SECOND DIVISION
necessitating personal notice to the latter's heirs for reasons
[G.R. No. 73678. July 21, 1989.]
GUILLERMO CORTES and FLORENCIA P. CORTES, petitioners,
vs. THE INTERMEDIATE APPELLATE COURT, ARSENIO REYES,
DEVELOPMENT BANK OF THE PHILIPPINES and THE SHERIFF
OF KALOOKAN CITY, respondents.
SYLLABUS
1. REMEDIAL LAW; SPECIAL CIVIL ACTION;
FORECLOSURE OF MORTGAGE; DEFAULT IN PAYMENT OF LOAN,
JUSTIFIES FORECLOSURE UNDER REPUBLIC ACT NO. 3135.
Petitioners defaulted in the payment of their loan to
respondent Development Bank of the Philippines (DBP). They
actually made only two installment payments. This justifies
the subsequent foreclosure sale of the land in issue pursuant
to Act 3135, as amended.
2. ID.; ID.; ID.; ID.; PERSONAL NOTICE OF SALE TO THE
MORTGAGOR, NOT NECESSARY. With respect to the
requirement of notice, Section 3 of said Act states that notice
shall be given by posting notices of the sale for not less than
twenty days (20) in at least three (3) public places of the
municipality or city where the property is situated, and if such
property is worth more than four hundred pesos, such notice
shall also be published once a week for at least three
consecutive weeks in a newspaper of general circulation in
the municipality or city. It is crystal clear from the above
provision that personal notice to the mortgagor is not
necessary; only posting and publication, in some cases, are
required.
3. ID.; EVIDENCE; RULES OF ADMISSIBILITY;
INSTRUMENTS MUST BE INTERPRETED ACCORDING TO THE
SPECIFIC INTENTION OF THE PARTIES. In pleading their
case, petitioners invoke paragraph 10 of the Deed of
Mortgage points to a place (which, notably was clearly stated)
where all correspondence relative to the mortgage are to be
sent, it does it does not specifically require that personal
notice of foreclosure sale be given to petitioner. The said
paragraph 10 presumes that a specific correspondence is
made but does not definitely require which correspondence
must be made. It would, therefore, be erroneous to say that
notice of extrajudicial foreclosure to the petitioners is required
for such is not the clear intention of the parties, and, thus,
may not be pursued. (Rule 130, Section 10). But even if the
contrary were true, the sending of "All correspondence
relative to this mortgage . . ." to the petitioners may only be
deemed, at the most, as an expression of a general intent. As
such, it may not prevail against the parties' specific intent
that Act No. 3135 be the controlling law between them. This is
so since "a particular intent will control a general one that is
inconsistent with it." (Rule 130, Sec. 10).
4. ID.; ID.; FINDINGS OF FACT OF THE LOWER AND
APPELLATE COURTS, ACCORDED GREAT RESPECT. Finding of
both the lower court and the respondent IAC, to which we
accord great respect and give much weight and value (Pring v.
CA, 138 SCRA 185; Rizal Cement Co., Inc. v. Villareal, 135
SCRA 575).
5. ID.; SPECIAL CIVIL ACTION; FORECLOSURE OF
MORTGAGE; PEREZ CASE (17 SCRA 833), NOT APPLICABLE TO
PRESENT CASE. The case of Perez v. PNB, supra, could not
possibly be applied to the case at bar since the former refers
MichTrina Evidence Library Work
to a situation where the mortgagor had died, thus
of justice and equity to enable the latter to pre-empt the
foreclosure sale through seasonable payment or subsequently
make a seasonable redemption. In this present case, the
mortgagor was very much alive when the foreclosure sale was
conducted. And more importantly petitioners were very much
aware of their default (see IAC Decision, p. 28-29, Rollo) thus
the occurrence of the foreclosure sale depended upon their
will.
6. ID.; ID.; ID.; INADEQUACY OF PRICE, NOT MATERIAL;
REASON. Where there is a right to redeem, inadequacy of
price is not material because the judgment debtor may re-
acquire the property or else sell his right to redeem and thus
recover any loss he claims to have suffered by reason of the
price obtained at the execution sale. Mere inadequacy of the
price obtained at the Sheriff's sale unless shocking to the
conscience will not be sufficient also to set aside the sale if
there is no showing that, in the event of a regular sale, a
better price can be obtained. This is based on the theory that
the lesser the price the easier it will be for the owner to effect
the redemption. (Comment, p. 41, Rollo)
7. ID.; EVIDENCE; FINDINGS OF FACT OF THE
INTERMEDIATE APPELLATE COURT, CONCLUSIVE ON APPEAL.
Petitioners assail the lower court's decision for not
awarding to them the said new house as owners hereof.
Considering, however, the findings of fact of the respondent
IAC, We are constrained to deny petitioners' plea. Not finding
any indiscretion on the part of respondent IAC, its findings of
fact are conclusive upon us (Pring v. CA, supra; Premier
Insurance and Surety Corporation v. IAC, 141 SCRA 423; Vda.
de Roxas v. IAC, 143 SCRA 77; People v. Canada, 144 SCRA
121).
8. CIVIL LAW; PROPERTY, OWNERSHIP AND ITS
MODIFICATIONS; RIGHT OF ACCESSION; OPTION UNDER
ARTICLE 448 OF THE CIVIL CODE, AVAILABLE ONLY TO THE
OWNER OF THE LAND AND NOT TO THE BUILDER OR
PLANTER. The option under Art. 448 of the Civil Code, with
respect to any other useful improvements, is given to the
owner of the land (the private respondent), and not to the
petitioners, even assuming the latter acted in good faith.
DECISION
PARAS, J p:
Sought to be reversed in this petition for review is the
Decision * of the then Intermediate Appellate Court (IAC),
Fourth Civil Cases Division, affirming in toto the findings and
conclusions of the then Court of First Instance of Rizal
(Kalookan City).
The following pertinent facts can be culled from the findings of
the respondent court:
"Plaintiffs' evidence shows that on June 23, 1959 plaintiffs
obtained a loan from defendant DBP in the sum of P1,700.00
payable in semi-annual installments for ten (10) years or on or
before June 23, 1969. Said loan is evidenced by a promissory
note (Exh. A for plaintiff) and was secured by a mortgage
(Exh. D) (should be Exhs. 1 and F) over a parcel of land
covered by TCT No. 67168 of the Registry of Deeds of Rizal in
the name of plaintiffs. The promissory note (Exh. A) states
that in case of non-payment of the amount of said note or any
Page 1
portion of it on demand, when due or any other amount or
amounts due on account of this note the entire obligation
shall become due and demandable. When plaintiffs failed to
pay the installments due on the loan after June 23, 1969
(should be June 23, 1959) and after demand letters were sent
to them, defendants DBP sent to the Sheriff of Kalookan City
an Application for Foreclosure of Real Estate and Chattel
Mortgage (Exh. B). Pursuant to the said application, the City
Sheriff of Kalookan prepared the notice of extrajudicial sale of
mortgaged properties under Act No. 3135 as amended (Exh.
C) which notice was duly posted. On April 6, 1966, the date of
the auction sale as stated in the notice, the property covered
by the mortgage was sold to Mr. Arsenio Reyes as the highest
bidder thereof." (pp. 23-24, Rollo)
Additionally, petitioners alleged that in 1968, after the auction
sale had become final and after a new title over the property
in question had already been issued in Arsenio Reyes' name,
they, purportedly without knowledge thereof, constructed a
new house over the said property. Upon learning for the first
time of the said foreclosure sale (i.e. when they received a
copy of a Writ of Possession from the City Sheriff of Kalookan),
petitioners filed a complaint dated 11 March 1969 (vide,
Record on Appeal, p. 37 Rollo) for "Declaration of Nullity of
Extrajudicial Foreclosure Sale, Reconveyance, etc., with
Damages." In its Decision dated 31 August 1976, the trial
court dismissed the aforesaid complaint, prompting an appeal
by petitioners to the respondent Court, which court rendered
its now questioned decision dated 23 September 1985.
It is presently argued by petitioners that: (1) the extrajudicial
foreclosure is invalid and irregular since personal notice
thereof was not given to them in their proper residence; (2)
they should have been allowed to redeem their property, even
after the consolidation of the title thereto in the purchaser's
name, in view of the absence of personal notice to them; (3)
the petitioners must be considered the owners of the new
residential house on the property, erected after title to the
same had been consolidated in the purchaser's name; and (4)
in case the foreclosure is not valid, petitioners must be
considered builders in good faith, thus entitled to the benefits
provided in Article 448 of the Civil Code.
1. The petitioners' first and second arguments are
devoid of merit. It has been satisfactorily shown that
petitioners defaulted in the payment of their loan to
respondent Development Bank of the Philippines (DBP). They
actually made only two installment payments. This justifies
the subsequent foreclosure sale of the land in issue pursuant
to Act 3135, as amended. And with respect to the requirement
of notice, Section 3 of said Act states:
"Sec. 3. Notice shall be given by posting notices of the sale
for not less than twenty days (20) in at least three (3) public
places of the municipality or city where the property is
situated, and if such property is worth more than four hundred
pesos, such notice shall also be published once a week for at
least three consecutive weeks in a newspaper of general
circulation in the municipality or city."
It is crystal clear from the above provision that personal notice
to the mortgagor is not necessary; only posting and
publication, in some cases, are required.
But in pleading their case, petitioners invoke paragraph 10 of
the Deed of Mortgage (vide, p. 28, Rollo) which provides:
MichTrina Evidence Library Work
"10. All correspondence relative to this mortgage,
including demand letters, summons, subpoenas, or
notification of any judicial or extrajudicial action, shall be sent
to the Mortgagor at _________ or at the address that may
hereafter be given in writing by the Mortgagor to the
Mortgagee."
While the above stipulation points to a place (which, notably
was clearly stated) where all correspondence relative to the
mortgage are to be sent, it does not specifically require that
personal notice of foreclosure sale be given to petitioner. The
said paragraph 10 presumes that a specific correspondence is
made but does not definitely require which correspondence
must be made. It would, therefore, be erroneous to say that
notice of extrajudicial foreclosure to the petitioners is required
for such is not the clear intention of the parties, and, thus,
may not be pursued. (Rule 130, Section 10).
But even if the contrary were true, the sending of "All
correspondence relative to this mortgage . . . " to the
petitioners may only be deemed, at the most, as an
expression of a general intent. As such, it may not prevail
against the parties' specific intent that Act No. 3135 be the
controlling law between them. This is so since "a particular
intent will control a general one that is inconsistent with it."
(Rule 130, Sec. 10). It is clear from the Deed of Mortgage that
the Mortgagee Bank (DBP) may, under any of the specific
circumstances enumerated, proceed to "foreclose this
mortgage . . . extrajudicially under Act No. 3135, as
amended." (p. 28, Rollo). Having invoked the said Act, it shall
"govern the manner in which the sale and redemption shall be
effected" (Sec. 1, Act 3135). And as already shown earlier Act
3135 does not require personal notice of the foreclosure sale
to the mortgagor. Incidentally, it was found by the trial court
that notices of the foreclosure sale were duly posted and
published in accordance with law. As such, petitioners are in
estoppel; they cannot now deny that they were not informed
of the said sale.
Banking on their premise of want of personal notice,
petitioners now contend that they should be allowed to
redeem the property foreclosed as We did so permit in the
case of Perez v. PNB (17 SCRA 833). In the first place, however
there was proper notice to petitioners in compliance with
Section 3 of RA 3135. Such is the finding of both the lower
court and the respondent IAC, to which we accord great
respect and give much weight and value (Pring v. CA, 138
SCRA 185; Rizal Cement Co., Inc. v. Villareal, 135 SCRA 575).
And secondly, the case of Perez v. PNB, supra, could not
possibly be applied to the case at bar since the former refers
to a situation where the mortgagor had died, thus
necessitating personal notice to the latter's heirs for reasons
of justice and equity to enable the latter to pre-empt the
foreclosure sale through seasonable payment or subsequently
make a seasonable redemption. In this present case, the
mortgagor was very much alive when the foreclosure sale was
conducted. And more importantly petitioners were very much
aware of their default (see IAC Decision, p. 28-29, Rollo) thus
the occurrence of the foreclosure sale depended upon their
will.
With regard to petitioner's misgiving as to the alleged
discrepancy between the purchase price private respondent
paid (i.e., P2,140.00) and the value of the property, which
they estimate to be no less than P20,000.00. We concur with
the respondent Bank's observations:
Page 2
"In the first place, the amount of P20,000.00 is only an
arbitrary valuation placed by the petitioners on the property
foreclosed and not supported by any document or evidence to
justify such valuation.
"But even assuming the correctness of the valuation placed
by the petitioners on the property, the inadequacy of the price
at which it was sold at public auction does not invalidate the
foreclosure sale. As said by this Honorable Court in the case of
DBP v. Moll (43 SCRA 82):
"Where there is a right to redeem, inadequacy of price is not
material because the judgment debtor may re-acquire the
property or else sell his right to redeem and thus recover any
loss he claims to have suffered by reason of the price
obtained at the execution sale. Mere inadequacy of the price
obtained at the Sheriff's sale unless shocking to the
conscience will not be sufficient also to set aside the sale if
there is no showing that, in the event of a regular sale, a
better price can be obtained. This is based on the theory that
the lesser the price the easier it will be for the owner to effect
the redemption." (Comment, p. 41, Rollo)
2. Petitioners represent that in 1968, after the
foreclosure sale and following the issuance of a new title to
the property in private respondent's name (as purchaser),
they constructed a new residential house worth at least
P6,000.00, being unaware of said sale and transfer of
ownership. In the light of said circumstance, petitioners assail
the lower court's decision for not awarding to them the said
new house as owners hereof. Considering, however, the
findings of fact of the respondent IAC, We are constrained to
deny petitioners' plea. Not finding any indiscretion on the part
of respondent IAC, its findings of fact are conclusive upon us
(Pring v. CA, supra; Premier Insurance and Surety Corporation
v. IAC, 141 SCRA 423; Vda. de Roxas v. IAC, 143 SCRA 77;
People v. Canada, 144 SCRA 121). Thus, the IAC said:
"Finally, We find no merit in plaintiffs' contention that the
lower court erred in not declaring plaintiff as owner of the new
residential house allegedly erected on the land in 1968 or
after the auction sale on April 6, 1966. There is no evidence
that plaintiff constructed a new house in 1968 on the
mortgaged premises other than plaintiffs' own self-serving
testimony. Plaintiffs did not even declare the said house for
taxation nor pay the taxes thereon. Neither had plaintiff
informed defendant DBP and/or secured the latter's consent
to the construction of the alleged new house. Paragraph 9 of
the Mortgage Contract stipulates that the mortgagor shall not
make any alteration upon or demolish any building or
buildings herein mortgaged without the prior written consent
of the mortgagees" (IAC Decision, p. 30, Rollo).
In view of what has been said in the preceding paragraphs,
We find it needless to discuss the third assigned error, except
to say that the option under Art. 448 of the Civil Code, with
respect to any other useful improvements, is given to the
owner of the land (the private respondent), and not to the
petitioners, even assuming the latter acted in good faith. Note
that here, the private respondent has not even acted yet on
his option.
WHEREFORE, considering the above, we hereby DENY the
present petition and AFFIRM the ruling of the respondent
Intermediate Appellate Court. SO ORDERED.
THIRD DIVISION
MichTrina Evidence Library Work
[G.R. No. 184081. June 19, 2009.]
GLOBAL HOLIDAY OWNERSHIP CORPORATION, petitioner, vs.
METROPOLITAN BANK & TRUST COMPANY, respondent.
DECISION
YNARES-SANTIAGO, J p:
This petition for review on certiorari assails the March 31,
2008 Decision 1 of the Court of Appeals in CA-G.R. SP No.
97287, which annulled and set aside the July 26, 2006 and
October 6, 2006 Orders of the Regional Trial Court of Makati,
Branch 146, granting petitioner's prayer for a writ of
preliminary injunction in Civil Case No. 06-549 and directed
the judge to dissolve the said writ. Also assailed is the August
7, 2008 Resolution 2 denying the motion for reconsideration.
cHSIAC
The facts as found by the appellate court are as follows:
Global Holiday Ownership Corporation (Global for short)
obtained on various dates several loans from . . . Metrobank in
the total principal amount of P5,700,000.00 secured by a real
estate mortgage over a condominium unit under
Condominium Certificate of Title No. 29774 of the Registry of
Deeds for Makati City. Upon default in the payment of the
loan, . . . Global requested for a restructuring of its loan in the
total principal amount of P6,375,000.00 as of September 3,
2001. (Metrobank) acceded to its request.
As . . . Global defaulted anew in the payment of its loan, it
requested for another restructuring which was likewise
granted by the bank. Hence, a Debt Settlement Agreement
was executed by the parties on November 15, 2001 detailing
a schedule of payment of the principal obligation of
P6,375,000.00 within a 3-year period up to August 19, 2004
as well (sic) the interest on the principal, payable quarterly
based on the prevailing market rates beginning December 2,
2001 and every 90 days thereafter, without need of notice or
demand, the full payment of which shall be on or before
August 29, 2002.
xxx xxx xxx
Global failed to comply with the terms and conditions of the
Debt Settlement Agreement. Despite demands made upon it
for payment on December 22, 2005 and May 18, 2006, it still
failed and refused to pay (Metrobank) the loans which are all
past due.
Thus on May 22, 2006, (Metrobank) requested the Clerk of
Court of the RTC of Makati City to cause the sale at public
auction of CCT No. 29774 pursuant to Act 3135 as amended.
The sale was scheduled on July 10, 2006 at 10:00 a.m. per
notice of sheriff's sale.
Four (4) days before the date of the auction sale or on July 6,
2006, . . . Global filed the instant complaint for annulment of
extrajudicial foreclosure proceedings, damages and injunction
with application for TRO and/or writ of preliminary injunction.
Respondent judge granted Global's application for temporary
restraining order on July 7, 2006 and set the prayer for a writ
of preliminary injunction for hearing on July 14, 2006. After
hearing, respondent judge issued an Order on July 26, 2006
granting Global's application for a writ of preliminary
injunction. (Metrobank) moved to reconsider this Order but
Page 3
respondent judge denied the motion in the Order dated
October 6, 2006. 3 HDcaAI
Metrobank filed a petition for certiorari before the Court of
Appeals arguing that Global is not entitled to injunctive relief
because it has not shown that it had a legal right that must be
protected. Metrobank thus prayed that the trial court's
issuances dated July 26, 2006 and October 6, 2006 be
annulled and set aside.
(Metrobank) stresses that in view of . . . Global's admission
that it failed to pay its loan, the latter has definitely no right in
esse to be protected as it was clearly provided in the deed of
real estate mortgage and in the Debt Settlement Agreement
that the mortgage can be foreclosed by (Metrobank) in case of
default.
(Metrobank) contends that . . . Global's claim of not having
been notified of the foreclosure proceedings is debunked by
the Certification issued by the Makati Central Post Office
dated August 2, 2006 stating that a copy of the notice of
sheriff sale was sent to Global and was received by it on June
23, 2006. Moreover, (Metrobank's) several demand letters to .
. . Global urging it to pay its overdue account with a warning
that in case of failure to do, actions to protect the bank's
interests will be initiated, more than satisfies the requirement
of notice. Additionally, (Metrobank) emphasizes that Sec. 14
of the real estate mortgage was already superseded by Sec. 5
of the Debt Settlement Agreement whereby Global waived its
right to be personally notified in case of default.
(Metrobank) argues that no personal notice of the extrajudicial
foreclosure is even required as said proceeding is an action in
rem where only notice by publication and posting is necessary
to bind the interested parties, citing Bobanan vs. Court of
Appeals, G.R. No. 111654, April 18, 1996. The law itself, Act
No. 3135, does not require personal notice to the mortgagor.
Only notice by publication and posting are required. Likewise,
(Metrobank) points to Administrative Matter No. 99-10-05-0
dated February 26, 2002 (Re: Procedure in the Extrajudicial
Foreclosure of Mortgage) wherein the Supreme Court
acknowledged that personal notice to the debtor-mortgagor in
case of extrajudicial foreclosure of real estate mortgage is not
required by Act No. 3135 as the addition of such requirement
can only make the proceedings cumbersome.
For its part, . . . Global avers that after it defaulted in its
quarterly payment under the Debt Settlement Agreement,
(Metrobank) informed it on May 30, 2003 that its account is
being considered for transfer to a Special Purpose Vehicle
under the SPV Act of 2002. Within the period given to signify
its conformity to the plan, . . . Global wrote (Metrobank) on
July 4, 2003 informing (Metrobank) that it is (sic) amenable to
its proposal to transfer the loan to a special purpose vehicle
company. Instead of transferring its account to a SPV
Company, (Metrobank) decided to proceed with the
extrajudicial foreclosure of the mortgaged property with the
sheriff setting the auction sale on July 10, 2006. Such being
the case, there is nothing that can be ascribed in the July 26,
2006 Order of respondent judge that could be considered
whimsical, capricious, arbitrary and despotic, . . . Global
asserts. IECAaD
Mere failure to pay a secured obligation, according to Global,
does not give the mortgagee bank the unbridled right to
foreclose the mortgage, more so in this case when the interest
rate on a loan is unilaterally imposed or increased by
MichTrina Evidence Library Work
(Metrobank) without Global's consent, in violation of mutuality
of contract. Besides, there is already a perfected contract
between (Metrobank) and . . . Global to transfer the latter's
account to a special purpose vehicle company.
Finally, . . . Global claimed that it has not waived its right to be
notified of the foreclosure when it executed the Debt
Settlement Agreement. The statement "without need of
demand" in the debt settlement agreement refers to the
payment of the principal and interest, which is different from
notice of extrajudicial foreclosure that is required to be given
to a mortgagor. 4
In the assailed March 31, 2008 Decision, the Court of Appeals
granted Metrobank's petition and set aside the July 26, 2006
and October 6, 2006 orders of the trial court, with a directive
to dissolve the writ of preliminary injunction it issued. The
appellate court found that Global had no legal right to an
injunction; that Metrobank had the undeniable right to
foreclose on the real estate mortgage in view of Global's
default in the settlement of its obligation to the bank; that
Global had not shown any legal justification to enjoin it from
enforcing this right; that it is not required that Global be
personally informed of the foreclosure of its mortgaged
property, since personal notice is not necessary; the
applicable law Act 3135 5 requires only notice by
publication and posting; that under Administrative Matter No.
99-10-05-0 6 in relation to Act 3135, as amended, personal
notice to the debtor-mortgagor in case of extrajudicial
foreclosure of real estate mortgage is not required; and that
by declaring that the foreclosure proceedings were defective
and null and void, the trial court's issuances granting Global's
prayer for a writ of preliminary injunction constituted a
premature disposition of the case on its merits, a pre-
judgment that went beyond the nature of the proceeding then
being taken, which was merely for the issuance of a writ of
preliminary injunction. 7
Global moved to reconsider the decision, however, it was
denied by the Court of Appeals in the assailed August 7, 2008
Resolution.
Hence, this petition by Global raising the following as errors:
First Assigned Error:
The Honorable Court of Appeals (erred in) ruling . . . that
personal notice to the debtor-mortgagor of the extrajudicial
foreclosure is not necessary despite the parties' stipulation in
their Real Estate Mortgage contract requiring personal notice
thereof . . . . aIcDCH
Second Assigned Error:
The Honorable Court of Appeals seriously erred in its
interpretation and application of Supreme Court
Administrative Matter No. 99-10-05-0 dated February 26, 2002
that in extrajudicial foreclosure of real estate mortgage,
personal notice to the debtor-mortgagor is not necessary.
Third Assigned Error:
The Honorable Court of Appeals erred in applying the
superseded case of Cortez v. Intermediate Appellate Court
(G.R. No. 73678, July 21, 1989) in support of its ruling that the
parties' stipulation in their Real Estate Mortgage contract
requiring all correspondence relative to the mortgage to be
Page 4
sent at the mortgagor's given address is a mere expression of
"general intent" which cannot prevail over the parties'
"specific intent" to apply the provisions of Act 3135 in the
extrajudicial foreclosure of the mortgage as the same is
contrary to subsequent rulings of the Supreme Court.
Fourth Assigned Error
The Honorable Court of Appeals erred in relying on the cases
of BPI Family Savings Bank, Inc. v. Veloso, 436 SCRA 1; China
Banking Corporation v. CA, 265 SCRA 327; and Selegna Mgnt.
& Devt. Corp. v. UCPB, G.R. No. 165662, May 3, 2006, to
support its findings that petitioner has no clear legal right to
be protected, since the trial court's issuance of the injunctive
writ was founded on the mortgagee's non-compliance with the
stipulated personal notice to the mortgagor.
Fifth Assigned Error
The Honorable Court of Appeals' ruling that there was no
perfected contract to transfer petitioner's account to a Special
Purpose Vehicle despite its finding that respondent MBTC
made a proposal thereon to GHOC is contrary to the provision
of Article 1319 of the Civil Code of the Philippines since there
was unqualified acceptance of the proposal.
Sixth Assigned Error
The Honorable Court of Appeals erroneously ruled that
petitioner was personally notified of the foreclosure
proceedings as evidenced by the Certification of the Clerk of
Court of Makati RTC when such Certification is non-existent in
the records of the case. caITAC
Seventh Assigned Error
The Honorable Court of Appeals erred in denying petitioner's
Motion for Reconsideration despite the apparent falsified
Certification submitted by respondent thru its Comment to the
motion.
Eighth Assigned Error
The Honorable Court of Appeals seriously erred in finding that
the grant by the trial court of the injunctive writ is completely
without justification and in grave abuse of its discretion.
The issues for resolution are: whether Metrobank's failure to
serve personal notice upon Global of the foreclosure
proceedings renders the same null and void; and whether the
trial court properly issued a writ of injunction to prevent
Metrobank from proceeding with the scheduled auction sale of
Global's condominium unit.
We grant the petition.
Paragraph 14 of the real estate mortgage contract states that:
All correspondence relative to this mortgage, including
demand letters, summonses, subpoenas or notifications of
any judicial or extra-judicial actions shall be sent to the
Mortgagor at the address hereinabove given or at the address
that may hereafter be given in writing by the Mortgagor to the
Mortgagee, and the mere act of sending any correspondence
by mail or by personal delivery to the said address shall be
valid and effective notice to the Mortgagor for all legal
purposes, and the fact that any communication is not actually
MichTrina Evidence Library Work
received by the Mortgagor, or that it has been returned
unclaimed to the Mortgagee, or that no person was found at
the address given, or that the address is fictitious, or cannot
be located, shall not excuse or relieve the Mortgagor from the
effect of such notice. 8
This specific provision in the parties' real estate mortgage
agreement is the same provision involved in the case of
Metropolitan Bank and Trust Company v. Wong, 9 where the
Court made the following pronouncement:
It is bad enough that the mortgagor has no choice but to yield
his property in a foreclosure proceeding. It is infinitely worse,
if prior thereto, he was denied of his basic right to be informed
of the impending loss of his property. This is another instance
when law and morals echo the same sentiment. cSIHCA
xxx xxx xxx
Thus, disregarding all factual issues which petitioner
interjected in his petition, the only crucial legal queries in this
case are: first, is personal notice to respondent a condition
sine qua non to the validity of the foreclosure proceedings?
and, second, is petitioner's non-compliance with the posting
requirement under Section 3, Act No. 3135 fatal to the validity
of the foreclosure proceedings?
In resolving the first query, we resort to the fundamental
principle that a contract is the law between the parties and,
that absent any showing that its provisions are wholly or in
part contrary to law, morals, good customs, public order, or
public policy, it shall be enforced to the letter by the courts.
Section 3, Act No. 3135 reads:
"Sec. 3. Notice shall be given by posting notices of the sale
for not less than twenty days in at least three public places of
the municipality or city where the property is situated, and if
such property is worth more than four hundred pesos, such
notice shall also be published once a week for at least three
consecutive weeks in a newspaper of general circulation in
the municipality and city."
The Act only requires (1) the posting of notices of sale in three
public places, and (2) the publication of the same in a
newspaper of general circulation. Personal notice to the
mortgagor is not necessary. Nevertheless, the parties to the
mortgage contract are not precluded from exacting additional
requirements. In this case, petitioner and respondent in
entering into a contract of real estate mortgage, agreed inter
alia:
"all correspondence relative to this mortgage, including
demand letters, summonses, subpoenas, or notifications of
any judicial or extra-judicial action shall be sent to the
MORTGAGOR at 40-42 Aldeguer St., Iloilo City, or at the
address that may hereafter be given in writing by the
MORTGAGOR to the MORTGAGEE."
Precisely, the purpose of the foregoing stipulation is to apprise
respondent of any action which petitioner might take on the
subject property, thus according him the opportunity to
safeguard his rights. When petitioner failed to send the notice
of foreclosure sale to respondent, he committed a contractual
breach sufficient to render the foreclosure sale on November
23, 1981 null and void. 10 (Emphasis supplied) AHSaTI
Page 5
We do not see how a different outcome could have been
expected in the present case which involves the same
contractual provision as that in the abovementioned case
not to mention the same mortgagee. In cases subsequent to
Wong, we sustained the same principle: that personal notice
to the mortgagor in extrajudicial foreclosure proceedings is
not necessary, unless stipulated. 11
If respondent wanted to rid itself of the effects of the Court's
pronouncement in Wong, considering that it was a party to the
case and knows firsthand about the Court's disposition, it
should have caused the deletion of Paragraph 14 from all its
subsequent standard form real estate mortgage agreements,
or if not, modified the provision or the contracts accordingly. A
modification of the mortgage contract on this point, with
respect to Global, would not have been difficult; an addendum
would have sufficed.
Taking from Wong, we must interpret Paragraph 14 of the
parties' mortgage contract as one having been made for the
benefit of the mortgagor, and one which Metrobank knowingly
incorporated into the agreement. Having been in the business
of banking since 1962 or for more than forty years now it
certainly had the knowledge, experience and the resources to
correct any perceived oversight it was guilty of making in the
past with respect to its contracts. Although we do not view
Paragraph 14 to be one such oversight; as we have declared
in Wong, the purpose of said stipulation is benign: to apprise
the mortgagor of any action which Metrobank might take on
the subject property, thus according him the opportunity to
safeguard his rights. We cannot allow Metrobank to disavow
its solemn covenant with Global, to turn its back on a contract
which it prepared on its own, without the intervention of the
other party. A party should not, after having its opportunity to
enjoy the benefits of an agreement, be allowed to later
disown the arrangement when the terms thereof ultimately
would prove to operate against its hopeful expectations. 12
The business of banking is imbued with public interest. It
carries with it a fiduciary duty that requires high standards of
integrity and performance. 13 Our decision in Wong was not a
mere declaration of what the law is on a given point; its
underlying message is our acknowledgment that banks must
play a compassionate role amidst these changing times. That
in the wake of huge profits being made from their operations,
all that is required is for them to inform the borrower of the
impending loss of his property when their covenants require
it. This is a valid argument when viewed within the context of
the principle that any attempt to vest ownership of the
encumbered property in the mortgagee without proper
observance of the requirements of law is against public policy.
14 AaHDSI
Paragraph 14 is clear that "all correspondence relative to this
mortgage, including demand letters, summonses, subpoenas
or notifications of any judicial or extrajudicial actions shall be
sent to the mortgagor at the address hereinabove given or at
the address that may hereafter be given in writing by (it)." It
must be recalled that the principal object of a notice of sale in
a foreclosure of mortgage is not so much to notify the
mortgagor as to inform the public generally of the nature and
condition of the property to be sold, and of the time, place,
and terms of the sale. Notices are given to secure bidders and
prevent a sacrifice of the property. Clearly, the statutory
requirements of posting and publication are mandated, not for
MichTrina Evidence Library Work
the mortgagor's benefit, but for the public or third persons. 15
Taking this into context, the stipulation in the mortgage
agreement requiring notice to the mortgagor of extrajudicial
actions to be taken operates as a contractual undertaking for
the latter's sole benefit, such that the mortgagee is mandated
to strictly abide by the same.
Metrobank claims that Cortes v. Intermediate Appellate Court
16 should be applied in the resolution of the present
controversy. In said case, the Court held:
But in pleading their case, petitioners invoke paragraph 10 of
the Deed of Mortgage (vide, p. 28, Rollo) which provides:
"10. All correspondence relative to this mortgage,
including demand letters, summons, subpoenas, or
notification of any judicial or extrajudicial action, shall be sent
to the Mortgagor at _________ or at the address that may
hereafter be given in writing by the Mortgagor to the
Mortgagee."
While the above stipulation points to a place (which, notably
was clearly stated) where all correspondence relative to the
mortgage are to be sent, it does not specifically require that
personal notice of foreclosure sale be given to petitioner. The
said paragraph 10 presumes that a specific correspondence is
made but does not definitely require which correspondence
must be made. It would, therefore, be erroneous to say that
notice of extrajudicial foreclosure to the petitioners is required
for such is not the clear intention of the parties, and, thus,
may not be pursued. (Rule 130, Section 10).
But even if the contrary were true, the sending of "All
correspondence relative to this mortgage . . . " to the
petitioners may only be deemed, at the most, as an
expression of a general intent. As such, it may not prevail
against the parties' specific intent that Act No. 3135 be the
controlling law between them. This is so since "a particular
intent will control a general one that is inconsistent with it."
(Rule 130, Sec. 10). It is clear from the Deed of Mortgage that
the Mortgagee Bank (DBP) may, under any of the specific
circumstances enumerated, proceed to "foreclose this
mortgage . . . extrajudicially under Act No. 3135, as
amended." (p. 28, Rollo). Having invoked the said Act, it shall
"govern the manner in which the sale and redemption shall be
effected" (Sec. 1, Act 3135). And as already shown earlier Act
3135 does not require personal notice of the foreclosure sale
to the mortgagor. Incidentally, it was found by the trial court
that notices of the foreclosure sale were duly posted and
published in accordance with law. As such, petitioners are in
estoppel; they cannot now deny that they were not informed
of the said sale. 17 (Emphasis supplied) HcaATE
But what is stated in Cortes no longer applies in light of the
Court's rulings in Wong and all the subsequent cases, which
have been consistent. Cortes has never been cited in
subsequent rulings of the Court, nor has the doctrine therein
ever been reiterated. Its doctrinal value has been diminished
by the policy enunciated in Wong and the subsequent cases;
that is, that in addition to Section 3 of Act 3135, the parties
may stipulate that personal notice of foreclosure proceedings
may be required. Act 3135 remains the controlling law, but
the parties may agree, in addition to posting and publication,
to include personal notice to the mortgagor, the non-
observance of which renders the foreclosure proceedings null
and void, since the foreclosure proceedings become an illegal
Page 6
attempt by the mortgagee to appropriate the property for
itself.
Thus, we restate: the general rule is that personal notice to
the mortgagor in extrajudicial foreclosure proceedings is not
necessary, and posting and publication will suffice. Sec. 3 of
Act 3135 governing extra-judicial foreclosure of real estate
mortgages, as amended by Act 4118, requires only posting of
the notice of sale in three public places and the publication of
that notice in a newspaper of general circulation. The
exception is when the parties stipulate that personal notice is
additionally required to be given the mortgagor. Failure to
abide by the general rule, or its exception, renders the
foreclosure proceedings null and void. 18
Global's right to be furnished with personal notice of the
extrajudicial foreclosure proceedings has been established.
Thus, to continue with the extrajudicial sale without proper
notice would render the proceedings null and void; injunction
is proper to protect Global's rights and to prevent unnecessary
injury that would result from the conduct of an irregular sale.
It is beyond question that a writ of preliminary injunction is
issued to prevent an extrajudicial foreclosure, upon a clear
showing of a violation of the mortgagor's unmistakable right.
19 The trial court was thus correct in granting an injunction.
Metrobank's reliance on Ardiente v. Provincial Sheriff 20 is
misplaced. The cited case is merely a reiteration of the
general rule, since the parties therein did not stipulate in their
mortgage agreement that personal notice of judicial or
extrajudicial actions shall be furnished the mortgagor.
Neither can the circumstance that Global received a notice of
sheriff's sale from the Office of the Clerk of Court of the
Regional Trial Court of Makati City cure the defect occasioned
by Metrobank's violation of its covenant under the mortgage
agreement. As already stated, the object of a notice of sale in
a foreclosure of mortgage is not for the mortgagor's benefit,
but for the public or third persons; on the other hand, the
undertaking in a mortgage deed to notify the mortgagor of all
judicial or extrajudicial actions relative to the mortgage is
especially for the mortgagor's benefit, so that he may
safeguard his rights. IAEcaH
Under the parties' Debt Settlement Agreement, 21 Global's
obligation was reduced (Metrobank waived the penalties
incurred), but the agreement carried a proviso that if such
reduced obligation was not timely settled and Global
defaulted on two consecutive amortizations, Metrobank shall
be entitled to treat Global's obligation as outstanding, impose
a penalty at the rate of 18% per annum, and/or foreclose on
the real estate mortgage, without need of demand. According
to Metrobank, this provision in the Debt Settlement
Agreement resulted in a waiver by Global of the required
personal notice under Paragraph 14 of the mortgage contract.
We disagree. Demand here relates to the principal obligation,
which shall become due and demandable and shall incur
interest and penalties without need of informing Global, were
the conditions of the Debt Settlement Agreement not
observed. It does not relieve Metrobank of its obligation under
Paragraph 14 of the Mortgage Contract, which is a separate
agreement, distinct and apart from the Debt Settlement
Agreement. As we have said, only an addendum or
modification of the mortgage agreement can relieve
Metrobank of the adverse effects of Paragraph 14.
MichTrina Evidence Library Work
Given the merits of the case, we are not at this point inclined
to dismiss the petition, on respondent's argument that there
was a defective verification and certification accompanying
the present petition. We can simply require petitioner to
submit proof of its President Pedro P. Diomampo's authority to
sign the petition in its behalf, but we no longer see the need
to do the same at this late stage. Under the parties' mortgage
agreement, Global was formerly named Diomampo Industries,
Inc.; 22 certainly, we have been equally less rigid in previous
cases. 23
We agree with the appellate court that Metrobank had every
right to choose whether to foreclose on the mortgage or to
transfer Global's account to a special purpose vehicle. In this
respect, Global has no right to interfere. Besides, what
Metrobank conveyed to Global about transferring the latter's
account to a special purpose vehicle was that it was merely
considering such move; eventually, it wrote Global of its
decision not to exercise the option, and proceed with
foreclosure of the mortgage instead. In the first place,
whether Global's account could qualify for transfer to a special
purpose vehicle is not for the latter to determine; under the
Special Purpose Vehicle Act of 2002, 24 the decision belongs
to the appropriate regulatory authority.
Penultimately, we do not subscribe to Metrobank's argument
that the foreclosure proceedings should continue, since Global
is not without adequate protective remedy, like annotation of
lis pendens, participating in the auction sale, or redemption.
Annotation of lis pendens is unnecessary, since the issue may
now be resolved at this point; participating in null and void
foreclosure proceedings is no valid option, just as well as
redeeming the property following a void auction sale.
cTAaDC
Finally, the granting of the writ of preliminary injunction would
not in effect dispose of the main case without trial. The
granting of the writ would only enjoin the foreclosure of the
mortgage for lack of personal notice, and the status quo
would be maintained. It does not prevent Metrobank from
foreclosing on the mortgage after giving personal notice. The
only lesson to be learned from the present case is that the law
must be followed to the letter; no shortcuts are allowed. 25
WHEREFORE, the petition is GRANTED. The March 31, 2008
Decision and August 7, 2008 Resolution of the Court of
Appeals in CA-G.R. SP No. 97287 are hereby ANNULLED and
SET ASIDE. The July 26, 2006 and October 6, 2006 Orders of
the Regional Trial Court of Makati, Branch 146 are REINSTATED
and AFFIRMED. SO ORDERED.
THIRD DIVISION
[G.R. No. 142838. August 9, 2001.]
ABELARDO B. LICAROS, petitioner, vs. ANTONIO P.
GATMAITAN, respondent.
Martinez and Perez Law Offices for petitioner.
Belo Gozon Parel Asuncion & Liciila for private respondent.
SYNOPSIS
The Anglo-Asean Bank and Trust Limited (Anglo-Asean), is a
private bank registered and organized to do business under
the laws of the Republic of Vanuatu but not in the Philippines.
Page 7
Its business consists primarily in receiving fund placements by
way of deposits from institutions and individual investors from
different parts of the world. Enticed by the lucrative prospects
of doing business with Anglo-Asean, Abelardo Licaros, a
Filipino businessman, decided to make a fund placement with
said bank sometime in the 1980's. After having invested in
Anglo-Asean, he encountered tremendous and unexplained
difficulties in retrieving, not only the interest or profits, but
also the very investments he had put in Anglo-Asean. He
decided to seek the counsel of Antonio P. Gatmaitan, a
reputable banker and investment manager who had been
extending managerial, financial and investment consultancy
services to various firms and corporations both here and
abroad. Gatmaitan voluntarily offered to assume the payment
of Anglo-Asean's indebtedness to Licaros subject to certain
terms and conditions. In order to effectuate and formalize the
parties' respective commitments, the two executed a
notarized memorandum of agreement. Thereafter, Gatmaitan
presented to Anglo-Asean the said memorandum of
agreement for the purpose of collecting Licaros' placement
thereat. No formal response was ever made by said bank to
either Licaros or Gatmaitan. Evidently, because of his inability
to collect from Anglo-Asean, Gatmaitan did not bother
anymore to make good his promise to pay Licaros the amount
stated in his promissory note. Licaros, however, thought
differently. He felt that he had a right to collect on the basis of
the promissory note regardless of the outcome of Gatmaitan's
recovery efforts. Thus, Licaros, thru counsel, addressed
successive demand letters to Gatmaitan; demanding payment
of the latter's obligations under the promissory note.
Gatmaitan, however, did not accede to these demands.
Licaros filed a complaint in the Regional Trial Court of Makati
and prayed that Gatmaitan should pay him the principal
obligation, attorney's fees, and legal interest. After trial on the
merits, the court a quo rendered judgment in favor of
petitioner Licaros. Respondent Gatmaitan appealed the trial
court's decision to the Court of Appeals. In a decision
promulgated on February 10, 2000, the appellate court
reversed the decision of the trial court and held that
respondent Gatmaitan did not at any point become obligated
to pay to petitioner Licaros the amount stated in the
promissory note. The Court of Appeals also denied petitioner's
Motion for Reconsideration. Hence this petition for review. The
threshold issue for the determination of the Supreme Court is
whether the memorandum of agreement between petitioner
and respondent was one of assignment of credit or one of
conventional subrogation. CTAIHc
The Supreme Court agreed with the finding of the Court of
Appeals that the Memorandum of Agreement was in the
nature of a conventional subrogation which requires the
consent of the debtor, Anglo-Asean Bank, for its validity. The
Memorandum of Agreement never came into effect due to the
failure of the parties to get the consent of Anglo-Asean Bank
and, as such, respondent never became liable for the amount
stipulated therein. The absence of such conformity by Anglo-
Asean Bank prevented the Memorandum of Agreement from
becoming valid and effective. Accordingly, the Court of
Appeals did not err when it ruled that the Memorandum of
Agreement was never perfected. The Supreme Court denied
the petition and affirmed the decision of the Court of Appeals.
SYLLABUS
1. CIVIL LAW; CONTRACTS; ASSIGNMENT OF CREDIT;
DEFINED. An assignment of credit has been defined as the
MichTrina Evidence Library Work
process of transferring the right of the assignor to the
assignee who would then have the right to proceed against
the debtor. The assignment may be done gratuitously or
onerously, in which case, the assignment has an effect similar
to that of a sale.
2. ID.; ID.; SUBROGATION; DEFINED. On the other
hand, subrogation has been defined as the transfer of all the
rights of the creditor to a third person, who substitutes him in
all his rights. It may either be legal or conventional. Legal
subrogation is that which takes place without agreement but
by operation of law because of certain acts. Conventional
subrogation is that which takes place by agreement of parties.
3. ID.; ID.; ID.; DISTINGUISHED FROM ASSIGNMENT OF
CREDIT. The general tenor of the foregoing definitions of
the terms "subrogation" and "assignment of credit" may make
it seem that they are one and the same which they are not. A
noted expert in civil law notes their distinctions thus: "Under
our Code, however, conventional subrogation is not identical
to assignment of credit. In the former, the debtor's consent is
necessary; in the latter it is not required. Subrogation
extinguishes the obligation and gives rise to a new one;
assignment refers to the same right which passes from one
person to another. The nullity of an old obligation may be
cured by subrogation, such that a new obligation will be
perfectly valid; but the nullity of an obligation is not remedied
by the assignment of the creditor's right to another." For our
purposes, the crucial distinction deals with the necessity of
the consent of the debtor in the original transaction. In an
assignment of credit, the consent of the debtor is not
necessary in order that the assignment may fully produce
legal effects. What the law requires in an assignment of credit
is not the consent of the debtor but merely notice to him as
the assignment takes effect only from the time he has
knowledge thereof. A creditor may, therefore, validly assign
his credit and its accessories without the debtor's consent. On
the other hand, conventional subrogation requires an
agreement among the three parties concerned the original
creditor, the debtor, and the new creditor. It is a new
contractual relation based on the mutual agreement among
all the necessary parties. Thus, Article 1301 of the Civil Code
explicitly states that "(C)onventional subrogation of a third
person requires the consent of the original parties and of the
third person." SaIACT
4. ID.; ID.; INTERPRETATION THEREOF; AS A RULE,
VARIOUS STIPULATIONS SHALL BE INTERPRETED TOGETHER
ATTRIBUTING TO THE DOUBTFUL ONES THAT SENSE WHICH
MAY RESULT FROM ALL OF THEM TAKEN JOINTLY; APPLICATION
IN CASE AT BAR. It is a basic rule in the interpretation of
contracts that "(t)he 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."
Moreover, under our Rules of Court, it is mandated that "(i)n
the construction of an instrument where there are several
provisions or particulars, such a construction is, if possible, to
be adopted as will give effect to all." Further, jurisprudence
has laid down the rule that contracts should be so construed
as to harmonize and give effect to the different provisions
thereof. In the case at bench, the Memorandum of Agreement
embodies certain provisions that are consistent with either a
conventional subrogation or assignment of credit. It has not
been shown that any clause or provision in the Memorandum
of Agreement is inconsistent or incompatible with a
conventional subrogation. On the other hand, the two cited
Page 8
provisions requiring consent of the debtor to the
memorandum is inconsistent with a contract of assignment of
credit. Thus, if we were to interpret the same as one of
assignment of credit, then the aforementioned stipulations
regarding the consent of Anglo-Asean Bank would be rendered
inutile and useless considering that, as previously discussed,
the consent of the debtor is not necessary in an assignment of
credit.
5. ID.; ID.; ID.; QUESTION OF LAW MAY NOT BE THE
SUBJECT OF STIPULATIONS AND ADMISSIONS; CASE AT BAR.
With respect to the argument of petitioner that respondent
himself allegedly admitted in open court that an assignment
of credit was intended, it is enough to say that respondent
apparently used the word "assignment" in his testimony in the
general sense. Respondent is not a lawyer and as such, he is
not so well versed in law that he would be able to distinguish
between the concepts of conventional subrogation and of
assignment of credit. Moreover, even assuming that there was
an admission on his part, such admission is not conclusive on
this court as the nature and interpretation of the
Memorandum of Agreement is a question of law which may
not be the subject of stipulations and admissions.
DECISION
GONZAGA-REYES, J p:
This is a petition for review on certiorari under Rule 45 of the
Rules of Court. The petition seeks to reverse and set aside the
Decision 1 dated February 10, 2000 of the Court of Appeals
and its Resolution 2 dated April 7, 2000 denying petitioner's
Motion for Reconsideration thereto. The appellate court
decision reversed the Decision 3 dated November 11, 1997 of
the Regional Trial Court of Makati, Branch 145 in Civil Case No.
96-1211. acIASE
The facts of the case, as stated in the Decision of the Court of
Appeals dated February 10, 2000, are as follows:
"The Anglo-Asean Bank and Trust Limited (Anglo-Asean, for
brevity), is a private bank registered and organized to do
business under the laws of the Republic of Vanuatu but not in
the Philippines. Its business consists primarily in receiving
fund placements by way of deposits from institutions and
individual investors from different parts of the world and
thereafter investing such deposits in money market
placements and potentially profitable capital ventures in
Hongkong, Europe and the United States for the purpose of
maximizing the returns on those investments.
Enticed by the lucrative prospects of doing business with
Anglo-Asean, Abelardo Licaros, a Filipino businessman,
decided to make a fund placement with said bank sometime
in the 1980's. As it turned out, the grim outcome of Licaros'
foray in overseas fund investment was not exactly what he
envisioned it to be. More particularly, Licaros, after having
invested in Anglo-Asean, encountered tremendous and
unexplained difficulties in retrieving, not only the interest or
profits, but even the very investments he had put in Anglo-
Asean.
Confronted with the dire prospect of not getting back any of
his investments, Licaros then decided to seek the counsel of
Antonio P. Gatmaitan, a reputable banker and investment
manager who had been extending managerial, financial and
investment consultancy services to various firms and
MichTrina Evidence Library Work
corporations both here and abroad. To Licaros' relief,
Gatmaitan was only too willing enough to help. Gatmaitan
voluntarily offered to assume the payment of Anglo-Asean's
indebtedness to Licaros subject to certain terms and
conditions. In order to effectuate and formalize the parties'
respective commitments, the two executed a notarized
MEMORANDUM OF AGREEMENT on July 29, 1988 (Exh. "B";
also Exhibit "1"), the full text of which reads:
'Memorandum of Agreement
KNOW ALL MEN BY THESE PRESENTS:
This MEMORANDUM OF AGREEMENT made and executed this
29th day of July 1988, at Makati by and between:
ABELARDO B. LICAROS, Filipino, of legal age and holding office
at Concepcion Building, Intramuros, Manila hereinafter
referred to as THE PARTY OF THE FIRST PART,
and
ANTONIO P. GATMAITAN, Filipino, of legal age and residing at 7
Mangyan St., La Vista, hereinafter referred to as the PARTY OF
THE SECOND PART, cEHSIC
WITNESSETH THAT:
WHEREAS, ANGLO-ASEAN BANK & TRUST, a company
incorporated by the Republic of Vanuatu, hereinafter referred
to as the OFFSHORE BANK, is indebted to the PARTY OF THE
FIRST PART in the amount of US dollars; ONE HUNDRED FIFTY
THOUSAND ONLY (US$150,000) which debt is now due and
demandable.
WHEREAS, the PARTY OF THE FIRST PART has encountered
difficulties in securing full settlement of the said indebtedness
from the OFFSHORE BANK and has sought a business
arrangement with the PARTY OF THE SECOND PART regarding
his claims;
WHEREAS, the PARTY OF THE SECOND PART, with his own
resources and due to his association with the OFFSHORE
BANK, has offered to the PARTY OF THE FIRST PART to assume
the payment of the aforesaid indebtedness, upon certain
terms and conditions, which offer, the PARTY OF THE FIRST
PART has accepted; SEACTH
WHEREAS, the parties herein have come to an agreement on
the nature, form and extent of their mutual prestations which
they now record herein with the express conformity of the
third parties concerned;
NOW, THEREFORE, for and in consideration of the foregoing
and the mutual covenants stipulated herein, the PARTY OF
THE FIRST PART and the PARTY OF THE SECOND PART have
agreed, as they do hereby agree, as follows:
1. The PARTY OF THE SECOND PART hereby undertakes
to pay the PARTY OF THE FIRST PART the amount of US
DOLLARS ONE HUNDRED FIFTY THOUSAND ((US$150,000)
payable in Philippine Currency at the fixed exchange rate of
Philippine Pesos 21 to US$1 without interest on or before July
15, 1993.
For this purpose, the PARTY OF THE SECOND PART shall
execute and deliver a non negotiable promissory note,
Page 9
bearing the aforesaid material consideration in favor of the
PARTY OF THE FIRST PART upon execution of this
MEMORANDUM OF AGREEMENT, which promissory note shall
form part as ANNEX A hereof. HSEcTC
2. For and in consideration of the obligation of the
PARTY OF THE SECOND PART, the PARTY OF THE FIRST does
hereby;
a. Sell, assign, transfer and set over unto the PARTY OF
THE SECOND PART that certain debt now due and owing to the
PARTY OF THE FIRST PART by the OFFSHORE BANK, to the
amount of US Dollars One Hundred Fifty Thousand plus
Interest due and accruing thereon;
b. Grant the PARTY OF THE SECOND PART the full power
and authority, for his own use and benefit, but at his own cost
and expense, to demand, collect, receive, compound,
compromise and give acquittance for the same or any part
thereof, and in the name of the PARTY OF THE FIRST PART, to
prosecute, and withdraw any suit or proceedings therefor;
AcTDaH
c. Agree and stipulate that the debt assigned herein is
justly owing and due to the PARTY OF THE FIRST PART from
the said OFFSHORE BANK, and that the PARTY OF THE FIRST
PART has not done and will not cause anything to be done to
diminish or discharge said debt, or to delay or prevent the
PARTY OF THE SECOND PART from collecting the same; and;
d. At the request of the PARTY OF SECOND PART and the
latter's own cost and expense, to execute and do all such
further acts and deeds as shall be reasonably necessary for
proving said debt and to more effectually enable the PARTY OF
THE SECOND PART to recover the same in accordance with the
true intent and meaning of the arrangements herein.
IN WITNESS WHEREOF, the parties have caused this
MEMORANDUM OF AGREEMENT to be signed on the date and
place first written above.
Sgd. Sgd.
ABELARDO B. LICAROS ANTONIO P. GATMAITAN
PARTY OF THE FIRST PART PARTY OF THE FIRST PART
WITH OUR CONFORME:
ANGLO-ASEAN BANK & TRUST
BY: (Unsigned)
SIGNED IN THE PRESENCE OF.
Sgd. (illegible)
_________________________ _________________________
Conformably with his undertaking under paragraph 1 of the
aforequoted agreement, Gatmaitan executed in favor of
Licaros a NON-NEGOTIABLE PROMISSORY NOTE WITH
ASSIGNMENT OF CASH DIVIDENDS (Exhs. "A"; also Exh. "2"),
which promissory note, appended as Annex "A" to the same
Memorandum of Agreement, states in full, thus
"NON-NEGOTIABLE PROMISSORY NOTE
MichTrina Evidence Library Work
WITH ASSIGNMENT OF CASH DIVIDENDS
This promissory note is Annex A of the Memorandum of
Agreement executed between Abelardo B. Licaros and Antonio
P. Gatmaitan, on ______ 1988 at Makati, Philippines and is an
integral part of said Memorandum of Agreement.
P3,150,000.
On or before July 15, 1993, I promise to pay to Abelardo B.
Licaros the sum of Philippine Pesos 3,150,000 (P3,150,000)
without interest as material consideration for the full
settlement of his money claims from ANGLO-ASEAN BANK,
referred to in the Memorandum of Agreement as the
'OFFSHORE BANK'. THDIaC
As security for the payment of this Promissory Note, I hereby
ASSIGN, CEDE and TRANSFER, Seventy Percent (70%) of ALL
CASH DIVIDENDS, that may be due or owing to me as the
registered owner of ________________ (________) shares of stock
in the Prudential Life Realty, Inc.
This assignment shall likewise include SEVENTY PERCENT
(70%) of cash dividends that may be declared by Prudential
Life Realty, Inc. and due or owing to Prudential Life Plan, Inc.,
of which I am a stockholder, to the extent of or in proportion
to my aforesaid shareholding in Prudential Life Plan, Inc., the
latter being the holding company of Prudential Life Realty, Inc.
In the event that I decide to sell or transfer my aforesaid
shares in either or both the Prudential Life Plan, Inc. or
Prudential Life Realty, Inc. and the Promissory Note remains
unpaid or outstanding, I hereby give Mr. Abelardo B. Licaros
the first option to buy the said shares. SEDICa
Manila, Philippines
July ____, 1988
(SGD.)
Antonio P. Gatmaitan
7 Mangyan St., La Vista, QC
Signed in the Presence of
(SGD.)
________________ _______________
Francisco A. Alba
President, Prudential Life Plan, Inc.".
Thereafter, Gatmaitan presented to Anglo-Asean the
Memorandum of Agreement earlier executed by him and
Licaros for the purpose of collecting the latter's placement
thereat of U.S.$150,000.00. Albeit the officers of Anglo-Asean
allegedly committed themselves to "look into [this matter]",
no formal response was ever made by said bank to either
Licaros or Gatmaitan. To date, Anglo-Asean has not acted on
Gatmaitan's monetary claims. DEcITS
Evidently, because of his inability to collect from Anglo-Asean,
Gatmaitan did not bother anymore to make good his promise
to pay Licaros the amount stated in his promissory note (Exh.
"A"; also Exh. 2"). Licaros, however, thought differently. He felt
Page 10
that he had a right to collect on the basis of the promissory
note regardless of the outcome of Gatmaitan's recovery
efforts. Thus, in July 1996, Licaros, thru counsel, addressed
successive demand letters to Gatmaitan (Exhs. "C" and "D"),
demanding payment of the latter's obligations under the
promissory note. Gatmaitan, however, did not accede to these
demands.
Hence, on August 1, 1996, in the Regional Trial Court at
Makati, Licaros filed the complaint in this case. In his
complaint, docketed in the court below as Civil Case No. 96-
1211, Licaros prayed for a judgment ordering Gatmaitan to
pay him the following:
'a) Principal Obligation in the amount of Three Million
Five Hundred Thousand Pesos (P3,500,000.00);
b) Legal interest thereon at the rate of six (6%) percent
per annum from July 16, 1993 when the amount became due
until the obligation is fully paid; HcACTE
c) Twenty percent (20%) of the amount due as
reasonable attorney's fees;
d) Costs of the suit.'" 4
After trial on the merits, the court a quo rendered judgment in
favor of petitioner Licaros and found respondent Gatmaitan
liable under the Memorandum of Agreement and Promissory
Note for P3,150,000.00 plus 12% interest per annum from July
16, 1993 until the amount is fully paid. Respondent was
likewise ordered to pay attorney's fees of P200,000.00. 5
Respondent Gatmaitan appealed the trial court's decision to
the Court of Appeals. In a decision promulgated on February
10, 2000, the appellate court reversed the decision of the trial
court and held that respondent Gatmaitan did not at any point
become obligated to pay to petitioner Licaros the amount
stated in the promissory note. In a Resolution dated April 7,
2000, the Court of Appeals denied petitioner's Motion for
Reconsideration of its February 10, 2000 Decision.
Hence this petition for review on certiorari where petitioner
prays for the reversal of the February 10, 2000 Decision of the
Court of Appeals and the reinstatement of the November 11,
1997 decision of the Regional Trial Court. EIDTAa
The threshold issue for the determination of this Court is
whether the Memorandum of Agreement between petitioner
and respondent is one of assignment of credit or one of
conventional subrogation. This matter is determinative of
whether or not respondent became liable to petitioner under
the promissory note considering that its efficacy is dependent
on the Memorandum of Agreement, the note being merely an
annex to the said memorandum. 6
An assignment of credit has been defined as the process of
transferring the right of the assignor to the assignee who
would then have the right to proceed against the debtor. The
assignment may be done gratuitously or onerously, in which
case, the assignment has an effect similar to that of a sale. 7
On the other hand, subrogation has been defined as the
transfer of all the rights of the creditor to a third person, who
substitutes him in all his rights. It may either be legal or
conventional. Legal subrogation is that which takes place
without agreement but by operation of law because of certain
MichTrina Evidence Library Work
acts. Conventional subrogation is that which takes place by
agreement of parties. 8
The general tenor of the foregoing definitions of the terms
"subrogation" and "assignment of credit" may make it seem
that they are one and the same which they are not. A noted
expert in civil law notes their distinctions thus:
"Under our Code, however, conventional subrogation is not
identical to assignment of credit. In the former, the debtors
consent is necessary; in the latter it is not required.
Subrogation extinguishes the obligation and gives rise to a
new one; assignment refers to the same right which passes
from one person to another. The nullity of an old obligation
may be cured by subrogation, such that a new obligation will
be perfectly valid; but the nullity of an obligation is not
remedied by the assignment of the creditor's right to
another." 9
For our purposes, the crucial distinction deals with the
necessity of the consent of the debtor in the original
transaction. In an assignment of credit, the consent of the
debtor is not necessary in order that the assignment may fully
produce legal effects. 10 What the law requires in an
assignment of credit is not the consent of the debtor but
merely notice to him as the assignment takes effect only from
the time he has knowledge thereof. 11 A creditor may,
therefore, validly assign his credit and its accessories without
the debtor's consent. 12 On the other hand, conventional
subrogation requires an agreement among the three parties
concerned the original creditor, the debtor, and the new
creditor. It is a new contractual relation based on the mutual
agreement among all the necessary parties. Thus, Article
1301 of the Civil Code explicitly states that "(C)onventional
subrogation of a third person requires the consent of the
original parties and of the third person." acHITE
The trial court, in finding for the petitioner, ruled that the
Memorandum of Agreement was in the nature of an
assignment of credit. As such, the court a quo held
respondent liable for the amount stated in the said agreement
even if the parties thereto failed to obtain the consent of
Anglo-Asean Bank. On the other hand, the appellate court
held that the agreement was one of conventional subrogation
which necessarily requires the agreement of all the parties
concerned. The Court of Appeals thus ruled that the
Memorandum of Agreement never came into effect due to the
failure of the parties to get the consent of Anglo-Asean Bank
to the agreement and, as such, respondent never became
liable for the amount stipulated.
We agree with the finding of the Court of Appeals that the
Memorandum of Agreement dated July 29, 1988 was in the
nature of a conventional subrogation which requires the
consent of the debtor, Anglo-Asean Bank, for its validity. We
note with approval the following pronouncement of the Court
of Appeals:
"Immediately discernible from above is the common feature of
contracts involving conventional subrogation, namely, the
approval of the debtor to the subrogation of a third person in
place of the creditor. That Gatmaitan and Licaros had
intended to treat their agreement as one of conventional
subrogation is plainly borne by a stipulation in their
Memorandum of Agreement, to wit:
Page 11
"WHEREAS, the parties herein have come to an agreement on
the nature, form and extent of their mutual prestations which
they now record herein with the express conformity of the
third parties concerned" (italics supplied),
which third party is admittedly Anglo-Asean Bank.
Had the intention been merely to confer on appellant the
status of a mere "assignee" of appellee's credit, there is
simply no sense for them to have stipulated in their
agreement that the same is conditioned on the "express
conformity" thereto of Anglo-Asean Bank. That they did so
only accentuates their intention to treat the agreement as one
of conventional subrogation. And it is basic in the
interpretation of contracts that the intention of the parties
must be the one pursued (Rule 130, Section 12, Rules of
Court). IAEcCT
Given our finding that the Memorandum of Agreement (Exh.
"B"; also Exh. "1"), is not one of "assignment of credit" but is
actually a "conventional subrogation", the next question that
comes to mind is whether such agreement was ever perfected
at all. Needless to state, the perfection or non-perfection
of the subject agreement is of utmost relevance at this point.
For, if the same Memorandum of Agreement was actually
perfected, then it cannot be denied that Gatmaitan still has a
subsisting commitment to pay Licaros on the basis of his
promissory note. If not, Licaros' suit for collection must
necessarily fail.
Here, it bears stressing that the subject Memorandum of
Agreement expressly requires the consent of Anglo-Asean to
the subrogation. Upon whom the task of securing such
consent devolves, be it on Licaros or Gatmaitan, is of no
significance. What counts most is the hard reality that there
has been an abject failure to get Anglo-Asean's nod of
approval over Gatmaitan's being subrogated in the place of
Licaros. Doubtless, the absence of such conformity on the part
of Anglo-Asean, which is thereby made a party to the same
Memorandum of Agreement, prevented the agreement from
becoming effective, much less from being a source of any
cause of action for the signatories thereto." 13
Aside for the "whereas clause" cited by the appellate court in
its decision, we likewise note that on the signature page, right
under the place reserved for the signatures of petitioner and
respondent, there is, typewritten, the words "WITH OUR
CONFORME." Under this notation, the words "ANGLO-ASEAN
BANK AND TRUST" were written by hand. 14 To our mind, this
provision which contemplates the signed conformity of Anglo-
Asean Bank, taken together with the aforementioned
preambulatory clause leads to the conclusion that both
parties intended that Anglo-Asean Bank should signify its
agreement and conformity to the contractual arrangement
between petitioner and respondent. The fact that Anglo-Asean
Bank did not give such consent rendered the agreement
inoperative considering that, as previously discussed, the
consent of the debtor is needed in the subrogation of a third
person to the rights of a creditor.
In this petition, petitioner assails the ruling of the Court of
Appeals that what was entered into by the parties was a
conventional subrogation of petitioner's rights as creditor of
the Anglo-Asean Bank which necessarily requires the consent
of the latter. In support, petitioner alleges that: (1) the
Memorandum of Agreement did not create a new obligation
and, as such, the same cannot be a conventional subrogation;
MichTrina Evidence Library Work
(2) the consent of Anglo-Asean Bank was not necessary for
the validity of the Memorandum of Agreement; (3) assuming
that such consent was necessary, respondent failed to secure
the same as was incumbent upon him; and (4) respondent
himself admitted that the transaction was one of assignment
of credit. cEAaIS
Petitioner argues that the parties to the Memorandum of
Agreement could not have intended the same to be a
conventional subrogation considering that no new obligation
was created. According to petitioner, the obligation of Anglo-
Asean Bank to pay under Contract No. 00193 was not
extinguished and in fact, it was the basic intention of the
parties to the Memorandum of Agreement to enforce the
same obligation of Anglo-Asean Bank under its contract with
petitioner. Considering that the old obligation of Anglo-Asean
Bank under Contract No. 00193 was never extinguished under
the Memorandum of Agreement, it is contended that the same
could not be considered as a conventional subrogation.
We are not persuaded.
It is true that conventional subrogation has the effect of
extinguishing the old obligation and giving rise to a new one.
However, the extinguishment of the old obligation is the effect
of the establishment of a contract for conventional
subrogation. It is not a requisite without which a contract for
conventional subrogation may not be created. As such, it is
not determinative of whether or not a contract of conventional
subrogation was constituted.
Moreover, it is of no moment that the subject of the
Memorandum of Agreement was the collection of the
obligation of Anglo-Asean Bank to petitioner Licaros under
Contract No. 00193. Precisely, if conventional subrogation had
taken place with the consent of Anglo-Asean Bank to effect a
change in the person of its creditor, there is necessarily
created a new obligation whereby Anglo-Asean Bank must
now give payment to its new creditor, herein respondent.
aEcHCD
Petitioner next argues that the consent or conformity of Anglo-
Asean Bank is not necessary to the validity of the
Memorandum of Agreement as the evidence on record
allegedly shows that it was never the intention of the parties
thereto to treat the same as one of conventional subrogation.
He claims that the preambulatory clause requiring the express
conformity of third parties, which admittedly was Anglo-Asean
Bank, is a mere surplusage which is not necessary to the
validity of the agreement.
As previously discussed, the intention of the parties to treat
the Memorandum of Agreement as embodying a conventional
subrogation is shown not only by the "whereas clause" but
also by the signature space captioned "WITH OUR
CONFORME" reserved for the signature of a Anglo-Asean
Bank. These provisions in the aforementioned Memorandum
of Agreement may not simply be disregarded or dismissed as
superfluous. cECTaD
It is a basic rule in the interpretation of contracts that "(t)he
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." 15 Moreover, under
our Rules of Court, it is mandated that "(i)n the construction of
an instrument where there are several provisions or
particulars, such a construction is, if possible, to be adopted
Page 12
as will give effect to all." 16 Further, jurisprudence has laid
down the rule that contracts should be so construed as to
harmonize and give effect to the different provisions thereof.
17
In the case at bench, the Memorandum of Agreement
embodies certain provisions that are consistent with either a
conventional subrogation or assignment of credit. It has not
been shown that any clause or provision in the Memorandum
of Agreement is inconsistent or incompatible with a
conventional subrogation. On the other hand, the two cited
provisions requiring consent of the debtor to the
memorandum is inconsistent with a contract of assignment of
credit. Thus, if we were to interpret the same as one of
assignment of credit, then the aforementioned stipulations
regarding the consent of Anglo-Asean Bank would be rendered
inutile and useless considering that, as previously discussed,
the consent of the debtor is not necessary in an assignment of
credit.
Petitioner next argues that assuming that the conformity of
Anglo-Asean was necessary to the validity of the
Memorandum of Agreement, respondent only had himself to
blame for the failure to secure such conformity as was,
allegedly, incumbent upon him under the memorandum.
acHETI
As to this argument regarding the party responsible for
securing the conformity of Anglo-Asean Bank, we fail to see
how this question would have any relevance on the outcome
of this case. Having ruled that the consent of Anglo-Asean was
necessary for the validity of the Memorandum of Agreement,
the determinative fact is that such consent was not secured
by either petitioner or respondent which consequently
resulted in the invalidity of the said memorandum.
With respect to the argument of petitioner that respondent
himself allegedly admitted in open court that an assignment
of credit was intended, it is enough to say that respondent
apparently used the word "assignment" in his testimony in the
general sense. Respondent is not a lawyer and as such, he is
not so well versed in law that he would be able to distinguish
between the concepts of conventional subrogation and of
assignment of credit. Moreover, even assuming that there was
an admission on his part, such admission is not conclusive on
this court as the nature and interpretation of the
Memorandum of Agreement is a question of law which may
not be the subject of stipulations and admissions. 18
Considering the foregoing, it cannot then be said that the
consent of the debtor Anglo-Asean Bank is not necessary to
the validity of the Memorandum of Agreement. As above
stated, the Memorandum of Agreement embodies a contract
for conventional subrogation and in such a case, the consent
of the original parties and the third person is required. 19 The
absence of such conformity by Anglo-Asean Bank prevented
the Memorandum of Agreement from becoming valid and
effective. Accordingly, the Court of Appeals did not err when it
ruled that the Memorandum of Agreement was never
perfected.
Having arrived at the above conclusion, the Court finds no
need to discuss the other issues raised by petitioner.
WHEREFORE, the instant petition is DENIED and the Decision
of the Court of Appeals dated February 10, 2000 and its
Resolution dated April 7, 2000 are hereby AFFIRMED.
MichTrina Evidence Library Work
SECOND DIVISION
[G.R. No. 182248. December 18, 2008.]
EQUITABLE PCI BANKING CORPORATION, 1 GEORGE L. GO,
PATRICK D. GO, GENEVIEVE W.J. GO, FERDINAND MARTIN G.
ROMUALDEZ, OSCAR P. LOPEZ-DEE, RENE J. BUENAVENTURA,
GLORIA L. TAN-CLIMACO, ROGELIO S. CHUA, FEDERICO C.
PASCUAL, LEOPOLDO S. VEROY, WILFRIDO V. VERGARA,
EDILBERTO V. JAVIER, ANTHONY F. CONWAY, ROMULAD U. DY
TANG, WALTER C. WESSMER, and ANTONIO N. COTOCO,
petitioners, vs. RCBC CAPITAL CORPORATION, respondent.
DECISION
VELASCO, JR., J p:
The Case
This Petition for Review on Certiorari under Rule 45 seeks the
reversal of the January 8, 2008 2 and March 17, 2008 3 Orders
of the Regional Trial Court (RTC), Branch 148 in Makati City in
SP Proc. Case No. 6046, entitled In the Matter of ICC
Arbitration Ref. No. 13290/MS/JB/JEM Between RCBC Capital
Corporation, (Claimant), and Equitable PCI Banking
Corporation, Inc. et al., (Respondents). The assailed January 8,
2008 Order confirmed the Partial Award dated September 27,
2007 4 rendered by the International Chamber of Commerce-
International Court of Arbitration (ICC-ICA) in Case No.
13290/MS/JB/JEM, entitled RCBC Capital Corporation
(Philippines) v. Equitable PCI Bank, Inc. & Others (Philippines).
The March 17, 2008 Order denied petitioners' motion for
reconsideration of the January 8, 2008 Order. cADEHI
The Facts
On May 24, 2000, petitioners Equitable PCI Bank, Inc. (EPCIB)
and the individual shareholders of Bankard, Inc., as sellers,
and respondent RCBC Capital Corporation (RCBC), as buyer,
executed a Share Purchase Agreement 5 (SPA) for the
purchase of petitioners' interests in Bankard, representing
226,460,000 shares, for the price of PhP1,786,769,400. To
expedite the purchase, RCBC agreed to dispense with the
conduct of a due diligence audit on the financial status of
Bankard.
Under the SPA, RCBC undertakes, on the date of contract
execution, to deposit, as downpayment, 20% of the purchase
price, or PhP357,353,880, in an escrow account. The escrowed
amount, the SPA stated, should be released to petitioners on
an agreed-upon release date and the balance of the purchase
price shall be delivered to the share buyers upon the
fulfillment of certain conditions agreed upon, in the form of a
manager's check.
The other relevant provisions of the SPA are:
Section 5. Sellers' Representations and Warranties.
The SELLERS jointly and severally represent and warrant to
the BUYER that: ASHICc
xxx xxx xxx
The Financial Condition of Bankard
Page 13
g. The audited financial statements of Bankard for the
three (3) fiscal years ended December 31, 1997, 1998 and
1999, and the unaudited financial statements for the first
quarter ended 31 March 2000, are fair and accurate, and
complete in all material respects, and have been prepared in
accordance with generally accepted accounting principles
consistently followed throughout the period indicated and:
i) the balance sheet of Bankard as of 31 December
1999, as prepared and certified by SGV & Co. ("SGV"), and the
unaudited balance sheet for the first quarter ended 31 March
2000, present a fair and accurate statement as of those dates,
of Bankard's financial condition and of all its assets and
liabilities, and is complete in all material respects; and
ii) the statements of Bankard's profit and loss accounts
for the fiscal years 1996 to 1999, as prepared and certified by
SGV, and the unaudited profit and loss accounts for the first
quarter ended 31 March 2000, fairly and accurately present
the results of the operations of Bankard for the periods
indicated, and are complete in all material respects. cdphil
h. Except as disclosed in the Disclosures, and except to
the extent set forth or reserved in the audited financial
statements of Bankard as of 31 December 1999 and its
unaudited financial statements as of 31 March 2000, Bankard,
as of such dates and up to 31 May 2000, had and shall have
no liabilities, omissions or mistakes in its records which will
have material adverse effect on the net worth or financial
condition of Bankard to the extent of more than One Hundred
Million Pesos (P100,000,000.00) in the aggregate. In the event
such material adverse effect on the net worth or financial
condition of Bankard exceeds One Hundred Million Pesos
(P100,000,000.00), the Purchase Price shall be reduced in
accordance with the following formula:
Reduction in Purchase Price = X multiplied by 226,460,000
where
Amount by which negative
adjustment exceeds P100 Million
X = __________________________ (1.925)
338,000,000
xxx xxx xxx
Section 7. Remedies for Breach of Warranties.
a. If any of the representations and warranties of any or
all of the SELLERS or the BUYER (the "Defaulting Party")
contained in Sections 5 and 6 shall be found to be untrue
when made and/or as of the Closing Date, the other party, i.e.,
the BUYER if the Defaulting Party is any or all of the SELLERS
and the SELLERS if the Defaulting Party is the BUYER
(hereinafter referred to as the "Non-Defaulting Party") shall
have the right to require the Defaulting Party, at the latter's
expense, to cure such breach, and/or seek damages, by
providing notice or presenting a claim to the Defaulting Party,
reasonably specifying therein the particulars of the breach.
The foregoing remedies shall be available to the Non-
Defaulting Party only if the demand therefor is presented in
writing to the Defaulting Party within three (3) years from the
Closing Date except that the remedy for a breach of the
MichTrina Evidence Library Work
SELLERS' representation and warrant in Section 5 (h) shall be
available only if the demand therefor is presented to the
Defaulting Party in writing together with schedules and to
substantiate such demand, within six (6) months from the
Closing Date. 6 CIaHDc
On June 2, 2000, RCBC deposited the stipulated downpayment
amount in an escrow account after which it was given full
management and operational control of Bankard. June 2, 2000
is also considered by the parties as the Closing Date referred
to in the SPA.
Thereafter, the parties executed an Amendment to Share
Purchase Agreement (ASPA) dated September 19, 2000. 7 Its
paragraph 2 (e) provided that:
2. Notwithstanding any provisions to the contrary in the
Share Purchase Agreement and/or any agreement, instrument
or document entered into or executed by the Parties in
relation thereto (the "Related Agreements"), the Parties
hereby agree that:
xxx xxx xxx
e) Notwithstanding the provisions of Sec. 7 of the Share
Purchase Agreement to the contrary, the remedy for a breach
of the SELLERS' representation and warranty in Section 5 (h)
of the Share Purchase Agreement shall be available if the
demand therefor is presented to the SELLERS in writing
together with schedules and data to substantiate such
demand, on or before 31 December 2000. (Emphasis added.)
THcaDA
Sometime in September 2000, RCBC had Bankard's accounts
audited, creating for the purpose an audit team led by a
certain Rubio, the Vice-President for Finance of RCBC at the
time. Rubio's conclusion was that the warranty, as contained
in Section 5 (h) of the SPA (simply Sec. 5 [h] hereinafter), was
correct.
On December 28, 2000, RCBC paid the balance of the contract
price. The corresponding deeds of sale for the shares in
question were executed in January 2001.
Thereafter, in a letter of May 5, 2003, RCBC informed
petitioners of its having overpaid the purchase price of the
subject shares, claiming that there was an overstatement of
valuation of accounts amounting to PhP478 million, resulting
in the overpayment of over PhP616 million. Thus, RCBC
claimed that petitioners violated their warranty, as sellers,
embodied in Sec. 5 (g) of the SPA (Sec. 5 [g] hereinafter).
Following unsuccessful attempts at settlement, RCBC, in
accordance with Sec. 10 of the SPA, filed a Request for
Arbitration dated May 12, 2004 8 with the ICC-ICA. In the
request, RCBC charged Bankard with deviating from,
contravening and not following generally accepted accounting
principles and practices in maintaining their books. Due to
these improper accounting practices, RCBC alleged that both
the audited and unaudited financial statements of Bankard
prior to the stock purchase were far from fair and accurate
and, hence, violated the representations and warranties of
petitioners in the SPA. Per RCBC, its overpayment amounted
to PhP556 million. It thus prayed for the rescission of the SPA,
restitution of the purchase price, payment of actual damages
in the amount of PhP573,132,110, legal interest on the
purchase price until actual restitution, moral damages, and
Page 14
litigation and attorney's fees. As alternative to rescission and
restitution, RCBC prayed for damages in the amount of at
least PhP809,796,092 plus legal interest. DcCEHI
To the Request for Arbitration, petitioners filed an Answer
dated July 28, 2004, 9 denying RCBC's inculpatory averments
and setting up the following affirmative allegations: the period
for filing of the asserted claim had already lapsed by force of
Sec. 7 of the SPA; RCBC is not entitled to rescission having
had ample opportunity and reasonable time to file a claim
against petitioners; RCBC is not entitled to its alternative
prayer of damages, being guilty of laches and failing to set
out the details of the breach as required under Sec. 7.
Arbitration in the ICC-ICA proceeded after the formation of the
arbitration tribunal consisting of retired Justice Santiago M.
Kapunan, nominated by petitioners; Neil Kaplan, RCBC's
nominee; and Sir Ian Barker, appointed by the ICC-ICA.
After drawn out proceedings with each party alleging
deviation and non-compliance by the other with arbitration
rules, the tribunal, with Justice Kapunan dissenting, rendered
a Partial Award dated September 27, 2007, 10 the dispositive
portion of which states: DHSCTI
15 AWARD AND DIRECTIONS
15.1 The Tribunal makes the following declarations by way
of Partial Award:
(a) The Claimant's claim is not time-barred under the
provisions of this SPA.
(b) The Claimant is not estopped by its conduct or the
equitable doctrine of laches from pursuing its claim.
(c) As detailed in the Partial Award, the Claimant has
established the following breaches by the Respondents of
clause 5(g) of the SPA:
i) the assets, revenue and net worth of Bankard were
overstated by reason of its policy on and recognition of Late
Payment Fees;
ii) reported receivables were higher than their realizable
values by reason of the 'bucketing' method, thus overstating
Bankard's assets; and EaISTD
iii) the relevant Bankard statements were inadequate
and misleading in that their disclosures caused readers to be
misinformed about Bankard's accounting policies on revenue
and receivables.
(d) Subject to proof of loss the Claimant is entitled to
damages for the foregoing breaches.
(e) The Claimant is not entitled to rescission of the SPA.
(f) All other issues, including any issue relating to costs,
will be dealt with in a further or final award.
15.2 A further Procedural Order will be necessary
subsequent to the delivery of this Partial Award to deal with
the determination of quantum and in particular, whether there
should be an Expert appointed by the Tribunal under Article
20(4) of the ICC Rules to assist the Tribunal in this regard.
MichTrina Evidence Library Work
15.3 This Award is delivered by a majority of the Tribunal
(Sir Ian Barker and Mr. Kaplan). Justice Kapunan is unable to
agree with the majority's conclusion on the claim of estoppel
brought by the respondents. EcDATH
On the matter of prescription, the tribunal held that RCBC's
claim is not time-barred, the claim properly falling under the
contemplation of Sec. 5 (g) and not Sec. 5 (h). As such, the
tribunal concluded, RCBC's claim was filed within the three
(3)-year period under Sec. 5 (g) and that the six (6)-month
period under Sec. 5 (h) did not apply.
The tribunal also exonerated RCBC from laches, the latter
having sought relief within the three (3)-year period
prescribed in the SPA. On the matter of estoppel suggested in
petitioners' answer, the tribunal stated in par. 10.27 of the
Partial Award the following:
10.27 Clearly, there has to be both an admission or
representation by (in this case) the Claimant [RCBC], plus
reliance upon it by (in this case) the Respondents [herein
petitioners]. The Tribunal cannot find as proved any
admission/representation that the Claimant was abandoning a
5(g) claim, any reliance by the Respondents on an admission,
and any detriment to the Respondents such as would entitle
them to have the Claimant deprived of the benefit of clause
5(g). These aspects of the claim for estoppels are rejected. 11
Notably, the tribunal considered the rescission of the SPA and
ASPA as impracticable and "totally out of the question". 12
EHaCID
In his Dissenting Opinion 13 which he submitted to and which
was received on September 24, 2007 by the ICC-ICA, Justice
Kapunan stated the observation that RCBC's claim is time-
barred, falling as such claim did under Sec. 5 (h), which
prescribes a comparatively shorter prescriptive period, not 5
(g) as held by the majority of the tribunal, to wit:
Claimant admits that the Claim is for recovery of P431 million
on account of alleged "overvaluation of the net worth of
Bankard", allegedly for "improper accounting practices"
resulting in "its book value per share as of 31 December 1999
[being] overstated." Claimant's witness, Dean Echanis asserts
that "the inadequate provisioning for Bankard's doubtful
accounts result[ed] in an overstatement of its December 31,
1999 total assets and net worth of by [sic] least P418.2
million."
In addition, Claimant's demand letter addressed to the
Respondents alleged that "we overpaid for the Shares to the
extent of the impact of the said overstatement on the Book
Value per share".
These circumstances establish beyond dispute that the Claim
is based on the alleged overstatement of the 1999 net worth
of Bankard, which the parties relied on in setting the purchase
price of the shares. Moreover, it is clear that there was an
overstatement because of "improper accounting practices"
which led Claimant to overpay for the shares. cdasia
Ultimately, the Claim is one for recovery of overpayment in
the purchase price of the shares. . . .
As to the issue of estoppel, Justice Kapunan stated:
Page 15
Moreover, Mr. Rubio's findings merely corroborated the
disclosures made in the Information Memorandum that
Claimant received from the Respondents prior to the
execution of the SPA. In this connection, I note that Bankard's
policy on provisioning and setting of allowances using the
Bucketed Method and income recognition from AR/Principal,
AR/Interest and AR/LPFs were disclosed in the Information
Memorandum. Thus, these alleged improper accounting
practices were known to the Claimant even prior to the
execution of the SPA.
Thus, when Claimant paid the balance of the purchase price, it
did so with full knowledge of these accounting practices of
Bankard that it now assails. By paying the balance of the
purchase price without taking exception or objecting to the
accounting practices disclosed through Mr. Rubio's review and
the Information Memorandum, Claimant is deemed to have
accepted such practices as correctly reporting the 1999 net
worth. . . . IDScTE
xxx xxx xxx
As last point, I note that my colleagues invoke a principle that
for estoppels to apply there must be positive indication that
the right to sue was waived. I am of the view that there is no
such principle under Philippine law. What is applicable is the
holding in Knecht and in Coca-Cola that prior knowledge of an
unfavorable fact is binding on the party who has such
knowledge; "when the purchaser proceeds to make
investigations by himself, and the vendor does nothing to
prevent such investigation from being as complete as the
former might wish, the purchaser cannot later allege that the
vendor made false representations to him" (Cf. Songco v.
Sellner, 37 Phil. 254 citations omitted).
Applied to this case, the Claimant cannot seek relief on the
basis that when it paid the purchase price in December 2000,
it was unaware that the accounting practices that went into
the reporting of the 1999 net worth as amounting to
P1,387,275,847 were not in conformity with GAAP [generally
accepted accounting principles]. (Emphasis added.)
On October 26, 2007, RCBC filed with the RTC a Motion to
Confirm Partial Award. On the same day, petitioners countered
with a Motion to Vacate the Partial Award. On November 9,
2007, petitioners again filed a Motion to Suspend and Inhibit
Barker and Kaplan. ScAaHE
On January 8, 2008, the RTC issued the first assailed order
confirming the Partial Award and denying the adverted
separate motions to vacate and to suspend and inhibit. From
this order, petitioners sought reconsideration, but their motion
was denied by the RTC in the equally assailed second order of
March 17, 2008.
From the assailed orders, petitioners came directly to this
Court through this petition for review.
The Issues
This petition seeks the review, reversal and setting aside of
the orders Annexes A and B and, in lieu of them, it seeks
judgment vacating the arbitrators' liability award, Annex C, on
these grounds:
(a) The trial court acted contrary to law and judicial
authority in refusing to vacate the arbitral award,
MichTrina Evidence Library Work
notwithstanding it was rendered in plain disregard of the
parties' contract and applicable Philippine law, under which
the claim in arbitration was indubitably time-barred. aSCHcA
(b) The trial court acted contrary to law and judicial
authority in refusing to vacate and in confirming the arbitral
award, notwithstanding that the arbitrators had plainly and
admittedly failed to accord petitioners' due process by
denying them a hearing on the basic factual matter upon
which their liability is predicated.
(c) The trial court committed grave error in confirming
the arbitrators' award, which held petitioners-sellers liable for
an alleged improper recording of accounts, allegedly affecting
the value of the shares they sold, notwithstanding that the
respondent-buyer knew before contracting that the accounts
were kept in the manner complained of, and in fact ratified
and adopted the questioned accounting practice and policies.
14
The Court's Ruling
The petition must be denied.
On Procedural Misstep of Direct Appeal to This Court
As earlier recited, the ICC-ICA's Partial Award dated
September 27, 2007 was confirmed by the RTC in its first
assailed order of January 8, 2008. Thereafter, the RTC, by
order of March 17, 2008, denied petitioners' motion for
reconsideration. Therefrom, petitioners came directly to this
Court on a petition for review under Rule 45 of the Rules of
Court. DCAHcT
This is a procedural miscue for petitioners who erroneously
bypassed the Court of Appeals (CA) in pursuit of its appeal.
While this procedural gaffe has not been raised by RCBC, still
we would be remiss in not pointing out the proper mode of
appeal from a decision of the RTC confirming, vacating,
setting aside, modifying, or correcting an arbitral award.
Rule 45 is not the remedy available to petitioners as the
proper mode of appeal assailing the decision of the RTC
confirming as arbitral award is an appeal before the CA
pursuant to Sec. 46 of Republic Act No. (RA) 9285, otherwise
known as the Alternative Dispute Resolution Act of 2004, or
completely, An Act to Institutionalize the Use of an Alternative
Dispute Resolution System in the Philippines and to Establish
the Office for Alternative Dispute Resolution, and for other
Purposes, promulgated on April 2, 2004 and became effective
on April 28, 2004 after its publication on April 13, 2004.
In Korea Technologies Co., Ltd. v. Lerma, we explained, inter
alia, that the RTC decision of an assailed arbitral award is
appealable to the CA and may further be appealed to this
Court, thus: IEaHSD
Sec. 46 of RA 9285 provides for an appeal before the CA as
the remedy of an aggrieved party in cases where the RTC sets
aside, rejects, vacates, modifies, or corrects an arbitral award,
thus:
SEC. 46. Appeal from Court Decision or Arbitral Awards. A
decision of the Regional Trial Court confirming, vacating,
setting aside, modifying or correcting an arbitral award may
be appealed to the Court of Appeals in accordance with the
rules and procedure to be promulgated by the Supreme Court.
Page 16
The losing party who appeals from the judgment of the court
confirming an arbitral award shall be required by the appellate
court to post a counterbond executed in favor of the
prevailing party equal to the amount of the award in
accordance with the rules to be promulgated by the Supreme
Court.
Thereafter, the CA decision may further be appealed or
reviewed before this Court through a petition for review under
Rule 45 of the Rules of Court. 15
It is clear from the factual antecedents that RA 9285 applies
to the instant case. This law was already effective at the time
the arbitral proceedings were commenced by RCBC through a
request for arbitration filed before the ICC-ICA on May 12,
2004. Besides, the assailed confirmation order of the RTC was
issued on March 17, 2008. Thus, petitioners clearly took the
wrong mode of appeal and the instant petition can be outright
rejected and dismissed. HDIaET
Even if we entertain the petition, the outcome will be the
same.
The Court Will Not Overturn an Arbitral Award Unless it Was
Made in Manifest Disregard of the Law
In Asset Privatization Trust v. Court of Appeals, 16 the Court
passed on similar issues as the ones tendered in the instant
petition. In that case, the arbitration committee issued an
arbitral award which the trial court, upon due proceedings,
confirmed despite the opposition of the losing party. Motions
for reconsideration by the losing party were denied. An appeal
interposed by the losing party to the CA was denied due
course. On appeal to this Court, we established the
parameters by which an arbitral award may be set aside, to
wit:
As a rule, the award of an arbitrator cannot be set aside for
mere errors of judgment either as to the law or as to the facts.
Courts are without power to amend or overrule merely
because of disagreement with matters of law or facts
determined by the arbitrators. They will not review the
findings of law and fact contained in an award, and will not
undertake to substitute their judgment for that of the
arbitrators, since any other rule would make an award the
commencement, not the end, of litigation. Errors of law and
fact, or an erroneous decision of matters submitted to the
judgment of the arbitrators, are insufficient to invalidate an
award fairly and honestly made. Judicial review of an
arbitration is, thus, more limited than judicial review of a trial.
SDATEc
Nonetheless, the arbitrators' awards is not absolute and
without exceptions. The arbitrators cannot resolve issues
beyond the scope of the submission agreement. The parties to
such an agreement are bound by the arbitrators' award only
to the extent and in the manner prescribed by the contract
and only if the award is rendered in conformity thereto. Thus,
Sections 24 and 25 of the Arbitration Law provide grounds for
vacating, rescinding or modifying an arbitration award. Where
the conditions described in Articles 2038, 2039 and 2040 of
the Civil Code applicable to compromises and arbitration are
attendant, the arbitration award may also be annulled.
xxx xxx xxx
MichTrina Evidence Library Work
Finally, it should be stressed that while a court is precluded
from overturning an award for errors in determination of
factual issues, nevertheless, if an examination of the record
reveals no support whatever for the arbitrators'
determinations, their award must be vacated. In the same
manner, an award must be vacated if it was made in
"manifest disregard of the law." 17 (Emphasis supplied.)
cADEHI
Following Asset Privatization Trust, errors in law and fact
would not generally justify the reversal of an arbitral award. A
party asking for the vacation of an arbitral award must show
that any of the grounds for vacating, rescinding, or modifying
an award are present or that the arbitral award was made in
manifest disregard of the law. Otherwise, the Court is duty-
bound to uphold an arbitral award.
The instant petition dwells on the alleged manifest disregard
of the law by the ICC-ICA.
The US case of Merrill Lynch, Pierce, Fenner & Smith, Inc. v.
Jaros 18 expounded on the phrase "manifest disregard of the
law" in the following wise:
This court has emphasized that manifest disregard of the law
is a very narrow standard of review. Anaconda Co. v. District
Lodge No. 27, 693 F.2d 35 (6th Cir. 1982). A mere error in
interpretation or application of the law is insufficient.
Anaconda, 693 F.2d at 37-38. Rather, the decision must fly in
the face of clearly established legal precedent. When faced
with questions of law, an arbitration panel does not act in
manifest disregard of the law unless (1) the applicable legal
principle is clearly defined and not subject to reasonable
debate; and (2) the arbitrators refused to heed that legal
principle. cDCEHa
Thus, to justify the vacation of an arbitral award on account of
"manifest disregard of the law", the arbiter's findings must
clearly and unequivocally violate an established legal
precedent. Anything less would not suffice.
In the present case, petitioners, in a bid to establish that the
arbitral award was issued in manifest disregard of the law,
allege that the Partial Award violated the principles of
prescription, due process, and estoppel. A review of
petitioners' arguments would, however, show that their
arguments are bereft of merit. Thus, the Partial Award dated
September 27, 2007 cannot be vacated.
RCBC's Claim Is Not Time-Barred
Petitioners argue that RCBC's claim under Sec. 5 (g) is based
on overvaluation of Bankard's revenues, assets, and net
worth, hence, for price reduction falling under Sec. 5 (h), in
which case it was belatedly filed, for RCBC presented the
claim to petitioners on May 5, 2003, when the period for
presenting it under Sec. 5 (h) expired on December 31, 2000.
As a counterpoint, RCBC asserts that its claim clearly comes
under Sec. 5 (g) in relation to Sec. 7 which thus gave it three
(3) years from the closing date of June 2, 2000, or until June 1,
2003, within which to make its claim. RCBC contends having
acted within the required period, having presented its claim-
demand on May 5, 2003. TcIAHS
To make clear the issue at hand, we highlight the pertinent
portions of Secs. 5 (g), 5 (h), and 7 bearing on what
petitioners warranted relative to the financial condition of
Page 17
Bankard and the remedies available to RCBC in case of breach
of warranty:
g. The audited financial statements of Bankard for the
three (3) fiscal years ended December 31, 1997, 1998 and
1999, and the unaudited financial statements for the first
quarter ended 31 March 2000, are fair and accurate, and
complete in all material respects, and have been prepared in
accordance with generally accepted accounting principles
consistently followed throughout the period indicated and:
i) the balance sheet of Bankard as of 31 December
1999, as prepared and certified by SGV & Co. ("SGV"), and the
unaudited balance sheet for the first quarter ended 31 March
2000, present a fair and accurate statement as of those dates,
of Bankard's financial condition and of all its assets and
liabilities, and is complete in all material respects; and
aDSIHc
ii) the statements of Bankard's profit and loss accounts
for the fiscal years 1996 to 1999, as prepared and certified by
SGV, and the unaudited profit and loss accounts for the first
quarter ended 31 March 2000, fairly and accurately present
the results of the operations of Bankard for the periods
indicated, and are complete in all material respects.
h. Except as disclosed in the Disclosures, and except to
the extent set forth or reserved in the audited financial
statements of Bankard as of 31 December 1999 and its
unaudited financial statements for the first quarter ended 31
March 2000, Bankard, as of such dates and up to 31 May
2000, had and shall have no liabilities, omissions or mistakes
in its records which will have a material adverse effect on the
net worth or financial condition of Bankard to the extent of
more than One Hundred Million Pesos (P100,000,000.00) in
the aggregate. In the event such material adverse effect on
the net worth or financial condition of Bankard exceeds One
Hundred Million Pesos (P100,000,000.00), the Purchase Price
shall be reduced in accordance with the following formula:
IAcTaC
xxx xxx xxx
Section 7. Remedies for Breach of Warranties.
If any of the representations and warranties of any or all of
the SELLERS or the BUYER (the "Defaulting Party") contained
in Sections 5 and 6 shall be found to be untrue when made
and/or as of the Closing Date, the other party, i.e., the BUYER
if the Defaulting is any of the SELLERS and the SELLERS if the
Defaulting Party is the BUYER (hereinafter referred to as the
"Non-Defaulting Party") shall have the right to require the
Defaulting Party, at the latter's expense, to cure such breach,
and/or seek damages, by providing notice or presenting a
claim to the Defaulting Party, reasonably specifying therein
the particulars of the breach. The foregoing remedies shall be
available to the Non-Defaulting Party only if the demand
therefor is presented in writing to the Defaulting Party within
three (3) years from the Closing Date, except that the remedy
for a breach of the SELLERS' representation and warranty in
Section 5 (h) shall be available only if the demand therefor is
presented to the Defaulting Party in writing together with
schedules and data to substantiate such demand, within six
(6) months from the Closing Date. (Emphasis supplied.)
SHAcID
MichTrina Evidence Library Work
Before we address the issue put forward by petitioners, there
is a necessity to determine the nature and application of the
reliefs provided under Sec. 5 (g) and Sec. 5 (h) in conjunction
with Sec. 7, thus:
(1) The relief under Sec. 5 (h) is specifically for price
reduction as said section explicitly states that the "Purchase
Price shall be reduced in accordance with the following
formula . . . ." In addition, Sec. 7 gives the aggrieved party the
right to ask damages based on the stipulation that the non-
defaulting party "shall have the right to require the Defaulting
Party, at the latter's expense, to cure such breach and/or seek
damages."
On the other hand, the remedy under Sec. 5 (g) in conjunction
with Sec. 7 can include specific performance, damages, and
other reliefs excluding price reduction.
(2) Sec. 5 (g) warranty covers the audited financial
statements (AFS) for the three (3) years ending December 31,
1997 to 1999 and the unaudited financial statements (UFS)
for the first quarter ending March 31, 2000. On the other
hand, the Sec. 5 (h) warranty refers only to the AFS for the
year ending December 31, 1999 and the UFS up to May 31,
2000. It is undenied that Sec. 5 (h) refers to price reduction as
it covers "only the most up-to-date audited and unaudited
financial statements upon which the price must have been
based." 19 CASaEc
(3) Under Sec. 5 (h), the responsibility of petitioners for
its warranty shall exclude the disclosures and reservations
made in AFS of Bankard as of December 31, 1999 and its UFS
up to May 31, 2000. No such exclusions were made under
Sec. 5 (g) with respect to the warranty of petitioners in the
AFS and UFS of Bankard.
(4) Sec. 5 (h) gives relief only if there is material adverse
effect in the net worth in excess of PhP100 million and it
provides a formula for price reduction. 20 On the other hand,
Sec. 5 (g) can be the basis for remedies like specific
performance, damages, and other reliefs, except price
reduction, even if the overvaluation is less or above PhP100
million and there is no formula for computation of damages.
(5) Under Sec. 7, the aggrieved party shall present its
written demand to the defaulting party within three (3) years
from closing date. Under Sec. 5 (h), the written demand shall
be presented within six (6) months from closing date. In
accordance with par. 2 (c) of the ASPA, the deadline to file the
demand under Sec. 5 (h) was extended to December 31,
2000.
From the above determination, it becomes clear that the
aggrieved party is entitled to two (2) separate alternative
remedies under Secs. 5 and 7 of the SPA, thus: CAHaST
1. A claim for price reduction under Sec. 5(h) and/or
damages based on the breach of warranty by Bankard on the
absence of liabilities, omissions and mistakes on the financial
statements as of 31 December 1999 and the UFS as of 31 May
2000, provided that the material adverse effect on the net
worth exceeds PhP100M and the written demand is presented
within six (6) months from closing date (extended to 31
December 2000); and
2. An action to cure the breach like specific
performance and/or damages under Sec. 5(g) based on
Page 18
Bankard's breach of warranty involving its AFS for the three
(3) fiscal years ending 31 December 1997, 1998, and 1999
and the UFS for the first quarter ending 31 March 2000
provided that the written demand shall be presented within
three (3) years from closing date.
Has RCBC the option to choose between Sec. 5 (g) or Sec. 5
(h)?
The answer is yes. Sec. 5 and Sec. 7 are clear that it is
discretionary on the aggrieved parties to avail themselves of
any remedy mentioned above. They may choose one and
dispense with the other. Of course, the relief for price
reduction under Sec. 5 (h) will have to conform to the
prerequisites and time frame of six (6) months; otherwise, it is
waived. SCDaHc
Preliminarily, petitioners' basic posture that RCBC's claim is
for the recovery of overpayment is specious. The records
show that in its Request for Arbitration dated May 12, 2004,
RCBC prayed for the rescission of the SPA, restitution of the
whole purchase price, and damages not for reduction of price
or for the return of any overpayment. Even in its May 5, 2000
letter, 21 RCBC did not ask for the recovery of any
overpayment or reduction of price, merely stating in it that
the accounts of Bankard, as reflected in its AFS for 1999, were
overstated which, necessarily, resulted in an overpayment
situation. RCBC was emphatic and unequivocal that
petitioners violated their warranty covered by Sec. 5 (g) of the
SPA.
It is thus evident that RCBC did not avail itself of the option
under Sec. 5 (h), i.e., for price reduction or the return of any
overpayment arising from the overvaluation of Bankard's
financial condition. Clearly, RCBC invoked Sec. 5 (g) to claim
damages from petitioners which is one of the alternative
reliefs granted under Sec. 7 in addition to rescission and
restitution of purchase price.
Petitioners do not deny that RCBC formally filed its claim
under Sec. 5 (g) which is anchored on the material
overstatement or overvaluation of Bankard's revenues,
assets, and net worth and, hence, the overstatement of the
purchase price. They, however, assert that such claim for
overpayment is actually a claim under Sec. 5 (h) of the SPA for
price reduction which it forfeited after December 31, 2000.
aDcETC
We cannot sustain petitioners' position.
It cannot be disputed that an overstatement or overvaluation
of Bankard's financial condition as of closing date translates
into a misrepresentation not only of the accuracy and
truthfulness of the financial statements under Sec. 5 (g), but
also as to Bankard's actual net worth mentioned in Sec. 5 (h).
Overvaluation presupposes mistakes in the entries in the
financial statements and amounts to a breach of petitioners'
representations and warranties under Sec. 5. Consequently,
such error in the financial statements would impact on the
figure representing the net worth of Bankard as of closing
date. An overvaluation means that the financial condition of
Bankard as of closing date, i.e., June 2, 2000, is overstated, a
situation that will definitely result in a breach of EPCIB's
representations and warranties.
A scrutiny of Sec. 5 (g) and Sec. 5 (h) in relation to Sec. 7 of
the SPA would indicate the following remedies available to
MichTrina Evidence Library Work
RCBC should it be discovered, as of closing date, that there is
overvaluation which will constitute breach of the warranty
clause under either Sec. 5 (g) or (h), to wit:
(1) An overvaluation of Bankard's actual financial
condition as of closing date taints the veracity and accuracy
of the AFS for 1997, 1998, and 1999 and the UFS for the first
quarter of 2000 and is an actionable breach of petitioners'
warranties under Sec. 5 (g). acCDSH
(2) An overvaluation of Bankard's financial condition as
of May 31, 2000, encompassing the warranted financial
condition as of December 31, 1999 through the AFS for 1999
and as of March 31, 2000 through the UFS for the first quarter
of 2000, is a breach of petitioners' representations and
warranties under Sec. 5 (h).
Thus, RCBC has two distinct alternative remedies in case of an
overvaluation of Bankard's financial condition. It may invoke
Sec. 5 (h) when the conditions of the threshold aggregate
overvaluation and the claim made within the six-month time-
bar are present. In the alternative, it may invoke Sec. 5 (g)
when it finds that a claim for "curing the breach" and/or
damages will be more advantageous to its interests provided
it is filed within three (3) years from closing date. Since it has
two remedies, RCBC may opt to exercise either one. Of
course, the exercise of either one will preclude the other.
Moreover, the language employed in Sec. 5 (g) and Sec. 5 (h)
is clear and bereft of any ambiguity. The SPA's stipulations
reveal that the non-use or waiver of Sec. 5 (h) does not
preclude RCBC from availing itself of the second relief under
Sec. 5 (g). Article 1370 of the Civil Code is explicit that "if
terms of a contract are clear and leave no doubt upon the
intention of the contracting parties the literal meaning of its
stipulations shall control." Since the terms of a contract have
the force of law between the parties, 22 then the parties must
respect and strictly conform to it. Lastly, it is a long held
cardinal rule that when the terms of an agreement are
reduced to writing, it is deemed to contain all the terms
agreed upon and no evidence of such terms can be admitted
other than the contents of the agreement itself. 23 Since the
SPA is unambiguous, and petitioners failed to adduce
evidence to the contrary, then they are legally bound to
comply with it. DETcAH
Petitioners agreed ultimately to the stipulation that:
Each of the representations and warranties of the SELLERS is
deemed to be a separate representation and warranty, and
the BUYER has placed complete reliance thereon in agreeing
to the Purchase Price and in entering into this Agreement. The
representations and warranties of the SELLERS shall be
correct as of the date of this Agreement and as of the Closing
Date with the same force and effect as though such
representations and warranties had been made as of the
Closing Date. 24 (Emphasis supplied.)
The Court sustains the finding in the Partial Award that Sec. 5
(g) of the SPA is a free standing warranty and not constricted
by Sec. 5 (h) of the said agreement.
Upon the foregoing premises and in the light of the
undisputed facts on record, RCBC's claim for rescission of the
SPA and damages due to overvaluation of Bankard's accounts
was properly for a breach of the warranty under Sec. 5 (g) and
was not time-barred. To repeat, RCBC presented its written
Page 19
claim on May 5, 2003, or a little less than a month before
closing date, well within the three (3)-year prescriptive period
provided under Sec. 7 for the exercise of the right provided
under Sec. 5 (g). STaHIC
Petitioners bemoan the fact that "the arbitrators' liability
award (a) disregarded the 6-month contractual limitation for
RCBC's 'overprice' claim, and [b] substituted in its place the 3-
year limitation under the contract for other claims," 25
adopting in that regard the interpretation of the SPA made by
arbitral tribunal member, retired Justice Kapunan, in his
Dissenting Opinion, in which he asserted:
Ultimately, the Claim is one for recovery of overpayment in
the purchase price of the shares. And it is in this context, that
I respectfully submit that Section 5 (h) and not Section 5 (g),
applies to the present controversy. 26
xxx xxx xxx
True, without Section 5(h), the Claim for price recovery would
fall under Section 5(g). The recovery of the pecuniary loss of
the Claimant in the form of the excess price paid would be in
the nature of a claim for actual damages by way of
compensation. In that situation, all the accounts in the 1999
financial statements would be the subject of the warranty in
Section 5(g). SDIaCT
However, since the parties explicitly included Section 5(h) in
their SPA, which assures the Claimant that there were no
"omissions or mistakes in the records" that would misstate the
1999 net worth account, I am left with no other conclusion but
that the accuracy of the net worth was the subject of the
warranty in Section 5(h), while the accuracy or correctness of
the other accounts that did not bear on, or affect Bankard's
net worth, were guaranteed by Section 5(g).
xxx xxx xxx
This manner of reconciling the two provisions is consistent
with the principle in Rule 130, Section 12 of the Rules of Court
that "when a general and a particular provision are
inconsistent, the latter is paramount to the former. . . [so] a
particular intent will control a general one that is inconsistent
with it." This is also consistent with existing doctrines on
statutory construction, the application of which is illustrated in
the case of Commissioner of Customs vs. Court of Tax
Appeals, G.R. No. L-41861, dated March 23, 1987 . . . .
xxx xxx xxx
The Claim is for recovery of the excess price by way of actual
damages. 27 . . . (Emphasis supplied.) AHDTIE
Justice Kapunan noted that without Sec. 5 (h), RCBC's claim
would fall under Sec. 5 (g), impliedly admitting that both
provisions could very well cover RCBC's claim, except that
Sec. 5 (h) excludes the situation contemplated in it from the
general terms of Sec. 5 (g).
Such view is incorrect.
While it is true that Sec. 5 (h), as couched, is a warranty on
the accuracy of the Bankard's net worth while Sec. 5 (g), as
also couched, is a warranty on the veracity, accuracy, and
completeness of the AFS in all material respects as prepared
in accordance with generally accepted accounting principles
MichTrina Evidence Library Work
consistently followed throughout the period audited, yet both
warranties boil down to the same thing and stem from the
same accounts as summarized in the AFS. Since the net worth
is the balance of Bankard's assets less its liabilities, it
necessarily includes all the accounts under the AFS. In short,
there are no accounts in the AFS that do not bear on the net
worth of Bankard. Moreover, as earlier elucidated, any
overvaluation of Bankard's net worth is necessarily a
misrepresentation of the veracity, accuracy, and
completeness of the AFS and also a breach of the warranty
under Sec. 5 (g). Thus, the subject of the warranty in Sec. 5
(h) is also covered by the warranty in Sec. 5 (g), and Sec. 5 (h)
cannot exclude such breach from the ambit of Sec. 5 (g).
There is no need to rely on Sec. 12, Rule 130 of the Rules of
Court for both Sec. 5 (g) and Sec. 5 (h) as alternative
remedies are of equal footing and one need not categorize
one section as a general provision and the other a particular
provision. HECTaA
More importantly, a scrutiny of the four corners of the SPA
does not explicitly reveal any stipulation nor even impliedly
that the parties intended to limit the scope of the warranty in
Sec. 5 (g) or gave priority to Sec. 5 (h) over Sec. 5 (g).
The arbitral tribunal did not find any legal basis in the SPA
that Sec. 5 (h) "somehow cuts down" the scope of Sec. 5 (g),
thus:
9.10 In the opinion of the Tribunal, there is nothing in the
wording used in the SPA to give priority to one warranty over
the other. There is nothing in the wording used to indicate that
the parties intended to limit the scope of the warranty in 5(g).
If it be contended that, on a true construction of the two
warranties, 5(h) somehow cuts down the scope of 5(g), the
Tribunal can find no justification for such conclusion on the
wording used. Furthermore, the Tribunal is of the view that
very clear words would be needed to cut down the scope of
the 5(g) warranty. 28
The Court upholds the conclusion of the tribunal and rules
that the claim of RCBC under Sec. 5 (g) is not time-barred.
HTDCAS
Petitioners Were Not Denied Due Process
Petitioners impute on RCBC the act of creating summaries of
the accounts of Bankard which "in turn were used by its
experts to conclude that Bankard improperly recorded its
receivables and committed material deviations from GAAP
requirements." 29 Later, petitioners would assert that "the
arbitrators' partial award admitted and used the Summaries
as evidence, and held on the basis of the 'information'
contained in them that petitioners were in breach of their
warranty in GAAP compliance."
To petitioners, the ICC-ICA's use of such summaries but
without presenting the source documents violates their right
to due process. Pressing the point, petitioners had moved, but
to no avail, for the exclusion of the said summaries.
Petitioners allege that they had reserved the right to cross-
examine the witnesses of RCBC who testified on the
summaries, pending the resolution of their motion to exclude.
But, according to them, they were effectively denied the right
to cross-examine RCBC's witnesses when the ICC-ICA
admitted the summaries of RCBC as evidence. SEHTAC
Petitioners' position is bereft of merit.
Page 20
Anent the use but non-presentation of the source documents
as the jumping board for a claim of denial of due process,
petitioners cite Compania Maritima v. Allied Free Worker's
Union. 30 It may be stated, however, that such case is not on
all fours with the instant case and, therefore, cannot be
applied here considering that it does not involve an
administrative body exercising quasi-judicial function but
rather the regular court.
In a catena of cases, we have ruled that "[t]he essence of due
process is the opportunity to be heard. What the law prohibits
is not the absence of previous notice but the absolute
absence thereof and the lack of opportunity to be heard." 31
We also explained in Lastimoso v. Asayo that "[d]ue process in
an administrative context does not require trial type
proceedings similar to those in courts of justice. Where an
opportunity to be heard either through oral arguments or
through pleadings is accorded, there is no denial of procedural
due process." 32 ScAHTI
Were petitioners afforded the opportunity to refute the
summaries and pieces of evidence submitted by RCBC which
became the bases of the experts' opinion?
The answer is in the affirmative.
We recall the events that culminated in the issuance of the
challenged Partial Award, thus:
On May 17, 2004, the ICC-ICA received the Request for
Arbitration dated May 12, 2004 from RCBC seeking rescission
of the SPA and restitution of all the amounts paid by RCBC to
petitioners, with actual and moral damages, interest, and
costs of suit.
On August 8, 2004, petitioners filed an Answer to the Request
for Arbitration dated July 28, 2004, setting up a counterclaim
for USD300,000 for actual and exemplary damages.
RCBC filed its Reply 33 dated August 31, 2004 to petitioners'
Answer to the Request for Arbitration. TCaAHI
On October 4, 2004, the parties entered into the Terms of
Reference. 34 At the same time, the chairperson of the
arbitral tribunal issued a provisional timetable 35 for the
arbitration.
On October 25, 2004, as previously agreed upon in the
meeting on October 4, 2004, petitioners filed a Motion to
Dismiss 36 while RCBC filed a "Claimant's Position Paper (Re:
[Petitioners'] Assertion that RCBC CAPITAL CORPORATION's
Present Claim Is Time Barred)." 37
Then, the tribunal issued Procedural Order No. 1 dated
January 12, 2005, 38 denying the motion to dismiss and
setting the initial hearing of the case on April 11, 2005.
In a letter dated February 9, 2005, 39 petitioners requested
that the tribunal direct RCBC to produce certain documents. At
the same time, petitioners sought the postponement of the
hearing on April 11, 2005 to March 21, 2005, in light of their
own request.
On February 11, 2005, petitioners received RCBC's brief of
evidence and supporting documentation in accordance with
the provisional timetable. 40 In the brief of evidence, RCBC
MichTrina Evidence Library Work
provided summaries of the accounts of Bankard, which
petitioners now question. aSTAHD
Later, in a letter dated February 14, 2005, 41 petitioners
complained to the tribunal with regard to their lack of access
to RCBC's external auditor. Petitioners sought an audit by an
accounting firm of the records of Bankard with respect to the
claims of RCBC. By virtue of such requests, petitioners also
sought a rescheduling of the provisional timetable, despite
their earlier assurance to the tribunal that if they received the
documents that they requested on February 9, 2005 on or
before February 21, 2005, they would abide by the provisional
timetable.
Thereafter, the tribunal issued Procedural Order No. 2 dated
February 18, 2005, 42 in which it allowed the discovery and
inspection of the documents requested by petitioners that
were also scheduled on February 18, 2005. The request for an
audit of Bankard's accounts was denied without prejudice to
the conduct of such audit during the course of the hearings.
Consequently, the tribunal amended the provisional
timetable, extending the deadline for petitioners to file their
brief of evidence and documents to March 21, 2005. The date
of the initial hearing, however, remained on April 11, 2005.
On February 18, 2005, petitioners were furnished the
documents that they requested RCBC. 43 The parties also
agreed to meet again on February 23, 2005 to provide
petitioners with a "walk-through" of Bankard's Statistical
Analysis System and to provide petitioners with a soft copy of
all of Bankard's cardholders. 44 EacHCD
During the February 23, 2005 meeting, EPCIB's
counsels/representatives were accompanied to the Bankard's
Credit-MIS Group. There, Bankard's representative, Amor
Lazaro, described and explained to petitioners'
representatives the steps involved in procuring and
translating raw data on customer transactions. Lazaro
explained that Bankard captures cardholder information and
transactions through encoding or electronic data capture.
Thereafter, such data are transmitted to its main credit card
administration system. Such raw data are then sent to
Bankard's Information Technology Group. Using a proprietary
software called SAS, the raw data is then converted into SAS
files which may be viewed, handled, and converted into Excel
files for reporting purposes. During the walk-through,
petitioners' representatives asked questions which were
answered in detail by Lazaro.
At the same time, another Bankard representative, Felix L.
Sincoegue, accompanied two auditors/representatives of
petitioners to examine the journal vouchers and supporting
documents of Bankard consisting of several boxes. The
auditors randomly sifted through the boxes which they had
earlier requested to be inspected. DAaIHT
In addition, petitioners were furnished with an electronic copy
of the details of all cardholders, including relevant data for
aging of receivables for the years 2000 to 2003, as well as
data containing details of written-off accounts from 1999 to
March 2000 contained in compact discs. 45
On March 4, 2005, petitioners sent a letter 46 to the tribunal
requesting for a postponement of the April 11, 2005 hearing
of the case. Petitioners claim that they could not confirm the
summaries prepared by RCBC, considering that RCBC
allegedly did not cooperate in providing data that would
Page 21
facilitate their verification. Petitioners specifically mentioned
the following data: (1) list of names of cardholders whose
accounts are sources of data gathered or calculated in the
summaries; (2) references to the basic cardholder documents
from which such data were collected; and (3) access to the
underlying cardholder documents at a time and under
conditions mutually convenient to the parties. As regards the
compact discs of information provided to petitioners, it is
claimed that such information could not be accessed as the
software necessary for the handling of the data could not be
made immediately available to them.
In Procedural Order No. 3 dated March 11, 2005, 47 the initial
hearing was moved to June 13 to 16, 2005, considering that
petitioners failed to pay the advance on costs of the tribunal.
DHAcET
On March 23, 2005, RCBC paid the balance of the advance on
costs. 48
On April 22, 2005, petitioners sent the tribunal a letter, 49
requesting for the postponement of the hearing scheduled on
June 13 to 16, 2005 on the ground that they could not submit
their witness' statements due to the volume of data that they
acquired from RCBC.
In a letter dated April 25, 2005, 50 petitioners demanded from
RCBC that they be allowed to examine the journal vouchers
earlier made available to them during the February 23, 2005
meeting. This demand was answered by RCBC in a letter
dated April 26, 2005, 51 stating that such demand was being
denied by virtue of Procedural Order No. 2, in which it was
ruled that further requests for discovery would not be made
except with leave of the chairperson of the tribunal.
In Procedural Order No. 4, 52 the tribunal granted petitioners'
request for the postponement of the hearing on June 13, 2005
and rescheduled it to November 21, 2005 in light of the
pending motions filed by EPCIB with the RTC in Makati City.
CHTcSE
On July 29, 2005, the parties held a meeting wherein it was
agreed that petitioners would be provided with hard and soft
copies of the inventory of the journal vouchers earlier
presented to its representatives, while making the journal
vouchers available to petitioners for two weeks for
examination and photocopying. 53
On September 2, 2005, petitioners applied for the
postponement of the November 21, 2005 hearing due to the
following: (1) petitioners had earlier filed a motion dated
August 11, 2005 with the RTC, in which the issue of whether
the non-Filipino members of the tribunal were illegally
practicing law in the Philippines by hearing their case, which
was still pending; and (2) the gathering and processing of the
data and documents made available by RCBC would require
26 weeks. 54 Such application was denied by the tribunal in
Procedural Order No. 5 dated September 16, 2005. 55
On October 21, 2005, the tribunal issued Procedural Order No.
6, 56 postponing the November 21, 2005 hearing by virtue of
an order issued by the RTC in Makati City directing the tribunal
to reset the hearing for April 21 and 24, 2006. TaCIDS
Thereafter, in a letter dated January 18, 2006, 57 petitioners
wrote the tribunal requesting that RCBC be directed to: (1)
provide petitioners with information identifying the journal
MichTrina Evidence Library Work
vouchers and other supporting documents that RCBC used to
arrive at the figures set out in the summaries and other
relevant information necessary to enable them to reconstruct
and/or otherwise understand the figures or amounts in each
summary; and (2) submit to petitioners the requested pieces
of information as soon as these are or have become available,
or in any case not later than five days.
In response to such letter, RCBC addressed a letter dated
January 31, 2006 58 to the tribunal claiming that the pieces of
information that petitioners requested are already known to
petitioners considering that RCBC merely maintained the
systems that they inherited when it bought Bankard from
petitioners. RCBC added that the documents that EPCIB
originally transmitted to it when RCBC bought Bankard were
all being made available to petitioners; thus, any missing
supporting documents from these files were never transmitted
to them in the first place.
Later, petitioners sent to the tribunal a letter dated February
10, 2006, 59 asking that it direct RCBC to provide petitioners
with the supporting documents that RCBC mentioned in its
letter dated January 31, 2006. Petitioners wrote that should
RCBC fail to present such documents, RCBC's summaries
should be excluded from the records. SIEHcA
In a letter dated March 10, 2006, 60 petitioners requested
that they be given an additional period of at least 47 days
within which to submit their evidence-in-chief with the
corresponding request for the cancellation of the hearing on
April 24, 2006. Petitioners submit that should such request be
denied, RCBC's summaries should be excluded from the
records.
On April 6, 2006, petitioners filed their arbitration briefs and
witness statements. By way of reply, on April 17, 2006, RCBC
submitted Volumes IV and V of its exhibits and Volume II of its
evidence-in-chief. 61
On April 18, 2006, petitioners requested the tribunal that they
be allowed to file rejoinder briefs, or otherwise exclude RCBC's
reply brief and witness statements. 62 In this request,
petitioners also requested that the hearing set for April 24,
2006 be moved. These requests were denied.
Consequently, on April 24 to 27, 2006, the arbitral tribunal
conducted hearings on the case. 63
On December 4, 2006, petitioners submitted rejoinder
affidavits, raising new issues for the first time, to which RCBC
submitted Volume III of its evidence-in-chief by way of a reply.
HITAEC
On January 16, 2007, both parties simultaneously submitted
their memoranda. On January 26, 2007, both parties
simultaneously filed their reply to the other's memorandum.
64
Thus, on September 27, 2007, the Partial Award was rendered
by the Tribunal.
Later, petitioners moved to vacate the said award before the
RTC. Such motion was denied by the trial court in the first
assailed order dated January 8, 2008. Petitioners then moved
for a reconsideration of such order, but their motion was also
denied in the second assailed order dated March 17, 2008.
Page 22
The foregoing events unequivocally demonstrate ample
opportunity for petitioners to verify and examine RCBC's
summaries, accounting records, and reports. The pleadings
reveal that RCBC granted petitioners' requests for production
of documents and accounting records. More so, they had more
than three (3) years to prepare for their defense after RCBC's
submission of its brief of evidence. Finally, it must be
emphasized that petitioners had the opportunity to appeal the
Partial Award to the RTC, which they in fact did. Later,
petitioners even moved for the reconsideration of the denial
of their appeal. Having been able to appeal and move for a
reconsideration of the assailed rulings, petitioners cannot
claim a denial of due process. 65 THIECD
Petitioners' right to due process was not breached.
As regards petitioners' claim that its right to due process was
violated when they were allegedly denied the right to cross-
examine RCBC's witnesses, their claim is also bereft of merit.
Sec. 15 of RA 876 or the Arbitration Law provides that:
Section 15. Hearing by arbitrators. Arbitrators may,
at the commencement of the hearing, ask both parties for
brief statements of the issues in controversy and/or an agreed
statement of facts. Thereafter the parties may offer such
evidence as they desire, and shall produce such additional
evidence as the arbitrators shall require or deem necessary to
an understanding and determination of the dispute. The
arbitrators shall be the sole judge of the relevancy and
materiality of the evidence offered or produced, and shall not
be bound to conform to the Rules of Court pertaining to
evidence. Arbitrators shall receive as exhibits in evidence any
document which the parties may wish to submit and the
exhibits shall be properly identified at the time of submission.
All exhibits shall remain in the custody of the Clerk of Court
during the course of the arbitration and shall be returned to
the parties at the time the award is made. The arbitrators may
make an ocular inspection of any matter or premises which
are in dispute, but such inspection shall be made only in the
presence of all parties to the arbitration, unless any party who
shall have received notice thereof fails to appear, in which
event such inspection shall be made in the absence of such
party. (Emphasis supplied.) SDTIaE
The well-settled rule is that administrative agencies exercising
quasi-judicial powers shall not be fettered by the rigid
technicalities of procedure, albeit they are, at all times
required, to adhere to the basic concepts of fair play. The
Court wrote in CMP Federal Security Agency, Inc. v. NLRC:
While administrative tribunals exercising quasi-judicial
powers, like the NLRC and Labor Arbiters, are free from the
rigidity of certain procedural requirements, they are
nonetheless bound by law and practice to observe the
fundamental and essential requirements of due process. The
standard of due process that must be met in administrative
tribunals allows a certain degree of latitude as long as fairness
is not ignored. Hence, it is not legally objectionable, for being
violative of due process, for the Labor Arbiter to resolve a
case based solely on the position papers, affidavits or
documentary evidence submitted by the parties. The
affidavits of witnesses in such case may take the place of their
direct testimony. 66
Of the same tenor is our holding in Quiambao v. Court of
Appeals:
MichTrina Evidence Library Work
In resolving administrative cases, conduct of full-blown trial is
not indispensable to dispense justice to the parties. The
requirement of notice and hearing does not connote full
adversarial proceedings. Submission of position papers may
be sufficient for as long as the parties thereto are given the
opportunity to be heard. In administrative proceedings, the
essence of due process is simply an opportunity to be heard,
or an opportunity to explain one's side or opportunity to seek
a reconsideration of the action or ruling complained of. This
constitutional mandate is deemed satisfied if a person is
granted an opportunity to seek reconsideration of an action or
a ruling. It does not require trial-type proceedings similar to
those in the courts of justice. Where opportunity to be heard
either through oral arguments or through pleadings is
accorded, there is no denial of procedural due process. 67
(Emphasis supplied.) ITCcAD
Citing Vertudes v. Buenaflor, petitioners also cry denial of due
process when they were allegedly denied the right to cross-
examine the witnesses presented by RCBC. It is true that in
Vertudes, we stated: "The right of a party to confront and
cross-examine opposing witnesses in a judicial litigation, be it
criminal or civil in nature, or in proceedings before
administrative tribunals with quasi-judicial powers, is a
fundamental right which is part of due process." 68
It is, however, equally true that:
[T]he right is a personal one which may be waived expressly
or impliedly by conduct amounting to a renunciation of the
right of cross-examination. Thus, where a party has had the
opportunity to cross-examine a witness but failed to avail
himself of it, he necessarily forfeits the right to cross-examine
and the testimony given on direct examination of the witness
will be received or allowed to remain in the record. 69
(Emphasis supplied.) cTECIA
We also held in one case:
However, the right has always been understood as requiring
not necessarily an actual cross-examination but merely an
opportunity to exercise the right to cross-examine if desired.
What is proscribed by statutory norm and jurisprudential
precept is the absence of the opportunity to cross-examine.
The right is a personal one and may be waived expressly or
impliedly. There is an implied waiver when the party was
given the opportunity to confront and cross-examine an
opposing witness but failed to take advantage of it for reasons
attributable to himself alone. If by his actuations, the accused
lost his opportunity to cross-examine wholly or in part the
witnesses against him, his right to cross-examine is impliedly
waived. 70 (Emphasis supplied.)
And later in Velez v. De Vera, the Court En Banc expounded on
the above rulings, adding that in administrative proceedings,
cross-examination is not indispensable, thus:
Due process of law in administrative cases is not identical with
"judicial process" for a trial in court is not always essential to
due process. While a day in court is a matter of right in
judicial proceedings, it is otherwise in administrative
proceedings since they rest upon different principles. The due
process clause guarantees no particular form of procedure
and its requirements are not technical. Thus, in certain
proceedings of administrative character, the right to a notice
or hearing [is] not essential to due process of law. The
constitutional requirement of due process is met by a fair
Page 23
hearing before a regularly established administrative agency
or tribunal. It is not essential that hearings be had before the
making of a determination if thereafter, there is available trial
and tribunal before which all objections and defenses to the
making of such determination may be raised and considered.
One adequate hearing is all that due process requires. What is
required for "hearing" may differ as the functions of the
administrative bodies differ. HSEIAT
The right to cross-examine is not an indispensable aspect of
due process. 71 . . . (Emphasis supplied.)
Clearly, the right to cross-examine a witness, although a
fundamental right of a party, may be waived. Petitioners
themselves admit having had the opportunity to cross-
examine RCBC's witnesses during the hearings before the
tribunal, but declined to do so by reserving such right at a
later time. Having had the opportunity to cross-examine
RCBC's witnesses, petitioners were not denied their right to
due process.
RCBC is Not Estopped from Questioning the Financial
Condition of Bankard
On estoppel, petitioners contend that RCBC already knew the
recording of the Bankard accounts before it paid the balance
of the purchase price and could no longer challenge the
financial statements of Bankard. RCBC, they claim, had full
control of the operations of Bankard since June 2, 2000 and
RCBC's audit team reviewed the accounts in September 2000.
Thus, RCBC is now precluded from denying the fairness and
accuracy of said accounts since it did not seek price reduction
under Sec. 5 (h). Lastly, they asseverate that RCBC continued
with Bankard's accounting policies and practices and found
them to conform to the generally accepted accounting
principles, contrary to RCBC's allegations. aCTcDS
It also bears stating that in his dissent, retired Justice
Kapunan, an arbitral tribunal member, argued that Bankard's
accounting practices were disclosed in the information
memorandum provided to RCBC; hence, RCBC was supposed
to know such accounting practices and to have accepted their
propriety even before the execution of the SPA. He then
argued that when it paid the purchase price on December 29,
2000, RCBC could no longer claim that the accounting
practices that went into the reporting of the 1999 AFS of
Bankard were not in accord with generally accepted
accounting principles. He pointed out that RCBC was bound by
the audit conducted by a certain Rubio prior to the full
payment of the purchase price of Bankard. Anchored on these
statements by Justice Kapunan, petitioners conclude that
RCBC is estopped from claiming that the former violated their
warranties under the SPA.
Petitioners' contention is not meritorious.
Art. 1431 of the Civil Code, on the subject of estoppel,
provides: "Through estoppel an admission or representation is
rendered conclusive upon the person making it, and cannot be
denied or disproved as against the person relying thereon."
IAETSC
The doctrine of estoppel is based upon the grounds of public
policy, fair dealing, good faith, and justice; and its purpose is
to forbid one to speak against one's own acts,
representations, or commitments to the injury of one to whom
they were directed and who reasonably relied on them. 72
MichTrina Evidence Library Work
We explained the principle of estoppel in Philippine Savings
Bank v. Chowking Food Corporation:
. . . The equitable doctrine of estoppel was explained by this
Court in Caltex (Philippines), Inc. v. Court of Appeals:
Under the doctrine of estoppel, an admission or
representation is rendered conclusive upon the person making
it, and cannot be denied or disproved as against the person
relying thereon. A party may not go back on his own acts and
representations to the prejudice of the other party who relied
upon them. In the law of evidence, whenever a party has, by
his own declaration, act, or omission, intentionally and
deliberately led another to believe a particular thing true, to
act upon such belief, he cannot, in any litigation arising out of
such declaration, act, or omission, be permitted to falsify it.
AaCcST
The principle received further elaboration in Maneclang v.
Baun:
In estoppel by pais, as related to the party sought to be
estopped, it is necessary that there be a concurrence of the
following requisites: (a) conduct 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; (b) intent, or at least
expectation that this conduct shall be acted upon, or at least
influenced by the other party; and (c) knowledge, actual or
constructive of the actual facts.
Estoppel may vary somewhat in definition, but all authorities
agree that a party invoking the doctrine must have been
misled to one's prejudice. That is the final and, in reality, most
important of the elements of equitable estoppel. It is this
element that is lacking here. 73 (Emphasis supplied.)
The elements of estoppel pertaining to the party estopped
are:
(1) conduct which amounts to a false representation or
concealment of material facts, or, at least, which calculated to
convey the impression that the facts are otherwise than, and
inconsistent with, those which the party subsequently
attempts to assert; (2) intention, or at least expectation, that
such conduct shall be acted upon by the other party; and (3)
knowledge, actual or constructive, of the actual facts. 74
DHETIS
In the case at bar, the first element of estoppel in relation to
the party sought to be estopped is not present. Petitioners
claim that RCBC misrepresented itself when RCBC made it
appear that they considered petitioners to have sufficiently
complied with its warranties under Sec. 5 (g) and 5 (h), in
relation to Sec. 7 of the SPA. Petitioners' position is that "RCBC
was aware of the manner in which the Bankard accounts were
recorded, well before it consummated the SPA by taking
delivery of the shares and paying the outstanding 80%
balance of the contract price." 75
Petitioners, therefore, theorize that in this case, the first
element of estoppel in relation to the party sought to be
estopped is that RCBC made a false representation that it
considered Bankard's accounts to be in order and, thus, RCBC
abandoned any claim under Sec. 5 (g) and 5 (h) by its
inaction. ECaAHS
Page 24
Such contention is incorrect.
It must be emphasized that it was only after a second audit
that RCBC presented its claim to petitioners for violation of
Sec. 5 (g), within the three (3)-year period prescribed. In other
words, RCBC, prior to such second audit, did not have full and
thorough knowledge of the correctness of Bankard's accounts,
in relation to Sec. 5 (g). RCBC, therefore, could not have
misrepresented itself considering that it was still in the
process of verifying the warranties covered under Sec. 5 (g).
Considering that there must be a concurrence of the elements
of estoppel for it to arise, on this ground alone such claim is
already negated. As will be shown, however, all the other
elements of estoppel are likewise absent in the case at bar.
As to the second element, in order to establish estoppel, RCBC
must have intended that petitioners would act upon its
actions. This element is also missing. RCBC by its actions did
not mislead petitioners into believing that it waived any claim
for violation of a warranty. The periods under Sec. 5 (g) and 5
(h) were still available to RCBC. CDHSac
The element that petitioners relied on the acts and conduct of
RCBC is absent. The Court finds that there was no reliance on
the part of petitioners on the acts of RCBC that would lead
them to believe that the RCBC will forego the filing of a claim
under Sec. 5 (g). The allegation that RCBC knew that the
Bankard accounts did not comply with generally accepted
accounting principles before payment and, hence, it cannot
question the financial statements of Bankard is meritless.
Precisely, the SPA explicitly provides that claims for violation
of the warranties under Sec. 5 (g) can still be filed within three
(3) years from the closing date. Petitioners' contention that
RCBC had full control of Bankard operations after payment of
the price and that an audit undertaken by the Rubio team did
not find anything wrong with the accounts could not have
plausibly misled petitioners into believing that RCBC will waive
its right to file a claim under Sec. 5 (g). After all, the period to
file a claim under Sec. 5 (g) is three (3) years under Sec. 7,
much longer than the six (6)-month period under Sec. 5 (h).
Petitioners are fully aware that the warranties under Sec. 5 (g)
(1997 up to March 2000) are of a wider scope than that of
Sec. 5 (h) (AFS of 1999 and UFS up to May 31, 2000),
necessitating a longer audit period than the six (6)-month
period under Sec. 5 (h). SATDEI
The third element of estoppel in relation to the party sought
to be estopped is also absent considering that, as stated,
RCBC was still in the process of verifying the correctness of
Bankard's accounts prior to presenting its claim of
overvaluation to petitioners. RCBC, therefore, had no sufficient
knowledge of the correctness of Bankard's accounts.
On another issue, RCBC could not have immediately changed
the Bankard accounting practices until it had conducted a
more extensive and thorough audit of Bankard's voluminous
records and transactions to uncover any irregularities. That
would be the only logical explanation why Bankard's alleged
irregular practices were maintained for more than two (2)
years from closing date. The fact that RCBC continued with
the audit of Bankard's AFS and records after the termination
of the Rubio audit can only send the clear message to
petitioners that RCBC is still entertaining the possibility of
filing a claim under Sec. 5 (g). It cannot then be said that
petitioners' reliance on RCBC's acts after full payment of the
price could have misled them into believing that no more
claim will be presented by RCBC.
MichTrina Evidence Library Work
The Arbitral Tribunal explained in detail why estoppel is not
present in the case at bar, thus: EDHCSI
10.18 The audit exercise conducted by Mr. Legaspi and Mr.
Rubio was clearly not one comprehensive enough to have
discovered the problems later unearthed by Dr. Laya and
Dean Ledesma. . . .
10.19 Although the powers of the TC [Transition Committee]
may have been widely expressed in the view of Mr. Rogelio
Chua, then in charge of Bankard . . . the TC conducted
meetings only to get updated on the status and progress of
Bankard's operations. Commercially, one would expect that an
unpaid vendor expecting to receive 80% of a large purchase
price would not be receptive to a purchaser making vast
policy changes in the operation of the business until the
purchaser has paid up its money. It is more likely that, until
the settlement date, there was a practice of maintaining the
status quo at Bankard.
10.20 But neither the Claimant nor the TC did anything, in
the Tribunal's view, which would have given the Respondents
the impression that they were being relieved over the next
three years of susceptibility to a claim under clause 5(g).
Maybe the TC could have been more proactive in
commissioning further or more in-depth audits but it was not.
It did not have to be. It is commercially unlikely that it have
been done so, with the necessary degree of attention to
detail, within the relatively short time between the
appointment of the TC and the ultimate settlement date of the
purchase a period of some three months. An interim
arrangement was obviously sensible to enable the Claimant
and its staff to become familiar with the practices and
procedures of Bankard. ADEHTS
10.21 The core consideration weighing with the Tribunal in
assessing these claims for estoppel is that the SPA allowed
two types of claim; one within six months under 5(h) and one
within three years under 5(g). The Tribunal has already held
the present claim is not barred by clause 5(h). It must
therefore have been within the reasonable contemplation of
the parties that a 5(g) claim could surface within the three-
year period and that it could be somewhat differently
assessed than the claim under 5(h). The Tribunal cannot find
estoppel by conduct either from the formation of the TC or
from the limited auditing exercise done by Mr. Rubio and Mr.
Legaspi. The onus proving estoppel is on the Respondents and
it has not been discharged.
10.22 If the parties had wished the avenues of relief for
misrepresentation afforded to the Claimant to have been
restricted to a claim under Clause 5(h), then they could have
said so. The 'special audit' may have provided an answer to
any claim based on clause 5(h) but it cannot do so in respect
of a claim based on Clause 5(g). Clause 5(g) imposed a
positive obligation on the Respondents from which they
cannot be excused, simply by reason of either the formation
and conduct of the TC or of the limited audit. CSTDEH
10.23 The three-year limitation period obviously
contemplated that it could take some time to ascertain
whether there had been a breach of the GAAP standards, etc.
Such was the case. A six-month limitation period under Clause
5(h), in contrast, presaged a somewhat less stringent enquiry
of the kind carried out by Mr. Rubio and Mr. Legaspi.
Page 25
10.24 Clause 2(3) of the Amendment to the SPA
strengthens the conclusion that the parties were concerned
only with a 5(h) claim during the TC's reign. The focus of the
'audit' however intense it was conducted by Mr. Rubio
and Mr. Legaspi, was on establishing possible liability under
that section and thus as a possible reduction in the price to be
paid on settlement.
10.25 The fact that the purchase price was paid over in full
without any deduction in terms of clause 5(h) is not a bar to
the Claimant bringing a claim under 5(g) within the three-year
period. The fact that payment was made can be, as the
Tribunal has held, a barrier to a claim for rescission and
restitution ad inegrum. A claim for estoppel needs a finding of
representation by words of conduct or a shared presumption
that a right would not be relied upon. The party relying on
estoppel has to show reliance to its detriment or that,
otherwise, it would be unconscionable to resile from the
provision. HIDCTA
10.26 Article 1431 of the Civil Code states:
"Through estoppel an admission or representation is
rendered conclusive upon the person making it, and cannot be
denied or disproved as against the person relying thereon."
10.27 Clearly, there has to both an admission or
representation by (in this case) the Claimant, plus reliance
upon it by (in this case) the Respondents. The Tribunal cannot
find as proved any admission/representation that the Claimant
was abandoning a 5(g) claim, any reliance by Respondents on
an admission, and any detriment to the Respondents such as
would entitle them to have the Claimant deprived of the
benefit of clause 5(g). These aspects of the claim of estoppel
are rejected.
xxx xxx xxx
10.42 The Tribunal is not the appropriate forum for deciding
whether there have been any regulatory or ethical infractions
by Bankard and/or the Claimant in setting the 'buy-back'
price. It has no bearing on whether the Claimant must be
considered as having waived its right to claim against the
Respondents. HCSEIT
10.43 In the Tribunal's view, neither any infraction by
Bankard in failing to advise the Central Bank of the experts'
findings, nor a failure to put a tag on the accounts nor to have
said something to the shareholders in the buy-back exercise
operates as a "technical knock-out" of Claimant's claim.
10.44 The Tribunal notes that the conciliation process
mandated by the SPA took most of 2003 and this may explain
a part of the delay in commencing arbitral proceedings.
10.45 Whatever the status of Mr. Rubio's and Mr. Legaspi's
enquiries in late 2000, the Claimant was quite entitled to
commission subsequent reports from Dr. Laya and Dr. Echanis
and, on the basis of those reports, make a timeous claim
under clause 5(g) of the SPA.
10.46 In the Tribunal's view, therefore, there is no merit in
Respondents' various submissions that the Claimant is
debarred from prosecuting its claims on the grounds of
estoppel. There is just no proof of the necessary
representation to the Respondent, nor any detriment to the
MichTrina Evidence Library Work
Respondent proved. The grounds of delay and laches are not
substantiated. IHCSET
In summary, the tribunal properly ruled that petitioners failed
to prove that the formation of the Transition Committee and
the conduct of the audit by Rubio and Legaspi were
admissions or representations by RCBC that it would not
pursue a claim under Sec. 5 (g) and that petitioners relied on
such representation to their detriment. We agree with the
findings of the tribunal that estoppel is not present in the
situation at bar.
Additionally, petitioners claim that in Knecht v. Court of
Appeals 76 and Coca-Cola Bottlers Philippines, Inc. v. Court of
Appeals (Coca-Cola), 77 this Court ruled that the absence of
the element of reliance by a party on the representation of
another does not negate the principle of estoppel. Those
cases are, however, not on all fours with and cannot be
applied to this case.
In Knecht, the buyer had the opportunity of knowing the
conditions of the land he was buying early on in the
transaction, but proceeded with the sale anyway. According to
the Court, the buyer was estopped from claiming that the
vendor made a false representation as to the condition of the
land. This is not true in the instant case. RCBC did not conduct
a due diligence audit in relation to Sec. 5 (g) prior to the sale
due to petitioners' express representations and warranties.
The examination conducted by RCBC, through Rubio, after the
execution of the SPA on June 2, 2000, was confined to finding
any breach under Sec. 5 (h) for a possible reduction of the
purchase price prior to the payment of its balance on
December 31, 2000. Further, the parties clearly agreed under
Sec. 7 of the SPA to a three (3)-year period from closing date
within which to present a claim for damages for violation of
the warranties under the SPA. Hence, Knecht is not a
precedent to the case at bar. EACTSH
So is Coca-Cola. As lessee, Coca-Cola Bottlers was well aware
of the nature and situation of the land relative to its intended
use prior to the signing of the contract. Its subsequent
assertion that the land was not suited for the purpose it was
leased was, therefore, cast aside for being unmeritorious.
Such circumstance does not obtain in the instant case. There
was no prior due diligence audit conducted by RCBC, it having
relied, as earlier stated, on the warranties of petitioners with
regard to the financial condition of Bankard under Sec. 5 (g).
As such, Sec. 5 (g) guaranteed RCBC that it could file a claim
for damages for any mistakes in the AFS and UFS of Bankard.
Clearly, Coca-Cola also cannot be applied to the instant case.
It becomes evident from all of the foregoing findings that the
ICC-ICA is not guilty of any manifest disregard of the law on
estoppel. As shown above, the findings of the ICC-ICA in the
Partial Award are well-supported in law and grounded on facts.
The Partial Award must be upheld.
We close this disposition with the observation that a member
of the three-person arbitration panel was selected by
petitioners, while another was respondent's choice. The
respective interests of the parties, therefore, are very much
safeguarded in the arbitration proceedings. Any suggestion,
therefore, on the partiality of the arbitration tribunal has to be
dismissed. DCcSHE
Page 26
WHEREFORE, the instant petition is hereby DENIED. The
assailed January 8, 2008 and March 17, 2008 Orders of the
RTC, Branch 148 in Makati City are hereby AFFIRMED.
Costs against petitioners. SO ORDERED.
THIRD DIVISION
[G.R. No. 191561. March 7, 2011.]
BANK OF COMMERCE, petitioner, vs. GOODMAN FIELDER
INTERNATIONAL PHILIPPINES, INC., respondent.
DECISION
CARPIO MORALES, J p:
Goodman Fielder International Philippines, Inc. (respondent), a
corporation duly registered and existing under the laws of the
Republic of the Philippines, is engaged in marketing of fats
and oil shortening. 1 EaICAD
Keraj Marketing Company (Keraj), represented by its
purported owner Sumil K. Amarnani (Amarnani), sought a
distributorship agreement from respondent. As a pre-requisite
to respondent's consent, a credit line/bank guaranty in the
amount of P500,000.00 was required from Keraj. Amarnani
thus applied for a credit line/bank guaranty with the Bacolod
branch of Bank of Commerce (petitioner).
Pending submission of the required documents for processing
and approval of the credit line, Amarnani, by letter of August
21, 2000, 2 requested the issuance of a conditional
certification from petitioner's branch manager Eli Aragon
(Aragon) in this wise:
Earlier I mentioned that one of my big suppliers is Goodman
Fielder International where I get my baking supplies.
They are requiring from me a certification issued by my bank
that I am arranging for a credit line with my bank to be used if
I cannot pay them. Please tell me the requirements for the
credit line so I can apply. All I need is a conditional
certification that I am arranging for a credit line from our
bank. I will prepare the necessary documents you mentioned
to me in your letter. cHAIES
I can offer you a property here in Bacolod as collateral for said
credit line application.
Please advi[s]e. (emphasis, italics and underscoring supplied)
Replying to Amarnani's request, Aragon sent respondent a
letter of August 23, 2000 3 reading:
Gentlemen:
At the request of our client, KERAJ MARKETING COMPANY with
postal address at Door No. 2 Goldenfields Commercial
Complex, Singcang, Bacolod City, we are pleased to inform
you that said Corporation has arranged for a credit line in the
amount of FIVE HUNDRED THOUSAND PESOS ONLY
(P500,000.00), subject to the compliance by said client of the
policies, terms and conditions imposed by the bank on said
credit line. The said credit line will be used exclusively for
MichTrina Evidence Library Work
settling any obligations of our client, KERAJ MARKETING
COMPANY (sic), against your company.
This certification is issued at the request of the client for
whatever legal purpose it may serve them best. (emphasis
and underscoring supplied) ECTIHa
On October 2, 2000, respondent and Keraj entered into a
Distributorship Agreement.
Aragon subsequently issued a similar letter (dated October
18, 2000) 4 in favor of Bacolod RK Distributors and Co.,
(Bacolod RK), an entity also allegedly owned by Amarnani,
attesting to the arrangement by Keraj for a credit line in the
amount of P2,000,000.00, to be utilized for the settlement of
Keraj's accounts with respondent.
Both letters of Aragon contain a "check write" on the left side
indicating the amount applied for as credit line. Keraj and
Bacolod RK did not pursue their application for a credit line,
however, despite follow-up advice from petitioner.
A year later, respondent informed petitioner, by letter of
October 24, 2001, 5 its intent to claim against the bank
guaranty issued to settle Keraj and Bacolod RK's unpaid
accounts. By another letter dated November 20, 2001, 6
respondent advised petitioner its intent to collect the amount
of P1,817,691.30 representing Keraj and Bacolod RK's unpaid
obligations. CHTcSE
Negotiations for the settlement of Keraj and Bacolod RK's
obligations having failed, respondent filed a complaint for
collection of sum of money against Keraj, Amarnani, Bacolod
RK, and petitioner and its manager Aragon before the
Regional Trial Court (RTC) of Pasig.
In defense, petitioner and Aragon claimed that the letters
merely certified that Keraj and Bacolod RK applied for the
issuance of a bank guaranty, but no actual bank guaranty was
approved, both companies having failed to present the
required documents for processing the application.
Bacolod RK, on the other hand, denied any involvement in the
transaction between Keraj and respondent.
Only petitioner presented evidence.
By Decision of July 20, 2007, Branch 268 of the Pasig RTC
absolved Bacolod RK from liability, but faulted Keraj,
Amarnani, Aragon and petitioner, disposing as follows:
WHEREFORE, foregoing premises considered, judgment is
hereby rendered in favor of the plaintiff [respondent herein]
and against defendants SUNIL AMARNANI, KERAJ MARKETING
CO., ELI ARAGON and BANK OF COMMERCE, ordering the
latter, jointly and severally, to pay the former the following
sums: cEISAD
1. Php1,700,250.66 as actual damages plus interest at
the legal rate from the date of extrajudicial demand and
satisfaction of judgment;
2. The sum equivalent to 25% of the total amount due
as and by way of attorney's fees, and;
3. The cost of suits.
Page 27
SO ORDERED. 7 (capitalization in the original)
In holding petitioner jointly and severally liable with Amarnani,
Keraj and Aragon, the trial court held:
From the evidence adduced by the plaintiff [Goodman],
defendant bank is estopped from denying its liability relative
to the subject bank guarantees. Defendant Bank of Commerce
failed to sufficiently prove the foregoing defenses. Plaintiff
relied on the apparent authority of its branch manager in
issuing the subject documents. Defendant Bank is bound by
the acts of its branch manager. The Supreme Court ruled:
"What transpires in the corporate board room is entirely an
internal matter. Hence, petitioner may not impute negligence
on the part of respondent's representative in failing to find out
the scope of authority of petitioner's Branch Manager. Indeed,
the public has the right to rely on the trustworthiness of bank
managers and their acts. Obviously, confidence in the banking
system, which necessarily includes reliance on bank
managers, is vital in the economic life of our society." (BPI
Family Savings Bank, Inc. versus First Metro Investment
Corporation, G.R. No. 132390, May 21, 2004). 8 (italics in the
original; emphasis supplied)
The Court of Appeals, by the assailed Decision of June 17,
2009, 9 opined that Aragon's letters clearly showed approval
by petitioner of the application for a credit line: SAaTHc
The word "guaranty" is not strictly required to appear in the
said document to be able to say that it is as such. If the words
of the contract appear to be contrary to the evident intention
of the parties, the latter shall prevail over the former. In the
case at bench, it was clearly shown that the intention of the
document was to guarantee the obligations that would be
incurred by [herein petitioner's] clients, defendants Keraj and
Becolod (sic) RK. Such intention was expressed in the last
phrase of the first paragraph and its limitations were
specifically limited to Php500,000.00 and 2,000,000.00
respectively. There is nothing more left to doubt the intention
of the parties included in the said bank guaranty. 10
(underscoring supplied)
The appellate court accordingly affirmed the trial court's
decision, with modification by deleting the award of attorney's
fees.
Petitioner's motion for reconsideration having been denied by
Resolution of March 8, 2010, it filed the present petition for
review, faulting the appellate court as follows: DcAEIS
I.
THE COURT OF APPEALS ERRONEOUSLY INTERPRETED THE
NOTICE/CERTIFICATION ISSUED BY DEFENDANT ARAGON AS A
BANK GUARANTEE AND NOT MERELY AS A LETTER-
CERTIFICATION OF A PENDING CREDIT LINE APPLICATION;
II.
THE DOCTRINE OF APPARENT AUTHORITY DOES NOT APPLY IN
THIS CASE;
III.
DEFENDANT BANCOMMERCE IS NOT ESTOPPED FROM
DENYING LIABILITY ON THE PURPORTED BANK GUARANTEES.
(underscoring supplied)
MichTrina Evidence Library Work
The resolution of the case hinges on what Aragon's statement
in the letters sent to respondent that ". . . we are pleased to
inform you that said Corporation has arranged for a credit
line" conveys. caDTSE
Section 13, Rule 130, Rules of Court on interpretation of an
instrument provides:
SEC. 13. Interpretation according to circumstances. For the
proper construction of an instrument, the circumstances
under which it was made, including the situation of the
subject thereof and of the parties to it, may be shown so that
the judge may be placed in the position of those whose
language he is to interpret. (underscoring supplied)
A consideration of the circumstances under which Aragon's
letter-certifications were issued is thus in order.
Amarnani's letter-request of August 21, 2000 for a conditional
certification from Aragon was granted two days later when
Aragon issued the letter-certification addressed to respondent.
Within that period, it could not have been possible for
petitioner to even process the application, given that
Amarnani had not even complied with the requirements as he,
himself, indicated in his letter-request to Aragon to "please tell
[him] the requirements for the credit line so [he] c[ould]
apply." DCIAST
The Distributorship Agreement between respondent and Keraj
was forged on October 2, 2000 or 39 days after the issuance
of the letter-certification, long enough for respondent to verify
if indeed a bank guaranty was, to its impression, granted.
By respondent's finance manager Leonora Armi Salvador's
testimony, upon receipt of the two letter-certifications, 11 she
concluded that they were bank guarantees considering their
similarity with other bank guarantees in favor of respondent
by other distributors; and she made inquiries with petitioner
only after Keraj defaulted in the payment of its obligation to
respondent. 12
In light of the foregoing circumstances, petitioner could not
have conveyed that it was issuing a bank guaranty in favor of
Amarnani.
Respondent's reliance on Aragon's use of a "check writer," a
machine used to input a numerical or written value impression
in the "payment amount field" of a check that is very difficult
to alter, on the left side of each letter-certification, was
misplaced, what prevails being the wordings of the letter-
certifications. 13 CAaSHI
WHEREFORE, the challenged Court of Appeals Decision of June
17, 2009 is REVERSED and SET ASIDE. The complaint of
respondent, Goodman Fielder International Philippines, Inc. is,
with respect to petitioner, Bank of Commerce, DISMISSED. SO
ORDERED.
FIRST DIVISION
[G.R. No. 168387. August 25, 2010.]
SALUN-AT MARQUEZ and NESTOR DELA CRUZ, petitioners, vs.
ELOISA ESPEJO, ELENITA ESPEJO, EMERITA ESPEJO, OPHIRRO
ESPEJO, OTHNIEL ESPEJO, ORLANDO ESPEJO, OSMUNDO
ESPEJO, ODELEJO ESPEJO and NEMI FERNANDEZ, respondents.
Page 28
DECISION
DEL CASTILLO, J p:
When the parties admit the contents of written documents but
put in issue whether these documents adequately and
correctly express the true intention of the parties, the
deciding body is authorized to look beyond these instruments
and into the contemporaneous and subsequent actions of the
parties in order to determine such intent. Cdpr
Well-settled is the rule that in case of doubt, it is the intention
of the contracting parties that prevails, for the intention is the
soul of a contract, not its wording which is prone to mistakes,
inadequacies, or ambiguities. To hold otherwise would give
life, validity, and precedence to mere typographical errors and
defeat the very purpose of agreements.
This Petition for Review on Certiorari 1 assails the October 7,
2003 Decision, 2 as well as the May 11, 2005 Resolution 3 of
the Court of Appeals (CA) in CA G.R. SP No. 69981. The
dispositive portion of the appellate court's Decision reads:
WHEREFORE, finding reversible error committed by the
Department of Agrarian Reform Adjudication Board, the
instant petition for review is GRANTED. The assailed Decision,
dated 17 January 2001, rendered by the Department of
Agrarian Reform Adjudication Board is hereby ANNULLED and
SET ASIDE. The Decision of the Department of Agrarian
Reform Adjudication Board of Bayombong[,] Nueva Vizcaya,
dated 17 March 1998, is REINSTATED. Costs against
respondents.
SO ORDERED. 4
The reinstated Decision of the Department of Agrarian Reform
Adjudication Board (DARAB) of Bayombong, Nueva Vizcaya, in
turn, contained the following dispositive portion: CHATEa
Accordingly, judgment is rendered:
1. Finding [respondents] to be the owner by re-purchase
from RBBI [of] the Murong property covered by TCT No.
[T-]62096 (formerly TCT No. 43258);
2. Ordering the cancellation of TCT with CLOA Nos. 395
and 396 in the name[s] of Salun-at Marquez and Nestor de la
Cruz respectively, as they are disqualified to become tenants
of the Lantap property;
3. Directing RBBI to sell through VOS the Lantap
property to its rightful beneficiary, herein tenant-farmer Nemi
Fernandez under reasonable terms and conditions;
4. Ordering RBBI to return the amount paid to it by
Nestor and Satun-at; and ordering the latter to pay 20 cavans
of palay per hectare at 46 kilos per cavan unto [respondents]
plus such accrued and unpaid rentals for the past years as
may be duly accounted for with the assistance of the
Municipal Agrarian Reform Officer of Bagabag, Nueva Vizcaya
who is also hereby instructed to assist the parties execute
their leasehold contracts and;
5. The order to supervise harvest dated March 11, 1998
shall be observed until otherwise modified or dissolved by the
appellate body. TcCDIS
MichTrina Evidence Library Work
SO ORDERED. 5
Factual Antecedents
Respondents Espejos were the original registered owners of
two parcels of agricultural land, with an area of two hectares
each. One is located at Barangay Lantap, Bagabag, Nueva
Vizcaya (the Lantap property) while the other is located in
Barangay Murong, Bagabag, Nueva Vizcaya (the Murong
property). There is no dispute among the parties that the
Lantap property is tenanted by respondent Nemi Fernandez
(Nemi) 6 who is the husband 7 of respondent Elenita Espejo
(Elenita), while the Murong property is tenanted by petitioners
Salun-at Marquez (Marquez) and Nestor Dela Cruz (Dela Cruz).
8
The respondents mortgaged both parcels of land to Rural
Bank of Bayombong, Inc. (RBBI) to secure certain loans. Upon
their failure to pay the loans, the mortgaged properties were
foreclosed and sold to RBBI. RBBI eventually consolidated title
to the properties and transfer certificates of title (TCTs) were
issued in the name of RBBI. TCT No. T-62096 dated January
14, 1985 was issued for the Murong property. It contained the
following description:
Beginning at a point marked I on plan H-176292, S. 44034, W.
1656.31 m. more or less from B.L.L.M. No. 1, Bagabag
Townsite, K-27, TEacSA
thence N. 28 deg. 20 'E., 200.00 m. to point 2;
thence S. 61 deg. 40 'E., 100.00 m. to point 3;
thence S. 28 deg. 20 'W., 200.00 m. to point 4;
thence N. 61 deg. 40 'W., 100.00 m. to point 1; point of
beginning;
Containing an area of 2.000 hectares. Bounded on the
northeast, by Road; on the southeast, and southwest by public
land; and on the northwest by Public Land, properties claimed
by Hilario Gaudia and Santos Navarrete. Bearings true.
Declination 0131 'E. Points referred to are marked on plan H-
176292. Surveyed under authority of sections 12-22 Act No.
2874 and in accordance with existing regulations of the
Bureau of Lands by H.O. Bauman Public Land Surveyor, [in]
December 1912-March 1913. Note: All corners are Conc.
Mons. 15x15x60 cm. This is Lot No. 79-A=Lot No. 159 of
Bagabag Townsite, K-27. 9
Subsequently, TCT No. T-62836 dated June 4, 1985 was issued
for the Lantap property and contained the following
description:
Beginning at a point marked "1" on plan H-105520, N. 80 deg.
32 'W., 1150.21 m. from BLLM No. 122, Irrigation project,
thence N. 61 deg. 40'E., 200.00 m. to point 2; HCSEcI
thence N. 28 deg. 20'E., 100.00 m. to point 3;
thence S. 61 deg. 40'E., 200.00 m. to point 4;
thence S. 28 deg. 20'W., 100.00 m. to point 1; point of
beginning;
Page 29
containing an area of 2.0000 hectares. Bounded on the
northeast, southeast, and southwest by Public land; and on
the northwest by Road and public land. Bearings true.
Declination 0 deg. 31'E., points referred to are marked on plan
H-105520. Surveyed under authority of Section 12-22, Act No.
2874 and in accordance with existing regulations of the
Bureau of Lands, by H.O. Bauman Public Land Surveyor, [in]
Dec. 1912-Mar. 1913 and approved on January 6, 1932. Note:
This is Lot No. 119-A Lot No. 225 of Bagabag Townsite K-27.
All corners are B.I. Conc. Mons. 15x60 cm. 10
Both TCTs describe their respective subjects as located in
"Bagabag Townsite, K-27," without any reference to either
Barangay Lantap or Barangay Murong.
On February 26, 1985, respondents Espejos bought back one
of their lots from RBBI. The Deed of Sale 11 described the
property sold as follows:
. . . do hereby SELL, TRANSFER, and CONVEY, absolutely and
unconditionally . . . that certain parcel of land, situated in the
Municipality of Bagabag, Province of Nueva Vizcaya, and more
particularly bounded and described as follows, to wit:
aAHISE
Beginning at a point marked "1" on plan . . . Containing an
area of 2.000 hectares. Bounded on the NE., by Road; on the
SE., and SW by Public Land; and on the NW., by Public Land,
properties claimed by Hilario Gaudia and Santos Navarrete.
Bearing true. Declination 013 'B. Points referred to are marked
on plan H-176292.
of which the Rural Bank of Bayombong (NV), Inc., is the
registered owner in fee simple in accordance with the Land
Registration Act, its title thereto being evidenced by Transfer
Certificate of Title No. T-62096 issued by the Registry of Deeds
of Nueva Vizcaya.
As may be seen from the foregoing, the Deed of Sale did not
mention the barangay where the property was located but
mentioned the title of the property (TCT No. T-62096), which
title corresponds to the Murong property. There is no
evidence, however, that respondents took possession of the
Murong property, or demanded lease rentals from the
petitioners (who continued to be the tenants of the Murong
property), or otherwise exercised acts of ownership over the
Murong property. On the other hand, respondent Nemi
(husband of respondent Elenita and brother-in-law of the other
respondents), continued working on the other property the
Lantap property without any evidence that he ever paid
rentals to RBBI or to any landowner. The Deed of Sale was
annotated on TCT No. T-62096 almost a decade later, on July
1, 1994. 12 DAaEIc
Meanwhile, on June 20, 1990, RBBI, pursuant to Sections 20
13 and 21 14 of Republic Act (RA) No. 6657, 15 executed
separate Deeds of Voluntary Land Transfer (VLTs) in favor of
petitioners Marquez and Dela Cruz, the tenants of the Murong
property. Both VLTs described the subject thereof as an
agricultural land located in Barangay Murong and covered by
TCT No. T-62836 (which, however, is the title corresponding to
the Lantap property). 16
After the petitioners completed the payment of the purchase
price of P90,000.00 to RBBI, the DAR issued the corresponding
Certificates of Land Ownership Award (CLOAs) to petitioners
Marquez 17 and Dela Cruz 18 on September 5, 1991. Both
MichTrina Evidence Library Work
CLOAs stated that their subjects were parcels of agricultural
land situated in Barangay Murong. 19 The CLOAs were
registered in the Registry of Deeds of Nueva Vizcaya on
September 5, 1991.
On February 10, 1997 (more than 10 years after the Deed of
Sale in favor of the respondents and almost seven years after
the execution of VLTs in favor of the petitioners), respondents
filed a Complaint 20 before the Regional Agrarian Reform
Adjudicator (RARAD) of Bayombong, Nueva Vizcaya for the
cancellation of petitioners' CLOAs, the deposit of leasehold
rentals by petitioners in favor of respondents, and the
execution of a deed of voluntary land transfer by RBBI in favor
of respondent Nemi. The complaint was based on
respondents' theory that the Murong property, occupied by
the petitioners, was owned by the respondents by virtue of
the 1985 buy-back, as documented in the Deed of Sale. They
based their claim on the fact that their Deed of Sale refers to
TCT No. 62096, which pertains to the Murong property.
aSCHcA
Petitioners filed their Answer 21 and insisted that they bought
the Murong property as farmer-beneficiaries thereof. They
maintained that they have always displayed good faith, paid
lease rentals to RBBI when it became the owner of the Murong
property, bought the same from RBBI upon the honest belief
that they were buying the Murong property, and occupied and
exercised acts of ownership over the Murong property.
Petitioners also argued that what respondents Espejos
repurchased from RBBI in 1985 was actually the Lantap
property, as evidenced by their continued occupation and
possession of the Lantap property through respondent Nemi.
RBBI answered 22 that it was the Lantap property which was
the subject of the buy-back transaction with respondents
Espejos. It denied committing a grave mistake in the
transaction and maintained its good faith in the disposition of
its acquired assets in conformity with the rural banking rules
and regulations.
OIC-RARAD Decision 23
The OIC-RARAD gave precedence to the TCT numbers
appearing on the Deed of Sale and the VLTs. Since TCT No. T-
62096 appeared on respondents' Deed of Sale and the said
title refers to the Murong property, the OIC-RARAD concluded
that the subject of sale was indeed the Murong property. On
the other hand, since the petitioners' VLTs referred to TCT No.
T-62836, which corresponds to the Lantap property, the OIC-
RARAD ruled that petitioners' CLOAs necessarily refer to the
Lantap property. As for the particular description contained in
the VLTs that the subject thereof is the Murong property, the
OIC-RARAD ruled that it was a mere typographical error.
HSCATc
Further, since the VLTs covered the Lantap property and
petitioners are not the actual tillers thereof, the OIC-RARAD
declared that they were disqualified to become tenants of the
Lantap property and ordered the cancellation of their CLOAs.
It then ordered RBBI to execute a leasehold contract with the
real tenant of the Lantap property, Nemi.
The OIC-RARAD recognized that petitioners' only right as the
actual tillers of the Murong property is to remain as the
tenants thereof after the execution of leasehold contracts with
and payment of rentals in arrears to respondents.
Page 30
DARAB Decision 24
Upon appeal filed by petitioners, the DARAB reversed the OIC-
RARAD Decision. It ruled that in assailing the validity of the
CLOAs issued to petitioners as bona fide tenant-farmers, the
burden of proof rests on the respondents. There being no
evidence that the DAR field personnel were remiss in the
performance of their official duties when they issued the
corresponding CLOAs in favor of petitioners, the presumption
of regular performance of duty prevails. This conclusion is
made more imperative by the respondents' admission that
petitioners are the actual tillers of the Murong property, hence
qualified beneficiaries thereof.
As for respondents' allegation that they bought back the
Murong property from RBBI, the DARAB ruled that they failed
to support their allegation with substantial evidence. It gave
more credence to RBBI's claim that respondents repurchased
the Lantap property, not the Murong property. Respondents,
as owners of the Lantap property, were ordered to enter into
an agricultural leasehold contract with their brother-in-law
Nemi, who is the actual tenant of the Lantap property.
DHEcCT
The DARAB ended its January 17, 2001 Decision in this wise:
We find no basis or justification to question the authenticity
and validity of the CLOAs issued to appellants as they are by
operation of law qualified beneficiaries over the landholdings;
there is nothing to quiet as these titles were awarded in
conformity with the CARP program implementation; and
finally, the Board declares that all controverted claims to or
against the subject landholding must be completely and
finally laid to rest.
WHEREFORE, premises considered and finding reversible
errors[,] the assailed decision is ANNULLED and a new
judgment is hereby rendered, declaring:
1. Appellants Salun-at Marquez and Nestor Dela Cruz as
the bona fide tenant-tillers over the Murong property and
therefore they are the qualified beneficiaries thereof;
2. Declaring Transfer Certificate of Title (TCT) Nos. 395
and 396 issued in the name of [farmer-beneficiaries] Salun-at
Marquez and Nestor Dela Cruz respectively, covered formerly
by TCT No. 62096 (TCT No. 43258) of the Murong property as
valid and legal;
3. Ordering the co-[respondents] to firm-up an
agricultural leasehold contract with bona fide tenant-tiller
Nemi Fernandez over the Lantap property, [the latter] being
the subject matter of the 'buy back' arrangement entered into
between [respondents] and Rural Bank of Bayombong,
Incorporated, and other incidental matters are deemed
resolved. TCEaDI
SO ORDERED. 25
Ruling of the Court of Appeals
In appealing to the CA, the respondents insisted that the
DARAB erred in ruling that they repurchased the Lantap
property, while the petitioners were awarded the Murong
property. They were adamant that the title numbers indicated
MichTrina Evidence Library Work
in their respective deeds of conveyance should control in
determining the subjects thereof. Since respondents' Deed of
Sale expressed that its subject is the property with TCT No. T-
62096, then what was sold to them was the Murong property.
On the other hand, petitioners' VLTs and CLOAs say that they
cover the property with TCT No. T-62836; thus it should be
understood that they were awarded the Lantap property.
Respondents added that since petitioners are not the actual
tillers of the Lantap property, their CLOAs should be cancelled
due to their lack of qualification.
The CA agreed with the respondents. Using the Best Evidence
Rule embodied in Rule 130, Section 3, the CA held that the
Deed of Sale is the best evidence as to its contents,
particularly the description of the land which was the object of
the sale. Since the Deed of Sale expressed that its subject is
the land covered by TCT No. T-62096 the Murong property
then that is the property that the respondents repurchased.
SEHTIc
The CA further ruled that as for petitioners' VLTs, the same
refer to the property with TCT No. T-62836; thus, the subject
of their CLOAs is the Lantap property. The additional
description in the VLTs that the subject thereof is located in
Barangay Murong was considered to be a mere typographical
error. The CA ruled that the technical description contained in
the TCT is more accurate in identifying the subject property
since the same particularly describes the properties' metes
and bounds.
Both the RBBI 26 and petitioners 27 filed their respective
motions for reconsideration, which were separately denied. 28
On June 22, 2004, RBBI filed a separate Petition for Review on
Certiorari, docketed as G.R. No. 163320, with this Court. 29
RBBI raised the issue that the CA failed to appreciate that
respondents did not come to court with clean hands because
they misled RBBI to believe at the time of the sale that the
two lots were not tenanted. RBBI also asked that they be
declared free from any liability to the parties as it did not
enrich itself at anyone's expense. RBBI's petition was
dismissed on July 26, 2004 for lack of merit. The said
Resolution reads:
Considering the allegations, issues[,] and arguments adduced
in the petition for review on certiorari, the Court Resolves to
DENY the petition for lack of sufficient showing that the Court
of Appeals had committed any reversible error in the
questioned judgment to warrant the exercise by this Court of
its discretionary appellate jurisdiction in this case. 30 ISDCHA
Their Motion for Reconsideration was likewise denied with
finality. 31 Entry of judgment was made in that case on
December 15, 2004. 32
On July 27, 2005, 33 petitioners filed the instant petition.
Issues
Rephrased and consolidated, the parties present the following
issues for the Court's determination:
I
What is the effect of the final judgment dismissing RBBI's
Petition for Review on Certiorari, which assailed the same CA
Decision
Page 31
II
Whether the CA erred in utilizing the Best Evidence Rule to
determine the subject of the contracts
III
What are the subject properties of the parties' respective
contracts with RBBI SDTcAH
Our Ruling
Propriety of the Petition
Respondents maintain that the instant petition for review
raises factual issues which are beyond the province of Rule
45. 34
The issues involved herein are not entirely factual. Petitioners
assail the appellate court's rejection of their evidence (as to
the contractual intent) as inadmissible under the Best
Evidence Rule. The question involving the admissibility of
evidence is a legal question that is within the Court's authority
to review. 35
Besides, even if it were a factual question, the Court is not
precluded to review the same. The rule that a petition for
review should raise only questions of law admits of
exceptions, among which are "(1) when the findings are
grounded entirely on speculations, surmises, or conjectures;
(2) when the inference made is manifestly mistaken, absurd
or impossible; (3) when there is grave abuse of discretion; (4)
when the judgment is based on a misappreciation of facts; (5)
when the findings of fact are conflicting; (6) when, in making
its findings, the same are contrary to the admissions of both
appellant and appellee; (7) when the findings are contrary to
those of the trial court; (8) when the findings are conclusions
without citation of specific evidence on which they are based;
(9) when the facts set forth in the petition as well as in the
petitioner's main and reply briefs are not disputed by the
respondent; and (10) when the findings of fact are premised
on the supposed absence of evidence and contradicted by the
evidence on record." 36 SCHcaT
In the instant case, we find sufficient basis to apply the
exceptions to the general rule because the appellate court
misappreciated the facts of the case through its erroneous
application of the Best Evidence Rule, as will be discussed
below. Moreover, the disparate rulings of the three reviewing
bodies below are sufficient for the Court to exercise its
jurisdiction under Rule 45.
First Issue
Dismissal of RBBI's appeal
Respondents maintain that the Court's earlier dismissal of
RBBI's petition for review of the same CA Decision is eloquent
proof that there is no reversible error in the appellate court's
decision in favor of the respondents. 37
We are not persuaded. This Court dismissed RBBI's earlier
petition in G.R. No. 163320 because it failed to convincingly
demonstrate the alleged errors in the CA Decision. The bank
did not point out the inadequacies and errors in the appellate
court's decision but simply placed the responsibility for the
confusion on the respondents for allegedly misleading the
MichTrina Evidence Library Work
bank as to the identity of the properties and for
misrepresenting that the two lots were not tenanted. Thus,
RBBI argued that respondents did not come to court with
clean hands. HcaDIA
These arguments were ineffectual in convincing the Court to
review the appellate court's Decision. It is the appellant's
responsibility to point out the perceived errors in the appealed
decision. When a party merely raises equitable considerations
such as the "clean hands" doctrine without a clear-cut legal
basis and cogent arguments to support his claim, there should
be no surprise if the Court is not swayed to exercise its
appellate jurisdiction and the appeal is dismissed outright.
The dismissal of an appeal does not always and necessarily
mean that the appealed decision is correct, for it could simply
be the result of the appellant's inadequate discussion,
ineffectual arguments, or even procedural lapses.
RBBI's failure to convince the Court of the merits of its appeal
should not prejudice petitioners who were not parties to
RBBI's appeal, especially because petitioners duly filed a
separate appeal and were able to articulately and effectively
present their arguments. A party cannot be deprived of his
right to appeal an adverse decision just because another
party had already appealed ahead of him, 38 or just because
the other party's separate appeal had already been dismissed.
39
There is another reason not to bind the petitioners to the final
judgment against RBBI. RBBI executed the transfer (VLTs) in
favor of petitioners prior to the commencement of the action.
Thus, when the action for cancellation of CLOA was filed, RBBI
had already divested itself of its title to the two properties
involved. Under the rule on res judicata, a judgment (in
personam) is conclusive only between the parties and their
successors-in-interest by title subsequent to the
commencement of the action. 40 Thus, when the vendor (in
this case RBBI) has already transferred his title to third
persons (petitioners), the said transferees are not bound by
any judgment which may be rendered against the vendor. 41
STcEIC
Second Issue
Is it correct to apply the Best Evidence Rule?
Citing the Best Evidence Rule in Rule 130, Section 3, the CA
held that the Deed of Sale between respondents and RBBI is
the best evidence as to the property that was sold by RBBI to
the respondents. Since the Deed of Sale stated that its subject
is the land covered by TCT No. T-62096 the title for the
Murong property then the property repurchased by the
respondents was the Murong property. Likewise, the CA held
that since the VLTs between petitioners and RBBI refer to TCT
No. T-62836 the title for the Lantap property then the
property transferred to petitioners was the Lantap property.
Petitioners argue that the appellate court erred in using the
best evidence rule to determine the subject of the Deed of
Sale and the Deeds of Voluntary Land Transfer. They maintain
that the issue in the case is not the contents of the contracts
but the intention of the parties that was not adequately
expressed in their contracts. Petitioners then argue that it is
the Parol Evidence Rule that should be applied in order to
adequately resolve the dispute.
Page 32
Indeed, the appellate court erred in its application of the Best
Evidence Rule. The Best Evidence Rule states that when the
subject of inquiry is the contents of a document, the best
evidence is the original document itself and no other evidence
(such as a reproduction, photocopy or oral evidence) is
admissible as a general rule. The original is preferred because
it reduces the chance of undetected tampering with the
document. 42
In the instant case, there is no room for the application of the
Best Evidence Rule because there is no dispute regarding the
contents of the documents. It is admitted by the parties that
the respondents' Deed of Sale referred to TCT No. T-62096 as
its subject; while the petitioners' Deeds of Voluntary Land
Transfer referred to TCT No. T-62836 as its subject, which is
further described as located in Barangay Murong. DSAICa
The real issue is whether the admitted contents of these
documents adequately and correctly express the true
intention of the parties. As to the Deed of Sale, petitioners
(and RBBI) maintain that while it refers to TCT No. T-62096,
the parties actually intended the sale of the Lantap property
(covered by TCT No. T-62836).
As to the VLTs, respondents contend that the reference to TCT
No. T-62836 (corresponding to the Lantap property) reflects
the true intention of RBBI and the petitioners, and the
reference to "Barangay Murong" was a typographical error. On
the other hand, petitioners claim that the reference to
"Barangay Murong" reflects their true intention, while the
reference to TCT No. T-62836 was a mere error. This dispute
reflects an intrinsic ambiguity in the contracts, arising from an
apparent failure of the instruments to adequately express the
true intention of the parties. To resolve the ambiguity, resort
must be had to evidence outside of the instruments.
The CA, however, refused to look beyond the literal wording of
the documents and rejected any other evidence that could
shed light on the actual intention of the contracting parties.
Though the CA cited the Best Evidence Rule, it appears that
what it actually applied was the Parol Evidence Rule instead,
which provides: DaTICE
When the terms of an agreement have been reduced to
writing, it is considered as containing all the terms agreed
upon and there can be, between the parties and their
successors in interest, no evidence of such terms other than
the contents of the written agreement. 43
The Parol Evidence Rule excludes parol or extrinsic evidence
by which a party seeks to contradict, vary, add to or subtract
from the terms of a valid agreement or instrument. Thus, it
appears that what the CA actually applied in its assailed
Decision when it refused to look beyond the words of the
contracts was the Parol Evidence Rule, not the Best Evidence
Rule. The appellate court gave primacy to the literal terms of
the two contracts and refused to admit any other evidence
that would contradict such terms.
However, even the application of the Parol Evidence Rule is
improper in the case at bar. In the first place, respondents are
not parties to the VLTs executed between RBBI and
petitioners; they are strangers to the written contracts. Rule
130, Section 9 specifically provides that parol evidence rule is
exclusive only as "between the parties and their successors-
in-interest." The parol evidence rule may not be invoked
where at least one of the parties to the suit is not a party or a
MichTrina Evidence Library Work
privy of a party to the written document in question, and does
not base his claim on the instrument or assert a right
originating in the instrument. 44
Moreover, the instant case falls under the exceptions to the
Parol Evidence Rule, as provided in the second paragraph of
Rule 130, Section 9: TcSAaH
However, a party may present evidence to modify, explain or
add to the terms of the written agreement if he puts in issue
in his pleading:
(1) An intrinsic ambiguity, mistake or imperfection in the
written agreement;
(2) The failure of the written agreement to express the
true intent and agreement of the parties thereto;
xxx xxx xxx (Emphasis supplied)
Here, the petitioners' VLTs suffer from intrinsic ambiguity. The
VLTs described the subject property as covered by TCT No. T-
62836 (Lantap property), but they also describe the subject
property as being located in "Barangay Murong." Even the
respondents' Deed of Sale falls under the exception to the
Parol Evidence Rule. It refers to "TCT No. T-62096" (Murong
property), but RBBI contended that the true intent was to sell
the Lantap property. In short, it was squarely put in issue that
the written agreement failed to express the true intent of the
parties.
Based on the foregoing, the resolution of the instant case
necessitates an examination of the parties' respective parol
evidence, in order to determine the true intent of the parties.
Well-settled is the rule that in case of doubt, it is the intention
of the contracting parties that prevails, for the intention is the
soul of a contract, 45 not its wording which is prone to
mistakes, inadequacies, or ambiguities. To hold otherwise
would give life, validity, and precedence to mere
typographical errors and defeat the very purpose of
agreements. SAcaDE
In this regard, guidance is provided by the following articles of
the Civil Code involving the interpretation of contracts:
Article 1370. If the terms of a contract are clear and leave
no doubt upon the intention of the contracting parties, the
literal meaning of its stipulations shall control.
If the words appear to be contrary to the evident intention of
the parties, the latter shall prevail over the former.
Article 1371. In order to judge the intention of the
contracting parties, their contemporaneous and subsequent
acts shall be principally considered.
Rule 130, Section 13 which provides for the rules on the
interpretation of documents is likewise enlightening:
Section 13. Interpretation according to circumstances.
For the proper construction of an instrument, the
circumstances under which it was made, including the
situation of the subject thereof and of the parties to it, may be
shown, so that the judge may be placed in the position of
those whose language he is to interpret.
Page 33
Applying the foregoing guiding rules, it is clear that the Deed
of Sale was intended to transfer the Lantap property to the
respondents, while the VLTs were intended to convey the
Murong property to the petitioners. This may be seen from the
contemporaneous and subsequent acts of the parties.
aHcACT
Third issue
Determining the intention of the parties
regarding the subjects of their contracts
We are convinced that the subject of the Deed of Sale
between RBBI and the respondents was the Lantap property,
and not the Murong property. After the execution in 1985 of
the Deed of Sale, the respondents did not exercise acts of
ownership that could show that they indeed knew and
believed that they repurchased the Murong property. They did
not take possession of the Murong property. As admitted by
the parties, the Murong property was in the possession of the
petitioners, who occupied and tilled the same without any
objection from the respondents. Moreover, petitioners paid
leasehold rentals for using the Murong property to RBBI, not to
the respondents.
Aside from respondents' neglect of their alleged ownership
rights over the Murong property, there is one other
circumstance that convinces us that what respondents really
repurchased was the Lantap property. Respondent Nemi
(husband of respondent Elenita) is the farmer actually tilling
the Lantap property, without turning over the supposed
landowner's share to RBBI. This strongly indicates that the
respondents considered themselves (and not RBBI) as the
owners of the Lantap property. For if respondents (particularly
spouses Elenita and Nemi) truly believed that RBBI retained
ownership of the Lantap property, how come they never
complied with their obligations as supposed tenants of RBBI's
land? The factual circumstances of the case simply do not
support the theory propounded by the respondents. DCIEac
We are likewise convinced that the subject of the Deeds of
Voluntary Land Transfer (VLTs) in favor of petitioners was the
Murong property, and not the Lantap property. When the VLTs
were executed in 1990, petitioners were already the tenant-
farmers of the Murong property, and had been paying rentals
to RBBI accordingly. It is therefore natural that the Murong
property and no other was the one that they had intended to
acquire from RBBI with the execution of the VLTs. Moreover,
after the execution of the VLTs, petitioners remained in
possession of the Murong property, enjoying and tilling it
without any opposition from anybody. Subsequently, after the
petitioners completed their payment of the total purchase
price of P90,000.00 to RBBI, the Department of Agrarian
Reform (DAR) officials conducted their investigation of the
Murong property which, with the presumption of regularity in
the performance of official duty, did not reveal any anomaly.
Petitioners were found to be in actual possession of the
Murong property and were the qualified beneficiaries thereof.
Thus, the DAR officials issued CLOAs in petitioners' favor; and
these CLOAs explicitly refer to the land in Barangay Murong.
All this time, petitioners were in possession of the Murong
property, undisturbed by anyone for several long years, until
respondents started the controversy in 1997. CDHSac
All of these contemporaneous and subsequent actions of RBBI
and petitioners support their position that the subject of their
MichTrina Evidence Library Work
contract (VLTs) is the Murong property, not the Lantap
property. Conversely, there has been no contrary evidence of
the parties' actuations to indicate that they intended the sale
of the Lantap property. Thus, it appears that the reference in
their VLT to TCT No. T-62836 (Lantap property) was due to
their honest but mistaken belief that the said title covers the
Murong property. Such a mistake is not farfetched considering
that TCT No. T-62836 only refers to the Municipality of
Bayombong, Nueva Vizcaya, and does not indicate the
particular barangay where the property is located. Moreover,
both properties are bounded by a road and public land. Hence,
were it not for the detailed technical description, the titles for
the two properties are very similar.
The respondents attempt to discredit petitioners' argument
that their VLTs were intrinsically ambiguous and failed to
express their true intention by asking why petitioners never
filed an action for the reformation of their contract. 46 A
cause of action for the reformation of a contract only arises
when one of the contracting parties manifests an intention, by
overt acts, not to abide by the true agreement of the parties.
47 It seems fairly obvious that petitioners had no cause to
reform their VLTs because the parties thereto (RBBI and
petitioners) never had any dispute as to the interpretation and
application thereof. They both understood the VLTs to cover
the Murong property (and not the Lantap property). It was
only much later, when strangers to the contracts argued for a
different interpretation, that the issue became relevant for the
first time. ASaTHc
All told, we rule that the Deed of Sale dated February 26,
1985 between respondents and RBBI covers the Lantap
property under TCT No. T-62836, while the Deeds of Voluntary
Land Transfer and TCT Nos. CLOA-395 and CLOA-396 of the
petitioners cover the Murong property under TCT No. T-62096.
In consequence, the CA's ruling against RBBI should not be
executed as such execution would be inconsistent with our
ruling herein. Although the CA's decision had already become
final and executory as against RBBI with the dismissal of
RBBI's petition in G.R. No. 163320, our ruling herein in favor of
petitioners is a supervening cause which renders the
execution of the CA decision against RBBI unjust and
inequitable.
WHEREFORE, the Petition for Review on Certiorari is
GRANTED. The assailed October 7, 2003 Decision, as well as
the May 11, 2005 Resolution of the Court of Appeals in CA-
G.R. SP No. 69981 are REVERSED and SET ASIDE. The January
17, 2001 Decision of the DARAB Central Office is REINSTATED.
The Deed of Sale dated February 26, 1985 between
respondents and Rural Bank of Bayombong, Inc. covers the
Lantap property under TCT No. T-62836, while the Deeds of
Voluntary Land Transfer and TCT Nos. CLOA-395 and CLOA-396
of the petitioners cover the Murong property under TCT No. T-
62096. The Register of Deeds of Nueva Vizcaya is directed to
make the necessary corrections to the titles of the said
properties in accordance with this Decision. Costs against
respondents. SO ORDERED.
FIRST DIVISION
[G.R. No. 150931. July 16, 2008.]
DR. CECILIA DE LOS SANTOS, petitioner, vs. DR. PRISCILA
BAUTISTA VIBAR, respondent.
DECISION
Page 34
CARPIO, J p:
The Case
Before the Court is a petition for review on certiorari 1
assailing the Decision 2 dated 29 June 2001 and Resolution 3
dated 21 November 2001 of the Court of Appeals in CA-G.R.
CV No. 66605. TcHCIS
The Facts
Petitioner Cecilia de los Santos (Cecilia) and respondent
Priscila Bautista Vibar (Priscila) were former co-workers in the
Medical Department of the Social Security System. They were
close and trusted friends for 33 years.
Sometime in 1994, Cecilia introduced Jose de Leon (de Leon)
to Priscila. De Leon needed money and borrowed P100,000
from Priscila. De Leon issued a promissory note dated 2 June
1994 and bound himself to pay the loan three months from
date with a monthly interest rate of 3%. 4 Cecilia signed as a
guarantor of de Leon's loan.
On 28 June 1995, de Leon asked Priscila for another loan.
Together with Cecilia and Avelina Conte, de Leon went to
Priscila's house. Priscila and her sister, Atty. Josefina Bautista
(Atty. Bautista), were present in the same gathering. After
some discussion, they all agreed that the outstanding
P100,000 loan together with the accrued interest would be
deducted from the new loan of P500,000. 5
De Leon signed a typewritten promissory note, which he
brought with him, acknowledging the debt of P500,000
payable within 12 months from 28 August 1995, at a fixed
monthly interest rate of 3% and a penalty of 2% per month in
case of default. 6 Then, Cecilia signed as a witness under the
phrase "signed in the presence of". However, Atty. Bautista
brought up the need for Cecilia to sign as guarantor.
Thereupon, de Leon, in his own handwriting, inserted the word
"guarantor" besides Cecilia's name, as Cecilia nodded her
head to what de Leon was doing. De Leon also added the
phrase, "as security for this loan this TCT No. T-47375,
Registry of Baguio City, is being submitted by way of
mortgage." ADSTCI
On maturity date, de Leon failed to pay any of the monthly
installments. Priscila made several verbal demands on de
Leon for payment but to no avail. Priscila's counsel then sent
de Leon a demand letter dated 17 July 1996 asking for
payment of the principal loan with interest and penalties. 7 De
Leon failed to respond. On 4 September 1996, Priscila's
counsel again sent a demand letter not only to de Leon as
principal debtor, but also to Cecilia. 8 Cecilia was being made
to answer for de Leon's debt as the latter's guarantor. Cecilia
then remitted to Priscila P15,000 to pay one month's interest
on the loan. 9 However, this was the only payment Cecilia
made to Priscila as Cecilia claimed she had no money to pay
the full amount of the loan.
After several failed attempts to collect the loan, Priscila filed
with the Registry of Deeds of Baguio City an adverse claim on
the property registered under TCT No. T-47375. However, the
Register of Deeds denied the registration of Priscila's claim on
several grounds: 10
(a) the issue involved is a money claim which does not
fall within Section 70 of Presidential Decree No. 1529; 11
MichTrina Evidence Library Work
(b) the annexes were not marked; HDICSa
(c) the family names of Jose and Evangeline, registered
owners, do not tally with those on the title; 12 and
(d) there is no statement that there is no other provision
in the Property Registration Decree for registering the same.
On 20 November 1996, Priscila filed an action for recovery of
money with the Regional Trial Court of Quezon City, Branch
100, against de Leon and Cecilia. 13 De Leon did not file an
answer and the trial court declared him in default. Cecilia, on
the other hand, filed an answer denying that she signed as
guarantor of de Leon's loan.
On 26 November 1999, the trial court ruled in favor of Cecilia
and dismissed the complaint for insufficiency of evidence. 14
On 12 January 2000, Priscila filed a Motion for Reconsideration
on the grounds that the trial court erred in (a) dismissing the
complaint against de Leon despite his being declared in
default; and (b) finding that Cecilia was not a guarantor of de
Leon's loan.
In an Order dated 8 February 2000, 15 the trial court modified
its decision and ruled that de Leon acted fraudulently or in
bad faith in refusing to pay his debt to Priscila. However, the
trial court affirmed its decision dismissing the complaint
against Cecilia. The trial court ruled that there was no express
consent given by Cecilia binding her as guarantor. The
dispositive portion of the Order provides: CSDcTA
WHEREFORE, in view of the foregoing, the Decision of the
Court dated November 26, 1999, is hereby amended as
follows:
WHEREFORE, judgment is hereby rendered in favor of plaintiff
Dra. Priscila Vibar and against defendant Jose de Leon, and
hereby orders the latter to pay the plaintiff the following
amounts:
(1) P500,000.00 representing the total amount of the
loan extended with interest at 3% per month and penalty of
2% per month (due to default) from July 17, 1996 until the
obligation is fully paid;
(2) P30,000.00 representing moral damages;
(3) P20,000.00 representing attorney's fees; and
(4) costs of suit.
Further, the Court hereby DISMISSES the instant complaint
against defendant Dra. Cecilia de los Santos for insufficiency
of evidence. No pronouncement as to costs. HCITDc
SO ORDERED.
Priscila filed an appeal with the Court of Appeals, docketed as
CA-G.R. CV No. 66605.
The Ruling of the Court of Appeals
On 29 June 2001, the appellate court affirmed the trial court's
ruling against de Leon but modified the same with respect to
Cecilia. 16 The appellate court declared Cecilia as guarantor
of de Leon's loan. The relevant portions of the Decision state:
Page 35
. . . The conduct of defendant-appellee de los Santos during
the signing, however, belies her intention to act merely as a
witness. It cannot be gainsaid that she did not react when she
heard Atty. Bautista's protest about her signing the promissory
note in the capacity only of a witness and not as a guarantor.
Neither did defendant-appellee de los Santos object when
defendant-appellee de Leon got back the promissory note and
wrote the word "guarantor" after her signature in full view of
all those present, including defendant-appellee de los Santos.
In fact, said appellee nodded, signifying approval, when
defendant-appellee de Leon placed the word "guarantor" after
her signature on the promissory note. CTAIDE
xxx xxx xxx
In this factual milieu, if defendant-appellee de los Santos
intended only to sign as a witness, she should have reacted
when the word "guarantor" was written on the note in her
presence. She should have expressed her strong and firm
objections to such imposition of liability. But defendant-
appellee de los Santos kept mum. Such silence can lead to no
other conclusion that she has impliedly given her consent to
be the guarantor of de Leon's loan.
Moreover, defendant-appellee de los Santos is estopped from
claiming otherwise. Estoppel in pais arises . . . .
Moreover, one can imply from defendant-appellee de los
Santos' letter dated May 5, 1996 addressed to the Register of
Deeds, City of Baguio that defendant-appellee de los Santos
agreed to be bound as guarantor . . . . ScAIaT
It is significant to note that she made no statement therein
repudiating her having signed the same in the capacity of a
guarantor, contrary to what she now claims in her defense.
Her failure to correct or refute such statement reinforces the
claim that indeed she guaranteed payment of the loan in
question, and that writing was to her interest considering her
liabilities under the note as guarantor.
. . . Thus, defendant-appellee de los Santos can be compelled
to pay plaintiff-appellant Vibar the judgment debt if it remains
unsatisfied after execution is enforced against the properties
of the principal debtor, defendant-appellee Jose de Leon. . . .
Cecilia filed a Motion for Reconsideration which the appellate
court denied in a Resolution dated 21 November 2001. 17
Hence, this petition.
The Issue
The main issue for resolution is whether Cecilia is liable as
guarantor of de Leon's loan from Priscila. SIAEHC
Cecilia contends that she is not liable as guarantor. Her
behavior, as when she allegedly "kept mum" or "nodded her
head and smiled", was not an implied consent as guarantor.
She insists that the law is clear that a guaranty is not
presumed and that there must be a concrete positive act of
acceptance or consent to the guaranty. Thus, without such
knowledge or consent, there is no estoppel in pais.
Priscila, on the other hand, maintains that from the totality of
Cecilia's acts, she consented to be bound as guarantor of de
Leon's loan. Her nod of approval and non-objection to the
insertion of the word "guarantor" at the signing of the second
MichTrina Evidence Library Work
promissory note show that she agreed to be a guarantor, just
like in the first promissory note. Even after discovering that
the loan was unpaid and already overdue, Cecilia did not
contest that she was a guarantor and even paid partially to
Priscila. Instead, Cecilia claimed she had no money to pay the
entire loan. It was only after the case was filed that Cecilia
challenged the insertions in the promissory note. Hence,
Priscila insists that Cecilia is estopped from denying that she
is a guarantor. cCAIDS
The Court's Ruling
The issue before us is a question of fact, the determination of
which is beyond this Court's power of review for it is not a trier
of facts. 18 However, there are instances when questions of
fact may be reviewed by this Court, as when the findings of
the Court of Appeals are contrary to those of the trial court.
19 In the present case, the trial court and the Court of Appeals
made conflicting findings of fact. Thus, a review of such
factual findings is in order.
Here, the controversy centers on whether there exists a
contract of guaranty to hold Cecilia liable for the loan of de
Leon, the principal debtor. The trial court found that Cecilia
had no knowledge of, and did not consent to, the guaranty. On
the other hand, the appellate court ruled that Cecilia's
conduct during the signing of the promissory note and her
non-objection to the insertion of the word "guarantor" show
that she acted as guarantor. Cecilia's nodding of her head
upon the insertion of the word "guarantor" signified her
consent to be a guarantor.
We rule that Cecilia was a guarantor of de Leon's loan.
Cecilia denies that she had actual knowledge of the guaranty.
However, Priscila points to the promissory note and Cecilia's
actions as the best evidence to prove that Cecilia signed as
guarantor. The promissory note indicates that Cecilia signed
as a witness, as manifested by the typewritten format.
However, the word "guarantor" as handwritten beside
Cecilia's name makes Cecilia a guarantor. From the records of
the case and the evidence presented, we are convinced that
the insertion was made with the express consent of Cecilia.
DcHaET
Firstly, Cecilia's act of "nodding her head" signified her assent
to the insertion of the word "guarantor". The word "guarantor"
could have been inserted by Cecilia herself, or by someone
authorized by Cecilia. In either case, Cecilia would be bound
as guarantor. In this case, Cecilia, by nodding her head,
authorized de Leon, who prepared the promissory note, to
insert the word "guarantor". Since de Leon made the insertion
only after Atty. Bautista had raised the need for Cecilia to be a
guarantor, a positive or negative reaction was expected from
Cecilia, who responded by giving her nod of approval.
Otherwise, Cecilia should have immediately expressed her
objection to the insertion of the word "guarantor". Cecilia's act
of nodding her head showed her consent to be a guarantor.
Secondly, Priscila would not have extended a loan to de Leon
without the representations of Cecilia. Cecilia arranged for de
Leon and Priscila to meet so that de Leon could borrow money
from Priscila. Cecilia vouched for de Leon's capacity to pay. As
a friend and common link between the borrower and lender,
Cecilia took active part in the first loan of P100,000 and even
signed as guarantor. On the second promissory note, the word
"guarantor" again appears, admitted by both Cecilia and
Page 36
Priscila as an insertion made by de Leon at the time of
signing. The first loan of P100,000, which Cecilia guaranteed,
was paid from the proceeds of the second loan. As shown by
the intervention of Atty. Bautista in bringing up the need for
Cecilia to act as guarantor, Priscila would not have granted
the second bigger loan of P500,000 without the guaranty of
Cecilia. It was only natural for Priscila to commit to the second
bigger loan subject at least to the same guarantee as the first
smaller loan. ScaHDT
Thirdly, Cecilia claimed ignorance of the guaranty only after
this case was filed. However, the records show that Cecilia
had several meetings with Priscila and the latter's counsel
before the demand letters were sent. 20 In these meetings,
Cecilia acknowledged her liability as guarantor but simply
claimed that she had no money to pay Priscila. 21 In fact,
Cecilia made an initial payment of P15,000 as partial
compliance of her obligation as guarantor. This only shows
that Cecilia never denied her liability to Priscila as guarantor
until this case was filed in court.
Lastly, Cecilia wrote a letter to the Register of Deeds of
Baguio City inquiring on the status of the property mentioned
in the promissory note as a mortgage security for de Leon's
loan. 22 The letter states: DTCAES
May 5, 1996
The Register of Deeds
City of Baguio
Sir:
This is relative to a "Promissory Note" dated June 28, 1995 . . .
. SO ORDERED.
In the aforestated "Promissory Note", the undersigned
appears to be a "Guarantor" and it is a condition therein that
"as security for this loan this TCT No. 47375, Registry of
Baguio City, is being submitted, by way of mortgage".
However, information has been received that said registered
owners, individually or collectively, have executed and filed
with your Office an "affidavit of loss" of said duplicate owner's
copy. If such information is correct, may I request for a
"certification" to said effect, and possibly, a certified true copy
of such document.
xxx xxx xxx
Here, Cecilia clearly stated that she "appears to be a
guarantor" in the promissory note. This serves as a written
admission that Cecilia knew she was a guarantor. During the
trial, Cecilia did not impugn the letter or its contents. In fact,
Cecilia submitted this letter in evidence. 23 Cecilia wrote the
Register of Deeds to protect her interest, hoping that the
property covered by TCT No. T-47375 could answer for de
Leon's loan and save her from personally paying as guarantor.
This explains Cecilia's letter admitting that she appears as a
guarantor in the promissory note. CSDcTH
It is axiomatic that the written word "guarantor" prevails over
the typewritten word "witness". In case of conflict, the written
word prevails over the printed word. Section 15 of Rule 130
provides:
MichTrina Evidence Library Work
Sec. 15. Written words control printed. When an instrument
consists partly of written words and partly of a printed form,
and the two are inconsistent, the former controls the latter.
The rationale for this rule is that the written words are the
latest expression of the will of the parties. Thus, in this case,
the latest expression of Cecilia's will is that she signed the
promissory note as guarantor.
We agree with the Court of Appeals that estoppel in pais arose
in this case. Generally, estoppel is a doctrine that prevents a
person from adopting an inconsistent position, attitude, or
action if it will result in injury to another. 24 One who, by his
acts, representations or admissions, or by his own silence
when he ought to speak out, intentionally or through culpable
negligence, induces another to believe certain facts to exist
and such other rightfully relies and acts on such belief, can no
longer deny the existence of such fact as it will prejudice the
latter. 25 CHDTEA
Cecilia's conduct in the course of the negotiations and
contract signing shows that she consented to be a guarantor
of the loan as witnessed by everyone present. Her act of
"nodding her head", and at the same time even smiling,
expressed her voluntary assent to the insertion of the word
"guarantor" after her signature. It is the same as saying that
she agreed to the insertion. Also, Cecilia's acts of making the
partial payment of P15,000 and writing the letter to the
Register of Deeds sustain the ruling that Cecilia affirmed her
obligation as de Leon's guarantor to the loan. Thus, Cecilia is
now estopped from denying that she is a guarantor.
WHEREFORE, we DENY the petition. We AFFIRM the 29 June
2001 Decision and 21 November 2001 Resolution of the Court
of Appeals in CA-G.R. CV No. 66605. Costs against petitioner.
EN BANC
[G.R. No. 32986. November 11, 1930.]
FRANCISCO JARQUE, plaintiff-appellee, vs. SMITH, BELL & CO.,
LTD., ET AL., defendants. UNION FIRE INSURANCE CO.,
appellant.
Benj. S. Ohnick for appellant.
Vicente Pelaez for appellee.
SYLLABUS
1. COMMERCIAL LAW; RULES OF EVIDENCE;
INSTRUMENT PARTLY WRITTEN AND PARTLY PRINTED.
Section 291 of the Code of Civil Procedure provides that
"when an instrument consists partly of written words and
partly of a printed form and the two are inconsistent, the
former controls the latter." It follows that in case repugnance
exists between written and printed portions of a policy, the
written portion prevails, and there can be no question that as
far as any inconsistency exists, a typed "rider" prevails over
the printed clause it covers.
2. ID.; LIABILITY AND INSURER. In the absence of
positive legislation to the contrary, the liability of the
defendant insurance company on its policy would perhaps be
limited to "absolute loss of the vessel only, and to pay
proportionate salvage of the declared value." But the policy
Page 37
was executed in this jurisdiction and "warranted to trade
within the waters of the Philippine Archipelago only." Here the
liability for contribution in general average is not based on the
express terms of the policy, but rests upon the theory that
from the relation of the parties and for their benefit, a quasi
contract is implied by law. It simply places the insurer on the
same footing as other persons who have an interest in the
vessel, or the cargo therein, at the time of the occurrence of
the general average and who are compelled to contribute.
DECISION
OSTRAND, J p:
The plaintiff was the owner of the motorboat Pandan and held
a marine insurance policy for the sum of P45,000 on the boat,
the policy being issued by the National Union Fire Insurance
Company and according to the provisions of a "rider" attached
to the policy, the insurance was against the "absolute total
loss of the vessel only." On October 31, 1928, the ship ran into
very heavy sea off the Island of Ticlin, and it became
necessary to jettison a portion of the cargo. As a result of the
jettison, the National Union Fire Insurance Company was
assessed in the sum of P2,610.86 as its contribution to the
general average. The insurance company, insisting that its
obligation did not extend beyond the insurance of the
"absolute total loss of the vessel only, and to pay
proportionate salvage of the declared value," refused to
contribute to the settlement of the general average. The
present action was thereupon instituted, and after trial the
court below rendered judgment in favor of the plaintiff and
ordered the defendant National Union Fire Insurance Company
to pay the plaintiff the sum of P2,610.86 as its part of the
indemnity for the general average brought about by the
jettison of cargo. The insurance company appealed to this
court and assigns as errors (1) "that the lower court erred in
disregarding the typewritten clause endorsed upon the policy,
Exhibit A, expressly limiting insurer's liability thereunder of
the total loss of the wooden vessel Pandan and to
proportionate salvage charges," and (2) "that the lower court
erred in concluding that defendant and appellant, National
Union Fire Insurance Company is liable to contribute to the
general average resulting from the jettison of a part of said
vessel's cargo."
I. As to the first assignment of error, little need be said.
The insurance contract, Exhibit A, is printed in the English
common form of marine policies. One of the clauses of the
document originally read as follows:
"Touching the Adventures and Perils which the said National
Union Fire Insurance Company is content to bear, and to take
upon them in this Voyage; they are of the Seas, Men-of-War,
Fire, Pirates, Thieves, Jettison, Letters of Mart and
Countermart, Surprisals, and Takings at Sea. Arrests,
Restraints and Detainments, of all Kings, Princes and People of
what Nation, Condition or Quality soever; Barratry of the
Master and Marines, and of all other Perils, Losses and
Misfortunes, that have or shall come to the Hurt, Detriment, or
Damage of the said Vessel or any part thereof; and in case of
any Loss or Misfortunes, it shall be lawful for the Assured, his
or their Factors, Servants, or assigns, to sue, labour and travel
for, in and about the Defence. Safeguard, and recovery of the
said Vessel or any part thereof, without Prejudice to this
Insurance; to the Charges whereof the said Company, will
contribute, according to the rate and quantity of the sum
herein assured. And it is agreed that this Writing or Policy of
MichTrina Evidence Library Work
Insurance shall be of as much force and Virtue as the surest
Writing or Policy of Insurance made in LONDON."
Attached to the policy over and above the said clause is a
"rider" containing typewritten provisions, among which
appears in capitalized type the following clause:
"AGAINST THE ABSOLUTE TOTAL LOSS OF THE VESSEL ONLY,
AND TO PAY PROPORTIONATE SALVAGE CHARGES OF THE
DECLARED VALUE."
At the bottom of the same rider following the typewritten
provisions therein set forth are the following words: "Attaching
to and forming part of the National Union Fire Insurance Co.,
Hull Policy No. 1055."
It is a well settled rule that in case repugnance exists between
written and printed portions of a policy, the written portion
prevails, and there can be no question that as far as any
inconsistency exists, the above-mentioned typed "rider"
prevails over the printed clause it covers. Section 291 of the
Code of Civil Procedure provides that "when an instrument
consists partly of written words and partly of a printed form
and the two are inconsistent, the former controls the latter."
(See also Joyce on Insurance, 2d ed., sec. 224, page 600;
Arnould on Marine Insurance, 9th ed., sec. 73; Marine
Equipment Corporation vs. Automobile Insurance Co., 24 Fed.
(2d), 600; and Marine Insurance Company vs. McLahanan, 290
Fed., 685, 688.)
II. In the absence of positive legislation to the contrary,
the liability of the defendant insurance company on its policy
would, perhaps, be limited to "absolute loss of the vessel only,
and to pay proportionate salvage of the declared value." But
the policy was executed in this jurisdiction and "warranted to
trade within the waters of the Philippine Archipelago only."
Here the liability for contribution in general average is not
based on the express terms of the policy, but rests upon the
theory that from the relation of the parties and for their
benefit, a quasi contract is implied by law. Article 859 of the
Code of Commerce is still in force and reads as follows:
"ART. 859. The underwriters of the vessel, of the freight, and
of the cargo shall be obliged to pay for the indemnity of the
gross average in so far as is required of each one of these
objects respectively."
The article is mandatory in its terms, and the insurers,
whether for the vessel or for the freight or for the cargo, are
bound to contribute to the indemnity of the general average.
And there is nothing unfair in that provisions; it simply places
the insurer on the same footing as other persons who have an
interest in the vessel, or the cargo therein, at the time of the
occurrence of the general average and who are compelled to
contribute (art. 812, Code of Commerce).
In the present case it is not disputed that the ship was in
grave peril and that the jettison of part of the cargo was
necessary. If the cargo was in peril to the extent of call for
general average, the ship must also have been in great
danger, possibly sufficient to cause its absolute loss. The
jettison was therefore as much to the benefit of the
underwriter as to the owner of the cargo. The latter was
compelled to contribute to the indemnity; why should not the
insurer be required to do likewise? If no jettison had taken
place and if the ship by reason thereof had foundered, the
Page 38
underwriter's loss would have been many times as large as
the contribution now demanded.
The appealed judgment is affirmed with the costs against the
appellant. So ordered.
Malcolm, Villamor, Johns, Romualdez and Villa-Real, JJ., concur.
Separate Opinions
JOHNSON and STREET, JJ., dissenting:
In view of the fact that the policy of marine insurance which is
the subject of this action contained a provision to the effect
that the risk insured against was "the absolute total loss of
the vessel only," the undersigned are of the opinion that the
defendant insurance company is not liable to contribute to the
gross average incident to the jettison of some of the freight
embarked on the vessel which was the subject of insurance. It
is true that article 859 of the Code of Commerce declares that
the underwriters of the vessel, of the freight, and of the cargo
shall be obliged to pay for the indemnity of the gross average
in so far as is required of each one of these objects
respectively, but that provision evidently states a general rule
to be applied where there are no words in the contract in any
wise qualifying the risk. This article, we think, should not be
interpreted as abridging the freedom of contract between
insurer and the insured; and where, as in the case before us,
the words defining the risk plainly show that the risk is limited
so as to exclude the obligation to contribute in case of
jettison, the intention expressed in the contract ought to be
given effect. If the insurance had been written upon the cargo,
the case for the plaintiff would have been stronger; but it is
certainly anomalous that an insurer of "the vessel only"
should be held liable for the jettison of cargo, to which a
contract of insurance does not extend. The language used in
the policy of insurance in this case clearly limits the risk
affirmatively to the vessel only, and the contract should be
given effect according to the intention of the parties.
The opinion of the court appears to proceed in part at least
upon the idea that the insurer had a real interest in the vessel,
and that the insurance company was necessarily benefited by
a jettison of cargo, since the act may possibly have resulted in
saving the vessel from destruction. This idea appears to us to
ignore the most fundamental conception underlying the law of
insurance, which is that the contract of insurance is of an
aleatory nature. By this is meant that the contract is
essentially a wager. It results that the insurer has no real
interest whatever in the thing insured; and the question of the
liability of the insurer limits itself to the question whether the
contingency insured against has occurred. The circumstance
that the vessel may have been saved by jettison of the cargo
is irrelevant to the risk. We are of the opinion that the
judgment appealed from should be reversed and the
defendant absolved from the complaint.
Copyright 1994-1999 CD Technologies A
s i a, I n c.
G.R. No. 32958 November 8, 1930
Blossom & Co., Inc. v. Manila Gas Corp.
MichTrina Evidence Library Work
055 Phil 226
SECOND DIVISION
[G.R. No. 32958. November 8, 1930.]
BLOSSOM & COMPANY, INC., plaintiff-appellant, vs. MANILA
GAS CORPORATION, defendant-appellee.
Harvey & O'Brien for appellant.
Ross, Lawrence & Selph and John B. Miller for appellee.
SYLLABUS
1. WHEN FORMER JUDGMENT IS A BAR. In its
compliant of March 3, 1927, plaintiff seeks to recover
damages accrued since November 23, 1923, for a willful
breach of a contract for the sale and delivery of water gas and
coal gas tar at stipulated prices, and for answer defendant
alleges that in the former action in the Court of First Instance
of the City of Manila, in which plaintiff here was the plaintiff,
and the defendant here was the defendant, and founded upon
the same cause of action alleged in the complaint that
plaintiff recovered judgment against the defendant on the
merits, decreeing a breach of the same contract and awarding
damages in favor of the plaintiff in the sum of P26,119.08 with
legal interest from November 23, 1923, which judgment
became and is now final. Held, That the judgment which the
plaintiff obtained in the former action founded upon a breach
of the same contract is a bar to this action.
2. ONLY ONE CAUSE OF ACTION WHEN CONTRACT IS
ENTIRE. As a general rule, a contract to do several things at
several times is divisible, and a judgment for a single breach
of a continuing contract is not a bar to a suit for a subsequent
breach. But where the contract is entire, and the breach total,
there can be only one action in which plaintiff must recover all
damages.
3. WHEN CONTRACT IS INDIVISIBLE. When the
defendant terminated a continuing contract by absolute
refusal in bad faith to perform, a claim for damages for a
breach is an indivisible demand, and where, as in this case, a
former final judgment was rendered, it is a bar to any
damages which plaintiff may thereafter sustain.
4. WHAT PLAINTIFF SHOULD PROVE. In an indivisible
contract plaintiff should prove in the first action not only such
damages as it has then actually sustained, but also such
prospective damages as it may be legally entitled to recover
by reason of the breach.
STATEMENT
In its complaint filed March 3, 1927, the plaintiff alleges that
on September 10, 1918, it entered into a contract with the
defendant in which the plaintiff promised and undertook to
purchase and receive from the defendant, and the defendant
agreed to sell and deliver to the plaintiff, for a period of four
years, three tons of water gas tar per month from September
to January 1, 1919, and twenty tons per month after January
1, 1919, for the remaining period of the contract; one-half ton
of coal gas tar a month from September to January 1, 1919,
and six tons per month after January 1, 1919, for the
remainder of the contract, delivery to be made at the plant of
the defendant in the City of Manila, without containers, and at
Page 39
the price of P65 per ton for each kind of gas tar, it being
agreed that this price should prevail only so long as the raw
materials coal and crude oil used by the defendant in the
manufacture of gas should cost the defendant the same price
as that prevailing at the time of the contract, and that in the
event of an increase or decrease in the cost of raw materials,
there would be a corresponding increase or decrease in the
price of the tar. That on January 31, 1919, this contract was
amended so that it should continue to remain in force for a
period of ten years from January 1, 1919, and it was agreed
that the plaintiff should not be obliged to take the quantities
of the tars required during the year 1919, but that it might
purchase tars in such quantities as it could use to advantage
at the stipulated price. That after the year 1919, the plaintiff
would take at least the quantities specified in the contract of
September 10, 1918, to be taken from and after January 1,
1919, and that at its option it would have the right to take any
quantity of water gas tar in excess of the minimum quantity
specified in that contract, and up to the total amount of
output of that tar of defendant's plant, and also to take any
quantity of coal gas tar in excess of the minimum quantity
specified in that contract and up to 50 per cent of defendant's
entire output of coal gas tar, and that by giving the defendant
ninety days' notice, it would have the right at its option to
take the entire output of defendant's coal gas tar, except such
as it might need for its own use in and about its plant. That in
consideration of this modification of the contract of
September 10, 1918, plaintiff agreed to purchase from the
defendant a certain piece of land lying adjacent to its plant at
the price of P5 per square meter, and proof of which is
evidenced by Exhibit C. That pursuant to Exhibit C, defendant
sold and conveyed the land to the plaintiff which in turn
executed a mortgage thereon to the defendant for
P17,140.20, to secure the payment of the balance of the
purchase price.
It is then alleged:
"VIII. That about the last part of July, 1920, the defendant
herein, the Manila Gas Corporation, willfully and deliberately
breached its said contract, Exhibit C, with the plaintiff by
ceasing to deliver any coal and water gas tar to it thereunder
solely because of the increased price of its tar products and
its desire to secure better prices therefor than plaintiff was
obligated to pay to it, notwithstanding the frequent and
urgent demands made by the plaintiff upon it to comply with
its aforesaid contract by continuing to deliver the coal and
water gas tar to the plaintiff thereunder, but the said contract,
and finally on November 23, 1923, the plaintiff was forced to
commence action against the defendant herein in the Court of
First Instance of Manila, being case No. 25352, of that court,
entitled 'Blossom & Co., plaintiff, vs. Manila Gas Corporation,
defendant,' to recover the damages which it had up to that
time suffered by reason of such flagrant violation of said
contract on the part of the defendant herein, and to obtain the
specific performance of the said contract, and after due trial
of that action, judgment was entered therein in favor of the
plaintiff herein and against the said defendant, the Manila Gas
Corporation, for the sum of P26,119.08, as the damages
suffered by this plaintiff by the defendant's breach of said
contract from July, 1920, up to and including September,
1923, with legal interest thereon from November 23, 1923,
and for the costs but the court refused to order the said
defendant to resume the delivery of the coal and water gas
tar to the plaintiff under said contract, but left the plaintiff
with its remedy for damages against said defendant for the
MichTrina Evidence Library Work
subsequent breaches of said contract, which said decision, as
shown by the copy attached hereto as Exhibit G, and made a
part hereof, was affirmed by our Supreme Court on March 3,
1926;
"IX. That after the defendant had willfully and
deliberately violated its said contract, as herein-before
alleged, and the plaintiff had suffered great damage by reason
thereof, the plaintiff claimed the right to off-set its damages
against the balance due from it to said defendant on account
of the purchase of said land from the defendant, and
immediately thereupon and notwithstanding said defendant
was justly indebted to the plaintiff at that time, as shown by
the judgment of the court, Exhibit G, in more than four times
the amount due to it from the plaintiff, the said defendant
caused to be presented against the plaintiff a foreclosure
action, known as the Manila Gas Corporation versus Blossom
& Company, No. 24267, of the Court of First Instance of
Manila, and obtained judgment therein ordering that Blossom
& Company pay the last installment and interest due on said
land or else the land and improvements placed thereon by the
plaintiff would be sold, as provided by law in such cases of
satisfy the same, and the said defendant proceeded with the
sale of said property under said judgment and did everything
in its power to sell the same for the sole purpose of crushing
and destroying the plaintiff's business and thus rendering it
impossible for the plaintiff herein to continue with its said
contract in the event that said defendant might in the future
consider it more profitable to resume performance of the
same, but fortunately the plaintiff was able to redeem its
property, as well as to comply with its contract, and continued
demanding that the defendant performed its said contract and
deliver to it the coal and water gas tar required thereby."
That the defendant made no deliveries under its contract,
Exhibit C, from July, 1920, to March 26, 1926, or until after the
Supreme Court affirmed the judgment of the lower court for
damages in the sum of P26,119.08. 1
It is then alleged that:
". . . On March 26, 1926, the said defendant offered to resume
delivery to the plaintiff from that date of the minimum
monthly quantities of tars stated in its contract, and the
plaintiff believing that the said defendant was at least going
to try to act in good faith in the further performance of its said
contract, commenced to accept deliveries of said tars from it,
and at once ascertained that the said defendant was
deliberately charging it prices much higher than the contract
price, and while the plaintiff accepted deliveries of the
minimum quantities of tars stated in said contract up to and
including January, 1927, (although it had demanded deliveries
of larger quantities thereunder, as hereinafter alleged) and
paid the increased prices demanded by the defendant, in the
belief that it was its duty to minimize the damages as much
as possible which the defendant would be required to pay to it
by reason of its violation of said contract, it has in all cases
done so under protest and with the express reservation of the
right to demand from the said defendant an adjustment of the
prices charged in violation of its contract, and the right to the
payment of the losses which it had and would suffer by reason
of its refusal to make additional deliveries under said contract,
and it also has continuously demanded that the said
defendant furnish to it statements supported by its invoices,
showing the cost prices of its raw materials coal and crude
oil upon which the contract price of the tars in question is
fixed, which is the only way the plaintiff has to calculate the
Page 40
true price of said tars, but said defendant has and still refuses
to furnish such information, and will continue to refuse to do
so, unless ordered to furnish such information to the plaintiff
by the court, and the plaintiff believes from the information
which it now has and so alleges that the said defendant has
overcharged it on the deliveries of said tars mentioned in the
sum of at least P10,000, all in violation of the rights of the
plaintiff under its said contract with the defendant."
That on January 31, 1926, and pursuant to Exhibit C, plaintiff
notified the defendant in writing that commencing with the
month of August, 1926, it desired to take delivery of 50 per
cent of defendant's coal tar production for that month, and
that on November 1, 1926, it desired to take the entire output
of defendant's coal gas tar, but that the defendant refused
and still refuses to make such deliveries, unless plaintiff would
take all of its water gas tar production with the desired
quantity of coal gas tar, which refusal was a plain violation of
the contract. That on January 29, 1927, and in accord with
Exhibit C, plaintiff notified the defendant in writing that within
ninety days after the initial delivery to it of its total coal gas
tar production, or in February, 1927, it would require 50 per
cent of its total water gas tar production, and that in April,
1927, it would require the total output of the defendant of
both coal and water gas tars, and that it refused to make
either of such deliveries.
It is then alleged:
"XIV. That as shown by the foregoing allegations of this
complaint, it is apparent that notwithstanding the plaintiff in
this case has at all times faithfully performed all the terms
and conditions of said contract, Exhibit C, on its part to be
performed, and has at all times and is now ready, able and
willing to accept and pay for the deliveries of said coal and
water gas tar required by said contract and the notices given
pursuant thereto, the said defendant, the Manila Gas
Corporation, does not intent to comply with its said contract,
Exhibit C, and deliver to the plaintiff at the times and under
the terms and conditions stated therein the quantities of coal
and water gas tars required by said contract, and the several
notices given pursuant thereto, and that it is useless for the
plaintiff to insist further upon its performance of the said
contract, and for that reason the only feasible course for the
plaintiff to pursue is to ask the court for the rescission of said
contract and for the full damages which the plaintiff has
suffered from September, 1923, and will suffer for the
remainder of said contract by reason of the defendant's failure
and refusal to perform the same, and the plaintiff has no
notified the said defendant."
That since September, 1923, by reason of the bad faith of the
defendant, the plaintiff has been damages in the sum of
P300,000, for which it prays a corresponding judgment, and
that the contract, Exhibit C, be rescinded and declared void
and without force and effect.
After the filing and overruling of its demurrer, the defendant
filed an answer in the nature of a general and specific denial,
and on April 10, 1928, and upon stipulation of the parties, the
court appointed W. W. Larkin referee, "to take the evidence
and, upon completion of the trial, to report his findings of law
and fact to the court."
July 18, 1928, the defendant filed an amended answer in
which it alleged as an affirmative defense, first, that the
complaint does not state facts sufficient to constitute a cause
MichTrina Evidence Library Work
of action for the reason that a prior adjudication has been had
of all the issues involved in this action, and, second, "that on
or about the 16th day of June, 1925, in an action brought in
the Court of First Instance of the City of Manila, Philippine
Islands, before the Honorable Geo. R. Harvey, Judge, by
Blossom & Company, plaintiff, vs. Manila Gas Corporation,
defendant, being civil case No. 25352, of said court, for the
same cause of action as that set forth in the complaint herein,
said plaintiff recovered judgment upon the merits thereof,
against said defendant, decreeing a breach of the contract
sued upon herein, and awarding damages therefor in the sum
of P26, 119.08 with legal interest from November 23, 1923,
and costs of suit, which judgment was upon appeal affirmed
by the Supreme Court of the Philippine Islands, in case G.R.
No. 24777 of said court, on the 3d day of March, 1926, and
reported in volume 48 Philippine Reports at page 848," and it
prays that plaintiff's complaint be dismissed, with costs.
After the evidence was taken, the referee made an exhaustive
report of sixty-six pages in which he found that the plaintiff
was entitled to P56,901.53 damages, with legal interest from
the date of filing of the complaint, to which both parties filed
numerous exceptions.
In its decision the court says:
"Incidental references have been made to the referee's report.
It was admirably prepared. Leaving aside the question of
damages and the facts upon which the referee assessed
them, the facts are not in dispute at least not in serious
dispute. They appear in the documentary evidence and this
decision is based upon documents introduced into evidence
by plaintiff. If I could have agreed with the referee in respect
to the question of law, I should have approved his report in
toto. If defendant is liable for the damages accruing from
November 23, 1923, the date the first complaint was filed, to
April 1st, 1926, the date of resumption of relations; and if
defendant, after such resumption of relations, again violated
the contract, the damages assessed by the referee, are, to my
way of thinking, as fair as could be estimated. He went to
tremendous pains in figuring out the details upon which he
based his decision. Unfortunately, I cannot agree with his
legal conclusions and the report is set aside except wherein
specifically approved.
"It is unnecessary to resolve specifically the many exceptions
made by both parties to the referee's report. It would take
much time to do so. Much time has already been spent in
preparing this decision. Since both parties have informed me
that in case of adverse judgment, an appeal would be taken, I
desire to conclude the case so that delay will be avoided.
"Let judgment be entered awarding damages to plaintiff in the
sum of P2,219.60, with costs."
From which plaintiff only appealed and assigns twenty-four
different errors, of which the following are material to this
opinion:
"I. The trial court erred in holding that this suit is so far
as the damages from November, 1923, to March 31, 1926, are
concerned, is res adjudicata.
"II. The trial court erred in holding that the defendant
repudiated the contract in question as a whole, and that the
plaintiff when it brought its first suit to collect damages had
already elected and consented to the dissolution of the
Page 41
contract, and its choice once made, being final, it was
estopped to claim that the contract was alive when that suit
was brought.
xxx xxx xxx
"VII. The trial court erred in refusing to sustain plaintiff's
third exception to the legal interpretation placed on the
contract in this case by the referee with reference to quantity
of tars and his conclusion with respect to the terms thereof
that:
"'1. Plaintiff must take and defendant must deliver either
the minimum or maximum quantity of water gas tar and not
any quantity from the minimum to the maximum and/or
"'2. Plaintiff must take either the minimum and any
quantity up to fifty per cent of entire output of coal gas tar.
"'3. With ninety days' notice by plaintiff to defendant the
former must take and the latter must deliver total output of
both tars, except such as might be needed by defendant for
use in and about its plant and not any quantity from the
minimum up to total output of both tars.' (See page 47,
Referee's report.)
"And in holding that the option contained in said contract,
taking into consideration the purpose of both parties in
entering into the contract, was as claimed by defendant: all
the water gas tar and 50 per cent of the coal gas tar upon
immediate notice, and all tars upon ninety days' notice.
"VIII. The trial court erred in refusing to sustain plaintiff's
fourth exception to the finding and conclusion of the referee
that from the correspondence between the parties, it was
apparent that plaintiff did not make a right use of its option,
and that the letter of June 25, 1926, and the subsequent
demands, with exception of the letter of July 31, 1926, were
not made in pursuance to the terms of the contract, and that
defendant had no liability in refusing to comply therewith, and
in allowing plaintiff damages only for the failure of the
defendant to deliver quantities shown in Exhibits Ref. 21 and
22. (See pages 51, 52, Referee's report.)
"IX. The trial court erred in finding and holding that the
demands of plaintiff for additional tars under its contract with
the defendant were extravagant and not made in good faith,
and that when it wrote to defendant that it desired maximum
quantities of coal gas tars and only minimum of water gas
tars, but with the reservation of going back to minimum
quantities of both at any time it chose, it announced its
intention of breaching the contract, the defendant was under
no obligation to deliver maximum quantities of either tars,
and since this was the efficient cause of the failure of
defendant to deliver or plaintiff to accept tars, the blame is
attributable to plaintiff, and it cannot recover for a rescission.
xxx xxx xxx
"XXIII. The trial court erred in refusing to sustain plaintiff's
seventeenth exception to the finding and conclusion of the
referee that the plaintiff is entitled to recover from the
defendant only the following sums:
Water gas tar (Exhibit Ref. 21) P 38,134.60
Coal gas tar (Exhibit Ref. 22) 16,547.33
MichTrina Evidence Library Work
Overcharges on deliveries (Exhibit Ref. 23) 2,219.60
__________
or a total of 56,901.53
with interest, and in not awarding to the plaintiff as damages
in this case the sum of P319,253.40, with legal interest
thereon from the date of filing the complaint in this case, in
the manner and form computed by it, and in awarding
damages to the plaintiff for the sum of only P2,219.60, with
costs."
xxx xxx xxx
DECISION
JOHNS, J p:
In this action plaintiff seeks to recover damages from the
defendant which it claims to have sustained after September,
1923, arising from, and growing out of, its original contract of
September 10, 1918, as modified on January 1, 1919, to
continue for a period of ten years from that date.
In paragraph VIII of its complaint, plaintiff alleges that about
the last part of July, 1920, the defendant "willfully and
deliberately breached its said contract," and that it "flatly
refused to make any deliveries under said contract, and finally
on November 23, 1923," it was force to commence action in
the Court of First Instance against the defendant, known as
case No. 25352, to recover the damages which it had then
sustained by reason of such flagrant violation of said contract
on the part of the defendant, in which judgment was rendered
in favor of the plaintiff and against the defendant for
P26,119.08, as damages "suffered by his plaintiff by the
defendant's breach of said contract from July, 1920, up to and
including September, 1923, with legal interest thereon from
November 23, 1923, and for the costs," in which the court
refused to order the defendant to resume the delivery of the
coal and water gas tar to the plaintiff, in accord with said
contract, but left it with its remedy for damages against the
defendant for any subsequent breaches of the contract. A
copy of that judgment, which was later affirmed by this court,
at attached to, marked Exhibit G, and made a part of, the
complaint in this action.
In their respective briefs, opposing counsel have much to say
about the purpose and intent of that judgment, and it is
vigorously asserted that it was never intended that it should
be or become a bar to another action by the plaintiff to
recover any damages it may have sustained after September,
1923, during the remainder of the ten-year period of that
contract. Be that as it may, it must be conceded that the
question as to what would be the legal force and effect of that
judgment in that case was never presented to, or decided by,
the lower court or this court. In the very nature of things,
neither court in that case would have the power to pass upon
or decide the legal force and effect of its own judgment, for
the simple reason that it would be premature and outside of
the issues of any pleading, and could not be raised or
presented until after the judgment became final, and then
only by an appropriate plea, as in this case.
Plaintiff specifically alleges that the defendant willfully and
deliberately breached the contract, and "flatly refused to
make any deliveries under said contract," by reason of which
Page 42
it was forced to and commenced its former action in which it
was awarded P26,119.08 damages against the defendant by
reason of its breach of the contract from July, 1920, to
September, 1923.
In the final analysis, plaintiff in this action seeks to recover
damages growing out of, and arising from, other and different
breaches of that same contract after November, 1923, for the
remainder of the ten-year period, and the question is thus
squarely presented as to whether the rendition of the former
judgment is a bar to the right of the plaintiff to recover
damages from the after September, 1923, arising from, and
growing out of, breaches of the original contract of September
10, 1918, as modified on January 1, 1919. That is to say,
whether the plaintiff, in a former action, having recovered
judgment for the damages which it sustained by reason of a
breach of its contract by the defendant up to September,
1923, can now in this action recover damages it may have
sustained in this action recover damages it may have
sustained after September, 1923, arising from, and growing
out of, a breach of the same contract, upon and for which it
recovered its judgment in the former action.
In the former action in which the judgment was rendered, it is
alleged in the complaint:
"'7. That about the last part of July or the first part of
August, 1920, the Manila Gas Corporation, the defendant
herein, without any cause ceased delivering coal and water
gas tar to the plaintiff herein; and that from that time up to
the present date, the plaintiff corporation, Blossom &
Company, has frequently and urgently demanded of the
defendant, the Manila Gas Corporation, that it comply with its
aforesaid contract Exhibit A by continuing to deliver coal and
water gas tar to this plaintiff - but that the said defendant has
refused, and still refused, to deliver to the plaintiff any coal
and water gas tar whatsoever under the said contract Exhibit
A, since the said month of July, 1920.
xxx xxx xxx
"'9. That owing to the bad faith of the said Manila Gas
Corporation, defendant herein, in not living up to its said
contract Exhibit A, made with this plaintiff, and refusing now
to carry out the terms of the same, by delivering to this
plaintiff the coal and water gas tar mentioned in the said
Exhibit A, has caused to this plaintiff great and irreparable
damages amounting to the sum total of one hundred twenty-
four thousand eight hundred forty-eight pesos and seventy
centavos (P124,848.70); and that the said defendant
corporation has refused, and still refuses, to pay to this
plaintiff the whole or any part of the aforesaid sum.
"'10. That the said contract Exhibit A, was to be in force
until January 1, 1929, that it to say, for ten (10) years counted
from January 1, 1919; and that, unless the defendant again
commence to furnish and supply this plaintiff with coal and
water gas tar, as provided for in the said contract Exhibit A,
the damages already suffered by this plaintiff will continually
increase and become larger and larger in the course of years
preceding the termination of the said contract on January 1,
1929.'"
In that action plaintiff prays for judgment against the
defendant:
MichTrina Evidence Library Work
"'(a) That upon trial of this cause judgment be rendered in
favor of the plaintiff and against the defendant for the sum of
P124,848.70, with legal interests thereon from November 23,
1923;
"'(b) That the court specifically order the defendant to
resume the delivery of the coal and water gas tar to the
plaintiff under the terms of the said contract Exhibit A of this
complaint.'"
In the final analysis, plaintiff must stand or fall on its own
pleadings, and tested by that rule, it must be admitted that
the plaintiff's original cause of action, in which it recovered
judgment for damages, was founded on the ten-year contract,
and that the damages which it then recovered were recovered
for a breach of that contract.
Both actions are founded on one and the same contract. By
the terms of the original contract of September 10, 1918, the
defendant was to sell and the plaintiff was to purchase three
tons of water gas tar per month from September to January 1,
1919, and twenty tons of water gas tar per after from January
1, 1919, one-half ton of coal gas tar per month from
September to January 1, 1919, and six tons of coal gas tar per
month after January 1, 1919. That from and after January 1,
1919, plaintiff would take at least the quantities specified in
the contract of September 10, 1918, and that at its option, it
would have the right to take the total output of water gas tar
of defendant's plant and 50 per cent of the gross output of its
coal gas tar, and upon giving ninety days' notice, it would
have the right to the entire output of coal gas tar, except such
as the defendant might need for its own use. That is to say,
the contract provided for the delivery to the plaintiff from
month to month of the specified amounts of the different tars
as ordered and requested by the plaintiff. In other words,
under plaintiff's own theory, the defendant was to make
deliveries from month to month of the tars during the period
of ten years, and it is alleged in both complaints that the
defendant broke its contract, and in bad faith refused to make
any more deliveries.
In 34 Corpus Juris, p. 839, it is said:
"As a general rule a contract to do several things at several
times is divisible in its nature, so as to authorize successive
actions; and a judgment recovered for a single breach of a
continuing contract or covenant is no bar to a suit for a
subsequent breach thereof. But where the covenant or
contract is entire, and the breach total, there can be only
action, and the plaintiff must therein recover all his damages."
In the case of Roehm vs. Horst, 178 U.S., 1; 44 Law. ed., 953,
that court said:
"An unqualified and positive refusal to perform a contract,
though the performance thereof is not yet due, may, if the
renunciation goes to the whole contract, be treated as a
complete breach which will entitled the injured party to bring
his action at once."
15 Ruling Case Law, 966, 967, sec. 441, says:
"Similarly if there is a breach by the vendor of a contract for
the sale of goods to be delivered and paid for in installments,
and the vendee maintains an action therefor and recovers
damages, he cannot maintain a subsequent action to recover
for the failure to deliver later installments."
Page 43
In Pakas vs. Hollingshead, 184 N. Y., 211; 77 N. E., 40; 3 L. R.
A. (N.S.), 1042, the syllabus says:
"Upon refusal, by the seller, after partial performance, longer
to comply with his contract to sell and deliver a quantity of
articles in installments, the buyer cannot keep the contract in
force and maintain actions for breaches as they occur, but
must recover all his damages in one suit."
And on page 1044 of its opinion, the court says:
"The learned counsel for the plaintiff contends that the former
judgment did not constitute a bar to the present action, but
that the plaintiff had the right to elect to waive or disregard
the breach, keep the contract in force, and maintain
successive actions for damages from time to time as the
installments of goods were to be delivered, however
numerous these actions for damages from time to time as the
installments of goods were to be delivered, however
numerous these actions might be. It is said that this
contention is supported in reason and justice, and has the
sanction of authority at least in other jurisdictions. We do not
think that the contention can be maintained. There is not, as it
seems to us, any judicial authority in this state that gives it
any substantial support. On the contrary, we think that the
cases, so far as we have been able to examine them, are all
the other way, and are to the effect that, inasmuch as there
was a total breach of the contract by the defendant's refusal
to deliver, the plaintiff cannot split up his demand and
maintain successive actions, but must either recover all his
damages in the first suit or wait until the contract matured or
the time for the delivery of all the goods had arrived. In other
words, there can be but one action for damages for a total
breach of an entire contract to deliver goods, and the fact that
they were to be delivered in installment from time to time
does not change the general rule."
The case of L. Bucki & Son Lumber Co. vs. Atlantic Lumber Co.
(109 Federal, 411), of the United States Circuit Court of
Appeals for the Fifth Circuit, is very similar.
The syllabus says:
"1. CONTRACTS CONSTRUCTION ENTIRE
CONTRACT. A contract was made for the sale of a large
quantity of logs to be delivered in monthly installments during
a period of eight years, payments to be made also in
installments at times having relations to the deliveries. It
contained stipulations as to such payments, and guaranties as
to the average size of the logs to be delivered in each
installment. Held, that it was an entire contract, and not a
number of separate and independent agreements for the sale
of the quantity to be delivered and paid for each month,
although there might be breaches of the minor stipulations
and warranties with reference thereto which would warrant
suits without a termination of the contract.
"2. JUDGMENTS MATTERS CONCLUDED ACTION FOR
BREACH OF INDIVISIBLE CONTRACT. The seller declared the
contract terminated for alleged breaches by the purchaser,
and brought suit for general and special damages, the latter
covering payments due for installment of logs delivered. By
way of set-off and recoupment against this demand, the
purchaser pleaded breaches of the warranty as to the size of
the logs delivered during the months for which payment has
not been made. Held, that the judgment is such action was
conclusive as to all claims or demands of either party against
MichTrina Evidence Library Work
the other growing out of the entire contract, and was a bar to
a subsequent suit brought by the purchaser to recover for
other breaches of the same warranty in relation to deliveries
made in previous months."
On page 415 of the opinion, the court says:
"When the contract was ended, the claims of each party for
alleged breaches and damages therefor constituted an
indivisible demand; and when the same, or any part of the
same, was pleaded, litigation had, and final judgment
rendered, such suit and judgment constitute a bar to
subsequent demands which were or might have been
litigated. (Baird vs. U.S., 96 U.S., 430; 24 L. ed., 703.)"
In Watts vs. Weston (238 Federal, 149), Circuit Court of
Appeals, Second Circuit, the syllabus says:
"1. JUDGMENT 593 JUDGMENT AS BAR MATTERS
CONCLUDED. Where a continuing contract was terminated
by the absolute refusal of the party whose action was
necessary to further perform, a claim for damages on account
of the breach constituted an indivisible demand, and when the
same of any part of the same was pleaded, litigated, and final
judgment rendered, such suit and judgment constitute a bar
to subsequent demands which were or might have been
litigated therein."
And on page 150 of the opinion, the court says:
"It is enough to show the lack of merit in the present
contention to point out as an inexorable rule of law that, when
Knevals' contract was discharged by his total repudiation
thereof, Watts' claims for breaches and damages therefor
'constituted an indivisible demand, and when the same, or
any part of the same, was pleaded, litigation had and final
judgment rendered, such suit and judgment constitute a bar
to subsequent demands which were or might have been
litigated.' (Bucki, etc., Co. vs. Atlantic, etc., Co., 109 Fed. at
page 415; 48 C. C. A., 459; Cf. Landon vs. Bulkley, 95 Fed.,
344; 37 C. C. A., 96.)
"The rule is usually applied in cases of alleged or supposed
successive breaches, and consequently severable demands
for damages; but if the contract has been discharged by
breach, if suit for damages is all that is left, the rule is
applicable, and every demand arising from that contract and
possessed by any given plaintiff must be presented (at least
as against any given defendant) in one action; what the
plaintiff does not advance he foregoes by conclusive
presumption."
In Abbott vs. 76 Land and Water Co. (118 Pac., 425; 161 Cal.,
42), at page 428, the court said:
"In Fish vs. Folley, 6 Hill (N.Y.), 54, it was held, in accord with
the rule we have discussed, that, where the defendant had
covenanted that plaintiff should have a continual supply of
water for his mill from a dam, and subsequently totally failed
to perform for nine years, and plaintiff brought an action for
the breach and recovered damages sustained by him to that
time, the judgment was a bar to a second action arising from
subsequent failure to perform, on the theory that, although
the covenant was a continuing one in one sense, it was an
entire contract, and a total breach put an end to it, and gave
plaintiff the right to sue for an equivalent in damages.
Page 44
"In such a case it is no warrant for a second action that the
party may not be able to actually prove in the first action all
the items of the demand, or that all the damage may not then
have been actually suffered. He is bound to prove in the first
action not only such damage as has been actually suffered,
but also such prospective damage by reason of the breach as
he may be legally entitled to, for the judgment he recovers in
such action will be a conclusive adjudication as to the total
damage on account of the breach."
It will thus be seen that, where there is a complete and total
breach of a continuous contract for a term of years, the
recovery of a judgment for damages by reason of the breach
is a bar to another action on the same contract for and on
account of the continuous breach.
In the final analysis, there is no real dispute about any
material fact, and the important and decisive question is the
legal construction of the pleadings in the former case and in
this case, and of the contract between the plaintiff and the
defendant of January 1, 1920.
The complaint in the former case specifically alleges that the
defendant "has refused, and still refuses, to deliver to the
plaintiff any coal and water gas tar whatsoever under the said
contract Exhibit A, since the said month of July, 1920." "That
owing to the bad faith of the said Manila Gas Corporation,
defendant herein, in not living up to its said contract Exhibit A,
made with this plaintiff, and refusing now to carry out the
terms of the same." That is a specific allegation not only of a
breach of the contract since the month of July, 1920, but of
the bad faith of the defendant in its continuous refusal to
make deliveries of any coal and water gas tar. That amended
complaint was filed on July 11, 1924, or four years after the
alleged bad faith in breaking the contract.
Having recovered damages against it, covering a period of
four years, upon the theory that the defendant broke the
contract, and in bad faith refused to make deliveries of either
of the tars, how can the plaintiff now claim and assert that the
contract is still in force and effect? In the instant case the
plaintiff alleges and relies upon the ten-year contract of
January 1, 1920, which in bad faith was broken by the
defendant. If the contract was then broken, how can it be
enforced in this action?
It is admitted that the defendant never made any deliveries of
any tar from July, 1920, to April, 1926. Also that it made nine
deliveries to plaintiff of the minimum quantities of coal and
water gas tar from April 7, 1926, to January 5, 1927.
Plaintiff contends that such deliveries were made under and in
continuation of the old contract.
March 26, 1926, after the decision of this court affirming the
judgment in the original action, plaintiff wrote the defendant;
". . . It is our desire to take deliveries of at least the minimum
quantities set forth therein and shall appreciate to have you
advise us how soon you will be in a position to make
deliveries; . . .
". . . In view of the fact that you have only effected settlement
up to November 23, 1923, please inform us what adjustment
you are willing to make for the period of time that has since
elapsed without your complying with the contract."
MichTrina Evidence Library Work
In response to which on March 31, 1926, the defendant wrote
this letter to the plaintiff:
"In reply to your letter of March 26th, 1926, in regard to tar,
we beg to advise you that we are prepared to furnish the
minimum quantities of coal and water gas tars as per your
letter, viz: twenty tons of water gas tar and six tons of coal
gas tar. The price figured on present costs of raw materials is
P39.01 (Thirty-nine and 01/100 Pesos) per ton of water gas
and P33.59 (Thirty-three and 59/100 Pesos) per ton of coal tar.
"We shall expect you to take delivery and pay for the above
amount of tars at our factory on or before April 7th prox.
"Thereafter we shall be ready to furnish equal amounts on the
first of each month. Kindly make your arrangements
accordingly."
On January 29, 1927, the plaintiff wrote the defendant that:
"On July 31st last, we made demand upon you, under the
terms of our tar contract, for 50 per cent of your total coal tar
production for that month and also served notice on you that
beginning 90 days from August 1st we would require your
total output of coal tar monthly; this in addition to the 20 tons
of water gas tar provided for in the contract to be taken
monthly.
xxx xxx xxx
"We are here again calling on you for your total output of coal
tar immediately and the regular minimum monthly quantity of
water gas tar. In this connection we desire to advise you that
within 90 days of your initial delivery to us to your total coal
tar output we will require 50 per cent of your total water gas
tar output, and, further, that two months thereafter we will
require your total output of both tars."
February 2, 1927, the defendant wrote the plaintiff:
"Replying to your letter of Jan. 29, we would say that we have
already returned to you the check enclosed therewith. As we
have repeatedly informed you we disagree with you as to the
construction of your contract and insist that you take the
whole output of both tars if you wish to secure the whole of
the coal tar.
"With regard to your threat of further suits we presume that
you will act as advised. If you make it necessary we shall do
the same."
From an analysis of these letters if clearly appears that the
plaintiff then sought to rely upon and enforce the contract of
January 1, 1920, and that defendant denied plaintiff's
construction of the contract, and insisted "that you take the
whole output of both tars if you wish to secure the whole of
the coal tar."
February 28, 1927, the plaintiff wrote the defendant:
"In view of your numerous violations of and repeated refusal
and failure to comply with the terms and provisions of our
contract dated January 30-31, 1919, for the delivery to us of
water and coal gas tars, etc., we will commence action,"
which it did.
Page 45
The record tends to show that the tars which the defendant
delivered after April 7, 1926, were not delivered under the old
contract of January 1, 1920, and that at all times since July,
1920, the defendant has consistently refused to make any
deliveries of any tars under that contract.
The referee found as a fact that plaintiff was entitled to
P2,219.60 for and on account of overcharges which the
defendant made for the deliveries of fifty-four tons of coal gar
tar, and one hundred eighty tons of water gas tar after April,
1926, and upon that point the lower court says:
"The fourth charge that plaintiff makes is meritorious. The
price was to be fixed on the basis of raw materials. The
charge for deliveries during 1926 were too high. In this I agree
with entirely with the referee and adopt his findings of fact
and calculations. (See Referee's report, p. 83). The referee
awarded for overcharge during the period aforesaid, the sum
of P2,219.60. The defendant was trying to discourage plaintiff
from buying tars and made the price of raw material appear
as high as possible."
That finding is sustained upon the theory that the defendant
broke its contract which it made with the plaintiff for the sale
and delivery of the tars on and after April, 1926.
After careful study of the many important questions presented
on this appeal in the exhaustive brief of the appellant, we are
clearly of the opinion that, as found by the lower court, the
plea of res judicata must be sustained. The judgment of the
lower court is affirmed.
It is so ordered, with costs against the appellant.
EN BANC
[G.R. No. 36026A. November 16, 1932.]
ASTURIAS SUGAR CENTRAL, INC., plaintiff-appellee, vs. THE
PURE CANE MOLASSES CO., defendant-appellant.
Greenbaum & Opisso for appellant.
Felipe Ysmael for appellee.
SYLLABUS
1. CONTRACT; OPTION TO CANCEL. Upon the facts of
record, it is held that the appellant was given option to cancel
the contract of sale of molasses upon payment of P6,000.
2. ID.; INTERPRETATION. Pursuant to section 293 of
the Code of Civil Procedure and article 1288 of the Civil Code,
any ambiguity in the contract as to the question at issue, the
terms thereof being susceptible of different interpretations,
must be interpreted in favor of the herein appellant, not only
because the option to cancel was created for its benefit but
also because the appellee, through its manager, was
responsible for the ambiguity as to the security required,
which is sometimes treated as such security, sometimes as
indemnity for liquidated damages and sometimes as
compensation in case of cancellation.
3. ID.; ID.; AMENDMENT TO DISPOSITIVE PART OF
DECISION. The dispositive part of the main decision
rendered in this case was amended so as to show that the
cancellation of the contract in question would take effect from
MichTrina Evidence Library Work
November 18, 1932, on which date the appellant consigned
with the clerk of the lower court the sum of P6,000, at the
disposal of the appellee.
DECISION
IMPERIAL, J p:
This is an appeal taken by the defendant, the Pure Cane
Molasses Co. (Philippine Islands), Inc., from the decision of the
Court of First Instance of Iloilo, the dispositive part of which
reads as follows:
"In view of the foregoing considerations let judgment be
entered:
"(a) Holding that the contract Exhibit A cannot be
cancelled, and that the sum of six thousand pesos therein
mentioned is but a guaranty or bond, payment of which does
not entitle the defendant to cancel the contract;
"(b) Holding likewise, with a view to avoiding further
litigation, that paragraphs II and III of the contract Exhibit A
bind the plaintiff to sell and the defendant to buy fifty per cent
of all the molasses produced by the former besides the
molasses pertaining to the planters under milling contracts,
become the property of the Asturias Sugar Central
Incorporated, and thus subject to its free disposal; and that
the terms of the contract Exhibit A express this, and nothing
else:
"(c) Without special pronouncement as to costs.
"It is so ordered."
The plaintiff-appellee, the Asturias Sugar Central, Inc., brought
this action to amend paragraphs II and III of a contract for the
sale of molasses entered into between it and the appellant,
couched in the following terms:
"MANILA, 21st, March 1929
"ASTURIAS SUGAR CENTRAL, INC.
"San Juan, Dumalag, Capiz
"Panay
"DEAR SIRS: I herewith confirm having bought from you
on the following conditions:
"The total production of Molasses from Central Asturias for the
period of 5 (five) consecutive milling seasons, beginning with
the milling season 1929-'30.
"QUANTITY: The yearly quantity of Molasses is estimated
at 200,000 Gallons to 400,000 Gallons. This estimate is,
however, not binding for any of the parties as we agree to
receive any quantity you may produce, and you agree to
deliver us all Molasses produced. You have, however, the right
to reserve for your own use a quantity of Molasses not
exceeding 15 per cent of the yearly production, either for
burning for fuel, fertilizing or experiments. It is understood
that you do not sell any Molasses to third parties.
Page 46
"Quality: The sellers oblige themselves to deliver the Molasses
as produced in the central, undiluted and in sound,
merchantable condition.
"Price: The price is P0.04 (Four Centavos) per gallon of
Molasses delivered into our tankcars in the yard of the central.
"Payment: The payment takes place in cash on
presentation of your invoice.
"Delivery: Delivery will take place during and after
each milling season and must commence before the storage
tank at the Central is filled to capacity, so that it is
unavoidable to throw Molasses away, we bind ourselves to
pay any such quantity thrown away at full contract price only.
"In case the Central should stop its operations during the
period of the contract, we have no claim whatsoever against
your company.
"The undersigned has the option to transfer this contract to
the Pure Cane Molasses Company (Philippine Islands), which
firm probably will be incorporated in the Philippines within a
few months.
"Yours faithfully,
"(Sgd.) T. NIELSEN
"AGREED:
"Provided that you deposit P6,000 or its equivalent in Bond to
be deposited in the Bank of P.I., as guarantee of proper
fulfillment of this contract.
"ASTURIAS SUGAR CENTRAL, INC.
"(Sgd.) MANUEL GARCIA
"Treasurer and Acting Manager"
This document was marked Exhibit A for identification
purposes. In its amended answer filed by way of cross-
complaint, the appellant alleged that it was agreeable to
amend paragraphs II, III and VII of the contract referred to, in
the sense that only 50 per cent of the central's total output of
molasses would be considered sold, and prayed that judgment
be entered, inserting the following in place of the said three
paragraphs:
"Fifty per cent of the total of molasses produced by the
Central Asturias, which is the share of said Central, for the
period of 5 (five) consecutive milling seasons beginning with
the milling season 1929 and 1930.
"QUANTITY. The yearly quantity of molasses is estimated
at 200,000 Gallons to 400,000 Gallons. This estimate is,
however, not binding on either of the parties, as we agree to
receive one-half of the total quantity produced by your
Central, as shown by its laboratory reports and you likewise
agree to deliver one half of the total quantity produced. You
have, however, the right to reserve for your own use a
quantity of Molasses not exceeding 15 per cent of the yearly
production, either for burning for fuel, fertilizing or
experiments."
MichTrina Evidence Library Work
"DELIVERY. Delivery will take place during and after
each milling season and must commence before the storage
tank at the Central is filled to capacity. If the molasses storage
tank is filled to capacity as a result of the failure to take
delivery of one-half of the total production of molasses as the
same is produced and an overflow occurs we bind ourselves
to pay for the quantity lost by such overflow at the contractual
rate, in so far as such overflow does not exceed the difference
between one-half the total production at the time of such
overflow and the total quantity delivered at that time,
provided that one-half the storage capacity of said tank is at
all times reserved for the Central's share of the molasses as
specified in paragraph two hereof."
But on January 14, 1931 the appellant filed a supplemental
answer alleging that the appellee had agreed to give it the
option to cancel the molasses contract upon payment of the
sum of P6,000, which was the bond required by said appellee,
and the appellant prayed that the contract be cancelled by
the court and that the appellee be compelled to accept the
amount of P6,000 that had been deposited with the clerk of
the court.
The said supplemental answer was substituted for the
amended answer, the latter being incompatible with the
former, and the remedy prayed for being a new cross
complaint which was likewise substituted for that originally
set up in the aforesaid amended answer.
Prior to the dates hereinafter mentioned, T. Nielsen,
predecessor in interest to the appellant, interviewed Manuel
G. Garcia, treasurer and acting manager of the appellee, at
the latter's office in Dumalag, Capiz, and they agreed verbally
that the Asturias Sugar Central, Inc., would sell to T. Nielsen
the molasses produced by that central during five consecutive
milling seasons, beginning with that of 1929-1930, at the rate
of P0.04 per gallon, and under other conditions which had
been stipulated.
On February 12, 1929, Nielsen wrote the following letter,
Exhibit 3, to the appellee:
"MANILA, 12th February 1929
"ASTURIAS SUGAR CENTRAL, INC.
"Dumalag, Capiz
"Panay
"DEAR SIRS: I herewith beg to confirm my cable to the
8th inst. reading as follows:
"'Offer firm one week total production Molasses
"'5 years contract 4 centavos per Gallon ex Central'
and thank you for your reply:
"'Recibido telegrama queda aceptada su oferta
"'cuatro centimos galon melaza puesto vagon
"'ferrocarril en central por cinco zafras
"'empezando proxima zafra previa garantia cumplimiento
Page 47
"'a satisfaccion central conteste si acepta.'
to which I replied 'Accept'.
"Referring to the above I herewith have much pleasure to
confirm to have bought from you the total production of
Molasses from your Central during the period of 5 milling
seasons, beginning with next milling season, at the price of 4
(four) centavos per Gallon delivered into our tankcars at the
Central.
"I should be obliged to have your counter-confirmation in due
course and also to have your information what guarantee you
wish us to give you for the fulfillment of the contract.
"It is the intention to float a Company in the Philippine Islands,
as a subsidiary Company of the United Molasses Co., Ltd.,
Bush House, Aldwych, London.
"Your faithfully,
"(Sgd.) T. NIELSEN"
The appellee replied to said letter, Exhibit 4, as follows:
"Feb. 15, 1929
"Mr. D. T. NIELSEN
"Manila
"DEAR SIR: Yours of the 12th instant to hand, and with
reference to the contract by telegram we would say that it is
confirmed to the effect that we shall sell you the molasses
produced by the Central at four centavos per gallon placed in
tank-cars at the Central, with the understanding that if we
need any molasses in case we run out of bagasse we shall be
free to use a certain amount; this only in case we run out of
bagasse and it should become necessary to use a small
amount of molasses.
"With regard to the surety to secure bond your performance of
the contract relative to the purchase of our output of
molasses, we require a bond of P6,000 to answer for your
failure to comply with the terms thereof; in other words, in
case you may later wish to have said contract cancelled. This
bond may be in cash, or on the undertaking of a solvent firm.
"Upon delivery of the molasses you will make payment within
20 days after each shipment.
"With the understanding that this is what we have agreed
upon, we hereby confirm our contract at FOUR CENTAVOS A
GALLON placed in tank- cars for five milling seasons beginning
with the next, 1929-1930, to be delivered at the rate of our
production, and if for any reason the Central ceases to
operate, the contract shall be cancelled and the Central shall
not be liable for breach of contract.
"Yours truly,
"ASTURIAS SUGAR CENTRAL, INC.
"MANUEL GARCIA
"Treasurer and Acting Manager"
MichTrina Evidence Library Work
On March 12, 1929, the appellee's manager wrote Nielsen the
following letter, Exhibit 5:
"March 12, 1929
"Mr. T. NIELSEN
"Representative Dunbar Molasses
Corp., N.Y. and United Molasses
Co. Ltd., London
"DEAR SIR: On the 15th of February of this year we sent
you a letter, a copy of which is enclosed, which you have not
to this date answered, with reference to our proposed contract
to sell you, in behalf of those whom you represent, all our
output of molasses, with the exception of what we may need
for our own use, and in that letter we specified our conditions.
"We await your early reply in order to perfect the contract.
"Yours truly,
"ASTURIAS SUGAR CENTRAL, INC.
"MANUEL GARCIA
"Treasurer and Acting Manager"
On March 22nd of the same year, Nielsen addressed another
letter, copy of which is marked Exhibit 8, to the appellee,
enclosing a written contract of sale of the molasses, asking
that the same be signed by its manager. The letter reads as
follows:
"MANILA, 22nd March 1929
"ASTURIAS SUGAR CENTRAL, INC.
"San Juan, Dumalag, Capiz
"Panay
"DEAR SIRS: Herewith I beg to thank you for your favour
of the 12th inst. with copy of your letter of the 15th of
February and I now have much pleasure to inform you that I
have asked the Hongkong & Shanghai Banking Corporation to
open a credit in your name for an amount of P6,000, as a
guarantee of our proper fulfillment of the contract.
"Enclosed I beg to hand you a contract and in case you agree
to this kindly sign and return the copy to me. In case there are
any points which you wish changed, kindly let me know.
"Furthermore I beg to state, that we agree to purchase from
you any Molasses you have left over from the present milling
season at the same price, provided that our tank installation
at Iloilo will be ready before your next milling season starts.
"I shall be obliged to have your information as to the quantity
of Molasses you expect to produce next milling season and
also when this approximately will start.
"Yours very truly,
"T. NIELSEN
Page 48
"979, Muelle de la Industria, Manila."
The appellee replied to the foregoing letter, marked Exhibit 7,
as follows:
"March 26, 1929
"Mr. D. T. NIELSEN
"979, Muelle de la Industria
"Manila
"DEAR SIR: We have received your letter of the 22nd
instant together with that of March 21st, which is the contract,
and we find the latter satisfactory, except that the amount of
molasses which we reserve for our own use would not exceed
15 per cent of our yearly production instead of 10 per cent as
stated in the contract.
"We should like to insert in the contract that if you should wish
to cancel it before the expiration of the five year period, you
would have to pay us P6,000 which is the bond we require,
and that this bond must be in force for five years, to answer
for any damages which we might incur arising from your
failure to comply with the terms of the contract. Upon
insertion of these conditions, we will immediately sign the
contract and send it to you by return mail.
"Yours truly,
"ASTURIAS SUGAR CENTRAL, INC.
"(Sgd.) MANUEL GARCIA
"Treasurer and Acting Manager"
And finally, on April 1, 1929 Nielsen wrote the letter Exhibit J
to the appellee enclosing the written contract as amended in
accordance with Garcia's suggestion, and that is Exhibit A.
The letter reads as follows:
"MANILA, 1st April 1929
"ASTURIAS SUGAR CENTRAL, INC.
"San Juan, Dumalag, Capiz
"Panay
"DEAR SIRS: I am in receipt of your favor of the 26th inst.
and now beg to return the contract, from which you will see
that I have inserted 15 per cent instead of 10 per cent.
"With regard to the guarantee of 6,000 Pesos I trust that you
have received information that the Hongkong & Shanghai
Banking Corporation guarantee this amount.
"In this connection I would suggest, that we instead of this
bond open a credit (irrevocable) by the Hongkong &
Shanghai Banking Corporation for the estimated yearly
production, so that in case you for example estimate that the
next year's Molasses production will be 300,000 Gallons, we
open an irrevocable credit for 15,000 pesos, and payment
takes place from this credit on your presentation of your
invoice at the Bank. I wish to state that we, of course, also are
willing to give you the bond of 6,000 pesos as a guarantee of
our proper fulfillment of the contract.
MichTrina Evidence Library Work
"Kindly let me know, when do you expect to commence the
following milling season.
"Yours very truly,
"Encl. (Sgd.) T. NIELSEN"
The contract Exhibit A, dated March 21, 1929, does not show
when it was signed by Garcia or on what date he wrote the
footnote thereof, which reads as follows:
"Provided that you deposit P6,000 or its equivalent in Bond to
be deposited in the Bank of P.I. as guarantee of proper
fulfillment of this contract.
"ASTURIAS SUGAR CENTRAL, INC.
"(Sgd.) MANUEL GARCIA
"Treasurer and Acting Manager"
But both things were presumably done after April 1, 1929,
which is the date appearing on the letter accompanying the
contract, and after the latter had reached Garcia's hands,
which must have been 3 or 4 days after April first. The
appellant assigns the following errors in its brief:
"I. In granting reformation of the contract Exhibit A.
"II. In not finding that defendant had the right to cancel
the contract Exhibit A upon payment of P6,000.
"III. In refusing to admit the testimony of the witness Burt
that Manuel Garcia spoke English well and could read and
understand the contract Exhibit A.
"IV. In refusing to admit Exhibit 9 as evidence."
We do not propose to consider all these assignments of error,
but only the second, which is decisive of the case upon its
merits. If the appellant is entitled to the rescission or
cancellation of the contract, upon payment of P6,000 to the
appellee, it is obviously superfluous to discuss the points
raised in the other assignments of error.
To begin with there is no stipulation anywhere in Exhibit A
regarding the appellant's alleged option or right to cancel the
said contract of sale of molasses. It must therefore be
ascertained whether there is such a stipulation in some other
document, or if it has been established by other evidence.
In Exhibit 4, manager Garcia, among other things,
communicated to Nielsen, the following:
"With regard to the surety bond to secure your performance of
the contract relative to the purchase of our output of
molasses, we require a bond of P6,000 to answer for your
failure to comply with the terms thereof; in other words, in
case you may later wish to have said contract cancelled. This
bond may be in cash, or on the undertaking of a solvent firm."
He also made use of the following words in one of the
paragraphs of Exhibit 7:
"We should like to insert in the contract that if you should wish
to cancel it before the expiration of the five year period, you
would have to pay us P6,000 which is the bond we require,
and that this bond must be in force for five years, to answer
Page 49
for any damages which we might incur arising from your
failure to comply with the terms of the contract. Upon
insertion of these conditions, we will immediately sign the
contract and send it to you by return mail."
And in Exhibit 9, he also expressed himself in the following
terms:
"The bond which we require is not for the payment for the
molasses to be delivered to Mr. Nielsen; it is for the purpose of
securing his compliance for five years with the terms of the
contract with this Central, so that in case of his failure to
comply therewith we could take said sum of P6,000 by way of
indemnity for damages."
The last document mentioned is the subject matter of the
fourth assignment of error, and although the trial court
rejected it, it ought to have been admitted at the reopening of
the trial which was granted, being material and competent.
In view of the foregoing quotations from letters written by the
manager of the appellee, there can be no doubt that the
appellant was given the option to cancel the contract upon
payment of P6,000, which is the amount fixed for the bond to
guarantee the fulfillment of the contract.
The intention of the parties was to consider this stipulation as
an integral part of the contract of sale, and we have no doubt
in so holding. It cannot be disputed that Nielsen and the
appellant, his successor in interest, understood it so, and
believed they had the right to cancel the contract at any time
upon payment of the state sum of money.
It is no obstacle to the right of cancellation that the bond of
P6,000 constituted a guarantee for the fulfillment of the whole
contract, because as the correspondence between the parties
shows, they, particularly the manager Garcia, referred to it
sometimes as a guaranty or bond, and at other times as
indemnity for damages in case of breach of contract, thus
making it understood that it might be applied to indemnity the
appellee for breach of contract, or to compensate it in case
the appellant chose to rescind the contract.
As we have said, it appears evident that the appellee granted
the appellant the right to cancel the contract upon payment of
the aforementioned sum of money, but if any doubt or
obscurity existed with regard to the intention of the parties
upon this point, the following legal provisions should govern:
"SEC. 293. Where intention of different parties to
instrument not the same. When the terms of an agreement
have been intended in a different sense by the different
parties to it, that sense is to prevail against either party in
which he supposed the other understood it, and when
different constructions of a provision are otherwise equally
proper, that is to be taken which is the most favorable to the
party in whose favor the provision was made." (Code of Civil
Procedure.)
"ART. 1288. Obscure terms of a contract shall not be so
construed as to favor the party who occasioned the obscurity."
(Civil Code.)
According to these provisions any obscurity in the contract
regarding the point in question, where the terms are
susceptible of different interpretations, they should be
interpreted in favor of the herein appellant both because the
MichTrina Evidence Library Work
right to cancel was established for its benefit, and because it
was the appellee, through its manager, that gave rise to the
ambiguity in considering the bond sometimes as a guarantee,
and at other times as indemnity for liquidated damages, and
lastly as compensation in case of rescission.
Having arrived at the conclusion that the appellant is entitled
to the cancellation of the contract, we deem it unnecessary to
consider and resolve the other errors assigned by the
appellant.
The judgment appealed from is reversed and the contract of
sale of molasses entered into between the parties as set forth
in Exhibit A is declared cancelled, and it is ordered that the
sum of P6,000 placed by the appellant in the hands of the
clerk of the lower court be delivered to the appellee, with
costs of this instance against the latter. So ordered.
Villamor, Ostrand, Villa-Real and Vickers, JJ., concur.
Separate Opinions
AVANCEA, C.J.:
I vote for the confirmation of the appealed judgment.
MALCOLM, J., dissenting:
My opinion in this case can be briefly stated. The contract
Exhibit A is controlling. Under the terms of that contract, the
plaintiff has made out no case for its reformation. As a
consequence, the complaint of the plaintiff cannot prosper.
For the same reason, the supplemental answer of the
defendant, asking that the plaintiff be ordered to accept the
sum of P6,000, and thereupon the contract be cancelled,
cannot prosper. The words added to the contract, "Agreed
provided that you deposit the sum of P6,000, or its equivalent,
to be deposited at the Bank of the Philippine Islands, as a
guaranty for the proper fulfillment of this contract", furnish no
basis for cancellation. The complaint and the supplemental
answer being out of the way, it would be proper to give effect
to the cross-complaint of the defendant, whereby the
defendant expresses a willingness to have the contract
modified so that the Asturias Sugar Central, Inc., will sell and
the Pure Cane Molasses Co. will buy annually, for the term of
the contract, only 50 per cent of the output of molasses of the
Asturias Sugar Central, Inc., in accordance with the allegations
of plaintiff's complaint. Accordingly, I can not agree with the
majority when it holds that the contract may be rescinded,
and am of the opinion that the cross-complaint should be
given effect. By so doing, the controversy will be amicably
and justly adjusted.
ABAD SANTOS, J., dissenting:
I dissent. In my opinion the judgment appealed from should
be reversed and both the complaint and the cross-complaint
dismissed.
In legal contemplation, the terms of the contract involved in
this case are clear; and it is just as untenable to hold that the
words "The total production of Molasses from Central Asturias"
really mean, as contended by the plaintiff, "All the share of
the Asturias Sugar Central, Inc., in the total production of
molasses which said Central can freely dispose", as to hold
that the stipulation "Provided that you deposit P6,000 or its
equivalent in Bond to be deposited in the Bank of Philippine
Page 50
Islands as guarantee of proper fulfillment of this contract",
means, as contended by the defendant, that the contract may
be cancelled at the option of the defendant upon payment of
the sum of P6,000. "Cuando la disposicion contractual no es
obscura, ni ambigua, ni equivoca, el significado natural de las
palabras segun el modo comun de entenderlas, determina la
voluntad de las partes. Quien ha pronunciado la formula clara
de una promesa, pretenderia en vano probar una voluntad
distinta de la que significan las palabras: Cum in verbis nulla
ambigatas est, non es admittenda voluntatis quaestio. Y con
fundamento, puesto que al ser claro el sentido de las
palabras, no se puede, sin atentar contra la razon y la logica,
recurrir a conjeturas de voluntad que pueden cambiar su
sentido comun o general. Es una verdad que los romanos
enunciaron solo en materia de actos de ultima voluntad, pero
su aplicacion aun a los contratos es admitida de perfecto
acuerdo por todos los tratadistas y de jurisprudencia
constante." (Giorgi, Teoria de las Obligaciones, vol. 4, p. 192.)
In order to justify its decision that the contract should be
reformed as prayed in the plaintiff's complaint, the lower court
had to resort to the negotiations leading to the formation of
the subsequent written contract in question, and this court
rejected the view thus reached by the lower court. But to
justify its own inference that the stipulation as to the filing of
the guaranty bond gives the defendant the right to cancel the
contract, this court also resorted to the previous negotiations
between the parties. The resort to such previous negotiations
was just as unwarranted in the one case as it was in the other.
"All courts agree that if the parties have integrated their
agreement into a single written memorial, all prior
negotiations and agreements in regard to the same subject
matter are excluded from consideration whether they were
oral or written." (Williston on Contracts, vol. II, p. 1224.)
Contracts are made not to be evaded and broken at the
convenience of one or the other of the parties thereto, but to
be faithfully performed. The parties in this case should be
made to live up to the plain terms of their agreement.
DECISION UPON MOTION FOR RECONSIDERATION
December 31, 1932
Hull, J., concur.
IMPERIAL, J p:
The plaintiff and appellee moved for the reconsideration of
the decision rendered in this case on the following grounds:
"I. There was no valid and sufficient tender to herein
plaintiff and appellee of the sum of P6,000, and likewise this
sum of P6,000 was not consigned in court as the law requires
as conditions precedent before the alleged right of
cancellation can be exercised.
"II. The proviso found in the contract Exhibit A as to the
deposit of P6,000 'as guarantee of proper fulfillment' of the
contract did not give defendant-appellant the right to cancel
the same.
"III. The contract, Exhibit A, should be reformed for it
does not express the real intention of the parties thereto."
We are convinced, under the first ground, that the appellee
misinterpreted the conclusions we had arrived at, sustaining
MichTrina Evidence Library Work
the cancellation of the contract. The view has been taken that
said cancellation was based solely on the tender of payment
or consignation of the amount of P6,000, which at the same
time constituted the appellant's bond. This was not the real
ground of the rescission of the contract. Our holding that the
appellant was entitled to cancel the contract is based
principally on the fact that the appellant was given such
option, as may be gathered from the correspondence between
the parties which is reproduced literally in the decision. Said
conclusion was not made to rest on the note appearing at the
foot of the contract because, as plainly stated in the decision,
said note does not contain any express stipulation relative to
the option to cancel.
From what has been stated it follows the little or no
importance should be attached to the erroneous statement in
the decision that the consideration for the option was
consigned to the clerk of court, for all that was really made
was a tender of payment of the same amount by the
appellant. The cancellation of the contract, or the right
thereto, not being thus entirely dependent on the tender of
payment or consignation, it is evident that the confusion of
the issues will not avail to render ineffective the decision
heretofore promulgated.
We agree that the cancellation of the contract should take
effect upon payment by the defendant-appellant to the
plaintiff-appellee of the stipulated amount, and the same view
was embodied in the dispositive part of the decision to the
effect that the contract stands cancelled upon payment of the
aforesaid amount of money. We believe, however, that for a
clearer understanding of the decision the same should be
amended as prayed for.
The above disposes of the first two grounds of the motion.
The last ground is likewise untenable. We cannot interpret the
contract in any other sense than that already stated in the
decision. Having ordered the cancellation of the contract, we
see no reason to modify the same so as to give it further force
and effect in accordance with the express terms of the
appealed judgment.
For the foregoing reasons, the motion for reconsideration is
denied, and the dispositive part of our decision is amended in
the sense that the cancellation of the aforesaid contract shall
take effect from November 18, 1932, the date when the sum
of P6,000 was consigned by the appellant to the clerk of the
trial court at the disposal of the appellee.
FIRST DIVISION
[G.R. No. 7180. March 30, 1912.]
RAFAEL ENRIQUEZ ET AL., plaintiffs-appellants, vs. A. S.
WATSON & CO. LTD., defendant-appellee.
Rohde & Wright, for appellants.
W. A. Kincaid and Thomas L. Hartigan, for appellee.
SYLLABUS
1. LANDLORD AND TENANT; LEASE; CHANGES IN THE
FORM AND SUBSTANCE OF THE THING LEASED. The lessee
under an 18-year lease had the right to make such changes as
the business established therein required, provided that
Page 51
neither the value nor the solidity of the building was impaired.
Said lessee undertook to remove a thick masonry wall and
substitute therefor a reinforced concrete wall, which would
add materially to the floor space, which he needed in his
business, and at the same time strengthen the building and
add materially to the value of the building. The lessors
claimed the lease should be rescinded because the form and
substance of the leased premises had been changed. Held:
Not such a change, under the circumstances, as to warrant
rescission of the lease.
2. ID.; ID.; ID.; CIVIL CODE. The provisions of the Civil
Code applicable to the case which prohibit a change of form or
substance of the thing leased and obligate its return in the
same condition in which it was received, provide a general
rule of law, and, like most general propositions, cannot be
accepted without limitation and reservation under all
conditions. They must be interpreted in the light of the growth
of civilization and varying conditions.
3. ID.; ID.; ID.; SHORT TERM LEASE. A lessee under a
short term lease does not, however, receive the benefit of a
very liberal interpretation of these rules. If the lessor has
fitted up his premises for a certain purpose, such a lessee
cannot make changes on the plea that they will be somewhat
beneficial to the property.
4. ID.; ID.; ID.; LONG TERM LEASE. Under a long term
lease, the lessee should be allowed to make the changes
which industrial development or varying conditions may
require, provided the interests of the lessor are clearly
benefited thereby.
5. ID.; ID.; SUBTENANTS. A subtenant is bound to the
original lessor by all the conditions of the original lease in so
far as the use and preservation of the thing leased is
concerned.
6. ID.; ID.; ASSIGNMENT OF LEASE. The power of
assignment is incidental to the state of every lease of things
unless expressly forbidden in the lease.
7. CONTRACTS; CONSTRUCTION. When it is not
shown that words or phrases have a technical or special use,
and they are susceptible of two interpretations, that
interpretation most favorable to the party in whose favor they
are used must be given.
8. ID.; COMMUNITY PROPERTY; LEASE; RIGHTS OF
MINOR. Article 1548 of the Civil Code prohibiting the lease
of property of a minor for more than six years, does not
necessarily apply when the property is communal.
9. ID.; ID.; ID.; SUBSERVIENT TO INTERESTS OF
MAJORITY OWNERS. The supreme court of Spain has held
that in such a case the interests of the majority govern the
minor, the latter always having the right to appeal to the
court when the decision of the majority is gravely prejudicial
to him.
10. ID.; ID.; ID.; ACTS OF LEGAL GUARDIAN. The minor
in the case at bar having been represented by his legally
appointed guardian and the action of the latter in signing the
lease having been formally approved by the court, makes the
contract of lease binding upon the minor.
DECISION
MichTrina Evidence Library Work
TRENT, J p:
This action was brought on April 12, 1911, by Rafael, Antonio,
Trinidad, Cayetano, Rosario, Gertrudis, and Carmen Enriquez,
and Antonio Gascon (the latter being a minor, was
represented by his guardian ad litem), as owners and lessors
of the property Nos. 72, 74, and 76 Escolta, city of Manila,
against A. S. Watson & Company, Ltd., as lessee of said
property. The plaintiffs allege that on June 22, 1906, Rafael,
Carmen, Antonio, and Trinidad Enriquez and Antonio Gascon
executed to the defendant a contract of mortgage and lease
upon their participation in that property; that on January 19,
1907, the other plaintiffs executed the same mortgage and
lease in favor of the defendant upon their interest in the same
property; that the said contract of lease has been terminated
by the payment by the plaintiffs to the defendant of the
principal and interest of the mortgage; that the said contract
of lease is null and of no effect by reason of the minority of
the plaintiff Antonio Gascon, who is still a minor; that the
defendant, after June 22, 1906, made all the repairs necessary
to its business with the approval of the plaintiffs.
The plaintiffs further allege that there exists in that building a
principal wall about one meter in thickness and five meters in
height, which extends from the front of the building on the
Escolta to the rear of the same; that upon this wall rests the
second floor of the building and that it is necessary to safely
maintain the building against earthquakes and typhoons; that
on the 11th of April, 1911, the defendant commenced to
destroy and remove the said wall and was on the date of the
filing of this complaint actually engaged in the destruction and
removal of the same; and unless restrained, would continue
such destruction and removal, to the irreparable injury of the
plaintiffs; and that the defendant has varied the form and
substance of the leased premises. The plaintiffs therefore
prayed that the defendant be prohibited from destroying and
removing said wall; that it be ordered to rebuild or replace
that part which it had removed or destroyed; and that the
contract of lease be declared terminated and rescinded.
On the 12th day of April, 1911, a preliminary injunction was
issued by the Court of First Instance, prohibiting and
restraining the defendant from continuing the removal and
destruction of the wall in question, and requiring it to appear
in court on the 17th of that month to show cause why such
preliminary injunction should not be continued in force during
the pendency of this action.
On the 21st of that month, the defendant company answered,
admitting the allegations as to the ownership, mortgage, and
lease, contained in paragraphs 1, 2, and 3 of the complaint,
and denying all the other allegations therein. The defendant
set up by way of special defense that the wall in question was
not a principal wall and did not extend the entire length of the
building; that said wall consisted of two shells filled with
mortar; that it was very old, deteriorated, and weak; that it
was necessary, in order to conserve the property, to remove
said wall and to substitute it with other material; that the wall
in question is so located that it and its subtenant are deprived
of the use of a large part of the ground floor fronting on the
Escolta; that under Clause M of the contract of lease, the
defendant has the right to remove this wall, substituting in
lieu thereof other material, this being required by the business
established in said building.
As a second special defense, the defendant admits the
payment of the mortgage by the plaintiffs, but alleges that
Page 52
the contract of lease is independent of the mortgage contract,
and that in satisfying the mortgage of the defendant, the
leasehold was specifically continued in force by all parties.
As a third special defense, the defendant alleges that under
the provisions of Paragraph M of the contract of lease, it has
expended the sum of over sixty thousand pesos in improving
the leased premises, and that on making such expenditure it
believed that it would be reimbursed by enjoying the
occupancy and subrenting of the premises.
On the 24th day of May, 1911, the Philippines Drug Company,
a corporation organized under the laws of the Philippine
Islands, appeared and asked leave to intervene as an
interested party. This leave being granted, it alleged that it is
the actual owner of the pharmacy situated in the leased
premises, which formerly belonged to the defendant A. S.
Watson & Company, Ltd.; and that the defendant sublet to it
the ground floor of the leased property under the same
conditions as are expressed in the original contract of lease.
The intervener further alleged, as did the defendant, the
necessity for the removal of the wall in question in order to
give it more space as required by its business. and that the
removal of this wall was authorized in Paragraph M of the
original lease.
The trial court, after considering the evidence presented,
making a personal inspection of the leased premises, and
hearing the arguments of counsel for both parties, and after
making its findings of facts and conclusions of law, entered
the following decree, to wit:
"The court denies the rescission and declaration of nullity of
the contract of lease demanded by the plaintiffs. declaring
such contract of lease to be valid and subsisting and binding
upon the parties thereto, and upon the sublessee and
intervener, the Philippines Drug Company, and continues and
declares final the preliminary writ of injunction issued herein
on the 12th day of April, 1911, but modifying the same by
permitting the defendant, A S. Watson & Co. Ltd., or the
intervener, the Philippines Drug Company, to remove the wall
in question on the condition that they substitute it with
properly constructed concrete pillars and arches and such
other work as may be necessary as specified in Finding No. 17
of this judgment using such temporary shoring and bracing as
shall be necessary to insure the safety of the building while
such change is being made, which work of removal and
substitution may be commenced and carried out upon the
defendant or intervener, or both, filing herein an undertaking
in the sum of P10,000 with sureties approved by the court,
conditioned that it or they will reimburse the plaintiff lessors
for any and all damage that may be caused the leased
premises by a failure to take proper precautions and employ
proper means to safeguard and protect the building while
such work of removal and substitution is being accomplished."
From this judgment the plaintiffs appealed and make the
following assignment of errors:
"1. The judgment is erroneous in not having declared
rescinded the contract of lease.
"2. The judgment is erroneous in finding that the lessee
and sublessee have the right to change the form and
substance of the property leased.
MichTrina Evidence Library Work
"3. The judgment is erroneous in finding that the lessee
acted in good faith in beginning the destruction of the wall,
believing that under the contract of lease it had the right to
do this.
"4. The judgment is erroneous in not finding that the
building is weakened by the destruction of the wall.
"5. The judgment is erroneous is so far as it modifies the
preliminary injunction.
"6. The judgment is erroneous in not declaring perpetual
the preliminary injunction.
"7. The judgment is erroneous in the dispositive part
thereof relating to the form and manner of making the
modifications in the property because it does not relate to
anything at issue in the case.
"8. The judgment is erroneous in the part relating to the
form and manner of making the modifications in the property
because it does not dispose of anything judicially, but, on the
contrary, gives permission to the opposing parties without
commanding them to do anything.
"9. The judgment is erroneous because it does not order
the repair of the destruction made in the wall.
"10. The judgment is erroneous because it declares valid
the contract of lease.
"11. The court erred in denying the motion for a new
trial."
All questions in this case may be merged into one, and that is:
Did the trial court err in failing to declare the contract of lease
voidable or rescinded for one of two reasons: first, because of
the minority of one of the lessors; and second, because
neither the defendant nor intervener had authority under the
contract of lease to remove the wall in question ? Plaintiffs do
not now insist that the contract of lease was terminated on
the payment of the mortgage.
The eight plaintiffs each have a one-eighth undivided interest
in the leased premises. The property was leased to the
defendant for a period of twelve years with permission to
renew the lease for a further period of six years. Seven of
these plaintiffs were of age when they executed this contract
of lease. The other, Antonio Gascon, was a minor. At the time
this contract of lease was executed, the minor was
represented by his judicial guardian. The guardian having
obtained authority or permission of the court to enter into this
contract of lease for and on behalf of his ward, the action of
the guardian in executing said contract was approved by the
probate court.
Article 1548 of the Civil Code reads:
"ART. 1548. The husband can not give in lease the
property of the wife, the father and guardian, that of the son
or minor, and the administrator of property, not having a
special power, for a period exceeding six years."
Article 398 of the same code provides:
Page 53
"ART. 398. The decision of a majority of the coowners
as to the management and better enjoyment of the thing
owned in common shall be obligatory.
"There shall be no majority, unless the resolution has been
adopted by the coowners representing a majority of the
interests which constitute the object of the community.
"Should there be no majority, or the resolution of the latter is
seriously prejudicial to the parties interested in the thing
owned in common, the judge, at the instance of a party, shall
decree what may be proper, including the appointment of an
administrator."
xxx xxx xxx
Counsel for the plaintiffs do not claim that the contract of
lease which was made for a period of more than six years is
seriously prejudicial to the interests of the minor, nor do they
claim that said contract, of itself, prejudices in any way the
minor's interest.
The supreme court of Spain had under consideration this very
question in its resolution of April 26, 1907 (vol. 15
Jurisprudencia referente al Codigo Civil, p. 194). In this case, a
contract of lease for twelve years, executed by one of the
coowners of a certain property, one of whom was a minor, had
been presented for registry. Registry was refused for the
reason, among others, that the majority of the coowners
lacked authority to execute said contract of lease. It was
argued that the majority of the coowners, in their enjoyment
of the control of the management and administration of the
thing, acted in a representative or an administrative capacity
in regard to the minority. In determining the questions
presented in this case, the court said:
"That for the administration and better enjoyment of the
thing, the decision of the majority of the coowners is
obligatory, and that there is no majority, unless the decision is
made by the coowners, that represent the majority of the
interests that constitute the object of the community, are
general rules laid down in article 398 of the Civil Code,
governing community of property.
"The contract of lease is by its nature and purpose one of the
means of enjoyment or development of non-fungible property,
and, in this concept, may be agreed upon by the coowners of
a thing, provided always that they represent a majority of the
interests of the community, the decision being obligatory for
all by virtue of the powers that are expressly conferred upon
them by virtue of said provisions.
"If, indeed, the contract of lease of real property for a period
exceeding six years, or in which the rents are advanced for
more than three years, constitutes a real right inasmuch as it
is subject to registry, according to the decision of this court in
various resolutions, this principle of law, which has been
applied in the sense of not permitting the execution of such a
contract to those who administer the goods of others, and
especially to prevent agents from executing such a contract
without special authority for the same, in accordance with the
provisions of article 1713 of the said code, is not opposed to
the principle of law laid down in said article 398; taking into
consideration the legal character and peculiar attributes of
community of property, which makes it convenient and
necessary that those who have less interest therein should
submit to those who have a greater participation therein, in all
MichTrina Evidence Library Work
that refers to the exploitation and ordinary enjoyment of the
same, the rule is established that the enjoyment of the
common thing must be subject to the will of the majority,
without distinguishing and limiting the period or the form of
the enjoyment; therefore, the contract of lease being the
same in essence whatever the term for which it is constituted,
such a contract must be considered as an act of mere
administration, and subject to contract by the decision of the
majority of coowners, the other interested parties always
having the right to appeal to the court when the decision is
gravely prejudicial to them according to the provisions of the
same article 398.
"This doctrine was recognized by the supreme court in its
decision of June 30, 1897, and of the 8th of July, 1902, and by
this court in its resolution of May 29, 1906, considering as
included in the powers conferred in said article, leases
exceeding a period of six years, decided upon by a majority of
the coowners of a property possessed in common.
"The contract of lease of the property referred to in these
proceedings, having been agreed upon by the coowners
representing the majority of the interests in the same, they
were possessed of sufficient legal capacity by virtue of what is
already said, and it is, therefore, subject to registry."
In the execution of the contract of lease under consideration,
the minor was, as we have said, represented by his judicial
guardian, who not only asked the court for and obtained
authority to execute this contract of lease on behalf of his
ward, but his act, after the execution, was approved by the
court. The interest of the minor has not been prejudiced by
reason of the fact that this contract of lease was executed for
a term of more than six years. Under the doctrine laid down
by the supreme court of Spain, it would appear that this
contract of lease would be valid if the minor had not been
represented by his guardian. The minor having been
represented by his duly appointed guardian, there can be no
question about the validity of this contract of lease.
The principal question is whether or not the appellees have
violated the terms of the contract of lease and thereby entitle
the appellants to have said contract of lease rescinded.
Before considering the contract in question, it might be well to
examine the right of the lessee to make changes in the
property leased, if there were no express stipulation therefor
in the contract.
Article 1573 of the Civil Code provides:
"A lessee shall have, with regard to the useful and voluntary
improvements, the same rights which are granted the
usufructuary."
Article 487 of the same code reads:
"The usufructuary may make on the property which is the
object of the usufruct any improvements, useful or for
recreation, which he may deem proper, provided he does not
change its form or substance; but he shall have no right to be
indemnified therefor. He may, however, remove said
improvements, should it be possible to do so without injury to
the property."
The result is that the lessee may make any improvements,
useful or for recreation, in the property leased that he may
Page 54
deem proper, provided that he does not change its form or
substance. The same obligation is expressed in articles 487
and 489, and in so far as the form of the thing is concerned, in
article 1557. According to articles 487 and 1557, the
obligations of the lessee and the lessor are the same in the
absence of any agreement to the contrary, in so far as the
conservation of the form of the thing leased is concerned. This
question of conserving the form and substance of the thing
leased or the object of the usufruct has been passed upon at
various times by the courts.
In the case of the Manila Building and Loan Association and
Pealosa (13 Phil. Rep., 575), this court said:
"If the object leased were a house, it is evident that the lessee
might effect such improvements for use, recreation or comfort
as would not change its form or substance as he deemed fit;
he could build a tower or luxurious pavilion more expensive
than the house itself, to which, at the expiration of the lease,
the owner of the house would have no right whatever, unless
the lessee could not remove the same without injury to the
house to which it was attached as an improvement, excepting
of course the right to cause the same to be demolished so
that the house might be returned to him in the same condition
that the lessee received it; . . ."
The supreme court of Spain, in its judgment of June 24, 1905,
volume 14 of the Jurisprudencia referente al Codigo Civil, page
38, had under consideration the interpretation of this phrase
in a case in which the lessee asked for the rescission of the
lease because the lessor had altered the form of the thing
leased. The facts were that the lessee had leased the house
for the period of ten years, and at the time of the execution of
the contract of lease, there was a vacant lot next to the house
and 13 windows of the house leased overlooked this lot.
Thereafter the owner of the adjacent lot constructed an
edifice thereon which gave rise to litigation between the
lessor and the owner of the adjacent lot, which litigation was
settled by the lessor and the owner of the said lot, the latter
being permitted to cover the windows of the leased property,
and the former allowed to open in the partition wall of the
latter's garden two large and two small windows of specified
dimensions, under certain conditions. The construction was
continued, with the result that such construction effectually
closed and covered the 13 windows and the balcony,
depriving the property leased of the light previously received
by the same. For the purpose of obtaining better light, many
changes were made and much work done in the interior of the
leased house, the final result being that some of the rooms of
the house were darkened completely, others receiving poor
and indirect ventilation. The court, in refusing to rescind the
contract of lease, said:
"It does not appear that there is error committed by the trial
court in its decision as set out in the first assignment of error,
because, even though the noncompliance by the lessor of his
obligations, among which was that of maintaining the lessee
in the peaceable enjoyment of the lease during the period of
the contract, and the prohibition to change the form of the
thing leased, confers upon the lessee the right to ask for the
rescission of the contract, such circumstances are not found in
the present case since the trial court says that the appellant
was not disturbed in the possession of the house, the object of
the lease, nor was he impeded from using the premises as a
tavern, for which use he had intended the same, and these
findings of fact have not been legally impugned.
MichTrina Evidence Library Work
"The decision also states that the changes made in the
property did not change the form of the same in the sense
and concept covered by article 1557 of the Civil Code.
Notwithstanding that the findings on the point contain legal
reasoning now corresponding to this court, the interpretation
of this article can not be made in general and absolute terms
not defined by law, because as a circumstantial fact
depending in each case on the peculiar conditions of the thing
leased, there exists no reason in the case at bar upon which
to base the conclusion that the trial court erred, having in
mind that the particular use of the same as a tavern was not
interfered with, as held in its decision, and also the fact set
out in its decision, and not contradicted in any manner,
namely, that the changes and alterations made were
beneficial, tolerated by Sabay, and consented to by the
person to whom Sabay transferred his rights under the
contract of sublease.
"The last two reasons given for the rescission of the contract
lack force and weight, because, in accordance with the sense
and concept of article 1561 of the said Civil Code, the
property must be returned at the expiration of the term of
lease with the changes made in the same, and these do not
involve, as has already been said, any variation or change of
form or any interruption of the peaceable enjoyment of the
lease and because it does not appear from the facts that the
trial court accepted as proven that the appellant suffered
disturbance of his rights for which he had been compelled to
become responsible to the lessor, and he, not having done so,
there is no legal reason to apply, as is attempted, the
provisions of article 1560 of the code referred to."
Manresa, in volume 10 of his commentaries on the Civil Code,
pages 534, 535, [488, 489] says:
"The question was discussed very energetically as to whether
the lessee of a city property leased for a stated industrial
purpose, could install machinery propelled by steam in
substitution for the utilities, implements, and contrivances
which were used before the general adoption of such
machinery. The installation of modern machinery and its
ordinary operation, at once caused a deterioration to the
estate much greater than the use of the former apparatus,
besides the accidents which might occur and which produce
very great damage to the thing leased. Therefore, based upon
this consideration, it was said that the lessee could not make
this substitution because it implied a bad and prejudicial use
of the thing and therefore very different from that diligence of
a good father in its use to which he had obligated himself.
"As Laurent says, there arise here two contrary interests and
two diverse tendencies. The owner has in view the stability of
the structure and fears every innovation which may
compromise its preservation. The manufacturer finds himself
obliged to keep abreast of the development of his industry, to
make changes, if he does not wish to perish, and his interests
demand that he put into practice the inventions which
increase his profits, even though the edifice may suffer. The
owner commences to resist, adds this writer, but competition
forces the manufacturer, and the owner ends by yielding, if he
does not wish to remain unproductive.
"This is the essence of the policy pursued by foreign
decisions, where the question has been so much more
important than in our own country. Until the year 1860,
judicial decisions were inclined to favor the owner of the
property. But from that year the rights of industry have been
Page 55
recognized with ever increasing clearness. It has been
considered that from the moment the lease is drawn up, in
which is stated the industrial use to which the lessee desires
to put the thing leased, the claims of the industry to which the
object of the lease is to be devoted have been determined,
and the lessee can not be condemned to a stagnation which
would be uneconomical, and, these facts admitted, the logical
consequences must necessarily follow: the lessor can not
prevent the lessee from adopting the improvements of his
industry; the acts of the parties in making the stipulations in
the lease will do the rest."
The lessee may make on the property which is the object of
the lease any improvements, useful or for recreation, which
he may deem proper, provided he does not change its form or
substance. He is obligated to use the thing leased as a
diligent father of a family would, and to return the thing
leased at the expiration of the lease in the same condition in
which he received it, except what may have been destroyed
or impaired by time or unavoidable reasons. (Arts. 1573, 487,
1555, and 1561, Civil Code.)
The supreme court of Spain recognizes the fact that no
ironclad rules for the interpretation of these articles can be
laid down which would govern all cases. These provisions
must be applied according to the facts and circumstances of
each case. Manresa is inclined to the view that industrial
development should be taken into consideration in the
determination of questions involved in the application of said
articles. The provisions of these articles are general rules of
law, and, like most general propositions, are not to be
accepted without limitation or reserve. under any and all
circumstances. They must be interpreted in the light of the
growth of civilization and varying conditions. Certain
obligations are placed upon the lessee to prevent lawless acts
which would result in waste or destruction. The importance of
these obligations to the lessor cannot be denied. Especially
are they valuable and essential to the protection of a landlord
who rents his premises for a short time. Suppose he has fitted
his premises for certain uses and leases them for such uses
for a short term. He would then be entitled to receive them
back at the end of the term still fitted for those same uses,
and he may well say that he does not choose to have a
different property returned to him from that which he leased,
even if it be found to be of greater value by reason of the
change. But suppose that a usufructuary who has a life
interest in an estate should receive as such a hemp hacienda,
and that in a short time this hacienda should become
permanently unproductive through disease or death of the
plants, or by change of the market conditions, and the land to
have become far more valuable, by reason of new conditions,
as rice or sugar land. Is the usufructuary to be compelled to
preserve or renew the useless hemp fields and forego the
advantages to be derived from a different use ? Or, suppose a
life tenant should change warehouses into dwelling houses on
the ground that by change of conditions the demand for
warehouses had ceased and the property had become
worthless, whereas it would be very valuable when fitted for
dwelling houses. Would this be such a change in the form or
substance of the thing leased as to forfeit the interest of the
tenant? Again, a lessee for a long term received, during very
prosperous times, a hemp hacienda upon which were
constructed large and valuable storehouses in which were the
old style hand-presses, but new. Later, on account of a
complete change in conditions due to the market and the
method of pressing hemp by steam, the lessee allowed the
MichTrina Evidence Library Work
buildings and presses, which had become useless, to fall into
decay rather than incur the expense of repair. Would a
prudent owner of the fee, if in possession, have done the
same ? These questions naturally suggest their own answer.
The radical and permanent changes of surrounding conditions
must always be an important consideration in the
determination of such questions. The interpretation that "if
the man is too long for the bed his head should be chopped
off rather than enlarge the old bed or purchase a new one"
should not be given those provisions of the Civil Code
regarding the obligations of lessees.
Let us now turn to the contract of lease and the evidence
presented. In this contract of lease there are two clauses
which deserve careful consideration.
Clause K:
"All the expenditures for cleaning, painting, and repairs which
the building may require and all that is ordered done by the
Board of Health, will be at the expense of the lessee A. S.
Watson and Company, Limited.
Clause M:
"The lessee may make such works on the building as the
business which it has established therein requires, provided
always that neither the strength nor the value of the said
building is impaired."
It will be noted that the word "reparaciones" is used in Clause
K, and the word "obras" in Clause M. Counsel for the
appellants insist that the word "obras" as thus used means
the same as "reparaciones." The Encyclopedic Dictionary of
the Castilian Language (Diccionario Enciclopedico de la
Lengua Castellana) defines these words as follows:
OBRA:
"1. A thing made or produced by an agent.
xxx xxx xxx
"4. A building in course of construction.
"REPARACION:
"1. The action and effect of repair. (Reparar verb: To
mend, to straighten, or to correct the damage suffered by
something.)"
The New Dictionary of the Castilian Language (Nuevo
Diccionario de la Lengua Castellana) defines the same words
as follows:
"OBRA:
"Anything made, created, or produced by some power or
agent. Any construction of architecture, masonry, or
carpentry, applied especially to buildings in course of
construction or repair, as: 'There are three jobs in Calle
Hortaleza. Everything in my house is disordered and topsy
turvy because of the work.'
"REPARACION:
Page 56
"The act or effect of repairing or of being repaired. The fact of
repairing, in the sense of renewing or improving something."
The only synonym given in this work for "obra" is
"produccion."
It may be that repairs are included in the definition of "obras."
Nevertheless, it cannot be denied that the word "obras," used
in its general sense, has a far more comprehensive meaning
than just simple repairs. Sections 290 and 293 of the Code of
Civil Procedure, provide:
"SEC. 290. Terms of a writing presumed to be in their
ordinary sense. The terms of a writing are presumed to
have been used in their primary and general acceptation, but
evidence is nevertheless admissible that they have a local,
technical or otherwise peculiar signification, and were so used
and understood in the particular instance, in which case the
agreement must be construed accordingly."
"SEC. 293. Where intention of different parties to
instrument not the same. When the terms of an agreement
have been intended in a different sense by the different
parties to it, that sense is to prevail against either party in
which he supposed the other understood it; and when
different constructions of a provision are otherwise equally
proper, that is to be taken which is the most favorable to the
party in whose favor the provision was made."
In the case at bar no proof has been presented tending to
show that the word "obras" was used in a technical or special
sense, or that it has a local signification, and therefore, it
must be considered as used in its ordinary and general sense.
If there exists any ambiguity and if the meaning that the
appellants give to the word "obras" is proper, the meaning
given by the appellees is likewise proper, consequently, we
must apply the rule laid down in section 293, above quoted,
for the reason that the stipulation contained in Clause M of
the contract is a stipulation in favor of the lessee.
Counsel for appellants insist that in order to define the
meaning of the word "obras" we should refer to the articles of
the Civil Code that deal with contracts of lease. This might be
done in those cases where the intention of the parties could
not be ascertained from either the contract itself or from the
conduct of the parties in executing and carrying out the same.
In the case at bar, all that is necessary is to give a fair and
reasonable interpretation to the meaning of Clause M of the
contract of lease. This clause contains certain limitations on
the exercise of the right to make alterations (obras): first, the
alterations (obras) proposed to be made must be required by
the business; second, such alterations must not injure the
solidity of the building; and third, the same must not prejudice
the value of the building. But it is insisted, as we have said,
that the word "obras" in Clause M must be interpreted to
mean "reparaciones" as used in Clause K. Clause K imposes
upon the lessee the obligation to make the repairs required by
the building for its conservation. If the words have exactly the
same meaning and were intended by the parties to mean the
same thing, then the insertion of Clause M would only have
had the effect of giving to the lessee the right to keep the
building in repair, when, as a matter of fact. Clause K made it
its duty to repair the building. As we understand the contract,
in Clause K a duty is imposed upon the lessee, while in Clause
M a right is given to it. In Clause K the word "reparaciones" is
used in connection with the duty, and in Clause M the word
"obras" is used in connection with the right. If the contracting
MichTrina Evidence Library Work
parties had intended that the two words be used in the same
sense they would have so stated, or they would have
eliminated Clause M entirely as being useless, as it is
meaningless to say that when a duty is imposed upon a
person it is necessary to expressly give him a right to perform
that duty. If he did not have the right to perform that duty, the
same would not have been imposed upon him. The
stipulations in Clause M are expressed as clearly and explicitly
as they could have been under the circumstances. At the time
of the execution of this contract of lease, it was impossible to
know what would be the requirements of the business during
its term of eighteen years. It was likewise impossible for the
parties to have then agreed in detail as to the changes that
might be necessary. The lessee wished to reserve to itself the
right to make the changes in the property required by its
business, and none of the parties could anticipate what might
be required during this long period of time. This right was
conferred upon the lessee by the lessors, but the right, as we
have said, had its limitations: that is, the lessee could not
prejudice the solidity or the value of the building without
breaking the contract.
The question was raised as to whether the conduct of the
parties in carrying out the terms of this lease has been such
as to show or indicate their intention or understanding of the
meaning of the word "obras" when they inserted this word in
Clause M. Upon this point the trial court said:
"That under and by virtue of the said contract of lease, the
defendant company entered into possession of the leased
premises, making therein alterations and repairs at a cost of
some P60,000, including the removal of the whole front of the
building facing upon the Escolta and replacing the same upon
the new street line, established by the city of Manila, with a
modern and decorative commercial front; the removal of the
heavy tiled roof and the replacing of the same with a light
galvanized roof; the removal of various walls and replacing
the same with steel columns and girders; the tearing down
and rebuilding of a part of the building and the adding thereto
of a camarin upon the Pasig River; and the building of a river
wall and reclamation of a considerable amount of ground; and
which alteration included the removal of that part of the wall
in question which extended from Point A to Point G on the plan
of the premises introduced in evidence as defendant's Exhibit
No. 9, all of which repairs, alterations, and improvements,
were made with the final approval of the plaintiffs, although
after much controversy and many disagreements, and to
which alterations and improvements the plaintiffs contributed
the sum of about eighteen hundred pesos paid by the city of
Manila for the expropriation for street purposes of the small
strip along the front of the building heretofore mentioned."
These findings of fact are, we think, fully supported by the
evidence. The result is that these important and material
changes, which include the removal of a great portion of the
very wall in question, were made by virtue of the contract of
lease itself. It is true that the owners objected at first, but
afterwards consented in accordance with the provisions of
Clause M, and not by reason of any subsequent specific
agreement. After all, that the defendants have the right under
the law and the provisions of Clause M of the contract of lease
to remove the wall in question, cannot be seriously doubted,
provided always that neither the solidity of the building nor its
value be impaired.
Let us now determine whether or not a removal of the wall in
question (1) will prejudice either the solidity of the building or
Page 57
its value, and (2) if it is required by the business of the
defendants.
The wall which the defendants and interveners propose to
remove and substitute in lieu thereof other material is
composed of two outer shells of Guadalupe or Meycauayan
stone, filled with lime, plaster and rubber, the two shells being
bound together by stones laid transversely, the whole wall so
formed being about one meter thick and extending from the
front of the building a distance of about 38 meters toward the
Pasig River. This wall is about four meters high, extending
from the ground floor to the second floor. The joists and
girders supporting the second floor are embedded in said wall.
There are two actual openings in this wall, with three doors
and an arch, which have been walled up. The wall is in good
condition, except that part removed by the defendants before
the commencement of this action, and said wall is one of four
longitudinal walls, all being approximately of the same
thickness. The wall in question divides the east half of the
ground floor of the building approximately in its center and
sustains a part of the weight of the second floor of this east
half, together with a partition forming one of the divisions of
the second floor. But it does not sustain any of the weight of
the roof, this weight being distributed by means of trusses to
the outer walls of the building. About one-third of this wall, or
that part nearest the Pasig, has already been removed, and
the removal of the same was approved by the owners. The
interveners now propose to remove the remaining two-thirds
and substitute in lieu thereof other material, using the
material of the old wall for filling up certain openings in other
walls of the building. This old wall, according to the experts,
offers very little resistance to lateral shocks or motions.
Practically all of the resistance of lateral shocks or motions is
furnished by the cross-walls. Again, according to the opinion
of the experts the building will be greatly strengthened
against earthquakes or unusual shocks or force, and its
durability increased by the removal of the remaining part of
the wall in question and the substitution in lieu thereof of
reinforced concrete posts or pillars and arches, taking the
material and filling, as the interveners propose to do, the
openings in some of the other walls. Such proposed removal,
if carried out, will practically double the floor space of the
drug store and greatly increase its rental value, and also
greatly increase the actual value of the building. This extra
floor space is absolutely essential to the business carried on in
this part of the building. The foregoing are substantially the
findings of the trial court, based upon the testimony of expert
witnesses, and an ocular inspection of the premises. These
facts show clearly and beyond a question that the removal of
the remainder of this old wall will not only not prejudice the
solidity of the building, but greatly increase its solidity and
durability, as, according to the opinion of the experts, the
reinforced concrete posts and arches will offer greater
resistance to earthquakes or baguios than the old wall; that
both the intrinsic and rental value of the building will be
increased; and that this removal is required by the business.
Lastly, counsel for the appellants say:
"The plaintiffs contend that a contract is only binding on the
parties thereto as provided in article 1257 of the Civil Code
and that, although a sublessee is bound to the lessor as
provided in articles 1551 and 1552 yet this is not an obligation
arising out of contract but one founded in law and the relation
of the parties to property, and that the lessor has no
obligation towards the sublessee as such at all either legal or
MichTrina Evidence Library Work
of contract and that therefore even if by clause (m) of the
lease the plaintiffs had the obligation to permit the defendant
to take out the wall to suit the convenience of its own
business, that such an obligation was purely personal
between the parties to the lease and since the contract of
lease is not assignable this right could not be transferred by
defendant or made use of by defendant for the benefit of
other persons."
A lease may be of things, works, or services. (Art. 1542, Civil
Code.) In a lease of things, one of the parties thereto binds
himself to give to the other the enjoyment or use of a thing
for a specified time and for a fixed price. (Art. 1543, idem.)
Article 1550 of the Civil Code reads:
"Should it not be expressly forbidden in the contract of lease
of things, the lessee may sublet the whole or a part of the
things leased without prejudice to his liability for the
fulfillment of the contract executed with the lessor."
There is nothing in the contract of lease in the case at bar
which even tends to prohibit the lessee from subletting the
whole or any part of the leased premises. The lessee's right to
do this cannot be questioned, and his subtenant is not only
obligated to carry out his part of the contract with the
sublessor, but he is also bound to the lessors for all of the acts
which refer to the use and preservation of the premises, in the
manner agreed upon between the lessors and the lessee. The
lessors can compel the subtenant to comply with these
conditions. This sets up the privity between the lessors and
the subtenant. But it is said that the contract of lease in
question is not assignable. This contract is an ordinary one,
under which the lessee as we have said, has a perfect right to
sublet the whole of the premises for the entire time. Should
the lessee do this, would it not amount to an assignment of
the contract of lease? The power of assignment is incident to
the state of every lessee of things, unless he has been
restrained by the terms of his lease. In the contract of lease in
question, the lessors, by Clause M, agree that the lessee may
make such changes as its business requires, provided that
neither the solidity nor the value of the building is prejudiced.
This is a specific right granted to the lessee. This right is a
part of the lease itself and affects directly the thing leased. It
is not, therefore, a personal obligation between the lessors
and the lessee.
We are, therefore, of the opinion that the judgment appealed
from should be affirmed with costs against the appellant.
Johnson, Carson, and Moreland, JJ., concur.
Arellano, C.J., and Mapa, J., dissent.
Separate Opinions
TORRES, J., dissenting:
Notwithstanding the respect the opinion of the majority
deserves, I regret that I can not agree with the foregoing
decision in so far as it allows the defendant, A. S. Watson &
Co., or the intervener, The Philippines Drug Company, to
remove the wall in question on condition that they replace it
by pillars and arches of reinforced concrete, with the
remaining circumstances set forth.
Page 58
In my opinion this point in the judgment appealed from should
be reversed by sustaining the injunction issued by the court
and ordering the destroyed wall to be restored to the form and
condition it previously had.
The destruction of this wall amounts to a change in form and
an essential modification of the condition of solidity the
property had before it was removed. The best proof that it
was not expedient to remove the wall in question is the fact
that immediately, and as the wall was being torn down, the
building was propped up and another wall erected to replace
the one taken out.
Article 1557 of the Civil Code prescribes:
"The lessor can not change the form of the thing leased."
Article 1561 thereof says:
"The lessee must return the estate at the expiration of the
lease in the same condition in which he received it, except
what may have been destroyed or impaired by time or by
unavoidable reasons."
In the contract of lease appears the following Clause M:
"The leasing company may perform on the property the work
required by the business it has established therein, provided
that the solidity of the building is not damaged or its value
affected."
The defendants proceeded to tear down said wall in violation
of the provisions of law and the agreement in the contract of
lease, for the clause quoted does not authorize them to
destroy the central wall of the building, even with the
intention of replacing it by another wall of concrete, and in
doing so they changed the form of the building and performed
work not authorized in the contract, and which essentially
affects the solidity of the building.
Even though said clause provides that the leasing company
may perform the work required by the business it has
established therein, yet the same clause says: provided that
the solidity of the building is not damaged or its value
affected. By tearing down the wall in question and changing
its form as the central support of the whole weight of the
second story and of the framework of the roof, the defendant
company undoubtedly performed work which essentially
affects the solidity and value of the structure.
The convenience of the tenant, not admitted by the owner, is
no legal reason or cause whereby the former may alter the
condition of the property, and as there was no express
stipulation that said wall might be torn down, it is impossible
to assert that the leasing company has not violated the
contract and the legal provision which protects the rights of
the owner, who should in no sense be at the mercy of the
caprice and convenience of the tenant, for that would give
rise to a genuine transgression upon the right of property.
One of the obligations of lease under article 1555 is to use the
thing leased like a careful householder by applying it to the
use agreed upon, and, in default of agreement, to the use that
may be inferred from the nature of the thing leased according
to the custom of the land. There is no custom in this country
whereby a tenant may without permission of the owner tear
down in this way a central wall that upholds a building.
MichTrina Evidence Library Work
In a country like this, where the ground is frequently shaken
by an enormous internal force, causing violent earthquakes, it
is customary to build for the solidity of the structure walls of
size and extent such as that of the property in question, which
was destroyed by the defendant party by and for itself. In
spite of the defects ascribed thereto, it is sufficient to assert
that said wall has withstood all the violent earthquakes that
have occurred during the latter half of the past century, and
yet it was arbitrarily torn down without the knowledge and
consent of the owners and in spite of an injunction of the
court, not because it was not solid but because it was thick
and wide and took up a good deal of space in the place which
the defendant company wished to use to its full extent. A
concrete wall, with which the destroyed stone was replaced,
would be more convenient for the interests of the defendant
because it would take up less room, but the solidity of
concrete walls in this land of earthquakes has not yet received
the stamp of conclusive test in one of those violent
phenomena, happily not yet experienced since concrete
buildings have been erected here. But if the will of the parties
is the law in contracts not contrary to law, morality and public
order, and in cases not foreseen by the interested parties, the
rules and provisions of law that protect the reciprocal rights
and duties of the contracting parties, the leasing company
unquestionably had no right to tear down the wall in question
and replace it by another of concrete without the consent and
against the express objection of the owners of the property.
Therefore, I think that the first part of the judgment appealed
from should be affirmed and that the second part, referring to
the authorization therein conferred upon the defendant party
to remove the wall in question and replace it by another of
concrete with the conditions set forth, ought to be reversed
and the defendant party ordered to replace the destroyed wall
in the form and condition it formerly had, with the costs
against the defendant party.
THIRD DIVISION
[G.R. No. 148411. November 29, 2005.]
MARTHA R. HORRIGAN, petitioner, vs. TROIKA COMMERCIAL,
INC., respondent.
Ponce Enrile Reyes & Manalastas for petitioner.
Saludo Agpalo Fernandez & Aquino for respondent.
SYLLABUS
1. CIVIL LAW; OBLIGATIONS AND CONTRACTS;
INTERPRETATION OF CONTRACTS; OBSCURE WORDS SHALL BE
CONSTRUED AGAINST THE PARTY WHO DRAWS UP THE
CONTRACT; CASE AT BAR. Article 1377 of the Civil Code
provides: "ART. 1377. The interpretation of obscure words or
stipulations in a contract shall not favor the party who caused
the obscurity." In a long line of cases, we have consistently
held that the party who draws up the contract, in which
obscure words or phrases appear, bears the responsibility for
causing the ambiguity or obscurity, and hence, these must be
construed against him. In this case, it was petitioner's spouse
who prepared the sub-lease contract in question.
Consequently, the ambiguity must be construed against
herein petitioner as she is presumed to have confirmed the
same. TSEHcA
Page 59
2. REMEDIAL LAW; EVIDENCE; INTERPRETATION OF
DOCUMENTS UNDER SEC. 17, RULE 130; WHERE DIFFERENT
CONSTRUCTIONS OF A PROVISION ARE PROPER, THAT IS TO
BE TAKEN WHICH FAVORS THE PARTY IN WHOSE FAVOR THE
PROVISION WAS MADE; CASE AT BAR. There is also no
question that the 10% guaranteed yearly increase of rents
provided for in sub-paragraph 2.2 of the sub-lease agreement
is for the benefit of respondent herein, being the sub-lessor of
the premises. As such, any doubt in its interpretation must be
interpreted in its favor. This is in line with Section 17, Rule 130
of the Revised Rules of Court.
DECISION
SANDOVAL-GUTIERREZ, J p:
Before us is a petition for review on certiorari seeking to
reverse the Decision 1 of the Court of Appeals dated May 31,
2001 in CA-G.R. CV No. 50330. HETDAC
The facts of this case are not in dispute.
Troika Commercial, Inc., (Troika), herein respondent, is the
lessee of the entire ground floor of a two-story building
located at 53-A Annapolis St., San Juan, Metro Manila.
Respondent then sub-let a portion of the ground floor to
Martha Horrigan, petitioner, to be used for her restaurant Tia
Maria. The contract of sub-lease dated April 20, 1983 between
the parties was prepared by Martha's husband. It provides,
among others, the following stipulations:
"2. In consideration thereof, Martha R. Horrigan
undertakes, promises and guarantees payment to Troika of
the following:
2.1. P12,500 monthly starting March 15, 1983 and every
month thereafter until December 31, 1989 payable every ___
day of the month.
2.2. In addition to the above (sub-par 2.1), P4,500
monthly starting August 1, 1983 and every month thereafter
for seven (7) years until December 31, 1989 plus a
guaranteed yearly increase equivalent to 10% thereof."
The instant case stemmed from the parties' different
interpretations of the phrase "a guaranteed yearly increase
equivalent to 10% thereof" in relation to sub-paragraphs 2.1
and 2.2 of their agreement.
Respondent construed the 10% guaranteed yearly increase to
apply to both the original monthly rental of P12,500.00 under
sub-paragraph 2.1 and the P4,500.00 additional rental under
sub-paragraph 2.2. For her part, petitioner claimed that the
10% "guaranteed yearly increase" is applicable only to the
additional P4,500.00 rental contained in sub-paragraph 2.2 of
the sub-lease contract.
Respondent sent petitioner letters, together with its billing
statements, explaining the application of the 10% yearly
increase of rental rates. But petitioner ignored them. On May
3, 1991, respondent sent petitioner a final demand letter
asking her to pay P318,489.00 corresponding to the unpaid
rental adjustments. TEaADS
When petitioner refused to pay, respondent filed with the
Regional Trial Court, Branch 148, Makati City, a complaint for
sum of money, docketed as Civil Case No. 91-2410.
MichTrina Evidence Library Work
In her answer, petitioner averred that the 10% yearly
guaranteed increase applies only to her additional rental of
P4,500.00 starting August 1, 1983 and that she has been
paying the corresponding amounts since 1984. She admitted
that from June 1984, she has been giving respondent
"P1,200.00 monthly ex-gratis" in appreciation of its efforts to
improve her business. She denied, however, that these sums
are rental adjustments. She also claimed that even assuming
that she still owed respondent, under sub-paragraph 2.2, the
amount due is only P58,485.50. She stopped paying the
yearly increase since August 1986 because of respondent's
demand that she should also pay the yearly increase
equivalent to 10% of the original P12,500.00 monthly rental.
On May 18, 1995, the trial court rendered its Decision in favor
of respondent. It ordered petitioner to pay respondent her
unpaid rental adjustments in the sum of P318,489.00 with
interest at 12% per annum from September 2, 1991 until the
obligation is fully paid.
On appeal, the Court of Appeals, in its assailed Decision,
affirmed the trial court's judgment in toto.
Hence, the instant petition for review on certiorari.
The sole issue for our resolution is whether the Court of
Appeals erred in ruling that the 10% guaranteed yearly
increase of rental rates applies to both the original monthly
rental of P12,500.00 and the additional monthly rental of
P4,500.00. aIcDCT
Article 1377 of the Civil Code provides:
"ART. 1377. The interpretation of obscure words
or stipulations in a contract shall not favor the party who
caused the obscurity."
In a long line of cases, 2 we have consistently held that the
party who draws up the contract, in which obscure words or
phrases appear, bears the responsibility for causing the
ambiguity or obscurity, and hence, these must be construed
against him. In this case, it was petitioner's spouse who
prepared the sub-lease contract in question. Consequently,
the ambiguity must be construed against herein petitioner as
she is presumed to have confirmed the same.
There is also no question that the 10% guaranteed yearly
increase of rents provided for in sub-paragraph 2.2 of the sub-
lease agreement is for the benefit of respondent herein, being
the sub-lessor of the premises. As such, any doubt in its
interpretation must be interpreted in its favor. This is in line
with Section 17, Rule 130 of the Revised Rules of Court which
states:
"SEC. 17. Of two constructions, which preferred.
When the terms of an agreement have been intended in a
different sense by the different parties to it, that sense is to
prevail against either party in which he supposed the other
understood it, and when different constructions of a provision
are otherwise equally proper, that is to be taken which is the
most favorable to the party in whose favor the provision was
made (stress supplied)."
WHEREFORE, the petition is DENIED. The challenged Decision
of the Court of Appeals in CA-G.R. CV No. 50330 is AFFIRMED
IN TOTO. Costs against the petitioner. SO ORDERED.
Page 60
MichTrina Evidence Library Work Page 61