Philippine Free Press v. Court of Appeals
REITERATIONFacts
The Antecedents: Petitioner, Philippine Free Press, Inc. (Free Press), a domestic corporation, purchased a parcel of land in Makati in 1963 and constructed its office building thereon. Due to its critical stance against the Marcos administration, Free Press's building was padlocked by soldiers on the eve of Martial Law (September 20, 1972), and its president, Teodoro Locsin, Sr., was arrested and detained. Upon provisional release, Locsin, Sr. was subjected to 'city arrest' and prohibited from publishing Free Press or writing critically of the administration, leading to the cessation of publication and financial ruin for petitioner. Procedural History: In 1973, under circumstances described as coercive by petitioner, Free Press, through Locsin, Sr., sold its land, building, and machineries to Liwayway Publishing, Inc. (represented by Brig. Gen. Hans Menzi, allegedly acting for President Marcos) for P5,750,000.00. Petitioner filed a complaint for annulment of sale on February 26, 1987, alleging vitiated consent and gross inadequacy of price. The Regional Trial Court (RTC) dismissed the complaint and granted the counterclaim for attorney's fees. The Court of Appeals (CA) affirmed the dismissal but deleted the award of attorney's fees. Petitioner then filed the present petition for review on certiorari. The Petition: Petitioner seeks to reverse the CA decision, arguing that the appellate court erred in concluding that its cause of action had prescribed, that its consent was not vitiated by force, intimidation, duress, and undue influence, that the purchase price was not grossly inadequate, and that its use of the sale proceeds did not constitute implied ratification. Petitioner also contends that the CA erred in excluding certain exhibits intended to prove President Marcos's ownership of Liwayway Publishing, Inc.
Issue(s)
Whether the 4-year prescriptive period for filing an action for annulment of contract was suspended during the Martial Law regime. Whether the consent of petitioner to the contracts of sale was vitiated by force, intimidation, duress, and undue influence. Whether the testimonial evidence regarding threats and coercion was hearsay. Whether the acts of then President Marcos during Martial Law constituted force, intimidation, duress, and undue influence. Whether the purchase price was grossly inadequate, indicating a defect in consent. Whether the use of the sale proceeds by petitioner constituted implied ratification of the contracts of sale. Whether the excluded exhibits were admissible to prove President Marcos's ownership of Liwayway Publishing, Inc.
Ruling
The petition is denied, and the challenged decision of the Court of Appeals is affirmed. The Court ruled that the prescriptive period for annulment of contract was not suspended during Martial Law, that petitioner failed to prove vitiated consent due to duress or intimidation, that the purchase price was not grossly inadequate to invalidate the sale, and that the use of sale proceeds constituted ratification. The excluded exhibits were deemed irrelevant to the main issue of voidable contracts.
Ratio Decidendi
On the suspension of the prescriptive period during Martial Law: The Court reiterated the ruling in DBP vs. Pundogar and Tan vs. Court of Appeals, stating that the martial law regime does not per se qualify as force majeure that automatically suspends prescriptive periods. Petitioner failed to prove that it was impossible to file suit during the entire Martial Law period. The Court noted that Mr. Locsin, Sr. had previously filed suits against the regime, demonstrating that legal action was possible. The Locsins' mistrust of the courts, while understandable, did not serve as a legal excuse for failing to observe the prescriptive period. The Court emphasized that claims should be assessed on a case-to-case basis, and a sweeping pronouncement of force majeure was not warranted. On vitiated consent due to duress, intimidation, or undue influence: The Court found that much of the testimonial evidence presented by petitioner, particularly statements attributed to the deceased Brig. Gen. Hans Menzi, Atty. Crispin Baizas, and Secretary Guillermo De Vega, constituted hearsay. These statements were offered to prove threats and coercion allegedly made by Marcos's emissaries. The Court held that such evidence lacks probative value because the declarants could not be cross-examined. Even if considered as declarations against interest, the Court was reluctant to give them weight, especially when the witnesses (the Locsins) were interested parties and the alleged declarants (Menzi, Baizas, De Vega) were deceased. The Court also noted that petitioner's own witnesses admitted that Mr. Locsin, Sr. had rejected initial offers and negotiated a compromise, suggesting that the sale was not solely the result of coercion but also influenced by the company's dire financial straits and the absence of other buyers. On the admissibility of hearsay evidence: The Court affirmed the CA's ruling that testimonies regarding statements made by deceased individuals (Menzi, Baizas, De Vega) were hearsay. The Court clarified that even if the witnesses (Locsin, Sr. and Locsin, Jr.) were present during the conversations or were parties to them, the statements attributed to the deceased are still hearsay if offered against a party who had no opportunity to cross-examine the deceased declarant. The exception for declarations against interest was deemed inapplicable because the alleged statements by Menzi, indicating he was acting for the President, did not necessarily run counter to his own interest but rather demonstrated his authority. On the acts of President Marcos during Martial Law: The Court agreed with the CA that the acts of the ruling power during Martial Law, such as the closure of the press and arrest of its president, were not per se acts of intimidation vitiating consent under Article 1336 of the Civil Code, unless it could be proven that these powers were abused to force the sale. The Court found that petitioner failed to present clear and convincing evidence of such abuse, relying instead on largely hearsay testimony. The Court also considered the plausible scenario that the sale was driven by petitioner's financial difficulties rather than solely by coercion, especially since Mr. Locsin, Sr. had previously rejected offers and negotiated terms. On gross inadequacy of purchase price: The Court held that gross inadequacy of price, by itself, does not affect a contract of sale unless it indicates a defect in consent (Article 1470, Civil Code). Petitioner failed to prove a defect in consent. The Court gave weight to the audited financial statements showing the net book value of the properties was significantly lower than the purchase price, indicating that petitioner actually realized a profit. The Court found the CA's reliance on book value, while noting the distinction with market value, was reasonable in light of the evidence presented, including petitioner's own balance sheet. On implied ratification: The Court found that petitioner's use of the sale proceeds to pay employees, buy out stockholders, and invest in new ventures constituted implied ratification of the sale under Article 1393 of the Civil Code. The Court rejected the argument that the use of proceeds was merely for financial survival, stating that the law does not distinguish the reason for ratification, only the act itself. Such ratification cleanses the contract of any alleged defects from its inception (Article 1396, Civil Code). On the exclusion of exhibits: The Court found the excluded exhibits, intended to prove President Marcos's ownership of Liwayway Publishing, Inc., to be irrelevant to the main issue of whether the contracts of sale were voidable due to vitiated consent. The ownership of the vendee was not the primary question before the Court.
Main Doctrine
The Court held that the martial law regime, while oppressive, did not automatically suspend the prescriptive period for filing an action for annulment of contract. The petitioner failed to prove that it was impossible to file suit during that period, especially considering the prior legal actions taken by individuals, including the petitioner's president, against the regime. Furthermore, the Court found that the evidence presented to prove duress and intimidation was largely hearsay, and the gross inadequacy of price alone does not invalidate a contract unless it indicates a defect in consent. The use of sale proceeds for the company's survival was deemed an implied ratification.