Вы находитесь на странице: 1из 6

HIDDEN DEFECTS 1 of 6

HIDDEN DEFECTS
[G.R. No. L-30965, November 29, 1983 ]
G.A. MACHINERIES, INC., PETITIONER, VS. HORACIO YAPTINCHAY,
DOING BUSINESS UNDER THE NAME AND STYLE "HI-WAY EXPRESS"
AND THE COURT OF APPEALS, RESPONDENTS.

D E C I S I O N
GUTIERREZ, JR., J.:
Petitioner G. A. Machineries, Inc. (hereinafter referred to as GAMI) seeks
the reversal of the decision of the Court of First Instance of Rizal,
affirmed by the Court of Appeals in the original case entitled Horacio
Yaptinchay, doing business under the name and style "Hi-way Express",
vs. G. A. Machineries Inc. for recovery of damages.

The antecedent facts of the case are not seriously disputed and are
summarized by the Court of Appeals as follows:

"Sometime early in January, 1962 appellant GAMI, thru a duly authorized
agent, offered to sell a brand-new Fordson Diesel Engine to appellee
Horacio Yaptinchay, owner of the freight hauling business styled 'Hi-Way
Express'. Relying on the representations of appellant's representative
that the engine offered for sale was brand-new, appellee agreed to
purchase the same at the price of P7,590.00. Pursuant to the contract of
sale thus entered into, appellant delivered to appellee, on January 27,
1962, one (1) Fordson Diesel Engine assembly, Model 6-D, with Engine
Serial No. A-212193, at 1500 RPM, with fly wheel, fly wheel housing, fuel
injection assembly, exhauster, fuel filter, oil filter, fuel lift pump, plus
conversion kit for F-500, subject to the standard warranties, particularly
the representation, relied upon by appellee, that the same was brand-
new. Said engine was installed by appellant in Unit No. 6 of the Hi-Way
Express.
"Within the week after its delivery, however, the engine in question
started to have a series of malfunctions which necessitated successive
trips to appellant's repair shop. Thus, it first sprang an oil leak such that,
on February 6, 1962, it was brought in to '1. Adjust idling of engine and
tappete clearance; 2. Inspect and remedy oil leaks of engine; 3.
Replace clutch disc and pressure plate w/original; and 4. Replace
release bearing hub trunion bolt' (Exhibit C). Thereafter, the
malfunctioning persisted and, on inspection, appellee's mechanic noticed
a worn out screw which made appellee suspicious about the age of the
engine. This prompted appellee, thru his lawyer, to write appellant a
letter, dated February 10, 1962, protesting that the engine was not
brand-new as represented (Exhibit E). Because of the recurring defects,
the engine was again submitted to appellant's shop to '1. Inspect engine
oil leaks on cylinder head; 2. Check-up propeller shaft (vibrating at high
speed); and 3. Tighten bolts of pump.' (Exhibit F). All these
notwithstanding, the engine could still not be returned into operation
because it continued not to function well. In fact, it was sent back to
appellant's shop on the same day it was delivered after the last repair
work done on it. Another check-up was thereafter required to be made
on March 5, 1962 (Exhibit G). Then, again, on March 10, 1962, the
engine was back at the repair shop to '1. Inspect leaks on No. 1 & 5
high pressure pipe; and 2. Change engine oil with flushing & oil element'
(Exhibit H). Still, the oil leaks remained unchecked and, on July 2, 1962,
one last effort to '1. Remedy engine oil leaks' (Exhibit 1) was made, but
all to no avail because, instead of improving, the engine's condition
became worse as it developed engine knock and appellee had to stop its
operation altogether due to its unserviceability.
"These repeatedly recurring defects and continued failure of appellant to
put the engine in good operating condition only served to firm up in
appellee's mind the suspicion that the engine sold to him was not brand-
new as represented. He then sought the assistance of the PC Criminal
Investigation Service to check on the authenticity of the serial number of
the engine, with due notice to appellant. Scientific examination and
verification tests revealed that the original motor number of the engine
aforesaid was tampered. Further inquiries by appellee from the Manila
Trading Company, which also handles the importation and distribution of
similar engines, also disclosed that, unlike the engine delivered to
appellee whose engine body and injection pump were painted with two
different colors, brand-new engines are painted with only one color all
over.
"Thus convinced that a fraudulent misrepresentation as to the character
of the engine had been perpetrated upon him, appellee made demands
from appellant for indemnification for damages and eventually instituted
the present suit.
"In its defense, appellant interposed prescription of the action, denied
the imputation of misrepresentation, and disputed the propriety and
amount of damages claimed." x x x
After trial on the merits, the trial court ruled in favor of plaintiff
Yaptinchay as follows:
"FOR ALL THE FOREGOING CONSIDERATIONS, the Court hereby renders
judgment ordering the defendant, G.A. Machineries Inc., to pay the
plaintiff, Horacio Yaptinchay, actual damages sustained in the sum of
P54,000.48; to reimburse the purchase price of the Fordson diesel
engine in the amount of P7,590.00; and to pay attorney's fees to
plaintiff's counsel on the sum of P2,000.00 and costs.
"Plaintiff is, likewise, ordered to return the Fordson diesel engine with
serial number A-21219 to the defendant."
Defendant GAMI appealed the decision to the Court of Appeals. As
stated earlier, the decision was affirmed by the Appellate Court. A
motion for reconsideration was denied. Hence, the instant petition.
Petitioner GAMI raises the following alleged errors of judgment of the
respondent court:
I
THE COURT OF APPEALS ERRED IN NOT APPLYING THE PRESCRIPTIVE
PERIOD OF ARTICLE 1571 OF THE CIVIL CODE TO THE CASE AT BAR.
II
THE COURT OF APPEALS ERRED IN APPLYING THE DOCTRINE IN THE
CASE OF ASOCIACION ZANJERA CASILIAN vs. CRUZ, 46 O.G. 4813,
4820 REGARDING ADMISSION BY FAILURE TO REBUT, TO THE ISSUE
OF ACTUAL DAMAGES, WHICH MUST BE PROVED BY THE BEST AND
COMPETENT EVIDENCE.
III
THE COURT OF APPEALS ERRED IN AWARDING ACTUAL DAMAGES IN
THE FORM OF UNREALIZED PROFITS (LUCRUM CESSANTE) WHEN THE
ISSUE RAISED BY THE PLEADINGS REFERS ONLY TO ALLEGED ACTUAL
DAMAGES IN THE FORM OF DAMNUM EMERGENTE.
IV
THE COURT OF APPEALS ERRED IN FINDING THAT THE FORDSON
DIESEL ENGINE DELIVERED BY PETITIONER TO RESPONDENT
HORACIO YAPTINCHAY WAS NOT BRAND NEW, REACHING SUCH
FINDING BY WAY OF A MANIFESTLY MISTAKEN INFERENCE AND ON
THE BASIS OF A MISAPPREHENSION OF FACTS AND SOLELY ON THE
GROUND OF SPECULATION, SURMISES AND CONJECTURES.
The assignments of errors raise the following issues: 1) whether or not
the respondent's cause of action against the petitioner had already pres-
cribed at the time the complaint was filed in the trial court; 2) whether or
not the factual findings of both the trial and appellate courts as regards
the subject Fordson diesel engine are supported by evidence and 3)
whether or not the award of damages was justified considering evidence
on record.

The first issue is premised on the petitioner's proposition that the
respondent's cause of action was for breach of warranty against hidden
HIDDEN DEFECTS 2 of 6

defects as provided under Articles 1561 and 1566 of the Civil Code.
Article 1571 of the Civil Code provides for a six-month prescriptive
period from the delivery of the thing sold for the filing of an action
for breach of warranty against hidden defects. According to petitioner
GAMI when respondent Yaptinchay filed the case with the trial court,
more than six months had already lapsed from the time the alleged
defective engine was delivered and, therefore, the action had prescribed.

The petitioner contends that Yaptinchay's asserted cause of action was
premised and anchored on the delivery by the defendant of a
DEFECTIVE ENGINE and that the allegations in the complaint that the
engine was not brand new are clearly mere specifications of the precise
nature of the hidden defects.

A cursory reading of the complaint shows that the petitioner's arguments
are not well-taken.

The main thrust of the complaint is the contention that the Fordson
diesel engine delivered by the petitioner to the respondent was not
brand-new contrary to the representations of the former and the
expectations of the latter. The complaint was couched in a manner
which shows that instead of the brand-new Fordson diesel engine which
was bought by the respondent from the petitioner, another engine which
was not brand new was delivered resulting in the damages sought to be
recovered. It is evident therefore, that the complaint was for a
breach of a contract of sale rather than a breach of warranty
against hidden defects. This is so because an action for breach
of warranty against hidden defects presupposes that the thing
sold is the same thing delivered but with hidden defects.
Consequently, the six-month prescriptive period under Article 1571 of the
Civil Code is not applicable.

The petitioner takes exception to the factual findings of the appellate
court and argues: 1) the fact that the Fordson diesel engine developed
oil leaks does not necessarily imply that the said engine was not brand
new and 2) the testimony of laboratory technician Captain Garcia of the
Philippine Constabulary to the effect that the motor or serial number of
the engine was tampered does not deserve credence.
The first argument is premised on the proposition that even brand-new
engines in many cases develop oil leaks. To support this proposition the
petitioner presented documentary evidence (Exhibits "5", "7", "8", "9",
"10", "11", "12", "13", "14", "15", "16", and "17") consisting of job orders
for allegedly brand new engines which developed oil leaks.

An examination of the documentary evidence shows that the job orders
were for twelve (12) different engines. Moreover, the petitioner's
witness who testified on the said job orders admitted that some engines
were repaired only after a few months. On the other hand, the subject
Fordson diesel engine was repaired on the complaint not only of oil leaks
but also replacement of clutch disc and pressure plate, replacement of
release bearing hub trunion belt, and other defects within a week after it
was delivered to the respondents or on February 6, 1962 (Exhibit "C").
Thereafter it was returned for more repairs on February 28, 1962
(Exhibit "F"), on March 10, 1962 (Exhibit "H") and on July 2, 1962
(Exhibit "I"). The documentary evidence of the petitioner consisting of
the job orders of the supposed brand-new engines which also developed
oil leaks is no reason to doubt the trial court's and appellate court's
factual findings. In fact, the documentary evidence and the admissions
of the petitioner's witness enhance the respondent's allegation that the
Fordson diesel engine sold to him was not brand-new.

The second argument questions Captain Garcia's findings that the
original motor number of the engine was tampered as shown by the
presence of fragmentary numbers which appeared in the engine when
he conducted a macro-etching test thereon by applying acid on the
surface of said engine. The petitioner emphasizes Captain Garcia's
alleged testimony that "x x x what he calls fragmentary numeral" is not
definitely a numeral or a fragment of a numeral and states that the same
could have been caused by any molecular pressure applied to the area of
the metal where it appeared. In effect, the petitioner insists that the
supposed fragmentary numerals could have been merely scratches or
indentations near the serial number of the motor which might have been
caused by sparks from the welding process.

The arguments are not well-taken. First, the statements attributed to
Captain Garcia are not accurate. An examination of the record shows
that Captain Garcia positively stated the fragmentary numeral to be a
numeral or a number but in the absence of key portions he could not
positively identify the exact number or numeral. He discounted the
possibility that such fragmentary numerals could be mere scratches.
Second, the witness did not categorically state that any molecular
pressure could have caused the fragmentary numeral. Hence, Captain
Garcia under cross-examination stated:

"Q. This fragmentary numeral could be caused deliberately by
tampering with the engine number or by other factor such as scratches
or burning by other foreign element, is that right?
"A No, sir, they can be caused by scraping but not by scratching,
because by scraping there is molecular disturbance of metal.
"Q When you say molecular disturbance does it mean you first
apply in the area, or would it disturb the molecule in or around that
area?
"A Once you stamped the number, you impressed it and there is
molecular disturbance in the structure of the metal.
"Q If the metal is burned, there is also molecular disturbance in
the metal, is that correct?
"A The metal will only expand.
"Q There is no spark of the machine could not cause the molecular
disturbance in the steam, is that right?
"A It cannot"
(T.S.N., Iluminado C. Palisoc, February 5, 1965, pp. 99-100)
The petitioner's argument that the Court of Appeals findings are based
on manifestly mistaken inferences, misapprehension of facts, and purely
on speculation, surmises, and conjectures is without merit.
The Fordson diesel engine delivered to the respondent was not brand-
new.

We agree with the Court of Appeals that:

"Indeed, it would be too much to say that the successive malfunctions of
the engine, the defects and other discrepancies therein that cropped up
so soon after its delivery, the numerous trips it had to appellant's repair
shop the demonstrable tampering with its serial number, and its ultimate
breakdown despite appellant's attempts to put it into good working order
could be attributed to mere coincidence. If all these mean anything at
all, it can only be that the engine aforesaid was not really brand new.
The petitioner committed a breach of contract against the respondent.
The misrepresentation of the quality of the subject Fordson diesel engine
is tantamount to fraud or bad faith. The return of the P7,590.00
purchase price with legal interest from the date of purchase and
computed pursuant to our ruling in Viloria v. Court of Appeals (G.R. No.
63398, June 29, 1983) is justified. The next question refers to the award
of actual damages in the amount of P54,000.48. This amount covers the
probable income which the respondent failed to realize because of the
breach of contract. Is the award of damages in the form of lucro
cessante justified?

The law on the matter is spelled out in Raagas v. Traya (22 SCRA 839),
where we stated:

"x x x In Abubakar Tan v. Tian Ho, L-18820, December 29, 1962 and Lim
Giok v. Bataan Cigar and Cigarette Factory, L-15861, April 16, 1960, we
HIDDEN DEFECTS 3 of 6

held that even if the allegations regarding the amount of damages in the
complaint are not specifically denied in the answer, such damages are
not deemed admitted. In Tomassi v. Villa-Abrille, L-7047, August 21,
1958, Suntay Tanjangco v. Jovellanos, et al., L-12332, June 30,1960,
and Delfin v. Court of Agrarian Relations, et al., L-23348, March 14,
1967, 1967 A PHILD 453, we declared in no uncertain terms that actual
damages must be proved, and that a court cannot rely on 'speculation,
conjecture or guesswork' as to the fact and amount of damages, but
must depend on actual proof that damages had been suffered and on
evidence of the actual amount. x x x"
The fact that the defendant does not dispute the amount of this kind of
damages does not necessarily imply that the other party outright is
entitled to the award of damages.

Article 2200 of the Civil Code entitles the respondent to recover as
compensatory damages not only the value of the loss suffered but also
prospective profits while Article 2201 entitles the respondent to recover
all damages which may be attributed to the non-performance of the
obligation. However, in order to recover this kind of damages, the
plaintiff must prove his case -

" 'When the existence of a loss is established, absolute certainty as to its
amount is not required. The benefit to be derived from a contract which
one of the parties has absolutely failed to perform is of necessity to some
extent, a matter of speculation, but the injured party is not to be denied
all remedy for that reason alone. He must produce the best evidence of
which his case is susceptible and if that evidence warrants the inference
that he has been damaged by the loss of profits which he might with
reasonable certainty have anticipated but for the defendant's wrongful
act, he is entitled to recover." (Cerreno v. Tan Chuco, 28 Phil. 312
quoted in Central Bank of the Philippines v. Court of Appeals, 63 SCRA
431, 457).
Applying the foregoing test to the instant case, we find the evidence of
the respondent insufficient to be considered within the purview of "best
evidence". The bare assertion of the respondent that he lost about
P54,000.00 and the accompanying documentary evidence presented to
prove the amount lost are inadequate if not speculative. The document
itself merely shows that everytime a truck travels, Mr. Yaptinchay earns
P369.88. This amount is then multiplied by the number of trips which
the truck was allegedly unable to make. The estimates were prepared
by a certain Dionisio M. Macasieb whose identity was not even revealed
by the respondent. Mr. Yaptinchay was in the freight truck business. He
had several freight trucks among them the truck with the subject
Fordson diesel engine, covering the route from Manila to Baguio. To
prove actual damages, it would have been easy to present the average
actual profits realized by the other freight trucks plying the Manila-
Baguio route. With the presentation of such actual income the court
could have arrived with reasonable certainty at the amount of actual
damages suffered by the respondent. We rule that the award of actual
damages in the amount of P54,000.08 is not warranted by the evidence
on record.

WHEREFORE, the decision appealed from is hereby modified. The
award of actual damages in the amount of P54,000.48 is deleted. The
petitioner shall also pay six (6%) percent interest per annum on the
P7,590.00 purchase price from January 27, 1962 to July 29, 1974 and
twelve (12%) percent interest per annum from July 30, 1974 until the
purchase price is reimbursed. In all other respects, the appealed
decision is affirmed.
SO ORDERED.
---ooo0ooo---
[ G.R. No. 173575, February 02, 2011 ]
IMMACULATE CONCEPTION ACADEMY AND THE LATE DR. PAULO C.
CAMPOS SUBSTITUTED BY HIS HEIRS, DR. JOSE PAULO E. CAMPOS,
ATTY. PAULO E. CAMPOS, JR. AND DR. ENRIQUE E. CAMPOS,

PETITIONERS, VS. AMA COMPUTER COLLEGE, INCORPORATED,
RESPONDENT.

DECISION
ABAD, J.:
This case is about the rescission of a lease contract on the ground that
the building turned out to be structurally unsafe even as the lessee had
previously inspected the same.
The Facts and the Case

Immaculate Conception Academy (ICA) owned a three-storey building in
Dasmarias, Cavite. The property caught the eye of AMA Computer
College, Inc. (AMA) and it sought to buy the same but did not
succeed. Subsequently, after inspecting the building, AMA settled on
leasing it.
[2]
The parties signed a contract of lease for 10 years from
September 22, 1997 to September 21, 2007. The agreed rent was
P561,000.00 plus VAT per month. In accordance with the contract, AMA
paid ICA P500,000.00 in earnest money, three months advance rentals,
and security deposit.
After the signing of the contract, officials of AMA re-inspected the
building and began renovating it for the upcoming school year. But
during an inspection, AMA's Chief Operating Officer for its Cavite Campus
noted several cracks on the floor and walls of the building's second
storey. This prompted more inspections. Eventually, AMA applied with
the municipal engineer's office for an occupancy permit. After inspection,
Municipal Engineer Gregorio C. Bermejo wrote AMA a letter dated
September 29, 1997, detailing his findings and conclusion, thus:
---ooo0ooo---

[The] inspection reveals the following defects in the building, such as:

1. Multiple cracks in the second floor slabs showing signs of insufficient
or improper reinforcements.

2. Deflections in the second floor slabs and bears ranging from 20 mm to
50 mm which are beyond normal and allowable.

3. Unusual vibrations in the second floor level which are apparent when
subjected to live loadings.

Based from the above observations we are in doubt as to the structural
soundness and stability of that three-storey building. Whether it can
withstand against any natural calamity is presently under question. We
are convinced that the building is structurally unsafe for human
occupancy.

On the same date, September 29, 1997, AMA wrote ICA demanding the
return of all that it paid within 24 hours from notice. AMA cited the
building's structural deficiency, which it regarded as a violation of ICA's
implied warranty against hidden defects. AMA did not pursue the lease
contract and instead leased another property from a different party.

When its request for reimbursement remained unheeded, AMA filed an
action for breach of contract and damages with prayer for the issuance
of a writ of preliminary attachment against ICA before the Regional Trial
Court (RTC) of Dasmarias, Cavite. In its complaint, AMA alleged that
ICA (represented by the late Dr. Paulo C. Campos) fraudulently entered
into the lease agreement, fraudulently breached the same, and violated
its implied warranty against hidden defects; that despite knowledge of
the instability of the building, ICA insisted on offering it to AMA; and that
ICA had been unable to produce the building's certificate of occupancy.
AMA prayed for restitution of the amounts it paid to ICA with interest
and award of exemplary damages and attorney's fees.

HIDDEN DEFECTS 4 of 6

In its Answer, ICA denied that AMA asked for the building's certificate of
occupancy. ICA alleged that it was AMA's responsibility to secure the
certificate from the municipal government as stipulated in the
contract. Further, ICA claims that it never misrepresented the condition
of the building and that AMA inspected it before entering into the
contract of lease.

In its Decision dated April 8, 2003, the RTC took AMA's side and ruled
that the latter entered into the lease contract without knowing the actual
condition of the building. The RTC held that ICA failed to disclose the
building's condition, thus justifying AMA's rescission of the contract. The
RTC ordered ICA to return the P4,072,150.00 it got from AMA,
representing five months security deposit and three months advance
rentals plus interest of 6% per annum, from January 19, 1998 until full
payment and, further, to pay AMA P300,000.00 and P200,000.00 as
exemplary damages and attorney's fees, respectively.


On appeal, the Court of Appeals (CA) rendered a Decision dated
February 27, 2006, holding that ICA did not violate its implied warranty
against hidden defects, misrepresent the building's condition, or act in
bad faith since AMA inspected the building before it entered into the
lease agreement. It should have noticed the patent cracks on the
second floor. Still, the CA ruled that AMA was justified in rescinding the
lease contract considering ICA's default in repairing the defects in the
building's structure. The CA held that AMA's demand for the certificate
of occupancy amounted to a demand for repairs. Thus, the CA affirmed
the decision of the RTC but deleted the grant of exemplary damages and
attorney's fees. ICA now turns to this Court for succour.

The issues presented in this case are:
1. Whether or not AMA was justified in rescinding the contract of
lease either on account of ICA's fraudulent representation
regarding the condition of its building or on account of its
failure to make repairs on the same upon demand; and
2. Whether or not ICA and Dr. Campos are entitled to their claims
for damages against AMA.
The Court's Rulings

One. The Court is not convinced that AMA was justified in rescinding
the contract of lease on account of ICA's alleged fraudulent
representation regarding the true condition of its building. The fact is
that AMA's representatives inspected the building to determine if it was
suitable for their school's needs. The cracks on the floor and on the
walls were too obvious to suggest to them that something was amiss. It
was their fault that they did not check the significance of such
signs. ICA for its part was candid about the condition of the building and
did not in fact deny AMA access to it.
Apparently, AMA did not, at the beginning, believe that the cracks on the
floor and on the walls were of a serious nature. It realized that such
cracks were manifestations of structural defects only when it sought the
issuance of a municipal occupancy permit. The local building official
inspected the cracks and concluded that they compromised the building's
structural safety.
The CA ruled that, upon the discovery of the building's structural defects,
AMA had the right to seek their repair by ICA on the strength of the
following stipulations in their contract:
---ooo0ooo---

LESSEE shall comply with any and all laws, ordinances, regulations or
orders of national or local governments concerned arising from the
occupation and/or sanitation of the leased PROPERTY.

---ooo0ooo---

8. REPAIRS - LESSEE hereby agrees that all minor repairs or those
caused by the use of the leased PROPERTY or use due to any ordinary
wear and tear shall be for the account of the LESSEE while the major
repairs or those affecting the structural condition of the building and
those due to fortuitous events shall be for the account of the LESSOR.

The CA ruled that AMA's demand for ICA to produce a certificate of
occupancy covering the building from the local building official amounted
to a demand for ICA to undertake a repair of its structural defects.
But this ruling reads from AMA's letter a demand for repair that was not
there. AMA simply asked ICA to produce a certificate of occupancy for
the building even when the contract placed on AMA the responsibility for
complying with the government's occupancy requirement. Indeed, it was
AMA that applied for the certificate of occupancy.
[9]
A demand to repair
the defects in the building's structure, a clearly difficult and costly
proposition, cannot be so easily implied from AMA's demand that ICA
produce such certificate.
True, the quoted provision of the lease contract requires ICA to
undertake major repairs "affecting the structural condition of the building
and those due to fortuitous events." But AMA's outright rescission of the
lease contract and demand that ICA return the deposit and advance
rentals it got within 24 hours from such demand precluded ICA, first,
from contesting the findings of the local building official or getting some
structural specialists to verify such findings or, second, from making the
required repair. Clearly, AMA's hasty rescission of the contract gave ICA
no chance to exercise its options.
AMA belatedly invokes Article 1660 of the Civil Code which reads:
Art. 1660. If a dwelling place or any other building intended for
human habitation is in such a condition that its use brings
imminent and serious danger to life or health, the lessee may
terminate the lease at once by notifying the lessor, even if at
the time the contract was perfected the former knew of the
dangerous condition or waived the right to rescind the lease on
account of this condition.

AMA is actually changing its theory of the case. It claimed in its
complaint that it was entitled to rescind the contract of lease because
ICA fraudulently hid from it the structural defects of its building. The CA
did not agree with this theory but held that AMA was nonetheless
entitled to rescind the contract for failure of ICA to make the repairs
mentioned in the contract. Now, AMA claims that it has a statutory right
to rescind the lease contract on the ground mentioned in Article 1660,
even if it may be deemed to have initially waived such right.

Article 1660 is evidently intended to protect human lives. If ICA's
building was structurally defective and in danger of crashing down during
an earthquake or after it is made to bear the load of a crowd of students,
AMA had no right to waive those defects. It can rescind the lease
contract under Article 1660. But this assumes that the defects were
irremediable and that the parties had no agreement for rectifying
them. As pointed out above, the lease contract implicitly gave ICA the
option to repair structural defects at its expense. If that had been done
as the contract provides, the risk to human lives would have been
removed and the right to rescind, rendered irrelevant.

In any event, the fact is that the local building official found ICA's
building structurally defective and unsafe. Such finding is presumably
true.
[10]
For this reason, ICA has no justification for keeping AMA's
deposit and advance rentals. Still, the Court holds that AMA is not
entitled to recover more than the return of its deposit and advance rental
considering that, contrary to AMA's claim, ICA acted in good faith and did
not mislead it about the condition of the building.

Two. Aside from seeking the dismissal of the complaint, ICA and Dr.
Campos separately seek moral and exemplary damages in the amount of
P90 million and P10 million plus attorney's fees and cost of suit.

To be entitled to moral damages, ICA needed to prove that it had a good
reputation and that AMA's action besmirched the same.
[11]
Such proof is
wanting in this case. As for Dr. Campos, he has amply proved that he
suffered mental anguish, serious anxiety, and social humiliation following
AMA's unfounded accusation that he fraudulently misled AMA regarding
the structural condition of ICA's building. However, due to his untimely
demise before the finality of this case, his claim for moral damages does
not survive and is not transmissible to his substitutes, for being
extremely personal to him.

HIDDEN DEFECTS 5 of 6


Since AMA acted in a reckless, wanton, oppressive, and malevolent
manner in imputing fraud and deceit on ICA and Dr. Campos, the Court
finds ground for awarding them exemplary damages. Further, the Court
holds that, having been compelled to litigate in order to protect their
interests, ICA and Dr. Campos are also entitled to attorney's fees.

WHEREFORE, the Court GRANTS the petition and REVERSES and
SETS ASIDE the Decision of the Court of Appeals in CA-G.R. CV 82266
dated February 27, 2006. Further, the Court:

1. DIRECTS petitioner Immaculate Conception Academy to return to
respondent AMA Computer College, Inc. its security deposit and advance
rentals for the lease of the subject building totaling P4,072,150.00 plus
interest of 6% per annum from the date of the finality of this decision
until it is fully paid; and

2. DIRECTS respondent AMA Computer College, Inc. to pay the heirs of
Dr. Paulo C. Campos, namely, Jose Paulo, Paulo, Jr., and Enrique, all
surnamed Campos and the Immaculate Conception Academy
P100,000.00 as exemplary damages and P50,000.00 as attorney's fees.
AUTONOMY OF CONTRACTS
ART. 1306. The contracting parties may establish such stipulations,
clauses, terms and conditions as they may deem convenient, provided
they are not contrary to law, morals, good customs, public order, or
public policy.

The subordinate position of the individual employee vis-a-vis
management renders him especially vulnerable to its blandishments and
importunings, and even intimidations, that may result in his
improvidently if reluctantly signing over benefits to which he is clearly
entitled. Recognizing this danger, we have consistently held that
quitclaims of the workers' benefits win not estop them from asserting
them just the same on the ground that public policy prohibits such
waivers.

That the employee has signed a satisfaction receipt does not result in a
waiver; the law does not consider as valid any agreement to receive less
compensation than what a worker is entitled to recover. A deed of
release or quitclaim cannot bar an employee from demanding benefits to
which he is legally entitled.

Release and quitclaim is inequitable and incongruous to the declared
public policy of the State to afford protection to labor and to assure the
rights of workers to security of tenure.
---ooo0ooo---
MUTUALITY OF CONTRACTS

In Philippine National Bank v. Court of Appeals, et al., 196 SCRA 536,
544-545 (1991) we held
. . . The unilateral action of the PNB in increasing the interest rate on the
private respondent's loan violated the mutuality of contracts ordained in
Article 1308 of the Civil Code:
Art. 1308. The contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them. In order that
obligations arising from contracts may have the force or law between the
parties, there must be mutuality between the parties based on their
essential equality. A contract containing a condition which makes its
fulfilment dependent exclusively upon the uncontrolled will of one of the
contracting parties, is void . . . .

Hence, even assuming that the . . . loan agreement between the PNB
and the private respondent gave the PNB a license (although in fact
there was none) to increase the interest rate at will during the term of
the loan, that license would have been null and void for being violative of
the principle of mutuality essential in contracts. It would have invested
the loan agreement with the character of a contract of adhesion, where
the parties do not bargain on equal footing, the weaker party's (the
debtor) participation being reduced to the alternative "to take it or leave
it" . . . . Such a contract is a veritable trap for the weaker party whom
the courts of justice must protect against abuse and imposition.
OBLIGATORINESS * CONSENSUALITY OF CONTRACTS
More than anything else, the parties, by a solemn document freely and
voluntarily agreed upon by them, agreed to be bound by the report of
the commission and approved by the trial court. The agreement is a
contract between the parties. It has the force of law between them and
should be complied with in good faith. Article 1159 and 1315 of the Civil
Code explicitly provides:

Art. 1159. Obligations arising from contracts have the force of law
between the contracting parties and should be complied with in good
faith.

Art. 1315. Contracts are perfected by mere consent, and from that
moment the parties are bound not only to the fulfilment of what
has been expressly stipulated but also to all the consequences
which, according to their nature, may be in keeping with good faith,
usage and law.

Furthermore, during the hearing on 22 November 1996, petitioner did
not interpose a serious objection. It is therefore too late for petitioner to
question the valuation now without violating the principle of equitable
estoppel. Estoppel in pais arises when one, by his acts, representations
or admissions, or by his own silence when he ought to speak out,
intentionally or through culpable negligence, induces another to believe
certain facts to exist and such other rightfully relies and acts on such
belief, so that he will be prejudiced if the former is permitted to deny the
existence of such facts. Records show that petitioner consented to
conform with the valuation recommended by the commissioners. It
cannot detract from its agreement now and assail correctness of the
commissioners' assessment. Finally, while Section 4, Rule 67 of the Rules
of Court provides that just compensation shall be determined at the time
of the filing of the complaint for expropriation, such law cannot prevail
over R.A. 7160, which is a substantive law.
---ooo0ooo---
The principle of RELATIVITY OF CONTRACTS
Art. 1311. Contracts take effect only between the parties, their assigns
and heirs, except in case where the rights and obligations arising from
the contract are not transmissible by their nature, or by stipulation or by
provision of law. The heir is not liable beyond the value of the property
he received from the decedent.
---ooo0ooo---
The general rule, therefore, is that heirs are bound by contracts entered
into by their predecessors-in-interest except when the rights and
obligations arising therefrom are not transmissible by (1) their nature,
(2) stipulation or (3) provision of law. In the case at bar, there is neither
contractual stipulation nor legal provision making the rights and
obligations under the contract intransmissible. More importantly, the
nature of the rights and obligations therein are, by their nature,
transmissible.
The nature of intransmissible rights as explained by Arturo Tolentino, an
eminent civilist, is as follows:
HIDDEN DEFECTS 6 of 6

Among contracts which are intransmissible are those which are purely
personal, either by provision of law, such as in cases of partnerships and
agency, or by the very nature of the obligations arising therefrom, such
as those requiring special personal qualifications of the obligor. It may
also be stated that contracts for the payment of money debts are not
transmitted to the heirs of a party, but constitute a charge against his
estate. Thus, where the client in a contract for professional services of a
lawyer died, leaving minor heirs, and the lawyer, instead of presenting
his claim for professional services under the contract to the probate
court, substituted the minors as parties for his client, it was held that the
contract could not be enforced against the minors; the lawyer was
limited to a recovery on the basis of quantum meruit.
In American jurisprudence, "(W)here acts stipulated in a contract require
the exercise of special knowledge, genius, skill, taste, ability, experience,
judgment, discretion, integrity, or other personal qualification of one or
both parties, the agreement is of a personal nature, and terminates on
the death of the party who is required to render such service." 10
It has also been held that a good measure for determining whether a
contract terminates upon the death of one of the parties is whether it is
of such a character that it may be performed by the promissor's personal
representative. Contracts to perform personal acts which cannot be as
well performed by others are discharged by the death of the promissor.
Conversely, where the service or act is of such a character that it may as
well be performed by another, or where the contract, by its terms, shows
that performance by others was contemplated, death does not terminate
the contract or excuse non-performance. In the case at bar, there is no
personal act required from the late Encarnacion Bartolome. Rather, the
obligation of Encarnacion in the contract to deliver possession of the
subject property to petitioner upon the exercise by the latter of its option
to lease the same may very well be performed by her heir Victor.
As early as 1903, it was held that "(H)e who contracts does so for
himself and his heirs." 12 In 1952, it was ruled that if the predecessor
was duty-bound to reconvey land to another, and at his death the
reconveyance had not been made, the heirs can be compelled to execute
the proper deed for reconveyance. This was grounded upon the principle
that heirs cannot escape the legal consequence of a transaction entered
into by their predecessor-in-interest because they have inherited the
property subject to the liability affecting their common ancestor. 13
It is futile for Victor to insist that he is not a party to the contract
because of the clear provision of Article 1311 of the Civil Code. Indeed,
being an heir of Encarnacion, there is privity of interest between him and
his deceased mother. He only succeeds to what rights his mother had
and what is valid and binding against her is also valid and binding as
against him. 14 This is clear from Paraaque Kings Enterprises vs. Court
of Appeals, 15 where this Court rejected a similar defense

With respect to the contention of respondent Raymundo that he is not
privy to the lease contract, not being the lessor nor the lessee referred to
therein, he could thus not have violated its provisions, but he is
nevertheless a proper party. Clearly, he stepped into the shoes of the
owner-lessor of the land as, by virtue of his purchase, he assumed all the
obligations of the lessor under the lease contract. Moreover, he received
benefits in the form of rental payments. Furthermore, the complaint, as
well as the petition, prayed for the annulment of the sale of the
properties to him. Both pleadings also alleged collusion between him and
respondent Santos which defeated the exercise by petitioner of its right
of first refusal. In order then to accord complete relief to petitioner,
respondent Raymundo was a necessary, if not indispensable, party to the
case. A favorable judgment for the petitioner will necessarily affect the
rights of respondent Raymundo as the buyer of the property over which
petitioner would like to assert its right of first option to buy.
In the case at bar, the subject matter of the contract is likewise a lease,
which is a property right. The death of a party does not excuse
nonperformance of a contract which involves a property right, and the
rights and obligations thereunder pass to the personal representatives of
the deceased. Similarly, non-performance is not excused by the death of
the party when the other party has a property interest in the subject
matter of the contract. Under both Article 1311 of the Civil Code and
jurisprudence, therefore, Victor is bound by the subject Contract of Lease
with Option to Buy. That being resolved, we now rule on the issue of
whether petitioner had complied with its obligations under the contract
and with the requisites to exercise its option. The payment by petitioner
of the reservation fees during the two-year period within which it had the
option to lease or purchase the property is not disputed. In fact, the
payment of such reservation fees, except those for February and March,
1990 were admitted by Victor. 17 This is clear from the transcripts, to wit
ATTY. MOJADO:
One request, Your Honor. The last payment which was allegedly made in
January 1990 just indicate in that stipulation that it was issued November
of 1989 and postdated January 1990 and then we will admit all.

COURT: All reservation fee?
ATTY. MOJADO: Yes, Your Honor.

COURT: All as part of the lease?
ATTY. MOJADO: Reservation fee, Your Honor. There was no payment
with respect to payment of rentals.

Petitioner also paid the P15,000.00 monthly rental fee on the subject
property by depositing the same in China Bank Savings Account No. 1-
04-02558-I-1, in the name of Victor as the sole heir of Encarnacion
Bartolome, 19 for the months of March to July 30, 1990, or a total of five
(5) months, despite the refusal of Victor to turn over the subject
property. Likewise, petitioner complied with its duty to inform the other
party of its intention to exercise its option to lease through its letter
dated Match 12, 1990, 21 well within the two-year period for it to
exercise its option. Considering that at that time Encarnacion Bartolome
had already passed away, it was legitimate for petitioner to have
addressed its letter to her heir.

It appears, therefore, that the exercise by petitioner of its option to lease
the subject property was made in accordance with the contractual
provisions. Concomitantly, private respondent Victor Bartolome has the
obligation to surrender possession of and lease the premises to petitioner
for a period of six (6) years, pursuant to the Contract of Lease with
Option to Buy.
Coming now to the issue of tenancy, we find that this is not for this
Court to pass upon in the present petition. We note that the Motion to
Intervene and to Dismiss of the alleged tenant, Andres Lanozo, was
denied by the lower court and that such denial was never made the
subject of an appeal. As the lower court stated in its Order, the alleged
right of the tenant may well be ventilated in another proceeding in due
time.

WHEREFORE, in view of the foregoing, the instant Petition for Review is
GRANTED. The Decision of the Court of Appeals in CA-G.R. CV No. 40849
and that of the Regional Trial Court of Valenzuela in Civil Case No. 3337-
V-90 are both SET ASIDE and a new one rendered ordering private
respondent Victor Bartolome to:

(a) surrender and deliver possession of that parcel of land covered by
Transfer Certificate of Title No. V-14249 by way of lease to petitioner
and to perform all obligations of his predecessor-in-interest, Encarnacion
Bartolome, under the subject Contract of Lease with Option to Buy;

(b) surrender and deliver his copy of Transfer Certificate of Title No. V-
14249 to respondent Register of Deeds for registration and annotation
thereon of the subject Contract of Lease with Option to Buy;
(c) pay costs of suit.
Respondent Register of Deeds is, accordingly, ordered to register and
annotate the subject Contract of Lease with Option to Buy at the back of
Transfer Certificate of Title No. V-14249 upon submission by petitioner of
a copy thereof to his office.

Вам также может понравиться