458 Phil. 1038
SANDOVAL-GUTIERREZ, J.:
"WHEREFORE, premises considered, judgment is hereby rendered as follows:Upon appeal, the Court of Appeals rendered a Decision[21] on May 21, 2001 affirming the trial court's judgment with modification, thus:
(1) defendant (now petitioner) to pay plaintiff (now respondent), to wit:(2) The Counterclaims of the defendant dated August 20, 1996 is DISMISSED."[20]
- US $671,653, US $14,415.87, and US $2,117.23 or their peso equivalent at the time of payment;
- 6% interest of the above-mentioned amounts per annum from the time of the filing of the complaint until the same shall have been fully paid;
- P100,000.00 as exemplary damages;
- P100,000.00 as attorney's fees;
"WHEREFORE, upon the premises, the Decision appealed from is AFFIRMED with the MODIFICATION that the award of exemplary damages is DELETED and the award of attorney's fees is REDUCED to P20,000.00.The Court of Appeals held:
"SO ORDERED."[22]
"We concur with the trial court in ordering defendant-appellant (now petitioner) to reimburse plaintiff-appellee (now respondent) the deficiency taxes it paid to the US IRS, and quote with favor its well-written ratiocination as follows:Petitioner now comes to us via the instant petition, ascribing to the Court of Appeals the following error:`In its effort to extricate itself from liability, defendant further argues that the sale with the plaintiff was on `CASH, AS-WHERE-IS' basis and that plaintiff, as an offeror, was responsible for informing itself with respect to any and all conditions regarding the NSCP shares and vessels which may in any manner affect the offer price or the nature of offeror's proposal (Exhs. 8, 8-A to A-B).
`The above-mentioned contracts form part of the NSCP's Negotiated Sale Guidelines dated March 1993 prepared by NSCP and required by NDC (now petitioner) to be attached with the Proposal Letter Form, which was also prepared by NSCP, and submitted to NDC by bidders. These contracts are ready-made form of contracts, the preparation of which was left entirely to the NSCP. Their nature is that of a contract of adhesion. A contract of adhesion may be struck down as void and unenforceable, for being subversive of public policy, when the weaker party is imposed upon in dealing with the dominant bargaining party and is reduced to the alternative of taking it or leaving it, completely deprived of the opportunity to bargain on equal footing (Saludo, Jr. vs. Court of Appeals, 207 SCRA 498 [1992]). In the case at bar, the acceptance of the Negotiated Sale Guidelines and submission thereof together with the Proposal Letter Form by a prospective buyer is a required formality of the bidding. Under the circumstance, the plaintiff, in taking such contracts, may not be deemed to have been given the opportunity to bargain on equal footing.'"[23]
"THE COURT OF APPEALS ERRED IN CONCURRING WITH THE TRIAL COURT IN ORDERING HEREIN PETITIONER TO REIMBURSE RESPONDENT THE DEFICIENCY TAXES IT PAID TO THE US IRS."[24]Petitioner contends that contrary to the findings of both lower courts, the Negotiated Sale Guidelines and the Proposal Letter Form are mere invitations to bid. As such, they are not contracts and should be treated as mere offer or proposal to prospective buyers of the NSCP shares and marine vessels.[25]
(1) Whether the Negotiated Sale Guidelines and the Proposal Letter Form constitute a contract of adhesion; andOn the first issue, we agree with both lower courts that the Negotiated Sale Guidelines and the Proposal Letter Form constitute a contract of adhesion.
(2) Whether petitioner is legally bound to reimburse respondent for the amounts it paid corresponding to the former's tax liabilities to the US IRS.
The Proposal Letter Form provides that the bidder is bound by the Negotiated Sale Guidelines, thus:
"4.0 PREPARATION OF OFFERS 4.01 Offerors shall use the `Proposal Letter Form for Sale of NSCP and Vessels' provided herein.4.02 All offers should be accompanied by: x x x (b) the Negotiated Sale Guidelines duly signed by the offeror or authorized representative in every page thereof x x x.x x x x x x x x x 14.0 OTHER PROVISIONS 14.01 NDC and APT reserve the right in their discretion to reject any and all offers, to waive any formality therein and of these guidelines, and to consider only such offer as may be advantageous to the National Government. NDC and APT may, at their discretion require additional information and/or documents from any offeror.14.02 NDC and APT reserve the right to amend the Guidelines prior to the submission of offers x x x.x x x x x x x x x 14.05 Violation of any of these terms and conditions shall cause the cancellation of the award and the automatic forfeiture of the deposit."[43] (Underscoring ours)
"It is understood that:Clearly, respondent had hardly any say in the terms and conditions expressed in the Negotiated Sale Guidelines. Other than the price of the offer, respondent was left with little or no alternative at all but to comply with its terms. Thus, the trial court correctly found:
- We accept and undertake without any reservations whatsoever that, if this offer to purchase the vessels and NSCP shares is accepted, we shall be subjected to all the terms and conditions issued by the NDC and APT including those outlined in the March, 1993 Information Memorandum and the Negotiated Sale Guidelines for the sale of NSCP and the three vessels.
x x x x x x x x x
- We represent and warrant that: (i) we have examined and understood the Information Package, (ii) we accept the conditions of the March, 1993 Negotiated Sale Guidelines, including the right of NDC and APT to reject any and all offers without thereby creating any liability in our favor x x x."[44] (Underscoring ours)
"The above-mentioned contracts form part of NSCP's Negotiated Sale Guidelines dated March 1993 prepared by NSCP and required by NDC to be attached with the Proposal Letter Form, which was also prepared by NSCP, and submitted to NDC by bidders. These contracts are ready-made form of contracts, the preparation of which was left entirely to the NSCP. Their nature is that of a contract of adhesion. x x x. In the case at bar, the acceptance of the Negotiated Sale Guidelines and submission thereof together with the Proposal Letter Form by a prospective buyer is a required formality of the bidding. Under this circumstance, the plaintiff, in taking such contracts, may not be deemed to have been given the opportunity to bargain on equal footing."[45] (Underscoring ours)Being a contract of adhesion, we reiterate that it is our duty to apply a strict construction of its terms upon the party who made the same[46] and to construe any ambiguity in such contract against its author.[47] It is public policy to protect a party (herein respondent) against oppressive and onerous conditions.[48]
"8. All of the terms and conditions of (a) the March 1993 NDC Information Memorandum and Negotiated Sale Guidelines, including the amendments thereto, more particularly those contained in NDC's letter to A. P. Madrigal Steamship Co. Inc. dated May 4, 1993, and (b) the Notice of Award dated February 11, 1993 are hereby incorporated herein by reference and shall insofar as they are not inconsistent with the terms and conditions hereof, be applicable to this Contract."[50] (Underscoring ours)We now determine whether petitioner is obliged under the law and the contract to reimburse respondent for the amounts it paid corresponding to the former's US tax liabilities. We quote with approval the trial court's findings affirmed by the Court of Appeals, thus:
"From the foregoing facts, there is no doubt that during the negotiation for the sale of defendant's (now petitioner's) shares of stocks and three (3) ocean-going vessels, NSCP was already aware of an impending assessment by the US government on NSCP's gross transportation income derived from US sources. The exchanges of communications (Exhibits D, E, F, G, H and I) between NSCP and US IRS are glaring proof of NSCP's prior knowledge of a possible assessment or additional taxes. Moreover, in the Partial Printout of NSCP's Unaudited Financial Statements for the Year ending December 31, 1993 (Exhibit V), NSCP made provisions for US taxes as follows: for the year ending 1993, US $3,919,018.81 (Exh. V-2), and for the years ending 1990-1992, US $11,736,192.64 (Exh. V-3). Exhibit V is a clear indication that, indeed, NSCP had prior knowledge of such deficiency taxes, and in fact, recognized the same even though there was no final assessment yet from the US IRS.[51]There is no dispute that petitioner was aware of its US tax liabilities considering its numerous communications with the agents of the United States Internal Revenue Service, just prior to the sale of NSCP and the marine vessels to respondent.[53] The NSCP itself made an ambiguous contingent provision in its Unaudited Financial Statements for the year ending December 1993, thereby indicating its awareness of a possible US tax assessment.[54] It bears stressing that petitioner did not convey such information to respondent despite its inquiries.[55] Obviously, such concealment constitutes bad faith on its part. Bad faith "implies a conscious and intentional design to do a wrongful act for a dishonest purpose or moral obliquity; it x x x contemplates a state of mind affirmatively operating with furtive design or ill will."[56]x x x x x x x x x
"The Partial Printout of NSCP's Unaudited Financial Statements for the Year ending December 1993 (Exhs. 2, 2-A to 2-B or Exhs. V, V-2 to V-3), true to the word of the defendant (now petitioner), carries provisions for US taxes. The problem, however, with this evidence is there is no showing that this had been furnished the plaintiff (now respondent). On the contrary, plaintiff vehemently asserts having been denied by defendant access to the latter's accounting books and financial statements. Basic in the law of evidence that he who asserts the affirmative of the allegation has the burden of proving it (Geraldez vs. CA, 230 SCRA 320). The defendant has failed to prove that the pertinent statement made in this document or the document itself had been disclosed to the plaintiff.
"The Unaudited Financial Statements of NSCP (Exhs. 3, 3-A and 3-B), which allegedly includes the subject US taxes among NSCP's Trade Payable and Accrued Expenses and Dividends, does not clearly indicate the said taxes. The Trade Payable and Accrued Expenses and Dividends as including the said taxes is vague or unequivocal on the matter. By mere reading of it, one would not have the slightest inkling or suspicion that such taxes exist as among NSCP's liabilities."[52] (Underscoring ours)
"7.0 OFFEROR'S RESPONSIBILITYThe terms of the parties' contract are clear and unequivocal. The seller (petitioner NDC) gives a warranty as to the ownership of the object of sale and against any lien and encumbrance. A tax liability of $688,186.10 was then a potential lien upon NSCP's marine vessels. Being in bad faith for having failed to inform the buyer, herein respondent, of such potential lien, petitioner breached its warranty and should, therefore, be held liable for the resulting damage, i.e., reimbursement for the amounts paid by petitioner to the US IRS.7.01 x x x. Seller gives no warranty regarding the sale of the shares and assets except for a warranty on ownership and against any liens or encumbrances, and the offeror shall not be relieved of his obligation to make the aforesaid examinations and verifications."[58] (Underscoring ours)
"2.0 TERMS OF SALEIn Hian vs. Court of Tax Appeals,[60] we had the occasion to construe the phrase "as is, where is" basis, thus:
2.01 The sale of the NSCP and the three vessels shall be strictly on "CASH, AS IS-WHERE IS" basis."[59] (Underscoring ours)
"We cannot accept the contention in the Government's Memorandum of March 31, 1976 that Condition No. 5 in the Notice of Sale to the effect that `The above-mentioned articles (the tobacco) are offered for sale `AS IS' and the Bureau of Customs gives no warranty as to their condition' relieves the Bureau of Customs of liability for the storage fees in dispute. As we understand said Condition No. 5, it refers to the physical condition of the tobacco and not to the legal situation in which it was at the time of the sale, as could be implied from the right of inspection to prospective bidders under Condition No. 1. x x x." (Underscoring ours)The phrase "as is, where is" basis pertains solely to the physical condition of the thing sold, not to its legal situation. In the case at bar, the US tax liabilities constitute a potential lien which applies to NSCP's legal situation, not to its physical aspect. Thus, respondent as a buyer, has no obligation to shoulder the same.
"Art. 22. Every person who through an act or performance by another or by any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him."Justice and equity thus oblige that petitioner be held liable for NSCP's tax liabilities and reimburse respondent for the amounts it paid. It would be unjust enrichment on the part of petitioner to be relieved of that obligation.
"However, we find no basis for the grant of exemplary damages which can be granted only in addition to moral, temperate, liquidated or compensatory damages (Art. 2229, Civil Code of the Philippines), none of which was awarded or deserved in this case. The trial court merely granted plaintiff's prayer in its main cause of action for reimbursement of taxes plaintiff paid to the U.S. Since no actual or moral damages was awarded, there is no legal basis for the award of exemplary damages which may only be granted in addition thereto (Scott Consultants and Resources Development Corp. Inc. vs. CA, 242 SCRA 393).WHEREFORE, the petition is DENIED and the assailed Decision of the Court of Appeals is AFFIRMED.x x x x x x x x x
"Anent the award of attorney's fees, we find it excessive, considering that the instant case is a simple action for reimbursement and did not involve extensive litigation. Nothing precludes the appellate courts from reducing the award of attorney's fees when it is found to be unconscionable or excessive under the circumstances (Brahm Industries Inc. vs. NLRC, 280 SCRA 828). Thus, the award of attorney's fees is reduced to P20,000.00."[61]