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538 Phil. 88


[ G.R. NO. 158676, November 27, 2006 ]




In this petition for review under Rule 45 of the Rules of Court, petitioner BPI-Family Savings Bank, Inc. assails and seeks to set aside the following issuances of the Court of Appeals (CA) in CA-G.R. CV No. 60994, to wit:
  1. Decision[2] dated May 30, 2002, affirming in toto an earlier decision[3] of the Regional Trial Court (RTC) of Quezon City, Branch 81, in its Civil Case No. Q-90-6402, which adjudged petitioner solidarily liable with Benjamin Villa to the spouses Zenaida Domingo and Abundio S. Domingo for actual, moral and exemplary damages and attorney's fees, subject to reimbursement by the spouses Julian Cruz; and

  2. Resolution[4] dated June 10, 2003, denying the separate motions for reconsideration filed by the petitioner, Benjamin Villa and the Cruz spouses.
The facts:

Respondent Julian Cruz is the owner of a commercial lot and building located at No. 977 E. Quirino Ave., Novaliches, Quezon City. Sometime in April 1976, he leased out the premises to the Family Savings Bank (FSB). In April 1989, after the Bank of the Philippine Islands (BPI) acquired FSB but before the expiration of the original lease contract between Cruz and FSB, a new lease agreement over the same property was executed, this time between BPI-FSB and Cruz.

Both the original and the new lease contracts contained the following stipulation:
Assignment and Sublease – The lessee has the right to sublease the premises or any portion thereof to a third party. The lessee may not, however, assign or transfer its right or interest under this lease without the written consent of the lessor.
On February 23, 1989, while the original lease agreement between FSB and Cruz was still subsisting, BPI-FSB subleased the same premises to respondent Benjamin Villa (now deceased), a former Vice President of BPI-FSB. While BPI-FSB apparently did not secure the written consent of Julian Cruz, it appears that the latter was aware of the sublease and acceded to it because he made neither an objection nor a protest thereto.

The aforementioned sublease contract between BPI-FSB and Benjamin Villa embodied the following clause:

The sublessee shall not assign this contract of sublease or sublease any part of the premises to any person or entity.

Benjamin Villa occupied and used the premises as a restaurant, operating thereat the "Carousel Food House." His restaurant business, however, failed to prosper. Hence, after only about a year of operation, Villa decided to close it down.

On or about June 4, 1990, while still operating the "Carousel Food House" at the premises, Villa learned that Mrs. Zenaida Domingo was interested in taking over his restaurant business thereat. Negotiations pushed through and the price of P650,000.00 was agreed upon between the two. Villa, however, informed Mrs. Domingo that as a mere sublessee under his sublease contract with BPI-FSB, he was prohibited from assigning his rights as a sublessee. It was, therefore, necessary to rescind his sublease contract with BPI-FSB so that the latter could directly execute a sublease contract with the Domingo spouses. Villa informed the principal lessee BPI-FSB about the arrangement and the latter acceded.

On June 15, 1990, Villa received from the Domingos the amount of P300,000.00 as partial payment for his rights over the premises. The receipt Villa issued therefor reads:
Received from Mrs. Zenaida Domingo the amount of three hundred thousand pesos (P300,000.00) as partial payment for my giving up my rights on the premises presently occupied by Carousel Food House and certain equipments and improvements in the same premises.
On June 18, 1990, BPI-FSB executed a sublease contract in favor of the Domingos. Three days later, or on June 21, 1990, a Deed of Rescission of the sublease agreement between BPI-FSB and Villa was executed and signed by BPI-FSB and Villa.

On June 26, 1990, Villa received from the Domingos the amount of P350,000.00, representing the full payment of the amount due under their agreement. As before, Villa issued the corresponding receipt, to wit:
For and in consideration of the sum of Three Hundred Fifty Thousand Pesos (P350,000.00), Philippine Currency, receipt of which in full is hereby acknowledged, the undersigned hereby assigns, cedes and transfers and sets over to Ms. Zenaida G. Domingo the goodwill, all rights and interest over the premises located at 977 Quirino Avenue, Novaliches, Quezon City, the permanent improvements and certain equipments thereon, free on any lien or encumbrance except the legal rights of the owner of the building thereon...
On the very same day, Villa vacated the subject premises and turned over the key thereof to the Domingos.

The following day - June 27, 1990 - the Domingos went to clean and fix the premises but could not enter because the door was padlocked. Moreover, there was posted at the glass window of the commercial building a sign to the effect that the place was not for lease or sublease. Apparently, Julian Cruz, the owner-lessor, preempted the Domingos' visit in order to padlock the premises and post said notice the day previous.

The Domingos thus demanded of Villa either compliance with their contract of sublease or the return of their payment of P650,000.00. Efforts exerted by Villa and BPI-FSB to place the Domingos in possession of the subject premises proved futile due to the refusal of Cruz to open the same.

On account of Villa's failure to return their total payment of P650,000.00 for the place, the Domingos filed suit in the RTC of Quezon City for a sum of money with damages against both Villa and BPI-FSB. In turn, Villa and BPI-FSB filed their respective third-party complaints against Cruz.

In their complaint, docketed as Civil Case No. Q-90-6402 and raffled to Branch 81 of the trial court, the Domingos maintained that both Villa and BPI-FSB assured them that they would be placed in possession of the subject premises as a sublessee. Hence, the failure of both to comply with said undertaking makes them jointly and severally liable to them for the return of the P650,000.00 they paid to Villa, plus damages.

For their part, Villa and BPI-FSB laid the blame on Cruz. They posited that they failed to comply with their promise to the plaintiffs-spouses because of Cruz's illegal, unreasonable and unjustified action in padlocking the premises. Hence, they argued that should they be made to return the amount of P650,000.00 which the spouses Domingo paid to Villa, Cruz should be simultaneously ordered to reimburse them for the same amount. Additionally, BPI-FSB contended that under its lease contract with Cruz, it had the right to sublease the subject premises to a third person even without the consent of the latter.

On the other hand, Cruz, as third-party defendant in this case, claimed that he had every right to close down the premises and to refuse the entry thereto of the Domingos because under his lease agreement with BPI-FSB, the latter cannot sublease the premises without his written consent. Purportedly, BPI-FSB violated this condition when it subleased the premises to the Domingos without his written consent.

In a decision[5] dated June 8, 1998, the trial court found for the Domingos, and accordingly rendered judgment, to wit:
WHEREFORE, premises considered, judgment is hereby rendered as follows:

  1. Ordering defendants BPI-Family Savings Bank and Benjamin Villa to pay the plaintiffs, jointly and severally, the following amounts:
1.1 P650,000.00 as actual damages, representing the amount paid by plaintiffs to defendant Villa, with interest at the legal rate from the filing of the complaint until fully paid;

1.2 P100,000.00 as moral damages;

1.3 P50,000.00 as exemplary damages;

1.4 P25,000.00 as attorney's fees.
  1. Ordering third-party defendant Julian Cruz to reimburse third-party plaintiffs BPI-FSB and Villa for whatever amounts said defendants/third-party plaintiffs will pay the plaintiffs by virtue of this judgment;

  2. Ordering third-party defendant Cruz to pay third-party plaintiff BPI-FSB the amount of P25,000.00 as attorney's fees;

  3. Ordering third-party defendant Cruz to pay third-party plaintiff Villa the amounts of P50,000.00 as moral damages and P25,000.00 as attorney's fees;

  4. Dismissing for lack of merit the counterclaims and cross-claims of defendants BPI-FSB and Villa, and the counterclaims of third-party defendant Cruz.
Costs against third-party defendant Cruz.

From the foregoing decision, a common appeal was interposed by BPI-FSB and Villa to the CA. Separate appeal was also taken by the spouses Cruz, all of which appeals were consolidated and docketed in the CA as CA-G.R. CV No. 60994.

As stated at the threshold hereof, the CA, in its decision[6] of May 30, 2002, affirmed in toto that of the trial court, and denied in its resolution of June 10, 2003, the appellants' respective motions for reconsideration.

Of the parties below, only petitioner BPI-FSB elevated the case to this Court via the instant petition for review on the following grounds:
  1. The CA gravely abused its discretion and committed a reversible error in NOT applying the provisions of Articles 1207 and 1311 of the Civil Code under which, contrary to its decision, BPI-FSB could not be held solidarily liable with VILLA for the return to the DOMINGOS of the amount of P650,000.00.

  2. The action of the DOMINGOS being as it is indisputably an action for recovery of a sum of money and not an action for specific performance and there being no dispute that the amount of P650,000.00 was received by VILLA and VILLA alone, the Court of Appeals gravely abused its discretion and committed a reversible error in holding NOT only VILLA liable for the return of the money but also BPI-FSB as well.

  3. The Court of Appeals gravely abused its discretion and committed a reversible error in affirming the decision of the trial court holding that BPI-FSB is solidarily liable with VILLA for other damages.[7]
We AFFIRM but minus the award of moral and exemplary damages.

In a nutshell, petitioner BPI-FSB denies knowledge of, let alone having anything to do with, the transaction between Villa and the Domingos. It points to the express admission of both the Domingos and Villa that BPI-FSB did not receive any portion of the amount of P650,000.00 as it was Villa alone who received the same from the Domingos. As petitioner further claims, it came to know of such payment only when the case at bar was filed. Not being a privy to the agreement between the Domingos and Villa, petitioner contends that it cannot be found solidarily liable with Villa for the latter's breach of his sublease agreement with the Domingos. In support thereof, petitioner invokes the following provisions of the Civil Code:
Article 1311. Contracts take effect only between the parties, their assigns and heirs x x x.

xxx xxx xxx

Article 1207. x x x There is solidary liability only when the obligation expressly so states or when the law or the nature of the obligation requires solidarity.
Hence, it is petitioner's submission that it should not be held solidarily liable with Villa for "a transaction that was entered exclusively between Zenaida Domingo and VILLA," allegedly "without the knowledge, consent or participation of BPI-FSB."[8]

Ironically, Villa, in his memorandum[9] before the Court, uses the same logic in arguing that he should not be held solidarily liable with BPI-FSB. Villa points out that, not being a party to the second sublease contract between BPI-FSB and the Domingos, he cannot be held responsible for the Domingos' failure to occupy the premises. He also alleged having informed the Domingos beforehand that he had no right to sublease the premises under his sublease agreement with BPI-FSB, hence the need for the deed of rescission of said sublease contract, which deed was in fact executed. To Villa, the second sublease contract was solely between BPI-FSB and the Domingos.

We rule and so hold, as did the CA, that neither BPI-FSB nor Villa can escape liability by disclaiming privity to an agreement with the Domingos. There are more than one, indeed several, relevant agreements involved in this case. To waylay any possibility of confusion, we shall enumerate them to distinguish one from the other:
  1. The original lease agreement between Julian Cruz and BPI-FSB;

  2. The first sublease contract between BPI-FSB and Villa;

  3. The sale of goodwill of the Carousel Food House, and the assignment and transfer of all of Villa's rights and interests to the premises and improvements thereon, between Villa and the Domingos;

  4. The second sublease contract between BPI-FSB and the Domingos; and

  5. The Deed of Rescission of the first sublease contract between Villa and BPI-FSB.
The CA found no cogent reason to disturb the trial court's finding that both BPI-FSB and Villa assured the Domingos that they would eventually be placed in possession of the premises in question as sublessee. Nor do we. Not only is there evidence to corroborate this finding; it is likewise the version more consistent with common human experience. Finding no reversible error in the trial court's appraisal and appreciation of the facts and evidence on record, it was not amiss for the CA to adhere to the well-entrenched precept that factual findings of trial courts are entitled to great weight and respect, even finality in certain cases.[10] This Court can do no less.

Both BPI-FSB and Villa each had their own respective agreements with the Domingos, albeit for a single purpose. Villa sold to the Domingos the goodwill of his restaurant business, as well as all his rights and interests in the premises and its improvements. BPI-FSB, on the other hand, subleased the same premises to the Domingos. These two contracts are intertwined. Indeed, the Domingos' enjoyment of the goodwill and business of Villa would be an impossibility without the BPI-FSB – Domingos sublease contract.

The Court cannot give credence to BPI-FSB's posture that it had nothing to do with, nor even had knowledge of, the agreement between Villa and the Domingos. This scenario is far-fetched, what with the fact that BPI-FSB is a party to the sublease contract with the Domingos, and, in pursuance thereof, even executed a deed of rescission of its earlier sublease agreement with Villa. It had also exerted efforts, along with Villa, towards putting the Domingos in possession of the premises by seeking out Cruz. With such a factual backdrop, it is difficult to grasp how BPI-FSB could not have taken part and assured the Domingos of possession of the premises, as found by the two (2) courts below. Indeed, it insults one's credulity for the petitioner to feign ignorance of the sublease agreement between Villa and the Domingos. In any event, it is clear that BPI-FSB's failure to put the Domingos in possession of the premises as its sublessees, in breach of its own contract with them, makes the petitioner solidarily liable with Villa for the amount the Domingos had paid to enjoy the premises.

Villa, on the other hand, though not a privy to the second (BPI-FSB – Domingos) sublease contract, had his own contract with the Domingos which he had breached. We refer to the sale by Villa for P650,000.00, of the goodwill of his restaurant business in the premises and the assignment of all his rights and interests thereon, including the equipment and improvements made thereat. To cap it all, Villa cannot possibly escape liability for said amount as it was he who had received the same and even issued a receipt therefor.

Clearly, then, the two (2) courts below had not erred in holding that both BPI-FSB's and Villa's failure to comply with their respective undertakings to place the Domingos in possession of the subject premises renders them accountable for breach of contract. As decreed by statute, those who in any manner contravenes the tenor of their obligations are liable for damages.[11]

The Court agrees, however, with petitioner BPI-FSB that it was due to Cruz's actions of padlocking the premises and posting notices thereat that prevented the Domingos from taking possession of the place. It is precisely for this reason why the two (2) courts below correctly adjudged Cruz to be ultimately liable for what is due the Domingos and thus directed him to reimburse what Villa and BPI-FSB must pay the spouses.

As found by the trial court, Cruz himself was guilty of breach with respect to his basic lease agreement with BPI-FSB. Concededly, said agreement contained the following stipulation:
Assignment and Sublease – The lessee has the right to sublease the premises or any portion thereof to a third party. The lessee may not, however, assign or transfer its right or interest under this lease without the written consent of the lessor. (Emphasis supplied.)
On surface, the foregoing stipulation seemingly insulates Cruz from any liability in this case. However, basic is the rule that in the construction of an instrument where there are several provisions or particulars, such a construction is, if possible, to be adopted as will give effect to all.[12] The trial court was quick to point out, and rightly so, that the first sentence of the aforequoted covenant speaks of what the lessee can do, while the second sentence refers to what it cannot do without the consent of the lessor. This is evident from the phrase "may not however" found in the second sentence, which means that the act of sub-leasing in the first sentence may be done by the lessee without the consent of the lessor but the act of assignment or transfer of rights in the second sentence cannot be done by the lessee without the consent of the lessor. Clearly, the parties intended a distinction between a sublease and an assignment of rights.

Under the aforequoted contractual stipulation, BPI-FSB, as lessee, is possessed of the authority to sublease the subject premises. No mention is made of obtaining any written consent of the lessor (Cruz) as a condition sine qua non for the validity of a sublease agreement. What necessitates the prior written consent of lessor Cruz is the assignment or transfer by BPI-FSB as lessee of its right or interest under the lease agreement.

To our mind, the CA was correct in affirming the trial court's distinguishing between a sublease and an assignment of rights. In a sublease situation, the lessee (BPI-FSB, in this case) continues to be liable to the lessor (Cruz) for the payment of rent. The sublessee (the Domingos in this case) pays rent not to the lessor (Cruz) but to the lessee/sub-lessor (BPI-FSB). On the other hand, in an assignment of rights, the assignee steps into the shoes of the lessee who is thereupon freed from his obligations under the lease because from then on it is the assignee who is liable to the lessor for rental payment. In other words, in an assignment of rights, there is a change of lessor, which is not so in a sublease situation. It is thus understandable why it is not necessary for the lessor to give his consent to a sublease, while in an assignment of rights, it is a necessity for the lessor to require his prior consent. This is for the lessor's own protection.

For sure, in the very memorandum[13] he filed with the Court, Cruz in fact admits that the trial court was correct in making a distinction between a sublease and an assignment of rights. In Cruz's own words:
The Honorable Trial Court correctly ruled on page 25 of its assailed decision that, "It is clear that the parties made a distinction between "sublease" and an "assignment of rights." Is there a difference between the two? BPI-FSB believes so and this Court (i.e., trial court) agrees."[14]
It is Cruz's contention, however, that the sublease agreement between BPI-FSB and the Domingos was in fact an assignment of rights, and not a sublease, as held by the two (2) courts below. In support thereof, Cruz utilizes the following distinctions between a sublease and an assignment of rights:

(a) the lessee retains an interest in the lease; he remains a party to the contract;

(a) the lessee makes an absolute transfer of his interest as lessee; thus, he disassociates himself from the original contract of lease;

(b) the sublessee does not have any direct action against the lessor;

(b) the assignee has a direct action against the lessor;

(c) can be done without the permission of the lessor (unless there be an express prohibition).

(c) cannot be done unless the lessor consents.[15]

To respondent Cruz, all the foregoing three elements of an assignment of rights are present in this case. Anent the first element, Cruz points to BPI-FSB allegedly having no "knowledge, consent or participation"[16] in the contract between Villa and the spouses Domingo. Hence, BPI-FSB must have made an absolute transfer of its interest, disassociating itself from the original contract of lease. Said denial of knowledge or participation by BPI-FSB upon which Cruz relies cannot, however, be given credence and has, in fact, already been struck down in the instant decision. Besides, as already pointed out, more than one contract is involved herein. Evidently, the contract alluded to by Cruz is the assignment of goodwill of Villa's restaurant business executed between Villa and the Domingos. Separate therefrom is the contract of sublease between the Domingos and BPI-FSB for which the rescission of the first sublease contract between BPI-FSB and Villa was necessary. Clearly, BPI-FSB made no absolute transfer of interest as the lessee of Cruz.

Cruz goes on to argue that the case filed by the Domingos only proves that the latter have direct action against him, thereby a showing that the sublease agreement between BPI-FSB and the Domingos was one of assignment of rights. Again, this argument is faulty. The Domingos had no direct cause of action against Cruz. That is precisely why they filed their action against Villa and BPI-FSB, having privity of contract only with the latter two. It was BPI-FSB that filed a third-party complaint against Cruz, which is only proper, because BPI-FSB is a party to the lease contract with Cruz. Indeed, if the Domingos had a direct action against Cruz, the two courts below would have simply ordered Cruz to pay the Domingos directly instead of choosing the more circuitous route of ordering BPI-FSB and Villa to pay the Domingos and for Cruz to reimburse them for the amount they were adjudged to pay.

Cruz ends his line of reasoning by saying that the final element is present: that such assignment could not be done without his written consent. Clearly, this final stab at the dark is a round-about argument unworthy of appreciation. It has already been shown that the subject agreement was not an assignment. Had it been one, then a written consent of Cruz would have been required; but it was a mere sublease, as correctly ruled by the two (2) courts below.

To us, however, the imposition by the trial court, as affirmed by the CA, of moral and exemplary damages against petitioner BPI-FSB is rather harsh. As borne by the facts on record, the failure of BPI-FSB and Villa to comply with their obligations under their respective contracts with the Domingos was not due to any fault of their own, but to the acts of Cruz in refusing to allow the Domingos access to the premises. For his part, it is entirely possible that Cruz's actions stemmed from his misinterpretation of his lease agreement with BPI-FSB.

Article 201 of the Civil Code provides:
Art. 201. In contracts and quasi-contracts, the damages for which the obligor who acted in good faith is liable shall be those that are the natural and probable consequences of the breach of the obligation, and which the parties have foreseen or could have reasonably foreseen at the time the obligation was constituted.

In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all damages which may be reasonably attributed to the non-performance of the obligation.
For evident absence of bad faith on the part of BPI-FSB, Villa and Cruz, the award of moral and exemplary damages in favor of the Domingos must be, as it is hereby, deleted.

WHEREFORE, minus the award of moral and exemplary damages in favor of the Domingos, the assailed decision of the CA is AFFIRMED in all aspects.

No pronouncement as to costs.


Puno, (Chairperson), Sandoval-Gutierrez, Corona, and Azcuna, JJ., concur.

[1] The name of Benjamin Villa was inadvertently not included in the petitioner's motion for extension of time, dated June 27, 2003.

[2] Penned by Associate Justice Bienvenido L. Reyes, with Associate Justices Roberto A. Barrios and Edgardo F. Sundiam, concurring; Rollo, pp. 43-52.

[3] Id. at 55-82.

[4] Id. at 53-54.

[5] Supra note 3.

[6] Supra note 2.

[7] Petition; Rollo, pp. 28-29.

[8] Petition; Id. at 32.

[9] Id. at 215-243.

[10] Verdejo v. CA, G.R. No. 106018, December 5, 1994, 238 SCRA 781.

[11] Article 1170, The Civil Code.

[12] Section 11, Rule 130 of the Rules of Court; Home Development v. CA, G.R. No. 118972, April 3, 1998, 288 SCRA 617.

[13] Rollo, pp. 200-209.

[14] Id. at 207.

[15] Id. citing Manlapat v. Salazar, 98 Phil 356 (1956); Arts. 1649 and 1650 as discussed on pages 325 and 326 of The Civil Code of the Philippines Annotated, 14th Ed., 2000 of Justice Edgardo L. Paras.

[16] Petition; Rollo, p. 44.

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