G.R. No. 204702 - Honrado vs. GMA Network Films, Inc.

On December 11, 1998, GMA Network Films, Inc. (“GMA Films”) and Ricardo C. Honrado (“Honrado”) entered into a TV Rights Agreement granting GMA Films exclusive telecast rights to 36 films for three years in exchange for ₱60.75 million.
Paragraph 3 required all betacam copies to pass GMA-7’s broadcast quality test; Paragraph 4 provided that each film be submitted to the Movie and Television Review and Classification Board (MTRCB) and, if disapproved, Honrado must replace the film or effect a proportionate price reduction.

Two titles—Evangeline Katorse and Bubot—were invoiced at ₱1.5 million each. GMA Films alleged it rejected Evangeline Katorse for having “undertime” and that Honrado only remitted ₱900,000 of the Bubot fee to the owner (Juanita Alano), keeping ₱350,000.
In 2003, GMA Films sued Honrado in the RTC of Quezon City for refund of ₱1.6 million, invoking breach of contract and implied trust under Civil Code Article 1456. Honrado countered that he replaced Evangeline Katorse with Winasak na Pangarap (certified for broadcast quality) and had settled Alano’s fee; he also counterclaimed for attorney’s fees.

The RTC dismissed GMA Films’ complaint, credited Honrado’s replacement of Evangeline Katorse, found no misappropriation of Bubot funds, and awarded Honrado ₱100,000 attorney’s fees.
On appeal, the Court of Appeals reversed, holding (a) GMA Films properly rejected Evangeline Katorse and did not accept Winasak na Pangarap; (b) Honrado had no right to commission on Bubot and, by retaining funds, created an implied trust; and (c) awarded GMA Films ₱2 million plus interest, exemplary damages (₱100,000), attorney’s fees (₱200,000), litigation expenses (₱100,000), and costs.

Whether the Court of Appeals erred in finding Honrado liable for breach of contract (by rejecting the replacement film) and breach of trust (by retaining part of the Bubot fee) under the TV Rights Agreement.