Dr. Restituto Buenviaje vs. Sps. Jovito and Lydia Salonga, Jebson Holdings Corp.

, and Ferdinand Juat Bañez

as EVP of Jebson
GR No. 216023 || October 5, 2016 || Ponente: Perlas-Bernabe, J. || Topic:

Facts:

Sps. Salonga and Jebson Holdings entered into a Joint Venture Agreement (JVA) wherein the 3
parcels of land owned by the spouses were to be subdivided and to have built on them 10 high-end single
detached residential units to be known as Brentwoods Tagaytay Villas. It was understood that Jebson will
undertake the construction expenses of all units, secure the building and development permits, and the license
to sell from the Housing and Land Use Regulatory Board (HLURB), in exchange of ownership of 7 units (3,
4, 5, 6, 8, 9, and 10), while the spouses taking the remaining 3 units (1, 2, and 7). Subsequently, Jebson
entered into a contract to sell unit 5 to Dr. Buenviaje for P10.5M (+ 125K for retaining wall and air-
conditioning system expenses), notedly without the conformity of Sps. Salonga. Payment for 7.8M was done
via a “swapping arrangement,” where Dr. Buenviaje’s Garden Villas home worth 5.8M and his Tagaytay
Highlands Golf Share worth 2M as payment. The remainder was then to be paid periodically. Jebson,
however, failed to deliver Unit 5 to Dr. Buenviaje, allegedly because of the 1997 Asian Financial Crisis. This
prompted Dr. Buenviaje to demand the completion and delivery of the unit in 1999. Jebson asked for an
extension until early 2000, which even when accepted, they did not meet; hence, the filing of a Complaint
for Specific Performance with Damages was filed by Dr. Buenviaje against Jebson, Sps. Salonga, and Banez
before the HLURB Regional Field Office IV (HLURB RIV). Dr. Buenviaje prayed for the completion and
delivery, and in the alternative, for the rescission of the Contract to Sell. In their answer, Jebson argued that
they were ready to deliver, however, Sps. Salonga had not yet processed the consolidation of its parcels of
land and its subsequent partition into 10 lots. Sps. Salonga meanwhile assails that they had no privity of
contract with Dr. Buenviaje (and other similarly situated buyers) as the Contracts to Sell were unenforceable
on the ground that they were entered by Jebson into without their conformity. The HLURB-RIV ruled in
favor of Dr. Buenviaje, but such decision was reversed by the HLURB Board of Commissioners (HLURB-
BOC) on the ground that the swapping agreement entered into by the parties caused the lack of cash of Jebson
to complete the project. Hence, the HLURB-BOC, by still upholding the Contract to Sell, ordered the return
of the payments in kind to Dr. Buenviaje, ordered the same to pay Jebson in cash, ordered Jebson to finish
the project within six months as they were in the finishing stage already, and held Sps. Salonga not solidarily
liable with Jebson as they did not have anything to do with Jebson’s project. When elevated before the Office
of the President and the Court of Appeals, the two courts affirmed the HLURB-BOC decision in finding Sps.
Salonga free from liability, while also finding that the rescission prayed for by Dr. Buenviaje was not the
most economical solution to the instant case as the units are already in the finishing stage and subsequently
finding the rescission of the swapping arrangements proper.

Issue(s):

i. WoN specific performance was the proper remedy? - Yes

ii. WoN Sps. Salonga are not solidarily liable? – Yes (they are not liable)
iii. WoN the swapping arrangement was invalid? -No (it is valid)

Ruling:

SC:
The SC ruled in favor of Dr. Buenviaje in finding the swapping agreement valid, while also finding
that specific performance was the proper remedy, ordering Jebson to complete the project.

i. With regard the proper remedy:

a. The SC discusses that specific performance and rescission, both with damages, are alternative
remedies available to an aggrieved party due to the other’s breach of a reciprocal obligation
under Art. 1191. Notably, Art. 1191 provides that rescission will not be permitted for a slight
or causal breach, but only for such substantial and fundamental violations as would defeat the
very object of the parties in the agreement. In the instant case, Dr. Buenviaje primarily prayed
 for specific performance, and upon the proper examination of all the HLURB-BOC until the
CA, there indeed was no proof that specific performance was impossible as to grant the
alternative of rescission.
ii. With regard the liability of Sps. Salonga:
a. The SC affirms the finding of the HLURB-BOC until the CA which finds Sps. Salonga free
from liability on the grounds that on the basis of Relativity of Contracts under Art. 1311, as
Sps. Salonga was not a party to the Contract to Sell between Dr. Buenviaje and Jebson.
b. Furthermore, Sec. 40 of PD 957 (Regulating the Sale of Lots x x x ), which mentions that every
person who directly or indirectly controls any person liable under this law x x x shall be liable
jointly and severally (solidarily) with and to the same extent as such controlled person unless
the controlling person acted in good faith and did not directly or indirectly induce the acts or
acts constituting the violation or case of action. In the instant case, Jebson was solely in control
of the project as its developer, hence, alongside that no inducement was found on the part of
the spouses, the latter are free from liability.
iii. With regard the validity of the swapping arrangement:
a. [Important] Arts. 1177 and 1313 of the NCC provide creditors remedies whenever their debtors
perform acts or omissions or enter into contracts that tend to defraud the former (creditors) of
what is due them. Such remedy comes in the form of rescission under Arts. 1381(3) in relation
to 1383 and 1384 of the NCC. Rescission, as contemplated in Arts. 130 to 1389 of the NCC, is
a remedy granted by law to contracting parties and even to third persons, to secure reparation
of damages caused to them (lesion or economic prejudice) by a contract, even if this should be
valid, by restoration of things to their condition at the moment prior to the celebration of the
contract.
b. In the instant case, Sps. Salonga assailed the swap agreement as it deprived Jebson with cash
assets which was supposedly to be used for the accomplishment of the project – its
accomplishment being for the benefit of the spouses too. The JVA between Sps. Salonga and
Jebson requires conformity of the spouses for the swapping arrangement to be valid; hence,
Jebson’s agreement with Dr. Buenviaje was found to be tantamount to defrauding the spouses
which prompted the HLURB-BOC to rescind the same.
c. HOWEVER, the SC finds no cause from the records which supports the finding of fraud by the
HLURB-BOC, arguing that Jebson’s acceptance of non-cash assets as suitable payments was
purely a business decision made by it. The soundness or unsoundness of such business decision
is not enough for the SC to conclude that the said swaps was to defraud Sps. Salonga,
notwithstanding the resulting lesion sustained to them; HENCE, the SC finds no cause to
rescind such swapping agreement, as Jebson in fact, was able to receive from Dr. Buenviaje,
both cash and non-cash assets as payments.
i. “Contracts in fraud of creditors are those executed with the intention to prejudice
the rights of creditors. They should not be confused with those entered into without
such mal-intent, even if, as a direct consequence thereof, the creditor may suffer some
damage. In determining whether or not a certain conveying contract is
fraudulent, what comes to mind first is the question of whether the conveyance
was a bona fide transaction or a trick and contrivance to defeat creditors. To
creditors seeking contract rescission on the ground of fraudulent conveyance rest
the onus of proving by competent evidence the existence of such fraudulent intent
on the part of the debtor, albeit they may fall back on the disputable presumptions,
if proper, established under Article 1387 of the Code.”
ii. Hence, Sps. Salonga had the onus or Burden of Proving that fraud was present, which
they were not able to do so.