Case Summary (G.R. No. 125986)
Factual Background
Aida M. Posadas and her two minor children co-owned a 1.6 hectare parcel in Sucat, Muntinlupa, which was occupied by squatters. Posadas authorized Jaime T. Bravo of James Builder Construction by letter dated May 3, 1989 to negotiate with the squatters and to act as representative in connection with the proposed development of the property into a residential subdivision. On December 11, 1989 Posadas and her children executed a Deed of Assignment transferring the parcel to Luxuria Homes, Inc., and respondent Bravo signed as a witness to the Deed and to the Articles of Incorporation. Bravo performed services for which he later demanded payment, and he claimed partial payments had been made.
Complaint and Claims
James Builder Construction and/or Jaime T. Bravo filed a complaint for specific performance in September 1992 against Aida M. Posadas and Luxuria Homes, Inc., alleging agreements to remove squatters, prepare architectural designs and a site development plan, survey and fencing, and to enter into a management contract to develop the land. The complaint sought, inter alia, payment of P1,708,489.00 for services, moral and exemplary damages of P500,000.00, actual damages of P500,000.00 for bunkhouse and related expenditures, attorneys’ fees, and costs.
Trial Court Proceedings and Judgment
The Regional Trial Court declared Aida M. Posadas in default on September 27, 1993 and permitted James Builder Construction and/or Jaime T. Bravo to present evidence ex parte. On March 8, 1994 the trial court ruled jointly and in solidum against Posadas and Luxuria Homes, Inc., awarding P1,708,489.00 as the balance for services, actual damages of P1,500,000.00 for construction and materials, moral and exemplary damages of P500,000.00, attorneys’ fees of P50,000.00, costs, and directing Posadas to execute the management contract she had committed to enter into.
Court of Appeals Ruling
The Court of Appeals affirmed with modification the trial court decision in a March 15, 1996 opinion. It deleted the award of moral damages on the ground that a corporate plaintiff cannot suffer physical or mental anguish and reduced the award of exemplary damages to P50,000.00. The remainder of the trial court’s judgment as to monetary claims and the directive to execute the management contract was left intact by the appellate court.
Supreme Court Procedural History
The Third Division of the Supreme Court initially denied due course to the petition on January 15, 1997, but in the same resolution deleted the grant of exemplary damages and attorneys’ fees and reduced the trial court’s award of actual damages from P1,500,000.00 to P500,000.00 on the ground that the complaint prayed only for P500,000.00. Upon motion for reconsideration the Court on March 17, 1997 reinstated the petition for review en banc or before the full First Division for resolution of the substantive issues.
Issues Presented
The Supreme Court framed and addressed three principal issues: whether the private respondents proved their complaint by competent ex parte evidence sufficient to warrant the reliefs prayed for after the default; whether Luxuria Homes, Inc. could be held jointly and severally liable with Aida M. Posadas for the transactions; and whether petitioners could be compelled to execute a management contract with the private respondents.
Petitioners’ Contentions
Luxuria Homes, Inc. and/or Aida M. Posadas contended that the respondents who presented evidence ex parte failed to substantiate the allegations in the complaint and therefore were not entitled to the reliefs. They maintained that Luxuria Homes, Inc. was not a party to the transactions and that the drafts of a management contract were never finalized, so compulsion to execute such contract would violate the consensual nature of contracts.
Respondents’ Evidence and Proof at Trial
James Builder Construction and/or Jaime T. Bravo introduced vouchers and testimony asserting partial payments for squatter relocation, architectural design, survey and fencing, and claimed to have prepared the designs and plans that led to issuance of permits and clearances by the Housing and Land Use Regulatory Board. Respondent Bravo testified to contract prices and partial payments, but the record contained inconsistencies between the complaint and trial testimony as to contract prices and the extent of completed work. The trial court accepted the ex parte evidence and made findings of complete performance and entitlement to the amounts awarded.
Supreme Court’s Analysis on Proof and Quantification
The Supreme Court reaffirmed the principle that entry of a default judgment does not relieve the plaintiff of the burden of proof and that a plaintiff must establish by competent evidence every material allegation upon which relief is sought. The Court found that respondents proved only portions of their claims with sufficient evidence: the agreed price for survey was P140,000.00 with partial payments of P130,000.00 leaving a P10,000.00 balance; the complaint alleged P450,000.00 for the combined site development plan and architectural design and partial payments of P25,000.00 were shown, entitling respondents to P425,000.00 on those items. The Court refused to award sums in excess of those prayed for in the complaint or sums unsubstantiated by competent evidence. Claims for ejectment of squatters, fencing, and for the large award of actual damages for bunkhouses, materials and factories were denied for lack of receipts, vouchers, or other proof of accomplishment or expenditure.
Corporate Liability and Piercing the Corporate Veil
The Supreme Court rejected the contention that Luxuria Homes, Inc. was formed to defraud creditors or to evade payment to respondents. The Court noted that the Deed of Assignment and the Articles of Incorporation were executed and signed by respondent Bravo before the dates of the demand letters, and that Posadas did not hold a majority of shares, owning about thirty-three percent of the capital stock. Relying on the principle that the separate juridical personality of a corporation may be disregarded only upon clear and convincing proof of fraud or abuse, the Court concluded that respondents failed to show bad faith and therefore could not hold Luxuria Homes, Inc. liable jointly and in solidum with Posadas.
Compulsion to Execute Management Contract
The Supreme Court examined the May 3, 1989 authorization and the drafts of the proposed management contract and concluded that the authorization was a mere to-whom-it-may-concern letter limited to negotiation with squatters. The management contract remained unfinalized and contained handwritten marginal notes and unaccepted terms. The Court held that to compel execution of a contract would violate the consensu
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Case Syllabus (G.R. No. 125986)
Parties and Procedural Posture
- Luxuria Homes, Inc. and Aida M. Posadas filed a petition for review from the decision of the Court of Appeals in CA-G.R. CV No. 45788.
- James Builder Construction and/or Jaime T. Bravo instituted Civil Case No. 92-2592 in the Regional Trial Court of Muntinlupa seeking specific performance and monetary reliefs.
- The trial court declared Aida M. Posadas in default on September 27, 1993, and rendered judgment on March 8, 1994.
- The Court of Appeals affirmed with modification on March 15, 1996, deleting moral damages and reducing exemplary damages.
- This Court initially denied due course to the petition on January 15, 1997, then reinstated the petition on March 17, 1997, after reconsideration.
- The Supreme Court ultimately issued a decision modifying the appellate ruling and adjudicating the parties' respective liabilities and damages.
Key Factual Allegations
- Aida M. Posadas and her two minor children co-owned a one point six hectare parcel in Sucat, Muntinlupa, which was occupied by squatters.
- Posadas on May 3, 1989, issued an authorization letter to Jaime T. Bravo to negotiate with the squatters and to act as representative in the planned development.
- On December 11, 1989, Posadas and her children executed a Deed of Assignment transferring the property to Luxuria Homes, Inc. and Bravo signed as a witness to the Deed and to the Articles of Incorporation.
- Bravo claimed to have rendered services including squatter relocation, preparation of architectural designs and a site development plan, survey, and fencing, and presented a statement of account dated August 21, 1991 demanding P1,708,489.00.
- Private respondents alleged partial payments totaling P461,511.50 on the clearing contract and P25,000.00 on the design contracts, leaving asserted balances as pleaded in the complaint.
Issues Presented
- Whether the private respondents who presented ex parte evidence after default proved the allegations in their complaint and were entitled to the reliefs prayed for.
- Whether Luxuria Homes, Inc. could be held liable for the transactions allegedly entered into by Aida M. Posadas.
- Whether the petitioners could be compelled to execute a management contract with the private respondents.
Trial Court Findings
- The trial court found Posadas in default and permitted the plaintiffs to present their evidence ex parte.
- The trial court adjudged Posadas, jointly and in solidum with Luxuria Homes, Inc., liable for P1,708,489.00 as balance for services, actual damages of P1,500,000.00, moral and exemplary damages of P500,000.00, attorneys' fees of P50,000.00, and costs.
- The trial court also directed Posadas to execute the management contract she had purportedly committed to enter into.
Court of Appeals Ruling
- The Court of Appeals affirmed the trial court's judgment with modification by deleting the award of moral damages on the ground that the plaintiff was a corporation and thus could not suffer physical or mental anguish.
- The Court of Appeals reduced the award of exemplary damages to P50,000.00.
- The appellate court otherwise upheld the liability findings against the petitioners as rendered by the trial court.
Supreme Court Disposition
- The Supreme Court partially granted the petition for review and modified the decisions below.
- The Supreme Cour