1163-G.R. No.
L-6913 November 21, 1913 inevitable, with the exception of the cases expressly mentioned in the
THE ROMAN CATHOLIC BISHOP OF JARO, plaintiff-appellee,
vs.
GREGORIO DE LA PEÑA, administrator of the estate of Father
Agustin de la Peña, defendant-appellant.
MORELAND, J.:
This is an appeal by the defendant from a judgment of the
Court of First Instance of Iloilo, awarding to the plaintiff the sum of
P6,641, with interest at the legal rate from the beginning of the action.
It is established in this case that the plaintiff is the trustee of a
charitable bequest made for the construction of a leper hospital and
that father Agustin de la Peña was the duly authorized representative
of the plaintiff to receive the legacy. The defendant is the
administrator of the estate of Father De la Peña.
In the year 1898 the books Father De la Peña, as trustee,
showed that he had on hand as such trustee the sum of P6,641,
collected by him for the charitable purposes aforesaid. In the same
year he deposited in his personal account P19,000 in the Hongkong
and Shanghai Bank at Iloilo. Shortly thereafter and during the war of
the revolution, Father De la Peña was arrested by the military
authorities as a political prisoner, and while thus detained made an
order on said bank in favor of the United States Army officer under
whose charge he then was for the sum thus deposited in said bank.
The arrest of Father De la Peña and the confiscation of the funds in
the bank were the result of the claim of the military authorities that he
was an insurgent and that the funds thus deposited had been
collected by him for revolutionary purposes. The money was taken
from the bank by the military authorities by virtue of such order, was
confiscated and turned over to the Government.
While there is considerable dispute in the case over the
question whether the P6,641 of trust funds was included in the
P19,000 deposited as aforesaid, nevertheless, a careful examination
of the case leads us to the conclusion that said trust funds were a
part of the funds deposited and which were removed and confiscated
by the military authorities of the United States.
That branch of the law known in England and America as the
law of trusts had no exact counterpart in the Roman law and has
none under the Spanish law. In this jurisdiction, therefore, Father De
la Peña's liability is determined by those portions of the Civil Code
which relate to obligations. (Book 4, Title 1.)
Although the Civil Code states that "a person obliged to give
something is also bound to preserve it with the diligence pertaining to
a good father of a family" (art. 1094), it also provides, following the
principle of the Roman law, major casus est, cui humana infirmitas
resistere non potest, that "no one shall be liable for events which
could not be foreseen, or which having been foreseen were
private marks and unclothed it of all the protection it had. If this
law or those in which the obligation so declares." (Art. 1105.)
By placing the money in the bank and mixing it with his
personal funds De la Peña did not thereby assume an obligation
different from that under which he would have lain if such deposit had
not been made, nor did he thereby make himself liable to repay the
money at all hazards. If the had been forcibly taken from his pocket or
from his house by the military forces of one of the combatants during
a state of war, it is clear that under the provisions of the Civil Code he
would have been exempt from responsibility. The fact that he placed
the trust fund in the bank in his personal account does not add to his
responsibility. Such deposit did not make him a debtor who must
respond at all hazards.
We do not enter into a discussion for the purpose of
determining whether he acted more or less negligently by depositing
the money in the bank than he would if he had left it in his home; or
whether he was more or less negligent by depositing the money in his
personal account than he would have been if he had deposited it in a
separate account as trustee. We regard such discussion as
substantially fruitless, inasmuch as the precise question is not one of
negligence. There was no law prohibiting him from depositing it as he
did and there was no law which changed his responsibility be reason
of the deposit. While it may be true that one who is under obligation
to do or give a thing is in duty bound, when he sees events
approaching the results of which will be dangerous to his trust, to take
all reasonable means and measures to escape or, if unavoidable, to
temper the effects of those events, we do not feel constrained to hold
that, in choosing between two means equally legal, he is culpably
negligent in selecting one whereas he would not have been if he had
selected the other.
The court, therefore, finds and declares that the money which
is the subject matter of this action was deposited by Father De la
Peña in the Hongkong and Shanghai Banking Corporation of Iloilo;
that said money was forcibly taken from the bank by the armed forces
of the United States during the war of the insurrection; and that said
Father De la Peña was not responsible for its loss.
The judgment is therefore reversed, and it is decreed that the
plaintiff shall take nothing by his complaint.
Arellano, C.J., Torres and Carson, JJ., concur.
Separate Opinions
TRENT, J., dissenting:
I dissent. Technically speaking, whether Father De la Peña
was a trustee or an agent of the plaintiff his books showed that in
1898 he had in his possession as trustee or agent the sum of P6,641
belonging to the plaintiff as the head of the church. This money was
then clothed with all the immunities and protection with which the law
seeks to invest trust funds. But when De la Peña mixed this trust fund
with his own and deposited the whole in the bank to his personal
account or credit, he by this act stamped on the said fund his own
money had been deposited in the name of De la Peña as trustee or
agent of the plaintiff, I think that it may be presumed that the military
authorities would not have confiscated it for the reason that they were
looking for insurgent funds only. Again, the plaintiff had no reason to
suppose that De la Peña would attempt to strip the fund of its identity,
nor had he said or done anything which tended to relieve De la Peña
from the legal reponsibility which pertains to the care and custody of
trust funds.
The Supreme Court of the United States in the United State vs.
Thomas (82 U. S., 337), at page 343, said: "Trustees are only bound
to exercise the same care and solicitude with regard to the trust
property which they would exercise with regard to their own. Equity
will not exact more of them. They are not liable for a loss by theft
without their fault. But this exemption ceases when they mix the trust-
money with their own, whereby it loses its identity, and they become
mere debtors."
If this proposition is sound and is applicable to cases arising in
this jurisdiction, and I entertain no doubt on this point, the liability of
the estate of De la Peña cannot be doubted. But this court in the
majority opinion says: "The fact that he (Agustin de la Peña) placed
the trust fund in the bank in his personal account does not add to his
responsibility. Such deposit did not make him a debtor who must
respond at all hazards. . . . There was no law prohibiting him from
depositing it as he did, and there was no law which changed his
responsibility, by reason of the deposit."
I assume that the court in using the language which appears in
the latter part of the above quotation meant to say that there was no
statutory law regulating the question. Questions of this character are
not usually governed by statutory law. The law is to be found in the
very nature of the trust itself, and, as a general rule, the courts say
what facts are necessary to hold the trustee as a debtor.
If De la Peña, after depositing the trust fund in his personal
account, had used this money for speculative purposes, such as the
buying and selling of sugar or other products of the country, thereby
becoming a debtor, there would have been no doubt as to the liability
of his estate. Whether he used this money for that purpose the record
is silent, but it will be noted that a considerable length of time
intervened from the time of the deposit until the funds were
confiscated by the military authorities. In fact the record shows that
De la Peña deposited on June 27, 1898, P5,259, on June 28 of that
year P3,280, and on August 5 of the same year P6,000. The record
also shows that these funds were withdrawn and again deposited all
together on the 29th of May, 1900, this last deposit amounting to
P18,970. These facts strongly indicate that De la Peña had as a
matter of fact been using the money in violation of the trust imposed
in him. lawph!1.net
If the doctrine announced in the majority opinion be followed in
cases hereafter arising in this jurisdiction trust funds will be placed in
precarious condition. The position of the trustee will cease to be one
of trust.
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1164-G.R. No. L-22604 February 3, 1925
GUADALUPE GONZALEZ and LUIS GOMEZ, plaintiffs-
appellants,
vs.
E.J. HABERER, defendant-appellee.
Feria and La O for appellants.
Paredes, Buencamino and Yulo for appellee.
OSTRAND, J.:
This action is brought to recover the sum of P34,260 alleged to be
due the plaintiffs from the defendant upon a written agreement for the
sale of a tract of land situated in the Province of Nueva Ecija. The
plaintiffs also ask for damages in the sum of P10,000 for the alleged
failure of the defendant to comply with his part of the agreement.
The defendant in his answer admits that of the purchase price stated
in the agreement a balance of P31,000 remains unpaid, but by way of
special defense, cross-complaint and counter-claim alleges that at
the time of entering into the contract the plaintiffs through false
representations lead him to believe that they were in possession of
the land and that the title to the greater portion thereof was not in
dispute; that on seeking to obtain possession he found that practically
the entire area of the land was occupied by adverse claimants and
the title thereto disputed; that he consequently has been unable to
obtain possession of the land; and that the plaintiffs have made no
efforts to prosecute the proceedings for the registration of the land.
He therefore asks that the contract be rescinded; that the plaintiffs be
ordered to return to him the P30,000 already paid by him to them and
to pay P25,000 as damages for breach of the contract.
The court below dismissed the plaintiffs' complaint, declared the
contract rescinded and void and gave the defendant judgment upon
his counterclaim for the sum of P30,000, with interest from the date
upon which the judgment becomes final. The case is now before this
court upon appeal by the plaintiffs from that judgment.
The contract in question reads as follows:
Know all men by these presents:
That I, Guadalupe Gonzalez y Morales de Gomez, married with Luis
Gomez, of age, and resident of the municipality of Bautista, Province
of Pangasinan, Philippine Islands, do hereby state:
1. That I am the absolute and exclusive owner of a parcel of land
situated in the barrio of Partida, municipality of Guimba, Nueva Ecija,
described as follows:
Bounded on the north by the land of Don Marcelino Santos; on the
east, by the land of Doña Cristina Gonzalez; on the south by the
Binituan River; and on the west, by the land of Doña Ramona
Gonzalez; containing an area of 488 hectares approximately.
2. That an application was filed for the registration of the above
described land in the registry of property of Nueva Ecija, which
application is still pending in the Court of First Instance of Nueva
Ecija.
3. That in consideration of the sum of P125 per hectare I do hereby
agree and bind myself to sell and transfer by way of real and absolute
sale the land above described to Mr. E.J. Habere, binding myself to
execute the deed of sale immediately after the decree of the court
adjudicating said land in my favor is registered in the registry of
property of the Province of Nueva Ecija. The condition of this
obligation to sell are as follows:
"1. That Mr. E.J. Haberer has at this moment paid me the sum of
P30,000 on account of the price of the aforesaid land.
"2. That said Mr. E.J. Haberer agrees and binds himself to pay within
six months from the date of the execution of this document the unpaid
balance of the purchase price.
"3. That said Mr. E.J. Haberer shall have the right to take possession
of the aforesaid land immediately after the execution of this document
together with all the improvements now existing on the same land,
such as palay plantation and others.
"4. That said Mr. E.J. agrees and binds himself to pay the expenses
to be incurred from this date in the registration of the aforesaid land
up to the filing of the proper decree in the office of the register of
deeds of the Province of Nueva Ecija.
"5. That in the event that the court should hold that I am not the
owner of all or any part of the aforesaid land, I agree and bind myself
to return without interest all such amounts of money as I have
received or may receive from Mr. E.J. Haberer as the purchase price
of said land, but, in the event that the court should adjudicate a part
of the aforesaid land to me, then I agree and bind myself to sell said
portion adjudicated to me, returning all the amounts received from Mr.
E.J. Haberer in excess of the price of said portion at the rate of P125
per hectare.
"6. The Mr. E.J. Haberer does hereby waive any interest or indemnity
upon the amount that I am to return to him and which I have receive
from Mr. E.J. Haberer as the purchase price of the aforesaid land."
I, E.J. Haberer, married, of age, and resident of the municipality of
Talavera, Nueva Ecija, do hereby state that, having known the
contents of this document, I accept the same with all the stipulations
and conditions thereof.
I, Luis Gomez, married, of age, and resident of the municipality of
Bautista, Province of Pangasinan, do hereby grant my wife, Dña.
Guadalupe Gonzalez y Morales de Gomez, the due marital license to
execute this document and make effective the definite sale of the
land as above stipulated, she being empowered to execute the deed
of sale and other necessary documents in order that the full
ownership over the aforesaid land may be transferred to Mr. E.J.
Haberer, as stipulated in this document.
In testimony whereof, we hereunto set our hands at Manila, this 7th
day of July, 1920.
(Sgd.) GUADALUPE G. DE GOMEZ
E.J. HABERER
LUIS GOMEZ
Signed in the presence of the witnesses:
(Sgd.) EMIGDIO DOMINGO
L.G. ALVAREZ
(Acknowledged before notary.)
It is conceded by the plaintiffs that the defendant never obtained
actual or physical possession of the land, but it is argued that under
the contract quoted the plaintiffs were under no obligation to place
him in possession. This contention cannot be sustained. Cause 3 of
paragraph 3 of the contract gave the defendant the right to take
possession of the land immediately upon the execution of the
contract and necessarily created the obligation on the part of the
plaintiffs to make good the right thus granted; it was one of the
essential conditions of the agreement and the failure of the plaintiffs
to comply with this condition, without fault on the part of the
defendant, is in itself sufficient ground for the rescission, even in the
absence of any misrepresentation on their part. (Civil Code, art.
1124 ; Pabalan vs. Velez, 22 Phil., 29.)
It is therefore unnecessary to discuss the question whether the
defendant was induced to enter into the agreement through
misrepresentation made by the plaintiff Gomez. We may say,
however, that the evidence leaves no doubt that some
misrepresentations were made and that but for such
misrepresentations the defendant would not have been likely to enter
into the agreement in the form it appeared. As to the contention that
the plaintiff Gonzalez cannot be charged with the misrepresentations
of Gomez, it is sufficient to say that the latter in negotiating for the
sale of the land acted as the agent and representative of the other
plaintiff, his wife; having accepted the benefit of the representations
of her agent she cannot, of course, escape liability for them.
(Haskellvs. Starbird, 152 Mass., 117; 23 A.S.R., 809.)
The contention of the appellants that the symbolic delivery effected
by the execution and delivery of the agreement was a sufficient
delivery of the possession of the land, is also without merit. The
possession referred to in the contract is evidently physical; if it were
otherwise it would not have been necessary to mention it in the
contract. (See Cruzado vs. Bustos and Escaler, 34 Phil., 17.)
The judgment appealed from is in accordance with the law, is fully
sustained by the evidence, and is therefore affirmed, with the costs
against the appellants. So ordered.
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G.R. No. 91029 February 7, 1991
NORKIS DISTRIBUTORS, INC., petitioner,
vs.
THE COURT OF APPEALS & ALBERTO NEPALES, respondents.
Jose D. Palma for petitioner.
Public Attorney's Office for private respondent.
GRIÑO-AQUINO, J.:p
Subject of this petition for review is the decision of the Court of
Appeals (Seventeenth Division) in CA-G.R. No. 09149, affirming with
modification the judgment of the Regional Trial Court, Sixth (6th)
Judicial Region, Branch LVI. Himamaylan, Negros Occidental, in Civil
Case No. 1272, which was private respondent Alberto Nepales'
action for specific performance of a contract of sale with damages
against petitioner Norkis Distributors, Inc.
The facts borne out by the record are as follows:
Petitioner Norkis Distributors, Inc. (Norkis for brevity), is the
distributor of Yamaha motorcycles in Negros Occidental with office in
Bacolod City with Avelino Labajo as its Branch Manager. On
September 20, 1979, private respondent Alberto Nepales bought
from the Norkis-Bacolod branch a brand new Yamaha Wonderbike
motorcycle Model YL2DX with Engine No.
L2-329401K Frame No. NL2-0329401, Color Maroon, then displayed
in the Norkis showroom. The price of P7,500.00 was payable by
means of a Letter of Guaranty from the Development Bank of the
Philippines (DBP), Kabankalan Branch, which Norkis' Branch
Manager Labajo agreed to accept. Hence, credit was extended to
Nepales for the price of the motorcycle payable by DBP upon release
of his motorcycle loan. As security for the loan, Nepales would
execute a chattel mortgage on the motorcycle in favor of DBP.
Branch Manager Labajo issued Norkis Sales Invoice No. 0120
(Exh.1) showing that the contract of sale of the motorcycle had been
perfected. Nepales signed the sales invoice to signify his conformity
with the terms of the sale. In the meantime, however, the motorcycle
remained in Norkis' possession.
On November 6, 1979, the motorcycle was registered in the Land
Transportation Commission in the name of Alberto Nepales. A
registration certificate (Exh. 2) in his name was issued by the Land
Transportation Commission on November 6, 1979 (Exh. 2-b). The
registration fees were paid by him, evidenced by an official receipt,
Exhibit 3.
On January 22, 1980, the motorcycle was delivered to a certain
Julian Nepales who was allegedly the agent of Alberto Nepales but
the latter denies it (p. 15, t.s.n., August 2, 1984). The record shows
that Alberto and Julian Nepales presented the unit to DBP's
Appraiser-Investigator Ernesto Arriesta at the DBP offices in
Kabankalan, Negros Occidental Branch (p. 12, Rollo). The
motorcycle met an accident on February 3, 1980 at Binalbagan,
Negros Occidental. An investigation conducted by the DBP revealed
that the unit was being driven by a certain Zacarias Payba at the time
of the accident (p. 33, Rollo). The unit was a total wreck (p. 36, t.s.n.,
August 2,1984; p. 13, Rollo), was returned, and stored inside Norkis'
warehouse.
On March 20, 1980, DBP released the proceeds of private
respondent's motorcycle loan to Norkis in the total sum of P7,500. As
the price of the motorcycle later increased to P7,828 in March, 1980,
Nepales paid the difference of P328 (p. 13, Rollo) and demanded the
delivery of the motorcycle. When Norkis could not deliver, he filed an
action for specific performance with damages against Norkis in the
Regional Trial Court of Himamaylan, Negros Occidental, Sixth (6th)
Judicial Region, Branch LVI, where it was docketed as Civil Case No.
1272. He alleged that Norkis failed to deliver the motorcycle which he
purchased, thereby causing him damages.
Norkis answered that the motorcycle had already been delivered to
private respondent before the accident, hence, the risk of loss or
damage had to be borne by him as owner of the unit.
After trial on the merits, the lower court rendered a decision dated
August 27, 1985 ruling in favor of private respondent (p. 28, Rollo.)
thus:
WHEREFORE, judgment is rendered in favor of the plaintiff and
against the defendants. The defendants are ordered to pay solidarity
to the plaintiff the present value of the motorcycle which was totally
destroyed, plus interest equivalent to what the Kabankalan Sub-
Branch of the Development Bank of the Philippines will have to
charge the plaintiff on fits account, plus P50.00 per day from
February 3, 1980 until full payment of the said present value of the
motorcycle, plus P1,000.00 as exemplary damages, and costs of the
litigation. In lieu of paying the present value of the motorcycle, the
defendants can deliver to the plaintiff a brand-new motorcycle of the
same brand, kind, and quality as the one which was totally destroyed
in their possession last February 3, 1980. (pp. 28-29,Rollo.)
On appeal, the Court of appeals affirmed the appealed judgment on
August 21, 1989, but deleted the award of damages "in the amount of
Fifty (P50.00) Pesos a day from February 3, 1980 until payment of
the present value of the damaged vehicle" (p35, Rollo). The Court of
Appeals denied Norkis' motion for reconsideration. Hence, this
Petition for Review.
The principal issue in this case is who should bear the loss of the
motorcycle. The answer to this question would depend on whether
there had already been a transfer of ownership of the motorcycle to
private respondent at the time it was destroyed.
Norkis' theory is that:
. . . After the contract of sale has been perfected (Art. 1475) and even
before delivery, that is, even before the ownership is transferred to
the vendee, the risk of loss is shifted from the vendor to the vendee.
Under Art. 1262, the obligation of the vendor to deliver
a determinate thing becomes extinguished if the thing is lost by
fortuitous event (Art. 1174), that is, without the fault or fraud of the
vendor and before he has incurred in delay (Art. 11 65, par. 3). If the
thing sold is generic, the loss or destruction does not extinguish the
obligation (Art. 1263). A thing is determinate when it is particularly
designated or physically segregated from all others of the same class
(Art. 1460). Thus, the vendor becomes released from his obligation to
deliver the determinate thing sold while the vendee's obligation to pay
the price subsists. If the vendee had paid the price in advance the
vendor may retain the same. The legal effect, therefore, is that the
vendee assumes the risk of loss by fortuitous event (Art. 1262) after
the perfection of the contract to the time of delivery. (Civil Code of the
Philippines, Ambrosio Padilla, Vol. 5,1987 Ed., p. 87.)
Norkis concedes that there was no "actual" delivery of the vehicle.
However, it insists that there was constructive delivery of the unit
upon: (1) the issuance of the Sales Invoice No. 0120 (Exh. 1) in the
name of the private respondent and the affixing of his signature
thereon; (2) the registration of the vehicle on November 6, 1979 with
the Land Transportation Commission in private respondent's name
(Exh. 2); and (3) the issuance of official receipt (Exh. 3) for payment
of registration fees (p. 33, Rollo).
That argument is not well taken. As pointed out by the private
respondent, the issuance of a sales invoice does not prove transfer of
ownership of the thing sold to the buyer. An invoice is nothing more
than a detailed statement of the nature, quantity and cost of the thing
sold and has been considered not a bill of sale (Am. Jur. 2nd Ed.,
Vol. 67, p. 378).
In all forms of delivery, it is necessary that the act of delivery whether
constructive or actual, be coupled with the intention of delivering the
thing. The act, without the intention, is insufficient (De Leon,
Comments and Cases on Sales, 1978 Ed., citing Manresa, p. 94).
When the motorcycle was registered by Norkis in the name of private
respondent, Norkis did not intend yet to transfer the title or ownership
to Nepales, but only to facilitate the execution of a chattel mortgage in
favor of the DBP for the release of the buyer's motorcycle loan. The
Letter of Guarantee (Exh. 5) issued by the DBP, reveals that the
execution in its favor of a chattel mortgage over the purchased
vehicle is a pre-requisite for the approval of the buyer's loan. If Norkis
would not accede to that arrangement, DBP would not approve
private respondent's loan application and, consequently, there would
be no sale.
In other words, the critical factor in the different modes of effecting
delivery, which gives legal effect to the act, is the actual intention of
the vendor to deliver, and its acceptance by the vendee. Without that
intention, there is no tradition (Abuan vs. Garcia, 14 SCRA 759).
In the case of Addison vs. Felix and Tioco (38 Phil. 404, 408), this
Court held:
The Code imposes upon the vendor the obligation to deliver the thing
sold. The thing is considered to be delivered when it is "placed in the
hands and possession of the vendee." (Civil Code, Art. 1462). It is
true that the same article declares that the execution of a public
instrument is equivalent to the delivery of the thing which is the object
of the contract, but, in order that this symbolic delivery may produce
the effect of tradition, it is necessary that the vendor shall have had
such control over the thing sold that, at the moment of the sale, its
material delivery could have been made. It is not enough to confer
upon the purchaser the ownership and the right of possession. The
thing sold must be placed in his control. When there is no impediment
whatever to prevent the thing sold passing into the tenancy of the
purchaser by the sole will of the vendor, symbolic delivery through the
execution of a public instrument is sufficient. But if notwithstanding
the execution of the instrument, the purchaser cannot have the
enjoyment and material tenancy of the thing and make use of it
himself or through another in his name, because such tenancy and
enjoyment are opposed by the interposition of another will, then
fiction yields to reality-the delivery has riot been effects .(Emphasis
supplied.)
The Court of Appeals correctly ruled that the purpose of the execution
of the sales invoice dated September 20, 1979 (Exh. B) and the
registration of the vehicle in the name of plaintiff-appellee (private
respondent) with the Land Registration Commission (Exhibit C) was
not to transfer to Nepales the ownership and dominion over the
motorcycle, but only to comply with the requirements of the
Development Bank of the Philippines for processing private
respondent's motorcycle loan. On March 20, 1980, before private
respondent's loan was released and before he even paid Norkis, the
motorcycle had already figured in an accident while driven by one
Zacarias Payba. Payba was not shown by Norkis to be a
representative or relative of private respondent. The latter's supposed
relative, who allegedly took possession of the vehicle from Norkis did
not explain how Payba got hold of the vehicle on February 3, 1980.
Norkis' claim that Julian Nepales was acting as Alberto's agent when
he allegedly took delivery of the motorcycle (p. 20, Appellants' Brief),
is controverted by the latter. Alberto denied having authorized Julian
Nepales to get the motorcycle from Norkis Distributors or to enter into
any transaction with Norkis relative to said motorcycle. (p. 5, t.s.n.,
February 6, 1985). This circumstances more than amply rebut the
disputable presumption of delivery upon which Norkis anchors its
defense to Nepales' action (pp. 33-34, Rollo).
Article 1496 of the Civil Code which provides that "in the absence of
an express assumption of risk by the buyer, the things sold remain at
seller's risk until the ownership thereof is transferred to the buyer," is
applicable to this case, for there was neither an actual nor
constructive delivery of the thing sold, hence, the risk of loss should
be borne by the seller, Norkis, which was still the owner and
possessor of the motorcycle when it was wrecked. This is in
accordance with the well-known doctrine of res perit domino.
WHEREFORE, finding no reversible error in the decision of the Court
of Appeals in CA-G.R. No. 09149, we deny the petition for review and
hereby affirm the appealed decision, with costs against the petitioner.
SO ORDERED.
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ARTICLE 1165
G.R. No. L-13438 November 20, 1918
FRANCISCO GUTIERREZ REPIDE, plaintiff-appellant,
vs.
IVAR O. AFZELIUS and his wife, PATROCINIO R. AFZELIUS,
defendants-appellees.
Ramon Fernandez for appellant.
T. L. McGirr for appellees.
MALCOLM, J.:
The subject of Specific Performance, with reference to its
common law and civil law status, it to be considered on this appeal.
The particular action is for the specific performance of a contract for
the sale and purchase of real estate.
The plaintiff is the owner of a certain parcel of realty consisting
of 2,695.24 square meters, situated in the city of Manila, and fully
described in the complaint. About the month of December, 1916, the
defendants made a proposition to the plaintiff for the purchase of this
property. After negotiating for some time, it was agreed that the
defendants would pay plaintiff the sum of P10,000 for the land,
P2,000 of which was to be handed over upon the signing of the deed,
and the balance of P8,000, paid in monthly installments of P150. The
property was to be mortgaged to the plaintiff to secure the payment of
this balance of P8,000. The plaintiff proceeded to have survey made
of the land and to prepare the deed and mortgage. Expenses to the
amount of P83.93 were incurred for these purposes. The deed was
ready about December 28, 1916, when the defendants were notified
to appear and sign the same. They failed to do this, and instead, the
defendant, Patrocinio R. Afzelius, wrote a letter to plaintiff, as follows:
MANILA, January 3, 1917.
MR. FRANCISCO GUTIERREZ,
Manila.
MY DEAR SIR: It is with regret that I inform you that it is now
absolutely impossible for us to effect the purchase of the property at
Juan Luna Street, as it was our desire to do. The reason for this is
that the business has failed, in which we had invested all the money
we had and from which he hope to obtain sure gains and to get the
P2,000 which we were to give you in advance for the purchase of
said property, and consequently, we have lost our savings and our
hope of being able to purchase the property for the time being.
Before closing, I request you to pardon us for the troubles we
have caused you, for, in truth, we acted in good faith, but, as you will
readily realize, without having the P2,000 in our hands, it will be
impossible for us to effect the purchase.
Reiterating my request that you pardon us for all the trouble, I
am
Very truly yours.
(Sgd.) PATROCINIO R. AFZELIUS.
In addition to the letter above quoted, Afzelius testified on the
trial that although he and his wife had available the sum of P2,000 to
pay the first installment on the purchase price of the land, yet it
belonged in part to his wife's sister, and that, as she subsequently
needed the money for something else, they had to return it to her,
and in order to give excuses to the plaintiff, his wife wrote this letter to
the plaintiff.
Plaintiff was, and still is, willing to execute the deed in
accordance with the terms agreed upon with the defendants.
Accordingly, plaintiff, in his action in the Court of First Instance of the
city of Manila, asked judgment against the defendants condemning
them to sign the deed and mortgage to the land in question, and to
pay the purchase price stipulated, with costs. The defendants filed a
general denial, alleging that the plaintiff has not sustained damages
of any kind or character, and praying that the case be dismissed at
the cost of the plaintiff. The trial court, after finding the facts as herein
stated, made application thereto of the law of Specific Performance.
After stating the general principles of this branch of the law, the court
deduced therefrom that the remedy by specific performance is one
the granting or denying of which rests in the exercise of sound judicial
discretion. The court said:
Whether or not the defendants are able to perform the contract
is a matter of defense, and there is no special defense on that subject
in the answer; but it appears from the evidence that the defendants
have not the funds available for the cash payment on the contract,
and apparently the performance of the contract in the terms agreed
between the plaintiff and defendants would be impracticable; the
court would not be able to enforce a decree for specific performance,
and such a decree might operate as a great hardship upon the
defendants; therefore, the court is of the opinion that it would be
useless, unjust and inequitable to render judgment herein for specific
performance.lawphil.net
The judgment then was in favor of the defendants, dismissing
the plaintiff's complaint, without prejudice to any other remedy which
the plaintiff might have, and without any finding as to the costs.
The plaintiff and appellant bases his argument on articles 1254,
1258, 1278, 1450, and 1279 of the Civil Code. The provisions of the
five articles first cited and others that could be mentioned merely tend
to corroborate what is self-evident, namely, the existence of a valid
contract between the parties. Indisputably, there has been an offer
and an acceptance, and all that remained to effectuate the contract
was the execution of the deed and the mortgage.
The article of the Civil code chiefly relied upon by appellant,
No. 1279, would seem to settle favorably the first branch of the prayer
of the complaint, asking that the defendants be required to sign the
deed and mortgage to the land in question. This article of the Civil
Code appears to have been prepared to meet exactly such a
situation, to the end that the contracting parties can reciprocally
compel the observance of the necessary formalities.
Other portions of the Civil Code not called to our attention by
the appellant, notably articles 1096, 1098, 1124 and 1451, recognize
what is denominated in the common law as Specific Performance.
Article 1451 provides that, "A promise to sell or buy, when there is an
agreement as to the thing and the price, entitles the contracting
parties reciprocally to demand the fulfillment of the contract." But the
article in recognition of a negative result also provides, "whenever the
promise to purchase and sell cannot be fulfilled, the provisions
relative to obligations and contracts, contained in this book, shall be
applicable in the respective cases to the vendor and the vendee."
Turning to these provisions relating to obligations and contracts, we
find article 1096 making a distinction between a specific thing to be
delivered and an indeterminate or generic thing; article 1098
providing that a person is obligated to do a certain thing according to
the tenor of the obligation; and finally, article 1124 in absolute
approval of contractual mutually decreeing that "the person
prejudiced may choose between exacting the fulfillment of the
obligation or its resolution with indemnity for damages and payment
of interest in either cases."
As to whether the vendor can compel the vendee to perform,
which is the point before the court, the jurisprudence of the supreme
court of Spain and the commentaries of Manresa do not in the least
attempt to distinguish between one or the other party, the vendor or
the vendee, but constantly and without exception use the word
"reciprocamente." the following decisions of the supreme court of
Spain interpretative of these articles can be noted: April 17, 1897;
October 10, 1904; February 4, 1905.
The vendee is entitled to specific performance essentially as a
matter of course. Philippine cases have so held. (Irureta Goyena vs.
Tambunting [1902], 1 Phil., 490; Thunga Chui vs. Que Bentec [1903],
2 Phil., 561; Couto Soriano vs. Cortes [1907, 8 Phil., 459; Dievas vs.
Co Chongco [1910], 16 Phil., 447.) If the doctrine of mutuality of
remedy is to apply, the vendor should likewise be entitled to similar
relief. Philippine jurisprudence, however, has never as yet been
afforded an opportunity to so hold. The nearest approach to the idea
has been, with reference to merchandise, in a decision to the effect
that if the purchaser refuses without lawful reason to accept delivery
when tendered by the seller in conformity with the contract of sale,
the seller may elect to enforce compliance or to rescind. (Matute vs.
Cheong Boo [1918], 37 Phil., 372.)
Thus far, in this opinion we have discussed the question of
whether the vendor as well as the vendee is entitled to the specific
performance of the contract for the sale of land, from the standpoint
of the civil law. Now, of course, specific performance of contracts is,
under this name, an equitable remedy. As such, since there exist no
courts of equity and no equity jurisprudence in this jurisdiction, the
authority arising from the common law is not of binding force in the
Philippines. Nevertheless, as the civil law and the common law seem
to arrive at the same goal on this subject, we should at least notice as
persuasive authority the jurisprudence of the United States and Great
Britain.
The American and English cases that relate to specific
performance by the vendor are with a few exceptions all one way. In
the language of Chief Justice Marshall, "The right of a vendor to
come into a court of equity to enforce a specific performance is
unquestionable." (Cathcart vs. Robinson [1831], 5 Pet., 264.) The
rule in nearly all jurisdictions is that specific performance may be had
at the suit of the vendor of land, the vendee being decreed to accept
the deed and pay the purchase price. (Freeman vs. Paulson [1909],
107 Minn., 64; Migatz vs.Stieglitz [1905], 166 Ind., 362; Robinson vs.
Appleton [1888], 124 Ill., 276; Hodges vs. Kowing [1889], 58 Conn.,
12; Curtis Land & Loan Co. vs. Interior Land Co. [1908], 137 Wis.,
341; The Maryland Clay Co. vs. Simpers [1903], 96 Md., 1; Old
Colony R. Corp. vs. Evans [1856], 6 Gray, 25; Raymond vs. San
Gabriel rec. Co. [1893], 53 Fed., 883; 36 Cyc., 565.) The reasoning
supporting the authorities is that the performance of contracts must
and should be mutual. The contract is ordinarily bilateral. So should
the respective rights of the parties be. Nor does an action to recover
damages for breach of contract ordinarily afford a complete and
adequate remedy. The equitable doctrine is not applied where it will
be productive of great hardship.
Here we have presented a good and valid contract, bilateral in
character, and free from all taint of fraud. The stability of commercial
transactions requires that the rights of the seller be protected just as
effectively as the rights of the buyer. If this plaintiff had refused to
comply with the contract, specific performance of the obligation could
have been asked by the defendants. Just as surely should the plaintiff
who has lived up to his bargain and who has been put to expense to
do so, be permitted to coerce the defendant into going through with
the contract.
The excuse of the defendants is that they do not now have the
money to pay the first installment. In other words, they plead
impossibility of performance. The rule of equity jurisprudence in such
a case is that mere pecuniary inability to fulfill an engagement does
not discharge the obligation of the contract, not does it constitute any
defense to a decree for specific performance. (Hopper vs. Hopper
[1863], 16 N. J. Eq., 147.) Now, the courts will not make an order
obviously nugatory. But the courts should lend their assistance to the
plaintiff to compel the defendants to fulfill their obligation. Besides
requiring the defendants to sign the contract and the mortgage, the
judgment of the court can be aided by execution on the property of
the defendants. If, then, it is found that it is impossible for the
defendants to live up to their agreement, naturally the plaintiff will rest
content if for no other reason than for the protection of his financial
interests.
Judgment shall be reversed, and an order shall issue,
condemning the defendants to sign the deed and mortgage to the
land in question and to pay the first installment of the purchase price
as stipulated.
The appellant shall recover costs of both instances. The Code
of Civil Procedure in its Chapter XXI entitled "Costs in the Several
Courts" states in section 487 that "Costs shall ordinarily be allowed to
the prevailing party as a matter of course . . . . " Philippine law is, in
this respect, identical with the general rule, which is that "On reversal,
. . . the costs will generally go to the prevailing party, that is, to the
appellant." (7 R. C. L., 801, citing cases.) No special reasons exist in
this case for modifying the general rule. So ordered.
G.R. No. L-45710 October 3, 1985
CENTRAL BANK OF THE PHILIPPINES and ACTING DIRECTOR
ANTONIO T. CASTRO, JR. OF THE DEPARTMENT OF
COMMERCIAL AND SAVINGS BANK, in his capacity as statutory
receiver of Island Savings Bank, petitioners,
vs.
THE HONORABLE COURT OF APPEALS and SULPICIO M.
TOLENTINO, respondents.
I.B. Regalado, Jr., Fabian S. Lombos and Marino E. Eslao for
petitioners.
Antonio R. Tupaz for private respondent.
MAKASIAR, CJ.:
This is a petition for review on certiorari to set aside as null and void
the decision of the Court of Appeals, in C.A.-G.R. No. 52253-R dated
February 11, 1977, modifying the decision dated February 15, 1972
of the Court of First Instance of Agusan, which dismissed the petition
of respondent Sulpicio M. Tolentino for injunction, specific
performance or rescission, and damages with preliminary injunction.
On April 28, 1965, Island Savings Bank, upon favorable
recommendation of its legal department, approved the loan
application for P80,000.00 of Sulpicio M. Tolentino, who, as a security
for the loan, executed on the same day a real estate mortgage over
his 100-hectare land located in Cubo, Las Nieves, Agusan, and
covered by TCT No. T-305, and which mortgage was annotated on
the said title the next day. The approved loan application called for a
lump sum P80,000.00 loan, repayable in semi-annual installments for
a period of 3 years, with 12% annual interest. It was required that
Sulpicio M. Tolentino shall use the loan proceeds solely as an
additional capital to develop his other property into a subdivision.
On May 22, 1965, a mere P17,000.00 partial release of the
P80,000.00 loan was made by the Bank; and Sulpicio M. Tolentino
and his wife Edita Tolentino signed a promissory note for P17,000.00
at 12% annual interest, payable within 3 years from the date of
execution of the contract at semi-annual installments of P3,459.00 (p.
64, rec.). An advance interest for the P80,000.00 loan covering a 6-
month period amounting to P4,800.00 was deducted from the partial
release of P17,000.00. But this pre-deducted interest was refunded to
Sulpicio M. Tolentino on July 23, 1965, after being informed by the
Bank that there was no fund yet available for the release of the
P63,000.00 balance (p. 47, rec.). The Bank, thru its vice-president
and treasurer, promised repeatedly the release of the P63,000.00
balance (p. 113, rec.).
On August 13, 1965, the Monetary Board of the Central Bank, after
finding Island Savings Bank was suffering liquidity problems, issued
Resolution No. 1049, which provides:
In view of the chronic reserve deficiencies of the Island Savings Bank
against its deposit liabilities, the Board, by unanimous vote, decided
as follows:
1) To prohibit the bank from making new loans and investments
[except investments in government securities] excluding extensions
or renewals of already approved loans, provided that such extensions
or renewals shall be subject to review by the Superintendent of
Banks, who may impose such limitations as may be necessary to
insure correction of the bank's deficiency as soon as possible;
xxx xxx xxx
(p. 46, rec.).
On June 14, 1968, the Monetary Board, after finding thatIsland
Savings Bank failed to put up the required capital to restore its
solvency, issued Resolution No. 967 which prohibited Island Savings
Bank from doing business in the Philippines and instructed the Acting
Superintendent of Banks to take charge of the assets of Island
Savings Bank (pp. 48-49, rec).
On August 1, 1968, Island Savings Bank, in view of non-payment of
the P17,000.00 covered by the promissory note, filed an application
for the extra-judicial foreclosure of the real estate mortgage covering
the 100-hectare land of Sulpicio M. Tolentino; and the sheriff
scheduled the auction for January 22, 1969.
On January 20, 1969, Sulpicio M. Tolentino filed a petition with the
Court of First Instance of Agusan for injunction, specific performance
or rescission and damages with preliminary injunction, alleging that
since Island Savings Bank failed to deliver the P63,000.00 balance of
the P80,000.00 loan, he is entitled to specific performance by
ordering Island Savings Bank to deliver the P63,000.00 with interest
of 12% per annum from April 28, 1965, and if said balance cannot be
delivered, to rescind the real estate mortgage (pp. 32-43, rec.).
On January 21, 1969, the trial court, upon the filing of a P5,000.00
surety bond, issued a temporary restraining order enjoining the Island
Savings Bank from continuing with the foreclosure of the mortgage
(pp. 86-87, rec.).
On January 29, 1969, the trial court admitted the answer in
intervention praying for the dismissal of the petition of Sulpicio M.
Tolentino and the setting aside of the restraining order, filed by the
Central Bank and by the Acting Superintendent of Banks (pp. 65-76,
rec.).
On February 15, 1972, the trial court, after trial on the merits
rendered its decision, finding unmeritorious the petition of Sulpicio M.
Tolentino, ordering him to pay Island Savings Bank the amount of PI
7 000.00 plus legal interest and legal charges due thereon, and lifting
the restraining order so that the sheriff may proceed with the
foreclosure (pp. 135-136. rec.
On February 11, 1977, the Court of Appeals, on appeal by Sulpicio
M. Tolentino, modified the Court of First Instance decision by
affirming the dismissal of Sulpicio M. Tolentino's petition for specific
performance, but it ruled that Island Savings Bank can neither
foreclose the real estate mortgage nor collect the P17,000.00 loan
pp. 30-:31. rec.).
Hence, this instant petition by the central Bank.
The issues are:
1. Can the action of Sulpicio M. Tolentino for specific performance
prosper?
2. Is Sulpicio M. Tolentino liable to pay the P17,000.00 debt covered
by the promissory note?
3. If Sulpicio M. Tolentino's liability to pay the P17,000.00 subsists,
can his real estate mortgage be foreclosed to satisfy said amount?
When Island Savings Bank and Sulpicio M. Tolentino entered into an
P80,000.00 loan agreement on April 28, 1965, they undertook
reciprocal obligations. In reciprocal obligations, the obligation or
promise of each party is the consideration for that of the other
(Penaco vs. Ruaya, 110 SCRA 46 [1981]; Vda. de Quirino vs,
Pelarca 29 SCRA 1 [1969]); and when one party has performed or is
ready and willing to perform his part of the contract, the other party
who has not performed or is not ready and willing to perform incurs in
delay (Art. 1169 of the Civil Code). The promise of Sulpicio M.
Tolentino to pay was the consideration for the obligation of Island
Savings Bank to furnish the P80,000.00 loan. When Sulpicio M.
Tolentino executed a real estate mortgage on April 28, 1965, he
signified his willingness to pay the P80,000.00 loan. From such date,
the obligation of Island Savings Bank to furnish the P80,000.00 loan
accrued. Thus, the Bank's delay in furnishing the entire loan started
on April 28, 1965, and lasted for a period of 3 years or when the
Monetary Board of the Central Bank issued Resolution No. 967 on
June 14, 1968, which prohibited Island Savings Bank from doing
further business. Such prohibition made it legally impossible for
Island Savings Bank to furnish the P63,000.00 balance of the
P80,000.00 loan. The power of the Monetary Board to take over
insolvent banks for the protection of the public is recognized by
Section 29 of R.A. No. 265, which took effect on June 15, 1948, the
validity of which is not in question.
The Board Resolution No. 1049 issued on August 13,1965 cannot
interrupt the default of Island Savings Bank in complying with its
obligation of releasing the P63,000.00 balance because said
resolution merely prohibited the Bank from making new loans and
investments, and nowhere did it prohibit island Savings Bank from
releasing the balance of loan agreements previously contracted.
Besides, the mere pecuniary inability to fulfill an engagement does
not discharge the obligation of the contract, nor does it constitute any
defense to a decree of specific performance (Gutierrez Repide vs.
Afzelius and Afzelius, 39 Phil. 190 [1918]). And, the mere fact of
insolvency of a debtor is never an excuse for the non-fulfillment of an
obligation but 'instead it is taken as a breach of the contract by him
(vol. 17A, 1974 ed., CJS p. 650)
The fact that Sulpicio M. Tolentino demanded and accepted the
refund of the pre-deducted interest amounting to P4,800.00 for the
supposed P80,000.00 loan covering a 6-month period cannot be
taken as a waiver of his right to collect the P63,000.00 balance. The
act of Island Savings Bank, in asking the advance interest for 6
months on the supposed P80,000.00 loan, was improper considering
that only P17,000.00 out of the P80,000.00 loan was released. A
person cannot be legally charged interest for a non-existing debt.
Thus, the receipt by Sulpicio M. 'Tolentino of the pre-deducted
interest was an exercise of his right to it, which right exist
independently of his right to demand the completion of the
P80,000.00 loan. The exercise of one right does not affect, much less
neutralize, the exercise of the other.
The alleged discovery by Island Savings Bank of the over-valuation of
the loan collateral cannot exempt it from complying with its reciprocal
obligation to furnish the entire P80,000.00 loan. 'This Court previously
ruled that bank officials and employees are expected to exercise
caution and prudence in the discharge of their functions (Rural Bank
of Caloocan, Inc. vs. C.A., 104 SCRA 151 [1981]). It is the obligation
of the bank's officials and employees that before they approve the
loan application of their customers, they must investigate the
existence and evaluation of the properties being offered as a loan
security. The recent rush of events where collaterals for bank loans
turn out to be non-existent or grossly over-valued underscore the
importance of this responsibility. The mere reliance by bank officials
and employees on their customer's representation regarding the loan
collateral being offered as loan security is a patent non-performance
of this responsibility. If ever bank officials and employees totally reIy
on the representation of their customers as to the valuation of the
loan collateral, the bank shall bear the risk in case the collateral turn
out to be over-valued. The representation made by the customer is
immaterial to the bank's responsibility to conduct its own
investigation. Furthermore, the lower court, on objections of' Sulpicio
M. Tolentino, had enjoined petitioners from presenting proof on the
alleged over-valuation because of their failure to raise the same in
their pleadings (pp. 198-199, t.s.n. Sept. 15. 1971). The lower court's
action is sanctioned by the Rules of Court, Section 2, Rule 9, which
states that "defenses and objections not pleaded either in a motion to
dismiss or in the answer are deemed waived." Petitioners, thus,
cannot raise the same issue before the Supreme Court.
Since Island Savings Bank was in default in fulfilling its reciprocal
obligation under their loan agreement, Sulpicio M. Tolentino, under
Article 1191 of the Civil Code, may choose between specific
performance or rescission with damages in either case. But since
Island Savings Bank is now prohibited from doing further business by
Monetary Board Resolution No. 967, WE cannot grant specific
performance in favor of Sulpicio M, Tolentino.
Rescission is the only alternative remedy left. WE rule, however, that
rescission is only for the P63,000.00 balance of the P80,000.00 loan,
because the bank is in default only insofar as such amount is
concerned, as there is no doubt that the bank failed to give the
P63,000.00. As far as the partial release of P17,000.00, which
Sulpicio M. Tolentino accepted and executed a promissory note to
cover it, the bank was deemed to have complied with its reciprocal
obligation to furnish a P17,000.00 loan. The promissory note gave
rise to Sulpicio M. Tolentino's reciprocal obligation to pay the
P17,000.00 loan when it falls due. His failure to pay the overdue
amortizations under the promissory note made him a party in default,
hence not entitled to rescission (Article 1191 of the Civil Code). If
there is a right to rescind the promissory note, it shall belong to the
aggrieved party, that is, Island Savings Bank. If Tolentino had not
signed a promissory note setting the date for payment of P17,000.00
within 3 years, he would be entitled to ask for rescission of the entire
loan because he cannot possibly be in default as there was no date
for him to perform his reciprocal obligation to pay.
Since both parties were in default in the performance of their
respective reciprocal obligations, that is, Island Savings Bank failed to
comply with its obligation to furnish the entire loan and Sulpicio M.
Tolentino failed to comply with his obligation to pay his P17,000.00
debt within 3 years as stipulated, they are both liable for damages.
Article 1192 of the Civil Code provides that in case both parties have
committed a breach of their reciprocal obligations, the liability of the
first infractor shall be equitably tempered by the courts. WE rule that
the liability of Island Savings Bank for damages in not furnishing the
entire loan is offset by the liability of Sulpicio M. Tolentino for
damages, in the form of penalties and surcharges, for not paying his
overdue P17,000.00 debt. The liability of Sulpicio M. Tolentino for
interest on his PI 7,000.00 debt shall not be included in offsetting the
liabilities of both parties. Since Sulpicio M. Tolentino derived some
benefit for his use of the P17,000.00, it is just that he should account
for the interest thereon.
WE hold, however, that the real estate mortgage of Sulpicio M.
Tolentino cannot be entirely foreclosed to satisfy his P 17,000.00
debt.
The consideration of the accessory contract of real estate mortgage
is the same as that of the principal contract (Banco de Oro vs.
Bayuga, 93 SCRA 443 [1979]). For the debtor, the consideration of
his obligation to pay is the existence of a debt. Thus, in the accessory
contract of real estate mortgage, the consideration of the debtor in
furnishing the mortgage is the existence of a valid, voidable, or
unenforceable debt (Art. 2086, in relation to Art, 2052, of the Civil
Code).
The fact that when Sulpicio M. 'Tolentino executed his real estate
mortgage, no consideration was then in existence, as there was no
debt yet because Island Savings Bank had not made any release on
the loan, does not make the real estate mortgage void for lack of
consideration. It is not necessary that any consideration should pass
at the time of the execution of the contract of real mortgage
(Bonnevie vs. C.A., 125 SCRA 122 [1983]). lt may either be a prior or
subsequent matter. But when the consideration is subsequent to the
mortgage, the mortgage can take effect only when the debt secured
by it is created as a binding contract to pay (Parks vs, Sherman, Vol.
176 N.W. p. 583, cited in the 8th ed., Jones on Mortgage, Vol. 2, pp.
5-6). And, when there is partial failure of consideration, the mortgage
becomes unenforceable to the extent of such failure (Dow. et al. vs.
Poore, Vol. 172 N.E. p. 82, cited in Vol. 59, 1974 ed. CJS, p. 138).
Where the indebtedness actually owing to the holder of the mortgage
is less than the sum named in the mortgage, the mortgage cannot be
enforced for more than the actual sum due (Metropolitan Life Ins. Co.
vs. Peterson, Vol. 19, F(2d) p. 88, cited in 5th ed., Wiltsie on
Mortgage, Vol. 1, P. 180).
Since Island Savings Bank failed to furnish the P63,000.00 balance of
the P8O,000.00 loan, the real estate mortgage of Sulpicio M.
Tolentino became unenforceable to such extent. P63,000.00 is
78.75% of P80,000.00, hence the real estate mortgage covering 100
hectares is unenforceable to the extent of 78.75 hectares. The
mortgage covering the remainder of 21.25 hectares subsists as a
security for the P17,000.00 debt. 21.25 hectares is more than
sufficient to secure a P17,000.00 debt.
The rule of indivisibility of a real estate mortgage provided for by
Article 2089 of the Civil Code is inapplicable to the facts of this case.
Article 2089 provides:
A pledge or mortgage is indivisible even though the debt may be
divided among the successors in interest of the debtor or creditor.
Therefore, the debtor's heirs who has paid a part of the debt can not
ask for the proportionate extinguishment of the pledge or mortgage
as long as the debt is not completely satisfied.
Neither can the creditor's heir who have received his share of the
debt return the pledge or cancel the mortgage, to the prejudice of
other heirs who have not been paid.
The rule of indivisibility of the mortgage as outlined by Article 2089
above-quoted presupposes several heirs of the debtor or creditor
which does not obtain in this case. Hence, the rule of indivisibility of a
mortgage cannot apply
WHEREFORE, THE DECISION OF THE COURT OF APPEALS
DATED FEBRUARY 11, 1977 IS HEREBY MODIFIED, AND
1. SULPICIO M. TOLENTINO IS HEREBY ORDERED TO PAY IN
FAVOR OF HEREIN PETITIONERS THE SUM OF P17.000.00,
PLUS P41,210.00 REPRESENTING 12% INTEREST PER ANNUM
COVERING THE PERIOD FROM MAY 22, 1965 TO AUGUST 22,
1985, AND 12% INTEREST ON THE TOTAL AMOUNT COUNTED
FROM AUGUST 22, 1985 UNTIL PAID;
2. IN CASE SULPICIO M. TOLENTINO FAILS TO PAY, HIS REAL
ESTATE MORTGAGE COVERING 21.25 HECTARES SHALL BE
FORECLOSED TO SATISFY HIS TOTAL INDEBTEDNESS; AND
3. THE REAL ESTATE MORTGAGE COVERING 78.75 HECTARES
IS HEREBY DECLARED UNEN FORCEABLE AND IS HEREBY
ORDERED RELEASED IN FAVOR OF SULPICIO M. TOLENTINO.
NO COSTS. SO ORDERED.
-------------------------------------------------------
G.R. No. L-2837 August 4, 1950
ROSARIO S. VDA. DE LACSON, ET AL., plaintiffs-appellees,
vs.
ABELARDO G. DIAZ, defendant-appellant.
Jose R. Querubin for appellant.
Ramon Diokno and Jose W. Diokno for appellees.
TUASON, J.:
This case, here on appeal from the Court of First Instance of Negros
Occidental, involves an interpretation of a pre-war contract of lease of
sugar-cane lands and the liability of the lessee, defendant and
appellant, to pay rent for the period during and immediately following
the Japanese occupation. The defendant resisted payment of that
rent of the theory of force majeure, and claims, besides, right to an
extension of the lease to make-up for the time when no cane was
planted.
The material facts are set forth in the appealed decision as follows:
It appears that on June 2, 1939, the plaintiff, Rosario S. Vda. de
Lacson, as atty.-in-fact of the other plaintiffs leased to the defendant,
Abelardo G. Diaz, lots Nos. 429 and 1179 of the Talisay Cadastre,
together with its sugar quota of about 5,728.50 piculs. The term of the
lease was for five crop years beginning with the crop year 1940-41;
with an option in favor of the defendant for another two years, after
the expiration of the original period. The contract provided that the
defendant was to pay to the plaintiffs an annual rental of 1,000 piculs
of export sugar , of which 500 piculs were to be paid in the month of
January of every year and the rest at the end of every milling season.
The defendant also obligated himself to pay to the plaintiff 20% of
whatever alcohol he receive from the Talisay-Silay Milling Co. Inc.
corresponding to thehaciendas above-mentioned.
To guarantee the payment of the said annual rentals, the defendant
Abelardo Diaz, loaned to the plaintiffs the sum of P10,000 without
interest, which was to be paid by plaintiffs with the proceeds of the
annual rentals in sugar provided however, that the sum of P7,000
was to be maintained as the permanent balance until the termination
of the lease period, as security for the payment by the defendant of
said rentals.
On October 23, 1940, a supplementary agreement (was) entered into
between the parties so as to include in the lease contract the rights
and interests also of the plaintiff, Rosario S. Vda. de Lacson in the
haciendas in question. It was further agreed that out of the annual
rental of 1,000 piculs to be sold by the defendant, Abelardo Diaz in
such price as may be agreeable to the plaintiff, Rosario S. Vda. de
Lacson, from the proceeds of which the sum of P2,000.00 was to be
applied to the loan of P10,000 extended by the defendant to the
plaintiffs. The balance of 100 piculs of said yearly rental was to be
placed at the complete disposition of the plaintiff, Rosario S. Vda. de
Lacson.
The defendant took possession of the haciendas in question
beginning with the crop year 1940-41. In that year he paid to the
plaintiffs the corresponding rental of 1,000 piculs of sugar and their
share in alcohol. As provided for in the supplementary agreement the
defendant Abelardo G. Diaz, with the approval of the plaintiff, Rosario
S. Vda. de Lacson, sold 400 piculs of said rentals for the sum of
P1,984.76, and this amount was applied on the loan of the plaintiffs
thereby leaving a balance of P8,015.24 against them and in favor of
the defendant at the beginning of the crop year 1941-42.
On December 8, 1941, the war broke out. The defendant claims that
due to the unsettled conditions which follows, he was unable to mill
all his sugar canes so that during the crop year 1941-42 he produced
only the total amount of 966.42 piculs of sugar from the two
haciendas, of which 579.86 piculs went to him as his planter's share.
It appears that the defendant failed to pay the plaintiffs the rentals of
1,000 piculs of export sugar and alcohol for said crop year. The
defendant tried to prove, however, that he assigned 225.65 piculs in
1941-42 to the Agricultural and Industrial Bank for the account of the
plaintiffs, but it was not duly established to the satisfaction of this
court that the said Bank actually received the assignment.
The defendant also failed to pay the plaintiffs the stipulated rentals for
the remaining crop years up to the present time, although the
plaintiffs had made several demands for their payment, so that on
September 17, 1946, this action was commenced by the plaintiffs for
the rescission of the lease contract.
From the evidence adduced during the trial it was established that
during the years 1943 and 1944 the haciendas in question were
worked and cultivated by the tenants of the defendant who planted
cereal crops thereon like corn and rice but there was no evidence as
to how much was really produced on the land. The defendant himself
admitted that he planted rice on the haciendas during the years 1945
and 1946, which brought him a net participation of 200 cavanes for
each of these years. The defendant also admitted that he did not give
the plaintiffs any participation in the rice or other crops he had
produced in the said haciendas, because according to him, his
obligation was to pay rentals in sugar only, and not in any other kind
of products. It also appears that the defendant has been unable to
plant sugar canes on thehaciendas in question except in preparation
for the 19947-48 crop year which he estimated to be around ten
hectares.
The court below absolved the defendant, on the principle of fortuitous
circumstance, from any liability for rent for the crop years 1942-43,
1943-44 and 1944-45, although it allowed the plaintiffs "proportionate
share of the War Damage Compensation which the defendant may
recover from the War Damage Commission for the products of the
afore-mentioned haciendas for the crop year 1941-42, on the basis of
P5,000, the total value of 1,000 piculs of sugar which is the
corresponding rental of said haciendas for the crop year 1941-42."
(The defendant had filed a damage claim for the destruction early in
1942 of standing crops.) But the court gave judgment for the plaintiffs
for rent with interest corresponding to the crop years 1945-46 and
1946-47, amounting to P60,000, the value of 2,000 piculs of sugar,
from which amount was to be deducted the sum of P8,015.24 due the
defendant by the plaintiffs for advances. The court likewise declared
the lease terminated after the crop year 1946-47.
On the last point, it is the defendant's contention that he and the
plaintiffs stipulated seven sugar "crops" and not seven "crop years as
the duration of the lease and that this period should be computed by
the number of times sugar crops were raised and not by number of
years that transpired from the inception of the contract.
We are unable to see any essential difference between crops and
crop years sufficient to alter the result. Under one or the other theory,
it seems to us that the contract contemplated seven consecutive
agricultural years. To the lessors time was of the essence of the
lease and they could not conceivably have agreed to have discounted
from the period, years which the lessees, who had the exclusive
disposition of the lands, might not care to plant sugar cane or not use
the lands at all.
Any how the contract speaks of "cosechas agricolas", and nowhere is
there any insinuation that the defendant-lessee was to have
possession of the lands for seven years excluding years on which he
could not harvest sugar. On the contrary, the parties not only used
the generic expression "cinco cosechas agricolas" but followed it with
the phrase "periodo de cinco años."
The more important issue, though by no means difficult to decide,
concerns the obligation of the lessee to pay the stipulated rent for the
crop years 1945-46 and 1946-47. Admitting that those post-liberation
years, the lessee claims exemption from the obligation stipulated for
delivery of 1,000 piculs of centrifugal sugar as rent for each milling
season, and the Talisay-Silay Milling Co. Inc., he adds, had been
destroyed and he could not mill any sugar.
The law regulating the facts of force majeure on contracts is to be
found in the following articles of the Civil Code:
ART. 1096. Should the thing to be delivered be a determinate one the
creditor, independently of the right granted him by article 1004, may
compel the debtor to make the delivery.
Should the thing be determinate or generic, he may demand that the
obligation be performed at the expense of the debtor.
Should the person obligated be in default, or should be have engaged
himself to deliver the same thing or two or more different persons, it
shall be at his risk, even in case of inevitable accident, until the
delivery is made.
ART. 1105. No one shall be liable for events which could not be
foreseen or which, even if foreseen, were inevitable, with the
exception of the cases in which the law expressly provides otherwise
and these in which the obligation itself imposes such liability.
ART. 1182. Any obligation which consists in the delivery of a
determinate thing shall be extinguished if such thing should be lost or
destroyed without fault on the part of the debtor and before he is in
default (mora).
In binding himself to deliver centrifugal sugar, the defendant promised
a generic thing. It could be any centrifugal sugar without regard to
origin or how he secured it. Hence, his inability to produce sugar,
irrespective of the cause, did not relieve him from his commitment.
War, like floods and other catastrophes, was a contingency, a
collateral incident, which he could have provided for by proper
stipulation. (Reyes vs. Caltex (Philippines) Inc., 47 Off. Gaz., 1193.
In reality there was no fortuitous event which interfered with the
exploitation of the leased property in the form and manner the
defendant had intended. We refer to the agricultural years 1945-46
and 1946-47. It should be observed that the defendant was not bound
to keep the lands during those years; it was entirely optional on his
part to put an end to the lease after the 1944-45 crop year. When he
decided to exercise the option he was fully aware that there were no
sugar mills in operation and he did not except to produce sugar, He
must have had an object other than to plant sugar cane when he
chose to retain the lands for two more years. His purpose was,
beyond doubt, to plant other crops, which he did. If those crops did
not bring good return he can not, under any principle of law or equity,
shift the loss to the lessor. Performance is not excused by the fact
that the contract turns out to be hard and improvident, unprofitable or
impracticable, ill-advised, or even foolish. (Reyes vs. Caltex, supra.)
In the fourth assignment of error the appellant objects that "the trial
court . . . awarded the plaintiffs more than what is prayed for in the
complaint." He says that the plaintiffs pray "either the rescission of
the contract of lease and the immediate delivery . . . of lots 429 and
1179 of Talisay, or in the alternative, to condemn the defendant to
pay 5,000 piculs of export sugar; and to pay P500 as liquidated
damages and costs.".
We do not think the trial court erred in granting both remedies
although the prayer was in the alternative. The situation or status of
the contract had changed in the interval between the commencement
of the suit and the rendition of the judgment. At the time the complaint
was filed (September 12, 1946), the lease had not yet expired. Its
expiration took place during the pendency of the action, a fact of
which court was justified in taking cognizance.
For the rest, the prayer is not a material factor of the complaint. It is
not the prayer but the proven facts which determine the power of the
court to act.
SEC. 9. Extent of relief to be awarded. — A judgment entered by
default shall not exceed the amount or be different in kind from that
prayed for the demand for judgment. In other cases the judgment
shall grant the relief to which the party has not demanded such relief
in his pleadings. (Rule 35, Rules of Court.)
But when the defendant is not in default, plaintiff. after trial, may be
granted any relief that is supported by the evidence, although not
specified in his pleadings. As held by the Supreme Court, plaintiff's
failure, in such cases, to specify the relief to which he is entitled, is
immaterial, and even if the complaint contains no prayer for relief, he
is still entitled to such a relief as the facts proven may warrant. It is a
rule of pleadings that the prayer for relief, though part of the
complaint, is no part of the cause of action, and plaintiff is entitled to
as much relief as the facts may warrant. (I Moran, Comments on the
Rules of Court, 574.)
It is unquestionable that, under the proven facts, the court had the
power to grant the remedies it did.
The defendant's counterclaim was, in our opinion, rightly overruled by
the court below. Said the court:
As to the counterclaims filed by the defendant the court cannot
reasonably entertain it for the simple reason that there was no
sufficient evidence supporting it and the fact that the seven-year
period, stipulated in the contract, including the option of two years in
favor of the defendant, had already expired at the end of the crop
year 1946-47, which is of judicial notice to be at the end of May,
1947. After the period, the defendant is no longer entitled to the
possession of the haciendas in question, nor their corresponding
sugar quota for the crop year 1947-48. If the defendant had already
planted sugar canes to the extent he had testified to during the trial in
preparation for the 1947-48 milling season, he did so at his own risk
and responsibility for which he could not hold the plaintiffs herein
liable for any loss he may suffer thereby.
The judgment is affirmed with costs.
-------------------------------------------------------------------------------------
G.R. No. L-4440 August 29, 1952
BUNGE CORPORATION and UNIVERSAL COMMERCIAL
AGENCIES, plaintiffs-appellees,
vs.
ELENA CAMENFORTE and COMPANY, doing business or
trading under the name and style of Visayan Products Company,
ET AL., defendants-appellants.
Juan E. Yap and J.P. Garcia for appellants.
Vicente L. Faelnar for appellees.
BAUTISTA ANGELO, J.:
Plaintiffs brought action against the defendants to recover certain
damages they have allegedly sustained in view of the failure of the
latter to deliver to the former the amount of Philippine copra which
they had agreed to deliver within the time and under the conditions
specified in the contract celebrated between them on October 22,
1947.
Plaintiffs claim that on October 22, 1947, in the City of Cebu a
contract was entered into between the Visayan Products Company
and Bunge Corporation (represented by the Universal Commercial
Agencies) whereby the former sold to the latter 500 long tons of
merchantable Philippine copra in bulk at the prices of $188.80, U.S.
currency, per ton, less 1 per cent brokerage per short ton of 2,000
pounds, C & F Pacific Coast, U.S.A.; that, according to the terms and
conditions of the contract, the vendor should ship the stipulated copra
during the month of November or December 1947, to San Francisco,
California, U.S.A. for delivery to the vendee; that, notwithstanding
repeated demands made by the vendee, the vendor failed to ship and
deliver the copra during the period agreed upon; that believing in
good faith that the vendor would ship and deliver the copra on time,
the vendee sold to El Dorado Oil Works the quantity of copra it had
purchased at the same price agreed upon; and that because of the
failure of the vendor to fulfill its contract to ship and deliver the
quantity of copra agreed upon within the period stipulated, the
vendee has suffered damages in the amount of P180,00.
Defendants answered separately the allegations set forth in the
complaint and, with the exception of Vicente Kho, denied that the
Visayan Products Company has ever entered into a contract of sale
of copra with the plaintiffs, as mentioned in the complaint. They aver
that if a contract of that tenor has ever been entered into between
said company and the plaintiffs, the truth is that Vicente Kho who
signed for and in behalf of the company never had any authority to
act for that company either expressly or impliedly, inasmuch as the
only ones who had the authority to do so are Elena Camenforte, the
general manager, Tan Se Chong, the manager, and Tiu Kee, the
assistant manager.
Vicente Kho, on his part, after admitting that the commercial
transaction mentioned in the complaint had actually taken place,
avers that the contract was concluded with the Visayan Products
Company which had its office in Tacloban, Leyte, and not with the
Visayan Products Company established in Cebu, which is not a party
to the transaction; that the Visayan Products Company organized in
organized in Tacloban is the one that was presented by him in the
transaction, of which he is the manager and controlling stockholder,
which fact was clearly known to the plaintiffs when the contract was
entered into believing that the company he was representing was the
one recently organized in Cebu; that he, Vicente Kho, did his best to
comply with the contract, but he failed because offorce majeure as
follows: he informed the plaintiffs sometime in December, 1947, that
he would have all the copra covered by the contract ready for
shipment somewhere in the port of San Ramon, Samar, in order that
they may make an arrangement for the booking of a ship, but before
the arrival of the ship, a strong storm visited the place causing the
bodega where the copra was stored to be destroyed and the copra
washed away into the sea; and that, because of this force majeure,
he cannot now be held liable for damages.
After trial, art which both parties presented their respective evidence,
the court rendered decision ordering defendant Elena Camenforte &
Company to pay to the plaintiffs the sum of P79,744, with legal
interest thereon from the filing of the complaint, and the costs of
action. The court ordered that, in case said company be unable to
pay the judgment because of total or partial insolvency, the same be
paid by its co-defendants, jointly and severally, either in full or such
part thereof as may be left unpaid. Defendants interposed the present
appeal.
At the outset, it should be stated that while in the lower court there
was a dispute between plaintiffs and defendants as regards the real
contract that was entered into between the parties and which he was
given rise to this litigation, that defense apparently has been
abandoned in this appeal, for the only issue now raised by appellants
is one of law. Thus, appellants now admit, contrary to their stand in
the lower court, that a contract of purchase and sale of copra was in
effect entered into between the plaintiffs and the defendants under
the terms and conditions embodied in the contract quoted in the
complaint, and the only defense on which they now rely is that the
copra they had gathered and stored for delivery to the appellees in
Samar was destroyed by force majeure which under the law has the
effect of exempting them from liability for damages. Consequently,
appellants now contend that the lower court erred in condemning
them for damages despite the fact that their failure to fulfill the
contract is due to force majeure.
A perusal of the contract is necessary to see the feasibility of this
contention. The contract is embodied in Exhibit C. A perusal of this
contract shows that the subject matter is Philippine copra. The sale is
to be made by weight, — 500 long tons. It does not refer to any
particular or specific lot of copra, nor does it mention the place where
the copra is to be acquired. No portion of the copra has been
earmarked or segregated. The vendor was at liberty to acquire the
copra from any part of the Philippines. The sale simply refers to 500
long tons of the Philippine copra. The subject-matter is, therefore,
generic, not specific.
Having this view in mind, it is apparent that the copra which
appellants claim to have gathered and stored in abodega at San
Ramon, Samar, sometime in December, 1947, in fulfillment of their
contract, and which they claim was later destroyed by storm, in the
supposition that the claim is true, cannot be deemed to be the one
contemplated in the contract. It may be the one chosen by appellants
in the exercise of the discretion given to them under the contract,
which they could exercise in a manner suitable to their interest and
convenience, but it cannot certainly be considered as the copra
contemplated by the parties in the contract. And this must be so
because the copra contemplated in the contract is generic and not
specific.
It appearing that the obligation of appellant is to deliver copra in a
generic sense, the obligation cannot be deemed extinguised by the
destruction or disappearance of the copra stored in San Ramon,
Samar. Their obligation subsists as long as that commodity is
available. A generic obligation is not extinguished by the loss of a
thing belonging to a particular genus. Genus nunquan perit.
Manresa explains the distinction between determinate and generic
thing in his comment on article 1096 of the Civil Code of Spain,
saying that the first is a concrete, particularized object, indicated by
its own individuality, while a generic thing is one whose determination
is confined to that of its nature, to the genus (genero) to which it
pertains, such as a horse, a chair. These definition are in accord with
the popular meaning of the terms defined.
Except as to qualify and quantity, the first of which is itself generic,
the contract sets no bounds or limits to the palay to be paid, nor was
there even any stipulation that the cereal was to be the produce of
any particular land. Any palay of the quality stipulated regardless of
origin or however acquired (lawfully) would be obligatory on the part
of the obligee to receive and would discharged the obligation. It
seems therefore plain that the alleged failure of crops through alleged
fortuitos cause did not excuse performance." (De Leon vs. Soriano,
87 Phil., 193; 47 Off Gaz., Supplement No. 12, pp. 377, 379-380.)
In binding himself to deliver centrifugal sugar, the defendant promised
a generic thing. It could be any centrifugal sugar without regard to
origin or how he secured it. Hence, his inability to produce sugar,
irrespective of the cause, did not relieve him from his commitment.
War, like floods and other catastrophies, was a contingency, a
collateral incident, which he could have provided for by proper
stipulation. (Reyes vs. Caltex, 84 Phil., 654; 47 Off, Gaz., 1193; Vda.-
Lacson vs. Diaz, 87 Phil., 150; 47 Off. Gaz., Supp. to No. 12, p. 337.)
If appellants are not relieved of civil liability under the contract, what
are then the damages for which they stand liable to the appellees?
Appellees claim that, immediately after they had concluded their
agreement to buy copra with the appellants, they agreed to sell to El
Dorado Oil Works the 500 long tons of copra subject matter of the
agreement, together with another lot of 500 tons, confident in their
belief that the Visayan Products Company would comply with its
agreement. The copra was to delivered by Bunge Corporation to El
Dorado Oil Works not later than December 31, 1947. Because of the
failure of the appellants to fulfill their aforementioned agreement,
appellees failed to deliver the copra it sold with the result that they
had to pay damages in the sum of $84,630.86 (or P169,461.72).
The lower court, however, did not sustain this claim in view of the
discrepancy of one day it note in the dates of execution of the
contracts of sale of the copra in question. The court found that the
contract signed by El Dorado Oil Works is dated October 21, 1947,
(Exhibit O), whereas the contract signed by the Visayan Products
Company is dated contract had been executed one day latter than
the former, which gives rise to the belief that the copra that was sold
to the El Dorado Oil Works could not have been the one purchased
from the appellants. Nevertheless, the court awarded damages to the
appellees taking into account the highest price of copra in the market
during the month of December, 1947, as per statement Exhibit P,
even though the appellees had made no allegation in their complaint
of any offer or transaction they might have had with other copra
dealers during the period contemplated in the contract in question.
We are of the opinion that the lower court erred in disregarding the
transaction with the El Dorado Oil Works simply because it found an
apparent discrepancy in the dates appearing in the contracts Exhibits
O and C. Exhibit C appears dated on October 22, 1947, and was
executed in Cebu, Philippines, whereas Exhibit O appears dated on
October 21, 1947, and was executed in New York City. the difference
of one day in the execution of these documents is merely nominal
because New York time is several hours behind Cebu time. In fact
both transactions have been practically executed on the same day.
Even supposing that the contract with the El Dorado Oil Works calls
for future and not present deliveries. There is nothing improbable for
the appellees to sell copra which they expect to acquire sometime in
the future for purposes of speculation. But this error cannot now
materially change the result of this case considering that plaintiffs-
appellees did not appeal from the decision. "It has been held that
appellee, who is not appellant, may also assign errors in his brief
where his purpose is to maintain the judgment on other grounds, but
he may not do so if his purpose is to have the judgment modified or
reversed, for, in such case, he must appeal." (Saenz vs. Mitchell, 60
Phil., 69, 80; see Mendoza vs. Mendiola, 53 Phil., 267; Villavert vs.
Lim, 62 Phil., 178; Bajaladia vs. Eusala, G. R. No. 42579).
Wherefore, the decision appealed from is affirmed, with costs against
appellants.
--------------------------------------------------------------------------------------------
G.R. No. 124922 June 22, 1998
JIMMY CO, doing business under the name & style DRAGON
METAL MANUFACTURING, petitioner,
vs.
COURT OF APPEALS and BROADWAY MOTOR SALES
CORPORATION, respondents.
MARTINEZ, J.:
On July 18, 1990, petitioner entrusted his Nissan pick-up car 1988
model 1 to private respondent — which is engaged in the sale,
distribution and repair of motor vehicles — for the following job repair
services and supply of parts:
— Bleed injection pump and all nozzles;
— Adjust valve tappet;
— Change oil and filter;
— Open up and service four wheel brakes, clean and adjust;
— Lubricate accelerator linkages;
— Replace aircon belt; and
— Replace battery 2
Private respondent undertook to return the vehicle on July 21, 1990
fully serviced and supplied in accordance with the job contract. After
petitioner paid in full the repair bill in the amount of P1,397.00 3
private respondent issued to him a gate pass for the release of the
vehicle on said date. But came July 21, 1990, the latter could not
release the vehicle as its battery was weak and was not yet replaced.
Left with no option, petitioner himself bought a new battery nearby
and delivered it to private respondent for installation on the same day.
However, the battery was not installed and the delivery of the car was
rescheduled to July 24, 1990 or three (3) days later. When petitioner
sought to reclaim his car in the afternoon of July 24, 1990, he was
told that it was carnapped earlier that morning while being road-
tested by private respondent's employee along Pedro Gil and Perez
Streets in Paco, Manila. Private respondent said that the incident was
reported to the police.
Having failed to recover his car and its accessories or the value
thereof, petitioner filed a suit for damages against private respondent
anchoring his claim on the latter's alleged negligence. For its part,
private respondent contended that it has no liability because the car
was lost as result of a fortuitous event — the carnapping. During pre-
trial, the parties agreed that:
(T)he cost of the Nissan Pick-up four (4) door when the plaintiff
purchased it from the defendent is P332,500.00 excluding
accessories which were installed in the vehicle by the plaintiff
consisting of four (4) brand new tires, magwheels, stereo speaker,
amplifier which amount all to P20,000.00. It is agreed that the vehicle
was lost on July 24, 1990 "approximately two (2) years and five (5)
months from the date of the purchase." It was agreed that the plaintiff
paid the defendant the cost of service and repairs as early as July 21,
1990 in the amount of P1,397.00 which amount was received and
duly receipted by the defendant company. It was also agreed that the
present value of a brand new vehicle of the same type at this time is
P425,000.00 without accessories. 4
They likewise agreed that the sole issue for trial was who between
the parties shall bear the loss of the vehicle which necessitates the
resolution of whether private respondent was indeed negligent. 5
After trial, the court a quofound private respondent guilty of delay in
the performance of its obligation and held it liable to petitioner for the
value of the lost vehicle and its accessories plus interest and
attorney's fees. 6 On appeal, the Court of Appeals (CA) reversed the
ruling of the lower court and ordered the dismissal of petitioner's
damage suit. 7 The CA ruled that: (1) the trial court was limited to
resolving the issue of negligence as agreed during pre-trial; hence it
cannot pass on the issue of delay; and (2) the vehicle was lost due to
a fortuitous event.
In a petition for review to this Court, the principal query raised is
whether a repair shop can be held liable for the loss of a customer's
vehicle while the same is in its custody for repair or other job
services?
The Court resolves the query in favor of the customer. First, on the
technical aspect involved. Contrary to the CA' s pronouncement, the
rule that the determination of issues at a pre-trial conference bars the
consideration of other issues on appeal, except those that may
involve privilege or impeaching matter, 8 is inapplicable to this case.
The question of delay, though not specifically mentioned as an issue
at the pre-trial may be tackled by the court considering that it is
necessarily intertwined and intimately connected with the principal
issue agreed upon by the parties, i.e., who will bear the loss and
whether there was negligence. Petitioner's imputation of negligence
to private respondent is premised on delay which is the very basis of
the former's complaint. Thus, it was unavoidable for the court to
resolve the case, particularly the question of negligence without
considering whether private respondent was guilty of delay in the
performance of its obligation.
On the merits. It is a not defense for a repair shop of motor vehicles
to escape liability simply because the damage or loss of a thing
lawfully placed in its possession was due to carnapping. Carnapping
per se cannot be considered as a fortuitous event. The fact that a
thing was unlawfully and forcefully taken from another's rightful
possession, as in cases of carnapping, does not automatically give
rise to a fortuitous event. To be considered as such, carnapping
entails more than the mere forceful taking of another's property. It
must be proved and established that the event was an act of God or
was done solely by third parties and that neither the claimant nor the
person alleged to be negligent has any participation. 9 In accordance
with the Rules of evidence, the burden of proving that the loss was
due to a fortuitous event rests on him who invokes it 10 — which in
this case is the private respondent. However, other than the police
report of the alleged carnapping incident, no other evidence was
presented by private respondent to the effect that the incident was
not due to its fault. A police report of an alleged crime, to which only
private respondent is privy, does not suffice to establish the
carnapping. Neither does it prove that there was no fault on the part
of private respondent notwithstanding the parties' agreement at the
pre-trial that the car was carnapped. Carnapping does not foreclose
the pissibility of fault or negligence on the part of private respondent.
Even assuming arguendo that carnapping was duly established as a
fortuitous event, still private respondent cannot escape liability. Article
1165 11 of the New Civil Code makes an obligor who is guilty of
delay responsible even for a fortuitous event until he has effected the
delivery. In this case, private respondent was already in delay as it
was supposed to deliver petitioner's car three (3) days before it was
lost. Petitioner's agreement to the rescheduled delivery does not
defeat his claim as private respondent had already breached its
obligation. Moreover, such accession cannot be construed as waiver
of petitioner's right to hold private respondent liable because the car
was unusable and thus, petitioner had no option but to leave it.
Assuming further that there was no delay, still working against private
respondent is the legal presumption under Article 1265 that its
possession of the thing at the time it was lost was due to its fault. 12
This presumption is reasonable since he who has the custody and
care of the thing can easily explain the circumstances of the loss. The
vehicle owner has no duty to show that the repair shop was at fault.
All that petitioner needs to prove, as claimant, is the simple fact that
private respondent was in possession of the vehicle at the time it was
lost. In this case, private respondent's possession at the time of the
loss is undisputed. Consequently, the burden shifts to the possessor
who needs to present controverting evidence sufficient enough to
overcome that presumption. Moreover, the exempting circumstances
— earthquake, flood, storm or other natural calamity — when the
presumption of fault is not applicable 13 do not concur in this case.
Accordingly, having failed to rebut the presumption and since the
case does not fall under the exceptions, private respondent is
answerable for the loss.
It must likewise be emphasized that pursuant to Articles 1174 and
1262 of the New Civil Code, liability attaches even if the loss was due
to a fortuitous event if "the nature of the obligation requires the
assumption of risk". 14Carnapping is a normal business risk for those
engaged in the repair of motor vehicles. For just as the owner is
exposed to that risk so is the repair shop since the car was entrusted
to it. That is why, repair shops are required to first register with the
Department of Trade and Industry (DTI) 15 and to secure an
insurance policy for the "shop covering the property entrusted by its
customer for repair, service or maintenance" as a pre-requisite for
such registration/accreditation. 16 Violation of this statutory duty
constitutes negligence per se. 17 Having taken custody of the vehicle
private respondent is obliged not only to repair the vehicle but must
also provide the customer with some form of security for his property
over which he loses immediate control. An owner who cannot
exercise the seven (7) juses or attributes of ownership — the right to
possess, to use and enjoy, to abuse or consume, to accessories, to
dispose or alienate, to recover or vindicate and to the fruits — 18 is a
crippled owner. Failure of the repair shop to provide security to a
motor vehicle owner would leave the latter at the mercy of the former.
Moreover, on the assumption that private respondent's repair
business is duly registered, it presupposes that its shop is covered by
insurance from which it may recover the loss. If private respondent
can recover from its insurer, then it would be unjustly enriched if it will
not compensate petitioner to whom no fault can be attributed.
Otherwise, if the shop is not registered, then the presumption of
negligence applies.
One last thing. With respect to the value of the lost vehicle and its
accessories for which the repair shop is liable, it should be based on
the fair market value that the property would command at the time it
was entrusted to it or such other value as agreed upon by the parties
subsequent to the loss. Such recoverable value is fair and reasonable
considering that the value of the vehicle depreciates. This value may
be recovered without prejudice to such other damages that a claimant
is entitled under applicable laws.
WHEREFORE, premises considered, the decision of the Court
Appeals is REVERSED and SET ASIDE and the decision of the court
a quo is REINSTATED.
SO ORDERED.
Regalado, Puno and Mendoza, JJ., concur.
Melo, J., is on leave.
Footnotes
1 Registered in the name of petitioner with Plate No. PJK-666.
2 Rollo, p. 81.
3 Covered by CBC Receipt No. 691148; Rollo, p. 10.
4 Rollo, pp. 28-29.
5 Rollo, p. 29.
6 The dispositive portion of the trial court's decision reads:
"Accordingly, this Court finds the defendant liable to the plaintiff for
the value of the vehicle in question. Defendant is ordered to pay
plaintiff the value of the vehicle in the amount of Three Hundred
Thirty Two Thousand Five Hundred Pesos representing the
acquisition cost of the vehicle plus the amount of Twenty Thousand
Pesos representing the cost of the four brand new tires, magwheels,
pioneer stereo speakers, air-conditioner, which were installed by the
plaintiff in his vehicle after the plaintiff bought the vehicle from the
defendant. While it is true that plaintiff purchased from the defendant
the vehicle about two years and five months before the same was
lost, and therefore the vehicle had already depreciated from its
original value at the time it was lost, it is also true as agreed upon by
the parties in the pre-trial, that the present value of brand new vehicle
of the same type has at this time increased to Four Hundred
Thousand Pesos without accessories, so whatever is awarded by this
Court to the plaintiff in this decision would not even be sufficient to
purcahse a brand new vehicle at the present prices. This Court
believes that the amount awarded to the plaintiff above-stated
represents a fair compromise, considering the depreciation of the
vehicle from the time it was purchased and to the time it was lost and
which is off-seted by the increase cost of a brand new vehicle at the
present time. Defendant is likewise ordered to pay plaintiff legal
interest in the amount above-stated from the date of the finality of this
decision until full payment of the obligation. Further, defendant is
ordered to pay plaintiff Ten Thousand Pesos by attorney's fees."
(sicwas not included so as no to clutter the narration); Rollo, pp. 78,
94.
7 CA Decision promulgated August 31, 1995 penned by Justice
Austria-Martinez with Justices Lantin and Salas, concurring; Rollo,
pp. 26-32.
8 Caltex v. CA, 212 SCRA 448; Bergado v. CA, 173 SCRA 497 citing
Permanent Concrete Products, Inc. v. Teodoro, 26 SCRA 332. In the
Bergado case (p. 501), the court reiterated the rule that the specific
exceptions to the general rule to be observed in pre-trials
emphasized in Gicano v. Gegato, 157 SCRA 140 is "that trial court
have authority and discretion to dismiss an action on the ground of
prescription when the parties' pleadings or other facts on record show
it to be indeed time-barred; and it may do so on the basis of a motion
to dismiss, or an answer which sets up such ground as an affirmative
defense; or even if the ground is alleged after judgment on the merits,
as in a motion for reconsideration; or even if the defense has not
been asserted at all, as where no statement thereof is found in the
pleadings, or where a defendant had been declared in default. What
is essential only, to repeat, is that the facts demonstrating the lapse
of the prescriptive period, be otherwise sufficiently and satisfactorily
apparent on the record; either in the averments of the plaintiff's, or
otherwise established by the evidence."
9 Lasam v. Smith, 45 Phil. 657; General Enterprises, Inc., v. Llianga
Bay Logging Co., Inc., 120 Phil. 702; Tugade v. CA, 85 SCRA 226.
10 Sec. 1, Rule 131, 1989 Revised Rules on Evidence provides:
"Burden of proof. — Burden of proof is the duty of a party to present
evidence on he facts in issue necessary to establish his claim or
defense by the amount of evidence required by law." (Emphasis
supplied).
11 Art. 1165. xxx xxx xxx
If the obligor delays, or has promised to deliver the same thing to two
or more persons who do not have the same interest, he shall be
responsible for fortuitous event until he has effected the delivery.
(Emphasis supplied).
12 Art. 1265. Whenever the thing is lost in the possession of the
debtor, it shall be presumed that the loss was due to his fault, unless
there is proof to the contrary, and without prejudice to the provisions
of Article 1165. This presumption does not apply in case of
earthquake, flood, storm, or other natural calamity. (Emphasis
supplie).
13 New Civil Code, Article 1265.
14 Article 1174. Except in cases expressly specified by the law, or
when it is otherwise declared by stipulation, or when the nature of the
obligation requires the assumption of risk, no person shall be
responsible for those events which could not be foreseen, or which,
though foreseen, were inevitable.
Art. 1262. xxx xxx xxx
When by law or stipulation, the obligor is liable even for fortuitous
event, the loss of the thing does not extinguish the obligation, and he
shall be responsible for damages. The same rule applies when the
nature of the obligation requires the assumption of risk. (Emphasis
supplied).
15 P.D. 1572 (EMPOWERING THE SECRETARY OF TRADE TO
REGULATE AND CONTROL THE OPERATION OF SERVICE AND
REPAIR ENTERPRISES FOR MOTOR VEHICLES, HEAVY
EQUIPMENT AND ENGINES AND ENGINEERING WORKS;
ELECTRONICS, ELECTRICAL, AIRCONDITIONING AND
REFRIGERATION; OFFICE EQUIPMENT; MEDICAL AND DENTAL
EQUIPMENT; AND OTHER CONSUMER MECHANICAL AND
INDUSTRIAL EQUIPMENT; APPLIANCES OR DEVICES,
INCLUDING THE TECHNICAL PERSONNEL EMPLOYED
THEREIN).
Section 1. Accreditation. All enterprises and technical personnel
employed therein engaged in the service and repair of motor
vehicles, heavy equipment, engines and engineering works;
electronics, electrical, air-conditioning and refrigeration; office
equipment; medical and dental equipment; and other consumer
industrial electro-mechanical, chemical and gaseous equipment,
machinery, appliances or devices should apply for accreditation with
the Department of Trade within ninety (90) days from the
promulgation of this decree and should apply for renewal on or before
the 31st day of January of every year thereafter. No such service or
repair enterprices and technical personnel shall be licensed or
permitted to operate in the Philippines for the first time without being
accredited by the Department of Trade.
16 DTI Ministry Order No. 32, Rule III
Sec. 1. REQUIREMENTS FOR ACCREDITATION:
(1) Enterprise applying for original accreditation shall submit the
following:
1.1 List of machineries/equipment/tools in useful condition;
1.2 List of certified engineers/accredited technicians mechanics with
their personal data;
1.3 Copy of Insurance Policy of the shop covering the property
entrusted by its customer for repair, service or maintenance together
with a copy of the official receipt covering the full payment of
premium;
1.4 Copy of Bond referred to under Section 7, Rule III of this Rules
and Regulations;
1.5 Written service warranty in the form prescribed by the Bureau;
1.6 Certification issued by the Securities and Exchange Commission
and Articles of Incorporation or Partnership in case of corporation or
partnership;
1.7 Such other additional documents which the director may require
from time to time.
Sec. 8. INSURANCE POLICY
The insurance policy for the following risks like theft, pilferage, fire,
flood and loss should cover exclusively the machines, motor vehicles,
heavy equipment engines electronics, electrical, airconditioners,
refrigerators, office machines, and data processing equipment,
medical and dental equipment, other consumer mechanical and
industrial equipment stored for repair and/or in the premises of the
applicant." (Emphasis supplied).
17 Cipriano v. CA, 263 SCRA 711 citing F.F. Cruz and Co., Inc. v.
CA, 164 SCRA 731 and Teague v. Fernandez, 51 SCRA 181.
18 Paras, Civil Code of the Philippines, Annotated, 1989 ed., vol. II,
p. 70; De Leon, Comments and Cases on Property, 1983 ed. p. 77;
See also Article 428 of the New Civil Code which states that "The
owner has the right to enjoy and dispose of a thing, without other
limitations than those established by law.
"The owner has also a right of action against the holder and
possessor of the thing in order to recover it."
---------------------------------------------------------------------------------------
G.R. No. 106063 November 21, 1996
EQUATORIAL REALTY DEVELOPMENT, INC. & CARMELO &
BAUERMANN, INC., petitioners,
vs.
MAYFAIR THEATER, INC., respondent.
HERMOSISIMA, JR., J.:
Before us is a petition for review of the decision 1 of the Court of
Appeals 2 involving questions in the resolution of which the
respondent appellate court analyzed and interpreted particular
provisions of our laws on contracts and sales. In its assailed decision,
the respondent court reversed the trial court 3 which, in dismissing
the complaint for specific performance with damages and annulment
of contract, 4 found the option clause in the lease contracts entered
into by private respondent Mayfair Theater, Inc. (hereafter, Mayfair)
and petitioner Carmelo & Bauermann, Inc. (hereafter, Carmelo) to be
impossible of performance and unsupported by a consideration and
the subsequent sale of the subject property to petitioner Equatorial
Realty Development, Inc. (hereafter, Equatorial) to have been made
without any breach of or prejudice to, the said lease contracts. 5
We reproduce below the facts as narrated by the respondent court,
which narration, we note, is almost verbatim the basis of the
statement of facts as rendered by the petitioners in their pleadings:
Carmelo owned a parcel of land, together with two 2-storey buildings
constructed thereon located at Claro M Recto Avenue, Manila, and
covered by TCT No. 18529 issued in its name by the Register of
Deeds of Manila.
On June 1, 1967 Carmelo entered into a contract of lease with
Mayfair for the latter's lease of a portion of Carmelo's property
particularly described, to wit:
A PORTION OF THE SECOND FLOOR of the two-storey building,
situated at C.M. Recto Avenue, Manila, with a floor area of 1,610
square meters.
THE SECOND FLOOR AND MEZZANINE of the two-storey building,
situated at C.M. Recto Avenue, Manila, with a floor area of 150
square meters.
for use by Mayfair as a motion picture theater and for a term of twenty
(20) years. Mayfair thereafter constructed on the leased property a
movie house known as "Maxim Theatre."
Two years later, on March 31, 1969, Mayfair entered into a second
contract of lease with Carmelo for the lease of another portion of
Carmelo's property, to wit:
A PORTION OF THE SECOND FLOOR of the two-storey building,
situated at C.M. Recto Avenue, Manila, with a floor area of 1,064
square meters.
THE TWO (2) STORE SPACES AT THE GROUND FLOOR and
MEZZANINE of the two-storey building situated at C.M. Recto
Avenue, Manila, with a floor area of 300 square meters and bearing
street numbers 1871 and 1875,
for similar use as a movie theater and for a similar term of twenty (20)
years. Mayfair put up another movie house known as "Miramar
Theatre" on this leased property.
Both contracts of lease provides (sic) identically worded paragraph 8,
which reads:
That if the LESSOR should desire to sell the leased premises, the
LESSEE shall be given 30-days exclusive option to purchase the
same.
In the event, however, that the leased premises is sold to someone
other than the LESSEE, the LESSOR is bound and obligated, as it
hereby binds and obligates itself, to stipulate in the Deed of Sale
hereof that the purchaser shall recognize this lease and be bound by
all the terms and conditions thereof.
Sometime in August 1974, Mr. Henry Pascal of Carmelo informed Mr.
Henry Yang, President of Mayfair, through a telephone conversation
that Carmelo was desirous of selling the entire Claro M. Recto
property. Mr. Pascal told Mr. Yang that a certain Jose Araneta was
offering to buy the whole property for US Dollars 1,200,000, and Mr.
Pascal asked Mr. Yang if the latter was willing to buy the property for
Six to Seven Million Pesos.
Mr. Yang replied that he would let Mr. Pascal know of his decision.
On August 23, 1974, Mayfair replied through a letter stating as
follows:
It appears that on August 19, 1974 your Mr. Henry Pascal informed
our client's Mr. Henry Yang through the telephone that your company
desires to sell your above-mentioned C.M. Recto Avenue property.
Under your company's two lease contracts with our client, it is
uniformly provided:
8. That if the LESSOR should desire to sell the leased premises the
LESSEE shall be given 30-days exclusive option to purchase the
same. In the event, however, that the leased premises is sold to
someone other than the LESSEE, the LESSOR is bound and
obligated, as it is (sic) herebinds (sic) and obligates itself, to stipulate
in the Deed of Sale thereof that the purchaser shall recognize this
lease and be bound by all the terms and conditions hereof (sic).
Carmelo did not reply to this letter.
On September 18, 1974, Mayfair sent another letter to Carmelo
purporting to express interest in acquiring not only the leased
premises but "the entire building and other improvements if the price
is reasonable. However, both Carmelo and Equatorial questioned the
authenticity of the second letter.
Four years later, on July 30, 1978, Carmelo sold its entire C.M. Recto
Avenue land and building, which included the leased premises
housing the "Maxim" and "Miramar" theatres, to Equatorial by virtue
of a Deed of Absolute Sale, for the total sum of P11,300,000.00.
In September 1978, Mayfair instituted the action a quo for specific
performance and annulment of the sale of the leased premises to
Equatorial. In its Answer, Carmelo alleged as special and affirmative
defense (a) that it had informed Mayfair of its desire to sell the entire
C.M. Recto Avenue property and offered the same to Mayfair, but the
latter answered that it was interested only in buying the areas under
lease, which was impossible since the property was not a
condominium; and (b) that the option to purchase invoked by Mayfair
is null and void for lack of consideration. Equatorial, in its Answer,
pleaded as special and affirmative defense that the option is void for
lack of consideration (sic) and is unenforceable by reason of its
impossibility of performance because the leased premises could not
be sold separately from the other portions of the land and building. It
counterclaimed for cancellation of the contracts of lease, and for
increase of rentals in view of alleged supervening extraordinary
devaluation of the currency. Equatorial likewise cross-claimed against
co-defendant Carmelo for indemnification in respect of Mayfair's
claims.
During the pre-trial conference held on January 23, 1979, the parties
stipulated on the following:
1. That there was a deed of sale of the contested premises by the
defendant Carmelo . . . in favor of defendant Equatorial . . .;
2. That in both contracts of lease there appear (sic) the stipulation
granting the plaintiff exclusive option to purchase the leased premises
should the lessor desire to sell the same (admitted subject to the
contention that the stipulation is null and void);
3. That the two buildings erected on this land are not of the
condominium plan;
4. That the amounts stipulated and mentioned in paragraphs 3 (a)
and (b) of the contracts of lease constitute the consideration for the
plaintiff's occupancy of the leased premises, subject of the same
contracts of lease, Exhibits A and B;
xxx xxx xxx
6. That there was no consideration specified in the option to buy
embodied in the contract;
7. That Carmelo & Bauermann owned the land and the two buildings
erected thereon;
8. That the leased premises constitute only the portions actually
occupied by the theaters; and
9. That what was sold by Carmelo & Bauermann to defendant
Equatorial Realty is the land and the two buildings erected thereon.
xxx xxx xxx
After assessing the evidence, the court a quo rendered the appealed
decision, the decretal portion of which reads as follows:
WHEREFORE, judgment is hereby rendered:
(1) Dismissing the complaint with costs against the plaintiff;
(2) Ordering plaintiff to pay defendant Carmelo & Bauermann
P40,000.00 by way of attorney's fees on its counterclaim;
(3) Ordering plaintiff to pay defendant Equatorial Realty P35,000.00
per month as reasonable compensation for the use of areas not
covered by the contract (sic) of lease from July 31, 1979 until plaintiff
vacates said area (sic) plus legal interest from July 31, 1978; P70,000
00 per month as reasonable compensation for the use of the
premises covered by the contracts (sic) of lease dated (June 1, 1967
from June 1, 1987 until plaintiff vacates the premises plus legal
interest from June 1, 1987; P55,000.00 per month as reasonable
compensation for the use of the premises covered by the contract of
lease dated March 31, 1969 from March 30, 1989 until plaintiff
vacates the premises plus legal interest from March 30, 1989; and
P40,000.00 as attorney's fees;
(4) Dismissing defendant Equatorial's crossclaim against defendant
Carmelo & Bauermann.
The contracts of lease dated June 1, 1967 and March 31, 1969 are
declared expired and all persons claiming rights under these
contracts are directed to vacate the premises. 6
The trial court adjudged the identically worded paragraph 8 found in
both aforecited lease contracts to be an option clause which however
cannot be deemed to be binding on Carmelo because of lack of
distinct consideration therefor.
The court a quo ratiocinated:
Significantly, during the pre-trial, it was admitted by the parties that
the option in the contract of lease is not supported by a separate
consideration. Without a consideration, the option is therefore not
binding on defendant Carmelo & Bauermann to sell the C.M. Recto
property to the former. The option invoked by the plaintiff appears in
the contracts of lease . . . in effect there is no option, on the ground
that there is no consideration. Article 1352 of the Civil Code,
provides:
Contracts without cause or with unlawful cause, produce no effect
whatever. The cause is unlawful if it is contrary to law, morals, good
custom, public order or public policy.
Contracts therefore without consideration produce no effect
whatsoever. Article 1324 provides:
When the offeror has allowed the offeree a certain period to accept,
the offer may be withdrawn at any time before acceptance by
communicating such withdrawal, except when the option is founded
upon consideration, as something paid or promised.
in relation with Article 1479 of the same Code:
A promise to buy and sell a determine thing for a price certain is
reciprocally demandable.
An accepted unilateral promise to buy or to sell a determine thing for
a price certain is binding upon the promissor if the promise is
supported by a consideration distinct from the price.
The plaintiff cannot compel defendant Carmelo to comply with the
promise unless the former establishes the existence of a distinct
consideration. In other words, the promisee has the burden of proving
the consideration. The consideration cannot be presumed as in
Article 1354:
Although the cause is not stated in the contract, it is presumed that it
exists and is lawful unless the debtor proves the contrary.
where consideration is legally presumed to exists. Article 1354
applies to contracts in general, whereas when it comes to an option it
is governed particularly and more specifically by Article 1479 whereby
the promisee has the burden of proving the existence of
consideration distinct from the price. Thus, in the case of Sanchez vs.
Rigor, 45 SCRA 368, 372-373, the Court said:
(1) Article 1354 applies to contracts in general, whereas the second
paragraph of Article 1479 refers to sales in particular, and, more
specifically, to an accepted unilateral promise to buy or to sell. In
other words, Article 1479 is controlling in the case at bar.
(2) In order that said unilateral promise may be binding upon the
promissor, Article 1479 requires the concurrence of a condition,
namely, that the promise be supported by a consideration distinct
from the price.
Accordingly, the promisee cannot compel the promissor to comply
with the promise, unless the former establishes the existence of said
distinct consideration. In other words, the promisee has the burden of
proving such consideration. Plaintiff herein has not even alleged the
existence thereof in his complaint. 7
It follows that plaintiff cannot compel defendant Carmelo &
Bauermann to sell the C.M. Recto property to the former.
Mayfair taking exception to the decision of the trial court, the
battleground shifted to the respondent Court of Appeals. Respondent
appellate court reversed the court a quo and rendered judgment:
1. Reversing and setting aside the appealed Decision;
2. Directing the plaintiff-appellant Mayfair Theater Inc. to pay and
return to Equatorial the amount of P11,300,000.00 within fifteen (15)
days from notice of this Decision, and ordering Equatorial Realty
Development, Inc. to accept such payment;
3. Upon payment of the sum of P11,300,000, directing Equatorial
Realty Development, Inc. to execute the deeds and documents
necessary for the issuance and transfer of ownership to Mayfair of
the lot registered under TCT Nos. 17350, 118612, 60936, and 52571;
and
4. Should plaintiff-appellant Mayfair Theater, Inc. be unable to pay the
amount as adjudged, declaring the Deed of Absolute Sale between
the defendants-appellants Carmelo & Bauermann, Inc. and Equatorial
Realty Development, Inc. as valid and binding upon all the parties. 8
Rereading the law on the matter of sales and option contracts,
respondent Court of Appeals differentiated between Article 1324 and
Article 1479 of the Civil Code, analyzed their application to the facts
of this case, and concluded that since paragraph 8 of the two lease
contracts does not state a fixed price for the purchase of the leased
premises, which is an essential element for a contract of sale to be
perfected, what paragraph 8 is, must be a right of first refusal and not
an option contract. It explicated:
Firstly, the court a quo misapplied the provisions of Articles 1324 and
1479, second paragraph, of the Civil Code.
Article 1324 speaks of an "offer" made by an offeror which the offeree
may or may not accept within a certain period. Under this article, the
offer may be withdrawn by the offeror before the expiration of the
period and while the offeree has not yet accepted the offer. However,
the offer cannot be withdrawn by the offeror within the period if a
consideration has been promised or given by the offeree in exchange
for the privilege of being given that period within which to accept the
offer. The consideration is distinct from the price which is part of the
offer. The contract that arises is known as option. In the case of
Beaumont vs. Prieto, 41 Phil. 670, the Supreme court, citing Bouvier,
defined an option as follows: "A contract by virtue of which A, in
consideration of the payment of a certain sum to B, acquires the
privilege of buying from or selling to B, certain securities or properties
within a limited time at a specified price," (pp. 686-7).
Article 1479, second paragraph, on the other hand, contemplates of
an "accepted unilateral promise to buy or to sell a determinate thing
for a price within (which) is binding upon the promisee if the promise
is supported by a consideration distinct from the price." That
"unilateral promise to buy or to sell a determinate thing for a price
certain" is called an offer. An "offer", in laws, is a proposal to enter
into a contract (Rosenstock vs. Burke, 46 Phil. 217). To constitute a
legal offer, the proposal must be certain as to the object, the price
and other essential terms of the contract (Art. 1319, Civil Code).
Based on the foregoing discussion, it is evident that the provision
granting Mayfair "30-days exclusive option to purchase" the leased
premises is NOT AN OPTION in the context of Arts. 1324 and 1479,
second paragraph, of the Civil Code. Although the provision is certain
as to the object (the sale of the leased premises) the price for which
the object is to be sold is not stated in the provision Otherwise stated,
the questioned stipulation is not by itself, an "option" or the "offer to
sell" because the clause does not specify the price for the subject
property.
Although the provision giving Mayfair "30-days exclusive option to
purchase" cannot be legally categorized as an option, it is,
nevertheless, a valid and binding stipulation. What the trial court
failed to appreciate was the intention of the parties behind the
questioned proviso.
xxx xxx xxx
The provision in question is not of the pro-forma type customarily
found in a contract of lease. Even appellees have recognized that the
stipulation was incorporated in the two Contracts of Lease at the
initiative and behest of Mayfair. Evidently, the stipulation was
intended to benefit and protect Mayfair in its rights as lessee in case
Carmelo should decide, during the term of the lease, to sell the
leased property. This intention of the parties is achieved in two ways
in accordance with the stipulation. The first is by giving Mayfair "30-
days exclusive option to purchase" the leased property. The second
is, in case Mayfair would opt not to purchase the leased property,
"that the purchaser (the new owner of the leased property) shall
recognize the lease and be bound by all the terms and conditions
thereof."
In other words, paragraph 8 of the two Contracts of lease, particularly
the stipulation giving Mayfair "30-days exclusive option to purchase
the (leased premises)," was meant to provide Mayfair the opportunity
to purchase and acquire the leased property in the event that
Carmelo should decide to dispose of the property. In order to realize
this intention, the implicit obligation of Carmelo once it had decided to
sell the leased property, was not only to notify Mayfair of such
decision to sell the property, but, more importantly, to make an offer
to sell the leased premises to Mayfair, giving the latter a fair and
reasonable opportunity to accept or reject the offer, before offering to
sell or selling the leased property to third parties. The right vested in
Mayfair is analogous to the right of first refusal, which means that
Carmelo should have offered the sale of the leased premises to
Mayfair before offering it to other parties, or, if Carmelo should
receive any offer from third parties to purchase the leased premises,
then Carmelo must first give Mayfair the opportunity to match that
offer.
In fact, Mr. Pascal understood the provision as giving Mayfair a right
of first refusal when he made the telephone call to Mr. Yang in 1974.
Mr. Pascal thus testified:
Q Can you tell this Honorable Court how you made the offer to Mr.
Henry Yang by telephone?
A I have an offer from another party to buy the property and having
the offer we decided to make an offer to Henry Yang on a first-refusal
basis. (TSN November 8, 1983, p. 12.).
and on cross-examination:
Q When you called Mr. Yang on August 1974 can you remember
exactly what you have told him in connection with that matter, Mr.
Pascal?
A More or less, I told him that I received an offer from another party to
buy the property and I was offering him first choice of the enter
property. (TSN, November 29, 1983, p. 18).
We rule, therefore, that the foregoing interpretation best renders
effectual the intention of the parties. 9
Besides the ruling that paragraph 8 vests in Mayfair the right of first
refusal as to which the requirement of distinct consideration
indispensable in an option contract, has no application, respondent
appellate court also addressed the claim of Carmelo and Equatorial
that assuming arguendo that the option is valid and effective, it is
impossible of performance because it covered only the leased
premises and not the entire Claro M. Recto property, while Carmelo's
offer to sell pertained to the entire property in question. The Court of
Appeals ruled as to this issue in this wise:
We are not persuaded by the contentions of the defendants-
appellees. It is to be noted that the Deed of Absolute Sale between
Carmelo and Equatorial covering the whole Claro M. Recto property,
made reference to four titles: TCT Nos. 17350, 118612, 60936 and
52571. Based on the information submitted by Mayfair in its
appellant's Brief (pp. 5 and 46) which has not been controverted by
the appellees, and which We, therefore, take judicial notice of the two
theaters stand on the parcels of land covered by TCT No. 17350 with
an area of 622.10 sq. m and TCT No. 118612 with an area of
2,100.10 sq. m. The existence of four separate parcels of land
covering the whole Recto property demonstrates the legal and
physical possibility that each parcel of land, together with the
buildings and improvements thereof, could have been sold
independently of the other parcels.
At the time both parties executed the contracts, they were aware of
the physical and structural conditions of the buildings on which the
theaters were to be constructed in relation to the remainder of the
whole Recto property. The peculiar language of the stipulation would
tend to limit Mayfair's right under paragraph 8 of the Contract of
Lease to the acquisition of the leased areas only. Indeed, what is
being contemplated by the questioned stipulation is a departure from
the customary situation wherein the buildings and improvements are
included in and form part of the sale of the subjacent land. Although
this situation is not common, especially considering the non-
condominium nature of the buildings, the sale would be valid and
capable of being performed. A sale limited to the leased premises
only, if hypothetically assumed, would have brought into operation the
provisions of co-ownership under which Mayfair would have become
the exclusive owner of the leased premises and at the same time a
co-owner with Carmelo of the subjacent land in proportion to
Mayfair's interest over the premises sold to it. 10
Carmelo and Equatorial now comes before us questioning the
correctness and legal basis for the decision of respondent Court of
Appeals on the basis of the following assigned errors:
I
THE COURT OF APPEALS GRAVELY ERRED IN CONCLUDING
THAT THE OPTION CLAUSE IN THE CONTRACTS OF LEASE IS
ACTUALLY A RIGHT OF FIRST REFUSAL PROVISO. IN DOING
SO THE COURT OF APPEALS DISREGARDED THE CONTRACTS
OF LEASE WHICH CLEARLY AND UNEQUIVOCALLY PROVIDE
FOR AN OPTION, AND THE ADMISSION OF THE PARTIES OF
SUCH OPTION IN THEIR STIPULATION OF FACTS.
II
WHETHER AN OPTION OR RIGHT OF FIRST REFUSAL, THE
COURT OF APPEALS ERRED IN DIRECTING EQUATORIAL TO
EXECUTE A DEED OF SALE EIGHTEEN (18) YEARS AFTER
MAYFAIR FAILED TO EXERCISE ITS OPTION (OR, EVEN ITS
RIGHT OF FIRST REFUSAL ASSUMING IT WAS ONE) WHEN THE
CONTRACTS LIMITED THE EXERCISE OF SUCH OPTION TO 30
DAYS FROM NOTICE.
III
THE COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT
DIRECTED IMPLEMENTATION OF ITS DECISION EVEN BEFORE
ITS FINALITY, AND WHEN IT GRANTED MAYFAIR A RELIEF
THAT WAS NOT EVEN PRAYED FOR IN THE COMPLAINT.
IV
THE COURT OF APPEALS VIOLATED ITS OWN INTERNAL
RULES IN THE ASSIGNMENT OF APPEALED CASES WHEN IT
ALLOWED THE SAME DIVISION XII, PARTICULARLY JUSTICE
MANUEL HERRERA, TO RESOLVE ALL THE MOTIONS IN THE
"COMPLETION PROCESS" AND TO STILL RESOLVE THE MERITS
OF THE CASE IN THE "DECISION STAGE". 11
We shall first dispose of the fourth assigned error respecting alleged
irregularities in the raffle of this case in the Court of Appeals. Suffice it
to say that in our Resolution, 12 dated December 9, 1992, we already
took note of this matter and set out the proper applicable procedure
to be the following:
On September 20, 1992, counsel for petitioner Equatorial Realty
Development, Inc. wrote a letter-complaint to this Court alleging
certain irregularities and infractions committed by certain lawyers,
and Justices of the Court of Appeals and of this Court in connection
with case CA-G.R. CV No. 32918 (now G.R. No. 106063). This
partakes of the nature of an administrative complaint for misconduct
against members of the judiciary. While the letter-complaint arose as
an incident in case CA-G.R. CV No. 32918 (now G.R. No. 106063),
the disposition thereof should be separate and independent from
Case G.R. No. 106063. However, for purposes of receiving the
requisite pleadings necessary in disposing of the administrative
complaint, this Division shall continue to have control of the case.
Upon completion thereof, the same shall be referred to the Court En
Bancfor proper disposition. 13
This court having ruled the procedural irregularities raised in the
fourth assigned error of Carmelo and Equatorial, to be an
independent and separate subject for an administrative complaint
based on misconduct by the lawyers and justices implicated therein, it
is the correct, prudent and consistent course of action not to pre-empt
the administrative proceedings to be undertaken respecting the said
irregularities. Certainly, a discussion thereupon by us in this case
would entail a finding on the merits as to the real nature of the
questioned procedures and the true intentions and motives of the
players therein.
In essence, our task is two-fold: (1) to define the true nature, scope
and efficacy of paragraph 8 stipulated in the two contracts of lease
between Carmelo and Mayfair in the face of conflicting findings by the
trial court and the Court of Appeals; and (2) to determine the rights
and obligations of Carmelo and Mayfair, as well as Equatorial, in the
aftermath of the sale by Carmelo of the entire Claro M. Recto
property to Equatorial.
Both contracts of lease in question provide the identically worded
paragraph 8, which reads:
That if the LESSOR should desire to sell the leased premises, the
LESSEE shall be given 30-days exclusive option to purchase the
same.
In the event, however, that the leased premises is sold to someone
other than the LESSEE, the LESSOR is bound and obligated, as it
hereby binds and obligates itself, to stipulate in the Deed of Sale
thereof that the purchaser shall recognize this lease and be bound by
all the terms and conditions thereof. 14
We agree with the respondent Court of Appeals that the aforecited
contractual stipulation provides for a right of first refusal in favor of
Mayfair. It is not an option clause or an option contract. It is a contract
of a right of first refusal.
As early as 1916, in the case of Beaumont vs. Prieto, 15 unequivocal
was our characterization of an option contract as one necessarily
involving the choice granted to another for a distinct and separate
consideration as to whether or not to purchase a determinate thing at
a predetermined fixed price.
It is unquestionable that, by means of the document Exhibit E, to wit,
the letter of December 4, 1911, quoted at the beginning of this
decision, the defendant Valdes granted to the plaintiff Borck the right
to purchase the Nagtajan Hacienda belonging to Benito Legarda,
during the period of three months and for its assessed valuation, a
grant which necessarily implied the offer or obligation on the part of
the defendant Valdes to sell to Borck the said hacienda during the
period and for the price mentioned . . . There was, therefore, a
meeting of minds on the part of the one and the other, with regard to
the stipulations made in the said document. But it is not shown that
there was any cause or consideration for that agreement, and this
omission is a bar which precludes our holding that the stipulations
contained in Exhibit E is a contract of option, for, . . . there can be no
contract without the requisite, among others, of the cause for the
obligation to be established.
In his Law Dictionary, edition of 1897, Bouvier defines an option as a
contract, in the following language:
A contract by virtue of which A, in consideration of the payment of a
certain sum to B, acquires the privilege of buying from, or selling to B,
certain securities or properties within a limited time at a specified
price. (Story vs. Salamon, 71 N.Y., 420.)
From vol. 6, page 5001, of the work "Words and Phrases," citing the
case of Ide vs. Leiser (24 Pac., 695; 10 Mont., 5; 24 Am. St. Rep., 17)
the following quotation has been taken:
An agreement in writing to give a person the option to purchase lands
within a given timeat a named price is neither a sale nor an
agreement to sell. It is simply a contract by which the owner of
property agrees with another person that he shall have the right to
buy his property at a fixed price within a certain time. He does not sell
his land; he does not then agree to sell it; but he does sell something;
that is, the right or privilege to buy at the election or option of the
other party. The second party gets in praesenti, not lands, nor an
agreement that he shall have lands, but he does get something of
value; that is, the right to call for and receive lands if he elects. The
owner parts with his right to sell his lands, except to the second party,
for a limited period. The second party receives this right, or, rather,
from his point of view, he receives the right to elect to buy.
But the two definitions above cited refer to the contract of option, or,
what amounts to the same thing, to the case where there was cause
or consideration for the obligation, the subject of the agreement made
by the parties; while in the case at bar there was no such cause or
consideration. 16 (Emphasis ours.)
The rule so early established in this jurisdiction is that the deed of
option or the option clause in a contract, in order to be valid and
enforceable, must, among other things, indicate the definite price at
which the person granting the option, is willing to sell.
Notably, in one case we held that the lessee loses his right to buy the
leased property for a named price per square meter upon failure to
make the purchase within the time specified; 17 in one other case we
freed the landowner from her promise to sell her land if the
prospective buyer could raise P4,500.00 in three weeks because
such option was not supported by a distinct consideration; 18 in the
same vein in yet one other case, we also invalidated an instrument
entitled, "Option to Purchase" a parcel of land for the sum of
P1,510.00 because of lack of consideration; 19 and as an exception
to the doctrine enumerated in the two preceding cases, in another
case, we ruled that the option to buy the leased premises for
P12,000.00 as stipulated in the lease contract, is not without
consideration for in reciprocal contracts, like lease, the obligation or
promise of each party is the consideration for that of the other. 20 In
all these cases, the selling price of the object thereof is always
predetermined and specified in the option clause in the contract or in
the separate deed of option. We elucidated, thus, in the very recent
case of Ang Yu Asuncion vs. Court of Appeals 21 that:
. . . In sales, particularly, to which the topic for discussion about the
case at bench belongs, the contract is perfected when a person,
called the seller, obligates himself, for a price certain, to deliver and
to transfer ownership of a thing or right to another, called the buyer,
over which the latter agrees. Article 1458 of the Civil Code provides:
Art. 1458. By the contract of sale one of the contracting parties
obligates himself to transfer the ownership of and to deliver a
determinate thing, and the other to pay therefor a price certain in
money or its equivalent.
A contract of sale may be absolute or conditional.
When the sale is not absolute but conditional, such as in a "Contract
to Sell" where invariably the ownership of the thing sold in retained
until the fulfillment of a positive suspensive condition (normally, the
full payment of the purchase price), the breach of the condition will
prevent the obligation to convey title from acquiring an obligatory
force. . . .
An unconditional mutual promise to buy and sell, as long as the
object is made determinate and the price is fixed, can be obligatory
on the parties, and compliance therewith may accordingly be
exacted.
An accepted unilateral promise which specifies the thing to be sold
and the price to be paid, when coupled with a valuable consideration
distinct and separate from the price, is what may properly be termed
a perfected contract of option. This contract is legally binding, and in
sales, it conforms with the second paragraph of Article 1479 of the
Civil Code, viz:
Art. 1479. . . .
An accepted unilateral promise to buy or to sell a determinate thing
for a price certain is binding upon the promisor if the promise is
supported by a consideration distinct from the price. (1451a).
Observe, however, that the option is not the contract of sale itself.
The optionee has the right, but not the obligation, to buy. Once the
option is exercised timely, i.e., the offer is accepted before a breach
of the option, a bilateral promise to sell and to buy ensues and both
parties are then reciprocally bound to comply with their respective
undertakings.
Let us elucidate a little. A negotiation is formally initiated by an offer.
An imperfect promise (policitacion) is merely an offer. Public
advertisements or solicitations and the like are ordinarily construed as
mere invitations to make offers or only as proposals. These relations,
until a contract is perfected, are not considered binding commitments.
Thus, at any time prior to the perfection of the contract, either
negotiating party may stop the negotiation. The offer, at this stage,
may be withdrawn; the withdrawal is effective immediately after its
manifestation, such as by its mailing and not necessarily when the
offeree learns of the withdrawal (Laudico vs. Arias, 43 Phil. 270).
Where a period is given to the offeree within which to accept the
offer, the following rules generally govern:
(1) If the period is not itself founded upon or supported by a
consideration, the offeror is still free and has the right to withdraw the
offer before its acceptance, or if an acceptance has been made,
before the offeror's coming to know of such fact, by communicating
that withdrawal to the offeree (see Art. 1324, Civil Code; see also
Atkins, Kroll & Co. vs. Cua, 102 Phil. 948, holding that this rule is
applicable to a unilateral promise to sell under Art. 1479, modifying
the previous decision in South Western Sugar vs. Atlantic Gulf, 97
Phil. 249; see also Art. 1319, Civil Code; Rural Bank of Parañaque,
Inc. vs. Remolado, 135 SCRA 409; Sanchez vs. Rigos, 45 SCRA
368). The right to withdraw, however, must not be exercised
whimsically or arbitrarily; otherwise, it could give rise to a damage
claim under Article 19 of the Civil Code which ordains that "every
person must, in the exercise of his rights and in the performance of
his duties, act with justice, give everyone his due, and observe
honesty and good faith."
(2) If the period has a separate consideration, a contract of "option"
deemed perfected, and it would be a breach of that contract to
withdraw the offer during the agreed period. The option, however, is
an independent contract by itself; and it is to be distinguished from
the projected main agreement (subject matter of the option) which is
obviously yet to be concluded. If, in fact, the optioner-offeror
withdraws the offer before its acceptance (exercise of the option) by
the optionee-offeree, the latter may not sue for specific performance
on the proposed contract ("object" of the option) since it has failed to
reach its own stage of perfection. The optioner-offeror, however,
renders himself liable for damages for breach of the opinion. . .
In the light of the foregoing disquisition and in view of the wording of
the questioned provision in the two lease contracts involved in the
instant case, we so hold that no option to purchase in contemplation
of the second paragraph of Article 1479 of the Civil Code, has been
granted to Mayfair under the said lease contracts.
Respondent Court of Appeals correctly ruled that the said paragraph
8 grants the right of first refusal to Mayfair and is not an option
contract. It also correctly reasoned that as such, the requirement of a
separate consideration for the option, has no applicability in the
instant case.
There is nothing in the identical Paragraphs "8" of the June 1, 1967
and March 31, 1969 contracts which would bring them into the ambit
of the usual offer or option requiring an independent consideration.
An option is a contract granting a privilege to buy or sell within an
agreed time and at a determined price. It is a separate and distinct
contract from that which the parties may enter into upon the
consummation of the option. It must be supported by consideration.
22 In the instant case, the right of first refusal is an integral part of the
contracts of lease. The consideration is built into the reciprocal
obligations of the parties.
To rule that a contractual stipulation such as that found in paragraph
8 of the contracts is governed by Article 1324 on withdrawal of the
offer or Article 1479 on promise to buy and sell would render in
effectual or "inutile" the provisions on right of first refusal so
commonly inserted in leases of real estate nowadays. The Court of
Appeals is correct in stating that Paragraph 8 was incorporated into
the contracts of lease for the benefit of Mayfair which wanted to be
assured that it shall be given the first crack or the first option to buy
the property at the price which Carmelo is willing to accept. It is not
also correct to say that there is no consideration in an agreement of
right of first refusal. The stipulation is part and parcel of the entire
contract of lease. The consideration for the lease includes the
consideration for the right of first refusal. Thus, Mayfair is in effect
stating that it consents to lease the premises and to pay the price
agreed upon provided the lessor also consents that, should it sell the
leased property, then, Mayfair shall be given the right to match the
offered purchase price and to buy the property at that price. As stated
in Vda. De Quirino vs.Palarca, 23 in reciprocal contract, the obligation
or promise of each party is the consideration for that of the other.
The respondent Court of Appeals was correct in ascertaining the true
nature of the aforecited paragraph 8 to be that of a contractual grant
of the right of first refusal to Mayfair.
We shall now determine the consequential rights, obligations and
liabilities of Carmelo, Mayfair and Equatorial.
The different facts and circumstances in this case call for an
amplification of the precedent in Ang Yu Asuncion vs. Court of
Appeals. 24
First and foremost is that the petitioners acted in bad faith to render
Paragraph 8 "inutile".
What Carmelo and Mayfair agreed to, by executing the two lease
contracts, was that Mayfair will have the right of first refusal in the
event Carmelo sells the leased premises. It is undisputed that
Carmelo did recognize this right of Mayfair, for it informed the latter of
its intention to sell the said property in 1974. There was an exchange
of letters evidencing the offer and counter-offers made by both
parties. Carmelo, however, did not pursue the exercise to its logical
end. While it initially recognized Mayfair's right of first refusal,
Carmelo violated such right when without affording its negotiations
with Mayfair the full process to ripen to at least an interface of a
definite offer and a possible corresponding acceptance within the "30-
day exclusive option" time granted Mayfair, Carmelo abandoned
negotiations, kept a low profile for some time, and then sold, without
prior notice to Mayfair, the entire Claro M Recto property to
Equatorial.
Since Equatorial is a buyer in bad faith, this finding renders the sale
to it of the property in question rescissible. We agree with respondent
Appellate Court that the records bear out the fact that Equatorial was
aware of the lease contracts because its lawyers had, prior to the
sale, studied the said contracts. As such, Equatorial cannot tenably
claim to be a purchaser in good faith, and, therefore, rescission lies.
. . . Contract of Sale was not voidable but rescissible. Under Article
1380 to 1381(3) of the Civil Code, a contract otherwise valid may
nonetheless be subsequently rescinded by reason of injury to third
persons, like creditors. The status of creditors could be validly
accorded the Bonnevies for they had substantial interests that were
prejudiced by the sale of the subject property to the petitioner without
recognizing their right of first priority under the Contract of Lease.
According to Tolentino, rescission is a remedy granted by law to the
contracting parties and even to third persons, to secure reparation for
damages caused to them by a contract, even if this should be valid,
by means of the restoration of things to their condition at the moment
prior to the celebration of said contract. It is a relief allowed for the
protection of one of the contracting parties and even third persons
from all injury and damage the contract may cause, or to protect
some incompatible and preferent right created by the contract.
Rescission implies a contract which, even if initially valid, produces a
lesion or pecuniary damage to someone that justifies its invalidation
for reasons of equity.
It is true that the acquisition by a third person of the property subject
of the contract is an obstacle to the action for its rescission where it is
shown that such third person is in lawful possession of the subject of
the contract and that he did not act in bad faith. However, this rule is
not applicable in the case before us because the petitioner is not
considered a third party in relation to the Contract of Sale nor may its
possession of the subject property be regarded as acquired lawfully
and in good faith.
Indeed, Guzman, Bocaling and Co. was the vendee in the Contract of
Sale. Moreover, the petitioner cannot be deemed a purchaser in good
faith for the record shows that it categorically admitted it was aware of
the lease in favor of the Bonnevies, who were actually occupying the
subject property at the time it was sold to it. Although the Contract of
Lease was not annotated on the transfer certificate of title in the
name of the late Jose Reynoso and Africa Reynoso, the petitioner
cannot deny actual knowledge of such lease which was equivalent to
and indeed more binding than presumed notice by registration.
A purchaser in good faith and for value is one who buys the property
of another without notice that some other person has a right to or
interest in such property and pays a full and fair price for the same at
the time of such purchase or before he has notice of the claim or
interest of some other person in the property. Good faith connotes an
honest intention to abstain from taking unconscientious advantage of
another. Tested by these principles, the petitioner cannot tenably
claim to be a buyer in good faith as it had notice of the lease of the
property by the Bonnevies and such knowledge should have
cautioned it to look deeper into the agreement to determine if it
involved stipulations that would prejudice its own interests.
The petitioner insists that it was not aware of the right of first priority
granted by the Contract of Lease. Assuming this to be true, we
nevertheless agree with the observation of the respondent court that:
If Guzman-Bocaling failed to inquire about the terms of the Lease
Contract, which includes Par. 20 on priority right given to the
Bonnevies, it had only itself to blame. Having known that the property
it was buying was under lease, it behooved it as a prudent person to
have required Reynoso or the broker to show to it the Contract of
Lease in which Par. 20 is contained. 25
Petitioners assert the alleged impossibility of performance because
the entire property is indivisible property. It was petitioner Carmelo
which fixed the limits of the property it was leasing out. Common
sense and fairness dictate that instead of nullifying the agreement on
that basis, the stipulation should be given effect by including the
indivisible appurtenances in the sale of the dominant portion under
the right of first refusal. A valid and legal contract where the
ascendant or the more important of the two parties is the landowner
should be given effect, if possible, instead of being nullified on a
selfish pretext posited by the owner. Following the arguments of
petitioners and the participation of the owner in the attempt to strip
Mayfair of its rights, the right of first refusal should include not only
the property specified in the contracts of lease but also the
appurtenant portions sold to Equatorial which are claimed by
petitioners to be indivisible. Carmelo acted in bad faith when it sold
the entire property to Equatorial without informing Mayfair, a clear
violation of Mayfair's rights. While there was a series of exchanges of
letters evidencing the offer and counter-offers between the parties,
Carmelo abandoned the negotiations without giving Mayfair full
opportunity to negotiate within the 30-day period.
Accordingly, even as it recognizes the right of first refusal, this Court
should also order that Mayfair be authorized to exercise its right of
first refusal under the contract to include the entirety of the indivisible
property. The boundaries of the property sold should be the
boundaries of the offer under the right of first refusal. As to the
remedy to enforce Mayfair's right, the Court disagrees to a certain
extent with the concluding part of the dissenting opinion of Justice
Vitug. The doctrine enunciated in Ang Yu Asuncion vs.Court of
Appeals should be modified, if not amplified under the peculiar facts
of this case.
As also earlier emphasized, the contract of sale between Equatorial
and Carmelo is characterized by bad faith, since it was knowingly
entered into in violation of the rights of and to the prejudice of
Mayfair. In fact, as correctly observed by the Court of Appeals,
Equatorial admitted that its lawyers had studied the contract of lease
prior to the sale. Equatorial's knowledge of the stipulations therein
should have cautioned it to look further into the agreement to
determine if it involved stipulations that would prejudice its own
interests.
Since Mayfair has a right of first refusal, it can exercise the right only
if the fraudulent sale is first set aside or rescinded. All of these
matters are now before us and so there should be no piecemeal
determination of this case and leave festering sores to deteriorate
into endless litigation. The facts of the case and considerations of
justice and equity require that we order rescission here and now.
Rescission is a relief allowed for the protection of one of the
contracting parties and even third persons from all injury and damage
the contract may cause or to protect some incompatible and preferred
right by the contract. 26 The sale of the subject real property by
Carmelo to Equatorial should now be rescinded considering that
Mayfair, which had substantial interest over the subject property, was
prejudiced by the sale of the subject property to Equatorial without
Carmelo conferring to Mayfair every opportunity to negotiate within
the 30-day stipulated period. 27
This Court has always been against multiplicity of suits where all
remedies according to the facts and the law can be included. Since
Carmelo sold the property for P11,300,000.00 to Equatorial, the price
at which Mayfair could have purchased the property is, therefore,
fixed. It can neither be more nor less. There is no dispute over it. The
damages which Mayfair suffered are in terms of actual injury and lost
opportunities. The fairest solution would be to allow Mayfair to
exercise its right of first refusal at the price which it was entitled to
accept or reject which is P11,300,000.00. This is clear from the
records.
To follow an alternative solution that Carmelo and Mayfair may
resume negotiations for the sale to the latter of the disputed property
would be unjust and unkind to Mayfair because it is once more
compelled to litigate to enforce its right. It is not proper to give it an
empty or vacuous victory in this case. From the viewpoint of Carmelo,
it is like asking a fish if it would accept the choice of being thrown
back into the river. Why should Carmelo be rewarded for and allowed
to profit from, its wrongdoing? Prices of real estate have skyrocketed.
After having sold the property for P11,300,000.00, why should it be
given another chance to sell it at an increased price?
Under the Ang Yu Asuncion vs. Court of Appeals decision, the Court
stated that there was nothing to execute because a contract over the
right of first refusal belongs to a class of preparatory juridical relations
governed not by the law on contracts but by the codal provisions on
human relations. This may apply here if the contract is limited to the
buying and selling of the real property. However, the obligation of
Carmelo to first offer the property to Mayfair is embodied in a
contract. It is Paragraph 8 on the right of first refusal which created
the obligation. It should be enforced according to the law on contracts
instead of the panoramic and indefinite rule on human relations. The
latter remedy encourages multiplicity of suits. There is something to
execute and that is for Carmelo to comply with its obligation to the
property under the right of the first refusal according to the terms at
which they should have been offered then to Mayfair, at the price
when that offer should have been made. Also, Mayfair has to accept
the offer. This juridical relation is not amorphous nor is it merely
preparatory. Paragraphs 8 of the two leases can be executed
according to their terms.
On the question of interest payments on the principal amount of
P11,300,000.00, it must be borne in mind that both Carmelo and
Equatorial acted in bad faith. Carmelo knowingly and deliberately
broke a contract entered into with Mayfair. It sold the property to
Equatorial with purpose and intend to withhold any notice or
knowledge of the sale coming to the attention of Mayfair. All the
circumstances point to a calculated and contrived plan of non-
compliance with the agreement of first refusal.
On the part of Equatorial, it cannot be a buyer in good faith because it
bought the property with notice and full knowledge that Mayfair had a
right to or interest in the property superior to its own. Carmelo and
Equatorial took unconscientious advantage of Mayfair.
Neither may Carmelo and Equatorial avail of considerations based on
equity which might warrant the grant of interests. The vendor
received as payment from the vendee what, at the time, was a full
and fair price for the property. It has used the P11,300,000.00 all
these years earning income or interest from the amount. Equatorial,
on the other hand, has received rents and otherwise profited from the
use of the property turned over to it by Carmelo. In fact, during all the
years that this controversy was being litigated, Mayfair paid rentals
regularly to the buyer who had an inferior right to purchase the
property. Mayfair is under no obligation to pay any interests arising
from this judgment to either Carmelo or Equatorial.
WHEREFORE, the petition for review of the decision of the Court of
Appeals, dated June 23, 1992, in CA-G.R. CV No. 32918, is
HEREBY DENIED. The Deed of Absolute Sale between petitioners
Equatorial Realty Development, Inc. and Carmelo & Bauermann, Inc.
is hereby deemed rescinded; petitioner Carmelo & Bauermann is
ordered to return to petitioner Equatorial Realty Development the
purchase price. The latter is directed to execute the deeds and
documents necessary to return ownership to Carmelo and
Bauermann of the disputed lots. Carmelo & Bauermann is ordered to
allow Mayfair Theater, Inc. to buy the aforesaid lots for
P11,300,000.00.
SO ORDERED.