REPUBLIC OF THE PHILIPPINES, REPRESENTED BY THE PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT, PETITIONERS, VS. LEGAL HEIRS OF JOSE L. AFRICA, RESPONDENTS.

Republic versus Legal Heirs of Jose L. Africa

The Case

This is a petition for review on certiorari brought by the Republic of the Philippines, acting through the Presidential Commission on Good Government, against the Legal Heirs of Jose L. Africa. The Republic asks the Supreme Court to reverse a resolution of the Sandiganbayan that dropped Jose L. Africa, and after his death his heirs, from a complaint for reconveyance, reversion, accounting, restitution, and damages arising from the alleged accumulation of ill-gotten wealth during the Marcos regime. The case matters because it fixes the boundaries of a compromise agreement: when may a person who was never a party to the settlement claim its benefits, and when does a settlement with one alleged conspirator release the others? These are questions of stipulation pour autrui, the stipulation in favor of a third person, and of the solidary nature of obligations arising from crime.

Procedural History

The Republic, through the Presidential Commission on Good Government, filed the complaint before the Sandiganbayan against Ferdinand and Imelda Marcos, Roberto Benedicto, Jose L. Africa, and many others. After the Commission and Benedicto entered into a compromise agreement, Africa's heirs moved to dismiss the case against him on the ground that his alleged co-conspirators had been exonerated. The Sandiganbayan initially granted the motion and dismissed the case against Africa and his heirs, treating the acts complained of as a quasi-delict whose solidary obligation was extinguished by the compromise. On reconsideration, the Sandiganbayan set aside that resolution and reinstated the case against Africa, ruling that the compromise agreement contained no stipulation clearly and deliberately conferring a benefit on him. On a second motion for reconsideration, the Sandiganbayan reversed itself once more and dropped Africa and his heirs as defendants. The Republic then elevated the matter to the Supreme Court by petition for review on certiorari.

Facts

On the last day of July 1987, the Presidential Commission on Good Government filed a complaint before the Sandiganbayan against the Marcoses and a long list of defendants, including Jose L. Africa. The Commission alleged that the defendants, in collaboration with one another, siphoned funds from the national treasury to unjustly enrich themselves and the Marcoses. As to Africa, the Commission alleged that he collaborated with Roberto Benedicto and others in acting as conduits of the pilfered funds, laundering them through the banking facilities of Traders Royal Bank, of which Africa was Chairman of the Board of Directors, before remitting them to the Marcoses.

In November 1990, the Commission and Benedicto entered into a compromise agreement. Benedicto undertook to cede to the government the properties listed in the annexes, and the Commission agreed to lift sequestration orders and to extend absolute immunity to Benedicto, his family, and the officers and employees of the listed corporations. The agreement expressly stated that it covered the remaining claims and cases of the government against Benedicto, including his associates and nominees, and then named them one by one. Africa was not among the names. The Sandiganbayan approved the compromise agreement, and the Supreme Court later upheld its validity and ordered strict compliance with its terms.

Africa died, and in February 1996 his heirs moved to dismiss the case against him, arguing that he should be exonerated because his supposed conspirators had been exonerated under the compromise agreement. The Sandiganbayan wavered, first dismissing, then reinstating, and finally, in February 2013, dropping Africa and his heirs as defendants. Hence the petition before the Supreme Court.

Issues

• Whether or not Jose L. Africa and his heirs may benefit from the compromise agreement entered into between the Presidential Commission on Good Government and Roberto Benedicto.
• Whether or not the solidary liability of the defendants was extinguished by the execution of the compromise agreement.

Applicable Provisions

Article 1311 of the Civil Code, on the relativity of contracts and the stipulation in favor of a third person, provides:

Article 1311. Contracts take effect only between the parties, their assigns and heirs, except in case where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation, or by provision of law. The heir is not liable beyond the value of the property he received from the decedent. If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment provided he communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a person is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person.

This provision governs whether Africa, a stranger to the compromise agreement, may claim its benefits, and it requires that the favor be clearly and deliberately conferred, not merely incidental.

Article 1216 of the Civil Code, on the creditor's right against solidary debtors, provides:

Article 1216. The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The demand made against one of them shall not be an obstacle to those which may subsequently be directed against the others, so long as the debt has not been fully collected.

This provision answers the argument that the settlement with Benedicto extinguished the whole obligation, since the creditor may still proceed against the others while the debt remains uncollected.

Article 1217 of the Civil Code, invoked by the Sandiganbayan, provides:

Article 1217. Payment made by one of the solidary debtors extinguishes the obligation. If two or more solidary debtors offer to pay, the creditor may choose which offer to accept.

The Court rejects its application here because there is no showing that the obligation was fully paid.

Ruling

On the first issue, the Court held that Africa and his heirs may not benefit from the compromise agreement. A stipulation pour autrui requires that the contracting parties clearly and deliberately confer a favor on a third person; a mere incidental benefit will not do. The Court carefully perused the compromise agreement and found no stipulation even resembling a provision in favor of Africa. On the contrary, the second whereas clause named the additional beneficiaries one by one, and Africa was not among them. The Court also rejected the Sandiganbayan's reading of the immunity clause covering officers and employees of Benedicto's corporations. The word abovementioned refers to the officers and employees enumerated in the second whereas clause, not to all the corporations, especially since the list of corporations appears only in the annexes and the clause is followed by the word who, which shows the immunity was accorded individually and not by mere affiliation. The Court noted that other defendants similarly situated were deliberately excluded, showing that the parties intended to pick and choose. The absence of Africa's name could only mean he was deliberately excluded. The rule on relativity of contracts therefore prevails.

On the second issue, the Court held that the solidary obligation was not extinguished. Although the liability arose from a crime and was solidary, Article 1216 allows the creditor to proceed against any one of the solidary debtors so long as the debt has not been fully collected. The heirs showed no proof that the judgment based on the compromise agreement had been fully satisfied; the Commission asserted that implementation was staggered and subject to pending suits. Even assuming full implementation, the amounts paid would at most be deducted from the total claim, which is incapable of pecuniary estimation and still subject to factual determination. Finally, for a defendant to benefit from a compromise agreement executed with other defendants, it must be shown that the plaintiff alleged a common cause of action against the defendants and that all of them are indispensable parties. The heirs showed neither.

Doctrine

For a stipulation pour autrui to be appreciated, it is indispensable that there be a stipulation deliberately conferring a benefit or favor on a third person. A mere incidental benefit or interest is not sufficient; the contracting parties must have clearly and deliberately conferred the favor. The requisites are: a stipulation in favor of a third person; the stipulation is part, not the whole, of the contract; the contracting parties clearly and deliberately conferred the favor, which is not incidental; the favor is unconditional and uncompensated; the third person communicated acceptance before revocation; and the contracting parties do not represent the third party. Where the terms of a contract are clear and leave no doubt upon the intention of the parties, the literal meaning of its stipulations controls. Under the rule on relativity of contracts in Article 1311, only the parties and their privies acquire rights and assume obligations. As to solidary obligations, Article 1216 gives the creditor the right to proceed against any one of the solidary debtors so long as the debt has not been fully collected; payment by one extinguishes the obligation under Article 1217 only when the debt is fully satisfied. A defendant may benefit from a compromise agreement executed between the plaintiff and other defendants only if the plaintiff alleged a common cause of action against the defendants and all of them are indispensable parties.

Disposition

The petition was granted; the Sandiganbayan resolution dropping Africa and his heirs was reversed and set aside, and the Sandiganbayan was ordered to reinstate Jose L. Africa and his heirs as defendants in the case.

Remember This

The single line to memorize: a stipulation pour autrui requires a favor clearly and deliberately conferred, and a mere incidental benefit is not enough. Examiners use this case to test the requisites of the stipulation in favor of a third person and the extent of a creditor's right against solidary debtors under Articles 1311, 1216, and 1217 of the Civil Code.