Cuizon-Montalban vs. Court of Appeals

Courts cannot alter a contract by construction or make a new contract for the parties; the price agreed upon by the contracting parties—P170.00 per square meter—constitutes the law between them and must be respected over any subsequent judicial determination of "fair market value."

Petitioner Carmela Cuizon y Montalban is a businesswoman engaged in general merchandising under the trademark Tropic Philippines Food. Private respondents Spouses Gerardo and Maria Paray are engaged in the real estate business and were in dire need of money to pay off bank obligations. The parties were introduced in 1983 by a mutual friend, Romy Verano, and thereafter entered into an arrangement whereby petitioner would secure loans from various financial institutions using the spouses' properties as collateral, with the loan proceeds to be shared and treated as purchase price for lots conveyed at an agreed rate per square meter. Antonio Montalban, who signed mortgage documents alongside petitioner as her purported husband, was later impleaded as a third-party defendant, though he denied any marital relationship with petitioner and claimed he merely accommodated private respondents' request to facilitate loan releases.

Petitioner Carmela Cuizon y Montalban, a businesswoman engaged in general merchandising, was introduced in 1983 to spouses Gerardo and Maria Paray, who were in the real estate business and in dire need of money to pay off bank obligations. Maria Paray proposed that petitioner secure loans from financial institutions using the spouses' five parcels of land—totaling 3,803 square meters—as collateral, with petitioner paying the loan amortizations. In exchange, whatever amounts from the loan proceeds were turned over to the spouses would be treated as the purchase price for lots conveyed to petitioner at a mutually agreed price of P170.00 per square meter. As an inducement, the spouses executed a Deed of Sale over Lot No. 800-A-1-B (314 square meters) for P25,120.00, with petitioner making a down payment of P20,000.00 on May 25, 1983. The spouses also executed several Special Powers of Attorney in favor of petitioner, enabling her to secure loans from the Rural Bank of Compostela (P50,000.00 and P188,910.00), Isla Bank (P60,000.00), J. Finance (P44,941.75), and DBP (P201,000.00), with total net proceeds of P492,002.04.

From the net proceeds, petitioner remitted P198,000.00 to the spouses, duly receipted in three installments: P20,000.00 on May 25, 1983, P78,000.00 on November 28, 1983, and P100,000.00 on February 14, 1984. Petitioner used P194,002.04 to build a house on Lot No. 800-A-1-B, claimed P100,000.00 was given as "grease money" to bank fixers, paid P2,342.63 in realty taxes, and paid P109,916.28 in loan amortizations. When petitioner demanded conveyance of the adjacent Lot No. 800-A-1-A (250 square meters) to serve as a lawn for her house, the spouses refused, insisting on an accounting or liquidation of the loans and collaterals first. On May 5, 1985, petitioner filed a complaint for specific performance with damages.

The spouses countered that petitioner had agreed to buy all six parcels (4,117 square meters) for P699,890.00 at P170.00 per square meter, with transfer only upon full payment, and that petitioner had remitted only P198,000.00 of the total loan of P544,851.75. They also claimed a balance of P33,380.00 on Lot No. 800-A-1-B, as reflected in an unnotarized Deed of Agreement, and alleged loans and advances of P76,200.00 extended to petitioner for house construction. The trial court found in favor of petitioner, ordering conveyance of several lots at P170.00 per square meter and awarding damages. The Court of Appeals reversed, sustaining the sale of Lot 800-A-1-B but fixing the price of Lot 800-A-1-A at P300.00 per square meter and ordering petitioner to discharge the mortgages on the other lots. Petitioner filed the present petition for certiorari, arguing that the Court of Appeals illegally made a new contract for the parties and that the issues raised are purely legal.

• Court of Appeals Exceeded Authority: Petitioner argued that the respondent court illegally made a contract between the parties in rendering the questioned decision, which was diametrically opposed to the evidence presented in the court a quo.
• Purely Legal Issues: Petitioner maintained that the issues raised in the petition are purely legal and therefore cognizable by the Supreme Court.
• True Agreement: Petitioner claimed the verbal agreement was for her to secure loans using respondents' properties as collateral, with loan proceeds shared between them and amounts received by respondents treated as purchase price for lots at P170.00 per square meter, with conveyance made per lot corresponding to loan releases.
• Price of Lot 800-A-1-B: Petitioner asserted that the consideration for Lot No. 800-A-1-B was only P25,120.00 as reflected in the notarized Deed of Sale, and that the Deed of Agreement reflecting a P33,380.00 balance was a simulated document executed merely to accommodate respondents' creditors.
• Grease Money and House Construction: Petitioner claimed that P100,000.00 given as grease money and P194,002.04 used in building her house should be credited against respondents' account.

• Fixed Purchase Price for All Lots: Respondents alleged that petitioner orally agreed to buy all six subject lots for P699,890.00 at P170.00 per square meter, with the purchase price to be paid from loan proceeds secured by petitioner using the lots as collateral, and with transfer made only upon completion of payment.
• Balance on Lot 800-A-1-B: Respondents insisted that the purchase price of Lot 800-A-1-B was P53,380.00 (314 sq. m. × P170.00), and that with a P20,000.00 down payment, a balance of P33,380.00 remained, as reflected in the Deed of Agreement, for which petitioner issued a postdated check.
• Loans and Advances: Respondents alleged that petitioner incurred loans and advances from them totaling P76,200.00, used in the construction of her house on Lot No. 800-A-1-B.
• Accounting Required: Respondents maintained that their refusal to execute a deed of sale over Lot 800-A-1-A was justified because an accounting or liquidation of the loans and collaterals had to be made first.

• Nature of the Agreement: Whether the parties' agreement was for conveyance of individual lots corresponding to loan releases actually received by respondents, or for conveyance of all six lots only upon full payment of P699,890.00.
• Purchase Price of Lot 800-A-1-B: Whether the consideration for Lot No. 800-A-1-B was P25,120.00 as stated in the notarized Deed of Sale, or P53,380.00 as reflected in the unnotarized Deed of Agreement.
• Price of Lot 800-A-1-A: Whether the Court of Appeals correctly fixed the price of Lot No. 800-A-1-A at P300.00 per square meter (fair market value) or whether the agreed price of P170.00 per square meter should govern.
• Fraud: Whether private respondents were liable for fraud in refusing to execute the deed of sale over Lot No. 800-A-1-A.
• Grease Money and House Construction: Whether the P100,000.00 allegedly given as grease money and the P194,002.04 spent on house construction should be credited against respondents' account.

• Nature of the Agreement: The agreement was for conveyance of individual lots corresponding to loan releases actually received by respondents at P170.00 per square meter, as evidenced by respondents' execution of the Deed of Sale over Lot 800-A-1-B despite only partial payment.
• Purchase Price of Lot 800-A-1-B: P25,120.00 is the correct consideration, the notarized Deed of Sale prevailing over the unnotarized Deed of Agreement, which was a simulated agreement lacking valid consent.
• Price of Lot 800-A-1-A: P170.00 per square meter is the correct price, the Court of Appeals having erred in applying P300.00 per square meter as "fair market value," since courts cannot make a new contract for the parties.
• Fraud: No. Fraud was not established, as respondents' refusal to convey was premised on a demand for accounting, not deliberate evasion; fraud is never presumed and must be alleged and proven.
• Grease Money and House Construction: No. The P100,000.00 grease money could not be credited as it was unsupported by evidence and was not receipted, and the P194,002.04 house construction was petitioner's own expenditure on property she already owned, with works presumed made by the owner under Article 446 of the Civil Code.

• Nature of the Agreement: In ascertaining the intention of the contracting parties, their contemporaneous and subsequent acts must be principally considered under Article 1371 of the Civil Code. The decisive circumstance was that respondents executed a Deed of Sale over Lot No. 800-A-1-B although they knew only a partial amount of the total purchase price had been paid. If their agreement had truly been for transfer only upon full payment of P699,890.00, they would not have conveyed a lot upon partial payment. No credible explanation was given for this act. The execution of the Deed of Sale as partial performance demonstrated that every lot covered by loan releases given from time to time was to be transferred to petitioner.

• Purchase Price of Lot 800-A-1-B: Three documents were executed on June 6, 1983: the notarized Deed of Sale (P25,120.00), the unnotarized Deed of Agreement (reflecting a P33,380.00 balance), and the unnotarized Supplemental Agreement. The Deed of Sale was an inducement for petitioner to agree to secure loans, with Lot 800-A-1-B priced lower than the P170.00 per square meter applied to the other lots. The P33,380.00 balance in the Deed of Agreement was indicated solely because respondents wanted petitioner to issue a postdated check to pay respondents' obligations to third parties, with the understanding that it would be charged against future loan releases and would not be notarized. The Deed of Agreement was at most a simulated agreement under Articles 1345-1346 of the Civil Code, not designed to produce legal effects and lacking valid consent. Respondents offered no sensible explanation for the discrepancy or for why the Deed of Agreement was not notarized. Their claim that P25,120.00 was indicated to reduce petitioner's taxes was rejected, as capital gains tax liability falls on the seller, not the buyer.

• Price of Lot 800-A-1-A: The agreed price of P170.00 per square meter was confirmed by both parties' testimony—Maria Paray testified that petitioner would buy the land at P170.00 per square meter, and petitioner confirmed the price was fixed at P170.00 after the SPAs were executed. Obligations arising from contracts have the force of law between the contracting parties under Article 1159 of the Civil Code. The Court of Appeals erred in applying P300.00 per square meter as "present fair market value," as it is not the province of the court to alter a contract by construction or make a new contract for the parties. Neither can "present market value" result in a novation, which cannot be presumed. The sanctity of contracts must be respected and delicately preserved.

• Fraud: Fraud is the deliberate or intentional evasion of the normal fulfillment of an obligation. The mere failure of respondents to execute a deed of sale because they demanded first an accounting of the lots used as collaterals and the amount of loans secured could not be considered fraud. Fraud is never presumed; it must be alleged and proven (fraus est odiosa et non praesumenda). Fraud was negated by respondents' partial performance—executing the Deed of Sale over Lot 800-A-1-B—and by their manifested willingness to execute a deed of sale over Lot 800-A-1-A, as confirmed by Maria Paray's testimony that she was ready to do so once the titles were cleared.

• Grease Money and House Construction: The P100,000.00 allegedly given as grease money was unsupported by documentary evidence and was not receipted, unlike the P198,000.00 remitted to respondents which was duly receipted. Petitioner could not explain why she demanded receipts for the P198,000.00 but not for the P100,000.00. The claim therefore fell short of the required degree of proof. As for the P194,002.04 spent on house construction, petitioner was already the owner of Lot No. 800-A-1-B as early as June 1983 when the Deed of Sale was executed. Under Article 446 of the Civil Code, all works, sowing, and planting are presumed made by the owner and at his expense unless the contrary is proved. Petitioner presented no convincing evidence to rebut this presumption; she even admitted spending an additional P100,000.00 on the house and incurring loans from respondents for its construction, showing she acted of her own volition.

• Autonomy of Contracts / Sanctity of Contracts — Obligations arising from contracts have the force of law between the contracting parties and must be complied with in good faith (Article 1159, Civil Code). Courts cannot alter a contract by construction or make a new contract for the parties; their duty is confined to interpreting the contract the parties made, without regard to its wisdom or folly. The Court applied this doctrine by refusing to substitute the agreed price of P170.00 per square meter with the Court of Appeals' "fair market value" of P300.00 per square meter.

• Interpretation of Contracts by Contemporaneous and Subsequent Acts — Under Article 1371 of the Civil Code, the intention of the contracting parties is judged principally by their contemporaneous and subsequent acts. Where parties have given a practical construction by their conduct, as by acts in partial performance, such construction may be considered by the court in determining meaning and ascertaining mutual intention. The Court relied on respondents' execution of the Deed of Sale over Lot 800-A-1-B despite only partial payment to conclude that the agreement was for per-lot conveyance corresponding to loan releases.

• Simulated Agreements — Under Articles 1345-1346 of the Civil Code, a simulated or fictitious agreement is one not really designed or intended by the parties to produce legal effects. Such an agreement lacks valid consent, which is essential to a valid and enforceable contract. The Court held that the Deed of Agreement, reflecting a P33,380.00 balance, was a simulated agreement executed solely to bolster respondents' credit image, with the understanding that it would not be binding.

• Fraud Must Be Alleged and Proven — Fraud is never presumed; it must be alleged and proven (fraus est odiosa et non praesumenda). Fraud is the deliberate or intentional evasion of the normal fulfillment of an obligation. The Court found no fraud where respondents had partially performed their obligation and had manifested willingness to execute further conveyance, their refusal being premised on a legitimate demand for accounting.

• Presumption of Ownership of Works — Under Article 446 of the Civil Code, all works, sowing, and planting are presumed made by the owner and at his expense unless the contrary is proved. The Court applied this presumption to reject petitioner's claim that P194,002.04 spent on house construction should be credited against respondents' account, as petitioner was already the owner of the lot when construction began.

• "It is not the province of the court to alter a contract by construction or to make a new contract for the parties; its duty is confined to the interpretation of the one which they have made for themselves without regard to its wisdom or folly as the court cannot supply material stipulations or read into the contract words which it does not contain." — This passage articulates the ratio decidendi on why the Court of Appeals erred in fixing the price of Lot 800-A-1-A at P300.00 per square meter instead of the agreed P170.00, reinforcing the sanctity of contracts.

• "The sanctity of contracts must be respected and delicately preserved." — A frequently cited formulation of the autonomy-of-contracts principle, invoked to reject the substitution of "present market value" for the parties' agreed price.

• "Men may do foolish things, make rediculous contracts, use miserable judgment, and lose money by them — indeed, all they have in the world; but not for that alone can the law intervene and restore. There must be, in addition, a violation of law, the commission of what the law knows as an actionable wrong, before the courts are authorized to lay hold of the situation and remedy it." — Quoted from Vales vs. Villa, this passage defines the limits of judicial intervention in contractual relations and underpins the Court's refusal to rescue parties from bad bargains absent a legal wrong.

• "At most it was a simulated agreement, which is not really designed nor intended by the parties to produce legal effects. As a fictitious and simulated agreement it lacks valid consent so essential to a valid and enforceable contract." — This passage applies the doctrine of simulated contracts to the unnotarized Deed of Agreement, establishing that the Deed of Sale prevails as the embodiment of the parties' true intention.

• Vales vs. Villa, 35 Phil. 769 — Quoted for the principle that courts cannot rescue parties from foolish contracts or bad bargains absent a violation of law or an actionable wrong. The Court relied on this to frame the limits of judicial intervention in contractual disputes.
• Floro vs. Llenado, G.R. No. 75723, June 2, 1995 — Cited for the ten exceptional circumstances under which the Supreme Court may review findings of fact of the Court of Appeals in a petition for certiorari under Rule 45. The Court found the instant case fell under the seventh exception (findings of the CA contrary to those of the trial court).
• De Gala vs. De Gala, 42 Phil. 771 — Cited for the evidentiary rule that affirmative testimony is stronger than negative testimony. The Court applied this principle in upholding the documentary evidence for respondents' loans and advances over petitioner's mere denial.
• Bacolod Murcia Milling Co. vs. Banco Nacional Filipino, 74 Phil. 675 — Cited for the principle that courts cannot alter a contract by construction or make a new contract for the parties.
• Kasilag vs. Rodriguez, 69 Phil. 217 — Cited for the principle that the intention of the contracting parties should always prevail because their will has the force of law between them.
• Javier vs. CA-G.R. No. 48194, 183 SCRA 171 — Cited for the principle that where parties have given a practical construction by their conduct, as by acts in partial performance, such construction may be considered in determining the meaning of a contract.
• Atilano vs. Inclan, 45 Phil. 246 — Cited for the principle that fraud is never presumed and must be alleged and proven.

• Article 1159, Civil Code of the Philippines — Obligations arising from contracts have the force of law between the contracting parties and must be complied with in good faith. Applied to enforce the agreed price of P170.00 per square meter as binding between the parties.
• Article 1371, Civil Code of the Philippines — The intention of the contracting parties is judged principally by their contemporaneous and subsequent acts. Applied to ascertain the parties' true agreement through their conduct, particularly the execution of the Deed of Sale over Lot 800-A-1-B upon partial payment.
• Articles 1345-1346, Civil Code of the Philippines — Govern simulated agreements, which are not designed to produce legal effects and lack valid consent. Applied to hold the unnotarized Deed of Agreement as a simulated agreement.
• Article 446, Civil Code of the Philippines — All works, sowing, and planting are presumed made by the owner and at his expense unless the contrary is proved. Applied to reject petitioner's claim that house construction costs should be credited against respondents' account.

Regalado, Romero, Puno, and Mendoza, JJ., concurred.