SECOND DIVISION
SPOUSES CARMEN S. TONGSON G.R.
No. 167874
and JOSE C. TONGSON
substituted by his children namely: Present:
JOSE TONGSON, JR.,
RAUL TONGSON, CARPIO, J., Chairperson,
TITA TONGSON, BRION,
GLORIA TONGSON DEL CASTILLO,
ALMA TONGSON, ABAD, and
Petitioners, PEREZ, JJ.
- versus -
EMERGENCY PAWNSHOP BULA, Promulgated:
INC. and DANILO R. NAPALA,
Respondents. January 15, 2010
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D E C I S I O N
CARPIO, J.:
The Case
Before the Court is a petition for
review[1] of the 31 August 2004
Decision[2] and 10 March 2005
Resolution[3] of the Court of Appeals
in CA-G.R. CV No. 58242. In the 31
August 2004 Decision, the Court of Appeals partially granted the appeal filed
by Emergency Pawnshop Bula, Inc. (EPBI) and Danilo R. Napala (Napala) by
modifying the decision of the trial court.
In the 10 March 2005 Resolution, the Court of Appeals denied the motion
for partial reconsideration filed by the Spouses Jose C. Tongson and Carmen S.
Tongson (Spouses Tongson).
The Facts
In May 1992, Napala offered to purchase
from the Spouses Tongson their 364-square meter parcel of land, situated in
Davao City and covered by Transfer Certificate of Title (TCT) No. 143020, for P3,000,000. Finding the offer acceptable, the Spouses
Tongson executed with Napala a Memorandum of Agreement[4] dated 8 May 1992.
On 2 December 1992,
respondents’ lawyer Atty. Petronilo A. Raganas, Jr. prepared a Deed of Absolute
Sale[5] indicating the
consideration as only P400,000.
When Carmen Tongson “noticed that the consideration was very low, she
[complained] and called the attention of Napala but the latter told her not to
worry as he would be the one to pay for the taxes and she would receive the net
amount of P3,000,000.”[6]
To conform with the
consideration stated in the Deed of Absolute Sale, the parties executed another
Memorandum of Agreement, which allegedly replaced the first Memorandum of
Agreement,[7] showing that the selling price of the land
was only P400,000.[8]
Upon signing the Deed of
Absolute Sale, Napala paid P200,000 in cash to the Spouses Tongson and
issued a postdated Philippine National Bank (PNB) check in the amount of P2,800,000,[9] representing the
remaining balance of the purchase price of the subject property. Thereafter, TCT No. 143020 was cancelled and TCT No.
T-186128 was issued in the name of EPBI.[10]
When presented for payment, the PNB check was dishonored for the reason “Drawn Against Insufficient Funds.” Despite the Spouses Tongson's repeated demands to either pay the full value of the check or to return the subject parcel of land, Napala failed to do either. Left with no other recourse, the Spouses Tongson filed with the Regional Trial Court, Branch 16, Davao City a Complaint for Annulment of Contract and Damages with a Prayer for the Issuance of a Temporary Restraining Order and a Writ of Preliminary Injunction.[11]
In their Answer,
respondents countered that Napala had already delivered to the Spouses Tongson
the amount of P2,800,000 representing the face value of the PNB check,
as evidenced by a receipt issued by the Spouses Tongson. Respondents pointed out that the Spouses
Tongson never returned the PNB check claiming that it was misplaced. Respondents asserted that the payment they
made rendered the filing of the complaint baseless.[12]
At the pre-trial, Napala
admitted, among others, issuing the postdated PNB check in the sum of P2,800,000.[13] The Spouses Tongson, on the other hand,
admitted issuing a receipt which showed that they received the PNB check from
Napala. Thereafter, trial ensued.
The Ruling of the Trial Court
The trial court found that the purchase
price of the subject property has not been fully paid and that Napala’s
assurance to the Spouses Tongson that the PNB check would not bounce
constituted fraud that induced the Spouses Tongson to enter into the sale.
Without such assurance, the Spouses Tongson would not have agreed to the
contract of sale. Accordingly, there was fraud within the ambit of Article 1338
of the Civil Code,[14] justifying the annulment
of the contract of sale, the award of damages and attorney’s fees, and payment
of costs.
The dispositive portion of the 9
December 1996 Decision of the trial court reads:
WHEREFORE, judgment is hereby rendered –
I Annulling the contract entered into by the plaintiffs with the defendants;
II Declaring the writs of preliminary injunctions issued permanent;
III Ordering defendants to:
1) reconvey the property subject matter of the case to the plaintiffs;
2) pay plaintiffs:
a) P100,000 as moral damages;
b) P50,000 as exemplary damages;
c) P20,000 as attorney’s fees; and
d) P35,602.50 cost of suit broken down as
follows:
P70.00 bond fee
P60.00 lis pendens fee
P902.00 docket fee
P390.00 docket fee
P8.00 summons fee
P12.00 SDF
P178.50 Xerox
P9,000 Sidcor Insurance Bond
fee
P25,000 Sidcor Insurance Bond
fee
or the total sum of P205,602.50.
It
is further ordered that the monetary award be offsetted [sic] to defendants’
downpayment of P200,000 thereby leaving a balance of P5,602.50.[15]
Respondents appealed to the Court of
Appeals.
The Ruling of the Court of Appeals
The Court of
Appeals agreed with the trial court’s finding that Napala employed fraud when he misrepresented to the
Spouses Tongson that the PNB check in the amount of P2,800,000 would be
properly funded at its maturity.
However, the Court of Appeals found that the issuance and delivery of
the PNB check and fraudulent representation made by Napala could not be
considered as the determining cause for the sale of the subject parcel of
land. Hence, such fraud could not be
made the basis for annulling the contract of sale. Nevertheless, the fraud employed by Napala is
a proper and valid basis for the
entitlement of the Spouses Tongson to the balance of the purchase price in the
amount of P2,800,000 plus interest at the legal rate of 6% per annum
computed from the date of filing of the complaint on 11 February 1993.
Finding the trial court’s
award of damages unconscionable, the
Court of Appeals reduced the moral damages from P100,000 to P50,000
and the exemplary damages from P50,000
to P25,000.
The dispositive
portion of the 31 August 2004 Decision of the Court of Appeals reads:
WHEREFORE, the instant appeal is PARTIALLY GRANTED. The assailed decision of the Regional Trial Court, 11th Judicial Region, Branch 16, Davao City, in Civil Case No. 21,858-93, is hereby MODIFIED, to read:
WHEREFORE, judgment is hereby rendered ordering defendants to pay plaintiffs:
a) the sum of P2,800,000.00
representing the balance of the purchase price of the subject parcel of land,
plus interest at the legal rate of 6% per annum computed from the date of
filing of the complaint on 11 February 1993, until the finality of the assailed
decision; thereafter, the interest due shall be at the legal rate of 12% per
annum until fully paid;
b) P50,000 as moral
damages;
c) P25,000 as exemplary damages;
d) P20,000 as attorney’s fees; and
e) The costs of suit in the total amount of P35,602.50.
It is understood, however, that plaintiffs’ entitlement to items a to d, is subject to the condition that they have not received the same or equivalent amounts in criminal case for Violation of Batas Pambansa Bilang 22, docketed as Criminal Case No. 30508-93, before the Regional Trial Court of Davao City, Branch 12, instituted against the defendant Danilo R. Napala by plaintiff Carmen S. Tongson.
SO ORDERED.[16]
The Spouses
Tongson filed a partial motion for reconsideration which was denied by the
Court of Appeals in its Resolution dated 10 March 2005.
The Issues
The Spouses Tongson raise the following
issues:
1. WHETHER THE CONTRACT OF SALE CAN BE
ANNULLED BASED ON THE FRAUD EMPLOYED BY NAPALA; and
2. WHETHER THE COURT OF APPEALS ERRED IN
REDUCING THE AMOUNT OF DAMAGES AWARDED BY THE TRIAL COURT.
The Ruling of the Court
The petition has merit.
On the existence of fraud
A contract is a
meeting of the minds between two persons, whereby one is bound to give
something or to render some service to the other.[17] A valid contract requires the concurrence of
the following essential elements: (1) consent or meeting of the minds, that is,
consent to transfer ownership in exchange for the price; (2) determinate
subject matter; and (3) price certain in money or its equivalent.[18]
In the present
case, there is no question that the subject matter of the sale is the
364-square meter Davao lot owned by the Spouses Tongson and the selling price
agreed upon by the parties is P3,000,000. Thus, there is no dispute as regards the
presence of the two requisites for a valid sales contract, namely, (1) a
determinate subject matter and (2) a price certain in money.
The problem lies with the existence of the remaining element, which is consent of the contracting parties, specifically, the consent of the Spouses Tongson to sell the property to Napala. Claiming that their consent was vitiated, the Spouses Tongson point out that Napala’s fraudulent representations of sufficient funds to pay for the property induced them into signing the contract of sale. Such fraud, according to the Spouses Tongson, renders the contract of sale void.
On the contrary, Napala insists that the Spouses Tongson willingly consented to the sale of the subject property making the contract of sale valid. Napala maintains that no fraud attended the execution of the sales contract.
The trial and
appellate courts had conflicting findings on the question of whether the
consent of the Spouses Tongson was vitiated by fraud. While the Court of
Appeals agreed with the trial court’s finding that Napala employed fraud when
he assured the Spouses Tongson that the postdated PNB check was fully funded
when it fact it was not, the Court of Appeals disagreed with the trial court’s
ruling that such fraud could be the basis for the annulment of the contract of
sale between the parties.
Under Article 1338 of the Civil Code, there is fraud when, through insidious words or machinations of one of the contracting parties, the other is induced to enter into a contract which, without them, he would not have agreed to. In order that fraud may vitiate consent, it must be the causal (dolo causante), not merely the incidental (dolo incidente), inducement to the making of the contract.[19] Additionally, the fraud must be serious.[20]
We find no causal fraud
in this case to justify the annulment of the contract of sale between the
parties. It is clear from the records
that the Spouses Tongson agreed to sell their 364-square meter Davao property to
Napala who offered to pay P3,000,000 as purchase price therefor. Contrary to the Spouses Tongson’s belief that
the fraud employed by Napala was “already operational at the time of the
perfection of the contract of sale,” the misrepresentation by Napala that the
postdated PNB check would not bounce on its maturity hardly equates to dolo causante. Napala’s assurance that the check he issued
was fully funded was not the principal inducement for the Spouses Tongson to
sign the Deed of Absolute Sale. Even
before Napala issued the check, the parties had already consented and agreed to
the sale transaction. The Spouses Tongson were never tricked into selling their
property to Napala. On the contrary, they willingly accepted Napala’s offer to
purchase the property at P3,000,000. In short, there was a meeting of
the minds as to the object of the sale as well as the consideration therefor.
Some of the instances where this Court found the existence of causal fraud include: (1) when the seller, who had no intention to part with her property, was “tricked into believing” that what she signed were papers pertinent to her application for the reconstitution of her burned certificate of title, not a deed of sale;[21] (2) when the signature of the authorized corporate officer was forged;[22] or (3) when the seller was seriously ill, and died a week after signing the deed of sale raising doubts on whether the seller could have read, or fully understood, the contents of the documents he signed or of the consequences of his act.[23] Suffice it to state that nothing analogous to these badges of causal fraud exists in this case.
However, while no causal fraud attended the execution of the sales contract, there is fraud in its general sense, which involves a false representation of a fact,[24] when Napala inveigled the Spouses Tongson to accept the postdated PNB check on the representation that the check would be sufficiently funded at its maturity. In other words, the fraud surfaced when Napala issued the worthless check to the Spouses Tongson, which is definitely not during the negotiation and perfection stages of the sale. Rather, the fraud existed in the consummation stage of the sale when the parties are in the process of performing their respective obligations under the perfected contract of sale. In Swedish Match, AB v. Court of Appeals,[25] the Court explained the three stages of a contract, thus:
I n general, contracts undergo three distinct stages, to wit: negotiation; perfection or birth; and consummation. Negotiation begins from the time the prospective contracting parties manifest their interest in the contract and ends at the moment of agreement of the parties. Perfection or birth of the contract takes place when the parties agree upon the essential elements of the contract. Consummation occurs when the parties fulfill or perform the terms agreed upon in the contract, culminating in the extinguishment thereof.
Indisputably,
the Spouses Tongson as the sellers had already performed their obligation of
executing the Deed of Sale, which led to
the cancellation of their title in favor of EPBI. Respondents as the buyers, on
the other hand, failed to perform their
correlative obligation of paying the full amount of the contract price. While Napala paid P200,000 cash to the
Spouses Tongson as partial payment, Napala issued an insufficiently funded PNB
check to pay the remaining balance of P2.8 million. Despite repeated
demands and the filing of the complaint, Napala failed to pay the P2.8
million until the present. Clearly, respondents committed a substantial breach
of their reciprocal obligation, entitling the Spouses Tongson to the rescission of the sales contract. The law grants this relief to the aggrieved
party, thus:
Article 1191 of the Civil Code provides:
Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.
Article 1385 of the Civil Code provides
the effects of rescission, viz:
ART. 1385. Rescission creates the obligation to return
the things which were the object of the contract, together with their fruits,
and the price with its interest; consequently, it can be carried out only when
he who demands rescission can return whatever he may be obliged to restore.
Neither shall rescission take place when the things which are the object of the contract are legally in the possession of third persons who did not act in bad faith.
While they did not file an action for
the rescission of the sales contract, the Spouses Tongson specifically prayed
in their complaint for the annulment of the sales contract, for the immediate
execution of a deed of reconveyance, and for the return of the subject property
to them.[26] The Spouses Tongson likewise prayed “for such
other reliefs which may be deemed just and equitable in the premises.” In view
of such prayer, and considering respondents’ substantial breach of their
obligation under the sales contract, the
rescission of the sales contract is but proper and justified. Accordingly,
respondents must reconvey the subject property to the Spouses Tongson, who in
turn shall refund the initial payment of P200,000 less the costs of
suit.
Napala’s claims that rescission is not
proper and that he should be given more time to pay for the unpaid remaining
balance of P2,800,000 cannot be countenanced. Having acted fraudulently
in performing his obligation, Napala is not entitled to more time to pay the
remaining balance of P2,800,000, and thereby erase the default or breach
that he had deliberately incurred.[27] To do otherwise would be
to sanction a deliberate and reiterated infringement of the contractual
obligations incurred by Napala, an attitude repugnant to the stability and
obligatory force of contracts.[28]
The Court notes that the selling price
indicated in the Deed of Absolute Sale was only P400,000, instead of the
true purchase price of P3,000,000. The undervaluation of the selling
price operates to defraud the government of the taxes due on the basis of the
correct purchase price. Under the law,[29] the sellers have the
obligation to pay the capital gains tax.
In this case, Napala undertook to “advance” the capital gains tax, among
other fees, under the Memorandum of Agreement, thus:
ATTY. ALABASTRO:
Q Is it not a fact that you were the one who paid for the capital gains tax?
A No, I only advanced the money.
Q To whom?
A To BIR.
COURT:
Q You were the one who went to the BIR to pay the capital gains tax?
A It is embodied in the memorandum agreement.[30]
While Carmen
Tongson protested against the “very low consideration,” she eventually agreed
to the “reduced” selling price indicated in the Deed of Absolute since Napala
assured her not to worry about the taxes and expenses, as he had allegedly made
arrangements with the Bureau of Internal Revenue (BIR) regarding the payment of
the taxes, thus:
Q What is the amount in the Deed of Absolute Sale?
A It was only Four Hundred Thousand. And he told me not to worry because x x x the BIR and not to worry because he will pay me what was agreed – the amount of Three Million and he will be paying all these expenses so I was thinking, if that is the case, anyway he paid me the Two Hundred Thousand cash and a subsequent Two Point Eight Million downpayment check so I really thought that he was paying the whole amount.
COURT:
Proceed.
ATTY. LIZA:
Q So you eventually agreed that this consideration be reduced to Four Hundred Thousand Pesos and to be reflected in the Deed of Absolute Sale?
A Yes, but when I was complaining to him why it is so because I was worried why that was like that but Mr. Napala told me don’t worry because [he] can remedy this. And I asked him how can [he] remedy this? And he told me we can make another Memorandum of Agreement.
COURT:
Q Before you signed the Deed of Absolute Sale, you found out the amount?
A Yes, sir.
Q And you complained?
A Yes.[31]
Considering
that the undervaluation of the selling price of the subject property, initiated
by Napala, operates to defraud the government of the correct amount of taxes
due on the sale, the BIR must therefore be informed of this Decision for its
appropriate action.
On the award of damages
Citing Article 1338 of the Civil
Code, the trial court awarded P100,000
moral damages and P50,000 exemplary damages to the Spouses Tongson.
While agreeing with the trial court on the Spouses Tongson’s entitlement to
moral and exemplary damages, the Court of Appeals reduced such awards for being
unconscionable. Thus, the moral damages was reduced from P100,000 to P50,000,
and the exemplary damages was reduced
from P50,000 to P25,000.
As discussed above, Napala defrauded the Spouses Tongson in his acts of issuing a worthless check and representing to the Spouses Tongson that the check was funded, committing in the process a substantial breach of his obligation as a buyer. For such fraudulent acts, the law, specifically the Civil Code, awards moral damages to the injured party, thus:
ART. 2220.
Willful injury to property may be a legal ground for awarding moral
damages if the court should find that, under the circumstances, such damages
are justly due. The same rule applies to breaches of contract where the defendant acted
fraudulently or in bad faith. (Emphasis
supplied)
Considering that
the Spouses Tongson are entitled to moral damages, the Court may also award
exemplary damages, thus:
ART. 2232. In contracts and quasi-contracts, the court may award exemplary damages if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner.
Article 2234. When the amount of the exemplary damages need not be proved, the plaintiff must show that he is entitled to moral, temperate or compensatory damages before the court may consider the question of whether or not exemplary damages would be awarded. In case liquidated damages have been agreed upon, although no proof of loss is necessary in order that such liquidated damages may be recovered, nevertheless, before the court may consider the question of granting exemplary in addition to the liquidated damages, the plaintiff must show that he would be entitled to moral, temperate or compensatory damages were it not for the stipulation for liquidated damages. (Emphasis supplied)
Accordingly, we
affirm the Court of Appeals’ awards of moral and exemplary damages, which we
find equitable under the circumstances in this case.
WHEREFORE, we PARTIALLY GRANT the petition. We SET ASIDE the 31 August 2004
Decision and 10 March 2005 Resolution of the Court of Appeals in CA-G.R. CV No.
58242, except as to the award of moral and exemplary damages, and ORDER the rescission of the contract of
sale between the Spouses Tongson and Emergency Pawnshop Bula, Inc.
Let a copy of this Decision be forwarded to the Bureau of Internal Revenue for its appropriate action.
SO
ORDERED.
ANTONIO T. CARPIO
Associate Justice
WE CONCUR:
ARTURO D.
BRION
Associate Justice
MARIANO C. DEL
CASTILLO ROBERTO A. ABAD
Associate Justice Associate
Justice
JOSE P.
PEREZ
Associate
Justice
ATTESTATION
I
attest that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the
Court’s Division.
ANTONIO T. CARPIO
Associate Justice
Chairperson
CERTIFICATION
Pursuant to Section
13, Article VIII of the Constitution, and the Division Chairperson’s
Attestation, I certify that the conclusions in the above Decision had been
reached in consultation before the case was assigned to the writer of the
opinion of the Court’s Division.
REYNATO
S. PUNO
Chief Justice
[1] Under
Rule 45 of the Rules of Court.
[2] Rollo, pp. 33-63. Penned by Associate Justice Perlita J. Tria Tirona with Associate Justices Ruben T. Reyes and Jose C. Reyes, Jr., concurring.
[3] Id. at 73-74.
[4] Exhibit
“B.”
[5] Exhibit
“C.”
[6] Records, pp. 4-5; TSN, 29 April 1994, pp. 10-11.
[7] TSN,
27 January 1995, pp. 5-6. Atty.
Petronilo Raganas testified on this matter, thus:
ATTY.
ALABASTRO:
Q After this Exhibit “B” was prepared, a new Memorandum Agreement was prepared to replace this Memorandum of Agreement marked as Exhibit “B”?
A That other Memorandum Agreement was made to replace that Memorandum Agreement in the amount of Three Million pesos to jibe with the Deed of Sale.
Q So the first Memorandum Agreement which was prepared and replaced by another Memorandum Agreement with the consideration of Four Hundred Thousand pesos was this Memorandum Agreement wherein the consideration was Three Million Pesos?
A Yes, sir.
Q And of course, this was notarized by you, this Exhibit “B”?
A Actually, this was notarized but this was replaced by another Memorandum of Agreement using the same document.
Q You mean using the same document number, page number?
A Yes, to jibe.
Q I’m showing to you these documents consisting of 2 pages marked as Exhibit “J” and “J-1” with the letter head of Raganas Law Office. That is in you own handwriting?
A Yes, sir.
Q So, the true consideration of the transaction involving the property of the spouses is Three Million and not Four Hundred Thousand?
A In principle, they agreed on that amount.
[8] Exhibit “EE-1.”
[9] Exhibit
“D.”
[10] Exhibit “F.”
[11] Docketed
as Civil Case No. 21,858-93.
[12] Records,
p. 27.
[13] Id.
at 110.
[14] ART.
1338. There is fraud when, through
insidious words or machinations of one of the contracting
parties, the other is induced to enter into a contract which, without them, he
would not have agreed to.
[15] Rollo, p. 148.
Penned by Judge Romeo D. Marasigan.
[16] Id. at 61-62.
[17] Article
1305 of the Civil Code.
[18] Article 1318 of the Civil Code in relation to Article 1458 of the same Code.
ART. 1318. There is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.
ART. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent.
[19] Woodhouse v. Halili, 93 Phil. 526,
537 (1953).
[20] Article 1344 of the Civil Code provides: “In order that fraud may make a contract voidable, it should be serious and should not have been employed by both contracting parties.
Incidental fraud only obliges the person employing it to pay damages.”
[21] Archipelago Management and Marketing Corp.
v. CA, 359 Phil. 363 (1998).
[22] Sanchez v. Mapalad, G.R. No. 148516, 27 December 2007, 541 SCRA 397.
[23] Paragas v. Heirs of Balacano, G.R. No. 168220, 31 August 2005, 468 SCRA 717.
[24] See Bartolo v. Sandiganbayan, G.R.
No. 172173, 16 April 2009.
[25] 483 Phil. 735, 750-751 (2004), citing Bugatti v. Court of Appeals, 397 Phil. 376 (2000).
[26] Records,
p. 8.
[27] Luzon Brokerage v. Maritime
Building Co., Inc., 150 Phil.
114, 125 (1972).
[28] Id.
(D) [29]Capital Gains from Sale of Real Property. —
(1) In General. - The provisions of Section 39(B) notwithstanding, a final tax
of six percent (6%) based on the gross selling price or current fair market
value as determined in accordance with Section 6(E) of this Code, whichever is
higher, is hereby imposed upon capital gains presumed to have been realized
from the sale, exchange, or other disposition of real property located in the
Philippines, classified as capital assets, including pacto de retro sales and
other forms of conditional sales, by individuals, including estates and trusts:
Provided, That the tax liability, if any, on gains from sales or other
dispositions of real property to the government or any of its political
subdivisions or agencies or to government-owned or -controlled corporations
shall be determined either under Section 24(A) or under this Subsection, at the
option of the taxpayer; x x x
[30] TSN,
20 July 1995, p. 61.
[31] TSN,
29 April 1994, pp. 10-11.