LUCIO TAN, PETITIONER, VS. THE HON. COURT OF APPEALS AND TERESITA SANCHEZ, RESPONDENTS.

As far as the Court can see, there are no hidden or double meanings
in the contract it is asked to interpret. Both parties agree that it is clear enough, but from their respective
opposite viewpoints. The private
respondent has been sustained by both the trial court and the respondent
court. The petitioner is now before us
and insists that they have all erred.

Private respondent Teresita Sanchez invested P100,000.00 in a
restaurant called the Manila Bar, then owned and operated by Nilo Tiglao, who
agreed that the amount would earn profit in the form of interest at the rate of
14% per annum and could be withdrawn by her at any time. This agreement was embodied in a Contract of Investment dated May 24,
1981.^[1]
Subsequently, Tiglao assigned all his “rights, interests and good
will” over the said restaurant to Lucio Tan, the herein petitioner, in a
Deed of Conveyance and Transfer dated March 1, 1982.^[2] The
consideration of the sale was P400,000.00.

Upon learning of this transaction, Sanchez demanded the return of
her investment from the petitioner. Tan
acknowledged his obligation to Sanchez and agreed to pay her the full amount in
accordance with the terms and conditions of the following promissory note:^[3]

PROMISSORY NOTE

Manila, Philippines

March 26, 1982

P50,000.00

For and in consideration of taking over the management and
operation of the MANILA BAR, a restaurant located at #1220 M. H. del Pilar
Street, Ermita, Manila, owned and operated by Mr. NILO TIGLAO, I promise to
pay/return to ATTY. TERESITA D. SANCHEZ, or Order, her lawful investment with
the Manila Bar in the amount of ONE HUNDRED THOUSAND (P100,000.00) PESOS, under
the following terms and conditions,
to wit:

1. That FIFTY THOUSAND
(P50,000.00) PESOS will be paid upon signing of the contract of lease with the
owner, his assign, heir or duly authorized representative, of the lot upon
which the Manila Bar is erected; and

2. That the balance of
FIFTY THOUSAND (P50,000.00) PESOS, shall be payable on or before the expiration
of the period of the contract of lease afore-mentioned regardless of the
outcome of the operation. In no case
shall the period of payment be longer than TWO (2) YEARS.

I hereby agree, that in case of default in payment of this
obligation when due and payable to pay an additional sum equal to TWENTY FIVE
(25) PER CENT of the total amount due and payable as Attorney’s fees and cost
of collection in addition to legal costs provided for under the Rules of Court.

DEMAND AND DISHONOR WAIVED.

SGD.
LUCIO TAN

Maker

The contract of lease referred to was concluded on February 6,
1982, and specified a period of two years from April 16, 1982, renewable by the
lessee under certain conditions.^[4] After
the lapse of two years following the conclusion of this contract (and also the
executor of the promissory note), Sanchez demanded from the petitioner payment
of the balance of P50,000.00. The
petitioner refused to pay, and Sanchez sued.

In his answer,^[5] Tan
claimed that he was ejected from the premises where the Manila Bar was situated
by virtue of a writ of execution in an ejectment case to which he was not a
party. He had filed a petition for recovery of the premises and the case was
still pending in another court. He
argued that his dispossession of the Manila Bar prevented him from operating it
and constituted a fortuitous event that made him “not legally liable for
the payment of his obligations.” The plaintiff therefore had no cause of
action against him.

Judge Willelmo C. Fortun of the Regional Trial Court of Manila
did not agree. In a decision dated June
20, 1985,^[6]
he declared inter alia as follows:

x x x Under the law, a fortuitous event is defined as an act which
though foreseen, cannot be avoided, such as fire, typhoon, flood, and other
natural calamities. The ejectment of
defendant from the premises of the property in question can hardly be
considered as a fortuitous event as defined by law and jurisprudence. Neither would the fact that defendant has
filed a case, Civil Case No. 83-16990 (Lucio Tan vs. Hon. Priscilla C. Mijares,
etc., et al.) on April 18, 1983, for annulment of judgment, which case is still
pending in the Regional Trial Court of Manila, Branch XXIV, excuse defendant
from complying with his obligation to pay said balance of P50,000.00 from
plaintiff as covenanted by him in said promissory note dated March 26, 1982
(Exh. B). It is elementary that the
contract freely agreed upon between the parties is the law between the parties,
which they must faithfully comply.

Tan appealed to the respondent court on the sole ground that the
lower court erred in finding for the plaintiff despite the fact that there was
a clear failure of consideration. Tan
lost again. In its decision dated July
12, 1991,^[7]
the Court of Appeals held that the promissory note clearly called for the payment
of the balance of P50,000.00 “not later than the expiration of
lease.” It observed:

The promissory note is a simple obligation with a period, as
correctly found by the lower court. Had
the parties intended that payment of the obligation would be based or founded
on appellant’s running the Manila Bar for a period of two years continuously
and without interruption, as interpreted by defendant-appellant, said intention
should have been clearly indicated in the agreement. There is nothing in the note to indicate said intention of the
parties.

Moreover, defendant-appellant’s new defense was never raised in the
trial court. It is well-settled that
“questions not raised in the lower court cannot be raised for the first
time on appeal (Garcia v. CA, 102 SCRA 597; Matienzo v. Sevilla, 1107 SCRA
276). It would indeed be unfair to the adverse party if an entirely new issue
is raised on appeal as it had no opportunity to introduce evidence to
counteract this new issue” (Anchuelo v. IAC, 147 SCRA 434).

The petitioner is now before us with the following assignment of
errors:

I

THE COURT OF APPEALS ERRED IN FAILING TO
APPRECIATE THAT THE CONSIDERATION FOR THE OBLIGATION OF PETITIONER LUCIO TAN TO
PAY P50,000.00 UNDER THE PROMISSORY NOTE WAS THE CONTINUOUS OPERATION OF THE
MANILA BAR FOR TWO (2) YEARS; OTHERWISE, THE PROMISSORY NOTE WAS WITHOUT
CONSIDERATION.

II

THE COURT OF APPEALS ERRED IN CONSIDERING
THE OBLIGATION UNDER THE PROMISSORY NOTE AS ONLY ONE WITH A PERIOD, SINCE THE
PERIOD OF TWO (2) YEARS WAS ALSO THE PERIOD FOR THE PERFORMANCE OF THE CONTINUOUS CONSIDERATION OF OPERATING THE
MANILA BAR, WHICH OPERATED LIKEWISE AS A SUSPENSIVE CONDITION.

III

THE COURT OF APPEALS ERRED IN BELIEVING
THAT PETITIONER WAS INTERPRETING THE PROMISSORY NOTE WHEN WHAT WAS BEING DONE
WAS MERELY ASCERTAINING THE MEANING OF THE PROMISSORY NOTE IN ORDER TO KNOW
WHAT TO APPLY.

IV

THE COURT OF APPEALS ERRED IN HOLDING THAT THE DEFENSE OF
FAILURE OF CONSIDERATION WAS NEVER RAISED IN THE LOWER COURT AND THAT THERE WAS
A CHANGE OF THEORY BY
PETITIONER.

It seems to us that the petitioner is beating a dead horse. In trying to resurrect his lost cause, he
would becloud with nice legal arguments what we also find with the lower courts
to be a clear and uncomplicated agreement.

In the first place, if the petitioner would be strictly legal, he
must admit that the issue of failure of consideration which he raised in the
appellate court was not raised in the trial court. His original defense was fortuitous event, which he said
prevented him from complying with his promise to pay the P50,000.00
balance. His Answer with Counterclaim
consisted of four typewritten pages and included Admissions, Denials,
Affirmative Allegations, Affirmative and Special Defenses, Counterclaim, and
Prayer.^[8]
Nowhere in any of these subtopics was failure of consideration ever pleaded as
absolving him from his obligation.

Tan would now have us agree that he raised the defense of failure
of consideration in the lower court albeit “not in legal terms.” He
says he did so “in businessman’s terms” when he testified as follows:

Q     What
happened to the balance if any?

A      Well, the balance because our agreement is
that for the normal operation whether there is a loss or gain I have to pay her
P50,000.00 but on April 15, 1983 I was illegally and forcibly ejected and since
this is not a normal operation of the store I did not comply with the
promissory note.^[9]

Considering the length of his answer with counterclaim and the no
less important fact that he was speaking through a lawyer in a legal
proceeding, we can only ask why he did not raise the defense of failure of
consideration in legal terms. His explanation that he did so in businessman’s terms lacks
conviction. It strikes us as an awkward
afterthought plainly intended to salvage his failure to categorically assert
this second defense in the trial court.

The petitioner argues now that there was only “a shift of
emphasis” when he raised this ground on appeal, focusing this time on the
fortuitous event as resulting in a failure of consideration. According to him, “the defense of
fortuitous event was used twice (1) in its technical sense as suspending the
payment of the obligation and (2) as an event which prevented liability, i.e.,
failure of consideration.”^[10]

This so-called “shift of emphasis” is also not
acceptable because it presupposes that both fortuitous event and failure of
consideration were alleged as respondent’s defenses in the trial court. The records indicate otherwise.

In the first place, Tan’s eviction from the Manila Bar was not a
fortuitous event, whether in its technical sense or whatever.^[11]
(The Court notes that the petitioner has not even tried in any of the pleadings
he filed with us to prove the existence of his claimed fortuitous event. He has simply assumed its existence.)
Secondly, Tan never said in his answer with counterclaim that his eviction from
the Manila Bar was a fortuitous event that resulted in failure of
consideration. Defenses and objections not pleaded either in a motion to
dismiss or in the answer are deemed waived, the only exceptions being a failure
to state a cause of action and lack of jurisdiction.^[12]
The petitioner’s quoted testimony did not have the effect of curing that
omission. In invoking this ground
before the respondent court, the petitioner was not merely shifting emphasis
but actually raising a second and completely new issue on appeal.

For this reason alone, the appealed decision should be sustained.

But even on the matter of the correct interpretation of the
promissory note, the petition must also fail.

It is a canon of interpretation that the words used in a contract
should be given their natural and ordinary meaning unless a technical meaning
was intended. An examination of the
promissory note shows that it does not come under the exception. On the contrary, we agree with the courts
below that the plain understanding of the parties was that the petitioner would
pay the private respondent the balance of P50,000.00: (a) on or before the
expiration of the two-year period of lease on March 6, 1984; b) regardless of
the outcome of the operation of the Manila Bar; and c) in no case beyond the
period of two years from March 6, 1982 (or March 26, 1982, date of the
promissory note).

The petitioner now contends that the promissory note was issued
by him in consideration of his taking over the management and operation of the
restaurant and that his eviction therefrom constituted a failure of such
consideration that absolved him from liability.

The Court does not see it that way. We read the opening clause of the promissory note, to wit,
“for and in consideration of (his) taking over the management and
operation of the Manila Bar,” as merely explaining why the petitioner was
assuming the payment of Sanchez’s investment in the restaurant. As he was then already the manager and
operator of the Manila Bar, he considered it only proper to acknowledge
Sanchez’s investment in the business and his obligation to repay her.

Tan was not executing the promissory note because he was taking
over the management and operation of the Manila Bar. He had already done that. It was not the promissory note that gave him such authority, for he had
earlier acquired that right from Tiglao under the Deed of Conveyance and
Transfer. There was no question at all
that Tan did not need further permission from the private respondent to
continue exercising that right.

We cannot see why the petitioner would promise to pay Sanchez the
amount of P100,000.00 for the right to manage and operate the Manila Bar when
he already had secured that right from Tiglao. What we see is that the petitioner made the promise to pay Sanchez
“for value received,” to use the standard phrase, referring to the
sum of P100,000.00 which had been invested in the Manila Bar by the private
respondent.

The petitioner also says now that his continued management and
operation of the Manila Bar was a suspensive condition of his obligation to pay
Sanchez the P50,000.00 balance of her investment, and that its non-fulfillment
had the effect of canceling the obligation.

That submission is inconsistent with the fact that he immediately
paid one-half of the amount owed on the day the note was executed. There was no suspensive condition for that
initial payment. As for the balance of
P50,000.00, nowhere does it say in any part of the note that its payment was
conditioned upon the petitioner’s continued management and operation of the
Manila Bar.

The private respondent correctly observes that it would have been
a simple matter for the promissor to state clearly in the promissory note that
he would pay the balance of P50,000.00 only on condition that he would continue
to manage and operate the restaurant during that two-year period of the
lease. He did not see fit to include
this condition in the promissory note he signed. Assuming an ambiguity in the instrument, we apply the rule in the
Civil Code that the ambiguity must be resolved against the person who caused
it, in this case the promissor.^[13]

Even on equitable grounds, we find that the private respondent is
entitled to recover the balance of her investment. It was not her concern that the business failed for her
investment was not dependent on its success. Whether the Manila Bar flourished or floundered, she was promised a 14%
annual interest on her investment therein and she also had a right to withdraw
such investment in full at any time. Having acknowledged that investment in the promissory note, the
petitioner was bound to honor and repay it, subject only to the condition that
this be done within the grace period allowed him by the investor.

WHEREFORE, the petition is DENIED and the appealed
decision AFFIRMED, with costs against the petitioner.

Griño-Aquino,
Medialdea, and Bellosillo, JJ., concur.

^[1]
Exhibit “A.”

^[2]
Exhibit “D.”

^[3]
Orig. Rec., p. 6.

^[4]
Exhibit “2.”

^[5]
Orig. Rec., pp. 13-16.

^[6]
Ibid., pp. 70-73.

^[7]
Rollo, pp. 22-27; Lapeña, Jr., J., ponente with Pronove, Jr.
and Santiago, JJ., concurring.

^[8]
Orig. Rec., pp. 13-16.

^[9]
TSN, March 7, 1985, p. 7.

^[10]
Rollo, p. 16.

^[11]
Escriche defines caso fortuito as “an unexpected
event or act of God which could neither be foreseen nor resisted, such as
floods, torrents, shipwrecks, conflagrations, lightning, compulsion,
insurrections, destruction of buildings by unforeseen accidents and other
occurrences of a similar
nature.”

x x x A caso fortuito presents the following
essential characteristics: (1) The cause of the unforeseen and unexpected
occurrence, or of the failure of the debtor to comply with his obligation, must
be independent of the human will. (2) It must be impossible to foresee the
event which constitutes the caso fortuito, or if it can be foreseen,
it must be impossible to avoid. (3) The occurrence must be such as to render it
impossible for the debtor to fulfill his obligation in a normal manner. And (4)
the obligor (debtor) must be free from any participation in the aggravation of
the injury resulting to the creditor (Lasam vs. Smith, 45 Phil. 657).

^[12]
Pe vs. Intermediate Appellate Court, 195 SCRA 137; Shoemart, Inc. vs.
Court of Appeals, 190 SCRA 189.

^[13]
Art. 1377. The interpretation of obscure words or stipulations in a contract
shall not favor the party who caused the obscurity.