G.R. No.

L-22490 May 21, 1969 obviously it would be unjust to compel petitioner to pay his debt for P500 when plaintiff the amount of P1,532,000.07 as principal, with interest at 12% per
GAN TION, petitioner, vs. HON. COURT OF APPEALS, HON. JUDGE admittedly his creditor is indebted to him for more than P4,000. annum from December 11, 1975 until the whole amount is fully paid;
AGUSTIN P. MONTESA, as Judge of the Court of First Instance of Manila, 2. Ordering defendant to pay the plaintiffs the amount of P207,148.00
ONG WAN SIENG and THE SHERIFF OF MANILA, respondents. WHEREFORE, the judgment of the Court of Appeals is reversed, and the writ of as compensatory damages, with legal interest thereon from the filing of the
Burgos and Sarte for petitioner. execution issued by the Court of First Instance of Manila in its Civil Case No. complaint until the whole amount is fully paid;
Roxas, Roxas, Roxas and Associates for respondents. 49535 is set aside. Costs against respondent.
3. Ordering defendant to pay plaintiffs the amount of P383,000.00 as
MAKALINTAL, J.: G.R. No. L-69255 February 27, 1987 and by way of attorneys fees. 4
PHILIPPINE NATIONAL BANK, petitioner, vs. GLORIA G. VDA. DE ONG
The sole issue here is whether or not there has been legal compensation ACERO, ARNOLFO ONG ACERO & SOLEDAD ONG ACERO CHUA, On the other hand, PNB's claim to the two-million-peso deposit in question is
between petitioner Gan Tion and respondent Ong Wan Sieng. respondents. made to rest on an agreement between it and ISABELA in virtue of which,
Leopoldo E. Petilla for respondents. according to PNB: (1) the deposit was made by ISABELA as "collateral" in
Ong Wan Sieng was a tenant in certain premises owned by Gan Tion. In 1961 connection with its indebtedness to PNB as to which it (ISABELA) had assumed
the latter filed an ejectment case against the former, alleging non-payment of NARVASA, J.: certain contractual undertakings; and (2) in the event of ISABELA's failure to
rents for August and September of that year, at P180 a month, or P360 fulfill those undertakings, PNB was empowered to apply the deposit to the
altogether. The defendant denied the allegation and said that the agreed Savings Account No. 010-5878868-D of Isabela Wood Construction & payment of that indebtedness. The facts upon which PNB's theory stands are
monthly rental was only P160, which he had offered to but was refused by the Development Corporation, opened with the Philippine National Bank on March summarized in the Order of CFI Judge Solano dated October 1, 1982, 5
plaintiff. The plaintiff obtained a favorable judgment in the municipal court (of 9, 1979 in the amount of P2 million is the subject of two (2) conflicting claims, relevant portions of which are here reproduced:
Manila), but upon appeal the Court of First Instance, on July 2, 1962, reversed sought to be definitively resolved in the proceedings at bar. 1 One claim is
the judgment and dismissed the complaint, and ordered the plaintiff to pay the asserted by the ACEROS Gloria G. Vda. de Ong Acero, Arnolfo Ong Acero On October 13, 1977, Isabela Wood Construction and Development
defendant the sum of P500 as attorney's fees. That judgment became final. and Soledad Ong Acero-Chua, judgment creditors of the depositor (hereafter Corporation ** entered into a Credit Agreement with PNB. Under the agreement
simply referred to as ISABELA) who seek to enforce against said savings PNB, having approved the application of defendant (Isabela & c.) for the
On October 10, 1963 Gan Tion served notice on Ong Wan Sieng that he was account the final and executory judgment rendered in their favor by the Court of establishment for its account of a deferred letter of credit in the amount of DM
increasing the rent to P180 a month, effective November 1st, and at the same First Instance of Rizal QC Br. XVI). The other claim has been put forth by the 4,695,947.00 in favor of the Machinenfabric Augsburg Nunberg (MAN) of
time demanded the rents in arrears at the old rate in the aggregate amount of Philippine National Bank (hereafter, simply PNB) which claims that since Germany from whom defendant purchased thirty-five (35) units of MAN trucks,
P4,320.00, corresponding to a period from August 1961 to October ISABELA was at some point in time both its debtor and creditor-ISABELA's defendant corporation agreed to put up, as collaterals, among others, the
1963.lwphi1.et deposit being deemed a loan to it (PNB)-there had occurred a mutual set-off following:
between them, which effectively precluded the ACEROS' recourse to that
In the meantime, over Gan Tion's opposition, Ong Wan Sieng was able to deposit. 4. The CLIENT shall assign to the BANK the proceeds of its contract
obtain a writ of execution of the judgment for attorney's fees in his favor. Gan with the Department of Public Works for the construction of Nagapit Suspension
Tion went on certiorari to the Court of Appeals, where he pleaded legal The controversy was decided by the Intermediate Appellate Court adversely to Bridge (Substructure) in Cagayan.
compensation, claiming that Ong Wan Sieng was indebted to him in the sum of the PNB. It is this decision that the PNB would have this Court reverse.
P4,320 for unpaid rents. The appellate court accepted the petition but This particular proviso in the aforesaid agreement was to be subsequently
eventually decided for the respondent, holding that although "respondent Ong is The ACEROS' claim to the bank deposit is more specifically founded upon the confirmed by Faustino Dy, Jr., as president of defendant corporation, in a letter
indebted to the petitioner for unpaid rentals in an amount of more than garnishment thereof by the sheriff, effected in execution of the partial judgment to the PNB, dated February 21, 1970, quoted in full as follows:
P4,000.00," the sum of P500 could not be the subject of legal compensation, it rendered by the CFI at Quezon City in their favor on November 18, 1979. The
being a "trust fund for the benefit of the lawyer, which would have to be turned partial judgment ordered payment by ISABELA to the ACEROS of the amount Gentlemen:
over by the client to his counsel." In the opinion of said court, the requisites of of P1,532,000.07. 2 Notice of garnisment was served on the PNB on January 9,
legal compensation, namely, that the parties must be creditors and debtors of 1980, pursuant to the writ of execution dated December 23, 1979. 3 This was This is to confirm our arrangement that the treasury warrant in the amount of
each other in their own right (Art. 1278, Civil Code) and that each one of them followed by an Order issued on February 15, 1980 directing PNB to hand over P2,704 millon in favor of Isabela Wood Construction and Development
must be bound principally and at the same time be a principal creditor of the this amount of P1,532,000.07 to the sheriff for delivery, in turn, to the ACEROS. Corporation to be delivered either by the Commission on Audit or the Ministry of
other (Art. 1279), are not present in the instant case, since the real creditor with Not quite two months later, or on April 8, 1980, a second (and the final and Public Highways, shall be placed in a savings account with your bank to the
respect to the sum of P500 was the defendant's counsel. complete judgment) was promulgated by the CFI in favor of the ACEROS and extent of P 2 million.
against ISABELA, the dispositive part of which is as follows:
This is not an accurate statement of the nature of an award for attorney's fee's. The said amount shall remain in the savings account until we are able to
The award is made in favor of the litigant, not of his counsel, and is justified by WHEREFORE, premises considered, judgment is hereby rendered in favor of comply with the delivery and registration of the mortgage in favor of the
way of indemnity for damages recoverable by the former in the cases plaintiffs and against the defendant: Philippine National Bank of our Paranaque property, and the securing from
enumerated in Article 2208 of the Civil Code.1 It is the litigant, not his counsel, Metropolitan Bank and Home Owners Savings and Loan Association to snow
who is the judgment creditor and who may enforce the judgment by execution. 1. Reiterating the dispositive portion of the partial judgment issued by PNB a second mortgage on the properties of Isabela Wood Construction Group,
Such credit, therefore, may properly be the subject of legal compensation. Quite this Court, dated November 16, 1979, ordering the defendant to pay to the Inc., presently under first mortgage with them.

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Thus, on March 9, 1970, pursuant to paragraph 4 of the Credit Agreement, attempted to do in the case at bar, in order to satisfy their judgment against
quoted above, PNB thru its International Department opened the savings It is not necessary for the perfection of the contract of sale that the thing be ISABELA.
account in question, under Account No. 010-58768-D, with an initial deposit of delivered and that the price be paid. Neither is it necessary that the thing should Article 1278 of the Civil Code does indeed provide that "Compensation shall
P2,000,000.00, proceeds of a treasury warrant delivered to PNB (EXHIBIT 3-A). belong to the vendor at the time of the perfection of the contract, it being take when two persons, in their own right, are creditors and debtors of each
sufficient that the vendor has the right to transfer ownership thereof at the time other. " Also true is that compensation may transpire by operation of law, as
xxx xxx xxx it is delivered. when all the requisites therefor, set out in Article 1279, are present.
Nonetheless, these legal provisions can not apply to PNB's advantage under
Since defendant corporation failed to deliver to PNB by way of mortgage its The shoe was now on the other foot. It was the ACEROS' turn to move for the circumstances of the case at bar.
Paranaque property, neither was defendant corporation able to secure from reconsideration, which they did as regards this Order of October 1, 1982; but by
Metropolitan Bank and Home Owners Savings and Loan Association its consent Order promulgated on December 14, 1982, the Court declined to modify its The insuperable obstacle to the success of PNB's cause is the factual finding of
to allow PNB a second mortgage, and considering that the obligation of resolution. the IAC, by which upon firmly established rules even this Court is bound, 12
defendant corporation to PNB have been due and unsettled, PNB applied the that it has not proven by competent evidence that it is a creditor of ISABELA.
amount of P 2,102804.11 in defendant's savings account of PNB. The ACEROS then appealed to the Intermediate Appellate Court which, after The only evidence present by PNB towards this end consists of two (2)
due proceedings, sustained them. On September 14, 1984, it rendered documents marked in its behalf as Exhibits 1 and 2, But as the IAC has
It was upon this version of the facts, and its theory thereon based on a mutual judgment the dispositive part whereof reads as follows: cogently observed, these documents do not prove any indebtedness of
set-off, or compensation, between it and ISABELA in accordance with ISABELA to PNB. All they do prove is that a letter of credit might have been
Articles 1278 et al. of the Civil Code that PNB intervened in the action WHEREFORE, the Orders of October 1 and December 14, 1982 of the Court a opened for ISABELA by PNB, but not that the credit was ever availed of (by
between the ACEROS and ISABELA on or about February 28, 1980 and moved quo are hereby REVERSED and SET ASIDE, and in their stead, it is hereby ISABELA's foreign correspondent MAN, or that the goods thereby covered were
for reconsideration of the Order of February 15, 1980 (requiring it to turn over toadjudged: in fact shipped, and received by ISABELA.
the sheriff the sum of P1,532,000.07, supra: fn. 2). But its motion met with no
success. It was denied by the Lower Court (Hon. Judge Apostol, presiding) by 1. That the Order of February 15, 1980 of the Court a quo is hereby Quite obviously, as the IAC has further observed, the most persuasive evidence
Order dated May 14, 1980. 6 And a motion for the reconsideration of that Order ordered reinstated; of these facts i.e., ISABELA's availment of the credit, as well as the actual
of May 14, 1980 was also denied, by Order dated August 11, 1980. delivery of the goods covered by and shipped pursuant to the letter of credit-
2. That intervenor PNB must deliver the amount stated in the Order of assuming these facts to have occurred, would naturally and logically have been
PNB again moved for reconsideration, this time of the Order of August 11, 1980; February 15, 1980 with interest thereon at 12% from February 15, 1980 until in PNB's possession and could have been readily submitted to the Court, to wit:
it also pleaded for suspension in the meantime of the enforcement of the Orders delivered to appellants, the amount of interest to be paid by PNB and not to be
of February 15, and May 14, 1980. Its persistence seemingly paid off. For the deducted from the deposit of Isabela Wood; 1. The document of availment by the foreign creditor of the letter of
Trial Court (now presided over by Hon. Judge Solano), directed on October 9, credit.
1980 the setting aside of the said Orders of May 14, and August 11, 1980, and 3. That intervenor PNB must pay attorney's fees and expenses of 2. The document of release of the amounts mentioned in the
set for hearing PNB's first motion for the reconsideration of the Order of litigation to appellants in the amount of P10,000.00 plus the costs of suit. 9 agreement.
February 15, 1980. 7 Several months afterwards, or more precisely on October 3. The documents showing that the trucks (transported to the
1, 1982, the Order of February 15, 1980 was itself also struck down, 8 the This dispositive part was subsequently modified at the ACEROS' instance, by Philippines by the foreign creditor [MAN] were shipped to ** and received by
Lower Court opining that under the circumstances, there had been a valid Resolution dated November 8, 1984 which inter alia "additionally ** (ordered) Isabela.
assignment by ISABELA to PNB of the amount deposited, which effectively PNB to likewise deliver to appellants the balance of the deposit of Isabela Wood 4. The trust receipts by which possession was given to Isabela of the 35
placed that amount beyond the reach of the ACE ROS, viz: Construction and Development Corporation after first deducting the amount (Imported) trucks.
applied to the partial judgment of P1,532,000.00 in satisfaction of appeallants' 5. The chattel mortgages over the trucks required under No. 3 of II
When the two million or so treasury warrant, proceeds of defendant's contract final judgment." 10 Collaterals of the Credit Agreement (Exhibit 1).
with the government was delivered to PNB, said amount, per agreement 6. The receipt by Isabela of the standing accounts sent by PNB.
aforequoted, had already been assigned by defendant corporation to PNB, as PNB's main thesis is that when it opened a savings account for ISABELA on 7. There receipt of the letter of demand by Isabela Wood. 13
collateral. March 9, 1979 in the amount of P 2M, it (PNB) became indebted to ISABELA in
that amount. 11 So that when ISABELA itself subsequently came to be indebted It bears stressing that PNB did not at all lack want for opportunity to produce
The said amount is not a pledge. to it on account of ISABELA's breach of the terms of the Credit Agreement of these documents, if it does indeed have them. Judge Solano, it should be
October 13, 1977, and therefore ISABELA and PNB became at the same time recalled, specifically allowed PNB to introduce evidence in relation to its Motion
The assignment is valid. The defendant need not be the owner thereof at the creditors and debtors of each other, compensation automatically took place for Reconsideration filed on August 26, 1980, 14 and thus furnished the
time of assignment. between them, in accordance with Article 1278 of the Civil Code. The amounts occasion for PNB to prove, among others, ISABELA's debt to it. PNB
due from each other were, in its view, applied by operation of law to satisfy and unaccountably failed to do so. Moreover, PNB never even attempted to offer or
An assignment of credit and other incorporeal rights shall be perfected in extinguish their respective credits. More specifically, the P2M owed by PNB to exhibit such evidence, in the course of the appellate proceedings before the
accordance with the provisions of Article 1475. ISABELA was automatically applied in payment and extinguishment of PNB's IAC, which is a certain indication, in that Court's view, that PNB does not really
own credit against ISABELA. This having taken place, that amount of P2M have these proofs at ala
The contract of sale is perfected at the moment there is a meeting of the minds could no longer be levied on by any other creditor of ISABELA, as the ACEROS
upon the thing which is the object of the interest and upon its price.
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For this singular omission PNB offers no explanation except that it saw no name, but in the name of ISABELA, 20 without any accompanying statement representing the estimated amount equivalent to the assessed value of the
necessity to submit the Documents in evidence, because sometime on March even remotely intimating that it (PNB) was the owner of the deposit, or that an aforesaid portion.
14, 1980, the ACEROS's attorney had been shown those precise documents assignment thereof was intended, or that some condition or lien was meant to
setting forth ISABELA's loan obligations, such as the import bills and the sight burden it. Since 1963 up to 1977 inclusive, Francia failed to pay his real estate taxes.
draft covering drawings on the L/C for ISABELA's account and after all, the Thus, on December 5, 1977, his property was sold at public auction by the City
ACEROS had not really put this indebtedness in issue. 15The explanation Even if it be assumed that such an assignment had indeed been made, and Treasurer of Pasay City pursuant to Section 73 of Presidential Decree No. 464
cannot be taken seriously. In the picturesque but forceful language of the PNB had been really authorized to apply the P2M deposit to the satisfaction of known as the Real Property Tax Code in order to satisfy a tax delinquency of
Appellate Court, the explanation "is silly as you do not prove a fact in issue by ISABELA's indebtedness to it, nevertheless, since the record reveals that the P2,400.00. Ho Fernandez was the highest bidder for the property.
showing evidence in support thereof to the opposing counsel; you prove it by application was attempted to be made by PNB only on February 26, 1980, that
submitting evidence to the proper court." The fact is that the record does not essayed application was ineffectual and futile because at that time, the deposit Francia was not present during the auction sale since he was in Iligan City at
disclose that the ACEROS have ever admitted the asserted theory of was already in custodia legis, notice of garnishment thereof having been served that time helping his uncle ship bananas.
ISABELA's indebtedness to PNB. At any rate, not being privies to whatever on PNB on January 9, 1980 (pursuant to the writ of execution issued by the
transactions might have generated that indebtedness, they were clearly not in a Court of First Instance on December 23, 1979 for the enforcement of the partial On March 3, 1979, Francia received a notice of hearing of LRC Case No. 1593-
position to make any declaration on the matter. The fact is, too, that the avowed judgment in the ACEROS' favor rendered on November 18,1979). P "In re: Petition for Entry of New Certificate of Title" filed by Ho Fernandez,
indebtedness of ISABELA was an essential element of PNB's claim to the seeking the cancellation of TCT No. 4739 (37795) and the issuance in his name
former's P2 million deposit and hence, it was incumbent on the latter to One final factor precludes according validity to PNB's arguments. On the of a new certificate of title. Upon verification through his lawyer, Francia
demonstrate it by competent evidence if it wished its claim to be judicially assumption that the P 2M deposit was in truth assigned as some sort of discovered that a Final Bill of Sale had been issued in favor of Ho Fernandez by
recognized and enforced. This, it has failed to do. The failure is fatal to its claim. "collateral" to PNB although as PNB insists, it was not in the form of a pledge the City Treasurer on December 11, 1978. The auction sale and the final bill of
the agreement postulated by PNB that it had been authorized to assume sale were both annotated at the back of TCT No. 4739 (37795) by the Register
PNB has however deposited an alternative theory, which is that the P2M ownership of the fund upon the coming into being of ISABELA s indebtedness is of Deeds.
deposit had been assigned to it by ISABELA as "collateral," although not by way void ab initio, it being in the nature of a pactum commisoruim proscribed as
of pledge; that ISABELA had explicitly authorized it to apply the P2M deposit in contrary to public policy. 21 On March 20, 1979, Francia filed a complaint to annul the auction sale. He later
payment of its indebtedness; and that PNB had in fact applied the deposit to the amended his complaint on January 24, 1980.
payment of ISABELA's debt on February 26, 1980, in concept of voluntary WHEREFORE, the judgment of the Intermediate Appellate Court subject of the
compensation. 16 This second, alternative theory, is as untenable as the first. instant appeal, being fully in accord with the facts and the law, is hereby On April 23, 1981, the lower court rendered a decision, the dispositive portion of
affirmed in toto. Costs against petitioner. which reads:
In the first place, there being no indebtedness to PNB on ISABELA's part, there
is in consequence no occasion to speak of any mutual set-off, or compensation, SO ORDERED. WHEREFORE, in view of the foregoing, judgment is hereby rendered
whether it be legal, i.e., which automatically occurs by operation of law, or dismissing the amended complaint and ordering:
voluntary, i.e., which can only take place by agreement of the parties. 17 G.R. No. L-67649 June 28, 1988
ENGRACIO FRANCIA, petitioner, vs. INTERMEDIATE APPELLATE COURT (a) The Register of Deeds of Pasay City to issue a new Transfer
In the second place, the documents indicated by PNB as constitutive of the and HO FERNANDEZ, respondents. Certificate of Title in favor of the defendant Ho Fernandez over the parcel of
claimed assignment do not in truth make out any such transaction. While the land including the improvements thereon, subject to whatever encumbrances
Credit Agreement of October 13, 1977 (Exh. 1) declares it to be ISABELA's GUTIERREZ, JR., J.: appearing at the back of TCT No. 4739 (37795) and ordering the same TCT No.
intention to "assign to the BANK the proceeds of its contract with the 4739 (37795) cancelled.
Department of Public Works for the construction of Nagapit Suspension Bridge The petitioner invokes legal and equitable grounds to reverse the questioned
(Substructure) in Cagayan," 18 it does not appear that that intention was decision of the Intermediate Appellate Court, to set aside the auction sale of his (b) The plaintiff to pay defendant Ho Fernandez the sum of P1,000.00 as
adhered to, much less carried out. The letter of ISABELA's president dated property which took place on December 5, 1977, and to allow him to recover a attorney's fees. (p. 30, Record on Appeal)
February 21, 1979 (Exh. 2) would on the contrary seem to indicate the 203 square meter lot which was, sold at public auction to Ho Fernandez and
abandonment of that intention, in the light of the statements therein that the ordered titled in the latter's name. The Intermediate Appellate Court affirmed the decision of the lower court in
amount of P2M (representing the bulk of the proceeds of its contract referred to) toto.
"shall be placed in a savings account" and that "said amount shall remain in the The antecedent facts are as follows:
savings account until ** (ISABELA is) able to comply with" specified Hence, this petition for review.
commitments these being: the constitution and registration of a mortgage in Engracio Francia is the registered owner of a residential lot and a two-story
PNB's favor over its "Paranaque property," and the obtention from the first house built upon it situated at Barrio San Isidro, now District of Sta. Clara, Francia prefaced his arguments with the following assignments of grave errors
mortgage thereof of consent for the creation of a second lien on the property. 19 Pasay City, Metro Manila. The lot, with an area of about 328 square meters, is of law:
These statements are to be sure inconsistent with the notion of an assignment described and covered by Transfer Certificate of Title No. 4739 (37795) of the
of the money. In addition, there is yet another circumstance militating against Registry of Deeds of Pasay City. I
the actuality of such an assignment-the "most telling argument" against it, in
fact, in the line of the Appellate Court-and that is, that PNB itself, through its On October 15, 1977, a 125 square meter portion of Francia's property was RESPONDENT INTERMEDIATE APPELLATE COURT COMMITTED A GRAVE
International Department, deposited the whole amount of ?2 million, not in its expropriated by the Republic of the Philippines for the sum of P4,116.00 ERROR OF LAW IN NOT HOLDING PETITIONER'S OBLIGATION TO PAY
Page 3 of 15
P2,400.00 FOR SUPPOSED TAX DELINQUENCY WAS SET-OFF BY THE This principal contention of the petitioner has no merit. We have consistently Petitioner contends that "the auction sale in question was made without
AMOUNT OF P4,116.00 WHICH THE GOVERNMENT IS INDEBTED TO THE ruled that there can be no off-setting of taxes against the claims that the complying with the mandatory provisions of the statute governing tax sale. No
FORMER. taxpayer may have against the government. A person cannot refuse to pay a evidence, oral or otherwise, was presented that the procedure outlined by law
tax on the ground that the government owes him an amount equal to or greater on sales of property for tax delinquency was followed. ... Since defendant Ho
II than the tax being collected. The collection of a tax cannot await the results of a Fernandez has the affirmative of this issue, the burden of proof therefore rests
lawsuit against the government. upon him to show that plaintiff was duly and properly notified ... .(Petition for
RESPONDENT INTERMEDIATE APPELLATE COURT COMMITTED A GRAVE Review, Rollo p. 18; emphasis supplied)
AND SERIOUS ERROR IN NOT HOLDING THAT PETITIONER WAS NOT In the case of Republic v. Mambulao Lumber Co. (4 SCRA 622), this Court ruled
PROPERLY AND DULY NOTIFIED THAT AN AUCTION SALE OF HIS that Internal Revenue Taxes can not be the subject of set-off or compensation. We agree with the petitioner's claim that Ho Fernandez, the purchaser at the
PROPERTY WAS TO TAKE PLACE ON DECEMBER 5, 1977 TO SATISFY AN We stated that: auction sale, has the burden of proof to show that there was compliance with all
ALLEGED TAX DELINQUENCY OF P2,400.00. the prescribed requisites for a tax sale.
A claim for taxes is not such a debt, demand, contract or judgment as is allowed
III to be set-off under the statutes of set-off, which are construed uniformly, in the The case of Valencia v. Jimenez (11 Phil. 492) laid down the doctrine that:
light of public policy, to exclude the remedy in an action or any indebtedness of
RESPONDENT INTERMEDIATE APPELLATE COURT FURTHER the state or municipality to one who is liable to the state or municipality for xxx xxx xxx
COMMITTED A SERIOUS ERROR AND GRAVE ABUSE OF DISCRETION IN taxes. Neither are they a proper subject of recoupment since they do not arise
NOT HOLDING THAT THE PRICE OF P2,400.00 PAID BY RESPONTDENT out of the contract or transaction sued on. ... (80 C.J.S., 7374). "The general ... [D]ue process of law to be followed in tax proceedings must be established
HO FERNANDEZ WAS GROSSLY INADEQUATE AS TO SHOCK ONE'S rule based on grounds of public policy is well-settled that no set-off admissible by proof and the general rule is that the purchaser of a tax title is bound to take
CONSCIENCE AMOUNTING TO FRAUD AND A DEPRIVATION OF against demands for taxes levied for general or local governmental purposes. upon himself the burden of showing the regularity of all proceedings leading up
PROPERTY WITHOUT DUE PROCESS OF LAW, AND CONSEQUENTLY, The reason on which the general rule is based, is that taxes are not in the to the sale. (emphasis supplied)
THE AUCTION SALE MADE THEREOF IS VOID. (pp. 10, 17, 20-21, Rollo) nature of contracts between the party and party but grow out of duty to, and are
the positive acts of the government to the making and enforcing of which, the There is no presumption of the regularity of any administrative action which
We gave due course to the petition for a more thorough inquiry into the personal consent of individual taxpayers is not required. ..." results in depriving a taxpayer of his property through a tax sale. (Camo v.
petitioner's allegations that his property was sold at public auction without notice Riosa Boyco, 29 Phil. 437); Denoga v. Insular Government, 19 Phil. 261). This
to him and that the price paid for the property was shockingly inadequate, We stated that a taxpayer cannot refuse to pay his tax when called upon by the is actually an exception to the rule that administrative proceedings are
amounting to fraud and deprivation without due process of law. collector because he has a claim against the governmental body not included in presumed to be regular.
the tax levy.
A careful review of the case, however, discloses that Mr. Francia brought the But even if the burden of proof lies with the purchaser to show that all legal
problems raised in his petition upon himself. While we commiserate with him at This rule was reiterated in the case of Corders v. Gonda (18 SCRA 331) where prerequisites have been complied with, the petitioner can not, however, deny
the loss of his property, the law and the facts militate against the grant of his we stated that: "... internal revenue taxes can not be the subject of that he did receive the notice for the auction sale. The records sustain the lower
petition. We are constrained to dismiss it. compensation: Reason: government and taxpayer are not mutually creditors court's finding that:
and debtors of each other' under Article 1278 of the Civil Code and a "claim for
Francia contends that his tax delinquency of P2,400.00 has been extinguished taxes is not such a debt, demand, contract or judgment as is allowed to be set- [T]he plaintiff claimed that it was illegal and irregular. He insisted that he was
by legal compensation. He claims that the government owed him P4,116.00 off." not properly notified of the auction sale. Surprisingly, however, he admitted in
when a portion of his land was expropriated on October 15, 1977. Hence, his his testimony that he received the letter dated November 21, 1977 (Exhibit "I")
tax obligation had been set-off by operation of law as of October 15, 1977. There are other factors which compel us to rule against the petitioner. The tax as shown by his signature (Exhibit "I-A") thereof. He claimed further that he was
was due to the city government while the expropriation was effected by the not present on December 5, 1977 the date of the auction sale because he went
There is no legal basis for the contention. By legal compensation, obligations of national government. Moreover, the amount of P4,116.00 paid by the national to Iligan City. As long as there was substantial compliance with the
persons, who in their own right are reciprocally debtors and creditors of each government for the 125 square meter portion of his lot was deposited with the requirements of the notice, the validity of the auction sale can not be assailed ...
other, are extinguished (Art. 1278, Civil Code). The circumstances of the case Philippine National Bank long before the sale at public auction of his remaining .
do not satisfy the requirements provided by Article 1279, to wit: property. Notice of the deposit dated September 28, 1977 was received by the
petitioner on September 30, 1977. The petitioner admitted in his testimony that We quote the following testimony of the petitioner on cross-examination, to wit:
(1) that each one of the obligors be bound principally and that he be at he knew about the P4,116.00 deposited with the bank but he did not withdraw it.
the same time a principal creditor of the other; It would have been an easy matter to withdraw P2,400.00 from the deposit so Q. My question to you is this letter marked as Exhibit I for Ho Fernandez
that he could pay the tax obligation thus aborting the sale at public auction. notified you that the property in question shall be sold at public auction to the
xxx xxx xxx highest bidder on December 5, 1977 pursuant to Sec. 74 of PD 464. Will you
Petitioner had one year within which to redeem his property although, as well tell the Court whether you received the original of this letter?
(3) that the two debts be due. be shown later, he claimed that he pocketed the notice of the auction sale A. I just signed it because I was not able to read the same. It was just
without reading it. sent by mail carrier.
xxx xxx xxx Q. So you admit that you received the original of Exhibit I and you
signed upon receipt thereof but you did not read the contents of it?
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A. Yes, sir, as I was in a hurry. established rules and lead to uncertainty and difficulty in the collection of taxes It appears that on October 29, 1964, the spouses Petra R. Farin and Benjamin
Q. After you received that original where did you place it? which are the life blood of the state. We are convinced that the present rules are Farin obtained a loan from the Marcelo Steel Corporation in the amount of
A. I placed it in the usual place where I place my mails. just, and that they bring hardship only to those who have invited it by their own P600,000.00, and as security therefor, the said spouses constituted, in favor of
neglect. the said corporation, a real estated mortgage upon their parcel of land situated
Petitioner, therefore, was notified about the auction sale. It was negligence on at Quezon City covered by TCT No. 42589 of the Registry of Deeds of Quezon
his part when he ignored such notice. By his very own admission that he We are inclined to believe the petitioner's claim that the value of the lot has City. 1 On July 24, 1965, the mortgagee wrote the Sheriff of Quezon City
received the notice, his now coming to court assailing the validity of the auction greatly appreciated in value. Precisely because of the widening of Buendia requesting the extrajudicial foreclosure of the aforesaid mortgage. 2
sale loses its force. Avenue in Pasay City, which necessitated the expropriation of adjoining areas, Accordingly, the sheriff advertised and scheduled the extra-judicial foreclosure
real estate values have gone up in the area. However, the price quoted by the sale of the mortgaged property for August 26, 1965. However, on August 21,
Petitioner's third assignment of grave error likewise lacks merit. As a general petitioner for a 203 square meter lot appears quite exaggerated. At any rate, the 1965, the mortgagors filed a petition for prohibition with injunction and damages
rule, gross inadequacy of price is not material (De Leon v. Salvador, 36 SCRA foregoing reasons which answer the petitioner's claims lead us to deny the against Benito Macrohon, as sheriff of Quezon City, and the Marcelo Steel
567; Ponce de Leon v. Rehabilitation Finance Corporation, 36 SCRA 289; petition. Corporation, with the Court of First Instance of Rizal docketed therein as Civil
Tolentino v. Agcaoili, 91 Phil. 917 Unrep.). See also Barrozo Vda. de Gordon v. Case No. Q-9384, wherein they prayed that the respondent Sheriff be
Court of Appeals (109 SCRA 388) we held that "alleged gross inadequacy of And finally, even if we are inclined to give relief to the petitioner on equitable permanently enjoined from proceeding with the scheduled sale at public auction
price is not material when the law gives the owner the right to redeem as when grounds, there are no strong considerations of substantial justice in his favor. of the mortgaged property, and that the respondent Corporation be condemned
a sale is made at public auction, upon the theory that the lesser the price, the Mr. Francia failed to pay his taxes for 14 years from 1963 up to the date of the to pay the petitioners P200,000.00 as actual and moral damages and
easier it is for the owner to effect redemption." In Velasquez v. Coronel (5 SCRA auction sale. He claims to have pocketed the notice of sale without reading it P50,000.00 as penal and compensatory damages and P30,000.00 as attorney's
985), this Court held: which, if true, is still an act of inexplicable negligence. He did not withdraw from fees, upon the ground that they have not been in default in the payment of their
the expropriation payment deposited with the Philippine National Bank an obligation. 3 Acting upon the petition, the herein respondent Judge Walfrido de
... [R]espondent treasurer now claims that the prices for which the lands were amount sufficient to pay for the back taxes. The petitioner did not pay attention los Angeles, issued an order commanding the respondent Sheriff and the
sold are unconscionable considering the wide divergence between their to another notice sent by the City Treasurer on November 3, 1978, during the respondent Corporation to desist from proceeding with the public auction sale of
assessed values and the amounts for which they had been actually sold. period of redemption, regarding his tax delinquency. There is furthermore no the property scheduled on August 26, 1965. 4
However, while in ordinary sales for reasons of equity a transaction may be showing of bad faith or collusion in the purchase of the property by Mr.
invalidated on the ground of inadequacy of price, or when such inadequacy Fernandez. The petitioner has no standing to invoke equity in his attempt to While the above case was pending, Petra Farin lease portions of the "Doa
shocks one's conscience as to justify the courts to interfere, such does not regain the property by belatedly asking for the annulment of the sale. Petra Building situated on the mortgaged premises, to the Rice and Corn
follow when the law gives to the owner the right to redeem, as when a sale is Administration, (RCA, for short), for the amount of P11,500.00 per month,
made at public auction, upon the theory that the lesser the price the easier it is WHEREFORE, IN VIEW OF THE FOREGOING, the petition for review is payable on or before the 5th day of the incoming month. 5
for the owner to effect the redemption. And so it was aptly said: "When there is DISMISSED. The decision of the respondent court is affirmed.
the right to redeem, inadequacy of price should not be material, because the On December 9, 1967, the Meralco Steel Corporation invoking paragraph 5 of
judgment debtor may reacquire the property or also sell his right to redeem and SO ORDERED. the mortgage contract, 6 filed a motion praying that an order be issued directing
thus recover the loss he claims to have suffered by reason of the price obtained and/or authorizing the Rice and Corn Administration (RCA) and an other
at the auction sale." G.R. No. L-30187 June 25, 1980 business concerns holding offices at the Doa Petra Building to channel or pay
REPUBLIC OF THE PHILIPPINES, in behalf of the RICE AND CORN directly to it the rents for the use of the building. 7
The reason behind the above rulings is well enunciated in the case of Hilton et. ADMINISTRATION, petitioner, vs. HON. WALFRIDO DE LOS ANGELES, in
ux. v. De Long, et al. (188 Wash. 162, 61 P. 2d, 1290): his capacity as Judge of the Court of First Instance of Rizal, Branch IV, On December 23, 1967, the respondent Judge of first instance issued the
Quezon City and MARCELO STEEL CORPORATION, respondents. questioned order, the dispositive portion of which reads, as follows:
If mere inadequacy of price is held to be a valid objection to a sale for taxes, the
collection of taxes in this manner would be greatly embarrassed, if not rendered CONCEPCION JR., J.: AS PRAYED FOR, the Rice and Corn Administration and all other business
altogether impracticable. In Black on Tax Titles (2nd Ed.) 238, the correct rule is concerns holding offices at the be known as 'Doa Petra Building', through their
stated as follows: "where land is sold for taxes, the inadequacy of the price Petition for certiorari and prohibition, with preliminary injunction to annul and set proper representative and the petitioners as well are ordered to channel or pay
given is not a valid objection to the sale." This rule arises from necessity, for, if a aside the order of the respondent Judge in Civil Case No. Q-9384 of the Court directly to herein respondent, Marcelo Steel Corporation, at its main office at
fair price for the land were essential to the sale, it would be useless to offer the of First Instance of Rizal Branch IV, Quezon City, entitled "Petra R. Farin, et al., Malabon, Rizal the rents for the use of the said building, offices, and/or
property. Indeed, it is notorious that the prices habitually paid by purchasers at petitioners, versus Benito Macrohon, et al., respondents," dated December 23, premisee. 8
tax sales are grossly out of proportion to the value of the land. (Rothchild Bros. 1967, ordering "the Rice and Corn Administration and all other business
v. Rollinger, 32 Wash. 307, 73 P. 367, 369). concerns holding offices at the building known as 'Doa Petra Building,' through The RCA filed a motion for the reconsideration of said order, praying that it be
their proper representative ... to channel or pay directly to herein respondent excluded therefrom, for the reasons that (a) the rents due Petra Farin had been
In this case now before us, we can aptly use the language of McGuire, et al. v. Meralco Steel Corporation, at its main office at Malabon, Rizal the rents for the assigned by her, with the conformity with the RCA, to Vidal A. Tan; (b) Petra
Bean, et al. (267 P. 555): use of the said building, offices, and/or premises," as well as the orders dated Farin has an outstanding obligation with the RCA in the amount of P263,062.40,
April 3, 1968, May 14, 1968, and December 19, 1968, all affirming the said representing rice shortages incurred by her as a bonded warehouse under
Like most cases of this character there is here a certain element of hardship order of December 23, 1967. contract with the RCA, which should be compensated with the rents due and
from which we would be glad to relieve, but do so would unsettle long-
Page 5 of 15
may be due; and (c) RCA was never given an opportunity to be heard on these AS PRAYED FOR, the Rice and Corn Administration (RCA) is hereby lessees of the said building, the RCA among others, to pay the rentals to the
matters. 9 authorized to deliver to the herein Petitioners their rentals for the use of portions respondent Corporation, without giving the lessees an opportunity to be heard.
of the Dofia Petra Building corresponding to December, 1967; January 30, The said lessees are not parties to the case between the lessor and the
Petra and Benjamin Farin filed a similar motion for the reconsideration of the February, 1968, all amounting to P37,500.00, to enable the petitioners to Marcelo Steel Corporation. The RCA, in particular, was not furnished with a
disputed order of December 23, 1967, alleging that (a) the lessees of the Doa forthwith effect the necessary repairs of the air-conditioning system of the said copy of the motion of the respondent Corporation, dated December 9, 1967,
Petra Building are not such amounts collected and received in payment of the building Doa Petra Building. However, all succeeding rentals should be praying that an order be issued directing and/or authorizing the RCA and other
interest on the obligation of all expenses of whatever kind and nature by the delivered to the Marcelo Steel Corporation as previously ordered in the order of lessees to channel or pay directly to the said corporation the rents for the use of
MORTGAGEE in connection with this mortgage, and on the principal obligation December 23, 1967. 14 the Doa Petra Building, so that the RCA was deprived of its day in court and
in the order they are enumerated and all acts done in conformity with the power precluded it from presenting the defenses that it has against the lessor which, in
herein granted are hereby ratified." On May 17, 1968, the RCA filed a motion to set aside the said order, c g that this case, are: (1) that the rents due to Petra Farin had been assigned by her to
the allegations contained in the motion dated May 10, 1968, that "The RCA is Vidal A. Tan with the acquiescence of the RCA, who has acquired proprietary
Parties to the case and were not served with a copy of the motion of Marcelo ready, willing and able to release to the petitioners the rentals mentioned above rights thereto and would be deprived of his property without due process of law;
Steel Corporation, filed on December 9, 1967, so that the Court has no is unauthorized and gratuitous, and the delivery of the withheld rentals to Petra and (2) that the lessor Petra R. Farin has an outstanding obligation to the RCA
jurisdiction over them; (b) Petra Farin has assigned a portion of the monthly R. Farin would defeat its claim without giving the corporation its day in court. 15 in the amount of P263,062.40 which should be compensated with the rentals
rental due from RCA to Vidal A. Tan, who has acquired proprietary rights But, the trial court denied the motion, saying: already due or may be due. The said order clearly violated the constitutional
thereto, and (c) under the power of attorney provided for in the real estate provision against depriving a person of his property without due process of law.
mortgage contract, the rents collected shall be applied to the interest on he Considering the motion to set aside the order of May 14, 1968, filed by the Rice 20 While there may be rents due the lessor for the use of portions of the Doa
obligation, and the legality of the additional interest at the rate of 12% per and Corn Administration and finding the same to be without merit, the same is Petra Building, otherwise there would be no claim of compensation, the
annum of the total amount of the mortgage indebtedness in addition to the 12% thereby DENIED. The records does not show any proof that the plaintiff, Petra collection of said rents should not be done in an arbitrary and illegal manner.
annual interest being charged by the Marcelo Steel Corporation on said Farin, is indebted to the aforesaid movant, RCA, as allegedly in the said motion Certain ruled should be observed and justice accorded the parties whose
indebtedness is directly at issue in the case, so that to enforce the disputed and assuming that the herein plaintiff is really indebted to the RCA, the records property rights would be adversely affected thereby. Since the order of
portion of the real estate mortgage contract and allow the Marcelo Steel further does not show that a case has been filed against her for the payment of December 23, 1967 was issued in executive s of jurisdiction, the said order is
Corporation to collect rents and apply the same to the interests on the loan such obligation, and therefore, there is no apparent legal ground to hold the null and void and of no legal t effect.
would be premature. 10 payment of the rentals due the plaintiff. 16
The respondent Judge also erred in denying the claim of the RCA that
The trial court denied both motions for reconsideration on April 3, 1968, 11 and On August 28, 1968, the RCA filed a motion to vacate the orders directing the compensation of debts had taken place allegedly because "The records does
on April 17, 1968 the RCA filed a second motion for reconsideration, insisting RCA to pay rentals to Marcelo Steel Corporation, reiterating therein the grounds not show any proof that the plaintiff is indebted to the aforesaid movant, RCA,
that the claim of Marcelo Steel Corporation for rents has no legal basis because alleged in its motion for reconsideration dated January 19, 1968, and in its as alleged in the said motion and assuming that the herein plaintiff is really
even a mortgagee who has successfully foreclosed a mortgage is not entitled to second motion for reconsideration dated April 17, 1968, which has remained indebted to the RCA, the records further does not show that a case has been
the fruits and rents of the property during the one-year redemption period, and unacted upon. In said motion, the RCA emphasized that it is not a party to the filed against her, or a decision has been rendered against her for the payment
that Marcelo Steel Corporation, after it had chosen to foreclose the mortgage, case; that it had been denied due process for lack of notice and the right to be of such obligation." Proof of the liquidation of a claim, in order that there be
cannot resort to the provision of the mortgage contract authorizing the heard; that compensation took place by operation of law pursuant to Art. 1286 compensation of debts, is proper if such claim is disputed. But, if the claim is
mortgagee to collect and receive rents and to apply said amounts to the of the Civil Code without the need of a case against Petra R. Farin, or a undisputed, as in the case at bar, the statement is sufficient and no other proof
payment of the principal obligation and the interests thereon; and that no rents decision rendered against her for the payment of such obligation; and that the may be required. In the instant case, the claim of the RCA that Petra R. Farin
are due Petra Farin because she has an accountability with the RCA in the provisions of the Rules of Court permitting a judgment creditor to reach money has an outstanding obligation to the RCA in the amount of P263,062.40 which
amount of P263,062.40, which amount should be compensated with the rents or property in the hands of third persons file the RCA, all purpose a final should be compensated against the rents already due or may be due, was
due. 12 No action appears to have been taken on this motion. judgment, and not a mere interlocutory order. 17 raised by the RCA in its motion for the reconsideration of the order of December
23, 1967. A copy of said motion was duly furnished counsel for Petra R. Farin
On May 10, 1968, Petra Farin filed an urgent ex parte motion to authorize the The motion was denied on December 19, 1968, 18 and when the RCA received and although the said Petra R. Farin subsequently filed a similar motion for the
RCA to release the rentals corresponding to the months of December, 1967, a letter from counsel for the Marcelo Steel Corporation, dated January 2, 1969, reconsideration of the order of December 23, 1967, she did not dispute nor
January and February, 1968, amounting to P37,500.00 so as to enable her to requesting compliance with the order of December 23, 1967, and the payment deny such claim Neither did the Marcelo Steel Corporation dispute such claim
make the necessary repairs on the air conditioning system of the Doa Petra of accrued rentals, 19 the petitioner instituted the present recourse. of compensation in its opposition to the motion for the reconsideration of the
Building, stating, among others, that "That RCA is ready, willing and able to order of December 23, 1967. 21 The silence of Petra R. Farin, order of
release to the petitioners the rentals mentioned above. 13 Insofar as it recognized the right of the herein private respondent, Marcelo Steel December 23, 1967. although the declaration is such as naturally one to call for
Corporation, to collect and receive rentals from the lessees of the Doa Petra action or comment if not true, could be taken as an admission of the existence
The respondent Judge granted the motion, saying. Building, the order of December 23, 1967 was within the competence of the and validity of such a claim. Therefore, since the claim of the RCA is
respondent Judge, since the lessor-mortgagor, Petra Farin, had empowered the undisputed, proof of its liquidation is not necessary. At any rate, if the record is
Considering the urgent ex-parte motion, etc. dated May 10, 1968 filed by the said corporation to collect and receive any interest, dividend, rents, profits or bereft of the proof mentioned by the respondent Judge of first instance, it is
plaintiff, thru counsel and finding the reasons alleged therein to be well- other income or benefit produced by or derived from the mortgaged property because the respondent Judge did not call for the submission of such proof.
founded; under the terms of the real estate mortgage contract executed by them. But, the Had the respondent Judge issued an order calling for proof, the RCA would
respondent Judge exceeded his jurisdiction in ordering or compelling the have presented sufficient evidence to the satisfaction of the court.
Page 6 of 15
 in the lease contract he had entered into with the deceased Tiburcio Lutero; and Luteros may well be taken up in the final liquidation of the account between
WHEREFORE, the petition is granted and the order issued on December 23, that such reimbursement to them was proper, they being subrogees of the PNB. petitioner as and the subject estate as lessor.
1967 in Civil Case No. Q-9384 of the Court of First Instance of Rizal, Quezon
City, Branch IV, entitled: Petra R. Farin, et al. petitioners, versus Benito Before the motion could be resolved by the court, petitioner on April 28, 1978 Thereafter the respondent Luteros filed with the respondent court a "Motion to
Macrohon, et al., respondents," as well as the orders dated April 3, 1968, May filed in the Court of First Instance of Iloilo a separate action against the spouses Reiterate Motion for Execution of the Order dated June 14, 1978." Petitioner
14, 1968, and December 19, 1968, all affirming the said order of December 23, Juanito Lutero and Hardivi R. Lutero for collection of the total amount of filed a rejoinder to said motion, raising for the first time the thesis that the
1967, should be, as they are hereby, annulled and set aside. With costs against P71,000.00, docketed as Civil Case No. 12397. Petitioner alleged in the amount payable to private respondents should be compensated against the
the respondent Marcelo Steel Corporation. complaint that on April 25, 1974 the defendants Lutero borrowed from him the latter's indebtedness to him amounting to P71,000.00. Petitioner attached to his
sum of P45,000.00 for which they executed a deed of real estate mortgage; that rejoinder copies of the pleadings filed in Civil Case No. 12397, then pending
G.R. No. L-50638 July 25, 1983 on July 2, 1974, defendants obtained an additional loan of P3,000.00, before Branch V of the Court of First Instance of Iloilo. This motion was denied
LORETO J. SOLINAP, petitioner, vs. HON. AMELIA K. DEL ROSARIO, as evidenced by a receipt issued by them; that defendants are further liable to him by respondent judge on the ground that "the claim of Loreto Solinap against
Presiding Judge of Branch IV, Court of First Instance of Iloilo, SPOUSES for the sum of P23,000.00, representing the value of certain dishonored checks Juanito Lutero in Civil Case No. 12397 is yet to be liquidated and determined in
JUANITO and HARDEVI R. LUTERO, and THE PROVINCIAL SHERIFF OF issued by them to the plaintiff; and that defendants refused and failed to settle the said case, such that the requirement in Article 1279 of the New Civil Code
ILOILO, respondents. said accounts despite demands. that both debts are liquidated for compensation to take place has not been
Espeleta & Orleans Law Office for petitioner. established by the oppositor Loreto Solinap."
Simplicia Magahum, Offemaria & Sixto Demaisip Law Office for private In their answer, the respondents Lutero traversed the material averments of the Petition filed a motion for reconsideration of this order, but the same was
respondents. complaint and set up legal and factual defenses. They further pleaded a denied.
counterclaim against petitioners for the total sum of P 125,000.00 representing
ESCOLIN; J.: unpaid rentals on Hacienda Tambal. Basis of the counterclaim is the allegation Hence, this petition.
that they had purchased one-half [1/2] of Hacienda Tambal, which their
Posed for resolution in this petition is the issue of whether or not the obligation predecessors, the spouses Tiburcio Lutero and Asuncion Magalona, leased to The petition is devoid of merit. Petitioner contends that respondent judge
of petitioners to private respondents may be compensated or set- off against the plaintiff for a rental of P50,000.00 a year; and that plaintiffs had failed to pay gravely abused her discretion in not declaring the mutual obligations of the
the amount sought to be recovered in an action for a sum of money filed by the said rentals despite demands. parties extinguished to the extent of their respective amounts. He relies on
former against the latter. Article 1278 of the Civil Code to the effect that compensation shall take place
At the pre-trial, the parties defined the issues in that case as follows: when two persons, in their own right, are creditors and debtors of each other.
The facts are not disputed. On June 2, 1970, the spouses Tiburcio Lutero and The argument fails to consider Article 1279 of the Civil Code which provides
Asuncion Magalona, owners of the Hacienda Tambal, leased the said hacienda (1) Whether or not the defendants [Luteros] are indebted to the plaintiff that compensation can take place only if both obligations are liquidated. In the
to petitioner Loreto Solinap for a period of ten [10] years for the stipulated rental and, if so, the amount thereof; case at bar, the petitioner's claim against the respondent Luteros in Civil Case
of P50,000.00 a year. It was further agreed in the lease contract that out of the No. 12379 is still pending determination by the court. While it is not for Us to
aforesaid annual rental, the sum of P25,000.00 should be paid by Solinap to the (2) Whether or not the defendants are the owners of one-half [1/2] of that pass upon the merits of the plaintiffs' cause of action in that case, it appears
Philippine National Bank to amortize the indebtedness of the spouses Lutero parcel of land known as 'Hacienda Tambal' presently leased to the plaintiff and, that the claim asserted therein is disputed by the Luteros on both factual and
with the said bank. therefore, entitled to collect from the latter one-half [1/2] of its lease rentals; and legal grounds. More, the counterclaim interposed by them, if ultimately found to
in the affirmative, the amount representing the unpaid rental by plaintiff in favor be meritorious, can defeat petitioner's demand. Upon this premise, his claim in
Tiburcio Lutero died on January 21, 1971. Soon after, his heirs instituted the of the defendant. 1 that case cannot be categorized as liquidated credit which may properly be set-
testate estate proceedings of the deceased, docketed as Sp. Proc. No. 1870 of off against his obligation. As this Court ruled in Mialhe vs. Halili, 2 "
the Court of First Instance of Iloilo, presided by respondent Judge Amelia K. del On June 14, 1978, the respondent judge issued an order in Sp. Proc. No. 1870, compensation cannot take place where one's claim against the other is still the
Rosario. In the course of the proceedings, the respondent judge, upon being granting the respondent Lutero's motion for reimbursement from petitioner of subject of court litigation. It is a requirement, for compensation to take place,
apprized of the mounting interest on the unpaid account of the estate, issued an the sum of P25,000.00 plus interest, as follows: that the amount involved be certain and liquidated."
order, stating, among others, "that in order to protect the estate, the
administrator, Judge Nicolas Lutero, is hereby authorized to scout among the WHEREFORE, Mr. Loreto Solinap is hereby directed to pay spouses Juanito WHEREFORE, the petition is dismissed, with costs against petitioner.
testamentary heirs who is financially in a position to pay all the unpaid Lutero and Hardivi R. Lutero the sum of P25,000.00 with interest at 12% per
obligations of the estate, including interest, with the right of subrogation in annum from June 17, 1975 until the same shall have been duly paid. SO ORDERED.
accordance with existing laws."
Petitioner filed a petition for certiorari before this Court, docketed as G.R. No. L- G.R. No. L-38711 January 31, 1985
On the basis of this order, respondents Juanito Lutero [grandson and heir of the 48776, assailing the above order. This Court, however, in a resolution dated FRANCISCO SYCIP, petitioner, vs. HONORABLE COURT OF APPEALS and
late Tiburcio] and his wife Hardivi R. Lutero paid the Philippine National Bank January 4, 1979 dismissed the petition thus: PEOPLE OF THE PHILIPPINES, respondents.
the sum of P25,000.00 as partial settlement of the deceased's obligations.
Whereupon the respondents Lutero filed a motion in the testate court for L-48776 [Loreto Solinap vs. CFI etc., et al.]- Acting on the petition in this case RELOVA, J.:
reimbursement from the petitioner of the amount thus paid. They argued that as well as the comment thereon of respondents and the reply of petitioner to
the said amount should have been paid by petitioner to the PNB, as stipulated said comment, the Court Resolved to DISMISS the petition for lack of merit, On August 25, 1970, the then Court of First Instance of Manila rendered a
anyway, the P25,000.00 to be paid by the petitioner to the private respondent decision convicting the herein petitioner Francisco Sycip of the crime of estafa
Page 7 of 15
and sentencing him to an indeterminate penalty of three (3) months of arresto "C"), stating therein, "Per our conversation this morning, I hereby authorize you praying that the appealed case be heard. He invokes Section 9 of Rule 124 of
mayor, as minimum to one (1) year and eight (8) months of prision correccional, to sell 1,000 shares of Republic Flour Mills." the Revised Rules of Court and relates it to Sections 1 and 17 of Article IV of
as maximum; to indemnify complainant Jose K. Lapuz the sum of P5,000.00, the New Constitution. This contention is devoid of merit. Petitioner was afforded
with subsidiary imprisonment in case of insolvency; and to pay the costs. Later, the accused-appellant wrote a letter to Jose K. Lapuz, dated June 1, the right to be present during every step in the trial before the Court of First
1961 (Exhibit "I"), confirming their conversation on that date that "500 shares Instance, that is, from the arraignment until the sentence was promulgated. On
The then Court of Appeals affirmed the trial court's decision but deleted that part out of the 1,000 shares of the Republic Flour ... has been sold," and stating appeal, he cannot assert as a matter of right to be present and to be heard in
of the sentence imposing subsidiary imprisonment. further that "pending receipt of the payment, expected next week, we are connection with his case. It is the procedure in respondent court that within 30
enclosing herewith our draft to cover the full value of 500 shares." He asked in days from receipt of the notice that the evidence is already attached to the
The facts of the case as found by respondent appellate court read: that letter, "Please give me the 50 shares in the name of Mr. Felix Gonzales and record, the appellant shall file 40 copies of his brief with the clerk accompanied
the photostat of 208 shares in the name of Trans Oceanic Factors and by proof of service of 5 copies upon the appellee (Section 3, Rule 124 of the
... [I]n April 1961, Jose K. Lapuz received from Albert Smith in Manila 2,000 Company." Revised Rules of Court). Within 30 days from receipt of appellant's brief, the
shares of stock of the Republic Flour Mills, Inc., covered by Certificate No. 57 in appellee shall file 40 copies of his brief with the clerk accompanied by proof of
the name of Dwight Dill who had left for Honolulu. Jose K. Lapuz "was The date of the letter (Exhibit "I") is disputed, the prosecution contending that it service of 5 copies upon the appellant (Section 4, Rule 124 of the Revised
supposed to sell his (the shares) at present market value out of which I (he) should be July 1, 1961, not June 1, 1961. The contention of the prosecution has Rules of Court). Each party may be allowed extensions of time to file brief for
was supposed to get certain commission." According to Jose K. Lapuz, the the support of the date of the draft (Exhibit "J") mentioned in the letter. good and sufficient cause. Thereafter, the appellate court may reverse, affirm or
accused-appellant approached him and told him that he had good connections modify the judgment, increase or reduce the penalty imposed, remand the case
in the Stock Exchange, assuring him that he could sent them at a good price. The accused-appellant sold and paid for the other 500 shares of stock, for the for new trial or re-trial or dismiss the case (Section 11, Rule 124 of the Revised
Before accepting the offer of the accused-appellant to sent the shares of stock, payment of which Jose K. Lapuz issued in his favor a receipt, dated June 9, Rules of Court). It is discretionary on its part whether or not to set a case for
Jose K. Lapuz made it clear to him that the shares of stock did not belong to 1961 (Exhibit "H"). oral argument. If it desires to hear the parties on the issues involved, motu
him and were shortly entrusted to him for sale. He then gave the shares of propio or upon petition of the parties, it may require contending parties to be
stock to the accused-appellant who put them in the market. The draft (Exhibit "J") for P8,000.00, "the full value of the 500 shares' mentioned heard on oral arguments. Stated differently, if the Court of Appeals chooses not
in the letter of the accused-appellant (Exhibit "I"), was dishonored by the bank, to hear the case, the Justices composing the division may just deliberate on the
Thereafter, Jose K. Lapuz received a letter from the accused-appellant, dated for lack of funds. Jose K. Lapuz then "discovered from the bookkeeper that he case, evaluate the recorded evidence on hand and then decide it. Accused-
April 25, 1961 (Exhibit "A"), the latter informing him that "1,758 shares has been got the money and he pocketed it already, so I (he) started hunting for Mr. appellant need not be present in the court during its deliberation or even during
sold for a net amount of P29,000.00," but that the transaction could not be Sycip" (accused-appellant). When he found the accused-appellant, the latter the hearing of the appeal before the appellate court; it will not be heard in the
concluded until they received the Power of Attorney duly executed by Dwight gave him a check in the amount of P5,000.00, issued by his daughter on July manner or type of hearing contemplated by the rules for inferior or trial courts.
Dill, appointing a person to endorse the certificate of stock, and a resolution 12, 1961 (Exhibit "K"). This also was dishonored by the bank for lack of
from the Biochemical Research Laboratory, Inc., authorizing the transfer of the sufficient funds to cover it (Exhibits "K-l" and "K-2"). In his third and fourth assigned errors, petitioner contends that respondent
certificate. Jose K. Lapuz signed his conformity to the contents of the letter. Court of Appeals erred in not applying the provisions on compensation or
When Jose K. Lapuz sent a wire to him, telling him that he would "file estafa setting-off debts under Articles 1278 and 1279 of the New Civil Code, despite
Jose K. Lapuz declared that he "was able to secure a power of attorney of Dr. case (in the) fiscals office ... against him' unless he raise [the] balance left eight evidence showing that Jose K. Lapuz still owed him an amount of more than
Dwight Dill, and gave it to the accused-appellant." The power of attorney thousand" (Exhibit "L"), the accused-appellant answered him by sending a wire, P5,000.00 and in not dismissing the appeal considering that the latter is not
authorized the sale of 1,758 shares only; the difference of 242 shares were "P5,000 remitted ask boy check Equitable (Exhibit "M"). But "the check was legally the aggrieved party. This contention is untenable. Compensation cannot
given back to Biochemical Research Laboratory, Inc. never made good," so Jose K. Lapuz testified. He had to pay Albert Smith the take place in this case since the evidence shows that Jose K. Lapuz is only an
value of the 500 shares of stock." (Petitioner's brief, pp. 58-62) agent of Albert Smith and/or Dr. Dwight Dill. Compensation takes place only
Of the 1,758 shares of stock, the accused-appellant sold 758 shares for when two persons in their own right are creditors and debtors of each other, and
P12,128.00 at P16.00 a share, for which Jose K. Lapuz issued a receipt, dated Coming to this Court on a petition for review on certiorari, petitioner claims that that each one of the obligors is bound principally and is at the same time a
May 23, 1961 (Exhibit "C"). On the same day, Jose K. Lapuz turned over to respondent appellate court erred (1) in denying petitioner of a hearing, as principal creditor of the other. Moreover, as correctly pointed out by the trial
Albert Smith the sum of P9,981.40 in payment of 758 shares of P14.00 a share provided under Section 9, Rule 124, Rules of Court; (2) in not upholding due court, Lapuz did not consent to the off-setting of his obligation with petitioner's
(Exhibits "D" and "E"). process of law (Sections 1 and 17), Article IV, Bill of Rights, Constitution; (3) in obligation to pay for the 500 shares.
refusing to uphold the provisions on compensation, Articles 1278 and 1279,
On May 30, 1961, Jose K. Lapuz received a letter from the accused-appellant Civil Code; (4) in not dismissing the complaint, even granting arguendo, that Anent the fifth assigned error, petitioner argues that the appellate court erred in
(Exhibit "F"), the latter informing him that "although the deal (relative to the compensation does not apply; (5) in not ruling that a consummated contract not ruling that the deed of sale is a consummated contract and, therefore, not
1,000 shares) has been closed, actual delivery has been withheld pending (Deed of Sale, Exhibit '10') is not covered by the Statute of Frauds and that its covered by the Statute of Frauds. It must be pointed out that the issue on
receipt of payment ..., I have chose(n) to return the shares ...," enclosing decision is not in accordance with Section 4, Rule 51, Rules of Court; and, (6) in whether or not the alleged contract of sale is covered by the Statute of Frauds
Certificate No. 955 for 500 shares, Certificate No. 952 for 50 shares in name of ignoring the ruling case promulgated by this Honorable Supreme Court in has not been raised in the trial court or with the Court of Appeals. It cannot now
Felix Gonzales, and the photostat of Certificate No. 953 for 208 shares, which People vs. Benitez, G.R. No. L-15923, June 29, 1960, in its applicability to be raised for the first time in this petition. Thus, there is no need for respondent
had been sold to Trans Oceanic Factors and Company, for which a check would offenses under Article 315, paragraph 1 (b) of the Penal Code. court to make findings of fact on this matter.
be issued "within the next few days." He promised to deliver the 242 shares as
soon as he would have received them from one Vicente Chua. "The next day Petitioner in his first and second assigned errors argues that respondent Court With respect to the sixth assigned error, petitioner points out that the Court of
(May 31, 1961), Jose K. Lapuz wrote a letter to the accused-appellant (Exhibit of Appeals erred in denying him his day in court notwithstanding his motion Appeals erred in affirming the decision of the trial court convicting him of the
Page 8 of 15
crime charged. Petitioner mentions that in People vs. Benitez, G.R. No. L- G.R. No. L-50900 April 9, 1985 On February 22, 1949, Pan Oriental Shipping Co., hereinafter referred to as
15923, June 30, 1960 (108 Phil. 920), We have ruled that to secure conviction COMPAIA MARITIMA, petitioner, vs. COURT OF APPEALS and PAN Pan Oriental, offered to charter said vessel FS-197 for a monthly rent of
under Article 315, paragraph 1 (b), Revised Penal Code, it is essential that the ORIENTAL SHIPPING CO., respondents. P3,000.00. Because the government was then spending for the guarding of the
following requirements be present: (a) existence of fraud; (b) failure to return G.R. No. L-51438 April 9, 1985 boat and subsistence of the crew members since repossession, the Slopping
the goods on demand; and (c) failure to give any reason or explanation to the REPUBLIC OF THE PHILIPPINES (BOARD OF LlQUIDATORS), petitioner, vs. Administration on April 1, 1949, accepted Pan Oriental's offer "in principle"
foregoing. He claims that nowhere in the decision was he found to have any COURT OF APPEALS and PAN ORIENTAL SHIPPING CO., respondents. subject to the condition that the latter shag cause the repair of the vessel
particular malice or intent to commit fraud, or, that he failed to return the shares
G.R. No. L-51463 April 9, 1985 advancing the cost of labor and drydocking thereof, and the Shipping
on any formal demand made by Jose K. Lapuz to him, and/or was he unable to PAN ORIENTAL SHIPPING CO., petitioner, vs. COURT OF APPEALS, Administration to furnish the necessary spare parts. In accordance with this
make any explanation thereto. On this score, We only have to quote from the COMPAIA MARITIMA and THE REPUBLIC OF THE PHILIPPINES (BOARD charter contract, the vessel was delivered to the possession of Pan Oriental.
decision of the respondent court, as follows: OF LIQUIDATORS), respondents.
Quisumbing, Caparas, Tobias, Alcantara y Mosqueda for Pan Oriental Shipping In the meantime, or on February 22, 1949, Froilan tried to explain his failure to
The "malice or intent to commit fraud" is indicated in that part of the decision Co. Rafael Dinglasan for Compania Maritima. comply with the obligations he assumed and asked that he be given another
herein before quoted, that is, the accused- appellant "received from Jose K. extension up to March 15, 1949 to file the necessary bond. Then on March 8,
Lapuz the 500 shares in question (a part of 1,758 shares) for sale, and that, MELENCIO-HERRERA, J.: Froilan offered to pay all his overdue accounts. However, as he failed to fulfill
although the same had already been sold, the accused ... failed to turn over the even these offers made by him in these two communications, the Shipping
proceeds thereof to Jose K. Lapuz." The abuse of confidence in The above-entitled three (3) cases stemmed from the Decision of this Court, Administration denied his petition for reconsideration (of the rescission of the
misappropriating the funds or property after they have come to the hands of the dated October 31, 1964, entitled "Fernando A. Froilan vs. Pan-Oriental Shipping contract) on March 22, 1949. It should be noted that while his petition for
offender may be said to be a fraud upon the person injured thereby (U.S. vs. Co., et al. 1 and our four (4) subsequent Resolutions of August 27, 1965, reconsideration was denied on March 22, it does not appear when he formally
Pascual, 10 Phil. 621). November 23, 1966, December 16, 1966, and January 5, 1967, respectively. formulated his appeal. In the meantime, as already stated, the boat has been
repossessed by the Shipping Administration and the title thereto re-registered in
xxx xxx xxx The antecedental background is narrated in the aforestated Decision, the the name of the government, and delivered to the Pan Oriental in virtue of the
pertinent portions of which read: charter agreement. On June 2, 1949, Froilan protested to the President against
The accused-appellant having informed Jose K. Lapuz that the "500 shares out the charter of the vessel.
of the 1000 shares ... has been sold" (Exhibit "I"), for which he issued a draft for On March 7, 1947, Fernando A. Froilan purchased from the Shipping
P8,000.00 (Exhibit "J"), the latter cannot be expected to make a demand for the Administration a boat described as MV/FS-197 for the sum of P200,000.00, with xxx xxx xxx
return of the 500 shares. His demand was for the payment of the shares when a down payment of P50,000.00. To secure payment of the unpaid balance of
the draft was dishonored by the bank. the purchase price, a mortgage was constituted on the vessel in favor of the On June 4, 1949, the Shipping Administration and the Pan Oriental formalized
Shipping Administration .... the charter agreement and signed a bareboat contract with option to purchase,
The delivery of a worthless check in the amount of P5,000.00 by the accused- containing the following pertinent provisions:
appellant to Jose K, Lapuz, after the latter's "hunting" for him is even a xxx xxx xxx
circumstance indicating intent to commit fraud. (pp. 48-49, Rollo) III. CHARTER HIRE, TIME OF PAYMENT. The CHARTERER shall
Th(e) contract was duly approved by the President of the Philippines. pay to the owner a monthly charter hire of THREE THOUSAND (P3,000.00)
xxx xxx xxx PESOS from date of delivery of the vessel, payable in advance on or before the
Froilan appeared to have defaulted in spite of demands, not only in the payment 5th of every current month until the return of the vessel to OWNER or purchase
His explanation of his inability to return the 500 shares of stock is not of the first installment on the unpaid balance of the purchase price and the of the vessel by CHARTERER.
satisfactory. ... If it is true that he gave the 500 shares of stock to his creditor, interest thereon when they fell due, but also failed in his express undertaking to
Tony Lim, he is nonetheless liable for the crane of estafa, he having received pay the premiums on the insurance coverage of the vessel obliging the IV. RIGHT OF OPTION TO PURCHASE. The right of option to
the 500 shares of stock to be sold on commission. By giving the shares to his Shipping Administration to advance such payment to the insurance company. ... purchase the vessel at the price of P150,000.00 plus the amount expended for
creditor, he thereby committed estafa by conversion. (pp. 49-50, Rollo) its present repairs is hereby granted to the CHARTERER within 120 days from
Subsequently, FROILAN appeared to have still incurred a series of defaults the execution of this Contract, unless otherwise extended by the OWNER. This
Indeed, Jose K. Lapuz demanded from petitioner the amount of P5,000.00 with notwithstanding reconsiderations granted, so much so that: right shall be deemed exercised only if, before the expiration of the said period,
a notice that in the event he (petitioner) would fail to pay the amount, Lapuz or its extension by the OWNER, the CHARTERER completes the payment,
would file an estafa case against him. On February 21, 1949, the General Manager (of the Shipping Administration) including any amount paid as Charter hire, of a total sum of not less than
directed its officers ... to take immediate possession of the vessel and to twenty-five percentum (25%) of said price of the vessel.
By and large, respondent Court of Appeals has not overlooked facts of suspend the unloading of all cargoes on the same until the owners thereof
substance and value that, if considered, would alter the result of the judgment. made the corresponding arrangement with the Shipping Administration. The period of option may be extended by the OWNER without in any way
Pursuant to these instructions, the boat was, not only actually repossessed, but affecting the other provisions, stipulations, and terms of this contract.
WHEREFORE, for lack of merit the petition is hereby DISMISSED. the title thereto was registered again in the name of the Shipping
Administration, thereby re-transferring the ownership thereof to the government. If, for any reason whatsoever, the CHARTERER fails to exercise its option to
SO ORDERED. purchase within the period stipulated, or within the extension thereof by the
OWNER, its right of option to purchase shall be deemed terminated, without
Page 9 of 15
prejudice to the continuance of the Charter Party provisions of this contract. The and drydocking of the vessel (Exh. 134). Pan Oriental protested to this be exercised upon payment of a certain amount within a specified period. The
right to dispose of the vessel or terminate the Charter Party at its discretion is restoration of Froilan's rights under the contract of sale, for the reason that President and Treasurer of the appellant company, tendered the stipulated
reserved to the OWNER. when the vessel was delivered to it, the Shipping Administration had authority to initial payment on January 16, l950. Appellant now contends that having
dispose of the said property, Froilan having already relinquished whatever rights exercised the option, the subsequent Cabinet resolutions restoring Froilan's
XIII. TRANSFER OF OWNERSHIP OF THE VESSEL. After the he may have thereon. Froilan paid the required cash of P10,000.00, and as Pan rights on the vessel, violated its existing rights over the same property. To the
CHARTERER has exercised his right of option as provided in the preceding Oriental refused to surrender possession of the vessel, he filed an action for contention of plaintiff Froffan that the charter contract never became effective
paragraph (XII), the vessel shall be deemed conditionally sold to the purchaser, replevin in the Court of First Instance of Manila (Civil Case No. 13196) to because it never received presidential approval as required therein, Pan
but the ownership thereof shag not be deemed transferred unless and until all recover possession thereof and to have him declared the rightful owner of said Oriental answers that the letter of the Executive Secretary dated December 3,
the price of the vessel, together with the interest thereon, and any other property. 1949 (Exh. 118), authorizing the Shipping Administration to continue its charter
obligation due and payable to the OWNER under this contract, have been fully contract with appellant, satisfies such requirement (of presidential approval). It
paid by the CHARTERER. Upon plaintiff's filing a bond of P400,000.00, the court ordered the seizure of the is to be noted, however, that said letter was signed by the Executive Secretary
vessel from Pan Oriental and its delivery to the plaintiff. Pan Oriental tried to only and not under authority of the President. The same, therefore, cannot be
xxx xxx xxx question the validity of this order in a petition for certiorari filed in this Court considered to have attached unto the charter contract the required consent of
(G.R. No. L-4577), but the same was dismissed for lack of merit by resolution of the Chief Executive for its validity.
XXI. APPROVAL OF THE PRESIDENT. This contract shall take effect February 22, 1951. Defendant accordingly filed an answer, denying the
only upon approval of His Excellency, the President. averments of the complaint. xxx xxx xxx
On September 6, 1949, the Cabinet revoked the cancellation of Froilan's
contract of sale and restored to him all his rights thereunder, on condition that The Republic of the Philippines, having been allowed to intervene in the (Emphasis supplied)
he would give not less than P1,000.00 to settle partially as overdue accounts proceeding, also prayed for the possession of the vessel in order that the
and that reimbursement of the expenses incurred for the repair and drydocking chattel mortgage constituted thereon may be foreclosed. Defendant Pari This Court then held:
of the vessel performed by Pan Oriental was to be made in accordance with Oriental resisted said intervention, claiming to have a better right to the
future adjustment between him and the Shipping Administration (Exh. I). Later, possession of the vessel by reason of a valid and subsisting contract in its In the circumstances of this case, therefore, the resulting situation is that neither
pursuant to this reservation, Froilan's request to the Executive Secretary that favor, and of its right of retention, in view of the expenses it had incurred for the Froilan nor the Pan Oriental holds a valid contract over the vessel. However,
the Administration advance the payment of the expenses incurred by Pan repair of the said vessel. As counterclaim, defendant demanded of the since the intervenor Shipping Administration, representing the government
Oriental in the drydocking and repair of the vessel, was granted on condition intervenor to comply with the latter's obligation to deliver the vessel pursuant to practically ratified its proposed contract with Froilan by receiving the full
that Froilan assume to pay the same and file a bond to cover said undertaking the provisions of the charter contract. consideration of the sale to the latter, for which reason the complaint in
(EXH. III). intervention was dismissed as to Froilan, and since Pan Oriental has no
xxx xxx xxx capacity to question this actuation of the Shipping Administration because it had
On September 7, 1949, the formal bareboat charter with option to purchase no valid contract in its favor, the of the lower court adjudicating the vessel to
filed on June 4, 1949, in favor of the Pan Oriental was returned to the General Subsequently, Compaia Maritima, as purchaser of the vessel from Froilan, was Froilan and its successor Maritima, must be sus Nevertheless, under the
Manager of the Shipping Administration without action (not disapproval), only allowed to intervene in the proceedings (in the lower court), said intervenor already adverted to, Pan Oriental cannot be considered as in bad faith until
because of the Cabinet resolution of September 6, 1949 restoring Froilan to his taking common cause with the plaintiff Froilan. In its answer to the complaint in after the institution of the case. However, since it is not disputed that said made
rights under the conditions set forth therein, namely, the payment of P10,000.00 intervention, defendant set-up a counterclaim for damages in the sum of useful and necessary expenses on the vessel, appellant is entitled to the refund
to settle partially his overdue accounts and the filing of a bond to guarantee the P50,000.00, alleging that plaintiff secured the Cabinet resolutions and the writ of such expenses with the light to retain the vessel until he has been
reimbursement of the expenses incurred by the Pan Oriental in the drydocking of replevin, resulting in its deprivation of possession of the vessel, at the reimbursed therefor (Art. 546, Civil Code). As it is by the concerted acts of
and repair of the vessel But Froilan again failed to comply with these conditions. instigation and inducement of Compania Maritima. This counterclaim was defendants and intervenor Republic of the Philippines that appellant was
And so the Cabinet, considering Froilan's consistent failure to comply with his denied by both plaintiff and intervenor Maritima. deprived of the possession of the vessel over which appellant had a lien for his
obligations, including those imposed in the resolution of September 6, 1949, expenses, appellees Froilan, Compaia Maritima, and the Republic of the
resolved to reconsider said previous resolution restoring him to his previous On September 28, 1956, the lower court rendered a decision upholding Philippines are declared liable for the reimbursement to appellant of its
rights. And, in a letter dated December 3, 1949, the Executive Secretary Froilan's (and Compaia Maritima's) right to the ownership and possession of legitimate expenses, as allowed by law, with legal interest from the time of
authorized the Administration to continue its charter contract with Pan Oriental the FS-197. disbursement.
in respect to FS-197 and enforce whatever rights it may still have under the
original contract with Froilan (Exh. 188). xxx xxx xxx Modified in this manner, the decision appealed from is affirmed, without costs.
Case is remanded to the lower court for further proceedings in the matter of
xxx xxx xxx It is not disputed that appellant Pan Oriental took possession of the vessel in expenses. So ordered. (Emphasis supplied).
question after it had been repossessed by the Shipping Administration and title
On August 25, 1950, the Cabinet resolved once more to restore Froilan to his thereto reacquired by the government, and operated the same from June 2, On August 27, 1965, this Court, in resolving a Motion for Reconsideration filed
rights under the original contract of sale, on condition that he shall pay the sum 1949 after it had repaired the vessel until it was dispossessed of the property on by FROILAN and MARITIMA, ruled:
of P10,000.00 upon delivery of the vessel to him, said amount to be credited to February 3, 1951, in virtue of a bareboat charter contract entered into between
his outstanding accounts; that he shall continue paying the remaining said company and the Shipping Administration. In the same agreement, In G.R. No. L-11897 (Fernando A. Froilan vs. Pan Oriental Shipping Co.); before
installments due, and that he shall assume the expenses incurred for the repair appellant as charterer, was given the option to purchase the vessel, which may us are (1) a motion, filed by appellant Pan Oriental to reconsider the ruling
Page 10 of 15
made in this case sustaining Froilan's right to ownership and possession of the
vessel FS-197, and holding that there was never a perfected contract between
said movant and the intervenor Republic of the Philippines; and (2) a motion by
plaintiff-appellee Fernando A. Froilan, and intervenor-appellee Compaia
Maritima, for reconsideration of the decision insofar as it declared said movants,
together with intervenor Republic of the Philippines, liable for reimbursement to
appellant Pan Oriental of the latter's legitimate necessary expenses made on
the vessel in question.
1. .Appellant Pan Oriental's Motion must be denied.
It may be remembered that in the instant case, the alleged approval of the
charter contract or permission to proceed with said contract was given by the
Executive Secretary in his own name and not under the authority of the
President.
xxx xxx xxx
2. Anent, appellant's motion, considering that the writ of replevin, by
virtue of which appellant Pan Oriental was divested of possession of the vessel
FS-197, was issued by the lower court on February 8, 1951 at the instance of
plaintiff Froilan and with the cooperation of intervenor Republic of the
Philippines, which accepted the payment tendered by him (Froilan)
notwithstanding its previous dealings with Pan Oriental; and whereas, the
intervenor Compaia Maritima acquired the same property only on December 1,
1951, it is clear that only plaintiff Froilan and the intervenor Republic of the
Philippines may be held responsible for the deprivation of defendant of its right
to the retention of the property until fully reimbursed of the necessary
expenditure made on the vessel. For this reason, Froilan and the Republic of
the Philippines are declared jointly and severally liable, not only for
reimbursement to Pan Oriental of the legitimate necessary expenses incurred
on the vessel but also for payment of legal interest thereon, computed from the
date of the defendant's dispossession of the property. However, as defendant
was in actual possession of the vessel from April 1, 1949 to February 7, 1951, it
must be required to pay reasonable rental for the use thereof, at the rate of
P3,000.00 a month the same rate specified as rental in the imperfected
charter contract which shall be deductible from whatever may be due and
owing the said party by way of reimbursable necessary expenses and interest.
This rental shall commence from the time defendant Pan Oriental actually
operated the vessel, which date shall be determined by the lower court.
Case is remanded to the court of origin for further proceedings on the matter of
necessary expenses, interest and rental, as directed in our decision and this
resolution. (Emphasis supplied).
On November 23, 1966, acting on a second Motion for Reconsideration filed by
PAN ORIENTAL, this Court resolved:
In case G.R. No. L-11817, Fernando A, Froilan, et al., appellees, vs. Pan
Oriental Shipping Company, appellant, the latter filed a .second motion for
reconsideration, alleging that the Resolution of this Court of August 27, 1965
denying its motion for reconsideration of December 16, 1964 is not in
accordance with law; and that the modification of the judgment following the ex- The amount of P6,937.72 ordered to be paid monthly represented the lower
parte motion for reconsideration of appellee Froilan is contrary to due process. Court's computation of damages of PAN ORIENTAL for deprivation of the right
to retain the vessel. 3
Considering that foregoing motion as well as the opposition thereto by plaintiff-
appellee and intervenor-appellee Compaia Maritima, the Court RESOLVED to On appeal by REPUBLIC and MARITIMA to the then Court of Appeals,
amend the ruling in this case by holding intervenor-appellee Compaia judgment was promulgated decreeing.
Maritima, because of its actual knowledge of the circumstances surrounding the
purchase by Froilan of the vessel in question from the Shipping Administrator, WHEREFORE, in the light of the foregoing pronouncements, the judgment
jointly and severally liable with the other appellees, for reimbursement to appealed from is hereby MODIFIED as follows:
appellant of the necessary expenses incurred and expended by the latter on the
said vessel, minus the amount of rentals due from the appellant for the use Ordering intervenors-appellants Republic and Compaia Maritima, jointly and
thereof for the period it was actually operated by Pan Oriental. The period of severally, to pay appellee Pan Oriental Shipping Company the sum of
actual operation shall not include the time when the vessel was drydocked. P40,797.54 with legal interest from February 3, 1951 until fully paid but there
shah be deducted therefrom the amount of P59,500.00 representing the unpaid
On December 16,1966, acting on PAN ORIENTAL's Motion for Reconsideration rentals due the Republic of the Philippines; and AFFIRMED in all other
or Application for Damages on account of the wrongful issuance of the Writ of respects.
Replevin, this Court issued a Resolution as follows:
In other words, (a) the date from which interest is to be paid on the amount of
Before us again in Case G.R. No. 11897 (Fernando A. Froilan vs. Pan Oriental P40,797.54 is from February 3, 1951, the date of dispossession, and not from
Shipping Co. et al) is a motion for reconsideration or Application for damages the time of disbursement and (b) the unpaid rentals due the Republic are
filed by respondent Pan Oriental Shipping Co., allegedly on account of the deductible from the amount of expenses payable to PAN-ORIENTAL. It should
wrongful issuance of the writ of replevin, pursuant to Rule 60, Section 10, in be recalled that the deduction of rentals from the amount payable to PAN-
relation to Rule 57, Section 20 of the Revised Rules of Court. Considering that ORIENTAL by REPUBLIC was pursuant to this Court's Resolutions of August
by virtue of our resolution dated August 27, 1965, this case has been ordered to 27, 1965 and November 23, 1966, supra,
be remanded to the Court of origin for further proceedings on the matter of
necessary expenses, interest and rentals, and since evidence would have to be From the foregoing Decision, the parties filed their respective Petitions for
presented if the application for damages is allowed, the Court resolved, first, to Review now before us.
deny the present motion for reconsideration and, second, to refer the
application to the trial court, there to be heard and decided as prescribed by law For clarity, the sums ordered to be paid by MARITIMA and the REPUBLIC,
and the Rules. (See last sentence, Section 20, Rule 57). jointly and severally, to PAN-ORIENTAL are: (a) the sum of P6,937.72 a month
from February 3, 1951, the date of PAN-ORIENTAL's dispossession, in the
Pursuant thereto, the case was remanded to the Court of First Instance of concept of damages for the deprivation of its right to retain the vessel, it until it
Manila, Branch VI (Civil Case No. 13196). After the evidence of the parties was is paid its useful and necessary expenses"; 4 (b) the sum of P15,000.00,
received and assessed by a Commissioner, said Court issued an Order, dated representing PAN-ORIENTAL's deposit with REPUBLIC for the purchase of the
June 4, 1975, the dispositive portion of which reads: vessel, "with legal interest from January 16, 1950," the date PAN-ORIENTAL
had paid the same; 5 and (c) the sum of P40,797.54 representing the expenses
WHEREFORE, in view of the foregoing consideration, the Court orders the for repairs incurred by PAN-ORIENTAL, "with legal interest from February 3,
intervenor Compaia (plaintiff Fernando A. Froilan's successor-in-interest) and 1951 until fully paid," minus the amount of P59,500.00 representing the unpaid
intervenor Republic of the Philippines (Board of Liquidators) jointly and rentals due the REPUBLIC 6 The legal rate of interest is made payable only on
severally to pay defendant Pan Oriental Shipping Company the sum of the last two amounts (b) and (c).
P6,937.72 a month from the time 'it was dispossessed on February 3, 1951'
until it is paid its useful and necessary expenses; the sum of P40,797.54 actual REPUBLIC attributes the following errors to the Appellate Court: (1) in not
amount expended for the repairs and improvements prior to the operation of the holding that compensation by operation of law took place as between
vessel on June 1, 1949 with legal interest from the time of disbursement of said REPUBLIC and PAN-ORIENTAL as of the date of dispossession; (2) in not
legitimate expenses. The Court also orders the intervenor Republic of the holding that the obligation of the REPUBLIC to pay legal interest on the amount
Philippines to return the sum of P15,000.00 tendered by defendant Pan Oriental of useful and necessary expenses from February 3, 1951 had become stale
Shipping Company as provided in the option with legal interest from January and ineffective; (3) in affirming the Order of the Trial Court that MARITIMA and
16, 1950, the date it was paid by the latter. REPUBLIC, jointly and severally, pay to PAN-ORIENTAL the sum of P6,937.72
a month from the time it was dispossessed of the vessel on February 3, 1951
SO ORDERED. 2 until it is paid its useful and necessary expenses; and (4) in not holding that the
Page 11 of 15
Trial Court had no jurisdiction to order the return of P15,000.00 to PAN- ... For this reason, Froilan and the REPUBLIC of the Philippines are declared when they should be P87,267.30, since it did not appeal from that Court's
ORIENTAL. MARITIMA, for its part, aside from assailing the sums it was jointly and severally liable, not only for reimbursement to Pan Oriental, of the Decision.
ordered to pay PAN-ORIENTAL, jointly and severally, with REPUBLIC, echoed legitimate necessary expenses incurred on the vessel, but also for payment of
the theory of compensation and added that the question of damages on legal interest thereon, computed from the date of the defendant's dispossession In a nutshell, we find that the appealed Decision of the Trial Court and of the
account of alleged wrongful replevin was not a proper subject of inquiry by the of the property ... . then Court of Appeals is in consonance with the Decision and Resolutions of
Trial Court when it determined the matter of necessary expenses, interest and this Court.
rentals. 3) The amount of P6,937.72 a month ordered to be paid by REPUBLIC and
MARITIMA to PAN-ORIENTAL until the latter is paid its useful and necessary ACCORDINGLY, the judgment appealed from is hereby affirmed. No costs.
REPUBLIC's Submissions expenses is likewise in order. That amount represents the damages for the
wrongful issuance of the Writ of Replevin and was computed as follows: SO ORDERED.
1) REPUBLIC maintains that compensation or set-off took place between it and P4,132.77 for loss of income by PAN-ORIENTAL plus P2,804.95 as monthly
PAN-ORIENTAL as of February 3, 1951, the date the latter was dispossessed of depreciation of the vessel in lieu of the charter hire. G.R. No. L-69560 June 30, 1988
the vessel For compensation to take place, one of the elements necessary is THE INTERNATIONAL CORPORATE BANK INC., petitioner, vs. THE
that the debts be liquidated. 7 In this case, all the elements for Compensation to It should further be recalled that this Court, in acting on PAN- ORIENTAL's IMMEDIATE APPELLATE COURT, HON. ZOILO AGUINALDO, as presiding
take place were not present on the date of dispossession, or on February 3, application for damages in its Resolution of December 16, 1966, supra, did not Judge of the Regional Trial Court of Makati, Branch 143, NATIVIDAD M.
1951. The amount expended for repairs and improvements had yet to be deny the same but referred it instead to the Trial Court "there to be heard and FAJARDO, and SILVINO R. PASTRANA, as Deputy and Special Sheriff,
determined by the Trial Court pursuant to the Decision of this Court decided" since evidence would have to be presented. Moreover, this Court respondents.
promulgated on October 31, 1964. At the time of dispossession also, PAN- found that PAN-ORIENTAL was "deprived of the possession of the vessel over
ORIENTAL was still insisting on its right to purchase the vessel. The obligation which (it) had a lien for these expenses" 10 and that FROILAN and REPUBLIC PARAS, J.:
of REPUBLIC to reimburse PAN-ORIENTAL for expenses arose only after this "may be held responsible for the deprivation of defendant (PANORIENTAL) of
Court had so ruled. Rentals for the use of the vessel by PAN- ORIENTAL were its right to retention of the property until fully reimbursed on the necessary This is a petition for review on certiorari of the Decision of the Court of Appeals
neither due and demandable at the time of dispossession but only after this expenditures made on the vessel. " 11 dated October 31, 1984 in AC-G.R. SP No. 02912 entitled "THE
Court had issued its Resolution of August 27, 1965. INTERNATIONAL CORPORATE BANK, INC. v. Hon. ZOILO AGUINALDO, et
More, the legal interest payable from February 3, 1951 on the sum of 4) There return of Pl5,000.00 ordered by the Trial Court and affirmed by al.," dismissing petitioner's petition for certiorari against the Regional Trial Court
P40,797.54, representing useful expenses incurred by PAN-ORIENTAL, is also the Appellate Court was but just and proper. As this Court found, that sum was of Makati (Branch 143) for lack of merit, and of its Resolution dated January 7,
still unliquidated 8 since interest does not stop accruing "until the expenses are tendered to REPUBLIC "which together with its (PAN-ORIENTAL's) alleged 1985, denying petitioner's motion for reconsideration of the aforementioned
fully paid." 9 Thus, we find without basis REPUBLIC's allegation that PAN- expenses already made on the vessel, cover 25% of the cost of the vessel, as Decision.
ORIENTAL's claim in the amount of P40,797.54 was extinguished by provided in the option granted in the bareboat contract (Exhibit "C"). This
compensation since the rentals payable by PAN-ORIENTAL amount to amount was accepted by the Administration as deposit ...." Since the purchase Petitioner also prays that upon filing of the petition, a restraining order be issued
P59,500.00 while the expenses reach only P40,797.54. Deducting the latter did not eventually materialize for reasons attributable to REPUBLIC, it is but just ex-parte, enjoining respondents or any person acting in their behalf, from
amount from the former, REPUBLIC claims that P18,702.46 would still be owing that the deposit be returned. 12 It is futile to allege that PAN-ORIENTAL did not enforcing or in any manner implementing the Order of the respondent trial court
by PAN-ORIENTAL to REPUBLIC. That argument loses sight of the fact that to plead for the return of that amount since its prayer included other reliefs as may dated February 13 and March 9, 1984, and January 10 and January 11, 1985.
the sum of P40,797.54 will still have to be added the legal rate of interest "from be just under the premises. Courts may issue such orders of restitution as
February 3, 1951 until fully paid." justice and equity may warrant. The facts of this case, as found by the trial court and subsequently adopted by
the Court of Appeals, are as follows:
But although compensation by operation of law cannot take place as between MARITIMA's Position
REPUBLIC and PAN-ORIENTAL, by specific pronouncement of this Court in its In the early part of 1980, private respondent secured from petitioner's
Resolution of November 23, 1966, supra, the rentals payable by PAN- We find no merit in MARITIMA's contention that the alleged damages on predecessors-in-interest, the then Investment and Underwriting Corp. of the
ORIENTAL in the amount of P59,500.00 should be deducted from the sum of account of wrongful replevin was barred by res judicata, and that the application Philippines and Atrium Capital Corp., a loan in the amount of P50,000,000.00.
useful expenses plus legal interest due, assuming that the latter amount would for damages before the lower Court was but a mere adoption of a different To secure this loan, private respondent mortgaged her real properties in
still be greater. Otherwise, the corresponding adjustments can be made method of presenting claims already litigated. For the records show that an Quiapo, Manila and in San Rafael, Bulacan, which she claimed have a total
depending on the totality of the respective amounts. application for damages for wrongful replevin was filed both before this Court market value of P110,000,000.00. Of this loan, only the amount of
and thereafter before the Trial Court after this Tribunal specifically remanded P20,000,000.00 was approved for release. The same amount was applied to
2) Since we are holding that the obligation of REPUBLIC to pay the issue of those damages to the Trial Court there to be heard and decided pay her other obligations to petitioner, bank charges and fees. Thus, private
P40,797.54 to PAN-ORIENTAL was not extinguished by compensation, the pursuant to Rule 60, Section 10 in relation to Rule 57, Section 20. 13 respondent's claim that she did not receive anything from the approved loan.
obligation of REPUBLIC to pay legal interest on said amount has neither
become stale as REPUBLIC contends. Of special note is the fact that payment The matter of legal compensation which MARITIMA has also raised has been On September 11, 1980, private respondent made a money market placement
of that interest was the specific ruling of this Court in its Resolution of August previously discussed. with ATRIUM in the amount of P1,046,253.77 at 17% interest per annum for a
27, 1965, thus: period of 32 days or until October 13, 1980, its maturity date. Meanwhile,
Parenthetically, PAN-ORIENTAL can no longer raise the alleged error of the private respondent allegedly failed to pay her mortgaged indebtedness to the
Trial Court in computing the necessary and useful expenses at only P40,797.54 bank so that the latter refused to pay the proceeds of the money market
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placement on maturity but applied the amount instead to the deficiency in the upon the plaintiff filing a bond amount to P1,062,063.83 to answer for all
proceeds of the auction sale of the mortgaged properties. With Atrium being the damages which the said defendant bank may suffer in the event that the Court Petitioner moved for the reconsideration of the above decision (Annex "S",
only bidder, said properties were sold in its favor for only P20,000,000.00. should finally decide that the plaintiff was not entitled to the said amount. Rollo, pp. 116-124), but for the reason that the same failed to raise any issue
Petitioner claims that after deducting this amount, private respondent is still that had not been considered and passed upon by the respondent Court of
indebted in the amount of P6.81 million. Petitioner filed a motion for reconsideration to the aforesaid order, asserting Appeals, it was denied in a Resolution dated January 7, 1985 (CA Resolution,
among other things that said motion is not verified, and therefore a mere scrap Rollo, p. 126).
On November 17, 1982, private respondent filed a complaint with the trial court of paper. Private respondent however manifested that since she testified in
against petitioner for annulment of the sheriff's sale of the mortgaged open court and was cross-examined by counsel for petitioner on the motion for Having been affirmed by the Court of Appeals, the trial court issued a Writ of
properties, for the release to her of the balance of her loan from petitioner in the release of the proceeds of the money market placement, the defect had already Execution to implement its Order of February 13, 1984 (Annex "BB", Rollo, p.
amount of P30,000,000,00, and for recovery of P1,062,063.83 representing the been cured. On March 9, 1984, the respondent judge issued an order denying 188) and by virtue thereof, a levy was made on petitioner's personal property
proceeds of her money market investment and for damages. She alleges in her petitioner's motion for reconsideration. (CA Decision, Rollo, pp. 109-111). consisting of 20 motor vehicles (Annex "U", Rollo, p. 127).
complaint, which was subsequently amended, that the mortgage is not yet due
and demandable and accordingly the foreclosure was illegal; that per her loan On March 13, 1984, petitioner filed a special civil action for certiorari and On January 9, 1985, herein private respondent (then plaintiff) filed in the trial
agreement with petitioner she is entitled to the release to her of the balance of prohibition with preliminary injunction with the Court of Appeals, (a) for the court an ex-parte motion praying that the four branches of the petitioner such
the loan in the amount of P30,000,000.00; that petitioner refused to pay her the setting aside and annulment of the Orders dated February 13, 1984 and March as: Baclaran Branch, Paranaque, Metro Manila; Ylaya Branch, Divisoria, Metro
proceeds of her money market placement notwithstanding the fact that it has 9,1984, issued by the respondent trial court, and (b) for an order commanding Manila; Cubao Branch, Quezon City and Binondo Branch, Sta. Cruz, Manila, be
long become due and payable; and that she suffered damages as a or directing the respondent trial judge to desist from enforcing and/or ordered to pay the amount of P250,000.00 each, and the main office of the
consequence of petitioner's illegal acts. implementing and/or executing the aforesaid Orders. The temporary restraining petitioner bank at Paseo de Roxas, Makati, Metro Manila, be ordered to pay the
order prayed for was issued by respondent Court of Appeals on March 22, amount of P62,063.83 in order to answer for the claim of private respondent
In its answer, petitioner denies private respondent's allegations and asserts 1984. (Please see CA Decision, Rollo, p. 114, last paragraph). amounting to P1,062,063.83.
among others, that it has the right to apply or set off private respondent's money
market claim of P1,062,063.83. Petitioner thus interposes counterclaims for the In a decision rendered on October 31, 1984 (Rollo, pp. 109-14), the Court of Thereupon, on January 10, 1985, the trial court issued an Order (Annex "V",
recovery of P5,763,741.23, representing the balance of its deficiency claim after Appeals dismissed said petition finding(a) that while the Motion for the Rollo, p. 129) granting the above-mentioned prayers.
deducting the proceeds of the money market placement, and for damages. release of the proceeds of the money market investment in favor of private
The trial court subsequently dismissed private respondent's cause of action respondent was not verified by her, that defect was cured when she testified Acting on the ex-parte motion by the plaintiff (now private respondent), the trial
concerning the annulment of the foreclosure sale, for lack of jurisdiction, but left under oath to substantiate her allegations therein: (b) that, petitioner cannot court, on January 11, 1984, ordered the President of defendant International
the other causes of action to be resolved after trial. Private respondent then validly claim it was denied due process for the reason that it was given ample Corporate Bank (now petitioner) and all its employees and officials concemed to
filed separate complaints in Manila and in Bulacan for annulment of the time to be heard, as it was in fact heard when it filed an Opposition to the deliver to the sheriff the 20 motor vehicles levied by virtue of the Writ of
foreclosure sale of the properties in Manila and in Bulacan, respectively. motion and a motion for reconsideration; (c) that the circumstances of this case Execution dated December 12, 1984 (Annex "W", Rollo, p. 131).
prevent legal compensation from taking place because the question of whether
On December 15, 1983, private respondent filed a motion to order petitioner to private respondent is indebted to petitioner in the amount of 6.81 million The petitioner having failed to comply with the above-cited Order, the
release in her favor the sum of P1,062,063.83, representing the proceeds of the representing the deficiency balance after the foreclosure of the mortgage respondent trial court issued two (2) more Orders: the January 16, 1985 (Annex
money market placement, at the time when she had already given her direct executed to secure the loan extended to her, is vigorously disputed; (d) that the "CC," Rollo, p. 190) and January 21, 1985 Orders (Annex "DD", Rollo, p. 191),
testimony on the merits of the case and was being cross-examined by counsel. release of the proceeds of the money market investment for private respondent directing several employees mentioned therein to show cause wily they should
On December 24, 1983, petitioner filed an opposition thereto, claiming that the will not make the causes of action of the case pending before the trial court not be cited in contempt.
proceeds of the money market investment had already been applied to partly moot and academic nor will it cause irreparable damage to petitioner, private
satisfy its deficiency claim, and that to grant the motion would be to render respondent having filed her bond in the amount of P1,062,063.83 to answer for Hence, this petition for review on certiorari with prayer for a restraining order
judgment in her favor without trial and make the proceedings moot and all damages which the former may suffer in the event that the court should and for a writ of preliminary injunction.
academic. However, at the hearing on February 9, 1984, counsel for petitioner finally decide that private respondent is not entitled to the return of said amount
and private respondent jointly manifested that they were submitting for (CA Decision, Rello, pp. 112-114). Three days after this petition was filed, or specifically on January 18, 1985,
resolution said motion as well as the opposition thereto on the basis of the petitioner filed an urgent motion reiterating its prayer for the issuance of an ex-
pleadings and of the evidence which private respondent had already presented. The dispositive portion of the aforementioned Decision reads: parte restraining order (Rollo, p. 132).

On February 13, 1984, respondent judge issued an order granting the motion, ... We hold that the respondent court cannot be successfully charged with grave Simultaneous with the filing of the present petition, petitioner, as defendant, filed
as follows: abuse of discretion amounting to lack of jurisdiction when it issued its Orders of with the trial court an ex-parte motion to suspend the implementation of any and
February 13, 1984 and March 9, 1984, based as they are on a correct all orders and writs issued pursuant to Civil Case No. 884 (Annex "A", Rollo, p.
IN VIEW OF THE FOREGOING, the defendant International Corporate Bank is appreciation of the import of the parties' evidence and the applicable law. 135).
hereby ordered to deliver to the plaintiff Natividad M. Pajardo the amount of
P1,062,063.83 covered by the repurchase agreement with Serial No. AOY- IN VIEW WHEREOF, the petition is dismissed for lack of merit and the This Court's resolution dated January 21, 1985, without giving due course to the
14822 (Exhibit "A'), this amount represented the principal of P1,046,253.77 temporary restraining order issued by this Court on March 22, 1984 is lifted. petition, resolved (a) to require the respondents to comment: (b) to issue,
which the plaintiff held including its interest as of October 13, 1980, conditioned (Ibid., p. 114). effective immediately and until further orders from this Court, a Temporary
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Restraining Order enjoining the respondents from enforcing or in any manner company has no ready-prepared form for the kind of bond called for or required Compensation shall take place when two persons, in their own right, are
implementing the questioned Orders dated February 13, 1984, March 9, 1984, in Civil Case 884. Whatever deletions or additions appear on the bond were creditors and debtors of each other. (Art. 1278, Civil Code). "When all the
January 10, 1985 and January 11 and 16, 1985, issued in Civil Case No. 884. made by the Afisco Insurance Corporation itself for the purpose of requisites mentioned in Art. 1279 of the Civil Code are present, compensation
accomplishing what was required or intended. takes effect by operation of law, even without the consent or knowledge of the
The corresponding writ was issued on the same day (Rollo, pp. 139-140). debtors." (Art. 1290, Civil Code). Article 1279 of the Civil Code requires among
Nonetheless, on May 7, 1985, private respondent filed "Plaintiffs Bond" in the others, that in order that legal compensation shall take place, "the two debts be
As required, the Comment of private respondent was filed on January 28, 1985 respondent trial court in the amount of P1,062,063.83 a xerox copy of which due" and "they be liquidated and demandable." Compensation is not proper
(Rollo, pp. 141- 150). was furnished this Court (Rollo, p. 219), and noted in the Court's Resolution where the claim of the person asserting the set-off against the other is not clear
dated May 29,1985 (Rollo, p. 225). nor liquidated; compensation cannot extend to unliquidated, disputed claim
Thereafter, petitioner moved for leave to file a supplemental petition on the arising from breach of contract. (Compaia General de Tabacos vs. French and
ground that after it had filed this present petition, petitioner discovered that the On March 11, 1985, petitioner was required to file a Consolidated Reply (Rollo, Unson, 39 Phil. 34; Lorenzo & Martinez vs. Herrero, 17 Phil. 29).
bond filed with, and approved by, the respondent lower court showed numerous p. 199) which was filed on April 10, 1985 (Rollo, p. 201).
material erasures, alterations and/or additions (Rollo, p. 151), which the issuing There can be no doubt that petitioner is indebted to private respondent in the
insurance company certified as having been done without its authority or Thereafter, a Rejoinder (Rollo, p. 238) was filed by private respondent on amount of P1,062,063.83 representing the proceeds of her money market
consent (Annex "Z", Rollo, p. 178). September 18, 1985 after Atty. Advincula, counsel for private respondents was investment. This is admitted. But whether private respondent is indebted to
required by this Court to show cause why he should not be disciplinarily dealt petitioner in the amount of P6.81 million representing the deficiency balance
The Supplemental Petition was actually filed on February 1, 1985 (Rollo, pp. with or held in contempt for his failure to comply on time (Rollo, p. 226) and on after the foreclosure of the mortgage executed to secure the loan extended to
154-171). It pointed out the erasures, alterations and/or additions in the bond as August 19, 1985 said lawyer was finally admonished (Rollo, p. 229) for his her, is vigorously disputed. This circumstance prevents legal compensation from
follows: failure to promptly apprise the Court of his alleged non-receipt of copy of taking place. (CA Decision, Rollo, pp. 112-113).
petitioner's reply, which alleged non-receipt was vehemently denied by
a. below "Civil Case No. 884" after the words, "Plaintiff's Bond," the petitioner in its Counter Manifestation (Rollo, p. 230) filed on August 5, 1985. It must be noted that Civil Case No. 83-19717 is still pending consideration at
phrase "For Levying of Attachment" was erased or deleted; the RTC Manila, for annulment of Sheriffs sale on extra-judicial foreclosure of
b. in lines 2 and 3 after the word "order," the phrase "approving plaintiff's Finally, on October 7, 1985, this petition was given due course and both parties private respondent's property from which the alleged deficiency arose. (Annex
motion dated Dec. 15, 1983, was inserted or added; were required to submit simultaneous memoranda (Rollo, p. 249) but before the "AA", Rollo, pp. 181-189). Therefore, the validity of the extrajudicial foreclosure
c. in line 3, the phrases "Of attachment" and "ordered that a writ of same were filed, petitioner moved for leave to file sur-rejoinder (Rollo, p. 250), sale and petitioner's claim for deficiency are still in question, so much so that it
attachment issue' were erased or deleted; the sur-rejoinder was filed on October 14,1985 (Rollo, pp. 252-254). is evident, that the requirement of Article 1279 that the debts must be liquidated
d. also in line 3 after the words "the court has" the phrase "approved the Petitioner's memorandum was filed on December 28, 1985 (Rollo, pp. 264-292) and demandable has not yet been met. For this reason, legal compensation
Motion was likewise inserted or added; while that of private respondent was submitted on January 10, 1986 (Rollo, pp. cannot take place under Article 1290 of the Civil Code.
e. in line 9, the phrase "and of the levying of said attachment" was also 295-304).
erased or deleted; Petitioner now assails the motion of the plaintiff (now private respondent) filed in
f. in line 13, the word "attachment" was likewise erased or deleted; Petitioner again moved for leave to file a Reply Memorandum (Rollo, p. 307) the trial court for the release of the proceeds of the money market investment,
g. also in line 13 after the deletion of word "attachment" the phrase which, despite permission from this Court, was not filed and on August 22, arguing that it is deficient in form, the same being unverified (petitioner's
"release of the P1,062,063.83 to the plaintiff was similarly inserted or added." 1986, private respondent prayed for early resolution of the petition (Rollo, p. Memorandum, Rollo, p. 266). On this score, it has been held that "as enjoined
311). by the Rules of Court and the controlling jurisprudence, a liberal construction of
Petitioner contended therein that in view of the foregoing facts, the the rules and the pleadings is the controlling principle to effect substantial
genuineness, due execution and authenticity as well as the validity and In a resolution dated October 13, 1986 (Rollo, p. 314) this case was transferred justice." (Maturan v. Araula, 111 SCRA 615 [1982]).
enforceability of the bond (Rello, p. 174) is now placed in issue and to the Second Division of this Court, the same being assigned to a member of
consequently, the bond may successfully be repudiated as falsified and, that Division. Finally, the filing of insufficient or defective bond does not dissolve absolutely
therefore, without any force and effect and the bonding company may thereby and unconditionally the injunction issued. Whatever defect the bond possessed
insist that it has been released from any hability thereunder. The crucial issue to be resolved in this case is whether or not there can be legal was cured when private respondent filed another bond in the trial court.
compensation in the case at bar.
Also, petitioner pointed as error the respondent trial court's motu proprio PREMISES CONSIDERED, the questioned Decision and Resolution of the
transferring Civil Case No. 884 to the Manila Branch of the same Court arguing Petitioner contends that after foreclosing the mortgage, there is still due from respondent Court of Appeals are hereby AFFIRMED.
that improper venue, as a ground for, and unless raised in, a Motion to Dismiss, private respondent as deficiency the amount of P6.81 million against which it
may be waived by the parties and the court may not pre-empt the right of the has the right to apply or set off private respondent's money market claim of SO ORDERED.
parties to agree between or among themselves as to the venue of their choice P1,062,063.83.
in litigating their justiciable controversy (Supplemental Petition, Rollo, p. 160). G.R. No. L-62169 February 28, 1983
The argument is without merit. MINDANAO PORTLAND CEMENT CORPORATION, petitioner, vs. COURT
On being required to comment thereon, (Rollo, p. 192) private respondent OF APPEALS, PACWELD STEEL CORPORATION and ATTY. CASIANO P.
countered (Rollo, pp. 193-198) that bond forms are ready-prepared forms and As correctly pointed out by the respondent Court of Appeals LAQUIHON respondents.
the bonding company used the form for "Levying of Attachment" because the Tolentino, Garcia, Cruz Reyes Law Office for petitioner.
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Casiano P. Laquihon for respondents. After considering the briefs of the parties in the appellate court and the
The writ of execution referred to above which MPCC has invoked to set- off the additional pleadings required of them by this Court, the Court finds merit in the
TEEHANKEE, J.: amount sought to be collected by Pacweld through the latter's lawyer, Atty. appeal and sets aside the appealed orders of June 26 and August 28, 1978 of
Casiano P. Laquihon, is hereunder quoted in full. the Court of First Instance (now Regional Trial Court) of Manila, Branch XX.
The Court of Appeals (now Intermediate Appellate Court) certified petitioner's
appeal therein as defendant-appellant, docketed as C.A.-G.R. No. 65102 In his brief, appellee comments that the statements in appellant's brief are It is clear from the record that both corporations, petitioner Mindanao Portland
thereof, to this Court as involving only questions of law in its Resolution of 'substantially correct,' as follows: Cement Corporation (appellant) and respondent Pacweld Steel Corporation
August 31, 1982, reading as follows: (appellee), were creditors and debtors of each other, their debts to each other
STATEMENT OF THE CASE consisting in final and executory judgments of the Court of First Instance in two
The 'Statement of the Case and the Statement of Facts' contained in appellant's (2) separate cases, ordering the payment to each other of the sum of
brief follow: This is an appeal from the Order of the Court of First Instance of Manila (Branch P10,000.00 by way of attorney's fees. The two (2) obligations, therefore,
X dated June 26, 1978 ordering the appellant (MINDANAO PORTLAND respectively offset each other, compensation having taken effect by operation of
STATEMENT OF FACTS CEMENT CORPORATION) to pay the amount of P10,000.00 attorney's fees law and extinguished both debts to the concurrent amount of P10,000.00,
directly to Atty. Casiano B. Laquihon (Record on Appeal, pp. 24-25) and from pursuant to the provisions of Arts. 1278, 1279 and 1290 of the Civil Code, since
On January 3, 1978, one Atty. Casiano P. Laquihon, in behalf of third-party the Order dated August 28, 1978 denying appellant's motion for reconsideration all the requisites provided in Art. 1279 of the said Code for automatic
defendant Pacweld Steel Corporation (Pacweld for short) as the latter's (Record on Appeal, p. 37). compensation "even though the creditors and debtors are not aware of the
attorney, filed a pleading addressed to the defendant & Third-Party Plaintiff compensation" were duly present.**
Mindanao Portland Cement Corporation (MPCC) for short), herein appellant, There was no trial or submission of documentary evidence. Against the orders
entitled 'motion to direct payment of attorney's fee to counsel' (himself ), of June 26. 1978, and August 28, 1978, appellant has brought this appeal to Necessarily, the appealed order of June 26, 1978 granting Atty. Laquihon's
invoking in his motion the fact that in the decision of the court of Sept. 14, 1976, this Court, contending that: motion for amendment of the judgment of September 14, 1976 against
MPCC was adjudged to pay Pacweld the sum of P10,000.00 as attorney's fees Mindanao Portland Cement Corporation so as to make the award therein of
(Record on Appeal, pp. 1, 6-9). The lower court erred in not holding that the two obligations are extinguished P10,000.00 as attorney's fees payable directly to himself as counsel of Pacweld
reciprocally by operation of law.' (p. 6, Appellant's Brief) Steel Corporation instead of payable directly to said corporation as provided in
On March 14, 1978, MPCC filed an opposition to Atty. Laquihon's motion, the judgment, which had become final and executory long before the issuance
stating, as grounds therefor, that said amount is set-off by a like sum of This appeal calls for the application of Arts. 1278, 1279 and 1290 of the Civil of said "amendatory" order was a void alteration of judgment. It was a
P10,000.00 which it MPCC has collectible in its favor from Pacweld also by way Code, as urged by the appellant. Another question is: The judgment in Civil substantial change or amendment beyond the trial court's jurisdiction and
of attorney's fees which MPCC recovered from the same Court of First Instance Case No. 75179 being already final at the time the motion under consideration authority and it could not defeat the compensation or set-off of the two (2)
of Manila (Branch XX) in Civil Case No. 68346, entitled Pacweld Steel was filed, does not the order of June 26, 1976 constitute a change or alteration obligations of the corporations to each other which had already extinguished
Corporation, et al. writ of execution to this effect having been issued by said of the said judgment, though issued by the very same court that rendered the both debts by operation of law.
court (Record on Appeal, pp, 2,10- 14). judgment?
ACCORDINGLY. the appealed orders are hereby annulled and set aside. No
On June 26, 1978 the court issued the order appealed from (Record on Appeal, WHEREFORE, since only questions of law are involved and there is no factual costs.
pp. 24-25) and despite MPCCs motion for reconsideration of said order, citing issue left for us to determine, let the records of the appeal in this case be
the law applicable and Supreme Court decisions (Record on Appeal, pp. 26-33), certified to the Honorable Supreme Court for determination.
denied the same in its order of August 28, 1978 (Record on Appeal, p. 37), also
subject matter of this appeal.

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