Monday, May 17, 2010

Dr. Daniel Vazquez & Ma. Luiza Vazquez vs Ayala Corp.

Chester Cabalza recommends his visitors to please read the original & full text of the case cited. Xie xie!

Dr. Daniel Vazquez & Ma. Luiza Vazquez vs Ayala Corp.
G.R. No. 149734
November 19, 2004


The rise in value of four lots in one of the country's prime residential developments, Ayala Alabang Village in Muntinlupa City, over a period of six (6) years only, represents big money. The huge price difference lies at the heart of the present controversy. Petitioners insist that the lots should be sold to them at 1984 prices while respondent maintains that the prevailing market price in 1990 should be the selling price.

Dr. Daniel Vazquez and Ma. Luisa Vazquez filed this Petition for Review on Certiorari dated October 11, 2001 assailing the Decision of the Court of Appeals dated September 6, 2001 which reversed the Decision of the Regional Trial Court (RTC) and dismissed their complaint for specific performance and damages against Ayala Corporation.

On April 23, 1981, spouses Daniel Vasquez and Ma. Luisa M. Vasquez, with AYALA buying from the Vazquez spouses, all of the latter's shares of stock in Conduit Development, Inc. The main asset of Conduit was a 49.9 hectare property in Ayala Alabang, Muntinlupa, which was then being developed by Conduit under a development plan where the land was divided into Villages 1, 2 and 3 of the "Don Vicente Village." The development was then being undertaken for Conduit by G.P. Construction and Development Corp.

Under the MOA, Ayala was to develop the entire property, less what was defined as the "Retained Area" consisting of 18,736 square meters. This "Retained Area" was to be retained by the Vazquez spouses. The area to be developed by Ayala was called the "Remaining Area". In this "Remaining Area" were 4 lots adjacent to the "Retained Area" and Ayala agreed to offer these lots for sale to the Vazquez spouses at the prevailing price at the time of purchase.

Under the MOA, the Vasquez spouses made several express warranties, as follows: (1) The SELLERS shall deliver to the BUYER: The true and complete list, certified by the Secretary and Treasurer of the Company showing a list of all persons and/or entities with whom the Company has pending contracts, if any. (2) Audited financial statements of the Company as at closing date. (3) All obligations of the BUYER under this Agreement are subject to fulfillment prior to or at the Closing, of the following conditions: The representations and warranties by the SELLERS contained in this Agreement shall be true and correct at the time of Closing as though such representations and warranties were made at such time. (4) Representation and Warranties by the SELLERS: The SELLERS jointly and severally represent and warrant to the BUYER that at the time of the execution of this Agreement and at the Closing.

After the execution of the MOA, Ayala caused the suspension of work on Village 1 of the Don Vicente Project. Ayala then received a letter from one Maximo Del Rosario of Lancer General Builder Corporation informing Ayala that he was claiming the amount of P1,509,558.80 as the subcontractor of G.P. Construction.

G.P. Construction not being able to reach an amicable settlement with Lancer, on March 22, 1982, Lancer sued G.P. Construction, Conduit and Ayala in the then Court of First Instance of Manila in Civil Case. Construction in turn filed a cross-claim against Ayala. G.P. Construction and Lancer both tried to enjoin Ayala from undertaking the development of the property. The suit was terminated only on February 19, 1987, when it was dismissed with prejudice after Ayala paid both Lancer and GP Construction the total of P4,686,113.39.

By early 1990 Ayala finished the development of the vicinity of the 4 lots to be offered for sale. The four lots were then offered to be sold to the Vasquez spouses at the prevailing price in 1990. This was rejected by the Vasquez spouses who wanted to pay at 1984 prices, thereby leading to the suit below.


W/N petitioners breached their warranties under the MOA when they failed to disclose the Lancer claim?


After trial, the court a quo rendered its decision, the dispositive portion of which states: "THEREFORE, judgment is hereby rendered in favor of plaintiffs and against defendant, ordering defendant to sell to plaintiffs the relevant lots described in the Complaint in the Ayala Alabang Village at the price of P460.00 per square meter amounting to P1,349,540.00; ordering defendant to reimburse to plaintiffs attorney's fees in the sum of P200,000.00 and to pay the cost of the suit."

In its decision, the court concluded that the Vasquez spouses were not obligated to disclose the potential claims of GP Construction, Lancer and Del Rosario; Ayala's accountants should have opened the records of Conduit to find out all claims; the warranty against suit is with respect to "the shares of the Property" and the Lancer suit does not affect the shares of stock sold to Ayala. Ayala was obligated to develop within 3 years; to say that Ayala was under no obligation to follow a time frame was to put the Vasquezes at Ayala's mercy; Ayala did not develop because of a slump in the real estate market; the MOA was drafted and prepared by the AYALA who should suffer its ambiguities; the option to purchase the 4 lots is valid because it was supported by consideration as the option is incorporated in the MOA where the parties had prestations to each other.

Ayala Corporation filed an appeal, alleging that the trial court erred in holding that petitioners did not breach their warranties under the MOA dated April 23, 1981; that it was obliged to develop the land where the four (4) lots subject of the option to purchase are located within three (3) years from the date of the MOA; that it was in delay; and that the option to purchase was valid because it was incorporated in the MOA and the consideration therefore was the commitment by Ayala Corporation to petitioners embodied in the MOA.

The Court of Appeals reversed the RTC Decision

According to the appellate court, Ayala Corporation was never informed beforehand of the existence of the Lancer claim. In fact, Ayala Corporation got a copy of the Lancer subcontract only on May 29, 1981 from G.P. Construction's lawyers. The Court of Appeals thus held that petitioners violated their warranties under the MOA when they failed to disclose Lancer's claims. Hence, even conceding that Ayala Corporation was obliged to develop and sell the four (4) lots in question within three (3) years from the date of the MOA, the obligation was suspended during the pendency of the case filed by Lancer.

The appellate court likewise ruled that paragraph 5.15 above-quoted is not an option contract but a right of first refusal there being no separate consideration therefor. Since petitioners refused Ayala Corporation's offer to sell the subject lots at the reduced 1990 price of P5,000.00 per square meter, they have effectively waived their right to buy the same.

Moreover, Ayala Corporation asserts that the warranties under the MOA are not just against suits but against all kinds of liabilities not reflected in the Audited Financial Statements. Lastly, Ayala Corporation maintains that paragraph 5.15 of the MOA is a right of first refusal and not an option contract.

Petitioners filed their Reply dated August 15, 2002 reiterating the arguments in their Petition and contending further that they did not violate their warranties under the MOA because the case was filed by Lancer only on April 1, 1982, eleven (11) months and eight (8) days after the signing of the MOA on April 23, 1981. Ayala Corporation admitted that it received Lancer's claim before the "Closing" date. It therefore had all the time to rescind the MOA. Not having done so, it can be concluded that Ayala Corporation itself did not consider the matter a violation of petitioners' warranty.

Procedural Process

We shall first dispose of the procedural question raised by the instant petition. It is well-settled that the jurisdiction of this Court in cases brought to it from the Court of Appeals by way of petition for review under Rule 45 is limited to reviewing or revising errors of law imputed to it, its findings of fact being conclusive on this Court as a matter of general principle. However, since in the instant case there is a conflict between the factual findings of the trial court and the appellate court, particularly as regards the issues of breach of warranty, obligation to develop and incurrence of delay, we have to consider the evidence on record and resolve such factual issues as an exception to the general rule. In any event, the submitted issue relating to the categorization of the right to purchase granted to petitioners under the MOA is legal in character.


In this case, Ayala Corporation offered the subject lots for sale to petitioners at the price of P6,500.00/square meter, the prevailing market price for the property when the offer was made on June 18, 1990. Insisting on paying for the lots at the prevailing market price in 1984 of P460.00/square meter, petitioners rejected the offer. Ayala Corporation reduced the price to P5,000.00/square meter but again, petitioners rejected the offer and instead made a counter-offer in the amount of P2,000.00/square meter. Ayala Corporation rejected petitioners' counter-offer. With this rejection, petitioners lost their right to purchase the subject lots.

It cannot, therefore, be said that Ayala Corporation breached petitioners' right of first refusal and should be compelled by an action for specific performance to sell the subject lots to petitioners at the prevailing market price in 1984. WHEREFORE, the instant petition is DENIED. No pronouncement as to costs. SO ORDERED.

No comments: