Title
Viewmaster Construction Corp. vs. Roxas
Case
G.R. No. 133576
Decision Date
Jul 13, 2000
Viewmaster sued Roxas for breaching a verbal agreement to sell shares and develop land; SC ruled no cause of action, unenforceable under Statute of Frauds, no implied trust.
joint venture
shareholdings
loan
A

Case Summary (G.R. No. 133576)

Factual Background

Viewmaster filed the complaint on September 8, 1995. It alleged that Roxas, a stockholder of State Investment, applied for a loan with FMIC in order to obtain funds to bid for control and ownership of State Investment, to be held among members of the Chiong/Roxas family. The application was for a clean loan, with no collateral, conditioned on Roxas procuring a guarantor, surety, or solidary co-debtor to secure the loan.

Viewmaster agreed to act as guarantor on conditions that Roxas would: first, sell to Viewmaster fifty percent (50%) of his shares in State Investment and have the purchase price equivalent to the successful bid price per share plus an additional ten percent (10%) per share; and second, undertake a joint venture for co-development by Viewmaster of specific parcels of land located in Balintawak, Quezon City and Las Piñas, consisting of 20,000 square meters and 786,167 square meters, respectively, for the property owners. In consideration of Viewmaster’s guaranty, FMIC delivered an aggregate principal amount of P36,500,000.00 to Roxas.

The complaint further alleged that on July 2, 1992, Viewmaster executed a Continuing Guaranty with FMIC to secure payment of the loans. It was alleged that, with the loans and the guaranty in place, Roxas eventually obtained control and ownership of State Investment. Despite demand, Roxas allegedly failed and refused to sell fifty percent (50%) of his shareholdings and to enter into the joint venture for the development of the two real properties, prompting Viewmaster to sue for specific performance, enforcement of implied trust, and damages.

Motion to Dismiss and Interlocutory Orders of the Trial Court

On October 25, 1995, the defendants moved to dismiss, invoking: (a) the claim that the action was unenforceable under the Statute of Frauds; and (b) the assertion that the complaint stated no cause of action. Viewmaster opposed through a filing dated November 24, 1995.

The trial court held a hearing on Viewmaster’s application for a temporary restraining order and/or writ of preliminary injunction. On May 15, 1996, it issued an order dismissing the complaint and denying the application. Viewmaster moved for reconsideration on May 29, 1996. The court, in an order dated July 10, 1996, reconsidered and set aside the May 15, 1996 order, reinstated the complaint, and granted a writ of preliminary injunction upon a P1,000,000.00 bond. The defendants sought reconsideration, but the motion was denied for lack of sufficient merit in an order dated January 30, 1997.

Roxas and the corporate defendants then filed a motion for inhibition on March 5, 1997. The trial court denied it on April 11, 1997 for lack of sufficient merit.

Court of Appeals Proceedings

Aggrieved, Viewmaster filed a petition for certiorari and prohibition with application for a temporary restraining order and/or writ of preliminary injunction before the Court of Appeals, docketed as CA-GR SP No. 44000. On November 28, 1997, the Court of Appeals granted the petition. It set aside the trial court orders dated July 10, 1996 and January 30, 1997 denying the motion to dismiss, and the April 11, 1997 order denying the motion for inhibition. The Court of Appeals ordered the complaint dismissed and assessed costs against Viewmaster.

Viewmaster sought reconsideration, which the Court of Appeals denied in a resolution dated April 21, 1998. Viewmaster then filed the instant petition for review.

Issues Raised by the Petitioner

Viewmaster anchored its petition on three assigned errors: first, that the Court of Appeals erred in ruling that the complaint in Civil Case No. 65277 did not state a cause of action; second, that the Court of Appeals erred in holding the agreement sought to be enforced was unenforceable; and third, that the Court of Appeals erred in ordering inhibition by the presiding judge.

Legal Standards on Sufficiency of a Complaint

The Court applied the test for determining whether a complaint states a cause of action, emphasizing that only the allegations in the complaint are considered. It cited the doctrinal rule in Fil-Estate Golf and Development, Inc. vs. Court of Appeals, which quoted Navoa v. Court of Appeals on the elements of a cause of action and on the hypothetical admission approach when a motion to dismiss is filed for lack of cause of action. It held that lack of cause of action must appear on the face of the complaint, and dismissal is improper if the allegations, admitted as true, could support a valid judgment in accordance with the complaint’s prayer. It then framed the controlling question as whether there was a cause of action.

Was There a Cause of Action?

The Court answered in the negative. It examined the essential allegations that Viewmaster and Roxas entered into an agreement under which Viewmaster would act as guarantor for Roxas’s loan if Roxas would sell fifty percent (50%) of his shareholdings to Viewmaster and would undertake a joint venture for co-development of two specified parcels of land. The Court noted that these arrangements were not put in writing.

According to the Court, the trial court and the complaint could not proceed because the alleged arrangement fell within the Statute of Frauds. The Court reasoned that Article 1403 renders certain contracts unenforceable unless ratified or unless they comply with the Statute of Frauds, including agreements that, by their terms, are not to be performed within one year from their making, unless there is a written memorandum subscribed by the party charged or his agent. The Court held that the verbal agreement’s terms were such that it would not be performed within one year from the making.

The Court further invoked the doctrine that contracts not to be performed within one year may be taken out of the Statute of Frauds through performance by one party within one year. It held that such a situation did not obtain. Neither party fully performed within one year: Roxas had not sold fifty percent (50%) of his shares to Viewmaster; Viewmaster had not paid the purchase price; and Viewmaster had not commenced the co-development of the subject real properties. With full performance within one year absent, the Court declared that the arrangement fell within the Statute of Frauds coverage.

The Court also addressed the nature and price of the shares. It stated that the sale of fifty percent (50%) of Roxas’s shareholdings would amount to more than P500.00, and therefore, for enforceability, the contract had to be in writing.

Absence of an Implied Trust Under Article 1448

Viewmaster attempted to avoid the Statute of Frauds by invoking implied trust. It relied on Article 1448 of the Civil Code, which provides for an implied trust when property is sold and the legal title is granted to one party while the price is paid by another for the purpose of having the beneficial interest of the property.

The Court held that the essential requirement of Article 1448—“the price is paid by another for the purpose of having the beneficial interest”—was not met. The Court stressed that Roxas obtained the loan from FMIC, not from Viewmaster. It found that FMIC provided the funds used by Roxas to secure control of State Investment. The Court viewed Viewmaster’s role as limited to facilitation by acting as guarantor, not as one who paid the price for the beneficial interest in Roxas’s shares.

The Court upheld the trial court’s reasoning that the funds used by Roxas for bidding did not belong to Viewmaster. It further reasoned that an implied trust could not arise when the alleged trustee used loan proceeds to acquire the supposed trust property. The Court relied on the principle that resulting trust does not arise where the purchase price is advanced by another as a loan to the transferee. It underscored that even in its theory of equitable consideration, the Continuing Guaranty was not the “price” contemplated by Article 1448; the “price” referred to the money used by Roxas to acquire the shares, which was the loan from FMIC.

Thus, the Court held that no implied trust could arise in favor of Viewmaster over the shares of stock in State Investment or over the two real properties.

Disposition of the Inhibition Issue

Having found that the complaint failed to establish either an enforceable agreement or an implied trust, the Court held that a valid judgment could not be rendered in accordance with the complaint’s prayer. It considered Viewmaster’s demand for specific performance and its compliance theory as lacking legal basis.

On the third issue, involving the motion for inhibition, the Court stated that it was no longer necessary to discuss it for being moot and academic. It nonetheless alluded to Aleria, Jr. vs. Velez, cited in Seveses vs. Court of Appeals, to explain the applicable inhibition standard. It held that the trial court’s questioned orders did not sufficiently prove bias and prejudice under Section 1, second paragraph of Rule 137 of the Rules of Court, absent a showing of bias stemming from an extrajudicial source and resulting in an opinion on the merits based on something other than evidence and conduct in the case. It emphasized that opinions formed in the course of judicial proceedings, even if later found erroneous, were insufficient to show personal bias. It also observed that extrinsic evidence is required to establish bias, bad faith, malice, or corrupt purpose beyond palpable error inferred from the orders, and that Viewmaster had not sufficiently adduced such proof.

Legal Basis and Reasoning

The Court’s core reasoning rested on three interlocking propositions. First, the complaint, as pleaded, did not state facts that would entitle Viewmaster to judicial interference based on a legally enforceable

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