Title
Philippine Free Press Inc. vs. Court of Appeals
Case
G.R. No. 132864
Decision Date
Oct 24, 2005
A Philippine magazine critical of Marcos was forced to sell assets under duress during martial law; courts upheld the sale, citing prescription, lack of vitiated consent, and implied ratification.
coercion
undue influence
contract

Case Summary (G.R. No. 132864)

Factual Background

Philippine Free Press, Inc. purchased a parcel of land located at No. 2249 Pasong Tamo Street, Makati, evidenced by Transfer Certificate of Title No. 109767, and constructed thereon its main office and printing plant. Before the declaration of Martial Law the magazine was politically critical of the Marcos administration. On the evening of September 20, 1972, soldiers padlocked the Free Press Building and its operations ceased; Teodoro Locsin, Sr., then president of the corporation, was arrested and detained, and was later released on conditions that included refraining from publishing or criticizing the administration. In 1973 various emissaries allegedly acting for President Marcos approached Locsin, Sr. with offers to acquire the publication and assets. Brig. Gen. Hans Menzi, acting as emissary, offered P5,750,000 for the land, building, machinery and fixtures and tendered a P1,000,000 check as downpayment. On October 23, 1973, notarized deeds of sale were executed transferring the land, building and machineries to parties represented by Menzi for the stated purchase price; the balance of P4,750,000 was paid. The proceeds were used by Philippine Free Press, Inc. to pay separation pay to employees, redeem minority stockholders’ shares and settle obligations.

Trial Court Proceedings

Philippine Free Press, Inc. filed a complaint for annulment of sale on February 26, 1987 against Liwayway Publishing, Inc. and the PCGG, alleging vitiated consent and gross inadequacy of price. The PCGG’s motion resulted in dismissal of the complaint against it on October 22, 1987. After trial, the Regional Trial Court rendered a decision on October 31, 1995 dismissing petitioner’s complaint for lack of merit and granting Liwayway Publishing, Inc.’s counterclaim for recovery of attorney’s fees in specified amounts.

Court of Appeals Decision

On appeal, the Court of Appeals affirmed the trial court’s decision with a single modification deleting the award of attorney’s fees, and entered judgment in favor of Liwayway Publishing, Inc. The CA held that petitioner’s cause of action had prescribed if measured from the 1973 execution of the deeds, that petitioner failed to prove vitiation of consent by force, intimidation or undue influence, that statements attributed to deceased Marcos emissaries were hearsay and lacked probative value, that gross inadequacy of price did not, by itself, invalidate the sale absent proof of defect in consent, and that petitioner’s use of the sale proceeds constituted tacit ratification. The CA likewise sustained the exclusion of certain proffered exhibits as of little relevance to the dispositive issues.

Issues Presented to the Supreme Court

The petition for review framed principal issues as follows: whether the Court of Appeals erred in holding the action for annulment prescribed and in failing to treat Martial Law as a force majeure that tolled prescription; whether the CA erred in finding the sale free from vitiation by duress, intimidation, undue influence or force; whether the CA improperly treated key testimonial matter as hearsay or otherwise excluded admissible evidence; whether the CA erred in holding that the purchase price, although allegedly grossly inadequate, did not itself vitiate consent; whether petitioner’s use of the sale proceeds amounted to implied ratification; and whether the exclusion of proffered documents was prejudicial.

Petitioner’s Contentions

Petitioner contended that the four-year prescriptive period for annulment under Article 391 did not commence to run in October 1973 because Martial Law functioned as a force majeure under Article 1154, thereby suspending prescription until the February 25, 1986 People Power uprising; that threats, arrests and the regime’s conduct coerced petitioner into the sale and that Menzi and other emissaries were acting as agents of President Marcos; that the purchase price of P5,775,000 was grossly inadequate compared to the market and to an alleged P18,000,000 offer from a third party; that petitioner’s subsequent use of proceeds was compelled by financial necessity and therefore did not operate as ratification under Article 1393; and that excluded documents proffered from presidential files and other sources tended to prove that Liwayway Publishing, Inc. was owned or controlled by Marcos and were thus material.

Supreme Court Ruling and Disposition

The Supreme Court denied the petition and affirmed the Court of Appeals’ decision. The Court concluded that petitioner failed to establish grounds warranting relief. Costs were assessed against petitioner. Justices Panganiban (Chairman), Sandoval-Gutierrez, Corona, and Carpio Morales concurred in the result announced in the opinion of Justice Garcia.

Reasoning on Prescription and Martial Law

The Court rejected petitioner’s contention that Martial Law automatically suspended the running of prescription for the entire period from 1972 to 1986. Citing Development Bank of the Philippines v. Pundogar, and the principles expounded in Tan v. Court of Appeals and National Development Company v. Court of Appeals, the Court reiterated that force majeure arising from authoritarian rule must be assessed on a case-to-case basis. The Court accepted that petitioner and Locsin, Sr. were oppositionists but found that petitioner did not prove that it was so circumstanced as to render it impossible to commence or prosecute an annulment action during the Martial Law years. The Court observed that Locsin, Sr. had filed and maintained other suits challenging the regime, including participation in the consolidated petitions in Aquino v. Enrile, and that his conduct undermined any claim that intimidation uniformly prevented resort to the courts throughout the dictatorial period. On those facts the Court concluded that the four-year prescriptive period began to run in late 1973 and that the 1987 complaint was time-barred.

Reasoning on Hearsay, Declarations, and Vitiation of Consent

The Court upheld the CA’s treatment of testimonial matter attributed to deceased persons as hearsay under Rule 130, Section 36. Statements that Menzi, Baizas or De Vega had acted for President Marcos or had uttered coercive remarks were inadmissible hearsay because the declarants could not be cross-examined. The Court considered the Rule 130, Section 38 exception for declarations against interest but found it inapplicable because the alleged declarations were not clearly contrary to the declarants’ interest and because the Locsins were interested witnesses who stood to gain from the annulment. The Court emphasized the traditional distrust of testimony recounting conversations with the dead and the need for strong corroboration where such testimony materially benefits the testifying party. Given the largely hearsay nature of petitioner’s evidence and the lack of convincing corroboration, the Court upheld the CA’s conclusion that petitioner failed to prove duress, intimidation, undue influence or abuse of martial law powers sufficient to vitiate consent.

Reasoning on Gross Inadequacy of Price and Ratification

The Court reaffirmed that Article 1470 provides that gross inadequacy of price does not by itself vitiate a contract of sale except as it may indicate a defect in consent. The Court therefore required proof of a defect in consent before annulling on the basis of price inadequacy. On the evidentiary record the Court noted audited financial statements and

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