G.R. No. 168108 April 13, 2007

ENRIQUE C. ABAD, JOSEPH C. ABAD, MA. SABINA C. ABAD, ADELAIDA C. ABAD, CECILIA C. ABAD, VICTORIA C. ABAD, VICTOR C. ABAD, CENON C. ABAD, JR., AND JUANITA C. ABAD, Petitioners,

vs. GOLDLOOP PROPERTIES, INC., Respondent.

Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailing the Decision1of

the Court of Appeals (CA) in CA-G.R. CV No. 77559. The ruling of the appellate court affirmed in toto the decision of the Regional Trial Court (RTC), Pasig City, Branch 167, in Civil Case No. 67192.

Petitioners Enrique C. Abad, Joseph C. Abad, Ma. Sabina C. Abad, Adelaida C. Abad, Cecilia C. Abad, Victoria C. Abad, Victor C. Abad, Cenon C. Abad, Jr., and Juanita C. Abad were the owners of 13 parcels of titled agricultural land

2 covering a total of 53,562 square meters. The lots were situated in the S.C. Malabon Estate in Tanza, Cavite.

On August 29, 1997, respondent Goldloop Properties Inc., through its President, Emmanuel R. Zapanta, entered into a Deed of Conditional Sale

3 with petitioners at the price of P650.00 per square meter, or a total ofP34,815,300.00 for

the entire land area. The parties agreed on the following terms of payment:

a. EARNEST MONEY

An earnest money of ONE MILLION PESOS (Php1,000,000.00) [EARNEST MONEY] has been given by the BUYER to the SELLER on June 30, 1997, as evidenced by MBTC Check No. 2930037 dated July 02, 1997, receipt of which is hereby acknowledged.

b. FIRST PAYMENT

SIX MILLION SEVEN HUNDRED SIXTY-FIVE THOUSAND SIX HUNDRED SIXTY PESOS (PHP6,765,660.00) [FIRST PAYMENT] shall be paid by the BUYER to the SELLER on August 17, 1997 covered by MBTC Check No. 2930037198, upon signing of this DEED OF CONDITIONAL SALE.

c. FULL PAYMENT

The remaining balance, representing full and final payment of the total contract price, in the amount of TWENTY-SEVEN MILLION FORTY-NINE THOUSAND SIX HUNDRED FORTY PESOS (PHP27,049,640.00) shall be paid by the BUYER to the SELLER on or before 31 December 1997 and upon the fulfillment of the following conditions:

c.1 The balance of the total contract price shall be paid by the BUYER to the SELLER after verification of the total land area

through a site relocation survey, to be confirmed by the BUYER and the SELLERS.

c.2 The remaining balance of the total contract price shall be adjusted, based on the total land area verified through a site relocation survey, as per confirmation made by both parties.

4

Paragraph 8 of the Deed also provided for the consequence of respondent’s failure to fulfill its obligation to pay the balance of the total consideration agreed upon:

8. In the event that the BUYER cannot comply, to fulfill his obligation to this contract, for the balance of the total consideration, one week before December 31, 1997, the BUYER shall forward a formal request for an extension of the contract not to exceed 30 days (on or before January 28, 1998). This grant of extension is afforded to the BUYER on a one-time basis and no subsequent extensions will be granted. In the event that the BUYER fails to comply [with] his part of the obligation within the specified extension period, the earnest money of ONE MILLION PESOS (PHP1,000,000.00), given by the BUYER to the SELLER by way of MBTC Check No. 2930037 dated July 02, 1997, shall be forfeited in favor of the SELLER but the first payment check of SIX MILLION SEVEN HUNDRED SIXTY-FIVE THOUSAND SIX HUNDRED SIXTY PESOS (PHP6,765,660.00) shall be returned to the BUYER without any additional charges to the SELLER.

5

In a letter6 dated August 28, 1998, Zapanta informed Henry Abad that he would not object to the planned sale of the

properties to other parties, provided that 50% of the forfeitable amount of P1,000,000.00 would be returned in addition to the P6,765,660.00 as provided in paragraph 8 of the Deed of Conditional Sale. He also declared that the intended date of purchase had been adversely affected by economic conditions which were never foreseen as a possible contingency.

However, in another letter7 dated October 8, 1998, Zapanta informed Enrique C. Abad that the negotiations with the

banks had failed due to "the continuing economic downturn" and consequently, the transaction would not be consummated. He then requested that the first payment be returned within five days, in accordance with paragraph 8 of the deed.

8 Respondent reiterated its demand to petitioners in a Letter

9 dated November 5, 1998.

Respondent then filed a Complaint10

for Collection with Prayer for Writ of Attachment against petitioners. The complaint contained the following prayer:

1. Upon filing hereof, to issue ex-parte, a temporary restraining order directing the defendants to jointly and severally stop from executing any deed or instrument intended to encumber or convey the ownership of the properties enumerated under par. 1 hereof, to other parties; and after notice and hearing, to issue an injunction containing the same tenor as that of the temporary restraining order;

2. Upon filing hereof, to issue ex-parte, a writ of attachment on such properties of defendants sufficient to secure the satisfaction whatever favorable judgment that plaintiff may obtain in this case;

3. After notice and hearing, to render judgment, ordering the defendants, to jointly and severally pay plaintiff the following sums:

(a) P6,765,660.00 representing the principal amount due to plaintiff plus interest of 24% per annum, the computation of which to commence from the date of filing of the instant case until the said amount is fully paid;

(b) Attorney’s fees equivalent to twenty-five (25%) of the principal amount sought to be collected;

(c) P50,000.00 representing the premium of the attachment and/or injunction bond;

(d) P50,000.00 litigation expenses;

(e) Cost of suit.

Plaintiff, further prays for such other reliefs and remedies consistent with law, justice and equity.11

Trial ensued, and the parties presented their respective evidence.

On June 10, 2002, the RTC ruled in favor of respondent. In his Decision,12

Presiding Judge Alfredo C. Flores limited the issue to "whether or not [petitioners are] entitled to the refund or return of Php6,765,660.00 paid to [respondent] pursuant to the Deed of Conditional Sale." According to the trial court, the purpose of theP1,000,000.00 earnest money was separate and distinct from the P6,765,660.00 first payment:

A careful and thorough study of [paragraph 8 of the Deed of Conditional Sale] undeniably reveals that whether the contract was extended or not, the first payment in the amount of Php6,765,660.00 shall be returned to the plaintiff. The statement "but the first payment check of six million seven hundred sixty five thousand six hundred sixty pesos shall be returned to the buyer" indubitably presupposes that the parties, although using the words "earnest money" had truly considered the same as an option on the part of the plaintiff to rescind the contract in lieu of the forfeiture of Php1,000,000.00 if, for whatever reasons, it chooses not to pursue the contract by not paying the remaining balance thereon either one week before 31 December 1997 if not extended or, until 28 January 1998 if extended. Put otherwise, the requirement of forwarding a formal request for extension of the contract was provided for no other purpose than solely for the plaintiff to save the amount of Php1,000,000.00 from being forfeited in the event it chooses to instead exercise its option of paying the balance on or before the said stipulated periods. In short, the purpose of paying the amount of Php6,765,660.00 is distinct and separate from that of Php1,000,000.00.

13

Citing Article 1370 of the Civil Code, the RTC also declared that "in the event the contract of conditional sale falters," the return of the first payment of P6,765,660.00 would be an unconditional obligation on the part of petitioners. Moreover, the provisions of the contract should be enforced as they are read, and should not be given an unusual significance even if to do so would appear to be in the interest of justice or necessary to prevent hardship. The dispositive portion reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the defendants ordering the latter, in solidum, to pay the former the following sums, namely:

1. Php6,765,660.00 in addition to the payment of the 6% interest per annum from the filing of the complaint until it is fully paid;

2. 10% of the principal obligation, for and as reasonable attorney’s fees; and

3. Costs of suit.

For lack of sufficient factual basis, the counterclaim is dismissed.

SO ORDERED. 14

Petitioners filed a motion for reconsideration, alleging that the trial court erroneously interpreted paragraph 8 of the contract. Petitioners insisted that a close reading of the provision revealed that respondent as buyer had to comply with three conditions precedent before the first payment could be returned to it:

(a) One week before December 31, 1997, the BUYER shall forward a formal request for an extension of the contract." x x x

(b) The extension shall not exceed 30 days (on or before 28 January 1998) x x x.

(c) The extension shall be on a "one-time basis and no further extension will be granted."15

Petitioners alleged that these conditions were not fulfilled, and that respondent did not request for an extension within the stipulated period. They further alleged that "whether or not plaintiff makes that extension notice is the uncertain event or contingency upon which plaintiff’s validity of its claim or return of first payment depends," without which no right of action accrues. Thus, since respondent, as buyer, failed to comply with the "condition precedents" in paragraph 8, its claim for refund did not ripen into a demandable right. Contrary to the trial court’s ruling, no such right to rescind the contract had been granted to respondent.

For its part, respondent filed a Motion for Grant of Writ of Attachment, relying on Section 1(d) and (e), Rule 57 of the Revised Rules of Court.

On September 16, 2002, the RTC issued an Omnibus Order denying both motions. It held that when the sale did not materialize, the obligation of petitioners to return the first payment became unqualified and unconditional. In accordance with the contract, only the earnest money would be forfeited in favor of petitioners in case respondent failed to remit the balance of the purchase price. On petitioners’ application of a writ of attachment, the trial court held that respondent was not guilty of fraud in the non-performance of its obligation, grounded as it was on the interpretation of the contract.

Petitioners appealed the case to the CA on the following grounds:

1.1 THE LOWER COURT ERRED IN FINDING THAT THE RETURN OF THE FIRST PAYMENT OFP6,765,660.00 IS AN UNCONDITIONAL OBLIGATION ON THE PART OF THE DEFENDANTS;

1.2 THE LOWER COURT ERRED IN NOT FINDING AND DECLARING THAT THE OBLIGATION TO RETURN THE FIRST PAYMENT OF P6,765,660.00 IS A CONDITIONAL OBLIGATION OR IF NOT, IS AT LEAST AN OBLIGATION WITH A PERIOD;

1.3 THE LOWER COURT ERRED IN ORDERING DEFENDANTS, IN SOLIDUM, TO PAY PLAINTIFFP6,765,660.00 IN ADDITION TO THE PAYMENT OF 6% INTEREST PER ANNUM FROM THE FILING OF THE COMPLAINT UNTIL IT IS FULLY PAID, WITHOUT FIXING THE DURATION OF THE PERIOD WITHIN WHICH DEFENDANTS HAVE TO COMPLY WITH THEIR OBLIGATION;

1.4 THE LOWER COURT ERRED IN CONCLUDING THAT PLAINTIFF IS ENTITLED TO RECOVER ATTORNEY’S FEES; and

1.5 THE LOWER COURT ERRED IN ORDERING DEFENDANTS, IN SOLIDUM, TO PAY PLAINTIFF 10% OF THE PRINCIPAL OBLIGATION FOR AND AS REASONABLE ATTORNEY’S FEES.

The CA dismissed the appeal and affirmed in toto the ruling of the trial court.16

Citing Article 1370 of the Civil Code and related cases,

17 it declared that if the terms of a contract are clear with no doubt as to the intentions of the

contracting parties, then the literal meaning of the stipulations shall control. It held that the disputed paragraph 8 of the deed is plain and unambiguous: in case respondent failed to pay the balance, the earnest money would be forfeited, but the first payment shall be returned to respondent. The appellate court declared that petitioner’s obligation to return the first payment was an unconditional one.

18

Petitioners filed a motion for reconsideration. In its Resolution19

dated May 4, 2005, the CA partly granted the motion and declared that the liability of petitioners is only joint and not in solidum. The pertinent portion of the resolution reads:

Our declaration in our Decision dated January 5, 2005, that it was an unconditional obligation on the part of the appellants to return to the appellee the first payment check of P6,765,660.00, [w]e meant that such obligation to return the subject payment is a pure obligation without a condition or a term or a period, hence demandable at once pursuant to Article 1179 of the New Civil Code.

Nonetheless, after a re-examination of the records, [w]e failed to see any basis that appellants’ monetary obligations in [o]ur decision be "in solidum." Verily, there is solidary liability only when the obligation expressly so states, or when the law or nature of the obligation requires solidarity. None of such elements exists in this case. The subject sale agreement nor the nature of appellant’s obligation gave no sign that appellants’ liability in the case at bar is solidary. Apropos, the decision rendered in this case must be modified, in such a way that appellants’ liability to return the amount of P6,765,660.00 and pay attorney’s fees, is only joint.

ACCORDINGLY, appellants’ Motion for Reconsideration is partly granted in that their liability in this case is declared only as joint, and not "in solidum." In all other respect[s], [o]ur Decision dated January 5, 2005 stands.

SO ORDERED.20

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In the instant petition for review on certiorari, petitioners present the following issues to be resolved by the Court:

6.1.a. Whether the obligation of petitioners to return the first payment of P6,765,660.00 is an unconditional obligation or not;

6.1.b. Whether the obligation to return the first payment of P6,765,660.00, assuming it to be unconditional, is a pure obligation or an obligation with a period; and

6.1.c. Whether or not the court must first fix the duration of the period within which petitioners have to comply with their obligation before respondent can demand from petitioners the fulfillment of said obligation.

21

Petitioners argue that respondent failed to satisfy the three suspensive "conditions" under the disputed provision. Thus, they are not obliged to return the first payment (and respondent’s correlative right to demand the performance of the obligation) never arose. Even assuming that the CA was correct in its holding, the obligation should nevertheless be deemed one with a period. Petitioners claim that even if no period was indicated in the contract it does not follow that no such period was intended; "such an obligation was with an indefinite period, or the parties simply forgot to state in their contract the definite period for the return of said payment check." Petitioners pointed out that the parties likewise did not stipulate that the obligation was a pure obligation, demandable at once. Thus, the

remedy available to respondent is not to demand the performance of the obligation, but to ask the court to fix the period within which to return the first payment, pursuant to Article 1197 of the Civil Code. According to petitioner, respondent’s action for collection/specific performance must be dismissed since the complaint states no cause of action. It was thus error for the CA to order them to pay respondentP6,765,660.00 with interest at 6% per annum without first fixing the period within which petitioners have to comply.

For its part, respondent insists that the trial and appellate courts did not commit any error in ordering petitioners to return to it the sum of P6,765,660.00.

The petition is denied.

Paragraph 8 of the contract is clear and unambiguous. As the trial and appellate courts ruled, unlike theP1,000,000.00 earnest money which would be forfeited in favor of petitioners in case of respondent’s failure to deliver the balance of the total consideration, the first payment would be returned to respondent. This obligation to return the first payment can be gleaned from the second part of the disputed provision, which states: "but the first payment check of SIX MILLION SEVEN HUNDRED SIXTY-FIVE THOUSAND SIX HUNDRED SIXTY PESOS (PHP6,765,660.00) shall be returned to the BUYER without any additional charges to the SELLER."

The Court cannot sustain petitioners’ contention that their obligation to return the first payment should be deemed one with a period, and that the Court should fix the period within which they should comply with the obligation. In the first place, there is no occasion to apply the first paragraph of Article 1197

22 since there is no showing that the parties

had intended such a period. This matter was not raised in the Answer, the Amended Answer or the Second Amended Answer which petitioners filed in the trial court; no evidence was likewise offered to prove such intent. Indeed, the parties to a contract are bound by their agreement,

23 considering that obligations arising from contracts have the

force of law between the contracting parties and should be complied with in good faith.24

The cardinal rule in the interpretation of contracts is embodied in the first paragraph of Article 1370 of the Civil Code: "[i]f the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control." This provision is akin to the "plain meaning rule" applied by Pennsylvania courts, which assumes that the intent of the parties to an instrument is "embodied in the writing itself, and when the words are clear and unambiguous the intent is to be discovered only from the express language of the agreement."

25 It also resembles the "four corners" rule, a principle which allows courts in some cases to search

beneath the semantic surface for clues to meaning.26

A court’s purpose in examining a contract is to interpret the intent of the contracting parties, as objectively manifested by them. The process of interpreting a contract requires the court to make a preliminary inquiry as to whether the contract before it is ambiguous. A contract provision is ambiguous if it is susceptible of two reasonable alternative interpretations. Where the written terms of the contract are not ambiguous and can only be read one way, the court will interpret the contract as a matter of law. If the contract is determined to be ambiguous, then the interpretation of the contract is left to the court, to resolve the ambiguity in the light of the intrinsic evidence.

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In our jurisdiction, the rule is thoroughly discussed in Bautista v. Court of Appeals:28

The rule is that where the language of a contract is plain and unambiguous, its meaning should be determined without reference to extrinsic facts or aids. The intention of the parties must be gathered from that language, and from that language alone. Stated differently, where the language of a written contract is clear and unambiguous, the contract must be taken to mean that which, on its face, it purports to mean, unless some good reason can be assigned to show that the words should be understood in a different sense. Courts cannot make for the parties better or more equitable agreements than they themselves have been satisfied to make, or rewrite contracts because they operate harshly or inequitably as to one of the parties, or alter them for the benefit of one party and to the detriment of the other, or by construction, relieve one of the parties from the terms which he voluntarily consented to, or impose on him those which he did not.

CONSIDERING THE FOREGOING, the Court resolved to DENY the petition. The Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 77559 are AFFIRMED.

G.R. No. 151402 August 22, 2008

BENGUET CORPORATION, DENNIS R. BELMONTE, EFREN C. REYES and GREGORIO A. FIDER, petitioners,

vs. CESAR CABILDO, respondent.

D E C I S I O N

NACHURA, J.:

This is a petition for review on certiorari assailing the Court of Appeals (CA) decision1 in CA-G.R. CV No. 37123

which affirmed with modification the decision2 of the Regional Trial Court (RTC), Branch 6, Baguio City in Civil Case

No. 593-R.

Petitioner Benguet Corporation is a mining company with three (3) mining sites: Balatoc, Antamok and Acupan. Petitioners Dennis R. Belmonte,

3 Efren C. Reyes,

4 and Gregorio A. Fider

5 are all officers and employees of Benguet

Corporation.6 On the other hand, respondent Cesar Cabildo and Rolando Velasco, defendant before the lower courts,

were former employees of Benguet Corporation.

At the time of his retirement on August 31, 1981, Cabildo was Department Manager of Benguet Corporation's Transportation and Heavy Equipment Department and had worked there for twenty-five (25) years. Thereafter, Cabildo became a service contractor of painting jobs.

Sometime in February 1983, Cabildo submitted his quotation and bid for the painting of Benguet Corporation's Mill Buildings and Bunkhouses located at Balatoc mining site. He then negotiated with petitioners Reyes and Fider, the recommending approval and approving authority, respectively, of Benguet Corporation, on the scope of work for the Balatoc site painting job which included necessary repairs. Reyes and Cabildo discussed the price schedule, and the parties eventually agreed that Benguet Corporation would provide the needed materials for the project.

Upon approval of his quotation and bid, Cabildo forthwith wrote Reyes on March 5, 1983 requesting the needed materials, so that he could immediately commence work. On March 7, 1983, even without a written contract, Cabildo began painting the Mill Buildings at Balatoc.

On March 9, 1983, Cabildo again wrote Reyes requesting the assignment of a representative by Benguet Corporation to closely monitor the daily work accomplishments of Cabildo and his workers. According to Cabildo, the request was made in order to: (1) preclude doubts on claims of payment; (2) ensure that accomplishment of the job is compliant with Benguet Corporation's standards; and (3) guarantee availability of the required materials to prevent slowdown and/or stoppage of work.

On even date, Cabildo submitted his first work accomplishment covering carpentry work and installation of the scaffolding for which he received a partial payment of P10,776.94.

Subsequently, on March 23, 1983, Cabildo and Benguet Corporation, represented by petitioner Belmonte, formally signed the Contract of Work for the painting of the Mill Buildings and Bunkhouses at the Balatoc mining site including the necessary repair works thereon. The Contract of Work, in pertinent part, reads:

(1) [Cabildo] shall paint the Mill Buildings at Balatoc Mill and all the bunkhouses at Balatoc, Itogon, Benguet, including certain repair works which may be necessary.

(2) For and in consideration of the work to be done by [Cabildo], [Benguet Corporation] shall pay [Cabildo] at the rate herein provided, as follows:

(a) Painting

Steel & Concretes Wood

1st coat P2.90/sq. m. P2.50/sq. m.

2nd coat 2.50/sq. m. 2.10/sq. m.

(b) Scrapping and Cleaning P1.85/sq. m.

(c) Scaffolding P0.50/sq. m.

(d) De-zincing P1.25/sq. m.

(e) Dismantling of sidings & ceilings P2.50/sq. m.

(f) Installation of sidings & ceilings P5.50/sq. m.

(g) Handling of Lumber & installation P275.00/cu. m.

(3) [Cabildo] shall employ his own workers and employees, and shall have the sole and exclusive obligation to pay their basic wage, overtime pay, ECOLA, medical treatment, SSS premiums, and other benefits due them under existing Philippine laws or other Philippine laws which might be enacted or promulgated during the life of this Contract. If, for any reason, BENGUET CORPORATION is made to assume any liability of [Cabildo] on any of his workers and employees, [Cabildo] shall reimburse [Benguet Corporation] for any such payment.

(4) [Cabildo] shall require all persons before hiring them in the work subject of this Contract to obtain their clearance from the Security Department of Baguio District Gold Operations of BENGUET CORPORATION.

(5) BENGUET CORPORATION shall retain 10% of every performance payment to [Cabildo] under the terms and conditions of this Contract. Such retention shall be cumulative and shall be paid to [Cabildo] only after thirty (30) days from the time BENGUET CORPORATION finally accepts the works as fully and completely finished in accord with the requirements of [Benguet Corporation]. Before the 10% retention of performance payments will, however, be fully paid to [Cabildo], all his workers and employees shall certify under oath that they have been fully paid their wages, SSS, medicare, and ECC premiums, ECOLA, overtime pay, and other benefits due them under laws in force and effect and that they have no outstanding claim against [Cabildo]. BENGUET CORPORATION has the right to withhold from the 10% retention any amount equal to the unsatisfied claim of any worker against [Cabildo] until the claim of the worker is finally settled.

(6) [Cabildo] shall not be allowed to assign or subcontract the works, or any phase thereof, and any violation of this provision will entitle BENGUET CORPORATION the sole and exclusive right to declare this Contract as cancelled and without any further force and effect.

(7) [Cabildo] and his heirs shall be solely and directly liable - to the exclusion of BENGUET CORPORATION, its stockholders, officers, employees, and agents and representatives - for civil damages for any injury or death of any of his employees, workers, officers, agents and representatives or to any third person and for any damage to any property due to faulty or poor workmanship or negligence or willful act of [Cabildo], his workers, employees, or representatives in the course of, during or when in any way connected with, the works and construction. If for any reason BENGUET CORPORATION is made to assume any liability of [Cabildo], his workers, employees, or representatives in the course of, during or when in any way connected with, the works and construction. If for any reason BENGUET CORPORATION is made to assume any liability of [Cabildo], his workers, employees, or agents or representatives under this provision, [Cabildo] and his heirs shall reimburse the CORPORATION for any payment.

(8) [Cabildo] hereby undertakes to complete the work subject of this Contract within (no period fixed) excluding Sundays and Holidays, otherwise, [Benguet Corporation] shall have the sole and exclusive right to cancel this Contract.

IN WITNESS WHEREOF, the parties have hereunto affixed their signatures on this 23rd

day of March, 1983 at Itogon, Benguet Province.

BENGUET CORPORATION

By:

(sgd.)

DENNIS R. BELMONTE

Vice-President

Benguet Gold Operations

(sgd.)

CESAR Q. CABILDO

Contractor

SIGNED IN OUR PRESENCE:

_____sgd.______ Witnesses _____sgd.______7

Apart from the price schedule stipulated in the Contract of Work, which only reproduced the quotation and bid submitted by Cabildo, and the preliminary discussions undertaken by the parties, all the stipulations were incorporated therein by Benguet Corporation which solely drafted the contract.

To undertake the project, Cabildo recruited and hired laborers - thirty-three (33) painters and carpenters - including petitioner Velasco as his general foreman.

The succeeding events, narrated by the trial court as echoed by the appellate court in their respective decisions, led to the parties' falling out:

[I]t must be pointed out that the Mill Buildings in Balatoc were about 28 buildings in all interconnected with each other grouped into 9 areas with some buildings very dangerous since it housed the machineries, agitators and tanks with cyanide solutions to mill the ores while the bunkhouses, which housed the laborers, were about 38 buildings in all averaging about 30 to 35 meters in height or more than 100 feet and thus would take sometime to paint and repair probably for about one and a half (1½) years.

Thus, the need for scaffoldings to paint the Mill buildings and bunkhouses so that the workers would be safe, can reach the height of the buildings and avoid the fumes of cyanide and other chemicals used in the Milling of the ores.

Payment was to be made on the basis of work accomplished at a certain rate per square meter in accordance with the prices indicated in the Contract. The procedure followed was that [Cabildo] requested the office of Reyes for measurement; then Reyes assign[s] an employee to do the measurement; the employee was accompanied by [Cabildo] or his authorized representative for the measurement; upon completion of the measurement, the computations were submitted to Engr. Manuel Flores, the Supervisor assigned to the work area; if Engr. Flores approved the computation, it was then recommended to Reyes for liquidation; and Reyes thereafter issued the Liquidation Memo to schedule payment of work accomplished.

[Cabildo] was represented in the measurement by either his foreman or his son while Mr. Licuben was assigned to do the measurement for the company.

x x x x

On May 30, 1983, Velasco left [Cabildo] as the latter's general foreman and went on his own as contractor, offering his services for painting jobs.

On June 6, 1983, Velasco entered into a Contract of Work with [Benguet Corporation], represented by Godofredo Fider, to paint the Breakham bridge at Antamok Mine, Barangay, Loakan, Itogon Benguet for the sum of P2,035.00.

x x x Apparently, the above contract of work of Velasco is in Antamok while the Contract of Work of [Cabildo] is in Balatoc.

On June 9, 1983 (6/9/83), Reyes recommended approval of the Quotation of Velasco for the painting of the inner mill compound of Balatoc for Areas 2, 3, 5, 6 & 7 and approved by Fider on June 13, 1983 at a lower price schedule per sq. meter than that of [Cabildo].

Hence, on June 13, 1983, Rolando Velasco entered into another Contract of Work with [Benguet Corporation], represented by Godofredo Fider, to paint the underneath of Mill Buildings No. 702 at

Balatoc Mill, Barangay Virac, Itogon, Benguet and install the necessary scaffoldings for the work for the sum of P5,566.60.

On the same date of June 13, 1983, Velasco entered into another Contract of Work with [Benguet Corporation], represented by Godofredo Fider, to scrape, clean and paint the structural steel members at the Mill crushing plant at Balatoc Mill, Barangay Virac, Itogon, Benguet and install the necessary scaffoldings for the purpose for the consideration ofP8,866.00.

x x x x

[Cabildo] complained and protested but Reyes said the Contract of Work of [Cabildo] covers only the painting of exterior of the Mill Buildings in Balatoc but not the interior although the same was not expressly stated in the Contract. This caused the souring of relationship of [Cabildo] and [petitioners] because at that time [Cabildo] had already painted the top roof and three (3) sidings both interior and exterior of Mill Building 702.

8

Because of these developments, Cabildo enlisted the services of Atty. Galo Reyes, who wrote both Fider and Jaime Ongpin, President of Benguet Corporation, regarding the ostensibly overlapping contracts of Cabildo and Velasco.

Parenthetically, at some point in June 1983, Cabildo was allowed to paint the interiors of various parts of the Mill Buildings, specifically, the Mill and Security Office, Electrical Office, Baldemor Office, and Sala Shift Boss.

On June 30, 1983, Cabildo was prevented from continuing work on the job site, as Fider and Reyes were supposedly investigating Cabildo's participation in the incident where a galvanized iron sheet fell on one of the agitator tanks. For three (3) months, Cabildo was not allowed to perform work stipulated in the agreement and complete painting of the Mill Buildings and Bunkhouses at Balatoc. He was only allowed to do repairs for previously accomplished work. Further, Benguet Corporation continued to withhold payment of Cabildo's last work accomplishment for the period from June 16 to 30, 1983.

On July 2, 1983, Benguet Corporation's Group Manager for Legal and Personnel, Atty. Juanito Mercado, who prepared and notarized the Contract of Work, responded to Cabildo's counsel, declaring that Benguet Corporation's Contract of Work with Cabildo only covered exterior painting of the Mill Buildings and Bunkhouses, whereas the contract with Velasco covered interior painting of the Mill Buildings, steel structures and underneath the GI Roofing.

Eventually, upon his visit to Benguet Corporation accompanied by counsel, Cabildo was paid for the June 16 to 30, 1983 work accomplishment. In this regard, petitioner Reyes issued Liquidation Memo dated July 25, 1983 which, curiously, had an intercalation that payment made was for the exterior painting of the Mill Buildings in Balatoc.

As regards the repairs of defects and leaks of previous work accomplishments, which were the only job Cabildo was allowed to work on, these were repaired satisfactorily and Cabildo was paid the previously withheld amount of P19,775.00.

Once again, in August of the same year, Cabildo wrote petitioner Belmonte appealing his preclusion from continuing the Contract of Work and the overlapping contracting jobs continuously given to Velasco. Yet, Cabildo was still disallowed to perform the job under the Contract of Work for the month of September up to December 1983.

With respect to the Bunkhouses, the petitioners did not require Cabildo to paint them. Neither did petitioners provide the materials needed therefor. The petitioners simply claimed that Cabildo was not at all allowed to perform work on the Bunkhouses due to the rainy season and because of the financial difficulties Benguet Corporation was then experiencing.

Thus, Cabildo filed a complaint for damages against the petitioners and Velasco before the RTC, claiming breach by Benguet Corporation of their Contract of Work. Further, Cabildo sought damages for the petitioner's harassment and molestation to thwart him from performing the job under the Contract of Work. Lastly, Cabildo prayed for damages covering lack of payments and/or underpayments for various work accomplishments.

The RTC rendered a decision in favor of Cabildo and found the petitioners, as well as Velasco, defendant before the RTC, jointly and severally liable to Cabildo for: (1) P27,332.60 as actual damages; (2) P300,000.00 as

indemnification for unrealized profit; (3) P100,000.00 as moral damages; (4) P50,000.00 as exemplary damages; (5) P30,000.00 as attorney's fees; and (5) costs of suit.

On appeal, the CA affirmed with modification the RTC's ruling. The appellate court excluded Velasco from liability for the foregoing damages.

Hence, this appeal by the petitioners positing the following issues:

WHETHER [OR NOT] THERE IS BREACH OF CONTRACT AS BASIS FOR AWARD OF DAMAGES AND ATTORNEY'S FEES[?]

WHETHER [OR NOT] THE COUNTERCLAIM OF PETITIONERS SHOULD BE GRANTED[?]9

We deny the petition. We see no need to disturb the findings of the trial and appellate courts on the petitioners' liability for breach of the subject Contract of Work.

It is a well-entrenched doctrine that factual findings of the trial court, especially when affirmed by the appellate court, are accorded the highest degree of respect and are conclusive between the parties and even on this Court.

10 Nonetheless, jurisprudence recognizes highly meritorious exceptions, such as: (1) when the findings of a trial

court are grounded entirely on speculations, surmises or conjectures; (2) when a lower court's inference from its factual findings is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion in the appreciation of facts; (4) when the findings of the appellate court go beyond the issues of the case or fail to notice certain relevant facts which, if properly considered, will justify a different conclusion; (5) when there is a misappreciation of facts; and (6) when the findings of fact are conclusions without mention of the specific evidence on which they are based, are premised on the absence of evidence, or are contradicted by evidence on record.

11 It is

noteworthy that none of these exceptions which would warrant a reversal of the assailed decision obtains herein.

The petitioners insist that the CA erred in awarding Cabildo damages because his Contract of Work with Benguet Corporation only covered painting of the exterior of the Mill Buildings and Bunkhouses at the Balatoc mining site. In effect, petitioners claim that their respective contracts with Cabildo and Velasco cover separate and different subject matters, i.e., painting of the exterior and interior of the Mill Buildings, respectively.

We cannot agree with the petitioners' obviously strained reasoning. The Contract of Work with Cabildo did not distinguish between the exterior and interior painting of the Mill Buildings. It simply stated that Cabildo "shall paint the Mill Buildings at Balatoc Mill and all the Bunkhouses at Balatoc, Itogon, Benguet." There is nothing in the contract which will serve as a basis for the petitioners' insistence that Cabildo's scope of work was merely confined to the painting of the exterior part of the Mill Buildings.

To bolster their position, the petitioners contend that there is an apparent conflict between the wording of the contract and the actual intention of the parties on the specific object of the painting job. The petitioners argue that Cabildo knew of Benguet Corporation's practice to have only the exterior of buildings painted and was, therefore, aware that the Contract of Work referred only to the exterior painting of the Mill Buildings, excluding the interior portion thereof. Thus, the petitioners submit that when there is a conflict as regards the interpretation of a contract, the obvious intention of the parties must prevail.

We reject the petitioners' flawed contention. Apart from the petitioners' self-serving assertion, nothing in the record points to the parties' intention different from that reflected in the Contract of Work. To the contrary, the records reveal an unequivocal intention to have both the exterior and interior of the Mill Buildings painted.

Article 1370 of the Civil Code sets forth the first rule in the interpretation of contracts. The article reads:

Art. 1370. If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control.

If the words appear to be contrary to the evident intention of the parties, the latter shall prevail over the former.

In the recent case of Abad v. Goldloop Properties, Inc.,12

we explained, thus:

The cardinal rule in the interpretation of contracts is embodied in the first paragraph of Article 1370 of the Civil Code: "[i]f the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control." This provision is akin to the "plain meaning rule"

applied by Pennsylvania courts, which assumes that the intent of the parties to an instrument is "embodied in the writing itself, and when the words are clear and unambiguous the intent is to be discovered only from the express language of the agreement." It also resembles the "four corners" rule, a principle which allows courts in some cases to search beneath the semantic surface for clues to meaning. A court's purpose in examining a contract is to interpret the intent of the contracting parties, as objectively manifested by them. The process of interpreting a contract requires the court to make a preliminary inquiry as to whether the contract before it is ambiguous. A contract provision is ambiguous if it is susceptible of two reasonable alternative interpretations. Where the written terms of the contract are not ambiguous and can only be read one way, the court will interpret the contract as a matter of law. If the contract is determined to be ambiguous, then the interpretation of the contract is left to the court, to resolve the ambiguity in the light of the intrinsic evidence.

In our jurisdiction, the rule is thoroughly discussed in Bautista v. Court of Appeals:

The rule is that where the language of a contract is plain and unambiguous, its meaning should be determined without reference to extrinsic facts or aids. The intention of the parties must be gathered from that language, and from that language alone. Stated differently, where the language of a written contract is clear and unambiguous, the contract must be taken to mean that which, on its face, it purports to mean, unless some good reason can be assigned to show that the words should be understood in a different sense. Courts cannot make for the parties better or more equitable agreements than they themselves have been satisfied to make, or rewrite contracts because they operate harshly or inequitably as to one of the parties, or alter them for the benefit of one party and to the detriment of the other, or by construction, relieve one of the parties from the terms which he voluntarily consented to, or impose on him those which he did not.

In the case at bench, the Contract of Work leaves no room for equivocation or interpretation as to the exact intention of the parties. We also note that Benguet Corporation's counsel drafted and prepared the contract. Undoubtedly, the petitioners' claimed ambiguity in the wordings of the contract, if such an ambiguity truly exists, cannot give rise to an interpretation favorable to Benguet Corporation. Article 1377 of the Civil Code provides:

Art. 1377. The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity.

Still, the petitioners insist that the parties' intention was different, and that Cabildo knew of, and acquiesced to, the actual agreement.

We remain unconvinced. Even if we were to patronize the petitioners' stretched logic, the supposed intention of the parties is not borne out by the records. Article 1371 of the same code states:

Art. 1371. In order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally considered.

In stark contrast to the petitioners' assertions are the following:

First, the procedure for work accomplishments and payments followed by the parties required representatives and/or employees of Benguet Corporation to closely monitor Cabildo's performance of the job. Notably, when Cabildo painted both the exterior and interior of the Mill Buildings except for the interior of the refinery buildings where gold is being minted, he was under the close supervision of petitioners Reyes and Fider. If, as the petitioners claim, the intention was only to paint the exterior of the Mill Buildings, then Reyes and Fider, or any of Benguet Corporation's representatives assigned to monitor the work of Cabildo, should have, posthaste, stopped Cabildo from continuing the painting of the interiors.

Moreover, the materials for the painting work were provided by Benguet Corporation as listed and requested by Cabildo. The petitioners had the opportunity to disapprove Cabildo's requests for materials needed to paint the interiors of the Mill Buildings, but they failed to do so.

Second, although Cabildo concedes that he knew of Benguet Corporation's practice to have only the exteriors of buildings painted, he refutes the petitioners' claim that the aforesaid practice extended to the painting of the Mill Buildings. Cabildo asseverates that the practice of painting only the exterior of buildings was confined to the Bunkhouses. Evidently, Cabildo's knowledge of the claimed practice, as qualified by Cabildo himself, does not translate to an inference that the parties had intended something other than what is written in the Contract of Work.

Lastly, a singular document, the Liquidation Memo dated July 25, 1983 issued by petitioner Reyes, further highlights the petitioners' lame attempt to paint an intention different from the specific language used in the Contract of Work. This belated qualification in the Liquidation Memo stating that payment was being made for the exterior painting of the Mill Buildings speaks volumes of the parties' actual intention captured in the Contract of Work, as none of the Liquidation Memos issued by the petitioners for Cabildo's previous work accomplishments qualified the painting performed by Cabildo on the Mill Buildings.

From the foregoing, it is crystal clear that the petitioners breached the Contract of Work with Cabildo by awarding Velasco a contract covering the same subject matter, quite understandably, because Velasco offered a price schedule lower than Cabildo's. We completely agree with the uniform findings of the lower courts that the petitioners waylaid Cabildo and prevented him from performing his obligation under the Contract of Work.

With respect to the painting of the Bunkhouses, the petitioners claim that Cabildo was not allowed to paint them due to the rainy season and because of the financial difficulties of Benguet Corporation. Suffice it to state that the Contract of Work did not provide for a suspension clause. Thus, Benguet Corporation cannot unilaterally suspend the Contract of Work for reasons not stated therein.

Consequent to all these disquisitions, we likewise affirm the lower courts' dismissal of the petitioners' counterclaim.

WHEREFORE, premises considered, the petition is hereby DISMISSED. The Court of Appeals decision in CA-G.R. CV No. 37123 is AFFIRMED. Costs against the petitioners.

G.R. No. 168115 June 8, 2007

VICENTE ONG LIM SING, JR., petitioner,

vs. FEB LEASING & FINANCE CORPORATION, respondent.

D E C I S I O N

NACHURA, J.:

This is a petition for review on certiorari assailing the Decision1 dated March 15, 2005 and the Resolution

2 dated May

23, 2005 of the Court of Appeals (CA) in CA-G.R. CV No. 77498.

The facts are as follows:

On March 9, 1995, FEB Leasing and Finance Corporation (FEB) entered into a lease3 of equipment and motor

vehicles with JVL Food Products (JVL). On the same date, Vicente Ong Lim Sing, Jr. (Lim) executed an Individual Guaranty Agreement

4 with FEB to guarantee the prompt and faithful performance of the terms and conditions of the

aforesaid lease agreement. Corresponding Lease Schedules with Delivery and Acceptance Certificates5 over the

equipment and motor vehicles formed part of the agreement. Under the contract, JVL was obliged to pay FEB an aggregate gross monthly rental of One Hundred Seventy Thousand Four Hundred Ninety-Four Pesos (P170,494.00).

JVL defaulted in the payment of the monthly rentals. As of July 31, 2000, the amount in arrears, including penalty charges and insurance premiums, amounted to Three Million Four Hundred Fourteen Thousand Four Hundred Sixty-Eight and 75/100 Pesos (P3,414,468.75). On August 23, 2000, FEB sent a letter to JVL demanding payment of the said amount. However, JVL failed to pay.

6

On December 6, 2000, FEB filed a Complaint7 with the Regional Trial Court of Manila, docketed as Civil Case No. 00-

99451, for sum of money, damages, and replevin against JVL, Lim, and John Doe.

In the Amended Answer,8 JVL and Lim admitted the existence of the lease agreement but asserted that it is in reality

a sale of equipment on installment basis, with FEB acting as the financier. JVL and Lim claimed that this intention was apparent from the fact that they were made to believe that when full payment was effected, a Deed of Sale will be executed by FEB as vendor in favor of JVL and Lim as vendees.

9 FEB purportedly assured them that

documenting the transaction as a lease agreement is just an industry practice and that the proper documentation would be effected as soon as full payment for every item was made. They also contended that the lease agreement is a contract of adhesion and should, therefore, be construed against the party who prepared it, i.e., FEB.

In upholding JVL and Lim’s stance, the trial court stressed the contradictory terms it found in the lease agreement. The pertinent portions of the Decision dated November 22, 2002 read:

A profound scrutiny of the provisions of the contract which is a contract of adhesion at once exposed the use of several contradictory terms. To name a few, in Section 9 of the said contract – disclaiming warranty, it is stated that the lessor is not the manufacturer nor the latter’s agent and therefore does not guarantee any feature or aspect of the object of the contract as to its merchantability. Merchantability is a term applied in a contract of sale of goods where conditions and warranties are made to apply. Article 1547 of the Civil Code provides that unless a contrary intention appears an implied warranty on the part of the seller that he has the right to sell and to pass ownership of the object is furnished by law together with an implied warranty that the thing shall be free from hidden faults or defects or any charge or encumbrance not known to the buyer.

In an adhesion contract which is drafted and printed in advance and parties are not given a real arms’ length opportunity to transact, the Courts treat this kind of contract strictly against their architects for the reason that the party entering into this kind of contract has no choice but to accept the terms and conditions found therein even if he is not in accord therewith and for that matter may not have understood all the terms and stipulations prescribed thereat. Contracts of this character are prepared unilaterally by the stronger party with the best legal talents at its disposal. It is upon that thought that the Courts are called upon to analyze closely said contracts so that the weaker party could be fully protected.

Another instance is when the alleged lessee was required to insure the thing against loss, damage or destruction.

In property insurance against loss or other accidental causes, the assured must have an insurable interest, 32 Corpus Juris 1059.

x x x x

It has also been held that the test of insurable interest in property is whether the assured has a right, title or interest therein that he will be benefited by its preservation and continued existence or suffer a direct pecuniary loss from its destruction or injury by the peril insured against. If the defendants were to be regarded as only a lessee, logically the lessor who asserts ownership will be the one directly benefited or injured and therefore the lessee is not supposed to be the assured as he has no insurable interest.

There is also an observation from the records that the actual value of each object of the contract would be the result after computing the monthly rentals by multiplying the said rentals by the number of months specified when the rentals ought to be paid.

Still another observation is the existence in the records of a Deed of Absolute Sale by and between the same parties, plaintiff and defendants which was an exhibit of the defendant where the plaintiff sold to the same defendants one unit 1995 Mitsubishi L-200 STRADA DC PICK UP and in said Deed, The Court noticed that the same terms as in the alleged lease were used in respect to warranty, as well as liability in case of loss and other conditions. This action of the plaintiff unequivocally exhibited their real intention to execute the corresponding Deed after the defendants have paid in full and as heretofore discussed and for the sake of emphasis the obscurity in the written contract cannot favor the party who caused the obscurity.

Based on substantive Rules on Interpretation, if the terms are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control. If the words appear to be contrary to the evident intention of the parties, their contemporaneous and subsequent acts shall be principally considered. If the doubts are cast upon the principal object of the contract in such a way that it cannot be known what may have been the intention or will of the parties, the contract shall be null and void.

10

Thus, the court concluded with the following disposition:

In this case, which is held by this Court as a sale on installment there is no chattel mortgage on the thing sold, but it appears amongst the Complaint’s prayer, that the plaintiff elected to exact fulfillment of the obligation.

For the vehicles returned, the plaintiff can only recover the unpaid balance of the price because of the previous payments made by the defendants for the reasonable use of the units, specially so, as it appears, these returned vehicles were sold at auction and that the plaintiff can apply the proceeds to the balance. However, with respect to the unreturned units and machineries still in the possession of the defendants, it is this Court’s view and so hold that the defendants are liable therefore and accordingly are ordered jointly and severally to pay the price thereof to the plaintiff together with attorney’s fee and the costs of suit in the sum of Php25,000.00.

SO ORDERED.11

On December 27, 2002, FEB filed its Notice of Appeal.12

Accordingly, on January 17, 2003, the court issued an Order

13 elevating the entire records of the case to the CA. FEB averred that the trial court erred:

A. When it ruled that the agreement between the Parties-Litigants is one of sale of personal properties on installment and not of lease;

B. When it ruled that the applicable law on the case is Article 1484 (of the Civil Code) and not R.A. No. 8556;

C. When it ruled that the Plaintiff-Appellant can no longer recover the unpaid balance of the price because of the previous payments made by the defendants for the reasonable use of the units;

D. When it failed to make a ruling or judgment on the Joint and Solidary Liability of Vicente Ong Lim, Jr. to the Plaintiff-Appellant.

14

On March 15, 2005, the CA issued its Decision15

declaring the transaction between the parties as a financial lease agreement under Republic Act (R.A.) No. 8556.

16 The fallo of the assailed Decision reads:

WHEREFORE, the instant appeal is GRANTED and the assailed Decision dated 22 November 2002 rendered by the Regional Trial Court of Manila, Branch 49 in Civil Case No. 00-99451 is REVERSED and SET ASIDE, and a new judgment is hereby ENTERED ordering appellees JVL Food Products and Vicente Ong Lim, Jr. to solidarily pay appellant FEB Leasing and Finance Corporation the amount of Three Million Four Hundred Fourteen Thousand Four Hundred Sixty Eight Pesos and 75/100 (Php3,414,468.75), with interest at the rate of twelve percent

(12%) per annum starting from the date of judicial demand on 06 December 2000, until full payment thereof. Costs against appellees.

SO ORDERED.17

Lim filed the instant Petition for Review on Certiorari under Rule 45

contending that:

I

The Honorable Court of Appeals erred when it failed to consider that the undated complaint was filed by Saturnino J. Galang, Jr., without any authority from respondent’s Board of Directors and/or Secretary’s Certificate.

II

The Honorable Court of Appeals erred when it failed to strictly apply Section 7, Rule 18 of the 1997 Rules of Civil Procedure and now Item 1, A(8) of A.M. No. 03-1-09 SC (June 8, 2004).

III

The Honorable Court of Appeals erred in not dismissing the appeal for failure of the respondent to file on time its appellant’s brief and to separately rule on the petitioner’s motion to dismiss.

IV

The Honorable Court of Appeals erred in finding that the contract between the parties is one of a financial lease and not of a contract of sale.

V

The Honorable Court of Appeals ERRED IN ruling that the payments paid by the petitioner to the respondent are "rentals" and not installments paid for the purchase price of the subject motor vehicles, heavy machines and equipment.

VI

The Honorable Court of Appeals erred in ruling that the previous contract of sale involving the pick-up vehicle is of no consequence.

VII

The Honorable Court of Appeals failed to take into consideration that the contract of lease, a contract of adhesion, concealed the true intention of the parties, which is a contract of sale.

VIII

The Honorable Court of Appeals erred in ruling that the petitioner is a lessee with insurable interest over the subject personal properties.

IX

The Honorable Court of Appeals erred in construing the intentions of the Court a quo in its usage of the term merchantability.

18

We affirm the ruling of the appellate court.

First, Lim can no longer question Galang’s authority as FEB’s authorized representative in filing the suit against Lim. Galang was the representative of FEB in the proceedings before the trial court up to the appellate court. Petitioner never placed in issue the validity of Galang’s representation before the trial and appellate courts. Issues raised for the first time on appeal are barred by estoppel. Arguments not raised in the original proceedings cannot be considered on review; otherwise, it would violate basic principles of fair play.

19

Second, there is no legal basis for Lim to question the authority of the CA to go beyond the matters agreed upon during the pre-trial conference, or in not dismissing the appeal for failure of FEB to file its brief on time, or in not ruling separately on the petitioner’s motion to dismiss.

Courts have the prerogative to relax procedural rules of even the most mandatory character, mindful of the duty to reconcile both the need to speedily put an end to litigation and the parties’ right to due process. In numerous cases, this Court has allowed liberal construction of the rules when to do so would serve the demands of substantial justice and equity.

20 In Aguam v. Court of Appeals , the Court explained:

The court has the discretion to dismiss or not to dismiss an appellant's appeal. It is a power conferred on the court, not a duty. The "discretion must be a sound one, to be exercised in accordance with the tenets of justice and fair play, having in mind the circumstances obtaining in each case." Technicalities, however, must be avoided. The law abhors technicalities that impede the cause of justice. The court's primary duty is to render or dispense justice. "A litigation is not a game of technicalities." "Lawsuits unlike duels are not to be won by a rapier's thrust. Technicality, when it deserts its proper office as an aid to justice and becomes its great hindrance and chief enemy, deserves scant consideration from courts." Litigations must be decided on their merits and not on technicality. Every party litigant must be afforded the amplest opportunity for the proper and just determination of his cause, free from the unacceptable plea of technicalities. Thus, dismissal of appeals purely on technical grounds is frowned upon where the policy of the court is to encourage hearings of appeals on their merits and the rules of procedure ought not to be applied in a very rigid, technical sense; rules of procedure are used only to help secure, not override substantial justice. It is a far better and more prudent course of action for the court to excuse a technical lapse and afford the parties a review of the case on appeal to attain the ends of justice rather than dispose of the case on technicality and cause a grave injustice to the parties, giving a false impression of speedy disposal of cases while actually resulting in more delay, if not a miscarriage of justice.

21

Third, while we affirm that the subject lease agreement is a contract of adhesion, such a contract is not void per se. It is as binding as any ordinary contract. A party who enters into an adhesion contract is free to reject the stipulations entirely.

22 If the terms thereof are accepted without objection, then the contract serves as the law between the parties.

In Section 23 of the lease contract, it was expressly stated that:

SECTION 23. ENTIRE AGREEMENT; SEVERABILITY CLAUSE

23.1. The LESSOR and the LESSEE agree this instrument constitute the entire agreement between them, and that no representations have been made other than as set forth herein. This Agreement shall not be amended or altered in any manner, unless such amendment be made in writing and signed by the parties hereto.

Petitioner’s claim that the real intention of the parties was a contract of sale of personal property on installment basis is more likely a mere afterthought in order to defeat the rights of the respondent.

The Lease Contract with corresponding Lease Schedules with Delivery and Acceptance Certificates is, in point of fact, a financial lease within the purview of R.A. No. 8556. Section 3(d) thereof defines "financial leasing" as:

[A] mode of extending credit through a non-cancelable lease contract under which the lessor purchases or acquires, at the instance of the lessee, machinery, equipment, motor vehicles, appliances, business and office machines, and other movable or immovable property in consideration of the periodic payment by the lessee of a fixed amount of money sufficient to amortize at least seventy (70%) of the purchase price or acquisition cost, including any incidental expenses and a margin of profit over an obligatory period of not less than two (2) years during which the lessee has the right to hold and use the leased property with the right to expense the lease rentals paid to the lessor and bears the cost of repairs, maintenance, insurance and preservation thereof, but with no obligation or option on his part to purchase the leased property from the owner-lessor at the end of the lease contract.

FEB leased the subject equipment and motor vehicles to JVL in consideration of a monthly periodic payment ofP170,494.00. The periodic payment by petitioner is sufficient to amortize at least 70% of the purchase price or acquisition cost of the said movables in accordance with the Lease Schedules with Delivery and Acceptance Certificates. "The basic purpose of a financial leasing transaction is to enable the prospective buyer of equipment, who is unable to pay for such equipment in cash in one lump sum, to lease such equipment in the meantime for his use, at a fixed rental sufficient to amortize at least 70% of the acquisition cost (including the expenses and a margin of profit for the financial lessor) with the expectation that at the end of the lease period the buyer/financial lessee will be able to pay any remaining balance of the purchase price."

23

The allegation of petitioner that the rent for the use of each movable constitutes the value of the vehicle or equipment leased is of no moment. The law on financial lease does not prohibit such a circumstance and this alone does not make the transaction between the parties a sale of personal property on installment. In fact, the value of the lease, usually constituting the value or amount of the property involved, is a benefit allowed by law to the lessor for the use of the property by the lessee for the duration of the lease. It is recognized that the value of these movables depreciates through wear and tear upon use by the lessee. In Beltran v. PAIC Finance Corporation,

24 we stated that:

Generally speaking, a financing company is not a buyer or seller of goods; it is not a trading company. Neither is it an ordinary leasing company; it does not make its profit by buying equipment and repeatedly leasing out such equipment to different users thereof. But a financial lease must be preceded by a purchase and sale contract covering the equipment which becomes the subject matter of the financial lease. The financial lessor takes the role of the buyer of the equipment leased. And so the formal or documentary tie between the seller and the real buyer of the equipment, i.e., the financial lessee, is apparently severed. In economic reality, however, that relationship remains. The sale of the equipment by the supplier thereof to the financial lessor and the latter's legal ownership thereof are intended to secure the repayment over time of the purchase price of the equipment, plus financing charges, through the payment of lease rentals; that legal title is the upfront security held by the financial lessor, a security probably superior in some instances to a chattel mortgagee's lien.

25

Fourth, the validity of Lease No. 27:95:20 between FEB and JVL should be upheld. JVL entered into the lease contract with full knowledge of its terms and conditions. The contract was in force for more than four years. Since its inception on March 9, 1995, JVL and Lim never questioned its provisions. They only attacked the validity of the contract after they were judicially made to answer for their default in the payment of the agreed rentals.

It is settled that the parties are free to agree to such stipulations, clauses, terms, and conditions as they may want to include in a contract. As long as such agreements are not contrary to law, morals, good customs, public policy, or public order, they shall have the force of law between the parties.

26 Contracting parties may stipulate on terms and

conditions as they may see fit and these have the force of law between them.27

The stipulation in Section 1428

of the lease contract, that the equipment shall be insured at the cost and expense of the lessee against loss, damage, or destruction from fire, theft, accident, or other insurable risk for the full term of the lease, is a binding and valid stipulation. Petitioner, as a lessee, has an insurable interest in the equipment and motor vehicles leased. Section 17 of the Insurance Code provides that the measure of an insurable interest in property is the extent to which the insured might be damnified by loss or injury thereof. It cannot be denied that JVL will be directly damnified in case of loss, damage, or destruction of any of the properties leased.

Likewise, the stipulation in Section 9.1 of the lease contract that the lessor does not warrant the merchantability of the equipment is a valid stipulation. Section 9.1 of the lease contract is stated as:

9.1 IT IS UNDERSTOOD BETWEEN THE PARTIES THAT THE LESSOR IS NOT THE MANUFACTURER OR SUPPLIER OF THE EQUIPMENT NOR THE AGENT OF THE MANUFACTURER OR SUPPLIER THEREOF. THE LESSEE HEREBY ACKNOWLEDGES THAT IT HAS SELECTED THE EQUIPMENT AND THE SUPPLIER THEREOF AND THAT THERE ARE NO WARRANTIES, CONDITIONS, TERMS, REPRESENTATION OR INDUCEMENTS, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, MADE BY OR ON BEHALF OF THE LESSOR AS TO ANY FEATURE OR ASPECT OF THE EQUIPMENT OR ANY PART THEREOF, OR AS TO ITS FITNESS, SUITABILITY, CAPACITY, CONDITION OR MERCHANTABILITY, NOR AS TO WHETHER THE EQUIPMENT WILL MEET THE REQUIREMENTS OF ANY LAW, RULE, SPECIFICATIONS OR CONTRACT WHICH PROVIDE FOR SPECIFIC MACHINERY OR APPARATUS OR SPECIAL METHODS.

29

In the financial lease agreement, FEB did not assume responsibility as to the quality, merchantability, or capacity of the equipment. This stipulation provides that, in case of defect of any kind that will be found by the lessee in any of the equipment, recourse should be made to the manufacturer. "The financial lessor, being a financing company, i.e., an extender of credit rather than an ordinary equipment rental company, does not extend a warranty of the fitness of the equipment for any particular use. Thus, the financial lessee was precisely in a position to enforce such warranty directly against the supplier of the equipment and not against the financial lessor. We find nothing contra legem or contrary to public policy in such a contractual arrangement."

30

Fifth, petitioner further proffers the view that the real intention of the parties was to enter into a contract of sale on installment in the same manner that a previous transaction between the parties over a 1995 Mitsubishi L-200 Strada DC-Pick-Up was initially covered by an agreement denominated as a lease and eventually became the subject of a Deed of Absolute Sale.

We join the CA in rejecting this view because to allow the transaction involving the pick-up to be read into the terms of the lease agreement would expand the coverage of the agreement, in violation of Article 1372 of the New Civil Code.

31 The lease contract subject of the complaint speaks only of a lease. Any agreement between the parties after

the lease contract has ended is a different transaction altogether and should not be included as part of the lease. Furthermore, it is a cardinal rule in the interpretation of contracts that if the terms of a contract are clear and leave no doubt as to the intention of the contracting parties, the literal meaning of its stipulations shall control. No amount of extrinsic aid is necessary in order to determine the parties' intent.

32

WHEREFORE, in the light of all the foregoing, the petition is DENIED. The Decision of the CA in CA-G.R. CV No. 77498 dated March 15, 2005 and Resolution dated May 23, 2005 are AFFIRMED. Costs against petitioner.

G.R. No. 203655 August 13, 2014

SM LAND, INC., Petitioner,

vs. BASES CONVERSION AND DEVELOPMENT AUTHORITY and ARNEL PACIANO D. CASANOVA, ESQ., in his official capacity as President and CEO of BCDA, Respondents.

D E C I S I O N

VELASCO, JR., J.:

The Case

Before Us is a Petition for Certiorari, Prohibition and Mandamus under Rule 65 of the Rules of Court, with prayer for injunctive relief, seeking to nullify and set aside the Bases Conversion and Development Authority (BCDA) Supplemental Notice No. 5 as well as all other acts

1 pursued in furtherance thereof, and to order respondents to

immelliately conduct and complete the Competitive Selection Process on petitioner's duly accepted unsolicited proposal.

The Facts

As culled from the records, the facts are simple and undisputed.

Pursuant to Republic Act No. (RA) 7227 or the "Bases Conversion and Development Act of 1992," the BCDA opened for disposition and development its Bonifacio South Property, a 33.1-hectare expanse located at Taguig City that was once used as the command center for the country's military forces. Jumping on the opportunity, petitioner SM Land, Inc. (SMLI), on December 14, 2009, submitted to the BCDA an unsolicited proposal for the development of the lot through a public-private joint venture agreement. The proposal guaranteed the BCDA secured payments amounting to PhP 15,985/sqm or a total of PhP 8.1 billion.

Barely three months later, the initial proposal was followed by a second one with guaranteed secured payments of PhP 31,139/sqm, totaling PhP 20 billion. On May 4, 2010, however, SMLI submitted its third unsolicited proposal with guaranteed secured payments amounting to PhP 32,501/sqm for a total of PhP 22.6 billion.

Thereafter, the BCDA created a Joint Venture Selection Committee (JV-SC) following the procedures prescribed under Annex "C" of the Detailed Guidelines for Competitive Challenge Procedure for PublicPrivate Joint Ventures (NEDA JV Guidelines) promulgated by the National Economic Development Authority(NEDA). The said committee recommended the acceptance of the unsolicited proposal, which recommendation was favorablyacted upon by the BCDA. Through a letter dated May 12, 2010, the BCDA communicated to petitioner its acceptance of the unsolicited proposal. Despite its acceptance, however, the BCDA clarified that its act should not be construed to bind the agency to enter into a joint venture agreement with the petitioner but only constitutes an authorization granted to the JV-SC to conduct detailed negotiations with petitioner SMLI and iron out the terms and conditions of the agreement.

Pursuant to this authorization, the JV-SC and SMLI embarked on a series of detailed negotiations, and on July 23, 2010, SMLI submitted its final revised proposal with guaranteed secured payments amounting to a total of PhP 25.9 billion. Afterwards, upon arriving at mutually acceptable terms and conditions, a Certification of Successful Negotiations (Certification) was issued by the BCDA and signed by both parties on August 6, 2010. Through the said Certification, the BCDA undertook to "subject SMLI’s Original Proposal to Competitive Challenge pursuant to Annex C" and committed itself to "commence the activities for the solicitation for comparative proposals."

1

In an attempt to comply with its obligations, the BCDA prepared for the conduct of a Competitive Challenge to determine whether or not there are other Private Sector Entities (PSEs)that can match the proposal of SMLI, and concurrently ensure that the joint venture contract will be awarded to the party that can offer the most advantageous terms in favor of the government. In furtherance thereof, the agency issued Terms of Reference (TOR),

2 which

mapped out the procedure to be followed in connection with the Competitive Challenge. Consequently, SMLI was required, as it did, to post a proposalsecurity in the amount of PhP 187 million, following the prescribed procedure outlined in the TOR and the NEDA JV Guidelines.

Afterwards, the BCDA set the Pre-eligibility Conference on September 3, 2010. Invitations to apply for eligibility and to submit comparative proposals were then duly published on August 12, 16 and 20, 2010. Hence, the pre-eligibility conference was conducted as scheduled. The companies that participated in the conference included SMLI, as the Original Proponent, and three (3) PSEs, namely Ayala Land, Inc., Rockwell Land Corp., and Filinvest Land, Inc.

On Ayala Land, Inc.’s request, the deadline for submission of Eligibility Documents was scheduled on October 20, 2010 through Supplemental Notice No. 1. However, the deadline was again moved to November 19, 2010 to allow the BCDA, in conjunction with other national agencies, to resolve issues concerning the relocation and replication of facilities located in the subject property.For this purpose, the BCDA issued Supplemental Notice No. 2.

Following a conference, the BCDA, on November 18, 2010, issued Supplemental Notice No. 3, again rescheduling the submission deadline this time to an unspecified future date "pending final results of the policy review by the Office of the President on the lease versus joint venture/sale mode and other issues."

3 Henceforth, the BCDA repeatedly

postponed the deadline of eligibility requirements untiltwo (2) years have already elapsed from the signing of the Certification without the Competitive Challenge being completed.

Then, instead of proceeding withthe Competitive Challenge, the BCDA addressed a letter4 to Jose T. Gabionza, Vice

President of SMLI, stating that it will welcome any "voluntary and unconditional proposal" to improve the original offer, with the assurance that the BCDA will nonetheless respect any right which may have accrued in favor of SMLI. SMLI, through a letter dated December 22, 2011, replied by increasing the total secured payments to PhP 22.436 billion in over fifteen (15) years with an upfront payment of PhP 3 billion. SMLI likewise proposed to increase the net present value of the property to PhP 38,500.00/sqm. With this accelerated terms of payment, the total inflow to be received by the BCDA from the project after five (5) years would amount to PhP 9.289 billion. In the same letter, SMLI clarified that itsimproved offer is tendered on reliance of the BCDA’s previous commitment torespect SMLI’s status as the Original Proponent.

Without responding to SMLI’s new proposal, the BCDA sent a memorandum to the Office of the President (OP) dated February 13, 2012, categorically recommending the termination of the Competitive Challenge. The memorandum, in part, reads:

In view of the foregoing, may we respectfully recommend the President’s approval for BCDA to terminate the proceedings for the privatization and development of the BNS/PMC/ASCOM/SSU Properties in Bonifacio South through Competitive Challenge and proceed with the bidding of the property.

5

Alarmed by this development, SMLI, in a letter dated August 10, 2012, urged the BCDA to proceed with the Competitive Challenge as agreed upon. However, the BCDA, via the assailed Supplemental Notice No. 5, terminated the Competitive Challenge altogether. Said Supplemental Notice pertinently reads:

This Supplemental Notice No. 05 is issued to inform the [PSEs] that the Competitive Challenge for the Selection of BCDA’s Private Sector Partner for the Privatization and Development of the approximately 33.1-hectare BNS/PMC/ASCOM/SSU Properties in Bonifacio South is hereby terminated. BCDA shall not dispose the property through Competitive Challenge.

6

To support its position, the BCDA invoked Article VIII of the TOR on the subject "Qualifications and Waivers," to wit:

The BCDA reserves the right to call off [the] disposition prior to acceptance of the proposal(s) and call for a new disposition process under amended rules and without any liability whatsoever to any or all the PSEs, except the obligation to return the Proposal Security.

Thereafter, the BCDA informed SMLI of the OP’s decision to subject the development of the subject propertyto public bidding. When asked by SMLI, the JV-SC manifested its conformity with the actions thus taken by the BCDA and OP.

The JV-SC’s declaration proved to be the last straw that fractured SMLI’s patience as it lost no time in interposing the instant recourse.

In the meantime, the BCDA issuedin favor of SMLI Philippine National Bank Check No. 11-634-610001-0 in the amount of PhP 188,508,466.67 dated September 28, 2012. The check was sent through registered mail with no explanation whatsoever accompanying the same, although the BCDA admitted that its value corresponds to the

proposal security posted by SMLI, plus interest in an unspecified rate. SMLI attempted to return the check but to no avail.

The BCDA likewise caused the publication of an "Invitation to Bid" for the development of the subject property in the December 21, 2012 issue of the Philippine Star.

7 This impelled SMLI to file an Urgent Manifestation with Reiterative

Motion to Resolve SMLI’s Application for Temporary Restraining Order (TRO) and Preliminary Injunctionon the same day. By Resolution

8 of January 9, 2013, the Court issued the TRO prayed for by petitioner and enjoined respondent

BCDA from proceeding with the new selection process for the development of the property.

The Issue

Without a doubt, the issue in this case boils down to whether or not the BCDA gravely abused its discretion in issuing Supplemental Notice No. 5, in unilaterally aborting the Competitive Challenge, and in subjecting the development of the project to public bidding.

For its part, SMLI alleged in its petition that the Certification issued by the BCDA and signed by the parties constituted a contract and that under the said contract, BCDA cannot renege on its obligation to conduct and complete the Competitive Challenge. The BCDA, on the other hand, relies chiefly on the reservation clause in the TOR, which allegedly authorized the agency to unilaterally cancel the Competitive Challenge. Respondents add that the terms and conditions agreedupon are disadvantageous to the government, and that it cannot legally be barred by estoppel in correcting a mistake committed by its agents.

The Court’s Ruling

The petition is impressed with merit. SMLI has the right to a completed competitive challenge pursuant to the NEDA JV Guidelines and the Certification issued by the BCDA. The reservation clause adverted to by the respondent cannot, in any way, prejudice said right.

The Procurement Process under the NEDA JV Guidelines

In resolving the case, discussing the procedure outlined under the NEDA JV Guidelines and a brief backgrounder thereof is apropos.

To streamline the procurement process and expedite the acquisition of goods and services, Executive Order No. (EO) 423 was issued on April 30, 2005, which prescribed the rules and procedures on the review and approval of government contracts. The EO, in part, provides: Section 8. Joint Venture Agreements. The NEDA, in consultation with the GPPB, shall issue guidelines regarding joint venture agreements with private entities with the objective of promoting transparency, competitiveness, and accountability in government transactions, and, where applicable, complying with the requirements of an open and competitive public bidding.

Taking its cue from the above-quoted provision, the NEDA promulgated the NEDA JV Guidelines, which detailed two (2) modes of selecting a private sector JV partner: by competitive selectionor through negotiated agreements.

Competitive selection involves a selection process based on transparent criteria, which should not constrain or limit competition, and is open to participation byany interested and qualified private entity.

9 Selection by negotiated

agreements10

or negotiated projects,11

on the other hand, comes about as an end result of an unsolicited proposal

12 from a private sector proponent, or if the government has failed to identify an eligible private sector partner

for a desired activity after subjecting the same to a competitive selection.

Relevant to the case at bar is the selection modality by negotiated agreement arising from the submission and acceptance of an unsolicited proposal, known as the Swiss Challenge method,

13 in essea hybrid mechanism between

the direct negotiation approach and the competitive bidding route.14

With the availability of the Swiss Challenge method for utilization by those in the private sector, PSEs have studied, formulated, and submitted numerous suo motoor unsolicited proposals with the ultimate goal of assisting the public sector in elevating the country’s place in the global economy, as in the case herein.

The development and adoption by several countries of the Swiss Challenge scheme15

is attributed to the recognition that the private sector can be an important source of technical and managerial expertise, as well as financing, as

evidenced by private companies’ practice of directly approaching governments with new and innovative project ideas through unsolicited proposals.

16 Some states, however, frown on the practice since transparency is allegedly

compromised when the government directly negotiates with a proponent. In this method, the Original Proponent, who first submitted and secured acceptance ofthe unsolicited proposal, is given the right to match the successful bid received in the competitive bid process for the said project.

17

Item III, Annex "C" of the NEDA JV Guidelines, where the Swiss Challenge format is tucked in, maps out a three-stage framework, to which Negotiated JV Agreements are to be mandatorily subjected, as summarized below:

Stage One

Submission and the Acceptance or Rejection of the Unsolicited Proposal

Stage One18

of the process involves the submission, evaluation, and the acceptance of unsolicited proposals from private entities. The steps involved are:

1. A PSE submits an unsolicited proposalto the government entity (GE) or the GE seeks out a JV partner after a failed competition (open bidding) for a JV activity or project.

2. The GE, through its JV-SC, undertakes the initial evaluation of the proposal.

3. The head of the GE shall then either issue an acceptance or nonacceptance notice of the proposal.

a. An acceptance shall not bind the GE to enter into the JV activity, but shall mean that authorization is given to proceed with detailed negotiations on the terms and conditions of the JV activity.

b. In case of non-acceptance, the private sector entity shall be informed of the reasons/grounds for such action.

Stage Two

Detailed Negotiations

Stage Two19

entails negotiation on the terms and conditions of the JV activity. Below is a summary of the parameters adhered to in detailed negotiations, and the preparation of the proposal documents in case of successful negotiations:

1. The parties shall negotiate on, among other things, the scope as well as all legal, technical, and financial aspects of the JV activity.

2. The JV-SC shall determine the eligibility of the PSE to enter into the JV activity in accordance with pre-set rules.

3. Negotiations shall comply with the process, requirements and conditions as stipulated under Sections 6 (General Guidelines) and 7 (Process for Entering into JV Agreements) of the JV Guidelines.

a. If successful, the GE head and the representative of the PSE shall issue a signed certification of successful negotiation to the effect that:

a) an agreement has been reached;

b) the PSE is eligible to enter into the proposed JV activity; and

c) the GE shall commence the activities for the solicitation for comparative proposals.

b. If an acceptable agreement isnot reached, the GE may:

a) reject the proposal and thereafter accept a new one from private sector participants; or

b) pursue the proposed activity through alternative routes other than a joint venture.

4. After an agreement is reached, the contract documents, including the selection documents for the competitive challenge, are prepared.

Stage Three

Competitive Challenge

In Stage Three,20

upon the successful completion of the detailed negotiation phase, the JV activity shall be subjected to a competitive challenge,

21 which includes the observance of the following procedure:

1. Preparation and approval of all tender documents including the draft contract before the invitation for comparative proposals is published.

2. Publication of the invitation for comparative proposals followed by the posting by the PSE of the proposal security.

3. Determination of the eligibility of comparative proponents/PSEs, issuance of supplemental competitive selection bulletins and pre-selection conferences, submission, opening and evaluation of comparative proposals.

4. In the evaluation of the comparative proposals as a prelude to determine the best offer, the original proposal of the original proponent shall be considered.

a. If the GE determines that an offer made by a comparative private sector participant is more advantageous to the government than the original proposal, the original proponent shall be given the right to match such superior or more advantageous offer.

b. Should no matching offer be received, the JV activity shall be awarded to the comparative private sector participant submitting the most advantageous proposal.

c. If a matching offer is received, or if there is no comparative proposal, the JV activity shall be awarded to the original proponent.

5. After the completion of the competitive challenge, the JV-SC shall submit the recommendation of award to the head of the GE.

22

6. Embarking on activities leading to the execution of the Final Agreement.23

Deviation from the procedure outlined cannot be countenanced. Wellestablished is the rule that administrative issuances––such as the NEDA JV Guidelines, duly promulgated pursuant to the rule-making power granted by statute––have the force and effect of law.

24 Being an issuance in compliance with an executive edict, the NEDA JV

Guidelines, therefore, has the same binding effect as if it were issued by the President himself.25

As such, no agency or instrumentality covered by the JV Guidelines

26 can validly stray from the mandatory procedures set forth therein,

even if the other party acquiesced therewith27

or not.

SMLI’s rights as an Original Proponent and BCDA’s correlative duty under the NEDA JV Guidelinesand the parties’ agreement

It is well to point out that after BCDA accepted the unsolicited proposal of SMLI and after both parties herein successfully concluded the detailed negotiations on the terms and conditions of the project, SMLI acquired the status of an Original Proponent. An Original Proponent, per the TOR, pertains to the party whose unsolicited proposal for the development and privatization of the subject property though JV with BCDA has been accepted by the latter, subject to certain conditions, and is now being subjected to a competitive challenge.

28

In this regard, SMLI insists that asan Original Proponent, it obtained the right to a completed competitive challenge. On the other hand, the BCDA argues that it can, at any time, withdraw from the disposition process as it is not bound to enter into the proposed JV activity with SMLI. Petitioner’s argument holds water.

A scrutiny of the NEDA JV Guidelinesreveals that certain rights are conferred to an Original Proponent. Ascorrectly pointed out by SMLI, these rights include:

1. The right to the conduct and completion of a competitive challenge;

2. The right to match the superior or more advantageous offer, if any;

3. The right to be awarded the JV activity in the event that a matching offer is submitted within the prescribed period; and

4. The right to be immediately awarded the JV activity should there be no comparative proposals.

29(emphasis added)

Material to the present case is the right to the conduct and completion of a Competitive Challenge. Based onthe NEDA JV Guidelines, it is necessary that Stages One and Two of the Swiss Challenge shall have been fruitful for this right to arise.

To recall, Stages One and Two ofthe framework deal with the submission and evaluation of the unsolicited proposal and the conduct of the detailed negotiations. Should the parties productively conclude the in-depth negotiations, the guidelines require the preparation of the contract and selection documents for the competitive challenge.

30 Following

this, Stage Three of the same rules provides that the GE shall subject the terms agreed upon to a Competitive Challenge. Thus:

Stage Three – Once the negotiations have been successfully completed, the JV activity shallbe subjected to a competitive challenge, as follows:

1. The [GE] shallprepare the tender documents pursuant to Section II (Selection/Tender Documents) of Annex A hereof. The eligibility criteria used in determining the eligibility of the [PSE] shall be the same as those stated in the tender documents. x x x The Head of the [GE] shall approve all tender documents including the draft contract before the publication of the invitation for comparative proposals.

2. Within seven (7) calendar days from the issuance of the Certification of a successful negotiation referred toin Stage Two above, the JV-SC shall publish the invitation for comparative proposals in accordance with Section III.2. (Publication of Invitation to Apply for Eligibility and to Submit Proposal) under Annex A hereof.

3. The [PSE] shallpost the proposal security at the date of the first day of the publication of the invitation for comparative proposals in the amount and form stated in the tender documents.

4. The procedure for the determination of eligibility of comparative proponents/private sector participants, issuance of supplemental competitive selection bulletins and pre-selection conferences, submission and receipt of proposals, opening and evaluation of proposals shall follow the procedure stipulated under Annex A hereof. In the evaluation of proposals, the best offer shall be determined to include the original proposal of the [PSE]. If the [GE] determines that an offer made by a comparative private sector participant other than the original proponent is superior or more advantageous to the government than the original proposal, the [PSE] who submitted the original proposal shall be given the right to match such superior or more advantageous offerx x x. Should no matching offer be received within the stated period, the JV activity shallbe awarded to the comparative private sector participant submitting the most advantageous proposal. If a matching offer is received within the prescribed period, the JV activity shallbe awarded to the original

proponent. If no comparative proposal isreceived by the [GE], the JV activity shallbe immediately awarded to the original private sector proponent.

5. Within seven (7) calendar days from the date of completion of the Competitive Challenge, the JV-SC shallsubmit the recommendation of award to the Head of the [GE]. Succeeding activities shall be in accordance with Sections VIII. (Awardand Approval of Contract) and X (Final Approval) of Annex A hereof.

31(emphasis added)

Anent the above-quoted directives, emphasis must be given to the repeated use of the word "shall." It is elementary that the word "shall" underscores the mandatory character of the rule. Itis a word of command, one which always has or must be given a compulsory meaning, and is generally imperative or mandatory.

32Considering the compulsory

tenor of the order, the rule could not be any clearer––that once the negotiations at Stage Two shall have been successfully completed, it becomes mandatory for the GE to subject theJV activity to a competitive challenge. By the Guidelines’ explicit order, proceeding to Stage Three of the process is compulsory, conditioned only on the successful conclusion of Stage Two. The GE is not given any discretion to decide whether it will proceed with the competitive challenge or not. Furthermore, there is no question in the case at hand that the unsolicited proposal for the development of the subject property passed through scrutiny under the first two stages, resulting inthe issuance and signing of the Certification. As a matter of fact, this is clearly evinced in the whereas clauses of the Certification, to wit:

WHEREAS, on 04 May 2010, BCDA received from [SMLI] an unsolicited proposalfor the development of [the subject property]. x x x

WHEREAS, after evaluation of the unsolicited proposalsubmitted by SMLI in accordance with the provisions of Annex "C" of the JV Guidelines, the [JV-SC] created byBCDA x x x recommended to the BCDA Board, and the BCDA Board approved, per Board Resolution No. 2010-05-100, the acceptance ofthe unsolicited proposal, subject to the condition that such acceptance shall not bind BCDA to enter into a JV activity, but shall mean that authorization is given to proceed with detailed negotiationson the terms and conditions of the JV activity;

WHEREAS, pursuant to the authorization granted by the Board and issued pursuant to Annex "C", Part III, Stage One of the JV Guidelines, BCDA went into detailed negotiations with SMLI. The JV-SC simultaneously ascertained the eligibility of SMLI inaccordance with Annex "C", Part III, Stage 2 (2) of the JV Guidelines;

WHEREAS, this Certificationisissuedpursuant to Annex "C" Part III, Stage 2 (2) of the JV Guidelines;

NOW, THEREFORE, for and in consideration of the foregoing, BCDA and SMLI, after successful negotiationspursuant to Stage II of Annex C x x x reached an agreement on the purpose, terms and conditions of the JV development of the subjectproperty, which shall become the terms for the Competitive Challenge pursuant to Annex C of the JV Guidelinesx x x.

33 (emphasis added)

Moreover, the Certification further discloses that the BCDA has the obligation to subject SMLI’s unsolicited proposal to a Competitive Challenge, to which SMLI assented. As provided:

BCDA and SMLI have agreed to subject SMLI’s Original Proposal to Competitive Challenge pursuant to Annex C – Detailed Guidelines for Competitive Challenge Procedure for Public-Private Joint Ventures of the NEDA JV Guidelines, which competitive challenge process shall be immediately implemented following the Terms of Reference (TOR) Volumes 1 and 2. BCDA shall, thus, commence the activities for the solicitation for comparative proposals with the publication of the Invitation to Apply for Eligibility and to Submit Comparative Proposals (IAESCP) thrice for two (2) consecutive weeks in three (3) major newspapers starting on 10 August 2010, on which date SMLI shall post the required Proposal Security as statedabove. Pursuant to Annex C of the NEDA JV Guidelines, if, after solicitation of comparative proposals, BCDA determines that an offer by a comparative PSE is found to be superior to SMLI’s Original Proposal,SMLI shall be given the right to match such superior offer within the period prescribed in the attached TOR Volumes 1 and 2. If SMLI is ableto match such superior offer, SMLI shall be issued the Notice of Award, subject to Item No. 19 above. In the event, however, that SMLI is unable to match the superior offer, the comparative PSE which submitted such superior offer shall be awarded the contract, subject to Item No. 19 above.

34 (emphasis added)

By their mutual consent and in signing the Certification, both parties, in effect, entered into a binding agreement to subject the unsolicited proposal to the Competitive Challenge. Evidently, the certification partakes of a

contractwherein BCDA committed itself to proceed with the Third Stage of the process and simultaneously grants SMLI the right to expect that the BCDA will fulfill its obligations under the same. The preconditions to the conduct of the Competitive Challenge having been met, what is left, therefore, is tosubject the terms agreed upon to a Competitive Challenge pursuant to Stage Three, Annex "C" of the NEDA JV Guidelines.

The Reservation Clause only covers the Third Stage and cannot prejudice SMLI’s rights stemming from the first two stages

In an attempt to advance its claim, BCDA invokes the reservation clause in Article VIII of the TOR on "Qualifications and Waivers." To reiterate, said provision reads:

3. BCDA further reserves the right to call off this disposition prior to acceptance of the proposal(s) and call for a new disposition process under amended rules, and without any liability whatsoever to any or all of the PSEs, except the obligation to return the Proposal Security.

35 (emphasis ours)

The BCDA insists that the "disposition process" to which the reservation clause refers is the entire Swiss Challenge, and not merely Stage Three thereof regarding the Competitive Challenge. This interpretation does not come as a surprise considering the term’s technical meaning, that is, alienation of property;

36 the transfer of the property and

possession of lands, tenements, or other things from one person to another; or the voluntary resignation of title to real estate by one person to another and accepted by the latter, in the forms prescribed by law.

37 On the basis of said

definition, indeed, the reservation clause seemingly refers to the Swiss Challenge itself since in the case at bar, it is the Swiss Challenge, not the competitive challenge, that is the avenue for the disposition.

To anchor the real import of the clause on the basis only of a single word may, however, result in a deviation from its true meaning by rendering all the other terms unnecessaryor insignificant. Suchan interpretation would run afoul Article 1373 of the Civil Code, which states that "[i]f some stipulation of any contract should admit of several meanings, it shall be understood as bearing that import which is most adequate to render it effectual." It is a cardinal rule in statutory construction that no word, clause, sentence, provision or part of a statute shall be considered surplusage or superfluous, meaningless, void and insignificant.

38 For this purpose, an interpretation which renders

every word operative is preferred over that which makes some words idle and nugatory.

We find that the reservation clausecannot justify the cancellation of the entire procurement process. Respondent cannot merely harp on the lone provision adverted to without first explaining the context surrounding the reservation clause. The said provision cannot be interpreted in a vacuum and should instead be read in congruence with the other provisions in the TOR for Us to fully appreciate its import.

At this juncture, it is worthy to point out that the TOR containing the reservation clause details the requirements for eligibility to qualify as a PSE that may submit its proposal for the JV,

39 as well as the procedure to be followed in the

assessment of the eligibility requirements submitted and in the conduct of the Competitive Challenge. It basically governs only part and parcel of Stage Three of the Swiss Challenge Process, that is, the requirements for and the determination of an interested PSE’s eligibility to participate inthe Competitive Challenge. This conclusion is deduced from the very provisions of the TOR, viz:

These [TOR] describe the procedures that shall be followed in connection with the disposition of the approximately Three Hundred Thirty-one Thousand Three Hundred Twenty-seven square meters (331,327 sq.m.) or 33.1-hectare Bonifacio Naval Station (BNS)/Philippine Marine Corps (PMC)/Army Support Command (ASCOM)/Service Support Unit (SSU) Properties in Bonifacio South (the "Property"), located along Lawton Avenue, Fort Bonifacio, Taguig City, Metro Manila, Philippines.

These TOR are issued in two (2) volumes: Volume 1 – Eligibility Documents; and Volume 2 – Tender Documents. This first volume details the requirements for eligibility to qualify as a Private Sector Entity (PSE) that may submit Technical and Financial Proposals for the Joint Venture (JV) Privatization and Development of [the] subject Property, and the procedures involved in the entire Competitive Challenge procedure. [PSEs] which shall be declared eligible shall be issued the second volume of the TOR which details the requirements and procedures for the submission of Technical and Financial Proposals, with the end-view of determining a Winning PSE for subject JV development.

x x x x

I. GENERAL INFORMATION

x x x x

2. Publication of Invitation for Comparative Proposals. BCDA shall publish x x x the "Invitation to Apply for Eligibility and to Submit a Comparative Proposal" (IAESCP). This shall serve to inform and to invite the prospective PSEs to the Competitive Challenge procedure at hand. x x x

3. Joint Venture Agreement.x x x the ultimate objective of BCDA in qualifying prospective PSEsto be eligible to submit Technical and Financial Proposals is to select a partner in the unincorporated/contractual [JV]for the privatization and development of the subject Property. x x x

x x x x

4. Amendment of these TOR. x x x Should any of the information and/or procedurescontained in these TOR be amended or replaced, the JV-SC shall inform and send Supplemental Notices to all PSEs. To ensure all PSEs are informed of any amendments, all PSEs are requested to inform BCDA of their contact [details].In addition, receipt of all Supplemental Notices shall beduly acknowledged by each PSEprior to the submission of eligibility documents and/or proposals and shall be soindicated therein.

5. Pre-Eligibility Conference. Interested parties are invited to attend a Pre-Eligibility Conference for prospective PSEs x x x.

6. One-on-One Meetings. Prospective PSEs may request for one-on-one meetings with the JV-SC or its duly authorized representatives. x x x

x x x x

9. Due Diligence. x x x

The PSE shall investigate x x x [and] carefully examine [the] conditions of and at the Property and its surrounding vicinities affecting the actual execution and such other information as to allow the PSE to make a competitive estimate. The PSE, by the act of submitting its proposal, acknowledges that it has inspected the Property and accepted all the terms and conditions for this competitive challenge as set in TOR Volumes 1 and 2.

x x x x

V. APPLICATION FOR ELIGIBILITY

1. Eligibility Requirements. Only eligible PSEs shall be allowed to submit comparative Technical and Financial Proposals, or collectively, the Tender Documents x x x. Hence, interested PSEs are invited to apply for eligibility and to participate in the Competitive Challenge procedure. Aside from being required to purchase the [TOR] – Volume1, for a non-refundable fee x x x, a PSE shall be considered eligible if it satisfies all of the following requirements:

1.1. Legal Requirements. The PSE must be a duly registered and existing corporation authorized by Philippine Laws to own, hold or develop lands in the Philippines. x x

x

1.2. Technical Requirements.

1.2.1. Firm Experience. The PSEx x x shall have completed within a period of ten (10) years from the date of submission and receipt of Proposals, a similar or related development project x x x.

1.2.2. Key Personnel. x x x

1.3. Financial Capability. The PSEx x x must have adequate capability to sustain the financing requirements for the proposed development ofthe Property. This shall be measured in terms of:

1.3.1. Net Worth. x x x

1.3.2. Good financial standing. x x x

1.3.3. No Arrears. x x x

1.3.4. Timely and complete Payment of Taxes. x x x

1.3.5. Financial Capacity to Undertake the

Project.

x x x x

2. Required Eligibility Documents. The PSEs x x x that wish to be considered for eligibility are required to submit x x x the following documents:

x x x x

VI. EVALUATION OF ELIGIBILITY

1. Opening of Eligibility Documents. x x x

2. Evaluation Process. Eligibility Documents submitted by the PSEshall be evaluated on a pass or fail basis to determine if the PSEx x x complies with or satisfies all of the requirements specified in Article V hereof. x x x

3. Motion for Reconsideration/Appeal on Eligibility. A prospective PSE determined as "Ineligible" has seven (7) calendar days upon written notice within which to file a motion for reconsideration tothe JV-SC. x x x

4. No Eligible [PSEs]. In the event that no PSE be found eligible or no PSE submitted itself to eligibility check for the Competitive Challenge procedure, BCDA shall proceed to the issuance of Notice of Award to SMLI, as the original proponent for the subject JV project.

x x x x

VII. CHANGE IN MEMBERSHIP OF AN ELIGIBLE PSE.

x x x x

VIII. QUALIFICATIONS AND WAIVERS

1. BCDA reserves the right to reject any or all Eligibility Documents, to waive any defect or informality thereon or minor deviations, which do notaffect the substance and validity of the proposal.

2. BCDA reserves the right to review other relevant information affecting the PSE or its Eligibility Documents before its declaration as eligible to participate further in the selection process, and be allowed to submit a Final Proposal. Should such review uncover any misrepresentations made in the eligibility documents, or any change in the situation of the PSE, which affects its eligibility, BCDA may disqualify the PSE from obtaining any award/contract.

3. BCDA further reserves the right tocall of this disposition prior to acceptance of the proposal(s) and call for a new disposition process under amended rules,and without any liability whatsoever to any or all the PSEs, except the obligation to return the Proposal Security x x x.

40 (emphasis ours; citation omitted)

A cursory reading of the TOR, ascouched, readily shows that it focuses only on the eligibility requirements for PSEs who wish to challenge SMLI’s proposal as well as the procedure to be followed by the BCDA JVSC in the evaluation of the PSEs’ submittals. We thus find merit in SMLI’s thrust that since the TOR governs the eligibility requirements for PSE’s, the "disposition process" referred to inthe reservation clause could only refer to the eligibility process in Stage Three of the Swiss Challenge and not the entire Swiss Challenge process itself. We are convinced that the said provision does not authorize BCDA to abort the entire procurement process and cannot impair any of SMLI’s statutorily and contractuallyconferred rights stemming from the first two stages’ conclusion. To rule otherwise would grant the GE unbridled authority to thrust aside the agreement between the parties after successful detailed negotiations. It would disregard the fact that through the said covenant,the GE bound itself to conduct and complete the Competitive Challenge pertaining to SMLI’s proposal.

Provisions of the TOR cannot prevail over the NEDA JV Guidelines

In the same vein, We cannot also agree with respondents’ contention that the term "disposition" in the assailed reservation clause refers to the entire Swiss Challenge itself and authorizes the BCDA to abandon the negotiations even at Stage Three of the process for this would result in an interpretation that is antagonisticwith the NEDA JV Guidelines.

A review of the outlined three-stage framework reveals that there are only two occasions where pre-termination of the Swiss Challenge process is allowed: at Stage One, prior to acceptance of the unsolicited proposal; and at Stage Two, should the detailed negotiationsprove unsuccessful. In the Third Stage, the BCDA can no longer withdraw with impunity from conducting the Competitive Challenge as it became ministerial for the agency to commence and complete the same. Thus, acceding to the interpretation of the TOR offered byBCDA will, in effect, result not only in the alteration of the agreement between the parties but also of the NEDA JV Guidelines itself, both of which has the force and effect of law.

The interpretation offered by BCDA is, therefore, unacceptable. Between procedural guidelines promulgated by an agency pursuant to its rule-making power and a condition unilaterally designed and imposed for the implementation of the same, the former must prevail. BCDA does not wield any rule-making power such that it can validly alter or abandon a clear and definite provision in the NEDA JV Guidelines under the guise of a condition under the TOR. AsWe have time and again harped, the ones dutybound to ensure observance with laws and rules should not be the ones to depart therefrom.

41 A contrary rule would open the floodgates to abuses and anomalies more detrimental to

public interest.42

For how can others be expected to respect the rule of law if the very persons or entities tasked to administer laws and their implementing rules and regulations are the first to violate them, blatantly or surreptitiously?

BCDA gravely abused its discretion when it issued Supplemental

Notice No. 5 in breach of its contractual obligation to SMLI

"Grave abuse of discretion" implies such capricious and whimsical exercise of judgment as is equivalent tolack of jurisdiction. It must be so patent and gross as to amount to an evasion of positive duty or to a virtual refusal to perform the duty enjoined or to act at all in contemplation of law.

43 While it is the general policy of the Court to sustain

the decisions of administrative authorities, not only on the basis of the doctrine of separation of powers but also for their presumed expertise in the laws they are entrusted to enforce, when said decisions and orders are tainted with unfairness or arbitrariness that would amount to grave abuse of discretion, the Courts are duty-bound to entertain petitions questioning the former’s rulings or actions.

44

In the present case, the Court finds that BCDA gravely abused its discretion for having acted arbitrarily and contrary to its contractual commitment to SMLI, to the damage and prejudice of the latter. It veritably desecrated the rules the Government itself set in the award of public contracts.

To review, We have demonstratedthat the BCDA is duty-bound to proceed with and complete the competitive challenge if the detailed negotiations proved successful. Afterwards, it becomes mandatory for the competitive challenge to proceed. Whatever rights and obligations that may have accrued to the parties by that time can no

longer be altered by a new disposition process. At most, the reservation clause in the TOR can only serve to alter the rules of the eligibility process under the Competitive Challenge.

In the case at bar, however, BCDA, in its mistaken reliance on the reservation clause, aborted not just the eligibility process of the Competitive Challenge but the entire Swiss Challenge. Even though the language of Supplemental Notice No. 5 at first blush appears to limit its application to the Third Stage of the framework, BCDA’s actuations say otherwise. Worthy of reiteration at this point is the fact that after BCDA issued the assailed notice, the agency also returned through registeredmail the security posted by SMLI. Coupled with the factthat BCDA subjected the property instead to straight bidding, it becomes obvious that BCDA no longer intends to comply with its obligations to SMLI and that it abandoned the Swiss Challenge process altogether, in contravention of its statutory and contractual obligations.

Moreover, the asseveration of the BCDA in its last ditch effort to salvage its position––that the withdrawal is justified since it allegedly found that the revised SMLI proposal shall not yield the best value for the government

45––deserves

scant consideration. On the contrary, the BCDA’s statements have been inconsistentwhen it comes to identifying the procurement process that would best serve the interest of the state.

Noticeably, in its November 8, 2010 Memorandum, the BCDA posited that competitive challenge is more advantageous to the government than straight bidding, to wit:

The price of the Bonifacio South properties has already been set by the winning price in the bidding for the joint venture development of the JUSMAG property (P31,111/sq.m.). Thus, BCDA has established the benchmark for the price of the remaining Bonifacio South properties, of which the JUSMAG property is the most prime. Logically the minimum bid price under straight bidding for the BNS/PMC/ASCOM/SSU property, which is a far less inferior property, would be P31,111/sq.m. However, with SM’s submission of a revised unsolicited proposal atP31,732/sq.m. and later further revised to P32,500/sq.m., BCDA saw the opportunity to negotiate for better terms and eventually arrived at a higher price of P36,900/sq.m. In this case, BCDA deemed that going into Competitive Challenge was more advantageous to the government than Competitive Selection (straight bidding) because of the opportunity to increase the price.

Furthermore, subjecting the price tosubsequent price challenge will possibly drive up the price even higher thanP38,900/sq.m. These opportunities cannot be taken advantage of under a straight bidding where failure of bidding would likely ensue if in case BCDA immediately sets the price of the property too high. The competition in the real estate industry and as experienced by BCDA issuch that the other developers will usually challenge the original proposal to "up the ante" as they cannot allow the original proponent to get the property easily.

46

Despite this testament, the BCDA, over a year later, made a complete turnaround stating that straight bidding will be best for the Government.

47 As can be gleaned from the BCDA’s Memorandum to the Presidentdated February 13,

2012, respondents themselves recommended to the President that the selection proceedings be terminated. To reiterate:

In view of the foregoing, may we respectfully recommend the President’s approval for BCDA to terminate the proceedings for the privatization and development of the BNS/PMC/ASCOM/SSU Properties in Bonifacio South through Competitive Challenge and proceed with the bidding of the property.

48

The BCDA offered no explanation to reconcile its opposing positions. It also neglected to inform SMLI of the provisions in its proposal that it deemed disadvantageous to the government. The sweeping statement of the BCDA that the terms are disadvantageous cannot be accepted at face value, bearing in mind that a fruitful in-depthnegotiation necessarily implies that BCDA found the terms offered by SMLI acceptable. Consider also that should the Competitive Challenge prove to be unsuccessful, it has no other recourse but to award the project toSMLI, the Original Proponent. This caveat forces BCDA to ensure that the terms agreed upon during the detailed negotiations are advantageousto it, lest it run the risk of being bound to a project that is not beneficial to the government in the first place.

Overall, the foregoing goes to showthat the BCDA failed to establish a justifiable reason for its refusal to proceed with the Competitive Challenge and for canceling the entire Swiss Challenge. Because of BCDA’s mistaken reliance on the TOR provision, and by changing its stand on the conduct of the Competitive Challenge without pointing out with specificity the socalled unfavorable terms, Weare left to believe that the cancellation of the Swiss Challenge was only due to BCDA’s whims and caprices.

Acceptance of Unsolicited Proposal vis-à-vis Estoppel

Lastly, respondents argue that the government cannot be estopped by the mistakes or errors of its agents, implying that when it issued the Certification, it committed a lapse of judgment as it later discovered that the terms of the proposal allegedly turnedout to be disadvantageous to the Government. Thus, according to them, it cannot be compelled to proceed with the Competitive Challenge.

We are very much aware of the time-honored rule that "the government cannot be estopped by the mistakes or errors of its agents."

49 Suffice it to state, however, that this precept is not absolute. As jurisprudence teaches, this rule on

estoppel cannot be used to perpetrate an injustice.50

In the case at bar, it is evident that to allow BCDA to renege on its statutory and contractual obligationswould cause grave prejudice to petitioner, who already invested time, effort, and resources in the study and formulation of the proposal, in the adjustment thereof, as well as in the negotiations. To permit BCDA to suddenly cancel the procurement process and strip SMLI of its earlier-enumerated rights as an Original Proponent at this point––after the former has already benefited from SMLI’s proposal through the acquisition of information and ideas for the development of the subject property––would unjustly enrich the agency through the efforts of petitioner. What is worse, to do so would be contrary to BCDA’s representations and assurances that it will respect SMLI’s earlier acquired rights, which statements SMLI reasonably and innocently believed.

All told, the BCDA’s acceptance ofthe unsolicited proposal and the successful in-depth negotiation cannot be written off as mere mistake or error that respondents claim to be reversible and not susceptible to the legal bar of estoppel. The subsequent cancellation of the Competitive Challenge on grounds that infringe the contractual rights of SMLI and violate the NEDA JV Guidelines cannot be shrouded with legitimacy by invoking the above-cited rule.

Conclusion

To increase government prospects, participation in joint ventures has been incentivized by granting rightsand advantages to the Original Proponent in the Competitive Challenge phase of a Swiss Challenge. Faithful observance of these provisions oflaw that grant the aforesaid rights, may it be sourced from a bilateral contract or executive edict, aids in improving government reliability. This, in turn, heavily correlates with greater availability of options when entering into future joint venture agreements with private sector entities via public-private enterprises as it will attract investors to contribute in formulating a roadmap towards a nationwide infrastructure development.

Needless to say, allowing government agencies to retract their commitments to the project proponents will essentially render inutile the incentives offered to and have accrued in favor of the private sector entity. Without securing these rights, the business community will be wary when it comes to forging contracts with the government. Simply put, the failure of the government to abide by the rules ititself set would have detrimental effects on the private sector’s confidence that the government will comply with its statutory and contractual obligations to the letter.

In the case at bench, considering the undisputed facts presented before Us, We cannot sustain the BCDA’s arguments that its withdrawal from the negotiations is permissible and was not done with grave abuse of discretion. Being an instrumentality of the government, it is incumbent upon the BCDA to abide by the laws, rules and regulations, and perform its obligations with utmost good faith. It cannot, under the guise of protecting the public interest, disregard the clear mandate of the NEDA JV Guidelines and unceremoniously disregard the very commitments it made to the prejudice of the SMLI that innocently relied on such promises.

51 It is in instances such as

this––where an agency, instrumentality or officer of the government evades the performance of a positive duty enjoined by law

52 ––wherein the exercise of judicial power is warranted. Consistent with Our solemn obligation to

afford protection by ensuring that grave abuses of discretion on the part of a branch or instrumentality of the government do not go unchecked, the Petition for Certiorari must be granted and the corresponding injunctive relief be made permanent.

As a final note, it is worth mentioning that the foreseeable repercussion of a contrary ponenciaencompasses the reduction of the number of interested private sector entities that would bewilling to submit suo motoproposals and invest in government projects. After all, what would be the point of developing ideas and allocating resources in the formulation of PPP projects when one’s rights asan Original Proponent, under the NEDA JV Guidelines and the agreement between the parties, can easily be wiped out should the agency decide tolevel the playing field and conduct straight bidding instead? Evidently, this would not attract but would, in contrast, repel investors from tendering offers. In addition, even if potential investors do submit unsolicited or comparative proposals, the terms

therein might be driven to become less competitive due to the adjustment in the balance of risks and returns on investment. Taking into account the increased possibility of the development project not pushing through, investors might not be too keen in guaranteeing a high amount of secured payments for the same.1âwphi1 These considerations further validate the need to secure the private sector’s trust and confidence in the government.

WHEREFORE, premises considered, the petition is hereby GRANTED. The assailed Supplemental Notice No. 5 dated August 6, 2012 issued by the BCDA is hereby ANULLED and SET ASIDE. The Temporary Restraining Order issued bythis Court on January 9, 2013 is hereby madePERMANENT.

Respondent Bases Conversion and Development Authority and Arnel Paciano D. Casanova, or whoever assumes the position of president of BCDA, are hereby ORDEREDto conduct and complete the Competitive Challenge pursuant to the Certification, TOR, and NEDA JV Guidelines.

Specifically, the BCDA and/or the JV-SC are DIRECTEDto carry out the following:

1. Publish, within seven (7) calendar days from finality of this Decision, the "Invitation to Apply for Eligibility and to Submit a Comparative Proposal" (IAESCP) in three (3) newspapers of general nationwide circulation for two (2) consecutive weeks, and in the BCDA website (www.bcda.gov.ph), in accordance with Section III.2. (Publication of Invitation to Apply for Eligibility and to Submit Proposal), Section III (Project Rationale), Item 5 of the TOR, and Section III (General Information), Item 2 (Publication of Invitation for Comparative Proposals) of the TOR;

2. Immediately make the necessary adjustments to the timetable of activities set forth in Supplemental Notice No. 1, considering that the periods specified therein have already lapsed, without awaiting the lapse of the period for publication;

3. Strictly adhere to the TOR, Supplemental Notice No. 1, as adjusted, the Certification of Successful Negotiations, and the NEDA JV Guidelines, in the conduct and completion of the Swiss Challenge procedure on SM Land Inc.’s unsolicited proposal accepted by the BCDA; and

4. Perform any and all acts necessary to carry out and complete Stage Three of the Swiss Challenge pursuant to the provisions of the TOR and NEDA JV Guidelines, including, but not limited to, subjecting petitioner's unsolicited proposal to a competitive challenge.

In the event that SM Land, Inc. already obtained from BCDA the amount representing its Proposal Security, SM Land, Inc. is hereby DIRECTED to re-post the Proposal Security, in the same amount as the previous one, on the first day of the publication of the invitation for comparative proposals, per the NEDA JV Guidelines.

[G.R. No. L-51152. April 27, 1982.] CIRIACA CAÑETE, Plaintiff-Appellee, v. SAN ANTONIO AGRO-INDUSTRIAL DEVELOPMENT CORPORATION, Defendant-Appellant. [G.R. No. 55440. April 27, 1982.] WALTER BAYNOSA, Plaintiff-Appellee, v. SAN ANTONIO AGRO-INDUSTRIAL DEVELOPMENT CORPORATION, Defendant-Appellant. SYNOPSIS Appellees, as lessors. entered into separate, identical lease contracts with the appellant as lessee. In both contracts, paragraph 3 fixed the term of the lease at five years beginning with the crop year 1968-69 and ending in crop year 1973-74 with an option on the part of the lessee to extend the lease for another five years; while paragraph 7 gives the lessee an option to buy the land if the lessor was willing to sell "and likewise the LESSEE is given the option to lease . . . in case the LESSOR is Likewise willing to lease -the same again." In 1973, when appellant wrote appellees of its intention to exercise its option under paragraph 3 of the contracts, appellees informed appellant that they were terminating the lease contract, invoking paragraph 7 thereof, and advised it to vacate the premises. Appellant refused to vacate the land. Hence, appellees files suits for declaratory relief and damages against the appellant with the Court of First Instance. The appellant, in its answer, averred that in paragraph 3 of the lease contract, it has the exclusive unilateral option to extend the lease. The parties submitted their cases based on the pleadings and the trial court rendered judgment declaring the lease contracts terminated due to refusal of the lessor to extend the same. Appealed to the Court of Appeals, the cases were certified to the Supreme Court the only issue being the correctness of the trial court’s interpretation of the lease contracts which is a question of law. The Supreme Court held that pursuant to the provisions of the Civil Code and the Rules, all the terms of a contract must be interpreted together to give effect the whole agreement; and that the best reconciliation between paragraph 3 and paragraph 7 of the subject contracts is to give effect to the latter only after the option in the former has already been exercised.

SYLLABUS 1. CIVIL LAW; OBLIGATIONS AND CONTRACT; INTERPRETATION OF CONTRACTS; WHEN TERM OF THE CONTRACT IS AMBIGUOUS, THE SAME MUST BE INTERPRETED TO GIVE EFFECT TO THE WHOLE AGREEMENT; CASE AT BAR. — The unqualified and exclusive option to extend the five-year term of the lease contract to another five years which is positively granted in paragraph 3 of the said contract to the lessee would appear negated by paragraph 7 which qualifies the lessee’s option to lease the premises provided "the LESSOR is likewise willing to lease the same again." We are not prepared to believe that parties to a contract who are sui juris and presumably knowledgeable of the purposes for which they solemnly put into writing the agreement could be so careless as to set down conflicting and inconsistent conditions in such brief and simple contracts as those now before us, Indeed, in line precisely with the proposition pursued by the trial coon that pursuant to Article 1374 of the Civil Code, all the terms of a contract must be interpreted together to give effect to the whole agreement (citing also Section 9 of Rule 130 of the Rules of Court), We are convinced that the best reconciliation between paragraph 3 and paragraph 7 is to give effect to the latter only after the option in the former has already been exercised, thereby avoiding conflict, contradiction and inconsistency within the four corners of the same agreement. 2. ID.; ID.; STIPULATIONS NOT CONTRARY TO LAW AND PUBLIC POLICY, VALID. — Appellee maintains that to construe paragraph 3 literally would leave the extension of the period exclusively to appellant corporation, which, it is alleged, is contrary to the principle of mutuality in contracts. We hold that there is nothing illegal or contrary to public policy in such a stipulation. Jurisprudence and experience do not and can not sustain that view. In the last analysis, the parties to a contract are free to deprive themselves of certain rights and waive them, if any exist in law, as long as renunciation is not violative of public policy or any contrary legal impediment (Article 6, Civil Code of the Philippines). AQUINO, J., concurring: CIVIL LAW; OBLIGATIONS AND CONTRACT; LEASE CONTRACT; OPTION TO RENEW LEASE, UNILATERAL; CASE AT BAR. — The option to renew the lease contracts given to the lessee under paragraph 3 of the lease contracts is unilateral while the option mentioned in paragraph 7 refers to a second renewal which could only be effected with the lessor’s consent. The notary, who drafted the two contracts, declared this in his affidavits.

G.R. No. 116216 June 20, 1997

NATALIA S. MENDOZA, petitioner,

vs. COURT OF APPEALS, THOMAS B. ASUNCION and NENA T. ASUNCION, respondents.

PANGANIBAN, J.:

In this case, the Court reiterates the rule that the provisions of a contract must not be viewed in isolation, but must be harmonized with each other so as to give effect and meaning to the entire contract.

On appeal is the Decision 1 of Respondent Court of Appeals

2 in CA-G.R. CV No. 18016 promulgated on August 28,

1992 with the following dispositive portion: 3

WHEREFORE, the trial court's decision appealed from is REVERSED and SET ASIDE. In lieu thereof, judgment is hereby rendered in favor of appellants [herein private respondents] and against appellees [herein petitioner and her (now deceased) husband], ordering appellees to pay appellants the amount of P584,472.00 representing the unpaid obligation of appellees to appellants under the promissory note, Exhibit "A", together with legal interest, which is 6% per annum computed from May 23, 1983 (date of filing the complaint) until the full amount thereof is fully paid, plus ten (10) per cent thereof as attorney's fees at (sic) the costs of suit.

For lack of merit, the subsequent motion for reconsideration was denied by Respondent Court of Appeals in a Resolution promulgated on July 11, 1994.

4

The Facts

Respondent appellate court narrated the undisputed facts in this case as follows: 5

On August 4, 1978 appellees [herein petitioner and her husband] signed a promissory note dated July 10, 1978, for US$35,000.00 in favor of appellants [herein private respondents], in Los Angeles, California, U.S.A. The text of the promissory note is as follows:

PROMISSORY NOTE

$35,000.00 10 July 1978

For value received, the undersigned SERGIO E. MENDOZA, and NATALIA S. MENDOZA, husband and wife, promise to pay THOMAS B. and NENA T. ASUNCION, husband and wife, the amount of $456.00 each month starting on (sic) April, 1978 and 120 consecutive months, thereafter. On (sic) April 1988, the entire balance of principal and accrued interest then remaining unpaid shall be due and payable. Should default be made in the payment of the interest and principal when due, the entire balance of principal and interest then remaining unpaid shall become immediately due at the option of the holder of this note.

Principal and interest payable in lawful money of the United States of America. If action be instituted on this note, the undersigned promise to pay such sum as the court may fix as attorney's fees. This note is secured by properties in the Philippines, the Restaurant at Roxas Blvd., Philippines, business interests in the United States, life insurances (sic) and shall go to THOMAS B. and NENA T. ASUNCION.

In Witness Whereof, we hereby sign this promissory note this 4 day of August, 1978.

.

From April, 1978 to December, 1981, appellees made monthly payments on the promissory note to appellants in the amount of US$500.00 a month or a total of US$22,500.00. In addition, appellees made payments to appellants' daughter Helen Asuncion in the amount of US$3,620.17. Also appellees made payments, apparently also for the benefit of appellants, in the total amount of US$1,560.00 to Regina Pangan and/or Teresita Angeles.

6 The payments to

Helen Asuncion in the amount of US$3,620.17 and to Regina Pangan and Teresita Angeles in the amount of US$1,560.00 or a total amount of US$5,180.17 paid to both, were apparently made during the year 1982. The amount of US$5,180.17 roughly equals a month payment of US$500.00 from January to October, 1982, a period of ten (10) months. (See appellants' Exhibit "C-1" and also appellees' Exhibit "2", both of which are xerox copies of the resume of appellees' payments to appellants from April, 1978 to October, 1982.) In October, 1982, appellees stopped paying the monthly installments under the promissory note. After October 19, 1982, appellees made additional payments in 1982 as follows:

October 29, 1982 — P500.00 — (Exh. "3-a") November 03, 1982 — 500.00 — (Exh. "3-b") November 04, 1982 — 500.00 — (Exh. "3-c") November 14, 1982 — 500.00 — (Exh. "3-d") November 23, 1982 — 500.00 — (Exh. "e-e") ———— P2,500.00 =======

The prevailing rate of exchange of the Philippine Pesos to the U.S. Dollar during the above dates of payment was about P10.00 Philippine Peso to U.S. $1.00 United States Dollar. The above payments therefore totalled (sic) to US$250.00.

Subsequently, appellees made three additional payments as follows:

Exh. "3-f" — November 30, 1983 P2,000.00 Exh. "3-g" — December 30, 1983 2,000.00 Exh. "3-h" — January 08, 1984 2,000.00 ———— P6,000.00 =======

The exchange rate during the above dates (November, 1983 to January, 1984) was P14.00 Philippine Pesos to US$1.00 United States Dollar. The total payment of P6,000.00 was equivalent to about US$430.00.

Thereafter, appellees have not made any other payments to appellants.

After due trial, the trial court rendered its decision dated November 12, 1985, dismissing the case for lack of cause of action, reasoning out, thus:

From the afore-quoted Promissory Note, it appears that the entire balance of the principal and accrued interest remaining unpaid shall become due and payable in April, 1988. It clearly states that the payment of monthly installment of $456.00 shall commence in April, 1978 and the succeeding months thereafter for 120 consecutive months, which positively shows that the entire balance of the principal as well as the accrued interest shall be due and payable in April, 1988.

WHEREFORE, in view of the foregoing, this case is hereby ordered DISMISSED for lack of cause of action.

As earlier stated, the Court of Appeals reversed the RTC, holding that the acceleration clause gave private respondents the right to collect the full amount of the promissory note. Hence, this petition for review.

The Issues

Petitioner cites the following alleged errors of the Court of Appeals: 7

I. Respondent Court of Appeals committed serious error when it found that the obligation of petitioner and her husband under the promissory note (Exhibit A) is due and demandable.

II. Respondent Court of Appeals committed serious error when it declared petitioner and her husband liable to respondents for their unpaid obligation under the promissory note (Exhibit A), with interest and attorney's fees.

III. Respondent Court of Appeals committed serious error when it reversed the decision of the trial court.

On the other hand, private respondents simplify the issues into two: 8

1. It is claimed there was no prior extrajudicial demand for the amount of the promissory note before the action for collection was filed. The issue is whether, in the absence of the (sic) prior extrajudicial demand, private respondents can enforce their right under the acceleration clause of the promissory note for the collection of the entire unpaid balance of the note.

2. Whether respondent Court of Appeals was correct in finding that the promissory note contained an acceleration clause which gave private respondents the right to collect the entire balance of the promissory note upon failure of petitioner to pay the installments on their due dates.

Private respondents also doubt "whether the petition can be given due course at all considering that the decision sought to be reviewed is already final, (R)espondent Court of Appeals having made an 'Entry of Judgment' in C.A. G.R. No. CV-18016."

9

In reversing the decision of the RTC, Respondent Court of Appeals ratiocinated: 10

. . . We disagree with the trial court's interpretation. Such interpretation disregards or nullifies the clear language of the first and third sentences in the aforequoted first paragraph of the promissory note. The first sentence of the promissory note is a simple and clear promise of appellees to pay back a loan of US$35,000.00 made by appellants to them by "paying the amount of US$456.00 each month starting on (sic) April 1978 and 120 consecutive months thereafter." The promise cannot possibly be read and interpreted in any other way. Yet, the trial court did and said in effect that there was no promise to pay back the loan in 120 consecutive monthly installments of US$456.00 each installment. In fact the appellees were making monthly payments of US$500.00 to appellants consisting of US$456.00 as monthly installment under the promissory note, together with an additional amount of US$44.00 a month which appellees denominate "advance interest." However, it is an undisputed fact that the monthly payments by appellees under the promissory note stopped as of October 19, 1982. Except for the payment of about US$250.00 under defendants' Exhibit "3-a-3-e", there were no other payments until the filing of this complaint on May 23, 1983.

The last part of paragraph 1 of the promissory note provides:

Should default be made in the payment of the interest and principal when due, the entire balance of principal and interest then remaining unpaid shall become immediately due at the option of the holder of this note.

The above clause is known as an optional acceleration clause which gives the holder of the note (creditor) the option to accelerate the maturity date of the note in case of default of the maker (debtor).

For further clarification, it should be mentioned that the second sentence of the promissory note means what it says, the principal and accrued interest still unpaid in April 1988 shall then be due and payable. This sentence simply recognizes the option or right given to the appellants to waive or defer collection of the monthly payments when they become due. It did not confer a right on the appellees to defer payment of their debt till the end of the ten-year period. However, appellants or the promissee, could waive the benefit of the periodic payments. Thus, as already mentioned, to interpret the second sentence of the promissory note in isolation would render nugatory the clear intent of the parties that the debt of the appellees should be repaid in 120 consecutive monthly installments of US$456.00 each installment. Such an interpretation would also nullify the right or option of the appellants to call in the entire unpaid balance of the loan, principal and interests, should appellees fail to pay any installment when it falls due. Basic is the rule that — "In the construction of an instrument where there are several provisions or particulars, such a construction is, if possible, to be adopted as will give effect to all." (Sec. 9, Rule 180 [sic], Rules of Court).

This Court believes that the issues in this case can be condensed as follows:

1. Has the assailed Decision become final and executory?

2. May private respondents use the acceleration clause in the promissory note under the facts of this case?

3. May the alleged lack of extra-judicial demand for the enforcement of such clause be raised for the first time before this Court?

The Court's Ruling

The petition has no merit.

First Issue: Finality of the Court of Appeals Decision

Not disputed or denied by petitioner is the fact that there was no valid service upon Respondent Court of Appeals of the motion for extension of time to file the present petition. Although the motion for extension

11 carried a registry

receipt 12

purportedly sent to Respondent Court of Appeals, the affidavit of service 13

attached thereto did not state

whether the service was effected by personal delivery, ordinary or registered mail. That an entry of judgment was effected by the Court of Appeals, on the other hand, indicates that there was no valid service upon the public respondent of the motion for extension of time to file a petition for review and that, consequently, the CA Decision has become final. This is consistent with the presumption of regularity in the performance of duties by public officers and offices. For this reason alone, the dismissal of this petition is already in order. There are, however, two other even more cogent reasons showing the petition's lack of merit.

Second Issue: Application of Acceleration Clause

Petitioner contends that Respondent Court of Appeals "completely disregarded the clear significance and meaning" of the second sentence of the promissory note.

14 It was allegedly the intention of the parties to give petitioner and her

husband the option "to pay the balance of the principal and the accrued interest in April 1988" in the event that they would default in their obligation.

15 According to petitioner, the second sentence in the promissory note was "stated in

a separate and distinct sentence and was necessarily intended to have a different meaning from its succeeding sentence, and should likewise be given a different interpretation therefrom." Petitioner argues that Respondent Court of Appeals did not "give any special meaning to the second sentence nor interpret it differently."

16

For clarity, we set out the three contested statements in the promissory note, as follows:

1. For value received, the undersigned SERGIO E. MENDOZA and NATALIA S. MENDOZA, husband and wife, promise to pay THOMAS B. and NENA T. ASUNCION, husband and wife, the amount of $456.00 each month starting in April 1978 and 120 consecutive months thereafter.

2. In April 1988, the entire balance of principal and accrued interest then remaining unpaid shall be due and payable.

3. Should default be made in the payment of the interest and principal when due, the entire balance of principal and interest then remaining unpaid shall become immediately due at the option of the holder of this note.

Petitioner argues that even if she defaulted in regularly paying the stipulated monthly amount, she is given the option to pay the total unpaid installments in April 1988. She insists that private respondents cannot avail of the third statement since no demand has been made therefor. Hence, she concludes that only the second statement should cover the factual situation of the parties.

The contentions of petitioner are unacceptable. Her argument — that upon failing to pay the agreed amounts on the stipulated dates, she can invoke the second statement and, thus, justify the settlement of the unpaid principal and interest upon the maturity date in April 1988 — is unwarranted under the law and is an isolated, not to say twisted, view of the promissory note.

Article 1374 of the Civil Code provides that "(t)he various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly." As ordinarily understood, the first statement stipulates the month-to-month payment of the principal and the accrued interest. The second statement provides for the discretionary exercise of leniency by private respondents. However, a definite deadline is fixed — April 1988 — when all obligations then unpaid shall become due and payable. The third statement is solely for the benefit of the private respondents if ever they choose to accelerate the total amount of the obligations upon default in the payment of any of the installments. In short, the creditors are given by the promissory note two options in case of default by the debtor: one, to wait for April 1988 before collecting the unpaid installments; and two, to invoke the acceleration clause and collect the entire balance immediately without waiting for April 1988. The option is granted to the creditors (herein private respondents) and not to the debtor (herein petitioner).

As correctly found by Respondent Court of Appeals, if petitioner were permitted to enforce only the second statement of the promissory note, the two other provisions dealing with the payment of monthly installment and optional acceleration clause would be rendered nugatory. Petitioner's interpretation of the promissory note is one-sided and beyond what was clearly stipulated in the note. The second sentence can be properly understood only as granting the creditors — herein private respondents — a right to waive or defer collection of the monthly payments when they become due; it cannot be construed as conferring on the debtor the right to default on the monthly payments.

Furthermore, the Civil Code provides that subsequent or contemporaneous acts of the contracting parties shall be considered in judging their intention.

17 It should be noted that every month from April 1978 until October 19, 1982,

petitioner faithfully paid the amount of US$500.00. Such monthly payments show petitioner's concurrence with her obligation stipulated in the first statement. She cannot later be permitted to renege on such obligation and to elect a new term of payment. Under the doctrine of estoppel, an admission or representation is rendered conclusive upon the person relying thereon.

18 A party cannot be allowed to go back on his/her own acts and representations to the

prejudice of the other party who, in good faith, relied upon them. 19

Third Issue: Lack of Demand

Notwithstanding her insistence on the exclusive application of the second sentence, petitioner concedes nonetheless that the third sentence of the promissory note gave private respondents the option to "consider the entire balance of principal and interest then remaining unpaid immediately due." However, petitioner contends that "such option had not been exercised by respondents, and if they did, they failed to validly notify petitioner of this fact to render said option effective."

20

Private respondents, on the other hand, counter that because they "filed a judicial action for the collection of the amounts due under the promissory note," the question of whether demand was made has already become moot. Furthermore, the "issue of lack of prior extrajudicial demand is a question of fact being raised for the first time" in this appeal.

21

Petitioner's position is untenable. In the first place, petitioner and her (now deceased) husband did not raise this issue before the two lower courts.

22 Settled is the rule that no question will be entertained on appeal unless it has been

raised in the court below. 23

Points of law, theories, issues and arguments not adequately brought to the attention of

the lower court need not be, and ordinarily will not be, considered by a reviewing court as they cannot be raised for the first time on appeal. Basic considerations of due process impel this rule.

Furthermore, whether there was indeed an extrajudicial demand cannot be determined in this appeal. That issue, being factual, has no place in a petition for review under Rule 45 of the Rules of Court. The jurisdiction of this Court in cases brought to it from the Court in Appeals is limited to a review and revision of errors of law allegedly committed by the appellate court. While it is true that there are several exceptions to this doctrine,

24 petitioner has not shown

any justification for the invocation of any.

WHEREFORE, the petition is hereby DENIED and the assailed Decision is AFFIRMED in toto. Costs against petitioner.

G.R. No. 118972 April 3, 1998

HOME DEVELOPMENT MUTUAL FUND and MARILOU ADEA-PROTOR, petitioners, vs. COURT OF APPEALS and DR. CORA J. VIRATA, (CONVIR) and Associates, Inc., respondents.

At bench is a petition for review on certiorari under Rule 45 of the Revised Rules of Court, to review and set aside the Decision of the Court of Appeals 1 dated June 30, 1994 in CA-GR No. 35240, affirming with modification the Decision dated March 22, 1991 in Civil Case No. 12715 of Branch 145, 2 Regional Trial Court of Makati City.

The antecedent facts that matter can be culled, as follows:

On January 1, 1985, CONVIR and Associates, Inc., represented by its President, Dra. Cora J. Virata, and the petitioner, Home Development Mutual Fund (HDMF), represented by its Senior Vice-President, Vicente Reventar III, entered into a CONSULTANCY AGREEMENT by virtue of which the former obligated itself to render medical services to the employees of HDMF. The said service contract stipulated, among others:

That this AGREEMENT takes effect on January 1, 1985 up to December 31, 1985, provided however, that either party who desires to terminate the contract may serve the other party a written notice at least thirty (30) days in advance.

On December 16, 1985, Dra. Cora J. Virata wrote petitioner Marilou O. Adea-Proctor, then Deputy Chief Executive Officer and Officer-in-Charge of HDMF, to inform that she (Dra. Cora J. Virata) was assuming from their (petitioners) silence that subject Agreement was renewed for the succeeding period, from January 1, 1986 to December 31, 1986. 3

In her Reply-letter, dated December 23, 1985, petitioner Adea-Proctor notified Dra. Cora J. Virata of the termination of the contract in question upon its expiration on December 31, 1985; informing Dra. Virata of the appointment by management of a full-time physician to the vacant plantilla position, such that her services would not be needed anymore. 4 But such letter-reply was formally and actually received by the private respondents only on January 9, 1986.

In the Complaint filed on January 15, 1986, private respondents averred that petitioners' sudden and unexpected termination of the Consultancy Agreement, which requires a written notice thirty (30) days in advance, did not conform therewith. Consequently, private respondents prayed for unrealized income of a least Five Hundred Thousand (P500,000.00) Pesos resulting from loss of business opportunities, Four Hundred Thousand (P400,000.00) Pesos, as exemplary damages, One Hundred Thousand (P100,000.00) Pesos, as litigation expenses, and 25% of the total amount, as attorney's fees.

In their Answers sent in on January 14, 1986, petitioners Adea-Proctor and HDMF sought the dismissal of the Complaint; contending inter alia that the Complaint states no cause of action arising from the termination of the contract, upon expiration of the agreed period. They argued that private respondents' insistence on the necessity of a notice of renewal of the contract is predicated on an erroneous interpretation of its terms, conditions and duration which are clear.

On March 22, 1991, the trial court of origin came out with a decision; disposing, as follows:

Wherefore, premises considered, judgment is hereby rendered, ordering defendant Home Development Mutual Fund, to pay plaintiff the sum of Fifty Thousand (P50,000.00) Pesos, in Philippine Currency, as compensatory damages; and Twenty Thousand (P20,000.00) Pesos, Philippine Currency, as and by way of attorney's fees, and costs.

Defendant's counterclaims are dismissed/denied for lack of merit.

SO ORDERED.

On appeal, the aforesaid judgment was affirmed with modification by the Court of Appeals, deleting the award of compensatory damages for want of sufficient evidence to support the same. With the denial of their motion for reconsideration, petitioners found their way to this Court via the present Petition; theorizing, that:

I. THE PUBLIC RESPONDENT ERRED WHEN IT RULED TO THE EFFECT THAT BECAUSE OF THE RENEWAL OF THE CONSULTANCY AGREEMENT SINCE 1981, THE 1985 CONSULTANCY AGREEMENT IS DEEMED RENEWED FOR ANOTHER TERM UNLESS ADVANCED NOTICE OF TERMINATION/NON-RENEWAL IS SERVED BY EITHER PARTY TO THE OTHER;

II. THE PUBLIC RESPONDENT ERRED WHEN IT RULED THAT THE MEDICAL SERVICES OF APPELLEE WAS UNREASONABLY TERMINATED/NOT RENEWED BECAUSE THE LETTER OF TERMINATION/NON-RENEWAL "WAS SERVED OR MAILED SO CLOSE TO THE END OF THE YEAR . . .;

III. THE PUBLIC RESPONDENT ERRED IN HOLDING PETITIONER LIABLE FOR ATTORNEY'S FEES TO THE APPELLEE UNDER ART. 19 OF THE NEW CIVIL CODE.

The petition is not impressed with merit.

Our pivot of inquiry is the correct construction or interpretation of subject Consultancy Agreement, particularly its provision:

That this agreement takes effect on January 1, 1985 to December 31, 1985; Provided, however, that either party who desires to terminate the contract may serve the other party a written notice at least thirty (30) days in advance.

The first clause of the aforecited stipulation, which is the bone of petitioners' stance, basically deals with the term of the contract; while the proviso, which is the core of private respondents' action, prescribes the manner the service contract in question could be terminated.

It is petitioners' submission that the first clause referred to is independent, distinct and separate from the saidproviso, such that upon the expiration of the period stated in the first clause, the Consultancy Agreement ceased to have any binding effect between the contracting parties even though they (petitioners) did not give any written notice of termination at least thirty (30) days in advance.

We cannot fathom how contracting parties, who are sui juris, and knowledgeable of the purposes for which they solemnly put their Agreement into writing, could be so careless as to include inconsistent conditions in such a short and simple provision in their contract sued upon.

Time-honored is the rule that "In the construction of an instrument where there are several provisions or particulars, such a construction is, if possible, to be adopted as will give effect to all." 5 Article 1374 of the New Civil Code, on the other hand, requires that "The various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly." Conformably, to ascertain the true meaning or import of the controverted provision of subject Consultancy Agreement, its entiretymust be considered; not merely the first clause. 6 Consequently, petitioners' interpretation solely based on the first clause, and which completely ignored the second clause under scrutiny, cannot be upheld.

The law mandates that "Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith." 7

Did petitioners comply with their contractual obligation in good faith, when they served the requisite written notice to private respondents nine (9) days after the expiration of the Agreement? The answer to this crucial question is in the negative.

The second clause of the contractual provision in dispute is to the effect that written notice of termination should be served at least thirty (30) days in advance. As a rule, the method of terminating a contract is primarily determined by the stipulation of the parties. 8 Thus, the requirements of contracts as to notice — as to the time of giving, form, and manner of service thereof — must be strictly observed because "In an obligation where a period is designated, it is presumed to have been established for the benefit of both the contracting parties." 9 Thus, the unilateral termination of the contract in question by the herein petitioners is violative of the principle of mutuality of contracts ordained in Art. 1308 of the New Civil Code. 10

Petitioner Adea-Proctor contends that on December 26, 1985, she caused personal delivery of her letter-reply dated December 23, 1985, addressed to private respondent Dra. Cora Virata, informing the latter of the impending expiration of the contract which would not be renewed anymore because the petitioners planned to fill up the vacant plantilla position with a full-time physician, as approved by the Board of Trustees of HDMF. 11However, petitioner Adea-Proctor claims that when the said letter was delivered by one Ramon Ortega, petitioners' messenger, to the Makati office of private respondents, the latter's representative, a certain Rose Sy, refused to receive it. So, petitioner Adea-Proctor had to send the said letter by registered mail, on the same day, and private respondents received it on January 9, 1986

We are not persuaded by petitioners' stance. From the evidence on hand, it can be unerringly gleaned that within the first week of January, 1986, respondent Dra. Cora J. Virata was allowed by petitioners to assume her duties as physician of petitioner's employees. As ratiocinated by the Court of Appeals:

For one thing, if it were true that appellant (petitioner HDMF) was decided in not renewing the consultancy agreement with appellee (private respondent Cora Virata), it should have instructed and informed all its employees not to avail anymore of appellee's medical services. As it was, appellant allowed its employees to still avail of appellee's medical services on the first week of January, 1986. 12

Granting ex gratia argumenti that petitioners caused personal delivery of their letter-reply on December 26, 1985, we believe that the same could not be deemed a substantial compliance with their contractual obligation because it was done just five (5) days prior to the expiration of the contract. To repeat, what is stipulated is thirty (30) days in advance. As the trial court stressed:

Necessarily, such notice of termination or non-renewal must be served within reasonable time, in fairness to the other party. Under the circumstances obtaining, however, the defendant's (petitioner herein) notice on plaintiff (private respondent herein) was unreasonable, particularly as it was served or mailed so close to the end of the year and at the height of the Christmas holidays, factors which were unduly disadvantageous to plaintiff as it leaves no sufficient opportunity to prepare for the closure of the business with other potential clients, to the detriment of said plaintiff. 13

Indeed, private respondents had every reason to assume that subject service contract was deemed renewed. As found by the Court of Appeals:

The evidence shows in this case that since 1981, appellee's (private respondent herein) consultancy agreement with appellant (petitioners herein) had been renewed, without renegotiation, so that appellee as a practice would continue her services to appellant even after expiry date of the contract.

These implied renewals of the contract had been going on as a practice of both appellant and appellee since 1981, so that at the start of each year, appellee would just the same, perform her duties as appellant's physician, with contract to be signed in the first few months of the year. As this was the practice, appellee could not be blamed for performing her professional duties as appellant's physician even in the absence of a contract. (CA Decision, p. 5)

Premises studiedly considered, we are of the irresistible conclusion that the Court of Appeals erred not in adjudging as renewed the Consultancy Agreement litigated upon.

In the second assigned error, petitioners theorize that the Court of Appeals erred in ruling that the medical services of private respondents were unreasonably terminated because the December 26, 1985 letter of termination "was served or mailed so close to the end of the year. . ."

We discern nothing reversible in such conclusion arrived at by public respondent. Ordinarily, what is reasonable time under the circumstances of a particular case is a mixed question of law and of fact, for determination by the trier of facts. This Court is not a trier of facts. Furthermore, well settled is the doctrine that "the findings of fact by the trial court are accorded great respect by appellate courts and should not be disturbed on appeal unless the trial court has overlooked, ignored, or disregarded some fact or circumstances of sufficient weight or significance which, if considered, would alter the situation." 14 The facts of the case, as stated by the trial court, were adopted by the Court of Appeals. And a conscientious sifting of the records fails to bring to light any fact or circumstance militative against the correctness of the said findings of the trial court and the Court of Appeals.

We are likewise in agreement with the Court of Appeals' finding that petitioners acted in bad faith for refusing to comply with private respondents' valid demand. Therefore, it is just and equitable that attorney's fees be recovered, 15 in the reasonable amount fixed below.

WHEREFORE, the Decision of the Court of Appeals in C.A. — G.R. No. 35240 is hereby AFFIRMED in toto. No pronouncement as to costs.

G.R. No. 119255 April 9, 2003

TOMAS K. CHUA, petitioner, vs. COURT OF APPEALS and ENCARNACION VALDES-CHOY, respondents.

CARPIO, J.:

The Case

This is a petition for review on certiorari seeking to reverse the decision1 of the Court of Appeals in an action for specific performance2 filed in the Regional Trial Court3 by petitioner Tomas K. Chua ("Chua") against respondent Encarnacion Valdes-Choy ("Valdes-Choy"). Chua sought to compel Valdes-Choy to consummate the sale of her paraphernal house and lot in Makati City. The Court of Appeals reversed the decision4 rendered by the trial court in favor of Chua.

The Facts

Valdes-Choy advertised for sale her paraphernal house and lot ("Property") with an area of 718 square meters located at No. 40 Tampingco Street corner Hidalgo Street, San Lorenzo Village, Makati City. The Property is covered by Transfer Certificate of Title No. 162955 ("TCT") issued by the Register of Deeds of Makati City in the name of Valdes-Choy. Chua responded to the advertisement. After several meetings, Chua and Valdes-Choy agreed on a purchase price of P10,800,000.00 payable in cash.

On 30 June 1989, Valdes-Choy received from Chua a check for P100,000.00. The receipt ("Receipt") evidencing the transaction, signed by Valdes-Choy as seller, and Chua as buyer, reads:

30 June 1989

R E C E I P T

RECEIVED from MR. TOMAS K. CHUA PBCom Check No. 206011 in the amount of ONE HUNDRED THOUSAND PESOS ONLY (P100,000.00) as EARNEST MONEY for the sale of the property located at 40 Tampingco cor. Hidalgo, San Lorenzo Village, Makati, Metro Manila (Area : 718 sq. meters).

The balance of TEN MILLION SEVEN HUNDRED THOUSAND (P10,700,000.00) is payable on or before 155 July 1989. Capital Gains Tax for the account of the seller. Failure to pay balance on or before 15 July 1989 forfeits the earnest money. This provided that all papers are in proper order.6

CONFORME:

ENCARNACION VALDES Seller

TOMAS K. CHUA Buyer

x x x.7

In the morning of 13 July 1989, Chua secured from Philippine Bank of Commerce ("PBCom") a manager's check for P480,000.00. Strangely, after securing the manager's check, Chua immediately gave PBCom a verbal stop payment order claiming that this manager's check for P480,000.00 "was lost and/or misplaced."8 On the same day, after receipt of Chua's verbal order, PBCom Assistant Vice–President Julie C. Pe notified in writing9 the PBCom Operations Group of Chua's stop payment order.

In the afternoon of 13 July 1989, Chua and Valdes-Choy met with their respective counsels to execute the necessary documents and arrange the payments.10 Valdes-Choy as vendor and Chua as vendee signed two Deeds of Absolute Sale ("Deeds of Sale"). The first Deed of Sale covered the house and lot for the purchase price of P8,000,000.00.11 The second Deed of Sale covered the furnishings, fixtures and movable properties contained in the house for the purchase price of P2,800,000.00.12 The parties also computed the capital gains tax to amount to P485,000.00.

On 14 July 1989, the parties met again at the office of Valdes-Choy's counsel. Chua handed to Valdes-Choy the PBCom manager's check for P485,000.00 so Valdes-Choy could pay the capital gains tax as she did not have sufficient funds to pay the tax. Valdes-Choy issued a receipt showing that Chua had a remaining balance of P10,215,000.00 after deducting the advances made by Chua. This receipt reads:

July 14, 1989

Received from MR. TOMAS K. CHUA PBCom. Check No. 325851 in the amount of FOUR HUNDRED EIGHTY FIVE THOUSAND PESOS ONLY (P485,000.00) as Partial Payment for the sale of the property located at 40 Tampingco Cor. Hidalgo St., San Lorenzo Village, Makati, Metro Manila (Area 718 sq. meters), covered by TCT No. 162955 of the Registry of Deeds of Makati, Metro Manila.

The total purchase price of the above-mentioned property is TEN MILLION EIGHT HUNDRED THOUSAND PESOS only, broken down as follows:

SELLING PRICE P10,800,000.00

EARNEST MONEY P100,000.00

PARTIAL PAYMENT 485,000.00

585,000.00

BALANCE DUE TO ENCARNACION VALDEZ-CHOY P10,215,000.00

PLUS P80,000.00 for documentary stamps paid in advance by seller 80,000.00

P10,295,000.00

x x x.13

On the same day, 14 July 1989, Valdes-Choy, accompanied by Chua, deposited the P485,000.00 manager's check to her account with Traders Royal Bank. She then purchased a Traders Royal Bank manager's check for P480,000.00 payable to the Commissioner of Internal Revenue for the capital gains tax. Valdes-Choy and Chua returned to the office of Valdes-Choy's counsel and handed the Traders Royal Bank check to the counsel who undertook to pay the capital gains tax. It was then also that Chua showed to Valdes-Choy a PBCom manager's check for P10,215,000.00 representing the balance of the purchase price. Chua, however, did not give this PBCom manager's check to Valdes-Choy because the TCT was still registered in the name of Valdes-Choy. Chua required that the Property be registered first in his name before he would turn over the check to Valdes-Choy. This angered Valdes-Choy who tore up the Deeds of Sale, claiming that what Chua required was not part of their agreement.14

On the same day, 14 July 1989, Chua confirmed his stop payment order by submitting to PBCom an affidavit of loss15 of the PBCom Manager's Check for P480,000.00. PBCom Assistant Vice-President Pe, however, testified that the manager's check was nevertheless honored because Chua subsequently verbally advised the bank that he was lifting the stop-payment order due to his "special arrangement" with the bank.16

On 15 July 1989, the deadline for the payment of the balance of the purchase price, Valdes-Choy suggested to her counsel that to break the impasse Chua should deposit in escrow the P10,215,000.00 balance.17 Upon such deposit, Valdes-Choy was willing to cause the issuance of a new TCT in the name of Chua even without receiving the balance of the purchase price. Valdes-Choy believed this was the only way she could protect herself if the certificate of title is transferred in the name of the buyer before she is fully paid. Valdes-Choy's counsel promised to relay her suggestion to Chua and his counsel, but nothing came out of it.

On 17 July 1989, Chua filed a complaint for specific performance against Valdes-Choy which the trial court dismissed on 22 November 1989. On 29 November 1989, Chua re-filed his complaint for specific performance with damages. After trial in due course, the trial court rendered judgment in favor of Chua, the dispositive portion of which reads:

Applying the provisions of Article 1191 of the new Civil Code, since this is an action for specific performance where the plaintiff, as vendee, wants to pursue the sale, and in order that the fears of the defendant may be allayed and still have the sale materialize, judgment is hereby rendered:

I. 1. Ordering the defendant to deliver to the Court not later than five (5) days from finality of this decision:

a. the owner's duplicate copy of TCT No. 162955 registered in her name;

b. the covering tax declaration and the latest tax receipt evidencing payment of real estate taxes;

c. the two deeds of sale prepared by Atty. Mark Bocobo on July 13, 1989, duly executed by defendant in favor of the plaintiff, whether notarized or not; and

2. Within five (5) days from compliance by the defendant of the above, ordering the plaintiff to deliver to the Branch Clerk of Court of this Court the sum of P10,295,000.00 representing the balance of the consideration (with the sum of P80,000.00 for stamps already included);

3. Ordering the Branch Clerk of this Court or her duly authorized representative:

a. to make representations with the BIR for the payment of capital gains tax for the sale of the house and lot (not to include the fixtures) and to pay the same from the funds deposited with her;

b. to present the deed of sale executed in favor of the plaintiff, together with the owner's duplicate copy of TCT No. 162955, real estate tax receipt and proof of payment of capital gains tax, to the Makati Register of Deeds;

c. to pay the required registration fees and stamps (if not yet advanced by the defendant) and if needed update the real estate taxes all to be taken from the funds deposited with her; and

d. surrender to the plaintiff the new Torrens title over the property;

4. Should the defendant fail or refuse to surrender the two deeds of sale over the property and the fixtures that were prepared by Atty. Mark Bocobo and executed by the parties, the Branch Clerk of Court of this Court is hereby authorized and empowered to prepare, sign and execute the said deeds of sale for and in behalf of the defendant;

5. Ordering the defendant to pay to the plaintiff;

a. the sum of P100,000.00 representing moral and compensatory damages for the plaintiff; and

b. the sum of P50,000.00 as reimbursement for plaintiff's attorney's fees and cost of litigation.

6. Authorizing the Branch Clerk of Court of this Court to release to the plaintiff, to be taken from the funds said plaintiff has deposited with the Court, the amounts covered at paragraph 5 above;

7. Ordering the release of the P10,295,000.00 to the defendant after deducting therefrom the following amounts:

a. the capital gains tax paid to the BIR;

b. the expenses incurred in the registration of the sale, updating of real estate taxes, and transfer of title; and

c. the amounts paid under this judgment to the plaintiff.

8. Ordering the defendant to surrender to the plaintiff or his representatives the premises with the furnishings intact within seventy-two (72) hours from receipt of the proceeds of the sale;

9. No interest is imposed on the payment to be made by the plaintiff because he had always been ready to pay the balance and the premises had been used or occupied by the defendant for the duration of this case.

II. In the event that specific performance cannot be done for reasons or causes not attributable to the plaintiff, judgment is hereby rendered ordering the defendant:

1. To refund to the plaintiff the earnest money in the sum of P100,000.00, with interest at the legal rate from June 30, 1989 until fully paid;

2. To refund to the plaintiff the sum of P485,000.00 with interest at the legal rate from July 14, 1989 until fully paid;

3. To pay to the plaintiff the sum of P700,000.00 in the concept of moral damages and the additional sum of P300,000.00 in the concept of exemplary damages; and

4. To pay to the plaintiff the sum of P100,000.00 as reimbursement of attorney's fees and cost of litigation.

SO ORDERED.18

Valdes-Choy appealed to the Court of Appeals which reversed the decision of the trial court. The Court of Appeals handed down a new judgment, disposing as follows:

WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE, and another one is rendered:

(1) Dismissing Civil Case No. 89-5772;

(2) Declaring the amount of P100,000.00, representing earnest money as forfeited in favor of defendant-appellant;

(3) Ordering defendant-appellant to return/refund the amount of P485,000.00 to plaintiff-appellee without interest;

(4) Dismissing defendant-appellant's compulsory counter-claim; and

(5) Ordering the plaintiff-appellee to pay the costs.19

Hence, the instant petition.

The Trial Court's Ruling

The trial court found that the transaction reached an impasse when Valdes-Choy wanted to be first paid the full consideration before a new TCT covering the Property is issued in the name of Chua. On the other hand, Chua did not want to pay the consideration in full unless a new TCT is first issued in his name. The trial court faulted Valdes-Choy for this impasse.

The trial court held that the parties entered into a contract to sell on 30 June 1989, as evidenced by the Receipt for the P100,000.00 earnest money. The trial court pointed out that the contract to sell was subject to the following conditions: (1) the balance of P10,700,000.00 was payable not later than 15 July 1989; (2) Valdes-Choy may stay in the Property until 13 August 1989; and (3) all papers must be "in proper order" before full payment is made.

The trial court held that Chua complied with the terms of the contract to sell. Chua showed that he was prepared to pay Valdes-Choy the consideration in full on 13 July 1989, two days before the deadline of 15 July 1989. Chua even added P80,000.00 for the documentary stamp tax. He purchased from PBCom two manager's checks both payable to Valdes-Choy. The first check for P485,000.00 was to pay the capital gains tax. The second check for P10,215,000.00 was to pay the balance of the purchase price. The trial court was convinced that Chua demonstrated his capacity and readiness to pay the balance on 13 July 1989 with the production of the PBCom manager's check for P10,215,000.00.

On the other hand, the trial court found that Valdes-Choy did not perform her correlative obligation under the contract to sell to put all the papers in order. The trial court noted that as of 14 July 1989, the capital gains tax had not been paid because Valdes-Choy's counsel who was suppose to pay the tax did not do so. The trial court declared that Valdes-Choy was in a position to deliver only the owner's duplicate copy of the TCT, the signed Deeds of Sale, the tax declarations, and the latest realty tax receipt. The trial court concluded that these documents were all useless without the Bureau of Internal Revenue receipt evidencing full payment of the capital gains tax which is a pre-requisite to the issuance of a new certificate of title in Chua's name.

The trial court held that Chua's non-payment of the balance of P10,215,000.00 on the agreed date was due to Valdes-Choy's fault.

The Court of Appeals' Ruling

In reversing the trial court, the Court of Appeals ruled that Chua's stance to pay the full consideration only after the Property is registered in his name was not the agreement of the parties. The Court of Appeals noted that there is a whale of difference between the phrases "all papers are in proper order" as written on the Receipt, and "transfer of title" as demanded by Chua.

Contrary to the findings of the trial court, the Court of Appeals found that all the papers were in order and that Chua had no valid reason not to pay on the agreed date. Valdes-Choy was in a position to deliver the owner's duplicate copy of the TCT, the signed Deeds of Sale, the tax declarations, and the latest realty tax receipt. The Property was also free from all liens and encumbrances.

The Court of Appeals declared that the trial court erred in considering Chua's showing to Valdes-Choy of the PBCom manager's check for P10,215,000.00 as compliance with Chua's obligation to pay on or before 15 July 1989. The Court of Appeals pointed out that Chua did not want to give up the check unless "the property was already in his name."20 Although Chua demonstrated his capacity to pay, this could not be equated with actual payment which he refused to do.

The Court of Appeals did not consider the non-payment of the capital gains tax as failure by Valdes-Choy to put the papers "in proper order." The Court of Appeals explained that the payment of the capital gains tax has no bearing on the validity of the Deeds of Sale. It is only after the deeds are signed and notarized can the final computation and payment of the capital gains tax be made.

The Issues

In his Memorandum, Chua raises the following issues:

1. WHETHER THERE IS A PERFECTED CONTRACT OF SALE OF IMMOVABLE PROPERTY;

2. WHETHER VALDES-CHOY MAY RESCIND THE CONTRACT IN CONTROVERSY WITHOUT OBSERVING THE PROVISIONS OF ARTICLE 1592 OF THE NEW CIVIL CODE;

3. WHETHER THE WITHHOLDING OF PAYMENT OF THE BALANCE OF THE PURCHASE PRICE ON THE PART OF CHUA (AS VENDEE) WAS JUSTIFIED BY THE CIRCUMSTANCES OBTAINING AND MAY NOT BE RAISED AS GROUND FOR THE AUTOMATIC RESCISSION OF THE CONTRACT OF SALE;

4. WHETHER THERE IS LEGAL AND FACTUAL BASIS FOR THE COURT OF APPEALS TO DECLARE THE "EARNEST MONEY" IN THE AMOUNT OF P100,000.00 AS FORFEITED IN FAVOR OF VALDES-CHOY;

5. WHETHER THE TRIAL COURT'S JUDGMENT IS IN ACCORD WITH LAW, REASON AND EQUITY DESERVING OF BEING REINSTATED AND AFFIRMED.21

The issues for our resolution are: (a) whether the transaction between Chua and Valdes-Choy is a perfected contract of sale or a mere contract to sell, and (b) whether Chua can compel Valdes-Choy to cause the issuance of a new TCT in Chua's name even before payment of the full purchase price.

The Court's Ruling

The petition is bereft of merit.

There is no dispute that Valdes-Choy is the absolute owner of the Property which is registered in her name under TCT No.162955, free from all liens and encumbrances. She was ready, able and willing to deliver to Chua the owner's duplicate copy of the TCT, the signed Deeds of Sale, the tax declarations, and the latest realty tax receipt. There is also no dispute that on 13 July 1989, Valdes-Choy received PBCom Check No. 206011 for P100,000.00 as earnest money from Chua. Likewise, there is no controversy that the Receipt for the P100,000.00 earnest money embodied the terms of the binding contract between Valdes-Choy and Chua.

Further, there is no controversy that as embodied in the Receipt, Valdes-Choy and Chua agreed on the following terms: (1) the balance of P10,215,000.00 is payable on or before 15 July 1989; (2) the capital gains tax is for the account of Valdes-Choy; and (3) if Chua fails to pay the balance of P10,215,000.00 on or before 15 July 1989, Valdes-Choy has the right to forfeit the earnest money, provided that "all papers are in proper order." On 13 July 1989, Chua gave Valdes-Choy the PBCom manager's check for P485,000.00 to pay the capital gains tax.

Both the trial and appellate courts found that the balance of P10,215,000.00 was not actually paid to Valdes-Choy on the agreed date. On 13 July 1989, Chua did show to Valdes-Choy the PBCom manager's check for P10,215,000.00, with Valdes-Choy as payee. However, Chua refused to give this check to Valdes-Choy until a new TCT covering the Property is registered in Chua's name. Or, as the trial court put it, until there is proof of payment of the capital gains tax which is a pre-requisite to the issuance of a new certificate of title.

First and Second Issues: Contract of Sale or Contract to Sell?

Chua has consistently characterized his agreement with Valdez-Choy, as evidenced by the Receipt, as a contract to sell and not a contract of sale. This has been Chua's persistent contention in his pleadings before the trial and appellate courts.

Chua now pleads for the first time that there is a perfected contract of sale rather than a contract to sell. He contends that there was no reservation in the contract of sale that Valdes-Choy shall retain title to the Property until after the sale. There was no agreement for an automatic rescission of the contract in case of Chua's default. He argues for the first time that his payment of earnest money and its acceptance by Valdes-Choy precludes the latter from rejecting the binding effect of the contract of sale. Thus, Chua claims that Valdes-Choy may not validly rescind the contract of sale without following Article 159222 of the Civil Code which requires demand, either judicially or by notarial act, before rescission may take place.

Chua's new theory is not well taken in light of well-settled jurisprudence. An issue not raised in the court below cannot be raised for the first time on appeal, as this is offensive to the basic rules of fair play, justice and due process.23 In addition, when a party deliberately adopts a certain theory, and the case is tried and decided on that theory in the court below, the party will not be permitted to change his theory on appeal. To permit him to change his theory will be unfair to the adverse party.24

Nevertheless, in order to put to rest all doubts on the matter, we hold that the agreement between Chua and Valdes-Choy, as evidenced by the Receipt, is a contract to sell and not a contract of sale. The distinction between a contract of sale and contract to sell is well-settled:

In a contract of sale, the title to the property passes to the vendee upon the delivery of the thing sold; in a contract to sell, ownership is, by agreement, reserved in the vendor and is not to pass to the vendee until full payment of the purchase price. Otherwise stated, in a contract of sale, the vendor loses ownership over the property and cannot recover it until and unless the contract is resolved or rescinded; whereas, in a contract to sell, title is retained by the vendor until full payment of the price. In the latter contract, payment of the price is a positive suspensive condition, failure of which is not a breach but an event that prevents the obligation of the vendor to convey title from becoming effective.25

A perusal of the Receipt shows that the true agreement between the parties was a contract to sell. Ownership over the Property was retained by Valdes-Choy and was not to pass to Chua until full payment of the purchase price.

First, the Receipt provides that the earnest money shall be forfeited in case the buyer fails to pay the balance of the purchase price on or before 15 July 1989. In such event, Valdes-Choy can sell the Property to other interested parties. There is in effect a right reserved in favor of Valdes-Choy not to push through with the sale upon Chua's failure to remit the balance of the purchase price before the deadline. This is in the nature of a stipulation reserving ownership in the seller until full payment of the purchase price. This is also similar to giving the seller the right to rescind unilaterally the contract the moment the buyer fails to pay within a fixed period.26

Second, the agreement between Chua and Valdes-Choy was embodied in a receipt rather than in a deed of sale, ownership not having passed between them. The signing of the Deeds of Sale came later when Valdes-Choy was under the impression that Chua was about to pay the balance of the purchase price. The absence of a formal deed of conveyance is a strong indication that the parties did not intend immediate transfer of ownership, but only a transfer after full payment of the purchase price.27

Third, Valdes-Choy retained possession of the certificate of title and all other documents relative to the sale. When Chua refused to pay Valdes-Choy the balance of the purchase price, Valdes-Choy also refused to turn-over to Chua these documents.28 These are additional proof that the agreement did not transfer to Chua, either by actual or constructive delivery, ownership of the Property.29

It is true that Article 1482 of the Civil Code provides that "[W]henever earnest money is given in a contract of sale, it shall be considered as part of the price and proof of the perfection of the contract." However, this article speaks of earnest money given in a contract of sale. In this case, the earnest money was given in a contract to sell. The Receipt evidencing the contract to sell stipulates that the earnest money is a forfeitable deposit, to be forfeited if the sale is not consummated should Chua fail to pay the balance of the purchase price. The earnest money forms part of the consideration only if the sale is consummated upon full payment of the purchase price. If there is a contract of sale, Valdes-Choy should have the right to compel Chua to pay the balance of the purchase price. Chua, however, has the right to walk away from the transaction, with no obligation to pay the balance, although he will forfeit the earnest money. Clearly, there is no contract of sale. The earnest money was given in a contract to sell, and thus Article 1482, which speaks of a contract of sale, is not applicable.

Since the agreement between Valdes-Choy and Chua is a mere contract to sell, the full payment of the purchase price partakes of a suspensive condition. The non-fulfillment of the condition prevents the obligation to sell from arising and ownership is retained by the seller without further remedies by the buyer.30 Article 1592 of the Civil Code permits the buyer to pay, even after the expiration of the period, as long as no demand for rescission of the contract has been made upon him either judicially or by notarial act. However, Article 1592 does not apply to a contract to sell where the seller reserves the ownership until full payment of the price.31

Third and Fourth Issues: Withholding of Payment of the Balance of the Purchase Price and Forfeiture of the Earnest Money

Chua insists that he was ready to pay the balance of the purchase price but withheld payment because Valdes-Choy did not fulfill her contractual obligation to put all the papers in "proper order." Specifically, Chua claims that Valdes-Choy failed to show that the capital gains tax had been paid after he had advanced the money for its payment. For the same reason, he contends that Valdes-Choy may not forfeit the earnest money even if he did not pay on time.

There is a variance of interpretation on the phrase "all papers are in proper order" as written in the Receipt. There is no dispute though, that as long as the papers are "in proper order," Valdes-Choy has the right to forfeit the earnest money if Chua fails to pay the balance before the deadline.

The trial court interpreted the phrase to include payment of the capital gains tax, with the Bureau of Internal Revenue receipt as proof of payment. The Court of Appeals held otherwise. We quote verbatim the ruling of the Court of Appeals on this matter:

The trial court made much fuss in connection with the payment of the capital gains tax, of which Section 33 of the National Internal Revenue Code of 1977, is the governing provision insofar as its computation is concerned. The trial court failed to consider Section 34-(a) of the said Code, the last sentence of which provides, that "[t]he amount realized from the sale or other disposition of property shall be the sum of money received plus the fair market value of the property (other than money) received;" and that the computation of the capital gains tax can only be finally assessed by the Commission on Internal Revenue upon the presentation of the Deeds of Absolute Sale themselves, without which any premature computation of the capital gains tax becomes of no moment. At any rate, the computation and payment of the capital gains tax has no bearing insofar as the validity and effectiveness of the deeds of sale in question are concerned, because it is only after the contracts of sale are finally executed in due form and have been duly notarized that the final computation of the capital gains tax can follow as a matter of course. Indeed, exhibit D, the PBC Check No. 325851, dated July 13, 1989, in the amount of P485,000.00, which is considered as part of the consideration of the sale, was deposited in the name of appellant, from which she in turn, purchased the corresponding check in the amount representing the sum to be paid for capital gains tax and drawn in the name of the Commissioner of Internal Revenue, which then allayed any fear or doubt that that amount would not be paid to the Government after all.32

We see no reason to disturb the ruling of the Court of Appeals.

In a contract to sell, the obligation of the seller to sell becomes demandable only upon the happening of the suspensive condition. In this case, the suspensive condition is the full payment of the purchase price by Chua. Such full payment gives rise to Chua's right to demand the execution of the contract of sale.

It is only upon the existence of the contract of sale that the seller becomes obligated to transfer the ownership of the thing sold to the buyer. Article 1458 of the Civil Code defines a contract of sale as follows:

Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownershipof and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent.

x x x. (Emphasis supplied)

Prior to the existence of the contract of sale, the seller is not obligated to transfer ownership to the buyer, even if there is a contract to sell between them. It is also upon the existence of the contract of sale that the buyer is obligated to pay the purchase price to the seller. Since the transfer of ownership is in exchange for the purchase price, these obligations must be simultaneously fulfilled at the time of the execution of the contract of sale, in the absence of a contrary stipulation.

In a contract of sale, the obligations of the seller are specified in Article 1495 of the Civil Code, as follows:

Art. 1495. The vendor is bound to transfer the ownership of and deliver, as well as warrant the thing which is the object of the sale. (Emphasis supplied)

The obligation of the seller is to transfer to the buyer ownership of the thing sold. In the sale of real property, the seller is not obligated to transfer in the name of the buyer a new certificate of title, but rather to transfer ownership of the real property. There is a difference between transfer of the certificate of title in the name of the buyer, and transfer of ownership to the buyer. The buyer may become the owner of the real property even if the certificate of title is still registered in the name of the seller. As between the seller and buyer, ownership is transferred not by the issuance of a new certificate of title in the name of the buyer but by the execution of the instrument of sale in a public document.

In a contract of sale, ownership is transferred upon delivery of the thing sold. As the noted civil law commentator Arturo M. Tolentino explains it, -

Delivery is not only a necessary condition for the enjoyment of the thing, but is a mode of acquiring dominion and determines the transmission of ownership, the birth of the real right. The delivery, therefore, made in any of the forms provided in articles 1497 to 1505 signifies that the transmission of ownership from vendor to vendee has taken place. The delivery of the thing constitutes an indispensable requisite for the purpose of acquiring ownership. Our law does not admit the doctrine of transfer of property by mere consent; the ownership, the property right, is derived only from delivery of the thing. x x x.33 (Emphasis supplied)

In a contract of sale of real property, delivery is effected when the instrument of sale is executed in a public document. When the deed of absolute sale is signed by the parties and notarized, then delivery of the real property is deemed made by the seller to the buyer. Article 1498 of the Civil Code provides that –

Art. 1498. When the sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary does not appear or cannot clearly be inferred.

x x x.

Similarly, in a contract to sell real property, once the seller is ready, able and willing to sign the deed of absolute sale before a notary public, the seller is in a position to transfer ownership of the real property to the buyer. At this point, the seller complies with his undertaking to sell the real property in accordance with the contract to sell, and to assume all the obligations of a vendor under a contract of sale pursuant to the relevant articles of the Civil Code. In a contract to sell, the seller is not obligated to transfer ownership to the buyer. Neither is the seller obligated to cause the issuance of a new certificate of title in the name of the buyer. However, the seller must put all his papers in proper order to the point that he is in a position to transfer ownership of the real property to the buyer upon the signing of the contract of sale.

In the instant case, Valdes-Choy was in a position to comply with all her obligations as a seller under the contract to sell. First, she already signed the Deeds of Sale in the office of her counsel in the presence of the buyer. Second, she was prepared to turn-over the owner's duplicate of the TCT to the buyer, along with the tax declarations and latest realty tax receipt. Clearly, at this point Valdes-Choy was ready, able and willing to transfer ownership of the Property to the buyer as required by the contract to sell, and by Articles 1458 and 1495 of the Civil Code to consummate the contract of sale.

Chua, however, refused to give to Valdes-Choy the PBCom manager's check for the balance of the purchase price. Chua imposed the condition that a new TCT should first be issued in his name, a condition that is found neither in the law nor in the contract to sell as evidenced by the Receipt. Thus, at this point Chua was not ready, able and willing to pay the full purchase price which is his obligation under the contract to sell. Chua was also not in a position to assume the principal obligation of a vendee in a contract of sale, which is also to pay the full purchase price at the agreed time. Article 1582 of the Civil Code provides that –

Art. 1582. The vendee is bound to accept delivery and to pay the price of the thing sold at the time and place stipulated in the contract.

x x x. (Emphasis supplied)

In this case, the contract to sell stipulated that Chua should pay the balance of the purchase price "on or before 15 July 1989." The signed Deeds of Sale also stipulated that the buyer shall pay the balance of the purchase price upon signing of the deeds. Thus, the Deeds of Sale, both signed by Chua, state as follows:

Deed of Absolute Sale covering the lot:

x x x

For and in consideration of the sum of EIGHT MILLION PESOS (P8,000,000.00), Philippine Currency,receipt of which in full is hereby acknowledged by the VENDOR from the VENDEE, the VENDOR sells, transfers and conveys unto the VENDEE, his heirs, successors and assigns, the said parcel of land, together with the improvements existing thereon, free from all liens and encumbrances.34 (Emphasis supplied)

Deed of Absolute Sale covering the furnishings:

x x x

For and in consideration of the sum of TWO MILLION EIGHT HUNDRED THOUSAND PESOS (P2,800,000.00), Philippine Currency, receipt of which in full is hereby acknowledged by the VENDOR from the VENDEE, the VENDOR sells, transfers and conveys

unto the VENDEE, his heirs, successors and assigns, the said furnitures, fixtures and other movable properties thereon, free from all liens and encumbrances.35 (Emphasis supplied)

However, on the agreed date, Chua refused to pay the balance of the purchase price as required by the contract to sell, the signed Deeds of Sale, and Article 1582 of the Civil Code. Chua was therefore in default and has only himself to blame for the rescission by Valdes-Choy of the contract to sell.

Even if measured under existing usage or custom, Valdes-Choy had all her papers "in proper order." Article 1376 of the Civil Code provides that:

Art. 1376. The usage or custom of the place shall be borne in mind in the interpretation of the ambiguities of a contract, and shall fill the omission of stipulations which are ordinarily established.

Customarily, in the absence of a contrary agreement, the submission by an individual seller to the buyer of the following papers would complete a sale of real estate: (1) owner's duplicate copy of the Torrens title;36 (2) signed deed of absolute sale; (3) tax declaration; and (3) latest realty tax receipt. The buyer can retain the amount for the capital gains tax and pay it upon authority of the seller, or the seller can pay the tax, depending on the agreement of the parties.

The buyer has more interest in having the capital gains tax paid immediately since this is a pre-requisite to the issuance of a new Torrens title in his name. Nevertheless, as far as the government is concerned, the capital gains tax remains a liability of the seller since it is a tax on the seller's gain from the sale of the real estate.Payment of the capital gains tax, however, is not a pre-requisite to the transfer of ownership to the buyer. The transfer of ownership takes effect upon the signing and notarization of the deed of absolute sale.

The recording of the sale with the proper Registry of Deeds37 and the transfer of the certificate of title in the name of the buyer are necessary only to bind third parties to the transfer of ownership.38 As between the seller and the buyer, the transfer of ownership takes effect upon the execution of a public instrument conveying the real estate.39 Registration of the sale with the Registry of Deeds, or the issuance of a new certificate of title, does not confer ownership on the buyer. Such registration or issuance of a new certificate of title is not one of the modes of acquiring ownership.40

In this case, Valdes-Choy was ready, able and willing to submit to Chua all the papers that customarily would complete the sale, and to pay as well the capital gains tax. On the other hand, Chua's condition that a new TCT be first issued in his name before he pays the balance of P10,215,000.00, representing 94.58% of the purchase price, is not customary in a sale of real estate. Such a condition, not specified in the contract to sell as evidenced by the Receipt, cannot be considered part of the "omissions of stipulations which are ordinarily established" by usage or custom.41 What is increasingly becoming customary is to deposit in escrow the balance of the purchase price pending the issuance of a new certificate of title in the name of the buyer. Valdes-Choy suggested this solution but unfortunately, it drew no response from Chua.

Chua had no reason to fear being swindled. Valdes-Choy was prepared to turn-over to him the owner's duplicate copy of the TCT, the signed Deeds of Sale, the tax declarations, and the latest realty tax receipt. There was no hindrance to paying the capital gains tax as Chua himself had advanced the money to pay the same and Valdes-Choy had procured a manager's check payable to the Bureau of Internal Revenue covering the amount. It was only a matter of time before the capital gains tax would be paid. Chua acted precipitately in filing the action for specific performance a mere two days after the deadline of 15 July 1989 when there was an impasse. While this case was dismissed on 22 November 1989, he did not waste any time in re-filing the same on 29 November 1989.

Accordingly, since Chua refused to pay the consideration in full on the agreed date, which is a suspensive condition, Chua cannot compel Valdes-Choy to consummate the sale of the Property. Article 1181 of the Civil Code provides that -

ART. 1181. In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired shall depend upon the happening of the event which constitutes the condition.

Chua acquired no right to compel Valdes-Choy to transfer ownership of the Property to him because the suspensive condition - the full payment of the purchase price - did not happen. There is no correlative obligation on the part of Valdes-Choy to transfer ownership of the Property to Chua. There is also no obligation on the part of Valdes-Choy to cause the issuance of a new TCT in the name of Chua since unless expressly stipulated, this is not one of the obligations of a vendor.

WHEREFORE, the Decision of the Court of Appeals in CA-G.R. CV No. 37652 dated 23 February 1995 is AFFIRMED in toto.

G.R. No. 148411 November 29, 2005

MARTHA R. HORRIGAN, Petitioner, vs. TROIKA COMMERCIAL, INC., Respondent.

D E C I S I O N

SANDOVAL-GUTIERREZ, J.:

Before us is a petition for review on certiorari seeking to reverse the Decision1 of the Court of Appeals dated May

31, 2001 in CA-G.R. CV No. 50330.

The facts of this case are not in dispute.

Troika Commercial, Inc., (Troika), herein respondent, is the lessee of the entire ground floor of a two-story building located at 53-A Annapolis St., San Juan, Metro Manila. Respondent then sub-let a portion of the ground floor to Martha Horrigan, petitioner, to be used for her restaurant Tia Maria. The contract of sub-lease dated April 20, 1983 between the parties was prepared by Martha’s husband. It provides, among others, the following stipulations:

"2. In consideration thereof, Martha R. Horrigan undertakes, promises and guarantees payment to Troika of the following:

2.1. P12,500 monthly starting March 15, 1983 and every month thereafter until December 31, 1989 payable every ___day of the month.

2.2. In addition to the above (sub-par 2.1), P4,500 monthly starting August 1, 1983 and every month thereafter for seven (7) years until December 31, 1989 plus a guaranteed yearly increase equivalent to 10% thereof."

The instant case stemmed from the parties’ different interpretations of the phrase "a guaranteed yearly increase equivalent to 10% thereof" in relation to sub-paragraphs 2.1 and 2.2 of their agreement.

Respondent construed the 10% guaranteed yearly increase to apply to both the original monthly rental ofP12,500.00 under sub-paragraph 2.1 and the P4,500.00 additional rental under sub-paragraph 2.2. For her part, petitioner claimed that the 10% "guaranteed yearly increase" is applicable only to the additional P4,500.00 rental contained in sub-paragraph 2.2 of the sub-lease contract.

Respondent sent petitioner letters, together with its billing statements, explaining the application of the 10% yearly increase of rental rates. But petitioner ignored them. On May 3, 1991, respondent sent petitioner a final demand letter asking her to pay P318,489.00 corresponding to the unpaid rental adjustments.

When petitioner refused to pay, respondent filed with the Regional Trial Court, Branch 148, Makati City, a complaint for sum of money, docketed as Civil Case No. 91-2410.

In her answer, petitioner averred that the 10% yearly guaranteed increase applies only to her additional rental ofP4,500.00 starting August 1, 1983 and that she has been paying the corresponding amounts since 1984. She admitted that from June 1984, she has been giving respondent "P1,200.00 monthly ex-gratis" in appreciation of its efforts to improve her business. She denied, however, that these sums are rental adjustments. She also claimed that even assuming that she still owed respondent, under sub-paragraph 2.2, the amount due is onlyP58,485.50.

She stopped paying the yearly increase since August 1986 because of respondent’s demand that she should also pay the yearly increase equivalent to 10% of the original P12,500.00 monthly rental.

On May 18, 1995, the trial court rendered its Decision in favor of respondent. It ordered petitioner to pay respondent her unpaid rental adjustments in the sum of P318,489.00 with interest at 12% per annum from September 2, 1991 until the obligation is fully paid.

On appeal, the Court of Appeals, in its assailed Decision, affirmed the trial court’s judgment in toto.

Hence, the instant petition for review on certiorari.

The sole issue for our resolution is whether the Court of Appeals erred in ruling that the 10% guaranteed yearly increase of rental rates applies to both the original monthly rental of P12,500.00 and the additional monthly rental of P4,500.00.

Article 1377 of the Civil Code provides:

"ART. 1377. The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity."

In a long line of cases,2 we have consistently held that the party who draws up the contract, in which obscure

words or phrases appear, bears the responsibility for causing the ambiguity or obscurity, and hence, these must be construed against him. In this case, it was petitioner’s spouse who prepared the sub-lease contract in question. Consequently, the ambiguity must be construed against herein petitioner as she is presumed to have confirmed the same.

There is also no question that the 10% guaranteed yearly increase of rents provided for in sub-paragraph 2.2 of the sub-lease agreement is for the benefit of respondent herein, being the sub-lessor of the premises. As such, any doubt in its interpretation must be interpreted in its favor. This is in line with Section 17, Rule 130 of the Revised Rules of Court which states:

"SEC. 17. Of two constructions, which preferred. – When the terms of an agreement have been intended in a different sense by the different parties to it, that sense is to prevail against either party in which he supposed the other understood it, and when different constructions of a provision are otherwise equally proper, that is to be taken which is the most favorable to the party in whose favor the provision was made (stress supplied)."

WHEREFORE, the petition is DENIED. The challenged Decision of the Court of Appeals in CA-G.R. CV No. 50330 is AFFIRMED IN TOTO. Costs against the petitioner.