Ildefonso vs. Sibal

An obligation to "course" real estate transactions through a designated realtor does not constitute an obligation to actually purchase or sell real property. Where a contract's ambiguous clause was caused by the party seeking to enforce it, the ambiguity must be construed against that party, and no penalty may be recovered absent a clear breach of the actual obligation undertaken.

The parties were parties to a prior civil case, Civil Case No. 15371 of the Court of First Instance of Manila, wherein Ildefonso was plaintiff and Sibal was defendant. They reached a compromise agreement on October 15, 1953, which was reduced to writing but never presented to the court for approval. The agreement was drawn by the appellant through his counsel, with the disputed paragraph creating an obligation in his favor. The appellee was a businessman selling books and school supplies who had expressed an intention to purchase real estate worth around P400,000.00 within the commercial district of Manila for the future expansion of his business.

On October 15, 1953, in Civil Case No. 15371 of the Court of First Instance of Manila, appellant Lucio R. Ildefonso and appellee Ernesto Y. Sibal, plaintiff and defendant therein respectively, reached a compromise agreement and filed a joint motion to dismiss the case, which the court granted. The compromise agreement, later reduced to writing but not presented to the court for approval, provided that the plaintiff agreed to dismiss the case on the consideration of the defendant's promise to pay P1,000.00, to course through the plaintiff as realtor the defendant's real estate purchase or transaction within two years from the date thereof, with liability to pay an additional P2,000.00 should he fail to do so, and to dismiss his counterclaim.

Pursuant to the agreement, defendant, during the two-year period stipulated, commissioned plaintiff to sell some of his real properties situated in Sta. Mesa Heights, Quezon City. The properties, however, were not sold by plaintiff but by defendant himself sometime after the lapse of the two-year period and at a price much higher than that quoted to plaintiff. During the period agreed upon, plaintiff, in line with defendant's expressed intention to purchase real estate worth around P400,000.00 within the commercial district of Manila for the future expansion of his business of selling books and school supplies, looked for real properties for sale in Manila. He offered to sell to defendant at various times during the stipulated period the Great Eastern Hotel for P1,300,000.00, the Borja Building for P1,500,000.00, and a lot along Rizal Avenue with an area of 157 square meters for P190,000.00. Defendant told plaintiff that he could not buy any of the properties, the Great Eastern Hotel and the Borja Building being not only beyond his means to buy but also inappropriate or inadequate to his business, while the lot in Rizal Avenue was too small to meet the requirements of his plans for expansion.

Claiming that defendant failed and neglected to make the purchase of real estate as promised within the two-year period, plaintiff instituted the present action on April 20, 1956, for recovery of the P2,000.00 penalty with legal interests from October 16, 1955, plus attorney's fee and costs. Defendant admitted the execution of the compromise agreement but denied liability, alleging that his liability could arise only in the event that he buys or sells real estate without coursing the same through the plaintiff, and that his failure to buy or sell real estate was entirely due to plaintiff's inability to sell the lands he offered for sale and to obtain real properties which would be profitable for him to purchase and suitable to his business. During the negotiation for the compromise agreement, appellee, who had earlier expressed his intention to buy real estate for the expansion of his business, suggested that he "could course the transaction through appellant," and to that suggestion, appellant, who wanted some assurance that the transaction would really be coursed through him as realtor, gave her assent after appellee had agreed to pay damages should he fail to do so.

• Obligation to Purchase: Appellant contended that under paragraph 2(b) of the compromise agreement, defendant-appellee was under obligation to make a real estate purchase through appellant as realtor within a period of two years from October 15, 1953, when the agreement was signed, and his failure to make any such purchase made him liable to pay the penalty of P2,000.00 provided therein.

• Exclusive Agency Theory: Appellee argued that by paragraph 2(b) of the compromise agreement, he had, in effect, constituted appellant for two years as his exclusive agent in the purchase or sale of real property, with liability to pay P2,000.00 only in case of breach of that agency obligation.
• No Breach: Appellee alleged that his liability could arise only in the event that he buys or sells real estate without coursing the same through the plaintiff, and that his failure to buy or sell real estate was entirely due to plaintiff's inability to sell the lands he offered for sale and to obtain real properties which would be profitable for him to purchase and suitable to his business.

• Interpretation of the Compromise Agreement: Whether the defendant violated the obligation imposed on him by the compromise agreement when he failed to make a real estate purchase through the plaintiff within the two-year period.

• Interpretation of the Compromise Agreement: No. The defendant's principal undertaking was to "course" or make his real estate purchases and sales through the plaintiff for a period of two years, not to make an actual purchase. Since the defendant did course his real estate transactions through the plaintiff during the stipulated period and was unable to purchase or sell any real property through no fault of his own, no breach occurred, and the penalty could not be recovered.

• Interpretation of the Compromise Agreement: The Court examined paragraph 2(b) of the compromise agreement and found nothing that could be construed to mean that appellee bound himself to purchase real property and to pay a penalty of P2,000.00 in case he failed to do so. The paragraph simply provides that the defendant promises that within two years he shall course through the plaintiff as realtor the former's real estate purchase or transaction, and should appellee fail to fulfill that obligation he becomes liable to pay the sum of P2,000.00 in accordance with the penal clause. The Court reasoned that appellee's principal undertaking was to "course" or make his real estate purchases and sales through appellant for a period of two years, effectively constituting appellant as his exclusive agent in the purchase or sale of real property with liability to pay P2,000.00 in case of breach. This theory was supported by the record, as during the negotiation for the compromise agreement, appellee suggested that he "could course the transaction through appellant," and appellant gave her assent after appellee had agreed to pay damages should he fail to do so. The Court found it hard to believe that a man of appellee's business acumen and stature would consent to an agreement wherein he is under compulsion to buy real estate—which may be not only inadequate or inappropriate for his business but also beyond his means—in order to avoid liability under the penal clause. There being no dispute that appellee did course through appellant his real estate transactions during the two-year period and that, due to no fault attributable to him, he was not able to purchase or sell any real property through appellant during that period, the trial court committed no error in dismissing the complaint. The Court acknowledged an ambiguity in the provision resulting from the explanatory clause ("that is, to make such real estate purchase and to course the same to the plaintiff as Realtor") inserted after the phrase "should he fail thereof," but following the rule that ambiguities or obscure clauses in contracts cannot favor the one who has caused them (Article 1377, new Civil Code), and it appearing that the compromise agreement was drawn by appellant through his counsel, with the paragraph in dispute creating an obligation in his favor, the ambiguity was construed in favor of appellee.

• Contra Proferentem Rule (Article 1377, new Civil Code) — Ambiguities or obscure clauses in contracts cannot favor the one who has caused them. The Court applied this rule where the compromise agreement was drawn by the appellant through his counsel, with the disputed paragraph creating an obligation in his favor; the ambiguity was therefore construed against the appellant and in favor of the appellee.
• Interpretation of Penal Clauses — A penal clause attaches only upon breach of the principal obligation. Where the principal obligation is merely to course transactions through a designated agent, and the obligor did so, no penalty can be recovered even if no actual purchase or sale resulted.

• "There is nothing in the disputed paragraph of the compromise agreement that can be construed to mean that appellee bound himself to purchase real property and to pay penalty of P2,000.00 in case he failed to do so." — This states the core ratio decidendi: the Court found no obligation to purchase in the language of the agreement, only an obligation to course transactions through the plaintiff.
• "It is evident, therefore, that appellee's principal undertaking was to 'course' or make his real estate purchases and sales through appellant for a period of two years from the date of the execution of the compromise agreement." — This defines the actual scope of the obligation undertaken, which is central to the Court's finding of no breach.
• "But following the rule that ambiguities or obscure clauses in contracts cannot favor the one who has caused them (article 1377, new Civil Code), and it appearing that the compromise agreement was drawn by appellant through his counsel, with the paragraph in dispute creating an obligation in his favor, the ambiguity found therein must be construed in favor of herein appellee." — This articulates the application of the contra proferentem rule, which is the controlling principle for resolving the ambiguity in the agreement.

• H.E. Heacock Co. vs. Macondray & Co., 42 Phil., 205 — Cited as authority for the rule that ambiguities in contracts are construed against the party who caused them.
• Asturias Sugar Central vs. The Pure Cane Molasses Co., 57 Phil., 519 — Cited as authority for the rule that ambiguities in contracts are construed against the party who caused them.
• Halili vs. Lloret et al., 95 Phil., 776; 50 Off. Gaz., 2493 — Cited as authority for the rule that ambiguities in contracts are construed against the party who caused them.

• Article 1377, new Civil Code — Provides that the interpretation of obscure clauses or stipulations in a contract shall not favor the party who caused the obscurity. The Court applied this provision to construe the ambiguous paragraph 2(b) of the compromise agreement against the appellant, who drafted the agreement through his counsel.

Paras, C.J., Bengzon, Padilla, Montemayor, Bautista Angelo, Labrador, Concepcion, Endencia, and Barrera, JJ., concurred.