Case
Title:
Case
Number:
Date
Promulgated:
Category:
Specific
Topics:
National
Development
Company
vs
Madrigal
GR
No.
148332
30
September
2003
Contracts,
General
Contract
of
adhesion;
Definition
of
AS
IS,
WHERE
IS
Facts:
National
Development
Company
(NDS)
is
a
GOCC.
National
Shipping
Corporation
of
the
Philippines
(NSCP)
is
a
wholly-owned
subsidiary
of
petitioner.
NCSP
was
privatized,
offered
to
sell
to
the
public
100%
stock
owndership
worth
P150,
000
as
well
as
3
ocean-going
vessels.
NDS
released
to
the
public
an
information
package
containing
NSCPs
background,
assets,
and
operational
and
financial
status.
Also
containing
terms
and
conditions
for
bidders.
Desired
price
was
USD
26.75
million.
During
public
bidding,
lone
bidder
was
respondent
Madrigal
Wan
Hai
Lines
Corporation,
who
submitted
a
bid
of
USD
15
million.
NDS
entered
into
a
negotiated
sale
with
Madrigal,
settled
for
USD
18.5
million.
NDS
issued
a
Notice
of
Award
to
Madrigal.
Madrigal
was
surprise
to
receive
from
US
Dept
of
Treasury,
Internal
Revenue
and
Service
(US-IRS)
against
NSCP
a
deficiency
of
taxes
amounting
to
USD
671,
653,
and
late
fees
of
USD
16,
533.10
which
Madrigal
paid.
Madrigal
demanded
from
NDS
reimbursement
for
the
amounts
paid
to
US-
IRS.
NDS
refused.
Ruling
of
RTC
o In
favor
of
respondent,
ordered
NDS
to
reimburse
Madrigal
the
deficiency
and
late
fees.
o Petitioner
knew
about
tax
liabilities
before
the
sale,
yet
did
not
inform
respondent
about
it.
Court
of
Appeals
o AFFIRMED
the
ruling
of
the
RTC,
with
modification
as
to
attys
fees.
o NSCPs
Negotiated
Sale
Guidelines
is
evidently
a
contract
of
adhesion.
A
contract
of
adhesion
may
be
struck
down
as
void
or
unenforceable
for
being
subversive
of
public
policy,
because
the
weaker
party
is
completely
deprived
of
the
opportunity
to
bargain
on
equal
footing,
and
whose
option
is
reduced
to
a
take
it
or
leave
it
alternative.
Supreme
Court
o Petitioner
maintains
that:
Guidelines
and
proposal
letterform
are
mere
invitations
to
bid.
Petitioner
further
stresses
the
sale
was
on
an
AS
IS
WHERE
IS
basis.
Based
on
the
proposal
letterform,
Madrigal
should
have
appraised
itself
of
the
financial
status
and
liabilities
of
NSCP.
Therefore,
NDC
should
not
be
at
fault
for
Madrigals
predicament.
o Respondent
maintains
that:
CA
did
not
commit
error.
Negotiated
Sale
Guidelines
and
Proposal
Letter
Form
are
a
contract
of
adhesion
because
buyer
was
required
to
submit
its
bid
through
a
pro-forma
proposal
letter.
Petitioner
had
legal
duty
to
disclose
its
tax
liabilities
o First
issue:
Negotiated
Sale
Guidelines
and
Proposal
Letter
Form
ARE
contracts
of
adhesion.
It
can
be
struck
down,
therefore,
as
void
and
unenforceable
for
being
subversive
of
public
policy.
Contracts
of
adhesion
are
NOT
strictly
against
law,
since
other
party
is
free
to
reject
it
entirely;
if
he
adheres,
he
gives
his
consent.
o Second
issue:
There
is
no
dispute
that
petitioner
was
aware
of
its
US
tax
liabilities.
It
bears
stressing
that
petitioner
did
not
convey
such
info
to
respondent
despite
inquiries.
This
constitutes
bad
faith.
Obligation
to
reimburse
is
likewise
clear
under
the
Negotiated
Sale
Guidelines.
AS
IS,
WHERE
IS
basis
(Hian
vs
Court
of
Tax
Appeals)
pertains
solely
to
the
physical
condition
of
the
thing
sold,
not
to
its
legal
situation.
In
the
case
at
bar,
the
US
tax
liabilities
constitute
a
potential
lien
that
applies
to
the
NSCPs
legal
situation
not
to
its
physical
aspect.
Hence
respondent
has
no
obligation
to
shoulder
the
same.
o Hence,
petition
is
DENIED.
Doctrines
Contracts
of
adhesion
may
be
struck
down
as
void
or
unenforceable
for
being
subversive
of
public
policy,
because
the
weaker
party
is
completely
deprived
of
the
opportunity
to
bargain
on
equal
footing,
and
whose
option
is
reduced
to
a
take
it
or
leave
it
alternative.
Failure
to
disclose
tax
liabilities,
despite
repeated
inquiries,
constitutes
bad
faith.
AS
IS,
WHERE
IS
basis
(Hian
vs
Court
of
Tax
Appeals)
pertains
solely
to
the
physical
condition
of
the
thing
sold,
not
to
its
legal
situation.
