Marmont Resort Hotel Enterprises vs. Guiang

A stipulation of facts entered into by the parties at pre-trial is a judicial admission that requires no further proof and cannot be controverted unless made through palpable mistake; thus, documents marked and identified in such a stipulation form part of the record even without a formal offer of evidence.
A stipulation pour autrui is created where a contract between parties, neither of whom acted as agent of the beneficiary, manifests a clear and deliberate intent to confer a favor upon a third person, who may then enforce the benefit; if a stipulation pour autrui is not present, a party’s refusal to honor an arrangement made for another’s known benefit may still give rise to damages under Articles 19 and 21 of the Civil Code for acting contrary to honesty, good faith, and fair dealing.

Petitioner Marmont Resort Hotel Enterprises, Inc. operated a hotel in Olongapo City and required a water supply facility. On 2 May 1975, it entered into a Memorandum of Agreement with Maris Trading, which undertook to drill a well and install a water pump for ₱40,000. Maris Trading performed the work on a portion of land then occupied by respondent spouses Federico and Aurora Guiang, with the spouses’ permission. Five months later, Maris Trading and Aurora Guiang executed a second Memorandum of Agreement, with Federico Guiang signing as witness. Under that second agreement, for ₱1,500, Aurora Guiang sold, transferred, and ceded all possessory rights, interests, and claims over the portion containing the water source to Maris Trading, expressly acknowledging that the facility was built for Marmont Resort. When the hotel’s water supply later became inadequate, Marmont sought permission from the spouses to enter the site to inspect and install a submersible pump; permission was refused, prompting the suit for damages.

• The Water Supply Contract: On 2 May 1975, petitioner Marmont Resort Hotel Enterprises, Inc., a corporation operating a hotel in Olongapo City, entered into a Memorandum of Agreement with Maris Trading. Maris Trading undertook to drill for water and provide all equipment to install and complete a water supply facility for the hotel, at a stipulated fee of ₱40,000. In fulfillment, Maris Trading drilled a well and installed a water pump on a portion of land in Olongapo City then occupied by respondent spouses Federico and Aurora Guiang.

• The Second Agreement with the Guiangs: On 7 October 1975, a second Memorandum of Agreement was executed between Maris Trading and Aurora Guiang, with Federico Guiang signing as a witness. The agreement recited that Maris Trading had drilled and tapped a water source for Marmont Resort on land owned by the Guiangs with their permission. For ₱1,500, Aurora Guiang sold, transferred, and ceded all possessory rights, interests, and claims over the specific portion containing the water source to Maris Trading. The land was then still part of the public domain and the subject of a Miscellaneous Sales Application filed by Federico Guiang.

• Subsequent Inadequacy and Refusal of Access: The water supply later became inadequate. Marmont engaged another contractor who recommended installing a submersible pump to increase pressure and flow. Juan Montelibano, Jr., the hotel manager, sought permission from the Guiang spouses to inspect the existing pump and make the necessary additional installations; permission was refused.

• The Complaint: On 13 May 1980, petitioner Marmont filed a complaint for damages against the Guiang spouses, alleging that their refusal to allow entry caused losses. The claimed damages consisted of ₱10,000 advanced to the second contractor, ₱40,000 representing the total project cost of the Maris Trading installation, ₱50,000 for additional expenses and incidental losses from the original pump’s failure, and ₱10,000 in attorney’s fees.

• Pre-Trial Stipulations: At the pre-trial conference on 2 October 1980, the parties entered into a written stipulation of facts. They admitted the existence of the first Memorandum of Agreement (2 May 1975) and the second Memorandum of Agreement (7 October 1975), and agreed that the portion sold under the second agreement was still part of the public domain. Both agreements were marked as exhibits during pre-trial. The issues identified were whether the spouses had prohibited repairs, whether they had the right to do so, and whether they were liable for damages under the human relations provisions of the Civil Code. The Guiangs moved to dismiss on grounds of invalidity (lack of marital consent and public land status), but the motion was denied.

• Trial Court and Appellate Court Findings: No evidence was presented by the Guiang spouses. The RTC dismissed the complaint, holding that although Aurora Guiang validly alienated her possessory rights to Maris Trading, there was no proof that Maris Trading had transferred those rights to Marmont. The Court of Appeals affirmed, additionally ruling that neither agreement could be considered part of the evidence because they had not been formally offered in evidence after trial, citing Section 55, Rule 132 of the Revised Rules of Court. The appellate court further concluded that even if admitted, the documents did not show Marmont had acquired rights from Maris Trading.

• Consideration of the Memoranda of Agreement: Petitioner contended that the Court of Appeals erred in refusing to consider the 2 May 1975 and 7 October 1975 Memoranda of Agreement because their existence had been admitted by both parties in the pre-trial order, thereby forming part of the record regardless of a formal offer.

• Right of Access and Ownership: Petitioner maintained that the appellate court erroneously held that ownership of the possessory rights belonged solely to Maris Trading, which in turn allowed the Guiang spouses to prohibit Marmont from entering the land. The agreements, read together, established that the water facility was built exclusively for Marmont’s benefit and that the spouses had consented to that arrangement.

• Invalidity of the Second Agreement: The Guiang spouses argued that the second Memorandum of Agreement was void because Aurora Guiang alienated conjugal property without the marital consent of her husband Federico, in violation of Articles 165 and 172 of the Civil Code. They further contended that the land was part of the public domain and could not validly be alienated.

• Lack of Cause of Action: Respondents asserted that petitioner Marmont was not a party to the second Memorandum of Agreement and had not acquired any rights from Maris Trading; thus, Marmont had no valid cause of action against them for damages.

• Admissibility of the Memoranda of Agreement: Whether the Court of Appeals erred in disregarding the two Memoranda of Agreement as evidence, notwithstanding the parties’ pre-trial stipulation acknowledging their existence.

• Validity of the Second Memorandum of Agreement: Whether the second Memorandum of Agreement was invalid for lack of marital consent or because the land involved was part of the public domain.

• Rights of Petitioner Marmont and Liability of Respondent Spouses: Whether petitioner Marmont acquired an enforceable right to access the water facility, and whether the Guiang spouses’ refusal to permit entry gave rise to a cause of action for damages.

• Admissibility of the Memoranda of Agreement: The pre-trial stipulation of facts, in which both parties expressly recognized the existence of the two Memoranda of Agreement, constituted a judicial admission under Section 2, Rule 129 of the Revised Rules of Court. Such an admission requires no further proof and cannot be contradicted unless shown to have been made through palpable mistake—a showing that the Guiang spouses never made. As a consequence, the agreements were properly part of the record and could be relied upon by the courts even without a formal offer of evidence; the spouses were estopped from contesting their admissibility.

• Validity of the Second Memorandum of Agreement: The argument that the agreement was void for lack of marital consent under Articles 165 and 172 of the Civil Code was rejected. Although the contract was ostensibly signed only by Aurora Guiang, her husband Federico signed as a witness, a circumstance that established his presence and indicated his consent to the transaction. The spouses could not later disown the agreement when their effective consent was manifest on the face of the document. As for the land being part of the public domain, the spouses held possessory and other rights pending approval of Federico’s Miscellaneous Sales Application that could validly be transferred to third persons. Even assuming the alienation was legally objectionable, the spouses were in pari delicto with Maris Trading and were not the proper parties to raise the issue; only the government could do so.

• Rights of Petitioner Marmont and Liability of Respondent Spouses: The second Memorandum of Agreement explicitly acknowledged that Maris Trading had performed the work “for Marmont Resort” with the spouses’ permission, and that the sole purpose of acquiring possessory rights over the site was to supply water to the hotel. This constituted a stipulation pour autrui under Article 1311 of the Civil Code: a clear and deliberate benefit conferred upon a third person (Marmont) by contracting parties (Maris Trading and the Guiangs), neither of whom acted as agent of the beneficiary. The spouses knew of and consented to this benefit. Their subsequent refusal to allow Marmont access to inspect, repair, and upgrade the facility frustrated that benefit and gave rise to an enforceable right. Even if the second agreement were not treated as a stipulation pour autrui, the spouses’ conduct in preventing Marmont from deriving the intended benefit from the water facility, thereby forcing the hotel to seek alternative sources at additional cost, was contrary to the principles of honesty, good faith, and fair dealing embedded in Articles 19 and 21 of the Civil Code. The spouses were therefore liable for damages. Because the record was insufficient to determine the precise amount, the case was remanded for further proceedings.

• Judicial Admission by Pre-Trial Stipulation — A stipulation of facts entered into by the parties at pre-trial is a judicial admission. Under Section 2, Rule 129 of the Revised Rules of Court, such admissions require no further proof and cannot be contradicted except upon a clear showing of palpable mistake. Documents acknowledged in the stipulation form part of the evidentiary record even if not formally offered after trial, and the parties are estopped from challenging their admissibility.

• Stipulation Pour Autrui — Article 1311 of the Civil Code recognizes stipulations pour autrui: a stipulation in a contract that confers a clear and deliberate favor upon a third person, where neither contracting party acted as agent of the beneficiary. For the stipulation to be enforceable, the intent to benefit the third party must be sufficiently clear in the contract. Once established, the third party may demand performance of the benefit, and the promisor’s breach gives the third party a cause of action.

• In Pari Delicto in Public Land Transactions — Where a transfer of possessory rights over public land is allegedly defective, the parties to the transaction are in pari delicto and cannot invoke the invalidity against each other. Only the State has standing to question the validity of the alienation.

• Human Relations — Abuse of Rights and Unjust Enrichment — Articles 19 and 21 of the Civil Code require every person to act with justice, give everyone his due, and observe honesty and good faith. A party who willfully prevents another from enjoying a benefit that was intended for and known to the party, causing the other to incur damage, acts contrary to these principles and is liable for damages.

• “[T]he stipulation of facts constitutes a judicial admission, the veracity of which requires no further proof and which may be controverted only upon a clear showing that such stipulation had been entered into through ‘palpable mistake.’ … Absent any such showing, that stipulation of facts is incontrovertible, and may be relied upon by the courts. Respondent spouses are estopped from raising as an issue in this case the existence and admissibility in evidence of both the first and second Memoranda of Agreement which, having been marked as exhibits during pre-trial, properly form part of the record of this case, even though not formally offered in evidence after trial.”

• “A stipulation pour autrui is a stipulation in favor of a third person conferring a clear and deliberate favor upon him, which stipulation is found in a contract entered into by parties neither of whom acted as agent of the beneficiary. We believe and so hold that the purpose and intent of the stipulating parties (Maris Trading and respondent spouses) to benefit the third person (petitioner Marmont) is sufficiently clear in the second Memorandum of Agreement.”

• “Finally, even if it be assumed … that the second Memorandum of Agreement did not constitute a stipulation pour autrui, still respondent spouses, in the circumstances of this case, must be regarded as having acted contrary to the principles of honesty, good faith and fair dealing embodied in Articles 19 and 21 of the Civil Code when they refused petitioner Marmont access to the water facility to inspect and repair the same and to increase its capacity and thereby to benefit from it.”

• Sta. Ana v. Maliwat, et al., 133 Phil. 1006 (1968) — Cited for the principle that a stipulation of facts at pre-trial is a judicial admission that is incontrovertible absent palpable mistake.

• Filipinas Investment and Finance Corporation v. Ridad, 30 SCRA 564 (1969) — Relied upon to support the proposition that courts may rely on pre-trial stipulations without further proof.

• Lim Tanhu v. Ramolete, 66 SCRA 425 (1975) — Applied for the rule that documents marked and identified during pre-trial form part of the record even if not formally offered in evidence.

• Florentino v. Encarnacion, Sr., 79 SCRA 195 (1977) — The defining authority on stipulation pour autrui, setting forth the requisites of a clear and deliberate favor in favor of a third person who is not a party to the contract.

• Uy Tam and Uy Yet v. Leonard, 30 Phil. 471 (1915) — Distinguished; involved an interest deemed merely incidental, whereas Marmont’s interest was deliberate and central to the contract.

• Section 2, Rule 129, Revised Rules of Court — Judicial admissions made by the parties in pleadings or during proceedings do not require proof and cannot be contradicted unless made through palpable mistake. The pre-trial stipulation of the existence of the two agreements was treated as a judicial admission under this provision.

• Articles 165 and 172, Civil Code — The general rule that the wife cannot bind the conjugal partnership without the husband’s consent. The requirement was deemed satisfied because the husband signed the agreement as a witness.

• Article 1311, Civil Code — Governs the effects of contracts; recognized as the basis for stipulation pour autrui. The second agreement was held to contain a stipulation in favor of Marmont as a third-party beneficiary.

• Articles 19 and 21, Civil Code — The foundational human relations provisions requiring every person to act with justice, give everyone his due, and observe honesty and good faith. Applied to hold the spouses liable in damages for refusing access in bad faith.

Fernan, C.J., Gutierrez, Jr., Bidin, and Cortes, JJ., concurred.