -- to aid its
employees in acquiring their own dwelling units at a low cost.16 Such
intent, draws life also from the social justice policy of RA 1161, as
amended, otherwise known as the "Social Security System Law"
granting direct housing loans to covered employees and giving
priority to low-income groups.17
Indeed, the above goal is confirmed by the requirement that
respondent-vendee and his heirs or assigns must actually
occupy and possess the property at all times; by the proscription
that he must not sell, assign, encumber, mortgage, lease, sublet or
in any manner alter or dispose of the property for the first five (5)
years; and by the further proviso that he may alienate or transfer
his rights thereto at any time prior to full payment, but only to
petitioner under its right of first refusal or to any other eligible SSS
employee. These restrictive covenants are undeniably valid under
Article 130618 of the Civil Code.
The use of the conjunctive and in subparagraph (c) is not by any
chance a surplusage. Neither is it meant to be without any legal
signification. Its use is confirmatory of the restrictive intent that the
houses provided by petitioner should be for the exclusive use and
benefit of the SSS employee-beneficiary.
It is easily discernible, therefore, that both "actual
occupancy" and "possession at all times" -- not just one or the other
-- were imposed as conditions upon respondent. The word and  --
whether it is used to connect words, phrases or full sentences --
must be accepted in its common and usual meaning as "binding
together and as relating to one another."19 And  implies a
conjunction, joinder or union.20
Thus, respondent had to comply with not one, but two, concurring
conditions -- actual occupancy and possession at all times. The
question is, did he?
We rule that he did not.
No Actual Occupancy
First, actual possession is not the same as actual occupancy. Hence,
it was an error on the part of the lower courts to hold that the
requirement of possession alone was a sufficient compliance with
the conditions under subparagraphs (a) and (c).
Under the law,21 "[p]ossession is acquired by the material
occupation of a thing or the exercise of a right, or by the fact that it
is subject to the action of our will, or by the proper acts and legal
formalities established for acquiring such right." As such, actual
possession consists in the manifestation of acts of dominion over
property of such a nature as a party would naturally exercise over
his own22 -- as when respondent himself is physically in occupation
of the property, or even when another person who recognizes the
former's rights as owner is in occupancy.23 In short, possession can
be either "actual" or merely constructive.
On the other hand, actual occupancy connotes "something real, or
actually existing, as opposed to something merely possible, or to
something which is presumptive or constructive."24 Unlike
possession, it can only be actual or real, not constructive.
Second, the uncontroverted fact remains that it was not respondent
and/or his immediate family, but Penus and his wife, who had lived
in the property since 1992; and that it was from Penus that
Domingo took over possession in 1996. Thus, while it may be
conceded that respondent "possessed" the property through his
caretakers, there is no escaping the fact that he and/or his
immediate family did not "actually occupy" it; and that he allowed
other persons to benefit from its use. In his letter to SSS Assistant
Administrator Amador Monteiro on January 24, 1996,25 respondent
admitted as much, but tried to justify his noncompliance by saying
that the property was not in a habitable condition at the time of
delivery. This line of defense was sustained by the trial court on the
ground of respondent's allegedly "uncontroverted or unrebutted
evidence."26
The RTC's finding, however, is neither borne out by the records nor
by substantial evidence. Hence, it constitutes an exception to the
rule that this Court cannot review factual findings.27
Indeed, a thorough review of the records reveals that the
averments of respondent were ably controverted by denials made
by petitioner. Negating his claim that the house was located
adjacent to a creek,28 it lengthily argued against it in the
Memorandum it submitted to the trial court. Likewise, it must be
stressed that under the Rules of Court,29 the defense alleged in his
Answer is deemed controverted, whether or not petitioner filed a
reply.
Moreover, it is a basic rule of evidence that the party asserting an
affirmative allegation must prove it.30 However, all that there is to
back up the defense of respondent in this case is his self-serving
testimony and that of his witness, Domingo. As to the latter's
testimony, it suffices to say that he could not have affirmed the
alleged condition of the unit in 1992, as he took possession of it only
in 1996, four years after it had lain exposed to the elements with no
improvements whatsoever.
For four years, respondent likewise kept his silence about the
purported condition of the unit. He accepted it without any
whimper of protest on October 23, 1992, and even paid the housing
loan in full in December of the same year. If it was indeed
uninhabitable, he should have refused to accept it or immediately
protested its condition.
On the other hand, there is enough documentary evidence to
debunk his claim. The report of petitioner's Internal Audit
Service31 significantly established that 509 of the 728 awardees --
presumably situated similarly as he was -- had occupied their units
in compliance with the assailed requirement. The Interview
Slip32 submitted in evidence by petitioner also showed that Penus
and his wife, and later Domingo, had lived in the unit since 1992. In
the face of these facts, it is difficult to believe the defense of
respondent. For how could the units be habitable to many others,
but not to him?
Likewise, this Court takes judicial notice of the fact that low-cost
houses such as those offered by petitioner33 are usually core or shell
units without adequate divisions, ceilings, cabinets, paint and, in
some cases, electrical connections -- features that have to be
installed, completed or refurbished by the awardees. The idea, of
course, is to provide immediate but affordable living spaces that
they can work at improving, according to their needs and finances
and while living therein. Certainly, at P172,978.85 (the cost of the
house and lot in this case), it is but fair to accept the lack of
amenities.
Neither can respondent assail the validity of the Contract as a one-
sided "take it or leave it" agreement. To begin with, a contract of
adhesion -- wherein one party imposes a ready-made form of
contract on the other -- is not strictly against the law.34 The terms of
the agreement cannot be modified, but can be freely rejected in its
entirety, by the other party. On the other hand, the latter's
adherence thereto would mean consent.35 We need only to remind
respondent that contractual obligations between the parties have
the force of law and must be complied with in good faith.36
We therefore do not see any reason to discuss respondent's added
arguments, other than to say that the objectives of low-cost housing
-- mandated under the social justice provisions of the
Constitution37 -- are too important to be sidetracked by lame,
untimely and unfounded excuses. Such excuses do nothing but
harm to the salutary efforts of providing the underprivileged and
the homeless with cheap but decent houses. It is for this reason that
we regard this case as no ordinary skirmish over contractual
relations.
Rescission
In view of the foregoing discussion, we rule that rescission of the
Contract is the proper recourse. Article 1191 of the Civil Code
provides:
"Art. 1191. The power to rescind obligations is implied in reciprocal
ones, in case one of the obligors should not comply with what is
incumbent upon him.
"The injured party may choose between fulfillment and the
rescission of the obligation, with the payment of damages in either
case. He may also seek rescission even after he has chosen
fulfillment, if the latter should become impossible."
As noted in previous cases, the rescission contemplated under
Article 1191 is a principal action for "resolution," which is based on
a breach by a party of its reciprocal obligations.38 The present
Contract is one of conditional sale -- oftentimes referred to as a
contract to sell, wherein ownership or title is retained by the
vendor39 until "full payment by the VENDEE of the full purchase
price of the PROPERTY, with all the interest due thereon, as well as
taxes and other charges AND upon their faithful compliance with all
the conditions of this Contract x x x."40
Although a transfer of ownership or title from the seller to the
buyer is normally predicated upon the payment of the purchase
price, the parties are nevertheless free to stipulate other lawful
conditions by which they bind themselves and upon which transfer
of ownership depends.41 In this case, that other obligation was
faithful compliance with the conditions of the Contract. Respondent
did not faithfully comply with the conditions under subparagraphs
(10)(a) and (c). His noncompliance also constituted a breach of his
reciprocal obligations under the Deed.
The Deed itself provides for its annulment and cancellation by
reason of a breach of the terms and conditions stipulated therein.
Paragraphs 11 and 12 provide thus:
"11. Should the VENDEE violate, refuse or fail to comply with any of
the terms and conditions stipulated herein, for whatever reason, or
is found to have committed any misrepresentation in his/her
application for EMPLOYEE HOUSING LOAN, this Contract shall be
deemed annulled and cancelled without prejudice of the rights of
the parties under Republic Act No. 6652, otherwise known as the
Maceda Law, and shall entitle the VENDOR to immediately
repossess the property as if this Contract was never made; for this
purpose, the VENDEE shall be considered and treated as a tenant
holding the property without the permission of the VENDOR, and
must peacefully vacate the premises immediately upon
repossession thereof by the VENDOR. The annulment and
cancellation of this Contract and the right of the VENDOR to
repossess the property shall become effective upon mere written
notice thereof to the VENDEE.
"12. In addition to the consequences stated in the immediately
preceding paragraph, the VENDEE shall forfeit in favor of the
VENDOR all the installments made, to stand as rent for his/her
occupation of the property, likewise subject to the provisions of
Republic Act No. 6552."42 (Italics supplied)
However, this Court holds that the forfeiture provision under
paragraph 12 does not apply to the payment made by respondent.
The plain and simple reason is that he did not pay the purchase
price by installment, but instead paid it in full in December 1992 --
two months after the delivery of the unit. Hence, that payment was
beyond the ambit of Republic Act 6552, otherwise known as the
Realty Installment Buyer Act or the Maceda Law.
Doctrinally, mutual restitution must follow rescission. Under Article
1385 of the Civil Code, "rescission creates the obligation to return
the things which were the object of the contract, together with their
fruits, and the price with its interests x x x."43 Moreover, "[t]o
rescind is to declare a contract void at its inception and to put an
end to it as though it never was."44 Hence, rescission restores the
parties to their relative positions, as if no contract has been made.
Paragraph 11, cited above, supports the mutual restitution required
in rescission.
Respondent is thus obliged to return the house and lot sold, as well
as rental payments he may have earned, if any. On the other hand,
petitioner is mandated to refund to him his full payment
of P172,978.85 plus legal interest of 6 percent per annum, as well as
the value of substantial improvements introduced by him, as
appraised by petitioner. Indeed, stipulated in the Deed is such
appraisal by the vendor,45 upon transfer of the property to
petitioner or to any of its eligible employees. This condition is
reasonably and justly applicable and proper in the present case.
WHEREFORE, this Petition is hereby GRANTED  and the assailed
Decision SET ASIDE. The Deed of Conditional Sale
is CANCELLED. Petitioner is ORDERED  to pay
respondent P172,978.85, plus the legal interest and the value of any
substantial improvements thereon. Respondent is ORDERED to
vacate immediately Block 18, Lot 8, SSS Housing, North Fairview,
Quezon City; and to surrender possession thereof to petitioner. No
costs.
SO ORDERED.
G.R. No. L-57339 December 29, 1983
AIR FRANCE, petitioner,
vs.
HONORABLE COURT OF APPEALS, JOSE G. GANA (Deceased),
CLARA A. GANA, RAMON GANA, MANUEL GANA, MARIA TERESA
GANA, ROBERTO GANA, JAIME JAVIER GANA, CLOTILDE VDA. DE
AREVALO, and EMILY SAN JUAN, respondents.
Benjamin S. Valte for petitioner.
Napoleon Garcia for private respondents.
MELENCIO-HERRERA, J.:
In this petition for review on certiorari, petitioner AIR FRANCE
assails the Decision of then respondent Court of
Appeals 1 promulgated on 15 December 1980 in CA-G.R. No. 58164-
R, entitled "Jose G. Gana, et al. vs. Sociedad Nacionale Air France",
which reversed the Trial Court's judgment dismissing the Complaint
of private respondents for damages arising from breach of contract
of carriage, and awarding instead P90,000.00 as moral damages.
Sometime in February, 1970, the late Jose G. Gana and his family,
numbering nine (the GANAS), purchased from AIR FRANCE through
Imperial Travels, Incorporated, a duly authorized travel agent, nine
(9) "open-dated" air passage tickets for the
Manila/Osaka/Tokyo/Manila route. The GANAS paid a total of
US$2,528.85 for their economy and first class fares. Said tickets
were bought at the then prevailing exchange rate of P3.90 per
US$1.00. The GANAS also paid travel taxes of P100.00 for each
passenger.
On 24 April 1970, AIR FRANCE exchanged or substituted the
aforementioned tickets with other tickets for the same route. At this
time, the GANAS were booked for the Manila/Osaka segment on
AIR FRANCE Flight 184 for 8 May 1970, and for the Tokyo/Manila
return trip on AIR FRANCE Flight 187 on 22 May 1970. The aforesaid
tickets were valid until 8 May 1971, the date written under the
printed words "Non valuable apres de (meaning, "not valid after
the").
The GANAS did not depart on 8 May 1970.
Sometime in January, 1971, Jose Gana sought the assistance of
Teresita Manucdoc, a Secretary of the Sta. Clara Lumber Company
where Jose Gana was the Director and Treasurer, for the extension
of the validity of their tickets, which were due to expire on 8 May
1971. Teresita enlisted the help of Lee Ella Manager of the
Philippine Travel Bureau, who used to handle travel arrangements
for the personnel of the Sta. Clara Lumber Company. Ella sent the
tickets to Cesar Rillo, Office Manager of AIR FRANCE. The tickets
were returned to Ella who was informed that extension was not
possible unless the fare differentials resulting from the increase in
fares triggered by an increase of the exchange rate of the US dollar
to the Philippine peso and the increased travel tax were first paid.
Ella then returned the tickets to Teresita and informed her of the
impossibility of extension.
In the meantime, the GANAS had scheduled their departure on 7
May 1971 or one day before the expiry date. In the morning of the
very day of their scheduled departure on the first leg of their trip,
Teresita requested travel agent Ella to arrange the revalidation of
the tickets. Ella gave the same negative answer and warned her that
although the tickets could be used by the GANAS if they left on 7
May 1971, the tickets would no longer be valid for the rest of their
trip because the tickets would then have expired on 8 May 1971.
Teresita replied that it will be up to the GANAS to make the
arrangements. With that assurance, Ella on his own, attached to the
tickets validating stickers for the Osaka/Tokyo flight, one a JAL.
sticker and the other an SAS (Scandinavian Airways System) sticker.
The SAS sticker indicates thereon that it was "Reevaluated by: the
Philippine Travel Bureau, Branch No. 2" (as shown by a circular
rubber stamp) and signed "Ador", and the date is handwritten in the
center of the circle. Then appear under printed headings the
notations: JL. 108 (Flight), 16 May (Date), 1040 (Time), OK (status).
Apparently, Ella made no more attempt to contact AIR FRANCE as
there was no more time.
Notwithstanding the warnings, the GANAS departed from Manila in
the afternoon of 7 May 1971 on board AIR FRANCE Flight 184 for
Osaka, Japan. There is no question with respect to this leg of the
trip.
However, for the Osaka/Tokyo flight on 17 May 1971, Japan Airlines
refused to honor the tickets because of their expiration, and the
GANAS had to purchase new tickets. They encountered the same
difficulty with respect to their return trip to Manila as AIR FRANCE
also refused to honor their tickets. They were able to return only
after pre-payment in Manila, through their relatives, of the
readjusted rates. They finally flew back to Manila on separate Air
France Frights on 19 May 1971 for Jose Gana and 26 May 1971 for
the rest of the family.
On 25 August 1971, the GANAS commenced before the then Court
of First Instance of Manila, Branch III, Civil Case No. 84111 for
damages arising from breach of contract of carriage.
AIR FRANCE traversed the material allegations of the Complaint and
alleged that the GANAS brought upon themselves the predicament
they found themselves in and assumed the consequential risks; that
travel agent Ella's affixing of validating stickers on the tickets
without the knowledge and consent of AIR FRANCE, violated airline
tariff rules and regulations and was beyond the scope of his
authority as a travel agent; and that AIR FRANCE was not guilty of
any fraudulent conduct or bad faith.
On 29 May 1975, the Trial Court dismissed the Complaint based on
Partial and Additional Stipulations of Fact as wen as on the
documentary and testimonial evidence.
The GANAS appealed to respondent Appellate Court. During the
pendency of the appeal, Jose Gana, the principal plaintiff, died.
On 15 December 1980, respondent Appellate Court set aside and
reversed the Trial Court's judgment in a Decision, which decreed:
WHEREFORE, the decision appealed from is set aside. Air France is
hereby ordered to pay appellants moral damages in the total sum of
NINETY THOUSAND PESOS (P90,000.00) plus costs.
SO ORDERED. 2
Reconsideration sought by AIR FRANCE was denied, hence,
petitioner's recourse before this instance, to which we gave due
course.
The crucial issue is whether or not, under the environmental milieu
the GANAS have made out a case for breach of contract of carriage
entitling them to an award of damages.
We are constrained to reverse respondent Appellate Court's
affirmative ruling thereon.
Pursuant to tariff rules and regulations of the International Air
Transportation Association (IATA), included in paragraphs 9, 10, and
11 of the Stipulations of Fact between the parties in the Trial Court,
dated 31 March 1973, an airplane ticket is valid for one year. "The
passenger must undertake the final portion of his journey by
departing from the last point at which he has made a voluntary stop
before the expiry of this limit (parag. 3.1.2. ) ... That is the time
allowed a passenger to begin and to complete his trip (parags. 3.2
and 3.3.). ... A ticket can no longer be used for travel if its validity
has expired before the passenger completes his trip (parag.
3.5.1.) ... To complete the trip, the passenger must purchase a new
ticket for the remaining portion of the journey" (ibid.) 3
From the foregoing rules, it is clear that AIR FRANCE cannot be
faulted for breach of contract when it dishonored the tickets of the
GANAS after 8 May 1971 since those tickets expired on said date;
nor when it required the GANAS to buy new tickets or have their
tickets re-issued for the Tokyo/Manila segment of their trip. Neither
can it be said that, when upon sale of the new tickets, it imposed
additional charges representing fare differentials, it was motivated
by self-interest or unjust enrichment considering that an increase of
fares took effect, as authorized by the Civil Aeronautics Board (CAB)
in April, 1971. This procedure is well in accord with the IATA tariff
rules which provide:
6. TARIFF RULES
7. APPLICABLE FARE ON THE DATE OF DEPARTURE
3.1 General Rule.
All journeys must be charged for at the fare (or charge) in effect on
the date on which transportation commences from the point of
origin. Any ticket sold prior to a change of fare or charge (increase
or decrease) occurring between the date of commencement of the
journey, is subject to the above general rule and must be adjusted
accordingly. A new ticket must be issued and the difference is to be
collected or refunded as the case may be. No adjustment is
necessary if the increase or decrease in fare (or charge) occurs
when the journey is already commenced. 4
The GANAS cannot defend by contending lack of knowledge of
those rules since the evidence bears out that Teresita, who handled
travel arrangements for the GANAS, was duly informed by travel
agent Ella of the advice of Reno, the Office Manager of Air France,
that the tickets in question could not be extended beyond the
period of their validity without paying the fare differentials and
additional travel taxes brought about by the increased fare rate and
travel taxes.
ATTY. VALTE
Q What did you tell Mrs. Manucdoc, in turn after being told this by
Mr. Rillo?
A I told her, because that is the reason why they accepted again the
tickets when we returned the tickets spin, that they could not be
extended. They could be extended by paying the additional fare,
additional tax and additional exchange during that time.
Q You said so to Mrs. Manucdoc?
A Yes, sir." ... 5
The ruling relied on by respondent Appellate Court, therefore,
in KLM. vs. Court of Appeals, 65 SCRA 237 (1975), holding that it
would be unfair to charge respondents therein with automatic
knowledge or notice of conditions in contracts of adhesion, is
inapplicable. To all legal intents and purposes, Teresita was the
agent of the GANAS and notice to her of the rejection of the request
for extension of the validity of the tickets was notice to the GANAS,
her principals.
The SAS validating sticker for the Osaka/Tokyo flight affixed by Era
showing reservations for JAL. Flight 108 for 16 May 1971, without
clearing the same with AIR FRANCE allegedly because of the
imminent departure of the GANAS on the same day so that he could
not get in touch with Air France 6 was certainly in contravention of
IATA rules although as he had explained, he did so upon Teresita's
assurance that for the onward flight from Osaka and return, the
GANAS would make other arrangements.
Q Referring you to page 33 of the transcript of the last session, I had
this question which reads as follows: 'But did she say anything to
you when you said that the tickets were about to expire?' Your
answer was: 'I am the one who asked her. At that time I told her if
the tickets being used ... I was telling her what about their bookings
on the return. What about their travel on the return? She told me it
is up for the Ganas to make the arrangement.' May I know from you
what did you mean by this testimony of yours?
A That was on the day when they were asking me on May 7, 1971
when they were checking the tickets. I told Mrs. Manucdoc that I
was going to get the tickets. I asked her what about the tickets
onward from the return from Tokyo, and her answer was it is up for
the Ganas to make the arrangement, because I told her that they
could leave on the seventh, but they could take care of that when
they arrived in Osaka.
Q What do you mean?
A The Ganas will make the arrangement from Osaka, Tokyo and
Manila.
Q What arrangement?
A The arrangement for the airline because the tickets would expire
on May 7, and they insisted on leaving. I asked Mrs. Manucdoc what
about the return onward portion because they would be travelling
to Osaka, and her answer was, it is up to for the Ganas to make the
arrangement.
Q Exactly what were the words of Mrs. Manucdoc when you told
her that? If you can remember, what were her exact words?
A Her words only, it is up for the Ganas to make the arrangement.
Q This was in Tagalog or in English?
A I think it was in English. ... 7
The circumstances that AIR FRANCE personnel at the ticket counter
in the airport allowed the GANAS to leave is not tantamount to an
implied ratification of travel agent Ella's irregular actuations. It
should be recalled that the GANAS left in Manila the day before the
expiry date of their tickets and that "other arrangements" were to
be made with respect to the remaining segments. Besides, the
validating stickers that Ella affixed on his own merely reflect the
status of reservations on the specified flight and could not legally
serve to extend the validity of a ticket or revive an expired one.
The conclusion is inevitable that the GANAS brought upon
themselves the predicament they were in for having insisted on
using tickets that were due to expire in an effort, perhaps, to beat
the deadline and in the thought that by commencing the trip the
day before the expiry date, they could complete the trip even
thereafter. It should be recalled that AIR FRANCE was even unaware
of the validating SAS and JAL. stickers that Ella had affixed
spuriously. Consequently, Japan Air Lines and AIR FRANCE merely
acted within their contractual rights when they dishonored the
tickets on the remaining segments of the trip and when AIR FRANCE
demanded payment of the adjusted fare rates and travel taxes for
the Tokyo/Manila flight.
WHEREFORE, the judgment under review is hereby reversed and set
aside, and the Amended Complaint filed by private respondents
hereby dismissed.
No costs.
SO ORDERED.
G.R. No. 207176               June 18, 2014
SPOUSES VICTOR and EUNA BINUA, Petitioners,
vs.
LUCIA P. ONG, Respondent.
DECISION
REYES, J.:
Spouses Victor and Edna Binua (petitioners) seek the declaration of
the nullity of the real estate mortgages executed by petitioner
Victor in favor of Lucia P. Ong (respondent), on the ground that
these were executed under fear, duress and threat.
Facts of the Case
In a Joint Decision1 dated January 10, 2006 by the Regional Trial
Court of Tuguegarao City, Branch 2 (RTC-Branch 2), in Criminal
Cases Nos. 8230, 8465-70, petitioner Edna was found guilty of
Estafa and was sentenced to imprisonment from six ( 6) years and
one ( 1) day of prision mayor, as minimum, to thirty (30) years of
reclusion perpetua, as maximum, for each conviction. Petitioner
Edna was also ordered to pay the respondent the amount of
₱2,285,000.00, with ten percent (10%) interest, and damages.2
Petitioner Edna sought to avoid criminal liability by settling her
indebtedness through the execution of separate real estate
mortgages over petitioner Victor’s properties on February 2, 2006,
and covering the total amount of ₱7,000,000.00. Mortgaged were
portions of Lot No. 1319 covered by Transfer Certificate of Title
(TCT) No. T-15232 and Lot No. 2399 covered by TCT No. T-15227,
both located in Tuguegarao City.3
Thereafter, petitioner Edna filed a motion for new trial, which was
granted by the RTC-Branch 2. Consequently, the RTC-Branch 2
rendered a Decision4 on February 24, 2006, ordering petitioner Edna
to pay the respondent the amount of ₱2,285,000.00 as actual
damages, with ten percent (10%) interest, and other damages.5 The
RTC-Branch 2 ruled that the presentation of a promissory note
dated March 4, 1997 novated the original agreement between them
into a civil obligation. The decision further reads:
During the hearing of the motion [for new trial], [petitioner Edna’s]
counsel presented [petitioner Edna]. In the course of her testimony,
she narrated that a promissory note (Exhibit "1") dated March 4,
1997 was executed by her in favor of Lucia P. Ong, the herein
private complainant.
xxxx
With the surfacing and finally the introduction of Exhibit "1", the
nature of the liability of [petitioner Edna] changed from both
criminal and civil in nature to purely civil in character.
The Promissory Note novated the complexity of the nature of the
course of action the [respondent] had from the beginning against
[petitioner Edna].
xxxx
However, after the Promissory Note (Exh. "1") was executed by the
parties, the whole scenario was novated into purely civil in nature. It
was the intention of both [the respondent] and [petitioner Edna] to
turn the debt into a mere loan, hence, this agreement of theirs
being the law that binds them must be respected.
[Petitioner Edna] nonetheless, admits in Exhibit "1," that, she is
indebted to [the respondent]. Thus, she must pay her just
debt.6 (Emphasis ours)
Petitioner Edna, however, failed to settle her obligation, forcing the
respondent to foreclose the mortgage on the properties, with the
latter as the highest bidder during the public sale.
The petitioners then filed the case for the Declaration of Nullity of
Mortgage Contracts, alleging that the mortgage documents were
"executed under duress, as the [petitioners] at the time of the
execution of said deeds were still suffering from the effect of the
conviction of [petitioner] Edna, and could not have been freely
entered into said contracts."7
On December 12, 2008, the RTC of Tuguegarao City, Branch 5 (RTC-
Branch 5), rendered a Decision8 dismissing the complaint for lack of
factual and legal merit.9 The RTC-Branch 5 ruled:
When the [petitioners] executed the Deeds of Mortgage, did they
act under fear, or duress, or threat? Quite clearly, they did –
because a judgment of conviction was hanging over Edna’s head
sentencing her to a prison term x x x. However, Article 1335 of the
Civil Code is equally unmistakable. The last paragraph of the article
reads: "A threat to enforce one’s claim through competent
authority, if the claim is just or legal, does not vitiate consent."
The Court cannot see its way to an agreement with the
[petitioners]. They asked for a "compromise" consisting in the
execution of a promissory note by deeds of mortgage. Edna profited
from it – she did not go to jail. She was in fact acquitted. The
judgment of Branch 2 of this Court attained finality for failure of the
accused to perfect a seasonable appeal. And now they come to
Court asking it to set aside the very deeds of mortgage they had
signed to keep Edna away from prison?10
The petitioners brought their case to the Court of Appeals (CA) and
in the assailed Decision11 dated November 13, 2012 and
Resolution12 dated May 14, 2013, the RTC-Branch 5 decision was
affirmed. The CA ruled that:
[T]he claim of [petitioner] Victor that he executed the real estate
mortgages for fear that his wife would go to jail is obviously not the
intimidation referred to by law. In asserting that the above-
mentioned circumstance constituted fear, duress and threat, [the
petitioners] missed altogether the essential ingredient that would
qualify the act complained of as intimidation, that the threat must
be of an unjust act.13
In the present petition for review under Rule 45 of the Rules of
Court, the petitioners claim that:
I.
THE LOWER COURT ERRED IN GIVING FULL FAITH AND CREDENCE
TO THE DECISION OFTHE COURT A QUO BASED ON FINDINGS OF
FACTS NOT SUPPORTED BY THE EVIDENCE ON RECORD
II.
THE LOWER COURT ERRED IN REFUSING TO DECLARE NULL AND
VOID THE MORTGAGE CONTRACTS DESPITE ITS FINDING THAT SAID
CONTRACTS WERE EXECUTED UNDER FEAR, DURESS AND THREAT
III.
THE LOWER COURT ERRED IN REFUSING TO DECLARE NULL AND
VOID THE MORTGAGE CONTRACTS DESPITE THE FACT THAT THEY
WERE EXECUTED TO SECURE A MONETARY OBLIGATION THAT
IMPOSES A MONTHLY INTEREST OF TEN PERCENT14
The petitioners contend that the CA erred when it sustained the
findings of the RTC that the execution of the promissory note
changed petitioner Edna’s obligation to a civil one. According to the
petitioners, the RTC’s findings are not in accord with the RTC-Branch
2 Decision dated February 24, 2006, which ruled that petitioner
Edna’s liability is purely civil and not based on the compromise
agreement with the respondent. The petitioners insist that the RTC-
Branch 2 decision allegedly show "the lack of criminal liability of x x
x Edna Binua due to novation." The petitioners also contend that
there was no evidence during trial regarding the existence of the
promissory note or that the basis of petitioner Edna’s exoneration
from criminal liability was the execution of the mortgage.15
The petitioners also claim that the threat and coercion levelled by
the respondent against petitioner Victor, i.e., the wrongful criminal
conviction of petitioner Edna, and which resulted into the signing of
the mortgages, do not fall within the coverage of Article 1335 of the
Civil Code.16 Finally, the petitioners argue that the CA committed an
error when it refused to rule on the legality of the ten percent (10%)
monthly interest rate imposed on petitioner Edna’s loan
obligation.17
Ruling of the Court
First, the Court must emphasize that in a Rule 45 petition for review,
only questions of law may be raised because the Court is not a trier
of facts and is not to review or calibrate the evidence on record; and
when supported by substantial evidence, the findings off act by the
CA are conclusive and binding on the parties and are not reviewable
by this Court,18 unless the case falls under any of the exceptions.19
In this case, the Court notes that the petitioners’ arguments are
exact repetitions of the issues raised in the CA, and the petitioners
failed to advance any convincing reason that would alter the
resolution in this case. Not only that, the petitioners’ arguments are
also downright inaccurate, if not maliciously misleading.
The decisive factor in this case is the RTC-Branch 2 Decision dated
February 24, 2006 in Criminal Case Nos. 8230, 8465, 8466, 8467,
8468, 8469 & 8470. This was the decision that overturned petitioner
Edna’s previous conviction for estafa and adjudged her only to be
civilly liable to the respondent. Said RTC decision is already final and
executory,20 and this was not refuted by the petitioners. The Court
has consistently ruled that "once a decision attains finality, it
becomes the law of the case regardless of any claim that it is
erroneous. Having been rendered by a court of competent
jurisdiction acting within its authority, the judgment may no longer
be altered even at the risk of occasional legal infirmities or errors it
may contain."21 Thus, said RTC decision bars a rehash, not only of
the issues raised therein but also of other issues that might have
been raised, and this includes the existence of the promissory note
upon which petitioner Edna’s exoneration rested. As a matter of
fact, the RTC decision embodied petitioner Edna’s own admission
that she is indebted to the respondent. The issue of whether
petitioner Edna’s liability under the note was, from the very
beginning, civil and not criminal in nature has no relevance in this
case as the only issue to be resolved is whether the mortgage
contracts were executed under duress. Any other discussion
pertinent to the RTC decision will transgress the principle of
immutability of a final judgment.22
The petitioners claim that they were compelled by duress or
intimidation when they executed the mortgage
contracts.1âwphi1 According to them, they "were still suffering
from the effect of the conviction of [petitioner] Edna, and could not
have been freely entered into said contracts."23 The petitioners also
allege that the respondent subsequently "rammed the two (2)
mortgage contracts involving two (2) prime properties on
[petitioner Victor’s] throat, so to speak[,] just so to make him sign
the said documents,"24 and that the respondent took advantage of
the misfortune of the petitioners and was able to secure in her favor
the real estate mortgages.25
Article 1390(2) of the Civil Code provides that contracts where the
consent is vitiated by mistake, violence, intimidation, undue
influence or fraud are voidable or annullable. Article 1335 of the
Civil Code, meanwhile, states that "[t]here is intimidation when one
of the contracting parties is compelled by a reasonable and well-
grounded fear of an imminent and grave evil upon his person or
property, or upon the person or property of his spouse,
descendants or ascendants, to give his consent." The same article,
however, further states that "[a] threat to enforce one’s claim
through competent authority, if the claim is just or legal, does not
vitiate consent."
In De Leon v. Court of Appeals,26 the Court held that in order that
intimidation may vitiate consent and render the contract invalid, the
following requisites must concur: (1) that the intimidation must be
the determining cause of the contract, or must have caused the
consent to be given; (2) that the threatened act be unjust or
unlawful; (3) that the threat be real and serious, there being an
evident disproportion between the evil and the resistance which all
men can offer, leading to the choice of the contract as the lesser
evil; and (4) that it produces a reasonable and well-grounded fear
from the fact that the person from whom it comes has the
necessary means or ability to inflict the threatened injury.27
In cases involving mortgages, a preponderance of the evidence is
essential to establish its invalidity, and in order to show fraud,
duress, or undue influence of a mortgage, clear and convincing
proof is necessary.28
Based on the petitioners’ own allegations, what the respondent did
was merely inform them of petitioner Edna’s conviction in the
criminal cases for estafa. It might have evoked a sense of fear or
dread on the petitioners’ part, but certainly there is nothing unjust,
unlawful or evil in the respondent's act. The petitioners also failed
to show how such information was used by the respondent in
coercing them into signing the mortgages. The petitioners must
remember that petitioner Edna's conviction was a result of a valid
judicial process and even without the respondent allegedly
"ramming it into petitioner Victor's throat," petitioner Edna's
imprisonment would be a legal consequence of such conviction. In
Callanta v. National Labor Relations Commission,29 the Court stated
that the threat to prosecute for estafa not being an unjust act, but
rather a valid and legal act to enforce a claim, cannot at all be
considered as intimidation.30 As correctly ruled by the CA, "[i]f the
judgment of conviction is the only basis of the [petitioners] in saying
that their consents were vitiated, such will not suffice to nullify the
real estate mortgages and the subsequent foreclosure of the
mortgaged properties. No proof was adduced to show that [the
respondent] used [force], duress, or threat to make [petitioner]
Victor execute the real estate mortgages."31

Finally, the petitioners assail the ten percent (10%) imposed by the
RTC-Branch 2 in the criminal cases for estafa. As previously stated,
however, the decision in said case is already final and
executory.32 The Court will not even consider the petitioners'
arguments on such issue for to do so would sanction the petitioners'
act of subverting the immutability of a final judgment.

WHEREFORE, the petition is DENIED for lack of merit.

SO ORDERED.