12 International Hotel Corp. v. Joaquin, JR PDF
12 International Hotel Corp. v. Joaquin, JR PDF
DECISION
BERSAMIN, J : p
The Case
Under review is the decision the Court of Appeals (CA) promulgated on November 8,
2002, 1 disposing:
SO ORDERED.
Antecedents
The IHC Board of Directors approved phase one to phase six of the proposal during
the special board meeting on February 11, 1969, and earmarked P2,000,000.00 for the
project. 5 Anent the financing, IHC applied with DBP for a foreign loan guaranty. DBP
processed the application, 6 and approved it on October 24, 1969 subject to several
conditions. 7
On July 11, 1969, shortly after submitting the application to DBP, Joaquin wrote to
IHC to request the payment of his fees in the amount of P500,000.00 for the services that
he had provided and would be providing to IHC in relation to the hotel project that were
outside the scope of the technical proposal. Joaquin intimated his amenability to receive
shares of stock instead of cash in view of IHC's financial situation. 8
On July 11, 1969, the stockholders of IHC met and granted Joaquin's request,
allowing the payment for both Joaquin and Rafael Suarez for their services in implementing
the proposal. 9
On June 20, 1970, Joaquin presented to the IHC Board of Directors the results of his
negotiations with potential foreign financiers. He narrowed the financiers to Roger Dunn &
Company and Materials Handling Corporation. He recommended that the Board of Directors
consider Materials Handling Corporation based on the more beneficial terms it had offered.
His recommendation was accepted. 10
Negotiations with Materials Handling Corporation and, later on, with its principal,
Barnes International (Barnes), ensued. While the negotiations with Barnes were ongoing,
Joaquin and Jose Valero, the Executive Director of IHC, met with another financier, the
Weston International Corporation (Weston), to explore possible financing. 11 When Barnes
failed to deliver the needed loan, IHC informed DBP that it would submit Weston for DBP's
consideration. 12 As a result, DBP cancelled its previous guaranty through a letter dated
December 6, 1971. 13
On December 13, 1971, IHC entered into an agreement with Weston, and
communicated this development to DBP on June 26, 1972. However, DBP denied the
application for guaranty for failure to comply with the conditions contained in its November
12, 1971 letter. 14
Due to Joaquin's failure to secure the needed loan, IHC, through its President
Bautista, canceled the 17,000 shares of stock previously issued to Joaquin and Suarez as
payment for their services. The latter requested a reconsideration of the cancellation, but
their request was rejected.
Consequently, Joaquin and Suarez commenced this action for specific performance,
annulment, damages and injunction by a complaint dated December 6, 1973 in the Regional
Trial Court in Manila (RTC), impleading IHC and the members of its Board of Directors,
namely, Felix Angelo Bautista, Sergio O. Rustia, Ephraim G. Gochangco, Mario B. Julian,
Benjamin J. Bautista, Basilio L. Lirag, Danilo R. Lacerna and Hermenegildo R. Reyes. 15
The complaint alleged that the cancellation of the shares had been illegal, and had deprived
them of their right to participate in the meetings and elections held by IHC; that Barnes had
been recommended by IHC President Bautista, not by Joaquin; that they had failed to meet
their obligation because President Bautista and his son had intervened and negotiated with
Barnes instead of Weston; that DBP had canceled the guaranty because Barnes had failed
to release the loan; and that IHC had agreed to compensate their services with 17,000
shares of the common stock plus cash of P1,000,000.00. 16
IHC, together with Felix Angelo Bautista, Sergio O. Rustia, Mario B. Julian and
Benjamin J. Bautista, filed an answer claiming that the shares issued to Joaquin and
Suarez as compensation for their "past and future services" had been issued in violation of
Section 16 of the Corporation Code; that Joaquin and Suarez had not provided a foreign
financier acceptable to DBP; and that they had already received P96,350.00 as payment for
their services. 17
On their part, Lirag and Lacerna denied any knowledge of or participation in the
cancellation of the shares. 18
Under its decision rendered on August 26, 1993, the RTC held IHC liable pursuant to
the second paragraph of Article 1284 of the Civil Code, disposing thusly:
WHEREFORE, in the light of the above facts, law and jurisprudence, the
Court hereby orders the defendant International Hotel Corporation to pay plaintiff
Francisco B. Joaquin, the amount of Two Hundred Thousand Pesos
(P200,000.00) and to pay plaintiff Rafael Suarez the amount of Fifty Thousand
Pesos (P50,000.00); that the said defendant IHC likewise pay the co-plaintiffs,
attorney's fees of P20,000.00, and costs of suit.
IT IS SO ORDERED. 21
The RTC found that Joaquin and Suarez had failed to meet their obligations when
IHC had chosen to negotiate with Barnes rather than with Weston, the financier that
Joaquin had recommended; and that the cancellation of the shares of stock had been
proper under Section 68 of the Corporation Code, which allowed such transfer of shares to
compensate only past services, not future ones.
Ruling of the CA
[I.]
[II.]
Anent how much was due to Joaquin and Suarez, the CA explained thusly:
The amount awarded by the lower court was therefore less than what
defendant-appellant IHC agreed to pay plaintiffs-appellants. While this Court
cannot decree that the cancelled shares be restored, for they are without a doubt
null and void, still and all, defendant-appellant IHC cannot now put up its own
ultra vires act as an excuse to escape obligation to plaintiffs-appellants. Instead of
shares of stock, defendant-appellant IHC is ordered to pay plaintiff-appellant
Joaquin a total of P700,000.00 and plaintiff-appellant Suarez P200,000.00, both
to be paid in cash.
Although the lower court failed to explain why it was granting the attorney's
fees, this Court nonetheless finds its award proper given defendant-appellant
IHC's actions. 25
Issues
In this appeal, the IHC raises as issues for our consideration and resolution the
following:
II
IHC maintains that Article 1186 of the Civil Code was erroneously applied; that it had
no intention of preventing Joaquin from complying with his obligations when it adopted his
recommendation to negotiate with Barnes; that Article 1234 of the Civil Code applied only if
there was a merely slight deviation from the obligation, and the omission or defect was
technical and unimportant; that substantial compliance was unacceptable because the
foreign loan was material and was, in fact, the ultimate goal of its contract with Joaquin and
Suarez; that because the obligation was indivisible and subject to a suspensive condition,
Article 1181 of the Civil Code 27 applied, under which a partial performance was equivalent
to non-performance; and that the award of attorney's fees should be deleted for lack of legal
and factual bases.
On the part of respondents, only Joaquin filed a comment, 28 arguing that the petition
was fatally defective for raising questions of fact; that the obligation was divisible and
capable of partial performance; and that the suspensive condition was deemed fulfilled
through IHC's own actions. 29
Ruling
We deny the petition for review on certiorari subject to the ensuing disquisitions.
1.
IHC raises questions of law
We first consider and resolve whether IHC's petition improperly raised questions of
fact.
A question of law exists when there is doubt as to what the law is on a certain state
of facts, but, in contrast, a question of fact exists when the doubt arises as to the truth or
falsity of the facts alleged. A question of law does not involve an examination of the
probative value of the evidence presented by the litigants or by any of them; the resolution
of the issue must rest solely on what the law provides on the given set of circumstances.
30 When there is no dispute as to the facts, the question of whether or not the conclusion
Considering that what IHC seeks to review is the CA's application of the law on the
facts presented therein, there is no doubt that IHC raises questions of law. The basic issue
posed here is whether the conclusions drawn by the CA were correct under the pertinent
laws.
2.
Article 1186 and Article 1234 of the Civil Code cannot
be the source of IHC's obligation to pay respondents
IHC argues that it should not be held liable because: (a) it was Joaquin who had
recommended Barnes; and (b) IHC's negotiation with Barnes had been neither intentional
nor willfully intended to prevent Joaquin from complying with his obligations.
Article 1186. The condition shall be deemed fulfilled when the obligor
voluntarily prevents its fulfillment.
The error lies in the CA's failure to determine IHC's intent to pre-empt Joaquin from
meeting his obligations. The June 20, 1970 minutes of IHC's special board meeting
discloses that Joaquin impressed upon the members of the Board that Materials Handling
was offering more favorable terms for IHC, to wit:
It was decided by the Directors that, should the negotiations with Roger
Dunn materialize, at the same time as the offer of Materials Handling Corporation,
that the funds committed by Roger Dunn may be diverted to other borrowers of the
Development Bank of the Philippines. With this condition, Director Joaquin
showed the advantages of the offer of Materials Handling Corporation. Mr.
Joaquin also informed the corporation that, as of this date, the bank confirmation
of Roger Dunn & Company has not been received. In view of the fact that the
corporation is racing against time in securing its financing, he recommended that
the corporation entertain other offers.
After a brief exchange of views on the part of the Directors present and
after hearing the clarification and explanation made by Mr. C. M. Javier who was
present and who represented the Materials Handling Corporation, the Directors
present approved unanimously the recommendation of Mr. Joaquin to
entertain the offer of Materials Handling Corporation. 34
Evidently, IHC only relied on the opinion of its consultant in deciding to transact with
Materials Handling and, later on, with Barnes. In negotiating with Barnes, IHC had no
intention, willful or otherwise, to prevent Joaquin and Suarez from meeting their
undertaking. Such absence of any intention negated the basis for the CA's reliance on
Article 1186 of the Civil Code.
Nor do we agree with the CA's upholding of IHC's liability by virtue of Joaquin and
Suarez's substantial performance. In so ruling, the CA applied Article 1234 of the Civil
Code, which states:
Article 1234.If the obligation has been substantially performed in good
faith, the obligor may recover as though there had been a strict and complete
fulfillment, less damages suffered by the obligee.
It is well to note that Article 1234 applies only when an obligor admits breaching the
contract 35 after honestly and faithfully performing all the material elements thereof except
for some technical aspects that cause no serious harm to the obligee. 36 IHC correctly
submits that the provision refers to an omission or deviation that is slight, or technical and
unimportant, and does not affect the real purpose of the contract.
Tolentino explains the character of the obligor's breach under Article 1234 in the
following manner, to wit:
By reason of the inconsequential nature of the breach or omission, the law deems
the performance as substantial, making it the obligee's duty to pay. 38 The compulsion of
payment is predicated on the substantial benefit derived by the obligee from the partial
performance. Although compelled to pay, the obligee is nonetheless entitled to an
allowance for the sum required to remedy omissions or defects and to complete the work
agreed upon. 39
The primary objective of the parties in entering into the services agreement was to
obtain a foreign loan to finance the construction of IHC's hotel project. This objective could
be inferred from IHC's approval of phase 1 to phase 6 of the proposal. Phase 1 and phase
2, respectively the preparation of a new project study and the settlement of the
unregistered mortgage, would pave the way for Joaquin and Suarez to render assistance to
IHC in applying for the DBP guaranty and thereafter to look for an able and willing foreign
financial institution acceptable to DBP. All the steps that Joaquin and Suarez undertook to
accomplish had a single objective — to secure a loan to fund the construction and eventual
operations of the hotel of IHC. In that regard, Joaquin himself admitted that his assistance
was specifically sought to seek financing for IHC's hotel project. 41
Needless to say, finding the foreign financier that DBP would guarantee was the
essence of the parties' contract, so that the failure to completely satisfy such obligation
could not be characterized as slight and unimportant as to have resulted in Joaquin and
Suarez's substantial performance that consequentially benefitted IHC. Whatever benefits
IHC gained from their services could only be minimal, and were even probably outweighed
by whatever losses IHC suffered from the delayed construction of its hotel. Consequently,
Article 1234 did not apply.
3.
IHC is nonetheless liable to pay under the rule on
constructive fulfillment of a mixed conditional obligation
Notwithstanding the inapplicability of Article 1186 and Article 1234 of the Civil Code,
IHC was liable based on the nature of the obligation.
Considering that the agreement between the parties was not circumscribed by a
definite period, its termination was subject to a condition — the happening of a future and
uncertain event. 42 The prevailing rule in conditional obligations is that the acquisition of
rights, as well as the extinguishment or loss of those already acquired, shall depend upon
the happening of the event that constitutes the condition. 43
To recall, both the RTC and the CA held that Joaquin and Suarez's obligation was
subject to the suspensive condition of successfully securing a foreign loan guaranteed by
DBP. IHC agrees with both lower courts, and even argues that the obligation with a
suspensive condition did not arise when the event or occurrence did not happen. In that
instance, partial performance of the contract subject to the suspensive condition was
tantamount to no performance at all. As such, the respondents were not entitled to any
compensation.
To secure a DBP-guaranteed foreign loan did not solely depend on the diligence or
the sole will of the respondents because it required the action and discretion of third
persons — an able and willing foreign financial institution to provide the needed funds, and
the DBP Board of Governors to guarantee the loan. Such third persons could not be legally
compelled to act in a manner favorable to IHC. There is no question that when the
fulfillment of a condition is dependent partly on the will of one of the contracting parties, 44
or of the obligor, and partly on chance, hazard or the will of a third person, the obligation is
mixed. 45 The existing rule in a mixed conditional obligation is that when the condition was
not fulfilled but the obligor did all in his power to comply with the obligation, the condition
should be deemed satisfied. 46
Considering that the respondents were able to secure an agreement with Weston,
and subsequently tried to reverse the prior cancellation of the guaranty by DBP, we rule
that they thereby constructively fulfilled their obligation.
4.
Quantum meruit should apply in the
absence of an express agreement on the fees
The next issue to resolve is the amount of the fees that IHC should pay to Joaquin
and Suarez.
Joaquin claimed that aside from the approved P2,000,000.00 fee to implement phase
1 to phase 6, the IHC Board of Directors had approved an additional P500,000.00 as
payment for his services. The RTC declared that he and Suarez were entitled to
P200,000.00 each, but the CA revised the amounts to P700,000.00 for Joaquin and
P200,000.00 for Suarez.
Anent the P2,000,000.00, the CA rightly concluded that the full amount of
P2,000,000.00 could not be awarded to respondents because such amount was not
allocated exclusively to compensate respondents, but was intended to be the estimated
maximum to fund the expenses in undertaking phase 6 of the scope of services. Its
conclusion was unquestionably borne out by the minutes of the February 11, 1969 meeting,
viz.:
II
The [p]reparation of the necessary papers for the DBP including the preparation
of the application, the presentation of the mechanics of financing, the actual
follow up with the different departments of the DBP which includes the
explanation of the feasibility studies up to the approval of the loan, conditioned
on the DBP's acceptance of the project as feasible. The estimated expenses
for this particular phase would be contingent, i.e., upon DBP's approval of
the plan now being studied and prepared, is somewhere around
P2,000,000.00.
After a brief discussion on the matter, the Board on motion duly made and
seconded, unanimously adopted a resolution of the following tenor:
Gentlemen:
I have the honor to request this Body for its deliberation and action on the
fees for my services rendered and to be rendered to the hotel project and to the
corporation. These fees are separate from the fees you have approved in your
previous Board Resolution, since my fees are separate. I realize the position of
the corporation at present, in that it is not in a financial position to pay my services
in cash, therefore, I am requesting this Body to consider payment of my fees even
in the form of shares of stock, as you have done to the other technical men and for
other services rendered to the corporation by other people.
1. I have revised and made the new Project Study of your hotel
project, making it bankable and feasible.
I have rendered services to your corporation for the past 6 months with no
clear understanding as to the compensation of my services. All I have drawn from
the corporation is the amount of P500.00 dated May 12, 1969 and personal
payment advanced by Justice Felix Angelo Bautista in the amount of P1,000.00.
I am, therefore, requesting this Body for their approval of my fees. I have
shown my good faith and willingness to render services to your corporation which
is evidenced by my continued services in the past 6 months as well as the
accomplishments above mentioned. I believe that the final completion of this
hotel, at least for the processing of the DBP up to the completion of the
construction, will take approximately another 2 1/2 years. In view of the above, I
again reiterate my request for your approval of my fees. When the corporation is in
a better financial position, I will request for a withdrawal of a monthly allowance,
said amount to be determined by this Body.
Joaquin could not even rest his claim on the approval by IHC's Board of Directors.
The approval apparently arose from the confusion between the supposedly separate
services that Joaquin had rendered and those to be done under the technical proposal. The
minutes of the July 11, 1969 board meeting (when the Board of Directors allowed the
payment for Joaquin's past services and for the 70% project completion by the technical
group) showed as follows:
III
The Third order of business is the compensation of Mr. Francisco G. Joaquin, Jr.
for his services in the corporation.
After a brief discussion that ensued, upon motion duly made and seconded, the
stockholders unanimously approved a resolution of the following tenor:
Incidentally, it was also taken up the necessity of giving the Technical Group a
portion of the compensation that was authorised by this corporation in its
Resolution of February 11, 1969 considering that the assistance so far given the
corporation by said Technical Group in continuing our project with the DBP and
its request for guaranty for a foreign loan is 70% completed leaving only some
details which are now being processed. It is estimated that P400,000.00 worth
of Common Stock would be reasonable for the present accomplishments and to
this effect, the President is authorized to issue the same in the name of the
Technical Group, as follows:
Lastly, the amount purportedly included services still to be rendered that supposedly
extended until the completion of the construction of the hotel. It is basic, however, that in
obligations to do, there can be no payment unless the obligation has been completely
rendered. 50
It is notable that the confusion on the amounts of compensation arose from the
parties' inability to agree on the fees that respondents should receive. Considering the
absence of an agreement, and in view of respondents' constructive fulfillment of their
obligation, the Court has to apply the principle of quantum meruit in determining how much
was still due and owing to respondents. Under the principle of quantum meruit, a contractor
is allowed to recover the reasonable value of the services rendered despite the lack of a
written contract. 51 The measure of recovery under the principle should relate to the
reasonable value of the services performed. 52 The principle prevents undue enrichment
based on the equitable postulate that it is unjust for a person to retain any benefit without
paying for it. Being predicated on equity, the principle should only be applied if no express
contract was entered into, and no specific statutory provision was applicable. 53
Finally, we sustain IHC's position that the grant of attorney's fees lacked factual or
legal basis. Attorney's fees are not awarded every time a party prevails in a suit because
of the policy that no premium should be placed on the right to litigate. There should be
factual or legal support in the records before the award of such fees is sustained. It is not
enough justification for the award simply because respondents were compelled to protect
their rights. 54
ACCORDINGLY, the Court DENIES the petition for review on certiorari ; and
AFFIRMS the decision of the Court of Appeals promulgated on November 8, 2002 in C.A.-
G.R. No. 47094 subject to the MODIFICATIONS that: (a) International Hotel Corporation is
ordered to pay Francisco G. Joaquin, Jr. and Rafael Suarez P100,000.00 each as
compensation for their services, and (b) the award of P20,000.00 as attorney's fees is
deleted.
No costs of suit.
SO ORDERED.
Sereno, C.J., Leonardo-de Castro, Villarama, Jr. and Reyes, JJ., concur.
Footnotes
3.Id. at 221.
4.Id. at 220-221.
6.Id. at 43.
7.Id. at 47-48.
8.Id. at 49-50.
9.Id. at 58-60.
12.Records, p. 236.
13.Id. at 233.
14.TSN dated July 8, 1977, pp. 20-21.
18.Id. at 60-64.
19.Id. at 65-74.
20.Id. at 477.
21.Id. at 591.
24.Id. at 107.
26.Rollo, p. 22.
28.Rollo, pp.143-144.
29.Under the resolution dated October 22, 2007, the Court dispensed with the comment of
Suarez following the manifestation by his daughter that he was already 83 years old and
already residing in the United States of America.
30.Lorzano v. Tabayag, G.R. No. 189647, February 6, 2012; Tongonan Holdings and
Development Corporation v. Escano, Jr., G.R. No. 190994, September 7, 2011, 657
SCRA 306, 314; Republic v. Malabanan, G.R. No. 169067, October 6, 2010, 632 SCRA
338, 345.
31.The Heirs of Nicolas S. Cabigas v. Limbaco, G.R. No. 175291, July 27, 2011, 654 SCRA
643, 651-652.
35.Mathis Implement Company v. Heath, 2003 SD 72, 665 N.W.2d 90 (S.D. 2003).
43.Development Bank of the Phililppines v. Court of Appeals, G.R. No. 118180, September
20, 1996, 262 SCRA 245, 252.
45.Naga Telephone Co., Inc. v. Court of Appeals, G.R. No. 107112, February 24, 1994, 230
SCRA 351, 371.
46.Smith Bell & Co. v. SoteloMatti, No. L-16570, 44 Phil. 874, 880 (1922).
47.Exhibits, p. 52.
49.Exhibits, p. 59.
51.Heirs of Ramon C. Gaite v. The Plaza, Inc., G.R. No. 177685, January 26, 2011, 640 SCRA
576, 594; H.L. Carlos Construction, Inc. v. Marina Properties Corporation, G.R. No.
147614, January 29, 2004, 421 SCRA 428, 439.
52.Department of Health v. C.V. Canchela & Associates, G.R. Nos. 151373-74, November 17,
2005, 475 SCRA 218, 244.
54.Benedicto v. Villaflores, G.R. No. 185020, October 6, 2010, 632 SCRA 446, 455.