G.R. No.
L-44349 October 29, 1976 Respondent pray of the Rizal court of first instance that "after due trial, this Honorable Court
JESUS V. OCCENA and EFIGENIA C. OCCENA, petitioners,
vs.
HON. RAMON V. JABSON, Presiding Judge of the Court Of First Instance of Rizal,
Branch XXVI; COURT OF APPEALS and TROPICAL HOMES, INC., respondents.
Occena Law Office for petitioners.
Serrano, Diokno & Serrano for respondents.
TEEHANKEE, J.:
The Court reverses the Court of Appeals appealed resolution. The Civil Code authorizes the
release of an obligor when the service has become so difficult as to be manifestly beyond the
contemplation of the parties but does not authorize the courts to modify or revise the
subdivision contract between the parties or fix a different sharing ratio from that contractually
stipulated with the force of law between the parties. Private respondent's complaint for
modification of the contract manifestly has no basis in law and must therefore be dismissed for
failure to state a cause of action. On February 25, 1975 private respondent Tropical Homes,
Inc. filed a complaint for modification of the terms and conditions of its subdivision contract
with petitioners (landowners of a 55,330 square meter parcel of land in Davao City), making
the following allegations:
"That due to the increase in price of oil and its derivatives and the concomitant worldwide
spiralling of prices, which are not within the control of plaintiff, of all commodities including
basis raw materials required for such development work, the cost of development has risen to
levels which are unanticipated, unimagined and not within the remotest contemplation of the
parties at the time said agreement was entered into and to such a degree that the conditions and
factors which formed the original basis of said contract, Annex 'A', have been totally changed;
'That further performance by the plaintiff under the contract.
That further performance by the plaintiff under the contract,Annex 'S', will
result in situation where defendants would be unustly enriched at the
expense of the plaintiff; will cause an inequitous distribution of proceeds
from the sales of subdivided lots in manifest actually result in the unjust
and intolerable exposure of plaintiff to implacable losses, all such
situations resulting in an unconscionable, unjust and immoral situation
contrary to and in violation of the primordial concepts of good faith,
fairness and equity which should pervade all human relations.
Under the subdivision contract, respondent "guaranteed (petitioners as landowners) as the
latter's fixed and sole share and participation an amount equivalent to forty (40%) percent of
all cash receifpts fromthe sale of the subdivision lots"
render judgment modifying the terms and conditions of the contract ... by fixing the proer
shares that shouls pertain to the herein parties out of the gross proceeds from the sales of
subdivided lots of subjects subdivision".
Petitioners moved to dismiss the complaint principally for lack of cause of action, and upon
denial thereof and of reconsideration by the lower court elevated the matter on certiorari to
respondent Court of Appeals.
Respondent court in its questioned resolution of June 28, 1976 set aside the preliminary
injunction previously issued by it and dimissed petition on the ground that under Article 1267
of the Civil Code which provides that
ART. 1267. When the service has become so difficult as to be manifestly
beyond the contemplation of the parties, the obligor may also be released
therefrom, in whole or in part. 1
... a positive right is created in favor of the obligor to be released from the
performance of an obligation in full or in part when its performance 'has
become so difficult as to be manifestly beyond the contemplation of the
parties.
Hence, the petition at abar wherein petitioners insist that the worldwide increase inprices cited
by respondent does not constitute a sufficient casue of action for modification of the
subdivision contrct. After receipt of respondent's comment, the Court in its Resolution of
September 13, 1976 resolved to treat the petition as special civil actionand declared the case
submitted for decision.
The petition must be granted.
While respondent court correctly cited in its decision the Code Commission's report giving the
rationale for Article 1267 of the Civil Code, to wit;
The general rule is that impossibility of performance releases the obligor.
However, it is submitted that when the service has become so difficult as
to be manifestly beyond the contemplation of the parties, the court should
be authorized to release the obligor in whole or in part. The intention of
the parties should govern and if it appears that the service turns out to be
so difficult as have been beyond their contemplation, it would be doing
violence to that intention to hold the obligor still responsible. ... 2
It misapplied the same to respondent's complaint.
If respondent's complaint were to be released from having to comply with the subdivision
contract, assuming it could show at the trial that the service undertaken contractually by it had
"become so difficult as to be manifestly beyond the contemplation of the parties", then
respondent court's upholding of respondet's complaint and dismissal of the petition would be
justifiable under the cited codal article. Without said article, respondent would remain bound
by its contract under the theretofore prevailing doctrine that
performance therewith is ot excused "by the fact that the
contract turns out to be hard and improvident, unprofitable,
or unespectedly burdensome", 3 since in case a party desires
to be excuse from performance in the event of such
contingencies arising, it is his duty to provide threfor in the
contract.
But respondent's complaint seeks not release from the
subdivision contract but that the court "render judgment I
modifying the terms and Conditions of the Contract by fixing
the proper shares that should pertain to the herein parties out
of the gross proceed., from the sales of subdivided lots of
subject subdivision". The cited article does not grant the
courts this authority to remake, modify or revise the contract
or to fix the division of shares between the parties as
contractually stipulated with the force of law between the
parties, so as to substitute its own terms for those covenanted
by the parties themselves. Respondent's complaint for
modification of contract manifestly has no basis in law and
therefore states no cause of action. Under the particular
allegations of respondent's complaint and the circumstances
therein averred, the courts cannot even in equity grant the
relief sought.
A final procedural note. Respondent cites the general rule that
an erroneous order denying a motion to dismiss is
interlocutory and should not be corrected by certiorari but by
appeal in due course. This case however manifestly falls
within the recognized exception that certiorari will lie when
appeal would not prove to be a speedy and adequate remedy.'
Where the remedy of appeal would not, as in this case,
promptly relieve petitioners from the injurious effects of the
patently erroneous order maintaining respondent's baseless
action and compelling petitioners needlessly to go through a
protracted trial and clogging the court dockets by one more
futile case, certiorari will issue as the plain, speedy and
adequate remedy of an aggrieved party.
ACCORDINGLY, the resolution of respondent appellate
court is reversed and the petition for certiorari is granted and
private respondent's complaint in the lower court is ordered
dismissed for failure to state a sufficient cause of action. With
costs in all instances against private respondent.
G.R. No. L-23546 August 29, 1974
LAGUNA TAYABAS BUS COMPANY and BATANGAS
TRANSPORTATION COMPANY, petitioners,
vs.
FRANCISCO C. MANABAT, as assignee of Bian
Transportation Company, Insolvent, respondent.
Domingo E. de Lara for petitioners.
M. A. Concordia & V.A. Guevarra for respondent.
MAKASIAR, J.:p
This is an appeal by certiorari from a judgment of the Court
of Appeals dated August 31, 1964, which WE AFFIRM.
The undisputed facts are recounted by the Court of Appeals
through then Associate Justice Salvador Esguerra thus:
On January 20, 1956, a contract was
executed whereby the Bian
Transportation Company leased to the
Laguna-Tayabas Bus Company at a
monthly rental of P2,500.00 its
certificates of public convenience over
the lines known as Manila-Bian,
Manila-Canlubang and Sta. Rosa-Manila,
and to the Batangas Transportation
Company its certificate of public
convenience over the line known as
Manila-Batangas Wharf, together with
one "International" truck, for a period of
five years, renewable for another similar
period, to commence from the approval
of the lease contract by the Public
Service Commission. On the same date
the Public Service Commission
provisionally approved the lease contract
on condition that the lessees should
operate on the leased lines in accordance
with the prescribed time schedule and
that such approval was subject to
modification or cancellation and to
whatever decision that in due time might
be rendered in the case.
Sometime after the execution of the lease
contract, the plaintiff Bian
Transportation Company was declared
insolvent in Special Proceedings No. B-
30 of the Court of First Instance of
Laguna, and Francisco C. Manabat was
appointed as its assignee. From time to
time, the defendants paid the lease rentals
up to December, 1957, with the exception
of the rental for August 1957, from which
there was deducted the sum of P1,836.92
without the consent of the plaintiff. This
deduction was based on the ground that
the employees of the defendants on the
leased lines went on strike for 6 days in
June and another 6 days in July, 1957,
and caused a loss of P500 for each strike,
or a total of P1,000.00; and that in Civil
Case No. 696 of the Court of First
Instance of Batangas, Branch II,
judgment was rendered in favor of
defendant Batangas Transportation
Company against the Bian
Transportation Company for the sum of
P836.92. The assignee of the plaintiff
objected to such deduction, claiming that
the contract of lease would be suspended
only if the defendants could not operate
the leased lines due to the action of the
officers, employees or laborers of the
lessor but not of the lessees, and that the
deduction of P836.92 amounted to a
fraudulent preference in the insolvency
proceedings as whatever judgment might
have been rendered in favor of any of the
lessees should have been filed as a claim
in said proceedings. The defendants
neither refunded the deductions nor paid
the rentals beginning January, 1958,
notwithstanding demands therefor made
from time to time. At first, the defendants
assured the plaintiff that the lease rentals
would be paid, although it might be
delayed, but in the end they failed to
comply with their promise.
On February 18, 1958, the Batangas
Transportation Company and Laguna-
Tayabas Bus Company separately filed
with the Public Service Commission a
petition for authority to suspend the
operation on the lines covered by the
certificates of public convenience leased
to each of them by the Bian
Transportation Company. The defendants
alleged as reasons the reduction in the
amount of dollars allowed by the
Monetary Board of the Central Bank of
the Philippines for the purchase of spare
parts needed in the operation of their
trucks, the alleged difficulty encountered
in securing said parts, and their
procurement at exorbitant costs, thus
rendering the operation of the leased lines
prohibitive. The defendants further
alleged that the high cost of operation,
coupled with the lack of passenger traffic
on the leased lines resulted in financial
losses. For these reasons they asked
permission to suspend the operation of
the leased lines until such time as the
operating expenses were restored to
normal levels so as to allow the lessees to
realize a reasonable margin of profit from
their operation.
Plaintiff's assignee opposed the petition
on the ground that the Public Service
Commission had no jurisdiction to grant
the relief prayed for as it should involve
the interpretation of the lease contract,
which act falls exclusively within the
jurisdiction of the ordinary courts; that
the petitioners had not asked for the
suspension of the operation of the lines
covered by their own certificates of
public convenience; that to grant the
petition would amount to an impairment
of the obligation of contract; and that the
defendants have no legal personality to
ask for suspension of the operation of the
leased lines since they belonged
exclusively to the plaintiffwho is the
grantee of the corresponding certificate
of public convenience. Aside from the
assignee, the Commissioner of the
Internal Revenue and other creditors of
the Bian Transportation Company, like
the Standard Vacuum Oil Co. and
Parsons Hardware Company, filed
oppositions to the petitions for
suspension of operation.
On October 15, 1958, the Public Service
Commission overruled all oppositions
filed by the assignee and other creditors
of the insolvent, holding that upon its
approval of the lease contract, the lessees
acquired the operating rights of the lessor
and assumed full responsibility for
compliance with all the terms and
conditions of the certificate of public
convenience. The Public Service
Commission further stated that the
petition to suspend operation did not
pertain to any act of dominion or
ownership but only to the use of the
certificate of public convenience which
had been transferred by the plaintiff to
the defendants, and that the suspension
prayed for was but an incident of the
operation of the lines leased to the
defendants. The Public Service
Commission further ruled that being a
quasi-judicial body of limited
jurisdiction, it had no authority to
interpret contracts, which function
belongs to the exclusive domain of the
ordinary courts, but the petition did not
call for interpretation of any provision of
the lease contract as the authority of the
Public Service Commission to grant or
deny the prayer therein was derived from
its regulatory power over the leased
certificates of public convenience.
While proceedings before the Public Service Commission
were thus going on, as a consequence of the continuing
failure of the lessees to fulfill their earlier promise to pay the
accruing rentals on the leased certificates,
On May 19, 1959, plaintiff Bian
Transportation Company represented by
Francisco C. Manabat, assignee, filed this
action against defendants Laguna
Tayabas Bus Company and Batangas
Transportation Company for the recovery
of the sum of P42,500 representing the
accrued rentals for the lease of the
certificates of public convenience of the
former to the latter, corresponding to the
period from January 1958, to May 1959,
inclusive, plus the sum of P1,836.92
which was deducted by the defendants
from the rentals due for August, 1957,
together with all subsequent rentals from
June, 1959, that became due and payable;
P5,000.00 for attorney's fees and such
corrective and exemplary damages as the
court may find reasonable.
The defendants moved to dismiss the
complaint for lack of jurisdiction over the
subject matter of the action, there being
another case pending in the Public
Service Commission between the same
parties for the same cause. ... (pp. 20-21,
rec.; pp. 54-55, ROA).
The motion to dismiss was, however, denied. Meanwhile
The Public Service Commission
delegated its Chief Attorney to receive
evidence of the parties on the petition of
the herein defendants for authority to
suspend operation on the lines leased to
them by the plaintiff. The defendants, the
assignee of the plaintiff and other
creditors of the insolvent presented
 evidence before the Chief Attorney and
the hearing was concluded on June 29,
1959. On October 20, 1959, the Public
Service Commission issued an order the
dispositive part of which reads as
follows:
In view of the
foregoing, the
petitioners herein are
authorized to suspend
their operation of the
trips of the Bian
Transportation
Company between
Batangas Piers-
Manila, Bian-
Manila, Sta. Rosa-
Manila and
Canlubang-Manila
authorized in the
aforementioned cases
from the date of the
filing of their petition
on February 18,
1958, until December
31, 1959. (p. 25, rec.;
pp. 60-61, ROA).
Going back to the Court of First Instance of Laguna
... The motion (to dismiss) having been
denied, the defendants answered the
complaint, alleging among others, that
the Public Service Commission
authorized the suspension of operation
over the leased lines from February 18,
1950, up to December 31, 1959, and
hence the lease contract should be
deemed suspended during that period;
that plaintiff failed to place defendants in
peaceful and adequate enjoyment and
possession of the things leased; that as a
result of the plaintiff being declared
insolvent the lease contract lost further
force and effect and payment of rentals
thereafter was made under a mistake and
should be refunded to the defendants. (p.
21; rec.; p. 55, ROA).
The Court of Appeals proceeded to state that
After hearing in the court a quo and
presentation by the parties herein of their
respective memoranda, the trial court on
March 18, 1960, rendered judgment in
favor of plaintiff, ordering the defendants
jointly and severally to pay to the former
the sum of P65,000.00 for the rentals of
the certificates of public convenience
corresponding to the period from January,
1958, to February, 1960, inclusive,
including the withheld amount of
P836.92 from the rentals for August,
1957, plus the rentals that might become
due and payable beginning March, 1960,
at the rate of P2,500.00 a month, with
interest on the sums of P42,500 and
P836.92 at the rate of 6% per annum
from the date of the filing of the
complaint, with interest on the
subsequent rentals at the same rate
beginning the first of the following
month, plus the sum of P3,000.00 as
attorney's fees, and the cost of the suit.
(pp. 25-26, rec.)
From the decision of the Court of First Instance, defendants
appealed to the Court of Appeals, which affirmed the same in
toto in its decision dated August 31, 1964. Said decision was
received by the appellants on September 7, 1964.
On September 21, 1964, appellants filed the present appeal,
raising the following questions of law:
1. Considering that the Court of Appeals
found that the Public Service
Commission provisionally approved the
lease contract of January 20, 1956
between petitioners and Bian
Transportation Company upon the
condition, amongothers, that such
approval was subject to modification and
cancellation and towhatever decision that
in due time might be rendered in the case,
the Court ofAppeals erred in giving no
legal effect and significance whatever to
the suspension of operations later granted
by the Public Service Commission after
due hearing covering the lines leased to
petitioners thereby nullifying, contrary to
law and decisions of this Honorable
Court, the authority and powersconferred
on the Public Service Commission.
2. The Court of Appeals misapplied the
statutory rules on interpreting contracts
and erred in its construction of the
clauses in the lease agreement
authorizing petitioners to suspend
operation without the corresponding
liability for rentals during the period of
suspension.
3. Contrary to various decisions of this
Honorable Court relieving the lessee
from the obligation to pay rent where
there is failure to use or enjoy the thing
leased, the Court of Appeals erroneously
required petitioners to pay rentals, with
interest, during the period of suspension
of the lease from January, 1958 up to the
expiration of the agreement on January
20, 1961. (p. 7, rec.)
On October 12, 1964, the Supreme Court issued a resolution
dismissing said petition "for lack of merit." (p. 43, rec.). Said
resolution was received by petitioners on October 16, 1964.
On October 31, 1964, the day the Court's resolution was to
become final, petitioners filed a "Motion to Admit Amended
Petition and to Give Due Course Thereto." In said motion,
petitioners explained
 ... The amendment includes an alternative
ground relating to petitioners' prayer for
the reduction of the rentals payable by
them. This alternative petition was not
included in the original one as petitioners
where genuinely convinced that they
should have been absolved from all
liabilities whatever. However, in view of
the apparent position taken by this
Honorable Court, as implied in its
resolution on October 12, 1964, notice of
which was received on October 16, 1964,
petitioners now squarely submit their
alternative position for consideration.
There is decisional authority for the
reduction of rentals payable (see Reyes v.
Caltex, 47 O.G. 1193, 1203-1204) (p. 44,
rec).
The new question raised is presented thus:
xxx xxx xxx
IV
This Honorable Court is authorized to
equitably reduce the rentals payableby
the petitioners, should this Honorable
Court adopt the position of the Courtof
Appeals and the lower court that
petitioners have not been releived from
thepayment of rentals on the leased lines.
(p. 7 Amended Petition for Certiorari,pp.
46, 52, rec.).
On November 5, 1964, the Supreme
Court required respondents herein to file
an answer to the amended petition. On
the same date, respondents filed, quite
belatedly, an opposition to the motion of
the petitioners. Said opposition was later
"noted" by the Court in its resolution
dated December 1, 1964.
I others which are uncommon, and which
First, it must be pointed out that the first three questions of
law raised by petitioners were already disposed of in Our
resolution dated October 12, 1964 dismissing the original
petition for lack of merit, which in effect affirmed the
appealed decision of the Court of Appeals. Although, in their
motion to admit amended petition dated October 31, 1964,
petitioners sought a reconsideration of the said resolution not
only in the light of the fourth legal issue raised but also on
the said first three legal questions, the petitioners advanced
no additional arguments nor cited new authorities in support
of their stand on the first three questions of law. They merely
reproduced verbatim from their original petition their
discussion on said questions.
To the extent therefore that the motion filed by the petitioner
seeks a reconsideration of our order of dismissal by
submitting anew, through the amended petition, the very
same arguments already dismissed by this Court, the motion
shall be considered pro forma, (See Estrada v. Sto. Domingo,
28 SCRA 890, 905-906, 911) and hence is without merit.
Consequently, we limit the resolution of this case solely on
the discussions on the last (fourth) question of law raised,
taking into consideration the discussion on the first three
questions only insofar as they place the petitioners'
discussion on the fourth question in its proper context and
perspective.
II
The undisguised object of petitioners' discussion on the
fourth question of law raised is to justify their plea for a
reduction of the rentals on the ground that the subject matter
of the lease was allegedly not used by them as a result of the
suspension of operations on the lines authorized by the Public
Service Commission.
In support of said plea, petitioners invoke article 1680 of the
Civil Code which grants lessees of rural lands a right to a
reduction of rentals whenever the harvest on the land leased
is considerably damaged by an extraordinary fortuitous event.
Reliance was also placed by the petitioners on Our decision
in Reyes v. Caltex (Phil.) Inc., 84 Phil. 654, which
supposedly applied said article by analogy to a lease other
than that covered by said legal provision.
The authorities from which the petitioners draw support,
however, are not applicable to the case at bar.
Article 1680 of the Civil Code reads thus:
Art. 1680. The lessee shall have no right
to a reduction of the rent on accountof the
sterility of the land leased, or by reason
of the loss of fruits due toordinary
fortuitous events; but he shall have such
right in case of the loss ofmore than one-
half of the fruits through extraordinary
and unforeseen fortuitous events, save
always when there is a specific
stipulation to the contrary.
Extraordinary fortuitous events are
understood to be: fire, war, pestilence,
unusual flood, locusts, earthquake, or
thecontracting parties could not have
reasonably foreseen.
Article 1680, it will be observed is a special provision for
leases of rural lands. No other legal provision makes it
applicable to ordinary leases. Had theintention of the
lawmakers been so, they would have placed the article among
the general provisions on lease. Nor can the article be applied
analogously to ordinary leases, for precisely because of its
special character, it was meant to apply only to a special
specie of lease. It is a provision of social justice designed to
relieve poor farmers from the harsh consequences of their
contracts with rich landowners. And taken in that light, the
article provides no refuge to lessees whose financial standing
or social position is equal to, or even better than, the lessor as
in the case at bar.
Even if the cited article were a general rule on lease, its
provisions nevertheless do not extend to petitioners. One of
its requisites is that the cause of loss of the fruits of the leased
property must be an "extraordinary and unforeseen fortuitous
event." The circumstances of the instant case fail tosatisfy
such requisite. As correctly ruled by the Court of Appeals, the
alleged causes for the suspension of operations on the lines
leased, namely, the high prices of spare parts and gasoline
and the reduction of the dollar allocations, "already existed
when the contract of lease was executed" (p. 11, Decision; p.
30, rec.; Cuyugan v. Dizon, 89 Phil. 80). The cause of
petitioners' inability to operate on the lines cannot, therefore,
be ascribed to fortuitous events or circumstances beyond their
control, but to their own voluntary desistance (p. 13,
Decision; p. 32, rec.).
If the petitioners would predicate their plea on the basis
solely of their inability to use the certificates of public
convenience, absent the requisite of fortuitous event, the cited
article would speak strongly against their plea.Article 1680
opens with the statement: "The lessee shall have no right to
reduction of the rent on account of the sterility of the land
leased ... ." Obviously, no reduction can be sustained on the
ground that the operation of the leased lines was suspended
upon the mere speculation that it would yield no substantial
profit for the lessee bus company. Petitioners' profits may be
reduced due to increase operating costs; but the volume of
passenger traffic along the leased lines not only remains same
but may even increase as the tempo of the movement of
population is intensified by the industrial development of the
areas covered or connected by the leased routes. Moreover,
upon proper showing, the Public Service Commission might
have granted petitioners an increase in rates, as it has done so
in several instances, so that public interest will always be
promoted by a continuous flow of transportation facilities to
service the population and the economy. The citizenry and
the economy will suffer by reason of any disruption in the
transportation facilities.
Furthermore, we are not at all convinced that the lease
contract brought no material advantage to the lessor for the
period of suspension. It must be recalled that the lease
contract not only stipulated for the transfer of the lessor's
right to operate the lines covered by the contract, but also for
a forbearance on the part of the lessor to operate
transportation business along the same lines and to hold a
certificate for that purpose. Thus, even if the lessee would not
actually make use of the lessor's certificates over the leased
lines, the contractual commitment of the lessor not to operate
on the lines would sufficiently insure added profit to the
lessees on account of the lease contract. In other words, the
commitment alone of the lessor under the contract would
enable the lessees to reap full benefits therefrom since the
commuting public would, after all, be forced at their
inconvenience and prejudice to patronize petitioner's
remaining buses.
Contrary to what petitioners want to suggest, WE refused in
the Reyes case, supra, to apply by analogy Article 1680 and
consequently, WE denied the plea oflessee therein for an
equitable reduction of the stipulated rentals, holding that:
The general rule on performance of
contracts is graphically set forth in
American treatises which is also the rule,
in our opinion, obtaining under the Civil
Code.
Where a person by his contract charges
himself with an obligation possible to be
performed, he must perform it, unless the
performance is rendered impossible by
the act of God, by the law, or by the other
party, it being the rule that in case the
party desires to be excused from the
performance in the event of
contingencies arising, it is his duty to
provide therefor in his contract. Hence,
performance is not excused by
subsequent inability to perform, by
unforeseen difficulties, by unusual or
unexpected expenses, by danger, by
inevitable accident, by breaking of
machinery, by strikes, by sickness, by
failure of a party to avail himself of the
benefits tobe had under the contract, by
weather conditions, by financial
stringency or bystagnation of business.
Neither is performance excused by the
fact that the contract turns out to be hard
and improvident, unprofitable, or
impracticable, ill-advised, or even
foolish, or less profitable, unexpectedly
burdensome. (17 CJS 946-948) (Reyes
vs. Caltex, supra, 664. Emphasis
supplied).
Also expressed in said case is a ruling in American
jurisprudence, which found relevance again in the case at bar,
to wit: "(S)ince, by the lease, the lessee was to have the
advantage of casual profits of the leased premises, he should
run the hazard of casual losses during the term and not lay the
whole burden upon the lessor." (Reyes vs. Caltex, supra,
664).
Militating further against a grant of reduction of the rentals to
the petitioners is the petitioners' conduct which is not in
accord with the rules of fair play and justice. Petitioners, it
must be recalled, promised to pay the accrued rentals in due
time. Later, however, when they believed they found a
convenient excuse for escaping their obligation, they reneged
on their earlier promise. Moreover, petitioners' option to
suspend operation on the leased lines appears malicious.
Thus, Justice Esguerra, speaking for the Court of Appeals,
propounded the following questions: "If it were true that
thecause of the suspension was the high prices of spare parts,
gasoline and needed materials and the reduction of the dollar
allocation, why was it that only plaintiff-appellee's certificate
of public convenience was sought to be suspended? Why did
not the defendants-appellants ask for a corresponding
reduction or suspension under their own certificate along the
same route? Suppose the prices of the spare parts and needed
materials were cheap, would the defendants-appellants have
paid more than what is stipulated in the lease contract? We
believe not. Hence, the suspension of operation on the leased
lines was conceived as a scheme to lessen operation costs
with the expectation of greater profit." (p. 14, Decision).
Indeed, petitioners came to court with unclean hands, which
fact militates against their plea for equity.
WHEREFORE, THE ORIGINAL AND AMENDED
PETITIONS ARE HEREBY DISMISSED, AND THE
DECISION OF THE COURT OF APPEALS DATED
AUGUST 31, 1964 IS HEREBY AFFIRMED, WITH
COSTS AGAINST PETITIONERS.
G.R. No. 109172 August 19, 1994
TRANS-PACIFIC INDUSTRIAL SUPPLIES, INC.,
petitioner,
vs.
The COURT OF APPEALS and ASSOCIATED BANK,
respondents.
Gancayco Law Offices for petitioners.
Jose A. Soluta, Jr. & Associates for private respondent.
the amount of P492,100.00 representing accrued interest on
PN No. TL-9077-82. According to the bank, the promissory
notes were erroneously released.
Initially, Trans-Pacific expressed its willingness to pay the
amount demanded by respondent bank. Later, it had a change
of heart and instead initiated an action before the Regional
Trial Court of Makati, Br. 146, for specific performance and
damages. There it prayed that the mortgage over the two
parcels of land be released and its stock inventory be lifted
and that its obligation to the bank be declared as having been
fully paid.

BIDIN, J.: After trial, the court a quo rendered judgment in favor of
Trans-Pacific, to wit:
In this petition for review on certiorari, petitioner Trans-
Pacific Industrial Supplies, Inc. seeks the reversal of the WHEREFORE, premises considered and
decision of respondent court, the decretal portion of which upon a clear preponderance of evidence
reads: in support of the stated causes of action,
the Court finds for the plaintiffs and
WHEREFORE, the decision of June 11, against defendant, and
1991 is SET ASIDE and NULLIFIED;
the complaint is dismissed, and on the (a) declares plaintiff's
counterclaim, Transpacific is ordered to obligations to
pay Associated attorney's fees of defendant to have
P15,000.00. been already fully
paid;
Costs against Transpacific.
(b) orders defendant
SO ORDERED. (Rollo, p. 47) to execute and
deliver to plaintiffs a
Sometime in 1979, petitioner applied for and was granted release on the i
several financial accommodations amounting to September 11, 1981
P1,300,000.00 by respondent Associated Bank. The loans mortgage over TCT
were evidenced and secured by four (4) promissory notes, a (50858)
real estate mortgage covering three parcels of land and a S-10086 and TCT
chattel mortgage over petitioner's stock and inventories. (50859) S-109087,
and ii December 20,
1983 chattel
Unable to settle its obligation in full, petitioner requested for, mortgage, within
and was granted by respondent bank, a restructuring of the fifteen (15) days
remaining indebtedness which then amounted to from the finality
P1,057,500.00, as all the previous payments made were hereof;
applied to penalties and interests.
(c) orders defendant
To secure the re-structured loan of P1,213,400.00, three new to pay plaintiffs
promissory notes were executed by Trans-Pacific as follows: Romeo Javier and
(1) Promissory Note No. TL-9077-82 for the amount of Romana Bataclan-
P1,050,000.00 denominated as working capital; (2) Javier the sum of
Promissory Note No. TL-9078-82 for the amount of P50,000.00 as and for
P121,166.00 denominated as restructured interest; (3) moral damages; and
Promissory Note No. TL-9079-82 for the amount of
P42,234.00 denominated similarly as restructured interest
(Rollo. pp. 113-115). (d) orders defendant
to pay plaintiffs the
sum of P30,000.00 as
The mortgaged parcels of land were substituted by another attorney's fees, plus
mortgage covering two other parcels of land and a chattel expenses of the suit.
mortgage on petitioner's stock inventory. The released parcels
of land were then sold and the proceeds amounting to
P1,386,614.20, according to petitioner, were turned over to Defendant's counterclaims are dismissed
the bank and applied to Trans-Pacific's restructured loan. for lack of merit.
Subsequently, respondent bank returned the duplicate original
copies of the three promissory notes to Trans-Pacific with the With costs against defendant.
word "PAID" stamped thereon.
SO ORDERED. (Rollo, p. 101)
Despite the return of the notes, or on December 12, 1985,
Associated Bank demanded from Trans-Pacific payment of
Respondent bank elevated the case to the appellate court
which, as aforesaid, reversed the decision of the trial court. In
this appeal, petitioner raises four errors allegedly committed
by the respondent court, namely:
I
RESPONDENT APPELLATE COURT
ERRED IN HOLDING THAT THE
ACCRUED INTEREST IN THE
AMOUNT OF 492,100.00 HAS NOT
BEEN PAID WHEN ARTICLE 1176 OF
THE CIVIL CODE PROVIDES THAT
SUCH CLAIM FOR INTEREST UPON
RECEIPT OF PAYMENT OF THE
PRINCIPAL MUST BE RESERVED
OTHERWISE IT IS DEEMED PAID.
II
RESPONDENT APPELLATE COURT
ERRED IN HOLDING THAT WITH
THE DELIVERY OF THE
DOCUMENTS EVIDENCING THE
PRINCIPAL OBLIGATION, THE
ANCILLARY OBLIGATION OF
PAYING INTEREST WAS NOT
RENOUNCED CONTRARY TO THE
PROVISIONS OF ART. 1273 OF THE
CIVIL CODE AND THE UNDISPUTED
EVIDENCE ON RECORD.
III
RESPONDENT APPELLATE COURT
ERRED IN NOT HOLDING THAT
PETITIONER HAS FULLY PAID ITS
OBLIGATION CONFORMABLY WITH
ARTICLE 1234 OF THE CIVIL CODE.
IV
RESPONDENT APPELLATE COURT
ERRED IN AWARDING ATTORNEY'S
FEES IN FAVOR OF ASSOCIATED
BANK (Rollo, p. 15).
The first three assigned errors will be treated jointly since
their resolution border on the common issue, i.e., whether or
not petitioner has indeed paid in full its obligation to
respondent bank.
Applying the legal presumption provided by Art. 1271 of the
Civil Code, the trial court ruled that petitioner has fully
discharged its obligation by virtue of its possession of the
documents (stamped "PAID") evidencing its indebtedness.
Respondent court disagreed and held, among others, that the
documents found in possession of Trans-Pacific are mere
duplicates and cannot be the basis of petitioner's claim that its
obligation has been fully paid. Accordingly, since the
promissory notes submitted by petitioner were duplicates and
not the originals, the delivery thereof by respondent bank to
the petitioner does not merit the application of Article 1271
(1st par.) of the Civil Code which reads:
Art. 1271. The delivery of a private
document evidencing a credit, made
voluntarily by the creditor to the debtor,
implies the renunciation of the action
which the former had against the latter.
Respondent court is of the view that the above provision must
be construed to mean the original copy of the document
evidencing the credit and not its duplicate, thus:
. . . [W]hen the law speaks of the delivery
of the private document evidencing a
credit, it must be construed as referring to
the original. In this case, appellees
(Trans-Pacific) presented, not the
originals but the duplicates of the three
promissory notes." (Rollo, p. 42)
The above pronouncement of respondent court is manifestly
groundless. It is undisputed that the documents presented
were duplicate originals and are therefore admissible as
evidence. Further, it must be noted that respondent bank itself
did not bother to challenge the authenticity of the duplicate
copies submitted by petitioner. In People vs. Tan, (105 Phil.
1242 [1959]), we said:
When carbon sheets are inserted between
two or more sheets of writing paper so
that the writing of a contract upon the
outside sheet, including the signature of
the party to be charged thereby, produces
a facsimile upon the sheets beneath, such
signature being thus reproduced by the
same stroke of pen which made the
surface or exposed impression, all of the
sheets so written on are regarded as
duplicate originals and either of them
may be introduced in evidence as such
without accounting for the nonproduction
of the others.
A duplicate copy of the original may be admitted in evidence
when the original is in the possession of the party against
whom the evidence is offered, and the latter fails to produce
it after reasonable notice (Sec. 2[b], Rule 130), as in the case
of respondent bank.
This notwithstanding, we find no reversible error committed
by the respondent court in disposing of the appealed decision.
As gleaned from the decision of the court a quo, judgment
was rendered in favor of petitioner on the basis of
presumptions, to wit:
The surrender and return to plaintiffs of
the promissory notes evidencing the
consolidated obligation as restructured,
produces a legal presumption that
Associated had thereby renounced its
actionable claim against plaintiffs (Art.
1271, NCC). The presumption is fortified
by a showing that said promissory notes
all bear the stamp "PAID", and has not
been otherwise overcome. Upon a clear
perception that Associated's record
keeping has been less than
exemplary . . ., a proffer of bank copies
of the promissory notes without the
 "PAID" stamps thereon does not impress
the Court as sufficient to overcome
presumed remission of the obligation vis-
a-vis the return of said promissory notes.
Indeed, applicable law is supportive of a
finding that in interest bearing
obligations-as is the case here, payment
of principal (sic) shall not be deemed to
have been made until the interests have
been covered (Art. 1253, NCC).
Conversely, competent showing that the
principal has been paid, militates against
postured entitlement to unpaid interests.
In fine. the Court is satisfied that
plaintiffs must be found to have settled
their obligations in full.
As corollary, a finding is accordingly
compelled that plaintiffs (sic) accessory
obligations under the real estate mortgage
over two (2) substituted lots as well as
the chattel mortgage, have been
extinguished by the renunciation of the
principal debt (Art. 1273, NCC),
following the time-honored axiom that
the accessory follows the principal. There
is, therefore, compelling warrant (sic) to
find in favor of plaintiffs insofar as
specific performance for the release of
the mortgages on the substituted lots and
chattel is concerned. (Rollo, p. 100)
premised by:
Records show that Associated's Salvador
M. Mesina is on record as having
testified that all three (3) December 8,
1990 promissory notes for the
consolidated principal obligation, interest
and penalties had been fully paid (TSN,
July 18, 1990, p. 18). It is, moreover,
admitted that said promissory notes were
accordingly returned to Romeo Javier.
(Ibid.)
The above disquisition finds no factual support, however, per
review of the records. The presumption created by the Art.
1271 of the Civil Code is not conclusive but merely prima
facie. If there be no evidence to the contrary, the presumption
stands. Conversely, the presumption loses its legal efficacy in
the face of proof or evidence to the contrary. In the case
before us, we find sufficient justification to overthrow the
presumption of payment generated by the delivery of the
documents evidencing petitioners indebtedness.
It may not be amiss to add that Article 1271 of the Civil Code
raises a presumption, not of payment, but of the renunciation
of the credit where more convincing evidence would be
required than what normally would be called for to prove
payment. The rationale for allowing the presumption of
renunciation in the delivery of a private instrument is that,
unlike that of a public instrument, there could be just one
copy of the evidence of credit. Where several originals are
made out of a private document, the intendment of the law
would thus be to refer to the delivery only of the original
original rather than to the original duplicate of which the
debtor would normally retain a copy. It would thus be absurd
if Article 1271 were to be applied differently.
While it has been consistently held that findings of facts are
not reviewable by this Court, this rule does not find
application where both the trial and the appellate courts differ
thereon (Asia Brewery, Inc. v. CA, 224 SCRA 437 [1993]).
Petitioner maintains that the findings of the trial court should
be sustained because of its advantage in observing the
demeanor of the witnesses while testifying (citing
Crisostomo v. Court of Appeals, 197 SCRA 833) more so
where it is supported by the records (Roman Catholic Bishop
of Malolos v. Court of Appeals, 192 SCRA 169).
This case, however, does not concern itself with the
demeanor of witnesses. As for the records, there is actually
none submitted by petitioner to prove that the contested
amount, i.e., the interest, has been paid in full. In civil cases,
the party that alleges a fact has the burden of proving it
(Imperial Victory Shipping Agency v. NLRC 200 SCRA 178
[1991]). Petitioner could have easily adduced the receipts
corresponding to the amounts paid inclusive of the interest to
prove that it has fully discharged its obligation but it did not.
There is likewise nothing on the records relied upon by the
trial court to support its claim, by empirical evidence, that the
amount corresponding to the interest has indeed been paid.
The trial court totally relied on a disputable presumption that
the obligation of petitioner as regards interest has been fully
liquidated by the respondent's act of delivering the instrument
evidencing the principal obligation. Rebuttable as they are,
the court a quo chose to ignore an earlier testimony of Mr.
Mesina anent the outstanding balance pertaining to interest,
as follows:
Court:
Q Notwithstanding,
let us go now
specifically to
promissory note No.
9077-82 in the
amount of
consolidated
principal of
P1,050,000.00. Does
the Court get it
correctly that this
consolidated balance
has been fully paid?
A Yes, the principal,
yes, sir.
Q Fully settled?
A Fully settled, but
the interest of that
promissory note has
not been paid, Your
Honor.
Q In other words,
you are saying, fully
 settled but not truly
fully settled?
A The interest was
not paid.
Q Not fully settled?
A The interest was
not paid, but the
principal obligation
was removed from
our books, Your
Honor.
Q And you returned
the promissory note?
A We returned the
promissory note.
(TSN, July 18, 1990,
p. 22)
That petitioner has not fully liquidated its financial obligation
to the Associated Bank finds more than ample confirmation
and self-defeating posture in its letter dated December 16,
1985, addressed to respondent bank, viz.:
. . . that because of the prevailing
unhealthy economic conditions, the
business is unable to generate sufficient
resources for debt servicing.
Fundamentally on account of this, we
propose that you permit us to fully
liquidate the remaining obligations to
you of P492,100 through a payment in
kind (dacion en pago) arrangement by
way of the equipments (sic) and spare
parts under chattel mortgage to you to
the extent of their latest appraised
values." (Rollo, pp. 153-154; Emphasis
supplied)
Followed by its August 20, 1986 letter
which reads:
We have had a series of communications
with your bank regarding our proposal
for the eventual settlement of our
remaining obligations . . .
As you may be able to glean from these
letters and from your credit files, we have
always been conscious of our obligation
to you which had not been faithfully
serviced on account of unfortunate
business reverses. Notwithstanding these
however, total payments thus far remitted
to you already exceede (sic) the original
principal amount of our obligation. But
because of interest and other charges, we
find ourselves still obligated to you by
P492,100.00. . . .
. . . We continue to find ourselves in a
very fluid (sic) situation in as much as
the overall outlook of the industry has not
substantially improved. Principally for
this reason, we had proposed to settle our
remaining obligations to you by way of
dacion en pago of the equipments (sic)
and spare parts mortgaged to you to
(the) extent of their applicable loan
values. (Rollo, p. 155; Emphasis
supplied)
Petitioner claims that the above offer of settlement or
compromise is not an admission that anything is due and is
inadmissible against the party making the offer (Sec. 24, Rule
130, Rules of Court). Unfortunately, this is not an iron-clad
rule.
To determine the admissibility or non-admissibility of an
offer to compromise, the circumstances of the case and the
intent of the party making the offer should be considered.
Thus, if a party denies the existence of a debt but offers to
pay the same for the purpose of buying peace and avoiding
litigation, the offer of settlement is inadmissible. If in the
course thereof, the party making the offer admits the
existence of an indebtedness combined with a proposal to
settle the claim amicably, then, the admission is admissible to
prove such indebtedness (Moran, Comments on the Rules of
Court, Vol. 5, p. 233 [1980 ed.); Francisco, Rules of Court,
Vol. VII, p. 325 [1973 ed.] citing McNiel v. Holbrook, 12
Pac. (US) 84, 9 L.ed. 1009). Indeed, an offer of settlement is
an effective admission of a borrower's loan balance (L.M.
Handicraft Manufacturing Corp. v. Court of Appeals, 186
SCRA 640 [1990]). Exactly, this is what petitioner did in the
case before us for review.
Finally, respondent court is faulted in awarding attorney's
fees in favor of Associated Bank. True, attorney's fees may be
awarded in a case of clearly unfounded civil action (Art.
2208 [4], CC). However, petitioner claims that it was
compelled to file the suit for damages in the honest belief that
it has fully discharged its obligations in favor of respondent
bank and therefore not unfounded.
We believe otherwise. As petitioner would rather vehemently
deny, undisputed is the fact of its admission regarding the
unpaid balance of P492,100.00 representing interests. It
cannot also be denied that petitioner opted to sue for specific
performance and damages after consultation with a lawyer
(Rollo, p. 99) who advised that not even the claim for
interests could be recovered; hence, petitioner's attempt to
seek refuge under Art. 1271 (CC). As previously discussed,
the presumption generated by Art. 1271 is not conclusive and
was successfully rebutted by private respondent. Under the
circumstances, i.e., outright and honest letters of admission
vis-a-vis counsel-induced recalcitrance, there could hardly be
honest belief. In this regard, we quote with approval
respondent court's observation:
The countervailing evidence against the
claim of full payment emanated from
Transpacific itself. It cannot profess
ignorance of the existence of the two
letters, Exhs. 3 & 4, or of the import of
what they contain. Notwithstanding the
letters, Transpacific opted to file suit and
insist(ed) that its liabilities had already
been paid. There was thus an
 ill-advised attempt on the part of
Transpacific to capitalize on the delivery
of the duplicates of the promissory notes,
in complete disregard of what its own
records show. In the circumstances, Art.
2208 (4) and (11) justify the award of
attorney's fees. The sum of P15,000.00 is
fair and equitable. (Rollo, pp. 46-47)
WHEREFORE, the petition is DENIED for lack of merit.
Costs against petitioner.
SO ORDERED.
CASE DIGEST: FEB. 23, 2017
JESUS V. OCCENA and EFIGENIA C. OCCENA,
vs.
HON. RAMON V. JABSON, Presiding Judge of the Court
Of First Instance of Rizal,
FACTS:
Private respondent Tropical Homes, Inc. filed a complaint for
modification of the terms and conditions of its subdivision
contract with petitioners. Petitioners dismissed the complaint
principally for lack of cause of action, and upon denial
thereof and of reconsideration by the lower court elevated the
matter on certiorari to respondent Court of Appeals.
ISSUE:
WON COURTS ARE AUTHORIZED TO MODIFY OR
REVISE CONTRACTS BETWEEN PARTIES
RULING:
NO.
ART. 1267 of the Civil Code:
When the service has become so difficult as to be
manifestly beyond the contemplation of the parties,
the obligor may also be released therefrom, in
whole or in part.
Respondent's complaint seeks not release from the
subdivision contract but that the court "render
judgment I modifying the terms and Conditions of
the Contract by fixing the proper shares that should
pertain to the herein parties out of the gross
proceed from the sales of subdivided lots of subject
subdivision". The cited article does not grant the
courts this authority to remake, modify or revise
the contract or to fix the division of shares between
the parties as contractually stipulated with the force
of law between the parties, so as to substitute its
own terms for those covenanted by the parties
themselves. Respondent's complaint for
modification of contract manifestly has no basis in
law and therefore states no cause of action. Under
the particular allegations of respondent's complaint
and the circumstances therein averred, the courts
cannot even in equity grant the relief sought.
LAGUNA v MANABAT
FACTS:
A contract was executed whereby the Bian
Transportation Company leased to the Laguna
Tayabas Bus Company at a monthly rental of
P2,500.00 its certificates of public convenience
over the lines known as ManilaBian, Manila
Canlubang and Sta. RosaManila, and to the
Batangas Transportation Company its certificate of
public convenience over the line known as Manila
Batangas Wharf, together with one "International"
truck, for a period of five years, renewable for
another similar period, to commence from the
approval of the lease contract by the Public Service
Commission. On the same date the Public Service
Commission provisionally approved the lease
contract on condition that the lessees should
operate on the leased lines in accordance with the
prescribed time schedule and that such approval
was subject to modification or cancellation and to
whatever decision that in due time might be
rendered in the case.
Sometime after the execution of the lease contract,
the plaintiff Bian Transportation Company was
declared insolvent and Francisco C. Manabat was
appointed as its assignee. From time to time, the
defendants paid the lease rentals up to December,
1957, with the exception of the rental for August
1957, from which there was deducted the sum of
P1,836.92 without the consent of the plaintiff. This
deduction was based on the ground that the
employees of the defendants on the leased lines
went on strike for 6 days in June and another 6
days in July,1957, and caused a loss of P500 for
each strike, or a total of P1,000.00; and that in Civil
Case No. 696 of the Court of First Instance of
Batangas, Branch II, judgment was rendered in
favor of defendant Batangas Transportation
Company against the Bian Transportation
Company for the sum of P836.92.
The assignee of the plaintiff objected to such
deduction, claiming that the contract of lease would
be suspended only if the defendants could not
operate the leased lines due to the action of the
officers, employees or laborers of the lessor but not
of the lessees, and that the deduction of P836.92
amounted to a fraudulent preference in the
insolvency proceedings as whatever judgment
might have been rendered in favor of any of the
lessees should have been filed as a claim in said
proceedings. The defendants neither refunded the
deductions nor paid the rentals beginning January,
1958, notwithstanding demands therefor made
from time to time. At first, the defendants assured
the plaintiff that the lease rentals would be paid,
although it might be delayed, but in the end they
failed to comply with their promise.
On February 18, 1958, the Batangas Transportation
Company and LagunaTayabas Bus Company
separately filed with the Public Service
Commission a petition for authority to suspend the
operation on the lines covered by the certificates of
public convenience leased to each of them by the
Bian Transportation Company. The defendants
alleged as reasons the reduction in the amount of
dollars allowed by the Monetary Board of the
Central Bank of the Philippines for the purchase of
spare parts needed in the operation of their trucks,
the alleged difficulty encountered in securing said
parts, and their procurement at exorbitant costs,
 thus rendering the operation of the leased lines
prohibitive. The defendants further alleged that the
high cost of operation, coupled with the lack of
passenger traffic on the leased lines resulted in
financial losses. For these reasons they asked
permission to suspend the operation of the leased
lines until such time as the operating expenses were
restored to normal levels so as to allow the lessees
to realize a reasonable margin of profit from their
operation. PSC granted the suspension.
On May 19, 1959, plaintiff Bian Transportation
Company represented by Francisco C. Manabat,
assignee, filed this action against defendants
Laguna Tayabas Bus Company and Batangas
Transportation Company for the recovery of the
sum of P42,500 representing the accrued rentals for
the lease of the certificates of public convenience
of the former to the latter, corresponding to the
period from January 1958, to May 1959, inclusive,
plus the sum of P1,836.92 which was deducted by
the defendants from the rentals due for August,
1957, together with all subsequent rentals from
June, 1959, that became due and payable;
P5,000.00 for attorney's fees and such corrective
and exemplary damages as the court may find
reasonable.
ISSUE:
W/N Petitioner is entitled to a reduced amount of
rentals on the subject matter of the lease was
allegedly not used by them as a result of the
suspension of operations on the lines authorized by
the Public Service Commission?
RULING:
Where a person by his contract charges himself
with an obligation possible to be performed, he
must perform it, unless the performance is rendered
impossible by the act of God, by the law, or by the
other party, it being the rule that in case the party
desires to be excused from the performance in the
event of contingencies arising, it is his duty to
provide therefor in his contract. Hence,
performance is not excused by subsequent inability
to perform, by unforeseen difficulties, by unusual
or unexpected expenses, by danger, by inevitable
accident, by breaking of machinery, by strikes, by
sickness, by failure of a party to avail himself of
the benefits tobe had under the contract, by weather
conditions, by financial stringency or by stagnation
of business. Neither is performance excused by the
fact that the contract turns out to be hard and
improvident, unprofitable, or impracticable, ill
advised, or even foolish, or less profitable,
unexpectedly burdensome.
Petitioners, it must be recalled, promised to pay the
accrued rentals in due time. Later, however, when
they believed they found a convenient excuse for
escaping their obligation, they reneged on their
earlier promise. Moreover, petitioners' option to
suspend operation on the leased lines appears
malicious.
Since, by the lease, the lessee was to have the
advantage of casual profits of the leased premises,
he should run the hazard of casual losses during the
term and not lay the whole burden upon the lessor.
The suspension of operation on the leased lines was
conceived as a scheme to lessen operation costs
with the expectation of greater profit. The
petitioners are thus not entitled to reduced rentals.
TRANSPACIFIC INDUSTRIAL SUPPLIES INC. VS CA
( 235 s 494 )
FACTS:
Petitioner was granted financial accommodation
amounting to P 1.3 M by respondent Associated
Bank. The loans were secured by 4 promissory
notes, a real estate mortgage covering 3 parcels of
land & a chattel mortgage over petitioners stock &
inventories.
To secure the re-structured loan of P1,213,400.00,
3 new promissory notes were executed by Trans-
pacific. The mortgage parcels of land were
substituted by another mortgage covering 2 other
parcels of land & chattel mortgage on petitioners
stock inventory.
The release parcels of land were then sold & the
proceeds were turned over to the bank & applied to
petitioners restructured loan.
Subsequently, respondent bank returned the
duplicate original copies of the 3 promissory notes
to trans-pacific with the word Paid stamped
thereon. Despite the return of the notes, the bank
demanded from petitioner the accrued interest of
one of the promissory notes. According to the bank
the notes were erroneously released.
Initially, Trans-pacific expressed the willingness to
pay but later it had a change of heart & initiated an
action before the RTC for specific performance &
damages.
ISSUE:
WON respondent has indeed paid in full its obligation to
respondent bank? NO
HELD:
Under Art. 1271, provides that The delivery of a
private document evidencing a credit made
voluntarily by the creditor to the debtor implies the
renunciation of the action which the former had
against the latter.
Art. 1271, is not conclusive but merely prima-facie
if there be no evidence to the contrary, the
presumption stands. Conversely, the presumption
loses its legal efficacy in the face of proof or
evidence to the contrary.
The SC found sufficient justification to overthrow
the presumption of payment generated by the
delivery of the documents evidencing petitioners
indebtedness.
Art. 1271, raises a presumption, not of payment but
of the renunciation of the credit, were more
convincing evidence would be required than what
normally would be called for to prove payment.
 The rationale for allowing the presumption of
renunciation in the delivery of a private instrument
is that, unlike that a public instrument, there could
be just on copy of the evidence of credit. Where
several originals are made out of a private
document, the intendment of the law would thus be
to refer to the delivery only of the original original
rather than to the original duplicate f which the
debtor would normally retain a copy it would thus
be absurd if Art. 1271, were to be applied
differently.
Petitioner could have easily adduce the receipts
corresponding to the amounts paid inclusive of the
interest to prove that it has fully discharged its
obligation but it did not.
The trial court totally relied on a disputable
presumption that the interest has been fully
liquidated by respondents act of delivering the
instrument and ignore the testimony of Mr. Mesina
anent the outstanding balance pertaining to interest.
Petitioner has not fully liquidated its financial
obligation to the associated bank by its
confirmation & self-defeating posture in its letter
addressed to respondent bank.