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Case Digest on Obligations and Contracts: Breach of Agreement - Ricardo Honrado v. GMA Network Films, Inc. G.R. No. 204702

Ricardo Honrado v. GMA Network Films, Inc.
G.R. No. 204702, January 14, 2015
Facts:
GMA Films entered a “TV Rights Agreement” with petitioner Honrado under which Honrado, as licensor, granted GMA for a fee of P60.5 million the exclusive right to telecast 36 films for three years. Paragraph 3 of the Agreement provides that all betacam copies of the films should pass through broadcast quality test conducted by GMA-7, while Paragraph 4 provides that in the event of the disapproval of the MTRCB, GMA will either replace the rejected film with another title mutually acceptable to both parties or deduct or refund a proportionate reduction from the total price.
Subsequently, GMA sued Honrado to collect P1.6 million representing the fee it paid for “Evangeline Katorse” and a portion of the fee paid for “Bubot.” Respondent alleged that it rejected the “Evangeline Katorse” because its running time was too short for telecast and Honrado only remitted P900k to the owner of “Bubot”, keeping for himself the balance of P350k. According to GMA, an implied trust arose because Honrado fraudulently kept the money for himself. Honrado, on the other hand, alleged that he replaced the first film with another film which GMA accepted, with a certification by the respondent attesting that the film “is of good broadcast quality”. Honrado also alleged that GMA is a stranger to the contracts he entered with the owner of the films in question. The RTC dismissed the complaint and gave credence to Honrado‘s defense. The CA reversed.
Issues: 1) Whether the petitioner Honrado is liable for breach of the Agreement with GMA 2) Whether GMA can complain about the alleged breach by Honrado of his contracts with the owner of films.
Ruling:
Honrado is not liable for breach of agreement. Paragraph 4 of the Agreement between Honrado and GMA requires the intervention of MTRCB, the state censor, before GMA Films can reject a film and require its replacement. GMA network went beyond its assigned role under the Agreement of screening films to test their broadcast quality and assumed the function of MTRCB to evaluate the films for the propriety of their content. This runs counter to the clear terms of Paragraphs 3 and 4 of the Agreement. It was GMA network that violated the term of the contract.
Anent the second issue, the SC ruled that GMA network is not a party but a stranger to the contracts the petitioner entered with the owner of the films. Article 1311 of the Civil Code states that as a general rule, contracts take effect only between the parties, their assigns, and heirs except in case where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law.

The TV Rights Agreement, is a licensing contract, the essence of which is the transfer by the licensor (Honrado) to the licensee (GMA Films), for a fee, of the exclusive right to telecast the films listed in the Agreement. Honrado forged separate contractual arrangements with the owners of the films listed in the Agreement, spelling out the terms of payment to the latter. Whether Honrado complied with these terms, however, is a matter to which GMA Films holds absolutely no interest. Being a stranger to such arrangements, GMA Films is no more entitled to complain of any breach by Honrado of his contracts with the film owners than the film owners are for any breach by GMA Films of its Agreement with Honrado.
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