G.R. No. 211149 - Arcinue vs. Baun

Case Summary (G.R. No. 211149)

Franchise Agreement and Transfer Restriction

On October 1, 1990, ACLC granted Arcinue a ten-year franchise to operate an ACLC computer training center in Dagupan City subject to the parties’ Agreement for Franchise Operations. Section 21 of that Agreement explicitly allowed transfer of the franchise during the ten-year term only with prior approval of the franchisor; any transferee would hold rights only for the unexpired term. Arcinue did not commence operation for several years and, without obtaining ACLC’s prior approval, sold his franchise rights to Baun for P85,000.00.

Post-transfer Efforts by Baun and ACLC’s Inspection

After Arcinue’s sale to Baun, Baun undertook steps to establish the school—leasing a building and engaging an architect to conform the premises to ACLC standards. ACLC inspected the proposed site and found deficiencies, notably inadequate total floor area, and discovered that Baun served as a director of another school in San Carlos offering computer courses. ACLC had not approved Baun as transferee at any time prior to these developments.

ACLC’s Communications and Termination of Franchise

ACLC formally informed Arcinue by letter dated November 19, 1994 that it still recognized Arcinue as the franchisee because it had not received documentation acknowledging any transfer; ACLC directed Arcinue to submit transfer documents by January 1995 or face termination. Arcinue did not timely respond. A handwritten note from Arcinue dated November 20, 1995 stated Baun had prospective buyers; ACLC replied November 29, 1995 instructing that any sale be coursed through Arcinue and providing sale/transfer guidelines. Arcinue again failed to comply, and ACLC terminated the franchise in 1997 for continuous failure to operate and for assignment without prior approval.

Commencement of Litigation and Procedural History

On September 11, 1997, Baun filed a complaint against Arcinue and ACLC seeking specific performance and damages to enforce her claimed rights as transferee. Trial proceeded; Baun completed presentation of evidence on April 30, 2002. Baun died on June 21, 2009; the trial court allowed her siblings to substitute as plaintiffs. The Regional Trial Court (Branch 57, San Carlos City) rendered judgment on October 8, 2010.

Regional Trial Court Findings and Awards

The trial court found that Arcinue’s transfer to Baun lacked ACLC’s prior approval and that Arcinue acted in bad faith by failing to operate the franchise and by selling it for P85,000.00. The court concluded ACLC suffered lost prospective income during the seven-year period the school was not operated and that Baun incurred pecuniary loss and expenses in attempting to set up the school without ACLC’s approval. The court held Arcinue liable for violation of Civil Code Articles 19, 20 and 21 and awarded: to Baun’s estate—P85,000 actual damages with legal interest at 6% per annum from the time Arcinue unjustly received the money in 1993 until full payment, P50,000 exemplary damages, and P50,000 moral damages; to ACLC—P100,000 temperate damages (in lieu of actual damages), P50,000 exemplary damages, and P25,000 moral damages. The RTC dismissed the complaint as to ACLC.

Appeal to the Court of Appeals and Its Ruling

Arcinue appealed to the Court of Appeals but impleaded only Baun, resulting in the trial court’s judgment becoming final and executory with respect to ACLC. The Court of Appeals, by Decision dated July 17, 2013, affirmed the RTC’s factual findings and liabilities. The CA held there was ample proof that Arcinue sold the franchise without prior notification or approval of ACLC; ACLC never approved Baun as transferee and therefore could not be held to have acted in bad faith. The CA nonetheless recognized Baun’s right to recover damages from Arcinue for tortious acts. The CA also concluded the action for recovery of damages survived Baun’s death as an action to recover damages for injury to person or property. A motion for reconsideration was denied on January 28, 2014.

Grounds Advanced in the Present Petition

Arcinue contended to the Supreme Court that he did not act in bad faith and that ACLC implicitly approved the transfer because ACLC personnel met with and assisted Baun in site selection, site surveys, and provided advertising materials. He further argued the complaint for specific performance and damages was a personal action that did not survive Baun’s death and should have been dismissed following her demise.

Supreme Court’s Standard of Review and Factual Findings

The Supreme Court denied the petition, stressing that Rule 45 certiorari review is limited primarily to questions of law. The Court reiterated the principle that it will not re-evaluate or reweigh factual findings already made and affirmed by both the trial court and the Court of Appeals. The Court cited precedents establishing that the propriety of awards of damages and causation questions are questions of fact not ordinarily amenable to Rule 45 relief; no recognized exception justified reexamination of factual determinations in this case. Accordingly, the lower courts’ factual findings that Arcinue acted in bad faith and that the transfer lacked ACLC’s approval were left undisturbed.

Survival of the Action and its Legal Basis

The Supreme Court held that the suit for recovery of damages for injury to person or property survives the death of a party, citing Section 1, Rule 87 of the Rules of Court. Because the RTC and the CA concluded Arcinue committed tortious acts violating Articles 19–21 of the Civil Code that caused Baun pecuniary injury (payment of P85,000 and other expenditures), the action fell squarely within the category of suits that may be brought against an executor or administrator and thus survived Baun’s death. The Court relied on precedent (Board of Liquidators v. Heirs of Kalaw) to emphasize that injury to property includes other wrongs that diminish personal estate, such as causing another to incur unnecessary expenses.

Modification of Interest Rates and Legal Rationale

While affirming liability, the Supreme Court modified the interest regime

Case Syllabus (G.R. No. 211149)

Citation and Procedural Posture

Supreme Court decision reported at 867 Phil. 69, First Division, G.R. No. 211149, dated November 28, 2019; Opinion penned by Justice Lazaro‑Javier.
Petition for review on certiorari under Rule 45 seeks nullification of two Court of Appeals dispositions in CA‑G.R. CV No. 96157:
- Decision dated July 17, 2013 affirming the Regional Trial Court (RTC), Branch 57, San Carlos City, Pangasinan finding petitioner liable for damages.
- Resolution dated January 28, 2014 denying petitioner's motion for reconsideration.
The petition challenges factual findings and liability for damages imposed on petitioner Oscar L.L. Arcinue; respondent is Alice Ilalo S. Baun (deceased; estate represented by heirs/substitutes in the trial court proceedings).

Relevant Parties and Roles

Petitioner: Oscar L.L. Arcinue — original franchisee of AMA Computer Learning Center (ACLC) franchise to operate a computer training school in Dagupan City.
Respondent: Alice Ilalo S. Baun — transferee/purchaser of Arcinue’s franchise rights (paid P85,000.00); later deceased, estate substituted in trial court.
Third party / franchisor: AMA Computer Learning Center (ACLC) — franchisor which issued the franchise and whose approval was required for any transfer.

Underlying Facts / Antecedents

On October 1, 1990, ACLC granted Arcinue a ten (10)‑year franchise to operate an ACLC computer training school in Dagupan City, subject to strict compliance with the Agreement for Franchise Operations.
Section 21 of the Franchise Agreement provided: franchisee may transfer the franchise within the ten‑year term provided the transferee is acceptable to the franchisor and subject to prior approval of franchisor; transferee’s rights continue only for the unexpired term.
Approximately three years after grant (circa 1993), Arcinue had not commenced operations and sold his franchise to Baun for P85,000.00 without obtaining ACLC’s prior approval.
After the sale, Baun immediately undertook steps to set up the school: she leased a building and engaged an architect to renovate the premises to meet ACLC specifications.
ACLC inspected the proposed site and found it did not meet ACLC standards (total floor area inadequate). ACLC also discovered Baun was a director of another school in San Carlos, Pangasinan that offered computer courses.
By letter dated November 19, 1994, ACLC advised Arcinue that it still considered him the franchisee because it had not received confirmation/documents regarding transfer; ACLC directed Arcinue to submit transfer documents by January 1995 or face termination. Arcinue did not respond.
On November 20, 1995 Arcinue sent a handwritten note stating Baun had two proposed buyers for the franchise. ACLC replied on November 29, 1995 that since Baun was not acknowledged as franchisee, any sale/transfer should be coursed through Arcinue and provided guidelines for sale/transfer. Arcinue again failed to reply.
In 1997, ACLC terminated Arcinue’s franchise for continuous failure to operate and for assigning the franchise to Baun without prior approval.

Procedural Chronology — Litigation History

September 11, 1997: Baun filed complaint against Arcinue and ACLC for specific performance and damages to enforce her claimed rights as transferee.
Trial on merits followed; Baun completed presentation of evidence on April 30, 2002.
June 21, 2009: Baun died. The trial court allowed her siblings to substitute as plaintiff.
October 8, 2010: RTC, Br. 57, San Carlos City, Pangasinan rendered judgment:
- Dismissed case as to defendant AMA (ACLC).
- Found Arcinue acted in bad faith, sold franchise without ACLC approval, failed to operate, and unjustly retained P85,000.00 paid by Baun.
- Ordered Arcinue to pay damages and interest (detailed award set out below).
Arcinue appealed to the Court of Appeals but impleaded only Baun (appellee), thereby leaving the RTC decision final and executory as to ACLC.
July 17, 2013: Court of Appeals affirmed the RTC decision.
January 28, 2014: Court of Appeals denied Arcinue’s motion for reconsideration.
November 28, 2019: Supreme Court denied the Rule 45 petition, affirmed the CA decision with modification to interest awards.

Trial Court Findings and Award (RTC, Oct. 8, 2010)

Findings:
- The transfer of franchise by Arcinue to Baun lacked ACLC’s prior approval; therefore Baun had no enforceable franchisor rights against ACLC.
- Arcinue acted in bad faith: failed to open the computer school within the contractual term and sold the franchise to Baun without approval, thereby profiting improperly.
- ACLC suffered loss of potential income during the seven (7)‑year period Arcinue failed to operate.
- Baun suffered pecuniary loss: payment of P85,000.00 to Arcinue and expenses incurred in setting up the school without ACLC approval.
- Arcinue’s conduct violated Articles 19, 20, and 21 of the Civil Code (duty to act with justice, indemnity for willful/negligent damage, compensation for willful injury contrary to morals/good customs/public policy).
Monetary Awards (as ordered by RTC):
- To the estate of late plaintiff Baun:
  - P85,000.00 actual damages, with legal interest at 6% per annum from the time he unjustly received the amount (1993) until paid in full;
  - P50,000.00 exemplary damages;
  - P50,000.00 moral damages.
- To defendant AMA (ACLC):
  - P100,000.00 temperate damages in lieu of actual damages (ACLC’s projected income figures were found speculative);
  - P50,000.00 exemplary damages;
  - P25,000.00 moral damages.
Case dismissed as to AMA (defendant AMA) — judgment ordered as above (language: “THIS CASE IS DISMISSED as against defendant AMA” but awards nonetheless set).

Court of Appeals Ruling (July 17, 2013)

Affirmed RTC findings:
- Sufficient proof Arcinue sold franchise to Baun without notifying and obtaining prior approval of ACLC, contrary to the Agreement.
- ACLC did not act in bad faith; it never approved or granted a franchise to Baun; therefore Baun was a third‑party who could not benefit from the franchise agreement as against ACLC.
- Nonetheless, Baun suffered damages from Arcinue’s tortious acts; the action was one for recovery of damages for injury to person or property, which survi