G.R. No. 156200 ; March 31, 2004
Megaworld Properties and Holdings, Inc., petitioner, vs. Hon. Judge Benedicto G. Cobarde, in his capacity as the Presiding Judge of the Regional Trial Court, Branch 53, Lapu-Lapu City; Juan Gato, in his capacity as the Sheriff of the Regional Trial Court, Branch 53, Lapu-Lapu City; Serecio Matthew B. Jo and Ida Henares, respondents.

FACTS

Private respondents Jo and Henares brokered a joint venture between Mar y Cielo Leisure Resort, Inc. (MYC) and petitioner Megaworld for a development project. When a dispute over their 3% broker’s fee arose, the parties entered into a Compromise Agreement, judicially approved on January 24, 1997. MYC and the Zamora family (MYC’s owners) agreed to pay a total settlement of ₱29 million, with an initial payment of ₱3.9 million. The balance of ₱25.1 million was to be paid from 30% of the proceeds MYC/Zamora would receive from the joint venture, to be withheld and paid directly by the developers (including Megaworld). Crucially, paragraph 6 of the Agreement stipulated that if the 30% share within three years failed to reach ₱25.1 million, or if the project was delayed and MYC received no proceeds, “the DEVELOPERS shall advance the balance thereof due to the FIRST PARTY,” deductible from MYC/Zamora’s future share.

ISSUE

Whether petitioner Megaworld is liable to advance and pay the ₱25.1 million balance to the private respondents under the Compromise Agreement.

RULING

No. The Supreme Court reversed the lower courts and held Megaworld not liable. The obligation to “advance” the balance under paragraph 6 was not an absolute and independent promise to pay. It was a contingent obligation dependent on a principal condition: that the advancement would be deducted from the share of MYC and the Zamora family under the Joint Venture Agreement. This created a contract of security, not a contract of loan or a direct, primary obligation. The legal logic is that an “advance” presupposes a future fund or credit from which reimbursement can be made. Since the joint venture project was totally aborted due to the unilateral cancellation by MYC/Zamora of the underlying Development Agreement, the expected proceeds from which Megaworld could deduct its advance never materialized. The condition for the contingent obligation failed. Consequently, the security obligation was extinguished, as there was no principal obligation (reimbursement from MYC/Zamora’s share) to secure. Megaworld’s duty was merely accessory and could not exist independently of the principal debtor’s (MYC/Zamora) reimbursable share.