G.R. No.
L-15127 May 30, 1961
EMETERIO CUI, plaintiff-appellant,
vs.
ARELLANO UNIVERSITY, defendant-appellee.
CONCEPCION, J.:
Appeal by plaintiff Emeterio Cui from a decision of the Court of First
Instance of Manila, absolving defendant Arellano University from
plaintiff's complaint, with costs against the plaintiff, and dismissing
defendant's counter claim, for insufficiency of proof thereon.
In the language of the decision appealed from:
The essential facts of this case are short and undisputed. As
established by the agreement of facts Exhibits X and by the
respective oral and documentary evidence introduced by the
parties, it appears conclusive that plaintiff, before the school
year 1948-1949 took up preparatory law course in the
defendant University. After finishing his preparatory law
course plaintiff enrolled in the College of Law of the defendant
from the school year 1948-1949. Plaintiff finished his law
studies in the defendant university up to and including the first
semester of the fourth year. During all the school years in
which plaintiff was studying law in defendant law college,
Francisco R. Capistrano, brother of the mother of plaintiff, was
the dean of the College of Law and legal counsel of the
defendant university. Plaintiff enrolled for the last semester of
his law studies in the defendant university but failed to pay his
tuition fees because his uncle Dean Francisco R. Capistrano
having severed his connection with defendant and having
accepted the deanship and chancellorship of the College of
Law of Abad Santos University, plaintiff left the defendant's
law college and enrolled for the last semester of his fourth year
law in the college of law of the Abad Santos University
graduating from the college of law of the latter university.
Plaintiff, during all the time he was studying law in defendant
university was awarded scholarship grants, for scholastic
merit, so that his semestral tuition fees were returned to him
after the ends of semester and when his scholarship grants
were awarded to him. The whole amount of tuition fees paid
by plaintiff to defendant and refunded to him by the latter from
the first semester up to and including the first semester of his
last year in the college of law or the fourth year, is in total
P1,033.87. After graduating in law from Abad Santos
University he applied to take the bar examination. To secure
permission to take the bar he needed the transcripts of his
records in defendant Arellano University. Plaintiff petitioned
the latter to issue to him the needed transcripts. The defendant
refused until after he had paid back the P1,033 87 which
defendant refunded to him as above stated. As he could not
take the bar examination without those transcripts, plaintiff
paid to defendant the said sum under protest. This is the sum
which plaintiff seeks to recover from defendant in this case.
Before defendant awarded to plaintiff the scholarship grants
as above stated, he was made to sign the following contract
covenant and agreement:
"In consideration of the scholarship granted to me by the
University, I hereby waive my right to transfer to another
school without having refunded to the University (defendant)
the equivalent of my scholarship cash.
(Sgd.) Emeterio Cui".
It is admitted that, on August 16, 1949, the Director of Private Schools
issued Memorandum No. 38, series of 1949, on the subject of
"Scholarship," addressed to "All heads of private schools, colleges and
universities," reading:
1. School catalogs and prospectuses submitted to this,
Bureau show that some schools offer full or partial
scholarships to deserving students — for excellence in
scholarship or for leadership in extra-curricular activities. Such
inducements to poor but gifted students should be
encouraged. But to stipulate the condition that such
scholarships are good only if the students concerned continue
in the same school nullifies the principle of merit in the award
of these scholarships.
2. When students are given full or partial scholarships, it is
understood that such scholarships are merited and earned.
The amount in tuition and other fees corresponding to these
scholarships should not be subsequently charged to the
recipient students when they decide to quit school or to
transfer to another institution. Scholarships should not be
offered merely to attract and keep students in a school.
3. Several complaints have actually been received from
students who have enjoyed scholarships, full or partial, to the
effect that they could not transfer to other schools since their
credentials would not be released unless they would pay the
fees corresponding to the period of the scholarships. Where
the Bureau believes that the right of the student to transfer is
being denied on this ground, it reserves the right to authorize
such transfer.
that defendant herein received a copy of this memorandum; that plaintiff
asked the Bureau of Private Schools to pass upon the issue on his right
to secure the transcript of his record in defendant University, without
being required to refund the sum of P1,033.87; that the Bureau of
Private Schools upheld the position taken by the plaintiff and so advised
the defendant; and that, this notwithstanding, the latter refused to issue
said transcript of records, unless said refund were made, and even
recommended to said Bureau that it issue a written order directing the
defendant to release said transcript of record, "so that the case may be
presented to the court for judicial action." As above stated, plaintiff was,
accordingly, constrained to pay, and did pay under protest, said sum of
P1,033.87, in order that he could take the bar examination in 1953.
Subsequently, he brought this action for the recovery of said amount,
aside from P2,000 as moral damages, P500 as exemplary damages,
P2,000 as attorney's fees, and P500 as expenses of litigation.
In its answer, defendant reiterated the stand it took, vis-a-vis the Bureau
of Private Schools, namely, that the provisions of its contract with
plaintiff are valid and binding and that the memorandum above-referred
to is null and void. It, likewise, set up a counterclaim for P10,000.00 as
damages, and P3,000 as attorney's fees.
The issue in this case is whether the above quoted provision of the
contract between plaintiff and the defendant, whereby the former waived
his right to transfer to another school without refunding to the latter the
equivalent of his scholarships in cash, is valid or not. The lower court
resolved this question in the affirmative, upon the ground that the
aforementioned memorandum of the Director of Private Schools is not
a law; that the provisions thereof are advisory, not mandatory in nature;
and that, although the contractual provision "may be unethical, yet it was
more unethical for plaintiff to quit studying with the defendant without
good reasons and simply because he wanted to follow the example of
his uncle." Moreover, defendant maintains in its brief that the
aforementioned memorandum of the Director of Private Schools is null
and void because said officer had no authority to issue it, and because
it had been neither approved by the corresponding department head nor
published in the official gazette.
We do not deem it necessary or advisable to consider as the lower court
did, the question whether plaintiff had sufficient reasons or not to
transfer from defendant University to the Abad Santos University. The
nature of the issue before us, and its far reaching effects, transcend
personal equations and demand a determination of the case from a high
impersonal plane. Neither do we deem it essential to pass upon the
validity of said Memorandum No. 38, for, regardless of the same, we
are of the opinion that the stipulation in question is contrary to public
policy and, hence, null and void. The aforesaid memorandum merely
incorporates a sound principle of public policy. As the Director of Private
Schools correctly pointed, out in his letter, Exhibit B, to the defendant,
There is one more point that merits refutation and that is
whether or not the contract entered into between Cui and
Arellano University on September 10, 1951 was void as
against public policy. In the case of Zeigel vs. Illinois Trust and
Savings Bank, 245 Ill. 180, 19 Ann. Case 127, the court said:
'In determining a public policy of the state, courts are limited
to a consideration of the Constitution, the judicial decisions,
the statutes, and the practice of government officers.' It might
take more than a government bureau or office to lay down or
establish a public policy, as alleged in your communication,
but courts consider the practices of government officials as
one of the four factors in determining a public policy of the
state. It has been consistently held in America that under the
principles relating to the doctrine of public policy, as applied to
the law of contracts, courts of justice will not recognize or
uphold a transaction which its object, operation, or tendency
is calculated to be prejudicial to the public welfare, to sound
morality or to civic honesty (Ritter vs. Mutual Life Ins. Co., 169
U.S. 139; Heding vs. Gallaghere 64 L.R.A. 811; Veazy vs.
Allen, 173 N.Y. 359). If Arellano University understood clearly
the real essence of scholarships and the motives which
prompted this office to issue Memorandum No. 38, s. 1949, it
should have not entered into a contract of waiver with Cui on
September 10, 1951, which is a direct violation of our
Memorandum and an open challenge to the authority of the
Director of Private Schools because the contract was
repugnant to sound morality and civic honesty. And finally, in
Gabriel vs. Monte de Piedad, Off. Gazette Supp. Dec. 6, 1941,
p. 67 we read: 'In order to declare a contract void as against
public policy, a court must find that the contract as to
consideration or the thing to be done, contravenes some
established interest of society, or is inconsistent with sound
policy and good moralsor tends clearly to undermine the
security of individual rights. The policy enunciated in
Memorandum No. 38, s. 1949 is sound policy. Scholarship are
awarded in recognition of merit not to keep outstanding
students in school to bolster its prestige. In the understanding
of that university scholarships award is a business
scheme designed to increase the business potential of an
education institution. Thus conceived it is not only inconsistent
 with sound policy but also good morals. But what is morals?
Manresa has this definition. It is good customs; those
generally accepted principles of morality which have received
some kind of social and practical confirmation. The practice of
awarding scholarships to attract students and keep them in
school is not good customs nor has it received some kind of
social and practical confirmation except in some private
institutions as in Arellano University. The University of the
Philippines which implements Section 5 of Article XIV of the
Constitution with reference to the giving of free scholarships
to gifted children, does not require scholars to reimburse the
corresponding value of the scholarships if they transfer to
other schools. So also with the leading colleges and
universities of the United States after which our educational
practices or policies are patterned. In these institutions
scholarships are granted not to attract and to keep brilliant
students in school for their propaganda mine but to reward
merit or help gifted students in whom society has an
established interest or a first lien. (Emphasis supplied.)
WHEREFORE, the decision appealed from is hereby reversed and
another one shall be entered sentencing the defendant to pay to the
plaintiff the sum of P1,033.87, with interest thereon at the legal rate from
September 1, 1954, date of the institution of this case, as well as the
costs, and dismissing defendant's counterclaim. It is so ordered.
G.R. No. L-10551 March 3, 1917
IGNACIO ARROYO, plaintiff-appellant,
vs.
ALFRED BERWIN, defendant-appellee.
CARSON, J.:
The complaint filed in this action is as follows:
1. That both the plaintiff and the defendant are residents of the
municipality of Iloilo, Province of Iloilo, Philippine Islands.
2. That the defendant is a procurador judicial in the law office
of the Attorney John Bordman, and is duly authorized by the
court to practice in justice of the peaces courts of the Province
of Iloilo.
3. That the defendant, as such procurador judicial,
represented Marcela Juanesa in the justice of the peace court
of Iloilo in proceeding for theft prosecuted by the plaintiff
Ignacio Arroyo; that said cause was decided by the said justice
of the peace against the accused, and the latter appealed to
the Court of First Instance of Iloilo.
4. That on August 14, 1914, which was the day set for the
hearing of the appeal of the said cause against Marcela
Juaneza for theft, Case No. 3120, the defendant requested
the plaintiff to agree to dismiss the said criminal proceeding,
and, on August 14, 1914, stipulated with the plaintiff in the
presence of Roque Samson, among other things, that his
client Marcela Juaneza would recognize the plaintiff's
ownership in the land situated on Calle San Juan, suburb of
Molo, municipality of Iloilo, Province of Iloilo, where his said
client ordered the cane cut, which land and which cut cane are
referred to in the cause for theft above-mentioned; and the
defendant furthermore agreed that the plaintiff should obtain a
Torrens title to the said land during the next term of the court
for the trial of cadastral cases, and that the defendant's client,
Marcela Juaneza, would not oppose the application for
registration to be filed by the said applicant; provided that the
plaintiff would ask the prosecuting attorney to dismiss the said
proceedings filed against Marcela Juaneza and Alejandro
Castro for the crime of theft.
5. That the plaintiff on his part complied with the agreement,
and requested the prosecuting attorney to dismiss the above-
mentioned criminal cause; that the latter petitioned the court
and the court did dismiss the said cause; that in exchange the
defendant does not wish to comply with the above-mentioned
agreement; that the plaintiff delivered to the defendant for the
signature of the said Marcela Juaneza a written agreement
stating that the defendant's said client recognized the
plaintiff's ownership in the described land and that she would
not oppose the plaintiff's application for registration; and that
up to the present time, the defendant has not returned to the
plaintiff the said written agreement, notwithstanding the
plaintiff's many demands.
Therefore, the plaintiff prays the court to render judgment
ordering the defendant to comply with the agreement by
causing the latter's said client Marcela Juaneza to sign the
document in which she recognizes the plaintiff's ownership of
the land on which she ordered the cane cut and states that
she will not oppose the plaintiff's application for the registration
of the said land, and, further, by awarding to the plaintiff the
costs of the present suit, as well as any other relief that justice
and equity require.
The trial judge dismissed this complaint on the ground of the illegality of
the consideration of the alleged contract, and without stopping to
consider any other objection to the complaint than that indicated by the
court below, we are of opinion that the order appealed from must be
affirmed.
An agreement by the owner of stolen goods to stifle the prosecution of
the person charged with the theft, for a pecuniary or other valuable
consideration, is manifestly contrary to public policy and the due
administration of justice. In the interest of the public it is of the utmost
importance that criminals should be prosecuted, and that all criminal
proceedings should be instituted and maintained in the form and
manner prescribed by law; and to permit an offender to escape the
penalties prescribed by law by the purchase of immunity from private
individuals would result in a manifest perversion of justice.
Article 1255 of the Civil Code provides that:
The contracting parties may make the agreement and
establish the clauses and conditions which they may dream
advisable, provided they are not in contravention of law,
morals, or public order.
Article 1275 provides that:
Contracts without consideration or with an illicit one have no
effect whatsoever. A consideration is illicit when it is contrary
to law and good morals.
The order entered in the court below should, therefore, be affirmed, with
the costs of the instance against the appellant. So ordered.
G.R. No. L-19638 June 20, 1966
FILIPINAS COMPAÑIA DE SEGUROS, ET AL., petitioners and
appellees,
vs.
HON. FRANCISCO Y. MANDANAS, in his capacity as Insurance
Commissioner, respondent and appellant.
AGRICULTURAL FIRE INSURANCE & SURETY CO., INC., ET
AL., intervenors and appellees.
CONCEPCION, C.J.:
This is a special civil action for a declaratory relief Thirty-nine (39) non-
life insurance companies instituted it, in the Court of First Instance of
Manila, to secure a declaration of legality of Article 22 of the Constitution
of the Philippine Rating Bureau, of which they are members, inasmuch
as respondent Insurance Commissioner assails its validity upon the
ground that it constitutes an illegal or undue restraint of trade.
Subsequently to the filing of the petition, twenty (20) other non-life
insurance companies, likewise, members of said Bureau, were allowed
to intervene in support of the petition. After appropriate proceedings,
said court rendered judgment declaring that the aforementioned Article
22 is neither contrary to law nor against public policy, and that,
accordingly, petitioners herein, as well as the intervenors and other
members of the aforementioned Bureau, may lawfully observe and
enforce said Article, and are bound to comply with the provisions
thereof, without special pronouncement as to costs. Hence this appeal
by respondent Insurance Commissioner, who insists that the Article in
question constitutes an illegal or undue restraint of trade and, hence,
null and void.
The record discloses that on March 11, 1960, respondent wrote to said
Bureau, a communication expressing his doubts of the validity of said
Article 22, reading:
xxx xxx xxx
In respect to the classes of insurance specified in the Objects
of the Bureau1 and for Philippine business only, the members
of this Bureau agree not to represent nor to effect reinsurance
with, nor to accept reinsurance from, any Company, Body, or
Underwriter licensed to do business in the Philippines not a
Member in good standing of this Bureau.
and requesting that said provision, be, accordingly, repealed. On April
11, 1960, respondent wrote another letter to the Bureau inquiring on the
action taken on the subject-matter of his previous communication. In
reply thereto, the Bureau advised respondent that the suggestion to
delete said Article 22 was still under consideration by a committee of
said Bureau. Soon thereafter, or on May 9, 1961, the latter was advised
by respondent that, being an illegal agreement or combination in
restraint of trade, said Article should not be given force and effect; that
failure to comply with this requirement would compel respondent to
suspend the license issued to the Bureau; and that the latter should
circularize all of its members on this matter and advise them that
"violation of this requirement by any member of the Bureau" would also
compel respondent "to suspend the certificate of authority of the
company concerned to do business in the Philippines". Thereupon, or
on May 16, 1961, the present action was commenced.
Briefly, appellant maintains that, since, in the aforementioned Article 22,
members of the Bureau "agree not to represent nor to effect reinsurance
with, nor to accept reinsurance from any company, body, or underwriter,
licensed to do business in the Philippines not a member in good
standing of the Bureau", said provision is illegal as a combination in
restraint of trade. As early as August 10, 1916, this Court had had
occasion to declare that the test on whether a given agreement
constitutes an unlawful machination or a combination in restraint of
trade
... is, whether, under the particular circumstances of the case
and the nature of the particular contract involved in it, the
contract is, or is not, unreasonable. (Ferrazini vs. Gsell, 34
Phil. 697, 712-13.)
This view was reiterated in Ollendorf vs. Abrahamson (38 Phil. 585)
and Red Line Transportation Co. vs. Bachrach Motor Co. (67 Phil. 77),
in the following language:
...The general tendency, we believe, of modern authority, is to
make the test whether the restraint is reasonably necessary
for the protection of the contracting parties. If the contract is
reasonably necessary to protect the interest of the parties, it
will be upheld.
xxx xxx xxx
...we adopt the modern rule that the validity of restraints upon
trade or employment is to be determined by the intrinsic
reasonableness of the restriction in each case, rather than by
any fixed rule, and that such restrictions may be upheld when
not contrary to the public welfare and not greater than is
necessary to afford a fair and reasonable protection to the
party in whose favor it is imposed. (Ollendorf vs. Abrahamson,
38 Phil. 585.)
...The test of validity is whether under the particular
circumstances of the case and considering the nature of the
particular contract involved, public interest and welfare are not
involved and the restraint is not only reasonably necessary for
the protection of the contracting parties but will not affect the
public interest or service. (Red Line Transportation Co. vs.
Bachrach Motor Co., 67 Phil. 77.) (See also, Del Castillo vs.
Richmond, 45 Phil. 483.)
The issue in the case at bar hinges, therefore, on the purpose or effect
of the disputed provision. The only evidence on this point is the
uncontradicted testimony of Salvador Estrada, Chairman of the Bureau
when it was first organized and when he took the witness stand. Briefly
stated, he declared that the purpose of Article 22 is to maintain a high
degree or standard of ethical practice, so that insurance companies may
earn and maintain the respect of the public, because the intense
competition between the great number of non-life insurance companies
operating in the Philippines is conducive to unethical practices,
oftentimes taking the form of underrating; that to achieve this purpose it
is highly desirable to have cooperative action between said companies
in the compilation of their total experience in the business, so that the
Bureau could determine more accurately the proper rate of premium to
be charged from the insured; that, several years ago, the very Insurance
Commissioner had indicated to the Bureau the necessity of doing
something to combat underrating, for, otherwise, he would urge the
amendment of the law so that appropriate measures could be taken
therefor by his office; that much of the work of the Bureau has to do with
rate-making and policy-wording; that rate-making is actually dependent
very much on statistics; that, unlike life insurance companies, which
have tables of mortality to guide them in the fixing of rates, non-life
insurance companies have, as yet, no such guides; that, accordingly,
non-life insurance companies need an adequate record of losses and
premium collections that will enable them to determine the amount of
risk involved in each type of risk and, hence, to determine the rates or
premiums that should be charged in insuring every type of risk; that this
information cannot be compiled without full cooperation on the part of
the companies concerned, which cannot be expected from non-
members of the Bureau, over which the latter has no control; and that,
in addition to submitting information about their respective experience,
said Bureau members must, likewise, share in the rather appreciable
expenses entailed in compiling the aforementioned data and in
analyzing the same.1äwphï1.ñët
We find nothing unlawful, or immoral, or unreasonable, or contrary to
public policy either in the objectives thus sought to be attained by the
Bureau, or in the means availed of to achieve said objectives, or in the
consequences of the accomplishment thereof. The purpose of said
Article 22 is not to eliminate competition, but to promote ethical
practices among non-life insurance companies, although, incidentally it
may discourage, and hence, eliminate unfaircompetition, through
underrating, which in itself is eventually injurious to the public. Indeed,
in the words of Mr. Justice Brandeis:
... the legality of an agreement or regulation cannot be
determined by so simple a test, as whether it restrains
competition. Every agreement concerning trade, every
regulation of trade, restrains. To bind, to restrain, is of their
very essence. The true test of legality is whether the restraint
imposed is such as merely regulates and promotes
competition, or whether it is such as may suppress or even
destroy competition. To determine that question the court
must ordinarily consider the facts peculiar to the business to
which the restraint is applied; its condition before and after the
restraint was imposed; the nature of the restraint, and its
effect, actual or probable. (Board of Trade of Chicago vs. U.S.,
246 U.S. 231, 62 L. ed. 683 [1918].)
Thus, in Sugar Institute, Inc. vs. U.S. (297 U.S. 553), the Federal
Supreme Court added:
The restrictions imposed by the Sherman Act are not
mechanical or artificial. We have repeatedly said that they set
up the essential standard of reasonableness. Standard Oil Co.
vs. United States, 221 U.S. 1, 55 L. ed. 619, 31 S. Ct. 502, 34
L.R.A. (N.S.) 834, Ann. Cas. 1912D, 734; United States vs.
American Tobacco Co., 221 U.S. 106, 55 L. ed. 663, 31 S. Ct.
632. They are aimed at contracts and combinations which "by
reason of intent or the inherent nature of the contemplated
acts, prejudice the public interests by unduly restraining
competition or unduly obstructing the course of trade." Nash
vs. United States, 229 U.S. 373, 376, 57 L. ed. 1232, 1235, 33
S. Ct. 780; United States vs. American Linseed Oil Co., 262
U.S. 371, 388, 389, 67 L. ed. 1035, 1040, 1041, 43 S. Ct. 607.
Designed to frustrate unreasonable restraints, they do not
prevent the adoption of reasonable means to protect interstate
commerce from destructive or injurious practices and to
promote competition upon a sound basis. Voluntary action to
end abuses and to foster fair competitive opportunities in the
public interest may be more effective than legal processes.
And cooperative endeavor may appropriately have wider
objectives than merely the removal of evils which are
infractions of positive law.
Hence, the City Fiscal of Manila refused to prosecute criminally in
Manila Fire Insurance Association for following a policy analogous to
that incorporated in the provision disputed in this case and the action of
said official was sustained by the Secretary of Justice, upon the ground a. To establish rates in respect of Fire, Earthquake, Riot and
that: Civil Commotion, Automobile and Workmen's Compensation,
... combinations among insurance companies or their agents and whenever applicable, Marine Insurance business.
to fix and control rates of insurance do not constitute indictable xxx xxx xxx
conspiracies, provided no unlawful means are used in c. To file the rates referred to above, tariff rules, and all other
accomplishing their purpose (41 C.J. 161; Aetna Ins. Co. vs. conditions or data which may in any way affect premium rates
Commonwealth, 106 Ky. 864, 51 SW 624; Queen Ins. Co. vs. with the Office of the Insurance Commissioner on behalf of
State, 86 Tex. 250, 24 SW 397; I Joyce on Insurance, par. members for approval. (Emphasis ours.)
329-a).
In compliance with the aforementioned Circular No. 54, in April, 1954,
Indeed, Mr. Estrada's testimony shows that the limitation upon the Bureau applied for the license required therein, and submitted with
reinsurance contained in the aforementioned Article 22 does not affect its application a copy of said Constitution. On April 28, 1954,
the public at all, for, whether there is reinsurance or not, the liability of respondent's office issued to the Bureau the license applied for,
the insurer in favor of the insured is the same. Besides, there are certifying not only that it had complied with the requirements of Circular
sufficient foreign reinsurance companies operating in the Philippines No. 54, but, also, that the license empowered it "to engage in the making
from which non-members of the Bureau may secure reinsurance. What of rates or policy conditions to be used by insurance companies in the
is more, whatever the Bureau may do in the matter of rate-fixing is not Philippines". Subsequently, thereafter, the Bureau applied for and was
decisive insofar as the public is concerned, for no insurance company granted yearly the requisite license to operate in accordance with the
in the Philippines may charge a rate of premium that has not been provisions of its Constitution. During all this time, respondent's office did
approved by the Insurance Commissioner. not question, but impliedly acknowledged, the legality of Article 22. It
In fact, respondent's Circular No. 54, dated February 261 1954, was not until March 11, 1960, that it assailed its validity.
provides: Respondent's contention is anchored mainly on Paramount Famous
II. Non-life Insurance company or Group Association of such Lasky Corp. vs. U.S., 282 U.S. 30, but the same is not in point, not only
companies. because it refers to the conditions under which movie film producers
Every non-life insurance company or group or association of and distributors determine the terms under which theaters or exhibitors
such companies doing business in the Philippines shall file may be allowed to run movie films — thereby placing the exhibitors
with the Insurance Commissioner for approval general basic under the control of the producers or distributors and giving the
schedules showing the premium rates on all classes of exhibitors, in effect, no choice as to what films and whose films they will
risk except marine, as distinguished from inland marine show — but, also, because there is, in the film industry, no agency or
insurable by such insurance company or association of officer with powers or functions comparable to those in the Insurance
insurance companies in this country. Commissioner, as regards the regulation of the business concerned and
of the transactions involved therein.
xxx xxx xxx
Wherefore, the decision appealed from should be, as it is hereby
An insurance company or group of such companies may
affirmed, without costs. It is so ordered.
satisfy its obligation to make such filings by becoming a
member of or subscriber to a rating organization which makes
such filing and by authorizing the insurance commissioner to
accept such filings of the rating organization on such
company's or group's behalf.
III. Requiring Previous Application to and Approval by the
Insurance Commissioner before any Change in the Rates
Schedules filed with Him Shall Take Effect.
No change in the schedules filed in compliance with the
requirements of the next preceding paragraph shall be made
except upon application duly filed with and approved by the
Insurance Commissioner. Said application shall state the
changes proposed and the date of their effectivity; all changes
finally approved by the Insurance Commissioner shall be
incorporated in the old schedules or otherwise indicated as
new in the new schedules.
IV. Empowering the Insurance Commissioner to Investigate
All Non-Life Insurance Rates.
The Insurance Commissioner shall have power to examine
any or all rates established by non-life insurance companies
or group or association of such insurance companies in the
country. Should any rate appear, in the opinion of the
Insurance Commissioner, unreasonably high or not adequate
to the financial safety or soundness to the company charging
the same, or pre-judicial to policy-holders, the Commissioner
shall, in such case, hold a hearing and/or conduct an
investigation. Should the result of such hearing and/or
investigation show that the rate is unreasonably high or low
that it is not adequate to the financial safety and soundness of
the company charging the same, or is prejudicial to policy-
holders, the Insurance Commissioner shall direct a revision of
the said rate in accordance with his findings. Any insurance
company or group or association of insurance companies may
be required to publish the schedule of rates which may have
been revised in accordance herewith.
The decision of the Insurance Commissioner shall be appealable within
thirty days after it has been rendered to the Secretary of Finance.
V. Prohibiting Non-life Insurance Companies and their Agents
from Insuring Any Property in this Country at a Rate Different
from that in the Schedules; Unethical Practices.
No insurance company shall engage or participate in the
insurance of any property located in the Philippines ... unless
the schedule of rates under which such property is insured has
been filed and approved in accordance with the provisions of
this Circular. ... . (Emphasis ours.)
On the same date, the Constitution of the Bureau, containing a provision
substantially identical to the one now under consideration, was
approved. Article 2 of said Constitution reads:
2. OBJECTS
The objects of the Bureau shall be:
G.R. No. 126800 November 29, 1999
NATALIA P. BUSTAMANTE, petitioner,
vs.
SPOUSES RODITO F. ROSEL and NORMA A. ROSEL, respondents.
RESOLUTION
PARDO, J.:
The case before the Court is a petition for review on certiorari 1 to annul
the decision of the Court of Appeals, 2reversing and setting aside the
decision of the Regional Trial Court, 3 Quezon City, Branch 84, in an
action for specific performance with consignation.
On March 8, 1987, at Quezon City, Norma Rosel entered into a loan
agreement with petitioner Natalia Bustamante and her late husband
Ismael C. Bustamante, under the following terms and conditions:
1. That the borrowers are the registered owners of a
parcel of land, evidenced by TRANSFER
CERTIFICATE OF TITLE No. 80667, containing an
area of FOUR HUNDRED TWENTY THREE (423)
SQUARE Meters, more or less, situated along
Congressional Avenue.
2. That the borrowers were desirous to borrow the
sum of ONE HUNDRED THOUSAND
(P100,000.00) PESOS from the LENDER, for a
period of two (2) years, counted from March 1, 1987,
with an interest of EIGHTEEN (18%) PERCENT per
annum, and to guaranty the payment thereof, they
are putting as a collateral SEVENTY (70) SQUARE
METERS portion, inclusive of the apartment therein,
of the aforestated parcel of land, however, in the
event the borrowers fail to pay, the lender has the
option to buy or purchase the collateral for a total
consideration of TWO HUNDRED THOUSAND
(P200,000.00) PESOS, inclusive of the borrowed
amount and interest therein;
3. That the lender do hereby manifest her agreement
and conformity to the preceding paragraph, while the
borrowers do hereby confess receipt of the
borrowed amount. 4
When the loan was about to mature on March 1, 1989, respondents
proposed to buy at the pre-set price of P200,000.00, the seventy (70)
square meters parcel of land covered by TCT No. 80667, given as
collateral to guarantee payment of the loan. Petitioner, however, refused
to sell and requested for extension of time to pay the loan and offered
to sell to respondents another residential lot located at Road 20, Project
8, Quezon City, with the principal loan plus interest to be used as down
payment. Respondents refused to extend the payment of the loan and
to accept the lot in Road 20 as it was occupied by squatters and
petitioner and her husband were not the owners thereof but were mere
land developers entitled to subdivision shares or commission if and
when they developed at least one half of the subdivision area. 5
Hence, on March 1, 1989, petitioner tendered payment of the loan to
respondents which the latter refused to accept, insisting on petitioner's
signing a prepared deed of absolute sale of the collateral.
On February 28, 1990, respondents filed with the Regional Trial Court,
Quezon City, Branch 84, a complaint for specific performance with
consignation against petitioner and her spouse. 6
Nevertheless, on March 4, 1990, respondents sent a demand letter
asking petitioner to sell the collateral pursuant to the option to buy
embodied in the loan agreement.
On the other hand, on March 5, 1990, petitioner filed in the Regional
Trial Court, Quezon City a petition for consignation, and deposited the
amount of P153,000.00 with the City Treasurer of Quezon City on
August 10, 1990. 7
When petitioner refused to sell the collateral and barangay conciliation
failed, respondents consigned the amount of P47,500.00 with the trial
court. 8 In arriving at the amount deposited, respondents considered the
principal loan of P100,000.00 and 18% interest per annum thereon,
which amounted to P52,500.00. 9 The principal loan and the interest
taken together amounted to P152,500.00, leaving a balance of P
47,500.00. 10
After due trial, on November 10, 1992, the trial court rendered decision
holding:
WHEREFORE, premises considered, judgment is
hereby rendered as follows:
1. Denying the plaintiff's prayer for the defendants'
execution of the Deed of Sale to Convey the
collateral in plaintiffs' favor;
2. Ordering the defendants to pay the loan of
P100,000.00 with interest thereon at 18% per
annumcommencing on March 2, 1989, up to and
until August 10, 1990, when defendants deposited
the amount with the Office of the City Treasurer
under Official Receipt No. 0116548 (Exhibit "2"); and
3. To pay Attorney's Fees in the amount of
P5,000.00, plus costs of suit.
SO ORDERED.
Quezon City, Philippines, November 10, 1992.
TEODORO P. REGINO
Judge 11
On November 16, 1992, respondents appealed from the decision to the
Court of Appeals. 12 On July 8, 1996, the Court of Appeals rendered
decision reversing the ruling of the Regional Trial Court. The dispositive
portion of the Court of Appeals' decision reads:
IN VIEW OF THE FOREGOING, the judgment
appeal (sic) from is REVERSED and SET
ASIDE and a new one entered in favor of the
plaintiffs ordering the defendants to accept the
amount of P47,000.00 deposited with the Clerk of
Court of Regional Trial Court of Quezon City under
Official Receipt No. 0719847, and for defendants to
execute the necessary Deed of Sale in favor of the
plaintiffs over the 70 SQUARE METER portion and
the apartment standing thereon being occupied by
the plaintiffs and covered by TCT No. 80667 within
fifteen (15) days from finality hereof. Defendants, in
turn, are allowed to withdraw the amount of
P153,000.00 deposited by them under Official
Receipt No. 0116548 of the City Treasurer's Office
of Quezon City. All other claims and counterclaims
are DISMISSED, for lack of sufficient basis. No
costs.
SO ORDERED. 13
Hence, this petition. 14
On January 20, 1997, we required respondents to comment on the
petition within ten (10) days from notice. 15 On February 27, 1997,
respondents filed their comment. 16
On February 9, 1998, we resolved to deny the petition on the ground
that there was no reversible error on the part of respondent court in
ordering the execution of the necessary deed of sale in conformity the
with the parties' stipulated agreement. The contract is the law between
the parties thereof (Syjuco v. Court of Appeals, 172 SCRA 111 118,
citing Phil. American General Insurance v. Mutuc, 61 SCRA 22; Herrera
v. Petrophil Corporation, 146 SCRA 360). 17
On March 17, 1998, petitioner filed with this Court a motion for
reconsideration of the denial alleging that the real intention of the parties
to the loan was to put up the collateral as guarantee similar to an
equitable mortgage according to Article 1602 of the Civil Code. 18
On April 21, 1998, respondents filed an opposition to petitioner's motion
for reconsideration. They contend that the agreement between the
parties was not a sale with right of re-purchase, but a loan with interest
at 18% per annumfor a period of two years and if petitioner fails to pay,
the respondent was given the right to purchase the property or
apartment for P200,000.00, which is not contrary to law, morals, good
customs, public order or public policy. 19
Upon due consideration of petitioner's motion, we now resolve to grant
the motion for reconsideration.
The questions presented are whether petitioner failed to pay the loan at
its maturity date and whether the stipulation in the loan contract was
valid and enforceable.
We rule that petitioner did not fail to pay the loan.
The loan was due for payment on March 1, 1989. On said date,
petitioner tendered payment to settle the loan which respondents
refused to accept, insisting that petitioner sell to them the collateral of
the loan.
When respondents refused to accept payment, petitioner consigned the
amount with the trial court.
We note the eagerness of respondents to acquire the property given as
collateral to guarantee the loan. The sale of the collateral is an obligation
with a suspensive condition. 20 It is dependent upon the happening of
an event, without which the obligation to sell does not arise. Since the
event did not occur, respondents do not have the right to demand
fulfillment of petitioner's obligation, especially where the same would not
only be disadvantageous to petitioner but would also unjustly enrich
respondents considering the inadequate consideration (P200,000.00)
for a 70 square meter property situated at Congressional Avenue,
Quezon City.
Respondents argue that contracts have the force of law between the
contracting parties and must be complied with in good faith. 21 There
are, however, certain exceptions to the rule, specifically Article 1306 of
the Civil Code, which provides:
Art. 1306. The contracting parties may establish
such stipulations, clauses, terms and conditions as
they may deem convenient, provided they are not
contrary to law, morals, good customs, public order,
or public policy.
A scrutiny of the stipulation of the parties reveals a subtle intention of
the creditor to acquire the property given as security for the loan. This
is embraced in the concept of pactum commissorium, which is
proscribed by law. 22
The elements of pactum commissorium are as follows: (1) there should
be a property mortgaged by way of security for the payment of the
principal obligation, and (2) there should be a stipulation for automatic
appropriation by the creditor of the thing mortgaged in case of non-
payment of the principal obligation within the stipulated period. 23
In Nakpil vs. Intermediate Appellate Court, 24 we said:
The arrangement entered into between the parties,
whereby Pulong Maulap was to be "considered sold
to him (respondent) . . . in case petitioner fails to
reimburse Valdes, must then be construed as
tantamount to pactum commissorium which is
expressly prohibited by Art. 2088 of the Civil Code.
For, there was to be automatic appropriation of the
property by Valdes in the event of failure of petitioner
to pay the value of the advances. Thus, contrary to
respondent's manifestation, all the elements of
apactum commissorium were present: there was a
creditor-debtor relationship between the parties; the
property was used as security for the loan; and there
was automatic appropriation by respondent
of Pulong Maulap in case of default of petitioner.
A significant task in contract interpretation is the ascertainment of the
intention of the parties and looking into the words used by the parties to
project that intention. In this case, the intent to appropriate the property
given as collateral in favor of the creditor appears to be evident, for the
debtor is obliged to dispose of the collateral at the pre-agreed
consideration amounting to practically the same amount as the loan. In
effect, the creditor acquires the collateral in the event of non payment
of the loan. This is within the concept of pactum commissorium. Such
stipulation is void. 25
All persons in need of money are liable to enter into contractual
relationships whatever the condition if only to alleviate their financial
burden albeit temporarily. Hence, courts are duty bound to exercise
caution in the interpretation and resolution of contracts lest the lenders
devour the borrowers like vultures do with their prey.
WHEREFORE, we GRANT petitioner's motion for reconsideration and
SET ASIDE the Court's resolution of February 9, 1998. We REVERSE
the decision of the Court of Appeals in CA-G.R. CV No. 40193. In lieu
thereof, we hereby DISMISS the complaint in Civil Case No. Q-90-4813.
No costs.
SO ORDERED.
G.R. No. 120554 September 21, 1999
SO PING BUN, petitioner,
vs.
COURT OF APPEALS, TEK HUA ENTERPRISES CORP. and
MANUEL C. TIONG, respondents.
QUISUMBING, J.:
This petition for certiorari challenges the Decision 1 of the Court of
Appeals dated October 10, 1994, and the Resolution 2dated June 5,
1995, in CA-G.R. CV No. 38784. The appellate court affirmed the
decision of the Regional Trial Court of Manila, Branch 35, except for the
award of attorney's fees, as follows:
WHEREFORE, foregoing considered, the appeal of
respondent-appellant So Ping Bun for lack of merit
is DISMISSED. The appealed decision dated April
20, 1992 of the court a quo is modified by reducing
the attorney's fees awarded to plaintiff Tek Hua
Enterprising Corporation from P500,000.00 to
P200,000.00. 3
The facts are as follows:
In 1963, Tek Hua Trading Co, through its managing partner, So Pek
Giok, entered into lease agreements with lessor Dee C. Chuan & Sons
Inc. (DCCSI). Subjects of four (4) lease contracts were premises located
at Nos. 930, 930-Int., 924-B and 924-C, Soler Street, Binondo, Manila.
Tek Hua used the areas to store its textiles. The contracts each had a
one-year term. They provided that should the lessee continue to occupy
the premises after the term, the lease shall be on a month-to-month
basis.
When the contracts expired, the parties did not renew the contracts, but
Tek Hua continued to occupy the premises. In 1976, Tek Hua Trading
Co. was dissolved. Later, the original members of Tek Hua Trading Co.
including Manuel C. Tiong, formed Tek Hua Enterprising Corp., herein
respondent corporation.
So Pek Giok, managing partner of Tek Hua Trading, died in 1986. So
Pek Giok's grandson, petitioner So Ping Bun, occupied the warehouse
for his own textile business, Trendsetter Marketing.
On August 1, 1989, lessor DCCSI sent letters addressed to Tek Hua
Enterprises, informing the latter of the 25% increase in rent effective
September 1, 1989. The rent increase was later on reduced to 20%
effective January 1, 1990, upon other lessees' demand. Again on
December 1, 1990, the lessor implemented a 30% rent increase.
Enclosed in these letters were new lease contracts for signing. DCCSI
warned that failure of the lessee to accomplish the contracts shall be
deemed as lack of interest on the lessee's part, and agreement to the
termination of the lease. Private respondents did not answer any of
these letters. Still, the lease contracts were not rescinded.
On March 1, 1991, private respondent Tiong sent a letter to petitioner
which reads as follows:
March 1, 1991
Mr. So Ping Bun
930 Soler Street
Binondo, Manila
Dear Mr. So,
Due to my closed (sic) business associate (sic) for
three decades with your late grandfather Mr. So Pek
Giok and late father, Mr. So Chong Bon, I allowed
you temporarily to use the warehouse of Tek Hua
Enterprising Corp. for several years to generate your
personal business.
Since I decided to go back into textile business, I
need a warehouse immediately for my stocks.
Therefore, please be advised to vacate all your
stocks in Tek Hua Enterprising Corp. Warehouse.
You are hereby given 14 days to vacate the
premises unless you have good reasons that you
have the right to stay. Otherwise, I will be
constrained to take measure to protect my interest.
Please give this urgent matter your preferential
attention to avoid inconvenience on your part.
Very truly yours,
(Sgd) Manuel C. Tiong
MANUEL C. TIONG
President 4
Petitioner refused to vacate. On March 4, 1992, petitioner requested
formal contracts of lease with DCCSI in favor Trendsetter Marketing. So
Ping Bun claimed that after the death of his grandfather, So Pek Giok,
he had been occupying the premises for his textile business and
religiously paid rent. DCCSI acceded to petitioner's request. The lease
contracts in favor of Trendsetter were executed.
In the suit for injunction, private respondents pressed for the nullification
of the lease contracts between DCCSI and petitioner. They also claimed
damages.
After trial, the trial court ruled:
WHEREFORE, judgment is rendered:
1. Annulling the four Contracts of Lease (Exhibits A, A-1 to A-3,
inclusive) all dated March 11, 1991, between defendant So Ping
Bun, doing business under the name and style of "Trendsetter
Marketing", and defendant Dee C. Chuan & Sons, Inc. over the
premises located at Nos. 924-B, 924-C, 930 and 930, Int.,
respectively, Soler Street, Binondo Manila;
2. Making permanent the writ of preliminary injunction issued by
this Court on June 21, 1991;
3. Ordering defendant So Ping Bun to pay the aggrieved party,
plaintiff Tek Hua Enterprising Corporation, the sum of
P500,000.00, for attorney's fees;
4. Dismissing the complaint, insofar as plaintiff Manuel C. Tiong is
concerned, and the respective counterclaims of the defendant;
5. Ordering defendant So Ping Bun to pay the costs of this lawsuit;
This judgment is without prejudice to the rights of
plaintiff Tek Hua Enterprising Corporation and
defendant Dee C. Chuan & Sons, Inc. to negotiate
for the renewal of their lease contracts over the
premises located at Nos. 930, 930-Int., 924-B and
924-C Soler Street, Binondo, Manila, under such
terms and conditions as they agree upon, provided
they are not contrary to law, public policy, public
order, and morals.
SO ORDERED. 5
Petitioner's motion for reconsideration of the above decision was
denied.
On appeal by So Ping Bun, the Court of Appeals upheld the trial court.
On motion for reconsideration, the appellate court modified the decision
by reducing the award of attorney's fees from five hundred thousand
(P500,000.00) pesos to two hundred thousand (P200,000.00) pesos.
Petitioner is now before the Court raising the following issues:
I. WHETHER THE APPELLATE COURT ERRED IN
AFFIRMING THE TRIAL COURT'S DECISION FINDING SO
PING BUN GUILTY OF TORTUOUS INTERFERENCE OF
CONTRACT?
II. WHETHER THE APPELLATE COURT ERRED IN
AWARDING ATTORNEY'S FEES OF P200,000.00 IN
FAVOR OF PRIVATE RESPONDENTS.
The foregoing issues involve, essentially, the correct interpretation of
the applicable law on tortuous conduct, particularly unlawful
interference with contract. We have to begin, obviously, with certain
fundamental principles on torts and damages.
Damage is the loss, hurt, or harm which results from injury, and
damages are the recompense or compensation awarded for the
damage suffered. 6 One becomes liable in an action for damages for a
nontrespassory invasion of another's interest in the private use and
enjoyment of asset if (a) the other has property rights and privileges with
respect to the use or enjoyment interfered with, (b) the invasion is
substantial, (c) the defendant's conduct is a legal cause of the invasion,
and (d) the invasion is either intentional and unreasonable or
unintentional and actionable under general negligence rules. 7
The elements of tort interference are: (1) existence of a valid contract;
(2) knowledge on the part of the third person of the existence of contract;
and (3) interference of the third person is without legal justification or
excuse. 8
A duty which the law of torts is concerned with is respect for the property
of others, and a cause of action ex delicto may be predicated upon an
unlawful interference by one person of the enjoyment by the other of his
private
property.9 This may pertain to a situation where a third person induces
a party to renege on or violate his undertaking under a contract. In the
case before us, petitioner's Trendsetter Marketing asked DCCSI to
execute lease contracts in its favor, and as a result petitioner deprived
respondent corporation of the latter's property right. Clearly, and as
correctly viewed by the appellate court, the three elements of tort
interference above-mentioned are present in the instant case.
Authorities debate on whether interference may be justified where the
defendant acts for the sole purpose of furthering his own financial or
economic interest. 10 One view is that, as a general rule, justification for
interfering with the business relations of another exists where the actor's
motive is to benefit himself. Such justification does not exist where his
sole motive is to cause harm to the other. Added to this, some
authorities believe that it is not necessary that the interferer's interest
outweigh that of the party whose rights are invaded, and that an
individual acts under an economic interest that is substantial, not
merely de minimis, such that wrongful and malicious motives are
negatived, for he acts in self-protection. 11Moreover justification for
protecting one's financial position should not be made to depend on a
comparison of his economic interest in the subject matter with that of
others. 12 It is sufficient if the impetus of his conduct lies in a proper
business interest rather than in wrongful motives. 13
As early as Gilchrist vs. Cuddy, 14 we held that where there was no
malice in the interference of a contract, and the impulse behind one's
conduct lies in a proper business interest rather than in wrongful
motives, a party cannot be a malicious interferer. Where the alleged
interferer is financially interested, and such interest motivates his
conduct, it cannot be said that he is an officious or malicious
intermeddler. 15
In the instant case, it is clear that petitioner So Ping Bun prevailed upon
DCCSI to lease the warehouse to his enterprise at the expense of
respondent corporation. Though petitioner took interest in the property
of respondent corporation and benefited from it, nothing on record
imputes deliberate wrongful motives or malice on him.
Sec. 1314 of the Civil Code categorically provides also that, "Any third
person who induces another to violate his contract shall be liable for
damages to the other contracting party." Petitioner argues that damage
is an essential element of tort interference, and since the trial court and
the appellate court ruled that private respondents were not entitled to
actual, moral or exemplary damages, it follows that he ought to be
absolved of any liability, including attorney's fees.
It is true that the lower courts did not award damages, but this was only
because the extent of damages was not quantifiable. We had a similar
situation in Gilchrist, where it was difficult or impossible to determine the
extent of damage and there was nothing on record to serve as basis
thereof. In that case we refrained from awarding damages. We believe
the same conclusion applies in this case.
While we do not encourage tort interferers seeking their economic
interest to intrude into existing contracts at the expense of others,
however, we find that the conduct herein complained of did not
transcend the limits forbidding an obligatory award for damages in the
absence of any malice. The business desire is there to make some gain
to the detriment of the contracting parties. Lack of malice, however,
precludes damages. But it does not relieve petitioner of the legal liability
for entering into contracts and causing breach of existing ones. The
respondent appellate court correctly confirmed the permanent injunction
and nullification of the lease contracts between DCCSI and Trendsetter
Marketing, without awarding damages. The injunction saved the
respondents from further damage or injury caused by petitioner's
interference.
Lastly, the recovery of attorney's fees in the concept of actual or
compensatory damages, is allowed under the circumstances provided
for in Article 2208 of the Civil Code. 16 One such occasion is when the
defendant's act or omission has compelled the plaintiff to litigate with
third persons or to incur expenses to protect his interest. 17 But we have
consistently held that the award of considerable damages should have
clear factual and legal bases. 18 In connection with attorney's fees, the
award should be commensurate to the benefits that would have been
derived from a favorable judgment. Settled is the rule that fairness of
the award of damages by the trial court calls for appellate review such
that the award if far too excessive can be reduced. 19 This ruling applies
with equal force on the award of attorney's fees. In a long line of cases
we said, "It is not sound policy to place in penalty on the right to litigate.
To compel the defeated party to pay the fees of counsel for his
successful opponent would throw wide open the door of temptation to
the opposing party and his counsel to swell the fees to undue
proportions."20
Considering that the respondent corporation's lease contract, at the time
when the cause of action accrued, ran only on a month-to-month basis
whence before it was on a yearly basis, we find even the reduced
amount of attorney's fees ordered by the Court of Appeals still exorbitant
in the light of prevailing jurisprudence. 21 Consequently, the amount of
two hundred thousand (P200,000.00) awarded by respondent appellate
court should be reduced to one hundred thousand (P100,000.00) pesos
as the reasonable award or attorney's fees in favor of private respondent
corporation.
WHEREFORE, the petition is hereby DENIED. The assailed Decision
and Resolution of the Court of Appeals in CA-G.R. CV No. 38784 are
hereby AFFIRMED, with MODIFICATION that the award of attorney's
fees is reduced from two hundred thousand (P200,000.00) to one
hundred thousand (P100,000.00) pesos. No pronouncement as to
costs.1âwphi1.nêt
SO ORDERED.
G.R. No. 119107 March 18, 2005
JOSE V. LAGON, Petitioner,
vs.
HONORABLE COURT OF APPEALS and MENANDRO V.
LAPUZ, respondents.
DECISION
CORONA, J.:
On June 23, 1982, petitioner Jose Lagon purchased from the estate of
Bai Tonina Sepi, through an intestate court,1two parcels of land located
at Tacurong, Sultan Kudarat. A few months after the sale, private
respondent Menandro Lapuz filed a complaint for torts and damages
against petitioner before the Regional Trial Court (RTC) of Sultan
Kudarat.
In the complaint, private respondent, as then plaintiff, claimed that he
entered into a contract of lease with the late Bai Tonina Sepi Mengelen
Guiabar over three parcels of land (the "property") in Sultan Kudarat,
Maguindanao beginning 1964. One of the provisions agreed upon was
for private respondent to put up commercial buildings which would, in
turn, be leased to new tenants. The rentals to be paid by those tenants
would answer for the rent private respondent was obligated to pay Bai
Tonina Sepi for the lease of the land. In 1974, the lease contract ended
but since the construction of the commercial buildings had yet to be
completed, the lease contract was allegedly renewed.
When Bai Tonina Sepi died, private respondent started remitting his rent
to the court-appointed administrator of her estate. But when the
administrator advised him to stop collecting rentals from the tenants of
the buildings he constructed, he discovered that petitioner, representing
himself as the new owner of the property, had been collecting rentals
from the tenants. He thus filed a complaint against the latter, accusing
petitioner of inducing the heirs of Bai Tonina Sepi to sell the property to
him, thereby violating his leasehold rights over it.
In his answer to the complaint, petitioner denied that he induced the
heirs of Bai Tonina to sell the property to him, contending that the heirs
were in dire need of money to pay off the obligations of the deceased.
He also denied interfering with private respondent's leasehold rights as
there was no lease contract covering the property when he purchased
it; that his personal investigation and inquiry revealed no claims or
encumbrances on the subject lots.
Petitioner claimed that before he bought the property, he went to Atty.
Benjamin Fajardo, the lawyer who allegedly notarized the lease contract
between private respondent and Bai Tonina Sepi, to verify if the parties
indeed renewed the lease contract after it expired in 1974. Petitioner
averred that Atty. Fajardo showed him four copies of the lease renewal
but these were all unsigned. To refute the existence of a lease contract,
petitioner presented in court a certification from the Office of the Clerk
of Court confirming that no record of any lease contract notarized by
Atty. Fajardo had been entered into their files. Petitioner added that he
only learned of the alleged lease contract when he was informed that
private respondent was collecting rent from the tenants of the building.
Finding the complaint for tortuous interference to be unwarranted,
petitioner filed his counterclaim and prayed for the payment of actual
and moral damages.
On July 29, 1986, the court a quo found for private respondent (plaintiff
below):
ACCORDINGLY, judgment is hereby rendered in favor of the
plaintiff:
1. Declaring the "Contract of Lease" executed by Bai Tonina
Sepi Mangelen Guiabar in favor of the plaintiff on November
6, 1974 (Exh. "A" and "A-1") over Lot No. 6395, Pls-73. Lot No
6396. Pls.-73. Lot No. 6399. 3ls-73, and Lot no.9777-A. CSD-
11-000076-D (Lot No. 3-A. 40124), all situated along Ledesma
St., Tacurong, Sultan Kudarat, which document was notarized
by Atty. Benjamin S. Fajardo, Sr. and entered into his notarial
register as Doc. No. 619. Page No. 24. Book No. II. Series of
1974, to be authentic and genuine and as such valid and
binding for a period of ten (10) years specified thereon from
November 1, 1974 up to October 31, 1984;
2. Declaring the plaintiff as the lawful owner of the commercial
buildings found on the aforesaid lots and he is entitled to their
possession and the collection (of rentals) of the said
commercial buildings within the period covered by this
"Contract of Lease" in his favor;
3. Ordering the defendant to pay to the plaintiff the following:
a) Rentals of the commercial buildings on the lots
covered by the "Contract of Lease" in favor of the
plaintiff for the period from October 1, 1978 up to
October 31, 1984, including accrued interests in the
total amount of Five Hundred Six Thousand Eight
Hundred Five Pesos and Fifty Six Centavos (P506,
850.56), the same to continue to bear interest at the
legal rate of 12% per annum until the whole amount
is fully paid by the defendant to the plaintiff;
b) Moral damages in the amount of One Million Sixty
Two Thousand Five Hundred Pesos
(P1,062,500.00);
c) Actual or compensatory damages in the amount
of Three Hundred Twelve Thousand Five Hundred
Pesos (P312, 500.00);
d) Exemplary or corrective damages in the amount
of One Hundred Eighty Thousand Five Hundred
Pesos (P187,500.00)
e) Temperate or moderate damages in the amount
of Sixty Two Thousand Five Hundred Pesos
(P62,500.00);
f) Nominal damages in the amount of Sixty Two
Thousand Five Hundred Pesos (P62,500.00);
g) Attorney's fees in the amount of One Hundred
Twenty Five Thousand Pesos (P125,000.00);
h) Expenses of litigation in the amount of Sixty Two
Thousand Five Hundred Pesos (P62,500.00);
i) Interest on the moral damages, actual or
compensatory damages temperate or moderate
damages, nominal damages, attorney's fees and
expenses of litigation in the amounts as specified
hereinabove from May 24, 1982 up to June 27,
1986, in the total amount of Nine Hundred Thousand
Pesos (P900,000.00); all of which will continue to
bear interests at a legal rate of 12% per annum until
the whole amounts are fully paid by the defendants
to the plaintiffs;
4. For failure of the defendant to deposit with this Court all the
rentals he had collected from the thirteen (13) tenants or
occupants of the commercial buildings in question, the plaintiff
is hereby restored to the possession of his commercial
buildings for a period of seventy-three (73) months which is
the equivalent of the total period for which he was prevented
from collecting the rentals from the tenants or occupants of his
commercial buildings from October 1, 1978 up to October 31,
1984, and for this purpose a Writ of Preliminary Injunction is
hereby issued, but the plaintiff is likewise ordered to pay to the
defendant the monthly rental of Seven Hundred Pesos
(P700.00) every end of the month for the entire period of
seventy three (73) months. This portion of the judgment
should be considered as a mere alternative should the
defendant fail to pay the amount of Five Hundred Five Pesos
and Fifty Six Centavos (P506,805.56) hereinabove specified;
5. Dismissing the counterclaim interposed by the defendant
for lack of merit;
6. With costs against the defendant.2
Petitioner appealed the judgment to the Court of Appeals. 3 In a decision
dated January 31, 1995,4 the appellate court modified the assailed
judgment of the trial court as follows:
a) The award for moral damages, compensatory damages,
exemplary damages, temperate or moderate damages, and
nominal damages as well as expenses of litigation in the
amount of P62,500.00 and interests under paragraph 3-a(a),
(b), (c), (d), (e), (f), (g), (h), and (i) are deleted;
b) The award for attorney's fees is reduced to P30,000.00;
c) Paragraphs 1,2,5 and 6 are AFFIRMED;
d) Additionally, the defendant is hereby ordered to pay to the
plaintiff by way of actual damages the sum of P178,425.00
representing the amount of rentals he collected from the
period of October 1978 to August 1983, and minus the amount
of P42,700.00 representing rentals due the defendant
computed at P700.00 per month for the period from August
1978 to August 1983, with interest thereon at the rate until the
same is fully paid;
e) Paragraph 4 is deleted.5
Before the appellate court, petitioner disclaimed knowledge of any lease
contract between the late Bai Tonina Sepi and private respondent. On
the other hand, private respondent insisted that it was impossible for
petitioner not to know about the contract since the latter was aware that
he was collecting rentals from the tenants of the building. While the
appellate court disbelieved the contentions of both parties, it
nevertheless held that, for petitioner to become liable for damages, he
must have known of the lease contract and must have also acted with
malice or bad faith when he bought the subject parcels of land.
Via this petition for review, petitioner cites the following reasons why the
Court should rule in his favor:
1. The Honorable Court of Appeals seriously erred in holding
that petitioner is liable for interference of contractual relation
under Article 1314 of the New Civil Code;
2. The Honorable Court of Appeals erred in not holding that
private respondent is precluded from recovering, if at all,
because of laches;
3. The Honorable Court of Appeals erred in holding petitioner
liable for actual damages and attorney's fees, and;
4. The Honorable Court of Appeals erred in dismissing
petitioner's counterclaims.6
Article 1314 of the Civil Code provides that any third person who
induces another to violate his contract shall be liable for damages to the
other contracting party. The tort recognized in that provision is known
as interference with contractual relations. 7 The interference is penalized
because it violates the property rights of a party in a contract to reap the
benefits that should result therefrom.8
The core issue here is whether the purchase by petitioner of the subject
property, during the supposed existence of private respondent's lease
contract with the late Bai Tonina Sepi, constituted tortuous interference
for which petitioner should be held liable for damages.
The Court, in the case of So Ping Bun v. Court of Appeals,9 laid down
the elements of tortuous interference with contractual relations: (a)
existence of a valid contract; (b) knowledge on the part of the third
person of the existence of the contract and (c) interference of the third
person without legal justification or excuse. In that case, petitioner So
Ping Bun occupied the premises which the corporation of his
grandfather was leasing from private respondent, without the
knowledge and permission of the corporation. The corporation,
prevented from using the premises for its business, sued So Ping Bun
for tortuous interference.
As regards the first element, the existence of a valid contract must be
duly established. To prove this, private respondent presented in court a
notarized copy of the purported lease renewal. 10 While the contract
appeared as duly notarized, the notarization thereof, however, only
proved its due execution and delivery but not the veracity of its contents.
Nonetheless, after undergoing the rigid scrutiny of petitioner's counsel
and after the trial court declared it to be valid and subsisting, the
notarized copy of the lease contract presented in court appeared to be
incontestable proof that private respondent and the late Bai Tonina Sepi
actually renewed their lease contract. Settled is the rule that until
overcome by clear, strong and convincing evidence, a notarized
document continues to be prima facie evidence of the facts that gave
rise to its execution and delivery.11
The second element, on the other hand, requires that there be
knowledge on the part of the interferer that the contract exists.
Knowledge of the subsistence of the contract is an essential element to
state a cause of action for tortuous interference. 12 A defendant in such
a case cannot be made liable for interfering with a contract he is
unaware of.13 While it is not necessary to prove actual knowledge, he
must nonetheless be aware of the facts which, if followed by a
reasonable inquiry, will lead to a complete disclosure of the contractual
relations and rights of the parties in the contract.14
In this case, petitioner claims that he had no knowledge of the lease
contract. His sellers (the heirs of Bai Tonina Sepi) likewise allegedly did
not inform him of any existing lease contract.
After a careful perusal of the records, we find the contention of petitioner
meritorious. He conducted his own personal investigation and inquiry,
and unearthed no suspicious circumstance that would have made a
cautious man probe deeper and watch out for any conflicting claim over
the property. An examination of the entire property's title bore no
indication of the leasehold interest of private respondent. Even the
registry of property had no record of the same. 15
Assuming ex gratia argumenti that petitioner knew of the contract, such
knowledge alone was not sufficient to make him liable for tortuous
interference. Which brings us to the third element. According to our
ruling in So Ping Bun, petitioner may be held liable only when there was
no legal justification or excuse for his action16 or when his conduct was
stirred by a wrongful motive. To sustain a case for tortuous interference,
the defendant must have acted with malice17 or must have been driven
by purely impious reasons to injure the plaintiff. In other words, his act
of interference cannot be justified.18
Furthermore, the records do not support the allegation of private
respondent that petitioner induced the heirs of Bai Tonina Sepi to sell
the property to him. The word "induce" refers to situations where a
person causes another to choose one course of conduct by persuasion
or intimidation.19 The records show that the decision of the heirs of the
late Bai Tonina Sepi to sell the property was completely of their own
volition and that petitioner did absolutely nothing to influence their
judgment. Private respondent himself did not proffer any evidence to
support his claim. In short, even assuming that private respondent was
able to prove the renewal of his lease contract with Bai Tonina Sepi, the
fact was that he was unable to prove malice or bad faith on the part of
petitioner in purchasing the property. Therefore, the claim of tortuous
interference was never established.
In So Ping Bun, the Court discussed whether interference can be
justified at all if the interferer acts for the sole purpose of furthering a
personal financial interest, but without malice or bad faith. As the Court
explained it:
x x x, as a general rule, justification for interfering with the
business relations of another exists where the actor's motive
is to benefit himself. Such justification does not exist where
the actor's motive is to cause harm to the other. Added to this,
some authorities believe that it is not necessary that the
interferer's interest outweigh that of the party whose rights are
invaded, and that an individual acts under an economic
interest that is substantial, not merely de minimis, such that
wrongful and malicious motives are negatived, for he acts in
self-protection. Moreover, justification for protecting one's
financial position should not be made to depend on a
comparison of his economic interest in the subject matter with
that of the others. It is sufficient if the impetus of his conduct
lies in a proper business interest rather than in wrongful
motives.20
The foregoing disquisition applies squarely to the case at bar. In our
view, petitioner's purchase of the subject property was merely an
advancement of his financial or economic interests, absent any proof
that he was enthused by improper motives. In the very early case of
Gilchrist v. Cuddy,21 the Court declared that a person is not a malicious
interferer if his conduct is impelled by a proper business interest. In
other words, a financial or profit motivation will not necessarily make a
person an officious interferer liable for damages as long as there is no
malice or bad faith involved.
In sum, we rule that, inasmuch as not all three elements to hold
petitioner liable for tortuous interference are present, petitioner cannot
be made to answer for private respondent's losses.
This case is one of damnun absque injuria or damage without injury.
"Injury" is the legal invasion of a legal right while "damage" is the hurt,
loss or harm which results from the injury. 22 In BPI Express Card
Corporation v. Court of Appeals,,23 the Court turned down the claim for
damages of a cardholder whose credit card had been cancelled by
petitioner corporation after several defaults in payment. We held there
that there can be damage without injury where the loss or harm is not
the result of a violation of a legal duty. In that instance, the
consequences must be borne by the injured person alone since the law
affords no remedy for damages resulting from an act which does not
amount to legal injury or wrong.24 Indeed, lack of malice in the conduct
complained of precludes recovery of damages. 25
With respect to the attorney's fees awarded by the appellate court to
private respondent, we rule that it cannot be recovered under the
circumstances. According to Article 2208 of the Civil Code, attorney's
fees may be awarded only when it has been stipulated upon or under
the instances provided therein.26 Likewise, being in the concept of
actual damages, the award for attorney's fees must have clear, factual
and legal bases27 which, in this case, do not exist.
Regarding the dismissal of petitioner's counterclaim for actual and moral
damages, the appellate court affirmed the assailed order of the trial
court because it found no basis to grant the amount of damages prayed
for by petitioner. We find no reason to reverse the trial court and the
Court of Appeals. Actual damages are those awarded in satisfaction of,
or in recompense for, loss or injury sustained. To be recoverable, they
must not only be capable of proof but must actually be proved with a
reasonable degree of certainty.28 Petitioner was unable to prove that he
suffered loss or injury, hence, his claim for actual damages must fail.
Moreover, petitioner's prayer for moral damages was not warranted as
moral damages should result from the wrongful act of a person. The
worries and anxieties suffered by a party hailed to court litigation are not
compensable.29
With the foregoing discussion, we no longer deem it necessary to delve
into the issue of laches.
WHEREFORE, premises considered, the petition is hereby GRANTED.
The assailed decision of the Court of Appeals is hereby REVERSED
and SET ASIDE.
No costs.
SO ORDERED.
G.R. No. 195567 November 25, 1993
GOVERNMENT SERVICE INSURANCE SYSTEM (GSIS), petitioner,
vs.
HONORABLE COURT OF APPEALS and SPOUSES RAUL and
ESPERANZA LEUTERIO, respondents.
PUNO, J.:
This is a petition for review on certiorari to set aside the Decision of the
10th Division of the Court of Appeals ordering the petitioner GSIS to
execute a Final Deed of Sale in favor of the spouses Raul and
Esperanza Leuterio involving a house and lot in the GSIS Village,
Project 8-C, Quezon City. 1
The facts show that on December 18, 1963, the petitioner GSIS
conducted a lottery draw for the allocation of lots and housing units in
Project 8-C of GSIS Village. Private respondent Esperanza Leuterio
won and was issued a Certificate of Acknowledgment to purchase the
subject house and lot 2 on December 27, 1963. In 1965, the parties
entered into a Deed of Conditional Sale evidencing the conveyance of
the subject property and all improvements thereon to the Leuterio
spouses for the purchase price of P19,740.00, payable over a fifteen-
year period, in 180 equal monthly installments of P168.53 each.
Paragraph 11 of the Deed of Conditional Sale provides:
Upon the full payment by the Vendee of the purchase price of the
lot and dwelling/improvement above referred to together with all the
interest due thereon, taxes and other charges and upon his faithful
compliance with all the conditions of the Contract, the Vendor
agrees to execute in favor of the Vendee, or his/their heirs and
successors-in-interest a final Deed of Sale of the aforementioned
land and dealing/improvements. . . .3
Three years elapsed before the Deed was notarized, and a copy of the
same was given to the private respondents.
After the land development and housing construction of Project 8-C
were completed in 1966, petitioner's Board of Trustees increased the
purchase price indicated in the Deed of Conditional Sale covering
houses and lots therein. The new price was based on the alleged final
cost of construction of the GSIS Village. It is noted that, on the face of
the Leuterio's Conditional Deed of Sale is the marginal notation "subject
to adjustment pending approval of the Board of Trustees." The Leuterio
spouses alleged that this notation was not in the Deed when they signed
the same in 1965. Resolving this factual issue, the trial court found that
the appended words were inserted into the document without the
knowledge or consent of the Leuterio spouses. This finding of fact went
undisturbed on appeal to the respondent court. 4
Sometime in the early 1970's, a group (not including the Leuterios) of
conditional vendees of houses and lots in Project 8-C of GSIS Village
brought suit 5 against herein petitioner, questioning the increase in
purchase price. They likewise wrote a "A Plea For Justice" to then
President Ferdinand E. Marcos, requesting for a directive to petitioner's
management to "accept payments of amortization installments on the
original amounts stated in the Deed(s) of Conditional Sale."
As a result, the Office of the President created a three-man Ad
Hoc committee, composed of representatives of the Office of the
President, the petitioner System, and the GSIS Village Association. The
committee found that the final cost of the Village justified a higher price
range for the houses and lots in the project.
Based on the ad hoc committee's findings, the petitioner System, with
the approval of its Board of Trustees, increased the purchase prices of
the houses and lots in the GSIS Village.
On May 30, 1973, however, then Presidential Executive Assistant
Jacobo C. Clave, through a memorandum, advised petitioner that then
President Marcos has approved the "Plea" and wanted its "immediate
implementation." The attempt by petitioner to have the presidential
endorsement reconsidered was denied on December 18, 1980.
Meanwhile, after years of diligently paying the monthly
amortizations6 and real estate taxes on the subject property, the private
respondents spouses informed7 petitioner that the payments 8 for the
property had been completed, and hence, the execution of an absolute
deed of sale in their favor was in order. No action on the matter was
taken by petitioner.
The instant case was initiated on May 20, 1984 in the RTC of Manila,
Br. 11, with the filing of a Complaint for Specific Performance With
Damages to compel petitioner to execute in private respondents' favor,
the final Deed of Sale over the subject property. 9 The trial court found
for the Leuterios.
On January 24, 1992, the Court of Appeals 10, in its impugned Decision,
upheld the trial court solely on the basis of estoppel. It held that
petitioner cannot increase the price of the subject house and lot after it
failed, through the years, to protest against private respondents'
P200.00-amortization or to require the payment by them of bigger
monthly installments.11
Petitioner now urges the setting aside of the impugned Decision of the
Court of Appeals, alleging that it erred in:
I. . . . HOLDING THAT THE PETITIONER GSIS IS ESTOPPED
FROM ENFORCING THE ADJUSTMENT OF THE SELLING
PRICE.
II. . . . NOT HOLDING THAT THE SPOUSES LEUTERIO MUST
BE BOUND BY THE RECOMMENDATION MADE BY THE AD
HOC COMMITTEE
III. . . . FAILING TO CONSIDER THE JUSTIFICATION FOR THE
ADJUSTMENT IN THE SELLING PRICE OF THE LOTS AND
HOUSING UNITS.
IV. . . . AFFIRMING THE DECISION OF THE TRIAL COURT
WHICH ORDERED THE PETITIONER GSIS TO EXECUTE THE
FINAL DEED OF SALE. 12
Upon the other hand, private respondents, in their Comment, 13 contend
that the Petition only raises in factual issues, which cannot be settled by
this Court in the instant proceedings. They further contend that no
reversible errors were committed by the Court of Appeals in its
impugned Decision.
We find no merit in the petition, but for reasons different from those
espoused by the respondent Court of Appeals.
The decisive issue really involves a question of fact — whether or not
the spouses Leuterio agreed to the notation "subject to adjustment
pending approval of the Board of Trustees" appearing on the margin of
the parties' Conditional Deed of Sale. If there was no agreement, the
Leuterio spouses are only obligated to pay the purchase price of
P19,740.00 as stipulated in the main body of the Conditional Deed of
Sale.
Trite to state, this Court is not a trier of facts. In a multitude of cases, we
have laid down the unbending rule that findings of fact of lower courts
are binding on us unless they are marred by manifest errors. The
pleadings before us do not demonstrate that the trial court grossly erred
when it found that the purchase price agreed upon by the parties was
P19,740.00 and this agreement was not made subject to any posterior
event or condition. This finding of fact was based on the explicit
testimony of private respondent Raul Leuterio that when he and his wife
signed the Deed of Conditional Sale in 1965, the notation "subject to
adjustment pending approval of the Board of Trustees" was not in the
Deed.14 Likewise, the Answer of petitioner to the Complaint of the
private respondents admitted the non-existence of this notation at the
time the Deed of Conditional Sale was signed, albeit, it called the
omission an honest mistake.15 We quote paragraph 5 of said
answer, viz:
5. The omission of the marginal notation reading "(x)
subject to adjustment pending approval of the Board
of Trustees" (Annexes B to B-1-b of the Complaint)
on the Deed of Conditional Sale signed by the
plaintiffs, as alleged in paragraph VII of the
Complaint, must have been an honest mistake on
the part of the clerk who typed the document.
This was also confirmed by the petitioner in the instant Petition
for Review on Certiorari where it is alleged that ". . . the
respondents-spouses Leuterio were not required to sign a
new contract as provided in Resolution No. 966 but instead,
the words 'subject to adjustment pending approval of the
Board of Trustees' were inserted in the Deed of Conditional
Sale executed in 1965." Petitioner is bound by these judicial
admission.
Quite clearly, therefore, the purchase price mutually agreed upon by the
parties was P19,740.00. The spouses Leuterio did not give their consent
for petitioner to make a unilateral upward adjustment of this purchase
price depending on the final cost of construction of the subject house
and lot. It is illegal for petitioner to claim this prerogative, for Article 1473
of the Civil Code provides that "the fixing of the price can never be left
to the discretion of one of the contracting parties. . . ."
We also reject petitioner's contention that the spouses Leuterio are
bound by the recommendation of the ad hoc committee as this was set
aside by then President Ferdinand E. Marcos. 16 The rejection was
communicated by then Presidential Assistant Jacobo Clave to petitioner
in a Memorandum dated May 30, 1973.17 Petitioner moved for
reconsideration but the motion was denied by the former President thru
Presidential Assistant Joaquin Venus, in a letter dated December 18,
1990. 18
Next, petitioner would impress on us the need to adjust the purchase
price of the spouses' house and lot in view of the change in the final cost
of construction. If petitioner failed to factor this increase in the cost of
the construction in the purchase price of the subject house and lot, it
has nobody to blame but itself and it alone should suffer the loss. To be
sure, given the expertise of its technical people, it has no reason to be
shortsighted. In any event, our law on contracts does not excuse a party
from specifically performing his obligation on the ground that he made
a bad business judgment.
IN VIEW WHEREOF, the petition for review on certiorari is DISMISSED.
Costs against petitioner.
SO ORDERED.
G.R. No. 148599. March 14, 2005
PROFESSIONAL ACADEMIC PLANS, INC., FRANCISCO COLAYCO
and BENJAMIN DINO, Petitioners,
vs.
DINNAH L. CRISOSTOMO, Respondents.
DECISION
CALLEJO, SR., J.:
Before us is a petition for review of the Decision1 of the Court of Appeals
(CA) affirming the decision of the Regional Trial Court in Civil Case No.
93-197, and its Resolution denying the motion for reconsideration
thereof filed by petitioner Professional Academic Plans, Inc. (PAPI).
The Antecedents
Respondent Dinnah L. Crisostomo was the PAPI District Manager for
Metro Manila. As such officer, she did not receive any salary but was
entitled to a franchise commission equivalent to 10% of the payments
on remittances of clients whose contracts or agreements had been
negotiated by her, for and in behalf of PAPI. She was later promoted as
Regional Manager.
On May 17, 1988, petitioner PAPI wrote Col. Noe S. Andaya, the
President of the Armed Forces of the Philippines Savings and Loan
Association, Inc. (AFPSLAI) offering an Academic Assistance Program
for its members, their children and dependents.
Noel Rueda, a sales consultant of petitioner PAPI, initiated negotiations
for the sale of pre-need educational plans under the said program with
the AFPSLAI. However, before an agreement was reached, Rueda’s
services were terminated. Respondent Crisostomo, as the district
manager and the immediate supervisor of Rueda, continued the
negotiation of the account together with Guillermo R. Macariola, the
Assistant Vice-President for Sales.2 The AFPSLAI agreed to the
proposal.
On November 9, 1988, the AFPSLAI and PAPI executed a
Memorandum of Agreement (MOA)3 in connection with scholarship
funding agreements to be entered into by PAPI and the AFPSLAI
members. These agreements shall then embody the provisions of the
Professional Academic Program Agreement. The parties agreed that all
support services would be provided by PAPI and that any amendments
and/or modifications to the MOA would be effective only upon approval
of the parties thereto.
By then, Rueda was no longer connected with the petitioner corporation,
hence, was disqualified to receive the franchise commission. Thus, the
said commission was offered to Macariola who, however, declined and
waived his right thereto in favor of respondent Crisostomo, Rueda’s
immediate supervisor. The Executive Committee of petitioner PAPI
agreed to give the franchise commission to respondent Crisostomo. 4
Initially, respondent Crisostomo received the 10% franchise
commission from December 1988 until April 1989. Later, upon the
instance of petitioner Benjamin Dino, then Assistant Vice-President for
Marketing, respondent Crisostomo’s franchise commission was
reduced to 5% to support the operational expenses of PAPI. After a few
months, the said commission was again reduced to 4%. Two months
later, petitioner PAPI asked for another .25% reduction; hence,
respondent Crisostomo’s franchise commission was further reduced to
3.75%. Finally, in January 1991, petitioner PAPI again asked for a final
reduction of the commission to 2% to which respondent Crisostomo
agreed, on the condition that it be reduced into writing. 5
Thus, on February 7, 1991, petitioner Dino, and Angelito B. Cruz, Vice-
President for Finance and Administration, signed a Memorandum which
reads as follows:
This will confirm your company franchise on all AFPSLAI business with
Professional Academic Plans, Inc. under the following terms and
conditions:
1. Your franchise commission shall remain at 2% excluding Entrance
and Service Fees of the first year premium for as long as you are
connected with the company at whatever capacity.
2. This franchise is not transferable.
For your guidance.
(Sgd.) (Sgd.)
BENJAMIN S. DINO ANGELITO B. CRUZ6
Crisostomo received her 2% commission until October 1991. 7 In the
meantime, Col. Victor M. Punzalan succeeded Col. Noe S. Andaya as
President of the AFPSLAI.8 In a Letter dated December 16, 1991, Col.
Punzalan informed PAPI of the AFPSLAI’s decision to review the 1988
MOA.
As an aftermath of the negotiation, petitioner PAPI and the AFPSLAI
executed a MOA in April 1992, amending their prior MOA. 9
The AFPSLAI resumed its remittances of the installment payments of
its members to petitioner PAPI in June 1992.10 This time, however,
Crisostomo was not paid her commission. In an Inter-Office
Memorandum11 dated June 1, 1992, respondent Crisostomo’s franchise
commission on sales transacted with the AFPSLAI was terminated, for
the following reasons: (1) the new AFPSLAI management cancelled the
old MOA in October 1991 due to various anomalies and the
misrepresentation committed by PAPI’s sales force; (2) the new MOA is
largely due to management’s effort; hence, no franchise would be
granted to any sales associates; and (3) the franchise guidelines as per
the Memorandum dated November 1988 prescribed that in order to
maintain her franchise, 100 new paid plans should be completed on a
month to month basis and respondent Crisostomo was not able to meet
these parameters for the period of November 1991 to May 1992.
Nonetheless, respondent Crisostomo insisted on the release of her 2%
franchise commission.12 She first approached her immediate
supervisor, Mrs. Editha Bayoneta, the Senior Assistant Vice-President,
but to no avail. She then went to petitioner Dino, who allegedly
threatened her with termination if she persisted with her demand.
Unfazed, she sought a dialogue with the President himself, petitioner
Francisco Colayco. They, however, failed to arrive at a settlement. 13 On
July 6, 1992, respondent Crisostomo sent a demand letter to petitioner
PAPI. The latter informed her that it could not accede to her demand for
the reasons stated in the Inter-Office Memorandum dated June 1, 1992.
Thereafter, Crisostomo again approached Colayco who advised her to
make a formal proposal. She complied and submitted a letter 14 on
August 13, 1992 where she made the following proposal:
Option 1: That I am willing to settle for a ₱5 Million amount settlement
and an immediate irrevocable resignation from your good company,
Option 2: That the 2% franchise fee/commission be retained even if and
when the undersigned is no longer connected with Professional Group,
Inc. for as long as the AFPSLAI is still doing business with the
Professional Group. This is considered as the royalty fee.15
However, in a Letter16 dated August 17, 1992, petitioner Colayco
informed the respondent that her settlement proposal was totally
unacceptable and that she was being placed under preventive
suspension in order to abort any untoward reaction resulting from the
denial of her request, which may be detrimental to the company’s
interest. Worse, she was advised not to come back after the
suspension. Thus, her services in the company were terminated.
On January 21, 1993, respondent Crisostomo filed a complaint for sum
of money and damages against petitioners PAPI, Colayco and Dino.
She alleged therein that as of October 2, 1992, petitioner PAPI’s sales
of pre-need plans to the AFPSLAI amounted to ₱9,193,367.20; that she
was entitled to 2% of such amount or the sum of ₱183,867.34 as
franchise commission; and that notwithstanding the said franchise,
petitioner PAPI refused to give her the said commissions. She, likewise,
prayed for the grant of moral and exemplary damages, plus attorney’s
fees.17
The petitioners averred in their answer to the complaint that Crisostomo
was not entitled to the franchise commission because she did not
participate in the execution of the 1988 MOA. They pointed out that
under the December 1989 company guidelines, a franchise holder shall
be maintained only when 100 new paid plans are completed on a
month-to-month basis. They argued that since respondent Crisostomo
was unable to meet this requirement for the period of November 1991
to May 1992, her franchise was terminated. The petitioners also claimed
that the AFPSLAI did not resume payments in 1992 but entered into a
new MOA after it undertook new negotiations. They maintained that
under the new MOA, no one is entitled to a franchise, much less
respondent Crisostomo.18
The petitioners adduced testimonial evidence to show that respondent
Crisostomo had no participation whatsoever in the negotiations which
culminated in the execution of the two MOAs between petitioner PAPI
and the AFPSLAI. Petitioner Dino testified that before respondent
Crisostomo became the regional manager, she was not an employee of
PAPI. According to him, after the termination of Rueda’s employment
for cause, the franchise commission should revert back to petitioner
PAPI as a rule. While the Executive Committee agreed to award the
commission, it agreed to give respondent Crisostomo only a 5%
commission, which was reduced to 2% until June 1992 under the 1992
MOA. Moreover, Crisostomo had no participation whatsoever in the
negotiations of the two agreements.
After due proceedings, the trial court rendered a Decision on November
20, 1997, the dispositive portion of which reads:
Premises considered, judgment is hereby rendered in favor of the
plaintiff and as against defendants. Wherefore, defendants are hereby
ordered to release to plaintiff:
1. the sum of one hundred eighty-three thousand eight hundred sixty-
seven thousand and twenty-five centavos (₱183,867.25) which
constitutes her commission from the AFPSLAI contract as of October
1992, and the sum equivalent to 2% of all future remittances by
AFPSLAI to defendant PAPI;
2. moral damages in the amount of ₱200,000.00;
3. exemplary [damages] of ₱50,000.00;
4. attorney’s fees of ₱50,000.00;
5. cost of suit.
SO ORDERED.19
The petitioners appealed the decision to the CA which rendered
judgment20 on August 31, 2000 affirming in toto the decision of the trial
court.
The Ruling of the Court of Appeals
According to the CA, the letter of Col. Punzalan did not indicate any In their Reply, the petitioners stress that the respondent’s entitlement to
intention to abrogate the first MOA. At most, it merely suspended the the commission was not absolute. It was subject to certain
acceptance of the application for pre-need plans while a thorough conditions, i.e., the fact that the respondent must be connected with the
review of the terms and conditions of the first MOA was being made. company in order to be entitled to it, and that the old MOA must remain
The CA held that the second MOA did not disclose any incompatibility effective, since it was the basis for the grant of the commission. With its
with the first MOA that would amount to an implied extinguishment of cancellation, the right of respondent to the commission, likewise,
the latter; nor did the new MOA use any word suggesting the ceased to exist. Without the new MOA, there would no longer be any
cancellation of the first. The CA then ruled that what was executed in applications for academic plans from the AFPSLAI and, consequently,
1992 was a mere modification of the first MOA.21 no commission to be earned.32
The CA further held that the fact that military and political support The Ruling of the Court
intervened in facilitating the revival of the AFPSLAI account did not Rule 45 of the Rules of Court provides that only legal issues may be
diminish the respondent’s right to the franchise commission, raised. Factual issues are beyond the province of the Supreme Court in
considering that it was awarded to her by the executive committee for a petition for review, for it is not the Court’s function to weigh the
successfully initiating the deal with the AFPSLAI in 1988. 22 evidence all over again.33While the Court may, in exceptional cases,
The CA ruled that the requirement of completing 100 new plans monthly resolve factual issues, the petitioners herein failed to establish any such
as a condition for a franchisee to be entitled to the commission was exceptional circumstances. Moreover, it is doctrinal that findings of facts
superseded by the Memorandum dated February 7, 1991, which of the CA upholding those of the trial court are binding upon the
reduced the commission to 2% from the earlier 10%. Respondent Supreme Court.34
Crisostomo was entitled to receive such reduced commission as long Even after a review of the factual issues raised by the petitioners, we
as she was connected with the petitioner corporation in whatever find and so rule that the CA was correct in declaring that the first MOA
capacity. Moreover, assuming that such condition was still in effect, its had not been cancelled, but was merely modified by the second MOA.
non-fulfillment from November 1991 to May 1992 could not be imputed
A reading of the letter of Col. Punzalan to the petitioner corporation
to the respondent since it was brought about by Col. Punzalan’s order
indicates that it merely signified the suspension of the acceptance of
to suspend the acceptance of plan applications pending a review of the
new applications under the first MOA, until such time that a thorough
first MOA.23
study was undertaken, and a new agreement mutually beneficial to both
The CA found that the award of moral and exemplary damages, parties was entered into. By his letter, Col. Punzalan did not unilaterally
attorney’s fees and the costs of the suit, in favor of the respondent, was cancel or rescind the first MOA. Indeed, the petitioners failed to adduce
fully supported by the evidence on record and was justified, in light of a morsel of evidence to prove that AFPSLAI had agreed to such
the petitioner corporation’s wanton disregard of respondent’s claim for cancellation or rescission of the first MOA. It bears stressing that
her franchise commission.24 abandonment of contract rights requires proof of actual intent to
On June 13, 2001, the CA denied the petitioners’ motion for abandon. 35
reconsideration for lack of merit. Hence, they filed this petition for review Once a contract is entered into, no party can renounce it unilaterally or
on certiorari. without the consent of the other.36 This is the essence of the principle of
The Present Petition mutuality of contracts entombed in Article 130837 of the Civil Code. To
The petitioners submit the following issues for our consideration: effectuate abandonment of a contract, mutual assent is always
required.38 The mere fact that one has made a poor bargain may not be
A) WHETHER OR NOT THE OLD MEMORANDUM OF AGREEMENT
a ground for setting aside the agreement.39
HAD BEEN CANCELLED AND RESCINDED BY AFPSLAI;
As can be gleaned from the second MOA, the parties merely made
B) WHETHER OR NOT RESPONDENT IS ENTITLED TO THE
substantial modifications to the first MOA, and agreed that only those
FRANCHISE FEE OR COMMISSION UNDER THE NEW
provisions inconsistent with those of the second were considered
MEMORANDUM OF AGREEMENT UNDER WHICH SHE HAD NO
rescinded, modified and/or superseded.40
PARTICIPATION WHATSOEVER IN THE NEGOTIATION AND
EXECUTION; As graphically shown below, the parties agreed to continue with the
implementation of the Academic Assistance Program under the
C) WHETHER OR NOT PETITIONERS, IN DENYING
acronym "LOVES" (Loans to Offset Very Expensive Schooling) and to
RESPONDENT'S CLAIM, HAVE COMMITTED ACTS THAT RENDER
continue implementing the same. The rights and obligations of the
THEM LEGALLY LIABLE FOR MORAL AND EXEMPLARY DAMAGES
parties under the first MOA were maintained albeit with modifications,
AND ATTORNEY'S FEES AND COST OF SUIT.25
to wit:
Primarily, the petitioners assert that the respondent is not entitled to a
franchise commission. They aver that the respondent did not participate 1988 MOA 1992 MOA
in initiating, conceptualizing, and negotiating the first MOA with the IN GENERAL IN GENERAL
AFPSLAI, except that she was present during its signing. The franchise · Agreement · Agreement
commission for the AFPSLAI account under the old MOA should have between PAPI and between AFPSLAI
been granted to Noel Rueda, who initiated and conceptualized the AFPSLAI to and the PAPI to
transaction. The petitioners maintain that the franchise commission was implement the implement the terms
only awarded to the respondent because those who were entitled to it terms and and conditions of the
were disqualified to be franchise holders – Rueda was disqualified for conditions of the Loans to Offset Very
being no longer connected with the petitioner company, while Macariola Academic Expensive
was disqualified for being an employee. 26 Assistance Program Schooling (LOVES)
Assuming that the respondent was entitled to the franchise commission · Benefits to accrue Program
under the old MOA, the petitioners argue that such privilege was already directly to the · Benefits to accrue
extinguished, considering that the old MOA was cancelled by the member and the directly to the
AFPSLAI thru the Letter dated December 16, 1991. They maintain that designated heirs member and the
in writing the said letter, Col. Punzalan intended to abrogate the old designated heirs
MOA and not merely suspend the same, otherwise, the intention to
enter into "a new agreement mutually beneficial" to both parties would IMPLEMENTATION IMPLEMENTATION
not have been mentioned therein.27 They conclude that since there has · Assistance by · Putting up of an
already been an express cancellation of the old MOA, there is no longer PAPI to AFPSLAI in extension office
a need to delve into the issue of whether the new MOA declared in terms of support near the AFPSLAI
unequivocal terms that the old MOA was being cancelled, or whether services building at the
the new MOA is incompatible with the old one. 28 · Creation of a expense of PAPI
The petitioners point out that the respondent had no participation Committee to · Support and
whatsoever in the negotiation or execution of the new MOA. supervise the initial services by PAPI in
Considering this and the fact that the old MOA had been duly cancelled, implementation of the implementation
the respondent, therefore, had no right to the franchise commission on the program of the program
the AFPSLAI account under the new MOA.29
PAYMENT and PAYMENT and
The petitioners assert that the award of moral and exemplary damages COLLECTION COLLECTION
and attorney’s fees has no basis since they did not act in bad faith in
· Financing of the · Financing in the
denying the respondent’s claim.30
1st annual payment form of a 5-year loan
In her Comment on the petition, the respondent counters that regardless by AFPSLAI in the in favor of the
of the execution of the new MOA and her non-participation in its form of educational member equivalent
negotiation and execution, her right to the commissions from all sales loan to the member to the Gross
emanating from the AFPSLAI transactions subsists as long as she
· AFPSLAI as the Contract Price
remained connected with PAPI. She asserts that the petitioners are now (GCP) of the plan
authorized
in estoppel to question the grant of her commission since it was granted
through the petitioner corporation’s authority and it was reduced into collecting agent of · Schedule of
monthly drawing out the loan
writing.31
installments of the proceeds within 5 the member and · Effectivity of the
members years PAPI MOA immediately
· Remittance of - 20% of GCP upon · Effectivity of the upon signing
collections to the submission of the MOA immediately · Amendments and
PAPI from the 2nd complete upon signing modifications to
year until the plan is documentation by · Amendments and become effective
fully paid PAPI and upon modifications to only upon approval
· Direct payment to approval of the loan become effective of the parties
PAPI of the 1st year - 80% of the GCP to only upon approval · Prior inconsistent
assistance granted be drawn out in 48 of the parties agreements
by AFPSLAI to the equal monthly deemed rescinded,
member installments to start modified, or
upon receipt by superseded.
AFPSLAI of the 13th The fact that the respondent did not participate in the negotiations of the
monthly new MOA is of no moment. As culled from the petitioners’ testimonial
amortization of the evidence, the franchise commission was awarded as an incentive to the
member one who initiated and successfully negotiated the AFPSLAI account
BENEFITS TO BENEFITS TO within a certain period.41 The franchise commission was granted subject
AFPSLAI AFPSLAI to two conditions only: (1) that the respondent must remain connected
· 47.5% of the net · 53.5% out of the with the company, and (2) that it is not transferable. At the time the new
Initial Cash 20% of the GCP as MOA was executed, the respondent was still connected with the
Brought-In of all the service fee and petitioner corporation; hence, she was still entitled to her commission.
1st year assistance discount Even with the modification of the first MOA by the second one, the
respondent had the right to continue receiving her franchise commission
· 5% of all total · 5% out of the 80% from the petitioner corporation.
collections from the of the GCP as
2nd year up to the service fee We agree with the respondent that the petitioners are now in estoppel
5th year to question her entitlement to the franchise commission under the old
MOA. It must be noted that from December 1988 until October 1991 the
IN CASE OF NON- IN CASE OF NON- respondent was continuously receiving her franchise commission from
PAYMENT PAYMENT the petitioner corporation. It was only when the remittances for AFPSLAI
· AFPSLAI to · AFPSLAI to were suspended that the respondent stopped receiving her
become the automatically commission.
receiver of the become the receiver On the issue of damages, we rule for the petitioners. Moral damages
contract in case of of the contract in are recoverable for breach of contract where the breach was wanton,
failure to pay 3 case of failure to pay reckless, malicious or in bad faith, oppressive or abusive.42 However,
monthly the monthly moral damages are improperly awarded, absent a specific finding and
amortizations amortization(s), with pronouncement from the trial court that petitioners acted in such
· AFPSLAI to dispositive right over manner.43 In the instant case, despite the trial court’s award of moral
acquire all interests the plan damages, it did not make any pronouncement as to the basis of such
from the contract in award. Therefore, the award of moral damages must be deleted.
case the 1st year As a consequence, the award for exemplary damages is also vacated.
assistance is not Exemplary damages are not recoverable as a matter of right, and
fully paid by the although such damages need not be proved, the plaintiff must first show
member that he is entitled to moral, temperate or compensatory damages before
IN CASE OF a court can favorably consider an award of exemplary damages. 44 In
CANCELLATION this case, there was no finding that the respondent is entitled to any
such damages; hence, no exemplary damages may be awarded.
· Due to fraud,
Finally, we also vacate the award of attorney’s fees since the trial court
forgery or
did not make any finding that any of the instances enumerated in Art.
misrepresentation of
2208 of the Civil Code exists.
PAPI personnel
WHEREFORE, the decision of the Court of Appeals is AFFIRMED with
- AFPSLAI to act on
MODIFICATION. The awards for moral and exemplary damages and
it and notify PAPI
attorney’s fees are DELETED. No pronouncement as to costs.
- Member’s loan to
SO ORDERED.
be deducted from
the amounts due to
PAPI, or to be billed
to PAPI, in case the
former is insufficient
- no rebate on the
service fee and
discount
· Due to death of
either the member
or beneficiary
- the plan shall be
deemed fully paid
for
- to be acted upon
by PAPI
- outstanding
accounts to be
deducted from
AFPSLAI’s future
releases or to be
billed to PAPI
subject to certain
conditions.
MISCELLANEOUS MISCELLANEOUS
· AFPSLAI to be · AFPSLAI to be
free from any legal free from any
implication that may liability arising
arise as to the between the
agreement between member and PAPI