G.R. No. 158361 ; April 10, 2013
INTERNATIONAL HOTEL CORPORATION, Petitioner, vs. FRANCISCO B. JOAQUIN, JR. and RAFAEL SUAREZ, Respondents.

FACTS

On February 1, 1969, respondent Francisco B. Joaquin, Jr. submitted a technical assistance proposal to petitioner International Hotel Corporation’s (IHC) Board of Directors to secure a foreign loan for hotel construction, guaranteed by the Development Bank of the Philippines (DBP). The proposal covered nine phases. On February 11, 1969, the IHC Board approved phases one to six and earmarked ₱2,000,000.00 for the project. DBP approved the loan guaranty application on October 24, 1969, subject to conditions.
On July 11, 1969, Joaquin requested payment of ₱500,000.00 for services rendered outside the technical proposal, indicating willingness to accept shares of stock. The IHC stockholders met on the same date and granted Joaquin’s request, allowing payment for both Joaquin and respondent Rafael Suarez for their services in implementing the proposal.
Joaquin later recommended Materials Handling Corporation (and its principal, Barnes International) as a financier, which the Board accepted. When Barnes failed to deliver the loan, IHC explored financing with Weston International Corporation (Weston). DBP cancelled its guaranty on December 6, 1971. IHC entered an agreement with Weston on December 13, 1971, but DBP subsequently denied the guaranty application for non-compliance with conditions.
Due to the failure to secure the loan, IHC, through its President, canceled the 17,000 shares of stock previously issued to Joaquin and Suarez as payment. Joaquin and Suarez sued for specific performance, annulment, damages, and injunction. The Regional Trial Court (RTC) ruled that the share cancellation was proper under the Corporation Code, as shares could only compensate past services, not future ones, but ordered IHC to pay Joaquin ₱200,000.00 and Suarez ₱50,000.00 based on Article 1284 of the Civil Code. Both parties appealed.
The Court of Appeals (CA) affirmed the RTC with modification, ordering IHC to pay Joaquin ₱700,000.00 and Suarez ₱200,000.00 in cash. The CA held that Joaquin had substantially performed his obligations, making IHC liable under Article 1186 of the Civil Code, and that the share issuance was ultra vires for compensating future services.

ISSUE

Whether the Court of Appeals erred in holding IHC liable to pay Joaquin and Suarez compensation based on the principle of quantum meruit for services rendered, despite the absence of a formal written agreement specifying the exact compensation, and in modifying the amounts awarded.

RULING

The Supreme Court DENIED the petition and AFFIRMED the Decision of the Court of Appeals with MODIFICATION. The Court held that the principle of quantum meruit applies to prevent unjust enrichment when a contract has been substantially performed but no formal agreement on compensation exists. Joaquin substantially performed his obligations under the approved phases of the proposal by securing DBP’s conditional guaranty approval and identifying potential financiers. His failure to finalize a loan was due to IHC’s own actions in negotiating with Barnes instead of his recommended financier, Weston. The issuance of shares as compensation for future services was ultra vires and void under the Corporation Code. However, IHC was unjustly enriched by Joaquin and Suarez’s services. Applying quantum meruit, and based on the evidence including IHC’s board resolutions and the earmarked project fund, the reasonable compensation due was ₱700,000.00 for Joaquin and ₱200,000.00 for Suarez, to be paid in cash. The awards for attorney’s fees and costs of suit were deleted for lack of factual and legal basis.