Asiga Mining Corporation Vs. Manila Mining Corporation and Basiana Mining Exploration Corporation

Philippine Stock Exchange, Inc. Vs. Antonio K. Litonjua and Aurelio K. Litonjua, Jr.
G.R. No. 204014. December 5, 2016

Trendline violated some PSE rules in trading and failed to pay its cash settlement payables to the Securities Clearing Corporation of the Philippines in the amount of P113.7 Million. As a result, PSE was compelled to assume Trendline's obligation. PSE, in turn, suspended Trendline's trading privileges.

On 20 April 1999, the Litonjua Group wrote a letter-agreement to Trendline Securities, Inc. (Trendline) through its President Priscilla D. Zapanta (Zapanta), confirming a previous agreement for the acquisition of the 85% majority equity of Trendline's membership seat in PSE, a domestic stock corporation licensed by the Securities and Exchange Commission (SEC) to engage in the business of operating a market for the buying and selling of securities.

The Business Conduct and Ethics Committee of PSE resolved to accept from the Litonjua Group the amount of Nineteen Million Pesos (P19,000,000.00) as full and final settlement of Trendline’s outstanding obligations to be paid not later than 13 May 1999, in order to effect the lifting of the suspension of the seat/membership. Upon receipt of the checks, an annotation was indicated by PSE that the checks were received as advance payment for full settlement of Trendline's outstanding obligation.

Despite several exchange of letters of conformity and delivery of checks representing payment of full settlement of Trendline's obligations, PSE failed to lift the suspension imposed on Trendline's seat.

On 30 July 2006, the Litonjua Group, through a letter, requested PSE to reimburse the P19,000,000.00 it had paid with interest, upon knowledge that the specific performance by PSE of transferring the membership seat under the agreement will no longer be possible.

PSE, however, refused to refund the claimed amount as without any legal basis. As a result, the Litonjua Group on 10 October 2006 filed a Complaint for Collection of Sum of Money with Damages against PSE before the RTC of Pasig City.

1.    Is PSE a party to the letter-agreement?

No.

It is not a party in the letter-agreement due to the absence of any board resolution authorizing the corporation to be bound by the terms of the contract between Trendline and the Litonjua Group. In essence, it avers that no consent was given to be bound by the terms of the letter-agreement.

2.    What is a contract?

According to Article 1305 of the Civil Code, "a contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or render some service." For a contract to be binding: there must be consent of the contracting parties; the subject matter of the contract must be certain; and the cause of the obligation must be established. Consent, as a requisite to have a valid contract, is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and acceptance absolute. A qualified acceptance constitutes a counter offer.

3.    How does a corporation manifest its consent?

In corporations, consent is manifested through a board resolution since powers are exercised through its board of directors. The mandate of Section 23 of the Corporation Code is clear that unless otherwise provided in the Code, "the corporate powers of all corporations shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees..."

Further, as a juridical entity, a corporation may act through its board of directors, which exercises almost all corporate powers, lays down all corporate business policies and is responsible for the efficiency of management. As a general rule, in the absence of authority from the board of directors, no person, not even its officers, can validly bind a corporation. This is so because a corporation is a juridical person, separate and distinct from its stockholders and members, having powers, attributes and properties expressly authorized by law or incident to its existence.

4.    Is PSE bound to return the money it received from Litonjua Group?

Yes.

This is pursuant to the principles of unjust enrichment and estoppel; it is only but rightful to return the money received since PSE has no intention from the beginning to be a party to the agreement.

In addition, principle of estoppel finds merit.

5.    Explain the principle of unjust enrichment

The principle of unjust enrichment is embodied by the letter of Article 22 of the Civil Code:

Article 22. Every person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him.

There is unjust enrichment when a person unjustly retains a benefit to the loss of another, or when a person retains money or property of another against the fundamental principles of justice, equity and good conscience. The principle of unjust enrichment requires two conditions: (1) that a person is benefited without a valid basis or justification, and (2) that such benefit is derived at the expense of another.

The main objective of the principle against unjust enrichment is to prevent one from enriching himself at the expense of another without just cause or consideration.

6.    Explain the principle of estoppel

Estoppel has its roots in equity. It is a response to the demands of moral right and natural justice. For estoppel to exist, it is indispensable that there be a declaration, act or omission by the party who is sought to be bound. It is equally a requisite that he, who would claim the benefits of such a principle, must have altered his position, having been so intentionally and deliberately led to comport himself; thus, by what was declared or what was done or failed to be done.

7.    Explain how the principle of estoppel applies in this case?

PSE became an active participant in all the transactions between the Litonjua Group and Trendline. By accepting Litonjua's payment, PSE is now estopped from claims that Trendline still has a penalty obligation that must be settled before the transfer of the seat.

PSE cannot assert to be a non-party to the letter-agreement and at the same time claim a right to receive the money for the satisfaction of the obligation of Trendline. PSE must not be allowed to contradict itself. A position must be made. PSE must either consider itself a party to the letter agreement and assume the all rights and obligations flowing from the transaction or disavow its consent derivative from its participation. Since, it is already made clear that it is not a party due to its lack of consent, it is now estopped from claiming the right to be paid.

8.    When may the court award exemplary damages?

In contracts and quasi-contracts, the court may award exemplary damages if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner. Exemplary damages cannot be recovered as a matter of right; the court will decide whether or not they should be adjudicated. While the amount of the exemplary damages need not be proven, the plaintiff must show that he is entitled to moral, temperate or compensatory damages before the court may consider the question of whether or not exemplary damages should be awarded.

9.    Should PSE be held liable for exemplary damages?

Yes.

PSE, despite demands by the Litonjua Group, continuously refused to return the money received despite the fact that it received it without any legal right to do so. This conduct, as found by the trial court, falls within the purview of wanton, oppressive and malevolent in nature.