SPS. RICARDO B. VILLAMIL AND JOSEFINA C. VILLAMIL, PETITIONERS, VS. THE HONORABLE COURT OF APPEALS (FORMER 16TH DIVISION) AND BENJAMIN S. LIM, RESPONDENTS.

The contract in question was interpreted by both the trial court
and the respondent court in favor of the herein private respondent. The petitioners demur, claiming it has been
misread and should now be set aright.

The instrument^[1]
reads in full as follows:

AGREEMENT TO SELL

This agreement executed by and among:

DR. RICARDO B. VILLAMIL and JOSEFINA C. VILLAMIL, both of legal
age, spouses, Filipinos and residents of Dagupan City, hereinafter called the VENDORS,

– and –

BENJAMIN S. LIM, of legal age, married, Filipino and resident of
Dagupan City, hereinafter called the VENDEE,

WITNESSETH:

WHEREAS, the VENDORS are the owners of a parcel of land (Lot 7 of
the Cadastral Survey of Dagupan,) covered by TCT No. 33204 and more
particularly described as follows:

A parcel of land (Lot 7 of the Cadastral Survey of Dagupan, LRC
Cad. Record No. 914) situated in the City of Dagupan, Island of Luzon. Bounded on the N by Pantal River; on the E.
by Lot 8; on the S. by Avenida Torres Bugallon; and on the W. by Lot 6, x x x
containing an area of Seven Hundred Fifteen (715) square meters, more or less.

WHEREAS,  the VENDORS have
caused the subdivision of the above land into three Lots (7-A, 7-B and 7-C);

WHEREAS, the VENDEE will buy the three lots (7-A, 7-B and 7-C of
the proposed subdivision plan for THREE MILLION FIVE HUNDRED THOUSAND PESOS
(P3,500,000.00);

WHEREAS, the VENDEE will put in trust with the Dagupan City Rural
Bank, Inc. the sum of One Million Pesos (P1,000,000.00) as evidenced by
Certificates of Time Deposit pending the approval of the Subdivision Plan and
the execution of the Deed of Absolute Sale on February 25, 1983;

WHEREAS, the Deed of Absolute Sale to be executed shall contain the
following terms and conditions:

Down payment shall be ONE MILLION PESOS (P1,000,000.00); the
Balance shall be paid in the following manner:

February 25, 1984         – –        P1,250,000.00

February 25, 1985 – –        P1,250,000.00

Total . . . . . . .          P2,500,000.00

WHEREAS, the amount of ONE MILLION PESOS (P1,000,000.00) put in
trust to the VENDEE shall be refunded promptly by the VENDORS if and when the
Deed of Absolute Sale could not be executed for any reason whatsoever.

NOW THEREFORE, premises considered, parties hereto have hereunto
set their hands this 21st day of September, 1982 at Dagupan City, Philippines.

(SGD.) JOSEFINA C. VILLAMIL                         (SGD.)
RICARDO B. VILLAMIL

(Vendor)                       (Vendor)

(SGD.) BENJAMIN S.
LIM

(Vendee)

At the time of this transaction, the Villamil family held the
controlling interest in the Dagupan City Rural Bank (DCRB), of which their son
Rafael was the manager. The bank was
then in sore need of loanable funds and in danger of closure by the Central Bank
because of its liquidity problems.^[2]

Upon the signing of the agreements, Lim delivered to Ricardo
Villamil the sum of P400,000.00, for which he was issued the corresponding
Certificate of Time Deposit by the manager of the DCRB.^[3]
On September 24, 1982, Lim delivered another P600,000.00, also to Ricardo
Villamil, and received another DCRB Certificate of Time Deposit in that amount.^[4]

On November 4, 1982, the petitioners entered into another
agreement to sell the same property, this time to Natividad Sison and Jose Ang,
likewise for the amount of P3,500,000.00 but payable within a shorter
period.^[5]

On February 25, 1983, the private respondent, invoking the
Agreement to Sell in his favor, tendered payment of the initial P1,000,000.00
and demanded execution of the corresponding deed of sale over the subject
property. This demand was ignored. Lim then sued the petitioners for specific
performance and damages in the Regional Trial Court of Dagupan City.

On January 9, 1987, Judge Conrado V. Posadas rendered a decision^[6]
disposing as follows:

In view of all the foregoing considerations, the judgment is hereby
rendered in favor of plaintiff:

a) Ordering defendants to execute a Deed of Absolute Sale over the
properties in question, in favor of plaintiff, upon payment by plaintiff of the
agreed price of P3,500,000.00 as per their agreement within fifteen days from
the finality of this decision;

b) Ordering the defendants to pay P50,000.00 to plaintiff in the
form of moral damages;

c) Ordering defendants to pay plaintiff the amount of P20,000.00 as
attorney’s fees;

d) Ordering the dismissal of the counterclaim of defendants and

e) to pay the costs.

SO ORDERED.

The petitioners appealed to the Court of Appeals which, in a
decision dated December 29, 1988, sustained the trial court.^[7]
The motion for reconsideration having been denied, the petitioners have come to
this Court to seek relief.

The position of the petitioners is that Lim could no longer
invoke their Agreement to Sell because he had himself violated it. No judicial rescission was necessary. They themselves could cancel it on the
ground of Lim’s refusal to comply with its stipulations.

The non-compliance, it is urged, consisted in Lim’s failure to
place the P1 million in trust in their name as stipulated in the Agreement to
Sell. The petitioners stress the words
“in trust ” (which they point out were used twice in the Agreement to
Sell) and maintain these should be given a strict legal connotation as
importing “a right to property, real or personal, held by one party for
the benefit of another; a confidence reposed in one person, who is termed the
trustee, for the benefit of another, who is called a cestui que trust,
respecting the property which is held by the trustee for the benefit of the cestui
que trust; or any arrangement whereby property is transferred with the
intention that it be administered by the trustee for another’s benefit.”^[8]
They claim that they had required Lim to constitute the trust as above defined
but he had simply ignored them.

The petitioners argue that all Lim did was place the P1 million
with the DCRB on an ordinary time deposit in his and his spouse’s name. They insist that the transaction did not
benefit them at all. The beneficiary
was the DCRB, but they were not the bank although they had substantial equity
in it. The DCRB was a different entity
and had a distinct legal personality separate from theirs.

The reason they wanted the money to be placed in trust for them
was so they could use it for the improvement of their fishpond and the rebuilding
of their house that had been burned. The time deposit was not available to them for these purposes because it
had been placed with the DCRB in the name of the Lim spouses, and neither had
the certificates been endorsed to them.

Under these circumstances, the petitioners maintain, they had a
right to rescind the Agreement to Sell and to sell the property to Sison and
Ang.

For his part, the private respondent submits that the agreement
was not to create a trust in the strict legal sense but merely to place the P1
million on time deposit with the DCRB, as clearly stipulated in the
contract. The amount of P400,000.00 was
immediately deposited in conformity with the agreement and was followed by the
balance of P600,000.00 three days later. The money was accepted by Rafael Villamil with the knowledge of Ricardo
Villamil, who expressed no objection.

The deposit was a welcome cash infusion to the DCRB which was
then financially strapped and under pressure by the Central Bank to improve its
operations. The real purpose of the
deposit was not to help the Villamils personally but to solve the liquidity
problems of the bank, of which they were the controlling stockholders.

Lim contends further that the Agreement to Sell was still
subsisting when the subject property was sold by the petitioners to Sison and
Ang. The unilateral rescission of the
said agreement by the Villamils was illegal and ineffective. At the very least, it needed judicial
confirmation, which was however denied by both the trial court and the
respondent court.

The Court has considered the arguments of the parties in their
respective pleadings in light of the conclusions of the trial and respondent
courts. We find that the petition
cannot be sustained. The decision
penned by Justice Ricardo P. Tensuan is a well-reasoned exposition and
resolution of the issues here raised and deserves to be affirmed.

One important consideration in this case is the fact that both
Ricardo B. Villamil and Rafael Villamil are lawyers.^[9]
Lim is not. The record shows that the
Agreement to Sell was drafted by the Villamils and not by Lim, who does not
appear to have been assisted by his own counsel. The petitioners would degrade the DCRB counsel by claiming that
all he did was the mechanical act of typing the instrument. If that be true, the reasonable inference is
that it was either of the Villamils and not Lim who actually drafted it and it
was also one of them who asked the counsel of the bank to type it.

Given this particular finding, we can only conclude that if
indeed the petitioners meant the P1 million to be placed in trust for their
personal benefit, they would have executed a proper trust agreement with all
its legal requirements of form and substance. It would have been simple enough for Atty. Villamil, pere or fils,
to copy the standard model in one of the books on legal forms familiar to every
practicing lawyer.

Considering the amount involved, the petitioners were certainly
less than careful when they so casually worded the Agreement to Sell in a
manner that they now say did not reflect their real intention.

There is nothing in the record to show that Lawyer Villamil
explained to Layman Lim that the Agreement to Sell as worded meant that Lim was
to place the P1 million in trust for the petitioners. What it clearly said was that “the VENDEE will put in trust
with the Dagupan City Rural Bank, Inc. the sum of One Million Pesos (P1,000,000.00) as evidenced by
Certificates of Time Deposit.”

Notably, Ricardo Villamil declared on cross examination that he
did not state in the contract that Lim would have to endorse the certificates
of time deposit because he was not sure Lim would continue with the
transaction.^[10]
This would suggest not only that it was he who really drafted the Agreement to
Sell but also that there was no intention to require Lim to place the money in
trust for the Villamils.

This conclusion is bolstered by the fact that the DCRB is not
allowed by its charter to accept trust placements, as the petitioners know or
should know.

We agree with the respondent court that the words “in
trust” were intended to be used in their ordinary sense and not as a
strict legal concept. This is how Lim
understood the phrase from his laymen’s viewpoint. At any rate, assuming there is doubt about the real meaning of
the contract, that doubt should be resolved against the party that undertook to
draft it and is responsible for the ambiguity. The Civil Code clearly provides that:

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

The petitioners’ argument that they are not bound by the act of
their son in accepting the time deposit instead of demanding a trust placement
in their favor is a clutching at straws. The evidence shows that although the time deposit with DCRB was known to
Ricardo Villamil, he nevertheless did not demand the execution of a trust
agreement in his favor. He himself
could have drafted that agreement for Lim’s signature, but he did not.

The evidence is irrefutable that the petitioners accepted the
deposit and benefited from it. They
cannot now renounce it on the ground that it was for the benefit alone of the
DCRB. In fact, they benefited from it
personally because the Villamil family owns 60.26% of the DCRB stocks, with
31.42% in the name of Ricardo.^[11]

The Court agrees that Lim would not have been so reckless as to
place P1 million in a bank on the verge of bankruptcy simply out of the
goodness of his heart. If he decided to
do so, it was because of the assurance of the Villamils that he could buy the
subject property pursuant to their Agreement to Sell.

If the petitioners really intended the money to be used for their
strictly personal needs, there would have been no necessity for requiring Lim
to make the time deposits. The parties
could simply have demanded from him an outright down payment of P1 million,
subject also to refund if the sale did not materialize. If they required the time deposits with DCRB
instead of the down payment to be made directly to them, it was because their
first priority – and their more urgent problem – was to rescue their distressed
bank.

Finally, we hold that the remedy of specific performance is not
improper but in fact the logical relief against the petitioners for their
refusal to comply with their obligation under the Agreement to Sell. The fact that Sison and Ang were not
impleaded in the complaint is immaterial because satisfaction was being sought
not from them but from the petitioner. Besides, the sale to them had not yet been consummated and title to the
subject property remained with the petitioners. It is also significant that Sison and Ang were not concerned
enough to intervene in the dispute between Lim and the Villamils and seemed to
have no interest at all in their litigation.

What we see here is a clear illustration of bad faith. It is plain that after benefiting from the
time deposits made by the private respondent, the petitioners reneged on their
Agreement to Sell and decided to sell the property to other buyers who had
offered more favorable conditions. The
petitioners must stand by their solemn commitments. The Agreement to Sell is the law between the parties, and the
petitioners have unjustly violated it to the prejudice of the private
respondent. They are rightly made
liable in the damages and other sanctions imposed by the courts below for not
honoring their word.

WHEREFORE, the petition is DENIED. The decision of the Court of Appeals is
AFFIRMED in toto, with costs against the petitioners. It is so ordered.

Narvasa, C.J., Griño-Aquino, Medialdea, and Bellosillo, JJ., concur.

^[1]
Rollo, p. 93.

^[2]
TSN, December 22, 1986, pp. 15, 18-19.

^[3]
Rollo, p. 95; TSN, December 23, 1986, p. 50.

^[4]
Ibid., p. 96; TSN, October 27, 1986, p. 11.

^[5]
Records, p. 48.

^[6]
Rollo, p. 37.

^[7]
Ibid., p. 99; Penned by Justice Ricardo P. Tensuan, with Aldecoa
and Victor, JJ., concurring.

^[8]
Petition, pp. 14-15, quoting Black’s Law Dictionary, 1979, p. 1352.

^[9]
TSN, October 27, 1986, p. 7.

^[10]
TSN, November 26, 1986, p. 44.

^[11]
Exhibit “7.”