FLORENTINO C. OZAETA, DOING BUSINESS UNDER THE NAME AND STYLE OF “GLASIK”, PETITIONER, VS. THE HONORABLE COURT OF APPEALS, EARRN GENERAL MERCHANDISING, INC., AND ANGELA T. CHU, …

Can a third party be legally bound to an agreement in which he
did not take part? The answer would seem to be obvious, but the present case
had to be brought before us because of the conflicting decisions of the
Regional Trial Court^[1] and
the Court of Appeals.^[2] The
former says yes on the ground that said third person in the exercise of his
rights and in the performance of his duties, failed to act with justice, give
everyone his due and observe honesty and good faith as provided for by Article
19 of the Civil Code. But the appellate
court thinks otherwise.

The facts, as summarized by the appellate court are as follows:

“Virra Realty and Development Corporation (hereinafter
referred to as Virra), a corporation existing and organized under Philippine
Laws, obtained from Ortigas and
Co., Inc. leasehold rights over Virra Mall, a building located at Greenhills,
San Juan Metro Manila.

“On June 30, 1982, Virra, thru it Vice-President and General
Manager Eduardo G. Ngan Tian, wrote a letter to Florentino Ozaeta confirming
its commitment to the latter for an exclusive right to display and sell glass
etchings at Virra Mall Shopping Center (Exhibit ‘A’).

“On October 8, Ozaeta, who is doing business under the name
and style of ‘GLASIK,’ entered into a ‘Contract to Sell Unit and to Assign
Leasehold Rights’ with VIRRA over Unit No. A-9 (Exhibit ‘B’). The provision of
the contract pertinent to this controversy reads:

‘2.
Use of the Unit – The UNIT, as determined by VIRRA with the express consent of
ORTIGAS, shall be used only as Etched Glass/Home Decor. In no case shall cars,
trucks, motorcycles, motor vehicles, machinery and heavy equipment be sold or
displayed from and/or in the UNIT. The BUYER-ASSIGNEE should not alter the use
of the UNIT without the prior written consent of ORTIGAS, VIRRA and the
Corporation or Association of Owners/Buyers-Assignee of units within the
BUILDING, mentioned in Paragraph 11 hereof. Furthermore, it is understood that the use of the UNIT shall be subject
to the terms and conditions of the LEASE CONTRACT, to the Articles and By-Laws
and the rules and regulations to be promulgated by the aforesaid, Corporation
or Association.’

“On October 3, 1983, VIRRA entered into another ‘Contract to Sell Unit and to Assign
Leasehold Rights’ with Earrn General Merchandising, Inc. (hereinafter referred
to as EARNN) over Unit No. A-12 of the same
building (Exhibits ‘C’ plaintiff; ‘1’ defendant EARRN). This contract provides that ‘the UNIT, as
determined by VIRRA with the express consent of ORTIGAS, shall be used only as
Artworks & Furnishings x x x x.’

“One year after, in its letter dated September 6, 1984, EARRN
advised VIRRA that it had decided to change its commercial activity in Unit No.
A-12 to glass etching (Exhibit ‘D’). Because of its prior commitment to give GLASIK the exclusive right to sell
and display glass etching at Virra Mall, VIRRA ‘disapproved the request’
(Exhibit ‘E’). The opposition notwithstanding, EARRN proceeded with the change.
It displayed and sold glass etchings in the premises.

“It was later found out that weeks prior to EARRN’S letter of
September 6, 1984, Unit A-12 had already been (leased) by EARRN to a certain
Angela T. Chu, doing business under the name and style of ‘MIRASHL CRYSTALETCH’
(Annex ‘A’, Records, pp. 101-103). Chu
had also made use of the leased premises to sell and display glass etchings.

“Alleging that the acts of EARRN and Chu infringed his exclusive
right to sell glass etchings at Virra Mall and that he suffered financial
losses as a consequence, Ozaeta filed this action for injunction, specific
performance and damages with a prayer for writ of preliminary prohibitory
and/or mandatory injunction against EARRN and VIRRA. The complaint was later
amended on November 27 to implead Angela Chu as additional defendant.”^[3]

After trial, the Regional Trial Court rendered its judgment
ordering Earrn and Angela Chu to pay damages to petitioner but dismissed the
case and all other claims, counterclaims and crossclaims against Virra. The
trial court said that notwithstanding its want of privity to the contract
between Ozaeta and Virra, Earrn is still bound by the prohibition and
restriction embodied in the contract. It stressed that the provision of the
contract is “crystal clear,” that the owners of the units are limited
or restricted to the commercial activity as stated in the agreement; in this
case, “Etched Glass/Home Decor” for Glasik and “Artworks &
Furnishings” for Earrn.^[4]

It ignored Earrn’s argument that it did not violate its contract
with Virra as “Artworks and Furnishings” are broad enough to include
etched glass or glass etching. Furthermore, the trial court opined that in
pursuing the change in its commercial activity despite Virra’s objections and
its prior knowledge of the exclusivity rights of Glasik, Earrn failed to act
with justice, and observe honesty and good faith as required in Art. 19 of the
New Civil Code.^[5]

Reversing the decision of the trial court, the appellate court is
of the view that it is immaterial whether the controversial provision of the
contract is meant to control or regulate the use of the unit. Instead it
construed the phrase “glass etchings or etched glass” as “used
for home decoration (and) clearly (coming) under the general concepts of
artworks and furnishings.”^[6] The
appellate court further stressed that not only were Earrn and Chu not privy to
the agreement between Virra and Ozaeta, but that they were not aware of the
supposed exclusivity in favor of petitioner to display and sell etched glass.
Thus, it concluded that petitioner has no cause of action against them.

Disagreeing with the ruling, petitioner submits that the above
findings of the Court of Appeals are not in accord with the evidence and the
law.

We do not agree. Much as
we sympathize with the cause of petitioner, we do not find any reversible error
in the judgment of the appellate court.

Based on the facts presented, we find no cogent reason to deviate
from the general rule that contracts take effect only between the parties^[7]
and cannot be binding upon nor be enforced against one who is not a party to
it. Granting that Virra committed itself to give Glasik exclusive rights to
display and sell etched glass within Virra Mall, Earrn cannot, by any stretch
of the imagination, be bound to such a commitment where it has no knowledge of
it and of which it was not informed. This was made clear in the testimony of Mr. Eduardo Ngan Tian, to wit:

“Q.  And the exclusivity
that you mentioned, you are referring to the exclusive contract you had between
Virra Realty and the plaintiff Florentino Ozaeta?

“A.   Yes sir.

“Q.  That was a contract
only between Virra Realty and Ozaeta?

“A.   Yes sir.

“Q.  Nobody was involved
in the contract except Virra Realty which you were the representative and the
plaintiff Florentino Ozaeta?

x x x

“A.   Yes sir.

x x x

“Q.  And you did not
inform the other occupants and buyers of commercial units with respect to this
exclusivity of the contract with the plaintiff?

“A.   No, sir.”^[8]

And even assuming the existence of a restriction on Earrn to engage only on the display and
sale of “Artworks and Furnishings” as stated in provision 2 of the
contract, we agree with the appellate court that etched glass could fall under
the general concepts of artworks and furnishings.

Webster’s Dictionary defines “Artworks” as “1a:
the making of decorative or artistic objects by hand; b: the decoration of
artistic objects so made 2: artistic work produced in quantity.”^[9]
While furnishings, is defined as “1: the act or process of supplying
furniture or equipment; 2a: an article or accessory of dress x x x; 3: an object of fixture that tends to increase
comfort or utility x x x.”^[10] Petitioner contends that glass
etchings or etched glass “is basically a mirror, only that a design is
etched on it; but the primary purpose is not for decoration but as a mirror – a
mirror with a particular design.”^[11]

Which ever way it is argued, however, an etched
“mirror” is functional and therefore can be considered as finishing or
a decorative artwork, because the making of an etched glass requires
craftsmanship and application of artistic skill.

From the foregoing, we find that petitioner has no cause of
action against Earrn nor against Angela Chu, who is merely a leasee of Unit A-12.
Petitioner should have pursued its case against Virra, which is the real
culprit, for not protecting his interest. It is however unfortunate that petitioner did not appeal the dismissal
of the complaint against Virra.

WHEREFORE, judgment is hereby rendered DISMISSING the
petition for lack of merit and AFFIRMING the decision of the Court of Appeals
in toto.

SO ORDERED.

Narvasa, C.J., (Chairman), Padilla, Regalado, and Puno, JJ.,
concur.

^[1]
Civil Case No. Q-43090, Branch 85, Quezon City.

^[2]
CA-G.R. CV No. 16385, Justice Alfredo L. Benipayo, ponente, Justices
Ricardo Pronove, Jr. and Salome
A. Montoya, concurring.

^[3]
Rollo, pp. 32-33.

^[4]
Original Record, p. 227.

^[5]
Id, at p. 228.

^[6]
Rollo, p. 36.

^[7]
Article 1311, New Civil Code.

^[8]
TSN, June 26, 1986, pp. 4-5.

^[9]
Webster’s Third New International Dictionary

^[10]
Id.

^[11]
Rollo, p. 75.