CASE 66 – PHILIPPINE FISHERIES DEVELOPMENT AUTHORITY vs.

QVEGG MARINE TRANSPORT and BUILDERS

CORP.

Facts:
On August 1, 1989, Philippine Fisheries Development Authority as lessor, and QVEGG Marine Transport and
Builders Corp. as lessee, entered into a 10-year lease contract covering the Iloilo Fishing Port Complex for a
monthly rental of P85,000.00. The pertinent provision of the contract reads:

3. In case of delay in the payment of the said monthly rental, it shall earn interest at the rate of 3% per month on any or all
delayed payments, provided that failure on the part of the lessee to pay rentals for two successive months shall be a ground
for the termination of this Contract without need of judicial action.

It appears that respondent was delinquent in the performance of its obligations, prompting petitioner to terminate
the contract. Responding to the letter of termination, respondent requested the restructuring of its overdue
account. By letter dated February 1, 1993, petitioner granted respondent's request subject to the following
instructions:

a. Initial payment of P200,000.00 plus interest charges up to December 31, 1992 payable on or before February 15,
1993.
b. Balance of the arrears up to December 31, 1992 shall be payable by post-dated checks in six equal monthly
installments starting March 15, 1993 and every 15th day of the month thereafter.
c. Regular payment of 1993 current monthly rentals in addition to monthly power and water bills.

Petitioner's letter contained a caveat that should respondent fail to comply with the instructions, it would
terminate the contract and file the necessary legal action.
It appears, however, that it was only on February 22, 1993 that respondent paid its January 1993 space rental and
electric and water bills. For failure to comply strictly with the terms and conditions imposed in its letter of February
1, 1993, petitioner terminated the lease contract.
Respondent sought reconsideration of the petitioner explaining that it interpreted paragraph C of petitioner's
February 1, 1993 letter, in relation to paragraph 3 of the contract which provides that its failure to pay rentals for
two successive months shall be a ground for the termination of the contract.

Issue:
Whether or not the impossibility of private respondent to render its obligation which is the payment of rentals,
arising from the lease agreement gives right to the petitioner to have the lease agreement rescinded.

Ruling:
Petitioner submits that Article 1191 of the Civil Code provides for rescission by mutual agreement and, therefore,
does not require the aggrieved party to resort to court action.
The petition must be denied. Nowhere in the Court of Appeals decision is petitioner required to first file a separate
action for rescission. All that the Court of Appeals held is that, the termination by petitioner of the contract by
letter of March 1, 1993 is illegal since paragraph 3 of the contract calls for its termination only after respondent fails
for two successive months to comply with its obligations thereunder. Moreover, as correctly pointed out by
respondent, the issues raised by petitioner in the instant petition are already moot and academic due to the
expiration in 1999 of the lease contract. To still discuss them would be of no practical significance.
The New Civil Code provides that 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.
Indeed, paragraph C of the February 1, 1993 letter cannot stand alone independently of paragraph 3 of the lease
contract for paragraph C does not provide for the amount, period or manner of payment. Said paragraph C did not
thus amend paragraph 3 of the lease contract, hence, it is only after respondent fails to pay rentals for two
successive months that petitioner may terminate the contract.

It appears that petitioner's proposals for the reinstatement of the lease was made on February 1, 1993; at a time
when it should be aware that the rentals for January 1993 have not been paid within the first five days of said
month. It strikes us as absurd, therefore, that petitioner would be accusing the respondent of an infraction, when
at the time the said infraction is allegedly being made, petitioner was already performing acts showing its
tolerance, if not acquiescence to such acts.
In fine, by the parties' contemporaneous and subsequent acts, they did not intend to do away with the two-month
grace period for the payment of rentals under the contract of lease before said contract could be terminated.
The Court finds relevant and significant the cardinal rule in the interpretation of contracts that the intention of the
parties shall be accorded primordial consideration and in case of doubt, their contemporaneous and subsequent
acts shall be principally considered.

Case 67 – MARTHA R. HORRIGAN vs. TROIKA COMMERCIAL INC.

Facts:
Troika Commercial, Inc., herein respondent, is the lessee of the entire ground floor of a two-story building.
Respondent then sub-let a portion of the ground floor to Martha Horrigan, petitioner. The contract of sub-lease
between the parties was prepared by Martha's husband. It provides, among others, the following stipulations:

2.0 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 paragraph, P4,500 monthly starting August 1, 1983 and every month thereafter for
seven years until December 31, 1989 plus a guaranteed yearly increase equivalent to 10% thereof.

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. However,
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.

Issue:
Whether or not 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.

Ruling:
Article 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, 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.

Case 68 – AIR FRANCE vs. IOLANI DIONISIO & MUTINATIONAL TRAVEL, FIORELLO & PANOPIO

Facts:
Petitioner Air France filed a complaint for sum of money and damages against private respondents Multinational
Travel Corporation of the Philippines, Fiorello Panopio and Vicky Panopio. After trial, the court rendered judgment
in favor of petitioner.
Petitioner moved for the issuance of an alias writ of execution on the ground of unsatisfied judgment. It likewise
moved to declare the sale of Iolani Dionisio of a parcel of land with a house erected thereon in the name of the
Multinational Food Corporation as one in fraud of creditors.
Petitioner stated that private respondent spouses jointly owned 91% of Multinational Food. Petitioner further
alleged that private respondent spouses subsequently sold the property to Iolani Dionisio. However, the sale was
not registered until one year and nine months later or at the time petitioner was pursuing the issuance of a writ of
attachment.
The respondent court ordered the issuance of an alias writ of execution.
Private respondents’ spouses filed their opposition thereto on the following grounds:
a. the respondent court has no jurisdiction because the alleged buyer in the person of Iolani Dionisio is not a
party in the case
b. that Iolani Dionisio was not served with summons and therefore to declare the sale to her in fraud of
creditors without even jurisdiction would amount to deprivation of property without due process of law
c. that the proper remedy is an independent civil action where indispensable parties are to be impleaded to
afford them to answer and/or refute charges.
The appellate court rendered a decision annulling and setting aside the questioned orders.

Issue:
Whether or not the Court of Appeals erred in annulling and setting aside the orders of the trial court.

Ruling:
First, the subject property is registered with the Register of Deeds in the name of the Multinational Food and
Catering Corp and not in the name of either the Multinational Travel Corp or of the spouses Fiorello and Vicky
Panopio who are the judgment debtors. It is well-settled that the power of the court in the execution of judgments
extends only over properties unquestionably belonging to the judgment debtor. Here, the property in question was
sold to private respondent Iolani Dionisio, who was not a party to the case subject of execution.
The levy by the sheriff of a property by virtue of a writ of attachment may be considered as made under authority
of the court only when the property levied upon unquestionably belongs to the defendant. If he attach properties
other than those of the defendant, he acts beyond the limits of his authority. Otherwise stated, the court issuing a
writ of execution is supposed to enforce its authority only over properties of the judgment debtor, and should a
third party appear to claim the property levied upon by the sheriff, the procedure laid down by the Rules is that
such claim should be the subject of a separate and independent action.
Multinational Food and Iolani Dionisio, not being parties to the case, the property covered by may not be levied
upon to satisfy the obligations of private respondent spouses and the Multinational Travel Corporation. Petitioner's
contrary claim that the property belongs to private respondent spouses, if true, requires a rescissory action which
cannot be done in the same case, but through the filing of a separate action.
Rescission is a relief which the law grants on the premise that the contract is valid for the protection of one of the
contracting parties and third persons from all injury and damage that contract may cause, or to protect some
incompatible and preferential right created by the contract. Under Art. 1381 of the Civil Code, the following
contracts are rescissible:
1. Those which are entered into by guardians whenever the wards whom they represent suffer lesion by
more than one fourth of the value of the things which are the object thereof.
2. Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the preceding
number.
3. Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due
them.
4. Those which refer to things under litigation if they have been entered into by the defendant without the
knowledge and approval of the litigants or of competent judicial authority
5. All other contracts specially declared by law to be subject to rescission.
Rescissible contracts, not being void, they remain legally effective until set aside in a rescissory action and may
convey title. An action for rescission may not be raised or set up in a summary proceeding through a motion, but in
an independent civil action and only after a full-blown trial. As Article 1383 of the Civil Code provides:
Art. 1383. The action of rescission is subsidiary; it cannot be instituted except when the party suffering damage has
no other legal means to obtain reparation for the same.
In any case, the presumption of fraud established by this article is not conclusive, and may be rebutted by
satisfactory and convincing evidence. To repeat, an independent action is necessary to prove that the contract is
rescissible.
Under Article 1389 of the Civil Code, an accion pauliana, the action to rescind contracts made in favor of creditors,
must be commenced within four years.