G.R. No. 112954 - Distajo vs. Court of Appeals

Case Summary (G.R. No. 112954)

Factual Background

Philippine Holding, Inc. owned the subject property and obtained a City Engineer demolition order. Antonio S. Young (tenant of Unit 1352) sued Philippine Holding to annul the demolition order. As an incident to that suit the parties submitted a Compromise Agreement filed with the court on September 24, 1981. Paragraph 3 of the compromise provided that Antonio Young and Rebecca C. Young and all persons claiming under them would voluntarily vacate their leased premises within 60 days upon notice, and contained a proviso that, should the defendant decide to sell the property or a portion thereof, “plaintiff and Rebecca C. Young have the right of first refusal thereof.” Prior to the compromise (September 17, 1981) Philippine Holding executed a dacion in payment to PH Credit Corporation. The property was later subdivided (November 9, 1982) into two parcels: TCT No. 152439 (Units 1350, 1352, 1354) and TCT No. 152440 (Units 1356, 1358, 1360), both placed in the name of PH Credit. PH Credit sold TCT No. 152439 (December 8, 1982) to Blessed Land Development Corporation (represented by Antonio T.S. Young) and sold TCT No. 152440 (September 16, 1983) to spouses Fong Yook Lu and Ellen Yee Fong.

Procedural History

Petitioners (Chui Wan and Felisa Tan Yu and Rebecca C. Young) filed Civil Case No. 84‑22676 in the Regional Trial Court (Manila) for annulment of sale, specific performance and damages, claiming the right of first refusal under the compromise agreement. The trial court dismissed the complaint and defendants’ counterclaims. The Court of Appeals affirmed the dismissal (CA‑G.R. No. 1002). Rebecca Young alone brought the present petition for certiorari to the Supreme Court. Respondents moved to dismiss the petition; the parties filed memoranda; the Supreme Court gave due course to the petition and ultimately denied it for lack of merit.

Issues Presented

Petitioner raised two assignments of error: (1) that she should be allowed to enforce the stipulation in her favor in the compromise agreement despite not being a party to the underlying case; and (2) that, if Paragraph 3 is construed as a stipulation pour autrui (stipulation in favor of a third person), she may enforce it even if she did not communicate acceptance to the obligor.

Applicable Law and Jurisprudence

The Court relied on the Civil Code provision on stipulation pour autrui (Article 1311) and established requisites for such stipulations as articulated in precedent: (1) there must be a stipulation in favor of a third person; (2) the stipulation must form part, not the whole, of the contract; (3) the contracting parties must have clearly and deliberately conferred a favor upon the third person (not a mere incidental benefit); (4) the third person must communicate acceptance to the obligor before revocation; and (5) neither contracting party may be the legal representative of the third party (as summarized in Florentino v. Encarnacion, Sr., 79 SCRA 193 [1977], and related jurisprudence). The Court also cited prior rulings that a compromise agreement cannot bind persons who are not parties thereto (J.M. Tuason & Co., Inc. v. Cadampog / Aguirre, 7 SCRA 808 and 112 [1963]; Guerrero v. C.A., 29 SCRA 791 [1969]).

Court’s Factual and Legal Analysis

The Supreme Court examined the compromise agreement’s express terms and the surrounding facts. The agreement itself contemplated two conditions with respect to Rebecca C. Young: (1) that she be impleaded in the action as a necessary party‑plaintiff; and (2) that she signify written conformity to the agreement. The record showed neither condition was complied with: Rebecca was not impleaded, her written conformity did not appear on the agreement, and on cross‑examination she admitted she was not a party to the case and did not sign the joint motion for approval because it was not presented to he

Case Syllabus (G.R. No. 112954)

Citation and Court

Reported in 251 Phil. 189, Second Division.
G.R. No. 79518.
Decision date: January 13, 1989.
Ponente: Justice Paras.
Concurring Justices: Melemcio-Herrera (Chairman), Padilla, Sarmiento, and Regalado, JJ.
Court of Appeals decision being reviewed: CA-G.R. No. 1002, penned by Justices Lorna S. Lombos-De la Fuente (ponente), Ricardo J. Francisco and Alfredo L. Benipayo.

Parties

Petitioner: Rebecca C. Young, assisted by her husband Antonio Go.
Other plaintiffs below and co-appellants (in earlier proceedings): Spouses Chui Wan and Felisa Tan Yu.
Respondents: Court of Appeals; PH Credit Corporation; Philippine Holding, Inc.; Francisco Villaroman; Fong Yook Lu; Ellen Yee Fong; and the Register of Deeds of Manila.
Buyers of subject properties mentioned: Blessed Land Development Corporation (represented by its President Antonio T.S. Young) and spouses Fong Yook Lu and Ellen Yee Fong.

Procedural Posture and Relief Sought

Nature of petition: Petition for review on certiorari under Rule 45 seeking to set aside the Court of Appeals' decision which affirmed the Regional Trial Court of Manila, Branch XXXII, dismissing the plaintiffs' complaint.
Reliefs originally sought below (Civil Case No. 84-22676, R.T.C. Manila):
- Annulment of sale (annulment of sale in favor of spouses Fong Yook Lu and Ellen Yee Fong).
- Specific performance.
- Damages against PH Credit Corporation and Philippine Holding, Inc.
Parties who appealed to the Court of Appeals: Chui Wan and Felisa Tan Yu and Rebecca C. Young (assisted by her husband).
Petition to the Supreme Court: Brought only by Rebecca C. Young, assisted by her husband Antonio Go, to review the dismissal of her claims and to challenge the Court of Appeals decision.

Relevant Prior Case and Proceedings Leading to Dispute

Original case leading to compromise agreement: Civil Case No. 123883, Antonio S. Young vs. Philippine Holding, Inc., filed in the then Court of First Instance of Manila, Branch XXX.
Subject of prior action: Tenant Antonio S. Young filed to annul the City Engineer of Manila's demolition order against a building owned by Philippine Holding, Inc.
Compromise Agreement submitted to the Court on September 24, 1981, as an incident in Civil Case No. 123883.
Pertinent clause in the Compromise Agreement (paragraph 3):
- Plaintiff Antonio S. Young and Rebecca Young and all persons claiming rights under them agreed to vacate lessee-occupied premises (Units 1352 and 1354) and surrender possession within sixty (60) days from written notice.
- Proviso: Should defendant decide to sell the subject property or portion thereof, "plaintiff and Rebecca C. Young have the right of first refusal thereof." (Rollo, p. 49).
Stated condition within the Compromise Agreement text: The agreement provided that Rebecca C. Young was to be impleaded as necessary party-plaintiff and that her written conformity must appear therein. The text reads: "Plaintiff Antonio T.S. Young and the Defendant HOLDING hereby agree to implead in this action as necessary party-plaintiff, plaintiff's daughter Rebecca C. Young who is the recognized lawful lessee of the premises known and identified as 1354 Soler St., Sta. Cruz, Manila and whose written conformity appears hereunder." (Rollo, p. 18).

Facts Concerning the Property and Subsequent Transactions

Owner and property description:
- Philippine Holding, Inc. owned a piece of land at Soler St., Sta. Cruz, Manila with a two-storey building of six units: Unit 1350 (vacant), Unit 1352 (occupied by Antonio Young), Unit 1354 (occupied by Rebecca C. Young), Unit 1356 (occupied by Chui Wan and Felisa Tan Yu), Unit 1358 (occupied by Fong Yook Lu and Ellen Yee Fong), Unit 1360 (occupied by Guan Heng Hardware). (Rollo, pp. 14-15).
Order to demolish: Philippine Holding, Inc. secured an order from the City Engineer of Manila to demolish the building.
Dacion in payment: On September 17, 1981, Philippine Holding, Inc. sold the property described in the compromise agreement by way of dacion in payment to PH Credit Corporation. (Rollo, p. 49).
Subdivision of property and issuance of titles:
- November 9, 1982: Property subdivided into two parcels:
  - Parcel covering Units 1350, 1352 and 1354 – 244.09 sq.m., TCT No. 152439, title placed in the name of PH Credit Corporation.
  - Parcel covering Units 1356, 1358 and 1360 – 241.71 sq.m., TCT No. 152440, title placed in the name of PH Credit Corporation.
- December 8, 1982: PH Credit Corporation sold property covered by TCT No. 152439 to Blessed Land Development Corporation (represented by its President Antonio T.S. Young).
- September 16, 1983: PH Credit Corporation sold property covered by TCT No. 152440 (Units 1356, 1358 and 1360) to spouses Fong Yook Lu and Ellen Yee Fong. (Rollo, p. 15).

Plaintiffs’ Allegations and Claims Below

Spouses Chui Wan and Felisa Tan Yu:
- Alleged that the defendant corporation and Francisco Villaroman sold the portion of property they were renting without affording them the right of first refusal to purchase that portion.
Rebecca C. Young:
- Claimed the right of first refusal purportedly granted to her under the proviso of the compromise agreement (para. 3).
- Prayed that the sale be annulled and that she be allowed to exercise her right of first refusal to purchase the subject property. (Rollo, p. 50).

Trial Court Findings and Rulings

Result at trial:
- The Regional Trial Court of Manila, Branch XXXII, dismissed the complaint of plaintiffs for Annulm