Philippine Realty and Holdings Corp. v. DMCI Project Developers, Inc.

THIRD DIVISION

[G.R. No. 202751. April 24, 2017.]

PHILIPPINE REALTY AND HOLDINGS CORPORATION, petitioner,vs. DMCI PROJECT DEVELOPERS, INC., UNIVERSAL RIGHTFIELD PROPERTY HOLDINGS, INC. AND UNIVERSAL LEISURE CORP., respondents.

NOTICE

Sirs/Mesdames :

Please take notice that the Court, Third Division, issued a Resolution datedApril 24, 2017, which reads as follows: HTcADC

"G.R. No. 202751 (Philippine Realty and Holdings Corporation vs. DMCI Project Developers, Inc., Universal Rightfield Property Holdings, Inc. and Universal Leisure Corp.). — The Court resolves to NOTE:

(1) the letter dated January 11, 2017 of Edward Ross M. Encarnacion, Vice President and General Manager of Shared Services, Philippine Realty & Holdings Corporation, requesting the Court to allow him, through his authorized representative, to reproduce any document related to this case; and

(2) the letter dated January 19, 2017 of same Mr. Encarnacion, addressed to Atty. Felipa B. Anama, Clerk of Court En Banc, this Court, authorizing the bearer, Ramon Alfonso B. Ereñeta, to obtain any and all pertinent information related to their company's outstanding case docketed in the Third Division, and requesting the identity of the ponente in this case, with 1st Indorsement of Atty. Anama, referring to the Division Clerk of Court, Third Division, the said letter for appropriate action.

This is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court seeking to annul and set aside the Decision 2 dated December 27, 2011 and the Resolution 3 dated July 16, 2012 issued by the Court of Appeals (CA) in CA-G.R. CV No. 83158.

On January 6, 1997, Philippine Realty and Holdings Corporation (PHILREALTY), DMCI Project Developers, Inc. (DMCI) and Universal Rightfield Property Holdings, Inc. (URPHI) entered into an Amended Memorandum of Agreement (AMOA) 4 for the purpose of creating a joint venture for the construction and development of a condominium project known as the Exchange Square. 5

Pursuant to the AMOA, the parties shall contribute to the joint venture the amount of P1,527,000,000.00, half of which or P763,500,000.00 shall be contributed by PHILREALTY, while the remaining half shall be equally shouldered by DMCI and URPHI, or P381,750,000.00 each. As agreed upon by the parties, PHILREALTY's contribution was a parcel of land, which had an agreed value of P763,500,000.00, containing an area of 5,090 square meters situated along Exchange Road and Jade Drive, Ortigas Center, Pasig City and covered by Transfer Certificate of Title No. PT-98642 (Ortigas property). It was further agreed by the parties that the Ortigas property shall be "free and clear of all easements, liens and encumbrances of any nature whatsoever." On the other hand, the contribution of DMCI and URPHI shall be in cash, to be paid to a joint venture account to be maintained in International Exchange Bank (IEB). 6

Upon signing of the AMOA, DMCI and URPHI each made an initial cash contribution of P95,437,500.00 or a total of P190,875,000.00, which was deposited in a joint venture account opened by the parties with IEB. DMCI and URPHI obliged themselves to make additional cash contributions as may be required to fund the development of the project until each of them shall have contributed P381,750,000.00, or a total of P763,500,000.00. 7

Universal Leisure Corporation (ULC), a subsidiary corporation of both DMCI and URPHI, planned to build a business club at the penthouse of the Exchange Square for its shareholders and members. 8

On November 28, 1997, PHILREALTY and A. Brown Company, Inc. (ABC) entered into an Amended Contract to Sell, 9 wherein the former agreed to sell to the latter, for P135,682,800.00, its 14 condominium units and two storage units in Tektite Towers (condominium contract). It was agreed that ABC would initially pay the amount of P110,000,000.00 as downpayment, while the balance of P25,682,800.00 would be paid in 12 equal monthly installments. 10

In December 1997, the parties abandoned the Exchange Square project. 11 Because of the termination of the project, the parties agreed to get back their respective contributions. PHILREALTY got back the Ortigas property. However, a disagreement arose over the amount that would be returned to DMCI and URPHI. 12 PHILREALTY only returned to DMCI and URPHI the amount of P110,000,000.00 out of P190,875,000.00 they initially contributed, claiming that the balance thereof answers for the supposed pre-development expenses consisting of professional fees of architects and engineering designers. 13

On February 16, 1998, PHILREALTY and ULC entered into a Contract to Sell 14 pursuant to which, the latter agreed to buy 74 parking lots in the West Podium parking level 3 in the Tektite Towers owned by the former for and in consideration of P40,700,000.00 (parking lots contract). Pursuant to the parking lots contract, ULC initially paid P10,175,000.00 as downpayment, with the balance of P30,525,000.00 to be paid in six equal monthly installments. 15

On June 1, 1998, ABC executed a Deed of Transfer of Rights 16 in favor of ULC. Accordingly, ULC acquired all the rights, interests and obligations of ABC in the condominium contract, including the obligation to pay PHILREALTY the balance of the purchase price amounting to P25,682,800.00. 17 aScITE

On July 1, 1998, DMCI and URPHI assigned to ULC their rights to the specific and determinate receivables from the dissolved joint venture and/or PHILREALTY. 18 In the meantime, ULC failed to pay the remaining amounts due under the condominium contract and parking lots contract. Thus, PHILREALTY sent ULC a Letter 19 dated July 16, 1998 demanding that the latter pay its remaining obligation under the condominium contract and parking lots contract in the aggregate amount of P56,207,800.00, with interest at the rate of three percent (3%) per month, within 15 days from receipt of the letter.

In response, ULC sent PHILREALTY a Letter 20 dated August 24, 1998 stating that the latter's demand is baseless. ULC acknowledged that it still has not paid the full amount due on the condominium contract and parking lots contract, but claimed that, as a result of the assignment of credit by DMCI and URPHI, the remaining amounts due should be reduced. 21

Consequently, on account of ULC's failure to pay, PHILREALTY filed an Amended Complaint 22 on November 12, 1998 with the Regional Trial Court (RTC) of Pasig City, Branch 161, against ULC, DMCI and URPHI (collectively, the respondents). PHILREALTY averred that the assignment of rights made by DMCI and URPHI in favor of ULC is void. 23 Likewise, PHILREALTY asserted that since ULC failed to pay the monthly installments of the remaining amounts due on the condominium contract and parking lots contract on the stipulated dates, the entire balance became due and demandable and interest thereon at the stipulated rate of three percent (3%) per month, compounded monthly, has accrued. PHILREALTY claimed that, as of September 1, 1998, the entire amount due, inclusive of interest, are as follows: (1) P32,534,202.66 for the condominium contract; and (2) P32,383,972.50 for the parking lots contract. 24 PHILREALTY further prayed for an award of attorney's fees in the amount of P500,000.00. 25

In its Answer with Counterclaims, 26 DMCI maintained that it and URPHI validly assigned the same to ULC. 27 By way of counterclaim, DMCI claimed that PHILREALTY committed a substantial breach of its obligation in the AMOA, which thus entitles it to rescind the same. 28 It pointed out that PHILREALTY had encumbered the Ortigas property contrary to its warranty and representation in the AMOA that the same shall be "free and clear of all easements, liens, and encumbrances of any nature whatsoever." DMCI alleged that on July 16, 1998, PHILREALTY mortgaged the Ortigas property to Metropolitan Bank and Trust Company (Metrobank), and later conveyed the same to the latter by way of dacion en pago sans notice to it or URPHI. 29 Accordingly, DMCI prayed that the AMOA be rescinded and that PHILREALTY be directed to return its contribution to the failed joint venture. 30

The arguments raised by URPHI and ULC in their respective Answers with Counterclaim 31 are similar to the foregoing points raised by DMCI. ULC, however, stressed that, as against its obligation to PHILREALTY for the purchases it made, it is entitled to compensate the credit that was validly assigned to it by DMCI and URPHI; that its obligation to PHILREALTY should be equitably reduced in view of the said assignment of credit. 32

Consequently, on February 19, 2004, the RTC rendered a Decision, 33 the decretal portion of which reads:

WHEREFORE, IN VIEW OF ALL THE FOREGOING, this Court hereby renders judgment in favor of [the respondents] and against PHILREALTY, as follows:

1. Declaring the Memorandum of Agreement dated December 2, 1996 and [AMOA] dated January 6, 1997 rescinded;

2. Ordering PHILREALTY to deliver to ULC within ninety (90) days from receipt of this Decision, the titles to Fourteen (14) Condominium units and two (2) storage units all situated at the 34th Floor, West Tower, of the Philippine Stock Exchange Centre, Ortigas Centre, Pasig City as well as Seventy[-]Four (74) parking slots all situated at the West Podium 3 Parking Level in PSE Centre, Ortigas, Pasig City; Otherwise to return to ULC the amounts which have been paid including what have been deemed paid over the condominium units and parking spaces;

3. Ordering PHILREALTY to return to ULC as assignee of DMCI and URPHI the amount of Twenty[-]Four Million Six Hundred Sixty[-]Seven Thousand Two Hundred Pesos (Php24,667,200[.00]) with 6% interest from the date of the filing of this Complaint and;

4. To pay Attorney's fees:

To DMCI in the amount of Php300,000.00;

To URPHI Php150,000.00, and; HEITAD

To ULC in the amount of Php150,000.00.

SO ORDERED. 34

The RTC pointed out that PHILREALTY substantially breached its undertaking under the AMOA when it mortgaged the parcel of land it contributed to the joint venture to Metrobank and later transferred the ownership of the same to the latter by way of dacion en pago. 35 Accordingly, the RTC ruled that rescission is proper in view of the substantial breach committed by PHILREALTY and, since rescission necessitates the return of the object of the contract, the latter is thus obliged to return to DMCI and URPHI their respective cash contributions in the aggregate amount of P190,875,000.00. However, since PHILREALTY has already returned the amount of P110,000,000.00 to DMCI and URPHI, the RTC opined that the former would still have to pay the latter the amount of P80,875,000.00. 36

Further, considering that DMCI and URPHI had assigned their credit under the AMOA to ULC, the RTC ruled that ULC may then validly apply the amount of P80,875,000.00 to any obligation it may have in favor of PHILREALTY by way of legal compensation. 37 Thus, the RTC pointed out that, after deducting the amount of P56,207,800.00 — the aggregate remaining amount due on the condominium contract and parking lots contract — from P80,875,000.00, there remains the amount of P24,667,200.00, which PHILREALTY should pay to ULC. 38

Aggrieved, PHILREALTY filed an appeal 39 with the CA alleging that the RTC erred in ordering the rescission of the AMOA. PHILREALTY likewise maintained that the assignment of credit in favor of ULC was invalid since it was not contained in a public instrument contrary to Article 1625 of the Civil Code. 40 Finally, PHILREALTY contended that the RTC should have directed ULC to pay the remaining amount due on the condominium contract and parking lots contract. 41

On December 27, 2011, the CA rendered the herein assailed Decision, 42 which affirmed the RTC decision albeit with modification in that PHILREALTY was directed to pay each of the respondents attorney's fees in the reduced amount of P50,000.00, viz.:

WHEREFORE, foregoing considered, the appeal is DENIED. The Decision dated 19 February 2004 of the [RTC], Branch 161 of Pasig City is AFFIRMED with MODIFICATION. [PHILREALTY] is ORDERED to pay each of the [respondents] the reduced amount of P50,000.00 as attorney's fees.

SO ORDERED.43

PHILREALTY sought reconsideration, 44 but it was denied by the CA in its Resolution 45 dated July 16, 2012.

Hence, this petition.

Ruling of the Court

Essentially, the issues for the Court's resolution are the following: first, whether the rescission of the AMOA was proper; second, whether the assignment of credit made by DMCI and URPHI in favor of ULC was valid; and third, whether legal compensation may validly take place as between the ULC's remaining obligation on the purchase of the condominium and storage units and parking lots and PHILREALTY's obligation under the AMOA.

The petition is denied.

First, the lower courts did not commit any error in ordering the rescission of the AMOA. Article 1191 of the Civil Code, in part, states that "[t]he 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 Court finds that PHILREALTY had indeed breached its obligations under the AMOA, which thus entitled DMCI and URPHI to rescind the same.

PHILREALTY was obliged, inter alia, to contribute the Ortigas property free and clear of all easements, liens and encumbrances of any nature whatsoever, thus:

The contribution of the OWNER shall be in form of the Land, more particularly described in the first Whereas clause of this agreement, with an agreed value of PHP763,500,000.00, free and clear of all easements, liens and encumbrances of any nature whatsoever, and is, and shall continue to be, not subject to any claim, set-off or defense which will prevent the eventual use and completion of the Project. 46

However, contrary to its obligation, PHILREALTY never contributed the Ortigas property to the joint venture. PHILREALTY's own witness, Amador Bacani (Bacani), its Vice President, admitted that the title to the Ortigas property was not transferred in the name of the joint venture; the fact of the contribution thereof to the joint venture was not even annotated at the back of the title. 47 Further, PHILREALTY, contrary to the tenor of the AMOA, mortgaged the Ortigas property to Metrobank, sans the consent of DMCI and URPHI, on July 16, 1998. Two months thereafter, PHILREALTY altogether disposed the Ortigas property in favor of Metrobank, by way of dacion en pago, to settle its obligations.

Moreover, considering that PHILREALTY's contribution to the failed joint venture, i.e., the Ortigas property, had already been returned to it, it would be the height of injustice should URPHI and DMCI be denied the full amount of their respective contributions to the joint venture. ATICcS

Second, PHILREALTY's claim that the assignment of credit made by DMCI and URPHI in favor of ULC is likewise without merit. "An assignment of credit has been defined as the process of transferring the right of the assignor to the assignee who would then have the right to proceed against the debtor." 48 There is nothing that prevents DMCI and URPHI from assigning their respective rights to whatever receivables that they may each have from PHILREALTY.

While an assignment of credit produces no effect against third persons unless it appears in a public instrument, 49 third persons are nevertheless bound by such assignment should they have knowledge thereof. 50 In this case, the lower courts correctly determined that PHILREALTY had actual knowledge of the assignment of credit made by DMCI and URPHI in favor of ULC. This was evident from the exchange of letters between Bacani and Jovencio Hernandez (Hernandez), URPHI's Executive Vice President and Chief Financial Officer. In one of his letters to Bacani, Hernandez insinuated that ULC's outstanding balance due on the condominium contract and parking lots contract should be compensated against the amount due to DMCI and URPHI from the joint venture. In response, Bacani told Hernandez that PHILREALTY should bill ULC since its outstanding balance on the condominium contract and parking lots contract is greater than the possible amount due to DMCI and URPHI from the accounts of the joint venture. 51

PHILREALTY nevertheless claims that the lower courts should not have admitted as evidence the Assignment of Right executed by DMCI and URPHI in ULC's favor. It claims that the original copy of the Assignment of Right, which is a private instrument, was not presented during the trial and was not properly identified and authenticated thereat. 52 PHILREALTY claims that the Assignment of Right was merely marked during the trial sans proof of who executed the same and who the signatories thereof are. 53

Under Section 19 of Rule 132 of the Rules of Court, before any private document offered as authentic, such as the said Assignment of Right, is received in evidence, its due execution and authenticity must be proved either by anyone who saw the document executed or written, or by evidence of the genuineness of the signature or handwriting of the maker thereof. As correctly pointed out by PHILREALTY, the authenticity and due execution of the Assignment of Right were not properly established during the trial since the respondents failed to present any witness who would have positively testified that the Assignment of Right is genuine and has been duly executed or that the document is neither spurious nor counterfeit nor executed by mistake or under duress.

Nevertheless, authentication is not necessary where the adverse party has admitted the genuineness and due execution of a document. 54 A fact that was admitted by the party during the course of the proceedings in the same case does not require proof; the admission may be contradicted only by showing that it was made through palpable mistake or that no such admission was made. 55

In this case, PHILREALTY's counsel, during the trial, admitted the existence of the Assignment of Right and even presented a photocopy of the same as evidence to prove that the assignment in favor of ULC was but a fraudulent maneuver on the part of the respondents. 56 In presenting a photocopy of the Assignment of Right as evidence to prove that the assignment in favor of ULC is a ploy by the respondents to avoid payment on the condominium contract and parking lots contract, they effectively admitted the genuineness and due execution of the Assignment of Right. Thus, notwithstanding that the Assignment of Right was not properly identified and authenticated during the trial, the RTC correctly admitted the same as evidence in view of PHILREALTY's admission of the genuineness and due execution thereof.

Third, compensation takes place when two persons, in their own right, are creditors and debtors of each other. 57 In order that compensation may take place, it is necessary that: (1) each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other; (2) both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated; (3) the two debts be due; (4) the debts are both liquidated and demandable; and (5) over neither of debts there be any retention or controversy commenced by third persons and communicated in due time to the debtor. 58 Legal compensation takes effect when all the foregoing requisites are present although the creditors and debtors are not aware of the compensation. 59

The lower courts did not commit any error in ruling that legal compensation has taken place as between the debt owed by ULC on the condominium and parking lots contracts to PHILREALTY and the debt owed by PHILREALTY to ULC. A debt is considered demandable when it is enforceable in court as there is no apparent defense inherent in it. On this score, the CA correctly observed that:

In this case, legal compensation has taken place and operates even against the will of the parties because: (a) [PHILREALTY] and [the respondents] are personally both creditor and debtor of each other; (b) the monetary obligation of [PHILREALTY] is [P80,875,000.00] and that of the [respondents] is P56,207,800.00 showing that both indebtedness are monetary obligations the amounts of which are both known and liquidated; (c) both monetary obligations had become due and demandable[;] and (d) neither of the debts or obligations are subject of a controversy commenced by a third person. Consequently, by operation of law, the P56,207,800.00 which [ULC] owed [PHILREALTY] is off-set against the [P80,875,000.00] owed by [PHILREALTY] to ULC, leaving a balance of P24,667,200.00 which [PHILREALTY] should pay to ULC. 60

WHEREFORE, in view of the foregoing disquisitions, the petition is hereby DENIED. The Decision dated December 27, 2011 and the Resolution dated July 16, 2012 issued by the Court of Appeals in CA-G.R. CV No. 83158 are AFFIRMED."

SO ORDERED."

Very truly yours,

(SGD.) WILFREDO V. LAPITANDivision Clerk of Court

Footnotes

1.Rollo, pp. 10-48.

2. Penned by Associate Justice Manuel M. Barrios, with Associate Justices Juan Q. Enriquez, Jr. and Apolinario D. Bruselas, Jr. concurring; id. at 55-69.

3.Id. at 72-73.

4.Id. at 154-159.

5.Id. at 154.

6.Id. at 154-155.

7.Id. at 364.

8.Id. at 363.

9.Id. at 108-111.

10.Id. at 108-109.

11.Id. at 57.

12.Id. at 20.

13.Id. at 58.

14.Id. at 116-120.

15.Id. at 116-117; 365.

16.Id. at 114-115.

17.Id. at 365.

18.Id. at 162-164.

19.Id. at 121-122.

20.Id. at 123-125.

21.Id. at 124.

22.Id. at 88-99.

23.Id. at 94-95.

24.Id. at 95-96.

25.Id. at 97.

26.Id. at 126-137.

27.Id. at 130.

28.Id. at 133.

29.Id. at 130.

30.Id. at 135.

31.Id. at 138-153; 170-193.

32.Id. at 184.

33. Rendered by Judge Alicia P. Marino-Co; id. at 400-417.

34.Id. at 416-417.

35.Id. at 414.

36.Id. at 415.

37.Id.

38.Id. at 416.

39.Id. at 252-280.

40.Id. at 275.

41.Id. at 277-278.

42.Id. at 55-69.

43.Id. at 69.

44.Id. at 76-87.

45.Id. at 72-73.

46.Id. at 155.

47.Id. at 373.

48.Licaros v. Gatmaitan, 414 Phil. 857, 866 (2001).

49. CIVIL CODE OF THE PHILIPPINES, Article 1625.

50.See Tolentino, Civil Code of the Philippines, Vol. V, 1992 ed., p. 191.

51. Rollo, p. 416.

52. Id. at 37.

53. Id. at 37-38.

54. See Chua v. Court of Appeals, 283 Phil. 253, 260 (1992).

55. RULES OF COURT, Rule 129, Section 4.

56. Rollo, p. 388.

57. CIVIL CODE OF THE PHILIPPINES, Article 1278.

58. CIVIL CODE OF THE PHILIPPINES, Article 1279.

59. CIVIL CODE OF THE PHILIPPINES, Article 1290.

60. Rollo, p. 68.